Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_05-cv-00603/USCOURTS-caed-1_05-cv-00603-6/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 28:1332 Diversity-(Citizenship)

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

L.H. MEEKER, et al.,

 Plaintiffs, 

 v. 

BELRIDGE WATER STORAGE

DISTRICT, et al., 

 Defendants.

1:05-CV-00603 OWW SMS

ORDER RE PLAINTIFFS’ MOTION

FOR A CERTIFICATE OF

APPEALABILITY

I. INTRODUCTION

This case concerns water entitlements appurtenant to lands

located in the Belridge Water Storage District (“Belridge”) in

Kern County, California. Some of Plaintiffs’ lands are serviced

by Belridges’ water supply system (“Service Area” or “SA” lands)

while some are not (“Non-Service Area” or “NSA” lands). 

Plaintiffs assert, generally, that Belridge and certain members

of Belridge’s Board of Directors, namely William D. Phillimore,

Robert E. Baker, and Larry Starrh (“Defendants”), violated

various provisions of California law by passing a resolution that

prohibited the transfer of water entitlements from NSA lands to

SA lands. After two rounds of motions to dismiss, all but two of

Plaintiffs’ claims have been eliminated from the case. 

One of the twice-dismissed claims alleged that Belridge’s

Board violated California Government Code § 1090, which prohibits

public officials from being financially interested in any

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contract made by them in their official capacity. Plaintiffs now

move for a certificate of appealability so that they can seek

review of the district court’s dismissal of that claim. (Doc.

94.) Defendants oppose. (Doc. 103.)

II. STANDARD OF REVIEW

The certification of interlocutory appeals is governed by 28

U.S.C. § 1292(b), which provides, in pertinent part:

When a district judge, in making in a civil action an

order not otherwise appealable under this section,

shall be of the opinion that such order involves [1] a

controlling question of law [2] as to which there is

substantial ground for difference of opinion and [3]

that an immediate appeal from the order may materially

advance the ultimate termination of the litigation, he

shall so state in writing in such order...

Whether to permit an interlocutory appeal is vested, in the first

instance, within the discretion of the district court. Conners

B. Lybrand v. Livesay, 437 U.S. 463, 474 (1978). The party

seeking review bears the burden of showing that “exceptional

circumstances justify a departure from the basic policy of

postponing appellate review until after the entry of final

judgment.” Id. at 475; United States Rubber Co. v. Wright, 359

F.2d 784, 785 (9th Cir. 1966)(1292(b) is “to be used only in

extraordinary cases where decisions might avoid protracted and

expensive litigation.”). 

III. ANALYSIS

A. Asserted Factual Errors.

Plaintiffs argue that the district court made certain

erroneous factual assumptions, impliedly asserting that the

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district court relied upon these assumptions to reach an

erroneous legal conclusion. However, rather than moving for

reconsideration or otherwise bringing these potential errors to

the attention of the court, Plaintiffs assert that these errors

justify interlocutory appeal. To fully understand the alleged

factual errors, it is helpful to explain them in the context of

the procedural history of this case. 

Plaintiffs’ original complaint was nineteen pages long,

alleging five causes of action, including a version of the § 1090

claim. Section 1090 prohibits Directors of a water district from

being “financially interested in any contract made by them in

their official capacity, or by any body or Board of which they

are a member.” Cal. Gov. Code § 1090 (emphasis added). The

initial complaint alleged (a) that Defendants Phillimore, Baker,

and Starr, each work for and receive income and benefits from

entities that are parties to the Top Contract, an agreement

between the District and those entities and others for purchase

and use of District water, and (b) that the Top Contract was

entered into in 1999. (Doc. 1 at ¶19.) The initial complaint

did not allege that either Defendant Phillimore, Baker, or Starr

were members of the Belridge Board at the time the Top Contract

was entered into, nor did Plaintiffs explain when Phillimore,

Baker, or Starr became members of the board. Moreover,

Plaintiffs did not allege that the Top Contract itself should be

voided under § 1090 because it had been entered into by an

interested board. Rather, Plaintiffs focused on a subsequent

Board action taken on February 16, 2005, whereby Belridge

prohibited the permanent transfer of water entitlement from NSA

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to SA lands, which prevented Plaintiffs from using NSA water

entitlements on SA lands. The initial complaint did allege that

Phillimore, Baker, and Starr were members of the Board as of

February 16, 2005. Plaintiffs maintained that the February 16,

2005 action constituted a “de facto” amendment to the Top

Contract, because the transfer ban ensured that water would be

available for purchase by the Top Contract parties and not

Plaintiffs, who are thereby prevented from making agricultural

use of their NSA lands in the District. Plaintiffs further

alleged that this February 16, 2005 “de facto” amendment

constituted a violation of § 1090 because it was approved by

directors who held interests in the Top Contract. (See Doc. 1 at

¶78.) 

