Opinion
Officials of the City of King City (City) deposited some $4.4 million of funds under their control into the Community Bank of Central California (Bank), and then pledged the funds to the bank as collateral for a loan to a developer engaged in a redevelopment project under the supervision of the local redevelopment agency, Community Development Agency (Agency). The developer apparently defaulted on the loan, and Bank refused to return the funds to City, which then brought this action for a writ of mandate compelling Bank to do so. City alleged that the deposit consisted of “City general fund monies” and that the pledge was void for the reason, among others, that it “could not be, and was not, authorized” by the City Council (Council) or the City Agency Board (Board). Bank sought a continuance
to permit discovery into the circumstances surrounding certain actions by the Council, the Board, or both, which, in Bank’s view, conferred authority on the mayor to make the pledge. Bank also sought to inquire into the origin of the deposited money, asserting that it may have come from Agency funds and not, as City alleged, City funds. The trial court denied the request for a delay to conduct discovery and categorically excluded oral testimony concerning the events at issue. After what amounted to a lengthy law and
We hold that the court committed prejudicial error in several respects. First, the duty asserted by City does not arise from any “office, trust, or station” occupied or assumed by Bank, and therefore will not support the issuance of mandate. (Code Civ. Proc., § 1085, subd. (a).) As a result, the matter should have proceeded as an ordinary civil action, with Bank entitled to the usual processes of discovery and trial. Second, the denial of discovery into the origins and ownership of the pledged funds was both erroneous and prejudicial because evidence that the funds belonged to the Agency would tend to defeat City’s
Given these conclusions, we will reverse the judgment along with a postjudgment order awarding attorney fees to City.
Background
A. Creation and Pledge of Certificate of Deposit
At all times relevant here, the Council and the Board shared the same members and sat jointly at combined meetings, often without clearly distinguishing between the two entities when measures were considered and adopted. The proceedings of both entities were conducted under a single combined agenda and were memorialized in a single set of minutes. Because many of the resulting ambiguities remain unresolved at this stage, we will sometimes refer to these entities by the inelegant terms “City/Agency” and “Council/Board,” by which we mean both to acknowledge the ambiguities presented and to disclaim any attempt to resolve them on the present incomplete record.
At a meeting on February 8, 2000, the Council/Board considered a staff proposal to authorize a loan from the King City Revolving Loan Fund (KCRLF) to Town Square Partners LLC (TSP), the developer of a redevelopment project previously authorized by City and the Agency. The staff’s overall report for the meeting was accompanied by a special report authored by D. Scott Galbraith, Director of the Economic Development Department, concerning the loan proposal. It stated that the purpose of the loan was to fund tenant inducements, developer profit, and financing costs, as well as to provide capital for TSP. The report stated that the loan would be accomplished either by “advancing] funds directly” from KCLRF, or by “extend ing] funds to capitalize a loan from a private lender.” (Italics added.) The Council and Community Development Agency Minutes of the February 8, 2000 meeting recite that the proposal appeared on the consent agenda, and was approved.
In anticipation of the regular meeting of the City/Agency on March 14, 2000, staff presented an agenda item numbered 5.3, as follows: “CONSIDER AND ACT — Terms and Conditions for a Revolving Loan to Town Square Partners LLC. [][] Staff report in the Addendum.” The pertinent report was again prepared by Galbraith, and contained a recommendation “That the Terms and Conditions of the King City Revolving Loan Fund to Town
The Council and Community Development Agency Minutes for the meeting of March 14, 2000, recite the following action with respect to the above agenda item: “CONSIDER AND ACT Terms and Conditions for a Revolving Loan to Town Square Partners LLC [1] Scott Galbraith mentioned that most of the items on the agreement had been previously approved by the Agency Board. On motion by Agency Boardmember Grebmeier, seconded by Agency Boardmember Zechentmayer, the Agency Board approved the Revolving Loan to Town Square Partners with the following staff recommendations and also added Deputy City Clerk approval to the process: [jl] 1. Approve a loan for up to $3,850,000 to Town Square Partners LLC from the King City Revolving Loan Fund. The loan amount may vary, and shall be increased to cover potential legal settlement expenses, [¶] 2. Finance Director to identify accounts and allocate funds to support KCRLF. [¶] 3. A Deed of Trust to secure the KCRLF loan or line of credit shall be recorded, subordinate to principal financing, [¶] 4. Town Square Partners LLC shall provide a promissory note to secure the KCRLF loan prior to construction completion of the Town Square project.”
In early April, 2000, Robert Moreno, who according to Bank was City’s treasurer and finance director, signed a certificate of deposit placing $3,822,638 into an interest-bearing account with Bank. The account had a maturity date of April 4, 2002, but was “Automatically Renewable.” Around this same time, John Myers signed, as “Mayor of City of King,” an assignment of deposit account stating that City, as grantor, assigned to Bank, as lender, a security interest in the certificate of deposit account, as collateral for a debt incurred by TSP to Bank under a note made on April 3, 2000, in the amount of $3,822,638.
Five months later the matter again came before the Council/Board. In preparation for the regular meeting of September 12, 2000, staff submitted a report including the following agenda item: “5.9 APPROVAL of amendment of accounts and deposit of additional funds in support of the Town Square Project. [j[] Refer to staff report on Addendum, page 75. A detailed review of the report will be provided at the council meeting.” A report by Galbraith, dated August 14, 2000, stated in part, “A $3.85 million loan . . . from the King City Revolving Loan Fund to Town Square Partners was approved and processed in May 2000. The purpose of the loan was to fund non-construction expenses (i.e. tenant inducements, financing costs, etc.). It was noted at the time that the loan amount was variable. [1] The loan was
requested to be established as a ‘revolving line of credit. . . .’ The lender arranged a traditional loan, [¶] The tenant inducement budget for Town Square totals $675,000. A large portion of this budget ($375,125) was to be derived from the Hartnell College project (i.e. land, demolition, relocation, etc.). The initial allocation for tenant inducement was $ 270,000, which has been exceeded. An amendment
The minutes for the meeting of September 12, 2000, describe the following action: “APPROVAL of amendment of accounts and deposit of additional funds in support of the Town Square Project. [][] On motion by Councilmember Grebmeier, seconded by Councilmember Tamez, Council approved the amendment of accounts and deposit of additional funds in support of the Town Square Project.”
