The Press Democrat is being sued for defamation by prominent Santa Rosa real estate developer William Gallaher and his son-in-law Scott Flater.

The Dec. 21 complaint, filed in Sonoma County Superior Court by Santa Rosa attorney Michael Miller, stems from a series of six articles that ran in the Press Democrat late last year which raised questions about donations made on behalf of a trio of Santa Rosa City Council candidates running for office in 2016. Two of the three candidates won their races.

The donations were independent expenditures, the paper reported, made possible through the Citizens United Supreme Court ruling that allows for campaign spending beyond a Santa Rosa rule that limits individual contributions to candidates to $500.

The gist of the series of stories was that Gallaher is suspected to have funneled campaign cash—totaling about $195,000—to preferred candidates through his son-in-law, Flater, and an independent expenditure campaign created by Flater.

The paper reported that Flater is married to Molly Flater, who is CEO of Oakmont Senior Living, which operates the sprawling Oakmont Village retirement community in Santa Rosa developed by her father.

The first in the series of stories by Kevin McCallum ran on Oct. 20 during the height of a fevered campaign season that saw record amounts of cash flow into the Santa Rosa city council races. McCallum reported that “Scott Flater, the son-in-law of politically active developer Bill Gallaher, recently reported spending nearly $40,000 to help support two other candidates—Jack Tibbetts and Ernesto Olivares. While he didn’t give the money directly to either candidate, the contributions raise questions about whether Flater or people close to him are exploiting gaps between state and city campaign finance laws that limit campaign contributions to $500 each but allow ‘major donors,’ such as Flater, to spend unlimited funds.”

The paper published another five stories about Flater and campaign contributions, capping off the series with a “what is to be done” story on Nov. 20 that surveyed local elected officials on their thoughts on the unlimited donations and how to address them in future elections—using the Flater-Gallaher storyline as the jump-off.

The defamation complaint names the Press Democrat, the corporate owners Sonoma Media Investments, reporter Kevin McCallum and Sonoma State University political scientist David McCuan as defendants (along with 20 unidentified John Does). The complaint seeks unspecified monetary damages and charges the paper with defamation, libel per se and portraying its clients in a false light.

The complaint followed a letter sent to McCallum and Press Democrat executive editor Catherine Barnett by Miller on Nov. 21 that demanded the paper retract six stories that he alleged contained defamatory comments against Gallaher and Flater. When the paper didn’t retract the stories, they sued.

The complaint highlighted a Nov. 5 article that reported, “Mr. Flater’s spending spree . . . has telltale signs of someone who has agreed to act as a front man for other donors, allowing them to shield their political contributions and potential economic interests in the race from public view.”

McCuan was included in the complaint, and he was also sent a letter from Miller, partner at the Santa Rosa firm of Perry, Johnson, Anderson, Miller & Moskowitz, for quotes he provided to the Press Democrat that furthered a running theme that Gallaher was likely the hidden hand behind the contributions. An Oct. 28 story highlighted ongoing donations from Flater, as it noted Gallaher’s work as a developer in Santa Rosa as “one of the city’s most successful developers.”

According to media reports and documents on file with the city of Santa Rosa, Gallaher is involved in a years-long negotiation with the city to build the “Elnoka” project on land adjacent to Oakmont Village. As it laid out its reporting on the Flater contributions, the Press Democrat reported that a proposed project comprising 447 units had already been rejected by the city. The latest updated Elnoka proposal, as first reported in the Kenwood Press, was submitted to the city last October and nearly doubles the proposed units to a 778-unit retirement community.

The Press Democrat noted that Gallaher, his wife, daughter and son-in-law all contributed the Santa Rosa legal limit of $500 to Tibbetts.

Tibbetts told the Press Democrat on Oct. 28 that he had never met Flater and believed that the donations were “part of a bundle” of contributions to other city council candidates. He told the paper the $62,675 Flater had by then spent on mailers and canvassing for him was “a disgusting amount of money to come into a local race,” even as he accepted the support.

Teeing off on the Tibbetts “bundling” assertion, McCuan told the Press Democrat in that same Oct. 28 report that the alleged bundling was part of “a pattern Gallaher has of ‘sprinkling money around’ to family members to maximize payments to—and potentially influence with—council candidates.”

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McCuan went on to say that “Bill Gallaher uses his family as a shell game, and has for a long time in order to channel support to candidates of his liking. . . . It sounds to me what they have done is against the letter and intent of the law.”

The defamation suit denies the premise of the Press Democrat series and McCuan’s assertion of illegality.

