Klajic v. Castaic Lake Water Agency

• Decision Date: 29 July 2004
• Docket Number: No. B163110.,No. B161069.,B161069.,B163110.
• Court: California Court of Appeals Court of Appeals
• Parties: Jill KLAJIC et al., Plaintiffs and Respondents, v. CASTAIC LAKE WATER AGENCY et al., Defendants and Appellants.

16 Cal.Rptr.3d 746

121 Cal.App.4th 5

Jill KLAJIC et al., Plaintiffs and Respondents, v. CASTAIC LAKE WATER AGENCY et al., Defendants and Appellants.

No. B161069.

No. B163110.

Court of Appeal, Second District, Division 3.

July 29, 2004.

Horvitz & Levy, Barry R. Levy, Encino; The Hancock Law Office, William N. Hancock; McCormick, Kidman & Behrens, Russell G. Behrens, David D. Boyer, Costa Mesa; and R. Bruce Tepper, Los Angeles, for Defendants and Appellants.

Jennifer Kilpatrick; Kearney Alvarez, Thomas A. Kearney, Los Angeles, and Paul Alvarez for Plaintiffs and Respondents.

ALDRICH, J.

INTRODUCTION

We are asked by the Castaic Lake Water Agency (the Agency) to construe section 15.1 of its enabling act, effective January 2002. (Stats. 2001, Wat.—Appen. (2004 Supp.) 103-1 et seq., p. 487 et seq., hereinafter the Agency Enabling Act.) The Agency has appealed from the judgment of the trial court ordering the issuance of a writ of mandate that prohibits the Agency from selling drinking water directly to consumers. The court ruled that section 15.1 of the Agency Enabling Act is not an independent grant of authority, and to sell water directly to the consumer, the Agency must first comply with the requirements of Water Code section 12944.7, subdivision (b).¹

On appeal, the Agency contends section 15.1 of the Agency Enabling Act authorizes it, a water wholesaler, to sell water at retail independent of section 12944.7, subdivision (b). We hold the Agency correctly construes the introductory phrase in section 15.1 of the Agency Enabling Act. Accordingly, we reverse the judgment and the award of attorney fees.²

FACTUAL AND PROCEDURAL BACKGROUND

1. The factual predicate.

Created by the Legislature, the Agency is a special district whose purpose, according to section 15 of the Agency Enabling Act, is to "acquire water and water rights . . . and provide, sell, and deliver that water at wholesale only . . . ." (Agency Enabling Act, 103-15, p. 500, italics added; Klajic v. Castaic Lake Water Agency (2001) 90 Cal.App.4th 987, 991, 109 Cal. Rptr.2d 454, hereinafter Klajic I.) The Agency operates in the Santa Clarita Valley in Los Angeles County. It provides water to four local water utilities, including the Santa Clarita Water Company (the Water Company) and the Newhall County Water District.

Beginning in 1999, the Agency commenced efforts to sell water directly to consumers. It did so by relying on section 12944.7, subdivision (b). That statute allows a wholesale water agency to sell water at retail "only pursuant to written contract with . . . a water corporation . . . subject to regulation by the Public Utilities Commission [PUC] and serving water at retail within the area in which the consumer is located."³ (12944.7, subd. (b).) Accordingly, the Agency entered into a transaction with the Water Company. (Klajic I, supra, 90 Cal.App.4th at pp. 991-992, 109 Cal.Rptr.2d 454.)

Before the transaction was closed, however, respondents,⁴ property owners, residents, and taxpayers located in the area covered by the Agency, sought a peremptory writ of mandate to force the Agency to comply with section 12944.7, subdivision (b). (Klajic I, supra, 90 Cal.App.4th at p. 993, 109 Cal.Rptr.2d 454.) Respondents argued, inter alia, that section 12944.7, subdivision (b) authorized the retail sale of water only pursuant to a contract with an independent water retailer which is subject to PUC regulation. According to respondents, the net effect of the Agency's transaction with the Water Company would be a merger of those two entities into a single unified company that would not be subject to PUC regulation and hence, would not comply with section 12944.7, subdivision (b). (Klajic I, supra, at p. 994, 109 Cal.Rptr.2d 454.)

2. The first appeal.

In Klajic I, we held that section 12944.7, subdivision (b) granted a water wholesaler, such as the Agency, the right to sell water at retail but "`only pursuant to written contract with'" a separate entity that is subject to PUC regulation. (Klajic I, supra, 90 Cal.App.4th at p. 997, 109 Cal.Rptr.2d 454.) We explained that section 12944.7, subdivision (b) "clearly manifests the Legislatures intent there be a contract, which a fortiori, must be between two separate parties, each time the Agency sells water at retail." (Id. at p. 998, 109 Cal.Rptr.2d 454.) That is we explained, the two parties to the contract under section 12944.7, subdivision (b) must maintain their separate existences and must be subject to PUC regulation during the life of the contract, or at any time the Agency seeks to sell water directly to the consumer. (Ibid.) We reversed the judgment and remanded to the trial court to determine whether, as the result of the challenged transaction, the Water Company continued to exist as an entity separate from the Agency, and continued to be subject to regulation by the PUC, so as to satisfy the requirements of section 12944.7, subdivision (b). (Id. at pp. 1000-1001, 109 Cal.Rptr.2d 454.)

