STEPHEN K. DAVIS, Plaintiff and Appellant, v. FRESNO UNIFIED SCHOOL DISTRICT et al., Defendants and Respondents.
F079811
Court of Appeal of the State of California, Fifth Appellate District
November 24, 2020
Kimberly A. Gaab, Judge
CERTIFIED FOR PUBLICATION; (Super. Ct. No. 12CECG03718)
APPEAL from a judgment of the Superior Court of Fresno County. Kimberly A. Gaab, Judge.
Carlin Law Group and Kevin R. Carlin for Plaintiff and Appellant.
Lang Richert & Patch, Mark L. Creede and Stan D.
Whitney Thompson & Jeffcoach, Timothy L. Thompson and Mandy L. Jeffcoach for Defendant and Respondent Harris Construction Company, Inc.
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In 2012, plaintiff Stephen Davis sued the Fresno Unified School District (Fresno Unified) and Harris Construction Co., Inc. (Contractor), alleging they entered into a $36.7 million contract for the construction of a middle school in violation of California‘s competitive bidding requirements, the statutory and common law rules governing conflicts of interest, and
After remand, the further proceedings included defendants’ motion for judgment on the pleadings, which argued the lawsuit had become moot because the construction was finished and the contracts terminated. The trial court agreed, concluding (1) the case was a reverse validation action under
Contractor was not effective relief because California law does not allow disgorgement in an in rem proceeding. Davis appealed. As explained below, we reverse.
First, in determining the type of action or actions Davis is pursuing, his pleading must be given a liberal yet objectively reasonable interpretation. (
Second, based on our interpretation of Davis‘s pleading, we consider the legal question of whether California‘s validation statutes insulate the completed contracts between Fresno Unified and Contractor from attack in a taxpayer‘s action. The parties’ contentions present this issue as whether the purported lease-leaseback contracts fall within the ambit of the validation statutes—more specifically,
We therefore reverse the judgment and remand for further proceedings.
FACTS
Consulting Relationship
In February 2012, Fresno Unified and Contractor entered into a preconstruction services agreement under which Contractor agreed to provide professional consulting services to Fresno Unified relating to the construction of the Rutherford B. Gaston Sr. Middle School located in southwest Fresno.
In May 2012, Fresno Unified and Contractor entered into a second, separate preconstruction services agreement. The second agreement stated Contractor would provide detailed plans, drawings and other documents for the ultimate fabrication and erection of steel members to be used in the construction of the project. Davis contends the second preconstruction services agreement was approved by Fresno Unified‘s governing board. The consulting relationship established by the two preconstruction service agreements is the basis for Davis‘s contention that Contractor had a relationship with Fresno Unified similar to an employee or officer and, therefore, Contractor was subject to the conflict of interest rules that barred it from having a financial interest in a contract that it participated in making.
Construction Agreements
In September 2012, Fresno Unified‘s governing board adopted a resolution authorizing the execution of contracts under which Contractor would build the project described as the Rutherford B. Gaston Sr. Middle School, Phase II. The resolution stated the construction would be “a lease-leaseback project” in which (1) Fresno Unified would lease the project site, which it owned, to the Contractor, (2) Contractor would build the project on the site, and (3) Contractor would lease the improvements and the site back to Fresno Unified. The resolution stated it was in the best interest of Fresno Unified to construct the project through a lease and leaseback of the site pursuant to
The Site Lease provided Fresno Unified would lease the project site to Contractor for $1.00 in rent for a period coinciding with the term of the Facilities Lease. The Site Lease also stated that title to all improvements made on the site during its term “shall vest
subject to the terms of the Facilities Lease.” The Site Lease was the “lease” portion of the purported lease-leaseback arrangement.
Facilities Lease
The Facilities Lease identified Contractor as the sublessor and Fresno Unified as the sublessee. The Facilities Lease is the “leaseback” portion of the purported lease-leaseback arrangement. Under the Facilities Lease, Contractor agreed to build the project on the site in accordance with the plans and specifications approved by Fresno Unified and the “Construction Provisions” for the project contained in exhibit D to the Facilities Lease. The Construction Provisions were a detailed, 55-page construction agreement in which Contractor agreed to perform all work and provide and pay for all materials, labor, tools, equipment and utilities necessary for the proper execution and completion of the project. The guaranteed maximum price of the project was $36,702,876. The time allowed for Contractor to complete the project was 595 days from the notice to proceed.
