City of Grass Valley v. Cohen

• Decision Date: 20 November 2017
• Docket Number: C078981
• Citation: 17 Cal.App.5th 567,226 Cal.Rptr.3d 543
• Court: California Court of Appeals Court of Appeals
• Parties: CITY OF GRASS VALLEY, as Successor Agency, etc., et al., Plaintiffs and Appellants, v. Michael COHEN, as Director, etc., Defendant and Appellant.

17 Cal.App.5th 567

226 Cal.Rptr.3d 543

CITY OF GRASS VALLEY, as Successor Agency, etc., et al., Plaintiffs and Appellants,

v.Michael COHEN, as Director, etc., Defendant and Appellant.

C078981

Court of Appeal, Third District, California.

Filed November 20, 2017

As Modified on Denial of Rehearing December 19, 2017

As Modified December 20, 2017

Colantuono, Highsmith & Whatley, Michael Colantuono, Jennifer Louise Pancake and Matthew T. Summers, Pasadena, for Plaintiffs and Appellants.

Xavier Becerra, Attorney General, Douglas J. Woods, Senior Assistant Attorney General, Marc A. LeForestier, Deputy Attorney General and Nancy J. Doig, Deputy Attorney General, for Defendant and Appellant.

Duarte, J.

In yet another case arising out of the "Great Dissolution" of redevelopment agencies (RDAs) in California (see City of Pasadena v. Cohen (2014) 228 Cal.App.4th 1461, 1462-1463, 176 Cal.Rptr.3d 729 ( Pasadena )), the City of Grass Valley (City) appeals from a judgment denying in part its petition for writ of mandate. The City, which is also the successor agency for its former RDA, sought to compel the Department of Finance (Department) to recognize the enforceability of certain agreements involving that RDA.

The Department cross-appeals from a part of the judgment commanding it to consider whether certain expenditures fall under a "goods and services" provision, claiming the City's failure to raise this issue in an administrative forum precludes the relief granted by the trial court. We agree with the Department on that point and shall reverse with directions to recall the writ granting the City partial relief. However, based on the retrospective application of postjudgment legislation, we will direct the trial court to issue a new writ commanding the Department to consider the City's claim regarding a highway project agreement. We otherwise affirm the judgment.

BACKGROUND

Given the many RDA cases this court has decided, due to the designation of Sacramento County as the venue for such disputes ( Health & Saf. Code, § 34168, subd. (a)¹ ; see, e.g., City of Brentwood v. Campbell (2015) 237 Cal.App.4th 488, 491, fn. 1, 188 Cal.Rptr.3d 88 ( Brentwood ); Cuenca v. Cohen (2017) 8 Cal.App.5th 200, 213 Cal.Rptr.3d 689 ( Cuenca ); City of Tracy v. Cohen (2016) 3 Cal.App.5th 852, 208 Cal.Rptr.3d 128 ( Tracy ); City of Emeryville v. Cohen (2015) 233 Cal.App.4th 293, 182 Cal.Rptr.3d 578 ( Emeryville )), its basic implementing mechanisms are well understood by the parties.

It suffices to say that in June 2011, the Legislature enacted statutes that barred RDAs from entering into new obligations, provided a process for dissolving the then-extant RDAs, and for ascertaining their outstanding "enforceable obligations." (See Pasadena , supra , 228 Cal.App.4th at p. 1463, 176 Cal.Rptr.3d 729.) This reflected a state policy to curtail perceived abuses of the Community Redevelopment Law (CRL) by which RDAs and their "sponsor" entities (usually cities) that created the RDAs and staffed their boards used an increasing share of local property taxes as "tax increments" (increases in property tax attributable to RDA projects) for their own benefit. (See, e.g., Cuenca , supra , 8 Cal.App.5th at pp. 209-210, 213 Cal.Rptr.3d 689 ; Tracy , supra , 3 Cal.App.5th at p. 855 & fn. 2, 208 Cal.Rptr.3d 128.)

Our Supreme Court upheld the law dissolving RDAs (Assem. Bill No. 26 (2011-2012 1st Ex. Sess.) enacted as Stats. 2011, 1st Ex. Sess. 2011-2012, ch. 5), but modified certain deadlines therein, and invalidated a companion law that would have allowed the continuation of RDAs in certain circumstances. ( California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231, 135 Cal.Rptr.3d 683, 267 P.3d 580 ( Matosantos ).) As described by our high court in Matosantos , Assembly Bill No. 26 consisted of two principal components, codified in two new parts of the Health and Safety Code. Part 1.8 was the "freeze" provision, effective immediately upon gubernatorial signature on June 28, 2011, and Part 1.85 was the "dissolution component."

The latter did not become operative until after the decision in Matosantos , which lifted a judicial stay of Part 1.85 and reformed its effective date to February 1, 2012. (See Matosantos , supra , 53 Cal.4th at pp. 250-251, 274-275, 135 Cal.Rptr.3d 683, 267 P.3d 580.)

