Flamboyant Mayor Makes Waves in Pismo Beach : Leaders: Bar owner Paul Bailey has sued his own city. The bizarre controversy has toppled a host of top officials.

Meet the mayor of this Central Coast town, the man who is suing his own City Hall in a bizarre civil rights case.

His name is Paul Bailey and he owns the only bar in town, and looks like no mayor or bar owner you have ever seen. So many images compete on his roly-poly frame that he talks about himself in thirds.

There is the top third--the perfectly blow-dried hair and Wolfman Jack beard, and the necktie he wears aristocratically without a knot. The bottom third features black eel-skin cowboy boots. And then there is the third in between--which includes the five-carat diamond pinky ring and 10-carat diamond “PB” bracelet (PB stands for Paul Bailey, not Pismo Beach), the seven-carat diamond wedding ring and 10-carat diamond watch.

“And that’s not counting the five gold chains around my neck,” said the 59-year-old Bailey, chuckling.

He and his wife, Joan, drive around town in his-and-hers Rolls-Royces, two of the 21 cars and limousines they own. And he watches over the main street from atop the Bailey Building--the headquarters of his business empire dedicated on the Fourth of July, 1987, with his name in marble and topped like a sundae with six U.S. flags.

“I’ve never seen anyone flashier,” said Jamie Foster, a local jeweler and radio talk show host. “Not unless you count Liberace.”

Flashiness may or may not explain why the city has tried more than once to shut down his bar and the police chief chose it as a target for an undercover drug-trafficking investigation in 1991. Bailey responded by filing a $10-million civil rights suit against the city and running for office in November.

The affair--known to locals as the Harry’s Bar controversy--has consumed this San Luis Obispo County beach town for three years and generated half a dozen legal disputes, plus charges of blackmail, bribery and adultery.

It has toppled from office the previous mayor, police chief, city attorney, city administrator, finance director, public works director and the majority on the City Council.

“Pismo Beach is like Peyton Place,” said Terri Custer, owner of a gift shop cater-cornered from Harry’s on Pomeroy Street. “There’s a lot of big egos and not enough to do.

“So when people get bored, they create these controversies and then sue each other,” Custer said. “We’ve become great fodder for the newspapers.”

The story begins with Bailey, who is oddly shy about one thing: his net worth. “I wouldn’t want to comment on that.” When asked if he’s a millionaire, he cracked a little smirk that said: “You’ve got to be kidding. In my back pocket alone.”

He came up the hard way. His parents ran Bailey’s Cafe near El Cajon and owned the Salty Dog tavern in downtown San Diego. After college, he took a job with Thrifty Drug and climbed to district supervisor with 14 stores from Oxnard to Atascadero under his wing.

He and his wife, a bank officer, raised three daughters in Santa Barbara. Pismo Beach, with its clams and coastline and Italian restaurants, was their getaway. He began buying up property that no one else wanted. In 1979, he bought Harry’s.

Downtown Pismo Beach was a hard-drinking place then. Bikers and beach bums had their favorite watering holes. Slowly, through attrition and pressure from City Hall, the bars were replaced with T-shirt shops and restaurants. All except Harry’s.

The Baileys retired from their respective careers and moved to Pismo Beach permanently, working hard to change the bar’s rough image. Joan Bailey graduated from bartender school and managed Harry’s herself for a time. Then her daughter and son-in-law took over.

With a Western-style face lift, aggressive advertising and live country and rock music seven nights a week, Harry’s became the most popular nightclub in the south end of the county.

This did not endear the carpetbagger Paul Bailey to the town’s power structure.

“Bailey had problems with almost every City Council,” said Danna Dykstra Coy, a reporter for the county Telegram-Tribune. “They wanted to redevelop downtown and Harry’s stood in the way.”

Bailey won his share of friends by contributing to political campaigns, buying ads in police annuals and joining local service clubs. He donated the 20-by-40-foot Old Glory that flies over Pismo Beach Pier.

But the flaunting of his two passions--jewelry and cars--and his hard-nosed business practices rubbed some people the wrong way.

