City of King City v. Community Bank

• Decision Date: 02 August 2005
• Docket Number: No. H027166.,No. H026888.,H026888.,H027166.
• Citation: 131 Cal.App.4th 913,32 Cal.Rptr.3d 384
• Court: California Court of Appeals Court of Appeals
• Parties: CITY OF KING CITY, Plaintiff and Respondent, v. COMMUNITY BANK OF CENTRAL CALIFORNIA, Defendant and Appellant.

32 Cal.Rptr.3d 384

131 Cal.App.4th 913

CITY OF KING CITY, Plaintiff and Respondent, v. COMMUNITY BANK OF CENTRAL CALIFORNIA, Defendant and Appellant.

No. H026888.

No. H027166.

Court of Appeal, Sixth District.

August 2, 2005.

Sinsheimer, Schiebelhut & Baggett, David Alan Juhnke, San Luis Obispo, for Plaintiff and Respondent City of King City.

Miller, Starr & Regalia, Richard G. Carlston, Basil S. Shiber, Sunny J. Knight, Walnut Creek, Noland Hamerly Etienne Hoss, James D. Schwefel, Stephen W. Pearson, Anne K. Secker, Law Offices of Joel Franklin, Joel Franklin, Monterey, for Defendant and Appellant Community Bank of Central California.

RUSHING, P.J.

Officials of the City of King City (City) deposited some $4.4 million of funds under their control into the Community Bank of Central California (Bank), and then pledged the funds to the bank as collateral for a loan to a developer engaged in a redevelopment project under the supervision of the local redevelopment agency, Community Development Agency (Agency). The developer apparently defaulted on the loan, and Bank refused to return the funds to City, which then brought this action for a writ of mandate compelling Bank to do so. City alleged that the deposit consisted of "City general fund monies" and that the pledge was void for the reason, among others, that it "could not be, and was not, authorized" by the City Council (Council) or the Agency Board (Board). Bank sought a continuance to permit discovery into the circumstances surrounding certain actions by the Council, the Board, or both, which, in Bank's view, conferred authority on the mayor to make the pledge. Bank also sought to inquire into the origin of the deposited money, asserting that it may have come from Agency funds and not, as City alleged, City funds. The trial court denied the request for a delay to conduct discovery and categorically excluded oral testimony concerning the events at issue. After what amounted to a lengthy law and motion hearing, it ruled on the merits in City's favor. It reasoned that there was no effective Council authorization for a pledge of the funds because the minutes of Council meetings, on their face, reflected only an authorization to make a loan to the developer. The court ruled that even if evidence outside the minutes disclosed a broader intent, it would not assist Bank because such evidence was inadmissible. The court further concluded that discovery into the origin of the funds would be futile because City would be entitled to prevail even if the funds belonged to the Agency. The court therefore granted the petition and directed issuance of a peremptory writ requiring return of the funds to City.

We hold that the court committed prejudicial error in several respects. First, the duty asserted by City does not arise from any "office, trust, or station" occupied or assumed by Bank, and therefore will not support the issuance of mandate. (Code Civ. Proc., § 1085, subd. (a).) As a result, the matter should have proceeded as an ordinary civil action, with Bank entitled to the usual processes of discovery and trial. Second, the denial of discovery into the origins and ownership of the pledged funds was both erroneous and prejudicial because evidence that the funds belonged to the Agency would tend to defeat City's claims as pleaded, refute its claimed entitlement to an extraordinary writ, and support an inference (among others) that the ambiguous measures in question were adopted by the Agency and were intended to authorize an expenditure on its behalf, not City's. Third, the court's categorical denial of discovery and exclusion of evidence on the ground that it violated the "deliberative privilege" of legislators likewise constituted prejudicial error because it went beyond barring inquiry into the subjective thoughts and motives of legislators to exclude perfectly proper objective indicia of legislative intent, including the circumstances of the enactments in question and what actually took place at public meetings where those enactments, or matters related to them, were publicly discussed and adopted. In the absence of a statute requiring a more specific recital in the minutes (or other specified public record), courts faced with the interpretation of a municipal enactment are as free to consult evidence of legislative intent as when they interpret state or federal legislation. In this regard, the trial court further erred by adopting City's misreading of certain statutes, which require a "recorded vote" on spending measures, so as to render such a measure entirely invalid unless it is set down in detail on the face of the minutes.

Given these conclusions, we will reverse the judgment along with a post-judgment order awarding attorney fees to City.

