Court Opinion

ID: 4019900
Source: CourtListenerOpinion
Date Created: 2016-07-28 19:02:32.728237+00
Date Added: 2024-06-11T14:28:17.641554
License: Public Domain

Filed 7/28/16
                           CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                            SECOND APPELLATE DISTRICT

                                    DIVISION TWO

SANTA CLARITA ORGANIZATION                       B264284
FOR PLANNING AND THE
ENVIRONMENT,                                     (Los Angeles County
                                                 Super. Ct. No. BS141673)
        Plaintiff and Appellant,

        v.

CASTAIC LAKE WATER AGENCY
et al.,

        Defendants and Respondents.

        APPEAL from judgments of the Superior Court of Los Angeles County.
Luis A. Lavin, Judge. Robert H. O’Brien, Judge. Affirmed.
        Advocates for the Environment, Dean Wallraff, for Petitioner and Appellant.
        Kronick, Moskovitz, Tiedemann & Girard, Eric N. Robinson and Hanspeter
Walter; Morrison & Foerster, Miriam A. Vogel, for Defendants and Respondents
Newhall Land and Farming Company and Stevenson Ranch Venture, LLC.
        Ferguson Case Orr Paterson, Neal P. Maguire, for Defendant and Respondent
Valencia Water Company.
        Best, Best & Krieger, Jeffrey V. Dunn and Russell G. Behrens; Greines, Martin,
Stein & Richland, Timothy T. Coates, for Defendant and Respondent Castaic Lake Water
Agency.
                                       ******

                                            1
       This is a lawsuit to unwind a public water agency’s acquisition of all of the stock
of a retail water purveyor within its territory. On appeal of the trial court’s order refusing
to unwind the transaction, we confront three questions: (1) must we dismiss the appeal as
untimely under the streamlined procedures available for validating certain acts of public
agencies (Code Civ. Proc., § 860 et seq.) when those procedures were invoked below, but
invoked improperly because the underlying acts fall outside the reach of the validation
statutes?; (2) has the purveyor become the agency’s alter ego by virtue of the agency’s
ownership of all of its stock and its appointment of a majority of the purveyor’s directors,
such that the agency is now engaged in the retail sale of water in violation of Water Code
section 12944.7?; and (3) does the agency’s ownership of the purveyor’s stock violate
article XVI, section 17 of the California Constitution, which precludes a public agency
from “loan[ing] its credit,” and from “subscrib[ing] to, or be[ing] interested in the stock
of any company, association, or corporation” except the “shares of . . . a mutual water
company or corporation” acquired to “furnish[] a supply of water for public, municipal or
governmental purposes?”
       We conclude that the answer to all three questions is no. The validation
procedures invoke a court’s in rem jurisdiction, and that subject matter jurisdiction
attaches only if there is a statutory basis for invoking those procedures and proper notice;
because that basis is absent here and because estoppel does not apply to subject matter
jurisdiction, the validation procedures’ accelerated timeline for appeal is inapplicable.
There is substantial evidence to support the trial court’s factual finding that the purveyor
did not become the agency’s alter ego in this case. The agency did not violate article
XVI, section 17 for two reasons—namely, the provision reaches only stock acquisitions
that extend credit and the provision’s exception for stock ownership applies to any
“mutual water company” and any other “corporation” (whether or not it is a mutual water
company). Thus, the fact that the corporate purveyor in this case was not a mutual water
company is of no significance.
       We accordingly affirm.

                                              2
                    FACTS AND PROCEDURAL BACKGROUND
I.     Facts
       Respondent Castaic Lake Water Agency (Agency) is charged with “acquir[ing]
water and water rights” in order to “provide, sell and deliver that water at wholesale, for
municipal, industrial, domestic, and other purposes” within its territory. (Stats. 1986,
                                                                                        1
ch. 832, § 5, p. 2843, Deering’s Ann. Wat.—Uncod. Acts (2008 ed.) Act 130, § 15.) Its
territory encompasses most of the Santa Clarita Valley. (Id., § 2.) Initially, the Agency
sold its water wholesale to four retail “purveyors”—Santa Clarita Water District,
respondent Valencia Water Company (Valencia), Newhall County Water District, and
Los Angeles County Waterworks District No. 36. In 1999, the Agency acquired the
stock of the Santa Clarita Water District and absorbed the district into its own operations.
(Klajic v. Castaic Lake Water Agency (2001) 90 Cal. App. 4th 987, 991-992 (Klajic I);
Klajic Lake Water Agency (2004) 121 Cal. App. 4th 5, 11 (Klajic II).) The California
Legislature passed Assembly Bill 134 to allow the Agency itself to act as a retail
purveyor of water in the territory where the Santa Clarita Water District used to operate.
(Act 130, § 15.1; Klajic II, at pp. 9-13.)
       In 2011, respondent Newhall Land and Farming Company (Newhall) owned 100
percent of the stock in Valencia, and offered to sell that stock to the Agency. At that
time, Valencia was a private corporation regulated by the California Public Utilities
Commission. The Agency was interested in Newhall’s offer because acquiring Valencia
would give the Agency control over 84 percent of the retail connections within its
territory, which was consistent with the Agency’s “One Valley One Water” mission
statement and would enable the Agency to “realize economies of scale and synergies
associated with [an] integrated [Santa Clarita Water District]/[Valencia] retail entity.”
Agency staff began negotiating with Newhall on a strictly confidential basis. On
December 10, 2012, Agency staff informed the Agency’s board of directors (board) that

1     Uncodified water agency enactments are collected in appendices of the annotated
Water Codes, and are assigned numerical designations by the publisher.
                                              3
the Agency and Newhall had reached a proposed agreement for the Agency to acquire
Valencia’s stock for $73.8 million.
       On December 12, 2012, the Agency held a special meeting at which its board
adopted two resolutions. Resolution No. 2890 was a resolution of necessity declaring
that “[t]he public interest and necessity require the acquisition of all issued and
outstanding shares of [Valencia].” This acquisition, the resolution stated, would enable
the Agency to “maintain[] and enhanc[e] the reliability of retail and wholesale water
service within the Agency’s boundaries,” to “develop[] more uniform water service
policies within the Santa Clarita Valley,” to “better coordinate groundwater management
and enhance Valley wide conjunctive use of all [Valley resources] of supply,” and to
“provide potential future opportunities for operational efficiencies and capital
improvement economies of scale.” The resolution specifically ratified the prior
negotiations of Agency staff with Newhall concerning Valencia and authorized the
Agency to file an eminent domain lawsuit to acquire the stock. Resolution No. 2893,
adopted in closed session, authorized Agency staff to enter into a settlement agreement of
$73.8 million.
       The next day, the Agency filed its eminent domain lawsuit. Five days later, it filed
its settlement agreement with Newhall. Under that agreement, the Agency was to
purchase all outstanding shares of Valencia’s stock for $73.8 million. Except that all of
Valencia’s directors were required to resign, the Agency was to continue operating
Valencia under Public Utility Commission supervision and without altering Valencia’s
water rights or its personnel for the later of 75 days or the conclusion of any litigation
challenging the acquisition. The Agency also agreed that should it or Valencia decide to
merge Valencia into the Agency, the Agency would forestall implementation for 75 days
after any board resolution authorizing such an action.
       The trial court approved the settlement and entered judgment on the eminent
domain action on December 18, 2012. The next day, on December 19, 2012, the Agency
held another meeting. At that meeting, the Agency’s staff recommended five persons to
be appointed to Valencia’s five-member board; three of them were Agency employees.

                                              4
II.    Procedural History
       The Santa Clarita Organization for Planning and the Environment (SCOPE) sued
the Agency and its board; Valencia and its board of directors; Newhall; Stevenson Ranch
Venture LLC, a company affiliated with Newhall; and Keith Abercrombie
(Abercrombie), Valencia’s general manager and a member of the Agency’s board during
the negotiations between Agency Staff and Newhall. In the operative first amended
petition, SCOPE brought claims: (1) for inverse validation (Code Civ. Proc., § 863);
(2) for writ of mandate (id., § 1085); (3) for violations of the California Environmental
Quality Act (CEQA) (Pub. Resources Code, § 21000 et seq.); (4) for illegal expenditure
of taxpayer funds (Code Civ. Proc., § 526a); and (5) for conflict of interest (Gov. Code,
§§ 1090 & 87100). To perfect its invocation of the validation procedures underlying the
first count, SCOPE sought and obtained court permission to give constructive notice in
one of the local newspapers, and thereafter filed proof of serving that notice.
       The trial court subsequently sustained a demurrer with leave to amend on
SCOPE’s CEQA claim due to untimeliness, and granted judgment on the pleadings to
                                                                    2
Abercrombie on the sole claim against him for conflict of interest.
       In March 2015, the trial court issued a written ruling on SCOPE’s remaining
claims.
       The trial court denied SCOPE’s claims for invalidation and for a writ of mandate.
In so doing, the court rejected SCOPE’s argument that Valencia had become the
Agency’s alter ego, finding that the Agency’s ownership of all of Valencia’s stock and its
appointment of a majority of its directors did not constitute sufficient evidence of merger
or fraud. In reaching this conclusion, the court refused to consider a video tape and
uncertified transcript, prepared by SCOPE, of the December 12 and December 19
Agency board meetings because they had a “very weak foundation.” The court further
concluded that the Agency did not violate article XVI, section 17 in acquiring Valencia’s

2     We affirmed the ruling as to Abercrombie in Santa Clarita Organization for
Planning & the Environment v. Abercrombie (2015) 240 Cal. App. 4th 300.

