California Court of Appeals, Second District, Third Division
ORIGINAL PROCEEDINGS in mandate Ct. No. BC445497 Ralph W. Dau, Judge. Petition granted with directions.
Aleshire & Wynder, David J. Aleshire, Anthony R. Taylor and Michael C. Huston, for Petitioner, City of Bell.
No appearance for Respondent.
Spertus, Landes & Umhofer and James W. Spertus for Real Party in Interest, Robert A. Rizzo.
ORDER MODIFYING OPINION
BY THE COURT:
It is ordered that the opinion filed herein on October 4, 2013, is modified as follows:
(1) On page 5, line 2, sentence beginning “a public record (Gov. Code...)... misappropriation of public funds.” Please add a footnote at end of sentence which reads:
This court takes judicial notice (Evid. Code, § 452, subds. (d) & (g)) that, on October 3, 2013, Rizzo entered a plea of nolo contendere to each count alleged in the three criminal proceedings. It appears that, at some point prior to Rizzo’s plea, the second criminal complaint was amended to charge one count of conflict of interest and six counts of perjury (Pen. Code, § 118, subd. (a)). Rizzo pleaded nolo contendere to, and was convicted of, a total of 69 counts.
(2) On page 18, under the first full paragraph under the heading “e”, The Instant..., line 2, delete the words “duty to defend is, in any way, broader than the duty to indemnify. Clearly, it is not.” and replace with the following:
duty to defend is dependent upon the scope of the duty to indemnify.
(3) On page 18, under the first full paragraph under the heading “e”, The Instant …, line 11, delete the entire line beginning “tender, allege facts which would fall within the scope of the indemnity.” and replace with the following:
tender, allege facts which would, at least potentially, fall within the scope of the duty to indemnify.
(4) On page 31, under the heading “3. Public Policy Supports our Conclusion, ” line 4, following the sentence ending “a period of 17 years, ” please add a footnote which reads:
As we have previously noted (see fn. 6, ante), the criminal charges against Rizzo have been resolved by his plea of nolo contendere on October 3, 2013.
Robert Rizzo, the former Chief Administrative Officer of the City of Bell (City), has been sued by the City, as well as the Attorney General acting on behalf of the City, for restitution for his alleged looting of the City’s coffers. He has also been criminally charged with multiple counts of misappropriation of public funds. Rizzo, by complaint for declaratory relief, seeks a judgment that the City is contractually obligated to provide him with a defense to these civil and criminal actions. We conclude that, as a matter of law, the City does not owe Rizzo such a defense.
FACTUAL AND PROCEDURAL BACKGROUND
1. Underlying Factual Allegations
The City is a charter city with a population of 38, 250. It was discovered that Rizzo, as well as the assistant chief administrative officer and five City council members, were receiving salaries well in excess of the amounts paid to similar individuals in similarly sized cities, and that these seven individuals went to great lengths to conceal their salaries from public knowledge. (People ex rel. Harris v. Rizzo (2013) 214 Cal.App.4th 921, 928.) The receipt and approval of excessive salaries are not, by any means, the only acts of wrongdoing alleged against Rizzo and the other individuals. A criminal complaint against Rizzo charges multiple counts of misappropriation of public funds (Pen. Code, § 424, subd. (a)) arising out of numerous unauthorized “loans” Rizzo made of City funds to various City officers and employees,  and other entities. A full accounting of Rizzo’s alleged misdeeds is unnecessary to the resolution of this appeal. It suffices to say that, as the City alleged, “[t]his lawsuit arises out of a series of long running dishonest acts by... Rizzo... and other City administrators running nearly 17 years. During this time, ... Rizzo embezzled, stole, and misappropriated millions of dollars in City funds by obtaining grossly excessive and completely unwarranted compensation packages.”
2. The Underlying Actions
There are five actions for which Rizzo seeks the City to pay his defense costs. We briefly discuss each action.
The initial complaint against Rizzo was brought by the Attorney General, on behalf of the City. We call this “the AG’s action.” At the time the AG’s action was filed, Rizzo and the City council members with whom he was allegedly in league were still in office, a fact which prevented the City from taking action in its own name. The complaint, filed on September 15, 2010, alleged causes of action for waste of public funds, negligence, fraud, conflict of interest, and breach of fiduciary duty. The current status of the AG’s action is not indicated in the record in the instant writ proceeding.
As we shall discuss, Rizzo tendered the AG’s action to the City for a defense. The City refused, which resulted in Rizzo filing a cross-complaint against the City, seeking a declaration that the City must defend and indemnify him against the Attorney General’s action. This cross-complaint, in turn, prompted the City, on November 24, 2010, to bring its own cross-complaint against Rizzo. We call this “the City’s action.” The City alleged causes of action against Rizzo for intentional misrepresentation, constructive fraud, breach of fiduciary duty, negligence, conflict of interest, declaratory relief, and unjust enrichment.
In addition to the two civil actions, Rizzo faces two criminal complaints, and one indictment. The first complaint, filed September 20, 2010, charged 44 counts of misappropriation of public funds (Pen. Code, § 424, subd. (a)), 3 counts of conflict of interest (Gov. Code, § 1090) and 6 counts of falsification of public records (Gov. Code, § 6200, subd. (c)). The second criminal action charges 1 count each of misappropriation of public funds and conflict of interest. The third criminal action was instituted by an indictment filed March 29, 2011. It alleges 1 count of conspiracy to misappropriate public funds, 2 counts of conflict of interest, 4 counts of secretion of a public record (Gov. Code, § 6200), and 1 count of misappropriation of public funds.
3. Rizzo’s Tender of the Actions for a Defense is Denied
Shortly after the AG’s action, the City’s action, and the criminal complaints were filed, Rizzo tendered them to the City for a defense. Rizzo relied on a term in his employment contract with the City, as well as statutory provisions which govern the defense of public entity employees by their public entity employers.
We first set forth the language of the defense obligation in Rizzo’s employment contract. It is part of an indemnification clause,  which states as follows: “City shall defend, hold harmless and indemnify Employee against any claim, demand, judgment or action, of any type or kind, arising out of any act or failure to act, by Employee, if such act or failure to act was within the course and scope of Employee’s employment. City may compromise and settle any such claim or suit provided City shall bear the entire cost of any such settlement.”
Government Code section 995 provides that, subject to statutory exceptions, a public entity is generally required to provide for the defense of a civil action brought against an employee or former employee, on account of an act or omission in the scope of the employee’s employment. Under Government Code section 995.2, a public entity may refuse to provide an employee or former employee with a defense to a civil action if the public entity determines: (1) that the act or omission was not within the scope of the employee’s employment; (2) that the employee acted or failed to act because of actual fraud, corruption, or actual malice; or (3) the defense of the action by the public entity would create a conflict of interest between the public entity and the employee or former employee. (Gov. Code, § 995.2, subd. (a).) The City declined to defend Rizzo in the civil actions, relying on all three of these grounds.
Under Government Code section 995.8, a public entity “is not required to provide for the defense of a criminal action or proceeding... brought against an employee or former employee, ” but may do so if: (1) the criminal action is brought on account of an act within the course and scope of the employee’s employment; and (2) the public entity determines that provision of a defense would be in its best interests and the employee or former employee acted, or failed to act, in good faith, without actual malice, and in the apparent interests of the public entity. Based on the findings the ...