The 74-unit La Plaza Villas apartment complex in Guadalupe is pictured on Thursday. A planned sale of the complex to a labor contractor that wished to use the units for H-2A housing prompted a lawsuit that has since cost the city more than $250,000 in legal fees.

The city of Guadalupe has shelled out more than $250,000 in lawyers’ fees due to litigation prompted by the City Council’s passage of a 2014 urgency ordinance banning the conversion of apartments into boardinghouses.

The fees, which were paid out over a period beginning in January 2015, total $260,558.20, according to documents obtained by the Santa Maria Times through a public records request.

The fees are in addition to a $450,000 judgment that was levied against the city in 2017 after a jury ruled the city discriminated against Olivera Street Apartments LLC, which planned to sell an apartment complex it owned to a buyer who intended to use the units for boarding H-2A workers.

The city is currently appealing the $450,000 judgment.

The H-2A program allows farmers to bring temporary, nonimmigrant workers to the United States to meet seasonal labor needs. While the workers are here, the farmers must provide housing and transportation to their work site, and daily meals or facilities to prepare food.

The San Luis Obispo-based law firm Hall, Hieatt & Connely accounts for the vast majority of the expenses, coming in at $244,752.20. The monthly amounts paid to the firm range from a low of $519.34 during the month of July 2015 to a high of $51,070.59 during February 2017.

According to Guadalupe’s contract with Hall, Hieatt & Connely, signed by former Mayor John Lizalde, the city agreed to pay $225 per hour for work performed by partners, $200 per hour for work by associate attorneys and $115 per hour for work by paralegals.

For its appeal of the 2017 jury verdict, Guadalupe signed a contract to pay the firm a flat fee of $25,000 that covered the filing of the appeal through oral arguments in the California Court of Appeals, which were held Thursday.

The remaining costs the city has paid out are $12,458 to the offices of former Guadalupe City Attorney David Fleishman and $3,348 to the offices of contract City Attorney Phil Sinco.

The costs come during a period of financial turmoil for Guadalupe. 

In 2015, the Santa Barbara County civil grand jury issued a report recommending the city disincorporate after years of mismanagement resulted in the city relying on inappropriate transfers of money from its restricted enterprise funds to cover day-to-day operations. At the time, the grand jury found the city was running a $300,000 annual deficit in its general fund.

Last year, the grand jury issued a follow-up report that found modest improvement but noted Guadalupe continued to be strapped financially.  

Sinco said the city is unhappy with the amount of fees it has paid out.

“The last thing the city wanted was long, drawn-out litigation,” he said. “The city has had a difficult time paying for that litigation — there is no insurance coverage. We feel the court’s ruling was in error. It never should have gone to a jury, but that was not the city’s decision.”

Sinco said the city was pleased, however, with the flat-fee contract it negotiated for the appeal, given the possibility that the decision could be reversed.

“We believe oral arguments went very well,” he said.

The city’s legal battle was triggered by an urgency ordinance passed during the City Council’s meeting on Sept. 23, 2014. The ordinance established a 45-day moratorium on new boardinghouses in Guadalupe. In October of that year, the city passed an extension of the ordinance.

According to the staff report in the council agenda, the ordinance was prepared after the city learned of plans to use the La Plaza Villas apartments for H-2A housing.

In December 2014, Olivera Street LLC, which owns the La Plaza Villas apartments, filed suit against Guadalupe. The company planned to sell the 74-unit complex for $12.4 million to Steve Scaroni, who planned to use some of the units for H-2A housing.

In its suit, the company contended the city’s ordinance targeted its property and resulted in the cancellation of a planned sale of the complex.

Attorneys for Guadalupe argued that the city had a legitimate interest in regulating boardinghouses and their impacts on public resources, that the ordinance did not target any particular high-density residential property since it applied to all R-3 zones in the city and that city officials attempted to suggest alternative housing densities for the property.

During a four-week trial in 2017, the jury was shown emails in which city officials spoke about the desire to pass an ordinance that would limit apartment conversion to H-2A housing and expressed concern that the workers' presence would result in problems with prostitution and other unspecified “undesired activities.”

On Sept. 22, 2014 — the day before the urgency ordinance was passed — former City Administrator Andrew Carter wrote an email to former Mayor Frances Romero telling her he spoke with a former attorney from the California Rural Legal Assistance about the proposed project.

“I talked to him about the La Plaza Villa project,” Carter wrote. “This was his first reaction after I mentioned the size of the complex and number of potential tenants. ‘Andrew, you do realize you’re going to have a problem with prostitution, don’t you?’”

That same day, Romero wrote back, “Well, I’m glad he said it. I’d assume that there will be other undesired activities as well.”

In her email, Romero said it was necessary to pass the ordinance because Olivera Street and Scaroni were scheduled to close escrow on the property soon.

"Just so there is no confusion about where I stand, if we bankrupt the city over this it is worth it,” she wrote.

In its appeal of the jury’s verdict, attorneys for Guadalupe argued that the emails were wrongly shown to jurors since they represented the subjective intent of one council member when the ordinance required the votes of four council members and that it was unfairly prejudicial to the city's case.

Subscribe to Daily Headlines

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Razi Syed covers Santa Maria City Government for Lee Central Coast Newspapers.  Follow him on Twitter @razisyed