Title: Davis v. Fresno Unified School District
Citation: N/A
Docket Number: S266344
State: California
Issuer: California Supreme Court
Date: April 27, 2023

IN THE SUPREME COURT OF 
CALIFORNIA 
 
STEPHEN K. DAVIS, 
Plaintiff and Appellant, 
v. 
FRESNO UNIFIED SCHOOL DISTRICT et al., 
Defendants and Respondents. 
 
S266344 
 
Fifth Appellate District 
F079811 
 
Fresno County Superior Court 
12CECG03718 
 
 
April 27, 2023 
 
Justice Jenkins authored the opinion of the Court, in which 
Chief Justice Guerrero and Justices Corrigan, Liu, Kruger, 
Groban, and Evans concurred. 
 
1 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
S266344 
 
Opinion of the Court by Jenkins, J. 
 
Plaintiff Stephen K. Davis sued the Fresno Unified School 
District (the District) and Harris Construction Co., Inc. (the 
Contractor), alleging that defendants entered into a lease-
leaseback construction agreement in violation of various 
statutes and common law rules.  The lawsuit raises numerous 
legal questions and has a lengthy procedural history.  However, 
we granted review to address a single question:  “Is a lease-
leaseback arrangement in which construction is financed 
through bond proceeds rather than by or through the builder a 
‘contract’ within the meaning of Government Code section 
53511?”  We conclude that the specific lease-leaseback 
arrangement at issue here is not a “contract[]” within the 
meaning of Government Code section 53511 (section 53511).  A 
local agency contract is subject to validation under section 53511 
if it is inextricably bound up with government indebtedness or 
with debt financing guaranteed by the agency.  To satisfy this 
standard, the contract must be one on which the debt financing 
of the project directly depends.  The lease-leaseback 
arrangement at issue here does not satisfy this standard 
because the underlying project was fully funded by a prior sale 
of general obligation bonds, and payment of the debt service on 
the bonds was from ad valorem property taxes.  Therefore, 
payment did not depend on the lease-leaseback arrangement or 
even on completion of the project.  In light of this conclusion, we 
affirm the judgment of the Court of Appeal. 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
2 
I. FACTS 
On March 6, 2001, voters within the District approved 
Measure K, authorizing the District to sell bonds to raise money 
for improvements to school facilities.  On November 2, 2010, 
voters within the District approved Measure Q, authorizing 
additional bonds for the same general purpose.  The ballot 
measures were broadly worded, listing hundreds of projects at 
numerous school sites.  They did not require the District to 
complete all the listed projects, and they did not specify details 
about individual projects or how the necessary agreements with 
architects and builders would be structured.  On October 13, 
2011, the District sold $55,570,914.90 in Series G general 
obligation bonds (Measure K) and $50,434,849.50 in Series B 
general obligation bonds (Measure Q).  To pay the debt service 
on the bonds, the District pledged receipts from certain levies of 
ad valorem taxes on property within the District.  The total 
purchase price for the Series G bonds was $55,570,914.90.  The 
total purchase price for the Series B bonds (which included a 
larger original issue premium than the Series G bonds) was 
$52,148,790.01.  Therefore, on the closing date of October 13, 
2011, the District received nearly $108 million in immediately 
available funds.  For federal tax reasons, it was advantageous 
to the District to proceed quickly with the planned school facility 
improvements, spending the money received from sale of the 
bonds. 
In September 2012, the District entered into a 
$36.7 million deal with the Contractor for the construction of a 
new middle school on land the District owned at 1100 East 
Church Avenue in Fresno.  The deal was structured as a lease-
leaseback arrangement under Education Code section 17406.  
Under that arrangement, the District leased its land to the 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
3 
Contractor for $1 (the Site Lease).  The Contractor then 
constructed the new school facilities on the land and leased the 
land and the new facilities (still under construction) back to the 
District (the Facilities Lease).  The Facilities Lease obligated the 
Contractor to build the new school facilities in accordance with 
“Construction Provisions” that were detailed in a 56-page 
document attached as an exhibit to the lease, and it obligated 
the District to make monthly “Lease Payments” that reflected 
“the value of the construction service work performed” during 
the month in question, less a five percent “retainage.”1  The 
Contractor was obligated to complete the construction within 
595 days, and the total price for the project was not to exceed 
$36,702,876.  Under the agreement, the final lease payment had 
to be made within 35 days of the recordation by the District of a 
“Notice 
of 
Completion,” 
indicating 
completion 
of 
the 
construction, and both the Site Lease and the Facilities Lease 
terminated once that final lease payment was made, with the 
District gaining title to the site and the newly constructed 
facilities. 
The Site Lease and Facilities Lease were both executed on 
September 27, 2012, and the notice of completion was recorded 
by the District on December 4, 2014, stating that the work had 
been completed on November 13, 2014. 
 
1  
The withholding of “retainage” until construction of the 
entire project is complete is a standard practice in the 
construction industry.  Retainage is usually five or 10 percent of 
the amount otherwise due.  (See United Riggers & Erectors, Inc. 
v. Coast Iron & Steel Co. (2018) 4 Cal.5th 1082, 1087–1088; 
Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 
55; Yassin v. Solis (2010) 184 Cal.App.4th 524, 533–534; 
McAndrew v. Hazegh (2005) 128 Cal.App.4th 1563, 1566–1567.) 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
4 
II. PROCEDURAL HISTORY 
Plaintiff owns real property and pays taxes within the 
Fresno Unified School District.  In addition, plaintiff is the 
president of Davis Moreno Construction, Inc., a Fresno-based 
contractor that has handled construction projects for school 
districts.  (See Davis v. Fresno Unified School Dist. (2015) 237 
Cal.App.4th 261, 273, fn. 4 (Davis I).)  Plaintiff brought this 
action on November 20, 2012, asserting that the construction 
arrangement between the District and the Contractor was 
invalid and seeking, among other things, an order requiring the 
Contractor to pay back to the District money payments it had 
received under the Facilities Lease.  On March 19, 2013, 
plaintiff filed a first amended complaint, which is the operative 
complaint.  The trial court sustained demurrers to that 
complaint, entered judgment for defendants, and plaintiff 
appealed.  The Court of Appeal then reversed and remanded.  
After further proceedings, the trial court eventually granted 
defendants’ motion for judgment on the pleadings, a motion 
asserting that the lawsuit became moot when the construction 
of the new school facilities was completed and the leases 
terminated.  Plaintiff again appealed, and the Court of Appeal 
again reversed.  The Court of Appeal’s second judgment of 
reversal is now before us on review. 
The main issue in the second appeal is whether plaintiff’s 
lawsuit became moot when the leases terminated.  The trial 
court agreed with defendants that the lawsuit was exclusively a 
reverse validation action brought under the validation 
provisions of the Code of Civil Procedure (see Code Civ. Proc., 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
5 
§ 860 et seq.),2 and consistent with settled law, the trial court 
ruled that a reverse validation action — which is a proceeding 
in rem — becomes moot when the contract at issue has been 
fully performed (see Wilson & Wilson v. City Council of Redwood 
City (2011) 191 Cal.App.4th 1559, 1579–1581).  The trial court 
rejected plaintiff’s argument that the lawsuit was not moot 
because the validation statutes were only one of several theories 
of standing under which he was bringing his lawsuit.  The trial 
court reasoned that when the validation statutes apply, they are 
a party’s exclusive remedy.  (See Code Civ. Proc., § 869; see also 
Friedland v. City of Long Beach (1998) 62 Cal.App.4th 835, 849–
850 (Friedland).) 
On appeal, plaintiff argued that the first amended 
complaint “was both an in rem validation action and an in 
personam disgorgement action based upon multiple legal 
theories,” and plaintiff asserted that the action was not moot as 
to his disgorgement claims.  The Court of Appeal agreed, 
reversing the trial court.  (Davis v. Fresno Unified School Dist. 
(2020) 57 Cal.App.5th 911, 941–942 (Davis II).) 
In support of its conclusion that plaintiff’s action was not 
moot, the Court of Appeal first considered whether the operative 
complaint had adequately alleged an in personam taxpayer 
action (Code Civ. Proc., § 526a) in addition to an in rem 
validation action (Code Civ. Proc., § 863).  (See Davis II, supra, 
57 Cal.App.5th at pp. 930–936.)  As the Court of Appeal noted, 
the complaint refers to the lawsuit as an “in rem proceeding” 
based on Code of Civil Procedure section 863, but it also refers 
to the lawsuit as a “suit filed by a taxpayer,” and it requests in 
 