BACKGROUND

A. Creation and Pledge of Certificate of Deposit

At all times relevant here, the Council and the board shared the same members and sat jointly at combined meetings, often without clearly distinguishing between the two entities when measures were considered and adopted. The proceedings of both entities were conducted under a single combined agenda and were memorialized in a single set of minutes. Because many of the resulting ambiguities remain unresolved at this stage, we will sometimes refer to these entities by the inelegant terms "City/Agency" and "Council/Board," by which we mean both to acknowledge the ambiguities presented and to disclaim any attempt to resolve them on the present incomplete record.

At a meeting on February 8, 2000, the Council/Board considered a staff proposal to authorize a loan from the King City Revolving Loan Fund (KCRLF) to Town Square Partners LLC (TSP), the developer of a redevelopment project previously authorized by City and the Agency. The staff's overall report for the meeting was accompanied by a special report authored by D. Scott Galbraith, Director of the Economic Development Department, concerning the loan proposal. It stated that the purpose of the loan was to fund tenant inducements, developer profit, and financing costs, as well as to provide capital for TSP. The report stated that the loan would be accomplished either by "advanc[ing] funds directly" from KCLRF, or by "extend[ing] funds to capitalize a loan from a private lender." (Italics added.) The "Council and Community Development Agency Minutes" of the February 8, 2000 meeting recite that the proposal appeared on the consent agenda, and was approved.

In anticipation of the regular meeting of the City/Agency on March 14, 2000, staff presented an agenda item numbered 5.3, as follows: "CONSIDER AND ACT—Terms and Conditions for a Revolving Loan to Town Square Partners LLC. [¶] Staff report in the Addendum." The pertinent report was again prepared by Galbraith, and contained a recommendation "That the Terms and Conditions of the King City Revolving Loan Fund to Town Square Partners LLC be approved." Attached to the report was a two-page list of "Terms and Conditions," again containing the recital, "KCRLF will advance funds directly, or extend funds to capitalize a loan from a private lender."

(Italics added.) The attachment showed project funding from a "1st Note" of $4,574,193, and a "2nd Note — KCRLF" of $3,822,638.¹

The "Council and Community Development Agency Minutes" for the meeting of March 14, 2000, recite the following action with respect to the above agenda item: "CONSIDER AND ACT Terms and Conditions for a Revolving Loan to Town Square Partners LLC [¶] Scott Galbraith mentioned that most of the items on the agreement had been previously approved by the Agency Board. On motion by Agency Boardmember Grebmeier, seconded by Agency Boardmember Zechentmayer, the Agency Board approved the Revolving Loan to Town Square Partners with the following staff recommendations and also added Deputy City Clerk approval to the process: [¶] 1. Approve a loan for up to $3,850,000 to Town Square Partners LLC from the King City Revolving Loan Fund. The loan amount may vary, and shall be increased to cover potential legal settlement expenses. [¶] 2. Finance Director to identify accounts and allocate funds to support KCRLF. [¶] 3. A Deed of Trust to secure the KCRLF loan or line of credit shall be recorded, subordinate to principal financing. [¶] 4. Town Square Partners LLC shall provide a promissory note to secure the KCRLF loan prior to construction completion of the Town Square project."

In early April, 2000, Robert Moreno, who according to Bank was City's treasurer and finance director, signed a certificate of deposit placing $3,822,638 into an interest-bearing account with Bank. The account had a maturity date of April 4, 2002, but was "Automatically Renewable." Around this same time, John Myers signed, as "Mayor of City of King," an assignment of deposit account stating that City, as grantor, assigned to Bank, as lender, a security interest in the certificate of deposit account, as collateral for a debt incurred by TSP to Bank under a note made on April 3, 2000, in the amount of $3,822,638.

Five months later the matter again came before the Council/Board. In preparation for the regular meeting of September 12, 2000, staff submitted a report including the following agenda item: "5.9 APPROVAL of amendment of accounts and deposit of additional funds in support of the Town Square Project. [¶] Refer to staff report on Addendum, page 75. A detailed review of the report will be provided at the council meeting." A report by Galbraith, dated August 14, 2000, stated in part, "A $3.85 million loan ... from the King City Revolving Loan Fund to Town Square Partners was approved and processed in May 2000. The purpose of the loan was to fund non-construction expenses (ie. tenant inducements, financing costs, etc.). It was noted at the time that the loan amount was variable. [¶] The loan was requested to be established as a `revolving line of credit....' The lender arranged a traditional loan. [¶] The tenant inducement...