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City of Sacramento v. Beazer Homes Holdings Corp

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA THIRD APPELLATE DISTRICT Sacramento


March 11, 2011

CITY OF SACRAMENTO, PLAINTIFF,
v.
BEAZER HOMES HOLDINGS CORP., DEFENDANT AND APPELLANT, ALLEGHANY PROPERTIES LLC, DEFENDANT AND RESPONDENT.

(Super. Ct. No. 34-2009-00037027-CU)

The opinion of the court was delivered by: Nicholson ,j.

City of Sacramento v. Beazer Homes Holding Corp.CA3

NOT TO BE PUBLISHED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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

This is a dispute between two developers concerning the funds available from a drainage fee account held by the City of Sacramento (the City) to reimburse developers for construction of drainage facilities. One of the developers, Alleghany Properties LLC (Alleghany), claims entitlement to all funds currently in the account, while the other developer, Beazer Homes Holdings Corporation (Beazer), asserts that some of the funds should be distributed to Alleghany and the rest to Beazer. In light of the dispute, the City interpleaded the funds, naming Alleghany and Beazer as defendants, and the trial court granted Alleghany's motion for summary judgment. Contrary to the trial court's order granting summary judgment, we conclude that the record does not support distribution of all funds to Alleghany as a matter of law. Therefore, summary judgment was improper.

BACKGROUND

The Development

Before 1998, the City designated a mostly undeveloped area of North Natomas as "Shed 6" or "Basin 6" for the purpose of drainage facilities. In anticipation of developing Shed 6, Alleghany and Beazer bought land there. Before development of the land and subsequent sales, Alleghany owned more than 70 percent of the land in Shed 6. Part of Alleghany's development of the land included drainage facilities, specifically for its land and also for the common benefit of other eventual developers. Alleghany built the drainage facilities in two phases, "Basin 6A" and "Basin 6B," and completed the work by sometime in 2004, expending $10.6 million on the drainage facilities.*fn1

After Alleghany had completed its work on the drainage facilities in Shed 6, Beazer began its work. It expended $2 million on construction of drainage facilities and also paid to the City a drainage fee of $2.4 million. Beazer's total expenditure on drainage was $4.4 million.

Based on the amount of land owned in Shed 6 and the uses to which the land is to be put, Alleghany is responsible for 72.5671 percent (rounded to 73 percent) of the cost of common drainage facilities, and Beazer is responsible for 18.3036 percent (rounded to 18 percent), while other landowners are responsible for the rest.

The Agreements

Alleghany and Beazer each entered into several contracts with the City with respect to the Shed 6 development. Those contracts, which were identical for Alleghany and Beazer in all ways relevant to this proceeding, included the North Natomas Finance Plan (Finance Plan), the North Natomas Development Agreement (Development Agreement), and several Agreements for the Construction of Drainage Improvements (drainage agreements).

The Development Agreement committed each developer "to funding its appropriate share of the cost of Infrastructure and other facilities which are the subject of the North Natomas Finance Plan . . . ." On the same subject of funding a fair share of common or regional facilities, the Development Agreement continued: "The North Natomas Finance Plan establishes a method for financing of required Infrastructure and public facilities . . . , so that the land within the North Natomas Finance Plan Area pays for its share of the cost of such Infrastructure and facilities."

The Development Agreement also provided for reimbursement to any developer paying more than its fair share of the facilities benefitting the entire basin. It stated: "In any case where CITY requires or permits [the developer] to plan, design, construct, or fund the planning, design or construction of improvements required for development by the North Natomas Finance Plan, in excess of or beyond those required for development of [the developer's property], . . . CITY shall utilize its best efforts to require that all other Persons benefitted by the improvements shall reimburse (through fee districts, agreements, conditions of approval, or otherwise) [the developer] for such Person's proportionate share of such costs as determined in accordance with the North Natomas Finance Plan, or by CITY." And later: "Reimbursement shall be limited to that amount which exceeds [the developer's] appropriate share of the cost, determined in accordance with principles established in the North Natomas Finance Plan, and any associated documents or studies."

