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SCS Dev. Co. v. City of San Jose

California Court of Appeals, Sixth District
Mar 5, 2008
No. H030827 (Cal. Ct. App. Mar. 5, 2008)

Opinion


SCS DEVELOPMENT COMPANY, et al., Plaintiffs and Appellants, v. CITY OF SAN JOSE, Defendant and Respondent. H030827 California Court of Appeal, Sixth District March 5, 2008

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

Santa Clara County Super. Ct. No. CV 049558

ELIA, J.

In this appeal, two real estate developers seek review of an order sustaining a demurrer to their complaint for injunctive relief and for refund of special taxes imposed by respondent, the City of San Jose (the City). Plaintiffs contend that their development contracts with the City accorded them tax exemptions that vested and were effective notwithstanding the expiration of the underlying municipal code sections defining those exemptions. We will affirm the judgment of dismissal.

Background

In November 1989 the City designated 865 acres in an area of San Jose known as the Evergreen Planned Residential community. In 1991 the City adopted an Evergreen Specific Plan (ESP) for the development of that area, containing a mix of residential units, commercial and public facilities, and community open space. A financing plan followed the next year, and in November 1992 the City adopted Ordinance No. 24213. The ordinance recited the desire of the City to "encourage the immediate development" of the ESP area and the City's recognition that "the timing of this project is of vital importance to the economic vitality of the City."

Acknowledging the willingness of developers to finance the necessary infrastructure, including construction of housing and a fire station, the ordinance reflected the City's intention to bestow special incentives on the developers in order to "encourage early completion" of the ESP. Accordingly, the new law added sections 4.46.039.6, 4.54.039, and 4.64.036 to the City's municipal code. Section 4.46.039.6 provided that the construction of any structure within the ESP Fire and Housing Incentive Zone would be taxed under Chapter 4.46 of the San Jose Municipal Code "until the City Council has received and, by Resolution, accepted an irrevocable commitment of private funding for the full construction of a fire station within the [ESP] Area." After that "Resolution of Acceptance," the tax was to be "suspended and the tax shall not be collected with respect to the construction of dwelling unit or units within [the ESP Fire and Housing Incentive Zone]." Section 4.54.039 provided for suspension of 48 percent of the tax imposed under Chapter 4.54 for construction of dwelling units in the ESP area. As in the previous provisions, the suspension was to take effect once the City Council passed a Resolution of Acceptance for the construction of a fire station. Section 4.64.036 was essentially identical to section 4.46.039.6.

Each of these three tax-exemption sections of the ordinance contained a provision stating, "This Section shall be effective until January 1, 2003."

In November 1994 the City adopted a new ESP Financing Plan, which acknowledged Ordinance No. 24213. The 1994 plan was amended in March 1995, and in June of that year the City adopted an "Incentive Plan" to expedite construction of public improvements in the ESP area other than the fire station.

In December 1995, the City entered into a written "Cooperation Agreement" with plaintiffs and other developers. In the preliminary recitals, the agreement stated, "Consistent with the terms of the Financing Plan and the San Jose Municipal Code, to the extent DEVELOPERS fund or construct certain public improvements and facilities which will significantly benefit a larger portion of the CITY, DEVELOPERS will be exempted from the payment of some or all of certain development[-]related taxes and fees, as more specifically provided below." The agreement referred to the scope of development as "Phase 1" of the ESP.

Section 9.01 of the 1995 agreement was the specific section devoted to tax exemptions. That provision stated: "DEVELOPER's deposit of cash [for specified 'Expedited Improvements'] shall, upon adoption of a Resolution by the City Council, be accepted by CITY as DEVELOPER's irrevocable commitment of private funding for the full construction of a fire station within the [ESP] Area in accordance with the San Jose Municipal Code references noted below and upon such deposit each depositing DEVELOPER will be eligible for the following tax exemptions: [¶] A. Building and Structures Tax in its entirety for all ESP dwelling units (San Jose Municipal Code [SJMC] Chapter 4.46); [¶] 48 % of the Construction Tax for all ESP dwelling units (SJMC Chapter 4.54); and [¶] C. Residential Construction Tax in its entirety for all ESP dwelling units (SJMC Chapter 4.64)."

In December 1998 the parties entered into another "Cooperation Agreement" pertaining to Phase II of the project. This document provided for an "irrevocable commitment" (through payment of a contingent special tax) of private funding for a fire station, which, upon recognition by the City, made the developer "eligible for" the same tax exemptions described in the 1995 agreement "for all ESP dwelling units," again with reference to the applicable Municipal Code chapters.

Both Cooperation Agreements were to continue in effect until all contingent special taxes and "contingent assessments" had been paid and the proceeds distributed, or until terminated by the City under the agreement or by mutual consent.