On or about November 3, 2000, the mayor signed a new assignment of deposit account, which appears to be substantially identical to the earlier one except that the amount of the principal is stated to be $4.4 million.
Some time later, concerns apparently arose about TSP’s ability or willingness to repay the loan. City made known to Bank its intention to “redeem the above CD on the maturity date,” and an attorney for Bank replied that the certificate secured TSP’s debt to Bank, that Bank was “not willing to extend [TSP’s] loan any further,” and that if TSP “fails to pay the Bank on April 3 when the loan is due, the Bank will take action to realize on the collateral.”
B. Proceedings Below
On April 2, 2003, City filed its petition for writ of mandate. Although the petition referred to “CDA,” apparently an abbreviation for Agency, it was brought solely on behalf of City. In it, City repeatedly characterized the funds at issue as “City general fund monies” or “general fund monies,” and alleged that the purported assignment for purposes of collateral was “void as a matter of law” because (1) it constituted “an ultra vires act which could not be, and was not, authorized by the City Council or CDA”; (2) it constituted “an illegal gift of public funds under California Constitution, Article XVI, section 6”; and (3) it violated conflict of interest statutes (see Gov. Code, §§ 1090, 87100 et seq.). 2 The petition prayed for a writ of mandate directing Bank “immediately to return to City the $4.4 million in general fund monies,” plus costs and attorney fees.
Bank initially neglected to file a formal response to the petition, but filed an opposition memorandum contending that mandate was not a proper remedy because City had failed to show, among other things, that Bank had a ministerial duty to return the funds. Bank further contended that City’s arguments on the merits were unsound in various respects.
The hearing on the petition was apparently continued to May 15, 2003, and then to May 22, 2003, over City’s objection, at the request of Bank’s counsel. On May 19, Bank filed a demurrer on the ground that the petition “fail[ed] to state facts sufficient to constitute a cause of action for issuance for a writ of mandate in that Petitioner has other plain, ordinary and adequate remedies . . . .”
3
City requested
The matter came on for hearing on May 22, 2003. After denying Bank’s request for a continuance to conduct discovery (see pt. II, post), the court turned to Bank’s demurrer, which it “deemed untimely,” but ruled, “Previous response filed by defense is deemed to be a combined demurrer and verified response.”
The court then entertained lengthy arguments on the issues raised by the petition. In connection with the question whether the pledge was ultra vires, counsel for Bank informed the court that he had “some witnesses under subpoena to help elucidate the Court on those issues.” Among the witnesses was Scott Galbraith, who according to counsel would testify if called that when he referred to “capitalizing]” a loan in his report to the Council/Board, “he mean[t] to say collateralize a loan from a private lender.” 5 However, the court opined that extrinsic evidence was probably inadmissible to “inquire into what they [i.e., the Council/Board] meant when they took their actions,” adding, “I think that might be a quick way to proceed. So I’m not inclined to let oral testimony in.” Counsel for Bank noted that it had “people under subpoena” and was uncertain how to proceed. The court suggested that counsel “release them at this time, but obviously if I determine that you can present oral testimony and that the Court wants to hear that in order to decide, we can then allow you the time to re-subpoena them and bring them in.” The court never authorized Bank to call witnesses. 6
The court distinguished Carruth on the ground that it involved no statute requiring a specific public record of the challenged action. The court appeared to find such a requirement here by virtue of Government Code sections 36935 and 36936. (See pt. m.A, post.) It ruled inadmissible oral testimony concerning what council members “meant” or “understood when they enacted the minute order of February 8th ... to interpret that.” It also ruled that transcripts of public Council/Board meetings were inadmissible both on grounds of hearsay and as violating “deliberative privilege.” (See fn. 24, post.)
The court then announced its decision that “the action taken on the consent agenda doesn’t comply with Government Code section 36935 in that resolution or orders for the payment of money shall be adopted or made only at a regular meeting or at a special meeting for which the notice of such special meeting specifies the business to be transacted.” It found the recital in the minutes of February 8, 2000, insufficient to satisfy the supposed statutory requirements because the minutes only said that the Council/Board “authorize . . . King City revolving loan fund to Town Square Partners L.L.C.,” and because “it’s unclear whether the city’s acting or the agency is acting.” After raising a host of other supposed impediments to Bank’s position, some seemingly on its own motion (see pt. IV, post), the court concluded that “the city prevails on its first argument that the action was ultra vires. . . . [I]f it’s ultra vires it’s a gift of public funds . . . .”
A judgment duly followed, from which Bank took appeal No. H026888. Eventually the court entered an order awarding City its attorney fees, from which Bank took appeal No. H027166. Upon the parties’ stipulation, we ordered the two appeals consolidated for briefing, argument, and decision.
I. Failure to Establish Mandatory Duty
Mandate is the principal extraordinary writ surviving under California law. It issues “to any inferior tribunal, corporation, board, or person, to compel the performance of an act which the law
specially enjoins,
as a
duty resulting from an office, trust, or station
. . . .” (Code Civ. Proc., § 1085, subd. (a), italics added.) It is said
The duty asserted by City is for Bank to return the funds deposited with and ostensibly pledged to it by City officials. Bank does not deny that if this duty exists, City has a substantial beneficial interest in its performance. 7 The principal points of controversy are whether the asserted duty is “ministerial,” whether it is plain, and whether City has a “plain, speedy, and adequate remedy, in the ordinary course of law.” (Code Civ. Proc., § 1086.)
A “ministerial duty” is one generally imposed upon a person in public office who, by virtue of that position, is obligated “to perform in a prescribed manner required by law when a given state of facts exists. [Citation.]”
(Alliance for a Better Downtown Millbrae v. Wade
(2003)
All of these cases are readily understood as resting on a duty arising from “an office, trust, or station,” albeit a private one. (Code Civ. Proc., § 1085.) City has never identified any such “office, trust, or station” occupied by Bank in connection with the account here at issue. Instead it seeks to bypass that statutory language by conflating
clear
duty and
statutory
duty, on
the one hand, with
ministerial
duty (i.e., a duty arising from an office, trust, or station), on the other. Mandate obviously will not lie to enforce every duty arising from a statute, no matter how clear the duty may be. No one would suggest that mandate is available against a speeding motorist, a seller of narcotics, a fraudulent advertiser, or a poacher of game, though all might be violating clear statutory duties. To establish a right to mandate
Further, the statutes on which City relies for its claim of a duty enforceable by mandate do not apply to the account at issue here.
