CITY OF ONTARIO v. DUCK

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Court of Appeal, Fourth District, Division 2, California.

The CITY OF ONTARIO, Petitioner, v. The SUPERIOR COURT of the State of California FOR the COUNTY OF SAN BERNARDINO, Respondent; Thomas S. DUCK and Junia F. Duck, Real Parties in Interest.

Civ. 9466.

Decided: June 17, 1969

O'Melveny & Myers, Rodney K. Potter, and Rodney E. Nelson, Los Angeles, for petitioner. No appearance for respondent. Best, Best & Krieger and Arthur L. Littleworth, Riverside, for real parties in interest.

OPINION

The City of Ontario (City) seeks a writ of prohibition to restrain respondent Superior Court from taking further proceedings in a pending taxpayers' suit challenging the validity of the City's participation in the construction and operation of a motor speedway and stadium.

In the court below the City moved to dismiss the action for lack of jurisdiction on the ground real parties in interest (hereafter plaintiffs) failed to comply with procedural requirements of sections 860—870 of the Code of Civil Procedure1 governing actions to determine the validity of acts of public agencies in that summons had not been published in the form and as required for such actions. Following hearing on the motion, the court found that good cause was shown for failure to comply with the statutory requirements and permitted plaintiffs to amend and publish summons in conformity with the statute.

The controlling issues presented by the present petition are (1) whether the pending action is governed by the validating procedure prescribed by sections 860—870, and (2) whether ‘good cause’ was shown for failure to publish summons in the form and within the time required by those sections.

Sections 860—870 were enacted in 1961 on recommendation of the Judicial Council to establish a simple uniform procedure to determine the legality of acts of public agencies, which procedure would apply to a particular public agency when and to the extent it is made applicable by the principal act affecting such agency. (Community Redevelopment Agency of Los Angeles v. Superior Court, 248 Cal.App.2d 164, 174, 56 Cal.Rptr. 201; 18th Biennial Report of the Judicial Council, pp. 114-118.)

A public agency to which the procedure is made applicable has sixty days within which to bring a validating action. (Code Civ.Proc. § 860.) Summons must be published in a newspaper designated by the court (Code Civ.Proc. § 861), be directed to ‘all persons interested in the matter,’ specifying the same, and give notice to all interested persons to appear and answer not later than the date specified in the summons. (Code Civ.Proc. § 861.1.) If no proceedings have been instituted by the public agency, any interested person may bring an action within the period within which the public agency could have brought the action. (Code Civ.Proc. § 863.) ‘* * * In any such action the summons shall be in the form prescribed in Section 861.1 of this chapter except that in addition to being directed to ‘all persons interested in the matter of [specifying said matter],’ it shall also be directed to said public agency. If the interested person bringing such action fails to complete the publication and such other notice as may be prescribed by the court in accordance with Section 861 of this chapter and to file proof thereof in said action within 60 days from the filing of his complaint, said action shall be forthwith dismissed on the motion of the public agency unless good cause for such failure is shown by said interested person.' (Code Civ.Proc. § 863.) Except as to the public agency or its officers or agents, the procedure prescribed by sections 860—870 is the exclusive method of contesting any matter to which the procedure has been made applicable. (Code Civ.Proc. § 869.)

By the addition of sections 53510 and 53511 of the Government Code2 in 1963, the validating procedure of sections 860–870 was made available to cities for the purpose of determining the legality of their ‘bonds, warrants, contracts, obligations, or evidences of indebtedness.’

We shall now examine the complaint in the pending action to determine whether it is one which challenges the validity of the City's ‘bonds, warrants, contracts, obligations, or evidences of indebtedness.’ (Gov.Code, § 53511.) The allegations insofar as they are relevant to the issues to be resolved may be summarized as follows:

The concept of financing the construction of a motor speedway stadium through the sale of tax exempt bonds of a nonprofit corporation formed by a municipality was first contrived in 1966 by a private contracting firm, Stolte, Inc., and the City. In pursuance of the plan, Stolte acquired options on certain lands and the City organized Ontario (California) Motor Speedway Corporation as the nonprofit corporation. The corporation had no independent staff; its activities were carried on by City personnel; it could take no action without City approval; and it was, in fact, but the alter ego of the City.

