Cal. Taxpayers Action Network v. Taber Construction
A145078
| Cal. Ct. App. | May 31, 2017Background
- Mount Diablo Unified School District entered into a lease–leaseback transaction with Taber Construction for HVAC modernization at eight schools: a master site lease (district leases land to Taber for $1) and a master facilities lease (Taber to construct and lease back improvements; title vests in district at end).
- California Taxpayers Action Network filed a reverse-validation action (Code Civ. Proc. § 863) alleging the lease–leaseback was a sham to evade competitive bidding and that Taber had conflicts because it provided preconstruction consultancy to the District.
- Trial court sustained demurrers without leave to amend to all claims; plaintiff appealed.
- The Court of Appeal reviewed statutory interpretation of Education Code article 2 (esp. former § 17406 and § 17417), prior appellate authority (Davis, McGee, Los Alamitos), and conflict-of-interest law (Gov. Code § 1090 and related common-law principles).
- The Court affirmed dismissal of all Education Code–based and fiduciary/trust claims but reversed as to the fourth cause of action, holding plaintiff sufficiently alleged a conflict-of-interest claim against Taber based on its preconstruction role.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the lease–leaseback here must meet extra "genuine lease/financing" requirements beyond § 17406’s text | The agreement was a sham and § 17406 should be read to require a financing component or a "true" lease | § 17406’s plain terms require only district ownership, construction by lessee, and title vesting in district; courts cannot engraft extra requirements | Rejected plaintiff; court follows McGee and Los Alamitos and declines Davis’s broader test — § 17406’s statutory elements control |
| Whether § 17406’s exemption from § 17417 competitive bidding covers both the site lease and the facilities lease (leaseback) | The exemption applies only to the site lease, not the leaseback; competitive bidding under § 17417 still required for the construction contract | § 17406 expressly provides "notwithstanding § 17417" and "without advertising for bids" for the instrument that requires construction — it covers the whole instrument including the facilities lease | Rejected plaintiff; § 17406 exempts the lease–leaseback instrument from § 17417 competitive bidding (consistent with Los Alamitos, McGee) |
| Whether § 17406 is limited to projects where the district lacks funds (i.e., requires actual financing by contractor) | Section 17406 applies only when the contractor provides financing; if the district can pay, it cannot use § 17406 | § 17406 contains no such limitation; nothing in the statute requires lack of district funds | Rejected plaintiff; statute does not require that contractor provide financing or that district lack funds |
| Whether the District’s board breached fiduciary duties or the public trust by not soliciting bids / failing to secure best price | Board’s actions were arbitrary, violated duty of care, and breached trust — seek restitution | Absent statutory requirement, competitive bidding is not mandated; complaint fails to plead officials profited or that restitution/disgorgement is appropriate | Demurrer properly sustained as to fiduciary/breach-of-trust claims; plaintiff failed to plead necessary elements |
| Whether Taber’s preconstruction consultant role created an actionable conflict under Gov. Code § 1090 and common law; and whether plaintiff (taxpayer) has standing | Taber provided preconstruction services, advised District, then obtained the construction contract — this created a conflict and § 1090 liability; taxpayer may sue to void the contract | Defendants argued § 1090 applies only to officers/employees or parties to contract; taxpayer lacks standing per San Bernardino | Court held plaintiff has standing in this reverse-validation context and, consistent with Davis, McGee, HUB City, alleged facts suffice to state a § 1090/common-law conflict claim against Taber (reversed as to cause 4) |
Key Cases Cited
- Los Alamitos Unified Sch. Dist. v. Howard Contracting, Inc., 229 Cal.App.4th 1222 (Cal. Ct. App.) (interpreting § 17406 elements and holding lease–leaseback may be exempt from competitive bidding)
- Davis v. Fresno Unified Sch. Dist., 237 Cal.App.4th 261 (Cal. Ct. App.) (concluding conflict and lease-substance issues; court applied broader "true lease" test but was rejected here)
- McGee v. Balfour Beatty Constr., LLC, 247 Cal.App.4th 235 (Cal. Ct. App.) (rejected Davis’s extra-statutory leasing requirements and held plaintiffs’ conflict claims could proceed)
- City of Los Angeles v. Offner, 19 Cal.2d 483 (Cal. 1942) (constitutional debt-limit context; not a basis to add requirements to § 17406 beyond its text)
- HUB City Solid Waste Servs., Inc. v. City of Compton, 186 Cal.App.4th 1114 (Cal. Ct. App.) (independent contractors in advisory positions can fall within § 1090’s scope)
- Lexin v. Superior Court, 47 Cal.4th 1050 (Cal. 2010) (discussing purpose of § 1090 and common-law conflict principles)
- Gilbane Bldg. Co. v. Superior Court, 223 Cal.App.4th 1527 (Cal. Ct. App.) (taxpayer standing to challenge contracts under § 1090 where contracts may be void and agency cannot vindicate claim)
- People v. Christiansen, 216 Cal.App.4th 1181 (Cal. Ct. App.) (held § 1090’s employee expansion not proper in criminal prosecutions; distinguished in civil cases)