Judge Stephen I. Goorvitch, Case Number: 23STCP00843, Date: 2024-05-08 Tentative Ruling

Judge: Stephen I. Goorvitch, Case: 23STCP00843, Date: 2024-05-08 Tentative Ruling

Atlas Capital Management, Inc., et al. v. Office of Administrative Hearings, et al.

Petitioners Atlas Capital Management, Inc. (“Atlas”) and Tracy Dennis Towner (collectively, “Petitioners”) filed a verified petition for writ of mandate and a complaint for declaratory relief against the Office of Administrative Hearings (the “OAH”) and Clothilde V. Hewlett in her official capacity as Commissioner of the Department of Financial Protection and Innovation of the State of California (the “Commissioner” or the “DFPI”) (collectively, “Respondents”). Atlas, an investment adviser, filed a Form ADV-W to withdraw its investment adviser registration as part of its plan to cease operations. However, the DFPI issued an order refusing to accept the surrender until it had finished its investigation of Atlas for alleged fraud, as well as any enforcement action. Petitioners seek a writ of mandate directing the DFPI to annul the surrender order and dismiss its enforcement action against Petitioners for lack of subject matter jurisdiction, among other things. Petitioners also seek a declaratory judgment that certain documents and records gathered in the DFPI’s investigation relating to Towner, Atlas’s owner and a peace officer, are “confidential peace officer records” and shall be excluded from the DPFI’s action, among other things. The court (Beckloff, J.) previously sustained Respondents’ demurrer with leave to amend. Now, this court sustains Respondents’ demurrer without leave to amend.

Petitioners allege as follows in their amended verified petition for writ of mandate: At all relevant times, Atlas was an “investment adviser,” as defined by the Corporate Securities Law of 1968 and held an investment adviser certificate under Corporations Code sections 25230 and 25231. (First Amended Petition for Writ of Mandate (“FAP”), ¶ 10.) Atlas received its investment adviser certificate on or about September 12, 1997. (Ibid.) Atlas filed a Form ADV-W—Notice of Withdrawal from Registration as an Investment Adviser—on June 3, 2022. (Ibid.) Atlas was co-owned and principally operated by Craig Arsenault between September 12, 1997, and December 31, 2018. (Id., ¶ 21.) Petitioner Tracy Dennis Towner was a co-owner of Altas, and acted as a “silent partner,” until he became the sole owner December 31, 2018. (Ibid.) Towner was a peace officer and worked as an investigator for the Ventura County District Attorney’s Office until he was terminated on April 23, 2018. (Id., ¶¶ 8, 19.)

On December 13, 2018, the SEC filed a complaint in the U.S. District Court for the Central District of California concerning alleged fraud by Arsenault and the two entities he founded, managed, and controlled, Atlas and another entity, ACT Global Investments (“ACT”). (Id., ¶ 21.) The SEC alleged that Arsenault misrepresented the use of investors’ funds in the ACT fund, provided clients with deceptive account statements that made it appear as if these investments were generating substantial income when they were not, and misappropriated and misused over $1 million of the client money invested with ACT. (Ibid.) Atlas consented to entry of judgment without admitting or denying the allegations. (Ibid.)

In August 2019, the DFPI commenced a regulatory examination of Atlas’s investment adviser business. (Id., ¶¶ 29-30.) On June 9, 2020, the examiners referred the alleged violations to the DFPI’s enforcement division and reserved the right to proceed with all remedies as outlined in Corporations Code section 25255, with the civil, criminal, or administrative remedies thereunder. (Petition for Writ of Mandate, ¶ 24.) On April 4, 2022, after multiple attempts to reach a negotiated resolution of the alleged violations by Atlas, Atlas notified its clients, the DFPI, and the public that it intended to “wind down its business due to the substantial legal expenses and exposure remaining as a result of Arsenault and his actions . . . .” (FAP, ¶ 45.) On June 3, 2022, Atlas filed its Form ADV-W to surrender Atlas’s investment adviser certificate and withdraw its investment adviser registration with the State of California and the DFPI. (Id., ¶ 46.) The DFPI refused to accept the surrender. (Id., ¶ 47.) The DFPI issued an order (the “Surrender Order”) under Corporations Code section 25242(a) stating in relevant part:

Pursuant to Section 25242(a) of the California Corporations Code, withdrawal becomes effective at such time and upon such conditions as the Commissioner by order determines. The Commissioner hereby imposes the following conditions . . . . The surrender of the Investment Adviser shall not be accepted until the Commissioner has finished its review, examination, and investigation of Atlas Capital Management, Inc. and until the Commissioner makes a determination and/or initiates an action . . . .

