Court Opinion

ID: 4425254
Source: CourtListenerOpinion
Date Created: 2019-08-14 00:02:03.63473+00
Date Added: 2024-06-11T14:49:17.305972
License: Public Domain

Filed 7/16/19; Modified and certified for publication 8/13/19 (order attached)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                    SECOND APPELLATE DISTRICT

                               DIVISION SEVEN

A.J. FISTES CORPORATION,                        B283662

        Plaintiff and Appellant,                (Los Angeles County
                                                Super. Ct. No. BS161779)
                        v.

GDL BEST CONTRACTORS,
INC., et al.,

     Defendants and
Respondents.

     APPEAL from a judgment of the Superior Court of Los
Angeles County, Teresa A. Beaudet, Judge. Reversed and
remanded.
     Carlin Law Group and Kevin R. Carlin for Plaintiff and
Appellant.
     Lanak & Hanna, Francis J. Lanak and Mac W. Cabal for
Defendants and Respondents.

                         __________________________
       Plaintiff A.J. Fistes Corporation (Fistes) appeals from a
judgment entered after the trial court sustained without leave to
amend the demurrer filed by defendants GDL Best Contractors,
Inc. (GDL) and its officers, Francisco M. Lopez, Jose C. Lopez,
and Benjamin Lopez (collectively, the Lopezes), to Fistes’s third
amended complaint. Fistes brought suit against GDL, the
Lopezes, and the Montebello Unified School District (the
District), seeking a declaration the contract the District awarded
to GDL for the remediation of school properties was void due to
violations of the Public Contract Code and the Government Code.
Fistes alleged it was the low bidder on the contract. Fistes also
sought a constructive trust against GDL in favor of the District.
In sustaining the demurrer, the trial court found Fistes lacked
standing to sue GDL and the Lopezes, and Fistes’s third
amended complaint was fatally uncertain. Fistes later
voluntarily dismissed the District without prejudice. On appeal,
Fistes contends it has standing as a state taxpayer because the
District is an agency of the state and state money wholly funded
the remediation project.
       While Fistes’s appeal was pending, the Legislature
amended Code of Civil Procedure section 526a,1 effective
January 1, 2019, to specify what types of tax payments are
sufficient to establish taxpayer standing. We invited the parties
to submit supplemental briefing addressing the effect of the
amendment. In its letter brief, Fistes contends the amendment
to section 526a applies to this case because the change in law
does not alter the legal consequences of defendants’ past

1    All further undesignated statutory references are to the
Code of Civil Procedure.

                                2
conduct.2 We agree and conclude Fistes alleged facts sufficient to
establish standing under section 526a based on its payment of
state taxes that fund the District.
       The trial court also erred in sustaining the demurrer based
on uncertainty without leave to amend. Although Fistes has not
adequately alleged a cause of action against the Lopezes, it has
made a sufficient showing for leave to amend.
       We reverse and remand for further proceedings. On
remand, the trial court should grant Fistes leave to amend its
complaint.

2      GDL and the Lopezes argue in their supplemental brief the
amendment to section 526a did not confer standing on Fistes
because Fistes’s payment of taxes to the state was insufficient for
standing under the amendment, and Fistes’s standing argument
should be rejected because Fistes opposed the demurrer based
only on its standing as a disappointed bidder, not a taxpayer.
These contentions are not persuasive. As to the second
contention, we decline to find forfeiture because it was GDL and
the Lopezes who raised Fistes’s standing as a state taxpayer in
their demurrer, and the trial court addressed in its ruling
whether Fistes had taxpayer standing under former section 526a.
(People v. McCullough (2013) 56 Cal. 4th 589, 593 [“‘“The purpose
of [the forfeiture] rule is to encourage parties to bring errors to
the attention of the trial court, so that they may be corrected.”’”];
Boyle v. CertainTeed Corp. (2006) 137 Cal. App. 4th 645, 649 [“The
critical point for preservation of claims on appeal is that the
asserted error must have been brought to the attention of the
trial court.”].)

                                  3
      FACTUAL AND PROCEDURAL BACKGROUND

A.     The Fistes and GDL Bids and the District’s Contract Award
       In February 2016 the District issued specifications for a
project entitled, “Exterior Environmental Remediation and
Painting at Various Sites” (the project).3 The project involved
painting, improvements, and the removal of hazardous materials
at several elementary school sites in the District. The
specifications indicated the work was to be performed over “[a]
total of 30 consecutive calendar days.” (Boldface omitted.)
       The District opened bidding on the project on March 1,
2016. Fistes submitted a bid to complete the work for $1,127,900;
GDL submitted a bid for $2,555,000. On March 7 the District
informed Fistes its bid was deemed nonresponsive because the
company had failed to include required financial statements, and
the bid was missing a corporate seal. Fistes sent the District a
letter on March 9 protesting the rejection of its bid. On April 7,
2016 the District awarded the contract to GDL.

B.    Department 85 Proceedings
      On April 19, 2016 Fistes filed a petition for a writ of
mandate against the District, naming GDL as a real party in
interest. On April 27 Fistes filed an ex parte application for
issuance of an alternative writ of mandate and a temporary
restraining order. The District and GDL opposed the application.
GDL argued it had “begun substantial performance and [was]
nearing completion of its performance on the Project.” (Italics
omitted.) On April 27, after hearing argument from counsel, the

3    The factual summary is taken from the third amended
complaint and the attached exhibits.

                                4
trial court denied the application, but set a hearing on the
petition for November 15, 2016.4
       On August 8, 2016 Fistes filed a verified first amended
petition for writ of mandate and complaint for declaratory,
injunctive, and other equitable relief. Fistes named the District
as a defendant and respondent and GDL as a defendant and real
party in interest. Fistes alleged the District’s governing board
illegally awarded GDL the project contract, which Fistes sought
to declare void. Fistes alleged the District violated multiple
provisions of the Public Contract Code and Government Code,
including accepting GDL’s bid proposal despite its failure to
prequalify for the contract (Pub. Contract Code, § 20111.5, subd.
(d)) and contracting with GDL despite a conflict of interest (Gov.
Code, § 1090). Fistes sought a judgment declaring the award of
the contract to GDL void or invalid, a constructive trust in favor
of the District and taxpayers, injunctive relief, and a peremptory
writ of mandate directing the District to rescind all illegal
payments to GDL and to deliver to Fistes a number of requested
documents.
       On September 28, 2016 Fistes filed an ex parte application
seeking continuation of the trial, a briefing schedule on two
discovery motions, and leave to amend to add a reference to
Public Contract Code section 20111.6, which requires prospective
bidders on specified public projects to submit prequalification
questionnaires and financial statements. GDL opposed the
application, arguing Fistes’s petition for a writ of mandate was
“moot as the Project has now been completed,” and Fistes lacked
standing to bring its claims. After a hearing, on September 28,

4     Judge James C. Chalfant presided over the Department 85
proceedings.

                                5
2016 the trial denied Fistes’s ex parte application, dismissed the
writ of mandate cause of action as moot, and granted Fistes leave
to amend.5 The trial court transferred the case from the writs
and receivers department (Department 85) to Department 50.

