Supreme Court No. ____ _

In the Supreme Court of the

State of California

STEPHEN K. DAVIS, P la in tifJI Appe llant

vs.

FRESNO UNIFIED SCHOOL DISTRICT, et al. Defendant/Respondent and Petitioner

After Opinion in the Court of Appeal Fifth District, Civil Case No. F068477

EXHIBITS TO THE MOTION FOR JUDICIAL NOTICE

IN SUPPORT OF PETITION FOR REVIEW EXHIBITS F - L

VOLUME III of III

Donald R. Fischbach - No. 53522 Steven M. Vartabedian - No. 67888 Lynne Thaxter Brown - No. 104958 Matthew R. Dildine - No. 258685

DOWLING AARON INCORPORATED 8080 North Palm Avenue, Third Floor

P.O. Box 28902 Fresno, California 93729-8902

Telephone: (559) 432-4500 / Fax: (559) 432-4590

Attorneys for Defendant/Respondent and Petitioner FRESNO UNIFIED SCHOOL DISTRICT

Exhibit F

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT, DIVISION TWO

JAMES D. MCGEE, Court of Appeal No. B252570

Plaintiff and Appellant,

v. (Super. Ct. No. YC068686)

TORRANCE UNIFIED SCHOOL DISTRICT, and BARNHART -BALFOUR BEATTY, INC., dba BALFOUR BEATTY CONSTRUCTION, et al.,

Defendants and Respondents,

Appeal From a Judgment Of The Superior Court, County of Los Angeles

Hon. Stuart M. Rice, Judge

APPELLANT'S OPENING BRIEF

Kevin R. Carlin, Esq. (SBN 185701) CARLIN LAW GROUP, A.P.c. 4452 Park Boulevard, Suite 310 San Diego, CA 92116 Telephone: (619) 615-5325 Facsimile: (619) 615-5326 kcarlin@carlinlawgroup.com

Attorney for Appellant

I

TO BE FILED IN THE COURT OF APPEAL APP-008 Court of Appeal Case Number:

COURT OF APPEAL, Second APPELLATE DISTRICT, DIVISION P B252570

A nORI,EY OR PARTY WITHOUT ATIORNEY (Name. Slale ear number, and address)' Superior Court Case Number:

- Kevin R. Carlin, 185701 YC068686 Carlin Law Group, APC

FOR COURT USE ONLY 4452 Park Blvd., Suite 310, San Diego, CA 92116

TELEPHONE NO, (619)615-5325 FAX NO. (Oplional). (619)615-5326 "·MA!LADlJRESS (OptIonal) kcarlin@carlinlawgroup.com

ATTORNEY FOR (Name), James D, McGee

APPELLANT/PETITIONER: James D. McGee

RESPONDENT/REAL PARTY IN INTEREST: Torrance Unified School District, et al.

CERTIFICA TE OF INTERESTED ENTITIES OR PERSONS

(Check one).' rn iNITIAL CERTIFICATE o SUPPLEMENTAL CERTIFICATE

Notice: Please read rules 8.208 and 8.488 before completing this form. You may use this form for the initial certificate in an appeal when you file your brief or a prebriefing motion, application, or opposition to such a motion or application in the Court of Appeal, and when you file a petition for an extraordinary writ. You may also use this form as a supplemental certificate when you learn of changed or additional information that must be disclosed.

1, This form is being submitted on behalf of the following party (name):_J_a_n_le_s_D_._M_c_G_e_e ______________ _

2. a. [Z] There are no interested entities or persons that must be listed in this certificate under rule 8.208.

b, 0 Interested entities or persons required to be listed under rule 8.208 are as follows:

(1 )

(2)

(3)

(4)

(5)

Full name of interested entity or person

D Continued on attachment 2.

Nature of interest (Explain):

The undersigned certifies that the above-listed persons or entities (corporations, partnerships, firms, or any other association, but not including government entities or their agencies) have either (1) an ownership interest of 10 percent or more in the party if it is an entity; or (2) a financial or other interest in the outcome of the proceeding that the justices should consider in determining whether to disqualify themselves, as defined in rule 8.208(e)(2).

DateNovember 25, 2013

Kevin R. Carlin

(TYPE OR PRINT NAME) (SIGNATURE OF PARTY OR AnORNEY)

Page 1 of1

Form Approved for Optional Use Judicial Council of California

APP·OOB (Rev. January 1. 20091

CERTIFICATE OF INTERESTED ENTITIES OR PERSONS Cal. Rules of Court. rules 8,208. 8,488 WYlw.courtinfo.ca.gov

TABLE OF CONTENTS

TABLE OF AUTHORITIES •.•.•••.......•••.........•••.•...•.•.•.••.•.•..••• -111-

I. INTRODUCTION .................................... -1-

II. STATEMENT OF THE CASE. . . . . . . . . . . . . . . . . . . . . . . . . .. -4-

III. STATEMENT OF APPEALABILITY .................... -8-

IV. STANDARD OF REVIEW ............................. -8-

V. STATEMENT OF FACTS ............................. -10-

VI. ARGUMENT ....................................... -12-A. The Superior COUli Abused its Discretion When it Sustained

Objections of Contractor/District to Taxpayer's Request for Judicial Notice of Notice of Lodgement Exhibits A-F, L, and N.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -12-B. The Superior COUli Ened When it Sustained the Demuners to

Taxpayer's First Cause of Action .................. -B-e. The Superior COUli Erred When it Sustained Contractor's

Demurrer to Taxpayer's Second Cause of Action

D. The Superior Court Erred When it Sustained District's -18-

Demurrer to Taxpayer's Second Cause of Action ...... -22-E. The Superior COUli Ened When it Sustained the Demuners to

Taxpayer's Third Cause of Action ................. -23-1. Background on Lease-Leaseback Transactions .. -25-2. The Superior Court's Ruling Is Contrary to the Plain

Language and Context of Education Code Sections 17406 and 17417 ......................... -28-

3. The Superior Court's Interpretation of Education Code Sections 17406 and 17417 Is Contrary to Established Rules of Statutory Interpretation ....................................... -32-

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a. The Superior Court's Interpretation of Education Code Sections 17406 and 17417 Is Contrary to the Rule that the Specific Controls the General. . . . . . . . . . . . . . . . . . . . . . . .. -32-

b. The Superior Court's Interpretation of Education Code Sections 17406 and 17417 Is Contrary to the Rule Favoring Interpretations That Lead to More Reasonable Results " -33-

c. The Superior Court's Interpretation of Education Code Section 17406 Renders Section 17417 Superfluous, Nugatory and a Nullity .................................. -34-

4. Taxpayer's Interpretation of Education Code Sections 17406 and 17417 is SUPPOlted by the Staff, Executive Officer and General Counsel of the State Allocation Board .................................. -36-

F. The Superior COUlt ElTed When it Sustained the DemulTers to Taxpayer's Fourth Cause of Action ................. -38-1. California Law on Contractor's Conflict ofInterest

Under Government Code Section 1090 ........ -38-2. California Law on Contractor's Conflict ofInterest

Under COlmnon Law ...................... -39-3. Taxpayer Adequately Pled a Cause of Action for

Contractor's Conflict ofInterest Under Common Law and/or Government Code section 1090 ........ -40-

G. The Superior COUlt Ened When it Sustained the Demuners to Taxpayer's Fifth Cause of Action . . . . . . . . . . . . . . . . .. -43-

H. The Superior COUlt Ened When it Sustained the DemulTers to - Taxpayer's Seventh Cause of Action ............... -45-

1. The Superior COUlt ElTed When it Sustained the Demurrers Without Affording Taxpayer Leave to Amend . . . . . . .. -45-

V. CONCLUSION ...................................... -46-

CERTIFICATE OF COMPLIANCE ........................... -47-

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TABLE OF AUTHORITIES Cases:

Banning Teachers Assn. v. Public Employment Relations Bd. (1988) 44 Cal.3d 799 ..................................................... -37-Bodinson Mfg. Co. v. Cal~fornia E. Com. (1941)17 Ca1.2d 321 ...... -43-

Branciforte Heights, LLC v. City of Santa Cruz (2006) 138 Cal.AppAth 914 ......................................................... -32-

Ca1tfornia Housing Finance Agency v. HanoverlCal{fornia Management and Accounting Center, inc. (2007) 148 Cal. App.4th 682 ............. -39-

Canova v. Trustees ojimperiallrrigation Dist. Emp/oyeePension Plan (2007) 150 Ca1.App.4th 1487 ....................................... -9-

Cel-Tech COlnmunications v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163 ................................................ -3-

Chapman v. Skype inc. (2013) 220 Cal.AppAth 217 ... -8-, -9-, -17-, -45-

City and County of San Francisco v. Boyle (1925) 195 Cal. 426 . -15-, -18-

City of Los Angeles v. OfJher (1942) 19 Ca1.2d 483 ........... -14-, -18-

Diaz v. United Cal!fornia Bank (1977) 71 Cal.AppJd 161 .......... -8-

GhUotti Const. Co. v. City of Richmond (1996) 45 Cal. AppAth 897 ... -3-, -24-, -34-

Goodman v. Kennedy (1976) 18 Cal.3d 335 ..................... -45-

Hobbs, Wall & Co. v. Moran (1930) 109 Cal. App. 316 ........ -19-, -21-

Hub City Solid Waste Services, inc., v. City of Compton (2010) 186 Cal. App. 4th 1114 ............................................... -1-, -39-

Jacobs v. Dept. o.fMotor Vehicles (1958) 161 Cal. App. 2d 727 ..... -33-

Kashian v. Harriman (2002) 98 Cal.AppAth 892 . . . . . . . . . . . . . . . .. -12-

-iii-

Konica Business Machines U.S.A., Inc. v. Regents of University of California (1988) 206 Cal. App. 3d 449 .................................. -3-

Loehr v. Ventura County Community College Dist., (1983) 147 Cal.App.3d 1071 .................................................... -22-

Metropolitan Water District v. Adams (1948) 32 Cal 2d 620 ........ -33-

Miller v. McKinnon (1942) 20 Cal.2d 83 ................ , -4-, -21-, -32-

Miller v. Superior Court (1999) 21 Ca1.4th 883 .................. -32-

Morgan Hi!! Unified School Dist. v. Amoroso (1988) 204 Cal.App.3d 1083 ..................................................... -38-, -43-

Nussbaum v. Weeks (1989) 214 Cal. App. 3d 1589 ............ -19-, -21-

People v. Sullivan (1952) 113 Cal.App.2d 510 .................. -39-

. People v. Superior Court (Jimenez) (2002) 28 Ca1.4th 798 ......... -32-

Ramos v. Countrywide Home Loans, Inc. (2000) 82 Cal.AppAth 615 .. -9-

Rao v. Campo (1991) 233 Cal. App.3d 1557 ..................... -35-

Reams v. Cooley (1915) 171 Cal. 150 ........................... -3-

S.B. Beach Properties v. Berti (2006) 39 Cal.4th 374 .............. -33-

SargonEntelprises, Inc. v. University of Southern Cal. (2012) 55 Ca1.4th 747 .......................................................... -9-

Schaeferv. Berinstein (1956)140 Cal.App.2d278 ................ -39-

Seelig v. li?finity Broadcast COlp. (2002) 97 Cal.App.4th 798 . . . . . .. -12-

Stockton P. & s. Co. v. Wheeler (1924) 68 Cal.App. 592 ....... -39-, -40-

Terry v. Bender (1956) 143 Cal.App.2d 198 ................ -19-, -21-

-iv-

Willis v. State ofCaltfornia (1994) 22 Cal.AppAth 287 ............. -9-

Woods v. Young (1991) 53 Cal.3d 315 ......................... -32-

Zott711Gn v. San Francisco (1862) 20 Cal. 96 ................... -3-, -4-

Constitutions: Cal. Const., mi. XVI, § 6 ................................... -37-

Statutes: Code Civ. Proe., § 1859 ..................................... -37-

Code Civ. Pree., § 430.10 ................................... -23-

Code Civ. Pree., § 581d ..................................... -39-

Code Civ. Pree., § 870 ..................................... -22-

Code Civ. Proe., § 904.1 .................................... -35-

Ed. Code, § 17402 .............................. -8-, -9-, -17-, -45-

Ed. Code, § 17406 ..................................... -15-, -18-

Ed. Code, § 17407 ..................................... -14-, -18-

Ed. Code, § 17417 .................................... :. . . . .. -8-

Ed. Code, § 17418 .......................................... -8-

Ed. Code, §§ 17400-17429 ........................... -3-, -24-, -34-

Ed.Code,§§17455-17484 .................................. -45-

Ed. Code, §§ 39300-39325 .............................. -19-, -21-

Evid. Code, § 452 ...................................... -1-, -39-

Evid. Code, § 453 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -33-

-v-

Gov. Code, § 1090 ........................................ -12-

Gov. Code, § 900 et seq. ..................................... -3-

Gov. Code, §905 .......................................... -22:.

Pub. Contract Code, § 20110 et seq ............................ -33-

Other Authorities Cited 62 Ops.Ca1.Atty.Gen. 209, 210 (1979) .................. -4-, -21-, -32-

January 28,2004 RepOli of the Executive Officer of the California State Allocation Board (attached as Exhibit K to First Amended Complaint; Volume 2 Appellant's Appendix pages 362-371.) ........ -1-, -14-, -25-, -36-, -37-, -44-

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I. INTRODUCTION

This appeal involves approximately $48 million dollars worth of public

school construction contracts funded by general obligation bonds paid for by

taxes on real propeliy in Respondent Torrance Unified School District

(District). Appellant James D. McGee (Taxpayer) contends those contracts are

ultra vires, illegal, void and unenforceable because (1) those contracts were not

awarded in the manner required by law; and/or (2) the contractor to whom

District awarded the contracts has a conflict of interest due to its two

consulting contracts where it gives professional services and advice to District

on matters including the challenged contracts. While the conflict of interest

issue raised below is controlled by this Court's prior ruling in Hub City Solid

Waste Services, Inc., v. City of Compton (2010) 186 Cal. App. 4th 1114, the

statutory interpretation and application issues below relating to Education

Code sections 17400-17429 are matters of first impression in this Comi.

F or over 10 years a growing number of school districts throughout

Califol11ia have been advancing and adopting improper interpretations and

applications of Education Code sections 17400-17429 in order to use the lease­

leaseback construction project delivery method created thereunder in a manner

not permitted by those statutes and contrary to long standing Califol11ia public

policy. See January 28,2008 RepOli ofthe Executive Officer of the Califol11ia

State Allocation Board (SAB RepOli) attached as Exhibit K to and

incorporated by reference in Taxpayer's First Amended Complaint (FAC) at

Paragraph 20. (Volume 2 of Appellant's Appendix, pages 362-371

(designated "2 AA 362-371 ").)

-1-

The SAB Report contains the legal opinion of SAB's counsel on the

proper interpretation and application of Education Code sections 7400-17429.

The SAB report formed part of the factual and legal basis of Taxpayer's

asseliions that, inter alia, (1) the exen1ption from competitive bidding stated

in Education Code section 17406 only applies to the site lease pOliion of the

lease-leaseback transaction (1 AA 366-367); (2) Education Code section

17417 applies to the leaseback pOliion ofthe lease-leaseback transaction and

requires competitive bidding thereof (Id.); (3) a lease-leaseback transaction

must be based on a genuine lease alTangement and not be a subterfuge to avoid

competitive bidding (1 AA 365-366); (4) a lease-leaseback transaction must

be a genuine financing mechanism for funding school construction projects (1

AA 367-368); and (5) absent the foregoing, school construction contracts must

be awarded in the manner specified in Public Contract Code sections 20110 et

seq. (1 AA 367).

This Court's decision on the lease-leaseback contracting issues below

will establish the first citable precedent for billions of dollars of CUlTent and

future bond funded public school construction contracts that would otherwise

be awarded without the public benefits of sealed competitive bidding (i.e. fair

and open coriipetition with contract awards only to the lowest responsive and

responsible bidder in a manner that stimulates advantageous market place

competition, avoids misuse of public funds and eliminates the fraud, favoritism

and COlTuption noted in the newspaper articles, Grand Jury Transcripts and

Criminal Complaints attached as Exhibits A through K to Appellant's Notice

of Lodgment in SUPPOli of Opposition to DemUlTers and Motion to Strike First

Amended Complaint (Taxpayer's NOL)). (4 AA 911-969.) Similar instances

of misuse of public funds, fraud, favoritism and COlTuption are equally well

known within this Court's jurisdiction involving the City of Bell and now

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possibly the Centinela Valley Union High School District.

Public notice soliciting sealed bids and the award of contracts thereof

only to the lowest responsive and responsible bidder have been the mainstay

of public constructioil contracts in California going back over 150 years.

Zottman v. San Francisco (1862) 20 Cal. 96, 101-102. Modern California

Appellate Courts have declared:

"The purpose of requiring governmental entities to open the contracts process to public bidding is to eliminate favoritism, fraud and corruption; avoid misuse of public funds; and stimulate advantageous market place competition. [citations omitted.] Because of the potential for abuse arising from deviations from strict adherence to standards which promote these public benefits, the letting of public contracts universally receives close judicial scrutiny and contracts awarded without strict compliance with bidding requirements will be set aside. This preventative approach is applied even where it is celiain there was in fact no conuption or adverse effect upon the bidding process, and the deviations would save the entity money. [citations omitted.] The importance of maintaining integrity in government and the ease with which policy goals underlying the requirement for open competitive bidding may be sUlTeptitiouslyundercut, mandate strict compliance with bidding requirements."

Ghilottj Canst. Co. v. City a/Richmond (1996) 45 Cal. AppAth 897,907-908;

Konica Business Machines US.A., Inc. v. Regents o.fUniversity of California

(1988) 206 Cal. App. 3d 449, 456-457.

Likewise, for over 150 years in California, the lUle has been that public

contracts executed without full compliance with all applicable legal

requirements are: (1) void and unenforceable as being in excess of the

agency's power; (2) prevented from asserting estoppel to uphold their validity;

and (3) excluded from any fonn of quasi -contract recovery. See, e.g., Zottman

v. San Francisco (1862) 20 Cal. 96, 101-102; Reams v. Cooley (1915) 171 Cal.

-3-

150, 153-157; Miller v. McKinnon (1942) 20 Ca1.2d 83, 87-88. It is equally

well settled that money paid under a void contract may be recovered in a suit

filed by a taxpayer on behalf of the governmental agency involved. Id. at 96.

The Supreme Court noted "It may sometimes seem a hardship upon a

contractor that all compensation for work done, etc., should be denied him; but

it should be remembered that he, no less than the officers of the corporation,

when he deals in a matter expressly provided for in the chmter, is bound to see

to it that the chmter is complied with." Jd. at 89. Further, contractors are

presumed to know the laws relating to public contracting.ld. The rationale for

the Court's strict application of this doctrine is that to hold otherwise would

create a disincentive for contractors and public entities to follow the law.ld.

District and Bmnhart-Balfour Beatty, Inc., dba Balfour Beatty

Construction (Contractor) asselted in their DemUITers the facts alleged by

Taxpayer lacked any legal basis for the relief requested. Through this appeal,

Taxpayer requests this Court reverse the Superior Court's sustaining of

District's and Contractor's demuners to and subsequent dismissal of

Taxpayer's FAC and remand this matter to the Superior COUIt with direction

to allow Taxpayer's action to continue.

n. STATEMENT OF THE CASE

On June 4, 2013, Taxpayer filed his FAC in the in Los Angeles

Superior Comi (Superior Comt) seeking disgorgement and recovery to District

of all monies paid by District to Contractor under three Site Leases, Subleases

and Construction Services Agreements (Lease-Leaseback Contracts) for

construction of the Hickory Elementary School Modernization Project, the

Madrona Middle School Modemization Project, and the North High School

Modemization Project (collectively Projects). (1 AA 1-371.) Taxpayer's FAC

alleged the Lease-Leaseback Contracts are ultra vires, illegal, void and

-4-

unenforceable under the following legal theories:

First Cause of Action: the Lease-Leaseback Contracts at issue in this

action are sham leases entered into as a subterfuge to avoid the competitive

bidding requirements of Public Contract Code sections 20110 et seq. (Volume

1 of Appellant's Appendix, page 8, paragraph 21 through page 10, paragraph

26 (designated "1 AA 8:~21-10:~ 26").)

Second Cause of Action: District's Board of Education breached the

fiduciary duty imposed upon them by their position, oath of office, and/or

applicable California law. (1 AA 1 0:~27-11 :~31.)

Third Cause of Action: District failed to compi y with the requirements

of Education Code section 17417 in the solicitation and award of the Lease­

Leaseback Contracts. (l AA 12:~32-17:41.)

Fourth Cause of Action: Government Code section 1090 and/or

common law conflict of interest pl;incipals preclude Contractor from being ..

awarded the Lease-Leaseback Contracts. This conflict of interest arose based

on Contractor's two prior professional consulting contracts with District

involving the Projects that were the subject of the Lease-Leaseback Contracts.

(1 AA l7:~42-2l :~56.)

Fifth Cause of Action: the Lease-Leaseback Contracts at issue in this

action do not constitute a genuine financing anangement as required by

Education Code sections 17400-17429. (1 AA 21 :~57-22:~60.)

Sixth Cause of Action: Not at issue in this appeal.

Seventh Cause of Action: Based on the allegations of the foregoing

causes of action, Taxpayer sought a judicial declaration that the

Lease-Leaseback Contracts are ultra vires, illegal, void and unenforceable. (1

AA 24:~65-~68.)

-5-

On July 8, 2013, District and Contractor demulTed pursuant to Code of

Civil Procedure section 430.1 O( e) to each cause of action in Taxpayer's F AC

asseliing they failed to state facts sufficient to constitute a cause of action. (2

AA 372-375; 3 AA 512-517.) In support of their de111Ul1'erS District and

Contractor filed memorandums of points and authorities and requests for

judicial notice. (2:376-511; 3:518-4:865.)

On July 29, 2013, Taxpayer filed a notice of lodgment, a request for

judicial notice and an opposition to District's and Contractor's demulTers. (4

AA 886 - 5 AA 1016.)

On August 2, 2013 and August 6, 2013, Contractor and District

objected to Taxpayer's request for judicial notice (5 AA 1023-1036; 5 AA

1053-1056) and replied to the arguments made in Taxpayer's opposition. (5

AA 1040-1049; 5 AA 1058-1068.)

On August 7, 2013, Taxpayer filed a Sur Rebuttal to Defendants'

replies. (5 AA 1070-1074.) Also on August 7, 2013, Contractor objected to

and requested the Superior COUli strike the Sur Rebuttal on the basis that

Taxpayer filed the Sur Rebuttal two days priOl·to the scheduled hearing. (5 AA

1084.) On August 8, 2013, Taxpayer filed an opposition to Contractor's

objection, arguing the cOUlis are obligated to search out illegality in

government contracts at any time. (5 AA 1087-1089.)

On August 9,2013, a hearing was held on the above referenced matters.

Taxpayer lodged a certified original transcript of these proceedings with the

COUli on April 11, 2014. FUliher a copy of this transcript was attached to

Taxpayer's Notice Designating Record on Appeal filed with the Superior

Court on November 25, 2013 and is included in Volume 5 of Appellant's

Appendix at pages 1113-1129.) (FUliher citation to the transcript of these

proceedings will be designated as RT page:1ine.) Prior to oral argument the

-6-

Superior COUli by and through the Honorable Stumi M. Rice mIDounced its

tentative ruling granting the demulTers as " ... to each and every cause of

action, there is really nothing here that will allow this case to go forward. 11 (R T

4:3-5.) The Superior COUli took judicial notice of Taxpayer's Exhibits "G"

through "K" and "M," and denied Taxpayer's request for judicial notice as to

Exhibits "A" through "F," "L," and "N" based on the objections thereto. CRT

3: 19-22.)

At the conclusion of the hearing on August 9,2013, the Superior COUli

stated " ... seems to me at this point [the F AC] is properly demUlTed. It's not a

factual dispute. It's a legal interpretation which I think is unequivocal. I'm

going to stand by my tentative lUling [and sustain the demulTers]." CRT 9:28-

10:3.)

On October 18, 2013, the Superior COUli signed and entered a Judgment

of Dismissal After Sustaining DemUlTers to First Amended Complaint Without

Leave to Amend as follows:

NOW THEREFORE, IT IS ORDERED:

The demurrers of DISTRICT and CONTRACTOR are sustained without leave to amend. PLAINTIFF'S First Amended Complaint does not and can not state causes of action to invalidate the challenged Site Leases, Subleases, and Construction Service Agreements between DISTRICT and CONTRACTOR or to recover DISTRICT public funds expended relative thereto.

JUDGMENT IS HEREBY ENTERED IN FAVOR OF DISTRICT AND CONTRACTOR.

1. The challenged agreements are legal, valid and enforceable under California law. (5 AA 1107: 16-

22.)

-7-

On October 22,2013, District served a Notice of Entry of Judgment by

mail on Taxpayer. (5 AA 1104-1110.)

On November 15,2013, Taxpayer filed and served a Notice of Appeal

with the Los Angeles Superior Court. (5 AA 1111-1112.)

On November 25,2013, Taxpayer timely filed and served its Notice

Designating the Record on Appeal that included a copy of the transcript of the

Superior Court's August 9,2013 hearing. (5 AA 1113-1129.)

III. STATEMENT OF APPEALABILITY

Taxpayer appeals the Superior Court's judgment of dismissal after an

order sustaining a demurrer. (5 AA 1106-1107.) Appeal is proper from an

order of dismissal after the cOUli sustains a demulTer without leave to amend.

Code Civ. Proc., section 581d; Code Civ. Proc., section 904.1; see also Diaz

v. United Cal(fornia Bank (1977) 71 Cal.App.3d 161,166. Additionally, Code

of Civil Procedure section 870 provides 30 days after receiving a Notice of

Entry of Judgment to appeal a final judgment in a validation action. District

served the Notice of Entry of Judgment by mail on October 22,2013. (5 AA

1110.) Taxpayer filed the Notice of Appeal on November 15,2013 (5 AA

1111), 24 days after District served the Notice of Entry of Judgment by mail

and within the statutorily authorized time.

IV. ST ANDARD OF REVIEW

De novo is the standard of review for an appeal from a judgment of

dismissal after sustaining a demurrer. In Chapman v. Skype Inc. (2013) 220

Cal.AppAth 217 the COUli stated:

"A demurrer tests the legal sufficiency of the factual allegations in a complaint. We independently review the sustaining of a demurrer and detennine de novo whether the complaint alleges facts sufficient to state a cause of action or discloses a complete defense. [citation omitted.] We assume the tmth of the properly pleaded factual allegations, facts that reasonably can be infened from those expressly

-8-

pleaded and matters of which judicial notice has been taken. [citation omitted.] We construe the pleading in a reasonable manner and read the allegations in context. [citation omitted.] We must affim1 the judgment if the sustaining of a general demulTer was proper on any of the grounds stated in the demUlTer, regardless of the trial comi's stated reasons. [citation omitted.]" Id. at 225-26.

"It is an abuse of discretion to sustain a demulTer without leave to amend if there is a reasonable probability that the defect can be cured by amendment. The burden is on the plaintiff to demonstrate how the complaint can be amended to state a valid cause of action. [citation omitted.] The plaintiff can make that showing for the first time on appeal. [citation omitted.]" Id.

Abuse of discretion is the standard of review for an appeal of a lower

court's decision of whether to take judicial notice of certain evidence. Willis

v. State of California (1994) 22 Cal.App.4th 287, 291. The Califomia

Evidence Code pennits the trial comi judge to take judicial notice of matters

withing section 452 and requires judicial notice be taken of materials within

section 453. "The discretion of a trial judge is not a whimsical, uncontrolled

power, but a legal discretion, which is subject to the limitations of legal

principles goveming the subject of its action, and to reversal on appeal where

no reasonable basis for the action is shown." Sargol1 Enterprises, Inc. v.

University of Southern Cal. (2012) 55 Ca1.4th 747, 773. "The abuse of

discretion standard measures whether, given the established evidence, the

lower court's action falls within the pennissible range of options set by the

legal criteria." Ramos v. Coul1trywide HOl11e Loans, Inc. (2000) 82 Cal.AppAth

615,624.

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V. STATEMENT OF FACTS

Below is a sununary of the general factual allegations applicable to each

of Taxpayer's causes of action. Alleged facts specific to PaIiicular causes of

action are referenced in the sections relevant to those causes of action.

Taxpayer is an individual who owns real propeliy in and pays taxes to

District. (l AA 2:~4.) Taxpayer brought this action on behalf of himself,

District, its taxpayers and all others similarly interested to contest the validity

of the Lease-Leaseback Contracts by and between the District and Contractor,

relative to the constmction of the Projects located within District's boundaries.

Copies ofthe foregoing Lease-Leaseback Contracts and related District Board

of Education meeting agendas, meeting materials and minutes were attached

to the FAC as Exhibits A-J and incorporated therein. (l AA 2:~2 and 1 AA 30

- 2 AA 311).

Prior to recelvmg the award of the Lease-Leaseback Contracts

Contractor was employed by District as a professional consultant to provide

bond program management and construction manageinent services to District

relative to projects funded by Measures Y andZ, including the Projects subject

to the Lease-Leaseback Contracts. (1 AA 1 7 :~44-~4 7.)

Prior to receiving the award of the Lease-Leaseback Contrads

Contractor was employed by District as a professional consultant to provide

preconstruction design assist services to District relative to the Projects. (l

AA 17:~48-~51.)

Under Section 6 of the Site Leases attached to the F AC as Exhibits A,

D and G, (collectively Site Lease) District leased to Contractor District's real

propeliy identified therein in retum for Contractor's payment of $1.00 to

District per year per site. (l AA 3:~1O; 1 AA 35; 1 AA 157; and 1 AA 265.)

Under the Sublease Agreements attached to the F AC as Exhibits B, E

-10-

and H ( collectively Sublease) Contractor and District contend Contractor will

be "leasing" back to District the real propeliy identified therein. (1 AA 4:~ll;

1 AA 45-60; 1 AA 152-168; and 2 AA 260-276.) Per Section 7 District's

payment to Contractor an amount equal to the cost of constlUcting the Projects

as specified in the ConstlUction Services Agreements. (l AA 4:~11; 1 AA 49;

1 AA 157; and 2 AA 265.)

Under the ConstlUction Services Agreements attached to the F AC as

Exhibits C, F and I (collectively Construction Services Agreement) Contractor

will construct the Projects pursuant to plans and specifications prepared by

District's architects for the Projects in return for District's payment to

Contractor of an amount not to exceed Contractor's guaranteed maximum

pnce. (1 AA 4:~12; 1 AA 62-136; 1 AA 170-244; and 2 AA 278-352.)

District is united in interest with Taxpayer in the prosecution of this

action, but its consent to be joined as a plaintiff could not be obtained for the

reason that District contends its Lease-Leaseback Contracts are legal and it

has, to date, not taken any action to seek validation of same (notwithstanding

having been authorized to do so in the relevant District Resolutions) thereby

forcing Taxpayer to do so. Taxpayer previously demanded District issue a

notice to Contractor to stop work on the Projects which m:e the subject of the

Lease-Leaseback Contracts. Taxpayer also asked District to join with Taxpayer

in this action against Contractor to recover any funds paid to Contractor. To

date, District has refused to do so and, to the contrary, has filed motions

attempting to defeat Taxpayer's attempt to have monies returned to District

from Contractor. (1 AA 4:~13.)

Without seeking validation, District directed Contractor to proceed with

the Lease-Leaseback Contracts and has made payments to Contractor

thereunder. (1 AA 5:~14.)

-11-

The Lease-Leaseback Contracts District entered into with Contractor

were not awarded in the manner required by law and are therefore ultra vires,

illegal, void and/or unenforceable. Taxpayer seeks a judgment on behalf of

District against Contractor for money paid by District to Contractor under the

challenged Lease-Leaseback Contracts. (1 AA 5:~15.)

VI. ARGUMENT

A. The Superior Court Abused its Discretion When it Sustained Objections of Contractor/District to Taxpayer's Requestfor Judicial Notice of Notice of Lodgement Exhibits A-F, L, and N.

Taxpayer properly requested judicial notice of newspaper articles, lease

leaseback presentation material, and a legal opinion on contractor conflicts of

interest from Best, Best & Krieger attached as Exhibits "A" through "F," "L,"

and "N" to his Notice of Lodgement and Request for Judicial Notice in

SuppOli of Opposition to Demurrers and Motion to Strike First Amended

Complaint (RJN). (4 AA 908 - 935; 5 AA 1009-1015.) Judicial Notice may

be taken of facts and propositions of such conUllon knowledge when they are

not the subject of dispute, and of facts and propositions that are capable of

ii11l11ediate and accurate determination by resOli to sources of reasonably

indisputable accuracy. Evid. Code, §452, subd. (g)-(h). Additionally, a cOUli

may take judicial notice of disputable materials if the materials provide context

to another piece of evidence, or if the mere existence of the material provides

value to the cOUli. See Seelig v. Infinity Broadcast Corp. (2002) 97

Cal.App.4th 798, 807, fn. 5; see also Kashian v. Harriman (2002) 98

Cal.App.4th 892, 900, fn. 3 (where the court tookjudicial notice of newspaper

aIiicles attached to a relevant letter in order to provide context to the letter, but

not for the truth of the assertions contained in the news aliic1es.)

-12-

The trial COUli must take judicial notice of any matter specified in

Evidence Code section 452 if any paliy requests it and: a) gives notice to each

adverse p31iy; and b) furnishes the cOUli with sufficient info1111ation to enable

it to take judicial notice of the matter. Evid. Code, §453.

The Superior COUli abused its discretion when it granted the objections

to Taxpayer's RJN "A" through "F," "L," and "N" because they provide

context for his proposed statutory interpretation of Education Code sections

17406 and 17417 to prevent misuse of public funds, fraud, favoritism and

corruption and stimulate advantageous market place competition in the

expenditure of school construction bond proceeds.

Taxpayer's justification forjudicial notice of Exhibits "A" through "F ,"

"L" and "N" fits within the requirements of Evidence Code section 452 and

therefore the Superior COUli abused its discretion by not taking judicial notice

of the aIiicles as required in Evidence Code section 453. Accordingly, the

Superior COUli was required to take judicial notice ofthe submitted documents

and abused its discretion when it failed to do so.

B. The Superior Court Erred When it Sustained the Demurrers to Taxpayer's First Cause of Action

Taxpayer's Fii'st Cause of Action sufficiently alleged the

Lease-Leaseback Contracts are ultra vires, illegal, void and unenforceable

because Education Code sections 17400-17429 only authorize genuine lease

and leaseback agreements while the Lease-Leaseback Contracts at issue in this

action are sham leases entered into as a subterfuge to avoid the competitive

bidding requirements of Public Contract Code section 20110 et seq. (lAA

8:~21 - 1 0:~26.)

-13-

Citing to the California Supreme Court's admonition in City of Los

Angeles v. O.ffiler (1942) 19 Ca1.2d 483,486 that designating an agreement as

a 'lease' for purposes of a subterfuge in a public lease-leaseback alTangement

will void the agreement (i.e. it must be a genuine lease-leaseback and not a

sham), the SAB Report cautioned that:

• The lease must be entered into in "good faith." Presumably that

means that both parties to the agreement intend that a lease

arrangement will exist and will be implemented. (2 AA 367.)

The lease alTangement may not be a subterfuge. Many districts

openly admit that they are using lease lease-back contracts for

the perceived benefits listed earlier which are only available if

there is no competitive bid requirement. (2 AA 367.)

Taxpayer premised his First Cause of Action on the foregoing rule that

designation of an agreement as a 'lease' in a public lease-leaseback

alTangement, when in fact it is a subterfuge for some other sham purpose, will

void the agreement (i.e. it must be a genuine lease-leaseback and not a sham).

Taxpayer's F AC includes the following factual allegations which are sufficient

to state a cause of action as to whether the Lease-Leaseback Contracts were

subtei~fuges or shams and therefore ultra vires, illegal, void and/or

unenforceable:

1. To fit within the alternative procedures for school facility

construction prescribed by Education Code sections 17400-17429, a genuine

lease and leaseback alTangement must exist whereby a district transfers the

right to use and beneficial occupancy of the subject propeliy to the contractor

by way of a site lease and the district regains the right of actual, legitimate and

beneficial use and occupancy of the property through a leaseback agreement

over a defined period of time. (1 AA 9:3-7.)

-14-

2. Consistent with the rule aIiicu1ated in City and County of San

Francisco v. Boyle (1925) 195 Cal. 426, 433, 437, the trier of fact is required

to disregard the self serving titles, stipulations and definitions contained in the

challenged Lease-Leaseback Contracts between District and Contractor

relative to the Projects and evaluate the true nature, arrangement and purpose

of the Lease-Leaseback Contracts in light of the subject to which they relate,

the end for which they were created and the means by which they accomplish

their end. (1 AA 9:9-13.)

3. The Lease-Leaseback Contracts between District and Contractor

are not really leases and therefore are not the type of arrangements authorized

by Education Code section 17400-17429 because they are a subterfuge to

avoid the requirements of Public Contract Code sections 20110-20118.4 and

circumvent the goals and public benefits outlined by the Legislature in Public

Contract Code section 100. (1 AA 9:14-10:21.)

4. The Lease-Leaseback Contracts between District and Contractor

are not really leases and therefore are not the type of alTangements authorized

by Education Code sections 17400-17429 because they are really sham leases

because, inter alia, the payments on the Subleases are not real lease payments

because they, inter alia: (1) last only as long as the duration of construction; (2)

are variable based upon the value of construction work performed by

Contractor prior to the date of payment; (3) do not provide for any financing

of the work by Contractor (because its obligation to pay others who are

actually providing the labor, equipment, materials and services for the

construction of the Projects is contingent upon it first receiving payment for

same from the District); (4) the lease payments end concurrently with the

completion of construction of the Projects by Contractor; (5) the Project is

being performed and administered in a manner consistent with Public Contract

-15-

Code sections 20110-20118.4 rather than with Education Code sections 17400-

17429; (6) the District is withholding retention from its payments to Contractor

and requiring Contractor to provide payment and perfonnance bonds; and (7)

the District does not have the right or practical ability to have beneficial

occupancy of the demised premises during the tenn of the Facilities Lease to

use them for their intended purposes. (1 AA 9:22-10:6.)

As to the last point, the Lease-Leaseback Contracts between District

and Contractor are not really leases because the District does not have actual,

legitimate and beneficial use and occupancy of the Projects during the ten11 of

the Sublease. This is because the duration of the Subleases are only as long as

the Projects are under construction per Section 3 of the Subleases, which

specifies:

"The term of the Sublease shall tenninate upon the completion of the Project and payment of the last Sublease Payment, unless sooner terminated as hereinafter provided." (l AA 48; 1 AA 155; 2 AA 263.)