In his letter to the newspaper (a version was also sent to McCuan), Miller wrote, “The political contributions from Mr. Flater were made on his own and did not originate from Bill Gallaher. Neither Mr. Flater nor Mr. Gallaher violated state campaign finance rules. Mr. Gallaher has never used anyone, including family members, to make political contributions on his behalf.” That language is more or less repeated in the defamation lawsuit that was filed after the paper declined to retract the articles and remove them from the paper’s website.

The suit may have sprung from a potential journalistic danger zone that exists somewhere between two underlying conceits that appeared to drive the series of stories, beyond the basic follow-the-money backdrop: The first is, “That just doesn’t look right.” The second is, “Well, we wouldn’t put it past him.”

On the former point, the Press Democrat reported that the son-in-law of a successful local developer (who has ongoing business before the city council), after showing little apparent interest in local politics in previous elections, suddenly decided to start sending outsized sums of cash to three candidates’ campaigns—while identifying himself in disclosure reports only as a “homemaker.” Meanwhile, Gallaher is looking for a green light on an ever-expanding Elnoka project years in the making. No doubt, that just doesn’t look right.

But in raising the question about Gallaher’s “suspicious” role in the alleged laundering and bundling of independent expenditures, the paper never answered it. Neither Gallaher nor Flater responded to McCallum’s attempts to get them on the record about the contributions, a point highlighted in an email statement sent to the Bohemian by San Francisco attorney Thomas Burke of the media-law practice of Davis White Tremaine, which is representing the Press Democrat (the firm has defended affiliates of the Bohemian in past litigation).

“The Press Democrat is being sued for fairly and accurately reporting on the source of 195K in political contributions to the City Council election,” Burke says. “As a part of its reporting, the newspaper made repeated efforts to interview Mr. Flater and Mr. Gallaher about the source of the contributions, but they repeatedly refused to comment. The Press Democrat will vigorously defend its reporting on this matter of significant public interest.”

On Nov. 5, the paper reported that Chris Grabill, a local contractor, took matters in hand and reported Flater to the Fair Political Practices Commission (FPPC), a state watchdog agency. In its report on the filing of the Grabill complaint, the Press Democrat noted that Gallaher had been cleared of similar laundering-and-bundling charges in 2015 by the commission.

In that same story, McCuan also took a shot at the watchdog and said whatever they discovered wouldn’t come out until after the election, when it didn’t matter anymore, as he described the organization as “toothless and feckless.”

Spokesman for the FPPC Jay Wierenga cited the ongoing investigation and couldn’t answer any questions about it.

“Investigations, although not trying to sound trite, take the time they take,” he wrote in an email. “It all depends on each case. Generally speaking, about two-thirds of all cases are concluded in 180 days and about 90 percent are concluded within a year.”

McCuan says via email that he can’t talk about the case on advice of counsel. The Sonoma State University public-affairs office was sent a set of questions, which included whether the university was paying for his lawyer.

“Dr. David McCuan is an esteemed member of our faculty and is valued for his breadth of contributions in the North Bay and beyond,” responded SSU spokesman Nicolas Grizzle in an email. “The University does not customarily comment on litigation. We can say on a broader level that Sonoma State safeguards the academic freedom of its faculty, including the extramural speech and opinions that our faculty members express as citizens.”

Miller says neither he nor his clients wished to comment.

“[N]either my clients nor I wish to in any way litigate this matter through the press,” he wrote via email.

The parties will head to Superior Court April 25 for a case-management conference with Judge Nancy Case Shaffer in courtroom 16 at 3pm.

(This story has been updated to include the disclosure that the firm representing the Press Democrat has represented affiliates of the Bohemian in past litigation.)

Gov. Jerry Brown released his
$180 billion fiscal 2017 budget
last week and identified a $1.6 billion deficit, the result, he said, of slower than anticipated growth in the California economy.

The deficit’s return—the first since 2012—comes in the aftermath of the state’s historic yes vote on Proposition 64, which legalizes adult use of recreational cannabis in the state.

State agencies that have studied the initiative, including the Board of Equalization, have reported that future excise taxes could funnel between $1 billion and $1.4 billion annually into the state coffers. But before you say “tax bonanza,” it’s important to underscore that the pot tax can’t be used to close a budget gap in this or any year, unless the Legislature revisits the issue.

“The state government would certainly like to do that,” says Hezekiah Allen of the California Growers Association, a cannabis industry group. But they are hampered by the legally binding language in Proposition 64, which says that no taxes collected on cannabis sales can be directed into the state’s general fund. Moving forward, “the real limiting factor here is going to be, how much wiggle room does the Legislature have?” Allen says.

