Lawyers Ask Judge to Drop Suit Against City Manager : Courts: Taxpayer suing San Juan Capistrano’s Stephen B. Julian says the benefits provided to the official are improper and wasteful.

After more than a week of trial, attorneys for the city of San Juan Capistrano and City Manager Stephen B. Julian have asked a Superior Court judge to dismiss a taxpayer’s suit involving a controversial home loan and other compensation Julian received from the city.

Superior Court Judge David C. Velasquez, who has been hearing the non-jury trial since the beginning of last week, said he would rule on the motion sometime today.

In testimony, briefs and press releases, the plaintiff, San Juan Capistrano lawyer Carlos F. Negrete, has charged that a $250,000 home loan and other benefits provided to Julian during more than a decade of service were improper and wasteful, as was the City Council’s actions in awarding them.

“Julian has wrongfully used city funds,” according to Negrete’s brief, “without proper resolution, to increase his salary in direct contravention of the express provisions of his employment agreement. The City . . . allowed Julian to to use his position as city manager to prevent information concerning these transactions from being disseminated to the public or approved by the city council prior to their making.”

Negrete’s suit seeks a court order that would prevent further loans to city employees, and asks that Julian be required to “disgorge” any possible “profits” he may have realized from his loan-related transactions with the city.

The city, in a written brief, characterized Negrete’s suit as “an unfortunate perversion,” and charged that it “arises out of an individual attorney’s . . . dissatisfaction with City Hall . . . born of (his) frustration, impatience and arrogance.”

Negrete, the city added, “may not agree with the decisions of the city council, and he certainly is entitled to challenge those actions through the political process. However, he is not entitled to drag the city through expensive litigation and public trials. His remedy is at the ballot box, not the courthouse.”

Negrete and his co-counsel, Jeffrey F. Benice, argued that state and municipal law require that each of Julian’s benefits--apart from his $93,504-a-year salary--must be approved by separate City Council resolutions.

In particular, Negrete maintained that provisions enabling Julian to cash in or borrow money against accrued vacation, holiday and sick leave should also have been considered as separate resolutions by the City Council. Negrete argued that taking cash for unused vacation constituted an unauthorized cash bonus.

Attorneys for both Julian and the city reject this position, saying it is a misinterpretation and misapplication of the law.

Julian’s attorney, J. Eric Eskin, and attorneys for the city, which is being sued separately, argued that all benefits--including the home loans--were part of the public record and available to anyone who took the trouble to inspect them. Further, the expenditures were also listed in the city budget, which is similarly public record.

But Benice maintained that the housing loan and other benefits were “buried” in Julian’s employment contracts. City Council members, the attorney said, “don’t want their constituents to know (what) they’re doing. . . . That’s the theme of this case: disclosure.”

Julian’s four employment contracts, each listed on City Council agendas, with copies attached, met the legal requirements for public disclosure and discussion, defense attorneys said. A section of Julian’s contract clearly outlines his buyout and borrowing right for leaves, the city manager said. Julian testified that on one occasion a resident questioned the meaning of that provision in a City Council meeting.

Throughout the trial, there has been an ongoing debate between the attorneys over the legal definition of the term “waste,” when used as grounds for a taxpayers’ suit like this.

Negrete maintains it encompasses extravagant or unwise expenditures by public officials, while lawyers for the city say the word “waste” is defined as “without any public benefit.”

In testimony last week, Negrete said that he became concerned about the issue after reading a series of articles in the Los Angeles Times in early 1991, which detailed benefits negotiated by Julian with the city. These included a July, 1981, home loan of $250,000--$207,500 to purchase the house and the remainder for improvements. During the next nine years, with interest, Julian’s total indebtedness to the city on the home loan grew to $366,095.77, according to Julian’s court brief.

The city repurchased the home from Julian for $280,000, resulting in an unpaid balance of more than $86,000 in interest, for which Julian then negotiated a five-year, interest-free note with the city. He also negotiated an agreement whereby the balance of the loan would be forgiven if the City Council terminated him without cause before the contract expired. Since the agreement was signed, $57,308.52 of the loan balance has since been repaid, according to Julian’s brief, and he testified last week that he is continuing to make regular payments.

Shortly after the purchase the city later resold the house for $308,000.

After the details of the loan were published, then-Mayor Kenneth E. Friess and the City Council wrote to the Orange County district attorney’s office, asking them to determine whether anything illegal had taken place.

The district attorney’s office declined to investigate the loan, saying that “there has been inadequate evidence presented to justify the belief that further investigation would produce sufficient evidence” of criminal wrongdoing, according to Chief Assistant Dist. Atty. Maurice L. Evans.

As a result of the Times series, Julian sued the newspaper for libel. He dropped the lawsuit after the Times printed a four-paragraph statement that noted that the news articles and separate expressions of opinion to which Julian objected did not state that he was “corrupt” or that his actions were “illegal.”

In his suit, Negrete argued that, in negotiating his employment agreements for himself, Julian should have been looking out for the city’s interests at the same time.

Eskin, replied in his written brief that “when Mr. Julian negotiated with the Council or its agents regarding the terms and conditions of his employment and related subjects, as a matter of law, he acts ‘solely’ in his individual and personal capacity to obtain compensation for services rendered, and not in his ‘official capacity’ as City Manager. . . . In this case, Mr. Julian bargained and acted on only one side of the challenged transactions, i.e. ‘representing (him)self individually, in (his) employment with the” city.

Asked by Benice about what role he took in his contract discussions with City Council members, Julian replied “I negotiated as myself.”

Judge Velasquez has at various points during the trial seemed to signal some impatience with Negrete’s position, calling questions of witnesses “irrelevant” and one line of inquiry “absurd.”