Former POLA president Nick Tonsich sued for $5 million in fraud complaint
“This is a Wright brothers moment!” Pasha Terminal’s then-vice president, Jeff Burgin, exclaimed on July 12, four years ago. “We’re standing on the cliff with some wings strapped to our arms. We know we can fly, we’re just not sure how far.”
But Burgin now seems more like Icarus, plunging into the sea, taking a much more prominent partner down with him — former Port of Los Angeles Commission President Nick Tonsich. At the time, he was touting Pasha’s Green Omni Terminal, intended to be the Port of LA’s showcase all-electric terminal. But on May 8, his former employer—headquartered in Northern California— sued him for $5 million, along with Tonsich, whose firm, Ocean Terminal Services, also known as OTS, allegedly received at least $4.25 million in overbilled invoices on a shady crane services contract — by far the
largest sum of money involved in the scheme.
The suit is a counterclaim in response to a suit OTS filed in February, after Pasha terminated the contract in December.
“In response to the suit, Pasha began reviewing invoices over the life of the OTS contract,” the suit read. It explains:
On inspection, the invoices revealed significant discrepancies between the tonnage that was reported to POLA and the volume of tonnage on which OTS charged Pasha. Pasha realized that it had been overcharged for tonnage, including being charged for tonnage from berths not covered by the OTS Agreement.
Pasha also conducted an investigation into Tonsich’s relationship with Burgin and uncovered the illegal kickback scheme.
Pasha had not known about any of this prior to its investigation because Tonsich and Burgin actively concealed their scheme from Pasha corporate headquarters and executives.
The suit includes four counts of action: fraud, aiding and abetting fraud, breach of contract and unfair competition. The same day, Pasha also filed a direct answer to the OTS suit, asserting 35 affirmative defenses.
Tonsich also had a stake in the OMNI Terminal project, getting a $3.75 million grant via another company he owns, Clean Air Engineering-Maritime, better known as CAEM, for technology that’s failed to deliver.
In that case, ethics regulations would have blocked the Port of LA from giving him the grant, but the port allowed Pasha — meaning Burgin — to include Tonsich’s speculative technology in its package grant proposal, with no subcontractor bidding process.
Tonsich’s history of sliding around the rules goes back more than 20 years. In 1999, just one year after founding his own law firm, Glaser Tonsich & Brajevich, he landed a $200,000 no-bid contract from the Alameda Corridor Transportation Authority — a joint project of the ports of LA and Long Beach. By 2005, the Los Angeles Times reported that his firm had racked up a total of $1.25 million in no-bid contracts with ACTA, the vast majority approved while Tonsich was president of POLA’s board.
But now that long history may be coming to an end.
“The scheme was simple: OTS issued invoices to Pasha that were inflated or, in some cases, completely made up,” the suit alleges. “The invoices improperly added tonnage from other berths not covered by the contract to make the invoices bigger. Burgin would approve the inflated tonnage numbers and, at times, even increase the tonnage based on what he believed he could ‘get away with.’ Other times, OTS issued multiple invoices for the same charge or billed Pasha at rates not allowed by the contract.”
A table included shows that Pasha’s overbilling grew from $244,677 in 2011 (13.95%); to $1,271,958 in 2015 (66.4%); before tapering off slightly to $898,698 in 2016 (54.25%). The total overbilling, $4,259,684, was $45.9% of the total billed in those five years.
OTS provided “maintenance and repair work” on three cranes located at Pasha’s Berth 174-181 container terminal, but — approved by Burgin, while hidden from Pasha’s corporate management in Northern California — Tonsich billed Pasha based on cargo at Berths 154 and 206-209 as well.
Beyond that, the suit charges, they “set up phony companies using vacant addresses at POLA,” and generated phony invoices for work never done. The majority of activity charged was undertaken by Burgin. He was the inside man, and thus Pasha’s initial internal inquiry has turned up far more information about how he operated.
In response, Tonsich’s lawyers filed a demurrer on June 16, seeking to remove him from the lawsuit, and leaving Burgin holding the bag. “Neither OTS nor Mr. Tonsich are alleged to have knowledge or involvement in these separate schemes other than to supposedly receive payments from Mr. Burgin,” the demurrer claims. That they were actually multi-million dollar overpayments simply amounts to “an issue of contract interpretation,” it argues, and “Pasha cannot twist this contractual interpretation dispute into a fraud claim against OTS and Tonsich.”
But a contract designed for the purpose of fraud is surely an essential part of the fraud. And, the groundwork for everything was laid in the initial crane services contract “that included highly irregular terms (e.g., payment based on tonnage rather than man hours) and that locked Pasha into a long-term arrangement (10 years plus options to extend/renew).”
As the suit explains, “crane services are almost always priced based on manning, not tonnage. This is because tonnage is not necessarily proportional to the amount of crane maintenance and repair services that will be required.”
