State prosecutors on Friday announced a $1.5-million settlement in a consumer-fraud lawsuit against an apartment company owned by George Argyros, the billionaire Orange County businessman awaiting confirmation as ambassador to Spain.
The settlement makes thousands of former tenants eligible for refunds of security deposits withheld over the last four years by Argyros' Arnel Management Co., the largest apartment owner in Orange County.
The attorney general's office called the settlement one of the biggest of its kind in state history. Former tenants accused Arnel of keeping their security deposits for unneeded repairs and even when they left their apartments in immaculate condition.
Investigation Stalled Confirmation Hearings
The settlement is likely to clear the deck in Washington for the Senate Foreign Relations Committee to schedule hearings on Argyros' nomination as President Bush's ambassador to Spain.
Sources with the Democratic majority on the committee said Friday they would not consider the nomination while Argyros' company was under state investigation. The settlement does not name Argyros as a defendant, and the company does not admit wrongdoing in agreeing to compensate tenants.
Argyros could not be reached for comment Friday, but Arnel released a statement denying that it cheated tenants out of security deposits. The company said settling the case was far cheaper than a long court fight.
Under the settlement, Arnel will set aside $1.1 million for former tenants, pay $200,000 in fines and $150,000 to reimburse the costs of investigations by the Orange County district attorney and attorney general.
In addition, the state set strict new guidelines for how Arnel deals with tenants in the future. The company must instruct tenants on what they need to do to get their deposits back and must submit bills for repairs to the attorney general.
Former tenants said they felt vindicated by the settlement, saying it underscores their claims that the company had overcharged them for ordinary "wear and tear."
Calvin Wadsworth, 49, said he is still angry at Arnel, three years after he moved out of a one-bedroom Anaheim apartment he rented from the company.
Arnel, he said, kept his $450 deposit and demanded an extra $864 for cleaning the carpet and other "petty charges" after he moved out. Since then, he said he has been hounded by debt collectors looking for the payment plus interest.
"I got down on my hands and knees and scrubbed that carpet myself," said Wadsworth, a machinist who now lives in Orange. "There are a lot of people out there who felt the way I did."
For Ruth Brown, however, the settlement does little to help.
Her dispute with Arnel started in 1994 when she and her family moved out of a luxury apartment just yards from South Coast Plaza. Under the terms of the settlement, only tenants who left after March 1997 can claim a refund.
While Brown said she is happy for those who can collect some money, she complained that her credit history has been ruined ever since she refused to pay $1,900 to Arnel for repairs when she and her family moved out.
"It was outrageous . . . they've been doing this for years and years," Brown said. "We're a permanent victim. And it's just going to hang over us, I guess."
Class-Action Civil Suit Is Still Pending
Arnel still faces a class-action civil lawsuit from former tenants seeking compensation.
The Orange County district attorney's office started investigating Arnel in 1999 after receiving dozens of complaints from former tenants.
In April, Dist. Atty. Tony Rackauckas withdrew from the case and asked the attorney general to take over. Rackauckas, who accepted campaign money from Arnel, had been widely criticized for taking a personal role in the case. At one point, the district attorney ordered attorneys to withdraw a lawsuit they filed against the company and then personally took over settlement negotiations.
In a statement, Rackauckas said he was pleased that the case is now resolved.
"This is the type of settlement that we were working toward during our negotiations. I think this is a proper solution and I am gratified that tenants who lost money can get their restitution now," he said.
Argyros, the former owner of Air Cal and the Seattle Mariners baseball team, was recently listed as one of the wealthiest 400 people in America by Forbes magazine. In recent years, he has become best known as the most influential backer of plans to build an international airport at El Toro and a lightning rod for opposition to the project.
Much of his political clout comes from his willingness to spend his fortune backing Republican Party candidates. Last year, Argyros helped raise nearly $30 million for President Bush--support that was rewarded with the nomination to the ambassadorship of Spain.
Argyros has been making plans for the new job. He recently persuaded the Irvine Museum to loan three early 20th century paintings of California missions for display at the embassy in Madrid.
And in May, Argyros and his wife, Judie, attended a two-week crash course in diplomacy at the State Department's Foreign Service Institute in Virginia.
Argyros also has told federal ethics officials that he would give up daily control of Arnel Development, the privately held firm that oversees his real estate businesses--including Arnel Management--to become ambassador.
Times staff writers Scott Martelle, E. Scott Reckard and Jean O. Pasco contributed to this report.