Part 1 of a 4-day series
A cryptic note was attached to the packet of documents that triggered a criminal investigation into Cactus Towing and its owner, Lee Watkins. “Do not use Mesa Police Dept. or City Council — Lee owns them.”
It has been three years since that note and a bundle of internal Cactus documents wound up at the doorstep of a competitor, leading to an investigation by the Maricopa County Sheriff’s Office that has dragged on ever since.
Yet the politically powerful company has continued to thrive, drawing on its influence with city council members and legislators throughout the East Valley.
Watkins parlayed whatever clout he could buy or hire into deals with local governments he needed to keep his lucrative business going.
Since sheriff’s deputies raided Cactus’ offices in March 2005, the company has locked up exclusive towing contracts in Chandler and Scottsdale, and in two of the four zones that divide Mesa.
The towing contracts themselves are relatively small. In Chandler, for instance, the company’s winning bid for the exclusive contract was worth about $359,000 per year.
But the sheriff’s investigation alleges the city towing contracts are the critical first step in a lucrative chain of improper charges that Cactus has slapped on customers’ bills.
Watkins used his contracts with East Valley cities to bill vehicle owners and insurance companies for hundreds of thousands of dollars in improper charges, according to sheriff’s reports.
The sheriff’s investigation remains open.
Allegations of bid-rigging and collusion in the Mesa contract also triggered a separate antitrust investigation by the state attorney general’s office in 2005. That investigation was closed last month. Though state lawyers chastised Mesa’s sloppy procedures related to the Cactus bid, they did not find any violations of the law.
The two probes generated thousands of pages of records not normally available in city contracts. The Tribune spent more than three months going through those records. In all, roughly 20,000 pages from state, county and city files were examined.
The Tribune also conducted more than 50 interviews to determine how a single Mesa towing company has consistently been able to secure lucrative contracts while under criminal investigation.
The documents do not prove Watkins or the people he hired did anything illegal to win East Valley contracts for Cactus. No charges have been filed.
What does emerge is a detailed look at the small circle of behind-the-scenes power players who are adept at working the system to get their clients what they want.
For years, Cactus executives have funneled thousands of dollars into local campaign coffers.
Elected officials and city staffers have routinely gone to extraordinary lengths to ensure Cactus kept its exclusive contracts at both the city and state levels, records show. When complaints of overcharges and other allegations of improprieties arose, those in charge of enforcing the contracts typically let the company off the hook.
In Mesa, Watkins hired David Udall and Matt Salmon to lobby for the city’s exclusive towing contract in 2004. Udall is a former city councilman who was named Mesa’s Man of the Year in 2004. Salmon is a former U.S. representative who served as chairman of the state Republican Party at the same time he was lobbying for Cactus.
“I did not know that the fix was in,” Mesa Councilman Tom Rawles says of the clout Watkins was able to wield in battling for the city’s contract. “But it had the appearances of such.”
In Chandler, Cactus’ lobbyist was former Mayor Jim Patterson, a longtime business associate of Councilman Martin Sepulveda, who consistently voted in favor of the company.
At the Legislature, Watkins tapped Rep. Russell Pearce, a Mesa Republican and longtime friend whose son went to work for Cactus after he was convicted of a felony in 2000.
Watkins was also an aggressive fundraiser for his political allies. Campaign finance reports show Watkins, his employees and their spouses have directly given more than $17,500 to city and state campaigns since 2002.
Watkins would not agree to an interview because of the ongoing sheriff’s investigation, according to his lawyer, Kent Nicholas.
Watkins acknowledges being an active fundraiser for political candidates, but that did not translate into favored treatment by government officials, Nicholas says.
“Lee’s not going to deny that he’s been involved in politics,” Nicholas says. “It doesn’t involve undue influence.”
But Watkins does deny he has done anything wrong in running his company, Nicholas says.
“I think what frustrates people is that even despite all the allegations, when it comes down to the numbers and the job that Cactus Towing did, they did a good job,” Nicholas says. “They kept their contracts.”