C.    Department 50 Proceedings
      1.     Fistes’s third amended complaint
      On October 18, 2016 Fistes filed a second amended
complaint. Following the filing of a demurrer by GDL, but before
a hearing, Fistes filed the operative third amended complaint.
Fistes named the District, GDL, and the Lopezes as defendants.
      The third amended complaint alleged “[a]t all times
relevant hereto [Fistes] has paid taxes to the State of California
that were used directly and/or indirectly to make the payments
that are the subject of this action and is interested in assuring
[the District] does not pay money out under contracts that are
awarded in violation of California law.” Further, the project “was
funded by the State of California via the Leroy F. Greene School
Facilities Act of 1998 . . . and/or funds from state school bonds.”
Fistes also alleged the District “paid GDL $2,416,470.62 from the
California State School Facility Program” for its work on the
project.
      Fistes alleged the District violated Public Contract Code
sections 20111.5 and 20111.6 by failing to require bidders to
prequalify for the contract. Fistes also alleged conflicts of
interest between the District and GDL, in violation of
Government Code section 1090. Specifically, the District and

5      On our own motion, we augment the record to include the
trial court’s September 28, 2016 minute order. (Cal. Rules of
Court, rule 8.155(a)(1)(A).)

                                 6
GDL had agreed GDL would perform other contracts for less
compensation in return for the District awarding the project to
GDL. In addition, the District’s “officers, employees and/or
consultants (including GDL)” had financial and nonfinancial
interests in the contract.
       Fistes alleged Francisco M. Lopez, Benjamin Lopez, and
Jose C. Lopez were, respectively, the president, vice president,
and secretary-treasurer of GDL. Fistes alleged as to the Lopezes:
“GDL was used by [the Lopezes] to perpetrate fraud (i.e. obtain
payment from [the District] on an illegal contract), circumvent a
statute (i.e. not comply with the Public Contract Code statutes
applicable to school district bidder pre-qualification and contract
awards) and/or accomplish some other wrongful or inequitable
purpose (i.e. obtain payment from [the District] on an illegal
contract), such that justice and equity require the Court to
disregard the corporate entity separateness of GDL from [the
Lopezes] and treat GDL’s acts and liabilities as if they were those
of [the Lopezes] since they were the ones actually controlling
GDL as its only officers, directors and shareholders and they
benefitted most from [the District]’s illegal payments to GDL.
For purposes of this action [the Lopezes] are the alter egos of
GDL such that their liability should be joint and several with
GDL . . . .” Further, GDL “pass[ed] significant portions of [the]
$2,416,470.62 to [the Lopezes] in the form of increased salary,
bonuses, distributions, shareholder advances and other forms of
compensation, value and/or other benefits that they would not
have received but for the monies GDL received from [the District]
on the Project.”
       Fistes sought a judgment declaring the contract between
the District and GDL “void, invalid and/or that amounts paid

                                 7
thereunder must be reduced and returned to [the District] as
provided in Public Contract Code §5110.” Fistes also sought to
establish a constructive trust in favor of the District against GDL
and the Lopezes and a judgment ordering GDL and the Lopezes
“to repay to [the District] (or Plaintiff on behalf of and for the
benefit of [the District]) all excess/illegal payments received” for
performance of the contract.

       2.    Defendants’ demurrer
       GDL and the Lopezes demurred to the third amended
complaint. They argued Fistes lacked taxpayer standing under
former section 526a6 because it alleged only that it had paid taxes
to the state, not taxes within the District. Defendants also
argued the third amended complaint was uncertain because it
failed separately to state the causes of action, despite referencing
multiple legal theories, including fraud, unjust enrichment,
constructive trust, and “alter ego,” and it did not identify which
defendants Fistes was seeking to hold liable under which
theories. Defendants contended the third amended complaint
failed to state a cause of action against the Lopezes, failed to
allege facts sufficient to support alter ego liability, and failed to

6     Former section 526a provided, “An action to obtain a
judgment, restraining and preventing any illegal expenditure of,
waste of, or injury to, the estate, funds, or other property of a
county, town, city or city and county of the state, may be
maintained against any officer thereof, or any agent, or other
person, acting in its behalf, either by a citizen resident therein, or
by a corporation, who is assessed for and is liable to pay, or,
within one year before the commencement of the action, has paid,
a tax therein.” As discussed below, in 2018 the Legislature
amended section 526a, effective January 1, 2019.

                                  8
plead facts constituting a cause of action for fraud with adequate
specificity.
       Fistes opposed the demurer, arguing it had standing as a
“disappointed bidder” acting in the public interest. Fistes
contended its third amended complaint was not uncertain, but
requested leave to amend if the trial court concluded otherwise.
Fistes also requested leave to amend to reassert its cause of
action for a writ of mandate, arguing the court should find its
claim was not moot because public contracts would always be
completed before a legal challenge could be adjudicated. Fistes
sought leave to plead additional facts to address mootness and to
support recovery of its bid preparation costs from the District.
       Fistes also argued it had sufficiently alleged alter ego
liability against the Lopezes and a cause of action for restitution.
In the alternative, Fistes requested leave to amend, arguing it
could allege liability of the Lopezes based on their unjust
enrichment from the contract, pointing to an independent audit
of the contract relating to alleged financial improprieties. Fistes
filed an attorney declaration in support of this request, attaching
several news articles regarding the Legislature’s initiation of an
audit of the District and the District’s firing of its
superintendent, chief financial officer, and chief business officer,
as well as letters from a third party to the District regarding an
audit of the District the company was hired to perform.
       In their reply, GDL and the Lopezes argued Fistes had no
standing to bring an action against GDL for return of the funds
the District paid under the contract, noting Fistes sued as a
taxpayer, not a disappointed bidder. Further, any remedy Fistes
had against the District was limited to an action for a writ of

