San Mateo Union High Sch. Dist. v. Cnty. of San Mateo

• Decision Date: 31 January 2013
• Docket Number: A134543
• Court: California Court of Appeals Court of Appeals
• Parties: SAN MATEO UNION HIGH SCHOOL DISTRICT et al., Plaintiffs and Appellants, v. COUNTY OF SAN MATEO et al., Defendants and Respondents.

SAN MATEO UNION HIGH SCHOOL DISTRICT et al., Plaintiffs and Appellants, v. COUNTY OF SAN MATEO et al., Defendants and Respondents.

A134543

COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION ONE

Filed: January 31, 2013

CERTIFIED FOR PUBLICATION

(San Francisco County Super. Ct. No. CGC-11-506958)

This appeal has been taken from the trial court's ruling that sustained defendants' demurrer to all the causes of action of plaintiffs' complaint and dismissed the action. We find that plaintiffs cannot properly state a cause of action for breach of contract, and defendants have public entity immunity from the remaining noncontractual causes of action. We therefore affirm the judgment.

STATEMENT OF FACTS AND PROCEDURAL HISTORY

Plaintiffs in the present action are school districts that invested money in the San Mateo Pooled Investment Fund (the Pool), managed and operated by defendants San Mateo County (the County) and former County Treasurer Lee Buffington. A portion of the Pool was invested by defendants in nine notes issued by Lehman Brothers Holdings, Inc. (Lehman). When Lehman declared bankruptcy in September of 2008, the Pool lost approximately $155 million, plaintiffs' share of which was approximately $20 million.

After plaintiffs and defendants engaged in unsuccessful settlement discussions, and defendants rejected plaintiffs' formal written notice of tort claim (Gov. Code, §§ 905,945.4),¹ plaintiffs filed a complaint against defendants on January 4, 2011. Defendants' demurrer to the complaint was sustained with leave to amend.

Plaintiffs subsequently filed the pleading at issue here, the first amended complaint (the complaint), which included causes of action for breach of contract, statutory violations of the prudent investor standards (§§ 27000.3, 53600.3), violations of the statutory maximum securities maturity limits (§ 53601), and violations of the County's investment policies. Defendants again demurred to the complaint on grounds that plaintiffs failed to timely file a tort claim, immunity from liability for alleged statutory violations, and failure to properly allege a cause of action for breach of contract. Following a hearing the trial court sustained the demurrer without leave to amend. The court found that plaintiffs "failed to plead a cause of action for breach of contract," and defendants were "immune from liability pursuant to Government Code sections 815 and 820.2."² This appeal followed entry of judgment in favor of defendants.

DISCUSSION

Plaintiffs argue that the trial court erred by sustaining defendants' demurrer without leave to amend. They claim that the County and Buffington are not immune from liability for violations of the mandatory prudent investor standard or the statutory "maturity limits" requirements. Plaintiffs also assert that they have properly pled a cause of action for breach of contract.

We review the trial court's ruling that sustained the demurrer to each cause of action of the pleading in accordance with established standards. "A demurrer tests the sufficiency of the complaint as a matter of law; as such, it raises only a question of law." (Osornio v. Weingarten (2004) 124 Cal.App.4th 304, 316 .) " 'The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. [Citations.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.]The judgment must be affirmed "if any one of the several grounds of demurrer is well taken. [Citations.]" [Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. [Citation.]' [Citation.]" (Bagatti v. Department of Rehabilitation (2002) 97 Cal.App.4th 344, 352 ; see also Lee v. Blue Shield of California (2007) 154 Cal.App.4th 1369, 1377-1378 .)

The material allegations in the action filed by plaintiff "must be accepted as true. [Citations.] In addition, the Supreme Court has held: ' "[T]he allegations of the complaint must be liberally construed with a view to attaining substantial justice among the parties." [Citations.]' [Citations.]" (C.J.L. Construction, Inc. v. Universal Plumbing (1993) 18 Cal.App.4th 376, 382-383 .) "In addition to the complaint's allegations, we consider matters that must or may be judicially noticed. [Citations.] We also consider the complaint's exhibits." (Hoffman v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th 390, 400 ; see also Banis Restaurant Design, Inc. v. Serrano (2005) 134 Cal.App.4th 1035, 1044-1045 .)

