Opinion ID: 782799
Heading Depth: 4
Heading Rank: 2

Heading: Reasonable and Necessary

Text: 53 Because Santa Ana has substantially impaired its own contract, it has the burden of establishing that the trench cut ordinance is both reasonable and necessary to an important public purpose. Cayetano, 183 F.3d at 1106. Santa Ana is not free to consider substantial contractual impairments on a par with other policy alternatives. State of Nev. Employees Ass'n, Inc., 903 F.2d at 1228. A governmental entity can always find a use for extra money, especially when taxes do not have to be raised. If a State could reduce its financial obligations whenever it wanted to spend money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all. U.S. Trust, 431 U.S. at 26, 97 S.Ct. 1505 ( quoted in Cayetano, 183 F.3d at 1107). [C]omplete deference to a legislative assessment of reasonableness and necessity is not appropriate because the State's self-interest is at stake. Id. at 26, 97 S.Ct. 1505; see also Cayetano, 183 F.3d at 1107. 54
55 We generally consider the extent of the impairment as well as the public purpose to be served. Cayetano, 183 F.3d at 1107 ( citing United States Trust Co., 431 U.S. at 29, 97 S.Ct. 1505). However, an impairment is not a reasonable one if the problem sought to be resolved by an impairment of the contract existed at the time the contractual obligation was incurred. Cayetano, 183 F.3d at 1107 ( quoting Ma. Cmty. Coll. v. Commonwealth, 420 Mass. 126, 649 N.E.2d 708, 713 (1995)). Changed circumstances and important government goals do not make an impairment reasonable if the changed circumstances are of degree and not kind. U.S. Trust, 431 U.S. at 32, 97 S.Ct. 1505. 56 For example, in U.S. Trust, before issuing bonds, the Port Authority was aware of the need for mass transportation and the likelihood that commuter rail-lines would operate at a deficit. Id. at 21, 97 S.Ct. 1505. One covenant securing the bonds prevented the Port Authority from investing in deficit producing commuter railroads. Id. at 3, 31, 97 S.Ct. 1505. Twelve years later, the Port Authority repealed the covenant, partly in response to the national energy crisis of the 1970s. Id. at pp. 13-14, 97 S.Ct. 1505. In addition, public recognition of the importance of [m]ass transportation, energy conservation, and environmental protection, matters of important and ... legitimate public concern, had grown. Id. at p. 28, 97 S.Ct. 1505. Despite the established need and important public goals, the Court concluded the repeal violated the Contract Clause: the Port Authority knew of the problems from the outset, and the changed circumstances had not caused the covenant to function in a substantially different manner than intended. See id. at 32, 97 S.Ct. 1505 57 On the other hand, if a statute causes unforeseen and unintended consequences such that private parties would obtain windfalls they never expected, later amendment to realign a statute with the parties' expected bargain may be reasonable. See U.S. Trust, 431 U.S. at 31, 97 S.Ct. 1505 ( discussing El Paso v. Simmons, 379 U.S. 497, 515-16, 85 S.Ct. 577, 13 L.Ed.2d 446 (1965)). In El Paso v. Simmons, a 19th century Texas statute regulating government land sales granted defaulting purchasers and their vendees generous redemption rights. With time, these rights created an unexpected imbroglio over land titles.... Id. at 513, 85 S.Ct. 577. Speculators would often purchase property and immediately default with the intent to reinstate should valuable gas or minerals be discovered. Id. at 512-13, 85 S.Ct. 577. In response, Texas limited the redemption right to the last purchaser and within five years of forfeiture. Id. at 511, 85 S.Ct. 577. 58 In that case, the impairment of the defaulting purchasers' contract rights was reasonable. Id. at 516-17, 85 S.Ct. 577. It could not seriously be contended that the buyer was substantially induced to enter into these contracts on the basis of a defeasible right to reinstatement in case of his failure to perform, or that he interpreted that right to be of everlasting effect. Id. at 514, 85 S.Ct. 577. Texas' past policy clearly indicated the right did not extend in perpetuity. Id. A contrary construction would render the buyer's obligations under the contract quite illusory while obliging the State to transfer the land whenever the purchaser decided to comply with the contract.... Id. Limiting redemption to five years was a mild burden for purchasers who truly intended to meet their contractual obligations, as opposed to engage in a pattern of defaulting. See id. at 516-17, 85 S.Ct. 577. The mild impairment of the right to speculate was warranted given the problem of clouded land title and the former system's negative effect on Texas' vital interest in administering its school lands.... Id. at 515, 85 S.Ct. 577. 59 Here, Santa Ana admits the harms covered by the trench cut ordinance were explicitly anticipated in 1938.... Def.'s Opp'n, p. 13. For example, section 9 requests tunneling or boring, where practicable, rather than excavation so as not to disturb the foundation of such paved or macadamized street.... As in U.S. Trust where the Port Authority anticipated burgeoning mass transportation needs, Santa Ana admittedly knew that trench cuts damaged streets. Whereas the Port Authority had not anticipated the degree of the future need for mass transportation, Santa Ana arguably miscalculated the degree of harm to city streets from trench cuts. But Santa Ana cannot alter the 1938 Franchise whenever later studies reveal the extent of damage from trenching is greater than anticipated in 1938. Therefore, to the extent Santa Ana seeks to charge the Gas Company for harms admittedly known in 1938, the trench cut ordinance is unreasonable. 