Mayor’s Debt May Not Pose a Conflict : State Panel Issues Opinion on the Money Cox Owes to Irvine Co.

A $110,000 debt owed the Irvine Co. by Newport Beach Mayor John C. Cox’s financially troubled advertising firm may not pose a conflict of interest for Cox, even if it is never paid back, according to the state’s Fair Political Practices Commission.

The debt, which Cox and Burch Advertising Co. accumulated in unpaid rent while a tenant at the Irvine Co.’s Newport Center complex, is one of several the firm had when it filed for protection under Chapter 11 of federal bankruptcy laws last July.

Earlier this year, Newport Beach City Atty. Robert Burnham asked the state commission for an opinion on whether Cox should be disqualified from voting on Irvine Co. projects if he repays only part of the debt, as typically happens in bankruptcy proceedings. State law defines a forgiven debt as income, and council members cannot participate in decisions that could materially affect sources of income from which they have received $250 or more.

But commission counsel Robert Leidigh said in a six-page letter to Burnham last week that debts discharged in bankruptcy proceedings under a court-approved plan do not constitute forgiveness of debt and are not considered income as long as they are treated no differently than other creditors’ claims.

“However,” Leidigh added in the letter, “if one of the creditors negotiates separately from the debtor and agrees to a more favorable arrangement with the debtor, this may well give rise to the type of situation which the (1974 Political Reform Act) seeks to govern.”

Opinion Was General

Leidigh’s opinion was general in nature and did not deal with whether there have been any such negotiations or agreements between the Irvine Co. and Cox constituting a conflict-of-interest that would disqualify him from voting on company development projects that come before the Newport Beach City Council. Cox previously has voted for Irvine Co. projects, including the proposed $300-million expansion of Newport Center, which was later rejected in a citywide vote.

Leidigh told Burnham to contact the commission for further advice “should the (conflict-of-interest) circumstances occur.”

Laura A. Myers, an attorney representing Cox and Burch, said the company’s bankruptcy proceeding is still pending and that she did not expect a repayment plan to be worked out in the next few months.

The Irvine Co. has filed a proof of claim for the debt, as have other creditors, and has not tried to negotiate an individual settlement with Cox, Myers said.

Cox and Burch left the Newport Center complex, where it was paying $22,000 a month for 10,000 square feet of office space, last September and moved to less expensive offices in Laguna Hills.