LODI, Calif. — This civic-minded grape town takes pride in its frugal ways. Old-fashioned penny pinching and strict growth controls paved the way for modest luxuries: Water rates held for years at $10 a month -- and politicians who proposed a spike did so at their peril.
It was that reluctance to spend money -- and a dose of small-town naivete -- that made "Lovable, Livable Lodi" an easy mark.
For 15 years, Lodi has struggled with a serious groundwater pollution problem. Five years ago, Michael C. Donovan, an innovative Bay Area lawyer, and Lehman Brothers, one of Wall Street's largest firms, sold Lodi officials on a complicated plan to solve it.
The plan went like this: The city would borrow $16 million from Lehman at 25% interest to finance a barrage of lawsuits. Donovan and his firm would pursue the suits, billing at rates of up to $425 an hour. Courts would shift all the costs to insurance companies. In the end, Lodi would clean up the problem without having to pay for it.
Today, the strategy is a shambles, picked apart by state and federal courts and condemned by a federal judge as "environmental litigation for profit."
Donovan has been fired, along with the Lodi city attorney who pushed the plan. Lodi has sued Lehman, alleging the deal was illegal. Lehman has countersued to collect its debt -- roughly $25 million to date, city officials say -- pitting some of the country's biggest law firms against a city that once made national news for banning silly string from its downtown parade.
Lodi's financial future is in question. Interest is accumulating at $325,000 a month. The pollution has spread. And criminal investigations are underway.
"Boy, were we duped," said City Councilwoman Susan Hitchcock, who was derided by colleagues and threatened with censure when she was the only city official to oppose the plan. "The more I learn, the more I realize it was about greed. There is no free lunch, and everyone knows that."
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Lodi, a city of roughly 59,000, lies east of the Sacramento-San Joaquin River Delta, 35 miles south of the capital. Ringed by wineries, the town, settled by German farmers, calls itself the Grape American Dream.
Its troubles began in 1989, when the Central Valley Regional Water Quality Control Board discovered hazardous solvents in two downtown wells.
