Finnegan v. Schrader

Decision Date11 July 2001
Docket NumberNo. A089476.,No. A088188.,A088188.,A089476.
Citation110 Cal.Rptr.2d 552,91 Cal.App.4th 572
CourtCalifornia Court of Appeals Court of Appeals
PartiesBarbara A. FINNEGAN, Plaintiff and Appellant, v. Carl F. SCHRADER, Defendant and Appellant; West Bay Sanitary District, Defendant and Respondent.

Tony Jerome Tanke, Law Offices of Tony J. Tanke, Davis, CA, for Plaintiff and Appellant.

Michael Dale McCracken and Daniel A. Crawford, McCracken & Byers, McCracken Byers & Haesloop, Burlingame, CA; Susan Heikkinen Handelman and Terry Anastassion, Ropers, Majeski, Kohn & Bentley, Redwood City, CA, for Defendant and Appellant.

Anthony Patrick Condotti, Atchison, Barisone & Condotti, Santa Cruz, CA, for Defendant and Respondent.

KLINE, P.J.

Introduction

These consolidated appeals arise from a taxpayer's suit challenging the appointment of defendant Carl F. Schrader as district manager of the West Bay Sanitary District (WBSD or District). The suit alleged that Schrader's appointment violated state conflict-of-interest law because Schrader was a member of the District's Board of Directors at the time of his appointment. After a bench trial, the trial court entered judgment declaring Schrader's employment contract void and compelling Schrader to restore all compensation he had received under it. By posttrial order, the trial court also awarded plaintiff attorney fees against Schrader under Code of Civil Procedure section 1021.5. Schrader appeals from the judgment and cross-appeals from the award of fees. Barbara A. Finnegan, successor to the original plaintiff, appeals from the order awarding attorney fees, contesting both the sufficiency of the amount awarded and the trial court's refusal to make the District jointly and severally liable for the fee award along with Schrader.

We affirm the judgment and reverse the order awarding fees. We remand the case to the trial court to redetermine the apportionment and amount of the award.

Factual and Procedural Background

WBSD is a local sanitary district organized under state law. The District maintains sewer lines for all or portions of the Cities of Menlo Park, Portola Valley, Atherton East Palo Alto, Redwood City and Woodside as well as for certain unincorporated areas of San Mateo and Santa Clara Counties, serving approximately 55,000 residents in total. WBSD is governed by a five-member, publicly-elected, board of directors (Board).

Schrader served as a Director of the District from 1983 until January 1991 and from March 1991 to September 1997. In January 1991, Schrader resigned from the Board in order to be considered for the position of WBSD District Manager. The district manager position is WBSD's top employee position. After failing to obtain the position, Schrader was appointed by vote of the Board in March 1991 to fill the Board vacancy created by his January 1991 resignation.

In February 1997, the district manager of WBSD, Charles Thomas, resigned amidst accusations that he had taken kickbacks and embezzled funds from the District. Thomas was later convicted of embezzlement charges arising from his tenure at WBSD. Following Thomas's resignation, an interim district manager was appointed until a permanent district manager could be selected. At a regular Board meeting in May 1997, Schrader confirmed that he was interested in being considered for the permanent district manager position. At a June 1997 Board meeting, Schrader referred to himself as an "applicant" for the district manager's position and distributed a statement of his qualifications to the Board. At its regular meeting on July 28, 1997, the Board voted to limit the solicitation of candidates for the position to two: Schrader and the acting district manager, Timothy Clayton.

The Board convened a special meeting on September 2, 1997. After opening the meeting, the Board immediately adjourned to a closed session to consider the appointment to the position of district manager. Prior to commencement of the closed session, Schrader left the meeting because of his candidacy for the district manager position. Later, Schrader was invited to join the closed session so that he could be interviewed by the other Board members regarding his qualifications. Thereafter, the acting district manager, Clayton, joined the meeting when the Board returned to its open session. At that time, the Board announced that a motion had been made and seconded in closed session to offer the district manager position to Schrader on terms including a salary of $7,500 per month. Four Board members, Finn Halbo, John Inglis, David Knight and Donald Van Creveld, voted to offer the position to Schrader on these terms.1 Schrader abstained.

