Judge Mitchell L. Beckloff, Case Number: 23STCP03720, Date: 2024-04-03 Tentative Ruling

Judge: Mitchell L. Beckloff, Case: 23STCP03720, Date: 2024-04-03 Tentative Ruling

Respondents, Los Angeles Unified School District (LAUSD), LAUSD’s Board of Education, and Alberto M. Carvalho, Superintendent of LAUSD (collectively, Respondents), generally demur to the petition for writ of mandate filed by Petitioners, California State Finance Authority (CSFA) and the State Allocation Board (collectively, Petitioners).

A demurrer tests the sufficiency of a pleading, and the grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters. (Code Civil Proc., § 430.30, subd. (a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “We assume the truth of the allegations in the complaint, but do not assume the truth of contentions, deductions, or conclusions of law.” (California Logistics, Inc. v. State of California (2008) 161 Cal.App.4th 242, 247.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters.” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) The allegations in the petition must be liberally construed in favor of Petitioner on demurrer. (See Mobil Oil Corp. v Exxon Corp. (1986) 177 Cal.App.3d 942, 947.) “A demurrer must dispose of an entire cause of action to be sustained.” (Poizner v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.)

“In 2002, the California Legislature established the Charter School Facilities Program to provide funding to qualifying entities to establish school facilities for charter school pupils. (Ed. Code,

§ 17078.52; Stats. 2002 ch. 935 § 14 (AB 14).) Under the Charter School Facilities Program, an eligible project may receive funding for new construction or rehabilitation of a school facility for charter school pupils, including, but not limited to, the cost of retrofitting an existing building for charter school purposes, purchasing a building, or retrofitting a building that has been purchased by the charter school, subject to certain restrictions. (Ed. Code, § 17078.54, subd. (a).)” (Pet. ¶¶ 1-2.)

The petition concerns school facilities “located at 1215 Miramar Street, Los Angeles, California,” including “a three-story, 513-seat secondary school on 1.37 acres, with approximately 49,961 [square feet] of programmable space, 19 classrooms, 47 underground parking stalls, administration offices, food services and dining area, library, and labs” (Facility). (Pet. ¶ 11, fn. 1.)

“On April 13, 2011, Petitioners, [LAUSD] and Camino Nuevo High School Charter (‘Camino Nuevo’) entered into a Memorandum of Understanding (‘MOU’) under the Charter School Facilities Program to finance construction of the Facility. (Exhibit A.)” (Pet. ¶ 17.) “Pursuant to the California School Facilities Program, Petitioners extended funds to Camino Nuevo to construct the Facility pursuant to a Funding Agreement dated April 25, 2011, for an amount of up to $10,000,000 (the ‘Loan’).” (Pet. ¶ 18.)

“In or around January 2021, Petitioners learned that Camino Nuevo intended to close its charter school at the Facility. As of June 2021, Camino Nuevo no longer occupied the Facility and the obligations of Camino Nuevo with respect to the MOU and Funding Agreement ceased. Camino Nuevo vacated the Facilities and relinquished to [LAUSD] all right, title and interest in the occupancy and use of the Facilities.” (Pet. ¶ 19.)

“On March 18, 2021, [LAUSD] issued a notice of invitation and [publicly] notified all eligible charter schools to submit proposals to operate at the Facility and to assume the Loan (hereafter referred to as a ‘Request for Qualifications’ or ‘RFQ’). . . . Alliance College-Ready Public Schools (‘Alliance’) timely submitted a proposal. . . . Petitioners and [LAUSD] selected Alliance as the successor charter school to use the Facility and assume the Loan.” (Pet. ¶ 21.) However, Alliance subsequently withdrew its proposal because it was “not able to assume the financial obligations and use the Facility.” (Pet. ¶ 22.)