                                 9
mandate to compel the District to perform its ministerial duties,
not a claim against GDL and the Lopezes as private parties.
      After a hearing, on April 28, 2017 the trial court sustained
the demurrer without leave to amend. The trial court found
Fistes lacked standing as a taxpayer under former section 526a
because Fistes “does not allege that it is a taxpayer in the District
of Montebello but rather a taxpayer in the state.” Further, Fistes
did not have standing as a disappointed bidder to bring an action
against GDL and the Lopezes. The trial court also sustained the
demurrer based on uncertainty, finding the third amended
complaint “does not adequately apprise [GDL and the Lopezes] of
the causes of actions they must defend.” The court found the
third amended complaint violated California Rules of Court, rule
2.112,7 “because it does not separately state each cause of action
and does not specifically state against whom the cause of action is
directed. Rather, the entirety of the [third amended complaint] is
based on allegations of improper conduct by [the District].” The
court also denied Fistes’s request for leave to amend to plead
standing on a claim for bid preparation costs, stating “there is no
basis for a claim for bid preparation costs against [GDL and the
Lopezes].”8

7     California Rules of Court, rule 2.112 provides, “Each
separately stated cause of action, count, or defense must
specifically state: [¶] (1) Its number (e.g., ‘first cause of action’);
[¶] (2) Its nature (e.g., ‘for fraud’); [¶] (3) The party asserting it
if more than one party is represented on the pleading (e.g., ‘by
plaintiff Jones’); and [¶] (4) The party or parties to whom it is
directed (e.g., ‘against defendant Smith’).”
8    The trial court did not address Fistes’s request for leave to
amend to reassert its cause of action for a writ of mandate
against the District.

                                  10
      The trial court entered judgment on June 1, 2017. Fistes
timely appealed. On August 4, 2017 Fistes voluntarily dismissed
the District without prejudice.

                          DISCUSSION

A.     Standard of Review
       “In reviewing an order sustaining a demurrer, we examine
the operative complaint de novo to determine whether it alleges
facts sufficient to state a cause of action under any legal theory.
[Citation.] Where the demurrer was sustained without leave to
amend, we consider whether the plaintiff could cure the defect by
an amendment.” (T.H. v. Novartis Pharmaceuticals Corp. (2017)
4 Cal.5th 145, 162; accord, Centinela Freeman Emergency
Medical Associates v. Health Net of California, Inc. (2016)
1 Cal.5th 994, 1010.) When evaluating the complaint, “we
assume the truth of the allegations.” (Lee v. Hanley (2015)
61 Cal. 4th 1225, 1230; accord, McCall v. PacifiCare of Cal., Inc.
(2001) 25 Cal. 4th 412, 415.)
       A trial court abuses its discretion by sustaining a demurrer
without leave to amend where “‘there is a reasonable possibility
that the defect can be cured by amendment.’” (Loeffler v. Target
Corp. (2014) 58 Cal. 4th 1081, 1100; accord, City of Dinuba v.
County of Tulare (2007) 41 Cal. 4th 859, 865.) “‘The plaintiff has
the burden of proving that [an] amendment would cure the legal
defect, and may [even] meet this burden [for the first time] on
appeal.’” (Sierra Palms Homeowners Assn. v. Metro Gold Line
Foothill Extension Construction Authority (2018) 19 Cal.App.5th
1127, 1132; accord, Aubry v. Tri-City Hospital Dist. (1992)
2 Cal. 4th 962, 971.)

                                11
       “‘Both standing and the interpretation of statutes are
questions of law to which we typically apply a de novo standard
of review.’” (California DUI Lawyers Assn. v. Department of
Motor Vehicles (2018) 20 Cal.App.5th 1247, 1258 (DUI Lawyers);
accord, San Luis Rey Racing, Inc. v. California Horse Racing Bd.
(2017) 15 Cal.App.5th 67, 73.) Because the facts relevant to
taxpayer standing are not in dispute, we review de novo whether
Fistes has standing to sue. We consider “the statute’s language
and structure, bearing in mind that our fundamental task in
statutory interpretation is to ascertain and effectuate the law’s
intended purpose.” (Weatherford v. City of San Rafael (2017)
2 Cal.5th 1241, 1246 (Weatherford); accord, City of San Jose v.
Superior Court (2017) 2 Cal.5th 608, 616.)

B.    The Third Amended Complaint Alleges Facts Sufficient To
      Establish Taxpayer Standing Under Section 526a
      1.     Taxpayer standing under section 526a
      “At its core, standing concerns a specific party’s interest in
the outcome of a lawsuit. [Citations.] We . . . require a party to
show that he or she is sufficiently interested as a prerequisite to
deciding, on the merits, whether a party’s challenge to legislative
or executive action independently has merit.” (Weatherford,
supra, 2 Cal.5th at p. 1247; accord, People ex rel. Becerra v.
Superior Court (2018) 29 Cal.App.5th 486, 495 [“‘Standing is a
threshold issue necessary to maintain a cause of action, and the
burden to allege and establish standing lies with the plaintiff.’”].)
Under section 367, “‘[o]nly a real party in interest has standing to
prosecute an action, except as otherwise provided by statute.’”
(Summers v. Colette (2019) 34 Cal.App.5th 361, 367; accord,
Turner v. Seterus, Inc. (2018) 27 Cal.App.5th 516, 525.)