Contribution by developers in Shed 6 toward the common drainage facilities was to be either by (1) expending funds in the construction of the common drainage facilities or (2) paying to the City a drainage fee. The drainage agreements stated: "Drainage Fees that are paid to the City by other landowners . . . shall be maintained by the City in a separate account (the 'Drainage Fee Account') . . . ." Concerning the timing of the reimbursement, the drainage agreements stated: "Upon full completion of the Drainage Facilities and acceptance thereof by the City, the City will pay [the developer] the amount then available in the Drainage Fee Account for reimbursement up to, but not in excess of, the approved and properly proportioned Reimbursement Amount for the Drainage Facilities. Thereafter, on a quarterly basis, commencing on the first of the calendar month following completion of the Drainage Facilities and continuing on the first of each month thereafter until the Reimbursement Amount is reduced to zero, the City will pay [the developer] the amount then available for reimbursement in the Facilities Account, up to the then outstanding Reimbursement Amount."

While the Finance Plan provided a formula for determining the fair share percentage to be paid by developers for the construction of common drainage facilities, it did not define what was "common."

The Dispute

The dispute here is over what is included in the "common" drainage facilities in Shed 6 for the purpose of determining each developer's reimbursement amount. Although Alleghany would have us believe that the real dispute is simply over who gets paid its reimbursement amount first (Alleghany or Beazer), Beazer did not dispute Alleghany's priority in receiving reimbursement. The trial court, however, accepted Alleghany's definition of the dispute. As will be shown, this led to error.

In a letter, Senior Deputy City Attorney Joseph P. Cerullo detailed how the dispute arose. He wrote: "For some time, the city and Alleghany Properties have been discussing how the costs to construct 'common' drainage facilities in North Natomas Basin 6 should be allocated to the basin landowners. Alleghany contends that only the primary drainage channel, the two detention basins, and the associated pipes and pump stations are 'common.' The city disagrees. We believe that the North Natomas Financ[e] Plan identifies as 'common' not just those facilities but also the trunk lines shown in the master drainage plan for Basin 6 and included in Alleghany's and Beazer's drainage agreements." Cerullo noted: "Alleghany denies that the facilities Beazer built, consisting chiefly of trunk lines in streets, qualify as 'common.'"

This dispute materialized because of contributions, mainly Beazer's, to the City's Drainage Fee Account. With $2.8 million in the account, the City paid $1.2 million to Alleghany, leaving $1.6 million in the account, reduced to $1.5 million by the City's administration fee. How it is to be distributed depends on whose definition of "common" prevails.

If Alleghany's definition prevails, then Alleghany, which has priority to funds in the Drainage Fee Account, is entitled to the remaining funds. According to Alleghany, the total cost of common drainage facilities is $10.6 million. That is how much it expended on construction, so it is entitled to reimbursement of $2.9 million, based on the formula requiring Alleghany to pay 73 percent of the costs for the common drainage facilities. Because the City already paid Alleghany $1.2 million from the Drainage Fee Account, the amount owed to Alleghany was reduced to $1.7 million. Since there is only $1.5 million remaining in the account (now interpleaded), Alleghany is entitled to all of it.

If the definition of "common" supported by the City and Beazer prevails, Alleghany is entitled to $900,000 of the remaining balance in the Drainage Fee Account, and, Alleghany having been fully reimbursed, Beazer is entitled to rest of the funds in the Drainage Fee Account. According to Beazer, the total cost of common drainage facilities is $16.2 million in 2008 dollars. Adjusted for inflation as of 2008, Alleghany's contribution to that total has been $13.9 million. Applying the reimbursement percentage, Alleghany is therefore entitled to $2.1 million in reimbursement, of which it has already received $1.2 million. Therefore, Alleghany should receive $800,000 of the interpleaded funds, and Beazer the rest.*fn2

Judicial Proceedings

The City proposed distribution of the funds based on its definition of "common" drainage facilities, but Alleghany rejected the City's proposal. The City therefore filed this action, interpleading the funds in the Drainage Fee Account ($1.5 million) and naming both Alleghany and Beazer as defendants. Having done so, the City withdrew from the litigation.

Alleghany moved for summary judgment. It argued that it was entitled to all funds in the Drainage Fee Account because it entered into the drainage agreements with the City before Beazer did and therefore has a prior claim to the funds. Alleghany also argued that it has an equitable lien on the Drainage Fee Account.

