Court Opinion

ID: 7802896
Source: CourtListenerOpinion
Date Created: 2022-08-23 19:01:45.498879+00
Date Added: 2024-06-11T16:29:32.334223
License: Public Domain

Filed 8/23/22
                CERTIFIED FOR PUBLICATION

 IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                 SECOND APPELLATE DISTRICT

                         DIVISION EIGHT

 CAM-CARSON, LLC,                      B312729

     Plaintiff and Appellant,
                                       Los Angeles County
         v.                            Super. Ct. No. 20STCV16461

 CARSON RECLAMATION
 AUTHORITY et al.,

     Defendants and Respondents.

     APPEAL from a judgment of the Superior Court of Los
Angeles County, Maureen Duffy-Lewis, Judge. Reversed and
remanded.

     Latham & Watkins, Richard P. Bress, Daniel S. Schecter,
Robert J. Ellison and Nima H. Mohebbi for Plaintiff and Appellant.

     Aleshire & Wynder, Sunny K. Soltani and June S. Ailin for
Defendants and Respondents City of Carson and the Successor
Agency to the Carson Redevelopment Agency.
              ____________________________________
                              SUMMARY
       Plaintiff CAM-Carson, LLC sued the City of Carson (City),
the Carson Reclamation Authority (CRA) and others for breach of
contract and breach of the covenant of good faith and fair dealing.
Plaintiff is a commercial real estate developer. Plaintiff entered
contracts with the City and CRA to develop a 40-acre site after the
City and CRA remediated soil and groundwater contamination,
installed infrastructure, and built roads. Plaintiff alleged the City
and CRA engaged in gross mismanagement and malfeasance that
created a massive funding deficit which derailed the project,
causing damages to plaintiff of over $80 million.
       Plaintiff seeks to hold the City liable in equity under alter
ego principles for the CRA’s breach of a contract between plaintiff
and the CRA. We hold the alter ego doctrine may be applied to
government entities where the facts justify an equitable finding of
liability. Here, the allegations in plaintiff’s second amended
complaint are sufficient to survive the City’s demurrer. We cannot
say, as a matter of law, the City cannot be held the alter ego of the
CRA if plaintiff is able to prove the facts alleged. Accordingly, the
trial court erred in sustaining the City’s demurrer to plaintiff’s
breach of contract claim.
       For the same reason, the trial court erred in sustaining the
City’s demurrer to plaintiff’s breach of implied covenant claim.
Apart from alter ego liability, the court failed to consider plaintiff’s
allegations that the City breached the implied covenant in
connection with a development agreement to which the City was a
party.
       Accordingly, the judgment of dismissal is reversed.

                                   2
                                 FACTS
       We recite the facts as alleged in the operative complaint.
1.     The Parties and the Background
       This case involves an undeveloped site the parties call the
“157 Acre Site” in Carson. It was operated as a landfill in the
1950’s until its closure in 1965. It has sat vacant since then. The
site has soil and groundwater contamination that requires
environmental remediation before it can be developed. It is subject
to a State remedial action plan.
       The plaintiff is a joint venture of subsidiaries of two major
U.S. commercial real estate developers. The defendants are the
City; the CRA, which is a joint powers authority that was “created
by the City solely to oversee environmental remediation on the
157 Acre Site”; the Successor Agency to the now-dissolved Carson
Redevelopment Authority; and RE | Solutions, LLC (RES), the
CRA’s primary contractor. (The first three are sometimes referred
to collectively as the city defendants. The CRA and RES are not
parties to this appeal.)
       Over the years, ownership of the 157 Acre Site changed
hands between a number of private entities and developers, but
none was able to complete the extensive remediation required. In
2006, the site was sold to Carson Marketplace LLC, which entered
into an agreement with the Carson Redevelopment Agency to
effectuate a redevelopment plan under the State remedial action
plan. But that project could not be completed either.
       In 2012, the Carson Redevelopment Agency was dissolved in
accordance with state law. The Carson city council passed a
resolution creating the Successor Agency to serve as successor to
the redevelopment agency, and “ ‘the City became the Successor

                                 3
Agency of the former redevelopment agency by operation of law.’ ” 1
The Successor Agency assumed the redevelopment agency’s
enforceable obligations, including the obligation to fund the
remediation work, “an obligation which the City and Successor
Agency admit still exists today.” (Boldface & italics omitted.)
      By 2015, the City determined that a governmental entity
would have to acquire the 157 Acre Site and complete the
remediation and basic infrastructure before a private developer
would agree to build. Early that year, the City created the CRA to
acquire the site and complete the remediation. In May 2015,
Carson Marketplace transferred its interest in the 157 Acre Site to
the CRA, in consideration for, “among other things, the Successor
Agency’s obligation to ensure the completion of the remediation
work and other infrastructure improvements.” The City and the
Successor Agency “have admitted that, in the context of [plaintiff’s]
claims, ‘the Successor Agency is directly liable . . . for competently
undertaking the Remediation Work and alleviating the Hazardous
Substances upon the 157 Acre Site.’ ”
      From 2016 through 2018, the City and the CRA negotiated
with plaintiff, leading to a series of interconnected agreements (the
“project agreements”) for the development of 40 acres of the
157 Acre Site, called the “Cell 2 Site.” The project was to be “a
state-of-the-art, first-class, regional fashion outlet and retail mall.”
For plaintiff to develop the Cell 2 Site, it was critical that the CRA

1
       The dissolution law “transfers control of redevelopment
agency assets to successor agencies, which are contemplated to be
the city or county that created the redevelopment agency
[citations]. [The law] requires successor agencies to continue to
make payments and perform existing obligations.” (California
Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231, 251.)