“On or about December 17, 2021, [LAUSD] issued a second RFQ to all eligible charter schools inviting them to submit proposals to operate a secondary education facility (i.e., high school) at the Facility and the RFQ set a deadline to submit proposals by February 2, 2022.” (Pet. ¶ 23.) “On or about March 30, 2022, Petitioners approved Ednovate as a qualified successor charter school under the California School Facilities Program.” (Pet. ¶ 24.) “On or about April 6, 2022, [LAUSD] recommended Ednovate and posted its selection of Ednovate as the successor charter school, pending approval by [LAUSD’s] Board of Education.” (Id. ¶ 25.)

However, in September 2022, LAUSD informed Petitioners and Endovate that LAUSD wanted to evaluate available options for the Facility and would be exercising “its rights under the RFQ to cancel the entire RFQ.” (Pet. ¶ 29 and Exh. J.)

Petitioners contend Respondents’ actions violate the Charter School Facilities Program, including Education Code section 17078.62, California Code of Regulations, title 2, section 1859.171 and California Code of Regulations, title 4, section 10157, subdivision (a). (Pet. ¶¶ 13-16, 36-41, 43.)

Respondents contend the petition is an action upon a statute for a forfeiture and is time-barred by the one-year statute of limitations set forth in Code of Civil Procedure section 340, subdivision (b).)

“ ‘A demurrer on the ground of the bar of the statute of limitations will not lie where the action may be, but is not necessarily barred.’ [Citations.] It must appear clearly and affirmatively that, upon the face of the complaint, the right of action is necessarily barred.” (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 881.)

Respondents contend Petitioners seek “to preclude Respondents from taking possession of and utilizing the Miramar Facility” and, therefore, “are pursuing a forfeiture by [LAUSD] of its substantial investment consisting of the purchase price of the property.” (Memo 12:10-12.) Respondents therefore argue the one-year statute of limitations in Code of Civil Procedure section 340, subdivision (b) applies.

Petitioners dispute Respondents’ position. They assert the three-year statute of limitations set forth in Code of Civil Procedure section 338 applies because “the gravamen of Petitioners’ action is to enforce Respondents’ obligations arising from a statute and regulations.” (Opposition 6:24-26.)

“To determine the statute of limitations which applies to a cause of action it is necessary to identify the nature of the cause of action, i.e., the ‘gravamen’ of the cause of action. [Citations.] ‘[T]he nature of the right sued upon and not the form of action nor the relief demanded determines the applicability of the statute of limitations under our code.’ ” (Hensler v. City of Glendale (1994) 8 Cal.4th 1, 22-23.)

Code of Civil Procedure section 340, subdivision (b) provides for a one-year limitations period for “[a]n action upon a statute for a forfeiture or penalty to the people of this state.” “A forfeiture is ‘[t]he divestiture of property without compensation’ or ‘[t]he loss of a right, privilege, or property. . . .’ ” (Brandenburg v. Eureka Redevelopment Agency (2007) 152 Cal.App.4th 1350, 1364.) The phrase “upon a statute” in Code of Civil Procedure section 340, subdivision (b) is unambiguous and “can only mean that the forfeiture or penalty being sought is based on a statute providing such a remedy.” (Ramirez v. Tulare County Dist. Attorney’s Office (2017) 9 Cal.App.5th 911, 936.) For example, in People v. Property Listed In Exhibit One (1991) 227 Cal.App.3d 1, cited by Respondents, the Court of Appeal considered a statutory procedure “for the seizure of property connected with and proceeds traceable to unlawful drug transactions.” (Id. at 5.) Under the statutory scheme at issue, “title to the forfeited property vests in the state from the time of the illegal conduct.” (Ibid.)[1]

Code of Civil Procedure section 338, subdivision (a), in contrast, provides a three-year limitations period for “[a]n action upon a liability created by statute, other than a penalty or forfeiture.” Code of Civil Procedure section 338, subdivision (a) applies to “a liability that would not exist but for the statute.” (Shewry v. Begil (2005) 128 Cal.App.4th 639, 644; see e.g. California Teachers Association v. Board of Education of Whittier School District (1982) 129 Cal.App.3d 826, 833 [writ of mandate to compel school district to comply with Education Code section 45028 subject to three-year statute of limitations based on a liability created by statute].)