Defendants moved to dismiss this claim, arguing that the

February 16, 2005 Board action did not constitute the making of a

contract. The district court agreed, reasoning: 

Plaintiffs appear to concede that the Defendant

directors did not actually cause the Top Contract to be

created. The Top Contract was drafted and signed prior

to any of the Defendant Directors becoming members of

the Board. 

Plaintiffs also appear to concede that the February 16,

2005 vote did not expressly “make” a contract. Rather,

Plaintiffs assert that:

The Board’s action at the February 16, 2005

special Board meeting amended the Top Contract

into a permanent contract whereby all of the NSA

entitlement is permanently made available to the

Buyers under the Top Contract, effectively

transforming the Top Contract from an interim or

temporary measure into a permanent arrangement. 

(Doc. 1, Compl., at ¶77.) Essentially, Plaintiffs

argue that the adoption of the policy was a de facto

contract amendment, “insuring a supply of seized NSA

water to Top Contract buyers.” (Doc. 25 at 12.) 

Plaintiffs offer no legal support for the proposition

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that liability under § 1090 may be triggered by such an

implied amendment. (The appropriate legal remedy

appears to be under the PRA.)

Plaintiffs also suggest that Milbrae and its progeny

call upon courts to read [] the statutory language

liberally. For example, in Thomson v. Call, 38 Cal. 3d

633 (1985), a complex, multi-party contract transaction

was found to be “part of a single multiparty

agreement.” It was therefore improper for a city

councilman, whose own property was acquired in one of

the more tangential transactions, to have participated

in the making of any of the interrelated contracts:

[T]he prospect that performance of the contract

would involve acquisition of the [councilman’s

land and conveyance of that land to the city was

contemplated by all parties....[T]he policy goals

of section 1090 support the rule that public

officers “are denied the right to make contracts

in their official capacity with themselves or to

become interested in contracts thus made.”

Id. at 645. A similarly broad view of the meaning of

the term “contract” was taken in People v. Honig, 48

Cal. App. 4th 289 (1996). In that case, a state

educational official was married to the founder and

director of a nonprofit corporation involved in

education. At this official’s direction, grants were

made by the state to certain school districts. But,

these funds were actually used to pay the salaries of

employees who worked for his wife’s nonprofit

organization. The official was found to have violated

§ 1090 because he had indirectly caused the improper

contracts to be made. The Honig court reasoned:

In considering conflicts of interest we cannot

focus upon an isolated 'contract' and ignore the

transaction as a whole. It appears clear that the

payment of DOE funds to the school districts, the

districts' payment of those funds to QEP employees

in the form of continued salaries and benefits,

and the employees' work for QEP, were in

performance of single multiparty agreements. In

short, defendant simply used the school district

contractors as conduits to funnel DOE funds to

individuals as compensation for working for his

wife's corporate employer. The use of a third

party as a contractual conduit does not avoid the

inherent conflict of interest in such a

transaction. 

Id. at 320. See also People v. Gnass, 101 Cal. App.

4th 1271, 1293 (2002)(“[T]he test is whether the

officer or employee participated in the making of the

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Based on the allegations contained in the initial 1

complaint, the district court had no notice that Plaintiffs

disputed this assumption. Moreover, the absence of any

allegation that the Top Contract should be voided under § 1090

because it was originally entered into by interested directors

necessarily suggested that the Defendant Directors were not on

the Board at the time the Top Contract was signed. The absence

of any such allegation is also explained by the fact that such a

claim might be barred by the statute of limitations. 

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contract in his official capacity.”). 

