Chapman v. Superior Court, D045374.

• Decision Date: 15 June 2005
• Docket Number: No. D045374.,D045374.
• Citation: 29 Cal.Rptr.3d 852,130 Cal.App.4th 261
• Court: California Court of Appeals Court of Appeals
• Parties: David R. CHAPMAN et al., Petitioners, v. The SUPERIOR COURT of San Diego County, Respondent; David Malcolm, Real Party in Interest.

29 Cal.Rptr.3d 852

130 Cal.App.4th 261

David R. CHAPMAN et al., Petitioners, v. The SUPERIOR COURT of San Diego County, Respondent David Malcolm, Real Party in Interest.

No. D045374.

Court of Appeal, Fourth District, Division 1.

June 15, 2005.

Review Denied August 31, 2005.

Duane E. Bennett; Richards, Watson & Gershon, Darold D. Pieper, Gregory M. Kunert, Los Angeles; Coughlan, Semmer & Lipman, R.J. Coughlan, Jr., Cathleen G. Fitch and Earll M. Pott, San Diego, for Petitioners.

Jennifer B. Henning for California State Association of Counties as Amicus Curiae on behalf of Petitioners.

Manuela Albuquerque, Berkeley, for the League of California Cities as Amicus Curiae on behalf of Petitioner, the San Diego Port District.

No appearance for Respondent.

Stanford & Associates, Dan L. Stanford, San Diego, Jora J. Zulauf; Law Office of Charles Sevilla, Charles M. Sevilla, San Diego, for Real Party in Interest.

McCONNELL, P.J.

Government Code¹ section 1090 prohibits an officeholder from having a financial interest in any contract made by the public agency of which he or she is a member. Section 1090 is intended to protect the public agency's interests and those of its constituency by assuring undivided loyalty and allegiance, removing direct and indirect influence of an interested officer and discouraging dishonesty. (Thorpe v. Long Beach Community College Dist. (2000) 83 Cal.App.4th 655, 659-660, 99 Cal. Rptr.2d 897 (Thorpe).)

In an underlying criminal matter, David Malcolm, a former member of the Board of Commissioners (Board) of the San Diego Unified Port District (Port District), pleaded guilty to violating section 1090 while on the Board. We hold here that as a matter of public policy, Malcolm may not maintain this legal malpractice action against the Port District under a respondeat superior theory, and its former counsel, David Chapman, based on Chapman's advice to Malcolm that allegedly caused Malcolm's damages arising from the criminal matter. As there is no triable issue of material fact requiring trial, the Port District and Chapman are entitled to summary judgment. Accordingly, we grant the petition.

FACTUAL AND PROCEDURAL BACKGROUND

In January 1995 Malcolm was appointed to the Board.

In November 1998 the Port District, San Diego Gas and Electric (SDG & E) and Duke Energy Power Services (Duke) entered into a memorandum of understanding (MOU) under which the Port District would purchase SDG & E's South Bay Power Plant, located in Chula Vista on property under the Port District's jurisdiction, for $110 million. Further, under the MOU Duke would lease and operate the plant for 10 years at a rent of at least $115 million and pay the costs of decommissioning the plant at the end of the lease term. In December 1998 the Board authorized the Port District's acquisition of the South Bay Power Plant by approving several agreements with SDG & E and Duke.

Chapman was the Port District's in-house legal counsel at the relevant time. After execution of the MOU, Malcolm told Chapman he "thought ... the South Bay Power Plant deal could be replicated around the country," and he planned to enter into a personal business relationship with Duke. Malcolm also told Chapman he wanted to retain Jeffrey Heintz, an attorney who assisted the Port District in acquiring the South Bay Power Plant. Chapman advised Malcolm he had no problem with Malcolm's use of Heintz, and when Malcolm made a deal with Duke he must abstain from voting on any Port District issue involving Duke and disclose any income from Duke on his conflict of interest forms. Chapman did not tell Malcolm about section 1090, that he was not providing Malcolm with legal advice, that Malcolm should consult another attorney, or that Chapman needed any further information or to see any contract Malcolm entered into with Duke.

In January 1999, after speaking with Chapman, Malcolm formed a company called Public Benefit Power (PBP) with the purpose of entering into transactions with Duke and communities that wanted to decommission aging power plants. Malcolm, who was one of PBP's three owners, sought to acquire the land on which power plants were situated and make a profit by selling or developing the land after the plants were decommissioned.

In April 1999 Malcolm told Chapman he and Duke had entered into a written contract to attempt to acquire a power plant. Thereafter, Malcolm recused himself from any Port District votes concerning Duke.

