Fleishman-Hillard Faces Fallout From L.A. Lawsuit

The billing scandal embroiling Fleishman-Hillard’s Los Angeles office is unprecedented, according to industry executives. But they predicted that long-term damage to the PR agency should be minimal, unless the controversy expands to other FH clients.

Los Angeles city attorney Rocky Delgadillo filed a lawsuit last week alleging that the Omnicom Group agency submitted false invoices while billing the L.A. Department of Water and Power in excess of $20 million from May 1999 to 2004. The suit came days after L.A. district attorney Steve Cooley said he would investigate following a July 15 story in the Los Angeles Times in which several former FH employees said the firm “routinely overbilled” on the $3 million-a-year PR contract [Adweek, July 19]. FH resigned the account in May.

“In the long run, they’ll be fine, [but] it could be a long moment,” said Jerry Swerling, director of PR studies at the University of Southern California in L.A. and an industry consultant, who said he has not seen a billing scandal on this scale before in PR. “That said, we have a mayoral election coming up, and Rocky Delgadillo is probably going to be a candidate. … This issue is now going to be part of the political mix, and that could give it legs.”

Robbie Vorhaus, a consultant who ran New York PR shop Vorhaus & Co. for 15 years, said Fleishman is likely to weather the storm “because their roots are so long and deep.”

The Public Relations Society of America in New York weighed in last week with an e-mail to its 19,500 members that read, in part, “The practice of claiming compensation or credit for work that was never performed is unethical and weakens the public’s trust in the public relations profession and individual practitioners.”

Between an agency and client, “there should be ongoing conversations about the work that’s being done and compensation for that work. … There should never be a surprise,” said David Rickey, svp of PR at AmSouth Bank in Birmingham, Ala., and chairman of the PRSA’s ethics board, who authored the note.

A rep from the the Council of Public Relations Firms declined comment. The council has close to 100 member firms, including FH, Omnicom’s Porter Novelli and Ketchum, Publicis’ Manning, Selvage & Lee and independent Edelman. Several of the largest PR shops, including those with major public-sector business, also declined comment.

The suit, filed July 16 in Los Angeles Superior Court, alleges five counts of overbilling, misrepresentation and fraud by FH. The suit seeks to recoup all funds allegedly overbilled to the DWP. It also seeks up to $10,000 in punitive damages for each false claim, according to court papers. The suit alleges that FH’s actions were “willful, wanton, malicious and oppressive and were undertaken with the intent to defraud ratepayers.”

At press time, FH had not received the suit, said a rep at Delgadillo’s office.

Doug Dowie, the former manager of Fleishman’s L.A. office who was accused by ex-staffers in the Times story of encouraging employees to falsify invoices, was put on paid leave last week. “With all of the examination and investigation going on, it’s best that he be on administrative leave as we move forward,” said Richard Kline, GM and senior partner at FH L.A.

Kline has hired an independent contractor to conduct a “thorough review of our billing practices” from the past several years. If mistakes are found, FH plans to reimburse the clients and terminate any staffers found to be responsible for overbilling, said Kline.

The office’s roster also includes Mitsubishi and East Los Angeles Community College.

Ironically, FH’s Washington, D.C., office is the incumbent and a finalist in the Office of National Drug Control Policy’s PR review. The New York office of WPP Group’s Ogilvy & Mather faced overbilling charges on the ONDCP account and paid $1.8 million to settle civil claims, while current and former execs are battling criminal charges. (ONDCP’s $130 million ad account is also in review.)

“Our D.C. office has kept ONDCP fully informed” about the L.A. situation, said Kline. “ONDCP has done regular, surprise audits of our D.C. operations and billings, and there have been no issues.”