National Asian American Coalition v. Newsom ( 2019 )

Filed 4/2/19; On transfer
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)
----
NATIONAL ASIAN AMERICAN
COALITION et al.,
C079835
Plaintiffs and Appellants,
(Super. Ct. No.
v. 34201480001784CUWMGDS)
GAVIN C. NEWSOM, as Governor, OPINION ON TRANSFER
etc., et al.,
Defendants and Appellants.
APPEAL from a judgment of the Superior Court of Sacramento County,
Timothy M. Frawley, Judge. Reversed in part and remanded with directions.
REMCHO, JOHANSEN & PERCEL, Robin B. Johansen and Margaret R.
Prinzing for Gavin C. Newsom, as Governor, and Keely Bosler, Director of Finance;
Office of the State Controller, Richard J. Chivaro, Ronald V. Placet and
David I. Brownfield for Betty T. Yee, Controller, Defendants and Appellants.
JENNER & BLOCK, Rick Richmond, L. David Russell, Jeffrey A. Atteberry,
Alexander M. Smith, Neil M. Barofsky (admitted pro hac vice), Jessica Ring Amunson
(admitted pro hac vice), Ava U. McAlpin (to apply pro hac vice) and Robert L. Gnaizda
for Plaintiffs and Appellants.
1
This appeal arises out of the subprime mortgage crisis, a nationwide banking
emergency that began in 2007 with the collapse of a housing financing bubble created in
large part by an increase in housing speculation and subprime lending practices. This
crisis led to a deep recession in the United States and around the globe. California was
hit particularly hard. While the recession ended in mid-2009, at least as a definitional
matter, persistent high unemployment continued throughout 2012, along with the
continuing decline in home values, increase in foreclosures and personal bankruptcies,
and the concomitant decrease in state revenue.
In March 2012, the federal government and the attorneys general of 49 states and
the District of Columbia (every state except Oklahoma) brought suit in federal court
against the nation’s five largest mortgage servicers, i.e., Ally (formerly GMAC), Bank of
America, Citigroup, J.P. Morgan Chase, and Wells Fargo (collectively, Bank defendants),
alleging a number of violations of federal law. The case was resolved by settlement
agreement (the National Mortgage Settlement or NMS), the terms of which the federal
court formally entered as consent judgments in April 2012. In addition to setting
comprehensive new mortgage servicing standards and providing more than $20 billion in
financial relief for homeowners damaged by the mortgage crisis, the NMS also provided
for about $2.5 billion to be paid to the states directly, “which sum shall be distributed in
the manner and for the purposes specified in Exhibit B” to the agreement. Exhibit B
states that “[e]ach State Attorney General shall designate the uses of the funds” and
requires, “[t]o the extent practicable, such funds shall be used for purposes intended to
avoid preventable foreclosures, to ameliorate the effects of the foreclosure crisis, to
enhance law enforcement efforts to prevent and prosecute financial fraud, or unfair or
deceptive acts or practices and to compensate the States for costs resulting from the
alleged unlawful conduct of [the Bank defendants].”
2
California’s share of this $2.5 billion direct payment was about $410 million. In
Exhibit B-2 to the NMS, former Attorney General Kamala Harris provided fairly detailed
instructions as to how these funds should be used. We describe these instructions later in
the opinion.
After the consent judgments were entered, the Legislature enacted Government
Code1 section 12531, creating a special deposit fund in the treasury (the National
Mortgage Special Deposit Fund) where 90 percent of the $410 million amount would be
deposited.2 (§ 12531, subds. (b), (d).) The Legislature provided, “all moneys in the
[National Mortgage Special Deposit Fund] are hereby continuously appropriated, and
shall be allocated by the Department of Finance” (id., subd. (b)), and further provided:
“Notwithstanding any other law, the Director of Finance may allocate or otherwise use
the funds in the National Mortgage Special Deposit Fund to offset General Fund
expenditures in the 2011-12, 2012-13, and 2013-14 fiscal years.” (Id., subd. (e).) While
the Legislature did not specify which General Fund expenditures may be offset using the
National Mortgage Special Deposit Fund, subdivision (f) required the Department of
Finance to “submit an expenditure plan to the Joint Legislative Budget Committee
detailing the proposed use of the moneys in the National Mortgage Special Deposit
Fund” at least “30 days prior to allocating moneys pursuant to subdivision (e).” (Id.,
subd. (f).)
1 Undesignated statutory references are to the Government Code.
2 As we explain in greater detail later, in accordance with former Attorney General
Harris’s instructions, 10 percent of the direct payment amount would be “paid as a civil
penalty and deposited in the Unfair Competition Law Fund.” (See § 12531, subd. (c)
[“payments made to the State of California as civil penalties pursuant to the National
Mortgage Settlement shall be deposited in the Unfair Competition Law Fund as required
by the settlement”].)
3
Pursuant to this procedure, the director of finance received approval for various
expenditures from the National Mortgage Special Deposit Fund “to offset General Fund
costs of programs that support public protection, consumer fraud enforcement and
litigation, and housing related programs” during the specified fiscal years. We set forth
the details of these expenditures later in the opinion. For present purposes, we note they
nearly exhausted the National Mortgage Special Deposit Fund.
In March 2014, the National Asian American Coalition, COR Community
Development Corporation, and the National Hispanic Christian Leadership Conference
filed a petition for writ of mandate and complaint for declaratory and injunctive relief
against the Governor, the director of finance, and the controller, seeking the immediate
return of approximately $350 million they alleged was unlawfully diverted from the
National Mortgage Special Deposit Fund to the General Fund in contravention of both
section 12531 and the federal consent judgments.3
The trial court concluded section 12531 was intended to effectuate the terms of the
federal consent judgments, which required compliance with the instructions provided by
former Attorney General Harris in Exhibit B-2 to the National Mortgage Settlement
designating the permissible uses of the $410 million direct payment. Rejecting
defendants’ contention subdivision (e) of that section permitted the director of finance to
use the National Mortgage Special Deposit Fund to offset General Fund expenditures
3 Organizational plaintiffs are California-based charitable organizations that either
provide counseling to homeowners seeking to avoid foreclosure or stand ready to do so
should funding become available through replenishment of the National Mortgage
Special Deposit Fund.
Since both parties appealed from the trial court’s judgment, we refer to National
Asian American Coalition et al. as plaintiffs and Gavin C. Newsom (successor to
Edmund G. Brown, Jr., as Governor) et al. as defendants.
4
regardless of whether such offsets were consistent with these instructions, the trial court
reasoned such a reading of the statute would “raise serious doubts about the legality of
the statute, not only as to whether the Legislature may override a federal judgment, but
also whether the Legislature constitutionally may delegate to an agency the authority to
decide how millions of dollars of state funds shall be spent with virtually no guidance or
direction from the Legislature.” Turning to the question of whether the particular offsets
were consistent with the former Attorney General’s instructions, the trial court concluded
$331,044,084 was unlawfully appropriated from the National Mortgage Special Deposit
Fund for purposes inconsistent with these instructions. Nevertheless, pointing out that it
lacked the constitutional authority to order the Legislature to appropriate funds, the trial
court declared an obligation to restore the unlawfully diverted funds and ordered such
restoration “as soon as there is a sufficient appropriation ‘reasonably’ and ‘generally’
available for such purpose.”
These appeals followed. Defendants contend: (1) plaintiffs lack standing to seek a
writ of mandate directing the National Mortgage Special Deposit Fund to be reimbursed
for the challenged expenditures; (2) section 12531 does not restrict the director of
finance’s ability to use the National Mortgage Special Deposit Fund to offset General
Fund expenditures, aside from requiring Legislative approval of such offsets; (3) the
Legislature possessed absolute authority to approve the challenged expenditures
regardless of whether they were consistent with the federal consent judgments; and (4)
even if section 12531 required consistency with the federal consent judgments, the
challenged expenditures were consistent with both the purposes of the direct payment set
forth in Exhibit B to the National Mortgage Settlement and the former Attorney
General’s instructions set forth in Exhibit B-2. Plaintiffs dispute each of these
contentions and, in their appeal, contend: (1) the amount unlawfully diverted from the
National Mortgage Special Deposit Fund was actually $350 million; and (2) the trial
5
court erred in concluding separation of powers principles prevented it from ordering the
immediate restoration of the unlawfully diverted funds.
