Court Opinion

ID: 6338132
Source: CourtListenerOpinion
Date Created: 2022-05-05 17:02:37.834143+00
Date Added: 2024-06-11T09:23:58.418394
License: Public Domain

Filed 5/5/22; Opinion following rehearing
                  CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                    SECOND APPELLATE DISTRICT

                                 DIVISION SIX

SAN LUIS OBISPO LOCAL                          2d Civ. No. B304144
AGENCY FORMATION                            (Super. Ct. No. CV130383)
COMMISSION et al.,                           (San Luis Obispo County)

  Cross-complainants and                    OPINION FOLLOWING
Appellants.                                     REHEARING

v.

CENTRAL COAST
DEVELOPMENT COMPANY,

  Cross-defendant and
Respondent.

      A contract by a public agency that exceeds the agency’s
statutory powers is void and will not support an award of
attorney fees pursuant to Civil Code1 section 1717, subdivision
(a). We reverse an award of fees against the public agency.

      All statutory references are to the Civil Code unless
       1

otherwise stated.
                               FACTS
                                  I
                              LAFCO I
       Central Coast Development Company (Central Coast) owns
a 154-acre parcel of property within the sphere of influence of the
City of Pismo Beach (City).2 Central Coast wishes to construct
252 single-family residences and 60 senior housing units on the
parcel. The City approved Central Coast's application for a
development permit. The City and Central Coast applied to the
San Luis Obispo Local Agency Formation Commission (LAFCO)
to annex the property.
       The LAFCO application signed by the City and Central
Coast contained the following indemnity agreement: “As part of
this application, Applicant agrees to defend, indemnify, hold
harmless and release the San Luis Obispo Local Agency
Formation Commission (LAFCO), its officers, employees,
attorneys, or agents from any claim, action or proceeding brought
against any of them, the purpose of which is to attack, set aside,
void, or annul, in whole or in part, LAFCO's action on the
proposal or on the environmental documents submitted to or
prepared by LAFCO in connection with the proposal. This
indemnification obligation shall include, but not be limited to,
damages, costs, expenses, attorneys' fees, and expert witness fees
that may be asserted by any person or entity, including the
Applicant, arising out of or in connection with the application. In
the event of such indemnification, LAFCO expressly reserves the

      2 City of Pismo Beach is no longer a party to this action.
This court dismissed its appeal pursuant to stipulation of the
parties on January 3, 2022.

                                 2.
right to provide its own defense at the reasonable expense of the
Applicant.” (Italics added.)
       LAFCO denied the annexation application. The City and
Central Coast sued LAFCO. LAFCO prevailed and presented a
bill to the City and Central Coast for more than $400,000 in
attorney fees and costs. The City and Central Coast refused to
pay. The Special District Risk Management Authority (SDRMA),
a public entity self-insurance pool, paid for LAFCO's fees and
costs.
       The City sued Central Coast to recover fees and costs
expended in the Central Coast action against LAFCO. LAFCO
and SDRMA cross-complained against the City and Central
Coast for fees and costs. The cross-complaint was based on the
indemnity provision of the annexation application.
       The trial court granted the City and Central Coast’s
judgment on the pleadings against LAFCO and SDRMA
(collectively LAFCO). The court denied LAFCO's request for
leave to amend its pleadings. LAFCO appealed.
       We affirmed in San Luis Obispo Local Agency Formation
Com. v. City of Pismo Beach (2021) 61 Cal.App.5th 595 (LAFCO
I). We determined that the indemnity agreement was not
supported by consideration and that LAFCO has no statutory
authority to impose an indemnity agreement as a condition of
LAFCO’s statutory duty to consider Central Coast’s application.
                             LAFCO II
       While the appeal in LAFCO I was pending, the City and
Central Coast moved for attorney fees based on section 1717.
The trial court granted the motion. The court awarded $172,850
to the City and $428,864 to Central Coast. LAFCO again appeals
(LAFCO II).

