Hollywood’s Chamber Sued for $700,000 : Courts: The amount triples a settlement proposed earlier. The state attorney general’s office says money for the upkeep of the landmark sign and the Walk of Fame was misappropriated.

The state attorney general’s office on Monday filed a lawsuit against the Hollywood Chamber of Commerce, seeking to recover as much as $700,000 in allegedly misappropriated money that was to have been set aside for upkeep of the famous Hollywood sign and Walk of Fame.

The amount of money sought in the civil suit, filed in Los Angeles Superior Court, is more than three times that of a tentative settlement negotiated in June between the attorney general’s office and the chamber’s lawyer.

The Times last month disclosed that politically well-connected chamber leaders rejected that tentative settlement, instead meeting privately with Atty. Gen. Dan Lungren in Sacramento in an effort to obtain a more lenient deal.

State Justice Department officials declined Monday to discuss why they are now seeking so much more than in the original proposed settlement.

Deputy Atty. Gen. James R. Schwartz, who filed the suit, indicated that whatever the chamber can prove was spent on upkeep of the two landmarks may be subtracted from the final settlement. In the meantime, he said, “we’re going to litigate the case.” Chamber officials, he added, “can demonstrate their proofs in court.”

The state alleges that the chamber owes $98,000 in interest on improper loans, $191,000 in user fees paid by movie companies and other firms that filmed the sign and walkway for commercial purposes, $27,000 donated by the Fox television network for sign upkeep, and about $400,000 in royalties paid by advertisers and souvenir makers. Instead of placing the money in trust for maintenance of the sign and star-studded walkway, the suit contends, the chamber illegally and fraudulently diverted the money to its own general accounts.

Chamber officials would not comment on the suit, referring calls to the law firm Gibson, Dunn & Crutcher, which they retained several weeks ago after the sudden resignation of the lawyer who brokered the tentative settlement. “It is appropriate for us to do a complete review of this whole situation before we respond,” said Daniel M. Kolkey, a lawyer with the firm.

Edward M. Cohan, a Hollywood resident, attorney and member of the city’s Hollywood Sign Advisory Committee, said he believes that the newspaper articles--and a related complaint letter from Mayor Tom Bradley and City Council President John Ferraro--prompted the attorney general to file the suit, after two years of calls for action by homeowners went unheeded.

Details of Lungren’s meeting with chamber officials, when made public, seemed “like the old type of Chicago politics,” Cohan said. “I think the attorney general had to realize at that point that . . . he had to put aside his political friends and go forward.”

On Monday, city officials said the lawsuit may finally allow the city to take control of the sign and allow a nonprofit agency to administer the Walk of Fame. Both Hollywood landmarks are on public property.

“I would say (Lungren) is fed up with the insinuation that there was hanky-panky and back-room deals going on, and is making an aggressive attack,” said Linda Barth, a city Recreation and Parks Department management analyst active in the negotiations.

The tentative settlement reached in June after two years of audits and investigation was negotiated by Deputy Atty. Gen. Patricia Barbosa and chamber lawyer Marshall Caskey.

The settlement called for the chamber to pay about $220,000 in restitution. The state alleged that the chamber improperly borrowed more than $50,000 set aside for upkeep of the two landmarks. It also alleged that the chamber had diverted for its own use another $595,000 in royalty money and usage fees generated by the sign and walkway.

As part of the settlement, the chamber also tentatively agreed to give up control of the two tourist attractions. By doing so, the chamber would have been giving up as much as $100,000 a year it had made from charging film companies to use the sites, and charging advertisers and souvenir-makers to market their likenesses.

A few days after the tentative settlement was reached, however, chamber board member Johnny Grant and two new chamber leaders met with Lungren and asked him for leniency, saying the proposed settlement would put the already financially strapped chamber out of business. Lungren and Grant are longtime friends and political allies.

Barbosa and all other state officials with direct knowledge of the case were left out of the meeting, prompting sharp criticism from current and former state Justice Department officials and city officials. Shortly after the meeting, sources said, the chamber was told it could renegotiate the deal and offer its own, lower settlement terms.

In addition, chamber officials began lobbying to keep control of the landmarks.

On Monday, Schwartz said it would be up to the judge in the case to determine whether the chamber can keep control of the landmarks and their trust funds, which already contain about $300,000.

Kolkey, the chamber lawyer, would not comment on whether the chamber will fight for the landmarks. But he said: “The chamber believes it has played an important role in preserving these landmarks and it would be a shame if the chamber were not in a position to continue contributing to the enhancement of those landmarks.”