Further, Section 8 of the Subleases states:

"Sublease Payments shall be paid by District in consideration of the right of possession of, and the continued quiet use and enjoyment of, the Project and the Site during the lease." (1 AA 50; 1 AA 157; 2 AA 265)

Finally Section 10 of the Subleases provides:

"During the term of this Sublease, [ Contractor] shall provide the District with quiet use and enjoyment of the Site without suit, or hindrance from [Contractor] or their assigns[ ... ] [Contractor] acknowledges and agrees to the District's use or occupation of the Site, so long as such use or occupation does not umeasonably interfere with construction of the Project. (1 AA 51; 1 AA 158; 2 AA 266.)1

To the extent the foregoing contract tenns support a finding of sham and subterfuge, but are detennined to be insufficiently specified in Taxpayer's

-16-

Taxpayer alleged the Lease-Leaseback Contracts between District and

Contractor are not real leases as authorized in Education Code 17400-17429

but instead are shams and subterfuges, entered into to avoid the competitive

bidding obligations of the Public Contract Code that would otherwise apply

but for District and Contractor using self serving titles, stipulations and

definitions in their "Lease-Leaseback Contracts." (1 AA 9:~26.) Their sham

and subterfuge is apparent in the impossible and impractical promises provided

in Section 8 above, namel y "District's right of possession of, and the continued

quiet use and enjoyment of, the Project and the Site during the lease" and in

Section 1 0 with reference to Contractor providing "District with quiet use and

enjoyment of the Site without suit, or hindrance from [Contractor] or their

assigns[ ... ] [Contractor] acknowledges and agrees to the District's use or

occupation of the Site, so long as such use or occupation does not

unreasonably interfere with construction of the Project."

Taxpayer is legally entitled to have a trier of fact evaluate Taxpayer's

evidence and arguments that the nature, duration and extent of the constmction

specified for each Project, including the "Description of Project" in each

Sublease (1 AA 57; 1 AA 165 and 2 AA 273), is of such a magnitude so as to

negate any real or practical' quiet use and enjoyment' or actual, legitimate and

beneficial use and occupancy of the Projects by District during the term of the

Sublease such that the trier of fact should conclude the Subleases are nothing

more than shams and subterfuges with self serving language, titles and

definitions that in no way match the lease-leaseback project delivery method

F AC, Taxpayer requests leave to amend his complaint to expressly include such allegations. It would be an abuse of discretion not to grant such leave. Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 225-26.

-17-

authorized by Education Code sections 17400-17429.

Celiainly District and Contractor will argue the Lea se- Lease back

Contracts between them are not shams nor subterfuges and that District does

have the right to "quiet use and enjoyment of, the Project and the Site during

the lease." Whether the trier of fact accepts Taxpayer's assertion that the

Lease-Leaseback Contracts are shams or subterfuges or accepts District's and

Contractor's asseliions that they are not is a question of fact under Ci(vand

County of San Francisco v. Boyle, supra, and City of Los Angeles v. Ojjher,

supra. Because all questions of fact are to be resolved in favor of Taxpayer

for purposes of demulTer, the Superior COUli elTed in when it dismissed

Taxpayer's First Cause of Action on demulTer and denied the trier of fact the

0PPOliunity to decide the question of sham and subterfuge.

C. The Superior Court Erred When it Sustained Contractor's Demurrer to Taxpayer's Second Cause of Action

The Superior Court elTed when it sustained Contractor's demurrer to

Taxpayer's Second Cause of Action on the grounds Contractor did not owe

any fiduciary duty. As discussed below, Taxpayer sufficiently alleged the legal

and factual basis for its Second Cause of Action so as to withstand

Contractor's demurrer. (1 AA 10:~27-11:~31.)

Contractor posi ted a strawman argument that Taxpayer's Second Cause

of Action is for breach of fiduciary duty by Contractor since Contractor would

be the party paying damages if Taxpayer prevailed on its cause of action. (3

AA 527:21-528:10.) Contractor failed to recognize the basis of Taxpayer's

claim for recovery of funds from Contractor to District on his Second Cause

of Action is the Lease-Leaseback Contracts are void based on the failure of

District's Board of Education to comply with fiduciary duties imposed upon

them by law. (1 AA 1 0:~27-11 :~31.)

-18-

As a matter of well settled Califomia law, public officials such as

District's Board of Education have the same fiduciary relationship toward the

residents and taxpayers of the District as a tlUstee bears to his cestui que tlUst,

and should therefore act with the utmost good faith in all of their actions,

including, but not limited to the expenditure of Measure Y and Z funds for $48

million dollar school constlUction projects. Nussbaum v. Weeks (1989) 214

Cal. App. 3d 1589,1597; citing Hobbs, Wall & Co. v. Moran (1930) 109 Cal.

App. 316, 319. Likewise, this COUli in Terry v. Bender (1956) 143 Cal.App.2d

198 stated:

A public office is a public trust created in the interest and for the benefit of the people. Public officers are obligated, viliute officii, to discharge their responsibilities with integrity and fidelity. Since the officers of a govel1lmental body are trustees of the public weal, they may not ... violate their oath of office and vitiate the trust reposed in them, and the public is injured by being deprived of their loyal and honest services. !d. at 206. (citations and citation punctuation omitted for clarity.)

Taxpayer's Second Cause of Action sufficiently alleged District's Board

of Education breached the fiduciary duty imposed upon them by law based on

their position, oath of office, andlor applicable law because, after the Division

of State Architect approved the plans and specifications for the Projects which

are the subject·ofthe Lease-Leaseback Contracts, they inter alia: (1) failed to

consider alternative less expensive proposals to perform the work

contemplated underthe approved plans and specifications that were the subject

of the Lease-Leaseback Contracts; (2) failed to consider any evidence as to

whether the price to be paid for the work contemplated under the approved

plans and specifications that were the subject of the Lease-Leaseback

Contracts was reasonable; (3) failed to exercise due diligence to detennine

whether the price to be paid for the work contemplated under the approved

-19-

plans and specifications that were the subject of the Lease-Leaseback

Contracts could be lower; (4) knew or should have known that the price to be

paid for the work contemplated under the approved plans and specifications

that were the subject of the Lease-Leaseback Contracts could have been lower;

(5) failed to solicit alternative bids to the price quoted by Contractor for work

contemplated under the approved plans and specifications that were the subject

ofthe Lease-Leaseback Contracts; (6) failed to proceed in a maImer that would

secure the best price for the work contemplated under the approved plans and

specifications that were the subject of the Lease-Leaseback Contracts; and/or

(7) failed to proceed in a maImer required by law as alleged elsewhere in the

FAC. (1 AA 10:Gj!29.)

Here, in compliance with Education Code section 17402, District hired

Westberg & White Architects to prepare the plans and specifications for the

constlUction of the Projects. (1 AA 65; 1 AA 173 and 2 AA 281.) Because

Education Code section 17402 requires these plans and specifications be

reviewed and approved for constlUction by the California Division of State

Architect (DSA) prior to a school district entering into a lease-leaseback

transaction, there is nothing preventing a school district from soliciting

competitive bids. Had District solicited sealed competitive bids on their DSA

approved plans and specifications for the Projects they would have had an

objective basis from which to detennine whether the price they conunitted to

pay Contractor was fair and reasonable. Because District had no basis to

detennine whether they committed to pay Contractor a fair and reasonable

price, their decision to award Contractor $48 million dollars wOlih of

constlUction contracts was arbitrary and capricious and in breach of their

fiduciary duty to the residents and taxpayers of the District.

-20-

Under Nussbaum, Hobbs and Terry, supra, District's Board of

Education were trustees and owed a fiduciary duty to the residents and

taxpayers of the District relative to District's award of the Lease-Leaseback

Contracts. When District's Board of Education failed to comply with their

obligations as trustees and fiduciaries under California law in the award of the

Lease-Leaseback Contracts, those contracts were not being awarded in

compliance with all legal requirements. When a contract is awarded without

compliance with all applicable legal requirements, the contract is void. Miller

v. McKinl10n (1942) 20 Ca1.2d 83,87 -88. It is equally well settled that money

paid under a void contract may be recovered in a suit filed by a taxpayer on

behalf of the gove111l11ental agency involved. Jd. at 96. The Supreme COUli

noted "It may sometimes seem a hardship upon a contractor that all

compensation for work done, etc., should be denied him; but it should be

remembered that he, no less than the officers of the corporation, when he deals

in a matter expressly provided for in the Chalier, is bound to see to it that the

charter is complied with." ld. at 89.

The Supreme Court's rationale for the strict application of this doctrine

is that to hold otherwise would create a disincentive for contractors and public

entities to follow the law. !d. (1 AA S:Gjl17.) In this case, to allow Contractor

to retain $48 million dollars from the Measure Y and Measure Z general

obligation bond proceeds under the Lease-Leaseback Contracts when District's

. Board of Education failed to comply with their obligations as trustees and

fiduciaries to the residents and taxpayers of the District under California law

relative thereto, would create a disincentive for contractors and public entities

to observe and respect such trustee and fiducimy duties in the future.

Moreover, Contractor's position as District's Measures Y and Z bond program

manager justifies extending the fiducimy duties imposed on District's Board

-21-

of Education to Contractor since Contractor is in a position of superior

knowledge, tlUst and confidence vis a vis the District and its Board of

Education and in that position is advising the District how to spend the

Measures Y and Z bond money. (1 AA l7:~44- 18:~47.)

D. The Superior Court Erred When it Sustained District's Demurrer to Taxpayer's Second Cause of Action

The Superior COUli eITed when it sustained District's demurrer to

Taxpayer's Second Cause of Action on the grounds the TOlis Claim Act

required Taxpayer to comply with the Act's claims presentation requirements.

By its own tenl1s, the claims presentation requirements of Government

Code section 900 et seq., the Government Claims Act, f0l111erly known as the

T O1i Claims Act, extends onl y to actions for "money or damages against local

public entities." Gov. Code §90S. Because Taxpayer's claims do not seek

money or damages against a local public entity, the claims presentation

prerequisites of Government Code section 900 et seq., do not apply.

As alleged in Paragraph IS of the F AC, Taxpayer's claims do not seek

money or damages against a local public entity. To the contrary, Taxpayer's

Second Cause of Action is for a local public entity because Taxpayer seeks to

have all money paid by District to Contractor under the Lease-Leaseback

Contracts paid back to District. (1 AA S:~3l.)

"In detenl1ining whether the Claims Act applies, the critical question

is whether the recovery of money or damages was the primary purpose of

Plaintiffs' claims." Canova v. Trustees of Imperial Irrigation Dist. Employee

Pension Plan (2007) 150 Cal.App.4th 1487, 1493. "The Claims Act does not

apply, however, to non-pecuniary actions." Id. "[T]he claims statutes do not

impose any requirements for nonpecuniary actions, such as those seeking

injunctive, specific or declaratory relief." Loehr v. Ventura County Community

-22-

College Dist., (1983) 147 Cal.App.3d 1071, 1081. Even ifmoney or damages

are involved in a dispute, an action to compel the retum of a specific sum of

money belonging to a patty under applicable law is not a claim for money

damages. Branc[forte Heights, IIC v. City of Santa Cruz (2006) 138

Cal.App.4th 914, 929. Here, Taxpayer has brought an action to compel the

return of money to the District from Contractor. Because Taxpayer is seeking

the payment of money to the District rather than payment of money from the

District, Taxpayer is not required by law to comply with the Govemment

Claims Act, formerly known as the Tort Claims Act.

E. The Superior Court Erred When it Sustained the Demurrers to Taxpayer's Third Cause of Action

Taxpayer's Third Cause of Action asserts the Lease-Leaseback

Contracts between District and Contractor are ultra vires, illegal, void and

unenforceable because District did not comply with the competitive bidding

requirements of Education Code section 17417 relative to the Sublease portion

of the Lease-Leaseback Contracts. (1 AA 13 :~40-41 .)

District and Contractor demuned to Taxpayer's Third Cause of Action

on the grounds Education Code section 17417 does not apply to any pOltion

of their Lease-Leaseback Contracts which they claim are exclusively governed

by Education Code 17406. (2 AA 373: 18-22 and 3 AA 513:18-21.) Contractor

and District inconectly asselt Education Code 17406 exempts both the Site

Lease and Sublease pOltions of their Lease-Leaseback Contracts from

competitive bidding. The Superior COUlt erred when it adopted the

intel1Jretation of 17406 and 17417 advanced by District and Contractor and

sustained their demurrers to Taxpayer's Third Cause of Action.

-23-

Taxpayer urges this Comi to adopt his and SAB counsel's interpretation

that Education Code section 17406's exemption from competitive bidding

applies only to the site lease pOliion of a lease-leaseback transaction and

Education Code section 17417's requirement for competitive bidding applies

to the sublease pOliion of a lease-leaseback transaction? It makes sense

competitive bidding is required relative to the sublease portion of the lease­

leaseback transaction because that is where a school district is paying out

public funds to a contractor. It fmiher makes sense that competitive bidding

is not required relative to the site lease pOliion of the lease leaseback

transaction because that is where a contractor is paying a school district a

nominal fee for the legal right to occupy the school district's property for the

period of time necessary for the contractor to construct thereon the

improvements the contractor will then leaseback to the school district.

As discussed above, California law and public policy have favored

competitive bidding for over 150 years to eliminate favoritism, fraud and

conuption; to avoid misuse of public funds; and to stimulate advantageous

market place competition. Ghilotti Canst. Co. v. City of Richmond (1996) 45

Cal. App.4th 897, 907-908. In contrast, the interpretations of Education Code

sections 17406 and 17417 adopted by the Superior Comi do not stimulate

advantageous market place competition relative to public ally funded school

construction projects. Instead, the Superior Court's interpretations of

The preface "Notwithstanding Section 17417" in Education Code 17406 is present to clarify that only the site lease is exempt from the competitive bidding requirements of Education Code section 17417. This is necessary because a lease leaseback anangement would not work if the both the site lease and the sublease had to be competitively bid since it would be possible that the successful bidder on the site lease might not be the successful bidder on the sublease.

-24-

Education Code sections 17406 and 17417 enable and encourage the misuse

of public funds and the evils of fraud, favoritism and corruption referenced in

the San Diego Grand Jury testimony, Grand Jury Exhibits, newspaper aIiicles

and criminal indictments attached as Exhibits A-K to Taxpayer's Notice of

Lodgment in Support of Opposition to Demurrers. (4 AA 908-977.) Similar

instances of misuse of public funds, fraud, favoritism and corruption are

equally well known within this Court's jurisdiction involving the City of Bell

and now possibly the Centinela Valley Union High School District.

1. Background on Lease-Leaseback Transactions

The SAB RepOli states Education Code sections "17400 through 17425

provide a method for financing school construction." (2 AA 363.) A lease­

leaseback transactions where a school district owns the propeliy upon which

the subject project is to be built requires two contracts between the school

district and the contractor. The first contract is a site lease agreement whereby

the school district leases to the contractor a site owned by the district to give

the contractor the legal right to occupy and perform construction work on the

district's property. Under the site lease, the contractor pays a nominal fee to

the district, usually a dollar a year, to gain title and access to the district's

propeliy upon which the subject project will be constructed.

The second contract is a sublease agreement (tenns for construction can

be included therein or in a separate document as is the case here) whereby the

school district leases back from the contractor the project site and the

improvements constructed thereon by making periodic payments over an

agreed upon period of time. It is through the sublease that the school district

pays the other paIiy the cost of construction plus the financing cost incuned

by other paIiy over the tenn of the lease. Counsel for District can not dispute

the foregoing SUl1U11aI), of a lease-leaseback transaction because it is consistent

-25-

with their sunm1ary of same given to the Coalition for Adequate School

Housing on February 23-26 and attached as Exhibit L to Taxpayer's Notice of

Lodgment in SuppOltofOpposition to DemulTer. (4 AA 978-984, see Gj! B.l on

980-981.) Obviously Taxpayer does not agree with many of the asseltions

contained in the foregoing document, but Taxpayer does acknowledge that the

document's summary of the two agreements necessary for a lease-leaseback

transaction is reasonably accurate.

Education Code sections 17400-17429 are found in Alticle 2, entitled

Leasing Propelty, of Chapter 4, entitled Propelty: Sale, Lease, Exchange, of

PaIt 10.5, entitled School Facilities, of Division 1, entitled General Education

Code Provisions, of Title 1 of California' s Education Code. The provisions of

Education Code sections 17400-17429 that expressly address scenarios under

which a school district is going to payout money are 17407, 17417 and 17418.

Each of the foregoing provisions require that any amount of money to be paid

out by a school district be determined via sealed competitive bidding with

award only to the lowest responsible bidder after public notice inviting bids.

The provisions of Alticle 2 are drafted in such a way as to require and ensure

school districts pay the least amount possible if they are going to enter into a

lease-leaseback transaction for purposes of constructing school facilities

consistent with California's public policy preference for competitive bidding.

The provisions of Article 2 above are the opposite of sections

17455-17484 of Alticle 4, entitled Sale or Lease of Real Propelty, of Chapter

4, entitled Propelty: Sale, Lease, Exchange, of PaIt 10.5, entitled School

Facilities, of Division 1, entitled General Education Code Provisions, of Title

1 of California's Education Code which are drafted in such a way as to require

and ensure school districts receive the highest amount of money from private

paIties if they are going to lease or sell school property.

-26-

Education Code section 17417 provides:

After the goveming board of a school district has complied with . Section 17402, it shall, in a regular open meeting, adopt a resolution declaring its intention to enter into a lease or . agreement pursuant to this atiicle. The resolution shall describe, in any manner to identify it, the available site upon which the building to be used by the district shall be constructed, shall generally describe the building to be constructed and state that the building shall be constructed pursuant to the plans and specifications adopted by the governing board therefor, shall, if that is the case, state the minimum yearly rental at which the governing board will lease real propeliy belonging to the district upon which the building is to be constructed, and shall state the maximum number of years for which the school district will lease the building or site and building, as the case may be, and shall state that the proposals submitted therefor shall designate the amount of rental, which shall be annual, semimIDual, or monthly, to be paid by the school district for the use of the building, or building and site, as the case may be. The resolution shall fix a time, not less than three weeks thereafter for a public meeting ofthe governing board to be held at its regular place of meeting, at which sealed proposals to enter a lease or agreement with the school district will be received from any person, firm, or corporation, and considered by the governing board. Notice thereof shall be given in the maImer provided in Section 17469.

At the time and place fixed in the resolution for the meeting of the governing body, all sealed proposals which have been received shall, in public session, be opened, examined, and declared by the board. Of the proposals submitted which conf01111 to all ten11S and conditions specified in the resolution of intention to enter a lease or agreement and which are made by responsible bidders, the proposal which calls for the lowest rental shall be finally accepted, or the board shall reject all bids. The board is not required to accept a proposal, or else reject all bids, on the same day as that in which the proposals are opened.

-27-

Education Code section 17406 provides:

(a) Notwithstanding Section 17417, the goveming board of a school district, without advertising for bids, may let, for a minimum rental of one dollar ($1) a year, to any person, finn, or corporation any real propeliy that belongs to the district if the instlUment by which such propeliy is let requires the lessee therein to constlUct on the demised premises, or provide for the construction thereon of, a building or buildings for the use of the school district during the tem1 thereof, and provides that title to that building shall vest in the school district at the expiration of that tem1. The instrument may provide for the means or methods by which that title shall vest in the school district prior to the expiration of that term, and shall contain such other ten11S and conditions as the governing board may deem to be in the best interest of the school district.

(b) Any rental of propeliy that complies with subdivision (a) shall be deemed to have thereby required the payment of adequate consideration for purposes of Section 6 of Aliic1e XVI of the California Constitution;

2. The Superior Court's Ruling Is Contrary to the Plain Language and Context of Education Code Sections 17406 and 17417

Paragraph 37 of Taxpayer's FAC asselis Education Code section

17406, if read in context, is to be read as follows: ", .. the goveming board of

a school district, without adveliising for bids, may let, for a minimum rental

of one dollar ($1) a year...any real propeliy that belongs to the district if the

instrument by which such property is let requires the lessee therein to construct

on the demised premises ... a building or buildings for the use of the school

district during the tenn thereof, and provides that title to that building shall

vest in the school district at the expiration of that term ... " (1 AA 14:~37.)

There is no language in Education Code section 17406 that relates to the

sublease of the propeliy back to the school district. There is no language in

-28-

Education Code section 17406 on how the amount to be paid by a school

district to sublease its propeliy back is dete1111ined. Quite simply, Education

Code section 17406 does not address the sublease p01iion of the lease­

leaseback transaction. That is because the specifics of the sublease p01iion of

the lease-leaseback transaction are laid out in Education Code 17417.

Education Code section 17406 applies only to a site lease. This is

supp01ied by the fact that Education Code section 17406 only uses the ten11

"let" which is a verb. According to the New Webster's Dictionary of the

English Language the word "let" means "To permit; to allow; to permit to

enter, pass or go; to rent or lease .... " Other dictionaries provide a similar

definiti on 0 f the ,vord "1 et." For instance, http://www.thefreediction31y.com/let

defines "let" as follows:

v. let, letting, lets V.tr.

v.intr.

1. To give permission or 0pp01iunity to; allow: I let them bOlTOW the car. The inheritance let us finally buy a house. See Usage Note at leavel. 2. To cause to; make: Let the news be known. 3. a. Used as an auxili31Y in the imperative to express a command, request, or proposal: Let's finish the job! Let x equal y. 3. b. Used as an auxiliary in the imperative to express a warning or threat: Just let her tlY! 4. To permit to enter, proceed, or dep31i: let the dog in. S. To release from or as if from confinement: let the air out of the balloon; let out a yelp. 6. To rent or lease: let rooms. 7. To award, especially after bids have been submitted: let the construction job to a new fim1.

l. To become rented or leased. 2. To be or become assigned, as to a contractor.

-29-

Likewise, http://www.merriam-weoster.com/dictionmyllet defines "let" as

follows:

transitive verb I: to cause to : make <let me know> 2a: chiefly British: to offer or grant for rent or lease <let rooms> 2b: to assign especially after bids <let a contract> 3a: to give oppOliunity to or fail to prevent <live and let live> <a break in the clouds let us see the summit> <let the oppOliunity slip> 3b: used in the imperative to introduce a request or proposal <let us pray> 3c: used as an auxiliary to express a warning <let him tIy> 4: to free from or as if from confinement <let out a scream> <let blood> 5: to permit to enter, pass, or leave <let them thJough> <let

them off with a warning> 6: to make an adjustment to <let out the waist>

When relating to real/personal propeliy, the foregoing definitions of

"let" all are set in the context and from the perspective of an owner of

something who is relinquishing a possessOly interest. Based on the foregoing

definitions of the word "let," the plain meaning of Education Code section

l7406's use of the term "let" followed by the phrase "any real property that

belongs to the district" can only refer to the site lease whereby a school district

transfers its propeliy to Its leaseback contractor.

Taxpayer contends the plain meaning of the words and phrases used in

Education Code section 174l7likewise can only refer to the sublease because

Education Code section 17417 references " ... real propeliy belonging to the

district..."; " ... to be paid by the school district for the use of the building ... " and

"the school district will lease the building or site and building ... " It makes

sense competitive bidding is required relative to the sublease because a school

district is paying a contractor with public funds and California public policy

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and law for 150 years has required govermnental expenditures for construction

done pursuant to plans and specifications prepared by the govenunental

entity's separately retained architect be done only via sealed competitive

bidding.3

Education Code section 1 7406's exclusive application to the site lease

is fUliher evidenced when that section is read in the overall context of Aliicle

2, entitled Leasing of Propeliy, Education Code sections 17400-17429. Each

provision in Education Code sections 17400-17429 that deals with a scenario

where a school district is going to pay money to another requires competitive

bidding (i.e. awarded only to the lowest responsible bidder after giving public

notice soliciting sealed bids. See Education Code section 17407 (where a

district does not own the propeliy upon which the subject project is to be

built); Education Code section 17417 (where a district does own the propeliy

upon which the subject project is to be built); and Education Code section

17418 (where the district contracts with a non-profit public benefit corporation

for the construction of the subject project).) The Projects at issue in this action

are ones that will be built on propeliy owned by District so Education Code

section 17417 applies rather than Education Code section 17407 or Education

Code section 17418.

Finally, that the Legislature intended Education Code section 17406's

Here, in compliance with Education Code section 17402, District hired Westberg & White Architects to prepare the plans and specifications for the construction of the Projects. (1 AA 65; 1 AA 173 and 2 AA 281.) Because Education Code section 17402 requires these plans and specifications be reviewed and approved for construction by the Califomia Division of State Architect prior to a school district entering into a lease leaseback transaction, there is no reason a school district can not solicit competitive bids in the manner required by Education Code section 17417.

-31-

exemption from competitive bidding to only apply to the Site Lease is

evidenced by subparagraph (b) of Education Code section 17406 which

exempts site leases from the requirements of Article XVI of the California

Constitution, which ordinarily requires any disposition of public property

(whether by lease, sale or otherwise) be only to the recipient who gives the

most consideration to the public owner of the propeliy so as to avoid any gift

of public propeliy. A lease leaseback alTangement would not work if the both

the site lease and the sublease had to be competitively bid since it would be

possible that the successful bidder on the site lease might not be the successful

bidder on the sublease.

3. The Superior Court's Interpretation of Education Code Sections 17406 and 17417 Is Contrary to Established Rules of Statutory Interpretation

a. The Superior Court's Interpretation of Education Code Sections 17406 and 17417 Is Contrary to the Rule that the Specific Controls the General

A well-established rule of statutory interpretation is that the specific

controls the general. See Code Civ. Proc., § 1859. "[W]hen a general and

paliicular provision are inconsistent, the latter is paramount to the former"

People v. Superior Court (Jimenez) (2002) 28 Cal.4th 798, 808; Miller v.

Superior Court (1999) 21 Ca1.4th 883, 895; San Francisco Taxpayers Assn. v.

Board o/Supervisors (1992) 2 Cal.4th 571,577 ["A special act is considered

an exception to the general statute"]; Woods v. Young (1991) 53 Cal.3d 315,

325 ["specific provision relating to a paliicular subject will govern a general

provision. "]

-32-

Applying the maxim of statutory interpretation that specific statutory

language trumps conflicting general language confinns Taxpayer's proffered

interpretation of the interplay between Education Code section 17406 and

Education Code section 17417 is conect since Education Code section 17406

is a section of general language and Education Code section 1741 7 is a secti on

of specific prescription directing how leaseback contracts involving prope11y

owned by a school district are to be adveltised, bid and awarded.

b. The Superior Court's Interpretation of Education Code Sections 17406 and 17417 Is Contrary to the Rule Favoring Interpretations That Lead to More Reasonable Results

The COUlt should reject the Superior Court's interpretation of Education

Code section 17406 and 17417 because it leads to mischief. The California

Supreme COUl1 has stated "[i]n the interpretation of statutes, when two

constructions appear possible, this COUlt follows the mle of favoring that

which leads to the more reasonable result." Metropolitan Water District v.

Adams (1948) 32 Cal 2d 620,630. Further, "It is a well recognized rule that

where a statute is susceptible of two constructions, one leading inevitably to

mischief or absurdity, and the other consistent with justice, sound sense and·

wise policy, the fonner should be rejected and the latter adopted." Jacobs v.

Dept. of Motor Vehicles (1958) 161 Cal. App. 2d 727, 731. "If the language

pennits more than one reasonable interpretation, however, the court looks "to

a variety of extrinsic aids, including the ostensible objects to be achieved, the

evils to be remedied, the legislative history, public policy, contemporaneous

administrative construction, and the statutory scheme of which the statute is

a p311." S.B. Beach Properties v. Berti (2006) 39 Ca1.4th 374,379.

-33-

California Courts have stated the purposes of competitive bidding is to

eliminate favoritism, fraud and cOlluption; to avoid misuse of public funds;

and to stimulate advantageous market place competition. Ghilotti Const. Co.

v. City of Richmond (1996) 45 Cal. App.4th 897, 907-908.

The Superior COUli's interpretations of Education Code sections 17406

and 17417 must be rejected because they enable and encourage the misuse of

public funds and the evils of fraud, favoritism and cOllllption referenced in the

San Diego Grand Jury testimony, Grand Jury Exhibits, newspaper articles and

criminal indictments attached as Exhibits A-K to Taxpayer's Notice of

Lodgment in SUPPOli of Opposition to DemUlTers. (4 AA 908-977.) Similar

instances of misuse of public funds, fraud, favoritism and cOlTuption are

equally well known within this Comi' s jurisdiction involving the City of Bell

and now possibly the Centinela Valley Union High School District.

When this Comi considers the ostensible objects to be achieved, the

evils to be remedied, the legislative history, public policy, contemporaneous

administrative constmction, and the statutory scheme of which the Education

Code sections 17406 and 17417 are a pmi and weighs the mischief to be

avoided, the justice to be had, and the sound sense and wise policy to be

achieved by Taxpayer's proposed interpretation of Educati'on Code sections

17406 and 17417, the COUli will have no choice but to conclude the Superior

COUli elTed adopting the interpretation of Education Code 17406 and 17417

proffered by District and Contractor.

c. The Superior Court's Interpretation of Education Code Section 17406 Renders Section 17417 Superfluous, Nugatory and a Nullity

The Superior Court's interpretation of Education Code section 17406

that it exempts both site leases and subleases from competitive bidding is also

-34-

incorrect because such interpretation renders Education Code section 17417

superfluous, nugatory and a nullity as there is no scenario under which

Education Code section 17417 would then apply. 4

"When construing a statute, a comi must consider the entire statutory

scheme of which it is paIi and give effect to all pmis of the statute, avoiding

an interpretation that would render any provision nugatory." Cel-Tech

Communications v. Los Angeles Cellular Telephone Co. (1999) 20 Cal. 4th

163, 216. "It is a well-settled principle of statutory interpretation that the

various paIis of a statute must be considered as a whole to avoid absurd or

anomalous results by hannonizing any apparently conflicting provisions; and

thus, a patiicular pati of a statutory enactment must be viewed in light of the

enactment in its entirety. Moreover, statutes should not be intelvreted in a

maImer to render parts of them superfluous." Rao v. Campo (1991) 233 Cal.

App.3d 1557, 1567.

When counsel for Taxpayer asked the Superior Comi to clarify during

oral argument what Education Code section 17417 applied to the Superior

Comi incOlTectly stated: "[174] 17 applies to everything, except 406 ... " CRT

6:2-25; 5 AA 1124:2-25.) There is nothing for Education Code section 17417

4

Taxpayer challenges District and Contractor to explain in their briefs what they contend section17417 applies to. Section17417 has to apply to something lest it be a nullity which Califomia statutes are not allowed to be. Respondents must agree section17417 does not apply to projects built on propeliy not owned by a school district because that is what section17407 applies to (" ... the title to the building and site shall vest in district...). section17407 expressly requires c'ompetitive bidding and award only to lowest responsible bidder just like section 17417. Why would the Legislature require competitive bidding for lease leaseback transactions on propeJiy not owned by a school district and NOT C as Respondents asseli) require it on propeliy owned by a school district?

-35-

to apply to except the award of subleases of propeliy belonging to a school

district which is the case in this action. The Superior Court's interpretation of

Education Code sections 17406 and 17417 was incorrect.

The Superior COUli eITed in its interpretation of Education sections

17406 and 17417 because its interpretation that section 17417 "applies to

everything, except 406" renders section 17417 superfluous, nugatory and a

nullity since there is nothing other than subleases of prope11y belonging to

school districts (as is the case here) for Education Code section 17417 to apply

to.

4. Taxpayer's Interpretation of Education Code Sections 17406 and 17417 is Supported by the Staff, Executive Officer and General Counsel of the State Allocation Board

The COUl1 should adopt Taxpayer's interpretations of Education Code

Sections 17406 and 17417 because they are consistent with the analysis and

opinion of the SAB Rep011. These qualified and knowledgeable persons

specifically rejected the interpretations of section 17406 and 17417 adopted

by the Superior COUl1 as follows:

Advocates of the use of lease lease-back agreements argue that the only requiren:1ent in EC Section 17406 is that the district owns the propeliy to be developed and that the prope11y be 'let' to the developer for at least one dollar per year. Under this circumstance the district is then relieved from the n0l111al PCC competitive bid requirement for the entire construction project. At this point some advocates maintain that a lease leaseback alTangement is required for the actual buildings, while others believe a simple construction contract is all that is required.

It is the opinion of staff and SAB counsel that either interpretation expands the meaning of EC 17406 beyond its simple intent and ignores other requirements in the same aliicle regarding competitive bid requirements for leases (EC 17417).

-36-

There is no disagreement that EC 17406 is clear in allowing districts to lease a district- owned site to a person, finn or corporation when the lessee agrees to construct buildings for the use of the school district. However, the exemption from public bidding allowed in this section applies only to the property lease from the district to the developer. It does not address how the contract for the construction of the buildings is procured nor does it provide an exemption to competitive bidding for that contract.

If the building to be constructed on the propeliy let to the developer using EC 17406 is to be leased to the district, Staff believes the provisions of EC 17417 Resolution of governing board declaring intention to enter into lease or agreement; opening and accepting bids, must be followed ....

Nothing in EC 17406 provides an exemption from this requirement or, when applicable, from the PCC requirements. Instead, EC 17406 provides exactly what it states: a simple manJ1er to transfer district propeliy without competitive bid to a developer who has been previously selected by competitive bid to construct a building for the use of the district. (2 AA 367-368.)

Under well settled California law, an administrative agency's

interpretation and construction of a statute it is charged with implementing "is

entitled to great weight." Henning v. Indus. We?fare Com. (1988)46 Cal. 3d

1262,1283; citing Bodinson Mfg. Co. v. California E. Com. (1941)17 Cal.2d

321, 325-326; also citing Banning Teachers Assn. v. Public Employment

Relations Bd. (1988) 44 Ca1.3d 799, 804. The SAB RepOli confirms

Taxpayer's assertion that, inter alia, (1) the exemption from competitive

bidding stated in section 17406 only applies to the site lease pOliion of the

lease-leaseback transaction (1 AA 366-367); (2) section 17417 applies to the

leaseback pOliion of the lease-leaseback transaction and requires competitive

bidding thereof (l AA 366-367.); (3) a lease-leaseback transaction must be

-37-

based on a genuine lease anangement and not be a subterfuge to avoid

competitive bidding (1 AA 365-366); (4) a lease-leaseback transaction must

be a genuine filiancing mechanism for funding school construction projects (1

AA 367 -368);5 and (5) absent the foregoing school construction contracts must

be awarded in the manner specified in Public Contract Code sections 20110 et

seq. (1 AA 367-368).

F. The Superior Court Erred When it Sustained the Demurrers to Taxpayer's Fourth Cause of Action

The Superior COUli ened when it sustained the demuners of

District/Contractor to Taxpayer's Fourth Cause of Action on the grounds

Govermnent Code section 1090 et seq., does not apply to Contractor. (2 AA

373:23-28 and 3 AA 513:22-26.) Taxpayer's Fourth Cause of Action at «j!«j!

42-56 sufficiently alleged the Lease-Leaseback Contracts are illegal, void and

unenforceable because their award to Contractor created a conflict of interest

under Govemment Code section 1090 and/or common law conflict of interest

principals based on Contractor's two prior professional consulting service

contracts with District involving the Projects which are the subject of the

Lease-Leaseback Contracts. (1 AA 17-21.)

1. California Law on Contractor's Conflict of Interest Under Government Code Section 1090

Govemment Code section 1090 broadly prohibits state and municipal

officials 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."

See also Morgan Hill Ul1~fred School Dist. v. Amoroso (1988) 204 Cal.App.3d 1083, 1086 and 62 Ops.Cal.Atty.Gen. 209, 210 (1979) which state the lease-leaseback provisions of Education Code sections 39300 39325 (culTently (§§ 17400-17429) are a method for financing school construction.

-38-

The Superior Court's ruling on Taxpayer's F omih Cause of Action is contrary

to the law aliiculated by this Comi in Hub City Solid Waste Services, Inc., v.

-_ City 0.1 Compton (2010) 186 Cal. App. 4th 1114, where this COUli applied the

Fomih Appellate District's rule from California Housing Finance Agency v.

Hanover/California Management and Accounting Center, Inc. (2007) 148 Cal.

AppAth 682,693 that independent contractors of public entities are subject to

the conflict of interest prohibitions applicable to public entities. In Hub City,

supra, this Comi stated "[a] person in an advisory position to a city may fall

within the scope of [Goverm11ent Code] section 1090. In particular,

independent contractors whose official capacities carry the potential to exeli

influence over the contracting decisions of a public agcncy may not have

personal interests in that agency's contracts." Id. at 1124-1125.

2. California Law on Contractor's Conflict of Interest Under Common Law

In California there is also a conunon law doctrine that underlies

statutory prohibitions of conflicts of interest. In Schaefer v. Berinstein

(1956) 140 Cal.App.2d 278 this COUli stated "[i]t is the general policy of this

state that public officers shall not be interested in any contract made in their

official capacity in which they have a personal or financial interest." !d. at 289.

Citing to People v. Sullivan (1952) 113 Cal.App.2d 510 for the proposition "a

person merely in an advisory position to a city is affected by the conflicts of

interest rule" this Court went on to declare void contracts made by a special

attorney hired by a city to dispose of tax-deeded and special assessment frozen

propeliies for the city based on his conflict of interest related thereto. Id. at

291. Quoting from Stockton P. & s. Co. v. Wheeler (1924) 68 Ca1.App. 592,

601, this Court explained the rationale for subjecting persons in advisory

positions to a public entity to liability for a conflict of interest as follows:

-39-

"The principle upon which public officers are denied the right to make contracts in their official capacity with themselves or to be or become interested in contracts thus made is evolved from the self-evident truth, as trite and impregnable as the law of gravitation, that no person can, at one and the same time, faithfully serve two masters representing diverse or inconsistent interests with respect to the service to be performed .... The personal interest of an officer in a contract made by him in his official capacity may be indirect only, still such interest would be sufficient to taint the contract with illegality. Ifhis interest in the contract is such as would tend in any degree to influence him in making the contract, then the instrument is void because contrary to public policy, the policy of the law being that a public officer in the discharge of his duties as such should be absolutely free from any influence other than that which may directly grow out of the obligations that he owes to the public at large." ld. at 290.

3. Taxpayer Adequately Pled a Cause of Action for Contractor's Conflict of Interest Under Common Law and/or Government Code section 1090

Paragraph 53 of Taxpayer's FAC expressly referenced the Superior

COUli to the applicable law establishing Contractor's conflict of interest under

Govemment Code section 1090 andlor COlllinon law. (1 AA 19:26-20:20.)

Taxpayer sufficiently alleged a conflict of interest arose between

Contractor and District under Government Code section 1090 andlor connnon

law when Contractor obtained an interest in the Lease-Leaseback Contracts for

the Projects by receiving the award thereof from District after having

previously and concunently provided the District professional consulting

services relative thereto. Specifically, Contractor was employed by District

as a consultant to provide professional bond program management and

construction management services to District relative to projects funded by

Measures Y and Z, including the Projects subject to the Lease-Leaseback

-40-

Contracts (1 AA 17:~~44.) Contractor provided professional and financial

advice including, but not limited to: "programming, allocating resources and

administrative suppOli in project and program scheduling in consideration of

projected revenues and expenses; providing on-going conm1Unication and

leadership for the District bond modemization program by preparing,

providing and presenting information for the District Superintendent, Board

of Education, Independent Citizens' Bond Oversight Committee and

Subcommittee, District staff and the residents of Torrance in conul1unity

meeting; and assist the District staff in managing and coordinating effOlis of

architectural firms during the design process and with state agencies." (1 AA

17 :~45 with language in quotes from District's November 13, 2102 Agenda

Item Summary for the Extension of Contractor's contract for bond program

management services at 4 AA 986.)

