City of Anaheim v. Cohen

Filed 8/30/17
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)
----
CITY OF ANAHEIM et al., C081918
Plaintiffs and Appellants, (Super. Ct. No. 34201380001529)
v.
MICHAEL COHEN, as Director, etc. et al.,
Defendants and Respondents,
APPEAL from a judgment of the Superior Court of Sacramento County, Michael
P. Kenny, Judge. Reversed.
Rutan & Tucker, Jeffrey M. Oderman for Plaintiffs and Appellants.
Kamala D. Harris and Xavier Becerra, Attorneys General, Douglas J. Woods,
Senior Assistant Attorney General, Constance L. LeLouis and Anthony P. O’Brien,
Deputy Attorneys General, for Defendants and Respondents.
1
In this redevelopment case, the city of Anaheim, acting in its capacity as successor
to the former Anaheim Redevelopment Agency, sought approval from the California
Department of Finance (the department) to obtain money from the Redevelopment
Property Tax Trust Fund (the fund or, sometimes, the RPTTF) to pay back the city of
Anaheim for payments the City of Anaheim made to a construction company to complete
certain real property improvements that the former Anaheim Redevelopment Agency was
obligated to provide on a particular redevelopment project (the packing district project).1
The city and the city as successor characterized the transaction between themselves as a
loan, but the department ultimately denied the claim for money from the fund because the
city did not disburse the loan proceeds to the city as successor, but instead paid the
construction company directly, and because the city as successor did not obtain prior
approval for the “loan” agreement with the city from the oversight board.
Around the same time, the city as successor sought approval from the department
to obtain money from the fund to make payments to the Anaheim Housing Authority (the
authority) under a cooperation agreement between the agency and the authority, the
purpose of which was to provide funding for the Avon/Dakota revitalization project,
which was being carried out by a private developer -- The Related Companies of
California, LLC (Related) -- pursuant to a contract with the authority. The department
denied that claim because the 2011 law that dissolved the former redevelopment agencies
renders agreements between a former redevelopment agency and the city that created that
agency (or, as relevant here, a closely affiliated entity like the authority) unenforceable.2
1 We will refer to the former Anaheim Redevelopment Agency as the agency. We
will refer to the City of Anaheim acting in its capacity as successor to the agency as the
city as successor and otherwise as the city.
2 We will sometimes refer to the body of laws governing the dissolution of
redevelopment agencies as the dissolution law.
2
The city, the city as successor, and the authority sought mandamus, declaratory,
and injunctive relief on both issues in the superior court, but the trial court denied the writ
petition and dismissed the complaint for declaratory and injunctive relief.3
On plaintiffs’ appeal, we conclude the trial court erred. As we will explain, with
respect to the packing district project, the fact that the city contracted directly with the
construction company to construct the improvements the agency was legally obligated to
provide at that project, and the fact that the city paid the company directly for its work,
did not mean the agreement between the city and the city as successor with respect to the
transaction was not a loan, as the department and the trial court concluded. Also, the fact
that the city as successor did not obtain prior approval from the oversight board to enter
into a loan agreement with the city did not give the department a valid reason to deny the
city as successor’s request for money from the fund to pay off the loan.
As for the money from the fund claimed for the Avon/Dakota revitalization
project, we conclude that enforcing the provision of the dissolution law that renders
unenforceable an agreement between a former redevelopment agency and the city that
created it (or an affiliated entity like the authority) would, in this case, unconstitutionally
impair Related’s contractual rights under its agreement with the authority. Accordingly,
that provision cannot be enforced here to deny the city as successor the right to obtain
money from the fund to pay the authority that, in turn, the authority is obligated to pay
Related to carry out the revitalization project.
Accordingly, we will reverse.
3 For ease of reference, we will refer to these three parties, along with Related, who
was named as a real party in interest in the trial court, jointly as plaintiffs, because all
four parties are participating as appellants in this appeal and thus share a common interest
in the case.
3
LEGAL BACKGROUND
Before June 2011, the Community Redevelopment Law (Health & Saf. Code,4
§ 33000 et seq.) authorized cities and counties to establish redevelopment agencies to
remediate urban decay and revitalize blighted communities. (California Redevelopment
Assn. v. Matosantos (2011) 53 Cal. 4th 231, 245-246 (Matosantos).) To finance their
activities, redevelopment agencies relied on “tax increment financing . . . . [Citations.]
Under this method, those public entities entitled to receive property tax revenue in a
redevelopment project area (the cities, counties, special districts, and school districts
containing territory in the area) [we]re allocated a portion based on the assessed value of
the property prior to the effective date of the redevelopment plan. Any tax revenue in
excess of that amount -- the tax increment created by the increased value of project area
property -- [went] to the redevelopment agency for repayment of debt incurred to finance
the project. [Citations.] In essence, property tax revenues for entities other than the
redevelopment agency [we]re frozen, while revenue from any increase in value [wa]s
awarded to the redevelopment agency on the theory that the increase [wa]s the result of
redevelopment.” (Id. at pp. 246-247.)
In June 2011, as a partial means of closing the state’s projected budget deficit, the
Legislature passed, and the Governor signed, Assembly Bill XI 26, which, in addition to
other things, “dissolve[d] all redevelopment agencies [citation] and transfer[red] control
of redevelopment agency assets to successor agencies, which are contemplated to be the
city or county that created the redevelopment agency.” (Matosantos, supra, 53 Cal.4th at
p. 251.) A successor agency is required to “[c]ontinue to make payments due for
enforceable obligations” (§ 34177, subd. (a)), which include “[a]ny legally binding and
enforceable agreement or contract that is not otherwise void as violating the debt limit or
4 All further section references are to the Health and Safety Code.
4
public policy” (§ 34171, subd. (d)(1)(E)), but which do not include “any agreements,
contracts, or arrangements between the city, county, or city and county that created the
redevelopment agency and the former redevelopment agency” (ibid., subd. (d)(2)).5
To obtain funds to make payments required by enforceable obligations, a
successor agency must prepare, and submit to the department for approval, a recognized
obligation payment schedule (ROP schedule) for every six-month fiscal period from
January 1, 2012 through June 30, 2016 (§§ 34171, subd. (h), 34177, subds. (a)(1), (l) &
(m)) and thereafter for every fiscal year (§ 34177, subd. (o).) An ROP schedule “set[s]
forth the minimum payment amounts and due dates of payments required by enforceable
obligations for each six-month fiscal period.” (§ 34171, subd. (h).) For each recognized
obligation, the schedule must “identify one or more . . . sources of payment.” (§ 34177,
subd. (l)(1).) Among the possible sources of payment is the fund (id., subd. (l)(1)(E)),
into which the county auditor-controller is charged with depositing tax increment
funding, i.e., “the amount of property taxes that would have been allocated to each
redevelopment agency in the county had the redevelopment agency not been dissolved.”
(§ 34182, subd. (c)(1).)
The successor agency’s oversight board must approve each ROP schedule.
(§ 34180, subd. (g).) Following the oversight board’s approval, the agency must submit
the ROP schedule to the department for its approval. (§ 34177, subd. (m)(1).) The
department then determines “the enforceable obligations and the amounts and funding
sources of the enforceable obligations.” (Ibid.)
5 A related provision of the dissolution law provides that “[c]ommencing on the
operative date of this part, agreements, contracts, or arrangements between the city or
county, or city and county that created the redevelopment agency and the redevelopment
agency are invalid and shall not be binding on the successor agency.” (§ 34178,
subd. (a).)
5
In 2012, the dissolution law was amended to provide a mechanism by which the
municipality that created a redevelopment agency could lend money to the successor
agency to make payments due on enforceable obligations. Specifically, former
subdivision (h) was added to section 34173, and at the time relevant here that subdivision
provided as follows: “The city, county, or city and county that authorized the creation of
a redevelopment agency may loan or grant funds to a successor agency for administrative
costs, enforceable obligations, or project-related expenses at the city’s discretion, but the
receipt and use of these funds shall be reflected on the Recognized Obligation Payment
Schedule or the administrative budget and therefore are subject to the oversight and
approval of the oversight board. An enforceable obligation shall be deemed to be created
for the repayment of those loans.”6 (Stats. 2012, ch. 26, § 7.)