On July 10, 2018, we issued an opinion concluding plaintiffs have public interest
standing to seek the requested writ of mandate. We also concluded, as did the trial court,
section 12531 was intended by our Legislature to effectuate the terms of the National
Mortgage Settlement, including the former Attorney General’s instructions regarding the
proper uses of the money, and over $331 million was unlawfully appropriated from the
National Mortgage Special Deposit Fund for purposes inconsistent with the NMS. We
parted ways with the trial court, however, on the issue of remedy. As we explained,
because the unlawfully diverted funds are “in law still in the [National Mortgage Special
Deposit Fund]” (Daugherty v. Riley (1934) 1 Cal.2d 298, 312 (Daugherty), separation of
powers principles do not preclude this court from ordering the immediate return of these
funds. We accordingly reversed the judgment in part and remanded the matter to the trial
court with directions to issue a writ of mandate directing the immediate retransfer from
the General Fund to the National Mortgage Special Deposit Fund the sum of
$331,044,084.
After we issued our original opinion in this case, defendants petitioned our
Supreme Court for review. While that petition was pending, the Legislature passed and
the Governor signed into law Senate Bill No. 861 (2017 – 2018 Reg. Sess.) (Stats. 2018,
ch. 331 (SB 861)), amending section 12531 to add subdivision (h), the text of which we
provide in its entirety later in this opinion. For present purposes, we note SB 861 states
in uncodified section 2: “It is the intent of the Legislature in [adding subdivision (h) to
section 12531] to confirm that allocations and uses of funds made by the director of
finance from the National Mortgage Special Deposit Fund pursuant to [section 12531] in
the 2011-12, 2012-13, and 2013-14 fiscal years were consistent with legislative direction
and intent and to abrogate the holding of the Court of Appeal in [this case]. The
6
Legislature further declares that the allocations made by the director of finance pursuant
to [section 12531] were made for purposes consistent with the National Mortgage
Settlement.” (Stats. 2018, ch. 331, § 2, subd. (a).)
Thereafter, on October 10, 2018, our Supreme Court granted the petition for
review and transferred the matter to this court with directions to vacate our original
opinion and reconsider the matter in light of this new statutory enactment. Having done
so, and giving SB 861 all due consideration, we confirm the conclusions reached in our
original opinion.4
ADDITIONAL BACKGROUND
Having already provided a description of the events giving rise to this appeal in
order to provide context for the parties’ contentions and our resolution thereof, we shall
not repeat ourselves here. Rather, we elaborate on those portions of context deliberately
omitted above. Specifically, we shall provide (1) a fuller description of the terms of the
NMS, including the former Attorney General’s instructions for use of the $410 million
direct payment amount, (2) the complete text of section 12531, as originally enacted,
creating the National Mortgage Special Deposit Fund and authorizing disbursements to
offset General Fund expenditures, (3) the details of the challenged disbursements made
from the National Mortgage Special Deposit Fund, and (4) the Legislature’s amendment
to section 12531 expressing its view that these disbursements were consistent with both
the legislative intent and the National Mortgage Settlement.
The National Mortgage Settlement
The stated purpose of the NMS “is to remediate harms allegedly resulting from the
alleged unlawful conduct of the [Bank defendants].” The portion of the NMS relevant to
4 The request for judicial notice filed by defendants on December 7, 2018 is
granted.
7
these appeals provided for about $2.5 billion to be paid directly to the states. As
mentioned, the agreement provided this amount “shall be distributed in the manner and
for the purposes specified in Exhibit B.”
Paragraph 1 of Exhibit B provides in relevant part:
“b. State Payment Settlement Amounts. In accordance with written instructions
from each State Attorney General, the Escrow Agent shall distribute cash payments in the
total amounts set forth in the attached Exhibit B-1.[5]
“i. Each State Attorney General shall designate the uses of the funds set forth
in the attached Exhibit B-1. To the extent practicable, such funds shall be used for
purposes intended to avoid preventable foreclosures, to ameliorate the effects of the
foreclosure crisis, to enhance law enforcement efforts to prevent and prosecute financial
fraud, or unfair or deceptive acts or practices and to compensate the States for costs
resulting from the alleged unlawful conduct of [the Bank defendants]. Such permissible
purposes for allocation of the funds include, but are not limited to, supplementing the
amounts paid to state homeowners under the Borrower Payment Fund,[6] funding for
housing counselors, state and local foreclosure assistance hotlines, state and local
foreclosure mediation programs, legal assistance, housing remediation and anti-blight
projects, funding for training and staffing of financial fraud or consumer protection
enforcement efforts, and civil penalties. Accordingly, each Attorney General has set
forth general instructions for the funds in the attached Exhibit B-2.
5 Exhibit B-1 lists California’s share of the state payment settlement amount as
$410,576,996.
6 As mentioned, the vast majority of damages paid by the Bank defendants under
the NMS, more than $20 billion, was designated to provide financial relief for individual
borrowers. Exhibit C to the NMS set forth the details regarding administration of the
distribution of cash payments to such borrowers.
8
“ii. No more than ten percent of the aggregate amount paid to the State Parties
under this paragraph 1(b) may be designated as a civil penalty, fine, or similar payment.
The remainder of the payment[] is intended to remediate the harms to the States and their
communities resulting from the alleged unlawful conduct of the [Bank defendants] and to
facilitate the implementation of the Borrower Payment Fund and consumer relief.”
In Exhibit B-2, former Attorney General Harris provided the following general
instructions:
“a) Ten percent of the payment shall be paid as a civil penalty and deposited in
the Unfair Competition Law Fund;
“b) The remainder shall be paid and deposited into a Special Deposit Fund
created for the following purposes: for the administration of the terms of this Consent
Judgment; monitoring compliance with the terms of this Consent Judgment and enforcing
the terms of this Consent Judgment; assisting in the implementation of the relief
programs and servicing standards as described in this Consent Judgment; supporting the
Attorney General’s continuing investigation into misconduct in the origination, servicing,
and securitization of residential mortgage loans; to fund consumer fraud education,
investigations, enforcement operations, litigation, public protection and/or local
consumer aid; to provide borrower relief; to fund grant programs to assist housing
counselors or other legal aid agencies that represent homeowners, former homeowners, or
renters in housing-related matters; to fund other matters, including grant programs, for
the benefit of California homeowners affected by the mortgage/foreclosure crisis; or to
engage and pay for third parties to develop or administer any of the programs or efforts
described above.”
Creation of the National Mortgage Special Deposit Fund
After the federal court approved the National Mortgage Settlement and entered
consent judgments incorporating its terms, the department of finance submitted a letter
9
(Finance letter) to the Senate Budget and Fiscal Review Committee requesting, among
other things, trailer bill language authorizing “the Director of Finance to allocate funds
received pursuant to the [NMS]” and creating a special fund where these settlement funds
would be deposited. The Finance letter states: “For 2011-12 and 2012-13, $94.2 million
of the [direct payment amount] will be used to offset General Fund costs of programs that
support public protection, consumer fraud enforcement and litigation, and housing related
programs. An additional $198 million will be used for debt service payments for
programs funded with Proposition 46 and Proposition 1C housing bonds that assist
homeowners. The remaining $118.4 million will be reserved for similar use in 2013-
14.”7
About six weeks later, the Legislature enacted section 12531 as part of a trailer bill
to the 2012 Budget Act. At the time of its enactment, this section provided in full:
“(a) The Legislature finds and declares that California, represented by the
California Attorney General, entered a national multistate settlement with the country’s
five largest loan servicers. This agreement, the National Mortgage Settlement stemmed
from successful resolution of federal court action (Consent Judgment, United States v.
Bank of America (No. 1:12-cv-00361, Banzr. D.C. Apr. 4, 2012). The National
7 Defendants ask this court to take judicial notice of the State Department of
Housing and Community Development’s record of Proposition 1C bond awards through
December 31, 2013, explaining this government document was before the trial court and
is part of the record on appeal, but the copy therein is “corrupt and illegible.” Plaintiffs
do not oppose this request, which we grant. (Evid. Code, § 452, subds. (c), (h).) We
deny defendants’ further request that we take judicial notice of a motion to vacate
judgment and trial court order denying that motion in another case, Shaw v. Chiang,
Sacramento County Superior Court Case No. 07CS01179. These materials are irrelevant
to our resolution of the issues raised in this appeal. (See Towns v. Davidson (2007) 147
Cal.App.4th 461, 473, fn. 3 [declining to take judicial notice of irrelevant filings in
another appeal].)
10
Mortgage Settlement is broad ranging, with California’s share of this settlement
estimated to be up to eighteen billion dollars ($18,000,000,000). Of this amount,
approximately four hundred ten million dollars ($410,000,000) will come directly to the
state in costs, fees, and penalty payments.