On July 5, 1968, the City and the nonprofit corporation entered into an agreement known as the ‘Ontario Motor Stadium Agreement’ under the terms of which the nonprofit corporation was caused to acquire the stadium site, to issue and sell, without prior voter approval, $25,500,000 of mortgage revenue bonds to finance site acquisition and stadium construction, to execute a mortgage and trust indenture in favor of the Bank of America, to enter into a contract with Stolte, Inc., without competitive bidding, for the construction of the stadium at a cost of $12,500,000, and to enter into a fifty-year operating lease with Ontario Motor Speedway, Inc., a profit corporation. Under the agreement the nonprofit corporation was obligated to convey the property and stadium to the City after all of the bonds had been retired.

The complaint charged that the described plan was designed to establish a private commercial enterprise for private profit, and that City's participation in it constituted a gift of public funds and a lending of the City's credit for private purposes in violation of the State Constitution. Consequently, it was alleged that the motor stadium agreement, mortgage revenue bonds, mortgage and trust indenture, contracts and leases were invalid.

In separate causes of action it was alleged that City had illegally expended public funds and made gifts of public property in furtherance of the project, and committed itself to do so in the future, by lending money to the nonprofit corporation, by obligating itself to vacate streets and to convey the underlying lands to the nonprofit corporation without consideration, by agreeing to construct streets, curbs and gutters to serve the stadium, and by paying salaries of City personnel engaged in rendering services in furtherance of the project.

The complaint prayed (1) for an injunction restraining defendants from performing the various agreements relating to the project or any acts in furtherance thereof; (2) for an order directing defendants to repay to the City treasurer any public funds unlawfully expended by the City, and (3) for a declaration that the entire scheme or plan for the enterprise, including the bonds, agreements, and lease, was invalid.

The action was filed on August 1, 1968, and summons in the usual form was issued and served on the named defendants as in ordinary personal actions. On October 3, 1968, City filed a motion to dismiss the action on the ground that plaintiffs failed to publish summons in the form and manner required by sections 860—870, a fact conceded by plaintiffs.

In support of the motion, City filed a declaration showing that counsel for plaintiffs had previously utilized the validating procedure of sections 860—870 in an unrelated superior court action to validate a 1911 Improvement Act proceeding and, hence, were aware of the existence of those sections. The only evidence submitted in opposition to the motion consisted of a declaration by plaintiffs' counsel that a number of defendants had been deposed and that the depositions supported the allegations of the complaint. Following oral argument and submission of the matter on briefs, the court found that ‘good cause’ had been shown for failure to publish summons in the form and as required by sections 860—870 and granted plaintiffs leave to amend and publish summons in conformity with those sections, publication to be completed not later than November 21, 1968, and to file proof thereof by November 29, 1968, failing which an order of dismissal would be entered.

As noted at the outset, the two issues are (1) whether the pending action is governed by sections 860—870, and (2) whether there was sufficient evidence to support the finding of ‘good cause’ for noncompliance with those sections.

I

The trial court determined, by implication, that the action was subject to the provisions of sections 860—870. Plaintiffs, nevertheless, contend that the action was simply a traditional taxpayers' suit brought pursuant to section 526a of the Code of Civil Procedure because (1) the action was not merely one attacking the validity of the motor stadium agreement; (2) the bonds sought to be invalidated are those of a nonprofit organization and not of the municipality; and (3) section 53511 of the Government Code is applicable only to contracts of indebtedness and not to contracts generally.

Contrary to plaintiffs' assertion, the essence of the action is its attack on the validity of the motor stadium agreement. Plaintiffs rely upon allegations of the complaint attacking the commitment of the City to vacate streets and to convey title thereto without consideration to the nonprofit corporation, the validity of the construction contracts awarded by the nonprofit corporation without competitive bidding, and the validity of the mortgage revenue bonds issued without voter approval. Those matters, however, are all inextricably a part of the motor stadium agreement. The agreement requires the City to vacate streets no longer required by reason of the construction of alternate streets and to convey title thereto to the nonprofit corporation; obligates the nonprofit corporation to cause the stadium to be constructed in accordance with a contract entered into between it and Stolte, Inc.; and expressly provides that by entering into the agreement, the City approves the financing of site acquisition and construction by issuance of the mortgage revenue bonds and the operation of the stadium by leasing it to the profit corporation.

