Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County Ct. No. BC311110, Belen I. Bendix, Judge. Affirmed.
Hadsell & Stormer, Inc., Dan Stormer and Cornelia Dai for Plaintiffs and Appellants.
Overland Borenstein Scheper & Kim, Mark A. Borenstein, Alexander H. Cote; Rockard J. Delgadillo, City Attorney, Thomas A. Russell, Assistant City Attorney, Kenneth F. Mattfeld, Deupty Attorney for Defendants and Respondents.
KITCHING, J.
INTRODUCTION
Plaintiffs South Central Farmers Feeding Families and its individual members appeal a judgment entered in favor of defendants Libaw-Horowitz Investment Company (LHIC), the City of Los Angeles (City), and other defendants. Plaintiffs’ lawsuit, a taxpayer claim for waste under Civil Procedure section 526a, challenged the City’s sale of a 14-acre property (the LANCER property) to LHIC. In exchange for the property, the City received $5.05 million, a 0.3-acre sewer easement (which prevented the property owner from building on the land above the easement); donation of 2.6 acres for a public park; a $500,000 cap on the City’s environmental liability and cleanup costs for the site; and creation of 200 jobs from development of the site. This comprised valid and adequate consideration for the City’s sale of the LANCER property to LHIC, and provides a basis for affirming the trial court’s judgment that no waste of City property occurred.
Plaintiffs’ appeal concerns a final item of consideration for the City’s sale of the property to LHIC: settlement of LHIC’s suit against the City for breach of a provision in a 1991 stipulated judgment that required the City to negotiate with LHIC to sell the property to LHIC, for breach of a 1996 purchase agreement to sell the property to LHIC, and for breach of an oral contract by which LHIC agreed to refrain from enforcing its rights under the 1991 and 1996 contracts until other litigation against the City concerning the property had ended. Plaintiffs claim that this suit was meritless, and that settlement of a meritless case constituted valueless consideration for the City’s sale of the property to LHIC, and thus constituted waste of City property.
As stated above, there was adequate consideration for the sale of the property even without the settlement of the lawsuit. Even if that were not so, the settlement of a colorable claim constitutes valid and adequate consideration. A colorable claim exists where a plaintiff has brought a claim based on a valid legal theory and where no evidence shows that the plaintiff brought the claim in bad faith or knew it to be meritless. Although two causes of action in LHIC’s lawsuit against the City were not colorable claims, three other causes of action were colorable claims, and therefore settlement of the lawsuit was valid consideration for the City’s sale of the property to LHIC. We conclude that the trial court did not erroneously consider plaintiffs’ good faith belief in the validity of LHIC’s lawsuit against the City. We further conclude that plaintiffs did not establish the elements required for judicial estoppel against defendants. We affirm the judgment for defendants.
FACTUAL AND PROCEDURAL HISTORY
In 1981, Ralph Horowitz and Jacob Libaw formed Alameda-Barbara Investment Company (ABIC), the predecessor of defendant LHIC. Horowitz and Libaw were general partners of ABIC; Horowitz and Libaw family members owned partnership interests. ABIC was formed to acquire underdeveloped real estate in South Central Los Angeles. ABIC acquired an 11-acre parcel, Parcel 2Z, in a block bounded by 41st Street, Alameda Boulevard, Long Beach Boulevard, and Martin Luther King Boulevard (formerly Santa Barbara Boulevard). On May 1, 1986, the City condemned ABIC’s interest in Parcel 2Z and took possession of that property. The City intended to combine the condemned Parcel 2Z with an adjacent 2-acre parcel to create a property for a waste disposal facility called “Los Angeles City Energy Recovery,” or LANCER. Negotiations over fair market value to be paid ABIC by the City for the condemned Parcel 2Z property continued until the City made a final settlement offer in November 1990. By this time, however, the City had abandoned its plan to use the property for a waste disposal facility. The City agreed to Horowitz’s request to give ABIC a right of first refusal and first negotiation to repurchase Parcel 2Z if the City determined that parcel was no longer needed for public use.
In a judgment and third amended final order of condemnation filed on November 5, 1991, ABIC and the City stipulated to a judgment establishing the fair market value of Parcel 2Z as $4,786,372 and condemning that property to the City. The judgment stated that “should the City determine within ten (10) years from the date of this judgment that Parcel 2Z is no longer needed for public use including housing and the City determines that Parcel 2Z is surplus and further determines that said parcel should be sold or ground leased and may be used for various non-public or non-housing uses, the City will enter into negotiations with [ABIC] to purchase Parcel 2Z for a period not to exceed one (1) year or the City may at its sole discretion allow [ABIC] the right to make an offer to purchase which is equal to or greater than any other offer received by the City within said one (1) years period.”
By the time of the November 5, 1991, judgment, some or all of the property began to be used as a community garden.
In 1994, the City transferred the property to the City of Los Angeles Harbor Department, which reimbursed the City $13.3 million for the property. This price reflected the City’s costs to condemn the property, which included the costs to demolish structures and other improvements for the proposed waste disposal facility, goodwill value associated with an ongoing business that was destroyed, relocation benefits, attorney fees, and litigation costs. The property’s fair market value was approximately $6 million.
By a revocable permit, the Harbor Department granted permission to the Los Angeles Regional Food Bank to operate the property as a community garden. Either party could revoke the permit by giving 30 days written notice to the other party. The Los Angeles Regional Food Bank made agreements for use of the property with individual plaintiffs and other members of what would later become South Central Farmers Feeding Families. South Central Farmers Feeding Families represents more than 400 farmers who farmed plots at the site.
In late 1994, a Port of Los Angeles property management official, Mark Richter, informed Horowitz that the City had transferred the LANCER property to the Port, the Port had decided the LANCER property was no longer needed for public use, and under the November 5, 1991, judgment the Port was prepared to negotiate sale of at least part of the LANCER property. Horowitz and Richter negotiated until December 1995, when Richter informed Horowitz that the Port had decided to sell the entire LANCER property at $10 per square foot. Richter and Horowitz continued negotiations. Horowitz told Richter he and Libaw wanted to take title to the LANCER property through another partnership. Richter said the Port preferred to have the new partnership be the buyer of the LANCER property, and for ABIC to release claims it had under the 1991 judgment. Therefore papers identified the buyer as LHIC, which became the vestee of the LANCER property and whose managing partners were Libaw and Horowitz.
