Land-use disputes can put cities on shaky financial ground

Mammoth Lakes hardly fits the profile of other cities that have recently plunged into bankruptcy.

It was not pensions or plummeting property values or questionable accounting practices that pushed the tiny mountain resort town over the edge: It was a $43-million court judgment in a lawsuit brought by a developer after the town tried to back out of an agreement.

The town finally reached a tentative settlement agreement in the case last month, but not before filing for Chapter 9 bankruptcy protection.

The Mammoth Lakes case is extreme — a large judgment in a tiny town without the money to cover it. But hefty legal costs from land battles are a widespread problem in cities across California.

Peacocks, radio antennas, strip clubs and landslides have all sparked high-profile cases, as well as the more common suits — such as the one in Mammoth Lakes — by developers who were denied approval for a project or neighbors and environmentalists trying to stall big-box stores or large residential projects on sensitive land.

These cases often drag on for years, sometimes consuming millions of dollars in legal bills even before the issues are resolved. A Times review found that in several Los Angeles County cities, land-use litigation amounted to the lion’s share of their legal bills.

And although multimillion-dollar judgments are not the norm, Mammoth Lakes is not the only place that has been pushed into bankruptcy or other dire measures by a bad court outcome. Desert Hot Springs, a resort city near Palm Springs, filed for bankruptcy in 2001 after losing a lawsuit over a proposed mobile home park. Half Moon Bay contracted out its police and recreation departments last year in part as a result of an $18-million settlement the city had to pay in a suit over land that the city had accidentally turned into a protected wetlands by flooding it.

Part of the reason both sides are willing to spend so much fighting the cases is that the stakes can be high if they lose.

Hermosa Beach could have faced the same fate as Mammoth Lakes. The beach city spent 14 years fighting a lawsuit brought by an oil company over a canceled drilling lease. The company was seeking more than $700 million in damages, which city officials said might have bankrupted the city if it was forced to pay. In the last few years, legal fees for the case ranged from $500,000 to $1 million annually.

The case was finally settled in the spring, with the city agreeing to put a measure before voters asking approval for the drilling to go forward. The city will pay a maximum of $17.5 million if the measure fails.

“That could have been us,” Hermosa Beach Councilman Kit Bobko said of Mammoth Lakes.

But even when the stakes are not as high, cases can drag on for years because of the complexity of the issues involved.

That was what occurred in Signal Hill, a former oil boom town of 11,000 that spent more of its total budget on legal costs than any other city in Los Angeles County on average between 2005 and 2010, according to a Times analysis.

During that period, Signal Hill’s redevelopment agency filed more than 40 separate eminent domain cases in pursuit of 25 acres of former oil fields that officials were hoping to clean up and develop.

A group of property owners who said the city was low-balling them banded together to fight for a higher price. The city spent about $2.4 million in three years on legal costs relating to the cases.

Christopher Sutton, an attorney who represented the property owners, argued that the city’s lawyers needlessly drove up bills by filing so many separate cases, but city officials said the costs were high because of complicated land-use issues in Signal Hill. The city is peppered with hundreds of active oil wells and thousands of abandoned wells, and because of the rush of oil speculators who lined up to buy interests in the land in the 1920s, determining who owns a property can be difficult. The four-acre parcel where the city chose to build its new police station, for instance, had about 7,000 owners.

City Manager Ken Farfsing said he thought the city got a good value for its investment in legal fees, ultimately acquiring the land for an average of $13 per square foot, although the state’s elimination of redevelopment may now substantially delay the developments the city had hoped for.

Rancho Palos Verdes, however, may win the prize for the highest volume of land-use cases and the most bizarre.

The well-heeled coastal city incorporated in 1973 after a group of residents objected to a county master plan that would have allowed greater housing density than they wanted. Since the city’s “birth by litigation,” city attorney Carol Lynch said, “it’s really been one lawsuit after another.”

There have been fights with Donald Trump over land-use approvals and ficus trees on the mogul’s golf course, a dispute that went to the U.S. Supreme Court over a radio antenna on a resident’s house, battles over one of the state’s first “view protection” ordinances and fights with homeowners living on an active landslide.

The latest of those involves a house owned by resident Andrea Joannou. In 2005, Joannou bought a dilapidated home on a hillside south of scenic Palos Verdes Drive South, across the road from the gated Portuguese Bend community where she lives.

Despite its shoddy condition, the hillside house had a “to die for” 180-degree view of the Pacific Ocean, and Joannou said she hoped to fix it up and use it as a vacation home or let a relative live there.

But she soon found she couldn’t fix it. Although Joannou bought the house, because of the landslide, the property belongs to Rancho Palos Verdes, or so the city says. The city said that over the course of decades, the slow-moving Portuguese Bend Landslide moved the house off its original lot onto land owned by the city’s redevelopment agency, a fact that Joannou said she was unaware of when she bought the house.

The city says the house belongs on a lot across the street from its current location, where it was before the landslide began in 1956. That lot is behind someone else’s house and has no ocean view.

The dispute has threatened a long-standing gentleman’s agreement among neighbors in the Portuguese Bend community, who had operated on the assumption that their property lines move with the landslide instead of remaining in their pre-slide locations — a belief that the city does not always share.

Joannou — joined by a real estate company that had bought the similarly situated house next door — sued the city and everyone else with a possible interest in the land in an attempt to get the neighborhood’s property lines redrawn in the houses’ current locations. She lost, but has appealed the decision.

In Mammoth Lakes, the issue at stake was less remarkable.

The town had agreed in 1997 to allow a developer to build a hotel and condominium at the municipal airport in exchange for the developer making some improvements to the airport. After the Federal Aviation Administration raised objections to the residential development and threatened to pull grant funding, the city balked at allowing the project to go forward and the developer sued.

The town’s contract attorney, Andy Morris, blamed developers’ strong-arm tactics for the high costs of land-use battles.

But some residents lay the blame at the feet of the town’s leadership.

“My opinion is that they got involved in something that they really didn’t understand, and the consequences of their actions, in my mind, really bankrupted the city,” said Ray Doblick, 55, a local real estate agent.

abby.sewell@latimes.com

jessica.garrison@latimes.com