Cnty. of San Benito v. Scagliotti

• Decision Date: 24 September 2020
• Docket Number: H045887
• Parties: COUNTY OF SAN BENITO, Plaintiff, Cross-defendant, and Appellant, v. RICHARD SCAGLIOTTI, Defendant, Cross-complainant, and Appellant.
• Court: California Court of Appeals

COUNTY OF SAN BENITO, Plaintiff, Cross-defendant, and Appellant, v. RICHARD SCAGLIOTTI, Defendant, Cross-complainant, and Appellant.

H045887

COURT OF APPEAL OF THE STATE OF CALIFORNIA SIXTH APPELLATE DISTRICT

September 24, 2020

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(San Benito County Super. Ct. No. CU-16-00007)

The County of San Benito (County) and Richard Scagliotti, a former county supervisor, each appeal a judgment denying their claims for reimbursement of sums they incurred during a civil lawsuit filed by a county resident involving violations of the Political Reform Act of 1974 (Gov. Code, § 81000 et seq.)¹ (hereafter PRA).

In its appeal, the County challenges the trial court's denial of its claims for reimbursement of attorney fees it believes Scagliotti owed it under a contract or, alternatively, under Labor Code section 2865. For his part, Scagliotti contends the trial court erred in denying his claims under the Government Claims Act (§ 810 et seq.) (hereafter GCA) for reimbursement by the County of defense costs he incurred after the County withdrew from his defense and for indemnification of the settlement he paid toresolve the civil lawsuit. Both the County and Scagliotti also argue the trial court erred in denying their respective motions for attorney fees under Code of Civil Procedure section 1038.

As explained further below, we reject the County's appeal of the judgment. With respect to Scagliotti's appeal, we conclude the trial court erred under section 996.4 when it found that he was not entitled to reimbursement by the County of some of his defense costs. We therefore vacate the judgment against Scagliotti and remand the matter to the trial court to determine the amount of defense costs for which the County must reimburse Scagliotti. In all other respects, we affirm the trial court's rulings.

I. FACTS AND PROCEDURAL BACKGROUND

For 16 years, Scagliotti served as an elected supervisor of the county.² For a period of time, Scagliotti also served as a member of the San Benito County Local Agency Formation Commission ("LAFCO"). LAFCO was involved in decisions of whether to annex certain county land into the incorporated cities within the territory of the county, including the City of Hollister. (See § 56301[describing purposes of a LAFCO].) In addition to these official duties, Scagliotti was a private real estate developer who held interests in real property.

In 2003, while still serving as a county supervisor, a lawsuit was brought against Scagliotti and other parties. We refer to this matter, which generated the settlement payment and most of the attorney fees in dispute in this appeal, as "the Pekin litigation." (See Super. Ct. San Benito County, Case No. CU-03-00150.)

A. Pekin Litigation

The Pekin litigation began in December 2003, when a county resident filed a civil lawsuit against Scagliotti, both in his individual and official capacity, as well as against the San Benito County Board of Supervisors (Board) and the San Benito County Financing Corporation (the Corporation), a "wholly owned subsidiary" of the County.³ The original complaint in the Pekin litigation alleged multiple violations of the PRA⁴ and sought to hold Scagliotti civilly liable for making or influencing governmental decisions while having a prohibited financial interest and for failing to comply with disclosure requirements.

The County agreed to defend Scagliotti and engaged private counsel to conduct the defense. That attorney jointly represented the County and Scagliotti for several years. The record on appeal does not contain any writings from the inception of the litigation that set out the terms of that joint representation or any reservation of rights made by the County. In a prior, related appeal,⁵ we noted that the County provided legalrepresentation to Scagliotti pursuant to section 995 of the GCA, a provision we examine further below. (See Pekin v. Scagliotti (June 14, 2013, No. H035867) [nonpub. opn.].)

In 2006, over two years after the inception of the Pekin litigation, a substitution of joint counsel occurred. In connection with this change, Scagliotti received two letters relevant to the current appeals. First, on April 17, 2006, new joint counsel (Michael Serverian of the law firm of Rankin, Landsness, Lahde, Serverian & Stock, P.C.) sent a letter to Scagliotti, County Counsel Irma Valencia, and Deputy County Counsel Terra Chaffee regarding the joint representation (April 17 letter).