The Facilities Lease included a provision describing Fresno Unified‘s obligation to pay by stating “Lease Payments shall be made for the Site and portions of the Project as construction of the Project is completed. All Lease Payments will be subject to and not exceed the Guaranteed Maximum Price set forth in the Construction Provisions.” The “Schedule of Lease Payments” attached to the Facilities Lease referred to the “payments for the Project as set forth in the Construction Provisions.” In turn, the Construction Provisions outlined monthly progress payments for construction services rendered each month, up to 95 percent of the total value for the work performed, with a 5 percent retention pending acceptance of the project and recordation of a notice of completion. Final payment for all the work was to be made within 35 days after Fresno Unified recorded the notice of completion.
Despite the fact that the funds paid by Fresno Unified to Contractor under the Facilities Lease were based solely on the construction services performed by Contractor, the Facilities Lease stated the lease payments constituted “the total rent[] for the Project” and were paid “for and in consideration of the
The Facilities Lease characterized Fresno Unified‘s obligation to make the lease payments as “a current expense” of Fresno Unified. It stated the lease payment “shall not in any way be construed to be a debt of [Fresno Unified] in contravention of any applicable constitutional or statutory limitation or requirement concerning the creation of indebtedness of [Fresno Unified] .... Lease Payments due hereunder shall be payable only from current funds which are budgeted and appropriated, or otherwise legally available, for the purpose of paying Lease Payments ... as consideration for use of the Site during the fiscal year of [Fresno Unified] for which such funds were budgeted and appropriated ....”
The Facilities Lease addressed Fresno Unified‘s source of funding in a paragraph labeled “Appropriation.” The provision stated Fresno Unified “has appropriated that portion of the Guaranteed Maximum Price to be earned during the current fiscal year from [Fresno Unified‘s] current fiscal year and/or State funds to be received during [Fresno Unified‘s] current fiscal year, and has segregated or will segregate such funds in a separate account to be utilized solely for Lease Payments. [Fresno Unified] will do so
for each fiscal year during which the Project is to be constructed or Lease Payments are to be made.”
During the term of the Facilities Lease, Fresno Unified held title to the land and obtained title to the improvements “as construction progresse[d] and corresponding Lease Payments [we]re made to [Contractor].” The Facilities Lease stated it terminated on the completion of the project and the payment of all lease payments due the Contractor. After the lease payments were made and the lease term ended, all remaining rights, title and interest of the Contractor, if any, to the project and the site were vested in Fresno Unified.
On December 4, 2014, a notice of completion was recorded by the Fresno County Recorder. The notice of completion was executed under penalty of perjury by the purchasing manager of Fresno Unified. It stated the “work of
PROCEEDINGS
In November 2012, Davis initiated this litigation by filing a verified complaint with two causes of action. The first cause of action was labeled “Reverse Validation Action Against Defendants” Fresno Unified and Contractor. The second cause of action was labeled “Taxpayer Action for Recovery of Funds Paid by [Fresno Unified] to [Contractor] on Facilities Lease.” The complaint‘s prayer for relief was divided by cause of action. On the reverse validation action, Davis requested findings that (1) the action was properly brought under
In March 2013, Davis filed his FAC, which listed Fresno Unified, Contractor, and all persons interested in the matter of the Construction Contracts as defendants. The FAC‘s causes of action are (1) failure to comply with the requirements of
examination and invalidation of the contracts referenced below relative to the Project.” Paragraph nine of the FAC alleged Fresno Unified did not file an action to validate the contracts related to the project and, therefore, the action was properly brought by Davis under
Paragraph 15 of the FAC alleges the Construction Contracts were not awarded as required by law and, therefore, were ultra vires, illegal, void and unenforceable, requiring monies paid to the Contractor be repaid to Fresno Unified. More specifically, the FAC‘s first and third causes of action allege the Construction Contracts were awarded to Contractor in violation of the competitive bidding requirements for public construction contracts because the contracts did not satisfy the criteria for
In addition, the FAC‘s fourth cause of action alleges common law conflict of interest principles and
The final paragraph of each of the FAC‘s first six causes of action address the consequences of the violation or breach asserted by reiterating part of the allegations in paragraph 15. In particular, those paragraphs state the Construction Contracts are ultra vires, illegal, void and unenforceable under California law and all monies paid by Fresno Unified under the contracts must be paid back or returned by Contractor.
