in the supreme court of the state of california e v3.pdf · bodinson mfg. co. v. cal ... (regents...
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Supreme Court No. ____ _
In the Supreme Court of the
State of California
STEPHEN K. DAVIS, P la in tifJI Appe llant
vs.
FRESNO UNIFIED SCHOOL DISTRICT, et al. Defendant/Respondent and Petitioner
After Opinion in the Court of Appeal Fifth District, Civil Case No. F068477
EXHIBITS TO THE MOTION FOR JUDICIAL NOTICE
IN SUPPORT OF PETITION FOR REVIEW EXHIBITS F - L
VOLUME III of III
Donald R. Fischbach - No. 53522 Steven M. Vartabedian - No. 67888 Lynne Thaxter Brown - No. 104958 Matthew R. Dildine - No. 258685
DOWLING AARON INCORPORATED 8080 North Palm Avenue, Third Floor
P.O. Box 28902 Fresno, California 93729-8902
Telephone: (559) 432-4500 / Fax: (559) 432-4590
Attorneys for Defendant/Respondent and Petitioner FRESNO UNIFIED SCHOOL DISTRICT
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT, DIVISION TWO
JAMES D. MCGEE, Court of Appeal No. B252570
Plaintiff and Appellant,
v. (Super. Ct. No. YC068686)
TORRANCE UNIFIED SCHOOL DISTRICT, and BARNHART -BALFOUR BEATTY, INC., dba BALFOUR BEATTY CONSTRUCTION, et al.,
Defendants and Respondents,
Appeal From a Judgment Of The Superior Court, County of Los Angeles
Hon. Stuart M. Rice, Judge
APPELLANT'S OPENING BRIEF
Kevin R. Carlin, Esq. (SBN 185701) CARLIN LAW GROUP, A.P.c. 4452 Park Boulevard, Suite 310 San Diego, CA 92116 Telephone: (619) 615-5325 Facsimile: (619) 615-5326 [email protected]
Attorney for Appellant
I
TO BE FILED IN THE COURT OF APPEAL APP-008 Court of Appeal Case Number:
COURT OF APPEAL, Second APPELLATE DISTRICT, DIVISION P B252570
A nORI,EY OR PARTY WITHOUT ATIORNEY (Name. Slale ear number, and address)' Superior Court Case Number:
- Kevin R. Carlin, 185701 YC068686 Carlin Law Group, APC
FOR COURT USE ONLY 4452 Park Blvd., Suite 310, San Diego, CA 92116
TELEPHONE NO, (619)615-5325 FAX NO. (Oplional). (619)615-5326 "·MA!LADlJRESS (OptIonal) [email protected]
ATTORNEY FOR (Name), James D, McGee
APPELLANT/PETITIONER: James D. McGee
RESPONDENT/REAL PARTY IN INTEREST: Torrance Unified School District, et al.
CERTIFICA TE OF INTERESTED ENTITIES OR PERSONS
(Check one).' rn iNITIAL CERTIFICATE o SUPPLEMENTAL CERTIFICATE
Notice: Please read rules 8.208 and 8.488 before completing this form. You may use this form for the initial certificate in an appeal when you file your brief or a prebriefing motion, application, or opposition to such a motion or application in the Court of Appeal, and when you file a petition for an extraordinary writ. You may also use this form as a supplemental certificate when you learn of changed or additional information that must be disclosed.
1, This form is being submitted on behalf of the following party (name):_J_a_n_le_s_D_._M_c_G_e_e ______________ _
2. a. [Z] There are no interested entities or persons that must be listed in this certificate under rule 8.208.
b, 0 Interested entities or persons required to be listed under rule 8.208 are as follows:
(1 )
(2)
(3)
(4)
(5)
Full name of interested entity or person
D Continued on attachment 2.
Nature of interest (Explain):
The undersigned certifies that the above-listed persons or entities (corporations, partnerships, firms, or any other association, but not including government entities or their agencies) have either (1) an ownership interest of 10 percent or more in the party if it is an entity; or (2) a financial or other interest in the outcome of the proceeding that the justices should consider in determining whether to disqualify themselves, as defined in rule 8.208(e)(2).
DateNovember 25, 2013
Kevin R. Carlin
(TYPE OR PRINT NAME) (SIGNATURE OF PARTY OR AnORNEY)
Page 1 of1
Form Approved for Optional Use Judicial Council of California
APP·OOB (Rev. January 1. 20091
CERTIFICATE OF INTERESTED ENTITIES OR PERSONS Cal. Rules of Court. rules 8,208. 8,488 WYlw.courtinfo.ca.gov
TABLE OF CONTENTS
TABLE OF AUTHORITIES •.•.•••.......•••.........•••.•...•.•.•.••.•.•..••• -111-
I. INTRODUCTION .................................... -1-
II. STATEMENT OF THE CASE. . . . . . . . . . . . . . . . . . . . . . . . . .. -4-
III. STATEMENT OF APPEALABILITY .................... -8-
IV. STANDARD OF REVIEW ............................. -8-
V. STATEMENT OF FACTS ............................. -10-
VI. ARGUMENT ....................................... -12-A. The Superior COUli Abused its Discretion When it Sustained
Objections of Contractor/District to Taxpayer's Request for Judicial Notice of Notice of Lodgement Exhibits A-F, L, and N.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -12-B. The Superior COUli Ened When it Sustained the Demuners to
Taxpayer's First Cause of Action .................. -B-e. The Superior COUli Erred When it Sustained Contractor's
Demurrer to Taxpayer's Second Cause of Action
D. The Superior Court Erred When it Sustained District's -18-
Demurrer to Taxpayer's Second Cause of Action ...... -22-E. The Superior COUli Ened When it Sustained the Demuners to
Taxpayer's Third Cause of Action ................. -23-1. Background on Lease-Leaseback Transactions .. -25-2. The Superior Court's Ruling Is Contrary to the Plain
Language and Context of Education Code Sections 17406 and 17417 ......................... -28-
3. The Superior Court's Interpretation of Education Code Sections 17406 and 17417 Is Contrary to Established Rules of Statutory Interpretation ....................................... -32-
-1-
a. The Superior Court's Interpretation of Education Code Sections 17406 and 17417 Is Contrary to the Rule that the Specific Controls the General. . . . . . . . . . . . . . . . . . . . . . . .. -32-
b. The Superior Court's Interpretation of Education Code Sections 17406 and 17417 Is Contrary to the Rule Favoring Interpretations That Lead to More Reasonable Results " -33-
c. The Superior Court's Interpretation of Education Code Section 17406 Renders Section 17417 Superfluous, Nugatory and a Nullity .................................. -34-
4. Taxpayer's Interpretation of Education Code Sections 17406 and 17417 is SUPPOlted by the Staff, Executive Officer and General Counsel of the State Allocation Board .................................. -36-
F. The Superior COUlt ElTed When it Sustained the DemulTers to Taxpayer's Fourth Cause of Action ................. -38-1. California Law on Contractor's Conflict ofInterest
Under Government Code Section 1090 ........ -38-2. California Law on Contractor's Conflict ofInterest
Under COlmnon Law ...................... -39-3. Taxpayer Adequately Pled a Cause of Action for
Contractor's Conflict ofInterest Under Common Law and/or Government Code section 1090 ........ -40-
G. The Superior COUlt Ened When it Sustained the Demuners to Taxpayer's Fifth Cause of Action . . . . . . . . . . . . . . . . .. -43-
H. The Superior COUlt Ened When it Sustained the DemulTers to - Taxpayer's Seventh Cause of Action ............... -45-
1. The Superior COUlt ElTed When it Sustained the Demurrers Without Affording Taxpayer Leave to Amend . . . . . . .. -45-
V. CONCLUSION ...................................... -46-
CERTIFICATE OF COMPLIANCE ........................... -47-
-11-
TABLE OF AUTHORITIES Cases:
Banning Teachers Assn. v. Public Employment Relations Bd. (1988) 44 Cal.3d 799 ..................................................... -37-Bodinson Mfg. Co. v. Cal~fornia E. Com. (1941)17 Ca1.2d 321 ...... -43-
Branciforte Heights, LLC v. City of Santa Cruz (2006) 138 Cal.AppAth 914 ......................................................... -32-
Ca1tfornia Housing Finance Agency v. HanoverlCal{fornia Management and Accounting Center, inc. (2007) 148 Cal. App.4th 682 ............. -39-
Canova v. Trustees ojimperiallrrigation Dist. Emp/oyeePension Plan (2007) 150 Ca1.App.4th 1487 ....................................... -9-
Cel-Tech COlnmunications v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163 ................................................ -3-
Chapman v. Skype inc. (2013) 220 Cal.AppAth 217 ... -8-, -9-, -17-, -45-
City and County of San Francisco v. Boyle (1925) 195 Cal. 426 . -15-, -18-
City of Los Angeles v. OfJher (1942) 19 Ca1.2d 483 ........... -14-, -18-
Diaz v. United Cal!fornia Bank (1977) 71 Cal.AppJd 161 .......... -8-
GhUotti Const. Co. v. City of Richmond (1996) 45 Cal. AppAth 897 ... -3-, -24-, -34-
Goodman v. Kennedy (1976) 18 Cal.3d 335 ..................... -45-
Hobbs, Wall & Co. v. Moran (1930) 109 Cal. App. 316 ........ -19-, -21-
Hub City Solid Waste Services, inc., v. City of Compton (2010) 186 Cal. App. 4th 1114 ............................................... -1-, -39-
Jacobs v. Dept. o.fMotor Vehicles (1958) 161 Cal. App. 2d 727 ..... -33-
Kashian v. Harriman (2002) 98 Cal.AppAth 892 . . . . . . . . . . . . . . . .. -12-
-iii-
Konica Business Machines U.S.A., Inc. v. Regents of University of California (1988) 206 Cal. App. 3d 449 .................................. -3-
Loehr v. Ventura County Community College Dist., (1983) 147 Cal.App.3d 1071 .................................................... -22-
Metropolitan Water District v. Adams (1948) 32 Cal 2d 620 ........ -33-
Miller v. McKinnon (1942) 20 Cal.2d 83 ................ , -4-, -21-, -32-
Miller v. Superior Court (1999) 21 Ca1.4th 883 .................. -32-
Morgan Hi!! Unified School Dist. v. Amoroso (1988) 204 Cal.App.3d 1083 ..................................................... -38-, -43-
Nussbaum v. Weeks (1989) 214 Cal. App. 3d 1589 ............ -19-, -21-
People v. Sullivan (1952) 113 Cal.App.2d 510 .................. -39-
. People v. Superior Court (Jimenez) (2002) 28 Ca1.4th 798 ......... -32-
Ramos v. Countrywide Home Loans, Inc. (2000) 82 Cal.AppAth 615 .. -9-
Rao v. Campo (1991) 233 Cal. App.3d 1557 ..................... -35-
Reams v. Cooley (1915) 171 Cal. 150 ........................... -3-
S.B. Beach Properties v. Berti (2006) 39 Cal.4th 374 .............. -33-
SargonEntelprises, Inc. v. University of Southern Cal. (2012) 55 Ca1.4th 747 .......................................................... -9-
Schaeferv. Berinstein (1956)140 Cal.App.2d278 ................ -39-
Seelig v. li?finity Broadcast COlp. (2002) 97 Cal.App.4th 798 . . . . . .. -12-
Stockton P. & s. Co. v. Wheeler (1924) 68 Cal.App. 592 ....... -39-, -40-
Terry v. Bender (1956) 143 Cal.App.2d 198 ................ -19-, -21-
-iv-
Willis v. State ofCaltfornia (1994) 22 Cal.AppAth 287 ............. -9-
Woods v. Young (1991) 53 Cal.3d 315 ......................... -32-
Zott711Gn v. San Francisco (1862) 20 Cal. 96 ................... -3-, -4-
Constitutions: Cal. Const., mi. XVI, § 6 ................................... -37-
Statutes: Code Civ. Proe., § 1859 ..................................... -37-
Code Civ. Pree., § 430.10 ................................... -23-
Code Civ. Pree., § 581d ..................................... -39-
Code Civ. Pree., § 870 ..................................... -22-
Code Civ. Proe., § 904.1 .................................... -35-
Ed. Code, § 17402 .............................. -8-, -9-, -17-, -45-
Ed. Code, § 17406 ..................................... -15-, -18-
Ed. Code, § 17407 ..................................... -14-, -18-
Ed. Code, § 17417 .................................... :. . . . .. -8-
Ed. Code, § 17418 .......................................... -8-
Ed. Code, §§ 17400-17429 ........................... -3-, -24-, -34-
Ed.Code,§§17455-17484 .................................. -45-
Ed. Code, §§ 39300-39325 .............................. -19-, -21-
Evid. Code, § 452 ...................................... -1-, -39-
Evid. Code, § 453 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -33-
-v-
Gov. Code, § 1090 ........................................ -12-
Gov. Code, § 900 et seq. ..................................... -3-
Gov. Code, §905 .......................................... -22:.
Pub. Contract Code, § 20110 et seq ............................ -33-
Other Authorities Cited 62 Ops.Ca1.Atty.Gen. 209, 210 (1979) .................. -4-, -21-, -32-
January 28,2004 RepOli of the Executive Officer of the California State Allocation Board (attached as Exhibit K to First Amended Complaint; Volume 2 Appellant's Appendix pages 362-371.) ........ -1-, -14-, -25-, -36-, -37-, -44-
-Vl-
I. INTRODUCTION
This appeal involves approximately $48 million dollars worth of public
school construction contracts funded by general obligation bonds paid for by
taxes on real propeliy in Respondent Torrance Unified School District
(District). Appellant James D. McGee (Taxpayer) contends those contracts are
ultra vires, illegal, void and unenforceable because (1) those contracts were not
awarded in the manner required by law; and/or (2) the contractor to whom
District awarded the contracts has a conflict of interest due to its two
consulting contracts where it gives professional services and advice to District
on matters including the challenged contracts. While the conflict of interest
issue raised below is controlled by this Court's prior ruling in Hub City Solid
Waste Services, Inc., v. City of Compton (2010) 186 Cal. App. 4th 1114, the
statutory interpretation and application issues below relating to Education
Code sections 17400-17429 are matters of first impression in this Comi.
F or over 10 years a growing number of school districts throughout
Califol11ia have been advancing and adopting improper interpretations and
applications of Education Code sections 17400-17429 in order to use the lease
leaseback construction project delivery method created thereunder in a manner
not permitted by those statutes and contrary to long standing Califol11ia public
policy. See January 28,2008 RepOli ofthe Executive Officer of the Califol11ia
State Allocation Board (SAB RepOli) attached as Exhibit K to and
incorporated by reference in Taxpayer's First Amended Complaint (FAC) at
Paragraph 20. (Volume 2 of Appellant's Appendix, pages 362-371
(designated "2 AA 362-371 ").)
-1-
The SAB Report contains the legal opinion of SAB's counsel on the
proper interpretation and application of Education Code sections 7400-17429.
The SAB report formed part of the factual and legal basis of Taxpayer's
asseliions that, inter alia, (1) the exen1ption from competitive bidding stated
in Education Code section 17406 only applies to the site lease pOliion of the
lease-leaseback transaction (1 AA 366-367); (2) Education Code section
17417 applies to the leaseback pOliion ofthe lease-leaseback transaction and
requires competitive bidding thereof (Id.); (3) a lease-leaseback transaction
must be based on a genuine lease alTangement and not be a subterfuge to avoid
competitive bidding (1 AA 365-366); (4) a lease-leaseback transaction must
be a genuine financing mechanism for funding school construction projects (1
AA 367-368); and (5) absent the foregoing, school construction contracts must
be awarded in the manner specified in Public Contract Code sections 20110 et
seq. (1 AA 367).
This Court's decision on the lease-leaseback contracting issues below
will establish the first citable precedent for billions of dollars of CUlTent and
future bond funded public school construction contracts that would otherwise
be awarded without the public benefits of sealed competitive bidding (i.e. fair
and open coriipetition with contract awards only to the lowest responsive and
responsible bidder in a manner that stimulates advantageous market place
competition, avoids misuse of public funds and eliminates the fraud, favoritism
and COlTuption noted in the newspaper articles, Grand Jury Transcripts and
Criminal Complaints attached as Exhibits A through K to Appellant's Notice
of Lodgment in SUPPOli of Opposition to DemUlTers and Motion to Strike First
Amended Complaint (Taxpayer's NOL)). (4 AA 911-969.) Similar instances
of misuse of public funds, fraud, favoritism and COlTuption are equally well
known within this Court's jurisdiction involving the City of Bell and now
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possibly the Centinela Valley Union High School District.
Public notice soliciting sealed bids and the award of contracts thereof
only to the lowest responsive and responsible bidder have been the mainstay
of public constructioil contracts in California going back over 150 years.
Zottman v. San Francisco (1862) 20 Cal. 96, 101-102. Modern California
Appellate Courts have declared:
"The purpose of requiring governmental entities to open the contracts process to public bidding is to eliminate favoritism, fraud and corruption; avoid misuse of public funds; and stimulate advantageous market place competition. [citations omitted.] Because of the potential for abuse arising from deviations from strict adherence to standards which promote these public benefits, the letting of public contracts universally receives close judicial scrutiny and contracts awarded without strict compliance with bidding requirements will be set aside. This preventative approach is applied even where it is celiain there was in fact no conuption or adverse effect upon the bidding process, and the deviations would save the entity money. [citations omitted.] The importance of maintaining integrity in government and the ease with which policy goals underlying the requirement for open competitive bidding may be sUlTeptitiouslyundercut, mandate strict compliance with bidding requirements."
Ghilottj Canst. Co. v. City a/Richmond (1996) 45 Cal. AppAth 897,907-908;
Konica Business Machines US.A., Inc. v. Regents o.fUniversity of California
(1988) 206 Cal. App. 3d 449, 456-457.
Likewise, for over 150 years in California, the lUle has been that public
contracts executed without full compliance with all applicable legal
requirements are: (1) void and unenforceable as being in excess of the
agency's power; (2) prevented from asserting estoppel to uphold their validity;
and (3) excluded from any fonn of quasi -contract recovery. See, e.g., Zottman
v. San Francisco (1862) 20 Cal. 96, 101-102; Reams v. Cooley (1915) 171 Cal.
-3-
150, 153-157; Miller v. McKinnon (1942) 20 Ca1.2d 83, 87-88. It is equally
well settled that money paid under a void contract may be recovered in a suit
filed by a taxpayer on behalf of the governmental agency involved. Id. at 96.
The Supreme Court noted "It may sometimes seem a hardship upon a
contractor that all compensation for work done, etc., should be denied him; but
it should be remembered that he, no less than the officers of the corporation,
when he deals in a matter expressly provided for in the chmter, is bound to see
to it that the chmter is complied with." Jd. at 89. Further, contractors are
presumed to know the laws relating to public contracting.ld. The rationale for
the Court's strict application of this doctrine is that to hold otherwise would
create a disincentive for contractors and public entities to follow the law.ld.
District and Bmnhart-Balfour Beatty, Inc., dba Balfour Beatty
Construction (Contractor) asselted in their DemUITers the facts alleged by
Taxpayer lacked any legal basis for the relief requested. Through this appeal,
Taxpayer requests this Court reverse the Superior Court's sustaining of
District's and Contractor's demuners to and subsequent dismissal of
Taxpayer's FAC and remand this matter to the Superior COUIt with direction
to allow Taxpayer's action to continue.
n. STATEMENT OF THE CASE
On June 4, 2013, Taxpayer filed his FAC in the in Los Angeles
Superior Comi (Superior Comt) seeking disgorgement and recovery to District
of all monies paid by District to Contractor under three Site Leases, Subleases
and Construction Services Agreements (Lease-Leaseback Contracts) for
construction of the Hickory Elementary School Modernization Project, the
Madrona Middle School Modemization Project, and the North High School
Modemization Project (collectively Projects). (1 AA 1-371.) Taxpayer's FAC
alleged the Lease-Leaseback Contracts are ultra vires, illegal, void and
-4-
unenforceable under the following legal theories:
First Cause of Action: the Lease-Leaseback Contracts at issue in this
action are sham leases entered into as a subterfuge to avoid the competitive
bidding requirements of Public Contract Code sections 20110 et seq. (Volume
1 of Appellant's Appendix, page 8, paragraph 21 through page 10, paragraph
26 (designated "1 AA 8:~21-10:~ 26").)
Second Cause of Action: District's Board of Education breached the
fiduciary duty imposed upon them by their position, oath of office, and/or
applicable California law. (1 AA 1 0:~27-11 :~31.)
Third Cause of Action: District failed to compi y with the requirements
of Education Code section 17417 in the solicitation and award of the Lease
Leaseback Contracts. (l AA 12:~32-17:41.)
Fourth Cause of Action: Government Code section 1090 and/or
common law conflict of interest pl;incipals preclude Contractor from being ..
awarded the Lease-Leaseback Contracts. This conflict of interest arose based
on Contractor's two prior professional consulting contracts with District
involving the Projects that were the subject of the Lease-Leaseback Contracts.
(1 AA l7:~42-2l :~56.)
Fifth Cause of Action: the Lease-Leaseback Contracts at issue in this
action do not constitute a genuine financing anangement as required by
Education Code sections 17400-17429. (1 AA 21 :~57-22:~60.)
Sixth Cause of Action: Not at issue in this appeal.
Seventh Cause of Action: Based on the allegations of the foregoing
causes of action, Taxpayer sought a judicial declaration that the
Lease-Leaseback Contracts are ultra vires, illegal, void and unenforceable. (1
AA 24:~65-~68.)
-5-
On July 8, 2013, District and Contractor demulTed pursuant to Code of
Civil Procedure section 430.1 O( e) to each cause of action in Taxpayer's F AC
asseliing they failed to state facts sufficient to constitute a cause of action. (2
AA 372-375; 3 AA 512-517.) In support of their de111Ul1'erS District and
Contractor filed memorandums of points and authorities and requests for
judicial notice. (2:376-511; 3:518-4:865.)
On July 29, 2013, Taxpayer filed a notice of lodgment, a request for
judicial notice and an opposition to District's and Contractor's demulTers. (4
AA 886 - 5 AA 1016.)
On August 2, 2013 and August 6, 2013, Contractor and District
objected to Taxpayer's request for judicial notice (5 AA 1023-1036; 5 AA
1053-1056) and replied to the arguments made in Taxpayer's opposition. (5
AA 1040-1049; 5 AA 1058-1068.)
On August 7, 2013, Taxpayer filed a Sur Rebuttal to Defendants'
replies. (5 AA 1070-1074.) Also on August 7, 2013, Contractor objected to
and requested the Superior COUli strike the Sur Rebuttal on the basis that
Taxpayer filed the Sur Rebuttal two days priOl·to the scheduled hearing. (5 AA
1084.) On August 8, 2013, Taxpayer filed an opposition to Contractor's
objection, arguing the cOUlis are obligated to search out illegality in
government contracts at any time. (5 AA 1087-1089.)
On August 9,2013, a hearing was held on the above referenced matters.
Taxpayer lodged a certified original transcript of these proceedings with the
COUli on April 11, 2014. FUliher a copy of this transcript was attached to
Taxpayer's Notice Designating Record on Appeal filed with the Superior
Court on November 25, 2013 and is included in Volume 5 of Appellant's
Appendix at pages 1113-1129.) (FUliher citation to the transcript of these
proceedings will be designated as RT page:1ine.) Prior to oral argument the
-6-
Superior COUli by and through the Honorable Stumi M. Rice mIDounced its
tentative ruling granting the demulTers as " ... to each and every cause of
action, there is really nothing here that will allow this case to go forward. 11 (R T
4:3-5.) The Superior COUli took judicial notice of Taxpayer's Exhibits "G"
through "K" and "M," and denied Taxpayer's request for judicial notice as to
Exhibits "A" through "F," "L," and "N" based on the objections thereto. CRT
3: 19-22.)
At the conclusion of the hearing on August 9,2013, the Superior COUli
stated " ... seems to me at this point [the F AC] is properly demUlTed. It's not a
factual dispute. It's a legal interpretation which I think is unequivocal. I'm
going to stand by my tentative lUling [and sustain the demulTers]." CRT 9:28-
10:3.)
On October 18, 2013, the Superior COUli signed and entered a Judgment
of Dismissal After Sustaining DemUlTers to First Amended Complaint Without
Leave to Amend as follows:
NOW THEREFORE, IT IS ORDERED:
The demurrers of DISTRICT and CONTRACTOR are sustained without leave to amend. PLAINTIFF'S First Amended Complaint does not and can not state causes of action to invalidate the challenged Site Leases, Subleases, and Construction Service Agreements between DISTRICT and CONTRACTOR or to recover DISTRICT public funds expended relative thereto.
JUDGMENT IS HEREBY ENTERED IN FAVOR OF DISTRICT AND CONTRACTOR.
1. The challenged agreements are legal, valid and enforceable under California law. (5 AA 1107: 16-
22.)
-7-
On October 22,2013, District served a Notice of Entry of Judgment by
mail on Taxpayer. (5 AA 1104-1110.)
On November 15,2013, Taxpayer filed and served a Notice of Appeal
with the Los Angeles Superior Court. (5 AA 1111-1112.)
On November 25,2013, Taxpayer timely filed and served its Notice
Designating the Record on Appeal that included a copy of the transcript of the
Superior Court's August 9,2013 hearing. (5 AA 1113-1129.)
III. STATEMENT OF APPEALABILITY
Taxpayer appeals the Superior Court's judgment of dismissal after an
order sustaining a demurrer. (5 AA 1106-1107.) Appeal is proper from an
order of dismissal after the cOUli sustains a demulTer without leave to amend.
Code Civ. Proc., section 581d; Code Civ. Proc., section 904.1; see also Diaz
v. United Cal(fornia Bank (1977) 71 Cal.App.3d 161,166. Additionally, Code
of Civil Procedure section 870 provides 30 days after receiving a Notice of
Entry of Judgment to appeal a final judgment in a validation action. District
served the Notice of Entry of Judgment by mail on October 22,2013. (5 AA
1110.) Taxpayer filed the Notice of Appeal on November 15,2013 (5 AA
1111), 24 days after District served the Notice of Entry of Judgment by mail
and within the statutorily authorized time.
IV. ST ANDARD OF REVIEW
De novo is the standard of review for an appeal from a judgment of
dismissal after sustaining a demurrer. In Chapman v. Skype Inc. (2013) 220
Cal.AppAth 217 the COUli stated:
"A demurrer tests the legal sufficiency of the factual allegations in a complaint. We independently review the sustaining of a demurrer and detennine de novo whether the complaint alleges facts sufficient to state a cause of action or discloses a complete defense. [citation omitted.] We assume the tmth of the properly pleaded factual allegations, facts that reasonably can be infened from those expressly
-8-
pleaded and matters of which judicial notice has been taken. [citation omitted.] We construe the pleading in a reasonable manner and read the allegations in context. [citation omitted.] We must affim1 the judgment if the sustaining of a general demulTer was proper on any of the grounds stated in the demUlTer, regardless of the trial comi's stated reasons. [citation omitted.]" Id. at 225-26.
"It is an abuse of discretion to sustain a demulTer without leave to amend if there is a reasonable probability that the defect can be cured by amendment. The burden is on the plaintiff to demonstrate how the complaint can be amended to state a valid cause of action. [citation omitted.] The plaintiff can make that showing for the first time on appeal. [citation omitted.]" Id.
Abuse of discretion is the standard of review for an appeal of a lower
court's decision of whether to take judicial notice of certain evidence. Willis
v. State of California (1994) 22 Cal.App.4th 287, 291. The Califomia
Evidence Code pennits the trial comi judge to take judicial notice of matters
withing section 452 and requires judicial notice be taken of materials within
section 453. "The discretion of a trial judge is not a whimsical, uncontrolled
power, but a legal discretion, which is subject to the limitations of legal
principles goveming the subject of its action, and to reversal on appeal where
no reasonable basis for the action is shown." Sargol1 Enterprises, Inc. v.
University of Southern Cal. (2012) 55 Ca1.4th 747, 773. "The abuse of
discretion standard measures whether, given the established evidence, the
lower court's action falls within the pennissible range of options set by the
legal criteria." Ramos v. Coul1trywide HOl11e Loans, Inc. (2000) 82 Cal.AppAth
615,624.
-9-
V. STATEMENT OF FACTS
Below is a sununary of the general factual allegations applicable to each
of Taxpayer's causes of action. Alleged facts specific to PaIiicular causes of
action are referenced in the sections relevant to those causes of action.
Taxpayer is an individual who owns real propeliy in and pays taxes to
District. (l AA 2:~4.) Taxpayer brought this action on behalf of himself,
District, its taxpayers and all others similarly interested to contest the validity
of the Lease-Leaseback Contracts by and between the District and Contractor,
relative to the constmction of the Projects located within District's boundaries.
Copies ofthe foregoing Lease-Leaseback Contracts and related District Board
of Education meeting agendas, meeting materials and minutes were attached
to the FAC as Exhibits A-J and incorporated therein. (l AA 2:~2 and 1 AA 30
- 2 AA 311).
Prior to recelvmg the award of the Lease-Leaseback Contracts
Contractor was employed by District as a professional consultant to provide
bond program management and construction manageinent services to District
relative to projects funded by Measures Y andZ, including the Projects subject
to the Lease-Leaseback Contracts. (1 AA 1 7 :~44-~4 7.)
Prior to receiving the award of the Lease-Leaseback Contrads
Contractor was employed by District as a professional consultant to provide
preconstruction design assist services to District relative to the Projects. (l
AA 17:~48-~51.)
Under Section 6 of the Site Leases attached to the F AC as Exhibits A,
D and G, (collectively Site Lease) District leased to Contractor District's real
propeliy identified therein in retum for Contractor's payment of $1.00 to
District per year per site. (l AA 3:~1O; 1 AA 35; 1 AA 157; and 1 AA 265.)
Under the Sublease Agreements attached to the F AC as Exhibits B, E
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and H ( collectively Sublease) Contractor and District contend Contractor will
be "leasing" back to District the real propeliy identified therein. (1 AA 4:~ll;
1 AA 45-60; 1 AA 152-168; and 2 AA 260-276.) Per Section 7 District's
payment to Contractor an amount equal to the cost of constlUcting the Projects
as specified in the ConstlUction Services Agreements. (l AA 4:~11; 1 AA 49;
1 AA 157; and 2 AA 265.)
Under the ConstlUction Services Agreements attached to the F AC as
Exhibits C, F and I (collectively Construction Services Agreement) Contractor
will construct the Projects pursuant to plans and specifications prepared by
District's architects for the Projects in return for District's payment to
Contractor of an amount not to exceed Contractor's guaranteed maximum
pnce. (1 AA 4:~12; 1 AA 62-136; 1 AA 170-244; and 2 AA 278-352.)
District is united in interest with Taxpayer in the prosecution of this
action, but its consent to be joined as a plaintiff could not be obtained for the
reason that District contends its Lease-Leaseback Contracts are legal and it
has, to date, not taken any action to seek validation of same (notwithstanding
having been authorized to do so in the relevant District Resolutions) thereby
forcing Taxpayer to do so. Taxpayer previously demanded District issue a
notice to Contractor to stop work on the Projects which m:e the subject of the
Lease-Leaseback Contracts. Taxpayer also asked District to join with Taxpayer
in this action against Contractor to recover any funds paid to Contractor. To
date, District has refused to do so and, to the contrary, has filed motions
attempting to defeat Taxpayer's attempt to have monies returned to District
from Contractor. (1 AA 4:~13.)
Without seeking validation, District directed Contractor to proceed with
the Lease-Leaseback Contracts and has made payments to Contractor
thereunder. (1 AA 5:~14.)
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The Lease-Leaseback Contracts District entered into with Contractor
were not awarded in the manner required by law and are therefore ultra vires,
illegal, void and/or unenforceable. Taxpayer seeks a judgment on behalf of
District against Contractor for money paid by District to Contractor under the
challenged Lease-Leaseback Contracts. (1 AA 5:~15.)
VI. ARGUMENT
A. The Superior Court Abused its Discretion When it Sustained Objections of Contractor/District to Taxpayer's Requestfor Judicial Notice of Notice of Lodgement Exhibits A-F, L, and N.
Taxpayer properly requested judicial notice of newspaper articles, lease
leaseback presentation material, and a legal opinion on contractor conflicts of
interest from Best, Best & Krieger attached as Exhibits "A" through "F," "L,"
and "N" to his Notice of Lodgement and Request for Judicial Notice in
SuppOli of Opposition to Demurrers and Motion to Strike First Amended
Complaint (RJN). (4 AA 908 - 935; 5 AA 1009-1015.) Judicial Notice may
be taken of facts and propositions of such conUllon knowledge when they are
not the subject of dispute, and of facts and propositions that are capable of
ii11l11ediate and accurate determination by resOli to sources of reasonably
indisputable accuracy. Evid. Code, §452, subd. (g)-(h). Additionally, a cOUli
may take judicial notice of disputable materials if the materials provide context
to another piece of evidence, or if the mere existence of the material provides
value to the cOUli. See Seelig v. Infinity Broadcast Corp. (2002) 97
Cal.App.4th 798, 807, fn. 5; see also Kashian v. Harriman (2002) 98
Cal.App.4th 892, 900, fn. 3 (where the court tookjudicial notice of newspaper
aIiicles attached to a relevant letter in order to provide context to the letter, but
not for the truth of the assertions contained in the news aliic1es.)
-12-
The trial COUli must take judicial notice of any matter specified in
Evidence Code section 452 if any paliy requests it and: a) gives notice to each
adverse p31iy; and b) furnishes the cOUli with sufficient info1111ation to enable
it to take judicial notice of the matter. Evid. Code, §453.
The Superior COUli abused its discretion when it granted the objections
to Taxpayer's RJN "A" through "F," "L," and "N" because they provide
context for his proposed statutory interpretation of Education Code sections
17406 and 17417 to prevent misuse of public funds, fraud, favoritism and
corruption and stimulate advantageous market place competition in the
expenditure of school construction bond proceeds.
Taxpayer's justification forjudicial notice of Exhibits "A" through "F ,"
"L" and "N" fits within the requirements of Evidence Code section 452 and
therefore the Superior COUli abused its discretion by not taking judicial notice
of the aIiicles as required in Evidence Code section 453. Accordingly, the
Superior COUli was required to take judicial notice ofthe submitted documents
and abused its discretion when it failed to do so.
B. The Superior Court Erred When it Sustained the Demurrers to Taxpayer's First Cause of Action
Taxpayer's Fii'st Cause of Action sufficiently alleged the
Lease-Leaseback Contracts are ultra vires, illegal, void and unenforceable
because Education Code sections 17400-17429 only authorize genuine lease
and leaseback agreements while the Lease-Leaseback Contracts at issue in this
action are sham leases entered into as a subterfuge to avoid the competitive
bidding requirements of Public Contract Code section 20110 et seq. (lAA
8:~21 - 1 0:~26.)
-13-
Citing to the California Supreme Court's admonition in City of Los
Angeles v. O.ffiler (1942) 19 Ca1.2d 483,486 that designating an agreement as
a 'lease' for purposes of a subterfuge in a public lease-leaseback alTangement
will void the agreement (i.e. it must be a genuine lease-leaseback and not a
sham), the SAB Report cautioned that:
• The lease must be entered into in "good faith." Presumably that
means that both parties to the agreement intend that a lease
arrangement will exist and will be implemented. (2 AA 367.)
The lease alTangement may not be a subterfuge. Many districts
openly admit that they are using lease lease-back contracts for
the perceived benefits listed earlier which are only available if
there is no competitive bid requirement. (2 AA 367.)
Taxpayer premised his First Cause of Action on the foregoing rule that
designation of an agreement as a 'lease' in a public lease-leaseback
alTangement, when in fact it is a subterfuge for some other sham purpose, will
void the agreement (i.e. it must be a genuine lease-leaseback and not a sham).
Taxpayer's F AC includes the following factual allegations which are sufficient
to state a cause of action as to whether the Lease-Leaseback Contracts were
subtei~fuges or shams and therefore ultra vires, illegal, void and/or
unenforceable:
1. To fit within the alternative procedures for school facility
construction prescribed by Education Code sections 17400-17429, a genuine
lease and leaseback alTangement must exist whereby a district transfers the
right to use and beneficial occupancy of the subject propeliy to the contractor
by way of a site lease and the district regains the right of actual, legitimate and
beneficial use and occupancy of the property through a leaseback agreement
over a defined period of time. (1 AA 9:3-7.)
-14-
2. Consistent with the rule aIiicu1ated in City and County of San
Francisco v. Boyle (1925) 195 Cal. 426, 433, 437, the trier of fact is required
to disregard the self serving titles, stipulations and definitions contained in the
challenged Lease-Leaseback Contracts between District and Contractor
relative to the Projects and evaluate the true nature, arrangement and purpose
of the Lease-Leaseback Contracts in light of the subject to which they relate,
the end for which they were created and the means by which they accomplish
their end. (1 AA 9:9-13.)
3. The Lease-Leaseback Contracts between District and Contractor
are not really leases and therefore are not the type of arrangements authorized
by Education Code section 17400-17429 because they are a subterfuge to
avoid the requirements of Public Contract Code sections 20110-20118.4 and
circumvent the goals and public benefits outlined by the Legislature in Public
Contract Code section 100. (1 AA 9:14-10:21.)
4. The Lease-Leaseback Contracts between District and Contractor
are not really leases and therefore are not the type of alTangements authorized
by Education Code sections 17400-17429 because they are really sham leases
because, inter alia, the payments on the Subleases are not real lease payments
because they, inter alia: (1) last only as long as the duration of construction; (2)
are variable based upon the value of construction work performed by
Contractor prior to the date of payment; (3) do not provide for any financing
of the work by Contractor (because its obligation to pay others who are
actually providing the labor, equipment, materials and services for the
construction of the Projects is contingent upon it first receiving payment for
same from the District); (4) the lease payments end concurrently with the
completion of construction of the Projects by Contractor; (5) the Project is
being performed and administered in a manner consistent with Public Contract
-15-
Code sections 20110-20118.4 rather than with Education Code sections 17400-
17429; (6) the District is withholding retention from its payments to Contractor
and requiring Contractor to provide payment and perfonnance bonds; and (7)
the District does not have the right or practical ability to have beneficial
occupancy of the demised premises during the tenn of the Facilities Lease to
use them for their intended purposes. (1 AA 9:22-10:6.)
As to the last point, the Lease-Leaseback Contracts between District
and Contractor are not really leases because the District does not have actual,
legitimate and beneficial use and occupancy of the Projects during the ten11 of
the Sublease. This is because the duration of the Subleases are only as long as
the Projects are under construction per Section 3 of the Subleases, which
specifies:
"The term of the Sublease shall tenninate upon the completion of the Project and payment of the last Sublease Payment, unless sooner terminated as hereinafter provided." (l AA 48; 1 AA 155; 2 AA 263.)