                                             5
stock. The court reasoned that the provision’s exception for owning stock in a “mutual
water company or corporation” for the purpose of furnishing water for the public
“indicates that there is more than one category of entities in which the state can obtain
capital stock. One category is a mutual water company. The other is a corporation,
without any limitations as to form or composition.” The court rejected SCOPE’s
argument that the phrase meant “mutual water company or mutual water corporation”
because doing so “would render the word ‘corporation’ meaningless because, by
definition, a mutual water company includes a corporation providing water to its
members at cost.” The court found the legislative history of the provision unhelpful
because it did “not answer the question of why the word[s] ‘or corporation’ [were]
inserted into the actual amendment.”
         The court also rejected SCOPE’s claim based on the improper use of taxpayer
funds.
         The trial court entered judgment on all of SCOPE’s claims, including the
validation claim, on April 8, 2015. SCOPE was served with notice of this judgment on
April 13, 2015.
         Thirty-eight days later, on May 21, 2015, SCOPE filed its notice of appeal.
                                       DISCUSSION
         SCOPE does not appeal the trial court’s rulings on its claims alleging taxpayer
waste, conflict of interest or violations of CEQA. Instead, it contends that the court erred
in denying its writ of mandate claim because the Agency’s acquisition of Valencia is
unlawful no matter what: If Valencia is the Agency’s alter ego, the Agency is violating
Water Code section 12944.7 by engaging in the retail sale of water; and if Valencia is not
the Agency’s alter ego, the Agency’s purchase, ownership of its stock, and operation of
Valencia as a wholly-owned subsidiary is violating article XVI, section 17 of the
California Constitution. The first question requires us to evaluate the court’s factual
finding that Valencia is not the Agency’s alter ego, and we review that finding for
substantial evidence. (Las Palmas Associates v. Las Palmas Center Assocs. (1991)
235 Cal. App. 3d 1220, 1248 (Las Palmas Associates); Klajic I, supra, 90 Cal.App.4th at

                                              6
p. 1001.) The second question requires us to interpret the language of article XVI,
section 17, which is a question of law we review de novo. (Greene v. Marin County
Flood Control & Water Conservation Dist. (2010) 49 Cal. 4th 277, 287; Rubalcava
v. Martinez (2007) 158 Cal. App. 4th 563, 570.)
       Before reaching these issues, we confront a threshold procedural question raised
by Newhall, Stevenson Ranch, Valencia and the Agency (collectively, respondents) in a
motion to dismiss this appeal: Is this appeal timely?
I.     Appellate Jurisdiction
       Respondents contend that SCOPE’s appeal is untimely. SCOPE filed its notice of
appeal 38 days after it was served with notice of the judgment. Although this is timely
under the general, 60-day window for filing notices of appeal (Cal. Rules of Court,
rule 8.104(a)(1)(A)), respondents assert that the 30-day window applicable to validation
proceedings governs (Code Civ. Proc., § 870, subd. (b)). Respondents make two
arguments in this regard: (1) that SCOPE’s lawsuit is a validation proceeding because
the validation statutes (id., § 860 et seq.) reach SCOPE’s challenge to the Agency’s
actions; or (2) even if they do not, SCOPE treated its lawsuit as a validation proceeding
before the trial court and is precluded from changing its position now.
       A.     Is SCOPE’s lawsuit a validation proceeding?
       Validation proceedings are a procedural “vehicle” for obtaining an expedited but
definitive ruling regarding the validity or invalidity of certain actions taken by public
agencies. (Code Civ. Proc., § 860 et seq.; Fontana Redevelopment Agency v. Torres
(2007) 153 Cal. App. 4th 902, 911 (Fontana).) They are expedited because they require
validation proceedings to be filed within 60 days of the public agency’s action
(Code Civ. Proc., §§ 860 & 863); they are “given preference over all other civil actions”
(id., § 867); and, most pertinent here, any appeal must be filed within 30 days after notice
of entry of judgment (id., § 870, subd. (b)). They are definitive because they are in rem
proceedings that, once proper constructive notice is given (id., §§ 861 & 862), result in a
judgment that is “binding . . . against the world” (Planning & Conservation League
v. Department of Water Resources (2000) 83 Cal. App. 4th 892, 921; Bonander v. Town of

                                              7
Tiburon (2009) 46 Cal. 4th 646, 659 (Bonander), and cannot be collaterally attacked, even
on constitutional grounds (Colonies Partners, L.P. v. Superior Court (2015)
239 Cal. App. 4th 689, 694 (Colonies Partners); Friedland v. City of Long Beach (1998)
62 Cal. App. 4th 835, 846 (Friedland)). By providing a protocol for obtaining a “prompt”
“settle[ment]” of “‘“all questions about the validity of its action”’” (California
Commerce Casino, Inc. v. Schwarzenegger (2007) 146 Cal. App. 4th 1406, 1421
(California Commerce Casino), quoting Friedland, at p. 843)), validation proceedings
provide much-needed certainty to the agency itself as well as to all third parties who
would be hesitant to contract with or provide financing to the agency absent that
certainty. (Hills for Everyone v. Local Agency Formation Com. (1980) 105 Cal. App. 3d
461, 467 (Hills for Everyone) [noting how agency needs to “settle . . . questions”]; Macy
v. City of Fontana (2016) 244 Cal. App. 4th 1421, 1433 [same]; Kaatz v. City of Seaside
(2006) 143 Cal. App. 4th 13, 47 (Kaatz) [validation removes impediments to third parties
contracting with agencies]; Friedland, at p. 843 [validation “facilitate(s) a public
agency’s financial transactions with third parties by quickly affirming their legality”].)
       Validation proceedings can be initiated by the public agency itself (Code Civ.
Proc., § 860), or by “any interested person” in a so-called “inverse” or “reverse”
validation proceeding (id., § 863). Although reverse validation proceedings appear at
first blush to be optional (ibid. [providing that “any interested person may bring an
action”], italics added), they are not: Section 869 “‘says [the interested person] must’”
bring the inverse validation action “‘or be forever barred from contesting the validity of
the agency’s action in a court of law.’” (Kaatz, supra, 143 Cal.App.4th at p. 30, quoting
City of Ontario v. Superior Court (1970) 2 Cal. 3d 335, 341 (City of Ontario); Friedland,
supra, 62 Cal.App.4th at pp. 846-847 [“as to matters which have been or which could
have been adjudicated in a validation action, such matters—including constitutional
challenges—must be raised within the statutory limitations period . . . or they are
waived”]; Code Civ. Proc., § 869 [“[n]o contest except by the public agency or its officer
or agent of any thing or matter under this chapter shall be made other than within the time
and the manner herein specified”].) As a result, “‘an agency may indirectly but