The FAC‘s prayer for relief asked the trial court to (1) authorize publication of the summons as the method for obtaining jurisdiction over all interested parties, (2) find the “action was properly brought under
First Appeal
In 2013, Fresno Unified and Contractor filed separate, similar demurrers to the FAC.6 (Davis I, supra, 237 Cal.App.4th at p. 274.) The trial court sustained the demurrers with leave to amend, Davis chose not to amend, and judgment was entered in favor of Fresno Unified and Contractor. Davis appealed. (Ibid.)
In June 2015, we reversed the judgment and remanded with instructions to overrule the demurrer except as to the second cause of action (breach of fiduciary duty), the fifth cause of action (improper use of lease-leaseback arrangement when sufficient funds are available), and the conflict of interest claim based on the
Proceedings on Remand
In October 2015, Fresno Unified and Contractor filed answers to the FAC that contained general denials and asserted many affirmative defenses, including mootness.
In April 2016, Fresno Unified filed a motion for judgment on the pleadings on the grounds Davis lacked standing to pursue the claims. In May 2016, the trial court denied the motion.
In August 2016, Davis filed a motion for summary adjudication of his statutory and common law conflict of interest claims against Contractor. In
Judgment on the Pleadings
In May 2019, Fresno Unified filed another motion for judgment on the pleadings. This motion argued Davis‘s FAC was subject to California validation statutes and his reverse validation action was moot because the Construction Contracts had been fully performed. Contractor joined in Fresno Unified‘s motion. The motion was supported by a request for judicial notice of the notice of completion recorded on December 4, 2014, by the Fresno County Recorder, which notice stated the construction of the middle school was completed on November 13, 2014.
Davis‘s opposition argued the trial “court can still grant Taxpayer his primary relief requested (disgorgement from [Contractor] to [Fresno Unified]) so this case is not moot.” (Fn. omitted.) Davis argued his taxpayer claims were not moot because (1) conflict of interest claims are not subject to the validation statutes, (2) the contracts at issue were not the kind that are subject to validation, and (3) effective relief in the form of Contractor‘s disgorgement of monies received from Fresno Unified was available despite the contracts being fully performed. Davis characterized the FAC‘s gravamen7 as “disgorgement back to [Fresno Unified] of all funds paid by [Fresno Unified] to [Contractor] under the challenged contracts based on breach of the legal duties asserted in each cause of action.” (Italics added.) This argument is supported by, among other things, the statement in paragraph three of the FAC that “this action is brought solely in the public interest to recover to [Fresno Unified] funds it has paid to others under the contracts referenced below.” (Italics added.)
In June 2019, the trial court heard argument on defendants’ motion for judgment on the pleadings. On July 3, 2019, the court issued a written order granting the motion as to both defendants without leave to amend. The court later filed a judgment stating Davis‘s FAC was dismissed in its entirety and awarding allowable costs to Fresno Unified and Contractor. Davis appealed.
I. BASIC LEGAL PRINCIPLES
A. Judgment on the Pleadings
1. Statutory Provisions
of action alleged in the complaint” or (2) “[t]he complaint does not state facts sufficient to constitute a cause of action against that defendant.” (
When determining whether a complaint states facts sufficient to constitute a cause of action, trial and appellate courts apply the following principle: “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (
amend, “then judgment shall be entered forthwith in accordance with the motion.” (
2. Standard of Review
Some of the foregoing statutory provisions are reflected in our Supreme Court‘s statements about appellate review of an order granting a motion for judgment on the pleadings:
“[W]e treat the properly pleaded allegations of [the] complaint as true, and also consider those matters subject to judicial notice. [Citations.] ‘Moreover, the allegations must be liberally construed with a view to attaining substantial justice among the parties.’ [Citation.] ‘Our primary task is to determine whether the facts alleged provide the basis for a cause of action against defendants under any theory.’ [Citation.]” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1232.)
When liberally construing a pleading, courts give its allegations an objectively reasonable interpretation, reading it as a whole and its parts in their context. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) When a motion for judgment on the pleadings is granted for failing to state facts sufficient to constitute a legally cognizable claim, appellate courts apply the same rules that govern the review of orders sustaining a general demurrer. (Mendoza v. Continental Sales Co. (2006) 140 Cal.App.4th 1395, 1401.) Thus, appellate courts are not bound by the trial court‘s interpretation of the pleading but are required to render their independent judgment on the legal question of whether a cause of action has been stated. (Hoffman v. State Farm Fire & Casualty Co. (1993) 16 Cal.App.4th 184, 189; see Cellular Plus, Inc. v. Superior Court (1993) 14 Cal.App.4th 1224, 1231 [sufficiency of allegations is a question of law].)