                                   4
and the City first remediate the Cell 2 Site, install infrastructure
in the subsurface, construct roads, and much more.
       The “project agreements” were executed in September 2018.
They included a conveyancing agreement between plaintiff and the
CRA (exhibit A to plaintiff’s operative complaint); a cooperation
agreement between the CRA and the City; and a development
agreement between plaintiff and the City.
       Under the conveyancing agreement, the CRA must construct
the remedial systems at its sole cost. The parties acknowledged
development would be financially infeasible without remediation,
and the CRA “has substantial funds to do so.” The CRA
represented it had $75,873,000 as of December 31, 2017. The CRA
and the City advised plaintiff the Cell 2 Site remediation would
cost $26,888,698.
       The CRA was also responsible under the conveyancing
agreement to fund and construct, on behalf of the City, certain
offsite improvements to serve the 157 Acre Site, such as roadway
improvements, water and other utilities, that were prerequisites
for building out the project’s infrastructure.
       Some of the offsite and site development improvements were
subject to advances of funds from plaintiff. Plaintiff was entitled
to recoup its advances from future tax revenues generated by the
project and paid to the City. The CRA could not use plaintiff’s
advances to fund any remediation work. Plaintiff had the right to
approve the CRA’s plan for offsite improvements and site
development improvements, including any improvement changes.
       The cooperation agreement between the CRA and the City
required the CRA to report to the City any change orders over a de
minimis amount, and in certain cases to obtain plaintiff’s approval.

                                 5
Plaintiff is identified as a third party beneficiary in connection
with the project.
       The CRA retained RES as its primary contractor. RES was
tasked with managing the subcontractors. After completion of
remediation of the Cell 2 Site and development improvements,
plaintiff would be entitled to develop the site in accordance with
rights granted by the City to plaintiff under the development
agreement.
2.     Mismanagement of the Project
       The operative complaint describes at length gross
mismanagement of the project by the City, the CRA and RES,
resulting in the creation of a massive funding deficit and causing
damages to plaintiff of over $80 million.
       Before work began on the project, plaintiff deposited
$4 million with the CRA, a deposit intended “to secure
performance under the Conveyancing Agreement.” Without
plaintiff’s knowledge, the City held these funds in its own account.
“In connection with the negotiations, and over the next year,”
plaintiff invested “more than $80 million in connection with the
Project.”
       In October 2019, just a year after the project agreements
were signed, the CRA and RES disclosed they did not have the
funding to complete the work the CRA was required to complete
for the Cell 2 Site. Plaintiff then learned the CRA had not only
spent all the funds available for the remediation but also had
developed a huge deficit. The City and Successor Agency had
failed to provide the necessary funding to cover or cure the
shortfall and had taken no action to properly supervise the CRA.
       Unbeknownst to plaintiff, the City and the CRA failed to
employ a sufficient project management and financial control

                                 6
process. The assistant city manager in charge of the project had no
experience managing a major remediation and construction
project. The CRA executive director failed to oversee spending on
the project. The City and CRA representatives failed to review,
scrutinize and approve millions of dollars in change orders. There
were no budget forecasts or reports of variances from budget or
notification of a significant budget shortfall until it was too late.
       These failures “led to massive, unmonitored spending
increases with no attention by RES or the City Defendants to
baseline cost estimates, a budget, or an analysis to determine if
sufficient funds were available.” The City and the CRA “have used
[plaintiff’s] advances to pay for remediation work,” contrary to the
conveyancing agreement. “As the City Attorney recognized, in
writing, there was a ‘total and utter failure to manage’ by RES,” a
failure that happened on the CRA’s watch.
       The CRA did not even know how many tens of millions of
dollars were needed to complete the project, “though their numbers
have ranged from $40 million to $57 million.”
3.     The Concealment Allegations
       The City, the CRA and RES “admit they became aware of an
enormous funding shortfall they created as early as February
2019,” but concealed the shortfall from plaintiff. The City and the
CRA “continued to incur substantial additional costs (including
millions of dollars in costs invoiced to and advanced by [plaintiff]
under the Project Agreements) even though they knew they would
not be able to complete their remediation and infrastructure
obligations.” “The City and the CRA did nothing to correct the
funding issues or lack of Project oversight, and instead continued
to allow RES to mismanage the Project and waste millions of
dollars.” Defendants “elected to completely deplete available funds

                                 7
for remediation of the Cell 2 Site without notifying [plaintiff] that
they were rapidly running out of money.”
       “Throughout the remainder of 2019,” defendants
intentionally concealed their funding deficit and “made numerous
representations to continue to induce [plaintiff] to advance
additional funds,” even though they knew they could not complete
their obligations under the project agreements. For example,
month after month through November 2019, the City’s treasurer
(also treasurer of the CRA and Successor Agency) represented to
the public and the CRA board “that the CRA had enough money to
fund its obligations for the next six months,” representations that,
“[a]s it turns out, . . . were patently false.” “There was no advance
warning to [plaintiff] or the public of this financial malfeasance.”
The complaint alleges the city manager, the mayor, the city
attorney, the CRA and RES knew the CRA was running out of
money and the City and Successor Agency would not provide the
required funding, but they did not disclose that information to
plaintiff and the public.
       On September 25, 2019, RES told the assistant city manager
the funding deficit “no longer only precluded the remediation of the
entire 157 Acre Site, but was so severe that it even precluded the
remediation of the Cell 2 Site.” (Italics omitted.) But RES did not
tell plaintiff, and neither did the CRA until weeks later. Despite
the CRA’s “awareness of issues since at least February 2019, it
failed to ‘take over direct management of the primary contractors’
until November 2019.” (Italics omitted.)
       On October 17, 2019, the CRA began to disclose the truth
about its massive financial deficit to plaintiff, but at the same
time, “the City Attorney, the CRA, and RES conspired about how
to continue to conceal the dire facts from [plaintiff].” On

