LAGUNA BEACH : City Agrees to Pay $650,000 in Legal Fees

In what may be the largest such payment Laguna Beach has ever had to make, the city will pay $650,000 for legal fees incurred by its opponents during a bitter court battle over South Laguna’s bootleg residential units known as “granny flats,” officials said Friday.

A judge made the award in May, but the city has wrangled since then to have the amount reduced. Finally, fearing the legal costs would continue to mount, the city agreed Thursday to pay $650,000.

City Atty. Philip Kohn said it is the most Laguna Beach has paid for an opponent’s legal fees in the 10 years he has represented the city. “People can sit and debate for a long time whether it’s a good or bad thing, whether the city should have continued to fight it or not,” Kohn said. “But I think it was a good policy and a good economic decision.”

Philip E. Smith, one of the attorneys who represented South Laguna property owners in the class-action lawsuit that raged for five years, on Friday expressed satisfaction with the agreement.

“We are very pleased to finally get paid for the legal expenses we incurred,” he said. “I feel kind of sorry the taxpayers have been put through this.”

The agreement is particularly frustrating for city leaders, who were elated to learn recently that they would not have to relinquish as much in property taxes to the state as expected this fiscal year. Earlier this week, City Manager Kenneth C. Frank said that, as a result, there was $500,000 in the budget that had not yet been allocated.

On Friday, Councilman Robert F. Gentry said that windfall and more will now likely be used to pay the legal fees.

“It’s so frustrating,” Gentry said. “It’s very disturbing to me that the courts could rule in that way and have forced us into this position.”

The lawsuit revolved around a position the city took on South Laguna’s bootleg apartments after annexing the area in 1987. South Laguna is thick with the add-on units, some of which were built as far back as the 1930s under more lenient county standards.

After annexation, the city decided the dwellings would either have to conform to city building codes and provide adequate parking or be dismantled.

The property owners banned together and sued the city, asking for the right to apply for permits for their add-ons under the more lenient state law.

The city won the first round in 1990, but the property owners claimed a victory in appeals court last year.

“State law always supersedes local law, and this is a situation where the city didn’t want to abide by the state law,” Smith said. “But they had no choice.”