B. Mootness Doctrine
Generally, California courts decide only justiciable issues. (Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 1559, 1573 (Wilson).) Justiciability means the questions litigated are based on an actual controversy. (Ibid.) Unripeness and mootness describe situations where there is no justiciable controversy. (Ibid.) Unripe cases are those in which an actual dispute or controversy has yet to come into existence. (Ibid.) In comparison, mootness occurs when an actual controversy that once was ripe no longer exists due to a change in circumstances. (Ibid.)
As the parties recognize, the test for determining whether a case is moot is “whether the court can grant the plaintiff any effectual relief.” (Wilson, supra, 191 Cal.App.4th at p. 1574.) As a general rule, when events render a case moot, the trial or appellate court should dismiss it. (Ibid.; see Connerly v. Schwarzenegger (2007) 146 Cal.App.4th 739, 752 [if a controversy is not justiciable, the proper remedy is to dismiss rather than rendering judgment for one side or the other].)
C. Validation Actions
1. Action by Public Agency
A validation action “is a lawsuit filed and prosecuted for the purpose of securing a judgment determining the validity of a particular ... governmental decision or act.” (Blue v. City of Los Angeles (2006) 137 Cal.App.4th 1131, 1135, fn. 4.) Validation actions are governed by the chapter in the
“A public agency may upon the existence of any matter which under any other law is authorized to be determined all to this chapter, and for 60 days thereafter, bring an action in the superior court ... to determine the validity of such matter. The action shall be in the nature of a proceeding in rem.”
Public agencies are not obligated to bring validation actions. Instead, an agency may choose to do nothing and allow the agency decision or act to be validated by operation of law based on the passage of time. (California Commerce Casino, Inc. v. Schwarzenegger (2007) 146 Cal.App.4th 1406, 1420, fn. 12.)
2. Reverse Validation by Interested Person
Prior to the expiration of the 60-day period, an “interested person” may initiate a proceeding to determine the validity of a particular agency decision or act. (
3. Statutory Purpose
The validation statutes and the 60-day limitation period seek (1) to limit the extent to which litigation may delay and thus impair a public agency‘s ability to operate financially and (2) to remove uncertainty adversely impacting the agency‘s access to credit. (Friedland v. City of Long Beach (1998) 62 Cal.App.4th 835, 843 (Friedland).) Litigation, either pending or forthcoming, affects the marketability of public bonds and
the agency‘s ability to obtain other types of third-party financing. (Ibid.) The inability to obtain financing or the higher cost of that financing may impair the agency‘s ability to fulfill its responsibilities. (Ibid.)
Based on these concerns with delays and uncertainty, a central theme in the validation procedures is the speedy determination of the validity of the public agency‘s decision or act in a single dispositive final judgment. (Friedland, supra, 62 Cal.App.4th at p. 843Ibid.; see § 870 [conclusive and binding effect of a judgment in a validation action].)
4. Scope of Validation Actions
Not all acts or transactions of a public agency are subject to validation. (Kaatz v. City of Seaside (2006) 143 Cal.App.4th 13, 19 (Kaatz).) The language in
The scope of the validation statutes is further defined by the text referring to a validation action as an in rem proceeding. As an in rem proceeding, a validation action operates against the property in question and, therefore, is distinct from a judgment, order or injunction that operates against persons. (Friedland, supra, 62 Cal.App.4th at p. 843.)
For purposes of this appeal, “any other law” refers to
5. Relief Available in Validation Action
California‘s test for mootness asks whether the court can grant any effectual relief. (Wilson, supra, 191 Cal.App.4th at p. 1574.) Consequently, we identify the relief available in a validation action. A typical validation proceeding “seeks a declaratory judgment that the bonds, assessments, etc., of the agency are or are not valid.” (Ontario, supra, 2 Cal.3d at p. 344Id. at pp. 344–345.) Accordingly, regardless of whether a validation action is brought by a public agency or an interested person, the relief available is limited to a judgment declaring the subject matter of the action is valid or invalid.