In May 2000, however, the arrangement changed from one of looking for business opportunities with Duke to one of consulting. Duke and PBP entered into a written contract requiring Duke to pay PBP $20,000 per month for Malcolm's services concerning modernization plans for the South Bay Power Plant and "similar generating facilities" throughout the country, and a one-time bonus of 1 1/2 percent on any funding Malcolm secured on Duke's behalf for the construction of a modernized plant in the South Bay.

The contract noted Malcolm "has substantial experience and knowledge with respect to political and local issues relevant to [Duke's] electric generating facility known as the South Bay plant, ... and to similar generating facilities throughout the United States." Additionally, the contract contained a conflict of interest clause that prohibited Malcolm from advising, counseling or otherwise assisting any competitor or potential competitor of Duke, including the Port District.

Malcolm informed Chapman about the new arrangement with Duke and that he would be earning "a six-figure number." Chapman again told Malcolm he was required to divulge payments from Duke and abstain from voting on any Port District matter involving Duke.

Beginning in July 2000, Malcolm advised Duke it could benefit from the expansion of an existing "Enterprise Zone" to include the South Bay Power Plant.² Malcolm wrote to Duke that "[w]ith soaring utility costs in San Diego, the environment to construct new facilities has NEVER been better. Everyone is saying the only way to lower the utility bills is to build new facilities. With the present outrage over utility bills, it seems Duke would be well served to bring additional focus to the South Bay Plant." Malcolm also solicited political support for this endeavor from officials in San Diego and Chula Vista.

In a November 30, 2000 memorandum from the Port District's executive director, Dennis Bouey, to the Board, he advised that "the City of Chula Vista and BF Goodrich have asked the Port [District] to financially support their efforts to expand the San Ysidro/Otay Mesa ... Enterprise Zone ... including 402.1 acres of Port [District] tidelands. This [Enterprise Zone] expires in January 2007, unless the legislature amends the current law. The issue is whether the Port [District] should contribute $292,425 over the next 6.5 years when development of the former BF Goodrich and Pond 20 [Port District tenants] properties may not occur soon enough to take full advantage of [the Enterprise Zone's] tax benefits." Bouey noted the South Bay Power Plant would be in the expanded Enterprise Zone, and businesses within it "are eligible for substantial tax credits and benefits that directly affect a business' tax liability." The City of Chula Vista sought the $292,425 to share in the cost of hiring one additional full-time employee to manage the expanded area of the Enterprise Zone.

A proposed MOU with the City of Chula Vista regarding the Port District's provision of funds for the expansion of the Enterprise Zone was on the agenda for the Board's December 12, 2000 meeting. The Board approved an MOU, and the minutes note Malcolm was excused from the vote.

On December 18, 2001, Chapman wrote a memorandum to the Board regarding the contract between Duke and PBP, which had been revealed to some Commissioners in conjunction with a third party lawsuit against Malcolm. The memorandum was marked privileged and confidential as an attorney-client communication. Chapman wrote: "I have previously advised you ... that I was aware of no facts which suggested that Commissioner Malcolm's business arrangement with Duke violated any law, specifically including any conflict of interest law governing the conduct of Port [District] Commissioners. Having now seen the Consulting Agreement, that remains my view. The law does not prohibit conflicts of interest.... Rather, the law requires that certain interests be disclosed and that a public official not participate in matters where he or she may have a conflict of interest. [¶] Without question, the Consulting Agreement gives rise to a conflict of interest for Commissioner Malcolm in matters involving the Port District and Duke. To the best of my knowledge, in recognition of that conflict of interest, Commissioner Malcolm has met his legal obligation to abstain from any Port District matters involving or affecting Duke."

The San Diego Union-Tribune obtained a copy of Chapman's memorandum, and in a December 28, 2001 article it revealed the contract between Duke and PBP. The article stated that "[a]t the height of the energy crisis, Port Commissioner David Malcolm was being paid $20,000 a month by Duke ... under a contract that required him to put the power company's interests ahead of all others, including those of the Port District," and "[c]ritics say Malcolm breached the public trust and should resign from the Port Commission." The following month, Malcolm resigned from the Board.

In the spring of 2003 Malcolm learned the San Diego County District Attorney (District Attorney) was contemplating multiple charges against him, including attempted perjury, two section 1090 violations and misappropriation of funds, and that a grand jury investigation was underway. Malcolm negotiated a deal with the District Attorney in which he would plead guilty to one count of violating section 1090, a felony, in exchange for its agreement to not pursue other charges.

On April 30, 2003, the District...