Further, Section 8 of the Subleases states:
"Sublease Payments shall be paid by District in consideration of the right of possession of, and the continued quiet use and enjoyment of, the Project and the Site during the lease." (1 AA 50; 1 AA 157; 2 AA 265)
Finally Section 10 of the Subleases provides:
"During the term of this Sublease, [ Contractor] shall provide the District with quiet use and enjoyment of the Site without suit, or hindrance from [Contractor] or their assigns[ ... ] [Contractor] acknowledges and agrees to the District's use or occupation of the Site, so long as such use or occupation does not umeasonably interfere with construction of the Project. (1 AA 51; 1 AA 158; 2 AA 266.)1
To the extent the foregoing contract tenns support a finding of sham and subterfuge, but are detennined to be insufficiently specified in Taxpayer's
-16-
Taxpayer alleged the Lease-Leaseback Contracts between District and
Contractor are not real leases as authorized in Education Code 17400-17429
but instead are shams and subterfuges, entered into to avoid the competitive
bidding obligations of the Public Contract Code that would otherwise apply
but for District and Contractor using self serving titles, stipulations and
definitions in their "Lease-Leaseback Contracts." (1 AA 9:~26.) Their sham
and subterfuge is apparent in the impossible and impractical promises provided
in Section 8 above, namel y "District's right of possession of, and the continued
quiet use and enjoyment of, the Project and the Site during the lease" and in
Section 1 0 with reference to Contractor providing "District with quiet use and
enjoyment of the Site without suit, or hindrance from [Contractor] or their
assigns[ ... ] [Contractor] acknowledges and agrees to the District's use or
occupation of the Site, so long as such use or occupation does not
unreasonably interfere with construction of the Project."
Taxpayer is legally entitled to have a trier of fact evaluate Taxpayer's
evidence and arguments that the nature, duration and extent of the constmction
specified for each Project, including the "Description of Project" in each
Sublease (1 AA 57; 1 AA 165 and 2 AA 273), is of such a magnitude so as to
negate any real or practical' quiet use and enjoyment' or actual, legitimate and
beneficial use and occupancy of the Projects by District during the term of the
Sublease such that the trier of fact should conclude the Subleases are nothing
more than shams and subterfuges with self serving language, titles and
definitions that in no way match the lease-leaseback project delivery method
F AC, Taxpayer requests leave to amend his complaint to expressly include such allegations. It would be an abuse of discretion not to grant such leave. Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 225-26.
-17-
authorized by Education Code sections 17400-17429.
Celiainly District and Contractor will argue the Lea se- Lease back
Contracts between them are not shams nor subterfuges and that District does
have the right to "quiet use and enjoyment of, the Project and the Site during
the lease." Whether the trier of fact accepts Taxpayer's assertion that the
Lease-Leaseback Contracts are shams or subterfuges or accepts District's and
Contractor's asseliions that they are not is a question of fact under Ci(vand
County of San Francisco v. Boyle, supra, and City of Los Angeles v. Ojjher,
supra. Because all questions of fact are to be resolved in favor of Taxpayer
for purposes of demulTer, the Superior COUli elTed in when it dismissed
Taxpayer's First Cause of Action on demulTer and denied the trier of fact the
0PPOliunity to decide the question of sham and subterfuge.
C. The Superior Court Erred When it Sustained Contractor's Demurrer to Taxpayer's Second Cause of Action
The Superior Court elTed when it sustained Contractor's demurrer to
Taxpayer's Second Cause of Action on the grounds Contractor did not owe
any fiduciary duty. As discussed below, Taxpayer sufficiently alleged the legal
and factual basis for its Second Cause of Action so as to withstand
Contractor's demurrer. (1 AA 10:~27-11:~31.)
Contractor posi ted a strawman argument that Taxpayer's Second Cause
of Action is for breach of fiduciary duty by Contractor since Contractor would
be the party paying damages if Taxpayer prevailed on its cause of action. (3
AA 527:21-528:10.) Contractor failed to recognize the basis of Taxpayer's
claim for recovery of funds from Contractor to District on his Second Cause
of Action is the Lease-Leaseback Contracts are void based on the failure of
District's Board of Education to comply with fiduciary duties imposed upon
them by law. (1 AA 1 0:~27-11 :~31.)
-18-
As a matter of well settled Califomia law, public officials such as
District's Board of Education have the same fiduciary relationship toward the
residents and taxpayers of the District as a tlUstee bears to his cestui que tlUst,
and should therefore act with the utmost good faith in all of their actions,
including, but not limited to the expenditure of Measure Y and Z funds for $48
million dollar school constlUction projects. Nussbaum v. Weeks (1989) 214
Cal. App. 3d 1589,1597; citing Hobbs, Wall & Co. v. Moran (1930) 109 Cal.
App. 316, 319. Likewise, this COUli in Terry v. Bender (1956) 143 Cal.App.2d
198 stated:
A public office is a public trust created in the interest and for the benefit of the people. Public officers are obligated, viliute officii, to discharge their responsibilities with integrity and fidelity. Since the officers of a govel1lmental body are trustees of the public weal, they may not ... violate their oath of office and vitiate the trust reposed in them, and the public is injured by being deprived of their loyal and honest services. !d. at 206. (citations and citation punctuation omitted for clarity.)
Taxpayer's Second Cause of Action sufficiently alleged District's Board
of Education breached the fiduciary duty imposed upon them by law based on
their position, oath of office, andlor applicable law because, after the Division
of State Architect approved the plans and specifications for the Projects which
are the subject·ofthe Lease-Leaseback Contracts, they inter alia: (1) failed to
consider alternative less expensive proposals to perform the work
contemplated underthe approved plans and specifications that were the subject
of the Lease-Leaseback Contracts; (2) failed to consider any evidence as to
whether the price to be paid for the work contemplated under the approved
plans and specifications that were the subject of the Lease-Leaseback
Contracts was reasonable; (3) failed to exercise due diligence to detennine
whether the price to be paid for the work contemplated under the approved
-19-
plans and specifications that were the subject of the Lease-Leaseback
Contracts could be lower; (4) knew or should have known that the price to be
paid for the work contemplated under the approved plans and specifications
that were the subject of the Lease-Leaseback Contracts could have been lower;
(5) failed to solicit alternative bids to the price quoted by Contractor for work
contemplated under the approved plans and specifications that were the subject
ofthe Lease-Leaseback Contracts; (6) failed to proceed in a maImer that would
secure the best price for the work contemplated under the approved plans and
specifications that were the subject of the Lease-Leaseback Contracts; and/or
(7) failed to proceed in a maImer required by law as alleged elsewhere in the
FAC. (1 AA 10:Gj!29.)
Here, in compliance with Education Code section 17402, District hired
Westberg & White Architects to prepare the plans and specifications for the
constlUction of the Projects. (1 AA 65; 1 AA 173 and 2 AA 281.) Because
Education Code section 17402 requires these plans and specifications be
reviewed and approved for constlUction by the California Division of State
Architect (DSA) prior to a school district entering into a lease-leaseback
transaction, there is nothing preventing a school district from soliciting
competitive bids. Had District solicited sealed competitive bids on their DSA
approved plans and specifications for the Projects they would have had an
objective basis from which to detennine whether the price they conunitted to
pay Contractor was fair and reasonable. Because District had no basis to
detennine whether they committed to pay Contractor a fair and reasonable
price, their decision to award Contractor $48 million dollars wOlih of
constlUction contracts was arbitrary and capricious and in breach of their
fiduciary duty to the residents and taxpayers of the District.
-20-
Under Nussbaum, Hobbs and Terry, supra, District's Board of
Education were trustees and owed a fiduciary duty to the residents and
taxpayers of the District relative to District's award of the Lease-Leaseback
Contracts. When District's Board of Education failed to comply with their
obligations as trustees and fiduciaries under California law in the award of the
Lease-Leaseback Contracts, those contracts were not being awarded in
compliance with all legal requirements. When a contract is awarded without
compliance with all applicable legal requirements, the contract is void. Miller
v. McKinl10n (1942) 20 Ca1.2d 83,87 -88. It is equally well settled that money
paid under a void contract may be recovered in a suit filed by a taxpayer on
behalf of the gove111l11ental agency involved. Jd. at 96. The Supreme COUli
noted "It may sometimes seem a hardship upon a contractor that all
compensation for work done, etc., should be denied him; but it should be
remembered that he, no less than the officers of the corporation, when he deals
in a matter expressly provided for in the Chalier, is bound to see to it that the
charter is complied with." ld. at 89.
The Supreme Court's rationale for the strict application of this doctrine
is that to hold otherwise would create a disincentive for contractors and public
entities to follow the law. !d. (1 AA S:Gjl17.) In this case, to allow Contractor
to retain $48 million dollars from the Measure Y and Measure Z general
obligation bond proceeds under the Lease-Leaseback Contracts when District's
. Board of Education failed to comply with their obligations as trustees and
fiduciaries to the residents and taxpayers of the District under California law
relative thereto, would create a disincentive for contractors and public entities
to observe and respect such trustee and fiducimy duties in the future.
Moreover, Contractor's position as District's Measures Y and Z bond program
manager justifies extending the fiducimy duties imposed on District's Board
-21-
of Education to Contractor since Contractor is in a position of superior
knowledge, tlUst and confidence vis a vis the District and its Board of
Education and in that position is advising the District how to spend the
Measures Y and Z bond money. (1 AA l7:~44- 18:~47.)
D. The Superior Court Erred When it Sustained District's Demurrer to Taxpayer's Second Cause of Action
The Superior COUli eITed when it sustained District's demurrer to
Taxpayer's Second Cause of Action on the grounds the TOlis Claim Act
required Taxpayer to comply with the Act's claims presentation requirements.
By its own tenl1s, the claims presentation requirements of Government
Code section 900 et seq., the Government Claims Act, f0l111erly known as the
T O1i Claims Act, extends onl y to actions for "money or damages against local
public entities." Gov. Code §90S. Because Taxpayer's claims do not seek
money or damages against a local public entity, the claims presentation
prerequisites of Government Code section 900 et seq., do not apply.
As alleged in Paragraph IS of the F AC, Taxpayer's claims do not seek
money or damages against a local public entity. To the contrary, Taxpayer's
Second Cause of Action is for a local public entity because Taxpayer seeks to
have all money paid by District to Contractor under the Lease-Leaseback
Contracts paid back to District. (1 AA S:~3l.)
"In detenl1ining whether the Claims Act applies, the critical question
is whether the recovery of money or damages was the primary purpose of
Plaintiffs' claims." Canova v. Trustees of Imperial Irrigation Dist. Employee
Pension Plan (2007) 150 Cal.App.4th 1487, 1493. "The Claims Act does not
apply, however, to non-pecuniary actions." Id. "[T]he claims statutes do not
impose any requirements for nonpecuniary actions, such as those seeking
injunctive, specific or declaratory relief." Loehr v. Ventura County Community
-22-
College Dist., (1983) 147 Cal.App.3d 1071, 1081. Even ifmoney or damages
are involved in a dispute, an action to compel the retum of a specific sum of
money belonging to a patty under applicable law is not a claim for money
damages. Branc[forte Heights, IIC v. City of Santa Cruz (2006) 138
Cal.App.4th 914, 929. Here, Taxpayer has brought an action to compel the
return of money to the District from Contractor. Because Taxpayer is seeking
the payment of money to the District rather than payment of money from the
District, Taxpayer is not required by law to comply with the Govemment
Claims Act, formerly known as the Tort Claims Act.
E. The Superior Court Erred When it Sustained the Demurrers to Taxpayer's Third Cause of Action
Taxpayer's Third Cause of Action asserts the Lease-Leaseback
Contracts between District and Contractor are ultra vires, illegal, void and
unenforceable because District did not comply with the competitive bidding
requirements of Education Code section 17417 relative to the Sublease portion
of the Lease-Leaseback Contracts. (1 AA 13 :~40-41 .)
District and Contractor demuned to Taxpayer's Third Cause of Action
on the grounds Education Code section 17417 does not apply to any pOltion
of their Lease-Leaseback Contracts which they claim are exclusively governed
by Education Code 17406. (2 AA 373: 18-22 and 3 AA 513:18-21.) Contractor
and District inconectly asselt Education Code 17406 exempts both the Site
Lease and Sublease pOltions of their Lease-Leaseback Contracts from
competitive bidding. The Superior COUlt erred when it adopted the
intel1Jretation of 17406 and 17417 advanced by District and Contractor and
sustained their demurrers to Taxpayer's Third Cause of Action.
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Taxpayer urges this Comi to adopt his and SAB counsel's interpretation
that Education Code section 17406's exemption from competitive bidding
applies only to the site lease pOliion of a lease-leaseback transaction and
Education Code section 17417's requirement for competitive bidding applies
to the sublease pOliion of a lease-leaseback transaction? It makes sense
competitive bidding is required relative to the sublease portion of the lease
leaseback transaction because that is where a school district is paying out
public funds to a contractor. It fmiher makes sense that competitive bidding
is not required relative to the site lease pOliion of the lease leaseback
transaction because that is where a contractor is paying a school district a
nominal fee for the legal right to occupy the school district's property for the
period of time necessary for the contractor to construct thereon the
improvements the contractor will then leaseback to the school district.
As discussed above, California law and public policy have favored
competitive bidding for over 150 years to eliminate favoritism, fraud and
conuption; to avoid misuse of public funds; and to stimulate advantageous
market place competition. Ghilotti Canst. Co. v. City of Richmond (1996) 45
Cal. App.4th 897, 907-908. In contrast, the interpretations of Education Code
sections 17406 and 17417 adopted by the Superior Comi do not stimulate
advantageous market place competition relative to public ally funded school
construction projects. Instead, the Superior Court's interpretations of
The preface "Notwithstanding Section 17417" in Education Code 17406 is present to clarify that only the site lease is exempt from the competitive bidding requirements of Education Code section 17417. This is necessary because a lease leaseback anangement would not work if the both the site lease and the sublease had to be competitively bid since it would be possible that the successful bidder on the site lease might not be the successful bidder on the sublease.
-24-
Education Code sections 17406 and 17417 enable and encourage the misuse
of public funds and the evils of fraud, favoritism and corruption referenced in
the San Diego Grand Jury testimony, Grand Jury Exhibits, newspaper aIiicles
and criminal indictments attached as Exhibits A-K to Taxpayer's Notice of
Lodgment in Support of Opposition to Demurrers. (4 AA 908-977.) Similar
instances of misuse of public funds, fraud, favoritism and corruption are
equally well known within this Court's jurisdiction involving the City of Bell
and now possibly the Centinela Valley Union High School District.
1. Background on Lease-Leaseback Transactions
The SAB RepOli states Education Code sections "17400 through 17425
provide a method for financing school construction." (2 AA 363.) A lease
leaseback transactions where a school district owns the propeliy upon which
the subject project is to be built requires two contracts between the school
district and the contractor. The first contract is a site lease agreement whereby
the school district leases to the contractor a site owned by the district to give
the contractor the legal right to occupy and perform construction work on the
district's property. Under the site lease, the contractor pays a nominal fee to
the district, usually a dollar a year, to gain title and access to the district's
propeliy upon which the subject project will be constructed.
The second contract is a sublease agreement (tenns for construction can
be included therein or in a separate document as is the case here) whereby the
school district leases back from the contractor the project site and the
improvements constructed thereon by making periodic payments over an
agreed upon period of time. It is through the sublease that the school district
pays the other paIiy the cost of construction plus the financing cost incuned
by other paIiy over the tenn of the lease. Counsel for District can not dispute
the foregoing SUl1U11aI), of a lease-leaseback transaction because it is consistent
-25-
with their sunm1ary of same given to the Coalition for Adequate School
Housing on February 23-26 and attached as Exhibit L to Taxpayer's Notice of
Lodgment in SuppOltofOpposition to DemulTer. (4 AA 978-984, see Gj! B.l on
980-981.) Obviously Taxpayer does not agree with many of the asseltions
contained in the foregoing document, but Taxpayer does acknowledge that the
document's summary of the two agreements necessary for a lease-leaseback
transaction is reasonably accurate.
Education Code sections 17400-17429 are found in Alticle 2, entitled
Leasing Propelty, of Chapter 4, entitled Propelty: Sale, Lease, Exchange, of
PaIt 10.5, entitled School Facilities, of Division 1, entitled General Education
Code Provisions, of Title 1 of California' s Education Code. The provisions of
Education Code sections 17400-17429 that expressly address scenarios under
which a school district is going to payout money are 17407, 17417 and 17418.
Each of the foregoing provisions require that any amount of money to be paid
out by a school district be determined via sealed competitive bidding with
award only to the lowest responsible bidder after public notice inviting bids.
The provisions of Alticle 2 are drafted in such a way as to require and ensure
school districts pay the least amount possible if they are going to enter into a
lease-leaseback transaction for purposes of constructing school facilities
consistent with California's public policy preference for competitive bidding.
The provisions of Article 2 above are the opposite of sections
17455-17484 of Alticle 4, entitled Sale or Lease of Real Propelty, of Chapter
4, entitled Propelty: Sale, Lease, Exchange, of PaIt 10.5, entitled School
Facilities, of Division 1, entitled General Education Code Provisions, of Title
1 of California's Education Code which are drafted in such a way as to require
and ensure school districts receive the highest amount of money from private
paIties if they are going to lease or sell school property.
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Education Code section 17417 provides:
After the goveming board of a school district has complied with . Section 17402, it shall, in a regular open meeting, adopt a resolution declaring its intention to enter into a lease or . agreement pursuant to this atiicle. The resolution shall describe, in any manner to identify it, the available site upon which the building to be used by the district shall be constructed, shall generally describe the building to be constructed and state that the building shall be constructed pursuant to the plans and specifications adopted by the governing board therefor, shall, if that is the case, state the minimum yearly rental at which the governing board will lease real propeliy belonging to the district upon which the building is to be constructed, and shall state the maximum number of years for which the school district will lease the building or site and building, as the case may be, and shall state that the proposals submitted therefor shall designate the amount of rental, which shall be annual, semimIDual, or monthly, to be paid by the school district for the use of the building, or building and site, as the case may be. The resolution shall fix a time, not less than three weeks thereafter for a public meeting ofthe governing board to be held at its regular place of meeting, at which sealed proposals to enter a lease or agreement with the school district will be received from any person, firm, or corporation, and considered by the governing board. Notice thereof shall be given in the maImer provided in Section 17469.
At the time and place fixed in the resolution for the meeting of the governing body, all sealed proposals which have been received shall, in public session, be opened, examined, and declared by the board. Of the proposals submitted which conf01111 to all ten11S and conditions specified in the resolution of intention to enter a lease or agreement and which are made by responsible bidders, the proposal which calls for the lowest rental shall be finally accepted, or the board shall reject all bids. The board is not required to accept a proposal, or else reject all bids, on the same day as that in which the proposals are opened.
-27-
Education Code section 17406 provides:
(a) Notwithstanding Section 17417, the goveming board of a school district, without advertising for bids, may let, for a minimum rental of one dollar ($1) a year, to any person, finn, or corporation any real propeliy that belongs to the district if the instlUment by which such propeliy is let requires the lessee therein to constlUct on the demised premises, or provide for the construction thereon of, a building or buildings for the use of the school district during the tem1 thereof, and provides that title to that building shall vest in the school district at the expiration of that tem1. The instrument may provide for the means or methods by which that title shall vest in the school district prior to the expiration of that term, and shall contain such other ten11S and conditions as the governing board may deem to be in the best interest of the school district.
(b) Any rental of propeliy that complies with subdivision (a) shall be deemed to have thereby required the payment of adequate consideration for purposes of Section 6 of Aliic1e XVI of the California Constitution;
2. The Superior Court's Ruling Is Contrary to the Plain Language and Context of Education Code Sections 17406 and 17417
Paragraph 37 of Taxpayer's FAC asselis Education Code section
17406, if read in context, is to be read as follows: ", .. the goveming board of
a school district, without adveliising for bids, may let, for a minimum rental
of one dollar ($1) a year...any real propeliy that belongs to the district if the
instrument by which such property is let requires the lessee therein to construct
on the demised premises ... a building or buildings for the use of the school
district during the tenn thereof, and provides that title to that building shall
vest in the school district at the expiration of that term ... " (1 AA 14:~37.)
There is no language in Education Code section 17406 that relates to the
sublease of the propeliy back to the school district. There is no language in
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Education Code section 17406 on how the amount to be paid by a school
district to sublease its propeliy back is dete1111ined. Quite simply, Education
Code section 17406 does not address the sublease p01iion of the lease
leaseback transaction. That is because the specifics of the sublease p01iion of
the lease-leaseback transaction are laid out in Education Code 17417.
Education Code section 17406 applies only to a site lease. This is
supp01ied by the fact that Education Code section 17406 only uses the ten11
"let" which is a verb. According to the New Webster's Dictionary of the
English Language the word "let" means "To permit; to allow; to permit to
enter, pass or go; to rent or lease .... " Other dictionaries provide a similar
definiti on 0 f the ,vord "1 et." For instance, http://www.thefreediction31y.com/let
defines "let" as follows:
v. let, letting, lets V.tr.
v.intr.
1. To give permission or 0pp01iunity to; allow: I let them bOlTOW the car. The inheritance let us finally buy a house. See Usage Note at leavel. 2. To cause to; make: Let the news be known. 3. a. Used as an auxili31Y in the imperative to express a command, request, or proposal: Let's finish the job! Let x equal y. 3. b. Used as an auxiliary in the imperative to express a warning or threat: Just let her tlY! 4. To permit to enter, proceed, or dep31i: let the dog in. S. To release from or as if from confinement: let the air out of the balloon; let out a yelp. 6. To rent or lease: let rooms. 7. To award, especially after bids have been submitted: let the construction job to a new fim1.
l. To become rented or leased. 2. To be or become assigned, as to a contractor.
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Likewise, http://www.merriam-weoster.com/dictionmyllet defines "let" as
follows:
transitive verb I: to cause to : make <let me know> 2a: chiefly British: to offer or grant for rent or lease <let rooms> 2b: to assign especially after bids <let a contract> 3a: to give oppOliunity to or fail to prevent <live and let live> <a break in the clouds let us see the summit> <let the oppOliunity slip> 3b: used in the imperative to introduce a request or proposal <let us pray> 3c: used as an auxiliary to express a warning <let him tIy> 4: to free from or as if from confinement <let out a scream> <let blood> 5: to permit to enter, pass, or leave <let them thJough> <let
them off with a warning> 6: to make an adjustment to <let out the waist>
When relating to real/personal propeliy, the foregoing definitions of
"let" all are set in the context and from the perspective of an owner of
something who is relinquishing a possessOly interest. Based on the foregoing
definitions of the word "let," the plain meaning of Education Code section
l7406's use of the term "let" followed by the phrase "any real property that
belongs to the district" can only refer to the site lease whereby a school district
transfers its propeliy to Its leaseback contractor.
Taxpayer contends the plain meaning of the words and phrases used in
Education Code section 174l7likewise can only refer to the sublease because
Education Code section 17417 references " ... real propeliy belonging to the
district..."; " ... to be paid by the school district for the use of the building ... " and
"the school district will lease the building or site and building ... " It makes
sense competitive bidding is required relative to the sublease because a school
district is paying a contractor with public funds and California public policy
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and law for 150 years has required govermnental expenditures for construction
done pursuant to plans and specifications prepared by the govenunental
entity's separately retained architect be done only via sealed competitive
bidding.3
Education Code section 1 7406's exclusive application to the site lease
is fUliher evidenced when that section is read in the overall context of Aliicle
2, entitled Leasing of Propeliy, Education Code sections 17400-17429. Each
provision in Education Code sections 17400-17429 that deals with a scenario
where a school district is going to pay money to another requires competitive
bidding (i.e. awarded only to the lowest responsible bidder after giving public
notice soliciting sealed bids. See Education Code section 17407 (where a
district does not own the propeliy upon which the subject project is to be
built); Education Code section 17417 (where a district does own the propeliy
upon which the subject project is to be built); and Education Code section
17418 (where the district contracts with a non-profit public benefit corporation
for the construction of the subject project).) The Projects at issue in this action
are ones that will be built on propeliy owned by District so Education Code
section 17417 applies rather than Education Code section 17407 or Education
Code section 17418.
Finally, that the Legislature intended Education Code section 17406's
Here, in compliance with Education Code section 17402, District hired Westberg & White Architects to prepare the plans and specifications for the construction of the Projects. (1 AA 65; 1 AA 173 and 2 AA 281.) Because Education Code section 17402 requires these plans and specifications be reviewed and approved for construction by the Califomia Division of State Architect prior to a school district entering into a lease leaseback transaction, there is no reason a school district can not solicit competitive bids in the manner required by Education Code section 17417.
-31-
exemption from competitive bidding to only apply to the Site Lease is
evidenced by subparagraph (b) of Education Code section 17406 which
exempts site leases from the requirements of Article XVI of the California
Constitution, which ordinarily requires any disposition of public property
(whether by lease, sale or otherwise) be only to the recipient who gives the
most consideration to the public owner of the propeliy so as to avoid any gift
of public propeliy. A lease leaseback alTangement would not work if the both
the site lease and the sublease had to be competitively bid since it would be
possible that the successful bidder on the site lease might not be the successful
bidder on the sublease.
3. The Superior Court's Interpretation of Education Code Sections 17406 and 17417 Is Contrary to Established Rules of Statutory Interpretation
a. The Superior Court's Interpretation of Education Code Sections 17406 and 17417 Is Contrary to the Rule that the Specific Controls the General
A well-established rule of statutory interpretation is that the specific
controls the general. See Code Civ. Proc., § 1859. "[W]hen a general and
paliicular provision are inconsistent, the latter is paramount to the former"
People v. Superior Court (Jimenez) (2002) 28 Cal.4th 798, 808; Miller v.
Superior Court (1999) 21 Ca1.4th 883, 895; San Francisco Taxpayers Assn. v.
Board o/Supervisors (1992) 2 Cal.4th 571,577 ["A special act is considered
an exception to the general statute"]; Woods v. Young (1991) 53 Cal.3d 315,
325 ["specific provision relating to a paliicular subject will govern a general
provision. "]
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Applying the maxim of statutory interpretation that specific statutory
language trumps conflicting general language confinns Taxpayer's proffered
interpretation of the interplay between Education Code section 17406 and
Education Code section 17417 is conect since Education Code section 17406
is a section of general language and Education Code section 1741 7 is a secti on
of specific prescription directing how leaseback contracts involving prope11y
owned by a school district are to be adveltised, bid and awarded.
b. The Superior Court's Interpretation of Education Code Sections 17406 and 17417 Is Contrary to the Rule Favoring Interpretations That Lead to More Reasonable Results
The COUlt should reject the Superior Court's interpretation of Education
Code section 17406 and 17417 because it leads to mischief. The California
Supreme COUl1 has stated "[i]n the interpretation of statutes, when two
constructions appear possible, this COUlt follows the mle of favoring that
which leads to the more reasonable result." Metropolitan Water District v.
Adams (1948) 32 Cal 2d 620,630. Further, "It is a well recognized rule that
where a statute is susceptible of two constructions, one leading inevitably to
mischief or absurdity, and the other consistent with justice, sound sense and·
wise policy, the fonner should be rejected and the latter adopted." Jacobs v.
Dept. of Motor Vehicles (1958) 161 Cal. App. 2d 727, 731. "If the language
pennits more than one reasonable interpretation, however, the court looks "to
a variety of extrinsic aids, including the ostensible objects to be achieved, the
evils to be remedied, the legislative history, public policy, contemporaneous
administrative construction, and the statutory scheme of which the statute is
a p311." S.B. Beach Properties v. Berti (2006) 39 Ca1.4th 374,379.
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California Courts have stated the purposes of competitive bidding is to
eliminate favoritism, fraud and cOlluption; to avoid misuse of public funds;
and to stimulate advantageous market place competition. Ghilotti Const. Co.
v. City of Richmond (1996) 45 Cal. App.4th 897, 907-908.
The Superior COUli's interpretations of Education Code sections 17406
and 17417 must be rejected because they enable and encourage the misuse of
public funds and the evils of fraud, favoritism and cOllllption referenced in the
San Diego Grand Jury testimony, Grand Jury Exhibits, newspaper articles and
criminal indictments attached as Exhibits A-K to Taxpayer's Notice of
Lodgment in SUPPOli of Opposition to DemUlTers. (4 AA 908-977.) Similar
instances of misuse of public funds, fraud, favoritism and cOlTuption are
equally well known within this Comi' s jurisdiction involving the City of Bell
and now possibly the Centinela Valley Union High School District.
When this Comi considers the ostensible objects to be achieved, the
evils to be remedied, the legislative history, public policy, contemporaneous
administrative constmction, and the statutory scheme of which the Education
Code sections 17406 and 17417 are a pmi and weighs the mischief to be
avoided, the justice to be had, and the sound sense and wise policy to be
achieved by Taxpayer's proposed interpretation of Educati'on Code sections
17406 and 17417, the COUli will have no choice but to conclude the Superior
COUli elTed adopting the interpretation of Education Code 17406 and 17417
proffered by District and Contractor.
c. The Superior Court's Interpretation of Education Code Section 17406 Renders Section 17417 Superfluous, Nugatory and a Nullity
The Superior Court's interpretation of Education Code section 17406
that it exempts both site leases and subleases from competitive bidding is also
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incorrect because such interpretation renders Education Code section 17417
superfluous, nugatory and a nullity as there is no scenario under which
Education Code section 17417 would then apply. 4
"When construing a statute, a comi must consider the entire statutory
scheme of which it is paIi and give effect to all pmis of the statute, avoiding
an interpretation that would render any provision nugatory." Cel-Tech
Communications v. Los Angeles Cellular Telephone Co. (1999) 20 Cal. 4th
163, 216. "It is a well-settled principle of statutory interpretation that the
various paIis of a statute must be considered as a whole to avoid absurd or
anomalous results by hannonizing any apparently conflicting provisions; and
thus, a patiicular pati of a statutory enactment must be viewed in light of the
enactment in its entirety. Moreover, statutes should not be intelvreted in a
maImer to render parts of them superfluous." Rao v. Campo (1991) 233 Cal.
App.3d 1557, 1567.
When counsel for Taxpayer asked the Superior Comi to clarify during
oral argument what Education Code section 17417 applied to the Superior
Comi incOlTectly stated: "[174] 17 applies to everything, except 406 ... " CRT
6:2-25; 5 AA 1124:2-25.) There is nothing for Education Code section 17417
4
Taxpayer challenges District and Contractor to explain in their briefs what they contend section17417 applies to. Section17417 has to apply to something lest it be a nullity which Califomia statutes are not allowed to be. Respondents must agree section17417 does not apply to projects built on propeliy not owned by a school district because that is what section17407 applies to (" ... the title to the building and site shall vest in district...). section17407 expressly requires c'ompetitive bidding and award only to lowest responsible bidder just like section 17417. Why would the Legislature require competitive bidding for lease leaseback transactions on propeJiy not owned by a school district and NOT C as Respondents asseli) require it on propeliy owned by a school district?
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to apply to except the award of subleases of propeliy belonging to a school
district which is the case in this action. The Superior Court's interpretation of
Education Code sections 17406 and 17417 was incorrect.
The Superior COUli eITed in its interpretation of Education sections
17406 and 17417 because its interpretation that section 17417 "applies to
everything, except 406" renders section 17417 superfluous, nugatory and a
nullity since there is nothing other than subleases of prope11y belonging to
school districts (as is the case here) for Education Code section 17417 to apply
to.
4. Taxpayer's Interpretation of Education Code Sections 17406 and 17417 is Supported by the Staff, Executive Officer and General Counsel of the State Allocation Board
The COUl1 should adopt Taxpayer's interpretations of Education Code
Sections 17406 and 17417 because they are consistent with the analysis and
opinion of the SAB Rep011. These qualified and knowledgeable persons
specifically rejected the interpretations of section 17406 and 17417 adopted
by the Superior COUl1 as follows:
Advocates of the use of lease lease-back agreements argue that the only requiren:1ent in EC Section 17406 is that the district owns the propeliy to be developed and that the prope11y be 'let' to the developer for at least one dollar per year. Under this circumstance the district is then relieved from the n0l111al PCC competitive bid requirement for the entire construction project. At this point some advocates maintain that a lease leaseback alTangement is required for the actual buildings, while others believe a simple construction contract is all that is required.
It is the opinion of staff and SAB counsel that either interpretation expands the meaning of EC 17406 beyond its simple intent and ignores other requirements in the same aliicle regarding competitive bid requirements for leases (EC 17417).
-36-
There is no disagreement that EC 17406 is clear in allowing districts to lease a district- owned site to a person, finn or corporation when the lessee agrees to construct buildings for the use of the school district. However, the exemption from public bidding allowed in this section applies only to the property lease from the district to the developer. It does not address how the contract for the construction of the buildings is procured nor does it provide an exemption to competitive bidding for that contract.
If the building to be constructed on the propeliy let to the developer using EC 17406 is to be leased to the district, Staff believes the provisions of EC 17417 Resolution of governing board declaring intention to enter into lease or agreement; opening and accepting bids, must be followed ....
Nothing in EC 17406 provides an exemption from this requirement or, when applicable, from the PCC requirements. Instead, EC 17406 provides exactly what it states: a simple manJ1er to transfer district propeliy without competitive bid to a developer who has been previously selected by competitive bid to construct a building for the use of the district. (2 AA 367-368.)
Under well settled California law, an administrative agency's
interpretation and construction of a statute it is charged with implementing "is
entitled to great weight." Henning v. Indus. We?fare Com. (1988)46 Cal. 3d
1262,1283; citing Bodinson Mfg. Co. v. California E. Com. (1941)17 Cal.2d
321, 325-326; also citing Banning Teachers Assn. v. Public Employment
Relations Bd. (1988) 44 Ca1.3d 799, 804. The SAB RepOli confirms
Taxpayer's assertion that, inter alia, (1) the exemption from competitive
bidding stated in section 17406 only applies to the site lease pOliion of the
lease-leaseback transaction (1 AA 366-367); (2) section 17417 applies to the
leaseback pOliion of the lease-leaseback transaction and requires competitive
bidding thereof (l AA 366-367.); (3) a lease-leaseback transaction must be
-37-
based on a genuine lease anangement and not be a subterfuge to avoid
competitive bidding (1 AA 365-366); (4) a lease-leaseback transaction must
be a genuine filiancing mechanism for funding school construction projects (1
AA 367 -368);5 and (5) absent the foregoing school construction contracts must
be awarded in the manner specified in Public Contract Code sections 20110 et
seq. (1 AA 367-368).
F. The Superior Court Erred When it Sustained the Demurrers to Taxpayer's Fourth Cause of Action
The Superior COUli ened when it sustained the demuners of
District/Contractor to Taxpayer's Fourth Cause of Action on the grounds
Govermnent Code section 1090 et seq., does not apply to Contractor. (2 AA
373:23-28 and 3 AA 513:22-26.) Taxpayer's Fourth Cause of Action at «j!«j!
42-56 sufficiently alleged the Lease-Leaseback Contracts are illegal, void and
unenforceable because their award to Contractor created a conflict of interest
under Govemment Code section 1090 and/or common law conflict of interest
principals based on Contractor's two prior professional consulting service
contracts with District involving the Projects which are the subject of the
Lease-Leaseback Contracts. (1 AA 17-21.)
1. California Law on Contractor's Conflict of Interest Under Government Code Section 1090
Govemment Code section 1090 broadly prohibits state and municipal
officials from being "financially interested in any contract made by them in
their official capacity, or by any body or board of which they are members."
See also Morgan Hill Ul1~fred School Dist. v. Amoroso (1988) 204 Cal.App.3d 1083, 1086 and 62 Ops.Cal.Atty.Gen. 209, 210 (1979) which state the lease-leaseback provisions of Education Code sections 39300 39325 (culTently (§§ 17400-17429) are a method for financing school construction.
-38-
The Superior Court's ruling on Taxpayer's F omih Cause of Action is contrary
to the law aliiculated by this Comi in Hub City Solid Waste Services, Inc., v.
-_ City 0.1 Compton (2010) 186 Cal. App. 4th 1114, where this COUli applied the
Fomih Appellate District's rule from California Housing Finance Agency v.
Hanover/California Management and Accounting Center, Inc. (2007) 148 Cal.
AppAth 682,693 that independent contractors of public entities are subject to
the conflict of interest prohibitions applicable to public entities. In Hub City,
supra, this Comi stated "[a] person in an advisory position to a city may fall
within the scope of [Goverm11ent Code] section 1090. In particular,
independent contractors whose official capacities carry the potential to exeli
influence over the contracting decisions of a public agcncy may not have
personal interests in that agency's contracts." Id. at 1124-1125.
2. California Law on Contractor's Conflict of Interest Under Common Law
In California there is also a conunon law doctrine that underlies
statutory prohibitions of conflicts of interest. In Schaefer v. Berinstein
(1956) 140 Cal.App.2d 278 this COUli stated "[i]t is the general policy of this
state that public officers shall not be interested in any contract made in their
official capacity in which they have a personal or financial interest." !d. at 289.
Citing to People v. Sullivan (1952) 113 Cal.App.2d 510 for the proposition "a
person merely in an advisory position to a city is affected by the conflicts of
interest rule" this Court went on to declare void contracts made by a special
attorney hired by a city to dispose of tax-deeded and special assessment frozen
propeliies for the city based on his conflict of interest related thereto. Id. at
291. Quoting from Stockton P. & s. Co. v. Wheeler (1924) 68 Ca1.App. 592,
601, this Court explained the rationale for subjecting persons in advisory
positions to a public entity to liability for a conflict of interest as follows:
-39-
"The principle upon which public officers are denied the right to make contracts in their official capacity with themselves or to be or become interested in contracts thus made is evolved from the self-evident truth, as trite and impregnable as the law of gravitation, that no person can, at one and the same time, faithfully serve two masters representing diverse or inconsistent interests with respect to the service to be performed .... The personal interest of an officer in a contract made by him in his official capacity may be indirect only, still such interest would be sufficient to taint the contract with illegality. Ifhis interest in the contract is such as would tend in any degree to influence him in making the contract, then the instrument is void because contrary to public policy, the policy of the law being that a public officer in the discharge of his duties as such should be absolutely free from any influence other than that which may directly grow out of the obligations that he owes to the public at large." ld. at 290.
3. Taxpayer Adequately Pled a Cause of Action for Contractor's Conflict of Interest Under Common Law and/or Government Code section 1090
Paragraph 53 of Taxpayer's FAC expressly referenced the Superior
COUli to the applicable law establishing Contractor's conflict of interest under
Govemment Code section 1090 andlor COlllinon law. (1 AA 19:26-20:20.)