                                 12
      “Section 526a provides a mechanism for controlling illegal,
injurious, or wasteful actions by [government] officials,” which
“remains available even where the injury is insufficient to satisfy
general standing requirements under section 367.” (Weatherford,
supra, 2 Cal.5th at p. 1249; accord, DUI Lawyers, supra,
20 Cal.App.5th at p. 1258 [“‘However strict the concept of
standing may be in other contexts, it has been considerably
relaxed by section 526a . . . .’”].) For a taxpayer to establish
standing under section 526a, “‘no showing of special damage to
the particular taxpayer has been held necessary.’” (Holloway v.
Showcase Realty Agents, Inc. (2018) 22 Cal.App.5th 758, 770;
accord, Chiatello v. City and County of San Francisco (2010)
189 Cal. App. 4th 472, 481.) “‘The primary purpose of [section
526a] . . . is to “enable a large body of the citizenry to challenge
governmental action which would otherwise go unchallenged in
the courts because of the standing requirement.” [Citation.] [¶]
California courts have consistently construed section 526a
liberally to achieve this remedial purpose.’” (California
Taxpayers Action Network v. Taber Construction, Inc. (2017)
12 Cal.App.5th 115, 141; accord, White v. Davis (1975) 13 Cal. 3d
757, 763 [interpreting former § 526a in light of its purpose to
provide “a general citizen remedy for controlling illegal
governmental activity”].)
      The courts have upheld taxpayer standing under section
526a in suits against school districts to obtain a judgment
restraining or preventing the waste of public funds. (See Los
Altos Property Owners Assn. v. Hutcheon (1977) 69 Cal. App. 3d
22, 24, fn. 1, 30 [property owners’ association and school district
residents had standing to sue school district to enjoin junior high
school consolidation plan]; accord, Taxpayers for Accountable

                                13
School Bond Spending v. San Diego Unified School Dist. (2013)
215 Cal. App. 4th 1013, 1032 [taxpayer association had standing to
sue school district where individual members of association were
residents of district and taxpayers].)
       Further, taxpayers have standing under section 526a to sue
“to set aside void or illegal contracts,” including by bringing suit
against a private entity to disgorge public funds paid by a local
entity on an allegedly illegal public contract. (Holloway v.
Showcase Realty Agents, Inc., supra, 22 Cal.App.5th at pp. 770-
771 [taxpayer had standing under former § 526a to sue water
district, seller of property, realty agency, and broker to declare
contract for sale of property to water district void and to disgorge
funds from seller and broker]; California Taxpayers Action
Network v. Taber Construction, Inc., supra, 12 Cal.App.5th at
p. 145, fn. 25 [taxpayer organization had standing under former
§ 526a to bring claim against construction contractor and school
district to void lease-leaseback agreement based on conflict of
interest]; see Miller v. McKinnon (1942) 20 Cal. 2d 83, 96 [county
taxpayer had standing to sue county officers and private
partnership to recover money paid by county to partnership for
repairs to county quarry based on noncompliance with
competitive bidding statute].) As the Supreme Court explained
in Miller v. McKinnon, at page 96, “[A] cause of action exists to
recover from the person receiving [public] money illegally paid,
independent of any statute, and it is also clear that the action
may be prosecuted by a taxpayer in his name on behalf of the
public agency.”
       The Supreme Court in Weatherford considered what tax
payments are sufficient to grant taxpayer standing under former
section 526a. (Weatherford, supra, 2 Cal.5th at p. 1246.) The

                                14
Weatherford court reversed the decision of the Court of Appeal,
which had concluded former section 526a required payment of a
local property tax to sue the local entity, but declined to
“delineate the precise outer limits of the statute’s operation.”
(Weatherford, at pp. 1250-1253.) In her concurrence, Chief
Justice Cantil-Sakauye “urge[d] the Legislature to revisit section
526a and amend the statute in a manner that makes clear what
kinds of taxes are sufficient to establish standing to sue a
particular government entity for alleged wasteful or illegal
expenditures.” (Id. at p. 1253 (conc. opn.).) In 2018 the
Legislature amended section 526a, effective January 1, 2019,
responding to the Chief Justice’s call for clarification.9 (See
Stats. 2018, ch. 319, § 1 (Assem. Bill No. 2376).)

      2.   Section 526a, as amended, applies to this action
      The 2018 amendment to section 526a clarifies the scope of
tax payments that qualify to confer taxpayer standing. Section

9     In its analysis of Assembly Bill No. 2376, the Assembly’s
Concurrence in Senate Amendments explained the amendment to
section 526a was in direct response to Chief Justice Cantil-
Sakauye’s concurrence in Weatherford, “to make clear that sales
and use taxes, income taxes, business license taxes, and property
taxes, among others, are sufficient to establish standing under
the statute.” (Assem. Conc. in Sen. Amend., com. on Assem. Bill
No. 2376 (2017-2018 Reg. Sess.) Aug. 23, 2018, p. 2; see Sen.
Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of
Assem. Bill No. 2376 (2017-2018 Reg. Sess.) as amended July 5,
2018, pp. 2-3 [The amendment “clarifies the standing
requirements” under section 526a in response to Weatherford to
address “[t]he ambiguity of current law [that] prevents the public
from establishing taxpayer standing under Section 526a as the
Legislature intended.”].)

                                15
526a, subdivision (a), now provides, “An action to obtain a
judgment, restraining and preventing any illegal expenditure of,
waste of, or injury to, the estate, funds, or other property of a
local agency, may be maintained against any officer thereof, or
any agent, or other person, acting in its behalf, either by a
resident therein, or by a corporation, who is assessed for and is
liable to pay, or, within one year before the commencement of the
action, has paid, a tax that funds the defendant local agency,
including, but not limited to, the following: [¶] (1) An income
tax. [¶] (2) A sales and use tax or transaction and use tax
initially paid by a consumer to a retailer. [¶] (3) A property tax,
including a property tax paid by a tenant or lessee to a landlord
or lessor pursuant to the terms of a written lease. [¶] (4) A
business license tax.” (Italics added.)
       In its supplemental letter brief, Fistes argued the
amendment to section 526a applies to this case because it would
not alter defendants’ liability for past conduct and would not
deprive defendants of any substantive defense.10 We agree the
amendment is properly applied prospectively to confer standing
on Fistes.
       There is a “presumption that statutes operate prospectively
absent a clear indication the voters or the Legislature intended
otherwise.” (Californians for Disability Rights v. Mervyn’s, LLC
(2006) 39 Cal. 4th 223, 230 (Mervyn’s); accord, In re W.R. (2018)
22 Cal.App.5th 284, 292 [“Statutes are presumed to operate
prospectively absent a clear indication the voters or the
Legislature intended otherwise.”].) However, “‘[i]n deciding

10    GDL and the Lopezes do not address in their supplemental
brief whether the amendment to section 526a applies
prospectively to this case.