The DFPI initiated an enforcement action by serving petitioners with an “accusation” and a “desist and cease order” on November 3, 2022. (Id., ¶ 48.) Petitioner filed a defense to the accusation, and the administrative proceeding is pending before the Office of Administrative Hearings. (Id., ¶¶ 49-66.)

Petitioners allege that the DFPI has acquired “privileged, confidential peace officer personnel records” concerning Tower from his former employer, the Ventura County District Attorney’s Office (the “DA’s Office”). (Id., ¶ 1.) Towner was terminated on April 23, 2018, allegedly in retaliation for providing testimony in a colleague’s challenge to the DA’s Office’s promotional process before the County of Ventura’s Civil Service Commission. (Id., ¶ 19.) Towner alleges that the DA’s Office continued to retaliate against him by directing the DFPI to “engage in a targeted enforcement action.” (Id., ¶ 3.) Towner alleges that the DFPI filed the enforcement action to earn “goodwill with the Ventura County DA’s Office.” (Id., ¶ 2.)

Petitioners filed their verified petition for writ of mandate and complaint for declaratory relief on March 16, 2023. In the initial petition, Petitioner asserted four causes of action: (1) Writ of mandate under Code of Civil Procedure section 1094.5, (2) Writ of mandate under Code of Civil Procedure section 1085, (3) Declaratory relief under Code of Civil Procedure section 1060, and (4) Declaratory relief under Corporations Code section 25242, per section 1060, or under Code of Civil Procedure section 11350. Petitioners sought a writ and declaratory judgment requiring Respondent to accept the surrender of Atlas’s investment adviser certificate and to stop enforcement proceedings. Petitioners also challenged certain decisions made by the administrative law judge (the “ALJ”) during the enforcement proceedings.

The court (Beckloff, J.) sustained Respondent’s demurrer. (See Court’s Order, dated August 4, 2023.) Judge Beckloff found that this petition is governed by Code of Civil Procedure section 1094.5, not section 1085. (Id. at 4 fn. 1.) Judge Beckloff found that Petitioners failed to exhaust their administrative remedies, and that none of the exceptions apply. (Id. at 6-10.) The court found no prejudicial abuse of discretion by the ALJ in issuing a discovery order, e.g., “the Discovery Order makes clear that the [attorney-client] privilege waiver applies only ‘to the extent’ Petitioners intend to rely on their former counsel’s advice to defend the accusation. The Discovery Order is thus consistent with law.” (Id. at 4, citations omitted.) Judge Beckloff also sustained the demurrer to the declaratory relief causes of action for the same reasons. (Id. at 10.) Judge Beckloff reluctantly granted leave to amend:

“Candidly, until the administrative proceedings have concluded, this petition appears premature. It also appears until the administrative proceedings have concluded, it is not possible to determine whether Petitioners can state a claim under Code of Civil Procedure section 1094.5. It would appear Petitioners should renew their efforts, if necessary, after the administrative proceedings have concluded. Nonetheless, this is the court’s first ruling on demurrer and Petitioners have not previously amended the petition in response to a demurrer. . . . It seems at least possible Petitioners could allege additional facts regarding exceptions to exhaustion. Petitioners also could plausible allege additional facts relating to enforcement of the Discovery Order that may be relevant to the first cause of action. Accordingly, the court will grant leave to amend.”