                                 8
October 31, 2019, the city attorney “brainstormed with RES ‘how
[to] present the number to [plaintiff].’ ” (Second brackets added.)
The City “tried to find a way to pin the blame on [plaintiff] to ‘get
[plaintiff] on the defensive.’ ”
4.      Events After the CRA’s Disclosure
        The complaint alleges that on January 30, 2020, plaintiff
gave formal notice to the CRA and the City of their material
breaches of contract. The CRA failed to cure the defaults, with the
city defendants “all repeatedly admitt[ing] . . . that the CRA has no
ability to cover the funding shortfall they caused or ‘to deliver the
remedial work.’ ” The city defendants have admitted plaintiff has
been damaged “to the tune of more than $80 million” and must
necessarily turn to the Successor Agency and the City for recovery
“because the CRA ‘has no assets or financial resources’ to cover
their obligations.” The City’s mayor “apologized in writing to a
senior representative of [plaintiff] for the CRA’s failing on the
Project.” The city defendants, “including the Successor Agency
itself, have repeatedly admitted that the Successor Agency has a
duty to [plaintiff] to fund the completion of the remedial work, and
that Successor Agency breached that duty.” (Boldface & italics
omitted.)
        Plaintiff filed this lawsuit in April 2020 and filed the
operative second amended complaint in November 2020. As
relevant here, the operative complaint alleges causes of action
(1) for breach of contract against the CRA, and against the City
and Successor Agency as alter egos of the CRA; and (2) breach of
the implied covenant of good faith and fair dealing against the City
and the CRA, and against all the city defendants as alter egos.
The claim for breach of the covenant of good faith referred to both

                                  9
the conveyancing agreement between plaintiff and the CRA and
the development agreement between plaintiff and the City.
5.     The Alter Ego Allegations
       The complaint summarizes the alter ego relationship among
the City, the CRA and the Successor Agency as follows: “These
entities failed to: (a) observe appropriate formalities; (b) maintain
separate records; (c) properly demarcate between when individuals
were acting for the City and when those same individuals were
acting for the CRA or the Successor Agency; (d) properly
memorialize meetings between the CRA, the Successor Agency,
City Council, and Project contractors and subcontractors; or
(e) properly capitalize the CRA. Moreover, in light of the City’s
extensive managerial and administrative control over the CRA and
the Successor Agency, their commingling of resources and
operations, and the fact that both the CRA and Successor Agency
operate exclusively for the benefit of the City, the three entities
constitute a single enterprise. The CRA and the Successor Agency
exist largely to complete the remediation work such that the
Project can move forward and the City can reap massive financial
and societal gains.” We recite the more detailed alter ego
allegations below.
       a.     Disregard of formalities separating the City, the
              CRA, and the Successor Agency; commingling
              funds
       The City created and retains direct control over the CRA and
operates the Successor Agency. “Formalities are not respected
among the three entities, and the City has the power to, and does,
make decisions for all three entities.”
       The City “has contributed financial resources to [the CRA
and the Successor Agency] in connection with the Project and

                                 10
otherwise.” In the development agreement between the City and
plaintiff, “the parties acknowledge that the ‘City caused [the CRA]
to be formed and is providing funding to [the CRA].’ ” (Brackets in
original.) Plaintiff’s “$4 million deposit under the Conveyancing
Agreement was also held by the City, despite the fact that the
Conveyancing Agreement provided that the money belonged to the
CRA.” (Boldface & italics omitted.)
       The complaint alleges the three entities’ finances “are
managed by the same City employee and involve common funds,”
and the “CRA consults with the City Treasurer regarding where
and how to move funds.” At the CRA’s meetings, which key
members of the City attend, “important ‘budget’ and financial
issues on the agendas are routinely passed without any discussion
or debate,” and “these meetings are not properly memorialized.”
       “The CRA’s and the City’s finances are so intertwined that
the City’s auditors require the City to include the CRA in the
City’s own consolidated financial statements.” The auditors have
explained it would be misleading to exclude the CRA from the
City’s financial statements. The City’s assistant city manager “has
also admitted, in writing, that ‘[a]ll of the Successor Agency
funding . . . is in the accounts of the CRA.’ ” The City has
“confirmed its historical financial involvement in developing the
Site,” acknowledging in February 2020 that the City, through its
developers including the Successor Agency and the CRA, “ ‘has
caused over $200M to be spent on the Remediation Work.’ ”
       The complaint alleges the City has direct control over the
“ultimate decisions related to the Project,” such as in the City’s
development agreement with plaintiff, which states the City’s legal
authority to regulate the zoning of the site and to approve and
modify the general plan and specific plans. Further, the

                                11
cooperation agreement between the City and the CRA gives the
City the right to receive reports of certain change orders and
“exercise other oversight over the CRA’s actions,” and the CRA “is
obligated ‘to obtain City[] approval of the construction terms and
costs.’ ” A city employee with no formal role at the CRA was
“intimately involved in tracking the progress of the Project.” The
city attorney admitted that “ ‘nothing gets done going forward on
this project without the express consent of the City Attorney’s
office.’ ” “City representatives frequently referred to their
extensive involvement in the project indicating that ‘the City and
CRA continued to actively pursue the development of the Site.’ ”
       The complaint alleges the City is an intended beneficiary of
the relationship between the CRA and plaintiff, and of the
Successor Agency’s obligations. The City “was a primary
beneficiary of the Project from its inception,” and City
representatives “frequently discussed the ‘substantial benefits’ the
Project would yield specifically for the City. For that reason, the
Conveyancing Agreement expressly provided that ‘[t]he City is a
third party beneficiary of this Agreement with the rights of
enforcement.” “[T]he City operates the CRA and the Successor
Agency as though they are part of one single enterprise designed to
promote the City’s interests and fulfill one common purpose—the
remediation of the 157 Acre Site.”
       b.     Identical officers and managers
       The complaint alleges the three city defendants “use the
same individuals, employees, members, and officers to manage and
control the activities for all three entities.” The mayor is the chair
of the Successor Agency and the CRA board. The mayor pro tem is
the Successor Agency vice chairman. Under governing CRA
documents, the city manager “is appointed to be the Executive