2  
For convenience, we collectively refer to these provisions 
of the Code of Civil Procedure as “the validation statutes.” 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
6 
personam relief that is not available in an in rem proceeding.  
Accordingly, the Court of Appeal concluded that plaintiff had 
adequately alleged standing to sue based on both a reverse 
validation theory and a taxpayer theory.  (Davis II, at pp. 933–
936.)  The Court of Appeal then proceeded to consider whether 
the validation statutes were plaintiff’s exclusive remedy, 
precluding recovery on plaintiff’s taxpayer theory.  Rather than 
addressing that issue on the merits, however, the court assumed 
that the validation statutes would be plaintiff’s exclusive 
remedy if they were applicable, and it held that the validation 
statutes did not apply.  (Id. at pp. 939–942.) 
As the Court of Appeal explained, the validation statutes 
establish a general procedure for testing the validity of public 
agency actions, but the validation procedure is not available 
unless some other statute authorizes its use in a particular 
context.  The Court of Appeal noted that the sole basis for 
defendants’ contention that the validation statutes applied in 
this case was Government Code section 53511.  (Davis II, supra, 
57 Cal.App.5th at p. 939.)  The court examined section 53511, 
and it rejected defendants’ argument that the language of that 
section encompassed the lease-leaseback arrangement at issue 
here.  (Davis II, at pp. 940–941.)  Absent a statutory basis to 
support a reverse validation claim, the Court of Appeal 
concluded that plaintiff could not assert a viable claim under the 
validation statutes — which of course meant that those statutes 
could not be plaintiff’s exclusive remedy.  (Id. at p. 941.) 
Having found the validation statutes inapplicable, the 
Court of Appeal concluded that plaintiff’s taxpayer action (Code 
Civ. Proc., § 526a) should have survived defendants’ motion for 
judgment on the pleadings.  (Davis II, supra, 57 Cal.App.5th at 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
7 
pp. 941–942.)  It therefore reversed the trial court’s judgment.  
(Id. at pp. 944–945.) 
We granted defendants’ petitions for review.  We conclude 
that the lease-leaseback arrangement at issue here is not a 
“contract[]” within the meaning of section 53511, and therefore 
we agree with the Court of Appeal that the validation statutes 
do not apply.  Accordingly, we affirm the judgment of the Court 
of Appeal. 
III. DISCUSSION 
Our analysis begins in part III.A., with background 
information regarding the use of lease-leaseback arrangements 
to construct school facilities in California.  Then, in part III.B., 
we discuss the validation provisions of the Code of Civil 
Procedure.  In part III.C., we turn to section 53511, concluding 
that the lease-leaseback arrangement at issue here does not 
qualify as a contract for purposes of section 53511, and therefore 
the validation statutes do not apply.  Finally, in part III.D., we 
reject defendants’ arguments to the contrary. 
A. History of Lease-leaseback Construction in 
California 
The state Constitution imposes restrictions on local 
government debt.  Specifically, such debt may not exceed the 
total annual income and revenues of the local entity in question 
without satisfying specified voter-approval requirements.  (See 
Cal. Const., art. XVI, § 18, subd. (a).)  This court held, however, 
in City of Los Angeles v. Offner (1942) 19 Cal.2d 483, that the 
cumulative amount payable under a multiyear lease is not a 
debt for purposes of the Constitution’s debt limitation — 
provided, that is, that the local entity receives appropriate 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
8 
consideration in each year for the lease payments it makes 
during that year. 
In 1957, 15 years after our decision in City of Los Angeles 
v. Offner, supra, 19 Cal.2d 483, the Legislature enacted the 
provision of the Education Code that is at the heart of this 
proceeding, authorizing school districts to use lease-leaseback 
arrangements as a way of financing the construction of school 
facilities.  (See Stats. 1957, ch. 2071, § 1, pp. 3683–3687.)  The 
lease-leaseback provision is now codified in Education Code 
section 17406 (section 17406).3  Under section 17406, a school 
 
3  
As of the date defendants entered into the lease-leaseback 
arrangement at issue here, former section 17406 provided:  “(a) 
Notwithstanding Section 17417, the governing board of a school 
district, without advertising for bids, may let, for a minimum 
rental of one dollar ($1) a year, to any person, firm, or 
corporation any real property that belongs to the district if the 
instrument by which such property is let requires the lessee 
therein to construct on the demised premises, or provide for the 
construction thereon of, a building or buildings for the use of the 
school district during the term thereof, and provides that title to 
that building shall vest in the school district at the expiration of 
that term.  The instrument may provide for the means or 
methods by which that title shall vest in the school district prior 
to the expiration of that term, and shall contain such other 
terms and conditions as the governing board may deem to be in 
the best interest of the school district.  [¶]  (b) Any rental of 
property that complies with subdivision (a) shall be deemed to 
have thereby required the payment of adequate consideration 
for purposes of Section 6 of Article XVI of the California 
Constitution.”  (Stats. 1996, ch. 277, § 3, p. 2126.)  This 
provision was first enacted as Education Code former section 
18355.  (Stats. 1957, ch. 2071, § 1, p. 3683.)  In 1959, it was 
renumbered as former section 15705.  (Stats. 1959, ch. 2, § 1, 
pp. 1086–1087.)  Then, in 1976, it was renumbered as former 
section 39305.  (Stats. 1976, ch. 1010, § 2, p. 3167.)  Finally, in 
 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
9 
district may lease its land to a builder (or some related entity) 
for $1 per year, and the builder then constructs a building or 
buildings on that land.  Typically, the builder is compensated by 
leasing the land and the newly constructed school facilities back 
to the school district for a period of several years after 
construction is complete, receiving regular lease payments 
under that multiyear lease.  (See Ed. Code, § 17417.)  Finally, 
when both leases terminate, title to the land and the new 
facilities vests in the school district.  (Id., § 17406.)  In this way, 
the school district obtains costly improvements to its school 
facilities and pays for them over the course of many years, but 
it does so without entering into a debt obligation that would 
require voter approval.  In essence, the school district shifts the 
financing of the construction project to the builder (or some 
related entity), who in order to secure that financing, is free to 
assign to a lender its right to receive lease payments from the 
school district.  (See, e.g., City of Desert Hot Springs v. County 
of Riverside (1979) 91 Cal.App.3d 441, 444–445.)  Thus, 
consistent with the provisions of section 17406, even though a 
school district may end up making payments directly to a lender, 
from the district’s perspective, the payments are lease payments 
and not debt service. 
Significantly, section 17406 does not merely provide a 
method by which a school district can avoid the state 
Constitution’s debt restrictions; it also allows a school district to 
avoid competitive bidding requirements otherwise mandated by 
 