Watkins sold Cactus Towing last year to All City Towing. His general manager, Todd DeMasseo, stayed on. The contracts Watkins helped secure while he owned the company remain in place.
Several witnesses in the sheriff’s investigation say Watkins used to brag that he had enough pull in East Valley cities, especially Mesa, to keep winning contracts.
Sherri Domagakski, Watkins’ former stepdaughter who worked at the company, told deputies she frequently heard him trying to drum up money for political candidates.
Mark Brammer, who used to run a side business making referrals to body shops, doctors and lawyers from the Cactus lot, told sheriff’s investigators in 2005 that Watkins frequently bragged about his clout with Mesa officials.
“Lee brags immensely in front of me that he owns Mesa,” Brammer said. “Ain’t anybody going to touch him. He’s gotten the contract year after year. He knows the right guys to juice. Everything is done through Udall, his attorney. Udall obviously goes to City Council members, and they’ve worked out something.”
'KISS THE RING’
Udall was Cactus’ point man in Mesa when the exclusive contract it had held for nearly a decade was up for renewal in early 2004.
The first round of bids was thrown out after a one-minute phone call from Udall to a deputy city attorney. Cactus had not been the low bidder. By the time the contract was awarded more than a year later, confidential city documents wound up in Udall’s hands on two separate occasions, city records show.
People who know Udall and Mesa politics say no one carries more clout with the city than he does.
“When I ran for the state Senate, everybody said you have to kiss the ring of Dave Udall,” says Salmon, the former Mesa lawmaker who also worked as a lobbyist for Cactus on the Mesa contract. “He’s kind of an East Valley icon, if there are any left.”
Udall did not respond to more than a half-dozen requests for an interview from the Tribune. Those requests included phone calls and visits to his office.
Mesa politicians, both past and present, lobbyists and political consultants were interviewed by the Tribune about Udall’s behind-the-scenes pull in the city. No one could name anyone with more influence in city politics.
Udall is an Arizona native who joined former Tempe Mayor Dale Shumway in 1965 to found what is now the Mesa law firm of Udall, Shumway & Lyons, according to his company biography.
“His approach is to quietly and effectively work with elected officials and municipal staffs to get the job done,” Udall’s company biography states.
A Mesa city councilman from 1968 to 1976, Udall is a founder and past chairman of the East Valley Partnership, a powerful group of business and political leaders. He is also a past spokesman for the Mormon Church in Arizona.
He was a member of the “freeholders,” the group of Mesa residents who wrote the city’s original charter in the late 1960s. Since he left the council, Udall has frequented city offices as a zoning lawyer and lobbyist who clients turn to when they want the best chance of getting their projects approved.
Udall was named Mesa’s 2004 Man of the Year by the Citizen of the Year Committee, a group of prominent city residents sponsored in part by the Tribune.
Those long-standing connections in the community bring benefits to Udall and the clients he represents, says Pat Pomeroy, also a former Mesa councilman and one of the freeholders.
“I think they are tangible in terms of the fact that individuals figure he can get it done,” Pomeroy says. “There are a lot of people that have a lot of confidence in (him), and that brings a lot to the table.”
Stan Barnes, a former Mesa legislator who now runs a political consulting firm, says Udall has a reputation of being able to work behind the scenes as well as or better than anyone else in Mesa. That’s not a bad thing, and is part of the normal political process at all levels of government, Barnes says.
“Dave earns his living exercising influence at the Mesa City Council,” Barnes says. “So you can score it this way: Of those actively engaged in Mesa city politics, Dave Udall is as respected and influential as they get. There are many respected and influential people in Mesa that could do something similar. But they choose not to. It’s not their business.”
Udall made more than 40 visits to Mesa City Plaza during the period the Cactus contract was under review, according to city visitor logs. His most frequent contact was with then-City Manager Mike Hutchinson, with 19 visits ranging in length from one minute to three hours.
Hutchinson, who retired in December 2005, insists Udall had no special clout with him.
“That’s not the way we do business as a city,” he says.