With this legal background in mind, we turn to the facts of this case.
FACTUAL AND PROCEDURAL BACKGROUND
A
The Parking And Alley Improvements At The Packing District Project
On October 26, 2010, the agency and LAB Holding LLC (LAB) entered into an
agreement for the redevelopment of several agency-owned properties in the city’s
“Packing District” (the LAB agreement). Among other things, the LAB agreement
obligated the agency to construct a surface parking lot and interior alley improvements to
serve the project (the parking and alley improvements).
In August 2012, the packing district project was nearing completion, but the city
as successor had not yet entered into a construction contract for the parking and alley
6 Subdivision (h) of section 34173 was later amended again in 2015 (Stats. 2015,
ch. 325, § 3), after this action was commenced, and the department concedes the
amended statute does not apply in this case. Accordingly, our analysis in this opinion is
limited to the former version of that statute.
6
improvements it was obligated to provide under the LAB agreement. In the ROP
schedule the city as successor prepared that month for the January 2013 through June
2013 fiscal period, the city as successor applied for a distribution from the fund of a sum
needed to complete construction of the parking and alley improvements.
Despite having previously approved distributions from the fund of other amounts
necessary for the city as successor to perform the agency’s obligations under the LAB
agreement, and despite continuing to approve other such distributions going forward, the
department denied the requested distribution for the parking and alley improvements on
the ground the money sought was not for an enforceable obligation. The city as
successor submitted a meet and confer request to the department to challenge that
determination, and the department issued a revised ruling on the matter in December
2012 denying the requested distribution because “no contracts [we]re in place for the
construction.”
Because the parking and alley improvements needed to be made quickly, and the
city as successor could not wait for the next round of funding under the ROP system
(which would not occur until July 2013), the city as successor sought another source of
funding to complete the improvements. In February 2013, the city as successor entered
into an agreement with the city entitled “COOPERATION AGREEMENT [¶] (Loan
Agreement pursuant to Health & Safety Code Section 34173(h))” (bolding omitted) (the
loan agreement). The loan agreement recited the pertinent factual background, up to and
including the department’s denial of the requested distribution from the fund, and noted
that the department’s denial “presente[d] a logistical challenge for [the city as successor],
by requiring the [city as successor] to enter into a construction contract without prior
authorization from the [department] to make the payments required by such contract.”
The loan agreement then noted that former subdivision (h) of section 34173 authorized
the city to loan funds to the city as successor for an enforceable obligation and recited
that the city desired “to assist the [city as successor] by providing a loan to the [city as
7
successor] . . . to enable the [city as successor] to enter into [a contract for construction of
the parking and alley improvements] at this time and to pay for the construction of [those
i]mprovements, all as required by the LAB [agreement].” The loan agreement went on to
recite that “[c]oncurrently with this Agreement, the [city as successor] and the City desire
to enter into a construction contract with Spiess Construction Co. Inc. . . . for the Parking
and Alley Improvements” and that “the total potential expenditure authorized for” those
improvements was $1,111,102.20.7
The loan agreement then provided that the city would loan to the city as successor,
and the city as successor would borrow from the city, up to $1,111,102.20, and the
agreement provided that the city would “disburse proceeds of the [loan] to [the city as
successor] or directly to [Spiess Construction], as elected by the City, for work performed
by [Spiess Construction] under the [construction c]ontract, all in accordance with the
requirements of the” contract. The loan agreement also provided that the city as
successor would repay the loan upon receipt of money from the fund.8
Later that month, the city entered into the contract with Spiess Construction
(Spiess) for the construction of the parking and alley improvements.
7 This amount consisted of the price of the contract with Spiess Construction
($925,918.50), plus 20 percent of that contract price for potential change orders.
8 “3. Repayment of City Loan. Successor Agency shall repay the City Loan to
City promptly upon receipt of RPTTF moneys for the ROPS 13-14A period, and for and
during each subsequent ROPS periods, if necessary, to repay the City Loan in full;
provided however, that this Agreement and the Parking and Alley Construction Contract
shall have been approved by the DOF as enforceable obligations on ROPS 13-14A (and
each subsequent ROPS, as applicable). Subject to Section 4 below, Successor Agency
shall repay the entire outstanding principal balance of the City Loan to the City on or
before five (5) working days following the date the Successor Agency receives a
disbursement of RPTTF moneys for the ROPS 13-14A period (and/or subsequent ROPS
periods, as necessary); provided that the Parking and Alley Construction Contract is an
approved enforceable obligation on ROPS 13-14A.”
8
In the ROP schedule the city as successor prepared that same month (February
2013) for the July 2013 through December 2013 fiscal period, the city as successor
requested a distribution from the fund in the sum of $1,111,102.20 -- the total potential
amount of the loan provided for in the loan agreement. In April 2013, the department
denied the request because “the loan was entered into for an item denied by [the
department] during a prior ROPS period. Therefore, this item is not an enforceable
obligation . . . .” Following the meet and confer process, the department issued a new
denial letter in May 2013, denying the request because the city as successor was not a
party to the construction contract between the city and Spiess.
In June 2013, the city and the city as successor commenced the present action by
filing a petition for writ of mandate and complaint for declaratory and injunctive relief in
the Sacramento County Superior Court. With respect to the parking and alley
improvements, plaintiffs sought a writ compelling the department to set aside its previous
actions and determinations and to “issue a formal written determination and directive that
. . . the LAB [agreement] and [Cooperation] Agreement are enforceable obligations . . .
eligible for payment from the . . . [f]und” and that the city as successor is “entitled to an
allocation of moneys from the . . . [f]und in conjunction with future ROPS to the extent
[the city as successor] places such agreements on the ROPS with a demand for payment
and funds are available in the . . . [f]und to pay the amounts so requested.”9
The construction of the parking and alley improvements was completed in
November 2013, and the city paid for the construction under its contract with Spiess.
For the next ROP cycle (the fiscal period from January 2014 through June 2014),
the city as successor did not renew its request for an allocation from the fund for the
parking and alley improvements. However, in approving allocations from the fund for
9 The mandamus action also encompassed claims relating to the Avon/Dakota
revitalization project, discussed below.
9
other obligations incurred by the city as successor under the LAB agreement, the
department acknowledged that the city as successor’s obligation to complete the parking
and alley improvements was an enforceable obligation that would be eligible for tax
increment funds in the next ROP cycle. Accordingly, despite the pending litigation, the
city as successor sought a distribution from the fund for its obligation to the city under
the loan agreement in its ROP statement for the fiscal period from July 2014 through
December 2014. Initially, the department denied this request because of lack of
“additional clarification or documentation,” but then following the meet and confer
process denied the request again in May 2014 because “the [city as successor] did not
submit an Oversight Board resolution to [the department] for review prior to entering the
loan[].”
In September 2014, the city as successor obtained a stand-alone resolution from
the oversight board approving the loan agreement.10 The city as successor notified the
department of the oversight board’s approval in October 2014. Meanwhile, in
September, the city as successor had once again submitted an ROP statement (this time
for the fiscal period from January 2015 through June 2015) seeking a distribution from
the fund for the amount owed to the city under the loan agreement (now fixed at
$884,429).
In November 2014, the department provisionally denied the city as successor’s
request for a distribution, noting that it had not yet completed its review of the oversight
board’s resolution approving the loan agreement. Then, on December 8, 2014, the
department disapproved the resolution. The department explained that “it does not
appear that the City actually loaned funds to the [city as successor] for amounts owed
10 The oversight board had previously approved the ROP statements in which the
city as successor sought allocations from the fund for the amount due the city under the
loan agreement, but the board had not separately approved the loan agreement itself.
