The O’Connor sisters’ lawsuit centers around the Heritage House Inn on the Mendocino coast.

In 1989, San Diego mayor Maureen O’Connor, daughter of a professional pugilist, donned her boxing gloves and jumped into the ring with SCE Corporation, a huge Los Angeles area utility (now named Edison International), which was attempting a hostile takeover of San Diego Gas & Electric.

San Diego Gas & Electric, now part of locally based Sempra Energy, wimped out, surrendering to the bigger bully. But O’Connor, known as Mayor Mo, kept punching away.

In 1991, SCE — bruised, battered and bleeding financially — gave up the fight. And it took awhile for San Diego Gas & Electric’s reputation to heal. Mayor Mo had not only knocked out a corporate raider but had damaged Wall Street’s scheme to launch a massive merger movement among the nation’s utilities.

Now she has her boxing gloves on again. O’Connor and her twin sister Mavourneen are in a superior court fight with a big, deeply troubled German state-owned bank, WestLB AG of Düsseldorf. Last year, the European Union launched an investigation of Germany’s rescue of WestLB, suspecting that the bank had received illicit financial aid in a desperate attempt to keep it afloat.

The O’Connor sisters are suing the bank, along with some of its business partners, for fraud and deceit, intentional misrepresentation of fact, concealment, breach of obligation to pay money, and several other transgressions.

WestLB’s losses soared as the bank got sucker-punched in the subprime meltdown. But it also got bloodied making loans for the financing of luxury hotels. The bank advertised itself as “one of the top financial institutions in development financing for high-end luxury hotels, resorts, and private residence clubs in the U.S., as well as select regions throughout the world.”

Among the posh facilities it helped finance were Rio de Janeiro’s Copacabana Palace; Fort Lauderdale’s Bonaventure; Dana Point’s St. Regis Monarch Beach; Park City, Utah’s Sky Lodge Private Residence Club; New York’s Cooper Square; Aspen’s Dancing Bear; and Sè San Diego Hotel. Cooper Square and St. Regis went through foreclosure, and Sky Lodge, Dancing Bear, and Sè went into bankruptcy.

The O’Connor sisters, through a limited liability company, owned the historic Heritage House on the Mendocino coast. It had been built in the 19th Century as a farmhouse and was known as a quiet country inn on 37 acres.

In 2005, a group of Delaware investors, along with WestLB, came up with a plan to convert Heritage House into a 45-room world-class resort with seven units to be used as a private residence club for 80 members. There would be a spa, fitness center, and 150-seat ocean-view restaurant. The investment group, called Lantana Mendocino, agreed to pay a promissory note to the O’Connor sisters for $7 million plus 12 percent interest. WestLB would provide $19.5 million of financing, later upped to $24 million.

But, says the suit, WestLB did not disclose to the O’Connors that Lantana lacked the funds to fulfill their financial commitments or refurbish the hotel property. The Delaware group had induced the O’Connors to take the promissory note as part of the purchase price by touting the wonders of luxury private club memberships. By and large, such clubs have flopped.

The bank talked the O’Connors into accepting the promissory note by pledging that the sisters could buy the WestLB loan if Lantana defaulted, according to the suit. And the bank promised that it would quickly inform the O’Connors if Lantana got into financial trouble. The bank learned that Lantana was not paying its financial obligations but kept the woes secret, says the suit. Next came a default, but WestLB delayed in passing the word to the O’Connors.

Then the bank persuaded the sisters not to purchase the loan, by falsely claiming that the German institution would pay off the promissory note. “WestLB did not intend to keep that promise,” says the suit.

Knowing that the Lantana group did not have sufficient funds to fulfill its promises, the bank persuaded the sisters to take an ownership position in the investment. “This fraudulent inducement was necessary to close the transaction because WestLB’s underwriting required it,” says the suit, and the ailing Lantana group could hardly take a significant equity stake.

By July of 2005, the Delaware group and WestLB “formed and operated a conspiracy to defraud…the O’Connor sisters,” according to the suit. The defendants tricked the O’Connors “into giving up their ownership of Heritage House,” says the suit. The defendants also tricked the O’Connors to take the promissory note “based on the worthless personal guarantees” and the “worthless projection” of successful private club memberships, according to the suit.

Later, the O’Connors were getting false promises from both Lantana and WestLB about the note payoff and a possible refinancing of the whole deal. Lantana said the promissory note would be paid in October of 2006. The following month, a Lantana representative asserted, “We are almost home with our refinancing and [the sisters’] early payoff.” On December 15 of 2006, a Lantana executive said, “We are finalizing new funding this week and will close on that by Thursday.” The next promise was for a deal that would put the project on track “the first couple of weeks of January 2007.” In February, the word was, “Don’t worry. We’ll get this done for you. We just have to go through the process.”

But the luxury hotel market collapsed, and WestLB found itself beaten up and bleeding on the ropes, awaiting a bailout from Germany. It was no longer practical for the O’Connors to purchase the WestLB loan.

The promissory note has not been paid, and the bank owns Heritage House, says the suit. In 2008, the bank foreclosed and said it would ask for $27 million for the property in a foreclosure sale. The day of the auction, it suddenly lowered the price to $18.2 million but still got no bidders. The O’Connors have no title, secured interest, cash, or collateral consideration in the facility, according to the suit. Heritage House is now closed.

One of the members of the Delaware group was charged with failing to pay bed taxes collected from guests. The district attorney settled for $210,000, according to Shari Schapmire, Mendocino County tax collector.

WestLB made hyperaggressive and “irresponsible” luxury hotel loans, says attorney Mike Aguirre, who is handling the case with his partner Maria Severson. I made several unsuccessful attempts to reach Maureen O’Connor. I sent questions to WestLB, but it says it does not comment on ongoing litigation.