Source: https://caselaw.findlaw.com/ca-court-of-appeal/1697560.html
Timestamp: 2019-04-19 03:34:36+00:00

Document:
GOLDEN STATE WATER COMPANY, Plaintiff and Appellant, v. CASITAS MUNICIPAL WATER DISTRICT et al., Defendants and Respondents.
Manatt, Phelps & Phillips, Michael M. Berger, George M. Soneff, Edward G. Burg, and Benjamin G. Shatz, for Plaintiff and Appellant. Nossaman, Stephen N. Roberts, Martin A. Mattes, and Mari R. Lane for Park Water Company and California Water Association as Amicus Curiae on behalf of Plaintiff and Appellant. Rutan & Tucker and Jeffrey M. Oderman for Defendants and Respondents Casitas Municipal Water District and Casitas Municipal Water District Community Facilities District No. 2013–1 (Ojai). Best Best & Krieger, Kendall MacVey, and Kira L. Klatchko for Association of California Water Agencies, League of California Cities, California State Association of Counties, and California Special Districts Association as Amicus Curiae on behalf of Defendants and Respondents. Ryan Blatz Law and Ryan Blatz; Law Offices of Ball and Yorke and Esther R. Sorkin for Defendants and Respondents Ojai Friends of Locally Owned Water, Richard H. Hajas, Dale Hanson, Patrick McPherson, Robert R. Daddi, Louis Torres, and Stanley Greene.
Golden State is unwilling to sell its business. Casitas therefore plans to acquire the assets by eminent domain. Golden State contends that the Mello–Roos Act cannot be used to finance eminent domain actions or to acquire intangible property. We disagree. The Act facilitates the purchase of property regardless of whether the seller consents to the sale or is compelled under force of law. Moreover, financing the acquisition of intangible property incidental to the real or tangible property being purchased is consistent with the Act's text and purpose. Accordingly, we affirm.
Casitas is a publicly owned water utility encompassing 140 square miles in western Ventura County. Its territory includes the City of Ojai, but for historical reasons most of Ojai and some adjacent areas receive water from Golden State. Golden State charges its customers rates that are more than double those charged by Casitas, and the disparity is growing. Over a 20–year period, Golden State's average annual rate increase was nearly twice that of Casitas.
After several failed attempts to redress their grievances with the Public Utilities Commission (PUC), Golden State's regulatory agency, local residents formed respondent Ojai Friends for Locally Owned Water (Ojai FLOW), an interest group “with the intent to declare independence from the economic tyranny of Golden State.” Ojai FLOW, supported by Ojai's city council and more than 1,900 registered voters, petitioned Casitas to take over Golden State's water service in Ojai.
Casitas concluded that the Ojai community would benefit from having its water utility run by a locally controlled entity rather than an out-of-area corporation seeking to maximize profits for its owners. Casitas's board members live in the community and its customers have the right to participate in management decisions. Unlike Golden State, Casitas is subject to the Brown Act (§ 54950 et seq.) and the California Public Records Act (§ 6250 et seq.), and its meetings are conducted in public within its service area. Under Proposition 218 (Cal. Const., art. XIII D), Casitas's rates can be reduced by a majority of voters in its service area. (Bighorn–Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, 217.) The only recourse for Golden State's customers is to contend with the formal PUC process involving officials and staff located hundreds of miles away, whereas Casitas's customers can express their wishes at the local level.
Casitas determined that the Mello–Roos Act would be an appropriate means of financing the transaction in light of its objective to place the financial burden on Ojai residents rather than on its existing water customers. Pursuant to the Act, Casitas formed a community facilities district, respondent Casitas Municipal Water District Community Facilities District No. 2013–1 (Ojai) (Casitas CFD). Casitas passed resolutions listing the facilities to be acquired, declaring the necessity of raising bond revenue to finance their acquisition, and submitting the matter to voters for their approval in a special election. The ballot measure asked voters to authorize Casitas CFD to issue up to $60 million in bonds “to finance the acquisition of [Golden State's] property and property rights” in Ojai. To pay for the bonds, a special tax would be levied on property in Casitas CFD.
Golden State filed a reverse validation complaint and petition for writ of mandate (Code Civ. Proc., §§ 860 et seq., 1085) seeking to invalidate and set aside Casitas's resolutions. The trial court stayed the case until after the vote. At the single-issue special election that drew in more than half of eligible voters, 87 percent of the electorate approved the measure. The trial court subsequently ruled against Golden State on all issues and entered judgment in favor of respondents.