9
Government Code section 53642 (section 53642) provides, “The money deposited may be drawn out by check or order of the treasurer or other official authorized to make such deposit.” Government Code section 53644 (section 53644) provides, “If an agreement is not made: [¶] (a) Active deposits and interest thereon are subject to withdrawal upon the demand of the treasurer or other authorized official, subject to any penalties which may be prescribed by federal law or regulation. [][] (b) Inactive deposits are subject to notice of at least thirty days before withdrawal.” Both provisions are nearly meaningless by themselves; they can only be understood if read in context. The context is largely supplied by Government Code section 53635.2 — not mentioned in City’s brief — which provides for the deposit of local agency funds in qualifying financial institutions “for safekeeping.”
10
All of these statutes are descended from the Depositary Act, the purpose of which was to excuse local governments from the requirement under former law that all funds on hand be “held intact in public treasuries.”
(Pomona City School Dist.
v.
Payne
(1935)
Where a deposit is made pursuant to these statutes, the receiving bank may well be under a ministerial duty to release the deposited funds upon lawful demand. If so, the ministerial character of that duty would arise not from the statutes cited by City but from Government Code section 53636, which declares that “Money so deposited [i.e., pursuant to Government Code section 53635.2] is deemed to be in the treasury of the local agency.” This language supports an argument that where a bank accepts funds “for safekeeping” under these statutes, it assumes the constructive
This, however, was not shown to be such a case. Although the burden was squarely on City to affirmatively demonstrate the presence of conditions justifying the extraordinary remedy of mandate, it made no attempt to establish that the funds in question were deposited with Bank “for safekeeping.” There is no testimony by the treasurer or any other City official that anyone intended the funds to be held by Bank as ordinary City assets, let alone assets subject to withdrawal on demand. On the contrary, such evidence as appears in this record suggests the opposite — that everyone concerned intended the deposit to be placed at risk as security for a loan by Bank to a third party. That purpose may fail for reasons of law, but that hypothetical failure furnishes no basis to treat the transaction as a deposit “for safekeeping” when all evidence is to the contrary. Under City’s abridged reading of the statutes, local agencies would apparently enjoy a peremptory right to immediate possession of any money they might deposit in a bank for any purpose, under any circumstances. The Legislature presumably has the power to create such a regime — effectively preventing municipalities from depositing funds for other purposes — but it has not done so. Sections 53642 and 53644 are limited by their terms to conditions not shown to be present here. For that reason alone, City failed to establish an entitlement to relief by writ of mandate, and the trial court erred by issuing such relief.
It might be suggested that a complete reversal could be avoided if the only prejudice resulting from the error were issuance of the wrong form of relief. In such a case we could conceivably reverse with directions to recall the writ and enter an amended judgment for civil damages. Whatever the theoretical availability of such a result, however, it cannot be obtain here because the summary nature of the proceeding deprived Bank of the opportunity to adequately prepare and present a defense, and because on the record before us the City also failed to establish a clear entitlement to relief.
II. Denial of Discovery
A. Background and Introduction
At the first full hearing on May 22, 2003, counsel for Bank requested a continuance on the ground that more time was needed for discovery. He stated that he had already “discussed with the Court and counsel in a telephone conference several days ago” a request “to postpone or delay this hearing or reset it to give the Bank sufficient opportunity to do the discovery that
The court denied the request for a continuance to conduct discovery. This ruling was vested in the trial court’s discretion, and can only be overturned if that discretion was abused.
(Save Open Space Santa Monica Mountains v. Superior Court
(2004)
We have concluded that there was no legal justification here for the denial of a continuance to permit discovery, which ruling therefore constituted an abuse of discretion, with the prejudicial effect of rendering the entire proceeding unfair and the result unreliable. In discussing the point we will largely confine ourselves to counsel’s request for discovery into a single issue of fact — the status, origins, and ownership of the funds deposited into the subject account and ostensibly pledged by the mayor. Counsel for Bank repeatedly emphasized that the source of the funds was not adequately demonstrated by any documents voluntarily produced by City, but noted indications that the funds were not “City general fund monies,” as alleged in the complaint, but Agency funds. As will appear, the refusal to permit discovery into this issue cannot be justified by any rule of law. By focusing on that refusal, we do not intend to suggest that the court properly denied discovery on other subjects. For instance, as our discussion elsewhere will indicate, the court’s view of the admissibility of evidence of legislative intent was unduly constrained; that view inevitably reinforced its denial of discovery. (See pt. m.A, post.)
B. Specification of Materials Sought
City opposed Bank’s request for a continuance to conduct discovery on the ground, among others, that Bank never identified any specific evidence it lacked. Such an argument is highly suspect to say the least. We recognize that civil litigators earn large sums developing and then litigating over novel grounds for resisting discovery, but we see no colorable merit in the notion that the proponent of discovery may only obtain information he already has. Had Jefferson applied a similar test to Lewis and Clark’s proposed expedition, American history might have been quite different. The pertinent term is “discovery,”
Moreover, Bank’s attorney did identify specific evidence he lacked and sought. He repeatedly insisted that discovery was needed on the character and “source of the funds that were pledged.” At the initial hearing he said that Bank had “requested from the City . . . documentary evidence . . . indicating where the money came from. What the Bank has in its records indicates that there was a transfer from . . . what’s called the local agency funding account up in Sacramento. And it’s on a City of King check. [][] But the financial records, which we’ve placed before the Court, show that the City of King has a whole variety of funds. It also shows that — those records will also show that there never was at any one time $3.8 million in the general fund that we can identify. ... It may have passed through. But the balance sheets don’t show $3.8 million in the general fund. [(][] And I don’t suggest . . . that we know where this money came from or whose money it was. I’m simply pointing out that that is another place where there’s sort of a hole in the evidence, which probably could be filled out by some appropriate discovery or the provision of information about that.”
