Opinion
C082535
09-06-2017
CORRINE MOLLER, Plaintiff and Appellant, v. DECO INDUSTRIES, LLC et al., Defendants and Respondents.
NOT TO BE PUBLISHED California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. SCCVCV150183)
In this case, plaintiff Corinne Moller, acting in her capacity as a taxpayer, sought to challenge a 2005 contract between defendant Lake Shastina Community Services District (the district) and defendant DECO Industries, LLC (DECO) and also sought to challenge a 2015 settlement agreement between the same parties. The trial court sustained demurrers without leave to amend on the grounds that Moller's challenge to the 2005 contract was time-barred and she lacked standing to challenge the 2015 settlement agreement. Finding no error in the trial court's ruling, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Because this appeal arises from the sustaining of two demurrers, we summarize the facts alleged in the complaint, accepting as true only the properly pleaded factual allegations and ignoring any mere contentions, deductions, or conclusions of fact or law. (See Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.)
The district was formed in Siskiyou County in 1978. Moller resides and pays taxes in Siskiyou County.
In 2003, the district and DECO agreed that DECO would build a small health clinic on certain vacant property the district owned. Even though the district was aware construction of the building would cost more than $25,000, the district did not open the project to competitive bidding. In the absence of a written contract, DECO proceeded to construct the building on the district's property, completing the project in 2004.
In September 2004, Catholic Healthcare West occupied the completed portion of the building and began making payments to DECO. About a year later, in 2005, the district and DECO reached an agreement regarding DECO's construction of the building and payments by the district to acquire the building (the 2005 contract).
In December 2011, the district hired special counsel to look into the legality of the payments the district was making to DECO under the 2005 contract. In May 2012, the district stopped making its payments to DECO. In the fall of 2013, DECO sued the district for not making the payments.
An election for the district's board of directors was scheduled for November 2014. Either DECO or Bill Duchi, a general partner of DECO, financed a campaign to replace a majority of the directors on the district's board of directors at that election with a slate of candidates Bill Duchi was certain would approve a settlement of the suit against the district. The three candidates backed by DECO (or Bill Duchi) were defendants Roxanna Layne, Yatang Hoke, and Barbara Thomsson.
In her complaint, Moller erroneously identified Bill Duchi as William Duchi. We will refer to him as Bill Duchi.
In March 2015, following the election of the three DECO-backed candidates (or, as Moller calls them, the DECO Slate), the district's board of directors voted 3 to 2 to approve a settlement of the lawsuit with DECO, with the three DECO-backed board members voting for the settlement.
At the time she voted to approve the settlement, Hoke had received income from Bill Duchi through a nonprofit entity.
In August 2015, Moller commenced this action for declaratory relief and damages against the district, the DECO-backed board members, DECO, Bill Duchi, Harold Duchi, and Fred Duchi. Moller alleged the 2005 contract between the district and DECO was void because the district lacked the power to enter into it and because it was entered into in violation of competitive bidding requirements. Moller further alleged that the 2015 settlement agreement between the district and DECO was void because one or more of the DECO-backed board members had a financial interest in DECO or Bill Duchi that prohibited the entire board from voting on the proposed settlement, and at least one of the board members (Hoke) had a financial conflict of interest that required recusal at the time the board voted to approve the settlement. Moller's complaint set forth two causes of action: one for declaratory relief and one for "RECOVERY OF WASTED TAXPAYER FUNDS" under Code of Civil Procedure section 526a (section 526a). Moller sought to have both the 2005 contract and the 2015 settlement agreement declared void and sought recovery, for the district, of the funds the district paid DECO under the 2015 settlement agreement.
We will refer to the district, Layne, Hoke, and Thomsson jointly as the district defendants and will refer to DECO and the three Duchis jointly as the DECO defendants; otherwise, we will refer to all defendants jointly as defendants.
Our Supreme Court long ago stated that "[t]he provision of section 526a of the Code of Civil Procedure, authorizing a taxpayer to maintain an action to restrain an illegal expenditure, does not in letter or in spirit forbid a taxpayer from seeking to recover on behalf of his municipality the same moneys if illegally expended. Tacitly, this right of action has been recognized in this state in Mock v. Santa Rosa, 126 Cal. 331, ." (Osburn v. Stone (1915) 170 Cal. 480, 482.)
In April 2016, the DECO defendants demurred to Moller's complaint. They argued that Moller lacked standing to challenge the 2015 settlement agreement and her challenge to the 2005 agreement was time-barred. At the same time, the district defendants also demurred to the complaint. They argued, among other things, that Moller's cause of action for declaratory relief was time-barred and Moller lacked standing to challenge the 2005 contract and the 2015 settlement agreement.
In opposition to both demurrers, Moller argued she had standing to challenge the 2015 settlement agreement under section 526a based on conflicts of interest that were subject to Government Code section 1090. With respect to the 2005 contract, she argued there was no applicable statute of limitations, and even if there was, it was subject to equitable tolling.
In May 2016, the trial court sustained the demurrers without leave to amend, concluding that Moller lacked standing to challenge the 2015 settlement agreement and her claims relating to the 2005 contract were time-barred. The court entered a judgment of dismissal in June 2016, and Moller timely appealed from that judgment.