PriOl' to receiving the award of the Lease-Leaseback Contracts

Contractor was employed by District a consultant to provide professional pre­

construction design assist services relative to the Projects subject to the Lease­

Leaseback Contracts. (1 AA 17:~48.) Contractor provided professional and

financial advice including, but not limited to budgeting, site evaluation, plan

review and constructability services, design review, value engineering, CPM

scheduling, construction estimating, staging (project phasing) and assistance

in the development of plans and specifications for the Projects subject to the

Lease-Leaseback Contracts. (1 AA 17:-049.)

In both consulting capacities for District Contractor filled the roles and

perfol1ned the functions of officers, employees and agents of District who

would ordinarily act for and give professional advise to the District relative to

same. (1 AA 18:-046 and 19:-050.) In both consulting capacities for District

Contractor was in a position of superior knowledge, trust and confidence

-41-

relative to District conceming, inter alia, the scoping, planning, budgeting,

design and construction methods/materials to be utilized for the completion of

its Measure Y & Z school construction projects including, but not limited to

the Projects. (1 AA 18:~47 and 19:~51.) Based on the foregoing Taxpayer's

F AC alleged in relevant pali:

" .... a conflict of interest arose between CONTRACTOR and DISTRICT when CONTRACTOR was awarded construction contracts by the DISTRICT because, inter alia, it created the oppOliunity for CONTRACTOR to use its position as DISTRICT's program manager, construction manager and/or professional preconstruction service provider for its own interest rather than the interest of the DISTRICT. Ways in which this could occur include, inter alia, (a) CONTRACTOR could set budgets for estimated construction costs higher than necessary to conceal the price it was charging DISTRICT for construction services was higher than what DISTRICT could otherwise obtain those construction services; (b) CONTRACTOR could reconU11end const111ction methods or materials that were unnecessary and/or more expensive than altemative equal construction methods or materials thereby increasing the price paid by DISTRICT and potentially the profit made by CONTRACTOR; (c) CONTRACTOR could recommend construction delivery methods that could cost the DISTRICT more than altemative construction delivery methods not recommended by CONTRACTOR; (d) CONTRACTOR could reconunend utilizing subcontractors who had undisclosed pre-existing relationships with CONTRACTOR and/or would charge the DISTRICT more than other subcontractors; andlor (e) CONTRACTOR could in the performance of CONTRACTOR's duties and conununications as DISTRICT's program manager, construction manager and/or professional preconstruction service provider, directly andlor through sub-consultants, portray actions, decisions and/or recol1unendations of CONTRACTOR in a light more favorable to CONTRACTOR thereby leading DISTRICT to make decisions to its economic and/or practical detriment." (1 AA 20-21:~54.)

-42-

The Superior COUli erred when it sustained the demulTers to Taxpayer's

FOUlih Cause of Action on the grounds Contractor did not have a conflict of

interest under Govermnent Code section 1090 and/or common law.

G. The Superior Court Erred When it Sustained the Demurrers to Taxpayer's Fifth Cause of Action

Taxpayer's Fifth Cause of Action sufficiently alleged the

Lease-Leaseback Contracts are illegal, void and unenforceable because

District had sufficient present funds available from Measure Y and Measure

Z to pay for the costs of construction. The lease-leaseback construction proj ect

delivelY method authorized by Education Code sections 17400-17429 is only

available for use by school districts which do not have sufficient present funds

available to pay for the costs of construction and must resort to lease-leaseback

alTangements to legitimately finance the costs of construction over time.

The Superior COUli erred when it sustained the demulTers of

District/Contractor to Taxpayer's Fifth Cause of Action on the grounds

Education Code sections 17400-17429 do not mandate that school districts

actually finance construction, and that Education Code section 17406 expressly

allows lease-leaseback construction without financing. (2 AA 374: 1-5 and 3

AA 514: 1-4.)

Taxpayer sufficiently alleged the lease-leaseback arrangement

authorized under Education Code sections 17400-17429 must constitute a

genuine "financing" because revisions made to the Education Code which,

enacted the preceding statutory version of Education Code sections 17400-

17429, were established as a mechanism to finance school facilities. Morgan

Hill Un~fied School Dist. v. Al1'lOroso (1988) 204 Ca1.App.3d 1083, 1086 and

62 Ops.Cal.Atty.Gen. 209, 210 (1979) state the lease-leaseback provisions of

Education Code sections 39300-39325 (currently §§ 17400-17429) are only

-43-

available ifused as a method for financing school construction. (1 AA 22:~59.)

Taxpayer's asseliion Education Code sections 17400-17429 may only

be used to genuinely finance school construction is suppOlied by the SAB

RepOIi:

Staff believes that viliually none of the projects currently using lease lease-back arrangements actually have financing provided by the developer. If a "lease agreement" other than the site lease exists at all, it serves no significant purpose other than as a construction contract. The full cost of the project is bome by the district using the nom1al funds it has available for capital projects. Normal progress payments are made to the contractor through the course of construction, and the project is completely paid for by the district at the project completion. The projects are in every regard typical public works projects, except that they have not been competitively bid. (2 AA 369.)

Since no financing exists in the lease lease-back agreement (or there is no lease agreement at all), the use of Aliicle 2 appears to be inappropriate. (2 AA 369.)

Taxpayer alleged District's Measure Y and Measure Z bonds provided

District with sufficient funds to cover the immediate costs of construction of

the Projects as they were incuned. Therefore the District is not legally

permitted to use the lease-leaseback construction project delivery method

authorized by Education Code sections 17400-17429 because there is no need

financing the Projects as contemplated thereunder. (l AA 22:~60.)

Taxpayer further sufficiently alleged that because District failed to use

the lease-leaseback delivery method authorized by Education Code sections

17400-17429 as a means to finance the cost of construction of the Projects

over time, the Lease-Leaseback Contracts were not made in strict confol1nity

with all applicable legal requirements such that they are ultra vires, illegal,

void, and unenforceable. (1 AA 22:~60.)

-44-

H. The Superior Court Erred When it Sustained the Demurrers to Taxpayer's Seventh Cause of Action

Taxpayer's Seventh Cause of Action sufficiently alleged a cause of

action for declaratory relief because it incorporated by reference all of the

allegations of fact and contentions of law and sought the Superior Court's

determination on whether the Lease-Leaseback Contracts are ultra vires,

illegal, void and unenforceable under California law. As such, Taxpayer

sufficiently alleged a cause of action for declaratory relief.

1. The Superior Court Erred When it Sustained the Demurrers Without Affording Taxpayer Leave to Amend

District and Contractor did not argue that any of the alleged defects in

Taxpayer's FAC were based on a lack of sufficient facts. Instead, they

premised their demurrers on the assertion that the facts alleged by Taxpayer

lacked any legal basis for the relief requested. Taxpayer requested leave to

amend if it were detennined Taxpayer failed to allege sufficient facts. (9 AA

904: 12-20.) A demurrer may not be sustained without leave to amend if there

is any reasonable possibility that the defects within the pleading may be cured

by amendment. Goodman v. Kennedy (1976) 18 Ca1.3d 335,349.

For the reasons stated above, Taxpayer has stated sufficient ultimate

facts to prevail on the Demuners if California law were to be properly

interpreted and applied to Taxpayer's F AC. However, in the event that it

should appear in the progress of this appeal that Taxpayer has not stated

sufficient facts, Taxpayer should be given leave to amend to attempt to cure

any defects. Chapman v. S/"'-ype Inc. (2013) 220 Cal.App.4th 217, 225-26.

-45-

V. CONCLUSION

Based on the foregoing Taxpayer requests this COUli reverse the

Superior Court's sustaining of District's and Contractor's Demurrers to arid·

subsequent dismissal of Taxpayer' s First Amended Complaint and remand this·

matter to the Superior COUli with direction to allow Taxpayer's action to

proceed.

Dated: April 21, 2014

By:

-46-

CARLIN LAW GROUP, APC

Kevin R. Carlin Attomey for Appellant JAMES D. MCGEE

CERTIFICATE OF COMPLIANCE

Pursuant to rule 8.204( c) of the Califomia Rules of Court, I hereby

celiify that this brief exclusive of the cover, table of contents and table of

authorities contains /3/37:; words, including footnotes. In making this J

celiification, I have relied on the word count ofthe computer program used to

prepare this brief.

Executed on April d.l , 2014, at San Diego, Califomia.

Kevin R. Carlin, Esq.

-47-

Exhibit G

00523200061 12342787.1

Court of Appeal No. B252570 Superior Court Case No. YC068686

IN THE COURT OF ApPEAL

OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT DIVISION EIGHT

JAMES D. McGEE,

Plaintiff and Appellant,

vs.

TORRANCE UNIFIED SCHOOL DISTRICT, BARNHART-BALFOUR BEATTY, INC., dba BALFOUR BEATTY

CONSTRUCTION, et aI.,

Defendants and Respondents

On Appeal from a Judgment of the Superior Court of the County of Los Angeles

Hon. Stuart M. Rice, Presiding

.RESPONDENT'S BRIEF

ATKINSON, ANDELSON, LOY A, RUUD & ROMO Martin A. Hom (SBN 157058)

Jennifer D. Cantrell (SBN 235015) 12800 Center Court Drive, Suite 300

Cerritos, California 90703-9364 Telephone: (562) 653-3200 Facsimile: (562) 653-3333

Attorneys for Respondent Torrance Unified School District

005232.00061 12342787.1

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIFTH APPELLATE DISTRICT

Case Name: James D. McGee v. Torrance Unified School 1 Court of Appeal No: 8252570 District; Balfour Beatty Construction

CERTIFICATE OF INTERESTED ENTITIES OR PERSONS (Cal. Rules of Court, rules 8.208, 8.490(i), 8.494(c), 8.4989d)

Use this form for the initial certificate when you file your first document in the Court of Appeal in civil appeals and writs, and for supplemental certificates when you learn of changed or additional information that must be disclosed. Also include a copy of the certificate in your principal brief after the cover and before the tables. If no entity or person is known that must be listed under rule 8.208(d), write "NONE"

(Check One) 1 INITIAL CERTIFICATE [g] .1 SUPPLEMENTAL CERTIFICATE 0

Full Name of Interested Person / Entity Party Non-Party Nature of Interest (Check One) (Explain)

--- None --- [ ] [ ]

[ ] [ ]

[ ] [ ]

[ ] [ ]

[ J [ J

[ ] [ ]

The undersigned certifies that the above listed persons or entities (corporations, partnerships, firms, or any other association, but not including government entities or their agencies), have either (i) an ownership interest of 10 percent or more in the party if an entity; or (ii) a financial or other interest in the outcome of the proceeding that the justices should consider in determining whether to disqualify themselves, as defined in rule 8.208(d)(2).

Attorney Submitting Form Party Represented Martin A. Hom Torrance Unified School District (Name) (Name) 12800 Center Court Drive, Suite 300 (Address) Cerritos, California 93704 (City/State/Zip) (\ 562-653-320q

(~ ~SS) July 29,2014

(Signature of Attorney Submitting Form) (Date)

005232.00061 12342787.1

TABLE OF CONTENTS

Page

I. INTROD·UCTION ....................................................................................... 1

II. STATEMENT OF THE CASE .................................................................... 2

A. Statement of Facts ............................................................................ 2

B. Procedural History ........................................................................... 4

III. STANDARD OF REVIEW ......................................................................... 5

IV. ARGUMENT ............................................................................................... 7

A. The Trial Court Properly Denied McGee's Request for Judicial Notice as to Exhibits A Through F, L, and N Because They Are Hearsay and Irrelevant ....................................... 7

B. The Trial Court Correctly Sustained the Demurrer to the First Cause of Action Because Public Contract Code Section 20110 et seq. Does Not Apply to Lease-Leaseback Agreements ...................................................................................... 9

1. The Trial Court Correctly Held That Competitive Bidding Is Not Required Under Education Code Section 17406 ..................................................................... 10

2. McGee's Claim That Section 17406 Only Applies to Bona Fide Leases Is Not Supported By the Language of the Statute ..................................................... 13

C. The Second Cause of Action for Breach of Fiduciary Duty Fails As a Matter of Law ............................................................... 16

D. The Trial Court Correctly Sustained the Demurrer to the Third Cause of Action Because Education Code Section 17417 Does Not Apply to the Lease-Leaseback Procedures in Education Code Section 17406 .................................................. 20

1.

2.

3.

Section 17406 Exempts Both the Site Lease and the SubLease from Competitive Bidding ................................. 21

The Trial Court's Interpretation of Education Code Sections 17406 and 17417 Is Reasonable Because Public Bidding Is Not Required on all Public Contracts ............................................................................ 23

The District's Interpretation of Section 17406 as Exempting Lease-Leaseback Agreements From Competitive Bidding Does Not Render Section 17417 a Nullity .................................................................. 26

- 1 -

005232.00061 12342787.1

TABLE OF CONTENTS

4. McGee's Reliance on the State Allocation Board Report Is Misplaced .............................................. : ........... .26

E. The Fourth Cause of Action Fails to State Facts Sufficient to State a Cause of Action for Conflict of Interest Because Government Code Sections 1090 and 81000 Do Not Apply to Balfour Beatty ............................................................................ 28

1. As a Matter of Law, Balfour Beatty's Prior Consulting Arrangement With the District Did Not Bring It Within the Class of Persons Covered by Government Code Section 1090 ........................................ 30

2. McGee Has Failed to State a Cause of Action for Common Law Conflict of Interest ..................................... 35

F. The Trial Court Properly Sustained the Demurrer to the Fifth Cause of Action Because There Is No Requirement that the Lease-Leaseback Contractor Carry the Cost of Construction ................................................................................... 36

G. The Trial Court Properly Sustained the Demurrer to the Seventh Cause of Action ................................................................ 38

H. The Trial Court Did Not Err in Sustaining the Demurrers Without Leave to Amend ............................................................... 40

V. CONCLUSION .......................................................................................... 41

CERTIFICATE OF WORD COUNT ................................................................... .42

- ii -

00523200061 12342787.1

TABLE OF AUTHORITIES

FEDERAL CASES

Skidmore v. Swift & Co. (1944) 323 U.S. 134 .......................................................................................... 27

STATE CASES

AL Holding Co. v. O'Brien & Hicks, Inc. (1999) 75 Cal.AppAth 131 0 ................................................................................ 9

Bily v. Arthur Young & Company (1992) 3 Ca1.4th 370 .......................................................................................... 18

Blank v. Kirwan (1985) 39Ca1.3d311 ..................................................................................... 5, 14

Branciforte Heights, LLC v. City of Santa Cruz (2006) 138 Cal.App.4th 914 .............................................................................. 19

Caliber Bodyworks, Inc. v. Superior Court (2005) . 134 Cal.App.4th 365 .............................................................................. 21

California Housing Finance Agency v. Hanover/California Management and Accounting Center, Inc. (2007) 148 Cal.App.4th 682 ............................................................ 30,31, 32, 33

California School Employees Assn. v. Tustin Unified School Dist. (2007) 148 Cal.App.4th 51 0 .............................................................................. 10

California Teachers Assoc. v. Governing Bd. of Rialto Unified School. Dist. (1997) 14 Ca1.4th 627 ............................................................................ 15,36,37

City of Atascadero v. Merrill Lynch, Peirce, Fenner & Smith (1998) 68 Cal.AppAth 445 ................................................................................ 17

City of Los Angeles v. Offner (1942) 19 Ca1.2d 483 ......................................................................................... 16

Coasts ide Fishing Club v. California Resources Agency (2008) 158 Cal.AppAth 1183 .............................................................................. 6

Cobb v. Pasadena City Board of Education (1955) 134 Cal.App.2d 93 .......................................... '" .................................... 24

County of Riverside v. Whitlock (1972) 22 Cal.App.3d 863 ................................................................................. 25

- iii -

00523200061 12342787.1

TABLE OF AUTHORITIES

County of San Bernardino v. Walsh (2007) 58 Cal.App.4th 533 ................................................................................ 29

Dale v. City of Mountainview (1976) 55 Cal.App. 3d 101 ...................................................................... 6, 14, 15

Dillon v. Legg (1968) 68 Ca1.2d 728 ......................................................................................... 18

Domar Electric, Inc. v. City of Los Angeles (1994) 9 Ca1.4th 161 .......................................................................................... 23

Douda v. California Coastal Comm 'n (2008) 159 Cal.AppAth 1181 ............................................................................ 22

Garvey School Dist. of Los Angeles County v. Southwestern Sur. Ins. Co. (1920) 50 Cal.App. 75 ........................................................................................ 25

Hodgeman v. City of San Diego (1942) 53 Cal.App.2d 610 ................................................ , ................................ 25

Hub City Solid Waste Services, Inc. v. City of Compton (2010) 186 Cal.AppAth 1114 .......................................................... 30, 31, 32, 33

Jackson v. Pancake (1968) 266 Cal.App.2d 307 ............................................................................... 25

Kajima/Ray-Wilson v. Los Angeles County Metropolitan Transp. Authority (2000) 23 Ca1.4th 305 ........................................................................................ 23

Kashian v. Harriman (2002) 98 Cal.App.4th 892 .................................................................................. 9

Kavanaugh v. West Sonoma County Union High School Dist. (2003) 29 Ca1.4th 911 ........................................................................................ 10

Klajic v. Castaic Lake Water Agency (2004) 121 Cal.App.4th 5 ............................................................................ 20,21

Konica Business Machines US.A. Inc. v. Regents of University of California (1998) 206 Cal.App.3d 449 ............................................................................... 23

Leslie Salt Company v. San Francisco Bay Conservation and Dev. Comm'n (1984) 153 Cal.App.3d 605 ............................................................................... 10

- IV -

005232.00061 12342787.1

TABLE OF AUTHORITIES

Lexin v. Superior Court (2010) 47 CaL4th 1050 ...................................................................................... 29

Los Angeles Dredging Company v. Long Beach (1930) 210 Cal. 348 ........................................................................................... 25

Los Angeles Gas & Electric Corporation v. Los Angeles (1920) 188 CaL 307 ........................................................................................... 25

Mangini v. R.J. Reynolds Tobacco Co. (1994) 7 CaL4th 1057 ....................................................................................... , .. 6

Marshall v. Pasadena Unified School Dist. (2004) 119 Cal.App.4th 1241 ............................................................................ 23

Mayer v. C. W Driver (2002) 98 CaLApp.4th 48 .................................................................................. 13

Meakin v. Steveland (1977) 68 CaLApp.3d 490 ................................................................................. 25

Morgan Hill Unified School District v. Amoroso (1988) 204 CaLApp.3d 1083 ....................................................................... 37, 38

People v. Christiansen (2013) 216 CaLApp.4th 1181 ............................................................................ 33

Phillips v. Desert Hospital Dist. (1989) 49 CaL3d 699 ......................................................................................... 19

Ratcliff Architects v. Vanir Constr. Mgmt., Inc. (2001) 88 Cal.App.4th 595 ................................................................................ 18

Regents o/University o/California v. Superior Court (2013) 220 CaLApp.4th 549 ................................................................................ 5

Salazar v. Upland Police Dept. (2004) 116 Cal.App.4th 934 ................................................................................ 6

San Diego City Firefighters, Local 145, AFL-CIO v. Board of Admin. of San Diego City Employees' Retirement System (2012) 206 CaLApp.4th 594 .......................................................................... 6, 40

Schaefer v. Berinstein (1956) 140 CaLApp.2d 278 ............................................................................... 35

Schifando v. City of Los Angeles (2003) 31 CaL4th 1074 .................................................................................. 6, 40

- v -

005232.00061 12342787.1

TABLE OF AUTHORITIES

Settle v. State o/California (Jul. 23, 2014, B249236) _ Cal.AppAth _ [2014 LEXIS 658] ................................................. 15

Shore v. Central Contra Costa Sanitary Dist. (1962) 208 Cal.App.2d 465 ............................................................................... 25

Slocum v. State Bd. 0/ Equalization (2005) 134 Cal. App. 4th 969 ............................................................................ 28

In re Social Services Payment Cases (2008) 166 Cal.AppAth 1249 .............................................................................. 6

Souvannarath v. Hadden (2002) 95 Cal.AppAth 1115 .............................................................................. 21

State Building & Construction Trades Council of California v. Duncan (2008) 162 Cal.AppAth 289 ........................................................................ 26, 27

State of California v. Superior Court (2004) 32 Cal.4th 1234 ...................................................................................... 19

Ste. Marie v. Riverside County Regional Park and Open-Space Dist. (2009) 46 Cal.4th 282 .......................................................................................... 8

In re Summer H. (2006) 139 Cal.AppAth 1315 ...........................................................•................ 21

Swanton v. Corby (1940) 38 Cal.App.2d 227 ................................................................................. 24

Terry v. Bender (1956) 143 Cal.App.2d 198 ............................................................................... 17

Thomson v. Canyon (2011) 198 Cal.AppAth 594 .............................................................................. 17

In re Tobacco Cases 11(2007) 41 Cal.4th 1257 ........................................................................................ 6

United Air Lines, Inc. v. County of San Diego (1991) 1 Cal.App.4th418 .................................................................................. 13

Willis v. State o/California (1994) 22 Cal.App.4th 287 .................................................................................. 7

Wolfv. Superior Court (2003) 107 Cal.App.4th 25 ................................................................................ 17

- VI -

005232.00061 12342787.1

TABLE OF AUTHOIDTffiS

Page

Ya'1~hCa?4~h· t!.~'::.~~.~~.~ .. ~:.~~~~~.~~· .. ~!.~~~~~:~~~:~~ .. ~~.~~~.~ ................... 27

STATE CODES/STATUTES

Code of Civil Procedure § 863 ...................................................................... 4

Code of Civil Procedure § 1858 .................................................................. 38

Code of Civil Procedure § 1875 .................................................................... 7

Education Code § 15701, et seq .................................................................. 11

Education Code § 15705 ....................................................................... 11, 12

Education Code § 17250 et seq ................................................................... 34

Education Code § 17250.1 0 ........................................................................ 34

Education Code § 17250.10(a)-(b) .............................................................. 34

Education Code §§ 17400- 17429 ........................................................... 9, 14

Education Code § 17400 et seq ............................................................ passim

Education Code § 17402 ............................................................................. 38

Education Code § 17403 ............................................................................. 37

Education Code § 17406 ...................................................................... passim

Education Code § 17406 and 17417 ........................................................ 8, 23

Education Code § 17407 ....................................................................... 26,39

Education Code § 17408 ............................................................................. 38

Education Code § 17409 ............................................................................. 38

Education Code § 17417 ...................................................................... passim

Evidence Code § 452 ................................................................................. 7,8

Evidence Code § 452(g) ................................................................................ 7

Evidence Code § 452(h) ................................................................................ 7

Government Code § 900 et seq ................................................................... 19

Government Code § 1090 ..................................................................... passim

- VII -

005232.00061 12342787.1

TABLE OF AUTHORITIES

Page

Government Code §§ 1090 and 81000 ........................................................ 28

Government Code §§ 1090 and 81000 et seq ................................................ 2

Government Code §§ 4217.10-4217.18 ...................................................... 25

Government Code § 53060 .......................................................................... 24

Public Contract Code § 20110 et seq ................................................... passim

Public Contract Code §§ 20110-20118.4 ...................................................... 9

Public Contract Code § 20111(a) ................................................................ 24

Public Contract Code § 20 111 (c) ................................................................ 24

Public Contract Code §§ 20111(c), 20114, 20655 ...................................... 24

Public Contract Code §§ 20 III (d) and 20651 (d) ....................................... 24

Public Contract Code §§ 20113, 20564 ....................................................... 25

OTHER AUTHORITIES

56 Op.Atty.Gen. 571 ............................................................................. 12,39

56 Ops.Atty.Gen. 572 .................................................................................. 26

57 Ops.Atty.Gen417 ................................................................................... 24

62 Ops.Atty.Gen. 643 ....................................................................... :: ......... 25

Assembly Bill No. 1486 ........................................................................ 12, 28

Const., art. XI, § 18 ..................................................................................... 16

- Vlll -

I.

INTRODUCTION

Plaintiff/Appellant James D. McGee ("McGee") brought this reverse

validation action to challenge the validity of several contracts relating to

modernization projects at three public schools in Torrance, California. The

contracts are part of a transaction between the Torrance Unified School

District ("District") and Barnhart-Balfour Beatty, Inc., dba Balfour Beatty

Construction ("Balfour Beatty") known as a "lease-leaseback"

arrangement.

The lease-leaseback process, set forth in Education Code section

17406, allows a school district to temporarily lease real property to a

developer/contractor without advertising for bids. The developer then

leases that property back to the school district while it constructs school

facilities or other improvements. The rent payments the district pays over

time for the sublease funds the costs of the project's construction and title

to the property and the buildings vest in the school district at the expiration

of the lease. This method allows a district to contract directly with a

developer and foregoes the traditional competitive bidding process under

the Public Contract Code. The lease-leaseback process has become a

popular method for financing and constructing school facilities and has

been routinely approved by trial courts throughout the state. (See

Appellant's Appendix, "AA," volume 2, pp. 416-510 [collecting cases].)l

McGee has challenged the validity of these lease-leaseback

agreements claiming, among other things, that the lease-leaseback process

is invalid because the District failed to seek competitive bids for the

construction, breached its fiduciary duty by not soliciting alternative bids

and price quotes for the work, failed to comply with Education Code

1 All citations to the record will be referenced as [Volume] AA [page].)

- 1 -

section 17417 when awarding the Lease-Leaseback Agreements to Balfour

Beatty, violated conflict of interest laws under Government Code sections

1090 and 81000 et seq., and improperly used Education Code section

17406 because the District had sufficient funds to pay for the construction

of the project. In the proceedings below, the trial court considered and

rejected all of McGee's arguments when it sustained the District's demurrer

without leave to amend.

McGee now reasserts the same meritless arguments on appeal. The

Court should deny this appeal and affirm the decision of the trial court for

the following reasons. First, Education Code section 17406 provides that

the District may enter into a lease-leaseback agreement "without

advertising for bids" so that there are no competitive bidding requirements

for this process. Second, McGee cannot allege that it complied with the

Tort Claims Act or that it sustained any damages, both of which are

required to state a cause of action for breach of fiduciary duty. Third,

Education Code section 17417 has no application to the procedures in

section 17406 because 17406 begins with the term "notwithstanding section

17417." Fourth, McGee cannot allege that any violation of Government

Code section 1090 or 81000 et seq. exists or that it even applied to Balfour

Beatty. Finally, the lease-leaseback statutes do not require that the District

make a showing of financial need in order to use the lease-leaseback

procedures in Education Code section 17406.

For these reasons, and as argued in greater detail below, the Court

should affirm the judgment of the trial court in it is entirety.

II.

STATEMENT OF THE CASE

A. Statement of Facts

This case arises from three school construction projects within the

boundaries of Torrance Unified School District: (1) the Hickory

- 2 -

Elementary School Modernization Project; (2) the Madrona Middle School

Modernization Project; and (3) the North High School Modernization

Project (collectively "Projects"). (lAA 2.) On December 19, 2012, the

District's Governing Board passed resolutions approving Lease-Leaseback

Agreements with Balfour Beatty for the construction of the three Projects.

(2 AA 354-361.)

The Lease-Leaseback Agreements were entered into pursuant to

Education Code section 17406, which authorizes a school district to lease

district-owned property to a developer or contractor if the instrument

requires the lessee to construct buildings for school use on the property and

specifies that title to the buildings reverts back to the school district at the

end of the term. This process, set forth in Education Code section 17406, is

commonly referred to as the "lease-leaseback" delivery method. Lease­

leaseback agreements do not require a competitive bidding process. (Ed.

Code § 17406.)

Here, the Lease-Leaseback Agreements between the District and

Balfour Beatty are each comprised of three contracts-a Site Lease,

Sublease, and Construction Services Agreement. First, under the terms of

the Site Lease," the District agreed to lease the Project sites to Balfour

Beatty for $lIyear for the duration of the Projects. (1 AA 3, 31-43, 137-

150,245-258 [First Amended Complaint, "FAC," ~ 10 and Exh. A, D, G].)

Under the Sublease, Balfour Beatty agreed to construct the Projects,

generally consisting of the construction and/or upgrades of classrooms and

administrative buildings, athletic facilities, field, and associated site work,

for a guaranteed maximum price. (1 AA 4, 44-60, 151-168,259-276 [FAC,

~ 11 and Exh. B, E, H].) At the end of the lease term or in the event that the

District prepaid the sublease payments, any and all title to the site and any

improvements shall vest in the District without any further instrument of

transfer. (Ibid.) The Construction Services Agreements supplement the

- 3 -

Site Lease and the Sublease by setting forth the terms and conditions for

construction and obligating Balfour Beatty to perform its work in

accordance with the plans and specifications for the Projects. (See 1 AA 4,

61-136, 169-244,277-352 [FAC, ~ 12 and Exh. C, F, I].)

B. Procedural History

On February 19, 2013, McGee filed a reverse validation complaint,

pursuant to Code of Civil Procedure section 863, seeking to invalidate the

Lease-Leaseback Agreements for the Hickory Project, Madrona Project,

and North Project. (5 AA 1135.) In response, the District and Balfour

Beatty demurred and moved to strike portions of the complaint on the

grounds that it failed to allege sufficient facts to constitute a cause of action

and merely alleged impermissible legal conclusions. (Id. at 1133-1134.)

In lieu of opposing the District's well-taken motions, McGee elected

to amend the complaint and filed its First Amended Complaint on June 4,

2013 ("FAC"). (1 AA 1-26.) In the amended pleading, McGee alleged the

Lease-Leaseback Agreement was illegal, void, and unenforceable under the

following seven causes of action: (1) failure to comply with Public

Contract Code section 20110 et seq.; (2) breach of fiduciary duty; (3)

failure to comply with Education Code section 17417; (4) contractor

conflict of interest under Government Code section 1090; (5) improper use

of Education Code section 17400 et seq.; (6) improper delegation of

authority; and (7) declaratory relief. (Ibid.; see also AOB, p. 5.)

On July 8,2013, the District demurred and moved to strike portions

of the First Amended Complaint on the grounds that McGee again failed to

allege facts sufficient to state a cause of action. (2 AA 372-394.) More

specifically, District argued that McGee failed to allege any facts showing

the District failed to award the Lease-Leaseback Agreement in violation of

the procedures set forth in Education Code section 17406.

- 4 -

McGee opposed the demurrers (4 AA 886-907) and filed a request

for judicial notice regarding a hodge-podge of newspaper clippings and

other media reports critical of the lease-leaseback process at other school

districts, unrelated cases of alleged government corruption, and out-of-court

presentations and letters concerning the lease-leaseback process. (4 AA

909-910.)

On or about August 6, 2013, the District filed its reply brief along

with a set of objections to McGee's request for judicial notice. (5 AA

1053-1069.)

On August 9, 2013, the trial court issued its tentative opinion to

sustain the demurrers. (RT 4:3-5.) As part of its tentative decision, the trial

court granted judicial notice as to Exhibits G through K and M, and denied

judicial notice as to Exhibits A through F, L, and N. (RT 3:19-22.) After

receiving oral argument from the parties, the trial court adopted its tentative

and sustained the demurrers without leave to amend. (RT 9:28 - 10:3.)

Judgment was entered on October 18, 2013. (5 AA 1099-1103.)

On October 22, 2013, the District served notice of entry of judgment. (5

AA 1110.) This appeal followed on November 15, 2013. (5 AA 1111.)

III.

STANDARD OF REVIEW

A demurrer tests the legal sufficiency of the factual allegations in a

complaint. (Regents of University of California v. Superior Court (2013)

220 Cal.App.4th 549, 558.) This Court independently reviews the trial

court's ruling and determines de novo whether the complaint alleges facts

sufficient to state a cause of action as a matter of law. (Ibid.) Although a

demurrer admits all material facts properly pleaded, it does not admit

contentions, deductions, or conclusions of fact or law. (Blank v. Kirwan

(1985) 39 Cal.3d 311, 318.) Thus, where an allegation is contrary to law or

- 5 -

to a fact of which a court may take judicial notice, it must be treated as a

nullity. (Dale v. City of Mountainview (1976) 55 Cal.App. 3d 101, 105.)

An appellate court does not review the reasons for the trial court's

ruling; "if it is correct on any theory, even one not mentioned by the court,

and even if the court made its ruling for the wrong reason, it will be

affirmed." (Coasts ide Fishing Club v. California Resources Agency (2008)

158 Cal.App.4th 1183,1190-1191.) Thus, a judgment of dismissal after a

demurrer has been sustained without leave to amend will be affirmed if

proper on any grounds stated in the demurrer, whether or not the court

acted on that ground. (San Diego City Firefighters, Local 145, AFL-CIO v.

Board of Admin. of San Diego City Employees' Retirement System (2012)

206 Cal.App.4th 594, 605-606.) Further, the Court must decide whether

there is a reasonable possibility the plaintiff could cure the defect with an

amendment. (Ibid.) "If we find that an amendment could cure the defect,

we conclude that the trial court abused its discretion and we reverse; if not,

no abuse of discretion has occurred." (Ibid.) The plaintiff has the burden

of proving that an amendment would cure the defect. (Schifando v. City of

Los Angeles (2003) 31 Ca1.4th 1074,1081.)

Evidentiary issues, such as a trial court's decision whether to take

judicial notice, is reviewed for abuse of discretion. (In re Social Services

Payment Cases (2008) 166 Cal.App.4th 1249, 1271; Salazar v. Upland

Police Dept. (2004) 116 Cal.App.4th 934, 946.) A trial court has broad

discretion to deny judicial notice based on relevance grounds: "But judicial

notice, since it is a substitute for proof, is always confined to those matters

which are relevant to the issue at hand." (Mangini v. RJ Reynolds Tobacco

Co. (1994) 7 Ca1.4th 1057, 1063[overruled on another ground in In re

Tobacco Cases II (2007) 41 Ca1.4th 1257, 1276].) Accordingly, the trial

court's decision "not to take judicial notice will be upheld on appeal unless

the reviewing court determines that the party furnished information to the

- 6-

judge that was so persuasive that no reasonable judge would have refused

to take judicial notice of the matter." (Willis v. State a/California (1994)

22 Cal.App.4th 287,291.)

IV.

ARGUMENT

A. The Trial Court Properly Denied McGee's Request for Judicial

Notice as to Exhibits A Through F, L, and N Because They Are

Hearsay and Irrelevant

McGee asserts that the trial court erred by refusing to take judicial

notice of newspaper articles, lease-leaseback presentation material, and a

legal opinion on contractor conflicts of interest which were attached as

Exhibits "A" through "F," "L," and "N" in its papers in opposition to the

District's Demurrer and Motion to Strike. (AOB, p. 12.)

McGee's Request for Judicial Notice was made pursuant to

Evidence Code section 452(g), which provides for judicial notice of "facts

and propositions that are of such common knowledge within the territorial

jurisdiction of the court that they cannot reasonably be the subject of

dispute," and section 452(h), which provides for judicial notice of "facts

and propositions that are not reasonably subject to dispute and are capable

of immediate and accurate determination by resort to sources of reasonably

indisputable accuracy." As the comments to Section 452 state,

Subdivisions (g) and (h) include, for example, facts which are accepted as established by experts and specialists in the natural, physical, and social sciences, if those facts are of such wide acceptance that to submit them to the jury would be to risk irrational findings. These subdivisions include such matters listed in Code of Civil Procedure Section 1875 as the "geographical divisions and political history of the world."

Here, the documents offered by McGee clearly do not meet the

standards for judicial notice under Evidence Code section 452. Exhibits A

through F contain newspaper articles and other media reports concerning

- 7 -

alleged corruption by public officials throughout Southern California­

none of which bears any connection whatsoever to the District, Balfour

Beatty, or the specificProjects at issue. (4 AA 911-934.) Notably, Exhibit

C is an article that quotes McGee's own counsel, Mr. Kevin Carlin, and

contains self-serving statements regarding his opinions on the legality of

the lease-leaseback process. (4 AA 924.) Exhibit L is a 4 year- old

conference presentation by the District's counsel and Exhibit N is a 2013

opinion letter by Best, Best & Krieger on an unrelated matter. The District

lodged objections to this evidence and the trial court properly excluded it as

being hearsay and irrelevant to the specific Projects at issue.

Even on appeal, McGee fails to explain how the information

contained in these exhibits is of such common knowledge that it "cannot

reasonably be the subject of dispute" per Evidence Code section 452.

Instead, McGee contends that the exhibits provide "context" for his

statutory interpretation arguments regarding Education Code section 17406

and 17417 and his claims concerning the misuse of public funds, fraud, and

corruption. (AOB, p. 13.) This argument is misplaced in that McGee has

failed to show that the underlying statute, Education Code section 17406, is

ambiguous, which is a precondition for admitting evidence regarding

legislative intent: "[i]f the language of a statute is not ambiguous, the plain

meaning controls and resort to extrinsic sources to determine the

Legislature's intent is unnecessary." (See, e.g. Ste. Marie v. Riverside

County Regional Park and Open-Space Dist. (2009) 46 Ca1.4th 282, 288.)

Here, as shown below, the language of Section 17406 is quite clear that

competitive bidding is not required for lease-leaseback transactions,

therefore resort to these extrinsic exhibits was unnecessary.

Second, and more importantly, even if the trial court did err in

refusing to take judicial notice of McGee's exhibits-which the District

denies-such error was harmless beyond doubt because the trial court could

- 8 -

only have taken notice of the existence of the documents, and not their

content or the truthfulness of anything in them (i.e., merely the fact that the

articles were published). (AL Holding Co. v. O'Brien & Hicks, Inc. (1999)

75 Cal.App.4th 1310; Kashian v. Harriman (2002) 98 Cal.App.4th 892,

900, fn. 3.) Thus, the articles could not have provided evidence that

anything about the lease-leaseback system conflicts with California law,

nor could the exhibits have bolstered McGee's allegations that public

bidding is necessary to prevent corruption and fraud. For these reasons, the

trial court did not abuse its discretion in its evidentiary rulings and this

Court should affirm.

B. The Trial Court Correctly Sustained the Demurrer to the First

Cause of Action Because Public Contract Code Section 20110 et

seq. Does Not Apply to Lease-Leaseback Agreements

In its first cause of action, McGee alleges that the Lease-Leaseback

Agreements are void and unenforceable because Education Code sections

17400 to 17429 "only authorize genuine lease and leaseback

arrangements." (1 AA 8-10 [FAC, ~~ 21-26].) According to McGee,

The procedures defined in Education Code §§ 17400-17429 may only be used as an alternative to the procedures for school facility construction prescribed in Public Contract Code §§ 20110-20118.4 if a school district enters into a genuine lease and leaseback arrangement with its selected contractor. Conversely, the procedures for school facility construction prescribed in Public Contract Code §§ 20110-20118.4 apply to traditional purchase type construction contracts between school districts and contractors where, as here, the school district has retained its own separate architect relative to the project. (1 AA 8:17-23.)

As shown below, McGee's argument is misplaced and contrary to

Education Code section 17406, which provides that the lease-leaseback

procedures may be performed "without advertising for bids."