Taxpayer sufficiently alleged a conflict of interest arose between
Contractor and District under Government Code section 1090 andlor connnon
law when Contractor obtained an interest in the Lease-Leaseback Contracts for
the Projects by receiving the award thereof from District after having
previously and concunently provided the District professional consulting
services relative thereto. Specifically, Contractor was employed by District
as a consultant to provide professional bond program management and
construction management services to District relative to projects funded by
Measures Y and Z, including the Projects subject to the Lease-Leaseback
-40-
Contracts (1 AA 17:~~44.) Contractor provided professional and financial
advice including, but not limited to: "programming, allocating resources and
administrative suppOli in project and program scheduling in consideration of
projected revenues and expenses; providing on-going conm1Unication and
leadership for the District bond modemization program by preparing,
providing and presenting information for the District Superintendent, Board
of Education, Independent Citizens' Bond Oversight Committee and
Subcommittee, District staff and the residents of Torrance in conul1unity
meeting; and assist the District staff in managing and coordinating effOlis of
architectural firms during the design process and with state agencies." (1 AA
17 :~45 with language in quotes from District's November 13, 2102 Agenda
Item Summary for the Extension of Contractor's contract for bond program
management services at 4 AA 986.)
PriOl' to receiving the award of the Lease-Leaseback Contracts
Contractor was employed by District a consultant to provide professional pre
construction design assist services relative to the Projects subject to the Lease
Leaseback Contracts. (1 AA 17:~48.) Contractor provided professional and
financial advice including, but not limited to budgeting, site evaluation, plan
review and constructability services, design review, value engineering, CPM
scheduling, construction estimating, staging (project phasing) and assistance
in the development of plans and specifications for the Projects subject to the
Lease-Leaseback Contracts. (1 AA 17:-049.)
In both consulting capacities for District Contractor filled the roles and
perfol1ned the functions of officers, employees and agents of District who
would ordinarily act for and give professional advise to the District relative to
same. (1 AA 18:-046 and 19:-050.) In both consulting capacities for District
Contractor was in a position of superior knowledge, trust and confidence
-41-
relative to District conceming, inter alia, the scoping, planning, budgeting,
design and construction methods/materials to be utilized for the completion of
its Measure Y & Z school construction projects including, but not limited to
the Projects. (1 AA 18:~47 and 19:~51.) Based on the foregoing Taxpayer's
F AC alleged in relevant pali:
" .... a conflict of interest arose between CONTRACTOR and DISTRICT when CONTRACTOR was awarded construction contracts by the DISTRICT because, inter alia, it created the oppOliunity for CONTRACTOR to use its position as DISTRICT's program manager, construction manager and/or professional preconstruction service provider for its own interest rather than the interest of the DISTRICT. Ways in which this could occur include, inter alia, (a) CONTRACTOR could set budgets for estimated construction costs higher than necessary to conceal the price it was charging DISTRICT for construction services was higher than what DISTRICT could otherwise obtain those construction services; (b) CONTRACTOR could reconU11end const111ction methods or materials that were unnecessary and/or more expensive than altemative equal construction methods or materials thereby increasing the price paid by DISTRICT and potentially the profit made by CONTRACTOR; (c) CONTRACTOR could recommend construction delivery methods that could cost the DISTRICT more than altemative construction delivery methods not recommended by CONTRACTOR; (d) CONTRACTOR could reconunend utilizing subcontractors who had undisclosed pre-existing relationships with CONTRACTOR and/or would charge the DISTRICT more than other subcontractors; andlor (e) CONTRACTOR could in the performance of CONTRACTOR's duties and conununications as DISTRICT's program manager, construction manager and/or professional preconstruction service provider, directly andlor through sub-consultants, portray actions, decisions and/or recol1unendations of CONTRACTOR in a light more favorable to CONTRACTOR thereby leading DISTRICT to make decisions to its economic and/or practical detriment." (1 AA 20-21:~54.)
-42-
The Superior COUli erred when it sustained the demulTers to Taxpayer's
FOUlih Cause of Action on the grounds Contractor did not have a conflict of
interest under Govermnent Code section 1090 and/or common law.
G. The Superior Court Erred When it Sustained the Demurrers to Taxpayer's Fifth Cause of Action
Taxpayer's Fifth Cause of Action sufficiently alleged the
Lease-Leaseback Contracts are illegal, void and unenforceable because
District had sufficient present funds available from Measure Y and Measure
Z to pay for the costs of construction. The lease-leaseback construction proj ect
delivelY method authorized by Education Code sections 17400-17429 is only
available for use by school districts which do not have sufficient present funds
available to pay for the costs of construction and must resort to lease-leaseback
alTangements to legitimately finance the costs of construction over time.
The Superior COUli erred when it sustained the demulTers of
District/Contractor to Taxpayer's Fifth Cause of Action on the grounds
Education Code sections 17400-17429 do not mandate that school districts
actually finance construction, and that Education Code section 17406 expressly
allows lease-leaseback construction without financing. (2 AA 374: 1-5 and 3
AA 514: 1-4.)
Taxpayer sufficiently alleged the lease-leaseback arrangement
authorized under Education Code sections 17400-17429 must constitute a
genuine "financing" because revisions made to the Education Code which,
enacted the preceding statutory version of Education Code sections 17400-
17429, were established as a mechanism to finance school facilities. Morgan
Hill Un~fied School Dist. v. Al1'lOroso (1988) 204 Ca1.App.3d 1083, 1086 and
62 Ops.Cal.Atty.Gen. 209, 210 (1979) state the lease-leaseback provisions of
Education Code sections 39300-39325 (currently §§ 17400-17429) are only
-43-
available ifused as a method for financing school construction. (1 AA 22:~59.)
Taxpayer's asseliion Education Code sections 17400-17429 may only
be used to genuinely finance school construction is suppOlied by the SAB
RepOIi:
Staff believes that viliually none of the projects currently using lease lease-back arrangements actually have financing provided by the developer. If a "lease agreement" other than the site lease exists at all, it serves no significant purpose other than as a construction contract. The full cost of the project is bome by the district using the nom1al funds it has available for capital projects. Normal progress payments are made to the contractor through the course of construction, and the project is completely paid for by the district at the project completion. The projects are in every regard typical public works projects, except that they have not been competitively bid. (2 AA 369.)
Since no financing exists in the lease lease-back agreement (or there is no lease agreement at all), the use of Aliicle 2 appears to be inappropriate. (2 AA 369.)
Taxpayer alleged District's Measure Y and Measure Z bonds provided
District with sufficient funds to cover the immediate costs of construction of
the Projects as they were incuned. Therefore the District is not legally
permitted to use the lease-leaseback construction project delivery method
authorized by Education Code sections 17400-17429 because there is no need
financing the Projects as contemplated thereunder. (l AA 22:~60.)
Taxpayer further sufficiently alleged that because District failed to use
the lease-leaseback delivery method authorized by Education Code sections
17400-17429 as a means to finance the cost of construction of the Projects
over time, the Lease-Leaseback Contracts were not made in strict confol1nity
with all applicable legal requirements such that they are ultra vires, illegal,
void, and unenforceable. (1 AA 22:~60.)
-44-
H. The Superior Court Erred When it Sustained the Demurrers to Taxpayer's Seventh Cause of Action
Taxpayer's Seventh Cause of Action sufficiently alleged a cause of
action for declaratory relief because it incorporated by reference all of the
allegations of fact and contentions of law and sought the Superior Court's
determination on whether the Lease-Leaseback Contracts are ultra vires,
illegal, void and unenforceable under California law. As such, Taxpayer
sufficiently alleged a cause of action for declaratory relief.
1. The Superior Court Erred When it Sustained the Demurrers Without Affording Taxpayer Leave to Amend
District and Contractor did not argue that any of the alleged defects in
Taxpayer's FAC were based on a lack of sufficient facts. Instead, they
premised their demurrers on the assertion that the facts alleged by Taxpayer
lacked any legal basis for the relief requested. Taxpayer requested leave to
amend if it were detennined Taxpayer failed to allege sufficient facts. (9 AA
904: 12-20.) A demurrer may not be sustained without leave to amend if there
is any reasonable possibility that the defects within the pleading may be cured
by amendment. Goodman v. Kennedy (1976) 18 Ca1.3d 335,349.
For the reasons stated above, Taxpayer has stated sufficient ultimate
facts to prevail on the Demuners if California law were to be properly
interpreted and applied to Taxpayer's F AC. However, in the event that it
should appear in the progress of this appeal that Taxpayer has not stated
sufficient facts, Taxpayer should be given leave to amend to attempt to cure
any defects. Chapman v. S/"'-ype Inc. (2013) 220 Cal.App.4th 217, 225-26.
-45-
V. CONCLUSION
Based on the foregoing Taxpayer requests this COUli reverse the
Superior Court's sustaining of District's and Contractor's Demurrers to arid·
subsequent dismissal of Taxpayer' s First Amended Complaint and remand this·
matter to the Superior COUli with direction to allow Taxpayer's action to
proceed.
Dated: April 21, 2014
By:
-46-
CARLIN LAW GROUP, APC
Kevin R. Carlin Attomey for Appellant JAMES D. MCGEE
CERTIFICATE OF COMPLIANCE
Pursuant to rule 8.204( c) of the Califomia Rules of Court, I hereby
celiify that this brief exclusive of the cover, table of contents and table of
authorities contains /3/37:; words, including footnotes. In making this J
celiification, I have relied on the word count ofthe computer program used to
prepare this brief.
Executed on April d.l , 2014, at San Diego, Califomia.
Kevin R. Carlin, Esq.
-47-
00523200061 12342787.1
Court of Appeal No. B252570 Superior Court Case No. YC068686
IN THE COURT OF ApPEAL
OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT DIVISION EIGHT
JAMES D. McGEE,
Plaintiff and Appellant,
vs.
TORRANCE UNIFIED SCHOOL DISTRICT, BARNHART-BALFOUR BEATTY, INC., dba BALFOUR BEATTY
CONSTRUCTION, et aI.,
Defendants and Respondents
On Appeal from a Judgment of the Superior Court of the County of Los Angeles
Hon. Stuart M. Rice, Presiding
.RESPONDENT'S BRIEF
ATKINSON, ANDELSON, LOY A, RUUD & ROMO Martin A. Hom (SBN 157058)
Jennifer D. Cantrell (SBN 235015) 12800 Center Court Drive, Suite 300
Cerritos, California 90703-9364 Telephone: (562) 653-3200 Facsimile: (562) 653-3333
Attorneys for Respondent Torrance Unified School District
005232.00061 12342787.1
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIFTH APPELLATE DISTRICT
Case Name: James D. McGee v. Torrance Unified School 1 Court of Appeal No: 8252570 District; Balfour Beatty Construction
CERTIFICATE OF INTERESTED ENTITIES OR PERSONS (Cal. Rules of Court, rules 8.208, 8.490(i), 8.494(c), 8.4989d)
Use this form for the initial certificate when you file your first document in the Court of Appeal in civil appeals and writs, and for supplemental certificates when you learn of changed or additional information that must be disclosed. Also include a copy of the certificate in your principal brief after the cover and before the tables. If no entity or person is known that must be listed under rule 8.208(d), write "NONE"
(Check One) 1 INITIAL CERTIFICATE [g] .1 SUPPLEMENTAL CERTIFICATE 0
Full Name of Interested Person / Entity Party Non-Party Nature of Interest (Check One) (Explain)
--- None --- [ ] [ ]
[ ] [ ]
[ ] [ ]
[ ] [ ]
[ J [ J
[ ] [ ]
The undersigned certifies that the above listed persons or entities (corporations, partnerships, firms, or any other association, but not including government entities or their agencies), have either (i) an ownership interest of 10 percent or more in the party if an entity; or (ii) a financial or other interest in the outcome of the proceeding that the justices should consider in determining whether to disqualify themselves, as defined in rule 8.208(d)(2).
Attorney Submitting Form Party Represented Martin A. Hom Torrance Unified School District (Name) (Name) 12800 Center Court Drive, Suite 300 (Address) Cerritos, California 93704 (City/State/Zip) (\ 562-653-320q
(~ ~SS) July 29,2014
(Signature of Attorney Submitting Form) (Date)
005232.00061 12342787.1
TABLE OF CONTENTS
Page
I. INTROD·UCTION ....................................................................................... 1
II. STATEMENT OF THE CASE .................................................................... 2
A. Statement of Facts ............................................................................ 2
B. Procedural History ........................................................................... 4
III. STANDARD OF REVIEW ......................................................................... 5
IV. ARGUMENT ............................................................................................... 7
A. The Trial Court Properly Denied McGee's Request for Judicial Notice as to Exhibits A Through F, L, and N Because They Are Hearsay and Irrelevant ....................................... 7
B. The Trial Court Correctly Sustained the Demurrer to the First Cause of Action Because Public Contract Code Section 20110 et seq. Does Not Apply to Lease-Leaseback Agreements ...................................................................................... 9
1. The Trial Court Correctly Held That Competitive Bidding Is Not Required Under Education Code Section 17406 ..................................................................... 10
2. McGee's Claim That Section 17406 Only Applies to Bona Fide Leases Is Not Supported By the Language of the Statute ..................................................... 13
C. The Second Cause of Action for Breach of Fiduciary Duty Fails As a Matter of Law ............................................................... 16
D. The Trial Court Correctly Sustained the Demurrer to the Third Cause of Action Because Education Code Section 17417 Does Not Apply to the Lease-Leaseback Procedures in Education Code Section 17406 .................................................. 20
1.
2.
3.
Section 17406 Exempts Both the Site Lease and the SubLease from Competitive Bidding ................................. 21
The Trial Court's Interpretation of Education Code Sections 17406 and 17417 Is Reasonable Because Public Bidding Is Not Required on all Public Contracts ............................................................................ 23
The District's Interpretation of Section 17406 as Exempting Lease-Leaseback Agreements From Competitive Bidding Does Not Render Section 17417 a Nullity .................................................................. 26
- 1 -
005232.00061 12342787.1
TABLE OF CONTENTS
4. McGee's Reliance on the State Allocation Board Report Is Misplaced .............................................. : ........... .26
E. The Fourth Cause of Action Fails to State Facts Sufficient to State a Cause of Action for Conflict of Interest Because Government Code Sections 1090 and 81000 Do Not Apply to Balfour Beatty ............................................................................ 28
1. As a Matter of Law, Balfour Beatty's Prior Consulting Arrangement With the District Did Not Bring It Within the Class of Persons Covered by Government Code Section 1090 ........................................ 30
2. McGee Has Failed to State a Cause of Action for Common Law Conflict of Interest ..................................... 35
F. The Trial Court Properly Sustained the Demurrer to the Fifth Cause of Action Because There Is No Requirement that the Lease-Leaseback Contractor Carry the Cost of Construction ................................................................................... 36
G. The Trial Court Properly Sustained the Demurrer to the Seventh Cause of Action ................................................................ 38
H. The Trial Court Did Not Err in Sustaining the Demurrers Without Leave to Amend ............................................................... 40
V. CONCLUSION .......................................................................................... 41
CERTIFICATE OF WORD COUNT ................................................................... .42
- ii -
00523200061 12342787.1
TABLE OF AUTHORITIES
FEDERAL CASES
Skidmore v. Swift & Co. (1944) 323 U.S. 134 .......................................................................................... 27
STATE CASES
AL Holding Co. v. O'Brien & Hicks, Inc. (1999) 75 Cal.AppAth 131 0 ................................................................................ 9
Bily v. Arthur Young & Company (1992) 3 Ca1.4th 370 .......................................................................................... 18
Blank v. Kirwan (1985) 39Ca1.3d311 ..................................................................................... 5, 14
Branciforte Heights, LLC v. City of Santa Cruz (2006) 138 Cal.App.4th 914 .............................................................................. 19
Caliber Bodyworks, Inc. v. Superior Court (2005) . 134 Cal.App.4th 365 .............................................................................. 21
California Housing Finance Agency v. Hanover/California Management and Accounting Center, Inc. (2007) 148 Cal.App.4th 682 ............................................................ 30,31, 32, 33
California School Employees Assn. v. Tustin Unified School Dist. (2007) 148 Cal.App.4th 51 0 .............................................................................. 10
California Teachers Assoc. v. Governing Bd. of Rialto Unified School. Dist. (1997) 14 Ca1.4th 627 ............................................................................ 15,36,37
City of Atascadero v. Merrill Lynch, Peirce, Fenner & Smith (1998) 68 Cal.AppAth 445 ................................................................................ 17
City of Los Angeles v. Offner (1942) 19 Ca1.2d 483 ......................................................................................... 16
Coasts ide Fishing Club v. California Resources Agency (2008) 158 Cal.AppAth 1183 .............................................................................. 6
Cobb v. Pasadena City Board of Education (1955) 134 Cal.App.2d 93 .......................................... '" .................................... 24
County of Riverside v. Whitlock (1972) 22 Cal.App.3d 863 ................................................................................. 25
- iii -
00523200061 12342787.1
TABLE OF AUTHORITIES
County of San Bernardino v. Walsh (2007) 58 Cal.App.4th 533 ................................................................................ 29
Dale v. City of Mountainview (1976) 55 Cal.App. 3d 101 ...................................................................... 6, 14, 15
Dillon v. Legg (1968) 68 Ca1.2d 728 ......................................................................................... 18
Domar Electric, Inc. v. City of Los Angeles (1994) 9 Ca1.4th 161 .......................................................................................... 23
Douda v. California Coastal Comm 'n (2008) 159 Cal.AppAth 1181 ............................................................................ 22
Garvey School Dist. of Los Angeles County v. Southwestern Sur. Ins. Co. (1920) 50 Cal.App. 75 ........................................................................................ 25
Hodgeman v. City of San Diego (1942) 53 Cal.App.2d 610 ................................................ , ................................ 25
Hub City Solid Waste Services, Inc. v. City of Compton (2010) 186 Cal.AppAth 1114 .......................................................... 30, 31, 32, 33
Jackson v. Pancake (1968) 266 Cal.App.2d 307 ............................................................................... 25
Kajima/Ray-Wilson v. Los Angeles County Metropolitan Transp. Authority (2000) 23 Ca1.4th 305 ........................................................................................ 23
Kashian v. Harriman (2002) 98 Cal.App.4th 892 .................................................................................. 9
Kavanaugh v. West Sonoma County Union High School Dist. (2003) 29 Ca1.4th 911 ........................................................................................ 10
Klajic v. Castaic Lake Water Agency (2004) 121 Cal.App.4th 5 ............................................................................ 20,21
Konica Business Machines US.A. Inc. v. Regents of University of California (1998) 206 Cal.App.3d 449 ............................................................................... 23
Leslie Salt Company v. San Francisco Bay Conservation and Dev. Comm'n (1984) 153 Cal.App.3d 605 ............................................................................... 10
- IV -
005232.00061 12342787.1
TABLE OF AUTHORITIES
Lexin v. Superior Court (2010) 47 CaL4th 1050 ...................................................................................... 29
Los Angeles Dredging Company v. Long Beach (1930) 210 Cal. 348 ........................................................................................... 25
Los Angeles Gas & Electric Corporation v. Los Angeles (1920) 188 CaL 307 ........................................................................................... 25
Mangini v. R.J. Reynolds Tobacco Co. (1994) 7 CaL4th 1057 ....................................................................................... , .. 6
Marshall v. Pasadena Unified School Dist. (2004) 119 Cal.App.4th 1241 ............................................................................ 23
Mayer v. C. W Driver (2002) 98 CaLApp.4th 48 .................................................................................. 13
Meakin v. Steveland (1977) 68 CaLApp.3d 490 ................................................................................. 25
Morgan Hill Unified School District v. Amoroso (1988) 204 CaLApp.3d 1083 ....................................................................... 37, 38
People v. Christiansen (2013) 216 CaLApp.4th 1181 ............................................................................ 33
Phillips v. Desert Hospital Dist. (1989) 49 CaL3d 699 ......................................................................................... 19
Ratcliff Architects v. Vanir Constr. Mgmt., Inc. (2001) 88 Cal.App.4th 595 ................................................................................ 18
Regents o/University o/California v. Superior Court (2013) 220 CaLApp.4th 549 ................................................................................ 5
Salazar v. Upland Police Dept. (2004) 116 Cal.App.4th 934 ................................................................................ 6
San Diego City Firefighters, Local 145, AFL-CIO v. Board of Admin. of San Diego City Employees' Retirement System (2012) 206 CaLApp.4th 594 .......................................................................... 6, 40
Schaefer v. Berinstein (1956) 140 CaLApp.2d 278 ............................................................................... 35
Schifando v. City of Los Angeles (2003) 31 CaL4th 1074 .................................................................................. 6, 40
- v -
005232.00061 12342787.1
TABLE OF AUTHORITIES
Settle v. State o/California (Jul. 23, 2014, B249236) _ Cal.AppAth _ [2014 LEXIS 658] ................................................. 15
Shore v. Central Contra Costa Sanitary Dist. (1962) 208 Cal.App.2d 465 ............................................................................... 25
Slocum v. State Bd. 0/ Equalization (2005) 134 Cal. App. 4th 969 ............................................................................ 28
In re Social Services Payment Cases (2008) 166 Cal.AppAth 1249 .............................................................................. 6
Souvannarath v. Hadden (2002) 95 Cal.AppAth 1115 .............................................................................. 21
State Building & Construction Trades Council of California v. Duncan (2008) 162 Cal.AppAth 289 ........................................................................ 26, 27
State of California v. Superior Court (2004) 32 Cal.4th 1234 ...................................................................................... 19
Ste. Marie v. Riverside County Regional Park and Open-Space Dist. (2009) 46 Cal.4th 282 .......................................................................................... 8
In re Summer H. (2006) 139 Cal.AppAth 1315 ...........................................................•................ 21
Swanton v. Corby (1940) 38 Cal.App.2d 227 ................................................................................. 24
Terry v. Bender (1956) 143 Cal.App.2d 198 ............................................................................... 17
Thomson v. Canyon (2011) 198 Cal.AppAth 594 .............................................................................. 17
In re Tobacco Cases 11(2007) 41 Cal.4th 1257 ........................................................................................ 6
United Air Lines, Inc. v. County of San Diego (1991) 1 Cal.App.4th418 .................................................................................. 13
Willis v. State o/California (1994) 22 Cal.App.4th 287 .................................................................................. 7
Wolfv. Superior Court (2003) 107 Cal.App.4th 25 ................................................................................ 17
- VI -
005232.00061 12342787.1
TABLE OF AUTHOIDTffiS
Page
Ya'1~hCa?4~h· t!.~'::.~~.~~.~ .. ~:.~~~~~.~~· .. ~!.~~~~~:~~~:~~ .. ~~.~~~.~ ................... 27
STATE CODES/STATUTES
Code of Civil Procedure § 863 ...................................................................... 4
Code of Civil Procedure § 1858 .................................................................. 38
Code of Civil Procedure § 1875 .................................................................... 7
Education Code § 15701, et seq .................................................................. 11
Education Code § 15705 ....................................................................... 11, 12
Education Code § 17250 et seq ................................................................... 34
Education Code § 17250.1 0 ........................................................................ 34
Education Code § 17250.10(a)-(b) .............................................................. 34
Education Code §§ 17400- 17429 ........................................................... 9, 14
Education Code § 17400 et seq ............................................................ passim
Education Code § 17402 ............................................................................. 38
Education Code § 17403 ............................................................................. 37
Education Code § 17406 ...................................................................... passim
Education Code § 17406 and 17417 ........................................................ 8, 23
Education Code § 17407 ....................................................................... 26,39
Education Code § 17408 ............................................................................. 38
Education Code § 17409 ............................................................................. 38
Education Code § 17417 ...................................................................... passim
Evidence Code § 452 ................................................................................. 7,8
Evidence Code § 452(g) ................................................................................ 7
Evidence Code § 452(h) ................................................................................ 7
Government Code § 900 et seq ................................................................... 19
Government Code § 1090 ..................................................................... passim
- VII -
005232.00061 12342787.1
TABLE OF AUTHORITIES
Page
Government Code §§ 1090 and 81000 ........................................................ 28
Government Code §§ 1090 and 81000 et seq ................................................ 2
Government Code §§ 4217.10-4217.18 ...................................................... 25
Government Code § 53060 .......................................................................... 24
Public Contract Code § 20110 et seq ................................................... passim
Public Contract Code §§ 20110-20118.4 ...................................................... 9
Public Contract Code § 20111(a) ................................................................ 24
Public Contract Code § 20 111 (c) ................................................................ 24
Public Contract Code §§ 20111(c), 20114, 20655 ...................................... 24
Public Contract Code §§ 20 III (d) and 20651 (d) ....................................... 24
Public Contract Code §§ 20113, 20564 ....................................................... 25
OTHER AUTHORITIES
56 Op.Atty.Gen. 571 ............................................................................. 12,39
56 Ops.Atty.Gen. 572 .................................................................................. 26
57 Ops.Atty.Gen417 ................................................................................... 24
62 Ops.Atty.Gen. 643 ....................................................................... :: ......... 25
Assembly Bill No. 1486 ........................................................................ 12, 28
Const., art. XI, § 18 ..................................................................................... 16
- Vlll -
I.
INTRODUCTION
Plaintiff/Appellant James D. McGee ("McGee") brought this reverse
validation action to challenge the validity of several contracts relating to
modernization projects at three public schools in Torrance, California. The
contracts are part of a transaction between the Torrance Unified School
District ("District") and Barnhart-Balfour Beatty, Inc., dba Balfour Beatty
Construction ("Balfour Beatty") known as a "lease-leaseback"
arrangement.
The lease-leaseback process, set forth in Education Code section
17406, allows a school district to temporarily lease real property to a
developer/contractor without advertising for bids. The developer then
leases that property back to the school district while it constructs school
facilities or other improvements. The rent payments the district pays over
time for the sublease funds the costs of the project's construction and title
to the property and the buildings vest in the school district at the expiration
of the lease. This method allows a district to contract directly with a
developer and foregoes the traditional competitive bidding process under
the Public Contract Code. The lease-leaseback process has become a
popular method for financing and constructing school facilities and has
been routinely approved by trial courts throughout the state. (See
Appellant's Appendix, "AA," volume 2, pp. 416-510 [collecting cases].)l
McGee has challenged the validity of these lease-leaseback
agreements claiming, among other things, that the lease-leaseback process
is invalid because the District failed to seek competitive bids for the
construction, breached its fiduciary duty by not soliciting alternative bids
and price quotes for the work, failed to comply with Education Code
1 All citations to the record will be referenced as [Volume] AA [page].)
- 1 -
section 17417 when awarding the Lease-Leaseback Agreements to Balfour
Beatty, violated conflict of interest laws under Government Code sections
1090 and 81000 et seq., and improperly used Education Code section
17406 because the District had sufficient funds to pay for the construction
of the project. In the proceedings below, the trial court considered and
rejected all of McGee's arguments when it sustained the District's demurrer
without leave to amend.
McGee now reasserts the same meritless arguments on appeal. The
Court should deny this appeal and affirm the decision of the trial court for
the following reasons. First, Education Code section 17406 provides that
the District may enter into a lease-leaseback agreement "without
advertising for bids" so that there are no competitive bidding requirements
for this process. Second, McGee cannot allege that it complied with the
Tort Claims Act or that it sustained any damages, both of which are
required to state a cause of action for breach of fiduciary duty. Third,
Education Code section 17417 has no application to the procedures in
section 17406 because 17406 begins with the term "notwithstanding section
17417." Fourth, McGee cannot allege that any violation of Government
Code section 1090 or 81000 et seq. exists or that it even applied to Balfour
Beatty. Finally, the lease-leaseback statutes do not require that the District
make a showing of financial need in order to use the lease-leaseback
procedures in Education Code section 17406.
For these reasons, and as argued in greater detail below, the Court
should affirm the judgment of the trial court in it is entirety.
II.
STATEMENT OF THE CASE
A. Statement of Facts
This case arises from three school construction projects within the
boundaries of Torrance Unified School District: (1) the Hickory
- 2 -
Elementary School Modernization Project; (2) the Madrona Middle School
Modernization Project; and (3) the North High School Modernization
Project (collectively "Projects"). (lAA 2.) On December 19, 2012, the
District's Governing Board passed resolutions approving Lease-Leaseback
Agreements with Balfour Beatty for the construction of the three Projects.
(2 AA 354-361.)
The Lease-Leaseback Agreements were entered into pursuant to
Education Code section 17406, which authorizes a school district to lease
district-owned property to a developer or contractor if the instrument
requires the lessee to construct buildings for school use on the property and
specifies that title to the buildings reverts back to the school district at the
end of the term. This process, set forth in Education Code section 17406, is
commonly referred to as the "lease-leaseback" delivery method. Lease
leaseback agreements do not require a competitive bidding process. (Ed.
Code § 17406.)
Here, the Lease-Leaseback Agreements between the District and
Balfour Beatty are each comprised of three contracts-a Site Lease,
Sublease, and Construction Services Agreement. First, under the terms of
the Site Lease," the District agreed to lease the Project sites to Balfour
Beatty for $lIyear for the duration of the Projects. (1 AA 3, 31-43, 137-
150,245-258 [First Amended Complaint, "FAC," ~ 10 and Exh. A, D, G].)
Under the Sublease, Balfour Beatty agreed to construct the Projects,
generally consisting of the construction and/or upgrades of classrooms and
administrative buildings, athletic facilities, field, and associated site work,
for a guaranteed maximum price. (1 AA 4, 44-60, 151-168,259-276 [FAC,
~ 11 and Exh. B, E, H].) At the end of the lease term or in the event that the
District prepaid the sublease payments, any and all title to the site and any
improvements shall vest in the District without any further instrument of
transfer. (Ibid.) The Construction Services Agreements supplement the
- 3 -
Site Lease and the Sublease by setting forth the terms and conditions for
construction and obligating Balfour Beatty to perform its work in
accordance with the plans and specifications for the Projects. (See 1 AA 4,
61-136, 169-244,277-352 [FAC, ~ 12 and Exh. C, F, I].)
B. Procedural History
On February 19, 2013, McGee filed a reverse validation complaint,
pursuant to Code of Civil Procedure section 863, seeking to invalidate the
Lease-Leaseback Agreements for the Hickory Project, Madrona Project,
and North Project. (5 AA 1135.) In response, the District and Balfour
Beatty demurred and moved to strike portions of the complaint on the
grounds that it failed to allege sufficient facts to constitute a cause of action
and merely alleged impermissible legal conclusions. (Id. at 1133-1134.)
In lieu of opposing the District's well-taken motions, McGee elected
to amend the complaint and filed its First Amended Complaint on June 4,
2013 ("FAC"). (1 AA 1-26.) In the amended pleading, McGee alleged the
Lease-Leaseback Agreement was illegal, void, and unenforceable under the
following seven causes of action: (1) failure to comply with Public
Contract Code section 20110 et seq.; (2) breach of fiduciary duty; (3)
failure to comply with Education Code section 17417; (4) contractor
conflict of interest under Government Code section 1090; (5) improper use
of Education Code section 17400 et seq.; (6) improper delegation of
authority; and (7) declaratory relief. (Ibid.; see also AOB, p. 5.)
On July 8,2013, the District demurred and moved to strike portions
of the First Amended Complaint on the grounds that McGee again failed to
allege facts sufficient to state a cause of action. (2 AA 372-394.) More
specifically, District argued that McGee failed to allege any facts showing
the District failed to award the Lease-Leaseback Agreement in violation of
the procedures set forth in Education Code section 17406.
- 4 -
McGee opposed the demurrers (4 AA 886-907) and filed a request
for judicial notice regarding a hodge-podge of newspaper clippings and
other media reports critical of the lease-leaseback process at other school
districts, unrelated cases of alleged government corruption, and out-of-court
presentations and letters concerning the lease-leaseback process. (4 AA
909-910.)
On or about August 6, 2013, the District filed its reply brief along
with a set of objections to McGee's request for judicial notice. (5 AA
1053-1069.)
On August 9, 2013, the trial court issued its tentative opinion to
sustain the demurrers. (RT 4:3-5.) As part of its tentative decision, the trial
court granted judicial notice as to Exhibits G through K and M, and denied
judicial notice as to Exhibits A through F, L, and N. (RT 3:19-22.) After
receiving oral argument from the parties, the trial court adopted its tentative
and sustained the demurrers without leave to amend. (RT 9:28 - 10:3.)
Judgment was entered on October 18, 2013. (5 AA 1099-1103.)
On October 22, 2013, the District served notice of entry of judgment. (5
AA 1110.) This appeal followed on November 15, 2013. (5 AA 1111.)
III.
STANDARD OF REVIEW
A demurrer tests the legal sufficiency of the factual allegations in a
complaint. (Regents of University of California v. Superior Court (2013)
220 Cal.App.4th 549, 558.) This Court independently reviews the trial
court's ruling and determines de novo whether the complaint alleges facts
sufficient to state a cause of action as a matter of law. (Ibid.) Although a
demurrer admits all material facts properly pleaded, it does not admit
contentions, deductions, or conclusions of fact or law. (Blank v. Kirwan
(1985) 39 Cal.3d 311, 318.) Thus, where an allegation is contrary to law or
- 5 -
to a fact of which a court may take judicial notice, it must be treated as a
nullity. (Dale v. City of Mountainview (1976) 55 Cal.App. 3d 101, 105.)
An appellate court does not review the reasons for the trial court's
ruling; "if it is correct on any theory, even one not mentioned by the court,
and even if the court made its ruling for the wrong reason, it will be
affirmed." (Coasts ide Fishing Club v. California Resources Agency (2008)
158 Cal.App.4th 1183,1190-1191.) Thus, a judgment of dismissal after a
demurrer has been sustained without leave to amend will be affirmed if
proper on any grounds stated in the demurrer, whether or not the court
acted on that ground. (San Diego City Firefighters, Local 145, AFL-CIO v.
Board of Admin. of San Diego City Employees' Retirement System (2012)
206 Cal.App.4th 594, 605-606.) Further, the Court must decide whether
there is a reasonable possibility the plaintiff could cure the defect with an
amendment. (Ibid.) "If we find that an amendment could cure the defect,
we conclude that the trial court abused its discretion and we reverse; if not,
no abuse of discretion has occurred." (Ibid.) The plaintiff has the burden
of proving that an amendment would cure the defect. (Schifando v. City of
Los Angeles (2003) 31 Ca1.4th 1074,1081.)
Evidentiary issues, such as a trial court's decision whether to take
judicial notice, is reviewed for abuse of discretion. (In re Social Services
Payment Cases (2008) 166 Cal.App.4th 1249, 1271; Salazar v. Upland
Police Dept. (2004) 116 Cal.App.4th 934, 946.) A trial court has broad
discretion to deny judicial notice based on relevance grounds: "But judicial
notice, since it is a substitute for proof, is always confined to those matters
which are relevant to the issue at hand." (Mangini v. RJ Reynolds Tobacco
Co. (1994) 7 Ca1.4th 1057, 1063[overruled on another ground in In re
Tobacco Cases II (2007) 41 Ca1.4th 1257, 1276].) Accordingly, the trial
court's decision "not to take judicial notice will be upheld on appeal unless
the reviewing court determines that the party furnished information to the
- 6-
judge that was so persuasive that no reasonable judge would have refused
to take judicial notice of the matter." (Willis v. State a/California (1994)
22 Cal.App.4th 287,291.)
IV.
ARGUMENT
A. The Trial Court Properly Denied McGee's Request for Judicial
Notice as to Exhibits A Through F, L, and N Because They Are
Hearsay and Irrelevant
McGee asserts that the trial court erred by refusing to take judicial
notice of newspaper articles, lease-leaseback presentation material, and a
legal opinion on contractor conflicts of interest which were attached as
Exhibits "A" through "F," "L," and "N" in its papers in opposition to the
District's Demurrer and Motion to Strike. (AOB, p. 12.)
McGee's Request for Judicial Notice was made pursuant to
Evidence Code section 452(g), which provides for judicial notice of "facts
and propositions that are of such common knowledge within the territorial
jurisdiction of the court that they cannot reasonably be the subject of
dispute," and section 452(h), which provides for judicial notice of "facts
and propositions that are not reasonably subject to dispute and are capable
of immediate and accurate determination by resort to sources of reasonably
indisputable accuracy." As the comments to Section 452 state,
Subdivisions (g) and (h) include, for example, facts which are accepted as established by experts and specialists in the natural, physical, and social sciences, if those facts are of such wide acceptance that to submit them to the jury would be to risk irrational findings. These subdivisions include such matters listed in Code of Civil Procedure Section 1875 as the "geographical divisions and political history of the world."
Here, the documents offered by McGee clearly do not meet the
standards for judicial notice under Evidence Code section 452. Exhibits A
through F contain newspaper articles and other media reports concerning
- 7 -
alleged corruption by public officials throughout Southern California
none of which bears any connection whatsoever to the District, Balfour
Beatty, or the specificProjects at issue. (4 AA 911-934.) Notably, Exhibit
C is an article that quotes McGee's own counsel, Mr. Kevin Carlin, and
contains self-serving statements regarding his opinions on the legality of
the lease-leaseback process. (4 AA 924.) Exhibit L is a 4 year- old
conference presentation by the District's counsel and Exhibit N is a 2013
opinion letter by Best, Best & Krieger on an unrelated matter. The District
lodged objections to this evidence and the trial court properly excluded it as
being hearsay and irrelevant to the specific Projects at issue.
Even on appeal, McGee fails to explain how the information
contained in these exhibits is of such common knowledge that it "cannot
reasonably be the subject of dispute" per Evidence Code section 452.
Instead, McGee contends that the exhibits provide "context" for his
statutory interpretation arguments regarding Education Code section 17406
and 17417 and his claims concerning the misuse of public funds, fraud, and
corruption. (AOB, p. 13.) This argument is misplaced in that McGee has
failed to show that the underlying statute, Education Code section 17406, is
ambiguous, which is a precondition for admitting evidence regarding
legislative intent: "[i]f the language of a statute is not ambiguous, the plain
meaning controls and resort to extrinsic sources to determine the
Legislature's intent is unnecessary." (See, e.g. Ste. Marie v. Riverside
County Regional Park and Open-Space Dist. (2009) 46 Ca1.4th 282, 288.)
Here, as shown below, the language of Section 17406 is quite clear that
competitive bidding is not required for lease-leaseback transactions,
therefore resort to these extrinsic exhibits was unnecessary.
Second, and more importantly, even if the trial court did err in
refusing to take judicial notice of McGee's exhibits-which the District
denies-such error was harmless beyond doubt because the trial court could
- 8 -
only have taken notice of the existence of the documents, and not their
content or the truthfulness of anything in them (i.e., merely the fact that the
articles were published). (AL Holding Co. v. O'Brien & Hicks, Inc. (1999)
75 Cal.App.4th 1310; Kashian v. Harriman (2002) 98 Cal.App.4th 892,
900, fn. 3.) Thus, the articles could not have provided evidence that
anything about the lease-leaseback system conflicts with California law,
nor could the exhibits have bolstered McGee's allegations that public
bidding is necessary to prevent corruption and fraud. For these reasons, the
trial court did not abuse its discretion in its evidentiary rulings and this
Court should affirm.
