Davis v. Fresno Unified School District
237 Cal. App. 4th 261
| Cal. Ct. App. | 2015Background
- Plaintiff Stephen K. Davis, a Fresno Unified School District taxpayer, challenged a $36.7 million lease–leaseback construction contract between Fresno Unified and Harris Construction, completed in 2014.
- Fresno Unified executed a Site Lease (lease of district land for $1) and a Facilities Lease (contractor builds and subleases facilities back to district). Construction provisions set progress payments tied to construction performance; final payment was due on completion and acceptance.
- Davis alleged the arrangement was a sham: not a genuine lease, lacked a financing component, and did not allow district use of the facilities during the lease term — therefore competitive bidding should have applied under Education Code §17417 and Public Contract Code requirements.
- Davis also alleged breach of fiduciary duty by the board and a conflict of interest by Contractor for providing preconstruction consulting services and then obtaining the construction contract.
- The trial court sustained defendants’ demurrers to all causes of action; Davis appealed. The Court of Appeal reversed in part, overruling the demurrer on several claims and affirming dismissal of others.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §17406’s competitive‑bidding exception covers the facilities lease (the leaseback) | Davis argued exception applies only to site leases; facilities leases remain subject to competitive bidding | Defendants argued §17406 exempts the entire lease–leaseback arrangement from bidding | Held: §17406 can apply to the facilities lease; the exception covers the lease–leaseback instrument when statutory criteria are met (agreeing with Los Alamitos) |
| Whether §17406 requires a "genuine" lease and financing (i.e., not a disguised construction contract) | Davis alleged the Facilities Lease was a construction contract: payments were progress‑based, no contractor financing, title passed on final payment, and district did not use facilities during the lease term | Defendants relied on form/labels and prior practice; argued statutory text was satisfied | Held: §17406 requires substance over form — a true lease with a financing component; Davis adequately alleged the Facilities Lease was a sham/subterfuge and not a genuine lease, so demurrer was improperly sustained on that ground |
| Whether §17406 requires the district to use the facilities "during the term of the lease" | Davis argued the statute requires district use/occupancy during the lease term and alleged no such use occurred | Defendants argued the phrase relates only to timing of construction or that Legislature intended no minimum substantive leaseback use period | Held: The court read "for the use of the school district during the term of the lease" to require a lease term in which the district actually uses the new facilities; Davis pleaded facts sufficient to allege noncompliance |
| Whether Government Code §1090 (and related conflict rules) reach a corporate consultant who later obtains the contract | Davis alleged Contractor provided paid preconstruction consulting and then was financially interested in the construction contract, creating a §1090 violation | Defendants argued the Political Reform Act and §1090 do not reach corporate consultants or non‑individuals and that the act’s consultant definition is limited | Held: For civil actions to void contracts, §1090 applies to consultants (including corporate consultants acting to influence contracting decisions); Davis stated a viable §1090 claim. However, Political Reform Act §87100 did not apply to the corporate contractor as a "public official" under the Act/regulations, so that claim fails. |
Key Cases Cited
- City of Los Angeles v. Offner, 19 Cal.2d 483 (Cal. 1942) (substance over form in lease arrangements and effect on public debt limitations)
- Los Alamitos Unified School Dist. v. Howard Contracting, Inc., 229 Cal.App.4th 1222 (Cal. Ct. App. 2014) (§17406 exception applies to whole lease–leaseback arrangement)
- Stigall v. City of Taft, 58 Cal.2d 565 (Cal. 1962) (broad view of "made" under conflict‑of‑interest statute; includes planning and specification stages)
- Lexin v. Superior Court, 47 Cal.4th 1050 (Cal. 2010) (§1090 codifies common‑law rule barring officials from financial interest in contracts)
- Morgan Hill Unified School Dist. v. Amoroso, 204 Cal.App.3d 1083 (Cal. Ct. App. 1988) (characterizing lease–leaseback statutory scheme as a financing method)
- Parke etc. Co. v. White River Land Co., 101 Cal. 37 (Cal. 1894) (labels do not control; legal effect determined by instrument's substance)
- Hub City Solid Waste Services, Inc. v. City of Compton, 186 Cal.App.4th 1114 (Cal. Ct. App. 2010) (consultants/individuals can fall within §1090 liability when they participate and are financially interested)
- California Housing Finance Agency v. Hanover/California Management & Accounting Center, Inc., 148 Cal.App.4th 682 (Cal. Ct. App. 2007) (conflict rules applied to individual consultants involved in contracting)