- 9 -

1. The Trial Court Correctly Held That Competitive

Bidding Is Not Required Under Education Code Section

17406

The interpretation of statutes, such as the lease-leaseback provisions

in the Education Code, present questions of law requiring independent

reVlew. (Kavanaugh v. West Sonoma County Union High School Dist.

(2003) 29 Cal.4th 911, 919.) The primary purpose of statutory construction

is to ascertain the Legislature's intent. (Ibid.) First, the court considers the

actual words of the statute, being careful to give them a plain and

commonsense meaning. (Ibid.) If the language is unambiguous, that is, if

the meaning assigned to it is not in conflict with other language in the same

act, then the plain meaning controls. (Leslie Salt Company v. San

Francisco Bay Conservation and Dev. Comm 'n (1984) 153 Cal.App.3d

605, 614.) If, however, the statutory language leaves doubt about its

meaning, the court may consider other evidence of legislative intent, such

as the history and background of the statute. (Ibid., California School

Employees Assn. v. Tustin Unified School Dist. (2007) 148 Cal.App.4th

510,517.)

Here, the trial court sustained the District's demurrer to McGee's

first cause of action on the grounds that Education Code section 17406

expressly permits a non-competitive bidding process for lease-leaseback

agreements. (RT 1-2.) As section 17406 states,

Notwithstanding Section 17417, the governing board of a school district, without advertising for bids, may let, for a minimum rental of one dollar ($1) a year, to any person, firm, or corporation any real property that belongs to the district if the instrument by which such property is let requires the lessee therein to construct on the demised premises, or provide for the construction thereon of, a building or buildings for the use of the school district during the term thereof, and provides that title to that building shall vest in the school district at the expiration of that term. The instrument

- 10-

may provide for the means or methods by which that title shall vest in the school district prior to the expiration of that term, and shall contain such other tenns and conditions as the governing board may deem to be in the best interest of the school district. (Emphasis added.)

Thus, under Education Code section 17406, the lease-leaseback

procedures merely require: (1) that the District own the land to be leased;

(2) that the lessee agree to construct a building or buildings for the

District's use; and (3) that title to the buildings shall vest in the District at

the end of the tenn. Here, there is no question that the Lease-Leaseback

Agreements meet these requirements because the District owns the land for

the Projects (see, e.g., 1 AA 33, 46), and the Lease-Leaseback Agreements

provide for the lease of the Projects sites to Balfour Beatty (Id. at 33-34),

the construction of the Projects by Balfour Beatty (Id. at 49, 62-136), the

leaseback of the Project site to the District by Balfour Beatty (Id. at 48-50),

and that title vests in the District at the end of the lease tenn. (See 1 AA 2

54.) The trial court did not err in interpreting the plain meaning of Section

17406, as the statute clearly states that lease-leaseback agreements may be

made "without advertising for bids," thereby exempting such agreements

from the competitive bidding requirements for school districts in Public"

Contract Code section 20110 et seq.

The trial court's ruling is further supported by attorney general

opinions and relevant legislative history of the lease-leaseback laws. In

fact, the California Attorney General was asked to interpret Education Code

section 15701, et seq., a previous version of the lease-leaseback statute, and

opined that,

2

It is concluded that the Legislature excluded an arrangement entered into under section 15705 from the notice and bid requirements. Because a school district is not required to

These provisions are the same for all three Lease-Leaseback Agreements.

- 11 -

obtain bids from lease arrangements under section 15705, it may lease its property for the purpose of permitting the construction thereon of school building which the district will lease at such rental rates as the governing board deems in the best interests of the district without reference to competitive

bidding.3

(56 Op.Atty.Gen. 571, 581.)

Moreover, in August 2004, the Legislature sought to amend the

lease-leaseback requirements under Education Code section 17406 to

require that school districts receive competitive proposals when awarding

lease-leaseback agreements when it passed Assembly Bill No. 1486 ("AB

1486"). (2 AA 403-413.) In doing so, Education Code section 17406 was

amended to read,

In order to enable school districts to let real property for the purpose of acquiring, financing, or constructing facilities, and notwithstanding Section 17417, the governing board of a school district, through the competitive proposal process set forth in Article 2.2 (commencing with Section 17429.1) ...

(2 AA 405.)

Although AB 1486 passed both the Assembly and Senate in August

2004, Governor Schwarzenegger vetoed AB 1486 on September 24, 2004,

stating,

3

I am returning Assembly Bill 1486 without signature.

I am supportive of using a competitive process for public works projects and understand that this bill is needed to clarify that process. However, this bill imposes restrictions on lease-leaseback contracts that could limit competition, inadvertently limit schools flexibility, and drive higher administrative costs; thereby potentially increasing the overall cost of school facility construction.

Education Code section 15705 was renumbered section 39305 when the Education Code was reorganized in 1976. Section 39305 was renumbered to its current number section 17406 in 1996. The only change to this statute was the inclusion ofthe words "without advertising for bid" in 1986.

- 12 -

For this reason, I cannot sign this measure.

(2 AA 415.)

The fact that the Legislature attempted to amend Education Code

section 17406 and include that the lease-leaseback procedures be awarded

based on a competitive proposal process affirms the Attorney General

opinion that competitive bids are not required under the lease-leaseback

process that is set forth in Education Code section 17406. McGee's first

cause of action that the Lease-Leaseback Agreement with Balfour Beatty is

somehow illegal, void, and unenforceable is contrary to the express

language of Education Code section 17406 which provides that the lease­

leaseback process may be entered into "without advertising for bids."

2. McGee's Claim That Section 17406 Only Applies to Bona

Fide Leases Is Not Supported By the Language of the

Statute

In its Opening Brief, McGee attempts to sidestep these issues by

arguing that he alleged sufficient facts to survive demurrer by showing that

the leases are "shams and subterfuges, entered into to avoid the competitive

bidding obligations of the Public Contract Code that would otherwise

apply" but for the District's alleged "se'if-serving titles, stipulations and

definitions in their Lease-Leaseback Contracts." (AOB, p. 17.) This is

incorrect.

First, the Court need not address this argument, since an appellate

court does not review the reasons for the trial court's decision and may

affirm on any basis appearing in the record, including the fact that

competitive bidding was not required relative to the Lease-Leaseback

Agreements. (See, e.g. United Air Lines, Inc. v. County of San Diego

(1991) 1 Cal.App.4th 418,434, fn. 15; Mayer v. C.W Driver (2002) 98

Cal.App.4th 48,57.)

- 13 -

Second, even if the Court were to reach this argument, McGee's

complaint fails to state sufficient facts regarding its "sham and subterfuge

theory." On pages 14-16 of the Opening Brief, McGee points to four

alleged facts, three of which are simply legal conclusions and self-serving

opmlOns:

(1) "To fit within the alternative procedures for school facility

construction authorized by Education Code section 17400-17429, a genuine

lease and leaseback arrangement must exist ... " (1 AA 9 [F AC, 'il24]);

(2) "[T]he trier of fact is required to disregard the self serving

titles, stipulations and definitions contained in the challenged Lease­

Leaseback Contracts . . .and evaluate the true nature, arrangement and

purpose of the Lease-Leaseback Contracts in light of the subject to which

they relate, the end for which they were created and the means by which

they accomplish their end" (1 AA 9 [F AC, 'il25]); and

(3) "The Lease-Leaseback Contracts between District and

Contractor are not really leases and therefore are not the type of

arrangements authorized by Education Code section 17400-17429" (1 AA

9 [FAC, 'il25].)

Although a demurrer admits all material facts properly pleaded, it

does not admit contentions, deductions, or conclusions of fact or law, such

as these averments by McGee. (Blank v. Kirwan (1985) 39 Ca1.3d 311,

318.) The Court must disregard these legal conclusions in determining

whether a complaint states sufficient facts. (Dale v. City of Mountainview

(1976) 55 Cal.App.3d 101, 105.) None of the previous allegations amounts

to an ultimate fact in support of McGee's cause of action.

Only the fourth "fact" identified by McGee (AOB, p. 15-16; 1 AA 9-

10 [F AC, 'iI 226]) merits any analysis by this Court. In paragraph 26 of the

FAC, McGee alleges that the sublease payments are a "sham" because (1)

they only last as long as the duration of construction, (2) are variable based

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on the value of work performed, (3) do not provide any financing, (4) the

lease payments end concurrently with end of construction, (5) the project is

administered in manner consistent with Public Contract Code, (6) the

District requires retention and bonds, and (7) District does not have the

right to beneficial occupancy during the term of the Facilities Lease. (Ibid.)

McGee contends that these issues should be put before a trier of fact in

order to determine whether the leases were "shams and subterfuges."

(AOB, p. 17.)

Yet, McGee fails to articulate how any of these facts offend the

language of Section 17406. Section 17406 does not set forth any specific

criteria regarding the required duration of the lease, occupancy

requirements, or the types of payment arrangements that the parties may

make. Instead, McGee appears to be reading these requirements into the

statute in order to support its own theory of what a lease-leaseback

arrangement should look like. This is improper. (California Teachers

Assoc. v. Governing Bd. of Rialto Unified School. Dist. (1997) 14 Ca1.4th

627, 633 [court's limited role is to construe statutes, not to rewrite them to 4

conform to unexpressed intentions].)

Further, McGee's argument is belied by Section 17406, which

specifically provides that a lease-leaseback agreement may contain

additional terms and conditions that the school district deems are in its best

interest. As the statute states:

4

The instrument may provide for the means or methods by which that title shall vest in the school district prior to the

As Division 6 of this Court so aptly put it in their recent decision in Settle v. State of California (Jul. 23, 2014, B249236) _ Cal.App.4th _ [2014 LEXIS 658], "A patron orders a hamburger from the menu at a diner and asks the server if he can substitute edamame for French fries. 'No substitutes," says the server. We like the server who cannot add or substitute entries on the menu, cannot add or substitute words in a statute."

- 15 -

expiration of that term, and shall contain such other terms and conditions as the governing board may deem to be in the best interestQf the school district.

By approving the form of the Lease-Leaseback Agreements in the

December 19, 2012 Resolutions, the District's Governing Board has

approved all of the terms and conditions as being in the District's best 5

interest as allowed by Education Code section 17406. (2 AA 354-361.)

Apart from its rampant speculation and conspiracy theories, McGee

has failed to allege any facts to suggest that the Lease-Leaseback

Agreements are a "sham or subterfuge" to violate the state's competitive

bidding laws. The trial court correctly held that the Lease-Leaseback

Agreement was valid under Education Code section 17406 and this Court

should affirm.

C. The Second Cause of Action for Breach of Fiduciary Duty Fails

As a Matter of Law

In the second cause of action, McGee alleges that the Lease­

Leaseback Agreement with Balfour Beatty is illegal, void, and

unenforceable because the District breached its fiduciary duty when

awarding the Lease-Leaseback Agreement to Balfour Beatty. (1 AA 10-11

[FAC, ~~ 27-31].)

5 City of Los Angeles v. Offner (1942) 19 Ca1.2d 483, 486 does not aid

McGee's cause. There, the issue was whether a proposed agreement for the leasing of city land, the construction of an incinerator thereon, and the leasing back thereof to the city for a definite amount was a true lease versus an installment sales contract for purposes of the debt limitation provision of the Constitution (Const., art. XI, § 18). In Offner, the Court held that the facts, when taken as a whole, showed the lease-leaseback was "in reality a lease with reasonable terms and option to purchase. We find no evident present intention on the part of the city to purchase the incinerator." (!d. at 487.)

- 16 -

A breach of fiduciary duty is a species of tort. (Thomson v. Canyon

(2011) 198 Cal.App.4th 594, 605.) In order to plead a breach of fiduciary

duty, McGee must allege the existence of a fiduciary duty, a breach of that

duty, and damages proximately caused by that breach. (City of Atascadero

v. Merrill Lynch, Peirce, Fenner & Smith (1998) 68 Cal.App.4th 445, 483.)

A fiduciary relationship is "any relation existing between parties to a

transaction wherein one of the parties is in duty bound to act with the

utmost good faith for the benefit of the other party. Such a relation

ordinarily arises where a confidence is reposed by one person in the

integrity of another, and in such relation the party in whom the confidence

is reposed, if he voluntarily accepts or assumes to accept the confidence,

can take no advantage from his acts relating to the interest of the other party

without the latter's knowledge or consent. ... " (Wolf v. Superior Court

(2003) 107 Cal.App.4th 25, 29.) The District does not dispute that as a

general proposition, public officials such as school board members owe a

fiduciary relationship toward the taxpayers and constituents they represent.

(Terry v. Bender (1956) 143 Cal.App.2d 198,206.)

Here, McGee alleges that the District's Governing Board breached

their fiduciary duties by failing to consider less expensive proposals to

perform the work, failing to consider evidence of whether the price paid for

the work was reasonable or could have been lower, and failing to solicit

alternative bids and/or price quotes from other contractors. (See 1 AA 11

[F AC, ~ 29].) The problem with these allegations is that McGee fails to

articulate why the District was required to take any of these steps in order

to discharge its fiduciary obligations to taxpayers. McGee's argument is

epitomized on page 20 of its Opening Brief where it argues that because the

District was required to submit the plans and specifications to the Division

of State Architect (DSA) prior to entering the lease-leaseback arrangement

"there is nothing preventing a school district from soliciting competitive

- 17 -

bids." The fact that no law prevented the District from taking a particular

course of conduct is not the same as a law that required the District to act.

Legal duties do not arise out of thin air-. instead, they must arise

through statute, contract, the general character of the activity, or the

relationship between the parties. (Ratcliff Architects v. Vanir Constr.

Mgmt., Inc. (2001) 88 Cal.AppAth 595, 604.) As the Supreme Court has

explained, "A judicial conclusion that a duty is present or absent is merely a

shorthand statement rather than an aid to analysis. Duty is not sacrosanct in

itself, but only an expression of the sum total of those considerations of

policy which lead the law to say that the particular plaintiff is entitled to

protection." (Bily v. Arthur Young & Company (1992) 3 Ca1.4th 370, 397,

quoting Dillon v. Legg (1968) 68 Ca1.2d 728, 734 [internal quotes

omitted].)

As argued throughout this brief, the Lease-Leaseback Agreements

between the District and Balfour Beatty were entered into pursuant to

Education Code section 17406. Section 17406, in tum, does not require

competitive bidding, nor does it require the Board to obtain alternative bids

and cost estimates for the work to satisfY itself that the contract amount is

the lowest price available on the market. There is nothing in the lease­

leaseback statutes, nor any other authorities cited by McGee, to suggest that

the District was required to take these extra steps in order to discharge its

fiduciary obligations to the taxpayers. Accordingly, the trial court did not

err in finding that McGee had failed to state a cause of action for breach of

fiduciary duty.

Further, the cause of actions fails as a matter of law because McGee

failed to allege damages. McGee, in its opposition to the demurrer,

admitted that it did not seek damages, which is a required element of a

cause of action for breach of fiduciary duty. (4 AA 899-900.) McGee, by

- 18 -

its own admission, cannot meet the requirements to state a cause of action

for breach of fiduciary duty.

Lastly, the Court of Appeal should affirm the judgment based on the

District's alternative argument that McGee's failure to present a timely

claim under Government Code section 900 et seq. is fatal to its cause of

action for breach of fiduciary duty. Submission of a claim to a public entity

under the Tort Claims Act is a condition precedent to a tort action and the

failure to present the claim bars the action. (Phillips v. Desert Hospital

Dist. (1989) 49 Ca1.3d 699, 708.) A plaintiff must allege facts

demonstrating or excusing compliance with the claims presentation

requirements of the Tort Claims Act, otherwise, the complaint is subject to

demurrer. (State of California v. Superior Court (2004) 32 Ca1.4th 1234,

1243.)

In its opposition to the demurrer, McGee cited to Branciforte

Heights, LLC v. City of Santa Cruz (2006) 138 Cal.AppAth 914 for the

proposition that the Tort Claims Act does not apply when a party is not

seeking damages. McGee's reliance on Branciforte Heights is misplaced,

however, because in that case, a developer filed a petition for writ of

mandate seeking to direct the city to allow a private open space credit

against the park fees paid by the developer. (Id. at 919.) The court held

that the Tort Claims Act did apply because the developer sought to enforce

the performance of an official duty to return or pay monies which was not

subject to the Act. (Id. at 932.) The instant case is neither a petition for

writ of mandate nor is it a taxpayer waste lawsuit. McGee has brought a

"reverse" validation action alleging that the District failed to comply with

the lease-leaseback procedures set forth in the Education Code. McGee is

the plaintiff in this action and the second cause of action seeks to invalidate

the Lease-Leaseback Agreement on the tort theory that the District

breached its fiduciary duty. As such, the District's demurrer to the second

- 19 -

cause of action was well-taken and this Court should affirm the judgment of

dismissal below.

D. The Trial Court Correctly Sustained the Demurrer to the Third

Cause of Action Because Education Code Section 17417 Does

Not Apply to the Lease-Leaseback Procedures in Education

Code Section 17406

In the third cause of action, McGee alleges that the Lease-Leaseback

Agreement with Balfour Beatty is illegal, void, and unenforceable because

the District failed to comply with Education Code section 17417. (1 AA

12-16 [FAC, GJGJ 32-41].) McGee's contention is misplaced in that the

Education Code section 17406 plainly provides that the lease-leaseback

procedure is not subject to section 17417. The first sentence of section

17406 states "Notwithstanding Section J 74 J 7, the governing board of a

school district, without advertising for bids, may let, for a minimum rental

of one dollar ($1) a year, to any person, firm, or corporation any real

property that belongs to the district. .. " (Emphasis added.)

By phrasing the statute in this way, the Legislature clearly intended

to remove the lease-leaseback process from the requirements of section

17417. The use of the word "notwithstanding" indicates that the language

of section 17406 controls over any requirements in section 17417. In

Klajic v. Castaic Lake Water Agency (2004) 121 Cal.AppAth 5, the court

held the statutory phrase "notwithstanding" is a term of art and, when

referencing another law, means that the law using the word notwithstanding

overrules any existing law. As the court explained,

Notwithstanding means 'without prevention or obstruction from or by' or 'in spite of or 'despite.' The statutory phrase "notwithstanding any other law" has been called a 'term of art' that declares the legislative intent to override all contrary law. By use of this term, the Legislature expresses its intent 'to have the specific statute control despite the existence of

- 20-

other law which might otherwise govern.' (Id. at 13 [Citations omitted.].)

Similarly, in In re Summer H. (2006) 139 Cal.AppAth 1315, 1328,

the court explained that "notwithstanding" has a special legal connotation:

"[I]t is considered an express legislative intent that the specific statute in

which it is contained controls in the circumstances covered by that statute,

despite the existence of some other law which might otherwise apply to

require a different or contrary outcome." (quoting Souvannarath v. Hadden

(2002) 95 Cal.AppAth 1115, 1125-1126; see also Caliber Bodyworks, Inc.

v. Superior Court (2005) 134 Cal.AppAth 365,383, fn. 17 [same].)

Thus, the use of the term "notwithstanding" in Education Code

section 17406 controls and means that the lease-leaseback procedure is not

governed by the requirements of Section 17417. This interpretation is

further strengthened by the fact that Section 17406 goes on to say that the

lease-leaseback procedure may be performed "without advertising for

bids." The Legislature's careful phrasing of Section 17406 leaves no doubt

that competitive bidding is not required for lease-leaseback contracts.

1. Section 17406 Exempts Both the Site Lease and the

SubLease from Competitive Bidding

In a transparent effort to circumvent Section 17406, McGee urges

the Court to set aside the plain language of the statute and adopt a different

construction finding that Section 17406 applies only to the Site Lease, and

not the Sublease. (AOB, pp. 23-32.) McGee points to the term "let" for the

contention that Section 17406 only applies to the initial Site Lease

agreement in which the district property was leased to Balfour Beatty.

McGee argues that its interpretation limiting Section 17406 to the Site

Lease is correct because there is no language in that statute that relates to

the sublease of the property back to the school district. (AOB, p. 28-29.)

For example, McGee notes that the statute does not provide for how the

- 21 -

amount to be paid by the school district to sublease its property back is

determined. Based on this, McGee concludes that "Education Code section

17406 does not address the sublease portion of the lease-leaseback

arrangement. That is because the specifics of the sublease portion of the

lease-leaseback arrangement are laid out in Education Code § 17417."

(Ibid.) This argument misses the mark.

Contrary to McGee's claims, the plain text of Section 17406 is not

silent as to the issue of the sublease. Instead, Section 17406 expressly

requires that the lessee "shall" construct school facilities on the site and that

title to the site and the school facilities shall vest in the District at the end of

the term. As the statute provides, one of the conditions for "letting" the

property (i.e. leasing) under this section is the requirement that the "lessee

therein ... construct on the demised premises, or provide for the

coristruction thereon . . ., a building . . . for the use of the school district

during the term thereon ... " If, as McGee argues, Education Code section

17406 only applies to the Site Lease, then the statutory requirement that the

lessee construct school facilities on the site and title to the site and the

facilities vest in the District at the end of the term would not be met

because that is the purpose of the Sublease. The Site Lease only leases the

site to the lease leaseback contractor and nothing more. If Section 17406

was not meant to exempt the sublease from competitive bidding, then there

would be no reason for the statute to contain all these provisions about

construction work and terms. In construing a statute, a court must give

meaning to every word and avoid interpretations that would render

language surplusage. (See, e.g., Douda v. California Coastal Comm 'n

(2008) 159 Cal.App.4th 1181,1191-1192.)

Also, if the Legislature had intended to limit Section 17406 to site

lease agreements, as McGee suggests, there are plenty of ways it could

have done so to be clearer that the construction portion of the lease-

- 22-

leaseback remained subject to competitive bidding. Yet, Section 17406

shows the opposite intention. The Legislature used not one, but two

separate means to communicate that competitive bidding is not required­

first, through its statement "Notwithstanding Section 17417," (an

acknowledgement and express overriding of the otherwise applicable

competitive bidding statute), and second, by expressly declaring that lease­

leaseback agreements may occur "without advertising for bids."

Based on the foregoing, the trial court correctly held that lease­

leaseback agreements under Section 17406 are not subject to competitive

bidding. The trial court's judgment should be affirmed.

2. The Trial Court's Interpretation of Education Code

Sections 17406 and 17417 Is Reasonable Because Public

Bidding Is Not Required on all Public Contracts

Next, McGee contends that the trial court's interpretations of Section

17406 and 17417 "must be rejected because they enable and encourage the

misuse of public funds and the evils of fraud, favoritism and corruption."

(AOB, p. 34.) According to McGee, the lease-leaseback process utilized by

the District violates competitive bidding laws and offends the general state

policy favoring the award of public contracts to the lowest responsible

bidder.

The District does not deny that there is a strong public policy

favoring competitive bidding. (See, e.g. Marshall v. Pasadena Unified

School Dist. (2004) 119 Cal.App.4th 1241, 1256.) The purpose of

competitive bidding is to eliminate favoritism, fraud and corruption, to

avoid misuse of public funds, and to stimulate advantageous marketplace

competition. (See Kajima/Ray- Wilson v. Los Angeles County Metropolitan

Transp. Authority (2000) 23 Ca1.4th 305, 314; Konica Business Machines

US.A. Inc. v. Regents of University of California (1998) 206 Cal.App.3d

449,456; Damar Electric, Inc. v. City of Los Angeles (1994) 9 Ca1.4th 161,

- 23 -

173.) What McGee fails to appreciate, however, is that this general public

policy favoring competitive bidding is not absolute. In absence of a

controlling statute, competitive bidding is not required. (Swanton v. Corby·

(1940) 38 Cal.App.2d 227,229.)

McGee's blanket assertion that for over 150 years California law has

required competitive bidding for the award of all contracts involving the

expenditure of public money is plainly false. To the contrary, there are

numerous exceptions to the competitive bidding statutes. For example,

Public Contract Code section 20111(a) provides that school districts are not

required to competitively bid contracts for construction services whose

dollar value is less than $15,000; for maintenance work and non­

construction services such as purchases of materials and supplies, the

threshold is $50,000, adjusted annually for inflation.6 Additionally, the

following types of contracts are exempted from competitive bidding

requirements:

• Contracts for professional services-such as architects,

engineers, surveyors, and attorneys. (Pub. Contract Code § 20111(c); see

also Cobb v. Pasadena City Board of Education (1955) 134 Cal.App.2d 93

[contract with architect not subject to competitive'"bidding]; Gov. Code §

53060 [contracts for professional services]; 57 Ops.Atty.Gen 417 (1974)

[Construction managers]);

• Work done by day labor or force accounl (Pub. Contract

Code §§ 20111(c), 20114, 20655);

6 The State Superintendent of Public Instruction (SSPI) is required to

annually adjust the $50,000 amount specified in Public Contract Code Section 201l1(a) to adjust for inflation. (Pub. Contract Code §§ 20111(d) and 20651(d).) Effective January 1, 2014, the bid threshold amount now stands at $84,100. (See http://www.cde.ca.gov/fg/ac/co/bidthreshold20 14.asp.) 7 •

The term "force account" refers to the use of a publIc agency's own forces

- 24-

• Contracts for emergency repairs (Pub. Contract Code §§

20113,20564);

• Energy Conservation Contracts - contracts to develop

energy conservation, cogeneration and alternate energy supply source

agreements (Gov. Code §§ 4217.10 through 4217.l8); and

• Completion Contracts upon default of a contractor (Garvey

School Dist. of Los Angeles County v. Southwestern Sur. Ins. Co. (1920) 50

Cal.App.75, 79-80; Shore v. Central Contra Costa Sanitary Dist. (1962)

208 Cal.App.2d 465, 469).

Further, courts have long held that competitive bidding does not

apply when it would work an incongruity or not produce any advantage,

such as when the goods or services are available from a sole source.

(Meakin v. Steveland (1977) 68 Cal.App.3d 490; Los Angeles Gas &

Electric Corporation v. Los Angeles (1920) 188 Cal. 307 [sole source for

electrical power]; Los Angeles Dredging Company v. Long Beach (1930)

210 Cal. 348 [sole source when dredging pipes could only be rerouted by

the on site dredging company]; Hodgeman v. City of San Diego (1942) 53

Cal.App.2d 610 [sole source for a parking meter]; County of Riverside v.

Whitlock (1972) 22 Cal.App.3d 863 [public utility].)

Thus, while public policy certainly favors competitive bidding, it

does not require it in all instances, as urged by McGee. As the foregoing

discussion has shown, there are numerous well-known exceptions to the

competitive bidding laws. Education Code section 17406 and its provisions

for lease-leaseback contracts is simply another instance where the

Legislature has determined that competitive bidding should not apply. To

the extent that McGee disagrees with such exceptions, its public policy

to construct a public project. (Jackson v. Pancake (1968) 266 Cal.App.2d 307,311; 62 Ops.Atty.Gen. 643, fn. 1.)

- 25 -

arguments are best left for the Legislature, not the courts. (See State

Building & Construction Trades Council of California v. Duncan (2008)

162 Cal.App.4th 289,324.)

3. The District's Interpretation of Section 17406 as

Exempting Lease-Leaseback Agreements From

Competitive Bidding Does Not Render Section 17417 a

Nullity

On pages 34 to 36 of its Opening Brief, McGee asserts that the

District's interpretation of Section 17406 must be rejected because it would

render Section 17417 a nullity. McGee claims that if all Lease-Leaseback

Agreements are exempted from public bidding, there is no situation in

which Section 17417 would apply. This is incorrect.

As cogently explained by Balfour Beatty in its Reply Brief to the

Demurrer, Section 17406 applies only when the District owns the property

on which the buildings are to be constructed. (5 AA 1042.) Another

section of the Education Code, section 17407, applies when a district does

not own the property on which the buildings are to be constructed. Section

17417's competitive bidding requirements would apply to any agreement

entered into by a'· school district pursuant to Section 17407. Notably, the

Attorney General's opinion regarding lease-leaseback contracting observed

this distinction in the legislation concluding competitive bidding is required

if the district does not own the property, but is not required if the district

does own the property. (56 Op.Atty.Gen. p. 572, 581 (1971).)

4. McGee's Reliance on the State Allocation Board Report Is

Misplaced

McGee admits in both its complaint as well as its Opening Brief on

appeal that its arguments regarding interpretation of Section 17406 are

taken largely from a 2004 State Allocation Board ("SAB") Report prepared

by a staff attorney at the SAB. (See 2 AA 363-371.) The report, among

- 26-

other things, states that school districts have expanded "the meaning of EC

17406 beyond its simple intent," and that Section 17406 should be limited

in its application "to transfer district property without a competitive bid to a

developer who has been previously selected by competitive bid to construct

a building for the use of the District." (AOB, pp. 36-37 [quoting SAB

Report at 2 AA 368-369].)

In interpreting statutes, courts are free to "tak[ e ] into account"

agency interpretations, but such agency interpretations "are not binding or

necessarily even authoritative." (Yamaha Corp. of America v. State Bd. of

Equalization (1998) 19 Cal.4th 1, 7-8.) The weight courts attach to agency

interpretations is "contextual," and depends on factors such as "the

thoroughness evident in [the agency's] consideration, the validity of its

reasoning, its consistency with earlier and later pronouncements, and all

those factors which give it power to persuade, if lacking power to control."

[Citation.] (Jd. at pp. 14-15, [quoting Skidmore v. Swift & Co. (1944) 323

U.S. 134, 140].) Because the issue here is one of pure statutory

interpretation, this is not a situation where the administrative agency "has a

comparative interpretative advantage over the courts." (Jd. at 12.) As the

Supreme Court has explained,

Courts must, in short, independently judge the text of the statute, taking into account and respecting an agency's interpretation of its meaning, whether embodied in a formal rule or less formal representation. Where the meaning and legal effect of a statute is the issue, an agency's interpretation is one among several tools available to the court. Depending on the context, it may be helpful, enlightening, even convincing. It may sometimes be of little worth.

(Yamaha, supra, at pp. 7-8; see also State Bldg. and Canst. Trades

Council of California v. Duncan (2008) 162 Cal.App.4th 289,304.)

Here, the Court should give relatively little weight to the opinions

contained in the 2004 SAB Report because this case involves a pure issue

- 27 -

of law regarding the interpretation of the lease-leaseback statutes, which is

solely a judicial function. Further the SAB Report, as McGee admits, was

never formally adopted by the SAB, nor was it vetted in accordance with.

the Administrative Procedure Act. (4 AA 896; see also Slocum v. State Bd.

of Equalization (2005) 134 Cal. App. 4th 969 [judicial deference more

deserving under circumstances indicating that the interpretation was part of

a regulation adopted by the agency in accordance with the Administrative

Procedure Act, rather than contained in an advice letter prepared by a staff

member].) AB 1486, which was enrolled on August 27, 2004, was

introduced to amend the lease-leaseback statutes to address some of the

issues raised in SAB Report, but it was vetoed by the Governor. (See

discussion supra; see also 2 AA 415.)

For these reasons, the Court should independently review the lease­

leaseback statutes and find that the plain language of Section 17406 does

not require competitive bidding. The SAB Report, to the extent that it

conflicts with the statutory language or attempts to read additional

requirements into the statute, must be rejected.

E. The Fourth Cause of Action Fails to State Facts Sufficient to

State a Cause of Action for Conflict of Interest Because

Government Code Sections 1090 and 81000 Do Not Apply to

Balfour Beatty

In the fourth cause of action for contractor conflict of interest,

McGee alleges that the District's Lease-Leaseback Agreement with Balfour

Beatty is illegal, void, and unenforceable because Balfour Beatty allegedly

had a pre-existing financial interest in the Lease-Leaseback Agreement and

therefore was legally disqualified from being awarded the agreement under

Government Code sections 1090 and 81000. (AOB, pp. 40-41.) This

ground cannot be maintained as a matter of law because Government Code

sections 1090 and 81000 do not apply to Balfour Beatty.

- 28 -

Government Code 1090 provides,

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.

Government Code section 1090 generally prohibits public officials

from being financially interested in any contract made by them in their

official capacity. (County of San Bernardino v. Walsh (2007) 58

Cal.App.4th 533, 549.) As the Supreme Court has explained, Section 1090

"is concerned with ferreting out any financial conflicts of interest, other

than remote or minimal ones, that might impair public officials from

discharging their fiduciary duties with undivided loyalty and allegiance to

the public entities they are obligated to serve." (Lex in v. Superior Court

(2010) 47 Ca1.4th 1050, 1073.) To determine whether Section 1090 has

been violated, a court must identify (1) whether the defendant government

officials or employees participated in the making of a contract in their

official capacities, (2) whether the defendants had a cognizable financial

interest in that contract, and (3) whether the cognizable interest falls within

any of the exceptions for remote or minimal interests. (Id. at 1074.)

Here, McGee cannot get past the first step of the test because it has

not and cannot allege that Balfour Beatty is a member or an employee of a

public entity or a member of an elected body or board. McGee has merely

alleged that Balfour Beatty is a California corporation doing business in the

Torrance Unified School District. (1 AA 3 [FAC, ~ 6].) From there,

McGee's complaint makes the legal conclusion that because Balfour Beatty

provided professional services to the District as a preconstruction service

provider, its status somehow changed from a consultant to a public official

and gave rise to a conflict of interest. (1 AA 20 [FAC, ~ 54].) Once again,

McGee is mistaken.

- 29-

1. As a Matter of Law, Balfour Beatty's Prior Consulting

Arrangement With the District Did Not Bring It Within

the Class of Persons Covered by Government Code

Section 1090

While McGee concedes that Balfour Beatty was neither an employee

nor officer of the District, McGee asserts that independent contractors and

consultants of public agencies fall within California's conflict of interests

statutes per the decisions in Hub City Solid Waste Services, Inc. v. City of

Compton (2010) 186 Cal.App.4th 1114, 1124-1125, and California

Housing Finance Agency v. Hanover/California Management and

Accounting Center, Inc. (2007) 148 Cal.App.4th 682,693. As will be seen,

both of these decisions are readily distinguishable.

In Hub City, supra 186 Cal.App.4th at 1119-1120, the City of

Compton entered into an agreement with a company narried AUS to

provide waste management services for the City. Under the agreement, the

president and sole employee of AUS, a man named Aloyan, acted as a de

facto City employee and "director of the in-house waste division, working

alongside city employees, overseeing the day-to-day operations of

Compton's waste management division," including identifYing vendors,

and negotiating to acquire trucks, refuse containers, and real estate on

behalf of the City. (Ibid.) Eventually, Aloyan created a business named

HUB, staffed it with his relatives, and then submitted a written proposal to

the City for a IS-year franchise agreement to take on the City's waste

management operations. (Id. at 1120-1121.) After Aloyan was convicted

in federal court for attempted bribery in connection with another municipal

waste contract, the City of Compton terminated the franchise agreement

and sued Aloyan for violation of Section 1090. (Jd. at 1190.)

In Hub City, the court held that even though Aloyan was not

technically an employee of the City, he fell within the ambit of Section

- 30-

1090 because, among other things, he "supervised city staff, negotiated

contracts, and purchased equipment and real estate on behalf of the city.

His activities served a public function, and he was intricately involved in

the city's waste management decisions." (Id. at 1126.) Based on these

facts, the court concluded that

A person in an advisory position to a city may fall within the scope of section 1090. In particular, independent contractors whose official capacities carry the potential to exert considerable influence over the contracting decisions of a public agency may not have personal interests in that agency's contracts. (Id. at 1124-1125.)

Similarly, in California Housing Finance Agency, supra 148

Cal.App.4th 682, the Fourth Appellate District upheld a jury instruction

which said that for purposes of liability under Section 1090, "The fact that

someone is designated an independent contractor is not determinative; the

statute applies to independent contractors who perform a public function."

(Jd. at 690.) There, the CHFA (a public entity specializing in providing

affordable housing) sued two of its former employees for wrongdoing in

connection with an insurance skimming scheme. One of the employees

was directly employed by the CHF A as its director of insurance, and the

other was CHFA's former general counsel, who later became its outside

general counsel. (Id. at 685.) The two employees created a company

named HC to provide "insurance premium processing services," and

influenced their employer to enter into an agreement "whereby HC would

collect monthly premiums from lenders and loan servicers and forward the

premiums to CHFA, after deducting HC's 'operating costs.'" (Id. at 685-

686.) HC was operated out of the general counsel's home residence, was

managed by the general counsel's domestic partner, and was staffed by

family members of the two employees. (Ibid.) The company was able to

net over $6 million in this insurance skimming scheme. (Ibid.)

- 31 -

In upholding a jury instruction which stated that independent

contractors could be liable under Section 1090, the court explained that the

test is whether the public servant exercises sufficient influence/control over

the public entity, "i.e., where the agent is in a position to contract in his or

her 'official capacity.'" (Id. at 690.) The court concluded that "an attorney

whose official capacity carries the potential to exert 'considerable'

influence over the contracting decisions of a public agency is an 'employee'

under section 1090, regardless of whether he or she would be considered an

independent contractor under common-law principles." (Id. at 693.)

As can be seen, the facts alleged in McGee's complaint are a far cry

from those in either Hub City or California Housing. Unlike those cases,

where the wrongdoers were actual employees, general counsel, or de facto

employees of the public agency, here there is no allegation that Balfour­

Beatty's work as a consultant brought it within the day-to-day operations of

the District similar to an employee relationship. There is no claim that

within its role as pre-construction advisor, Balfour-Beatty supervised the

District's employees, negotiated contracts, or purchased equipment, like in

Hub City. Also, one of the key facts common to both Hub City and

California Housing, was that the defendants' role caused them to take over

or assume a broad public function of ongoing duration, such as waste

management or processing affordable housing insurance premiums. Here,

there are no such averments against Balfour Beatty. Instead, McGee

simply alleges that Balfour-Beatty helped prepare and develop the "plans,

specifications and other construction documents relative to the Project." (1

AA 16-17.) In other words, Balfour-Beatty provided discrete services in

connection with the Measure Y and Measure Z projects. (AOB, p. 42.)

Also, unlike California Housing, where the outside general counsel

drafted the contract for the public agency and essentially entered into the

agreement on the public agency's behalf, here. there is no allegation that

- 32-

Balfour-Beatty, as a pre-construction consultant, had undue influence in

crafting the Lease-Leaseback Agreements or exerted "considerable"

influence over the District's contracting decisions. McGee does not allege,

nor can it, that the Lease-Leaseback Agreements were anything other than

an arms-length transaction between the parties.8

In an effort to resuscitate its cause of action, McGee alleges that

Balfour-Beatty occupied a position of superior knowledge, trust and

confidence relative to District concerning the Measure Y and Z school

construction projects. (1 AA 19.) McGee argues that a pre-construction

consultant, such as Balfour-Beatty, could be tempted to advance its own

interests by designing the project in a way to pad its own profits, rather than

maximize the value to the District. (AOB, pp. 40-41.)

This notion that architects or project designers may be tempted to

pad their designs with costly details in order to maximize their construction

profits leads to the conclusion that design services and construction services

should always be contracted out to different entities, because this separation

between designers and builders acts as a form of checks and balances on

construction costs. Yet, this idea does not match the reality of school

8 It should be noted that expansion of liability under Section 1090 to

independent contractors has been sharply criticized by other courts. For example, in People v. Christiansen (2013) 216 Cal.AppAth 1181, 1189-1190, Division 1 of the Second Appellate District expressly rejected the holdings in Hub City and California Housing, explaining that

We decline to follow HUB City for the same reasons we decline to follow California Housing: It fails to follow the Supreme Court's guidance concerning interpretation of the undefined statutory term "employees"; it is a civil case; and it relies on cases (primarily a subset of those cited in California Housing) that provide no support for the proposition that an independent contractor can be an employee within the meaning of section 1090. (Id. at 1190.)

