Santa Clarita Organization for Planning & the Environment v. Abercrombie

Opinion

The Castaic Lake Water Agency (Agency) acquired the Valencia Water Company (Valencia) through its power of eminent domain. Petitioner Santa Clarita Organization for Planning and the Environment

The Agency is governed by a 10-member board of directors, seven of whom are elected and three of whom are appointed. (Stats. 1986, ch. 832, § 5, p. 2843, Deering’s Ann. Wat. — Uncod. Acts (2008 ed.) Act 130, §§ 5.1, 5.3, pp. 192, 194.) Each of the three purveyors the Agency regulates is to nominate one of the appointed directors, and that nominee “may be a shareholder, director, officer, agent or employee of the nominating purveyor.” (Id., § 5.1, subd. (a)(3), p. 192.) Valencia nominated Abercrombie to the Agency’s board in 2010, and disclosed that he was then serving as Valencia’s general manager.

In December 2012, the Agency’s board of directors, by a nine-to-one vote, adopted a resolution authorizing the Agency to file an eminent domain lawsuit to acquire all of Valencia’s common stock from Newhall Land and Farming Company, the owner of Valencia’s stock at the time. Abercrombie did not participate in this vote, as he had resigned from the board approximately two weeks earlier. However, prior to resigning, Abercrombie participated in the “planning, preliminary discussions, negotiation and compromises” leading up to the acquisition. The Agency filed its eminent domain action the day after adopting the resolution, and within a week filed a settlement providing that the Agency would acquire Valencia’s stock for $73.8 million. The trial court in the condemnation action accepted the settlement and entered judgment.

In early 2013, SCOPE sued to set aside the Agency’s acquisition of Valencia. SCOPE is a nonprofit group “concerned with the protection of the environment and the quality of life in the Santa Clarita Valley.” In the operative first amended verified petition for writ of mandate and complaint, SCOPE sought injunctive and declaratory relief on five grounds: (1) inverse validation (under Code Civ. Proc., § 863); (2) a writ of mandate (under Code Civ. Proc., § 1085) on the ground that the Agency’s board acted illegally and beyond its authority; (3) violation of the California Environmental Quality Act (under Pub. Resources Code, § 21000 et seq.); (4) illegal expenditure of taxpayer funds (under Code Civ. Proc., § 526a); and (5) conflict of interest (under § 1090 and the PRA).

Abercrombie and the Agency moved for judgment on the pleadings as to the conflict of interest claim. The trial court granted the motion. The court ruled that section 1090, subdivision (a)’s prohibition on a public official’s “financial] interest[] in any contract made by [him] in [his] official capacity” provided no basis to set aside the Agency’s acquisition of Valencia because

SCOPE timely appealed.

DISCUSSION

Jurisdiction

As a threshold matter, Abercrombie argues that we must dismiss SCOPE’S appeal because SCOPE’S conflict of interest claim is, in actuality, an “inverse validation” claim under Code of Civil Procedure section 863 and because SCOPE did not comply with the shortened window for filing a notice of appeal that applies when appealing such claims. To evaluate this argument, we must “determine if the underlying [claim or action] was, in fact,” a claim or action subject to the so-called “validation statutes.” (Kaatz v. City of Seaside (2006) 143 Cal.App.4th 13 , 27 [ 49 Cal.Rptr.3d 95 ] (Kaatz); see California Commerce Casino, Inc. v. Schwarzenegger (2007) 146 Cal.App.4th 1406 , 1418-1419 [ 53 Cal.Rptr.3d 626 ] (California Commerce Casino).) This is a question of law we review de novo. (E.g., Castaneda v. Superior Court (2015) 237 Cal.App.4th 1434 , 1443 [ 188 Cal.Rptr.3d 889 ].)

