IN THE MATTER OF
THE ARIZONA HOUSE OF REPRESENTATIVES
INVESTIGATION OF CERTAIN ALLEGATIONS
AGAINST STATE CORPORATION COMMISSIONER
JAMES M. IRVIN
A Report by the Speaker of the House to the
ARIZONA HOUSE OF REPRESENTATIVES
Forty Sixth Legislature
Presented by A. Melvin McDonald Jr., Esquire
Special House Counsel
October 6, 2003
Volume I
Southern Union v. Irvin INTRODUCTORY REMARKS
On June 27, 2003, House Speaker Franklin “Jake” Flake appointed A. Melvin
McDonald and the law firm of Jones, Skelton & Hochuli to act as Special Counsel to the Speaker. McDonald was directed to conduct a thorough and comprehensive investigation into a variety of misconduct allegations involving Arizona Corporation
Commissioner James M. Irvin. Before McDonald's appointment, House Judiciary
Chairman Steve Tully had published a two-volume investigative study which resulted in the identification of three separate areas of alleged official improprieties on the part of
Mr. Irvin. The Speaker instructed McDonald to determine whether any of the three areas of alleged official misconduct outlined in the Tully report were serious enough to rise to the level of “impeachable offenses” under the Arizona Constitution, Statutory and Case Law. During the course of his inquiry, McDonald and his team of investigators have expanded their investigation into five separate areas of possible misconduct.
On the eve of his announced appointment, McDonald began to assemble a team of former federal investigators whose investigative skills, accomplishments and record of performance are above reproach. In order to ensure a bipartisan approach to the investigation, McDonald, a former Superior Court judge who was later appointed
United States Attorney by former President Ronald Reagan, selected former United
-2- States Attorney Jose de Jesus Rivera, an appointee of former President Bill Clinton, to assist in the investigation. Rivera served as U.S. Attorney from May 1998 through
April of 2001. Early in his career, Rivera worked with the Civil Rights Division of the
Department of Justice and later served in the U.S. Attorney's office as a federal prosecutor from 1977-1981.
McDonald assembled a six-member investigative team with 170 years of combined federal law enforcement investigative experience. The Investigative Team included the following former federal agents:
A. Doug Hopkins. Mr. Hopkins served as a Special Agent with the FBI for
28 years (1971-1998). Hopkins has extensive investigative experience relative to violations of federal law involving bank fraud and embezzlement, kidnapping, bank robbery, bombings and fraud against the government. Hopkins was one of the lead investigators in the car-bomb slaying of reporter Don Bolles. For his work in the Bolles bombing, he received a letter of commendation from then U.S. Attorney Michael
Hawkins. During his 28 years of service, Hopkins received ten written commendations from the Director of the FBI. He was selected by his peers to serve as a member of the
Special Agents Advisory Committee to the Director of the FBI in 1992.
B. John Thrasher. Mr. Thrasher served as an IRS investigator with 25 years of service in the Criminal Investigation Division (1974-1999). Mr. Thrasher
-3- specialized in complex criminal financial investigations. His work focused on money laundering, tax evasion, narcotics trafficking, offshore tax shelters, gambling, embezzlement, telemarketing fraud and other complex financial crimes. He was selected as a member of the Organized Crime Drug Enforcement Task Force and the
Financial Task Force for the U.S. Attorney's office in Phoenix. Mr. Thrasher coordinated a nationwide tax shelter/money laundering investigation out of Washington
D.C. which resulted in the prosecution of 20 individuals.
C. Don Tucker. Mr. Tucker had a distinguished 33 year investigative career
(1961-1994) which began with the Federal Bureau of Narcotics (1961-1964) and ended with his appointment as Chief of Court Security for all federal courts in the United
States (1994-1996). Mr. Tucker served as the Special Agent with the United States
Secret Service (1964-1990) and was eventually selected as Special Agent in Charge of the U.S. Secret Service in Phoenix, a position he occupied for 12 years (1978-1990).
He was appointed by President George Herbert Walker Bush to serve as the United
States Marshall for the District of Arizona (1990-1994). While serving as Chief of
Court Security for all federal courts, Mr. Tucker coordinated the investigation into the terrorist bombing of the Alfred F. Murrah Federal Building in Oklahoma City,
Oklahoma that had resulted in the death of 168 people.
-4- D. Jerry Wagner. Mr. Wagner served as an FBI investigator for over 27
years (1970-1998). His career involved narcotics investigations, serious crimes on
Indian Reservations (including homicide and child sexual molestation cases), bank robbery, kidnapping and fugitive investigations, organized crime, foreign counterintelligence and espionage investigations and international terrorism investigations. His service in Arizona included investigative work on two of the biggest investigations in Arizona history: the Don Bolles car-bombing in 1976 and the Poland brother murder and hijacking of two Purolator guards in 1977.
E. Mike Bartley. Mr. Bartley served as an FBI investigator for 29 years
(1969-1998). During his service, Mr. Bartley had extensive investigative experience
relative to investigations of bank fraud and embezzlement, kidnapping, bank robbery,
bombings and fraud against the government. He was a member of the FBI Swat Team
for 19 years, and served on the Caribbean Drug Task Force and the Violent Offender
Fugitive Task Force. During his service with the FBI, he was awarded the FBI “Shield
of Bravery” by FBI Director William Sessions, and later received the FBI “Medal of
Meritorious Achievement” from FBI Director Louie Freeh.
F. Kelly D. Sanderson. Mr. Sanderson served as an FBI investigator for 28
years (1971-1999). Mr. Sanderson's investigative duties extended to interstate crimes
involving gambling, theft, auto theft rings, bank robberies, drugs and money laundering.
-5- Mr. Sanderson was a recognized expert in the collection of intelligence, and was involved in complex investigations which included wiretap investigations. Before serving with the FBI, Sanderson was a member of a B-52 bombing crew that flew missions in Southeast Asia from 1967-1971.
In addition to the contributions of this outstanding investigative team, various attorneys from Jones, Skelton & Hochuli have provided invaluable assistance in this investigative project. Those who have contributed from the law firm include Chris
Doerfler and Randy Warner. Diana Weeks, secretary to Mel McDonald, has spent many long hours preparing transcripts from taped interviews and coordinating appointments and interviews with dozens of witnesses.
COMMISSIONER JAMES D. IRVIN
On August 20, 2003, special counsel met with the subject of this investigation inquiry, James D. Irvin, and his legal counsel, Jeffrey Walsh. The purpose of the meeting was to not only meet Mr. Irvin, but to learn more of Mr. Irvin's background and experience. In addition to information provided by Commissioner Irvin, special counsel McDonald reviewed public information on various websites about Mr. Irvin and his very successful career. It was agreed that the interview would not extend to substantive issues, but would be limited to background.
-6- James D. Irvin has had a very successful professional career both in California and Arizona. He has had a highly successful political career in Arizona. Mr. Irvin is one of seven children. Born in Los Angeles, his grandfather started an armored car and security company, AT Systems. His father, who was a lawyer, expanded the business into one of the nation’s largest money couriers, a $230 million annual enterprise. AT Systems is the third largest armored transportation company in the nation.
Commissioner Irvin was raised in Santa Monica, California, attending parochial schools until the 8th grade. He was a successful high school athlete, participating in football, baseball and track. He attended the University of Southern California, obtaining a Bachelor of Science degree in Education. He did student teaching in the
Los Angeles school district, but became disillusioned with the teaching field when he saw what he felt was inept administration of school budgets and school planning, and witnessed the L.A. system advancing 5th graders to the 6th grade over his objection when the students lacked elementary reading, writing and arithmetic skills. After student teaching for one year, he left the field of education forever. He took a year off and traveled around the country with a college roommate.
After this one year sabbatical, Commissioner Irvin returned to school in 1978 and earned a Master’s degree in Business Administration from Loyola Marymount
-7- University in California. Before his election to the Arizona Corporation Commission,
Mr. Irvin spent over 20 years in the private sector, serving as a CEO to one of his father’s security companies. He had worked at the company as a college student rolling coins, wrapping money and working weekends as a guard. He gradually moved up the chain of responsibility, receiving various promotions based upon a record of clear accomplishments. He worked as an assistant manager for the company in
Pomona, California and when the company was having problems in San Francisco, Mr.
Irvin moved to Northern California and turned the San Francisco office around from losing money to a profitable, successful enterprise with 30% gross profits. He even expanded the San Francisco operations to other branch offices. He was involved in the company’s expansion into the field of courier services. The company developed close working relationships with Federal Express and UPS.
Mr. Irvin moved to Arizona from California to, again, rescue a division of the company that was doing poorly and losing money. He had remarkable success. As
Mr. Irvin, in his own words, told special counsel:
We turned the company around here. We grew. I think when I left in ‘97, we had something like 1100, 1200 employees, 1,000, somewhere in there; and we were operating in Utah, Nevada, Arizona and California.
-8- Commissioner Irvin’s responsibilities extended to over 1,000 employees, with offices in California, Arizona, Nevada and New Mexico. The company had grown from armored car to security guards, alarms and the courier business.
Commissioner Irvin developed his first taste of politics in 1989. A close friend asked him to become a precinct committeeman. He was later asked to become a financial chairman for the Arizona Republican Party. He helped the party raise substantial funds which, in part, were used to retire outstanding debt.
In 1992, Republican party leaders asked Mr. Irvin to take charge of the “Trunk and Tusk Club,” a major fund-raising organization within the Republican party, a position which not only exposed him to party leadership, but also enabled him to demonstrate his ability to raise funds.
In 1994, Commissioner Irvin, then a political unknown, ran for the high profile position of Arizona Secretary of State. After conducting a successful political campaign, Irvin narrowly lost the primary election to Jane D. Hull, the former Speaker of the Arizona House of Representatives. During that election, Commissioner Irvin won 10 of the 15 counties in the state-wide election, losing the 11th county by only three votes. He lost that state-wide race by only 8,818 votes, securing just under 49% of the Republican primary vote. Jane Hull, who defeated Irvin in the 1994 primary election, was elected Secretary of State and would later become Arizona Governor
-9- after the resignation of Fife Symington. As a result of his razor-thin loss to Jane Hull,
Mr. Irvin narrowly missed becoming Arizona’s 20th Governor.
In 1996, Commissioner Irvin’s political fortunes turned around when he was elected to a seat on the Arizona Corporation Commission. He was encouraged by
Republican party leadership to run for a post that had been controlled by Democrats for years. Commissioner Marcia Weeks was stepping down, leaving a vacancy on the
Commission. In Commissioner Irvin's own words:
[T]he [Party] was looking at trying to find an individual that we Republicans could use to gain control because the Democrats had for so long been in charge. And the other thing exciting about the Commission was the opportunity to look at the infrastructure ... and I thought it was a wonderful opportunity to get in and serve the community. Bring my business experience and my background into a little business type of setting in government.
The Republican party saw it as an inviting opportunity to take control of the powerful and prestigious Arizona Corporation Commission. Carl Kunasek, the lone
Republican, worked in support of Mr. Irvin's candidacy. His assistant, Jerry Porter, also contributed to the effort to elect Mr. Irvin to the ACC. Mr. Irvin was elected with
609,862 votes, defeating his Democratic opponent by 21,000 votes and capturing just under 51% of the popular vote. Soon after his election and entry into political office,
Jim Irvin became Chairman of the Arizona Corporation Commission. There were many laudable accomplishments by Mr. Irvin during his service at the ACC. While serving as Chairman in his first term, Irvin began such initiatives as the formation of the
-10- ACC Water Task Force, pushed to include the utilization of renewable energy in restructuring Arizona's electricity market, and received the Governor's Recognition
Award for Customer Service Improvement. Irvin also chaired the Arizona Rural
Telephone Task Force, and served as a Director for the Water Infrastructure Financing
Authority (WIFA).
In November 2000, the voters of Arizona approved a measure, placed on the ballot by the State Legislature, which expanded the size of the Commission from three to five Commissioners. The measure also changed the term of office from one six-year term to a four-year term with the possibility of reelection to one additional
(consecutive) four-year term. Commissioner Irvin, as a result of that election, became eligible to run for reelection in 2002.
Commissioner Irvin ran and was reelected to the Arizona Corporation
Commission on November 5, 2002 for a seat which expires on January 1, 2007.
Commissioner Irvin's second term began in January 2003. In the 2002 Primary
Election, Commissioner Irvin defeated a former state representative, Roberta Voss, in a landslide victory (155,465 votes to 102,100 votes), capturing over 60% of the primary vote. In the subsequent general election, Commissioner Irvin garnered 572,556 votes to his opponent’s 545,508 votes, winning reelection this time with slightly over 51% of the popular vote.
-11- Commissioner Irvin married his wife Carol in 1982. He is the proud father of three children. His oldest child, a daughter, is a 20-year-old junior attending Arizona
State University. His second oldest, also a daughter, is currently a freshman at Arizona
State University. His youngest child, a boy, attends the 7th grade. Commissioner Irvin enjoys a close, loving and supportive relationship with his wife and children.
Commissioner Irvin has been an active member of the community. He has served as a
Reserve Deputy Sheriff for the Maricopa County Sheriff's Office, has served as a Board member of the Scottsdale Education Foundation, has been a past member of the Board of Directors of the Silent Witness Program, and has been a member of Rotary
International. He has also volunteered with the Boys and Girls Club, the YMCA, and coaches Little League.
Mr. Irvin’s two general election victories and one primary election victory for his current seat on the Arizona Corporation Commission deserve great weight and consideration in the impeachment process. The general public has elected him to statewide office not once, but twice, and the voters’ selection to public office should not be negated through the processes of impeachment except by clear and convincing evidence of impeachable wrongdoing.
LAWS AND RULES RELATING TO IMPEACHMENT
-12- Article 8, Part 2, Sections 1 and 2 of the Arizona Constitution set forth the
Constitutional requirements for impeachment of a state official. These sections provide:
Section 1. The House of Representatives shall have the sole power of impeachment. The concurrence of a majority of all the members shall be necessary to an impeachment. All impeachments shall be tried by the Senate, and, when sitting for that purpose, the Senators shall be upon oath or affirmation to do justice according to law and evidence, and shall be presided over by the Chief Justice of the Supreme Court. Should the chief justice be on trial, or otherwise disqualified, the Senate shall elect a judge of the supreme court to preside.
Section 2. No person shall be convicted without a concurrence of two-thirds of the Senators elected. The Governor and other state and judicial officers ... shall be liable to impeachment for high crimes, misdemeanors, or malfeasance in office, but judgment in such cases shall extend only to removal from office and disqualification to hold any office of honor, trust, or profit in the state. The party, whether convicted or acquitted, shall, nevertheless, be liable to trial and punishment according to law. [Emphasis added]
Impeachment is a legislative function with very little judicial oversight. The
Arizona Supreme Court has no jurisdiction to review impeachment proceedings if the
Legislative bodies follow the constitutional and statutory procedures: articles of impeachment are decided by majority vote; trial by the Senate with a 2/3 vote is required for removal from office; and the Chief Justice of the Arizona Supreme Court presides over the trial in the Senate. (See Mecham v. Arizona House of
Representatives, 162 Ariz. 267, 782 P.2d 1160 (1989)) The Arizona Rules of Criminal
Procedure and the Arizona Rules of Civil Procedure, which govern criminal and civil cases, do not apply in impeachment proceedings. Impeachment trial procedures and rules are reserved exclusively to the Arizona State Senate. (Mecham, 156 Ariz. 297,
-13- 751 P.2d at 962) There are only two issues which the State Senate may litigate in an
impeachment proceeding: removal from office and disqualification from future office.
(Mecham, Id.; Ingram v. Shumway, 164 Ariz. 514, 794 P.2d 147 (1990)) As a duly
elected Arizona Corporation Commissioner, James D. Irvin is subject to impeachment.
(See A.R.S. § 38-311)
A.R.S. § 38-312 provides that impeachment shall be instituted in the House of
Representatives by resolution, and shall be conducted by managers elected by the
House of Representatives, who shall prepare articles of impeachment, present them at
the bar of the Senate and prosecute them. The hearing shall be heard before the Senate
sitting as a court of impeachment. There are three grounds for impeachment: high
crimes, misdemeanors, or malfeasance in office. Holmes v. Osborn, 57 Ariz. 522, 115
P.2d 775 (1941). The scope of wrongdoing contemplated by the Constitution's
stipulation of “high crimes and misdemeanors” is vast. Abuse of power and serious misconduct in office fit this category.
There is significant historical and legal precedent for impeachment proceedings in both the national government and, to a lesser extent, in Arizona. Since 1797, the
United States House of Representatives has attempted impeachment of public officials on 35 occasions, succeeding against sixteen federal officials. The successful impeachments included two presidents, a cabinet member, a senator, a justice of the
-14- Supreme Court, and eleven federal judges. Of those impeached, nine cases were tried before the U.S. Senate. Of the nine who went to trial, seven were convicted by the
U.S. Senate, all of them federal judges. Many facing the prospect of impeachment have resigned at various stages of the impeachment process rather than face impeachment.
The most notable resignee was Richard Nixon, the 37th President of the United States.
Arizona has had two instances in its history where public officials have been impeached and tried by the State Senate: the 1952 impeachment of a State Corporation
Commissioner and the 1988 impeachment of an Arizona Governor. The Commissioner was acquitted in his trial before the Senate while the Governor was convicted of the impeachment charges. This same Governor successfully defeated the “dracula clause,” which enabled him to run again for elected office in the future. The Governor was later acquitted of criminal charges that were almost identical to the impeachment offenses.
The standard of evidence in the criminal case was higher than the standard in the impeachment trial.
Arizona's Constitutional language regarding impeachment is structurally similar
to the U.S. Constitution's rules on impeachment. As the Mecham decision noted, “The framers of our national Constitution considered and rejected a judicial role in the impeachment process, fearing that any judicial involvement would encroach upon the
-15- legislative prerogative. THE FEDERALIST, No. 65 (Alexander Hamilton).” Mecham,
156 Ariz. at 301, 751 P.2d at 961.
The term “high crimes and misdemeanors,” was not defined by the framers of our state constitution, just as it was not precisely defined by the framers of our national
Constitution. The term itself has been applied through impeachment processes at both the national and state level. In an article entitled What Does “High Crimes and
Misdemeanors” Mean?, authored by Gary J. Schmitt and Joseph Bessette, the authors describe the broad meaning of these terms.
The imprecision surrounding the phrase “high crimes and misdemeanors” in the Convention and the follow-on debates in the state ratifying conventions is not especially surprising; for this phrase had its source in over four centuries of British parliamentary practice, during which its meaning was no more specific. Ever since the fourteenth century, “high crimes and misdemeanors” had included not only criminal conduct but also a broad array of charges involving corruption, misuse of funds, and abuse of authority.
There are a number of guiding principles Schmitt and Bessett refer to that fall within the area of high crimes and misdemeanors in the area of federal impeachment:
[One] is left with a few broad, albeit important, principles: first, consonant with the separation-of-powers principle, the standard for impeachment was not so low as to encourage Congress to make impeachment a routine means for checking the president; second, “high crimes and misdemeanors” included offenses that were not, strictly speaking, illegal; and third, “high crimes and misdemeanors” were generally associated with violations of a public trust and, in the major impeachment case of the time, involved actions which in some fashion undermined or ran contrary to the fundamental norms of sound rule.
-16- It is clear from a review of historical precedents that impeachable offenses can be initiated not only for specific breaches of official duty, but also for actions outside of one’s official duties. It is further clear that the “high crimes and misdemeanor” standard applies to those who abuse their public trust and duties, and that it is not necessary that they be charged with actual crimes by prosecution authorities to fall within this broad definition of high crimes and misdemeanors. High crimes and misdemeanors not only include a variety of criminal misdeeds such as obstruction of justice, perjury or making false statements, whether charged or uncharged, but other serious breaches of public duty or public trust. Noted author and Time Magazine editor
Borgna Brunner, writing an analysis on “A Short History of Impeachment,” notes that:
Bribery, perjury, and treason are among the least ambiguous reasons meriting impeachment, but the ocean of wrongdoing encompassed by the Constitution's stipulation of “high crimes and misdemeanors” is vast. Abuse of power and serious misconduct in office fit this category, but one act that is definitely not grounds for impeachment is partisan discord.
The third standard for impeachment in Arizona, “malfeasance,” is well defined in
the cases. Malfeasance as a ground for removal is doing that which an elected official
has no authority to do, and is positively wrong or unlawful. Holmes v. Osborn, 57
Ariz. 522, 115 P.2d 775, 783 (1941). The objective of the impeachment process is to rid government of those who have violated their sacred public trust, and to determine whether such persons can ever serve again in any position of governmental trust. The
-17- Arizona Supreme Court first enunciated this principle in State ex rel DeConcini vs.
Sullivan, 66 Ariz. 348, 188 P.2d 592 (1948):
The object of the removal by impeachment of a public officer for official misconduct is not to punish the officer but to improve the public service ... The ultimate aim of impeachment proceedings is the removal from office of the person accused ... .
The Constitution and statutes are silent on many of the impeachment procedures
and scheduling. The impeached public official is entitled to not less than ten days’
notice of the date set by the Senate for the impeachment trial. The Senate is free to
make its own procedural rules and schedule witnesses and procedures at its own
discretion.
The Constitution and statutes are also silent on the standard of evidence required
to charge and to convict. In the 1988 Evan Mecham impeachment proceeding, the
standard adopted by the Arizona House of Representatives to impeach was “probable
cause” (i.e. preponderance of the evidence), the standard of proof generally applied in
civil courts. However, when the case was actually tried before the Arizona Senate, the
standard of proof was elevated to “clear and convincing evidence,” a standard of proof
higher than preponderance of the evidence but far less than the criminal standard of
proof “beyond a reasonable doubt.”
The findings and recommendations in this report are based upon the higher standard of “clear and convincing evidence.” Where there are doubts, those doubts
-18- have been resolved in favor of Commissioner Irvin. The objective of this report is to
provide the Speaker and Members of the House with all substantial and credible information that may constitute grounds for impeachment. Before submitting this report to Speaker Jake Flake and the Arizona House of Representatives, appointed counsel has a clear obligation to satisfy himself that the information contained in this investigation is both “clear” and “convincing” and that it addresses occurrences that
“may constitute grounds for impeachment.”
The first step has been to make an initial assessment whether the evidence against Commissioner Irvin is substantial, clear and credible. To make that determination, special counsel has carefully weighed whether a multitude of witnesses who testified in the Southern Union litigation or were independently interviewed in this impeachment investigation are believable and whether their version of events is corroborated by other evidence. The same standard has been applied to the American
National Mortgage inquiry, Clean Elections, Fraud on the Court, and allegations surrounding a lawsuit involving Corporation Commission employee James Fisher.
The second step has been to assess the severity and gravity of the facts previously uncovered as part of the Southern Union litigation, the American National
Mortgage litigation, the Jim Fisher litigation, Clean Elections and Fraud on the Court.
It has been special counsel’s duty to discern whether Commissioner Irvin committed
-19- wrongful acts of sufficient magnitude to warrant a recommendation of impeachment.
Special counsel has carefully sought counsel and advice from the investigative team he
assembled to ensure that his judgment and recommendation is shared by this team.
Actions worthy of impeachment can take two distinct forms: (1) acts perpetrated by a public official in the discharge of his official duties, or (2) acts independent of his
official duties which reflect upon his character and fitness to serve. To illustrate, an
official who takes a bribe for a favorable vote acts as part of his official duties, while
the same official who physically assaults his spouse is not acting within his official
duties, but clearly has committed actions which may reflect upon his character to serve.
The essence of this inquiry in the Southern Union litigation, American National
Mortgage, and his actions against Commission employee Jim Fisher focus exclusively
upon actions taken by Commissioner Irvin in his capacity as a Corporation
Commissioner. These actions go to the very essence of impeachment. Our
investigation into allegations regarding whether Commissioner Irvin committed a “fraud
on the court” in the Southern Union trial or violated the Clean Elections laws do not
relate to his official duties. To illustrate this important distinction, the chief defense
raised by former President Clinton's lawyers in his impeachment defense involving his misdeeds with Monica Lewinsky or his false statements in the Paula Jones civil lawsuit centered on the fact that those actions did not arise out of his duties as President but
-20- rather focused on misdeeds in his private life. It was this distinction which likely saved
President Clinton's presidency. No such distinction exists in this investigation on three of the five issues subject to our inquiry.
Special counsel and his colleagues have unanimously concluded that there is substantial and overwhelming evidence of gross misconduct falling squarely under the
Constitutional standard of high crimes, misdemeanors or misconduct in office, and that
Commissioner Jim Irvin should be impeached and, after his Senate trial, be removed and forever barred from serving in elected or appointed public office in the State of
Arizona.
-21- I. SOUTHERN UNION V. JAMES M. IRVIN
COMMISSIONER JAMES M. IRVIN IS RESPONSIBLE FOR REPEATED ACTS OF WRONGDOING IN THE ONEOK-SOUTHWEST GAS MERGER. THESE ACTIONS CONSTITUTE EGREGIOUS CRIMINAL AND ETHICAL MISCONDUCT AS WELL AS MALFEASANCE IN OFFICE. COMMISSIONER IRVIN VIOLATED HIS DUTIES AS AN ARIZONA CORPORATION COMMISSIONER AND HIS ACTIONS MANDATE HIS REMOVAL FROM PUBLIC OFFICE.
A. Background
1. The Scope of the Southern Union v. Irvin Litigation
The Southern Union v. Irvin civil litigation was likely one of the most, if not the
most, expensive and thoroughly investigated lawsuits in Arizona history. The
development of facts in that litigation was unprecedented. Approximately 124 witnesses were deposed for well over 200 days, including witnesses deposed during the federal court trial in Phoenix. The depositions involved witnesses who resided in approximately one dozen states. Many witnesses were produced at locations other than where they lived. Depositions were taken in eight states and the District of Columbia
(Arizona, Oklahoma, New York, California, Missouri, Nevada, Texas, Colorado). At
Commissioner Irvin's federal jury trial, 71 witnesses were presented live or by video deposition. The litigation, when the final amended pleadings were filed, involved not only individual defendants, but three of the leading natural gas companies in the United
States.
-22- The corporate and individual defendants had some of the finest attorneys in the
United States. The list of attorneys assembled to represent the various parties reads
like “Who's Who in American Law.” It is clear that the record compiled in this case
does not involve a situation where highly talented lawyers on one side bullied and beat
up on weaker, inexperienced lawyers leading to an unfair result. The facts flowing out
of the Southern Union v. Irvin litigation were developed with painstaking precision,
and skillfully presented and articulated to both judge and jury. Attorneys representing
various parties to this litigation, as well as governmental attorneys familiar with the
case, have confirmed that the legal price tag for all parties in the various multistate
lawsuits reached an estimated $80 million dollars. The one and only elected public
official who stood at the heart of this litigation nightmare was James M. Irvin of the
Arizona Corporation Commission.
2. The Parties in the Federal Court Litigation and their Legal Counsel
The plaintiff, Southern Union Company is headquartered in Wilkes-Barre,
Pennsylvania. A member of the New York Stock Exchange, Southern Union is engaged primarily in the transmission and distribution of natural gas. Southern Union owns and operates more than 10,000 miles of interstate pipelines that transport natural gas from the Gulf of Mexico, South Texas and the Panhandle regions of Texas and
-23- Oklahoma to major U.S. markets in the Midwest and Great Lakes region. Southern
Union also owns and operates the nation's largest liquefied natural gas import terminal -
- located on Louisiana's Gulf Coast. Southern Union served nearly one million natural gas end user customers in Missouri, Pennsylvania, Rhode Island, southeastern
Massachusetts and Texas.
Lead trial counsel against Commissioner Irvin and the other defendants was New
York attorney Eric D. Herschmann, a former Senior Investigative Counsel for the New
York County District Attorney's Office and former Special Assistant United States
Attorney. A partner in the New York law firm of Kasowitz, Benson, Torres and
Friedman, his litigation team consisted of Michael Fay (a partner in the same law firm);
Tom Q. Ferguson, Shelly L. Dalrymple and William H. Spitler of the Tulsa Oklahoma law firm of Doerner, Saunders, Daniel and Anderson; N. Warner Lee and William
McManus of the Ryley, Carlock and Applewhite law firm of Phoenix, Arizona;
Christina Dodds of the Austin, Texas law firm of Watson, Bishop, London and Brophy;
Robert E.B. Allen, Charles Steven Price and Barry R. Sanders of the Phoenix law firm of Allen, Price and Padden, P.C.; and Professor Thomas A. Mauet, Director of Trial
Advocacy and Professor of Law at the University of Arizona College of Law and a noted author on trial practice. Herschmann and Ferguson litigated most of the trial for
Southern Union.
-24- The defendant Oneok was headquartered in Tulsa, Oklahoma. Oneok was an
energy company involved mostly in oil and gas production and natural gas processing
in the Midwest. A member of the New York Stock Exchange, Oneok was the largest
natural gas distributor in Kansas and Oklahoma, operating as Kansas Gas Service and
Oklahoma Natural Gas Co., and serving about 1.4 million customers. Southern Union
sued both Oneok and key company officials. Oneok in turn sued Southern Union in
Oklahoma, and became embroiled in a separate lawsuit against Southwest Gas. The
Oneok team of lawyers consisted of John Rule, Oliver Howard, Thomas J. Kirby,
David Keglovits and Amelia A. Fogleman of the Tulsa, Oklahoma law firm of Gable
and Gotwals; Michael Kennedy, Tom Henze and Mark M. Deatherage of the Arizona
law firm of Gallagher and Kennedy; and John Swenson, Richard J. Doren and Thomas
E. Holliday of the Los Angeles law firm of Gibson, Dunn and Crutcher. Tom Henze, a
highly respected local attorney, was lead counsel for Oneok in the Arizona litigation.
Various Oneok company officials and attorneys were also named in the lawsuit.
Larry Hammond and John A. Stookey of Osborn Maledon, P.A, a Phoenix law firm, represented Eugene Dubay, President of Kansas Gas Service, a division of Oneok. It was Dubay who was to head the Southwest division of Oneok after the completion of the proposed Southwest-Oneok merger. Attorneys Mike Kimerer and Tom Rawles of the Kimerer and Derrick Arizona law firm represented John Gaberino, General
-25- Counsel of Oneok. Attorney Michael Piccarreta of the Tucson law firm of Piccarreta
and Davis represented James Kneale, Vice President-Chief Financial Officer and
Treasurer of Oneok. Attorneys Don Bivens and Paul Stoller of the Phoenix law firm of
Meyer, Hendricks and Bivens represented attorney Mark Dioguardi, a local Phoenix attorney who represented Oneok in the Southwest - Oneok merger.
The defendant, Southwest Gas, has engaged in the business of purchasing, transporting and distributing natural gas to residential, commercial and industrial customers in the southwestern United States since 1931. A member of the New York
Stock Exchange, Southwest Gas served approximately 1.5 million customers in
Arizona, Nevada and portions of California. Headquartered in Nevada, Southwest Gas was an investor-owned utility. Southwest Gas shares are traded on the New York
Stock Exchange and the Pacific Stock Exchange.
Southwest Gas assembled an exceptional team of attorneys to represent both the company and officers and directors named in the Southern Union lawsuit. The
Southwest litigation team consisted of Michael Farrell, Michael J. O'Connor, Douglas
F. Behm, John Moody, Richard Thomas and Michael S. McCoy of the Phoenix law firm of Jennings Strouss and Salmon; Seth Aronson, Floyd Andrews, Marc Einstein and
Patrick Lynch of the Los Angeles law firm of O'Melveny and Myers; Michael R.
Klein, Steven F. Cherry, Howard M. Shapiro, David P. Donovan of the Washington
-26- D.C. law firm of Wilmer, Cutler and Pickering; Scott Rowland and Paul J. Cleary of the Tulsa, Oklahoma law firm of Boone, Smith, Davis, Hurst and Dickman; Todd L.