- 33 -

construction. Under AB 1402, Education Code section 17250 et seq., the

Legislature has authorized school districts to utilize a design-build project

delivery method (different from the lease-leaseback method) wherein

districts may contract with firms for both the design and construction of

certain capital projects. Unlike traditional design-bid-build projects, where

an architect prepares the plans and specifications and those plans are then

bid upon by different contractors, the design-build process specifically

allows districts to contract with a single firm for both the

architectural/design services as well as the actual construction work. (See

Ed. Code § 17250.10.)

Thus, AB 1402 and design-build contracts stand as proof that the

Legislature does not share McGee's concerns or inherent distrust of having

a single entity such as Balfour-Beatty act as both the designer and builder

of the same project. To the contrary, the Legislative findings expressly

states that "The Legislature has recognized the merits of the design-build

procurement process," and

The benefits of a design-build contract project delivery system include accelerated completion of the projects, cost containment, reduction of construction complexity, and reduced exposure to risk for the school district. The Legislature also finds that the cost-effective benefits to the school districts are achieved by shifting the liability and risk for cost containment and project completion to the design­build entity. (Ed. Code § 17250.10, subd. (a)-(b) [emphasis added].)

Based on the foregoing, McGee has not and cannot allege that the

Lease-Leaseback Agreement violated Government Code section 1090, and

the trial court properly sustained the demurrer.

- 34-

2. McGee Has Failed to State a Cause of Action for Common

Law Conflict of Interest

In addition to Government Code section 1090, McGee has alleged

that the Lease-Leaseback Agreement is illegal, void and/or unenforceable

under general common law conflict of interest principles. (AOB, pp. 39-

40.) In support, McGee cites to Schaefer v. Berinstein (1956) 140

Cal.App.2d 278, wherein the court stated that "it is the general policy of

this state that public officers shall not be interested in any contract made in

their official capacity in which they have a personal or financial interest,"

(Id. at 289.) Accordingly, the court went on to say that "a person merely in

an advisory position to a city is affected by the conflicts of interest rule."

(Id. at 291.)

In Schaefer, the city had contracted with an attorney to rehabilitate

certain tax-deeded and "special assessment frozen" properties within the

city. (Id. at 291.) The attorney had purchased many of these properties

from the city through third parties at prices far below their fair market

value, while assuring the price the city paid was fair. The court ruled that

the attorney violated a city charter provision similar to Section 1090, which

prohibited an officer or employee of the city from haVIng a financial

interest in a transaction with the city. (Id. at 287, fn. 2.) As the court

explained, the public policy underlying the conflict of interest rules means

"that a public officer in the discharge of his duties as such should be

absolutely free from any influence other than that which may directly grow

out of the obligations that he owes to the public at large." (Id. at 290.)

Here, as previously argued, the F AC does not, and cannot allege

sufficient facts showing that Balfour-Beatty's position with the District

violated these common law conflict of interest principles. Balfour-Beatty

was not at any time a public officer of the District, and its prior work as a

- 35 -

consultant is simply not sufficient to state a cause of action under the

conflict of interest laws.

F. The Trial Court Properly Sustained the Demurrer to the Fifth

Cause of Action Because There Is No Requirement that the

Lease-Leaseback Contractor Carry the Cost of Construction

In the fifth cause of action, McGee alleges that the Lease-Leaseback

Agreement with Balfour-Beatty is illegal, void, and unenforceable because

Education Code section 17400 et seq. requires that the cost of construction

be advanced and carried by the lease-leaseback contractor over a period of

years. (AOB, pp. 43-44; 1 AA 21-22.) McGee's argument is misplaced

and is not supported by the text of the lease-leaseback statute, Education

Code section 17406.

As previously noted, the prOVISIOns of Education Code section

17406 requires: (1) that the District own the land to be leased, (2) that the

lessee agree to construct a building or buildings for the District's use, and

(3) that title to the buildings shall vest in the District at the end of the term.

There is no dispute that the Lease-Leaseback Agreements between the

District and Balfour-Beatty satisfy all of these requirements nor does

McGee allege that the Lease-Leaseback Agreements fail to comply with

Education Code section 17406. McGee merely asserts that the statute

contains an implied condition that the lease-leaseback contractor must

advance and carry the cost of construction over a period of many years.

As the court explained in California Teachers Assn. v. Governing

Bd. a/Rialto Unified School Dist. (1997) 14 Ca1.4th 627,632-633:

To interpret statutory language, we must ascertain the intent of the Legislature so as to effectuate the purpose of the law. In undertaking this determination, we are mindful of this court's limited role in the process of interpreting enactments from the political branches of our state government. In interpreting statutes, we follow the Legislature's intent, as exhibited by the plain meaning of the actual words of the law,

- 36-

whatever may be thought of the wisdom, expediency, or policy of the act. ... As this court has often recognized, the judicial role in a democratic society is· fundamentally to interpret laws, not to write them. The latter power belongs primarily to the people and the political- branches of government . . . . It cannot be too often repeated that due respect for fhe political branches of our government requires us to interpret the laws in accordance with the expressed intention of the Legislature. This court has no power to rewrite the statute so as to make it conform to a presumed intention which is not expressed. (California Teachers Assn. v. Governing Bd. of Rialto Unified School Dist. (1997) 14 Ca1.4th 627,632-633 [emphasis added].)

In this case, Education Code section 17403 provides that, "[t]he term

of any lease or agreement entered into by a school district pursuant to this

article shall not exceed 40 years." Thus, the Legislature saw fit to provide a

maximum length of the lease, but there is no minimum length of the lease

set forth in Education Code section 17400 et seq., as McGee alleges.

Further, there is no statutory requirement within Education Code section

17400 et seq. or elsewhere which requires that a lease-leaseback contractor

advance and carry the cost of construction over a period of many years.

This Court may not imply such terms into the statute where none exist. '.

Despite the foregoing, McGee persists in its argument that lease-

leaseback procedures in Education Code section 17406 must constitute a

genuine "financing." (AOB, pp. 43-45.) McGee cites to Morgan Hill

Unified School District v. Amoroso (1988) 204 Cal.App.3d 1083, to support

its argument that there must be a "financing" in order for a school district to

use the lease-leaseback procedures. In Morgan Hill, the school district

sought to validate its issuance of bonds for additional improvements to the

high school through a ballot measure that had been passed 13 years earlier.

(Morgan Hill Unified School District, supra, 204 Cal.App.3d at 1086.) The

court denied the validation holding that the voters did not approve the

- 37 -

supplemental issuance of bonds for the additional improvements. (ld. at

1088.)

In this case, McGee acknowledges that the Projects are funded by

"voter approved bonds sales" (FAC, ~ 22.), therefore the holding in Morgan

Hill is inapplicable. Furthermore, Education Code section 17408, provides

that,

The governing board of a school district shall call and hold an election, pursuant to Section 17409 or 17412, before or after entering a lease or agreement, as the case may be, except that if the lease or agreement does not effect an increase in the existing maximum tax rate of the district, the election requirements of this section shall not apply.

In its F AC, McGee does not allege that the maximum tax rate of the

District increases. Further, McGee fails to allege that the District violated

any statute, regulation, or constitutional provision with regard to financing.

Within this statutory scheme, the law provides that prior to entering into a

lease or agreement in this article, a school district must have an available

site and Division of State Architect approved plans and specifications. (Ed.

Code § 17402.) There is no mention of financing as McGee alleges. Code

of Civil ~rocedure section 1858 provides that statutory construction does

"not insert what has been omitted, to omit what has been inserted." McGee

is simply attempting to insert a requirement that is not part of the statute.

Accordingly, the trial court correctly sustained the District's demurrer to

the fifth cause of action (3 AA 466-467), and this Court should affirm.

G. The Trial Court Properly Sustained the Demurrer to the

Seventh Cause of Action

Lastly, in the seventh cause of action, McGee alleges that an actual

controversy exists between the parties regarding the application of

Education code section 17400 et seq. and Public Contract Code section

20110 et seq. to Lease-Leaseback Agreement which requires a judicial

- 38 -

determination. (1 AA 24 [FAC, ~~ 65-68].) As discussed supra, there is no

controversy in that the competitive bidding requirements in Public Contract

Code section 20110 et seq. do not apply to the lease-leaseback procedures

set forth in Education Code section 17406. First, Education Code section

17406 allows the school districts to enter into the lease-leaseback

agreement "without advertising for bids." Next, the California Attorney

General has opined that competitive bids are not required under this statute.

(56 Op. Atty. Gen. 571, 58l.) It is important to note that the lease­

leaseback procedures for when the District does not own the land are the

same except for one restriction place by the Legislation. When a school

district wishes to enter into a lease-leaseback agreement on real property

that is not owned by the school district, the Legislature requires that,

The agreement entered into shall be with the lowest responsible bidder who shall give the security that any board reqUIres.

(Ed. Code § 17407.)

In cases, such as the instant case, where the District does own the

land that is the site of the project, the Legislature did not include a

provision that the agreement will be with the lowest responsible bidder, but

the Legislature instead chose to allow school district to enter into lease­

leaseback agreements "without advertising for bids." (See Ed. Code

§ 17406.) McGee's attempts to require that the District seek competitive

bids under Public Contract Code section 20110 et seq. is contrary to the

clear language of Education Code section 17406. There is no controversy

between Education Code section 17400 et seq. and Public Contract Code

section 20110 et seq. Accordingly, District's demurrer to the seventh cause

of action was properly sustained.

- 39-

H. The Trial Court Did Not Err in Sustaining the Demurrers

Without Leave to Amend

When reviewing a demurrer that has been sustained without leave to

amend, the Court of Appeal must decide whether there is a reasonable

possibility the plaintiff could cure the defect with an amendment. (San

Diego City Firefighters, Local 145, AFL-CIO v. Board of Admin. of San

Diego City Employees' Retirement System, supra 206 Cal.App.4th at 605-

606.) "If we find that an amendment could cure the defect, we conclude

that the trial court abused its discretion and we reverse; if not, no abuse of

discretion has occurred." (Ibid.) The plaintiff has the burden of proving

that an amendment would cure the defect. (Schifando v. City of Los

Angeles (2003) 31 Ca1.4th 1074,1081.)

Here, as the trial court correctly found, this case presents pure issues

of law concerning the interpretation of Education Code section 17406.

McGee had two opportunities to plead its case in front of the trial court. In

its Opening Brief, McGee has not articulated any additional facts that it

could have alleged in order to overcome the insufficiency of its pleadings.

Accordingly, the trial court did not err in sustaining the demurrers without

leave to amend and this Court should affirm.

- 40-

V.

CONCLUSION

Based on the foregoing, the District respectfully requests that this

Court find that the demurrers were properly sustained and affirm the

judgment below in its entirety.

DATED: July 29, 2014 Respectfully submitted,

B~~ Martin A. Hom, SBN 157058

- 41 -

Jennifer D Cantrell, SBN 235015 Attorneys for Defendant and Respondent TORRANCE UNIFIED SCHOOL DISTRICT

CERTIFICATE OF WORD COUNT (Cal. Rules of Court, §§ 8.204,8.490)

The text of this brief and excluding the tables, certificate,

verification, and supporting documents, consists of 11, 686 words as

counted by the Microsoft Word word-processing program used to generate

the brief.

Dated: July 29, 2014

~ Martin 'A. Hom

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Attorneys for Defendant and Respondent TORRANCE UNIFIED SCHOOL DISTRICT

SERVICE LIST

CARLIN LA W GROUP .. Kevin R. Carlin

4452 Park Boulevard, Suite 310 San Diego, California 92116 Telephone: (619) 615-5325 Facsimile: (619) 615-5326

MARKS, FINCH, THORNTON & BAIRD, LLP Jason R. Thornton (SBN 185637) 4747 Executive Drive, Suite 700 San Diego, California 92121 Telephone: (858) 737-3100 Facsimile: (858) 737-3101

Hon. Stuart M. Rice, Dept. B Los Angeles Superior Court 825 Maple Avenue Torrance, CA 90503

Supreme Court

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Attorneys for Appellant,

James D. McGee

Attorneys for Respondent

Barnhart-Balfour Beatty, Inc. dba Balfour Beatty

Construction

Trial Court

Via electronic submission to Court of

Appeals

Exhibit

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT, DIVISION EIGHT

JAMES D. MCGEE,

Plaintiff and Appellant,

v.

TORRANCE UNIFIED SCHOOL DISTRICT, and BARNHART­BALFOUR BEATTY, INC., dba BALFOUR BEATTY CONSTRUCTION, et aI.,

Court of Appeal No. B252570

(Super. Ct. No. YC068686)

Defendants and Respondents,

Appeal From a Judgment Of The Superior Court, County of Los Angeles

Hon. Stuart M. Rice, Judge

APPELLANT'S REPLY BRIEF

Kevin R. Carlin, Esq. (SBN 185701) CARLIN LAW GROUP, A.P.e. 4452 Park Boulevard, Suite 310 San Diego, CA 92116 Telephone: (619) 615-5325 Facsimile: (619) 615-5326 kcarlin@carlinlawgroup.com

Attorney for Appellant

TABLE OF CONTENTS

T ABLE OF AUTHORITIES ................................... .iv

1. ARGUMENT .................................................. -1-

A. The Superior Court Abused its Discretion When it Sustained Respondents' Objections to Taxpayer's Request for Judicial Notice of Notice of Lodgement Exhibits A-F, L, and N. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -1-

B. Respondents Improperly Conflate the Separate Site Lease and Sublease Agreements for Each Project Throughout Their Briefs .............. -3-

C. Respondents Improperly Conflate the Lease and Leaseback Statutes Throughout Their Briefs ..................................... -6-

D. The Fourth District Comt of Appeal Recently Published a Decision Interpreting Education Code Sections 17406 and 17417 ........... -11-

1. The Howard Decision is Legally Incon-ect Because it Misreads The Plain Language of Sections 17406 and 17417 .......... -12-

2. The Howard Decision is Legally Incon-ect Because it Renders 17417 Inoperative, Superfluous and Nugatory. . . . . . . . . . . . . . . . . . .. -14-

3. The Howard Decision is Legally Incon-ect Because it is Based on an En-oneous Attomey. General Opinion That Does Not Acknowledge Nor Analyze the Contemporaneous Predecessor of Section 17417 ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . -18-

4. The Howard Decision is Legally Incon-ect Because it En-oneously Infers Legislative Intent from a Governor's Veto Message ..... -22-

a. The Govemor Does Not Create Law .................. -22-

b. A Govemor's Veto Message Does Not Reflect Legislative Intent, But Merely An Interpretation of Law, Which is Not Binding on the Courts

-23-

-1-

c. The Governor's Veto Message and Its Non-Binding Interpretation of Education Code § § 17400 et seq. Does Not Support Respondents' Arguments. . . . . . . . . . . . . . . . .. -25-

d. The Governor's Veto Message and Assembly Billl486 Do Not Establish Section 17406 Exempts the Sublease From Competitive Bidding ....... . . . . . . . . . . . . . . . . . . . .. -26-

5. The Howard Decision Improperly Rejects Appellant's Assertion That the Site Lease and Facilities Leaseback Agreements Can Not Both Be Competitively Bid Lest Different Bidders Could Be Entitled to Each Contract .................................... -29-

6. Respondents And The Howard Decision Are Legally Incorrect Because They Seek to Apply Section 17406's Limited Exemption of the Site Lease From Competitive Bidding to the Facilities Leaseback Agreement Too ......... '. . . . . . . . . . . . . . . . . . . . . . . . . . . .. -30-

7. The Legislative History of the Relevant Education Code and Related Public Contract Code Sections Actually Support Taxpayer's Interpretation ....................................... -33-

8. The Howard Court Did Not Have the Benefit of the State Allocation Board Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -36-

a. SAB's Failure to "Accept" its Staff and Counsel's January 28, 2004 RepOli and the Absence of a Related Rulemaking Do Not Negate the Truth and Accuracy of the Analysis and Contents Thereof ............................... -37-

E. Respondents Continue to Miss the Point of Taxpayer's First Cause of Action .................................................... -39-

F. Taxpayer's Second Cause of Action for Breach of Fiduciary Duty Does Not Fail as a Matter of Law ....................................... -40-

1. Government Code §900 et seq. Does Not Apply ............. -41-

G. Respondents Incorrectly Assert Taxpayer's Fourth Cause of Action for Conflict of Interest Fails Because Government Code Section 1090 Does

-11-

Not Apply to Contractor ...................................... -41-

1. This Court's Christiansen Case is Limited to the Criminal Context .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .. . . . . . . . . . . . . . . . . -45-

2. Education Code Section 17250 et seq. Does Not Eliminate Contractor's Conflict of Interest Because Respondents Did Not Contract Under That Statutory Scheme ..................... -46-

II. CONCLUSION ..................................................... -48-

-111-

TABLE OF AUTHORITIES Cases:

Burks v.Poppy Construction Co., (1962) 57 Cal. 2d 463,473-474. . . . . . . . . . . . . .. -40-

California Housing Finance Agency v. Hanover/California Management and Accounting Center, Inc. (2007) 148 Cal.AppAth 682 ................................. -41, 47-

Cel-Tech Communications v. Los Angeles Cellular Telephone Co. (1999) 20 Ca1.4th 163, 216 ................................................................ -17-

City Council v. McKinley(l978)80 Cal.App.3d 204 .......................... -43-

City of Los Angeles v. Offner (1942) 19 Cal.2d 483, 486 .................. -39,40-

Corleyv. United States (2009) 556 U.S. 303,314-315 ..................... -16,17-

Domar Electric, Inc. v. City of Los Angeles (1994) 9 Ca1.4th 161, 173 ........... -21-

Dubins v. Regents of University of California (1994) 25 Cal. App. 4th 77,83 .. -35,36-

Ghilotti Const. Co. v. City of Richmond (1996) 45 Cal.AppAth 897,907-908 ....... -46-

Harbor v. Deukmejian (1987) 43 Cal.3d 1078, 1084 .......................... -22-

Hatch v. Superior Court (2000) 80 Cal.AppAth 170,226 . . . . . . . . . . . . . . . . . . . . .. -30-

Hub City Solid Waste Services, Inc. v. City of Compton (2010) 186 Cal.App.4th 1114 ... ... ... .......... ........... ............. ........ '" .......... -41,42,45,47-

In re Lance W. (1985) 37 Cal. 3d 873, 888. ............................. -34,35-

Inre SUlmnerH (206) 139 Cal.AppAth 1315,1328 .......................... -32-

Joyce v. Ford Motor Co. (2011) 198 Cal.AppAth 1478 .................... -23,24-

Kashian v. HalTiman (2002) 98 Cal.AppAth 892, 900, fn. 3 ...................... -2-

Kaufman & Broad Communities, Inc. v. Perfonnance Plastering, Inc. (2005) 133 Cal.App.4th 26,42 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -23,24-

-lV-

Klajic v. Castaic Water Agency (2004) 121 Cal.AppAth 5 ..................... -31-

Kungys v. United States (1988) 485 U.S. 759, 778 .......................... -16-

Los Alamitos Unified School District v. Howard Contracting, Inc., (2014)_ Cal.AppAth_, 2014 WL 4638855 ...................................... -11-

Millbrae Assn. for Residential Survival v. City of Millbrae (1968) 262 Cal.App.2d 222, 237 ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -43-

Murillo v. Fleetwood Enterprises, Inc. (1998) 17 Ca1.4th 985, 993 ............ -6,34-

Nickelsberg v. Workers' Compo Appeals Bd (1991) 54 Cal. 3d 288,298 ........ -34, 35-

People V. Christiansen (2013) 216 Cal.App.4th 1181,1189- 1190 ................ -45-

People V. Loeun (1997) 17 Ca1.4th 1,9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -30-

People V. Shabazz (2006) 38 Ca1.4th 55, 67-68 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. -7-

People V. Vallerga (2nd Dist. 1997) 67 Cal.App.3d 847, 870 . . . . . . . . . . . . . . . . . .. -20-

Rao V. Campo (1991) 233 Cal. App.3d 1557, 1567 .......................... -17-

Ratcliff Architects V. Vanir Constr. Mgmt., Inc. (2001) 88 Cal.AppAth 595,604 .... -40-

Reams V. Cooley (1915) 171 Cal, 150, 154 ................................... -46-

Robert L. [v. Superior Court (2003)] 30 Ca1.4th 894, 903 ........................ -7-

Schaefer V. Berinstein (1956) 140 CaI.App.2d 278 . . . . . . . . . . . . . . . . . . . . . . .. -43,45-

Seelig V. Infinity Broadcast Corp. (2002) 97 CaI.AppAth 798, 807, fn. 5 ............ -2-

Settle V. State of California (JuI. 23, 2014, B249236) _ Cal.App.4th _ [2014 LEXIS 658] ....................................... -6-

Service Employees Internat. Union V. County of Los Angeles (2nd Dist. 1990) 225 Cal.App.3d 761, 768 .................................................. -20-

-v-

Stigall v. City of Taft (1962) 58 Ca1.2d 565,569 ......................... -43,45-

Woods v. Young (1991) 53 Ca1.3d 315, 325 ................................ -14-

Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Ca1.4th 1,14-15 .:.37-

Statutes:

Code of Civil Procedure § 1859 ......................................... -14-

Education Code § 15705 ............................................ -18,33-

Education Code § 15706 ............................................... -18-

Education Code § 15712 ............................................... -18-

Education Code § 17400-17406 .......................................... , -8-

Education Code § 17407-17419 .......................................... , -9-

Education Code § 17420-17429 .......................................... -10-

Education Code § 17406 ......................... -6,8, 12, 14,29,31,33,35,36-

Education Code § 17407 ............................................... -15-

Education Code § 17417 .......................... ,: ........... -13,14,16,32-

Education Code § 17418 ............................................... -15-

Education Code § 17428 ............................................... -15-

EducationCode§ 17429 ............................................... -15-

Education Code § 17455-17485 ......................................... -5, 33-

Education Code. § 17469 -16-

Education Code § 17472 -30-

-vi-

Education Code § 18355 -33-

Education Code § 39305 -33-

Evidence Code §452, subd. (g)-(h) ..................... , ....... -............ -2,3-

Evidence Code §453 . . . . . . . . . . . . .. . . . .. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .. .-3-

Evidence Code §459 . . . . . . . . . . . . .. . . . .. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .. .-3-

Government Code § 900, et seq ........................................... -41-

Government Code § 1090, et seq ..................................... -41,42,43-

Govenul1ent Code § 82048(a) .................................. -39-

Public Contract Code section 201 06 ....................................... -34-

Public Contract Code section 20111 .................................. " -34,35-

Other Authorities:

56 Ops.Cal.Atty.Gen. 571 ........................................ -18, 19,20-

7 Witkin, SUlmnary of Cal. Law (lOth), Constitutional Law §125 .............. -23-

Antonin Scalia and Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 174 (2012) ............................ .': .................................... -17-

Cal. Const., Art. IV, §1 ................................................ -22-

Cal. Const., Ali. IV, §10(a) ............................................. -22-

Cal. Const., Art. V, § 1 ................................................. -22-

Cal. Const., Art. XVI, §6 ............................................. " -29-

California Rules of Court, Rule 8.1115(a) .................................. , -5-

Ulpian, Digesta 2.7.5.2 (third century A.D. Romanjurist) ........................ -17-

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APPELLANT'S REPLY BRIEF

Appellant James D. McGee (Taxpayer) respectfully submits this

Appellant's Reply Brief (ARB) in reply ·to Respondent Tonance Unified

School District (District),s Brief (DRB) and Respondent Barnhart-Balfour

Beatty, Inc., dba Balfour Beatty Construction, (Contractor),s Brief (CRB).

(District and Contractor are collectively Respondents.) 1

I. ARGUMENT

A. The Superior Court Abused its Discretion When it Sustained Respondents' Objections to Taxpayer's Request for Judicial Notice of Notice of Lodgement Exhibits A-F, L, and N.

Respondents' arguments (DRB 7-9; CRB 7-13) regarding the various

newspaper articles, the lease-leaseback presentation material, and a contractor

conflict of interest legal opinion exhibits to Taxpayer's RJN serve only to

highlight the importance of those documents and the Superior Court's error in

sustaining Respondents' obj ections thereto. District argues the exhibits cannot

aid in judicial interpretation of the statutes at issue in this appeal because the

statutes are not ambiguous. Essentially, District seeks to presuppose that its

argument is correct in order to show why evidence may not be admitted against

its argument. Thi.s circular logic is inappropriate here.

Taxpayer agrees Education Code sections 17406 and 17417

unambiguously work together in concert with all of the other provisions of

17400 through 17429 to prohibit Respondents' non-competitively bid

leaseback agreements. 2

Other terms not defined herein have the same definition as in Taxpayer's Opening Brief.

All references are to the Education Code unless otherwise specified.

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Under the California Constitution, the Judicial Branch of the State of

California, is the body vested with ultimate authority to interpret statutes.

Taxpayer offered the disputed RJN materials to aid judicial bodies in this

process. Most of these materials add context to these court's interpretation by

highlighting how public trust in school districts' awarding of multi-million

dollar bond funded contracts is eroded by allegations of impropriety and

corruption. Such allegations could not exist but for those school districts'

failure to use the sealed competitive bidding procedures required in 17400-

17429 and other public contracting statutes. Specifically each provision in

17400-17429 under which a school district pays money to another requires

such contracts be only with the lowest responsible bidder after giving public

notice and soliciting sealed bids (i.e. 17407 (where a district does not own the

property upon which the subject project is to be built); 17417 (where a district

does own the property upon which the subject project is to be built); and 17418

(where a district contracts with a non-profit public benefit corporation for the

construction of the subject project)).

The disputed Exhibits in Taxpayer's RJN are not manufactured

documents; these are documents that contain "facts and propositions that are

'capable of immediate and accurate detennination by resOlt to sources of

reasonably indisputable accuracy." Evid. Code, §452, subd. (g)-(h). Further,

they "provide context to" the relevant statutes and their "mere existence ...

provides value to the court" in its interpretation. (See Seelig v. Irifznity

Broadcast COlp. (2002) 97 Cal.AppAth 798,807, fn. 5; see also Kashian v.

Harriman (2002) 98 Cal.AppAth 892, 900, fn. 3 (where the COUlt took judicial

notice of newspaper articles attached to a relevant letter in order to provide

context to the letter, even if not for the truth of the asseliions contained in the

news articles).)

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Taxpayer's justification for judicial notice of Exhibits "A" through "F ,"

"L" and "N" fits within the requirements of Evidence Code section 452 and

therefore the Superior COUli abused its discretion by not taking judicial notice

of the articles as required in Evidence Code section 453.

Taxpayer filed concUlTently herewith as Exhibits 7 through 15 to its

AMJN various records of the United States District Court, Southern District

of California, and the California Superior COUli, County of San Diego.

(AMJN 148- 180.) These documents pertain to criminal cases brought in those

jurisdictions related to cOl1uption and bribery that were the subject of the

various newspaper miicles designated as Exhibits A through F in Taxpayers

RJN.

These are likewise docUlnents which this Court can take judicial notice

of under Evidence Code §452 and §459. These documents establish the

accuracy and tmth of the facts and propositions relating to cOlTuption in non­

competitively bid school contracts as asselied in Taxpayer's disputed RJN

B. Respondents Improperly Conflate the Separate Site Lease and Sublease Agreements for Each Project Throughout Their Briefs

In their introductions and throughout their briefs Distlict and Contractor

improperly conflate and refer to but one lease-leaseback agreement or contract

per Project (e.g. DRB 4, 11, 18; CRB 14, 15, 18,23,25,29.) 3 Contractor

devotes a whole page to its strawman assertion "[c]ontrary to McGee's

argument, there is no requirement in the statute that this be completed with

three separate documents." (CRB 29.) Taxpayer does not contend there must

be three separate documents. Taxpayer asserts there are at lease two separate

Where they use the plural "Lease-Leaseback Agreements" it is because they are refening to contracts for the :2. separate Projects

-3-

agreements: a Site Lease and a Sublease. 4 In this case an additional

Construction Services Agreement was executed too.

The Site Lease is the agreement by which District leases out to

Contractor its real property for Contractor to make improvements thereon. 5

District admits "[u]nder the Sublease, Balfour Beatty agreed to construct the

Proj ects, generally consisting of the construction and! or upgrades of [school

facilities] ... " (DRB 3.) Taxpayer contends the Site Lease is govemed by 17406

and does not require competitive bidding because Conh'actor is paying money

to District. Taxpayer contends the Sublease is govemed by 17417 which

requires competitive bidding because the District is paying money to the

Contractor to leaseback its property with the specified improvements

constructed thereon by Contractor. The plain language of 17406 refers to the

leasing out of District's real property to Contractor and the plain language of

17417 refers to the leasing back of the District's real property with the

specified improvements constructed by Contractor.

4 A Sublease is commonly referred to as a Facilities Lease such that the tenns are used interchangeably herein. Most if not all of the judgments offered by Contractor validate a site lease and a separate facilities leaseback agreement. (3 AA 561, 565,570,578, passim.) While Taxpayer disputes the legal correctness of these judgments validating non-competitively bid leaseback agreements, Taxpayer contends they confinn at lease two separate agreements are required for a lease-leaseback transaction.

By what can only be explained as a Freudian slip District likewise states "[t]he Site Lease only leases the site to the lease leaseback contractor and nothing more." (DRB 22.) Similarly Contractor cOlTectly states " .. .17406 which allows a school district to lease property it owns to anyone, without advertising for bids ... " (CRB 14.)

-4-

Respondents incon-ectly ass eli both agreements (site lease and facilities

sublease) are covered by 17406 by stating " ... as the statute clearly states that

lease-leaseback agreements mat be made 'without advertising for bids' ... "

(DRB 11; CRB 23;) This asseliion contrary to plain language of 17406 which

expressly refers only to one agreement by using the term "the instrument"

multiple times. In sections D-l, D-3 and D-6 below Taxpayer fmiher

discusses how 17406's phrases "without adveliising for bids" and

"Notwithstanding Section 17417" referenced throughout Respondents' briefs

do not result in an exception to competitive bidding for Sublease.

District asselis "If Section 17406 was not meant to exempt the sublease

from competitive bidding, then there would be no reason for the statute to

contain all these provisions about construction work and terms." (DRB 22.)

District goes too far. The only express reference to 'construction work and

terms' in 17406 is the requirement that the instrument by which the District's

propeliy is let require "the lessee therein to construct on the demised premises"

facilities for the District. This is to ensure a site leased out without

competitive bidding as pennitted by Aliic1e 2 6 is only so let for the purpose

of constructing school facilities. If the site were let for any other purpose it

would be subject to competitive bidding under 17472 and awarded only to the

highest bidder. While Taxpayer agrees with District's assertion the Legislature

could have been clearer. (DRB 22.) But Article 2 is written the way it is and

must be interpreted by the Court to give hannony and effect to each provision

without creating inconsistency or duplication.

6 Article 2 of Education Code Title 1, Division I, Part 10.5, Chapter 4, is comprised of sections 17400 through 17429 (collectively Aliic1e 2) contain the specific statutes defining the mode and limiting the method of lease­leaseback contracting allowed school districts.

-5-

Contractor likewise ovelTeaches by referring to numerous supelior court

judgments validating similar lease-leaseback alTangements throughout the

state. (CRB 15-16.) These are improper under CRC Rule 8.1115(a) "an opinion of

a California Court of Appeal or superior court appellate division that is not certified

for publication or ordered published must not be cited or relied on by a court or a

party in any other action." Worse yet, the vast majority of these are default

judgements. A football game where only one team takes the field always results in

a win for that team.

C. Respondents Improperly Conflate the Lease and Leaseback Statutes Throughout Their Briefs

In their introductions and throughout their Briefs Respondents

improperly conflate and assert the entire lease-leaseback procedure, process

and/or transaction is set forth in 17406. (e.g. DRB 1 "The lease-leaseback

process, set forth in Education Code section 17406, ... ",3, 8, 9, 11; CRB 1

"Lease-leaseback construction is expressly authorized by Education Code

section 17406, ... ", 16,22,25,28,30 "The entirety of the transaction between

the parties is governed by Education Code Section 17406.")

Neither the leaseback process nor procedure nor entire transaction is set

forth solely in 17406. There is no mention of either the word or the concept

of "leaseback" in 17406.· It would be improper to infer or extrapolate from

17406's language obligating the lessee of the demised premises to construct

school facilities thereon that will vest in the school district at the end of the

Site Lease any details or parameters of the separate leaseback agreement. A

court does not have the power to re-write a statute to confonn to a presumed

intention of the Legislature which has not been expressed. Murillo v.

Fleetwood Enterprises, Inc. (1998) 17 Ca1.4th 985, 993. It "cannot add or

substitute words in a statute." Settle v. State of California (Jul. 23, 2014,

-6-

B249236) _ Cal.AppAth_ [2014 LEXIS 658].

Contrary to Respondents' assertion there is not one "lease-leaseback

statute." Instead, there are 29 separate statutes in Article 2 which must be read,

interpreted and applied by this COUli in a mam1er that is in context and gives

effect to all those statutes. Respondents want this COUli to ignore the following

well settled mles of statutory interpretation:

"The meaning of a statute may not be detennined from a single word or sentence; the words must be constmed in context, and provisions relating to the same subject matter must be hannonized to the extent possible. [Citation.] Literal constmction should not prevail if it is contrru-y to the'legislative intent apparent in the statute .... An interpretation that renders related provisions nugatory must be avoided [citation]; each sentence must be read not in isolation but in light of the statutory scheme [citation]; and if a statute is amenable to two alternative interpretations, the one that leads to the more reasonable result will be followed [citation].' [Citation]; see also Robert L. [v. Superior Court (2003)] 30 Ca1.4th 894, 903 ["'Statutory language should not be interpreted in isolation, but must be constmed in the context of the entire statute of which it is a part, in order to achieve hannony among the pruiS"'].)" People v. Shabazz (2006) 38 Ca1.4th 55, 67-68.

This COUli is obligated to interpret 17406 and 17417 in the context of

and hamiony with a1129 of the separate sections that make up Article 2 when

evaluating whether Respondents' challenged Sublease agreements complied

with all applicable requirements under Aliicle 2. A copy of Article 2 is

attached to AMJN as Exhibit 1 (AMJNl-8.) and its 29 separate sections are

SUlmnarized as follows:

-7-

Education Taxpayer's Summary of Section

Code

17400 Only in the manner specified in Article 2 7 school districts may enter into leases relating to real propeliy for the purpose of construction/renovation of buildings thereon to be used by the district

17401 Inclusion of lease purchase agreements

17402 Prerequisites applicable to all lease agreements

17403 Maximum tenn of lease agreements

17404 Exemption from highest bidder requirements of 17455 to 17480 (e.g.17472) othelWise applicable when school districts sell or lease their own real property

17405 Requirement that buildings to be used by students must comply with 17280 et seq (DGS/DSA review/approval of plans/specs) & 17365 et seq. (fitness for student occupancy)

17406 Leasing of real propeliy owned school district (for a minimum rental of one dollar ($1) a year) authorized and exempted from Calif Constitution Article XVI, Section 6's, prohibition of gifts of public property without adequate consideration so long as the instrument by which such real property is let requires the lessee therein to construct on the demised premises a building or buildings for the use of the school district during the term thereof, and provides that title to those improvements shall vest in the school district at the expiration of that lease tenn.

"Where the statute prescribes the only mode by which the power to contract shall be exercised the mode is the measure of the power. A contract made otherwise than as so prescribed is not binding or obligatory as a contract and the doctrine of implied liability has no application in such cases." Reams v. Cooley (l9l5) 171 Cal, 150, 154.

-8-

17407 Leasing of real propeliy & buildings not owned by school district authorized so long as the contract is with lowest responsible bidder after public notice soliciting bids for two weeks and title to property & buildings vest in district when the lease ends.

17408 Election required prior to any lease under this article that results in the increase of existing applicable maximum tax rate of school district.

17409 Election contents of ballot and manner of election before the lease agreement

17410 Election to use tax increase

17411 Election ballot statement, rights of the school board

17412 Election timing

17413 Election ballot content and manner of election after accepting proposal or passing resolution

17414 Election approved by majority of voters allows school board to proceed pursuant to Article 2

17415 Post-Election liability for tax increase if school district reorganizes

17416 Post-Election failure of school board to enter into lease within three years

17417 Lease back contract requirements for real property owned by school district upon which improvements thereon are to be constructed by another so long as the contract is with lowest responsible bidder after public 'notice soliciting bids for three weeks per 17469.

17418 Lease with nonprofit public benefit corporations as altemative to 17407 or 17417. Sealed competitive bidding still required in the manner specified in Public Contract Code 20670 et seq.

17419 Nonprofit corporation's sale of bonds, etc., to finance construction of building being leased under 17418

-9-

17420 Tax exemption for bonds, etc., sold by nonprofit corporation under 17419

17421 Any school buildings constructed under this Article must have plans and specifications approved in advance by Department of General Services per 17280 et seq.

17422 Fonnula for including outstanding lease payments in calculation of outstanding bonded indebtedness

17423 Limitation on lease obligation vis a vis outstanding bond debt by school district

17424 Prevailing wages must be paid to workers on buildings constructed under this Aliicle

17425 Provision in this Aliicle prevail over other conflicting provisions

17426 Actions taken by school districts prior to enactment of this section are confinned, ratified and declared legally effective

17427 State Allocation Board requirements of classification of pupils as "housed" or "unhoused"

17428 Authorization to lease or purchase propeliy in adjoining school districts for garage, warehouse or other utility purposes

17429 If site owned by school district has a school facility that complies with 17280 which is not owned by the school district then school district may lease from a California nonprofit corporation that school facility with funds derived from an increase in taxes approved by voters expressly for that purpose

-10-

D. The Fourth District Court of Appeal Recently Published a Decision Interpreting Education Code Sections 17406 and 17417

After Respondents' Briefs were filed the Fourth Appellate District,

Division Three, published on September 17, 2014 its decision in Case No.,

G049194 in the matter of Los Alamitos Un(fied School District v. Howard

Contracting, Inc., (2014) _Cal.App.4th_, 2014 WL4638855 (Howard).

(AMlN124-136.) The Howard decision and the briefs upon which it is based

are included at Exhibits 2 through 5 of AMlN. (AMJN8-136.) By letters to

this Court dated September 19, 2014 Respondents asserted the Howard case

is relevant to arguments in DRB in Section B (pages 9 through 16), Section D

(pages 20 tlu'ough 27), and Section F (pages 36 through 38) and CRB pages

14 tlu'ough 25, 27 tlu'ough 32 and 43 through 44. Accordingly Taxpayer

addresses Howard and the related points raised in DRB and CRB concUlTentiy .

. Counsel for District in this appeal likewise represented the school

district in the Howard case. Counsel for appellant in Howard did not raise all

the arguments raised by counsel for Taxpayer in this appeal and the arguments

that were raised in Howard were not as extensively developed as they have

been in this appeal. (AMJN Exhibits 2-4; AMlN 8-123.) Consequently, the

Howard Court was not afforded the same level of argument and analysis that

this Court has been presented. Consequently this Court is justified in reaching

a different decision. Further, for the reasons discussed below, the Howard

Court's interpretation and application of 17406 and 17417 must be rejected as .

contrary to California law and public policy.