The contention that the action does not come within the scope of section 53511 of the Government Code because the bonds, trust indentures, construction contract and operating lease were acts of the nonprofit corporation and not those of the City is not persuasive. The complaint is framed on the theory that the nonprofit corporation is but a corporate shell, that it can only act with approval of the City, that it is in fact but the alter ego of the City, and that its acts are the acts of the City and subject to the constitutional and statutory limitations pertaining to municipal corporations. Plaintiffs may not base their cause of action against the City on those allegations and yet disavow them when resisting a motion to dismiss. The conclusion is inescapable that the essence of the action is its attack upon the validity of the ‘Motor Stadium Agreement’; the entire scheme or plan sought to be invalidated is embodied in that agreement.

Plaintiffs contend that the word ‘contract’ as used in section 53511, was intended to be limited to contracts of indebtedness and not to contracts such as the ‘Motor Stadium Agreement.’ In support of their contention they refer to the legislative counsel's Digest of Assembly Bill 1737, which added section 53511 to the Government Code, as a bill allowing ‘* * * a local agency to bring an action to determine the validity of evidences of indebtedness pursuant to the provisions of the Code of Civil Procedure.’

While such legislative material may be of assistance where it is consistent with a reasonable interpretation of a statute (Maben v. Superior Court, 255 Cal.App.2d 708, 713, 63 Cal.Rptr. 439), it is not controlling where the statutory language is clear. (See Taylor v. Lundblade, 43 Cal.App.2d 638, 641, 111 P.2d 344.) The interpretation urged by plaintiffs would render the word ‘contract’ in section 53511 of the Government Code superfluous. Furthermore, it is apparent that in enacting section 53511, the Legislature intended thereby to authorize cities to utilize the validating procedure of sections 860—870 for all of the purposes for which that procedure was designed. The matters listed in section 53511 of the Government Code are identical to the matters described in section 864 of the Code of Civil Procedure prescribing the time when such matters shall be deemed to be in existence for the purpose of sections 860—870. Both section 53511 of the Government Code and section 864 of the Code of Civil Procedure list ‘bonds, warrants, contracts, obligations and evidences of indebtedness.’ In recommending enactment of sections 860—870, the Judicial Council took note of the various statutes then in existence dealing with specific public agencies and districts authorizing actions to determine the validity of various matters, including contracts. (18th Biennial Report of the Judicial Council, supra.) The council report clearly indicates that the uniform procedure recommended for adoption was designed to be used for the validation of contracts generally, as well as contracts of indebtedness. The Legislature has so construed those sections (see, e.g., Water Code, § 50979) and they have been so utilized. (Clark's Fork Reclamation Dist. v. Johns, 259 Cal.App.2d 366, 66 Cal.Rptr. 370).

We conclude that the matters mentioned in section 53511 of the Government Code clearly encompass municipal contracts of the character exemplified by the ‘Ontario Motor Stadium Agreement.’

II

Plaintiffs contend that the trial court was justified in finding that ‘good cause’ has been shown within the meaning of section 863 for failure to publish summons in the form and within the time required by statute.

The concept of ‘good cause’ calls for a ‘factual exposition of a reasonable ground for the sought order.’ (Waters v. Superior Court, 58 Cal.2d 885, 893, 27 Cal.Rptr. 153, 377 P.2d 265; Goodman v. Citizens Life & Cas. Ins. Co., 253 Cal.App.2d 807, 819, 61 Cal.Rptr. 682; Community Redevelopment Agency of Los Angeles v. Superior Court, 248 Cal.App.2d 164, 174, 56 Cal.Rptr. 201.) Where the law empowers the court to excuse failure to comply with a specific statutory requirement on a showing of good cause, an honest mistake of law may constitute good cause depending upon the ‘reasonableness of the misconception and the justifiability of lack of determination of the correct law.’ (Community Redevelopment Agency of Los Angeles v. Superior Court, supra; Fidelity Federal Savings & Loan Assn. of Glendale v. Long, 175 Cal.App.2d 149, 154, 345 P.2d 568.) An honest mistake of law is ground for relief where a problem is ‘complex and debatable,’ but ‘ignorance of the law coupled with negligence in ascertaining it’ will not justify relief. (Community Redevelopment Agency of Los Angeles v. Superior Court, suprai.)

Plaintiffs contend that their failure to comply with sections 860–870 was excused because the question whether the procedure there prescribed was applicable to the pending action presented a ‘complex and debatable problem.’