At the pleading stage, Respondents do not show the gravamen of the action is to obtain a forfeiture of Respondents’ property pursuant to statute. Petitioners allege Respondents’ actions violate the Charter School Facilities Program (CSFP), including Education Code section 17078.62, California Code of Regulations, title 2, section 1859.171 and California Code of Regulations, title 4, section 10157, subdivision (a). (Pet. ¶¶ 13-16, 36-41, 43.) Petitioners pray for a writ of mandate compelling Respondents “to comply with Education Code section 17078.62, subdivision (b)(2) and California Code of Regulations, title 2, section 1859.171, subdivision (a), and compelling Respondents to refrain from violating state law by taking possession and using the Facility in a manner inconsistent with Education Code section 17078.62, subdivision (b)(2) and California Code of Regulations, title 2, section 1859.171, subdivision (a) and title 4, section 10157, subdivision (a).” (Prayer ¶ 1.) Obtaining compliance with the laws and regulations governing the CSFP is not a forfeiture or penalty within the meaning of Code of Civil Procedure section 340, subdivision (b).

Respondents have not cited any language from Education Code section 17078.62, California Code of Regulations, title 2, section 1859.171, subdivision (a) or California Code of Regulations, title 4, section 10157, subdivision (a) that directly imposes a forfeiture on Respondents’ property as a result of Respondents’ alleged non-compliance with the CSFP. That alone suggests Code of Civil Procedure section 340, subdivision (b) does not apply because, as noted, the phrase “upon a statute” in Code of Civil Procedure section 340, subdivision (b) “can only mean that the forfeiture or penalty being sought is based on a statute providing such a remedy.” (Ramirez v. Tulare County Dist. Attorney’s Office, supra, 9 Cal.App.5th at 936.)

Seemingly recognizing the problem with their argument, Respondents argue a writ or injunction that prevents Respondents from taking possession of and utilizing the Facility (as prayed for) would have the effect of causing LAUSD to forfeit “its substantial investment consisting of the purchase price of the property and the more than $13,000,000 that [LAUSD] contributed to the cost of construction.” (Memo 12:10-12.) At the pleading stage, Respondents’ argument is not persuasive for several reasons.

First, Respondents do not cite any case law applying Code of Civil Procedure section 340, subdivision (b) to circumstances similar to those here, i.e. where the penalty or forfeiture is not specified in the statute. (Cf. People v. Property Listed In Exhibit One, supra, 227 Cal.App.3d at 5 [under statutory scheme, “title to the forfeited property vests in the state from the time of the illegal conduct”]; Brandenburg v. Eureka Redevelopment Agency, supra, 152 Cal.App.4th at 1364-1365 [Code of Civil Procedure section 340, subdivision (b) applied to an action to enforce Government Code sections 1090 and 1092 because those statutes authorize the public official’s forfeiture of rights in a contract in which the public official had a conflict of interest].)

Second, Respondents’ demurrer does not address the statutory and regulatory provisions under which LAUSD may have obtained a security interest in the Facility. (See Ed. Code,

§§ 17078.57, subd. (a)(3) and 17078.62, subd. (b)(5); Cal. Code Regs, tit. 2, § 1859.171, subds. (c), (d); Cal. Code Regs., tit. 4, § 10157, subds. (d), (f).) Having failed to address those provisions, Respondents do not establish the writ requested by Petitioners would necessarily cause a forfeiture of Respondents’ investment in the Facility.[2]

Finally, Respondents’ statute of limitations defense raises fact questions that cannot be determined at the pleading stage. Respondents report “[t]here is no correlation between the sum the District will forfeit and the remaining balance on Petitioners’ loan to Camino Nuevo.” (Memo 12:13-15.) However, Respondents also acknowledge Education Code section 17078.62, subdivision (b)(4) “provides for the reduction or elimination of payments in certain circumstances.” (Memo 12:20.) Thus, the amount of Respondents’ feared loss of investment, compared to the balance of Petitioners’ loan, cannot be determined from the petition. Further, Respondents could elect to comply with any writ issued by the court and thereby avoid any potential loss of its investment.

