BRUCE THOMSON et al., Plaintiffs and Appellants, v. HUBERT CALL et al., Defendants and Appellants; CITY OF ALBANY et al., Defendants and Respondents.
S.F. No. 24693
Supreme Court of California
May 23, 1985
July 29, 1985
38 Cal. 3d 633 | 214 Cal. Rptr. 139 | 699 P.2d 316
KAUS, J.
Cooper, White & Cooper, Neil L. Shapiro and E. Garth Black for Plaintiffs and Appellants.
Jerome Berg for Defendants and Appellants.
Robert Zwebeb, City Attorney, Robert T. Anderson, Den-Dulk, Douglass & Anderson, Richard M. Heimann, Tonsing & Heimann and Edward R. Fitzsimmons for Defendants and Respondents.
Faber Johnston, City Attorney (Saratoga), as Amicus Curiae on behalf of Defendants and Respondents.
OPINION
KAUS, J.—The truism that a person cannot serve two masters simultaneously finds expression in California‘s statutory doctrine that no public official shall be financially interested in any contract made by that person or by any body or board of which he or she is a member.1 Plaintiffs in this taxpayers’ suit challenge the validity of a transaction in which defendant Cebert Properties, Inc., purchased a parcel of land from defendants Hubert F. Call (Call) and Ruth L. Call, his wife, for $258,000 and then conveyed the parcel to the City of Albany (city)—while Call was a member of the Albany City Council.
The defendants named in the complaint included the city, the Calls, various council members who served with Call, Cebert Properties, Inc., and
The Calls appeal from the judgment insofar as it holds them liable to the city for the $258,000 plus interest. Plaintiffs appeal from it insofar as it denies relief as to the corporate defendants.3 These appeals present the question of what remedies are available once a
FACTS
The summit of Albany Hill commands a panoramic view of Albany and San Francisco Bay. In and before 1972, IGC owned 36 acres of land at the westerly base and on the adjacent slope of the hill. That slope and the summit were undeveloped in 1972. The land at the summit consisted of four contiguous parcels: a 1.1-acre parcel owned by the Calls; a 2-acre parcel which was the uppermost part of the 36 acres owned by IGC; a 2.2-acre parcel owned by a partnership (Albany Hill Associates); and a 2-acre parcel owned by Golden Gate Hill Development Co.
In 1972, all of these lands were within a hill control (HC) district established by the city‘s zoning ordinance. IGC‘s 36 acres were zoned R1HC (for single family dwellings) and the Calls’ parcel was zoned R3HC (for high-rise, high-density residential units). Under a city ordinance, no building permit for the erection of any structure on HC district land could be issued unless a use permit had first been obtained from the city council.
Planning to construct a 2,500-unit high-rise residential complex on its 36-acre parcel, IGC applied to the city council for a use permit in July 1972. This application included a request that the parcel be rezoned from R1HC to R3HC. IGC‘s project proposal met with general approval at subsequent
In August 1972, the city council considered a parks and recreation commission proposal that a site for a municipal park be acquired at the summit of Albany Hill.4 The council voted to “go on record as generally concurring” with the park proposal. Councilman Call, though present at the meeting, did not participate in the discussion of the proposal and he abstained from the vote.
A series of offers, counteroffers, and negotiations between IGC and the city began in October 1972, when the city attorney and the city‘s administrative officer proposed certain conditions to be included in the use permit. These included a requirement that IGC dedicate its two-acre summit parcel and a creekside parcel at the base of the hill to the city.
IGC rejected this condition on November 3, 1972, and proposed its so-called “$600,000 plan.” This plan required IGC to “allocate” $600,000 of its own money for the acquisition of land for Overlook Park; to spend that sum, or less, for the acquisition of such land by IGC through “private negotiation“; to convey any land so acquired to the city, for use as part of the park; and to pay to the city any unexpended balance of the $600,000 for use in “condemning by eminent domain” any land required for the park but not acquired from IGC pursuant to the $600,000 plan.5
On November 10, 1972, the city offered an alternative proposal, at the same time asking IGC to “reiterate” the $600,000 plan outlined in its letter
The city council acted on IGC‘s application at a meeting on November 13, 1972. In the first of three successive votes, the council amended Albany‘s zoning ordinance to rezone IGC‘s thirty-six acres from R1HC to R3HC. Next, it voted to grant the use permit to IGC on specified conditions which included conveyance of IGC‘s two-acre parcel to the city “for the sole purpose of being a permanent park and open space for the City.”6 The $600,000 plan—not listed as a condition of the use permit—was reached in the council‘s third action, when a majority voted to accept IGC‘s “offer” to allocate $600,000 “for the purpose of purchase of additional private property to encompass the proposed Overlook Park ....” Call was present at this meeting. He voted to rezone IGC‘s property and to grant the use permit. He abstained from the vote that the city “accept the offer” of IGC relative to the $600,000 plan.
