California Court of Appeals, Second District, Second Division
SANTA CLARITA ORGANIZATION FOR PLANNING AND THE ENVIRONMENT, Plaintiff and Appellant,
v.
CASTAIC LAKE WATER AGENCY et al., Defendants and Respondents.
Order
Filed Date: 8/16/2016.
APPEAL
from judgments of the Superior Court of Los Angeles County.
No. BS141673 Luis A. Lavin, Judge. Robert H. O’Brien,
Judge.
Advocates for the Environment, Dean Wallraff, for Petitioner
and Appellant.
Kronick, Moskovitz, Tiedemann & Girard, Eric N. Robinson
and Hanspeter Walter; Morrison & Foerster, Miriam A.
Vogel, for Defendants and Respondents Newhall Land and
Farming Company and Stevenson Ranch Venture, LLC.
Ferguson Case Orr Paterson, Neal P. Maguire, for Defendant
and Respondent Valencia Water Company.
Best,
Best & Krieger, Jeffrey V. Dunn and Russell G. Behrens;
Greines, Martin, Stein & Richland, Timothy T. Coates, for
Defendant and Respondent Castaic Lake Water Agency.
ORDER
MODIFYING OPINION AND DENYING REHEARING
THE
COURT:[*]
It is
ordered that the opinion filed herein on July 28, 2016, be
modified as follows:
1. On
page 15, footnote 4 is deleted, which will require
renumbering of all subsequent footnotes.
2. On
page 15, the first full paragraph, line 3, the word
“audiotape” is changed to
“videotapes” so the sentence reads:
Before
undertaking substantial evidence review, we first address
SCOPE’s argument that our analysis should include four
items of evidence that the trial court refused to
consider-namely, the raw videotapes and uncertified
transcripts, prepared by SCOPE members, from the
Agency’s board’s December 12 and December 19
meetings.
3. The
paragraph beginning at the bottom of page 16 with
“SCOPE contends” and ending on page 17 with
“(Outfitter Properties, at p. 251.)” is
modified to read as follows:
SCOPE
offers three reasons why, in its view, the general rule
against the consideration of extra-record evidence does not
apply here. SCOPE argues that the general rule does not apply
when a party is challenging an agency’s action as ultra
vires (that is, beyond its statutory authority), but the law
is to the contrary because courts will limit themselves to
record evidence even when confronted with challenges that an
agency “acting in its quasi-legislative capacity has
exceeded its authority.” (Shapell,
supra, 1 Cal.App.4th at p. 233.) SCOPE next argues
that Outfitter Properties, supra, 207
Cal.App.4th 237 supports its position, but the exceptions
detailed above in Outfitter Properties do not make
“extra- record evidence... admissible to contradict
evidence upon which the administrative agency relied in
making its quasi-legislative decision.” (Id.
at p. 251.) SCOPE lastly asserts for the first time at oral
argument on appeal that it is attacking not only the
Agency’s initial acquisition of Valencia, but also its
ongoing operation of Valencia as its alter ego. SCOPE urges
that the latter challenge is not subject to the general rule
against resort to extra-record evidence. Even if we assume
SCOPE is correct, ignore that SCOPE has forfeited this
argument by waiting until oral argument on appeal to raise it
(Santa Clara County Local Transportation Authority v.
Guardino (1995) 11 Cal.4th 220, 232, fn. 6), and
overlook that SCOPE’s operative complaint primarily
attacks the Agency’s acquisition of Valencia,
SCOPE’s newly minted argument does it little good
because the trial court had an independent basis for
excluding the extra- record evidence, as we discuss next.
4. On
page 17, after the newly-inserted text described in
modification number 3 above, footnote 4 should be inserted
after the final line “as we discuss next.” The
text of footnote 4 should read:
To the
extent that SCOPE at oral argument on appeal requested a
reversal and remand so that it can propound discovery and
obtain new extra-record evidence to prove that the Agency is
now operating Valencia as its alter ego, we deny
that request as untimely and as wholly inconsistent with an
earlier stipulation not to “propound any further
request for discovery in this matter.” SCOPE asserts
that it had tactical reasons for entering into this
stipulation, but its motives do not negate the effect of its
acts.