Based on the foregoing, Respondents have not shown, from the face of the petition, Petitioners’ action is for a forfeiture “upon a statute” within the meaning of Code of Civil Procedure section 340, subdivision(b). Rather, because Petitioners seek to compel compliance with the statutes and regulations governing the CSFP, it appears the petition is governed by the three-year statute of limitations in Code of Civil Procedure section 338, subdivision (a).[3] Respondents have not disputed the petition was timely filed assuming a three-year limitations period.

Respondents’ Compliance with Title 4, Section 10157 of the California Code of Regulations

Petitioners allege Respondents have a ministerial duty “to refrain from using the Facility for other purposes as allowed under Education Code section 17078.62, subdivision (b)(3) until Respondents have demonstrated ‘due diligence’ to solicit and identify a successor charter school, as determined by the California School Finance Authority, which has not occurred.” (Pet. ¶ 39.) Petitioners further allege “[a]t the time of the filing of this petition, [LAUSD] has not demonstrated sufficient due diligence to the satisfaction of Petitioner California School Finance Authority under California Code of Regulations, title 4, section 10157, subdivision (a).” (Pet.

California Code of Regulations, title 4, section 10157, subdivision (a) provides as follows:

Pursuant to Education Code, Section 17078.62(b)(3), the school district in which the Charter School is physically located may take possession and title of the facility only after having demonstrated due diligence in soliciting alternative Charter Schools within the local area to take possession and title of the facility, as permitted by Education Code Section 17078.62(b)(2). Such demonstration of due diligence shall be at the Authority's discretion, but shall include, but not be limited to, documentary evidence of solicitation of Charter Schools within the district boundaries, where applicable.

Respondents do not contend in their demurrer that their compliance with the regulation may be determined from the face of the petition or judicially noticeable records. Rather, Respondents argue “section 10157 impermissibly seeks to enlarge the scope of Education Code section 17078.62” and is therefore invalid. (Memo 16:23-24.)

Validity of California Code of Regulations, Title 4, Section 10157, Subdivision (a)

“Whenever by the express or implied terms of any statute a state agency has authority to adopt regulations to implement, interpret, make specific or otherwise carry out the provisions of the statute, no regulation adopted is valid or effective unless consistent and not in conflict with the statute and reasonably necessary to effectuate the purpose of the statute.” (Gov. Code,

“Administrative regulations that alter or amend the statute or enlarge or impair its scope are void and courts not only may, but it is their obligation to strike down such regulations.” (Morris v. Williams (1967) 67 Cal.2d 733, 748.) “ ‘In determining whether a specific administrative rule falls within the coverage of a delegated power, ‘the sole function of this court is to decide whether the department reasonably interpreted the legislative mandate.’ [Citations.]’ [Citation.] ‘The construction given to a regulation by the officials charged with its enforcement is entitled to great weight.’ [Citation.] However, ‘an administrative agency has only such authority as has been conferred on it.’ ” (San Jose Teachers Assn. v. Barozzi (1991) 230 Cal.App.3d 1376, 1379.)

“[T]he burden is on the party challenging a regulation to show its invalidity, since ‘the administrative agency’s action comes before the court with a presumption of correctness and regularity.’ ” (Mineral Associations Coalition v. State Mining & Geology Bd. (2006) 138 Cal.App.4th 574, 589.)

The purpose of the CSFP is “to provide funding to qualifying entities for the purpose of establishing school facilities for charter school pupils.” (Ed. Code, § 17078.52, subd. (a).) “As a first priority, the existing charter school shall be permitted to continue to use the facility until it is no longer needed by the charter school for charter school purposes.” (Id. § 17078.62, subd. (a).) “The school district shall permit continued use of the facility for charter school purposes as long as the facility is needed for those purposes.” (Id. § 17078.62, subd. (b)(6).)

