SAN JUAN CAPISTRANO : Public Funds Misuse Alleged in Lawsuit

Critics of the City Council’s employment and financial transactions with top municipal executive Stephen B. Julian sued the city government and several of its officials Tuesday, alleging that some of the transactions misused public funds.

The lawsuit, filed on behalf of four individuals and a group called Committee to Restore Integrity in San Juan Capistrano, also alleges that the council has used “creative employment contracts” to pay its employees more than similarly situated workers in other cities.

“We want to find out if all these transactions were proper and legal,” said Carlos F. Negrete, a local attorney and one of the plaintiffs. “ . . . We want a full disclosure of all the facts.”

Negrete, 34, who filed the suit in Orange County Superior Court along with lawyer R.Q. Shupe, also of San Juan Capistrano, is seeking a court order that would prevent further municipal loans to city employees. The suit also requests that Julian be required to “disgorge” any possible “profits” he may have realized from his loan-related transactions with the city.

Julian and members of the council who served throughout the 1980s have said the transactions were entirely proper and straightforward. The county district attorney’s office last month declined to investigate, citing no evidence of any crime. Outside auditors and lawyers hired by the city are expected to report their findings within the month.

The suit filed Tuesday names as defendants Julian, Mayor Kenneth E. Friess and Councilmen Lawrence F. Buchheim and Gary L. Hausdorfer. Other defendants are city Administrative Services Director David P. Bentz, who has been on the job one year, and former councilmen Phillip R. Schwartze and Anthony L. Bland, who left office last November.

Hausdorfer, whom the suit accuses of voting on unspecified matters in which he had a financial conflict of interest, said Tuesday that he was not prepared to comment.

“I haven’t seen it (lawsuit) and I’d prefer not to comment on it,” Hausdorfer said.

Following a report by The Times, Hausdorfer about two months ago amended his personal income-disclosure statements for previous years to note his community-property share of income earned by his wife from the Costa Mesa-based Keith Cos., a prominent planning and architectural firm.

Hausdorfer has said that he did not disclose the income on his original statements because he believed, mistakenly, that state law did not compel him to do so. He said he was unaware that Keith was a participant in a city contract that he voted to approve last September and that he has tried to avoid any governmental decisions affecting the firm. The California Fair Political Practices Commission has opened a review of the matter.

Of the others named in Tuesday’s suit, Friess, Buchheim and Bentz said they had not yet seen the complaint. Julian, Schwartze and Bland could not be reached. Friess, a member of the council since 1976, said, “I’ve never heard of anything like this (lawsuit).” The mayor questioned the suit’s request for reimbursement of attorney’s fees and related expenses.

“It sounds like a pretty good self-employment program to me,” Friess said, noting that Negrete has not yet followed through on his earlier vow to launch a recall campaign against Friess and Hausdorfer.

For his part, Negrete said the recall would be delayed, pending a “judicial determination” of the lawsuit he filed on Tuesday.