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Pittsburg City Hall is still cool despite a sultry July evening outside — and all the hot air being generated within. It’s City Council night, an occasion for cheap, air-conditioned entertainment for political junkies and gadflies in this rough-and-tumble East Bay town. And the citizens are up to their usual tricks, giving council members and city staff a drubbing over everything from affordable housing to a new Elks lodge. “Same old shit, every time,” a silver-haired veteran of such meetings stage whispers. It’s hard to argue with the sentiment. Pittsburg — or at least its city government — is a place where everybody seems to know everybody else, the same arguments and grudges have been around for years and personal relationships above all else make or break the deals on the table. That’s even true of something as esoteric as the legal work on Pittsburg’s bond deals. Orrick, Herrington & Sutcliffe is the city’s bond counsel and has been for 20 years or more. And while it may be a big, corporate law firm headquartered in San Francisco, Orrick has made sure that it feels down-home enough to appeal to a working class suburb like Pittsburg. “We know the lay of the land,” said John Knox, the Orrick partner who handles the firm’s Pittsburg work. “We know the history of the community.” Orrick also knows politics. The firm, public officials say and records show, deftly uses personal connections and political money to cement its ties to local government clients like Pittsburg. Campaign funding is just one piece of the political puzzle for the firm. Just as important are the longstanding relationships Orrick has developed with appointed and elected public officials — relationships that have helped it dominate public finance work in California and market its services to government clients across the country. The ties are so close that the regular competitive bidding process for bond counsel is dispensed with in many locales. In California, for example, Orrick faced competitive bidding on 198 of the transactions it handled for state and local government agencies from 1998 to 2001, according to data prepared by the firm. No competitive bidding process was required on an additional 795 transactions, the data shows. Even where there is a bidding process, Orrick is such a well-known quantity among public officials that it enters the process with a leg up on competitors. As William Kelly, chief financial officer for San Diego County, puts it: “Orrick, Herrington has a depth of talent for municipal and structured finance. We were very familiar with Orrick.” With such work, “it’s often about relationships,” said Bryce Pettey, a veteran assistant attorney general charged with selecting bond counsel for Utah, one of the states where Orrick does public finance work for underwriters. “It can get to be kind of a good old boy network.” For its part, Orrick says that cultivating such relationships is part and parcel of building a successful law firm. It’s doing nothing different than it would when it does work with a private business. “We have been doing this work for so long, that we have generations of lawyers who have worked with our public sector clients,” said Orrick Chairman Ralph Baxter Jr. “We have a natural affinity for public sector issues.” But in the case of its government clients, the firm’s fees come from taxpayer dollars, and the close links to public officials have been the subject of questions from legislators, campaign finance reformers and even some of the officials the firm has worked with. The mix of campaign money and personal ties are exactly the kind of thing that reform groups say erodes public trust. Or as James Knox, executive director of Common Cause of California, puts it: “Elected officials shouldn’t be directing public benefits” to their campaign contributors and friends. LONG RELATIONSHIP A close friendship might be overstating Orrick’s role with Pittsburg officials, but it’s clear that the firm has built one of its more lucrative local relationships with this industrial city of 60,000. Orrick not only serves as counsel on many of the city’s bond issues (collecting fees of $25,000 or more per issue on most, according to city records), but also works as one of its lobbyists in Sacramento. State lobbying records show Pittsburg has spent more than $174,000 on fees to Orrick during the 2001-02 legislative session, mostly to advocate on energy and tax issues related to the city-owned power plants. The relationship is a longstanding one, as contracts between the firm and the city reflect. There is no bidding process — only reference to the firm’s long relationship to the city and of the expertise brought to the table by Knox. “When I came on in November 2000, they were here. They had been bond counsel since 1988,” said Linda Daube, the city attorney. Actually, the relationship may be even older than Daube knows. Knox said one of his partners recalled working for Pittsburg in the 1970s. Bolstering the firm’s ties to the city is Knox, a partner with impeccable local credentials. He lives in nearby Richmond and has handled public finance work for that city and other Contra Costa County municipalities like Brentwood and Antioch. He also has a political pedigree: His father, also named John, was a longtime Contra Costa legislator, Assembly floor leader and a chieftain in Contra Costa Democratic politics. The elder Knox is also a name partner at Nossaman, Guthner, Knox & Elliott, a fact his son is quick to cite: “His firm is a competitor of ours.” Orrick also burnishes its local credentials by being a consistent campaign contributor to some of the kingpins of the area’s political scene. Former Councilman Federal Glover, for example, collected a $249 check in 2000 for his successful run for Board of Supervisors, and Joe Canciamilla, a Pittsburg Democrat and former councilman, picked up $500 when he ran successfully for the Legislature. In Knox’s view, however, the key to maintaining the relationship with local governments is “knowing the big picture” about the goals of a community. “You have to work at these relationships with a continuity of service,” Knox said. “The players do change, and sometimes you are the one who has the institutional knowledge.” MAKING AMENDS Remaining friendly when players change can be challenging — particularly when the firm has bet on the wrong political horse. That happened in 1994, when Republican Matt Fong rode into the treasurer’s office, defeating real estate developer Phil Angelides, a former chair of the state Democratic party and a