The city of San Diego redevelopment agency responsible for revitalizing a large part of southeastern San Diego has settled a long-running legal feud with its former president, Carolyn Y. Smith.

Smith will receive a total of $23,000 from the agency as reimbursement for legal fees she incurred while working at SEDC. But she will not receive a controversial $100,350 severance payment she was initially offered and will also not receive additional money she argued she was owed from her retirement account, according to the settlement.

The agency’s board voted unanimously for the settlement in a meeting today. SEDC also plans to deny Smith reimbursement of her legal fees in this dispute, which has been continuing for at least two years, said Leslie Devaney, SEDC’s corporate counsel. Devaney said Smith is not entitled to reimbursement of those legal fees, which she estimated amount to hundreds of thousands of dollars. A judge will have to decide on that matter.

Smith walks away from the dispute with something else, however: SEDC has promised to drop a counter-suit it filed against her last year that claimed Smith manipulated public funds available to the agency in a number of ways to enrich herself.

Devaney said today’s settlement is a significant success for SEDC. The public agency’s insurance company will pay for the cost of defending Smith’s lawsuit and will also reimburse Smith the $23,000, she said.

“It’s a very good result. SEDC won’t have to pay anything and hasn’t paid anything,” Devaney said.

D. Cruz Gonzalez, SEDC board chairman, said he was relieved that the legal fight was over.

“We’re going to put this behind us. We have many more important things to deal with,” Gonzalez said.

Smith’s attorney released a statement saying his client is pleased that the parties to the lawsuit can put the matter behind them.

“She wishes nothing but the best for the community of Southeastern San Diego as we all move forward,” it states.

Smith was ousted from her position as president of SEDC in 2008 after our investigation revealed that she and former SEDC Finance Director Dante Dayacap had orchestrated a clandestine bonus system that paid out more than $1 million to SEDC staffers over the course of five years. Smith and Dayacap were the largest beneficiaries from the secret bonuses.

A city commissioned audit of the agency the same year found that the hidden system of bonuses and extra compensation rose “to the level of fraud.”

The day she was fired, Smith was offered a $100,350 severance package by SEDC’s board.

A lawsuit filed by a local community activist led to that severance payment being withheld, however. As that lawsuit was working its way through the courts, several members of the SEDC board were removed and replaced and the newly constituted SEDC board then rescinded the severance payment completely.

Smith then sued SEDC, arguing that she was still owed the severance and that the agency should also pay for legal fees she had incurred while defending the lawsuit from the community activist and a separate lawsuit brought by then-City Attorney Mike Aguirre.

Smith later also added another claim: That she was owed far more than SEDC had paid her from her retirement account at the agency.

SEDC claimed that during her tenure at the agency, Smith had unilaterally decided to start paying 15 percent of her income into her retirement account instead of 12 percent, the amount approved by SEDC’s board. The agency said Smith wasn’t entitled to the extra 3 percent she had paid into her account and refused to pay out tens of thousands of dollars Smith had accumulated.

Today’s settlement clears all of those matters up: Smith gets the legal fees for defending the two cases brought when she was an employee, but the agency won’t pay her the severance or the disputed retirement account money. And it will drop its counter-lawsuit against Smith.

This post has been updated to include a subsequent statement from Smith’s attorney.

Please contact Will Carless directly at will.carless@voiceofsandiego.org or at 619.550.5670 and follow him on Twitter: twitter.com/willcarless.

Will Carless

Will Carless was formerly the head of investigations at Voice of San Diego.

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