B. The Trial Court Correctly Sustained the Demurrer to the First
Cause of Action Because Public Contract Code Section 20110 et
seq. Does Not Apply to Lease-Leaseback Agreements
In its first cause of action, McGee alleges that the Lease-Leaseback
Agreements are void and unenforceable because Education Code sections
17400 to 17429 "only authorize genuine lease and leaseback
arrangements." (1 AA 8-10 [FAC, ~~ 21-26].) According to McGee,
The procedures defined in Education Code §§ 17400-17429 may only be used as an alternative to the procedures for school facility construction prescribed in Public Contract Code §§ 20110-20118.4 if a school district enters into a genuine lease and leaseback arrangement with its selected contractor. Conversely, the procedures for school facility construction prescribed in Public Contract Code §§ 20110-20118.4 apply to traditional purchase type construction contracts between school districts and contractors where, as here, the school district has retained its own separate architect relative to the project. (1 AA 8:17-23.)
As shown below, McGee's argument is misplaced and contrary to
Education Code section 17406, which provides that the lease-leaseback
procedures may be performed "without advertising for bids."
- 9 -
1. The Trial Court Correctly Held That Competitive
Bidding Is Not Required Under Education Code Section
17406
The interpretation of statutes, such as the lease-leaseback provisions
in the Education Code, present questions of law requiring independent
reVlew. (Kavanaugh v. West Sonoma County Union High School Dist.
(2003) 29 Cal.4th 911, 919.) The primary purpose of statutory construction
is to ascertain the Legislature's intent. (Ibid.) First, the court considers the
actual words of the statute, being careful to give them a plain and
commonsense meaning. (Ibid.) If the language is unambiguous, that is, if
the meaning assigned to it is not in conflict with other language in the same
act, then the plain meaning controls. (Leslie Salt Company v. San
Francisco Bay Conservation and Dev. Comm 'n (1984) 153 Cal.App.3d
605, 614.) If, however, the statutory language leaves doubt about its
meaning, the court may consider other evidence of legislative intent, such
as the history and background of the statute. (Ibid., California School
Employees Assn. v. Tustin Unified School Dist. (2007) 148 Cal.App.4th
510,517.)
Here, the trial court sustained the District's demurrer to McGee's
first cause of action on the grounds that Education Code section 17406
expressly permits a non-competitive bidding process for lease-leaseback
agreements. (RT 1-2.) As section 17406 states,
Notwithstanding Section 17417, the governing board of a school district, without advertising for bids, may let, for a minimum rental of one dollar ($1) a year, to any person, firm, or corporation any real property that belongs to the district if the instrument by which such property is let requires the lessee therein to construct on the demised premises, or provide for the construction thereon of, a building or buildings for the use of the school district during the term thereof, and provides that title to that building shall vest in the school district at the expiration of that term. The instrument
- 10-
may provide for the means or methods by which that title shall vest in the school district prior to the expiration of that term, and shall contain such other tenns and conditions as the governing board may deem to be in the best interest of the school district. (Emphasis added.)
Thus, under Education Code section 17406, the lease-leaseback
procedures merely require: (1) that the District own the land to be leased;
(2) that the lessee agree to construct a building or buildings for the
District's use; and (3) that title to the buildings shall vest in the District at
the end of the tenn. Here, there is no question that the Lease-Leaseback
Agreements meet these requirements because the District owns the land for
the Projects (see, e.g., 1 AA 33, 46), and the Lease-Leaseback Agreements
provide for the lease of the Projects sites to Balfour Beatty (Id. at 33-34),
the construction of the Projects by Balfour Beatty (Id. at 49, 62-136), the
leaseback of the Project site to the District by Balfour Beatty (Id. at 48-50),
and that title vests in the District at the end of the lease tenn. (See 1 AA 2
54.) The trial court did not err in interpreting the plain meaning of Section
17406, as the statute clearly states that lease-leaseback agreements may be
made "without advertising for bids," thereby exempting such agreements
from the competitive bidding requirements for school districts in Public"
Contract Code section 20110 et seq.
The trial court's ruling is further supported by attorney general
opinions and relevant legislative history of the lease-leaseback laws. In
fact, the California Attorney General was asked to interpret Education Code
section 15701, et seq., a previous version of the lease-leaseback statute, and
opined that,
2
It is concluded that the Legislature excluded an arrangement entered into under section 15705 from the notice and bid requirements. Because a school district is not required to
These provisions are the same for all three Lease-Leaseback Agreements.
- 11 -
obtain bids from lease arrangements under section 15705, it may lease its property for the purpose of permitting the construction thereon of school building which the district will lease at such rental rates as the governing board deems in the best interests of the district without reference to competitive
bidding.3
(56 Op.Atty.Gen. 571, 581.)
Moreover, in August 2004, the Legislature sought to amend the
lease-leaseback requirements under Education Code section 17406 to
require that school districts receive competitive proposals when awarding
lease-leaseback agreements when it passed Assembly Bill No. 1486 ("AB
1486"). (2 AA 403-413.) In doing so, Education Code section 17406 was
amended to read,
In order to enable school districts to let real property for the purpose of acquiring, financing, or constructing facilities, and notwithstanding Section 17417, the governing board of a school district, through the competitive proposal process set forth in Article 2.2 (commencing with Section 17429.1) ...
(2 AA 405.)
Although AB 1486 passed both the Assembly and Senate in August
2004, Governor Schwarzenegger vetoed AB 1486 on September 24, 2004,
stating,
3
I am returning Assembly Bill 1486 without signature.
I am supportive of using a competitive process for public works projects and understand that this bill is needed to clarify that process. However, this bill imposes restrictions on lease-leaseback contracts that could limit competition, inadvertently limit schools flexibility, and drive higher administrative costs; thereby potentially increasing the overall cost of school facility construction.
Education Code section 15705 was renumbered section 39305 when the Education Code was reorganized in 1976. Section 39305 was renumbered to its current number section 17406 in 1996. The only change to this statute was the inclusion ofthe words "without advertising for bid" in 1986.
- 12 -
For this reason, I cannot sign this measure.
(2 AA 415.)
The fact that the Legislature attempted to amend Education Code
section 17406 and include that the lease-leaseback procedures be awarded
based on a competitive proposal process affirms the Attorney General
opinion that competitive bids are not required under the lease-leaseback
process that is set forth in Education Code section 17406. McGee's first
cause of action that the Lease-Leaseback Agreement with Balfour Beatty is
somehow illegal, void, and unenforceable is contrary to the express
language of Education Code section 17406 which provides that the lease
leaseback process may be entered into "without advertising for bids."
2. McGee's Claim That Section 17406 Only Applies to Bona
Fide Leases Is Not Supported By the Language of the
Statute
In its Opening Brief, McGee attempts to sidestep these issues by
arguing that he alleged sufficient facts to survive demurrer by showing that
the leases are "shams and subterfuges, entered into to avoid the competitive
bidding obligations of the Public Contract Code that would otherwise
apply" but for the District's alleged "se'if-serving titles, stipulations and
definitions in their Lease-Leaseback Contracts." (AOB, p. 17.) This is
incorrect.
First, the Court need not address this argument, since an appellate
court does not review the reasons for the trial court's decision and may
affirm on any basis appearing in the record, including the fact that
competitive bidding was not required relative to the Lease-Leaseback
Agreements. (See, e.g. United Air Lines, Inc. v. County of San Diego
(1991) 1 Cal.App.4th 418,434, fn. 15; Mayer v. C.W Driver (2002) 98
Cal.App.4th 48,57.)
- 13 -
Second, even if the Court were to reach this argument, McGee's
complaint fails to state sufficient facts regarding its "sham and subterfuge
theory." On pages 14-16 of the Opening Brief, McGee points to four
alleged facts, three of which are simply legal conclusions and self-serving
opmlOns:
(1) "To fit within the alternative procedures for school facility
construction authorized by Education Code section 17400-17429, a genuine
lease and leaseback arrangement must exist ... " (1 AA 9 [F AC, 'il24]);
(2) "[T]he trier of fact is required to disregard the self serving
titles, stipulations and definitions contained in the challenged Lease
Leaseback Contracts . . .and evaluate the true nature, arrangement and
purpose of the Lease-Leaseback Contracts in light of the subject to which
they relate, the end for which they were created and the means by which
they accomplish their end" (1 AA 9 [F AC, 'il25]); and
(3) "The Lease-Leaseback Contracts between District and
Contractor are not really leases and therefore are not the type of
arrangements authorized by Education Code section 17400-17429" (1 AA
9 [FAC, 'il25].)
Although a demurrer admits all material facts properly pleaded, it
does not admit contentions, deductions, or conclusions of fact or law, such
as these averments by McGee. (Blank v. Kirwan (1985) 39 Ca1.3d 311,
318.) The Court must disregard these legal conclusions in determining
whether a complaint states sufficient facts. (Dale v. City of Mountainview
(1976) 55 Cal.App.3d 101, 105.) None of the previous allegations amounts
to an ultimate fact in support of McGee's cause of action.
Only the fourth "fact" identified by McGee (AOB, p. 15-16; 1 AA 9-
10 [F AC, 'iI 226]) merits any analysis by this Court. In paragraph 26 of the
FAC, McGee alleges that the sublease payments are a "sham" because (1)
they only last as long as the duration of construction, (2) are variable based
- 14 -
on the value of work performed, (3) do not provide any financing, (4) the
lease payments end concurrently with end of construction, (5) the project is
administered in manner consistent with Public Contract Code, (6) the
District requires retention and bonds, and (7) District does not have the
right to beneficial occupancy during the term of the Facilities Lease. (Ibid.)
McGee contends that these issues should be put before a trier of fact in
order to determine whether the leases were "shams and subterfuges."
(AOB, p. 17.)
Yet, McGee fails to articulate how any of these facts offend the
language of Section 17406. Section 17406 does not set forth any specific
criteria regarding the required duration of the lease, occupancy
requirements, or the types of payment arrangements that the parties may
make. Instead, McGee appears to be reading these requirements into the
statute in order to support its own theory of what a lease-leaseback
arrangement should look like. This is improper. (California Teachers
Assoc. v. Governing Bd. of Rialto Unified School. Dist. (1997) 14 Ca1.4th
627, 633 [court's limited role is to construe statutes, not to rewrite them to 4
conform to unexpressed intentions].)
Further, McGee's argument is belied by Section 17406, which
specifically provides that a lease-leaseback agreement may contain
additional terms and conditions that the school district deems are in its best
interest. As the statute states:
4
The instrument may provide for the means or methods by which that title shall vest in the school district prior to the
As Division 6 of this Court so aptly put it in their recent decision in Settle v. State of California (Jul. 23, 2014, B249236) _ Cal.App.4th _ [2014 LEXIS 658], "A patron orders a hamburger from the menu at a diner and asks the server if he can substitute edamame for French fries. 'No substitutes," says the server. We like the server who cannot add or substitute entries on the menu, cannot add or substitute words in a statute."
- 15 -
expiration of that term, and shall contain such other terms and conditions as the governing board may deem to be in the best interestQf the school district.
By approving the form of the Lease-Leaseback Agreements in the
December 19, 2012 Resolutions, the District's Governing Board has
approved all of the terms and conditions as being in the District's best 5
interest as allowed by Education Code section 17406. (2 AA 354-361.)
Apart from its rampant speculation and conspiracy theories, McGee
has failed to allege any facts to suggest that the Lease-Leaseback
Agreements are a "sham or subterfuge" to violate the state's competitive
bidding laws. The trial court correctly held that the Lease-Leaseback
Agreement was valid under Education Code section 17406 and this Court
should affirm.
C. The Second Cause of Action for Breach of Fiduciary Duty Fails
As a Matter of Law
In the second cause of action, McGee alleges that the Lease
Leaseback Agreement with Balfour Beatty is illegal, void, and
unenforceable because the District breached its fiduciary duty when
awarding the Lease-Leaseback Agreement to Balfour Beatty. (1 AA 10-11
[FAC, ~~ 27-31].)
5 City of Los Angeles v. Offner (1942) 19 Ca1.2d 483, 486 does not aid
McGee's cause. There, the issue was whether a proposed agreement for the leasing of city land, the construction of an incinerator thereon, and the leasing back thereof to the city for a definite amount was a true lease versus an installment sales contract for purposes of the debt limitation provision of the Constitution (Const., art. XI, § 18). In Offner, the Court held that the facts, when taken as a whole, showed the lease-leaseback was "in reality a lease with reasonable terms and option to purchase. We find no evident present intention on the part of the city to purchase the incinerator." (!d. at 487.)
- 16 -
A breach of fiduciary duty is a species of tort. (Thomson v. Canyon
(2011) 198 Cal.App.4th 594, 605.) In order to plead a breach of fiduciary
duty, McGee must allege the existence of a fiduciary duty, a breach of that
duty, and damages proximately caused by that breach. (City of Atascadero
v. Merrill Lynch, Peirce, Fenner & Smith (1998) 68 Cal.App.4th 445, 483.)
A fiduciary relationship is "any relation existing between parties to a
transaction wherein one of the parties is in duty bound to act with the
utmost good faith for the benefit of the other party. Such a relation
ordinarily arises where a confidence is reposed by one person in the
integrity of another, and in such relation the party in whom the confidence
is reposed, if he voluntarily accepts or assumes to accept the confidence,
can take no advantage from his acts relating to the interest of the other party
without the latter's knowledge or consent. ... " (Wolf v. Superior Court
(2003) 107 Cal.App.4th 25, 29.) The District does not dispute that as a
general proposition, public officials such as school board members owe a
fiduciary relationship toward the taxpayers and constituents they represent.
(Terry v. Bender (1956) 143 Cal.App.2d 198,206.)
Here, McGee alleges that the District's Governing Board breached
their fiduciary duties by failing to consider less expensive proposals to
perform the work, failing to consider evidence of whether the price paid for
the work was reasonable or could have been lower, and failing to solicit
alternative bids and/or price quotes from other contractors. (See 1 AA 11
[F AC, ~ 29].) The problem with these allegations is that McGee fails to
articulate why the District was required to take any of these steps in order
to discharge its fiduciary obligations to taxpayers. McGee's argument is
epitomized on page 20 of its Opening Brief where it argues that because the
District was required to submit the plans and specifications to the Division
of State Architect (DSA) prior to entering the lease-leaseback arrangement
"there is nothing preventing a school district from soliciting competitive
- 17 -
bids." The fact that no law prevented the District from taking a particular
course of conduct is not the same as a law that required the District to act.
Legal duties do not arise out of thin air-. instead, they must arise
through statute, contract, the general character of the activity, or the
relationship between the parties. (Ratcliff Architects v. Vanir Constr.
Mgmt., Inc. (2001) 88 Cal.AppAth 595, 604.) As the Supreme Court has
explained, "A judicial conclusion that a duty is present or absent is merely a
shorthand statement rather than an aid to analysis. Duty is not sacrosanct in
itself, but only an expression of the sum total of those considerations of
policy which lead the law to say that the particular plaintiff is entitled to
protection." (Bily v. Arthur Young & Company (1992) 3 Ca1.4th 370, 397,
quoting Dillon v. Legg (1968) 68 Ca1.2d 728, 734 [internal quotes
omitted].)
As argued throughout this brief, the Lease-Leaseback Agreements
between the District and Balfour Beatty were entered into pursuant to
Education Code section 17406. Section 17406, in tum, does not require
competitive bidding, nor does it require the Board to obtain alternative bids
and cost estimates for the work to satisfY itself that the contract amount is
the lowest price available on the market. There is nothing in the lease
leaseback statutes, nor any other authorities cited by McGee, to suggest that
the District was required to take these extra steps in order to discharge its
fiduciary obligations to the taxpayers. Accordingly, the trial court did not
err in finding that McGee had failed to state a cause of action for breach of
fiduciary duty.
Further, the cause of actions fails as a matter of law because McGee
failed to allege damages. McGee, in its opposition to the demurrer,
admitted that it did not seek damages, which is a required element of a
cause of action for breach of fiduciary duty. (4 AA 899-900.) McGee, by
- 18 -
its own admission, cannot meet the requirements to state a cause of action
for breach of fiduciary duty.
Lastly, the Court of Appeal should affirm the judgment based on the
District's alternative argument that McGee's failure to present a timely
claim under Government Code section 900 et seq. is fatal to its cause of
action for breach of fiduciary duty. Submission of a claim to a public entity
under the Tort Claims Act is a condition precedent to a tort action and the
failure to present the claim bars the action. (Phillips v. Desert Hospital
Dist. (1989) 49 Ca1.3d 699, 708.) A plaintiff must allege facts
demonstrating or excusing compliance with the claims presentation
requirements of the Tort Claims Act, otherwise, the complaint is subject to
demurrer. (State of California v. Superior Court (2004) 32 Ca1.4th 1234,
1243.)
In its opposition to the demurrer, McGee cited to Branciforte
Heights, LLC v. City of Santa Cruz (2006) 138 Cal.AppAth 914 for the
proposition that the Tort Claims Act does not apply when a party is not
seeking damages. McGee's reliance on Branciforte Heights is misplaced,
however, because in that case, a developer filed a petition for writ of
mandate seeking to direct the city to allow a private open space credit
against the park fees paid by the developer. (Id. at 919.) The court held
that the Tort Claims Act did apply because the developer sought to enforce
the performance of an official duty to return or pay monies which was not
subject to the Act. (Id. at 932.) The instant case is neither a petition for
writ of mandate nor is it a taxpayer waste lawsuit. McGee has brought a
"reverse" validation action alleging that the District failed to comply with
the lease-leaseback procedures set forth in the Education Code. McGee is
the plaintiff in this action and the second cause of action seeks to invalidate
the Lease-Leaseback Agreement on the tort theory that the District
breached its fiduciary duty. As such, the District's demurrer to the second
- 19 -
cause of action was well-taken and this Court should affirm the judgment of
dismissal below.
D. The Trial Court Correctly Sustained the Demurrer to the Third
Cause of Action Because Education Code Section 17417 Does
Not Apply to the Lease-Leaseback Procedures in Education
Code Section 17406
In the third cause of action, McGee alleges that the Lease-Leaseback
Agreement with Balfour Beatty is illegal, void, and unenforceable because
the District failed to comply with Education Code section 17417. (1 AA
12-16 [FAC, GJGJ 32-41].) McGee's contention is misplaced in that the
Education Code section 17406 plainly provides that the lease-leaseback
procedure is not subject to section 17417. The first sentence of section
17406 states "Notwithstanding Section J 74 J 7, the governing board of a
school district, without advertising for bids, may let, for a minimum rental
of one dollar ($1) a year, to any person, firm, or corporation any real
property that belongs to the district. .. " (Emphasis added.)
By phrasing the statute in this way, the Legislature clearly intended
to remove the lease-leaseback process from the requirements of section
17417. The use of the word "notwithstanding" indicates that the language
of section 17406 controls over any requirements in section 17417. In
Klajic v. Castaic Lake Water Agency (2004) 121 Cal.AppAth 5, the court
held the statutory phrase "notwithstanding" is a term of art and, when
referencing another law, means that the law using the word notwithstanding
overrules any existing law. As the court explained,
Notwithstanding means 'without prevention or obstruction from or by' or 'in spite of or 'despite.' The statutory phrase "notwithstanding any other law" has been called a 'term of art' that declares the legislative intent to override all contrary law. By use of this term, the Legislature expresses its intent 'to have the specific statute control despite the existence of
- 20-
other law which might otherwise govern.' (Id. at 13 [Citations omitted.].)
Similarly, in In re Summer H. (2006) 139 Cal.AppAth 1315, 1328,
the court explained that "notwithstanding" has a special legal connotation:
"[I]t is considered an express legislative intent that the specific statute in
which it is contained controls in the circumstances covered by that statute,
despite the existence of some other law which might otherwise apply to
require a different or contrary outcome." (quoting Souvannarath v. Hadden
(2002) 95 Cal.AppAth 1115, 1125-1126; see also Caliber Bodyworks, Inc.
v. Superior Court (2005) 134 Cal.AppAth 365,383, fn. 17 [same].)
Thus, the use of the term "notwithstanding" in Education Code
section 17406 controls and means that the lease-leaseback procedure is not
governed by the requirements of Section 17417. This interpretation is
further strengthened by the fact that Section 17406 goes on to say that the
lease-leaseback procedure may be performed "without advertising for
bids." The Legislature's careful phrasing of Section 17406 leaves no doubt
that competitive bidding is not required for lease-leaseback contracts.
1. Section 17406 Exempts Both the Site Lease and the
SubLease from Competitive Bidding
In a transparent effort to circumvent Section 17406, McGee urges
the Court to set aside the plain language of the statute and adopt a different
construction finding that Section 17406 applies only to the Site Lease, and
not the Sublease. (AOB, pp. 23-32.) McGee points to the term "let" for the
contention that Section 17406 only applies to the initial Site Lease
agreement in which the district property was leased to Balfour Beatty.
McGee argues that its interpretation limiting Section 17406 to the Site
Lease is correct because there is no language in that statute that relates to
the sublease of the property back to the school district. (AOB, p. 28-29.)
For example, McGee notes that the statute does not provide for how the
- 21 -
amount to be paid by the school district to sublease its property back is
determined. Based on this, McGee concludes that "Education Code section
17406 does not address the sublease portion of the lease-leaseback
arrangement. That is because the specifics of the sublease portion of the
lease-leaseback arrangement are laid out in Education Code § 17417."
(Ibid.) This argument misses the mark.
Contrary to McGee's claims, the plain text of Section 17406 is not
silent as to the issue of the sublease. Instead, Section 17406 expressly
requires that the lessee "shall" construct school facilities on the site and that
title to the site and the school facilities shall vest in the District at the end of
the term. As the statute provides, one of the conditions for "letting" the
property (i.e. leasing) under this section is the requirement that the "lessee
therein ... construct on the demised premises, or provide for the
coristruction thereon . . ., a building . . . for the use of the school district
during the term thereon ... " If, as McGee argues, Education Code section
17406 only applies to the Site Lease, then the statutory requirement that the
lessee construct school facilities on the site and title to the site and the
facilities vest in the District at the end of the term would not be met
because that is the purpose of the Sublease. The Site Lease only leases the
site to the lease leaseback contractor and nothing more. If Section 17406
was not meant to exempt the sublease from competitive bidding, then there
would be no reason for the statute to contain all these provisions about
construction work and terms. In construing a statute, a court must give
meaning to every word and avoid interpretations that would render
language surplusage. (See, e.g., Douda v. California Coastal Comm 'n
(2008) 159 Cal.App.4th 1181,1191-1192.)
Also, if the Legislature had intended to limit Section 17406 to site
lease agreements, as McGee suggests, there are plenty of ways it could
have done so to be clearer that the construction portion of the lease-
- 22-
leaseback remained subject to competitive bidding. Yet, Section 17406
shows the opposite intention. The Legislature used not one, but two
separate means to communicate that competitive bidding is not required
first, through its statement "Notwithstanding Section 17417," (an
acknowledgement and express overriding of the otherwise applicable
competitive bidding statute), and second, by expressly declaring that lease
leaseback agreements may occur "without advertising for bids."
Based on the foregoing, the trial court correctly held that lease
leaseback agreements under Section 17406 are not subject to competitive
bidding. The trial court's judgment should be affirmed.
2. The Trial Court's Interpretation of Education Code
Sections 17406 and 17417 Is Reasonable Because Public
Bidding Is Not Required on all Public Contracts
Next, McGee contends that the trial court's interpretations of Section
17406 and 17417 "must be rejected because they enable and encourage the
misuse of public funds and the evils of fraud, favoritism and corruption."
(AOB, p. 34.) According to McGee, the lease-leaseback process utilized by
the District violates competitive bidding laws and offends the general state
policy favoring the award of public contracts to the lowest responsible
bidder.
The District does not deny that there is a strong public policy
favoring competitive bidding. (See, e.g. Marshall v. Pasadena Unified
School Dist. (2004) 119 Cal.App.4th 1241, 1256.) The purpose of
competitive bidding is to eliminate favoritism, fraud and corruption, to
avoid misuse of public funds, and to stimulate advantageous marketplace
competition. (See Kajima/Ray- Wilson v. Los Angeles County Metropolitan
Transp. Authority (2000) 23 Ca1.4th 305, 314; Konica Business Machines
US.A. Inc. v. Regents of University of California (1998) 206 Cal.App.3d
449,456; Damar Electric, Inc. v. City of Los Angeles (1994) 9 Ca1.4th 161,
- 23 -
173.) What McGee fails to appreciate, however, is that this general public
policy favoring competitive bidding is not absolute. In absence of a
controlling statute, competitive bidding is not required. (Swanton v. Corby·
(1940) 38 Cal.App.2d 227,229.)
McGee's blanket assertion that for over 150 years California law has
required competitive bidding for the award of all contracts involving the
expenditure of public money is plainly false. To the contrary, there are
numerous exceptions to the competitive bidding statutes. For example,
Public Contract Code section 20111(a) provides that school districts are not
required to competitively bid contracts for construction services whose
dollar value is less than $15,000; for maintenance work and non
construction services such as purchases of materials and supplies, the
threshold is $50,000, adjusted annually for inflation.6 Additionally, the
following types of contracts are exempted from competitive bidding
requirements:
• Contracts for professional services-such as architects,
engineers, surveyors, and attorneys. (Pub. Contract Code § 20111(c); see
also Cobb v. Pasadena City Board of Education (1955) 134 Cal.App.2d 93
[contract with architect not subject to competitive'"bidding]; Gov. Code §
53060 [contracts for professional services]; 57 Ops.Atty.Gen 417 (1974)
[Construction managers]);
• Work done by day labor or force accounl (Pub. Contract
Code §§ 20111(c), 20114, 20655);
6 The State Superintendent of Public Instruction (SSPI) is required to
annually adjust the $50,000 amount specified in Public Contract Code Section 201l1(a) to adjust for inflation. (Pub. Contract Code §§ 20111(d) and 20651(d).) Effective January 1, 2014, the bid threshold amount now stands at $84,100. (See http://www.cde.ca.gov/fg/ac/co/bidthreshold20 14.asp.) 7 •
The term "force account" refers to the use of a publIc agency's own forces
- 24-
• Contracts for emergency repairs (Pub. Contract Code §§
20113,20564);
• Energy Conservation Contracts - contracts to develop
energy conservation, cogeneration and alternate energy supply source
agreements (Gov. Code §§ 4217.10 through 4217.l8); and
• Completion Contracts upon default of a contractor (Garvey
School Dist. of Los Angeles County v. Southwestern Sur. Ins. Co. (1920) 50
Cal.App.75, 79-80; Shore v. Central Contra Costa Sanitary Dist. (1962)
208 Cal.App.2d 465, 469).
Further, courts have long held that competitive bidding does not
apply when it would work an incongruity or not produce any advantage,
such as when the goods or services are available from a sole source.
(Meakin v. Steveland (1977) 68 Cal.App.3d 490; Los Angeles Gas &
Electric Corporation v. Los Angeles (1920) 188 Cal. 307 [sole source for
electrical power]; Los Angeles Dredging Company v. Long Beach (1930)
210 Cal. 348 [sole source when dredging pipes could only be rerouted by
the on site dredging company]; Hodgeman v. City of San Diego (1942) 53
Cal.App.2d 610 [sole source for a parking meter]; County of Riverside v.
Whitlock (1972) 22 Cal.App.3d 863 [public utility].)
Thus, while public policy certainly favors competitive bidding, it
does not require it in all instances, as urged by McGee. As the foregoing
discussion has shown, there are numerous well-known exceptions to the
competitive bidding laws. Education Code section 17406 and its provisions
for lease-leaseback contracts is simply another instance where the
Legislature has determined that competitive bidding should not apply. To
the extent that McGee disagrees with such exceptions, its public policy
to construct a public project. (Jackson v. Pancake (1968) 266 Cal.App.2d 307,311; 62 Ops.Atty.Gen. 643, fn. 1.)
- 25 -
arguments are best left for the Legislature, not the courts. (See State
Building & Construction Trades Council of California v. Duncan (2008)
162 Cal.App.4th 289,324.)
3. The District's Interpretation of Section 17406 as
Exempting Lease-Leaseback Agreements From
Competitive Bidding Does Not Render Section 17417 a
Nullity
On pages 34 to 36 of its Opening Brief, McGee asserts that the
District's interpretation of Section 17406 must be rejected because it would
render Section 17417 a nullity. McGee claims that if all Lease-Leaseback
Agreements are exempted from public bidding, there is no situation in
which Section 17417 would apply. This is incorrect.
As cogently explained by Balfour Beatty in its Reply Brief to the
Demurrer, Section 17406 applies only when the District owns the property
on which the buildings are to be constructed. (5 AA 1042.) Another
section of the Education Code, section 17407, applies when a district does
not own the property on which the buildings are to be constructed. Section
17417's competitive bidding requirements would apply to any agreement
entered into by a'· school district pursuant to Section 17407. Notably, the
Attorney General's opinion regarding lease-leaseback contracting observed
this distinction in the legislation concluding competitive bidding is required
if the district does not own the property, but is not required if the district
does own the property. (56 Op.Atty.Gen. p. 572, 581 (1971).)
4. McGee's Reliance on the State Allocation Board Report Is
Misplaced
McGee admits in both its complaint as well as its Opening Brief on
appeal that its arguments regarding interpretation of Section 17406 are
taken largely from a 2004 State Allocation Board ("SAB") Report prepared
by a staff attorney at the SAB. (See 2 AA 363-371.) The report, among
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other things, states that school districts have expanded "the meaning of EC
17406 beyond its simple intent," and that Section 17406 should be limited
in its application "to transfer district property without a competitive bid to a
developer who has been previously selected by competitive bid to construct
a building for the use of the District." (AOB, pp. 36-37 [quoting SAB
Report at 2 AA 368-369].)
In interpreting statutes, courts are free to "tak[ e ] into account"
agency interpretations, but such agency interpretations "are not binding or
necessarily even authoritative." (Yamaha Corp. of America v. State Bd. of
Equalization (1998) 19 Cal.4th 1, 7-8.) The weight courts attach to agency
interpretations is "contextual," and depends on factors such as "the
thoroughness evident in [the agency's] consideration, the validity of its
reasoning, its consistency with earlier and later pronouncements, and all
those factors which give it power to persuade, if lacking power to control."
[Citation.] (Jd. at pp. 14-15, [quoting Skidmore v. Swift & Co. (1944) 323
U.S. 134, 140].) Because the issue here is one of pure statutory
interpretation, this is not a situation where the administrative agency "has a
comparative interpretative advantage over the courts." (Jd. at 12.) As the
Supreme Court has explained,
Courts must, in short, independently judge the text of the statute, taking into account and respecting an agency's interpretation of its meaning, whether embodied in a formal rule or less formal representation. Where the meaning and legal effect of a statute is the issue, an agency's interpretation is one among several tools available to the court. Depending on the context, it may be helpful, enlightening, even convincing. It may sometimes be of little worth.
(Yamaha, supra, at pp. 7-8; see also State Bldg. and Canst. Trades
Council of California v. Duncan (2008) 162 Cal.App.4th 289,304.)
Here, the Court should give relatively little weight to the opinions
contained in the 2004 SAB Report because this case involves a pure issue
- 27 -
of law regarding the interpretation of the lease-leaseback statutes, which is
solely a judicial function. Further the SAB Report, as McGee admits, was
never formally adopted by the SAB, nor was it vetted in accordance with.
the Administrative Procedure Act. (4 AA 896; see also Slocum v. State Bd.
of Equalization (2005) 134 Cal. App. 4th 969 [judicial deference more
deserving under circumstances indicating that the interpretation was part of
a regulation adopted by the agency in accordance with the Administrative
Procedure Act, rather than contained in an advice letter prepared by a staff
member].) AB 1486, which was enrolled on August 27, 2004, was
introduced to amend the lease-leaseback statutes to address some of the
issues raised in SAB Report, but it was vetoed by the Governor. (See
discussion supra; see also 2 AA 415.)
For these reasons, the Court should independently review the lease
leaseback statutes and find that the plain language of Section 17406 does
not require competitive bidding. The SAB Report, to the extent that it
conflicts with the statutory language or attempts to read additional
requirements into the statute, must be rejected.
E. The Fourth Cause of Action Fails to State Facts Sufficient to
State a Cause of Action for Conflict of Interest Because
Government Code Sections 1090 and 81000 Do Not Apply to
Balfour Beatty
In the fourth cause of action for contractor conflict of interest,
McGee alleges that the District's Lease-Leaseback Agreement with Balfour
Beatty is illegal, void, and unenforceable because Balfour Beatty allegedly
had a pre-existing financial interest in the Lease-Leaseback Agreement and
therefore was legally disqualified from being awarded the agreement under
Government Code sections 1090 and 81000. (AOB, pp. 40-41.) This
ground cannot be maintained as a matter of law because Government Code
sections 1090 and 81000 do not apply to Balfour Beatty.
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Government Code 1090 provides,
Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members.
Government Code section 1090 generally prohibits public officials
from being financially interested in any contract made by them in their
official capacity. (County of San Bernardino v. Walsh (2007) 58
Cal.App.4th 533, 549.) As the Supreme Court has explained, Section 1090
"is concerned with ferreting out any financial conflicts of interest, other
than remote or minimal ones, that might impair public officials from
discharging their fiduciary duties with undivided loyalty and allegiance to
the public entities they are obligated to serve." (Lex in v. Superior Court
(2010) 47 Ca1.4th 1050, 1073.) To determine whether Section 1090 has
been violated, a court must identify (1) whether the defendant government
officials or employees participated in the making of a contract in their
official capacities, (2) whether the defendants had a cognizable financial
interest in that contract, and (3) whether the cognizable interest falls within
any of the exceptions for remote or minimal interests. (Id. at 1074.)
Here, McGee cannot get past the first step of the test because it has
not and cannot allege that Balfour Beatty is a member or an employee of a
public entity or a member of an elected body or board. McGee has merely
alleged that Balfour Beatty is a California corporation doing business in the
Torrance Unified School District. (1 AA 3 [FAC, ~ 6].) From there,
McGee's complaint makes the legal conclusion that because Balfour Beatty
provided professional services to the District as a preconstruction service
provider, its status somehow changed from a consultant to a public official
and gave rise to a conflict of interest. (1 AA 20 [FAC, ~ 54].) Once again,
McGee is mistaken.
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1. As a Matter of Law, Balfour Beatty's Prior Consulting
Arrangement With the District Did Not Bring It Within
the Class of Persons Covered by Government Code
Section 1090
While McGee concedes that Balfour Beatty was neither an employee
nor officer of the District, McGee asserts that independent contractors and
consultants of public agencies fall within California's conflict of interests
statutes per the decisions in Hub City Solid Waste Services, Inc. v. City of
Compton (2010) 186 Cal.App.4th 1114, 1124-1125, and California
Housing Finance Agency v. Hanover/California Management and
Accounting Center, Inc. (2007) 148 Cal.App.4th 682,693. As will be seen,
both of these decisions are readily distinguishable.
In Hub City, supra 186 Cal.App.4th at 1119-1120, the City of
Compton entered into an agreement with a company narried AUS to
provide waste management services for the City. Under the agreement, the
president and sole employee of AUS, a man named Aloyan, acted as a de
facto City employee and "director of the in-house waste division, working
alongside city employees, overseeing the day-to-day operations of
Compton's waste management division," including identifYing vendors,
and negotiating to acquire trucks, refuse containers, and real estate on
behalf of the City. (Ibid.) Eventually, Aloyan created a business named
HUB, staffed it with his relatives, and then submitted a written proposal to
the City for a IS-year franchise agreement to take on the City's waste
management operations. (Id. at 1120-1121.) After Aloyan was convicted
in federal court for attempted bribery in connection with another municipal
waste contract, the City of Compton terminated the franchise agreement
and sued Aloyan for violation of Section 1090. (Jd. at 1190.)
In Hub City, the court held that even though Aloyan was not
technically an employee of the City, he fell within the ambit of Section
- 30-
1090 because, among other things, he "supervised city staff, negotiated
contracts, and purchased equipment and real estate on behalf of the city.
His activities served a public function, and he was intricately involved in
the city's waste management decisions." (Id. at 1126.) Based on these
facts, the court concluded that
A person in an advisory position to a city may fall within the scope of section 1090. In particular, independent contractors whose official capacities carry the potential to exert considerable influence over the contracting decisions of a public agency may not have personal interests in that agency's contracts. (Id. at 1124-1125.)
Similarly, in California Housing Finance Agency, supra 148
Cal.App.4th 682, the Fourth Appellate District upheld a jury instruction
which said that for purposes of liability under Section 1090, "The fact that
someone is designated an independent contractor is not determinative; the
statute applies to independent contractors who perform a public function."
(Jd. at 690.) There, the CHFA (a public entity specializing in providing
affordable housing) sued two of its former employees for wrongdoing in
connection with an insurance skimming scheme. One of the employees
was directly employed by the CHF A as its director of insurance, and the
other was CHFA's former general counsel, who later became its outside
general counsel. (Id. at 685.) The two employees created a company
named HC to provide "insurance premium processing services," and
influenced their employer to enter into an agreement "whereby HC would
collect monthly premiums from lenders and loan servicers and forward the
premiums to CHFA, after deducting HC's 'operating costs.'" (Id. at 685-
686.) HC was operated out of the general counsel's home residence, was
managed by the general counsel's domestic partner, and was staffed by
family members of the two employees. (Ibid.) The company was able to
net over $6 million in this insurance skimming scheme. (Ibid.)
- 31 -
In upholding a jury instruction which stated that independent
contractors could be liable under Section 1090, the court explained that the
test is whether the public servant exercises sufficient influence/control over
the public entity, "i.e., where the agent is in a position to contract in his or
her 'official capacity.'" (Id. at 690.) The court concluded that "an attorney
whose official capacity carries the potential to exert 'considerable'
influence over the contracting decisions of a public agency is an 'employee'
under section 1090, regardless of whether he or she would be considered an
independent contractor under common-law principles." (Id. at 693.)
As can be seen, the facts alleged in McGee's complaint are a far cry
from those in either Hub City or California Housing. Unlike those cases,
where the wrongdoers were actual employees, general counsel, or de facto
employees of the public agency, here there is no allegation that Balfour
Beatty's work as a consultant brought it within the day-to-day operations of
the District similar to an employee relationship. There is no claim that
within its role as pre-construction advisor, Balfour-Beatty supervised the
District's employees, negotiated contracts, or purchased equipment, like in
Hub City. Also, one of the key facts common to both Hub City and
California Housing, was that the defendants' role caused them to take over
or assume a broad public function of ongoing duration, such as waste
management or processing affordable housing insurance premiums. Here,
there are no such averments against Balfour Beatty. Instead, McGee
simply alleges that Balfour-Beatty helped prepare and develop the "plans,
specifications and other construction documents relative to the Project." (1
AA 16-17.) In other words, Balfour-Beatty provided discrete services in
connection with the Measure Y and Measure Z projects. (AOB, p. 42.)
Also, unlike California Housing, where the outside general counsel
drafted the contract for the public agency and essentially entered into the
agreement on the public agency's behalf, here. there is no allegation that
- 32-
Balfour-Beatty, as a pre-construction consultant, had undue influence in
crafting the Lease-Leaseback Agreements or exerted "considerable"
influence over the District's contracting decisions. McGee does not allege,
nor can it, that the Lease-Leaseback Agreements were anything other than
an arms-length transaction between the parties.8
In an effort to resuscitate its cause of action, McGee alleges that
Balfour-Beatty occupied a position of superior knowledge, trust and
confidence relative to District concerning the Measure Y and Z school
construction projects. (1 AA 19.) McGee argues that a pre-construction
consultant, such as Balfour-Beatty, could be tempted to advance its own
interests by designing the project in a way to pad its own profits, rather than
maximize the value to the District. (AOB, pp. 40-41.)
