Shell’s Management Criticized : 4 Quit Legal Foundation Citing Business Tactics

Four officers of the Southern California Legal Foundation, including one of its founders, have resigned, citing “questionable business practices” of the pro-landlord organization.

But David Shell, director of the foundation, which has filed nearly 100 lawsuits against the Santa Monica Rent Control Board, said they quit because they disagreed with plans to expand into non-rent control areas.

“We disagreed with the way the foundation’s business affairs were being managed,” said James Baker, a former president of the Greater Los Angeles Apartment Assn. “Until November, the board was responsible for management. Since November, business management was effectively being handled by David.”

Declining Comment

“We basically were relieved to be out,” added K. B. Huff, one of the organization’s founders and a former board chairman. “Since Shell took over the budget . . . things haven’t been going too well.”

The resignations of directors Huff, Baker and real estate dealer Wesley Wellman followed the December departure of Karyn Jackson, Huff’s daughter and the foundation’s treasurer. The four have refused to publicly discuss the specifics of the disagreement. Three of them said, however, that they were concerned about the way the nonprofit foundation’s $140,000 annual budget was being managed.

Shell said he would not comment on foundation financial matters. But Pat Stitzenberger, the new treasurer, said that Shell has no independent authority over the budget.

“David has never been the person who manages the money,” Stitzenberger said. “Generally where the money is spent, it’s spent on operations . . . things like court fees. We don’t have parties. We’re not junketing. We’re not doing anything like that. Is the money being spent appropriately? Absolutely yes.”

Huff, Baker and Wellman left the board in late January, but news of their departure did not surface until last week.

People familiar with the board said the dispute began late last year, after the 38-year-old Shell lost a bitter campaign to unseat Assemblyman Tom Hayden (D-Santa Monica).

Money Running Short

Shell reportedly failed to seek full board approval before moving the foundation headquarters from a cramped apartment building garage to a fashionable Wilshire Boulevard storefront. Sources who asked not to be identified also said he allegedly made decisions about cases and committed foundation resources without consulting the group’s legal review board, as the bylaws require.

Both sides acknowledge that money was running short by December. Shell contends that donations fell off because the foundation’s fund-raisers were preoccupied with the November elections. But Huff maintains that the foundation’s “drastic” financial condition resulted from bad business practices.

Huff said that his daughter quit in December because the foundation was no longer being run in a “good, businesslike” manner.

“She had guided us financially and kept us out of problems ever since we started,” Huff said. “She was dissatisfied with the direction of the board. She’s a businesswomen.”

Jackson was traveling abroad and could not be reached for comment.

But Wellman agreed that Jackson and the former board members “had one opinion of how the business of the foundation should be run that was basically different than how the other directors felt the business should be run.”

The disagreement came to a head in late January, when Huff, Baker and Wellman presented a 10-point plan for restructuring the foundation. According to Huff, the majority of the nine-member board rejected the plan and “fired” the trio that suggested it. “David had the votes and eliminated us from the board,” Huff said. But Clo Hoover, a former Santa Monica mayor who became chairwoman after Huff’s departure, claimed that the three resigned voluntarily.

“They wanted to run things themselves,” Hoover said. “We asked them if they would be willing to stay on, and they said no.”

The departure of Huff, Baker and Wellman came as a surprise to people who had watched the Southern California Legal Foundation battle the city’s rent control board--sometimes successfully--for more than two years.

Huff and other property owners formed the foundation in 1982, hiring Shell away from Sacramento’s Pacific Legal Foundation, a conservative public-interest firm.

Filed Suits

Working out of a 21st Street garage owned by Huff, Shell filed a slew of lawsuits against Santa Monica’s Rent Control Board and ultimately won a handful of lower-court decisions (some were subsequently overturned) that reduced the board’s authority.

Apartment owners who had been frustrated by previous efforts to punch holes in Santa Monica’s stringent rent control law came to regard the confident and charismatic Shell as something of a white knight, and the foundation reportedly paid him $70,000 a year. And when the Republican attorney decided to challenge Hayden in last year’s elections, landlords were among his biggest backers.

After Shell’s defeat, some foundation supporters expected him to accept one of several offers to move into private practice. But Shell pledged to remain with the foundation, saying he hoped to broaden its scope by investigating agencies such as the state Coastal Commission, the Environmental Protection Agency and Caltrans. “We can’t just be a special-interest law firm,” Shell said. “Rent control is not the be-all and end-all of everything.”

“We felt that we should live up to the name Southern California Legal Foundation and not just devote everything to Santa Monica,” Hoover added. “We were stagnating . . . and we just felt it was time to move forward.”

Huff said he and the other former members of the board supported the expansion plans, but wanted to play a bigger role in deciding which issues the foundation would address. “He (Shell) got into a case involving student funds at Santa Monica College and another case involving election laws in Pomona,” Huff recalled. “And some of these things just don’t fit.”

Shell, however, said that, from its inception, the foundation was committed to fighting for a broad range of public-interest issues.

Going Forward

“Broadening our base to take on different issues is what we’re required to do,” Shell said. “We’ve made a decision to go forward and that’s the bottom line. It’s not politically motivated. It’s not motivated by anything except a desire to get into other issues.”

Shell said that the foundation would continue to pursue cases against the administration of Santa Monica’s rent control law, but conceded that rent control probably would receive less attention as the foundation expands.

With the departure of Huff, Baker and Wellman--three of Santa Monica’s most prominent apartment owners--some observers predict that landlord support will also decrease. Huff contends that the foundation receives nearly all of its funding from Santa Monica apartment owners, and that Wellman was responsible for most of the fund-raising. Wellman refused to comment.

Despite their disagreement with Shell, Wellman and Baker said they probably will continue to support the foundation as long as it opposes rent control. Huff said he was withdrawing all financial support.

Hoover confirmed that their withdrawal could hurt the foundation because apartment owners provide the “the majority of the funding.” But she contended that Shell is more important than any of the board members. “David Shell is the foundation,” Hoover said. “If he left I would be very concerned.”

Stitzenberger predicted that more people outside the apartment industry would become contributors once the foundation branches out.

Fund-Raisers Ahead

“Obviously the goals are to build our cushion,” Stitzenberger said. “Clearly I’d like to be in the position of raising $10,000 to $12,000 a month as a minimum. And we’ll have fund-raisers coming up.”

Stitzenberger said that the foundation also hopes to increase the size of its board of directors to encourage more statewide representation. Shell also said that he hoped to better represent statewide interests on the board. Downplaying the importance of Huff, Baker and Wellman’s departure, Shell said that all boards go through personnel changes.

“We regret that they decided they couldn’t remain, or they wouldn’t remain,” Shell said. “But the foundation is an entity unto itself, and the board will change over and over again. . . . People coming and going is basically irrelevant.”