Opinion
When it appears that a charter city is under the control of individuals who are looting the city’s coffers for their own benefit, can the Attorney General, on behalf of the city, bring an action against the allegedly corrupt individuals, to remove the city from their control and require them to pay restitution to the city? We conclude that the Attorney General may bring such an action, and seek recovery from the corrupt individuals to the extent their acts were unauthorized.
This case concerns the City of Bell (City), a charter city with a population of 38,250. It was discovered that the chief administrative officer of the City, the assistant chief administrative officer, and five City council members were receiving salaries well in excess of the amounts paid similar individuals in similarly sized cities, and that these seven individuals went to great lengths to conceal their salaries from public knowledge. It was also revealed that the chief administrative officer had hired an individual to serve as chief of police at a high salary; the terms of his employment contract were structured so as not to disclose the true extent of his salary.
When the true salaries of these individuals were made public, a scandal erupted. It became clear that legal action should be taken. However, as the City was still under the control of the apparently corrupt officials, the City brought no action against them. Therefore, the Attorney General brought the instant action, challenging the excessive salaries and seeking reimbursement for the City. Shortly thereafter, the district attorney filed criminal proceedings.
Defendants demurred to the operative complaint, arguing, among other things, the Attorney General’s lack of standing, immunity for legislative acts,
On appeal, we conclude that the Attorney General does have standing to pursue this action on behalf of the City. We further conclude that, although separation of powers and legislative immunity bar pursuit of this action with respect to acts within the discretion of City officials, these doctrines do not prevent the action from proceeding with respect to defendants’ allegedly ultra vires acts. We therefore hold that the trial court erred in sustaining the demurrers without leave to amend. Finally, we address the trial court’s denial of the Attorney General’s motion to stay proceedings in this case pending resolution of the criminal actions against defendants. While we agree that the trial court did not abuse its discretion in denying the motion, we note that subsequent events may justify reconsideration of the motion.
FACTUAL AND PROCEDURAL BACKGROUND
1. Allegations of the Complaint
The operative complaint
Defendant Robert A. Rizzo was the chief administrative officer of the City from May 1993 through at least July 2010. Under section 603 of the City
Defendant Pier’angela Spaccia was hired by Rizzo, first as assistant to the chief administrative officer, then as assistant chief administrative officer. In 2010, her base salary was $336,000. This amount is more than 40 percent higher than the salary for city managers (not assistant city managers) in the Los Angeles region with populations comparable to that of the City. In 2008, when other city employees were being laid off, Rizzo approved a contract providing Spaccia with a 20 percent raise and automatic 12 percent increases thereafter. Like Rizzo, Spaccia was granted 143 days of vacation and sick leave per year, which she was permitted to sell back to increase her pay. In 2009, she sold back leave time for nearly $175,000.
Defendants Oscar Hernandez, Teresa Jacobo, George Mirabal, Victor Bello, and George Cole (collectively, Council member defendants) were council members (and some, at times, served as mayor) of the City. Under section 502 of the City Charter, council members “shall receive compensation for their services as may be prescribed by ordinance or resolution, but with respect to service as a Council member not to exceed the amount which Council Members of general law cities of similar population would receive under State law.” Under state law, a city with a population between 35,000 and 50,000 shall pay its council members no more than $400 per month.
Randy Adams
It was further alleged that defendants defrauded the public as to the extent of their compensation. Specifically, it was alleged that the Council member defendants passed an ordinance which was titled as an ordinance “limiting compensation for members of the City Council” (italics added), when, in fact, the ordinance nearly doubled their compensation. We refer to this as the “misleading ordinance.” Similarly, it was alleged that in September 2008, at Rizzo’s direction, a memorandum was prepared to be given by the city clerk to any member of the public who inquired about the salaries of city officers and employees. The memorandum falsely stated that the Council member
Finally, the complaint contained allegations relating to the City’s supplemental retirement plan, which provided retirement benefits “to a small group of City officers and employees,” including defendants. It was alleged that Rizzo and Spaccia modified the terms of the retirement plan to provide “unique benefits] to them that [were] not available to other” members of the retirement plan.