favorite target for Orrick’s campaign dollars. The political faux pas was obvious. Orrick, as the state’s general obligation bond counsel, needed a friendly treasurer in office to help retain its contract. Though a bidding process is required, the treasurer holds sway over which firm is selected, and Fong made it clear he was willing to take a look at other firms for the job. One of the first steps in healing the relationship was financial. Orrick simply wrote the Fong campaign a few checks. In fact, after he was elected in 1994, Fong received $35,000 from Orrick. That total includes a pair of $5,000 checks to his unsuccessful 1998 U.S. Senate campaign. The $10,000 to one federal race was out of character for a firm that focuses most of its political money on local and state elections. In fact, Orrick has given Barbara Boxer and Dianne Feinstein, California’s senators since 1992, less than it gave Fong in the 1998 race. Yet the effort at fence-mending through cash wasn’t entirely successful: “Listen, it’s this about giving before and after the election,” Fong said. “Say you get a promotion, and all of a sudden you have a lot of new friends in the building. But are any of them your real friends? Do you really value them? In politics, it’s no different. Giving $1,000 before I won means more.” But money wasn’t Orrick’s only weapon in its political arsenal. It had been doing the job for so long that it could accept rates that other law firms wouldn’t touch. Most firms balked at contracts that paid just 6 cents for every $1,000 of debt issued. A $500 million bond would earn a firm just $30,000 — and that amount would be split with a co-counsel, generally a small, minority-owned firm. “I made the contracts so tight, they were essentially doing it for the glory,” Fong said. “I couldn’t get other firms to do this. Believe me. I tried. I would have had to pay a lot more money,” Fong said. “[Former Treasurer] Kathleen Brown’s old firm O’Melveny & Myers said ‘we can’t work for those rates.’ My own law firm [Sheppard] said the same thing.” Orrick also had a connection. Fong’s chief adviser at the time was a former lawyer at the firm, William Donovan, a veteran of municipal finance who headed the new treasurer’s transition team. Donovan had left Orrick in the late 1980s for Goldman Sachs, but was downsized out of a job in the early ’90s. The firm brought Donovan back, and for the remainder of Fong’s term he spent much of his time in the treasurer’s office — so much time that it’s become something of a legend among municipal finance officials in the state. Many contacted for this story referred to Orrick’s having lawyers who never leave the treasurer’s Sacramento office. Fong has nothing but praise for Donovan — who continues to serve as Orrick’s senior bond counsel for the state. And after working with Orrick for four years, Fong concedes that he admired the firm for “a knowledge base about bond work in California that beat the competitors. And they were solid lawyers, too.” He also speaks admiringly of the firm’s political prowess: “I was looking for a way not to hire them,” Fong said. “But you’ve got to hand it to them, they kept their work.” STAYING CONNECTED Political ability is evident among many of the firm’s lawyers. In the last decade, the firm has boasted a lengthy list of ex-legislative and municipal aides and party functionaries, including a former California Democratic Party chief. Former Orrick lawyers have also landed in a host of politically connected positions. One former associate — Scott Baugh — was a Republican leader in the California Assembly in the late ’90s. And some of the firm’s alumni have landed in the administrations of New York Gov. George Pataki and Gov. Gray Davis in California. Among the most prominent Davis appointees is Lon Hatamiya, who runs the administration’s commerce and economic development programs and — more importantly for Orrick — sits on the board of the California Infrastructure and Economic Development Bank. The bank is a key agency for some of Orrick’s public clients because of its ability to loan money and issue bonds for economic development projects around the state. The debt issues are approved by the bank board, which includes Hatamiya, Angelides and another Davis appointee, B. Timothy Gage, head of the state Department of Finance. Gage’s boss, Gov. Davis, has received $73,000 from the firm in the last decade. But if there’s a clear signal of Orrick’s political cachet in the world of public finance in California, it’s the names that appear on its lobbying client list. Orrick is one of only a handful of major law firms that retains a lobbying presence in Sacramento, and � aside from the city of Pittsburg � its clientele almost exclusively comprises heavyweights in the municipal securities industry. The investment banks Merrill Lynch & Co. and Morgan Stanley Dean Witter & Co. have paid the firm more than $130,000 since January 2001 to lobby on their behalf, according to state records. And umbrella groups like the Securities Industry Association and the Investment Company Institute have together kicked in another $160,000 for the firm’s lobbying services. Nasdaq is a client; so is the National Association of Securities Dealers. Some longtime industry lawyers see the political connections, lobbying and campaign money as growing evidence that politics is creeping into the process: “You do see a lot more involvement of elected officials in the bond counsel selection process,” said a prominent public finance partner at one of Orrick’s California competitors. “The arrangements were once more at the staff level than they are now.” But Orrick contends its political relationships are primarily a byproduct of its legal work — not a shift in the political climate or a business strategy aimed at building its client base. “We are so prominent, and we understand this business so well that we don’t need the connections,” said Orrick’s Baxter. “We have been doing this for generations.” “Relationships,” said Roger Davis, chair of the firm’s public finance practice, “serve as a vehicle to communicate that we are the biggest, best and safest choice.” But the image of a firm with political connections and clout only helps polish its reputation among finance officers in state and local government, a number of officials contacted said. To them, Orrick is the Starbucks of public finance law: safe, reliable and everywhere. Or as Pittsburg’s Daube puts it: “They are a reputable firm, and they are simply part of the financing team whenever we have a deal.”

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