Former co-op GM loses appeal

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A district court judge in Bernalillo County affirmed a decision by the New Mexico Department of Workforce Solutions to deny a former Socorro Electric Cooperative general manager unemployment compensation after he was fired for misconduct.

District Judge Beatrice Brickhouse issued an order Jan. 11, agreeing with Socorro Electric that it was justified in firing Polo Pineda Jr. in August 2010 for misconduct, including taking unauthorized loans from the co-op.

“The court concludes that Pineda has not demonstrated that the Department’s determination is unsupported by substantial evidence,” Brickhouse concluded. “Evidence in the record supports the Department’s conclusion that Pineda’s actions, with regard to the loans, constituted a willful disregard of SEC’s interests, constituting misconduct which disqualifies him from benefits.”

Pineda was contesting a Board of Review’s decision last October that supported an Order of Non-Determination by a Workforce Solution’s appeals tribunal. Pineda’s attorney, J. Edward Hollington, argued Socorro Electric didn’t have a policy limiting the amount that could be borrowed, that it was common practice for the co-op to allow short-term loans to employees and that the department’s decision was based on hearsay evidence.

Documents filed by Socorro Electric attorneys accused Pineda of numerous transgressions during the last two years of a seven-year stint as general manager:

  • breaking co-op policy by taking unauthorized loans, which totaled more than $58,000
  • circumventing policy to obtain a $38,000 loan, paid out of the co-op’s general fund
  • failing to pay back the loans in a timely manner, and then only after he got “caught”
  • directing a co-op employee to repair his personal vehicle on company time
  • using co-op funds to pay for parts to make the repairs
  • sending racist emails to subordinates
  • scheming to have a member of the co-op’s board of trustees framed for sexual harassment

“Gross Misconduct”

The matter of the loans has come up before when auditors alerted co-op President Paul Bustamante of issues involving the loans in the spring of 2010. But it wasn’t until that summer when a whistleblower sent an anonymous letter to each individual trustee and local media that an investigation was launched.

Initially, co-op officials would only say Pineda and former Office Manager/Accountant Kathy Torres were fired Aug. 25, 2010, for taking excessive loans and failing to pay them back in a timely manner. When the auditor’s report came out later that year, it was revealed the former managers exceeded a $20,000 limit on what were supposed to be short-term loans they were allowed to take by borrowing from their own 401(K) plans. The report indicated that on March 31, 2010 — the end date of the fiscal year — Pineda owed more than $29,000 and Torres had a balance of nearly $25,000 on loans they each took out seven months earlier.

That audit, and a forensic audit conducted during an investigation into financial irregularities, didn’t show that the co-op was out a significant amount of money since the loans were eventually paid back. But its report to the board of trustees characterized the managers’ action as “gross misconduct.”

According to the auditors, the managers didn’t pay interest on the loans, at the expense of the co-op, and no payroll taxes were deducted.

Circumventing Policy

Testimony before a Department of Workforce Solutions administrative law judge last spring details how Pineda allegedly circumvented the co-op’s policy to obtain a $38,000 loan in August 2009.

While no current policy could be found, the appeals tribunal determined that the co-op was operating under an old policy that permitted employees to take up to four $5,000 loans by borrowing from their 401(K) plans. The co-op would issue checks that were supposed to be paid back when the loans were processed through the National Rural Electric Cooperative Association, which typically took less than a month.

When Pineda exceeded the $20,000 limit through that program, he was able to borrow an additional $38,000 through what was described as a “fake” loan.

The loan applications were done online, so Pineda allegedly directed an employee to fill out a bogus application on an outdated form — one used before the online procedure was put in place — and cut him a check. With the loan on paper and check in hand, he could then divert co-op funds into his own bank account.

According to testimony by Dr. Donald Wolberg, a member of the board of trustees who led an internal investigation into the financial irregularities during the summer of 2010, the money came out of a vendors’ account.

Though the money was eventually paid back, Wolberg said that he and his fellow trustees didn’t think that absolved Pineda.

“As logic and Dr. Wolberg’s testimony establishes … taking unauthorized money from your employer is not acceptable merely because you ultimately paid back the money when caught,” the defense argued in one of its filings.

At the time of the investigation, Wolberg said Socorro Electric was at financial risk. It was then in danger of defaulting on millions of dollars in federal loans and had just learned that it had overcharged customers $1.6 million over a five-year period. He said he and the other trustees considered Pineda’s handling of the loans as abuse of his position and it figured in their decision to fire him.

“This is just totally inappropriate and the membership just demands action be taken to protect members’ interests. They’re the owners,” he said.

Other Allegations

Wolberg also testified that interviews with employees turned up more “troubling” reports about Pineda. He said it was learned that Pineda allegedly abused his position as a supervisor by arranging for an employee to fix his personal vehicle on company time, and that the parts to make the repairs were purchased with co-op funds.

Emails sent from Pineda’s co-op account to other co-op employees were also submitted as exhibits. At least two of them carry negative racial stereotypes with regard to President Obama and the First Lady.

Under examination by the co-op’s attorney, Krystle Thomas, Wolberg described the emails as “racist,” “inappropriate” and “reprehensible” and they factored in the board’s decision to fire Pineda.

When it was Pineda’s turn to testify, he admitted to sending the emails, but said he didn’t believe them to be racist and considered them “just jokes.”

The court documents don’t show whether Pineda was asked about reports he was out to frame Charlie Wagner, a member of the board of trustees behind a movement to reform the co-op.

Wagner had been critical of Pineda’s management of the rural electric utility, which serves approximately 10,000 customers in parts of five counties, in the years leading up to Pineda’s eventual firing.

The court documents show a female employee gave a written statement that Pineda suggested she could be in a room alone with Wagner, rip her shirt and bring him up on charges of “sexual harassment.”

The employee said she would never do that and Pineda allegedly responded, “Why not, you would’ve got a raise.”

More to Come

These same issues could come up again in open court. Pineda filed a lawsuit against Socorro Electric, President Bustamante and Trustee Wagner last month, charging breach of contract, violations of the Human Rights Act and defamation.

No dates have been set for hearings in the case, also filed in 2nd Judicial District Court in Albuquerque where Pineda now resides.

It’s the third time Pineda has filed suit against Socorro Electric since he was dismissed. He won a $19,000 settlement last year because the co-op failed to issue him a final paycheck within the time frame provided by state law.

While Socorro Electric may have prevailed in this case, it is appealing a ruling in another unemployment claim involving Torres, the former office manager/accountant. It disputes the appeals tribunal’s decision to award compensation on the grounds that Torres was fired for just cause.

Socorro Electric is also still embroiled in a lawsuit it literally brought upon itself in 2010 after member-owners made sweeping changes to the bylaws at the annual meeting that year. The co-op’s board voted to challenge three of the new bylaws — each of which called for the co-op to operate with greater transparency. In order to do so, the private, non-profit corporation sued all of its almost 10,000 member-owners.

While the Socorro Electric lost the case, a countersuit claiming breach of fiduciary duty and fraud and naming Pineda, four former trustees and nine of the 10 current trustees as cross claim defendants is still pending. The only trustee not named as a defendant in the suit is Wagner, who is listed as representative of the class of member-owners in a request for class action certification.

Three hearings have been set in that case, the first scheduled for March 21.

 


-- Email the author at tslast@dchieftain.com.