San Luis Obispo Local etc. v. Central Coast Development etc.

Filed 2/3/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
SAN LUIS OBISPO LOCAL 2d Civ. No. B304144
AGENCY FORMATION (Super. Ct. No. CV130383)
COMMISSION et al., (San Luis Obispo County)
Cross-complainants and
Appellants.
v.
CENTRAL COAST
DEVELOPMENT COMPANY,
Cross-defendant and
Respondent.
A contract by a public agency that exceeds the agency’s
statutory powers is void and will not support an award of
attorney fees pursuant to Civil Code1 section 1717, subdivision
(a). We reverse an award of fees against the public agency.
1 All statutory references are to the Civil Code.
FACTS
I
LAFCO I
Central Coast Development Company (Central Coast) owns
a 154-acre parcel of property within the sphere of influence of the
City of Pismo Beach (City).2 Central Coast wants to construct
252 single-family residences and 60 senior housing units on the
parcel. The City approved Central Coast's application for a
development permit for the property. The City and Central Coast
applied to the San Luis Obispo Local Agency Formation
Commission (LAFCO) to annex the property.
The LAFCO application signed by the City and Central
Coast contained the following indemnity agreement: “As part of
this application, Applicant agrees to defend, indemnify, hold
harmless and release the San Luis Obispo Local Agency
Formation Commission (LAFCO), its officers, employees,
attorneys, or agents from any claim, action or proceeding brought
against any of them, the purpose of which is to attack, set aside,
void, or annul, in whole or in part, LAFCO's action on the
proposal or on the environmental documents submitted to or
prepared by LAFCO in connection with the proposal. This
indemnification obligation shall include, but not be limited to,
damages, costs, expenses, attorneys' fees, and expert witness fees
that may be asserted by any person or entity, including the
Applicant, arising out of or in connection with the application. In
the event of such indemnification, LAFCO expressly reserves the
2 City of Pismo Beach is no longer a party to this action.
This court dismissed its appeal pursuant to stipulation of the
parties on January 3, 2022.
2.
right to provide its own defense at the reasonable expense of the
Applicant.” (Italics added.)
LAFCO denied the annexation application. The City and
Central Coast sued LAFCO. LAFCO prevailed and presented a
bill to the City and Central Coast for more than $400,000 in
attorney fees and costs. The City and Central Coast refused to
pay. The Special District Risk Management Authority (SDRMA),
a public entity self-insurance pool, paid for LAFCO's fees and
costs.
The City sued Central Coast to recover fees and costs
expended in the Central Coast action against LAFCO. LAFCO
and SDRMA cross-complained against the City and Central
Coast for fees and costs. The cross-complaint was based on the
indemnity provision of the annexation application.
The trial court granted the City and Central Coast’s
judgment on the pleadings against LAFCO and SDRMA
(hereafter collectively “LAFCO”). The court denied LAFCO's
request for leave to amend its pleadings. LAFCO appealed.
We affirmed in San Luis Obispo Local Agency Formation
Com. v. City of Pismo Beach (2021) 61 Cal.App.5th 595 (LAFCO
I). We determined that the indemnity agreement was not
supported by consideration and that LAFCO has no statutory
authority to impose an indemnity agreement as a condition of
LAFCO’s statutory duty to consider Central Coast’s application.
LAFCO II
While the appeal in LAFCO I was pending, the City and
Central Coast moved for attorney fees based on section 1717.
The trial court granted the motion. The court awarded $172,850
to the City and $428,864 to Central Coast. LAFCO again appeals
(LAFCO II).
3.
DISCUSSION
Section 1717 Does Not Apply to a Void Contract
LAFCO contends the indemnity agreement is void as an
illegal and ultra vires contract.3 LAFCO asserts section 1717
does not apply to a void contract.
Section 1717, subdivision (a) provides: “In any action on a
contract, where the contract specifically provides that attorney’s
fees and costs, which are incurred to enforce that contract, shall
be awarded either to one of the parties or to the prevailing party,
then the party who is determined to be the party prevailing on
the contract, whether he or she is the party specified in the
contract or not, shall be entitled to reasonable attorney’s fees in
addition to other costs.”
