Gallaher companies to pay $500,000 to settle claim from whistleblower who alleged affordable housing fraud

Companies owned by Sonoma County developer Bill Gallaher have agreed to a $500,000 settlement in response to a whistleblower lawsuit with a former employee who claimed she was fired after uncovering extensive affordable housing fraud at an apartment complex Gallaher developed, The Press Democrat has learned.

While the fraud claims are being dismissed, the case raises questions about how closely state and county government agencies have monitored the complex’s compliance with low-income housing requirements tied to tax incentives.

The June 2019 whistleblower suit filed in Sonoma County Superior Court involves Gallaher’s Vineyard Creek Apartments, a 232-unit complex with 47 units of affordable housing in an unincorporated area just north of Santa Rosa.

The complex, near Charles M. Schulz-Sonoma County Airport, was approved by the Sonoma County Board of Supervisors, and its construction was largely financed with $35 million in tax-exempt bonds. It opened in 2006.

As part of a 2004 agreement with Sonoma County Board of Supervisors, the developer was required to rent 20% of its units to low-income residents. That agreement was signed by Gallaher.

However, in the whistleblower lawsuit, former property manager Mariah Clark, accused Vineyard Creek of leasing rent-restricted apartments to family and friends of the Gallahers even though they made too much money to qualify.

She also alleged the companies overcharged low-income residents for rent while at the same time gouging government agencies over rental subsidies, among other claims.

Neither Clark nor her attorney, Bryan Schwartz of Oakland, would comment on the settlement, which includes a confidentiality clause, according to county officials.

The lawsuit, reviewed by The Press Democrat, names five companies — Vineyard Creek LP, Gallaher Homes LLC, Oakmont Senior Living, OSL of Vineyard Creek LLC and Concepts for Seniors LLC — as defendants. The companies played a role in Vineyard Creek operations and are run by the Gallaher family, according to the complaint.

The 26-page complaint identifies Gallaher’s daughter and business partner, Molly Flater, as chief operating officer for Vineyard Creek.

In court filings, attorneys for the Gallaher-controlled companies denied all the allegations.

Under the terms of the proposed settlement, the Gallaher companies have agreed to pay $500,000 to Clark, according to two individuals familiar with the agreement who confirmed the amount to The Press Democrat.

As of Friday afternoon, the terms have not been formally accepted by the court.

If accepted, the $500,000 settlement applies only to Clark’s claims of retaliation and other alleged California labor code violations, which would be dismissed.

State and county government agencies have agreed to the dismissal of the more serious fraud allegations provided they can be reinvestigated in the future, officials said.

Gallaher, a Sonoma County native, has developed retirement and assisted living facilities across California and Nevada. Actively involved in regional politics, he also is founder and chairman of Santa Rosa-based Poppy Bank.

Gallaher’s attorneys did not respond to numerous voicemails and emails requesting comment or an interview over the past week.

He did not respond to an email and voicemails left with Gallaher Homes on Thursday. During a Friday visit to the office, a receptionist told Press Democrat reporters the messages had been delivered to him.

Molly Flater did not respond to voicemails, emails and a text message seeking comment.

In recent years, Gallaher has become an increasingly influential and polarizing figure in local politics. He and his family have spent widely to influence Sonoma County elections.

Most recently, he has single-handedly bankrolled an effort to recall Sonoma County District Attorney Jill Ravitch. He has contributed more than $1.6 million to the effort, according to the latest public filings.

The suit was kept under seal for more than a year to allow state and local agencies time to investigate Clark’s claims and potentially become a part of the case.

Those agencies, the Sonoma County Community Development Commission, the California Department of Insurance and the state Attorney General’s Office, coordinated their investigations, and twice — once after citing delays caused by the COVID-19 pandemic — received court approval to extend the seal over the documents.

They ultimately did not join the lawsuit.

Officials from the three agencies have declined to discuss what evidence Clark had to support her claims. “We are unable to comment on internal deliberations or potential or ongoing investigations,” the AG’s press office said in an email.

An investigation by The Press Democrat, however, shows the development commission, Sonoma County’s top housing agency, as well as a state bond oversight agency, relied on years of self-reported information from Vineyard Creek to show it was complying with the low-income housing requirement.

The agencies were unable to provide to The Press Democrat any evidence the self-reported numbers were ever audited or independently verified.

Under the county’s affordable housing agreement with Vineyard Creek 17 years ago, officials have had the authority to inspect the documents property managers used to verify tenant incomes. Officials were unable to provide any record of them seeking those documents in the 15 years the complex has been occupied.

David Kiff, interim director of the development commission, couldn’t say to what extent the agency had independently confirmed the Vineyard Creek tenant names, income levels and other information provided to it by the developers.

“I don’t think that could be shown either way at this point without a bunch of additional digging,” Kiff said.

The agency has undergone significant turnover in recent years, including the high-profile departure of a director and a merger with the county health department, whose director also subsequently left. Staff turnover, including among compliance personnel, has also been high, Kiff said.

Supervisors approve settlement

Clark brought her lawsuit under California’s whistleblower statutes, which encourage employees to report potential lawbreaking by their employers. The laws give state and local authorities the opportunity to intervene and collect fines and damages if they determine the public has been harmed.

They also require the consent of the government agencies involved before a case can be dismissed.

In her complaint, Clark describes various “schemes” she alleged were carried out by the Gallaher companies to defraud or deceive tenants, insurers, and local, state and federal governments. She claimed she witnessed or discovered the alleged scams over the four months she worked at Vineyard Creek starting in February 2018.