                                              8
effectively “validate” its action by doing nothing to validate it.’” (California Commerce
Casino, supra, 146 Cal.App.4th at p. 1420, quoting City of Ontario, at pp. 341-342.)
       Of course, “not all actions of a public agency are subject to validation.”
(Kaatz, supra, 143 Cal.App.4th at p. 19.) The statutes defining validation proceedings do
not specify the types of public agency action to which they apply; instead, they
“establish[] a uniform system that other statutory schemes must activate by reference.”
(Bonander, supra, 46 Cal.4th at p. 659; Code Civ. Proc., § 860 [“[a] public agency may
upon the existence of any matter which under any other law is authorized to be
determined pursuant to this chapter . . . bring an action”], italics added.) At last count,
more than 200 statutes scattered throughout the California Codes are subject to validation
in validation proceedings. (Kaatz, supra, 143 Cal.App.4th at p. 31, fn. 19.)
       Under most of the statutes declaring certain acts of public agencies subject to
validation proceedings, what matters is the “nature of the governmental action being
challenged.” (Hills for Everyone, supra, 105 Cal.App.3d at p. 468; McLeod v. Vista
Unified School Dist. (2008) 158 Cal. App. 4th 1156, 1165 (McLeod) [looking to “‘[t]he
gravamen of a complaint’”].) The applicability of validation proceedings does not turn
on the type of relief demanded. (McLeod, at p. 1165.) Nor does it turn on the “form of
the action.” (Ibid.) Thus, where a certain type of action is subject to validation
proceedings, a third party cannot sidestep those proceedings by purporting to invoke a
different procedural vehicle, such as a writ of mandate (Code Civ. Proc., § 1085) or a
taxpayer suit (id., § 526a). (See Millbrae School Dist. v. Superior Court (1989)
209 Cal. App. 3d 1494, 1499 [suit seeking a writ of mandate subject to validation
proceedings]; Project Agricultural Land v. Stanislaus County Local Agency (2014)
223 Cal. App. 4th 550, 558 [same]; McLeod, at pp. 1166-1167 [suit seeking relief under
Code of Civil Procedure section 526a subject to validation proceedings]; Regus v. City of
Baldwin Park (1977) 70 Cal. App. 3d 968, 972 [same]; Plunkett v. City of Lakewood
(1975) 44 Cal. App. 3d 344, 346-347 [same].) Any other rule would render the certainty
attaching to validation proceedings meaningless. (See Millbrae School Dist., at p. 1499.)
Whether the substantive basis of the challenge to the public agency’s action matters

                                              9
seems to turn on whether the statute invoking the validation proceedings conditions that
invocation on the nature of the challenge. (Compare Hills for Everyone, at p. 468 [“the
basis for the challenge” does not matter] with McLeod, at p. 1165 [“the nature of the right
sued upon” does matter].)
       In this case, SCOPE’s operative complaint alleged that three statutes made the
Agency’s acquisition of Valencia subject to validation proceedings: (1) section 19 of the
Agency’s enabling act; (2) section 16.1 of the Agency’s enabling act; and
(3) Government code section 53511. No others have been offered on appeal, so we focus
on those three. We conclude that none of them applies to the Agency’s acts in filing its
eminent domain action against Newhall or in resolving that action through a settlement
agreement.
       Section 19 of the Agency’s enabling act applies to “[a]n action to determine the
validity of any bonds, warrants, promissory notes, contracts, or other evidences of
indebtedness of the kinds authorized by subdivision (h), (i), (o), (p), (r) or (s) of Section
15.” (Stats. 1986, ch. 832, § 5, p. 2843, Deering’s Ann. Wat.—Uncod. Acts (2008 ed.)
Act 130, § 19.) The Agency’s acts here rest upon its power to sue and to exercise the
power of eminent domain, as well as its power to enter into contracts to acquire “a
waterworks system, water rights, waters, [and] lands”; these powers are authorized by
subdivisions (b), (g), and (e) of section 15, respectively. The subdivisions of section 15
covered by section 19 deal with issuing bonds and borrowing money (Id., § 15,
subd. (h)); issuing promissory notes (id., subd. (i)); joining with other public agencies or
private corporations “for the purpose of financing . . . acquisitions, constructions, and
operations” (id., subd. (o)); issuing bonds for payments to the state (id., subd. (p));
“construct[ing], operat[ing] or maintain[ing] works to develop hydroelectric energy”
(id., subd. (r)); and “contract[ing] . . . for the sale of the right to use falling water for
electric energy purposes” (id., subd. (s)). The Agency’s acts in this case do not deal with
these subdivisions, and thus fall outside of section’s 19 reference to validation
proceedings.

                                                10
       Section 16.1 of the Agency’s enabling act provides that the Agency’s retail sale of
water within the area once serviced by the Santa Clarita Water District is governed by
division 12 of the Water Code (Stats. 1986, ch. 832, § 5, p. 2843, Deering’s Ann. Wat.—
Uncod. Acts (2008 ed.) Act 130, § 16.1), and division 12 makes validation proceedings
applicable “to determine the validity of an assessment, or of warrants, contracts,
obligations, or evidence of indebtedness” (Wat. Code, § 30066). Because the parties in
this case have specifically stipulated that Valencia operates outside the boundaries of the
Santa Clarita Water District, section 16.1 by its terms does not apply to the Agency’s
acquisition of Valencia.
       Government Code section 53511 makes validation proceedings available “to
determine the validity of [a local agency’s] bonds, warrants, contracts, obligations or
evidences of indebtedness.” (Gov. Code, § 53511, subd. (a), italics added.) Although
“contracts” could be read to reach all contracts, the courts have defined it by reference to
the clause in which it has been used, and thus to reach only those contracts “that are in
the nature of, or directly relate to a public agency’s bonds, warrants or other evidences of
indebtedness.” (Kaatz, supra, 143 Cal.App.4th at pp. 40, 42; Friedland, supra,
62 Cal.App.4th at p. 843 [“[t]he ‘contracts’ in this statute do not refer generally to all
public agency contracts, but rather to contracts involving financing and financial
obligations”]; Meaney v. Sacramento Housing & Redevelopment Agency (1993)
13 Cal. App. 4th 566, 577; see generally City of Ontario, supra, 2 Cal.3d at pp. 343-345
[setting forth this reasoning, but declining to adopt it definitively]; accord, Phillips
v. Seely (1974) 43 Cal. App. 3d 104, 109-111 [declining to apply section 53511 to contract
for legal services]; Walters v. County of Plumas (1976) 61 Cal. App. 3d 460, 468-469
[declining to apply section 53511 to franchise contract].) At times, courts have read
section 53511 also to reach contracts that are “‘inextricably bound up’” with an agency’s
bonds, warrants or other evidence of indebtedness, even if those contracts do not directly
deal with those topics. (California Commerce Casino, supra, 146 Cal.App.4th at
p. 1430; McLeod, supra, 158 Cal.App.4th at pp. 1169-1170; see Graydon v. Pasadena
Redevelopment Agency (1980) 104 Cal. App. 3d 631, 645-646.) In this case, the Agency’s

                                              11
settlement contract to acquire Valencia’s stock did not deal with bonds, warrants or other
evidence of indebtedness and was not inextricably bound up with other contracts that did;
instead, the Agency purchased Valencia’s stock using “cash on hand.”
       SCOPE’s action was therefore not subject to validation proceedings.
      B.     Is SCOPE precluded from contesting the applicability of the validation
procedures because it invoked them below?

       Respondents assert that it is too late for SCOPE to disavow that the validation
proceedings’ deadlines apply here because (1) collateral attacks on validation
                                                                                 3
proceedings are not permitted, and (2) the doctrine of judicial estoppel applies. We are
unpersuaded.
               1.    Is this appeal a collateral attack?
       Although, as noted above, a final validation judgment cannot be collaterally
attacked (Colonies Partners, supra, 239 Cal.App.4th at p. 694), the propriety of
validation proceedings may be challenged on direct appeal (Fontana, supra,
153 Cal.App.4th at pp. 908-909.) Newhall suggests that the applicability of the
validation statutes can only be contested on direct appeal if the appeal challenging them
was filed in accordance with the validation statutes, but that precise argument was
rejected in Kaatz, supra, 143 Cal.App.4th at page 26.
               2.    Does judicial estoppel apply?
       The doctrine of judicial estoppel prevents a party from taking inconsistent
positions during litigation. (AP-Colton LLC v. Ohaeri (2015) 240 Cal. App. 4th 500, 507;
Law Offices of Ian Herzog v. Law Offices of Joseph M. Fredrics (1998) 61 Cal. App. 4th
672, 678-679.) A party’s prior position cannot preclude it from contesting a trial court’s
subject matter jurisdiction, but can preclude a party from arguing that the court is acting