Bice of the Las Vegas law firm of Schreck, Brignone and Godfrey; and Steve Morris and Kristina Pickering of the Las Vegas law firm of Morris, Pickering and Sanner.
Thomas A. Hartley, Chairman of the Board of Directors of Southwest Gas, was represented by Michael A. Beale and K. Thomas Slack of the Phoenix law firm of
Beale and Michaels. Hartley was further represented by Samuel B. Benham and C.
Stanley Hunterton of the Las Vegas law firm of Hunterton and Associates. Michael O.
Maffie, President and Chief Executive Officer of Southwest Gas, was represented by
David J. Damron, Shannon M. Ivanyi, and Victoria Skinner of the Phoenix law firm of
Sanders and Park. Thomas Sheets, Southwest Gas's General Counsel, was represented by Attorneys Ed Novak, Douglas Passon and April O. Wynne of the
Phoenix law firm of Quarles and Brady Streich Lang. Defendant Edward Zub,
Southwest Gas's Senior Vice President over Regulation and Product Pricing, was represented by Attorney Christopher M. Skelly of the Phoenix law firm of Scott and
Kelly and by Jordan Green of the Phoenix law firm of Fennemore Craig, P.C.
Southwest Gas's public relations firm, Sitrick and Company, was represented by
Brian A. Sun of the Santa Monica law firm of O'Neill, Lysaght and Sun.
-27- The defendant Commissioner James Irvin was represented in all phases of the various pieces of litigation by a cadre of seasoned and extremely capable trial attorneys. His lead counsel in the Phoenix federal trial was Michael W. Sillyman, of the Phoenix law firm of Kutak and Rock. Mr. Sillyman was assisted by attorneys Brian
J. Schulman, David M. Park and Kimberly B. Schultz of the Kutak Rock law firm.
Commissioner Irvin was further represented by attorney Michael Anthony of the
Phoenix law firm of Carson, Messinger, Elliot, Laughlin and Ragan. He was represented in the simultaneous criminal investigation by Phoenix attorney Bruce Feder of the Feder law offices. Commissioner Irvin's wife, Carol Irvin, was represented by
Phoenix attorneys Marc Budoff and Jeff Ross of the law firm of Budoff and Ross.
Carol Irvin was not a party in the Southern Union lawsuit. Commissioner Irvin is currently being represented in his federal appeal by attorney Barry Richard of the law firm of Greenberg Traurig, P.A. of Tallahassee, Florida, and attorneys E. Jeffrey Walsh and James A. Ullman of the Phoenix law firm of Greenberg Traurig. Mr. Richard was selected by the National Law Journal as one of its “Lawyers of the Year” in 2001 for his work in the 2000 Bush-Gore litigation. He served as legal counsel to George W.
Bush in Florida.
The defendant Jack Rose was represented by attorneys Daniel J. O'Connor, J.
Daniel Campbell, Jason Hunter, Zahnie L. Soe Myint and Ellen Davis of the Phoenix
-28- law firm of Bell, O'Connor and Campbell. He was also represented by Shane R.
Swindle of the Phoenix law firm of Brown and Bain. In the criminal investigation
arising out of the Southwest-Oneok merger, he was represented by attorney John
Hannah of the Phoenix law firm of Hoidal and Hannah, P.L.C. It was John Hannah who very capably negotiated “use immunity” agreements with the United States
Attorney's office and with special counsel for the Arizona State Legislature.
3. The Outcome of the Southern Union Related Cases
The magnitude of the havoc caused in part by Commissioner Irvin and some of the other named defendants linked to Irvin's activities are a matter of public record.
These actions generated a number of civil lawsuits filed and litigated in Oklahoma,
Arizona and California. Massive, complex litigation developed among the three utility giants as well as the shareholders of Southwest Gas, who sued the company in a class action lawsuit. The civil settlements and/or jury dispositions of those lawsuits began in
September of 2001 and continued through the Irvin trial. The settlements and jury awards were as follows:
a. Southwest Class Action Lawsuit:
On September 24, 2001, Southwest Gas Corporation announced court approval
of a settlement with the lead shareholder representatives in a California shareholder
class action lawsuit. The settlement covered those shareholders who purchased or held
-29- Southwest stock at any time during the period from December 14, 1998, through
January 21, 2001. Under the terms of the settlement, Southwest shareholders were to
receive $22 million if Southwest entered into a business combination with a third party within 36 months; 50% of the first $54 million of any recovery from either Southern
Union Co. or Oneok Inc. in litigation currently pending in Phoenix Federal District
Court, or $9.5 million if neither of first two happened within 36 months. On January 4,
2002 United States District Court Judge Rosalyn O. Silver of the District of Arizona dismissed all of Southwest's claims against Southern Union, leaving only the Southern
Union allegations alive, thereby eliminating that component in the shareholder settlement.
b. Southwest Gas Settlement with Southern Union:
On August 7, 2002, both Southern Union Company and Southwest Gas announced a settlement of the Southern Union claims against Southwest Gas.
Southwest Gas Corporation agreed to pay Southern Union $17.5 million to settle
Southern Union's claims of fraud and bad faith breach of contract related to Southern
Union's attempts to purchase Southwest. All claims brought by Southwest Gas against
Southern Union had been previously dismissed by the federal court.
-30- c. Oneok Settlement with Southwest Gas:
On August 9, 2002, Southwest Gas and Oneok announced that they had settled their lawsuits against each other. As part of that settlement, Oneok agreed to pay
Southwest Gas $3 million to settle all outstanding claims between them. Southwest
Gas, as part of the settlement, dropped four claims against Oneok, including fraud and breach of contract in the merger termination. Oneok dismissed all of its claims against
Southwest Gas as part of the settlement.
d. Jack Rose Settlement with Southern Union:
On December 13, 2002, Commissioner Irvin's “loaned executive”/consultant
Jack Rose, near the eve of the Southern Union v. Irvin and Rose jury deliberations,
settled his lawsuit with Southern Union by agreeing to pay $75,000, a sum which
Southern Union later donated to St. Joseph's Hospital. As a part of that settlement, Mr.
Rose signed an agreement expressing his regrets over the role he played in the
proposed Southwest Gas Corporation merger with Oneok in 1999.
e. Southern Union's Verdict against James Irvin:
On December 18, 2002, an Arizona U.S. District Court jury awarded Southern
Union Company $975,181 in compensatory damages against various defendants and awarded an additional $60 million in punitive damages against Arizona Corporation
Commissioner James C. Irvin. As a result of various pretrial rulings by the Court,
-31- $975,181 was the maximum amount of actual damages that Southern Union was
allowed to submit to the jury. On the “Interference with Contract” claim, Commissioner
Irvin's fault was apportioned at 40%, leaving Southern Union with a compensatory
damage award of $390,072.58 against Irvin. In that verdict, the jury apportioned
findings of fault related to the actual damages portion of the award among
Commissioner Irvin (40%); Jack Rose (15%); Oneok (5%); Eugene Dubay, former
Oneok, Inc. executive (10%); John Gaberino, Oneok, Inc. General Counsel (6%); Mark
Dioguardi, former counsel for Oneok, Inc. (5%); Southwest Gas Corporation (5%);
Michael Maffie , President of Southwest Gas (12%) and Thomas Hartley, Chairman of
Southwest Gas Corporation (2%). Irvin was also found liable for “Intentional
Interference with Business Expectancy,” where his fault was assessed at 20%. Of course, there was no apportionment of the $60 million punitives damages award, the entire amount was assessed against Irvin. This verdict is now on appeal before the
Ninth Circuit Court of Appeals.
f. Oneok Settlement with Southern Union:
On January 3, 2003, Oneok and its affiliated attorneys and officers settled all claims brought against them by Southern Union relating to their Southwest Gas acquisition activities in 1999. Mark Dioguardi had been dismissed from the lawsuit prior to the settlement. Oneok paid Southern Union $5 million to settle its lawsuit.
-32- Oneok's claims against Southern Union had been dismissed long before the settlement.
As a critical component of that settlement, Oneok agreed to purchase Southern Union's
Austin-based natural gas operating division and other related assets for $430 million in
cash.
On July 31, 2003, Judge Silver issued a 25-page written decision upholding both the $390,072.58 compensatory damage award and the $60 million punitive damages award against Commissioner Irvin. On August 27, 2003, Judge Silver further explained several important rulings during the Irvin litigation. In her July 31, 2003 opinion, Judge
Silver, in denying Commissioner Irvin's Amended Motion for JNOV or in the
Alternative for New Trial or Remittitur and seeking a new trial or remittitur on the
punitive damage award of $60,000,000, reaffirmed with a multitude of findings
supporting the jury’s punitive damages award.
g. Judicial and Jury Findings against Commissioner James Irvin
It has been well documented that the trial jury that presided over Commissioner
Irvin's trial inquired of Judge Silver whether they had the authority to attach conditions to their verdict. After trial, the jurors revealed that they had hoped to have the authority to remove Commissioner Irvin from his elected duties as an Arizona Corporation
Commissioner. When the Judge informed them that their only duty was to determine
-33- fault and award damages, if any, they imposed their compensatory and punitive damage
awards. The verdict and damages were upheld in Judge Silver's July 31, 2003 ruling.
That ruling was later expanded in a supplemental August 27, 2003 minute entry order.
Special counsel has interviewed the jury foreman and one additional juror to find out the rationale and basis for the jury's staggering verdict. Jury Foreman Adkins explained that Commissioner Irvin had “no credibility as far as I was concerned. It'd be the type of situation where it reached a point that I wouldn't believe anything he said.”
Juror member Lynn LeSeuer, in describing Irvin's testimony, said: “He had a credibility
problem with all of the jurors. He had a hard time determining what was black and
white. All he saw was 256 shades of gray. And when he was on the stand, he had a really hard time giving a yes or no answer. They would ask him a yes or no question and he would kind of worm his way back and forth through it.” Aside from jurors’ comments, Commissioner Irvin's actions have resulted in a tidal wave of condemnation and demands for resignation from a U.S. Senator, both a current and former Governor, the Maricopa County Attorney, a unanimous Corporation Commission, the Republican party chairman, political leaders from various branches of federal and state government, both Democrat and Republican, various respected media organizations and news commentators, and from ordinary citizens of Arizona who feel betrayed by his highly publicized actions.
-34- Judge Silver's observations in her July 31, 2003 ruling identified the precise, specific character flaws and fundamental breaches of public duty which jurors justified as the basis for their award. Judge Silver's judicial opinion paints a clear and vivid mosaic of the enormity of Commissioner Irvin's actions, a picture which explains and clarifies why a unanimous jury assessed $60 million in punitive actions and why she upheld, to the penny, perhaps the largest punitive damage decision against an elected public official in American history. Her summation of the evidence leaves no room for misinterpretation or mistake. It is clear from the trial record that both the trial jury and
Judge Silver were aghast at a series of actions taken by Mr. Irvin to the detriment of
Southern Union Company. Judge Silver describes Commissioner Irvin's actions in the
Southern Union litigation using terms such as reprehensible, intentional trickery, deceit, evil mind, abuse of power, concealment, perseverance in hiding his wrongful acts through the trial, intentional conduct, egregious acts of reprehensibility, attempts to offer fabricated evidence, participating in a scheme to impede the jury's search for truth, engaging in fraudulent and tortious conduct calculated to inflict willful and malicious injury, and disregarding the interests of the rate-payers of Arizona, which is a centerpiece of his public duties as an Arizona Corporation Commissioner.
Each of the jurors, and co-defendant Jack Rose, stated that the most damaging witness against Mr. Irvin was Commissioner Irvin himself, and that his actions on and
-35- off the witness stand made him a witness impossible to believe and one which the
jurors felt was unfit for continued public office. These findings, supported by an
exhaustive and comprehensive trial record, documents repeated acts of serious
misconduct by evidence that is both clear and convincing, and mandates impeachment
and removal from office, now and forever.
4. Southern Union Corporation - A History
The plaintiff Southern Union is a 74-year-old company founded in 1929. Its operations have been historically conducted in Pennsylvania, Rhode Island,
Massachusetts, Florida, Missouri, and Texas. In 1998-99, Southern Union was a strong, financially sound company with a solid track record of success with its customers, shareholders and regulators. At the time Southern Union made its offer to buy Southwest Gas, Southern Union was the 10th largest natural gas company in the country. Today, Southern Union is the 4th largest natural gas company in the country.
It had always enjoyed, with rare exception, a fine reputation among regulatory bodies who oversee its activities. Between 1993 and 1998, trial evidence demonstrated that it outperformed every natural gas company in the United States.
Southern Union was led by a strong chairman of the board, George Lindemann.
Mr. Lindemann was a self-made billionaire – a man who created several successful companies in different industries, including the natural gas industry. His business
-36- acumen is legendary. His successes have been the subject of numerous articles by highly respected business magazines, business journals and news publications such as
Forbes, Business Week, Money Magazine and the Wall Street Journal. He has built an enviable record of business achievement over the course of his illustrious career.
Mr. Lindemann bought Southern Union in 1989 when it was on the verge of bankruptcy and turned the company around in dramatic fashion. In his 14 years of management, a $170 million company grew to over a billion dollar industry giant.
Under Lindemann’s leadership as controlling shareholder and CEO, Southern Union became a national leader in providing the lowest gas prices for its customers. In addition, the company's safety performance ranked among the best in the natural gas industry. Southern Union's stock outperformed every other natural gas company in the country soon after Mr. Lindemann took over control of Southern Union up and through the trial. This background of achievement and natural gas performance is important because part of the strategy of detractors of Southern Union, including Commissioner
Irvin, was to paint a false picture, suggesting that it was a debt-riddled, poorly managed company so weakened by economic, safety and performance issues that regulatory approval would be either unlikely or subject to conditions so onerous and burdensome as to make Southern Union’s acquisition of Southwest Gas economically unfeasible.
This strategy will be detailed later in this report.
-37- 5. General Merger Process
Southern Union tried to buy Southwest Gas for $1.8 billion dollars. Oneok also tried to buy Southwest Gas, for $108 million dollars less than Southern Union, and
Southwest Gas initially accepted Oneok’s lower offer. On December 14, 1998, Oneok offered to purchase Southwest Gas for $28.50 per share. On February 1, 1999,
Southern Union made a higher offer for $32 per share, with the exact same terms offered by Oneok. Typically, when a company like Oneok or Southern Union is interested in buying another company like Southwest Gas, the buyer will first approach the target company or an investment banking entity to promote a sale. If management of the two companies reach agreement on the terms of the deal, then the deal is submitted to the board of directors of each company for preliminary approval or disapproval.
The board of directors is the governing body of a company. The members of the
board are elected by the shareholders of that company. The shareholders are the
owners of the company; they have put up the money to run it. When a company is up for sale, like Southwest Gas was here, both the board of directors and the management of a company owe a strict legal duty to the shareholders to get the most value and best return on the shareholders’ investment. In other words -- to get the shareholders the most money for the deal. The company does not belong to either the management or
-38- the board of directors, so it is not their company to decide whom to sell to based on
personal benefit, bias or whim. The management and the directors are dealing with the
shareholders’ money. And at the point in time when the company is being sold, the
shareholders (the owners) are cashing out and want to get the most money possible.
Several steps must be taken to bring about a merger. When the board of directors approves a preliminary merger agreement negotiated by management, the final approval of the sale has to come from the shareholders. To educate the shareholders on the merger proposal, management and the directors prepare a proxy statement and mail it out to all of the shareholders for their approval. The proxy statement is supposed to set out the information about the sale and is normally accompanied with a written recommendation from the board of directors setting forth their reasons to support the recommendation. The shareholders then vote on the proposal and return their proxy to the company.
For natural gas companies, like Southern Union, Southwest Gas and Oneok, there is another critical layer of involvement. These natural gas companies are
“regulated entities” and, therefore, must get approval from state utility commissions for the prices they charge for their services, the services they provide and the products they sell. The rate-paying public has a right to expect competent delivery of natural gas at acceptable prices. If a company like Southwest Gas sold its operations to an inept or
-39- poorly managed company, it would jeopardize the quality of product and service that ratepayers had grown to expect. For that reason, utilities commissions in each of the affected states have to approve the sale before it can become final.
Any merger with Southwest Gas would have had to go through an approval process in at least three states -- Arizona, California and Nevada -- where Southwest
Gas operates and serves its customers. In Arizona, the regulatory body is the Arizona
Corporation Commission, or ACC. Commissioner Irvin was the Chairman of the ACC in 1998-1999. In California, the merger had to be approved by the California Public
Utilities Commission or CPUC, and in Nevada, Southwest Gas’ home base, the merger had to be approved by the Public Utilities Commission of Nevada, or PUCN. These three administrative entities do essentially the same thing. The commissioners at these three agencies play similar roles to judges in a lawsuit. They have a clear duty to be fair and impartial, to consider the evidence and arguments of counsel and litigants without bias, and to wait until they hear all the evidence before they vote. It is vital that commissioners maintain neutrality and impartiality until they have heard all evidence and arguments of adversaries in any proceeding. The essence of the jury verdict and judge's findings against Commissioner Irvin was that he utterly failed to remain fair and impartial, instead crossing the line and becoming an advocate for Oneok and against Southern Union. It was their belief that Commissioner Irvin
-40- violated the duties and oath of his office when he abandoned his duty of impartiality and engaged in unprecedented covert actions with a non-ACC employee, Jack Rose to ensure Oneok's bid for Southwest Gas.
There is a well-defined process involving the ACC which precedes a vote on a merger. It begins when the two merging companies file a joint application for ACC approval. The ACC has a very capable staff of over one hundred people whose job is to review merger applications and make recommendations to the ACC commissioners about the agreement. These officials examine the safety record, the performance record, and economic strength and viability of a company. After the staff makes its recommendations, the ACC commissioners then make the final approval of the merger application based solely on evidence that is presented in the case in a public hearing.
Those who oppose the merger, or otherwise believe it is harmful to rate payers or the state, have an opportunity to be heard.
It is vital to the due process rights of all applicants and interested parties to know that commissioners cannot pre-judge a deal or lobby in favor of one merger partner over another. They cannot be involved in choosing one merger partner over another until the evidence has been fairly presented and issues of approval come to vote. It is unthinkable for a commissioner in one state to try and influence a commissioner in another state through ex-parte communications. It is unthinkable for a quasi-judicial
-41- officer to lobby a governor or a board to help a preferred applicant prevail over the
opposition. Their decisions should only be based on the information that is presented
to them after review by ACC staff. When someone makes an unsolicited comment
such as a letter outside of the judicial process, the commissioners have a duty to file
such letters in the docket so all sides are able to see and evaluate any contact made with a commissioner. Under these clear due process guidelines, the applicants, interested parties, shareholders, and rate payers can know why a merger is being approved or rejected. There are not supposed to be any back-room, secret meetings, nor can actions be potentially influenced by friends or advisors who might have a significant financial interest in the outcome of a case.
Before the Oneok-Southwest Gas merger, California, Arizona and Nevada had
approved virtually every merger that had come before them in the natural gas industry.
The same is true with every other regulatory agency in this country. It is not
uncommon for conditions to be agreed to by the parties and then imposed for approval.
This is part of the regulatory give-and-take attendant to virtually every merger.
Commissioners can impose conditions relating to an existing work force, or insist that a
merged utility be an active part of the community that it will serve. The commissioners
and the applicants have continuing duties of fair play. Conditions must be fair and
designed to promote a greater public good. It should be emphasized that no natural
-42- gas merger has ever failed because it could not get regulatory approval and never in the history of this country has a regulatory body imposed conditions on a deal that prevented the deal from closing.
The evidence produced at the Southern Union v. Irvin trial proves Commissioner
Irvin was part of a clever strategy designed to defeat Southern Union's superior bid to acquire Southwest Gas. For the plan to work, those supporting the plan would have to persuade the Southwest Board of Directors to reject a superior offer to the clear detriment of the shareholders that they had a fiduciary duty to protect. The strategy, as described in the trial record, was to bombard key decision makers with false and misleading information at the last possible moment. The objective was twofold: convince the Southwest Board that regulatory boards in Arizona, California and
Nevada had serious reservations about approving Southern Union's bid while, at the same time, undermining confidence in the economic strength of this natural gas giant. If detractors could taint the higher bidder, a $28.50/share offer could appear to be superior to a company offering $32.00/share. The decision makers only had to be persuaded that the high bidder was besieged with debt and would probably be saddled with regulatory conditions by various state utilities commissions. The best person available to promote these points was Chairman Irvin. He was the one person who could walk through an open door and lobby commissioners from neighboring states,
-43- enter the enclave of a Governor's office in Nevada and lobby for Oneok, or approach
CEO's or other company officials of regulated companies like Southwest Gas to shatter
confidence and undermine support for Southern Union. It was no mistake that the trial
jury assessed 40% and 20% findings of liability and entered a staggering punitive
damage award. All other participants were in the private sector. No voice among all
the named defendants carried greater weight and authority than the voice of the ACC
chairman, James Irvin.
6. Jack Rose - Commissioner Irvin’s Close Friend and Advisor
One of the most important and pivotal figures in the Southern Union litigation was a boy-genius who emerged as a powerful figure at the Arizona Corporation
Commission. When Commissioner Jim Irvin was elected to the Arizona Corporation
Commission in 1997, one of his key campaign advisors and strategists was Jack Rose.
His life story is important to the mosaic of this litigation.
Jack Rose was born in humble beginnings in Mohave County, the youngest of 8 children. Despite his family's financial hardships, Rose used a brilliant mind and ambitious personality to successfully escape from his small town environment and gain admission to prestigious eastern universities. His is a fascinating rags-to-riches story.
Raised in a poor environment by a loving mother and abusive stepfather, Rose would escape to public libraries and immerse himself in books.
-44- In 1985, while in the midst of pursuing his college education out of state, Rose, a political neophyte at the youthful age of 21, successfully ran for and was elected to a seat on the Mohave County Board of Supervisors. This made Rose the youngest county supervisor ever elected in Arizona and, at the time, made him the youngest elected official in the United States. He had successfully crafted a strategy which involved changing political parties from Republican to Democrat, and engineering a strategy resulting in a landslide victory in a Republican dominated county. After a four year term, Rose left full-time politics and returned to school.
In 1990, Rose's political interests bought him to Phoenix where he volunteered to work with then-Phoenix mayor Paul Johnson as a “loaned executive.” Rose and
Johnson became close friends, a friendship which thrives even to this day. Rose played an active role in assisting Mayor Johnson as an unpaid volunteer, contributing political ideas and giving political support to the Mayor. He would later serve as an elected member of the Maricopa County Charter Committee. Many of his contemporaries viewed Jack Rose as a rising star in the Democratic Party. During many of Rose's political activities in the early 1990's, he was commuting between Massachusetts and
Arizona with a backbreaking schedule, leaving on Wednesdays and returning on
Sundays. In 1991, Rose graduated from Yale and was admitted to Harvard Law
School.
-45- In 1996, shortly after his graduation from Harvard Law School, Rose became a key political strategist in Commissioner Irvin's quest for election to the Arizona
Corporation Commission. Rose became an important Irvin fundraiser, speech writer, and strategist. He traveled with Irvin throughout the state. Although Commissioner
Irvin claimed in an interview on August 20, 2003 that Rose played a minor role in his campaign, that claim is untrue. Irvin, in a classic understatement, said:
Irvin: [J]ack provided a little assistance. I think it was blown out of proportion when it got into how much assistance he would have provided on the campaign but he --
McDonald: What role did he have? What role did he play?
Irvin: Yeah, I’m not sure he had a role or he played anything cause he wasn’t there all the time. He wasn’t an active participant. He – the only thing that I recall him ever claiming to commit to do was he said he’d help raise a little bit of money. Of which he did help raise, I don’t remember the exact amount. I want to say, best guess it’d probably maybe twenty, $25,000. But I’m not – don’t quote me on that even though you got it on tape.
McDonald: Yeah, too late, you’re recorded.
Irvin: But anyway –
McDonald: Did he do speech writing for you or –
Irvin: Not that I recall, no ...
[Irvin Interview at 19, emphasis added.]
Jack Rose was heavily involved in Irvin's 1996 campaign. Mohave County resident Gary Goodman had encouraged Rose to assist Irvin. Before joining the Irvin campaign, Rose had received a generous buyout of his employment contract from his
-46- employer, Bank of America, enabling him to devote almost full time to the Irvin campaign as an unpaid political advisor and strategist.
A troubling aspect of the Rose-Irvin relationship has been Commissioner Irvin's propensity to misstate the truth, even on trivial, non-essential matters. The jurors we interviewed told us that Commissioner Irvin was simply not a truthful person, and that this lack of credibility was manifest during the trial time and time again. An example of this troubling behavior is illustrated by his attempt to distance himself from his relationships with Jack Rose and Mark Dioguardi. This was a problem which plagued him during his trial, as well as our August 20 interview. Juror Lynn LeSeuer described the impact of Irvin's dishonesty upon the jury.
McDonald: Tell me in your own words, just give me a summary, of how the trial as it progressed, the strengths and weaknesses that you saw in the Southern Union case?
LeSeuer: The strengths and weaknesses in the Southern Union case. Well, we had a total of 72 witnesses, either in person or video deposition. Some of that includes multiple testimonies. As it progressed, we learned more and more about what happens with/when corporations are getting ready to merge. I knew a little bit about small mergers that I’ve been involved in. I learned a lot about larger mergers and we learned quite a bit about the do’s and don’ts. You know as far as what is required when you hold public office.
McDonald: OK What was your read on Commissioner Irvin? How would you describe your feelings as they begin to evolve in the case?
LeSeuer: Well, to give you my read on Commissioner Irvin, I also have to give you my read on Jack Rose. I know he’s not part of this whole proceedings but when they came into the court room, it was? they were very buddy, we’re in this for the same purpose and we’re going
-47- to stick together to the end. And about half way through the case, or I guess it was probably either the 1st or 2nd time that Jack Irvin was on the stand.
McDonald: You mean Jim Rose [sic] or?
Leseuer: Jim Irvin. Jim Irvin was the stand, he made the statement that they were not friends that they were just acquaintances and he kind of really distanced himself from Jack Rose. Whereas, everything we had heard prior to that, you know they would go to the gym together. They would go hiking together. They would, you know, they were almost inseparable with a lot of their business dealings and a lot of their?you know, they had a good relationship going from what everyone outside was saying. So when, Commissioner Irvin got up and said they were not friends, and they were just kind of so-so as far as business associates, that kind of turned Jack and it kind of made all of the jury perk up and say well, wait a minute, that’s contrary to everything we’ve heard.
(LeSeuer Interview at 2-3.)
In the trial, Irvin claimed he had worked out with Rose possibly one time. Those who know Rose and Irvin have characterized that claim as utterly absurd. We asked
Irvin to detail the personal side of his relationship with Jack Rose. He said:
McDonald: Now, were – was Rose a friend of yours outside of the professional realm? In other words, would you go to dinner with him? Activities like that?
Irvin: I think Jack and I socialized and went out to dinner probably once the entire time and that was a fundraising event.
McDonald: Okay.
Irvin: Other than that, maybe once or twice we went to the gymnasium and we worked out.
McDonald: Did you belong to the same spa?
Irvin: No.
-48-
McDonald: When you same “gymnasium” what – is it one that you and he both belong to?
Irvin: No, it was one he invited me – he invited me to – it was one that he was a member of, I was a member of a different one. In fact, I used to be a member of the Renaissance Club down here. He was up – some place up north. But no, we really – really didn’t socialize. He invited me to go on several trips with him to Las Vegas and he invited me to go –
McDonald: Did you go?
Irvin: No. No. Never went. On a rafting trip. Never went, never did any of those things with him.
McDonald: Okay so there really wasn't a social life then, it was just one political dinner and there were no social dinners together, and once or twice at a health club and that was it?
Irvin: Basically, as best I can recall, yeah. I mean, we'd talk on the telephone. Sometimes we'd meet for lunch. But, you know, really there was no outside social hiking, movies -- you know, other things. And I -- I don't want to go there in case --
McDonald: Dioguardi. Is it the same with Mark Dioguardi or were you closer to Dioguardi?
Irvin: No, it's pretty much the same with Dioguardi. Again, it was -- the
only social thing I ever did with Mark outside of fundraising was I was
invited to go to his wedding. Other than that, and Carol and I went to
his wedding. Other than that, I think the only time on a social aspect
with Mark was probably at a -- not a -- well, either at political
fundraisers or charitable events.
(Irvin Interview at 24-25, emphasis added.)
-49- Jack Rose, who testified under oath pursuant to subpoena before a later grant of
immunity by the House of Representatives, was shocked by these claims. He explained that both he and Irvin belonged to the Renaissance Club, and would frequently work out together at that facility. We did subpoena the records at the Renaissance and found that, indeed, Irvin and Rose were members during the same period. The Renaissance would actually maintain records when members attended that facility. There were a number of times that Irvin and Rose signed in within minutes of each other. Rose’s testimony, and the Renaissance records, confirmed Commissioner Irvin’s claims were false. Jack Rose joined the Renaissance Athletic Club on July 7, 1997 and ended his membership on December 31, 1998. Jim Irvin joined the same facility on April 24,
1997 and canceled his membership in late February of 2000. We learned that there were numerous times that Rose and Irvin would work out together at the Renaissance.
After leaving the ACC, Rose joined the Tocasierra Spa and Salon at the Pointe Hilton at Squaw Peak. While Irvin did not acquire a membership at that facility, he was a frequent guest of Jack Rose. It is this type of misleading testimony that we find from
Jim Irvin time after time. In addition, we learned that there were well over 100 breakfasts and lunches where Irvin and Rose would meet and dine together.
Additionally, there were numerous hiking events where Rose and Irvin climbed Squaw
Peak as well as other hiking terrains.
-50- And it is not just Irvin's word against Rose's word. Irvin's ACC secretary, Laura
Winewar Black, testified at trial that she was aware of the many activities that Rose and Irvin would participate in together on an almost daily basis.
Mrs. Black testified at the trial:
Q. Now you knew Jack Rose and Jim Irvin back in 1999, right?
A. Yes, I did.
Q. And they were good friends back then; right?
A. I know Jim as my boss; Jack is my friend.
Q. But did you know that Jack and Jim were good friends back then?
A. Yes, I did.
Q. And they socialized together a lot; right?
A. I have no idea how often they socialized.
Q. Do you recall they went to lunch together almost every day?
A. No, I don't know anything about them going to lunch every day.
Q. Do you recall that they used to work out together?
A. Yes, that I do know, that they worked out together.
Q. And Mr. Irvin's a pretty big enthusiast about working out, right?
A. Yes.
Q. And so is Mr. Rose, right?
A. Yes.
Q. And do you recall that they used to go to breakfast meetings together and do various things together?
-51-
A. I know they did do some things together; I don't know exactly what.
(Trial Transcript, p. 5156:10 to p. 5157: 9.)
Dioguardi confirmed that his personal and social relationship with Irvin was
much closer than described by the Commissioner in the August 20th interview. Jack
Rose had a closer professional and working relationship with Jim Irvin than any other
person, including Irvin's wife. Irvin trusted Rose, confided in Rose, received counsel
and advice from Rose, and relied heavily on Rose for both political and regulatory
advice.
7. Jim Irvin's Creation of an Arizona Corporation Commission “Loaned Executive” Position - Jack Rose Serves as Irvin's Loaned Executive in 1997
In the early spring of 1997, shortly after Irvin's assumption of office at the ACC,
Commissioner Irvin implemented a “loaned executive” program designed to position
Rose as a confidant and chief advisor even though he was an unpaid non-state employee. It is obvious that Commissioner Irvin became so comfortable with his relationship with Jack Rose that he wanted that relationship to continue beyond the campaign trail. Jack Rose, once appointed, was actually provided a private office at the Arizona Corporation Commission over the vehement objections of then Chairman
Carl Kunasek. Commissioner Renz Jennings supported Irvin in the assignment of a
-52- private office for Rose. It was an unprecedented action for an unpaid, non-state employee to have a business office within the confines of a public agency.