                               3.
                            DISCUSSION
                                    I
                     Section 1717 Does Not Apply
       LAFCO contends the indemnity agreement is void as an
illegal and ultra vires contract.3 LAFCO asserts section 1717
does not apply to such a contract.
       Section 1717, subdivision (a) provides: “In any action on a
contract, where the contract specifically provides that attorney’s
fees and costs, which are incurred to enforce that contract, shall
be awarded either to one of the parties or to the prevailing party,
then the party who is determined to be the party prevailing on
the contract, whether he or she is the party specified in the
contract or not, shall be entitled to reasonable attorney’s fees in
addition to other costs.”
       LAFCO argues our opinion in LAFCO I determined that
the indemnity agreement was an illegal contract. It cites Geffen
v. Moss (1975) 53 Cal.App.3d 215, 227, for the principle that
where a contract is illegal, it is void, a right to attorney fees
created by the contract is unenforceable, and section 1717 does
not apply. (See also Bovard v. American Horse Enterprises, Inc.
(1988) 201 Cal.App.3d 832, 843 [citing Geffen].)
       Central Coast replies that the contract is not illegal and
our opinion in LAFCO I does not say that it is. Central Coast
relies on a line of cases that state a contract is illegal where the
object of the contract is unlawful. (Citing, e.g., McIntosh v. Mills

      3 Central Coast contends LAFCO has waived the argument
by not raising it in the trial court. But the question is one of law
that we can consider for the first time on appeal. (Sanchez v.
Truck Ins. Exchange (1994) 21 Cal.App.4th 1778, 1787 [a party
may raise for the first time on appeal a pure question of law
which is presented by undisputed facts].)

                                 4.
(2004) 121 Cal.App.4th 333, 346.) Central Coast argues the
object of the contract involved here, an indemnity agreement, is
not unlawful.
       In LAFCO I, we concluded that LAFCO was not authorized
by statute to make the indemnity agreement. (LAFCO I, supra,
61 Cal.App.5th at pp. 600-602.) Where a public agency is not
authorized to make an agreement, the agreement is void and the
public agency may neither enforce nor be liable on the contract.
(Air Quality Products, Inc. v. The State of California (1979) 96
Cal.App.3d 340, 349; see 1 Witkin, Summary of Cal. Law (11th
ed. 2017) Contracts, § 1011, p. 1053.) It follows that the public
agency is not liable for attorney fees based on section 1717.
Section 1717 is based on contract. The result should be no
different than with contracts that are void for illegality. (See
Geffen v. Moss, supra, 53 Cal.App.3d at p. 227.)
       Central Coast’s reliance on California-American Water Co.
v. Marina Coast Water Dist. (2017) 18 Cal.App.5th 571
(California-American) is misplaced. Public water agencies
entered into a contract with a water utility to collaborate on a
project. The contract contained an attorney fee clause. It was
later discovered that a board member of one of the public
agencies had a conflict of interest. The water utility sued to have
the contract declared void under Government Code section 1090.
The water utility prevailed and the trial court awarded it
attorney fees. The Court of Appeal upheld the award of attorney
fees, concluding the contract was not illegal and the award of fees
did not violate public policy. The court reasoned that the contract
was void due to a conflict of interest and “not whether the
contracts involved an illegal enterprise to which the parties could
not contractually bind themselves.” (Id. at p. 580.)

