CITY OF SAN DIEGO, Plaintiff and Appellant, v. SAN DIEGANS FOR OPEN GOVERNMENT, Defendant and Respondent.
Nos. D068939, D069890
Fourth Dist., Div. One.
Sept. 22, 2016.
3 Cal. App. 5th 568
Jan I. Goldsmith, City Attorney, Daniel F. Bamberg, Assistant City Attorney, Catherine Richardson and M. Travis Phelps, Deputy City Attorneys, for Plaintiff and Appellant.
Briggs Law Corporation, Cory J. Briggs, Anthony N. Kim and Kelly E. Mourning for Defendant and Respondent.
OPINION
HUFFMAN, Acting P. J.—San Diegans for Open Government (SDOG), represented by Briggs Law Corporation (BLC), filed a verified answer in response to the City of San Diego’s (City) complaint in a validation action regarding the City’s plan to levy a special tax to finance the expansion of the San Diego Convention Center. By way of its verified answer, SDOG represented that it was an interested party to the litigation. However, at the time it filed its answer, both SDOG and its counsel knew that SDOG was a suspended corporation and neither SDOG nor its attorney informed the superior court or the City of this fact. After SDOG and another defendant ultimately proved successful in the validation action, SDOG sought its attorney fees under
Because of some procedural ambiguity, the City filed two separate appeals relating to the denial of its motion to strike and the award of attorney fees to SDOG. We consolidated those appeals here.
This case presents an issue of first impression. Under
FACTUAL AND PROCEDURAL BACKGROUND
On January 24, 2012, the City approved resolution No. R-307243, which created the Convention Center Facilities District (CCFD). The purpose of the CCFD was to provide the City with the ability to levy a special tax to finance the expansion of the San Diego Convention Center. In May 2012, the City filed a complaint against all interested parties seeking validation of the CCFD and associated special tax plan (Validation Action). Any interested persons who objected to the validity of the City’s actions were required to file an answer to the complaint by July 10, 2012. Melvin Shapiro filed an answer to the Validation Action on July 6, 2012.
On July 9, 2012, SDOG filed an answer to the Validation Action. SDOG is a nonprofit corporation. In its answer, SDOG verified under oath that it was an interested party. Several other parties answered the Validation Action or filed reverse validation actions. These other actions were consolidated with the Validation Action.
The Validation Action eventually proceeded to trial in March 2013. The trial court found in favor of the City and entered judgment consistent with that finding. SDOG and Shapiro appealed.
After remand, the superior court entered judgment in favor of Shapiro and SDOG on March 5, 2015. The judgment reserved the issue of attorney fees until the appropriate motion was filed.
Shapiro and SDOG filed a joint motion for attorney fees on December 29, 2014. In that motion, SDOG sought $862,404.92 out of the total requested fees of $2,006,278.02 for both parties. The City opposed the motion. Among other arguments not relevant here, the City asserted that SDOG was not entitled to any fees because it was suspended at the time it filed its answer in the Validation Action.
The City presented evidence that SDOG’s attorney, BLC, was aware that SDOG was a suspended corporation no later than May 16, 2012, when a BLC paralegal discovered that fact. Apparently, SDOG had been suspended because it did not pay or file its past due corporate tax returns. Shortly thereafter, the paralegal prepared and submitted various forms to have SDOG reinstated. Some of these forms were purportedly signed by Ian Trowbridge as the chief executive officer of SDOG. Nevertheless, on July 9, 2012, SDOG filed a verified answer in the Validation Action, which Trowbridge verified. There was no mention in the answer that SDOG was a suspended corporation. Further, the City points out that SDOG filed at least five lawsuits while it was a suspended corporation. SDOG was effectively revived on November 20, 2012. The City further emphasizes that SDOG’s corporate status was not revived until after its time to answer the Validation Action had expired.
The City claimed that it did not become aware of SDOG’s suspended status until sometime in October 2014, after our opinion in City of San Diego v. Shapiro, supra, 228 Cal.App.4th 756 was final. Through discovery in a completely unrelated case, the City learned SDOG was a suspended corporation when it filed the answer in the Validation Action.
In its reply memorandum of points and authorities in support of its motion for attorney fees, SDOG ignored the City’s argument about its suspended status. However, in response to the City’s subsequently filed motion to strike SDOG’s answer and motion for attorney fees, SDOG finally addressed the allegation that it was a suspended corporation at the time it filed an answer in the Validation Action. SDOG did not refute that it was suspended at the time it answered the Validation Action. Nor did it argue that its attorney was not
The superior court heard Shapiro and SDOG’s motion for attorney fees with the City’s motion to strike SDOG’s answer and motion for attorney fees. After considering the pleadings, evidence, and hearing oral argument, the court denied the City’s motion to strike and granted Shapiro and SDOG’s motion for attorney fees. In denying the City’s motion to strike, the court found that had the City raised a statute of limitations defense as to SDOG, it probably would have been successful. Nevertheless, the court noted this affirmative defense was only available to the City prior to or at trial. As such, the court found the City could not use the statute of limitations as a mechanism to strike SDOG’s answer. Thus, the court denied the City’s motion to strike SDOG’s answer as untimely.