D. Taxpayer‘s Action
“[S]ection 526a permits a taxpayer to bring an action to restrain or prevent an illegal expenditure of public money. No showing of special damage to a particular taxpayer is required as a requisite for bringing a taxpayer suit.” (Connerly v. State Personnel Bd. (2001) 92 Cal.App.4th 16, 29.) The primary purpose of
II. INTERPRETING DAVIS‘S PLEADING
The first dispute we consider is whether the FAC alleges only a validation action or, alternatively, sets forth both a validation action and a taxpayer‘s action. This is a matter of interpretation, which is a question of law. Our interpretation of Davis‘s pleadings is guided by the principle that the “label given a petition, action or other pleading is not determinative; rather, the true nature of a petition or cause of action is based on the facts alleged and remedy sought in that pleading.” (Escamilla v.
Department of Corrections & Rehabilitation (2006) 141 Cal.App.4th 498, 511.) Although captions and labels are not determinative, they may provide some insight into the claims a plaintiff attempted to pursue. (See
A. Contents of the Pleadings
1. Original Complaint
The original complaint provides background for our interpretation of the FAC. Its caption states it is a complaint for (1) reverse validation pursuant to
Furthermore, the prayer for relief on the second cause of action requested injunctive relief and an order directing Contractor “to pay back to [Fresno Unified] all monies received under any contract relative to the Project.” Based on the foregoing contents of the original complaint, an objectively reasonable person familiar with California law would construe it as asserting both a reverse validation action (first cause of action) and a taxpayer action (second cause of action).
2. First Amended Complaint
Davis‘s FAC, unlike his original complaint, does not use the term “taxpayer action.” Also, the FAC does not cite
For instance, Davis refers to himself as “TAXPAYER” throughout the FAC. Also, the FAC‘s first paragraph states Davis brings the action on behalf of himself, taxpayers and all others similarly interested to (1) contest the validity of the Construction Contracts and (2) “recover to FRESNO UNIFIED ... all monies paid by it under said contracts.” The recovery of monies paid is emphasized in the labels for each of the FAC‘s first six causes of action, all of which begin: “Recovery of Funds Paid by [Fresno Unified] to CONTRACTOR ....” The last sentence in the final paragraph of each of the first six causes of action—that is, paragraphs 26, 31, 41, 47, 51 and 55 of the FAC—assert the Construction Contracts are ultra vires, illegal, void and unenforceable under California law and all monies paid by Fresno Unified under the contracts must be paid back or returned by Contractor.
The prayer for relief in the FAC is drafted so that each of the seven numbered paragraphs apply to “each of the foregoing causes of action.” The first numbered paragraph requests an order allowing notice of the lawsuit be given by publication, a procedure specifically authorized by the validation statutes. (
B. Analysis of the First Amended Complaint
1. Claims Remaining
Our analysis of the FAC‘s contents to determine whether Davis attempted to assert only a validation action or whether he attempted to combine a validation action with a taxpayer‘s action examines only the causes of action remaining after defendants’ earlier demurrer. In other words, we consider only the operative portions of the FAC. In Davis I, supra, 237 Cal.App.4th at p. 302, we reversed the judgment of dismissal and directed the trial court to enter an order sustaining the demurrer on the breach of fiduciary duty claim (the second cause of action), the conflict of interest claim based on a violation of the
2. Reverse Validation Action
It is undisputed that the FAC sets forth a reverse validation action asserting the invalidity of the Construction Contracts based on conflicts of interest and violations of California‘s competitive bidding laws and
3. Taxpayer‘s Action
California law allows a claim brought under the validation statutes to be combined in a single lawsuit with other types of claims. In Regus, supra, 70 Cal.App.3d 968, the court set forth the principle that “a validation action under ...
