Court of Appeal Reverses Conviction of School District’s Independent Contractor on Conflict of Interest Charges

On May 31, 2013, the California Court of Appeal reversed the conviction of Karen Christiansen for violation of Government Code section 1090, which generally prohibits public officials from being financially interested in contracts they make in their official capacity. (People v. Christiansen, see decision here.) Because the Court concluded that Christiansen was an independent contractor, not an employee, officer or member of the governing board, the Court held that Christiansen could not be prosecuted for a violation of section 1090. The court reversed her conviction, and vacated her sentence and the restitution award of $3.4 million.

Ms. Christiansen had originally been employed by the Beverly Hills Unified School District as the “Director of Planning and Facilities” in 2004. In 2006, she and the District agreed to terminate her employer-employee relationship, but she continued to provide services as a consultant pursuant to an independent contractor agreement. Her duties included the same responsibilities she had as the Director of Planning and Facilities, except for those duties and responsibilities which would be precluded due to her change in status. In 2007, she assigned her interests in her contract to Strategic Concepts, LLC of which she was the sole member and owner. Strategic Concepts thereafter contracted directly with the District.

Most of the criminal charges stemmed from contracts entered into by the District with Johnson Controls, a company which handles energy conservation and renewable energy projects for public schools. The prosecution’s theory for three of the criminal charges was that Strategic Concepts’ consulting agreement with Johnson Controls gave Christiansen an indirect financial interest in the District’s contracts with Johnson Controls and that for purposes of section 1090, Christiansen was an “employee.” The prosecution’s theory for still another charge was that Christiansen had made a contract with the District in her official capacity while having a financial interest in that contract.

Since section 1090 does not define the term “employee,” the Court applied the common law test and concluded that independent contractors are not “employees” for purposes of a criminal case brought under section 1090. The Court criticized the reasoning of two earlier California civil cases which had expanded the definition of “employee” to include independent contractors. The Court stopped short, however, of expressing a contrary opinion on the soundness of those opinions in the civil context. (See HUB Solid Waste Services, Inc. v. City of Compton (2010) 186 Cal.App.4th 1114; California Housing Finance Agency v. Hanover/California Management & Accounting Center, Inc. (2007) 148 Cal.App.4th 682.)

In February, 2013, Assemblyman Wieckowski introduced AB 1059, a bill which would extend the application of section 1090 to independent contractors. According to Assemblyman Wieckowski’s staff, with whom we spoke by telephone, the bill will be a two-year bill and will be revisited in 2014.

This is an issue which is worth following closely. We do not know whether Christiansen’s criminal case will be appealed. If the decision remains good law, the outcome of future civil cases brought under section 1090 against independent contractors will be uncertain given the disparities between various appellate decisions.

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