Golden State concedes that Casitas may lawfully exercise the power of eminent domain (Wat.Code, § 71693) but asserts that “Mello–Roos is not the only way to finance property acquisition.” Golden State is “sure that [Casitas] can come up with other alternatives.” For example, Golden State suggests that Casitas could issue revenue bonds (id. § 71853) or form an improvement district to issue bonds (id. § 71870). Respondents dispute this assertion, arguing that “Mello–Roos financing is the only viable ‘tool for the job’ ” and that other methods are impractical.
Although we can evaluate the legality of alternative financing methods, the trial court first would have to assess their feasibility. (People v. Superior Court (Plascencia) (2002) 103 Cal.App.4th 409, 415 [trier of fact must conduct evidentiary hearing when “resolution of the question of standing turn [s] upon disputed issues of material fact”].) We will not remand to the trial court to make the factual determination on which Golden State's standing turns, however, because respondents do not contest the issue (see Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232, 1240 & fn. 2), because addressing the merits is in the public interest (see California Water & Telephone Co. v. County of Los Angeles (1967) 253 Cal.App.2d 16, 26), and because we can resolve the appeal more easily by reaching the merits (see California Medical Assn. v. Brown (2011) 193 Cal.App.4th 1449, 1465 & fn. 2).
The Mello–Roos Act “provides an alternative method of financing certain public capital facilities and services.” (§ 53311.5.) Although it was designed for use “especially in developing areas and areas undergoing rehabilitation” (ibid.), it is not limited to such contexts.
With respect to “facilities,” the Act authorizes a community facilities district to “finance the purchase, construction, expansion, improvement, or rehabilitation of any real or other tangible property with an estimated useful life of five years or longer or [to] finance planning and design work that is directly related to the purchase, construction, expansion, or rehabilitation of any real or tangible property.” (§ 53313.5.) The issue here is whether a “purchase” must be voluntary for both parties or whether the term includes compensation for facilities acquired by the local agency through its eminent domain power. We conclude that the latter construction of the statute is more plausible and better effectuates the drafters' intent.
Golden State points out that the Legislature considered including the term “eminent domain” in an early draft of the Act and argues that its ultimate exclusion signals an intent to prohibit this mode of acquisition. It is true that, “[a]s a general principle, the Legislature's rejection of specific language constitutes persuasive evidence a statute should not be interpreted to include the omitted language. [Citation.]” (Doe v. Saenz (2006) 140 Cal.App.4th 960, 985.) That principle, however, has no application here.
The bill, as originally drafted, would have amended the Streets and Highways Code to authorize local agencies to create a new type of assessment district. Borrowing language from another assessment district statute (Sts. & Hy.Code, § 5023.1), the original bill defined “acquisition” to mean, among other things, “[a]ny real property, rights-of-way, easements, or interests in real property, acquired or to be acquired by gifts, purchase, or eminent domain, and which are necessary or convenient in connection with the construction or operation of any facility or the provision of any service authorized․” This definition generated no comment or criticism.
The bill nonetheless faced substantial opposition for an unrelated reason: it was seen as an attempt to circumvent the requirement in Proposition 13 that any new special taxes receive approval by two-thirds of voters. (Cal. Const., art. XIII A, § 4.) The Legislative Counsel expressed concern that the bill “may be determined by the courts to authorize a special tax” because it would have allowed an assessment district to authorize, upon a majority vote, assessments for purposes such as “police and fire protection facilities, libraries, [and] park and recreation facilities.” These facilities “historically [had] been supported by property tax revenues.” The California Chamber of Commerce, the California Taxpayers' Association, the California Association of Realtors, and others expressed similar views that the bill as drafted was unconstitutional.
Subsequently, the bill was amended with the current statutory language: “A community facilities district may be established ․ to provide for the purchase, construction, expansion, or rehabilitation of any real or other tangible property with an estimated useful life of five years or longer․” (Italics added.) The word “provide” was expanded upon to illustrate its broad sweep rather than to limit its scope.
Golden State asserts that the Legislature never could have intended the Mello–Roos Act to be used to finance something as speculative as an eminent domain acquisition. There are two problems with this argument. First, Golden State cites no authority for the proposition that Mello–Roos financing is available only for investments with certain outcomes. Assessment districts, which function similarly to community facilities districts, can acquire property through eminent domain notwithstanding the risks. (Sts. & Hy.Code, § 5023.1, subd. (c).) Second, acquisition by eminent domain is no more risky than acquisition by a negotiated purchase. Just as a court may determine the property's valuation to be in excess of the available funds, a voluntary seller might make a similarly excessive demand, particularly in the presence of other market participants offering competing bids. In either case, the special agency would have to seek authorization from the voters for additional funds. (§ 53338, subd. (b).) And the possibility that the voluntary seller will pull out of the negotiations or sell to a third party is just as real as the possibility that a court will rule a local agency lacks the power to condemn. In either case, money will have been spent fruitlessly.
