phase one tentative decision and proposed statement of decision cgc-13-528312

8/9/2019 Phase One Tentative Decision and Proposed Statement of Decision Cgc-13-528312

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Ill

SUPERIOR COURT OF CALIFORNIA

COUNTY OF SAN FRANCISCO

Document Scanning Lead Sheet

Mar-13-2015 10:19 am

Case Number: CGC-13-528312

Filing Date: Mar-13-2015 10:19

Filed

by:

DANIAL LEMIRE

Juke Box: 1 Image: 04829115

TENTATIVE DECISION

CALIFORNIA-AMERICAN WATER COMPANY A CALIFORNIA CO VS. MARINA

COAST WATER DISTRICT

t al

001C04829115

Instructions

Please place this sheet

on

top of the document to be scanned.


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MAR

3 2 15

SUPERIOR COURT OF CALIFORNIA

B Y ~ L E ~

t D ~ ~ ~ =

COUNTY OF SAN FRANCISCO

CALIFORNIA-AMERICAN WATER CO.,

Plaintiff,

VS.

MARINA COAST WATER DISTRICT, ET

AL.,

Defendants.

AND RELATED CROSS ACTIONS

Case No. CGC- 13-528312

PHASE ONE TENTATIVE DECISION

AND PROPOSED STATEMENT OF

DECISION

I held a bench trial in December 2014. The parties submitted three rounds

of

briefing,

completed February 18, 2015. This is my tentative decision and proposed statement

of

decision

under CRC 3.1590 (c)(l).

1

Parties objecting under CRC 3.1590 (g) must be familiar with the

authorities that describe the limited purposes

of

objections

2

I

The Dispute In rief

A group

of

local entities including some public agencies in the Monterey area signed a

series

of

agreements to build and operate a desalination plant. The project never went forward.

One Stephen Collins allegedly had a conflict

of

interest which, according to some

of

the parties

1

As the result of the voluminous briefing and the multiplicity of issues, I have extended the time (to today) for the

filling of this proposed statement of decision, and hereby do so

in

writing. CRC 3.1590 (m).

2

E.g.

Golden Eagle

Ins. Co. v.

Foremost

Ins.

Co.

20 Cai.App.4th 1372, 1380 ( 1993);

Yield Dynamics.

Inc. v. TEA

Sys. Corp.

154 Cai.App.4th 547 560 (2007);

Heaps

v.

Heaps

124 Cai.App.4th 286 292 (2004) ( The main

purpose of an objection to a proposed statement of decision is not to reargue the merits, but to bring to the court's

attention inconsistencies between the court's ruling and the document that is supposed to embody and explain that

ruling. )

I


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here, had the effect of voiding these agreements. A different party counters that short statutes of

limitation barring suits after 60 days) eviscerate any attempt to void the agreements.

I conclude that four of the five agreements at issue are void.

II

ackground

A

The Parties

The parties are California-American Water Company Cal-Am), Marina Coast Water

District Marina), and Monterey County Water Resources Agency Monterey). Cal-Am is a

water utility that serves customers in California, including parts of Monterey County. Dec. 23,

2014

t i p u l a t i o n ~

6.

Cal-Am s

Monterey District serves

most

of

the Monterey Peninsula.

Jd

7 Marina is a special district formed under the County Water District Law, California Water

Code, Division 12, serving the City

of

Marina and neighboring communit ies within Monterey

County. d. 3. Monterey is a water resources agency created pursuant to Monterey County

Water Resources Agency Act, Chapter 52 of the Appendix to

West s

Annotated California Water

Code Agency Act). d. 4. Marina and Monterey are both public entities in Monterey

County. d. 4

B

Tbe Regional Desalination Project

The parties agreed to pursue a Regional Desalination Project Project). Ex. 42 at 61-6.

The Project was to include wells, a desalination plant, and a means for transporting water. The

Project was a response to ongoing water supply problems in the Monterey Peninsula. See

id

at

61-4-61-8. The Project was not completed.

C Stephen Collins

Stephen Collins served as a member of Monterey s appointed Board of Directors at all

times during the negotiation and approval of all the contracts at issue in this action until his

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resignation on April

I

20 II_ Trial Transcript, 464:2-20. Collins also served as a consultant for

RMC Water and Environment RMC), the project manager for the Project, from January 2010 to

December 20 I 0 Collins was convicted of a felony violation of Govt. Code. § I 090 in connection

with his work on the Project.

3

D

The Contracts

The parties entered into five relevant agreements. These are the I) Water Purchase

Agreement WPA); 2) Settlement Agreement; 3) Reimbursement Agreement; 4) Project

Management Agreement; and 5) Credit-Line Agreement.

L Water Purchase greement

The WP A

is

the principal contract among the parties. Cal-Am and Monterey Joint Pre-

Trial Brief, 4; Marina Pre-Trial Brief, 35. The parties executed the WPA on April6 2010. Ex.

41

at 60-3. The WPA was not to become effective until several conditions precedent were

satisfied.

d.

at 60-11, 60-24, 60-70-60-71.

The WP A provided for the design and construction of various facilities. Monterey was

to

design and construct brackish source water facilities and brackish source water pipelines to

convey brackish source water. d. at 60-25. Marina was to design and construct the desalination

plant, pipelines

to

convey brackish source water to the plant and product water to a delivery

point, and outfall facilities. d. at 60-25-60-26. Cal-Am was to design and construct a water

delivery system from the delivery point. d. at 60-26.

4

The parties agreed to retain a single project manager to coordinate design and

construction of the various portions ofthe Project, and to make an agreement with the project

manager within 60 days of the effective date of the WPA. d. at 60-27.

27

3

I note this by way

of

background. I do not use this to detennine any fact

in

this case.

4

See also

Ex

41 at 60-30-60-31.

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With respect to financing, Marina and Monterey agreed to use reasonable efforts to

obtain financing required for the Project within 120 days of the effective date. d. at 60-40. Cal-

Am agreed to obtain financing for its facilities when needed to timely comply with its

obligations. d. The WPA also provided for the possibility that Cal-Am might issue a loan or

credit to Marina and or Monterey up to a limit. d. at 60-40-60-42. Cal-Am agreed to bear certain

reimbursement responsibilities upon project cessation,

ifthat

came to pass, absent default. d. at

60-44. Cal-Am also agreed to pay a share

of

the debt service costs of the Project facilities and the

O&M costs

of

Project facilities in exchange for Product Water.Jd. at 60-53-60-55, 60-58.

2 Settlement Agreement

On April6, 2010, the parties entered the Settlement Agreement. Ex. 42 at 61-1. There

were three other parties to the Settlement Agreement: Monterey Regional Water Pollution

Control Agency, Public Trust Alliance, and the Surfrider Foundation. I

d

at 61-1, 61-3. All these

parties agreed to ask the Public Utilities Commission for approval

of

the Settlement Agreement

and its implementing agreements, including the

WPA ld

at 61 8_s In the recitals, the settling

parties expressed their bel ief that the Project would serve the public convenience and necessity

and should be approved by the Public Utilities Commission. I

d

at 61-7. The settling parties also

agreed to the manner in which Cal-Am's Project costs would be recoverable from its ratepayers.

Jd at 61-11-61-17.

3.

Reimbursement Agreement

Cal-Am signed the Reimbursement Agreement on February 26,2010. Ex. 35 at 58-5.

Marina and Monterey signed it on March 30, 2010.Jd. Through this Agreement, Cal-Am agreed

27 The

other implementing agreement was an Outfall Agreement between Marina and Monterey Regional Water

Pollution Control Agency. Ex. 42 at 61-10.


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to reimburse funds to Marina and Monterey expended to pay for direct Project-related costs

during the term

of

the agreement, subject to later repayment or forgiveness. I

d

at 58-2.

