City Refuses to Release Government Communications Related to Fraud Lawsuit

Tuesday, January 23, 2018, 7:32 am
By: 
Alice Dreger

Above: City Manager George Lahanas (left) and City Attorney Tom Yeadon.

The City of East Lansing is refusing to release official government communications requested by ELi under the Freedom of Information Act (FOIA). The City first claimed to ELi that the material was not in the City’s possession, and now admits it is, but says is protected by attorney-client privilege and consequently will not be released to the press.

The material requested is a response from a HUD attorney to a letter from East Lansing City Manager George Lahanas. It is not a communication between an attorney and his or her own client.

The background:

This all relates to the November 2017 decision by Council to settle a federal whistleblower suit that alleged a “kickback” to City Attorney Tom Yeadon and his partners.

As ELi reported, East Lansing property owner Phil Bellfy brought this Qui Tam (whistleblower) suit in August 2016, alleging misuse of federal funds by the City of East Lansing. The case against East Lansing, Yeadon, and others was joined by the United States, represented by the Department of Justice, and alleged that approximately $135,000 in HUD funds meant for supporting the needs of low-income people was misused in 2011 to rebuild a retaining wall and sidewalk running along the east side of the City Attorney’s private property.

Besides the approximately $135,000 provided by HUD for the project, about $15,000 in East Lansing taxpayer funds were used for the project. Yeadon acted as City Attorney when advising Council on legal agreements related to the retaining wall reconstruction, neither disclosing his ownership in the private property nor recusing himself. The City also did not disclose the City Attorney's co-ownership of that property to HUD.

The settlement agreement with the Department of Justice required the City to pay $20,000 and also for the City Manager to appeal to HUD, to essentially ask forgiveness for East Lansing's failure to follow HUD's conflict-of-interest rules in this project. 

Lahanas’s post-settlement letter to HUD, dated November 28, claimed that the City “inadvertently” failed to make the conflict of interest disclosure to HUD earlier; that “there was no significant financial benefit that arose to the property owners including the City attorneys from the project”; that the cost of the project “would have been cost prohibitive to the property owner”; and that it is reasonable to use HUD taxpayer funds for this project because low- or moderate-income individuals might use that sidewalk.

The City won't release HUD's response:

Having previously obtained Lahanas's letter to HUD's counsel through the Freedom of information Act (FOIA), on January 8, ELi made a FOIA request for any responses from HUD to Lahanas’s letter.

Ten days later, the City Clerk’s office responded, saying “the City is not in possession of records that respond to these elements of your request.”

Knowing via a leak that, in fact, the City had a response from HUD, ELi asked the City Clerk’s office to check again.

In response, newly-installed City Clerk Jennifer Schuster responded, “Any communications regarding these matters, that were received by the City from the attorney who handled the matter, are exempt from disclosure as privileged attorney-client communications.”

Attorney-client privilege covers communications between an attorney and his or her client. To clarify, in this case, what ELi has requested is copies of communications between one governmental unit (HUD) and another (the City of East Lansing). It has not requested any documents between an attorney and his or her own client.

ELi can seek to obtain the same material via FOIA by going to HUD, but federal offices are currently closed due to the government shut-down.

Meanwhile, Council has changed records to show it did vote on the settlement:

ELi previously reported City Council’s failure to record its November 8 vote to settle the case, even though public recording of such votes is required by the Michigan Open Meetings Act. Earlier this month, Council finally amended minutes from November to record its vote to settle, doing so only after ELi made the matter public.

When we asked Councilmember Ruth Beier about this case back in December, she had told ELi she expected Council "will ultimately have to vote" on the settlement. At that point, the public record erroneously showed no vote.

After we learned the vote had taken place the month before, Beier told ELi she forgot about that vote when she spoke to us in December.

The amended record now shows Mayor Mark Meadows moved to approve the settlement and Beier seconded that motion, with all Council members voting in favor.

However, the amended record still doesn't name the lawsuit, the settlement, or even the Special City Attorney hired to represent the City in this case. All it says now is this: "Moved by Meadows, seconded by Beier to authorize the City Manager to take action, as recommended by the special City Attorney."

We now know City Council retained the law firm of Foster Swift to represent the City in this case. Ordinarily Council votes in public to hire external counsel. It appears that vote never took place in public and was never recorded.

What does the Reporters' Committee for Freedom of the Press say?

ELi spoke last week about the ongoing situation here with Adam A. Marshall, Knight Foundation Litigation Attorney with Reporters’ Committee for Freedom of the Press, based in Washington, D.C. That organization seeks to protect reporters’ rights under transparency-in-government laws, including Open Meetings Acts and FOIA.

Marshall told us, “Ultimately, when you’re talking about settlements, this is public money. It is ultimately the citizens of the jurisdiction that are responsible for those decisions. So, I think it is entirely reasonable that those people would want to know what is going on.”

He added, “The whole notion of attorney-client privilege in the context of a government body is a little odd because the ultimate client is the people. To prevent the people from knowing what is going on can interfere with discussions and deliberations.”

We asked Marshall his opinion on City Council’s position that they could not speak about the case because it was a Qui Tam suit. As ELi noted when we broke the story of this lawsuit, to some extent, courts put such cases under seal, typically to protect whistleblowers.

Marshall explained that, in such a circumstance, his organization believes City Council should still advocate for transparency for the City’s citizens:

“Our position has always been that if there’s a conflict between a court order and a public records law or an open-meetings law, the public body [in this case, the City] should go to the court and try to modify the terms of the order they are under so they can comply with the applicable open-government law.”

He explains, “in general, public bodies should be telling the public as much as possible about what they are doing in litigation.”

Under advice from Yeadon, East Lansing’s City Council has traditionally taken all discussions of litigation behind closed doors, without even mentioning in public what the litigation concerns. But Marshall explains this doesn’t have to happen—and that, given that taxpayers are on the hook for whatever the outcome of a lawsuit involving the City is, they have a right to know what is going on.

He says Council does not have to keep going into closed sessions for all its litigation discussions: “Instances in which public bodies can go into closed session under the Michigan Open Meetings Act are permissive [not mandatory] They don’t have to go into executive session to discuss” litigation in most cases.

In the case of this suit, now settled, he says, “When everyone knows what they’re discussing because it has been made public, and made public through court filings, there is just no need for secrecy at that point. So, it is hard to understand why they’re being so secretive about it.”