One of Rose's first assignments as loaned executive was to draft “Commissioner
Jim Irvin's Ethics Policy” that would govern Irvin's current and future employees, including Rose. The rules were intended to cover those employees who worked under
Irvin at the ACC, then and in the future. The first two policies are probative to this inquiry. The first ethics rule read:
It is the policy of Arizona Corporation Commissioner Jim Irvin to uphold, promote and demand the highest standards of ethical behavior from all employees. Accordingly, all members of the Irvin staff, including Loaned Executives, shall maintain the utmost standard of personal integrity, truthfulness, honesty and fairness in carrying out their public duties; shall avoid any improprieties in their roles as public servants, and shall never use their position or powers for personal gain.
The second ethics rule, drafted by Jack Rose and adopted by Jim Irvin, read:
In order to avoid conflicts of interest and the appearance of impropriety, staff members shall not accept gifts, commissions, retainers, salary, or any other type of income from a regulated utility company. Furthermore, an employee with a substantial interest in any contract, sale, purchase or service to the ACC is prohibited from participating in the transaction.
Had Jim Irvin embraced and acted in accordance with his own ethical policies, he would not have been assessed staggering punitive damages, nor would he have been recommended for impeachment and a lifetime ban for elective office in Arizona by
Special Counsel.
-53- Jack Rose, as a loaned executive, became involved in sensitive Commission business, working with utility executives and becoming a visible presence at the
Commission, even though he was unpaid. Because of the highly sensitive responsibilities of Corporation Commissioners, resentment and skepticism developed over this program among one commissioner and among staff, especially Carl Kunasek and his aide, Jerry Porter. The term “loaned executive” was misleading because Rose was not an “executive” with any recognized company in Arizona and, consequently, no company had loaned Rose to the Corporation Commission. Commissioner Irvin, in our
August 20th interview, admitted:
McDonald: So when you’re elected to the Commission, I know that he came on – you brought him on as a loaned executive. What did that mean? I’m trying to – is it something – a description you got from Paul Johnson or is it something that you created or –
Irvin: You know, it’s a good question and I don’t think there’s any really good answers. Because at the time there wasn’t – Jack had drafted a – it was on the record, an ethics policy which was the same ethics policy that he used with Paul Johnson which quite frankly to me looked very, very good for outside people. And it was a way for him to kinda be able to, from time to time, be able to provide me with some advice or whatever. There was no – there was no description, there was nothing ever put out per se and, you know, in hindsight, probably loaned executive was a very bad term to use but, you know, what else you gonna do? Just a (?) contact or somebody to, you know, somebody from the outside to give advice to an elected official from a third party, non binding advice.
McDonald: In other words, was he loaned by a company like Bank of America or was it just a title. You say maybe it was a bad name. So –
-54- Irvin: And that’s why I’m saying that cause you’ll look back and now and see all the controversies created. I think – it was a bad name because he was not, to my knowledge, no one paid him to do that and he wasn’t – he would offer – and it wasn’t all the time he did, but he would offer a thought or I’d call him and say, you know, gosh, let’s just run this by from your perspective, what do you see. And just bounce something off the wall and, you know, he’d give me his opinion on it, for whatever that was worth. But the answer to that question is “was he paid by another company or did anybody bring him,” the answer is not to my knowledge. And that was never the intent, for anybody to be paid in that capacity.
McDonald: In other words, to bring him on you never discussed like with Bank of America or something where they say “here, we’re gonna let you use his time or his talents or anything like that?”
Irvin: No, you’re absolutely right. We never discussed with anybody.
[Irvin Interview at 20-21, emphasis added.]
In truth, Mr. Rose's participation was much greater than an occasional phone call from Commissioner Irvin. He had an actual office and would come to work on a regular basis, even though he was unpaid. There were a host of potential liability issues potentially arising out of Rose's participation in the Commission's business.
For example, if Jack Rose took an action as a “loaned executive” that created liability to an aggrieved party, would the State of Arizona be liable for the actions of this unpaid employee? These legal questions and troublesome concerns never became a focus in Mr. Irvin's mind. Indeed, in the Southern Union litigation, Jack Rose was named as a defendant and even though he was not a state employee, the State
-55- eventually provided Rose a defense and ended up paying his $75,000 monetary settlement.
The relationship between Rose and Irvin was particularly troublesome and confusing to ACC staff. Each Commissioner was already provided with a state- approved advisor under state law. The actions of Rose entered into those areas normally reserved for the state – approved advisor. Rose acted as “loaned executive” only to Commissioner Irvin and none of the other commissioners. The unpaid position did provide Jack Rose an excellent opportunity to meet the movers and shakers in the utilities hierarchy in Arizona. Rose had a brilliant mind and a fascination for the concept behind deregulation, and this unpaid position gave him the unique opportunity of “networking” with utility executives not only in Arizona, but throughout the various states.
-56- 8. Political Firestorm at the Commission - Irvin vs. Kunasek
A firestorm of conflict began at the onset of Irvin's ascension to office between
Commissioner Carl Kunasek and Commissioner Irvin. This personality conflict slowly evolved into open hostility between the two commissioners. It started on the day of
Irvin's initial oath of office and continued until Kunasek left office at the expiration of his six year term. Although Kunasek and his advisor Jerry Porter had enthusiastically supported and worked for Irvin's election, the honeymoon was short-lived and soon evolved into a bitter, degrading battle that severely damaged staff morale and subjected the commission to public ridicule.
Kunasek believed that Irvin should accede to Kunasek's decisions and vote in step with Kunasek. He had far more government experience, and had an impressive legislative background. Kunasek had become accustomed to this type of loyalty from his days as Senate president. Irvin, on the other hand, decided early on that he was not going to be a “yes” man to Kunasek. As hostilities grew between them, Renz
Jennings, the lone Democrat on the Commission, saw an opportunity to further his agenda by siding with Irvin in forming a new majority. While the Jennings-Irvin alliance was not always guaranteed, Jennings frequently aligned himself with Irvin on many key issues isolating Kunasek and raising the hostility thermometer to the boiling point.
-57- Irvin and Kunasek's rivalry and hostility grew almost daily. The hate mail and
accusations that spread between them, and among their assistants, was disconcerting.
Jennings and Irvin frequently traded insults with Kunasek and Porter. Soon, after Rose became Executive Secretary, insults were frequently leveled back and forth between
Rose and Kunasek. Soon, Patrick Black joined the fray against Kunasek. There was no other governmental entity so totally dysfunctional than the ACC.
The result was predictable: good people began to resign and look elsewhere for work. Recruiting top people became nearly impossible because of the hostile environment that poisoned the ACC. The natural byproduct of this hostility was that regulated entities were frequently caught in the cross fire, doing their best to convince each Commissioner that they were in that Commissioner's camp. Public utilities would frequently hire one lobbyist favorable to Kunasek, and another lobbyist friendly to
Irvin. There was plenty of blame to throw around among the feuding parties. The poisonous venom expanded to the administrative assistants, resulting in accusations and counter-accusations among Commissioners and their staff. The political feud at the
ACC made the Commissioner the laughing stock of state government.
-58- 9. The Termination of Geoffrey Gonsher and Promotion of Jack Rose to the Position of Executive Secretary
There was open hostility at the ACC between Kunasek and Irvin when Irvin and Jennings
were successful in firing then Executive Secretary, Geoffrey Gonsher, and replacing him with Jack
Rose. Lindy Funkhauser, the chief legal counsel and an outstanding attorney, was also terminated,
wreaking unprecedented hostility between the warring factions. With Rose’s appointment, the unpaid
“loaned executive” had now assumed a pivotal role at the Commission as its Executive Secretary.
Kunasek resigned as Chairman when Funkhauser was fired in the fall of 1997. This resulted in Irvin
becoming the new Chairman of the ACC. During the tumultuous one and a half years of his tenure as
Executive Secretary, Rose was repeatedly accused of various acts of impropriety by Kunasek and his
aide, Jerry Porter, resulting in public name-calling and growing dissension. According to Jack Rose,
Kunasek refused to ever meet with Rose in any one-on-one meeting other than a single meeting where Rose was contemplating resigning his post as Executive Secretary.
People who lived and worked through this period at the ACC assessed fault to all of the antagonists. The outright hostility peaked in June of 1998, after Kunasek and Porter accused Jack
Rose of violating the open meeting law. Rose denounced Kunasek and Porter and asked the ACC's in-house counsel if he could investigate “a member of a commissioner's staff.” Kunasek and Rose exchanged heated barbs in an open commission meeting with each denouncing the character and ethics of the other. As the rift between Kunasek, Porter and Rose grew, the relationship between
Rose and Irvin grew much closer. In July of 1998, it was Irvin who proudly announced that Jack
Rose had been appointed to the Federal Communications Commission National Rural Task Force on
-59- telecommunications deregulation. Irvin lauded Rose, noting that the FCC had “ recognized the talent and leadership abilities of Mr. Rose on cutting-edge issues.”
Jack Rose was a highly visible, proactive Executive Secretary during the one and a half years of his service. During part of that period, because of the ACC's inability to hire competent replacement personnel, Rose’s functions included acting Utilities Director as well as Executive
Secretary.
10. Jack Rose's Contacts with Prudential Securities Prior to His Resignation as Executive Secretary of the ACC
Jack Rose served as Executive Secretary from June 1997 until December 31, 1998. On
August 27, 1998, Rose announced his resignation from the ACC effective at year’s end. Rose told the media, “I came on board hoping for an intellectual feast, and I got more of a knuckle sandwich.”
He intended to go to work in private enterprise with a “think tank” or possibly explore other business opportunities. His great hope was to win appointment to a White House Fellowship within the
Clinton Administration. His backup plan was to obtain employment with an investment banking enterprise. Mr. Rose felt that his legal and business background and his networking connections arising out of his service with the Corporation Commission would enable him to make a lucrative living.
a. September 1998 Meeting between Rose and Prudential
Before his resignation in December of 1998, Jack Rose became involved in a series of meetings and contacts with Prudential Securities, an investment banking powerhouse. In September of 1998, four weeks after his announced resignation, Rose traveled to Washington D.C. and later to
New York to meet with representatives of Prudential Securities. Rose met in New York on
-60- September 24, 1998 with three important Prudential figures -- David Dubin, Peggy Jones and Joe
Fichora. The purpose of the trip was to explore a possible role for Prudential in the deregulation of electric services in Arizona. A secondary purpose was to enable Rose to meet important people at
Prudential in the event his career options turned in that direction.
The trip to Washington D.C. and New York generated a firestorm of criticism from
Commissioner Kunasek. Kunasek demanded a copy of Rose's appointments from Irvin, requesting dates, times and names of officials meeting with Rose in both his Washington D.C. and New York travels. Kunasek complained that the trip to New York and Washington was a “junket” for a lame duck Executive Secretary about to retire. His letter was copied to the Governor, the Senate
President, the Speaker of the Arizona House, the Auditor General, Commissioner Jennings and the
ACC Business office. Irvin lashed back, coming to Rose's defense, claiming that Rose was meeting with regulatory officials of the FCC, RUS, and Department of Energy as well as investment bankers and legal firms specializing in electrical restructuring issues on a national scale. In response to
Kunasek's claim that his career history had never required him to engage in such an extended stay,
Irvin sarcastically fired back at Kunasek suggestions “perhaps because the issues you dealt with were not as complex or comprehensive as those Mr. Rose is addressing.”
During the course of pretrial discovery in the Southern Union v Irvin civil lawsuit, it was learned that Rose had ordered 500 new business cards, desiring 250 for the Washington -- New York trip. These new business cards would later raise criticism against him at the trial. To his statutory title of “Executive Secretary,” Rose had added on the business card a new title of “Chief Executive
Officer.” Southern Union attorneys suggested that Rose added the term to the business card to embellish his role at the Commission in his search for a new job after December 31 and that the
-61- September trip to New York served a secondary purpose of allowing Rose to “network” with
Prudential officials on the eve of his resignation and plant important seeds with Prudential for his future business hopes in the field of investment banking. Rose defended his new business card title at our deposition, claiming that the CEO addition to the business card was justified because his duties under the statute were identical to those of a CEO. Rose was adamant that the meetings in
Washington, D.C. and New York were critical to the ACC's deregulation interests. There was a plan in place at the ACC to deregulate various electrical utilities in the state of Arizona. For deregulation to be possible, it would be critical to involve investment banking entities to finance deregulation.
Prudential stood to play a key funding roles in the deregulation process.
b. The November Meeting Among Prudential, Rose and Irvin
The next major event involving Rose with Prudential occurred in November of 1998, almost two months before his resignation from the Arizona Corporation Commission. Rose and
Commissioner Irvin both attended the NARUC (National Association of Regulatory Utility
Commissions) conference in Florida. NARUC's member agencies regulate the activities of telecommunications, energy and water utilities throughout the 50 states, the District of Columbia,
Puerto Rico and the Virgin Islands. While attending the meeting, Rose again met with PSI executives
David Dubin, Peggy Jones and Joe Fichora. Commissioner Irvin joined Rose at this meeting. At this
November meeting, Rose told Dubin and his colleagues that he was leaving the ACC and was considering going with the FCC. He asked pointed questions regarding investment banking showing a keen interest in that industry.
c. Oneok's December 14, 1998 Bid to Purchase Southwest Gas - Rose Attempts to Secure Employment with Prudential on the Same Day
-62-
On December 14, 1998, both Oneok and Southwest Gas publicly announced that the board of
directors of the two natural gas giants had agreed to a merger subject to regulatory and shareholder
approval. Prior to the public announcement, Ed Zub, Senior Vice President at Southwest Gas, had
called Irvin, Kunasek, Jennings and Rose to confidentially inform them of the merger plans. The
press release announced that Oneok would pay Southwest shareholders $28.50/share to buy out all
Southwest shareholders and assume control of Southwest Gas subject to regulatory approval. That
same day, using an Arizona Corporation Commission fax machine and an Arizona Corporation
Commission cover sheet, Rose faxed his resume to David Dubin of Prudential Securities in New
York. Rose would later be criticized in the Irvin trial for using an ACC cover sheet and ACC phone
lines to transmit personal information to seek private employment.
One week later, on December 21, 1998, Jack Rose faxed Joseph Fichera, Managing Director
of Prudential Securities a “Business Proposal” again using an Arizona Corporation Commission cover
sheet and the ACC fax line.1 Rose,
in pitching his qualifications, reminded Fichera:
[Y]ou need someone who has relationships with state commissions and the networking ability to land the initial contracts. As a former commission staff director who has networked aggressively over the past few years, I am in an ideal position to get the initial advisory contracts, add value to the state proceedings, and obtain the resulting underwriting business.
1In our deposition of Jack Rose dated August 27, 2003 and August 28, 2003, he conceded that he used poor judgment in using ACC cover sheets to send his resume and business proposal. He did indicate that he asked Commissioner Irvin's secretary to make sure that the state was reimbursed for the facsimile line charges, which would have been less than $1.00. He was unsure whether that reimbursement had ever been made.
-63- Rose boldly claimed: “Like any other business, insiders always have an
advantage.” The proposal became yet more bold. He wrote:
Last week Southwest Gas Corporation announced that it is being bought out in an all-cash transaction. Given my relationship with this company, and my ability to advise them on important regulatory issues related to the merger, I believe that I am well positioned to get some of the underwriting business.
There was only one Commissioner on the Arizona Corporation Commission who
could or would fulfill Rose's “advantage” as an insider, Chairman Jim Irvin.
Commissioner Jennings was leaving the ACC at the end of December with Rose so he
was certainly in no position to assist Rose. The newly elected Commissioner, Tony
West, had no ties to Rose. In fact, it was widely rumored that Rose had resigned
because of the certainty that West and Kunasek would align and fire him. It was
certainly clear that Rose could not look to Kunasek for assistance -- Kunasek detested
Rose and held him responsible for a myriad of what he believed were bad decisions and questionable conduct. Rose added in his proposal to Prudential the following language:
“I should have a job title that is sufficiently prestigious to enable me to work directly
with CEOs and impress state commissions.”
Rose’s proposal and payoff was contingent upon his productivity. He wrote:
I'm looking for an investment bank that is willing to be creative and implement a highly entrepreneurial, pay-for-performance relationship. I know that I have the ability to bring in substantial business and help position an investment bank to take advantage of opportunities in telecommunications, energy and water.
-64- At the time of Rose's proposal to Prudential, Oneok had already formulated a
financial agreement with Paine Webber for its investment banking needs regarding their
acquisition of Southwest Gas.
d. The January 12, 1999 “Meet and Greet” Luncheon - Oneok, Southwest Gas, Rose and Irvin Meet to Discuss the Merger
On January 12, 1999, only four weeks after the merger announcement by Oneok and Southwest Gas, only three weeks after Jack Rose's business proposal to
Prudential, and a mere 11 days after his resignation as Executive Secretary to the
Arizona Corporation Commission, Irvin returned Rose to the fringes of power. This decision was made without the knowledge of Mr. Kunasek and the Commission's newest member, Tony West. On that date, Southwest and Oneok representatives had scheduled meetings with Commission members to advise them of the planned merger.
Officials within the industry refer to these contacts as a “meet and greet” meeting.
Such meetings are entirely appropriate, and give companies an opportunity to meet with the Commissioners and briefly outline their plans for the merger.
Southwest and Oneok representatives first met with Commissioner West and his assistant James Fisher at the ACC offices. That same day, Southwest and Oneok representatives met with Carl Kunasek and his assistant Jerry Porter, again at the ACC offices. For some inexplicable reason, Commissioner Irvin arranged to meet the
-65- Oneok and Southwest representatives at the downtown Arizona Club over lunch. The
meeting occurred without the knowledge or participation of Irvin's appointed assistant,
Patrick Black.
1. The Briefing of Commissioner Irvin by Jack Rose Prior to the January 12, 1999 Luncheon with Oneok and Southwest Gas
Jack Rose, in his deposition to special counsel, provided valuable insight into his conversations with Jim Irvin leading up to their January 12, 1999 meeting with Oneok and Southwest Gas officials. Rose had conducted some preliminary research on Oneok over the internet and through industry publications, and had learned that they were not
only a major utility company but had strong political connections and were active on
the political landscape in Oklahoma and Kansas.
Jim Irvin had openly shared his political aspirations for a gubernatorial run or possibly a prestigious federal appointment with Jack Rose. Rose explained to Irvin, prior to their meeting, how Oneok could prove invaluable to his political future, lending enormous support for elective office, or lobbying political figures responsible for making prestigious national appointments. Politics was always the main subject of conversation between Irvin and Rose at their many breakfasts, and the “meet and greet” meeting was no exception. As Rose explained it:
-66- (Rose) Jim had an interest in being appointed to the Federal Energy Regulatory Commission, FERC is the acronym for it, and he also had an interest in the Federal Communications Commission, which is typically a harder appointment to get so FERC was more of a realistic opportunity. Oklahoma is a major natural gas and oil producer and the Senators from Oklahoma, I think it was Inhofe, I-n-h-o-f-e, and Don ... Nickles, yes. He is the deputy, number two leader in the U.S. Senate. I told him that they were both very influential on energy issues and that undoubtedly Oneok knew them well and that if he were interested in a FERC appointment, I am not sure that I spelled it out in this detail, but this may have been in more than one conversation, but basically that these were important people to know if you are looking for an appointment at FERC ... But I knew a little bit about them, enough to know that they were well-connected in Oklahoma.
McDonald: Actually a company like that, if you are running for high public office can do pretty well at fundraising. Did you discuss that? You had mentioned he had wanted to someday be Governor.
Rose: I mentioned that to him.
(Rose Deposition, Vol. 2 at 191-193.)
Rose urged Irvin to be punctual to the meeting and not keep these powerful executives waiting for a late arrival. In Rose's own words, he describes his strategy with Irvin preceding the meeting:
A. Well, here is what I told him. Jim was very interested, and I don't want to minimize his interest in public policy, Jim had a genuine concern about public policy so it wasn't all politics, but this conversation was more political than anything. What I told him -- I had done some preliminary research on Oneok. I told him they were a large company, that they were very well connected in Oklahoma. I told him that there were a couple of very influential Republican Senators out of Oklahoma and that I had heard that they were well-connected in the community and that they could be helpful on a number of fronts, and that this was just mainly a social “meet and greet” and just be friendly with them and listen to what they have to say, and, you know, take a positive
-67- attitude, and that it would be helpful if he would give me a buildup, and he said fine.
(Rose Deposition, Vol. 2 at 191-192.)
Jack Rose and Irvin had a very positive meeting with Southwest Gas and Oneok
executives. Rose, as of the January 12th meeting, had not as yet had any positive
response from Prudential, was currently unemployed, and appreciated the access that
Irvin was providing to him to meet company heads from Oneok and Southwest Gas. At
the meeting, Irvin spoke fondly of Rose's great accomplishments as the former
Executive Secretary, while Rose touted Irvin's leadership and vision for the future.
Even though Irvin was late for the meeting, Rose believed that positive contacts had
been accomplished at the meeting.
2. Jim Irvin Informs Oneok and Southwest Gas, at the January 12, 1999 Meeting, That Rose Would Be His Contact Person in the Merger
At the meeting, according to multiple trial witnesses from both Oneok and
Southwest Gas who testified at Irvin's trial, Jim Irvin told representatives from both
Oneok and Southwest Gas that their contact person on the merger would be Jack Rose.
Utility officials were both surprised and a little leery of this directive. Unlike Rose's
role between 1997 and 1998, where he was a duly recognized “loaned executive”
and/or “executive secretary,” he was not a “loaned executive” to Jim Irvin or to the
-68- ACC and had no ties or business affiliations to the state or the ACC. Larry Brummett,
CEO of Oneok, testified, “Jim Irvin told me that the ACC would need to do due diligence and that Jack Rose would conduct the due diligence for the ACC.”
From that date, Mr. Rose became the contact man between Irvin, Oneok and
Southwest Gas. Rose was appreciative of Jim Irvin's confidence. He believed that his due diligence investigation, normally conducted by the ACC staff, would provide him networking opportunities with two natural gas giants, Oneok and Southwest Gas, and would give him an opportunity to further demonstrate his networking capabilities with
Prudential in hopes of gaining a lucrative consulting agreement with them.
-69- 3. Jack Rose Refuses to Testify at the Irvin Civil Trial, and Subsequently Receives Federal and State Use Immunity from Government Authorities
It is important to discuss, prior to reviewing Jim Irvin's actions on the Southwest
Gas merger, the differing positions that Rose and Irvin took at their joint federal civil trials. The Southern Union lawsuit against James Irvin and Jack Rose lasted from July
1998 until December 2002. During the course of pretrial discovery, there was an
ongoing investigation by law enforcement authorities into the actions of Irvin and Rose,
among others. Commissioner Irvin actively participated in pretrial discovery and trial, giving extensive sworn testimony. Jack Rose, acting on the advice of his criminal defense attorney, invoked his privilege against self-incrimination and refused to answer questions, with limited exceptions, during pretrial depositions, as well as during trial.
In February 2003, after the jury verdict against Commissioner Irvin, the United
States Attorney's office granted Jack Rose “use immunity,” compelling his testimony before a federal grand jury, which met in Phoenix. Federal grand jury proceedings are secret proceedings, with rights of disclosure to third persons subject to very narrow exceptions enumerated in the federal rules. Rose testified before the federal grand jury in February 2003 for approximately six hours, over two days. That grand jury testimony is sealed, and can not be made available to the public.
-70- An impeachment inquiry is a legislative rather than a judicial proceeding. Federal rules prohibited disclosure of Rose’s grand jury testimony to Special Counsel
McDonald or to representatives of the House of Representatives. It was clear to special counsel that even if the U.S. District Court granted a request by special counsel to review Jack Rose's immunized federal grand jury transcripts, he could not disclose the contents of that confidential information to the Arizona House of Representatives or the Arizona State Senate in any impeachment report.
Special counsel concluded that it was vital to question Jack Rose, even if it required the grant of legislative use immunity. Special counsel McDonald had several meetings with Rose attorney John Hannah, who informed counsel that Mr. Rose would fully cooperate and provide truthful testimony if the Arizona legislature ordered his testimony and extended use immunity. Special counsel felt it was critically important to the impeachment investigation to seek use immunity for Jack Rose.
On August 26, 2003, special counsel met with House Speaker Jake Flake, House
Judiciary chairman Steve Tully, and other key House staff as well as rules committee counsel, seeking approval for an order compelling immunity. Speaker Flake and
Chairman Tully were extraordinarily cooperative in pledging their support for a grant of immunity. That same day, special counsel met with House Minority leader John
Loredo, Judiciary Committee minority leader Ben Miranda, and other key staff
-71- members of the Democratic minority as well as their legal counsel. They too were
extraordinarily cooperative, providing their full support for this effort. It was agreed
that a special meeting of the House Judiciary Committee would be convened on
Wednesday, August 28th, to seek an order compelling Mr. Rose's testimony and to
extend to Mr. Rose a grant of use immunity.
On August 27, 2003, special counsel met with Maricopa County Rick Romley,
Chief Assistant Paul Ahler and special advisor Barnett Lotstein seeking their support
for a grant of immunity. They assured special counsel that the full investigative
authority of the James Irvin investigation had been transferred to the United States
Attorney for the District of Arizona and that they had no ongoing investigation of either
Mr. Rose or Mr. Irvin. They gave their blessing to special counsel's efforts to compel
truthful testimony in exchange for use immunity from witness Jack Rose.
On the same day, immediately after the meeting with the County Attorney, special counsel and key legislative leadership from both the Republican and
Democratic sides of the aisle jointly attended a meeting with Attorney General Terry
Goddard, his Chief Assistant Robert Myers, and Criminal Section Chief Don Conrad.
The Attorney General's office informed special counsel that they had no ongoing investigation involving Rose and/or Irvin, and lent their support to a grant of immunity.
-72- Later that same day, special counsel contacted United States Attorney Paul
Charlton and disclosed his plans of obtaining legislative use immunity. Three and a
half months earlier, Paul Charlton had publicly announced that his office was closing its investigation of Mr. Irvin and Mr. Rose, stating that their office had found no prosecutable federal crimes. That press release, issued May 9, 2003, stated the following:
The United States Attorney Paul K. Charlton announced his decision to not file federal criminal charges against Arizona Corporation Commissioner Jim Irvin. This decision was based on a thorough review of the facts relating to the aborted merger efforts of Southern Union Gas Company to acquire Southwest Gas Corporation. The United States Attorney's decision took into account evidence obtained prior to the civil trial related to the failed merger, evidence obtained during the civil trial, and evidence obtained after the civil verdict. Mr. Charlton said that the civil action and verdict did not result in a finding of fraud and that we find no prosecutable federal criminal offense.
Mr. Charlton advised special counsel McDonald that his office had no objection
to issuing legislative use immunity for Jack Rose, again confirming that the United
States Attorney's office had closed down its investigation of Mr. Rose and
Commissioner Irvin. With the support and blessings of the three lead prosecutors and prosecution agencies in Arizona, the House Judiciary Committee scheduled a special meeting for 8:00 a.m. on August 28, 2003. Jack Rose and his legal counsel had agreed to be available at 9:30 a.m. that same morning to truthfully answer all questions relating to the Oneok-Southwest Gas merger.
-73- The House Judiciary Committee, acting pursuant to A.R.S. § 41-1152 (a rarely used statute authorizing the legislature to compel testimony and extend use immunity), voted unanimously to order Jack Rose to answer all questions from special counsel.
As a result of that order, Mr. Rose gave sworn testimony from 9:30 a.m. to 6:30 p.m. on August 28, 2003, and again from 1:30 p.m. to 6:30 p.m. on August 29, 2003. He had also testified on August 21, 2003 but had refused to answer questions relating to
Southern Union’s claims or the fraud on the court issues without a grant of use immunity. Mr. Rose provided invaluable documents never before seen by attorneys representing parties involved in the Oneok - Southwest Gas merger.
Jack Rose's sworn testimony provides valuable insight into the activities, knowledge and motives of Commissioner James Irvin and has proven to be extremely important and insightful in this House of Representatives impeachment investigation.
His sworn testimony confirmed the factual findings of the federal trial jury against
James Irvin and supported the scathing findings against Mr. Irvin by Judge Roslyn
Silver. Rose’s testimony confirmed multiple acts of gross misconduct by
Commissioner Irvin performing in his official capacity, reinforcing the need for Articles of Impeachment and the ultimate removal of James Irvin from public office. Before questioning Jack Rose under the grant of legislative use immunity, it was thoroughly
-74- explained to Mr. Rose that immunity would not protect perjury or false swearing. The immunity statute provides:
Testimony or evidence produced pursuant to this article may not be admitted in evidence or used in any manner in any criminal prosecution against a natural person sworn and examined before either house of the legislature or any committee of either house, except for perjury, false swearing, tampering with physical evidence or any other offense committed in connection with an appearance required by section 41- 1151
4. Jack Rose's Immunized Testimony Confirms Jim Irvin's Active involvement in “Back-Door Dealings”
There was no dispute between the parties in the Southern Union v. Irvin civil trial that the Oneok-Southwest merger was filled with back-door dealings that would eventually rock Oneok, Southwest Gas, and the ACC. Eric Herschmann, Southern
Union's lead trial counsel, and Mike Sillyman, Irvin's lead trial counsel, both agreed that the merger transaction was tainted by back-room dealings. The core of Jim Irvin's defense was that these back-room dealings were carried out without Jim Irvin's knowledge, and that Mr. Irvin was more outraged than Southern Union by the back- door dealings of virtually all of the civil defendants. Mr. Irvin's trial attorney, Mike
Sillyman, told the federal trial jury
Let me first begin by telling you that we do not and will not deny that there were back-room dealings by Rose, Oneok, its attorneys, Dioguardi and Gaberino, and other officers and directors of Oneok. Commissioner Irvin is more upset about that back- room dealing than is Southern Union. These acts were totally unknown to Commissioner Irvin, and the facts in this case will demonstrate as much.
-75- Eric Herschmann, in his closing argument to the jury, seized upon this
concession, arguing:
Mr. Irvin has already admitted in his opening statement and on the witness stand that there were back-room dealings in relationship to the proposed Southwest Gas merger. He left his name off the list of people involved. Everyone else was to blame but Mr. Irvin.
Jim Irvin's assertion of ignorance was decisively obliterated by Mr. Herschmann and soundly repudiated by the judge and jury. The jury believed that he not only knew of the clandestine meetings, but actively participated in and coordinated these very meetings. The evidence in this impeachment investigation is much clearer than jurors received at Mr. Irvin's trial. During the Irvin trial, Jim Irvin's closest confidant, Jack
Rose, remained silent, invoking the 5th Amendment. Jim Irvin could make any claim
involving Jack Rose, knowing that his trusted colleague would remain, like a potted
plant, at counsel table saying nothing. Since receiving legislative immunity and
testifying under oath, with the penalty of perjury hanging over his head, Jack Rose has
lambasted Mr. Irvin's claims of ignorance and non-participation, confirming that from
almost the first day they learned of Southern Union's intent to acquire Southwest Gas,
Jim Irvin, with Rose’s assistance, set out to “kneecap” Southern Union's chances of
acquiring Southwest Gas. Rose has testified that he and Irvin took overt and covert
actions to ensure that Oneok prevailed over Southern Union in the merger. Jim Irvin
was indeed a key advocate and architect of the scheme to destroy Southern Union's
-76- chances of acquiring Southwest Gas, and his active participation in the misconduct, and
his later acts to conceal and coverup his complicity, mandate that he be removed from
office and barred for life from holding elective office in Arizona.
5. After His Resignation on December 31, 1998, Jack Rose Did Not Work Again as a Loaned Executive for the ACC
In Commissioner Irvin’s sworn testimony in the Southern Union litigation, Irvin claimed that Rose returned as a loaned executive immediately after resigning as
Executive Secretary on December 31, 1998. He testified:
Q. When did he become loaned executive or a consultant to you after January 1st, 1999?
A. I would probably say on January 2, ‘99, we went back into that. Somewhere in that time frame. I don’t know there was any specific day that it may or may not have started.