Although these cases take a broad view of the term

contract, Plaintiffs suggest an even broader

interpretation of § 1090. Under Plaintiffs’

interpretation, any vote of a government official that

advances an independent existing contractual interest

held by that government official would be prohibited by

§ 1090. Plaintiffs essentially argue that § 1090

should be read to subsume any action that advances a

contractual interest. This in effect rewrites § 1090. 

(Noticeably, § 1090 lacks the “public generally”

exception which threatens Plaintiffs’ PRA claim.) The

Belridge Board’s vote on the transfer of NSA water is

not a “contract made” by the Board, unless an agreement

between the district and the Top Contractors results

from the vote. Defendants’ motion to dismiss the §

1090 claim is GRANTED WITH LEAVE TO AMEND.

(Doc. 48 at 38-41 (emphasis added).) 

Plaintiffs now argue that the court erred in assuming that

Plaintiffs “concede[ed] that the Defendant directors did not

actually cause the Top Contract to be created.” However, at no

time after the issuance of the the January 17, 2006 order, until

the filing of their motion for a certificate of appealability,

almost one year later, did Plaintiffs ever move for

reconsideration or to otherwise correct the court’s “error.”1

Plaintiffs then filed a thirty eight page first amended

complaint (Doc. 49), and then, by stipulation, a second amended

complaint (Docs. 62 & 63). The second amended complaint, which

was fifty eight pages long, advanced fifteen separate claims,

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most of them entirely new. (Doc. 62.) 

Among the many new claims, Plaintiffs again included a 

§ 1090 claim, advancing four separate theories:

(a) That “[t]he February 16, 2005 Board Meeting was the

‘making’ of a contract under the guise of being a

policy change. The law does not reward form over

substance.” (SAC at ¶28.)

(b) That “[t]he Top Contract is void under § 1090 because

it requires the making of a contract each year.” (SAC

at ¶31.)

(c) That “[t]he Joint Defense Agreement is a void contract

under § 1090 because it is the making of a contract.” 

(SAC at ¶32.)

(d) That “[t]he November 1, 2005 Board Decision is the

making of a contract and void under § 1090.” (Id.)

In the General Background section of the SAC, Plaintiffs

specifically allege that Defendants Starr, Phillimore, and Baker

became members of the Board in 1998; and that all of them signed

the Top Contract, on behalf of the District and/or various

entities that were parties to the Top Contract. However, nowhere

did Plaintiffs clearly point out to the court that this fact

contradicted the court’s prior assumption that Plaintiffs had

“concede[ed] that the Defendant directors did not actually cause

the Top Contract to be created.” Moreover, nowhere did

Plaintiffs allege in the SAC that the Top Contract was void when

it was entered into in 1999 because interested directors sat on

the Board at that time.

Defendants again moved to dismiss all but two of the claims

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in the SAC, including the § 1090 claim. In an October 23, 2006

memorandum decision, the district court dismissed the renewed 

§ 1090 claim. The district court first quoted its reasoning from

the January 17, 2006 order, including the language which

expressed the assumption that Plaintiffs had conceded the

defendant Directors did not cause the Top Contract to be formed. 

Plaintiffs now suggest that the reiteration of this language

somehow tainted the district court’s dismissal of the renewed 

§ 1090 claim. However, the district court did not materially

rely upon this language, as the SAC asserts no claim regarding

the initial formation of the Top Contract. 

The district court rejected each of the four theories

advanced by Plaintiffs in support of their renewed § 1090 claim.

Of particular concern to Plaintiffs is one other part of the

district court’s October 23, 2006 order. In addressing

Plaintiffs’ argument that the Top Contract required the making of

a contract each year, the district court reasoned:

...Specifically, the standard provisions set forth in

the Top Contract require the Board to determine charges

for water distribution each year. Plaintiffs maintain

that this procedure requires the board to “re-make” the

top contract each year. 

Plaintiffs cite City of Imperial Beach v. Bailey,

103 Cal. App. 3d 191 (1980) in support of their

position. In that case, the operator of a concession

stand under contract with the city was later elected to

become a member of the city council. Id. at 194. A

provision of the concession contract provided that on

the fifteenth anniversary of the agreement, ownership

of the building in which the concession was housed

would pass to the city and that “[a]t the end of said

fifteen year period City may reasonably adjust the rate

of payment to be paid by Operator to City to reflect

the fact that City owns the building.” Id. When the

concession contract came up for renewal, the operator

was still a member of the city council. The city

refused to renew the contract, citing § 1090, and

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sought a declaration as to the legality of its refusal. 

