GREEN VALLEY LANDOWNERS ASSOCIATION, Plaintiff and Appellant, v. CITY OF VALLEJO, Defendant and Respondent.
No. A142808
First Dist., Div. One.
Oct. 16, 2015.
241 Cal. App. 4th 425
COUNSEL
Claudia M. Quintana, City Attorney, Donna R. Mooney, Chief Assistant City Attorney; Colantuono, Highsmith & Whatley, Michael G. Colantuono, Amy C. Sparrow, Leonard P. Aslanian and Jennifer L. Pancake for Defendant and Respondent.
OPINION
DONDERO, J.—In this class action comprised of nonresident water customers, plaintiff Green Valley Landowners Association filed a complaint seeking to preserve its alleged right to continue receiving water at reasonable rates from a historical water delivery system owned and operated by defendant City of Vallejo (City). The trial court sustained the City‘s demurrer as to all 12 causes of action contained in the complaint without leave to amend. Plaintiff contends the court‘s rulings are legally erroneous. We affirm.
I. Factual Background1
The Lakes Water System (LWS) was created in the late 1800‘s through the early 1900‘s to provide the City with potable water. The City first constructed a diversion dam coupled with a 14-inch transmission pipeline, which brought water from Solano County‘s Green Valley to the City (the Green Line). After completing the dam, the City created two reservoirs, Lake Frey (completed in 1894) and Lake Madigan (completed in 1908). The LWS was one of the first municipal water projects in California.
Lake Frey and Lake Madigan were soon insufficient to meet the demands of the City‘s rapidly growing population. The City then applied for a permit to store 37,000 acre-feet of water in the hills above Napa County‘s Gordon Valley. Subsequently, the City constructed a dam and reservoir in Napa County known as Lake Curry (completed in 1925), along with a 24-inch transmission line to transport water from Lake Curry to the City (the Gordon Line). Upon completion, the LWS consisted of three large reservoirs, two dams, thousands of acres of land and watershed, and dozens of miles of municipal-sized pipes, which conveyed needed water to the City.
In order to transport the water from the three reservoirs, the City acquired easements from some of the property owners along the Green Line, the Gordon Line, and elsewhere within the LWS service area. In exchange for these easements, the City agreed in writing to provide a certain quantity of “free water” to the owners of the servient estates.2 In addition, the City agreed in writing to provide certain quantities of “free water” to other nonresident customers in exchange for riparian water rights. Over the decades, the City agreed to provide potable water to other nonresident customers. These connections were made without a master plan.
From 1893 through the 1950‘s, the City‘s municipal water needs were met exclusively by the LWS. In the 1950‘s, the City obtained water rights from the Sacramento River Delta and contracted for water from the Solano Project.
In 1992, water quality from Lake Curry ceased to meet water treatment standards adopted by the State Department of Health Services. The City elected to stop using Lake Curry as a water source, closed a valve on the Gordon Line and stopped the flow of LWS water to the City. The City then
The City passed additional water rate increases by ordinances enacted in 1995 (the 1995 Ordinance) and 2009 (the 2009 Ordinance). In addition to increasing water consumption charges, the ordinances increased the fixed service charges to the nonresident customers of the LWS. Plaintiff alleges in its complaint that current water rates within the LWS are among the highest in the state.3
On June 9, 2009, plaintiff, on behalf of the purported class of nonresident LWS customers (the Class), entered into a tolling agreement with the City (Tolling Agreement). The Tolling Agreement tolls “any applicable statutes of limitations regarding a potential challenge to the rate increase [which occurred in 2009].” The Tolling Agreement has been extended 10 times, and expired on December 31, 2013.
According to plaintiff, the City has grossly mismanaged and neglected the LWS, placing the burden on the Class to fund a deteriorating, inefficient, and costly water system that is spread over an “incoherent service area.” In addition to water treatment plant improvements made between 1997 and 2005 that cost almost $8 million, replacement cost for a 10-mile section of the Gordon Line and a six-mile section of the Green Line are expected to be over $12 million. All of these costs have been, or will be, passed on to the LWS‘s nonresident customers. Plaintiff did not become aware of these unfunded liabilities until June 2013. Previously, the City had represented that the LWS was free of liabilities and debt, even though it performed “virtually no capital improvements to or replacements of the infrastructure” between 1894 and 1992.