                                16
whether the application of a law is prospective or retroactive, we
look to function, not form. [Citations.] We consider the effect of a
law on a party’s rights and liabilities, not whether a procedural
or substantive label best applies.’” (Mervyn’s, at pp. 230-231,
quoting Elsner v. Uveges (2004) 34 Cal. 4th 915, 936-937.) If the
law “‘“chang[ed] the legal consequences of past conduct by
imposing new or different liabilities based upon such conduct,”’”
or if it “‘“substantially affect[s] existing rights and obligations,”’”
then the law’s application to a pending case is impermissible,
absent the express intent of the Legislature to allow retroactive
application. (Mervyn’s, at p. 231; accord, Elsner, at p. 937.) If the
law does not alter the legal consequences of past conduct, then
application of the new law to a pending case is considered
prospective. (Mervyn’s, at p. 231 [“‘“‘It is a misnomer to designate
[such statutes] as having retrospective effect,’”’” because “‘“‘[t]he
effect of such statutes is actually prospective in nature since they
relate to the procedure to be followed in the future.’”’”].)
        The courts have applied changes in law to pending cases
both to limit and to expand the plaintiff’s standing. (See
Mervyn’s, supra, 39 Cal.4th at p. 231 [change in law limited
standing]; Amaral v. Cintas Corp. No. 2 (2008) 163 Cal. App. 4th
1157, 1199 (Amaral) [change in law expanded standing].) In
Mervyn’s, the Supreme Court considered the effect on pending
litigation of the passage of Proposition 64 (as amended by voters,
Gen. Elec. (Nov. 2, 2004)), which limited standing to sue under
California’s unfair competition and false advertising laws to
plaintiffs who “‘ha[ve] suffered injury in fact and ha[ve] lost
money or property as a result of such unfair competition.’”
(Mervyn’s, at p. 227.) The plaintiff had appealed from the trial
court’s judgment for defendant on plaintiff’s unfair competition

                                  17
claims. (Ibid.) While plaintiff’s appeal was pending, Proposition
64 took effect. (Mervyn’s, at p. 227.) The Court of Appeal denied
the defendant’s motion to dismiss the appeal for lack of standing,
declining to apply Proposition 64 to a pending case. (Mervyn’s, at
p. 228.) The Supreme Court reversed, concluding Proposition
64’s limitation on standing applied to the pending case.
(Mervyn’s, at pp. 232, 234.) The court reasoned, “To apply
Proposition 64’s standing provisions to the case before us is not to
apply them ‘retroactively,’ as we have defined that term, because
the measure does not change the legal consequences of past
conduct by imposing new or different liabilities based on such
conduct.” (Id. at p. 232.)
       The court in Amaral confronted the effect of a change in
law that expanded a plaintiff’s standing to sue. (Amaral, supra,
163 Cal.App.4th at p. 1199.) There, plaintiffs had filed suit
alleging violations of the Labor Code before the passage of the
Private Attorneys General Act of 2004 (PAGA; Lab. Code, § 2698
et seq.), which permitted aggrieved employees to recover Labor
Code penalties previously recoverable only by the Labor
Commissioner. (Amaral, at p. 1195.) After the enactment of
PAGA, plaintiffs amended their complaint in the trial court to
seek additional penalties under the new law. (Amaral, at
p. 1195.) On appeal, the defendant argued application of PAGA
to allow plaintiffs to assert claims under the new law would be
impermissibly retroactive. (Amaral, at pp. 1196-1197.) Relying
on Mervyn’s, the Court of Appeal concluded PAGA’s expansion of
standing was prospective in nature and properly applied to the
pending case. (Amaral, at p. 1199.) The court explained, “Our
case is the procedural opposite of Mervyn’s, because PAGA
granted private parties standing whereas Proposition 64 took

                                18
their standing away absent a showing of injury. But the high
court’s analysis of retroactivity is directly on point. Like
Proposition 64, PAGA did not impose new or different liabilities
on defendants based on their past conduct. [Citation.] It merely
changed the procedural rules governing who has authority to sue
for certain penalties.” (Ibid.)
       The reasoning of Mervyn’s and Amaral applies squarely to
the Legislature’s amendment of section 526a. The amendment
specifies which tax payments are sufficient to establish taxpayer
standing, but “does not change the legal consequences of
[defendants’] past conduct by imposing new or different liabilities
based on such conduct.” (Mervyn’s, supra, 39 Cal.4th at p. 232;
accord, Amaral, supra, 163 Cal.App.4th at p. 1197.) Defendants
do not dispute the claims asserted by Fistes would be actionable
if brought by an individual taxpayer who was a resident of the
District, and defendants’ liability remains the same regardless of
who brings the action.
       The fact the Legislature amended section 526a while the
appeal was pending does not alter our analysis. As discussed, in
Mervyn’s, Proposition 64 took effect to deprive the plaintiff of
standing while the case was pending on appeal. (Mervyn’s, supra,
39 Cal.4th at p. 227.) Further, where a plaintiff is deprived of
standing by a change in law during the pendency of an appeal, he
or she may seek leave to amend to substitute a new plaintiff with
standing, in accordance with “the established rules governing
leave to amend (Code Civ. Proc., § 473) and the relation back of
amended complaints.” (Branick v. Downey Savings & Loan Assn.
(2006) 39 Cal. 4th 235, 239 [plaintiffs deprived of standing by
Prop. 64 during pendency of appeal could seek leave to amend to
substitute new plaintiff].) Just as a plaintiff may seek leave to

                                19
amend for the first time on appeal to cure a legal defect (Sierra
Palms Homeowners Assn. v. Metro Gold Line Foothill Extension
Construction Authority, supra, 19 Cal.App.5th at p. 1132), a
plaintiff may take advantage of a change in law during an appeal
to bolster its standing on remand. Section 526a therefore applies
prospectively to the determination whether Fistes has standing
to assert its claims against GDL and the Lopezes.