4 Project Management Agreement

The parties and RMC entered the Project Management Agreement on January II 2011.

Ex. 96 at 71-1. In the recitals, the parties stated that the conditions precedent for the WPA to go

into effect had been satisfied on January II 20 II meaning the parties to this litigation were

required to enter into an agreement with a project manager within 60 days of January II 20 II.

Id In the Project Management Agreement, the parties to this litigation formally appointed RMC

as

the project manager.Jd. at 71-8. Among its duties, RMC agreed

to

help the parties to this

litigation in obtaining financing for the Project at the lowest overall total cost. I

d

at 71-10, 71-

36-71-38. The Project Management Agreement sets RMC s compensation. Id at 71-19- 71-20.

5 Credit Line Agreement

The parties entered the Credit-Line Agreement on January

II

2011. Ex. 93 at 68-1. In

the recitals, the parties stated that the conditions precedent for the WP A to become effective had

been satisfied on January II 2011, meaning that Cal-Am was obligated to provide a single

revolving credit facility pursuant to§§ 7.l(c)(i) and (ii)

of

the WPA.

Jd

at 68-1-68-2. The

Credit-Line Agreement established the line of credit extended by Cal-Am to Marina and

Monterey. ld at 68-2-68-9.

E

Procedural History

Cal-Am initiated this action by filing a declaratory relief complaint in Monterey County

on October

4

2012. In the first of two claims, Cal-Am sought a declaration that the Project

agreements are void under Government Code§ 090. In the second, Cal-Am sought a

declaration that even if the agreements were valid, Monterey engaged in conduct that amounted

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to anticipatory repudiation, relieving Cal-Am of its contractual obligations. On November 19,

2012, Marina filed a cross-complaint with seven causes

of

action for declaratory relief. In the

first three

of

these, Marina alleged that any challenge to the validity

of

the Project agreements

was barred by the validation statutes. In the remaining four causes of action, Marina alleged that

any challenge to the validity of the Project agreements was barred by the Public Utilities Code.

In January 2013 the action was transferred from Monterey County to this court. The

proceedings were phased. This first phase

of

proceedings resolves whether the Project

agreements are void pursuant to Goverrunent Code § I 090.

Marina moved for summary judgment on all seven causes

of

action in its cross-complaint

and summary adjudication

of

the first cause

of

action in

Cal-Am s

complaint. In a February 25,

2014 Order, I granted the motion in part and denied the motion in part. I concluded that Agency

Act§ 52-39 triggers the validation statutes for the benefit of Monterey for all contracts Monterey

enters into. Feb. 25, 2014 Order, 8-9. Accordingly, I found that Cal-Am was barred from

challenging the validity of the Project agreements./d. at 14-15. But, because the validation

trigger was for Monterey s benefit, I held that under C.C.P. § 869 the short statute

of

limitations

to

challenge the validity of the contracts did not apply

to

Monterey as a result of that trigger ./d.

at 14 I also found Marina had not demonstrated that summary adjudication was proper based on

any other triggers for the validation statutes, id. at 9-10, and so denied summary adjudication of

all

of

Marina s cross-claims under the validation. d. at I 0,

15

In reaching this result, I wrote the

WP A and Settlement Agreement did not create financing or financing obligations within the

purview

of

Water Code § 30066 and Goverrunent Code § 53511.

d.

at 9-10. I also denied

summary adjudication

of

Marina s cross-claims under the Public Utilities Code. d. at 19.

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On Apri116, 2014, Monterey filed a cross-complaint asserting a single cause of action for

declaratory relief that the Project agreements are void.

Monterey moved for summary adjudication on the entirety

of

Marina s cross-complaint

based on the February 25, 2014 Order. Nov. 3, 2014 Order, 6 I concluded that the reasoning of

the earlier order was sufficient to dispose of Marina s cross-claims under Agency

Act§

52-39

and the Public Utilities Code, but not Water Code § 30066

or

Government Code § 53511.

d.

at

8-9. At the same time, Monterey moved for summary judgment on its own cross-complaint,

which was denied, because

I)

Monterey failed to show that there was no triable issue

of

material fact as

to

whether Collins participated in making three pertinent contracts in his official

capacity at a time when he had a financial interest in those agreements; and (2) the record was

insufficient to determine that Monterey s cross-complaint was timely even if a four-year statute

oflimitat ions applied.

d. at 14, 16.

F ssues

discuss these issues.

(I)

Whether the five contracts rise or fall together.

(2) Validation Statutes: (a) whether Water Code§ 30066 or Government Code§ 53511

applies; (b) if a validation statute is triggered, whether it bars Monterey s cross-complaint.

(3) Four-Year Statute

of

Limitations: (a) whether the filing

of

Monterey s cross

complaint relates back to the filing

of either Cal-Am s complaint

or

Marina s cross-complaint;

(b) if there is no relation back, whether Monterey s cross-complaint was nevertheless timely

filed.

(4) Conflict

oflnterest:

(a) whether Collins violated Government

Code§

1090, and if so,

(b) whether the contracts are void.

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III Discussion

A

Contracts Are Treated Separately

Several contracts relating to the same matters, between the same parties, and made as

parts of substantially one transaction, are

to

be taken together. C C

§

1642.

t

is not necessary

for contracts to be executed contemporaneously to bring them within the purview ofC C § 1642.

BMP Properly Development v Melvin

198 Cal.App.3d 526,

531

(1988). Whether multiple

contracts are intended to be elements of a single transaction

is

a question of fact. Jd

Marina contends that the five contracts at issue here should be treated separately. Marina

Pre-Trial Brief, 34-36; Marina Post-Trial Brief, 37-40. Cal-Am and Monterey have not taken a

position on the issue.

Marina notes the contracts were made over a span

of

nearly a year, not all

of

the

agreements are between the same parties, one or more of the agreements are peripheral to the

main transaction, and the WP A has an integration clause that militates against treating the

contracts as one. Marina Pre-Trial Brief, 35-36; Marina Post-Trial Brief, 38-40.

t is relatively clear that the earliest agreement, the Reimbursement Agreement, stands

alone. Months went by before the rest were entered into, and in its focus on preliminary costs

stands in contrast to the focus of the rest of the agreements which set the rules for the

development of the Project. There may be reasonable arguments in favor of treating the balance

of

the four agreements as a single transaction but no party has made them, nor argued that

if

one

is void they should all be void or conversely

if

one is valid they should all be valid. Accordingly

I will treat each separately.

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B Validation Statutes

I have determined thai the validation statutes were triggered by Agency Act § 52-39 but,

because Monterey is the public agency protected by Agency Act § 52-39, the 60-day statute of

limitations in the validation statutes does not apply to Monterey.

I

have not previously resolved

whether the validation statutes are also triggered by other statutes that benefit Marina. Nor have I

resolved the applicability

of

the 60-day statute

of

limitations

if

the validation statutes apply as a

result

of

separate triggers protecting both public agencies.

The validation statutes are at C.C.P.

§§

860-870. These al low a public agency to bring a

validation proceeding in superior court within 60 days

of

the existence

of

any matter which

under any other law is authorized to be determined pursuant to [the validation statutes.] Kaatz v

City

o

Seaside,

143 Cal.App.4th 13, 29 (2006) (quoting C.C.P.

§

860).

lfthe

agency does not

initiate a validation proceeding,

any

interested person may bring an action within the time and

in the court specified by Section 860 to determine the validity

of

such matter. d. at 30 (quoting

C.C.P. § 863). The interested person must bring a validating proceeding within 60 days: No

contest except by the public agency

or

its officer or agent

of

any thing

or

matter under this

chapter shall be made other than within the time and the manner herein specified. d. (quoting

C.C.P. § 869).