Significantly, the CSFP gives priority to a successor charter school to occupy the facility, over a school district, when a previous charter school ceases using it. (Ed. Code § 17078.62(b)(2); 2 CCFR § 1859.171.) In furtherance of this legislative purpose, CSFP regulations also mandate school districts complete a process to solicit and select a successor charter school before the school district can occupy the facility. (Cal. Code Regs., tit. 2, § 1859.171, subd. (a).)

Considering the presumption of correctness and regularity that applies, the court cannot conclude, at the pleading stage, that California Code of Regulations, title 4, section 10157, subdivision (a) is inconsistent with the CSFP statutory scheme or impermissibly enlarges its scope. The CSFP requires school districts to facilitate and give “first priority” to the use of

CSFP-funded facilities by charter schools, rather than a school district. (See Ed. Code, §§ 17078.52, subd. (a), 17078.62, subd. (b)(1)-(6).) Petitioners could reasonably determine the due diligence requirement of the regulation is reasonably necessary to effectuate that charter-school-before-a-district purpose of the CSFP.

Contrary to Respondents’ argument, absence of the phrase “due diligence” in Education Code section 17078.62, does not necessarily mean the regulation exceeds its statutory authority. “[T]he absence of any specific [statutory] provisions regarding the regulation of [an issue] does not mean that such a regulation exceeds statutory authority. . . .” [Citations.] The [agency] is authorized to ‘fill up the details’ of the statutory scheme.’ ”(California School Bds. Assn. v. State Bd. of Education (2010) 191 Cal.App.4th 530, 544.) For this same reason, the absence of the word “succession” in Education Code section 17078.57 does not necessarily mean the regulation exceeded the statutory authority.

Respondents point out the credits to California Code of Regulations, title 4, section 10157 cite only Education Code section 17078.57 as the statutory authority for the regulation. Education Code section 17078.57, subdivision (a) provides, in pertinent part, that Petitioner CSFA:

in consultation with the board, shall adopt regulations establishing uniform terms and conditions that shall apply equally to all projects for funding in accordance with Section 17078.58, including, but not limited to, all of the following: . . . (2) The method for determining whether a charter school is financially sound . . . (3)(A) Security provisions, including, but not limited to, whether title to project facilities shall be held by the school district in which the facility is to be physically located, in trust, for the benefit of the state public school system, or by another entity as authorized pursuant to Section 17078.63. (Emphasis added.)

“As a basic principle of statutory construction, ‘include’ is generally used as a word of enlargement and not of limitation. . . .Thus, where the word ‘include’ is used to refer to specified items, it may be expanded to cover other items.” (Rea v. Blue Shield of California (2014) 226 Cal.App.4th 1209, 1227.) In light of this rule of statutory construction, Education Code section 17078.57, subdivision (a) may plausibly be interpreted to provide authority for the succession provisions in California Code of Regulations, title 4, section 10157, subdivision (a). To the extent there is ambiguity in Education Code section 17078.57, subdivision (a), Respondents have not cited any legislative history or other extrinsic aids from which the court could resolve such ambiguity on demurrer. (Nolan v. City of Anaheim (2004) 33 Cal.4th 335, 340 [“when the language is susceptible of more than one reasonable interpretation, we look to a variety of extrinsic aids, including the ostensible objects to be achieved, the evils to be remedied, the legislative history, public policy, contemporaneous administrative construction, and the statutory scheme of which the statute is a part”].) Again, Respondents are not precluded from providing relevant legislative history or extrinsic evidence in subsequent proceedings in this proceeding. (Ibid. [rules of statutory construction].)

Based on the foregoing, for purposes of their demurrer, Respondents have not met their burden of demonstrating the regulation conflicts with or impermissibly enlarges the scope of the CSFP statutory scheme. Thus, for this motion, Respondents have not proven California Code of Regulations, title 4, section 10157, subdivision (a) is an invalid regulation.

