Cancellation of Port Deal Tied To Probes Into L.A. Contracts

Staff Reporters

Last December, as investigations into "pay-to-play" allegations in city contracting began to heat up, Los Angeles Mayor James Hahn's chief of staff, Tim McOsker helped scrap a Port of Los Angeles lease deal that had been engineered by former Deputy Mayor Troy Edwards, sources told the Business Journal.

Edwards, who was Hahn's chief liaison to the port until his resignation last month, steered the hotly contested terminal lease toward one prospective tenant instead of one that had been recommended by port staff, these sources said.

After McOsker's intervention, the revised deal was dropped, the sources said. The 86-acre Terminal Island site, which became available when shipper Matson Navigation Co. left Los Angeles for the Port of Long Beach, is occupied on a monthly lease; the city put out a request for proposals for a permanent tenant earlier this month.

Edwards' port activities prompted protests among port staffers, and one harbor commissioner, Thomas Warren, sent a letter later rescinded to the City Attorney's Office asking for clarification on the mayoral staff's authority to step in and influence activities at the port.

"And by what legally-defined authorities can the mayor's staff contravene or attempt to change any of the above?" concludes the letter, which was dated Dec. 2 and supplied to the Business Journal by a source.

The letter's existence was first reported by the Daily Breeze.

Warren, one of the commissioners who backed the staff-recommended tenant, P & O; Nedlloyd Container Line Ltd., did not return calls seeking comment.

Deputy Mayor of Operations Doane Liu, who took over Edwards' oversight of port operations, said Edwards was only intervening to fulfill Hahn's desire to construct a so-called green terminal at the port. He could not say whether Edwards sought to favor one prospective tenant over the other.

McOsker did not return calls.

McOsker's actions occurred amid rising scrutiny of the Port of Los Angeles, which has become a focal point, along with the airport and Department of Water & Power, of federal and county investigations into political fundraising in Los Angeles and the way the city handles contracts.

Last summer, City Controller Laura Chick issued an audit criticizing the Harbor Commission for its secretive dealings and failure to document lease agreements and other matters.

County prosecutors subpoenaed Edwards, who was Hahn's liaison for the harbor, the airport and the DWP, to appear before a grand jury. He has said that he was only a witness in the investigation and that he resigned to take a vacation.

Edwards did not return calls.

Last week, federal investigators subpoenaed all his e-mail communications at City Hall. Prosecutors from the U.S. Attorney's Office have also subpoenaed documents at the Harbor Department, as well as e-mails from the office of the port's executive director, Larry Keller.

Port presentation

The port lease in question is for the container terminal at berths 206-209 on the north shore of Terminal Island.

Over the past year, the Harbor Department began hearing several proposals from prospective tenants, including P & O; Nedlloyd, a London-based shipping company that has been lobbying for years to get permanent footing in L.A.

P & O; Nedlloyd took steps to demonstrate it could be a good tenant and a good corporate neighbor to the San Pedro and Wilmington communities, which are besieged by poor air quality as a result of emissions from the ports.

Last fall, the shipping company made a presentation of its planned "green terminal" to the Port Community Advisory Committee, a group of more than 30 homeowners and neighborhood council members, as well as maritime officials.

In addition, a port delegation, including commissioners Warren and Camilla Kocol, visited P & O;'s New Jersey offices, and returned impressed with the shipper's plans. In particular, P & O; offered to use non-diesel vehicles at the terminal and cold ironing, which allows ships to shut off their pollutant-laden engines and use electrical power when docked, a source said.

Warren and Kocol, along with port staff, recommended that the lease go to P & O;, sources said. (Kocol did not return several calls seeking comment.)

At a Nov. 12 meeting, the Board of Harbor Commissioners directed port staff members to open negotiations with P & O;, and to send a letter to Yusen Terminals Inc., which had been using the Matson space, canceling its month-to-month lease, according to several sources. Yusen, a subsidiary of Nippon Yusen Kaisha (commonly called NYK), also was seeking the Matson space on a permanent basis.

Edwards directed port officials not to send the letter, a source said. This source said Edwards sought to force NYK/Yusen to give up 42 acres in a cargo complex elsewhere in the port to a third shipping company, Evergreen America Corp., in return for retaining the 86-acre former Matson site.