Q. Okay. Was there any type of written document that explained what his role was as loaned executive or identifying him as a loaned executive to you?
A. I don’t think there was any document that explained the program. The only document that we had on that was a document that Mr. Rose drafted back in ‘96 or ‘97 regarding ethical standards that we would have for – the office and if somebody wanted to do that, they would sign that.
(Irvin deposition, Volume I, March 21, 2000, page 28, lines 5-19.)
Jack Rose was adamant in special counsel’s deposition that he never returned to the position of loaned executive and that he had made that fact crystal clear to
Commissioner Irvin. First and foremost, he was attempting to secure a consulting
-77- agreement with Prudential and hoped to use his contacts with Commissioner Irvin and
his prior experience with the ACC to win such an agreement. Irvin's invitation to Rose
to attend the January 12, 1998 “meet and greet” luncheon gave Rose a golden
opportunity to network with prominent utility executives and hopefully parley these
connections into greater interest in an investment banking contract.
Rose explained in his deposition that his involvement in 1999 with Irvin was
dramatically different than 1997. His role as “loaned executive” in 1997 was no secret.
It was fully disclosed to Chairman Kunasek and to Commissioner Jennings. His role
was supported by Renz Jennings in a very public setting. Jennings provide Rose and
Irvin a letter confirming his support for Rose's role as “loaned executive.” He was
given an office at ACC offices. In 1999, Rose did not have an ACC office. Neither
Carl Kunasek nor Jenning's replacement, Tony West, knew of Rose's continued
involvement with Irvin. Both Irvin and Rose knew that newly elected Commissioner
Tony West or Carl Kunasek would never support Rose in any capacity. Of equal
importance, the enmity between Kunasek, Porter and Rose was so great that Rose had
vowed to never return to the Arizona Corporation Commission offices. In fact, since the day of his departure, in December of 1998, he has never returned to those offices.
Rose testified that circumstances in 1999 were significantly different from the
circumstances that existed in 1997-1998. Rose realized that the ethics rules that he had
-78- drafted for Irvin would preclude him from being a loaned executive in 1999. Unlike his
duties in 1997, he was attempting to use his networking activities to win a consulting
agreement with Prudential. That alone would have violated Paragraph 1 of
Commissioner Irvin's ethic policies. Additionally, it would have violated Paragraph 2 because, prior to the Las Vegas trip, Rose had a contract with Prudential and Irvin's ethics policies prohibited an employee “with a substantial interest in any contract, sale, purchase or service to the ACC” to participate in any transaction.
On January 12, 1998, Rose agreed to assist Irvin as an unpaid consultant, not a loaned executive. There was a clear motivation in Rose’s mind for this service. It would give him a extraordinary opportunity to network with utility leaders at U.S.
West, Southwest Gas, Oneok and other utility giants in and outside the state of
Arizona. He hoped to convert these contacts into a lucrative consulting contract. As these contacts continued to solidify, he could re-approach Prudential or some other investment banking firm and hopefully gain their agreement to employ him with their company.
It is clear from both the trial record and from Rose’s sworn testimony that his new arrangement with Commissioner Irvin was a win-win for both parties. Rose was a trusted aid of Jim Irvin. He had a brilliant mind and a keen understanding of utility
-79- issues as well as political issues. He had formed a very close friendship with Irvin.
Rose was somebody that Irvin trusted. Rose had fought with Irvin in the campaign of
1996 and had guided him through two years of turmoil at the Commission. Rose also was a political and utility strategist and tactician that Irvin trusted and respected. Rose had a history of guiding the impetuous Irvin away from political blunders. The arrangement was equally desirable for Jack Rose. His efforts to obtain employment with Prudential in December of 1998 had failed. Prudential had not shown any real interest in following up with Rose’s business proposal of December 21, 1998 and had somewhat blown him off. Rose believed it was necessary to prove to Prudential that he had both the political connections and the intellectual savvy to bring top utility companies into the investment banking arena, and to bring them investment opportunities that no one else could generate. Commissioner Irvin was Chairman of the powerful Arizona Corporation Commission. Working with Irvin gave Rose open access to these powerful utility executives. Irvin's designation of Rose as his advisor and point man on the Oneok-Southwest Gas merger gave Rose a rare opportunity to network those connections into possible employment with Prudential Investment, while impressing Southwest Gas and Oneok with his intellect and performance.
It was against this background that Irvin notified key Oneok and Southwest Gas executives that Jack Rose would act as his unofficial consultant and their contact man
-80- on the merger. Mike Maffie, CEO of Southwest Gas testified that Irvin designated
Rose as the “due diligence” man. (Maffie deposition, Volume I, May 15, 2000, page
128-129). Maffie acknowledged that he was surprised that Irvin had selected a non-
commission employee to do the due diligence but at least understood Irvin's decision
because of their prior close working relationship with Rose. (Maffie deposition,
Volume I, May 15, 2000, pp. 159-161). Ed Zub, the senior managing official at
Southwest Gas admitted bewilderment that Jack Rose even showed up at the January
12th meeting, especially knowing that he had resigned from the Commission at the end of 1998. He had no clue that Rose would play any role in the merger discussions. Irvin made it clear to Zub that Rose would be the contact man on the Oneok-Southwest
merger. (Zub deposition, Volume I, July 13, 2000 at pp . 202-204). Larry Brummett,
CEO of Oneok, who also attended the luncheon, confirmed that Irvin had told him that
Rose would conduct the due diligence surrounding the merger for the ACC. (Brummett
deposition, Volume I, January 11, 2000, p. 57)
Jack Rose has testified that as of January 12, 1999, he felt that there was very
little to do as far as conducting a “due diligence inquiry.” One utility giant was
purchasing the stock of another utility giant and approval was all but assured. Those
who attended the January 12, 1999 “meet and greet” luncheon all felt that the merger
would be uneventful. Since the ACC had their own staff who would scrupulously
-81- review the merger application and make recommendations, Rose perceived his role as
minimal -- one of doing a quick review and giving independent advice to Irvin.
Rose did undertake some minimal due diligence investigation into the merger prior to February 1999. Rose, at his own expense and on behalf of Irvin, did travel to
Las Vegas on January 19, 1999. He met with Ed Zub at the Rio Hotel and questioned
Zub about the Oneok merger and what that merger meant to not only the ratepayers of the affected states, but also to the future of Zub and to CEO Michael Maffie. That inquiry is very superficial.
Southwest and Oneok executives testified in the Irvin federal proceedings that
they had genuine concerns over Jack Rose’s participation in the due diligence
investigation. Their negativity over Rose’s involvement was not particularly directed
against Rose or Irvin personally. Their fear was predicated upon their knowledge of
Commissioner Kunasek’s hatred of Jack Rose and, given the new configuration on the
Commission with the addition of Tony West, they feared that Rose's involvement could
act as a “lightening rod” and eventually cause damage to their efforts for the merger
application. (Zub dep., Vol. III, 8/3/00, pp. 521-523; Zub dep. Vol II, 7/14/00, p. 354)
B. The Importance of Jack Rose's Role as a Consultant to Irvin Skyrockets When Southern Union Makes a Competing Bid to Buy Southwest Gas. After Learning of the Bid, Jim Irvin Forsakes His Oath of Impartiality and Becomes an Advocate.
-82- On February 1, 1999, Southern Union made a bid to buy Southwest Gas. With this action, the future for Jack Rose and Jim Irvin would change forever. Between
February 9-12, 1999, while the bid was still confidential and unknown to the public and the Southwest shareholders, but prior to the February 22, 1999 public announcement of the offer, Jim Irvin was contacted by Edward Zub, Senior Vice President over
Regulation and Product pricing, and confidentially informed that Southern Union had made a competing bid for Southwest Gas. Zub made similar calls to Commissioners
Kunasek and West. Jim Irvin called Rose that same day and disclosed to him the substance of his conversation with Zub. Irvin told Rose that Zub and Mike Maffie were vehemently opposed to any acquisition by Southern Union. According to Jack
Rose, Irvin told him that Zub trashed Southern Union, saying
They're coming in, they have a very high debt-to-equity ratio, they have 90 percent debt, they are overleveraged, they have a bad record in safety, they have a bad community record, and they have done business in Arizona previously and they have gotten into a lot of trouble both locally and with their regulators in other states, and Southwest Gas is very concerned that this new company, Southern Union, is going to come in here and slash jobs and reduce service.
(Jack Rose Deposition at 212:1-9.)
After this initial contact with Zub, Commissioner Irvin improperly became a champion for Oneok over Southern union in the merger process, without ever allowing
Southern Union the opportunity to rebut Zub’s claims. Jack Rose did the same. Rose admitted in deposition that he and Irvin made a grievous error of judgment in failing to
-83- fairly and impartially investigate Zub's claims; rather, he and Irvin blindly accepted
them. Additionally, because of Irvin's respect and friendship for both Maffie and Zub,
he wanted to reward his old friends by backing their desires for a sale to Oneok rather
than Southern Union.
The importance of Rose's role as Irvin's “consultant” increased dramatically with
this new bid from Southern Union. What was originally an uncontested merger and
acquisition of one utility giant by another utility giant had now become a full-fledged war between two utility giants, and Southern Union was making a bid that was $108 million superior to Oneok’s own bid. Jack Rose was secretly selected by the Chairman
Irvin to head what Irvin has claimed was a “due diligence” investigation. The doors of
Oneok were about to open up Rose, and create a networking bonanza that would lead to a dazzling consulting agreement. From the very inception, Irvin and Rose set out to find a way to enable Oneok to successfully prevail and defeat Southern Union's bid to acquire Southwest Gas.
C. Commissioner Irvin's February 12, 1999 Call to Oneok Executives Was Grossly Improper. Irvin, Without Southern Union's Knowledge, Contacted Larry Brummett and Told Him That Irvin, as Chairman, Would Not Approve a Bidding War.
When two NYSE public utilities are competing to acquire a company, it is not unusual for the conflict to result in a bidding war. Jack Rose recognized that the
-84- competing bids could easily touch off a “bidding war” for Southwest Gas between
Oneok and Southern Union. While Rose knew that a bidding war would benefit the
Southwest shareholders, providing them a higher price for their shares, he feared that a bidding war was potentially troubling to the ratepayers of Arizona, Nevada and
California. Rose suspected that the bidding companies might pay far more for
Southwest Gas than it was worth and, after winning the bid, have to make cutbacks in service or attempt to raise rates to make the buy out profitable. Of course, the reality of the regulatory framework is that Commissioner Irvin, along with the other ACC commissioners, would have to approve any increases in rates or cuts in services later proposed by the successful acquirer of Southwest Gas.
Nonetheless, Jack Rose briefed Irvin on the potential damage to ratepayers that might arise in a bidding war. As a result of these conversations, Irvin also took the position that a bidding war could be harmful to ratepayers in Arizona. An Arizona
Corporation Commissioner has absolutely no right to meddle in the competing bids of two utility giants, however, trying to influence the bidding price or outcome of the merger in any way. That was one of the many gross improprieties of Jim Irvin.
Commissioner Irvin, having already become a partisan, decided to intervene. Irvin called Larry Brummett, CEO of Oneok, to discourage Oneok from engaging in a bidding war. Brummett testified regarding Irvin's unprecedented call:
-85- A. ...he (Irvin) said “I don’t think it would be in the best interests of (ratepayers) in Arizona or anywhere else for you all to engage in a bidding war.” And he said, “I think it might be helpful to all the parties if we had some agreement among the regulating commissions in the three different jurisdictions as to what criteria might be that they would be using to evaluate.”
* * *
Q. ... Did Oneok have the ability, the financial ability to increase its offer?
A. Yes.
(Larry Brummett deposition, Volume II, January 12, 2000 pp. 277-278)
At page 281 of the same deposition, Brummett further testified as follows:
Q. If I represent to you that the phone records from your office reflect that the telephone call was 22 minutes, do you believe that the statement regarding you now have competition came on February 23rd or you think it more likely happened on February 12th?
A. It might have taken place on the earlier conversation. I don’t recall. I just don’t remember which one of those that it took place but I believe it was on one of those two that it took place.
Q. Did you agree with Commissioner Irvin’s statement it would not be in the best interests of rate payers for the companies to end up in a bidding war?
A. Did I agree with the statement?
Q. Yes.
A. I didn’t express any agreement to that effect.
Q. Well, did you express any disagreement to that effect?
A. No. Well, no, I did not express disagreement with that. What I told him was we’re not going to get into a bidding war.
Q. Okay. And why did you say that?
A. Because we weren’t going to.
-86-
It is Jack Rose’s opinion that the conversation between Irvin and Brummett took place prior to his trip to Kansas in mid-February. Rose’s discussions with Irvin predated his travels to Kansas and Oklahoma to conduct his “due diligence” of Oneok.
Phone records subpoenaed by Southern Union in the Irvin litigation confirm that Irvin and Brummett spoke on February 12th. Based upon their discussions that same week,
Rose was positive that Irvin made this call to Oneok CEO Brummett.
In Commissioner Irvin’s deposition and in trial, he testified that he had no recollection of telling Mr. Brummett that it would not be in the best interests of rate payers to engage in a bidding war. (James Irvin, Volume I, March 22, 2000 at page
371) Irvin did admit that his personal belief coincided with Brummett’s testimony, i.e., that he felt a bidding war benefitted the shareholders but not the ratepayers. Irvin claimed “shareholders win usually and ratepayers lose when the price goes up.” (Irvin deposition, Volume I, March 22, 2000 at page 372, lines 4-5).
Commissioner Irvin’s comments to CEO Brummett was grossly inappropriate for an Arizona Corporation Commission elected official. There were tens of thousands of shareholders of Southwest Gas who had every right to let two corporate giants compete in the market place to buy their company. As of the date of the December 1998 Oneok agreement to purchase, capitalization of Southwest Gas was 45 million authorized
-87- shares of common stock with 30,389,128 outstanding. For Commissioner Irvin to share
this opinion with one of the potential bidders inappropriately provided Oneok with a
bonanza of intelligence. This call was extremely unfair to Irvin’s fellow
commissioners but particularly outrageous behavior toward the Southwest shareholders.
It was similarly unfair to the thousands of Southwest Gas employees who purchased
stock as part of their retirement plan. It is neither the right nor the responsibility of an
Arizona Corporation Commissioner to decide or attempt to influence the ultimate price
of stock to be paid in a merger and acquisition. Commissioner Irvin had the
opportunity, and would have had every right and clear authority, to raise his voice in
opposition to a rate hike if the ultimate high bidder, having paid too much for the stock,
had attempted to raise rates to compensate for an excessive bid.
Commissioner Irvin agreed in his deposition that he had no clue as to what an appropriate price would have been for each share of Southwest Gas by either Oneok or
Southern Union. In the executive offices of Oneok, when the discussions about bidding against Southern Union would have been raised, it is a virtually certainty that Jim Irvin's position on a bidding war would have played a critical part of executive discussions and strategy. Southern Union was shut out of this bonanza of intelligence. This action was one of a multitude of actions that constituted malfeasance.
-88- D. Jack Rose’s February 16-19 “Due Diligence” Trip to Kansas and Oklahoma at the Behest of Jim Irvin Opened the Window of Opportunity for Rose's Professional Career. Rose Traveled to the Midwest at His Own Expense to Investigate Oneok and to Assure Irvin That There Were No “Skeletons” That Would Embarrass Irvin in His Support of Oneok.
There has been great speculation among those familiar with the Southern Union
litigation concerning Jack Rose’s trip to the Oneok offices in Tulsa, Oklahoma and
Kansas. Some speculated that the trip was funded by Oneok. Others suggested that possibly Prudential funded the trip. Jack Rose clarified and answered those questions in his sworn testimony in August of 2003.
After Zub’s contact with Irvin, Irvin was ready to do everything within his power to support Zub's position and take those actions necessary to ensure that Oneok, not
Southern Union, acquired Southwest Gas. Rose had the political savvy to see a potential danger, and to address that danger by killing two birds with one stone. Irvin wanted Oneok to prevail from the outset, but neither Rose nor Irvin wanted to stake out a public position supporting Oneok and later find themselves in a political mine field by supporting a bad company with skeletons in its corporate closet. Oneok was a Mid west public utility with absolutely no history in Arizona, California or Nevada. If it turned out that Oneok had skeletons in its closet that were unknown, Irvin betting on the “wrong horse” and later learning that the company had a poor record could prove
-89- politically embarrassing. Rose convinced Irvin that he should make the trip to Oneok's
corporate offices and talk to a battery of Oneok officials as well as public officials to
make sure that Irvin was betting on the right horse.
It was within a day or two of Zub’s call notifying Irvin of the competing buyout proposal that Rose suggested he travel to Kansas and Oklahoma to conduct a “due diligence” investigation for Irvin. This trip was actually taken over a week prior to
Southern Union’s offer being made public. Irvin, without notice to either Kunasek or
West, approved Rose’s travels to Kansas and Oklahoma. No one at the Commission knew that Irvin was spearheading his own supposed “due diligence” inquiry.
The background leading up to the February 16-19 1999 “due diligence” trip is
described by Jack Rose in his August 2003 deposition. Rose’s remarkable testimony
explains the motives and purposes behind the trip, both from Irvin's and Rose's
standpoints. Rose testified:
Rose: So when Zub came in and said, hey, these guys are terrible and we've got to do something about it, you have got to do something about it or we are going to have a disaster on our hands, he (Irvin) was ready to believe it. So was I, frankly.
McDonald: So then how did you now become a part of the situation?
Rose: Well, we had this conversation. I said look, Jim, we need to think about this, this is a big issue here.
McDonald: Now you would agree that at the time you are getting this information this offer hasn't even been made public?
-90- Rose: This was nonpublic. I definitely received nonpublic confidential information.
McDonald: Did Irvin tell you don't tell anyone but Southwest Gas just tipped me off a competing offer?
Rose: That's right.
McDonald: Is the thought from his side these are bad people, we have got to find a way to sink this deal and so that these outsiders don't get a part of this action or find a way to beat it?
Rose: Jim wanted to sink the deal almost from day one. And his testimony (at trial) that, you know, that he wasn't playing favorites and he wasn't taking sides, that's just -- it's laughable. And I mean the notes, all my notes, all the conversations are going to bear this out. You don't have to take my word for it, but he was predisposed against Southern Union absolutely from the beginning because of Southwest Gas.
McDonald: In other words, to the best of your knowledge he had never heard of Southern Union or at least not had any dealings with them until Zub picked up the phone and parlayed this information to him?
Rose: Jim wouldn't know, wouldn't have known Southern Union from XYZ corporation. He would have no idea who they were.
McDonald: So he calls you and is it basically we have got to find a way to deep-six this company, get them out of contention?
Rose: Well, not in the first conversation. I mean the gist of it, hey, there is a problem here, but it was more of what are we going to do about this, here is the information, what do you think. And this was very interesting news, I mean this is a big deal, multi-million dollar merger, Southwest Gas, I mean three-state company. This was very significant.
(Rose Deposition, Vol. 2 at 214-215, emphasis added.)
* * *
Rose: Well, I was in Oklahoma for a morning meeting Tuesday, February 16th, and it took me I think two days to get there. So I think I traveled Sunday and Monday, which would have been the 14th and the 15th, and it all
-91- had to be set up the week before because Jim's secretary Laura set up all of the meetings with Larry Brummett, CEO of Oneok, so it would have been -- and it took us some time to formulate it, the strategy, and put it together. So my guess is that this took place, these conversations took place between the 9th and the 11th, somewhere in that time frame.
McDonald: By the time you are heading to Oklahoma has Irvin made it clear to you that we've got to get these bad guys out of the picture, we have got to find a way to knock them out?
Rose: I don't think it was that clear. I think it was a high level of concern and the reason for the -- part of the reason for the due diligence trip, there are a number of reasons why that occurred. One was the obvious reason, well, if he is going to back -- he wanted to back Oneok, but he wanted to make sure from the beginning because he liked Southwest, but he wanted to make sure that there wasn't anything obvious that had been overlooked with the company. In other words, he wanted to make sure there weren't any huge skeletons in the closet, just kind of vet, just kind of vetting out a little bit. But the idea that I would actually go to Oklahoma and Kansas, it was actually my idea. I said, well, we ought to check these guys out a little bit and get some information. We don't want to torpedo this other company because they have safety violations if we are bringing in a company that has worse safety violations, that would make is us look pretty foolish. And there were other issues as well in terms of their financial capability. That was one reason. And the other reason is, it's a recurrent theme, but it was an opportunity to further network. And I know --
McDonald: That's what I was going to say, it seems to me it would be ideal that you've now got this potential bidding war and who comes out representing Commissioner Irvin but you. So now they met you at the Arizona Club, you are now coming to Oklahoma, meeting with all the brass, going to Kansas, meeting with those brass, talking?
Rose: Meeting with the Commissioners. I met with the Chairman of the Oklahoma Commission, I met with the key staff members. I mean this is a networking bonanza. I am meeting with two CEOs, Chairmen, Commissioners, top staff members in two different states and people said -- people have asked me why would you do that, why would you drive all the way over there at your own expense, pay for own meals, own hotel. That was one of the big things in the trial, who is paying
-92- this Rose guy to do this, why would he do this, there has got to be something sinister here. Well, it was a networking exercise, truly that's what it was. I did some work for it. I didn't just show up and do nothing. You know, it's in my notes. I have marked them.
[Rose Deposition, Vol. 2 at 216-218, emphasis added].
It was Jim Irvin who contacted CEO Brummett at Oneok and asked him to extend red carpet treatment to Jack Rose during his due diligence investigation. Jack
Rose has kept and provided to special counsel voluminous notes of his journey to
Kansas and Oklahoma. For Mr. Rose, it was a dream come true. He was traveling to
Kansas hoping that the networking bonanza would parlay this into a lucrative investment banking career with Prudential. And Rose believed it was for a good cause
-- he believed the trash talk passed on to Irvin by Zub at Southwest Gas. He believed that Southern Union was really a bad company. The trip for Rose was a bonanza experience for several reasons:
1. Irvin’s request that Rose be his “point man” gave him an opportunity to access Oneok senior executives, an opportunity which would have otherwise never been available.
2. Rose felt that he would win Oneok’s confidence and parlay those networking connections for future investment banking. Rose has a brilliant mind, and he felt that this inquiry, with all of the top Oneok brass, gave him an opportunity to
-93- showcase his mind, skills, and experience. Since Rose was supporting the low bidder,
a victory for Oneok would certainly be remembered.
3. He believed that he could immediately use these connections to invigorate the listless Prudential with a renewed interest in his earlier proposal.
4. Since Commissioner Irvin had already made it clear that he was going to promote Oneok and bring about Southern Union’s demise in the bidding competition,
Rose realized that he could be an active lobbyist and participant and win the attention and plaudits of both Oneok and the admiration of Prudential.
5. By assisting Oneok in defeating Southern Union before the Southwest
Board and to enable Oneok to acquire Southwest Gas for $108 million less than its chief competitor, this achievement would certainly impress Oneok senior management and influence senior Oneok executives to consider using Rose when placing future
Oneok business with investment banks. What company wouldn't appreciate the actions of an unpaid volunteer who helped to facilitate approval of a bid which would save them over $100 million dollars?
6. A win for Oneok would not only be impressive to Oneok’s executives, but would also dazzle the Prudential contacts with Jack Rose’s ability to get things done.
7. Rose felt that the selection of Oneok would also bring about a political bonanza for his friend Jim Irvin. Oneok would most certainly recognize Irvin as a
-94- potent, leading figure in the regulatory industry. It would be Irvin who would put
together this joint communique with other regulatory chairpersons. It would have been
Irvin who stepped up to the plate and directed Oneok through the rough competitive
waters to reap a bidding victory. Oneok would most certainly have a long memory if
Irvin sought a prestigious federal appointment or sought higher elective office at the
state level.
There was a huge secret commitment made by Oneok to Irvin through Rose that was unknown until Jack Rose's deposition. Oneok executives committed to Irvin that if
Irvin was able to deliver Southwest Gas to Oneok, they would eventually move the company headquarters to Arizona from Las Vegas, which would reap a political
bonanza for Irvin. Rose testified:
(Rose) Here was the other big coup, that was the other thing that never came out. We had a verbal agreement from them which was I think part of the reason that Jim jumped on, that they were going to move the corporate headquarters from Las Vegas to Phoenix and that would have been a huge coup for us.
Rivera: Those seem to be notes...
McDonald: Finish that, that's huge. I wanted to hear the rest of that.
Rose: That was part of the conditions. When we talked about this, about whether we were going to support it, that was one of the things that Jim wanted to get out of this, he wanted them to move the corporate headquarters over here.
Rivera: In other words, when you are back in Kansas and Oklahoma, you let them know, hey, if you want Irvin's support, will you guys agree to move the corporate headquarters from Nevada to Arizona?
-95-
Rose: Exactly.
Rivera: And they commit to do it?
Rose: Yes, verbally. What they said is, Dubay, look, we have already committed to Southwest that we are going to keep the headquarters at least temporarily in Las Vegas, but if you guys go through with this, and our argument was, hey, Arizona is the biggest state by far in terms of their service territory, because, remember, they only have a small piece of California and Arizona had 65, 70 percent of the company, so it should be headquartered here. And they agreed to make that concession, which was huge to us because it would have been a major coup to Jim as Chairman of the Commission to get a company like that to move its headquarters with all the jobs over. So that was also a motivating factor.
[Rose Deposition, Vol. 2 at 272-273, emphasis added.]
While Rose was in Oklahoma and Kansas, he indeed made impressive contacts not only with Oneok executives, but with officials of the Oklahoma and Kansas utilities commissions. The bonanza paid off handsomely for Mr. Rose. Rose was successful in convincing Oneok executives to meet with Prudential, a company that had not, prior to
Jack Rose's visit to Kansas and Oklahoma, used Prudential for investment banking activities. That Oneok-Prudential meeting was scheduled on February 19, 1999 and went a long way in convincing Prudential that Rose had important networking abilities.
Within a month of Rose's trip to Kansas, he inked a contract with Prudential with a potential to eventually make millions of dollars. The expenses Jack Rose incurred
-96- paying for his own gasoline and motel was petty cash compared to the contact benefits that fell into his lap as Jim Irvin's unpaid consultant.
Two other events occurred on the Kansas trip that deserve mention. Jack Rose recommended his good friend, Mark Dioguardi, to be retained as Arizona counsel for
Oneok. Dioguardi had a close personal relationship with Commissioner Irvin, and with
Jack Rose. Irvin, Rose and Dioguardi not only had positive professional relationships, but close personal relationships as well. Oneok’s general counsel John Gaberino, acting on Rose's recommendation, later contacted Dioguardi and scheduled meetings in
Phoenix in early March, 1999. Oneok retained Dioguardi within two weeks of Rose's trip to Kansas and Oklahoma. The second event occurred in meetings with an
Oklahoma Commissioner. Rose explained the impetus for the joint letters which he hoped would be signed by Jim Irvin, Richard Bilas and Judith Sheldrew. Rose testified:
[I] have taken credit for this idea of the letter. I am probably being a little generous because when I met with Chairman Ed Apple of the Oklahoma Corporation Commission on 2-18-99, he suggested to me that I meet with Dick Bilas. Dick was a former professor at Oklahoma State, and very bright guy, has a Ph.D. in regulatory economics or something very impressive. Ed was friends with him and gave me his home phone number, it's right here on the list, and that's how I got in touch with Dick Bilas and how that got started.
(Rose Deposition, Vol. 2 at 297, emphasis added.)
E. Oneok Prepared a “Ghost Written” Due Diligence Report Which Was Sent from Oneok's Home Office to Jack Rose. The Draft
-97- Report Was Provided to Rose Through Mark Dioguardi. Rose Refused to Accept the Report, or to Claim Authorship over its Contents. Jack Rose Does Not Recall Ever Showing the Ghost Written Report to Jim Irvin.
A particularly troublesome event took place shortly after Jack Rose returned to
Arizona. Rose was contacted by his close friend Mark Dioguardi, and was provided a highly confidential document generated by Oneok which lambasted Southern Union.
Marked as Exhibit 17 to Jack Rose's deposition, it was suggested by Oneok that Rose claim authorship of this anti-Southern Union document, and to freely use it as his own.
Rose, testifying about the report, stated:
Rose: [I]t was given in a plain brown manila envelope and it had a note paper clipped to it. Unfortunately when I got it I tossed the note. This was long before the litigation, but the report was for your eyes only, highly confidential, something to that effect.
McDonald: And it's for Dioguardi's eyes or for your eyes?
Rose: No, for me. And I was told that Gaberino had given it to Dioguardi to give to me for me to author as a report for either Jim or to pass it on to the staff and to get them to include it as part of their report.
(Rose Deposition, Vol. 2 at 247.)
Rose was insulted that Oneok wanted him to accept their ghost written report as his own report. The cover note that Rose thought he had tossed was discovered in one of his boxes of documents later in his deposition. Rose further testified:
Rose: [I] mean one hopes that one has some academic accomplishments that would enable one to write one's own report, and for somebody else to give you a report and say, hey, we wrote this for you, it's like saying
-98- you are some kind of a dummy, you can't write your own report so here is your report.
McDonald: I take it you construed that as almost insulting to think --
Rose: I was. I was insulted. But I laughed at it. I just laughed. It was like, come on, are you guys serious.
McDonald: So you took the report but then what, called Dioguardi back and said, look, I'm not going to do that?
Rose: I was nice about it, but I just said, you know, basically I am not comfortable doing that and I can write my own report, thank you very much.
Rivera: Did Jim Irvin ever see that report? Rose: Jim never saw that, no.
McDonald: Did Jim know what Oneok had tried to do? Did you mention to him I can't believe these guys sent me this report and wanted me to author it for you?
Rose: That's a good question. I may have. We had a lot of casual conversations, but I don't have a specific recollection of doing that.
(Rose Deposition, Vol. 2 at 248-249.)
F. John Gaberino, General Counsel for Oneok, Met with Jack Rose on March 2, 1999, and with Irvin and Rose on March 3, 1999. He Also Retained Mark Dioguardi on March 3, 1999. The Scheme Involving Oneok Ghost Writing a Letter for Irvin Was Implemented Two Weeks Before Irvin's Trip with Rose to California to Meet with Regulators. Jim Irvin Knew of Oneok's Involvement in Drafting the Letter, and Knew of Jack Rose's Pending Contract Claim with Prudential, Yet Elected to Continue Using Rose to Defeat Southern Union's Bid.
Between February 22 and 28, attorney John Gaberino of Oneok made and received numerous telephone calls with his Arizona contacts. A meeting was
-99- scheduled in Arizona for March 2nd and 3rd with Jack Rose. Mr. Gaberino came to
Phoenix on the evening of March 2 and went to dinner with Rose. At that time, they discussed a plan for a joint letter that would hopefully be signed by the chairman of the
California, Nevada and Arizona utilities commissions. The letter would give Southwest
Gas joint criteria that the three utilities commissions would use in approving those entities bidding for Southwest Gas. The plan was to establish criteria factors that would include Oneok and exclude Southern Union. Gaberino, excited by the scheme, put together a draft letter for Rose’s review. Three people were involved in the actual drafting of the final draft of the joint letter – Gaberino and Dioguardi of Oneok and
Jack Rose. The letter was also discussed with Irvin at a breakfast meeting the next morning, March 3, 1999 between Rose, Irvin and Gaberino.
Rose told Irvin on March 3, 1999 that he could no longer act as Irvin’s consultant without making important disclosures. Rose told Irvin:
I said to Jim, look, I need to sit down with you and give you my report because I need to bail out of this situation in order to pursue some business opportunities, one of which is with Prudential. And I had that conversation and I had a follow-up meeting, and I can go through the notes with you. It was May 3rd -- or March 3rd at 9:30 at the Lantana Grille and I went through the whole thing A to Z and told him I was bailing out and pursuing other options.
(Rose Deposition, Vol. 2 at 277.)
