Gilbane Building Co. v. Superior Court , 223 Cal. App. 4th 1527 ( 2014 )

Filed 1/23/14 Gilbane Building v. Super. Ct. CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
GILBANE BUILDING COMPANY, D063685
Petitioner, (San Diego County Super. Ct. No. 37-
2012-00091137-CU-MC-CTL)
v.
THE SUPERIOR COURT OF
SAN DIEGO COUNTY,
Respondent;
SAN DIEGANS FOR OPEN
GOVERNMENT,
Real Party in Interest.
PROCEEDINGS IN MANDATE after the superior court overruled petitioner's
demurrer to real party in interest's first amended complaint. William S. Dato, Judge.
Petition denied.
McKenna Long & Aldridge, Charles A. Bird, Christian D. Humphreys and Gary
K. Brucker, Jr., for Petitioner.
Briggs Law, Cory J. Briggs, Mekaela M. Gladden, and Anthony N. Kim for Real
Party in Interest.
Gilbane Building Company (Gilbane) petitions for writ of mandate challenging the
trial court's overruling of its demurrer to San Diegans for Open Government's (SanDOG)
first amended complaint. In that complaint, SanDOG asserted claims against Gilbane and
other construction companies seeking to disgorge all monies those companies allegedly
illegally received from contracts with the Sweetwater Union High School District (the
District). Gilbane contends the trial court erred in overruling its demurrer because (1)
SanDOG does not have standing on its own and cannot rely on the standing of its
members; and (2) SanDOG cannot pursue its action because it failed to allege it made a
demand on the District to sue and the District refused. We reject Gilbane's arguments
and deny the petition.
BACKGROUND
The San Diego District Attorney's Office investigated allegations that some of the
District's board members and its superintendant failed to report gifts and travel funds and
misused the District's credit card. The investigation revealed a "pay to play" culture in
which Gilbane and other companies provided gifts to the District's officials and their
family members in exchange for construction contracts worth several million dollars.
After SanDOG discovered the improper gifts, it informed the District of its intent
to sue Gilbane and others and inquired whether the District wanted to prosecute the
action with SanDOG. The District did not respond.
SanDOG filed this action against Gilbane, seeking declaratory relief, imposition of
a constructive trust on all consideration received by Gilbane, judgment that all
consideration be returned to the District, an injunction preventing Gilbane from
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disbursing monies received from the contracts, and other unspecified relief. SanDOG
alleged that at least one of its members resided in and paid taxes within the District and
had an interest in ensuring the District's compliance with all conflict of interest laws and
maintaining open, transparent government decisionmaking. SanDOG further alleged that
it was suing on its own behalf, for its own benefit, for the benefit of its members, for all
persons similarly situated, for all taxpayers within the geographical jurisdiction of the
District, and for the District.
Gilbane demurred to SanDOG's first amended complaint, arguing, among other
things, that SanDOG lacked standing to sue because SanDOG did not pay taxes within
the District. Gilbane also alleged SanDOG's action was improper because the District
had discretion whether to sue Gilbane. SanDOG opposed the demurrer, contending that
an organization who has members paying taxes within the District has standing to bring
the action.
The trial court overruled Gilbane's demurrer, finding SanDOG alleged sufficient
facts to invoke associational standing to pursue taxpayer suits under Code of Civil
Procedure section 526a (section 526a). The trial court also found "[t]he rule that a
taxpayer lacks standing to sue on behalf of a public agency unless the agency has a duty
to sue and refused to do so does not apply to a case such as this" because "SanDOG [was]
not seeking to usurp the District's discretion in managing its affairs."
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DISCUSSION
I. Associational Standing
Section 526a provides: "An action to obtain a judgment, restraining and
preventing any illegal expenditure of, waste of, or injury to, the estate, funds, or other
property of a county, town, city or city and county of the state, may be maintained against
any officer thereof, or any agent, or other person, acting in its behalf, either by a citizen
resident therein, or by a corporation, who is assessed for and is liable to pay, or within
one year before the commencement of the action, has paid, a tax therein . . . ."
Here, SanDOG alleged that at least one of its members resided in and paid taxes
within the District and had an interest in ensuring the District's compliance with all
conflict of interest laws and maintaining open, transparent government decisionmaking.
Gilbane does not contend that SanDOG's members do not have standing individually;
rather, Gilbane argues SanDOG does not have standing on its own and cannot rely on the
standing of its members. We disagree.
The issue presented in this case was recently decided by this Court in Taxpayers
for Accountable School Bond Spending v. San Diego Unified School District (2013) 215
Cal. App. 4th 1013, 1031-1033 (Taxpayers). In that case, an organization brought an
action arising out of a school district's approval of new stadium field lighting and other
improvements. (Id. at p. 1021.) As in this case, the school district challenged the action
on the basis of the organization's standing because the organization "[did] not pay taxes
as an organization." (Id. at p. 1031.) The court rejected the school district's argument,
reasoning: "we are not aware of, any case that holds a representative organization cannot
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bring a taxpayer action under . . . section 526a or a citizen action if that organization
represents members who, as individuals, would have standing to personally bring that
cause of action. On the contrary, it has been held a representative organization or
association may have standing to bring an action if its members would have had standing
to bring that action as individuals." (Ibid.) Accordingly, the court concluded even
though the organization itself did not pay taxes, it had standing because its members were
taxpayers and residents within the school district. (Id. at p. 1032.)
