Green Valley Landowners Ass'n v. City of Vallejo

• Decision Date: 16 October 2015
• Docket Number: A142808
• Citation: 241 Cal.App.4th 425,194 Cal.Rptr.3d 19
• Court: California Court of Appeals Court of Appeals
• Parties: GREEN VALLEY LANDOWNERS ASSOCIATION, Plaintiff and Appellant, v. CITY OF VALLEJO, Defendant and Respondent.

241 Cal.App.4th 425

194 Cal.Rptr.3d 19

GREEN VALLEY LANDOWNERS ASSOCIATION, Plaintiff and Appellant,

v.CITY OF VALLEJO, Defendant and Respondent.

A142808

Court of Appeal, First District, Division 1, California.

Filed 10/16/2015

Law Offices of Stephen M. Flynn, Stephen M. Flynn, San Rafael, Counsel for Appellant.

Claudia M. Quintana, Vallejo City, Attorney; Donna R. Moody, Chief, Assistant Vallejo City Attorney, Colantuono, Highsmith & Whatley, PC, Michael G. Colantuono, Amy C. Sparrow, Leonard P. Aslanian, Jennifer L. Pancake, Los Angeles, Counsel for Respondent.

Opinion

DONDERO, J.

In this class action comprised of nonresident water customers, plaintiff Green Valley Landowners Association filed a complaint seeking to preserve its alleged right to continue receiving water at reasonable rates from an historical water delivery system owned and operated by defendant City of Vallejo (City). The trial court sustained the City's demurrer as to all 12 causes of action contained in the complaint without leave to amend. Plaintiff contends the court's rulings are legally erroneous. We affirm.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

I. Factual Background¹

The Lakes Water System (LWS) was created in the late 1800's through the early 1900's to provide the City with potable water. The City first constructed a diversion dam coupled with a 14–inch transmission pipeline, which brought water from Solano County's Green Valley to the City (the Green Line). After completing the dam, the City created two reservoirs, Lake Frey (completed in 1894) and Lake Madigan (completed in 1908). The LWS was one of the first municipal water projects in California.

Lake Frey and Lake Madigan were soon insufficient to meet the demands of the City's rapidly growing population. The City then applied for a permit to store 37,000 acre-feet of water in the hills above Napa County's Gordon Valley. Subsequently, the City constructed a dam and reservoir in Napa County known as Lake Curry (completed in 1925), along with a 24–inch transmission line to transport water from Lake Curry to the City (the Gordon Line). Upon completion, the LWS consisted of three large reservoirs, two dams, thousands of acres of land and watershed, and dozens of miles of municipal-sized pipes, which conveyed needed water to the City.

In order to transport the water from the three reservoirs, the City acquired easements from some of the property owners along the Green Line, the Gordon Line, and elsewhere within the LWS service area. In exchange for these easements, the City agreed in writing to provide a certain quantity of “free water” to the owners of the servient estates.²In addition, the City agreed in writing to provide certain quantities of “free water” to other nonresident customers in exchange for riparian water rights. Over the decades, the City agreed to provide potable water to other nonresident customers. These connections were made without a master plan.

From 1893 through the 1950's, the City's municipal water needs were met exclusively by the LWS. In the 1950's, the City obtained water rights from the Sacramento River Delta and contracted for water from the Solano Project.

In 1992, water quality from Lake Curry ceased to meet water treatment standards adopted by the California Department of Health Services. The City elected to stop using Lake Curry as a water source, closing a valve on the Gordon Line and stopping the flow of LWS water to the City. The City then passed an ordinance (the 1992 Ordinance) shifting 100 percent of the cost of operating the LWS to its approximately 809 nonresident customers. Prior to 1991, these nonresidents had shared the cost of the LWS with approximately 30,000 metered connections within the City. As a result of the 1992 Ordinance, water rates for the nonresident customers increased by over 230 percent.

The City passed additional water rate increases by ordinances enacted in 1995 (the 1995 Ordinance) and 2009 (the 2009 Ordinance). In addition to increasing water consumption charges, the ordinances increased the fixed service charges to the nonresident customers of the LWS. Plaintiff alleges in its complaint that current water rates within the LWS are among the highest in the state.³

On June 9, 2009, plaintiff, on behalf of the purported class of nonresident LWS customers (the Class), entered into a tolling agreement with the City (Tolling Agreement). The Tolling Agreement tolls “any applicable statutes of limitations regarding a potential challenge to the rate increase [which occurred in 2009].” The Tolling Agreement has been extended 10 times, and expired on December 31, 2013.