60 In a conclusory fashion, Santa Ana asserts that the trench cut ordinance is reasonable. Def.'s Opp'n, pp. 14-16. 9 Without specific citation or argument based thereon, Santa Ana mentions its separate statement of disputed facts and Declaration of George Alvarez, the City Engineer. Id. p. 14. Unexplained general references to the record are inadequate, see Fed.R.Civ.P. 56(c); see also Cal. Practice Guide: Federal Civil Procedure Before Trial § 14:101.1, at 14-24.2, especially since Santa Ana has the burden of establishing reasonableness. Cayetano, 183 F.3d at 1106. 61 To the extent Defendant's Statement of Genuine Issues in Opposition refers to six exemptions in the trench cut ordinance, it offers no explanation as to how those exemptions render the impairment reasonable. In any event, Santa Ana has no right to charge the Gas Company for trench cuts repaired in conformity with section 10. It has unilaterally imposed costs that were not assigned to the Gas Company by the 1938 Franchise. 10 The Gas Company has also lost the right to repair streets pursuant to sections 10 and 11. Balanced against these impairments is Santa Ana's desire to shift the costs of street repairs and maintenance onto the Gas Company and improve coordination. These purposes deserve slight consideration because a governmental entity can always find a use for extra money.... U.S. Trust, 431 U.S. at 26, 97 S.Ct. 1505. 62 Therefore, the trench cut ordinance is unreasonable because damage to streets was foreseen in 1938 and because the extent of infringement is not warranted by Santa Ana's stated goals. 63
64 In any event, Santa Ana cannot satisfy its heavy burden on necessity. The trench cut ordinance is not necessary if more moderate alternatives would serve Santa Ana's purposes equally well without impairing the 1938 Franchise. Cayetano, 183 F.3d at 1107; see also U.S. Trust, 431 U.S. at 29-30, 97 S.Ct. 1505. When a state or city impairs its own agreements by imposing additional financial burdens on a private party, obvious more moderate alternatives include raising revenues through higher taxes or preserving funds through budget restrictions. Cayetano, 183 F.3d at 1107. In the last thirty-five years, no Ninth Circuit or Supreme Court case has found a statute or ordinance necessary when the law in question altered a financial term of an agreement to which a state entity was a party. See, e.g., Cayetano, 183 F.3d at 1107; State of Nev. Employees Ass'n, Inc., 903 F.2d at 1228; Cont'l Ill. Nat'l Bank & Trust Co., 696 F.2d at 702; U.S. Trust, 431 U.S. at 29-31, 97 S.Ct. 1505. 65 The one modern exception is El Paso v. Simmons, 379 U.S. 497, 85 S.Ct. 577, 13 L.Ed.2d 446 (1965). In that case, Texas did not completely repeal or render meaningless the purchasers' redemption rights. The five-year limit was quite clearly necessary to cure the problem of clouded title and enable Texas to operate its school lands program, while protecting the purchasers' reasonable expectations. See id. at 515-16, 85 S.Ct. 577; see also U.S. Trust, 431 U.S. at 29-31, 97 S.Ct. 1505 (approving of reasoning in El Paso ). 66 The trench cut ordinance is designed to raise revenues to repair and maintain streets as well as encourage coordination among utilities and Santa Ana in the planning of trench cut work and road repairs. Santa Ana has other tools available to raise revenues, such as its taxing power. Santa Ana could also promote and/or require coordination between itself and utilities by, for example, (1) notifying them of planned street work, (2) establishing periodic meetings between their respective representatives, or (3) entering into separate agreements with the utilities to ensure trench cuts are performed during periods when the useful life will not be significantly impacted. In short, numerous alternatives exist, and Santa Ana has not claimed to have exhausted them. 67 As proof of necessity, Santa Ana cites scientific studies describing the harms caused by trench cuts. At oral argument, counsel also pointed out the burden of determining loss of useful life on a case-by-case basis. We do not question the usefulness or practicality of passing a trench cut ordinance. The issue is whether it is necessary to adopt an ordinance that substantially impairs the Gas Company's rights. Unlike El Paso, where limiting the right of redemption was quite clearly necessary to resolve the land title problems, Santa Ana does not need to raise funds for street repairs and maintenance through imposition of trench cut fees on the Gas Company. It can designate moneys from its general fund. 68 Santa Ana has failed to explain, nor can we detect from the evidence submitted, why impairment is necessary in this case. If Santa Ana's recognition of higher costs alone sufficed, few if any contracts with government entities would be safe from impairment.