Petitioners filed a first amended petition asserting the following causes of action: (1) Petition for writ of mandate under Code of Civil Procedure section 1085 with respect to the Respondent’s failure to accept Atlas’s surrender of its investment adviser certificate; (2) Petition for writ of mandate under section 1085 or, in the alternative, under section 1094.5 with respect to Respondent’s decision to name Tracy Dennis Towner as a defendant in the enforcement action; (3) Petition for writ of mandate under section 1094.5 concerning the ALJ’s decision to exclude “critical, material and relevant evidence;” (4) Declaratory relief under Corporations Code section 25242, per section 1060; (5) Declaratory relief under Corporations Code section 25403, per section 1060; (6) Declaratory relief under section 1060 concerning an alleged violation of the statutes governing peace officer personnel records; (7) Declaratory relief under section 1060 concerning Petitioners’ right to a jury trial; and (8) Violation of Petitioners’ civil rights under Title 42, United States Code, section 1983. Respondents now demur to all causes of action.

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 (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.)

As an initial matter, Respondents argue that the entire first amended petition is barred because Petitioners have not exhausted their administrative remedies. Exhaustion of administrative remedies is “a jurisdictional prerequisite to judicial review.” (California Water Impact Network v. Newhall County Water Dist. (2008) 161 Cal.App.4th 1464, 1489.) “Before seeking judicial review a party must show that he has made a full presentation to the administrative agency upon all issues of the case and at all prescribed stages of the administrative proceedings.” (Edgren v. Regents of University of California (1984) 158 Cal.App.3d 515, 520.) Generally, “the exhaustion doctrine precludes review of an intermediate or interlocutory action of an administrative agency. A party must proceed through the full administrative process ‘to a final decision on the merits.’” (Alta Loma School Dist. v. San Bernardino County Com. On School District Reorganization (1981) 124 Cal.App.3d 542, 554.)

“The principal purposes of exhaustion requirements include avoidance of premature interruption of administrative processes, allowing an agency to develop the necessary factual background of the case, letting the agency apply its expertise and exercise its statutory discretion, and administrative efficiency and judicial economy.” (California Water Impact Network, supra, 161 Cal.App.4th at 1489.) There are exceptions to the exhaustion requirement, however, including “when the subject of the controversy lies outside the administrative agency’s jurisdiction, when pursuit of an administrative remedy would result in irreparable harm, when the administrative agency cannot grant an adequate remedy, and when the aggrieved party can positively state what the administrative agency’s decision in his particular case would be.” (Edgren, supra, 158 Cal.App.3d at 520 [citations omitted].)

In the first cause of action, Petitioners challenge Respondent’s decision not to accept Atlas’s surrender of its investment adviser certificate and to institute enforcement proceedings. Petitioners allege that Atlas surrendered its investment adviser certificate on June 3, 2022; Respondent issued the Surrender Order on June 14, 2022; and Respondent initiated the enforcement action on November 3, 2022. Petitioners argue that this falls outside the scope of Respondents’ authority under Corporations Code section 25242, subdivision (a).

Petitioners argue that they are not required to exhaust administrative remedies with respect to this claim. To the contrary. Judge Beckloff previously found: “Respondent also argues Petitioners’ interpretation of Corporations Code section 25242, subdivision (a) is incorrect. The court agrees Petitioners have failed to exhaust their administrative remedies. The court need not, therefore, reach the interpretation issue.” (See Court’s Order, dated August 4, 2023, at 7.) In their first amended petition, Petitioners do not allege new facts to address this issue. Instead, Petitioners essentially argue that Judge Beckloff was incorrect. This court will not revisit Judge Beckloff’s decision. “The exhaustion requirement applies whether relief is sought by traditional (Code Civ. Proc., § 1085) or administrative (Code Civ. Proc., § 1094.5) mandamus.” (Eight Unnamed Physicians v. Medical Executive Com. (2007) 150 Cal.App.4th 503, 511.)

In the first cause of action, Petitioners allege, in effect, that the Commissioner lacked authority under Corporations Code section 25242 to issue the June 14, 2022, Order, which refused Atlas’ surrender of its investment adviser certificate. (FAP ¶¶ 67-83.) If the Commissioner lacked authority to refuse the surrender, then Commissioner would also lack authority in the Accusation to revoke Atlas’ certificate. Thus, Petitioners’ allegation related to Corporations Code section 25242 presents an affirmative defense to the Accusation, which seeks revocation of Atlas’ certificate. Petitioners develop no argument to the contrary in the petition or opposition. Petitioners have an administrative remedy to raise this defense in the OAH proceedings. Accordingly, Petitioners do not allege exhaustion of administrative remedies with respect to the claim presented in the first cause of action. (See Coachella Valley Mosquito & Vector Control Dist. v. California Public Employment Relations Bd. (2005) 35 Cal.4th 1072, 1080 [“The exhaustion requirement applies to defenses as well as to claims for affirmative relief”].)