Code of Civil Procedure sections 860 through 870.5 set forth a procedure by which a public agency (in a so-called “validation” claim or action) or anyone else (in a so-called “inverse validation” or “reverse validation” claim or action) can file an in rem action to obtain an expedited but definitive ruling regarding the validity (or invalidity) of the public agency’s action. (See Code Civ. Proc., § 860 et seq.; Planning & Conservation

Whether the special procedures of the validation statutes apply in the first place is the trickier question. “The validation statutes ... do not specify the matters to which they apply.” (California Commerce Casino, supra, 146 Cal.App.4th at p. 1423; see Planning & Conservation League, supra, 17 Cal.4th at p. 269; McLeod v. Vista Unified School Dist. (2008) 158 Cal.App.4th 1156 , 1165 [ 71 Cal.Rptr.3d 109 ] (McLeod).) The validation statutes do not apply just because a claim or action seeks to challenge — and thereby, in the colloquial sense, to “invalidate” — an agency’s action. (See Kaatz, supra, 143 Cal.App.4th at p. 19 [“not all actions of a public agency are subject to validation”].) Instead, we must ascertain whether the Legislature has elsewhere declared the claim or action to be subject to the validation statutes. (Code Civ. Proc., § 860 [validation statute procedures apply to “any matter which under any other law is authorized to be determined pursuant to this chapter” (italics added)].) In assessing whether a claim or action falls within the boundaries of a particular legislative declaration that the validation statutes apply, we assess whether “ ‘[t]he gravamen of a complaint and the nature of the right sued upon, rather than the form of the action or relief demanded . . .’ ” falls within the language of the declaration. (McLeod, at p. 1165, quoting Embarcadero Mun. Improvement Dist. v. County of Santa Barbara (2001) 88 Cal.App.4th 781 , 789 [ 107 Cal.Rptr.2d 6 ].)

Abercrombie does not point to any specific statute as a legislative declaration that SCOPE’S conflict of interest claim is subject to the validation statutes. Because the conflict of interest claim is brought pursuant to sections 1092, subdivision (b) and 91003, neither of which are part of or subject to the validation statutes, SCOPE’S conflict of interest claim does not appear to be subject to the validation statutes’ shortened notice-of-appeal deadline.

“[W]here public officials on behalf of a public entity participate in making a contract with a second entity for which they work, the scenario poses at least the risk that the officials will be compromised by serving ‘two masters.’ ” (Lexin, supra, 47 Cal.4th at p. 1075.) Because “the making of a contract ‘encompasse[s] the planning, preliminary discussion, [and] compromises . . . that le[a]d up to the formal making of [a] contract’ ” (Quantification Settlement Agreement Cases, supra, 201 Cal.App.4th at p. 819, quoting Honig, supra, 48 Cal.App.4th at p. 315), the allegations that Abercrombie was involved in negotiating the Agency’s condemnation of Valencia— Abercrombie’s employer at the time — -place the acquisition squarely within the ambit of section 1090.

The Agency’s acquisition of Valencia would consequently be void if not for Deering’s section 15.2, subdivision (d), of the Agency’s enabling legislation. That provision provides that “[t]he financial or other interest of any appointed director in any contract between a purveyor or successor in interest to a purveyor and the agency, or the fact that an appointed director may have an ownership interest in or hold the position of a shareholder, director, officer, agent, or employee of that purveyor or successor in interest to a purveyor, shall not constitute a violation of Section 1090 of the Government Code, nor shall that interest or fact render the contract void or make it avoidable under Section 1092 of the Government Code, at the instance of any party; provided that either or both the fact of the interest and the fact of the relationship as shareholder, possessor of other ownership interest, director, officer, agent, or employee, shall be disclosed to the board of directors of the agency and noted in its official records, and thereafter the board shall authorize, approve, or ratify the contract by a vote of its membership sufficient for the purpose without counting the vote of that appointed director.” (Ibid.)

Deering’s section 15.2, subdivision (d) applies by its terms to Abercrombie’s involvement in the Agency’s acquisition of Valencia. The acquisition involves a contract between the Agency and a “purveyor” — whether the purveyor is deemed to be Valencia (as the entity condemned) or to be Newhall Land and Farming Company (as the owner of Valencia’s stock) because section 15.2, subdivision (d), also defines “purveyor” for its purposes as “a majority owner” of a purveyor-such as Valencia. (§15.2, subd. (d).) Abercrombie disclosed his position as Valencia’s general manager when he joined the Agency’s board of directors in 2010. And the board voted nine-to-one to ratify the negotiations preceding the eminent domain litigation, and to

Lastly, Assembly Bill 3762’s legislative history — when viewed in its totality — does not in any event support SCOPE’S position that the Legislature meant Deering’s section 15.2, subdivision (d), to be limited to water resource plan contracts. Although the two snippets SCOPE points to refer to these types of contracts, neither snippet evinces any intent to limit section 15.2, subdivision (d) to such contracts. To the contrary, other portions of Assembly Bill 3762’s legislative history summarize the bill to reach “any contract between a purveyor” and “contracts of a type which would normally be executed between a wholesale agency and its retail purveyor.” Nothing in this history indicates an intent to exclude the type of contractual acquisition at issue in this case.