3      Respondents cite several cases regarding how a party’s consent to a judgment
precludes a later challenge (e.g., Browand v. Scott Lumber Co. (1954) 125 Cal. App. 2d
68, 72-73; Dietrichson v. Western Loan & Bldg. Co. (1932) 123 Cal. App. 358, 361-362),
but the doctrine of consent is irrelevant because SCOPE did not consent to the entry of
judgment against it.
                                             12
“‘in excess of [its] jurisdiction.’” (Simmons v. Ghaderi (2008) 44 Cal. 4th 570, 584;
Sullivan v. Delta Air Lines, Inc. (1997) 15 Cal. 4th 288, 307, fn. 9.) Because SCOPE
indisputably invoked the validation statutes by pleading them in its complaint, by seeking
the trial court’s permission to publish the requisite constructive notice required by those
statutes, and by informing the court that it gave that notice, whether SCOPE is estopped
from contesting the applicability of the validation statutes comes down to whether that
contest amounts to a dispute over the court’s subject matter jurisdiction.
       The validation statutes confer in rem jurisdiction upon a court. (Code Civ. Proc.,
§ 860.) As our Supreme Court held over 125 years ago, in rem jurisdiction attaches only
if: (1) the court “ha[s] the authority to determine the subject-matter of the controversy;
and (2) the court “ha[s] jurisdiction over the thing proceeded against as a defendant.”
(Kearney v. Kearney (1887) 72 Cal. 591, 594 (Kearney).) The first prerequisite looks to
a court’s statutory authority to act (ibid.), while the second looks to the propriety of the
notice (id. at p. 595). Courts have applied this same framework to in rem jurisdiction
under the validation statutes: There is subject matter jurisdiction to entertain a validation
proceeding only if there is a statutory basis for that jurisdiction and if the party seeking to
invoke the validation procedures subsequently perfects that jurisdiction by providing the
proper type of constructive notice. (San Diegans for Open Government v. City of San
Diego (2015) 242 Cal. App. 4th 416, 428 [“‘[f]ailure to publish a summons in accordance
with the statutory requirements deprives the court of jurisdiction over “all interested
parties” [citation], which deprives the court of the power to rule upon the matter’”];
Katz v. Campbell Union High School Dist. (2006) 144 Cal. App. 4th 1024, 1032 [“[t]he
only way for the court to acquire jurisdiction over the matter is to ensure that notice is
given to all interested persons so that the resulting judgment can be conclusive as against
them”]; cf. Arnold v. Newhall County Water Dist. (1970) 11 Cal. App. 3d 794, 799-800
[improper constructive notice; court lacks subject matter jurisdiction]; accord, Bayle-
Lacoste & Co. v. Superior Court (1941) 46 Cal. App. 2d 636, 642-643 [in an in rem
condemnation action, notice “vest[s]” jurisdiction].) Constructive notice alone is not
enough to confer subject matter jurisdiction. If it were, a party could compel a court to

                                              13
issue a validation ruling merely by giving constructive notice of its complaint, even if its
complaint fell outside of any validation statute; such rogue “validation” actions would
eviscerate the Legislature’s careful effort to specifically delimit when these proceedings
are applicable.
         Newhall and Valencia counter that allowing SCOPE to retreat from its initial
position will empower it to do an “end run” around the validation statutes. We disagree.
To be sure, SCOPE is still able to challenge the Agency’s actions in this case through a
writ of mandate. But this does not offend the validation statutes because (1) the
validation statutes by their terms do not apply, and (2) a writ of mandate relies upon the
court’s in personam jurisdiction (Hills for Everyone, supra, 105 Cal.App.3d at p. 467),
not its in rem jurisdiction (see Kearney, supra, 72 Cal. at p. 59), and thus any judgment
from the in personam writ of mandate binds only the parties to the litigation, not the
world.
         Consequently, we conclude that the validation statutes’ shorter deadline to file a
notice of appeal does not apply, and that SCOPE’s notice of appeal is timely.
II.      Merits
         A.     Is the Agency violating Water Code section 12944.7 and its enabling act?
         Under Water Code section 12944.7, a public agency that is limited by its enabling
act “to the wholesale distribution of water” may sell water at retail only if (1) its enabling
act otherwise permits, or (2) the agency has a “written contract” with a water retailer that
is either a “public entity water purveyor” or a “water corporation” regulated by the Public
Utilities Commission. (§ 12944.7, subd. (b).) Here, the Agency’s enabling act limits the
agency to “provid[ing], sell[ing] and deliver[ing] . . . water at wholesale only.”
(Stats. 1986, ch. 832, § 5, p. 2843, Deering’s Ann. Wat.—Uncod. Acts (2008 ed.)
Act 130, § 15, italics added.) What is more, the parties stipulated below that the
exception in the Agency’s enabling act for selling water at retail (in the territory once
serviced by Santa Clarita Water District) does not apply here, and that the Agency has no
written contracts with Valencia that would fit within section 12944.7’s second exception.
Consequently, whether the Agency is currently violating section 12944.7 depends

                                              14
entirely on whether Valencia is selling water at retail or whether the Agency is doing so
using Valencia as its alter ego. The trial court found that Valencia was not the Agency’s
                                                                                                4
alter ego, and our task, as noted above, is to review that finding for substantial evidence.
(Las Palmas Associates, supra, 235 Cal.App.3d at p. 1248.)
              1.     Did the trial court properly refuse to consider extra-record
evidence?

       Before undertaking substantial evidence review, we first address SCOPE’s
argument that our analysis should include four items of evidence that the trial court
refused to consider—namely, the raw audiotape and uncertified transcripts, prepared by
SCOPE members, from the Agency’s board’s December 12 and December 19 meetings.
We conclude that the court’s refusal to consider this evidence was appropriate for two
reasons.
       First, the trial court properly refused to consider this evidence because it is outside
the administrative record. Agency actions can fall into one of two broad categories:
(1) “quasi-judicial” actions, where the agency settles the rights of the parties before it as
to past transactions; and (2) “quasi-legislative” actions, where the agency exercises its
“discretion governed by considerations of the public welfare” as to prospective events or
actions. (Wilson v. Hidden Valley Municipal Water (1967) 256 Cal. App. 2d 271, 279-
280.) A public agency’s decision to initiate eminent domain proceedings and to settle
those proceedings in a settlement agreement are quasi-legislative because they require the
agency to consider and balance policy concerns. (See Redevelopment Agency v. Rados

4      For the first time at oral argument, SCOPE requested a reversal and remand so it
can propound discovery to prove that the Agency is now operating Valencia as its alter
ego—irrespective of whether substantial evidence supports the trial court’s ruling that the
Agency’s acquisition of Valencia did not render Valencia the Agency’s alter ego. We
deny this request. Not only is it procedurally improper (Santa Clara County Local
Transportation Authority v. Guardino (1995) 11 Cal. 4th 220, 232, fn. 6 [“[w]e need not
consider points raised for the first time at oral argument”]), SCOPE’s request is also
inconsistent with the allegations in its operative complaint alleging alter ego status solely
by virtue of the acquisition and with its earlier stipulation not to “propound any further
requests for discovery in this matter.”
                                              15
Bros. (2001) 95 Cal. App. 4th 309, 316 [eminent domain reviewed under standard of
review for quasi-legislative actions]; Code Civ. Proc. § 1245.245, subd. (a)(3) [resolution
of necessity that precedes eminent domain action must be based on considerations of the
“public interest”]; Joint Council of Interns & Residents v. Board of Supervisors (1989)
210 Cal. App. 3d 1202, 1211 [contracting “requires an exercise of discretion”].) Judicial
review of quasi-legislative agency actions is generally confined to the record that was
before the agency. (Shapell Indus., Inc. v. Governing Board (1991) 1 Cal. App. 4th 218,
233 (Shapell); see Western States Petroleum Assn. v. Superior Court (1995) 9 Cal. 4th
559, 573 [“a court generally may consider only the administrative record in determining
whether a quasi-legislative decision was supported by substantial evidence”]; cf. Hothem
v. City (1986) 186 Cal. App. 3d 702, 705 [allowing for remand for consideration of extra-
record evidence in a quasi-judicial proceeding].) This rule is consistent with substantial
evidence review generally, and ensures that courts appropriately defer to the agency’s
expertise and its role as part of the separate and coequal executive branch.
(Western States Petroleum, at pp. 569-573.) The only exceptions, when extra-record
evidence will be admitted, are when that evidence “provide[s] background information
regarding the quasi-legislative agency decision, . . . establishe[s] whether the agency
fulfilled its duties in making the decision, or assist[s] the trial court in understanding the
agency’s decision.” (Outfitter Properties, LLC v. Wildlife Conservation Bd. (2012)
207 Cal. App. 4th 237, 251 (Outfitter Properties).)
       SCOPE contends that this rule against the consideration of extra-record evidence
does not apply when a party is seeking to challenge the agency’s action as ultra vires (that
is, beyond its statutory authority); it also argues that Outfitter Properties, supra,
207 Cal. App. 4th 237, supports its position. SCOPE is wrong on both counts. The
limitation on extra-record evidence applies even when a party asserts that the agency
“acting in its quasi-legislative capacity has exceed its authority.” (Shapell, supra,
1 Cal.App.4th at p. 233.) Moreover, the exceptions outlined in Outfitter Properties do
not make “extra-record evidence . . . admissible to contradict evidence upon which the