But it’s ideally suited for an over-billing scheme — one that can almost run on autopilot.
As a lawyer since 1989, Tonsich obviously played the lead role in laying this foundation. The unprecedented use of tonnage rather than hours clearly enabled him to bill for shipments at other terminals — and then use this very defense against any accusations of fraud. Plus, the longterm nature of the agreement (versus one to three years, as is normal) was designed to keep the scheme going as long as possible.
In violation of Pasha’s procurement policies, Burgin signed the contract on behalf of Pasha without any review from Pasha’s corporate headquarters or legal department, the suit alleges. It all started when POLA stopped providing crane services to terminal operators. The logical response—which most operators took—would have been to directly hire the same crane service workers that POLA had used, and pay them standard ILWU contract wages. There would have been no added overhead. But instead, Burgin signed a contract with OTS.
“On paper, this decision made no sense,” the suit states. “OTS had no experience in crane maintenance, had no track record, and only had one or two other clients.”
However, both Burgin and Tonsich had previous patterns of behavior leading to this decision. The suit notes previous examples of Burgin defrauding Pasha — particularly a prolonged scheme involving Dunrite Construction, which billed $5.5 million for work that was never done “with kickbacks going to Burgin” — and notes:
Tellingly, before the OTS contract was signed, Burgin told another Pasha executive that he was going to invest in and become a partner in a crane maintenance company. Shortly thereafter, Burgin approved the OTS contract. By his action, it is very possible that Burgin has an ownership interest in OTS.
If this proves to be the case, that’s game over for Tonsich’s attempt to blame everything on Burgin. As for Tonsich himself, this isn’t the first time he’s gotten a contract with little or no track record or scrutiny. It’s virtually his modus operandi. A 2005 Los Angeles Times article cited the 1999 no-bid contract with the Alameda Corridor Transportation Authority mentioned above, as well as another almost-simultaneous example:
Tonsich’s firm was one of 25 approved to handle police misconduct cases [in response to the Ramparts scandal] by the city attorney’s office when [James] Hahn headed that office. All of them had substantial experience defending public agencies except Tonsich’s firm, which cited just one case on its application….
Tonsich’s clean air firm, CAEM, also
followed the same pattern. It received a $1.5 million grant from POLA in 2012, as we reported in May 2016, when Wilmingtonbased activist Jesse Marquez raised the issue in a letter to POLA:
Tonsich had claimed to be a part owner of ACTI, but the company claimed it rejected his ownership bid, and that afterward Tonsich formed Clean Air Engineering-Maritime to compete with them. As of 2012, ACTI had a working prototype, Tonsich’s company did not, yet his company got the $1.5 million grant without a competitive bid process. When we asked if POLA had evidence to the contrary of the claim that CAEM had no experience, port spokesman Arley Baker replied, “The CAE system is made by TriMer. You can read about their experience in this technology at tri-mer.com.”
However, Tri-Mer had actually developed its technology working with ACTI — as confirmed in a 2009 letter from Tri-Mer to ACTI, which also noted that “This customer [TraPac] is not going to work with ACTI under any circumstances ... this is written in granite.” Tonsich was also TraPac’s lawyer. Thus, the “experience” Tonsich claimed was actually that of his competitor’s.
Pasha’s lawsuit sheds further light on this episode.
It notes that “Tonsich had formerly been a lawyer for ACTI handling collections,” but that Tonsich had a falling out with ACTI’s owner, Ruben Garcia, after ACTI applied for a $2.5 million pollution control grant at POLA, as part of the China Shipping Agreement, which was initially approved:
However, the Los Angeles City Attorney told Garcia that ACTI was conflicted out because Tonsich was its lawyer and had worked on the China Shipping settlement while a commissioner. Garcia agreed to withdraw the grant application. Tonsich was furious, and told Garcia that the grant was the money Tonsich was putting into ACTI as his investment in ACTI. Garcia refused to make Tonsich a partial owner.
Tonsich then formed his competing company CAEM, stole ACTI’s intellectual property relating to its emissions control systems, and used that information to illegally obtain contracts and grants from POLA.
What’s significant here is at least threefold: First, Tonsich’s role as a lawyer handling collections was a rare example where his involvement was arguably innocent — it was a minor role with no relationship to POLA. Second, there was a sharp contrast between Garcia, who abided by the city’s ethics ruling, and Tonsich, who was furious. Third, Tonsich evidently was depending on his relationship with the port (thus validating the city attorney’s judgment) — at least in advancing his claim that ACTI should make him a partner, for what he had supposedly done.
Tonsich’s actions have repeatedly drawn criticism over the years, but he’s always managed to wriggle his way out of legal difficulties, in part because of the lax corporate political culture in which the city and the Port of LA is embedded. He’s betting he’ll be able to do it once again. But this lawsuit represents a much more serious effort to hold him accountable than what he’s accustomed to. And, the broader political culture is obviously changing as well.