                                 12
Director of the CRA,” but has “improperly abdicated that role to
the Assistant City Manager . . . without following any appreciable
legal formalities.” (Italics omitted.)
       Members of the city council also serve as members of the
Successor Agency. The city manager is executive director of the
Successor Agency. The city attorney is also counsel to the
Successor Agency and the CRA. The city clerk is secretary for the
Successor Agency and CRA. The deputy city clerk is also deputy
secretary for the CRA. The city treasurer is also treasurer of the
CRA and Successor Agency.
       Individuals from the city treasurer’s office that had no
formal role for the CRA were “intimately involved in managing the
finances of the CRA.” The City’s finance staff “conduct accounting
services for the CRA.” The employees and officers for the city
defendants “routinely have operated with little to no demarcation
between when they are acting for the CRA, when they are acting
for the Successor Agency, and when they are acting for the City.”
Meetings of the city defendants “are often held in the same place
and on the same day.”
       c.    City use of CRA and Successor Agency as a
             conduit for the affairs of the City
       The complaint alleges that the CRA is insolvent and
undercapitalized. “Despite that the City and the Successor Agency
are admittedly responsible for ensuring the CRA remains
capitalized (further demonstrating the clear control exerted by the
City), the Assistant City Manager has admitted in writing that the
CRA ‘has no assets or financial resources’ to cover the massive
funding shortfall and concomitant obligations to [plaintiff] and has
conceded that [plaintiff] must ‘of necessity turn to the Successor
Agency and the City’ for recovery.” “The City and Successor

                                13
Agency continue to admit that the CRA is undercapitalized and
that they are liable for funding the CRA; despite that, the CRA
remains in jeopardy.”
        The complaint alleges the city “exercised intimate and
substantial control over the CRA and the Successor Agency and
continues to do so. In particular, the City contributed significant
financial resources to the CRA in connection with the Project and
otherwise, despite the fact that, due to the CRA’s gross
mismanagement, the CRA has remained undercapitalized to the
point that it was unable to adhere to a standard of care.”
        Further, “the City created the CRA in an attempt to shield
itself from liability while still receiving the primary benefits of the
Project, but then failed to properly capitalize or supervise the CRA
at all. On information and belief, the City did this specifically so
that it could afford to be derelict in its duties and push all liability
to the CRA despite the fact that the CRA was managed and
operated by the City’s own officials.”
6.      The Demurrers and the Trial Court’s Ruling
        The City and Successor Agency demurred to the complaint.
(The court overruled a demurrer by the CRA to the breach of
implied covenant claim.) The trial court sustained the demurrer of
the City and Successor Agency as to all causes of action without
leave to amend, stating: “There are insufficient allegations for
alter ego liability. The City is not party to the contract and cannot
be liable for Breach of Implied Covenant.” The court entered
judgment of dismissal as to the City and the Successor Agency on
March 18, 2021.
        Plaintiff filed a timely notice of appeal from the court’s
judgment of dismissal. Plaintiff tells the court that its appeal is
“only as to the City.”

                                  14
                                DISCUSSION
1.     The Standard of Review
       A demurrer tests the legal sufficiency of the complaint. We
review the complaint de novo to determine whether it alleges facts
sufficient to state a cause of action. For purposes of review, we
accept as true all material facts alleged in the complaint, but not
contentions, deductions or conclusions of fact or law. We also
consider matters that may be judicially noticed. (Blank v. Kirwan
(1985) 39 Cal.3d 311, 318.)
2.     The Issues and the Precedents
       The first issue we decide is that the alter ego doctrine may
be applied to a government entity in a case where the facts justify
an equitable finding of liability. As we will explain, our review of
the precedents (see pts. d. & e., post) reveals that some California
appellate courts have stated that one government entity is the
alter ego of another. Other courts have declined to apply the
doctrine to governmental entities based on the facts of the case.
But we have seen no California decision, nor any sister state or
federal court decision applying the law of another state, that held
the alter ego doctrine may never be applied to government entities
as a matter of law.
       The second question is the one presented by every demurrer:
whether the facts alleged fail to state a claim as a matter of law.
Here, our holding is limited to this: Accepting as true all the
material allegations of the second amended complaint, we cannot
say as a matter of law that plaintiff will be unable to prove the
City is the alter ego of the CRA.
       We begin with a summary of alter ego principles as
established in corporate law. Then we turn to the application of
those principles to government entities, and to the cases applying

                                 15
(or declining to apply) them to government entities. In so doing,
we also explain how the circumstances in cases declining to apply
alter ego liability to government entities differ from the facts
alleged in this case.
       a.     Traditional alter ego doctrine
       The Supreme Court tells us that “[t]he essence of the alter
ego doctrine is that justice be done. ‘What the formula comes down
to, once shorn of verbiage about control, instrumentality, agency,
and corporate entity, is that liability is imposed to reach an
equitable result.’ ” (Mesler v. Bragg Management Co. (1985)
39 Cal.3d 290, 301.)
       Another court explains: “The ‘single enterprise,’ or alter ego,
doctrine is an equitable doctrine: ‘A corporate identity may be
disregarded—the “corporate veil” pierced—where an abuse of the
corporate privilege justifies holding the equitable ownership of a
corporation liable for the actions of the corporation. [Citation.]
Under the alter ego doctrine, then, when the corporate form is
used to perpetuate a fraud, circumvent a statute, or accomplish
some other wrongful or inequitable purpose, the courts will ignore
the corporate entity and deem the corporation’s acts to be those of
the persons or organizations actually controlling the corporation,
in most instances the equitable owners.’ ” (Troyk v. Farmers
Group, Inc. (2009) 171 Cal.App.4th 1305, 1341 (Troyk).)
       “ ‘In California, two conditions must be met before the alter
ego doctrine will be invoked. First, there must be such a unity of
interest and ownership between the corporation and its equitable
owner that the separate personalities of the corporation and the
shareholder do not in reality exist. Second, there must be an
inequitable result if the acts in question are treated as those of the
corporation alone.’ ” (Troyk, supra, 171 Cal.App.4th at p. 1341.)

