Nat'l Asian Am. Coal. v. Brown, 235 Cal. Rptr. 3d 415

Background

In 2012 California received a $410.6 million direct payment as part of the National Mortgage Settlement (NMS); Attorney General Harris provided Exhibit B-2 instructions limiting uses (10% civil penalties to Unfair Competition Law Fund; remainder to a special fund for foreclosure relief, enforcement, counseling, grants, monitoring, etc.).
The Legislature enacted Gov. Code §12531 creating the National Mortgage Special Deposit Fund (NMS Deposit Fund), continuously appropriating funds and directing the Director of Finance may "allocate or otherwise use" fund money to offset General Fund expenditures in FYs 2011-12, 2012-13, and 2013-14; subdivision (f) required a 30-day prior expenditure plan to the JLBC.
The State deposited 90% of the direct payment into the NMS Deposit Fund and then, pursuant to finance plans and executive orders, used nearly all the fund to offset General Fund debt-service on housing bonds and prior-year General Fund expenditures of DOJ and DFEH—total challenged transfers ≈ $350.36 million.
NGOs sued the Governor, Finance Director, and Controller seeking a writ of mandate and declaratory relief to return approximately $350 million they alleged was unlawfully diverted in contravention of §12531 and the NMS instructions.
The trial court found plaintiffs had public-interest mandamus standing, concluded §12531 was intended to effectuate the NMS (including Harris’s Exhibit B-2 limits), and held $331,044,084 was unlawfully appropriated; but it declined to order immediate restitution because of separation-of-powers concerns.
On appeal the court affirmed standing and statutory interpretation, agreed with the unlawful diversion amount, and reversed the remedial refusal—directing issuance of a writ ordering immediate retransfer of $331,044,084 from the General Fund to the NMS Deposit Fund.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Standing to seek writ of mandate	Public‑interest exception permits mandamus to enforce public duty to spend special fund per statute/NMS	Plaintiffs lack beneficial interest and cannot enforce the federal consent judgments	Plaintiffs have public‑interest standing to seek mandamus to enforce §12531
Meaning of §12531 (whether Director may offset any General Fund expenditures)	§12531 must be read to effectuate the NMS and AG Harris’s Exhibit B‑2 restrictions on permissible uses	Plain text of §12531(e) gives Director broad discretion to offset any General Fund expenditures “notwithstanding any other law”	Court construed §12531 to require consistency with the NMS/Exhibit B‑2 purposes; Director’s offsets must comport with those limits
Whether challenged offsets were consistent with NMS/Exhibit B‑2	Offsets that reimbursed the General Fund for past obligations and debt‑service were not within the Exhibit B‑2 purposes	Legislature and Finance acted with knowledge and acceptance; offsets fall within Exhibit B/legislative intent	Court invalidated $331,044,084 in offsets (e.g., bond debt‑service and reimbursement for past General Fund payments) as inconsistent with Exhibit B‑2; some 2013–14 DOJ/DFEH transfers upheld as not shown to be past expenditures
Appropriate remedy given separation of powers	Director's executive orders unlawfully transferred continuously appropriated special‑fund monies; court can order rescission/retransfer	Separation of powers forbids courts from ordering legislative appropriations; trial court declined immediate retransfer	Court ordered writ directing immediate retransfer of $331,044,084 from General Fund to NMS Deposit Fund (separation‑of‑powers does not bar return of unlawfully diverted funds still "in law" the special fund)

Key Cases Cited

Daugherty v. Riley, 1 Cal.2d 298 (Cal. 1934) (special‑fund diversions are deemed loans and unlawfully diverted monies remain in law in the special fund; remedy is retransfer by mandamus)
Butt v. State of California, 4 Cal.4th 668 (Cal. 1992) (separation‑of‑powers limits courts from diverting appropriations earmarked by the Legislature for other purposes)
Shaw v. People ex rel. Chiang, 175 Cal.App.4th 577 (Cal. Ct. App. 2009) (statutory purpose constraints preclude using dedicated funds to reimburse the General Fund for past obligations)
Mandel v. Myers, 29 Cal.3d 531 (Cal. 1981) (court may order payment from broad appropriations to satisfy judgments when legislative restriction is invalid as to that judgment)
Stanson v. Mott, 17 Cal.3d 206 (Cal. 1976) (policy presumption that funds authorized for a particular purpose should be expended for that purpose)