City and Port officials drafted purchase and sale agreements. Richter informed Horowitz that the Harbor Commissioners and the City Council had to approve a sale of the LANCER property. The purchase agreement stated that the offer to sell the property was contingent upon approvals from the City Council and the Board of Harbor Commissioners. Richter and Ray Bender of the City Attorney’s Office assured Horowitz that the sale would be presented to the Board of Harbor Commissioners and the City Council, and once the City Attorney approved the sale the Council and the Board would approve the sale. The parties agreed that the property’s fair market value was $10 per square foot. The purchase price was based on a fair market value of $5,227,200, to be increased by $231,270 if the City Council approved a 0.53-acre alley vacation. The purchase agreement stated that LHIC was successor in interest to ABIC. Horowitz and Libaw signed the purchase and sale agreement on October 14 and 15, 1996.
In early 1997, Richter informed Horowitz that the State of California had sued the Port of Los Angeles alleging that the Port had improperly transferred money to the City’s general fund, in violation of the Port’s trust responsibility to use funds solely for Port purposes. The State of California lawsuit alleged that the $13 million that the Port paid the City for the LANCER property exceeded the fair market value of that property, which had no obvious Port purpose. Richter told Horowitz he believed the lawsuit would be resolved quickly and that City Council and Board of Harbor Commissioners approvals of the sale to LHIC would follow. Horowitz stated his willingness to delay efforts to enforce the rights of ABIC and LHIC under the 1991 judgment, as long as Port officials would commit to presenting the sale to the Board and City Council immediately after resolution of the State of California lawsuit.
In May 2001, Horowitz learned that the State of California litigation was about to be resolved, and called Sid Robinson, the new Port property director. Ray Bender, Deputy City Attorney for the Port of Los Angeles, responded that the State of California litigation was finalized. Horowitz wrote to Robinson to say he was immediately prepared to move forward with the 1996 agreement, and agreed to a purchase price adjustment based on a new appraisal obtained by the Port.
In September 2001, the property manager for the LANCER property told Horowitz that a community group, Concerned Citizens of South Central Los Angeles, wanted to acquire the LANCER property. He also stated that he had approval to finalize a new purchase agreement based on a new appraisal. Horowitz believed that Port officials delayed providing final revised documents, and obtained the help of the Mayor’s office, which disapproved the idea of that Concerned Citizens of South Central Los Angeles should acquire and develop the LANCER property as a third party. On September 28, 2001, LHIC stated its readiness to execute the original 1996 purchase contract and its willingness to accommodate the City’s need to update the appraisal to reflect current market value. LHIC also stated, however, that it could not accommodate the City if delay resulted from political efforts to insert a politically connected third-party developer.
On November 6, 2001, Richard Adler, the LANCER property manager for the Port, informed Horowitz that the Port had decided not to sell the property to LHIC and instead would offer the LANCER property for development under long-term leases, and stated that LHIC was free to submit a proposal with others. Horowitz objected, reminded Adler that under the 1991 judgment and the 1996 purchase and sale agreement the City was obligated to present the sale to the Board of Harbor Commissioners and to the City Council. Adler said that would not happen.
Horowitz’s counsel filed a claim against the City and the Port. Libaw and Horowitz transferred ABIC’s rights to LHIC so LHIC could bring an action for itself and ABIC. The City and the Port rejected the claim.
On April 24, 2002, LHIC filed a complaint against the City and the City of Los Angeles Harbor Department. That complaint alleged causes of action for breach of the covenant of good faith and fair dealing, breach of oral agreement, prevention of condition precedent, and declaratory relief. The City demurred to LHIC’s complaint three times, and the trial court sustained these demurrers with leave to amend. LHIC’s third amended complaint contained five causes of action: (1) for breach of the implied covenant of good faith and fair dealing, based on the City’s breach of the 1991 judgment, by failing to submit negotiated terms for LHIC’s purchase of the LANCER property to the City Council for approval; (2) for breach of an oral agreement by which LHIC agreed that it would refrain from enforcing its rights under the purchase agreement and repurchase agreement until the State of California litigation against the City concluded; (3) for breach of written contract by prevention of condition precedent, based on defendants’ wrongful prevention of the City from obtaining approval of the sale of the LANCER property to LHIC by the City Council and/or the Board of Harbor Commissioners; (4) for declaratory relief regarding LHIC’s contention that it had the right to acquire the LANCER property; and (5) for breach of the covenant of good faith and fair dealing, based on defendants’ intentional delay in offering the LANCER property for sale or lease only after LHIC’s 10-year option period in the 1991 judgment had expired.
After the third amended complaint was filed on February 11, 2003, attorneys for LHIC and the City executed a stipulation requesting continuation of the trial to facilitate a settlement. On March 26, 2003, LHIC filed a settlement conference statement reflecting that the City and LHIC were prepared to enter a settlement on agreed-upon terms. LHIC, ABIC, Horowitz, and Libaw signed a final settlement agreement on July 17, 2003, and on August 18, 2003, signed an agreement pledging to transfer to the City property necessary for a park and soccer field. The City Council approved the settlement on August 13, 2003, and the Board of Harbor Commissioners executed the settlement agreement on August 19, 2003.
Pursuant to that settlement agreement, the City sold the LANCER property to LHIC for $5,050,000; LHIC would dedicate 2.7 acres of property for recreation and park purposes to the City’s Recreation and Parks Department (or to a community group if the Recreation and Parks Department did not accept the 2.7 acres); the City Sanitation bureau would receive a 0.3-acre sewer easement, which sewer easement rendered the surface of the property unbuildable; and LHIC would dismiss its lawsuit against the City of Los Angeles with prejudice. Sale of the property closed on December 23, 2003; title transferred on December 27, 2003.
After title to the property transferred, LHIC gave notice to the Los Angeles Regional Food Bank that the revocable permit would terminate on February 29, 2004. The Los Angeles Regional Food Bank gave notice to gardeners that the permit to operate the garden would terminate on February 29, 2004, and the property would not be accessible after that date.
