County Rejected Offer to Settle Suit, Ends Up Paying More

As Los Angeles County prepares to pay a near-record $2.5-million settlement for injuries suffered by a mentally ill man improperly released from jail, sources confirmed Monday that the county’s top lawyers ignored the advice of their own experts two years ago to settle the same case for $800,000 less.

With mounting legal bills included, taxpayers and the cash-strapped county are being asked to pay at least $1 million more than they would have in mid-1994, when the county counsel’s office rejected a proposed $1.7-million settlement offer that had already been accepted by lawyers for the injured man, according to sources and court documents.

The settlement is scheduled to come before the Board of Supervisors today for approval, based on recommendations by County Counsel De Witt Clinton and the county Claims Board. Asked for comment, some county officials said they had urged settlement of the case long ago.

“I believe there was no question it could have been settled for less,” said Sheriff Sherman Block, whose department is one of the defendants. “Certainly I am not happy that it is costing more than it might have cost earlier.”

Clinton did not return phone calls seeking comment. Assistant County Counsel Lloyd W. Pellman said the decision to reject the settlement in 1994 was made because county attorneys felt the amount was too high. County lawyers also felt more research was needed on the case, Pellman said, even though the incident had occurred in 1991.

Asked why the county counsel’s office suddenly changed its mind and agreed to settle just weeks before the case is scheduled to go to court, Pellman cited “further examination of the facts and the legal issues, as well as the continued expense of defense costs.”

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Since the settlement offer was rejected in 1994, the case of paranoid schizophrenic William Penuela has dragged on and on, with enough litigious wrangling and court depositions to fill 52 court binders.

If the settlement is approved, the total cost to the county would be almost $4 million. That would include $1.5 million to Penuela, $750,000 to his lawyers and $250,000 for court costs. In addition, the county has spent at least $1.3 million on its own case, including $850,000 for outside counsel and $400,000 in court costs.

County officials admit that Penuela was grievously mistreated by employees of the Sheriff’s Department and the mental health department after his arrest in 1991 on suspicion of vandalizing a Glendale church. For two weeks, he languished in a county jail without the medication his family said he desperately needed to keep his paranoid schizophrenia under control.

Then, despite his family’s pleas that they be notified before he was released, Penuela was let out of jail on the evening of March 1, 1991, penniless and alone. In a state of paranoid delusion, according to court documents, he wandered into the path of a train, which nearly killed him and crippled him for life.

He still suffers debilitating injuries, and will eventually lose his right leg below the knee.

Clinton and his staff hired lawyers from the legal firm of Bonne, Bridges, Mueller, O’Keefe & Nichols because of their expertise in defending government entities in such lawsuits. Yet Clinton and his staff ignored their official recommendation to settle in the summer of 1994, after the private firm won an agreement from Penuela’s lawyers to settle for $1.7 million.

“We had a settlement, which we recommended to our client, the county counsel,” said Bonne, Bridges lawyer Peter Osinoff. “We gave what we thought what was our best advice given our experience in the area and the fact that we were hired by the county for that experience. I don’t know why the county counsel rejected it.”

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Roy Penuela, a lawyer who has led the legal team representing his brother, said Monday that he would not comment until the settlement is acted upon by the supervisors, who rarely reject settlement proposals approved by their own Claims Board. But Penuela confirmed that he was ready to accept $1.7 million--including his own legal fees--two years ago.

Clinton’s staffers have signed off on the proposed $2.5-million settlement because they believe a jury could award far more in damages if the case goes to trial. “A jury could conclude that county employees were deliberately indifferent to William Penuela’s psychiatric and medical needs and were negligent in failing to treat him while at Men’s Central Jail,” according to the a memorandum from the Claims Board.

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Under the terms of the agreement, the Department of Mental Health will pay 60% of the settlement costs, and the Sheriff’s Department will pay 40%. Mental health officials work with the mentally ill in the vast county jail system, and evaluated Penuela before he was released from jail.

The Sheriff’s Department operates the jail system, and played a role in failing to provide Penuela with medication to minimize his hallucinations, and in failing to notify his family that he was being released once the vandalism charges against him had been dismissed, court records show.

Block was not the only top county official to say they had urged the county counsel to admit liability and settle the case two years ago to cut potential losses to taxpayers.

Undersheriff Jerry Harper and some Department of Mental Health administrators told county lawyers in a meeting in 1994 that the county should immediately admit liability and settle the case as quickly as possible. “I was concerned that this case looked bad on its face,” Harper said. “But county counsel said there was good law to defend this case.”