The Southern California Legal Foundation was on the brink of disbanding because it was nearly $40,000 in debt when three prominent Santa Monica apartment owners left the anti-rent control organization earlier this year, The Times has learned.
The departures came after the directors, who had unsuccessfully fought for management changes, refused to take part in a plan to bail out the financially troubled foundation, according to several board members.
Former board chairman K. B. Huff, landlord activist James Baker and real estate dealer Wesley Wellman left the board in late January, accusing director David M. Shell of "questionable business practices."
Shell has refused to comment on the financial status of the organization, which has an annual budget of about $140,000. But Huff and Chairwoman Clo Hoover confirmed that the foundation, considered the leading opponent to Santa Monica's rent control law, was debt-ridden in January and close to disbanding.
Huff said that Shell suggested dissolving the nonprofit group in mid-January, when the organization was unable to meet its payroll. "David said that this is what should be done," Huff said. "And the board instructed David to go ahead and close shop . . . to prepare the document of dissolution."
Baker agreed that Shell suggested disbanding, but added that he was never sure that Shell was serious. Hoover also confirmed that Shell suggested dissolution. About two weeks later, however, Shell changed his mind and asked the board to pay off the debt, Huff said.
"When we went to the last meeting we asked Shell for the agenda," Huff recalled. "He said that there wasn't any agenda, that there were just some things he wanted to bring up. . . . Then he said, 'The reason we're here is that we're in the hole. Will each of you give so much money?'
"We (Huff, Baker and Wellman) suggested that that wasn't the way to go. We laid out our plan (to restructure the foundation's management) and said this is the best thing we can do. We said we'll walk out of the room and let the rest of you discuss it. When we came back in . . . we were off the board.
Huff said that the three were "fired" because their plan to tighten the foundation's management would have restricted Shell's authority. Shell and Hoover contend that the three resigned voluntarily.
Hoover said that the remaining directors--she, Shell, Joseph Shell Sr. (Shell's father), Pat Stitzenberger, Wilho Miller, Pat Schauer and Trevor Grimm--agreed to bail out the corporation because they were "shocked" by the idea of disbanding.
"We felt that the foundation was too important to just kind of walk away from it," Hoover said. "That would have been the easy way to take."
Bail-Out a 'Loan'
Hoover characterized the bail-out as a "loan," but added that no one had discussed a due date. "We just came up with the money and now we're solvent," said Hoover, explaining that the foundation's three employees took a temporary salary cut as part of the deal. "We're not pressing for the loans to be repaid at this moment, but they will be, I'm sure."
The Southern California Legal Foundation is supported by voluntary contributions. Leaders would not disclose the number of people who support the organization, but Hoover confirmed that most contributions come from Santa Monica apartment owners.
The city's landlords created the foundation in 1982, after previous efforts to overturn the controversial rent control law had failed. In his 2 1/2 years at the foundation, Shell, who reportedly earns about $70,000 a year, filed nearly 100 lawsuits against the city's Rent Control Board and became a respected rent board foe.
"Whenever David asked for something he was given it," said Huff, explaining past landlord support for Shell. "Nobody in the world could have had more support."
Huff said that relations started to sour in November, when Shell lost a bitter campaign against Assemblyman Tom Hayden (D-Santa Monica). After the campaign, Shell declared that he would play a bigger role in managing the foundation, Huff and Baker said.
People close to the foundation said that Shell moved the foundation from a cramped garage that Huff owned to a Wilshire Boulevard storefront without seeking full board approval and that he made decisions about lawsuits without consulting the foundation's legal review board.
By December the foundation's finances were in "drastic" condition, Huff said. Karyn Jackson, Huff's daughter and the foundation's treasurer, resigned, citing bad business practices, according to Huff.
In previous interviews, Shell has blamed the financial problems on the November elections, saying that traditional foundation contributors had given their money to political candidates, and maintained that Huff, Baker and Wellman quit the foundation because of its plans to venture into non-rent control areas.
But Huff contended that the board ousted them because they challenged Shell's authority.