3. Passage of Assembly Bill No. 134.

While Klajic I was pending, the Agency sought a legislative solution. The Agency sponsored Assembly Bill No. 134 (2001-2002 Reg. Sess.). Of particular importance to this appeal is section 3 of Assembly Bill No. 134, which added section 15.1 to the Agency Enabling Act. Section 15.1 reads in pertinent part: "Notwithstanding subdivision (b) of Section 12944.7 of the Water Code [analyzed in Klajic I] and Section 15 of this act [authorizing the Agency to sell water at wholesale only], but subject to paragraph (2), the agency may exercise retail water authority only within the [specified] boundaries. . . ." (Agency Enabling Act, 72A West's Ann. Wat. — Appen. (2004 Supp.) § 103-15.1, subd. (a)(1), p. 4, italics added.) The statute then defines the boundaries by reciting specific metes and bounds.⁵

Paragraph 2 of section 15.1 then grants the Newhall County Water District authority over geographical areas that were not served by the Water Company on September 2, 1999, and protects all of the Newhall County Water Districts existing water rights within the Water Company's geographic boundaries. (Agency Enabling Act, § 103-15.1, subd. (a)(2)(A), p. 5.)⁶ Subdivision (b) precludes the Agency from exercising retail water authority outside the boundaries described in paragraph (1) of subdivision (a), without statutory authorization. (Agency Enabling Act, § 103-15.1, subd. (b).)

Section 15.1 of the Agency Enabling Act was enacted in 2001, while Klajic I was pending. The statute became effective on January 1, 2002, not long after the trial court regained jurisdiction upon issuance of the remittitur in Klajic I.

4. Trial.

Returning to the trial court upon our remand, respondents renewed their contention that the events that occurred during and after the Agency's transaction with the Water Company brought about a de facto merger of the two entities. As a result, they argued, no contract existed that complied with section 12944.7, subdivision (b). Respondents noted they have already received rate increases not approved by the PUC or the Water Company's board.

Rather than to dispute the merger issue, the Agency pointed to Assembly Bill No. 134 (2003-2004 Reg. Sess.). The Agency argued that Assembly Bill No. 134 added section 15.1 to the Agency Enabling Act to allow the Agency to sell water at retail within the Water Company's service area without complying with section 12944.7, subdivision (b). Passage of section 15.1, the Agency argued, rendered irrelevant the question of whether it had a contract with a separate entity retailer subject to PUC regulation.

The trial court disagreed. The court ruled that Assembly Bill No. 134 (2001-2002 Reg. Sess.) was a further limitation upon the right granted by section 12944.7, subdivision (b). The court construed Assembly Bill No. 134 to mean that the Agency could sell water directly to the ultimate consumer only pursuant to contract with a water company that is subject to PUC regulation pursuant to section 12944.7 subdivision (b), and only within specific territorial boundaries described by the metes and bounds in Assembly Bill No. 134.

Accordingly, the trial court ordered the issuance of a writ of mandate prohibiting the Agency and the Water Company, as an alter ego of the Agency, from selling water at retail, until such time as the Agency entered into a bona fide contract. The trial court awarded respondents attorney fees and costs in the amount of $202,721.80 pursuant to Code of Civil Procedure section 1021.5. The Agencys appeal followed.

CONTENTION

The Agency contends the trial court erred in construing section 15.1 of the Agency Enabling Act.

DISCUSSION

1. Standard of review.

The Agency does not challenge the trial court's finding that the Agency and the Water Company have merged precluding compliance with section 12944.7, subdivision (b). Instead, the Agency contends on appeal that the passage of Assembly Bill No. 134 (2001-2002 Reg. Sess.) renders Klajic I and the subsequent trial court judgment irrelevant. They reason that as of January 2002, section 15.1 of the Agency Enabling Act authorizes the Agency to sell water at retail regardless of whether it has entered into a contract that conforms with section 12944.7, subdivision (b).

Our task in this second appeal is to interpret section 15.1 of the Agency Enabling Act and apply it to the facts here. As we explained in Klajic I, "A traditional writ of mandate under Code of Civil Procedure section 1085 is a method for compelling a public entity to perform a legal and usually ministerial duty. [Citation.] The trial court reviews an administrative action pursuant to Code of Civil Procedure section 1085 to determine whether the agencys action was arbitrary, capricious, or entirely lacking in evidentiary support, contrary to established public policy, unlawful, procedurally unfair, or whether the agency failed to follow the procedure and give the notices the law requires. [Citations....