For these reasons, the trial court correctly concluded that Deering’s section 15.2, subdivision (d)’s exception applies to the Agency’s acquisition of Valencia, and neither the Agency nor Abercrombie violated section 1090.

I

n 1974, the voters passed Proposition 9 and thereby created the PRA, section 81000 et seq. (Consumers Union of U.S., Inc. v. California Milk Producers Advisory Bd. (1978) 82 Cal.App.3d 433 , 436 [ 147 Cal.Rptr. 265 ] (Consumers Union).) Among its many provisions, section 87100 provides that “[n]o public official at any level of state or local government shall make, participate in making or in any way attempt to use his official position to influence a governmental decision in which he knows or has reason to know

Abercrombie’s alleged role in negotiating the acquisition of Valencia while serving on the Agency’s board of directors and serving as Valencia’s general manager unquestionably meets three of the four prerequisites for qualifying as a conflict of interest under section 87100: (1) he was serving as a “director, officer, partner, trustee, employee, or . . . position of management” at Valencia (§ 87103, subd. (d)) and was drawing a salary as Valencia’s general manager (§ 87103, subd. (c)), each of which constitutes a “financial interest” under section 87103; (2) Abercrombie’s involvement in the negotiations qualifies as “participat[ion] in [m]aking a [governmental [d]ecision” (Cal. Code Regs., tit. 2, former § 18704.2, subd. (a); Gov. Code, § 81014 [granting authority to promulgate regulations]), and the acquisition’s effect on Abercrombie’s financial interest in Valencia was reasonably foreseeable; and (3) the foreseeable effect of the acquisition on Abercrombie’s interest in Valencia — both as its general manager and as a salaried employee — is material because Valencia was named as the respondent in the eminent domain proceeding and was a contracting party in its settlement (Cal. Code Regs., tit. 2, § 18702.3, subd. (a)(1)).

Although it is a closer question, the final prerequisite is also met because the effect of Valencia’s acquisition on Abercrombie is “distinguishable from its effect on the public generally” within the meaning of section 87103. Because “section 87103 did not intend to abrogate . . . boards and commissions whose members are drawn from the same industry, trade or profession they affect” (Consumers Union, supra, 82 Cal.App.3d at p. 448; accord, Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 586 , 602-604 [ 163 Cal.Rptr.3d 243 ] [applying this exception to water board member living within the agency’s district]), the regulations implementing section 87103 specifically provide that where the relevant governmental

Because Abercrombie’s alleged participation in the negotiations leading up to the Agency’s acquisition of Valencia falls under the auspices of section 87100, we must decide the following questions: (1) does Deering’s section 15.2, subdivision (d)’s carve-out from section 1090 extend to section 87100 when the “financial interest” at stake in the “government decision” is an interest in a contract also covered by section 1090, and, if so; (2) did the Legislature, in limiting section 87100’s reach, comply with the special procedural requirements for amending a voter-enacted initiative? Both are questions of law we review de novo. (American Nurses Assn. v. Torlakson (2013) 57 Cal.4th 570 , 575 [ 160 Cal.Rptr.3d 370 , 304 P.3d 1038 ].)

A. Does Deering’s section 15.2, subdivision (d)’s exception from section 1090’s prohibitions of conflicts involving certain contractual transactions also exempt those transactions from section 87100?

In assessing whether Deering’s section 15.2, subdivision (d)’s express exception for contractual transactions barred by section 1090 implicitly excepts such transactions from section 87100 as well, we must ask two questions: (1) is that what the Legislature intended; and, if so, (2) is a court empowered to recognize an implicit exception to section 87100 to accommodate this legislative intent?