The April 17 letter explained that Serverian and his firm would represent Scagliotti, the Corporation, and the County jointly, and it outlined the parameters of the joint representation, including that "[t]he fees for the joint representation will be paid by the County alone, even though the three of you will be clients." We discuss the text of the April 17 letter further below in examining the County's claim in its appeal that Scagliotti thereby incurred a contractual obligation to reimburse it for his defense costs.

Two days later, on April 19, 2006, County Counsel Valencia sent Scagliotti a letter confirming the County would provide him with a defense through Attorney Serverian (April 19 letter). The letter addressed the topics of defense and indemnification. The April 19 letter included the following language:

"a. The County's Duty to Provide You with a Defense

From the face of the Complaint, it is difficult to determine, at this time, whether any of the claims being made against you are within your employment as an employee of the County. For this reason, the County intends to, and will, initially provide you with a defense to the claims being made against you. If, however, at anytime during the course of the litigation, it appears, in the judgment of the County, that the claims against you arise out of actions which were outside the scope of your employment, the County reserves the right to withdraw its defense."b. The County's Duty to Indemnify You

In the same way, in compliance with Government Code Section 825, the County will indemnify you for any damages arising out of the performance of your official duties; provided, however, that such damages do not arise out of actions that were either actual fraud, actual corruption, or actual malice, or willfully failed or refused to conduct the defense or the claim or action in good faith."

The April 19 letter contained an acknowledgment, which Scagliotti signed, stating Scagliotti "[u]nderstood and agreed" to it.

The Pekin litigation continued over the course of several years and culminated in 2014 in a bench trial at which the County defended Scagliotti. By that date, the complaint had been amended eight times. The claims at issue included violations of section 87100 (use of government position for financial gain) and section 91004 (failure to report assets on Form 700s) of the PRA. "Form 700" is a standard form California public officials and employees must file to disclose their financial holdings. (§§ 87202, 87302; Gananian v. Wagstaffe (2011) 199 Cal.App.4th 1532, 1537, fn. 5 (Gananian).) We discuss Form 700 further below in our examination of Scagliotti's appeal.

In February 2015, the trial court issued a written statement of decision (February 2015 statement of decision). The trial court denied most of the claims alleged against Scagliotti but found that Scagliotti had violated certain provisions of the PRA. In particular, the trial court found Scagliotti committed five violations of section 91004 by failing to list on his Form 700s properties he either still owned or had received income from following their sale. The trial court determined that "[a]lthough the court finds that his repeated omissions showed a decidedly careless approach to his reporting obligations, the evidence is not sufficiently persuasive that the omissions in these counts were intentional" and concluded that Scagliotti's omissions were merely negligent. For each of these five "non reporting violations," the trial court assessed a penalty of $2,500, for a total penalty of $12,500 for them.

The trial court also found Scagliotti had violated section 87100 (use of governmental position for financial gain)⁶ when, as a member of LAFCO, he participated in a vote related to an annexation request for a large development. We refer to this vote, as did the trial court in the Pekin litigation, as "the LAFCO vote." At the time of the LAFCO vote, which appears to have occurred in 2002, Scagliotti and his business partner were seeking permits to build their own housing project. Scagliotti's own project might have been affected by the annexation request, and the trial court found that Scagliotti "intentionally failed to disclose his financial interest" in that property (referred to in the record as "the Powell Street property") before participating in the vote. For this violation of section 87100, the trial court assessed a penalty of $225,000. Combined with the penalty for the violations associated with the Form 700s, the trial court imposed a total penalty of $237,500.

The February 2015 statement of decision does not specify whether Scagliotti or the County was to pay the penalty or whether Scagliotti was acting within the scope of his employment when he committed the violations found by the trial court.

Following the February 2015 statement of decision, joint counsel (now Sujata Reuter of the Rankin law firm, who appears to have succeeded Serverian as joint counsel) advised Scagliotti that she could no longer jointly represent him and the County because of an actual conflict of interest between them. In a letter dated April 1, 2015, Reuter wrote to Scagliotti. She transmitted her letter by both e-mail and US mail, and...