Petitioner argues that the exhaustion requirement does not apply in the instant case, citing Hill RHF Housing Partners, L.P. v. City of Los Angeles (2021) 12 Cal.5th 458. In that case, the California Supreme Court held that the “opportunity to comment on a proposed BID [business improvement district] does not involve the sort of ‘clearly defined machinery for the submission, evaluation and resolution of complaints by aggrieved parties’ that has allowed us to infer an exhaustion requirement in other contexts.” (Id. at 468.) By contrast, the OAH proceeding involves “clearly defined machinery” for the submission of defenses to the Accusation. The petition alleges no facts supporting a conclusion that Petitioners could not present their contentions related to section 25242 as a defense in the OAH proceeding. (See FAP ¶ 69.)

Nor do Petitioners allege sufficient facts or cite sufficient authority suggesting that there is an exception to the exhaustion requirement in this case. The court will examine each potential exception separately.

Petitioners argue that OAH lacks jurisdiction over the Accusation, and specifically Petitioners’ contentions regarding the Surrender Order, pursuant to Corporations Code section 25609. (FAP ¶ 15.) “In deciding whether to entertain a claim that an agency lacks jurisdiction before the agency proceedings have run their course, a court considers three factors: the injury or burden that exhaustion will impose, the strength of the legal argument that the agency lacks jurisdiction, and the extent to which administrative expertise may aid in resolving the jurisdictional issue.” (Coachella, supra, 35 Cal.4th at 1082.) Petitioners do not sufficiently address those factors in the FAP. Corporations Code section 25609 states: “Every final order, decision, license, or other official act of the commissioner is subject to judicial review in accordance with law.” Here, the Surrender Order was arguably superseded once DFPI filed the Accusation against Petitioners. Moreover, even if the Surrender Order was a “final order” subject to judicial review under section 25609 when it was issued in June 2022, Petitioners do not explain why that would deprive OAH of jurisdiction to decide Petitioners’ affirmative defense based on section 25242 once the Accusation was filed.[1]

Petitioners also contend that “OAH already found that the Surrender Order lies outside of its jurisdiction based on the record.” (Oppo. 12.) The cited order simply denied Petitioners’ request “to prepare the complete record of proceedings relating to its order dated June 14, 2022.” (Pet. Exh. E.) The OAH found it had no authority to require the Department to prepare such a record. Petitioners do not allege sufficient facts to support a different interpretation of OAH’s order.

Petitioners suggest that the pendency of the DFPI action, in itself, causes irreparable harm to Towner’s reputation as an investigator and his employment with VCDA. (FAP ¶ 69.)[2] Specifically, Petitioners allege:

“[T]he outstanding DFPI Action poses irreparable harm and injury to [Towners’] over 35 year career, impacts his ability to testify in actions related to his role at VCDA and threatens his employment with VCDA as an adverse finding would be a terminable offense pursuant to the VCDA Bureau of Investigation Manual as well as the considerable legal expenses incurred in continuing the DFPI Action through a flawed record and eventual appeal.”

(FAP ¶¶ 69, 97, 109.) This does not qualify for an exemption. “An exception to the requirement of exhaustion of administrative remedies may arise where one can show that irreparable injury will result if an administrative hearing is permitted to proceed and its orders are made effective without prior judicial interference.” (Kaiser Foundation Hospitals v. Sup.Ct. (2005) 128 Cal.App.4th 85, 105.) “Thus, to show irreparable harm justifying an exception from the exhaustion requirement, [Petitioners] must show harm that will irreparably result if the administrative process, rather than the court action, is allowed to go forward.” (Ibid.) Petitioners do not explain how the alleged harm to Towner from the pendency of the Accusation would be materially different if the exhaustion requirement were excused. Furthermore, Petitioners’ allegations of how Towner would be irreparably harmed are conclusory and insufficient to state an excuse from exhaustion. (FAP ¶ 69.)

