Brandenburg v. Eureka Redevelopment Agency

Opinion

Sue C. Brandenburg (plaintiff) appeals from a judgment entered in favor of defendants Eureka Redevelopment Agency, Eureka Waterfront Partners and Dolores Vellutini (defendants) after the court sustained, without leave to amend, defendants’ demurrer to her first amended complaint on the ground that it was filed after the statute of limitations had expired.

We shall affirm the judgment.

Facts

The original complaint was filed on September 12, 2005. The first amended complaint alleged that, pursuant to the provisions of Health and Safety Code section 33200, the City Council of Eureka appointed itself to serve as the Board of Directors for the Eureka Redevelopment Agency (Agency). The Agency created a Redevelopment Advisory Board (RAB) in August 1993, to assist the Agency in implementing plans to redevelop blighted areas in Eureka.

In July 1994, Dolores Vellutini, who is also a partner in Eureka Waterfront Partners, was appointed to serve on the RAB. She served continuously until she resigned in 2005, before the complaint was filed. Vellutini and Eureka Waterfront Partners submitted a proposal for the development of property known as the Fishermen’s Building. On October 3, 1995, the RAB voted to recommend to the Agency that it enter into a 180-day exclusive right to negotiate agreement with Vellutini and Eureka Waterfront Partners. The Agency adopted that recommendation and extended the agreement on March 6, 1996, February 1, 1997, and February 1, 1998. In May 1998, Vellutini, on behalf of Eureka Waterfront Partners, signed a letter agreeing to price and other issues, and on December 21, 2001, signed a disposition and development agreement (the Agreement) with the Agency, granting Vellutini and Eureka Waterfront Partners the right to acquire the Fishermen’s Building and develop it.

In the second cause of action,^[1] plaintiff alleged that although the agreement was between the Agency and Eureka Waterfront Partners, Vellutini as a

member of the RAB made the recommendation that the Agency grant Eureka Waterfront Partners the exclusive right to negotiate, and the Agency simply “rubber-stamped” that recommendation. Plaintiff further alleged that, in violation. of Government Code section 1090,^[2] Vellutini had a financial interest in the Agreement, and that the Agreement was therefore void as provided in Government Code section 1092.^[3] Plaintiff sought injunctive relief to enjoin further negotiations, and to prevent conveyance or receipt of any real or personal property in accordance with the terms of the Agreement.

In her fourth cause of action plaintiff alleged that it would violate Health and Safety Code section 33130^[4] if Vellutini and Eureka Waterfront Partners were allowed to acquire the property that was the subject of the Agreement. Plaintiff therefore sought an injunction preventing “the Agency from conveying, and Vellutini and Partners from accepting, any interest in any property within a project area, . . . including . . . that real property described in the . . . Agreement.”

The Agency demurred to the second and fourth causes of action, arguing that they were barred by the expiration of either the three-year limitation period established by Code of Civil Procedure section 338, subdivision (a)^[5] applicable to liabilities created by statute, or the one-year period set forth in section 340, subdivision (a) applicable to actions seeking penalties or forfeiture. Vellutini and Eureka Waterfront Partners joined in the demurrer. Plaintiff opposed the motion, arguing that the four-year period defined in section 343 applied. The court sustained the demurrer without leave to amend, on the

ground that plaintiff’s causes of action were filed after the period set forth in section 338. The court thereafter entered a judgment of dismissal.^[6]

Analysis

The parties agree that plaintiff’s causes of action accrued on or before December 21, 2001, the date of execution of the Disposition and Development Agreement between Eureka Waterfront Partners and the Agency. Plaintiff filed her complaint on September 12, 2005, nearly four years later.

If either the three-year limitation period established by section 338, subdivision (a) for liabilities created by statute, or the one-year period set forth in section 340, subdivision (a) for actions seeking penalties or forfeiture applies, plaintiff’s causes of action are barred by the expiration of the statute of limitation. If, as plaintiff contends, neither section 338, subdivision (a) nor section 340, subdivision (a) applies, and instead the four-year “catch-all” limitation period defined in section 343 applies, the judgment must be reversed.^[7]

Marin Healthcare District v. Sutter Health.

Both parties rely upon Marin Healthcare Dist. v. Sutter Health (2002) 103 Cal.App.4th 861 [ 127 Cal.Rptr.2d 113 ] {Sutter Health), the only published decision to discuss which statute of limitation applies to causes of action based upon Government Code ■ sections 1090 and 1092. Sutter Health provides some support for application of each of the aforementioned limitations periods, but it does not resolve the issue, because the selection of one of several possible applicable statutes of limitation was not necessary on the facts of the case.