Thus if the validation statutes apply a public agency may either (I) initiate a validation

proceeding,

or

(2) do

nothing-

in which case the act will become immune from attack

if

no

interested person brings a proceeding to establish the acts validity

or

invalidity within 60 days.

6

Because I ultimately determine these statutes of limitation do not supersede the four year period under Govt.

C

§

I 092 (b) this sect ion is not necessary to my decision, but I include it to complete the record and facilitate appellate

review

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d., citing Friedland

v

City

o

Long Beach, 62 Cal.App.4th 835, 850-51 (1998). See also City

o

Ontario

v

Superior Court, 2 Ca1.3d 335,

341

(1997)

7

1. Government Code

§

53511

Government Code § 53511 reads:

(a) A local

agencl

may bring an action to determine the validity o its

bonds warrants contracts obligations or evidences o indebtedness

pursuant to Chapter 9 (commencing with Section 860) of Title

I

0 of Part 2

of

the Code

of

Civil Procedure.

(b) A local agency that issues bonds, notes, or other obligations the

proceeds

of

which are to be used

to

purchase, or to make loans evidenced

or secured by, the bonds, warrants, contracts, obligations, or evidences of

indebtedness

of

other local agencies, may bring a single action

in

the

superior court

of

the county

in

which the local agency

is

located to

determine the validity of the bonds, warrants, contracts, obligations, or

evidences

of

indebtedness

of

the other local agencies, pursuant to Chapter

9 (commencing with Section 860) of Title

I

0

of

Part 2

of

the Code

of

Civil Procedure.

Gov. Code § 53511 (footnote added; emphasis added).

Not all public agency contracts fall within the purview

of


Kaatz,

143

Cal.App.4th at 32. The issue generally devolves to the extent to which the contract at

issue involves bonds, warrants, contracts, obligations or evidences of indebtedness and so

implicates the marketability of those financing devices. The point

is

to have a very short statute

of limitation to allay concerns of those considering financing.

A contract to pay a public defender does not create the sort

of

financial obligations

envisioned by§ 53511. Phillips

v

Seely, 43 Cal.App.3d 104, 112 (1974). That court

distinguished such a contract from bonds and assessments, whose marketability might depend on

7

A validation judgment is conclusive.

Friedland,

62 Cai.App.4th at 844. If a judgment

in

a validation

is

affirmed on

appeal, or if no appeal is taken, the judgment shall, notwithstanding any other provision of law ... thereupon

become and thereafter be forever binding and conclusive as to all matters therein adjudicated or which at that time

could have been adjudicated. /d. at 846, quoting C.C.P. 870(a) (emphasis in original).

8

As used

in

this anicle, 'local agency' means county, city, city and county, public district or any public or

municipal corporation, public agency or public authority. Gov. Code 53510.

. 10


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prompt and automatic validation. Nor does a contract for the purchase of a computer create the

sort

of

financial obligation that would trigger the validation statutes

un er§

53511.

Smith v Mt

Diablo Unified School Dist., 56 Cal.App.3d 412,414-15,420-21 (1976).

By contrast financial obligations in joint financing agreements between local agencies

do render a contract subject to validation. Meaney

v

Sacramento Housing Redevelopment

Agency, 13

Cal.App.4th 556, 577 (1993). See also

Friedland,

62 Cal.App.4th at 845 (pledges

of

funds

to

ensure repayment

of

bonds subject to validation).

Friedland

noted that a key objective

of

validation

is

to limit the extent to which delay due to litigation can impair a public agency's

ability

to

operate financially.

d.

Walters v County

o

Plumas, 61 Cal.App.3d 460 (1976) treated two types

of

agreements.

The first were franchise contracts with waste disposal companies. Like the computer deal

in

Smith, those were not subject to validation. But guaranty agreements (to assure payment for

some equipment) were:

We perceive the essential difference between those actions which ought and those which

ought not

to

come under [the validation statutes]

to

be the extent to which the lack

of

a

prompt validating procedure will impair the public agency's ability to operate. The fact

that litigation may be pending or forthcoming drastically affects the marketability

of

public bonds; it has little effect upon such matters as a contract with a public defender or

the purchase

of

a computer. We feel that the possibility

of

future litigation

is

very likely

to

have a chilling effect upon potential third party lenders, thus resulting in higher interest

rates or even the total denial of credit, either or which might well impair the county's

ability to maintain an adequate waste disposal program.

61

Cal.App.3d at 468.

Graydon v Pasadena Redevelopment Agency, 104 Cal.App.3d

631

(1980) also invoked

an 'impairment' analysis. A contract to build a garage was integral to the financing

of

a

development because the repayment

of

bonds issued by the public agency depended on the

completion of the entire construction, and the timely completion of construction in tum depended


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on entering a contract without competitive bidding. A delay would impair the ability

of

the

agency

to

pay its bonds and to operate and carry out the redevelopment plans. So the garage

contract was found to be inextricably bound to the Agency 's financial obligations and so

subject to the validation statutes. I 04 Cal.App.3d at 645.

But about 25 years later,

Kaatz

explicitly rejected the impairment test.

It

found that

Graydon, Walters,

and

Friedland

were all consistent with its holding because

I) Graydon

involved a public financing agreement

in

which bonds were inextricably bound up with the

award of the garage contract; (2) Walters concerned a direct commitment of public funds for a

project; and (3)

Friedland

involved bonds and a substantial commitment

of

public funds relating

to

their issuance.

d.

at 45-46. See also

California Commerce Casino, Inc v Schwarzenegger,

146

Cal.App.4th 1406, 1429-30 (2007) (validating statutes apply income stream generated by the

compacts at issue inextricably intertwined with bonds to be issued at a later date)

9

Even so,

Kaatz

noted that the state's purpose would be substantially impaired in the absence of a prompt

validating procedure,

id.,

and other roughly contemporaneous decisions also expressly rely on

the impairment analysis. Fontana Redevelopment Agency v Torres, 153 Cal.App.4th 902, 910

(2007); McLeod

v

Vista Unified School Dist., 158 Cal.App.4th 1156, 1169-70 (2008).

In short, there are two aspects to the test. First, under a narrower reading of

Kaatz,

courts

look

to

whether the contracts at issue are or directly relate to a public agency's bonds, warrants,

or other evidences

of

indebtedness.

1

Second, the validation statutes may apply

if

substantial

impairment is shown, that is, a public agency can't operate (or

can t

keep up with its financial

obligations) without validation.

9

California Commerce

interpreted Government Code§ 17700.lt is persuasive here because the

Coun s

interpretation of that provision was guided wholly by authority interpreting Government

Code§

53511.

1

The matter does not depend on whether bonds are ultimately issued at the end of the process.

California

Commerce,

146 Cal.App.4th at 1431.

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It is essential to recall the rationale for these statutes as

we

seek to determine whether

they apply to a given contract:

A key objective

of

a validation action is to limit the extent to which delay due to

litigation may impair a public agency's ability to operate financially. [Citation.)

Friedland, supra,

62 Cal.App.4th at pp.

842-843,

73

Cal.Rptr.2d 427.) A validation

action also serves to fulfill the important objective of facilitat[ing] a public agency's

financial transactions with third parties by quickly affirming their legality. ( d. at

p

843,

73

Cal.Rptr.2d 427.) In

particular,

'[t]he fact that litigation may be pending

or

forthcoming drastically affects the marketability

of

public bonds [.)'

"( d.

at

p

843,

73

Cal.Rptr.2d 427.)

California Commerce Casino, Inc. v Schwarzenegger,

146 Cal.App.4th 1406,

1421

(2007).

11

In brief, the core justification and criterion for applying the validation statutes is this:

12 whether the possibility

of

future litigation would have a chilling effect

on

the agency 's ability

13

to (i) operate,

or

(ii) finance the project created by the contract at issue.

