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Azusa Land Partners v. Department of Industrial Relations

December 21, 2010


Los Angeles County Super. Ct. No. BS117259 APPEAL from a judgment of the Superior Court of Los Angeles County, James C. Chalfant, Judge.

The opinion of the court was delivered by: Johnson, J.



Azusa Land Partners (ALP) appeals from a judgment denying its petition for writ of mandate. (Code Civ. Proc., § 1085.) ALP seeks to vacate a determination by respondent Department of Industrial Relations (Department) that a planned community project is a "public work," as defined by Labor Code section 1720,*fn1 and subject to prevailing wage laws applicable to public improvement work performed by private contractors as a condition of regulatory approval for their construction projects. We affirm.


Factual background

Petitioner and appellant ALP is the owner and developer of a master planned community known as the Rosedale Project (Project). The Project is located on over 500 acres of land in the City of Azusa (City) previously owned by the Monrovia Nursery Company (Monrovia Nursery), ALP's predecessor-in-interest. The Project involves the potential development of over 1,200 homes, about 50,000 square feet of commercial construction, and public infrastructure and improvement work. To obtain approval for the Project, Monrovia Nursery agreed to conditions imposed by the City to perform certain public infrastructure and improvement work, including the construction of a public school and adjoining park, freight under-crossings, sanitation district facilities, and backbone and in-tract street, bridge, storm drain, sewer, water/reservoir, dry utilities, park and landscaping improvements for the cities of Glendora and Azusa. These conditions are memorialized in a May 27, 2004 Development Agreement between the City and Monrovia Nursery.

In August 2005, the City and ALP entered into a Funding and Acquisition Agreement (Acquisition Agreement), to provide for partial funding of required public facilities through Mello-Roos bonds. Pursuant to the Acquisition Agreement, the City agreed to establish a Community Facilities District) to sell special (Mello-Roos) tax bonds to be used to pay for the design, planning, engineering, installation and construction of certain facilities eligible for public financing (the Eligible Facilities). ALP was to construct the Eligible Facilities, which would be owned, operated and maintained by the cities of Azusa or Glendora, the Azusa Unified School District or the Metropolitan Transit Authority, pursuant to a series of agreements (the Funding Agreements) between ALP and these public entities.*fn2 The Eligible Facilities are identified in "Exhibit A" to the Acquisition Agreement.

The Funding Agreements refer to "Publicly Financed Facilities," as the subset of Eligible Facilities which will actually be built using proceeds of Mello-Roos bonds. According to ALP, the Publicly Financed Facilities were not identified in the Acquisition Agreement because it was not known at the time that agreement was executed specifically which Eligible Facilities would be constructed using Mello-Roos bonds. The Publicly Financed Facilities were subsequently identified in a modification to the Acquisition Agreement (Exhibit B), executed between the City and ALP in 2007, after the Mello-Roos bonds were issued.

On June 5, 2006, after consolidated special elections, the City authorized the creation of Community Facilities District No. 2005-1, Rosedale (CFD), approved a bond indebtedness of up to $120 million to be incurred by the CFD, and authorized the City Clerk to record a notice of a special tax lien on real property located within the CFD.*fn3 The county collects special taxes in the same manner as ad valorem property taxes, and the proceeds are transferred to CFD's fiscal agent, Wells Fargo Bank. All public infrastructure and facilities required as a condition of approval of the Project (the Eligible Facilities) were eligible for CFD funds. The fiscal agent distributes the funds. The City manager and finance director must approve payment to ALP of any Mello-Roos bond proceeds.

Under the Acquisition and Funding Agreements, ALP is obligated to perform the public improvement work required by the City as a condition of approval of the Project even if the actual cost of that infrastructure construction exceeds the amount of bond funds authorized to pay for the public improvement work performed. That scenario has been borne out. The total cost of construction of all the Eligible Facilities is approximately $146 million. The CFD issued approximately $71 million in Mello-Roos bonds, the proceeds of which were used to fund construction of the Publicly Financed Facilities. The remaining $76 million in required public improvements must be constructed at private expense.

Administrative proceeding

In October 2005, an administrative inquiry was filed requesting the Department investigate and issue a determination as to whether the entire Rosedale Project constituted a "public work" under section 1720, subject to the prevailing wage mandates of section 1771.*fn4 In response, ALP argued the Project was not a public work, but simply a private development project as to which the City lacked a proprietary interest, but as to which it required construction of certain public improvements as a condition of approval. ALP also asserted that although it was obligated and intended to pay prevailing wages for the public improvements actually financed with the proceeds of Mello-Roos bonds, it was not required to do so for the construction of any infrastructure improvement for which it did not receive Mello-Roos financing.