2. Causes of Action
Based on the above alleged facts, the Attorney General alleged the following causes of action. First, the Attorney General pled a cause of action against all defendants for waste of public funds under Code of Civil Procedure section 526a,
The cause of action for waste was the only cause of action in the complaint which named the City itself as a defendant. In connection therewith, the Attorney General sought appointment of a receiver to facilitate operation of the City. The Attorney General did not seek damages from the City, and, in fact, sought an order requiring the other defendants to make restitution to the City for their excess compensation.
The second cause of action, against Rizzo and the Council member defendants, was for negligence in authorizing the wasteful expenditures of
The third cause of action, against Rizzo and the Council member defendants, alleged fraud in connection with the misleading ordinance. The fourth cause of action, against Rizzo alone, alleged fraud in connection with the misleading memorandum.
The fifth cause of action, against Rizzo and Spaccia, alleged violation of Government Code section 1090, which prohibits city officers from entering into contracts in which they have a personal financial interest. The Attorney General alleged that Rizzo and Spaccia violated Government Code section 1090 by their modification of the City’s supplemental retirement plan to “createQ particularized benefits to themselves.”
The sixth cause of action, against all defendants, alleged breach of fiduciary duty.
3. Motion for a Stay
Shortly after the trial court ruled on Rizzo’s demurrer to the initial complaint, the Attorney General and the district attorney (who was not a party) jointly moved to stay this action pending resolution of the criminal proceedings against Rizzo, Spaccia, and the Council member defendants. They argued that a stay was appropriate for three reasons: (1) defendants were improperly seeking civil discovery for the benefit of their criminal defenses; (2) conservation of judicial resources; and (3) defendants were invoking their Fifth Amendment privilege against self-incrimination in civil discovery.
The trial court denied the motion, on the basis that the situation was entirely of the Attorney General’s own making, in that this action was
4. Demurrers
All defendants demurred to the operative complaint.
With respect to every cause of action except the fifth, for violation of Government Code section 1090, the trial court sustained the demurrers without leave to amend. The court concluded that the amount of reasonable compensation paid City officials and employees is entrusted to the legislative body of the City, and the doctrines of separation of powers and legislative immunity prevented court intervention on the issue. At the hearing on the
The Attorney General elected not to amend the sole remaining cause of action. An order of dismissal followed. The Attorney General filed a timely notice of appeal.
5. Ongoing Proceedings
While the order of dismissal finally disposed of all causes of action brought by the Attorney General, it was not the end of the action. Rizzo had brought a cross-complaint against the City, seeking, among other things, an order requiring the City to provide him a defense to the criminal actions pending against him. The City had also filed a cross-complaint against Rizzo; the operative pleading alleged causes of action for intentional misrepresentation, breach of the covenant of good faith and fair dealing, violation of Government Code section 1090, rescission and restitution of money wrongfully obtained, and declaratory relief. According to the City, all of the causes of action pending between Rizzo and the City, except Rizzo’s cause of action for the City to defend him in the criminal actions, have been stayed pending resolution of the criminal charges against him.
ISSUES ON APPEAL
We first consider whether the Attorney General had standing to bring this action. The Attorney General and the City both argue that the Attorney General brought the action on behalf of the City. We accept this argument and conclude the Attorney General had the power to bring this action on the City’s behalf. As such, we reject any contention that the Attorney General had to comply with the Tort Claims Act in order to pursue this action on behalf of the City. Second, we turn to the issues of legislative immunity, separation of powers, and discretionary act immunity. We conclude that these
DISCUSSION
1. Standard of Review
“In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]” (Blank v. Kirwan (1985)
2. The Attorney General May Pursue This Action on Behalf of the City
California Constitution, article V, section 13 provides, “Subject to the powers and duties of the Governor, the Attorney General shall be the chief law officer of the State. It shall be the duty of the Attorney General to see that the laws of the State are uniformly and adequately enforced.” “The attorney-general, as the chief law officer of the state, has broad powers derived from
We need not consider whether the Attorney General, under the common law power, has the right to pursue this action as one deemed “necessary for the enforcement of the laws of the state, the preservation of order, and the protection of public rights and interests.” Certainly, an argument can be made that, when a municipality is under the control of individuals who would pay themselves excessive salaries and grant themselves exceptional benefits, without any apparent regard for the city’s inability to meet these financial obligations, the “preservation of order” and “protection of public . . . interests” permit, if they do not affirmatively require, action by the Attorney General.