Beazer opposed Alleghany's motion for summary judgment. It did not dispute Alleghany's priority claim to the funds in the Drainage Fee Account, except to the extent Alleghany was not entitled to funds because it has been fully reimbursed. Consistent with the City's position, Beazer asserted that the reimbursement due to Alleghany must be calculated using the cost of all common drainage facilities, not just those constructed by Alleghany. Using the cost of all of the common drainage facilities to calculate Alleghany's entitlement to reimbursement, Beazer argued that Alleghany is entitled to only $800,000 of the $1.5 million in interpleaded funds. Beazer also opposed Alleghany's equitable lien argument.

As can be seen, the arguments of Alleghany and Beazer concerning the propriety of summary judgment were, to some extent, two ships passing in the night. Alleghany argued entitlement to the funds based on priority, while Beazer, admitting Alleghany's priority, argued that Alleghany would be fully reimbursed by a portion of the funds.

The trial court granted Alleghany's motion for summary judgment. In doing so, however, the court considered only Alleghany's priority argument and not Beazer's argument that the reimbursement due to Alleghany must be calculated using the cost of all common drainage facilities, not just those constructed by Alleghany.

The court's order granting summary judgment stated: "The parties agree that Alleghany incurred [$10.6 million] (or [$12.1 million] adjusted for inflation as of April 24, 2007) in constructing drainage improvements for Shed 6 under the Drainage Agreements. [Citation.] Pursuant to the Reimbursement Provisions of the Drainage Agreements, Alleghany's Reimbursement Amount is to be calculated based on the 'proportionate cost shares of the various landowners within the basin.' . . . Alleghany's proportionate cost share is [73 percent]. Alleghany's Reimbursement Amount is therefore [27 percent] of [$10.6 million] on a non-inflation adjusted basis, which is [$2.9 million]." The order later concluded: "Even on a non-inflation adjusted basis, Alleghany is entitled to receive more than the Funds on deposit in this action, because it has thus far received only [$1.2 million], whereas it is entitled to receive at least [$2.9 million] even before inflation adjustment. The parties do not dispute the facts underlying this calculation. The Court therefore concludes that Alleghany is entitled to all of the Funds."

Contrary to the trial court's statement that the parties did not dispute the facts underlying the court's calculation, Beazer had argued that the $10.6 million expended by Alleghany on common drainage facilities was not the cost of all common drainage facilities. Beazer argued that instead of $10.6 million, the cost was $16.2 million, which included all costs of common drainage facilities, not just those constructed by Alleghany.

The court did not consider Alleghany's alternative equitable lien argument.

Beazer attempted to appeal from the order granting summary judgment. (See Modica v. Merin (1991) 234 Cal.App.3d 1072 [order granting summary judgment not appealable].) On Beazer's motion, we deemed the appeal as taken from the subsequent judgment.

DISCUSSION

I Propriety of Summary Judgment

Beazer contends that, because disputed facts remain concerning the interpretation of the contracts, the trial court improperly granted summary judgment. We agree.

"Under summary judgment law, any party to an action, whether plaintiff or defendant, 'may move' the court 'for summary judgment' in his [or her] favor on a cause of action . . . or defense (Code Civ. Proc., § 437c, subd. (a)) . . . . The court must 'grant[]' the 'motion' 'if all the papers submitted show' that 'there is no triable issue as to any material fact' (id., § 437c, subd. (c)) -- that is, there is no issue requiring a trial as to any fact that is necessary under the pleadings and, ultimately, the law [citations] -- and that the 'moving party is entitled to a judgment as a matter of law' (Code Civ. Proc., § 437c, subd. (c))." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.)

On review of a summary judgment, we "examine the record de novo and independently determine whether [the] decision is correct. [Citation.]" (Colarossi v. Coty US Inc. (2002) 97 Cal.App.4th 1142, 1149.)

The issue considered by the court in the summary judgment proceedings involved contract interpretation. It determined that the contracts were unambiguous concerning the reimbursement due to Alleghany.*fn3

The threshold inquiry in contract interpretation is whether the contract is ambiguous. (Appleton v. Waessil (1994) 27 Cal.App.4th 551, 554.) A trial court's ambiguity determination is a question of law and thus, subject to independent appellate review. (Roden v. Bergen Brunswig Corp. (2003) 107 Cal.App.4th 620, 625.) If the trial court determines the contract language is ambiguous, the trier of fact may consider parol or extrinsic evidence offered by a party as to the interpretation of a contract. (Appleton v. Waessil, supra, at p. 554.) "'Even if a contract appears unambiguous on its face, a latent ambiguity may be exposed by extrinsic evidence which reveals more than one possible meaning to which the language of the contract is yet reasonably susceptible.' [Citations.]" (Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1351.)

