Judge Slashes Award to Ex-Lyon Worker; Appeals Are Likely

A Superior Court judge on Friday slashed a $54.4-million jury verdict against Orange County real estate magnate William Lyon and two of his companies, instead awarding $23 million to a former employee who won a breach-of-contract lawsuit.

Judge Raymond J. Ikola ruled in Santa Ana that the jury’s March award to John Markley was excessive. Markley, 53, was fired after refusing to pledge financial support to the developer during the real state slump of the early 1990s.

Ikola’s ruling came after two days of arguments in the complex legal dispute. Both sides said they are likely to appeal, which could extend the seven-year battle several more years.

Ikola found that Lyon himself as well as his original building firm, William Lyon Co., and the William Lyon Property Management Co. are financially liable for the award. Publicly held William Lyon Homes, Orange County’s fifth largest builder, is not part of the case, according to attorneys for both sides.

Markley, a resident of Newport Beach, had been hired in 1983 to oversee construction of apartments from California to Florida and had bought ownership interests in many of the projects.

During the protracted real estate slump, Lyon almost defaulted on its loans and was forced to surrender control of many of its projects to several banks.

Markley was fired in 1993 after refusing to divert much of his ownership interest to help the company pay off several bank loans.

Lyon fired the first legal salvo, suing Markley for $19 million. The lawsuit later was dismissed. Markley filed his own lawsuit, which was settled in 1999 when Lyon agreed to reinstate the former employee’s ownership stakes in the projects and to pay $4.1 million in attorney’s fees.

The current case arose when Lyon allegedly failed to comply with the terms of the settlement. Markley said in his suit that Lyon again tried to make his ownership shares available to repay bank loans.

The judge’s $23-million award was based on the market value of the apartments and on the past rental income of the units in which Markley held stakes of up to 16%. Ikola rejected Markley’s estimate that rents at the complexes, which have more than 5,000 units, would increase an average 5% a year over the next 30 years.

Lyon said that while he is pleased with the reduction in damages, “The judge should have gone further.”

Lyon’s attorney, Paul Grossman, argued during the hearing that Markley should have been bound by the settlement that the two sides had reached earlier this year. But the judge ruled the settlement could not be enforced because it was never entered into the official court record.

Ikola urged both sides to try to resolve the matter instead of returning to court.

“The continued war doesn’t make sense for anybody,” he said.