DISCUSSION
I
Moller's Challenge To The 2005 Contract
On appeal, Moller contends the trial court erred in concluding her challenge to the 2005 contract was time-barred because she pled sufficient facts to establish that the limitations period (whatever it was) was equitably tolled. We disagree.
"Equitable tolling 'halts the running of the limitations period so long as the plaintiff uses reasonable care and diligence in attempting to learn the facts that would disclose the defendant's fraud or other misconduct.' [Citation.] The doctrine 'focuses primarily on the plaintiff's excusable ignorance of the limitations period. [Citation.] [It] is not available to avoid the consequences of one's own negligence.' [Citation.] 'To establish that equitable tolling applies, a plaintiff must prove the following elements: fraudulent conduct by the defendant resulting in concealment of the operative facts, failure of the plaintiff to discover the operative facts that are the basis of its cause of action within the limitations period, and due diligence by the plaintiff until discovery of those facts.' " (Sagehorn v. Engle (2006) 141 Cal.App.4th 452, 460-461.)
Here, Moller contends defendants concealed operative facts from the public by entering into an agreement -- the 2005 contract -- that "illegally omitted the required terms for the construction of a building on public lands." She further contends that "the first time any member of the public could have discovered these facts by due diligence would have been January 2012," after the district's special counsel "uncovered the fraud . . . during an internal controls audit."
We find no merit in this argument. The gist of Moller's challenge to the 2005 contract here is that the contract was void because the district lacked the power to enter into it and because it was entered into in violation of competitive contracting requirements. Moller has not alleged that defendants did anything to conceal these supposed fatal flaws in the contract. Although Moller claims "the District and the Duchi Respondents" engaged in "fraudulent conduct . . . to conceal operative facts in 2003-2005," she does not allege any facts showing that they concealed any such operative facts after the district and DECO entered into the 2005 contract, and that is the period that matters. To the extent she asserts there was fraudulent concealment because the 2005 contract "illegally omitted the required terms for the construction of a building on public lands," that assertion makes no sense because the contract on its face would have revealed what it included and what it omitted, so there could have been no concealment on the face of the contract.
In her reply brief, Moller contends that if given leave to amend, "[s]he would allege that the District and the Duchi Respondents entered into an oral 'understanding' in 2003 to construct the clinic in order to conceal their intention to avoid the requirements of the Public Contract Code. The 2005 Contract furthered the conspiracy to conceal the terms of the agreement in that it did not include terms for the construction of the clinic and was executed after the construction of the clinic." Even if they were added to the complaint, however, these additional facts would not show any fraudulent concealment of operative facts pertaining to Moller's cause of action for declaratory relief seeking a declaration that the 2005 contract was void. As we have noted already, it would have been apparent on the face of the 2005 contract that it "did not include terms for the construction of the clinic," and it would have been readily apparent that the contract "was executed after the construction of the clinic" -- given that Moller has not alleged, or offered to allege, that defendants somehow concealed the construction of the clinic. Thus, even the amendment Moller says she could make to the complaint would not establish a basis for equitable tolling of the statute of limitations.
For these reasons, we conclude the trial court did not err in sustaining the demurrers to Moller's challenges to the 2005 contract.
II
Moller's Challenge To The 2015 Settlement Agreement
Moller contends the trial court erred in concluding that, as a taxpayer, she does not have standing to challenge the 2015 settlement agreement. According to Moller, she has taxpayer standing under both section 526a and Government Code section 1090. We disagree.
We begin with Government Code section 1090. "Government Code section 1090 forbids public officers from being financially interested in any contract made by them in their official capacity. [Citation.] Government Code section 1092 provides that '[e]very contract made in violation of any of the provisions of Section 1090 may be avoided at the instance of any party except the officer interested therein.' " (San Bernardino County v. Superior Court (2015) 239 Cal.App.4th 679, 684 (San Bernardino).) In San Bernardino, the court concluded that because the taxpayers in that case -- who, like Moller here, had sued to challenge a settlement agreement -- were not parties to the agreement they sought to challenge, they did not have standing under Government Code section 1092 to have that agreement declared void. (Id. at pp. 684-685.)
Subdivision (a) of Government Code section 1090 provides in relevant part that "[m]embers of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members." --------
We agree with the San Bernardino court that Government Code section 1092 does not grant standing to taxpayers to challenge an agreement alleged to have been made by a public official or public body in violation of Government Code section 1090. That does not resolve the issue of standing here, however, because Moller "might have standing under the usual sources of taxpayer standing, either Code of Civil Procedure section 526a or the common law." (San Bernardino, supra, 239 Cal.App.4th at p. 685.) In San Bernardino, the court found the plaintiff had no such standing because "the County's decision (or lack thereof) with respect to bringing suit [seeking to declare the settlement agreement void] on the basis of the alleged violation of Government Code section 1090" was a discretionary decision, and taxpayers do not have standing in such cases. (San Bernardino, at pp. 686-688.) As the San Bernardino court explained, "under either Code of Civil Procedure section 526a or the common law, '[t]axpayer suits are authorized only if the government body has a duty to act and has refused to do so. If it has discretion and chooses not to act, the courts may not interfere with that decision.' [Citation.] 'It is the general rule that a taxpayer cannot maintain an action in behalf of [a government entity] to enforce a claim or demand inuring to the [government entity].' [Citation.] 'It has long been held that a government entity's decision whether to pursue a legal claim involves the sort of discretion that falls outside the parameters of waste under section 526a and cannot be enjoined by mandate.' [Citation.] And because deciding whether to pursue a legal claim is generally an exercise of discretion, rather than 'a duty specifically enjoined,' the common law too does not normally provide the taxpayer a cause of action to pursue a legal claim on behalf of the government entity." (San Bernardino, supra, 239 Cal.App.4th at pp. 686-687.)