Petitioners seek to assert an excuse from exhaustion on the grounds that “DFPI delayed its action in bringing the Accusation.” (FAP ¶ 69.) Petitioners could raise laches or delay as a defense in the administrative proceedings. In any event, Petitioners have not alleged sufficient facts to support a claim of irreparable harm as a result of delay in filing the Accusation. “A remedy will not be deemed inadequate merely because additional time and effort would be consumed by its being pursued through the ordinary course of the law.” (Eight Unnamed Physicians v. Medical Executive Com. (2007) 150 Cal.App.4th 503, 515, citations and alterations omitted.) Similarly, “litigation expenses, however substantial and nonrecoverable, which are normal incidents of participation in the agency process do not constitute irreparable injury.” (Ibid. [citation omitted].) Thus, Petitioners do not establish any irreparable harm that would excuse the exhaustion requirement.

Petitioners attempt to invoke the futility exception on the grounds that “DFPI has declared its ruling by the issuance and terms of the Surrender Order that demonstrates it is has predetermined its jurisdiction and no other agency has jurisdiction to disclaim.” (FAP ¶ 69.) Futility is a narrow exception to the exhaustion requirement and does not apply unless a “petitioner can positively state that the commission has declared what its ruling will be in a particular case….” (Sea & Sage Audobon Society, Inc. v. Planning Comm. (1983) 34 Cal. 3d 412, 418.) “For the futility exception to apply, it is not sufficient that a party can show what the agency’s ruling would be on a particular issue or defense.” (Coachella Valley v. Cal. Public Employment Relations Bd. (2005) 35 Cal. 4th 1072, 1081.) Petitioners have not alleged that OAH has declined jurisdiction over an affirmative defense based on section 25242 or that OAH has declared what its ruling would be related to such defense. That the Department has made its position clear is not sufficient to excuse Petitioners’ obligation to exhaust their administrative remedies before OAH.

The court has considered Petitioners’ remaining arguments, and none warrant an exception to the exhaustion requirement. There are legitimate reasons for the exhaustion requirements. In addition to developing a complete factual record before this court, which sits as a quasi-appellate court, administrative expertise may aid in resolving Petitioners’ contentions related to the Surrender Order and section 25242, as well as developing a factual record for judicial review. Significantly, “[e]ven where the statute sought to be applied and enforced by the administrative agency is challenged upon constitutional grounds, completion of the administrative remedy has been held a prerequisite to equitable relief.” (Service Employees Internat. Union, Local 1000 v. Department of Personnel Admin. (2006) 142 Cal.App.4th 866, 871.)

The court finds that Petitioners have not exhausted their administrative remedies, as required to assert the first cause of action. The court finds that Petitioners’ have not alleged sufficient facts or cited sufficient legal authority to establish an exception to this requirement. Therefore, the court sustains the demurrer to the first cause of action.

In the second cause of action, Petitioners allege that it was improper for Respondent to name Towner in the Accusation because “[t]here is no statutory authority, express or implied, permitting DFPI to institute a proceeding to revoke the license or certificate of Towner as an Investment Adviser Representative.” (FAP ¶ 87.) Towner has not exhausted his administrative remedies, viz., he can argue at the administrative hearing that he is not a proper party to this action. This issue does not implicate a jurisdictional issue that might qualify for an exception to the exhaustion requirement, and even if so, Petitioners do not establish that they are entitled to relief under the Coachella factors. Nor do Petitioners establish any other exception to the exhaustion requirement for the reasons stated. Therefore, the court sustains the demurrer to the second cause of action.