1996, it was given its present number.  (Stats. 1996, ch. 277, § 3, 
p. 2126.) 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
10 
state law.4  Moreover, some districts use lease-leaseback 
arrangements for the latter purpose alone.  Under this 
approach, there is no multiyear leaseback of the completed 
project to the school district after construction is complete, and 
therefore there is no builder financing of the project.  The lease 
payments by the school district compensate the builder for 
construction services performed during the period that the 
payment covers, and when the project is complete, the lease 
payments cease. 
The Courts of Appeal have reached conflicting decisions as 
to whether this manner of structuring a lease-leaseback 
arrangement is consistent with section 17406 (compare Davis I, 
supra, 237 Cal.App.4th 261 [§ 17406 applies only to builder-
financed projects, not projects that are independently financed 
by the school district] with California Taxpayers Action Network 
v. Taber Construction, Inc. (2017) 12 Cal.App.5th 115 [rejecting 
that conclusion] and McGee v. Balfour Beatty Construction, LLC 
(2016) 247 Cal.App.4th 202 [same]), but that split of authority 
is not before us.  Instead, the narrow question we decide here is 
whether a validation action under the validation statutes (Code 
Civ. Proc., § 860 et seq.) is the appropriate procedural vehicle for 
challenging the validity of a lease-leaseback project that is 
 
4  
The Legislature has shown some concern about the fact 
that lease-leaseback arrangements are exempt from competitive 
bidding.  Section 17406 was amended in 2016 (after the project 
at issue in the present case was complete) to impose a 
competitive bidding requirement, effective January 1, 2017 (see 
Stats. 2016, ch. 521, § 2), but that amendment also included a 
sunset provision, meaning that the law would revert to its pre-
2017 form on July 1, 2022 (see Stats. 2016, ch. 521, § 3).  In 2021, 
the sunset provision was extended to July 1, 2027.  (See Stats. 
2021, ch. 666, § 5.) 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
11 
independently financed by the school district.  The resolution of 
that question turns on whether such a lease-leaseback 
arrangement qualifies as a “contract[]” for purposes of section 
53511. 
B. Validation Actions 
An action under the validation statutes permits a public 
agency to obtain a judgment upholding its handling of an agency 
matter.  (Code Civ. Proc., § 860.)5  We discussed the history of 
the validation procedure in Bonander v. Town of Tiburon (2009) 
46 Cal.4th 646.  There we said:  “By 1961, the California codes 
contained a patchwork of provisions governing validation 
proceedings, with each set of provisions dedicated to a different 
statutory scheme.  In that year, the Legislature sought to 
replace this patchwork with a general validation procedure.  
(Stats. 1961, ch. 1479, §§ 1–3, pp. 3331–3332.)  This procedure, 
which the Legislature codified as Code of Civil Procedure 
sections 860 through 870, does not, in itself, authorize any 
validation actions; rather, it establishes a uniform system that 
other 
statutory 
schemes 
must 
activate 
by 
reference.”  
(Bonander, at p. 656.)  Therefore, if no statute authorizes use of 
the validation statutes to test a particular type of agency matter, 
then the validation statutes do not apply. 
Significantly, validation actions are not always brought by 
the agency involved in the matter.  Code of Civil Procedure 
 