                                 16
Alter ego liability “is not limited to the parent-subsidiary corporate
relationship; rather, ‘under the single-enterprise rule, liability can
[also] be found between sister [or affiliated] companies.’ ” (Ibid.)
       “Factors for the trial court to consider include the
commingling of funds and assets of the two entities, identical
equitable ownership in the two entities, use of the same offices and
employees, disregard of corporate formalities, identical
directors and officers, and use of one as a mere shell or conduit for
the affairs of the other. [Citation.] ‘No one characteristic governs,
but the courts must look at all the circumstances to determine
whether the doctrine should be applied.’ ” (Troyk, supra,
171 Cal.App.4th at p. 1342.)
       b.    Alter ego doctrine and government entities
       Of course, government entities are not privately held
corporations. One government entity is not ordinarily “owned” by
another, or by anyone. But as long ago as 1931, one treatise on
disregarding the corporate entity observed that the principle “is by
no means hampered in its application, or confined in its operation
to private corporations but will apply with equal force and vigor in
proper cases to municipal corporations.” (Anderson, Limitations of
the Corporate Entity: A Treatise of the Law Relating to the
Overriding of the Corporate Fiction (1931) § 68, p. 79.) We agree
with that observation. Government entities regularly engage in
commercial activities with the private sector, and a government
entity may create another government entity to perform certain
activities for the purpose of avoiding liability in the creating entity,
just as in the private sector. (Here, the conveyancing agreement
states the CRA was formed “to take and pursue remediation of the
157 Acre Site,” and one of the goals was to protect the City from
“any liability which would arise to the landowner.”)

                                  17
       Under such circumstances, it seems to us that the equivalent
of “a unity of interest and ownership” may well exist between two
or more government entities. The precedents tell us that if private
corporations are “operated with integrated resources in pursuit of
a single business purpose,” and one of them “so dominated the
finances, policies and practices of” the other that the latter “had no
separate ‘mind, will or existence’ of [its] own, but [was] merely [a]
conduit[]” through which the former conducted its business, then
alter ego liability may exist if an inequitable result would
otherwise follow. (Toho-Towa Co., Ltd. v. Morgan Creek
Productions, Inc. (2013) 217 Cal.App.4th 1096, 1109 (Toho-Towa).)
We are unable to see why the same principle should not apply to
government entities, if comparable facts are established. It is the
“unity of interest” that is significant, and indistinguishable from
ownership in any practical way, when public entities are involved.
       c.     The City’s contentions
       The City contends no California court has held one public
agency liable for a contractual or financial obligation of another
public agency, and the alter ego/single enterprise theory “is a
common law doctrine that does not apply to public agencies.”
Further, the City contends that disclosures made in the recitals in
the conveyancing agreement and development agreement, together
with the statutory immunity of public agencies in California from
liability for fraud, “inexorably lead to the conclusion” that the alter
ego theory cannot apply here.
       Our review of the authorities the parties cite, discussed post,
reveals no cases that have held the alter ego doctrine does not
apply as a matter of law to governmental entities, without regard
to the facts. And the City’s claim that the disclosures in the

                                  18
recitals prevent the application of alter ego liability does not
withstand analysis either, as we now show.
       The City first points out the recitals in the conveyancing
agreement (attached to plaintiff’s complaint) show plaintiff knew
the amount of funds available to CRA as of December 31, 2017;
knew the CRA was formed to remediate the site because the City
was unwilling to put its general fund at risk for environmental
cleanup costs then exceeding $100 million; knew the Successor
Agency committed to provide $50.5 million in additional required
funding to the CRA; knew the City would contract with the CRA to
perform the City’s infrastructure obligations “to avoid any City
liability for the remediation”; and knew the CRA’s “resources are
insufficient to undertake the Project,” and “the [CRA] does not
have sufficient funds to pay for the Offsite Improvements and Site
Development Improvements” for which it was responsible,
resulting in the agreement that plaintiff would advance funds that
were to be repaid though sales tax revenues for up to 25 years.
       We agree with the City that the recitals do indeed show all
this was known to plaintiff when it executed the conveyancing
agreement. But we do not agree with the City’s contention that
these recitals show “[t]here were no surprises here, no
concealment, and therefore no basis for holding the City and the
Successor Agency liable on an alter ego/single enterprise theory,
because the element of fraud, concealment, bad faith or injustice is
completely absent.” We disagree with the City on this point for
multiple reasons.
       First, the question is not confined to what plaintiff knew
when it executed the agreement; the more pertinent point is what
the City and the CRA did thereafter. The complaint clearly alleges
failure to observe appropriate formalities and maintain separate

                                19
records, failure to properly capitalize the CRA, and so on, as well
as that “[t]hroughout the remainder of 2019,” defendants
intentionally concealed their funding deficit and “made numerous
representations to continue to induce [plaintiff] to advance
additional funds,” even though they knew they could not complete
their obligations under the project agreements.
      Second, plaintiff need not allege a claim for fraud in order to
establish alter ego liability. “The alter ego doctrine does not
require proof of fraud, and can be satisfied by evidence that
adherence to the fiction of the separate existence of the corporation
would promote injustice.” (Misik v. D’Arco (2011) 197 Cal.App.4th
1065, 1069, 1074; accord, Claremont Press Publishing Co., Inc. v.
Barksdale (1960) 187 Cal.App.2d 813, 817 [“actual fraud need not
be shown. It is sufficient that refusal to recognize unity of
corporation and individual ‘will bring about inequitable results’ ”].)
      Third, on the allegations of the complaint, we cannot agree
that “concealment, bad faith or injustice is completely absent.”
The complaint alleges the City created the CRA for its own benefit,
was derelict in its oversight of the project, and concealed the
project’s mismanagement and undercapitalization from plaintiff
for the better part of a year, all while plaintiff was investing tens
of millions of dollars in connection with the project. The complaint
alleges that, “despite awareness of the CRA’s insolvency, the City
defendants continued to make commitments to [plaintiff] that the
CRA could complete its contractual duties, despite knowing full
well that the CRA lacked the funds to be able to do so.” If those
allegations are proved, a court might conclude an “inequitable
result” would follow if the CRA is treated as a separate entity.
      Fourth, the City argues that judicially noticeable documents
demonstrate the city defendants “are separate entities existing