It should be noted that on several occasions Call asked the city attorney whether or not he could speak on certain issues or vote on certain issues pending before the council, and on such occasions he was advised not to speak or vote if real property in which he had a financial interest was involved in the pending issues. Call generally followed such advice when it was sought and given. In this instance, he was told by the city attorney that he could discuss and vote on IGC‘s applications for rezoning and for the use permit.
Shortly thereafter, the city‘s administrative officer made it clear to IGC that the first building permit would not be issued until land had been acquired under the $600,000 plan. IGC then obtained appraisals of the three summit parcels owned by the Calls, Albany Hill Associates, and Golden Gate Hill Development Co. Using the results of these appraisals, it extended offers to the respective owners. None was accepted.
IGC‘s appraiser appraised the Calls’ 1.1-acre parcel at $63,800. Responding to the $63,800 offer for his property, Call wrote to IGC, describing
IGC then authorized real estate broker Jack Krystal to negotiate with the property owners to arrange purchases in satisfaction of the $600,000 plan. Krystal‘s commissions were to be paid by the sellers.
After rejecting Krystal‘s first offer of $180,000, Call agreed to sell to IGC for $258,000.7 At all times during the negotiations with Krystal, Call knew that IGC was acquiring the parcel for conveyance to the city pursuant to the $600,000 plan.
In June 1973, Krystal presented a written contract to the Calls, wherein IGC offered to buy their 1.1-acre parcel for $258,000. The offer was for title to the parcel “free of liens, encumbrances, easements ... and conditions of record ... other than exceptions of record” shown in an attached preliminary title report. IGC expressly conditioned the contract upon its “being issued all necessary permits to a project located adjacent to this property.”8
The written escrow instructions provide a clear overview of the transactions. IAC delivered buyer‘s instructions with which it deposited in escrow an application for the first-phase building permit; the sum of $600,000; and an additional $68,000 to cover fees and charges payable to the city upon issuance of the building permit. IAC instructed the escrow holder to pay “any remaining balance” of the $600,000 to the city, and to pay the $68,000 to the city, upon receipt in escrow of a building permit issued by the city.
The city‘s escrow instructions directed the escrow holder to transmit the building permit to IAC when the holder was able to transmit to the city the required fees ($68,000), the unexpended balance of the $600,000 plan ($2,000), and the grant deeds for the summit parcels.
Shortly before the close of escrow, Call had insisted upon burdening the parcel with the easement,9 and although it was not an “exception of record” to its title, IGC offered no objection. The president of IGC testified that although he would not have been willing to pay as much for the Calls’ parcel with the easement on it (because of the obvious diminution in the parcel‘s value), he was fairly indifferent to the creation of the easement on what was to be a public park. Without objection, therefore, the parcel was burdened with the easement before it was conveyed to Cebert (and by Cebert to the city).10
At a meeting conducted on August 21, 1973, the city council adopted a resolution by which it approved a tentative map of IGC‘s project. Call voted for this resolution. The council also adopted a resolution accepting the grant deed from Cebert, as well as a “ratifying” resolution in which it stated that it did “approve and ratify the purchases of the certain real properties ... described in that Grant Deed [referred to in the previous resolution].” Acting on the advice of the city attorney, Call abstained from voting on these two resolutions. There is no evidence that the members of the council, other than Call, knew that the Calls’ 1.1-acre parcel was being accepted by the city subject to the easement for maintenance of the cross.