5  
Code of Civil Procedure section 860 provides:  “A public 
agency may upon the existence of any matter which under any 
other law is authorized to be determined pursuant to this 
chapter, and for 60 days thereafter, bring an action in the 
superior court of the county in which the principal office of the 
public agency is located to determine the validity of such matter.  
The action shall be in the nature of a proceeding in rem.” 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
12 
section 863 authorizes private parties to bring validation 
actions, and the private party is often seeking to invalidate the 
matter in question.  Code of Civil Procedure section 863 provides 
in relevant part:  “If no proceedings have been brought by the 
public agency pursuant to this chapter, any interested person 
may bring an action within the time and in the court specified 
by Section 860 to determine the validity of such matter.”  (Italics 
added.)  Actions brought by private parties under section 863 
are sometimes called reverse validation actions. 
A validation action is “a proceeding in rem” (Code Civ. 
Proc., § 860), which means that the judgment binds all persons 
and entities having an interest in the agency matter in question.  
It also means, however, that in a validation action, the plaintiff 
cannot obtain injunctive relief against a party to the action, for 
such relief would be in personam.  (See City of Ontario v. 
Superior Court (1970) 2 Cal.3d 335, 344 (City of Ontario); 
Friedland, supra, 62 Cal.App.4th at p. 843.)  Moreover, when 
the validation statutes apply, they supersede other mechanisms 
by which an interested private party might seek to challenge the 
same agency matter.  This preclusion of alternative remedies is 
necessary if the validation statutes are to serve their purpose of 
once and for all determining the validity of the agency matter.  
Thus, Code of Civil Procedure section 869 provides in relevant 
part:  “No contest except by the public agency or its officer or 
agent of any thing or matter under this chapter shall be made 
other than within the time and the manner herein specified.” 
In City of Ontario, we interpreted this provision as 
insulating agency matters from challenge once the short 
limitations period for bringing a validation action has passed.  
We said:  “The practical consequence of [the validation statutes] 
should be clearly recognized:  an agency may indirectly but 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
13 
effectively ‘validate’ its action by doing nothing to validate it; 
unless an ‘interested person’ brings an action of his own under 
[Code of Civil Procedure] section 863 within the 60-day 
[limitations] period, the agency’s action will become immune 
from attack whether it is legally valid or not.”  (City of Ontario, 
supra, 2 Cal.3d at pp. 341–342.)  Courts have regularly applied 
this principle, using enforcement of section 863’s 60-day 
limitations period to reject challenges to a wide variety of agency 
matters.  (See, e.g., Santa Clarita Organization for Planning & 
Environment v. Castaic Lake Water Agency (2016) 1 Cal.App.5th 
1084, 1097 (Santa Clarita) [citing cases].) 
Despite this rule precluding alternative remedies 
whenever the validation remedy is available, several courts 
have held that when an interested party brings a timely 
validation action, it can join other claims, including a taxpayer 
action brought pursuant to Code of Civil Procedure section 526a.  
(See Regus v. City of Baldwin Park (1977) 70 Cal.App.3d 968, 
972; see also Coachella Valley Water Dist. v. Superior Court 
(2021) 61 Cal.App.5th 755, 771; McLeod v. Vista Unified School 
Dist. (2008) 158 Cal.App.4th 1156, 1166–1167 (McLeod).)  What 
is less clear is the extent to which a joined taxpayer action may 
relate to the same subject matter as the validation action, thus 
allowing the successful plaintiff to augment the in rem relief 
available under the validation statutes with the in personam 
relief available under section 526a.  Several Court of Appeal 
decisions have held that the joined taxpayer action may not 
relate to the same subject matter as the validation action, thus 
making the validation remedy exclusive as to matters that are 
subject to validation.  (See Friedland, supra, 62 Cal.App.4th at 
pp. 848–849; see also McGee v. Torrance Unified School Dist. 
(2020) 49 Cal.App.5th 814, 827–828 (McGee); Katz v. Campbell 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
14 
Union High School Dist. (2006) 144 Cal.App.4th 1024, 1033–
1034.) 
The trial court in this case aligned with the view that the 
validation statutes are a party’s exclusive remedy as to matters 
that are subject to validation, thus precluding plaintiff’s request 
for in personam relief.  The Court of Appeal, however, did not 
reach that question.  Instead, the Court of Appeal assumed that 
the validation statutes, if applicable, would have had such a 
preclusive effect (Davis II, supra, 57 Cal.App.5th at p. 939), and 
it concluded that the validation statutes did not apply.  We now 
turn to that issue. 
C. Section 53511 
In proceedings below, defendants relied exclusively upon 
section 53511 to support their contention that the validity of a 
lease-leaseback arrangement like the one at issue here falls 
within the ambit of the validation statutes.  Section 53511 
provides in full:  “(a) A local agency may bring an action to 
determine the validity of its bonds, warrants, contracts, 
obligations or evidences of indebtedness pursuant to [the 
validation statutes].  [¶]  (b) A local agency that issues bonds, 
notes, or other obligations the proceeds of which are to be used 
to purchase, or to make loans evidenced or secured by, the 
bonds, warrants, contracts, obligations, or evidences of 
indebtedness of other local agencies, may bring a single action 
in the superior court of the county in which that local agency is 
located to determine the validity of the bonds, warrants, 
contracts, obligations, or evidences of indebtedness of the other 
local agencies, pursuant to [the validation statutes].”  (Italics 
added.) 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
15 
When as here we are interpreting a statute, “ ‘ “ ‘[o]ur 
fundamental task . . . is to determine the Legislature’s intent so 
as to effectuate the law’s purpose.  We first examine the 
statutory language, giving it a plain and commonsense 
meaning. . . .  If the language is clear, courts must generally 
follow its plain meaning unless a literal interpretation would 
result in absurd consequences the Legislature did not intend.  If 
the statutory language permits more than one reasonable 
interpretation, courts may consider other aids, such as the 
statute’s purpose, legislative history, and public policy.’  
[Citation.]  ‘Furthermore, we consider portions of a statute in 
the context of the entire statute and the statutory scheme of 
which it is a part, giving significance to every word, phrase, 
sentence, and part of an act in pursuance of the legislative 
purpose.’ ” ’ ”  (Brennon B. v. Superior Court (2022) 13 Cal.5th 
662, 673.)  “ ‘The interpretation of a statute presents a question 
of law that this court reviews de novo.’ ”  (Segal v. ASICS 
America Corp. (2022) 12 Cal.5th 651, 662.) 
Although one plausible reading of the language of section 
53511 is that any and all local agency “contracts” are subject to 
validation under the validation statutes, the Court of Appeal 
below did not interpret section 53511 so broadly.  Rather, the 
court plausibly concluded that the reference to “contracts” in 
section 53511 refers only to contracts that are of the same type 
or that share the same subject matter as the other items listed 
in the section.  Because the other items all relate to government 
indebtedness, the Court of Appeal reasoned that the word 
“contracts” in section 53511 refers only to contracts that relate 
to government indebtedness or, at least, to the financing of local 
agency projects.  (Davis II, supra, 57 Cal.App.5th at p. 940.)  The 
Court of Appeal therefore concluded that a lease-leaseback 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
16 
arrangement like the one at issue here, one that does not 
operate as a mechanism for financing a government 
construction project, is not a “contract[]” for purposes of section 
53511.  And it follows from that conclusion that section 53511 
does not authorize the use of the validation statutes in this case.  
(Davis II, at p. 941.) 
Because the term “contracts” in section 53511 is 
ambiguous in this way, we must employ the usual methods of 
statutory construction to determine the Legislature’s intent 
with respect to that provision.  The threshold question we must 
decide is whether, under section 53511, any and all local agency 
contracts are subject to validation or whether, under that 
section, only a particular type of local agency contract is subject 
to validation.  Then, if we conclude that only a particular type of 
agency contract is subject to validation under section 53511, we 
must consider what that type is and whether it includes the 
lease-leaseback arrangement at issue here. 
1. Does the word “contracts” in section 53511 mean 
any and all local agency contracts? 
The threshold question is not seriously disputed by the 
parties, who are generally willing to concede that the term 
“contracts” in section 53511 does not refer to any and all local 
agency contracts.  This absence of dispute is because we 
addressed the question in dictum in City of Ontario.  What we 
said in City of Ontario is persuasive, and it bears repeating here 
at length:  Section 53511 “lists, as matters for validation under 
[the validation statutes], ‘bonds, warrants, contracts, obligations 
or evidences of indebtedness’ (italics added).  There is no 
limitation or qualification on the word ‘contracts,’ and it would 
therefore appear to include a multipurpose municipal contract 
such as the Ontario Motor Stadium Agreement.  Yet the 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
17 
legislative history of the statute suggests a contrary result.  
First, the Legislative Counsel’s digest of the bill proposing 
section 53511 characterized the measure as one allowing ‘a local 
agency to bring an action to determine the validity of evidences 
of indebtedness.’  Second, section 53511 was enacted as part of 
chapter 3 of part 1, division 2, title 5, of the Government Code.  
Chapter 3 is entitled ‘Bonds,’ and deals exclusively with the 
power of local agencies to sell their bonds, replace defaced or lost 
bonds, and pledge their revenues to pay or secure such bonds.  If 
section 53511 was intended to be a provision of general 
application, logically it should have been placed in article 4 
(‘Miscellaneous’) of chapter 1 (‘General’) of the same part, in 
which a group of such unrelated matters are collected.  Third, 
the key language of section 53511 — ‘bonds, warrants, 
contracts, obligations or evidences of indebtedness’ — was taken 
directly from section 864 of chapter 9; under well-known canons 
of statutory interpretation, it should ordinarily be given the 
same meaning as it had in the earlier statute.  But as a perusal 
of the companion 1961 legislation reveals, when chapter 9 was 
adopted it was made applicable only to such matters as the 
legality of the local entity’s existence, the validity of its bonds 
and assessments, and the validity of joint financing agreements 
with other agencies.  If section 53511 was intended to reach any 
and all contracts into which an agency may lawfully enter, the 
restricted language of section 864 was inappropriate for that 
purpose.  Finally, that language is peculiarly inapt for 
expressing such a general meaning in any event, as it lists the 
word ‘contracts’ in the midst of four other terms which all deal 
with the limited topic of a local agency’s financial obligations.”  
(City of Ontario, supra, 2 Cal.3d at pp. 343–344.) 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
18 
In City of Ontario, we did not need to decide the 
applicability of the validation statutes, because it was enough 
for us to hold that the question was “ ‘complex and debatable’ ” 
(City of Ontario, supra, 2 Cal.3d at p. 345), justifying the trial 
court’s 
discretionary 
decision 
to 
excuse 
the 
plaintiffs’ 
noncompliance (see id. at pp. 345–346).  Nonetheless, what we 
said in City of Ontario is convincing.  We do not believe that the 
Legislature intended any and all contracts that a local agency 
might enter into (miscellaneous supply contracts, employment 
contracts, etc.) to be subject to validation under the validation 
statutes, which would mean that they would need to be 
challenged within 60 days (Code Civ. Proc., § 863) or become 
forever insulated from attack.  Validation actions typically apply 
to public agency matters that by their nature call for an 
expedited and final determination as to their validity.  The need 
for that sort of expedited validation exists, of course, in the case 
of agency-issued bonds, because such bonds are far more 
marketable if their validity can be judicially confirmed in a final 
judgment.  (See Friedland, supra, 62 Cal.App.4th at p. 843; 
Walters v. County of Plumas (1976) 61 Cal.App.3d 460, 468 
(Walters).)  By contrast, it would be extraordinary for the 
Legislature to adopt a law applying the validation statutes to 
any contract a local agency might execute, irrespective of the 
need for expeditious resolution of the contract’s validity (see City 
of Ontario, at pp. 341–342), and we conclude that the 
Legislature did not do so.  (See Kaatz v. City of Seaside (2006) 
143 Cal.App.4th 13, 42, fn. 35 [citing cases holding that various 
routine local agency contracts are not subject to validation].) 
The more reasonable approach, therefore, is to apply the 
rule of noscitur a sociis, according to which, a specific item in a 
statutory list of items is qualified by the overall type or subject 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
19 
matter characterizing the list as a whole.  (See Kaatz v. City of 
Seaside, supra, 143 Cal.App.4th at p. 40.)  Thus, the word 
“contract[]” in section 53511 is defined by the subject matter of 
the other items in the list, which is, of course, government 
indebtedness.  It follows that under section 53511, only 
contracts that somehow relate to government indebtedness are 
subject to validation, but the particulars of that necessary 
relationship remain to be determined.  We now turn to that 
issue. 
2. What contracts sufficiently relate to government 
indebtedness to bring them within the scope of 
section 53511? 
At places in their briefs, defendants press a broad 
argument that every local agency contract that is funded by the 
proceeds of a sale of agency bonds is, for that reason alone, 
related to government indebtedness and therefore subject to the 
validation statutes under section 53511.  At other places, 
however, defendants make several more specific arguments 
focusing on the special nature of schools and the complexities of 
federal tax law.  We address defendant’s more specific 
arguments in part III.D., post, but we reject at the outset 
defendants’ broad argument that every local agency contract 
that is funded by local agency bonds is subject to validation.  
Under that interpretation, even minor contracts, such as a 
contract to resurface a roof, install a fence, or pave a parking lot, 
would be subject to validation, provided that government 
indebtedness funded the contract.  A minor contract of the sort 
just described might not even come to the public’s attention 
during the 60-day limitations period that applies to validation 
actions (Code Civ. Proc., § 863), and by the time the public 
learned of the contract, the contract would already be insulated 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
20 
from attack, making it possible for local public agencies to award 
such contracts with minimal accountability.  Therefore, 
California case law suggests that a tighter degree of 
interdependence 
between 
a 
local 
agency 
contract 
and 
government indebtedness is necessary for the contract to come 
within the scope of section 53511. 
Several courts have framed the pertinent inquiry by 
asking whether government indebtedness is “inextricably bound 
up with” the contract in question.  (Graydon v. Pasadena 
Redevelopment Agency (1980) 104 Cal.App.3d 631, 646 
(Graydon); see McLeod, supra, 158 Cal.App.4th at p. 1169; 
California Commerce Casino, Inc. v. Schwarzenegger (2007) 146 
Cal.App.4th 1406, 1430, 1432 (California Commerce Casino); 
Kaatz v. City of Seaside, supra, 143 Cal.App.4th at p. 45.)  More 
specifically, in those situations where the contract is not itself a 
contract of indebtedness, courts have focused on whether it is a 
contract on which the debt financing of a local agency project 
directly depends.  The latter category includes, for example, 
local agency contracts that serve to guarantee a debt incurred 
by a third party.  (See Friedland, supra, 62 Cal.App.4th at pp. 
843, 845 [local agencies’ guarantees, necessary to allow public 
benefit corporation to obtain project financing, were subject to 
validation under § 53511]; Walters, supra, 61 Cal.App.3d at pp. 
466–468 [county loan guarantees, necessary for private 
franchisees to finance heavy equipment needed to operate 
county waste disposal system, were subject to validation under 
§ 53511].)  In addition, the category includes local agency 
contracts that are intended to generate the funds from which a 
government debt will be paid.  (See California Commerce 
Casino, supra, 146 Cal.App.4th at pp. 1424–1433 [legislative 
ratification of gaming compacts, where state bonds would be 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
21 
paid using revenue from the compacts, was subject to validation 
under Gov. Code, § 17700, which uses parallel language to 
§ 53511]; Meaney v. Sacramento Housing & Redevelopment 
Agency 
(1993) 
13 
Cal.App.4th 
566, 
576–577 
(Meaney)  
[interagency agreement to use redevelopment tax increment to 
pay for courthouse construction was subject to validation under 
§ 53511]; Graydon, supra, 104 Cal.App.3d at pp. 645–646 
[redevelopment 
agency’s 
contract 
for 
construction 
of 
underground parking garage, where garage was financed with 
bonds to be paid from tax increment generated by retail center 
of which the garage was an essential component, was subject to 
validation under § 53511].)6 
We agree generally with these Court of Appeal decisions 
and their articulation of the standard that governs whether a 
local agency contract comes within section 53511.  In our view, 
a local agency contract does so if it is inextricably bound up with 
government indebtedness or with debt financing guaranteed by 
 
