Reservoir of Ill Will : Jury to Decide How Much Agencies Owe Developer in Land Deal Gone Sour

In a case that could deal a severe financial blow to the state’s parkland acquisition efforts in Southern California, a jury will decide soon how much the Santa Monica Mountains Conservancy owes a home builder for squeezing it out of a deal to buy a large stretch of land near Westlake Village.

A judge has sided with the developer, ruling in May that the conservancy and the Las Virgenes Municipal Water District conspired to thwart the company’s attempt to buy 492 hillside acres above a scenic reservoir.

In the penalty phase under way in Los Angeles Superior Court, jurors could find that the conservancy and water district should pay as much as $55 million in damages--the amount the developer, Village Properties, asserts it would have made in profits if the two agencies had not intervened.

It is anyone’s guess how much the two will have to pay, and both have vowed to appeal.

A significant damage award could confront the conservancy with several difficult alternatives, including the need to seek an emergency appropriation of tax dollars from the state Legislature or the sale of public parkland, according to legislative authorities.

But conservancy officials believe that their state agency status ought to limit their financial liability.

For its part, the water district could be forced to dramatically increase its customers’ rates.

A lawyer for Village Properties said the firm hopes that any award would at least send a message to governments not to interfere with developers’ property rights.

“What the water district and the conservancy did stinks--it is indefensible,” said Scott D. Bertzyk, counsel for Village Properties until recently. “I hope for some sort of recognition that the white hats aren’t always worn by people opposing development.”

An attorney for the conservancy rejects that view. “We did nothing wrong,” said Laurie Collins, staff counsel at the state parkland acquisition agency.

The story of the complex case begins astride the Southland real estate boom in 1989, when the Federal Deposit Insurance Corp. acquired the land in the hills above Las Virgenes Reservoir from Vernon Savings & Loan, a failed Dallas-based thrift.

Village Properties--a partnership controlled by the owners of Baldwin Builders, which is now in bankruptcy--paid $1.4 million for an option to buy the land, according to court documents. The firm planned to build 330 homes on a bluff called Westlake Vista, according to the documents, including several on large lots that would have had sweeping views of both the reservoir and the Santa Monica Mountains.

“There’s not another property in Southern California like it,” said Bertzyk, the attorney. “If Village could have developed it at the time, before the real estate recession, it could have made well over $100 million.”

As it prepared to develop the land, Village Properties struck a deal with Las Virgenes Municipal Water District in which it agreed not to build homes on the reservoir’s edge. In exchange, Bertzyk said, the agreement required the water district to support the development efforts, and not try to buy the land.

Wayne K. Lemieux, general counsel for the district, said the agency agreed “to be friends” with Village Properties but denies that it promised not to buy the land.

The difference is critical because soon afterward, according to Bertzyk, the district decided to acquire part of the land to create a bigger buffer around its reservoir, and enlisted the assistance of the Santa Monica Mountains Conservancy.

The water district believed it needed the buffer to comply with new federal and state regulations aimed at keeping water-borne microorganisms that can cause disease from spilling into open reservoirs, Lemieux said.

The conservancy was interested in acquiring the rest of the land, Lemieux said, because its ecologists discovered that it harbored the world’s largest concentration of both Lyon’s pentachaeta, an aster with wispy yellow flowers listed as an endangered plant, and the Santa Monica Mountains dudleya, a rare succulent.

According to court documents, the conservancy first sued the FDIC in federal court in early 1992 under provisions of the federal Endangered Species Act to prevent the sale of the property to the developer.

Bertzyk said that action, which he called “baseless,” prevented Village Properties from obtaining title insurance as a part of exercising its option, and left the purchase bid by the water district “the only game in town” for the FDIC.

The water district then bought the land in 1993 for $6.3 million, and sold half to the conservancy.

Village first sued the FDIC for breach of contract in federal court, won a summary judgment and settled for $7 million in damages.

Then it went after the two agencies in state court. In another summary judgment last May, Los Angeles Superior Court Judge Madeleine I. Flier ruled that the conservancy and water district had “conspired to wrongfully interfere” with the deal between Village and the FDIC.