-11-

1. The Howard Decision is Legally Incorrect Because it Misreads The Plain Language of Sections 17406 and 17417

In Howard the Fomih Appellate District, Division Three, incolTectly

concluded 17406 refers to both the site lease agreement and the sublease

agreement and that both agreements are exempt from competitive bidding

because 17406 begins with the phrase "Notvvithstanding Section 17417." The

Howard Court, referring to the sublease agreement, stated "[t]hus, section

17406, subdivision (a) expressly provides that notwithstanding the bidding

process established by Education Code section 17417, the District was

pennitted to engage in the type of transaction at issue here 'without adveliising

for bids' ." (AMJN 12 8.) The Howard Comi elToneous1y conflates the separate

site lease and sublease agreements which is contrary to the plain language of

17406.

As discussed in Section C, infra, 17406 contains no express or implied

language defining the procedures that apply to the Sublease by which District

will pay Contractor money to leaseback District's premises demised under the

Site Lease with the facilities constructed thereon by Contractor. To the

contrary 17406 only provides in relevant paIi:

" ... the governing board of a school district, without adveliising for bids, may let for a minimum rental of one dollar ($1) a year, to any person, firm, or corporation any real property that belongs to the district if the instrument by which such property is let requires the lessee therein to construct on the demised premises, or provide for the construction thereon of, a building or buildings for the use of the school district during the tenn thereof, and provides that title to that building shall vest in the school district at the expiration of that term ... [ emphasis added]"

-12-

The only statute in 17400 to 17429 which expressly refers to a facilities

leaseback agreement involving real property owned by a school district with

the facilities constlUcted by another thereon is 17417 which references "the

amount of rentaL .. to be paid by a school district for the use of the building, or

building and site ... " The express language of 17417 requires the governing

board of a school district, after complying with the requirements of 17402,

adopt a resolution declaring the district's intention to enter into a lease

pursuant to Aliicle 2. 17417 requires said resolution do all of the following

and more:

(1) describe "the available site upon which the building to be used by

the district shall be constlUcted;

(2) "describe the building to be constlUcted"

(3) "state that the building shall be constlUcted pursuant to the plans

and specifications adopted by the governing board therefor"

(4) "state that the proposals submitted therefor shall designate the

amount of rental, which shall be annual, semiannual, or

monthly, to be paid by the school district for the use of the

building, or building and site, as the case may be. [emphasis

added]"

(5) "fix a time, not less than three weeks thereafter for a public

meeting... at which sealed proposals to enter a lease or

agreement with the school district will be received ... and

considered by the governing board. Notice thereof shall be given

in the manner provided in Section 17469."

(6) "At the time and place fixed in the resolution for the meeting of the

governing body, all sealed proposals which have been received

shall, in public session, be opened, examined, and declared by

-13-

the board."

(7) "Of the proposals submitted .... the proposal which calls for the

lowest rental shall be finally accepted, or the board shall reject

all bids [emphasis added]."

Because 17417 contains express language prescribing specific

procedures that apply to the Sublease agreement by which District pays

Contractor to leaseback District's own real property with the facilities

constructed by Contractor thereon it controls over any general language in

17406. Code Civ. Proc., § 1859 "when a general and patiicular provision are

inconsistent, the latter is paramount to the former"; Woods v. Young (1991) 53

Ca1.3d 315, 325 "specific provision relating to a particular subject will govern

a general provision".

2. The Howard Decision is Legally Incorrect Because it Renders 17417 Inoperative, Superfluous and Nugatory

The Howard Court's interpretation of 17406 (and Respondents') must

be rejected because they render 17417 inoperative, superfluous and nugatory.

The Howard Court incorrectly dismissed the application of 17417 by rejecting

appellant Howard's (patiially developed) argument that 17417 would be

rendered a nullity under the Los Alamitos school district's proposed

interpretation of 17406. The Howard Court incorrectly concluded "[t]here

would appear to be many ways in which section 1 7417 would be used, even

iflease-leaseback an-angements are excluded from it." (AMJN132.)

The Howard Court's assertion that "[t]here would appear to be many

ways in which section 17417 would be used," is not correct as there is no other

way in which 17417 could be used under Aliic1e 2.

-14-

First, 17417 can only apply to leases under Article 2 because, in its first

sentence, it expressly requires a school district board to comply with 17402

and adopt a resolution declaring their intention to enter into a lease pursuant

to Article 2.

17417 can not be used with 17418 because that section expressly says

it is an alternative to 17407 and 17417 and allows the school district to

contract with a nonprofit public benefit corporation for the construction of

facilities for the school district. 17418 also requires construction contracts by

the nonprofit public benefit corporation be let only via competitive bidding.

17417 can not be used with 17428 because that section simply

authorizes a school district to lease or purchase property in another dish·ict. By

definition that propeliy does not belong to the district and therefore is not

subject to 17417 which expressly applies to property "belonging to the <

district."

17417 can not be used with 17429 because that section simply

authorizes a school district, after the voters have approved a tax increase for

the purpose thereof, to lease a school facility existing at the time of the

election a school facility not owned by the district that is located on property

that is owned by the district so long as the lease is fro111 a California nonprofit

corporation. Again propeliy not owned by District.

Finally, contrary to Contractor's assertion (CRB 30) 17417 cannot be

used with 17407 because that section expressly applies to real property not

owned by a school district and 17417 referenced a lease of "real property

belonging to the district." Moreover, 17407 contains its own express

requirements for two weeks of advertising for competitive bids which conflict

with the express requirements for three weeks of adveliising for competitive

bidding in 17417. Specifically 17407 states:

-15-

"For the purpose of securing bids the board shall publish at least once a week for two weeks in some newspaper of general circulation published in the district, or if there is no paper, then in some paper of general circulation circulated in the county, a notice calling for bids, stating the proposed tenns of the agreement and the time and place where bids will be opened. [emphasis added]"

Whereas 17417 states:

"The resolution shall fix a time, not less than three weeks thereafter for a public meeting ofthe goveming board to be held at its regular place of meeting, at which sealed proposals to enter a lease or agreement with the school district will be received from any person, finn, or corporation, and considered by the goveming board. Notice thereof shall be given in the manner provided in Section 17469."

And 17469 states:

"Notice of the adoption of the resolution and of the time and place of holding the meeting shall be given by posting copies of the resolution signed by the board or by a majority thereof in tlu'ee public places in the district, not less than 15 days before the date of the meeting, and by publishing the notice not less than once a week for three successive weeks before the meeting in a newspaper of general circulation published in the county in which the district or any part thereofis situated, if any such newspaper is published therein [emphasis added]."

Because the Howard Court's and Respondents' interpretation of 17406

and 17417 result in an interpretation where 17417 applies to nothing, their

interpretation violates the preeminent 'Superfluous Language Canon' of

statutOlY interpretation, 8 which prohibits Courts from interpreting a statute in

The United States Suprenie COUli has called it "one of the most basic interpretive canons" Corley v. United States (2009) 556 U.S. 303, 314-315 and a "cardinal rule of statutory interpretation." Kungys v. United States

-16-

such a way that makes some of the language inoperative, superfluous, void, or

insignificant.9 The Superfluous Language Canon has been adopted and

applied by California COUltS. 10 The interpretation of 17406 advanced by

Howard and Respondents is improper and must be rejected by this COUIt

because it nullifies 17417.

If this COUlt is at all tempted by the premise 17417 is not rendered

nullity by the interpretations of sections 17406 advanced by Howard and

Respondents, then Taxpayer respectfully requests this Court expressly state

what contracting scenario under Altic1e 2 17417 would apply to.

9

10

(1988) 485 U.S. 759, 778.

"A statute should be construed so that effect is given to all its provisions, so that no Palt will be inoperative or superfluous, void or insignificant" Corley v. United States (2009) 556 U.S. 303, 314-315. A recent treatise phrased the principle thus: "If possible, every word and every provision [of an enactment] is to be given effect. ... None should be ignored. None should needlessly be given an interpretation that causes it to duplicate another provision or to have no consequence. Antonin Scalia and Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 174 (2012). This principle of statutory construction is of ancient vintage, so much so that it once was known by its Latin styling "verba cum effectu sunt accipienda ... Words are to be taken as having an effect." Ulpian, Digesta 2.7.5.2 (third century A.D. Roman jurist).

"When construing a statute, a court must consider the entire statutory scheme of which it is part and give effect to all parts of the statute, avoiding an interpretation that would render any provision nugatory." Cel-Tech Communications v. Los Angeles Cellular Telephone Co. (1999) 20 Ca1.4th 163, 216. "It is a well-settled principle of statutory interpretation that the various parts of a statute must be considered as a whole to avoid absurd or anomalous results by hannonizing any apparently conflicting provisions; and thus, a palticular Palt of a statutory enactment must be viewed in light of the enactment in its entirety. Moreover, statutes should not be interpreted in a manner to render parts of them superfluous." Rao v. Campo (1991) 233 Cal. App.3d 1557, 1567.

-17-

3. The Howard Decision is Legally Incorrect Because it is Based on an Erroneous Attorney General Opinion That Does Not Acknowledge Nor Analyze the Contemporaneous Predecessor of Section 17417

The Howard Court also references in its analysis (AMJNI28-130) the

same 1973 Attorney General (AG) Opinion 56 Ops.Atty.Gen.Cal. 571

referenced by Respondents in their Briefs. (DRB 11-12,26,39; CRB 2, 16-17,

30.) This 1973 AG Opinion should not be relied on by this Court because it

failed to acknowledge or analyze 15712 which was the predecessor of 17417

at the time. A copy of the predecessors of each of the statutes presently

codified in Article 2 (AMJN 1-7) enacted in 1996 is attached to AMJN as

follows:

AMJN137-139

AMJN 140-142

AMJN143-147

18351-18368

15701-15718

39300-39325

1957

1959

1976

The AG's failure to consider 15712 (AMJN141) led to its elToneous

conclusion that 17406's predecessor 15705 (AMJNI40) applies to both the site

lease and facilities leaseback agreement and exempts both from competitive

bidding. 11 The AG arrived at its erroneous conclusion by only looking at

15705 (re: property owned by district) and 15706 (re: property not owned by

district). !d. at 581. The AG based its erroneous conclusion on its observation

that because 15706 expressly references competitive bidding and 15705 does

not the Legislature must have been requiring competitive bidding only where

the district did not own the property upon which the improvements were to be

II Taxpayer contends 15705 only applies to the site lease portion of the lease-leaseback transaction and 15712 applies to the leaseback portion of the lease-leaseback transaction for the same reasons stated in its discussion of 17406 and 17417.

-18-

constructed. Id. In its 1996 revisions the Legislature expressly clarified that

the site lease agreement referenced in 17406 was not subject to the competitive

bidding requirements applicable to a facilities leaseback agreement under

17417 by adding the phrases "Notwithstanding Section 17417" and "without

advertising for bids" into the language that had been in 18355, 15705 and

39305 and adding for the first time subsection (b) which reads:

"Any rental of propeliy that complies with subdivision (a) shall be deemed to have thereby required the payment of adequate consideration for pW1Joses of Section 6 of Article XVI of the California Constitution."

The phrase "deemed to have thereby required the payment of adequate

consideration" in 17406(b) refers to a payment to a school district rather than

payment hy a school district which is fUliher evidence that 17406 refers only

to the site lease agreement whereby a third party makes payment to a school

district. There is no language in 17406 or any of its predecessors that

expressly or inferably relates to a facilities leaseback agreement by which a

school district pays money out. That portion of the lease-leaseback transaction

is covered by 17417 and its predecessors 18362, 15712 and 39314. (AMJN

138, 141, 144-145.)

Simply put: the AG got it wrong. The AG acknowledges how

incongruous its conclusion (that competitive bidding of the sublease is not

required under 15705) is with other provisions of the lease-leaseback statutes

(i.e. 15706 now 17407) and California's long tradition of requiring

competitive bidding to detennine the amount of public funds to be paid out by

a public entity for constmction projects. ld., at 580. The AG laments:

"There is no apparent reason for authorizing school districts to proceed without notice and bids in a section 15705 construction (where the school owns the site) and requiring the notice and

-19-

bids in a section 15706 constlUction where the school district initially does not own the site ... Considerations of wisdom, expediency, or policy suggest a contrary conclusion ... " Id., at 580-581.

Califomia COUlis have generally given little deference to an Attomey

General opinion when the opinion appears to misinterpret the law. People v.

Vallerga (2nd Dist. 1997) 67 Cal.AppJd 847, 870 (where this COUli

characterized an AG opinion as advisory only and disregarded the opinion that

attempted to carve out an exception to Government Code § 1090 which this

Court did not believe existed.); Service Employees Internat. Union v. County

of Los Angeles (2nd Dist. 1990) 225 Cal.App.3d 761,768 (where this COUli

upheld a trial court's decision to disregard an Attomey General opinion when

the court disagreed with the Attorney General's interpretation because

"opinions of the California Attomey General are advisory only and do not

cany the weight of law.")

Had the AG considered and analyzed the predecessor of 17417 it likely

would have come to the conclusions and statutory interpretations State

Allocation Board ("SAB") staff and counsel at1iculated in their January 28,

2004 Report (which Taxpayer urges this COUli to also adopt) namely that

17406 only applies to the site lease portion ofthe lease-leaseback transaction

and 17417 applies to the facilities lease (aka sublease) portion of the lease­

leaseback transaction and requires competitive bidding thereofbecause that is

the pOliion of the transaction where the public entity is paying money out.

Obviously there is a conflict between 56 Ops.Cal.Atty.Gen. and the

SAB Report. Why, as Respondents suggest, should the AG's opinion be given

more weight than the SAB attorney's opinion? Both are attorneys for the state

of California giving advice to public bodies for the purpose of administering

-20-

public business. What is more, the SAB attomey advises the executive branch

entity that implements and administers billions of dollars of statewide

voter-approved school facilities bond construction programs. If anything, the

SAB attorney's opinion should be given more weight because they work day

in and day out in the subject matter of their opinion.

FOltunately, this Court can resolve the lamentations of the AG relative

to Howard's and Respondents' flawed interpretation of 17406 (formerly

. 15705) by rejecting them and adopting Taxpayer's interpretation which is

more consistent with the ostensible objects to be achieved, the evils to be

remedied, the legislative history, public policy, contemporaneous

administrative construction, and the statutory scheme of which the challenged

statutes are a part. Respondents' proposed interpretation leads to mischiefby

eliminating the competitive bidding of the $48 million in school construction

projects which are the subject of this action thereby denying the District,

public and taxpayers of the benefits of competitive bidding outlined by the

Supreme COUli inDomar Electric, Inc. v. City 0./ Los Angeles (1994) 9 Ca1.4th

161, 173.

The only things Respondents' proffered interpretation of 17406 and

section I 7417 lead to are unnecessarily depleted school bond funds and pi'ofits

for general contractors who can cuny favor with elected officials to be

awarded multi-million dollarno bid contracts as evidenced by Taxpayer's RJN

Exhibits A-K and AMJN Exhibits 7-15 (AMJNI48-180). These outcomes

can not be consistent with the ostensible objects to be achieved, the evils to be

remedied, the legislative history, public policy, contemporaneous

administrative construction, and the overall statutory scheme. This Court

should reject the flawed and incomplete analysis of the 1973 AG opinion

relied on by the Howard COUli and Respondents.

-21-

4. The Howard Decision is Legally Incorrect Because it Erroneously Infers Legislative Intent from a Governor's Veto Message

The Howard COUli also references in its analysis of legislative intent

Governor Schwarzenegger's 2004 veto of AB 1486 (AMJN130) which is

likewise referenced by Respondents in their Briefs. (D RB 12, 28; CRB 18-19.)

Governor Schwarzenegger's 2004 veto of AB 1486 can not be relied on by this

COUli as evidence of the Legislature's intent relative to sections 17406 and

17417 for the following reasons:

a. The Governor Does Not Create Law

The state's legislative power is vested exclusively in "the California

Legislature, which consists of the Senate and Assembly, but the people reserve

to themselves the powers of initiative and referendum." (Cal. Const., Ali. IV,

§ 1.) The Governor does not have legislative power under the California

Constitution; instead, it is the role of the Governor to "see that the law is

faithfully executed.~' (Cal. Const., Art. V, § 1.) The Governor has one role in

the legislative process: the Gove1110r may sign a bill passed by either house of

the Legislature, at which point the bill becomes a statute, or the "Gove1110r

may veto [the bill] by returning it with any objections. to the house of origin,

which shall enter the objections in the jou111al and proceed to reconsider it."

(Cal. Const., Ali. IV, §10(a).) Thus, even in the limited, clearly defined

manner in which a Governor may playa role in the legislative process, which

role must confonn to "the manner expressly authorized by the constitution"

(Harbor v. Deukmejian (1987) 43 Ca1.3d 1078, 1084), the Governor does not

actually create law; instead, the Governor may merely prevent the creation of

law. Such an action is not an expression ofthe Legislature's intent with regard

to that or any other law.

-22-

b. A Governor's Veto Message Does Not Reflect Legislative Intent, But Merely An Interpretation of Law, Which is Not Binding on the Courts

As the Governor does not create law, a Governor's "Veto Message"

cannot reflect the intent of the Legislature in creating any given statute.

"Acceptable sources of legislative history are: legislative committee reports,

legislative analyst's repOlis, statements and memorandums of legislators,

unpassed bills and other statutes, omissions from bills, model bills and their

commentaries, and public comments." (7 Witkin, Sunul1aIyofCal. Law (10th),

Constitutional Law § 125.) Absent from that list are items prepared by the

Executive Branch, including the Governor's office. The inclusion of executive

documents as legislative histOlY has been considered by California COUlis. In

Joyce v. Ford Motor Co. (2011) 198 Cal.AppAth 1478, the court considered

whether enrolled bill reports and Governor's press releases regarding a bill

constituted legislative history, such that the documents had some binding

authority in the COUli's interpretation of a statute. The Joyce cOUli

unequivocally rejected this notion. While a reviewing court may be bound to

take judicial notice of executive document, including enrolled bill repOlis and

Governor's press releases, they do so with the understanding that "enrolled bill '.

reports cannot reflect the intent of the Legislature because they are

prepared by the executive branch .... [T]o pennit consideration of enrolled

bill reports as cognizable legislative histOlY gives the executive branch an

unwananted oppOliunity to detennine the meaning of statutes. That is the

proper and exclusive duty of the judicial branch of government." .. , [W]e

similarly conclude that [a Governor's press release] cannot reflect the intent

of the Legislature, and is therefore not cognizable legislative history. Joyce,

198 Cal.App.4th at 1492-1493 [emphasis added], quoting Kaufman & Broad

-23-

Communities, Inc. v. Pel/ormancePlastering, Inc. (2005) 133 Cal.AppAth26,

42.

Ultimately, then, a Governor's message is not legislative history and

does not reflect legislative intent because (a) it is prepared by the executive,

not the legislative, branch, and (b) it does not concern a law that has been

created, but rather a bill that has been rej ected and will not become law. This

is especially so in the present case. The AB 1486 veto message cited by

Howard and Respondents relates to an Assembly Bill that proposed to modify

Education Code §§ 17400 et seq. to inseli a "competitive selection" scheme

that would be applied toward the use by school districts of "lease-leaseback

contracts" to construct new school buildings. Thus, the code sections at issue

in this appeal already existed before this bill was passed by the Legislature and

vetoed by Governor Schwarzenegger. It would be impossible for Governor

Schwarzenegger's objections to a vetoed bill that did not become law, which

obj ections were rendered decades after the relevant code sections were actually

created by a different bill, to reflect the intent of the previous Legislature when

it created Education Code §§ 17400 et seq.

What, then, is a Governor's veto message? In general, a veto message

offers the Governo'r's objections to a bill with a request that those objections

be considered by the Legislature as the Legislature calTies out its duties in

creating law. At most, the message can suggest the Governor's interpretation

of the vetoed bill at issue. However, "detern1in[ing] the meaning of statutes

.,. is the proper and exclusive duty of the judicial branch of

government."Joyce, supra, 198 Cal.AppAth at 1493; Kaufinan & Broad

Communities, supra, l33 Cal.AppAth at 42. Accordingly, a Governor's veto

message constitutes only one of many penllissible non-binding interpretations

ofa law. Ultimately, it is the province of the Judicial Branch to detennine the

-24-

meaning of a statute. In the present case, it is for this Court of Appeal - not

Respondent, not Taxpayer, not the Governor, not the Attorney General - to

detennine the meaning of Education Code §§ 17400 et seq. with respect to the

actions complained of by Taxpayer.

c. The Governor's Veto Message and Its Non-Binding Interpretation of Education Code §§17400 et seq. Does Not Support Respondents' Arguments

Thus, Respondents' reliance on Governor Schwarzenegger's message

released in conjunction with his veto of Assembly Bill 1486 in 2004 is

misplaced because the message has no binding authority in detennining the

meaning of Education Code §§ 17400 et seq. At 111ost, it suggests but one

possible interpretation of the relevant code sections, passed decades before

Governor Schwarzenegger's message. Respondents' reliance is misplaced for

another reason, though: the message does not support Respondents' argument.

Respondents suggest the veto message provides some evidence that no

competitive bidding is required relative to either the site lease contract or the

facilities leaseback contract. The veto message itself does not provide such an

interpretation. The message reads:

"I am supportive of using a competitive process for public works projects and understand that this bill is needed to clarify that process. However, this bill imposes restrictions on lease­leaseback contracts that could limit competition, inadvertently limit schools flexibility, and drive higher administrative costs; thereby potentially increasing the overall cost of school facility constmction. For this reason, I cannot sign this measure [emphasis added]." (2 AA 415.)

The first rationale Governor Schwarzenegger offers for the veto is that

the proposed "competitive selection" process could "limit competition." If, as

Respondent argues, 17400 et seq., does not require any competitive bidding of

-25-

leaseback contracts on land owned by districts, how could a competitive

selection process limit competition? Governor Schwarzenegger's message

would riotmake any sense if these leaseback contracts do not require any

competitive bidding at all.

In this light, Govemor Schwarzenegger's comments suggest that the

statutes already require competitive bidding. This follows a plain-language

interpretation of the statutes. 17406 removes an obligation to hold a

competitive bidding process only for the "site lease" portion of the "lease­

leaseback" transaction. 17406 says that no competitive bidding is required for

a district "to let" property to the contractor. It does not state that a district may

then lease the property back at a price that is not set by competitive bidding.

17417 clarifies that this"leaseback" contract does in fact require competitive

bidding. This fits in perfectly with the scheme as a whole: when a contractor

has been chosen under a competitive bidding process (the details of which are

set f011h in 17417), the property then may be "let" by a district under 17406 to

that contractor without the need for a separate competitive bid process.

d. The Governor's Veto Message and Assembly Bill 1486 Do Not Establish Section 17406 Exempts the Sublease From Competitive Bidding

Howard and Respondents misconstme and erroneously rely on

Govemor Schwarzenegger's veto message in support of their assertion that

17406 exempts the Sublease from competitive bidding under 17417. The

Govemor's veto message is ambiguous as to why he vetoed AB 1486. He does

not expressly and clearly state what proposed change( s) AB 1486 was making

to 17400 to 17429 that caused him to veto the proposed amendments in order

to maintain the status quo. Moreover, the veto message could be read to imply

Governor Schwarzenegger supports SAB' s and Taxpayer's interpretation that

-26-

the cunent lease leaseback statutes 17400 to 17429 require competitive

bidding of the leaseback contract. This is because the Governor stated "I am

supportive of using a competitive process for public works projects ... However,

this bill imposes restrictions on lease~leaseback contracts that could limit

competition." Real competition occurs when all qualified bidders are given an

opportunity to submit bids. Real competition does not occur when a school

district negotiates with only a few or one "prefened" bidders.

Further, the Howard COUli and Respondents fail to acknowledge AB

1486, as enrolled on August 27, 2004, amended the CUlTent lease leaseback

provisions of Education Code by amending 17406 and adding sections 17429.1

through 17429.6. The changes made by AB 1486 included, but were not

limited to:

1. Required the governing board to make certain written finding

before entering into a lease"leaseback agreement;

2. Required the de1agatee of the governing board to make a finding

that the contracting procedures would result in the best value to

the district by providing the district with a descliption of the

benefits to be expected from the contract;

3. Required the School District to issue a request for proposals, a

public notice of the request, to create a process to pre-qualify the

lease-leaseback entities, to establish a procedure for final

selection, to rank the lease-leaseback entities from most

advantageous to least advantageous, to write a proposal

declaring the most responsible bidder, and finally to declare the

contract completely independent from any of the contractors or

subcontractors;

-27-

4. Forbade any lease-leaseback contract from proceeding until the

contractor received written approval from the State Depmiment

of General Services;

5. Prevented any party involved in the platming of the project to

bid on the project; 6. required the designs to be prepared by a

licensed professional;

7. Defined the terms such as "lease-leaseback" and "best value;"

8. Set a sunset date for the lease-leaseback provisions on January

1,2009; and

9. Required competitive bidding in order to lease school propeliy

to a private pmiy for the purpose of constructing school

buildings for the use of the school district. (2 AA 404-412.)

Because of the number and significance of the changes AB 1486

proposed there is no way to ascertain which "restrictions on lease leaseback

contracts" Govemor Schwarzenegger was referring to as the basis of his veto.

AB 1486 would have amended the CUlTent law regarding lease-leaseback in at

least nine different ways. Anyone or more of these could have been the

"restriction" that the Govemor feared would "limit competition." All that can

be drawn from Govemor Schwarzenegger's veto is that he prefelTed the

existing language to the proposed amended language. No inference can be

drawn as to whether the Govemor (1) thought the existing language needed

clarification or modifIcation; (2) thought the existing language was good and

the proposed language bad; or (3) whether the existing language was bad and

the proposed language worse. Accordingly, the Howard COUli and

Respondents' attempt to use Govemor Schwarzenegger's veto as evidence of

the Legislature's intent IS PURE CONJECTURE and is of no use 111

interpreting 17406 and 17417.

-28-

5. The Howard Decision Erroneously Rejected Taxpayer's Assertion That the Site Lease and Facilities Leaseback Agreements Cannot Both Be Competitively Bid Or Else Different Bidders Could Be Entitled to Each Contract

The appellant in Howard like Taxpayer here asserted the express

language of 17406 exempts only the site lease portion of the lease-leaseback

transaction from competitive bidding to avoid a situation where one party

could be the successful bidder on the site lease agreement and a different patty

could be the successful bidder on the facilities leaseback agreement. (AMlN

034; AOB 23 :FN2, 32.) The Howard Court elToneously analyzed and rejected

this assertion as follows:

According to Howard, section 17406 is intended only to apply to the site lease agreement, not the sublease agreement. Howard claims the purpose of the statute is to avoid a situation in which both agreements were competitively bid, and two different contractors made the winning bids on the two different agreements. The tenns of the statute, however, appear to prevent the potential problem Howard identifies. Section 17406 sets the minimum annual rental fee to be paid by the contractor to the school district at $1. No one who actually wanted to win the Project could ever be underbid in the site lease agreement. (AMlN 13l.)

The Howard Court's analysis and conclusion that because 17406 sets

the minimum annual rental fee to be paid by the contractor to the school

district at $1, "[n]o one who actually wanted to win the Project could ever

be underbid in the site lease agreement [emphasis added]" is elToneous. But

for 17406's express exemption of the site lease from competitive bidding

requirements otherwise applicable to leases of school property (i.e. 17472 or

Section 6 of Altic1e XVI of the California Constitution (prohibiting gifts of

public propelty)) a school district would be obligated to award the site lease

agreement to the patty who offers to pay the highest amount to the school

-29-

district not the lowest amount. (See 17472.) Thus the Howard COUli's

reference to "underbid" elToneously presumes a low bid scenario and its

conclusion that there could never be an award to two different bidders on the

site lease and the facilities leaseback agreements because of the $1 floor set by

17406 is therefore wrong. The minimum rental of $1 in 17406 is not a floor

but instead it is an arbitrary nominal amount of consideration that is

legislatively specified in order to have a binding contract (without competitive

bidding) that transfers the right to occupy and use that real propelty of a school

district to another patty for the sole purpose of that patty constructing thereon

facilities and improvements that they will then lease back to the school district

according to the procedures specified in 17417.

6. Respondents And The Howard Decision Are Legally Incorrect Because They Seek to Apply Section 17406's Limited Exemption of the Site Lease From Competitive Bidding to the Facilities Leaseback Agreement Too

"Although the meaning of a statutory phrase may be plain and certain

if the phrase is considered in isolation, blind adherence to the text of a

statutory phrase is improper if its literal interpretation is inconsistent with other·

provisions of the same statute, defeats the apparent legislative intent and is

otherwise in conflict with accepted interpretive canons." Hatch v. Superior

Court (2000) 80 Cal.App.4th 170,226. Moreover, interpretation of statutory

language leading to absurd results is to be avoided. People v. Loeun (1997) 17

Ca1.4th 1,9.

Based 17406's preface "[n]otwithstanding 17417" the Howard Court

enoneously concludes "[t]hus, section 17406, subdivision (a) expressly

provides that notwithstanding the bidding process established by Education

Code section 1 7417, the District was pennitted to engage in the type of

transaction at issue here 'without adveliising for bids.'" (AMJN128.) To

-30-

conclude the Los Alamitos district was pennitted to engage in the lease­

leaseback "transaction at issue" the Howard Court concluded, en-oneously,

17406 is not limited only to the site lease portion of the lease-leaseback

transaction but instead applies to both the site lease agreement and the

facilities leaseback agreement. Just as in this case, counsel for District argued

the foregoing to the Howard Court on behalf of Los Alamitos. (DRB 8;

AMJN069.) It should be noted counsel for District conflated in their

arguments the two separate lease agreements in a lease-leaseback transaction

in the Howard case just as they have done in this case as discussed in Section

B, supra. (AMJN 062-064,067,069,074, passim.) Regrettably the Howard

COUli inadvertently adopted Respondents' erroneous conflation and

incorporated it into its opinion (AMJN 125,127,131.)

In suppOli of their interpretation of 17406 Respondents attempt to apply

the broad statutory term of art "notwithstanding any other law" discussed

Klajic v. Castaic Water Agency (2004) 121 Cal.App.4th 5, 13 to the present

case. (DRB 20-21; CRB 28.) However, Respondents omit from their briefs the

full discussion in Klajic of the distinction between the tenn of art

"notwithstanding any other law" which has very broad ramifications when

used in a statute compared to the more narrow phrase "notwithstanding

subdivision (xyx)" which expresses the legislative intent to only care out an

exception to subdivision (xyx). Even though 17406 only includes the

notwithstanding language that falls within the more nan'ow phrase,

Respondents only direct this Court to Klajic' s discussion of the broader plu'ase

"notwithstanding any other law" The full discussion from Klajic is:

"Notwithstanding" means "without prevention or obstlUction from or by" or "in spite of" (Webster's 3d New Internat. Dict. (unabridged Dict.l993) p. 1545, italics added) or "despite" (Webster's 10th New Collegiate Dict. (1995) p. 795).

-31-

The statutory plu'ase "notwithstanding any other law" has been called a " 'term of art' " [ citation] that declares the legislative intent to ovelTide all contrmy law. [citation] By use of this tenn, the Legislature expresses its intent" 'to have the specific statute control despite the existence of other law which might otherwise govem.' [Citation. ]" [citation] ["notwithstanding any other provision of law" "signals a broad application oven'iding all other code sections"].) The more nan'ow plu'ase "notwithstanding subdivision (a)" expresses the legislative intent to "carve out an exception only to subdivision (a) " [ citation]."

Here the plu'ase "Notwithstanding Section 1741 T' by specifically

referencing 17417 expresses the legislative intent in 17406 to "carve out an

exception" to 17417. The question is what is being excepted from the

competitive bidding requirements of section 1 7417? Are both the site lease

agreement and the facilities leaseback agreement being excepted from the

competitive bidding requirements ofsection17417 as Respondents assert OR

is that plu'ase excepting ONL Y the awarding of the site lease agreement as

Taxpayer asselis? For the reasons stated in his Opening Brief and herein,

Taxpayer asselis his interpretation prevails.

Moreover, Respondents' quote from In re Summer H (206) 139

Cal.App.4th 1315, 1328 which actually supports Taxpayer's interpretation

because the court there said "notwithstanding" has a special legal connotation

"[I]t is considered an express legislative intent that the specific statute in which

it is contained controls in the circumstances covered by that statute, despite the

existence of some other law which might otherwise apply to require a different

or contrary outcome [emphasis added]." The circumstances covered in 17406

are limited to the express language therein which refers only to a school

district leasing out propeliy it owns to another party (e.g. the Site Lease) for

the sole purpose of that party constructing thereon facilities and improvements

-32-

that will be used by the school district during the tenn of the site lease and

with title to those improvements vesting in the district at the end of the site

lease. The specifics of how a school district's site and the improvements

constructed thereon are leased back to the school district are covered in 17417.

17406, by expressly using the phrases "[ n ]otwithstanding Section

17417" and "without advertising for bids" carves out a limited exception to the

public bid requirement otherwise applicable to school district leases of their

real propelty (e.g. 17472) but the limited exception only applies IF the patiy

to whom the real property is being leased will be constructing school facilities

thereon for use of the school district during the tenn thereof. There is no

language in 17406 that extends its limited exemption from competitive bidding

to the facilities leaseback agreement too.

7. The Legislative History ofthe Relevant Education Code and Related Public Contract Code Sections Actually Support Taxpayer's Interpretation

District asselis the trial comi's decision is supported by the "relevant

legislative histOlY of the of the lease-leaseback laws." (DRB 11.) Contratyto

this asseliion the relevant legislative history of the lease-leaseback laws and

their counter parts in the Public Contract Code actually suppo~ Taxpayer's

interpretation.

Education Code Section 17406 was originally enacted in 1957 under

fonner Education Code section 18355. (Stats. 1957, ch. 2071.) The statute,

along with other Education Code provisions, was re-codified in 1959 as fonner

Education Code section 15705 (Stats. 1959, Ch. 2.) In 1976, section 15705

was re-codified as section 39305. (Stats. 1976, Ch. 1010.) The Education Code

was repealed and reenacted in 1996 to cun'ent section 17406 without

substantive change. (Stats. 1996, Ch. 277.)

-33-

By contrast, Public Contract Code section 20106 - the public bid statute

for school distlicts - is historically derived from a statute enacted in 1949.

Section 20106 predates the original enactment of the lease-leaseback statute

by 8 years. (Stats. 1949. Ch. l389; fom1er Ed. Code section 5047.5.) Section

20111 requiring competitive public bid for school construction, is of even

earlier origin than the lease-leaseback provision, enacted in 1943. 14 years

before Education Code section 17406. (Stats. 1943, Ch. 71)

A court does not have the power to re-write a statute to confonn to a

presumed intention of the Legislature which has not been expressed. Murillo

v. Fleetwood Enterprises, Inc. (1998) 17 Ca1.4th 985, 993. Significantly, a

Legislature is presumed to know the law at the time of the enactment of its

statutes. Nickelsberg v. Workers' Compo Appeals Bd (1991) 54 Cal. 3d 288,

298 ("Nickelsberg"). Repeals of statutes by implication are disfavored.

Nickelsberg, supra, 54 Cal. 3d 288, 292. Under the rule of expressio unius est

exclusio allerius, when exceptions to a general rule are specified by statute,

other exceptions are not to be implied or presumed. In re Lance W (1985) 37

Cal. 3d 873, 888. A corollary proposition is inclusio un ius est exclusio alterius,

inclusion of the one is the exclusion of another. Murillo v. Fleetwood

Enterprises, Inc., supra, 17 Cal.4th 985, 991. '.

A statute should be construed in the context of the entire statutory

system of which it is a pali in order to achieve hannony among the parts.

Nickelsberg, supra, 54 Ca1.3d 288, 298. To this end, "statutes should be

interpreted in such a way as to make them consistent with each other, rather

than obviate one another." Id. As one appellate court has stated: The meaning

of the words of a statute ... can only be detennined with reference to the context

in which the words are used; that is, with reference to such purpose as may be

discemed from examining the entire enactment of which the words are part.

-34-

Dubins v. Regents o.fUniversity ofCal(fornia (1994) 25 Cal. App. 4th 77,83.

Applying the foregoing rules of statutory construction to 17406, there

are at least three reasons why the phrase "[ n ]otwithstanding Section 17417" in

17406 does not authorize a school district to bypass the competitive bid

requirement for awarding the Sublease (aka the leaseback agreement) by which

the district is paying money to another to construct facilities on district

propeliy leased to the other via a site lease. First, 17406 was originally enacted

8 and 14 years after the predecessor statutes to Public Contract Code section

20106 and Public Contract Code section 20111, respectively. Since the

Legislature is presumed to know the law when it enacted the lease-leaseback

competitive bid statutes is disfavored. Nickelsberg, supra, 54 Ca1.3d 288,292,

298.

Second, 17406 is limited to relieving a school district from the

competitive bidding process only in the limited circumstance where it is

leasing out its real propeliy for the purpose of having facilities for its use

during the term of the site lease constructed thereon. 17406 is silent on

whether it exempts school districts from competitively bidding the seperate

leaseback contract. Under the'princip1e inclusio unius est exclusio alterius, the

inclusion of a leasing exception to the competitive bidding process, excludes

implying an exception for awarding construction contracts in the first instance.

Conversely, since 17406 does create an exception for leases from the bidding

requirement, under the principle expressio un ius est exclusio alterius, this

exception should be confined to leases to a contractor, and no other exception

should be implied or presumed concerning leases from a contractor. In re

Lance 1., supra, 37 Cal. 3d 873, 888. School districts cannot use the limited

exception from competitive bidding of site leases to contractors under 17406

-35-

to swallow the specific mle under 17417 and Public Contract Code section

20106 that all contracts where a school district pays money out must be subject

to the competitive bidding process.·

Third, the limited reach of i 7406 to exempting leases where the

contractor pays money to the school district from competitive bids - but not to

the contracts for leaseback agreements or constmction agreements whereby a

school district pays money out - is confinned by reviewing the entire

enactment of which 17406 is a part, specifically Aliicle 2. Dubins v. Regents

afUniversity afCa!(fornia, supra, 25 Cal. App. 4th 77,83. 17406 appears in

Title 1, Pmi 10.5, Chapter 4 of the Education Code, entitled "Property: Sale,

Lease, Exchange" and Aliicle 2: "Leasing ofPropeliy." A companion statute

in Article 2 - 17404 - entitled "Exemptions," states that sections "17455 to

17480, inclusive, shall not apply to leases made pursuant to this aliicle."

Sections 17455 through 17480 are the enumerated provisions appearing under

Aliicle 4 of the Education Code entitled "Sale or Lease of Real Propeliy."

There is nothing in 17406, in Aliicle 2 or anywhere else in Chapter 4

of the Education Code that purports to exempt school districts from awarding

contracts pursuant to the competitive bid statutes for leaseback agreements or

constmcti011 agreements whereby a school district pays money out. Instead, the

statutory exemption in Article 2, 17406, is expressly limited to the provisions

relating to the site lease agreement of the lease leaseback transaction

authorized by Education Code sections 17400 et seq. Respondents and the

Howard Court elToneously attempt to re-write 17406 to presume an intent

which the Legislature has not expressed.