14

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2 Water Code § 3 66

Water Code§ 30066 is part

ofMarina's

enabling act.

t

reads:

An action to determine the validity of an assessment,

or of

warrants,

contracts, obligations,

or

evidences

of

indebtedness pursuant to this

division may be brought pursuant to Chapter

9

(commencing with Section

860) of Title 10 of Part 2 of the Code of Civil Procedure.

Wat. Code § 30066. Apparently, no cases have interpreted this. Notably the phrase to determine

the validity

of

an assessment, or of warrants, contracts, obligations, or evidences

of

indebtedness mirrors Government Code § 53511 (a) except that an assessment replaces

bonds. Kaatz cited Water Code § 30066 in passing as an example of a statute concerning

validation of assessments.

Kaatz,

143 Cal.App.4th at 38 n.32. Accordingly, the Water Code§

30066 analysis should track the § 53511 analysis.

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C Agreements Subject to Validation Statutes

1

Reimbursement Agreement

Under this agreement, Cal-Am is to reimburse Marina and Monterey for funds expended

to pay for direct Project-related costs. Ex. 35 at 58-2.

If

the Public Utilities Commission does not

approve the Project, Cal-Am will not attempt to seek reimbursement from Marina or Monterey.

d. at 58-4.

If

the Public Utilities Commission and Marina and Monterey approve the Project,

Marina and Monterey is to repay funds reimbursed by Cal-Am upon receipt

of

the proceeds

of

bonding or other financing of the agreement.

d.

But Marina and Monterey did not commit to

obtain financing, stating in the recitals only that they would use their best efforts

to

do so.

d.

at

58-1.

Marina does not explain in its briefing why it believes the terms of the Reimbursement

Agreement satisfy the triggers of Government

Code§

5351l a) and Water Code§ 30066.

Marina does note that the Reimbursement Agreement provided the means for Marina and

Monterey to borrow millions

of

dollars from Cal-Am for project related costs. Marina Post-Trial

Brief, 11-12. Cal-Am and Monterey contend that the Reimbursement Agreement contemplates

financing, but does not create

it

Cal-Am Post-Trial Brief, 12; Monterey Post-Trial Brief,

19

They also argue that a legal challenge to the Reimbursement Agreement would not impair

Marina's ability to service bonds or other indebtedness. Cal-Am and Monterey Joint Pre-Trial

Brief, 20.

Even under the narrow Kaatz decision, contracts under Government Code § 53511 (a)

include contracts in the nature of, or that directly relate to, bonds, warrants, or other evidences

of

indebtedness. A similarly narrow reading

of

Water Code § 30066 includes contracts of, or that

directly relate to, assessments, warrants, or evidences

of

indebtedness. The Reimbursement

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Agreement documented a mechanism under which Marina and Monterey could borrow funds for

a specific purpose and memorialized the conditions in which Marina and Monterey would repay

those funds. Compare Kaatz, 143 Cal.App.4th at 42-43 (transaction was not evidence of public

agency indebtedness because it was not a transaction in which the City borrowed funds for a

specific purpose and did not memorialize or otherwise describe an indebtedness incurred by the

City). Although Marina and Monterey did not agree to borrow funds from Cal-Am in the

Reimbursement Agreement itself, the Reimbursement Agreement set forth a framework for

borrowing that was directly related to, envisioned, and made possible borrowing. Indeed, there

does not appear

to

be any further agreement required for the public agencies to incur debt

to

Cal-

Am. This agreement i tself contains the terms pursuant to which the public agencies would incur

that debt.

If

its validity were questioned

in

litigation,

it

would chill the ability of the parties to

create the indebtedness.

2 Water Purchase greement

Marina contends that the WP A is within the scope of the two validation statutes, and Cal-

Am and Monterey argue otherwise on the merits.

Marina points me to§ II of the WPA. There, Cal-Am agreed to pay some of the debt

service and other costs of the Project facilities in exchange for Product Water. Ex. 41, 60-53-60-

55, 60-58 (§§ 11.1-11.2, 11.9-11.10). Section 7.l(c) of the WPA has Cal-Am agreeing to loan

Marina and/or Monterey money

if

the parties are unable to find less costly alternative financing

to

cover certain costs and/or reduce the indebtedness. Ex. 41 at 60-40. Cal-Am also agreed

to

make a line of credit available to Marina and Monterey.

d.

at 60-41. The WPA contained several

terms governing the loans and credit line.

d.

at 60-41-60-42.

In§

7.4 Cal-Am agreed to

11

In denying Marina s motion for summary adjudication, I had held that Government Code § 53511 and Water

Code§ 30066 did not apply to the WPA because the agreement contemplates financing, but does not create

it

Feb.

25 2014 Order,

10

Cal-Am and Monterey contend that this resolves the issue.

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reimburse Marina and Monterey

if

the Project does not reach substantial completion, absent

default. Ex. 41 at 60-44.

The obligations in §

II

are reminiscent of those at issue in Graydon and California

Commerce.

As in those cases, the parties agreed through the WPA to a means of paying debt

obligations using the fruits of the contract, sale of Product Water. See Graydon, 104 Cal.App.3d

at 645-56; California Commerce, 146 Cal.App.4th at 1430-31.

As Monterey suggests, Graydon is distinguishable; there, the bonds had already issued

such that the prompt completion ofthe project was essential to the agency's ability to meet its

financial obligations.

Graydon,

I 04 Cal.App.3d at 645-46. Here, in contrast, the financing was

contemplated to take place only after various contingencies were satisfied. Ex. 41

at

60-40

§

7.l(a)). Delay before the contemplated financing was obtained would not similarly threaten the

public agencies' ability to meet their financial obligations.

But in California Commerce the bonds had not been issued. California Commerce, 146

Cal.App.4th at 1430. There, California planned to issue bonds securitized

by

the revenue stream

generated by tribal-state gaming compacts to fund essential transportation programs.

d.

at 1413.

t was critical therefore that the revenues under the compacts be secured expeditiously. d. at

1430-31. The Court concluded both that the amended compacts were inextricably intertwined

with the bonds to be issued based on the state's intended use of the revenue stream and that the

purpose of the relevant statute would be substantially impaired absent a prompt validating

procedure given need for the funds to be made available expeditiously. d. Similarly, the public

agencies here planned to obtain financing 120 days after the effective date of the WPA. Ex. 41 at

60-40. The absence of a prompt validating procedure undermines attempts to sell bonds. Ex. 00

at MCWD 12479 (noting the commitment to purchase water included in the WPA as a positive

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factor

in

obtaining financing). The WP A was inextricably bound up in the financing process and

for that reason it

is

subject to Government Code § 53511 and Water Code § 30066. California

Commerce, 146 Cal.App.4th at 1430-31. Here, once the parties incurred debt, the revenue stream

secured by the completion of the Project became critical: the ability

of

the parties

to

ensure

payment

of

obligations would be chilled

if

the executed WP A were then threatened by litigation

of indeterminate length. Section 7.l c) is a contingent agreement for Cal-Am to loan money or

extend credit to Marina and Monterey at a later date. Section 7.4 secures repayment from Cal

Am

if

the Project fails. Ex.

41

at 60-44. This

is

important because

it

addresses risks that may

have dissuaded investors from providing financing. Ex. at MCWD 124

79

(explaining that

potential lenders or bond investors would likely be concerned that the lengthy multi-contract

project would pose a risk with respect to timely, on-budget, completion). Thus, as with the

provisions of§

II

discussed above, § 7.4 was bound up in the financing process- whether

it

involved subsequent bonds or other evidence

of

indebtedness-

and is therefore subject

to

the

validation statutes.

