Laguna Scorched Anew by $11-Million Judgment

City officials, already reeling from the wildfire that last week destroyed hundreds of homes, learned Saturday that they must pay an $11-million court judgment to property owners in the rural Diamond-Crestview community.

As citizens continued to sift through smoldering ruins Saturday, City Council members learned how much the city must pay each of the 38 landowners who had sued Laguna Beach for not installing streets in an undeveloped section of town.

The judgment by Orange County Superior Court Judge David E. Brickner could swell to $15 million when interest and attorneys’ fees are calculated, officials say.

The judge’s decision poses enormous problems for Laguna Beach, which is now faced with a major rebuilding effort. Two council members hinted strongly Saturday night that the city may appeal the judgment.

They say the city cannot afford to follow the judge’s order to pay the landowners, noting that the judgment represents about half of the city’s annual budget.

“It will simply bankrupt us,” said Councilwoman Ann Christoph. “We don’t have that kind of money. It’s just not there.”

Councilman Wayne L. Peterson said the city could pay the judgment only if it “floats a couple of bond issues and puts the city in debt for another 30 years.”

“We could pay if we lay off all the police and all the firemen in the city for the next seven years or so,” Peterson said.

Brickner’s judgment is the latest development in what is among Southern California’s longest-running land-use battles. Eight years ago, the landowners filed a lawsuit claiming that the city effectively robbed them of their property rights by not installing streets in a timely manner so they could build dream homes.

In 1989, an appellate court ruled that the city would have to pay to improve the roads. If the city chose to abandon them, it would have to compensate the lot owners, according to the appellate court ruling.

The Diamond-Crestview lots, located in a steep woodsy area near Diamond Street and Crestview Place, command some of the most breathtaking vistas of the Pacific Ocean and city lights in Laguna Beach.

The landowners could not be reached to comment about Brickner’s ruling, but Darren Esslinger, a critic of the current City Council who supported the Diamond-Crestview landowners during their legal battle, said the judgment represents “an indictment against the city and the way they’ve treated the citizens of Laguna Beach.”

“This is an open example showing that the City Council has, through their policies, deprived the citizens of Laguna Beach of their properties,” said Esslinger, whose family is a major landowner in the city.

Both Christoph and Peterson indicated that the city may eventually install streets in Diamond-Crestview instead of paying the landowners. Peterson said engineering studies for the project are already completed, adding that the city is planning to award a contract soon. Building the streets would cost the city about $2 million, Peterson said.

“I don’t think the city ever took anyone’s land,” Peterson said. “There was a sincere attempt to put in the roads and let them build on their lots. The judge didn’t believe the City Council then, but I can assure him that he can believe me, that we’re going to do it now.”

Peterson’s comments were in reference to a development plan approved by the City Council in September, 1992. The plan called for streets to be installed in a piecemeal fashion as the homes were built and for lot owners to pay for the portion of the paved road in front of their land.

Later that same month, Brickner ruled that the city must build and pay for the streets. He gave the city 45 days to submit a revised plan to install or repair the roads.

But the city missed the judge’s deadline in the process of unsuccessfully appealing that decision. As a result, Brickner ruled in December that city officials had abandoned the streets and ordered the current trial to consider the question of damages.

Times correspondent Leslie Earnest contributed to this report.