In addition, the court denied the City’s motion to strike SDOG’s motion for attorney fees. It found that SDOG prevailed in the Validation Action and that it was entitled to an award of attorney fees. However, even though it denied the City’s motion, the court observed: “This court is, however, greatly concerned with what occurred here, i.e., a very experienced, capable attorney entered an appearance in litigation on behalf of a corporation which he evidently knew had been suspended and, thus, was a corporation without legal capacity to participate, and thereafter proceeded with the litigation without advising either the court or opposing counsel. By doing this, SDOG escaped what would have been certain death via the statute of limitations and, instead, ultimately entitled itself to a large award of attorney’s fees as a prevailing party. Moreover, the evidence before this court indicates that the Briggs law firm filed five other lawsuits on behalf of SDOG during this same period of corporate suspension (in addition to continuing to maintain other SDOG lawsuits which had been filed prior to SDOG’s becoming suspended). Such litigation misconduct constitutes, at best, an ethical lapse, and at worst, criminal behavior.”
The court further stated that it could not “condone what occurred here” and exercised its discretion to award SDOG no fees for work done during the
Apparently, the parties were somewhat unclear regarding the court’s ruling on SDOG’s motion for attorney fees, and thus, they returned to court twice for clarification. The court produced an “Amendment to Notice of Ruling and Statement of Reasons” wherein the court addressed the issue of SDOG’s attorney fees incurred prior to when it was suspended. The court set forth that SDOG was to be compensated for 50 percent of its attorney fees that were incurred prior to suspension. The court again directed the parties to “meet and confer to prepare a final order for the court, reflecting the arithmetic figures resulting from the original ruling and this amendment thereto.”
As ordered, counsel for the City and SDOG met and conferred but were unable to agree on the arithmetic. SDOG’s counsel prepared, filed, and served a document titled “Notice of Entry of Orders/Rulings on Fee Motion,” which attached, as exhibits, the court’s notice of ruling and statement of reasons and its amendment to notice of ruling and statement of reasons. Following that notice, the City appealed.
Because the notice of ruling and the amendment to notice of ruling ordered the parties to meet and confer regarding the final arithmetic calculation of the attorney fee award and did not contain the calculation of the attorney fees awarded, in an abundance of caution, the City filed an ex parte application to obtain a signed order from the trial court. SDOG opposed the application due to the pending appeal. The trial court noted the objection, granted the application, and signed the order on February 24, 2016. That order sets forth that SDOG is awarded $258,629.89 in attorney fees.
The City timely appealed that order, and subsequently moved to consolidate its appeal with its previous appeal. We granted the motion.
DISCUSSION
Here, the City does not challenge the amount of attorney fees awarded to SDOG, but instead, argues SDOG was not entitled to any fees whatsoever under
The private attorney general doctrine “is designed to encourage private enforcement of important public rights and to ensure aggrieved citizens have access to the judicial process where statutory or constitutional rights have been violated.” (Bell v. Vista Unified School Dist. (2000) 82 Cal.App.4th 672, 690 [98 Cal.Rptr.2d 263]; see Hull v. Rossi (1993) 13 Cal.App.4th 1763, 1767 [17 Cal.Rptr.2d 457] [“The fundamental objective of the private attorney general theory is to encourage suits effecting a strong public policy by awarding substantial attorney fees to those whose successful efforts obtain benefits for a broad class of citizens.”].) “The private attorney general doctrine is based on the theory that ‘privately initiated lawsuits are often essential to the effectuation of the fundamental public polices embodied in constitutional or statutory provisions, and that, without some mechanism authorizing the award of attorney fees, private actions to enforce such important public policies will as a practical matter frequently be infeasible.’ ” (Abouab, supra, 141 Cal.App.4th at p. 663.) Therefore,
On May 10, 2012, the City filed a validation action regarding the CCFD special tax. “ ‘[I]n its most common and practical application, the validating proceeding is used to secure a judicial determination that proceedings by a local government entity, such as the issuance of municipal bonds and the resolution or ordinance authorizing the bonds, are valid, legal, and binding.’ ” (Friedland v. City of Long Beach (1998) 62 Cal.App.4th 835, 842 [73 Cal.Rptr.2d 427].)