“(b) There is hereby created in the State Treasury the National Mortgage Special
Deposit Fund. Notwithstanding Section 13340, all moneys in the fund are hereby
continuously appropriated, and shall be allocated by the Department of Finance.
“(c) Direct payments made to the State of California as civil penalties pursuant
to the National Mortgage Settlement shall be deposited in the Unfair Competition Law
Fund as required by the settlement.
“(d) Direct payments made to the State of California pursuant to the National
Mortgage Settlement, except for those payments made pursuant to subdivision (c), shall
be deposited in the National Mortgage Special Deposit Fund.
“(e) Notwithstanding any other law, the Director of Finance may allocate or
otherwise use the funds in the National Mortgage Special Deposit Fund to offset General
Fund expenditures in the 2011-12, 2012-13, and 2013-14 fiscal years. The Department of
Finance and the Controller’s office shall recognize this fiscal alignment accordingly for
the purpose of the state budget process and legal basis of accounting.
“(f) Not less than 30 days prior to allocating any moneys pursuant to
subdivision (e), the Department of Finance shall submit an expenditure plan to the Joint
Legislative Budget Committee detailing the proposed use of the moneys in the National
Mortgage Special Deposit Fund.
11
“(g) Notwithstanding any other law, the Controller may use the funds in the
National Mortgage Special Deposit Fund for cashflow loans to the General Fund as
provided in Sections 16310 and 16381.” (§ 12531.)
Disbursements from the National Mortgage Special Deposit Fund
About two months after the National Mortgage Special Deposit Fund was created,
the escrow agent wired the entirety of California’s direct payment into the state’s
Litigation Deposits Fund. Thereafter, pursuant to section 12531, 10 percent of that
amount was redirected into the Unfair Competition Law Fund and 90 percent was
redirected into the National Mortgage Special Deposit Fund.
Before setting forth the details of the challenged disbursements, we briefly note
those that are not challenged. Consistent with section 12531, subdivision (g), the 2012
Budget Act authorized a $100 million loan from the National Mortgage Special Deposit
Fund to the General Fund to be repaid by June 30, 2014. Such a loan was made on
September 24, 2012 and repaid with interest on April 11, 2014. The 2012 Budget Act
also appropriated about $18 million from the National Mortgage Special Deposit Fund to
the State Department of Justice, $8 million of which was appropriated to support the
Office of the California Monitor, who assists the Attorney General in ensuring the Bank
defendants comply with the terms of the NMS, and the remaining $10 million was
appropriated for grants to assist homeowners affected by the foreclosure crisis. These
disbursements are clearly consistent with the former Attorney General’s general
instructions for use of the funds and are not challenged in these appeals.
The challenged disbursements total about $350 million. The expenditure plan
submitted by the Department of Finance pursuant to section 12531, subdivision (f),
proposed the following offsets:
12
“General Fund debt service payments for Propositions 1C and 46 Housing Bonds
will be offset by [$292.4 million, i.e.,] $106 million, $92 million, and $94.4 million in
2011-12, 2012-13, and 2013-14[,] respectively.”
“The Department of Justice’s (DOJ’s) General Fund expenditures will be offset by
[$49.2 million, i.e.,] $14.9 million, $17.8 million, and $16.5 million in 2011-12, 2012-13,
and 2013-14[,] respectively.”
“The Department of Fair Employment and Housing’s General Fund expenditures
will be offset by [$9 million, i.e.,] $3 million in 2011-12, 2012-13, and 2013-14[,]
respectively.”
While the department of finance did not receive a response to this expenditure
plan, that department’s Final Change Book for the 2012-13 Budget indicates the
Legislature accepted the request made in the Finance letter that preceded enactment of
section 12531, i.e., that the direct payment would be used to offset General Fund costs of
programs that support public protection, consumer fraud enforcement and litigation, and
housing related programs. Various executive orders executed the offsets proposed in the
expenditure plan, with minor alterations to the amounts.8
2018 Amendment to Section 12531
After we issued our original opinion concluding the vast majority of these
challenged disbursements (over $331 million) were unlawful, the Legislature enacted
SB 861, effective September 10, 2018, amending section 12531 to add subdivision (h).
This subdivision provides: “The Legislature hereby confirms and ratifies that the
allocations of funds from the National Mortgage Special Deposit Fund in the 2011-12,
8 For example, whereas $94.4 million was proposed for offsetting General Fund
debt service payments for Propositions 1C and 46 housing bonds in the 2013-14 fiscal
year, the amount transferred for these purposes was actually $94.7 million. The precise
total amount of challenged transfers is $350,360,084.
13
2012-13, and 2013-14 fiscal years were consistent with the direction given to the Director
of Finance in subdivision (e) to offset General Fund expenditures in those years. The
Legislature further confirms and ratifies that because those allocations were displayed in
the Governor’s proposed budget for the 2012-13 and 2013-14 fiscal years, and left
unchanged in the budget acts adopted for the 2012-13 and 2013-14 fiscal years, the
Legislature was aware of, and approved, the allocation and expenditure of funds from the
National Mortgage Special Deposit Fund to offset General Fund expenditures in those
fiscal years. This subdivision is declaratory of existing law.” (§ 12531, subd. (h); Stats.
2018, ch. 331, § 3.)
SB 861 states in uncodified section 2: “It is the intent of the Legislature in [adding
subdivision (h) to section 12531] to confirm that allocations and uses of funds made by
the Director of Finance from the National Mortgage Special Deposit Fund pursuant to
[section 12531] in the 2011-12, 2012-13, and 2013-14 fiscal years were consistent with
legislative direction and intent and to abrogate the holding of the Court of Appeal in [this
case]. The Legislature further declares that the allocations made by the Director of
Finance pursuant to [section 12531] were made for purposes consistent with the National
Mortgage Settlement.” (Stats. 2018, ch. 331, § 2, subd. (a).)
We finally note the Legislature declared in uncodified section 1 various ways in
which it has provided funding and encouragement for affordable housing “in the past
several years.” (Stats. 2018, ch. 331, § 1, subd. (a).)9
9 This section provides in full: “The Legislature hereby finds and declares the
following:
“(a) The state has funded and allocated billions of dollars for affordable housing in the
past several years.
“(b) The 2018–19 budget alone includes $5.1 billion in state and federal funds across
multiple programs and departments to address housing and homelessness.
14
“(c) The Governor and Legislature developed a legislative package of 15 bills signed in
September 2017 that collectively shorten the housing development approval process,
provide incentives to streamline development, promote local accountability to adequately
plan for needed housing, and invest in affordable housing production. The housing
package establishes a $75 document recording fee on real estate transactions, excluding
home sales, beginning January 1, 2018, to create a sustainable funding source for state
affordable housing programs.
“(d) The 2017 legislative package also places a $4 billion bond on the November 2018
ballot, with $3 billion in general obligation bonds for affordable housing, and $1 billion
for veterans housing to be supported by participants’ loan repayments.
“(e) To encourage housing development, the Legislature provided local governments
with tools to help fulfill their housing priorities and responsibilities, including:
“(1) Chapter 386, Statutes of 2013 (SB 743), which provides an alternative approach for
CEQA analysis of transportation impacts of transit-oriented development and new
exemptions for certain projects.
“(2) Chapter 785, Statutes of 2014 (SB 628), which allows cities and counties to create an
enhanced infrastructure financing district that utilizes property taxes and other available
funding for various types of projects including low and moderate income housing
projects.
“(3) Chapter 319, Statutes of 2015 (AB 2), which allows specified disadvantaged areas of
California to create a community revitalization and investment authority that utilizes
property taxes and other available funding for various types of projects, including
affordable housing.
“(4) Various statutes that reduce minimum parking requirements and expand size and
other bonuses for developers that meet affordability requirements.
“(5) Chapters 720 and 735, Statutes of 2016 (SB 1069 and AB 2299), which streamline
permits and require local ordinances to facilitate the development of these low-cost
housing options that provide additional living quarters on single-family lots that are
independent of the primary dwelling unit.
“(6) Chapter 453, Statutes of 2016 (AB 2031), allows a local government, with an
existing successor agency to a former redevelopment agency, to bond against the
property tax revenues it receives as a result of redevelopment agency dissolution for the
purposes of affordable housing development.