                                5.
       But the contract here is more like an illegal contract. The
subject matter was beyond the power of LAFCO to legally bind
itself or an applicant. Unlike California-American, it is not
simply a question of the legality of the procedure by which the
contract was made. Because it is beyond LAFCO’s powers to bind
itself or an applicant to the attorney fee agreement at issue here,
section 1717 cannot apply.
                                  II
                         Another Paragraph
       Central Coast points to a different paragraph contained in
the same indemnity agreement we considered in LAFCO I. The
paragraph is:
       “I, … Central Coast Dev. Co., the landowner and/or
responsible Applicant, agree to pay the actual costs pursuant to
the Fee Schedule attached hereto, plus copying charges and
related expenses incurred in the processing of this application. I
also understand that if payment on any billings prior to final
action is not paid within (30) days, I agree that processing of my
application will be suspended until payment is received. In the
event of default, I agree to pay all costs and expenses incurred by
LAFCO in securing the performance of this obligation, including
the cost of any suit and reasonable attorney fees.”
       Central Coast argues LAFCO I is not determinative
because this paragraph was not an issue in that appeal. But it is
simply a different paragraph in the same indemnity agreement
we held invalid in LAFCO I. It is obvious that the same rule
applies. LAFCO had no more authority to require the attorney
fee clause in the instant paragraph as a condition of considering
Central Coast’s application than it did in the paragraph we
expressly considered in LAFCO I.

                                6.
        Moreover, the instant paragraph concerns fees and charges
incurred in the processing of the application. Those fees and
charges are authorized by Government Code section 56383.
Government Code section 56383 does not include a provision for
attorney fees incurred in the collection of such processing fees
and charges. In LAFCO I, we expressly rejected the argument
that the authority to provide for attorney fees could be implied
from statutes. (LAFCO I, supra, 61 Cal.App.5th at p. 602
[quoting Code of Civil Procedure section 1021, “Except as
attorney’s fees are specifically provided for by statute,” the
compensation of attorneys is left to the agreement of the
parties].)
        LAFCO had no authority to contract for attorney fees. The
lack of such authority renders the contract unenforceable against
LAFCO. Section 1717 does not apply. (Air Quality Products, Inc.
v. The State of California, supra, 96 Cal.App.3d at p. 349.)
                                  III
                   In Pari Delicto Does Not Apply
        Central Coast contends that the doctrine of in pari delicto
applies to allow enforcement of the contract.
        Central Coast cites McIntosh for the principle that the
doctrine of in pari delicto allows an illegal contract to be enforced
“ ‘so long as the party seeking its enforcement is less morally
blameworthy than the party against whom the contract is being
asserted, and there is no overriding public interest to be served
by voiding the agreement.’ ” (McIntosh v. Mills, supra, 121
Cal.App.4th at p. 347.)
        But the doctrine does not apply to unauthorized contracts
made by public agencies because there is an overriding public
interest to be served by voiding the agreement. The overriding

                                 7.
public interest is to protect the public fisc. Thus, a party who
contracts with public agencies that lack the authority to enter
into the contract cannot even collect in quantum meruit for
services rendered because of the need to limit a public entity’s
contractual obligations. (Katsura v. City of San Buenaventura
(2007) 155 Cal.App.4th 104, 109-110.)
      The question of attorney fees arose because Central Coast
brought a meritless action against LAFCO. For the same reason
that LAFCO could not recover fees because the interpretation of
the indemnity agreement lacked merit, so too Central Coast may
not recover fees.
                           DISPOSITION
      The judgment (order) is reversed. Costs on appeal are
awarded to appellants.
      CERTIFIED FOR PUBLICATION.

                                    GILBERT, P. J.

We concur:

             YEGAN, J.

             PERREN, J.

                               8.
                   Ginger E. Garrett, Judge

           Superior Court County of San Luis Obispo

               ______________________________

     McCormick, Barstow, Sheppard, Wayte & Carruth, James
P. Wagoner, Timothy J. Buchanan, Brandon M. Fish, Lejf E.
Knutson; Best, Best, Krieger and Gregg W. Kettles for Cross-
complainants and Appellants San Luis Obispo Local Agency
Formation Commission and Special District Risk Management
Authority.

     Richards, Watson & Gershon, T. Peter Pierce, Kyle H.
Brochard; David M. Fleishman, City Attorney, for Cross-
defendant and Respondent City of Pismo Beach.

      Jackson Tidus, Michael L. Tidus, Gregory P. Regier;
Horvitz & Levy, David M. Axelrad and Jeremy B. Rosen for
Cross-defendant and Respondent Central Coast Development
Company.

                              9.