The gardeners organized, formed South Central Farmers Feeding Families, obtained counsel, and on February 24, 2004, filed this action against defendants City of Los Angeles, City of Los Angeles Harbor Department, Horowitz individually and as trustee/conservator of The Horowitz Family Trust, and the Los Angeles Regional Food Bank. On April 22, 2004, plaintiffs amended the complaint to add as defendants ABIC, The Libaw Family LP, a California partnership, J. E. Libaw individually and as a partner of the Libaw Family LP, Timothy M. Ison, and Shaghan Securities, LLC. The second amended complaint is the operative complaint. Of its six causes of action, the sole claim on appeal involves plaintiffs’ taxpayer claim for waste (Code Civ. Proc., § 526a) in the first cause of action, a taxpayer claim for injunctive and declaratory relief.
The complaint alleged that in 2003 the City knowingly sold the property for far less than its market value and for far less than the value the City had appraised the property in the eminent domain proceeding in late 1985 and early 1986, and that no public benefit resulted from this sale. The complaint alleged that the City did not make a finding of additional public benefit before selling the property to defendant purchasers for an amount far less than its actual worth, and that defendants’ actions constituted waste of public funds, estate, and property within Code of Civil Procedure section 526a and that sale of the property for $5.05 million was a significant loss to the City and its taxpayers.
The complaint alternatively alleged that the City’s sale of the property to defendant purchasers was illegal because it did not comply with section 385 of the City Charter and Article 4, sections 7.21-7.33.1 of the City Administrative Code.
Based on the allegation that the settlement agreement by which title to the property was transferred to defendant purchasers should be declared null and void, plaintiffs desired a declaration whether that settlement agreement and the deed transferring title were valid.
After obtaining a temporary restraining order, on March 18, 2004, plaintiffs obtained a preliminary injunction enjoining defendants from proceeding with demolition of farm plots at the LANCER property and from barring plaintiffs from access to their plots of land. The injunction was to remain in effect until/unless the City complied with provisions of the City Charter and City Administrative Code regarding disposition of property no longer needed by the City.
The City and the LHIC defendants appealed this order. In its opinion in Appeal No. B175065 filed on June 30, 2005, this court concluded that Government Code statutes provided general authority for the City’s sale of this real property, and that the Los Angeles City Charter specifically authorized the City Council to transfer City-owned real property to LHIC as part of a settlement of litigation. Consequently this sale of real property did not have to comply with other City Charter and City Administrative Code requirements governing the sale of real property no longer needed by the City. This court therefore reversed the order granting a preliminary injunction.
The matter was later tried by the court, whose statement of decision rejected plaintiffs’ two theories of taxpayer waste. The first theory, based on Orange County Foundation v. Irvine Co. (1983) 139 Cal.App.3d 195, was that settlement of a meritless case constituted waste under Code of Civil Procedure section 526a. Plaintiffs argued that the City’s defenses rendered the LHIC parties’ claims in the underlying lawsuit meritless. The trial court rejected plaintiffs’ argument that the LHIC defendants were judicially estopped from contending that the City determined the LANCER property to be surplus property.
Plaintiffs argued that the statute of limitations applicable to oral and written contracts barred all claims in LHIC’s underlying lawsuit because Horowitz knew by September of 1997 that the City would not submit the 1996 purchase agreement to the City Council for approval, and yet LHIC waited until April 24, 2002, to file suit. The trial court, however, found that there was a disputed issue of fact as to whether City and Port personnel’s representations regarding the State of California litigation involving the LANCER property lulled the Horowitz defendants into not bringing suit earlier. The trial court found that it could not say that a statute of limitations defense made the underlying suit not colorable.
Plaintiffs argued that the 1996 purchase agreement was unenforceable because the City Council did not approve it. The trial court found that the LHIC parties did not allege that the City Council had to agree to the purchase agreement; instead they alleged that defendants breached the covenant of good faith and fair dealing by failing to submit the 1996 purchase agreement to the Council for approval after the State of California litigation involving the LANCER property ended. The trial court found that the trial judge in the underlying case said he would let the case go to trial and promoted the benefits of settlement against the risk of pursuing that litigation.
The trial court also found there was uncontroverted testimony that the trial judge in the underlying case told the parties he would allow the case to go to the jury, and the judge’s actions underscored Horowitz’s good faith belief that he had a colorable claim with which to go to trial. The trial court made a factual determination that Horowitz had a good faith belief in the merits of his claims in the underlying action, and found that Code of Civil Procedure section 526a does not give trial courts power to second guess legislative decisions to settle colorable claims on the theory that the claims were, in a taxpayer’s mind, weak.
The second theory, based on TRIM, Inc. v. County of Monterey (1978) 86 Cal.App.3d 539, was that the Horowitz defendants acquired the LANCER property at a price so far below market value as to constitute waste absent a showing of any additional public benefit. Plaintiffs relied on three valuations in making this argument, but the trial court rejected plaintiffs’ valuations. The court concluded that the fair market value of the LANCER property was not so far above the price paid, even without taking into account the non-financial consideration the City received from the settlement, as to constitute waste. The trial court observed that plaintiffs’ analyses failed to take into account the total consideration the City received from the settlement, which, in addition to the purchase price paid by LHIC, included a release and stemming of further legal fees in the underlying case for trial and any later appeal, a sewer easement over the property, a public park, a cap on environmental liability and cleanup costs, and creation of 200 jobs from development of the site. Therefore the trial court ruled that plaintiffs had not satisfied their burden to show waste, and found in favor of defendants.
Judgment in favor of defendants was filed on December 11, 2006. Plaintiffs filed a timely notice of appeal.
ISSUES
Plaintiffs claim on appeal that:
1. The City committed waste by settling a lawsuit that was wholly without merit;
2. The trial court erroneously considered defendant Horowitz’s good faith belief in assessing the colorability of claims in the underlying case; and
3. The trial court erroneously failed to find that the defendants were estopped from arguing that the City had determined that the LANCER property was surplus.