At the continued hearing counsel again noted that “there is a question as to whether these are city funds.” Indeed by this time he was able to make an offer of proof that an analysis of city financial records would reveal “that the money that was used to pledge was the proceeds of the 1998 redevelopment bond that was issued by the redevelopment agency.” The court appeared to express skepticism at the notion that “[t]he mayor on behalf of the city pledged money that was agency money,” but counsel replied, “That appears to be
It simply is not the case that Bank failed to identify specific, discoverable evidence that it lacked and that could well be admissible as evidence.
C. Sufficiency of Existing Proofs
At the time the court denied the request for additional time to conduct discovery, its only indicated basis for the ruling was an observation that counsel for Bank had already presented voluminous documents that, according to counsel, were sufficient to establish a valid pledge of municipal funds. The court then remarked, “. . . I don’t see why you need a continuance for further discovery if that’s already clear in what you’ve got here today.”
The denial of discovery cannot be justified by such reasoning. A party’s right to obtain evidence does not depend on counsel’s willingness to make the concession — probably imprudent, possibly reckless, and perhaps even erroneous — that the evidence already available is insufficient to make a case. The propounder need only show that, given the known circumstances, the proposed discovery is “reasonably calculated to lead to the discovery of admissible evidence.” (Code Civ. Proc., § 2017.010; former Code Civ. Proc., § 2017, subd. (a).) A court has the power to protect a responding party against discovery that is “unreasonably cumulative or duplicative” (Code Civ. Proc., § 2019.030, subd. (a)(1); former Code Civ. Proc., § 2019, subd. (b)(1), enacted 1986, repealed Stats. 2004, ch. 182), but there was no occasion to exercise this power here. The question, therefore, was not what evidence Bank already had, let alone whether counsel thought it was sufficient (as the court found it was not), but whether discovery would produce additional admissible evidence.
D. Absence of Formal Discovery
City contends that a continuance for discovery was properly denied because Bank “never propounded formal discovery to City.” This assertion is closely accompanied by a citation to City’s own “Objection to [Bank’s] Notices of Depositions and Requests to Produce Documents.” The objection lists nine depositions then scheduled for a four-day period commencing April 28, 2003. In its petition for rehearing, City explains that while Bank propounded discovery to “current or former City officials,” it did not serve formal discovery directed to City as such or to its custodian of records, so designated. This distinction presumably provided City with a justification for failing to provide documents sought by Bank in response to these requests, but it hardly effected a forfeiture of Bank’s right to obtain such documents before an adjudication on the merits.
In any event, the trial court found no procedural forfeiture, but denied Bank’s request on the ground that Bank did not need discovery and, later, that discovery would have not have helped it. Nor do we think a denial of discovery on a purely formal ground would have been a sound exercise of discretion under the circumstances then prevailing. City’s unsound invocation of a right to mandate must have kept Bank and its attorneys under intense
E. Materiality of Discovery Sought
Ultimately the Court’s refusal to permit discovery into the source of the funds at issue seemed to rest on the view that nothing Bank might discover in that regard would support a defense to City’s claims. On the first day of hearing the court ruminated on the possibility that it could decide the central question — whether the pledge was duly authorized — without determining the source of the funds or even which entity, in contemplation of law, had pledged them. 13 Counsel for City gave impetus to this approach by arguing at the second hearing that an application of 1998 bond funds to secure the loan in question would violate the terms of the indenture relating to the bond. In its remarks at the conclusion of that hearing, the court apparently adopted that view. First it declared that monies “from the general fund . . . can’t go to pay for redevelopment costs.” Then, apparently quoting from the bond indenture, or an abstract of it, the court reached a similar conclusion about Agency funds: “. . . I would note [the provision] at page 17 ... the agency will not mortgage or otherwise encumber, pledge or place any charge upon any of the tax revenues except as provided in the indenture [and] at page 20, it says the agency will adopt, make, execute and deliver any and all such further resolutions, instruments and insurance as may be reasonably necessary to carry out the intention or facilitate the performance of the indenture. [][] So here again, they have to act by resolution. . . . [Continuing on page nine, [it] talks about amendments permitted, certain amendments that would require the consent of the owners and other amendments that would not require the consent of the owners . . . , I don’t see going to establishing the King City revolving loan fund as they have set it out. [][] And more importantly, they have set out what this bond money is to be for in pages 24 and 25 where they outline the project. . . .”
In its statement of decision the court continued to describe the deposit as “City
These comments do not provide a sound basis to deny discovery. To begin with, whatever its relevance to the merits of the controversy, the supposed status of this deposit as “city general fund monies” was the basis for City’s claimed fulfillment of the statutory requirement that City have no “plain, speedy, and adequate remedy, in the ordinary course of law.” 14 (Code Civ. Proc., § 1086.) The supposed status of the funds therefore furnished a necessary component of the City’s case for a writ of mandate. It also provided the central ground for City’s opposition to the continuances requested by Bank. Thus, by the repeated assertion of the “City general fund” status of the deposit, City succeeded in depriving Bank of the prerogatives ordinarily available to a civil litigant, not least of which was the right to conduct discovery for at least some months before any question of a trial would arise. 15
Moreover, and more fundamentally, City flatly alleged in its complaint that it had “deposited $3,822,638 in City general fund monies.” (Italics added.) Its whole right to recovery, not to mention an extraordinary writ, was premised on the allegation that this money belonged to it. If the money did not belong to it, City could not prevail under the complaint as framed. It could not avoid this result simply by arguing from uncited authorities that it could prevail under hypothetical facts on some other, unpled theory. Any evidence refuting City’s claims as pleaded was not only material, but potentially dispositive— and eminently discoverable.