"Evergreen wanted 42 acres, but for that to happen, you needed to move NYK to free up the 42 acres leased by NYK," said one source.

Edwards' intervention prompted the Dec. 2 letter from Harbor Commissioner Warren, asking for legal guidelines to define the relationship between the mayor's staff, port commissioners and the port's executive staff in matters of policy, mandates, operations of the port, relationships between the port and its tenants and commissioners' decisions and directives.

Handwritten on the letter are the initials of Assistant City Attorney Thomas Russell, acknowledging its receipt, and a note at the bottom signed by Warren three days later stating, "Please withdraw this request."

On Dec. 17, the Harbor Commission met again, this time in another closed session with McOsker in attendance. McOsker asked Assistant City Attorney Dave McKenna to leave the room, according to two sources.

"McKenna was asked to leave the meeting. It was unclear to him why he was being asked," said Eric Moses, spokesman for City Attorney Rocky Delgadillo.

At this meeting, the board ceased negotiations with all three tenants involved Evergreen, P & O; and NYK/Yusen and decided to put out a request for proposals. The RFP that called for a green terminal on the former Matson site was ultimately issued on April 6.

"They didn't want any legal opinion given while the commission was directed to change their vote," said a source. "What they came up with was a compromise so everyone saves face."

Deputy Mayor Liu said that in seeking the RFP, McOsker was attempting to follow the recommendations of Chick's audit, which criticized the port for failing to advertise its lease openings. He said McOsker was there at the invitation of the board, to reinforce Edwards' message in seeking the mayor's goal of a green terminal, and that "the group decided (McKenna's) presence wasn't necessary" because no action was being taken.

Asked why Hahn hadn't acted earlier in his term to reform port requisitioning procedures, Liu said that with so few tenants, there are few meetings where lease renewals come up.

Others had a different interpretation of McOsker's actions.

"Somebody must have pointed out to them they can't just go do this, they have to have some process that pretends to be fair," said one source familiar with the lease. "So McOsker made a decision that they wouldn't get away with picking a company for reasons they don't disclose."

Another source said, "Everything had gotten so hot that the deal got called off."

Political contributions

Chick's June 2003 audit criticized the port for doing business in secret. When a berth becomes available, the port does not advertise the space but meets privately with customers who already have relationships with the ports. Chick also accused the port of poor documentation and demanded that the Harbor Commission draft policies and procedures that would establish a more public version of record keeping.

Last month, Chick told members of the City Council's audit and governmental efficiency committee that the Harbor Commission had still not approved new policies and procedures. She said she would launch a follow-up audit by the end of this year.

Both the county and federal investigations, which recently combined their efforts, are focusing on how political contributions affect contracts let at the city's largest departments.

According to records with the City Ethics Commission, P & O; Nedlloyd gave $1,000 in November 2002 to Hahn's officeholder account and $20,000 to LA United, the Hahn-backed campaign against San Fernando Valley secession in 2002.

NYT/Yusen gave $1,000 to Hahn's upcoming re-election campaign.

Evergreen gave no contributions to either Hahn or LA United. However, in 1995, Evergreen paid a record $895,000 fine, split between the City Ethics Commission and the Fair Political Practices Commission, after admitting its employees laundered more than $170,000 in political donations to state and local candidates.

Evergreen was never criminally indicted, but investigators at the District Attorney's Office indicted former L.A. City Councilman Art Snyder, who they allege helped Evergreen launder the donations while he was a lobbyist. In 1996, Snyder pleaded guilty to eight misdemeanor counts of conspiracy and money laundering in the state's largest and most complex public corruption case at the time.

Jason Hsu, junior vice president of operations at Evergreen in L.A., said that all major decisions regarding Evergreen come from its headquarters in Taipei, Taiwan.

Wesley Brunson, executive vice president of the L.A. office of Evergreen, declined to comment.

P & O; Nedlloyd officials wouldn't discuss the matter, either.

"This is a topic the organization has made no comment on anywhere," said Ray Venturino, marketing director for P & O; Nedlloyd's North American operations. "I can't say anything. I would love to, believe me."

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