      3.     Fistes has alleged facts sufficient to establish
             standing under section 526a
       GDL and the Lopezes contend Fistes has not alleged facts
sufficient to establish taxpayer standing because the third
amended complaint alleges only that Fistes pays taxes in the
state, not in the District. Fistes responds in its letter brief that
the allegation Fistes paid state taxes that were used to fund the
District’s payments to GDL under the contract is sufficient to
establish standing under section 526a, as amended. Fistes is
correct.
       Section 526a, subdivision (a), provides a corporation that
has been assessed and is liable to pay or has paid within one year
before the commencement of an action “a tax that funds the
defendant local agency” has standing to sue to restrain an illegal
expenditure of public funds by the local agency. The third
amended complaint alleges Fistes “paid taxes to the State of
California that were used directly and/or indirectly to make the
payments that are the subject of this action.”11 This allegation

11    The third amended complaint alleges further the project
“was funded by the State of California via the Leroy F. Greene
School Facilities Act of 1998 . . . and/or funds from state school
bonds,” and the District “paid GDL $2,416,470.62 from the

                                 20
alone alleges payment of “a tax that funds the defendant local
agency,” conferring standing on Fistes under section 526a.12
Counsel for GDL and the Lopezes asserted at oral argument that
under section 526a, the taxes paid by the plaintiff must fund the
project. This contention lacks merit because the plain language
of the amendment requires only that the tax fund the agency, not
the challenged agency action.
       Moreover, the allegation by Fistes that it paid state taxes
(assuming the taxes were assessed or paid within one year of the
filing of the complaint) is alone sufficient to confer standing
under section 526a. Under California’s public school system
funding scheme, “school districts receive their funding primarily
from the state.” (Kirchmann v. Lake Elsinore Unified School
Dist. (2000) 83 Cal. App. 4th 1098, 1111; accord, California
Redevelopment Assn. v. Matosantos (2011) 53 Cal. 4th 231, 243
[the state is “the principal financial backstop for local school

California State School Facility Program” for its work on the
project. The Leroy F. Greene School Facilities Act of 1998 (Ed.
Code, § 17070.10 et seq.) “governs the allocation of state funds for
school facilities construction.” (California Charter Schools Assn.
v. Los Angeles Unified School Dist. (2015) 60 Cal. 4th 1221, 1230;
see Sanchez v. State of California (2009) 179 Cal. App. 4th 467,
473 [“California established the State School Facilities Fund . . .
to pay for school construction projects. ([Ed. Code,] §§ 17070.40,
subd. (a)(1), 17070.63, subd. (a).)”].) The state funds set aside
under Education Code section 17070.40, subdivision (a)(1), for
school construction are sometimes referred to as the state “School
Facility Program.” (See Sanchez, at p. 473.)
12    Although Fistes did not allege it was assessed and liable to
pay or paid state taxes within one year of its filing of the action,
GDL and the Lopezes did not raise the timing of Fistes’s payment
of taxes as an issue in their demurrer or on appeal.

                                21
districts”].) The state’s funding of school districts includes
appropriations from the state’s general fund. (City of Cerritos v.
State of California (2015) 239 Cal. App. 4th 1020, 1039 [The
California Constitution “establishe[s] a constitutional minimum
funding level for education and require[s] the state to designate a
portion of the General Fund for public schools.”]; Kirchmann, at
p. 1111 [school districts are “‘dependent on [general fund]
appropriations by the Legislature for a major part of their
revenue’”].)
        Therefore, by alleging payment of state taxes, Fistes has
adequately alleged payment of “a tax that funds” the District.
(§ 526a, subd. (a).) By its plain terms, section 526a does not
require a corporation to make tax payments directly to the local
agency. The legislative history accompanying the 2018
amendment supports this conclusion. As the analysis of the
legislation by the Assembly Committee on Judiciary stated, “AB
2376 clarifies specifically what kinds of taxes are sufficient to
establish taxpayer standing. As a preliminary matter, the tax
must have been one that funds the defendant government (i.e.
not necessarily paid directly to the defendant government) . . . .”
(Assem. Com. on Judiciary, com. on Assem. Bill No. 2376 (2017-
2018 Reg. Sess.) Apr. 10, 2018, p. 4.) Nor does section 526a
impose a residency requirement on corporations, despite
imposing one on individuals. (§ 526a, subd. (a) [authorizing
action “either by a resident therein, or by a corporation”]; see
Irwin v. City of Manhattan Beach (1966) 65 Cal. 2d 13, 19 [Former
section 526a violated constitutional equal protection principles by
“giv[ing] a nonresident corporate taxpayer the right to maintain a
suit . . . but [denying] the same right to a nonresident taxpayer
who is a natural person.”].)

                                22
       The reliance by GDL and the Lopezes on Cornelius v. Los
Angeles County etc. Authority (1996) 49 Cal. App. 4th 1761 is
misplaced. The plaintiff in Cornelius, who was neither a resident
nor taxpayer of Los Angeles County, filed a lawsuit against the
Los Angeles County Metropolitan Transportation Authority to
enjoin its implementation of an affirmative action program. The
Court of Appeal rejected the plaintiff’s argument he had standing
to sue as a state taxpayer under former section 526a because
“[s]tate income taxes constitute only a partial and indirect source
of funding for the MTA,” accounting for only 15 percent of the
MTA’s funding. (Cornelius, at p. 1778.) Since Cornelius,
however, the Legislature has clarified that payment of a tax that
funds an agency, even partially and indirectly, confers standing
on a plaintiff. (§ 526a, subd. (a).)
       Fistes has therefore alleged facts sufficient to establish
standing to sue to restrain the alleged illegal expenditure of
public funds by the District.13

C.    The Trial Court Erred in Sustaining the Demurrer to the
      Third Amended Complaint Without Leave To Amend Based
      on Uncertainty
      Fistes contends the third amended complaint was not
uncertain because it adequately apprised GDL and the Lopezes of
the legal and factual bases for Fistes’s claims, and to the extent

13    Because we conclude Fistes has taxpayer standing under
the amendment to section 526a, we do not reach its arguments it
has alleged standing as a disappointed bidder, public interest
standing, or common law taxpayer standing. Nor do we address
whether Fistes had taxpayer standing under former section 526a.