10
under a contract in which the [city as successor] is a party. Rather, the Cooperation
Agreement seeks to reimburse the City for costs it incurred under an agreement between
the City and Sp[ie]ss Construction.” The department further asserted that even if former
subdivision (h) of section 34173 applied to the loan agreement, “a request by the [city as
successor] to enter into a loan agreement with the city . . . must be approved by the
oversight board and is subject to [the department’s] review prior to entering into the
agreement. Additionally, the use of the loaned funds must first be presented on a ROPS
subject to review by the [oversight board] and [the department]. The [city as successor]
took none of these steps prior to entering into the Cooperation Agreement or the alleged
expenditure of the funds pursuant to the Cooperation Agreement. Consequently, the
[oversight board] has no authority to retroactively approve the actions taken by the [city
as successor], and therefore the Cooperation Agreement is not effective.” A week later,
on December 17, 2014, the department rejected the city as successor’s request for a
distribution from the fund for the amount owed to the city under the loan agreement for
the reasons stated in its letter of December 8.
In July 2015, a notice of hearing was filed in this mandamus proceeding, with the
hearing set for December 2015 (later continued to January 2016). In their memorandum,
plaintiffs argued that the city as successor was entitled to money from the fund as
reimbursement for the costs expended to construct the parking and alley improvements at
the packing district project, and plaintiffs set out to refute the various reasons the
department had given over time for denying that funding. In response, the department
argued that it did not abuse its discretion in denying the city as successor’s request for
money from the fund related to the parking and alley improvements because: (1) the city
as successor was not a party to the construction agreement with Spiess, and therefore that
agreement was not an enforceable obligation; (2) the city as successor did not obtain
oversight board approval and submit that approval to the department before entering into
the loan agreement with the city; and (3) former subdivision (h) of section 34173 did not
11
contemplate loan agreements in which a third party, rather than the successor agency,
receives the funds loaned.
The trial court issued its ruling on submitted matter in February 2016. With
regard to the parking and alley improvements and the loan agreement, the court noted
that the city as successor was seeking to enforce an obligation that “is based on a contract
between the City and the construction company.” According to the court, while the LAB
agreement “clearly created an enforceable obligation, funds are only due to the extent the
[city as successor] actually expended funds to complete the parking and alley
improvements. Because the [city as successor] is not a party to the construction contract
with Spiess, it is the City, not the [city as successor], [that] expended funds to build the
parking and alley improvements. There is no reference to the [city as successor] in the
contract, and it is the City, not the [city as successor], that is given the express right to
oversee construction and terminate the contractor’s employment should the need
arise. . . . [¶] Although the [loan a]greement anticipates that the City might pay loaned
funds directly to the construction company, it does not indicate that the [city as
successor] is authorizing or directing the City to enter into the parking construction
contract on its behalf. The City Council, not the [city as successor] via the Oversight
Board, ‘passed and adopted, approved and authorized’ the construction, converting it into
a City controlled project. Consequently, the City paid funds pursuant to the City’s
contractual obligations with Spiess Construction, and as the funds sought are not for
payment of the [city as successor]’s enforceable obligation, [the department] is correct in
its denial of the request.”
In March 2016, the trial court issued its order denying the writ petition and
dismissing the complaint for declaratory and injunctive relief based on its earlier ruling
and entered judgment in favor of the department. This timely appeal followed.
12
B
The Avon/Dakota Neighborhood Revitalization Project
The Avon/Dakota neighborhood is a multifamily residential neighborhood that is
one of the city’s most blighted areas. To revitalize that neighborhood, on June 22, 2010
the authority entered into a revitalization agreement with Related (the revitalization
agreement), under which the authority and Related (referred to in the agreement as
Developer) were to “jointly and cooperatively prepare a revitalization plan for th[e]
neighborhood” and implement that plan. The revitalization agreement recited that
“[p]ursuant to one or more separate cooperation agreements between or among the
Authority, the City of Anaheim, . . . and/or the Anaheim Redevelopment Agency, . . . to
be considered and action taken concurrently with this Revitalization Agreement, it is
anticipated that the Authority will be allocated by the City and/or by the Agency certain
federal, state, and local funds that will be authorized to be expended to carry out this
Revitalization Agreement and provide financial assistance for the Project along with
preparation and implementation of the Plan.” With respect to the agency, the agreement
stated that the sources of the anticipated funds to be provided “may include . . . monies
from the Agency’s Low and Moderate Income Housing Fund (‘Housing Fund’)” and
“such other funds as may be allocated by . . . Agency to Authority.” The revitalization
agreement also recited that “Agency receives tax increment revenues pursuant to
Section 33670(b) of the [California Community Redevelopment Law] and is required to
deposit no less than thirty percent (30%) of the tax increment revenues allocated to
Agency into Agency’s Low and Moderate-Income Housing Fund (‘Housing Fund’)
pursuant to Sections 33333.10, 33333.11, 33334.2 and 33334.6 of the [California
Community Redevelopment Law] and to use such funds in order to increase, improve,
and preserve the community’s supply of low and moderate-income housing available at
an affordable housing cost.”
13
The revitalization agreement went on to specify that the authority would provide
up to $4.8 million for the preparation and implementation of the revitalization plan. The
agreement expressly identified the city and the agency as “intended third party
beneficiaries of this Revitalization Agreement, with full right, but no obligation, to
enforce the terms hereof.” The agreement further provided that “[t]his Revitalization
Agreement (together with the other Authority Documents) contains the entire agreement
between Authority and Developer with respect to the Properties, and all prior
negotiations, understandings and agreements are superseded by this Revitalization
Agreement and such other Authority Documents. No modification of any Authority
Document (including waivers of rights and conditions) shall be effective unless in writing
and signed by the Party against whom enforcement of such modification is sought, and
then only in the specific instance and for the specific purpose given.” The term
“Authority Documents” was defined to mean “this Revitalization Agreement and any and
all Implementation Agreements entered into in multiple Phases of revitalization of the
Avon/Dakota Neighborhood pursuant hereto.”
A week later, on June 28, 2010, the authority, the city, and the agency entered into
a cooperation agreement for the funding of the Avon/Dakota revitalization project (the
funding agreement). Like the revitalization agreement, the funding agreement noted the
agency’s obligation to set aside “a certain portion” of its tax increment funding for low
and moderate-income housing costs. The funding agreement referred to these funds as
“the ‘Housing Set-Aside Funds.’ ” The funding agreement then recited the parties’ intent
to provide for the city to transfer certain funds to the authority, and for the agency to
transfer “certain Housing Set-Aside funds” to the authority, and for the authority to use
those funds to implement the revitalization agreement. The funding agreement then
provided that the city would transfer up to $3.759 million to the authority, while the
14
agency would transfer up to $1.041 million.11 The authority agreed to impose such
conditions, covenants, and restrictions in the implementation of the project “as the
Redevelopment Agency would be required to impose with respect to the use of Housing
Set-Aside Funds under the California Community Redevelopment Law.”
On January 31, 2011, the authority and the agency entered into a further
cooperation agreement for additional funding of the Avon/Dakota revitalization project
(the additional funding agreement). The additional funding agreement recited that the
authority and the agency desired to provide for the agency to transfer additional “Housing
Set-Aside Funds” to the authority and for the authority to use those additional funds to
implement the revitalization agreement. The additional funding agreement then provided
that the agency would transfer up to $15 million to the authority, and the authority would
use that money to implement the revitalization agreement. The additional funding
agreement further provided that “[t]he payment obligation of the Redevelopment Agency
hereunder shall be made, at the option of the Redevelopment Agency, from the tax
increment revenues of Anaheim’s Merged Redevelopment Project Area, bond proceeds
from Anaheim’s Merged Redevelopment Project, inter-fund-transfer, and/or any other
funds of the Redevelopment Agency legally available therefor. The payment obligation
of the Redevelopment Agency hereunder does not constitute a pledge of any particular
funds and is and shall be subordinate to any pledge or other commitment of the Agency
made in connection with any Redevelopment Agency bonds, now or hereafter issued.”12
11 The total amount of funding committed to the authority by the city and the agency
under the funding agreement was equal to the total amount of funding the authority
promised to Related in the revitalization agreement for the preparation and
implementation of the revitalization plan.
