DA settles civil lawsuit with San Simeon Community Services District’s private-party manager and operator

The San Luis Obispo County District Attorney settled a conflict of interest lawsuit against the private manager of the San Simeon Community Services District.

The contract with Grace Environmental Services to provide both management and operations was found to create an unlawful financial conflict of interest under the laws of California. The District Attorney filed a civil complaint against Charles Grace and Grace Environmental Services, LLC on September 28, 2021. 

The settlement and resulting judicial order have resolved the lawsuit filed by the District Attorney on September 28, 2021 that alleged nine violations of the Unfair Competition Law (UCL) and False Advertising Law (FAL) based on facts concerning the contract between GES and the San Simeon Community Services District (District). This settlement was the result of a day-long mediation held on May 26, 2023.

The Judgement and Order, signed by San Luis Obispo County Superior Court Judge Rita Federman, requires that GES and Charles Grace will not violate conflict of interest laws, they will train their staff regarding conflicts of interest, the Public Records Act, or the Ralph M. Brown Act, and they will pay $75,000 in civil penalties.

“Public officials such as city council members, county supervisors, appointed officials including general managers must exercise their authority in a way that upholds the public’s trust. For this reason, California law forbids even the perception of self-dealing in contracts between these officials and government agencies they serve,” said District Attorney Dan Dow. “As such, elected officials and the attorneys advising them must be vigilant to ensure that they follow the law and earn the trust of the people they serve. In this case, both parties agreed that this contract created a financial conflict of interest that violates the laws of California.”

The parties stipulate that GES will not seek to continue working for the District as either the manager or providing the operations function. Additionally, GES agrees not to enforce the remaining time of performance or indemnification rights under the existing contract. This means that Grace and Grace Environmental Services will not seek to renew their contract and may not seek reimbursement from the District for the legal costs associated with this litigation. The District had already reimbursed GES over $125,000 in legal expenses as a result of the joint investigation by the District Attorney’s Office and the Fair Political Practices Commission (FPPC). The FPPC and Charles Grace entered into an agreement in 2021 that included Mr. Grace admitting to violating conflict-of-interest law and paying $4,500 in civil penalties.

As soon as the District replaces GES by retaining the services of other entities pursuant to the District’s recently issued Requests for Proposal (RFP), GES will stop providing services to the District. The District’s May 2023 RFPs separate the responsibilities of general management from the wastewater and water operations services. Going forward, this new arrangement will help to remove the perception of self-dealing by a public official that existed under the contract with GES.

Under the current contract, Charles Grace provided management services, administered financial matters, and served as the District’s General Manager, both day-to-day and during official District board meetings. Grace’s company GES simultaneously provided the bulk of operations services for the District’s water and waste-water facilities. The District has no employees of its own. The contract provisions placed Mr. Grace and his company in a position to self-deal. California law prohibits public officials from self-dealing and from holding a position that would create even a perception of self-dealing.

This is the second time in recent years that the District Attorney’s Office has stepped in to address private contracts between public officials with government agencies. In 2018, John L. Wallace pleaded no contest to two misdemeanor counts of conflict of interest stemming from his tenure as the district administrator of the South San Luis Obispo County Sanitation District and general manager of the Avila Beach Community Services District.

Since forming in 2015, the Public Integrity Unit has earnestly worked to increase the public’s level of trust and confidence in local government. In addition to addressing the contracts between Mr. Grace and Mr. Wallace and the public governments they served, the Public Integrity Unit has also addressed dozens of other issues. The Public Integrity Unit conducted an extensive investigation into the Integrated Waste Management Agency (IWMA) resulting in the issuance of a public report and charging the former IWMA secretary of embezzlement. The District Attorney’s office has also addressed dozens of suspected Brown Act violations. The Ralph M. Brown Act is a California law that requires local government agencies to conduct their business with transparency and guarantees the public's right to attend and participate in meetings of local legislative bodies.

This case was prosecuted by Deputy District Attorney Ken Jorgensen who is assigned to the Special Prosecutions Unit that includes Consumer Protection, Environmental Protection, Public Integrity, and Major Fraud.

Click the link to download a copy of the civil complaint, the filed stipulation agreement, and the approved judgment and order.

Please contact Assistant District Attorney Eric J. Dobroth at 805.781.5819 with any questions.