DISCUSSION
1. Statutory Waste, and the Determination Whether City’s Settlement of LHIC’s Lawsuit Was Valid Because the Consideration Involved “Colorable” Claims
a. Statutory Waste
Code of Civil Procedure section 526a states, in relevant part: “An action to obtain a judgment, restraining and preventing any illegal expenditure of, waste of, or injury to, the estate, funds, or other property of a county, town, city or city and county of the state, may be maintained against any officer thereof, or any agent, or other person, acting in its behalf, either by a citizen resident therein, or by a corporation, who is assessed for and is liable to pay, or, within one year before the commencement of the action, has paid, a tax therein.”
Plaintiff South Central Farmers Feeding Families claims that LHIC’s underlying lawsuit had no colorable claims and lacked merit, and that by settling a meritless lawsuit the City of Los Angeles committed waste of public funds. This claim is based on Orange County Foundation v. Irvine Co., supra, 139 Cal.App.3d 195 (Irvine Co.). In Irvine Co., the State of California and the Irvine Company disputed title to three islands in Upper Newport Bay. Pursuant to a settlement agreement, the state paid money to the Irvine Company to clear the state’s title to those islands. Orange County Foundation sued the Irvine Company and the State of California to set aside the settlement agreement. Orange County Foundation alleged that the Irvine Company knew the islands were tidelands and submerged lands protected by a public trust in which the Irvine Company had no legal claim or disputable interest. (Id. at p. 199.)
The trial court in Irvine Co. sustained the State of California’s demurrer without leave to amend, and granted the Irvine Company’s summary judgment motion. Orange County Foundation appealed. Irvine Co. reversed the summary judgment granted to the Irvine Company.
“[T]he settlement of a good faith dispute between the State and a private party is an appropriate use of public funds, neither wasteful within the meaning of [Code of Civil Procedure] Section 526a, nor a gift barred by article XVI, section 6, because the relinquishment of a colorable legal claim in return for settlement funds paid by the State is good consideration and accomplishes a valid public purpose.” (Irvine Co., supra, 139 Cal.App.3d at p. 200.) A promise to compromise an invalid or unfounded claim, however, is not valuable consideration. (Id. at pp. 200, 201.) The plaintiff Orange County Foundation alleged that the Irvine Company knew the three islands were tidelands and that it had no legal claim to them. “If Irvine knew the islands it was claiming . . . were tidelands legally belonging to the State, its claim to title was in bad faith, and its relinquishment of that knowingly unfounded claim was inadequate consideration to support the State’s obligation to pay money to Irvine.” (Id. at p. 200.) Because the Irvine Company’s summary judgment motion did not address whether the Irvine Company knew its claim to title in the islands was invalid, it did not meet its burden of proof to show no triable issue of fact existed. Thus it was error to grant the Irvine Company’s summary judgment motion.
It is important to take note of significant differences between Irvine Co. and the instant appeal. In Irvine Co., the State of California had paid money to a corporation in order to clear the State’s title to property. In this case, by contrast, a purchaser, LHIC, paid $5.05 million to the City to purchase the LANCER property. The City also received a 0.3-acre sewer easement (which prevented the property owner from building on the surface of land above the easement); a 2.6-acre public park; a $500,000 cap on environmental liability and cleanup costs for the site; and creation of 200 jobs from development of the site. All of this comprised valuable and adequate consideration for the City’s sale of the LANCER property to LHIC, and thus provides a basis for concluding that no waste of City property occurred, even without taking into account the settlement of the lawsuit.
Plaintiffs, however, contend that this court must also consider the settlement of the lawsuit. Plaintiffs claim that for various reasons, LHIC’s lawsuit against the city was invalid and not colorable and provided no valuable consideration for the City’s sale of the LANCER property to LHIC, which caused the sale of the LANCER property to LHIC to become waste of public property or funds in violation of section 526a. Therefore, plaintiffs claim, the judgment should be reversed, the property sale should be declared null and void, and ownership of the LANCER property should return to the City.
Putting aside the conclusion that the $5.05 million and the other consideration received by the City were adequate consideration for the sale of the LANCER property, plaintiffs ask this court to determine whether LHIC’s claims in its underlying lawsuit against the City were “colorable legal claims.” (Irvine Co., supra, 139 Cal.App.3d at p. 200.) If they were, the City’s sale of its property in return for LHIC’s relinquishment of a colorable legal claim was good consideration and accomplished a valid public purpose. (Ibid.) If, however, LHIC’s claims in its underlying lawsuit were “knowingly unfounded claim[s]” and thus not colorable legal claims, plaintiffs argue that LHIC’s relinquishment of those claims was inadequate consideration for the City’s sale of its property. (Ibid.)
b. What Constitutes a “Colorable Claim” to Provide Valid Consideration for Settlement of a Lawsuit
A “colorable” legal claim must have some arguable legal foundation; this is not the same thing as saying that the colorable legal claim would have prevailed at trial, for “surrender of a possibly meritless claim which is disputed in good faith is valid consideration.” (Murphy v. T. Rowe Price Prime Reserve Fund, Inc. (9th Cir. 1993) 8 F.3d 1420, 1423.) The consideration necessary to support a settlement need not always consist of the surrender of a claim that is legally valid and enforceable. (Stub v. Belmont (1942) 20 Cal.2d 208, 217.) “ ‘An agreement entered into upon a supposition of a right, or of a doubtful right, though it afterwards comes out that the right was on the other side, is binding, and the right shall not prevail against the agreement of the parties, for the right must always be on the one side or the other, and therefore the compromise of a doubtful right is a sufficient foundation of an agreement.’ ” (Bennett v. Bennett (1933) 219 Cal. 153, 159.) “[T]he compromise of a doubtful claim, asserted and maintained in good faith constitutes a sufficient consideration for a new promise, even though it may ultimately be found that the claimant could not have prevailed. This . . . rule is specially applicable where legal proceedings to enforce the asserted claim have been commenced and are pending and the proceedings are discontinued in pursuance of such compromise.” (Union Collection Co. v. Buckman (1907) 150 Cal. 159, 163.) Indeed, “unless a claim is advanced in bad faith, or is without foundation, the actual validity of the claim is immaterial in determining whether forbearance from proceeding thereon is sufficient consideration.” (Goldstone-Tobias Agency, Inc. v. Barbroo Enterprises Productions, Inc. (1965) 237 Cal.App.2d 720, 722.) Thus a colorable claim exists where a plaintiff has brought a claim based on a valid legal theory and where no evidence shows that the plaintiff brought the claim in bad faith or knew it to be meritless. (Murphy v. T. Rowe Price Prime Reserve Fund, Inc., supra, at p. 1423.)