12 Hereafter, references to the funding agreement encompass the additional funding
agreement as well (unless otherwise noted).
15
After the additional funding agreement was signed, the authority and Related
entered into a written amendment to the revitalization agreement (the amendment to the
revitalization agreement). After noting that the funding for the project had been
increased by $15 million, the amendment to the revitalization agreement specified that
the authority would provide up to $19.8 million for the preparation and implementation
of the revitalization plan. The amendment to the revitalization agreement also added a
funding schedule and provided that the authority would make moneys available
according to that schedule.13 Under the schedule, the authority was to make $1,113,034
available to Related in fiscal year 2010-2011 (which the schedule noted had already been
expended for the acquisition of two properties), $2.5 million a year for each of the eight
fiscal years after that, and $1,186,966 for the fiscal year from 2018-2019.14
In the first two ROP cycles (through the fiscal period ending December 31, 2012),
the city as successor requested, and the oversight board and the department approved, a
total disbursement of $5,315,700 from the fund for use in funding the Avon/Dakota
revitalization project. In the ROP schedule the city as successor prepared in August 2012
for the January 2013 through June 2013 fiscal period, the city as successor requested
$1,989,227 from the fund with respect to the Avon/Dakota revitalization project. In
October 2012, the department approved a small portion of the requested amount, but
denied the rest based on its understanding that “contracts for these line items were
13 Specifically, the amendment to the revitalization agreement added a new section
3.2 to the revitalization agreement that provided as follows: “Authority shall make
moneys available for the acquisition of Properties and the planning and implementation
of the Plan pursuant to the Revitalization Agreement (as amended by this First
Amendment) in accordance with the Authority Funding Schedule for the Avon/Dakota
Neighborhood Revitalization Plan, attached hereto as Exhibit C and incorporated herein
(‘Authority Funding Schedule’).”
14 Hereafter, references to the revitalization agreement are to that agreement as
amended (unless otherwise noted).
16
awarded after June 27, 2011.” Following the meet and confer process, in December
2012, the department confirmed its denial of the requested distribution on the ground that
the revitalization agreement was between the authority and a third party, and the agency
was not a party to that agreement. The department further stated, “Section ‘M’ of the
[revitalization agreement] states that pursuant to separate cooperation agreements, the
Authority was anticipated to be allocated funds from the City and/or the former RDA.
Additional documents do not support the amount claimed on the ROPS . . . ; therefore,
Finance determines that this does not create an enforceable obligation on the former
RDA. In addition, any cooperation agreements entered would not be considered
enforceable pursuant to HSC section 34171(d)(2). Therefore, the items are not
enforceable obligations.”
Given the department’s determination that payments for the Avon/Dakota
revitalization project were not for enforceable obligations, the city as successor did not
seek any further distribution for that purpose in the next four ROP cycles, and instead the
project proceeded with other available funds. In June 2013, however, plaintiffs included
a claim related to the denial of funding for the Avon/Dakota revitalization project in this
mandamus action. Plaintiffs alleged that Related was an intended third party beneficiary
of the agency’s obligation to make payments to the authority under the funding
agreement and that the revitalization agreement and the funding agreement “must be read
together as a single contract between and among all of the parties thereto.” Plaintiffs
contended that because “Related is a party to and third party beneficiary under the
Avon/Dakota Cooperation Agreement and Avon/Dakota Neighborhood Revitalization
Agreement and said agreements must be read together as a single contract . . . , those
agreements do not constitute agreements ‘between the city . . . that created the
redevelopment agency and the former redevelopment agency’ within the meaning of
Health & Safety Code §34171(d)(2).” With respect to this claim, plaintiffs sought a writ
compelling the department to set aside its previous actions and determinations and to
17
“issue a formal written determination and directive that . . . the Avon/Dakota Cooperation
Agreement and Avon/Dakota Neighborhood Revitalization Agreement . . . are
enforceable obligations . . . eligible for payment from the . . . [f]und” and that the city as
successor is “entitled to an allocation of moneys from the . . . [f]und in conjunction with
future ROPS to the extent [the city as successor] places such agreements on the ROPS
with a demand for payment and funds are available in the . . . [f]und to pay the amounts
so requested.”
In February 2015, the city as successor once again sought a distribution from the
fund for use in funding the Avon/Dakota revitalization project. In April 2015, the
department again denied that distribution because the agency was not a party to the
revitalization agreement.
As we have previously noted, the hearing on plaintiffs’ writ petition was
eventually set for January 2016. In their memorandum, plaintiffs argued that subdivision
(d)(2) of section 34171, which excludes from the definition of “enforceable obligation”
“any agreements, contracts, or arrangements between the city, county, or city and county
that created the redevelopment agency and the former redevelopment agency,” did not
apply here because pursuant to Civil Code section 1642 the revitalization agreement and
the funding agreement must be construed as a single contract, to which Related was a
party, thereby taking the contract out of that limiting provision.15 Plaintiffs also argued
that “Related’s rights under the [revitalization agreement] would be obliterated unless
[the department’s] denial of RPTTF funding is overturned” and thus reversal of the
department’s decision was necessary to avoid the unconstitutional impairment of
Related’s contract rights.
15 “Several contracts relating to the same matters, between the same parties, and
made as parts of substantially one transaction, are to be taken together.” (Civ. Code,
§ 1642.)
18
In opposition, the department argued that the revitalization agreement and the
funding agreement were not a single contract, the cooperation agreement was not an
enforceable obligation, and the department’s denial of RPTTF funding did not violate
Related’s rights under the contracts clauses of the federal and state Constitutions.
In its ruling on submitted matter issued in February 2016, the trial court concluded
that Related was not a party to the funding agreement such that it could enforce payment
from the agency to the authority, and because the revitalization agreement and the
funding agreement were not between the same parties, they could not be treated as a
single contract under Civil Code section 1642. The court further concluded that it did
“not need to address [plaintiffs’] ‘impairment of contracts’ arguments, as Related has no
rights under the [funding agreement].”
As noted above, plaintiffs timely appealed from the resulting judgment in favor of
the department.
DISCUSSION
I
The Parking And Alley Improvements At The Packing District Project
A
The Loan Agreement Between The City And The City As Successor
Gave Rise To An Enforceable Obligation
On appeal, plaintiffs contend the city as successor is entitled to money from the
fund to repay the loan proceeds used to construct the parking and alley improvements on
the packing district project. According to plaintiffs, former subdivision (h) of section
34173 “did not require the City to disburse the loan proceeds to the [city as successor] so
that the [city as successor] could contract with Spiess. . . . Loan agreements, it must be
emphasized, typically involve the lender disbursing funds to a party other than the
borrower. . . . If the Legislature had intended that the definition of ‘loan’ as used in
19
[former] §34173(h) should have a narrower meaning it easily could have said so. It did
not.”
In response, the department argues -- as it did in the trial court -- that “[t]he
construction agreement between the City and Spiess is not an enforceable obligation
because it does not include any indebtedness incurred by the [city as successor].” That
argument goes nowhere, however, because the city as successor did not seek money from
the fund to make payments due under the construction contract with Spiess. Rather, the
city as successor sought money from the fund to make payments due under the loan
agreement -- that is, to pay back to the city the amounts the city paid the construction
company under the construction contract for the construction of the parking and alley
improvements the agency was obligated to provide under the LAB agreement. Thus, the
pertinent question here is not whether the construction contract between the city and
Spiess was an enforceable obligation, but rather whether the loan agreement between the
city and the city as successor gave rise to an enforceable obligation.
As we have seen, former subdivision (h) of section 34173 provided as follows:
“The city, county, or city and county that authorized the creation of a redevelopment
agency may loan or grant funds to a successor agency for administrative costs,
enforceable obligations, or project-related expenses at the city’s discretion, but the receipt
and use of these funds shall be reflected on the Recognized Obligation Payment Schedule
or the administrative budget and therefore are subject to the oversight and approval of the
oversight board. An enforceable obligation shall be deemed to be created for the
repayment of those loans.”