3

Settlement greement

In

denying Marina s motion for summary adjudication, I held that the Settlement

Agreement did not involve the creation of financing or financing obligations. Feb. 25, 2014

Order, I0 In the Settlement Agreement, to which the WP A was attached as an implementing

agreement, the settling parties agreed to seek approval for the Settlement Agreement, including

the implementing agreements, from the Public Utilities Commission. Ex. 42 at 61-8-61-l 0 The

Settlement Agreement also reflected the settling parties agreement with respect to the manner in

which Cal-Am s Project costs would be recoverable from its ratepayers.

d.

at 61-11-61-17.

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Cal-Am and Monterey contend that the Court s analysis on summary adjudication was

correct. Cal-Am further contends that the Settlement Agreement reflected an agreement in

principle to work together on the Project, having nothing to do with subsequent financing.

Marina does not directly explain why it believes the Settlement Agreement is subject to

validation.

The Settlement Agreement does not, in itself, involve financing

or

financial obligations

of the public agencies. t is significant to the Project as a whole because the agreement to secure

Public Utilities Commission approval was necessary for the WP A to go into effect. But, unlike

the situations in cases such as

Graydon

and

California Commerce

a delay in the

Project s

approval or a delay of the effective date of the

WPA

would not substantially impair the public

agencies ability to meet financial obligations, to operate,

or

to fulfill their purposes.

12

The

Settlement Agreement was an agreement to move forward on the Project, but not tied to any of

the financing obligations under the Project. t is not subject to the validation statutes.

4 Project Management greement

The point of the Project Management Agreement is to have the parties appoint RMC as

project manager. Ex. 96 at 71-8. Cal-Am and Monterey contend that this is no different from a

vendor contract for the purchase of a computer or for a public defender, and Marina does not

explain why the Project

Management

Agreement, in particular, is subject to any of the validation

statutes.

The

Project

Management

Agreement resembles the contracts at issue in Phillips and

Smith.

By itself, the Project Management Agreement is nothing more than an agreement to pay a

fee for services to be rendered. Such a contract is beyond the scope of Government Code §

12

In the WPA, the public agencies agreed obtain financing only after the WPA went into effect. See Ex. 41 at 60-40

The WPA could not go into effect until after the Settlement Agreement was approved by the Public Utilities

Commission.

See id.

at 60-11, 60-70-60-71.

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53511. But

in

context

Graydon

provides a closer parallel.

In Graydon

an unbid construction

contract was within the scope § 53511 because the contract was part of a larger project for which

bonds had been issued and its prompt performance was necessary for the public agency

to

secure

a revenue stream

it

would need to repay its bonds.

Graydon

I 04 Cal.App.3d at 645-46.

In the WPA the public entities agreed to certain forms of financing, to be repaid, if the

Project went forward, through sales of Product Water. As in

Graydon

a delay in validating the

Project Management Agreement would delay the project.

f

the WPA

is

subject to the validation

statutes, so

is

the Project management Agreement,

13

as

inextricably bound up in the financing

scheme mapped out in the WP A.

5

Credit Line Agreement

Cal-Am and Monterey do not mention the Credit-Line Agreement in their briefing.

Marina references the terms

of

the Credit-Line Agreement

in

passing, but does not explain why

it

believes the Credit-Line Agreement

is

subject to validation. Marina does note that the Credit-

Line Agreement provided the means for Marina and Monterey to borrow millions of dollars from

Cal-Am for Project-related costs. Marina Post-Trial Brief, 11-12.

Like the Reimbursement Agreement, the Credit-Line Agreement contains financial

obligations sufficient to trigger the validation statutes under both Government Code § 53511 (a)

and Water Code § 30066. The Credit-Line Agreement represented a transaction in which Marina

and Cal-Am agreed to a framework pursuant to which Marina could borrow funds for a specific

purpose and set the terms of repayment. Compare Kaatz 143 Cal.App.4th at 42-43. Although

Marina and Monterey did not borrow funds in the Credit-Line Agreement itself, the Credit-Line

Agreement set forth a framework for future borrowing and was directly related to, and

13

In Graydon the concern was more serious because the bonds had already been issued, and so the agency s ability

to pay its outstanding financial obligations was at stake. But

California Commerce

did not treat this distinction as

material

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envisioned, future borrowing. No further agreement was necessary for the public agencies to

borrow funds.

D mpact o Multiple Triggers

A public agency protected by validation statutes generally may validate its contracts by

doing nothing.

City o Ontario

2 Cal.3d at 341-42. While I have found that a public agency

protected validation statutes may itself avoid the short statute of limitations and so later

challenge the validity of the contracts pursuant to C.C.P. § 869, Feb. 25 2015 Order, 14

14

I did

not address the more perplexing situation where two contracting public entities rely on the same

trigger for the validation statutes (Government Code § 53511) or where two public entities each

enjoys the benefits

of

validation statutes pursuant to separate triggers, i.e., Water Code§ 30066

and Agency Act § 52-39.

Cal-Am and Monterey contend that whether or not Government Code§ 53511 and Water

Code § 30066 apply in Marina s favor, Monterey

is

permitted to bring its cross-claim by virtue

of

C.C.P. § 869.

15

Marina contends that if the validation statutes are activated by triggers

favoring two public entities, both public entities are bound because a public agency can only

escape the limit imposed by C.C.P. § 869 when the statutes are implicated by a trigger in its

favor.

16

No party has identified a case where both parties are protected by validation statutes, yet

one seeks to evade the short statute

of

limitations.

Two outcomes are conceivable now: neither agency can challenge the validity of the

contract after 60 days or both may. (In either case, the validation statutes still have some effect,

for

no

other interested person could challenge the contract after 60 days.)

14

See e.g., Kaatz,

143

Cai.App.4th at 30

n. 17

quoting

City

o

Ontario v Superior Court

2 Cal.3d 335,

341

( 1970).

1

Cal-Am and Monterey Joint Pretrial Brief, 16-17; Monterey Post-Trial Brief, 16-18; Cal-Am Post-Trial Brief, 3-6.

16

Marina Post-Trial Reply Brief, 2-3.

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A public agency that is not itselfprotected by a validation statute must comply with the

60 day statute of limitations,

if

extant by virtue of another public agency's entitlement to the

protection.

Millbrae School Dist. v Superior Court

209 Cal.App.3d 1494, 1498-99 (1989). A

public agency which is not protected by validation statutes is not the public agency described

by C.C.P. § 869's provision that [n]o contest except by the public agency or its officer or agent

of any thing or matter under this chapter shall be made other than within the time and manner

h

. fi d

··17

erem spect

te

. ·

Under Millbrae

if

only Water Code § 30066 applies, then Marina, not Monterey, enjoys

the benefits

of

the validation statutes and the contracts are validated by the passage

of

time

against a later challenge by Monterey--but not against a later challenge by Marina. And

if

only

Agency Act§ 52-39 applies, then Monterey, not Marina, is protected by the validation statutes

and the contracts are validated by the passage of time against a later challenge by Marina--but

not against a later challenge by Monterey.

Where both triggers apply, the contracts are validated against all challenges by the

passage of time. This result is consistent with C.C.P. § 869,

18

Millbrae and the central purpose

of the validation statutes promptly to settle certain questions of validity. That central purpose

applies whether the party contracting with the agency is private entity or person the usual

situation, one supposes or another public agency, as here. In both situations, the validation

17

The next sentence ofC.C.P . § 869 reads: The availability to any public agency, including any local agency, or to

its

officers or agents,

of

the remedy provided by this chapter, shall not be construed to preclude the use by such

public agency or its officers or agents,

of

mandamus or any other remedy to determine the validity of any thing or

matter. This sentence does not help resolve a conflict where two public agencies both enjoy the protection

of

the

validation statutes. Rather, the sentence plainly says that any public agency that

is

entitled to rely

on

the validation

statutes is not precluded,for

that reason

from using other means to obtain a determination as to validity. The

question here is whether a public agency that

is

entitled to rely on the validation statutes

is

precluded from using

another means

of

obtaining a validity determination because a different public entity is also enti tled to protection

under the validation statutes

8

As explained above, C.C.P. 869 provides that a public agency that enjoys the benefit of the validation statutes is

not precluded, for that reason, from seeking a validity determination through other means.