2. Although Two Causes of Action in LHIC’s Complaint Against the City Were Not Colorable Claims, the Existence of Other Colorable Claims Means That Settlement of the Underlying Lawsuit Was Valid Consideration for the Sale of the LANCER Property
Plaintiffs argue that the trial court erred by failing to find that LHIC’s claims in the underlying lawsuit were meritless because the City was never contractually obligated to LHIC.
a. The 1991 Stipulated Judgment Was a Contract, From Which a Covenant of Good Faith and Fair Dealing Is Implied
Plaintiffs first address the first and fifth causes of action for breach of the implied covenant of good faith and fair dealing, which alleged the City’s breach of its obligation to negotiate and the City’s intentional delay in offering the LANCER property for sale until after the ten-year period had ended. Plaintiffs claim that these causes of action were meritless because the 1991 stipulated judgment was not a valid contract that imposed contractual obligations on the City. We disagree.
The City and ABIC (LHIC’s predecessor-in-interest) stipulated to entry of the judgment and final order of condemnation in a stipulation filed on February 25, 1991. The terms of that stipulation included the judgment and final order of condemnation entered on November 5, 1991. One provision of that stipulated judgment was the requirement that if, within 10 years of the date of the judgment, the City determined that Parcel 2Z (the LANCER property) was no longer needed for public use and should be sold or ground-leased, “the City will enter into negotiations with [ABIC] to purchase Parcel 2Z for a period not to exceed one (1) year or the City may at its sole discretion allow [ABIC] the right to make an offer to purchase which is equal to or greater than any other offer received by the City within said one (1) years period.”
A stipulation or consent judgment is regarded as a contract between the parties. (Roden v. AmerisourceBergen Corp. (2007) 155 Cal.App.4th 1548, 1561; Lanyi v. Goldblum (1986) 177 Cal.App.3d 181, 184, fn 3.) Indeed, a judgment is a contract upon which the parties may maintain a separate action between themselves. (Colvig v. RKO General, Inc. (1965) 232 Cal.App.2d 56, 65.) As in every contract, there can be implied a covenant of good faith and fair dealing that neither party shall do anything that would destroy or injure the other party’s right to receive the fruits of the contract. (Kendall v. Ernest Pestana, Inc. (1985) 40 Cal.3d 488, 500.) We therefore reject the claim that the 1991 stipulated judgment could not form the basis of causes of action for breach of the implied covenant of good faith and fair dealing.
b. LHIC’s Lawsuit Had a Colorable Claim That the City Had Determined the LANCER Property to Be Surplus and No Longer Needed for Public Use, Which Triggered the Repurchase Provision in the 1991 Stipulated Judgment
Plaintiffs also contend that even if the 1991 stipulated judgment was a contract, the City’s actions triggered no obligation to negotiate with ABIC. Plaintiffs argue that the stipulated judgment made ABIC’s right to repurchase the LANCER property contingent on the City’s determination that the property was “surplus” and “no longer needed for public use including housing” and that the property “should be sold or ground leased and may be used for various non-public or non-housing uses,” and contend that the City did not make the required determinations.
The 1991 stipulated judgment refers to certain determinations by the City, but does not state the form such determinations must be made. The trial court found there was a disputed issue of fact as to whether the functional equivalent of a declaration of surplus property had occurred. An April 12, 1990, letter to the City Council from Mayor Tom Bradley requested that the Council “authorize the sale of the surplus LANCER site.” In 1994, the Chairperson of the Budget and Finance Committee of the City Council made recommendations for council action concerning the LANCER property, and referred to a 1993-1994 budget which anticipated income “from the sale of a surplus 12-acre piece of City property to the Harbor Department.” The City council approved a motion to approve the recommendations. In 1996, a memorandum to Mayor Richard Riordan from Ezunial Burts, Executive Director of the Harbor Department, sought the review of a November 5, 1996, report recommending approval and transmittal to the City Council of the sale of the LANCER property to ABIC. The attached report stated that after the City abandoned the LANCER project for this property, it transferred the property to the Harbor Department, but “[i]t was subsequently determined that, despite proximity to the Alameda Corridor, the property was not suitable for Harbor Department purposes.” The report noted that the Office of the City Attorney had prepared and approved as to form a purchase and sale agreement which the buyer had accepted, and that the proposed purchase and sale agreement had been referred to the Mayor and returned approved. Moreover, by entering into negotiations with ABIC/LHIC pursuant to the 1991 stipulated judgment, the City impliedly conceded that it had made the determinations required in the repurchase clause; had it not made those determinations, it would not have been required to enter into those negotiations. This evidence supports the trial court’s finding that the City had made a determination, or had made the functional equivalent of a determination, that the LANCER property was surplus property no longer needed for public use.
Therefore LHIC had a colorable claim that the City had determined, or made the functional equivalent of a determination, that the LANCER property was surplus property no longer needed for public use.
c. The Breach of Oral Contract Cause of Action Was Not a Colorable Claim
Plaintiffs claim that LHIC’s second cause of action against the City, for breach of an oral contract, was invalid and unenforceable because a charter city cannot be bound to a contract that does not comply with requirements of its charter. This cause of action alleged an oral agreement by which LHIC agreed it would refrain from enforcing its rights under the purchase agreement and repurchase agreement until the State of California litigation against the City concluded, and that after the State of California litigation ended, the City breached that oral agreement by failing to submit the purchase agreement to the City Council and the Board of Harbor Commissioners for approval. Plaintiffs’ claim refers to section 385 of the Charter of the City of Los Angeles, which at the time of the purported oral contract required contracts involving an expenditure of more than five hundred dollars to be made in writing: “ ‘Every contract involving an expenditure of more than five hundred dollars ($500) shall . . . be made in writing . . . .’ ” (Former Charter section 385 quoted in First Street Plaza Partners v. City of Los Angeles (1998) 65 Cal.App.4th 650, 662.) The terms of a city charter control the manner in which a city forms and may be bound by a contract. (Id. at pp. 661-662.) “ ‘[A municipal] contract made in disregard of the prescribed mode is unenforceable.’ ” (Id. at p. 667.) Thus there could be no oral contract between defendants and the City.