One such effort involved keeping a list of “VIP tenants” who received “special treatment” — including that their rent not be raised — because they were “friends, family or financial supporters of the Gallahers,” the complaint states.

She went on to claim that she “shared her concern that this practice violated fair housing laws and regulations.”

Clark also claimed she was instructed to assign affordable units to tenants referred by the Gallaher family, including Bill Gallaher, even though those renters did not qualify as low income, the complaint said.

In another allegation, Clark accused the Gallaher companies of regularly charging low-income tenants more than what was allowed under the county’s affordable housing agreement or under federal requirements.

At the same time, the complex overbilled the Sonoma County Housing Authority — the local agency that distributes federal Section 8 housing vouchers and other government rental assistance, according to the complaint.

Clark also alleged the Gallaher companies kept separate waitlists to prioritize Section 8 applicants “because they generated greater revenue” than other low-income tenants, a violation of the affordable housing agreement, according to the complaint.

The U.S. Department of Housing and Urban Development, the agency that administers the voucher program, said it has been made aware of the allegations, but declined to comment on any possible investigation that could be underway.

In addition to the alleged affordable housing fraud, Clark’s complaint claimed after the 2017 North Bay fires the Gallaher companies “bundled” tenants’ rent, PG&E and cable bills in an effort to overbill private insurers who covered fire victim’s rent.

In the complaint, Clark’s attorneys wrote the fraud “threatened to diminish the availability of affordable housing, to unnecessarily burden taxpayers, and to degrade the affordable housing programs” in California.

Clark also said she informed Gallaher’s daughter and business partner, Molly Flater, and other employees about the alleged violations multiple times. In turn, she states in her claim that she faced retaliation and verbal abuse.

“Clark’s blood pressure, which had previously been normal, was suddenly hazardously high and she had a difficult time sleeping,” the complaint alleged.

Clark was ultimately fired, she said in the complaint. She also lost her company-provided apartment at Vineyard Creek, forcing her and her two sons to stay with friends and in hotel rooms while she looked for new work and housing.

Local and stage agencies have agreed to allow the $500,000 settlement to proceed. It resolved Clark’s claims of retaliation and wrongful termination while dismissing the fraud claims.

Officials with the three agencies told The Press Democrat they did so on the condition that they could later bring legal action if warranted.

On Aug. 17, the county Board of Supervisors voted 4-0 behind closed doors, with Supervisor David Rabbitt absent, to accept the settlement agreement and, at least for now, not to pursue the fraud allegations.

The board made the decision after county attorneys said there wasn’t sufficient evidence to pursue a lawsuit, two supervisors, Chris Coursey and James Gore, said last week.

Citing a confidentiality agreement between Gallaher’s companies and Clark, county officials would not provide a copy of the settlement without their permission. None of the government agencies involved will receive any money from the settlement.

“We’re kind of ancillary to it, the way it was presented to us,” said Gore, whose district includes Vineyard Creek Apartments. “There wasn’t a smoking-gun issue one way or another,” he said.

Retaliation alleged

According to Clark’s complaint, three other employees also faced retaliation for raising concerns. Clark’s complaint states that one of them, then-assistant property manager Jen Negoesco, told her Vineyard Creek used the affordable units as it wished because of a lack of oversight.

Negoesco “told Clark that (the defendants) placed whomever they wanted in the 47 reserved (Very Low Income) units, regardless of their income or qualifications because the VLI units were not monitored regularly,” the complaint states.

Reporters were unable to reach Negoesco, and repeated requests for comment via social media went unanswered.

Prior to and during construction of Vineyard Creek, the state awarded Gallaher $35 million in tax-exempt bonds to help finance the project. In exchange Gallaher agreed to devote 47 units to low-income housing.

He also agreed to provide the California Statewide Communities Development Authority, a joint powers board that recommended the project for tax-exempt bonds, annual reports detailing who was in the 47 affordable units, their incomes and the amount of rent they paid.

That board stopped collecting the detailed bond compliance reports in 2016, managing director James Hammill said in a July 21 email.

Instead of the detailed reports, Vineyard Creek has submitted a “certificate of compliance” affirming that it is in keeping with its affordable housing duties. In her lawsuit, Clark alleges Vineyard Creek submitted “false annual certifications that they had verified income for their 47 units.”

After an initial phone call, Hammill declined requests for interviews. His agency, which has issued more than $65 billion in tax-free bonds for affordable housing and municipal infrastructure projects since 1988, “didn’t do” interviews with reporters, he said in an Aug. 11 email.

In a July phone call, Hammill said developers would be foolish to violate the conditions under which they received tax-free bonds.

“There’s too much to lose,” he said.

Asked if the development authority had ever verified whether Vineyard Creek’s self-reported documents were accurate or in compliance, Hammill said he had not received any complaints about the development.

His office had no records indicating it had conducted any independent verification of Gallaher and his development’s compliance, Hammill said.

Clark’s tentative settlement averts a trial a Sonoma County judge had scheduled for June 2022.

EDITOR’S NOTE: This story has been updated to more accurately describe part of the whistleblower complaint in which Clark alleged she was instructed to assign affordable units to non-qualifying tenants referred by the Gallaher family.

You can reach Staff Writers Andrew Graham at 707-526-8667 or andrew.graham@pressdemocrat.com and Ethan Varian at ethan.varian@pressdemocrat.com or 707-521-5412.