CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

JAMES E. FULTON, JR.,

Plaintiff and Appellant,

v.

THE MEDICAL BOARD OF CALIFORNIA,

Defendant and Respondent.

B215102

(Los Angeles County

Super. Ct. No. BC387318)

APPEAL from a judgment by the Superior Court of Los Angeles County, Richard L. Fruin, Judge. Affirmed.

Martin & McCormick, John D. Martin and Kathy J. McCormick for Plaintiff and Appellant.

Edmund G. Brown, Jr., Attorney General, Paul C. Ament and Vladimir Shalkevich, Deputy Attorneys General, for Defendant and Respondent.

____________________________

Appellant James E. Fulton, Jr., appeals from a judgment denying his claim for declaratory and injunctive relief against respondent, The Medical Board of California (the Board). Appellant was a licensed physician in California before surrendering his license in 2003 to settle disciplinary charges filed by the Board. Afterwards, the Board published disciplinary information about appellant on its Web site, including information about a medical malpractice judgment entered against him, and the surrender, retirement, and indefinite suspension of his licenses to practice medicine in other states. Appellant sued the Board, claiming that because he no longer was licensed in California, he was not a “licensed physician” or a “licensee” under Business and Professions Code section 2027, (and by implication the cross-referenced section 803.1) and therefore the Board was not required to disclose the information. The trial court found the Board acted within its statutory mandate and denied appellant’s claim. He appeals, arguing the court erred in its interpretation of the statutes. We disagree, and hold that sections 803.1 and 2027 required the Board to publish the information.

FACTUAL AND PROCEDURAL SUMMARY

Following the usual rules on appeal after a trial on the merits, we construe the facts in the light most favorable to the judgment. (Woodman Partners v. Sofa U Love (2001) 94 Cal.App.4th 766, 771.)

Appellant was first licensed to practice medicine in California in 1970. Beginning in 1997, California and several other states initiated disciplinary actions against him. In 2002, appellant voluntarily surrendered his California license as part of a stipulated settlement with the Board; the surrender became effective in 2003. Shortly thereafter, the Board posted information on its Web site showing that appellant surrendered his California license in 2003. The same year, the Board changed its disclosure policy about individuals formerly licensed in California. Under its new policy, which remains its policy, information about disciplinary actions undertaken by the Board and in other states, felony convictions, and certain settlements and arbitration awards is available on the Internet. (See fn. 4, infra.) The Board posted information about enforcement actions taken against appellant in other states while he was licensed in California, and updated disclosures as out-of-state cases proceeded. The disclosures included the surrender, retirement, and indefinite suspension of appellant’s medical licenses in Florida, New York, and Louisiana, and a malpractice judgment entered against him in Orange County Superior Court. Actions initiated against appellant after he surrendered his California license were not disclosed, including the revocation of his Tennessee license in 2005.

Although appellant was no longer licensed to practice medicine in any state, he continued to work in a field closely related to medicine. Appellant gave three-day lectures in California and elsewhere for a company, Advanced Aesthetics Training Institute, about diseases of the skin, the causes and treatments of acne, and other dermatological topics. Attendees were given certificates signed by appellant as an “M.D.” Appellant’s family had an ownership interest in a company, Vivant Pharmaceuticals (Vivant), that produced dermatological products which appellant promoted at trade shows in various states, including California. Advertising materials for the products attributed the titles “Dr.” or “M.D.” to appellant, described him as a “Lead Formulating Consultant,” and mentioned his “35 years of experience as a physician.” Vivant’s products were sold to the public through a Web site that described appellant’s medical education, and claimed that he was a “leading researcher, cosmetic surgeon and dermatologist.” Appellant answered questions on the Web site regarding the causes and treatments for skin conditions as “Dr_Fulton.” The record does not show that the Web site disclosed that appellant was not licensed to practice medicine. An investigator from the Board purchased products from the Web site, which were delivered to California with an embossed inscription of appellant’s signature “James E. Fulton, M.D.”