                                              16
administrative agency relied in making its quasi-legislative decision.”
(Outfitter Properties, at p. 251.)
       Second, even if the trial court could have considered this extra-record evidence,
the court acted within its discretion in deciding not to admit the incomplete audio tapes
and their uncertified transcripts. We review a trial court’s decision to exclude evidence
for an abuse of discretion. (People v. Alvarez (1996) 14 Cal. 4th 155, 207.) In deciding
whether a party has laid an adequate foundation for a recording, a court is to look to
whether the recording is “accurate and complete.” (E.g., People v. Patton (1976)
63 Cal. App. 3d 211, 220; Evid. Code, §§ 1401 & 1413; People v. Williams (1997)
16 Cal. 4th 635, 662.) In admitting a transcript, a court is to look to its accuracy and
whether it is certified. (Kuehn v. Carlos (1939) 32 Cal. App. 2d 295, 298.) In this case,
the court had evidence that at least one of the audio tapes was incomplete, and that both
transcripts were uncertified. This is a sufficient basis for refusing to admit them.
       SCOPE argues that the Agency did not comply with its discovery obligations
before the trial court, did not properly respond to a Public Records Act request
(Gov. Code, § 6250 et seq.), and did not inform SCOPE that its board’s secretary
regularly audio taped meetings to use in preparing official minutes. However, these
arguments have no bearing on the propriety or admissibility of SCOPE’s extra-record
evidence and accordingly do not alter our analysis.
             2.     Does substantial evidence support the trial court’s finding that
Valencia is not the Agency’s alter ego?

       “It is fundamental that a corporation is a legal entity that is distinct from its
shareholders.” (Grosset v. Wenaas (2008) 42 Cal. 4th 1100, 1108.) Part and parcel of this
general principle is that “a parent corporation (so-called because of control through
ownership of another corporation’s stock) is not liable for the acts of its subsidiaries.”
(United States v. Bestfoods (1998) 524 U.S. 51, 61.) However, where a parent
corporation (or, for that matter, anyone) that owns all of a subsidiary’s stock operates that
subsidiary in a manner that renders the subsidiary merely an alter ego of its parent (and a
ghost of its former, independent self), courts can pierce the so-called “corporate veil” and

                                              17
treat the two as one. (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal. App. 4th
523, 538 (Sonora Diamond).)
       In assessing whether to treat a subsidiary as the alter ego of its parent corporation
(or its individual owner(s)), courts must assess whether (1) there is “such unity of interest
and ownership that the separate personalities of the [subsidiary] corporation and [its
parent corporation or individual owner] no longer exist” and (2) “if the acts are treated as
those of the [subsidiary] alone, an inequitable result will follow.” (Mesler v. Bragg
Management Co. (1985) 39 Cal. 3d 290, 300; CADC/RADC Venture 2011-1 LLC
v. Bradley (2015) 235 Cal. App. 4th 775, 788-789 (CADC/RADC).) An inequitable result
follows when the corporate form is used “to perpetrate a fraud, circumvent a statute, or
accomplish some other wrongful or inequitable purpose.” (Sonora Diamond, supra,
83 Cal.App.4th at p. 538.) “To put it in other terms, the plaintiff must show ‘specific
manipulative conduct’ by the parent toward the subsidiary which ‘relegate[s] the latter to
the status of merely an instrumentality, agency, conduit or adjunct of the former.’”
(Laird v. Capital Cities/Abc (1998) 68 Cal. App. 4th 727, 742, quoting Institute of
Veterinary Pathology, Inc. v. California Health Laboratories, Inc. (1981)
116 Cal. App. 3d 111, 119-120; Las Palmas Associates, supra, 235 Cal.App.3d at
p. 1249.) As these definitions indicate, treating one corporation as the alter ego of
another is “‘an extreme remedy, [to be] sparingly used’” (Hasso v. Hapke (2014)
227 Cal. App. 4th 107, 155 (Hasso)) and is to be “approached with caution” (Las Palmas
Associates, at p. 1249). This heavy burden rests on the shoulders of the party seeking to
pierce the corporate veil. (Mid-Century Ins. Co. v. Gardner (1992) 9 Cal. App. 4th 1205,
1212-1213.)
       In evaluating the two requirements of the alter ego doctrine, courts look to the
totality of the circumstances bearing on the relationship between the parent and its
subsidiary. (Hasso, supra, 227 Cal.App.4th at p. 155; Greenspan v. LADT LLC (2010)
191 Cal. App. 4th 486, 513; Sonora Diamond, supra, 83 Cal.App.4th at p. 539.) Those
circumstances include, but are not limited to (1) whether the parent and subsidiary
commingle funds and other assets, (2) whether the parent has represented to third parties

                                             18
that it is liable for the subsidiary’s debts, (3) whether the parent owns 100 percent of the
subsidiary’s stock, (4) whether the parent and subsidiary use the same offices and same
employees, (5) whether the subsidiary is used as the “mere shell or conduit” for the
affairs of the parent, (6) whether the subsidiary is inadequately capitalized, (7) whether
the parent or subsidiary disregard corporate formalities such as holding board meetings,
keeping corporate records, and acting through votes of the corporate board, (8) whether
the parent and subsidiary commingle their corporate records, (9) whether the parent and
subsidiary have “identical directors and officers,” and (10) whether the parent has
diverted the subsidiary’s assets to the parent’s uses. (Hasso, at p. 155; Greenspan,
at pp. 512-513.)
       The trial court found that the Agency was not operating Valencia as its alter ego
because the Agency’s ownership of all of Valencia’s stock and its appointment of three
Agency employees to Valencia’s five-member board of directors was insufficient to
prove that the Agency was treating Valencia as a mere conduit or instrumentality.
Substantial evidence supports this finding. In evaluating whether evidence is substantial,
we ask whether a “‘rational trier of fact could find [the evidence] to be reasonable,
credible, and of solid value’” and do so while “‘view[ing] the evidence in the light most
favorable to the [decision].’” (San Diegans for Open Government v. City of San Diego
(2016) 245 Cal. App. 4th 736, 740.) The Agency’s ownership of Valencia’s stock is of no
moment. That is because, under California law, a parent corporation or an individual’s
ownership of a subsidiary is necessary for application of the alter ego doctrine
(CADC/RADC, supra, 235 Cal.App.4th at p. 789), but it is not sufficient (Leek v. Cooper
(2011) 194 Cal. App. 4th 399, 415; Meadows v. Emett & Chandler (1950) 99 Cal. App. 2d
496, 499; Hollywood Cleaning & Pressing Co. v. Hollywood Laundry Service, Inc.
(1932) 217 Cal. 124, 129; Erkenbrecher v. Grant (1921) 187 Cal. 7, 11). And although
three of Valencia’s five directors are Agency employees, this falls far short of showing
the two corporations have “identical directors and officers.” At most, it shows “some
common personnel,” which is not enough. (Tomaselli v. Transamerica Ins. Co. (1994)
25 Cal. App. 4th 1269, 1285; cf. Borun Bros. v. Department of Alcohol Beverage Control

                                             19
(1963) 215 Cal. App. 2d 503, 508-509 [alter ego applies where two corporations have
“interlocking directorships”]; Thomson v. L.C. Roney & Co. (1952) 112 Cal. App. 2d 420,
                                                         5
428-429 [same].) None of the other factors is present.
       SCOPE levels three attacks at the trial court’s analysis. First, SCOPE argues that
the settlement agreement contemplates a future merger between the Agency and
Valencia, which in SCOPE’s view indicates a wrongful intent. We disagree. The
agreement places a 75-day moratorium on implementing any resolution to absorb
Valencia into the Agency “should” the Agency’s board authorize such a merger.
Although the agreement does not forever declare any and all mergers to be impossible, it
also does not dictate a merger; this provision addresses at most a possible contingency.
Second, SCOPE cites several cases in which courts have applied the alter ego doctrine.
(See Las Palmas Associates, supra, 235 Cal. App. 3d 1220; H.A.S. Loan Service, Inc.
v. McColgan (1943) 21 Cal. 2d 518; Say & Say, Inc. v. Ebershoff (1993) 20 Cal. App. 4th
1759.) But, as even H.A.S. Loan Service acknowledges, “each case must rest upon its
special facts, and such determination is peculiarly within the province of the trier of fact.”
(H.A.S. Loan Service, at p. 523.) The cases SCOPE cites involve very different facts
from those present here. (Las Palmas Associates, at pp. 1249-1251 [affirming finding
that two sister corporations liable were alter egos of one another based on
undercapitalization and guarantees by one corporation for the other]; H.A.S. Loan
Service, at pp. 521-523 [affirming finding of alter ego when two corporations worked in
tandem to make loans that circumvented the fees charged to national banks for such
loans]; Say & Say, at pp. 1767-1769 [affirming finding that law firm was alter ego of
attorney for purposes of evading vexatious litigant status].) More importantly, the
appellate courts in those three cases affirmed the trial courts’ findings of alter ego after