Plaintiff also alleges that the City had engaged in negotiations with a private investor-owned utility to purchase the LWS. Reportedly, the City will only consider selling the LWS to plaintiff (or to a water district or service district created by plaintiff) for a sum that is almost $3 million over its “already flawed appraised value of the LWS.” The extra sum reportedly represents a loan or subsidy that the City claims it extended to LWS customers prior to 2009. Additionally, plaintiff complains that certain fees
II. Procedural History
On December 3, 2013, plaintiff filed and served a claim pursuant to
On January 23, 2013, plaintiff filed the operative complaint against the City. The class action complaint states 12 causes of action, comprised of claims for breach of implied contract, breach of implied covenant of good faith and fair dealing, breach of contract (third party beneficiary), breach of duty to charge reasonable water rates, breach of fiduciary duty, specific performance, declaratory relief, and accounting, along with four separate claims for injunctive relief.
On February 24, 2014, the City filed a general demurrer to the complaint.
On June 11, 2014, the trial court issued a tentative ruling sustaining the City‘s demurrer without leave to amend.
On August 21, 2014, plaintiff filed its notice of appeal.5
On August 22, 2014, the trial court filed its order affirming its tentative ruling, granting the demurrer without leave to amend.
On October 1, 2014, the trial court filed its order dismissing the lawsuit and entered final judgment for the City.
DISCUSSION
I. Standard of Review
“Because this case comes to us on a demurrer for failure to state a cause of action, we accept as true the well-pleaded allegations in plaintiff[‘s]
“While the decision to sustain or overrule a demurrer is a legal ruling subject to de novo review on appeal, the granting of leave to amend involves an exercise of the trial court‘s discretion. [Citations.] When the trial court sustains a demurrer without leave to amend, we must also consider whether the complaint might state a cause of action if a defect could reasonably be cured by amendment. If the defect can be cured, then the judgment of dismissal must be reversed to allow the plaintiff an opportunity to do so. The plaintiff bears the burden of demonstrating a reasonable possibility to cure any defect by amendment. [Citations.] A trial court abuses its discretion if it sustains a demurrer without leave to amend when the plaintiff shows a reasonable possibility to cure any defect by amendment. [Citations.] If the plaintiff cannot show an abuse of discretion, the trial court‘s order sustaining the demurrer without leave to amend must be affirmed.” (Traders Sports, Inc. v. City of San Leandro (2001) 93 Cal.App.4th 37, 43–44 [112 Cal.Rptr.2d 677].)
The plaintiff‘s “burden of demonstrating a reasonable possibility to cure any defect” (Traders Sports, Inc. v. City of San Leandro, supra, 93 Cal.App.4th at p. 43) is not pro forma. ” ’ “To satisfy that burden on appeal, a plaintiff “must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.” [Citation.] . . . The plaintiff must clearly and specifically set forth . . . factual allegations that sufficiently state all required elements of that cause of action. [Citations.] Allegations must be factual and specific, not vague or conclusionary.’ ” (Rossberg v. Bank of America, N.A. (2013) 219 Cal.App.4th 1481, 1491 [162 Cal.Rptr.3d 525], quoting Rakestraw v. California Physicians’ Service (2000) 81 Cal.App.4th 39, 43–44 [96 Cal.Rptr.2d 354].)
II. The Demurrer Was Properly Sustained as to the Implied Contract Claims
A. Causes of Action
Plaintiff represents that its implied contract claims, which it identifies as the first (breach of implied contract), second (breach of implied covenant of good faith and fair dealing) and 10th (specific performance) causes of action, are based on its theory that the City is contractually obligated to share in the
As the City notes, plaintiff‘s third cause of action is also based on an implied contract theory.7 The City also correctly observes that the complaint‘s 10th claim, which is for specific performance of the alleged implied agreement, actually constitutes a remedy and is not itself a cause of action.8
B. Implied Contracts
“The terms of an express contract are stated in words. [Citation.] The existence and terms of an implied contract are manifested by conduct. [Citation.] The distinction reflects no difference in legal effect but merely in the mode of manifesting assent.” (Retired Employees Assn. of Orange County, Inc. v. County of Orange (2011) 52 Cal.4th 1171, 1178 [134 Cal.Rptr.3d 779, 266 P.3d 287].) The essential elements of a claim of breach of contract, whether express or implied, are the contract, the plaintiff‘s performance or excuse for nonperformance, the defendant‘s breach, and the resulting damages to the plaintiff. (Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 830 [69 Cal.Rptr. 321, 442 P.2d 377]; Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga (2009) 175 Cal.App.4th 1306, 1332 [96 Cal.Rptr.3d 813].) The prerequisite for any action for breach of the implied covenant of good faith and fair dealing is the existence of a contractual relationship between the parties, since the covenant is an implied term in the contract. (See Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683–684, 690 [254 Cal.Rptr. 211, 765 P.2d 373]; Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 576 [108 Cal.Rptr. 480, 510 P.2d 1032] [since noninsurer defendants in bad
