The tentative ruling was released late Tuesday evening. attorneys in the case will have an opportunity to contest the ruling by Alameda County Superior Court Judge Winifred Smith at a hearing Thursday.
Houston had hoped a dismissal of this case would lift a cloud over his prospects as a viable Republican primary challenger in congressional District 11. He is looking at entering the race, but the lawsuit worries GOP donors who want no whiff of the "culture of corruption" allegations that helped defeat Republicans nationwide in November.
In attorney Morgan King's outline of the case, investors Gerald Stefanski, Samuel and Joann Story and Carol Tomasa argued that Houston is liable for their losses.
They said Houston and his father, Fred, falsely represented the security of their investments, failed to disclose the risks, repaid themselves while abandoning their investors and failed to account for where the investors' money had gone in a confusing series of transfers among business entities.
There is a "pattern of irregular and incompetent financial transactions consisting of unexplained money transfers back and forth between the various schemes, and between the Houstonspersonally, without apparent disclosure to or authorization from the investors,"according to court documents.
Houston and his attorney, Michael Rupprecht, have said the Assemblyman had no involvement in Fred Houston's failed business dealings and claim the lawsuit was politically motivated. The plaintiffs sued in October 2004, a month before Houston's re-election campaign to the Assembly.
In an interview with MediaNews earlier this year, Houston said he believes the case remains in play because he and King are long-time political enemies, dating back to his days as mayor of Dublin.
The pair quarreled primarily over Dublin land-use issues while Houston was mayor.
The lawsuit grew out of the 2003 personal bankruptcy of Fred Houston, whose company, Winning Action, and related business ventures collapsed under $5.5 million in debt.
The plaintiffs were unable to recover their losses in the bankruptcy because Fred Houston had no assets other than his home, which the law exempts from bankruptcy action.
The investors turned to his son, Guy Houston, a man they say knew or should have known what was happening.
Court documents offer examples of the Houstons advertising their real estate and investment services as a family and note that the companies under the Houstons' management shared the same Dublin office space.
Guy Houston, in depositions, has said he was never an employee or owner of Winning Action, although he provided clerical support in the 1980s for his father's IRA investment program. He said his parents listed him as an officer in the company without his knowledge.
The assemblyman has described his affiliation with Winning Action as that of a type of independent contractor he was a real estate agent who bought and sold homes under his father's brokerage license.
He said checks for personal expenses drawn from his father's business account were commission payments.
Guy Houston co-owns Valley Capital Realty and Mortgage in Dublin with his brother, Eric.
The hearing is scheduled at
9 a.m. Thursday in Dept. 31 at Alameda County Superior Court at 1225 Fallon St., Oakland.