Respondents also argue the operative version of California Code of Regulations, title 4, section 10157, subdivision (a) was promulgated after Petitioners and Respondents entered the MOU and does not apply retroactively.

“Generally, the same rules of construction and interpretation which apply to statutes govern the construction and interpretation of administrative regulations. It is an established canon of interpretation that statutes are not to be given a retrospective operation unless it is clearly made to appear that such was the legislative intent. However, a statute is not retroactive unless it substantially changes the legal effect of past events. A statute does not operate retroactively merely because some of the facts or conditions upon which its application depends came into existence prior to its enactment.” (Union of American Physicians & Dentists v. Kizer (1990) 223 Cal.App.3d 490, 504-505 [cleaned up].)

“While it is true that as a general rule statutes are not to be given retroactive effect unless the intent of the Legislature cannot be otherwise satisfied . . ., an exception to the general rule is recognized in a case where the legislative amendment merely clarifies the existing law.” (People ex rel. Deukmejian v. CHE, Inc. (1983) 150 Cal.App.3d 123, 135.)

The court finds retroactivity is not an issue here. The regulation operates prospectively—it imposes obligations on a going forward basis only.

Camino Nuevo vacated the Facility in June 2021, two and a half years after the amendment to California Code of Regulations, title 4, section 10157, in October 2018. (Pet. ¶¶ 16, 19.) The acts triggering the obligations of the regulation arose after the regulation was amended. Petitioners seek to apply the regulation on a prospective basis only.

Respondents have not developed a persuasive argument, or cited any authority supporting a conclusion, that the 2011 MOU required Petitioners to apply the law then in effect (in 2011) to all aspects of the parties’ relationship with respect to the Facility. That construction of the MOU, as well as the CSFP, could likely lead to absurd results. Nonetheless, Respondents are not precluded from further developing such argument in subsequent proceedings in this action.

Based on the foregoing, Respondents do not show, for purposes of their demurrer, California Code of Regulations, title 4, section 10157, subdivision (a) is invalid or is being applied retroactively. The petition sufficiently alleges Respondents failed to comply with the due diligence requirements of the regulation. (See Pet. (Pet. ¶¶ 16-41.) Accordingly, the demurrer is OVERRULED. In light of the court’s conclusion, the court need not analyze Respondents’ contentions that they complied with other statutory and regulatory requirements from the CSFP.

[1] Although People v. Property Listed In Exhibit One concerned a different statute of limitations (in Health and Safety Code section 11488.4), the Court discussed Code of Civil Procedure section 340, subdivision (b) and the Court’s decision illustrates the type of statute that falls within the scope of Code of Civil Procedure section 340, subdivision (b). (See id. at 9.)

[2] Respondents do not show good cause to raise new arguments about these statutes and regulations in reply. (See Reply 4; Balboa Ins. Co. v. Aguirre (1983) 149 Cal.App.3d 1002, 1010. [“The salutary rule is that points raised in a reply brief for the first time will not be considered unless good cause is shown for the failure to present them before.”]) Further, even in reply, Respondents do not provide a comprehensive discussion of the statutory scheme or adequately support their legal conclusion that the impact of the statutes and regulations “is to cause the District to forfeit its monetary contributions.” (Reply 4:24.) Of course, Respondents may fully develop their contentions regarding security interests in subsequent proceedings in this writ action.

[3] As Petitioners point out, Code of Civil Procedure section 338 does not apply “where a cause of action is based upon a statute which did not ‘create a new form of liability . . . but merely codified and refined existing law.’ ” (Brandenberg v. Eureka Redevelopment Agency, supra, 152 Cal.App.4th at 1361-1362.) Here, Petitioners seek to compel compliance with a statutory and regulatory scheme (the CSFP) that did not exist in the common law or prior to enactment of the CSFP.