Here, the city loaned funds to the city as successor for an enforceable obligation
when, pursuant to the terms of the loan agreement, the city as successor contracted with
Spiess and paid for the construction of the parking and alley improvements the agency
was legally obligated to provide under the LAB agreement (which no one disputes was an
20
enforceable obligation). Thus, at first glance at least, it does appear that former
subdivision (h) of section 34173 was satisfied here.
The department contends, however, that the statute was not satisfied because “the
[city as successor] never received any money from the City, and therefore never had a
repayment obligation under the . . . loan agreement.” According to the department,
because former subdivision (h) of section 34173 provides that “[a]n enforceable
obligation shall be deemed to be created for the repayment of those loans” (italics added),
a repayment obligation is a necessary requirement of the statute, and there was no such
obligation here.
We disagree. To say that the city as successor “never had a repayment obligation
under the . . . loan agreement” because “the [city as successor] never received any money
from the City” is to ignore the terms of the loan agreement. As we have seen, the loan
agreement specifically provided that the city as successor would “repay the City Loan to
City” upon receiving money from the fund to do so. It is of no matter that the loan
proceeds were not first paid to the city as successor, so that the city as successor could
pay them to the construction company, and it is likewise of no matter that the city as
successor was not a party to the construction contract. There is no dispute that the only
reason the city entered into the contract with Spiess in the first place was because the
department had thwarted (rightly or wrongly) the city as successor’s earlier attempts to
obtain money from the fund to pay for the construction of the parking and alley
improvements that the agency was obligated to provide under the terms of the LAB
agreement, and the city wanted to “assist the [city as successor] by providing a loan to the
[city as successor] . . . to enable the [city as successor] . . . to pay for the construction of
the Parking and Alley Improvements . . . as required by the LAB” agreement, which
qualified as an enforceable obligation. That the loan agreement allowed the city to
contract with the construction company and disburse the loan proceeds directly to the
construction company did not alter the fundamental substance of the transaction as a
21
loan, under which the city was lending money to the city as successor with the right to be
paid back. (See Civ. Code, § 3528 [“The law respects form less than substance”].) Just
as the average person who borrows money to buy a house or a car never personally
receives the borrowed funds, the city as successor borrowed money from the city here
even though the city as successor did not receive the borrowed funds, but instead agreed
the city could pay those funds directly to the construction company.
As for the department’s backup assertion that loan agreement did not give rise to
an enforceable obligation because the city as successor’s “obligation to repay the loan
was contingent on [the department] approving the City-Spiess construction contract,”
“which never occurred,” we are not persuaded. The loan agreement did provide that
“Successor Agency shall repay the City Loan to City promptly upon receipt of RPTTF
moneys for the ROPS 13-14A period, and for and during each subsequent ROPS periods,
if necessary, to repay the City Loan in full; provided however, that this Agreement and
the Parking and Alley Construction Contract shall have been approved by the DOF as
enforceable obligations on ROPS 13-14A (and each subsequent ROPS, as applicable).”
However, the provision relating to the department approving the contract with Spiess as
an enforceable obligation appears to have been included in contemplation of the
possibility that the city as successor might be made a party to that contract. This
possibility was also suggested in the recitals in the loan agreement, which provided that
“the Successor Agency and City desire to enter into a construction contract with Spiess
Construction Co. Inc. (‘Contractor’) for the Parking and Alley Improvements.”
Ultimately, however, the city as successor was not made a party to the construction
contract, and thus there was no occasion for the department to approve that contract as an
enforceable obligation during the ROP cycle. Under these circumstances, we do not
construe the absence of that unnecessary approval as an unfulfilled condition precedent to
the obligation of the city as successor to pay back the loan the city made by paying the
22
construction company to complete the parking and alley improvements the agency was
legally bound to provide under the terms of the LAB agreement.
In summary, we conclude the loan agreement between the city and the city as
successor gave rise to an enforceable obligation, and the trial court erred in concluding
otherwise.
B
The City As Successor’s Failure To Obtain Prior Approval From
The Oversight Board To Enter Into The Loan Agreement With
The City Did Not Make The Agreement An Unenforceable Obligation
As we have noted already, in opposing the relief plaintiffs sought in the trial court
pertaining to the denial of funding to repay the loan from the city pertaining to the
parking and alley improvements, the department argued that the city as successor did not
obtain oversight board approval and submit that approval to the department before
entering into the loan agreement with the city. On appeal, plaintiffs contend that even if
prior approval was required (which they dispute), this amounts to no more than “hyper-
technical non-prejudicial error” and thus cannot justify the trial court’s denial of relief on
this claim.
In a footnote in its respondent’s brief, the department contends we should “remand
this matter to the trial court for review of” this issue because “[t]he trial court did not
address this argument.” In support of this suggestion of remand, however, the
department offers no citation to authority, and we are not aware of any authority that
would justify the department’s request. “It is judicial action and not judicial reasoning
which is the subject of review.” (El Centro Grain Co. v. Bank of Italy, etc. (1932) 123
Cal. App. 564, 567.) Thus, it was incumbent on plaintiffs in this appeal to show that the
trial court erred in the action that court took on their mandamus petition, namely, denying
them relief on their claim relating to the city as successor’s claim for money from the
fund to repay the loan from the city. To show error in that judicial action, plaintiffs in
23
their opening brief understandably sought to refute all of the arguments the department
offered in its opposition in the trial court, including the argument that plaintiffs should
get no relief because the city as successor did not obtain prior approval from the
oversight board to enter into the loan agreement with the city, and the department had
every opportunity to respond on that issue in its respondent’s brief. Thus, the issue is
properly before us for decision in determining whether the trial court’s denial of writ
relief amounted to judicial error, and there is no reason to remand the case to the trial
court for that court to address the issue in the first instance. Accordingly, we turn to this
issue.
The department appears to contend that the trial court’s denial of writ relief was
proper given the failure of the city as successor to obtain approval of the oversight
committee before entering into the loan agreement with the city because that failure
prevented the oversight board from exercising its supervisory power over the city as
successor. We disagree. It is true there are provisions in the dissolution law that require
a successor agency to obtain approval of the oversight committee before entering into an
agreement with the municipality that created the redevelopment agency the successor
agency succeeded. Subdivision (a) of section 34178 provides “that a successor entity
wishing to enter . . . into agreements with the city, county, or city and county that formed
the redevelopment agency that it is succeeding may do so . . . upon obtaining the
approval of its oversight board.” Similarly, section 34180 identifies various “successor
agency actions” that “shall first be approved by the oversight board,” and included in
those actions is “[a] request by the successor agency to enter . . . into an agreement with
the city, county, or city and county that formed the redevelopment agency that it is
succeeding pursuant to Section 34178.” (§ 34180, subd. (h).) We agree with the
department (and disagree with plaintiffs) that these provisions require a successor agency
to obtain oversight board approval before entering into a contract with the municipality
that created the redevelopment agency the successor agency succeeded. Where we part
24
ways with the department, however, is with respect to the department’s suggestion that
the failure to obtain prior approval necessarily justifies the denial of any request for
money from the fund arising from an agreement that was not approved in advance.
The department contends this should be the result because the failure to obtain
prior approval prevents the oversight board from exercising its supervisory power over
the successor agency. That is not actually true, however, particularly with respect to a
loan agreement under former subdivision (h) of section 34173. This is so for two
reasons. First, with respect to any agreement that an oversight board may approve
between a successor agency and the municipality that formed the redevelopment agency
the successor agency succeeded, subdivision (h) of section 34180 provides that “[a]ny
actions to establish” such agreements “are invalid until they are included in an approved
and valid Recognized Obligation Payment Schedule.” Second, with respect to loan
agreements in particular, former subdivision (h) of section 34173 provided that “[t]he
city, county, or city and county that authorized the creation of a redevelopment agency
may loan or grant funds to a successor agency for administrative costs, enforceable
obligations, or project-related expenses at the city’s discretion, but the receipt and use of
these funds shall be reflected on the Recognized Obligation Payment Schedule or the
administrative budget and therefore are subject to the oversight and approval of the
oversight board.” In other words, under the dissolution law, even if a loan agreement
between a successor agency and the municipality that created the redevelopment agency
the successor agency succeeded is not approved in advance, the oversight board is still
able to exercise its supervisory power over the successor agency with regard to the loan
agreement because: (1) any actions to establish that agreement are invalid until the
agreement is included in an approved and valid ROP schedule; and (2) receipt and use of
the borrowed funds must be reflected on an ROP schedule or administrative budget. In
these ways, the loan agreement is subject to the oversight and approval of the oversight
25
board even if the successor agency failed to obtain the oversight board’s approval before
entering into the agreement.