The trial court found the City could not be subjected to liability under an implied contract theory, first noting the City‘s charter does not contain any provisions specifically addressing contract formation. As the charter is silent, the court concluded the City‘s contracting procedures are governed by the general law provision found in
The trial court also cited to G. L. Mezzetta, Inc. v. City of American Canyon (2000) 78 Cal.App.4th 1087 [93 Cal.Rptr.2d 292] (Mezzetta). In Mezzetta, the appellate court concluded that certain municipal code provisions together with
Plaintiff does not dispute that the City‘s charter is silent with respect to the manner of contracting. It also concedes the “implied agreement to share in the cost of the LWS was never memorialized in writing.” It contends
” ‘The Government Code classifies cities as either “general law cities” (cities organized under the general law of California) or “chartered cities” (cities organized under a charter).’ ” (City of Orange v. San Diego County Employees Retirement Assn. (2002) 103 Cal.App.4th 45, 52 [126 Cal.Rptr.2d 405].) It is well settled that the method by which a city has power to enter into a contract may be controlled by its charter. (Loop Lumber Co. v. Van Loben Sels (1916) 173 Cal. 228, 232 [159 P. 600]; First Street Plaza Partners v. City of Los Angeles (1998) 65 Cal.App.4th 650, 661 [76 Cal.Rptr.2d 626] (First Street).) Further, unless the city charter authorizes such, no implied contract rights can arise. (Reams v. Cooley (1915) 171 Cal. 150, 153–154 [152 P. 293]; First Street, at p. 667.)
Section 201 of the City‘s charter states: “The City shall have the power to act pursuant to procedure established by any law of the State unless a different procedure is required by this Chapter.”9 The court below correctly noted that the manner in which a city may form a contract is a municipal affair, and that the City‘s charter, which could have validly included contract formation provisions, “does not specifically prescribe how its contracts must be executed.” The court concluded the City could thus rely on
Charter cities are specifically authorized by our state Constitution to govern themselves, free of state legislative intrusion, as to those matters deemed municipal affairs.
As noted in section 201 of the Vallejo Charter, the City is permitted to follow the laws of California regarding contract formation, i.e.,
We concur with the holding of McLeod, supra, 14 Cal.App.3d 23. That decision follows established principles in addressing charter cities and the effect of state statutes on such municipalities when their charters do not provide specific guidance on a matter of municipal concern. We disagree with plaintiff‘s characterization of McLeod as an isolated decision. (See Civic Center Assn. v. Railroad Comm. (1917) 175 Cal. 441, 445 [166 P. 351] [“With respect to matters not municipal, or municipal affairs upon which the charter [is] silent, the provisions of any general law [i.e., state statute] pertaining thereto would control the subject.“]; Armas v. City of Oakland (1960) 183 Cal.App.2d 137, 138–139 [6 Cal.Rptr. 750] [“Although Oakland is a charter city, plaintiffs concede that its charter and ordinances prescribe no procedure for street closing and that thus the procedural provisions of state law must be followed, even if the function be municipal in character . . . .“]; Hyde v. Wilde (1921) 51 Cal.App. 82, 86 [196 P. 118] [“Where no particular provisions are made covering a matter falling within the classification of a ‘municipal affair,’ the state law controls.“].)
In arguing otherwise, plaintiff relies on Butterworth v. Boyd (1938) 12 Cal.2d 140 [82 P.2d 434] (Butterworth) for the proposition that charter cities are not bound by the general laws of this state with respect to municipal
In deciding whether the establishment of a health care system qualified as a ” ‘municipal affair,’ ” the Supreme Court observed, “In the early stages of municipal home rule in California, the charter prevailed only where it expressly covered the particular power exercised. Under the liberalizing constitutional amendment of 1914, the charter is not a grant of power but a restriction only, and the municipality is supreme in the field of municipal affairs even as to matters on which the charter is silent.” (Butterworth, supra, 12 Cal.2d at p. 146, italics added.) As is apparent, the language plaintiff relies on from Butterworth simply states the well-established principle that chartered cities may act independent of general law with respect to matters deemed “municipal affairs,” regardless of whether their charters address the specific municipal affair that is at issue. It does not stand for the proposition that general laws never apply to chartered cities, particularly in the absence of conflicting municipal ordinances or regulations.