When escrow closed on August 24, 1973, the Lions Club had the cross and its easement for the maintenance of the cross. IGC had its building permit and began large-scale construction of its project shortly thereafter. The city had acquired land for Overlook Park, including the Calls’ parcel,
Evidence received as to the fair market value of the Calls’ 1.1-acre parcel in 1973 was detailed and conflicting. IGC‘s appraiser fixed it at $63,800 as of February 18, 1973. Plaintiffs’ appraiser testified that the value of the parcel was $100,000 in March of 1973. By contrast, an appraiser who testified for the Calls fixed its value in August 1973 at $450,000. All three appraisals are premised upon the assumption that the highest and best use of the 1.1-acre parcel was for the high-density residential construction which its R3HC zoning permitted. The $63,800 figure was based upon the estimate that the parcel would accommodate 22 units evaluated at $2,900 per unit for appraisal purposes.11 Plaintiffs’ figure of $100,000 was based on an estimate of 35 units evaluated at approximately $3,000 per unit. The Calls’ figure was based on 90 units at $5,000 per unit.
Although the Calls had acquired the parcel in 1970 at a price much lower than any of the appraisers’ figures, there was evidence that the pendency and size of IGC‘s project had substantially increased the market value of the parcel and nearby property in 1972 and 1973. On the other hand, testimony by several witnesses supported an inference that the value of the parcel had been severely diminished by the location of the cross and by the easement granted to the Lions Club. Obviously, the cross and easement would prevent or limit construction of the high-density residential units allowed by the parcel‘s zoning and presupposed by the appraisers’ “highest and best use” calculations.
DECISION OF THE TRIAL COURT
The trial court filed a memorandum of decision reviewing the evidence in detail and stating the following conclusions: the complex transaction had produced a “single contract” in which Call had a financial interest in violation of
Following its memorandum of decision, the trial court signed and filed elaborate findings of fact and conclusions of law and entered a judgment ordering that plaintiffs “take nothing by their complaint” from the corporate defendants and that they recover the $258,000 with interest from the Calls. The court found that no defendant had perpetrated a fraud, actual or constructive, on the city and that no defendant had conspired to defraud the city or to violate
DISCUSSION
I
However complex the transaction, IGC‘s purchase of property from the Calls and Albany Hill Associates, and its conveyance of that property to the city, were in performance of a single multi-party agreement. The scope of this agreement and the interdependency of the many subordinate transactions are best revealed in the escrow instructions themselves.13 IGC‘s letters proposing the $600,000 plan, the relevant resolutions adopted by the city council, the acceptance of the deeds and ratification of the purchases made by IGC, the use and building permits, and the real estate purchase contracts concerning the Call parcel and the Albany Hill Associates parcel further reflect the terms and conditions of the agreement.
The Calls contend that the purchase of their parcel was not a term or condition of the contract between IGC and the city, but was, rather, later negotiated in the performance of the contract by IGC. However, the prospect that performance of the contract would involve acquisition of the Calls’ land and conveyance of that land to the city was contemplated by all parties. The land was one of only three parcels at the summit of Albany Hill which were expressly targeted in the contract for acquisition by IGC and conveyance to the city. Purchase of the Calls’ parcel was clearly part of a previous arrangement; the fact that the real estate purchase contract between the Calls
Moreover, the policy goals of
Neither the absence of actual fraud nor the possibility of a “good faith” mistake on Call‘s part can affect the conclusion that this contract violates
II
Having established Call‘s violation of
The trial court‘s solution—allowing the city to retain the land and, at the same time, recover the $258,000 plus interest from the Calls18—finds ample support in California case law. Clearly, no recovery could be had for goods delivered or services rendered to the city or public agency pursuant to a contract violative of
The trial court‘s remedy is thus consistent with a long, clearly established line of cases. Admittedly, the resulting forfeiture seems harsh under the facts of this case. Call was found not to have committed fraud, actual or constructive, or to have conspired to violate
However, examination of the goals and policy concerns underlying
In Stigall we relied in part on the reasoning of the United States Supreme Court on a federal penal statute under which a contract was declared to be unenforceable because of a conflict of interest: “The statute is thus directed not only at dishonor, but also at conduct that tempts dishonor. This broad proscription embodies a recognition of the fact that an impairment of impartial judgment can occur in even the most well-meaning men when their personal economic interests are affected by the business they transact on behalf of the Government. To this extent, therefore, the statute is more concerned with what might have happened in a given situation than with what actually happened. It attempts to prevent honest government agents from succumbing to temptation by making it illegal for them to enter into relationships which are fraught with temptation.” (Stigall, supra, 58 Cal.2d at p. 570, quoting United States v. Mississippi Valley Generating Co. (1961) 364 U.S. 520 [5 L.Ed.2d 268, 81 S.Ct. 294].) Implicit in this reasoning is the assumption that the purpose of such statutes is “not only to strike at actual impropriety, but also to strike at the appearance of impropriety.” (City of Imperial Beach, supra, 103 Cal.App.3d at p. 197 [construing
It follows from the goals of eliminating temptation, avoiding the appearance of impropriety, and assuring the city of the officer‘s undivided and uncompromised allegiance that the violation of
In short, if the interest of a public officer is shown, the contract cannot be sustained by showing that it is fair, just and equitable as to the public entity. Nor does the fact that the forbidden contract would be more advantageous to the public entity than others might be have any bearing upon the question of its validity. (Capron v. Hitchcock (1893) 98 Cal. 427 [33 P. 431].)
