Herrera, Lockyer Settle City Tow Fraud Lawsuit for $5.7 Million

City, State to Divide Proceeds Evenly From Settlement With Scandal-Plagued Former Contractor

SAN FRANCISCO (Nov. 9, 2005) — City Attorney Dennis Herrera joined California Attorney General Bill Lockyer today in announcing a settlement in their three-year-old lawsuit alleging fraud, breach of contract, false claims, conversion and unfair business practices by Pick Your Part Auto Wrecking, the Anaheim, Calif.-based company that did business for 17 years in San Francisco as City Tow. Under terms of the settlement, Pick Your Part denied liability for the lawsuit’s allegations, but agreed to pay a total of $5,705,964 to the government plaintiffs. Pick Your Part will receive a credit for $355,964 it has already remitted to the City and State, and the remaining $5,350,000, to be paid out over the next ten months, will be divided evenly between the State and City. The settlement is subject to ultimate approval by the Board of Directors of the San Francisco Municipal Transportation Agency and the San Francisco Superior Court.

“We’re pleased to conclude a long, difficult chapter in righting the wrongs that City Tow perpetrated while here in San Francisco — not simply in its efforts to defraud taxpayers, but also in terms of how it treated consumers,” Herrera said. “We think this settlement compensates the City for everything it was deprived of, and vindicates our decision to pursue City Tow as aggressively as we did. As we have on numerous issues over the last few years, we’re honored to again work side-by-side with Attorney General Lockyer and his staff on an issue of great importance to consumers and taxpayers alike.”

“City Tow engaged in a comprehensive years-long scam that ripped off the public in order to line its own pockets,” Lockyer said. “This settlement ensures that the company will forfeit its ill-gotten gains and helps ensure that other towing companies toe the line in the future.”

Herrera and Lockyer filed their complaint on October 29, 2002, charging City Tow with defrauding the City and State of hundreds of thousands of dollars in an elaborate auction-rigging scheme that company officials operated for more than a decade. The case was originally filed under the California False Claims Act by whistleblower Dimitrios McCarthy, a former City Tow manager. As the sole contractor for towing abandoned and illegally parked cars from San Francisco streets between 1987 and 2004, City Tow’s operation involved towing hundreds of vehicles daily. While most vehicles were typically stored for only short periods before their owners paid the requisite fees to retrieve them, unclaimed vehicles were allowed to be auctioned under state law to enable City Tow to recover towing and storage costs. Once those costs were recovered, however, the company was required to report the sale of unclaimed vehicles and pay the City to cover outstanding parking tickets, and then pay the rest to the State of California.

In an investigation involving the review of tens of thousands of documents and dozens of witnesses, the City Attorney and Attorney General uncovered hundreds of thousands of dollars in funds wrongfully withheld from San Francisco and the State of California as a result of City Tow’s false reporting of auction revenues. And the investigation revealed serious anti-competitive and anti-consumer practices by City Tow. Throughout the 1990s, City Tow took thousands of vehicles that should have been offered to the public at auction, and instead shipped the vehicles out the “back door” to be parted out and sold for scrap by the defendant Pick Your Part’s wrecking yards.

In connection with the investigation, the Department of Parking and Traffic has implemented new safeguards against fraud in its contract with AutoReturn, the City’s new public towing contractor.

The case is The People of the State of California and the City and County of San Francisco v. Pick Your Part Auto Wrecking, San Francisco Superior Court Case No. 322-841.