49 Cal.App.5th 814
Cal. Ct. App.2020Background:
- From 2012–2015 Torrance Unified School District and Balfour Beatty entered multiple lease-leaseback contracts for school construction funded by district general obligation bonds.
- Taxpayer James D. McGee filed a series of suits beginning in 2013, styled as reverse validation actions (Code Civ. Proc. § 860 et seq.), challenging those agreements; earlier appeals left only conflict-of-interest claims intact.
- The operative complaint pleaded a single conflict-of-interest cause of action (Gov. Code § 1090) and sought declarations the contracts were void and disgorgement from Balfour; it was filed and litigated under the validation-procedure mechanics (publication, 60-day window).
- At a bench trial limited to mootness, the court found the challenged construction projects were completed and dismissed the action as moot under applicable validation principles.
- McGee argued the agreements were not subject to validation and that his § 526a/§ 1090 in-personam disgorgement claim survived completion; the court and appellate panel held the contracts fell within the validation statutes and completion rendered his claims moot.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether lease-leaseback agreements are subject to the validation statutes (Gov. Code § 53511) | McGee: the lease-leaseback contracts are not the kind of "contracts" covered by § 53511 | District/Balfour: agreements are tied to bond financing and thus are contracts covered by § 53511 | Held: agreements are tied to bond financing and fall within § 53511, so validation statutes apply |
| Whether McGee’s § 526a/§ 1090 conflict claims are in personam and therefore outside validation | McGee: claims are taxpayer in-personam claims for disgorgement under § 526a and common law/Gov. Code § 1090, not subject to validation | Defendants: gravamen seeks invalidation of the contracts, so claims fall within validation statutes despite label | Held: form doesn’t control; claims necessarily invalidate contracts and therefore fall within validation statutes |
| Whether completion of the projects moots the reverse-validation/taxpayer challenge | McGee: completion shouldn’t bar in-personam disgorgement remedy against Balfour | Defendants: once projects completed, court cannot grant effective relief re: contract validity; validation policy favors prompt resolution | Held: completion of projects renders the action moot because no effectual relief can be granted and allowing late challenges undermines validation policy |
| Whether disgorgement to a private party (Balfour) can cure mootness | McGee: Thomson allows disgorgement even after completion, so relief remains available | Defendants: Thomson did not involve validation statutes; permitting post-completion disgorgement would defeat validation scheme | Held: Thomson distinguishable; disgorgement would require declaring contracts void, so mootness stands under validation framework |
Key Cases Cited
- California Taxpayers Action Network v. Taber Construction, Inc., 12 Cal.App.5th 115 (Cal. Ct. App. 2017) (discusses lease-leaseback financing and validation context)
- McGee v. Balfour Beatty Construction, LLC, 247 Cal.App.4th 235 (Cal. Ct. App. 2016) (prior appellate decision addressing standing and § 1090 issues in these disputes)
- Wilson & Wilson v. City Council of Redwood City, 191 Cal.App.4th 1559 (Cal. Ct. App. 2011) (completion of public works can moot reverse-validation challenges)
- San Diegans for Open Government v. Public Facilities Financing Authority of City of San Diego, 8 Cal.5th 733 (Cal. 2019) (§ 526a allows taxpayers to challenge contracts affected by conflicts of interest; limits of § 1092)
- McLeod v. Vista Unified School Dist., 158 Cal.App.4th 1156 (Cal. Ct. App. 2008) (taxpayer § 526a claims may be subject to the validation statutes when they effectively challenge matters amenable to validation)
- Thomson v. Call, 38 Cal.3d 633 (Cal. 1985) (disgorgement remedy against interested official in completed real estate transaction; distinguishable here)
- Commerce Casino v. Schwarzenegger, 146 Cal.App.4th 1406 (Cal. Ct. App. 2007) (describes reverse validation and limits on collateral attacks)
- Friedland v. City of Long Beach, 62 Cal.App.4th 835 (Cal. Ct. App. 1998) (validation actions operate in rem and bind all persons; financial operation concerns)
- Katz v. Campbell Union High School Dist., 144 Cal.App.4th 1024 (Cal. Ct. App. 2006) (claims framed as declaratory/injunctive relief that merely seek invalidation are subject to validation)
- Davis v. Fresno Unified School Dist., 237 Cal.App.4th 261 (Cal. Ct. App. 2015) (notes common practice of using validation for lease-leaseback school projects)