ABI, Inc. v. City of Los Angeles

• Citation: 153 Cal.App.3d 669,200 Cal.Rptr. 563
• Decision Date: 26 March 1984
• Docket Number: No. 69071,69071
• Parties: ABI, INC., Plaintiff, Respondent and Cross-appellant, v. CITY OF LOS ANGELES et al., Defendants, Appellants and Cross-respondents. Civ.
• Court: California Court of Appeals

Page 563

200 Cal.Rptr. 563

153 Cal.App.3d 669

ABI, INC., Plaintiff, Respondent and Cross-appellant, v. CITY OF LOS ANGELES et al., Defendants, Appellants and Cross-respondents.

Civ. No. 69071.

Court of Appeal, Second District, Division 5, California.

March 26, 1984.

Ira Reiner, City Atty., Thomas C. Bonaventura, Senior Asst. City Atty., Colin Chiu and Dov S. Lesel, Deputy City Attys., for defendants, appellants and cross-respondents.

Richards, Watson, Dreyfuss & Gershon, Mitchell E. Abbott and William L. Strausz, Los Angeles, for plaintiff, respondent and cross-appellant.

AUERBACH, Associate Justice. ^*

ABI Inc. (ABI), a land developer, filed an action against defendants City of Los Angeles and Crocker National Bank (sometimes collectively denominated City) seeking to recover approximately $38,000 in fees out of a total sum of $57,000 deposited with the defendants as a condition for participating in the City's 1980 Home Mortgage Revenue Bond Program. ABI's complaint was couched in four causes of action. The first cause of action petitioned for a writ of mandate, while the second cause of action complained of breach of contract. The remaining causes sounded in unjust enrichment and declaratory relief. An alternative writ of mandate issued and after answer by the City and Crocker the matter was heard.

At the outset of the brief hearing, the court announced that the petition for mandate was denied on the grounds that an adequate remedy at law existed and that such an action against a public entity should proceed by civil action. However, at the suggestion of the court, both sides orally stipulated that the court could treat the proceeding as a motion for summary judgment on the contract cause of action. The court, after argument, and having received in evidence "all of the admissible evidence set forth in the declarations, exhibits and verified pleadings submitted," granted the motion for summary judgment in favor of plaintiff in the amount of $38,698, plus interest. The City has appealed No contention is made that any triable issue of fact exists.

from this judgment; ABI has cross-appealed from that portion of the judgment denying its petition for writ of mandate.

The issue of whether ABI is entitled to a refund of the fees in question depends primarily on the construction of two complex documents of a rather convoluted nature which spell out the contractual obligations of the parties and which interface with one another. They are respectively denominated as (1) the Indenture and (2) the Origination, Service, and Administration Agreement (Agreement) and were drafted by City's bond counsel and its underwriters.

I. BACKGROUND

In 1979, the Legislature enacted sections 52000 et seq. of the Health and Safety Code which created the 1980 Home Mortgage Revenue Bond Program. Its purpose was to provide subsidized, low-interest home mortgage financing to enable persons of low and moderate income to purchase homes. Basically, this was accomplished by using the proceeds from the sale of tax exempt municipal bonds to provide mortgage financing to qualified buyers at an interest rate substantially below the then conventional home mortgage rate. By building dwelling units whose purchase prices do not exceed a prescribed limit, developers qualify to participate in the program and use the available below-market interest mortgage financing to attract qualified buyers.

In 1980, the City issued its 1980 Home Mortgage Revenue Bonds under this program. The bond obligations are not general obligations of the City, the sole source of repayment being revenues generated by the mortgages. While the City provides the mortgage financing, the actual credit investigations and account maintenance services are performed by participating banks and lending institutions. Crocker acts as a trustee for the 1980 bonds and is responsible for handling the bond proceeds and assuring solvency of the bond program. The bonds are paid off with funds furnished by the home owners in the form of monthly payments on all the mortgages in the program. Of the two documents previously referred to, the Indenture authorized the issuance of the bonds while the Agreement sets forth the rules and procedures to be followed by the participants in the program.

