Pat and Sue Gaughn, the Atascadero property owners who sued the city of Atascadero in 2006 claiming ingenuine threats of eminent domain damaged them in excess of $200,000, reached a settlement with the city’s self-insurance pool last week.

The settlement occurred after a meditation between both parties and resulted in California Joint Powers Insurance Authority agreeing to pay the Gaughns and their lawyer $50,000 in return for the dismissal of the lawsuit and release of potential liability.

Ed Richards, an attorney with Kutack Rock, represented the insurance pool in the suit and said the terms of the settlement dictate that neither side admits fault. The settlement, he said, was reached in an effort to halt litigation costs.

The Gaughns’ lawsuit was filed in November 2006 against City Manger Wade McKinney, Deputy Executive Redevelopment Agency Director Marty Tracey and the entirety of the City Council in place in February 2005.

At that the time, the couple received a call from Tracey — a fact later confirmed by McKinney — that informed them the City Council, sitting as the Redevelopment Agency in closed session, had directed staff to move forward with the eminent domain process on the Gaughns’ then-vacant auto repair shop located across the street from The Carlton Hotel.

The allegations, which surfaced in October 2005, came to a head on Oct. 31, 2005 when the City Council, after meeting in a special closed session, unanimously voted to request Tracey’s resignation.

Tracey, who contended he was only doing what he was expected and told to do, did not resign and soon after the council rescinded its request and placed Tracey on paid administrative leave.

In November 2005, former City Attorney Pat Enright said an investigation was being conducted to see what Tracey had done wrong, “if anything.”

After Enright refused to comment as to the results of the investigation, Tracey asked for a public appeal that was never granted and quietly returned to work in February 2006 as a redevelopment specialist. He was fully reinstated as deputy director in June of that year.

“Look at the final result, it kind of speaks for itself,” Tracey said at that time.

Tracey has since filed two lawsuits against the city in relation to the incident that are still pending. The first of Tracey’s lawsuits claims the city should foot the bill for legal fees incurred through the Gaughns’ suit and states the dispute between himself and city management made it necessary for him to be defended by his own counsel. The second suit claims age discrimination, wrongful termination and the violation of a whistle-blower statute designed to prohibit retaliatory action against employees who report wrongdoing.

“There was no justification,” Tracey said in October 2007. “I was, in fact, suspended without pay. I was, in fact, demoted.”

The Gaughns’ lawsuit claimed that Tracey’s alleged threat to acquire their property, located at 6040 and 6090 El Camino Real, came after the couple turned down two $1.1 million requests from the city and a local developer to purchase the land.

The Gaughns’ suit further claimed that the city’s conduct caused them to lose their lessee, Landis Automotive, and suffer a “significant reduction” to the property’s value. In addition the suit said the Gaughns had lost of the ability to develop the property “now and in the future,” and would lose future rental and lease income.

In contrast, the city stated it never made an official announcement of an intent to acquire the property through eminent domain and was merely engaging in planning activities.

“There was never any formal resolution or discussion to initiate eminent domain procedures against the plaintiffs,” the city’s response to the lawsuit said.

Within their response the city also said Tracey’s message was “nothing more than a true statement intended to keep [the] plaintiffs abreast of [the] city’s interest in their property.”