241 Cal. App. 4th 425
Cal. Ct. App.2015Background
- Vallejo built and operated the Lakes Water System (LWS) beginning in the late 1800s, supplying water from reservoirs and transmission lines that cross noncity land via easements; some easements included written promises of “free water.”
- By 1992 Lake Curry water failed treatment standards; Vallejo closed the Gordon Line and enacted ordinances (1992, 1995, 2009) shifting virtually all LWS operating costs onto ~809 nonresident customers, producing sharp rate increases.
- Plaintiff Green Valley Landowners Association sued on behalf of nonresident LWS customers, alleging breach of implied contract (historic cost-sharing ratio), breach of fiduciary duty, violations in rate-setting, and seeking damages, declaratory relief, accounting, and multiple injunctions; plaintiff entered a tolling agreement in 2009 that expired in 2013.
- The City demurred to all 12 causes of action; the trial court sustained the demurrer without leave to amend and entered judgment for the City; plaintiff appealed.
- The Court of Appeal accepted complaint allegations as true for demurrer review and affirmed dismissal, holding plaintiffs’ implied-contract theory barred as against a municipality, many claims precluded or foreclosed by Proposition 218 and statutory authority, and equitable remedies premature or unsupported.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of implied contract / historic cost-sharing ratio | City implicitly promised to indefinitely share LWS costs per historical ratio; breach occurred when ordinances shifted costs | Municipal contracts must comply with charter/statutory procedures; implied contracts against public entities are barred | Demurrer sustained: no enforceable implied contract against City; contract formation governed by statute/charter and implied contracts cannot impose obligations contrary to required procedures |
| Availability of monetary relief / rate claims under Proposition 218 | Rates violate historic cost-sharing and are unreasonable; damages equal difference between actual and “reasonable” rates | Proposition 218 and article XIII D forbid pooled subsidies and require proportional cost allocation; precludes plaintiff’s proposed apportionment | Demurrer sustained: historical pooled-rate remedy not viable under Proposition 218; related rate claims barred |
| Injunctive relief to block sale of LWS or sale without land | Sale would enable purchaser to pass full costs to class; sale without land would deprive LWS funding | City has constitutional and statutory authority to operate and sell public utilities (Cal. Const., Pub. Util. Code §10051); injunction cannot prevent execution of public statute absent invalidity | Demurrer sustained: court cannot enjoin a lawful public sale; claims premature and not shown to overcome statutory authority |
| Fiduciary duty and accounting claims against the City | City acted as trustee for nonresident customers; fees not dedicated as required—seek breach of fiduciary duty and accounting | There is no common-law tort liability for public entities (Gov. Code §815(a)); equitable remedies require underlying viable misconduct/fiduciary duty | Demurrer sustained: no independent common-law fiduciary liability against public entity; accounting claim fails without a viable underlying wrong |
Key Cases Cited
- Evans v. City of Berkeley, 38 Cal.4th 1 (2006) (standard of review for demurrer and pleading interpretation)
- G.L. Mezzetta, Inc. v. City of American Canyon, 78 Cal.App.4th 1087 (2000) (city contract formation must comply with statutory/ordinance procedures)
- Katsura v. City of San Buenaventura, 155 Cal.App.4th 104 (2007) (private parties cannot sue public entities on implied‑in‑law/quasi‑contract theories)
- Griffith v. Pajaro Valley Water Management Agency, 220 Cal.App.4th 586 (2013) (Proposition 218 requires fee apportionment to reflect proportional cost of service)
- Hansen v. City of San Buenaventura, 42 Cal.3d 1172 (1986) (municipal obligations to treat nonresidents fairly pre‑Prop. 218)
- Butterworth v. Boyd, 12 Cal.2d 140 (1938) (scope of charter city municipal affairs and home rule principles)
- McLeod v. Board of Pension Commissioners, 14 Cal.App.3d 23 (1970) (where charter is silent, general laws may govern municipal matters)