“(f) In 2016 the Governor signed into law the No Place Like Home Program, which funds
the construction of permanent supportive housing targeted to the chronically homeless
and those at risk of chronic homelessness with mental health services needs. The
15
DISCUSSION
I
Standard of Review
Plaintiffs sought a writ of mandate from the trial court, as well as declaratory
and injunctive relief, compelling defendants to return the $350 million they claim was
unlawfully diverted from the National Mortgage Special Deposit Fund. “A writ of
mandate ‘may be issued by any court . . . to compel the performance of an act which
the law specially enjoins, as a duty resulting from an office, trust, or station . . . .’ (Code
program is funded with a $2 billion bond, secured by Mental Health Services Act
(Proposition 63) revenues, and will be on the November 2018 ballot to accelerate the
issuance of program funds.
“(g) The Veteran’s Housing and Homeless Prevention Bond Act of 2014 (Proposition 41)
repurposed $600 million in bond funds to fund multifamily housing for veterans and their
families.
“(h) The California Tax Credit Allocation Committee, which administers the low-income
housing tax credit program, has made a number of regulatory changes to increase the
utilization of this program. Tax credit financing supports nearly all deed-restricted
affordable housing in California; improvements to this program benefit low-income
families across the state. These efforts resulted in a historic high of 20,847 housing units
financed with ‘4 percent’ federal tax credits in 2016.
“(i) In addition, the California Tax Credit Allocation Committee has worked with the
California Debt Limit Allocation Committee to convene a High Cost Task Force to
address the growing housing development costs that limit the impact of public
investment. As a result, the state has set a high-cost threshold for funded projects,
provided incentives for the construction of larger projects with lower costs per unit, and
removed state funding requirements that prioritize expensive projects.
“(j) The California Housing Financing Agency has increased its multifamily lending
activity each year since the Great Recession, providing $369 million in financing in
2016–17 to support 2,100 affordable housing units. The agency also issued $682 million
in private activity bonds for affordable housing since 2015.
“(k) The state’s first-time homebuyers downpayment assistance program has provided $4
billion to moderate-income families that do not qualify for the low-income programs.”
(Stats. 2018, ch. 331, § 1.)
16
Civ. Proc., § 1085, subd. (a).)” (Kavanaugh v. West Sonoma County Union High
School Dist. (2003) 29 Cal.4th 911, 916.) Plaintiffs were required to show a “ ‘clear,
present, and usually ministerial duty’ ” on the part of defendants to return the allegedly
diverted funds, and that plaintiffs have a “ ‘clear, present and beneficial right . . . to
the performance of that duty.’ ” (Santa Clara County Counsel Attys. Assn. v. Woodside
(1994) 7 Cal.4th 525, 539-540, superseded by statute on another point as stated in
Coachella Valley Mosquito and Vector Control Dist. v. California Public Employment
Relations Bd. (2005) 35 Cal.4th 1072, 1077.) “A ministerial duty is an act that a
public officer is obligated to perform in a prescribed manner required by law when a
given state of facts exists.” (Alliance for a Better Downtown Millbrae v. Wade (2003)
108 Cal.App.4th 123, 129.)
On appeal, we defer to the trial court’s factual determinations if supported by
substantial evidence. However, as always, we review questions of law de novo.
(Kavanaugh v. West Sonoma County Union High School Dist., supra, 29 Cal.4th at p.
916.) Here, whether or not the $350 million in question was unlawfully diverted from the
National Mortgage Special Deposit Fund turns not on disputed facts, but on the proper
interpretation of section 12531 and the National Mortgage Settlement. We therefore
“exercise our independent judgment and review the matter de novo.” (Alliance for a
Better Downtown Millbrae v. Wade, supra, 108 Cal.App.4th at p. 129; see also California
Medical Ass’n v. Brown (2011) 193 Cal.App.4th 1449, 1455-1456.)
II
Standing
Defendants contend plaintiffs “cannot enforce the consent judgments under
federal law, and lack standing to bring their claims under California law.” While we
agree the individual homeowners plaintiffs seek to assist in staying in their homes “
‘are merely incidental beneficiaries of the National Mortgage Settlement,’ ” and therefore
17
have “no standing to enforce the consent judgment[s]” (Graham v. Bank of America, N.A.
(2014) 226 Cal.App.4th 594, 615-616), this does not mean plaintiffs lack standing to
seek a writ of mandate under California law to require defendants to comply with
section 12531.
The law governing standing to seek a writ of mandate is well-settled. “As a
general rule, a party must be ‘beneficially interested’ to seek a writ of mandate. (Code
Civ. Proc., § 1086.) ‘The requirement that a petitioner be “beneficially interested” has
been generally interpreted to mean that one may obtain the writ only if the person has
some special interest to be served or some particular right to be preserved or protected
over and above the interest held in common with the public at large. . . . The beneficial
interest must be direct and substantial. [Citations.]’ ” (Save the Plastic Bag Coalition v.
City of Manhattan Beach (2011) 52 Cal.4th 155, 165.)
However, “ ‘where the question is one of public right and the object of the
mandamus is to procure the enforcement of a public duty, the [petitioner] need not
show that he [or she] has any legal or special interest in the result, since it is sufficient
that [the petitioner] is interested as a citizen in having the laws executed and the duty
in question enforced.’ ” (Board of Social Welfare v. Los Angeles County (1945) 27
Cal.2d 98, 100-101.) “The exception promotes the policy of guaranteeing citizens
the opportunity to ensure that no governmental body impairs or defeats the purpose of
legislation establishing a public right” and “has often been invoked by California courts.”
(Green v. Obledo (1981) 29 Cal.3d 126, 144.) As this court has explained: “When the
duty is sharp and the public need weighty, the courts will grant a mandamus at the behest
of an applicant who shows no greater personal interest than that of a citizen who wants
the law enforced.” (McDonald v. Stockton Met. Transit Dist. (1973) 36 Cal.App.3d 436,
440; see also Urban Habitat Program v. City of Pleasanton (2008) 164 Cal.App.4th
1561, 1581.)
18
Here, the trial court concluded plaintiffs did not have beneficial interest standing,
explaining they “have no direct interest in the legal duty sought to be compelled and will
gain no direct benefit from its performance.” However, the trial court also concluded
plaintiffs fell within the “well-established ‘public interest’ exception to the beneficial
interest requirement.” Because we agree with the latter conclusion, we need not consider
the former.
As we explained in Shaw v. People ex rel. Chiang (2009) 175 Cal.App.4th 577(Shaw), “[t]he Legislature has plenary lawmaking authority over the state’s budget (Cal.
Const., art. IV, § 12) and we are aware of no constitutional prohibition precluding it from
creating specific funds in the State Treasury for any number of governmental purposes.”
(Id. at p. 602.) Unless the Legislature clearly conveys a contrary intention, “ ‘[i]t is the
policy of the law . . . to have . . . funds authorized for a particular purpose expended for
such purpose.’ [Citations.]” (Stanson v. Mott (1976) 17 Cal.3d 206, 213.) Here, such a
fund was created for purposes we describe below, the money deposited therein was
continuously appropriated, and the department of finance was tasked with expending the
money for those purposes. (§ 12531, subd. (b).) We consider the duty to comply with
restrictions placed by our Legislature on the expenditure of public funds to be “sharp.”
Indeed, as we explain more fully later in this opinion, money misappropriated from a
special deposit fund is considered a loan by operation of law and a writ of mandate may
issue to direct reimbursement. (See Daugherty, supra, 1 Cal.2d at pp. 309, 312.) We
also consider “weighty” the public need to have such restrictions enforced. Petitioners
therefore have standing to challenge the expenditures they claim are inconsistent with
section 12531.
Nevertheless, defendants argue, “the public interest exception should not apply” in
this case because “the alleged interest is ‘outweighed . . . by competing considerations of
a more urgent nature,’ ” and cite this court’s decision in Sacramento County Fire
19
Protection Dist. v. Sacramento County Assessment Appeals Bd. (1999) 75 Cal.App.4th
327 as an example of a situation in which competing considerations prevailed over the
public interest sought to be vindicated by issuance of the writ. There, we held a fire
protection district, as a property tax recipient, had no standing to seek a writ of mandate
challenging an assessment appeals board’s valuation of certain property located within
the district. With respect to the public interest exception to the beneficial interest
requirement, we held the public interest sought to be protected by the district’s challenge
to the valuation was “ ‘outweighed . . . by competing considerations of a more urgent
nature . . . .’ ” (Id. at p. 334.) As we explained, providing standing to the fire protection
district, and inevitably other entities for which the county collects taxes, would create
“chaos” in the taxing process. Moreover, denying standing to the fire protection district
would not render unreviewable the assessment appeals board’s valuation decision
because that decision could be challenged by the State Board of Equalization or by a
county or city. (Ibid.)
