Then the district attorney filed 16 counts of misdemeanor building code violations--as serious as building a house without a permit and as small as illegally installing a water heater. In yet another lawsuit that is still pending, Lawseth accused Kenny and Starz of defamation, alleging damage from about 40 statements in the Balance Sheet.

They were found guilty in May 1994 of the building code violations. But Los Angeles County Superior Court Judge James Albracht's sentence was notably lenient.

"Heaven forbid the Building and Safety Department should descend and inspect my house, your house, or anybody's house," Albracht said, criticizing the system for giving inspectors too much discretionary power.

He sharply rejected the prosecutor's insistence on jail time, saying he considered the couple honest idealists who "didn't want to do the dancing you have to do to cooperate with Building and Safety."

Still, he fined each $2,500 and put them on probation with an order to obtain the proper permit.

But they weren't done in court yet. They still had to defend themselves against the Coastal Commission lawsuit.

Six months later, after seven weeks of testimony, Superior Court Judge Victoria Chaney issued a 125-page ruling finding Starz's "blatant" disregard for the Coastal Act to be "the most serious type of violation which, if allowed to go unsanctioned, would lead to a breakdown of the controls established in the Coastal Act."

She fined the couple $1,000 a day--state lawyers had suggested $10,000 a day--retroactive to the construction of the house, for a total of $798,000 on the day of the ruling.

In their bleakest moment, glimmers of hope began to appear.

For one thing, Albracht repeatedly denied the district attorney's demands to jail the couple or to order them to raze the red house, noting Topanga's widespread and largely unprosecuted illegal housing.

"Somehow the thought of putting these two otherwise law-abiding people in jail because they have . . . a very well-built, neat, clean structure . . . surrounded virtually by junk and people living in trees and under bushes . . . strikes me as being incongruous and illogical," Albracht said.

And the Los Angeles County auditor-controller's office had opened an investigation into the couple's claim that they were victims of governmental fraud.