Udall’s behind-the-scenes work on Cactus’ behalf led to accusations of collusion and bid-rigging from a disgruntled competitor who submitted a lower bid but did not get the contract. Those were the allegations investigated by the attorney general’s office.
Nancy Bonnell, antitrust chief for the attorney general, notified the Mesa city attorney last month that the investigation was closed. Though she did not conclude any laws were broken, Bonnell did recommend a series of changes in the city’s procurement practices to ensure all bidders are treated fairly in the future.
Also working behind the scenes on the Mesa contract for Cactus was Matt Salmon, who lobbied the Mesa council and state legislators on the company’s behalf. Salmon is a former congressman and state senator from Mesa who was the Republican gubernatorial nominee in 2002.
In 2005, Salmon teamed up with Udall to win passage of the controversial Riverview shopping center, which will receive $80 million in incentives from the city. More recently, Salmon was the point man for the Waveyard, a recreational water park in the same area of northwest Mesa that will get an additional $30 million in tax breaks.
Salmon is currently chairman of the mayoral campaign of developer Scott Smith. Earlier this week he announced he is leaving Arizona to accept an executive position with a telecommunications industry association in Washington, D.C.
Salmon downplays his work for Cactus as a small contract that lasted only a few months.
Salmon says he was hired by Watkins to lobby at the Capitol, and that Watkins asked him to help with the Mesa contract as an add-on in late 2004.
Udall and Salmon are an especially potent political team in Mesa, according to city insiders. Beyond Udall’s ties to powerful old-time Mesa families, Salmon carries particular clout with the new crop of East Valley politicians with hopes of running for partisan political office.
Salmon does not disagree with that assessment. But he says whatever influence he could have brought to the table in Mesa was minimized because he was brought into the process late.
Mesa had already published its request for bids when Salmon was asked to help with the city’s contract, Salmon says. Watkins wanted him to lobby council members and staff directly, but Salmon says he refused.
Bidding rules prohibit lobbying council or staff members when calls for bids are still open, he says.
“It was very frustrating to Lee because he kept pushing me,” Salmon says of his refusals to break the rules and lobby council members while the city’s request for bids was being circulated. “I think I have influence with them. But the timing on it was really bad. There’s just certain things you can and can’t do.
“I don’t think I did a good job of earning my keep with the city of Mesa.”
Salmon says he did discuss the Cactus proposal with Councilman Mike Whalen, and possibly Mayor Keno Hawker, after all the bids had been opened.
On paper at least, whatever influence Watkins had in Mesa seems to have come from Udall and Salmon. Campaign finance records do not indicate Watkins, his employees or lobbyists were major donors to city political campaigns.
Watkins and Todd DeMasseo, general manager of Cactus, have contributed $1,200 to the campaigns of Hawker and Mesa City Council candidates since 2002. Udall has given an additional $1,050.
There is no way to know how much Cactus executives raised for council candidates from other donors in Mesa because of a practice known as “bundling.”
Bundling occurs when a person raises large sums of money from individual donors, then delivers the checks directly to the candidate. It was banned by voters in the late 1980s, the theory being the practice magnifies the influence of the individual fundraiser. But subsequent changes in the law made the practice legal, as long as all of the individual donations are within the limits.
Bundling was one of the ways Watkins gained influence in Chandler, according to documents from the sheriff’s investigation.
Search warrants served by sheriff’s deputies on Cactus’ offices turned up copies of checks from dozens of individual donors to Chandler City Council candidates. The checks were found in DeMasseo’s files.
Those checks are a starting point in tracking Cactus’ financial clout with elected officials. Adding in donations from Cactus employees and their spouses, and lobbyists and lawyers who have been on the company’s payroll for the last five years, raises the total of Cactus-connected contributions for city and state elections to almost $63,000 since 2002.
Even that is a conservative estimate.
The Tribune’s tally of those donations indicates contributors close to Watkins gave about $11,000 to Salmon’s unsuccessful campaign for governor in 2002. Salmon told the Tribune that a fundraiser put on by Watkins at the Mesa Country Club actually raised closer to $30,000.
