Assemblywoman Diane Harkey has quietly dropped her 3-month-old, $10 million defamation lawsuit against her fellow Republican and competitor for a seat on the state Board of Equalization, state Senator Mark Wyland.

Harkey filed the lawsuit after Wyland made disparaging remarks about her and her husband, Daniel Harkey, at a local Orange County Tea Party gathering in July. Weyland’s subject was her husband’s troubled investment company, Point Center Financial, which declared for Chapter 11 bankruptcy earlier in the year after four years of investigations and lawsuits. The bankruptcy was involuntarily moved to Chapter 7, which could allow for liquidation of assets.

The termed-out Harkey and Wyland are vying for the 4^th District seat on the powerful 5-member board that oversees collection of the state’s sales and excise taxes, directs county property tax assessments, determines the market value of public utility and railroad property, and hears appeals on these taxes plus the income and corporate tax. The members’ status as politicians rather than bureaucrats has made the board more proactive in shaping policy than many other state agencies.

The Securities and Exchange Commission (SEC) first raised questions about the company in early 2009, about the same time 50 investors filed a lawsuit against Harkey. They claimed he made risky construction loans with their money and gave some of it to his wife’s political campaigns. Point Center specialized in short-term, high-interest loans to developers who couldn’t obtain funding from banks. So-called hard-money lenders take a large equity stake in the property for loans they issue, using first trust deeds to recover investments if borrowers default. Harkey’s company was hammered in the economic downturn.      

In July, a jury found Daniel Harkey liable for $10 million in damages for, among other things, pocketing fees and commissions from doomed loans. Diane Harkey had originally been named as a defendant, but was removed from the suit. Around 80 investors had sued Harkey for $43 million.

The suit actually alleges that Wyland made “numerous verbal non-privileged communications about HARKEY’S husband with malice for the sole purpose of embarrassing her politically and to bully and intimidate her so that WYLAND, as HARKEY’S political opponent, could be elected to become a Member of the California State Franchise Tax Board.”

Although the lawsuit says “Franchise Tax Board,” they are actually candidates for the Board of Equalization.

Diane Harkey was seeking damages for injury to her reputation and emotional distress, which included “fright, anguish, shock, nervousness and anxiety.” She wanted $5 million for being exposed to “hatred, contempt and ridicule” and another $5 million for unspecified medical treatment of an “indeterminate length of time.”

Although she dropped the lawsuit without public comment, Harkey has not been silent. She sent an “Open Letter to Mark Wyland” in October that could fairly be characterized as an angry screed based on the number of ALL-CAP words in the text. Four of them in one paragraph were “WRONG.” Wyland had “nuzzled up” to plaintiffs in her husband’s lawsuit and was “scurrying around” to avoid accountability for his words.

Wyland and Harkey square off June 3.

–Ken Broder

To Learn More:

Diane Harkey Drops Lawsuit against Mark Wyland (by Jeremy B. White, Sacramento Bee)

Exclusive: Harkey Drops Legislator vs. Legislator Lawsuit (by John Hrabe, CalNewsroom)

Legislative Fight: Diane Harkey Files Lawsuit against Mark Wyland (by Christopher Cadelago, Sacramento Bee)

Diane Harkey Fires Another Salvo at Tax Board Opponent Mark Wyland for Dissing Her Hubby (by Matt Coker, OC Weekly)

Why So Many State Legislators Are Running for the Board of Equalization (by Art Pedroza, OC Politics Blog)

SEC Probes O.C. Real Estate Lender Point Center Financial (by Stuart Pfeifer, Los Angeles Times)

Diane Harkey Complaint in Suit v. Mark Wyland et al (County of Orange Superior Court) (pdf)