Cal. Taxpayers Action Network v. Taber Constr., Inc.
12 Cal. App. 5th 115
| Cal. Ct. App. 5th | 2017Background
- School District entered into a lease-leaseback arrangement (master site lease + master facilities lease) with contractor Taber for HVAC modernization; plaintiff challenged validity under Education Code article 2 (§§17400–17429) and alleged related common-law claims.
- Central statutory provisions: Education Code §17417 (competitive bidding for school construction) and §17406 (exception allowing district to lease its property to a party who will construct buildings and vest title in the district, "notwithstanding §17417" and "without advertising for bids").
- Plaintiff alleged the arrangement was a sham to evade §17417, that §17406 requires a genuine financing component, and that district board members breached fiduciary duties and the public trust by failing to obtain bids and better prices.
- Plaintiff also alleged Taber provided preconstruction services and thereby created a conflict of interest under Government Code §1090 and common law; sought relief including voiding the contracts and return of payments.
- Trial court sustained demurrers to all causes of action; on appeal the court affirmed dismissal of all causes except reversed as to the §1090/conflict-of-interest cause of action (fourth cause), allowing that claim to proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §17406 permits lease-leaseback to avoid §17417 competitive bidding | §17406 is a sham exemption; lease-leaseback must still comply with §17417 | §17406 expressly exempts qualifying lease-leaseback instruments from §17417 ("notwithstanding §17417" and "without advertising for bids") | Court: §17406, as written in 2014, exempts qualifying lease-leaseback agreements from §17417; plaintiff failed to state claim on this ground |
| Whether §17406 requires a "genuine" lease or financing component (i.e., substance over form) | Lease-leaseback must be a true financing instrument (Davis approach): courts must look to substance, payments, and financing | §17406 lists three statutory requirements; no additional requirements should be judicially read in | Court: Declined to follow Davis; applied plain language (McGee approach) — meeting statutory elements suffices; no extra financing requirement |
| Whether plaintiff states breach of fiduciary duty / breach of trust against board | Board failed to solicit bids, consider alternatives, secure best price — breach of fiduciary duty and trust; request disgorgement/restitution | Defendants: allegations do not show officials profited or that contract was voidable under fiduciary statute; relief targeted at contractor who had no fiduciary duty | Court: Fiduciary and breach-of-trust claims insufficiently pleaded; dismissal proper |
| Whether contractor's preconstruction role creates actionable conflict under Gov. Code §1090 and whether plaintiff has standing | Taber acted in roles of district officers/agents and influenced contract-making; §1090 applies to consultants/independent contractors; taxpayer has standing | Defendants: §1090 applies only to officers/employees or parties to contract; independent contractors not within §1090; taxpayers lack standing per San Bernardino | Court: In civil context, independent contractors who perform public functions or advise and substantially influence contracting may fall within §1090; taxpayer plaintiff has standing here; reversed dismissal as to conflict-of-interest claim |
Key Cases Cited
- City of Los Angeles v. Offner, 19 Cal.2d 483 (Cal. 1942) (constitutional indebtedness analysis for lease-leaseback transactions)
- Davis v. Fresno Unified Sch. Dist., 237 Cal.App.4th 261 (Cal. Ct. App.) (argued leaseback must be a "true" financing lease; courts may look to substance)
- McGee v. Fresno Unified Sch. Dist., 247 Cal.App.4th 236 (Cal. Ct. App.) (rejected extra-statutory requirements for §17406; adopted plain-language approach)
- Los Alamitos Unified Sch. Dist. v. [Name Redacted], 229 Cal.App.4th 1222 (Cal. Ct. App.) (held §17406 exempts lease-leaseback from §17417; discussed AG opinion and legislative history)
- Christiansen v. People, 216 Cal.App.4th 1181 (Cal. Ct. App.) (declined to extend §1090 to independent contractors in criminal context)
- Lexin v. Superior Court, 47 Cal.4th 1050 (Cal. 2010) (overview of §1090/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)
- HUB City Solid Waste Servs., Inc. v. City of Compton, 186 Cal.App.4th 1114 (Cal. Ct. App.) (independent contractors/consultants who exercise significant influence over public contracting may be subject to §1090)