Macy v. City of Fontana
244 Cal. App. 4th 1421
| Cal. Ct. App. | 2016Background
- In 2011 the Legislature enacted AB 26, dissolving redevelopment agencies (RAs) and creating successor agencies; successor liability was limited to assets transferred from dissolved RAs. AB 26 also discontinued the statutory 20% tax-increment requirement for housing going forward.
- Before dissolution, Fontana Redevelopment Agency (the agency) had long failed to meet CRL low- and moderate-income housing (LMIH) obligations; plaintiffs sought about $27 million to replenish the agency's housing fund for unpaid statutory contributions dating 2001–2010.
- A 1992 amended Owner Participation Agreement (OPA) made the city a party and allocated 65% of tax increment to the developer (Ten‑Ninety) and 35% to the agency and city; the amendment warranted that LMIH obligations were met and was validated in a Code Civ. Proc. § 860 action.
- After AB 26, the city elected to be the agency's successor agency; the Fontana Housing Authority became the housing successor. Plaintiffs amended to sue the city in its municipal capacity, alleging the city is liable for the agency's prior LMIH shortfalls and unlawfully received tax increment funds under the OPA.
- The trial court sustained the city’s demurrer (municipal capacity) without leave to amend; appellate court affirms, holding municipalities’ general funds are not liable for dissolved RAs’ preexisting LMIH obligations and that the validated OPA bars relitigation of the OPA distributions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a city (municipal general fund) can be held liable for a dissolved RA's pre-dissolution LMIH obligations | City (Fontana) assumed liability via its control and by being a party to the OPA that received tax increment funds | AB 26 limits successor liability to assets transferred; municipalities are not liable beyond successor assets; prior law treats RAs as separate entities | Held: No. Municipal general funds are not liable; RA liabilities are limited to assets transferred to successor agencies under AB 26 |
| Whether AB 26 or AB 1484 impose or expand municipal liability for preexisting RA LMIH obligations | AB 26/1484 should not shield municipalities from longstanding housing obligations; plaintiffs read statutes to allow recovery from municipalities | Statutes expressly limit successor liability to assets received and were intended to return tax increment to local agencies, not expand liabilities | Held: Statutes do not impose municipal liability; legislative intent and statutory text limit responsibility to successor agencies and their received assets |
| Whether the city's participation in and payments under the validated 1992 OPA can be attacked to recover funds | The OPA payments were unlawful because the agency had not met LMIH obligations; city received improper tax increment money | The OPA was the subject of a successful validation judgment (Code Civ. Proc. § 860), which bars relitigation of the OPA's validity (§ 870) | Held: Plaintiffs’ claims attacking the validated OPA distributions are barred by the validation judgment and res judicata principles |
| Whether prior cases (e.g., Nolan) or principles allow liability to be imposed on a municipality despite statutory separation | Rely on precedents that sometimes hold municipalities accountable for RA misuse or unjust enrichment | City cites Pacific States Enterprises rejecting Nolan and reaffirming RA/municipal separation; validation and statutory scheme control | Held: The court follows Pacific States Enterprises; Nolan rejected; plaintiffs’ reliance on other cases is unpersuasive given validation and statutory framework |
Key Cases Cited
- Fontana Redevelopment Agency v. Torres, 153 Cal.App.4th 902 (Cal. Ct. App. 2007) (addressing agency's failure to meet 20% housing requirement and limits on validating certain settlement/bond actions)
- Pacific States Enterprises, Inc. v. City of Coachella, 13 Cal.App.4th 1414 (Cal. Ct. App. 1993) (RA is legally distinct from city; city not liable for RA obligations merely because same officials govern both)
- Nolan v. Redevelopment Agency, 117 Cal.App.3d 494 (Cal. Ct. App. 1981) (earlier decision discussing municipal liability for RA acts; rejected by Pacific States Enterprises)
- County of Solano v. Vallejo Redevelopment Agency, 75 Cal.App.4th 1262 (Cal. Ct. App. 1999) (city may be subject to unjust enrichment claims when it improperly benefits from RA funds—distinguished here because no validation barred the claim there)
- Starr v. City & County of San Francisco, 72 Cal.App.3d 164 (Cal. Ct. App. 1977) (validation does not bar later challenges based on new facts or changed agreements; distinguished where no new facts post-validation existed)
- Slater v. Blackwood, 15 Cal.3d 791 (Cal. 1975) (final judgments, even erroneous, generally bar relitigation; supports stability of validation judgments)
- Friedland v. City of Long Beach, 62 Cal.App.4th 835 (Cal. Ct. App. 1998) (validation statutes aim to provide single final judgment resolving validity of public agency actions)