Ethics Agency Seeks to Proceed With Inquiry : Court: Lawyer says panel could be emasculated if it is barred from investigating alleged payroll irregularities in city attorney’s office.

An attorney for the Los Angeles Ethics Commission argued Friday that the agency could be “emasculated” if a Superior Court judge permanently bars it from participating in an investigation of alleged payroll irregularities in City Atty. James Hahn’s office.

At a hearing on claims that the ethics agency exceeded its authority in the probe, attorney Edward Medvene told Judge Robert H. O’Brien that the commission has acted properly and was “created by the people to do exactly what it did here.”

But Neil Papiano, an attorney for Charles P. Fuentes, a Hahn aide who figures in the probe, said the investigation has been run in “vigilante” style by the year-old ethics agency, which disregarded its own procedures and sought to “unilaterally expand” its legal power.

O’Brien, who temporarily halted the ethics agency’s participation in the case two weeks ago, said he would issue a permanent order next week. He closely questioned Medvene about the procedures and legal authority used to conduct the probe, noting at one point, “We’re dealing with legal principles . . . and protection of people’s rights.”

The investigation, the commission’s first major inquiry, began last year with a tip to a whistle-blower hot line. It centers on allegations that some Hahn aides improperly performed political work while on the city payroll. The Ethics Commission and the district attorney’s office have been cooperating on the probe for several months.

Despite the challenge to the ethics agency’s role, Dist. Atty. Ira Reiner said the probe will continue, and he has assigned a top team of prosecutors to the case.

But the commission’s role in the inquiry--and how it could approach future probes--could be affected by O’Brien’s ruling.

Papiano said city agencies--which generally are limited to investigating misdemeanors--have no legal power to be involved in a potential felony investigation. He criticized an Ethics Commission legal adviser’s involvement in the probe. The adviser at one point was temporarily deputized by the district attorney’s office so he could question witnesses before the county Grand Jury. He also said Fuentes was denied notices, private hearings and other due process rights set out in city law.

Fuentes, Hahn’s top administrative manager and longtime political adviser, is a leading Democratic Party activist. His payroll records were subpoenaed and his office was searched at the beginning of the investigation, but no charges have been filed against him.

In court papers, Papiano also maintained that the district attorney’s office had already reviewed the case and concluded that no further investigation was warranted--a point Ethics Commission Executive Director Ben Bycel labeled an “absolute falsehood.” Deputy Dist. Atty. William Hodgman, who is assigned to the case, said he knew of “no information to suggest that is true.”

Medvene maintained that the district attorney’s office obtained search warrants and has been overseeing the inquiry all along. He said proper procedures were followed for this type of criminal investigation and urged the judge to drop the order restricting the Ethics Commission. He said the basic issues are moot because the case now is squarely in the hands of the district attorney.

But O’Brien indicated that questions about the earlier role of the ethics agency and its attorney may still be relevant to the case.

Meanwhile, the new team of prosecutors is evaluating evidence and proceeding with the investigation, Hodgman said.