-100- Rose still had notes of his March 3rd meeting with Irvin where he disclosed to
Irvin his anticipated business opportunity with Prudential. Those notes were provided to special counsel for the Arizona Legislature.
Jim Irvin has denied knowing of Rose's relationship with Prudential and, through his legal counsel, produced a polygraph examination supporting his claim. Polygraph examinations are not admissible in evidence in either state or federal courts although they are frequently used as a tool in searching for the truth. We believe that the evidence overwhelmingly supports Rose's claim that Irvin knew of his emerging relationship with Prudential. His notes from the Irvin meeting of March 3rd clearly evidence that fact. Rose, in his sworn testimony, repudiates Commissioner Irvin's claim of ignorance, and has notes to back up his testimony. At Vol. 2, p. 115, he testified:
I think the most important one was a meeting that I had, and I believe it was on March 3rd, it may have been March 2nd, but I have extensive notes on the conversation. And I made it very clear to Commissioner Irvin that I was, and I don't want you to think that was the only one, I will detail some other ones as well. But that one in particular I made it very clear to him that I was pursuing a contract with Prudential and that it was imminent, and a couple weeks later I signed a contract with them after going through a process of negotiation. So for him to say that he didn't know that I had a business relationship with Prudential is totally false. And it's not just my word against his, we have the notes, it's right there in black and white.
(Rose Deposition, Vol. 2 at 115, emphasis added.)
G. Jack Rose Developed a Strategy Designed to Defeat Southern Union’s Bid for Southwest Gas, a Strategy Which Was Enthusiastically Embraced by Commissioner Irvin. The Plan, Conceived on March 2- 3, 1999, Involved Developing Joint Guidelines Between Commission Heads in Arizona, California and Nevada That Would Be Approved
-101- in Writing by the Heads of Each Commission. As Originally Conceived, the Guidelines and Criteria for Ultimate Approval Would Be Drafted in Such a Way as to “Include” Oneok and to “Exclude” Southern Union.
One of the great problems that has plagued regulatory authorities throughout the
country arises out of the complexity of multi-state servicing by regulated companies. To illustrate, Southwest Gas operated natural gas facilities in Nevada, Arizona and
California. If Southwest Gas incurred overhead or expenses in Nevada, there was potentially a problem that the regulated entity may try to seek reimbursement in
Nevada, again in Arizona and again in California. It was not uncommon for regulatory actions involving the same conduct in one state to have inconsistent application in a neighboring state. As a result of this recurring problem, Jack Rose had been a strong proponent of uniform guidelines among regulatory commissions. There were legitimate reasons for multi-state commissions to seek uniformity of policies to ensure consistency of treatment among the various jurisdictions. The competing offers for Southwest Gas between Oneok and Southern Union gave Commissioner Irvin a chance to promote that philosophy of joint uniformity but with a sinister twist. Rose testified:
The strategy was to come up with -- you see, merger applications are a hodge-podge affair in the states. You have overlapping regulatory jurisdiction. Like the Southwest Gas, you have the California regulators, the Nevada regulators, the Arizona regulators, they all have jurisdiction, as well as the Federal Energy Commission. The problem is the standards that Nevada may use can be and are different from the standards Arizona uses and the standard that California uses. So regionalism had been -- regional regulation had been a hot topic at this time, and still is, how do you
-102- regulate, how do state regulators regulate multi-state companies. Very hot topic because they are always cost shifting and saying we spent our money over here, and how do we verify that because it's out of our jurisdiction. And it's a big problem. And so our idea was let's put together some common standards which will allow companies to know in advance whether they are going to receive regulatory approval or not. Now I don't want to kid you here, this was not an exercise in good regulation, although this is – this is certainly a good idea having regionalism. It was clear we were doing this, and my note below it says “letter to Southwest Gas Board” and then below that it says “regulatory roadblock.” Our strategy from the beginning was to create problems for Southern Union in the purchase of the Southwest Gas acquisition.
(Rose Deposition, Vol. 2 at 283-24, emphasis added.)
From almost the first moment that Irvin was notified of Southern Union’s competing bid for Southwest Gas, he became an partisan rather than a judge, becoming unalterably opposed to a Southern Union acquisition. Both Rose and Irvin had blindly accepted the negative information generated by key executives employed by Oneok and
Southwest Gas. Irvin had a close relationship with Mike Maffie and Ed Zub and was heavily swayed by their arguments against Southern Union.
McDonald: Can you explain the closeness of the relationship by stories or history or what you observed that made that relationship so close?
Rose: Well, Mike Maffie had attended the same college as Jim (Irvin), so whenever they got together they were always talking about sports. They followed Southern California. USC, University of Southern California, was their alma mater and so they were always talking about college basketball or football or whatever. I'm not into college sports so I kind of zoned out when they got into their we're hanging out at the country club or wherever and talking sports. But they had a lot in common coming from Southern California. And Maffie is a very likable chap when he wants to be and they just got along very well, but the bulk of the relationship was carried by Ed Zub, their head of regulatory affairs at Southwest Gas, and Ed Zub is just a very, very nice individual, very likable, very approachable, someone you can talk
-103- to, and he was a great lobbyist, and Jim just really liked it, liked both of them. Ed was one of these fellows where you would sit down at a lunch and he would just be very entertaining and everybody liked him, and I think it was more personal like for the management. They went way out of their way to be friendly with Jim, to spend time with him, socialize with him, and I guess they did a better job catering to Jim than the other utility companies.
(Rose Deposition, Vol. 3 at 361-362.)
Rose would later testify at page 363, lines 5 to 19:
McDonald: Did they ever explain to Jim in your presence why they had such venom against Southern Union or George Lindemann?
Rose: Until this lawsuit was filed we had no idea that they had this personal feud going on.
McDonald: Well, you know they did call and --
Rose: I am sorry, let me correct that. Until the hostile takeover occurred we didn't know that -- well, we still didn't know about the personal aspect of it. We knew when it was filed that they didn't want Southern Union, but they didn't come to us and say, hey, we don't like these guys so don't, don't support them. They came to us and said, hey, these guys are terrible and here is why, and we didn't realize it was personal until after the lawsuit was filed.
Without ever giving Southern Union a chance to rebut Southwest Gas’ allegations, Irvin and Rose supported the Southwest executives’ allegations that
Southern Union would be bad for Arizona. Again, the decision to select a merger partner was Southwest Gas’ decision — not Irvin’s. The problem that Southwest Gas management had was convincing its directors and shareholders to select the Oneok offer for 108 million dollars less. They couldn’t do this without the assistance of Irvin.
-104- Irvin provided the ruse of a “regulatory concern” with Southern Union that Southwest
Gas management needed to get the directors and shareholders to reject the Southern
Union higher offer. Once Rose and Irvin were convinced to favor Oneok, Irvin bought
into Rose's strategy to defeat Southern Union’s bid. It was a simple, clever strategy.
Under the guise of joint rules among Arizona, California and Nevada, Irvin planned to
create uniform guidelines structured in such a manner as to enable Oneok to qualify
under the guidelines while, at the same time, knocking out Southern Union’s ability to qualify under the guidelines.
The original scheme can be illustrated by the following example. Two teams, the
Arizona Diamondbacks and the New York Yankees, want to acquire a promising young pitcher. The acquisition of this exceptional athlete has to be approved by the
Commissioner of baseball. The Yankees are offering more money for the athlete, but the Commissioner wants the acquisition to be made by the Diamondbacks. One way to assure that the Diamondbacks acquire the athlete would be to create conditions or guidelines regarding the acquisition which would include the Diamondbacks while, at the same time, excluding the Yankees. The Commissioner might establish a policy which promotes parity among teams and, in pursuit of that policy, declare that any team with a win-loss percentage above 55% will be denied acquisition rights. As of
September 6th, the Yankees had a winning percentage of 60%, the Diamondbacks
-105- 51%. The Commissioner might make an additional condition of acquisition total
payroll, again under the guise of parity. In the year 2003, the New York Yankees had a
total payroll of $152,749,814. The Arizona Diamondbacks had a total payroll of
$80,640,333. By simply making as a rule of acquisition that no team could acquire the
pitcher that had a payroll base exceeding $120,000,000, such a rule would include the
Arizona Diamondbacks while excluding the New York Yankees.
Jim Irvin and Jack Rose, using this type of approach, planned for the new joint
guidelines to be tailored around the erroneous negative information that had been
improperly accepted without question from Zub and Maffie. For example, having been
told that Southern Union had a 90-10 debt to equity ratio, one guideline they considered was to propose onerous conditions upon the acquisition if either company had a debt to equity ratio equivalent to 90-10. Another joint criteria was to relate to public safety issues. Another could relate to regulatory sanctions. The plan, in short, was designed to use legitimate means to accomplish an illegitimate end.
Rose testified at page 288:10 to 289:3:
McDonald: In the discussion that you are having on the 3rd (3/3/99) is this your way of saying, Jim, this is how I think you can get rid of Southern Union, I've heard this information, let's just get the three Commissioners to create a policy which because of this information that we have been told will knock these people out?
Rose: Which legislators do [that] all the time. This would have been a legislative action, not a quasi-judicial, but a legislative action, which is
-106- to set a policy and you do that all the time. Some companies will qualify under the policy, Commissions do that every single day, and companies qualify or don't qualify based on their ability to meet those criteria. We weren't doing anything that we hadn't already done 50 times, it's just part of the motivation here was to kneecap Southern Union. And I will admit that, I will tell you right up front, that's one of the reasons we were doing it. But it doesn't mean that it wasn't a good idea.
(Rose Deposition at 288:10 to 289:3, emphasis added.)
There were several important steps that Jim Irvin and Jack Rose had to pursue to carry out this plan. Some of the ideas emerged at different times. First, someone had to draft these joint rules in such a way as to include Oneok while excluding Southern
Union. Secondly, since the other two Commissioners on the Arizona Corporation
Commission had poor working relationships with Jim Irvin, and would almost certainly oppose anything openly advocated by Irvin, their plan would have to limit signators to the Chairpersons only rather that the entire commissions. Under this strategy, Irvin needed only three signatures and could avoid his own ACC. Third, to accomplish the mission, given Kunasek’s and West's hostility toward Jack Rose, Irvin and Rose felt that their plan would have to be accomplished in a secretive environment. Fourth, to be most effective, the joint letter, once signed, would have to be provided to the Southwest
Board at the last possible moment in hopes of influencing their vote in favor of Oneok, and denying Southern Union the ability to refute it. Irvin believed that when the
Southwest board saw the joint criteria and saw that all chairpersons had adopted the
-107- joint criteria, and once they realized that only one of the two competitors could qualify
under the joint criteria, they would see the writing on the wall and support Oneok’s bid,
even though it was the lowest bid.
The plan was developed in early March of 1999. It was to be carried out as
follows:
1. Oneok's legal counsel, John Gaberino, would work with Rose in composing a
draft of a joint letter for Irvin. Gaberino actually prepared the initial draft between
March 2, 1999 and March 3, 1999. The plan was for Irvin and Rose to use a final draft of the letter when contacting California and Nevada Commissions heads. Rose would work with Mark Dioguardi and John Gaberino in revising and perfecting a final draft of this letter before Irvin and Rose left for California. Irvin's vote was already solidified -
he only needed to get two signatures from heads of the other two commissions. The
draft went through a number of different versions, both prior to the trip to California,
and while Rose and Irvin were in California. It was grossly improper and a blatant
conflict of interest for Jim Irvin to be a party to a plan which involved ghost writing a
letter for his signature by one of the two competing parties to a merger that he would
eventually have to approve as a fair and impartial judge. It is the equivalent of a lawyer
involved in a lawsuit before a judge secretly drafting the decision for the judge without
-108- the judge ever disclosing such inappropriate actions to the other side or allowing the other side to present their objections or ideas regarding the language.
2. It was decided that Irvin and Rose would travel to California and lobby
Richard Bilas, the president of the California Public Utilities Commission. Rose had been provided Bilas’ private home telephone by a close friend of Bilas' in Oklahoma.
Rose and Irvin hoped to keep a lid on the trip and their mission to avoid confrontation with Kunasek and West. Once they had Bilas' signature, it was felt that it would be an easier task to obtain Judy Sheldow's signature in Nevada. Even though California had far fewer ratepayers using Southwest Gas than Arizona or Nevada, California Utilities
Commission has always been prestigious. It was felt that Bilas' support would be an important component. They would also lobby Commission staff at each stop to try and win their support while they were in California.
3. Once they obtained Chairman Bilas's signature in California, they would later travel to Carson City, Nevada to hopefully obtain the signature of the head of the
Nevada Commission, Judy Sheldrew. With the signatures of the three chairpersons, they would have a powerful and compelling document designed to sway the Southwest board.
4. Irvin and Rose, with Southwest's assistance (primarily Mike Maffie, who was close friends with the Nevada Governor), planned to jointly meet with and lobby
-109- the Governor of Nevada while in Carson City, hopefully getting him to sign his own letter signaling support for Oneok over Southern Union. With a uniform letter signed by the Chairmen of the three commissions, and with the Governor of Nevada's letter of support, it was Irvin’s and Rose's belief that Oneok would handily win approval over
Southern Union before the Southwest Board. A joint letter signed by the chairpersons of the three utilities commissions would be a compelling show of unity to the Southwest
Board and certainly chill Southern Union’s chances of success.
5. As the plan evolved, and the signatures were not secured as originally anticipated, Rose and Irvin learned that support for Oneok among some members of the
Southwest Board was shaky. It was ultimately decided that Jim Irvin would make a key last-minute contact with the Southwest Board through CEO Mike Maffie just prior to their secret board meeting in April. While it was eventually planned to make the joint letter somewhat neutral and non-confrontational, the call was planned to hopefully sway supporters of Southern Union on the Southwest Board that Southern Union's bid would never pass regulatory conditions and that it would be better for the Southwest shareholders to accept the lower-priced Oneok bid, which would supposedly have a high likelihood of regulatory approval, over the higher-priced Southern Union bid, which was allegedly doubtful.
-110- The author of this strategy was Jack Rose. In a remarkably candid statement,
Rose explained his various modifications for the plan. Rose saw the ultimate selection of Oneok as a huge plus for his business career. Irvin also stood to reap huge political benefits, including Oneok's future support. He also believed that Oneok would be a better match to acquire Southwest Gas. In Rose's eyes, it was a “win win” for him.
Rose testified at Vol 2, p. 296:
I suggested it (the plan) to him (Jim Irvin), and I suggested the meeting with Sheldrew. Now keep in mind I had a couple of agendas here. Now remember I did not have a contract with The Prudential at this point, number one, so I was trying to do two things. One, I was trying to be helpful to Oneok. Two, I was interested in networking. The president of the California Commission is a pretty important fellow and having the opportunity to have lunch with him and sit down and get to know him is very valuable.
At page 297 of his deposition, Mr. Rose added:
Rose: So jumping forward now, I wanted to go meet with Dick Bilas for all the reasons that I had outlined. One of the things I wanted to do was to appear proactive to Oneok. I didn't want to be one of these guys who is just sitting around, and if you are buzzing around the country meeting with people, it makes you a player.
McDonald: I would think if Oneok knows he is meeting the director of California, he is meeting the director of Nevada, he is meeting the Governor, that's got to be huge for the networking.
Rose: So I want them to think, hey, this guy he is trying to help us, he is doing the right thing. Because remember, they are not thinking in their mind -- after the fact everybody is like, oh, these people are pretty tricky and back room and sneaking around and they're bad guys. That's not what they are thinking, Oneok and all of us who are involved with it. We are thinking, hey, this is a takeover battle, this is a brutal event. Takeover battles, these are major fights. When you get into a takeover battle, you are talking litigation, I mean the gloves come off and it's time to rock and roll, and this is the corporate
-111- equivalent of a street brawl and so they are not too worried about the niceties: “Well, has this been disclosed, are we being unfair to these poor little guys who have this billion dollar company in Texas.” That's not what people are thinking; they are thinking we are in a fight here, let's kneecap them guys.
McDonald: So you are in a war, you are a soldier, and you are hoping to impress Oneok, look at this guy, and then they are going to meet with –
Rose: Exactly. I am just networking.
McDonald: And Irvin is in a war because he has decided to kneecap them and you can help him by going over and I assume reporting your findings, and at the same time he can give them the vanilla letter but then brief them these are bad people, we have got to take out their kneecaps?
Rose: Exactly. That's exactly it.
McDonald: And this was the strategy that was discussed?
Rose: That was the strategy. So here it is right here, in here, in my notes.
* * *
And at this point (March 3, 1999) I was not representing him in any capacity, I made that clear to him. Was I giving him advice? Sure I was giving him advice, but elected officials take advice from everybody, even lobbyists. That's what lobbyists do, they go down to the Legislature and they say, hey, here are the reasons why my proposal is the best idea for public policy and I am giving you this advice. And that's how I viewed it at this point. I was -- was I off working on my own deal, absolutely. Did Jim know about that? Yes. Did that bar me from giving him advice? No. If he wanted to get advice, legislators and others take advice from lobbyists every day of the week.
(Rose Deposition at 297, emphasis added.)
Jim Irvin knew that Jack Rose stood to reap a handsome financial bonanza through both networking contacts and significant commissions if they achieved a
-112- successful victory for Oneok in the bidding war. Because Rose's objectives coincided with Irvin's objectives, Irvin elected to forsake his duties as a Commissioner to fairly and impartially vote after a consideration of evidence by both sides, and instead lobbied behind the scenes and spent his own money for air fare to California and Nevada to manipulate the choice of Oneok as the successful bidder.
Irvin elected to use Rose's unique talents to help accomplish the victory for
Oneok. It was a classic tragedy of a public official using unethical and improper means to accomplish an unethical and inappropriate end -- a malignant example of malfeasance at its very worst.
8. Immediately after Rose's February “Due Diligence” Trip to Kansas and Oklahoma, Jack Rose Entered into a Lucrative Agreement with Prudential Securities. Jim Irvin Knew of That Developing Relationship, Yet Signed Rose in at the California Public Utilities Commission as a Member of the ACC.
On February 23, 1999, the day after Southern Union's offer became public and within a few days of Rose returning from meetings with senior Oneok representatives including Larry Brummett and Dubay, Jack Rose called David Dubin to begin formally negotiating his lucrative business engagement with Prudential. (See Dubin Deposition, 4/11/00 at 886:20-889:23) Immediately prior to Rose calling Dubin, he had a 27 minute telephone call with Jim Kneale, Oneok's CFO. Jack Rose initially refused to identify Oneok as the company for which he was providing consulting services until he was certain that Prudential would enter into an agreement with him. This decision made sound business sense because Mr. Rose did not want Prudential to go behind his back and establish direct contacts with Oneok. Rose explained to Dubin that he was “giving advice” to the Chairman [of
-113- Oneok] on a proposed merger and could arrange a business meeting between Prudential and the
Company [Oneok], which included a guarantee to see both the CFO and CEO of Oneok. (Dubin
Deposition, 11/11/99 at 329:24-334:19)
On March 5 and 8, 1999, David Dubin discussed internally among Prudential officials the normal percentages that a person would receive for acting as a “finder” for Prudential to obtain new business. On March 9, 1999 Dubin sent an e-mail to Joe Fichera, a managing director at Prudential, relating to the potential business opportunity that Rose was offering Prudential. Rose had previously established a business relationship with Fichera at the meetings in New York in September 1998 and in Florida in November of 1998. At the time, Rose was Executive Secretary of the ACC and known to be well connected with Jim Irvin.
Dubin recounted several things that Rose said to him, including that the “Company” [Oneok] had entered into a “definitive agreement to acquire another firm [Southwest] in the same industry at a cost of approximately one billion dollars.” Id. Dubin said that “Jack notes that the Company [Oneok] is committed to growing through acquisitions and he expects the Company will engage in similar deals in the future.” Dubin said that
Jack says that the Company's CEO has a strong motive for wanting to reward him ... [h]e would like to pursue the Transaction on behalf of PST and is confident that he can persuade the Company to name PSI as a managing underwriter ... Jack is concerned, however, about using up his goodwill with the CEO to obtain an engagement in which the fee income to IBG will be modest in comparison to the fees IBG would collect (and that he in turn would share) as an advisor on an acquisition. Hence, Jack has proposed that he and PSI enter into a finder's fee arrangement under which his contingent payout would be larger if he can deliver a more lucrative appointment for PSI ... Time is of the essence. Jack's telephone in Phoenix is 602 (number omitted).
-114- Dubin recounted that the “gist” of the conversation described above was that
Rose was “assisting” Oneok “in some fashion in obtaining the regulatory approvals needed.” (Dubin Deposition, 11/12/99 at 414:5-9) During a conference call with
Fichera on May 25, 1999, and during a meeting in June 1999, Dubay confirmed that many of Rose's representations to Prudential were accurate. (Dubin Deposition,
4/13/00 at 1236-1238)
On March 10, 1999, after Prudential had finally agreed to sign a consulting agreement with Rose that would pay him an extraordinarily large percentage of the fees paid to Prudential, Rose identified the company as Oneok and indicated that he was prepared to proceed on a “purely contingent arrangement.” (Dubin Deposition,
11/12/99 at 459:11-460:8; Dubin Deposition, 4/11/00 at 893:21894:20)
Jack Rose signed his first agreement with Prudential and faxed it to Dubin on
March 19, 1999, only a few days after the California trip with Jim Irvin but prior to the
Nevada trip. By late March 1999, Jack Rose had arranged for Prudential representatives to meet with the senior officers of Oneok. (Dubin Deposition,
11/18/99 at 547:6-549:18)
There has been some suggestion that Jim Irvin was supposed to receive kickbacks from either Oneok or Rose for his assistance of Oneok in the Southwest merger. Jack Rose has testified that despite the lucrative agreement that he negotiated
-115- with Prudential, Commissioner Irvin never suggested or imputed that Rose pay Irvin any of the earned fees. While Jim Irvin knew of Rose's lucrative agreement, and assisted Rose by having him accompany Irvin to California and Nevada, there is no evidence that Irvin ever stood to make one cent in unlawful remuneration for his assistance to Jack Rose or Oneok. Referring to the suggestions that Jim Irvin took a bribe or kickback, Rose testified in Vol. 3, p. 448:
We hadn't done anything wrong. There was no bribery, there was no racketeering. At most there was a violation of the ex parte rules and the rules of procedure for a quasi-judicial matter. That's not criminal.
I. Commissioner James Irvin's Unprecedented Secret Trip to California and Later to Nevada to Lobby CPUN President Richard Bilas and PUCN Chairperson Judith Sheldrew and to Seek Their Signatures on a Joint Statement to Provide to the Southwest Gas Board Violated His Quasi-judicial Duties as an Arizona Corporation Commissioner Because of the Partisan and Biased Position That He Took on the Merger Battle. Commissioner Irvin's Misconduct Is Highlighted by the Following Facts:
a. Neither flight was made through the state travel agency;
b. Irvin's personal calendar showed him at the ACC on both dates;
c. Irvin testified falsely under oath on three separate occasions claiming that the Oneok merger was not discussed during the trip to California. He subsequently retracted that testimony. The primary reason for the trip was to assist Oneok in acquiring Southwest Gas.
-116- d. Commissioner Irvin paid for the trip out of his own pocket so that the flight itself could not be discovered by fellow Corporation Commissioners. Such actions were totally out of character. Commissioner Irvin had a history of seeking reimbursement for amounts as minuscule as $1.00.
e. Commissioner Irvin misled the Wall Street Journal in an effort to cover up his activities, claiming that he coincidentally happened to be in San Francisco at the same time as Jack Rose, and that Rose was coincidentally invited to lunch to meet with President Bilas.
f. The trips were planned without the knowledge or input of Commissioner Irvin's fellow Commissioners.
g. The trips were planned and executed with the full knowledge and assistance of Oneok, but without the knowledge or input of Southern Union.
h. Irvin carried documents that were ghost written by attorneys and representatives of Oneok, a fact fully known to Irvin well in advance of the San Francisco trip.
i. At the California Public Utilities Commission, Jack Rose was identified and signed in as a member of ACC.
On March 16 1999, Jim Irvin and Jack Rose traveled together to California to lobby CPUC chairman Richard Bilas and staff members on behalf of ONEOK and against Southern Union. One week later, Irvin flew to Nevada, this time to solicit the support of Judith Sheldrew, Chairperson of the Nevada Commission. If these trips was been ordinary travel events by a Corporation Commissioner rather than secretive partisan acts, we would have found:
-117- 1. Irvin's appointments and flight reservations booked through the Arizona State government travel agency;
2. Notations on Commissioner Irvin's calendar regarding his scheduled visit to
California rather than reflecting his presence in Arizona;
3. Travel receipts, meal receipts, and rental car receipts all carefully documented, and submitted to the Executive Secretary for reimbursement;
4. Faxes from Commissioner Irvin on ACC letterhead confirming the itinerary with his California and Nevada hosts;
5. Draft letters of this anticipated joint policy prepared on ACC computers with copies of such plans furnished to fellow Commissioners;
6. Knowledge among Mr. Irvin's closest staff about his out-of-state plans, and the purposes of this trip.
7. Knowledge of the nature and purpose of the trips by Commissioner Irvin's fellow Commissioners, by the Executive Secretary, and among key staff.
Tragically, none of these traditional characteristics are present in this clandestine trip to two of Arizona's neighbors, California and Nevada.
There were numerous damaging facts surrounding these trips which were essentially undisputed in the trial. Neither Rose nor Irvin disclosed the trips, their purpose or their travel plans to any other Commissioner at the ACC or to their staff,
-118- other than Laura Winewar, who made the private reservation for Irvin. (Testimony of
Carl Kunasek, Vol. 1, p. 145-149; Vol. 2, p. 579-580; Affidavit of Tony West,
Deposition Exhibit #5 dated June 24, 1999.) Commissioner Irvin admitted that neither
Kunasek or West knew of the trip.
Testifying at trial, Irvin admitted:
Q. To your knowledge, did then Commissioner Tony West and Carl Kunasek know you were at the CPUC on March 16th, 20 1999?
A. I don't know what Commissioner West or Kunasek knew.
Q. Did you tell them you were going to the CPUC on March 16th, 1999?
A. I don't believe I did.
Q. Now, did you tell Patrick Black that you were going there?
A. I don't recall that I did.
Q. Did you tell the hearing officer, chief hearing officer that you were going there?
A. No.
Q. So during the calendar year 1999, Patrick Black was your aide; right?
A. Yes.
Q. Did you take Patrick Black on your trip to the CPUC or PUCN?
A. No.
Q. Did you tell him you were going?
A. I don't recall I did.
-119- Patrick Black, Commissioner Irvin's trusted assistant, similarly testified that he was kept completely out of the loop including even Jack Rose's involvement on the
Oneok merger. Testifying at his deposition on August 7, 2003, Black testified:
McDonald: Let me ask you: In this matter are you aware of Mr. Irvin ever using an outside consultant that was not employed by the Arizona Corporation Commission to do due diligence on any matter that came before the Commission aside from the Oneok?
Black: Not that I am aware of.
(Black Deposition at 21:3-8.)
Irvin's actions proved to be particularly embarrassing to Mr. Black. When Jerry
Porter, Carl Kunasek's policy advisor, approached Black and asked him for a copy of the joint letter that Irvin had taken to California, Black didn't have a clue what Porter was requesting. Black testified:
McDonald: It's my understanding that during the time after Kunasek and Porter had found out about the California trip that I think it was Porter, maybe Kunasek, came to you and asked for a copy of the letter?
Black: Yes.
McDonald: Tell me what happened, give me the events behind that.
Black: I believe we were in a staff meeting and Commissioner Irvin I don't believe was there. After the staff meeting Jerry Porter came up to me and said, do you have a copy of that letter to Southwest Gas. And I told him, I said, what letter to Southwest Gas? I was not aware of a letter to Southwest Gas, but I said that, you know, I would follow up. And at that point Jerry said, you don't have a letter? And I said no, and he dropped it, and that was essentially my conversation with Jerry.
(Black Deposition at 29:19 to 30:10.)
-120- Black acknowledged that Irvin even kept him in the dark about his travels to
California.
McDonald: Now it's my understanding that you didn't have a clue that he was going over to California to meet with Commissioner Bilas and other members of the California Public Utilities Commission, correct?
Black: Yes, I was not aware of it. In fact, much of Black's knowledge, like the citizens of Arizona, came from the newspaper. For example, Mr. Black had no clue that Jack Rose had traveled to Kansas and Oklahoma for Jim Irvin until he read it in the newspaper.
McDonald: What about the fact that he sent Jack Rose to do due diligence on Oneok, when did you first hear about that?
Black: It may have been -- and again, I am trying to be accurate here. It may have been when I started to read what was coming out in the press after the thing had been filed and there were -- it was a very hot topic in the press for a while.
McDonald: Commissioner Irvin never told you that he was having Jack Rose do this work, this due diligence, did he?
Black: No.
McDonald: When Mel was asking you about California, did he ever tell you that Jack Rose was helping him do the regionalization or having a letter review with some of the public officials in California?
Black: No.
(Black Deposition at 24:7-22.)
The trip was not booked through the state approved travel agency. Commissioner
Irvin additionally did not seek reimbursement for his trip even though Irvin presented himself and Rose as representatives of the ACC. Jim Irvin testified at his trial:
-121- Q. In the regular course of performing your duties as a Commissioner, do you seek reimbursement for your expenditures?
A. Usually, I do, yes. Q. Tell us all other occasions in which you can recall having made trips as an official of the ACC, prior to July 19th of 1999, for which you did not seek reimbursement for either airfare or something of substance.
A. As I sit here right now I can't recall. I'll tell you I've done a lot of travel. There were some trips. I mean as I sit here, I just can't recall.
Irvin, who had a reputation among ACC staff as a penny pincher, had historically sought reimbursement for expenses as small as $1.00, and nearly came to blows with the Commission's executive secretary when he denied rental car expenses for one of the
Commissioner's trips. Indeed, during the Southern Union trial in November and
December 2002, Irvin even sought parking reimbursement for expenses incurred at a nearby parking garage in the same case where the jury entered its staggering $60 million award. Given the Commissioner's reputation as a tight wad who would seek reimbursement on even the most minuscule expenses, it was highly probative that Irvin would not seek reimbursement for his travels to California and Nevada to meet with
Richard Bilas, Judith Sheldrew, and Governor Guinn. This fact, more than any other, shows how badly Irvin wanted to keep his travels a secret. By filing an expense report and by seeking reimbursement for travel, Commissioners Kunasek and West would have been tipped off to the secretive actions of their ACC colleague.
-122- During the March 16, 1999 trip to California, Irvin and Rose attempted to induce the CPUC chairman Bilas to sign a letter on behalf of California which Irvin hoped to use to favor ONEOK before the Southwest board. At the same meeting, Irvin and Rose seized the opportunity of trashing Southern Union's record without notice or any chance of Southern Union to respond. Irvin admitted this dialogue at his trial.
Q. When you were out in California, was the potential Southern Union capital structure ever discussed?
A. Yes.
Q. Who discussed it?
A. Information that Mr. Rose had related to me about a high debt-equity ratio.
Q. And what did you do to verify Mr. Rose's information?
A. I trusted Mr. Rose and the information he gave me. I don't -- I did not do any other work to verify it.
Q. Did you pass on any of the information Mr. Rose gave to you to anyone at the CPUC?
A. Yes.
Q. What did you tell the people at the CPUC?
A. With respect to?
Q. Southern Union's capital structure.
A. I don't specifically recall what we had talked about. I think the conversation entailed that they had – were not as well capitalized as ONEOK, and they could conceivably have a debt-equity ratio of this deal, if ONEOK went through that, it could be as high -- I'm sorry, if Southern Union, their debt- equity would be 80/20, somewhere around there.
-123- Q. When did you call up Southern Union and say to Southern Union, “Please discuss with me your potential offer, so I can understand how it would affect the citizens of Arizona”? A. I did not call Southern Union.