5       Valencia, Newhall, and Stevenson Ranch urge us to examine, as part of our alter
ego analysis, whether the parent has “taken over performance of the subsidiary’s day-to-
day operations” (Sonora Diamond, supra, 83 Cal.App.4th at p. 542, italics omitted), but
that test is relevant to whether the subsidiary is the agent of the parent (id. at pp. 540-
542). The question of agency is distinct from the question of alter ego. (Id. at p. 540
[noting that “the two concepts are different and must be evaluated independently”].)
                                              20
viewing the evidence in the light most favorable to those findings; here, we do the same
in affirming the trial court’s finding against alter ego. Lastly, SCOPE asserts that the
Agency’s acquisition of Valencia is enabling it to achieve an inequitable result because it
is now able to “circumvent a statute”—namely, Water Code section 12944.7 and its
restrictions on the retail sale of water. Even if we assume for the sake of argument that a
transaction that avoids application of a statute amounts, without more, to an attempt to
“circumvent” it, this consideration is just one of many that, for the reasons noted above,
does not undercut the substantial evidence that the Agency and Valencia have maintained
separate corporate identities.
      B.     Is the Agency violating article XVI, section 17 of the California
Constitution by owning Valencia’s stock?

       Article XVI, section 17 of the California Constitution provides, in pertinent part,
that “[t]he State shall not in any manner loan its credit, nor shall it subscribe to, or be
interested in the stock of any company, association, or corporation, except that the State
and each political subdivision, district, municipality, and public agency thereof is hereby
authorized to acquire and hold shares of the capital stock of any mutual water company
or corporation when the stock is so acquired or held for the purpose of furnishing a
supply of water for public, municipal or governmental purposes; and the holding of the
stock shall entitle the holder thereof to all of the rights, powers and privileges, and shall
subject the holder to the obligations and liabilities conferred or imposed by law upon
other holders of stock in the mutual water company or corporation in which the stock is
                                                        6
so held.” (Cal. Const., art. XVI, § 17 (section 17).)
       SCOPE argues that this provision prohibits the Agency from acquiring and
owning Valencia’s stock because Valencia is not a “mutual water company or
corporation.” This argument requires us to answer two questions: (1) does section 17’s
general prohibition apply when the public agency’s ownership of stock does not amount

6     This provision has additional language dealing with “public pension or retirement
system[s],” but this language is not relevant to the issues presented in this case.
                                              21
to an extension of credit?; and (2) because it is undisputed that Valencia is a corporation
but not a “mutual water company,” does section 17’s exception for ownership of stock in
any “mutual water company or corporation” apply only to a corporation that is a “mutual
water company” or instead to any “corporation?”
       These questions require us to construe section 17. “In doing so, ‘“our fundamental
task is ‘to ascertain the intent of the lawmakers so as to effectuate the purpose of the
statute.’”’” (Lee v. Hanley (2015) 61 Cal. 4th 1225, 1232; Riverside County Sheriff’s
Dept. v. Stiglitz (2014) 60 Cal. 4th 624, 630 [“[i]n answering this question of statutory
interpretation, our goal is to effectuate the Legislature’s intent”].) Our starting place is
the provision’s text because it is “‘“generally . . . the most reliable indicator of legislative
intent”’” (Lee, at p. 1232), although “‘“[w]e may reject a literal construction”’” if it is
“‘“contrary to the legislative intent apparent in the statute”’” (Stiglitz, at p. 630;
Provigo Corp. v. Alcoholic Beverage Control Appeals Bd. (1994) 7 Cal. 4th 561, 566-567
[“‘the “plain meaning” rule does not prohibit a court from determining whether the literal
meaning of a statute comports with its purpose’”]; Santa Ana Unified School Dist.
v. Orange County Dev. Agency (2001) 90 Cal. App. 4th 404, 410 (Santa Ana Unified
School Dist.) [“‘[t]he legislative purpose will not be sacrificed to a literal construction of
any part of the statute’”].) If the text is unambiguous and comports with the statute’s
purpose, we stop there. (Lee, at pp. 1232-1233.) However, if the statute’s text “permits
more than one interpretation . . ., we ‘may consider other aids, such as the statute’s
purpose, legislative history, and public policy’” (Ardon v. City of Los Angeles (2016)
62 Cal. 4th 1176, quoting Coalition of Concerned Communities, Inc. v. City of Los
Angeles (2004) 34 Cal. 4th 733, 737) as well as the general canons of statutory
construction (Stiglitz, at p. 630). These rules of construction apply to provisions of our
Constitution as well as statutes (e.g., Provigo, at p. 567), and in that context, we may look
to ballot pamphlets underlying adoption of those constitutional provisions as part of the
provision’s legislative history (People ex rel. Feuer v. Nestdrop, LLC (2016)
245 Cal. App. 4th 664, 677).

                                               22
       At the outset, Valencia asserts that we need not determine whether section 17
prohibits the Agency from owning stock in a retail water purveyor because that question
was already resolved in Klajic I, supra, 90 Cal. App. 4th 987. Although the Court of
Appeal in Klajic I noted that it did “not disagree with the Agency that it was lawfully
empowered to acquire the [Santa Clarita] Water Company (Cal. Const., art. XVI, § 17)”
(Klajic I, at p. 1000), the question presented in Klajic I was whether the Agency’s
absorption of the Santa Clarita Water District meant that the Agency and the District had
become “alter egos” of one another (id. at pp. 1000-1001). The constitutional question
we face in this case was neither squarely presented nor analyzed. Because “‘“cases are
not authority for propositions not considered”’” (Silverbrand v. County of Los Angeles
(2009) 46 Cal. 4th 106, 127, quoting In re Marriage of Cornejo (1996) 13 Cal. 4th 381,
388), Klajic I did not resolve the issue and we proceed to do so.
              1.      Does section 17’s general prohibition apply?
       Section 17 prohibits “[t]he State . . . in any manner [from] loan[ing] its credit” or
“subscrib[ing] to, or be[ing] interested in the stock of any company, association or
corporation.” (Cal. Const., art. XVI, § 17, italics added.) Although the italicized
language, standing alone, would seem to prohibit any and all stock ownership by the
state, Valencia argues that it must be read in the context of the whole sentence—which is
aimed at the far narrower evil of the state loaning its good name and credit to private
companies. Because “a word takes its meaning from the company it keeps” (Blue Shield
of California Life & Health Ins. Co. v. Superior Court (2011) 192 Cal. App. 4th 727, 740;
Grafton Partners v. Superior Court (2005) 36 Cal. 4th 944, 960 [describing the canon of
statutory construction known as noscitur a sociis]), Valencia contends that section 17’s
prohibition does not apply when the state has purchased all of a private company’s stock
and is therefore no longer lending its credit to a private entity.
       For support, Valencia cites General Engineering & Dry Dock Co. v. East Bay
Municipal Utility Dist. (1932) 126 Cal. App. 349 (General Engineering). There, a utility
district bought all of a water company’s stock and then levied a tax to recoup the cost of
doing so. (Id. at pp. 352-357.) Several unhappy taxpayers challenge the tax, in part on

                                              23
the ground that acquisition was unconstitutional under section 17’s predecessor, which
provided in pertinent part that “‘[t]he legislature shall have no power to give or to lend, or
to authorize the giving or lending, of the credit of the State, or of any . . . subdivision of
the State’” and “‘shall not have power to authorize the State, or any political subdivision
thereof, to subscribe for stock, or to become a stockholder in any corporation whatever.’”
(Id. at p. 357, quoting Cal. Const., art. IV, § 31 (1880).) The Court of Appeal rejected the
constitutional challenge. The court reasoned: “Where there is such an admitted situation
of ‘purchase’ and ‘sole ownership’, there is no ‘giving or lending of credit’ within the
meaning of any such prohibitory provisions. The situation contemplated by the
prohibitory measure is not present; for the ‘purchase of all the property’ and the ‘sole
ownership’ of all the property preclude the conclusion that there has been any joinder
with another as an interested party or aided party or that what was done in the interest or
for the benefit of anyone other than the ‘purchaser’ and ‘owner.’” (Id. at p. 358; see also
Carpenter v. Pacific Mutual Life Ins. Co. (1937) 10 Cal. 2d 307, 339-340 [section 17’s
predecessor does not apply when state, acting as conservator, acquires stock].)
       General Engineering appears to be directly on point. Although, as we discuss
below, section 17 has evolved over the decades, its prohibition of stock ownership has
always been—and continues to be—married to its prohibition against the lending of
credit. Where, as here, the state (or its agency) has acquired all of the stock in a
company, association or corporation, it is not lending its credit to the corporation or the
corporation’s other owners; the state owns it. In such instances, section 17’s prohibition
does not apply.
       SCOPE resists the force of this analysis with three arguments. First, it contends
that General Engineering is factually distinguishable because the public agency in that
case acquired not only the water company’s stock, but also its assets and debts. This is
true (General Engineering, supra, 126 Cal.App. at p. 357), but was not germane to the
court’s reasoning or result, which turn on the public agency’s purchase and ownership of
the water company’s stock (id. at p. 358). Second, SCOPE asserts that General
Engineering is legally distinguishable (a) because it interprets article IV, section 31 of the