LAFCO argues our opinion in LAFCO I determined that
the indemnity agreement was an illegal contract. It cites Geffen
v. Moss (1975) 53 Cal.App.3d 215, 227, for the principle that
where a contract is illegal, it is void, a right to attorney fees
created by the contract is unenforceable, and section 1717 does
not apply. (See also Bovard v. American Horse Enterprises, Inc.
(1988) 201 Cal.App.3d 832, 843 [citing Geffen].)
Central Coast replies that the contract is not illegal, and
our opinion in LAFCO I does not say that it is. Central Coast
relies on a line of cases that state a contract is illegal where the
object of the contract is unlawful. (Citing, e.g., McIntosh v. Mills
(2004) 121 Cal.App.4th 333, 346.) Central Coast argues the
3 Central Coast contends LAFCO has waived the argument
by not raising it in the trial court. But the question is one of law
that we can consider for the first time on appeal. (Sanchez v.
Truck Ins. Exchange (1994) 21 Cal.App.4th 1778, 1787 [a party
may raise for the first time on appeal a pure question of law
which is presented by undisputed facts].)
4.
object of the contract involved here, an indemnity agreement, is
not unlawful.
In LAFCO I, we concluded that LAFCO was not authorized
by statute to make the indemnity agreement. (LAFCO I, supra,
61 Cal.App.5th at pp. 600-602.) Where a public agency is not
authorized to make an agreement, the agreement is void and the
public agency may neither enforce nor be liable on the contract.
(Air Quality Products, Inc. v. The State of California (1979) 96
Cal.App.3d 340, 349; see 1 Witkin, Summary of Cal. Law (11th
ed. 2017) Contracts, § 1011, p. 1053.) It follows that the public
agency is not liable for attorney fees based on section 1717.
Section 1717 is based on contract. The result should be no
different than with contracts that are void for illegality. (See
Geffen v. Moss, supra, 53 Cal.App.3d at p. 227.)
II
In Pari Delicto Does Not Apply
Central Coast contends that the doctrine of in pari delicto
applies to allow enforcement of the contract.
Central Coast cites McIntosh for the principle that the
doctrine of in pari delicto allows an illegal contract to be enforced
“ ‘so long as the party seeking its enforcement is less morally
blameworthy than the party against whom the contract is being
asserted, and there is no overriding public interest to be served
by voiding the agreement.’ ” (McIntosh v. Mills, supra, 121
Cal.App.4th at p. 347.)
But the doctrine does not apply to unauthorized contracts
made by public agencies because there is an overriding public
interest to be served by voiding the agreement. The overriding
public interest is to protect the public fisc. Thus, a party who
contracts with a public agency that lacks the authority to enter
5.
into the contract cannot even collect in quantum meruit for
services rendered because of the need to limit a public entity’s
contractual obligations. (Katsura v. City of San Buenaventura
(2007) 155 Cal.App.4th 104, 109-110.)
Moreover, the question of attorney fees arose because
Central Coast brought a meritless action against LAFCO. For
the same reason that LAFCO could not recover fees because the
interpretation of the indemnity agreement lacked merit, so too
Central Coast may not recover fees.
DISPOSITION
The judgment (order) is reversed. Costs on appeal are
awarded to appellants.
CERTIFIED FOR PUBLICATION.
GILBERT, P. J.
We concur:
YEGAN, J.
PERREN, J.
6.
Ginger E. Garrett, Judge
Superior Court County of San Luis Obispo
______________________________
McCormick, Barstow, Sheppard, Wayte & Carruth, James
P. Wagoner, Timothy J. Buchanan, Brandon M. Fish, and Lejf E.
Knutson for Cross-complainants and Appellants San Luis Obispo
Local Agency Formation Commission and Special District Risk
Management Authority.
Richards, Watson & Gershon, T. Peter Pierce, Kyle H.
Brochard; David M. Fleishman, City Attorney, for Cross-
defendant and Respondent City of Pismo Beach.
Jackson Tidus, Michael L. Tidus, and Gregory P. Regier for
Cross-defendant and Respondent Central Coast Development
Company.
7.