Council Seeks 2 Firms to Review Loans to Julian : Inquiry: San Juan Capistrano council decides late at night to begin talks with legal and accounting firms to examine the city’s unusual deals with its top executive.

The City Council is trying to hire a San Francisco Bay Area law firm and a national accounting firm to examine City Manager Stephen B. Julian’s municipal loan transactions.

Although the matter was not on the council’s agenda, the members voted at the end of their public meeting late Tuesday night to begin contract negotiations with the two firms.

Both votes were 4-1, with newly elected Councilman Jeff Vasquez dissenting each time.

Vasquez said that he wants to hire another law firm, whose representative had suggested conducting personal interviews with various city officials in addition to analyzing documents, and that he disagrees with his colleagues’ decision to involve City Atty. John R. Shaw and other staff members in the hiring of the firms.

Julian said at the meeting that he, personally, would have no role in the talks on hiring the lawyers and the accounting firm.

Vasquez said: “I wanted this to be an independent review. I thought it was important not to have staff involved. I think that involvement could taint the process.”

The council is hiring the firms in response to a Jan. 6 report in The Times Orange County Edition detailing Julian’s transactions. Julian and three longtime members of the City Council have described those transactions as entirely proper.

The story reported in part that Julian had incurred loan debts with the city totaling $398,235, based on terms not typically available to the public. He still owes the city about $82,000--at no interest.

The story also disclosed that Julian did not repay three of his five loans within the time originally promised and that he has a clause in his employment contract that may free him from repaying “any” financial obligations to the city if he leaves his job for reasons other than “misconduct” or “misfeasance.”

Julian, making his first public comments on the matter, said Tuesday that he has nothing to fear from the outside audit and legal review.

“I have no qualms about having this matter being looked into,” Julian told council members. “I feel very confident that there will not be anything revealed that I would ever be embarrassed about. I will say that I think it’s very important that somebody who is doing this investigation be well qualified.”

The council voted to enter negotiations to hire the Palo Alto-based law firm of Whitmore, Kay & Stevens. City Atty. Shaw said he believes that the firm is well qualified because it specializes in labor law.

At the recommendation of Councilman Gary L. Hausdorfer, the council also voted to seek a contract with the accounting firm Deloitte & Touche.

Both Vasquez and Mayor Kenneth E. Friess said Wednesday that they remain concerned about the as-yet-unknown cost of the audit and legal review.

Vasquez also said he thinks that it would be best to hire a law firm with “experience in handling investigations in unfriendly circumstances,” instead of a firm that specializes in labor law.

The council’s late-night actions to hire the firms were criticized by local activists. “It’s a slap in the face to the citizens of San Juan Capistrano when they take this action during the last minutes of a meeting, after everyone’s gone home,” said Carlos F. Negrete, a lawyer who is vowing to lead a recall campaign against Friess and Hausdorfer.

“This is outrageous,” said Mark B. Clancey, president of a local preservationist group.

In an interview, Friess said he sees no need for council members or other city officials to be interviewed by the outside law firm, as had been suggested by the firm favored by Vasquez.

The only role for a law firm, Friess said, is to analyze the “consistency and the adequacy” of city documents related to the transactions.

Hausdorfer, commenting on an option presented by Councilman Gil Jones, said he would oppose the release to the public of the outside firms’ findings before the council has a chance to screen them.

“I’m not going to ever say that we’re going to, sight unseen, let some documents drift out. . . . I think the City Council, as the legislative body of the city, has the right to review those documents,” Hausdorfer said.

The arranging of the outside examinations of Julian’s transactions was to have been handled by Vasquez and Jones, another newly elected council member. But after Jones and Vasquez said Tuesday night that they had not yet agreed about which firm to hire, Hausdorfer said the time for delay is past.

“I’m confident that absolutely nothing was done that was wrong,” Hausdorfer said. “And I’m very anxious to have that opinion confirmed.”

Friess agreed, saying that the accountability for Julian’s financial transactions rests with the council, not with Julian: “It has nothing to do with Mr. Julian. . . . It has to do with the fact that we took actions that we were aware of, and conscious of, at the time we made them.”

Times staff writer Len Hall contributed to this report.