In the third cause of action, Petitioners seek to raise an interlocutory challenge to the ALJ’s procedures and rulings in three respects. First, Petitioners allege that “the ALJ has excluded critical, material and relevant evidence not only that are necessary elements of the violations alleged by DFPI, including its necessary finding of ‘public interest,’ but also necessary to develop an administrative record for subsequent judicial review.” (FAP ¶¶ 105, 107.) Petitioners allege that the ALJ ruled on Respondent’s “last-minute Motion in Limine that excluded a significant amount of evidence that was material to the Petitioners’ pre-planned case in chief, affirmative defenses and critically, the only documents related to required showing of ‘public interest,’ based on DFPI’s representations that such were ‘the inadvertent disclosure of the attorney-client privilege, work-product, privileged communications.’” (FAP ¶ 51; see also Id. ¶¶ 52-59.) Second, Petitioners allege that “the ALJ has repeatedly refused to issue written rulings that would have clarified and avoided this particular cause of action.” (Id. ¶ 106.) Petitioners allege that they “have requested that the ALJ memorialize his oral rulings as required by the OAH regulations, including and in particular, those continually expanding views on excluded documents under DFPI’s motion in limine.” (FAP ¶ 23.) Petitioners allege that “[t]he repeated refusal to issue written rulings despite numerous written and oral requests of Petitioners, results in a completely flawed record and makes the purpose of exhaustion futile.” (Id. ¶ 61.) Finally, Petitioners allege that the ALJ ruled that Petitioners’ “arguments that adjudicating this matter as an administrative proceeding deprives respondents of their Constitutional rights are not appropriately addressed in a motion to disqualify an ALJ; they, too, are more appropriately addressed in a writ petition.” (Id. ¶ 66.) Thus, Petitioners suggest that ALJ has indicated that it is futile for Petitioners to raise constitutional arguments in the OAH proceeding. (Id. ¶ 65.)

Based upon the foregoing allegations, Petitioners request “a writ of administrative mandate directing DFPI to act for the public interest and follow the ethical requirements of government prosecuting attorneys, including appropriate disclosure of exculpatory evidence, and directing OAH to follow OAH regulations and APA impartially to both parties in the DPFI Action, including issuing written rulings on motions to appropriately document and develop the administrative record.” (Id. ¶ 110.) Again, Petitioners have not exhausted their administrative remedies. In fact, Petitioners have an adequate administrative remedy, i.e., to raise these issues during the administrative process.

Nor do Petitioners allege sufficient facts to demonstrate an exception to the exhaustion requirement. To the extent Petitioners repeat the same arguments, the court rejects them for the reasons discussed. The court has considered Petitioners’ arguments that are specific to the third cause of action and finds no irreparable harm. Although Petitioners allege that the ALJ did not issue written rulings for certain motions, Petitioners do not show that the ALJ was required by law to issue written rulings for those motions. For instance, Petitioners fail to allege whether they or Respondent filed any motion to compel that would have required a written ruling pursuant to Government Code section 11507.7. (FAP ¶ 106.) Moreover, Petitioners do not allege that the ALJ’s oral rulings were not transcribed by a court reporter. To the extent Petitioners suggest the ALJ declined to rule on constitutional arguments, Petitioners do not allege that it would be futile to complete the administrative process. “For the futility exception to apply, it is not sufficient that a party can show what the agency's ruling would be on a particular issue or defense. Rather, the party must show what the agency's ruling would be ‘on a particular case.’” (Coachella Valley v. Cal. Public Employment Relations Bd. (2005) 35 Cal. 4th 1072, 1081.) For all of these reasons, Petitioners do not allege sufficient facts to support a claim that they would suffer irreparable harm if the trial court does not intervene prior to completion of the administrative process.

The court has considered Petitioners’ remaining arguments and finds none to be persuasive. Therefore, the court sustains Respondents’ demurrer to the third cause of action.

The fourth cause of action seeks declaratory relief concerning the application of Corporations Code section 24242, which is derivative of the first cause of action. The fifth cause of action seeks declaratory relief concerning the application of Corporations Code section 25403 to assert liability against Towner, which is derivative of the second cause of action. The seventh cause of action seeks declaratory relief on whether Petitioners have a constitutional right to a jury trial, which is derivative of the third cause of action.

A declaratory relief action is inappropriate when a plaintiff has an adequate remedy on other causes of action at trial. (See Hood v. Superior Court (1995) 33 Cal.App.4th 319, 324; California Ins. Guarantee Assn. v. Superior Court (1991) 231 Cal.App.3d 1617, 1624.)

The declaratory relief statute should not be used for the purpose of anticipating and determining an issue which can be determined in the main action. The object of the statute is to afford a new form of relief where needed and not to furnish a litigant with a second cause of action for the determination of identical issues.