                                23
the third amended complaint was deficient, the trial court should
have granted leave to amend. We agree on both points.
       “‘[D]emurrers for uncertainty are disfavored, and are
granted only if the pleading is so incomprehensible that a
defendant cannot reasonably respond.’” (Mahan v. Charles W.
Chan Ins. Agency, Inc. (2017) 14 Cal.App.5th 841, 848, fn. 3;
accord, Lickiss v. Financial Industry Regulatory Authority (2012)
208 Cal. App. 4th 1125, 1135.) “‘A demurrer for uncertainty is
strictly construed, even where a complaint is in some respects
uncertain, because ambiguities can be clarified under modern
discovery procedures.’” (Chen v. Berenjian (2019) 33 Cal.App.5th
811, 822, quoting Khoury v. Maly’s of California, Inc. (1993)
14 Cal. App. 4th 612, 616.)
       “[U]nder our liberal pleading rules, where the complaint
contains substantive factual allegations sufficiently apprising
defendant of the issues it is being asked to meet, a demurrer for
uncertainty should be overruled or plaintiff given leave to
amend.” (Williams v. Beechnut Nutrition Corp. (1986)
185 Cal. App. 3d 135, 139, fn. 2; accord, McBride v. Boughton
(2004) 123 Cal. App. 4th 379, 387 [“[W]e ignore ‘[e]rroneous or
confusing labels . . . if the complaint pleads facts which would
entitle the plaintiff to relief.’”]; Saunders v. Cariss (1990)
224 Cal. App. 3d 905, 908 [“[T]he trial court is obligated to look
past the form of a pleading to its substance.”].)
       Although the third amended complaint is not a model of
clarity, it contains substantive factual allegations sufficient to
apprise GDL and the Lopezes of the claims against GDL:
whether the award of the project contract to GDL was unlawful,
and whether GDL must return the payments it received from the
District for work performed under the contract. Further, the

                                24
third amended complaint alleges the District violated Public
Contract Code sections 20111.5 and 20111.6 by failing to require
prequalification of bidders, and that the District had a conflict of
interest with GDL in violation of Government Code section 1090.
      To the extent the third amended complaint violated
California Rules of Court, rule 2.112, by failing to explain the
nature of the alleged cause of action, the trial court should have
granted leave to amend to correct this deficiency.14 (Williams v.
Beechnut Nutrition Corp., supra, 185 Cal.App.3d at p. 139, fn. 2
[“Although inconvenient, annoying and inconsiderate, the lack of
labels for plaintiff’s causes of action does not substantially impair
[defendants’] ability to understand the complaint, and a
demurrer sustained on the ground of uncertainty without leave to
amend should have been overruled.”].)

D.     Fistes Failed To Allege Facts Sufficient To Establish
       Liability Against the Lopezes
       Fistes contends it has adequately alleged two theories of
liability against the Lopezes: liability as the alter egos of GDL
for any profits the Lopezes made from the allegedly illegal
contract, and a cause of action for restitution. Neither theory is
adequately pleaded, but the trial court should have allowed
Fistes leave to amend.

14     California Rules of Court, rule 2.112, requires that each
“separately stated cause of action” must be numbered, describe
“its nature (e.g., ‘for fraud’),” and state the party asserting the
claim and against whom the cause of action is asserted.
However, rule 2.112 does not require the plaintiff to separate its
claims into separate causes of action.

                                 25
       “To recover on an alter ego theory, a plaintiff need not use
the words ‘alter ego,’ but must allege sufficient facts to show a
unity of interest and ownership, and an unjust result if the
corporation is treated as the sole actor.” (Leek v. Cooper (2011)
194 Cal. App. 4th 399, 415 [complaint alleging individual
defendant was owner of all stock of defendant corporation and
personally made all its business decisions was not sufficient for
alter ego liability]; cf. Rutherford Holdings, LLC v. Plaza Del Rey
(2014) 223 Cal. App. 4th 221, 235 [plaintiff sufficiently alleged
unity of interest by alleging corporate entity was inadequately
capitalized, failed to “abide by the formalities of corporate
existence,” and was dominated, controlled, and used by defendant
as a “mere shell and conduit”].)
       As to the unity of interest between GDL and the Lopezes,
Fistes alleges only that the Lopezes “were the ones actually
controlling GDL as its only officers, directors and shareholders
and they benefitted most from [the District]’s illegal payments to
GDL.” But “[a]n allegation that a person owns all of the
corporate stock and makes all of the management decisions is
insufficient to cause the court to disregard the corporate entity.”
(Leek v. Cooper, supra, 194 Cal.App.4th at p. 415.)
       Likewise, Fistes has not sufficiently alleged an unjust
result if GDL is treated as separate from the Lopezes. Fistes
alleges “GDL was used by [the Lopezes] to perpetrate fraud (i.e.
obtain payment from [the District] on an illegal contract),
circumvent a statute (i.e. not comply with the Public Contract
Code statutes applicable to school district bidder pre-qualification
and contract awards) and/or accomplish some other wrongful or
inequitable purpose (i.e. obtain payment from [the District] on an
illegal contract).” Each of these allegations relates to the alleged

                                26
illegal award of the contract by the District to GDL. Fistes
makes no factual allegations of wrongdoing by the Lopezes, nor
that “‘adherence to the fiction of the separate existence of the
corporation would promote injustice . . . or bring about
inequitable results . . . .’” (Toho-Towa Co., Ltd. v. Morgan Creek
Productions, Inc. (2013) 217 Cal. App. 4th 1096, 1109-1110, fn. 5
[use of corporation to structure finances to avoid meeting
payment obligations sufficient to support trial court’s finding of
inequitable result].)
       Although Fistes has not adequately alleged the Lopezes are
liable as the alter egos of GDL, Fistes has requested in both the
trial court and on appeal leave to amend to bolster its allegations
against the Lopezes. GDL and the Lopezes do not on appeal
address whether Fistes should be allowed leave to amend. We
cannot say there is no “‘reasonable possibility that the defect can
be cured by amendment.’” (Loeffler v. Target Corp., supra,
58 Cal.4th at p. 1100.) On remand, the court should grant Fistes
an opportunity to amend its alter ego allegations against the
Lopezes.
       Fistes also argues its claims against the Lopezes for
restitution are cognizable, relying on Hartford Casualty Ins. Co.
v. J.R. Marketing, L.L.C. (2015) 61 Cal. 4th 988. Hartford is
inapposite. There, the Supreme Court held a commercial general
liability insurer could seek reimbursement directly from counsel
retained to represent the insured under a court order expressly
preserving the insurer’s postlitigation right to recover
“‘unreasonable and unnecessary’” fees billed by the insured’s
counsel. (Id. at pp. 996-997.) As the Supreme Court stated,
“Restitution is not mandated merely because one person has
realized a gain at another’s expense. Rather, the obligation

                                27
arises when the enrichment obtained lacks any adequate legal
basis and thus ‘cannot conscientiously be retained.’” (Id. at
p. 998.)
       Fistes alleges GDL paid the Lopezes “increased salar[ies],
bonuses, distributions, shareholder advances and other forms of
compensation” from the funds GDL received from the District.
But Fistes does not allege facts showing the payments from GDL
to the Lopezes lacked an adequate legal basis. Fistes therefore
has not alleged a cause of action for restitution against the
Lopezes on behalf of the District. Indeed, the sole basis alleged
for restitution is the invalidity of the contract awarded to GDL,
not any action by the Lopezes. Thus, Fistes’s purported cause of
action for restitution against the Lopezes is merely a restatement
of its claims based on alter ego liability.

