Restaurateur Files Claim Against City for Losses : Development: Michael McCarty’s plan for a beachfront complex was rejected by voters. The project had been backed by many city officials in its early stages.

Restaurateur Michael McCarty, who lost a bid to build a Santa Monica beachfront luxury hotel and community center in a bitter election last fall, has filed a claim against the city to recoup millions he spent on the project and for unspecified profits he expected to make from it.

City Atty. Robert M. Myers, calling the claim absurd, said he intends to reject it.

“(It) would be a gift of public funds,” Myers said. “The whole theory is preposterous.”

A claim must be filed against the city before a lawsuit can be filed. The city attorney has 45 days to respond to the claim. If the claim is denied, McCarty then would have up to six months to file suit against the city.

McCarty was out of town and could not be reached for comment. McCarty’s attorney, Howard Miller, also could not be reached.

The project had been warmly embraced by many city officials in its early planning stages. Last year, however, some leaders of the city’s burgeoning slow-growth movement portrayed the plan as a symbol of overdevelopment, and it became a hot potato for the City Council.

After a rancorous debate and a series of public hearings, the council approved the project on a 4-3 vote, but decided to place the matter on the ballot after some residents threatened to launch a referendum to overturn the council’s approval.

In his claim, attorney Miller argues that by placing final approval of the project on the Nov. 6 city ballot, city officials violated their development agreement with McCarty, because in effect they worked to repeal the agreement rather than implement it.

Miller also contends that the project was consistent with the state’s and the city’s objectives for use of the land and with the city’s General Plan for the site, a five-acre parcel of state-owned beach managed by the city. Until last year, it was leased to the private Sand and Sea Club.

“The failure to cooperate, termination and repudiation of the agreement and interference with contract and with prospective economic advantage were unlawful and in breach of the obligation of the city,” the claim asserts.

But Myers said there was no breach because McCarty had accepted the City Council’s decision to put the project to a public vote.

The City Council also agreed to word the ballot measure the way McCarty and his attorney preferred, Myers added. The city attorney had sought to ask voters on the ballot measure if the hotel should be approved, whereas McCarty’s attorneys said the measure should ask whether the council’s approval of the hotel should be “repealed.”

With the negative wording of the ballot measure, opponents of the hotel were required to vote yes and supporters to vote no . Opponents of the hotel said the wording was designed to confuse voters, but McCarty’s lawyers said it was needed to protect McCarty’s “vested right” to build the project in case another ballot measure that sought to ban all new hotels on the beach passed.

Voters ended up repealing the approval of McCarty’s project and supporting the broad beach-hotel ban.

Myers said filing suit against the city would be a losing cause for McCarty.

“It would not be in his best interest to do so because he would lose, and he would have to pay legal fees to the city,” Myers said.

McCarty’s proposal called for a 160-room luxury hotel. City officials had sought proposals to develop the property as a way to increase both state and local revenues, and they selected McCarty’s project because it also offered a community center and guaranteed the city at least $1 million a year for beach maintenance.

McCarty has said that he spent about $3 million on the project, and at least $350,000 more trying to defeat the ballot measure.

The city evicted the Sand and Sea Club last September, and has since been rehabilitating the facility to reopen as a public beach club. The city has already reopened the restaurant on the site with a private operator, and it rents out to the public the paddle tennis courts there.