Law firm with ties to mayor doubles income from city

THE BALTIMORE SUN

Shapiro and Olander, the politically powerful Baltimore law firm with close ties to Mayor Kurt L. Schmoke, has been paid at least $1.4 million for city-related legal work in the mayor's second term, doubling the payments reported in Mr. Schmoke's first four years.

The payments, documented from city, state and private sources, may well represent only part of the revenue the firm receives for representing Baltimore and its quasi-public agencies.

At the mayor's directive, the total amount of public funds paid to Shapiro and Olander -- which has among its lawyers Mr. Schmoke's campaign treasurer and his chief political strategist -- remains secret.

For the past seven weeks, The Sun has repeatedly asked Mr. Schmoke for a detailed accounting of the law firm's earnings from the city and separate taxpayer-funded agencies, such as the Baltimore Development Corp. and the Community Development Financing Corp.

The extent of Shapiro and Olander's work for the city reflects the firm's close relationship with the mayor. Ronald M. Shapiro, a founding partner, is Mr. Schmoke's campaign treasurer. And Larry S. Gibson, a University of Maryland Law School professor who is "of counsel" at the firm, is the architect of Mr. Schmoke's political career.

At first, Mr. Schmoke said that he would disclose direct city payments to Shapiro and Olander, as he had in the past, and would consider for the first time releasing fees paid by the quasi-public groups.

Late last week, city officials provided an incomplete account of payments to the firm during the mayor's second term. But Mr. Schmoke said he had decided not to divulge the fees from the quasi-public agencies that the firm represents.

Position defended

Mr. Schmoke defended his decision by saying he was following precedent set by Mayors William Donald Schaefer and Clarence H. Du Burns and was concerned about eroding the independence of the quasi-public groups.

"If we want to maintain the flexibility and the speed with which these entities can solve problems, then we've got to maintain the past policy," Mr. Schmoke said.

Christopher Dean Olander, the firm's managing partner, refused make public his bills, citing attorney-client privilege.

"We don't discuss the fees that our clients pay us," he said. "It's unethical for us to do that."

Mr. Schmoke's refusal to disclose all the fees paid to Shapiro and Olander raises questions about oversight of the firm's lucrative relationship with City Hall.

Baltimore hires a number of law firms to supplement the work of its Law Department, which has a staff of 78 and a budget of $10 million. But it does not select them through competitive bidding, as do many state agencies and quasi-public groups. The city also does not keep centralized records to track how much it spends on outside legal work -- something the mayor promised to do four years ago. "I dropped the ball," the mayor said.

Asked about the lack of disclosure, the state's top lawyer and others said the figures should be made public.

"Public moneys and how they're spent should be fully disclosed. I think that's basic," said Attorney General J. Joseph Curran Jr.

"Fees that are undisclosed make government shadowy," said Daniel J. Loden, president of the Baltimore City Homeowners' Coalition for Fair Property Taxes, which monitors city spending.

The head of the ethics committee of the Bar Association of Baltimore City said that there is nothing in the state code of conduct that prohibits government legal work by firms with political connections. But she said she was troubled as a taxpayer by the lack of full disclosure.

"We all have an interest in how much money is going to Shapiro and Olander," said Kathryn Miller Goldman, a member of the Baltimore firm of Lord & Whip. "It's coming out of our tax base somewhere."

Shapiro and Olander did little city work before Mr. Schmoke became mayor in 1987. But it has had little trouble getting business from City Hall since then.

Today, the 33-member downtown law firm plays a role in some of the Schmoke administration's highest-profile initiatives, from a federally funded empowerment zone to setting up a public markets corporation and a new convention board. Mayor Schmoke counts Mr. Gibson and Mr. Shapiro in his small, intensely loyal inner circle. Honora M. Freeman, then a Shapiro and Olander lawyer, worked with Mr. Shapiro to set up the Community Development Financing Corp., the community lending bank the mayor promised in his first campaign. Ms. Freeman was later appointed to head the Baltimore Development Corp., the city's quasi-public economic development branch.

Sources of fees

The $1.4 million the Shapiro firm has earned during the mayor's second term, based on documents and interviews, includes direct payments as well as fees charged to clients of the quasi-public organizations authorized when the firm is counsel to the agency involved. The total is made up of the following:

* $678,419 in legal fees from city departments from 1992 to 1994, according to the firm's financial disclosure statements filed with the state for 1992 to 1994. The statements are required of companies that do significant government business and make political contributions.

* $327,001 in fees for loan transactions, a bond refinancing and other legal matters for the Community Development Financing Corp., including fees from the agency and charges paid by its clients, according to interviews and documents. The bulk of this amount was earned in a single year ending June 1994.

* $224,572 in legal fees from loans and other business transactions for clients of the Baltimore Development Corp., according to interviews and documents provided by the clients.

* $118,510 from the Empower Baltimore Management Corp., the quasi-public group overseeing the city's $100 million urban revitalization effort, according to the corporation's budget.

* $115,358 for City Hall work so far this year, including work as counsel for bond issues and advising the Schmoke administration on insurance reform before the General Assembly, according to city documents.

The total -- $1.4 million -- contrasts to the $709,878.29 collected from city departments in Mr. Schmoke's first term, according to a 1991 report prepared by the Law Department. Except for the 1994 CDFC revenue and fees Shapiro and Olander earned from clients of the governmental agencies in Mr. Schmoke's second term, the collections in both terms by the firm from quasi-public agencies are unknown.

Baltimore is by far Shapiro and Olander's biggest public client in Maryland, state records show. The work it does for the city represents nearly 60 percent of all the business it has done for state agencies, counties and cities in Maryland.

