Court Opinion

ID: 4028872
Source: CourtListenerOpinion
Date Created: 2016-08-26 21:02:37.299784+00
Date Added: 2024-06-11T09:17:00.293910
License: Public Domain

Filed 8/26/16 Orange County Communities Organized for Responsible Development v. City of Anaheim CA4/3

                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     FOURTH APPELLATE DISTRICT

                                                DIVISION THREE

ORANGE COUNTY COMMUNITIES
ORGANIZED FOR RESPONSIBLE
DEVELOPMENT,                                                           G052274

     Plaintiff and Appellant,                                          (Super. Ct. No. 30-2014-0072186)

         v.                                                            OPINION

CITY OF ANAHEIM et al.,

     Defendants and Respondents.

                   Appeal from a judgment of the Superior Court of Orange County, David T.
McEachen, Judge. Affirmed.
                   Briggs Law Corporation, Cory J. Briggs and Anthony N. Kim for Plaintiff
and Appellant.
                   Duane Morris, Colin L. Pearce and Heather U. Guerena; Michael R.W.
Houston, City Attorney and Kristin A. Pelletier, Assistant City Attorney, for Defendant
and Respondents City of Anaheim, Kris Murray, Lucille Kring, Gail Eastman and Jordan
Brandman.
                  Rutan & Tucker, Robert S. Bower, John A. Ramirez and Peter J. Howell for
Defendant and Respondent GardenWalk Hotel I, LLC.
                                         *                  *                  *
                  OCCORD (Orange County Communities Organized for Responsible
Development), a community activist group, has sued the City of Anaheim (the city), four
of its councilmembers (defendants Kris Murray, Lucille Kring, Gail Eastman, and Jordan
Brandman), and a hotel developer (GardenWalk) to invalidate two contracts, called
“economic assistance agreements” or “EAAs,” entered into by the city with GardenWalk
in May 2013. The two EAAs contemplate GardenWalk will build two hotels in
Anaheim’s resort district: a “resort hotel” and a “convention hotel.” In return, the city
has promised to remit to the developer 70 percent of the bed taxes the city will collect
from the hotels up to a certain amount. Those amounts are about $76 million for the
resort hotel, and $81 million for the convention hotel.
                  OCCORD calls the deal a “tax subsidy.” But the city hopes the presence of
the two hotels will produce an overall net increase in tax revenue from the increased job
growth and tourism precipitated by the presence of first-class hotels in its resort district.
While OCCORD tells us it has no quarrel with the basic theory behind the EAA
agreements, it believes the agreements should be set aside because they were made in
violation of the state conflict of interest statute, section 1090 of the Government Code.1

          1          All further statutory references are to the Government Code unless otherwise indicated. The
statute provides in its entirety:
                     “(a) Members of the Legislature, state, county, district, judicial district, and city officers or
employees shall not be financially interested in any contract made by them in their official capacity, or by anybody
or board of which they are members. Nor shall state, county, district, judicial district, and city officers or employees
be purchasers at any sale or vendors at any purchase made by them in their official capacity.
                     “(b) An individual shall not aid or abet a Member of the Legislature or a state, county, district,
judicial district, or city officer or employee in violating subdivision (a).
                     “(c) As used in this article, ‘district’ means any agency of the state formed pursuant to general law
or special act, for the local performance of governmental or proprietary functions within limited boundaries.”

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              On that point OCCORD has two theories: The first is that the four city
council member defendants received “excessive” campaign contributions from the
developer. According to the complaint, that was the result of individuals who have
affiliations with GardenWalk donating to their individual limits, with a total that exceeds
legal limits. These excessive contributions, alleges OCCORD, were given as “quid pro
quo” (the exact words in the complaint) to approve the EAAs. Other than using the
words “quid pro quo,” however, the second amended complaint contains no elaboration
as to the alleged exchange. For example, there is no allegation that a councilmember
solicited contributions from GardenWalk to vote for the EAAs, or that a GardenWalk-
affiliated contributor approached a council member offering to contribute in exchange for
a favorable vote on the EAAs, or even that there was anything like a wink-wink-nudge-
nudge implied understanding to vote in the contributor’s interest. No such allegations are
made.
              The second theory, according to OCCORD, is that the EAAs were
negotiated on the developer’s behalf by a law firm, Rutan and Tucker, who at the same
time served as the city’s own attorney. Thus the agreements are also the product of the
law firm contravening section 1090.
              On demurrer to OCCORD’s second amended complaint, the trial court
ruled the suit was barred by the shortened (60-day) statute of limitations provided by
what are known as the “validation” statutes (see Code Civ. Proc., §§ 860-870). The court
also ruled the complaint had failed to state a valid conflict-of-interest claim under section
1090, and further held the mere fact Rutan and Tucker were paid for their services did not
violate section 1090 either. OCCORD has timely appealed from the judgment entered
after demurrer was sustained without leave to amend.
              Preliminarily we reject the defendants’ statute of limitations argument as
unviable. Statutorily, the specific controls the general (e.g., Hughes Electronics Corp. v.
Citibank Delaware (2004) 120 Cal.App.4th 251, 270 [specific statutory provisions