ABI's application to participate in the City's program was accepted on November 10, 1980, and the City agreed to purchase 90 percent home mortgages to be originated by ABI's lender, Coast Federal Savings & Loan Association (Coast), to a maximum aggregated amount of $803,000. As a condition of participation in the program, the developers and lending institutions were required to pay certain particularized fees, all of which were calculated as a percentage of the aggregate principal amount of the mortgages to be originated with respect to the units. The mortgage funds allocated to ABI's development project were reduced from $803,000 to approximately $766,700 and the requisite fees were proportionately reduced. Certain of the fees were non-refundable; ¹ restitution of these fees is not claimed in this action.

The two fees which form the crux of this controversy are the Developer Fee of $30,668 which ABI paid to the City and a Lender's Commitment Fee ² of $8,030 which by private arrangement between Coast and ABI was paid by ABI to Coast but which is a fee required by the Agreement to be paid to City by the lending institution (Coast).

After these fees were paid, ABI proceeded with its project of building 11 condominium Since a developer may not lawfully sell units in a subdivision without first obtaining a White Report, ABI was unable to participate in the 1980 Home Mortgage Revenue Bond Program as planned, even though five lottery winners had loan applications approved and ready for processing by Coast. When it became apparent that ABI would not be able to secure the White Report in time to participate in the program, the $766,700 which had been allocated for the purchase of mortgages originating with ABI's units in Cadillac Avenue was reallocated to other developers as provided for in the Agreement. Following that reallocation, all 1980 bond proceeds were successfully applied to the purchase of qualified home mortgages.

units on Cadillac Avenue in Los Angeles. The low interest home mortgage program proved so popular with would-be home buyers that it was necessary to hold a lottery to select those buyers who would receive the mortgage financing. The final lottery for the program for which ABI was eligible was held on September 30, 1981. However, ABI was unable to obtain its Final Subdivision Public Report (also known as the "White Report") prior to the date of the lottery. Alan Berenstein, president of ABI, attributed [153 Cal.App.3d 676] this to processing delays in the California Department of Real Estate and asserted that part of the delay was attributable to "bureaucratic bungling" within the City's own planning department. In this connection, Mr. Berenstein asserted that the California Department of Real Estate needed to know whether the Cadillac project was subject to "inclusionary zoning" in order to complete processing the White Report. He complained that the City's planning department delayed for over two months while trying to decide the question and before forwarding the necessary documents to the Department of Real Estate. He concluded that this delay, coupled with further unexplained delays in the Department of Real Estate, resulted in the issuance of the White Report subsequent to the time the lottery was held.

Following the reallocation of funds, ABI made demand upon the City and Crocker for a refund of both the Developer Fee and the Lender's Commitment Fee with negative results.

In urging reversal, appellants argue that the court improvidently granted the motion or summary judgment because, by the terms of the Agreement, ABI was not entitled to a refund of either the Developer Fee or the Lender's Commitment Fee.

II. THE DISTRIBUTION OF FEES

The parties are in accord that section 7(b) and 7(c) of the Agreement are crucial in the resolution of the question of the fees. We will discuss these sections in reverse order and touch upon germane provisions of both the Agreement and Indenture as references arise. Since each of these sections contains definitions of the fees in controversy, we quote first from the Agreement. ³

" ' "Commitment Fee" means the fee, payable by each Lending Institution on or prior to the date of sale of the Bonds by City by means of a certified or cashier's check drawn in favor of Trustee for the benefit of the bondholders in an aggregate amount equal to one percent (1%) of the amount of the Home Mortgage funds allocated hereunder to such Lending Institution, or such other amount or method of payment as may be agreed to by City and each Lending Institution on or prior to said date of sale of the Bonds.'

" ' "Developer Fee" means the fee payable by each Developer prior to the sale of the Bonds by City by means of a certified or cashier's check drawn in favor of the Trustee or an irrevocable letter of credit drawn in favor of Trustee upon an AA-rated bank payable at any time up to 18 months after the issuance of the Bonds in an aggregate amount equal to 4% of the amount of Home Section 7(c) of the Agreement clearly preserves the distinction between these fees and sets forth how they are to be disposed of and distributed. ⁴ Although very long, it requires reproduction so that its nuances may be appreciated. It reads as follows:

Mortgage funds allocated to a Lending Institution and designated to be used on Developer's newly constructed Homes, or such other amount or method of payment as may be agreed to by City and each Developer on or prior to said date of sale of the Bonds.' "

" '(c) Fees. The Lending Institutions and Developers participating in the Program shall pay the following fees, as applicable:

" '(i) Upon reasonable notice by City or Trustee at...