In October 2007, the Department issued a public works coverage determination (Determination). The Determination found that the entire Project constituted a public work within the meaning of section 1720, subdivision (a)(1). According to the Determination, payment of Mello-Roos bond proceeds to ALP, a private developer, for the construction of public facilities and infrastructure improvements constituted a payment of public funds. (§ 1720, subd. (b)(1).) Because the Project was funded, in part, through public funds, it satisfied the definition of a "public work" under subdivision (a)(1). However, the Determination also found the Project satisfied the exemption of subdivision (c)(2), which provides that only those public infrastructure improvements required as a condition of regulatory approval are subject to the prevailing wage requirements, so long as the public funds contributed to the Project do not exceed the cost of construction of the required public improvements. Accordingly, the Determination held that ALP was required to comply with prevailing wage laws only as to that portion of the Project involving construction of public improvements required as a condition of the City's approval of the Project.

ALP filed an administrative appeal as to the portion of the Determination that held that all public infrastructure improvements required as a condition of approval are subject to prevailing wage requirements, even if those improvements are not funded through the proceeds of Mello-Roos bonds.

In July 2008, the Department affirmed its initial Determination by a Decision on Administrative Appeal. The Decision held that (1) the proceeds of the Mello-Roos bonds are public funds for purposes of the prevailing wage law; (2) because the Project is partially funded using proceeds of Mello-Roos bonds, the entire Project is a public work; (3) the cost of the portion of the Project funded by proceeds from the Mello-Roos bonds did not exceed the cost of construction of all public infrastructure improvements required as a condition of regulatory approval of the Project; and (4) all public infrastructure improvements are subject to the requirement of payment of prevailing wages, whether or not constructed using public funds.

Proceedings in the trial court

In October 2008, ALP filed the instant petition seeking a writ of mandate (Petition).*fn5 (Code Civ. Proc., § 1085.) Following substantial briefing and two lengthy hearings, the trial court denied the Petition. The court agreed with the Department's Decision. It found that: (1) Mello-Roos bond proceeds are public funds; (2) the Project is a "public work" within the meaning of subdivision (a)(1); and (3) under subdivision (c)(2), all public improvement work required as a condition of regulatory approval is subject to the prevailing wage law, not merely those discrete portions of public improvement work performed on the Project actually paid for with public funds. The court rejected ALP's assertion that subdivisions (a)(1) and (c)(2) need not even be analyzed because subdivision (a)(2), which applies to public work performed for an "improvement district" (i.e., the CFD), is more specific and on point and, under that subdivision, only those public improvements actually funded by the proceeds of Mello-Roos bonds are public works.

Judgment was entered in favor of the Department. ALP appeals.*fn6


This appeal raises three questions. We must determine whether: (1) the trial court erred by conducting its analysis under section 1720, subdivision (a)(1), rather than subdivision (a)(2); (2) the proceeds of Mello-Roos bonds are "public funds," under section 1720; and (3) if Mello-Roos bonds are "public funds," all construction of public improvements required as a condition of regulatory approval is subject to prevailing wage law, including public infrastructure constructed at private expense.

1. Standard of review

"In conducting our review, we must exercise our independent judgment in resolving whether the project at issue constituted a 'public work' within the meaning of the [prevailing wage law]." (City of Long Beach v. Department of Industrial Relations (2004) 34 Cal.4th 942, 949 (Long Beach), citing McIntosh v. Aubry (1993) 14 Cal.App.4th 1576, 1583-1584 (McIntosh).) Where, as here, the facts are undisputed, and the purely legal issues involve the interpretation of a statute an administrative agency is responsible for enforcing, we exercise our independent judgment "taking into account and respecting the agency's interpretation of its meaning." (Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 7-8; State Building of Construction Trades Council of California v. Duncan (2008) 162 Cal.App.4th 289, 304 (Duncan).) The agency's interpretation is "'one of several interpretive tools that may be helpful. In the end, however, "[the court] must . . . independently judge the text of the statute."' [Citation.]" (Long Beach, at p. 951; see also Williams v. SnSands Corp. (2007) 156 Cal.App.4th 742, 753 [administrative agency's interpretation does not bind judicial review, but it is entitled to consideration and respect].)

2. California's prevailing wage law, and Mello-Roos bond financing.

a. Prevailing wage law

California's Prevailing Wage Law (PWL) (§§ 1720-1861) was enacted in 1931, contemporaneous with enactment of its federal counterpart, the Davis-Bacon Act (codified at 40 U.S.C. §§ 3141-3148). Prevailing wage laws were enacted in response to economic conditions resulting from the Depression, when the oversupply of labor due to the virtual cessation of private construction was exploited by unscrupulous contractors to win government contracts. (See Universities Research Assn. v. Coutu (1981) 450 U.S. 754, 774 [101 S.Ct. 1451, 67 L.Ed.2d 662].)

