A.J. Fistes Corp. v. GDL Best Contractors, Inc.
251 Cal. Rptr. 3d 423
| Cal. Ct. App. 5th | 2019Background
- Fistes (plaintiff) was lowest bidder on a 2016 Montebello Unified School District remediation project but its bid was rejected as nonresponsive; the District awarded the contract to GDL (defendant), which was paid over $2.4 million including state school facility funds.
- Fistes sued the District, GDL, and GDL officers (the Lopezes) alleging the award violated the Public Contract Code and Government Code §1090, sought a declaration the contract was void and disgorgement/constructive trust against GDL and the Lopezes.
- Trial court dismissed claims against GDL and the Lopezes on demurrer without leave to amend, holding Fistes lacked taxpayer standing under former Code Civ. Proc. §526a (it alleged it paid state, not local, taxes) and that the complaint was fatally uncertain; Fistes voluntarily dismissed the District and appealed.
- While appeal was pending, the Legislature amended §526a (eff. Jan. 1, 2019) to specify types of tax payments conferring taxpayer standing (e.g., income, sales, property, business license taxes) and to require the tax to be one "that funds the defendant local agency."
- The Court of Appeal held the 2018 amendment applies prospectively to this appeal and that Fistes’s allegation it paid state taxes used to fund the District sufficed under the amended §526a to establish taxpayer standing to sue GDL and the Lopezes.
- The court also held the demurrer dismissal for uncertainty was an abuse of discretion (leave to amend required) but that Fistes’s alter-ego and restitution allegations against the Lopezes were inadequately pleaded; the case was reversed and remanded with leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Taxpayer standing under §526a | Fistes: paid state taxes that funded the District; that suffices under amended §526a | GDL/Lopezes: plaintiff must have paid taxes within the District or taxes that funded the specific project | Held: Amendment applies prospectively; allegation of state taxes that fund the District suffices—§526a requires tax that funds the agency, not direct payment to project or local tax only |
| Retroactivity of 2018 §526a amendment | Fistes: amendment may be applied on appeal to confer standing | Defs: amendment should not be applied to this pending case to change standing | Held: Amendment is prospective (does not alter liabilities for past conduct); may be used during appeal to support standing on remand |
| Demurrer for uncertainty (failure to separately state causes) | Fistes: complaint sufficiently alleges factual bases; requests leave to amend if needed | Defs: pleading mixes theories, not clear which claims against whom | Held: Demurrer for uncertainty was improper without leave to amend; complaint’s facts gave defendants adequate notice; court must allow amendment to fix labels/organization |
| Alter-ego and restitution claims vs. Lopezes | Fistes: Lopezes controlled GDL, received distributions, so alter-ego and restitution liability follow | Defs: mere ownership/officer status and payments insufficient; no facts showing injustice or unlawful enrichment | Held: Allegations insufficient to plead alter-ego or restitution against Lopezes, but leave to amend should have been granted (reasonable possibility defects can be cured) |
Key Cases Cited
- Weatherford v. City of San Rafael, 2 Cal.5th 1241 (Cal. 2017) (analyzed taxpayer standing under former §526a and urged legislative clarification)
- Miller v. McKinnon, 20 Cal.2d 83 (Cal. 1942) (taxpayer may sue private party to recover public funds paid illegally)
- Mervyn's v. Californians for Disability Rights, 39 Cal.4th 223 (Cal. 2006) (statutes presumed prospective; retroactivity analysis focuses on effect on past conduct)
- Amaral v. Cintas Corp. No. 2, 163 Cal.App.4th 1157 (Cal. Ct. App. 2008) (change expanding standing may apply prospectively to pending cases)
- Holloway v. Showcase Realty Agents, Inc., 22 Cal.App.5th 758 (Cal. Ct. App. 2018) (taxpayer standing under §526a can support claims against private parties to disgorge public funds)
- California Taxpayers Action Network v. Taber Construction, Inc., 12 Cal.App.5th 115 (Cal. Ct. App. 2017) (liberal construction of §526a; standing to challenge lease-leaseback scheme)
- Leek v. Cooper, 194 Cal.App.4th 399 (Cal. Ct. App. 2011) (allegation of stock ownership/management control alone insufficient for alter-ego liability)
- Hartford Casualty Ins. Co. v. J.R. Marketing, L.L.C., 61 Cal.4th 988 (Cal. 2015) (restitution requires enrichment lacking adequate legal basis)