San Diegans for Open Gov't v. Pub. Facilities Fin. Auth. of San Diego

• Decision Date: 09 November 2017
• Docket Number: D069751
• Citation: 16 Cal.App.5th 1273,225 Cal.Rptr.3d 109
• Parties: SAN DIEGANS FOR OPEN GOVERNMENT, Plaintiff and Appellant, v. PUBLIC FACILITIES FINANCING AUTHORITY OF THE CITY OF SAN DIEGO et al., Defendants and Respondents.
• Court: California Court of Appeals Court of Appeals

16 Cal.App.5th 1273

225 Cal.Rptr.3d 109

SAN DIEGANS FOR OPEN GOVERNMENT, Plaintiff and Appellant,

v.PUBLIC FACILITIES FINANCING AUTHORITY OF THE CITY OF SAN DIEGO et al., Defendants and Respondents.

D069751

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

Filed November 9, 2017

Briggs Law Corporation and Cory J. Briggs ; Higgs Fletcher & Mack and Rachel E. Moffitt, San Diego, for Plaintiff and Appellant.

Mara W. Elliott, San Diego City Attorney, David J. Karlin, Assistant City Attorney and Meghan Ashley Wharton, Deputy City Attorney, for Defendants and Respondents.

BENKE, Acting P. J.

At issue here is a municipal ordinance, which authorized the issuance of bonds to be used to refinance the defendants' obligations with respect to construction of a baseball park. We find plaintiff taxpayers have standing under Government Code ¹ section 1092 to challenge the ordinance on the grounds participants in the proposed transaction violated the conflict of interest provisions of section 1090. Accordingly, we must reverse the trial court's judgment dismissing plaintiff's complaint, which judgment was entered on the grounds plaintiffs do not have standing to challenge the ordinance.

FACTUAL AND PROCEDURAL BACKGROUND

On March 17, 2015, respondents City of San Diego (the city) and Public Facilities Financing Authority (PFFA)² adopted San Diego Ordinance No. 0-20469 and PFFA Resolution No. FA-2015-2, which authorized issuance of 2015 Refunding Bonds (2015 Bonds). The 2015 Bonds, if issued, will refund and refinance the remaining amount owed by the city on bonds issued in 2007 with respect to construction of the baseball stadium at Petco Park.

On May 18, 2015, San Diegans For Open Government (SDFOG) filed a complaint that challenged the validity of the 2015 Bonds. SDFOG alleged that it is a nonprofit taxpayer organization and that at least one of its members is a resident of the city. SDFOG alleged, among other claims, that one or more members of the financing team that participated in preparation of the 2015 Bonds had a financial interest in the sale of the bonds and the existence of that interest in turn gave rise to a violation of section 1090. SDFOG sought, among other remedies, declaratory relief.

Prior to trial on the merits, SDFOG dismissed all of its substantive claims, other than its allegation the city had violated section 1090. Before commencing trial on the merits of SDFOG's section 1090 claim, the trial court asked for and received briefing from the parties with respect to SDFOG's standing. After considering the parties' briefing and the argument of counsel, the trial court determined, as a matter of law, that because SDFOG was not a party to the bond transaction, it lacked standing to pursue a section 1090 challenge. The trial court dismissed SDFOG's complaint, and judgment was entered in the city's favor. SDFOG filed a timely notice of appeal.

I

Where, as here, there is no dispute as to the material facts and the appellant only challenges a trial court's interpretation of law, we review the trial court's ruling de novo. (See Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799, 35 Cal.Rptr.2d 418, 883 P.2d 960.)

II

A. Section 1090

Section 1090, subdivision (a) states: "Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Nor shall state, county, district, judicial district, and city officers or employees be purchasers at any sale or vendors at any purchase made by them in their official capacity."

The important policy embodied in section 1090 requires that its prohibitions be vigorously enforced so that in addition to punishing actual fraud and public malfeasance, public officials are not even tempted to engage in prohibited activity. The court fully set out the policy and the need for vigorous enforcement in Thomson v. Call (1985) 38 Cal.3d 633, 647–649, 214 Cal.Rptr. 139, 699 P.2d 316 ( Thomson ): "In San Diego v. S.D. & L.A. R.R. Co. [ (1872) ] 44 Cal. 106, we recognized the conflict-of-interest statutes' origins in the general principle that ‘no man can faithfully serve two masters whose interests are or may be in conflict’: ‘The law, therefore, will not permit one who acts in a fiduciary capacity to deal with himself in his individual capacity .... For even if the honesty of the agency is unquestioned ... yet the principal has in fact bargained for the exercise of all the skill, ability and industry of the agent, and he is entitled to demand the exertion of all this in his own favor.’ ( 44 Cal. at p. 113.) We reiterated this rationale more recently in Stigall v. City of Taft [ (1962) ] 58 Cal.2d 565[, 570–571, 25 Cal.Rptr. 441, 375 P.2d 289 ( Stigall ) ]: ‘The instant statutes [§ 1090 et seq.] are concerned with any interest, other than perhaps a remote or minimal interest, which would prevent the officials from exercising absolute loyalty and undivided allegiance to the best interests of the city.’ [Citations.]