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statutes serve exactly the same legislative interest in having validation issues rapidly settled so

that prospective investors and debt holders may be confident that their investment will bear fruit,

and the debt will be serviced, which in tum allows the investments and credit on which these

projects so heavily depend.

California Commerce Casino Inc

v

Schwarzenegger

146

Cai.App.4th 1406, 1421 (2007) (purpose

of

validation statutes).

I have considered the alternative conceivable result, which is that

no

agency may invoke

a validation statute when it contracts with another agency protected by such a statute. That result

probably conflicts with

Millbrae;

and it is perverse: it wields the protection of the statutes to

destroy that very protection; and every inter-agency agreement would lose the protection the

Legislature sought to provide generally to them all.

E

Conflict between Validation Statutes and Government

ode§

1092 b)

The validation statutes apply a 60-day limitations period. Government Code §

I

092(b)

provides a longer period. I have previously discussed the general principles for resolving a

statutory conflict concerning statutes

of

limitation in the February 25, 2014 Order at 12-14.

9

Cal-Am and Monterey argue that even if the validation statutes provide a shorter limitations

period than §

I

092(b ), the longer limitations period must control; otherwise conflicts of interest

would be forever insulated from review if not discovered within 60 days

20

Cal-Am raises two other arguments against the application of a 60 day limitations period:

I) the validation statutes should not apply where a project has been abandoned; (2) challenges

9

Cal-Am notes that by granting Marina s summary adjudication of Cal-Am s first cause of action, I implicitly held

that the validation statutes trumped the § I 092 statute of limitations, but without conducting the relevant conflict

analysis. Cal-Am Post-Trial Brief, 21. This is correct. My February 25, 2014 Order should have expressly

considered and resolved the conflict issue in deciding whether Cal-Am s claim was viable. My conclusion here is

inconsistent with that earlier (implicit) ruling. Accordingly I have by separate order indicated my intent to reconsider

that ruling.

2

°Cal-Am Post-Trial Brief, 20; Monterey Post-Trial Brief, 20-21.

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II

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based on conduct extrinsic to the terms

of

the agreement need not comply with the validation

procedure.

First, the applicability

of

the validation statutes

is

determined at the time of contract

approval -the subsequent failure

of

the Project is irrelevant. See California Commerce, 146

Cal.App.4th at 1431. Second, Cal-Am's extrinsic conduct argument is not persuasive

21

Monterey's cross-complaint seeks to invalidate the agreements. Where the validation statutes

apply, all such claims must be brought pursuant to the procedures set forth in the validation

statutes. See, e.g., Friedland, 62 Cal.App.4th at 844 (critical question is whether the plaintiff in

the subsequent proceeding is attempting to litigate matters that were, or could have been,

previously adjudicated in the validation action);

Community Youth Athletic Center

v

City o Nat

City, 170 Cal.App.4th 416 427-28 (2009).

tum to the contradiction between the two statute

of

limitations regimes.

The validation statutes set a very short limitations period to satisfy an agency's need to

promptly settle all questions about the validity of its action. Friedland, 62 Cal.App.4th at 842.

have discussed these important policies above, § III

B) l

.

Government Code § I 092(b) (enacted in 2007) allows a plaintiff to bring suit four years

after the plaintiff has discovered, or should have discovered, a violation. February 25 2014

Order,

8

The legislative history indicates that Government Code§ 1092(b) was intended

to

give

a public entity sufficient time to gather information and develop its cases for voiding contracts

because

of

the violation

of

the public trust.

d.

21

City a/Ontario, on which Cal-Am relies, did not decide whether the validation statutes applied on the facts

presented, holding only that their applicability presented a complex and debatable issue.

City o Ontario,

2 Cal.3d

at 345. Another

of

Cal-Am's cases, Starr v City and Countyo San Francisco,

72

Cai.App.3d 164, 178-79 ( 1977),

held that provisions added in 1975 could not have been validated in a 1974 action wherein the agreements contained

no hint

of

the terms added in 1975.

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The statutes here are in direct

conflict

Marina seeks to enforce its contract after the

expiration

of

more than 60 days whereas Monterey seeks to void a contract grounded in violation

of

the public trust. Faced with this sort

of

conflict, courts look to which statute is more specific

and which

is

later enacted. E.g.,

May

v

City

o

Milpitas

217 Cal.App.4th 1307, 1337 (2013).

See generally, William F Rylaarsdam eta .,

CALIFORNIA

PRACTICE

GUIDE: CiVIL PROCEDURE

BEFORE TRIAL 2:62 (Rutter: updated as of 20 15).

Government Code § I 092(b)

is

later enacted.

One court has ruled, in an alternate holding, that C.C.P. § 860 contains general

provisions, trumped by a more specific statute oflimitations. Walters

61

Cal.App.3d at 469. But

both

the validation statutes, activated by the triggers at issue in this case, and Government Code

§ 092(b) are arguably "specific"

in

this sense. The validation statutes, including Agency Act §

52-39, apply solely to specific types of contracts entered into by specific types of entities.

Government Code § 092(b) too

is

"specific": it applies only to public contracts tainted by a

conflict of interest.

Walters

does alert us that there may be exceptions to short statutes of limitations, and that

is the situation here. The competing statutory purposes are best balanced by treating the longer

period in Government Code § 092(b) as a narrow exception to the validation statutes. This

balance also respects the fact that § l 092(b) is later enacted.

If

the validation statutes prevailed to preserve finality interests, all but the most

immediately obvious conflicts

of

interest would infect government contracts and § 090 would

be ineffective. To the extent those guilty

of

such a

conflict and

it

is

a

crime have

any interest

in covering their tracks, none of the tainted contracts could ever be set aside, generally

eviscerating the statute. But if§ 092(b) prevails, finality interests would still be served in most

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situations and undermined in a limited way: just when there

is

a conflict of interest and an

agency seeks to void the deal.

F Four-Year Statute o Limitations

Actions under Government Code § I 090 must commence within four years after the

plaintiff has discovered, or in the exercise of reasonable care should have discovered, a violation.

Gov.

Code§

1092(b). Marina contends this bars Monterey's cross-complaint. Thus must

consider whether Monterey's cross-complaint relates back to Cal-Am's complaint or to Marina's

cross-complaint; and whether, even without relation back, Monterey's cross-complaint was

timely filed.

conclude Monterey's cross-complaint relates back to Marina's cross-complaint and is

therefore timely. also conclude that whether there is relation-back or not, Monterey's cross

complaint was timely.

1.

Relation Back

a.

Cal-Am s Complaint

It has consistently been held that the commencement of an action tolls the statute of

limitations as to a defendant's then unbarred cause

of

action against the plaintiff, 'relating

to

or

depending upon the contract, transaction, matter, happening, or accident upon which the action

is

brought[.] Trindade

v

Superior Court 29 Cal.App.3d 857, 860 (1973). A cross-complaint need

only be related to the subject-matter of plaintiffs complaint i.e. arise out of the same

occurrence

to relate back to the date

of

the filing

of

the complaint for statute

of

limitations

purposes.

Luna Records Corp. Inc v Alvarado

232 Cal.App.3d I 023, I 028 (1991

.

But

as

to

cross-actions against codefendants or new parties, the statute

of limitations is not usually tolled

0

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by the commencement

of

the

plaintiffs

action. Trindade, 29 Cal.App.3d at 859; see also Luna

Records, 232 Cal.App.3d at 1027.