Initially, we note that paragraph eight of the FAC stated in full: “This action is brought in this court as a special in rem proceeding for judicial examination and invalidation of the contracts referenced below relative to the Project.”11 Paragraph eight did not state the action was brought as “exclusively” or “only” as an in rem proceeding for the invalidation of the Construction Contracts. Conversely, it did not state that it was brought as, “among other things,” a special in rem proceeding. Consequently, the question of interpretation presented is whether to infer the entire lawsuit was
Viewing the FAC as a whole and reading its parts in context, we consider its repeated statements that all monies paid to Contractor by Fresno Unified under the Construction Contracts must be paid back by Contractor and its prayer for relief requesting that Contractor be ordered to pay back the monies. These statements and prayer for relief unequivocally demonstrate Davis was seeking a remedy that is not available in a validation action but is available in a taxpayer‘s action. In Ontario, supra, 2 Cal.3d 335, our Supreme Court stated a typical validation proceeding “seeks a declaratory judgment that the bonds, assessments, etc., of the agency are or are not valid.” (Ontario, supra, 2 Cal.3d at p. 344.) The plaintiff in Ontario prayed for a declaration invalidating agreements for the creation and operation of a speedway and related bonds. (Ibid.) The plaintiff also sought two other kinds of relief: (1) an injunction restraining the parties from spending funds or doing any other acts to further the project and (2) an order compelling restitution to the city of all money unlawfully paid in connection with the project. (Ibid.) As to the injunctive relief, the Supreme Court concluded it was not authorized under the validation statutes but remained available in a taxpayer action. (Id. at pp. 344–345.) As to the restitution of public funds, the court stated: “Nothing in the general validating statute contemplates such an in personam cause of action for repayment of public money unlawfully expended, and again no reason appears to deny plaintiffs their normal remedy in this regard.” (Id. at p. 345.) This statement about a normal remedy refers to the relief available in a taxpayer action and comports with the principle that a validation action may be combined with taxpayer action in a single lawsuit.
Based on Ontario and the contents of the FAC, we conclude an objectively reasonable person would construe the FAC as pursuing (i.e., attempting to assert) both a validation action and a taxpayer action. Accordingly, the trial court‘s conclusion that this lawsuit should be characterized solely as a reverse validation action cannot be upheld based on our interpretation of the FAC and the claims it attempted to assert.
The dual nature of Davis‘s lawsuit means the FAC‘s remaining legal theories or causes of action—specifically, the alleged violations of California‘s competitive bidding laws and
[“violations of section 1090 can be challenged ... by taxpayers under Code of Civil Procedure section 526a where appropriate“].)
The foregoing interpretation of the FAC is supported by the arguments Davis made in opposing the motion for judgment on the pleadings and the arguments he raised on appeal. For example, Davis‘s opposition to the motion asserted his taxpayer‘s complaint was not moot (1) because the conflict of interest claims were not subject to the validation statutes, (2) the court could grant effectual relief by ordering disgorgement even though the contracts were fully performed, and (3) the Construction Contracts were not the kind of contracts that are subject to the validation statutes. Davis argued the cases relied upon by defendants were distinguishable because the plaintiffs in those cases did not seek disgorgement of monies paid under void contracts—a remedy not available in a reverse validation action. On appeal, Davis‘s opening brief cites Regus for the principle that a validation action and a taxpayer‘s action under
III. AVAILABLE REMEDIES AND MOOTNESS
Based on our conclusion that Davis is pursuing both a validation action and a taxpayer action, our application of California‘s mootness doctrine considers what remedies are available in each type of action and whether any available remedy would constitute “effectual relief.” (Wilson, supra, 191 Cal.App.4th at p. 1574.)
A. Validation Action
The relief granted in a validation action is a declaratory judgment stating the subject of the lawsuit is or is not valid. (Ontario, supra, 2 Cal.3d at p. 344.) Here, the Site Lease and the Facilities Lease have been fully performed and they are no longer in effect. Accordingly, the question presented is whether a declaratory judgment stating the leases are invalid would constitute effectual relief. Based on existing case law, we conclude a declaratory judgment invalidating the fully performed leases would not be effectual relief.
In Jennings v. Strathmore Public Utility Dist. (1951) 102 Cal.App.2d 548 (Jennings), the plaintiff filed a lawsuit against a public utility district and two contractors seeking an injunction and a declaration that certain construction contracts were void. (Id. at p. 548.) The injunction sought to stop further construction of a sewage disposal plant and distribution lines. (Ibid.) The plaintiff alleged the contracts had been made in violation of the Labor Code prevailing wage rate requirements. (Jennings, supra, p. 549.) The utilities district filed a motion to dismiss, contending (1) the remedies in the Labor Code were exclusive and (2) the plaintiff was not a taxpayer and, therefore, lacked the requisite interest to maintain the action. (Jennings, supra, at p. 549.) The trial court granted the motion to dismiss and the plaintiff appealed. While the appeal was pending, “the work, which was in the process of completion at the time of trial, [was] fully completed, all contractors and workmen [were] paid in full, and notice of completion [was] filed and recorded in June 1950.” (Ibid.)