E.    The Trial Court’s Dismissal of Fistes’s Writ of Mandate
      Action Is Not Part of This Appeal
      Fistes contends the trial court15 erred when it dismissed as
moot the cause of action for a writ of mandate in Fistes’s first
amended petition and complaint. However, the dismissal for
mootness is not properly before us. Fistes appealed from the trial
court’s June 1, 2017 judgment, which was entered in favor of
GDL and the Lopezes. Fistes later voluntarily dismissed the
District without prejudice. Therefore, Fistes has not appealed
from a judgment in favor of the District.16 Although Fistes
named GDL as a real party in interest in its first amended

15    Judge Chalfant.
16  In its Civil Case Information Statement, Fistes lists only
GDL and the Lopezes as parties to this appeal.

                               28
petition, Fistes sought a peremptory writ of mandate directing
only the District to take action, including rescinding its allegedly
illegal payments to GDL and delivering documents to Fistes.
Because the District is not a party to this appeal, Fistes’s
challenge to the trial court’s dismissal of the petition on the basis
of mootness is not before us.17

17     The parties have not addressed whether the District is a
necessary or indispensable party to Fistes’s third amended
complaint or whether the case may proceed in the District’s
absence. (See Tracy Press, Inc. v. Superior Court (2008)
164 Cal. App. 4th 1290, 1298 [“‘“Failure to join an ‘indispensable’
party is not ‘a jurisdictional defect’ in the fundamental sense;
even in the absence of an ‘indispensable’ party, the court still has
the power to render a decision as to the parties before it which
will stand.”’”].) Although section 526a confers standing on a
plaintiff to sue a local agency, officer, agent, or other person
acting on the agency’s behalf, the courts have relied on section
526a to confer standing to sue both the agency and private
parties. (See, e.g., Holloway v. Showcase Realty Agents, Inc.,
supra, 22 Cal.App.5th at pp. 770-771 [standing to sue water
district and private parties]; California Taxpayers Action
Network v. Taber Construction, Inc., supra, 12 Cal.App.5th at
p. 145, fn. 25 [standing to sue school district and construction
contractor].) Similarly, in Miller v. McKinnon, supra, 20 Cal.2d
at pages 86 and 96, the Supreme Court concluded the taxpayer
had standing to sue county officers and a private party, and to
assert the first cause of action against only the private
partnership. We do not reach whether on remand Fistes should
be granted leave to amend to name the District as a defendant in
the amended complaint.

                                 29
                         DISPOSITION

      The judgment is reversed and the matter remanded for
further proceedings. On remand, the trial court should grant
Fistes leave to amend its complaint consistent with this opinion.
Fistes is to recover its costs on appeal.

                                     FEUER, J.
WE CONCUR:

      ZELON, Acting P. J.

      SEGAL, J.

                                30
Filed 8/13/19
                CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                SECOND APPELLATE DISTRICT

                        DIVISION SEVEN

A.J. FISTES CORPORATION,              B283662

       Plaintiff and Appellant,       (Los Angeles County
                                      Super. Ct. No. BS161779)
                   v.
                                      ORDER CERTIFYING
GDL BEST CONTRACTORS,                 OPINION FOR
INC., et al.,                         PUBLICATION AND
                                      MODIFYING OPINION
     Defendants and
Respondents.                          NO CHANGE IN
                                      JUDGMENT

THE COURT:

     The opinion in the above-entitled matter filed on
October 23, 2018, was not certified for publication in the Official
Reports. For good cause, it now appears that the opinion should
be published in the Official Reports and it is so ordered.
      It is further ordered the opinion be modified as follows:

       On page 2, delete the second paragraph that begins
“While Fistes’s appeal was pending . . . ” and replace it with
the following paragraph:

            While Fistes’s appeal was pending, the
      Legislature amended Code of Civil Procedure section
      526a,18 effective January 1, 2019, to specify what
      types of tax payments are sufficient to establish
      taxpayer standing. Section 526a now provides a
      corporation that has been assessed and is liable to
      pay or has paid within one year before the
      commencement of an action “a tax that funds the
      defendant local agency” has standing to sue a local
      agency to challenge the agency’s expenditure of
      public funds. The amendment to section 526a applies
      prospectively to this case because the change in law
      does not alter the legal consequences of defendants’
      past conduct, but instead only expands the scope of
      who may sue under the statute. Further, a plaintiff
      may take advantage of a change in law during an
      appeal to support a finding of standing on remand.
      The contention by GDL and the Lopezes that a
      corporation only has standing if it pays taxes that
      fund the challenged project lacks merit. Under the
      amended statute, the taxes paid by a plaintiff
      corporation need only fund the local agency to confer

18   All further undesignated statutory references are to the
Code of Civil Procedure.

                                 2
     standing. Fistes has therefore alleged facts sufficient
     to establish standing under section 526a based on its
     payment of state taxes that fund the District.19

     There is no change in the judgment.

19     GDL and the Lopezes contend Fistes’s standing argument
should be rejected because Fistes opposed the demurrer based
only on its standing as a disappointed bidder, not a taxpayer. We
decline to find forfeiture because it was GDL and the Lopezes
who raised Fistes’s standing as a state taxpayer in their
demurrer, and the trial court addressed in its ruling whether
Fistes had taxpayer standing under former section 526a. (People
v. McCullough (2013) 56 Cal. 4th 589, 593 [“‘“The purpose of [the
forfeiture] rule is to encourage parties to bring errors to the
attention of the trial court, so that they may be corrected.”’”];
Boyle v. CertainTeed Corp. (2006) 137 Cal. App. 4th 645, 649 [“The
critical point for preservation of claims on appeal is that the
asserted error must have been brought to the attention of the
trial court.”].)

                                3

    ZELON, Acting P. J.   SEGAL, J.   FEUER, J.

                            4