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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
Government Code § 53511.
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.
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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
15
16
17
18
9
20
21
22
23
24
25
26
27
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
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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
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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
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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
Government Code § 090.
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.
.
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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;
Trial Transcript, 70:5-75:8.
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
Trial Transcript, 70:5-75:8.
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
Trial Transcript, 174:24-176:21.
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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
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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