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8. The Howard Court Did Not Have the Benefit of the State Allocation Board Report

The Howai'd Court was not presented and did not consider the SAB

RepOli. (AMJN008-136.) While Respondents disagree with the SAB Report's

conclusions at they acknowledge that at the very least:

"The weight courts attach to agency interpretations is 'contextual,' and depends on factors such as "the thoroughness evident in [the agency's] consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, iflacking power to controL" Yamaha Corp. of America v. State Ed. of Equalization (1998) 19 Ca1.4th 1, 14-15. (DRB 27; CRB 38.)

Based on the foregoing, this Court should attach great weight to the

analysis and conclusions in the SAB Report based upon the objectiveness and

experience of those writing it as evidenced by the thoroughness of its

consideration of the history and procedures of the lease-leaseback process.

Respondents urge this COUli to give relatively little weight to the

opinions contained in the SAB Report because this case involves a pure issue

of law regarding the interpretation of the lease-leaseback statutes, which is

solely a judicial function and the SAB Report was never fonnally adopted by

the SAB, nor was it vetted in accordance with the Administrative Procedure

Act. (DRB28-29; CRB32.) While Taxpayer acknowledges the accuracy of the

foregoing premises, Taxpayer disputes the conclusion advanced by

Respondents.

-37-

a. SAB's Failure to "Accept" its Staff and Counsel's January 28, 2004 Report and the Absence of a Related Rulemaking Do Not Negate the Truth and Accuracy of the Analysis and Contents Thereof.

In the January 28,2004 RepOli SAB staff and legal counsel state:

It is the opinion of staff and SAB counsel that either interpretation expands the meaning of Be 17406 beyond its simple intent and ignores other requirements in the same article regarding competitive bid requirements for leases (Be 17417). There is no disagreement that Be 17406 is clear in allowing districts to lease a district-owned site to a person, finn or corporation when the lessee agrees to construct buildings for the use of the school district. However, the exemption from public bidding allowed in this section applies only to the propeliy lease from the district to the developer. It does not address how the contract for the construction of the buildings is procured nor does it provide an exemption to competitive bidding for that contract. (2 AA 368.)

Respondents make too much of the fact the appointed members of the

SAB voted not to accept the foregoing Report. Respondents would have this

COUli believe that a client's refusal to accept their attorney's memorandum and

opinion of law somehow negates the validity of the analysis and legal

conclusions contained therein.

By not accepting the SAB Report it would appear the members of the

State Allocation Board were imitating the monkeys in the old proverb "hear

no evil, see no evil and speak no evil:" While the source that popularized that

pictorial maxim is a 17th century carving over a door of the famous Toshe-gu

shrine in Nikko, Japan in the Western world both the proverb and the image

are often used to refer to a lack of moral responsibility on the paIi of people

who refuse to acknowledge impropriety, looking the other way or feigning

ignorance. http://en.wikipedia.org/wiki/Three wise monkeys. Just because

-38-

the appointed State Allocation Board members chose for reasons u:riknown to

turn a blind eye and not "accept" their staff and legal counsel's January 28,

2004 report and legal opinion does not negate the tmth, accuracy and sound

public policy embodied in the analysis and contents thereof.

E. Respondents Continue to Miss the Point of Taxpayer's First Cause of Action

For the sake of Taxpayer's First Cause of Action it does not matter

whether any portion of the lease and leaseback contracts authorized under

Aliicle 2 required competitive bidding or not. Taxpayer's First Cause of

Action contained sufficient allegations in Paragraphs 20 tlu-ough 26 that the

Lease-Leaseback Contracts were not real leases which is the prerequisite to

Respondents using tlle mode of contracting authorized by Article 2. (See ~~

22-26, 1 AA008-10.) Taxpayer's First Cause of Action is premised on the

California Supreme Court's mle in City of Los Angeles v. Offner (1942) 19

Ca1.2d 483,486 that designating an agreement as a 'lease' for purposes of a

subterfuge in an otherwise authorized public lease-leaseback arrangement will

void the agreement (i.e. it must be a genuine lease-leaseback and not a sham).

DRB and CRB dispute the foregoing paragraphs allege sufficient

"ultimate" facts to establish for the purpose of pleading a claim under Offner

that the challenged Lease-Leaseback Contracts were sham leases and therefore

did not qualify for the mode of contracting authorized by Aliicle 2. (DRB 16;

CRB 24-25.)

Respondents' cry crocodile tears in their protest of Taxpayer's alleged

improper pleading of conclusions oflaw and a lack of "ultimate" facts because

the Supreme Court has said:

"The distinction between conclusions of law and ultimate facts is not at all clear and involves at most a matter of degree. [citations omitted] F or example, the courts have penl1itted

-39-

allegations which obviously included conclusions of law and have tenned them 'ultimate facts' or 'conclusions of fact.' [citations omitted] In pennitting allegations to be made in general tenns the courts have said that the particulmity of pleading required depends upon the extent to which the defendant in faimess needs detailed infonnation that can be conveniently provided by the plaintiff, and that less particularity is required where the defendant may be assumed to possess knowledge of the facts at least equal, if not superior, to that possessed by the plaintiff. ... " Burks v. Poppy Construction Co., (1962) 57 Cal. 2d 463,473-474.

Under Burks, supra, Taxpayer has sufficiently alleged a cause of action

to invalidate Respondents' Lease-Leaseback Contracts under the law of Offner

because Respondents are adequately apprised of Taxpayer's legal theory and,

as pmiies to the challenged contracts, are in a better position to know the

specific details of the arrangement between them than Taxpayer who is an

outsider to the transaction. As such, Taxpayer was entitled to plead with less

particularity and without application ofhyper-teclmical distinctions between

conclusions of law and ultimate facts.

F. Taxpayer's Second Cause of Action for Breach of Fiduciary Duty Does Not Fail as a Matter of Law

Contrary to Respondents' assertion, Taxpayer's Second Cause of

Action for breach of fiduciary duty does not fail as a matter of law. District

asselis Taxpayer" fails to articulate why the District was required to take any

of these steps in order to discharge its fiduciary obligations to taxpayers" e.g.

District owed no duty to Taxpayer or the public. (DRB 17.) However, District

does conectly acknowledge legal duties can arise from the general character

of the activity or the relationship of the parties. Ratcliff Architects v. Vanir

CanstI'. Mgmt., Inc. (2001) 88 Ca1.App.4th 595, 604. (DRB 18.)

-40-

Here, Taxpayer contends-District owes Taxpayer and the public a duty

(based on the general character of the activity (cOlmnitting to spend $48

million on facilities) and! or the relationship of the parties (Taxpayer and public

being those who pay for, benefit from facilities constmcted by District and are

hanned if District pays unreasonably too much therefore by receiving less

overall facilities because the funds to build such facilities have been

squandered). Therefore, it is not unreasonable for this COUlt to find that a duty

exists on the part of District to undertake some reasonable analysis to

determine whether the price to be paid for the Sublease is reasonable. District

can not act in an arbitrary and capricious way. Taxpayer alleges District

undertook no analysis to detennine whether the price to be paid for the

Sublease was reasonable and as such breached its fiduciary duty.

1. Government Code §900 et seq. Does Not Apply

Respondents improperly assert Taxpayer's FA C is not like a petition for

writ of mandate nor is it a taxpayer waste action and therefore is not entitled

to exemption from Government Code §900 et seq. Taxpayer's FAC is most

celtainlya taxpayer waste action based on its allegations especially ~~15-18.

(1 AA 5-6.)

G. Respondents Incorrectly Assert Taxpayer's Fourth Cause of Action for Conflict of Interest Fails Because Government Code Section 1090 Does Not Apply to Contractor

Respondents assert, as a matter of law, Contractor's prior consulting

contracts with District did not bring Contractor within the class of persons

covered by Government Code section 1090 and/or COlmnon law conflict of

interest prohibitions. (DRB 28-34; CRB 33-40.) Respondents go on at length

to attempt to factually distinguish the on point cases of Hub City Solid Waste

Services, Inc. v. City of Compton (2010) 186 Cal.AppAth 1114 (Hub) and

-41-

Cal~fornia Housing Finance Agency v. Hanover/California Management and

Accounting Center, Inc. (2007) 148 Cal.App.4th 682, (CHFA). Respondents

fail to acknow ledge the substantial body oflaw cited by Taxpayer that expands

the conflict of interest prohibitions to consultants and independent contractors

of public entities is not narrowly fact specific.

Conflict of interest prohibitions are broadly construed and will be found

where the independent contractor has merely the opportunity to use their

position to advance their financial interest. They do not have to actually act

for their benefit or for the public entity's detriment for there to be a cause of

action for conflict of interest. They just have to participate in the making of

a contract that they have a financial interest in.

Division 3 of this Court of Appeal upheld the application of conunon

law conflict of interest prohibition codified in Govenunent Code, Section 1090

et seq., to an independent contractor (a specially retained outside counsel)

working for a public entity in Schaefer v. Berinstein (1956) 140 Cal.App.2d

278 where the COUli stated at page 291 ·'A person merely in an advisory

position to a city is affected by the conflicts of interest rule ... [because he] was

an officer and agent of the city ... in a position to advise the city council as to

what action should be taken."

Likewise Division 4 of this COUli of Appeal upheld the application the

conflict of interest prohibition codified in Government Code, Section 1090 to J

an independent contractor (a waste management consultant) working for a

public entity in Hub City Solid Waste Services, Inc., v. City oj Compton (2010)

186 Cal.App.4th 1114 where the Court stated "A person in an advisory

position to a city may fall within the scope of section 1090. In pmiicular,

independent contractors whose official capacities carry the potential to exeli

considerable influence over the contracting decisions of a public agency may

-42-

not have personal interests in that agency's contracts." Id., at 1124-1125.

Here Contractor was likewise in a position to advise and provide

considerable influence upon District's school board and staff (both as bond

program manager and as preconstruction service provider) as to what actions

they should take relative to the Projects.

Participation in the making of a contract is defined broadly as any act

involving preliminary discussions, negotiations, compromises, reasoning,

planning, drawing of plans and specifications, and solicitation for bids.

Millbrae Assn. for Residential Survival v. City of Millbrae (1968) 262

Ca1.App.2d 222, 237; see also Stigall v. City of Taft (1962) 58 Ca1.2d 565, 569.

The section 1090 prohibition also applies to persons in advisOlY positions to

contracting agencies. Schaefer v. Berinstein (1956) 140 Cal.App.2d 278;City

Council v. McKinley(1978)80 Cal.App.3d 204. This is because such

individuals can influence the development of a contract during preliminary

discussions, negotiations, etc., even though they have no actual power to

execute the final contract.

Respondents assertion Taxpayer did not plead sufficient facts to state

a cause of action for conflict of interest must be rejected. Paragraphs 42

through 56 and the documents incorporated by reference in Taxpayer's FAC

allege sufficient facts to state a cause of action against Contractor for conflict

of interest under Govemment Code section 1090 and/or common law.

The Lease-Leaseback Contracts District awarded Contractor are void

and unenforceable because Contractor was legally precluded from being

awarded those contracts due to conflicts of interest that arose from

Contractor's prior contracts with DistIict related thereto, namely the contract

for bond program management services (BPM) and the contract for

preconstruction services (PCS) which both preceded the Lease-Leaseback

-43-

Contracts.

In perfonning its duties under the BPM and PCS Contractor perf011l1ed

the functions and filled the roles and positions of officers, employees and

agents of District who would ordinarily perfonn and provide the foregoing

professional, design, and financial functions and advise the District relative to

same. In performing the functions and fulfilling its duties under its BPM and

PCS Contractor was in a position of superior knowledge, hust and confidence

relative to District.

Taxpayer's F AC quoted from and incorporated by reference District's

November 13,2102 Agenda Item Summary for the 2013 $945,200 extension

of Contractor's long running BPM contract for bond program management

services which was incorporated into PAC paragraph 45. (1 AA 18). This

document states Contractor's bond program management services are required

to " ... review, process, maintain, and organize all program documents

including invoices, purchase orders, trade contracts, consultant, and vendor

agreements. [ emphasis added]" (4 AA 986.) As BPM Contractor could advise

and influence how the Projects were going to be built (i.e. delivery method)

and how much District would spend (i.e. setting budgets). As such,

Contractor had complete control over District's Measure Y and Z Bond

Program, including its own $48 million worth of Lease-Leaseback Contracts

for the Projects involved in this appeal.

Under the PCS Contractor was to advise on and influence the scope and

nature of the Projects it would be constructing under the Lease-Leaseback

Contracts. Either of the foregoing capacities afforded Contractor sufficient

opportunity to influence and direct the District through the advice Contractor

could give and actions Contractor could take so as to give rise to a conflict of

interest that would preclude the award ofthe contracts challenged in Taxpayers

-44-

F AC under the law stated by this Court in Hub and Berinstein, supra.

Based on the foregoing, Taxpayer has alleged facts sufficient to

constitute a cause of action under Goverrunent Code 1090 and/or the common

law doctrines of conflict of interest.

1. This Court's Christiansen Case is Limited to the Criminal

Context

Respondents' reliance on People v. Christiansen (2013) 216

Cal.AppAth 1181, 1189- 1190, where Division 1 of the Second Appellate

District refused to expand the consultant confliCt of interest law from the civil

context of Hub and CFHA to the criminal context of Christiansen is

misplaced. Specifically the Christiansen Court stated:

No published criminal case has so held. Rather, respondent's argument is based on two civil cases involving section 1090, HUB .... and [ CHF A] .... We express no opinion on the soundness of those opinions in the civil context, but we hold that their expansion of the statutory tenn "employees" to apply to independent contractors does not apply to criminal prosecutions for violation of section 1090. Id. at 1189.

Based on the allegations contained in Taxpayer's FAC Taxpayer

adequately alleged Contractor participated in the prel~~ninary discussions,

negotiations, compromises, reasoning, planning, drawing of plans and

specifications for the Project it had the opportunity to influence the

development of the project and its plans/specifications for Contractor's

financial benefit. Such a situation was held by the Supreme Court to create a

conflict of interest for an public official in Stigall v. City o.fTaJt (1962) 58 Cal.

2d 565,570-571 and there is not reasons such a situation should not be found

by this Court to likewise give rise to a conflict of interest to Contractor in this

civil context.

-45-

2. Education Code Section 17250 et seq. Does Not Eliminate Contractor's Conflict of Interest Because Respondents Did Not Contract Under That Statutory Scheme.

District assertion the Legislature does not share Taxpayer's concern

about the conflict of interest created by Contractor's prior Pre-Constmction

Services Agreement and its Lease-Leaseback Contracts reaches too far. (DRB

34.) 17250.1 O( e) states "( e) It is the intent of the Legislature that design-build

procurement as authorized by the act adding this chapter shall not be constmed

to extend, limit, or change in any manner the legal responsibility of public

agencies and contractors to comply with existing laws."

While the Legislature may have created a design build mode of

contracting for school districts, the statutorily defined mode is the measure of

that power and any contracts not made in compliance therewith are void.

"Where the statute prescribes the only mode by which the power to contract

shall be exercised the mode is the measure of the power. A contract made

otherwise than as so presclibed is not binding or obligatory as a contract and

the doctrine of implied liability has no application in such cases." Reams v.

-Cooley (1915) 171 Cal, 150, 154.

Here Respondents' Lease Leaseback Contracts did not arise from and

comply with any of the procedures specified by the Legislature in Education

Code 17250.10 et seq. that would enable Respondents to proceed thereunder.

For instance, 17250.20 requires:

" ... the governing board may enter into a design-build contract for both the design and constmction of a school facility if that expenditure exceeds two million five hundred thousand dollars ($2,500,000) if, after evaluation of the traditional design, bid, and build process of school constmction and of the design-build process in a public meeting, the governing board makes written findings that use of the design-build process on the specific proj ect under consideration will accomplish one of the following

-46-

objectives: reduce comparable project costs, expedite the proj ect' s completion, or provide features not achievable through the traditional design-bid-build method. The governing board also shall review the guidelines developed pursuant to Section 17250.40 ... "

Contractor would have participated in the foregoing process as the District's

BPM and the subsequent award of a design-build contract would have been a

conflict of interest. Contractor's position as BPM precludes it from being

awarded any other contracts for design and/or construction by District.

To protect the public conflict of interest doctrines can not be nalTowly

construed factually. They must be broadly construed to apply to the ever

changing ways which elected officials, officials, employees and consultants

can an'ange their relationships with public entities for their potential private

gain. Presence of actual hann not required it's the possibility that tempts such

persons to stray from their duty of fealty to the public bodies whom they work

for and serve. Judge Rice made his decision based on incol1'ect statement

application of law not a lack of facts. His granting of demurrer on incolTect

legal grounds needs to be reversed by this COUli so this matter can be returned

to the Superior Court for further development and application of facts to the

conflict of interest law applicable to consultants such as Contractor under

HUB & CFHA andlor Berinstein.

The District has the fox guarding the hen house. If this is not a

consultant conflict of interest under Hub, CHF A andlor Berinstein, then what

is?

-47-

II. CONCLUSION

Respondents premised their DemUlTers on the asseliion that Califomia

law and the facts alleged by Taxpayer did not state any cause of action for

violation of any legal obligation. The Superior COUli failed to properly

interpret and apply California law when it granted Respondents' DemulTers.

Based on the foregoing Taxpayer requests this Court clarify the law and

reverse the Superior Court's sustaining of Respondents' DemUlTers and

subsequent dismissal of Taxpayer's First Amended Complaint and remand this

matter to the Superior COUli with direction to allow Taxpayer's action to

proceed.

Dated: October)O , 2014

By:

-48-

CARLIN LAW GROUP, APC

Kevin R. Carlin Attomey for Appellant JAMES D. MCGEE

CERTIFICATE OF COMPLIANCE

Pursuant to rule 8.204(c) of the Califomia Rules of Court, I hereby

certify that this brief exclusive of the cover, table of contents and table of

authorities contains 1351 S" words, including footnotes. In

making this celiification, I have relied on the word count of the computer

program used to prepare this brief.

Executed on October~, 2014, at San Diego, Califomia.

Kevin R. Carlin, Esq.

-49-

APP-009

PROOF OF SERVICE (Court of Appeal) FOR COURT USE. ONL Y

CZJ Mail D Personal Service

Notice: This form may be used to provide proof that a document has been served in a proceeding in the Court of Appeal. Please read Information Sheet for Proof of Service (Court of Appeal) (form APP-009-INFO) before completing thIs form.

Case Name: McGee v. Torrance Unified School District, et al.

Court of Appeal Case Number: B252570

Superior Court Case Number: YC068686

1. At the time of service I was at least 18 years of age and not a party to this legal action.

2. My D residence W business address is (specify):

4452 Park Blvd., #310, San Diego, CA 92116

3. I mailed or personally delivered a copy of the following document as indicated below (fill in the name of the document you mailed or delivered and complete either a or b): Appellant's Reply Brief

a. m Mail. I mailed a copy of the document identified above as follows:

(1) I enclosed a copy of the document identified above in an envelope or envelopes and

(a) W deposited the sealed envelope(s) with the U.S. Postal Service, with the postage fully prepaid.

(b) D placed the envelope(s) for collection and mailing on the date and at the place shown in items below, following our ordinary business practices. I am readily familiar with this business's practice of collecting and processing correspondence for mailing. On the same day that correspondence is placed for ' collection and mailing, it is deposited in the ordinary course of business with the U,S. Postal Service, in'a sealed envelope(s) with postage fully prepaid.

(2) Date mailed: October 10, 2014

(3) The envelope was or envelopes were addressed as follows:

(a) Person served:

(i) Name: Martin A. Hom, Esq. (ii) Address:

16870 West Bernardo Drive, Suite 330 San Diego, CA 92127

(b) Person served:

(i) Name: Jason R. Thornton, Esq. (ii) Address:

4747 Executive Drive, Suite 700 San Diego, CA 92121

(c) Person served:

(i) Name:

(ii) Address:

D Additional persons served are listed on the attached page (write "APP-009, Item 3a" at the top of the page).

(4) I am a resident of or employed in the county where the mailing occurred. The document was mailed from (city and state): San Diego, California

Page 1 of2

Form Approved for Optional Use Judicial Coundl of Califomia

APP.(J09 [New January 1. 20091

PROOF OF SERVICE (Court of Appeal)

www.cQurtinfo.ca.gov

CASE NAME: McGee v. Torrance Unified School District, et al. I CASE NUMBER:

3. b. 0 Personal delivery. I personally delivered a copy of the document identified above as follows:

(1) Person served:

(a) Name:

(b) Address where delivered:

(c) Date delivered:

(d) Time delivered:

(2) Person served:

(a) Name:

(b) Address where delivered:

(c) Date delivered:

(d) Time delivered:

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(a) Name:

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APP-009

B252570 I

o Names and addresses of additional persons served and delivery dates and times are listed on the attached page (write "APP-009, Item 3b" at the top of the page).

I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct.

Date: October 10,2014

Duane Besse (TYPE OR PRINT NAME OF PERSON COMPLETING THIS FORM)

APP-009 [New January 1. 2009J PROOF OF SERVICE (Court of Appeal)

Page2of2

Exhibit I

CASE No. B252570

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT

DIVISION EIGHT

JAMES McGEE

Plaintiff and Appellant,

vs.

TORRANCE UNIFIED SCHOOL DISTRICT; BARNHART-BALFOUR BEATTY, INC., DBA BALFOUR BEATfY CONSTRUCTION; HARRIS

CONSTRUCTION COMPANY, INC.; ET AL.

Defendants and Respondents.

APPLICATION FOR LEAVE TO FILE AMICUS CURIAE BRIEF OF CALIFORNIA'S COALITION FOR ADEQUATE SCHOOL HOUSING IN

SUPPORT OF DEFENDANTIRESPONDENTTORRANCE UNIFIED SCHOOL DISTRICT [SUBMITTED CONCURRENTLY WITH ATTACHED AMICUS

CURIAE BRIEF]

On Appeal From the Superior Court. fbr the State of California, County of Los Angeles, Case No. YC06868q, Hon. Stuart Rice

FAGEN FRIEDMAN & FULFROST, LLP Kathy McKee, SBN 159244

Paul G. Thompson, SBN 190954 * James Traber, SBN 248439 Luke Boughen, SBN 288460 520 Capitol Mall, Suite 400

Sacramento, California 95814 Telephone: 916-443-0000 Facsimile: 916-443-0030

Attorneys for CALIFORNIA'S COALITION FOR ADEQUATE SCHOOL HOUSING

APPLICATION OF CALIFORNIA}S COALITION FOR ADEQUATE SCHOOL HOUSING FOR LEAVE TO FILE AMICUS

CURIAE BRIEFIN SUPPORT OF DEFENDANTIRESPONDENT TORRANCE UNIFIED SCHOOL DISTRICT

Pursuant to rule 8.200(c) of the CaIifornia Rules of Court,

California's Coalition for Adequate School Housing ("CASH") respectfully

requests kave to file the accompanying brief as amicus curiae in this

proceeding in support of respondent Torrance Unified School District

("District").

CASH is a nonprofit organization formed in 1978 to promote,

develop, and support state and local funding for K .. I2 school construction.

Approximately 93 percent of the K-12 students in California attend schools

in school districts that are members of CASH. Such school districts have a

great need for new classrooms and modernization of old schools. CASH

memberShip includes over 1,100 .school districts, county offices of

education, and private sector businesses, induding architects, attorneys,

consultants,construction managers, financial institutions, modular building

manufacturers,contractors, developers, and others in the school facilities

industry.

CASH has a substantive and abiding interest in. ensuring the Lease~

Leaseback project derivery method authorized by Education Code section

17406 ("Lease-Leaseback") remains a legally viable option for schools in

California. Hundreds of school districts have relied upon the plain and

unambiguous language of Education Code section 17406 for completion of

major facilities projects, resulting in safer and better quality schools for

California students. A decision that weakens or destroys Lease-Leaseback

as a construction option, despite its clear language, would negatively affect

many school projects.

This brief is designed to assist the Court by illuminating the practical

realities that are implicated by this Court's decision. For example, this case

is one of several challenges to the implementation of the plaIn language of

Education Code section J 7406. On September 17, 2014, the Fourth

Appellate District published Los Alamitos Unified School District v.

Howard Contracting, Inc. (2014) 229 CaLAppAth 1222 (S221894, app.

pending), which validated the implementation of the Lease-Leaseback

method. A petition for review of the Los Alatnitos case has been filed with

the Califomia Supreme Court. Additionally. the Second Appellate District

is currently considering Davis v. Fresno Unified School District (Fifth

Appellate District, Court of Appeal Case No. F068477), which also

challenges the viability of the Lease-Leaseback project delivery method. In

short, this case is but one cog in a strategic wheel designed to cause a

divergence of appellate opinions on the Lease-Leaseback method, and

CASH has an interest in maintaining a uniformity of judicial opinion

permitting Lease-Leaseback.

As a further example of ho\\' this brief will assist the Court in

- deciding this matter in its practical context, hundreds of schools have

relied, and continue to rely, upon the plain language of Education Code

section 17406 to permit utilization of Lease-Leaseback. As discussed

'within the amicus brief: the utilization of this method does not spring from

a desire to spend more on school projects than is necessary; rather, it is a

recognition of the temporal, financial, and practical benefits which school

districts find (on some projects) oUhveigh the benefits of the low-bid

method.

No party or counsel for a party in the pending case authored the

proposed amicus brief in whole or in part or made any monetary

contribution intended to fund its preparation or submission. (See CaL Rules

of Court, rule 8.200(c)(3)~) For the foregoing reasons, CASH respectfully

2

requests permission to file the accompanying brief as amicus curiae in this

matter.

Dated: October 24, 2014.

Respectfully submitted,

FAGEN FRIEDMAN & FULFROST LLP

BYL~~~~:::::::~ __ _ mesR.~ber

Attorneys<~fi5r Amicus Curiae Coalition for Adequate School Housing

3

TABLE .OF CONTENTS

L INTRODUCTION .;.; ........................................................................... 1

II. ARGUMEN'r .......... : ... ~ ....................................................................... 2

A. This Decision Will Have a Widespread Impact, Because Many Schools Throughout California Use Lease-Leaseback As It Was Used in This Case ....................... 2

B. Why Schools Use the Lease-Leaseback Delivery Method ..................................................................................... 4

1. Lease-Leaseback Allows Schools to Control tile Final Price of a Project ................................................ .4

2. Lease-Leaseback Allows for Cost Control Through Subcontractor Bidding and Opcn-Book Accounting .......................................................... 5

3. Lease-Leaseback AUmvs for Project Timing That Gels With Complicated School Calendars ........... 6

4. Lease-Leaseback Allows for a Collaborative Project Dynamic, and Creates Productive Relationships ................................................................. 6

C. The Voice oftlle Electorate Which Enacted the Plain Language of Education Code Section 17406 Should Not Be Ignored ......................................................................... 7

III. CONCLUSION ................................................................................... 8

TABLE OF AUTHORITIES

Page(s)

State Cases -

Los Alamitos Unified School District v. Howard Contracting, inc., (2014) 229 CaLApp.4th 1222 (S221894, app. pending) ......................... .3

State Statutes

Ed. Code, § 17406 ........... -............................................... -................... 1,2, 7, 8

Gov. Code, § 1090 et seq .......................................... ~ .................................... 5

Pub. Contract Code, § 20111 ........................................................................ .2

Pub. Contract Code, § 20118.4 .................................................................... ..4

Other Authorities

http://www.cde.ca.gov/ds/sd/cb/ceffingertipfacts.asp ......... , ......................... 2

ii

AMICUS CURIAE BRIEF OF CALIFORNIA'S COALITION FOR ADEQUATE SCHOOL

HOUSING IN SUPPORT OF DEFENDANTIRESPONDENT TORRANCE UNIFIED SCHOOL DISTRICT

I. INTRODUCTION

For decades, Education Code section 17406 has stood as the

unambiguous will of the electorate. Now, dissatisfied patties seek to effect

through judicial means that which they could not effect by popular vote: the

invalidation of the Lease-Leaseback project delivery method.

This Court's decision will have far-reaching consequences. CASH

believes, based upon its knowledge of the school facilities industry, the

Lease-Leaseback method has been used by hundreds of school districts on

thousands of projects. Lease-Leaseback is widely used by California

schools today in the same. manner as it was used by the District in this case.

The legal challenge in this case is similar to numerous challenges to the

Lease-Leaseback project delivery method in various appellate districts

throughout the State, and is part of a broad attack on this widely used

construction method. These chaUenges have largely been filed by, and are

. based upon the incorrect legal analysis of: asingle attorney.

Schools use Lease-Leaseback to control the final price, (as opposed

to the bid price) of their projects. Schools often utilize subcontractor

bidding and overhead and profit cost comparisons to· ensure fair pricing.

The Lease-Leaseback method allows for a collaborative project dynamic

that produces, in some circumstances, better facilities outcomes for schools.

In short, CASH believes that while hard bid projects have a place, the

Lease-Leaseback method is an option that was afforded to schools by the

Legislature and must be upheld.

Finally, if the plain language of Education Code section 17406 is to

be changed, it should be put to a vote of the legislature. 'The legislature is

the appropriate vehicle for effecting statutory change. The legislative

process was used to enact Education Code section 17406, and if

disappointed parties wish to change that law, they should engage that same

legislative process. This attempt to circumvent the legislative process

should be denied.

H. ARGUMENT

A. This Decision Will Have a Widespread Impact, Because

Many Schools Throughout California Use Lease­

Leaseback As It Was Used in This Case

According to the California Department of Education, approximately

six million students in California attend over one thousand school districts.

(See http://www.cde.ca.gov/ds/sd/cb/ceffingertipfacts.asp.)

School districts are required to educateaH children who seek to

attend school, and all children aged 5 to 16 are compelled to attend. Such

students are entitled to adequate school facilities. These facilities needs are

amplified by requirements compeUingattendance for students with special

needs from age 3 to 22. The two main project delivery methods used by

schools to meet these facilities needs are Lease-Leaseback and the "hard

bier method authorized by Public Contract Code section 20111.

Many school districts in California -have relied upon the plain

language of the decades-old Lease-Leaseback provision found in Education

Code section 17406 to provide an invaluable alternative to the inflexible

hard bid method. While it is not possible to pinpoint exactly how many

school districts have utilized the Lease-Leaseback delivery method, it must

be noted that it is used by many districts throughout California. CASH

estimates that easily over lOO school districts currently use Lcase­

Leaseback to provide school facilities for students. Based upon its

widespread experience in the school facilities industry, CASH estimates

that hundreds of school districts have likely used Lease-Leaseback over the

2

past decade on thousands of projects. In the short time available, CASH

has compiled a non-exhaustive list of districts that have been confirmed to

have used Lease-Leaseback, which is attached hereto as Exhibit A.

The Lease-Leaseback contract used in this case is consistent with the

way many schools usc Lease-Leaseback throughout California. The

concepts of a ground lease and a leaseback ohhe facilities with payments

coinciding with construction progress are standard provisions in Lease­

Leaseback agreements. Similarly, the Guaranteed Maximum Price and

contingencies are standard provisions used by schools throughout

California. In short, the Lease-Leaseback used iIi this case is consistent

with the use of Lease-Leaseback throughout California.

As an example of the prevalent use of Lease-Leaseback~ CASH has

con finned that Los Angeles Unified School District has a Lease .. Leaseback

program that has produced more than 70 projects 'exceeding $2.7 billion.

As a result of the widespread use of Lease-Leaseback in California,

the Court's decision in this case is likely to have an extraordinary reach,

touching many school districts and affecting millions of students. A

negative decision for the District affecting how Lease-Leaseback is used

would create confusion amongst school districts, and would also, in Jight of

the Los Alamitos decision, create disparity of options in project delivery

methods for school districts in different judicial districts.

There are other cases pending in the California Courts of AppeaJ

addressing issues similar to this case, for example, Davis v. Fresno Unified

School District (Fifth Appellate District, Court of Appeal Case No.

F068477) involves a similar attack on Lease-Leaseback. On October 16,

2014, a premature petition for review of the Los Alamitos case was filed by

Howard Contracting, Inc. (the Defendant in that case). Thus, the California

Supreme Court will likely be presented with the oppoltunity to rule on the

same issues presented in this case. In short, this case is part of a broad legal

3

challenge winding its way through various courts of appeal, which may find

their way to the California Supreme Court.

B. Why Schools Use the Lease-Leaseback Delivery Method

l. Lease-Leaseback Allows Schools to Control the Final

Price ora Project

In hard bid projects, school districts are iorced to contract with the

lowest responsive, responsible bidder. For a school district to avoid

awarding a contract to a nonresponsible bidder, it must go through a due

process hearing, and is often subjected to costly legal chaIIenge that can

temporally and financially sabotage a project. Thus, in practice, the hard

. bid method prevents a school district from avoiding contractors who may

be undesirable for reasons related to the actual work they will perform.

The hard bid often results in contractors "gaming" the system by

submitting the lowest biqpossible, even when that bid does not represent

the true, final cost to the district. Once a hard bid contract is awarded, a

contractor will submit "change orders" that increase the cost of the project,

thereby increasing the final price to· the district. Such "change orders" can

increase the contract price up to 10 percent before such work needs to be>

bid. (Pub~ Contract Codc, § 20118.4.) As a result ofthese "changc orders,"

the bid priCe is often not the final price, and the hard bfd~s objective of

obtaining the lowest price is lost. Ironically. consideration of a contractor's

work quality (something any private person or entity wouldcollsider) is

often sacrificed in favor of a lowest price objective, which is often not

produced by the hard bid method.

In a Lease-Leaseback project, the District can focus on factors other

than price, such as a contractor's quality. Moreover, the Guaranteed

Maximum Price mechanism allows the school district to know in advance

what the final price will actually be, which is not the case in a hard bid

scenario.

4

2, Lease-Leaseback Allows for Cost Control Through

Subcontractor Bidding and Open-Book Accounting

Ina hard bid or Lease-Leaseback scenario, the District contracts

with a general contractor, who subcontracts significant portions of the work

to other companies. In either scenario, the subcontracts are generally put to

a bid.

In a hard bid project, a school district knows very little about how

the contractor estimated its bid, such as how much the subcontractor bids

were, or perhaps more importantly, how much the general contractor is

charging for overhead and profit. Contractors bidding on projects where

there is little or no competition can (and do) inflate the amounts for

overhead and ptofit without recourse from the school districts. Strong

constmction markets render higher overhead and profits reflected in bid

prices, and the5chool district is left with no ability to negotiate.

In Lease-Leaseback, the school disttict can obtain open access to the

subcontractor bids; and openly negotiate the cOllttactor's overhead and

profit costs. The District can obtain the subcontractor bids and negotiate

every aspect of.the price. As a result of subcontractor bidding. and through

the school district's ability to compare overhead and profit percentages with

other contractors, a school has greater latitude to check and negotiate price

fairness.

School districts have no incentive to pay more for a project than is

necessary. Governing Board members are accountable to the public

through elcctions, and are prohibited from participating in the ratification of

contracts in which they have financial interest. (Gov. Code. § 1090 e1 seq.)

School districts' financing projects through local bonds are accountable to

bond oversight committees. In short, soh901s who use the Lease-Leaseback

method implement cost 'control measures that ensure competitive pricing in

the absence of a blind, hard bid.

5

3. Lease~Leaseback Allows for Project Timing Tnat G~~l~:

With Complicated School Calendars

Hard bid projects create temporal issues that can compromise

school district's facilities objectives. Hard bids require preparation of

plans and specifications to be complete (and usually approved

Division of the State Architect) prior to the publication of the

inviting bids. Additionally, even after thc plans and specifications

complete, a notice inviting bids must be published for at least two

prior to bid opening. After bids are opened, there can be bid protests

. can cause further delays and ultimately derail a school project entirely,

Schoo! calendars can be complicated and are often not amenable

such temporal restrictions. School calendars are legally required

negotiated with employee unions,and must provide a specific number

instructional days while still accounting for' staff development days

holidays. School calendars especially can create conflict on

projects when work is being done on existing school facilities that

students, and which cannot be shut down in the middle of a school

In Lease-Leaseback projects, contractors are often involved

early on. As opposed to hard bid projects where contractors learn

scope of work for the first time when preparing their bids, Lease-Leascbaci.::

contractors are often involved in the development of the plans

specifications. This can reduce the amount of time needed to

contractor to enter into a contract with the District, and allows

collaborative planning to minimize disruption of the school calendar.

4. Lease-Leaseback Allows for a Collaborative Project

Dynamic, and Creates Productive Relationships

In a hard bid project, the project's dynamic is often contractor versus

school district. The contractor is presented with a stack of constructi();1

6

plans and specifications prepared independently by an architect (which

almost inevitably contains errors and omissions) and is forced (often on a

short two-week timeline) to submit a bid to complete the required work.

This disjointed process results in conflict among the contractor, the

architect and the school district

In contrast, the Lease-Leaseback method aJlows schools 10 bring a

contractor in early to work with the architect as the plans are being

developed; While the hard bid process incentivizes the submission of the

lowest bid (not necessarily the lowest final price), the Lease-Leaseback

method incentivizes the preparation of the most accurate price (because it

will be guaranteed). The result is a collaborative dynamic between

contractor and district. Contractors are incelltivized t6 proactively address

omissions in the plans and specifications, and assist with the generation of a

reaJistic and accurate project timeHne.

Additionally, the Lease-Leaseback contractor is only as good as his

last project. Unlike the hard bid process, future work depends upon the

school district's satisfaction. This simple change in the project's dynamic

can mean the difference between a project that is free of defects and under­

budget and a project with cost overruns that is donejust weH enough to

avoid a defect claim.

C. The Voice of the Electorate Which Enacted tile Plain

Language of Education Code Section 17406 Should Not

Be Ignored

Schools have relied upon the will of the people as retlected in the

plain language of Education Code section 17406 for decades. Parties

dissatisfied with the state of the law are afforded a legislative mechanism

for effecting change: vote. The voice of the e.lectorate resulted in the

enactment of Education Code section 17406, and should not be ignored.

7

III. CONCLUSION

This Court's decision will have a widespread impact on many school

districts and their ability to provide the best facilities outcomes possible for

their millions of students. School districts have relied upon the plain

language of Education Code section 17406 not as a way to inflate their own

facilities costs, instead, they have used thjs method because it allows them

to control the actual cost of their projects, avoid conflict with school

calendars, and produce better facilities outcomes for their students. The

will of the voters in enacting the Lease-Leaseback method authorized by

the plain language of Education· Code section 17406 should stand.