Here, the oversight board approved ROP schedules that included requests for
money from the fund to pay back the amount due the city under the loan agreement on
multiple occasions, and the oversight board approved the loan agreement separately on
one occasion -- albeit after the city as successor entered into that agreement. In this
manner, the oversight board exercised its supervisory power over the city as successor
pursuant to the terms of the dissolution law. Thus, contrary to the department’s
argument, the failure of the city as successor to obtain prior approval from the oversight
board before entering into the loan agreement did not prevent the oversight board from
exercising its supervisory power over the city as successor with respect to this particular
transaction and thus did not give the department a valid reason to deny the city as
successor’s request for money from the fund to repay the loan.
For the foregoing reasons, we conclude the trial court erred when it denied
plaintiffs’ petition for a writ of mandate pertaining to the parking and alley improvements
at the packing district project.
II
The Avon/Dakota Neighborhood Revitalization Project
A
Integration Of The Revitalization Agreement And The Funding Agreement
Is Immaterial To Plaintiffs’ Impairment Argument
On appeal, plaintiffs contend that “[u]nder settled principles of law, the
[revitalization agreement and the funding agreement] must be viewed as constituting a
single integrated contract.” They then argue that “retroactive invalidation of [that]
Agreement under §34171(d)(2) would deny Related over $10 million of the $16,041,000
in [agency] funds promised to it in the Revitalization Agreement and thereby
unconstitutionally impair its vested contract rights.” (See U.S. Const., art. I, § 10; Cal.
26
Const., art. 1, § 9.) Given this result, they contend, “§34171(d)(2) must be interpreted as
not to apply when the invalidation of a multi-party contract to which a city, its former
redevelopment agency, and a private person or entity are parties would substantially
impair the private person’s or entity’s contract rights.”16 Plaintiffs contend this result is
consistent with the rule that, if possible, a statute should be interpreted in a manner that is
consistent with, rather than in conflict with, the Constitution. (See City of Cerritos v.
State of California (2015) 239 Cal. App. 4th 1020, 1035.)
The problem with plaintiffs’ argument is that they have attempted to frame it as an
issue of statutory interpretation, when what they are really raising is an “as applied”
constitutional challenge to the statute. It is true that “[i]f a statute is susceptible of two
constructions, one of which will render it constitutional and the other unconstitutional in
whole or in part, or raise serious and doubtful constitutional questions, the court will
adopt the construction which, without doing violence to the reasonable meaning of the
language used, will render it valid in its entirety, or free from doubt as to its
constitutionality, even though the other construction is equally reasonable.” (Miller v.
Municipal Court (1943) 22 Cal. 2d 818, 828.) What that rule means, however, is that if a
particular construction of a statute will render the statute unconstitutional or raise serious
questions about the constitutionality of the statute on its face -- that is, without regard to
“its application to the particular circumstances of an individual” (Tobe v. City of Santa
Ana (1995) 9 Cal. 4th 1069, 1084) -- then that construction is to be avoided if reasonably
possible. That does not mean, however, that we ought to adopt a particular interpretation
16 Recall that subdivision (d)(2) of section 34171 excepts from the definition of
“ ‘enforceable obligation’ ” “any agreements, contracts, or arrangements between the
city, county, or city and county that created the redevelopment agency and the former
redevelopment agency.”
27
of a statute applicable to all cases because in some circumstances a constitutional
violation may result from that interpretation.
Here, plaintiffs do not contend that if subdivision (d)(2) of section 34171 is
applied to every contract in which a private third party is involved along with a former
redevelopment agency and the municipality that formed it, an unconstitutional
impairment of contract will necessarily result every time, nor do they contend that there
is a serious question as to whether a constitutional violation will result every time.
Instead, they ask us to interpret the statute only so that it does not apply “when the
invalidation of a multi-party contract to which a city, its former redevelopment agency,
and a private person or entity are parties would substantially impair the private person’s
or entity’s contract rights.” That is nothing more and nothing less than an “as applied”
challenge to the constitutionality of the provision, because under plaintiffs’ argument the
statute should be deemed unconstitutional only when the application of the statute “would
substantially impair the private person’s or entity’s contract rights.” As will become
apparent below, the determination of whether contract rights have been substantially
impaired by legislation depends on the specific contract at issue. So the real question
here is not whether subdivision (d)(2) of section 34171 should be interpreted so that it is
not facially unconstitutional, or to avoid a serious question of facial unconstitutionality,
but rather whether the statute violates the contract clauses of the federal and state
Constitutions in particular circumstances. Thus, we will address plaintiffs’ argument as
an “as applied” challenge to the constitutionality of the statute under the facts presented
by this case.
In addressing that challenge, the question the trial court found dispositive --
whether the revitalization agreement and the funding agreement are to be treated as a
single integrated contract or as separate contracts -- is immaterial. This is so because
even if plaintiffs are wrong on the integration issue and the two contracts are separate, it
is undisputed that subdivision (d)(2) of section 34171 would operate to invalidate the
28
funding agreement to the extent that agreement obligated the agency to provide up to
$16.041 million to the authority to fund the Avon/Dakota revitalization project. And
because the revitalization agreement and the funding agreement are unquestionably
interdependent -- because the revitalization agreement clearly contemplated that the
authority would obtain the funding the authority promised to give Related from the city
and the agency pursuant to the funding agreement -- even if the contracts are separate, the
issue still arises as to whether the invalidation of the funding agreement resulted in an
unconstitutional impairment of the contractual rights of Related under the revitalization
agreement. Thus, we need not answer the question of whether the two agreements were a
single integrated contract or two separate contracts. The significant question for us is
whether the invalidation of the agency’s promise to provide funds to the authority, so that
the authority could provide them to Related, unconstitutionally impaired Related’s
contractual rights. It is to that question that we now turn.17
B
The Statutory Invalidation Of The Funding Agreement With Respect
To The Agency Results In An Unconstitutional Impairment Of
Related’s Rights Under The Revitalization Agreement
“The contract clauses of both the federal and California Constitutions prohibit a
state from passing laws impairing the obligation of contracts. (U.S. Const., art. I, § 10,
cl. 1; Cal. Const., art. I, § 9.) Pursuant to these clauses, the state’s ability to modify its
own contracts with other parties, or contracts between other parties, is limited.
[Citations.] [¶] Not every impairment runs afoul of the contract clauses, however.
17 Because the trial court did not reach this issue, the department argues (once again)
that we should “remand this case to allow the trial court an opportunity to address [the]
contract clause argument.” Again, however, the department offers no authority, and no
reasoning, in support of this argument. Because the issue is one of law on a record the
parties had every opportunity to fully develop, we will address it.
29
‘ “ The constitutional prohibition against contract impairment does not exact a rigidly
literal fulfillment; rather, it demands that contracts be enforced according to their ‘just
and reasonable purport”; not only is the existing law read into contracts in order to fix
their obligations, but the reservation of the essential attributes of continuing
governmental power is also read into contracts as a postulate of the legal order.’ ”
(Teachers’ Retirement Bd. v. Genest (2007) 154 Cal. App. 4th 1012, 1026-1027.)
The first question under the contract clauses is whether the obligations of any
contract have actually been impaired. (See City of Torrance v. Workers’ Comp. Appeals
Bd. (1982) 32 Cal. 3d 371, 377 (City of Torrance).) “ ‘The obligations of a contract are
impaired by a law which renders them invalid, or releases or extinguishes them . . . .’ ”
(Ibid.)