This notion that architects or project designers may be tempted to
pad their designs with costly details in order to maximize their construction
profits leads to the conclusion that design services and construction services
should always be contracted out to different entities, because this separation
between designers and builders acts as a form of checks and balances on
construction costs. Yet, this idea does not match the reality of school
8 It should be noted that expansion of liability under Section 1090 to
independent contractors has been sharply criticized by other courts. For example, in People v. Christiansen (2013) 216 Cal.AppAth 1181, 1189-1190, Division 1 of the Second Appellate District expressly rejected the holdings in Hub City and California Housing, explaining that
We decline to follow HUB City for the same reasons we decline to follow California Housing: It fails to follow the Supreme Court's guidance concerning interpretation of the undefined statutory term "employees"; it is a civil case; and it relies on cases (primarily a subset of those cited in California Housing) that provide no support for the proposition that an independent contractor can be an employee within the meaning of section 1090. (Id. at 1190.)
- 33 -
construction. Under AB 1402, Education Code section 17250 et seq., the
Legislature has authorized school districts to utilize a design-build project
delivery method (different from the lease-leaseback method) wherein
districts may contract with firms for both the design and construction of
certain capital projects. Unlike traditional design-bid-build projects, where
an architect prepares the plans and specifications and those plans are then
bid upon by different contractors, the design-build process specifically
allows districts to contract with a single firm for both the
architectural/design services as well as the actual construction work. (See
Ed. Code § 17250.10.)
Thus, AB 1402 and design-build contracts stand as proof that the
Legislature does not share McGee's concerns or inherent distrust of having
a single entity such as Balfour-Beatty act as both the designer and builder
of the same project. To the contrary, the Legislative findings expressly
states that "The Legislature has recognized the merits of the design-build
procurement process," and
The benefits of a design-build contract project delivery system include accelerated completion of the projects, cost containment, reduction of construction complexity, and reduced exposure to risk for the school district. The Legislature also finds that the cost-effective benefits to the school districts are achieved by shifting the liability and risk for cost containment and project completion to the designbuild entity. (Ed. Code § 17250.10, subd. (a)-(b) [emphasis added].)
Based on the foregoing, McGee has not and cannot allege that the
Lease-Leaseback Agreement violated Government Code section 1090, and
the trial court properly sustained the demurrer.
- 34-
2. McGee Has Failed to State a Cause of Action for Common
Law Conflict of Interest
In addition to Government Code section 1090, McGee has alleged
that the Lease-Leaseback Agreement is illegal, void and/or unenforceable
under general common law conflict of interest principles. (AOB, pp. 39-
40.) In support, McGee cites to Schaefer v. Berinstein (1956) 140
Cal.App.2d 278, wherein the court stated that "it is the general policy of
this state that public officers shall not be interested in any contract made in
their official capacity in which they have a personal or financial interest,"
(Id. at 289.) Accordingly, the court went on to say that "a person merely in
an advisory position to a city is affected by the conflicts of interest rule."
(Id. at 291.)
In Schaefer, the city had contracted with an attorney to rehabilitate
certain tax-deeded and "special assessment frozen" properties within the
city. (Id. at 291.) The attorney had purchased many of these properties
from the city through third parties at prices far below their fair market
value, while assuring the price the city paid was fair. The court ruled that
the attorney violated a city charter provision similar to Section 1090, which
prohibited an officer or employee of the city from haVIng a financial
interest in a transaction with the city. (Id. at 287, fn. 2.) As the court
explained, the public policy underlying the conflict of interest rules means
"that a public officer in the discharge of his duties as such should be
absolutely free from any influence other than that which may directly grow
out of the obligations that he owes to the public at large." (Id. at 290.)
Here, as previously argued, the F AC does not, and cannot allege
sufficient facts showing that Balfour-Beatty's position with the District
violated these common law conflict of interest principles. Balfour-Beatty
was not at any time a public officer of the District, and its prior work as a
- 35 -
consultant is simply not sufficient to state a cause of action under the
conflict of interest laws.
F. The Trial Court Properly Sustained the Demurrer to the Fifth
Cause of Action Because There Is No Requirement that the
Lease-Leaseback Contractor Carry the Cost of Construction
In the fifth cause of action, McGee alleges that the Lease-Leaseback
Agreement with Balfour-Beatty is illegal, void, and unenforceable because
Education Code section 17400 et seq. requires that the cost of construction
be advanced and carried by the lease-leaseback contractor over a period of
years. (AOB, pp. 43-44; 1 AA 21-22.) McGee's argument is misplaced
and is not supported by the text of the lease-leaseback statute, Education
Code section 17406.
As previously noted, the prOVISIOns of Education Code section
17406 requires: (1) that the District own the land to be leased, (2) that the
lessee agree to construct a building or buildings for the District's use, and
(3) that title to the buildings shall vest in the District at the end of the term.
There is no dispute that the Lease-Leaseback Agreements between the
District and Balfour-Beatty satisfy all of these requirements nor does
McGee allege that the Lease-Leaseback Agreements fail to comply with
Education Code section 17406. McGee merely asserts that the statute
contains an implied condition that the lease-leaseback contractor must
advance and carry the cost of construction over a period of many years.
As the court explained in California Teachers Assn. v. Governing
Bd. a/Rialto Unified School Dist. (1997) 14 Ca1.4th 627,632-633:
To interpret statutory language, we must ascertain the intent of the Legislature so as to effectuate the purpose of the law. In undertaking this determination, we are mindful of this court's limited role in the process of interpreting enactments from the political branches of our state government. In interpreting statutes, we follow the Legislature's intent, as exhibited by the plain meaning of the actual words of the law,
- 36-
whatever may be thought of the wisdom, expediency, or policy of the act. ... As this court has often recognized, the judicial role in a democratic society is· fundamentally to interpret laws, not to write them. The latter power belongs primarily to the people and the political- branches of government . . . . It cannot be too often repeated that due respect for fhe political branches of our government requires us to interpret the laws in accordance with the expressed intention of the Legislature. This court has no power to rewrite the statute so as to make it conform to a presumed intention which is not expressed. (California Teachers Assn. v. Governing Bd. of Rialto Unified School Dist. (1997) 14 Ca1.4th 627,632-633 [emphasis added].)
In this case, Education Code section 17403 provides that, "[t]he term
of any lease or agreement entered into by a school district pursuant to this
article shall not exceed 40 years." Thus, the Legislature saw fit to provide a
maximum length of the lease, but there is no minimum length of the lease
set forth in Education Code section 17400 et seq., as McGee alleges.
Further, there is no statutory requirement within Education Code section
17400 et seq. or elsewhere which requires that a lease-leaseback contractor
advance and carry the cost of construction over a period of many years.
This Court may not imply such terms into the statute where none exist. '.
Despite the foregoing, McGee persists in its argument that lease-
leaseback procedures in Education Code section 17406 must constitute a
genuine "financing." (AOB, pp. 43-45.) McGee cites to Morgan Hill
Unified School District v. Amoroso (1988) 204 Cal.App.3d 1083, to support
its argument that there must be a "financing" in order for a school district to
use the lease-leaseback procedures. In Morgan Hill, the school district
sought to validate its issuance of bonds for additional improvements to the
high school through a ballot measure that had been passed 13 years earlier.
(Morgan Hill Unified School District, supra, 204 Cal.App.3d at 1086.) The
court denied the validation holding that the voters did not approve the
- 37 -
supplemental issuance of bonds for the additional improvements. (ld. at
1088.)
In this case, McGee acknowledges that the Projects are funded by
"voter approved bonds sales" (FAC, ~ 22.), therefore the holding in Morgan
Hill is inapplicable. Furthermore, Education Code section 17408, provides
that,
The governing board of a school district shall call and hold an election, pursuant to Section 17409 or 17412, before or after entering a lease or agreement, as the case may be, except that if the lease or agreement does not effect an increase in the existing maximum tax rate of the district, the election requirements of this section shall not apply.
In its F AC, McGee does not allege that the maximum tax rate of the
District increases. Further, McGee fails to allege that the District violated
any statute, regulation, or constitutional provision with regard to financing.
Within this statutory scheme, the law provides that prior to entering into a
lease or agreement in this article, a school district must have an available
site and Division of State Architect approved plans and specifications. (Ed.
Code § 17402.) There is no mention of financing as McGee alleges. Code
of Civil ~rocedure section 1858 provides that statutory construction does
"not insert what has been omitted, to omit what has been inserted." McGee
is simply attempting to insert a requirement that is not part of the statute.
Accordingly, the trial court correctly sustained the District's demurrer to
the fifth cause of action (3 AA 466-467), and this Court should affirm.
G. The Trial Court Properly Sustained the Demurrer to the
Seventh Cause of Action
Lastly, in the seventh cause of action, McGee alleges that an actual
controversy exists between the parties regarding the application of
Education code section 17400 et seq. and Public Contract Code section
20110 et seq. to Lease-Leaseback Agreement which requires a judicial
- 38 -
determination. (1 AA 24 [FAC, ~~ 65-68].) As discussed supra, there is no
controversy in that the competitive bidding requirements in Public Contract
Code section 20110 et seq. do not apply to the lease-leaseback procedures
set forth in Education Code section 17406. First, Education Code section
17406 allows the school districts to enter into the lease-leaseback
agreement "without advertising for bids." Next, the California Attorney
General has opined that competitive bids are not required under this statute.
(56 Op. Atty. Gen. 571, 58l.) It is important to note that the lease
leaseback procedures for when the District does not own the land are the
same except for one restriction place by the Legislation. When a school
district wishes to enter into a lease-leaseback agreement on real property
that is not owned by the school district, the Legislature requires that,
The agreement entered into shall be with the lowest responsible bidder who shall give the security that any board reqUIres.
(Ed. Code § 17407.)
In cases, such as the instant case, where the District does own the
land that is the site of the project, the Legislature did not include a
provision that the agreement will be with the lowest responsible bidder, but
the Legislature instead chose to allow school district to enter into lease
leaseback agreements "without advertising for bids." (See Ed. Code
§ 17406.) McGee's attempts to require that the District seek competitive
bids under Public Contract Code section 20110 et seq. is contrary to the
clear language of Education Code section 17406. There is no controversy
between Education Code section 17400 et seq. and Public Contract Code
section 20110 et seq. Accordingly, District's demurrer to the seventh cause
of action was properly sustained.
- 39-
H. The Trial Court Did Not Err in Sustaining the Demurrers
Without Leave to Amend
When reviewing a demurrer that has been sustained without leave to
amend, the Court of Appeal must decide whether there is a reasonable
possibility the plaintiff could cure the defect with an amendment. (San
Diego City Firefighters, Local 145, AFL-CIO v. Board of Admin. of San
Diego City Employees' Retirement System, supra 206 Cal.App.4th at 605-
606.) "If we find that an amendment could cure the defect, we conclude
that the trial court abused its discretion and we reverse; if not, no abuse of
discretion has occurred." (Ibid.) The plaintiff has the burden of proving
that an amendment would cure the defect. (Schifando v. City of Los
Angeles (2003) 31 Ca1.4th 1074,1081.)
Here, as the trial court correctly found, this case presents pure issues
of law concerning the interpretation of Education Code section 17406.
McGee had two opportunities to plead its case in front of the trial court. In
its Opening Brief, McGee has not articulated any additional facts that it
could have alleged in order to overcome the insufficiency of its pleadings.
Accordingly, the trial court did not err in sustaining the demurrers without
leave to amend and this Court should affirm.
- 40-
V.
CONCLUSION
Based on the foregoing, the District respectfully requests that this
Court find that the demurrers were properly sustained and affirm the
judgment below in its entirety.
DATED: July 29, 2014 Respectfully submitted,
B~~ Martin A. Hom, SBN 157058
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Jennifer D Cantrell, SBN 235015 Attorneys for Defendant and Respondent TORRANCE UNIFIED SCHOOL DISTRICT
CERTIFICATE OF WORD COUNT (Cal. Rules of Court, §§ 8.204,8.490)
The text of this brief and excluding the tables, certificate,
verification, and supporting documents, consists of 11, 686 words as
counted by the Microsoft Word word-processing program used to generate
the brief.
Dated: July 29, 2014
~ Martin 'A. Hom
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Attorneys for Defendant and Respondent TORRANCE UNIFIED SCHOOL DISTRICT
SERVICE LIST
CARLIN LA W GROUP .. Kevin R. Carlin
4452 Park Boulevard, Suite 310 San Diego, California 92116 Telephone: (619) 615-5325 Facsimile: (619) 615-5326
MARKS, FINCH, THORNTON & BAIRD, LLP Jason R. Thornton (SBN 185637) 4747 Executive Drive, Suite 700 San Diego, California 92121 Telephone: (858) 737-3100 Facsimile: (858) 737-3101
Hon. Stuart M. Rice, Dept. B Los Angeles Superior Court 825 Maple Avenue Torrance, CA 90503
Supreme Court
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Attorneys for Appellant,
James D. McGee
Attorneys for Respondent
Barnhart-Balfour Beatty, Inc. dba Balfour Beatty
Construction
Trial Court
Via electronic submission to Court of
Appeals
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT, DIVISION EIGHT
JAMES D. MCGEE,
Plaintiff and Appellant,
v.
TORRANCE UNIFIED SCHOOL DISTRICT, and BARNHARTBALFOUR BEATTY, INC., dba BALFOUR BEATTY CONSTRUCTION, et aI.,
Court of Appeal No. B252570
(Super. Ct. No. YC068686)
Defendants and Respondents,
Appeal From a Judgment Of The Superior Court, County of Los Angeles
Hon. Stuart M. Rice, Judge
APPELLANT'S REPLY BRIEF
Kevin R. Carlin, Esq. (SBN 185701) CARLIN LAW GROUP, A.P.e. 4452 Park Boulevard, Suite 310 San Diego, CA 92116 Telephone: (619) 615-5325 Facsimile: (619) 615-5326 [email protected]
Attorney for Appellant
TABLE OF CONTENTS
T ABLE OF AUTHORITIES ................................... .iv
1. ARGUMENT .................................................. -1-
A. The Superior Court Abused its Discretion When it Sustained Respondents' Objections to Taxpayer's Request for Judicial Notice of Notice of Lodgement Exhibits A-F, L, and N. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -1-
B. Respondents Improperly Conflate the Separate Site Lease and Sublease Agreements for Each Project Throughout Their Briefs .............. -3-
C. Respondents Improperly Conflate the Lease and Leaseback Statutes Throughout Their Briefs ..................................... -6-
D. The Fourth District Comt of Appeal Recently Published a Decision Interpreting Education Code Sections 17406 and 17417 ........... -11-
1. The Howard Decision is Legally Incon-ect Because it Misreads The Plain Language of Sections 17406 and 17417 .......... -12-
2. The Howard Decision is Legally Incon-ect Because it Renders 17417 Inoperative, Superfluous and Nugatory. . . . . . . . . . . . . . . . . . .. -14-
3. The Howard Decision is Legally Incon-ect Because it is Based on an En-oneous Attomey. General Opinion That Does Not Acknowledge Nor Analyze the Contemporaneous Predecessor of Section 17417 ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . -18-
4. The Howard Decision is Legally Incon-ect Because it En-oneously Infers Legislative Intent from a Governor's Veto Message ..... -22-
a. The Govemor Does Not Create Law .................. -22-
b. A Govemor's Veto Message Does Not Reflect Legislative Intent, But Merely An Interpretation of Law, Which is Not Binding on the Courts
-23-
-1-
c. The Governor's Veto Message and Its Non-Binding Interpretation of Education Code § § 17400 et seq. Does Not Support Respondents' Arguments. . . . . . . . . . . . . . . . .. -25-
d. The Governor's Veto Message and Assembly Billl486 Do Not Establish Section 17406 Exempts the Sublease From Competitive Bidding ....... . . . . . . . . . . . . . . . . . . . .. -26-
5. The Howard Decision Improperly Rejects Appellant's Assertion That the Site Lease and Facilities Leaseback Agreements Can Not Both Be Competitively Bid Lest Different Bidders Could Be Entitled to Each Contract .................................... -29-
6. Respondents And The Howard Decision Are Legally Incorrect Because They Seek to Apply Section 17406's Limited Exemption of the Site Lease From Competitive Bidding to the Facilities Leaseback Agreement Too ......... '. . . . . . . . . . . . . . . . . . . . . . . . . . . .. -30-
7. The Legislative History of the Relevant Education Code and Related Public Contract Code Sections Actually Support Taxpayer's Interpretation ....................................... -33-
8. The Howard Court Did Not Have the Benefit of the State Allocation Board Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -36-
a. SAB's Failure to "Accept" its Staff and Counsel's January 28, 2004 RepOli and the Absence of a Related Rulemaking Do Not Negate the Truth and Accuracy of the Analysis and Contents Thereof ............................... -37-
E. Respondents Continue to Miss the Point of Taxpayer's First Cause of Action .................................................... -39-
F. Taxpayer's Second Cause of Action for Breach of Fiduciary Duty Does Not Fail as a Matter of Law ....................................... -40-
1. Government Code §900 et seq. Does Not Apply ............. -41-
G. Respondents Incorrectly Assert Taxpayer's Fourth Cause of Action for Conflict of Interest Fails Because Government Code Section 1090 Does
-11-
Not Apply to Contractor ...................................... -41-
1. This Court's Christiansen Case is Limited to the Criminal Context .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .. . . . . . . . . . . . . . . . . -45-
2. Education Code Section 17250 et seq. Does Not Eliminate Contractor's Conflict of Interest Because Respondents Did Not Contract Under That Statutory Scheme ..................... -46-
II. CONCLUSION ..................................................... -48-
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TABLE OF AUTHORITIES Cases:
Burks v.Poppy Construction Co., (1962) 57 Cal. 2d 463,473-474. . . . . . . . . . . . . .. -40-
California Housing Finance Agency v. Hanover/California Management and Accounting Center, Inc. (2007) 148 Cal.AppAth 682 ................................. -41, 47-
Cel-Tech Communications v. Los Angeles Cellular Telephone Co. (1999) 20 Ca1.4th 163, 216 ................................................................ -17-
City Council v. McKinley(l978)80 Cal.App.3d 204 .......................... -43-
City of Los Angeles v. Offner (1942) 19 Cal.2d 483, 486 .................. -39,40-
Corleyv. United States (2009) 556 U.S. 303,314-315 ..................... -16,17-
Domar Electric, Inc. v. City of Los Angeles (1994) 9 Ca1.4th 161, 173 ........... -21-
Dubins v. Regents of University of California (1994) 25 Cal. App. 4th 77,83 .. -35,36-
Ghilotti Const. Co. v. City of Richmond (1996) 45 Cal.AppAth 897,907-908 ....... -46-
Harbor v. Deukmejian (1987) 43 Cal.3d 1078, 1084 .......................... -22-
Hatch v. Superior Court (2000) 80 Cal.AppAth 170,226 . . . . . . . . . . . . . . . . . . . . .. -30-
Hub City Solid Waste Services, Inc. v. City of Compton (2010) 186 Cal.App.4th 1114 ... ... ... .......... ........... ............. ........ '" .......... -41,42,45,47-
In re Lance W. (1985) 37 Cal. 3d 873, 888. ............................. -34,35-
Inre SUlmnerH (206) 139 Cal.AppAth 1315,1328 .......................... -32-
Joyce v. Ford Motor Co. (2011) 198 Cal.AppAth 1478 .................... -23,24-
Kashian v. HalTiman (2002) 98 Cal.AppAth 892, 900, fn. 3 ...................... -2-
Kaufman & Broad Communities, Inc. v. Perfonnance Plastering, Inc. (2005) 133 Cal.App.4th 26,42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -23,24-
-lV-
Klajic v. Castaic Water Agency (2004) 121 Cal.AppAth 5 ..................... -31-
Kungys v. United States (1988) 485 U.S. 759, 778 .......................... -16-
Los Alamitos Unified School District v. Howard Contracting, Inc., (2014)_ Cal.AppAth_, 2014 WL 4638855 ...................................... -11-
Millbrae Assn. for Residential Survival v. City of Millbrae (1968) 262 Cal.App.2d 222, 237 ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -43-
Murillo v. Fleetwood Enterprises, Inc. (1998) 17 Ca1.4th 985, 993 ............ -6,34-
Nickelsberg v. Workers' Compo Appeals Bd (1991) 54 Cal. 3d 288,298 ........ -34, 35-
People V. Christiansen (2013) 216 Cal.App.4th 1181,1189- 1190 ................ -45-
People V. Loeun (1997) 17 Ca1.4th 1,9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -30-
People V. Shabazz (2006) 38 Ca1.4th 55, 67-68 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -7-
People V. Vallerga (2nd Dist. 1997) 67 Cal.App.3d 847, 870 . . . . . . . . . . . . . . . . . .. -20-
Rao V. Campo (1991) 233 Cal. App.3d 1557, 1567 .......................... -17-
Ratcliff Architects V. Vanir Constr. Mgmt., Inc. (2001) 88 Cal.AppAth 595,604 .... -40-
Reams V. Cooley (1915) 171 Cal, 150, 154 ................................... -46-
Robert L. [v. Superior Court (2003)] 30 Ca1.4th 894, 903 ........................ -7-
Schaefer V. Berinstein (1956) 140 CaI.App.2d 278 . . . . . . . . . . . . . . . . . . . . . . .. -43,45-
Seelig V. Infinity Broadcast Corp. (2002) 97 CaI.AppAth 798, 807, fn. 5 ............ -2-
Settle V. State of California (JuI. 23, 2014, B249236) _ Cal.App.4th _ [2014 LEXIS 658] ....................................... -6-
Service Employees Internat. Union V. County of Los Angeles (2nd Dist. 1990) 225 Cal.App.3d 761, 768 .................................................. -20-
-v-
Stigall v. City of Taft (1962) 58 Ca1.2d 565,569 ......................... -43,45-
Woods v. Young (1991) 53 Ca1.3d 315, 325 ................................ -14-
Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Ca1.4th 1,14-15 .:.37-
Statutes:
Code of Civil Procedure § 1859 ......................................... -14-
Education Code § 15705 ............................................ -18,33-
Education Code § 15706 ............................................... -18-
Education Code § 15712 ............................................... -18-
Education Code § 17400-17406 .......................................... , -8-
Education Code § 17407-17419 .......................................... , -9-
Education Code § 17420-17429 .......................................... -10-
Education Code § 17406 ......................... -6,8, 12, 14,29,31,33,35,36-
Education Code § 17407 ............................................... -15-
Education Code § 17417 .......................... ,: ........... -13,14,16,32-
Education Code § 17418 ............................................... -15-
Education Code § 17428 ............................................... -15-
EducationCode§ 17429 ............................................... -15-
Education Code § 17455-17485 ......................................... -5, 33-
Education Code. § 17469 -16-
Education Code § 17472 -30-
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Education Code § 18355 -33-
Education Code § 39305 -33-
Evidence Code §452, subd. (g)-(h) ..................... , ....... -............ -2,3-
Evidence Code §453 . . . . . . . . . . . . .. . . . .. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .. .-3-
Evidence Code §459 . . . . . . . . . . . . .. . . . .. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .. .-3-
Government Code § 900, et seq ........................................... -41-
Government Code § 1090, et seq ..................................... -41,42,43-
Govenul1ent Code § 82048(a) .................................. -39-
Public Contract Code section 201 06 ....................................... -34-
Public Contract Code section 20111 .................................. " -34,35-
Other Authorities:
56 Ops.Cal.Atty.Gen. 571 ........................................ -18, 19,20-
7 Witkin, SUlmnary of Cal. Law (lOth), Constitutional Law §125 .............. -23-
Antonin Scalia and Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 174 (2012) ............................ .': .................................... -17-
Cal. Const., Art. IV, §1 ................................................ -22-
Cal. Const., Ali. IV, §10(a) ............................................. -22-
Cal. Const., Art. V, § 1 ................................................. -22-
Cal. Const., Art. XVI, §6 ............................................. " -29-
California Rules of Court, Rule 8.1115(a) .................................. , -5-
Ulpian, Digesta 2.7.5.2 (third century A.D. Romanjurist) ........................ -17-
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APPELLANT'S REPLY BRIEF
Appellant James D. McGee (Taxpayer) respectfully submits this
Appellant's Reply Brief (ARB) in reply ·to Respondent Tonance Unified
School District (District),s Brief (DRB) and Respondent Barnhart-Balfour
Beatty, Inc., dba Balfour Beatty Construction, (Contractor),s Brief (CRB).
(District and Contractor are collectively Respondents.) 1
I. ARGUMENT
A. The Superior Court Abused its Discretion When it Sustained Respondents' Objections to Taxpayer's Request for Judicial Notice of Notice of Lodgement Exhibits A-F, L, and N.
Respondents' arguments (DRB 7-9; CRB 7-13) regarding the various
newspaper articles, the lease-leaseback presentation material, and a contractor
conflict of interest legal opinion exhibits to Taxpayer's RJN serve only to
highlight the importance of those documents and the Superior Court's error in
sustaining Respondents' obj ections thereto. District argues the exhibits cannot
aid in judicial interpretation of the statutes at issue in this appeal because the
statutes are not ambiguous. Essentially, District seeks to presuppose that its
argument is correct in order to show why evidence may not be admitted against
its argument. Thi.s circular logic is inappropriate here.
Taxpayer agrees Education Code sections 17406 and 17417
unambiguously work together in concert with all of the other provisions of
17400 through 17429 to prohibit Respondents' non-competitively bid
leaseback agreements. 2
Other terms not defined herein have the same definition as in Taxpayer's Opening Brief.
All references are to the Education Code unless otherwise specified.
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Under the California Constitution, the Judicial Branch of the State of
California, is the body vested with ultimate authority to interpret statutes.
Taxpayer offered the disputed RJN materials to aid judicial bodies in this
process. Most of these materials add context to these court's interpretation by
highlighting how public trust in school districts' awarding of multi-million
dollar bond funded contracts is eroded by allegations of impropriety and
corruption. Such allegations could not exist but for those school districts'
failure to use the sealed competitive bidding procedures required in 17400-
17429 and other public contracting statutes. Specifically each provision in
17400-17429 under which a school district pays money to another requires
such contracts be only with the lowest responsible bidder after giving public
notice and soliciting sealed bids (i.e. 17407 (where a district does not own the
property upon which the subject project is to be built); 17417 (where a district
does own the property upon which the subject project is to be built); and 17418
(where a district contracts with a non-profit public benefit corporation for the
construction of the subject project)).
The disputed Exhibits in Taxpayer's RJN are not manufactured
documents; these are documents that contain "facts and propositions that are
'capable of immediate and accurate detennination by resOlt to sources of
reasonably indisputable accuracy." Evid. Code, §452, subd. (g)-(h). Further,
they "provide context to" the relevant statutes and their "mere existence ...
provides value to the court" in its interpretation. (See Seelig v. Irifznity
Broadcast COlp. (2002) 97 Cal.AppAth 798,807, fn. 5; see also Kashian v.
Harriman (2002) 98 Cal.AppAth 892, 900, fn. 3 (where the COUlt took judicial
notice of newspaper articles attached to a relevant letter in order to provide
context to the letter, even if not for the truth of the asseliions contained in the
news articles).)
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Taxpayer's justification for judicial notice of Exhibits "A" through "F ,"
"L" and "N" fits within the requirements of Evidence Code section 452 and
therefore the Superior COUli abused its discretion by not taking judicial notice
of the articles as required in Evidence Code section 453.
Taxpayer filed concUlTently herewith as Exhibits 7 through 15 to its
AMJN various records of the United States District Court, Southern District
of California, and the California Superior COUli, County of San Diego.
(AMJN 148- 180.) These documents pertain to criminal cases brought in those
jurisdictions related to cOl1uption and bribery that were the subject of the
various newspaper miicles designated as Exhibits A through F in Taxpayers
RJN.
These are likewise docUlnents which this Court can take judicial notice
of under Evidence Code §452 and §459. These documents establish the
accuracy and tmth of the facts and propositions relating to cOlTuption in non
competitively bid school contracts as asselied in Taxpayer's disputed RJN
B. Respondents Improperly Conflate the Separate Site Lease and Sublease Agreements for Each Project Throughout Their Briefs
In their introductions and throughout their briefs Distlict and Contractor
improperly conflate and refer to but one lease-leaseback agreement or contract
per Project (e.g. DRB 4, 11, 18; CRB 14, 15, 18,23,25,29.) 3 Contractor
devotes a whole page to its strawman assertion "[c]ontrary to McGee's
argument, there is no requirement in the statute that this be completed with
three separate documents." (CRB 29.) Taxpayer does not contend there must
be three separate documents. Taxpayer asserts there are at lease two separate
Where they use the plural "Lease-Leaseback Agreements" it is because they are refening to contracts for the :2. separate Projects
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agreements: a Site Lease and a Sublease. 4 In this case an additional
Construction Services Agreement was executed too.
The Site Lease is the agreement by which District leases out to
Contractor its real property for Contractor to make improvements thereon. 5
District admits "[u]nder the Sublease, Balfour Beatty agreed to construct the
Proj ects, generally consisting of the construction and! or upgrades of [school
facilities] ... " (DRB 3.) Taxpayer contends the Site Lease is govemed by 17406
and does not require competitive bidding because Conh'actor is paying money
to District. Taxpayer contends the Sublease is govemed by 17417 which
requires competitive bidding because the District is paying money to the
Contractor to leaseback its property with the specified improvements
constructed thereon by Contractor. The plain language of 17406 refers to the
leasing out of District's real property to Contractor and the plain language of
17417 refers to the leasing back of the District's real property with the
specified improvements constructed by Contractor.
4 A Sublease is commonly referred to as a Facilities Lease such that the tenns are used interchangeably herein. Most if not all of the judgments offered by Contractor validate a site lease and a separate facilities leaseback agreement. (3 AA 561, 565,570,578, passim.) While Taxpayer disputes the legal correctness of these judgments validating non-competitively bid leaseback agreements, Taxpayer contends they confinn at lease two separate agreements are required for a lease-leaseback transaction.
By what can only be explained as a Freudian slip District likewise states "[t]he Site Lease only leases the site to the lease leaseback contractor and nothing more." (DRB 22.) Similarly Contractor cOlTectly states " .. .17406 which allows a school district to lease property it owns to anyone, without advertising for bids ... " (CRB 14.)
-4-
Respondents incon-ectly ass eli both agreements (site lease and facilities
sublease) are covered by 17406 by stating " ... as the statute clearly states that
lease-leaseback agreements mat be made 'without advertising for bids' ... "
(DRB 11; CRB 23;) This asseliion contrary to plain language of 17406 which
expressly refers only to one agreement by using the term "the instrument"
multiple times. In sections D-l, D-3 and D-6 below Taxpayer fmiher
discusses how 17406's phrases "without adveliising for bids" and
"Notwithstanding Section 17417" referenced throughout Respondents' briefs
do not result in an exception to competitive bidding for Sublease.
District asselis "If Section 17406 was not meant to exempt the sublease
from competitive bidding, then there would be no reason for the statute to
contain all these provisions about construction work and terms." (DRB 22.)
District goes too far. The only express reference to 'construction work and
terms' in 17406 is the requirement that the instrument by which the District's
propeliy is let require "the lessee therein to construct on the demised premises"
facilities for the District. This is to ensure a site leased out without
competitive bidding as pennitted by Aliic1e 2 6 is only so let for the purpose
of constructing school facilities. If the site were let for any other purpose it
would be subject to competitive bidding under 17472 and awarded only to the
highest bidder. While Taxpayer agrees with District's assertion the Legislature
could have been clearer. (DRB 22.) But Article 2 is written the way it is and
must be interpreted by the Court to give hannony and effect to each provision
without creating inconsistency or duplication.
6 Article 2 of Education Code Title 1, Division I, Part 10.5, Chapter 4, is comprised of sections 17400 through 17429 (collectively Aliic1e 2) contain the specific statutes defining the mode and limiting the method of leaseleaseback contracting allowed school districts.
-5-
Contractor likewise ovelTeaches by referring to numerous supelior court
judgments validating similar lease-leaseback alTangements throughout the
state. (CRB 15-16.) These are improper under CRC Rule 8.1115(a) "an opinion of
a California Court of Appeal or superior court appellate division that is not certified
for publication or ordered published must not be cited or relied on by a court or a
party in any other action." Worse yet, the vast majority of these are default
judgements. A football game where only one team takes the field always results in
a win for that team.
C. Respondents Improperly Conflate the Lease and Leaseback Statutes Throughout Their Briefs
In their introductions and throughout their Briefs Respondents
improperly conflate and assert the entire lease-leaseback procedure, process
and/or transaction is set forth in 17406. (e.g. DRB 1 "The lease-leaseback
process, set forth in Education Code section 17406, ... ",3, 8, 9, 11; CRB 1
"Lease-leaseback construction is expressly authorized by Education Code
section 17406, ... ", 16,22,25,28,30 "The entirety of the transaction between
the parties is governed by Education Code Section 17406.")
Neither the leaseback process nor procedure nor entire transaction is set
forth solely in 17406. There is no mention of either the word or the concept
of "leaseback" in 17406.· It would be improper to infer or extrapolate from
17406's language obligating the lessee of the demised premises to construct
school facilities thereon that will vest in the school district at the end of the
Site Lease any details or parameters of the separate leaseback agreement. A
court does not have the power to re-write a statute to confonn to a presumed
intention of the Legislature which has not been expressed. Murillo v.
Fleetwood Enterprises, Inc. (1998) 17 Ca1.4th 985, 993. It "cannot add or
substitute words in a statute." Settle v. State of California (Jul. 23, 2014,
-6-
B249236) _ Cal.AppAth_ [2014 LEXIS 658].
Contrary to Respondents' assertion there is not one "lease-leaseback
statute." Instead, there are 29 separate statutes in Article 2 which must be read,
interpreted and applied by this COUli in a mam1er that is in context and gives
effect to all those statutes. Respondents want this COUli to ignore the following
well settled mles of statutory interpretation:
"The meaning of a statute may not be detennined from a single word or sentence; the words must be constmed in context, and provisions relating to the same subject matter must be hannonized to the extent possible. [Citation.] Literal constmction should not prevail if it is contrru-y to the'legislative intent apparent in the statute .... An interpretation that renders related provisions nugatory must be avoided [citation]; each sentence must be read not in isolation but in light of the statutory scheme [citation]; and if a statute is amenable to two alternative interpretations, the one that leads to the more reasonable result will be followed [citation].' [Citation]; see also Robert L. [v. Superior Court (2003)] 30 Ca1.4th 894, 903 ["'Statutory language should not be interpreted in isolation, but must be constmed in the context of the entire statute of which it is a part, in order to achieve hannony among the pruiS"'].)" People v. Shabazz (2006) 38 Ca1.4th 55, 67-68.
This COUli is obligated to interpret 17406 and 17417 in the context of
and hamiony with a1129 of the separate sections that make up Article 2 when
evaluating whether Respondents' challenged Sublease agreements complied
with all applicable requirements under Aliicle 2. A copy of Article 2 is
attached to AMJN as Exhibit 1 (AMJNl-8.) and its 29 separate sections are
SUlmnarized as follows:
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Education Taxpayer's Summary of Section
Code
17400 Only in the manner specified in Article 2 7 school districts may enter into leases relating to real propeliy for the purpose of construction/renovation of buildings thereon to be used by the district
17401 Inclusion of lease purchase agreements
17402 Prerequisites applicable to all lease agreements
17403 Maximum tenn of lease agreements
17404 Exemption from highest bidder requirements of 17455 to 17480 (e.g.17472) othelWise applicable when school districts sell or lease their own real property
17405 Requirement that buildings to be used by students must comply with 17280 et seq (DGS/DSA review/approval of plans/specs) & 17365 et seq. (fitness for student occupancy)
17406 Leasing of real propeliy owned school district (for a minimum rental of one dollar ($1) a year) authorized and exempted from Calif Constitution Article XVI, Section 6's, prohibition of gifts of public property without adequate consideration so long as the instrument by which such real property is let requires the lessee therein to construct on the demised premises a building or buildings for the use of the school district during the term thereof, and provides that title to those improvements shall vest in the school district at the expiration of that lease tenn.
"Where the statute prescribes the only mode by which the power to contract shall be exercised the mode is the measure of the power. A contract made otherwise than as so prescribed is not binding or obligatory as a contract and the doctrine of implied liability has no application in such cases." Reams v. Cooley (l9l5) 171 Cal, 150, 154.
-8-
17407 Leasing of real propeliy & buildings not owned by school district authorized so long as the contract is with lowest responsible bidder after public notice soliciting bids for two weeks and title to property & buildings vest in district when the lease ends.
17408 Election required prior to any lease under this article that results in the increase of existing applicable maximum tax rate of school district.
17409 Election contents of ballot and manner of election before the lease agreement
17410 Election to use tax increase
17411 Election ballot statement, rights of the school board
17412 Election timing
17413 Election ballot content and manner of election after accepting proposal or passing resolution
17414 Election approved by majority of voters allows school board to proceed pursuant to Article 2
17415 Post-Election liability for tax increase if school district reorganizes
17416 Post-Election failure of school board to enter into lease within three years
17417 Lease back contract requirements for real property owned by school district upon which improvements thereon are to be constructed by another so long as the contract is with lowest responsible bidder after public 'notice soliciting bids for three weeks per 17469.
17418 Lease with nonprofit public benefit corporations as altemative to 17407 or 17417. Sealed competitive bidding still required in the manner specified in Public Contract Code 20670 et seq.
17419 Nonprofit corporation's sale of bonds, etc., to finance construction of building being leased under 17418
-9-
17420 Tax exemption for bonds, etc., sold by nonprofit corporation under 17419
17421 Any school buildings constructed under this Article must have plans and specifications approved in advance by Department of General Services per 17280 et seq.
17422 Fonnula for including outstanding lease payments in calculation of outstanding bonded indebtedness
17423 Limitation on lease obligation vis a vis outstanding bond debt by school district
17424 Prevailing wages must be paid to workers on buildings constructed under this Aliicle
17425 Provision in this Aliicle prevail over other conflicting provisions
17426 Actions taken by school districts prior to enactment of this section are confinned, ratified and declared legally effective
17427 State Allocation Board requirements of classification of pupils as "housed" or "unhoused"
17428 Authorization to lease or purchase propeliy in adjoining school districts for garage, warehouse or other utility purposes
17429 If site owned by school district has a school facility that complies with 17280 which is not owned by the school district then school district may lease from a California nonprofit corporation that school facility with funds derived from an increase in taxes approved by voters expressly for that purpose
-10-
D. The Fourth District Court of Appeal Recently Published a Decision Interpreting Education Code Sections 17406 and 17417
After Respondents' Briefs were filed the Fourth Appellate District,
Division Three, published on September 17, 2014 its decision in Case No.,
G049194 in the matter of Los Alamitos Un(fied School District v. Howard
Contracting, Inc., (2014) _Cal.App.4th_, 2014 WL4638855 (Howard).