It is undisputed that Casitas has the power of eminent domain.4 For the reasons discussed, we hold that its condemnation of property pursuant to that power qualifies for Mello–Roos financing as a “purchase” of facilities.
Golden State contends that the Mello–Roos Act cannot be used to finance the purchase of intangible property or property rights. In a limited sense, this is accurate. “A community facilities district may ․ finance the purchase ․ of any real or other tangible property with an estimated useful life of five years or longer or ․ planning and design work that is directly related [there]to․” (§ 53313.5.) Thus, a community facilities district may not directly purchase intangible property. Borrowing one of Golden State's examples, a community facilities district cannot be created to purchase pencils because their useful life is not five years or longer.
Mello–Roos funding could be used, however, to purchase a pencil factory. Such an acquisition would almost certainly include the factory's current stock of pencils as well as its existing contractual obligations to buy raw materials for manufacturing additional pencils. The Act permits financing the acquisition of the pencils and the contractual obligations because they are “costs and estimated costs incidental to, or connected with, the accomplishment of the purpose for which the proposed debt is to be incurred.” 5 (§ 53345.3; accord, § 53317, subd. (e)(2).) In this way, a local agency using Mello–Roos financing can indirectly acquire both tangible property with a useful life of less than five years and intangible property including property rights.
Here, Casitas seeks “to acquire the real, personal, and intangible property and property rights owned or held by [Golden State] in, to, and with respect to the water utility owned and operated by Golden State in [its] Ojai Service Area.” We understand this to mean that Casitas plans to use Mello–Roos financing to acquire Golden State's Ojai facilities, i.e., its real and tangible personal property used for providing water service to Ojai. In addition, Casitas plans to acquire any of Golden State's intangible property and property rights connected with the acquisition of these facilities. This comports with the Mello–Roos Act.
Golden State argues that the legal costs associated with an eminent domain proceeding and the eventual compensation it will receive from Casitas for its water rights and loss of goodwill are beyond the scope of Mello–Roos financing. To the contrary, the Act expressly provides that legal fees are an incidental cost. (§ 53345.3.) Water rights are analogous to “rights-of-way,” another intangible property right the acquisition of which the Act expressly permits as an incidental cost.6 (Ibid.) Compensation for Golden State's loss of goodwill is closely connected with the acquisition of its facilities for delivering water. Like legal fees and water rights, it is properly classified as an incidental expense that can be financed under Mello–Roos.
1. All further statutory references are to the Government Code unless otherwise stated.
3. The Eminent Domain Law states that “[w]hether property necessary for public use is to be acquired by purchase or other means or by eminent domain is a [discretionary] decision․” (Code. Civ. Proc., § 1230.030, italics added.) On its face, the phrase “or by eminent domain” is superfluous. The preceding phrase, “by purchase or other means,” necessarily covers all possible modes of acquisition. The Legislature likely intended the phrase “or other means” in the sense of “or other means besides eminent domain,” which just goes to show that context matters.
4. Therefore, Golden State's authority to the effect that any “ ‘fair, reasonable doubt concerning the existence of [a municipal corporation's eminent domain] power is resolved by the courts against the corporation․’ ” (Harden v. Superior Court (1955) 44 Cal.2d 630, 641) is inapposite.
6. We therefore need not decide whether water rights, which can be “considered an interest in real property” (State v. Superior Court of Riverside County (2000) 78 Cal.App.4th 1019, 1025), may be directly acquired using Mello–Roos funds.
7. Because we affirm the judgment on the merits, we do not reach respondents' contention that Golden State's service was untimely. We have not considered the declaration submitted by Casitas's trial counsel regarding the prior use of Mello–Roos funding to finance eminent domain litigation, which is irrelevant to the legal questions at issue. Accordingly, any error by the trial court in admitting it was harmless.
We concur: GILBERT, P.J. YEGAN, J.

References: v. 
 v. 
 § 71693
 § 71853
 § 71870
 v. 
 v. 
 v. 
 v. 
 v. 
 § 5023
 § 4
 § 5023
 § 53317
 § 1230
 v. 
 v.