The utilities district argued on appeal that the matter had become moot and the appeal should be dismissed. (Jennings, supra, 102 Cal.App.2d at p. 549.) The appellate court agreed. First, the court concluded the issue of enjoining or restraining the district from proceeding with the work had become moot because the work had been completed. Second, the court concluded the
Although Jennings is distinguishable from the present case because Jennings did not include a taxpayer action, we conclude it establishes the precedent that a declaratory judgment as to the validity of completed contracts is not effectual relief. Based on this precedent, we conclude Davis‘s request for a declaratory judgment stating the Site Lease and the Facilities Lease are invalid is moot because such a judgment provides no effectual relief. (See Daily Journal Corp. v. County of Los Angeles (2009) 172 Cal.App.4th 1550, 1557 [county contract in question had expired]; County Sanitation Dist. No. 2 v. County of Kern (2005) 127 Cal.App.4th 1544, 1628–1629 [certain environmental claims were moot because they challenged acts taken under a contract that was no longer in effect]; Giles v. Horn (2002) 100 Cal.App.4th 206, 227 [challenge to county contracts was moot where contracts had been fully performed and had expired].) Accordingly, dismissal of the validation portion of Davis‘s lawsuit is appropriate on grounds of mootness. (See Wilson, supra, 191 Cal.App.4th at p. 1574; Connerly v. Schwarzenegger, supra, 146 Cal.App.4th at p. 752 [proper remedy for mootness is dismissal rather than rendering judgment for one side or the other].)
B. Taxpayer Action
Next, we consider whether disgorgement of monies received by Contractor is a remedy that continues to be available in Davis‘s taxpayer‘s action. In the taxpayer‘s action, Davis alleges the expenditure of funds under the Construction Contracts was illegal because of (1) violations of California‘s competitive bidding laws and
1. Disgorgement in Taxpayer Actions
In Ontario, supra, 2 Cal.3d 335, the Supreme Court discussed the scope of the validation statutes and their relationship to taxpayer actions under
More recently, in San Diegans, supra, 8 Cal.5th 733, the Supreme Court noted, but did not decide, the question of whether the plaintiff taxpayer organization‘s claim of a conflict in interest brought as a taxpayer action could seek disgorgement of payments received. That question was remanded to the Court of Appeal. (Id. at p. 747.) In San Diegans, the main issue addressed and resolved by the Supreme Court was whether the plaintiff had standing under
“Because violations of
section 1090 can be challenged by contractual parties undersection 1092 , by taxpayers underCode of Civil Procedure section 526a where appropriate, and by the Attorney General, district attorneys, and the [Fair Political Practices] Commission, there is no compelling reason to conclude thatsection 1092 creates a private right of action for nonparties to sue to avoid public contracts.” (San Diegans, supra, 8 Cal.5th at p. 746, italics added.)
Our Supreme Court‘s statement that violations of
For purposes of this appeal, we assume without deciding that the taxpayer‘s action is not “appropriate” if the specific contracts in question fall within the scope of the validation statutes and therefore could be successfully validated. (See generally,
First, we stated earlier that after identifying the claims Davis attempted to pursue, we would address whether those claims “fall[] within the boundaries of a particular legislative declaration that the validation statutes apply” (Abercrombie, supra, 240 Cal.App.4th at p. 308) and identified the “particular legislative declaration” as
Second, the defendants’ contentions suggest a taxpayer‘s action is not “appropriate” in the circumstances of this case. Specifically, Contractor argues this case is moot because (1) disgorgement is not an available remedy and (2) disgorgement is not available because the Construction Contracts fall within the ambit of
Defendants support their arguments by citing McGee II, a case in which the Second District concluded ”
In McGee II, the parties disputed whether the lease-leaseback agreements between a school district and construction contractor were subject to the validation statutes. (McGee II, supra, 49 Cal.App.5th at p. 823.) The court stated “the applicable law is
The court in McGee II analyzed whether the lease-leaseback agreements in that litigation were involved in financing and financial obligations by stating (1) it previously determined
Based on the parties’ arguments and cases such as McGee II, Friedland and Ontario, we consider whether the Construction Contracts between Fresno Unified and Contractor constitute “contracts” for purposes of
the district during any portion of the lease period as required by
Based on our conclusion that “the [Construction] Contracts did not include a financing component” (Davis I, supra, 237 Cal.App.4th at p. 291), which is consistent with the terms of the Facilities Lease stating Fresno Unified‘s obligations must not in any way be construed as debt or creating an indebtedness, it follows that the Construction Contracts are not “in the nature of, or directly relate[d] to a public agency‘s bonds, warrants or other
Consequently, we conclude Davis may pursue a taxpayer‘s action alleging the illegal expenditure of public funds based on conflicts of interest and violations of California‘s competitive bidding laws and
C. Other Arguments
1. Contractor‘s Interpretation of Davis I
Contractor interprets our opinion in Davis I as already deciding Davis‘s lawsuit was a reverse validation action. Contractor‘s argument implies that this court‘s earlier opinion decided the FAC asserted only a reverse validation action and, moreover, necessarily determined the Construction Contracts constitute “contracts” under
“Defendants could have avoided the uncertainty and risk associated with completing the project while this taxpayer challenge was pending by bringing a validation action under
Code of Civil Procedure section 860 prior to starting construction. ‘A validation action ... allows a public agency to obtain a judgment that its financing commitments are valid, legal, and binding. If the public agency has complied with statutory requirements, the judgment in the validation action binds the agency and all other persons.’ (Friedland v. City of Long Beach (1998) 62 Cal.App.4th 835, 838 ....) The record in this case shows that the use of validation actions is a common practice for school construction projects structured as a lease-leaseback arrangement. (See fn. 5, post.)
