June 19, 2015
STEPHEN K. DAVIS, Plaintiff and Appellant,
FRESNO UNIFIED SCHOOL DISTRICT et al., Defendants and Respondents.
IT IS ORDERED that the published opinion filed herein on June 1, 2015,
237 Cal.App.4th 261; ___Cal.Rptr.3d___ be modified as follows:
1. On page 3, the second sentence of the first paragraph under the facts heading [237 Cal.App.4th 271, advance report, 1st par. under FACTS, line 3j. change “In September 2012” to “On September 26, 2012.”
2. At the end of the last paragraph on page 4 [237 Cal.App.4th 272. advance report, 3d full par., lines 6-11], the last two sentences beginning “However, consistent” and ending with “in fact, terminated, ” are deleted and the following sentences are inserted in their place.
However, consistent with Davis’s allegations of fact, Fresno Unified’s opening brief acknowledged the Facilities Lease was in effect only during the construction of the school facilities and its counsel confirmed during oral argument that a phased completion of the project was not used in this case. Thus, the brief and counsel’s statement do not contradict the allegation that Fresno Unified did not occupy or use the newly constructed facilities during the term of the Facilities Lease.
3. On page 5 [237 Cal.App.4th 273, advance report, 1st par. under PROCEEDINGS, line 1] the first paragraph under the proceedings heading, “In November 2012” is changed to “On November 20, 2012.”
4. On page 5 [237 Cal.App.4th 273, advance report, fn. 4, lines 1-31, the first sentence of footnote 4 beginning with “Defendants could have” is deleted and the following sentence is inserted in its place.
Defendants could have avoided the uncertainty and risk associated with completing the project while this taxpayer challenge was pending bye bringing a validation action under Code of Civil Procedure section 860 prior to starting construction.
5. On page 5 [237 Cal.App.4th 273, advance report, fn. 4, line 9], footnote 4, the following paragraph is added to the end of footnote 4.
Davis’s taxpayer suit is a timely “reverse validation” action because it was filed within 60 days of the adoption of the resolutions authorizing the execution of the Lease-Leaseback Contracts. (See Code Civ. Proc., §§ 860, 863.) Besides being a taxpayer, Davis is the president of Davis Moreno Construction, Inc., a general contractor that has handled construction projects for school districts. (See Department of Industrial Relations v. Davis Moreno Construction, Inc. (2011) 193 Cal.App.4th 560, 573 [123 Cal.Rptr.3d 285]; Davis Moreno Construction, Inc. v. Frontier Steel Bldgs. Corp. (E.D.Cal. Nov. 9, 2009, No. CV-F-08-854 OWW) 2009 U.S.Dist. Lexis 104167.)
6. On page 10 [237 Cal.App.4th 277, advance report, 2d full par., line 7], the second full paragraph, at the end of the second full sentence the word “lease” is changed to “leaseback.” So the end of the sentence now reads: “namely, the term of the leaseback.”
7. The last two sentences of the second paragraph on page 10 and continuing to page 11 [237 Cal.App.4th 277, advance report, 2d full par., lines 8-15], beginning “However, the parties to a” and ending “lease-leaseback arrangement” are deleted and the following sentences and footnote are inserted in their place. This shall be footnote number 9, which will require renumbering of all subsequent footnotes.
However, the parties to a lease-leaseback arrangement can achieve the same result without structuring the transaction as a lease-leaseback. For instance, the same extended stream of payments to the builder can be set forth in a payment schedule to a traditional construction agreement. Also, such an agreement can provide the school district with the same use and ownership of the new facilities that it received under a lease-leaseback arrangement.
Here, Davis alleged that the terms governing the construction and payments could have been set forth in a “traditional purchase type construction contract” and, as a result, the formalities of a site lease and leaseback added nothing of substance to the transaction because they did not provide financing for the project.
8. On page 11, the first sentence of the first full paragraph [237 Cal.App.4th 278, advance report, 1st par., lines 1-2], beginning “Consequently, we” is deleted and the following sentence is inserted in its place.
The fact that the same results could have been achieved under an alternate, simpler contractual arrangement leads us to consider why the Legislature chose a complicated lease-leaseback structure for builder-financed construction.
9. At the end of the third paragraph on page 17 [237 Cal.App.4th 283, advance report, 1st par., line 4], after the sentence ending “or any other published decision, ” add as footnote 11 the following footnote, which will require renumbering of all subsequent footnotes.
The current use of section 17406 as a lease-leaseback delivery method has not been without controversy, which may explain why the Construction Provisions contain an indemnity provision whereby Fresno Unified agreed to “indemnify, hold harmless and defend Contractor…from any action…to challenge the propriety or legal authority of [Fresno Unified under section 17406] to enter into the Construction Provisions, the Site Lease or the Facilities Lease.” Fresno Unified also agreed to pay all Contractor’s costs in defending any such action, including any legal fees and judgments.
10. On page 23 [237 Cal.App.4th 287, advance report, 3d par., line 3), the following sentence is added to the end of the second full paragraph.
They also support Davis’s allegations that the true nature of the Lease-Leaseback Contracts was that of a “traditional purchase type construction contract” and the purpose for using the lease-leaseback arrangement was to avoid the competitive bidding process by subterfuge or sham.
11. At the end of the second full paragraph on page 33 [237 Cal.App.4th 295, advance report, 2d par., line 9J. after the sentence ending in “project is being constructed, ” add as footnote 18 the following footnote, which will require renumbering of all subsequent footnotes.
For purposes of demurrer, we accept the allegations about the existence and contents of the prior contract as true, even though counsel for Fresno Unified stated during oral argument that there was no preconstruction contract.
12. On page 33, third full paragraph [237 Cal.App.4th 295, advance report, 3d par., lines 1 and 3], in the first sentence the word “referred” is changed to “refers” and in the second sentence the word “cited” is changed to “cites.”
13. On page 41 [237 Cal.App.4th 301, advance report, 2d full par., line 1J, first sentence of the second full paragraph, the word “fact” is changed to “facts.”
There is no change in judgment.