Our task as a "reviewing court, therefore, 'is to determine whether the pleaded facts state a cause of action on any available legal theory.' [Citation.]" (Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 266 .) "If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer." (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 [77 Cal.Rptr.2d 709, 960 P.2d 513].) However, "We may affirm a trial court judgment on any basis presented by the record whether or not relied upon by the trial court." (State of California ex rel. Metz v. CCC Information Services, Inc. (2007) 149 Cal.App.4th 402, 412 .)

"On appeal from a judgment of dismissal after a demurrer has been sustained without leave to amend, the plaintiff has the burden of proving error. [Citation.] 'Because the trial court's determination is made as a matter of law, we review the rulingde novo.' [Citation.]" (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315 .)

I. The Public Entity Tort Liability of the County for Statutory Violation of the Prudent Investor Standard.

Plaintiffs' second cause of action asserts that defendants violated sections 27000.3 and 53600.3, which articulate the "prudent investor standard" governing investments by a county treasurer, in this case defendant Buffington, who has been delegated investment authority by the county board of supervisors.³ Both statutes provide that the county treasurer shall serve as a fiduciary when investing or managing funds deposited with the county treasury, and "shall act" according to the "prudent investor standard," with the "care, skill, prudence, and diligence under the circumstances then prevailing," to safeguard the principal and maintain the liquidity needs of the county and the depositors.⁴(Italics added.) The essence of the alleged statutory violation of the prudent investor standard is that defendants "invested an excessive portion of the Pool's funds in Lehman," failed to diversify the investment portfolio, and failed to recognize the foreseeable, impending collapse of Lehman.

The liability of defendants for alleged acts that violated the prudent investor standard requires analysis of public entity immunity. Public entities in California are not liable for tortious injury unless liability is imposed by statute. (§ 815.) "[S]overeign immunity is the rule in California; governmental liability is limited to exceptions specifically set forth by statute." (Cochran v. Herzog Engraving Co. (1984) 155 Cal.App.3d 405, 409 ; see also Guzman v. County of Monterey (2009) 178 Cal.App.4th 983, 990-991 .) Section 815 provides "that public entity tort liability is exclusively statutory: 'Except as otherwise provided by statute: [¶] (a) A public entity is not liable for an injury, whether such injury arises out of an act or omission of the public entity or a public employee or any other person.' " (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 868 [138 Cal.Rptr.3d 1, 270 P.3d 699].) " 'This section abolishes all common law or judicially declared forms of liability for public entities, except for such liability as may be required by the state or federal constitution, e.g., inverse condemnation. In the absence of a constitutional requirement, public entities may be held liable only if a statute (not including a charterprovision, ordinance or regulation) is found declaring them to be liable. . . . [¶] . . . [¶] . . . [T]here is no liability in the absence of a statute declaring such liability.' (Legis. Com. com., 32 West's Ann. Gov. Code (1995 ed.) foll. § 815, p. 167.)" (Corona v. State of California (2009) 178 Cal.App.4th 723, 728 .)

This means that the " 'liability of public entities must be based on a specific statute declaring them to be liable, or at least creating some specific duty of care' " to the plaintiff. (All Angels Preschool/Daycare v. County of Merced (2011) 197 Cal.App.4th 394, 400 , quoting Eastburn v. Regional Fire Protection Authority (2003) 31 Cal.4th 1175, 1183 [7 Cal.Rptr.3d 552, 80 P.3d 656] (Eastburn).) "The law's clear purpose was ' " 'not to expand the rights of plaintiffs in suits against governmental entities, but to confine potential governmental liability to rigidly delineated circumstances.' " ' [Citation.]" (Ellerbee v. County of Los Angeles (2010) 187 Cal.App.4th 1206, 1214 .)

To impose liability on defendants for the claimed violation of the prudent investor standard, plaintiffs rely on section 815.6, which explicitly provides a statutory basis for direct liability of a public entity. (Eastburn, supra, 31 Cal.4th 1175, 1180.) Section 815.6 declares: "Where a public entity is under a mandatory duty imposed by an enactment that is designed to protect against the risk of a particular kind of injury, the public entity is liable for an injury of that kind proximately caused by its failure to discharge the duty unless the public entity establishes that it exercised reasonable diligence to discharge the duty." (Italics added.) Plaintiffs argue that use of the term "shall" in sections 27000.3 and 53600.3 imposes "a 'mandatory duty' " to comply with the prudent investor standard "for purposes of section 815.6 liability." Theref...