According to the second amended complaint, plaintiffs made "timely commitments to participate in the financing plan in order to vest in the tax exemptions as provided by the amendments to the Municipal Code." Plaintiffs stated that until 2003, the City had consistently performed its duty to exempt the subject projects from the special construction taxes and had expressed its intent to honor its commitment to exempt the projects from those taxes as to all eligible housing units "without regard to the time of construction." In January 2003, however, the City refused to extend the exemption and demanded payment of the special construction taxes before it would issue development and building permits in the ESP area. Plaintiffs thus were "coerced" to pay the disputed taxes under protest in order to obtain the building permits, as they had already made substantial financial commitments to the project.

Plaintiffs brought this action through a petition for writ of mandate to enforce compliance with the Cooperation Agreements, together with a complaint for declaratory and injunctive relief, for specific performance of contract, and for reimbursement and relief of special taxes. The City successfully demurred, and plaintiffs amended the complaint and petition. Again the court sustained the City's demurrer with leave to amend, ruling that the first amended petition was uncertain and failed to state facts sufficient to constitute a cause of action.

In June 2006 plaintiffs filed their "Second Amended Petition for Writ of Mandate" combined with a "Second Amended Complaint." The first cause of action was for restitution and refund of the special construction taxes plaintiffs had paid "under duress." Plaintiffs alleged that the projects continued to be exempted from those taxes "pursuant to the City's written agreements and also pursuant to Ordinance No. 24213." The City's demand for payment violated plaintiffs' "vested rights" under California law and their constitutional rights to due process, as well as plaintiffs' rights under the taxation provisions (Article 13) of the California Constitution. Plaintiffs further asserted that the City was equitably estopped from denying the alleged tax exemptions. In the second cause of action, plaintiffs sought a judicial declaration that they were vested in those exemptions and that the exemptions remained in effect. The third cause of action sought an injunction to prevent the City from continuing to demand payment of the disputed taxes, and the fourth cause of action requested specific performance of the Cooperation Agreements. Finally, the fifth cause of action contained the petition for a writ of mandate to compel the City to issue permits without the special taxes and to refund those taxes invalidly collected.

In its final demurrer, the City argued (as it had in its previous demurrers) that the complaint was fatally uncertain, that the tax exemptions had expired on January 1, 2003, and that the Government Claims Act barred all of plaintiffs' causes of action "at least to the extent [that] they are predicated on the . . . breach of contact [sic] allegations."

Discussion

1. Standard of Review

"On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, the standard of review is well settled. We give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126 . . . .) Further, we treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law. (Ibid.; Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967 . . . (Aubry).) When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. (Zelig, supra, 27 Cal.4th at p. 1126 . . . .) And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse. (Ibid.)" (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.)

2. Justiciability of the Claim

The City maintains that plaintiffs were barred from bringing this action because they failed to file a claim under Government Code sections 900, et. seq. of the Government Claims Act. Plaintiffs attempt to avoid the application of the Claims Act by characterizing this action as one not for money damages, but for relief "on a range of equitable remedies (declaratory relief, injunctive relief, mandamus, specific performance, etc.) which were expressly provided by the Cooperation Agreements between the parties." Plaintiffs insist that they are not seeking money damages; rather, they seek "to compel the City to refund [their] own money pursuant to a duty imposed by local enactments, paid under circumstances in which equity compels restitution." In this respect plaintiffs attempt to liken their action to those of claimants seeking return of their personal property (see, e.g. Escamilla v. California Dept. of Corrections (2006) 141 Cal.App.4th 498) or those insisting on enforcement of a statutory duty to provide a credit (see Branciforte Heights, LLC v. City Of Santa Cruz (2006) 138 Cal.App.4th 914, 932; see also City of Dinuba v. County of Tulare, supra, 41 Cal.4th at p. 870 [mandamus available to compel county to comply with duty to distribute tax revenue to city agency]; but see Canova v. Trustees of Imperial Irr. Dist. Employee Pension Plan (2007) 150 Cal.App.4th 1487, 1493-1494 [where relief sought was transfer of funds into plaintiffs' accounts, action was essentially for breach of contract, not equitable relief, and Claims Act applied].) Thus, plaintiffs both resort to equity and emphasize the "official duty" exception in order to avoid the filing requirements of the Government Claims Act.

Plaintiffs do not invoke Government Code section 905, subdivision (a), which excepts from the claim-filing requirement claims "under the Revenue and Taxation Code or other statute prescribing procedures for the refund, rebate, exemption, cancellation, amendment, modification or adjustment of any tax, assessment, fee or charge or any portion thereof, or of any penalties, costs or charges related thereto." The Second District's opinion in County of Los Angeles v. Superior Court (2008) ___ Cal.App.4th ___, decided after oral argument in this case, is therefore of no assistance here. The court in that class-action case focused on Government Code section 905, subdivision (a), and relied on City of San Jose v. Superior Court (1974) 12 Cal.3d 447, 457, where the Supreme Court held that in a class action a "claimant" under Government Code section 910 was the class as a whole rather than each individual member.