In this case, however, the Attorney General argues that this action was brought on behalf of the City. Indeed, although the Attorney General purported to bring the action on behalf of the “People of the State of California,” the allegations of the complaint sought relief on behalf of the City. When the Attorney General alleged a breach of fiduciary duty, the fiduciary duty at issue was allegedly owed “to the City and its citizens,” not the state. The complaint sought an order requiring defendants to make restitution to the City, not the state. It is apparent, then, that despite the caption of the action, the Attorney General brought the action on behalf of the City. When an action is brought in the name of the wrong party, leave to amend should be granted to substitute the real party in interest. (Cloud v. Northrop Grumman Corp. (1998)
Defendants suggest that the action could not have been brought on behalf of the City because the Attorney General named the City as a defendant. In this regard, we believe Code of Civil Procedure section 382 governs. That section provides, “If the consent of any one who should have been joined as plaintiff cannot be obtained, he may be made a defendant, the reason thereof being stated in the complaint. . . .” (Ibid.) Here, the complaint was originally filed on September 15, 2010, when the City was still under the control of
Although we discuss the cause of action for government waste later in this opinion, it is useful to address the cause of action with respect to standing at this point. Code of Civil Procedure section 526a provides that a taxpayer can bring an action against a government officer to enjoin a threatened act of government waste. Code of Civil Procedure section 526a provides standing to taxpayers; it does not limit standing to bring actions for waste to taxpayers. Indeed, the statute expressly states, “[tjhis section does not affect any right of action in favor of a county, city, town, or city and county, or any public officer . . . .” (Ibid.) Thus, the Attorney General, on behalf of the City, may pursue an action for government waste, even if the City does not meet the standing requirements for a taxpayer action under Code of Civil Procedure section 526a.
3. The Tort Claims Act Does Not Apply
Defendants argue that, as this action seeks relief against public employees, the Attorney General was required to file a claim pursuant to the Tort Claims Act in order to pursue the action. We disagree.
The Tort Claims Act provides that all claims for money or damages
None of this applies, however, when the plaintiff is the employing public entity itself. Here, as we have discussed, the Attorney General brought the instant action on behalf of the City. It would turn the Tort Claims Act on its head to even suggest that the City is required to file a claim with itself before bringing suit against its employees for acting outside the scope of their employment. As the action here was brought on behalf of the City, compliance with the Tort Claims Act was not required. (Cf. Stanson v. Mott (1976)
4. Separation of Powers, Legislative Immunity, and Discretionary Act Immunity Do Not Bar Causes of Action Based on Ultra Vires Acts
The heart of this matter, and the issue found dispositive by the trial court, is the issue of separation of powers. More specifically, the question raised by this case is; To what extent can the judiciary review compensation decisions taken by the city council (and chief administrative officer) of a charter city?
We begin with the doctrine of separation of powers, which is enshrined in our Constitution. “The powers of state government are legislative, executive, and judicial. Persons charged with the exercise of one power may not exercise either of the others except as permitted by this Constitution.” (Cal. Const., art. III, § 3.) Separation of powers means that “legislators have absolute immunity from damage suits based on legislative acts.” (Steiner v. Superior Court (1996)
This doctrine has been manifested in a statute providing for immunity for legislative acts. “A public employee is not liable for an injury caused by his adoption of or failure to adopt an enactment . . . . ” (Gov. Code, § 821.) Similarly, statutes provide for immunity for acts taken within a public employee’s discretion.
