One For The Books

Or how schoolchildren got gypped and nobody cared until it was an election year

This is a story of how the schoolchildren of Arizona are denied a decent education by naive bureaucrats, businessmen too fond of sharp practices, and conniving politicians. It is a tale of the single worst blind date in the history of Phoenix. In this column, you will also discover that Attorney General Bob Corbin has sued the pants off Crusader Rabbit, and once again you will come to realize that you, the taxpayer, are footing the bill for this outrageous farce.

This is quite a story.
We must begin this journey with a few statistics. Thanks to Edward F. Sloat, deputy associate superintendent for the state Department of Education, we know that: Arizona ranks 40th among the states in expenditure per pupil, 44th on the ratio of students per teacher and 45th in high school graduation rate.

These appalling numbers are not necessary. Arizona possesses a resource, state trust lands, whose assets are specifically earmarked to fund education.

A very conservative estimate puts the current value of the land in this educational trust at $40 billion.

Keep in mind that the largest pension funds in America are General Motors at $36 billion, AT&T at $34 billion and General Electric with $26 billion. These corporate accounts are managed by boards that include former presidents of the United States, ex-members of the Cabinet, directors of Fortune 500 companies, university presidents and assorted blue-serge suits from Ivy League schools, all of whom sit down together to decide how to invest these staggering sums.

Arizona's $40-billion trust lands are sold and leased by a former forest ranger.

Although state Land Commissioner M. Jean Hassell is as square and decent as a Dickens caroler, you must still wonder if his background makes him the ideal choice to navigate the shark pool that is Arizona real estate. Chosen by former Governor Evan Mecham, he is the only holdover kept on by Governor Rose Mofford. If nothing else, Hassell's qualifications are at least the equal of his predecessor, Bob Lane, who was merely on the political staffs of various Democrats, including Bruce Babbitt, who appointed him commissioner.

In 1986 Lane set up an auction for 261 acres of prime Scottsdale land that belonged to the state. It was expected to be the most lucrative sale in the history of such transactions. But on January 8, 1987, only two companies offered bids: the giant Westcor, developer of Metrocenter, and the parvenu Pensus Group. With a bid of $17.9 million--only $35,000 over the minimum asking price established by the state--Westcor was declared the winner.

Ever since then, for almost three years, Richard Shaw of the Pensus organization has been telling anyone who would listen that the bids were rigged, that he was mugged, that the state was ripped off, and that SOMETHING MUST BE DONE!

Less than four weeks after the auction, Shaw told his story to the new commissioner, Jean Hassell. In the months that followed, Shaw pleaded his case to Edith Richardson from the Governor's Office, to Governor Mecham himself, to the superintendent of public instruction, to the Arizona Education Association, to the Center for Law in the Public Interest, to state legislators and even to the attorney general himself. A desperate Shaw even turned to a professor of ethics at ASU.

No one would act on his allegations. Before he was through, Shaw had put in writing that he was no longer personally interested in the auctioned land but he was eager for some sort of reform. The way he saw it, the schoolchildren of Arizona were deprived of their rightful revenues. Finally, Shaw got the ear of State Representative Reid Ewing, long a pariah in circles of lower power.

Having Reid as your champion was like having Zsa Zsa Gabor offer to negotiate your police brutality case with the chief.

On May 8, 1987, Representative Ewing filed a protest with the state Land Department asking Hassell to set aside the auction. Ewing also went to Superior Court looking to overturn the sale.

The court threw out the case, telling Ewing that he had not exhausted his administrative remedies.

On the administrative level, Hassell issued a lengthy opinion in September '87 telling Ewing to take a hike. Having now exhausted his administrative remedies, Ewing realized he'd also exhausted his bank account and could go forth and sue no more.

Like a two-year-old trying to untie the knots in his Nikes, Shaw was beside himself.

You can't blame the man. Still, it was too early to pity the crusading Shaw. At this point the man only had been besieged by torrents of flies; what the state actually had in mind was a plague of frogs and maybe Shaw's first male child.

On November 17, almost three years after losing the auction, Richard Shaw and the Pensus Group were sued for $9 million by the state of Arizona.

The attorney general accused Shaw of rigging the bid.
Think of the lawsuit that could have been launched had Shaw actually won the dirt.

But Shaw and Pensus did not prevail at the auction. Westcor did. (The attorney general is suing Westcor, too; so now both the loser and the winner are targets.) On the morning of the bid, Shaw claims that John Murphy of Westcor threatened him to frighten him out of the auction. With Pensus out of the picture, Westcor would be the only bidder, a convenient position indeed.

Under the rules drawn up in the Land Department bid specifications, developers interested in the Scottsdale real estate had to meet stringent qualifications. Westcor told Shaw that his company did not qualify and if Pensus won the auction, Westcor would sue. Furthermore, even if Shaw lost the auction, Westcor promised to sue on the grounds that Pensus' unqualified bidding had driven up the cost. As the knot in Shaw's stomach took on geological proportions, he had to face one other multimillion-dollar dilemma.

