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Convicted Bell Official ‘Acted Reasonably,’ Attorney Says

PASADENA, Calif. (CN) - Former Bell, Calif., City Manager Robert Rizzo "acted reasonably" and did not intend to loot city funds, his attorney said Thursday in an appeal for defense costs.

While up to his knees in a public corruption scandal, Rizzo sued Insurance Company of the State of Pennsylvania in 2012 for refusing to pay his legal bills in criminal and civil complaints filed by state prosecutors.

Rizzo's march toward conviction began in September 1994 when the city hired him as a chief administrative officer. His annual salary of $300,000 ballooned to $800,000 by the time he resigned in the summer of 2010, meaning he made twice as much as the President of the United States.

He was sentenced to 12 years in state prison and ordered to pay $8.8 million in restitution for his part in a scheme that almost bankrupted the city.

But during oral arguments in Rizzo's case against his insurer, his attorney James Spertus argued that his client never intentionally looted public funds.

The attorney made the extraordinary assertion at the Richard H. Chambers courthouse on Thursday morning as he sought to persuade a Ninth Circuit panel that the insurer improperly denied coverage based on exclusions for criminal and fraudulent acts.

"There is nowhere in the record that shows that Mr. Rizzo's conduct was intentional. The inferences to the contrary are simply wrong. The attorney general dismissed his case," Spertus said.

"What do you mean? You mean he did it by accident?" Judge Joseph Jerome Farris asked.

Spertus clarified that the California Attorney General's civil allegations of professional negligence and fraud claims were dismissed. Nothing in the record made clear that claims arising from Rizzo's conduct were "inextricably intertwined" with claims that were not covered under the policy, the attorney said.

"I thought on this record there's no dispute about what he did," Farris said.

"There's absolutely a dispute about what he did," Spertus said.

"He didn't collect the money? He didn't take the money?" asked Farris.

"No," Spertus said. "He acted reasonably. There's no law that would prohibit the salaries paid, anywhere in any statute, anywhere."

Spertus made the comments after the insurance company's attorney, Sara Thorpe, urged the appeals court to uphold U.S. District Judge Dolly Gee's judgment in their favor.

The attorney, a partner with Nicolaides Fink, argued that the policy excluded coverage for criminal acts and that Rizzo did not qualify as insured because the policy only covered officials who were acting on Bell's behalf.

"The victim here is the city," Thorpe said. "It makes absolutely no sense here for the city's own insurance policy to be defending the perpetrator, Mr. Rizzo, against claims by the city."

In late 2010, the insurance company informed Rizzo in writing that it would defend him against the state's civil action and a cross-complaint filed by Bell. But the insurer withdrew the offer by spring of the following year, according to court records.

Sitting on designation from San Francisco, U.S. District Judge Jon Tigar asked Thorpe whether the letter created a legally binding contract.

"What I'm hearing you saying is, 'No there wasn't. But moreover even if there was, so what because we could sue to get reimbursement if we wanted to.' Fine. That's a tactical decision an insurance company can make down the road. But it doesn't answer the question of whether a contract was created," Tigar said.

Thorpe was adamant that the reservation of rights letter it sent to Rizzo was not a contract.

"There is no offer, acceptance, consideration here. There is no contract," she said.

The panel took the case under submission. Judge Jay Bybee sat with Farris and Tigar on the bench.

During Rizzo's tenure, the six highest-paid administrators in Bell were paid combined annual salaries of $6 million.

Rizzo paid himself an additional $400,000 each year for unused sick and vacation time. He wrote his own employment contracts, set up a pension fund that would have paid out $8 million when he retired, and gave loans to himself and those below him.

State prosecutors charged Rizzo with one count of conspiracy to commit misappropriation, 46 counts of misappropriation of public funds, 10 counts of falsification of public records, six counts of perjury and six counts of conflict of interest.

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