(AMlN124-136.) The Howard decision and the briefs upon which it is based
are included at Exhibits 2 through 5 of AMlN. (AMJN8-136.) By letters to
this Court dated September 19, 2014 Respondents asserted the Howard case
is relevant to arguments in DRB in Section B (pages 9 through 16), Section D
(pages 20 tlu'ough 27), and Section F (pages 36 through 38) and CRB pages
14 tlu'ough 25, 27 tlu'ough 32 and 43 through 44. Accordingly Taxpayer
addresses Howard and the related points raised in DRB and CRB concUlTentiy .
. Counsel for District in this appeal likewise represented the school
district in the Howard case. Counsel for appellant in Howard did not raise all
the arguments raised by counsel for Taxpayer in this appeal and the arguments
that were raised in Howard were not as extensively developed as they have
been in this appeal. (AMJN Exhibits 2-4; AMlN 8-123.) Consequently, the
Howard Court was not afforded the same level of argument and analysis that
this Court has been presented. Consequently this Court is justified in reaching
a different decision. Further, for the reasons discussed below, the Howard
Court's interpretation and application of 17406 and 17417 must be rejected as .
contrary to California law and public policy.
-11-
1. The Howard Decision is Legally Incorrect Because it Misreads The Plain Language of Sections 17406 and 17417
In Howard the Fomih Appellate District, Division Three, incolTectly
concluded 17406 refers to both the site lease agreement and the sublease
agreement and that both agreements are exempt from competitive bidding
because 17406 begins with the phrase "Notvvithstanding Section 17417." The
Howard Court, referring to the sublease agreement, stated "[t]hus, section
17406, subdivision (a) expressly provides that notwithstanding the bidding
process established by Education Code section 17417, the District was
pennitted to engage in the type of transaction at issue here 'without adveliising
for bids' ." (AMJN 12 8.) The Howard Comi elToneous1y conflates the separate
site lease and sublease agreements which is contrary to the plain language of
17406.
As discussed in Section C, infra, 17406 contains no express or implied
language defining the procedures that apply to the Sublease by which District
will pay Contractor money to leaseback District's premises demised under the
Site Lease with the facilities constructed thereon by Contractor. To the
contrary 17406 only provides in relevant paIi:
" ... the governing board of a school district, without adveliising for bids, may let for a minimum rental of one dollar ($1) a year, to any person, firm, or corporation any real property that belongs to the district if the instrument by which such property is let requires the lessee therein to construct on the demised premises, or provide for the construction thereon of, a building or buildings for the use of the school district during the tenn thereof, and provides that title to that building shall vest in the school district at the expiration of that term ... [ emphasis added]"
-12-
The only statute in 17400 to 17429 which expressly refers to a facilities
leaseback agreement involving real property owned by a school district with
the facilities constlUcted by another thereon is 17417 which references "the
amount of rentaL .. to be paid by a school district for the use of the building, or
building and site ... " The express language of 17417 requires the governing
board of a school district, after complying with the requirements of 17402,
adopt a resolution declaring the district's intention to enter into a lease
pursuant to Aliicle 2. 17417 requires said resolution do all of the following
and more:
(1) describe "the available site upon which the building to be used by
the district shall be constlUcted;
(2) "describe the building to be constlUcted"
(3) "state that the building shall be constlUcted pursuant to the plans
and specifications adopted by the governing board therefor"
(4) "state that the proposals submitted therefor shall designate the
amount of rental, which shall be annual, semiannual, or
monthly, to be paid by the school district for the use of the
building, or building and site, as the case may be. [emphasis
added]"
(5) "fix a time, not less than three weeks thereafter for a public
meeting... at which sealed proposals to enter a lease or
agreement with the school district will be received ... and
considered by the governing board. Notice thereof shall be given
in the manner provided in Section 17469."
(6) "At the time and place fixed in the resolution for the meeting of the
governing body, all sealed proposals which have been received
shall, in public session, be opened, examined, and declared by
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the board."
(7) "Of the proposals submitted .... the proposal which calls for the
lowest rental shall be finally accepted, or the board shall reject
all bids [emphasis added]."
Because 17417 contains express language prescribing specific
procedures that apply to the Sublease agreement by which District pays
Contractor to leaseback District's own real property with the facilities
constructed by Contractor thereon it controls over any general language in
17406. Code Civ. Proc., § 1859 "when a general and patiicular provision are
inconsistent, the latter is paramount to the former"; Woods v. Young (1991) 53
Ca1.3d 315, 325 "specific provision relating to a particular subject will govern
a general provision".
2. The Howard Decision is Legally Incorrect Because it Renders 17417 Inoperative, Superfluous and Nugatory
The Howard Court's interpretation of 17406 (and Respondents') must
be rejected because they render 17417 inoperative, superfluous and nugatory.
The Howard Court incorrectly dismissed the application of 17417 by rejecting
appellant Howard's (patiially developed) argument that 17417 would be
rendered a nullity under the Los Alamitos school district's proposed
interpretation of 17406. The Howard Court incorrectly concluded "[t]here
would appear to be many ways in which section 1 7417 would be used, even
iflease-leaseback an-angements are excluded from it." (AMJN132.)
The Howard Court's assertion that "[t]here would appear to be many
ways in which section 17417 would be used," is not correct as there is no other
way in which 17417 could be used under Aliic1e 2.
-14-
First, 17417 can only apply to leases under Article 2 because, in its first
sentence, it expressly requires a school district board to comply with 17402
and adopt a resolution declaring their intention to enter into a lease pursuant
to Article 2.
17417 can not be used with 17418 because that section expressly says
it is an alternative to 17407 and 17417 and allows the school district to
contract with a nonprofit public benefit corporation for the construction of
facilities for the school district. 17418 also requires construction contracts by
the nonprofit public benefit corporation be let only via competitive bidding.
17417 can not be used with 17428 because that section simply
authorizes a school district to lease or purchase property in another dish·ict. By
definition that propeliy does not belong to the district and therefore is not
subject to 17417 which expressly applies to property "belonging to the <
district."
17417 can not be used with 17429 because that section simply
authorizes a school district, after the voters have approved a tax increase for
the purpose thereof, to lease a school facility existing at the time of the
election a school facility not owned by the district that is located on property
that is owned by the district so long as the lease is fro111 a California nonprofit
corporation. Again propeliy not owned by District.
Finally, contrary to Contractor's assertion (CRB 30) 17417 cannot be
used with 17407 because that section expressly applies to real property not
owned by a school district and 17417 referenced a lease of "real property
belonging to the district." Moreover, 17407 contains its own express
requirements for two weeks of advertising for competitive bids which conflict
with the express requirements for three weeks of adveliising for competitive
bidding in 17417. Specifically 17407 states:
-15-
"For the purpose of securing bids the board shall publish at least once a week for two weeks in some newspaper of general circulation published in the district, or if there is no paper, then in some paper of general circulation circulated in the county, a notice calling for bids, stating the proposed tenns of the agreement and the time and place where bids will be opened. [emphasis added]"
Whereas 17417 states:
"The resolution shall fix a time, not less than three weeks thereafter for a public meeting ofthe goveming board to be held at its regular place of meeting, at which sealed proposals to enter a lease or agreement with the school district will be received from any person, finn, or corporation, and considered by the goveming board. Notice thereof shall be given in the manner provided in Section 17469."
And 17469 states:
"Notice of the adoption of the resolution and of the time and place of holding the meeting shall be given by posting copies of the resolution signed by the board or by a majority thereof in tlu'ee public places in the district, not less than 15 days before the date of the meeting, and by publishing the notice not less than once a week for three successive weeks before the meeting in a newspaper of general circulation published in the county in which the district or any part thereofis situated, if any such newspaper is published therein [emphasis added]."
Because the Howard Court's and Respondents' interpretation of 17406
and 17417 result in an interpretation where 17417 applies to nothing, their
interpretation violates the preeminent 'Superfluous Language Canon' of
statutOlY interpretation, 8 which prohibits Courts from interpreting a statute in
The United States Suprenie COUli has called it "one of the most basic interpretive canons" Corley v. United States (2009) 556 U.S. 303, 314-315 and a "cardinal rule of statutory interpretation." Kungys v. United States
-16-
such a way that makes some of the language inoperative, superfluous, void, or
insignificant.9 The Superfluous Language Canon has been adopted and
applied by California COUltS. 10 The interpretation of 17406 advanced by
Howard and Respondents is improper and must be rejected by this COUIt
because it nullifies 17417.
If this COUlt is at all tempted by the premise 17417 is not rendered
nullity by the interpretations of sections 17406 advanced by Howard and
Respondents, then Taxpayer respectfully requests this Court expressly state
what contracting scenario under Altic1e 2 17417 would apply to.
9
10
(1988) 485 U.S. 759, 778.
"A statute should be construed so that effect is given to all its provisions, so that no Palt will be inoperative or superfluous, void or insignificant" Corley v. United States (2009) 556 U.S. 303, 314-315. A recent treatise phrased the principle thus: "If possible, every word and every provision [of an enactment] is to be given effect. ... None should be ignored. None should needlessly be given an interpretation that causes it to duplicate another provision or to have no consequence. Antonin Scalia and Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 174 (2012). This principle of statutory construction is of ancient vintage, so much so that it once was known by its Latin styling "verba cum effectu sunt accipienda ... Words are to be taken as having an effect." Ulpian, Digesta 2.7.5.2 (third century A.D. Roman jurist).
"When construing a statute, a court must consider the entire statutory scheme of which it is part and give effect to all parts of the statute, avoiding an interpretation that would render any provision nugatory." Cel-Tech Communications v. Los Angeles Cellular Telephone Co. (1999) 20 Ca1.4th 163, 216. "It is a well-settled principle of statutory interpretation that the various parts of a statute must be considered as a whole to avoid absurd or anomalous results by hannonizing any apparently conflicting provisions; and thus, a palticular Palt of a statutory enactment must be viewed in light of the enactment in its entirety. Moreover, statutes should not be interpreted in a manner to render parts of them superfluous." Rao v. Campo (1991) 233 Cal. App.3d 1557, 1567.
-17-
3. The Howard Decision is Legally Incorrect Because it is Based on an Erroneous Attorney General Opinion That Does Not Acknowledge Nor Analyze the Contemporaneous Predecessor of Section 17417
The Howard Court also references in its analysis (AMJNI28-130) the
same 1973 Attorney General (AG) Opinion 56 Ops.Atty.Gen.Cal. 571
referenced by Respondents in their Briefs. (DRB 11-12,26,39; CRB 2, 16-17,
30.) This 1973 AG Opinion should not be relied on by this Court because it
failed to acknowledge or analyze 15712 which was the predecessor of 17417
at the time. A copy of the predecessors of each of the statutes presently
codified in Article 2 (AMJN 1-7) enacted in 1996 is attached to AMJN as
follows:
AMJN137-139
AMJN 140-142
AMJN143-147
18351-18368
15701-15718
39300-39325
1957
1959
1976
The AG's failure to consider 15712 (AMJN141) led to its elToneous
conclusion that 17406's predecessor 15705 (AMJNI40) applies to both the site
lease and facilities leaseback agreement and exempts both from competitive
bidding. 11 The AG arrived at its erroneous conclusion by only looking at
15705 (re: property owned by district) and 15706 (re: property not owned by
district). !d. at 581. The AG based its erroneous conclusion on its observation
that because 15706 expressly references competitive bidding and 15705 does
not the Legislature must have been requiring competitive bidding only where
the district did not own the property upon which the improvements were to be
II Taxpayer contends 15705 only applies to the site lease portion of the lease-leaseback transaction and 15712 applies to the leaseback portion of the lease-leaseback transaction for the same reasons stated in its discussion of 17406 and 17417.
-18-
constructed. Id. In its 1996 revisions the Legislature expressly clarified that
the site lease agreement referenced in 17406 was not subject to the competitive
bidding requirements applicable to a facilities leaseback agreement under
17417 by adding the phrases "Notwithstanding Section 17417" and "without
advertising for bids" into the language that had been in 18355, 15705 and
39305 and adding for the first time subsection (b) which reads:
"Any rental of propeliy that complies with subdivision (a) shall be deemed to have thereby required the payment of adequate consideration for pW1Joses of Section 6 of Article XVI of the California Constitution."
The phrase "deemed to have thereby required the payment of adequate
consideration" in 17406(b) refers to a payment to a school district rather than
payment hy a school district which is fUliher evidence that 17406 refers only
to the site lease agreement whereby a third party makes payment to a school
district. There is no language in 17406 or any of its predecessors that
expressly or inferably relates to a facilities leaseback agreement by which a
school district pays money out. That portion of the lease-leaseback transaction
is covered by 17417 and its predecessors 18362, 15712 and 39314. (AMJN
138, 141, 144-145.)
Simply put: the AG got it wrong. The AG acknowledges how
incongruous its conclusion (that competitive bidding of the sublease is not
required under 15705) is with other provisions of the lease-leaseback statutes
(i.e. 15706 now 17407) and California's long tradition of requiring
competitive bidding to detennine the amount of public funds to be paid out by
a public entity for constmction projects. ld., at 580. The AG laments:
"There is no apparent reason for authorizing school districts to proceed without notice and bids in a section 15705 construction (where the school owns the site) and requiring the notice and
-19-
bids in a section 15706 constlUction where the school district initially does not own the site ... Considerations of wisdom, expediency, or policy suggest a contrary conclusion ... " Id., at 580-581.
Califomia COUlis have generally given little deference to an Attomey
General opinion when the opinion appears to misinterpret the law. People v.
Vallerga (2nd Dist. 1997) 67 Cal.AppJd 847, 870 (where this COUli
characterized an AG opinion as advisory only and disregarded the opinion that
attempted to carve out an exception to Government Code § 1090 which this
Court did not believe existed.); Service Employees Internat. Union v. County
of Los Angeles (2nd Dist. 1990) 225 Cal.App.3d 761,768 (where this COUli
upheld a trial court's decision to disregard an Attomey General opinion when
the court disagreed with the Attorney General's interpretation because
"opinions of the California Attomey General are advisory only and do not
cany the weight of law.")
Had the AG considered and analyzed the predecessor of 17417 it likely
would have come to the conclusions and statutory interpretations State
Allocation Board ("SAB") staff and counsel at1iculated in their January 28,
2004 Report (which Taxpayer urges this COUli to also adopt) namely that
17406 only applies to the site lease portion ofthe lease-leaseback transaction
and 17417 applies to the facilities lease (aka sublease) portion of the lease
leaseback transaction and requires competitive bidding thereofbecause that is
the pOliion of the transaction where the public entity is paying money out.
Obviously there is a conflict between 56 Ops.Cal.Atty.Gen. and the
SAB Report. Why, as Respondents suggest, should the AG's opinion be given
more weight than the SAB attorney's opinion? Both are attorneys for the state
of California giving advice to public bodies for the purpose of administering
-20-
public business. What is more, the SAB attomey advises the executive branch
entity that implements and administers billions of dollars of statewide
voter-approved school facilities bond construction programs. If anything, the
SAB attorney's opinion should be given more weight because they work day
in and day out in the subject matter of their opinion.
FOltunately, this Court can resolve the lamentations of the AG relative
to Howard's and Respondents' flawed interpretation of 17406 (formerly
. 15705) by rejecting them and adopting Taxpayer's interpretation which is
more consistent with the ostensible objects to be achieved, the evils to be
remedied, the legislative history, public policy, contemporaneous
administrative construction, and the statutory scheme of which the challenged
statutes are a part. Respondents' proposed interpretation leads to mischiefby
eliminating the competitive bidding of the $48 million in school construction
projects which are the subject of this action thereby denying the District,
public and taxpayers of the benefits of competitive bidding outlined by the
Supreme COUli inDomar Electric, Inc. v. City 0./ Los Angeles (1994) 9 Ca1.4th
161, 173.
The only things Respondents' proffered interpretation of 17406 and
section I 7417 lead to are unnecessarily depleted school bond funds and pi'ofits
for general contractors who can cuny favor with elected officials to be
awarded multi-million dollarno bid contracts as evidenced by Taxpayer's RJN
Exhibits A-K and AMJN Exhibits 7-15 (AMJNI48-180). These outcomes
can not be consistent with the ostensible objects to be achieved, the evils to be
remedied, the legislative history, public policy, contemporaneous
administrative construction, and the overall statutory scheme. This Court
should reject the flawed and incomplete analysis of the 1973 AG opinion
relied on by the Howard COUli and Respondents.
-21-
4. The Howard Decision is Legally Incorrect Because it Erroneously Infers Legislative Intent from a Governor's Veto Message
The Howard COUli also references in its analysis of legislative intent
Governor Schwarzenegger's 2004 veto of AB 1486 (AMJN130) which is
likewise referenced by Respondents in their Briefs. (D RB 12, 28; CRB 18-19.)
Governor Schwarzenegger's 2004 veto of AB 1486 can not be relied on by this
COUli as evidence of the Legislature's intent relative to sections 17406 and
17417 for the following reasons:
a. The Governor Does Not Create Law
The state's legislative power is vested exclusively in "the California
Legislature, which consists of the Senate and Assembly, but the people reserve
to themselves the powers of initiative and referendum." (Cal. Const., Ali. IV,
§ 1.) The Governor does not have legislative power under the California
Constitution; instead, it is the role of the Governor to "see that the law is
faithfully executed.~' (Cal. Const., Art. V, § 1.) The Governor has one role in
the legislative process: the Gove1110r may sign a bill passed by either house of
the Legislature, at which point the bill becomes a statute, or the "Gove1110r
may veto [the bill] by returning it with any objections. to the house of origin,
which shall enter the objections in the jou111al and proceed to reconsider it."
(Cal. Const., Ali. IV, §10(a).) Thus, even in the limited, clearly defined
manner in which a Governor may playa role in the legislative process, which
role must confonn to "the manner expressly authorized by the constitution"
(Harbor v. Deukmejian (1987) 43 Ca1.3d 1078, 1084), the Governor does not
actually create law; instead, the Governor may merely prevent the creation of
law. Such an action is not an expression ofthe Legislature's intent with regard
to that or any other law.
-22-
b. A Governor's Veto Message Does Not Reflect Legislative Intent, But Merely An Interpretation of Law, Which is Not Binding on the Courts
As the Governor does not create law, a Governor's "Veto Message"
cannot reflect the intent of the Legislature in creating any given statute.
"Acceptable sources of legislative history are: legislative committee reports,
legislative analyst's repOlis, statements and memorandums of legislators,
unpassed bills and other statutes, omissions from bills, model bills and their
commentaries, and public comments." (7 Witkin, Sunul1aIyofCal. Law (10th),
Constitutional Law § 125.) Absent from that list are items prepared by the
Executive Branch, including the Governor's office. The inclusion of executive
documents as legislative histOlY has been considered by California COUlis. In
Joyce v. Ford Motor Co. (2011) 198 Cal.AppAth 1478, the court considered
whether enrolled bill reports and Governor's press releases regarding a bill
constituted legislative history, such that the documents had some binding
authority in the COUli's interpretation of a statute. The Joyce cOUli
unequivocally rejected this notion. While a reviewing court may be bound to
take judicial notice of executive document, including enrolled bill repOlis and
Governor's press releases, they do so with the understanding that "enrolled bill '.
reports cannot reflect the intent of the Legislature because they are
prepared by the executive branch .... [T]o pennit consideration of enrolled
bill reports as cognizable legislative histOlY gives the executive branch an
unwananted oppOliunity to detennine the meaning of statutes. That is the
proper and exclusive duty of the judicial branch of government." .. , [W]e
similarly conclude that [a Governor's press release] cannot reflect the intent
of the Legislature, and is therefore not cognizable legislative history. Joyce,
198 Cal.App.4th at 1492-1493 [emphasis added], quoting Kaufman & Broad
-23-
Communities, Inc. v. Pel/ormancePlastering, Inc. (2005) 133 Cal.AppAth26,
42.
Ultimately, then, a Governor's message is not legislative history and
does not reflect legislative intent because (a) it is prepared by the executive,
not the legislative, branch, and (b) it does not concern a law that has been
created, but rather a bill that has been rej ected and will not become law. This
is especially so in the present case. The AB 1486 veto message cited by
Howard and Respondents relates to an Assembly Bill that proposed to modify
Education Code §§ 17400 et seq. to inseli a "competitive selection" scheme
that would be applied toward the use by school districts of "lease-leaseback
contracts" to construct new school buildings. Thus, the code sections at issue
in this appeal already existed before this bill was passed by the Legislature and
vetoed by Governor Schwarzenegger. It would be impossible for Governor
Schwarzenegger's objections to a vetoed bill that did not become law, which
obj ections were rendered decades after the relevant code sections were actually
created by a different bill, to reflect the intent of the previous Legislature when
it created Education Code §§ 17400 et seq.
What, then, is a Governor's veto message? In general, a veto message
offers the Governo'r's objections to a bill with a request that those objections
be considered by the Legislature as the Legislature calTies out its duties in
creating law. At most, the message can suggest the Governor's interpretation
of the vetoed bill at issue. However, "detern1in[ing] the meaning of statutes
.,. is the proper and exclusive duty of the judicial branch of
government."Joyce, supra, 198 Cal.AppAth at 1493; Kaufinan & Broad
Communities, supra, l33 Cal.AppAth at 42. Accordingly, a Governor's veto
message constitutes only one of many penllissible non-binding interpretations
ofa law. Ultimately, it is the province of the Judicial Branch to detennine the
-24-
meaning of a statute. In the present case, it is for this Court of Appeal - not
Respondent, not Taxpayer, not the Governor, not the Attorney General - to
detennine the meaning of Education Code §§ 17400 et seq. with respect to the
actions complained of by Taxpayer.
c. The Governor's Veto Message and Its Non-Binding Interpretation of Education Code §§17400 et seq. Does Not Support Respondents' Arguments
Thus, Respondents' reliance on Governor Schwarzenegger's message
released in conjunction with his veto of Assembly Bill 1486 in 2004 is
misplaced because the message has no binding authority in detennining the
meaning of Education Code §§ 17400 et seq. At 111ost, it suggests but one
possible interpretation of the relevant code sections, passed decades before
Governor Schwarzenegger's message. Respondents' reliance is misplaced for
another reason, though: the message does not support Respondents' argument.
Respondents suggest the veto message provides some evidence that no
competitive bidding is required relative to either the site lease contract or the
facilities leaseback contract. The veto message itself does not provide such an
interpretation. The message reads:
"I am supportive of using a competitive process for public works projects and understand that this bill is needed to clarify that process. However, this bill imposes restrictions on leaseleaseback contracts that could limit competition, inadvertently limit schools flexibility, and drive higher administrative costs; thereby potentially increasing the overall cost of school facility constmction. For this reason, I cannot sign this measure [emphasis added]." (2 AA 415.)
The first rationale Governor Schwarzenegger offers for the veto is that
the proposed "competitive selection" process could "limit competition." If, as
Respondent argues, 17400 et seq., does not require any competitive bidding of
-25-
leaseback contracts on land owned by districts, how could a competitive
selection process limit competition? Governor Schwarzenegger's message
would riotmake any sense if these leaseback contracts do not require any
competitive bidding at all.
In this light, Govemor Schwarzenegger's comments suggest that the
statutes already require competitive bidding. This follows a plain-language
interpretation of the statutes. 17406 removes an obligation to hold a
competitive bidding process only for the "site lease" portion of the "lease
leaseback" transaction. 17406 says that no competitive bidding is required for
a district "to let" property to the contractor. It does not state that a district may
then lease the property back at a price that is not set by competitive bidding.
17417 clarifies that this"leaseback" contract does in fact require competitive
bidding. This fits in perfectly with the scheme as a whole: when a contractor
has been chosen under a competitive bidding process (the details of which are
set f011h in 17417), the property then may be "let" by a district under 17406 to
that contractor without the need for a separate competitive bid process.
d. The Governor's Veto Message and Assembly Bill 1486 Do Not Establish Section 17406 Exempts the Sublease From Competitive Bidding
Howard and Respondents misconstme and erroneously rely on
Govemor Schwarzenegger's veto message in support of their assertion that
17406 exempts the Sublease from competitive bidding under 17417. The
Govemor's veto message is ambiguous as to why he vetoed AB 1486. He does
not expressly and clearly state what proposed change( s) AB 1486 was making
to 17400 to 17429 that caused him to veto the proposed amendments in order
to maintain the status quo. Moreover, the veto message could be read to imply
Governor Schwarzenegger supports SAB' s and Taxpayer's interpretation that
-26-
the cunent lease leaseback statutes 17400 to 17429 require competitive
bidding of the leaseback contract. This is because the Governor stated "I am
supportive of using a competitive process for public works projects ... However,
this bill imposes restrictions on lease~leaseback contracts that could limit
competition." Real competition occurs when all qualified bidders are given an
opportunity to submit bids. Real competition does not occur when a school
district negotiates with only a few or one "prefened" bidders.
Further, the Howard COUli and Respondents fail to acknowledge AB
1486, as enrolled on August 27, 2004, amended the CUlTent lease leaseback
provisions of Education Code by amending 17406 and adding sections 17429.1
through 17429.6. The changes made by AB 1486 included, but were not
limited to:
1. Required the governing board to make certain written finding
before entering into a lease"leaseback agreement;
2. Required the de1agatee of the governing board to make a finding
that the contracting procedures would result in the best value to
the district by providing the district with a descliption of the
benefits to be expected from the contract;
3. Required the School District to issue a request for proposals, a
public notice of the request, to create a process to pre-qualify the
lease-leaseback entities, to establish a procedure for final
selection, to rank the lease-leaseback entities from most
advantageous to least advantageous, to write a proposal
declaring the most responsible bidder, and finally to declare the
contract completely independent from any of the contractors or
subcontractors;
-27-
4. Forbade any lease-leaseback contract from proceeding until the
contractor received written approval from the State Depmiment
of General Services;
5. Prevented any party involved in the platming of the project to
bid on the project; 6. required the designs to be prepared by a
licensed professional;
7. Defined the terms such as "lease-leaseback" and "best value;"
8. Set a sunset date for the lease-leaseback provisions on January
1,2009; and
9. Required competitive bidding in order to lease school propeliy
to a private pmiy for the purpose of constructing school
buildings for the use of the school district. (2 AA 404-412.)
Because of the number and significance of the changes AB 1486
proposed there is no way to ascertain which "restrictions on lease leaseback
contracts" Govemor Schwarzenegger was referring to as the basis of his veto.
AB 1486 would have amended the CUlTent law regarding lease-leaseback in at
least nine different ways. Anyone or more of these could have been the
"restriction" that the Govemor feared would "limit competition." All that can
be drawn from Govemor Schwarzenegger's veto is that he prefelTed the
existing language to the proposed amended language. No inference can be
drawn as to whether the Govemor (1) thought the existing language needed
clarification or modifIcation; (2) thought the existing language was good and
the proposed language bad; or (3) whether the existing language was bad and
the proposed language worse. Accordingly, the Howard COUli and
Respondents' attempt to use Govemor Schwarzenegger's veto as evidence of
the Legislature's intent IS PURE CONJECTURE and is of no use 111
interpreting 17406 and 17417.
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5. The Howard Decision Erroneously Rejected Taxpayer's Assertion That the Site Lease and Facilities Leaseback Agreements Cannot Both Be Competitively Bid Or Else Different Bidders Could Be Entitled to Each Contract
The appellant in Howard like Taxpayer here asserted the express
language of 17406 exempts only the site lease portion of the lease-leaseback
transaction from competitive bidding to avoid a situation where one party
could be the successful bidder on the site lease agreement and a different patty
could be the successful bidder on the facilities leaseback agreement. (AMlN
034; AOB 23 :FN2, 32.) The Howard Court elToneously analyzed and rejected
this assertion as follows:
According to Howard, section 17406 is intended only to apply to the site lease agreement, not the sublease agreement. Howard claims the purpose of the statute is to avoid a situation in which both agreements were competitively bid, and two different contractors made the winning bids on the two different agreements. The tenns of the statute, however, appear to prevent the potential problem Howard identifies. Section 17406 sets the minimum annual rental fee to be paid by the contractor to the school district at $1. No one who actually wanted to win the Project could ever be underbid in the site lease agreement. (AMlN 13l.)
The Howard Court's analysis and conclusion that because 17406 sets
the minimum annual rental fee to be paid by the contractor to the school
district at $1, "[n]o one who actually wanted to win the Project could ever
be underbid in the site lease agreement [emphasis added]" is elToneous. But
for 17406's express exemption of the site lease from competitive bidding
requirements otherwise applicable to leases of school property (i.e. 17472 or
Section 6 of Altic1e XVI of the California Constitution (prohibiting gifts of
public propelty)) a school district would be obligated to award the site lease
agreement to the patty who offers to pay the highest amount to the school
-29-
district not the lowest amount. (See 17472.) Thus the Howard COUli's
reference to "underbid" elToneously presumes a low bid scenario and its
conclusion that there could never be an award to two different bidders on the
site lease and the facilities leaseback agreements because of the $1 floor set by
17406 is therefore wrong. The minimum rental of $1 in 17406 is not a floor
but instead it is an arbitrary nominal amount of consideration that is
legislatively specified in order to have a binding contract (without competitive
bidding) that transfers the right to occupy and use that real propelty of a school
district to another patty for the sole purpose of that patty constructing thereon
facilities and improvements that they will then lease back to the school district
according to the procedures specified in 17417.
6. Respondents And The Howard Decision Are Legally Incorrect Because They Seek to Apply Section 17406's Limited Exemption of the Site Lease From Competitive Bidding to the Facilities Leaseback Agreement Too
"Although the meaning of a statutory phrase may be plain and certain
if the phrase is considered in isolation, blind adherence to the text of a
statutory phrase is improper if its literal interpretation is inconsistent with other·
provisions of the same statute, defeats the apparent legislative intent and is
otherwise in conflict with accepted interpretive canons." Hatch v. Superior
Court (2000) 80 Cal.App.4th 170,226. Moreover, interpretation of statutory
language leading to absurd results is to be avoided. People v. Loeun (1997) 17
Ca1.4th 1,9.
Based 17406's preface "[n]otwithstanding 17417" the Howard Court
enoneously concludes "[t]hus, section 17406, subdivision (a) expressly
provides that notwithstanding the bidding process established by Education
Code section 1 7417, the District was pennitted to engage in the type of
transaction at issue here 'without adveliising for bids.'" (AMJN128.) To
-30-
conclude the Los Alamitos district was pennitted to engage in the lease
leaseback "transaction at issue" the Howard Court concluded, en-oneously,
17406 is not limited only to the site lease portion of the lease-leaseback
transaction but instead applies to both the site lease agreement and the
facilities leaseback agreement. Just as in this case, counsel for District argued
the foregoing to the Howard Court on behalf of Los Alamitos. (DRB 8;
AMJN069.) It should be noted counsel for District conflated in their
arguments the two separate lease agreements in a lease-leaseback transaction
in the Howard case just as they have done in this case as discussed in Section
B, supra. (AMJN 062-064,067,069,074, passim.) Regrettably the Howard
COUli inadvertently adopted Respondents' erroneous conflation and
incorporated it into its opinion (AMJN 125,127,131.)
In suppOli of their interpretation of 17406 Respondents attempt to apply
the broad statutory term of art "notwithstanding any other law" discussed
Klajic v. Castaic Water Agency (2004) 121 Cal.App.4th 5, 13 to the present
case. (DRB 20-21; CRB 28.) However, Respondents omit from their briefs the
full discussion in Klajic of the distinction between the tenn of art
"notwithstanding any other law" which has very broad ramifications when
used in a statute compared to the more narrow phrase "notwithstanding
subdivision (xyx)" which expresses the legislative intent to only care out an
exception to subdivision (xyx). Even though 17406 only includes the
notwithstanding language that falls within the more nan'ow phrase,
Respondents only direct this Court to Klajic' s discussion of the broader plu'ase
"notwithstanding any other law" The full discussion from Klajic is:
"Notwithstanding" means "without prevention or obstlUction from or by" or "in spite of" (Webster's 3d New Internat. Dict. (unabridged Dict.l993) p. 1545, italics added) or "despite" (Webster's 10th New Collegiate Dict. (1995) p. 795).
-31-
The statutory plu'ase "notwithstanding any other law" has been called a " 'term of art' " [ citation] that declares the legislative intent to ovelTide all contrmy law. [citation] By use of this tenn, the Legislature expresses its intent" 'to have the specific statute control despite the existence of other law which might otherwise govem.' [Citation. ]" [citation] ["notwithstanding any other provision of law" "signals a broad application oven'iding all other code sections"].) The more nan'ow plu'ase "notwithstanding subdivision (a)" expresses the legislative intent to "carve out an exception only to subdivision (a) " [ citation]."
Here the plu'ase "Notwithstanding Section 1741 T' by specifically
referencing 17417 expresses the legislative intent in 17406 to "carve out an
exception" to 17417. The question is what is being excepted from the
competitive bidding requirements of section 1 7417? Are both the site lease
agreement and the facilities leaseback agreement being excepted from the
competitive bidding requirements ofsection17417 as Respondents assert OR
is that plu'ase excepting ONL Y the awarding of the site lease agreement as
Taxpayer asselis? For the reasons stated in his Opening Brief and herein,
Taxpayer asselis his interpretation prevails.
Moreover, Respondents' quote from In re Summer H (206) 139
Cal.App.4th 1315, 1328 which actually supports Taxpayer's interpretation
because the court there said "notwithstanding" has a special legal connotation
"[I]t is considered an express legislative intent that the specific statute in which
it is contained controls in the circumstances covered by that statute, despite the
existence of some other law which might otherwise apply to require a different
or contrary outcome [emphasis added]." The circumstances covered in 17406
are limited to the express language therein which refers only to a school
district leasing out propeliy it owns to another party (e.g. the Site Lease) for
the sole purpose of that party constructing thereon facilities and improvements
-32-
that will be used by the school district during the tenn of the site lease and
with title to those improvements vesting in the district at the end of the site
lease. The specifics of how a school district's site and the improvements
constructed thereon are leased back to the school district are covered in 17417.
17406, by expressly using the phrases "[ n ]otwithstanding Section
17417" and "without advertising for bids" carves out a limited exception to the
public bid requirement otherwise applicable to school district leases of their
real propelty (e.g. 17472) but the limited exception only applies IF the patiy
to whom the real property is being leased will be constructing school facilities
thereon for use of the school district during the tenn thereof. There is no
language in 17406 that extends its limited exemption from competitive bidding
to the facilities leaseback agreement too.
7. The Legislative History ofthe Relevant Education Code and Related Public Contract Code Sections Actually Support Taxpayer's Interpretation
District asselis the trial comi's decision is supported by the "relevant
legislative histOlY of the of the lease-leaseback laws." (DRB 11.) Contratyto
this asseliion the relevant legislative history of the lease-leaseback laws and
their counter parts in the Public Contract Code actually suppo~ Taxpayer's
interpretation.
Education Code Section 17406 was originally enacted in 1957 under
fonner Education Code section 18355. (Stats. 1957, ch. 2071.) The statute,
along with other Education Code provisions, was re-codified in 1959 as fonner
Education Code section 15705 (Stats. 1959, Ch. 2.) In 1976, section 15705
was re-codified as section 39305. (Stats. 1976, Ch. 1010.) The Education Code
was repealed and reenacted in 1996 to cun'ent section 17406 without
substantive change. (Stats. 1996, Ch. 277.)
-33-
By contrast, Public Contract Code section 20106 - the public bid statute
for school distlicts - is historically derived from a statute enacted in 1949.
Section 20106 predates the original enactment of the lease-leaseback statute
by 8 years. (Stats. 1949. Ch. l389; fom1er Ed. Code section 5047.5.) Section
20111 requiring competitive public bid for school construction, is of even
earlier origin than the lease-leaseback provision, enacted in 1943. 14 years
before Education Code section 17406. (Stats. 1943, Ch. 71)
A court does not have the power to re-write a statute to confonn to a
presumed intention of the Legislature which has not been expressed. Murillo
v. Fleetwood Enterprises, Inc. (1998) 17 Ca1.4th 985, 993. Significantly, a
Legislature is presumed to know the law at the time of the enactment of its
statutes. Nickelsberg v. Workers' Compo Appeals Bd (1991) 54 Cal. 3d 288,
298 ("Nickelsberg"). Repeals of statutes by implication are disfavored.
Nickelsberg, supra, 54 Cal. 3d 288, 292. Under the rule of expressio unius est
exclusio allerius, when exceptions to a general rule are specified by statute,
other exceptions are not to be implied or presumed. In re Lance W (1985) 37
Cal. 3d 873, 888. A corollary proposition is inclusio un ius est exclusio alterius,
inclusion of the one is the exclusion of another. Murillo v. Fleetwood
Enterprises, Inc., supra, 17 Cal.4th 985, 991. '.
A statute should be construed in the context of the entire statutory
system of which it is a pali in order to achieve hannony among the parts.
Nickelsberg, supra, 54 Ca1.3d 288, 298. To this end, "statutes should be
interpreted in such a way as to make them consistent with each other, rather
than obviate one another." Id. As one appellate court has stated: The meaning
of the words of a statute ... can only be detennined with reference to the context
in which the words are used; that is, with reference to such purpose as may be
discemed from examining the entire enactment of which the words are part.
-34-
Dubins v. Regents o.fUniversity ofCal(fornia (1994) 25 Cal. App. 4th 77,83.
Applying the foregoing rules of statutory construction to 17406, there
are at least three reasons why the phrase "[ n ]otwithstanding Section 17417" in
17406 does not authorize a school district to bypass the competitive bid
requirement for awarding the Sublease (aka the leaseback agreement) by which
the district is paying money to another to construct facilities on district
propeliy leased to the other via a site lease. First, 17406 was originally enacted
8 and 14 years after the predecessor statutes to Public Contract Code section
20106 and Public Contract Code section 20111, respectively. Since the
Legislature is presumed to know the law when it enacted the lease-leaseback
competitive bid statutes is disfavored. Nickelsberg, supra, 54 Ca1.3d 288,292,
298.
Second, 17406 is limited to relieving a school district from the
competitive bidding process only in the limited circumstance where it is
leasing out its real propeliy for the purpose of having facilities for its use
during the term of the site lease constructed thereon. 17406 is silent on
whether it exempts school districts from competitively bidding the seperate
leaseback contract. Under the'princip1e inclusio unius est exclusio alterius, the
inclusion of a leasing exception to the competitive bidding process, excludes
implying an exception for awarding construction contracts in the first instance.