As the Butterworth court stated: “The purpose of the constitutional provisions was to make municipalities self-governing and free from legislative interference with respect to matters of local or internal concern. ‘It was to enable municipalities to conduct their own business and control their own affairs, to the fullest possible extent in their own way. It was enacted upon the principle that the municipality itself knew better what it wanted and needed than the state at large, and to give that municipality the exclusive privilege and right to enact direct legislation which would carry out and satisfy its wants and needs.’ ” (Butterworth, supra, 12 Cal.2d at p. 147, italics added.) Thus, Butterworth merely stands for the proposition that a chartered city has the power to enact regulations regarding contract formation that differ from those contained in
D. Cities Cannot Be Sued Under an Implied Contract Theory
Even if plaintiff is correct that
The principle set forth in Katsura, supra, 155 Cal.App.4th 104, is well established (see, e.g., Janis v. California State Lottery Com. (1998) 68 Cal.App.4th 824, 830 [80 Cal.Rptr.2d 549]; see also Seymour v. State of California (1984) 156 Cal.App.3d 200, 204–205 [201 Cal.Rptr. 15]). Limitations on a municipality‘s power to contract should be strictly construed because such restrictions are designed to protect the public, not those who contract with the municipality. (10 McQuillin, The Law of Municipal Corporations (3d rev. ed. 2009) § 29:6, p. 336.)
Plaintiff seeks to distinguish Katsura, supra, 155 Cal.App.4th 104, because the operative charter in that case expressly required all city contracts to be in writing. Plaintiff asserts that if the City had “wanted the benefit of the Katsura rule, it could have adopted similar charter language.” However, the holding in Katsura was that all implied contracts against public entities are barred because, by definition, they have not formally been approved by the entity. The court in that case did not limit its holding to cities with charters that expressly require all contracts to be in writing.
In sum, we agree with the City that the demurrer as to the first, second, third and 10th causes of action was properly sustained.
III. Proposition 218
The trial court sustained the City‘s demurrer to the fourth, fifth, and 11th causes of action, finding them barred under Proposition 218. “Adopted by California voters in November 1996, Proposition 218 added articles XIII C and XIII D to the California Constitution. Proposition 218 generally prohibits local governments from imposing taxes without voter approval.” (Owens v. County of Los Angeles (2013) 220 Cal.App.4th 107, 128 [162 Cal.Rptr.3d 769].) ” ‘Article XIII C concerns voter approval for local government general taxes and special taxes. Article XIII D sets forth procedures, requirements and voter approval mechanisms for local government assessments, fees and charges.’ ” (City of Palmdale v. Palmdale Water Dist. (2011) 198 Cal.App.4th 926, 931 [131 Cal.Rptr.3d 373].)
The trial court found what it referred to as the ” ‘pooled-rate’ structure” proposed by plaintiff in these claims to be prohibited by
In Griffith, the objectors appealed from judgments in favor of a water management agency challenging an ordinance enacted by the agency that increased groundwater augmentation charges for the operation of wells within the agency‘s jurisdiction. The Court of Appeal held that the augmentation charges were expressly exempt from Proposition 218‘s fee/charge voting requirement. “Given that Proposition 218 prescribes no particular method for apportioning a fee or charge other than that the amount shall not exceed the proportional cost of the service attributable to the parcel, defendant‘s method of grouping similar users together for the same augmentation rate and
Plaintiff asserts Proposition 218 is irrelevant to this dispute because the complaint does not specify how the City is to satisfy its obligation to pay monetary damages equal to the difference between a “reasonable rate” and the rates the City actually charged members of the putative class. However, the Historical Cost Sharing Ratio theory is not viable in light of Proposition 218. Manifestly, an apportionment that would place 98 percent of the burden of LWS on City residents while giving them zero services in return is unreasonable. Plaintiff also briefly asserts it should be granted leave to amend to allege a federal equal protection cause of action. However, the case that it relies on—Hansen v. City of San Buenaventura (1986) 42 Cal.3d 1172, 1189–1190 [233 Cal.Rptr. 22, 729 P.2d 186] (Hansen)—does not assist plaintiff, as it was decided before the passage of Proposition 218.