Imperial Beach first held that the renewal would

constitute the making of a contract which would violate

§ 1090. The court reasoned that adjustment of the rate

on the fifteen year anniversary would require a

“negotiation” prohibited by § 1090, even if the city

set the rate unilaterally (i.e., without negotiating

with the concession) and even if the conflicted council

member abstained from voting. Id. at 195. The

critical inquiry was whether the council was required

to approve the rate: “It is not her participation in

the voting which constitutes the conflict of interest,

but her potential to do so.” Id.

Plaintiffs allege that the Top Contract must be

voided under § 1090 because it “require[s] the Board to

determine charges for water distribution in the October

Board Meeting each year,” just like the Imperial Beach

contract required “a concession price be inserted for

each year the contract was in force.” (SAC at ¶¶ 161-

62.) First, Plaintiffs misrepresent the nature of the

contract in Imperial Beach. As discussed, that

contract permitted a rate adjustment on the fifteen

year renewal date. Nothing in Imperial Beach suggests

that a “concession price [must] be inserted for each

year the contract was in force.” Moreover, while the

contract in Imperial Beach was explicitly subject to

renewal on the fifteen year anniversary, the Top

Contract contains no annual renewal provision. 

Plaintiffs correctly point out that charges for water

distribution must be calculated each year, and appear

to suggest that this annual calculation constitutes the

type of “negotiation” prohibited in Imperial Beach. 

However, the charges for water distribution are

calculated according to a pre-determined mathematical

formula and are part of the inherent functions of a

water district in providing water services to its

members. Moreover, nothing in the Top Contract speaks

of annual renewal of the contract at the time of the

rate-setting, nor is it alleged that the Top Contract

requires Board approval of the new rate. 

(Doc. 91 at 29-31.) For the first time in their reply brief,

Plaintiffs assert that the district court made an additional

factual error by assuming that the Top Contract calculated

charges for water distribution according to a “pre-determined

mathematical formula.” But, again, Plaintiffs never brought this

asserted factual “error” to the court’s attention after the

issuance of the October 23, 2006 order. Plaintiffs assert that

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The only remotely responsive citation provided by 2

Plaintiffs is Aetna Life Insurance Co. v. Haworth, 300 U.S. 227,

240-241 (1937), which holds that courts do not have the power to

render advisory opinions based on hypothetical facts. Aetna says

nothing, however, about whether issues of fact or mixed questions

of fact and law may be certified for interlocutory review. 

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this assumption is “important because it [was] used to

distinguish City of Imperial Beach.” 

Critically, Plaintiffs here seek permission to file an

interlocutory appeal. Yet, they entirely fail to explain how

these alleged errors of fact fit within the 1292(b) framework,

which permits interlocutory appeals to be taken only on

“controlling questions of law.” Although the Ninth Circuit has

not directly spoken on the issue, it is generally accepted that

“[q]uestions of fact, questions as to how agreed-upon law should

be applied to particular facts, or questions regarding the manner

in which the trial judge exercised his or her discretion may not

be properly certified for interlocutory review.” 2. Fed. Proc.,

L. Ed., § 3:210 (citing cases from within the Second, Third and

Fifth circuits). The appropriate mechanism for redress of 2

factual errors is a motion for reconsideration, not an

interlocutory appeal. Such a motion permits the district court

to consider whether its decision should have been modified in

light of different facts that were not specifically alleged in

the amended complaint. During oral argument, the parties agreed

to stipulate to the facts that needed correction. Their

stipulation was entered on February 5, 2007. (Doc. 111.) 

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B. Does Plaintiffs’ Request Otherwise Satisfy § 1292(b). 

Plaintiffs generally argue that the district court’s

rejection of their § 1090 claim presents “[1] a controlling

question of law [2] as to which there is substantial ground for

difference of opinion and [3] that an immediate appeal from the

order may materially advance the ultimate termination of the

litigation.” 28 U.S.C. § 1292(b). 