According to plaintiff, the City has grossly mismanaged and neglected the LWS, placing the burden on the Class to fund a deteriorating, inefficient, and costly water system that is spread over an “incoherent service area.” In addition to water treatment plant improvements made between 1997 and 2005 that cost almost $8 million, replacement cost for a 10–mile section of the Gordon Line and a six-mile section of the Green Line are expected to be over $12 million. All of these costs have been, or will be, passed on to the LWS's nonresident customers. Plaintiff did not become aware of these unfunded liabilities until June 2013. Previously, the City had represented that the LWS was free of liabilities and debt, even though it performed “virtually no capital improvements to or replacements of the infrastructure” between 1894 and 1992.

Plaintiff also alleges that the City had engaged in negotiations with a private investor-owned utility to purchase the LWS. Reportedly, the City will only consider selling the LWS to plaintiff (or to a water district or service district created by plaintiff) for a sum that is almost $3 million over its “already flawed appraised value of the LWS.” The extra sum reportedly represents a loan or subsidy that the City claims it extended to LWS customers prior to 2009. Additionally, plaintiff complains that certain fees paid by Class members have not been earmarked for LWS improvements as required by City ordinances, but instead have been improperly used by the City for other unrelated purposes.

II. Procedural History

On December 3, 2013, plaintiff filed and served a claim pursuant to Government Code section 910on behalf of itself and the Class.⁴

On January 23, 2013, plaintiff filed the operative complaint against the City. The class action complaint states 12 causes of action, comprised of claims for breach of implied contract, breach of implied covenant of good faith and fair dealing, breach of contract (third party beneficiary), breach of duty to charge reasonable water rates, breach of fiduciary duty, specific performance, declaratory relief, and accounting, along with four separate claims for injunctive relief.

On February 24, 2014, the City filed a general demurrer to the complaint.

On June 11, 2014, the trial court issued a tentative ruling sustaining the City's demurrer without leave to amend.

On August 21, 2014, plaintiff filed its notice of appeal.⁵

On August 22, 2014, the trial court filed its order affirming its tentative ruling, granting the demurrer without leave to amend.

On October 1, 2014, the trial court filed its order dismissing the lawsuit and entered final judgment for the City.

DISCUSSION

I. Standard of Review

“Because this case comes to us on a demurrer for failure to state a cause of action, we accept as true the well-pleaded allegations in plaintiff's ... complaint. ‘ “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.” [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.’ ” (Evans v. City of Berkeley(2006) 38 Cal.4th 1, 6, 40 Cal.Rptr.3d 205, 129 P.3d 394.)

“While the decision to sustain or overrule a demurrer is a legal ruling subject to de novo review on appeal, the granting of leave to amend involves an exercise of the trial court's discretion. [Citations.] When the trial court sustains a demurrer without leave to amend, we must also consider whether the complaint might state a cause of action if a defect could reasonably be cured by amendment. If the defect can be cured, then the judgment of dismissal must be reversed to allow the plaintiff an opportunity to do so. The plaintiff bears the burden of demonstrating a reasonable possibility to cure any defect by amendment. [Citations.] A trial court abuses its discretion if it sustains a demurrer without leave to amend when the plaintiff shows a reasonable possibility to cure any defect by amendment. [Citations.] If the plaintiff cannot show an abuse of discretion, the trial court's order sustaining the demurrer without leave to amend must be affirmed.” (Traders Sports, Inc. v. City of San Leandro(2001) 93 Cal.App.4th 37, 43–44, 112 Cal.Rptr.2d 677.)

The plaintiff's “burden of demonstrating a reasonable possibility to cure any defect” (Traders Sports, Inc. v. City of San Leandro,supra,93 Cal.App.4th at p. 43, 112 Cal.Rptr.2d 677) is not pro forma. “ ‘To satisfy that burden on appeal, a plaintiff “must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.” [Citation.] ... The plaintiff must clearly and specifically set forth ... factual allegations that sufficiently state all required elements of that cause of action. [Citations.] Allegations must be factual and specific, not vague or conclusionary.’ ” (Rossberg v. Bank of America, N.A.(2013) 219 Cal.App.4th 1481, 1491, 162 Cal.Rptr.3d 525, quoting Rakestraw v. California Physicians' Service(2000) 81 Cal.App.4th 39, 43–44, 96 Cal.Rptr.2d 354.)

II. The Demurrer Was Properly Sustained as to the Implied Contract Claims

A. Causes of Action

Plaintiff represents that its implied contract claims, which it identifies as the first (breach of implied contract), second ...