"In Stigall we relied in part on the reasoning of the United States Supreme Court on a federal penal statute under which a contract was declared to be unenforceable because of a conflict of interest: ‘ "The statute is thus directed not only at dishonor, but also at conduct that tempts dishonor . This broad proscription embodies a recognition of the fact that an impairment of impartial judgment can occur in even the most well-meaning men when their personal economic interests are affected by the business they transact on behalf of the Government. To this extent, therefore, the statute is more concerned with what might have happened in a given situation than with what actually happened. It attempts to prevent honest government agents from succumbing to temptation by making it illegal for them to enter into relationships which are fraught with temptation." ’ ( Stigall , supra , 58 Cal.2d at p. 570, 25 Cal.Rptr. 441, 375 P.2d 289, quoting United States v. Mississippi Valley Generating Co. (1961) 364 U.S. 520, 81 S.Ct. 294, 5 L.Ed.2d 268.) Implicit in this reasoning is the assumption that the purpose of such statutes is ‘not only to strike at actual impropriety, but also to strike at the appearance of impropriety.’ [Citation.]

"It follows from the goals of eliminating temptation , avoiding the appearance of impropriety, and assuring the city of the officer's undivided and uncompromised allegiance that the violation of section 1090 cannot turn on the question of whether actual fraud or dishonesty was involved. Nor is an actual loss to the city or public agency necessary for a section 1090 violation. In Stigall , for example, a city councilman had a financial interest in a plumbing company which submitted the lowest bids for a municipal contract. Taxpayers sued to have the contracts declared void. They did not allege ‘actual improprieties,’ nor did they contend that the contract was unfair, unjust, or not beneficial to the city. [Citation.] On these facts, we nonetheless concluded that the contract violated section 1090, reasoning that the ‘object of these enactments is to remove or limit the possibility of any personal influence, either directly or indirectly which might bear on an official's decision, as well as to void contracts which are actually obtained through fraud or dishonest conduct.’ [Citations.] [We have] observed that ‘it matters not how fair upon the face of it the contract may be, the law will not suffer [the official] to occupy a position so equivocal and so fraught with temptation.’ [Citation.]

"In short, if the interest of a public officer is shown, the contract cannot be sustained by showing that it is fair, just and equitable as to the public entity. Nor does the fact that the forbidden contract would be more advantageous to the public entity than others might be have any bearing upon the question of its validity. [Citation]

"Moreover, California courts have consistently held that the public officer cannot escape liability for a section 1090 violation merely by abstaining from voting or participating in discussions or negotiations. [Citations.] Mere membership on the board or council establishes the presumption that the officer participated in the forbidden transaction or influenced other members of the council. [Citations.] Similarly, the full disclosure of an interest by an officer is also immaterial, as disclosure does not guarantee an absence of influence. To the contrary, it has been suggested that knowledge of a fellow officer's interest may lead other officers to favor an award which would benefit him." ( Thomson, supra , 38 Cal.3d at pp. 647–650, 214 Cal.Rptr. 139, 699 P.2d 316, some italics added, some italics omitted; fns. omitted.)

In Thomson , taxpayers sued the participants in a transaction in which a member of a city council sold property to a third party and the third party then transferred the property to the city as parkland as a means of fulfilling conditions of a development permit granted by the city. The relative innocence of the city council member, Call, did not prevent enforcement of section 1090. "Mitigating factors—such as Call's disclosure of his interest in the transaction, and the absence of fraud— cannot shield Call from liability. Moreover, the trial court's remedy—allowing the city to keep the land and imposing a money judgment against the Calls—is consistent with California law and with the primary policy concern that every public officer be guided solely by the public interest, rather than by personal interest, when dealing with contracts in an official capacity. Resulting in a substantial forfeiture, this remedy provides public officials with a strong incentive to avoid conflict-of-interest situations scrupulously." ( Thomson, supra , 38 Cal.3d at p. 650, 214 Cal.Rptr. 139, 699 P.2d 316, fn. omitted.)

B. Standing Jurisprudence

Although section 1090 was enacted in 1943 (see...