On the Waterfront

Pier 39's management dismisses Joe Abuzaid as a wingnut, but this wingnut may be a real whistleblower.

Simmons was involved in other fishy goings-on. The developer had helped open several stores of which he was part owner, according to the Abuzaid false claims lawsuit. This created a situation where Simmons was, in effect, his own landlord. By charging lower rent to himself or to companies in which he had an interest, he could reduce the amount he had to pay the Port Authority because it calculated part of the money it was due from Pier 39 as a percentage of rent collected from stores. Simmons would share the profits from the lower rent payments with his business partners.

"There were a lot of leases that were way below market, starting from Mayor Joe Alioto's time," said one former port official who asked not to be identified. "There were leases that were given to friends and to people they knew. They weren't market-rate leases. I think Pier 39 was one of those cases where, if all those leases along the northern waterfront were brought up to current value, revenue would be a lot greater."

While no one faced charges of criminal misconduct, the various investigations essentially concluded that Pier 39 was run by cheats. So, in the early '80s, city officials rewrote the pier's lease agreement in a way designed to make the city a fair profit even in the presence of insider dealing. Pier managers were not forbidden to rent stores to themselves or their buddies. Rather, any time a Pier 39 insider had an interest in a store, the city's share would be calculated as a percentage of gross sales instead of as a percentage of the rent. This way, city officials surmised, taxpayers wouldn't be cheated by sweetheart rent contracts.

Pier 39 is known for family-friendly attractions. But Abuzaid alleges its business operators’ wares aren’t all sweet.
Sam Heller
Pier 39 is known for family-friendly attractions. But Abuzaid alleges its business operators’ wares aren’t all sweet.
Sam Heller

What the city may not have counted on was that the cheaters would take things a step further and set up complicated, incestuous business partnerships that hid their ownership-interest in Pier 39 stores.

In August, San Francisco Superior Court Judge Richard Kramer rejected claims that Abuzaid and his attorney Applegate had unearthed private, previously undisclosed information showing that Pier 39's management had defrauded the city.

When journalists write about litigation, they face a tough road ascribing righteousness to a plaintiff whose case has been rejected by a judge. I'm going to go ahead, anyway, because Kramer's judgment seems to leave open the possibility that Abuzaid could have been right about his fraud allegations, yet failed to obtain standing as a whistleblower because the alleged misdeeds might have happened in plain sight of city officials.

If that sounds convoluted, consider the knotty type of lawsuit Abuzaid and Applegate have ventured into. Based on a Civil War–era whistleblower law, these lawsuits are known as qui tam, after a shortened version of a Latin phrase that means one who "sues for the king as well as for himself." According to the 1863 False Claims Act, any ordinary citizen may sue on behalf of the government. It is a difficult type of case to win because whistleblowers don't merely need to prove that the government was defrauded: They must prove they've exposed a genuine secret. The law is written to discourage so-called parasites — people who assemble sheaves of news clippings, government audits, and other information already in the public domain and then claim to be whistleblowers when they haven't actually exposed anything new.

As a result, such cases can give rise to an ironic line of defense from alleged fraudsters in which they can claim a whistleblower has no case because the alleged misdeeds were conducted in plain sight. "The pier gets audited regularly by the city," attorney Kennedy said. "The charges Mr. Abuzaid was making have been around for 30 years. I can't tell you the details of any particular audits; I can tell you there have been regular and continuing audits. The financial people at the city have the right under the lease with Pier 39 to audit and review their records. It would be hard to believe that rents aren't one of the things they are looking at. ... Mr. Abuzaid has offered zero evidence of anything new or different from what happened in the 1970s. If there was new stuff, that would give him standing."

Judge Kramer agreed. "If the government's already onto it, and you show up and add an iteration or a perspective or a different fact, that's not enough," he said in a July hearing, explaining why he planned to reject Abuzaid's claim. "That's what we were dealing with. That's going to be my basis for my saying there's nothing new now."

Abuzaid deserves much of the blame for making his case seem like old news. He's determined to paint a conspiracy involving a broad swath of San Francisco officialdom. In so doing, he's buried his one true new find that could point to specific wrongdoing by certain Pier 39 individuals.

While Port Commission accountants over the years have repeatedly turned up evidence of underpayment, Abuzaid's suit provides evidence of some insider relationships that haven't yet been publicly scrutinized.

Pier 39 has undergone only one exhaustive outside audit during recent times, in 1997. As a result, the pier's management company ended up paying the port more than $300,000 in back rent. But the audit did not significantly explore the network of secret insider business relationships at Pier 39. The allegation that this self-dealing is systematically cheating the city out of rent money is actually unique to Abuzaid's lawsuit.

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