The first question is one of statutory construction, and our goal is “ ‘to discern the probable intent of the Legislature so as to effectuate the

SCOPE points us to the canon of expressio unius est exclusio alterius— Latin for “if a statute specifies one exception to a general rule[,] other exceptions are excluded.” (Eldridge, supra, 224 Cal.App.3d at p. 324.) SCOPE notes that the Legislature excepted appointed directors from the conflict of interest prohibitions in section 1090 (Deering’s, § 15.2, subd. (d)), and from the incompatible officers prohibitions in Government Code section 1125 et seq. (Deering’s Ann. Wat. — Uncod. Acts (2008 ed.) Act 130, § 5.4, p. 194), but elected not to except those directors from section 87100. And this was no oversight, SCOPE argues, because the Legislature was aware enough of the PRA to declare that appointed directors were serving the public interest under the PRA (Deering’s Ann. Wat. — Uncod. Acts (2008 ed.) Act 130, § 5.3, p. 194). SCOPE further notes that reading section 15.2, subdivision (d) to create an exception to section 87100 would implicitly repeal part of section 87100, thereby violating the “well settled” canon “against repeal of a preexisting law by implication” (Consumers Union, supra, 82 Cal.App.3d at p. 445; see Tuolumne Jobs & Small Business Alliance v. Superior Court (2014) 59 Cal.4th 1029 , 1039 [ 175 Cal.Rptr.3d 601 , 330 P.3d 912 ]).

Abercrombie responds that section 87100 and Deering’s section 15.2, subdivision (d)’s exception from section 1090’s conflict of interest restrictions are irreconcilable because the application of section 87100’s more general prohibitions against all “governmental decision^]” would render section 15.2, subdivision (d)’s exception for section 1090 (and § 1090’s more specific prohibition of financial interests in contracts) ineffective. This result, Abercrombie contends, is at odds with several canons of statutory construction — namely, that courts should “harmoniz[e] potentially inconsistent statutes” (State Department, supra, 60 Cal.4th at p. 955); that courts should avoid an interpretation amounting to a proclamation that the Legislature “ ‘engaged in an idle act’ ” by enacting a wholly ineffectual statutory provision (People v. Correa (2012) 54 Cal.4th 331 , 348 [ 142 Cal.Rptr.3d 546 , 278 P.3d 809 ] (conc. opn. of Werdegar, J.)); and that, where a conflict between statutes exists, the more specific statute — here, the Agency’s enabling legislation — should trump the more general (Honig, supra, 48 Cal.App.4th at pp. 328-329).

Because giving effect to one statute (§ 87100) would nullify the other (Deering’s, § 15.2, subd. (d)), the two are irreconcilable. In this situation, we are to “where reasonably possible, harmonize statutes, reconcile seeming inconsistencies in them, and construe them to give force and effect to all of their provisions,” even if it requires us to impliedly repeal a portion of one of the statutes. (State Department, supra, 60 Cal.4th at pp. 955-956; see Consumers Union, supra, 82 Cal.App.3d at p. 445.) In reconciling, we are to give effect to the more specific statute (State Department, at pp. 960-961), which in this case is section 15.2, subdivision (d). Even if we were to accept SCOPE’S argument that we should assess specificity as between section 1090 and section 87100, it is well settled that section 1090’s focus on conflicts involving contracts is more specific than section 87100’s broader proscription

More to the point, and as noted above, the conflict of interest provisions of the PRA are designed to ensure disclosure of the conflict (and, in some instances, recusal) — not to prohibit the participation of a regulated industry’s constituents in the public agency charged with that regulation. (Consumers Union, supra, 82 Cal.App.3d at p. 448; § 87105; see § 81002, subd. (c) [a purpose of the PRA is to assure that “[a]ssets and income of public officials which may be materially affected by their official actions should be disclosed and in appropriate circumstances the officials should be disqualified from acting in order that conflicts of interest may be avoided”].) Because Deering’s section 15.2, subdivision (d) applies only if the appointed director discloses his interest in the purveyor, an interpretation extending section 15.2, subdivision (d)’s exception from section 1090’s provisions to contracts that would otherwise be barred by section 87100 is the one that best harmonizes the Legislature’s intent to ensure the disclosure of conflicts and permit regulated industry participation. It is accordingly the interpretation we will adopt.