CHANDLER CAMPAIGN CASH
The checks in DeMasseo’s files indicate he and Watkins directly raised about $5,050 for Chandler Mayor Boyd Dunn and $4,540 for Councilman Lowell Huggins in the 2004 election cycle.
Cactus employees and their families directly donated about $2,300 to Dunn and $1,400 to Huggins between 2003 and 2005, according to campaign disclosure statements. Most of those contributions were for $350, the maximum allowed from individual donors.
Both Dunn and Huggins have consistently voted in favor of Cactus when towing issues came before the council. They supported Cactus when it won the Chandler contract in August 2006.
Handwritten notes in DeMasseo’s office seized by deputies indicate he personally delivered checks to Huggins about July 29, 2003.
There is no such notation indicating Cactus executives personally handed Dunn the money raised for his 2004 campaign.
The 2004 election was the last time Huggins ran. As mayor, Dunn is on a two-year term, and was re-elected in 2004 and 2006.
Huggins says the money raised by Watkins and DeMasseo had no influence on his vote to award the city’s towing contract to Cactus last year, even though staff was recommending a different company.
Huggins, a former Chandler police officer, says he has known the younger DeMasseo since he was a teenager growing up in Chandler. Both were among a group of weight lifters who frequently worked out together, Huggins says.
The critical factor in the 2006 vote was that Cactus had provided the city with excellent service under its old contract, Huggins says. As to the money raised by Watkins and DeMasseo, Huggins says he did not coordinate those efforts and does not know how much was raised.
“Todd helped me with my campaign, there’s no doubt about that,” Huggins says. “My decision was based on their service. Period.”
Dunn supported the motion to award the contract to Auto Citi Towing, the company recommended by city staff. After that motion failed, Dunn suggested awarding the contract to Cactus.
Like Huggins, Dunn says the fundraising by Watkins and DeMasseo had no impact on his vote.
“I always make it very clear that if you wish to contribute to my campaign, thank you very much,” Dunn says. “But I will vote the way that I think is proper for the city without any influence from any political contributions.”
While Dunn and Huggins insist Cactus’ fundraising had nothing to do with their votes supporting the company, former Chandler council member Donna Wallace is skeptical.
Wallace clashed with Watkins over reports of overcharges in 2006. She grew frustrated at Watkins’ cavalier attitude and apparent confidence that there would be no consequences if he did not follow the terms of the city’s contract, she says. Wallace was so concerned with the influence Cactus executives seemed to hold over fellow council members that she checked their campaign finance reports, and found the donations from Watkins and DeMasseo.
Those donations seemed to explain Watkins’ confidence that he did not have to follow the rules, Wallace says.
“When they know that they have council members who are going to be their supporters, and they know they have enough of them, they don’t have to,” says Wallace, who left the council in 2006. “The arrogance just blows my mind, and what that arrogance tells me is that they know they’ve got the votes.”
Another Chandler councilman who consistently voted in Cactus’ favor was Martin Sepulveda, a business associate of Cactus lobbyist and former Mayor Jim Patterson.
The Tribune was able to confirm two past business deals involving Patterson and Sepulveda through public records.
Sepulveda teamed up with Patterson in an investment group that made an unsuccessful bid on the San Marcos resort in downtown Chandler, which was sold in 2004 for $13.6 million.
In August 2005, they split a $72,000 commission for arranging the sale of 10 acres owned by the Phoenix Catholic Diocese near Queen Creek and Cooper roads, Patterson said in a deposition for his divorce two years ago. Since the Tribune inquired about the land deal last month, both Patterson and Sepulveda have denied they divided the commission. They have not explained why Patterson made the statement in his sworn testimony.
Neither Sepulveda nor Patterson would disclose any other investments they may have been involved in together.
When Sepulveda, a Navy reservist, was deployed to Iraq in 2005, he recommended Patterson be appointed to temporarily fill his council seat. The council split 3-3 on the issue, and the seat went unfilled until Sepulveda returned.