Since the revision of the Charter of the City of Los Angeles effective June 8, 1999, section 385 reads differently and concerns the sale of city property. Section 370 of the City Charter now states: “Every contract involving consideration reasonably valued at more than an amount specified by ordinance shall, except in cases of urgent necessity for the preservation of life, health or property as provided in Section 371(e)(5), be made in writing, or other manner as provided by ordinance. The draft of the contract shall be approved by the board, officer or employee authorized to make the contract. Every contract must be approved by the City Attorney as to form, except for contracts or classes of contracts involving consideration reasonably valued at less than an amount set by ordinance. [¶] The contract shall be signed on behalf of the City by: [¶] (a) the Mayor; or [¶] (b) the board, officer or employee authorized to enter into the contract; or [¶] (c) in the case of a contract authorized by Council, the person authorized by the Council. [¶] The City shall not be, and is not, bound by any contract unless it complies with the requirements of this section and all other applicable requirements of the Charter.” See also the similar requirement that contracts with the City of Los Angeles must be in writing in the City of Los Angeles Administrative Code, Chapter 1, Article 1, Section 10.2.
Defendants make no response to this claim. We conclude that LHIC’s second cause of action for breach of oral contract against the city was not a colorable claim. This conclusion, however, does not alter the fact that LHIC’s lawsuit brought multiple other colorable causes of action against the City.
d. The Third Cause of Action for Breach of Written Contract By Prevention of Condition Precedent Was Not a Colorable Claim
The third cause of action alleged that the City authorized the Board’s Executive Officer to enter into the purchase agreement to sell the LANCER property to LHIC, which agreement contained the condition that the City Council and/or the Board of Harbor Commissioners formally approve the purchase agreement. This cause of action alleged that defendants breached the written agreement by wrongfully preventing the City from satisfying this condition precedent to the sale of the LANCER property to LHIC.
Plaintiffs argue that this cause of action failed because the 1996 purchase agreement was not an enforceable contract. In essence the argument is the same as that made for the breach of oral contract cause of action: that because the 1996 purchase agreement was not executed in conformity with the requirements of the City Charter in that the City Council did not approve that purchase agreement, no contract was ever formed and LHIC could not enforce that purchase agreement.
The rule cited from First Street Plaza Partners v. City of Los Angeles also applies to this cause of action. The terms of a city charter control the manner in which a city forms and may be bound by a contract, and a municipal contract which does not comply with requirements in the City Charter is unenforceable. (First Street Plaza Partners v. City of Los Angeles, supra, 65 Cal.App.4th at pp. 661-662, 667.) Former City Charter section 385, besides requiring contracts to be in writing, also requires that “the draft whereof shall be approved by the board, officer or employee authorized to make the same, and signed on behalf of the City by the Mayor, or some other person authorized thereto by resolution of the Council in the case of a contract authorized by Council . . . .” The City Council’s failure to approve the 1996 purchase agreement meant that no contract was formed thus no contract could be enforced.
Defendants have provided no argument on appeal concerning the colorability of LHIC’s third cause of action for breach of written contract by prevention of condition precedent. We conclude that LHIC’s third cause of action for breach of written contract by prevention of condition precedent contract against the City was not a colorable claim. This conclusion, however, does not alter the fact that LHIC’s lawsuit brought multiple other colorable causes of action against the City.
3. Despite the Statute of Limitations Defense, LHIC’s First, Fourth, and Fifth Causes of Action Remained Colorable Causes of Action
Plaintiffs claim that the trial court erroneously found that the statute of limitations did not bar all causes of action in LHIC’s complaint. As we have found the second and third causes of action not to be colorable claims, we address this argument only in relation to the remaining three causes of action. Plaintiffs argue that the four-year statute of limitations for breach of a written agreement in Code of Civil Procedure section 337 barred the first, fourth, and fifth causes of action in LHIC’s complaint against the City in the underlying lawsuit, causing LHIC’s causes of action to be meritless.
a. The Cause of Action for Breach of the Implied Covenant of Good Faith and Fair Dealing and the Obligation to Negotiate in Good Faith
The cause of action for breach of the implied covenant of good faith and fair dealing and the obligation to negotiate in good faith was based on the November 5, 1991, judgment. That judgment contained a provision that required the City, if it determined that the LANCER property should be sold and could be used for non-public or non-housing purposes, to negotiate with ABIC/LHIC for one year to purchase the property or to allow ABIC/LHIC to offer to purchase the property for a price equal to or greater than any offer received by the City within one year. The complaint alleged that the City made this determination and negotiated with LHIC for the sale of the LANCER property. LHIC’s complaint alleged that the 1991 judgment, to which ABIC and the City stipulated, contained an implied covenant of good faith and fair dealing that required defendants to refrain from doing any act that frustrated LHIC’s ability to obtain the rights and benefits of this repurchase-option clause and required the City to obtain formal approval of the negotiated purchase agreement from the City Council and/or the Los Angeles Board of Harbor Commissioners. The complaint alleged that defendants did not conduct negotiations in good faith, because they failed and refused to present the 1996 purchase agreement signed by the LHIC plaintiffs for approval by the Board or the City Council even after the State of California litigation became final on August 12, 2001. This cause of action alleged that the statute of limitations was equitably tolled or that the City’s conduct estopped it from asserting the applicable statute of limitations.
A cause of action for breach of the covenant of good faith and fair dealing implied in a written contract is governed by the four-year limitations period in Code of Civil Procedure section 337. (Krieger v. Nick Alexander Imports, Inc. (1991) 234 Cal.App.3d 205, 220-221.) Ordinarily the limitations period begins to run against a breach of contract cause of action at the time of the breach. (Id. at p. 221.) Even if the cause of action for breach of the implied covenant of good faith and fair dealing accrued shortly after LHIC executed the purchase agreement in October 1996, LHIC provided evidence that it relied on representations by City representatives that LHIC’s purchase offer would be submitted to the City Council for its approval and that LHIC refrained from suing until the State of California litigation had ended. Where a defendant makes representations to the effect that it will perform its contractual obligation and plaintiff, in reliance on those representations, forbears to sue within the limitations period, the defendant may be estopped to invoke the statute of limitations as a defense. (Lundeen Coatings Corp. v. Department of Water & Power (1991) 232 Cal.App.3d 816, 830, fn.7.) Although the general rule is that the conduct of its officers or employees may not estop a city, an exception exists when the facts establish that a grave injustice would be done if an equitable estoppel were not applied. (Id. at p. 830.)