City cites the evidence it presented below “showing] that the money was general fund money.” One might conceive in the abstract of evidence so compelling and conclusive on a given issue — such as an indisputable matter of public record, or a binding and conclusive admission by the propounding party — that a court would act within its discretion in denying discovery aimed at finding contrary evidence. That was hardly the case here. City’s evidence consists of a passing averment by City Attorney Jencks that “[o]n April 4, 2000, City deposited $3,822,638 in City general funds into a Certificate of Deposit ... at Bank.” Jencks’s own testimony shows that he was not competent to give this testimony
Moreover, even if the characterization of the funds as “City money” came from someone with firsthand knowledge it would, standing alone, possess limited legal significance. For all we know it means nothing more than that the funds passed penultimately through a “general funds” account, or perhaps merely an accounting characterization, en route from the Local Agency Investment Fund in Sacramento to the deposit account where they now rest. At oral argument counsel for City seemed unwilling or unable to say where the funds came from, as distinct from where they were kept immediately before they were turned over to Bank. But courts are quite familiar with the distinction between how assets are held and who actually owns them. They are used to resolving such issues under rubrics like formal versus beneficial title, tracing of assets, and so on. In such cases a key question is which party has the burden of proving the origin and true character of the funds at issue. Here that burden rested squarely on City, as plaintiff, and would have done so even in the absence of an express allegation that the deposit was “City general fund monies.” 16 City apparently takes the position that it carried that burden merely by asserting that the funds were located in a City account, or under City custody and management, prior to their deposit in the Bank. But surely City was quite capable of disclosing the true history of the funds. Its persistent failure, indeed refusal to do so should have raised alarm bells as to the true nature and merits of its claims, at least as presently pleaded. 17
Issues about the true ownership, source, or character of funds are rarely resolved merely by consulting the title on a given account or asset. In the absence of contrary authority — and City has offered none — we will not give dispositive effect to the label City chooses to attach to funds in its custody. (See
Here, so far as the record shows, the court’s consideration of the hypothesis that the deposit consisted of Agency funds degenerated into little more than guesswork about the law that might govern in such circumstances. Neither the court’s oral comments nor its statement of decision reflect any consideration of specific legal restrictions on Agency expenditures other than those the court found in the 1998 bond indenture. But there was no competent evidence that the funds, if they were the Agency’s, actually came from the 1998 bond; there was only an
offer of proof
to that effect, by Bank, in support of a plea for more time to ascertain the true facts. Moreover, assuming the funds came from the 1998 bond and the indenture imposed pertinent restrictions on the Agency’s transfer of those funds, there was no competent evidence that Agency had failed to
comply
with those restrictions. Nor was authority offered for the necessary proposition that a noncompliant expenditure would be wholly void, so as to permit recovery from a third party who had incurred substantial detriment in reliance on the expenditure. There was no reason to believe that City, or for that matter the Agency, had
standing
to complain about the supposed violation of indenture terms. For that matter, since the Agency was not
Finally we reiterate that any theory that viewed the funds as Agency funds was contrary to the allegations of the petition and could not support issuance of a writ unless the petition were amended either formally or by stipulation, tacit or otherwise. This record cannot be interpreted to support a supposition that Bank acquiesced in a trial on the theory that the funds belonged to the Agency. Bank did not acquiesce in any trial, but desperately sought an opportunity to acquire the means to defend itself before the matter came to trial. The court could not adopt a theory outside the pleadings based solely on a colloquy with counsel, and then rely on that theory to enter a $4.4 million judgment in favor of a party who may well have had no legal right to pursue the claim.
F. Circumstantial Evidence of City Ownership
Early in its statement of decision the court wrote that the Agency was required by law “to adopt an annual budget which is separate from City’s budget, and to maintain separate bank accounts which are funded from specific appropriations and used solely for designated redevelopment purposes.” The relevance of this statement is far from self-evident. It may be offered to support the proposition that if the funds were Agency funds, their expenditure in the manner indicated here was unlawful and void. If so, it fails, for all the reasons we have stated, to support the judgment. It may instead be intended, however, to support an inference that the pledged funds must in fact have belonged to City because they did not come from the Agency’s budget, or were not used for “designated development purposes.” The court may have drawn similar inferences from other objections to the hypothetical expenditure of Agency funds, as noted in the preceding subsection. If so the suggested inference is unsound for many reasons, of which the most prominent are: (1) Bank was precluded from conducting discovery on this very point; (2) inferential evidence, however strong, cannot justify the denial of discovery to obtain direct evidence on the same point; and (3) the factual premise (that the handling of the funds was inconsistent with legal requirements to which Agency was subject) is completely undemonstrated on this record.
The denial of a continuance to conduct discovery was a prejudicial abuse of discretion. Since it was only made possible by the fact that the matter was a proceeding in mandate, it also eliminates any possibility that the erroneous decision to permit the matter to so proceed might have been harmless.
III. Failure to Establish Clear Duty
A. Sufficiency of Record of Authorizing Action
The crux of the trial court’s ruling on the merits was its conclusion that “. . . City action authorizing a pledge of public funds must be reflected in formal minutes or resolutions, and that testimony . . . concerning what was ‘intended’ or ‘understood’ by City officials is inadmissible to contradict or supplement those official records.” The court found this rule fatal to Bank’s case because “official minutes and resolutions contain no approval for, or discussion of, a pledge of City funds.”
The supposed rule thus applied was drawn from two statutes. The first, Government Code section 36935 (section 36935), provides that “[Resolutions or orders for the payment of money” may be adopted only at regular meetings or at
No such rule can be extracted from the cited statutes, neither of which says anything about the degree of specificity with which the terms of a measure authorizing the payment of money must be recited in the minutes or anywhere else. Their only reference to recordation is the requirement of a “recorded majority vote” in section 36936. In this context, “recorded” may mean several different things. 18 In any event the term “recorded” modifies “vote,” not “resolution or order for the payment of money.” The statutes are silent concerning the degree of specificity with which such a measure must be set out in the minutes or any formal instrument such as a resolution.
The Legislature has prescribed distinct formal requirements for the enactment of
ordinances.
(See Gov. Code, §§ 36931 [prescribing language for “[t]he enacting
Government Code section 36814 provides that a local council “shall cause the clerk to
keep a correct record
of its proceedings. At the request of a member, the city clerk shall
enter the ayes and noes
in the journal.” (Italics added.) However this provision has been held “directory only,” “not conclusive as to the proceedings of a city council,” and not preclusive of “the introduction of evidence that the minutes do not reflect all of the proceedings of the council.” (Carruth, supra,
Government Code section 40801 requires the city clerk to “keep an accurate record of the proceeding of the legislative body and the board of equalization in books bearing appropriate titles and devoted exclusively to such purposes, respectively.” However the Attorney General has opined, we think correctly, that this statute “does not require a verbatim account. Minutes recording the substance of the proceedings is all that section 40801 requires.” (
City’s argument ultimately does not rest on statutory language at all but on a body of case law developed in an entirely different context, and only secondarily applicable here, concerning the admissibility of evidence of the
subjective motives
and
mental processes
of local legislators. City writes in its brief that Bank was not entitled to “ ‘look[] beyond [the] minutes to see what the intention of the Council was,’ ” because “ ‘It is well established that a court determines the validity of legislative enactments based on the facial content or effect of the enactment, not by examining the subjective motives or purposes of the legislators.’