Conversely, since 17406 does create an exception for leases from the bidding
requirement, under the principle expressio un ius est exclusio alterius, this
exception should be confined to leases to a contractor, and no other exception
should be implied or presumed concerning leases from a contractor. In re
Lance 1., supra, 37 Cal. 3d 873, 888. School districts cannot use the limited
exception from competitive bidding of site leases to contractors under 17406
-35-
to swallow the specific mle under 17417 and Public Contract Code section
20106 that all contracts where a school district pays money out must be subject
to the competitive bidding process.·
Third, the limited reach of i 7406 to exempting leases where the
contractor pays money to the school district from competitive bids - but not to
the contracts for leaseback agreements or constmction agreements whereby a
school district pays money out - is confinned by reviewing the entire
enactment of which 17406 is a part, specifically Aliicle 2. Dubins v. Regents
afUniversity afCa!(fornia, supra, 25 Cal. App. 4th 77,83. 17406 appears in
Title 1, Pmi 10.5, Chapter 4 of the Education Code, entitled "Property: Sale,
Lease, Exchange" and Aliicle 2: "Leasing ofPropeliy." A companion statute
in Article 2 - 17404 - entitled "Exemptions," states that sections "17455 to
17480, inclusive, shall not apply to leases made pursuant to this aliicle."
Sections 17455 through 17480 are the enumerated provisions appearing under
Aliicle 4 of the Education Code entitled "Sale or Lease of Real Propeliy."
There is nothing in 17406, in Aliicle 2 or anywhere else in Chapter 4
of the Education Code that purports to exempt school districts from awarding
contracts pursuant to the competitive bid statutes for leaseback agreements or
constmcti011 agreements whereby a school district pays money out. Instead, the
statutory exemption in Article 2, 17406, is expressly limited to the provisions
relating to the site lease agreement of the lease leaseback transaction
authorized by Education Code sections 17400 et seq. Respondents and the
Howard Court elToneously attempt to re-write 17406 to presume an intent
which the Legislature has not expressed.
-36-
8. The Howard Court Did Not Have the Benefit of the State Allocation Board Report
The Howai'd Court was not presented and did not consider the SAB
RepOli. (AMJN008-136.) While Respondents disagree with the SAB Report's
conclusions at they acknowledge that at the very least:
"The weight courts attach to agency interpretations is 'contextual,' and depends on factors such as "the thoroughness evident in [the agency's] consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, iflacking power to controL" Yamaha Corp. of America v. State Ed. of Equalization (1998) 19 Ca1.4th 1, 14-15. (DRB 27; CRB 38.)
Based on the foregoing, this Court should attach great weight to the
analysis and conclusions in the SAB Report based upon the objectiveness and
experience of those writing it as evidenced by the thoroughness of its
consideration of the history and procedures of the lease-leaseback process.
Respondents urge this COUli to give relatively little weight to the
opinions contained in the SAB Report because this case involves a pure issue
of law regarding the interpretation of the lease-leaseback statutes, which is
solely a judicial function and the SAB Report was never fonnally adopted by
the SAB, nor was it vetted in accordance with the Administrative Procedure
Act. (DRB28-29; CRB32.) While Taxpayer acknowledges the accuracy of the
foregoing premises, Taxpayer disputes the conclusion advanced by
Respondents.
-37-
a. SAB's Failure to "Accept" its Staff and Counsel's January 28, 2004 Report and the Absence of a Related Rulemaking Do Not Negate the Truth and Accuracy of the Analysis and Contents Thereof.
In the January 28,2004 RepOli SAB staff and legal counsel state:
It is the opinion of staff and SAB counsel that either interpretation expands the meaning of Be 17406 beyond its simple intent and ignores other requirements in the same article regarding competitive bid requirements for leases (Be 17417). There is no disagreement that Be 17406 is clear in allowing districts to lease a district-owned site to a person, finn or corporation when the lessee agrees to construct buildings for the use of the school district. However, the exemption from public bidding allowed in this section applies only to the propeliy lease from the district to the developer. It does not address how the contract for the construction of the buildings is procured nor does it provide an exemption to competitive bidding for that contract. (2 AA 368.)
Respondents make too much of the fact the appointed members of the
SAB voted not to accept the foregoing Report. Respondents would have this
COUli believe that a client's refusal to accept their attorney's memorandum and
opinion of law somehow negates the validity of the analysis and legal
conclusions contained therein.
By not accepting the SAB Report it would appear the members of the
State Allocation Board were imitating the monkeys in the old proverb "hear
no evil, see no evil and speak no evil:" While the source that popularized that
pictorial maxim is a 17th century carving over a door of the famous Toshe-gu
shrine in Nikko, Japan in the Western world both the proverb and the image
are often used to refer to a lack of moral responsibility on the paIi of people
who refuse to acknowledge impropriety, looking the other way or feigning
ignorance. http://en.wikipedia.org/wiki/Three wise monkeys. Just because
-38-
the appointed State Allocation Board members chose for reasons u:riknown to
turn a blind eye and not "accept" their staff and legal counsel's January 28,
2004 report and legal opinion does not negate the tmth, accuracy and sound
public policy embodied in the analysis and contents thereof.
E. Respondents Continue to Miss the Point of Taxpayer's First Cause of Action
For the sake of Taxpayer's First Cause of Action it does not matter
whether any portion of the lease and leaseback contracts authorized under
Aliicle 2 required competitive bidding or not. Taxpayer's First Cause of
Action contained sufficient allegations in Paragraphs 20 tlu-ough 26 that the
Lease-Leaseback Contracts were not real leases which is the prerequisite to
Respondents using tlle mode of contracting authorized by Article 2. (See ~~
22-26, 1 AA008-10.) Taxpayer's First Cause of Action is premised on the
California Supreme Court's mle in City of Los Angeles v. Offner (1942) 19
Ca1.2d 483,486 that designating an agreement as a 'lease' for purposes of a
subterfuge in an otherwise authorized public lease-leaseback arrangement will
void the agreement (i.e. it must be a genuine lease-leaseback and not a sham).
DRB and CRB dispute the foregoing paragraphs allege sufficient
"ultimate" facts to establish for the purpose of pleading a claim under Offner
that the challenged Lease-Leaseback Contracts were sham leases and therefore
did not qualify for the mode of contracting authorized by Aliicle 2. (DRB 16;
CRB 24-25.)
Respondents' cry crocodile tears in their protest of Taxpayer's alleged
improper pleading of conclusions oflaw and a lack of "ultimate" facts because
the Supreme Court has said:
"The distinction between conclusions of law and ultimate facts is not at all clear and involves at most a matter of degree. [citations omitted] F or example, the courts have penl1itted
-39-
allegations which obviously included conclusions of law and have tenned them 'ultimate facts' or 'conclusions of fact.' [citations omitted] In pennitting allegations to be made in general tenns the courts have said that the particulmity of pleading required depends upon the extent to which the defendant in faimess needs detailed infonnation that can be conveniently provided by the plaintiff, and that less particularity is required where the defendant may be assumed to possess knowledge of the facts at least equal, if not superior, to that possessed by the plaintiff. ... " Burks v. Poppy Construction Co., (1962) 57 Cal. 2d 463,473-474.
Under Burks, supra, Taxpayer has sufficiently alleged a cause of action
to invalidate Respondents' Lease-Leaseback Contracts under the law of Offner
because Respondents are adequately apprised of Taxpayer's legal theory and,
as pmiies to the challenged contracts, are in a better position to know the
specific details of the arrangement between them than Taxpayer who is an
outsider to the transaction. As such, Taxpayer was entitled to plead with less
particularity and without application ofhyper-teclmical distinctions between
conclusions of law and ultimate facts.
F. Taxpayer's Second Cause of Action for Breach of Fiduciary Duty Does Not Fail as a Matter of Law
Contrary to Respondents' assertion, Taxpayer's Second Cause of
Action for breach of fiduciary duty does not fail as a matter of law. District
asselis Taxpayer" fails to articulate why the District was required to take any
of these steps in order to discharge its fiduciary obligations to taxpayers" e.g.
District owed no duty to Taxpayer or the public. (DRB 17.) However, District
does conectly acknowledge legal duties can arise from the general character
of the activity or the relationship of the parties. Ratcliff Architects v. Vanir
CanstI'. Mgmt., Inc. (2001) 88 Ca1.App.4th 595, 604. (DRB 18.)
-40-
Here, Taxpayer contends-District owes Taxpayer and the public a duty
(based on the general character of the activity (cOlmnitting to spend $48
million on facilities) and! or the relationship of the parties (Taxpayer and public
being those who pay for, benefit from facilities constmcted by District and are
hanned if District pays unreasonably too much therefore by receiving less
overall facilities because the funds to build such facilities have been
squandered). Therefore, it is not unreasonable for this COUlt to find that a duty
exists on the part of District to undertake some reasonable analysis to
determine whether the price to be paid for the Sublease is reasonable. District
can not act in an arbitrary and capricious way. Taxpayer alleges District
undertook no analysis to detennine whether the price to be paid for the
Sublease was reasonable and as such breached its fiduciary duty.
1. Government Code §900 et seq. Does Not Apply
Respondents improperly assert Taxpayer's FA C is not like a petition for
writ of mandate nor is it a taxpayer waste action and therefore is not entitled
to exemption from Government Code §900 et seq. Taxpayer's FAC is most
celtainlya taxpayer waste action based on its allegations especially ~~15-18.
(1 AA 5-6.)
G. Respondents Incorrectly Assert Taxpayer's Fourth Cause of Action for Conflict of Interest Fails Because Government Code Section 1090 Does Not Apply to Contractor
Respondents assert, as a matter of law, Contractor's prior consulting
contracts with District did not bring Contractor within the class of persons
covered by Government Code section 1090 and/or COlmnon law conflict of
interest prohibitions. (DRB 28-34; CRB 33-40.) Respondents go on at length
to attempt to factually distinguish the on point cases of Hub City Solid Waste
Services, Inc. v. City of Compton (2010) 186 Cal.AppAth 1114 (Hub) and
-41-
Cal~fornia Housing Finance Agency v. Hanover/California Management and
Accounting Center, Inc. (2007) 148 Cal.App.4th 682, (CHFA). Respondents
fail to acknow ledge the substantial body oflaw cited by Taxpayer that expands
the conflict of interest prohibitions to consultants and independent contractors
of public entities is not narrowly fact specific.
Conflict of interest prohibitions are broadly construed and will be found
where the independent contractor has merely the opportunity to use their
position to advance their financial interest. They do not have to actually act
for their benefit or for the public entity's detriment for there to be a cause of
action for conflict of interest. They just have to participate in the making of
a contract that they have a financial interest in.
Division 3 of this Court of Appeal upheld the application of conunon
law conflict of interest prohibition codified in Govenunent Code, Section 1090
et seq., to an independent contractor (a specially retained outside counsel)
working for a public entity in Schaefer v. Berinstein (1956) 140 Cal.App.2d
278 where the COUli stated at page 291 ·'A person merely in an advisory
position to a city is affected by the conflicts of interest rule ... [because he] was
an officer and agent of the city ... in a position to advise the city council as to
what action should be taken."
Likewise Division 4 of this COUli of Appeal upheld the application the
conflict of interest prohibition codified in Government Code, Section 1090 to J
an independent contractor (a waste management consultant) working for a
public entity in Hub City Solid Waste Services, Inc., v. City oj Compton (2010)
186 Cal.App.4th 1114 where the Court stated "A person in an advisory
position to a city may fall within the scope of section 1090. In pmiicular,
independent contractors whose official capacities carry the potential to exeli
considerable influence over the contracting decisions of a public agency may
-42-
not have personal interests in that agency's contracts." Id., at 1124-1125.
Here Contractor was likewise in a position to advise and provide
considerable influence upon District's school board and staff (both as bond
program manager and as preconstruction service provider) as to what actions
they should take relative to the Projects.
Participation in the making of a contract is defined broadly as any act
involving preliminary discussions, negotiations, compromises, reasoning,
planning, drawing of plans and specifications, and solicitation for bids.
Millbrae Assn. for Residential Survival v. City of Millbrae (1968) 262
Ca1.App.2d 222, 237; see also Stigall v. City of Taft (1962) 58 Ca1.2d 565, 569.
The section 1090 prohibition also applies to persons in advisOlY positions to
contracting agencies. Schaefer v. Berinstein (1956) 140 Cal.App.2d 278;City
Council v. McKinley(1978)80 Cal.App.3d 204. This is because such
individuals can influence the development of a contract during preliminary
discussions, negotiations, etc., even though they have no actual power to
execute the final contract.
Respondents assertion Taxpayer did not plead sufficient facts to state
a cause of action for conflict of interest must be rejected. Paragraphs 42
through 56 and the documents incorporated by reference in Taxpayer's FAC
allege sufficient facts to state a cause of action against Contractor for conflict
of interest under Govemment Code section 1090 and/or common law.
The Lease-Leaseback Contracts District awarded Contractor are void
and unenforceable because Contractor was legally precluded from being
awarded those contracts due to conflicts of interest that arose from
Contractor's prior contracts with DistIict related thereto, namely the contract
for bond program management services (BPM) and the contract for
preconstruction services (PCS) which both preceded the Lease-Leaseback
-43-
Contracts.
In perfonning its duties under the BPM and PCS Contractor perf011l1ed
the functions and filled the roles and positions of officers, employees and
agents of District who would ordinarily perfonn and provide the foregoing
professional, design, and financial functions and advise the District relative to
same. In performing the functions and fulfilling its duties under its BPM and
PCS Contractor was in a position of superior knowledge, hust and confidence
relative to District.
Taxpayer's F AC quoted from and incorporated by reference District's
November 13,2102 Agenda Item Summary for the 2013 $945,200 extension
of Contractor's long running BPM contract for bond program management
services which was incorporated into PAC paragraph 45. (1 AA 18). This
document states Contractor's bond program management services are required
to " ... review, process, maintain, and organize all program documents
including invoices, purchase orders, trade contracts, consultant, and vendor
agreements. [ emphasis added]" (4 AA 986.) As BPM Contractor could advise
and influence how the Projects were going to be built (i.e. delivery method)
and how much District would spend (i.e. setting budgets). As such,
Contractor had complete control over District's Measure Y and Z Bond
Program, including its own $48 million worth of Lease-Leaseback Contracts
for the Projects involved in this appeal.
Under the PCS Contractor was to advise on and influence the scope and
nature of the Projects it would be constructing under the Lease-Leaseback
Contracts. Either of the foregoing capacities afforded Contractor sufficient
opportunity to influence and direct the District through the advice Contractor
could give and actions Contractor could take so as to give rise to a conflict of
interest that would preclude the award ofthe contracts challenged in Taxpayers
-44-
F AC under the law stated by this Court in Hub and Berinstein, supra.
Based on the foregoing, Taxpayer has alleged facts sufficient to
constitute a cause of action under Goverrunent Code 1090 and/or the common
law doctrines of conflict of interest.
1. This Court's Christiansen Case is Limited to the Criminal
Context
Respondents' reliance on People v. Christiansen (2013) 216
Cal.AppAth 1181, 1189- 1190, where Division 1 of the Second Appellate
District refused to expand the consultant confliCt of interest law from the civil
context of Hub and CFHA to the criminal context of Christiansen is
misplaced. Specifically the Christiansen Court stated:
No published criminal case has so held. Rather, respondent's argument is based on two civil cases involving section 1090, HUB .... and [ CHF A] .... We express no opinion on the soundness of those opinions in the civil context, but we hold that their expansion of the statutory tenn "employees" to apply to independent contractors does not apply to criminal prosecutions for violation of section 1090. Id. at 1189.
Based on the allegations contained in Taxpayer's FAC Taxpayer
adequately alleged Contractor participated in the prel~~ninary discussions,
negotiations, compromises, reasoning, planning, drawing of plans and
specifications for the Project it had the opportunity to influence the
development of the project and its plans/specifications for Contractor's
financial benefit. Such a situation was held by the Supreme Court to create a
conflict of interest for an public official in Stigall v. City o.fTaJt (1962) 58 Cal.
2d 565,570-571 and there is not reasons such a situation should not be found
by this Court to likewise give rise to a conflict of interest to Contractor in this
civil context.
-45-
2. Education Code Section 17250 et seq. Does Not Eliminate Contractor's Conflict of Interest Because Respondents Did Not Contract Under That Statutory Scheme.
District assertion the Legislature does not share Taxpayer's concern
about the conflict of interest created by Contractor's prior Pre-Constmction
Services Agreement and its Lease-Leaseback Contracts reaches too far. (DRB
34.) 17250.1 O( e) states "( e) It is the intent of the Legislature that design-build
procurement as authorized by the act adding this chapter shall not be constmed
to extend, limit, or change in any manner the legal responsibility of public
agencies and contractors to comply with existing laws."
While the Legislature may have created a design build mode of
contracting for school districts, the statutorily defined mode is the measure of
that power and any contracts not made in compliance therewith are void.
"Where the statute prescribes the only mode by which the power to contract
shall be exercised the mode is the measure of the power. A contract made
otherwise than as so presclibed is not binding or obligatory as a contract and
the doctrine of implied liability has no application in such cases." Reams v.
-Cooley (1915) 171 Cal, 150, 154.
Here Respondents' Lease Leaseback Contracts did not arise from and
comply with any of the procedures specified by the Legislature in Education
Code 17250.10 et seq. that would enable Respondents to proceed thereunder.
For instance, 17250.20 requires:
" ... the governing board may enter into a design-build contract for both the design and constmction of a school facility if that expenditure exceeds two million five hundred thousand dollars ($2,500,000) if, after evaluation of the traditional design, bid, and build process of school constmction and of the design-build process in a public meeting, the governing board makes written findings that use of the design-build process on the specific proj ect under consideration will accomplish one of the following
-46-
objectives: reduce comparable project costs, expedite the proj ect' s completion, or provide features not achievable through the traditional design-bid-build method. The governing board also shall review the guidelines developed pursuant to Section 17250.40 ... "
Contractor would have participated in the foregoing process as the District's
BPM and the subsequent award of a design-build contract would have been a
conflict of interest. Contractor's position as BPM precludes it from being
awarded any other contracts for design and/or construction by District.
To protect the public conflict of interest doctrines can not be nalTowly
construed factually. They must be broadly construed to apply to the ever
changing ways which elected officials, officials, employees and consultants
can an'ange their relationships with public entities for their potential private
gain. Presence of actual hann not required it's the possibility that tempts such
persons to stray from their duty of fealty to the public bodies whom they work
for and serve. Judge Rice made his decision based on incol1'ect statement
application of law not a lack of facts. His granting of demurrer on incolTect
legal grounds needs to be reversed by this COUli so this matter can be returned
to the Superior Court for further development and application of facts to the
conflict of interest law applicable to consultants such as Contractor under
HUB & CFHA andlor Berinstein.
The District has the fox guarding the hen house. If this is not a
consultant conflict of interest under Hub, CHF A andlor Berinstein, then what
is?
-47-
II. CONCLUSION
Respondents premised their DemUlTers on the asseliion that Califomia
law and the facts alleged by Taxpayer did not state any cause of action for
violation of any legal obligation. The Superior COUli failed to properly
interpret and apply California law when it granted Respondents' DemulTers.
Based on the foregoing Taxpayer requests this Court clarify the law and
reverse the Superior Court's sustaining of Respondents' DemUlTers and
subsequent dismissal of Taxpayer's First Amended Complaint and remand this
matter to the Superior COUli with direction to allow Taxpayer's action to
proceed.
Dated: October)O , 2014
By:
-48-
CARLIN LAW GROUP, APC
Kevin R. Carlin Attomey for Appellant JAMES D. MCGEE
CERTIFICATE OF COMPLIANCE
Pursuant to rule 8.204(c) of the Califomia Rules of Court, I hereby
certify that this brief exclusive of the cover, table of contents and table of
authorities contains 1351 S" words, including footnotes. In
making this celiification, I have relied on the word count of the computer
program used to prepare this brief.
Executed on October~, 2014, at San Diego, Califomia.
Kevin R. Carlin, Esq.
-49-
APP-009
PROOF OF SERVICE (Court of Appeal) FOR COURT USE. ONL Y
CZJ Mail D Personal Service
Notice: This form may be used to provide proof that a document has been served in a proceeding in the Court of Appeal. Please read Information Sheet for Proof of Service (Court of Appeal) (form APP-009-INFO) before completing thIs form.
Case Name: McGee v. Torrance Unified School District, et al.
Court of Appeal Case Number: B252570
Superior Court Case Number: YC068686
1. At the time of service I was at least 18 years of age and not a party to this legal action.
2. My D residence W business address is (specify):
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3. I mailed or personally delivered a copy of the following document as indicated below (fill in the name of the document you mailed or delivered and complete either a or b): Appellant's Reply Brief
a. m Mail. I mailed a copy of the document identified above as follows:
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(2) Date mailed: October 10, 2014
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16870 West Bernardo Drive, Suite 330 San Diego, CA 92127
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Form Approved for Optional Use Judicial Coundl of Califomia
APP.(J09 [New January 1. 20091
PROOF OF SERVICE (Court of Appeal)
www.cQurtinfo.ca.gov
CASE NAME: McGee v. Torrance Unified School District, et al. I CASE NUMBER:
3. b. 0 Personal delivery. I personally delivered a copy of the document identified above as follows:
(1) Person served:
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I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct.
Date: October 10,2014
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APP-009 [New January 1. 2009J PROOF OF SERVICE (Court of Appeal)
Page2of2
CASE No. B252570
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT
DIVISION EIGHT
JAMES McGEE
Plaintiff and Appellant,
vs.
TORRANCE UNIFIED SCHOOL DISTRICT; BARNHART-BALFOUR BEATTY, INC., DBA BALFOUR BEATfY CONSTRUCTION; HARRIS
CONSTRUCTION COMPANY, INC.; ET AL.
Defendants and Respondents.
APPLICATION FOR LEAVE TO FILE AMICUS CURIAE BRIEF OF CALIFORNIA'S COALITION FOR ADEQUATE SCHOOL HOUSING IN
SUPPORT OF DEFENDANTIRESPONDENTTORRANCE UNIFIED SCHOOL DISTRICT [SUBMITTED CONCURRENTLY WITH ATTACHED AMICUS
CURIAE BRIEF]
On Appeal From the Superior Court. fbr the State of California, County of Los Angeles, Case No. YC06868q, Hon. Stuart Rice
FAGEN FRIEDMAN & FULFROST, LLP Kathy McKee, SBN 159244
Paul G. Thompson, SBN 190954 * James Traber, SBN 248439 Luke Boughen, SBN 288460 520 Capitol Mall, Suite 400
Sacramento, California 95814 Telephone: 916-443-0000 Facsimile: 916-443-0030
Attorneys for CALIFORNIA'S COALITION FOR ADEQUATE SCHOOL HOUSING
APPLICATION OF CALIFORNIA}S COALITION FOR ADEQUATE SCHOOL HOUSING FOR LEAVE TO FILE AMICUS
CURIAE BRIEFIN SUPPORT OF DEFENDANTIRESPONDENT TORRANCE UNIFIED SCHOOL DISTRICT
Pursuant to rule 8.200(c) of the CaIifornia Rules of Court,
California's Coalition for Adequate School Housing ("CASH") respectfully
requests kave to file the accompanying brief as amicus curiae in this
proceeding in support of respondent Torrance Unified School District
("District").
CASH is a nonprofit organization formed in 1978 to promote,
develop, and support state and local funding for K .. I2 school construction.
Approximately 93 percent of the K-12 students in California attend schools
in school districts that are members of CASH. Such school districts have a
great need for new classrooms and modernization of old schools. CASH
memberShip includes over 1,100 .school districts, county offices of
education, and private sector businesses, induding architects, attorneys,
consultants,construction managers, financial institutions, modular building
manufacturers,contractors, developers, and others in the school facilities
industry.
CASH has a substantive and abiding interest in. ensuring the Lease~
Leaseback project derivery method authorized by Education Code section
17406 ("Lease-Leaseback") remains a legally viable option for schools in
California. Hundreds of school districts have relied upon the plain and
unambiguous language of Education Code section 17406 for completion of
major facilities projects, resulting in safer and better quality schools for
California students. A decision that weakens or destroys Lease-Leaseback
as a construction option, despite its clear language, would negatively affect
many school projects.
This brief is designed to assist the Court by illuminating the practical
realities that are implicated by this Court's decision. For example, this case
is one of several challenges to the implementation of the plaIn language of
Education Code section J 7406. On September 17, 2014, the Fourth
Appellate District published Los Alamitos Unified School District v.
Howard Contracting, Inc. (2014) 229 CaLAppAth 1222 (S221894, app.
pending), which validated the implementation of the Lease-Leaseback
method. A petition for review of the Los Alatnitos case has been filed with
the Califomia Supreme Court. Additionally. the Second Appellate District
is currently considering Davis v. Fresno Unified School District (Fifth
Appellate District, Court of Appeal Case No. F068477), which also
challenges the viability of the Lease-Leaseback project delivery method. In
short, this case is but one cog in a strategic wheel designed to cause a
divergence of appellate opinions on the Lease-Leaseback method, and
CASH has an interest in maintaining a uniformity of judicial opinion
permitting Lease-Leaseback.
As a further example of ho\\' this brief will assist the Court in
- deciding this matter in its practical context, hundreds of schools have
relied, and continue to rely, upon the plain language of Education Code
section 17406 to permit utilization of Lease-Leaseback. As discussed
'within the amicus brief: the utilization of this method does not spring from
a desire to spend more on school projects than is necessary; rather, it is a
recognition of the temporal, financial, and practical benefits which school
districts find (on some projects) oUhveigh the benefits of the low-bid
method.
No party or counsel for a party in the pending case authored the
proposed amicus brief in whole or in part or made any monetary
contribution intended to fund its preparation or submission. (See CaL Rules
of Court, rule 8.200(c)(3)~) For the foregoing reasons, CASH respectfully
2
requests permission to file the accompanying brief as amicus curiae in this
matter.
Dated: October 24, 2014.
Respectfully submitted,
FAGEN FRIEDMAN & FULFROST LLP
BYL~~~~:::::::~ __ _ mesR.~ber
Attorneys<~fi5r Amicus Curiae Coalition for Adequate School Housing
3
TABLE .OF CONTENTS
L INTRODUCTION .;.; ........................................................................... 1
II. ARGUMEN'r .......... : ... ~ ....................................................................... 2
A. This Decision Will Have a Widespread Impact, Because Many Schools Throughout California Use Lease-Leaseback As It Was Used in This Case ....................... 2
B. Why Schools Use the Lease-Leaseback Delivery Method ..................................................................................... 4
1. Lease-Leaseback Allows Schools to Control tile Final Price of a Project ................................................ .4
2. Lease-Leaseback Allows for Cost Control Through Subcontractor Bidding and Opcn-Book Accounting .......................................................... 5
3. Lease-Leaseback AUmvs for Project Timing That Gels With Complicated School Calendars ........... 6
4. Lease-Leaseback Allows for a Collaborative Project Dynamic, and Creates Productive Relationships ................................................................. 6
C. The Voice oftlle Electorate Which Enacted the Plain Language of Education Code Section 17406 Should Not Be Ignored ......................................................................... 7
III. CONCLUSION ................................................................................... 8
TABLE OF AUTHORITIES
Page(s)
State Cases -
Los Alamitos Unified School District v. Howard Contracting, inc., (2014) 229 CaLApp.4th 1222 (S221894, app. pending) ......................... .3
State Statutes
Ed. Code, § 17406 ........... -............................................... -................... 1,2, 7, 8
Gov. Code, § 1090 et seq .......................................... ~ .................................... 5
Pub. Contract Code, § 20111 ........................................................................ .2
Pub. Contract Code, § 20118.4 .................................................................... ..4
Other Authorities
http://www.cde.ca.gov/ds/sd/cb/ceffingertipfacts.asp ......... , ......................... 2
ii
AMICUS CURIAE BRIEF OF CALIFORNIA'S COALITION FOR ADEQUATE SCHOOL
HOUSING IN SUPPORT OF DEFENDANTIRESPONDENT TORRANCE UNIFIED SCHOOL DISTRICT
I. INTRODUCTION
For decades, Education Code section 17406 has stood as the
unambiguous will of the electorate. Now, dissatisfied patties seek to effect
through judicial means that which they could not effect by popular vote: the
invalidation of the Lease-Leaseback project delivery method.
This Court's decision will have far-reaching consequences. CASH
believes, based upon its knowledge of the school facilities industry, the
Lease-Leaseback method has been used by hundreds of school districts on
thousands of projects. Lease-Leaseback is widely used by California
schools today in the same. manner as it was used by the District in this case.
The legal challenge in this case is similar to numerous challenges to the
Lease-Leaseback project delivery method in various appellate districts
throughout the State, and is part of a broad attack on this widely used
construction method. These chaUenges have largely been filed by, and are
. based upon the incorrect legal analysis of: asingle attorney.
Schools use Lease-Leaseback to control the final price, (as opposed
to the bid price) of their projects. Schools often utilize subcontractor
bidding and overhead and profit cost comparisons to· ensure fair pricing.
The Lease-Leaseback method allows for a collaborative project dynamic
that produces, in some circumstances, better facilities outcomes for schools.
In short, CASH believes that while hard bid projects have a place, the
Lease-Leaseback method is an option that was afforded to schools by the
Legislature and must be upheld.
Finally, if the plain language of Education Code section 17406 is to
be changed, it should be put to a vote of the legislature. 'The legislature is
the appropriate vehicle for effecting statutory change. The legislative
process was used to enact Education Code section 17406, and if
disappointed parties wish to change that law, they should engage that same
legislative process. This attempt to circumvent the legislative process
should be denied.
H. ARGUMENT
A. This Decision Will Have a Widespread Impact, Because
Many Schools Throughout California Use Lease
Leaseback As It Was Used in This Case
According to the California Department of Education, approximately
six million students in California attend over one thousand school districts.
(See http://www.cde.ca.gov/ds/sd/cb/ceffingertipfacts.asp.)
School districts are required to educateaH children who seek to
attend school, and all children aged 5 to 16 are compelled to attend. Such
students are entitled to adequate school facilities. These facilities needs are
amplified by requirements compeUingattendance for students with special
needs from age 3 to 22. The two main project delivery methods used by
schools to meet these facilities needs are Lease-Leaseback and the "hard
bier method authorized by Public Contract Code section 20111.
Many school districts in California -have relied upon the plain
language of the decades-old Lease-Leaseback provision found in Education
Code section 17406 to provide an invaluable alternative to the inflexible
hard bid method. While it is not possible to pinpoint exactly how many
school districts have utilized the Lease-Leaseback delivery method, it must
be noted that it is used by many districts throughout California. CASH
estimates that easily over lOO school districts currently use Lcase
Leaseback to provide school facilities for students. Based upon its
widespread experience in the school facilities industry, CASH estimates
that hundreds of school districts have likely used Lease-Leaseback over the
2
past decade on thousands of projects. In the short time available, CASH
has compiled a non-exhaustive list of districts that have been confirmed to
have used Lease-Leaseback, which is attached hereto as Exhibit A.
The Lease-Leaseback contract used in this case is consistent with the
way many schools usc Lease-Leaseback throughout California. The
concepts of a ground lease and a leaseback ohhe facilities with payments
coinciding with construction progress are standard provisions in Lease
Leaseback agreements. Similarly, the Guaranteed Maximum Price and
contingencies are standard provisions used by schools throughout
California. In short, the Lease-Leaseback used iIi this case is consistent
with the use of Lease-Leaseback throughout California.
As an example of the prevalent use of Lease-Leaseback~ CASH has
con finned that Los Angeles Unified School District has a Lease .. Leaseback
program that has produced more than 70 projects 'exceeding $2.7 billion.
As a result of the widespread use of Lease-Leaseback in California,
the Court's decision in this case is likely to have an extraordinary reach,
touching many school districts and affecting millions of students. A
negative decision for the District affecting how Lease-Leaseback is used
would create confusion amongst school districts, and would also, in Jight of
the Los Alamitos decision, create disparity of options in project delivery
methods for school districts in different judicial districts.
There are other cases pending in the California Courts of AppeaJ
addressing issues similar to this case, for example, Davis v. Fresno Unified
School District (Fifth Appellate District, Court of Appeal Case No.
F068477) involves a similar attack on Lease-Leaseback. On October 16,
2014, a premature petition for review of the Los Alamitos case was filed by
Howard Contracting, Inc. (the Defendant in that case). Thus, the California
Supreme Court will likely be presented with the oppoltunity to rule on the
same issues presented in this case. In short, this case is part of a broad legal
3
challenge winding its way through various courts of appeal, which may find
their way to the California Supreme Court.
B. Why Schools Use the Lease-Leaseback Delivery Method
l. Lease-Leaseback Allows Schools to Control the Final
Price ora Project
In hard bid projects, school districts are iorced to contract with the
lowest responsive, responsible bidder. For a school district to avoid
awarding a contract to a nonresponsible bidder, it must go through a due
process hearing, and is often subjected to costly legal chaIIenge that can
temporally and financially sabotage a project. Thus, in practice, the hard
. bid method prevents a school district from avoiding contractors who may
be undesirable for reasons related to the actual work they will perform.
The hard bid often results in contractors "gaming" the system by
submitting the lowest biqpossible, even when that bid does not represent
the true, final cost to the district. Once a hard bid contract is awarded, a
contractor will submit "change orders" that increase the cost of the project,
thereby increasing the final price to· the district. Such "change orders" can
increase the contract price up to 10 percent before such work needs to be>
bid. (Pub~ Contract Codc, § 20118.4.) As a result ofthese "changc orders,"
the bid priCe is often not the final price, and the hard bfd~s objective of
obtaining the lowest price is lost. Ironically. consideration of a contractor's
work quality (something any private person or entity wouldcollsider) is
often sacrificed in favor of a lowest price objective, which is often not
produced by the hard bid method.
In a Lease-Leaseback project, the District can focus on factors other
than price, such as a contractor's quality. Moreover, the Guaranteed
Maximum Price mechanism allows the school district to know in advance
what the final price will actually be, which is not the case in a hard bid
scenario.
4
2, Lease-Leaseback Allows for Cost Control Through
Subcontractor Bidding and Open-Book Accounting
Ina hard bid or Lease-Leaseback scenario, the District contracts
with a general contractor, who subcontracts significant portions of the work
to other companies. In either scenario, the subcontracts are generally put to
a bid.
In a hard bid project, a school district knows very little about how
the contractor estimated its bid, such as how much the subcontractor bids
were, or perhaps more importantly, how much the general contractor is
charging for overhead and profit. Contractors bidding on projects where
there is little or no competition can (and do) inflate the amounts for
overhead and ptofit without recourse from the school districts. Strong
constmction markets render higher overhead and profits reflected in bid
prices, and the5chool district is left with no ability to negotiate.
In Lease-Leaseback, the school disttict can obtain open access to the
subcontractor bids; and openly negotiate the cOllttactor's overhead and
profit costs. The District can obtain the subcontractor bids and negotiate
every aspect of.the price. As a result of subcontractor bidding. and through
the school district's ability to compare overhead and profit percentages with
other contractors, a school has greater latitude to check and negotiate price
fairness.
School districts have no incentive to pay more for a project than is
necessary. Governing Board members are accountable to the public
through elcctions, and are prohibited from participating in the ratification of
contracts in which they have financial interest. (Gov. Code. § 1090 e1 seq.)
School districts' financing projects through local bonds are accountable to
bond oversight committees. In short, soh901s who use the Lease-Leaseback
method implement cost 'control measures that ensure competitive pricing in
the absence of a blind, hard bid.
5
3. Lease~Leaseback Allows for Project Timing Tnat G~~l~:
With Complicated School Calendars
Hard bid projects create temporal issues that can compromise
school district's facilities objectives. Hard bids require preparation of
plans and specifications to be complete (and usually approved
Division of the State Architect) prior to the publication of the
inviting bids. Additionally, even after thc plans and specifications
complete, a notice inviting bids must be published for at least two
prior to bid opening. After bids are opened, there can be bid protests
. can cause further delays and ultimately derail a school project entirely,
Schoo! calendars can be complicated and are often not amenable
such temporal restrictions. School calendars are legally required
negotiated with employee unions,and must provide a specific number
instructional days while still accounting for' staff development days
holidays. School calendars especially can create conflict on
projects when work is being done on existing school facilities that
students, and which cannot be shut down in the middle of a school
In Lease-Leaseback projects, contractors are often involved
early on. As opposed to hard bid projects where contractors learn
scope of work for the first time when preparing their bids, Lease-Leascbaci.::
contractors are often involved in the development of the plans
specifications. This can reduce the amount of time needed to
contractor to enter into a contract with the District, and allows
collaborative planning to minimize disruption of the school calendar.
4. Lease-Leaseback Allows for a Collaborative Project
Dynamic, and Creates Productive Relationships
In a hard bid project, the project's dynamic is often contractor versus
school district. The contractor is presented with a stack of constructi();1
6
plans and specifications prepared independently by an architect (which
almost inevitably contains errors and omissions) and is forced (often on a
short two-week timeline) to submit a bid to complete the required work.
This disjointed process results in conflict among the contractor, the
architect and the school district
In contrast, the Lease-Leaseback method aJlows schools 10 bring a
contractor in early to work with the architect as the plans are being
developed; While the hard bid process incentivizes the submission of the
lowest bid (not necessarily the lowest final price), the Lease-Leaseback
method incentivizes the preparation of the most accurate price (because it
will be guaranteed). The result is a collaborative dynamic between
contractor and district. Contractors are incelltivized t6 proactively address
omissions in the plans and specifications, and assist with the generation of a
reaJistic and accurate project timeHne.
Additionally, the Lease-Leaseback contractor is only as good as his
last project. Unlike the hard bid process, future work depends upon the
school district's satisfaction. This simple change in the project's dynamic
can mean the difference between a project that is free of defects and under
budget and a project with cost overruns that is donejust weH enough to
avoid a defect claim.
C. The Voice of the Electorate Which Enacted tile Plain
Language of Education Code Section 17406 Should Not
Be Ignored
Schools have relied upon the will of the people as retlected in the
plain language of Education Code section 17406 for decades. Parties
dissatisfied with the state of the law are afforded a legislative mechanism
for effecting change: vote. The voice of the e.lectorate resulted in the
enactment of Education Code section 17406, and should not be ignored.
7
III. CONCLUSION
This Court's decision will have a widespread impact on many school
districts and their ability to provide the best facilities outcomes possible for
their millions of students. School districts have relied upon the plain
language of Education Code section 17406 not as a way to inflate their own
facilities costs, instead, they have used thjs method because it allows them
to control the actual cost of their projects, avoid conflict with school
calendars, and produce better facilities outcomes for their students. The
will of the voters in enacting the Lease-Leaseback method authorized by
the plain language of Education· Code section 17406 should stand.