6  
Several of these cases involve tax increment financing.  
We described such financing in Amador Valley Joint High Sch. 
Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208:  
“Redevelopment bonds are secured by a pledge of so-called ‘tax 
increment’ revenues generated by increases in the assessed 
value of the redeveloped property.  [Citations.] . . .  ‘In essence 
[the state Constitution] provides that if, after a redevelopment 
project has been approved, the assessed valuation of taxable 
property in the project increases, the taxes levied on such 
property in the project area are divided between the taxing 
agency and the redevelopment agency.  The taxing agency 
receives the same amount of money it would have realized under 
the assessed valuation existing at the time the project was 
approved, while the additional money resulting from the rise in 
assessed valuation is placed in a special fund for repayment of 
indebtedness incurred in financing the project.’ ”  (Id. at p. 239.) 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
22 
the agency.  To satisfy this standard, the contract must be one 
on which the debt financing of the project directly depends.  
Without attempting to exhaustively describe every type of local 
agency contract that might come within the scope of section 
53511, we conclude that the lease-leaseback arrangement at 
issue here does not do so. 
A traditional lease-leaseback arrangement — one that 
shifts the financing of a public project to the contractor (or a 
related entity) through long-term lease payments that the 
contractor (or related entity) can assign to a third party 
lender — has some features that might be cited in support of an 
argument that the arrangement is a contract for purposes of 
section 53511.  Most importantly, a traditional lease-leaseback 
operates in practice as a financing mechanism.  We need not 
(and do not) decide here whether a traditional lease-leaseback 
arrangement is a contract for purposes of section 53511, but it 
is important to note that the lease-leaseback arrangement at 
issue here did not involve a long-term lease that operated in 
practice as a financing mechanism.  Rather, the cost of the 
District’s new middle school was fully funded by the sale of 
general obligation bonds that preceded the lease-leaseback 
arrangement by nearly a year,7 and the lease-leaseback 
arrangement was to that extent analogous to an ordinary 
purchase contract for the acquisition of goods or services, a type 
of contract that is not subject to validation under section 53511.  
(See, e.g., Santa Clarita, supra, 1 Cal.App.5th at p. 1099 
[agency’s cash-financed stock purchase was not subject to 
 
7  
Under section 53511, the District was free to bring a 
validation action to confirm the validity of its bonds, thus 
ensuring their marketability. 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
23 
validation under § 53511]; Kaatz v. City of Seaside, supra, 143 
Cal.App.4th at pp. 40–42, 47–48 [city’s purchase of property 
from federal government using funds from developer, followed 
by sale of same property to developer, was not subject to 
validation under § 53511]; Smith v. Mt. Diablo Unified School 
Dist. (1976) 56 Cal.App.3d 412, 418–421 [computer purchase 
contract was not subject to validation under § 53511]; Phillips v. 
Seely (1974) 43 Cal.3d 104, 111–112 [attorney hiring agreement 
was not subject to validation under § 53511].) 
Here, nothing in the documents connected to the approval 
and sale of the District’s bonds suggested any link to or 
dependence 
upon 
the 
validity 
of 
the 
lease-leaseback 
arrangement now before us.  These documents made no specific 
mention of the project that is the subject of the lease-leaseback 
arrangement, let alone how contracts related to the project 
would be structured.  Likewise, nothing in the lease-leaseback 
documentation was concerned with the financing of the project.  
The Site Lease entailed the letting of the District’s valuable real 
property for a term exceeding two years for the nominal sum of 
$1; it did not enable the District to finance anything.  As for the 
Facilities Lease, although it was a contract that was critical to 
the construction of the District’s new middle school, it was not a 
contract that was critical to the financing of that construction.  
Rather, as noted, the financing of the project was in place nearly 
a year before the Facilities Lease was even executed.  On 
October 13, 2011, the District received nearly $108 million, and 
according to the District’s own documentation, it was those 
funds that were used to make the lease payments for the present 
project.  We conclude, therefore, that the lease-leaseback 
arrangement was not a contract on which the debt financing of 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
24 
the project directly depended and that it did not come within the 
scope of the term “contract[]” for purposes of section 53511. 
D. Defendants’ Arguments 
Defendants press several more specific arguments for why 
the lease-leaseback arrangement at issue here was sufficiently 
related to government indebtedness to qualify as a contract for 
purposes of section 53511.  We address those arguments below. 
First, 
defendants 
argue 
that 
a 
lease-leaseback 
arrangement must be subject to swift validation under the 
validation statutes, for otherwise doubt about the validity of the 
arrangement will negatively impact the marketability of the 
bonds the school district sells to finance its planned construction 
project.  On this ground, defendants contend that the lease-
leaseback arrangement at issue here was “inextricably bound up 
with” government indebtedness.  (Graydon, supra, 104 
Cal.App.3d at p. 646; see McLeod, supra, 158 Cal.App.4th at p. 
1169; California Commerce Casino, supra, 146 Cal.App.4th at 
pp. 1430, 1432.) 
This argument would have more persuasive force if the 
bonds in question were financing the construction of an entity 
that was going to produce revenue for the District.  In that 
scenario, the anticipated revenues could be used to pay the debt 
service on the bonds and prompt completion of the construction 
project and receipt of the revenues could arguably affect the 
marketability of the bonds.  (See Graydon, supra, 104 
Cal.App.3d at p. 645 [“The ability of the Agency to pay its bonds, 
dependent in large part upon the flow of tax increment monies 
resulting from the completion of the retail center, was thus 
directly linked to the award of the questioned contract [for 
construction of the underground parking garage that would 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
25 
serve the retail center]”].)  But here, there is no indication that 
the school facilities were revenue generating in the same way 
that a commercial redevelopment project would be, and, in any 
event, there was no plan to pay the debt service on the District’s 
bonds with revenue that would become unavailable if 
completion of the new middle school facilities was somehow 
delayed.  Rather, the District planned to pay the debt service 
using the receipts from levies of ad valorem property taxes, 
money that would be available regardless of whether the new 
school facilities were ever completed. 
The Contractor argues that top-quality schools often 
correlate to higher property values, thus generating an increase 
in tax revenues, and in that sense, debt service on the District’s 
bonds would be paid from new tax revenue that would become 
unavailable if the school construction project were delayed.  We 
disagree.  As a preliminary matter, though top-quality schools 
might correlate to higher property values, there are many 
possible reasons for this correlation that are not necessarily 
related to the construction of school facilities itself.  Moreover, 
the bonds that the District issued to fund the project at issue 
here were not tax increment bonds.  Therefore, regardless of 
whether completion of the project would generate an increase in 
tax revenues, there was no direct relationship between project 
completion and the marketability of the District’s bonds.8  
Indeed, even if the project were somehow delayed, the debt 
service on the bonds would still be paid from ad valorem taxes 
on property within the District, and therefore the bonds were 
marketable.  Thus, the lease-leaseback arrangement at issue 
 
