Who Watches the UCAN Watchdog?

The website of local watchdog Utility Consumers’ Action Network (UCAN) has a photo of executive director Michael Shames. Underneath, it says that Shames “serves as an expert witness and attorney on behalf of UCAN.” (Italics mine.)

Groups such as San Diego’s watchdog network frequently participate in hearings before the California Public Utilities Commission. The commission approves payments of “intervenor compensation” to these participants. In 2009, for just one example, UCAN filed for “attorney fees” for Michael Shames — $330 an hour for a total of $49,500.

A whistleblower on Shames’s staff filed a complaint with the utilities commission, noting that Shames wrongfully calls himself a lawyer. The complainant cited numerous instances in which both UCAN and the utilities commission referred to Shames as an attorney, and other times when Shames put “Esq.” after his name. (According to USLegal, Inc. “Esq.” is a title used by lawyers in the United States.)

Records of the State Bar of California show that Shames was admitted to the bar in 1983 but has been inactive since 1988. The state utilities commission dismissed the complaint, noting that a person does not have to be a lawyer to participate in hearings, but there are serious questions about Shames’s nonlawyer status under bar rules and state law.

“If [Shames] calls himself an attorney and is not, this is an issue that has to be resolved,” says a person who has been near the top of the UCAN hierarchy for a number of years. Internally, “This has been a subject of quite a bit of discussion; I don’t know how he got himself in that position.”

This is one of several reasons why the board of the Utility Consumers’ Action Network hired a San Diego attorney, Paul Dostart, to look into whistleblower allegations against Shames, who cofounded the organization in 1983 when he was a law student. Dostart, an expert in nonprofit organizations, was a natural pick to do the investigation. Among many things, he has been chair of the California Bar Tax Exempt Organizations Committee.

On June 8, Dostart submitted a report on the various charges against Shames to Kendall Squires, president of the action network’s four-person board. (Squires would not return my calls.)

Dostart’s report is not a rip-snorter, but it does raise some serious points for the board to consider. Since San Diego’s action network is considering a merger with San Francisco’s utility watchdog operation, Dostart’s findings may play a key role in the future of the local organization. (The report is marked “confidential and privileged,” and Dostart can neither confirm nor deny its existence. However, after doing some interviews, I concluded that it is completely legitimate.)

Full disclosure: I have always been an avid supporter of UCAN and have worked closely with Shames. Thus, I was surprised when he initially suggested that the report I asked him about might be a hoax. Later, he said it was a preliminary report, although Dostart says at the investigation’s end that “The delivery of this report concludes our work” other than appearances before the board and audit committee. He has talked at length to the board.

Although the state utilities commission rejected the complaint about Shames not being a lawyer, Dostart points out that under state law, “No person shall practice law in California unless the person is an active member of the State Bar,” and a person advertising or holding himself or herself out as a practicing attorney who is not a member of the State Bar is guilty of a misdemeanor punishable by up to one year in county jail.

“So where did I practice law?” responded Shames to my question on the matter. However, Dostart in the report said that while it is clear that nonattorneys can participate in state utilities commission hearings, “It is not crystal clear whether a person who has been licensed as an attorney by the State Bar of California is eligible to hold inactive status while [participating in commission hearings].” Dostart is not certain that the utilities commission accurately stated California law in turning down the complaint.

Concluded Dostart, “Our recommendation is that Shames should style himself as an ‘advocate’ or ‘representative’ rather than an ‘attorney’ on papers filed with the [utilities commission].”

Another allegation Dostart tackled was Shames’s practice of taking 10 percent of the intervenor fees. I was shocked on learning this and so was the person close to the top of UCAN whom I spoke with. Last year, Shames received $202,208.36 in wages, and $87,708.44 of that came from the 10 percent he took off the top of intervenor fees. His wages were reported to the Internal Revenue Service, and the practice is not illegal, reported Dostart.

However, Dostart could find only one reference to the 10 percent fees in board meetings — one on February 7, 2008. Dostart reviewed minutes of board meetings from 1999 through 2010 and found no mention of specific 10 percent bonuses to Shames.

“This is actually dead wrong,” said Shames. “The bonuses were revealed to the board every single year and even included in the budgets that the board approved annually. I find it hard to believe that Dostart actually said this.” Dostart hedged and said it’s possible that the board monitored those payments to Shames, but that “cannot be determined from the minutes.”

My source high up in the organization said he had never heard of the 10 percent bonuses until he read the Dostart report. I was stunned because I had always thought Shames made only around $70,000 a year.

The Internal Revenue Service formerly took the position that percentage compensation would result in revocation of a charity’s tax exemption but no longer feels that way. However, under California law, the board is required to approve every change in a charity’s chief executive officer’s compensation.

“We recommend that UCAN procure a compensation study for the compensation package paid to...Michael Shames,” concluded the Dostart study.

There are other whistleblower charges that Dostart addressed, but Shames’s misidentification of himself as a lawyer and his 10 percent bonuses appear to be the main ones.

The report doesn’t touch on other matters that insiders complain of: complete disorganization, Machiavellian personnel relationships, Shames’s domination of the board, and the question of whether the utilities commission, the watchdog groups, and the utilities have a cozy relationship that rapes ratepayers. Those considerations will probably come later. ■