Most of City’s Treasure Island Plan Upheld : Development: Owners may close Laguna mobile home park if they pay millions in relocation costs to displaced residents.

A judge has upheld most of a city plan that allows owners of the Treasure Island Mobile Home Park to close it if they pay millions in reimbursement to displaced residents, but the ruling met with a mixed response Wednesday from all involved.

After years of bitter dispute over the sprawling oceanfront mobile home park, Orange County Superior Court Judge Donald E. Smallwood on Tuesday upheld a city resolution that requires the park owners, who want to shut it down, to make substantial relocation payments to residents who would be displaced.

But the judge said the resolution should not apply to people who aren’t permanent residents at the mobile home park, a Laguna Beach fixture since 1937.

“We’re pleased for the people who are well treated and we’re grieving for our neighbors who are, in our mind, equally deprived,” said K.P. Rice, president of the Treasure Island Resident Owners Assn. “It’s not as if every one of these people had a villa in France and a villa in the Mediterranean.”

Rice said his neighbor is a perfect example of someone who has another residence but still would suffer a great loss if the park closes and she is not compensated.

The neighbor is a schoolteacher who is making mortgage payments on a home in Whittier and had planned to sell it and retire at the park because of the lower cost of living there.

“She’s not being displaced, but she is being displaced. Her whole future scheme is being destroyed. And money is being taken out of her pocket,” Rice said.

The judge’s decision closes one chapter in a lengthy and controversial battle over property rights in Laguna Beach, but the fight is not over. Both the property owners, who hope to develop the land, and attorneys for the residents said the issue is almost certain to end up in court again. They also said the ruling could be interpreted in different ways.

A park co-owner said excluding residents who own homes elsewhere would cut his relocation costs at least in half, but he vowed to continue to fight the city for requiring him to pay amounts he says are too high--an average of about $130,000 per mobile home.

“We think the whole appraisal was done wrong, and we think the judge, when he gets done reviewing the evidence, is going to decide for us,” said Richard Hall, who along with Merrill Lynch Hubbard heads the partnership that bought the park for $43 million in 1989.

Attorneys for residents and the city say they believe that Smallwood’s ruling backs the constitutionality of the city’s resolution--approved by a 3-2 council vote in February--and supports the methods the city used to assess the value of the mobile homes.

The only part of the owners’ arguments that Smallwood favored had to do with whether residents who have other homes should be included in the scope of the city’s resolution, said Richard Spix, one of the attorneys for Rice’s group.

Spix also said he might challenge the definition of who is a resident.

“The issue is residency, and residency is a state of mind by the case law,” he said. “A residence is a place where you expect to return. The fact that a resident has two homes does not necessarily preclude residency.”

The 29-acre park is home to about 180 mobile home owners. About 100 other residents have been bought out by the new owners, doing business as Treasure Island Associates.

The city required Treasure Island Associates to get a special permit when it announced in 1992 that it intended to buy more than 25% of the units in the park. A year later, the owners announced they intended to close the park in order to develop it, and the city worked out a plan to protect residents who might be displaced, many of them senior citizens with limited incomes.

The City Council measure passed in February would force the owners to maintain the site as a mobile home park for 10 years or pay residents relocation costs of about $23 million, or about $130,000 per owner on average.

If residents who own another home are excluded, Hall estimated that his partnership would have to pay relocation benefits to about 70 people, or half the people that the $23 million would have covered.

Laguna Beach City Atty. Philip D. Kohn said that he would advise the City Council to change its resolution as soon as possible so that it applies only to permanent residents but that he expected it would otherwise remain the same.

Rice called the ruling a “milestone” but said he fears the battle is far from over.

“It’s like climbing a cliff. Every once in a while you can get to a spot where you can sit down for a minute without hanging from a rope,” Rice said. “It feels like that.”

Times staff writer Anna Cekola contributed to this report.