The department contends “Related has no relevant contract rights to be impaired”
here, but then fails to explain how this could be so, when (1) the authority promised to
provide Related with up to $19.8 million for the Avon/Dakota revitalization project;
(2) the revitalization agreement expressly anticipated that the authority would get the
bulk of those funds -- $16.041 million -- from the agency pursuant to the funding
agreement; and (3) subdivision (d)(2) of section 34171 (as well as subdivision (a) of
section 34178) rendered the funding agreement unenforceable. Not only did Related
have “relevant contract rights to be impaired,” but its contract rights were impaired,
because the invalidation of the funding agreement destroyed the funding mechanism that
in large part made the revitalization agreement possible in the first place.
To the extent the department argues, in support of its assertion that “Related has
no relevant contract rights to be impaired,” that “ ‘[A] statute does not violate the
Contract Clause simply because it has the effect of restricting, or even barring altogether,
the performance of duties created by contracts entered into prior to its enactment,’ ” the
department is mixing apples and oranges. At this point, we are not concerned with
whether any impairment that occurred violated the contract clauses, but with whether
30
there was any impairment in the first place. Those are two distinct questions. As our
Supreme Court has explained, “a finding that the state in the exercise of its police power
has abridged an existing contractual relationship does not in and of itself establish a
violation of the contract clause. It is the beginning, not the end of the analysis. A finding
of impairment merely moves the inquiry to the next and more difficult question --
whether that impairment exceeds constitutional bounds.” (City of Torrance, supra, 32
Cal.3d at p. 377.) Thus, while the department is correct to the extent it can be
understood to argue that abridgement of a contractual relationship does not necessarily
violate the contract clause, the department cites no authority for the implied assertion that
the abridgement of a contractual relationship is not an impairment of a contractual
obligation.
This case is distinguishable from City of Galt v. Cohen (2017) 12 Cal.App.5th
367, in which this court found no impairment of contract. In that case, City of Galt
contended that “not allowing it to use . . . tax allocation bond proceeds to fund [projects
pursuant to a cooperation agreement with City of Galt’s former redevelopment agency]
unconstitutionally impairs contracts, namely the obligations of the bondholders.” (Id. at
p. 378.) This court concluded that if City of Galt was actually claiming that its own
constitutional rights were being impaired, “then it has no standing because a municipality
may not complain that the state is impairing its contract.” (Ibid.) If, on the other hand,
City of Galt was attempting to assert the bondholders’ rights, “then City of Galt has no
standing to assert the rights of others.” (Ibid.) In any event, the court concluded, “City
of Galt makes no attempt to establish that bondholders will not be paid under the terms of
the bonds,” and because “the former redevelopment agency had no contractual obligation
to the bondholders to use the bond proceeds to fund [the projects under the cooperation
agreement], [the department] did not impair those contracts (the bond agreements) when
it determined that the bond proceeds could not be used to fund [those] projects.” (Id. at
pp. 378, 379)
31
In contrast to the situation in City of Galt, here plaintiffs are not asserting that any
vested contractual rights of a municipality or of absent bondholders are being impaired.
Instead, they are asserting that the rights of Related -- a private developer and a party to
this proceeding -- are being impaired. Thus, City of Galt does not govern here.
Having concluded that subdivision (d)(2) of section 34171 operated here to impair
Related’s contractual rights under the revitalization agreement, we turn to the next
question in a contracts clause analysis -- whether that impairment exceeded constitutional
bounds. “Legislation adjusting the rights and responsibilities of contracting parties must
be upon reasonable conditions and of a character appropriate to the public purpose
justifying its adoption.” (United States Trust Co. v. New Jersey (1977) 431 U.S. 1, 22 [52
L. Ed. 2d 92, 109-110] (United States Trust).) “The extent of impairment is certainly a
relevant factor in determining its reasonableness.” (Id. at p. 27 [52 L. Ed. 2d at p. 113].)
It has also been said that “United States Trust places the justification for an impairment
of a contractual funding obligation under the light of strict scrutiny.” (California
Teacher’s Assn. v. Cory (1984) 155 Cal. App. 3d 494, 511.) “In considering the standard
applicable to such a fiscal obligation the court said: ‘As with laws impairing the
obligations of private contracts, an impairment may be constitutional if it is reasonable
and necessary to serve an important public purpose. In applying this standard, however,
complete deference to a legislative assessment of reasonableness and necessity is not
appropriate because the State’s self-interest is at stake. A governmental entity can always
find a use for extra money, especially when taxes do not have to be raised. If a State
could reduce its financial obligations whenever it wanted to spend the money for what it
regarded as an important public purpose, the Contract Clause would provide no
protection at all.’ (Fns. omitted.)” (Cory, at p. 511, quoting United States Trust, supra,
431 U.S. at pp. 25-26 [52 L.Ed.2d at pp. 111-112].) Thus, “United States Trust rules out,
as a permissible justification, a legislative purpose simply to expend the obligated money
for a purpose deemed a better expenditure.” (Cory, at p. 512.)
32
The department contends that the impairment of Related’s contract rights
“survives this constitutional challenge because [the department’s] decisions here were
based on a law that has a significant and legitimate public purpose.” According to the
department, “the State’s interest in passing the Dissolution Law far exceeds any possible
contractual interest lost by Related” because, essentially, the Legislature was seeking to
address a financial emergency. Moreover, the department contends, “[t]he Legislature
appropriately tailored the Dissolution Law to the public’s interest, noting that state and
local governments were facing declines in revenues and increased need for core
governmental services.”
We are not persuaded. The impairment here was unquestionably significant,
because the Legislature rendered the funding agreement -- the mechanism by which the
revitalization agreement was to be funded -- almost completely inoperative. While
certainly the city was still bound to perform its funding obligation to the authority under
the funding agreement, the city’s funding obligation amounted to less than 20 percent of
the total funding that was to be provided. The remaining 80 percent was the
responsibility of the agency, but subdivision (d)(2) of section 34171 renders that funding
obligation unenforceable.
More important, however, is that the state’s justification for rendering the
agency’s funding obligation unenforceable is the perceived justification Cory says was
ruled out by United States Trust, namely, to spend the money somewhere else that the
Legislature deemed more worthy. As our Supreme Court noted in the opening sentence
of Matosantos, the dissolution law was “intended to stabilize school funding by reducing
or eliminating the diversion of property tax revenues from school districts to the state’s
community redevelopment agencies.” (Matosantos, supra, 53 Cal.4th at p. 241.) Thus,
the Legislature determined that the tax increment funds that previously went to
redevelopment agencies to, among other things, increase the supply of affordable housing
for low and moderate-income households, should instead go to school districts, to help
33
reduce the burden on the state to provide state funds for schools. (See id. at pp. 242-252.)
However laudable, under Cory and United States Trust this was not a permissible
justification for impairing vested contractual rights like those that belonged to Related
here.
Moreover, it should be noted that subdivision (d)(2) of section 34171 is not
reasonably tailored to achieve its ostensible purpose. As plaintiffs contend in their reply
brief, “when the Dissolution Law was adopted, the Legislature still saw fit to preserve all
other redevelopment agency bond and contract obligations to private parties (see . . .
§34171(d)(1)(A)-(E)),” but Related’s contractual rights were not preserved due to the
circumstance that Related’s funding was to come, not directly from the agency, but
through the middleman of the authority. The department offers no valid reason for
preserving the contractual rights of a private party that entered into a contract directly
with a redevelopment agency, but destroying the contractual rights of a private party that
instead entered into a contract with the city that created the redevelopment agency (or an
entity treated as the equivalent of the city, like the authority here) that was to be funded
pursuant to a related contract between the city and the agency the city created.
For the foregoing reasons, the Legislature’s impairment of Related’s contractual
rights under the revitalization agreement by means of its invalidation of the funding
agreement between the agency and the authority under subdivision (d)(2) of
section 34171 (and subdivision (a) of section 34172) was unconstitutional and invalid.