Defendants argue, “[s]imilar risks arise here” because providing plaintiffs with
standing in this case allows them to “override” provisions in the National Mortgage
Settlement that “excluded third-parties like [them] from the list of parties who could
bring enforcement proceedings” and “threatens to undermine the State’s ability to enter
into future settlement agreements that seek to bring finality to the State and other
litigants.” Not so. This is not a suit to enforce the NMS. It is an action in mandamus to
compel defendants to return to the National Mortgage Special Deposit Fund money
plaintiffs claim was misappropriated in contravention of section 12531. As we have
explained, there is a sharp duty to comply with restrictions placed on the expenditure of
public funds and a weighty public need for enforcement of such restrictions. Providing
plaintiffs with standing in this case does nothing to undermine California’s ability to
enter into settlement agreements.
20
III
Proper Interpretation of Section 12531
We now turn to defendants’ contention the trial court misconstrued section 12531.
The trial court concluded section 12531 was intended to effectuate the terms of the
federal consent judgments, which required compliance with the instructions provided by
former Attorney General Harris in Exhibit B-2 to the National Mortgage Settlement
designating the permissible uses of the $410 million direct payment. Rejecting
defendants’ contention subdivision (e) of that section permitted the director of finance to
use the National Mortgage Special Deposit Fund to offset General Fund expenditures
regardless of whether such offsets were consistent with these instructions, the trial court
reasoned such a reading of the statute would “raise serious doubts about the legality of
the statute, not only as to whether the Legislature may override a federal judgment, but
also whether the Legislature constitutionally may delegate to an agency the authority to
decide how millions of dollars of state funds shall be spent with virtually no guidance or
direction from the Legislature.”
Defendants assert this interpretation of section 12531 runs “[c]ontrary to the plain
meaning of the statute” and argues the plain meaning of subdivision (e) of that section
“gives the Director of Finance discretion to ‘allocate or otherwise use the funds’ in the
[National Mortgage Special Deposit Fund] ‘to offset General Fund expenditures’ in three
fiscal years, ‘[n]otwithstanding any other law.’ It places no restriction on the type of
General Fund expenditures that the funds can be used to offset, let alone the kinds of
restrictions that the trial court erroneously found in the [former] Attorney General’s
instructions.” We agree with the trial court’s interpretation of the section.
21
A.
Applicable Principles of Statutory Construction
“Pursuant to established principles, our first task in construing a statute is to
ascertain the intent of the Legislature so as to effectuate the purpose of the law. In
determining such intent, a court must look first to the words of the statute themselves,
giving to the language its usual, ordinary import and according significance, if possible,
to every word, phrase and sentence in pursuance of the legislative purpose. A
construction making some words surplusage is to be avoided. The words of the statute
must be construed in context, keeping in mind the statutory purpose, and statutes or
statutory sections relating to the same subject must be harmonized, both internally and
with each other, to the extent possible. [Citations.] Where uncertainty exists
consideration should be given to the consequences that will flow from a particular
interpretation. [Citation.] Both the legislative history of the statute and the wider
historical circumstances of its enactment may be considered in ascertaining the legislative
intent. [Citations.] A statute should be construed whenever possible so as to preserve its
constitutionality. [Citations.]” (Dyna-Med, Inc. v. Fair Employment & Housing Com.
(1987) 43 Cal.3d 1379, 1386-1387.)
While “the interpretation of a statute is an exercise of the judicial power the
Constitution assigns to the courts” (Western Security Bank v. Superior Court (1997)
15 Cal.4th 232, 244 (Western Security)), “if the courts have not yet finally and
conclusively interpreted a statute and are in the process of doing so, a declaration of
a later Legislature as to what an earlier Legislature intended is entitled to consideration.
[Citation.] But even then, ‘a legislative declaration of an existing statute’s meaning’ is
but a factor for a court to consider and ‘is neither binding nor conclusive in construing
the statute.’ [Citations.] This is because the ‘Legislature has no authority to interpret a
statute. That is a judicial task. The Legislature may define the meaning of statutory
22
language by a present legislative enactment which, subject to constitutional restraints,
it may deem retroactive. But it has no legislative authority simply to say what it did
mean.’ [Citations.]” (McClung v. Employment Development Dept. (2004) 34 Cal.4th
467, 473; Carter v. California Dept. of Veterans Affairs (2006) 38 Cal.4th 914, 922
(Carter); see also California Employment Stabilization Com. v. Payne (1947) 31 Cal.2d
210, 213-214 [where a statute is ambiguous, “a subsequent expression of the Legislature,
although not binding on the court, may properly be used in determining the effect of a
prior act”].)
Because our construction of the meaning of section 12531, set forth in our original
opinion, was pending review before our Supreme Court at the time the Legislature
enacted SB 861, it cannot be considered a final and conclusive construction of the law.
We must therefore “give the Legislature’s views ‘due consideration.’ ” (Carter, supra,
38 Cal.4th at p. 922.) How much consideration is “due” depends on the circumstances.
(Compare Carter, supra, 38 Cal.4th 914 and Western Security, supra, 15 Cal.4th 232with Peralta Community College Dist. v. Fair Employment & Housing Com. (1990) 52
Cal.3d 40, 52 [“declaration of a later Legislature is of little weight in determining the
relevant intent of the Legislature that enacted the law”] and Apple Inc. v. Superior Court
(2013) 56 Cal.4th 128, 145 [same].)
B.
Analysis
Having considered the views of our current Legislature, expressed in SB 861, we
confirm our original conclusion section 12531 was intended to effectuate the terms of the
National Mortgage Settlement. As previously stated, subdivision (a) of this section
provides: “The Legislature finds and declares that California, represented by the
California Attorney General, entered a national multistate settlement with the country’s
five largest loan servicers. This agreement, the National Mortgage Settlement stemmed
23
from successful resolution of federal court action (Consent Judgment, United States v.
Bank of America (No. 1:12-cv-00361, Banzr. D.C. Apr. 4, 2012). The National
Mortgage Settlement is broad ranging, with California’s share of this settlement
estimated to be up to eighteen billion dollars ($18,000,000,000). Of this amount,
approximately four hundred ten million dollars ($410,000,000) will come directly to the
state in costs, fees, and penalty payments.” (§ 12531, subd. (a).) Then subdivision (b)
creates the National Mortgage Special Deposit Fund, continuously appropriates all
moneys in the fund, and directs the department of finance to allocate the money. (Id.,
subd. (b).) Subdivisions (c) and (d) direct where the settlement disbursement shall be
deposited, 90 percent going into the National Mortgage Special Deposit Fund. (Id.,
subds. (c) & (d).) Subdivision (e) then provides: “Notwithstanding any other law, the
Director of Finance may allocate or otherwise use the funds in the [National Mortgage
Special] Deposit Fund to offset General Fund expenditures in the 2011-12, 2012-13, and
2013-14 fiscal years. The Department of Finance and the Controller’s office shall
recognize this fiscal alignment accordingly for the purpose of the state budget process
and legal basis of accounting.” (Id., subd. (e).)
Because subdivision (a) makes reference to the former Attorney General’s
successful negotiation of the National Mortgage Settlement, and subdivisions (b) through
(d) effectuate California’s receipt of the settlement proceeds as set forth in the former
Attorney General’s instructions, i.e., 10 percent to the Unfair Competition Law Fund and
90 percent into a special deposit fund (the National Mortgage Special Deposit Fund), and
because the purpose of creating a special deposit fund is to house money that is
“collected or received for specific purposes” (§ 16372), it is only reasonable to conclude
the Legislature intended the specific purposes set forth in the former Attorney General’s
instructions are also the purposes for which the National Mortgage Special Deposit Fund
money may be spent.
24
Nevertheless, defendants claim the Legislature intended to allow the director of
finance to disregard the former Attorney General’s instructions and use the money in the
National Mortgage Special Deposit Fund to offset any General Fund expenditures.
This supposed intent, they argue, may be found in the phrase “[n]otwithstanding any
other law” in subdivision (e), before that subdivision directs the director of finance to
“offset General Fund expenditures in the 2011-12, 2012-13, and 2013-14 fiscal years.”
