455 P.3d 311
Cal.
2019
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Background

  • San Diegans for Open Government (SDOG) sued the City of San Diego and its Public Facilities Financing Authority (PFFA) challenging a 2015 bond-refinancing transaction, alleging violations of Government Code § 1090 (conflict-of-interest in public contracts).
  • SDOG sought relief including a declaration the bond transaction was unlawful and an injunction; it relied on statutes including Gov. Code § 1092 and Code Civ. Proc. § 526a.
  • The trial court dismissed SDOG’s § 1090 claim for lack of standing, concluding § 1092 authorizes only contracting parties to seek avoidance and that SDOG could not proceed under § 526a given statutory limits on enjoining municipal bond issuances.
  • The Court of Appeal reversed, holding § 1092’s phrase “any party” includes any litigant with an interest sufficient to support standing (e.g., taxpayers) and therefore SDOG could sue under § 1092.
  • The California Supreme Court granted review and reversed the Court of Appeal: it held § 1092 provides a right to avoid contracts only to parties to the contract (not nonparty taxpayers), and remanded so the Court of Appeal can decide whether SDOG may proceed under Code Civ. Proc. § 526a or other statutes.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether Gov. Code § 1092 creates a private right of action for nonparty taxpayers to avoid contracts made in violation of § 1090 § 1092’s term “any party” should be read broadly to include nonparty taxpayers and interested litigants “Any party” refers to parties to the contract; § 1092 does not create a right for nonparties Held: § 1092 does not create a private right for nonparties; it authorizes avoidance actions by contractual parties only
Whether cases construing standing under § 1090 establish a § 1092 cause of action for taxpayers Prior cases recognize taxpayer enforcement of § 1090 and thus support § 1092 standing for taxpayers Prior cases either involved other statutes (e.g., CCP § 526a) or did not decide § 1092; only San Bernardino rejects nonparty § 1092 standing Held: prior authority does not clearly establish a § 1092 cause of action for nonparties; the Court follows the plain-text reading that limits § 1092 to contracting parties
Whether policy considerations (vindicating § 1090) compel a broader reading of § 1092 to allow taxpayer suits Public-interest enforcement needs broad private standing to prevent conflicted public contracts, especially for municipal bonds Robust administrative, civil, and criminal enforcement (AG/DA, FPPC, contracting-party suits, CCP § 526a) makes a private right under § 1092 for nonparties unnecessary Held: policy reasons insufficient to overcome the statutory text limiting § 1092 to contractual parties
Whether SDOG can instead proceed under Code of Civil Procedure § 526a to challenge the bond issuance SDOG argued it can proceed under CCP § 526a (or limited disgorgement rather than injunction) Defendants argued CCP § 526a(b) bars injunctions restraining bond offerings, which may preclude the relief SDOG seeks Held: Court remanded to Court of Appeal to decide whether SDOG may proceed under CCP § 526a or other statutes given the factual posture and requested relief

Key Cases Cited

  • Lexin v. Superior Court, 47 Cal.4th 1050 (discusses § 1090’s broad conflict-of-interest rule and historical basis)
  • Thomson v. Call, 38 Cal.3d 633 (examines remedies and policy of strict enforcement of § 1090)
  • Stigall v. Taft, 58 Cal.2d 565 (taxpayer action asserting § 1090 violation; did not resolve § 1092 standing)
  • San Bernardino County v. Superior Court, 239 Cal.App.4th 679 (held § 1092 does not create private right for nonparties)
  • McGee v. Balfour Beatty Constr., LLC, 247 Cal.App.4th 235 (taxpayer alleged § 1090 violation; did not rest on § 1092 as source of standing)
  • Gilbane Bldg. Co. v. Superior Court, 223 Cal.App.4th 1527 (taxpayer challenge under CCP § 526a invoking § 1090)
  • Davis v. Fresno Unified Sch. Dist., 237 Cal.App.4th 261 (assumed nonparty could invoke § 1090 but did not decide § 1092 private cause question)
  • California Taxpayers Action Network v. Taber Constr., Inc., 12 Cal.App.5th 115 (reverse-validation challenge alleging § 1090 violations; did not establish § 1092 standing for nonparties)
  • Finnegan v. Schrader, 91 Cal.App.4th 572 (taxpayer suit alleging § 1090 violation; did not resolve § 1092 standing)
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