Under the bid specifications, developers were told to show up with a cashier's check for $5.4 million. If the winning bidder was later determined to be unqualified, the $5.4 million automatically was forfeited to the state. And here was Westcor, a certified heavy-hitter, promising to prove in court that Pensus wasn't qualified.

All this occurred just minutes before the auction was to begin. One hundred rubbernecks from the industry had gathered to watch, and Shaw worried that he was about to look quite foolish in front of his peers no matter what he did. Also, he was about to be sued no matter what he did. And he might very well lose his partners' $5.4 million if he didn't do something smart.

Instead, he did something stupid.
Hoping to save face and to demonstrate to Westcor, one of Arizona's most prominent companies, that it couldn't just completely dominate him in negotiations, Shaw asked Murphy if Westcor would at least sell him ten to fifteen acres from the Scottsdale parcel somewhere down the line. This question presented the appearance of impropriety and suggested that Shaw would get something for dropping out of the auction. And this suggestion of something smarmy was created over what would have been an inconsequential parcel in a deal this big. Fifteen acres would have been peanuts to Pensus or Westcor. Clearly, Shaw wasn't thinking clearly. (Picture Orson Welles devouring a holiday goose, and as he lights up a cigar the busboy meekly asks the fat man if he might take a wing bone from the table to remember the occasion.)

If Shaw was a beaten man when he walked back into the auction, he at least was beginning to think on his feet. He opened the bidding by offering the bare minimum the state would accept. Shaw reasoned that by bidding at all he had demonstrated to observers that he was a serious player, but by offering the minimum bid he was also demonstrating to Westcor that there was no need to sue. Westcor's next offer of $17.9 million was not upped, and it won the bidding.

If Shaw was not particularly crafty at the auction, he would finally demonstrate that he was at least courageous. Most developers don't make waves over state land auctions, and they certainly don't speak out loud about allegations of bid rigging. At the heart of his ceaseless complaints to government officials was Shaw's contention that the bid specifications were so capricious, so strenuous, so bizarre, that 99 out of 100 businessmen could not have met them. This auction was the first, last and only time in the history of the Land Department that such rigid specifications were used.

You might wonder if the rules had been written with only one winner in mind.

Shaw was not alone in his concern over the bid specifications. Shortly before the auction, Dennis Knight of Denro Ltd. filed a letter of protest with the Land Department over the severe restrictions. Knight withdrew his objections immediately before the bidding, after reaching an understanding with Forest City of Scottsdale, a development team that entertained the idea of a venture in league with Westcor.

In the middle of this circling pack of developers floated Richard Campana, who had his own deal with Forest City. It was Campana who went out on the worst blind date in the history of Phoenix. Campana is a former city councilmember in Scottsdale, and his ex-wife currently holds the seat.

Richard Campana, in his relationship with Forest City, helped conceive the particular Scottsdale master plan that included the 261 acres of state land.

On the night of the auction, Richard Campana went out on a blind date. He took Mary Jane Boyd to dinner at Pronto's, where he is well-known. Afterward, the couple went to Timothy's for cocktails and jazz.

At the time of the date, Mary Jane was a CPA and a partner in the accounting firm of Peat Marwick. She is nobody's bimbo, and apparently takes it personally when she is treated as such.

Ms. Boyd contends that Dick Campana spent the entire evening trying to impress her with the $20 million killing he'd made on that day's land auction.

"While I was initially pleased for him, it soon became apparent that he was becoming boorish because he really wasn't interested in conversation as much as hearing himself talk about how `great' he was and how powerful and influential he was."

How influential was he, Mary Jane?
According to Boyd, Campana told her, "He was involved in preparing bid specifications. He stated that Westcor was important because he said only Westcor had enough assets to be a qualified bidder. It was my impression that he was instrumental in formulating the specifications as to who could or could not be a qualified bidder. He mentioned that he brought Westcor into the deal as a means of keeping others from bidding. The impression I received was that . . . the bid specifications were set with Westcor in mind."

Boyd said that Campana's figure of a $20 million killing was based on his statement that the land had been undervalued in its appraisal. Boyd was also given insight into Campana's interpretation of the role of Dennis Knight.

"He mentioned Denro and Dennis Knight as someone who had contested the bidding. He also mentioned that because of a protest, it was necessary to bring that person into his group (Forest City). While he did not directly identify Denro as the party, it was my impression that Denro had been brought into his group in return for Denro dropping its objections."

Fortunately for Mr. Campana, the music at Timothy's was too loud for any more intimate conversation, and he finally dropped off his date at her home before midnight.

"He apologized for dominating the conversation and [said] that on our next date, we could talk about me and what I did for a living."