With the doctrines governing immunity thus established, we next turn to the issue of whether municipal salaries are within the discretion of municipal legislators. “[A]ll questions of policy and wisdom concerning matters of municipal affairs are for the determination of the legislative governing body of the municipality and not for the courts.” (Wheeler v. Gregg (1949)
This does not, however, mean that such decisions are completely immune from judicial review. Courts have the power to “determine whether or not the municipal bodies acted within the limits of their power and discretion.” (Wheeler v. Gregg, supra,
The rule was established in Boyd, supra,
Our discussion above relates to salaries set by ordinance. The instant case involves salaries set by both ordinance and employment contracts. Just as courts will strike down an ordinance which violates the city’s charter, courts will declare void a contract which was made without authority. “Any act that is violative of or not in compliance with the charter is void.” (Domar Electric, Inc. v. City of Los Angeles (1994)
The issue next arises as to the damages, if any, a city may recover, and from whom, when its officers madé an illegal or unauthorized contract. First and foremost, as the contract is void, the city is entitled to restitution from the party who had purportedly contracted with the city.
Second, we consider whether a city is entitled to restitution from its officer who, acting outside the scope of his or her authority, purported to authorize an unauthorized expenditure of public funds. The question was
In sum, the doctrines of separation of powers, legislative immunity, and discretionary act immunity prevent courts from considering the wisdom of legislative and executive decisions, including those pertaining to compensation, which have been entrusted to the discretion of municipal authorities. There can be no liability for such a decision when made within the discretion of such officials. However, if the decision made was outside the authority of the officials—either as an ordinance outside of the city council’s authority under the charter, or a contract made by someone without the authority to bind the city to it—courts can strike down the ordinance or contract as void. If that occurs, the recipient of funds under the void ordinance or contract may be liable to the city in restitution, and the city officials who purported to authorize the unauthorized expenditure may also be liable in restitution, if they failed to use due care or reasonable diligence in authorizing it.
It is apparent that, in this case, the Attorney General sought to impose liability on Rizzo and the Council member defendants for some acts which are clearly protected by legislative immunity. For example, the second cause of action seeks to hold the Council member defendants liable for their negligence in approving the employment contracts of Rizzo and Spaccia, and to hold Rizzo liable for his negligence in approving the employment contracts of Spaccia and Adams. As alleged, these acts are within the authority of defendants; there is no liability for their negligent approval of contracts. However, it also appears that the Attorney General has alleged, or reasonably could allege, acts outside the scope of defendants’ authority. For example, the first amended complaint alleges that Rizzo, as chief administrative officer, was entitled by the City Charter to a salary “ ‘commensurate with the responsibilities of chief administrative officer of the City,’ ” and that the
5. The Legislative Act Privilege Bars Only the Cause of Action Based on the Misleading Ordinance
Civil Code section 47, subdivision (b)(1) declares as absolutely privileged any publication made in any legislative proceeding. The privilege is “broad and comprehensive, including proceedings of all legislative bodies, whether state or municipal.” (Scott v. McDonnell Douglas Corp. (1974)
The third cause of action alleges fraud for the misleading ordinance. We can conceive of few statements which come so completely within the scope of the legislative privilege more than the title and text of actual legislation. The Attorney General cannot pursue a cause of action based on the misleading ordinance.
We reach a different conclusion, however, with respect to the misleading memorandum. It was alleged that Rizzo provided a false memorandum to the city clerk with directions to provide it to anyone who inquired as to the salaries of Rizzo and the council members. Creation and dissemination of a memorandum stating officials’ salaries is not a legislative act, nor does it bear any connection to the work of the legislative body.
6. The Causes of Action Alleged and Other Causes of Action Which Could Be Alleged
Having discussed, in general terms, the challenges brought by defendants to the Attorney General’s complaint, we now turn to the specific causes of
a. Government Waste
The first cause of action was for government waste. The Attorney General brought this cause of action under Code of Civil Procedure section 526a, the statute providing for taxpayer actions to enjoin, and obtain restitution to the government for (Osbum v. Stone, supra,
Specifically, we believe the appropriate cause of action is one to declare void ultra vires ordinances and contracts and to obtain restitution from the appropriate parties. Considering the allegations of the complaint, the language of the City Charter and contracts in the record,
The council members’ salaries were limited by the City Charter to “the amount which Council Members of general law cities of similar population would receive under State law.” The council members’ compensation, however, was alleged to be so dramatically out of line with the amount which council members of general law cities of similar population would receive under state law, it could reasonably be argued that the compensation was “fraudulent or so palpably unreasonable and arbitrary as to indicate an abuse of discretion as a matter of law.” If so, the ordinances setting such compensation were ultra vires, and may be declared void as a matter of law, entitling the City to restitution from the council members who received the improper salaries.