IV. Injunctive Relief Against Sale
Plaintiff‘s sixth and seventh causes of action are for injunctive relief against the alleged proposed sale of the LWS. The sixth cause of action is against the sale of the system, and the seventh is against the sale of the system without land. The complaint alleges that the City intends to sell the LWS to a private investor-owned utility that would thereafter “be allowed to pass the full cost of operating, maintaining and improving the LWS onto the Class.” In the seventh cause of action, plaintiff asserts the city intends to sell the physical structure of the LWS, while retaining the excess real property for the benefit of its general municipal fund without investing any of the proceeds into the LWS.
The trial court concluded that it could not legally prevent the execution of a public sale, noting that both the
V. Injunctive Relief Against Surcharge Fee and Future Rate Structures
Plaintiff‘s eighth cause of action asked for an injunction to stop the City from continuing a surcharge fee enacted as a part of the 1995 Ordinance after September 30, 2015, when it is set to expire. In the ninth cause of action it seeks to stop the City from imposing future rate structures that do not require it to share in the cost of operating and maintaining the LWS pursuant to the Historical Cost Sharing Ratio.
As the trial court correctly found, the speculative allegation that the City may violate the provision that discontinues the surcharge fee after September 30, 2015, was premature. Additionally, the court noted that under Water Replenishment Dist. of Southern California v. City of Cerritos (2013) 220 Cal.App.4th 1450, 1469–1470 [163 Cal.Rptr.3d 754], water assessments are subject to the ” ‘pay first, litigate later’ ” rule. Plaintiff challenges this ruling. Regardless, the injunction claims are based on the same implied contract theory that we have already found lacking in merit.
VI. Breach of Fiduciary Duty and Accounting
Plaintiff‘s fifth cause of action is for breach of fiduciary duty. The 12th cause of action is for accounting. The trial court agreed with the City that the two claims fail because there is no common law tort liability for public entities in California. Instead, liability must be based on statute per
“The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach. [Citation.] Whether a fiduciary duty exists is generally a question of law. [Citation.] Whether the defendant breached that duty towards the plaintiff is a question of fact.” (Amtower v. Photon Dynamics, Inc. (2008) 158 Cal.App.4th 1582, 1599 [71 Cal.Rptr.3d 361].)
It is a well-settled rule that “[t]here is no common law governmental tort liability in California; and except as otherwise provided by statute, there
Plaintiff relies on South Pasadena v. Pasadena Land etc. Co. (1908) 152 Cal. 579, 594 [93 P. 490] (South Pasadena) and other cases stating that a city holding title to a water system outside of its boundaries acts “as a mere trustee, bound to apply it to the use of those beneficially interested.” These cases are not controlling, however. For example, in Hansen, supra, 42 Cal.3d 1172, the Supreme Court reversed the Court of Appeal and upheld the lower court‘s ruling that a 70 percent surcharge on nonresident water customers was reasonable. (Id. at p. 1176.) That case is distinguishable because it, like South Pasadena, at pages 587–588, is founded on the following principle: “A city which acquires the water system of another community incurs an obligation to deal fairly with its customers in that community and to provide them with service at reasonable rates.” (Hansen, at p. 1180, italics added.) Here, the City did not acquire the LWS from plaintiff or plaintiff‘s predecessors. Again, Hansen is also distinguishable because it was decided prior to the passage of Proposition 218. Additionally, none of the cases cited by plaintiff in this regard discuss
Finally, the accounting cause of action seeks an accounting of the surcharge and connection fees levied by the City upon the LWS customers based on the allegation that the fees were not placed in dedicated accounts and were not used exclusively for constructing capital improvements to the LWS, as required by City regulations.
“An accounting is an equitable proceeding which is proper where there is an unliquidated and unascertained amount owing that cannot be determined without an examination of the debits and credits on the books to determine what is due and owing. [Citations.] Equitable principles govern, and the plaintiff must show the legal remedy is inadequate. . . . Generally, an underlying fiduciary relationship, such as a partnership, will support an accounting, but the action does not lie merely because the books and records are complex. [Citations.] Some underlying misconduct on the part of the defendant must be shown to invoke the right to this equitable remedy.”
VII. Trial Court Did Not Abuse Its Discretion in Denying Leave to Amend
Plaintiff fails to set forth in sufficient detail how it would amend its complaint to correct the multiple defects noted above. We conclude the trial court did not abuse its discretion in denying plaintiff leave to amend.15
DISPOSITION
The judgment is affirmed.
Margulies, Acting P. J., and Banke, J., concurred.
Appellant‘s petition for review by the Supreme Court was denied January 13, 2016, S230810.