Rose, Dioguardi and Gaberino used telephones and fax machines as well as email to discuss, draft and edit various versions of the letter. One of the two utility giants competing for Southwest Gas was involved in various drafts of ghost writing the letter that Irvin would carry to California and Nevada. Dioguardi acted as a conduit for the various drafts which went back and forth between Rose and Oneok. No version of the California or Nevada drafts were ever found in the ACC computer system. While
Commissioner Irvin feigned ignorance over Oneok's role in drafting the letter, the evidence is clear that Irvin knew precisely of Oneok's role in the letter. Irvin testified at trial:
Q. When is the first time you saw a draft of a letter similar to Exhibit 333 (the Bilas letter) dealing with the merger of Southwest Gas?
A. I -- the first time I had seen one was on the airplane traveling to San Francisco.
Q. I assume Mr. Rose showed it to you?
A. Yes.
Q. Did Mr. Rose tell you that he had prepared the letter?
A. As I recall, there was something -- or the impression I got was that he prepared it.
Q. Did you ask him who prepared the letter?
-124- A. I did not, no.
Q. Did you ask him prior to receiving it to prepare a letter in any regard?
A. No, I did not.
Q. Had you discussed with him, prior to your trip to California, him preparing a letter?
A. We may have had some talk at some time about the idea of a letter, but I don't -- I don't know that we made any definite plans to do one or not. I mean there may have been and there may not, I just don't recall. There was a lot going on.
Q. Do you remember actually having some type of breakfast meeting with Mr. Rose and Mr. Gaberino in early March?
A. No breakfast, but I recall having a short meeting, meeting Mr. Gaberino, yes.
Q. Do you recall at this early meeting in March 1999 as to whether a topic of a potential letter was discussed?
A. I -- we may have kicked the idea around. I don't specifically recall. It is a possibility that the idea may have emerged there or not. I really don't have any –
Not only did the idea for the letter become a part of the discussion at that March
3rd breakfast meeting at the Lantana Grille with Jack Rose, but Gaberino's first draft, prepared the preceding night, was discussed with Irvin on March 3. Jack Rose produced notes prepared for the March 3rd meeting. These notes were not only intended to report on Rose's travels to Kansas and Oklahoma in mid-February, but to advise Irvin that he (Rose) was on the verge of finalizing a consulting agreement with
Prudential. Rose discussed his notes with special counsel, reviewing the strategy
-125- behind the joint letters, which he believed would eliminate Southern Union from the competition. He testified on August 27th as follows:
Below it I have “JR summary,” and then in parentheses, then I have an arrow going to the side which says “SUG,” meaning Southern Union Gas, “major headache,” and I am sure I passed on some of the negative information that I had been given. Besides that I have in parens [parentheses] “do you want a written report, I can't give any more time.” Then under Roman Numeral two the first phrase was, “okay, here are the issues, here is my report.” Roman numeral two, strategy, then there is an arrow with JR, meaning “Jack Rose” circled, and below that it was united regulatory support, Arizona, Nevada, California.
(Rose Deposition, Vol 2 at 282:13-20, emphasis added.)
* * * Rose: Now I don't want to kid you here, this was not an exercise in good regulation, although this is – this is certainly a good idea having regionalism. It was clear we were doing this, and my note below it says “letter to Southwest Gas Board” and then below that it says “regulatory roadblock.” Our strategy from the beginning was to create problems for Southern Union in the purchase of the Southwest Gas acquisition. Below that it has III and it says “things to do,” and then “issue No. 1, legal representation.” So that was -- I am sure I was talking to him about Dioguardi. And shortly after this, in fact this very day, Gaberino blows into town, stops by this meeting, interrupts us for a while. That was another inaccurate thing. Jim said, “When I got there Jack was already there with Gaberino and I was just there for a few minutes and we bailed out.” Not true. Not true. Jim was there, we had a lengthy meeting, Gaberino stopped by for a few minutes just to say hello, he was staying at the Pointe at Squaw Peak, and then he bailed out, but this was a long meeting.
McDonald: How long do you think the meeting lasted?
Rose: Hour to an hour and a half at least.
McDonald: Okay.
Rose: “Things to do, legal representation. Two: Lobbyists.” So we talked about Mark Dioguardi ...
-126- (Rose Deposition, Vol. 2 at 283:24 to 285:25, emphasis added.)
* * *
Rose: “Four: Draft letters for Southwest Gas.”
McDonald: Now that one is huge. “Draft letter,” was that your idea to draft the letter for Southwest Gas vis-a-vis Irvin's name and the other Commissions' name?
Rose: You know, this has been -- this has been a real controversial issue, and when we talk about the meeting that I had, I believe it was later this day with John Gaberino, it was kind of funny because there has been a lot of question about the genesis of the letter, who actually wrote the first draft. And generally since I was the guy not talking I was the one who did it. I did not write the first draft of the letter; it came from ONEOK, it came from John Gaberino. And I can't explain why it didn't show up on their computers, but I assure you that was the case. As far as the idea of the letter, putting together a joint letter, keep in mind the letter that we were talking about initially would be a letter coming from all three Commissioners, from three Presidents or Chairmen of the Commissions and it would lay out the standards to be used in a merger process, and it would be something that is innocuous, something that Commissions are empowered to do every day.
McDonald: But the innocuous thing, the real intent was --
Rose: The intent was to stop Southern Union.
McDonald: How do you stop them with an innocuous letter? Is it meetings behind the scenes to say --
Rose: No. And that's one of the things that always surprised me about this litigation. What we were proposing was that we designed criteria which would have been sound criteria, it wasn't something that was manipulated so that this one single company could get in. I mean we wouldn't say everybody is okay except for those people who were headquartered in Texas. It wasn't a ridiculous standard like that. It was, okay, you need this kind of credit quality, you need this kind of a safety record, et cetera. And the idea -- because we believed having been told by Southwest Gas, and we relied too much on them, that was a mistake. Obviously we would have been more critical of the information we received from Southwest Gas than ONEOK, but we
-127- believed that they had all of these problems and that by drafting the standards, by creating some standards, that they would automatically be knocked out of the bidding.
(Rose Deposition, Vol. 2 at 285:8 to 287:3, emphasis added.)
* * *
McDonald: And what you were going to try to do with the policy is take the bad information that you've gotten so that you create this general policy knowing that there's no way these guys are ever going to qualify because it doesn't coincide with this policy?
Rose: That's right.
McDonald: In the discussion that you are having on the 3rd, is this your way of saying, Jim, this is how I think you can get rid of Southern Union, I've heard this information, let's just get the three Commissioners to create a policy which because of this information that we have been told will knock these people out?
Rose: Which legislators do all the time. This would have been a legislative action, not a quasi-judicial, but a legislative action, which is to set a policy and you do that all the time. Some companies will qualify under the policy, Commissions do that every single day, and companies qualify or don't qualify based on their ability to meet those criteria. We weren't doing anything that we hadn't already done 50 times, it's just part of the motivation here was to kneecap Southern Union. And I will admit that, I will tell you right up front, that's one of the reasons we were doing it. But it doesn't mean that it wasn't a good idea.
(Rose Deposition, Vol. 2 at 288:10 to 289:3, emphasis added)
On three separate occasions during his Southern Union deposition,
Commissioner Irvin testified falsely about the purpose of the trip to California, testimony which not only troubled special counsel, but which also proved devastating
-128- to Irvin at his trial. Before trial, while taking his deposition, Commissioner Irvin
testified as follows:
Q. And when you traveled to the CPUC on March 16th of 1999, is it your testimony that you did not discuss the proposed merger between Southwest and ONEOK?
A. Irvin: I -- I don't believe I discussed the proposed merger, no.
* * *
Q. You told us beforehand that you went to California and Nevada to represent the citizens of Arizona; right?
A. Yes.
Q. And that was in -- dealing with, at least partially, with the proposed merger between Southwest Gas and ONEOK; right?
A. THE WITNESS: We do not -- I don't recall we discussed the merger with Southwest and ONEOK.
* * *
Q. Did you discuss the proposed merger between Southwest and ONEOK?
A. I do not recall discussing the proposed merger.
(Jim Irvin Deposition, R. 6162- 6163.)
While Irvin would later retract this testimony through corrections to his
deposition, the damage had already been done. No less than four separate witnesses
who met with Jim Irvin in California testified during pretrial depositions that Irvin in fact discussed the Southwest merger with them. It was one of the critical components
-129- of their meetings, and was the key reason that Irvin traveled to California in the first place. Witness Harvie Morris, an attorney in the legal division of CPUC testified:
Q. I apologize for interrupting you. How did they introduce themselves?
A. Well, Commissioner Irvin introduced himself as Jim Irvin, the Chairman of the Arizona Corporation Commission, and he said with him was Jack Rose, a consultant, and they both gave us their business cards at about the same time, and they said they wanted to talk about coordination among the three state commissions that would have to deal with Southwest Gas merger proposals.
(Harvie Morris, RT at 1193.)
Richard Bilas, President of the CPUC, testified:
Q. You mentioned earlier that Ms. Mattias had written in your schedule that there were going to be two topics covered for the meeting. One was electric restructuring, and the second was the Southwest Gas merger?
A. I believe that was true, yes.
(Richard Bilas, RT at 1428.)
Richard Myers, a member of the CPUC Energy Division, testified:
Q. All right. What was the first thing you recall being discussed at the meeting with Jack Rose and Commissioner Irvin?
A. I vaguely recall some friendly chitchat, and then we began discussing the Southwest Gas merger.
(Richard Myers, RT at1184.)
Witness Paul Clanon, director of the CPUC's Energy Division, testified:
Q. Can you describe for us as best you can the entire circumstances and discussions at the March 16th meeting?
-130- A. Mr. Irvin wanted to discuss the Southwest Gas merger. He had brought with him a draft letter that he said he was discussing with the California Commission, and also with the Nevada Commission. He was looking for a joint letter by the three state regulatory bodies looking at the merger.
(Paul Clanon, RT at 1670.)
Jack Rose ridiculed Jim Irvin's claim that they were not involved in discussions regarding Oneok in California. The main purpose for the trip was the joint letter, and the sole reason for avoiding the state travel agency and avoiding reimbursement was to conceal their actions in California from Kunasek and West so that they could promote
Oneok's interests. Rose testified:
McDonald: Why wasn't the reservation made through the state agency that makes them?
Rose: Very simple. If he had made it through the – and God bless him, but Jim, I mean he gets into a corner and then tells a whopper and then he has got to tell 50 more to get himself out of it. It's very simple. He didn't want Carl and Tony to know about it. If he made it through the State reservation, it's a public document and would have been forwarded through the Commission office to them, they would have known ten minutes later. He didn't want them to know he was going over to meet with Bilas because then they would have wanted to know what was going on.
(Rose Deposition, Vol. 2 at 300:16 to 301:3.)
Rose described how Irvin crippled his chances in his federal trial through his own testimony, repeatedly painting himself into a corner, placing his testimony at odds with virtually all of the other witnesses. Rose told us:
[E]ric (Southern Union's lead trial attorney, Eric Herschmann) was very clever at pointing that out and by the end of the trial it was basically, okay, are you going to
-131- believe Jim Irvin or are you going to believe everybody else in the case who Jim Irvin is now either directly or indirectly accusing of being liars. So either Jim Irvin is telling the truth or everyone else is telling the truth. It's mutually exclusive. Well, you know, you are not going to get the 50 other witnesses in this case to all lie about Jim, so the jury concluded that Jim was not being truthful. And it was pretty clear that he wasn't being truthful. I mean his claims were, they just didn't hold water in many cases.
(Rose Deposition, Vol. 3 at 493:1-13.)
One of the more damaging pieces of evidence for Irvin at trial related to Irvin's
identification of Jack Rose when they signed in at the CPUC headquarters in San
Francisco. Rose, as of March 16, 1999, was neither an Executive Secretary nor a
loaned executive and, as a result of the March 3, 1999 meeting, was no longer even a “
due diligence” investigator for Irvin. Jack Rose was on the eve of becoming a
consultant for Prudential, and was using his best efforts to assist Oneok in winning
approval of the Arizona, California and Nevada commissions as well as the Southwest
Gas board. Irvin knew of Rose's interests and ties with Prudential. Despite that knowledge, when Irvin and Rose signed in with the CPUC, Irvin identified Rose as an
ACC employee. Rose, testifying about this action, said:
McDonald: Now you told me the other day that you were stunned when you saw that your name had been signed in as one of the ACC people?
Rose: Yeah. I was floored.
McDonald: When you went in there did he introduce you as a member of the ACC?
Rose: No. Here is what happened. First off, when you go into the California Commission on the ground floor, it's in San Francisco so they have got all this security. So you go in and there is a security
-132- agent, “who are you,” security officer, and, “okay, you have got to sign in.” Well, here is my recollection. You come in, here is the security officer, the sign-in is over here. Jim goes over and signs us in, I get the security badges, I didn't see him signing me in. If I had seen him do that, I was not representing the Corporation Commission, and of course that was used against us, against me at the trial, and if I had seen that I would have corrected it. Now how was I introduced? I was not introduced as an employee or as a consultant, I was neither; I was introduced as a former employee. And there was a lot of discussion about this in the depositions with Paul Clannon and others, and eventually I think he admitted I didn't say one way or the other that I was representing the Commission, that I was just there as a former employee, and that's how I was introduced. Because if Jim had said that I'm an employee or consultant I would have corrected him at that point. I would not have allowed that to occur because I was not.
(Rose Deposition, Vol. 2 at 304-305.)
It is clear from our investigation that both Irvin and Rose originally used their best efforts to conceal their mission to California. Jim Irvin and Jack Rose, when contacted about the trip by Wall Street Journal, withheld the circumstances and planning that surrounded the trip. In a July 20, 1999 issue of the Wall Street Journal,
John R. Enshwiller, Staff Reporter, after interviewing Irvin, wrote:
Mr. Irvin said that Mr. Rose happened to be in San Francisco and he invited him along to lunch with a California regulator. “I don't know that that is a crime,” he said. Mr. Rose said he didn't work for Oneok or the Phoenix law firm and wasn't paid by them.
(Emphasis added.)
In a July 22, 1999 article written by reporter Howie Fisher of the Capitol Media
Services, and published in the Business Tribune, Mr. Fisher, wrote that Mr. Rose told him that he was simply tagging along with Irvin at the March meeting as a matter of
-133- “professional interest,” never having met Richard Bilas, President of the California
PUC. Quoting Rose, Fisher reported:
Jim (Irvin) was having lunch with him (Bilas) Rose said. “When I heard, I asked to be invited along.” The bubble of secrecy concerning the Rose-Irvin lobbying effort in California popped in April of 1999 when Commissioner Carl Kunasek learned about the secret trip taken the preceding month. Kunasek was attending and participating in a seminar in San Diego in mid-April of 1999. Kunasek and Commissioner Henry Duque, a member of the CPUC, belonged on the same committee. Kunasek was approached by
Duque and told of the March meeting between Bilas, Rose and Irvin. Kunasek memorialized that meeting with a memorandum drafted in close proximity to his April
1999 meeting with Duque. It read:
Commissioner Henry Duque (California Public Utilities Commission) reported that Jim Irvin, accompanied by Jack Rose, met with Commissioner Bilas on March 16, 1999, to discuss Southwest Gas acquisition by Oneok. Jim Irvin was soliciting a letter or other form of support for the Southwest Gas/Oneok merger. He then indicated that he would get Nevada PUC support for the same.
Kunasek testified that prior to Duque's contact, he had no knowledge that Irvin was meeting with Bilas, Judith Sheldrew, Governor Guinn or the staffs of either the
California or Nevada public utilities commissions. (Kunasek Deposition, Vol. 2,
3/22/01 at 579-580; 651-652) After Kunasek returned to Arizona, and informed his policy advisor, Jerry Porter, about his meeting with Duque, Porter asked Patrick Black
-134- to provide he and Kunasek a copy of the letter that Irvin had provided to Bilas in
California in March of 1999. Patrick Black had no clue that such a letter existed, even
though he was the chief policy advisor to Jim Irvin. In fact, Jim Irvin's official calendar
for March 16, 1999 showed him present in Arizona at the ACC offices. Irvin's actions
would probably never have been uncovered had not Duque approached Kunasek at the
April conference and informed him of the Irvin Rose visit the preceding month. It was
at that point that a crack developed in the dam -- a crack that would eventually lead to
the collapse of the Oneok merger.
The California trip initially met with some success, but even the limited success
illustrates Irvin's quest for secrecy. California Commission president Richard Bilas
originally agreed to sign a joint letter. A draft acceptable to Bilas was refined by Mark
Dioguardi and forwarded to Bilas. Irvin asked Bilas to send the letter to Jack Rose's residence, not the ACC. The plan was for the letter to arrive at Jack Rose's home on
Thursday, March 18, 1999, with Mark Dioguardi, the new Oneok attorney in Arizona,
picking up the package. A letter was actually signed and sent to Rose's residence by
President Bilas. When the other Commissioners heard of it, as well as the California
Commission advisor Ann Watson, they convinced Bilas to retract the letter. By the
time Irvin and Rose went to Nevada, they no longer had Bilas as a consenting signator
to the joint letter.
-135- J. Jim Irvin and Jack Rose Flew to Reno, Nevada, First Meeting with Governor Kenny Guinn at the Governor's Mansion in Carson City. The Purpose of the Meeting Was to Lobby for Oneok, and to Network with the State's Chief Executive. They Had Met Guinn the Preceding Year When He Was a Candidate for Governor of Nevada.
On March 23, 1999, Jack Rose flew to Reno, Nevada to prepare for meetings planned for the following day, spending the night at the Reno Hilton. The following day, March 24, 1999, Jim Irvin arrived on flight 626 at the Reno-Tahoe International
Airport at 10:35 a.m. The first meeting on the trip was scheduled at the Governor's mansion in Carson City with Governor Kenny C. Guinn, the current Governor of
Nevada and former President of Southwest Gas and former Chairman of the Board of
Directors. The meeting with Governor Guinn was not the first contact between Rose and Irvin. They had first met Guinn as a candidate for Governor. Jack Rose described the first meeting with Candidate Guinn.
Rose: Jim was very close with Southwest Gas. We liked those guys. Ed Zub, Mike Maffie, they would come into town, we went to Las Vegas, hang out with them. On at least one occasion they rolled out the red carpet, took us to their country club. On another occasion we went over there and met with, I don't know, the guy who's now Governor of Nevada, Kenny Guinn, former CEO, and we were --
McDonald: Did you meet with him while he was with Southwest Gas?
Rose: I think it was shortly after he left. Maybe he was still on the Board, but he was proceeding to run for Governor at the time.
(Rose Deposition, Vol. 2 at 186:15 to 187:2.)
* * *
-136-
McDonald: Where had you met him before?
Rose: We had made a special trip over there. This was sometime after my first trip after I became Executive Secretary. Jim and I had flown over to Vegas and met with him and Mike Maffie. And I didn't give you an exact date but it was he either had started his campaign or was about to start his campaign for Governor. He was elected in November of '98.
McDonald: Do you know whether Jim contributed any money to Guinn's campaign?
Rose: Jim may have. He indicated to the Governor, well, he wasn't the Governor at the time, that his family, Jim's family, owned a substantial amount of property in Nevada and he, “Jim,” was interested in helping out.
McDonald: Did Jim ever explain how he helped out?
Rose: I don't think Jim ever got around to it. I don't know, but I would be surprised if Jim actually did anything to help Governor Guinn.
McDonald: At least he discussed it at the first meeting?
Rose: Yes.
(Rose Deposition, Vol. 3 at 403:17 to 404:11.)
* * *
Jack Rose, as part of the impeachment inquiry, described the purpose behind the meeting of candidate Guinn prior to his election:
McDonald: And was that the purpose of the trip, just to meet the Governor candidate?
Rose: I follow Nevada politics, so I thought Kenny had a very good chance of being elected Governor. I suggested to Jim that this was somebody that we ought to be spending time with. So we made a special trip over to Las Vegas for the primary purpose of hanging out with Kenny Guinn.
-137-
McDonald: And then the explanation of his family's wealth and his connections in Nevada were expressed in the presence of Maffie and Zub at the same time?
Rose: That's right.
McDonald: And about how long did that meeting last?
Rose: I don't think it was particularly lengthy.
McDonald: Were you Executive Secretary at the time?
Rose: Yes.
(Rose Deposition, Vol. 3 at 405:2-16.)
After Irvin's arrival at the Reno airport, Rose drove Irvin to the governor's office in Carson City, Nevada. The meeting, in Jack Rose's eyes, was a networking coup.
Rose had inked his agreement with Prudential days before the trip, and could report to
Oneok and Prudential about his meetings with the Governor of Nevada, accompanied by the Chairman of the Arizona Corporation Commission. What made the gubernatorial trip even better for the duo was that Guinn, like Irvin and Rose, was favorably disposed to the Oneok merger. Rose testified about the meeting at the
Governor's mansion.
McDonald: Before you left to Nevada I take it you both knew that on the agenda is not only a meeting with the Carson City people but also the Governor?
Rose: Oh, yes.
-138- McDonald: By this time you're going over as at most the person with a relationship with Prudential, but the mission is again to try to help ONEOK in this battle that's emerging on the horizon? Rose: Okay. Keep in mind ONEOK had the situation in Nevada totally under control, they didn't need any help from us. Southwest Gas is very influential there with the Governor. Keep in mind Nevada is an appointed Commission. The Governor, if he doesn't like the Commissioners, can remove them. The Governor is a much, much, much more powerful individual in Nevada as it relates to utility issues than the Governor is in Arizona. The purpose of the trip was, yes, to promote the letter from the three states. But even more than that it was almost -- I don't want to say that the letter was an excuse to go over and meet with them because we did push to get the letter done and it was an important part of the trip, but it was really threefold. Networking with the Governor and with Judy Sheldrew, number one; number two, we wanted to be running around in circles so that it looked, at least I did, I can only speak for myself here, so that it looked like we, I, was very active and going here and going there and doing things for ONEOK. I mean if you are trying to impress somebody, you want to impress them with not only your vitality but your ideas, your execution, and the fact that you're setting these things up and you are meeting with the Chairwoman of the Commission and the Governor, I mean that's the type of thing that impresses large corporations. The fact that you can figure out how to get from this guy to that guy and the next guy. And so those were really the three reasons why we went over. At least why I went over.
McDonald: Was another reason because this is going to be great ammunition when the Southwest Board meets in April to show that here is the Governor? Because even though you may have the Commission locked up in Nevada, you still don't have the Southwest Board locked up?
Rose: That's true. That was another reason, an important reason.
McDonald: Now the networking, was the networking something that you were looking at only from your perspective or had you discussed with Irvin that networking could be valuable to him also?
McDonald: I discussed it with Jim repeatedly and at length and I spelled it out for him why it was that he as a Commissioner needed to spend time with the Governor of Nevada.
-139- McDonald: What were the reasons you gave him?
Rose: If you ever want to go for a Federal appointment to anything, having support in adjoining states from people like Harry Reid, who is the senior Senator from Nevada and the Deputy Minority Leader, I forget what his title is currently in the U.S. Senate, having those types of contacts is critical. But also having an understanding of regional transmission issues and other issues and having the contacts is extremely important. They don't appoint people to FERC who are not considered national players or have some understanding of the national grid and what goes into a national regulatory system.
(Rose Deposition, Vol 3 at 407:7 to 409:24.)
The well-laid plans for the meetings with Sheldrew and Guinn had been disclosed to Rose's friends at Oneok.
McDonald: Do you know whether ONEOK knew in advance that you and Irvin were going to Nevada?
Rose: Absolutely.
McDonald: What was your conduit to ONEOK to let them know the plans?
Rose: Gene Dubay mostly.
McDonald: Would you just pick up the phone and directly call Dubay or would you go through Dioguardi or would you do both?
Rose: Mainly I would go directly to Gene Dubay, although sometimes I would go to Dioguardi. You know, I wanted him to look like he was a real player so sometimes I would go through him.
McDonald: What was your objective in letting Dubay know what you are doing?
Rose: Well, my objective was to develop a relationship with Gene Dubay. I took a great deal of time and spent it briefing him, spending time with him. When we came to Phoenix I would take him out hiking. One day we went out, spent the whole afternoon hiking around the perimeter trail at Squaw Peak.
-140- (Rose Deposition, Vol, 3 at 410:8 to 411:3.)
Rose's notes of the Nevada trip are detailed and specific. He has Irvin's flight plan and notes where they had lunch and dinner. He described the Governor's mansion and the private meeting between the Governor, Irvin and Rose. He described that meeting with the Governor in his deposition.
Rose: And so we (Rose and Irvin) had a discussion, went through it, we had a letter for him. We said we are meeting -- we are putting this letter together from all three Commissions, we are here to meet with Judy Sheldrew, we think this is an important issue, talked about the public policy. Jim always liked to talk around important people like the Governor, so Jim did most of the speaking, although I certainly spoke also, and Jim just kind of laid out the case and told him what we were doing.
McDonald: Now when you say “laid out the case,” what case are you talking about?
Rose: The case for a joint regional policy and the case against Southern Union. And Jim was much more explicit in that meeting about Southern Union than he was in other meetings because we knew that the Governor was not a fan of Southern Union. I had been told that by ONEOK, that Maffie had talked to the Governor and the Governor was definitely with us on this one.
McDonald: So it was like preaching to the choir then?
Rose: We knew he was with us. So we said here is this letter. And I had a letter which had been written by Mark Dioguardi and he faxed a copy.
(Rose Deposition, Vol. 3 at 417:9 to 418:5.)
* * *
Rose: He made a number of statements. He said -- it was kind of interesting listening to the discussions. He said that Southwest had had a history -- or he had had a history or somebody had had a history with Southern Union but didn't really go into it and said that they were, and
-141- he used the word “bottom feeders,” that was his word, and that basically he was with us and this needed to be done. But he said that because of his close connection with Southwest Gas and the fact that he had just left Southwest Gas and just been elected Governor, that if it wasn't for that relationship he would be happy to send the letter, but because of his closeness with them he thought that it would be either inappropriate or that he would be criticized for doing it. However, he said he would be willing to make a phone call to Maffie and the Chairman of the Board and express his concern about the suitability of Southern Union.
(Rose Deposition, Vol. 3 at 419:6-22.)
The Governor did remain true to his word, contacting the Southwest CEO and
Chairman of the Southwest Board by telephone in support of Oneok. It was this precise strategy which Irvin himself later adopted -- a key and timely phone call.
K. Jim Irvin and Jack Rose Met with Chairwoman Judith Sheldrew Shortly after Their Meeting with Governor Guinn. That Meeting Did Not Go Well. The Plea to Ms. Sheldrew to Participate in a Joint Statement Was Rejected.
After meeting Governor Guinn and having lunch, Irvin and Rose went to the
Nevada Commission to meet with Chairperson Judith Sheldrew. The meeting surrounding the Southwest Gas issue was short and swift, lasting only about fifteen minutes in duration. Rose had researched Ms. Sheldrew's background prior to the meeting. He described her as a “well-known figure” in the utilities field. To Rose's surprise, Sheldrew was not a fan of Southwest Gas. There had been meetings and strategy sessions before the Sheldrew meeting.
-142- Rose: Yeah. We talked about Judy among ourselves, Jim and I, am sure I talked to Mark Dioguardi, and they had a -- one thing I left out. Southwest Gas had a lobbyist which was also used to set up the meeting with Governor Guinn, Charlie somebody or other, and he knew all of these players. And some of that information, I didn't talk to him directly, but the information I guess got to Gaberino who filtered it to me. But, yes, there was a strategy discussion and the basic strategy, it was very simple, regionalism, ONEOK good. That was the strategy.
McDonald: And what happened?
Rose: We went through the strategy and Judy said that she was not sure that she could sign such a letter because in Nevada the PUC is a creature of statute and their authority is very limited except as it's laid out in the statute. In Arizona it's very broad, here it's very narrow, so they can only do what they are specifically authorized to do and she wasn't sure that she was authorized to sign such a letter. She said that she thought that that would constitute rulemaking and that that would require all the Commissioners to be involved and that it would be a violation of their administrative code, possibly State law. She wasn't that firm. That was the final conclusion that everyone came to, but that was her initial impression. And she said she wanted me to meet with a young attorney by the name of Renee Lacey and talk to her further about it, have the issue researched, and that she agreed with the concerns that these were the issues that we ought to be working together and that, you know, those are the criteria.
(Rose Deposition, Vol. 3 at 426-427.)
After the Sheldrew meeting, Rose took Irvin back to the Reno Hilton where both he and Irvin spent the night. Rose treated Irvin to a steak dinner. It was at this time that Rose explained to Irvin many of the details of his recently executed agreement with
Prudential.
We sat down, had a couple drinks, had a nice steak and talked at length about what had transpired during the day and what was going on generally. And the reason I remember that meeting well is -- well, there are a couple of reasons, the main one being that was the first time I had sat down with Jim since I had actually inked the
-143- Prudential contract, so this was kind of a -- I wouldn't want to call it a celebration dinner, but, you know, it was kind of, you know, I was taking a couple of victory laps. I let him know I got this contract signed. Isn't that great. I don't want you to misunderstand, I didn't give him a copy of the contract. I didn't say I am going to get this on this one or I am going to get this on that one. I didn't fill him in on the details, but I told him I finally got my contract with Prudential and I am on my way.
(Rose Deposition, Vol. 3 at 429:23-430:14.)
The following day, Mr. Rose returned to Carson City for follow up on the
Sheldrew meeting. He testified that it was several days before he learned that Sheldrew would not sign the letter. Rose told us:
McDonald: So your hoped-for plan to have a letter signed by all three Chairmen, at best you are one for three. Irvin will sign it, but one signed it and one revoked it (Bilas) and the other one won't sign it? (Sheldrew)
Rose: That's right.
(Rose Deposition, Vol. 3 at 436: 11-15.)
Sheldrew's courageous decision caused Irvin, Rose, and Oneok to reconsider their options. The ghostwritten letter to Guinn had failed. That letter, if signed, would have told the Southwest Gas board that Guinn had read the joint letter of the three regulatory bodies and shared their concerns about Souther Union's offer. When the Guinn letter fell through the cracks, and Chairperson Sheldrew refused to sign a letter, the idea was floated between Duby of Oneok and Maffie of Southwest Gas to possibly have Governor Guinn pressure Ms. Sheldrew to sign the letter. Renee Lacey, an attorney for the Nevada commission, testified that there were three reasons why Chairperson Sheldrew could not sign or participate in the joint letter.
-144- 1. By signing the letter, the act would constitute “rule making” and subject
the Nevada Commission to a possible lawsuit;
2. By taking a partisan position, the action would cause Commissioner
Sheldrew to be recused;
3. Her signature would be a violation of Nevada's “open meeting” law.
The most damaging testimony was reserved to Judith Sheldrew. Her testimony removed all the sugar-coating that Irvin had put on the two trips, and exposed Irvin's true intentions. Describing the closed door meetings with Jim Irvin, Ms. Sheldrew, in response to questions from Eric Herschmann, testified:
HERSCHMANN: In your opinion, did the letter favor one offer over the other?
SHELDREW: Mr. Irvin said that the way that the letter was written, it was designed -- it was designed to point to ONEOK but that we couldn't say so in so many words because that would be improper.
Q. When you say point to ONEOK, you mean favor ONEOK?
A. Correct.
Q. Did he explain why the letter couldn't say that in so many words?
A. Because then it would appear as if we were predeciding, and that would be not appropriate.
Q. I'm sorry, I didn't hear the last thing.
A. That would not be appropriate.
(Sheldrew Deposition, October 5, 1999 at 51:23 to 52:14.)
-145- The deposition testimony of Ms. Sheldrew and the impeachment testimony of
Jack Rose are identical as to the purpose and plan of the joint letter and Jim Irvin's plans regarding the letter. The joint letter was nothing more than a scheme to create conditions designed in include Oneok and exclude Southern Union. Irvin, who had pre- decided the issue, was using his best efforts to mask his intentions by presenting a jointly signed letter from the heads of the Arizona, California and Nevada commissions and thereafter using that letter, together with the letter and/or support from Governor
Guinn, to sway the Southwest Board. This violated his legal duties as a quasi-judicial officer with the ACC.