Similarly, Rizzo’s compensation was limited, in the City Charter, to a salary “commensurate with the responsibilities of chief administrative officer
As to Adams, his employment contract was executed by Rizzo on behalf of the City.
b. Negligence
The negligence cause of action seeks to recover against Rizzo and the Council member defendants for negligently authorizing the wasteful expenditures of public funds. As it stands, the cause of action is barred by legislative immunity. As discussed above, the Attorney General may seek restitution against Rizzo and the Council member defendants only for authorizing, without due care, the unauthorized expenditures of public funds.
c. Fraud by the Misleading Ordinance
As discussed above, the cause of action for fraud arising from the allegedly misleading ordinance is wholly barred by the legislative privilege. The demurrer was properly sustained without leave to amend this cause of action.
d. Fraud by the Misleading Memorandum
The cause of action against Rizzo for fraud arising from the misleading memorandum is not, on its face, barred by any privilege. However, the cause of action is not properly alleged. “ ‘The well-established common law elements of fraud which give rise to the tort action for deceit are: (1) misrepresentation of a material fact (consisting of false representation, concealment or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to deceive and induce reliance; (4) justifiable reliance on the misrepresentation; and (5) resulting damage. [Citations.] ... It is essential. . . that the person complaining of fraud actually have relied on the alleged fraud, and suffered damages as a result. [Citations.]’ [Citation.] ‘Fraud is required to be pleaded with specificity.’ [Citation.]” (Bower v. AT&T Mobility, LLC (2011)
Our concern is with the fourth and fifth elements, justifiable reliance causing damages. As to reliance, the Attorney General, on behalf of the City, only alleged on information and belief that “the memorandum was provided to members of the public,” and that they “relied on the misrepresentations in the memorandum, and thus they were deprived of the motive and opportunity to challenge the excessive and wasteful salaries.” The damages to the City are
On appeal, however, the Attorney General represented that, if given an opportunity to amend, the Attorney General could identify a specific individual to whom the memorandum was given, the circumstances of the provision of the memorandum, the recipient’s reliance, and subsequent damages to the City. As such, on remand, the Attorney General should be permitted an opportunity to amend this cause of action.
e. Government Code Section 1090
Government Code section 1090 provides, in pertinent part: “Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members.” “ ‘The evil to be thwarted by section 1090 is easily identified: If a public official is pulled in one direction by his financial interest and in another direction by his official duties, his judgment cannot and should not be trusted, even if he attempts impartiality.’ [Citation.] Where public and private interests diverge, the full and fair representation of the public interest is jeopardized.” (Lexin v. Superior Court (2010)
The allegations in this case are that Rizzo and Spaccia modified the City’s supplemental retirement plan to provide themselves with unique benefits not provided any other members of the plan. The trial court sustained the demurrer with leave to amend this cause of action, on the basis that the contract itself was not sufficiently identified. Rizzo and Spaccia argue that the trial court should have sustained the demurrer without leave to amend, on the basis that a statutory exception applies. Government Code section 1091.5, subdivision (a)(9) provides that an officer or employee is not deemed to be interested in a contract if his or her interest is only “[t]hat of a person
While this statute is “no model of clarity” (Lexin, supra,
f. Breach of Fiduciary Duty
The final cause of action alleged was for breach of fiduciary duty. “The elements of a cause of action for breach of fiduciary duty are: (1) existence of a fiduciary duty; (2) breach of the fiduciary duty; and (3) damage proximately caused by the breach.” (Stanley v. Richmond (1995)
Spaccia argues that, as a mere employee, she owed no fiduciary duty to the City. The argument is without merit. While Spaccia may have been a mere employee when she was first hired as assistant to the chief administrative officer, she ultimately became assistant chief administrative officer herself. Surely, a city reposes trust and confidence in its assistant chief administrative officer. (See County of San Bernardino v. Walsh (2007)
However, Adams’s argument that he owed the City no fiduciary duty in the negotiation of his contract is well taken. Adams was not a City employee when he negotiated his contract; any fiduciary duty he owed the City as its chief of police came into existence only after his employment contract was executed. The Attorney General offers no argument for her assertion that Adams owed the City a fiduciary duty. We therefore conclude that Adams’s demurrer was appropriately sustained without leave to amend this cause of action.
