Suit Stemming From Color of House Is Dismissed : Courts: A couple had sought $1 million after the city of Laguna Beach delayed a move into their new ‘eggshell white’ home.

The latest chapter in a Laguna Beach clash over acceptable house paint colors--a fracas that pitted “sandstone” versus “eggshell white” versus “seashell white”--ended Tuesday when a federal judge dismissed a lawsuit brought against the city by two unhappy homeowners.

Laguna Beach City Manager Kenneth C. Frank said the dismissal “is in everyone’s benefit.”

“I’m always pleased when we get out of lawsuits. I’m pleased with the result. Naturally, we’re happy with it. It’s unfortunate that this whole thing took place. There’s too much litigation in society,” he said.

City Atty. Philip Kohn said U.S. District Judge Lawrence T. Lydick dismissed the suit on two procedural grounds. Eugene Gratz, the attorney for Nick and Denise Karagozian, did not file documents in a timely fashion and did not show up for yesterday’s hearing, Kohn said.

But Gratz said: “I don’t understand exactly what the judge did. . . . I am taken completely aback at the judge’s ruling.”

The attorney acknowledged that he had been late in filing some papers, but he insisted that all of the documents had been filed by the Tuesday hearing. Gratz added that he thought that the judge would decide the case based on documents filed, without testimony by witnesses or attorney arguments.

“I understand the judge’s anger at what he must believe was disobedience to his rules, but I believe I was obeying his order,” Gratz said.

The Karagozians said they filed the suit, which sought $1 million in damages, because they were temporarily prevented from moving into their new home by the Laguna Beach Design Review Board.

In the summer of 1990, the couple painted the house “eggshell white,” rather than “sandstone,” the color approved by the Design Review Board, prompting a complaint to the board from a neighbor.

The board found that “eggshell white” would reflect harsh sunlight and refused to permit utilities to be hooked up until the house was repainted.

After the board’s ruling was upheld by the City Council, the Karagozians in February, 1991, held a defiant painting party in protest, swabbing the exterior of the empty house with red, white and blue stripes.

Ultimately, the couple and the city compromised on “seashell white” (which won out over “cottage white”) for the home, and in April of last year the couple moved in. More recently, they bought another lot nearby and filed plans with the city to build another residence.

However, the Karagozians then filed suit in federal court for mental distress over the city-mandated delay.

Gratz said he would ask the judge to reconsider his ruling. If Lydick refused, Gratz said, he would appeal the ruling to the 9th U.S. Circuit Court of Appeals.

The attorney has filed his own suit in state court against the design board, which denied his plans to build a hillside home because it would cast a shadow on neighboring residences. That suit is still pending, according to Frank.

The Karagozians could not be reached for comment.