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bearing on a particular subject control over more general ones]) and section 1090 has its
own specific statute of limitations in section 1092, which is considerably more lenient
(four years after discovery) than the 60 days set out in the validation statutes. This suit is
easily within that time frame – filed in May 2014, which is just a little more than a year
after the signing of the EAAs in March 2013.
                The same applies to their argument OCCORD lacks standing to bring a
taxpayer challenge to the EAAs. Taxpayers have standing to challenge government
actions in alleged contravention of section 1090. (See Thomson v. Call (1985) 38 Cal.3d
633 [taxpayers had standing to challenge double escrow by which firm purchased land
from city council member and then sold it to city]; McGee v. Balfour Beatty
Construction, LLC (2016) 247 Cal.App.4th 235, 248 [following Thomson in finding
taxpayer standing under section 1090].)
                That brings us to the merits of OCCORD’s challenge. Anaheim has a set of
campaign finance ordinances, called the campaign reform law or “CRL.” The current
(inflation adjusted) limit for individual donations subject to the CRL is $1,900. While
GardenWalk made no contributions to city council members directly, OCCORD’s second
amended complaint identifies 14 contributors to the four city council member defendants
it says are “affiliated” with GardenWalk. This pool consists of five individuals,2 four
businesses,3 a political action committee (PAC) and three of its board members,4 and
finally, an anonymous “general manager” of one of the businesses.5 The second
amended complaint totes up the aggregate total of the contributions from those 14 for

         2       Bill O’Connell, Jean O’Connell, Ajesh Patel, John Ramirez and Mike Rubin.
         3       Stovall’s Inn, Anaheim Park Place Inn, Orangewood LLC and Paul Kott Realtors.
         4       The PAC is SOAR, standing for (according to the complaint) “Support Our Anaheim Resorts.”
The three board members are Sandra Day, Craig Farrow, and Larry Slagle.
         5       Who is only called the “general manager of Stovall’s Inn” in the complaint.

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each city councilmember and ascribes that total to GardenWalk in order to arrive at
amounts in excess of $1,900.6
                 But Anaheim’s CRL sets out its aggregation rules in section 1.09.070. Two
or more entities are treated as one person for aggregation purposes only when the entities
fall within one of five categories. They are one person when they: (1) share the majority
of members of their boards of directors (1.09.070.0201), (2) are controlled by the same
majority shareholders (1.09.070.0202), or are (3) in a parent-subsidiary relationship
(1.09.070.0203). Additionally, (4) an individual and any partnership which he or she
manages or owns a controlling interest is treated as one person (1.09.070.030), as are (5)
campaign committees where the majority of officers of those committees are the same
(1.09070.040). As it turns out, none of the 14 contributors listed in the complaint gave
more than $1,900 to any one of the four individual city council defendants, with the
exception of one business, whose $300 contribution in excess of $1,900 to member
Eastman was returned by her in February 2014. The general manager of that business
also made a contribution of $1,900 to member Murray, but that contribution was also
returned in February 2014.
                 The complaint’s theory of excessive contributions is based on each
contributor’s putative allegiance to developer GardenWalk. It alleges that three of the
individuals (Bill O’Connell, Jean O’Connell and Ajesh Patel) were “members and
managers” of GardenWalk. Likewise it asserts that Jean O’Connell controls the SOAR
PAC.
                 These putative allegiances, however, do not establish single-personhood
under the plain terms of the city’s CRL. After two previous efforts, OCCORD’s second
amended complaint lacks allegations that would result in aggregation of the various

          6        For example, for councilmember Murray, the complaint alleges she received $1,600 from Bill
O’Connell, $1,900 from Jean O’Connell, $1,900 from Ajesh Patel, $300 from Stovall’s Inn, $1,900 from the general
manager of Stovall’s Inn, and $1,900 from the SOAR PAC to arrive at a grand total of $9,500 from GardenWalk
“affiliated” contributors.

