City of Galt v. Cohen
12 Cal. App. 5th 367
Cal. Ct. App. 5th2017Background
- In January 2011, City of Galt and its redevelopment agency (RDA) executed a Cooperative Agreement obligating the RDA to reimburse the City $22,015,000 for nine redevelopment projects; the RDA later issued tax allocation bonds (March 2011) to finance redevelopment activities.
- The City and RDA obtained a validation judgment (Oct. 26, 2011) declaring the Cooperative Agreement valid after an uncontested validation action.
- The California Dissolution Law (ABx1 26, enacted June 29, 2011) implemented a "freeze" on new obligations and later dissolved RDAs (Matosantos). The statute defined which obligations were "enforceable obligations" entitled to tax increment.
- DOF determined the Cooperative Agreement projects and related "project delivery costs" were not enforceable obligations and disallowed use of bond proceeds to fund those projects; City as successor agency challenged DOF and lost in the trial court.
- On appeal, City argued (1) bond proceeds must be available to fund the Cooperative Agreement projects, (2) the prior validation judgment made the Cooperative Agreement enforceable, and (3) DOF is equitably estopped from denying funds. The court affirmed DOF on all claims.
Issues
| Issue | Plaintiff's Argument (City of Galt) | Defendant's Argument (DOF) | Held |
|---|---|---|---|
| Whether bond covenants/indenture make projects financed by bonds "enforceable obligations" under the Dissolution Law | Bond language and indenture-related provisions make bond covenants (and projects to be financed) enforceable, so tax increment/bond proceeds can be used for the Cooperative Agreement projects | The statute treats bond debt service and indenture-required payments as enforceable, but does not convert prospective/unspecified projects in an official statement into enforceable obligations | Held: Projects are not enforceable obligations; bond proceeds can pay debt service but not to fund these Cooperative Agreement projects |
| Whether applying post-issuance statutory amendments (re limiting bond-proceeds uses) impairs contract or was an improper retroactive application | Application of statutes enacted after bond issuance to restrict bond-proceeds use impairs bondholder rights and was improper retroactivity | The RDA had no contractual obligation to bondholders to spend proceeds on those projects; statutes explicitly distinguished bonds issued before/after Dec. 31, 2010; no impairment | Held: No unconstitutional impairment; DOF properly applied the Dissolution Law |
| Whether the validation judgment made the Cooperative Agreement projects "enforceable obligations" | Validation judgment conclusively validated the Cooperative Agreement and thereby validated the projects and any future contracts needed to implement them | Validation judgment applies to the Cooperative Agreement itself but cannot create enforceable obligations that the Dissolution Law forbids; Cooperative Agreement is executory and did not fix enforceable obligations | Held: Validation judgment does not convert the Cooperative Agreement’s future project promises into enforceable obligations under the Dissolution Law |
| Whether DOF is equitably estopped from rejecting the use of bond proceeds (because DOF previously did not object to oversight board action / earlier ROPS) | City reasonably relied on DOF’s earlier inaction/ROPS approvals and would be prejudiced if reversal allowed | Reliance was unreasonable; statutory process existed for a final, conclusive determination and public policy forbids estoppel that would frustrate tax-increment preservation for taxing entities | Held: DOF is not equitably estopped; estoppel would be unreasonable and contrary to public policy |
Key Cases Cited
- California Redevelopment Assn. v. Matosantos, 53 Cal.4th 231 (2011) (upholding Dissolution Law structure splitting freeze and dissolution; explains successor-agency mechanics and tax‑increment handling)
- City of Brentwood v. Campbell, 237 Cal.App.4th 488 (2015) (rejecting estoppel based on DOF inaction and discussing enforceable‑obligation limits)
- Marek v. Napa Community Redevelopment Agency, 46 Cal.3d 1070 (1988) (construed "indebtedness" broadly under former redevelopment law to include executory contracts)
- Macy v. City of Fontana, 244 Cal.App.4th 1421 (2016) (describing purpose and preclusive effect of validation judgments)
- City of Petaluma v. Cohen, 238 Cal.App.4th 1430 (2015) (refusing to expand successor‑agency duties into statutory definition of "enforceable obligations")