By comparison, Venable, Baetjer and Howard, which has about five times as many lawyers as Shapiro and Olander, reported doing $757,305 worth of city legal business during the same 1992-1994 period. But that was less than 20 percent of Venable's public legal work.

The empowerment zone corporation has disclosed the amount it is paying Shapiro and Olander, and the Community Development Financing Corp. on Friday provided an account of its legal payments for the fiscal year that ended June 30, 1994.

But the $1.4 million does not include the community development bank fees from preceding years or any fees the firm may have charged for the public markets, the convention board and the Baltimore Development Corp.

It also does not include all the fees the firm has charged clients of the Baltimore Development Corp. and the Community Development Financing Corp. for settling loans and other transactions.

In the only year -- fiscal 1994 -- for which The Sun obtained budget information from the community development bank, Shapiro and Olander collected $118,000 for one-time bond work, and was paid $181,800, or 90 percent of the $202,000 the agency spent on corporate legal advice, according to housing officials.

The community development bank, a $44.8 million revolving loan fund, has made 78 loans to developers and nonprofit groups to rehabilitate vacant housing since 1989.

Industry practice

As primary counsel for the community development bank, Shapiro and Olander follows the standard lending industry practice of charging the legal work to the clients who are seeking loans.

Four of those loan recipients in recent years paid a total of $27,201 in fees to Shapiro and Olander for loans worth $1.83 million, according to interviews with the recipients.

They range from fees of about 1 percent for smaller renovation loans -- such as $2,870 for preparing a $288,153 loan for St. Ambrose Housing Aid Center to fix up seven homes -- to 1.6 percent, $19,726 for complicated legal work on a $1.26 million loan used by developers Jay French and Tom Dowling to build affordable apartment on a parking lot.

Shapiro and Olander handles the bulk of the loan work, although four other firms are used on occasion. That has been the custom at the community development bank since January 1989, when the new board of directors appointed by Mr. Schmoke approved a resolution to contract with Shapiro and Olander.

In 1991, the Maryland Alliance for Responsible Government, a coalition of housing activists that fights lending discrimination in poor and minority neighborhoods, undertook a study of the community development bank. The alliance, which has not reviewed the lending bank since, raised general concerns at the time about "onerous legal requirements and costs that make small deals more difficult and unduly burden community-based organizations."

Some complaints aired

Some nonprofit housing groups have complained about the fees, but others describe them as reasonable, especially given the complexity of some renovation transactions.

In a loan settled late last month, Ophelia Horne, a West Baltimore woman who intends to fix up seven homes she and her mother own on Gold Street, received a discount.

The firm agreed to knock $800 off its fee on a $171,500 loan, bringing the cost down to $2,300, after being told she couldn't afford the higher rate. "It allowed the project to go forward," she said.

Mr. Olander, the managing partner, said last week that the firm "routinely" provides such discounts and dismissed complaints about fees as "commonplace grumblings." In a written statement, he said, "In our experience, borrowers are seldom happy with the requirement that lender's counsel be paid by them or the amount of the fees charged."

At Baltimore Development Corp., Shapiro and Olander is used for all the six to eight loans the agency awards each year, said Ms. Freeman, who has been transferred to the mayor's personal staff after local business leaders criticized her management of the agency. The agency uses firms other than Shapiro and Olander, as well as the city's law department, to help retain existing businesses and attract new ones, she said.

But Shapiro and Olander has been involved in a number of the agency's most important projects, from negotiating to keep Alex. Brown Inc. in Baltimore to setting up the Howard Street Artists Housing Corp. and the Historic East Baltimore Community Action Coalition, the Schmoke administration's urban renewal effort on the east side.

And four businesses interviewed by The Sun said they had paid $224,572 directly to Shapiro and Olander for work the firm did through the agency. The fees range from $113,072 paid by the Columbus Center for negotiating a long-term lease between the National Center for Marine Biotechnology at the Inner Harbor and the city, to $1,500 paid by Maran Inc., an East Baltimore credit-card manufacturer, for a $100,000 BDC loan.

Mr. Olander said that any other firm serving as lender's counsel to the Community Development Financing Corp. or Baltimore Development Corp. would have to charge more because they would not be as familiar with the loan programs and documents. But what other firms might charge is a moot point because the required legal work has never been put up for bid.

That differs from the practice at some state agencies, such as the Community Development Administration and the Maryland Industrial Development Financing Authority.

MIDFA puts its bond work up for bid every three years. But it uses the state attorney general's office to prepare the paperwork for insurance for loans and other financial obligations.

When the authority insured $3 million in privately purchased bonds last year to allow the Carroll Industrial Development Group to put a plastics plant in the old Montgomery Ward building, it cost the company nothing in legal fees. But when Baltimore Development Corp. provided similar insurance to the company for $1 million in bonds, Shapiro and Olander prepared and reviewed the documents as part of the same deal, charging a $10,000 fee, according to the company's lawyer.

"The state saved my client some money. The city cost my client some money," said attorney H. Eugene Funk Jr.

Other clients who have been charged for work Shapiro and Olander has done through the agency describe the fees as "standard."

Stanley Heuisler, president and chief executive officer of the Columbus Center, pointed out that the $113,072 paid to Shapiro and Olander for negotiating its lease was just a small fraction of the $1 million legal costs for the $126 million project. "That's not a lot of money," Mr. Heuisler said, noting that the lease "took six months to negotiate."

Shapiro and Olander's most important client -- Mayor Schmoke -- also is among the most satisfied.

"To the best of my knowledge, they've done outstanding work for the city, and I'm not troubled by that relationship," he said.

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