“Davis‘s taxpayer suit is a timely ‘reverse validation’ action because it was filed within 60 days of the adoption of the resolutions authorizing the execution of the [Construction] Contracts. (See Code Civ. Proc., §§ 860 ,863 .) Besides being a taxpayer, Davis is the president of Davis Moreno Construction, Inc., a general contractor that has handled construction projects for school districts. [Citations.]” (Davis I, supra, 237 Cal.App.4th at p. 273, fn. 4.)
First, our statement that the record showed school districts commonly used validation actions for construction projects structured as a lease-leaseback arrangement is a statement of historical fact, not a conclusion of law about the nature of the specific contracts at issue in the case. The fact that other lease-leaseback agreements have been validated does not mean the particular variation of the lease-leaseback arrangement adopted by Fresno Unified and Contractor qualifies for validation.
Second, our statement that Fresno Unified and Contractor could have brought a validation action simply means such a proceeding could have been filed. It does not mean they would have been successful and obtained a judgment validating the Construction Contracts or, more specifically, that the variation of the lease-leaseback arrangement set forth in the Construction Contracts qualified for the exception to competitive bidding contained in
Third, our statement that Davis‘s lawsuit is a timely reverse validation action—when read in context of the issues and arguments presented in the first appeal—does not imply that his lawsuit is exclusively a reverse validation action. It simply means Davis asserted a reverse validation action and had done so in a timely manner. Whether the Construction Contracts were subject to validation and, more specifically, whether they were “contracts” for purposes of
sentence of the second paragraph of the footnote would have replaced “is” with “includes.”
2. Delay and Public Policy
Contractor contends Davis‘s argument that disgorgement remains an available remedy overlooks the policies underlying the validation statutes and, like the plaintiff in McGee II, Davis did nothing to stop the construction even though injunctive remedies were available.
This argument might have been relevant if Davis‘s lawsuit was exclusively a reverse validation action. However, in the context of a taxpayer‘s action, “the fact that [the plaintiff] could have enjoined the illegal expenditure does not prevent [him] seeking to recover on behalf of the [local agency] monies illegally expended.” (59 Cal.Jur.3d, supra, Taxpayers’ Actions, § 7, pp. 192–193 [restoration of public funds], citing Osburn v. Stone, supra, 170 Cal. 480.) Here, we have determined the Construction Contracts (1) “did not include a financing component” (Davis I, supra, 237 Cal.App.4th at p. 291); (2) are not “contracts” for purposes of
D. Summary
The FAC sets forth both a reverse validation action and a taxpayer‘s action. Davis‘s taxpayer action consists of several legal theories or counts alleging funds were illegally paid by Fresno Unified to Contractor. (See Osburn v. Stone, supra, 170 Cal. at p. 486 [various “counts” in taxpayer‘s complaint alleged illegal expenditure of public funds].) The counts assert violations of California‘s competitive bidding laws and
DISPOSITION
The judgment is reversed. The trial court is directed to (1) vacate its order granting the motion for judgment on the pleadings, (2) enter a new order granting the motion as to the reverse validation portion of this lawsuit and denying the motion as to the taxpayer action and its underlying counts or legal theories, and (3) conduct further proceedings consistent with this opinion. Davis shall recover his costs on appeal.
FRANSON, J.
WE CONCUR:
DETJEN, Acting P.J.
PEÑA, J.