AIRPORT COURTHOUSE — A Santa Monica resident who was accused of illegally building electric cars following a sting operation last year walked out of court a free man on Tuesday after city officials decided to drop all charges.

During the hearing, the Santa Monica City Attorney’s Office dismissed the charge that Paul Pearson, a prop maker in the movie business and electric car enthusiast, was operating without a business license, deciding to resolve the issue after he applied for one several weeks ago.

The more severe of the charges, which alleged that Pearson unlawfully acted as an unlicensed dealer or manufacturer of electric cars, was recently dropped by the Department of Motor Vehicles after the agency changed its policy to no longer require a state license for retrofitting vehicles.

Gary Rhoades, the deputy city attorney, said that all Pearson needed to do was pay the business license fee to put the issue to rest.

“We’ve been waiting for him to do that since the beginning of this case,” Rhoades said.

The two charges were filed as a result of a Dec. 4, 2008 sting operation lead by undercover officers with the DMV and several other local agencies, including Santa Monica Code Enforcement, at Pearson’s former garage off Pico Boulevard where he has built several electric cars, including a one-seater he drives every day. He has also modified several vehicles for ZAP Electric Cars.

The investigation began after City Hall received complaints from neighbors about excessive noise coming from Pearson’s garage and the matter was referred to the DMV.

Pearson, who became fascinated with electric vehicles several years ago and is a fixture at the Fourth of July Main Street parade, received a call from a man — an undercover DMV agent — late last year inquiring about converting a vintage Ford Thunderbird to operate on electric power.

The man, along with another individual, visited Pearson on Dec. 4 and reportedly asked about purchasing several vehicles that were sitting at the garage, including one that was being built for Pearson’s wife and the one-seater he uses every day. Pearson refused both offers, reportedly stating that the car he was building for his wife was not yet certified by the California Highway Patrol.

Both parties then reached an agreement for the price of the Thunderbird conversion, upon which a group of officers from the local fire and police departments and Code Enforcement Division packed into the garage. During a previous interview, Pearson said that he estimated about 16 individuals total were involved with the sting operation.

The charges were based on an inspection of Pearson’s garage and his offer to convert the Thunderbird for approximately $18,000, the City Attorney’s Office said.

Pearson said on Tuesday that the case just shows how new the electric car industry is and the absence of regulations as a result.

“I understand the need for regulation but what I think happened here was someone thought there has to be a law against this so they wrote the misdemeanor citation thinking there has to be a law and in actuality there was not,” Pearson said. “In the end they never had a case.”

Pearson added that while he has paid for a business license, the specific category of electric vehicle businesses is not on the books at City Hall.

Previously calling himself an electric car hobbyist, Pearson said he is now in the process of starting a business at his new garage in Van Nuys.

“I think the electric car conversion business is making a transition from being really a backyard hobby for people into an actual business,” he said.

The issue garnered worldwide attention as Pearson appeared on radio shows as far away as Japan. Andrew Cappelletti, a filmmaker from Marina del Rey, also produced a documentary chronicling Pearson’s battle with City Hall in a piece titled “Govt. vs Green.” The film was screened last weekend at the Santa Monica Public Library.

Cappelletti said he plans to update the end of the film with the most recent news of the charges being dismissed.

“All of a sudden, it’s become a historical piece, which is delightful to me,” he said.

Pearson said he believes city officials decided to drop the charges because of the documentary.

But Rhoades said the film played no role in the decision, noting that Pearson applied for the business license “finally after five months claiming he was just a hobbyist.”

“He saw the evidence showing he was operating as a business,” Rhoades said. “He applied for the license and the DMV changed its policy.”

The issue has also caused some to question a municipality that prides itself on being green but prosecutes a resident who creates and retrofits vehicles to run on electric power.

“The last thing we want to do is hinder the development of electric vehicles, but we treat all businesses the same and this is a new business,” Rhoades said. “With businesses, we have to play by the rules and he had not even applied for his business license yet with us.

“The business licenses are registered so we know where they are and where to find them when the complaints come in.”