It is the expressly stated legislative policy in California "to vigorously enforce minimum labor standards in order to ensure employees are not required or permitted to work under substandard unlawful conditions or for employers that have not secured the payment of compensation, and to protect employers who comply with the law from those who attempt to gain competitive advantage at the expense of their workers by failing to comply with minimum labor standards." (§ 90.5, subd. (a); see also § 90.3.) Several specific goals are subsumed within this general objective: "'to protect employees from substandard wages that might be paid if contractors could recruit labor from distant cheap-labor areas; to permit union contractors to compete with nonunion contractors; to benefit the public through the superior efficiency of well-paid employees; and to compensate nonpublic employees with higher wages for the absence of job security and employment benefits enjoyed by public employees. [Citations.]' (Lusardi [Construction Co. v. Aubry (1992)] 1 Cal.4th [976,] 987 (Lusardi).)" (Long Beach, supra, 34 Cal.4th at p. 949; see also Duncan, supra, 162 Cal.App.4th at p. 295.) "'The overall purpose of the prevailing wage law is to protect and benefit employees on public works projects. [Citation.]" (Long Beach, at p. 949.) The PWL is a minimum wage law. (Reyes v. Van Elk, Ltd. (2007) 148 Cal.App.4th 604, 612.) As such, it is liberally construed to further its purpose. (Long Beach, at p. 950.)

The PWL is fairly straightforward in operation. Subject to exceptions not relevant here, prevailing wages must be paid for "construction work" on "public works" projects of $1,000 or more. (§§ 1771, 1771.5, 1771.55, 1771.7, 1771.75, 1771.8, 1771.9.) "Public works" are broadly defined. They include "[c]onstruction, alteration, demolition, installation, or repair work done under contract and paid for in whole or in part out of public funds, . . . [and] . . . work performed during the design and preconstruction phases of construction. . . ." (§ 1720, subd. (a).) The project may involve privately owned property that will remain in private hands, but which will be leased to the state or a political subdivision. (§ 1720.2.) Prevailing wage requirements do not apply to work done by a public agency's own employees. (§ 1771.)

The director of the Department has the responsibility to determine the general prevailing wage according to statutory criteria. (§ 1770.) The prevailing wage rates are fixed for each category of worker on a public works project, and those rates are used by public entities soliciting bids for the project. (§§ 1773, 1773.2.) The Department is vested with authority to render opinions as to whether "a specific project or type of work" requires compliance with the PWL. (Cal. Code Regs., tit. 8, § 16001, subd. (a)(1); Lusardi, supra, 1 Cal.4th at pp. 988-989.) The ramifications for developers, contractors and others who find themselves in violation of the PWL are significant: they may be subject to prevailing wage and penalty assessments and fines, disciplinary action, claims and/or suits by unpaid workers (§§ 1194, subd. (a), 1741, 1742.1, subd. (a), 1774, 1775), claims by contractors whose bids are rejected and who suffer damages from submitting bids that are not accepted due to the successful bidder's violation of the PWL (e.g., the second lowest bidder on a public works project), criminal prosecution (§§ 23, 1750, 1777), and willful or repeat violators may be barred from bidding or working on public works projects for up to three years. (§ 1777.1, subds. (a), (b); see Duncan, supra, 162 Cal.App.4th at p. 296; Road Sprinklers Fitters Local Union No. 669 v. G & G Fire Sprinklers, Inc. (2002) 102 Cal.App.4th 765, 775-779; Violante v. Communities Southwest Development & Construction Co. (2006) 138 Cal.App.4th 972, 979.)

The overarching issue before us is whether the Project constitutes a "public work" following the enactment of SB 975 in 2001, which amended section 1720, and how broadly the prevailing wage obligations apply to the Project. If section 1720 is considered straightforward in operation, analytically, it is anything but. As one court aptly said, the statute "is hardly a triumph of the drafter's art." (Duncan, supra, 162 Cal.App.4th at p. 308.) The analysis of section 1720, to determine whether a particular construction project constitutes a "public work" subject to the prevailing wage requirements "starts with subdivision (a), which defines 'public works'" to mean construction "'done under contract' and 'paid for in whole or in part out of public funds,'" and subdivision (b), which enumerates what is meant by the latter clause. (Id. at p. 309.) Each portion of the definition must be assessed. At the outset, Duncan observed that the word "means," as used in section 1720 subdivisions (a) and (b), is "one of limitation, not ...

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