(Schroeder v. Irvine City Council
[(2002)] 97 Cal.App.4th [174,]
From these authorities City has extracted a kind of legislative paroi evidence rule that would, apparently, bar any extrinsic evidence (i.e., evidence outside the minutes) to determine what a local government did, or meant to do, when it cast a particular vote. But as plainly appears from the very quotation City chose as its frontispiece, the cases cited by it are concerned with challenges to “the validity of legislative enactments” based on “the subjective motives or purposes of the legislators. [Citations.]” (Schroeder v. Irvine City Council, supra, 97 Cal.App.4th at pp. 192-193, italics added.) In other words, these cases stand for the rule that facially valid legislative acts cannot ordinarily be impeached based on the mental processes of individual legislators.
The basis for this rule is obvious. Courts would grossly overstep their constitutional bounds if they assumed a general power to invalidate facially unobjectionable legislation based upon what they found to be impermissible motives or other flaws in the mental processes of legislators. Every case cited by City on this point involves an attempt to impeach a facially proper enactment in just this way. (See
Schroeder v. Irvine City Council, supra,
These principles have been recognized both in and out of California. In
Carruth, supra,
The court below found Carruth inapplicable for three reasons, the first of which was that it involved a legislative act that was “reflected in official minutes and the only issue was which conditions attached” to the act, whereas here the court found “no authorization in any City or CDA minutes for a pledge of public funds . . . .” But what the minutes before us show is the approval of a loan to TSP. The minutes do not specify who will make the loan or by what mechanisms. The staff reports apparently before the local body when it voted stated that the loan might be made directly to TSP or that the funds to be authorized might be applied to “capitalize” a loan by a third party. The court below apparently dismissed the reference to “capitalizing” on a lexicographical argument, which we find unsound. 22
The general law governing admissibility of extrinsic evidence in the construction of municipal enactments remains essentially what it was when Carruth was decided. As a starting principle, minutes of local government meetings should “[gjenerally ... be full and accurate.” (5 McQuillin, supra, § 14.3, p. 10, fn. omitted.) To the extent that a municipal corporation is “required to keep a record of its proceedings,” as by a statute, evidence of its proceedings, and of actions taken in them, must ordinarily be found in “municipal records properly authenticated or verified.” (5 McQuillin, supra, § 14:6, p. 17.) It is also generally true that “evidence will not be received in a collateral action to vary or contradict” a municipal record that is “regular and complete on its face.” (Id. at p. 19, fn. omitted.)
However, “[ojmission to make a record of municipal proceedings, or to keep such a record, does not per se invalidate municipal action that is otherwise valid. Ordinarily the validity of an ordinance or resolution is not affected by the fact that, through an oversight of the clerk, it is not copied on
the municipal records. While the decisions present some apparent conflict respecting collateral impeachment of records of public or quasi-public corporations which are required by express law to be kept in writing, they are reasonably uniform in admitting paroi evidence to establish the real facts of transactions or corporate acts, in the entire absence of all record, or where the record kept is so meager that the particular transaction, act, or vote is not disclosed by it.
The unrecorded acts of the council, if clearly proved, are valid.
This principle has been adopted in order to preserve the rights of creditors of the corporation or third persons who have performed work or services or expended money for the benefit of the corporation, relying in good faith on the
The cases cited by City do not purport to alter or depart from these principles, and are readily harmonized with them. At most, they
circumscribe
the
kinds
of evidence that may be admitted to establish the meaning of municipal legislation. Admissible evidence clearly includes “[d]uly authenticated reports of committees and officers,” at least where the record otherwise shows that the report was adopted by the members or acted upon by them. (See 5 McQuillin,
supra,
§ 14:7, p. 22.) In addition, and perhaps critically here,
tape recordings
of the relevant proceedings, if duly authenticated, may be part of the public record and, as such, admissible to establish the nature and intent of legislative action. (See 5 McQuillin,
supra,
§ 14:3, p. 10, fn. omitted [“Audiotape minutes may or may not be sufficient to meet the requirements for keeping full and accurate minutes”];
It can hardly be doubted that the measures at issue here, as set down in the minutes reflecting their adoption, were ambiguous. Indeed they can hardly be understood
at all
without consulting the meeting agendas, which in turn refer to staff reports summarizing the proposed actions and their effects. Among the points left unclear by the materials before the court were (1) what entity’s funds were being loaned, and (2) whether the legislators intended to authorize a hypothecation of those funds as an alternative to a direct loan to the developer. Bank was entitled to adduce evidence bearing on these questions, including statements made or information otherwise conveyed to the Council about the reason and need for the measures, the circumstances giving rise to them, and their probable or desired effects. Again, it was the City’s burden to show that there was no authorization by the relevant entity for the transaction that actually took place. The court could not find that the City had carried that burden without determining the precise nature of the transaction that occurred (including
B. Unlawful Gift of Public Funds
As an alternative ground for relief the court found that the pledge of the deposit amounted to an unlawful gift of public funds. This conclusion explicitly depended on the court’s determination that there was no valid legislative act authorizing the pledge; thus the court wrote, “Without proper authorization and findings, the Assignment also constitutes an illegal gift of public funds. (Cal. Const., article XVI, § 6.)” This conclusion therefore falls with the court’s conclusion that there was not “proper authorization.” The record presents far too many factual uncertainties to permit a determination on this appeal that these transactions violated the cited constitutional provision.
The trial court and City have alluded to numerous other potential impediments to the Bank’s position. All of these points will be open to proof, under appropriate pleadings, on remand.