(General of America Ins. Co. v. Lilly (1968) 258 Cal.App.2d 465, 470.) The Court has discretion to decline to issue a declaratory judgment under these circumstances. (See AICCO, Inc. v. Insurance Company of North America (2001) 90 Cal.App.4th 579, 590.) In the alternative, the court sustains the demurrer to these causes of action for the same reasons it sustains the demurrer to the writs causes of action.

In the sixth cause of action, Petitioners argue that Respondents violated the statutes governing confidential personnel records of peace officers. Petitioners seek declaratory relief finding that: “(i) the documents and information that DFPI received from VCDA on or around June 25, 2019 are confidential peace officer records of Towner; (ii) DFPI’s acquisition of such confidential peace officer records were acquired illegally by DFPI as not following the Pitchess motion requirements; (iii) DFPI is an enforcement agency that knows or should know of the requirements of Pitchess motion; (iv) DFPI’s receipt, possession and use of the confidential peace records constitute a misdemeanor under California law; and (v) all information derived from such confidential peace officer records should be excluded from the DFPI Action as result of the interrelationship and joint action by DFPI and VCDA.” (FAP ¶ 145 [bold italics added].) This cause of action is derivative of the third cause of action because Petitioners ask this court to make certain findings and exclude evidence from the underlying administrative proceedings. The ALJ must make these decisions in the first instance. Accordingly, this cause of action is derivative of, and irreparably intertwined with, the third cause of action. To the extent Towner alleges that the VCDA violated the Pitchess statutes, the VCDA is not a party to this case. Therefore, the court sustains the demurrer to the sixth cause of action.

In the eighth cause of action, Petitioners allege that “[b]y acting in the manner set forth in the foregoing paragraphs, DFPI and its agents, employees and counsel, acted arbitrarily and unreasonably, in violation of Petitioners’ rights to substantiative and procedural due process and equal protection of the laws.” (FAP ¶ 160.) Petitioners allege that “[a]s a proximate result of DFPI’s actions, including its agents, employees, and counsel acting in their official capacities for DFPI and the State of California, Petitioners have suffered and may continue to suffer irreparable harm as set forth above and injunctive and monetary relief is therefore appropriate as well as recovery of reasonable attorneys’ fees and costs under 42 U.S.C. § 1988.” (Id. ¶ 161.) Accordingly, the eighth cause of action is derivative of the writs causes of action, and the court sustains the demurrer on the same grounds.

A demurrer may be sustained without leave to amend when there is no reasonable possibility that the defect can be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Courts generally allow at least one time to amend a complaint after sustaining a demurrer. (McDonald v. Superior Court (1986) 180 Cal.App.3d 297, 303.) In assessing whether leave to amend should be granted, the burden is on the complainant to show the court that a pleading can be amended successfully. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348-349.)

In this case, the court has already granted Petitioners leave to amend the petition, to no avail. Although Petitioners request leave to amend, they have not made an offer of proof of how the petition could be successfully amended to plead an excuse from exhaustion. (See Oppo. 16.) In these circumstances, leave to amend is denied. The court’s ruling is limited to the present circumstances in which the OAH proceeding is still pending, and all of Petitioners’ causes of action are inherently intertwined with that proceeding. The court does not intend, by this ruling, to bar Petitioners from pursuing declaratory relief or a cause of action under Title 42, United States Code, section 1983, where legally appropriate, after exhaustion of their administrative remedies.

2. The court denies leave to amend, as there is no reasonably possibility that Petitioners can remedy the defects because the administrative proceedings are still pending.

3. The court’s ruling is limited to the present circumstances in which the OAH proceeding is still pending, and all of Petitioners’ causes of action are inherently intertwined with that proceeding. The court does not intend, by this ruling, to bar Petitioners from pursuing declaratory relief or a cause of action under Title 42, United States Code, section 1983, where legally appropriate, after exhaustion of their administrative remedies.

[1] Petitioners could have filed a petition for writ of ordinary mandate challenging the Surrender Order immediately when it was issued in June 2022 and prior to the filing of the Accusation. They apparently declined to do so.

[2] That rationale does not apply to Atlas.