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contributors. The CRL has no rule of looking to some amorphous affiliation between
contributors for aggregation. Rather it lays down a series of bright lines, and OCCORD
fails to show the various members of the contributor pool fall on the one-person side of
those bright lines.7
                  The upshot is that OCCORD’s excess contribution theory as stated in its
second amended complaint is without the excess element.8 That’s important. It has been
established that legal campaign contributions do not implicate the conflict of interest
prohibition of section 1090. (See BreakZone Billiards v. City of Torrance (2000) 81
Cal.App.4th 1205, 1230 (BreakZone)9; All Towing Services LLC v. City of Orange (2013)
220 Cal.App.4th 946, 957 [noting state Political Reform Act of 1974 (PRA) categorically
excludes receipt of campaign contributions from definition of financial interest]; see also
Woodland Hills, supra, 26 Cal.3d at p. 947, fn. 9 [noting mischief that might be done if
campaign contributions did disqualify recipient from voting on matter related to
donor].)10 As our Supreme Court very recently opined, councilmembers are not barred
“from acting on matters involving contributors” – indeed, “campaign contributions are

           7        While the CRL’s categories may be counterintuitive, they are nonetheless clear. Perhaps the most
obvious case in point is Bill O’Connell and his wife Jean. The CRL is quite clear that contributions by one spouse
are not aggregated with the other spouse’s contributions. (§ 1.09.070.050.) That may or may not be the way we
would have written the rule, but that is the rule.
           8        The sharp-eyed trial judge recognized that an unreported meal “long after the vote at issue,” as
described in a newspaper article and email mentioned in the opposition to the demurrer were not in the second
amended complaint. We need merely note here that after two previous chances to cure any deficiencies in its
pleading, the trial judge was within his discretion in impliedly denying any further chances to amend.
           9        The relevant passage concerning section 1090 is quite clear: “Government Code section 1090
codified the common law prohibition of public officials having a financial interest in contracts they make in their
official capacities. [Citations.] The purpose of this section is to prohibit self-dealing, not representation of the
interests of others. It is the latter circumstance that confronts BreakZone. BreakZone contends that the recipients of
political contributions voted the interest of the developer who had a history of contributing to their political
campaigns. That allegation, whether true or not, is not forbidden by either Government Code section 1090 or
section 87103.” (BreakZone, supra, 81 Cal.App.4th at p. 1230, citing Woodland Hills Residents Assn., Inc. v. City
Council (1980) 26 Cal.3d 938, 946-947 (Woodland Hills), italics added.)
           10       That’s to be contrasted with the several ways in which a waste-management entrepreneur in Hub
City Solid Waste Services, Inc. v. City of Compton (2010) 186 Cal.App.4th 1114 (Hub City) showered benefits on
the Compton City Council in return for a franchise on the city’s waste-management services. Those included jobs
for councilmembers’ relatives (id. at pp. 1118) and monetary gifts to other relatives (id. at pp. 1120-1121). The Hub
City court did not discuss the question of whether the campaign contributions given by the entrepreneur were legal
or not; it had no need to.

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constitutionally protected and ‘do not automatically create an appearance of unfairness.’”
(City of Montebello v. Vasquez (Aug. 8, 2015, S219052) ___ Cal.4th ___, ___ [2016 Cal.
LEXIS 6386 at p. 25], quoting Woodland Hills, supra, 26 Cal.3d at p. 947.) The second
amended complaint (at paragraphs 12.A.i. and 12.A.x.) makes it clear that its claims of
illegality rest upon the alleged excessiveness of the GardenWalk-affiliated persons’
contributions.11 That effort fails.
                OCCORD’S other theory involves a law firm, Rutan and Tucker (Rutan).
Back in 2012 and 2013, Rutan represented Anaheim in OCCORD’s earlier – and then
successful – attempt to thwart the city’s attempt to enter into EAAs with GardenWalk,
OCCORD v. City of Anaheim, case No. 30-2012-00549175 (the “175 case”). That
attempt was successful based on a Brown Act violation. In the case now before us,
OCCORD alleges that Rutan acted as GardenWalk’s counsel in negotiating the EAAs
with Anaheim. Fairness requires we note here that on appeal Rutan strenuously denies
the allegation of representing GardenWalk. Rutan points out that the EAAs themselves
indicate Gardenwalk was actually represented by another firm in the negotiations leading
up to the March 2013 EAAs.12 We must also note there is no allegation Rutan
represented Anaheim in negotiating those EAAs.
                Rutan’s relationship with Anaheim has been that of an independent
contractor. The city has had its own city attorney’s office since at least as far back as
1992 (see Guillory v. City of Anaheim (9th Cir. 1992) 979 F.2d 854 at p. 1 [nonpub.
opn.]), but Rutan has, from time to time, also represented the city in specific litigation,
such as the 175 case.
                That independent contractor status is not dispositive for section 1090. In
California Housing Finance Agency v. Hanover/California Management & Accounting