5. On
page 17, first full paragraph, line 2, the words “audio
tapes” are changed to “videotapes” so the
sentence reads:
Second,
even if the trial court could have considered this
extra-record evidence, the court acted within its discretion
in deciding not to admit the incomplete videotapes and their
uncertified transcripts.
6. On
page 17, first full paragraph, line 10, the words
“audio tapes” are changed to
“videotapes” so the sentence reads:
In this
case, the court had evidence that at least one of the
videotapes was incomplete, and that both transcripts were
uncertified.
7. On
page 17, second full paragraph, line 4, the word
“audio” is changed to “video” so the
sentence reads:
SCOPE
argues that the Agency did not comply with its discovery
obligations before the trial court, did not properly respond
to a Public Records Act request (Gov. Code, § 6250 et
seq.), and did not inform SCOPE that its board’s
secretary regularly video taped meetings to use in preparing
official minutes.
There
is no change in the judgment.
Appellant’s
petition for rehearing is denied.
HOFFSTADT, J.
This is
a lawsuit to unwind a public water agency’s acquisition
of all of the stock of a retail water purveyor within its
territory. On appeal of the trial court’s order
refusing to unwind the transaction, we confront three
questions: (1) must we dismiss the appeal as untimely under
the streamlined procedures available for validating certain
acts of public agencies (Code Civ. Proc., § 860 et seq.)
when those procedures were invoked below, but invoked
improperly because the underlying acts fall outside the reach
of the validation statutes?; (2) has the purveyor become the
agency’s alter ego by virtue of the agency’s
ownership of all of its stock and its appointment of a
majority of the purveyor’s directors, such that the
agency is now engaged in the retail sale of water in
violation of Water Code section 12944.7?; and (3) does the
agency’s ownership of the purveyor’s stock
violate article XVI, section 17 of the California
Constitution, which precludes a public agency from
“loan[ing] its credit, ” and from
“subscrib[ing] to, or be[ing] interested in the stock
of any company, association, or corporation”
except the “shares of... a mutual water
company or corporation” acquired to “furnish[] a
supply of water for public, municipal or governmental
purposes?”
We
conclude that the answer to all three questions is no. The
validation procedures invoke a court’s in rem
jurisdiction, and that subject matter jurisdiction attaches
only if there is a statutory basis for invoking those
procedures and proper notice; because that basis is absent
here and because estoppel does not apply to subject matter
jurisdiction, the validation procedures’ accelerated
timeline for appeal is inapplicable. There is substantial
evidence to support the trial court’s factual finding
that the purveyor did not become the agency’s alter ego
in this case. The agency did not violate article XVI, section
17 for two reasons-namely, the provision reaches only stock
acquisitions that extend credit and the provision’s
exception for stock ownership applies to any “mutual
water company” and any other “corporation”
(whether or not it is a mutual water company). Thus, the fact
that the corporate purveyor in this case was not a mutual
water company is of no significance.
We
accordingly affirm.
FACTS
AND PROCEDURAL BACKGROUND
I.
Facts
Respondent
Castaic Lake Water Agency (Agency) is charged with
“acquir[ing] water and water rights” in order to
“provide, sell and deliver that water at wholesale, for
municipal, industrial, domestic, and other purposes”
within its territory. (Stats. 1986, ch. 832, § 5, p.
2843, Deering’s Ann. Wat.-Uncod. Acts (2008 ed.) Act
130, § 15.)[1] Its territory encompasses most of the
Santa Clarita Valley. (Id., § 2.) Initially,
the Agency sold its water wholesale to four retail
“purveyors”-Santa Clarita Water District,
respondent Valencia Water Company (Valencia), Newhall County
Water District, and Los Angeles County Waterworks District
No. 36. In 1999, the Agency acquired the stock of the Santa
Clarita Water District and absorbed the district into its own
operations. (Klajic v. Castaic Lake Water Agency
(2001) 90 Cal.App.4th 987, 991-992 (Klajic I);
Klajic Lake Water Agency (2004) 121 Cal.App.4th 5,
11 (Klajic II).) The California Legislature passed
Assembly Bill 134 to allow the Agency itself to act
as a retail purveyor of water in the territory where the
Santa Clarita Water District used to operate. (Act 130,
§ 15.1; Klajic II, at pp. 9-13.)