-146- L. When the Joint-letter Plan Failed, and When Governor Guinn Himself Decided Not to Sign a Letter for the Southwest Board, Jim Irvin, to Ensure That the Southwest Board Would Approve Oneok's Bid Over Southern Union, Engaged in Acts of Gross Misconduct Regarding. In Order to Generate Support for Oneok, He First Sent a Letter to the Southwest Board on Arizona Corporation Commission Letterhead Without the Knowledge or Consent of His Fellow Commissioners, Falsely Claiming Support for a Joint Policy by President Bilas and Chairperson Sheldrew When Such Support Had Been Withdrawn (Bilas) or Refused (Sheldrew). Moments Before the Board Meeting, He Went to Jack Rose's Residence and Called the Board, Claiming That Southern Union Would Have Regulatory Difficulties If the Board Voted to Approve Their Bid for Southwest Gas. Influenced in Part by Irvin's Actions, the Southwest Board Voted to Approve Oneok over Southern Union's Superior Bid.
Irvin’s delivery of the letter to the Southwest Board on April 5, 1999 shortly before the nonpublic board meeting, followed by Irvin’s telephone call to Southwest’s
CEO Maffie, and Chairman of the Board Hartley, immediately before the meeting began, is a stark example of Irvin’s extreme gross misconduct. The telephone call was made in secret, away from Irvin’s public office at the private residence of Jack Rose.
Irvin, a commissioner/judge charged with the duty to fairly evaluate and approve mergers between two utility giants, made a premature decision without giving one side a chance to present its case; then made an ex parte presentation to the Southwest Board
(in essence the jurors) to support his improper partisan decision. Irvin’s actions were accomplished without notice to Southern Union or an opportunity to be heard. His
-147- remarks were biased, partisan, and unfounded in both law and fact. They were filled with false claims and downright lies.
Irvin had the temerity to tell the Southwest Board how the other commissioners would supposedly vote, which not only was untrue, but actually misrepresented their views. He imputed a consensus among the three commissions that did not exist, and promulgated this fraud with impunity and in utter disregard of his sworn duties as a
Commissioner. He did not inform either President Bilas or Chairperson Sheldrew of his actions before the Southwest Board, or of his intentions to attribute support of his position. His actions made a mockery of the quasi-judicial processes.
1. The plans for April 5th
Jack Rose confirmed that elaborate plans were implemented to sway the
Southwest Gas Board of Directors.
McDonald: Tell me about the planning on the timing of the call. Did you know that the Southwest Board was meeting on April 5th?
Rose: Yes.
McDonald: Who had told you that?
Rose: I believe Gene Dubay and Mark Dioguardi were both aware of it and I do recall discussing it with both of them. I'm not sure which one of them told me that the meeting was on that day.
McDonald: Was there a reason why Pat Black was kept out of the loop? I mean was that by design?
Rose: Yeah.
-148-
McDonald: Why?
Rose: Well, as I indicated earlier, Jim was a little paranoid so he liked to keep things on a need-to-know basis. Part of it was Pat was new to that position, Jim didn't want him focused on all of this ...
(Rose Deposition, Vol. 3 at 440.)
In April 1999, Southwest decided to conduct a three-day confidential Board of
Directors meeting to further review the Oneok and Southern Union offers. Within two hours of the commencement of this confidential board meeting, Jim Irvin sent a letter on ACC letterhead to Southwest raising purported concerns about the potential
Southwest merger. Irvin falsely claimed that he had spent a “considerable amount of time” with the chairpersons of the California Public Utilities Commission (“CPUC”) and the Public Utilities Commission of Nevada (“PUCN”), and that they shared these concerns. Bilas had expressly instructed Irvin and Rose that any support he had voiced with his original signed letter was to be deemed withdrawn. Irvin's claim of Bilas's support for the letter was a falsehood.
The same is true with Ms. Sheldrew, who refused to go along with any letter.
Immediately after faxing the letter to Southwest and prior to commencement of the
Southwest Board meeting, Irvin called the Southwest CEO and Chairman and said that
Southern Union’s offer was highly unlikely to obtain regulatory approval. The call was
-149- made from Jack Rose's residence. Rose told special counsel about that call and the script that he prepare for Irvin.
McDonald: The plan is for Irvin to come to your house?
Rose: That's right.
McDonald: Is there a script laid out in advance so he can be talking on the phone, going down a checklist of ideas?
Rose: Yes. I recall putting that together.
McDonald: And so he simply has to sit at the phone and go down the major points on the list on what to say on the phone?
Rose: That's correct.
McDonald: Is the plan to be that by speaking to Maffie on the phone, Maffie is then supposed to then carry his memory of the phone call in to the Board and basically tell them, gee, it's not in writing so nobody is going to have a record, but I've been on the phone, I've talked to this guy and he tells me that Southern Union either is going to have so many restrictions it's not going to be done, that they are not going to meet the guidelines, or some reason to persuade the Board to vote against Southern Union's bid?
Rose: I think the plan was very similar to that but with this difference. Maffie was very much opposed to Southern Union. He wanted Southern Union out of the deal, that was clear. Jim's phone call was designed to give Maffie cover to do what Maffie wanted to do anyway. And the phone call really was twofold. The purpose of the phone call was twofold. One was to emphasize the importance of it, the fact that the Chairman of the Commission is calling you and wants to talk about this. That says to you, “you” as a CEO and a Chairman of the Board, that this is an important issue. They don't normally call Boards and have these types of discussions. So number one, highlight the letter so that they take it seriously. Didn't want to just send it over and have it get lost in the shuffle. Not that it was going to be completely lost, but you know what I am saying. By having the Chairman call or the Commissioner call right before the meeting, it forces them to at least whip out the letter and show it to everybody and look at it, okay. So it was designed to highlight it. The second
-150- reason was to just emphasize some of the points, thereby giving Maffie the ability to interpret the phone call the way he wanted to anyway.
McDonald: Who decided that Maffie needed this backup to go into the meeting?
Rose: Maffie was having some trouble with his Board members, this was not a sure thing at that time. At least we didn't think so. At least ONEOK didn't think so. So this was developed in conversations with ONEOK mainly. Maffie, I don't think Maffie was -- no, Maffie was not part of those discussions. So this was a ONEOK strategy to influence Maffie in their favor. Although they knew he wanted to do it anyway, they wanted just to, you know, give him all the backing they could.
McDonald: Gives him a machine gun to take into the meeting? He has some fire power now?
Rose: Exactly.
McDonald: So at the time the call is made nobody is dreaming that Maffie is sitting at the other end with a tape recorder recording every word?
Rose: We had no idea.
McDonald: How long does the call take place time-wise would you estimate?
Rose: It wasn't a particularly lengthy call. I would say 10 minutes, 15 minutes.
McDonald: Do you get any feedback? When do you find out that the call was tape-recorded and then the tape later destroyed?
Rose: Not until after the litigation commenced.
McDonald: Is there ever any feedback later from Maffie, gee, that call really helped or report on how it went with the Board?
Rose: Yeah. Not from Maffie but from ONEOK. We were credited with saving their bacon. At least that's what they told us.
McDonald: Who told you that?
-151- Rose: Gene Dubay. And those are my words, not his. McDonald: Do you remember how he phrased it?
Rose: He said that they -- now keep in mind the final vote didn't take place for another couple weeks because they went through some more, you know, several more rounds of discussion, but by then it was clear that things were going their way. But he said, I can't give you an exact quote, but that they were very appreciative of the work that I had done on it, and they thought Jim had done a good job, and, you know, they were very positive, they were very happy.
McDonald: So as far as networking, a huge plus for you?
Rose: Well, it was a networking jackpot.
(Rose Deposition, Vol. 3 at 443:11 to 446:23.)
According to Rose, he and Irvin were not particularly concerned when Carl
Kunasek and Tony West heard of their secret dealings.
McDonald: So you weren't particularly concerned when the allegations started flying, especially about West's claim that, hey, there is bribery, there is racketeering, that sort of thing?
Rose: Who is going to believe Tony West.
McDonald: So you didn't like it, but you weren't that concerned about it?
Rose: We hadn't done anything wrong. There was no bribery, there was no racketeering. At most there was a violation of the ex parte rules and the rules of procedure for a quasi-judicial matter. That's not criminal. That's not even civil.
(Rose Deposition, Vol. 3 at 447:24 to 448:10.)
Jack Rose told us that when Irvin made the call from his home, he went well beyond the prearranged script, causing him genuine dismay. Irvin told Maffie that he had already decided against Southern Union, a statement which would have clearly
-152- knocked him off of the case. While the testimony is lengthy, it is vital to the
Legislature and the public and media to hear and recognize the scope of Jim Irvin's abandonment of his duties as a Commissioner.
McDonald: I get the feeling that you had talked to Irvin and he went way, way beyond what you had talked to him about and I want to get from you what he said that day, and just kind of run through the day, because I know there was a big point made he left the Commission, came to your place, made the call from your house, and this was all prearranged. Why don't you just tell me that story.
Rose: Sure. There were a lot of things that were said by Jim in the trial about that day and his testimony was contradicted by the two individuals that were on the line, the Chairman and the CEO of Southwest Gas, and I can tell you that my recollection is almost exactly the recollection of the Southwest Gas people. Jim is simply mistaken. But let me give you the story. Jim had a hard time sticking to scripts so a lot of times I would sit down with him when he was making calls at the Commission and either put him on a speaker phone so that I could write him notes or be available to keep things from getting out of hand. And at this time there was no way I was going to spend time at the Corporation Commission, but I felt that this was an important call because I was concerned that Jim would say something which would get him into trouble. And this isn't the first time that happened, I mean it happened on numerous occasions. And really the only place we could have the conversation and be, one, at the Commission, but I wasn't going to go there, and, you know, perhaps at Jim's house way out at Scottsdale or at my apartment which was conveniently located. So it was prearranged. He came over to my apartment, we had it all lined up, the phone call, Laura had them standing by, she had an appointment at a specific time. I think it was around lunchtime.
McDonald: Were you going to call through the Commission and have her patch it through?
Rose: No. We called directly from my house. It should show up on my phone records. And we called and got Maffie’s secretary and then talked to him. Now I was on an extension, Jim did all of the talking.
-153- McDonald: Did you know they were recording? Rose: I did not. I was surprised to find that out. They did not tell us that.
McDonald: And now they are in Nevada, you are in Arizona?
Rose: Uh-huh.
McDonald: Okay.
Rose: Uh-huh.
McDonald: Tell me what happened in the call.
Rose: Well, basically the purpose of the call was to pour cold water on the Southern Union offer. We knew that the Southwest Board was in a bit of a quandary because they, Boards, have a hard time turning down a higher offer in favor of a lower offer. Most people would rather have more money rather than less money. So that can be a hard sell. And we wanted to make sure that they understood that Southern Union had issues that could potentially block a regulatory approval in one or more of the states, and really the purpose of the call was to make sure that they understood that Jim had a high level of concern about this and to basically say, hey, read between the lines here. But the problem was I told Jim, I advised him very clearly -- Jim didn't understand quasi-judicial versus any other form of process, and I told him, look, Jim, you cannot say, do not tell them that Southern Union is not going to get regulatory approval. You can't say that because that means that you have probably prejudged the case and you are going to get knocked off it if there is any kind of legal proceeding. I said you can express concern. You can talk about standards that you want to put in as a legislative matter. There is nothing preventing you from talking about that. There is nothing preventing you from even talking about how great ONEOK is, but stay away from Southern Union. Whatever you do, don't tell them you are going to vote against it or that they're not going to get regulatory approval. Don't say that. Of course he gets on the phone and tells them that.
McDonald: What do you remember of the call? Because this is one of the missing tapes that they record it and then within a week or two destroy it. Tell me everything you remember of the call. Before you answer that question, the notes that we have reviewed basically indicated this would be the strategy: Let's call them at the 11th hour before Southwest or before Southern Union would really have a chance to
-154- answer and your word was “kneecap” them, take them out. Whose strategy idea was that? Rose: Well, when you are concerned with -- we were concerned that Maffie didn't have control of his Board. There was some dissidents on the Board who were kicking up some dust. Maffie had a deep dislike for George Lindemann, and I only found out some of this, I didn't know this at the time, but Maffie even went to the lengths of digging up some dirt on Lindemann's son and presenting it to the Board and there was just a visceral dislike between Mike Maffie and George Lindemann. But Maffie was an accountant and he wasn't particularly good at politics, at least that was my view, and I don't think he had control of his Board. So what we were trying to do is provide some cover for him so that he could go in and say, hey, I talked to the Chairman of the Arizona Corporation Commission and, you know, I got to tell you there are some real problems here, but to do so in a way that avoided Jim coming out and saying something that would be improper or misconstrued. There is a fine line there and I agree we are getting pretty close to the line there and I was trying to, you know, skirt the line but stay on the right side of it. It was a little noisy at my apartment, they were mowing the lawn outside so it was hard to hear. I was on the other extension and I was in another room and at one point it got so noisy I just clicked off and went in and listened to Jim talk. So I didn't get the entire conversation, but it was basically the way the notes described it from the Southwest perspective. He talked about the letter, about the fact that Southern Union – that he had done research on them and they had problems both on the safety side, he was concerned about the employees, about the community relations, he was concerned about their financial capability, said they had had a lot of problems while they were in Arizona, that he was uncomfortable with them. And, you know, at one point, and I don't remember the exact, I can't tell you I remember the exact words, but at one point he tells them something to the effect that they are not going to get regulatory approval and I am not going to support them.
McDonald: What do you do when you hear that?
Rose: I am like, oh, man, you can't do that. If this gets out -- if I had known they were taping it, I would have had a heart attack because he just disqualified himself from the case. If anybody had filed anything, he was gone. I mean there is no way you can prejudge a case and sit in on it. And what that does, it makes it four times as difficult to get something through the Commission because now you have to get both Commissioners to agree on it and back then it wasn't easy. Basically
-155- you would end up having to have a unanimous Commission, either West or Kunasek could veto the whole thing. So I was more concerned during this period of time -- it never occurred to me that there could be any type of wrongdoing from a legal perspective, I was concerned, much more concerned, about the quasi-judicial issues and the fact that he could be knocked off the case.
(Rose Deposition, Vol. 2 at 321:2 to 326:19, emphasis added.)
Michael Maffie secretly tape recorded Jim Irvin's phone conversation, and then played the recording to the Southwest Board. The opinions that struck horror in Jack
Rose's heart were verbally preserved by recorded tape and played to each member of the Southwest Gas board. It is no wonder that the tape recording itself was mysteriously destroyed by Southwest Gas executives after it was played to the board.
Southwest Gas and Maffie had Irvin's vote before the evidence was even submitted.
Why preserve the tape and give Southern Union any chance to force Commissioner
Irvin to recuse himself from the pending ACC merger approval due to his blatant misconduct?
Irvin, in his presentation of April 5th, falsely told the Southwest Board that the
ACC and the California Commission and Nevada Commission had grave concerns about Southern Union, and that Irvin would contact the Federal Energy Regulatory
Commission to block a Southern Union merger. Southwest’s public relations firm and its investment bankers confirmed that Irvin’s conduct raised grave concerns about
Southern Union’s offer. It is difficult to imagine more chilling information by directors
-156- than to be told that one of the two bidding parties will fail to get approval. It is no wonder that Oneok's lower bid carried the day. Neither Rose nor Irvin ever disclosed
Rose’s lucrative arrangement with Prudential prior to the time that the Southwest
Board of Directors voted on which proposal to accept Oneok's offer. As a result of
Irvin’s scheme to defraud, the State of Arizona was denied the “honest services” of its government officials, and Southern Union was denied its right to buy Southwest.
It should be noted that, before his federal trial, Jim Irvin testified repeatedly that he had no opinion about Southern Union or whether it would receive regulatory approval in Arizona. (Irvin Deposition at 4631-34.) Mike Maffie and Thomas Hartley both testified that Irvin clearly expressed negative opinions about Southern Union. In fact, in Hartley's notes, made simultaneously with the phone call, he had written regarding Irvin's call “Major concerns.” At another point, he noted “probably won't pass reg. approval.” This episode is yet another example where Jim Irvin testified one way, and every other witness with knowledge of Irvin's actions contracted his claims.
-157- M. There Is Compelling Evidence That Jim Irvin's “Due Diligence” Investigation Was Itself a Sham. Oklahoma Commissioner Bob Anthony Provided Jim Irvin Negative Information about Oneok. Rather than Investigating the Information or Reading the Written Materials Provided to Irvin by Commissioner Anthony, Irvin Gave the Package to Oneok's Legal Counsel, Mark Dioguardi. As Further Evidence That Irvin's “Due Diligence” Claims Were Not Made in Good Faith, Jim Irvin Did Not Investigate the Us West Merger, Even Though it Was a Much Larger Merger and Had Far Greater Impact upon the Citizens of Arizona.
Jim Irvin's claims of a “due diligence” investigation are void of merit when one considers his actions regarding Commissioner Bob Anthony of Oklahoma. Irvin had met Anthony at a national conference. The subject of Oneok came up in their
discussions. Anthony had negative opinions about Oneok and shared those opinions
with Irvin. To support those opinions, Anthony went through the trouble of collecting
numerous materials and forwarding them to Irvin.
Jim Irvin did not read or review the materials. Having made up his mind to vote in favor of Oneok's bid, he turned the materials over to Mark Dioguardi, Oneok's
Arizona counsel and a close friend of Irvin's. When Irvin's deposition was taken, he was almost totally oblivious to what information might have been included within the package of materials.
The evidence is overwhelming that the “due diligence” investigation was nothing more than a scheme used to bring about a victory for Oneok. Jim Irvin, in the years he
-158- served on the Arizona Corporation Commission, never traveled to meet with another commission to discuss the merits of a merger. Even though the US West merger had a far greater impact on Arizona citizens, he did not appoint Jack Rose, or any other consultant or “loaned executive” to conduct a due diligence inquiry.
N. While There is Strong Evidence that Jim Irvin Shredded Documents Requested Pursuant to a County Attorney Subpoena, the Evidence is Neither Clear or Convincing and, for Purpose of this Investigation, Are Resolved in Favor of Commissioner Jim Irvin.
During the presentation of the Southern Union evidence, there was compelling evidence from Monica Hart, a secretary to Carl Kunasek, that she had witnessed an event where Jim Irvin had shredded documents in defiance of a court issued subpoena.
Such evidence, if true, would constitute obstruction of justice. Commissioner Irvin's secretary, Laura Black, disputed Ms. Hart's eyewitness claims. Commissioner Irvin, in the Southern Union lawsuit, similarly disputed the claims.
During the course of our impeachment investigation, special counsel attempted on several occasions to interview Monica Hart. Her legal counsel informed special counsel that her mother was near death and was unable to attend an interview, a fact which was verified and undisputed. We did not want to take Ms. Hart from her mother's bedside in her hour of grief and revisit this issue with her in a sworn
-159- deposition. We did obtain Ms. Hart's videotaped deposition provided in the Southern
Union case and, in fact, reviewed that video tape deposition.
It is clear from our interviews with the jurors that, under their preponderance of evidence standards, they were convinced that Jim Irvin had indeed shredded documents. Given the dozens of discrepancies coming from Commissioner Irvin's mouth in the trial, and Monica Hart's persuasive testimony, it is easy to see and understand the jury's decision.
The standards that we have set in our impeachment investigation required a higher standard of evidence. We were unable to verify which subpoena was issued, and what materials were sought, that ended up in a shredding machine. We were unable to see the shredded materials, or to learn if any scientific analysis had been performed on shredded materials. The two witnesses in the case, Laura Black and
Monica Hart, were aligned with commissioners who despised one another in the troubled environment of the Corporation Commission. Laura Black testified convincingly that no documents were shredded. Monica Hart, on the video, testified convincingly, that documents were indeed shredded.
If special counsel was clearly and convincingly convinced that a shredding had taken place, such action would not only have been included within this report, but
-160- special counsel, in likelihood, would have created a sixth area of possible impeachment
and launched a special investigation, with recommendations into that alleged activity.
Special counsel can certainly understand the jury's reasoning in believing that
Commissioner Irvin had shredded documents. His involvement in the “fraud on the court,” coupled with his inability to tell the truth on just about any issue, made his testimony virtually incapable of belief. However, the testimony of Laura Black, in the opinion of special counsel, was sufficiently persuasive to resolve this issue in favor of
Commissioner Irvin. The evidence was indeed a “photo finish” and the doubts were resolved in favor of Commissioner Irvin.
O. Jim Irvin's Defense Team Request that Special Counsel Interview Professor John Leshy. Leshy's Opinions and Testimony Had Been Excluded in the Federal Trial before Judge Silver. They also asked Special Counsel to review the testimony of the Southwest Board, and to interview Bill Spainn.
During the course of our investigation, we asked legal counsel for Commissioner
Irvin, on several occasions, to provide us the names of witnesses or the location of exhibits which they felt would be helpful to Commissioner Irvin. They did provide a polygraph examination taken by Jim Irvin referenced earlier in this report. They did refer special counsel to the trial record in Southern Union, where members of the
Southwest Board had testified that Jim Irvin's comments had not influenced their vote
(testimony which was rejected by the federal trial jury and questioned in Judge Silver's
-161- rulings). However, another member of the Southwest Gas board had testified in connection with the Southwest shareholder lawsuit before the Southern Union lawsuit was filed that Irvin’s letter was indeed a factor in his vote to reject Southern Union’s higher offer. It was apparent that the direction of the board members’ testimony had shifted after the Southern Union lawsuit was filed. The fact that Southwest Gas settled
Southern Union's claim for $17.5 million is indicative of the genuine problems which the company was facing in the pending trial.
Efforts to interview Bill Spainn in the “fraud on the court” claim were unsuccessful. Doug Hopkins, a former FBI investigator assigned the task of locating
Mr. Spainn and interviewing him.
Special counsel asked for the opportunity to question Jim Irvin on the substantive areas of this investigation. In the one and only interview held with the Commissioner, we were limited only to “background” and were not allowed to question Mr. Irvin on the substantive issues of this investigation. Because of the extensive discovery taken in the Southern Union trial, at least we had access to Commissioner Irvin's testimony in that litigation. We were vitally interested in questioning him on the American National
Mortgage Partners allegations as well as the Fraud on the Court and Fisher allegations, but were not allowed by his legal counsel to question him in these areas.
-162- The last witness request was to interview Professor Leshy. That interview was conducted on September 22, 2003, on the afternoon before Commissioner Irvin's resignation from the Arizona Corporation Commission. Mike Sillyman had retained
Professor Leshy to testify as an expert witness in Commissioner Irvin's Southern Union lawsuit. After an evidentiary hearing, where Professor Leshy's opinions were presented to the court, Judge Silver ordered that those opinions be excluded from the jury.
Professor Leshy was not allowed to testify at the trial.
After concluding our interview, it was understandable why his opinions were excluded by Judge Silver. Professor Leshy is an expert on the Arizona Constitution, is a Harvard law graduate, and was on the faculty at the Arizona State University College of Law. Professor Leshy taught Constitutional law at ASU and has published the most authoritative work on the Arizona Constitution.
In fairness to Professor Leshy, he had not reviewed his report prior to our telephone call and did not have the report in front of him. With all due respect, special counsel and Jose Rivera, who participated in the interview, found the opinions unpersuasive. Key portions of that testimony are set forth from the transcript of that interview. While lengthy, we felt it important for the reader to review and consider the opinions that were excluded from the jury.
-163- The core of Dr. Leshy's opinion was that the Arizona Constitution created what one might call a fourth branch of government, and that the Corporation Commissioners had a broad range of powers to investigate, subject only to legislative and judicial limitations. The purpose of calling Dr. Leshy in Irvin's trial was to suggest that his actions involving Southern Union were somehow permissible, even absent the knowledge of Commissioners Kunasek and West, because of the Constitution's sweeping grant of powers. The following are excerpts of that September 22, 2003 interview with Mel McDonald and Jose Rivera.
McDonald: Well, if Commissioner Irvin, for example, today decided he wanted to do an investigation of APS, can he do that?
Leshy: Well, I mean, obviously, depends on what you mean by investigation. But as I concluded, I believe, in my opinion, the – you know, corporation commissioners being directly elected by the people of Arizona and accountable directly to the people of Arizona, and sitting in a sort of fourth branch of government as I believe the Supreme Court has – the Arizona Supreme Court has called it from time to time, you know, were expected to be, you know, sort of zealous guardians of the public interest as they saw it. And so the notion that an individual commissioner had some unilateral authority to investigate, again depending on, I suppose, exactly what you mean by investigate, would not have been foreign to the framers of the Arizona Constitution. They would have expected it.
McDonald: So, it’s your opinion then that Jim Irvin, if he wanted to conduct his own private investigation of APS tomorrow, starting tomorrow, he could it, without telling the other commissioners?
Leshy: I mean, I would have to qualify that somewhat. First of all, private investigation I’m not sure what you mean. Investigation on – in his role as corporation commissioner, yes. Without telling the other commissioners – that’s a little fuzzier because I’d have to go back, actually, and refresh my recollection about the constitution and what it
-164- says about commission action. Although I think I addressed this somewhat in the opinion. But there’s also the complication that the Arizona Legislature has some authority over the Commission and there are a couple of constitutional provisions in Article 15 that address that. And so, you know, it’s conceivable, I suppose, that the Arizona Legislature might – might have some ability to influence or regulate or guide how individual commissioners act. And I don’t think there’s any doubt, for example, that the Legislature could – in fact, I think I said this in the opinion, could, you know, an ex bribery statutes and apply them to commissioners and that sort of thing. So clearly, there’s some, you know, qualification one would have to put on the actions of individual commissioners. It’s not completely unfettered. But within those limits, as I think I said in the opinion I wrote, corporation commissioner – the notion that the corporation commissioners had some individual autonomy would have been, was consistent with the understanding of the framers of the Constitution.
McDonald: Well, can Commissioner Irvin – I take it, then, your answer Commissioner Irvin then can launch his own investigation of APS or Southwest Gas or any of the regulated utilities on their own without knowledge of the fellow commissioners. Is that what you’re saying the Constitution allows him to do?
Leshy: Yes. Subject to the qualifications I just expressed in my previous answer about, you know, legislative limits on that might be, you know, appropriate or might be authorized by the Constitution to some extent. But with that qualification, I would answer your question “yes.”
McDonald: What legislative limits are there to Jim Irvin’s APS investigation?
Leshy: Well, I don’t know. I don’t recollect. I can’t remember if I looked in looked at that in detail in the statute, I mean, in the opinion I wrote. But as I – I have some hazy recollection that there are some legislative – some statutes that do apply to the conduct of Commission business and, you know, as I say, it’s kind of a gray area. They’re the – the Legislature can, to some extent, control how the Commission does business. But I think the guiding ultimate principle here is that the framers of the Arizona Constitution intended the commissioners to be quite independent.
-165- McDonald: Well, for example, then, can Commissioner Irvin when he conducts his investigation without the knowledge of his fellow commissioners if he chooses, hire private investigators that can bill back the state?
Leshy: That is a gray area, I believe, because among other things, it relates to the – it’s in that gray area that I talked about of Legislature having some power in this area but not complete power. Because the Legislature generally has the power of the purse including over Commission – Corporation Commission budget et cetera. And could, you know an individual commissioner have the power unilaterally to commit state funds to a project that wasn’t authorized by a legislative appropriation. That could, you know, that’s just one of those constitutional gray areas. I mean, for example, can the United States Congress cut off the electric – refuse to pay the electric bill to the Supreme Court? You know, technically yes, but probably not, as a matter of constitutional law.
McDonald: Let’s even go grayer.
Leshy: Yeah, I don’t know that – I don’t believe the Arizona Supreme Court has ever addressed the issues like that.
McDonald: Well, can Commissioner Irvin then hire volunteers to go out and do secret investigations without the knowledge of his fellow commissioners? Leshy: I think it’s possible. Again, the Legislature might have some power to restrict the use of volunteers for whatever reason, for, you know, sort of innocuous reasons that don’t have to do with the independence of the commissioner, liability concerns, that sort of thing. But generally speaking, I don’t think there is a – I mean, the indepen – the constitutional independence of the commissioners, I think, would argue fairly powerfully for commissioner authority to do that, subject to the sort of gray area legislative limits.
McDonald: Well, are you setting as the guideline then that the commissioners under the state constitution are pretty much empowered to do anything that they want, save and except express limitations spelled out by the statutes? By the Legislature or by the courts?
Leshy: Well, anything you want, I would say – you’ve got to qualify that to anything that fairly relates to the scope of their responsibilities as a --
-166- McDonald: Let’s take investigative scopes. They can do – investigate anything they want as along as they’re not a specific limitation which bars them from doing it?
Leshy: Well, as I said, anything that relates to their scope of duties, you know, regulating, for example, corporations subject to the commission’s jurisdiction. But I would say that is a good, general principal. I mean, I think that flows from the Arizona Constitution because it made them an independent branch of government directly elected by and accountable to the people of Arizona.
McDonald: Well, do they have quasi-judicial duties?
Leshy: Well, I believe they do. I mean they, you know, have jurisdiction over rate cases and that sort of thing.
McDonald: Well, in the case of Southern Union and Oneok, did Jim Irvin have quasi-judicial duties in that case?
Leshy: Well, you know, the Commission’s a funny animal because it is, you know, constitutionally unique. I mean, it has judicial, legislative and executive responsibilities, I believe. I mean, I think that’s what makes it kind of a unique forked branch of government.
McDonald: Under the Arizona Constitution, does the Corporation Commission have quasi-judicial powers?
Leshy: I believe it does.
McDonald: And in the exercise of those powers, was Commissioner Irvin’s role, once the Oneok case had been filed for a merger application, was he now wearing the robes of a quasi-judicial officer?
Leshy: I think robes loads the question, because this is a unique agency and this is not a court. This is – the people of Arizona electing public officials to do a certain kind of job which involves, you know, things that in some context look like adjudications and in some context looks like, you know, legislative rule makings and in some context looks like administering laws. And if the people don’t like the performance of the officials they elect, they can, you know, impeach them, recall them or vote them out of office the next time they come up. So they have quite broad authority.
-167- McDonald: Well, does the broad authority entitle – or, can they do pretty much what they want to do? Strike that – I get the feeling what you’re telling me is that you don’t think they have this quasi – they shouldn’t operate like courts when they have these hearings?
Leshy: No, I’m not saying that.
McDonald: Let me ask you this: have you read the rules of the Corporation Commission? Their administrative law rules?
Leshy: You know, I can’t remember whether I read them when I was doing the report. I certainly – that would have probably been the only occasion I would have ever had to read them and I can’t remember.
McDonald: Okay. Were you aware that their own rules provide that proceedings in the Commission are to be run just like they run it in the superior courts with notices, motions, all of the other things that we associate with the courts?
Leshy: No, I wasn’t aware of that. Or if I was, I’ve forgotten.
McDonald: Okay. Is it appropriate for this broad discretion given to a commissioner for a commissioner, if he has quasi-judicial duties, to decide in advance that he wants to damage one of two people who will be appearing later in front of the Commission?
Leshy: I’m not sure I understand your question. I mean –
McDonald: Well, let me just give you a hypothetical example. Let me ask you to assume that the investigator that he hired, this private investigator, a gentleman by the name of Jack Rose, have you heard of Jack’s name before?
Leshy: I have a vague recollection of it in connection with the report I did.
McDonald: Okay. Jack Rose has testified that he received – that he and Jim Irvin planned to, and I’ll use his word, “kneecap” Southern Union, going back to the Tonya Harding days, that when they did the investigation, their objective, their mission was to find a way between the two interested parties wanting to buy Southwest Gas, that his purpose in going to Kansas and Oklahoma was to find information so they could kneecap Southern Union. Assuming that to be the case, is – does a commissioner have the authority under the Arizona Constitution, is
-168- the authority so broad that he can go in and should he desire to kneecap one of the two parties that will be appearing in front of him?