The crucial matter to be determined in this interpleader action is what the agreements between the City and Alleghany meant as to the reimbursement provisions. One dispute is whether the agreements make Alleghany responsible for the cost of (1) 73 percent of the common drainage facilities that Alleghany built or (2) 73 percent of the common drainage facilities built by all developers in Shed 6. That question cannot be answered on this record. Thus, summary judgment should have been denied.

Alleghany contends that the drainage agreements, on their face, support its argument that it is entitled to reimbursement of 27 percent (100 minus 73 percent) of the cost of constructing common drainage facilities, basing what the common drainage facilities are solely on what Alleghany, itself, built. Alleghany argues: "The trial court correctly rejected Beazer's effort to ignore the plain language of the Drainage Agreements (which nowhere provide that Alleghany's reimbursement amount can be reduced by another landowner's expenditures), found there were no disputed material facts, and interpreted the undisputed evidence to support Alleghany's position." After paraphrasing the drainage agreements, Alleghany concludes: "This is the straight-forward reading of the Drainage Agreements adopted by the trial court, not rocket science." Contrary to Alleghany's mocking remonstrances, however, the language of the drainage agreements is not so plain.

The reimbursement provisions of the drainage agreements highlighted by Alleghany in its brief state: "[Alleghany] shall be entitled to reimbursement for a portion of the actual Drainage Facilities costs incurred by [Alleghany] for construction of the Drainage Facilities . . . ." And later: "The portion of the total Drainage Facilities Costs as to which [Alleghany] shall be entitled to reimbursement shall be as specified in the Phasing Plan (Exhibit C), which specifies the proportionate cost shares of the various landowners within the basin." As Alleghany concedes, exhibit C was merely a diagram showing the location of drainage facilities.

There can be no dispute that these provisions give Alleghany a right to reimbursement. But they are not clear concerning how to calculate the amount to be reimbursed. One provision says that Alleghany is "entitled to reimbursement for a portion of the actual Drainage Facilities costs incurred by [Alleghany]," which makes it sound as if the reimbursement is calculated as a portion of Alleghany's own expenses. However, the other provision refers to the amount that Alleghany is to be reimbursed as a "portion of the total Drainage Facilities Costs," which could very well refer to all costs expended by all developers on common drainage facilities.

Before a court may calculate the amount of reimbursement to which Alleghany is entitled, this ambiguity concerning whether reimbursement is based on Alleghany's expenditures alone or on all expenditures by all developers must be resolved. The record presented on appeal is not sufficient to resolve that ambiguity as a matter of law.

Additionally, or perhaps simply more specifically, the record is insufficient to resolve the question of whether certain trunk lines identified in the City's Cerullo letter are included in the common drainage facilities, for the purpose of interpreting the drainage agreements. Further proceedings are necessary to resolve this issue.

Accordingly, because the language of the drainage agreements is ambiguous and the accompanying documents and extrinsic evidence do not resolve the issue as a matter of law, the trial court should have denied Alleghany's motion for summary judgment.

II Alternative Equitable Lien Argument

As it did in the trial court, Alleghany claims that it has an equitable lien on the funds in the Drainage Fee Account. (See Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 453-455 [discussing equitable liens].) Discussion of an equitable lien, however, is premature because, to assert an equitable lien, the party must be able to establish a legal claim to the property, the right to payment of a debt. (County of Los Angeles v. Construction Laborers Trust Funds for Southern California Admin. Co. (2006) 137 Cal.App.4th 410, 414.) Alleghany has not yet established to what extent it is entitled to the interpleaded funds from the Drainage Fee Account; therefore, it has not shown that it has an equitable lien.

Having concluded that Alleghany has not established its right to the interpleaded funds, we need not consider whether Alleghany has satisfied other elements of an equitable lien.

DISPOSITION

The judgment is reversed. Costs are awarded to Beazer. (Cal. Rules of Court, rule 8.278(a)(2).)

We concur: BLEASE , Acting P.J. MAURO ,J.


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