8  
This reasoning applies both to the initial marketability of 
the bonds and to their subsequent marketability. 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
26 
here was not “ ‘inextricably bound up with’ ” the District’s bonds.  
Moreover, under the Contractor’s argument, every debt-
financed local agency project would be subject to the validation 
statutes, because every such project is intended to improve the 
quality of life in the area and will therefore indirectly increase 
property values.  As already discussed, that rule stretches 
section 53511 too far. 
Second, the District urges a broad interpretation of section 
53511 under which a local agency contract is subject to 
validation if questions about the contract’s validity (and the 
possibility of litigation to resolve those questions) might impair 
agency operations.  For this standard, the District relies on 
Walters, supra, 61 Cal.App.3d 460 and Friedland, supra, 62 
Cal.App.4th 835, but an examination of those cases illustrates 
why the District’s interpretation is wide of the mark.  Although 
those cases did discuss possible impairment of agency 
operations, each of those decisions ultimately determined that 
the validation statutes applied because the contracts in question 
guaranteed the debt financing of the project. 
Walters involved a county plan to use private franchisees 
to operate the county’s waste disposal system.  But without loan 
guarantees by the county, the franchisees were not able to 
obtain third party financing for the purchase of the necessary 
heavy equipment.  Therefore, the county provided such 
guarantees, subject to the condition that in the event of a default 
by the franchisees, the county would gain title to the financed 
equipment.  (Walters, supra, 61 Cal.App.3d at pp. 463–464.)  A 
county taxpayer then brought a lawsuit that, among other 
things, challenged the validity of the loan guarantees, and the 
trial court dismissed the entire suit.  The Court of Appeal 
affirmed dismissal of the specific cause of action that challenged 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
27 
the loan guarantees.  It held that the guarantees were 
“contracts” for purposes of section 53511, and therefore they 
were subject to the validation statutes.  Hence, the taxpayer’s 
challenge needed to have been brought as a validation action, 
and it was not.  (Walters, at pp. 468–469.) 
In the course of deciding the Walters case, the Court of 
Appeal made the following general comment about public policy:  
“[T]he essential difference between those actions which ought 
and those which ought not to come under [the validation 
statutes is] the extent to which the lack of a prompt validating 
procedure will impair the public agency’s ability to operate.”  
(Walters, supra, 61 Cal.App.3d at p. 468, italics added.)  The 
District takes this statement as the operative standard 
governing application of the validation statutes, arguing that 
litigation over lease-leaseback arrangements like the one at 
issue here will impair agency operations, and therefore the 
validation statutes apply. 
But the Walters court did not rely solely on its statement 
of public policy as the rationale of its decision.  Instead, the court 
focused, as we do here, on whether the loan guarantees were 
critical to the debt financing of the county’s waste disposal 
system.  The court said:  “We feel that the possibility of future 
litigation [over the county’s loan guarantees] is very likely to 
have a chilling effect upon potential third party lenders, thus 
resulting in higher interest rates or even the total denial of credit, 
either of which might well impair the county’s ability to 
maintain an adequate waste disposal program.  Accordingly, we 
hold that [the validation statutes] are applicable . . . .”  (Walters, 
supra, 61 Cal.App.3d at p. 468, italics added.)  In short, the loan 
guarantees were subject to validation because the debt 
financing of the county’s waste disposal operation depended on 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
28 
those guarantees, not merely because the absence of validation 
might somehow impair the county’s operations.  (See Kaatz v. 
City of Seaside, supra, 143 Cal.App.4th at p. 44 [“while having 
a prompt validating procedure to permit a public agency to 
operate without impairment may be a significant rationale for 
the validation statutes’ application to agency action as provided 
in the statutes . . . , this rationale should not be transformed into 
a test for determining the type of agency action encompassed by 
Government Code section 53511” (italics added)].) 
The decision in Friedland, supra, 62 Cal.App.4th 835 is to 
the same effect.  In Friedland, a series of local agency 
agreements were held to be “contracts” for purposes of section 
53511 — and therefore subject to the validation statutes — 
because they involved agency guarantees of a debt obligation 
incurred by an independent public benefit corporation that was 
building an aquarium.  (Friedland, at pp. 838–840.)  The public 
benefit corporation anticipated paying off the debt from the 
aquarium’s operating revenues, but to make the bonds less 
risky, several local agencies provided security in the event the 
aquarium revenues proved insufficient, and without that 
security, the financing of the project would have been in 
jeopardy.  (Id. at p. 838.)  Because the contracts guaranteeing 
the debt obligation were critical to the successful debt financing 
of the aquarium project, the Court of Appeal held that section 
53511 applied and that the contracts were subject to the 
validation statutes.  (Friedland, at p. 845.) 
Both Walters and Friedland stand for the proposition that 
a local agency’s guarantee of a debt incurred by some other 
entity falls within section 53511’s use of the term “contract[]” if 
the guarantee is necessary to secure the debt financing of a 
project that benefits the local agency.  But that circumstance is 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
29 
not present here.  As explained, payment of the debt service on 
the District’s bonds does not depend on the lease-leaseback 
arrangement now under review.  As for the District’s broader 
reading of Walters and Friedland, under which the validation 
statutes apply whenever litigation over a contract might 
somehow impair agency operations (see Walters, supra, 61 
Cal.App.3d at p. 468; Friedland, supra, 62 Cal.App.4th at p. 
843), nothing in the text of section 53511 supports that broad 
rule, and no case has adopted it as the basis of its decision.  (See 
Kaatz v. City of Seaside, supra, 143 Cal.App.4th at pp. 43–44 
[rejecting the broad reading of Walters and Friedland].) 
Third, defendants argue that whenever proceeds from the 
sale of public agency bonds fund an agency contract, federal tax 
law creates the necessary degree of interdependence between 
the contract and government indebtedness, thus bringing the 
contract within the scope of section 53511.  Defendants point out 
that local government bonds offer federal tax benefits to 
bondholders, meaning in practice that the issuing agency pays 
a lower interest rate than it would otherwise have to pay.  In 
order to qualify for those federal tax benefits, however, the 
issuing agency cannot arbitrage the proceeds of the bond sale 
(i.e., invest the proceeds at a rate that exceeds the rate the 
agency is paying on the bonds).  (See 26 U.S.C. § 148.)  An 
exception is made for temporary investments of bond sale 
proceeds, but this exception “applies only if the issuer 
reasonably expects to satisfy the expenditure test, the time test, 
and the due diligence test.”  (26 C.F.R. § 1.148-2(e)(2)(i) (2023).)9  
 