Plaintiffs suggest that the controlling question of law here

is “whether an action taken by the Board of a public entity,

which necessarily results in the amendment of a contract,

violates [] § 1090.” (Doc. 95 at 8.) An issue is controlling if

it would “materially affect the outcome of litigation in the

district court.” In re Cement Antitrust Litig., 673 F.2d 1020,

1026 (9th Cir. 1982). Here, Plaintiffs’ success on appeal would

materially affect the outcome of the litigation in the district

court. Although Plaintiffs’ related Political Reform Act (“PRA”)

claim, Cal. Gov. Code § 87100, remains in the case, the PRA claim

is not identical to the dismissed § 1090 claim. For instance,

while success under either the PRA and § 1090 claims would result

in nullification of the challenged Board action, it appears that

§ 1090 claim requires a more straightforward evidentiary showing. 

Specifically, to obtain nullification, § 1090 requires only that

the Board member vote on the challenged action in which they

alleged to have an interest, facts which are not disputed in this

case. The PRA contains several exceptions, the application of

which may require evidence regarding the interested Board

members’ land and water holdings. (See Doc. 48 at 29-38.)

The third requirement for an interlocutory appeal –- that

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the appeal must be likely to materially speed the termination of

the litigation –- is closely linked to the question of whether an

issue of law is “controlling,” because the district court should

consider the effect of a reversal on the management of the case. 

In Re Cement Antitrust Litig., 673 F.2d at 1026. Here, if

Plaintiffs are successful on interlocutory appeal, the strength

of their overall case would be greatly enhanced.

Finally, Plaintiffs argue that there is substantial ground

for a difference of opinion on the controlling issue, because

California courts have generally adopted a broad interpretation

of § 1090. Specifically, Plaintiffs argue: 

The court in Millbrae Assn for Residential

Survival v. City of Millbrae, 262 Cal.App.2d (1968),

237 [sic] provides that the concept “making of a

contract” should be used in a wide sense.

Although section 1090 refers to a contract "made"

by the officer or employee, the word "made" is not

used in the statute in its narrower and technical

contract sense but is used in the broad sense to

encompass such embodiments in the making of a

contract as preliminary discussions, negotiations,

compromises, reasoning, planning, drawing of plans

and specifications and solicitation for bids.

(citation omitted). Such construction is

predicated upon the rationale that government

officers and employees are expected to exercise

absolute loyalty and undivided allegiance to the

best interests of the governmental body or agency

of which they are officers or employees, and upon

the basis that the object of such a statute is to

remove or limit the possibility of any personal

influence, either directly or indirectly which may

bear on an officer's or employee's decision.

(Citation omitted).

If the “making of a contract” encompasses such

activities as preliminary discussions, negotiations,

and reasoning, it should include direct action which

effects a contact to which the government officer’s

employer is a beneficiary and party, where the action

enhances the benefits accruing to the official’s

employer from the contract.

(Doc. 95 at 8-9.) 

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But, Defendants correctly point out that a plaintiff’s

disagreement with the district court’s ruling is not sufficient

to establish that a substantial ground for difference of opinion

exists. See Hansen v. Schubert, 459 F. Supp. 2d 973 (E.D. Cal.

2006)(“A party’s strong disagreement with the court’s ruling is

not sufficient for there to be a ‘substantial ground for

difference’; the proponent of an appeal must make some greater

showing.”). In support of their assertion that there are

substantial grounds for a difference of opinion about the scope

of § 1090, Plaintiffs cite Thompson v. Call, 38 Cal. 3d 633, 645

(1985), for the proposition that California courts have voided

contracts under § 1090 where the public officer was found to have

an indirect interest in the contract. Thompson was cited in

support of the first motion to dismiss along with several related

cases. The district court discussed those cases in the January

17, 2006 order:

Plaintiffs also suggest that Milbrae and its progeny

call upon courts to read [] the statutory language

liberally. For example, in Thomson v. Call, 38 Cal. 3d

633 (1985), a complex, multi-party contract transaction

was found to be “part of a single multiparty

agreement.” It was therefore improper for a city

councilman, whose own property was acquired in one of

the more tangential transactions, to have participated

in the making of any of the interrelated contracts:

[T]he prospect that performance of the contract

would involve acquisition of the [councilman’s

land and conveyance of that land to the city was

contemplated by all parties....[T]he policy goals

of section 1090 support the rule that public

officers “are denied the right to make contracts

in their official capacity with themselves or to

become interested in contracts thus made.”

