0523 GONZALEZ Demurrer No2 Tentative v2

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SUPERIOR COURT OF CALIFORNIA

COUNTY OF SACRAMENTO

ISAAC GONZALEZ, JAMES CATHCART,

and JULIAN CAMACHO,

v.

KEVIN JOHNSON, JOHN SHIREY, JOHN

DANGBERG, CITY OF SACRAMENTO,

and DOES 1 through 40,

Case Number: 34-2013-80001489

TENTATIVE RULING: DEMURRER TO FIRST

AMENDED PETITION

Date: May 23, 2014

Time: 11:00 a.m.

Dept.: 29

Judge: Timothy M. Frawley

Proceeding: Demurrer

Tentative Ruling: Sustained, With Leave to Amend

Respondents/Defendants Kevin Johnson, John Shirey, John Dangberg, and the City of

Sacramento demur to Petitioners/Plaintiffs First Amended Petition and Complaint

(Petition) on the grounds the matter is not ripe, the petition fails to state facts sufficient

to constitute a cause of action against Respondents, Petitioners lack standing,

Respondents are immune from liability, and Petitioners are not legally entitled to the

relief they seek. The court shall sustain the demurrer, with leave to amend.

At the hearing, the parties also should be prepared to discuss the May 5, 2014 Joint

Status Report.


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Facts Alleged

This court (Hon. Eugene L. Balonon) previously sustained a demurrer to

Petitionersinitialpetition and complaint. The court concluded that the petition/complaint

was not ripe because it challenged the City Councils approvalof a non-binding Term

Sheet. The court reasoned that because the Term Sheet is not binding, it does not

commit the City to any project, transaction,or expenditures regarding the proposed

development of a new downtown arena. The Term Sheet merely sets forth the process

and framework by which the parties agreed to negotiate a potentially binding

agreement regarding development and operation of a new arena. Thus, the court

sustained Respondents demurrer. Petitioners were granted leave to amend.

In November 2013, Petitioners filed their First Amended Petition and Complaint (First

Amended Petition). With a few notable exceptions, discussed below, the allegations of

the First Amended Petition are essentially the same as the allegations of the initialpetition/complaint.

The First Amended Petition challenges the Citys March 26, 2013, approval of a Term

Sheet with the Sacramento Investor Group for the development of a new downtown

arena. Although the Term Sheet states that the Citys total contribution toward the cost

of the new arena will be $258 million, Petitioners allege that Respondents Johnson,

Shirey, and Dangberg fraudulently concealed and/or publicly misrepresented the true

value of certain assets (parking spaces, electronic billboard leases, and real property)

that will be conveyed as part of the Citys contribution to the project, so as to convey a

secret subsidy to the Sacramento Investor Group for purchasing the overvaluedSacramento Kings franchise.1Petitioners allege that the Respondents concealed and

misrepresented the fair market value of these contributions to defraud and induce the

public and the City Council into supporting the arena and theTerm Sheet.

The First Amended Petition alleges seven causes of action. The First and Second

Causes of Action allege the individual Respondents fraudulently concealed and

misrepresented the value of the Citys contributions to garner support for the Term

Sheet, which includes the secret subsidy for the Sacramento Investor Group.

The Third Cause of Action, for mandamus, alleges the City Councils approval of the

Term Sheet was unlawfully and fraudulently procured and seeks a writ of mandate

commanding the City to refrain from spending any additional public funds in furtherance

of the Term Sheet.

1The First Amended Petition also alleges that the individual Respondents falsely represented that theCounty of Sacramento agreed to waive its possessory interest tax for the arena.


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The Fourth and Fifth Causes of Action are taxpayer actions under Civil Procedure Code

526a. They allege that any expenditures under the Term Sheet are unlawful and/or a

waste of public funds because the Term Sheet includes the secret subsidy, authorizes

use of parking meter revenues in a manner that violates Sacramento City Code

10.040.130, and commits City funds to a project that has no demonstrated public

benefit. The Fourth and Fifth Causes of Action seek to enjoin Respondents from taking

any further action or expending any further public money under the Term Sheet.