In closed session following announcement of the vote, Schrader accepted the Board's offer of employment and agreed to become district manager effective September 3, 1997, upon his resignation from the Board. On September 3, 1997, Schrader began his employment as the District's manager. On September 8, 1997, Schrader submitted a handwritten note addressed to the Board stating that he was resigning from the Board effective September 3, 1997.

Shortly after Schrader's appointment as district manager, a candidate for board director, John Carcione, began publicly criticizing Schrader's appointment, which was reported in local press articles. Ronald Shepherd, a San Mateo County resident and WBSD ratepayer, began discussing the issue with Carcione after Carcione was elected to the Board in November 1997.

On March 23 and March 30, 1998, Shepherd served demands on the Board asking it to declare Schrader's employment contract void and to institute action to recover all money and benefits paid to him under the contract. On April 15, 1998, Shepherd filed the complaint that initiated this action. Schrader was named as a defendant, and the District was named as the real party in interest and as a defendant. The complaint alleged that Schrader's employment contract was void on conflict of interest grounds because it was negotiated and entered into while Schrader was still a member of the Board. The complaint sought declaratory relief that the contract was void and restitution of all salary and benefits paid to Schrader under the contract. The complaint also sought injunctive relief to prevent the District from paying any further compensation to Schrader and to disqualify Schrader from applying for the district manager position in the future.

On April 19, 1998, the Board held a special meeting at which a majority of the Directors voted to release Schrader from his employment as district manager and to rehire him as acting district manager on the same terms and conditions, including salary, as his previous employment as district manager. On May 22, 1998, the District moved to strike prayers for relief in Shepherd's complaint seeking to enjoin the District from continuing to employ or compensate Schrader. In connection with the motion, the District asked the court to take judicial notice of the fact that Schrader had been terminated and reappointed on April 19, 1998. The District asserted, in part, that since Schrader was no longer a Board member when the Board created a new employment relationship with him effective April 20, 1998, his continued employment and compensation by the Board from that time forward could not violate the law. The District raised other issues concerning the injunctive relief sought by Shepherd. Schrader joined in the motion to strike and in the District's arguments on these points. Without stating its reasons, the trial court granted the District's motion to strike.

This case was tried to the court below on March 5, 1999. Trial was limited to the issue of Schrader's obligation to disgorge the compensation he received between September 3, 1997 and April 19, 1998. On April 6, 1999, the trial court issued a memorandum decision finding Schrader liable to the District for all compensation earned as district manager from September 3, 1997 through April 19, 1998. Judgment against Schrader and in favor of WBSD in the amount of $70,812 was entered on June 28, 1999. Over Shepherd's objection, the judgment also stated that "Defendant WBSD is entitled to judgment on plaintiffs complaint, and plaintiff shall take nothing from WBSD by virtue of his complaint." Schrader filed a timely notice of appeal from the judgment on August 18, 1999 (A088188).

Following entry of judgment, Shepherd brought a motion for attorney fees under Code of Civil Procedure section 1021.5 and motions to permit Shepherd to pursue enforcement of the District's judgment against Schrader and for an order denying Schrader indemnity from the District. In his fee motion, Shepherd sought an award of $149,428 in fees and costs. On December 6, 1999, the trial court entered an order granting the motion for attorney fees in part and denying it in part. The court set the recoverable amount of fees and costs at $88,318.65. On that same date, the trial court entered an order denying Shepherd's motions to enforce the judgment and to deny indemnity. Shepherd timely appealed from these orders on December 17, 1999 (A089476).

Both parties also filed cross-appeals. On Schrader's appeal from the judgment, Shepherd cross-appealed (1) to reverse the trial court's ruling striking allegations pertaining to Schrader's continued employment after April 19, 1998,2 and (2) to delete that portion of the judgment stating that the District was entitled to judgment against plaintiff. On Shepherd's appeal from the trial court's postjudgment orders, Schrader cross-appealed to reverse the order awarding attorney fees. The two appeals and related cross-appeals were ordered consolidated.

After being himself elected as a Director of WBSD in November 1999, Shepherd moved for leave to substitute Barbara Finnegan as plaintiff, respondent and cross-appellant in these appeals. This court granted Shepherd's motion.3

Discussion
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