In Sutter Health, a health care district filed an action-to void two contracts and recover possession of a publicly owned hospital and other assets it had

four-year period set forth in section 343 applies. It is, however, well established that the four-year period set forth in section 343 applies only when no other more specific limitation period is applicable. (See, e.g., Geneva Towers Ltd. Partnership v. City and County of San Francisco (2003) 29 Cal.4th 769 , 773-774 [ 129 Cal.Rptr.2d 107 , 60 P.3d 692 ]; City of Los Angeles v. Belridge Oil Co. (1954) 42 Cal.2d 823 , 833 [ 271 P.2d 5 ]; Moss v. Moss (1942) 20 Cal.2d 640 , 644—645 [ 128 P.2d 526 ] [in the absence of any section of the code that expressly limits the time within which an action for cancellation of an instrument must be brought, it is governed by § 343].) Therefore, if we conclude that either section 338, subdivision (a) or section 340, subdivision (a) applies, then section 343 is necessarily inapplicable.

Section 338, subdivision (a).

For purposes of section 338, subdivision (a), “ ‘ “[a] liability created by statute . . .” ’ ‘applies only where the liability is embodied in a statutory provision and was of a type which did not exist at common law.’ ” (Blue Cross of Northern California v. Cory (1981) 120 Cal.App.3d 723 , 742 [ 174 Cal.Rptr. 901 ] (Cory) [court held section 338 applied to bar a cross-complaint by the controller because the liability of the holder of escheated money to the controller is created by the statute exclusively and its equivalent did not exist at common law, which only recognized the doctrine of escheat as affecting land alone as an incident of the feudal system].)

Defendants argue Messner, supra, 44 Cal.App.2d 577 , an approximately 70-year-old decision authored by a pro tempore judge for this division, should be dispositive because in that case this court applied the three-year limitation period for a liability created by a statute to an action involving former Political Code section 920, the predecessor to Government Code section 1090.^[8] In Messner, a district attorney filed an action pursuant to former

Political Code section 4005b,^[9] which provided that it is the duty of the district attorney to institute suit to recover any funds paid by the board of supervisors as salary or fees “without authority of law,” and to recover 20 percent as damages. (Messner, supra, at p. 579.) The trial court found certain payments made to a county surveyor were made “without authority of law” because they did not fall within an exception to former Political Code section 920, which permitted public officials to contract for an allowance or mileage rate for the use of owned or rented vehicles used in the performance of duties. (Messner, supra, at pp. 579, 582.) The trial court also.ruled that payments made in the three- years preceding filing of the complaint could be recovered, because a three-year limitation period applied. Most of this court’s analysis was devoted to the primary issue on appeal, i.e., whether any of the payments fell within the exception to former Political Code section 920. The surveyor also argued that the applicable limitation period was a two-year statute applicable to implied contracts for money had and received. (Messner, supra, at p. 580.) On this statute of limitations issue, the decision, with no supporting analysis, simply stated the conclusion that it was “an action based upon a liability created by statute, to wit, section 4005b of the Political Code; and therefore ... the three-year statute [citation], is controlling.” (Messner, supra, at p. 591, italics added.)

The holding in Messner, supra, 44 Cal.App.2d 577 , is not dispositive for two reasons. First, the holding was that an action pursuant to former Political Code section 4005b, not an action based upon former Political Code section 920, was governed by the three-year limitations period applicable to an action on a liability created by statute. Although the determination whether the payments had been made “without authority of law” within the meaning of former Political Code section 4005b turned on an interpretation of an exception to former Political Code 920, the court in Messner did not directly consider or decide what statute of limitations would apply to an action to void a contract based upon that section. Therefore, the attempt to extend the holding of Messner to such an action is attenuated.

Second, and more fundamentally, the Messner decision did not even discuss the crucial caveat that the limitations period for liability created by statute “ ‘applies only where the liability is embodied in a statutory provision and was of a type which did not exist at common law.’ ”^[10] (Cory, supra, 120

Cal.App.3d at p. 742, original italics and italics added; see also Lehman v. Superior Court (2006) 145 Cal.App.4th 109 , 121 [ 51 Cal.Rptr.3d 411 ] (Lehman) [it has been the law for more than 50 years that the determination whether a liability is created by statute requires analysis of whether the liability or duty existed at common law].) “ ‘Thus, where a cause of action is based upon a statute which did not “create a new form of liability . . . but merely codified and refined existing law,” the section 338 three-year limitations period for actions based upon statutory liability does not -apply.’ ” (Gatto v. County of Sonoma (2002) 98 Cal.App.4th 744 , 755-756 [ 120 Cal.Rptr.2d 550 ] (Gatto).) ■

The courts have long recognized former Political Code section 920, the predecessor to Government Code section 1090, was merely an express legislative declaration of the common law. (See, e.g., Moody v. Shuffleton (1928) 203 Cal. 100 , 102 [ 262 P. 1095 ] [former Pol. Code, § 920 is consistent with “the well-settled policy of the common law”]; Stockton P. & S. Co. v. Wheeler (1924) 68 Cal.App. 592 , 597 [ 229 P. 1020 ] [with the possible exception of statutes imposing criminal liability, former Pol. Code, § 920 and other statutes prohibiting contracts in which public official has a financial interest “are, generally speaking, merely express legislative declarations of the common-law doctrine upon the subject”].^[11] ) The same common law derivation has repeatedly been recognized in cases interpreting Government Code section 1090. In Carson Redevelopment Agency v. Padilla (2006) 140 Cal.App.4th 1323 [ 44 Cal.Rptr.3d 881 ], the court stated: “As history reveals, there has long been a common law proscription against public officials having a financial interest in contracts created by them in their official capacities. [Citation.] In 1951, the Legislature codified the proscription when it enacted [Government Code] section 1090 to curb conflicts of interest with respect to contracts, purchases and sales made by public officials.” (Id. at pp. 1329-1330; see also Honig, supra, 48 Cal.App.4th at p. 317 [“Section 1090, it has been said, is an embodiment of the common law with respect to conflicts of interest”].)