g. Summary of Conclusions
In sum, we conclude that the demurrer should not have been sustained without leave to amend as to all causes of action except the fifth cause of action, for violation of Government Code section 1090. Instead, leave to amend should have been granted to permit the Attorney General to (1) pursue this action on behalf of the City;
7. The Trial Court Did Not Abuse Its Discretion in Denying the Stay Motion
The Attorney General argues that the trial court erred in denying the motion of the Attorney General and the district attorney to stay this action pending resolution of the criminal actions against defendants. “We review the trial court’s denial of plaintiffs’ motion for a stay under the abuse of discretion standard of review.” (Bains v. Moores (2009)
In this case, the trial court did not abuse its discretion in denying the stay. The Attorney General brought the action knowing that several defendants had already asserted their Fifth Amendment rights, but nonetheless chose to file the action. Although there were concerns that the criminal defendants might seek to obtain information unavailable through criminal discovery by means of civil discovery (and similar concerns of overburdening City officials with too many discovery requests) none of these issues had yet manifested and the trial court could resolve them with appropriate orders if and when they arose. Additionally, one defendant, Adams, was not named in the criminal actions, and he had an interest in seeing the instant civil case through to completion as early as possible; as all causes of action against Adams implicate defendant Rizzo, severance would be impractical. In short, the trial court balanced the relevant factors and concluded a stay was unnecessary.
While we affirm the trial court’s denial of a stay, our conclusion is without prejudice to revisiting the issue on remand in light of intervening events. Specifically, it appears that the trial court did stay all causes of action pending between Rizzo and the City, except Rizzo’s cause of action for the City to provide him a defense in the criminal action, pending resolution of the criminal actions against him. If this is so, it would appear improper to require the Attorney General’s action on behalf of the City to proceed, while the City’s own action against Rizzo is stayed.
DISPOSITION
The judgment of dismissal is reversed. The matter is remanded to the trial court with directions to (1) vacate its order sustaining the demurrer without leave to amend the first, second, third, fourth and the sixth causes of action,
Klein, P. J., and Aldrich, J., concurred.
Notes
The contract provided that the chief of police would be paid $17,577 “per pay period.” It did not define “pay period,” which was, in fact, every two weeks.
No criminal proceedings were filed against the chief of police.
The trial court granted leave to amend a single cause of action; the Attorney General, however, elected not to amend.
The operative complaint is the first amended complaint. The council member defendants argue that the trial court did not abuse its discretion in denying the Attorney General leave to amend the operative complaint on the basis that the Attorney General already had one opportunity to amend to cure the errors in her complaint. We disagree. In response to the Attorney General’s initial complaint, Rizzo filed a demurrer, in which Pier’angela Spaccia joined. At the hearing on the demurrer, the trial court expressed concern regarding the Attorney General’s right to pursue this action, but noted that Rizzo’s demurrer was procedurally inadequate on all grounds except uncertainty. As a result, the trial court overruled the demurrer to the extent it raised any substantive issues, and sustained the demurrer (with leave to amend) only with respect to the ground of uncertainty. The Attorney General therefore filed a first amended complaint responding to the trial court’s order sustaining the demurrer for uncertainty. As the trial court had not sustained Rizzo’s demurrer on the ground that the Attorney General lacked standing, the Attorney General was under no obligation to amend the complaint to address this ground. As such, when the trial court subsequently sustained the demurrers to the first amended complaint without leave to amend, the Attorney General had not been granted an opportunity to amend to address any purported defect other than uncertainty.
Annual 5 percent increases are permissible. (Gov. Code, § 36516, subd. (a)(4).)
