City of Galt v. Cohen
C075897
| Cal. Ct. App. | Jun 2, 2017Background
- In January 2011 City of Galt and its former redevelopment agency (RDA) executed a Cooperative Agreement in which the RDA agreed to reimburse Galt about $22,015,000 for nine identified redevelopment projects. Shortly after, the RDA authorized and in March 2011 issued tax allocation bonds (Series A & B).
- In March 2011 Galt sought a validation judgment of the Cooperative Agreement; the superior court entered judgment in October 2011 validating the agreement (no party opposed).
- The Legislature enacted the Dissolution Law (ABx1 26) in June 2011, later upheld by the California Supreme Court in Matosantos; the Law dissolved RDAs and defined which obligations are "enforceable obligations" entitled to tax increment funding, excluding sponsor agreements post-dissolution and imposing a freeze on creating new obligations.
- DOF concluded that the Cooperative Agreement and project delivery costs were not enforceable obligations and disallowed use of bond proceeds to fund the Cooperative Agreement projects; Galt, now successor agency, sought administrative and judicial relief and lost in trial court.
- On appeal Galt argued (1) bond proceeds must be usable to fund the Cooperative Agreement projects, (2) the validation judgment made those projects enforceable obligations, and (3) DOF is equitably estopped from reversing prior non-objections. The Court of Appeal affirmed DOF.
Issues
| Issue | Plaintiff's Argument (Galt) | Defendant's Argument (DOF/Cohen) | Held |
|---|---|---|---|
| Whether bond covenants/intent to use bond proceeds converted the Cooperative Agreement projects into "enforceable obligations" | Bond indenture language and official statement reflect intent to fund the listed projects, so projects (and related payments) are enforceable obligations under §34171(d)(1)(A) | Enforceable obligations include bond debt service and payments required by indenture, not discretionary future projects; official statement reserved discretion and did not bind use of proceeds to particular projects | Reversed claim rejected: projects are not enforceable obligations; proceeds may be used only for debt service/indenture-required payments, not to create new obligations for projects |
| Effect of validation judgment — does it make the Cooperative Agreement projects enforceable obligations? | Validation judgment precludes challenge and effectively validates the projects and future contracts needed to implement them | Validation judgment binds the Cooperative Agreement itself but does not convert executory future contracts or project delivery costs into enforceable obligations under the Dissolution Law | Held: Validation judgment does not create enforceable obligations for the projects; Dissolution Law prohibits creation of new enforceable obligations |
| Contract impairment — does denying use of bond proceeds impair bonds/contract rights? | Prohibiting use of bond proceeds for projects impairs the bondholders’ expectations and thus impairs contracts | City lacks standing to assert bondholders’ rights; RDA had no contractual obligation to bondholders to fund those specific projects, and bond payments remain payable | Held: No unconstitutional impairment — bondholders’ debt service is preserved and Galt lacks standing to assert impairment of others’ rights |
| Equitable estoppel — should DOF be barred from reversing prior non-objections (oversight board resolution, ROPS I & II)? | DOF’s prior non-objection induced Galt to rely and proceed; estoppel should prevent DOF from later disallowing the items | Reliance was unreasonable (statutory process existed for final determination), DOF reserved rights in earlier determinations, and estoppel would defeat strong public policy of returning tax increment to taxing entities | Held: No estoppel; reliance unreasonable and application would nullify clear public policy |
Key Cases Cited
- Matosantos v. State, 53 Cal.4th 231 (2011) (upholding the Dissolution Law that dissolved redevelopment agencies and defined enforceable obligations)
- City of Brentwood v. Campbell, 237 Cal.App.4th 488 (2015) (prior DOF non-objection does not create enforceable obligation; estoppel limits)
- City of Petaluma v. Cohen, 238 Cal.App.4th 1430 (2015) (section 34177 duties of successor agencies do not expand the statutory definition of "enforceable obligation")
- Macy v. City of Fontana, 244 Cal.App.4th 1421 (2016) (validation judgments promote prompt finality but do not necessarily create new statutory rights post-dissolution)
- Marek v. Napa Community Redevelopment Agency, 46 Cal.3d 1070 (1988) (broad construction of "indebtedness" under former redevelopment law, not controlling under Dissolution Law)
- Sutter Basin Corp. v. Brown, 40 Cal.2d 235 (1953) (principle that laws at time of bond issuance define related obligations; discussed in impairment argument)