Suit Pitting City, Lot Owners Kept Alive by Latest Ruling

Both sides are claiming at least partial victory with the latest ruling in a long-running legal battle between the city and lot owners in the Diamond Crestview neighborhood.

In a ruling received Monday, Orange County Superior Court Judge Francisco F. Firmat rejected a request from the lot owners that the city be found liable for denying them the right to use their property by installing substandard streets, City Attorney Philip Kohn said.

But Firmat also ruled that the plaintiffs’ basis for a claim could have changed over the past 11 years, and he gave the property owners 20 days to file an amended complaint.

Joseph Gughemetti, a Northern California attorney representing the landowners, called the ruling “great news” for his clients.

“It just means it’s got to go to trial, except now we will be going to trial with broader claims that will include the loss of the use of these properties since 1985,” he said.

The Diamond Crestview lawsuit, one of Southern California’s longest-running land-use battles, began in 1985, when owners of 38 empty lots in the rural hillside community sued the city to have streets installed so that homes could be built.

The homes that existed at the time were accessible only by poorly paved or dirt roads. An early court ruling stated that the city owned the streets and either had to improve them or pay the landowners the value of their properties.

By late 1992, the city had created a development plan for the area that called for the city to install streets, sewers and storm drains, and later recoup the money by assessing property owners.

But a judge rejected that option, saying it was the city’s responsibility to pay for the streets, and gave Laguna Beach 45 days to submit a new plan.

When the city missed the deadline, the judge ruled that Laguna Beach owed the property owners almost $19 million in damages, including interest, attorneys’ fees and other costs, an amount equal to the city’s annual general fund budget.

The city responded by hiring two Los Angeles attorneys, including former U.S. Secretary of Education Shirley Hufstedler, to handle its appeal. In the meantime, the city proceeded with the street installation.

The property owners’ attorney then argued that the new streets were not up to code or wide enough for emergency vehicles. The city’s attorney countered that the streets were built properly and that the plaintiffs are not entitled to compensation, partly because none of the lot owners has applied for building permits in the past 11 years.

A year ago, an appeals court overturned the multimillion-dollar judgment against the city. Shortly thereafter, the California Supreme Court refused to hear the case, and it was sent back to Orange County Superior Court.