In
2011, respondent Newhall Land and Farming Company (Newhall)
owned 100 percent of the stock in Valencia, and offered to
sell that stock to the Agency. At that time, Valencia was a
private corporation regulated by the California Public
Utilities Commission. The Agency was interested in
Newhall’s offer because acquiring Valencia would give
the Agency control over 84 percent of the retail connections
within its territory, which was consistent with the
Agency’s “One Valley One Water” mission
statement and would enable the Agency to “realize
economies of scale and synergies associated with [an]
integrated [Santa Clarita Water District]/[Valencia] retail
entity.” Agency staff began negotiating with Newhall on
a strictly confidential basis. On December 10, 2012, Agency
staff informed the Agency’s board of directors (board)
that the Agency and Newhall had reached a proposed agreement
for the Agency to acquire Valencia’s stock for $73.8
million.
On
December 12, 2012, the Agency held a special meeting at which
its board adopted two resolutions. Resolution No. 2890 was a
resolution of necessity declaring that “[t]he public
interest and necessity require the acquisition of all issued
and outstanding shares of [Valencia].” This
acquisition, the resolution stated, would enable the Agency
to “maintain[] and enhanc[e] the reliability of retail
and wholesale water service within the Agency’s
boundaries, ” to “develop[] more uniform water
service policies within the Santa Clarita Valley, ” to
“better coordinate groundwater management and enhance
Valley wide conjunctive use of all [Valley resources] of
supply, ” and to “provide potential future
opportunities for operational efficiencies and capital
improvement economies of scale.” The resolution
specifically ratified the prior negotiations of Agency staff
with Newhall concerning Valencia and authorized the Agency to
file an eminent domain lawsuit to acquire the stock.
Resolution No. 2893, adopted in closed session, authorized
Agency staff to enter into a settlement agreement of $73.8
million.
The
next day, the Agency filed its eminent domain lawsuit. Five
days later, it filed its settlement agreement with Newhall.
Under that agreement, the Agency was to purchase all
outstanding shares of Valencia’s stock for $73.8
million. Except that all of Valencia’s directors were
required to resign, the Agency was to continue operating
Valencia under Public Utility Commission supervision and
without altering Valencia’s water rights or its
personnel for the later of 75 days or the conclusion of any
litigation challenging the acquisition. The Agency also
agreed that should it or Valencia decide to merge
Valencia into the Agency, the Agency would forestall
implementation for 75 days after any board resolution
authorizing such an action.
The
trial court approved the settlement and entered judgment on
the eminent domain action on December 18, 2012. The next day,
on December 19, 2012, the Agency held another meeting. At
that meeting, the Agency’s staff recommended five
persons to be appointed to Valencia’s five-member
board; three of them were Agency employees.
II.
Procedural History
The
Santa Clarita Organization for Planning and the Environment
(SCOPE) sued the Agency and its board; Valencia and its board
of directors; Newhall; Stevenson Ranch Venture LLC, a company
affiliated with Newhall; and Keith Abercrombie (Abercrombie),
Valencia’s general manager and a member of the
Agency’s board during the negotiations between Agency
Staff and Newhall. In the operative first amended petition,
SCOPE brought claims: (1) for inverse validation (Code Civ.
Proc., § 863); (2) for writ of mandate (id.,
§ 1085); (3) for violations of the California
Environmental Quality Act (CEQA) (Pub. Resources Code, §
21000 et seq.); (4) for illegal expenditure of taxpayer funds
(Code Civ. Proc., § 526a); and (5) for conflict of
interest (Gov. Code, §§ 1090 & 87100). To
perfect its invocation of the validation procedures
underlying the first count, SCOPE sought and obtained court
permission to give constructive notice in one of the local
newspapers, and thereafter filed proof of serving that
notice.
The
trial court subsequently sustained a demurrer with leave to
amend on SCOPE’s CEQA claim due to untimeliness, and
granted judgment on the pleadings to Abercrombie on ...