After our Supreme Court decided Matosantos , the Legislature passed and the Governor signed a law that required an audit of successor agencies to determine whether unobligated tax increment revenues were available for transfer to taxing entities. (See Assem. Bill No. 1484 (2011-2012 Reg. Sess.) adding Stats. 2012, ch. 26, §§ 17, 40.) This due diligence review (DDR) (§ 34179.5, subd. (a)) identified "[t]he dollar value of any cash ... transferred after January 1, 2011, through June 30, 2012, by the redevelopment agency or the successor agency to [a sponsoring entity] and the purpose of each transfer." (§ 34179.5, subd. (c)(2).) Assembly Bill No. 1484 required the successor agency to submit the results of this audit to the successor agency's oversight board (§ 34179.6, subd. (c)) and to the Department, which had the authority to adjust any amounts in the DDR (§ 34179.6, subd. (d)). The bill did not change the general definition of "enforceable obligations" that had excluded agreements between a former RDA and its creator, with exceptions. (§ 34171, subd. (d)(2) [" ‘enforceable obligation’ does not include any agreements, contracts, or arrangements between the city ... that created the [RDA] and the former [RDA]"].)

Assembly Bill No. 1484 clarified the process of winding down the former RDAs. (See Cuenca , supra , 8 Cal.App.5th at pp. 210-211, 213 Cal.Rptr.3d 689 ; Emeryville , supra , 233 Cal.App.4th at pp. 298-300, 182 Cal.Rptr.3d 578.) This case in part involves what the parties loosely refer to as "clawbacks." (See §§ 34179.5, subds. (b) & (c), 34179.6, subds. (c) & (d).) This refers to the administrative unwinding (via the DDR) of specified RDA transactions that occurred after the Great Dissolution was proposed in January 2011. The period subject to clawbacks is from January 1, 2011, to June 30, 2012. It includes but is not limited to the approximate six-month period referred to by the parties and described in the legislative history as the "fire sale" of RDA assets, which lasted until the freeze took effect in June 2011. (See Brentwood , supra , 237 Cal.App.4th at p. 502, 188 Cal.Rptr.3d 88.)²

Sponsor entities or successor agencies may seek judicial review when the Department disapproves the inclusion of items proposed as enforceable obligations in the periodically filed recognized obligation payment schedules (ROPS). (See Cuenca , supra , 8 Cal.App.5th at p. 211, 213 Cal.Rptr.3d 689 ; Tracy , supra , 3 Cal.App.5th at pp. 856-857 & fn. 3, 208 Cal.Rptr.3d 128 ; Pasadena , supra , 228 Cal.App.4th at p. 1463 & fn. 3, 176 Cal.Rptr.3d 729.)

In 1986, the City and its RDA had entered into a "Cooperation Agreement" that explained how the two entities would interact, but contained no substantive terms, that is—as the City conceded in the trial court—no specific loans or services were identified. The trial court aptly called it an "umbrella" agreement.

On January 17, 2011—during the so-called fire sale period—the City and its RDA entered into two new "Cooperative Agreements," designed to try to insulate certain transactions from the looming Great Dissolution.

One 2011 agreement pertained to a highway project (Dorsey Project). In part, this agreement (Dorsey Agreement) provided the RDA "will pay for or reimburse the City for actions undertaken and costs and expenses incurred for and on behalf of the [RDA] or otherwise in furtherance of the redevelopment of the Dorsey Project." The Dorsey Agreement anticipated the Great Dissolution by describing what would happen if the RDA were no longer authorized to function "pursuant to state law." The agreement provided the RDA would transfer some $5 million to the City, payable from tax increments or other lawful sources. By January 31, 2012, the RDA had transferred $695,000 in tax increment money to the City under the Dorsey Agreement.

The second 2011 agreement at issue (which we refer to as the Omnibus Agreement) provided the RDA would pay the City for several extant projects totaling over $18 million. It, too, anticipated the Great Dissolution and made provision therefor.

The Department determined these agreements were not enforceable obligations because they were agreements between an RDA and its organic City. (See § 34171, subd. (d)(2).) Ultimately, the Department required the City to transfer certain money to the County Auditor-Controller.³ The City paid under protest.

Other facts will be provided as necessary in the Discussion, post .

DISCUSSION

We discuss the issues in a different order than that presented by the parties.

IThe Goods and Services Claim

The trial court issued a writ commanding the Department to consider whether certain transfers under the 2011 Omnibus Agreement ($307,161 at issue herein) were for "goods and services" as that phrase is used in section 34179.5, subdivision (b)(3). That subdivision defines a relevant transfer in the negative as "the transmission of money to another party that is not in payment for goods or services ." (Italics added.) As we will explain, we agree with the Department's contention in its cross-appeal that the issuance of the writ for that purpose was error, as the City never asked the Department to consider that point during the administrative meet and confer process.

The City first raised this issue after the trial court's adverse tentative ruling, and after the trial court had issued a decision in another case addressing goods and services (the judgment later affirmed in Brentwood , supra , 237 Cal.App.4th 488, 188 Cal.Rptr.3d 88 ). The trial court found the City's failure to raise the issue with the Department via its meet and confer process barred its claim. However, instead of dismissing the claim, ...