In Community Redevelopment Agency of Los Angeles v. Superior Court, supra, 248 Cal.App.2d 164, 56 Cal.Rptr. 201, the court determined that a showing similar to the one made by plaintiffs in the instant case was insufficient to establish ‘good cause’ within the meaning of section 863 of the Code of Civil Procedure. It is true that in Community Redevelopment the trial court failed to make an express finding of ‘good cause.’ However, the trial court, in response to a request for a specific finding of ‘good cause,’ stated that it believed that its order set forth all of the necessary grounds for the order permitting an amended summons. The order authorizing amendment and publication of the sum mons necessarily implied a finding of ‘good cause’ for the initial noncompliance. The reviewing court observed that mere failure of counsel to recognize at the time he filed the complaint that the procedure for determining the validity of the challenged matter was controlled by sections 860—870 of the Code of Civil Procedure did not justify a finding of ‘good cause.’

Plaintiffs in the present case presented no evidence from which it could have been found that there was an honest mistake of law based upon a reasonable misconception of the law and justifiable lack of determination of the correct law. In fact, plaintiffs presented no evidence whatsoever on the issue of ‘good cause’ for failure to comply with sections 860—870. The declaration that the depositions which had been taken by plaintiffs supported the allegations of the complaint merely tended to show that there was good faith in filing the action, not ‘good cause’ for noncompliance with the statutory procedure. Plaintiffs contend, however, that the deficiency in proof was supplied by their memorandum of authorities. They urge that the only possible method of demonstrating that the question whether the action fell within the scope of sections 53510—53511 of the Government Code and sections 860—870 presented a ‘complex and debatable question,’ was by a legal memorandum. The difficulty with plaintiffs' position is that they failed to introduce any evidence showing that prior to the filing of the action and the issuance of summons, they considered the applicability of the validating procedure prescribed by sections 860—870 and determined not to follow it in the honest belief that it was inapplicable. The mere fact that a problem is ‘complex and debatable,’ in and of itself, is insufficient to constitute ‘good cause’ for failure to comply with statutory requirements.

The provisions of sections 860—870 had been made applicable to contracts and obligations of cities in 1963 (Govt.Code, §§ 53510, 53511), over five years prior to the institution of the pending action. Community Redevelopment Agency of Los Angeles v. Superior Court, supra, 248 Cal.App.2d 164, 56 Cal.Rptr. 201 (1967) delineating what must be shown to constitute ‘good cause’ under section 863 of the Code of Civil Procedure, and Sibbet v. Board of Directors, 237 Cal.App.2d 731, 47 Cal.Rptr. 335 (1965), deciding the jurisdictional effect of noncompliance with section 863 had been on the books long prior to the commencement of the pending action. In these circumstances, plaintiffs' showing was insufficient to constitute ‘good cause.’

Plaintiffs having failed to show ‘good cause’ for failure to comply with sections 860—870, the court had no jurisdiction other than to order dismissal. (Code Civ.Proc. § 863.) The original summons having been defective in form and not having been published within the prescribed period, the publication of an amended summons after the expiration of the statutory period could not confer jurisdiction. (Community Redevelopment Agency of Los Angeles v. Superior Court, supra, 248 Cal.App.2d 164, 180, 56 Cal.Rptr. 201.)

Let a peremptory writ of prohibition issue restraining the respondent court from taking any further proceedings in the action entitled ‘Thomas S. Duck, et al. v. Ontario (California) Motor Speedway Corporation, et al.’ San Bernardino County Action No. CW–4106, other than to order its dismissal, without prejudice, however, to any right plaintiffs may have to bring an independent action respecting matters included in the complaint which may not be subject to the provisions of sections 53511 of the Government Code and sections 860–870 of the Code of Civil Procedure.

FOOTNOTES

1.  These sections are hereafter designated simply as sections 860—870.

2.  Section 53510 provides: ‘As used in this article ‘local agency’ means county, city, city and county, public district or any public or municipal corporation, public agency or public authority.'Section 53511 provides: ‘A local agency may bring an action to determine the validity of its bonds, warrants, contracts, obligations or evidences of indebtedness pursuant to Chapter 9 (commencing with Section 860) of Title 10 of Part 2 of the Code of Civil Procedure.’

TAMURA, Associate Justice.

McCABE, P. J., and KERRIGAN, J., concur.