Now if you think Ms. Boyd had a lousy time, how do you think Richard Campana felt when he discovered that his blind date had given a sworn statement recounting his spirited conversational icebreakers?

Campana characterizes his date's kiss- 'n'-tell accounting as outrageous lies.

Although the state Land Department drafted the bid specifications, there is at least one other written suggestion that Campana was concerned with their final form.

Months before the auction, an employee of the Land Department left a message for Christine S. Laraway, then- director of the Urban Planning Division, from Campana: "State needs to qualify bidders. Don't want speculators. City very nervous about this. If you don't, City will burn up phone to Bob [Lane] and governor. Campana prediction: State will have lots of bidders. Timing is great. State should expect a lot of calls from adjacent property owners. They will be upset about appraisal price."

As Richard Shaw made his futile rounds of government offices trying to interest someone, anyone, in what had happened, the general partner of Westcor wrote a letter to the new commissioner of the Land Department, Jean Hassell.

Jack Rasor of Westcor did not deny muscling Shaw and Pensus. He pointed out that that was life in the big city.

While nearby developers had paid $6 and $7 a square foot for land, Westcor defended its winning bid of $1.57 a square foot, listing 21 separate reasons the final price was no steal, including the fact that Westcor had to improve the property with rights of way and roads. Besides, the state had done the appraisal, not Westcor.

On other points, Rasor's letter apparently adds fuel to the fire: "I was aware in December that Denro filed a complaint with the state regarding the bidder qualification requirements . . . I personally did not think Denro would be successful in its complaint, but that it may have been able to delay the auction until the protest was resolved. It is my understanding from discussions with Denro and Forest City that Denro has been offered a "stand up" partner position in the event Forest City becomes involved in the property . . . . Westcor is anxious to have Forest City as a partner in the deal."

Rasor also outlined a compelling series of events on the day of the auction.

"Until that time, Westcor had not decided whether or not to bid at the auction later that morning. At that time, Forest City had not decided whether or not to bid at the auction. I told Forest City that we would like them as a partner, but no firm agreement was reached prior to the auction . . . . Westcor decided to bid on the fee land the morning of the auction and Forest City decided not to bid on the fee land on the morning of the auction . . . . Westcor still hopes to finalize a partnership with Forest City on the fee land."

Oddly enough, after having carried the burden of being the only real bidder at the auction, Westcor was unable to complete a deal with Richard Campana and Forest City.

Shaw's complaints to state officials that the giant Westcor had dirty hands went nowhere. By June '87, he was so frustrated he even had turned to college professors.

In a June 29 letter, Shaw wrote the director of the Center for Ethics in the ASU Business College: "Notwithstanding going public, and the facts virtually uncontested (which are that the auction qualifications were rigged, there was misconduct during the auction, and the winning auction candidate in fact did not qualify in spite of "tailor-made" qualifications), the silence has been deafening.

"The final response at the administrative level came from the governor's office a couple of weeks ago, which was, `If you want to do something for the schoolchildren of Arizona, then do it yourself . . . .' At this point, one can't be sure if it's as simple as bureaucratic sloth, an indifference to clean government and morality, or something worse."

For Richard Shaw, personally, it would turn out to be "something worse." Something much worse. A $9 million lawsuit from the attorney general accusing Pensus of rigging the bid.

The lawsuit does not name Richard Campana. The suit does not name Forest City. The suit does not name Dennis Knight. The suit does not name Denro Ltd. The suit does not name the state's appraisers, nor the Land Department employees who drew up bid specs. Someone in the Attorney General's Office did figure out that Westcor had something to do with the auction, and it, along with its development partner, Franchise Finance Corporation of America, was also named.

"We did nothing improper or illegal," said Westcor spokesman Jack Rasor. "We are extremely surprised that a lawsuit has been filed at this late date. We will comment further when we've had more time to review the complaint."

There were other curious matters in this lawsuit. Had the state developed new information or was the attorney general suing whistle-blower Shaw for information that only Shaw had provided? Even the $9 million figure in the suit, representing triple damages, was based upon Shaw's argument that the rigged auction cost the schoolchildren a minimum of $3 million because Pensus had been prepared to bid that much more had the proceeding been on the up and up.

When contacted about the lawsuit, Alison J. Butterfield, chief counsel for the Attorney General's Antitrust Division, basically took this position: Who put you through to my office?

"Well, as you know, I am constrained from discussing anything outside the public record," she said. "I don't know how I can say anything. There is no record except for this complaint."

Actually, as you know, Ms. Butterfield, there is almost three years of paperwork in addition to the complaint.

One of the more interesting documents, signed by state Land Department Commissioner Hassell, is the twelve-page administrative order issued September 18, 1987.

Hassell's directive is in response to Representative Reid Ewing's petition to set aside the auction because of bid rigging, undervalued appraisals and rampant irregularities.