Sepulveda did not return phone calls from the Tribune seeking comment. When he was cornered before a recent council meeting, he refused to disclose details of his relationship with Patterson. He did acknowledge the deals the Tribune had confirmed through public records.
Patterson says he and Sepulveda are currently in discussions about a new investment, but would not provide details. Sepulveda would not even confirm that.
“If I am, and it’s a conflict of interest, I’ll declare that,” Sepulveda says.
Both Sepulveda and Patterson say their business relationship had no influence on Sepulveda when issues relating to Cactus came before the council.
“My decision was based on who I thought was most qualified, and that’s what I made my decision on,” Sepulveda says. “You ask me if Patterson had any undue influence, and I’m telling you no.”
Watkins’ influence extended beyond city contracts and into the Legislature. Rep. Russell Pearce, a longtime friend of Watkins, took up Cactus’ cause in 2005 by pressuring the Arizona Department of Public Safety to adopt a bidding system that would allow the company to retain its exclusive contract for tows on East Valley freeways.
Pearce sponsored a bill in 2005 to force DPS to use a bidding system it had scrapped three years earlier, which at the time was benefiting only Cactus. When that failed, Pearce met with DPS officials and sent at least one letter to its director insisting the agency return to its old way of awarding towing contracts.
Pearce’s son, Justin, was hired by Watkins as a tow truck driver after he pleaded guilty to a felony and was put on probation in 2000.
Russell Pearce is among the top recipients of Cactus-connected political contributions since 2002. He also acknowledged that he bought a car from Cactus — a Toyota sedan he drove for about five years that he described as “wrecked.”
Pearce says he paid what the car was worth. Watkins did not offer a discount on the vehicle, did not talk to the Mesa lawmaker about giving his son a job, or ask for any special treatment because of their long friendship, Pearce says.
“The nice thing about my relationship with Lee Watkins is he has never asked me to do anything except make sure that the laws are followed,” Pearce says. “He has never asked for any preferential treatment. Ever. Never.”
Pearce’s friendship with Watkins spans more than 20 years, since before Watkins started Cactus.
Cactus Towing was born out of political turmoil, according to a deposition Watkins gave last year in a civil case related to the Mesa towing contract.
Watkins was a central figure in the downfall of former Gov. Evan Mecham, who was removed from office through impeachment after little more than a year in office. Mecham was ousted in 1988 after being convicted in the Senate on two impeachment charges, including one that he covered up a death threat made by Watkins against Donna Carlson, another gubernatorial aide who was cooperating with a separate grand jury investigation of the governor.
Watkins made statements to other Mecham staff members that if Carlson did not keep her mouth shut, “she would be going on a long boat ride and may never come back.”
Watkins was never charged in that incident.
Because of the bad publicity that followed, Watkins had trouble finding work, he said in the deposition.
Watkins turned to influential friends in Mesa and persuaded them to invest in a small towing business. Among those early investors were a former FBI agent and a distant relative of state Sen. Jay Tibshraeny, a Republican and former Chandler mayor, according to Watkins’ deposition.
Cactus Towing started with two aging tow trucks. By the early 1990s Watkins bought out the other investors and started aggressively pursuing city towing contracts.
Even after the sheriff’s raid, Cactus continued to thrive. Four months after deputies served search warrants on Cactus, the company won two of the four towing zones in Mesa.
The Chandler City Council awarded Cactus what amounts to a five-year contract in August 2006.
Last year, Scottsdale awarded its towing contract to Cactus after the company offered to charge only a penny per tow. Gilbert uses a rotational system using different companies, including Cactus.
Tempe is the only major city in the East Valley that has an exclusive contract with a company not connected to Cactus. The Tempe contract is up for renewal this month.
The city staff recommended All City Towing, which bought Cactus last year, even though it did not turn in the lowest bid.
A Tribune 4-day series
TODAY: Cactus Towing used its clout to lock up contracts.
MONDAY: Mesa towing contract marred by accusations of bid rigging.
TUESDAY: Cactus Towing executives are used to getting their way in Chandler.
WEDNESDAY: Lawmaker goes the extra mile for Cactus Towing.