In light of this conclusion, we are empowered to construe Deering’s section 15.2, subdivision (d) as creating an implied exception to section 87100. Courts may imply an exception when necessary to harmonize two irreconcilable statutes (State Department, supra, 60 Cal.4th at p. 956) or when necessary to ensure the Legislature does not enact a nullity (People v. Pieters (1991) 52 Cal.3d 894 , 902 [ 276 Cal.Rptr. 918 , 802 P.2d 420 ]). This case involves both scenarios. SCOPE contends that the trial court impermissibly invoked the “in pari materia” canon of statutory construction — which requires statutes dealing with the same subject matter to be construed similarly (Lexin, supra, 47 Cal.4th at pp. 1090-1091)-to imply an exception to section 87100 just because section 15.2, subdivision (d) expressly carved out an exception to section 1090. We need not consider whether the in pari materia doctrine authorizes a court to imply exceptions because the trial court ultimately rested its ruling on its concern that refusing to imply an exception to section 87100 leaves section 15.2, subdivision (d) no effect. Moreover, as we note above, there is ample authority to imply an exception in this case; the trial court’s potential invocation of a different basis — even if impermissible — does not invalidate its correct result. (See People v. Bryant, Smith and Wheeler (2014) 60 Cal.4th 335 , 364-365 [ 178 Cal.Rptr.3d 185 , 334 P.3d 573 ] [“ ‘On appeal we consider the correctness of the trial court’s ruling itself, not the correctness of the trial court’s reasons for reaching its decision.’ ”].)

Because the PRA was enacted into law through the voter initiative process, it may only be amended by a further voter initiative or by the terms set forth in the original, initiative-enacted law. (Cal. Const., art. II, § 10, subd. (c) [“The Legislature . . . may amend or repeal an initiative statute by another statute that becomes effective only when approved by the electors unless the initiative statute permits amendment or repeal without their approval.”]; Franchise Tax Bd. v. Cory (1978) 80 Cal.App.3d 772 , 776 [ 145 Cal.Rptr. 819 ].) The PRA provides that it may be amended or repealed if (1) the new law was passed by a two-thirds majority of the Legislature, (2) the new law furthers the PRA’s purposes, and (3) the Legislature delivers a copy of the final bill, at least 12 days prior to its passage, to the Fair Political Practices Commission and anyone else who requests a copy. (§ 81012; Howard Jarvis Taxpayers Assn. v. Bowen (2011) 192 Cal.App.4th 110 , 116 [ 120 Cal.Rptr.3d 865 ].)

SCOPE concedes that Deering’s section 15.2, subdivision (d) was enacted by a two-thirds majority of the Legislature, but argues that this provision does not satisfy the remaining two prerequisites. SCOPE raises this argument for the first time on appeal. Although we generally decline to consider issues the trial court did not, we may nevertheless decide issues that involve solely a question of law and that are either pertinent to a proper disposition of the case or involve a matter of public importance. (People v. Superior Court (Ghilotti) (2002) 27 Cal.4th 888 , 901, fn. 5 [ 119 Cal.Rptr.2d 1 , 44 P.3d 949 ].) These criteria are met here.

Deering’s section 15.2, subdivision (d) certainly amends or repeals section 87100 within the meaning of the provisions governing initiatives because it “add[s] or tak[es] from” section 87100. (People v. Cooper (2002) 27 Cal.4th 38 , 44 [ 115 Cal.Rptr.2d 219 , 37 P.3d 403 ]; see People v. Kelly (2010) 47 Cal.4th 1008 , 1026-1027 [ 103 Cal.Rptr.3d 733 , 222 P.3d 186 ].) More specifically, section 15.2, subdivision (d) “takes away” from section 87100’s reach by immunizing the conflict of interest that would otherwise be proscribed by section 87100 when an appointed director of the Agency’s board of directors has a financial interest in a contract that is covered by section 1090 (because, as we conclude above, § 15.2, subd. (d) excepts such conflicts from both § 1090 and § 87100).

However, the Legislature satisfied the procedural requirements for this partial repeal and/or amendment of section 87100. As we discuss above, excepting conflicts of interest that would be prohibited under section 1090 from section 87100 as well furthers the PRA’s purposes of ensuring the

In sum, Deering’s section 15.2, subdivision (d), was a properly enacted amendment to section 87100. The trial court was accordingly correct in concluding that section 15.2, subdivision (d) carves out an exception to section 87100 that reaches as far as its exception from section 1090 liability, and that this exception exempts Abercrombie from liability under section 87100.

DISPOSITION

The judgment is affirmed. Abercrombie is entitled to costs on appeal.

Ashmann-Gerst, Acting P. L, and Chavez, L, concurred.

On September 22, 2015, the opinion was modified to read as printed above. Appellant’s petition for review by the Supreme Court was denied November 18, 2015, S229977.