(§ 12531, subd. (e).) We are not persuaded that this phrase was intended to untether the
offsets from the purposes for which the money was received. Indeed, defendants’
reading of the statute would effectively defeat the purpose of creating a special deposit
fund to house the money. Moreover, the fact that the Legislature intended the National
Mortgage Special Deposit Fund to be a special deposit fund with restrictions on the use
of the money housed therein is also supported by subdivision (g), which allows for
“cashflow loans to the General Fund as provided in Sections 16310 and 16381.” (Id.,
subd. (g).) Sections 16310 and 16381 allow for such loans from special deposit funds
when the General Fund is or will be exhausted.
Our reading of the statute, and that of the trial court, is also bolstered by the
legislative history. The Legislative Counsel’s Digest for section 12531 states: “This
bill would establish the [National Mortgage Special] Deposit Fund in the State Treasury
as a continuously appropriated fund and would require certain direct payments made
to the state under the National Mortgage Settlement to be deposited in the fund for
allocation by the Director of Finance, as specified. This bill would further authorize
the Director of Finance to allocate moneys from the fund to offset General Fund
expenditures during the 2011-12, 2012-13, and 2013-14 fiscal years for purposes
consistent with the National Mortgage Settlement.” (Legis. Counsel’s Dig., Sen.
Bill No. 1006, (2011-2012 Reg. Sess.) Stats. 2012, ch. 32, § 12, italics added
[as of Mar. 26, 2019], archived
at .) The former Attorney General’s general
instructions for use of the settlement money is part of the NMS.
We also agree with the trial court’s conclusion that defendants’ reading of the
statute would “raise serious doubts about the legality of the statute, not only as to whether
the Legislature may override a federal judgment, but also whether the Legislature
constitutionally may delegate to an agency the authority to decide how millions of dollars
of state funds shall be spent with virtually no guidance or direction from the Legislature.”
Defendants address the first of these concerns by arguing the Legislature has plenary
power over appropriations that includes the authority to override an Attorney General’s
settlement agreement as long as doing so does not interfere with a party’s vested rights
(primarily relying on Van de Kamp v. Gumbiner (1990) 221 Cal.App.3d 1260 and
Mendly v. County of Los Angeles (1994) 23 Cal.App.4th 1193), and even though the
NMS has been incorporated into a federal judgment, such a judgment may not contravene
an otherwise valid state law unless necessary to vindicate a federal right (primarily
relying on Washington v. Penwell (9th Cir. 1983) 700 F.2d 570 and Cleveland County
Ass’n for Government by the People v. Cleveland County Bd. of Com’rs (D.C. Cir. 1998)
142 F.3d 468). Addressing the nondelegation doctrine, defendants argue there was no
unconstitutional delegation because subdivision (f) requires the department of finance
to “submit an expenditure plan to the Joint Legislative Budget Committee detailing
the proposed use of the moneys in the [National Mortgage Special] Deposit Fund.”
(§ 12531, subd. (f).)
We need not decide these potential constitutional issues because our reading of
section 12531, supported by the language of the statute and its legislative history, avoids
them entirely. “When faced with a statute reasonably susceptible of two or more
interpretations, of which at least one raises constitutional questions, we should construe it
26
in a manner that avoids any doubt about its validity.” (Association for Retarded Citizens
v. Department of Developmental Services (1985) 38 Cal.3d 384, 394.)
Nor does the Legislature’s 2018 amendment to section 12531 alter our conclusion
this provision was intended to effectuate the terms of the National Mortgage Settlement,
including the former Attorney General’s instructions. In their supplemental briefing on
the new enactment, defendants argue, “the intended effect of SB 861 was to clarify that
the allocations of funds made by the Director of Finance were consistent with . . . section
12531” and “such a subsequent expression by the Legislature as to the intent of a prior
statute is persuasive evidence regarding the meaning of that statute.” In making this
argument, defendants rely primarily on Western Security, supra, 15 Cal.4th 232, and
Carter, supra, 38 Cal.4th 914. Such reliance is misplaced.
In Western Security, supra, 15 Cal.4th 232, our Supreme Court gave effect to a
subsequent Legislature’s clarification of existing law and reversed the Court of Appeal’s
contrary conclusion concerning the meaning of that law. That case involved the
interaction of two legal doctrines, one precluding a deficiency judgment for any loan
balance left unpaid after the lender’s nonjudicial foreclosure under a power of sale in a
deed of trust or mortgage on real property (Code Civ. Proc., § 580d, the antideficiency
statute), and the other making a letter of credit issuer’s obligation to pay a draw
conforming to the letter’s terms separate from any underlying contract between the
issuer’s customer and the letter’s beneficiary (the independence principle). (Id. at p.
237.) After a nonjudicial foreclosure left a deficiency, the lender attempted to draw on
standby letters of credit of which it was the beneficiary. The Court of Appeal held this
would indirectly impose on the borrower, who would be required to reimburse the issuer
for the lender’s draw on the letter of credit, “the equivalent of a prohibited deficiency
judgment.” (Id. at pp. 237-238.) The Legislature immediately passed urgency legislation
providing that “an otherwise conforming draw on a letter of credit does not contravene
27
the antideficiency laws.” (Id. at p. 238.) Thereafter, our Supreme Court transferred the
matter back to the Court of Appeal for reconsideration in light of the new legislation.
That court confirmed its prior decision, concluding the new legislation amounted to a
change in the law with only prospective application. (Id. at p. 242.)
Reversing the Court of Appeal’s decision, our Supreme Court first explained the
Legislature’s subsequent enactment did not seek to change the law, but rather sought to
construe and clarify the meaning of existing law. Such an amendment, the court
explained, “ ‘ “must be accepted as the legislative declaration of the meaning of the
original act, where the amendment was adopted soon after the controversy arose as to the
interpretation of the original act . . . .” [Citation.]’ [Citation.]” (Western Security, supra,
15 Cal.4th at pp. 243-244.) However, such a legislative declaration “is neither binding
nor conclusive in construing the statute. Ultimately, the interpretation of a statute is an
exercise of the judicial power the Constitution assigns to the courts.” (Id. at p. 244.)
Thus, the Court of Appeal erred in concluding the amendment had no effect on the case.
(Id. at p. 252.) That subsequent enactment was entitled to “due consideration,” but
ultimately, questions of statutory interpretation are subject to de novo review by the
courts. (Id. at p. 244.) As our Supreme Court noted, “there is little logic and some
incongruity in the notion that one Legislature may speak authoritatively on the intent of
an earlier Legislature’s enactment when a gulf of decades separates the two bodies.”
(Ibid.) Turning to the proper interpretation of the antideficiency statute, the court held:
“A creditor that draws on a letter of credit does no more than call on all the security
pledged for the debt. When it does so, it does not violate the prohibition of deficiency
judgments.” (Id. at p. 252.) Thus, the court gave effect to the statutory amendment, not
because it was bound to do so, but because it concluded the Court of Appeal erred in
interpreting the antideficiency law to begin with. (Id. at pp. 250-252.)
28
Similarly, in Carter, supra, 28 Cal.4th 914, our Supreme Court gave effect to a
subsequent Legislature’s clarification of existing law where that existing law was
ambiguous as to its proper scope and the clarification “was made promptly in response to
[two Court of Appeal opinions], in order to clarify the ambiguities that caused confusion
in the appellate courts and among litigants.” (Id. at p. 930.)
Here, as set forth in detail above, SB 861 added subdivision (h) to section 12531,
confirming and ratifying the director of finance’s allocations of funds from the National
Mortgage Special Deposit Fund as having been “consistent with the direction given to the
Director of Finance in subdivision (e) to offset General Fund expenditures . . . .” (§
12531, subd. (h).) This amendment may well alleviate the potential unconstitutional
delegation problem. (See, e.g., California Chamber of Commerce v. State Air Resources
Bd. (2017) 10 Cal.App.5th 604, 632 [even if the Board lacked authority to adopt the
regulations at issue, the Legislature subsequently ratified them]; see also Professional
Engineers in California Government v. Schwarzenegger (2010) 50 Cal.4th 989, 1000,
1046-1048 [even if the Governor lacked authority to unilaterally institute a furlough
program, the Legislature subsequently ratified the program].) But it does not alter our
interpretation of section 12531. Indeed, in uncodified section 2 of SB 861, the
Legislature “declares that the allocations . . . were made for purposes consistent with the
National Mortgage Settlement.” (Stats. 2018, ch. 331, § 2, subd. (a).) This declaration,
while at odds with the conclusion we reach immediately below, is a tacit admission that
the allocations were required to be consistent with that settlement agreement. Moreover,
as we explain below, the fact that the Legislature believes the director of finance’s
allocations were consistent with section 12531 and the NMS “is not binding on a court.