The Sixth Cause of Action, for declaratory relief, alleges that the individual Respondents

procured the Term Sheet by fraud, concealment, and other unlawful means. The Sixth

Cause of Action seeks a judicial declaration that the Term Sheet authorizes unlawful

expenditures and/or public waste of funds.

The Seventh Cause of Action seeks injunctive relief based on the allegations pled in theother causes of action.

The initial petition/complaint alleged the same seven causes of action, except that,

instead of mandate, the Third Cause of Action sought a writ of prohibition. The only

substantive difference between the initial petition/complaint and the First Amended

Petition is that the First Amended Petition includes two additional paragraphsaddressing

ripeness. (See First Amended Petition 45-46.)Specifically, the First Amended Petition

alleges this action is ripe because (1) the Term Sheet anticipates the preparation of

definitive legal documents based on its terms, and (2) the City has spent funds to

implement the Term Sheet prior to the approval of final definitive agreements.

The First Amended Petition lists four examples of expenditures allegedly authorized by

the City Council to implementthe Term Sheet: (a) Resolution No. 2013-0175,

reclassifying a City staff position from Program Specialist to Senior Development

Project Manager; (b) Resolution No. 2013-0236, which authorized the expenditure of

$1,755,000 for professional and consulting services; (c) Resolution No. 2013-0191,

which forgave $7.5 million on a $10 million City loan in exchange for the Crocker Art

Museums relinquishment of claims related to parking lots; and (d) Resolution No. 2013-

0222, which authorized the expenditure of up to $750,000 for outside counsel. Forthese reasons, the First Amended Petition alleges the matter is ripe for review.

Respondents demur to the First Amended Petition on the grounds the matter is not ripe,

the petition fails to state facts sufficient to constitute a cause of action, Petitioners lack

standing, Respondents are immune, and Petitioners are not legally entitled to the relief

they seek.


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Requests for Judicial Notice

Respondents have filed two requests for judicial notice (Exhibits A through W). The first

was filed on December 20, 2013. The second was filed on May 16, 2014. Petitioners

have filed objections to both. The court sustains the objections to Exhibits A, K, M, and

N, on relevance grounds. The court otherwise grants Respondents requests for judicial

notice, but only for proof of the contents of the documents, and not to prove the truth of

the matters asserted therein.

The court grants Petitioners May 12, 2014, request for judicial notice . (Exhibits A and

B).

Standard of Review

In reviewing the sufficiency of a complaint against a demurrer, the court is guided by

long-settled rules. The court treats the demurrer as admitting the truth of all factual

material allegations properly pleaded in the complaint, regardless of possible difficulties

of proof. However, a demurrer does not admit contentions, deductions, or conclusions

of fact or law alleged in the complaint; facts impossible in law; or allegations contrary to

facts of which a court may take judicial notice. (Blank v. Kirwan(1985) 39 Cal.3d 311,

318; Martinez v. Socoma Companies, Inc. (1974) 11 Cal.3d 394, 399.)

Discussion

The court shall sustain the demurrer.

The First Amended Petition does not state a claim for illegal expenditure or waste of

public funds because the First Amended Petition challenges only the City Councils

approval of the Term Sheet. As Petitioners have conceded, the Term Sheet is non-

binding and does not commit the City to approve any project or expendany funds. As

this court previously found, the Term Sheet simply establishes the framework by which

the parties agreed to negotiate. The Term Sheet sets forth the proposed terms for a

transaction, and anticipates the preparation of definitive legal documents shouldnegotiations prove successful, butthe Term Sheet doesnot approve the transaction or

obligate the City to enter into the transaction. Accordingly, the Citys approval of the

Term Sheet does not support a taxpayer claim for an illegal expenditure or waste of

public funds. Unless and until the challenged expenditures are approved, any challenge

to such expenditures is premature and unripe. (See Stonehouse Homes LLC v. City of


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Sierra Madre(2008) 167 Cal.App.4th 531, 541; Cedar Fair, L.P. v. City of Santa Clara

(2011) 194 Cal.App.4th 1150, 1170-73.)