Respectfully submitted,

Dated: October 24, 20 l4. FAGEN FRIEDMAN & FULFROST LLP

8

CERTIFICATE OF WORD COUNT (Cal. Rules of Court, Rule 8.204(c)(1»

The text of this brief consists of 3,644 words' as counted by the Microsoft Word processing program used to generate the brief

Dated: October 24, 2014. F AGRN FRIEDMAN & FULFROST LLP

9

HIBI

McGee v. Torrance Unified School District Case No. 8252570

No. Name of District No. Name of District

1 Alvord Unified SD 47 Pacheco Union SD

2 Ackerman USD 48 Patterson USD 3 Biack Oak Mine USD 49 Placer County Office of Ed 4 Briggs Elementary SO 50 Pleasant Ridge USD

Campbell Union SD 51 Plumas Lake Elementary SD

CardiffSD 52 Poway ljSD 7 Carlsbad USD 53 Ramona USD 8 Chula Vista Elementary SO 54 Red Bluff Union SD

9 Colton Joint USD 55 Redlands USD

10 Corona~Norco USD 56 Redondo Beach USD 11 Culver City USD (CCUSD)

~ Del Mar Union SD 13 Elk Grove SD

57 Rialto USD

58 Rocklin SD

59 Rocklin USD 14 Enterprise usn 60 Roseville Joint USD 15 Fairfield-Suisun SO 61 Sacramento City USD

16 Fallbrook Union Elementary SD 62 Sacramento 3D 17 Fallbrook Union High SO 63 Saddleback Valley USD

18 Folsom Cordova USD 64 San Dieguito Union High SD

19 Folsom/Cordova SO San Jacinto USD

20 Fremont USD 66 San Juan VSD

21 Garden Grove USD 67 Santa Ana USD GatewayUSD 68 Santa Rosa City Schools

Glendale USD 69 Santee SD

Grant Joint Union HSD 70 Saugus Union High SD

Hacienda LaPuente USD 7t Shasta Union High SD

Hemet USD 72 Sierra Sands VSD 27 La Mesa/Spring Valley USD 73 Solana Beach SO

28 Leroy Greene Academy 74 Sotith Bay Union SD

29 Live Oak USD 75 Stanislaus Union SD

30 '.

Loomis USD 76 Stockton USD

31 MaderaUSD Stockton USD

32 Manteca USD Sutter Union SO

33 Manteca USD 79 Sweetwater Union HighSD

34 Manzanita Elementary SD 80 Torrance USD

35 Maria Montessori Charter Academy 81 TracyUSD

36 Martinez USD 82 TurlockUSD

37 Mal)'sviHe Joint USD 83 Tustin USD

38 McCabe USD 84 Twin Rivers USD

39 Menifee Union SO 85 University of California, Riverside

40 Mesa Union SD

BE Mill VaHeyUSD Modesto City SD

43 Mt Diablo USD

86 Vacaville USD

87 Valley Center Union SD 88 Washington USD

89 Western Placer USD

44 Natomas USD 90 Wheatland Elementary SD

45 Nevada Joint USD 91 Wiseburn SD

46 Oceanside USD 92 Yuba City SD

EXHIBiT A - School Districts Who Have Used lea5e~lea5eback

PROOF OF SERVICE

STATE OF CALIFORNIA, COUNTY OF SACRAMENTO

. At the time of service, I was over 18 years of age and not a party to this action, I am employed in the County of Sacramento, State of California, My business address is 520 Capitol Mall, Suite 400, Sacramento, CA 95814.

On October 24,2014, I served true copies of the following document(s) described as APPLICATION FOR LEA VB TO FILE AMICUS CURIAE BRIEF OF CALIFORNIA'S COALITION FOR ADEQUATE SCHOOL HOUSING IN SUPPORT OF DEFENDANT! RESPONDENT TORRANCE UNIFIED SCHOOL DISTRICT [SUBMITTED CONCURRENTLY WITH ATTACHED AMICUS CURIAE BIUEF] on the interested parties in. this action as follows:

fCLERK OF-'nIE COURT .-----~.-.-,-.-------.~---~--.~-.--... -... -................. ,. ····· .. 1

[THE HONORABLE STUART RICE ISUPERIOR COURT OF CALIFORNIA [COUNTY OF LOS ANGELES~ SOUTHWEST DISTRICT [TORRANCE COURTHOUSE 1825 MAPLE AVE. lTORRANCE, CA 90503 r··--·----·-·---·-w.,.,,-,y.-"~-~-~N-~'~-~-.~,.-.-.-A~.~'...,.-..... -... ~N .............. -.-.-.-.-.. -.-----.... t ....... _N __ . -"''''~''-'-'''''-''~--'''''~'''~-'~''-''-*''~'-~'--'~>-'''-~''''''<~

!KEVIN ROBERT CARLIN !Attorneysfor James McGee, Plaintiff' i \CARLIN LA W GROU,~' APC land Appellant. '! ;4452 PARK BLVD., SIE. 310 iSAN DIEGO, CA 92116! J jMARTrNANTHONY HOM . 1A;t~;;;;;;f;;-To;;;~~~-"u;;ified S;h~~--l IA TKINSON, ANDELSON, LOY A,!District, Defendant and Respondent· I iRUUD & ROMO! I

\5260 NORTH PALM AVE., S1'E. 300 i " !FRESNO, CA 93701 . !-'-_._-... - .. - .. -.-... -.. -------------------i' ........... " .............. w_... .. ..... --.. -.-....... -.-.. --.-.. " .......... - .. ,,~ ... -.! !MAR TIN ANTHONY HOM Attorneys jor Fresno Unified School I IATKINSON, ANDELSON, LOYA, IDistrict, Defendant and Respondent I !RUUD & ROMO ;,' I j5260 NORTH PALM AVE., STE. 300 . J iFRESNO, CA 93701 ~~ -.. -~~----.. --.--~ .---~ ---_._-----_. ------. (JASON ROBERT THORNTON !Attorneys for Barnhart-Balfour Beatty, I iMARKS, FINCH, THORNTON & lIne., DBABalfour Beatty Construction, jBAIRD, LLP I De/endant cmdRespondent I 14747 EXECUTIVE DR., STE. 700 i !SAN DIEGO, CA 92121 1 I _, ____ ,_ .... __ . ____ '""'""""_ ... ,_ ....... ~___ ........ ~ __ ~ __ ~_~ ___ ~~.J.

!FRANK'JOSEPH LOZOYA, IV TA~~:~;;;fo7-H~;ri~:'C~~;;;~~ti~~ I !LOZOY~&LOZ.OYA ,lcompany, Inc., Defendant and I !15060 VENTURA BLVD., STE.211 Respondent JI

iSHERMAN OAKS, CA 91403 j .... ~H"'Y~ __ '_~_N ___ ... __ " ....... ~_~, ____ ..!...< _____ ~~~~ __ v,~_...-~ __ ~'m._"~'~ .. ".>~k_~ ••. A •••••

BY MAIL: I enclosed the document(s) in a sealed envelope or package addressed to the persons, at th.e addresses listed above and placed the envelope for collection and mailing, following our ordinary business practices. I am readily familiar with Fagen Friedman & Fulfrost, LLP's practice for collecting and processing correspondence for mailing. On the same day that correspondence is placed for collection and mailing, it is deposited in.the ordinary course of business with the United States Postal Service, in a sealed envelope with postage fully prepaid. I am a resident or employed in the county where the mailing occurred. The envelope was placed in the mail at Sacramento, California.

CALIFORNIA SUPREME COURT CIO CALIFORNIA COURTS OF APPEAL SECOND APPELLATE DISTRICT RONALD REAGAN STATE BUILDING 300 S. SPRING STREET 2ND FLOOR, NORTH TOWER LOS ANGELES, CA 90013

BY E-MAILORELECTH.ONIC TRANSMISSION: Pursuant to California Rules of Court, rule 8.212(c)(2), 1 caused the document to he submitted electronically· to the Court of Appeal for the Fifth Appellate District, through the court's website for electronic submissions.

I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. .

Executed on October 24, 2014, at Sacramento, California.

Sherri Lee Caplette, CCLS

xhibit J

Bill Text - AB-1 059 Public officers and employees: financial interests. Page 1 of2

AB-1059 Public officers and employees: financial interests. (2013-2014)

AMENDED IN ASS[MI3LY APRIL 01,2013

CALIFORNIA LEGISLATURE- 2013-2014 REGULAR SESSION

ASSEMBLY BIll No. 1059

Introduced by Assembly Member Wieckowski

February 22, 2013

An act to amend Section 1090 of, and to add Section 1091.8 to, the Government Code, relating to

public officers and employees.

LEGISLATIVE COUNSEL'S DIGEST

AB 1059, as amended, Wieckowski. Public officers and employees: financial interests.

Existing law prohibits Members of the Legislature, and state, county, district, judicial district, and city officers or employees 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. Existing law further prohibits these public officers and employees

from being purchasers at any sale, or vendors at any purchase, made by them in their official capacity. A violation of these provisions is a crime.

This bill would extend the application of those prohibitions to independent contractors who perform a public function, and specifically provide when an independent contractor, or an owner, officer, employee, or agent of the independent contractor, has a financial interest in a contract. By expanding the scope of a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority Appropriation: no Fiscal Committee: yes Local Program: yes

THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

SECTION 1. Section 1090 of the Government Code is amended to read:

1090. Members of the Legislature, state, county, district, judicial district, and city officers or employees, and

independent contractors who perform a public function, 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. Nor shall state, county,

https:llleginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=20 1320 140AB 1 059 7/2/2015

Bill Text - AB-1 059 Public officers and employees: financial interests. Page 2 of2

district, judicial district, and city officers or employees, and independent contractors who perform a public

function, be purchasers at any sale or vendors at any purchase made by them in their official capacity.

As used in this article, "district" means any agency of the state formed pursuant to general law or special act, for the local performance of governmental or proprietary functions within limited boundaries.

SEC. 2. Section 1091.8 is added to the Government Code, to read:

1091.S. An independent contractor, or an owner, officer, employee, or agent of the independent contractor, who contracts with a government agency, body, or board, to-PfOv+Ele-services, iootts1f1§-i31-e§l-Faffl-fFh31'lagemeffi serv+c-es, staff, administer, or manage the government agency, body, or board has a financial interest in a

subsequent contract of the government agency, body, or board, if the independent contractor, or the owner, officer, employee, or agent of the independent contract, participates in the making of the subsequent contract and the independent contractor's contract to provide services bases the independent contractor's compensation,

directly or indirectly, on whether the subsequent contract is executed.

SEC. 3. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California

Constitution because the only costs that may be incurred by a local agency or school district will be incurred

because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

https:llleginfo.legislature.ca.gov/faceslbillNavClient.xhtml ?bill_id=20 13 20 140AB 1 059 7/212015

Bill Status Page 1 of 1

~~~f~~IVE INFORMATION

AB-l059 Public officers and employees: financial interests. (2013-2014)

Int 1st Cmt Died

Topic:

31st Day in Print:

Title:

House location:

Last Amended Date:

Committee location:

Type of Measure

Inactive Bill - Died

Majority Vote Required

Non-Appropriation

Fiscal Committee

AB-1059

Wieckowski (A)

Public officers and employees: financial interests.

03/26/13

An act to amend Section 1090 of, and to add Section 1091.8 to, the Government Code, relating to public officers employees.

Assembly

04/01/13

Asm Elections and Redistricting

State-Mandated Local Program

Non-Urgency

Non-Tax levy

Last 5 History Actions

Date

02/03/14

01/31/14

04/23/13

04/02/13

04/01/13

I Action

From committee: Filed with the Chief Clerk pursuant to Joint Rule 56.

Died pursuant to Art. IV, Sec. 10(c) of the Constitution.

In committee: Set, first hearing. Hearing canceled at the request of author.

Re-referred to Com. on E. & R.

From committee chair, with author's amendments: Amend, and re-refer to Com. on E. & R. Read second time and

https:llleginfo.legislature.ca.gov/faceslbillStatusClient.xhtml ?bill_id=20 1320 140AB 1 059 7/2/2015

Bill History

'~(;1~ et"-l', LEGISLATIVE INFORMATION

AB-1059 Public officers and employees: financial interests. (2013·2014)_

Date Action

02/03/14 From committee: Filed with the Chief Clerk pursuant to Joint Rule 56.

01/31/14 Died pursuant to Art. IV, Sec. 10(c) of the Constitution.

04/23/13 In committee: Set, first hearing. Hearing canceled at the request of author.

04/02/13 Re-referred to Com. on E. & R.

04/01/13 From committee chair, with author's amendments: Amend, and re-refer to Com. on E. & R. Read second time and amended.

03/11/13 Referred to Com. on E. & R.

Read first time.

From printer. May be heard in committee March 26.

Introduced. To print.

https:llleginfo.legislature.ca.gov/faces/billHistoryClient.xhtml?bill_id=20 1320 140AB 1 059

Page 1 of 1

7/2/2015

Exhibit K

VOLUME 1

CALIFORNIA lEGISLA lURE

AT SACRAMENTO

1989-90 REGULAR SESSION 1989-90 FIRST EXTRAORDINARY SESSION

ASSEMBLY FINAL HISTORY SYNOPSIS OF

ASSEMBLY B1LLS1 CONSTITUTIONAL AMENDMENTS, CONCURRENT,

JOINT, AND HOUSE RESOLUTIONS

Assembly Convened December 51 1988 Recessed December 6, 1988 Reconvened January 3, 1989 Recessed March 16, 1989 Reconvened March 27, 1989 Recessed July 20, 1989 Reconvened Augus1 21, 1989 Reelmed September 15, 1989 Reconvened November 4, 1989 Recessed November 4, 1969 Reconyened January 3, 1990 Recessed April 5, 1990 Rer;onY4lned April 16, 1990

Recessed July 2S, 1990 Reconvened August 6, 1990 Adlourned September 1, 1990

Adjourned Sine Die November 30, 1990

legislative DOY5..... •. .. • ............ _ ..................... , • ........... 264

HON WilLIE L BROWN Speaker

HON MIKE ROOS Spt!!t:1ker pro Tempore

HON THOMAS HANNIGAN Majority Floor Leader

HON. JACK O'CONNELL ASSIStant SpflOKer pro Tempore

HON. ROSS JOHNSON Mim:mfy Floor Leader

Compiled Under the DIrI!,ctton of

R. BRIAN K~DNEY Chief Clerk

GUNVOR LENGLE

HiJlory Clerk

2126 ASSEMBLY FINAL HISTORY

A.B. No. 3285-Clute, Epple, Harvey, and Peace (Senators Kopp and McCorquodale, coauthors).

An act to add Secbon 10365 5 to the Public Contract Code, relatmg to state contracts. 1990

Feb. 26-Read first time. To prmt. Feb. 28-Frorn printer. May be heard m comml~te.e March 30 Mar. 8-Referred to Com. Oil CE. & CON PRO April 4-FTom committee l)opass. (Aye'S 8. Noes 0) (Aprl14), April5-Read second hme. To third .reading. April 19-Bead thlr. d ti.ID.e .. ' pa ... ssed.and to Senate. (Ayes ffI .. N. oe. sO .. p. a. ge. 6820 ) April 19-10 Senate ltead first time. To Com on RLS. forassigumetlt. AprIl 26-Befetred to Com. on G 0 May 22,-In committee: Set, first hearing Hearmg canceled at fhe request of

author. June 12-From commIttee chairman, With author's amendments: Amend, and

re-refer to committee. Read second time, amended, and re-referred to Com on GO.

June 2O-From committee Do pass. To Consent Calendar. June 21-Read second time. To Consent Calendar. June 28-From Consent Calendar. Read third time, amended. To second

readmg. July 2-Read second time. To third reading. July .6-.Read tbird time; PlAssed. and to Assembly (Ayes 38 Noes 0 Page

6918.) July a-rn Assembly .Concurrence m Senate amendments pendmg July 7-Senate3mendmen.ts concurred in To enrollment (Ayes 63 Noes 0

Page 8740.) July ll-Enrolled and to the Governor at 4 p.m. July 18-~pproved by the Co vernor. July lS-Chaptered by Secretary of State - Chapter 344, Statutes of 1990.

A.B. No. 3286-Areias. An act to amend Sections B690 and 8690.4 of the Government Code) relatmg to

disaster asslstance. 1990

Feb Feb. Mar. April

April May

May June June June

June

June

July July

. Aug Aug Aug Nov

26-Read first time. To pnnt. 28--From prmter. May be heard in committee March 30 8-Referred to Com. on EARTHQUAKE P & N.D. 4-From COmmittee Do passt and re-refer to Com on W:& M.

ReAl'eferred (Ayes H. Noes 0.) {April 3) 25-In eomttl1ttee Set. first heanngReferred to W. & M. suspeQ5e file. 22-From c:ommit:teechalrma.n, W. ttnauthor's amendments. AmendJ and

re·refer to Com. on W. & M Read second tIme and amendea 24-Re-referred to Com on W. & M. ll-Joint Rule 61 suspended 13--From committee' Do pass JAyes 22. Noes 0) Unne 13) 14-Read second time. Reaa thir time. passed, and to Senate. (Ayes 69

Noes 0 Page 8270.) 18-In Senate. Read first time. To Com. on RLS for assignment. Referred

to Com on T & P S M 26-From committee Do pass, and re-refer to Com. on APPR

Re-referred (Ayes 7. Noes O.). ll-In committee Hearing postponed by committee. 27-From committee chaitman, WIt}) author's amendments: Amend. and

re·refer to committee. Read second time, amended, and re·referred to Com on APPR

6-1n committee. Hean. ·l'l.,gpostponed by committee 21-Jomt Rule 61 suspended 23-In commlttee: Set, fir$t hearing Held under submission. 30-From Senate committee without further actIOn

JACK I. }-o: "'"'RTON ANN MACKEY

CHIEJI OEPtrl'lE!S

.JAMES L... ASHFO~O

.lEARY L. BASSETT STAN1.£Y M. ~OURIMO~E JOHN T. STUDEBAKER JIMMIE WING

DAVID D. AWES JOHN. A. CoRZINE C. CAVID DICKERSON ROBERT CULLEN DUFFY R08ERT O. G~QNKE SHERWIN C. MACKENZIE. .JR. TRACY O. POWELL II MARGUEAI't2 ROTH

lE:esislniib:e QIlluns:e1

nf QIalifnntitt PRINCIPAL DEPUTIES

3021 STATE CAPlTOL SACRAMENTO, CA 95614 f9H!) 445-3057

B01 t STATE eUILOING 10' SOt.m-f BROADWAY I.os ANGELES. CA BOO 12 1213, 620-2550 TELECOPIEA. 916·3~E!311

Honorable steve Clute 4167 state Capitol

state Contracts:

Dear Mr. Clute:

BION M. GREGORY

Sacramento, California

January 25, 1990

Consulting Services - #26011

GERALD ROSS ADAMS MARnN L... ANDERSON PAUL ANTlL.l.A DANA S. ApPUNG CHA.JitU'S C. AS~IU. JOE J. AYALA RANEC'NE P. SEUSLE OIANE F. BOYER: AMEUA I. BtJoO EIJ..EEN J. BU)C1"ON HENa'f .14 CONTReRAS EMIU~ ClJT"RER . BEN· E..OAUt JEFFRIiY A; DELAND -CUNTON J. DEWITT FRANCES S. CORBIN MAUREEN S. DUNN LAWRENCE J. CUR AN S>WOOIiR. f'ISHtm JOHN FOSSETT!! HARVCY J. FOSTER CLAY FULLER ALVIN D. GRESS BALOEV S. HEIR THOMAS R. HEUER MICHAEL J. KERSTEN L DoUGLAS KINN£Y S. LYNNE KLEIN VICTOR KOZIELSKI Eve S. KROTINGER OIANA G. LIM ROMULO I. LOPEZ KIRK S. LOUIE AN"lHONY P. MARQUEZ .JAMES A. MARSALA FRANCISCO A. MARTIN PETER MEL.NICOE ROBERT G. MILl£R .JOHN A. MOG6R VERNE ~ OLIVER EUGENE L. P."lNr: MICHAEl.. B. SALERNO MARY SHAW WIWAM K. STARK MAliK FRANKLIN 'nlR'" .JEFF·THOM MICHAEL H. U"SON A'CHAftO B. WeiSBERG DANIEL A. WErTZMAN THOMAS O. WHEI.AN JANA T. WHITGAOVE DEBRA J. ZIOICH CHRISTOPHER ZIRKL.E

OEPt.n1SS

Does any provision of state law prohibit a private firm which contracts with a state agency for consulting services in connection with the development of a capital outlay plan for the construction and operation of a veterans' home from thereafter contracting with the agency for the construction and operation of the home?

OPINION

There is no provision of state law which prohibits a private firm which contracts with a state agency for consulting services in connection with the development of a capital outlay plan for the construction and operation of a veterans' home from thereafter contracting with the agency for the construction and operation of the home.

ANALYSIS

You have informed us that a private firm has contracted with a state agency for the provision of consulting services in connection with the development of a capital outlay plan for the construction and operation of a veterans' home. The question under consideration is whether any provision of state law would prohibit that firm from contracting with the agency for the construction and operation of the home.

Honorable steve Clute - p. 2 - #26011

Generally, the awarding of contracts by state agencies for consulting services is governed by Article 5 (commencing with section 10355) of Chapter 2 of Part 2 of Division 2 of the Public Contract Code. 1 with certain exceptions, these contracts are required to be awarded on the basis of competitive bids or proposals (Sec. 10373), and are subject to approval by the Department of General Services (hereafter, the "department") (Sec. 10360) .

The awarding of construction contracts in excess of an amount calculated against a $35,000 base, according to a specified formula, by state agencies is governed by the state Contract Act, found at Chapter 1 (commencing with section 10100) of Part 2 (see Sec. 10105). That act requires the award of contracts to the lowest responsible bidder upon public notice of the project, prequalification of bidders by questionnaire and financial statement, and the rating of bidders by the department on the basis of that information (Secs. 10122, 10140, 10160, and 10163). The Director of General Services may, under certain circumstances, and if he or she deems it in the best interests of the state, award the contract to the second or third lowest responsible bidder, or reject all bids (Secs. 10182 and 10185).

The awarding of contracts by a state agency for the provision of services, including the operation of a veterans' home, is governed by Article 4 (commencing with section 10335) of Chapter 2 of Part 2. Under these provisions, the contracting agency is required to advertise for bids or submit requests for proposals and award the contract to the lowest responsible bidder (Sees. 10340 and 10344). contracts are subject to the approval of the department (Sec. 10335). Furthermore, state agencies are prohibited, with specified exceptions, from drafting or causing to be drafted any invitation to bid or request for proposal in such a manner as to limit the bidding directly or indirectly to anyone bidder (Sees. 10339 and 10348).

As to provisions of law relating to possible conflicts of interest by persons bidding on state contracts, section 10410 prohibits any officer or employee in state civil service from contracting on his or her own behalf with any state agency to provide services or goods. Section 10411 prohibits, with certain exceptions, any retired, dismissed, separated, or formerly employed person of any state agency or department, as specified, from entering into a contract where he or she participated in any process relevant to the contract while employed by the agency or department for a two-year period after leaving state employment.

1 All further references are to the Public Contract Code.

Honorable steve clute - p. 3 - #26011

Further, he or she would be prohibited from contracting with an agency for a 12-month period if he or she was employed by that agency in" a policymaking position in the same general subject area as the proposed contract within the 12-month period prior to leaving employment (Sec. 10411).

In addition, section 5202 of the State Administrative Manual2 provides that no individual or organization that develops a feasibility study for an information technology application proposed by a state agency shall be awarded any state contract for work recommended in the feasibility study, except if certain conditions are met.

Since we are dealing with a consultant under contract, as opposed to an officer or employee, and are not concerned with information technology issues, neither of these provisions apply to the situation under consideration. Moreover, there are no similar provisions which do apply to conSUltants or to contracts generally.

Accordingly, we conclude that there is no provision of state law which prohibits a private firm which contracts with a state agency for consulting services in connection with the development of a capital outlay plan for the construction and operation of a veterans' home from thereafter contracting with the agency for the construction and operation of the home.

EC:dfb

Very truly yours,

Bion M. Gregory Legislative Counsel

By~~~Gt~ Emilia Cutrer Deputy Legislative Counsel

2 Various business l service, and fiscal procedures for the department, as well as those of the Governor's Office, the Department of Finance, and the Department of Personnel Administration are set forth in the state Administrative Manual, or SAM (see Secs. 0001 and 0005, SAM).

,CALIFORNIA LEGISLA TURE--1989-90 REGULAR SESSION

ASSEMBLY BILL "

No. 3285

Introduced by Assembly Member Clute

February 26, 1990

An act to add Section 10170 to the Public Contract Code, relating to state contracts.

LEGISLATIVE COUNSEL'S DIGEST

AB 3285, as introduced, Clute. State contracts: bids. Existing law regulates the bids and bidders for state

construction projects including the erection, construction, alteration, repair, or improvement of any state structure.

This bill would prohibit any person who has contracted for consulting services ~n connection with the development of a capital outlay plan for the construction or operation of a project from submitting a bid for the construction or operation of that project.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local· program: no.

The people of the State of California do enact as follows:

1 SECTION 1. Section 10170 is added to the Public 2 Contract Code, to read: 3 10170. Any person who has contracted with a 4 department for consulting services in connection with 5 the development of a capital outlay plan for the 6 construction or operation of a project may not submit a 7 bid for the construction or operation of that project.

o

RlCHARD I<. TURNER

ROBERT J. SULLIVAN

JAMESP.CORN

DAVID L.KELLY

PEGGY A.CHRISTtANSEN

GRANT HERNDON

j.ANNE RAWLINS

LORl ANN JOSEPH

LAW OFFICES OF

Turner & Sullivan A PROFESSIONAL CORPORATION

March 27, 1990

The Honorable steve Clute California state Assembly state Capitol - Room 4167 sacramento, CA 95814

Re: AB 3285

Dear Assemblyman Clute:

I

The California Council of Civil Engineers and Land surveyors has reviewed your Assembly Bill 3285, and is opposed to it for the purpose of securing an amendment.

The bill prohibits any person who has rendered consulting services from rendering consulting services during the construction phase of the same proj ect. Frequently, engineers and land surveyors will provide limited construction phase services for the same project they designed. We would request an amendment therefore to permit the rendering of design phase services by design professionals rather than the complete prohibition contained in the measure as introduced.

I will be happy to meet with you or members of your staff to further discuss our concerns.

Very truly yours,

TURNER & SULLIVAN A Professional Corporation

cLo---JAMES P. CORN

JPC/vp b157-5.abs

cc: Paul J. Meyer Leroy Carlenzoli Tim Psomas

1755 CREEKSIDE OAKS DRIVE, SUITE 290, SACRAMENTO, CALlFORNIA 95633 TELEPHONE 916/927-5057 FACSIM I LE 916/927-5362

May 16, 1990

To: Members of the Legislature

From:

Re:

Assemblyman Steve Clute

Request for Coauthors t AS 328'5

The ethical operation of government heads the list of priorities for many of us this year. While attention has been focused on legislators r I think its important that we also ensure ethical practices in state departments.

As you know, many state departmeht~ contract with private consultants to develop capital outlay plans. While current conflict of interest codes prevent state employees from bidding on contracts they wrote, private consultants are not covered. -

'This "loophole II in the law allo-~s' an environment of unfair competition. Those involved with the development of a capitol outlay plan should not be in a position to receive contracts for that plant whether they work for the state as an, employee or under contract.

I have introduced Assembly Bill 3285 to prevent this type of unfair competition and I invite you to join me as a co-author.

Assemblyman Steve Clute State Capitol, Room 4167 Attn: Janie

Yes, I would like to join you in coauthoring AB 3285.

Signature Print or Type Name

AMENDED IN SENATE JUNE 28,1990

AMENDED IN SENATE JUNE 12, 1990

CAUFORNIA LEGISLATURE-1989-90 REGULAR SESSION

ASSEMBLY BILL No. 3285

Introduced by Assembly Members Clute, Epple, Harvey, and Peace

(Coauthors: Senators Kopp and McCorquodale)

February 26, 1990

An act to add Section 10365.5 to the Public Contract Code, relating to state contracts.

LEGISLATIVE COUNSEL'S DIGEST

AB 3285, as amended, Clute. State contracts: bids. Existing law regulates the bids and bidders for state

construction projects including the erection, construction, alteration, repair, or improvement of any state structure.

This bill, with specified exceptions, would prohibit any person, firm, or subsidiary thereof who has been awarded a consulting services contract from submitting a bid for, or being awarded a contract for, the provision of services, procurement of goods or supplies, or any other related action which is required, suggested, or otherwise deemed appropriate in the end product of the consulting services contract. The bill would exempt subcontractors of the consulting services contractor from its restriction if the subcontractor had no more than 10% of the total monetary value of the consulting services contract.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

f17 40

AB 3285 -2-

The people of the State of California do enact as follows:

1 SECTION 1. Section 10365.5 is added to the Public 2 Contract Code, to read: 3 10365.5. (a) No person, firm, or subsidia:ry thereof 4 who has been awarded a consulting services contraotmay 5 submit a bid for, nor be awarded a contract for, the 6 provision of services, procurement.of goods or supplies, 7 or any other related action which is required~ suggested, 8 or otherWise deemed appropriate in the end product of 9 the consulting services contract.

10 tat SubdVAsion W ~ ~ apply fa &ftY' services 11eeRHaets ~ .. ta:e ftef defined as COflsulting services 12 COfltf'acts ~ Section ~ 13 fe1-Netwithstandiag subEiFAeions ~ fffi:€f: *' ~ 14 (b) Subdivision (a) shBllnotapplyto any person, firm, 15 or subsidiary thereof who is awarded a subcontract of a 16 consulting services contract which amounts to no more 17 than 10 percent of the total monetary value of the 18 consulting services contract is exempt from this section. 19 (c) Subdivisions (a) and (b) shall not a.pply to 20 consulting services contra.ctssubjeat to Chapter 10 21 (commencing with Section 4525) of Division 5 of Title 1 22 of the Government Code.

o

97 60

coMMITTEES: HEALTH TRAN8POI'ITATIOH GOVERNMENTAL ORGANIZATION', WAYS AND MEANS

CHAIRMAN:

, : CALIFORNIA LEGIS LA I '

RE

~Mm:n.O 6fjFtiil: w aTATI!.CAl'fTOL ".O.1Il0X~' aACPlAMENTO. CA NII~ 1'11111 445·1>41'

DISTRICT Ol'FIC£lII: WAYS AND MEANS SUBCOMMITTEE :.) :aeoo LIME 6TR/EET. 5UITIIE 410

ON TRANSPORTATION aUIIICOMMITTEE ON VETERANS AFFAIRS

NVIIE,..,OIE e2f/01 (114) 1a2·3l!22

IIiELEeT COMMITTeES: . YOUTH AND DRua ABUSE

:::, &2-632 HIGHWAY 111 INDIO .2.201

I'I'lIEVENTII)N AVIATION

, ' .

',.

Honorable George·neulo:Ii~lia~ Governor I S,'t.ate of California State Capitol . Sacramento, C~lifornia 95814

Dear Governor Deukmejian:

/6"11 M7.ot1:n

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This letter is tQ.:?respectfully reqUest· your ··'favorable'· , c.onsideration,whenrev1awing.my AssembJ,y,Bil1i 3295, relating to state ciontrac~s.· . . ... '" ' ... ',.,', '" '

Currently, tlt~te law prohibit,s, with ,certain exaeptions, former }ltite,amployees' from, enterlng,..in;\;:9 ,~ont.r!iQ:ts whioh th~y ."Qt'~' , .ionvolved. Yi-~h, ~hil.~ elll1?1CJ.Y~4:;J)~;, :·.,)!t~te ~or at-wo,:yetu' period after leaving ,~~i!t;eemplo~e~'F~:"1" ", '~;tent la1fal~o J?rov.t~$~r. ,', contract prpl1l.bl.;tionswith. r~E!l¥!c,~t~, curl:ent S:tat~Gmployeaa.

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TheDepa~enf; :.qf'lG~n,e;a}. "S~~~~;S;;";" '~~~,~lr, enfQ~(:,~8an internal policy si~U,afto the provisions 'ql::$',bil1. I,,""

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It .is .. fo;r ·thes.e reasoris ·that I respe. tfu11y re.quest your .favo~able consideration of this ,1' lation. ,

'SWeate, C3998

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STEVE CLUTE " ,:.,' <,

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Assembly Bill No. 3285

CHAPTER 344

An act to add Section 10365.5 to the Public Contract Code, relating to state contracts.

[Approved by Governor July 18, 1990. Filed with Secretary of State July 18, 1990.]

LEGISLATIVE COUNSEL'S DIGEST

AB 3285, Clute. State contracts: bids. Existing law regulates the bids and bidders for state construction

projects including the erection, construction, alteration, repair, or improvement of any state structure.

This bill, with specified exceptions, would prohibit any person, firm, or subsidiary thereof who has been awarded a consulting services contract from submitting a bid for, or being awarded a contract for, the provision of services, procurement of goods or supplies, or any other related action which is required, suggested, or otherwise deemed appropriate in the end product of the consulting services contract. The bill would exempt subcontractors of the consulting services· contractor from its restriction if the subcontractor had no more than 10% of the total monetary value of the consulting services contract.

The people of the State of California do enact as follows:

SECTION 1. Section 10365.5 is added to the Public Contract Code, to read:

10365.5. (a) No person, firm, or subsidiary thereof who has been awarded a consulting services contract may submit a bid for, nor be awarded a contract for, the provision of services, procurement of goods or supplies, or any other related action which is required, suggested, or otherwise deemed appropriate in the end product of the consulting services contract.

(b) Subdivision (a) shall not apply to any person, firm, or subsidiary thereof who is awarded a subcontract of a consulting services contract which amounts to no more than 10 percent of the total monetary value of the consulting services contract is exempt from this section.

(c) Subdivisions (a) and (b) shall not apply to consulting services contracts subject to Chapter 10 (commencing with Section 4525) of Division 5 of Title 1 of the Government Code.

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95 50

Exhibit L

2B insight

OPINION BY DAN WALTERS

School 'building Jawsbeing amended

I The Fresno Bee

"Gut-and-amend" has a harsh 1 The decision (Davis v. Fresno ring, which may be appropriate, ~ Unified School District) involves since it refers to a rather harsh i' a $36.7 million middle school legislative maneuver. ! and, as noted in this space earli-

A moribund bill is "gutted" - i· er, could invalidate dozens of its contents are stripped away, 1 such contracts involving hun~ leaving only a number- and i,dreds of millions of dollars "amended" with entirely new 1 throughout the state - money language. i that might have to be repaid by

It short-circuits the laborious i contractors. legislative process that might' 1 Just a week after the June 1 make passage difficult - at best i decision, a lawyer for affected unseemly, and at worst sneaky. r companies, P. Randolph Finch,

That brings us to Assembly i outlined a plan "to mitigate our Bill 975, a minor change in L losses" by urging Fresno Urn-school construction law, and 1, fled to appeal to the state Su-another bill. ! preme Court and seeking legis-

They are being fully amend- 11ation "overruling the Davis ed, complete with new authors, i case." It would also exempt at the behest of lobbyists for f contractors that do preconstruc-Associated General Contractors l Hon planning and then receive and the Coalition for Adequate ! no-bid leaseback contracts from School Housing to counteract a ! conflict-of-interest laws. state appellate court declaration! "We have clients with well that a "lease-leaseback" con- i over a half-bmion dollars of tract to build a new school vio- 1.current backlog," Finch wrote, lates state competitive bidding i "and another billion in complet­and conflict-of-interest laws. ! ed projects, at risk on the Davis

case." The industry's strategy is to

assert that the court's decision wrongly interpreted state law and has, in the preamble to one bill, "stopped shovel-ready construction projects that have been properly contracted for ... "

The bins target not only the Davis decision but numerous other lawsuits flied by taxpayer groups and contractors barred from bidding on school con­struction projects by leaseback deals. In fact, one soon-to-be­revised bill asserts that "some local governments have been threatened with predatory law­suits based on the ruling ... "

Amendments had been pre­pared to Senate Bill 374 to enact Finch's conflict-of-interest ex­emption but late Thursday, its author, Sen. Isadore Hall III, said it wouldn't be used, so ap­parently another vehicle will be sought. AB 975, meanwhile, would compel school districts

j FRIDAY JULY 10 101, FRESNOBEE.COM

t whose "good faith" leaseback 1 contracts are invalidated by 1 lawsuits to pay contractors any­i way. After being amended with j new authors, the bills will face a 1 deadline next week to get initial !, committee approval- not a j certainty. Plaintiffs in the Fres-1 no case and other pending suits, j particularly contractors frozen Lout of the leaseback business, 'f are mounting an opposition [campaign. j One other fillip: A Fresno i school trustee, Brooke Ashjian, i said this week that the FBI had t interviewed him about the con-1 tested leaseback contract. The 1 feds are apparently interested in j the conflict-of-interest aspect. i---i Dan Walters: 916-321-1195, ! dwalters@sacbee.com, 1 @WaltersBee

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PROOF OF SERVICE

STATE OF CALIFORNIA ) ) SS

COUNTY OF FRESNO )

I am a citizen of the United States and a resident of the County aforesaid; I am over the age of eightccn (18) ycars and not a party to thc within-entitled action. My business address is 8080 North Palm Avenue, Third Floor, Fresno, CA 93711. On JulYH, 2015, I served the within document( s):

EXHIBITS TO MOTION FOR JUDICIAL NOTICE IN SUPPORT OF PETITION FOR REVIEW; EXHIBITS F - L

VOLUME III of III

C8J BY MAIL: By placing the document(s) listed above in a sealed envelope with postage thereon fully prepaid, in the United States mail at Fresno, California, addressed as set forth below.

Kevin R. Carlin, Esq. SBN 185701 Martin A. Hom Carlin Law Group, APC and Jennifer Cantrell 4452 Park Boulevard, Suite 310

Atkinson, Andelson, Loya, San Diego, CA 92116 Telephone: (619) 615-5325 Ruud&Romo

5260 N Palm Ave # 300 Attorney for Plaintiff/Respondent Fresno, CA 93704 Stephen K. Davis

(559) 225-6700

Attorneys for Defendant and Respondent Fresno Unified School District

Frank Joseph Lozoya, IV Ryan Keats Lozoya & Lozoya Sean M. SeLegue 15060 Ventura Blvd., # 211 Sherman Oaks, CA 91403 Arnold & Porter LLP Tel. (818) 789-7150 Three Embarcadero Center

Tenth Floor Attorneys for San Francisco, CA 94111 DefendantlRespondent Harris Construction Telephone: (415) 471-3370

Attorneys for DefendantlRespondent Harris Construction

Anthony N. Kim James Richard Traber Cory J. Briggs Fagen Friedman & Fulfrost Mekaela M. Gladden 520 Capitol Mall Briggs Law Corporation Suite 400 99 East "C" Street, Ste. 111 Sacramento, CA 95814 Upland, CA 91786 (916) 443-0000 (909) 949-7115

Attorneys for California's Attorneys for Kern County Coalition for Adequate School Taxpayers Association as Amicus Housing: Amicus Curiae for Curiae on behalf of Plaintiff and Respondent Appellant

Hon. Donald S. Black Court of AfJpeal Fresno County Superior Court Fifth Appe late District Department 502 11300 Street (via e-service pursuant to Fresno, CA 93724 California Rules of Court, Rule

8.212, bye-submission to Court of Appeal, Fifth District)

I am readily familiar with the firm's practices of collection and processing of correspondence for mailing. Under that practice, it would be deposited with the United States Postal Service on that same day with postage thereon fully prepaid in the ordinary course of business. I am aware that on motion of the party served, service is presumed invalid if postal cancellation date or postage meter date is more than one day after date of deposit for mailing in affidavit. '.

I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on July g, 2015, at Fresno, California.