9  
These tests require (1) that 85 percent of the net sale 
proceeds be allocated for expenditure within three years of the 
 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
30 
Defendants argue that protracted litigation over a lease-
leaseback arrangement like the one at issue here might lead to 
delay that would cause a school district to invest its bond sale 
proceeds for a longer period than the temporary period 
permissible under federal tax law, thus calling into question the 
tax-exempt status of its bonds.  In defendants’ view, the mere 
possibility of this occurrence will make the bonds less 
marketable, and therefore the marketability of its bonds is 
inextricably bound up with the validity of the lease-leaseback 
arrangement. 
In evaluating defendants’ argument, we first note that 
under federal tax law, an issuing agency need not actually meet 
the requirements of the expenditure, time, and due diligence 
tests so long as it reasonably expects to do so.  (See 26 C.F.R. 
§ 1.148-2(b)(1) (2023) [“the determination of whether an issue 
consists of arbitrage bonds under section 148(a) is based on the 
issuer’s reasonable expectations as of the issue date regarding 
the amount and use of the gross proceeds of the issue” (italics 
added)]; see also Weiss v. S.E.C. (D.C. Cir. 2006) 468 F.3d 849, 
851 (Weiss).)  Hence, practically speaking, the tax-exempt status 
of the issuing agency’s bonds would not be in jeopardy so long as 
the agency reasonably expected to satisfy the federal tax law 
requirements when it issued the bonds and thereafter proceeded 
in good faith.  Moreover, if delays ever occur due to 
circumstances beyond a local agency’s control, the agency can 
 
issue date (the expenditure test), (2) that the issuer enter into a 
binding obligation within six months of the issue date to expend 
five percent of the net sale proceeds (the time test), and (3) that 
the issuer proceed with due diligence toward completion of the 
project (the due diligence test).  (See 26 C.F.R. § 1.148-2(e)(2)(i) 
(2023).)   
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
31 
simply withdraw the bond sale proceeds from high-yielding 
investments, and it can rebate any arbitrage profit to the federal 
government, thus maintaining the tax-exempt status of its 
bonds.  (See 26 U.S.C. § 148(f).)10  Therefore, there was no real 
risk that delays in the construction project at issue here would 
affect the tax-exempt status of the District’s bonds. 
It is true, of course, that when a bond-funded project is 
delayed, a public agency will have to forgo income from high-
profit investments of the bond proceeds.  However, that 
contingency is one among many that might affect the overall 
cost of a capital improvement project, and it is unlikely to 
discourage bond purchasers who, regardless of unexpected 
increases in project costs, will be paid using receipts from levies 
of ad valorem property taxes. 
The District also relies on the facts of Weiss, supra, 468 
F.3d 849,11 which, according to the District, demonstrate that 
taxpayer litigation, and the delays occasioned thereby, can 
sometimes alter the federal tax-exempt status of municipal 
 
10  
In its “Certificate as to Arbitrage,” the District averred 
that it would comply with federal tax law regardless of any delay 
of its planned construction projects.  It said:  “Proceeds of the 
Bonds and interest earnings and gains thereon, if any, 
remaining in the Building Funds following the 3-year 
Temporary Period will be invested at a yield not in excess of the 
yield of the Bonds . . . or yield reduction payments under Section 
148 of the Internal Revenue Code of 1986, as amended . . . , will 
be made to the federal government with respect to such 
investment after the end of the 3-year Temporary Period.”  
(Italics added.)   
11  
The District relies on the facts rather than the holding of 
Weiss because Weiss concerned an issue different than the one 
before us. 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
32 
bonds.  To obtain a fuller statement of Weiss’s facts, the District 
urges us to consider the Security and Exchange Commission’s 
“Initial Decision” in that case.  (See In the Matter of Ira Weiss 
and L. Andrew Shupe II (Feb. 25, 2005) S.E.C. Initial Dec. No. 
275  [as of 
April 27, 2023], all internet citations in this opinion are archived 
by 
year, 
docket 
number, 
and 
case 
name 
at 
http://courts.ca.gov/38324.htm.) 
The facts of Weiss, in our view, have no purchase on the 
issue we confront here.  In Weiss, a school district in 
Pennsylvania issued bonds for the purpose of constructing 
specified improvements to school facilities within the district, 
but after investing the bond sale proceeds at a profit, the school 
district board did not proceed in good faith.  Instead, the board 
became distracted by an array of issues, including the decision 
to replace a popular football coach, the hiring of a new 
superintendent, the dismissals of two employees, a lawsuit 
brought by a student accused of cheating, the hiring of various 
principals and school administrators, and the cancer illness of a 
board member.  As a result of these distractions, the school 
district failed to proceed with the planned construction project, 
although it continued to earn a profit from its investment of the 
bond sale proceeds.  Hence, the Internal Revenue Service 
determined that the school district had issued taxable arbitrage 
bonds.  (See In the Matter of Ira Weiss and L. Andrew Shupe II, 
supra, S.E.C. Initial Dec. No. 275.) 
We see little in the facts of Weiss that supports the 
argument defendants make here.  Those facts merely 
demonstrate that after a school district has issued school 
construction bonds, its deliberate failure to proceed with the 
construction project, despite investing the bond sale proceeds at 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
33 
a profit, can cause the bonds to lose their tax-exempt status.  
(See 26 C.F.R. § 1.148-2(c) (2023).)  In Weiss, one (among many) 
of the events that distracted the Pennsylvania school district 
was a lawsuit, but the lawsuit had nothing to do with the 
planned construction project, nor did the lawsuit require a delay 
in that construction.  Thus, the facts of Weiss do not support the 
broad rule advanced by the District here, that litigation over a 
bond-financed school construction project, forcing delays that 
are beyond the school district’s control, can cause the bonds to 
lose their tax-exempt status despite the good faith efforts of the 
school district to proceed with the project and despite the timely 
rebate to the federal government of any improper arbitrage 
profits. 
The District also argues that bond counsel will not be able 
to render an unqualified opinion regarding the tax-exempt 
status of a public agency bond issue if there is the possibility 
that litigation might delay the planned construction project.  
There are two answers to this argument.  First, the bonds that 
were used to finance the present project were sold nearly a year 
before the lease-leaseback arrangement was even executed, and 
bond counsel was nonetheless able to render an opinion 
regarding the tax-exempt status of the bonds.  Therefore, the 
possibility of future litigation over projects that the bonds would 
finance was apparently not a concern to bond counsel.  Second, 
the possibility of litigation-related delays exists with respect to 
virtually every bond-funded public agency project, and as 
discussed, federal tax law can be satisfied despite such delays.  
(See, e.g., 26 U.S.C. § 148(f) [permitting rebates to the federal 
government].)  Hence, the District’s argument proves too much.  
Under the District’s argument, virtually any contract that is 
funded by the proceeds of a public agency bond sale would come 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
34 
within the validation statutes.  As discussed, that rule stretches 
section 53511 too far. 
Fourth, the District argues that the Court of Appeal’s 
holding in McLeod, supra, 158 Cal.App.4th 1156 supports its 
contention that the validation statutes apply to the lease-
leaseback arrangement at issue here.  McLeod, however, is 
readily distinguished.  McLeod involved a challenge to a school 
district’s decision to issue bonds for a purpose different from the 
purpose presented to the voters when the voters approved the 
bonds.  The ability of the school district to finance its planned 
construction project directly depended on the validity of that 
disputed decision.  Indeed, the school district in McLeod 
asserted — without disagreement from the plaintiffs — that 
“ ‘every single day that this case has not been decided . . . 
impairs the ability of the District to go to the bond markets and 
get the funding to complete the [high school] construction.’ ”  
(McLeod, supra, 158 Cal.App.4th at p. 1169.)  Not so here.  
Plaintiff is not challenging the validity of the District’s decision 
to issue the bonds that funded the construction project at issue 
here.  Rather, plaintiff is challenging the District’s use of a 
section 17406 lease-leaseback arrangement where the lease-
leaseback arrangement does not involve a long-term lease and 
where the construction project is independently financed from a 
bond sale that the District has already completed.  McLeod is 
simply not on point. 
Fifth, defendants cite McGee, supra, 49 Cal.App.5th 814, 
in which the Court of Appeal addressed the precise question we 
are deciding, concluding that where a lease-leaseback 
arrangement is independently financed through the issuance of 
district bonds, the bonds are inextricably bound up with the 
validity of the lease-leaseback arrangement, and therefore the 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
35 
lease-leaseback arrangement is subject to the validation 
statutes.  In our view, McGee did not meaningfully consider the 
nature of the relationship between the school district’s bond 
financing and the agreement in question in that case.  
Therefore, we disapprove McGee v. Torrance Unified School 
Dist., supra, 49 Cal.App.5th 814 insofar as it addresses the 
precise issue we decide here.  We express no opinion regarding 
the other issues decided by the court in that case. 
Finally, the Contractor makes a policy argument that is 
unrelated to the text of section 53511.  The Contractor correctly 
notes that education has a special status in California, and the 
Contractor emphasizes the particular need school districts have 
for quick validation of lease-leaseback arrangements like the 
one here, thus protecting such arrangements from attacks 
brought by disgruntled contractors who were not selected for the 
project.  The Contractor further warns that because of the 
holdings of Davis I and Davis II, school districts are already 
abandoning lease-leaseback arrangements like the one at issue 
here (i.e., ones that are independently financed), and they will 
continue to do so.  To demonstrate the scope of this issue, the 
Contractor quotes the amicus curiae letter of the Long Beach 
Unified School District.  That letter states:  “The Long Beach 
Unified School District is the fourth largest public K–12 school 
district in the state . . . .  [¶]  The Long Beach Unified School 
District is currently executing approximately $3.0B in campus 
improvement projects approved and funded by local general 
obligations bonds. . . .  The District considers the Lease-
Leaseback delivery model to be a valuable method to bring 
timely & cost effective projects to our students.” 
The Contractor’s arguments raise legitimate and weighty 
policy concerns to which we are not unsympathetic.  Yet, 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
36 
whether the people of the state are best served by a method of 
school construction that avoids competitive bidding, favors long-
term partnering relationships with contractors, and allows for 
quick validation of construction deals, insulating such deals 
from subsequent attack, or whether, by contrast, the people are 
best served by a method of school construction that favors price 
competition among contractors and avoids favoritism, is a policy 
question best left to the Legislature.  The legal issue before us 
is the scope of the term “contracts” in section 53511, and for the 
reasons explained, that term does not in our view include lease-
leaseback arrangements like the one at issue here. 
 