                                              24
California Constitution, which deals with limits on the Legislature’s power to authorize
the state to acquire stock, (b) because the voters amended section 31 by adding section
31b a few weeks after General Engineering was decided, and (c) because section 31b
“could have been a reaction” to General Engineering. As described more fully below,
the legislative history refutes SCOPE’s assertions. Section 31 of article IV is one of two
provisions from which the current version of article XVI, section 17 is derived, and the
enactment of section 31b by the voters soon after General Engineering was handed down
was entirely consistent with General Engineering because it created a further exception
to section 31’s near-absolute bar on stock ownership. Lastly, SCOPE argues that the link
General Engineering forges between the prohibition on stock ownership and the
prohibition of lending credit is refuted by an excerpt from the 1880 floor debate about the
predecessor to section 31; in that debate, the proponent explains that the provision
“prohibits [the state] owning stock in a corporation” and from “pledging credit . . . [i]n
aid of any corporation.” (Debates, Constitutional Convention (Sept. 28, 1878) p. 443 at
 [as of July 22, 2016].) We may consider this exchange as
part of the provision’s legislative history (Henson v. C. Overaa & Co. (2015) 238
Cal. App. 4th 184, 198), but disagree with SCOPE that it is inconsistent with General
Engineering’s reasoning or holding. In sum, SCOPE’s arguments do not persuade us that
section 17’s stock ownership bar applies to a public agency’s acquisition of all of the
stock of a company, association or corporation.
           2.    Does section 17’s exception allowing for ownership of stock in a
“mutual water company or corporation” apply?

       Even if section 17’s bar on stock ownership applied, section 17 excepts stock
ownership in “any mutual water company or corporation when the stock is so acquired or
held for the purpose of furnishing a supply of water for public, municipal or
governmental purposes.” (Cal. Const., art. XVI, § 17.) A “mutual water company” is a
company organized to deliver water, at cost, to its shareholders and only its shareholders.
(Pub. Util. Code, § 2725; Corp. Code, § 14300.) Because Valencia is not a “mutual water

                                             25
company,” whether the Agency can avail itself of this exception turns on whether “any
mutual water company or corporation” means “any mutual water company or mutual
water corporation” or “any mutual water company or any corporation.” SCOPE urges
the former interpretation; respondents urge the latter. In resolving this dispute, we
examine the text of the provision as well as its legislative history and purpose.
              a.     Text
       The text of section 17’s exception points to the conclusion that a state may own
stock in “any corporation” as long as it is doing so, as the section mandates, “for the
purpose of furnishing a supply of water for public, municipal or governmental purposes.”
(Cal. Const., art. XVI, § 17.) A “mutual water company” is statutorily defined to include
all types of companies, including corporations. (Pub. Util. Code, § 2725 [defining
“mutual water company” to include “any private corporation or association” otherwise
meeting the definition]; Corp. Code, § 14300 [defining “mutual water company” to
include “[a]ny corporation” otherwise meeting the definition].) Because “mutual water
company” already means “mutual water corporation,” section 17’s inclusion of the
additional words “or corporation” must mean “or any corporation”; otherwise, those
additional words serve no function and are unnecessary surplusage. “Constitutional
provision[s] should be interpreted so as to eliminate surplusage.” (Voters for Responsible
Retirement v. Board of Supervisors (1994) 8 Cal. 4th 765, 772.)
       SCOPE offers five arguments against this construction of section 17’s text. First,
SCOPE contends that the drafters used the words “company or corporation” to ensure
that the exception reached unincorporated associations. This contention overlooks that
the word “company” already includes unincorporated associations. (E.g., Law v. Crist
(1940) 41 Cal. App. 2d 862, 865 [“‘[t]he term [association] is often used as synonymous
with “company” or “society”’”]; Pub. Util. Code, § 2725 [“mutual water company”
reaches “any private . . . association” otherwise qualifying].) This contention also fails to
explain why “or corporation” would be added.
       Second, SCOPE argues that if we construe “corporation” in section 17 to mean
“any corporation,” then we would render the phrase “mutual water company”

                                             26
unnecessary surplusage because some “corporations” are “mutual water companies.”
This argument ignores that the phrase “mutual water company” also includes
unincorporated associations; the phrase “mutual water company” is accordingly not
surplusage because it assures that stock ownership in mutual water associations is
exempt.
       Third, SCOPE contends that we must construe the terms “company” and
“corporation” as being synonymous because section 17’s general prohibition uses the two
terms synonymously when it prohibits a public agency from having an “interest[] in the
stock of any company, association, or corporation” (Cal. Const., art. XVI, § 17), and
because the words must be given the same synonymous meaning when they are part of
section 17’s exception. We disagree. As we discuss above, section 17’s exception uses
the phrase “mutual water company or corporation,” and “mutual water company” as a
longstanding term of art that specifically includes corporations. By contrast, section 17’s
general prohibition just uses the word “company” alone, as part of the phrase “company,
association, or corporation.” Whether or not the generic term “company” is synonymous
with the generic term “corporation” does not shed any light on the overlap of the two
words when one of them (“company”) is used as part of a phrase (“mutual water
company”) that incorporates, and thereby invokes, a well-defined term of art.
       Fourth, SCOPE asserts that the phrase “company or corporation” is just a generic
catch-all phrase used in a variety of different statutes to mean “company, which may be a
             7
corporation”; what is more, says SCOPE, that phrase is often unnecessary surplusage in
those other statutes because those statutes list “person,” “company” or “corporation”

7      (See Pub. Resources Code, § 7303.5; Veh. Code, § 9805; Pen. Code, §§ 30715,
subd. (a)(1) & § 30720, subd. (a); Rev. & Tax Code, § 24359, subd. (d); Ed. Code,
§ 69980, subd. (i); Bus. & Prof. Code, § 3109; Civ. Code, §§ 798.37, 800.47 & 1747.03,
subd. (b); Food & Agr. Code, § 41551; Sts. & Hy. Code, §§ 30106 & 30107.)
                                            27
         8
together, and the term “person” usually includes “companies” and “corporations” (e.g.,
Civ. Code, § 14; Evid. Code, § 175). However, the use of “company or corporation” in
other contexts is beside the point. Those three words are only part of the phrase we are
tasked with construing here; whether those three words are unnecessary in other contexts
is thus irrelevant.
       Lastly, SCOPE argues that we must construe the phrase “company or corporation”
in section 17 in pari materia with Government Code section 7513.6 and Insurance Code
section 1241.2. “‘“It is an established rule of statutory construction that similar statutes
should be construed in light of one another [citations], and that when statutes are in pari
materia similar phrases appearing in each should be given like meanings.”’” (People v.
Tran (2015) 61 Cal. 4th 1160, 1167-1168, quoting People v. Lamas (2007) 42 Cal. 4th
516, 525.) Government Code section 7513.6 addresses investments in the Sudan and
Insurance Code section 1241.2 addresses investments in Iran. They have nothing to do
with investments in mutual water companies or the concerns underlying section 17. They
are not in pari materia, and are irrelevant.
               b.     Legislative history
       Section 17 traces its lineage back to the 1880 version of our Constitution. At that
time, the bar against state ownership of stock was lodged in two different provisions:
Article IV, section 31 limited our Legislature’s power by providing that “[t]he
Legislature. . . shall not have power to authorize the State, or any political subdivision
thereof, to subscribe for stock, or to become a stockholder in any corporation whatever”
(Cal. Const., art. IV, § 31 (1880)), and article XII, section 13 directly prohibited such
ownership by providing that “[t]he State shall not in any manner loan its credit, nor shall

