Judge Mark Forcum issued his ruling on Sept. 10 during a restitution hearing in San Mateo County Superior Court. Mr. Hanretty last year pleaded guilty to charges of filing fraudulent papers to take out a loan of $2.6 million for construction work on the Woodside School campus, although the school board had authorized a loan of only $632,000.
Mr. Hanretty's attorney, Michael Markowitz, said he is likely to file papers soon to allow his client to appeal the ruling. He also will request that the court appoint an attorney to defend the appeal because Mr. Hanretty is unlikely to have the funds to pay for the legal challenge.
Serving his sentence at High Desert State Prison in Susanville, Mr. Hanretty is likely to be released by the end of the year, Mr. Markowitz said.
The court had ordered Mr. Hanretty last October to reimburse the Portola Valley School District for the nearly $101,000 he embezzled from it when he served as superintendent from summer 2010 to early 2012, plus associated costs of investigating the theft, for a total of nearly $182,000. So far, he has repaid almost $121,000, according to Karen Lucian, the district's administrative coordinator.
But Mr. Hanretty's crimes involving the Woodside district weren't so cut and dried. He had served as financial officer for that district before becoming superintendent in Portola Valley, and oversaw the financing of construction projects. After the district launched an investigation in late 2011 into the unexpectedly high debt it was carrying, Mr. Hanretty was charged with three felony counts that included misappropriation of public funds.
The investigation determined that the additional funds obtained by the unauthorized loan were spent on other school projects.
Mr. Hanretty was later arrested and charged with additional crimes, including embezzlement related to his work in Portola Valley schools. After fighting the charges, he ultimately pleaded guilty to fraud, embezzlement and related charges.
Although he agreed to pay restitution to the Portola Valley district, he and his attorney, Michael Markowitz, argued that the Woodside district had benefited from all the loan proceeds, and fought the district's attempt for restitution based on the unauthorized debt that it was saddled with.
According to District Attorney Steve Wagstaffe's report on the ruling, the court calculated the restitution total on the following: $1.968 million, which is the difference in principal on the actual loan amount and the amount that was authorized; $856,553, which accounts for the difference in the interest rate on a loan for the authorized $632,000 and a loan for $2.6 million, after the school district's attorney "renegotiated the interest to reduce it by $700,000"; $76,220 in attorney fees; and $35,788 in forensic audit fees.
That total — nearly $2.937 million — was reduced to reflect the $20,000 Mr. Hanretty has already paid toward restitution and the $250,000 from insurance payments.
Deputy District Attorney Kimberly Perrotti, who prosecuted the case, maintained that the school district could not be "made whole" unless Mr. Hanretty paid the interest debt resulting from his fraud. The district last year had asked for about $3.63 million, but since then the renegotiation of the loan and other factors lowered that amount, she said, making the judge's $2.67 million ruling acceptable
The restitution hearing was originally scheduled over three days, but Judge Forcum made his ruling within only a few hours. That's because the legal argument made by Mr. Hanretty's attorney for a lower amount of restitution was fairly quickly rejected, Ms. Perrotti and Mr. Markowitz said.
Mr. Markowitz used a legal premise often used in civil lawsuits known as comparative negligence, or comparative fault, whereby damages awarded to a victim would be reduced if it was shown that the victim's own negligence played a role in his or her losses.
In the Hanretty case, school district board members neglected their fiduciary duties by not paying close enough attention to Mr. Hanretty's handling of the loan, Mr. Markowitz said. "They knew, or should have known, that more than what they authorized was borrowed," he said.
He noted that Mr. Hanretty admitted the fraud, but the money was used to benefit the district. "He gained nothing financially from it. Why should he reimburse the district for what he didn't take?"
Mr. Markowitz acknowledged that there might be no precedent for using the comparative negligence argument in a criminal case, but had hoped to convince the judge that it could be properly applied in the Hanretty case.
"In all fairness, Judge Forcum ruled that (the comparative fault) argument didn't apply to fraud cases, but I disagree," Mr. Markowitz said, adding that he believes an appeal of the decision is worth pursuing.