San Diegans for Open Gov't v. Har Constr., Inc.

Decision Date31 August 2015
Docket NumberD066514
Citation192 Cal.Rptr.3d 559,240 Cal.App.4th 611
CourtCalifornia Court of Appeals Court of Appeals
Parties SAN DIEGANS FOR OPEN GOVERNMENT, Plaintiff and Respondent, v. HAR CONSTRUCTION, INC., Defendant and Appellant.

Finch, Thornton & Baird, Louis J. Blum and Daniel P. Scholz, San Diego, for Defendant and Appellant.

Briggs Law Corporation, Cory J. Briggs, Anthony N. Kim, Mekaela M. Gladden, San Diego, and Isabel E. O'Donnell for Plaintiff and Respondent.

HALLER, Acting P.J. Government Code section 1090 prohibits public officers from having a financial interest in any contract "made by them" in their official capacity.1 ( Gov. Code, § 1090, subd. (a).) If a public official violates section 1090, the public entity is entitled to recover compensation paid under the contract without restoring any of the benefits received by the contracting party. A taxpayer has standing under certain circumstances to bring a section 1090 action to recover this money on behalf of a public entity.

In this case, San Diegans for Open Government (SanDOG) filed a Government Code section 1090 taxpayers' action on behalf of the Sweetwater Union High School District (District) seeking to recover contract payments made to three building contractors, including appellant Har Construction, Inc. SanDOG alleged the District superintendent and several District board members were "financially interested" in the public works contracts and thus the contracts were void. ( Gov. Code, § 1090, subd. (a).) About 16 months after SanDOG filed its first amended complaint, Har Construction moved to dismiss the complaint under the anti-SLAPP statute. ( Code Civ. Proc., § 425.16.) The court denied the motion because it found SanDOG met its burden to show a probability of prevailing.

Har Construction appeals from the anti-SLAPP denial order. We affirm, but on different grounds. We determine Har Construction's motion was untimely and the anti-SLAPP statute is inapplicable because SanDOG's claims fell within the statute's public interest exemption. (§ 425.17, subd. (b).) We thus do not reach the issue whether SanDOG's claims arose out of protected activity and, if so, whether SanDOG met its burden to show a probability of prevailing.2

FACTUAL AND PROCEDURAL BACKGROUND3

In about early January 2012, the San Diego County District Attorney filed a criminal complaint against former District Superintendent Jesus Gandara and three District Board of Trustee (Board) members (Pearl Quiñones, Arlie Ricasa, and Greg Sandoval) for alleged wrongdoing related to construction projects at District schools. Less than one month later, SanDOG filed a taxpayers' action against the contractors involved in those projects (Har Construction, Gilbane Building Company (Gilbane), and The Seville Group) seeking to invalidate their contracts with the District under Government Code section 1090. Before filing the lawsuit, SanDOG allegedly notified the District of its intent to bring the action and asked whether the District wanted to join, but SanDOG did not receive a response. At the time, the criminally-charged District officials remained in office.

Several months later, in June 2012, SanDOG filed a first amended complaint naming the District as a defendant and naming Har Construction and the two other contractors as defendants and real parties in interest. In the amended complaint, SanDOG challenged the validity of six separate public works projects. As to Har Construction, SanDOG challenged the District's contracts for work at Southwest Middle School and at Southwest High School. Specifically, SanDOG alleged that in June 2009, the District approved a $6.2 million contract with Har Construction for the middle school work, and in July 2009, the District approved an $8.4 million contract with Har Construction for the high school work.

SanDOG alleged these contracts, and the change orders related to these projects, were "made by one or more DISTRICT officials or employees in their official capacities who, at the time of the contract's making, had a financial interest in the contract in violation of ... Section 1090...." SanDOG attached a lengthy search warrant affidavit prepared by a district attorney investigator who detailed alleged activities by the public officials in failing to report gifts from the named contractors, misusing the District's credit card, and engaging in conflicts of interest regarding the expenditure of construction funds. After an extensive investigation, the investigator concluded "[t]he evidence suggests the existence of a corrupt ‘pay to play’ culture surrounding the award of construction contracts by [the District]." The investigator described his interviews with Hector Romero, Har Construction's president, who admitted purchasing (at unspecified times) unreported gifts, dinners, lunches, and drinks for various District officials.