[Citation.] . . . The interpretation of a statute or a [settlement agreement] ‘ “is an exercise
of the judicial power the Constitution assigns to the courts.” [Citation.]’ [Citations.]”
(California School Boards Assn. v. State (2011) 192 Cal.App.4th 770, 788.)
29
IV
Consistency with the National Mortgage Settlement
We now turn to the question of whether the offsets carried out by the director of
finance are consistent with the National Mortgage Settlement. As mentioned, the trial
court concluded over $331 million was unlawfully diverted from the National Mortgage
Special Deposit Fund for purposes inconsistent with the NMS, specifically the former
Attorney General’s general instructions set forth in Exhibit B-2 thereto. Defendants
argue these expenditures were consistent with both the purposes of the direct payment set
forth in Exhibit B to the NMS and the former Attorney General’s instructions. In their
appeal, plaintiffs contend the amount unlawfully diverted from the National Mortgage
Special Deposit Fund was actually $350 million. We again agree with the trial court’s
assessment.
As a preliminary matter, we reject defendants’ assertion that consistency with the
purposes set forth in Exhibit B would suffice to authorize the expenditures even if those
expenditures were contrary to the former Attorney General’s instructions. The NMS
provided that the direct payment amount “shall be distributed in the manner and for the
purposes specified in Exhibit B.” Paragraph 1 of Exhibit B provides that “[e]ach State
Attorney General shall designate the uses of the funds” and then states: “To the extent
practicable, such funds shall be used for purposes intended to avoid preventable
foreclosures, to ameliorate the effects of the foreclosure crisis, to enhance law
enforcement efforts to prevent and prosecute financial fraud, or unfair or deceptive acts
or practices and to compensate the States for costs resulting from the alleged unlawful
conduct of [the Bank defendants]. Such permissible purposes for allocation of the funds
include, but are not limited to, supplementing the amounts paid to state homeowners
under the Borrower Payment Fund, funding for housing counselors, state and local
foreclosure assistance hotlines, state and local foreclosure mediation programs, legal
30
assistance, housing remediation and anti-blight projects, funding for training and staffing
of financial fraud or consumer protection enforcement efforts, and civil penalties.
Accordingly, each Attorney General has set forth general instructions for the funds in the
attached Exhibit B-2.” (Italics added.) Thus, while Exhibit B provides general
permissible purposes for use of the direct payment, it expressly incorporates the more
specific instructions provided by the former Attorney General in Exhibit B-2. Because,
as we have concluded, section 12531 was intended to effectuate the NMS, the offsets
made by the director of finance must be consistent with the former Attorney General’s
instructions.
These instructions provide: “The remainder [i.e., 90 percent of the direct
payment] shall be paid and deposited into a Special Deposit Fund created for the
following purposes: for the administration of the terms of this Consent Judgment;
monitoring compliance with the terms of this Consent Judgment and enforcing
the terms of this Consent Judgment; assisting in the implementation of the relief
programs and servicing standards as described in this Consent Judgment; supporting
the Attorney General’s continuing investigation into misconduct in the origination,
servicing, and securitization of residential mortgage loans; to fund consumer fraud
education, investigations, enforcement operations, litigation, public protection and/or
local consumer aid; to provide borrower relief; to fund grant programs to assist housing
counselors or other legal aid agencies that represent homeowners, former homeowners,
or renters in housing-related matters; to fund other matters, including grant programs,
for the benefit of California homeowners affected by the mortgage/foreclosure crisis; or
to engage and pay for third parties to develop or administer any of the programs or efforts
described above.”
Relying on our decision in Shaw, supra, 175 Cal.App.4th 577, the trial court
concluded these instructions “do not allow use of the funds to reimburse the General
31
Fund for past expenditures.” We agree. In Shaw, a taxpayer challenged the legality of
the Legislature’s transfer of $622 million of spillover gas tax revenue, that would have
otherwise gone into a public transportation account (PTA) under Proposition 116, into a
newly-created mass transportation fund (MTF), and subsequent appropriation of that
$622 million and another $637 million directly from the PTA for a number of purposes,
including a $200 million payment from the MTF for past debt on mass transportation
bonds and a $409 million transfer from the PTA to the General Fund to offset the cost of
past debt service payments on such bonds. (Id. at pp. 593-594.) The trial court
invalidated the latter transfer because Proposition 116 restricted appropriation of money
in the PTA to “transportation planning or mass transportation purpose[s]” and the trial
court concluded offsetting the General Fund for past debt service payments on mass
transportation bonds did not comport with these purposes. (Id. at p. 594.)
We agreed with this determination, explaining: “There is a clear distinction
between transferring revenue from the PTA to the General Fund to pay current debt
obligations on mass transportation bonds and transferring such revenue to reimburse for
past debt obligations. In the case of the former, the revenue flows from the source to the
present obligation via the General Fund to serve a mass transportation purpose. Although
the money passes through the General Fund, it is still actually being used for the
identified mass transportation purpose. In the Legislature’s discretion, this may include
the payment of current bond debt on mass transportation bonds. In the case of offsets or
reimbursement of past debt service payments, however, there is no mass transportation
debt obligation to be paid with the PTA funds. The debt was paid by the General Fund in
the prior fiscal years. No actual debt remains. Money from the PTA under the label of
offsetting or reimbursing past debt payments is simply transferred to the General Fund
where it can be used for any governmental purpose. Such reimbursement of the General
Fund for its previous payment of its obligation on the specified bonds does not serve a
32
‘mass transportation’ purpose. There is no flow through similar to the payment of current
debt.” (Shaw, supra, 175 Cal.App.4th at p. 610.) We also invalidated the $200 million
transfer from the MTF. Having concluded earlier in the opinion that the transfer of
$622 million of spillover gas tax revenue from the PTA to the MTF was invalid (id. at
p. 602), this $200 million transfer from the MTF was also saddled with the “ ‘mass
transportation’ purpose” requirement and payment of past debt did not satisfy that
requirement. (Id. at pp. 609-610.)
Applying this reasoning, the trial court in this case invalidated all transfers to the
General Fund to offset debt service payments for housing bonds (totaling $292.7 million).
The trial court also invalidated transfers made to the General Fund during the 2012-13
and 2013-14 fiscal years to offset DOJ and DFEH expenditures for the 2011-12 and
2012-13 fiscal years, (totaling $38.4 million), as those expenditures had also already been
paid by the General Fund. We agree with this assessment.
Nevertheless, defendants argue the fact that “the Legislature knew and understood
how the Director of Finance intended to use the money” and did not “object is strong
evidence that the plan complied with the Legislature’s intent in enacting section 12531.”
This argument is bolstered by SB 861, as we have explained above. However, we still
are not persuaded. While this is evidence the Legislature may have believed the director
of finance’s proposed offsets were consistent with section 12531 and the NMS,
confirmed by the current Legislature’s declared belief “that the allocations . . . were made
for purposes consistent with the National Mortgage Settlement” (Stats. 2018, ch. 331, § 2,
subd. (a)), we reiterate that such a “belief is not binding on a court. . . . The interpretation
of a statute or a [settlement agreement] ‘ “is an exercise of the judicial power the
Constitution assigns to the courts.” [Citation.]’ [Citations.]” (California School Boards
Assn. v. State, supra, 192 Cal.App.4th at p. 788.)
33
The remaining $19.5 million was transferred from the National Mortgage Special
Deposit Fund to the General Fund during the 2013-14 fiscal year to pay certain DOJ and
DFEH expenditures incurred that year. The trial court declined to invalidate these
transfers concluding there was no evidence the obligations were already paid at the time
of the transfers. In their appeal, plaintiffs claim these payments should also have been
invalidated, arguing these offsets “rest upon an accounting fiction” and the fact that DOJ
and DFEH “might have something to do with administering programs or enforcing
regulations related to the purposes for which the [National Mortgage Special Deposit]
Fund was created is not sufficient” to comply with the former Attorney General’s
instructions. However, while DOJ and DFEH do more than investigate mortgage fraud
and housing-related matters, respectively, the burden was on plaintiffs to show these
specific expenditures went to other purposes. We agree with the trial court’s conclusion
they failed to carry that burden.