“Any party interested may, not later than the date specified in the summons, appear and contest the legality or validity of the matter sought to be determined.” (
On July 9, 2012, SDOG filed an answer verified by Trowbridge as an officer of SDOG. An attorney from BLC, representing SDOG, also signed the verified answer. By way of the answer, SDOG admitted it was an interested party in the Validation Action. In addition, it requested attorney fees as authorized under the
It is undisputed that SDOG was a suspended corporation at the time it appeared in the Validation Action. Indeed, the same individual who verified the complaint (Trowbridge) signed some of the forms submitted to revive SDOG. Further, it is undisputed that BLC was aware that SDOG was suspended at the time one of its attorneys signed and filed the answer. There is no indication in the record that BLC ever informed the court or the City of SDOG’s suspended status. And SDOG’s corporate status was not revived until November 20, 2012, more than four months after the expiration of the deadline to appear in the Validation Action.
The law is clear that SDOG lacked the capacity to appear in the Validation Action. A corporation that has had its powers suspended “lacks the legal capacity to prosecute or defend a civil action during its suspension.” (Sade Shoe Co. v. Oschin & Snyder (1990) 217 Cal.App.3d 1509, 1512 [266 Cal.Rptr. 619] (Sade).) “The ‘corporate powers, rights and privileges’ of any domestic corporate taxpayer may be suspended for failure to pay certain taxes and penalties. (
Despite this clear authority, SDOG, represented by BLC, filed an answer in the Validation Action. Such conduct was clearly wrong. Additionally, BLC’s explicit approval of SDOG’s appearance and representation of SDOG was, as described by the superior court, unethical. (See Palm Valley Homeowners Assn., Inc. v. Design MTC (2000) 85 Cal.App.4th 553, 562 [102 Cal.Rptr.2d 350] [“The firm urges that it could not discharge its ethical duties to represent its client, if it had to reveal the client’s suspended status to the court and counsel. Not so. If the corporation had been suspended for nonpayment of taxes, the client’s disability would have been clear, and the attorney’s duty to report that to the court would also have been clear.”];
We are perplexed by BLC’s and SDOG’s actions here. We do not understand why BLC would represent SDOG in the Validation Action and file a verified answer on behalf of SDOG when it knew, as did the corporation, that SDOG was suspended. In light of this clearly unethical conduct, we expect some explanation of BLC’s actions. BLC provides none. BLC does not explain why it felt compelled to violate the law and make an appearance on behalf of SDOG. BLC does not discuss any exigency in the matter that induced its improper actions. BLC does not clarify what value SDOG’s presence in the action added, especially considering that the public interest was already being protected by Shapiro. There is no indication that SDOG obtained unique relief that Shapiro did not or could not achieve in the Validation Action. In other words, BLC offers absolutely no justification for its actions.
Further exacerbating BLC’s conduct here, BLC does not accept responsibility for its actions. Instead, it blames the City for failing to discover earlier that SDOG was a suspended corporation. To this end, it points out that an article in the local newspaper referred to SDOG as a suspended corporation. In a separate case, a defendant successfully demurred to SDOG’s complaint on the grounds it was a suspended corporation; and a BLC attorney discussed SDOG’s suspended status with a deputy city attorney while waiting for the
BLC points out that its corporate status was revived, and the effect of such revival, validated otherwise invalid prior proceedings. (See Benton v. County of Napa (1991) 226 Cal.App.3d 1485, 1490 [277 Cal.Rptr. 541].) However, courts have distinguished “between procedural steps taken on behalf of the suspended corporation while under suspension, which can be resuscitated by revival, and substantive defenses that accrue during the time of suspension, which cannot.” (Center for Self-Improvement, supra, 173 Cal.App.4th at p. 1554.) The statute of limitations is regarded as a substantive defense. If an action is commenced while the corporation is suspended, the corporation’s subsequent revival does not prevent the running of the statute of limitations; if the statute runs prior to revival, the corporation’s actions will be time-barred, even if the complaint would have otherwise been timely. (Ibid.; Sade, supra, 217 Cal.App.3d at p. 1513.) In a validation action, any interested party has a statutory deadline by which he or she must appear to contest the government’s action. (
Finally, we disagree with SDOG that the City waived any lack of capacity defense as to SDOG’s motion for attorney fees. In opposition to SDOG’s motion for attorney fees under
Here, SDOG was only eligible to recover its attorney fees under
Having concluded that SDOG is not entitled to attorney fees under
The order granting SDOG attorney fees under
Nares, J., and Haller, J., concurred.
A petition for a rehearing was denied October 17, 2016, and the opinion was modified to read as printed above. Respondent’s petition for review by the Supreme Court was denied January 11, 2017, S238140.