Accordingly, the trial court erred when it denied plaintiffs’ petition for a writ of mandate
pertaining to the funding of the Avon/Dakota revitalization project.
III
Prejudgment Interest
In the trial court, plaintiffs argued (briefly) that they were entitled to prejudgment
interest under Civil Code section 3287, subdivision (a) “on the sums wrongfully
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withheld.”18 The department disagreed. The trial court never reached the issue because
that court determined (erroneously) that plaintiffs were not entitled to any relief.
On appeal, plaintiffs assert that the city as successor is entitled to prejudgment
interest, and they ask that our “ruling include a direction for the trial court, upon remand,
to include an appropriate award of prejudgment interest in the writ of mandate and
judgment to be entered.” The department responds that the case should be remanded to
the trial court for that court to determine whether plaintiffs are entitled to prejudgment
interest. In reply, plaintiffs assert this is a “purely legal issue that should be resolved by
this Court.” In support of that assertion, they cite Code of Civil Procedure section 43 and
Pacific S. P. Co. v. U. S. Fidelity etc. Co. (1921) 185 Cal. 515.
Section 43 of the Code of Civil Procedure provides (in relevant part) that “[t]he
Supreme Court, and the courts of appeal, may affirm, reverse, or modify any judgment or
order appealed from, and may direct the proper judgment or order to be entered, or direct
a new trial or further proceedings to be had. In giving its decision, if a new trial be
granted, the court shall pass upon and determine all the questions of law involved in the
case, presented upon such appeal, and necessary to the final determination of the case.”
(Italics added.) Meanwhile, the court in Pacific Sewer Pipe held that “[w]here a case is
determined upon an agreed statement of facts which discloses every fact essential to a
correct judgment, and the trial court draws an incorrect conclusion therefrom, the correct
judgment will be ordered upon a reversal.” (Pacific S. P. Co. v. U. S. Fidelity etc. Co.,
supra, 185 Cal. at p. 519.) Essentially, plaintiffs rely on these authorities for the
18 “A person who is entitled to recover damages certain, or capable of being made
certain by calculation, and the right to recover which is vested in the person upon a
particular day, is entitled also to recover interest thereon from that day, except when the
debtor is prevented by law, or by the act of the creditor from paying the debt. This
section is applicable to recovery of damages and interest from any debtor, including the
state or any county, city, city and county, municipal corporation, public district, public
agency, or any political subdivision of the state.” (Civ. Code, § 3287, subd. (a).)
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proposition that we should decide whether the city as successor is entitled to prejudgment
interest on any sum wrongfully withheld by the department, rather than allowing the trial
court to decide that issue in the first instance on remand, because the issue is one of law
that we can decide just as easily as the trial court.
Accepting plaintiffs’ invitation to us to address this issue under the foregoing
authorities, we conclude the city as successor is not entitled to prejudgment interest. It is
true that when a mandamus action is properly characterized as an action for “damages”
within the meaning of Civil Code section 3287, the claimant may recover prejudgment
interest when three conditions are satisfied: “(1) There must be an underlying monetary
obligation; (2) the recovery must be certain or capable of being made certain by
calculation; and (3) the right to recovery must vest on a particular day.” (Tripp v. Swoap
(1976) 17 Cal. 3d 671, 682 & fn. 12, disapproved on other grounds in Frink v. Prod
(1982) 31 Cal. 3d 166, 180.) As we will explain, however, plaintiffs have not shown to
our satisfaction that they fall within this rule.
The first issue is whether this case can properly be characterized as an action for
“damages.” For purposes of Civil Code section 3287, damages are the
“compensation . . . in money” that may be recovered from “the person in fault” by
“[e]very person who suffers detriment from the unlawful act or omission of another.”
(Civ. Code, § 3281; see also Union Pacific Railroad Co. v. Santa Fe Pacific Pipelines,
Inc. (2014) 231 Cal. App. 4th 134, 198-199 [applying this definition of “damages” to Civil
Code section 3287].) If this is an action for damages, then the department would have to
be “the person in fault,” the city as successor would have to be the “person who
suffer[ed] detriment from the unlawful act or omission of” the department, and the city as
successor would be entitled to recover “compensation . . . in money” from the department
for the detriment suffered. But plaintiffs are not seeking a money judgment against the
department in this case, or even a writ commanding the department to pay money to the
city as successor. The department’s role in this matter was to determine “the enforceable
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obligations and the amounts and funding sources of the enforceable obligations”
(§ 34177, subd. (m)(1).) The department was not responsible for paying money to the
city as successor, or even allocating money from the fund (or from any other source) to
the city as successor; that was the role of the county auditor-controller. (See § 34183.)
Thus, the writ relief to which plaintiffs are entitled here is a writ commanding the
department to vacate its previous determinations denying the city as successor’s claims
for money from the fund to repay the loan from the city pertaining to the parking and
alley improvements at the packing district project and to fund the Avon/Dakota
revitalization project and to issue new determinations approving those claims. Under
such a writ, the department will not be ordered to pay money to the city as successor as
compensation for detriment the city as successor suffered from an unlawful act or
omission of the department. In other words, the department will not be ordered to pay the
city as successor “damages,” and absent an award of damages, there can be no
prejudgment interest under Civil Code section 3287.
As if that conclusion were not sufficient, the second issue is whether plaintiffs
have shown that they have satisfied the three conditions that must be met for an award of
prejudgment interest even when the underlying action is properly characterized as one for
damages, and plaintiffs lose on that issue, too. For the same reason plaintiffs have not
shown that the relief they are entitled to here is an award of damages from the
department, they have not shown that the department owes them an “underlying
monetary obligation” on which an award of prejudgment interest could be based. The
department’s obligation was to approve the city as successor’s claims for money from the
fund, not to pay the city as successor money. The former is not a monetary obligation
that would support an award of prejudgment interest.
Moreover, plaintiffs have not shown that they had a right to recover a sum certain
(or a sum capable of being made certain by calculation) that vested on a particular day.
The only assertion they offer on this condition is that the dissolution law “requires the
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Auditor-Controller to make ROPS payments to the Successor Agency each June 1 and
January 2.” But it is not clear to us that the city as successor necessarily had a right to
receive all of the money it claimed on a particular date. Indeed, even in their petition for
writ relief in this case, plaintiffs sought a writ commanding the department to issue a
formal written determination and directive that, among other things, plaintiffs “are
entitled to an allocation of moneys from the Trust Fund . . . to the extent . . .funds are
available in the Trust Fund to pay the amounts . . . requested.” If the city as successor’s
right to money from the fund on a particular day was dependent on the presence of
money in that fund on that day, then we cannot say the city as successor had a right to
recover that sum on that day, which is a prerequisite to an award of prejudgment interest.
For all of the foregoing reasons, we conclude plaintiffs are not entitled to
prejudgment interest in this case.
IV
Relief
As we have concluded that the trial court erred in denying plaintiffs’ petition for
writ relief challenging the department’s denial of the city as successor’s claims for money
from the fund to repay the loan from the city pertaining to the parking and alley
improvements at the packing district project and to fund the Avon/Dakota revitalization
project, we must reverse the judgment. Because plaintiffs have not tried to suggest the
terms of the writ to which they believe they are entitled, we will leave it to the trial court
to determine in the first instance on remand, with the input of the parties as necessary, the
appropriate terms of an order, judgment, and writ of mandate in this case. In that regard,
it will be up to the trial court, with the input of the parties, to determine the proper
resolution of plaintiffs’ complaint for declaratory and injunctive relief.
DISPOSITION
The judgment is reversed, and the case is remanded to the trial court with
instructions to vacate its order denying plaintiffs’ petition for writ of mandate and
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dismissing plaintiffs’ complaint for declaratory and injunctive relief and to enter a new
order granting plaintiffs’ writ petition consistent with this opinion and granting such other
relief as the trial court may deem appropriate. Plaintiffs shall recover their costs on
appeal. (Cal. Rules of Court, rule 8.278(a)(2).)
/s/
Robie, J.
We concur:
/s/
Blease, Acting P.J.
/s/
Duarte, J.
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