DAVIS v. FRESNO UNIFIED SCHOOL DISTRICT 
Opinion of the Court by Jenkins, J. 
 
37 
IV. CONCLUSION 
Because section 53511 is the only theory defendants relied 
on below for asserting that plaintiff was obligated to bring his 
present challenge as a validation action and because the lease-
leaseback arrangement at issue here is not a “contract[]” for 
purposes of section 53511, we agree with the Court of Appeal 
that the validation statutes do not apply.  The Court of Appeal 
also concluded that plaintiff’s first amended complaint 
adequately alleged a taxpayer action under Code of Civil 
Procedure section 526a, and we did not grant review to consider 
that aspect of the court’s decision, therefore the litigation can 
proceed based on that theory of standing.  We affirm the 
judgment of the Court of Appeal and remand the matter to that 
court for further proceedings consistent with this opinion. 
JENKINS, J. 
 
We Concur: 
GUERRERO, C. J. 
CORRIGAN, J. 
LIU, J. 
KRUGER, J. 
GROBAN, J. 
EVANS, J.
 
 
See next page for addresses and telephone numbers for counsel who 
argued in Supreme Court. 
 
Name of Opinion  Davis v. Fresno Unified School District 
__________________________________________________________  
 
Procedural Posture (see XX below) 
Original Appeal  
Original Proceeding 
Review Granted (published) XX 57 Cal.App.5th 911 
Review Granted (unpublished)  
Rehearing Granted 
__________________________________________________________  
 
Opinion No. S266344 
Date Filed:  April 27, 2023 
__________________________________________________________  
 
Court:  Superior  
County:  Fresno 
Judge:  Kimberly A. Gaab 
__________________________________________________________   
 
Counsel: 
 
Carlin Law Group and Kevin R. Carlin for Plaintiff and Appellant. 
 
Briggs Law Corporation, Cory J. Briggs and Janna M. Ferraro for 
California Association of Bond Oversight Committees as Amicus 
Curiae on behalf of Plaintiff and Appellant. 
 
Jonathan M. Coupal, Timothy A. Bittle and Laura E. Dougherty for 
Howard Jarvis Taxpayers Foundation as Amicus Curiae on behalf of 
Plaintiff and Appellant. 
 
Lang Richert & Patch, Mark L. Creede, Stan D. Blyth; Jones Hall and 
Charles F. Adams for Defendant and Respondent Fresno Unified 
School District. 
 
Fagen Friedman & Fulfrost, James Traber, Linna Loangkote; Robert J. 
Tuerck and D. Michael Ambrose for California School Boards 
Association’s Education Legal Alliance as Amicus Curiae on behalf of 
Defendant and Respondent Fresno Unified School District. 
 
 
 
Leone & Alberts, Louis A. Leone and Seth L. Gordon for Statewide 
Educational Wrap Up Program as Amicus Curiae on behalf of 
Defendant and Respondent Fresno Unified School District. 
 
Tao Rossini and Martin A. Hom for Coalition for Adequate School 
Housing, Association of California Construction Managers and 
Torrance Unified School District as Amici Curiae on behalf of 
Defendant and Respondent Fresno Unified School District. 
 
Whitney Thompson & Jeffcoach, Timothy L. Thompson, Mandy L. 
Jeffcoach; Moskovitz Appellate Team, Myron Moskovitz; Baker 
Manock & Jensen and Jerry H. Mann for Defendant and Respondent 
Harris Construction Company, Inc. 
 
Colantuono, Highsmith & Whatley, Michael G. Colantuono, Matthew 
C. Slentz and Conor W. Harkins for League of California Cities and 
California Special Districts Association as Amici Curiae on behalf of 
Defendants and Respondents.  
 
Lozano Smith, Harold M. Freiman and Arne B. Sandberg for 
California Association of School Business Officials as Amicus Curiae on 
behalf of Defendants and Respondents.
 
 
Counsel who argued in Supreme Court (not intended for 
publication with opinion): 
 
Kevin R. Carlin 
Carlin Law Group, APC 
4452 Park Boulevard, Suite 310 
San Diego, CA 92116 
(619) 615-5325 
 
Mark L. Creede 
Lang, Richert & Patch 
P.O. Box 40012 
Fresno, CA 93755 
(559) 228-6700 
 
Myron Moskovitz 
Moskovitz Appellate Team 
90 Crocker Avenue 
Piedmont, CA 94611 
(510) 384-0354