Former San Diego Councilman Fined : Slumlord Ordered to Pay $1.83 Million to Tenants

A millionaire slum landlord accused of allowing his mid-Wilshire area apartment building to become overrun with rats, cockroaches, sewage and street gangs was ordered by a Superior Court jury Friday to pay $1.83 million to his former tenants.

The jury’s judgment against landlord Michael Schaefer, coming in an unusual class-action suit, is by far the largest in a tenant-landlord dispute in California, lawyers on both sides said. Schaefer’s attorney predicted that the judgment “will create a tremor all the way through the real estate industry.”

After ordering an award of $231,000 for breach of contract, personal injury and emotional distress on Thursday, the jury on Friday morning voted 10 to 2 to add $1.6 million in punitive damages against Schaefer, a former San Diego city councilman with a long history of landlord violations. The two dissenting jurors later explained that they were in favor of punitive damages of at least $2 million.

The case focused on a 64-unit apartment building at 757 S. Berendo St. that Schaefer owned for eight months in 1981. Several tenants testified that the building was so unkempt that rats, mice and cockroaches crawled over them while they slept.

Even though the building deteriorated into a filthy and dangerous state during those months, plaintiffs’ lawyer James P. Clark argued, Schaefer still managed to turn more than $1 million in profit through financial leveraging and speculation on the property.

“That’s why people are slumlords. Because it’s profitable. It’s very profitable,” Clark told the jury in closing arguments. “If we don’t take the profits away, will we ever stop them?”

Schaefer, who now lives in Baltimore and operates a small hotel there, said the judgment may force him into bankruptcy. Asked on Friday if he feels any shame or guilt, Schaefer said he “felt a sense of regret” and “embarrassment . . . for the discomfort of the families who lived there.”

His attorney, Floyd Morrow, said he will ask for a new trial and predicted that the court will greatly reduce the size of the award, claiming that Clark exaggerated the size of Schaefer’s profits and net worth. Schaefer asserts a net worth of $1.2 million, but Clark contends $4 million is a more accurate figure because he recently placed $3 million worth of property in his children’s names.

“Egads!” Dan Faller, president of the Los Angeles-based Apartment Owners Assn., exclaimed when told of the judgment. “I have never heard of anything as ridiculous as this, having punitive damages of $1.6 million. . . . Where is the responsibility on the renter?”

Detects a Bias

The award, Faller charged, reflects the courts’ bias against landlords that was also evident last summer when landlord Dr. Milton Avol was sentenced for repeated health and safety violations to live for 30 days under house arrest in a building he owns.

Schaefer, who had been a deputy city attorney in San Diego before becoming a councilman in the late 1960s and early ‘70s, already had a reputation as a slumlord when he acquired the Berendo Street building in January, 1981. In 1979, he was threatened with jail because of code violations on his San Diego apartment buildings.

Problems at the Berendo Street property quickly escalated after Schaefer took ownership, tenants testified. The absentee landlord provided inadequate management and security, they said, for the six-story building, which housed between 150 and 200 people while Schaefer owned it.

Tenants testified that garbage piled up in hallways, fire escapes and stairwells. Plumbing breakdowns caused ceilings and floors to cave in and sewage to flow through a ground-floor corridor. The building lacked hot water for two weeks.

Danger From Hoodlums

Hoodlums were able to terrorize law-abiding tenants because Schaefer failed to provide adequate security, they said. Two murders occurred near the property during the period.

Retired fire inspector William Wakeland described the conditions as “worse that any I have seen in an inhabited building in all of my 23-year career with the Fire Department.” In an unprecedented move, Wakeland ordered arson investigators on the premises round-the-clock and billed Schaefer for the cost.

But Schaefer refused to pay such fines. In testimony and later interviews, he blamed the building’s troubles on street hoodlums and problem tenants.

Schaefer claimed that it was impossible to establish security without closing the building temporarily, but that he was unable to do so under the law. He stopped paying utility bills in hopes that the building would be shut down, but the court ordered him to pay the bills.

Jail Sentence

With authorities on his heels, Schaefer sold the Berendo building and bought another at 1621 S. Grand Ave. His failure to make repairs at that site later culminated in a 10-day jail sentence in October, 1982. The judge in that case said Schaefer’s behavior “shows (his) total lack of respect for society’s concern with the human condition.”

Some of the $1.83-million judgment represents specific awards for emotional distress to individual families in the case, such as $39,900 to Marjie Gallego and her three children. The class-action judgment--which includes the $1.6 million in punitive damages and a 75% rent rebate ordered by the jury--are to be divided among the tenants. More than 30 of the tenants have been located so far, and some of the money is expected to be spent in searching out the others.

“It was terrible, just unbelievable,” said Gallego. “The roaches were so ungodly big they looked like mice. My daughters were terrified by them.”

Schaefer was ordered by fire inspectors to put armed security guards in the building. He refused, and two weeks later, three hoodlums entered the building’s lobby and approached Gallego’s 15-year-old son, Eddie.

“They asked him where he was from. He said, ‘No place,’ ” she said. Eddie was assaulted and shot with a sawed-off shotgun. “He almost lost his arm,” his mother recalled.

The Berendo tenants were represented pro bono (without fee) by Gibson, Dunn & Crutcher, Los Angeles’ largest law firm.

Schaefer’s attorney, Morrow, served both in the San Diego city attorney’s office and later on the City Council with Schaefer. Morrow is a Democrat and Schaefer is a Republican. Morrow placed third in the recent primary for San Diego mayor.

Morrow disputed the suggestions that Schaefer made $1 million on the Berendo Street property. He said it was in fact “a fiasco financially for Schaefer.”

Schaefer ran several times for office in San Diego and most recently challenged City Atty. John Witt in a bitter, mud-slinging campaign in 1985. Witt easily won reelection.

Schaefer now operates the William Donald Schaefer Hotel, a 35-room inn in a historic district in Baltimore. The hotel was renamed for Baltimore’s popular mayor, who is no relation to Michael Schaefer.

Schaefer also is an attorney for the National Center for Drunk Driving Control, a lobbying group for more stringent drunk-driving laws. Schaefer said that he made a judgment error by believing he could maintain a property so far from his San Diego residence at the time. He said he regretted that he did not hire security guards earlier.