Hassell threw Ewing out of his office, saying things like: "The Arizona courts have considered the elements necessary to show outstanding under an `affected' person test. In City of Scottsdale v. McDowell Mountain Irrigation and Drainage District, 107 Ariz. 117, 4893, p2d 532 (1971), the court considered a taxpayer suit under the quo warranto statute, A.R.S. & 45-1552, and found that plaintiff lacked standing to sue under a statute allowing action only by `any person affected thereby' . . . ."

Now the average person reading that sort of gobbledygook has got to ask, "Huh? You mean to tell me that's how forest rangers talk?"

Well, of course not. That's how lawyers talk. In this instance, the lawyers advising, drafting and representing Jean Hassell were Melinda Garrahan and Susan Harris.

At the time, both of these women were employed by the Attorney General's Office.

In the September 18, 1987, directive, the attorney general and the state Land Commission could find no bid rigging: "Finally, the Commissioner finds Shaw's statement that Rasor offered part of the state land to Shaw in exchange for Shaw's not bidding not credible . . . ."

Once Representative Ewing had been chased from the playing field, the attorney general filed a request with the courts asking for attorney's fees. In these papers the attorney general dismissed Ewing's allegations of bid rigging as "harassment, groundless and not made in good faith."

Two years later, the same allegations based on the same information are worth a $9 million lawsuit. What changed in those two years?

However perplexing the attorney general's lawsuit, there are some benefits.

When Charles Keating's savings-and- loan empire collapsed, he ended up in bankruptcy court and in front of Congress. Grand juries around the country began investigations. About the only prosecutor in America not making a case against the Arizona-based Keating is our own Attorney General Bob Corbin. The recipient of $50,000 in campaign donations from Keating, Corbin pocketed this cash in an election year in which he faced no opposition. The attorney general's friends like to tell the story that Corbin's position is that he will return his contributions from Keating when Mother Teresa returns hers. Supporters of Corbin who fretted about the attorney general's reputation for white-collar prosecution will be heartened by the Westcor/Pensus lawsuit.

And there is even a bigger plus than the enhancement of Corbin's reputation as the new election campaign for attorney general commences.

Mr. Corbin has observed that in the Paleolithic environment that is Arizona real estate, a man like Richard Shaw gums up the works. Although he calls himself a developer, Richard Shaw has spent the last three years acting like Crusader Rabbit. He even thinks that professors of ethics are somehow germane. Consider, too, the name of Shaw's firm, Pensus. Their corporate logo is Rodin's sculpture of The Thinker. According to Irv Shulman, Shaw's secretary, the name "Pensus" is the Latin past participle meaning "to weigh or to ponder." Let's be frank. In an environment where you find a firm called Westcor, an Anglo-Saxon corruption of the phrase "to eat Bambi," pondering thinkers screw up deals.

In 1987, keeping the state's deal with Westcor intact was the goal. Deputy Commissioner Glendon E. Collins emphasized that if a deal this big fell apart, who would bid on future land sales?

"If we're going to sell, we have got to be able to deliver," said Collins.
Two years later, the real estate market has collapsed and no one is making deals with the state or anyone else. And now Bob Corbin has serious campaign opposition for his job. Maybe there is even new information.

"We don't have new evidence," said Collins. "I don't know what Corbin has."

The attorney general farmed out the lawsuit to Los Angeles attorney J. Michael Hennigan. Perhaps he could shed some light on the possibility of new developments.

When he came to the phone, Hennigan began the Alison Butterfield MTV rap: "Well, I'm sure you can appreciate that I am constrained by the federal rules . . . ."

Yeah, yeah, right. For years, starving reporters have known that if you're desperate for a story, you should always contact the Attorney General's Office. The place has more leaks than an Italian submarine and the prosecutors are often gabbier than Tommy Lasorda on sodium pentothal. So I asked Hennigan to forget the lawyer/journalist dance for a second. Explain this suit, one man to another.

How can you sue the guy who raised the issue, the guy who brought you the facts? What did you expect Richard Shaw to do on the day of the auction? Westcor would sue if he won the bidding, and Westcor would sue if he lost the bidding. He also might blow his partners' $5.4 million cashier's check.

"He was in a tough position, wasn't he?" agreed Hennigan.
Not nearly as tough as the one he's in now.

end part 2 of 2

For three years, Richard Shaw of Pensus has been saying the bids were rigged, he was mugged . . . and that SOMETHING MUST BE DONE!

Think of the lawsuit that could have been launched had Shaw actually won the dirt.

Now if you think Ms. Boyd had a lousy time, how do you think Richard Campana felt when she gave a sworn statement of his spirited icebreakers?

While nearby developers had paid $6 and $7 a square foot for land, Westcor defended its winning bid of $1.57 a square foot.

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