Monterey and Cal-Am contend that Monterey's cross-complaint relates back to Cal-Am's

complaint because its cross-complaint arises out

ofthe

same operative facts. The argument

ignores the rationale for the relation-back doctrine: that the plaintiff waived the statute of

limitations defense by making the claim. See Trindade, 29 Cal.App.3d at 859-60; Luna Records,

232 Cal.App.3d at 1027; Boyer v Jensen, 129 Cal.App.4th 62, 69-70 (2005); Western Pipe

Steel

Co

o California v Toulumne Gold Dredging Corp., 63 Cal.App.2d 21, 31 (1944); Sidney

v

Superior Court, 198

Cal.App.3d 710,714-15 (1988).

22

Marina did not waive its right

to

raise

the statute oflimitations as a defense against a claim by Monterey by virtue

of

Cal-Am's filing.

Monterey's cross-complaint does not relate back to Cal-Am's complaint for the purposes of

Marina's statute oflimitations defense.

b

Marina s Cross-Complaint

Marina filed its own declaratory relief cross-complaint, alleging that the agreements had

been validated and naming Monterey as a cross-defendant. The question then is whether Marina,

by

filing its cross-complaint, is

in

effect a plaintiff that has waived the statute of limitations

defense as

to

all cross-defendants. See Western Pipe,

63

Cal.App.2d at 31 ( where the

controversy

is

limited to cross-defendants, none

o

whom has done any act

in

the nature

o

a

22

Monterey cites a treatise for the proposition that the theory is that the plaintiff has waived the defense of the

statute

o

limitations

as

to any

cause

o

action arising

out

o

the

same

transaction

as

the

complaint

but

ignores

ts

own quotation. Monterey Post-Trial Reply Br ief at 2, citing 3

B

Witkin, CALIFORNIA PROCEDURE Cal. Proc. § 453

(5th ed. 2008). The same treatise

in

a different section explains: The following distinct ion must be made: (a) where

the cross-complaint is against codefendants or new parties, the statute is not tolled by the commencement of the

plaintiffs

action; bul (b) where

it

is against the plaintiff,

it

is tolled, and the cross-complaint

is

timely despite the

fact that

it

is filed after the period would have run on an independent action. 3 B Witkin,

CALIFORNIA PROCEDURE

§ 448 (5th ed. 2008). Monterey also cites irrelevant authority. Luther v Foster, 50 Cai.App.2d 725,727-29 (1957)

(overruled on other grounds, Palmer v Gregg,

65 Cal.2d 657, 661-62 (1967) (cross-complaint filed against the

plaintiff); Amaral

v

Cintas Corp. No 2,

163

Cai.App.4th 1157, 1199-1200 (2008) (discussing relation back of

plaintiffs' amended complaint).

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waiver

the reason for the rule does not exist ) (emphasis added).

23

While not controlling, it is

instructive that in Western Pipe that the defendant and cross-defendant "had filed no complaint

or cross-complaint against the [cross-claimant) Tuolumne Company which might bring into

operation the rule ... holding that

if

a right

of

action pleaded in a cross-complaint existed at the

time the original complaint was filed the running

of

the statute

of

imitations is suspended by the

filing of the original complaint. This rule applies to those cases where the cross-complainant is

seeking either affirmative relief or a set off against the party plaintiff. d. (emphasis added).

Unlike in Western Pipe and its progeny, Marina did waive the statute of limitations

defense-

it filed a cross-compla int naming Monterey as a cross-defendant and alleging that

declaratory relief was appropriate because the contracts were validated.

Marina's

cross-

complaint explicitly requested a ruling that the agreements in this case were not susceptible to an

attack under Government Code § I 090 based on Collins' conflict of interest. Marina Cross-

o m p l a i n t ~ ~

24, 28, 32. This is the converse of the relief requested by Monterey, an order

voiding the agreements based on

Collins'

conflict

of

interest. Both cross-complaints arise out

of

the same transactions- the execution of the agreements and the events underpinning the conflict

of interest charge. See Trindade, 29 Cal.App.3d at 860. Accordingly, although Marina is a cross-

complainant rather than a plaintiff, the relation back doctrine applies

and

Monterey's cross-

complaint is timely.

23

There

is

no dispute that if the filing of Monterey's cross-complaint relates back to the filing of Marina's cross

complaint and a four-year statute of limitations applies, then Monterey's cross-complaint

is

timely. Marina's cross

complaint was filed

in

January 2013. The earliest any contract at issue here was entered into was

in

2010. Collins'

relationship with RMC began in 20 I0

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Monterey s Cross-Complaint was Timely Filed Even i

Monterey s Cross-Complaint Does Not Relate Back to n Earlier

Filing

Even

if

relation back does not apply, Cal-Am and Monterey contend that Monterey s

cross-complaint was properly filed within four years of the date Monterey discovered, or in the

exercise

of

reasonable care should have discovered, the § I 090 violation.

Monterey s cross-complaint was filed on Aprill6, 2014. Thus the critical date is April

16,2010. The Reimbursement Agreement was signed by all parties on March 30, 2010. The

Settlement Agreement and the WPA were entered on April6, 2010. The other .contracts were

entered after April16, 2010. The parties dispute whether, prior to

April16,

2010, Monterey

knew, or through the exercise

of

reasonable care should have known, that Collins had a financial

interest in the contracts.

Collins was hired as a paid consultant by RMC and thereby indirectly provided services

to Marina in January 2010. Both Jim Heitzman

24

and Curtis Weeks

25

were contemporaneously

aware that Collins was providing services to Marina in connection with the Project in or around

January 2010 and before

April2010

26

But, critically, Heitzman and Weeks both believed that

Collins was hired only to assist Marina in the Ag Land Trust Litigation and the so-called lettuce

curtain.

27

The question thus is whether knowledge that Collins was hired to work on the Ag Land

Trust Litigation and the lettuce curtain put Monterey on notice that Collins had a financial

24

Marina s General Manager. Trial Transcript, 336:14-20.

Monterey's

General Manager. Deposition

of

Curtis Weeks, 13:1-15.

26

Weeks Deposition, 52:6-23, 53:2-54: I ; Trial Transcript, 226:11-232:9 (Weeks testimony), 363:7-19 (Heitzman

testimony); Deposition

of

Stephen Collins, 420:12-422:24.

27

Trial Transcript, 226:11-232:9 (Weeks testimony), 362:19-363:6, 396: I 0-406:15 (Heitzman testimony). Collins

stated,

in

somewhat general and hyperbolic terms, that two Monterey County officials were aware

of

all

of

Collins

activity for RMC. Collins Deposition, 433:8-12;

see lso

Deposition

of

Louis Calcagno, 66:13-21; Deposition

of

Dave Potter, 19-17-18. Marina does not contend that the knowledge

of

county officials should be imputed to the

parties to this suit, or that the county officials informed any agent

of

the parties to this suit

of

any pertinent

information

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interest in the contracts entered into before April 16, 20 I0 It did not put Monterey on that notice.

Collins' involvement in the Ag Land Trust Litigation was to help resolve a threatened suit that

could hold up the Project.

28

Weeks testified that he was aware that Collins was working as a paid

consultant with the agricultural community in the northern end of the Salinas Valley.

29

But the

fact that Collins was paid to work on 'clearing the underbrush' in anticipation of the Project does

not demonstrate or suggest he had a financial interest in the execution

of

any agreements related

to the Project. For example, Monterey would have no reason to believe that Collins could

anticipate additional remuneration if

the Project went forward

or

any of the agreements were in

fact entered into. Indeed, Collins' deeper involvement in the Project and the related agreements

did not come to light until after April 16, 2014

3

Government Code § 092(b) does not bar this action.