On appeal, three of the Council member defendants (Cole, Hernandez and Jacobo) requested judicial notice of certain resolutions and ordinances which designated the members of the City Council as the members of various commissions and authority boards. The argument, apparently, is that some of their pay was earned not for serving on the City Council but for serving on these commissions and boards. We note that Government Code section 36516, which governs the salary to be paid council members of general law cities, provides, “Unless specifically authorized by another statute, a city council may not enact an ordinance providing for compensation to city council members in excess of that authorized [as above]. For the purposes of this section, compensation includes payment for service by a city council member on a commission, committee, board, authority, or similar body on which the city council member serves. If the other statute that authorizes the compensation does not specify the amount of compensation, the maximum amount shall be one hundred fifty dollars ($150) per month for each commission, committee, board, authority, or similar body.” (Gov. Code, § 36516, subd. (c).) The City paid its council members well in excess of $150 per month for serving on various commissions and authorities. It is impossible to say for certain how much the council members were paid, as the resolutions indicate amounts to be paid “per pay period,” without defining “pay period.” As other evidence suggests these City officials defined a “pay period” as two weeks, it appears that, in fiscal year 2009-2010, the City may have paid its council members in excess of $1,375 per month per board for their service on the public financing authority board, the surplus property authority board, and the community housing authority board. (City Res. Nos. 2005-34, 2005-35, 2005-36.)
Adams is in a somewhat different position from the other defendants; he contracted for and received the allegedly excessive salary, but did not approve his own salary—or that of anyone else—on behalf of the City.
In addition, when Adams was negotiating his employment contract with Spaccia, Adams inserted a clause specifying the number of pay periods per year. Spaccia instructed him to remove the clause, stating, “[w]e have crafted our Agreements carefully so we do not draw attention to our pay. The word Pay Period is used and not defined in order to protect you from someone taking the time to add up your salary.” Adams agreed to remove the pay period definition from his contract.
As we shall discuss, Code of Civil Procedure section 526a permits a taxpayer to bring an action to enjoin government waste.
For this reason, when we refer to “defendants,” we mean the individual defendants only, not the City.
The cause of action also alleged violation of public trust. “The public trust doctrine generally concerns the preservation of certain natural public resources, not employment contracts.” (Lucas v. Santa Maria Public Airport Dist. (1995)
Indeed, the court noted that four of the defendants had invoked the privilege in interviews sought by the Attorney General before the Attorney General had even filed this action.
At the hearing on the motion, the Attorney General raised potential statute of limitation issues with that course of action. The trial court found that these concerns were not sufficiently concretely presented.
Two of the Council member defendants did not initially demur; they filed their demurrers after the trial court had sustained the demurrers of the other defendants. Their demurrers were then sustained on the same bases as those of their codefendants.
Rizzo argues that establishing the Attorney General lacks standing under Code of Civil Procedure section 526a establishes that the Attorney General lacks standing to pursue all causes of action in the complaint, as they are all based on the waste of public funds. The conclusion does not follow. That a plaintiff may lack standing to bring a cause of action under a particular statute does not mean the plaintiff lacks standing under another statute or the common law.
The action is properly brought in the name of the City, not the people of the City. (Cf. Smith v. Myers (1860)
The City represents that the City Council was replaced on March 8, 2011. It states, “[t]he new council in Bell, on behalf of its citizens,. .. asks that this Court act to allow the [Attorney General] to proceed and seek justice for our community.” Indeed, as counsel for the City stated at oral argument, “We need their help.” Counsel represented that the City was hemorrhaging funds and could ill afford to pursue defendants alone.
See Osburn v. Stone (1915)
Our conclusion is not unique to the City, and would apply to any city in which it appeared that city officials were acting outside the scope of the law, and the city itself could not pursue the miscreants as they still controlled the city.
Although this action seeks restitution of funds paid to defendants, it is not a claim “for specific recovery of property” which is exempt from the Tort Claims Act. (City of Los Angeles v. Superior Court (2008)
Discretionary act immunity is not, strictly speaking, an application of the separation of powers doctrine. However, as we are here concerned with potential judicial review of discretionary acts of a legislative body (the city council) and an executive officer (the chief administrative officer), it is, in this case, akin to separation of powers.