We conclude that the statute of limitations defense did not cause LHIC’s breach of the implied covenant of good faith and fair dealing cause of action to cease to be a colorable claim.
b. The Cause of Action for Declaratory Relief
The fourth cause of action for declaratory relief alleged that a controversy existed between LHIC and defendants as to LHIC’s right to acquire the LANCER property at its fair market value in accordance with the 1996 purchase agreement.
“[T]he statute of limitations governing a request for declaratory relief is the one applicable to an ordinary legal or equitable action based on the same claim.” (Mangini v. Aerojet-General Corp. (1991) 230 Cal.App.3d 1125, 1155.) This cause of action derives from the underlying claim for breach of contract based the 1991 stipulated judgment and on the City’s failure to present the 1996 purchase agreement to the City Council for approval. Thus the four-year statute of limitations for breach of contract actions applies to this declaratory relief cause of action. The analysis is the same as that accorded to the first and fifth causes of action: plaintiffs had evidence that based on defendants’ representations that they would perform its contractual obligation after the State of California litigation had concluded, plaintiffs forbore to sue within the limitations period and defendants were estopped from invoking the statute of limitations defense.
We again conclude that the statute of limitations defense did not cause LHIC’s declaratory relief cause of action to cease to be a colorable claim.
c. The Cause of Action for Breach of the Implied Covenant of Good Faith and Fair Dealing Alleging Intentional Delay in Offering the LANCER Property for Sale Until After the Ten-Year Period Had Ended
The fifth cause of action, for breach of the implied covenant of good faith and fair dealing, alleged that the 1991 stipulated judgment gave ABIC (and its successor, LHIC) the right to repurchase the LANCER property within 10 years, which period terminated on November 5, 2001. This cause of action alleged that before November 5, 2001, defendants determined that the LANCER site was no longer needed for public use and should be sold or ground leased, defendants were obligated to negotiate with LHIC regarding LHIC’s purchase of the LANCER site, and defendants had already decided not to sell the LANCER property to LHIC under any circumstances. The complaint alleged that defendants violated the covenant of good faith and fair dealing in the 1991 stipulated judgment by intentionally delaying offering the LANCER property for sale or lease until November 6, 2001, after the 10-year option period had expired, and by refusing to negotiate with LHIC and sell the LANCER property, in order to deprive LHIC of the benefit of its rights under the 1991 stipulated judgment.
The four-year limitations period in Code of Civil Procedure section 337 governs a cause of action for breach of the covenant of good faith and fair dealing, and the limitations period begins to run at the time of the breach. (Krieger v. Nick Alexander Imports, Inc., supra, 234 Cal.App.3d at pp. 220-221.) Even if the cause of action for breach of the implied covenant of good faith and fair dealing accrued shortly after LHIC executed the purchase agreement in October 1996, LHIC provided evidence that it relied on representations by City representatives that LHIC’s purchase offer would be submitted to the City Council for its approval and refrained from suing until the State of California litigation had concluded. Where a defendant makes representations that it will perform its contractual obligation and plaintiff relies on those representations and forbears to sue within the limitations period, the defendant may be estopped to invoke the statute of limitations as a defense. (Lundeen Coatings Corp. v. Department of Water & Power, supra, 232 Cal.App.3d at p. 830, fn.7.) Although the general rule is that the conduct of its officers or employees may not estop a city, an exception exists when the facts establish that a grave injustice would be done if an equitable estoppel were not applied. (Id. at p. 830.)
We therefore conclude that the statute of limitations defense did not cause LHIC’s breach of the implied covenant of good faith and fair dealing cause of action to cease to be a colorable claim.
4. The Trial Court Did Not Err in Considering Horowitz’s Good Faith Belief in the Validity of LHIC’s Underlying Lawsuit Against the City
Plaintiff contends that in assessing the colorability of the claims in LHIC’s lawsuit against the City, the trial court misapplied the law in weighing the good faith belief of Ralph Horowitz, a principle of LHIC.
The trial court’s statement of decision stated: “The court finds, as a factual determination, that Mr. Horowitz had a good faith belief in the merits of his claims in the underlying action. This is based on his trial testimony and demeanor at trial, as well as the Borenstein Declaration at Paragraphs 15-25, . . . the Horowitz Declaration at Paragraph 36, 38, and the legal analysis set forth above.”
Plaintiff argues that the issue in determining the colorability of claims for purposes of determining whether settlement of those claims is adequate or valueless consideration is the validity of the underlying claim, not the good faith belief of the claimant.
The case law on this issue, however, supports the notion that the claimant’s belief in the legal basis of his is relevant to assessing whether waste has occurred. Irvine Co. states, for example: “In this case we hold public monies paid to compromise an invalid real property title claim, known to be baseless by the claimant, is not an expenditure for a public purpose, and constitutes a prohibited gift of public funds.” (Irvine Co., supra, 139 Cal.App.3d at p. 198; italics added.) In fact, Irvine Co. reversed the grant of summary judgment because a triable issue of fact existed “whether the Irvine Company’s compromised title claims to certain islands were knowingly spurious[.]” (Ibid.; italics added.) “The pleading alleges Irvine knew the three . . islands in question were tidelands, and was aware it had no legal claim to them. If this allegation in [the] complaint is found true by the trier of fact, it will be sufficient to sustain a judgment in [plaintiff’s] favor against Irvine.” (Id. at p. 200, second italics added.) The Irvine Co. opinion explained: “If Irvine knew the islands it was claiming . . . were tidelands legally belonging to the State, its claim to title was in bad faith, and its relinquishment of that knowingly unfounded claim was inadequate consideration to support the State’s obligation to pay money to Irvine.” (Id. at p. 200, italics added.) Irvine Co. reversed the grant of summary judgment in favor of the Irvine Company because that motion “did not directly address the issue whether Irvine knew its claim to title in the . . . islands was invalid.” (Id. at p. 201, italics added.)