Defendants acknowledge the common law origins of the prohibition stated in Government Code section 1090. They, state that the first codification of this common law principle was in 1851 when the Legislature enacted a statute prohibiting any city, county, or state officer from contracting with the board of which he is a member, and from being “interested in any Contract made by such Officer or Legislature of which he is a member.” (Stats. 1851, ch. 136, § 2, p. 522; see Stats. 1851, ch. 136, §§ 1, 3-4, p. 522.) Nonetheless, defendants argue that differences between the common law rule and Government Code section 1090 and its statutory predecessors separate the statute from its common law roots. Specifically, they assert that the common law rule proscribed only contracts tainted by the financially interested official’s personal participation in the making of the contract, whereas Government Code section 1090, and its predecessor, former Political Code section 920, expanded the common law rule to also apply when the interested official is a member of the board or body making the contract. Yet, they are unable to cite any authority explicitly making the claimed distinction between the rule at common law and the statutory standard. Instead, they ask that we infer that the common law proscription was so limited simply because the early California cases they cite happened to involve officials who did personally participate in the making of the unlawful contract. (See San Diego v. S. D. & L. A. R. R. Co. (1872) 44 Cal. 106 (San Diego); Reclamation Dist. No. 531 v. McCullah (1899) 124 Cal. 175 , 183-184 [ 56 P. 887 ].) The suggested inference is equivocal at best because the facts of these cases did not require the court to decide whether the contracts would also be void if the interested official had not participated.^[12]

In any event, we need not belabor the question whether defendants accurately identify a distinction between the common law rule and Government Code section 1090 and its predecessor, former Political Code section 920, because, even if correct, the existence of such a variance does not establish that the liability codified in Government Code section 1090 was “created” by that statute or its predecessor, Political Code section 920. “A liability is 1 “created by statute” ’ if it ‘would not exist but for the statute.’ [Citations.] ‘ “[A] liability created by statute . ..” is a liability that comes into being solely by statute and one which had no existence prior to the enactment creating it. Where liability would exist in some form irrespective of the statute, it is not “. . . a liability created by statute.” ’ [Citation.] ‘Any statutory

or property.^[13] The distinction is unavailing because, as used in section 340, subdivision (a), a “forfeiture” is not limited to the divestiture of money or property without compensation. It also includes the “ ‘loss of a right, privilege, or property because of a crime, breach of obligation, or neglect of duty.’ ” (Sutter Health, supra, 103 Cal.App.4th at p. 877, italics added.) The one-year statute of limitations contemplating “forfeitures” is directed to situations where “ ‘an individual is allowed to recover against a wrongdoer, . . . without reference to the actual damage sustained, or [where there is] . . . punishment for some act which is in the nature of a public wrong.’ ” {Low v. Lan (2002) 96 Cal.App.4th 1371 , 1381 [ 118 Cal.Rptr.2d 60 ], citing County of Los Angeles v. Ballerino (1893) 99 Cal. 593 , 596 [ 34 P. 329 ].) Even where the contract is executory, an injunction based upon Government Code sections 1090 and 1092 deprives the parties of the right to enforcement of the contract, and of receiving the benefit of their bargain. In this case, it is alleged that under the Agreement, Vellutini and Eureka Waterfront Partners were granted the right to acquire the Fisherman’s Building property and develop it, upon certain terms and conditions. Whether the contract is purely executory or partially performed, the effect of Government Code section 1090 is to compel the forfeiture of those rights because of a breach by a public official of the obligation to serve the public free of any actual conflict, or appearance of a conflict, that may arise when he or she has a prohibited interest in a contract. The forfeiture is imposed without regard to any showing of actual damages or fraud, and even if the contract in substance might actually have benefited the public. It applies not because the contract actually agreed to is unfair or against the public’s interest but because it might have been, and with the object of creating a disincentive to engage in such conduct. (See Call, supra, at p. 646; see also Honig, supra, 48 Cal.App.4th at p. 314.)

We conclude that an action pursuant to Government Code sections 1090 and 1092 does impose the loss of rights and property without regard to actual damages as the consequence of commission of a public wrong or breach of a duty to the public, and therefore it is an “action upon a statute for a penalty or forfeiture” within the meaning of Code of Civil Procedure section 340, subdivision (a). Since the complaint was filed more than three years after the causes of action accrued, the one-year limitations period had expired. The court therefore did not err in sustaining the demurrer on the ground that plaintiff’s action was filed after the applicable limitations period had expired.