Respectfully submitted,
Dated: October 24, 20 l4. FAGEN FRIEDMAN & FULFROST LLP
8
CERTIFICATE OF WORD COUNT (Cal. Rules of Court, Rule 8.204(c)(1»
The text of this brief consists of 3,644 words' as counted by the Microsoft Word processing program used to generate the brief
Dated: October 24, 2014. F AGRN FRIEDMAN & FULFROST LLP
9
McGee v. Torrance Unified School District Case No. 8252570
No. Name of District No. Name of District
1 Alvord Unified SD 47 Pacheco Union SD
2 Ackerman USD 48 Patterson USD 3 Biack Oak Mine USD 49 Placer County Office of Ed 4 Briggs Elementary SO 50 Pleasant Ridge USD
Campbell Union SD 51 Plumas Lake Elementary SD
CardiffSD 52 Poway ljSD 7 Carlsbad USD 53 Ramona USD 8 Chula Vista Elementary SO 54 Red Bluff Union SD
9 Colton Joint USD 55 Redlands USD
10 Corona~Norco USD 56 Redondo Beach USD 11 Culver City USD (CCUSD)
~ Del Mar Union SD 13 Elk Grove SD
57 Rialto USD
58 Rocklin SD
59 Rocklin USD 14 Enterprise usn 60 Roseville Joint USD 15 Fairfield-Suisun SO 61 Sacramento City USD
16 Fallbrook Union Elementary SD 62 Sacramento 3D 17 Fallbrook Union High SO 63 Saddleback Valley USD
18 Folsom Cordova USD 64 San Dieguito Union High SD
19 Folsom/Cordova SO San Jacinto USD
20 Fremont USD 66 San Juan VSD
21 Garden Grove USD 67 Santa Ana USD GatewayUSD 68 Santa Rosa City Schools
Glendale USD 69 Santee SD
Grant Joint Union HSD 70 Saugus Union High SD
Hacienda LaPuente USD 7t Shasta Union High SD
Hemet USD 72 Sierra Sands VSD 27 La Mesa/Spring Valley USD 73 Solana Beach SO
28 Leroy Greene Academy 74 Sotith Bay Union SD
29 Live Oak USD 75 Stanislaus Union SD
30 '.
Loomis USD 76 Stockton USD
31 MaderaUSD Stockton USD
32 Manteca USD Sutter Union SO
33 Manteca USD 79 Sweetwater Union HighSD
34 Manzanita Elementary SD 80 Torrance USD
35 Maria Montessori Charter Academy 81 TracyUSD
36 Martinez USD 82 TurlockUSD
37 Mal)'sviHe Joint USD 83 Tustin USD
38 McCabe USD 84 Twin Rivers USD
39 Menifee Union SO 85 University of California, Riverside
40 Mesa Union SD
BE Mill VaHeyUSD Modesto City SD
43 Mt Diablo USD
86 Vacaville USD
87 Valley Center Union SD 88 Washington USD
89 Western Placer USD
44 Natomas USD 90 Wheatland Elementary SD
45 Nevada Joint USD 91 Wiseburn SD
46 Oceanside USD 92 Yuba City SD
EXHIBiT A - School Districts Who Have Used lea5e~lea5eback
PROOF OF SERVICE
STATE OF CALIFORNIA, COUNTY OF SACRAMENTO
. At the time of service, I was over 18 years of age and not a party to this action, I am employed in the County of Sacramento, State of California, My business address is 520 Capitol Mall, Suite 400, Sacramento, CA 95814.
On October 24,2014, I served true copies of the following document(s) described as APPLICATION FOR LEA VB TO FILE AMICUS CURIAE BRIEF OF CALIFORNIA'S COALITION FOR ADEQUATE SCHOOL HOUSING IN SUPPORT OF DEFENDANT! RESPONDENT TORRANCE UNIFIED SCHOOL DISTRICT [SUBMITTED CONCURRENTLY WITH ATTACHED AMICUS CURIAE BIUEF] on the interested parties in. this action as follows:
fCLERK OF-'nIE COURT .-----~.-.-,-.-------.~---~--.~-.--... -... -................. ,. ····· .. 1
[THE HONORABLE STUART RICE ISUPERIOR COURT OF CALIFORNIA [COUNTY OF LOS ANGELES~ SOUTHWEST DISTRICT [TORRANCE COURTHOUSE 1825 MAPLE AVE. lTORRANCE, CA 90503 r··--·----·-·---·-w.,.,,-,y.-"~-~-~N-~'~-~-.~,.-.-.-A~.~'...,.-..... -... ~N .............. -.-.-.-.-.. -.-----.... t ....... _N __ . -"''''~''-'-'''''-''~--'''''~'''~-'~''-''-*''~'-~'--'~>-'''-~''''''<~
!KEVIN ROBERT CARLIN !Attorneysfor James McGee, Plaintiff' i \CARLIN LA W GROU,~' APC land Appellant. '! ;4452 PARK BLVD., SIE. 310 iSAN DIEGO, CA 92116! J jMARTrNANTHONY HOM . 1A;t~;;;;;;f;;-To;;;~~~-"u;;ified S;h~~--l IA TKINSON, ANDELSON, LOY A,!District, Defendant and Respondent· I iRUUD & ROMO! I
\5260 NORTH PALM AVE., S1'E. 300 i " !FRESNO, CA 93701 . !-'-_._-... - .. - .. -.-... -.. -------------------i' ........... " .............. w_... .. ..... --.. -.-....... -.-.. --.-.. " .......... - .. ,,~ ... -.! !MAR TIN ANTHONY HOM Attorneys jor Fresno Unified School I IATKINSON, ANDELSON, LOYA, IDistrict, Defendant and Respondent I !RUUD & ROMO ;,' I j5260 NORTH PALM AVE., STE. 300 . J iFRESNO, CA 93701 ~~ -.. -~~----.. --.--~ .---~ ---_._-----_. ------. (JASON ROBERT THORNTON !Attorneys for Barnhart-Balfour Beatty, I iMARKS, FINCH, THORNTON & lIne., DBABalfour Beatty Construction, jBAIRD, LLP I De/endant cmdRespondent I 14747 EXECUTIVE DR., STE. 700 i !SAN DIEGO, CA 92121 1 I _, ____ ,_ .... __ . ____ '""'""""_ ... ,_ ....... ~___ ........ ~ __ ~ __ ~_~ ___ ~~.J.
!FRANK'JOSEPH LOZOYA, IV TA~~:~;;;fo7-H~;ri~:'C~~;;;~~ti~~ I !LOZOY~&LOZ.OYA ,lcompany, Inc., Defendant and I !15060 VENTURA BLVD., STE.211 Respondent JI
iSHERMAN OAKS, CA 91403 j .... ~H"'Y~ __ '_~_N ___ ... __ " ....... ~_~, ____ ..!...< _____ ~~~~ __ v,~_...-~ __ ~'m._"~'~ .. ".>~k_~ ••. A •••••
BY MAIL: I enclosed the document(s) in a sealed envelope or package addressed to the persons, at th.e addresses listed above and placed the envelope for collection and mailing, following our ordinary business practices. I am readily familiar with Fagen Friedman & Fulfrost, LLP's practice for collecting and processing correspondence for mailing. On the same day that correspondence is placed for collection and mailing, it is deposited in.the ordinary course of business with the United States Postal Service, in a sealed envelope with postage fully prepaid. I am a resident or employed in the county where the mailing occurred. The envelope was placed in the mail at Sacramento, California.
CALIFORNIA SUPREME COURT CIO CALIFORNIA COURTS OF APPEAL SECOND APPELLATE DISTRICT RONALD REAGAN STATE BUILDING 300 S. SPRING STREET 2ND FLOOR, NORTH TOWER LOS ANGELES, CA 90013
BY E-MAILORELECTH.ONIC TRANSMISSION: Pursuant to California Rules of Court, rule 8.212(c)(2), 1 caused the document to he submitted electronically· to the Court of Appeal for the Fifth Appellate District, through the court's website for electronic submissions.
I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. .
Executed on October 24, 2014, at Sacramento, California.
Sherri Lee Caplette, CCLS
Bill Text - AB-1 059 Public officers and employees: financial interests. Page 1 of2
AB-1059 Public officers and employees: financial interests. (2013-2014)
AMENDED IN ASS[MI3LY APRIL 01,2013
CALIFORNIA LEGISLATURE- 2013-2014 REGULAR SESSION
ASSEMBLY BIll No. 1059
Introduced by Assembly Member Wieckowski
February 22, 2013
An act to amend Section 1090 of, and to add Section 1091.8 to, the Government Code, relating to
public officers and employees.
LEGISLATIVE COUNSEL'S DIGEST
AB 1059, as amended, Wieckowski. Public officers and employees: financial interests.
Existing law prohibits Members of the Legislature, and state, county, district, judicial district, and city officers or employees from being financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Existing law further prohibits these public officers and employees
from being purchasers at any sale, or vendors at any purchase, made by them in their official capacity. A violation of these provisions is a crime.
This bill would extend the application of those prohibitions to independent contractors who perform a public function, and specifically provide when an independent contractor, or an owner, officer, employee, or agent of the independent contractor, has a financial interest in a contract. By expanding the scope of a crime, the bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: majority Appropriation: no Fiscal Committee: yes Local Program: yes
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1090 of the Government Code is amended to read:
1090. Members of the Legislature, state, county, district, judicial district, and city officers or employees, and
independent contractors who perform a public function, shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Nor shall state, county,
https:llleginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=20 1320 140AB 1 059 7/2/2015
Bill Text - AB-1 059 Public officers and employees: financial interests. Page 2 of2
district, judicial district, and city officers or employees, and independent contractors who perform a public
function, be purchasers at any sale or vendors at any purchase made by them in their official capacity.
As used in this article, "district" means any agency of the state formed pursuant to general law or special act, for the local performance of governmental or proprietary functions within limited boundaries.
SEC. 2. Section 1091.8 is added to the Government Code, to read:
1091.S. An independent contractor, or an owner, officer, employee, or agent of the independent contractor, who contracts with a government agency, body, or board, to-PfOv+Ele-services, iootts1f1§-i31-e§l-Faffl-fFh31'lagemeffi serv+c-es, staff, administer, or manage the government agency, body, or board has a financial interest in a
subsequent contract of the government agency, body, or board, if the independent contractor, or the owner, officer, employee, or agent of the independent contract, participates in the making of the subsequent contract and the independent contractor's contract to provide services bases the independent contractor's compensation,
directly or indirectly, on whether the subsequent contract is executed.
SEC. 3. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California
Constitution because the only costs that may be incurred by a local agency or school district will be incurred
because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.
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Bill Status Page 1 of 1
~~~f~~IVE INFORMATION
AB-l059 Public officers and employees: financial interests. (2013-2014)
Int 1st Cmt Died
Topic:
31st Day in Print:
Title:
House location:
Last Amended Date:
Committee location:
Type of Measure
Inactive Bill - Died
Majority Vote Required
Non-Appropriation
Fiscal Committee
AB-1059
Wieckowski (A)
Public officers and employees: financial interests.
03/26/13
An act to amend Section 1090 of, and to add Section 1091.8 to, the Government Code, relating to public officers employees.
Assembly
04/01/13
Asm Elections and Redistricting
State-Mandated Local Program
Non-Urgency
Non-Tax levy
Last 5 History Actions
Date
02/03/14
01/31/14
04/23/13
04/02/13
04/01/13
I Action
From committee: Filed with the Chief Clerk pursuant to Joint Rule 56.
Died pursuant to Art. IV, Sec. 10(c) of the Constitution.
In committee: Set, first hearing. Hearing canceled at the request of author.
Re-referred to Com. on E. & R.
From committee chair, with author's amendments: Amend, and re-refer to Com. on E. & R. Read second time and
https:llleginfo.legislature.ca.gov/faceslbillStatusClient.xhtml ?bill_id=20 1320 140AB 1 059 7/2/2015
Bill History
'~(;1~ et"-l', LEGISLATIVE INFORMATION
AB-1059 Public officers and employees: financial interests. (2013·2014)_
Date Action
02/03/14 From committee: Filed with the Chief Clerk pursuant to Joint Rule 56.
01/31/14 Died pursuant to Art. IV, Sec. 10(c) of the Constitution.
04/23/13 In committee: Set, first hearing. Hearing canceled at the request of author.
04/02/13 Re-referred to Com. on E. & R.
04/01/13 From committee chair, with author's amendments: Amend, and re-refer to Com. on E. & R. Read second time and amended.
03/11/13 Referred to Com. on E. & R.
Read first time.
From printer. May be heard in committee March 26.
Introduced. To print.
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Page 1 of 1
7/2/2015
VOLUME 1
CALIFORNIA lEGISLA lURE
AT SACRAMENTO
1989-90 REGULAR SESSION 1989-90 FIRST EXTRAORDINARY SESSION
ASSEMBLY FINAL HISTORY SYNOPSIS OF
ASSEMBLY B1LLS1 CONSTITUTIONAL AMENDMENTS, CONCURRENT,
JOINT, AND HOUSE RESOLUTIONS
Assembly Convened December 51 1988 Recessed December 6, 1988 Reconvened January 3, 1989 Recessed March 16, 1989 Reconvened March 27, 1989 Recessed July 20, 1989 Reconvened Augus1 21, 1989 Reelmed September 15, 1989 Reconvened November 4, 1989 Recessed November 4, 1969 Reconyened January 3, 1990 Recessed April 5, 1990 Rer;onY4lned April 16, 1990
Recessed July 2S, 1990 Reconvened August 6, 1990 Adlourned September 1, 1990
Adjourned Sine Die November 30, 1990
legislative DOY5..... •. .. • ............ _ ..................... , • ........... 264
HON WilLIE L BROWN Speaker
HON MIKE ROOS Spt!!t:1ker pro Tempore
HON THOMAS HANNIGAN Majority Floor Leader
HON. JACK O'CONNELL ASSIStant SpflOKer pro Tempore
HON. ROSS JOHNSON Mim:mfy Floor Leader
Compiled Under the DIrI!,ctton of
R. BRIAN K~DNEY Chief Clerk
GUNVOR LENGLE
HiJlory Clerk
2126 ASSEMBLY FINAL HISTORY
A.B. No. 3285-Clute, Epple, Harvey, and Peace (Senators Kopp and McCorquodale, coauthors).
An act to add Secbon 10365 5 to the Public Contract Code, relatmg to state contracts. 1990
Feb. 26-Read first time. To prmt. Feb. 28-Frorn printer. May be heard m comml~te.e March 30 Mar. 8-Referred to Com. Oil CE. & CON PRO April 4-FTom committee l)opass. (Aye'S 8. Noes 0) (Aprl14), April5-Read second hme. To third .reading. April 19-Bead thlr. d ti.ID.e .. ' pa ... ssed.and to Senate. (Ayes ffI .. N. oe. sO .. p. a. ge. 6820 ) April 19-10 Senate ltead first time. To Com on RLS. forassigumetlt. AprIl 26-Befetred to Com. on G 0 May 22,-In committee: Set, first hearing Hearmg canceled at fhe request of
author. June 12-From commIttee chairman, With author's amendments: Amend, and
re-refer to committee. Read second time, amended, and re-referred to Com on GO.
June 2O-From committee Do pass. To Consent Calendar. June 21-Read second time. To Consent Calendar. June 28-From Consent Calendar. Read third time, amended. To second
readmg. July 2-Read second time. To third reading. July .6-.Read tbird time; PlAssed. and to Assembly (Ayes 38 Noes 0 Page
6918.) July a-rn Assembly .Concurrence m Senate amendments pendmg July 7-Senate3mendmen.ts concurred in To enrollment (Ayes 63 Noes 0
Page 8740.) July ll-Enrolled and to the Governor at 4 p.m. July 18-~pproved by the Co vernor. July lS-Chaptered by Secretary of State - Chapter 344, Statutes of 1990.
A.B. No. 3286-Areias. An act to amend Sections B690 and 8690.4 of the Government Code) relatmg to
disaster asslstance. 1990
Feb Feb. Mar. April
April May
May June June June
June
June
July July
. Aug Aug Aug Nov
26-Read first time. To pnnt. 28--From prmter. May be heard in committee March 30 8-Referred to Com. on EARTHQUAKE P & N.D. 4-From COmmittee Do passt and re-refer to Com on W:& M.
ReAl'eferred (Ayes H. Noes 0.) {April 3) 25-In eomttl1ttee Set. first heanngReferred to W. & M. suspeQ5e file. 22-From c:ommit:teechalrma.n, W. ttnauthor's amendments. AmendJ and
re·refer to Com. on W. & M Read second tIme and amendea 24-Re-referred to Com on W. & M. ll-Joint Rule 61 suspended 13--From committee' Do pass JAyes 22. Noes 0) Unne 13) 14-Read second time. Reaa thir time. passed, and to Senate. (Ayes 69
Noes 0 Page 8270.) 18-In Senate. Read first time. To Com. on RLS for assignment. Referred
to Com on T & P S M 26-From committee Do pass, and re-refer to Com. on APPR
Re-referred (Ayes 7. Noes O.). ll-In committee Hearing postponed by committee. 27-From committee chaitman, WIt}) author's amendments: Amend. and
re·refer to committee. Read second time, amended, and re·referred to Com on APPR
6-1n committee. Hean. ·l'l.,gpostponed by committee 21-Jomt Rule 61 suspended 23-In commlttee: Set, fir$t hearing Held under submission. 30-From Senate committee without further actIOn
JACK I. }-o: "'"'RTON ANN MACKEY
CHIEJI OEPtrl'lE!S
.JAMES L... ASHFO~O
.lEARY L. BASSETT STAN1.£Y M. ~OURIMO~E JOHN T. STUDEBAKER JIMMIE WING
DAVID D. AWES JOHN. A. CoRZINE C. CAVID DICKERSON ROBERT CULLEN DUFFY R08ERT O. G~QNKE SHERWIN C. MACKENZIE. .JR. TRACY O. POWELL II MARGUEAI't2 ROTH
lE:esislniib:e QIlluns:e1
nf QIalifnntitt PRINCIPAL DEPUTIES
3021 STATE CAPlTOL SACRAMENTO, CA 95614 f9H!) 445-3057
B01 t STATE eUILOING 10' SOt.m-f BROADWAY I.os ANGELES. CA BOO 12 1213, 620-2550 TELECOPIEA. 916·3~E!311
Honorable steve Clute 4167 state Capitol
state Contracts:
Dear Mr. Clute:
BION M. GREGORY
Sacramento, California
January 25, 1990
Consulting Services - #26011
GERALD ROSS ADAMS MARnN L... ANDERSON PAUL ANTlL.l.A DANA S. ApPUNG CHA.JitU'S C. AS~IU. JOE J. AYALA RANEC'NE P. SEUSLE OIANE F. BOYER: AMEUA I. BtJoO EIJ..EEN J. BU)C1"ON HENa'f .14 CONTReRAS EMIU~ ClJT"RER . BEN· E..OAUt JEFFRIiY A; DELAND -CUNTON J. DEWITT FRANCES S. CORBIN MAUREEN S. DUNN LAWRENCE J. CUR AN S>WOOIiR. f'ISHtm JOHN FOSSETT!! HARVCY J. FOSTER CLAY FULLER ALVIN D. GRESS BALOEV S. HEIR THOMAS R. HEUER MICHAEL J. KERSTEN L DoUGLAS KINN£Y S. LYNNE KLEIN VICTOR KOZIELSKI Eve S. KROTINGER OIANA G. LIM ROMULO I. LOPEZ KIRK S. LOUIE AN"lHONY P. MARQUEZ .JAMES A. MARSALA FRANCISCO A. MARTIN PETER MEL.NICOE ROBERT G. MILl£R .JOHN A. MOG6R VERNE ~ OLIVER EUGENE L. P."lNr: MICHAEl.. B. SALERNO MARY SHAW WIWAM K. STARK MAliK FRANKLIN 'nlR'" .JEFF·THOM MICHAEL H. U"SON A'CHAftO B. WeiSBERG DANIEL A. WErTZMAN THOMAS O. WHEI.AN JANA T. WHITGAOVE DEBRA J. ZIOICH CHRISTOPHER ZIRKL.E
OEPt.n1SS
Does any provision of state law prohibit a private firm which contracts with a state agency for consulting services in connection with the development of a capital outlay plan for the construction and operation of a veterans' home from thereafter contracting with the agency for the construction and operation of the home?
OPINION
There is no provision of state law which prohibits a private firm which contracts with a state agency for consulting services in connection with the development of a capital outlay plan for the construction and operation of a veterans' home from thereafter contracting with the agency for the construction and operation of the home.
ANALYSIS
You have informed us that a private firm has contracted with a state agency for the provision of consulting services in connection with the development of a capital outlay plan for the construction and operation of a veterans' home. The question under consideration is whether any provision of state law would prohibit that firm from contracting with the agency for the construction and operation of the home.
Honorable steve Clute - p. 2 - #26011
Generally, the awarding of contracts by state agencies for consulting services is governed by Article 5 (commencing with section 10355) of Chapter 2 of Part 2 of Division 2 of the Public Contract Code. 1 with certain exceptions, these contracts are required to be awarded on the basis of competitive bids or proposals (Sec. 10373), and are subject to approval by the Department of General Services (hereafter, the "department") (Sec. 10360) .
The awarding of construction contracts in excess of an amount calculated against a $35,000 base, according to a specified formula, by state agencies is governed by the state Contract Act, found at Chapter 1 (commencing with section 10100) of Part 2 (see Sec. 10105). That act requires the award of contracts to the lowest responsible bidder upon public notice of the project, prequalification of bidders by questionnaire and financial statement, and the rating of bidders by the department on the basis of that information (Secs. 10122, 10140, 10160, and 10163). The Director of General Services may, under certain circumstances, and if he or she deems it in the best interests of the state, award the contract to the second or third lowest responsible bidder, or reject all bids (Secs. 10182 and 10185).
The awarding of contracts by a state agency for the provision of services, including the operation of a veterans' home, is governed by Article 4 (commencing with section 10335) of Chapter 2 of Part 2. Under these provisions, the contracting agency is required to advertise for bids or submit requests for proposals and award the contract to the lowest responsible bidder (Sees. 10340 and 10344). contracts are subject to the approval of the department (Sec. 10335). Furthermore, state agencies are prohibited, with specified exceptions, from drafting or causing to be drafted any invitation to bid or request for proposal in such a manner as to limit the bidding directly or indirectly to anyone bidder (Sees. 10339 and 10348).
As to provisions of law relating to possible conflicts of interest by persons bidding on state contracts, section 10410 prohibits any officer or employee in state civil service from contracting on his or her own behalf with any state agency to provide services or goods. Section 10411 prohibits, with certain exceptions, any retired, dismissed, separated, or formerly employed person of any state agency or department, as specified, from entering into a contract where he or she participated in any process relevant to the contract while employed by the agency or department for a two-year period after leaving state employment.
1 All further references are to the Public Contract Code.
Honorable steve clute - p. 3 - #26011
Further, he or she would be prohibited from contracting with an agency for a 12-month period if he or she was employed by that agency in" a policymaking position in the same general subject area as the proposed contract within the 12-month period prior to leaving employment (Sec. 10411).
In addition, section 5202 of the State Administrative Manual2 provides that no individual or organization that develops a feasibility study for an information technology application proposed by a state agency shall be awarded any state contract for work recommended in the feasibility study, except if certain conditions are met.
Since we are dealing with a consultant under contract, as opposed to an officer or employee, and are not concerned with information technology issues, neither of these provisions apply to the situation under consideration. Moreover, there are no similar provisions which do apply to conSUltants or to contracts generally.
Accordingly, we conclude that there is no provision of state law which prohibits a private firm which contracts with a state agency for consulting services in connection with the development of a capital outlay plan for the construction and operation of a veterans' home from thereafter contracting with the agency for the construction and operation of the home.
EC:dfb
Very truly yours,
Bion M. Gregory Legislative Counsel
By~~~Gt~ Emilia Cutrer Deputy Legislative Counsel
2 Various business l service, and fiscal procedures for the department, as well as those of the Governor's Office, the Department of Finance, and the Department of Personnel Administration are set forth in the state Administrative Manual, or SAM (see Secs. 0001 and 0005, SAM).
,CALIFORNIA LEGISLA TURE--1989-90 REGULAR SESSION
ASSEMBLY BILL "
No. 3285
Introduced by Assembly Member Clute
February 26, 1990
An act to add Section 10170 to the Public Contract Code, relating to state contracts.
LEGISLATIVE COUNSEL'S DIGEST
AB 3285, as introduced, Clute. State contracts: bids. Existing law regulates the bids and bidders for state
construction projects including the erection, construction, alteration, repair, or improvement of any state structure.
This bill would prohibit any person who has contracted for consulting services ~n connection with the development of a capital outlay plan for the construction or operation of a project from submitting a bid for the construction or operation of that project.
Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local· program: no.
The people of the State of California do enact as follows:
1 SECTION 1. Section 10170 is added to the Public 2 Contract Code, to read: 3 10170. Any person who has contracted with a 4 department for consulting services in connection with 5 the development of a capital outlay plan for the 6 construction or operation of a project may not submit a 7 bid for the construction or operation of that project.
o
RlCHARD I<. TURNER
ROBERT J. SULLIVAN
JAMESP.CORN
DAVID L.KELLY
PEGGY A.CHRISTtANSEN
GRANT HERNDON
j.ANNE RAWLINS
LORl ANN JOSEPH
LAW OFFICES OF
Turner & Sullivan A PROFESSIONAL CORPORATION
March 27, 1990
The Honorable steve Clute California state Assembly state Capitol - Room 4167 sacramento, CA 95814
Re: AB 3285
Dear Assemblyman Clute:
I
The California Council of Civil Engineers and Land surveyors has reviewed your Assembly Bill 3285, and is opposed to it for the purpose of securing an amendment.
The bill prohibits any person who has rendered consulting services from rendering consulting services during the construction phase of the same proj ect. Frequently, engineers and land surveyors will provide limited construction phase services for the same project they designed. We would request an amendment therefore to permit the rendering of design phase services by design professionals rather than the complete prohibition contained in the measure as introduced.
I will be happy to meet with you or members of your staff to further discuss our concerns.
Very truly yours,
TURNER & SULLIVAN A Professional Corporation
cLo---JAMES P. CORN
JPC/vp b157-5.abs
cc: Paul J. Meyer Leroy Carlenzoli Tim Psomas
1755 CREEKSIDE OAKS DRIVE, SUITE 290, SACRAMENTO, CALlFORNIA 95633 TELEPHONE 916/927-5057 FACSIM I LE 916/927-5362
May 16, 1990
To: Members of the Legislature
From:
Re:
Assemblyman Steve Clute
Request for Coauthors t AS 328'5
The ethical operation of government heads the list of priorities for many of us this year. While attention has been focused on legislators r I think its important that we also ensure ethical practices in state departments.
As you know, many state departmeht~ contract with private consultants to develop capital outlay plans. While current conflict of interest codes prevent state employees from bidding on contracts they wrote, private consultants are not covered. -
'This "loophole II in the law allo-~s' an environment of unfair competition. Those involved with the development of a capitol outlay plan should not be in a position to receive contracts for that plant whether they work for the state as an, employee or under contract.
I have introduced Assembly Bill 3285 to prevent this type of unfair competition and I invite you to join me as a co-author.
Assemblyman Steve Clute State Capitol, Room 4167 Attn: Janie
Yes, I would like to join you in coauthoring AB 3285.
Signature Print or Type Name
AMENDED IN SENATE JUNE 28,1990
AMENDED IN SENATE JUNE 12, 1990
CAUFORNIA LEGISLATURE-1989-90 REGULAR SESSION
ASSEMBLY BILL No. 3285
Introduced by Assembly Members Clute, Epple, Harvey, and Peace
(Coauthors: Senators Kopp and McCorquodale)
February 26, 1990
An act to add Section 10365.5 to the Public Contract Code, relating to state contracts.
LEGISLATIVE COUNSEL'S DIGEST
AB 3285, as amended, Clute. State contracts: bids. Existing law regulates the bids and bidders for state
construction projects including the erection, construction, alteration, repair, or improvement of any state structure.
This bill, with specified exceptions, would prohibit any person, firm, or subsidiary thereof who has been awarded a consulting services contract from submitting a bid for, or being awarded a contract for, the provision of services, procurement of goods or supplies, or any other related action which is required, suggested, or otherwise deemed appropriate in the end product of the consulting services contract. The bill would exempt subcontractors of the consulting services contractor from its restriction if the subcontractor had no more than 10% of the total monetary value of the consulting services contract.
Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.
f17 40
AB 3285 -2-
The people of the State of California do enact as follows:
1 SECTION 1. Section 10365.5 is added to the Public 2 Contract Code, to read: 3 10365.5. (a) No person, firm, or subsidia:ry thereof 4 who has been awarded a consulting services contraotmay 5 submit a bid for, nor be awarded a contract for, the 6 provision of services, procurement.of goods or supplies, 7 or any other related action which is required~ suggested, 8 or otherWise deemed appropriate in the end product of 9 the consulting services contract.
10 tat SubdVAsion W ~ ~ apply fa &ftY' services 11eeRHaets ~ .. ta:e ftef defined as COflsulting services 12 COfltf'acts ~ Section ~ 13 fe1-Netwithstandiag subEiFAeions ~ fffi:€f: *' ~ 14 (b) Subdivision (a) shBllnotapplyto any person, firm, 15 or subsidiary thereof who is awarded a subcontract of a 16 consulting services contract which amounts to no more 17 than 10 percent of the total monetary value of the 18 consulting services contract is exempt from this section. 19 (c) Subdivisions (a) and (b) shall not a.pply to 20 consulting services contra.ctssubjeat to Chapter 10 21 (commencing with Section 4525) of Division 5 of Title 1 22 of the Government Code.
o
97 60
coMMITTEES: HEALTH TRAN8POI'ITATIOH GOVERNMENTAL ORGANIZATION', WAYS AND MEANS
CHAIRMAN:
, : CALIFORNIA LEGIS LA I '
RE
~Mm:n.O 6fjFtiil: w aTATI!.CAl'fTOL ".O.1Il0X~' aACPlAMENTO. CA NII~ 1'11111 445·1>41'
DISTRICT Ol'FIC£lII: WAYS AND MEANS SUBCOMMITTEE :.) :aeoo LIME 6TR/EET. 5UITIIE 410
ON TRANSPORTATION aUIIICOMMITTEE ON VETERANS AFFAIRS
NVIIE,..,OIE e2f/01 (114) 1a2·3l!22
IIiELEeT COMMITTeES: . YOUTH AND DRua ABUSE
:::, &2-632 HIGHWAY 111 INDIO .2.201
I'I'lIEVENTII)N AVIATION
, ' .
',.
Honorable George·neulo:Ii~lia~ Governor I S,'t.ate of California State Capitol . Sacramento, C~lifornia 95814
Dear Governor Deukmejian:
/6"11 M7.ot1:n
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This letter is tQ.:?respectfully reqUest· your ··'favorable'· , c.onsideration,whenrev1awing.my AssembJ,y,Bil1i 3295, relating to state ciontrac~s.· . . ... '" ' ... ',.,', '" '
Currently, tlt~te law prohibit,s, with ,certain exaeptions, former }ltite,amployees' from, enterlng,..in;\;:9 ,~ont.r!iQ:ts whioh th~y ."Qt'~' , .ionvolved. Yi-~h, ~hil.~ elll1?1CJ.Y~4:;J)~;, :·.,)!t~te ~or at-wo,:yetu' period after leaving ,~~i!t;eemplo~e~'F~:"1" ", '~;tent la1fal~o J?rov.t~$~r. ,', contract prpl1l.bl.;tionswith. r~E!l¥!c,~t~, curl:ent S:tat~Gmployeaa.
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TheDepa~enf; :.qf'lG~n,e;a}. "S~~~~;S;;";" '~~~,~lr, enfQ~(:,~8an internal policy si~U,afto the provisions 'ql::$',bil1. I,,""
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It .is .. fo;r ·thes.e reasoris ·that I respe. tfu11y re.quest your .favo~able consideration of this ,1' lation. ,
'SWeate, C3998
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STEVE CLUTE " ,:.,' <,
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Assembly Bill No. 3285
CHAPTER 344
An act to add Section 10365.5 to the Public Contract Code, relating to state contracts.
[Approved by Governor July 18, 1990. Filed with Secretary of State July 18, 1990.]
LEGISLATIVE COUNSEL'S DIGEST
AB 3285, Clute. State contracts: bids. Existing law regulates the bids and bidders for state construction
projects including the erection, construction, alteration, repair, or improvement of any state structure.
This bill, with specified exceptions, would prohibit any person, firm, or subsidiary thereof who has been awarded a consulting services contract from submitting a bid for, or being awarded a contract for, the provision of services, procurement of goods or supplies, or any other related action which is required, suggested, or otherwise deemed appropriate in the end product of the consulting services contract. The bill would exempt subcontractors of the consulting services· contractor from its restriction if the subcontractor had no more than 10% of the total monetary value of the consulting services contract.
The people of the State of California do enact as follows:
SECTION 1. Section 10365.5 is added to the Public Contract Code, to read:
10365.5. (a) No person, firm, or subsidiary thereof who has been awarded a consulting services contract may submit a bid for, nor be awarded a contract for, the provision of services, procurement of goods or supplies, or any other related action which is required, suggested, or otherwise deemed appropriate in the end product of the consulting services contract.
(b) Subdivision (a) shall not apply to any person, firm, or subsidiary thereof who is awarded a subcontract of a consulting services contract which amounts to no more than 10 percent of the total monetary value of the consulting services contract is exempt from this section.
(c) Subdivisions (a) and (b) shall not apply to consulting services contracts subject to Chapter 10 (commencing with Section 4525) of Division 5 of Title 1 of the Government Code.
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2B insight
OPINION BY DAN WALTERS
School 'building Jawsbeing amended
I The Fresno Bee
"Gut-and-amend" has a harsh 1 The decision (Davis v. Fresno ring, which may be appropriate, ~ Unified School District) involves since it refers to a rather harsh i' a $36.7 million middle school legislative maneuver. ! and, as noted in this space earli-
A moribund bill is "gutted" - i· er, could invalidate dozens of its contents are stripped away, 1 such contracts involving hun~ leaving only a number- and i,dreds of millions of dollars "amended" with entirely new 1 throughout the state - money language. i that might have to be repaid by
It short-circuits the laborious i contractors. legislative process that might' 1 Just a week after the June 1 make passage difficult - at best i decision, a lawyer for affected unseemly, and at worst sneaky. r companies, P. Randolph Finch,
That brings us to Assembly i outlined a plan "to mitigate our Bill 975, a minor change in L losses" by urging Fresno Urn-school construction law, and 1, fled to appeal to the state Su-another bill. ! preme Court and seeking legis-
They are being fully amend- 11ation "overruling the Davis ed, complete with new authors, i case." It would also exempt at the behest of lobbyists for f contractors that do preconstruc-Associated General Contractors l Hon planning and then receive and the Coalition for Adequate ! no-bid leaseback contracts from School Housing to counteract a ! conflict-of-interest laws. state appellate court declaration! "We have clients with well that a "lease-leaseback" con- i over a half-bmion dollars of tract to build a new school vio- 1.current backlog," Finch wrote, lates state competitive bidding i "and another billion in completand conflict-of-interest laws. ! ed projects, at risk on the Davis
case." The industry's strategy is to
assert that the court's decision wrongly interpreted state law and has, in the preamble to one bill, "stopped shovel-ready construction projects that have been properly contracted for ... "
The bins target not only the Davis decision but numerous other lawsuits flied by taxpayer groups and contractors barred from bidding on school construction projects by leaseback deals. In fact, one soon-to-berevised bill asserts that "some local governments have been threatened with predatory lawsuits based on the ruling ... "
Amendments had been prepared to Senate Bill 374 to enact Finch's conflict-of-interest exemption but late Thursday, its author, Sen. Isadore Hall III, said it wouldn't be used, so apparently another vehicle will be sought. AB 975, meanwhile, would compel school districts
j FRIDAY JULY 10 101, FRESNOBEE.COM
t whose "good faith" leaseback 1 contracts are invalidated by 1 lawsuits to pay contractors anyi way. After being amended with j new authors, the bills will face a 1 deadline next week to get initial !, committee approval- not a j certainty. Plaintiffs in the Fres-1 no case and other pending suits, j particularly contractors frozen Lout of the leaseback business, 'f are mounting an opposition [campaign. j One other fillip: A Fresno i school trustee, Brooke Ashjian, i said this week that the FBI had t interviewed him about the con-1 tested leaseback contract. The 1 feds are apparently interested in j the conflict-of-interest aspect. i---i Dan Walters: 916-321-1195, ! [email protected], 1 @WaltersBee
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PROOF OF SERVICE
STATE OF CALIFORNIA ) ) SS
COUNTY OF FRESNO )
I am a citizen of the United States and a resident of the County aforesaid; I am over the age of eightccn (18) ycars and not a party to thc within-entitled action. My business address is 8080 North Palm Avenue, Third Floor, Fresno, CA 93711. On JulYH, 2015, I served the within document( s):
EXHIBITS TO MOTION FOR JUDICIAL NOTICE IN SUPPORT OF PETITION FOR REVIEW; EXHIBITS F - L
VOLUME III of III
C8J BY MAIL: By placing the document(s) listed above in a sealed envelope with postage thereon fully prepaid, in the United States mail at Fresno, California, addressed as set forth below.
Kevin R. Carlin, Esq. SBN 185701 Martin A. Hom Carlin Law Group, APC and Jennifer Cantrell 4452 Park Boulevard, Suite 310
Atkinson, Andelson, Loya, San Diego, CA 92116 Telephone: (619) 615-5325 Ruud&Romo
5260 N Palm Ave # 300 Attorney for Plaintiff/Respondent Fresno, CA 93704 Stephen K. Davis
(559) 225-6700
Attorneys for Defendant and Respondent Fresno Unified School District
Frank Joseph Lozoya, IV Ryan Keats Lozoya & Lozoya Sean M. SeLegue 15060 Ventura Blvd., # 211 Sherman Oaks, CA 91403 Arnold & Porter LLP Tel. (818) 789-7150 Three Embarcadero Center
Tenth Floor Attorneys for San Francisco, CA 94111 DefendantlRespondent Harris Construction Telephone: (415) 471-3370
Attorneys for DefendantlRespondent Harris Construction
Anthony N. Kim James Richard Traber Cory J. Briggs Fagen Friedman & Fulfrost Mekaela M. Gladden 520 Capitol Mall Briggs Law Corporation Suite 400 99 East "C" Street, Ste. 111 Sacramento, CA 95814 Upland, CA 91786 (916) 443-0000 (909) 949-7115
Attorneys for California's Attorneys for Kern County Coalition for Adequate School Taxpayers Association as Amicus Housing: Amicus Curiae for Curiae on behalf of Plaintiff and Respondent Appellant
Hon. Donald S. Black Court of AfJpeal Fresno County Superior Court Fifth Appe late District Department 502 11300 Street (via e-service pursuant to Fresno, CA 93724 California Rules of Court, Rule
8.212, bye-submission to Court of Appeal, Fifth District)
I am readily familiar with the firm's practices of collection and processing of correspondence for mailing. Under that practice, it would be deposited with the United States Postal Service on that same day with postage thereon fully prepaid in the ordinary course of business. I am aware that on motion of the party served, service is presumed invalid if postal cancellation date or postage meter date is more than one day after date of deposit for mailing in affidavit. '.
I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on July g, 2015, at Fresno, California.