Disposition
In No. H026888, the judgment is reversed with directions to deem Bank’s demurrer to the petition a motion to strike all allegations alleging a right to, or praying for, a writ of mandate, and to grant said motion with leave to amend. In No. H027166, the order awarding attorney fees is reversed. Appellant Bank will recover its costs on appeal. 25
Premo, J., and Elia, J., concurred.
A petition for a rehearing was denied September 1, 2005, and the opinion was modified to read as printed above. Appellant’s petition for review by the Supreme Court was denied November 16, 2005.
Notes
TSP had secured a separate construction loan, which is at most peripheral to the issues on appeal.
Although the petition states no facts in support of the conflict of interest claim, that claim apparently rested on the premise that a member of the Council/Board had a disqualifying interest in Bank. The trial court did not reach that theory, which has no bearing on this appeal.
The essential defect asserted by Bank was not that City had failed to plead any basis for relief but that it had prayed for relief to which it was not entitled. A general demurrer cannot be sustained unless the complaint fails to state a cause of action for any form of relief
(Di Lorenzo
v.
Stewart Title Guaranty Co.
(1965)
The untimeliness of a demurrer is a ground to strike it, not overrule it. (See
Buck v. Morrossis
(1952)
As will appear in part III.A, post, a staff member’s testimony as to a meaning privately attached to terms used in legislation is obviously not relevant to establish legislative intent. However, evidence that this meaning was communicated to the legislative body at or prior to the time of enactment is relevant and may well be admissible, at least where the purpose is to explain and illuminate a patently ambiguous enactment and not to impeach an otherwise valid one or alter a plain meaning otherwise facially apparent.
City contends that Bank waived the right to present oral testimony by failing to comply with the law and motion rules applicable to such requests. (See Cal. Rules of Court, rule 323.) As City acknowledges, those rules were made arguably applicable only by City’s claimed entitlement to relief by extraordinary writ. (Cal. Rules of Court, rule 303(a)(2).) We are unimpressed by the notion that a plaintiff can cut off the procedural prerogatives to which an ordinary civil defendant is entitled merely by filing a complaint praying for relief to which, as we conclude in part I, post, it was not entitled. In any event, the trial court denied the request for oral testimony on the merits and on the merits that ruling must stand or fall.
We note that if the pledged funds belonged in law to the Agency, it might be supposed that it was the Agency and not the City that had a clear beneficial interest in their return. We do not understand Bank to have ever raised this point, however. Nor has it suggested that, regardless of the ownership of the funds, the Agency might be a necessary party to this action, whose joinder should be required, because this proceeding may invalidate actions arguably taken by the Agency, or impair interests arguably vested in it.
Even when the defendant is a public entity, mandamus generally will not lie to enforce a contractual duty: “As a general proposition, mandamus is not an appropriate remedy for enforcing a contractual obligation against a public entity for at least two reasons. The first is that contracts are ordinarily enforceable by civil actions, and the writ of mandamus is not available unless the remedy by civil action is inadequate. (Code Civ. Proc., § 1086;
McPherson
v.
City of Los Angeles
[(1937)]
In addition to the two statutes discussed here, City cites Government Code section 53630.1, which recites that “the deposit and investment of public funds by local officials and local agencies is an issue of statewide concern.” As a declaration of legislative policy, it cannot be understood to impose an enforceable duty on anyone.
Government Code section 53635.2 provides, “As far as possible, all money belonging to, or in the custody of, a local agency, including money paid to the treasurer or other official to pay the principal, interest, or penalties of bonds, shall be deposited for safekeeping in state or national banks, savings associations, federal associations, credit unions, or federally insured industrial loan companies in this state selected by the treasurer or other official having legal custody of the money; or may be invested in the investments set forth in Section 53601. To be eligible to receive local agency money, a bank, savings association, federal association, or federally insured industrial loan company shall have received an overall rating of not less than ‘satisfactory’ in its most recent evaluation by the appropriate federal financial supervisory agency of its record of meeting the credit needs of California’s communities, including low- and moderate-income neighborhoods, pursuant to Section 2906 of Title 12 of the United States Code. Sections 53601.5 and 53601.6 shall apply to all investments that are acquired pursuant to this section.”
At the time of the deposits here, materially similar language appeared in Government Code section 53635. (Stats. 1999, ch. 644, §§ 2, 2.5; see Stats. 2000, ch. 1036, § 3; Stats. 2001, ch. 57, §§ 6, 8.)
Although the point appears academic, some sister state authority supports the proposition that a bank assumes this status as a matter of common law
when it agrees to act in lieu of the public treasury.
(See
Hogansville Banking Co. v. City of Hogansville
(1923)
As discussed in part ILLA,
post,
inquiry into the
mental processes
of legislators is sharply restricted. It does not follow that all City functionaries, or even the legislators themselves, are
categorically immune from discovery into their knowledge of objective facts and circumstances where it may constitute or lead to admissible evidence. (See
City of Santa Cruz v. Superior Court
(1995)
Although the court’s remarks on this point are rather obscure, it acknowledged that by September 2000, City records made it “a little more clear that by then the city is aware and is taking action to increase a collateralized fund . . . .” However, the court immediately added, . . I think you could even argue whether that’s the agency acting or the city acting, again not addressing your matter [i.e., the source of funds], the act is the same. The funds are the same.” (Italics added.)
City’s attorneys wrote in their original memorandum that “the failure to return those funds will have an immediate detrimental effect upon the public treasury of the City,” such that “there is no plain, speedy, or adequate remedy to prevent Bank’s threatened conversion of those funds.” Later counsel wrote that extraordinary relief was appropriate because “City seeks the immediate return of its $4.4 million in general fund monies, which in light of the current economic climate for governmental entities in California is crucial to City’s economic survival.”
In opposing Bank’s request, counsel said City was “being hurt” because the certificate represented “City general fund money, $4.5 million dollars’ worth.” Counsel repeated this characterization of the funds at least four more times. The claim is repeated, albeit in a dramatically attenuated form, on appeal, where counsel for City writes that “the only admissible evidence shows that the Certificate held general fund money.” But if this is “only admissible evidence” on the subject, that fact is the direct result of City’s successful use of mandate procedures to prevent Bank from securing other evidence.