Interestingly, the dissent in Boyd argued that a stricter rule should apply when the charter sets out a specific limitation on the legislature’s discretion (such as parity with generally prevailing rates), and that the standard of striking down the legislative body’s decision only if it is fraudulent or so palpably unreasonable and arbitrary as to indicate an abuse of discretion as a matter of law “would be applicable if the only duty of the commission and the board of supervisors were to fix a ‘reasonable’ salary.” (Boyd, supra,
At oral argument, counsel for Adams suggested that, if a city improperly awards a contract and the contract is subsequently fully performed, the city is not entitled to seek restitution. In this regard, we note Advance Medical Diagnostic Laboratories v. County of Los Angeles (1976)
However, under certain circumstances, if the entity could approve the contract, public policy would not be frustrated, and equitable considerations justify it, the entity may be equitably estopped to deny the validity of the contract. (Advance Medical Diagnostic Laboratories v. County of Los Angeles, supra, 58 Cal.App.3d at pp. 273-274.)
We similarly reject any contention that the cause of action for fraud based on the misleading memorandum is barred by the privilege for a statement made “[i]n the proper discharge of an official duty” (Civ. Code, § 47, subd. (a)) or the privilege for a statement made “in any . . . official proceeding authorized by law” (Civ. Code, § 47, subd. (b)). There is nothing on the face of the operative complaint indicating that drafting the memorandum about salaries and directing its distribution were part of Rizzo’s official duties or performed as part of any official proceeding.
On appeal, Adams requests that we take judicial notice of his employment contract and the addendum thereto. We do so.
The first page of the contract twice states that the City “is a general law city.” This is incorrect; the City had adopted its charter in 2005, more than three years prior to the execution of this contract. Whether this obvious error should have put Adams on notice that the contract might not have been properly authorized is not before us.
Adams states, in his brief on appeal, that “there is nothing alleged in the [operative complaint] to indicate that Adams knew, or had reason to believe, that there was any impropriety surrounding his hiring.” The issue is beside the point; if the Adams contract is void as unauthorized, Adams is liable for restitution even if he did not know the contract was unauthorized. Moreover, we are not here concerned with the allegations of the operative complaint, but the allegations the Attorney General could amend to allege. In this regard, we note that, in a writ proceeding before this court arising from a criminal proceeding against Spaccia, Spaccia included, as an exhibit to her petition, an e-mail exchange she had with Adams during the contract negotiations, in which Adams, on the advice of counsel, asked Spaccia for a copy of the document by which the city council had authorized Rizzo to enter into the contract on the City’s behalf. Spaccia responded, in part, “ ‘We have painstakingly and carefully, and with attorney assistance made sure of what authority [Rizzo] has vs. what the City Council has. So, for your attorney’s information [Rizzo] has the proper authority to enter
The court ultimately found dispositive another exception to Government Code section 1090, which provides that an officer shall not be deemed to be interested in a contract if his or her interest is that of “a recipient of public services generally provided by the public body or board of which he or she is a member, on the same terms and conditions as if he or she were not a member of the body or board.” (Gov. Code, § 1091.5, subd. (a)(3).) Thus, the board members whose pensions increased on the same terms and conditions as all other city employees did not violate Government Code section 1090, but the board member who, under the agreement, received a unique pension benefit may well have. (Lexin, supra,
“Disgorgement of profits is particularly applicable in cases dealing with breach of a fiduciary duty, and is a logical extension of the principle that public officials and other fiduciaries cannot profit by a breach of their duty.” (County of San Bernardino v. Walsh, supra,
As the City is already pursuing a cross-complaint against Rizzo, we leave it to the trial court, on remand, to decide whether and how to consolidate the City’s action against Rizzo with the Attorney General’s action against Rizzo on behalf of the City. At oral argument, counsel for Adams represented that the City is pursuing Adams in a civil action as well. The trial court should consider any consolidation issues with respect to the City’s action against Adams if and when they arise.