V
Appropriate Remedy
Finally, we address the question of the appropriate remedy. The trial court
concluded principles of separation of powers prevented it from issuing a writ of mandate
directing the Legislature to appropriate funds to restore the $331 million unlawfully
diverted from the National Mortgage Special Deposit Fund. Instead, the trial court
declared an obligation to restore the unlawfully diverted funds and ordered such
restoration “as soon as there is a sufficient appropriation ‘reasonably’ and ‘generally’
available for such purpose.”
Plaintiffs do not dispute that directing an appropriation would violate the
separation of powers. Instead, they argue: “The legal violations at issue in this case lie
not in a failure to appropriate the requisite funds, but in a series of executive orders,
issued by the Defendant Director of Finance to the Defendant Controller, that unlawfully
34
transferred the funds that had already been appropriated. Accordingly, the appropriate
remedial order would simply direct Defendants to rescind those transfers―or,
equivalently, to transfer equal sums back from the General Fund to the [National
Mortgage Special] Deposit Fund.” We agree.
“Article III, section 3 of the California Constitution provides that ‘[t]he powers of
state government are legislative, executive, and judicial. Persons charged with the
exercise of one power may not exercise either of the others except as permitted by this
Constitution.’ Article XVI, section 7 provides that ‘[m]oney may be drawn from the
Treasury only through an appropriation made by law and upon a Controller’s duly drawn
warrant.’ Article IV, sections 10 and 12 set forth the respective powers of the Legislature
and Governor over the enactment of appropriations. It has long been clear that these
separation-of-powers principles limit judicial authority over appropriations. [Citations.]”
(Butt v. State of California (1992) 4 Cal.4th 668, 698 (Butt).)
For example, in Butt, supra, 4 Cal.4th 668, relied upon by the trial court in
declining to issue the writ sought by plaintiffs, after a school district announced it lacked
funds to complete the final six weeks of the school year, the trial court issued a
preliminary injunction directing the State of California (State), the Controller, and the
superintendent of public instruction to ensure the school district’s students would receive
the full school term, approved a plan for the State to take over the school district’s
operations, and further approved an emergency loan of funds from other appropriations.
Affirming the trial court’s determination that “the State has a constitutional duty . . . to
prevent the budgetary problems of a particular school district from depriving its students
of ‘basic’ educational equality,” and that the trial court did not err in concluding
fulfillment of this duty “demanded immediate State intervention,” our Supreme Court
concluded the trial court lacked the authority to approve the “diversion of emergency
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loan funds from appropriations clearly intended by the Legislature for other purposes.”
(Id. at pp. 673-674.)
In reaching the latter conclusion, the court distinguished Mandel v. Myers (1981)
29 Cal.3d 531 (Mandel), describing that case as “the only decision by this court which
found judicial power to ‘commandeer’ appropriated funds.” (Butt, supra, 4 Cal.4th at
p. 698.) In Mandel, the trial court ordered the Controller to pay attorney fees awarded to
a department of health services (DHS) employee out of funds appropriated for the
operating expenses of DHS, the principal defendant in the underlying action. Our
Supreme Court held the trial court’s order did not violate separation of powers principles
despite the fact that a legislative committee deleted a line-item appropriation for this
particular fee award. The court reasoned that the language of the appropriation for the
operating expenses of DHS was “clearly broad enough to encompass court-awarded
attorney fees” (id. at p. 543) and the Legislature’s attempt to exclude this particular fee
award was an invalid attempt to “disregard the finality of a court judgment and take it
upon itself to readjudicate on a case-by-case basis the merits of such a judgment.” (Id. at
pp. 546-547.) Thus, because the restriction on the use of appropriated funds for payment
of the fee award in question was invalid, the funds remained available for payment of the
award. (Id. at p. 550.)
Returning to Butt, supra, 4 Cal.4th 668, our Supreme Court explained the
Mandel decision does not “permit court-ordered diversion of an appropriation away
from a clear, narrow, and valid purpose specified by the Legislature.” (Butt, supra, at
p. 700.) Thus, the court concluded the trial court erred when it authorized an emergency
loan of money from two appropriations that were “earmarked for purposes entirely
distinct from the subject matter of this lawsuit. They were not reasonably available for
court diversion to finance the remainder of the [school district’s] school term.” (Id. at
pp. 701-702.)
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The trial court’s reliance on Butt, supra, 4 Cal.4th 668 was misplaced because
plaintiffs herein are not seeking to “commandeer” money the Legislature appropriated for
purposes other than those set forth in the NMS. Rather, the Legislature continuously
appropriated the money in the National Mortgage Special Deposit Fund for those very
purposes and authorized the director of finance to transfer the money to the General Fund
to offset expenditures comporting with those purposes. While, as defendants argue, the
Legislature may have believed the director of finance’s proposed offsets complied with
the purposes for which the National Mortgage Special Deposit Fund was created, it is the
judicial branch that has the constitutional authority to interpret statutes. (California
School Boards Assn. v. State, supra, 192 Cal.App.4th at p. 788.) We have determined, as
did the trial court, the challenged offsets reimbursing the General Fund for past
obligations did not comport with these purposes. Accordingly, this is not a case in which
the trial court would have been required to order money appropriated for one purpose to
be used for another purpose. Instead, it was asked to order money used for a purpose
contrary to the appropriation returned to the special fund from which it was unlawfully
diverted.
For these reasons, our case is more analogous to Daugherty, supra, 1 Cal.2d 298.
There, two appropriations were made from the corporation commission fund, “a special
fund in the nature of a trust fund,” which the Legislature “permanently set apart” from the
General Fund for the use and benefit of the division of corporations to make that
department self-supporting. (Id. at pp. 307-308.) Our Supreme Court concluded the first
appropriation (i.e., a capital expenditure for the enlargement of a state office building to
house the San Francisco offices of the commissioner of corporations with rent to be
collected by the division of corporations for office space in excess of the department’s
requirements) could be deemed to have been for the benefit of the department. (Id. at p.
307.) The second appropriation (i.e., a capital expenditure for the completion of a state
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office building “without restriction as to office space for housing the corporation
commissioner’s department or the collection of rent[] for the benefit of that department”)
could not be deemed to have been for the benefit of the department and was “chargeable
only against the general fund or some other tax or general revenue fund.” (Id. at pp. 307-
308.) The court did not “deny power upon the part of the Legislature to transfer a special
fund reserve temporarily from one purpose to another . . . [b]ut when these diversions are
made the transfers are . . . deemed a loan from the special fund to be returned to that fund
as soon as funds are available.” (Id. at p. 309.) However, the second appropriation “did
not purport to make the transfer as a loan, but it boldly took from the special fund the
money necessary for the support and maintenance of the corporation commissioner’s
department with no provision for its repayment . . . .” (Id. at p. 310.) The court held,
“provid[ing] fees for regulatory purposes . . . and then devot[ing] the money so received
to capital expenditures for a foreign purpose” violated the special law provision of the
California Constitution. (Ibid.) Important to our discussion of the appropriate remedy,
the court concluded the unlawfully diverted money was “in law still in the corporation
commission fund” and issued a writ of mandate ordering the Controller to “retransfer
from the general funds of the state to the corporation commission fund” the amount that
was unlawfully diverted. (Id. at p. 312.)
Here, too, money was unlawfully diverted from a special fund in contravention
of the purposes for which that special fund was established. Of course, Daugherty,
supra, 1 Cal.2nd 298 involved an unconstitutional diversion by the Legislature, whereas
this case involves an unlawful diversion by the director of finance in contravention of
section 12531 and the National Mortgage Settlement, but this difference makes for a
more compelling case for ordering the money returned, not less. Moreover, in their
supplemental briefing following the Legislature’s enactment of SB 861, defendants
argue the Legislature ratified the director of finance’s expenditures. Without deciding
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the issue, we simply note this argument places this case squarely in line with Daugherty.
The trial court should have issued a writ of mandate ordering the retransfer of the
wrongfully diverted funds from the General Fund to the National Mortgage Special
Deposit Fund.
DISPOSITION
The portion of the judgment declining to issue the requested writ of mandate is
reversed and the matter is remanded to the trial court with directions to issue a writ of
mandate directing defendants, Gavin C. Newsom, Governor (successor to Edmund G.
Brown, Jr.), Keely Bosler, Finance Director, and Betty Yee, Controller, to retransfer from
the General Fund to the National Mortgage Settlement Deposit Fund the sum of
$331,044,084. Plaintiffs, National Asian American Coalition, COR Community
Development Corporation, and National Hispanic Christian Leadership Conference, are
awarded costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)
/s/
HOCH, J.
We concur:
/s/
RAYE, P. J.
/s/
HULL, J.
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