$3.3-Million Loss Revealed in MWD Suit : Courts: Water agency blames law firm for bad advice on aborted move to a new headquarters. But firm says utility doesn’t want to take responsibility for its actions.

The Metropolitan Water District of Southern California has acknowledged in a lawsuit that it lost $3.3 million last year in a botched effort to find a new headquarters in downtown Los Angeles.

The giant water agency had hoped to move into a new high-rise at 1100 Wilshire Blvd., but abandoned its lease last May after the building’s owners--JCG Finance Co. Ltd.--declared bankruptcy and failed to make promised improvements to the 38-story tower.

Faced with cramped offices and a litany of seismic and fire safety problems, the MWD decided several years ago to leave its longtime headquarters east of downtown. The agency, which supplies more than 60% of the water to 15 million Southern Californians, had considered moving outside Los Angeles, but settled on downtown after an intense lobbying effort by city officials.

The lawsuit, filed last week in Los Angeles Superior Court, blames the losses on bad advice from the downtown law firm of Paul, Hastings, Janofsky & Walker and seeks reimbursement from the firm.

The suit alleges that the firm mishandled a $1-million security deposit and falsely assured the MWD that its investment in building improvements would be protected even if the building’s owner filed for bankruptcy.

“Our staff recognized that they are not experts in commercial real estate,” MWD spokesman Jay Malinowski said Thursday. “It is not part of our day-to-day business so we went to outside expertise. . . . We were following the recommendations of the outside assistance that we hired.”

A spokesman for Paul, Hastings, Janofsky & Walker said the allegations were without merit and accused MWD officials of refusing to take responsibility for their decisions. Geoffrey L. Thomas, a partner with the firm, said he was mystified by the lawsuit because the MWD paid for its services and hired the firm in two other business dealings after the lease problems arose.

“There were some decisions made . . . that some people there don’t want to take responsibility for,” Thomas said.

MWD Board Chairman Michael Gage said an internal review of the failed deal found that almost none of the blame lies with the MWD staff, but he acknowledged that the review has resulted in “corrected policies and procedures to ensure things like this don’t happen again.” He refused to elaborate because of the litigation.

As a temporary measure, the MWD has moved most of its operations during the past few months to 14 floors of Two California Plaza, a 52-story high-rise on Grand Avenue. The agency has signed a $42-million lease for the space for six years, during which time the MWD board of directors is expected to choose a permanent home.

The interim move has not been without problems. The agency got new telephone numbers, and many of the 800 employees transferred to the new building are still required to park 12 blocks away at the Sunset Boulevard headquarters. Board meetings are also still held in the old building because of insufficient space at Two California Plaza, making it difficult for staff members to ferry between offices and the boardroom.