The City of Santa Monica has settled a lawsuit for $500,000 with a former veteran police captain who alleged that he was retaliated against for disclosing misconduct by a superior officer.

The City Council approved the agreement last month with former Santa Monica Police Department Capt. Mark Smiley and his attorneys to settle the multimillion-dollar lawsuit filed by Smiley against the city and his department superiors in July last year.

Under the agreement, Smiley will be paid about $395,000, with the remainder going to his attorneys, in exchange for dropping the lawsuit, city attorney spokeswoman Jeanette Schachtner said.

“The settlement has resolved all issues between Smiley and the city,” Schachtner said.

Smiley, who served with the police department for 26 years, alleged in the complaint that Police Chief Timothy Jackman and Deputy Chief Phil Sanchez falsely accused him of misappropriating $58,000 in department funds and lying about the number of hours he worked.

The veteran police captain sought $10 million in damages in the lawsuit, claiming that he had suffered severe emotional distress and irreparable harm to his reputation and ability to obtain meaningful future employment.

Smiley, who was the commanding officer of the Office of Special Enforcement, which includes Special Operations and Traffic, has since resigned from the department following the settlement, said his attorney, Clifford Pearson.

While the settlement payment was significantly lower than Smiley was seeking, Pearson said the agreement will allow the former captain to “go on with his life.” Pearson was working on the case with Thomas Girardi, considered one of the nation’s top trial lawyers, who specializes in commercial litigation, and Robert Baker, who represented O.J. Simpson during his civil trial in the death of Nicole Brown Simpson.

“Both my client and I are satisfied with the settlement,” Pearson said. “Most importantly, it allows him to move forward with his life with a clean slate.”

Santa Monica city attorney Marsha Moutrie noted that the city was also pleased to come to an agreement on the case.

“Both parties are glad that the case could be brought to an amicable solution,” Moutrie said.

Smiley alleged in the lawsuit that Sanchez was misappropriating department assets by having a police officer perform school work for the deputy chief’s master’s degree classes while on duty. The captain claimed that the accusations made against him by his superiors were in retaliation for his complaints of misconduct by Sanchez and to eliminate the perceived threat he posed to the superiors’ position.

Smiley said he sent an anonymous letter to the Santa Monica mayor, city manager and city attorney, informing them of the alleged misconduct. After Jackman and Sanchez learned that Smiley was the author of the letter, they began to retaliate two weeks later, alleged the complaint filed in Los Angeles Superior Court.

Jackman declined to comment on the case and last month’s settlement agreement, calling it a “personnel matter.” The city manager’s office referred comments on the settlement to the city attorney.

Smiley claimed in the lawsuit that because of his experience and reputation in the police department, both Jackman and Sanchez viewed the captain as a threat to their status. In their alleged retaliation, the chief and the deputy chief falsely accused Smiley of lying about the number of hours he worked, knowing that Smiley had a position on salary that did not require him to record the hours worked, according to the complaint.

Approximately two weeks after Smiley wrote the letter to city officials, he was placed on paid leave pending an investigation. He said he was reprimanded in embarrassing fashion, as he was ordered to disrobe and turn over his police uniform in the presence of other officers, and give up his badge and gun.

The complaint said the captain was escorted from the police station and driven to his home, where a tow truck confiscated his police motorcycle in the presence of his children and neighbors. Smiley claimed that his superiors made the accusations against him as public and damaging to his reputation as possible.

Following the filing of the lawsuit in July, former Santa Monica Police Chief James Butts, who worked with Smiley for 15 years and promoted him three times, praised the captain’s service in the department.

“He is one of the brightest police minds I have ever worked with,” said Butts, who is now deputy executive director of airport law enforcement and protection services at Los Angeles World Airports. “He has a spotless disciplinary history and I know him to be a person of the highest integrity.”

Smiley joined the police department in 1982 and worked various assignments as an officer until he was promoted to sergeant in 1994. He served as captain for nearly six years and held positions in Criminal Investigations, Operations and Special Enforcement.

He has been involved in community activities, including the Police Activities League, in which he chaired a committee for the Ricardo Crocker Memorial Golf Tournament, and he assisted in bringing a homeless community court to the city.

A graduate of the FBI National Academy, Smiley served as one of three interim police chiefs during the search for Butts’ replacement in 2006.