SanDOG alleged the District's contracts (and the associated change orders) with Har Construction were "void" under Government Code section 1090 and any benefits received by Har Construction must be restored to the District. SanDOG sought various forms of relief including a constructive trust on all consideration received, a judgment that all contract benefits be returned to the District, and an injunction preventing Har Construction from disbursing funds received from the contracts.4

The District and the three contractor defendants demurred to SanDOG's amended complaint. The District asserted the action interfered with its discretionary authority, and the claim was premature and should await the grand jury findings on the criminal allegations against the District officials. SanDOG opposed this argument, asserting "This Court has no reason to believe that the District will initiate any legal action against Real Parties in Interest considering its continuing refusal to do so, even in the face of the District Attorney's identification of numerous illegal financial interests implicating [the Contractors]."

At the hearing on the motions, the court (Judge William Dato) noted that several of the criminally-charged public officials remained on the Board and this appeared to compromise the District's "ability to exercise its discretion free from conflicts of interest." The court ultimately overruled the demurrers, finding SanDOG had standing and it " ‘was not seeking to usurp the District's discretion in managing its affairs.’ " ( Gilbane Building Co. v. Superior Court (2014) 223 Cal.App.4th 1527, 1530–1531, 168 Cal.Rptr.3d 1 ( Gilbane ).)5

About 14 months after the amended complaint was filed, on August 15, 2013, SanDOG and the District entered into a stipulation to change the District's status from defendant to a real party in interest (Stipulation). The Stipulation stated that SanDOG and the District agree "based on information recently obtained from the San Diego County Grand Jury, that DISTRICT should have been designated in the First Amended Pleading as a real party in interest in this lawsuit and not as a defendant or respondent." Six days later, the court entered the Stipulation as an order.

Shortly after, Har Construction moved to strike the Stipulation and order. On September 5, 2013, the court (Judge Dato) overruled the objection and denied the motion. The court stated: "The change of party status effects no substantive change . There is no possible prejudice to Har [Construction] or any other defendant." (Italics added.)

Two months later, on November 4, 2013, Har Construction moved to strike SanDOG's amended complaint under the anti-SLAPP statute. Har Construction argued the claims arose from its "political contributions and statements made to District officials regarding the contract review and award process" and these activities are "quintessential rights of free speech and petition protected by the Anti–SLAPP statute." Har Construction further argued that SanDOG could not satisfy its burden to show a likelihood of prevailing on the merits because the undisputed facts show Har Construction was awarded the contracts as the low bidder under a " ‘hard bid’ " procedure, which it said is "not susceptible to bribery and eliminates the discretion of public officials." (See Pub. Contract Code, § 20111.)

Har Construction asserted that although the motion was brought long after the amended complaint was filed, the motion was timely because it was filed less than 60 days after the Stipulation, which Har Construction said reflected a "substantive change to the complaint." Har Construction also stated it was bringing the motion at this time because the District's change to real party in interest "eliminate[s] the possible exception to application of the [anti-SLAPP motion] created by Code of Civil Procedure section 425.17." Har Construction argued that the District's status change meant SanDOG could no longer prove the necessity of private enforcement, which is a required element to establish the public-interest exemption contained in section 425.17, subdivision (b).

The court scheduled the anti-SLAPP motion to be heard in conjunction with Har Construction's summary judgment motion on July 18, 2014, eight months after the anti-SLAPP motion was filed. In the scheduling order, the court noted the delay in setting the hearing was the result of "limited resources" caused by "budgetary constraints."6

While the anti-SLAPP motion was pending and before SanDOG filed its opposition motion, the District opposed a motion for judgment on the pleadings filed by codefendant Gilbane. In its opposition filed on July 11, 2014, the District stated that the Stipulation "did nothing to change the District's interest in this case vis-à-vis the other parties" and that SanDOG had properly joined the District "as a necessary party under CCP § 382." The District's counsel said when the amended complaint was filed, the District was "in reality a nonconsenting plaintiff," explaining:

"From the time [the First Amended Complaint] was filed until only recently,
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