The state has agreed to pay $750,000 to settle a 2005 lawsuit that details allegations of rampant sexual and racial harassment within a Sacramento investigative unit of the Medical Board of California.

The lawsuit alleges that two former members of the unit faced harassment and retaliation at the workplace in part because of concerns they raised about the behavior of a supervising investigator in the department.

Plaintiffs Elizabeth Schlie and Tony Tobin, who were involved in a consensual relationship and living together at the time, worked for the board's Sacramento Probation Unit, which ensures physicians and surgeons facing disciplinary action fulfill the requirements of their probation.

Court documents describe allegations of a workplace replete with sexual activity and harassment:

• Schlie and Tobin said they were told that a staff analyst and a supervising investigator in the unit, David Thornton, had sex after hours in Schlie's office and on her desk.

• They also alleged that supervising investigator Jerry Smith made derogatory and racist comments to other employees, including saying he thought Thornton had "gray pubic hairs" and referring to an African American supervisor as "Aunt Jemima."

• The documents allege that Smith viewed pornography on his office computer. They say that in a previous investigator's job at the Department of Consumer Affairs, he admitted to anonymously sending emails containing explicit materials and bragged about sending messages to colleagues purporting to be from other employees and Gov. Gray Davis.

The lawsuit says that Thornton and others did not address complaints about Smith's behavior and that Schlie and Tobin were reassigned within the department, denied requests for transfers and promotions and "named as subjects in a sham 'Internal Affairs' investigation opened specifically to silence them and to prevent their testimony in a pending civil action by a fellow investigator."

The Department of Consumer Affairs, which also oversees the medical board, and several department officials were also named in the lawsuit because of their role in the investigation.

The settlement agreement was reached last summer and did not require legislative approval.

When contacted about the lawsuit, Thornton, who is now retired, said he "absolutely disagrees that the case was settled" because "most of it was made up."

"First of all, the sex on a desk never happened … Somebody made up some kind of wild allegation on that. It didn't happen; it never happened," he said.

He said the decision to deny Tobin's promotion request had nothing to do with the allegations in the complaint.

Smith declined to comment on the lawsuit, saying "I'm not interested."

The settlement agreement states that it is not an admission of blame or wrongdoing on the part of defendants. As part of the agreement, the state agencies agreed to purge the documents related to the investigation conducted in the early 2000s and a background check completed as part of Tobin's promotion request.

An attorney for Schlie and Tobin said both have since left the agency. The attorney, Gary Gorski, declined to comment further on the settlement.

A spokeswoman for the Medical Board declined to comment on the lawsuit or the settlement, except to confirm that both Thornton and Smith are no longer employed by the board.

Thornton, who became executive director of the Medical Board before retiring in 2007, went on to serve as interim executive director at the state Athletic Commission, which is also overseen by the Department of Consumer Affairs. The Department of Consumer Affairs confirmed that Smith currently works for the Contractors State License Board, another agency run by the department.

Editor's Note: The story has been corrected from print and online versions to state that legislative approval of the settlement was not required. Corrected 12:43 p.m., July 18, 2011.

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