Notwithstanding this characterization of the complaint, it is apparent that the relief plaintiffs seek is monetary and that the viability of their claim depends on the enforcement of the City's contractual obligations. Our Supreme Court recently affirmed that a plaintiff with a claim of breach of contract against a public entity must fulfill the requirements of the Government Claims Act before filing a lawsuit. (City of Stockton v. Superior Court (2007) 42 Cal.4th 730; see also Baines Pickwick Ltd. v. City of Los Angeles (1999) 72 Cal.App.4th 298, 304[claims presentation requirements extend to claims for money or damages based on contract].) Thus, "all claims for money or damages against local public entities" must first be presented to the offending entity before a lawsuit may be filed. (Gov. Code, § 905, subd. (a).) "The purpose of the claims presentation requirement is to facilitate early investigation of disputes and settlement without trial if appropriate, as well as to enable the public entity to engage in fiscal planning for potential liabilities and to avoid similar liabilities in the future." (Baines Pickwick Ltd. v. City of Los Angeles, supra, 72 Cal.App.4th at p. 303.)

In determining whether the Claims Act applies, the critical question is whether the recovery of money or damages was "the primary purpose of Plaintiffs' claims. Where the primary purpose of a mandamus action is monetary relief, the mandatory requirements of the Claims Act apply." (Canova v. Trustees of Imperial Irrigation Dist. Employee Pension Plan, supra, 150 Cal.App.4th at p. 1493.) Here it appears that the noncontract allegations are ancillary; the gravamen of the second amended complaint is that the City violated its contractual duty to withhold taxes. If plaintiffs were relying only on duties specified in Ordinance No. 24213, they would clearly be barred from recovery, as the statute was no longer effective when they sought exemptions after January 1, 2003. The Cooperation Agreements are essential to understanding, defining, and enforcing plaintiffs' rights to tax exemptions.

We are further unconvinced by plaintiffs' assertion that this is a suit to recover property (i.e. money) wrongfully taken from them. (See Minsky v. City of Los Angeles (1974) 11 Cal.3d 113, 121-123 [arrestee's property wrongfully withheld by police after disposition of charges]; Holt v. Kelly (1978) 20 Cal.3d 560, 564 [writ of mandate appropriate to compel sheriff to return personal property].) The Supreme Court has emphasized that there is no "blanket exclusion" from the Claims Act for restitution claims. (City of Stockton v. Superior Court, supra, 42 Cal.4th at p. 743.) This case does not involve the return of specific property that was seized by the City, but represents an attempt to enforce a contractual promise, which "is a claim for 'damages' under section 905." (Ibid.) Accordingly, plaintiffs were required to follow the claim-filing prerequisites outlined in the Government Claims Act, section 905, et seq. before filing suit.

3. Applicability of the Tax Exemptions

Even if this action falls outside the provisions of the Government Claims Act, plaintiffs are not entitled to the refund they seek. First, as noted above, the ordinance cannot offer support for plaintiffs' claim independently of the Cooperation Agreements, since the applicable provisions expired before plaintiffs sought the exemptions at issue. Secondly, we agree with the City that under the Cooperation Agreements, the acceptance of plaintiffs' irrevocable commitments to finance a fire station made them eligible for the benefits specifically authorized and defined by the Municipal Code sections to which the contract provision referred. Once the sections enacted by Ordinance No. 24213 were no longer in effect, plaintiffs could not rely on the City's "official duty" to provide tax exemptions. To interpret the Cooperation Agreements as according plaintiffs an indefinite exemption from taxes on housing construction even after the enabling provisions expired would be inconsistent with the City's express objective to provide expedited development of the ESP area. As plaintiffs do not seek further amendment of their pleading, we conclude that the demurrer to the second amended complaint was properly sustained without leave to amend.

Disposition

The judgment of dismissal is affirmed.

WE CONCUR: RUSHING, P. J., PREMO, J.


Summaries of

SCS Dev. Co. v. City of San Jose

California Court of Appeals, Sixth District
Mar 5, 2008
No. H030827 (Cal. Ct. App. Mar. 5, 2008)
Case details for

SCS Dev. Co. v. City of San Jose

Case Details

Full title:SCS DEVELOPMENT COMPANY, et al., Plaintiffs and Appellants, v. CITY OF SAN…

Court:California Court of Appeals, Sixth District

Date published: Mar 5, 2008

Citations

No. H030827 (Cal. Ct. App. Mar. 5, 2008)