More generally, City had the burden of proof as to all of the substantive issues before the trial court, including the fundamental question whether its treasurer and mayor were acting with authority when they deposited and pledged the funds at issue. Although the trial court never expressly suggested that the burden rested on Bank, the record is pervaded by a sense that City was entitled to prevail unless Bank demonstrated otherwise. This of course makes the categorical denial of discovery and exclusion of evidence all the more intolerable.
We recognize that in this and other respects the trial court was led into error by City’s kaleidoscope of ever-shifting claims, contentions, sidesteps, and deflections. Indeed City’s presentation is reminiscent of that ancient chestnut of lawyer’s folklore, the Story of the Goat, in which one neighbor complains of the depredations of a goat and the other seeks to deflect these claims by raising every conceivable contention, concluding triumphantly with, “And besides, it’s not my goat!” Here City never stood on one point long enough for the point’s weakness to become apparent to the trial court. Counsel for Bank contributed to the problem by not always identifying these weaknesses either, but his lapses may be excused to some extent by the extreme haste with which the matter was pressed forward to judgment.
The lay meaning of the verb “record” in the context of voting is essentially to cast a vote in such manner that it is duly counted. (See 13 Oxford English Diet. (2d ed. 1989) p. 362 [“to give (a verdict or vote)”].) In the context of parliamentary procedure, however, “recorded vote” appears to be a term of art meaning a method of voting that requires each member to distinctly register his or her vote, or at least the fact that he or she voted. It is contrasted to, among other methods, a viva voce (live voice) vote, in which the votes of individual members often cannot be distinguished. (See Cong. Research Service, Guide to Legislative Process in House— Consideration <http://www.house.gov/rules/lph-consid2.htm> [as of Aug. 2, 2005] [four methods of voting in the House of Representatives are “the voice vote (viva voce), the division, the recorded vote, and the yea-and-nay vote”]; ibid, [recorded vote if duly requested and supported “is taken by electronic device. After the recorded vote is concluded, the names of those voting together with those not voting are entered in the Journal”]; cf. ibid. [“When the yeas and nays are ordered (or a point of order is made that a quorum is not present) the Speaker directs that as many as are in favor of the proposition will, as their names are called, answer ‘Aye’; as many as are opposed will answer ‘No.’ The Clerk activates the electronic system or calls the roll and reports the results to the Speaker who announces it to the House”].)
The requirement of a “recorded vote” in section 36936 is no doubt intended to ensure some measure of accountability on the part of local legislators who approve (or refuse to approve) expenditures of public funds. (See generally
Kunec v. Brea Redevelopment Agency
(1997)
Noncompliance with such requirements does not invariably result in invalidation of the affected enactment. (See
Pacific P. Assn.
v.
Huntington Beach
(1925)
Counsel for Bank alluded below to indications that City had deliberately kept its records vague “around the issue of how this was going to be collateralized,” because officials “didn’t want this to be determined by the Department of Industrial Relations to be a public project,” presumably because such a determination would subject the project to prevailing wage laws, increasing its cost. (See Lab. Code, §§ 1771, 1720.) We cannot say that even evidence such as this is categorically inadmissible. It is conceivable, for instance, that City might open the door to similar evidence were it to present evidence to the opposite effect, e.g., by calling a City official or Council member to testify that diligent efforts were made to keep the minutes as explicit and specific as possible. More broadly it might be suggested that the deliberative privilege should give way when a municipal government seeks to use the privilege as a sword to escape the effects of its own legislative acts rather than as a shield against their invalidation. We need not address that hypothesis in this appeal. At least in the absence of extraordinary circumstances not presently appearing here, the question “What were you thinking when you voted?” is probably one that cannot be asked.
Here Bank can cite the presumption of regularity in its own support by bringing it to bear on the conduct of the treasurer and mayor in depositing and pledging the funds in question.
The court remarked that “capital is defined in Black’s Law Dictionary very differently than collateral or pledge.” When dealing with ambiguous legislation, however, the central question is not what a parsing of the dictionary may yield but what the Legislature intended. Further, the court’s remark indicates that it looked up the wrong terms, i.e., noun cognates of the verbs actually at issue. As potentially applicable in a financial context, “capitalize” means either “to convert [an asset] into capital,” or “to supply capital for” an undertaking, investment, or venture. (Merriam-Webster’s Collegiate Diet. (10th ed. 1999) p. 169; cf. Black’s Law Diet. (8th ed. 2004) p. 223 [defining “capitalize” as “1. To convert (earnings) into capital. 2. To treat (a cost) as a capital expenditure rather than an ordinary and necessary expense. 3. To determine the present value of (long-term income). 4. To supply capital for (a business).”]) While we do not decide the issue, the present record presents no basis to understand the term “capitalize,” as used in the staff reports here, to convey any meaning other than the last one, i.e., to supply capital for. So viewed, the staff report is easily understood to propose that the City/Agency will appropriate funds to be used either to lend money directly to TSP or to supply capital to a third party to make the loan to TSP. It has not been suggested that this statement of the proposal in the alternative is itself fatal. Nor does the present record provide any reason to doubt that the hypothetical authorization to supply capital was intended to be broad enough to encompass a pledge as distinct from some other mechanism. The fact that officers of the City/Agency proceeded to enter into precisely such a transaction, and that the Council/Board thereafter authorized a further similar expenditure, would seem to provide additional evidence that this is what Council/Board members intended. No alternative construction has ever been offered by City. While we do not wish to foreclose any showing or argument City may be able to make on this point, the court’s reliance on inapposite dictionary entries is not sufficient to support a determination that the staff reports fail to propose authorization for a pledge of funds as an alternative to a direct loan.
Moreover, “courts will not require the same exactness in keeping the records of a town as in the case of court records. . . . [I]n keeping records of councils of small cities and towns the same exactness is not required as in the more important urban centers, because usually such records are kept by inexperienced persons.” (5 McQuillin, supra, § 4.3, at pp. 9-10, fns. omitted.)
Here audio recordings of the proceedings were apparently made and provided to Bank, but the court excluded transcripts of them as hearsay and, apparently, as violating the supposed “rule” against extrinsic evidence. The record does not support either objection (see
Zuckerman v. Pacific Savings Bank
(1986)
This disposition renders moot Bank’s request for or judicial notice, which we deny on that basis.