                                 20
under different bodies of law with different powers and duties.”
The City recites information from the city charter, the law creating
and governing successor agencies, and the documents establishing
the CRA as a joint powers authority. Of course it is true that the
City exists as a separate legal entity from the CRA. But in every
single enterprise alter ego case, there are always two or more
formally separate defendants who the plaintiff alleges should be
deemed one and the same under equitable principles, not under
statutory law. We see no reason these principles should be
different when government entities are involved.
       The City insists that not all legal concepts apply to public
agencies in the same way they apply to private entities, “in order
to protect the public fisc,” citing differences in the application of
the law on oral contracts, quantum meruit, and other areas of law.
The City argues that a judgment for tens of millions of dollars
would cripple the City financially, stripping its residents of
necessary services affecting public health and safety, and these
potential risks “warrant rejection of alter ego/single enterprise
liability.” We are not persuaded that potential risks to the public
fisc weigh so heavily in balancing the equities as to justify
categorically barring municipal liability if plaintiff can prove
malfeasance of the kind and in the circumstances alleged in the
complaint.
       That brings us to the precedents.
       d.    The precedents: California
       As we have observed, several cases have stated that one
government agency is the alter ego of another, albeit without
analysis of the alter ego doctrine. For example, in Nolan v.
Redevelopment Agency (1981) 117 Cal.App.3d 494, 499–501, a
redevelopment agency was named as the defendant, while the city,

                                 21
which had declared itself to be the redevelopment agency as
authorized by statute (and which was an indispensable party), was
not named as a defendant. The Court of Appeal reversed the trial
court’s dismissal of the case, observing that “the problem of parties
. . . turns out to be only a phantom. The city council is the
redevelopment agency. . . . The council, albeit referred to by its
other title, has been a party defendant in this action from the
beginning.” (Id. at p. 501.) Similarly, in Oceanside Marina Towers
Assn. v. Oceanside Community Development Com. (1986)
187 Cal.App.3d 735, a case involving the filing of a notice that
started the statute of limitation, the court stated that a community
development commission “is the Oceanside City Council and acts
as the alter ego of the City.” (Id. at p. 741; id. at p. 738 [the city
council itself constituted the commission, which used city
personnel and staff services exclusively; “[i]n essence, then, the
Commission is the alter ego of the City for redevelopment
purposes”].)
        Plaintiff cites other cases that have disagreed with Nolan,
particularly relying on Pacific States Enterprises v. City of
Coachella (1993) 13 Cal.App.4th 1414 (Pacific States Enterprises).
But these cases do not help plaintiff, because they are based on the
principle that “the mere fact that the same body of officers acts as
the legislative body of two different governmental entities
does not mean that the two different governmental entities are, in
actuality, one and the same.” (Id. at p. 1424.) We recognize that
principle, and that it applies in this case. But the complaint in
this case alleges a great deal more than “the mere fact” that the
same body of officers acts as the legislative body for two different
agencies. (See pt. 5 of the Facts, ante.)

                                 22
       Pacific States Enterprises involved breach of an oral contract,
where the plaintiff argued the city and the redevelopment agency
were “one and the same governmental entity” so that the
“allegations as to one have full force and effect as to the other.”
(Pacific States Enterprises, supra, 13 Cal.App.4th at pp. 1422–
1423.) The Court of Appeal observed that “[w]hen a ‘dual capacity
legislative body’ acts as the governing board of a redevelopment
agency, it is the redevelopment agency which is acting by and
through that legislative body; and when that same legislative body
acts as the governing body of the ‘community’ (i.e., city) over which
it exercises local governmental powers, it is the ‘community’ which
is acting by and through that legislative body. The redevelopment
agency and the ‘community’ are not one and the same
governmental entity.” (Id. at p. 1425.)
       The City contends plaintiff here “seeks to do . . . precisely
what the Court of Appeal in Pacific States Enterprises rejected.”
That is plainly not so. For one thing, plaintiff does not claim the
City and the CRA are “one and the same government entity.”
Plaintiff specifically alleges the formal distinctions among the City,
the CRA and the Successor Agency and recites at length facts
which, if proven, might justify a court ignoring their legal
separateness on equitable grounds.
       Other cases the City cites are similar. Macy v. City of
Fontana (2016) 244 Cal.App.4th 1421 merely held that a
redevelopment agency and a municipality “may, as here, have the
same governing body; however, given their separate identities and
liabilities, the statutory duties imposed on the [redevelopment
agency] may not be ascribed to the municipality.” (Id. at p. 1430.)
Macy does not even discuss alter ego doctrine.

                                 23
       The same is true of Vanoni v. County of Sonoma (1974)
40 Cal.App.3d 743, where the plaintiffs argued that a flood district
was indistinguishable from the County of Sonoma for purposes of
the constitutional debt limitation. (Id. at p. 748.) The court held
the fact that the same individuals were members of both governing
boards was insufficient to show the county exercised actual control
over the actions of the district. (Id. at p. 750.) The constitutional
limitation on county indebtedness did not apply to the
indebtedness of the district because the county “neither assumed
any obligation for the district’s contractual obligation to the United
States nor controlled the district’s decision to incur that
obligation.” (Id. at pp. 750–751.) Again, we fail to see how the
Vanoni circumstances are in any way “similar[]” to the allegations
in this case (where, for one thing, the City’s control of the CRA is
extensively alleged).
       San Diegans for Open Government v. City of San Diego
(2015) 242 Cal.App.4th 416 is another debt limitation case, where
the court found debt limitation provisions applicable to the city did
not apply to a separate public financing authority that was formed
under a joint powers agreement. (Id. at p. 424.) The court rejected
the argument that the financing authority was a “ ‘subordinate
agency’ ” of the city, with the same governing boards and other
officers (id. at p. 436), and emphasized the financing authority’s
“ ‘genuine separate existence’ ” from the city, as established in
various statutes (id. at p. 438). Again, San Diegans involves no
analysis of the alter ego doctrine. And plaintiff here alleges much
more than just overlap of governing boards and officers. Again,
the issue here is whether formally separate defendants should be
deemed one and the same under equitable principles, not under
statutory law.