Moreover, California courts have consistently held that the public officer cannot escape liability for a
The case law supports strict enforcement of conflict-of-interest statutes. Mitigating factors—such as Call‘s disclosure of his interest in the transaction, and the absence of fraud—cannot shield Call from liability.26 Moreover, the trial court‘s remedy—allowing the city to keep the land and imposing a money judgment against the Calls—is consistent with California law and with the primary policy concern that every public officer be guided solely by the public interest, rather than by personal interest, when dealing with contracts in an official capacity. Resulting in a substantial forfeiture, this remedy provides public officials with a strong incentive to avoid conflict-of-interest situations scrupulously.
On the other hand, the forfeiture in this case is undeniably harsh in light of the absence of fraud and Call‘s partial reliance upon advice given by the city attorney. Also, beyond the effect of the trial court‘s decision on the Calls, it has been suggested that such a harsh prohibition of financial interest may frustrate the strong public policy goal of attracting competent individuals to public service positions. This argument assumes—not unreasonably, perhaps—that some of the most qualified potential civic leaders are usually those engaged in business or in the professions, and that currently many such persons otherwise qualified and willing to serve are discouraged from serving because of the possibility of public disgrace, criminal penalties, and
We have considered the possibility of an intermediate solution which—though less severe than that imposed by the trial court—would nonetheless discourage public officials from becoming involved in potential conflict-of-interest situations. One approach would allow the city to retain the park land while allowing the Calls to retain only the fair market value of the land at the time of its conveyance to IGC, plus interest. The city‘s outlay would thus be equivalent to what it would have paid the Calls in an eminent domain proceeding. Arguably, this remedy would be consistent with the trial court‘s finding that there was no fraud or conspiracy to violate
Of course, such an approach would involve difficult valuation problems. As the facts in this case suggest, appraisers’ calculations often vary dramatically. Should the Calls’ parcel be appraised with or without the cross and easement? Obviously, the easement would reduce the fair market value of the property considerably, perhaps rendering it unsuitable for development at the best and highest uses allowed under R3HC zoning. Should the fair market value of the parcel reflect the changes in value attributable to IGC‘s development? That development may, itself, be implicated in the
However difficult the valuation problems, courts are qualified and experienced in such matters. A more serious problem with this approach is that it really provides only a weak incentive for public officials to avoid such situations. If they enter into such arrangements and “get caught” in the
This intermediate approach also assumes, in effect, that in situations such as this the targeted “wrong” is the loss to the city or the councilman‘s undue profit—i.e., the amount Call received in excess of a given fair market value. There is indeed substantial evidence that $258,000 was higher than the fair market value of the 1.1-acre parcel, especially in light of the easement for maintenance of the cross. However, our review of the case law
Theoretically, a range of possibilities less harsh than the forfeiture imposed by the trial court could be devised. For example, the city could be allowed to retain the land and recover the $258,000, minus the amount the Calls actually paid for the land in 1970. This approach would circumvent thorny valuation problems (the Calls’ purchase price is an easily ascertainable sum), provide some incentive for officials to avoid conflict-of-interest situations, and still allow the Calls to recoup most of their out-of-pocket losses. However, like the fair market value approach outlined above, this out-of-pocket-loss solution also implies that undue profit and loss to the city are the primary concerns of
The facts of this case represent but one of endless permutations generated by the basic conflict-of-interest situation, and a different remedy could be tailored for each. The trial court‘s approach adheres to precedent established by a long line of California cases. It is consistent with the policy of strict enforcement of conflict-of-interest statutes, it provides a strong disincentive for those officers who might be tempted to take personal advantage of their public offices, and it is a bright-line remedy which may be appropriate in many different factual situations. As we have seen, civil liability under
Plaintiffs, on their appeal, contend that the trial court erred in failing to hold the corporate defendants liable to the city. They argue, first, that the corporate defendants acted as the city‘s agents in the performance of the contract embodied in the $600,000 plan, and that they breached their duties as agents in conveying encumbered land to the city. Alternatively, it is argued that the corporate defendants breached their duties as trustees to the city. These theories are answered by the trial court‘s conclusion that “[w]ith respect to the $600,000 plan, and the satisfaction of its obligations thereunder, IGC was neither the agent nor the trustee of the City of Albany.” Substantial evidence supports the underlying finding that the $600,000 plan did not vest in the city any right or power to control the real property acquisitions of IGC in its performance of the plan. Nor did the city attempt to control any act of IGC relating to the real property at issue. The corporate defendants are therefore not liable to the city on either theory.