Other cases likewise show that the claimant’s belief as to the validity or invalidity of the claim is relevant to the issue of whether the claimant brought the claim in good faith. “[C]ompromise of a doubtful claim asserted and maintained in good faith constitutes a sufficient consideration for a new promise, even though it may ultimately be found that the claimant could not have prevailed.” (Union Collection Co. v. Buckman, supra, 150 Cal. at p. 163, italics added.) The Stub v. Belmont court stated that the consideration necessary to support a settlement does not necessarily consist of the surrender of a legally valid, enforceable claim. Despite plaintiffs’ claim that there was “no bona fide dispute between them and defendant,” Stub concluded: “It is apparent from the defendant’s pleadings that the dispute was honest and bona fide. Defendant was claiming no more than that to which he believed he was entitled. There was nothing in the record to establish that the dispute was not in good faith, or was the result of fraud or undue influence, or was wholly groundless and known by defendant to be so.” (Stub v. Belmont, supra, 20 Cal.2d at pp. 217, 218.)
The other case relied upon by plaintiffs, Jordan v. Department of Motor Vehicles (2002) 100 Cal.App.4th 431, contains no discussion of the claimant’s knowledge of the validity or invalidity of the claim or the claimant’s good faith in bringing the claim.
We find no error in the trial court’s consideration of evidence in making a determination of Horowitz’s good faith in bringing LHIC’s lawsuit against the City.
5. Plaintiffs Did Not Establish the Elements Required for Judicial Estoppel
Plaintiff claims that the trial court made an error of law by failing to find that defendants were estopped from arguing that the City had determined that the property was surplus. Plaintiffs claim that in the appeal from the order granting a preliminary injunction, defendants argued to this court that the City had not determined that the LANCER property was surplus and this court adopted that position. Plaintiffs argue that defendants should be estopped from now arguing that the property was surplus.
Judicial estoppel is “appropriate where a party has taken inconsistent positions in separate proceedings.” (Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 181.) “ ‘Judicial estoppel prevents a party from asserting a position in a legal proceeding that is contrary to a position previously taken in the same or some earlier proceeding.’ ” (Ibid.) The doctrine of judicial estoppel should be applied when “(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.” (Id. at p. 183.)
Plaintiffs’ complaint and application for a temporary restraining order and order to show cause re preliminary injunction alleged that the City’s sale of the LANCER property as settlement of LHIC’s lawsuit against the City was void because the City was required to follow Charter section 385 and Los Angeles Administrative Code, sections 7.21-7.33.1 in the sale of City property, and had not done so. Charter section 385 states, in relevant part: “Any real or personal property owned by the City that is no longer needed may, subject to the limitations elsewhere prescribed in the Charter, be sold under terms and conditions prescribed by ordinance.” Administration Code sections 7.21 through 7.33.1 set forth requirements for the sale of real property owned by the city that is no longer required for use by the City.
Plaintiff’s argument is as follows. In the earlier appeal from the order issuing a preliminary injunction prohibiting LHIC from demolition of farm plots at the LANCER property, LHIC asserted its position that the City never declared the LANCER property to be surplus property, and therefore City Charter section 385 and Los Angeles Administrative Code sections 7.21-7.33.1 did not apply to the City’s sale of the LANCER property as part of the settlement of LHIC’s suit against the City. Plaintiffs argue that this court adopted LHIC’s position in its opinion filed June 30, 2005, in Appeal No. B175065, reversing the order granting a preliminary injunction. Finally, plaintiffs argue that in closing argument at trial, LHIC for the first time took the position that the City did determine that the LANCER property was surplus. Plaintiffs assert that LHIC should have been judicially estopped from claiming that the City determined that the LANCER property was surplus, and the trial court erroneously failed to find that judicial estoppel should apply to LHIC.
First, plaintiffs do not establish that LHIC was the party advocating the position in Appeal No. B175065; the City was also an appellant in that appeal, and the City appears to have been the party making the argument that no declaration of the property as “surplus” or “no longer needed by the City” had occurred.
The opinion in B175065 refers to the trial court’s finding “that the City contended that the property was not ‘surplus’[.] The opinion summarizes the parties’ contentions on appeal, which included a claim by the City that the City Council properly elected not to find that the property was “no longer needed” and the City Administrative Code procedures were never invoked.
Second, the decision in Appeal No. B175065 did not adopt the position that the City had never declared the LANCER property to be surplus property. The decision stated that settlement of LHIC’s suit “involved LHIC’s payment of money to the City, transfer of the 14-acre property to LHIC, and LHIC’s donation of 2.5 acres of property to the City[.]” Thus the transfer of the real property from the City to LHIC was part of a “settlement of litigation that does not involve only the payment or receipt of money.” The decision therefore held that Charter section 273(c), giving authority to the City Council to approve or reject settlement of litigation that did not involve only the payment or receipt of money, governed this transfer of real property. The decision rejected the plaintiffs’ position that Charter section 385 and related Los Angeles Administrative Code provisions giving authority to sell City-owned property that is “no longer needed” governed this transfer of real property. The opinion rejected the trial court’s finding that the City Council had to make a finding, pursuant to Charter section 385, that the City no longer needed the property. Although the opinion stated that the City Council made no “formal determination that [the[ real property proposed for sale [was] no longer required for the use of the City[,]” the decision concluded: “Such a finding is unnecessary given the independent authority to settle litigation in Charter section 273(c).”
Third, in closing argument during the trial of this case, LHIC did not argue that the 1991 stipulated judgment did not require, and that the City Council never made, a formal determination that the LANCER property was surplus. Instead, LHIC argued that (1) the City had conceded that the City Council could make such a formal declaration of surplus at the time it approved the sale of the property, and (2) there was evidence from which a trier of fact could conclude that that the City had made a determination that the property was surplus and no longer needed for public use.
Plaintiffs have not established that LHIC took two totally inconsistent positions, or that LHIC successfully asserted the first position in that this court adopted the position or accepted it as true. The elements required for judicial estoppel not having been established, we find no error in the ruling that the doctrine should not be applied.
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to defendants.
We concur: KLEIN, P. J., CROSKEY, J.