8      (See Pub. Resources Code, § 7303.5; Pen. Code, §§ 30715, subd. (a)(1) & 30720,
subd. (a); Bus. & Prof. Code, § 3109; Civ. Code, §§ 798.37, 800.47 & 1747.03, subd. (b);
Food & Agr. Code, § 41551.)
                                               28
it subscribe to, or be interested in the stock of any company, association, or corporation”
                           9
(art. XII, § 13 (1880)).
       Over the next century, the voters enacted five exceptions to the direct prohibition.
In 1914, the voters amended article IV, section 31 to directly authorize irrigation districts
to acquire stock in “any foreign corporation which is the owner of” an “international
water system” if doing so was “for the purpose of acquiring the control of
[that] . . . system necessary for its use and purposes.” (Cal. Const., art. IV, § 31 (1914).)
In 1932, the voters adopted a new article IV, section 31b, which directly authorized the
City of Escondido to acquire the stock of “any mutual water company or corporation,
when such stock is so acquired or held for the purpose of furnishing a supply of water for
public or municipal purposes or for the use of the inhabitants of the city.” (Art. IV, § 31b
(1932).) The associated ballot pamphlet explained that “[t]he purpose of this amendment
[was] to allow the City of Escondido to own stock in a mutual water company.” Two
years later, the voters added article IV, section 31c and expanded the exception for the
City of Escondido to any and all cities “of the fifth or sixth class.” (Art. IV, § 31c
(1934).) In 1940, the voters enacted article IV, section 31d to expand the exception
further to “the State.” (Art. IV, § 31d (1940).) The ballot pamphlet explained that the
state was facing a “serious shortage of water supply” and that “[f]requently the most
feasible means for securing the necessary water is and will be to acquire stock in a mutual
water company.” Finally, in 1956, the voters further expanded the exceptions recognized
in sections 31b, 31c, and 31d of article IV to reach any public agency in the state; moved
this consolidated exception to article XII, section 13, which was the provision that
directly regulated stock ownership by public agencies; and then repealed sections 31b,
31c and 31d of article IV. The ballot pamphlet explained that this provision would
“create an exception to [the general bar of stock ownership] insofar as mutual water

9    SCOPE requested that we take judicial notice of the legislative history of section
17. We grant that motion. (Evid. Code, §§ 452 & 459.)
                                              29
companies are concerned.” This provision was later moved to section 17 without any
                            10
substantive modification.
       We draw three conclusions from this legislative history. First, this history shows a
steady expansion in the circumstances under which public agencies can acquire stock in
companies in order to provide water to the public they serve. Second, this expansion has
focused primarily—but not exclusively—on allowing public agencies to acquire stock in
mutual water companies; although most of the exceptions have dealt with mutual water
companies, the very first exception reached any foreign corporation. Third, the history is
silent on why the phrase “or corporation” was added to the phrase “mutual water
company or corporation.”
              c.     Purpose
       The reason for section 17’s exception appears both in its text and its legislative
history. The text permits public agencies to own stock in a “mutual water company or
corporation,” but only if that ownership “is . . . for the purpose of furnishing a supply of
water for public, municipal or governmental purposes.” (Cal. Const., art. XVI, § 17.)
The legislative history reinforces that the function of this exception is providing “the

10      The provision prohibiting the Legislature from authorizing public ownership of
corporate stock remained intact, and was moved to article XVI, section 6 in 1974.
(Cal. Const., art XVI, § 6.) For the first time in its reply brief on appeal, SCOPE argues
that the Agency’s acquisition of Valencia’s stock would have violated this provision had
our Legislature tried to authorize it. This argument is procedurally improper, irrelevant
and wrong. It is not properly before us because SCOPE never mentioned section 6 before
the trial court or in its opening brief on appeal; to allow SCOPE to raise it at this late
stage, when the Agency and Valencia have no further opportunity to respond, is patently
unfair. (People v. Rangel (2016) 62 Cal. 4th 1192, 1218-1219.) It is irrelevant because
the factual predicate for the relevance of this provision—namely, that the Legislature
authorized the stock acquisition in this case—never happened. And it is wrong because
the limits on legislative power set forth in section 6 do not apply to stock ownership
specifically authorized by article XVI, section 17; to hold otherwise is to abrogate section
17. Our job is to give effect to all provisions of our Constitution, not to nullify them.
(See McWilliams v. City of Long Beach (2013) 56 Cal. 4th 613, 627 [courts have a “duty
to harmonize constitutional provisions where possible”].)
                                             30
most feasible means for securing” the “water” “necessary” to provide for constituents
during a “serious shortage of water supply.”
       Although it is a close question, we conclude that section 17 permits a public
agency to acquire stock in any corporation for the purpose of furnishing a supply of
water. We so conclude for two reasons. First, this interpretation better furthers the
purpose of section 17’s exception—namely, to provide a ready means for public agencies
to secure water for the public they serve. (Santa Ana Unified School Dist., supra,
90 Cal.App.4th at p. 410 [“[w]here a statute is reasonably susceptible to two
interpretations, we must embrace the one that best effectuates the legislative purpose”].)
If we limited public agencies to acquiring the stock of mutual water companies, we
would be cutting off a viable supply of water. Although a public agency would, under
the narrower construction, still be able to buy water from a corporation that was not a
mutual water company, being a customer is not an adequate substitute for being a
stockholder given the economies of scale and potential for control and coordination that
come with acquisition but not with purchase.
       Second, because section 17’s exception is limited by its plain terms to
corporations that supply water, our conclusion that section 17 permits stock ownership in
“any” corporation means only that the exception reaches nonmutual water corporations as
well as “mutual water companies.” This is of little consequence because what
differentiates the two is how they are regulated. Mutual water companies are not
regulated by the Public Utilities Commission. (Pub. Util. Code, § 2705; Yucaipa Water
Co. v. Public Utilities Com. (1960) 54 Cal. 2d 823, 826, 828-829; J.M. Howell Co.
v. Corning Irrigation Co. (1918) 177 Cal. 513, 519.) That is because they are self-
regulated: The only people who receive their water are their shareholders, and those
shareholders are viewed as having ample legal remedies available to them and their
ability to engage in such self-help renders agency oversight unnecessary. (Erwin v. Gage
Canal Co. (1964) 226 Cal. App. 2d 189, 195; Crescent Canal Co. v. Kings County
Development Co. (1941) 43 Cal. App. 2d 370, 376-377; Yucaipa Water Co., at p. 830;
Consolidated Peoples Ditch Co. v. Foothill Ditch Co. (1928) 205 Cal. 54, 63;

                                            31
Miller v. Imperial Water Co., No. 8 (1909) 156 Cal. 27, 29-30.) Nonmutual water
companies are either regulated by the Public Utilities Commission (Pub. Util. Code,
§§ 701 & 2703), or by the public agency itself if the company is wholly owned by that
agency (Cal. Const., art. XII, § 3). Who is regulating a water company would seem to
have no bearing on whether a public agency should be able to own its stock; this is
particularly so here, where the Agency’s acquisition of Valencia moved Valencia from
oversight by one public agency (the Public Utilities Commission) to another (the
Agency).
      SCOPE argues that our conclusion has been rejected by the Attorney General and
by the Public Utilities Commission. In a 1960 opinion, the Attorney General opined that
municipal water districts could own stock in a mutual water company.
(36 Ops.Cal.Atty.Gen. 141 (1960).) This opinion does not speak to whether the
exception in section 17 or its predecessor reaches corporations that are not mutual water
companies. In 2014, the Public Utilities Commission concluded that Valencia was no
longer subject to its regulation. In the course of its opinion, however, the Commission
undertook an analysis into whether the Agency’s acquisition of Valencia was valid under
section 17. The Commission opined that the acquisition may be unconstitutional
because, in its view, section 17 only reached stock ownership in corporations that were
also “mutual water companies.” In reaching this holding, the Commission determined
that the text of section 17’s exception was ambiguous, and never examined the purpose
behind that exception. As noted above, we have come to different conclusions. Because,
and as the Commission acknowledged, its opinion is only persuasive authority (Greene
v. Marin County Flood Control & Water Conversation Dist. (2010) 49 Cal. 4th 277, 290-
291), we may conclude that its reasoning is unpersuasive.

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                                   DISPOSITION
      The judgment is affirmed. Respondents are entitled to their costs on appeal.
      CERTIFIED FOR PUBLICATION.

                                                      _______________________, J.
                                                      HOFFSTADT
We concur:

________________________, Acting P. J.
ASHMANN-GERST

________________________, J.
CHAVEZ

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