The judgment is affirmed.
Broussard, J., Reynoso, J., Grodin, J., and Lucas, J., concurred.
MOSK, J., Concurring and Dissenting.—I concur in the judgment against Hubert F. Call, but I cannot agree that the corporate defendant is free of liability. The evidence is clearly to the contrary.
The trial court observed in its memorandum decision: “IGC does appear to have been guilty of one breach of its agreement ... [with the City] .... Though IGC was motivated solely by a desire to obtain a building permit and to protect its development, ... it recognized that the City ... was interested in making a public park at the top of the hill. IGC therefore used that as its inducement to the City as, for example, in the letter of November 3, 1972 offering ‘to make a major effort to preserve the Albany Hill top for public use,’ and promising the City ‘a unique, superb and useful view park for the public enjoyment.’ The sales agreement with Call ... called for title free and clear of all liens, encumbrances, easements, et cetera. Notwithstanding this, ... IGC consented to a demand of Call ... that title be taken subject to ... an unrestricted easement of access by the Albany Lions Club to and for maintenance of ... [the] ... cross which had been erected on the Call property.
“The President ... of IGC [Wilson] testified that Call was allowed to impose the burden of the easement because IGC didn‘t care what restrictions might be placed upon the property as long as they did not constitute a potential threat to the development of IGC‘s property. ... Allowing the
The IGC contract with the city obligated it to convey fair value to the city in the form of land suitable for use as a public park. The 1.1-acre parcel it acquired from the Calls and conveyed to the city, through Cebert, represents less than fair value because of the extent to which its worth has been diminished by the cross and the easement. The easement protects the location and existence of the cross, which renders the land unsuitable for use as a park because of the constitutional proscriptions precluding the display of a religious symbol on public property. (Fox v. City of Los Angeles (1978) 22 Cal.3d 792, 797 [150 Cal.Rptr. 867, 587 P.2d 663].)
It was IGC that allowed the land to be burdened with the easement before conveying the land to the city pursuant to the contract, although it should have been obvious that the easement negated the city‘s purpose in acquisition. The trial court recognized that result in its memorandum decision: “With the cross and unrestricted easement on the property ... the property was virtually undevelopable and therefore of virtually no commercial value.” And, of course, the perpetual religious symbol rendered the property legally unsuitable for park or other public purposes. Nevertheless the court exonerated the corporation of liability to the city under the state of the pleadings; a separate lawsuit was suggested as a remedy for the city.
That result allows IGC to escape liability in this proceeding by an unduly narrow interpretation of the complaint. As the Court of Appeal held, deferment to future litigation rather than adjudication of liability in this action is neither in the public interest nor serves judicial economy. I would direct, as did the Court of Appeal, that on remand the plaintiffs should be permitted to amend their complaint to seek appropriate damages against IGC for breach of contract. Recovery would appear to be certain, with only the amount of damages to be determined.
Bird, C. J., concurred.
The petition of defendants and appellants for a rehearing was denied July 29, 1985, and the opinion was modified to read as printed above.