In 1990, Pismo Beach got a new police chief, Brook J. McMahon, a captain from Glendale who made his mark as an undercover drug investigator. McMahon didn’t cotton to Bailey. The chief communicated his dislike of Bailey to officers who wanted to socialize at Harry’s after work.

The bar saw an occasional drunken brawl and petty drug deal. There was even a slaying in 1990 when a white patron stabbed another white patron for coming to the defense of a black patron. State alcohol regulators cited the bar for underage drinking but found no evidence of drug trafficking by employees.

Chief McMahon apparently thought otherwise. In 1991, according to depositions in Bailey’s lawsuit, he told his narcotics squad he wanted a bust inside Harry’s. One gung-ho officer stuffed cash into the pocket of an out-of-town drug dealer and requested delivery at Harry’s. The buy never materialized.

Bailey argues that this selective enforcement was done in cahoots with the city administrator and City Council. “They wanted to turn Pismo into another Carmel,” said William Kinzler, the San Francisco attorney representing Bailey.

“Chief McMahon got it in his mind to close down this bar and he couldn’t bring himself to stop,” Bailey said. “He crossed the line.”

McMahon said he had nothing personal against the Baileys and was only doing his job. The city moved to revoke Harry’s dance permit. State regulators, goaded by city officials, threatened to revoke the liquor license on public nuisance grounds.

The Baileys fought off both actions and filed a $10-million lawsuit against Pismo Beach, alleging that police targeting of Harry’s violated their civil rights. Then things began to get crazy.

McMahon’s own narcotics officers refuted his claim that he treated Harry’s the same way he treated hotel and restaurant bars. The sheriff and state drug agents--members of a regional narcotics task force--testified that McMahon had clearly intended to target Harry’s. The task force had withdrawn its support from the operation.

McMahon was losing backers inside the department as well. Sgt. Tom Ramler made the mistake of telling fellow officers he would vote for Paul Bailey, who had decided to run for City Council.

Ramler said the comment got back to McMahon. The chief somehow got hold of love letters Ramler had written to a female officer. Ramler said a police administrator, at the behest of McMahon, threatened to tell his wife about the affair if he didn’t quit the force.

Ramler quit only to see the city reveal the love affair in a highly provocative press release. The release also alleged that narcotics Officer Mark Stewart--who had given weight to the theory that Chief McMahon carried out a vendetta against Harry’s--was a perjurer. The two officers have claims pending against the city for defamation.

In depositions and public statements, the chief denied the allegations of blackmail and a vendetta, and fired off some accusations of his own: He claimed to possess a report that the state drug agent heading the regional task force may have stolen $20 from a Pismo Beach restaurant table. He said he had information that Paul Bailey once paid off the sheriff.

The accusations were vigorously denied. Then McMahon took an extraordinary step for a police chief: He sought a restraining order against the Baileys, saying he heard Paul Bailey was going to have him beat up.

“It just got crazier and crazier,” said Coy, the Telegram-Tribune reporter who chronicled the entire brouhaha. Each time she wrote a story that shed a harsh light on McMahon, her pager beeped with the number 1144, which in police code means, “Call the coroner. There’s a dead body.” She took it as a threat and avoided driving through Pismo Beach for a year.

In November, Bailey ran first in a crowded field and was named mayor. Everyone who ever opposed him at City Hall either resigned, was fired or chose not to seek reelection. McMahon, who continues to deny that he had it in for Bailey, retired on a disability pension.

“Talk about throwing the bums out,” Bailey’s attorney laughs.

As for his lawsuit against the city and McMahon, Bailey lost the first round when U.S. District Judge John Davies--who presided over the Rodney G. King beating case--ruled that even if the police department focused on Harry’s Bar, the Baileys had suffered no damages.

The Baileys have appealed the decision. It has placed Mayor Bailey in a tough position, the moneybags bar owner elected on a platform of fiscal responsibility pressing forward with a lawsuit that has already cost his city $600,000.

“Just because I was elected, that doesn’t mean I give up my rights,” he said. “When I have been wronged, I have the legal right, the God-given right, to try to correct that.”