                                 24
       Still other cases discuss alter ego doctrine but find it does
not apply on the particular facts of the case. For example, in Rider
v. County of San Diego (1992) 11 Cal.App.4th 1410, the court
rejected a claim that a regional justice facility financing agency
was the alter ego of the county, justifying holding the county liable
for the agency’s debts. (Id. at pp. 1424–1425.) But the reason for
the court’s rejection was the absence of any inequity. Both county
and agency acted in good faith, and neither the county nor the
agency engaged in an abuse or a perversion of legislative privilege.
(Id. at p. 1425.) “Consequently, equity does not demand that the
County be held derivatively liable for the Agency’s debts and
liabilities.” (Ibid.)
       Likewise, in Tucker Land Co. v. State of California (2001)
94 Cal.App.4th 1191, the court held the members of a joint powers
agency were not liable as alter egos for the agency’s contractual
obligations. (Id. at p. 1201.) The court found “no evidence of abuse
of organizational formalities, or of any diversion of funds. There is
no evidence that any fraud was perpetrated on [the plaintiff].” (Id.
at p. 1202.) Again, although plaintiff here does not allege fraud,
the complaint alleges organizational formalities were ignored, CRA
funds were placed in city accounts, failure to properly capitalize
CRA, concealment of the massive deficit, and more.
       Finally, the City tries to distinguish a federal district court
case in California that found alter ego allegations were sufficient
to survive a motion to dismiss. In Axon Solutions, Inc. v. San
Diego Data Processing Corp. (S.D.Cal. May 4, 2010, No. 09 CV
2543 JM (RBB)) 2010 U.S. Dist. Lexis 43390 (Axon), the court
found, as relevant here, that the plaintiff—who sued on a contract
with a nonprofit corporation wholly owned by the city—sufficiently

                                 25
pled that the city was the alter ego of the nonprofit corporation.
(Id. at pp. *2, 8.)
       After describing factors to be considered in applying alter ego
doctrine under California law, the Axon court said: “[The
plaintiff’s] complaint contains factual allegations directed at these
factors. Specifically, [the plaintiff] alleges the City deliberately
undercapitalized SDDPC [the publicly owned nonprofit], the City
and SDDPC commingle funds, and the City has represented that it
is liable for SDDPCs’ debts. . . . Furthermore, [the plaintiff]
alleges that the City intends to dissolve SDDPC so that the City
can ‘wrongfully avoid liability for the monies owed to [the
plaintiff].’ . . . . Difficulty in enforcing a judgment or collecting a
debt does not satisfy[] the requirement of an inequitable
act. [Citation.] Here, however, the City would have the power to
destroy any remedy available to [the plaintiff], from either the City
or SDDPC, if it dissolved SDDPC. This rises to the level of an
inequitable act for purposes of alter ego doctrine at the pleading
stage. Therefore, [the plaintiff’s] alter ego allegations are
sufficient to survive the City’s motion to dismiss.” (Axon, supra,
2010 U.S. Dist. Lexis 43390, at pp. *7–8.)
       The City tries to distinguish Axon by pointing to facts that
are different from the facts alleged in this case (such as that there
“is no ‘corporation’ involved for the City to threaten to dissolve”).
But the facts of cases are always different, and the absence of any
corporation in this case is a distinction without a difference. Many
of the allegations in Axon are comparable to the allegations in this
case, and the point is that the court applied California law and the
alter ego doctrine to a case involving two government entities.

                                  26
      e.      The precedents: other jurisdictions
      The City tells us that “[e]very jurisdiction in the United
States that has considered . . . application [of the alter ego/single
enterprise doctrine] to public agencies has rejected it.” But the
City fails to mention significant differences in the allegations and
the rationales in the cases it cites.
      The City relies principally on Foster Wheeler Energy Corp. v.
Metropolitan Knox Solid Waste Authority, Inc. (6th Cir. 1992)
970 F.2d 199. There, the Sixth Circuit ordered the dismissal of a
complaint alleging a Tennessee city and county were liable for
contractual obligations of the Waste Authority, a nonprofit
corporation created by the city and county. (Id. at p. 200.) The
court reasoned that the city and county “were not equity owners in
the Waste Authority, as the project was financed with revenue
bonds,” and the fact that the city and county placed directors on
the Waste Authority’s board, “and agreed to cooperate and use
their best efforts to make the Waste Authority succeed, does not, in
our view, create a sufficient nexus between the city, the county and
the Waste Authority on which to predicate liability.” (Id. at
p. 203.) The court expressed its reluctance “to extend the
corporate veil theory to the present set of facts absent more specific
guidance from the Tennessee courts.” (Ibid.) Further, the court
understood the corporate veil theory, under Tennessee law, “to
apply primarily to prevent fraud or other tortious
wrongdoing,” and there were no such allegations. (Ibid.)
      Foster Wheeler does not help the City for the simple reason
that, unlike this case, in Foster Wheeler there were no allegations
of wrongdoing or an inequitable or unjust result—a fundamental
requirement for the application of alter ego doctrine. There are