         11       Indeed, by not including a reporter’s transcript in the record, OCCORD has foregone the
opportunity to show that it argued anything else to the trial court.
         12       The EAAs themselves list the “The Busch Firm” as counsel for GardenWalk and the Anaheim
City Attorney’s office as counsel for the city.

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Center, Inc. (2007) 148 Cal.App.4th 682 (CHFA), this court held that a former general
counsel of a government agency could be liable under section 1090 where he had, as an
independent contractor after leaving his official office, exercised “‘considerable’
influence” in obtaining a contract from that agency for his own company.
                 That said, what is lacking here, but present in the cases on which OCCORD
relies, is an interest in the government contract itself that is sought to be invalidated under
section 1090. In Hub City, supra, 186 Cal.App.4th 1114, a private person became a
city’s de facto waste disposal czar with a monopoly on the city’s waste disposal services
as a result of a contract he himself negotiated. In CHFA, supra, 148 Cal.App.4th 682, the
former general counsel of a state agency set up a private company which he owned that
allowed him to skim off profits from government mortgage insurance premiums. In
People v. Gnass (2002) 101 Cal.App.4th 1271, an attorney earned fees on bonds issued
by a public financing authority for which he acted as counsel. In Campagna v. City of
Sanger (1996) 42 Cal.App.4th 533, a deputy city attorney tried to obtain a share of a
contingency fee obtained on litigation he himself sent to an outside law firm, and in City
Council v. McKinley (1978) 80 Cal.App.3d 204, 207, the president and stockholder in a
landscape architectural firm was also on the city’s park and recreation board which
awarded a gardening contract for the firm.
                 Here, however, there are no allegations of any interest on Rutan’s part in
the EAAs. The worst that can be said about the firm is that it got paid. To that,
OCCORD responds that it would not have been retained by GardenWalk at all, but for
Rutan’s representation of the city in the prior suit brought by OCCORD.13
                 But the motivation for GardenWalk’s retention makes no difference.
OCCORD confuses the benefits conferred by the contracts themselves (on GardenWalk

         13     The second amended complaint in effect admits that its allegation that Rutan represented
GardenWalk in negotiating the EAAs with Anaheim is essentially speculative. At paragraph 12.B.ii of the second
amended complaint, OCCORD states its belief that once it obtains discovery, it will find emails between Rutan, the
city and GardenWalk concerning the EAAs which were the subject of the 175 case.

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and arguably on Anaheim) with the payment Rutan allegedly received for negotiating
them. As the court said in Quantification Settlement Agreement Cases (2011) 201
Cal.App.4th 758, 819: “‘[t]he interest proscribed by . . . section 1090 is an interest in the
contract. The purpose of the prohibition is to prevent a situation where a public official
would stand to gain or lose something with respect to the making of a contract over
which in his official capacity he could exercise some influence.’” (Italics added, quoting
People v. Vallerga (1977) 67 Cal.App.3d 847, 867-868, fn. 5.)
              There are no facts indicating Rutan exerted sufficient influence over
Anaheim in its decision to enter into the EAAs such that Rutan, an independent
contractor, could be deemed a public official within section 1090 the way the
entrepreneur in Hub City or the former general counsel in CHFA were. Indeed, the main
point of the complaint was that a majority of the Anaheim city council itself was
determined to enter into the EAAs because of campaign contributions from the pool of
14, and didn’t need any influence from an outside law firm in that regard.
              We cannot find here anything on which to base reversal of the trial court’s
demurrer ruling. The judgment is therefore affirmed. Respondents shall recover their
costs on appeal.

                                                  BEDSWORTH, ACTING P. J.

WE CONCUR:

ARONSON, J.

IKOLA, J.

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