We see no reason to depart from the holding in Taxpayers. Accordingly, we reject
Gilbane's associational standing argument.
II. Demand and Refusal
Gilbane argues SanDOG cannot pursue its action because it failed to allege it
made a demand on the District to sue and the District refused that demand. We reject this
argument.
The Government Code prohibits members of a district from being "financially
interested in any contract made by them in their official capacity, or by any body or board
of which they are members." (Gov. Code, § 1090 (§ 1090).) "Every contract made in
violation of any of the provisions of Section 1090 may be avoided at the instance of any
party except the officer interested therein." (Gov. Code, § 1092.) Courts have
interpreted this language to mean that a contract made in violation of section 1090 is
void, not merely voidable. (Thomson v. Call (1985) 38 Cal. 3d 633, 646, fn. 15.) "It is
settled law that where a contract is made in violation of section 1090, the public entity
involved is entitled to recover any compensation that it has paid under the contract
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without restoring any of the benefits it has received." (Finnegan v. Shrader (2001) 91
Cal. App. 4th 572, 583.)
Taxpayers may sue under section 1090 in order to have improper contracts
declared void. (See Finnegan v. Schrader, supra, 91 Cal. App. 4th 572 [taxpayer brought
action under section 1090 against a sanitation district and its manager to have the
manager's employment contract declared void]; Thomson v. Call, supra, 38 Cal. 3d 633,
637-638 [taxpayer sued the city, several city council members, and various corporations
under section 1090 to challenge the validity of a land transaction in which a city council
member conveyed land to a corporation who in turn conveyed it to the city].) These
lawsuits may be against the public agency as well as the private parties who entered into
the improper contract with the public agency. (See Terry v. Bender (1956) 143
Cal. App. 2d 198; Thomson, supra, at pp. 637-638.)
However, "[a] taxpayer may not bring an action on behalf of a public agency
unless the governing body has a duty to act, and has refused to do so. If the governing
body has discretion in the matter, the taxpayer may not interfere." (Silver v. Watson
(1972) 26 Cal. App. 3d 905, 909.) "The rule is explained in . . . Dunn [v. Long Beach
Land & Water Co. (1896) 114 Cal. 605, 609] . . . : 'The rule is that the municipality,
through its governing body, has control of the property and general supervision over the
ordinary business of the corporation; and there would be utter confusion in such matters
if every citizen and taxpayer had the general right to control the judgment of such body,
or usurp the office. Where the thing in question is within the discretion of such body to
do or not to do, the general rule is that then neither by mandamus, quo warranto, or other
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judicial proceeding, can either the state or a private citizen question the action or
nonaction of such body; nor in such cases can a private citizen rightfully undertake to do
that which he thinks such body ought to do. It is only where performance of the thing
requested is enjoined as a duty upon said governing body that such performance can be
compelled, or that a private citizen can step into the place of such body and himself
perform it.' " (Silver, supra, at p. 909.) Where the public agency has expended funds
illegally or for an unlawful purpose and its management is in the hands of the persons
accused of the wrongdoing, a taxpayer is not required to make a demand on the public
agency as it would be unavailing. (Osburn v. Stone (1915) 170 Cal. 480, 482; Citizens'
Committee for Old Age Pensions v. Board of Sup'rs of Los Angeles County (1949) 91
Cal. App. 2d 658, 660.)
Here, the parties dispute whether a demand to the District and refusal was required
before SanDOG could initiate its action against Gilbane. The demand and refusal
requirement does not apply in this case because SanDOG is not seeking to usurp the
District's discretion in managing its affairs. Rather, if the allegations in SanDOG's
complaint are true, the District expended funds illegally and the subject contracts are
void, not merely voidable. Whether the contracts are void is not a matter within the
District's discretion.
We also conclude that a demand was not required under the circumstances of this
case because it would have been unavailing. SanDOG alleged the District's officials,
including its board members, were involved in the wrongdoing subject to its lawsuit. It is
unlikely that the District's officials would have initiated a lawsuit to correct its own
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wrongs. Where, as here, "the facts alleged in the complaint sufficiently show that . . . a
demand would have been useless, and when it appears from the complaint that a demand
would have been unavailing, it is not required." (Briare v. Mathews (1927) 202 Cal. 1,
9.)
Even if a demand and refusal was required, SanDOG alleged that "[b]efore
commencing this lawsuit, [it] notified DISTRICT of [its] intent to file this lawsuit and
inquiring whether DISTRICT would like to prosecute the action with [SanDOG], but
[SanDOG] has never received a response." Gilbane argues this allegation was
insufficient because it "invited the District to join SanDOG" in commencing the action
instead of demanding the District initiate the action and does not show the District
refused. We reject Gilbane's argument.
In our view, the purpose of the demand requirement is to put a public agency on
notice of wrongdoing and give it the opportunity to commence an action on behalf of its
constituents. SanDOG's allegation satisfies the purpose of the demand requirement.
Further, SanDOG alleged the District did not respond. If we were to construe the refusal
requirement as Gilbane suggests and require an actual refusal, a public agency could
prevent taxpayer initiated litigation simply by failing to respond to any demand. This
result would not comport with the policy supporting taxpayer actions.
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DISPOSITION
The petition is denied. SanDOG is entitled to costs in this proceeding.
McINTYRE, J.
WE CONCUR:
McCONNELL, P. J.
HUFFMAN, J.
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