Id. at 645. A similarly broad view of the meaning of

the term “contract” was taken in People v. Honig, 48

Cal. App. 4th 289 (1996). In that case, a state

educational official was married to the founder and

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director of a nonprofit corporation involved in

education. At this official’s direction, grants were

made by the state to certain school districts. But,

these funds were actually used to pay the salaries of

employees who worked for his wife’s nonprofit

organization. The official was found to have violated

§ 1090 because he had indirectly caused the improper

contracts to be made. The Honig court reasoned:

In considering conflicts of interest we cannot

focus upon an isolated 'contract' and ignore the

transaction as a whole. It appears clear that the

payment of DOE funds to the school districts, the

districts' payment of those funds to QEP employees

in the form of continued salaries and benefits,

and the employees' work for QEP, were in

performance of single multiparty agreements. In

short, defendant simply used the school district

contractors as conduits to funnel DOE funds to

individuals as compensation for working for his

wife's corporate employer. The use of a third

party as a contractual conduit does not avoid the

inherent conflict of interest in such a

transaction. 

Id. at 320. See also People v. Gnass, 101 Cal. App.

4th 1271, 1293 (2002)(“[T]he test is whether the

officer or employee participated in the making of the

contract in his official capacity.”). 

Although these cases take a broad view of the term

contract, Plaintiffs suggest an even broader

interpretation of § 1090. Under Plaintiffs’

interpretation, any vote of a government official that

advances an independent existing contractual interest

held by that government official would be prohibited by

§ 1090. Plaintiffs essentially argue that § 1090

should be read to subsume any action that advances a

contractual interest. This in effect rewrites § 1090. 

(Noticeably, § 1090 lacks the “public generally”

exception which threatens Plaintiffs’ PRA claim.) The

Belridge Board’s vote on the transfer of NSA water is

not a “contract made” by the Board, unless an agreement

between the district and the Top Contractors results

from the vote. Defendants’ motion to dismiss the §

1090 claim is GRANTED WITH LEAVE TO AMEND.

(Doc. 48 at 39-41.)

Although Thompson and Honig do support the proposition that

contracts which indirectly affect a Director’s interests may be

covered by § 1090, the district court concluded that these cases

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Plaintiffs suggest that the district court’s decision 3

to distinguish Imperial Beach was erroneous because the district

court relied upon an improper factual assumption. Even if the

district court relied on erroneous facts, this does not justify

an interlocutory appeal if the law was clear. Plaintiffs offer

no other authority which calls into question the district court’s

conclusion regarding the applicability of Imperial Beach.

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do not support Plaintiffs’ broader assertion that § 1090 should

be applied to non-contractual Board actions which happen to

advance a Director’s previously formed contract interests. While

City of Imperial Beach v. Bailey, 103 Cal. App. 3d 191 (1980),

does expand the reach of § 1090 to certain non-contractual

actions which would amount to a de facto contract renegotiation,

the district court distinguished Bailey on a number of grounds.3

As a practical matter, directors of water districts are

likely to have some contractual in any water allocation decisions

made by the district. Under Plaintiffs’ interpretation of 

§ 1090, no water districts could ever vote on water allocation

decisions. However, the issue is one of first impression in

California and the applicability of § 1090 to the facts of this

case is a close call, particularly in light of the state cases

which suggest courts should construe § 1090 liberally. There is

a substantial basis for differences of opinion on the merits of

Plaintiffs’ § 1090 claim.

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Whether the action taken by the Belridge Board on November

1, 2005, prohibiting the permanent transfer of NSA water to SA

land, violates § 1090 because it constituted a “de facto”

amendment of the Top Contract is a controlling question of law as

to which there is substantial ground for difference of opinion. 

An immediate appeal from the order may materially advance the

ultimate termination of the litigation. 

IV. CONCLUSION

For the reasons set forth above, Plaintiffs’ motion for a

certificate of appealability as to this issue is GRANTED.

IT IS SO ORDERED.

Dated: March 12, 2007 /s/ Oliver W. Wanger 

b2e55c UNITED STATES DISTRICT JUDGE

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