Petitioners attempt to cure this defect by alleging, on information and belief, that the City

madeexpenditures implementing the Term Sheet. The First Amended Petition does

not allege that the expenditures that occurred were themselves illegal or a waste of

public funds. It simply asserts the conclusion that they are illegal and improper because

they were made in furtherance of the allegedly unlawful Term Sheet. However, the First

Amended Petition does not allege that the Term Sheet authorized or approved such

expenditures. Rather, the Petition admits that each of these expenditures was

separately approved by the City after approval of the Term Sheet. (See First Amended

Petition 46.) In sum, the expenditures and the Term Sheet stand on equal footing;

both were made in furtherance of the proposed arena transaction.

For similar reasons, the First Amended Petition also does not state a claim for fraud orconcealment. To assert a claim for fraud, Petitioners must allege misrepresentation,

knowledge of the falsity, an intent to defraud, justifiable reliance, and resulting harm.

(See Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519.) To assert a claim

for concealment, Petitioners must allege intentional concealment of a material fact, a

duty to disclose the fact to the plaintiff, an intent to defraud, the plaintiff was unaware of

the concealed fact and would not have acted if he had known the concealed fact, and

resulting harm. (Levine v. Blue Shield of California(2010) 189 Cal.App.4th 1117, 1126-

27.)

Here, even if Petitioners have standing to assert claims for fraud or deceit allegedlyperpetrated by the Mayor, City Manager, and Assistant City Manager against the City

Councilwhich is doubtful2Petitioners have failed to allege resulting harm.

Concealment/misrepresentation of the secret subsidy prior to the Citys approval of the

Term Sheet did not cause harm because the Term Sheet is not a binding agreement. It

merely is an agreement to negotiate a potential transaction. The Term Sheet did not

create any binding contractual obligations or commit the City to fund any particular

expenditures.

The First Amended Petition does not state a claim for a writ of mandate because it doesnot allege that Respondents failed to perform an official duty, or prejudicially abused

their discretion in performing an official duty. (Agricultural Labor Relations Bd. v. Exeter

Packers, Inc. (1986) 184 Cal.App.3d 483, 489;Anaheim Redevelopment Agency v.

Dusek(1987) 193 Cal.App.3d 249, 263.)

2The First and Second Causes of Action are not taxpayer representative claims under Civ. Proc. Code 526a.


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The First Amended Petition does not state a claim for declaratory relief because an

action for declaratory relief is authorized only when an actual, justiciable controversy

relating to the legal rights and duties of the respective parties exists. (Cal. Civ. Proc.

Code 1060; Le Page v. City of Oakland(1970) 13 Cal.App.3d 689, 692 [a justiciable

controversy must be definite, concrete, and touching the legal relations of parties having

adverse interests].) In addition, declaratory relief operates prospectively to declare

future rights; when only past wrongs are alleged, there is no basis for declaratory relief.

(Le Page, supra, 13 Cal.App.3d at p.692; County of San Diego v. State of California

(2008) 164 Cal. App. 4th 580, 607-608.)

The claim for injunctive relief fails because injunctive relief is a remedy, not a cause of

action. (City of South Pasadena v. Department of Transportation(1994) 29 Cal.App.4th

1280, 1293.)

Disposition

The demurrer is sustained. However, because there is a reasonable possibility that the

defect can be cured by amendment, the court grants Petitioners twenty (20) days leave

to amend.

In the event that this tentative ruling becomes the final ruling of the court, this order shall

be effective immediately. No formal order pursuant to CRC Rule 3.1312 or further

notice shall be required.

This tentative ruling shall become the ruling of the court unless a party desiring to be heard so

advises the clerk of this Department no later than 4:00 p.m. on the court day preceding the

hearing, and further advises the clerk that such party has notified the other side of its intention

to appear. Any party desiring an official record of this proceeding shall make arrangements for

reporting services with the clerk of the department where the matter will be heard not later than

4:30 p.m. on the day before the hearing. The fee is $30.00 for civil proceedings lasting under

one hour, and $239.00 per half day for proceedings lasting more than one hour. (Local Rule

9.06(B) and Government Code 68086.)

Documents

0523 GONZALEZ Demurrer No2 Tentative v2