                                 27
such allegations here, as we have described above. The City
simply downplays or ignores those allegations.
       The same reasons, among others, distinguish McDaniel v.
Board of Education (N.D.Ill. 2013) 956 F.Supp.2d 887, where the
plaintiffs sought to hold the city responsible for school closings by
the board of education under alter ego principles (id. at pp. 895–
896), and the court found the doctrine “ill-suited to these
circumstances” (id. at p. 897). In McDaniel, again, there were no
allegations of an inequitable result if alter ego doctrine were not
applied. There were no allegations “that the Board and the City
are commingling funds or failing to maintain corporate formalities,
or that the City is attempting to use the Board to perpetrate a
fraud upon Plaintiffs (or why it would even try to do so).” (Id. at p.
898.) The court also referred to the “general reluctance of Illinois
courts to engage in veil piercing” (ibid.). In California, while
“[a]lter ego is an extreme remedy, sparingly used” (Sonora
Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 539),
we see no reluctance by California courts to invoke the doctrine
where the allegations, if true, would support it.
       Finally, the City cites a Pennsylvania case where the
Commonwealth Court found the doctrine of piercing the corporate
veil was “wholly inapplicable” to the relationship between
redevelopment authorities and municipalities. (Newcrete Products
v. City of Wilkes-Barre (Pa. Cmwlth. Ct. 2012) 37 A.3d 7, 13.) This
was because “a redevelopment authority is not authorized to sell
ownership interests, [so] City is not capable of being an equity
interest holder in Authority, and thus, City cannot be liable for
Authority’s debts by veil piercing.” (Id. at pp. 13–14.) As we have
already stated, the ownership principle is inapt in the context of
public entities, and we do not consider that a legal bar to

                                 28
application of the alter ego doctrine. (See ante, at pp. 17–18.)
Moreover, California courts have stated, in other factual
circumstances, that “the ‘ownership’ element of the alter ego
doctrine is not applicable in this context.” (Tran v. Farmers Group,
Inc. (2002) 104 Cal.App.4th 1202, 1219, fn. 7 [an interinsurance
exchange]; see also Troyk, supra, 171 Cal.App.4th at p. 1343 &
fn. 27 [defendant insurer “did not need to own [defendant
insurance exchange] for application of the alter ego or single
enterprise doctrine,” citing Tran].)
       To summarize, none of the cases just described supports the
notion that the alter ego doctrine may not be applied to a public
agency as a matter of law. The City returns again and again to the
fact that the city defendants “all exist by virtue of different bodies
of law,” and that their separate roles and obligations were
disclosed to plaintiff in the project agreements. What the City does
not do is explain, in light of the allegations in the complaint, why
that supports its conclusion plaintiff “cannot claim . . . that it
would be unjust to recognize the separateness of the public
agencies.”
       The complaint alleges facts that, if proved, would allow a
court to conclude that, so far as the development of the site was
concerned, the City and the CRA “were operated with integrated
resources in pursuit of a single business purpose” and that the City
“so dominated the finances, policies and practices” of the CRA that
the CRA “had no separate ‘mind, will or existence’ of [its] own, but
[was] merely [a] conduit[] through which” the City conducted its
business. (See Toho-Towa, supra, 217 Cal.App.4th at p. 1109.)
The complaint likewise alleges facts that, if proved, would allow a
court to conclude an inequitable result would follow if the acts in
question are treated as those of the CRA alone. We find the

                                 29
allegations in plaintiff’s complaint sufficient to survive the City’s
demurrer.
3.    The Breach of Implied Covenant Claim
      The covenant of good faith and fair dealing “ ‘not only
imposes upon each contracting party the duty to refrain from doing
anything which would render performance of the contract
impossible by any act of his own, but also the duty to do everything
that the contract presupposes that he will do to accomplish its
purpose.’ ” (Pasadena Live, LLC v. City of Pasadena (2004)
114 Cal.App.4th 1089, 1093.)
      Here, the trial court sustained the City’s demurrer to
plaintiff’s claim for breach of the implied covenant of good faith
and fair dealing, stating the City was “not party to the contract”
and therefore could not be liable for breach of the implied
covenant. Because we find plaintiff has sufficiently alleged a
breach of contract claim under the alter ego doctrine, it follows
that the City could be liable for breach of the implied covenant on
the same basis.
      In addition, plaintiff contends that one of the contracts
underlying its cause of action for breach of the implied covenant is
the development agreement between plaintiff and the City. The
complaint alleges that after the CRA’s remediation of the site, the
parties agreed plaintiff would be entitled to develop the site “in
accordance with the rights granted by the City under the
Development Agreement,” and alleges the City’s exercise of direct
control over the project pursuant to the development agreement.
The development agreement is described in the conveyancing
agreement as “granting and vesting the Entitlements for the
Project and setting forth certain agreements between [plaintiff]
and the City regarding project development.”

                                 30
       In its cause of action for breach of the implied covenant,
plaintiff alleges that “[t]hrough the Development Agreement, . . .
the City granted rights to [plaintiff] to develop the Cell 2 Site and
provided [plaintiff] with the ‘assurance’ it could ‘complete and
utilize the Project.’ ” The complaint alleges the development
agreement obligates the city “ ‘to perform the Infrastructure
Obligations,’ ” and that the City’s duties under the development
agreement include financial obligations to pay sales tax revenues
to the CRA that were in turn to be provided to plaintiff to repay it
for the millions of dollars plaintiff advanced to the CRA. “Because
of the City’s failure to properly capitalize the CRA, thus making
the Project impossible to complete, [plaintiff] is unable to develop
the Cell 2 Site and recoup its investments as it is plainly entitled
under the Development Agreement. The City’s misconduct has
prohibited [plaintiff] from taking advantage of the rights it
bargained for under the Development Agreement.”
       The complaint alleges the CRA and the City “each breached
the implied covenant of good faith and fair dealing inherent in the
Project Agreements”—which include the development agreement—
in several specified respects, all of which have already been recited
in this opinion in connection with the conveyancing agreement.
When the trial court stated the City was “not a party to the
contract,” it apparently failed to consider plaintiff’s allegations
concerning the development agreement, to which the City is a
party. For this additional reason, the trial court erred in
sustaining the City’s demurrer to plaintiff’s claim for breach of the
implied covenant.

                                 31
                         DISPOSITION
      The judgment of dismissal is reversed, and the cause is
remanded to the trial court with directions to vacate its order
sustaining the City’s demurrer and to enter a new order overruling
the demurrer. Plaintiff shall recover its costs on appeal.

                        GRIMES, Acting P. J.

      WE CONCUR:

                        WILEY, J.

                        HARUTUNIAN, J.*

*
      Judge of the San Diego Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.

                                 32