Even if Brown could close the deficit with pot revenue, the state won’t have its new cannabis tax regime in place until next January, when licensed growers will pay a cultivation tax of $9.25 per ounce of buds and $2.75 per ounce of leaves. Another
15 percent sales tax will be applied to the retail price of all cannabis products, and localities, including Sonoma County, are cooking up local taxes of their own. There’s a special pot tax vote in Sonoma County in March.

One problem for localities with enforcement issues of their own to fund, says Allen, is that Proposition 64 set a higher rate of tax than was even contemplated by the Legislature, which will make it difficult for localities to add an additional levy. “There is no room for additional taxes,” Allen says.

Those taxes are mainly earmarked for law enforcement and anti-drug efforts in schools. According to a statement from Brown, state pot taxes can be used for “regulatory costs, youth substance-use programs, environmental clean-up resulting from illegal cannabis growing, programs to reduce driving under the influence of cannabis and other drugs and to reduce negative impacts on public health or safety resulting from the legalization of recreational cannabis.”

In the short term, the emergent recreational cannabis industry may actually wind up contributing to a future deficit, as Brown’s budget would send $53 million to regulators to help square up the regulatory regime in the recreational and medical cannabis industries.

“Right now, there’s going to be a lot of pain before there is any gain,” says attorney Aaron Herzberg, a partner at CalCann, a California medical cannabis real estate investment firm. But Allen says the $53 million proposal “is an open question.” He notes that policymakers and the industry “are thinking that we should maybe move a little slower and take an incremental, balanced approach.”

The state envisions a single regulatory framework for recreational and medical cannabis. Nate Bradley of the California Cannabis Industry Association says his organization was in a conference call with the governor’s office last week and that “they are pushing ahead with one system.” He says stakeholders such as the CGA don’t want to see a single regulatory structure enacted because “there’s lots of money” at stake in, for example, medical-cannabis distribution networks.

Brown’s office has reported that the $1.6 billion budget shortfall this year will be closed via a slowdown on planned outlays for K-12 education and on the elimination of some discretionary spending.

The governor has opposed legalized weed in California on the grounds that everyone would be getting high instead of working. Donald Trump basically makes the same argument. Meanwhile, as Herzberg observes, most of the cannabis sold in the state is on the black market, and for every additional tax the state adds, the more likely it is that those growers will stay in the shadows and not participate in the licensing process. The more tax-heavy the recreational industry becomes, he says, the more likely it is that recreational users will get a medical card to beat the local or state sales tax. There’s a lot of work to be done, and Herzberg is convinced that $53 million won’t cut it.

Meanwhile, Brown alludes to the uncertain federal-level issues: “The amount and timing of revenues generated from the new excise taxes are highly uncertain and will depend on various factors including state and local regulations, how cannabis prices and consumption change in a legal environment, and future federal policies and actions toward the cannabis industry.”

Allen believes the two-decade-old medical cannabis industry in California is probably safe from any attacks from anti-pot attorney general nominee Jeff Sessions, but notes that “there are a lot more questions about adult use moving forward. The governor’s proposal stuck with what we were expecting—combining the two systems and moving forward with one regulated marketplace.”

Herzberg says a pot crackdown in California is hard to imagine given the public support for legalization and that Trump adviser and PayPal founder Peter Thiel is “heavily invested in cannabis.”

Sonoma County yarn shops are experiencing a shortage of pink yarn.

In preparation for Saturday’s Women’s March on Washington, and its affiliated sister marches countrywide, women are knitting up a storm of pink pussy hats to wear in protest against the president-elect and his sexist rhetoric.

Antagonized by the sexism exhibited throughout the election, women of all age groups are rushing to their local yarn shops to use creativity and practical arts skills for make political statement. Many have one goal in mind: pussy hats made of pink yarn, a symbol of solidarity for women in the Washington march and local offshoots. A staffer at Sebastopol’s Yarnitudes says that the last few weeks have been “Pink! Pink! Pink!”—and notes a definite uptick in the amount of pink yarn leaving the shelves since the election.

Knitterly’s in Petaluma experienced a similar rush. Says Kate, the manager: “We’ve had lots of women for whom this is their first knitting project. They’re learning to knit to make these hats.”

Justine from Cast Away & Folk in Santa Rosa says “more people have bought pink yarn in the last week than in the last few years combined We’ve been selling at least twenty skeins of pink yarn each day for the last three weeks,” she says.

Knitting circles have also become more interactive, says Justine. At the last gathering, almost everyone was knitting hats and they made a night of it: Pink lemonade, pink wine, pink cookies, and baskets of pink yarn. Some hats are donated to the shop, which has been sending them to march organizers in Washington and the Bay Area.

Sister marches to the Women’s March on Washington are happening across the country on the 21st, including three scheduled for Bay Area: San Francisco, Oakland, and San Jose.