The San Bernardino court did note that "courts have recognized the necessity of allowing taxpayers to step in and assert claims that otherwise would be within a government entity's discretion where there are allegations of fraud or collusion on the part of the decision makers," but the court concluded that there were "no allegations of fact in the complaint [before it] showing that any present County official was involved in the alleged bribery scheme [that created the alleged conflict of interest], or is otherwise engaged in fraud or collusion." (San Bernardino, supra, 239 Cal.App.4th at pp. 687-688.)
Moller contends this case is distinguishable from San Bernardino because "the present case involves a vote taken by currently seated board members." Stated another way, Moller asserts that "the District's Board remains in the control of hostile members." According to Moller, "[t]he Complaint alleges that Respondents Layne, Hoke and Thomsson held seats as District Board Members when the District approved the 2015 settlement with DECO Industries," and "[i]t also alleges that a financial conflict of interest in the contract existed as to at least Hoke due to monies received from DECO Industries or Bill Duchi. [Citation.] For that reason, hostile and corrupt Board Members controlled the board when it approved the 2015 settlement," and "[t]hey still control the District."
There is support in the law for Moller's position. In Osburn v. Stone, supra, 170 Cal. at page 482, a taxpayer brought suit, "charg[ing] that the defendants while acting, one as the mayor, the other as members of the council, of the city of Santa Cruz, made certain illegal expenditures, for and on account of which [the] plaintiff [sought] a judgment against them, compelling them to pay [a certain sum] into the city treasury, for the benefit of the taxpayers and property owners of the city." Our Supreme Court concluded that "the general demurrer to [the] plaintiff's right to maintain this character of action was improperly sustained" because of "the necessity to a municipality, whose affairs are in the hands of hostile trustees or councilmen, to recover for illegal expenditures, through the medium of such an action." (Id. at pp. 482-483.) The Supreme Court likened the situation to a shareholder's cause of action on behalf of a corporation where the directors refuse to act. (Id. at p. 483.)
Here, Moller has alleged that the same directors who voted in favor of the 2015 settlement agreement remained on the district's board at the time Moller filed her complaint. This is akin to the situation in Osburn. Nevertheless, despite the similarity between Osburn and the present case in this regard, we conclude Moller still lacks standing under section 526a or the common law to pursue her challenge to the 2015 settlement agreement because she has not alleged, nor suggested that she can allege, a violation of Government Code section 1090 with respect to that agreement.
Moller contends she has standing to challenge the 2015 settlement agreement under section 526a "as violative [of] Government Code section 1090." But "while '[t]he types of financial interests prohibited by [Government Code] section 1090 are many and varied' [citation], '[t]he interest proscribed by Government Code section 1090 is an interest in the contract. The purpose of the prohibition is to prevent a situation where a public official would stand to gain or lose something with respect to the making of a contract over which in his official capacity he could exercise some influence.' " (Quantification Settlement Agreement Cases (2011) 201 Cal.App.4th 758, 819.) Thus, for Moller to have standing here to challenge the 2015 settlement agreement under section 526a as violative of Government Code section 1090, Moller must have alleged, or must be able to allege, that one or more of the district's board members had a prohibited financial interest in the 2015 settlement agreement.
Moller has not done so, nor claimed that she can do so. As we have noted, in her complaint, Moller has alleged that at the time Hoke voted to approve the settlement, Hoke had received income from Bill Duchi through a nonprofit entity. That is not an allegation of a prohibited financial interest in the 2015 settlement agreement. Nor are any of the other allegations in the complaint sufficient to show a prohibited financial interest in the 2015 settlement agreement. The conclusory allegation "that income from DECO or [Bill] Duchi created a financial conflict of interest for one or more of the District Board of Directors members" is not sufficient, nor is the conclusory allegation that "one or more members of the Duchi Slate . . . had a financial interest in DECO or [Bill] Duchi." Moller had to allege facts showing that one or more of the district's board members had a prohibited financial interest in the 2015 settlement agreement, but she did not do so, nor has she suggested that she can do so. Under these circumstances, the trial court correctly concluded that Moller lacks standing to pursue her challenge to the 2015 settlement agreement, and therefore the court did not err in sustaining the demurrers without leave to amend.
DISPOSITION
The judgment is affirmed. Defendants shall recover their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(2).)
/s/_________
Robie, Acting P. J. We concur: /s/_________
Butz, J. /s/_________
Duarte, J.