14 G

Conflict o Interest

15

16

17

18

19

20

21

22

23

24

25

26

27

1 Background Law

Government Code § 090 prohibits public officials or employees from having a financial

interest in any contract made by them in their official capacity

or

by any body

or

board of which

they are members. Section 092(a) invalidates contracts which violate § 090: the contract is

void from its inception. Lexin v Superior Court, 47 Cal.4th 1050, 1073 (2010).

To determine whether section 1090 has been violated, a court must identify

I)

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)

if

raised as an affirmative defense) whether the cognizable

interest falls within any one of section 1091's

or

section 1091.5's exceptions for remote

or minimal interests.

d. at 074.

28

Trial Transcript, 407:11-416:8.

29

Weeks Deposition, 52:6-23, 53:7-15; Trial Transcript, 226:11-232:3, 275:19-276: I 0.

30

See

Exs. Q, BB, CC.

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2

Collins Was a Government Official or Employee

Collins served as a member

of

Monterey's appointed Board of Directors at all times

during the negotiation and approval

of

the contracts at issue in this action until his resignation on

April I, 20

II.

Trial Transcript, 464:2-20. This element

is

satisfied.

3.

Collins Participated in Making the Contracts in his Official

Capacity

Although section 090 refers to a contract made by the officer or employee, the word

'made'

is

not used in the statute in its narrower and technical sense but

is

used in the broad sense

to encompass such embodiments in the making

of

a contract as preliminary discussions,

negotiations, compromises, reasoning, planning, drawing

of

plans and specifications and

solicitation

of

bids.

People v Vallerga

67 Cal.App.3d 847, 868 (1977), quoting

Millbrae Ass n

for Residential Survival

v.

City

o

Millbrae

262 Cal.App.2d 222,

23

7 (1968). Just membership

on the board or council establishes the presumption that the officer participated in the forbidden

transaction or influenced other members on the council.

Thomson v. Call

38 Cal.3d 633, 649

(1985). As have noted, the making

of

a contract is not confined to its execution date. Nov. 3

2014 Order, 12.

Cal-Am and Monterey do not point to any evidence that Collins participated in the

making

of

the Credit-Line Agreement

3

Thus that agreement is not void. But Collins did 'make'

the other contracts for the purposes

of


a Settlement greement and WP

Collins made the Settlement Agreement and WPA

in

his official capacity

32

Collins,

while representing Monterey, was helpful in negotiating the terms

of

the Settlement Agreement

Monterey noted the Credit-Line Agreement, but later refers to only four Project agreements and does not discuss

the Credit-Line Agreement in its analysis. Monterey Post-Trial Brief, 3, 9.

32

Private efforts by Collins

in

support

of

the agreements are irrelevant to this element.

.

30.


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and WP A and read and commented

on

drafts

of

those agreements

33

Intense negotiations were

ongoing in January 20 I

0

34

On April 5, 20 I 0, Collins voted, as a Monterey Director, to

recommend execution

of

the Settlement Agreement and the WP A to the Monterey County Board

of

Supervisors

35

The next day, Collins spoke to the Board

of

Supervisors in closed session and

recommended approval of the Set tlement Agreement, WP A, and the Project as a whole

6

Collins

made these agreements in his official capacity.

b

Reimbursement greement

Collins denied any involvement in the making

of

the Reimbursement Agreement except

that he

saw

it.

37

I do

not

credit that testimony. Dan Carroll, counsel for Monterey who drafted it,

testified that Collins was one of his client contacts at Monterey to whom he would customarily

send drafts of his agreements and from whom he would receive commentary

38

Collins' own

invoices reflect that in February 2010 Collins communicated with Carroll regarding revisions to

the Reimbursement Agreement

9

In addition, Potter, a Monterey County Supervisor, testified

that Collins was Monterey's contact to the Board

of

Supervisors relating to the Project, that

Collins attended Board of Supervisors meetings, that Collins stated that it was important for the

Project that the Reimbursement Agreement be signed, and that Collins recommended the Board

of Supervisors approve the Reimbursement Agreement

°Collins made the Reimbursement

Agreement in his official capacity.

Collins Deposition, 64:8-15, 64:23-65:

13;


34

Collins Deposition, 174:2-22.

Trial

Transcript at 176 et seq.; Ex. 39.

36

Collins Deposition, I 08:4-22.

37

Collins deposition, 64:8-15.

38


39

Ex

25

at PTE027-002. The same time entry reflects work attending a BOS meeting to obtain County approval

of all agreements for the PUC.

40


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c

Project Management greement

Collins recused

himself

from the Monterey Board of Directors' February 28,2011 vote to

approve the Project Management Agreement.

4

Cal-Am and Monterey argue that Collins

nevertheless made the Project Management Agreement because (I) Collins was a member of

the Monterey Board

of

Directors throughout a time period that included RMC s selection as the

project manager

in

October 20 I 0 and the vote to approve the contract, and was an RMC

contractor at the time RMC was selected, and therefore presumptively impacted the contract; (2)

the Project Management Agreement was required by the WPA, so Coll ins effectively made the

Project Management Agreement when he made the WPA; and (3) Collins was heavily involved

in

the Project as a whole.

42

Cal-Am and Monterey are correct that the WP A required a project manager, and that the

Project Management Agreement would not have existed but for the approval

of

the Project. But

they do not provide authority for the inference that this is enough to conclude that Collins made

the Project Management Agreement.

Neither abstention nor disclosure

of

an interest is sufficient to evade liability under §

I 090. Thomson, 38 Cal.3d at 649-50. Thomson, and the presumption it notes, arose from a sale of

land to the city by a city officer.

d.

at 645-46. Disclosure of the city

officer s

interest and the

city officer's abstention from voting and negotiations were insufficient to shield the city officer

from liability. d.

at 649-50.

The

operation of this presumption depends on the interest of the

public official and is discussed in the next section.

27

41

Ex. 107 at 134-11.

42

Cal-Am and Monterey Joint Pre-Trial Brief, 10-12; Cal-Am Post-Trial Brief, 27-28; Monterey Post-Trial Brief, 7

0

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4

ollins Had a Financial Interest

in

the ontracts

In January 20 0, Collins entered a contract with RMC by which Collins would receive

$220/hour, up to a maximum

of

$25,000, to provide as needed consulting services for the

MCWD

Regional Desalination Facility . Ex. 13. Collins invoiced work to RMC beginning on

January 9, 2010. Ex. 17. Coll ins continued to work for RMC from January to December 2010.

Ex. 17, 21, 27, 36, 47, 53, 66, 71, 73, 81, 83, 86 (invoices).

During

that

same

period, Collins'

contract with RMC was amended three times. On April 7, 2010, Collins' authorized budget was

increased to a maximum

of$75,000.

Ex. 44. The maximum was increased to $125,000 on July

19,2010.

Ex. 69.

On December

2, 2010, the maximum was increased to $160,000 and the

contract was terminated. Ex. 87.

With respect to the Reimbursement Agreement, Settlement Agreement, and

WP A, Cal

Am and Monterey argue that Collins was financially interested in each because, by virtue of his

contract with RMC, he stood to financially benefit so long as the Project continued moving

forward.

Marina cites

Eden Township Hea/thcare Dist.

v

Sutter Health

202 Cal.App.4th 208

(20 I I for the proposition that a contract must offer a benefit to a public official for the official

to have a financial interest in the

contract-

being compensated by a party contracting with the

public agency is insufficient where that compensation is not tied to the contract. This is true, but

financially interested broadly encompasses anything that would tie a public official's fortunes

to the existence

of

a public contract. Eden Twp. 202 Cal.App.4th at 225. That Collins was

performing consulting services for RMC pertaining to the Project, as shown in the invoices, and

that Collins' contract could be (and was) increased as the Project moved forward, as shown by

the contract amendments, demonstrates that Collins [stood

phase one tentative decision and proposed statement of decision cgc-13-528312

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