Leshy: Well, kneecap sort of loads the question, I suppose, a great deal. And another issue that I’m not sure is clear in your question is whether or not there is a current proceeding pending. Because I think it is a mistake to think about a corporation commissioner as exactly like a superior court judge no matter what the rules say, because corporation commissioners are elected directly by the people of Arizona to regulate corporations. And that includes – that’s an ongoing daily responsibility and so unlike a judge, which has no authority, I don’t think there’s any judicial authority to go out and look at what potential parties to the cases that might come before might be doing. I think corporation commissioners do have that authority. That’s what sets them apart from judges because they have a broader and ongoing responsibility to do more than decide cases that are brought to them. They have an authority to regulate corporations and to supervise and monitor corporations on an ongoing basis. So I think that distinguishes that situation quite a bit constitutionally from the situation of a superior court judge going out and looking at people who might be investigating people who might be parties before that judge at some future time.
McDonald: Can they, using my term again, can they kneecap them? Do they have the authority when they start the investigation to have as its objective to not find out the facts but rather to do one of the two competing parties in?
Leshy: I’m having a hard time, I guess, understanding what “kneecapping” and “doing them in” means.
McDonald: Making sure that – there’s two people that want to buy Southwest Gas. Two utilities. Both are bidding on Southwest Gas and the decision must ultimate be made by the Corporation Commission. Commissioner Irvin then asked Jack Rose to go get information and they plan and discuss together how they might insure that one of the two parties wins the bid and to get information to make sure the other loses the bid and to do whatever is necessary to bring about success for one of the parties and defeat for the other. Is that within the proper prerogative of a commissioner under the Arizona Constitution?
-169- Leshy: I think it’s arguable that the answer is “yes.” I mean, you know, it obviously may be depend upon all the details but the general idea that a corporation commissioner can, on an ongoing basis, monitor the activities of and decide that that corporation, particularly a major corporation acting under state or regulatory authority, is not doing a good job for any reason or is not the best person to engage in, you know, public service activities in the State of Arizona. I believe a commissioner is authorized to do that by the Arizona Constitution. Now, as I said, I’m not sure if that is kneecapping because I’m not sure kneecapping means. But –
McDonald: Well, let me give you one example of kneecapping. Are they authorized to disseminate false and misleading information to other commissions? Can they do that? Is that within the authority of the commissioner that if he wants one side to win the bid over the other side, that to insure that result he disseminates false information. Is that within his powers?
Leshy: I think my general answer to that would be “yes.” And I think the remedy for doing that is basically vote them out of office. And presumably, I mean – in other words, I think that corporation commissioners were intended by the framers of the Arizona Constitution to have a broad scope of authority and a broad kind of immunity subject to the provisions of the Constitution.
Rivera: Professor Leshy, let me ask you this, I mean, on the same line. Are you saying that commissioner can make a determination before a person makes an application for approval, make a determination that he does not want one of the two people being applying for it, and then surreptitiously without telling anybody else, do everything and do an investigation to prohibit one person from getting that application, and that would be allowed within the Arizona State Constitution?
Leshy: Subject to the qualifications I said earlier about, you know, there’s this vague area of legislative control over commission activities, yes.
Rivera: Okay, let’s break that down by pieces. You’re saying that a commissioner, before the decision is being – before the application is being made and before anybody else makes a determination as to – or any investigation into what company is a proper company or not, can make a determination that he just does not want this company because he doesn’t like the color of their logo, first of all. Can you make that determination?
-170-
Leshy: I think so.
Rivera: Okay, then, once he makes that decision, can he then –
Leshy: Once again subject, always -- I mean, all my answers here will be subject to legislative, you know, this vague power that the legislature has over the commission.
McDonald: Can you give me any area where the legislature has created powers to limit a commissioner from kneecapping people that he wants to knock out of the competition?
Leshy: I’m sorry. I didn’t –
McDonald: Can you give me any set of statutes that the legislature has drafted which limit the power of the commissioner to go out and to deceive other people, to insure ensure a defeat of an applicant or some other –
Leshy: Well, I think the legislature has, for example, in the bribery statutes, I do not believe, and I don’t believe there’s any question that those apply to corporation commissioners; so if a commissioner wants to kneecap because somebody is paying him off, I think that he can be punished and brought to justice criminal – you know, subject to the criminal laws that the legislature enacts for that purpose. I don’t think that’s inconsistent with the Constitution.
McDonald: But as long as he’s not getting bribed, if he just wants to kneecap them without the bribe, he can do that?
Leshy: Yes. Because the framers of the Arizona Constitution contemplated that. That’s what they wanted. That’s what 1910 was all about.
(Leshy Interview at 7-13, emphasis added.)
* * *
McDonald: Is it appropriate under the Arizona Constitution, then, for a commissioner to spread false information, trying to defeat a competing bid for a public company in a merger? Is that permissible?
-171- Leshy: Subject to the same qualification I made before, yes. In the same way that I think it’s permissible for a legislator or the governor or other directly independent – directly elected politicians to do. McDonald: And so you can do secret investigations without anybody knowing, correct?
Leshy: Subject to the qualification earlier, yes.
McDonald: And you can, during the secret investigation pick sides who you want to win and who you want to lose, correct?
Leshy: Yeah.
McDonald: And you can hire either public people or private people, whoever you want to hire to accomplish this mission, correct?
Leshy: Again, all of this subject to the qualification that the legislature can control the purse and control volunteers and that sort of thing, you know, in the interest of liability and that sort of thing.
McDonald: And the Constitution gives this commissioner the right if he wants to injure somebody to go ahead and injure them, spread false information, smear them if you want to smear them, just so long as in doing so you’re not taking a bribe?
Leshy: Well, or violating any other statute that the Legislature wants to enact and apply to the Corporation Commission within its power to do so.
McDonald: Well, is there any statute that prohibits a commissioner from smearing somebody or spreading false information to ensure that they’re defeated?
Leshy: Not that I know of...
(Leshy Interview at 14-16, emphasis added.)
It is the position of special counsel that if the founding fathers of the Arizona
Constitution indeed had such a distorted concept of "right and wrong,” or remotely conceived that public officials might interpret their duties so as to justify such
-172- unacceptable behavior, legislative and judicial actions under the constitution over the
past 93 years have utterly negated those 1910 ideas.
Professor Leshy's opinion in no way changes the opinions of special counsel.
Public officials who have quasi-judicial duties do not have the right or power to
prejudge cases pending before them, nor do they have the right to kneecap one of the
parties, spread false information about them, or to disparage them in ex parte
discussions with other persons.
P. After Carl Kunasek Learned of the Oneok-Irvin Mischief, and Approval of the Oneok-Southwest Merger was Postponed, Commission Staff, which had Originally Recommended Approval of the Merger, Revisited the Issue. Deb Scott Wrote a Report Recommending that the Merger Be Denied.
The real victims of the political mischief of Commissioner Irvin were the
Shareholders of Southwest Gas stock. When Jim Irvin's activities came to light, Carl
Kunasek and Tony West refused to approve the merger without a further investigation
into the relationship between Oneok and Irvin. As a result of that investigation, the
ACC staff, speaking through Deb Scott, in an unprecedented rebuke, reversed its prior
recommendation of approval, finding Oneok unfit to acquire Southwest Gas in Arizona.
The following excerpts from the ACC staff report outline the new recommendations against Oneok's acquisition of Southwest Gas. Ms. Scott wrote:
-173- What has caused you to focus on possible misrepresentations or questionable conduct?
This merger could be considered unusual because there have been allegations of improper conduct related to ONEOK’s application to merge with Southwest Gas. In order to make a recommendation that such a merger would be in the public interest, Staff must confirm that ONEOK did not act improperly in an attempt to insure the Company’s success in its acquisition effort.
Do you have additional concerns regarding the ONEOK/Southwest Gas merger?
Some of ONEOK’s conduct during the merger process has been highly irregular. I question ONEOK’s conduct related to the Company’s participation in the drafting of a letter that a commissioner sent to Southwest Gas’ board. I also question why ONEOK did not have concerns regarding Mr. Rose’s relationship with the commissioner, with Prudential, and with ONEOK. According to ONEOK, initially a commissioner told ONEOK representatives that Mr. Rose would perform due diligence for him regarding the proposed merger. Mr. Rose became associated with Prudential and negotiated for financial transactions with ONEOK. Mr. Rose’s participation was questionable because he initially acted on behalf of a commissioner, and then was acting in the financial interest of Prudential. The fact that ONEOK knew of Mr. Rose’s dual roles and was apparently unconcerned about these business relationships and their impacts is troubling.
* * *
Staff has concerns about ONEOK's integrity and veracity.
Does Staff recommend that the Commission approve the ONEOK/Southwest Gas merger?
As discussed above, before making a recommendation to the Commission, Staff must investigate the applicant and examine all the evidence. Staff can only recommend approval of the merger if the company has made an affirmative showing that the merger would serve the public interest. Based on the concerns addressed in Ms. Jaress’ testimony regarding ONEOK’s poor safety record as compared to that of Southwest Gas; numerous consumer service complaints; the potential financial liabilities, depending on the outcome of the civil litigation matters; compounded by the allegations set forth in the civil litigation; and the questionable conduct of ONEOK representatives discussed above, Staff is unable to recommend approval of the merger at this time.
-174- The irony of the staff report and recommendations cannot be overlooked. In the
final analysis, the factual arguments used by Oneok and Southwest Gas to poison
Southern Union's status with Jim Irvin were the very same type of factual arguments
which ACC staff used to recommend against approval for Oneok's bid -- a poor safety
record, numerous customer service complaints, financial concerns, and lack of integrity.
Q. Jim Irvin's Actions, by “Clear and Convincing” Evidentiary Standards, Violated Both State and Federal Criminal Laws, Thereby Constituting “High Crimes” under the Arizona Constitution.
There has been considerable public discussion over whether Jim Irvin's actions have constituted criminal misconduct. Having served as a United States Attorney, responsible for making hundreds of prosecution decisions, special counsel can confirm that the policies and standards which influence prosecutorial decisions are different than the policies which govern impeachment charges. The findings and conclusions expressed here are not intended, in any way, to challenge or criticize prior decisions made by United States Attorney Paul Charlton of the District of Arizona. In addition, the findings made herein are not intended to be a recommendation for or against criminal prosecution against Jim Irvin, either on his Southern Union actions, or on his
“Fraud on the Court” activities. Those decisions can and should be made by the prosecutors, either state or federal, entrusted with those responsibilities in accordance with their prosecution standards and guidelines. This discussion is, therefore, expressly
-175- limited to criminal conduct which I believe exists within the impeachment standards of
“clear and convincing evidence,” a lesser standard than one required to sustain a
criminal conviction.
1. Violation of State Laws
The clearest and most readily provable “high crimes” perpetrated by Jim Irvin are the violations of Arizona state law. The federal offenses carry a higher “mens rea” standard. In evaluating this portion of impeachment law, it is important to identify what
Jim Irvin did and did not do. There is insufficient evidence to suggest that Jim Irvin took a bribe or kickback from Oneok, Southwest Gas, or Jack Rose. Jack Rose testified that Irvin received no payments of any kind, and there were no “paper trail” indications that Jim Irvin's actions against Southern Union were carried out for
“financial gain.” While there was solid evidence accepted by the trial jury that Jim
Irvin shielded documents sought by a grand jury subpoena, special counsel does not believe that the evidence he destroyed documents is clear and convincing.
Special counsel believes that the evidence convincingly demonstrates that Jim
Irvin's motives for wrongdoing were political and personal, not economic. Special counsel specifically questioned Jim Irvin about his political aspirations after the expiration of his government service with the Corporation Commission. This line of questioning was extremely important to our investigation because of our suspicions that
-176- Commissioner Irvin's inexplicable actions may have been tied to anticipated political paybacks.
There is nothing wrong with any elected official to aspire for higher office. Four of the five Commissioners have been members of the Arizona legislature, and one of the five Commissioners had aspirations for higher elective office. Both U.S. Senators, our current and former Governor, and many people in government service have used lesser offices as stepping stones to their current governmental positions. There would be no conceivable reason to mislead special counsel by deceptive answers on this very simple question. Commissioner Irvin materially misled special counsel regarding his political ambitions. He was adamant when he testified that he had no political goals beyond the Arizona Corporation Commission. Referring to some of the evidence which came out at his trial, Mr. Irvin told us:
Irvin: [I] mean, I – and then all of a sudden, with this stuff coming out, I’m all of a sudden, I think of the trial in the record, somebody said I was gonna run for President of the United States from the Corporation Commission. Somebody else said I was looking to run for Governor. I sit there looking and said “wait a minute, no one has ever gone from the Corporation Commission or any regulatory commission, really to anything in the State of Arizona. They either go into the Legislature or they bow and go back into private industry.” Which is really where I wanted to go. Take that experience and – and the Commission’s been – to me it’s been very rewarding.
McDonald: We have had a couple of people that have indicated that you had some day aspired to be governor, that along the line of things, that you wanted to posture yourself so some day you could run for governor.
-177- IRVIN: I – you know, I’ve heard that – those rumors before and I – number one, it’s never come out of my mouth. I have never even mentioned the word “run for governor.” I’ve never even looked at that office.
(Irvin Interview at 12, emphasis added.)
Commissioner Irvin's claim to special counsel was patently false and deceptive.
Some of Irvin's closest friends told us about his aspirations to some day be Governor of
Arizona. His goal was not to return to private industry. It was to attain higher political office. What is so troubling about his testimony is that these goals were not private --
Irvin had discussed his political ambitions with some of his closest friends and advisors.
One of Commissioner Irvin's most loyal aides through the entire Southern Union litigation was his policy advisor, Patrick Black. Black, testifying under oath in his deposition, testified:
McDonald: Also I have heard from a number of people that the Commissioner had political aspirations, that he wanted to run for governor. Did he ever discuss that with you?
Black: Yes, he did discuss with me that he had political aspirations, whether that would be in Congress or in the governor's office, but he certainly didn't see the Commission as being the end of his political career.
McDonald: Did he ever tell you where his ultimate goal was? That he wanted to be a Congressman or wanted to be governor?
Black: I think he wanted to be a lot of things. I mean, yeah, he had talked about being governor, he had talked about being a Congressman, he had talked about some, you know, about his political aspirations and I knew that he wanted to go beyond the Commission.
(Black Deposition at 28:20 to 29:10, emphasis added.)
-178- Another close political advisor was Phoenix attorney Mark Dioguardi. Special counsel asked Dioguardi if Jim Irvin had ever discussed plans for higher office.
Dioguardi testified at his deposition:
McDonald: Tell me the different offices that Jim Irvin has told you that he aspired to other than Corporation Commissioner.
Dioguardi: The only ones that I can recall would be Secretary of State and possibly Governor.
(Dioguardi Deposition at 25:15-19, emphasis added.)
We interviewed former Mayor Paul Johnson on August 25, 2003. We asked
Johnson, himself a former gubernatorial candidate, whether Jim Irvin had ever discussed running for Governor. Mr. Johnson told us:
Johnson: [H]e ran for secretary of state.
Rivera: He would have been governor.
Johnson: He – wow – Jim had told me a couple of times that he was thinking of running for governor; that he thought that that was a possibility. And the surprising part is he’s told me that since all this has broken loose.
McDonald: He still told you he wants to run for governor?
Johnson: Maybe a year ago. I just think that – I think that that for Jim was in the beginning what he wanted to do.
(Johnson Interview at 19, emphasis added.)
-179- Jack Rose testified in deposition that he and Irvin discussed how Oneok might help him in his political aspirations for Governor or some significant federal appointment. Rose testified:
McDonald: Did Jim have personal political goals beyond the Commission?
Rose: Absolutely.
McDonald: What were some of these goals?
Rose: Well, they changed at various times. And I can describe them as we go through the process. Initially he wanted to -- he was definitely interested in running for Governor.
McDonald: What other positions? Somebody told me vice-president, he said one day he wanted to be vice-president.
Rose: No. At various times he had talked about a Federal regulatory appointment such as FERC or the FCC, or perhaps there's a position in the Department of Commerce overseeing telecommunications, I think it's an Assistant Secretary of Commerce, we talked about that.
McDonald: Was he unhappy that he had gotten nosed out by Hull, that he would have been the governor? Did he ever talk about that?
Rose: Yeah, that haunted him a little bit because he could have won that race. And he should have won that race with the amount of money he spent and he knew it.
Rivera: How about Congressman, did he ever talk about that?
Rose: Yeah. We were coming up to the 2000 redistricts and there was talk that there would be a Scottsdale seat and there was heavy discussion about that, yes.
(Rose Deposition, Vol. 1 at 55:9 - 56:10)
-180- In Mr. Rose's second deposition, the subject of Jim Irvin's political aspirations was addressed again, this time as it related to the question of how Oneok might help
Irvin to achieve these political goals.
McDonald: Actually a company like that (Oneok), if you are running for high public office can do pretty well at fundraising. Did you discuss that? You had mentioned he had wanted to someday be Governor.
Rose: I mentioned that to him.
McDonald: And tell me how you went about mentioning that to him.
Rose: I told him that having a national base, national contacts, whether he was -- this isn't a direct quote but the effect was it's important. And these are conversations that we had had over years, it wasn't just in reference to this company. That it was important to develop relationships in the business community to develop respect because if you're looking at a run for whatever it is, Governor or Congress, that having fundraising capability is absolutely essential.
(Rose Deposition, Vol. 2 at 193:1-15.)
It is this absence of credibility, on even peripheral issues, that turned the federal jury against Jim Irvin and made Irvin the worst and most unbelievable witness to testify at his trial. The evidence suggests that Commissioner Irvin had a strong motivation to distance himself from his declared political ambitions. Irvin and Rose had openly discussed how Oneok could be influential in Irvin's political future, as well as
Southwest Gas. The Governor of Nevada had been a former CEO at Southwest Gas before his election as governor. Irvin had offered his families support candidate Guinn when Irvin met with Guinn in Nevada prior to his election. Southwest Gas wanted
-181- Oneok to win the bidding war against Southern Union, and Oneok, like Southwest Gas, had a proven history in the political arena. Why would Jim Irvin so earnestly attempt to distance himself from his declared political aspirations? Why tell impeachment investigators that he planned on returning to the private sector at the end of his second term in the Corporation Commission? Did his inexplicable actions on behalf of Oneok have any connection to these political goals? If not, why not simply tell the truth in this investigation, both to special counsel and to the federal jury?
Contrary to his testimony, Irvin had aspirations for higher office. He had missed becoming Arizona's 20th Governor by a handful of votes and had told many close associates of his desire to one day run for that position. He had also flirted with the idea of a possible run for Congress. Additionally, he had an active interest in seeking a federal appointment to the Federal Energy Regulatory Commission.
One of the clear indicators that politics played a major role in his decision was
Irvin's failed attempt to obscure his political ambitions. There would be no reason to lie about his political ambitions, unless those ambitions involved his motives for inappropriate conduct. Jim Irvin didn't pay for plane tickets to California and Nevada without some personal objective or goal. If he was successful in delivering Southwest
Gas to Oneok for $108 million less than the competing bid, and to orchestrate cooperation among utilities leaders in three states and the Governor of Nevada, that fact
-182- would have stamped him as a “mover and shaker” and would unquestionably endeared
him to utility executives at Oneok.
There was also a political promise made by Oneok officials that would have
looked good on Irvin's list of accomplishments. Oneok had promised Jack Rose, as
part of the negotiation process, that if Irvin helped Oneok acquire Southwest Gas, they
would eventually move their business headquarters to Arizona.
The political tradeoff would not have been a positive gain for Oneok. The would have saved $108 million and, in exchange, move the headquarters to the state where most of their customers were located.
One other possible motive, in addition to political ambition, was a simple
political payback to his friends. Several witnesses told us of Jim Irvin's close ties to
Southwest Gas executives Mike Maffie and Ed Zub. They told Irvin immediately after
Southern Union's bid that they were adamantly opposed to Southern Union acquiring
Southwest Gas. Irvin accepted their negative claims about Southern Union with a
vengeance. Between February and April 1999, Irvin did everything within his power to
assist Oneok in winning the bidding war, and Oneok did everything in its power to
assist Irvin. They gave Rose “red carpet” treatment, agreed to meet with Prudential,
Rose's new employer, ghost wrote numerous letters for Irvin to use in recruiting
Governor Guinn and the heads of the Nevada and California Commissions, and
-183- promised Irvin to move their headquarters to Arizona if he was able to deliver the prize
at a savings of $108 million.
There is clear and convincing evidence that Jim Irvin's actions violated A.R.S.
§§ 13-2310 and 13-2311. A.R.S. § 13-2310 was constructed based on the federal mail
fraud statute. The federal decisions regarding the mail fraud statute are persuasive
authority in evaluating § 13-2310. See State v. Johnson, 179 Ariz. 375, 379, 880 P.2d
132, 136 (1994). Both statutes encompass a broad range of fraudulent activities.
Under both the state statutes, “[t]he scheme need not be fraudulent on its face, but must involve fraudulent misrepresentations or omissions reasonably calculated to deceive
persons of ordinary prudence and comprehension” (citations omitted). The term
‘fraudulent representations’ has been explained as deceitful statements or half truths or
even the concealment of material facts (citations omitted).” State v. Poundstone, 179
Ariz. 511, 512, 880 P.2d 731, 732 (Ct. App. 1994). Additionally, both statutes include the intangible rights doctrine, which permits prosecution when the State is denied the
“honest services” of its government officials. A.R.S. § 13-2310 states as follows:
A.R.S. § 13-2310
Fraudulent schemes and artifices; classification; definition
A. Any person who, pursuant to a scheme or artifice to defraud, knowingly obtains any benefit by means of false or fraudulent pretenses, representations, promises or material omissions is guilty of a class 2 felony.
-184- B. Reliance on the part of any person shall not be a necessary element of the offense described in subsection A of this section.
C. A person who is convicted of this section that involved a benefit with value of one hundred thousand dollars or more is not eligible for suspension of sentence, probation, pardon or release from confinement on any basis except pursuant to section 31-233, subsection A or B until the sentence imposed by the court has been served, the person is eligible for release pursuant to section 41-1604.07 or the sentence is commuted.
D. The state shall apply the aggregation prescribed by section 13-1801, subsection B to violations of this section in determining the applicable punishment.
E. As used in this section, “scheme or artifice to defraud” includes a scheme or artifice to deprive a person of the intangible right of honest services.
A.R.S. § 13-105
In this title, unless the context otherwise requires:
2. “Benefit” means anything of value or advantage, present or prospective.
24. “Omission” means the failure to perform an act to which a duty of performance is imposed by law.
In order to convict a defendant of A.R.S. § 13-2310, the State must prove “(1) that a plan or scheme existed, (2) that the purpose of such a plan or scheme was to defraud others, (3) that knowing the purpose of the scheme the defendant pursuant to the scheme obtained a benefit (4) by means of false pretenses, representations, promises or material omissions.” (Emphasis added.) State v. Bridgeforth, 156 Ariz.
60, 64, 750 P.2d 3, 7 (1988).
The State “must prove specific acts showing that defendant obtained some benefit ‘by means of’ a specific false picture or pretense, or acting pursuant to a scheme, the perpetrator obtained the benefit by crafting a false picture or pretense
-185- (citation omitted).” See State v. Johnson, 179 Ariz. 375, 379, 880 P.2d 132, 136
(1994). “Benefit” is defined as anything of value or advantage, present or prospective.
A.R.S.§ 13-105. This element requires the State to prove that a defendant “obtained
any benefit by means of any of several forms of fraudulent scheme or artifice. To meet
this burden, the state must show that the defendant has induced another sufficiently to
rely upon the scheme or artifice as to make a benefit accessible to the defendant.”
State v. Cohen, 292 Ariz. Rep. 20, 30 (Ct. of App. 1999). “The statute’s language
means that the false pretense must actually cause the victim to rely, and as a result, give
property or money to the defendant.” See State v. Johnson, 179 Ariz. 375, 378, 880
P.2d 132, 135 (1994).
Under A.R.S. § 13-2310, an omission is defined as failing to perform a duty that
is imposed by law. See A.R.S. § 13-105 (omission defined as the failure to perform an
act to which a duty of performance is imposed by law). Even if a defendant has no civil
duty to disclose information, that does not preclude the possibility that his or her
decision not to reveal certain facts was motivated by, and is evidence of a plan to
deceive others. This is especially true where evidence is presented that the defendants’
material omissions were part of a larger scheme involving misrepresentations. See
State v. Proctor, 196 Ariz. 557, 564, 2 P.3d 647, 654 (Ct. App. 1998). In this case,
-186- Irvin breached his fiduciary duty as a government official by violating A.R.S. § § 38-
503, 38-505.
There were many victims of Jim Irvin's actions. Tens of thousands of shareholders lost $108 million because of Irvin's improper actions in persuading the
Southwest Board to approve the lowest bidder. His actions eventually spurred the
Southern Union lawsuit, leading to the collapse of the merger. In addition to the shareholders, many Southwest Gas employees who had pension and profit sharing plans that included Southwest Gas shares were denied access to additional funds in their profit sharing or pension plans.
In addition to the shareholder victims, Southern Union was victimized by Irvin's actions. Southern Union was disparaged by ex parte statements that Irvin made to
Commissioners and staff at the Nevada and California Commissions. Southern Union lost millions of dollars, and the opportunity to do business in Arizona, because a public official abandoned the sworn duties of his office and became a political charlatan.
The most difficult burden under 2310 is to define what benefit Irvin received to fall within the criminal sanctions. Special counsel believes that the benefit was the political expectations Irvin expected to derive from his back-door misconduct.
2. Violation of A.R.S. §13-2311
-187- The clearest and easiest violation of law to prove, when evaluating both state and federal statutes, is A.R.S. § 13-2311. That statute provides:
A.R.S. § 13-2311. Fraudulent schemes and practices; wilful concealment; classification
A. Notwithstanding any provision of the law to the contrary, in any matter related to the business conducted by any department or agency of this state or any political subdivision thereof, any person who, pursuant to a scheme or artifice to defraud or deceive, knowingly falsifies, conceals or covers up a material fact by any trick, scheme or device or makes or uses any false writing or document knowing such writing or document contains any false, fictitious or fraudulent statement or entry is guilty of a class 5 felony.
B. For the purposes of this section, “agency” includes a public agency as defined by § 38-502(6)
A.R.S. § 38-502 Definitions.
In this article, unless the context otherwise requires:
6. “Public agency” means:
(a) All courts.
(b) Any department, agency, board, commission, institutions, instrumentality or legislative or administrative body of the state, a county, an incorporated town or city and any other political subdivision.
The statute was “intended to be a broad remedial statute applicable to any plan, trick or device to perpetrate a fraud.” State v. Sommer, 155 Ariz. 145, 147, 745 P.2d
203, 205 (Ct. App. 1987). The statute was adopted from 18 U.S.C. § 1001, and statutes adopted from federal law are presumed to have been adopted with the construction placed upon them by federal courts. Id.; State v. Haas, 138 Ariz. 413,
418, 675 P.2d 673, 678 (1983). Most of the prosecutions under § 13-2311 involved the
-188- filing of false statements or writing with a government agency. See State v. Whalen,
192 Ariz. 103, 961 P.2d 1051 (Ct. App. 1997) (defendant recorded false liens against police officers and judges); State v. Sommer, 155 Ariz. 145, 745 P.2d 203 (Ct. App.
1987) (filing false claims for unemployment). However, the breath of the statute clearly encompasses a wide range of actions. In order to convict a defendant under A.R.S. §
13-2311, the State needs to prove (1) that the matter related to the business conducted by a department or agency of Arizona as that term is defined by 38-502 (6), and (2) pursuant to a scheme to defraud or deceive the defendant knowingly, falsifies, conceals or covers up a material fact by any trick, scheme device or makes or uses any false, fictitious or fraudulent statement or entry. Evidence is sufficient to support a finding that defendant knowingly engaged in fraudulent course of action even if his actions were undertaken openly. State v. Whalen, 192 Ariz. 103, 961 P.2d 1051 (Ct. App.
1997).
There is clear and convincing evidence that Jim Irvin violated this statute. There is clear evidence that Irvin concealed the meetings with other government officials in
California and Nevada. Irvin, who knew of Rose's contract with Prudential, failed to disclose that deal to government officials in Nevada. The evidence has established that
Irvin made false statements to government officials that were material, and contributed to the defeat of Southern Union's bid. There is little doubt that Irvin's letter and phone
-189- call of April 5, 1999 created consternation and concern with the Southwest Board. His
letter was written for the sole purpose of encouraging the Southwest board to reject the
Southern Union proposal, which furthered his scheme to defraud.
A conviction under A.R.S. § 2311 is easier to obtain than A.R.S.§ 2310. In particular, under A.R.S.§ 2311, there is no requirement that the State prove that the defendant received a benefit from its scheme to defraud. The “benefit” requirement is the toughest standard to prove under 2310. The elimination of this element is significant because Irvin could argue that the element of “obtaining a benefit” under
A.R.S. § 2310 is lacking because they did not attempt to obtain a benefit from the victim (the citizens of Arizona) of their scheme. By eliminating “the benefit” element, all the State would need to prove is that the matter was related to the ACC, the existence of the scheme to defraud, and that Irvin’s actions were carried out in furtherance of the scheme.
In this case, the ACC is a public agency as that term is defined by A.R.S. § 13-
2311(6). Irvin perpetuated his scheme to defraud by holding he and Rose out to be representatives of the ACC. The Southwest merger related to the business of the ACC because the ACC regulated Southwest, and because any Southwest merger would have to be approved by the ACC. Consequently, all of the false statements and omissions made in furtherance of the scheme would be evidence in support of a conviction under
-190- A.R.S. §13-2311. No one can deny that Irvin’s actions were devastating to the
Southwest shareholders who were not only deprived of the $32.00 for each share, but lost even the $28.50 Oneok price per share because of the stench surrounding Irvin’s actions.
There is clear and convincing evidence that Jim Irvin attempted to, and did, tortiously interfered with and defraud Southern Union of its right to buy Southwest Gas.
Jim Irvin further defrauded the State of Arizona of the “honest services” of an important government official. His fraudulent actions injured tens of thousands of shareholders. These actions constitute “high crimes and misdemeanors” under the
Arizona Constitution, justifying the removal of Jim Irvin from office.
3. Violation of Federal Statutes
There is clear and convincing evidence that Jim Irvin violated the federal wire fraud statutes (18 U.S.C. § § 1343 and 1346) and Conspiracy to Commit Wire Fraud In order to convict a defendant of wire fraud, the Government must prove that the defendant (1) committed or attempted to commit a scheme to defraud, (2) with the intent to deprive the victim of money or property, and (3) use of interstate wire communications in furtherance of scheme. See 18 U.S.C. § 1343; United States v.
Ames Sintering Co., 927 F.2d 232 (6th Cir. 1990). The Government is not required to prove that the scheme was successful. Id.; See also United States v. Telink, Inc., 910
-191- F.2d 598, 599-600 (9th Cir. 1990); United States v. Utz, 886 F.2d 1148 (9th Cir.
1989); United States v. Coffman, 94 F.3d 330, 333 (7th Cir. 1996) (mail fraud statute punishes attempt to defraud).
The federal statutes are far more difficult to pursue, especially under the standard of “proof beyond a reasonable doubt,” than a prosecution under A.R.S. § 13-2311.
Because the evidence is clear and convincing that Jim Irvin violated the state criminal statute, that alone is sufficient to meet the “high crimes and misdemeanor” requirement of the Arizona State Constitution. It is, therefore, unnecessary to do a detailed analysis of federal criminal statutes.
RECOMMENDATION
It is the recommendation of special counsel, based upon the serious legal and ethical violations of Jim Irvin, that he not only be impeached and removed from public office, and be disqualified from holding any office of honor, trust, or profit in the state.
Article 8, Part 2, Section 2, Arizona Constitution.
-192-