City of Big Bear Lake v. Cohen
12 Cal. App. 5th 922
| Cal. Ct. App. 5th | 2017Background
- On June 27–28, 2011, City of Big Bear Lake and its soon-to-be-dissolved redevelopment agency (RDA) executed a Cooperation Agreement under which the RDA would transfer funds to the City to complete public projects; the City contracted with private firms (Matich; Cylwik) and the RDA later contracted with RRM Design Group.
- The Dissolution Law (AB 1X 26), signed June 28, 2011, immediately froze RDAs from incurring new enforceable obligations and limited payments to existing enforceable obligations; successor winding-down rules followed.
- The RDA transferred $2.6 million to the City before dissolution; the RDA’s EOPS listed the private contractor contracts but did not list the Cooperation Agreement.
- After Matosantos, the Legislature enacted AB 1484, which (among other things) excluded sponsor agreements (agreements between an RDA and its sponsoring entity) from the statutory definition of enforceable obligations and required a due-diligence review (DDR).
- The Department of Finance (DOF) adjusted the DDR to require recovery of the $2.6 million as funds improperly transferred under a sponsor agreement; DOF threatened offsets of the City’s sales, use, and property tax revenues if the City did not comply.
- Trial court ruled for DOF: none of the four agreements created enforceable obligations of the RDA; the Cooperation Agreement was a non-enforceable sponsor agreement; and DOF properly required redistribution — but the court declined to resolve constitutionality of tax offsets as not ripe. The appellate court affirmed (with modification).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the transfers/contracts created enforceable obligations of the RDA | The Cooperation Agreement and related transfers were enforceable when made, so they must remain enforceable | The Matich and Cylwik contracts were City contracts (not RDA obligations); the RRM contract was signed after the freeze; sponsor agreements are excluded by statute | None of the four contracts created enforceable RDA obligations; recovery required for $2.6M |
| Whether a contract signed by the RDA board before freeze but executed after freeze (RRM) is enforceable | Board approval on June 27 bound the RDA; execution was ministerial | No binding contract existed until both parties signed; RRM signed June 28 after freeze, so no enforceable obligation | RRM contract was void as created after the freeze and not enforceable |
| Whether DOF’s failure to return/alter the EOPS constituted tacit approval making obligations enforceable | DOF’s inaction constituted tacit approval of listed obligations | Tacit approval does not convert non-enforceable transactions into enforceable obligations; EOPS must list the sponsor agreement | Tacit approval did not validate the transfers; EOPS omission of the Cooperation Agreement fatal |
| Whether state remedy to offset City's sales/use/property taxes is constitutional | City argued offsets unconstitutional under Prop 22 | State argued offsets were available remedies under the Dissolution Law | Offsets under §34179.6(h) are unconstitutional as applied; judgment modified to prohibit using sales/use/property tax offsets; otherwise judgment affirmed |
Key Cases Cited
- Matosantos v. State Controller, 53 Cal.4th 231 (Cal. 2011) (upholding Dissolution Law against constitutional challenge)
- City of Brentwood v. Campbell, 237 Cal.App.4th 488 (Cal. Ct. App. 2015) (retroactive invalidation of sponsor agreements does not violate Prop 22)
- City of Bellflower v. Cohen, 245 Cal.App.4th 438 (Cal. Ct. App. 2016) (holding statutory tax-offset remedy would violate Proposition 22)
- Okasaki v. City of Elk Grove, 203 Cal.App.4th 1043 (Cal. Ct. App. 2012) (procedural forfeiture for failure to provide authority in briefing)
- Sparks v. Mauk, 170 Cal. 122 (Cal. 1915) (general rule that a contract is not binding until both parties sign)