Appellant filed this action against the Board in 2008. He alleged that the Board’s disclosures of his disciplinary record caused him to lose work opportunities and suffer “public and private ridicule and embarrassment.” Some of Vivant’s customers called the company and discussed, in an agitated manner, the information posted on the Board’s Web site. While appellant was giving a lecture at a conference in Malaysia, the chairman of the conference received an email referencing the Board’s Web site, with the comment “shame, shame, shame.” Appellant was not invited to subsequent conferences. He sought a declaratory judgment that the Board was not statutorily required to publish the disciplinary information, and an injunction prohibiting the Board from posting any information about him on its Web site. The matter proceeded to trial, and judgment was entered for the Board. This appeal followed.

DISCUSSION

Appellant argues that sections 803.1 and 2027 do not require the Board to “post information regarding disciplinary actions against physicians who are no longer licensed by the State.” Because this claim requires interpretation of sections 803.1 and 2027, we apply a de novo standard of review. (Szold v. Medical Bd. of California (2005) 127 Cal.App.4th 591, 596, fn. 4.)

“In construing any statute, ‘[w]ell-established rules of statutory construction require us to ascertain the intent of the enacting legislative body so that we may adopt the construction that best effectuates the purpose of the law.’ [Citation.] ‘We first examine the words themselves because the statutory language is generally the most reliable indicator of legislative intent. [Citation.] The words of the statute should be given their ordinary and usual meaning and should be construed in their statutory context.’ [Citation.] If the statutory language is unambiguous, ‘we presume the Legislature meant what it said, and the plain meaning of the statute governs.’ [Citation.]” (Whaley v. Sony Computer Entertainment America, Inc. (2004) 121 Cal.App.4th 479, 484-485.) “If, however, the statutory terms are ambiguous, then we may resort to extrinsic sources, including the ostensible objects to be achieved and the legislative history.” (Day v. City of Fontana (2001) 25 Cal.4th 268, 272.) The Board interprets sections 803.1 and 2027 to require that it disclose enforcement actions that occurred while former licensees were licensed in California, and to correct errors in disclosures. We accord respect and consideration to the Board’s interpretation, but we apply our independent judgment in construing the statutes. (See Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 7-8.)

Sections 803.1 and 2027 require the Board to disclose information about “licensees” and “licensed physicians” without explicitly stating whether the Board must make disclosures about individuals who no longer hold a license to practice medicine in this state. But, provisions of the statutes demonstrate that the Legislature intended the disclosure requirements to apply to former license holders. Section 803.1, subdivision (a) requires the Board to disclose “any enforcement actions taken against a licensee by [the Board] or by another state . . . .” Enforcement actions include “[r]evocations, suspensions, probations, or limitations on practice ordered by the board, including those made part of a . . . stipulated agreement.” (§ 803.1, subd. (a)(3).) By definition, “revocations” include licenses that have been revoked and hence are no longer valid, and it is reasonable to interpret this provision to apply to former license holders. Section 2027, subdivision (a)(1) requires that the Board post on the Internet enforcement actions set forth in section 803.1. Section 2027, subdivision (b)(1) requires that the Board post enforcement actions, including license revocations and malpractice judgments, on its Web site for a period of 10 years after the information comes within its possession, custody, or control without providing for its removal if an individual is no longer licensed in California. Limiting required disclosures to current licensees would render this provision ineffectual.

The legislative history and background of these statutes are consistent with this reading. Over the course of a decade, the Legislature expanded the substance and form of the Board’s disclosure mandates. When originally enacted in 1993, section 803.1 required the Board to disclose to the public temporary restraining orders, suspensions, limitations on practice, and letters of reprimand. (Sen. Bill No. 916 (1993-1994 Reg. Sess.) § 4.3.) In 1997, the Legislature added medical malpractice judgments, arbitration awards, and hospital disciplinary actions to the disclosure requirements. (Assem. Bill No. 103 (1997-1998 Reg. Sess.) § 4.) At the same time, it enacted section 2027, requiring the Board to post on the Internet information about the status of a license and whether a licensee had been subject to discipline by the Board or another state. (Assem. Bill. No. 103 (1997-1998 Reg. Sess.) § 7.) That bill’s proponents argued that expanded disclosures would “enable consumers to make informed decisions about their physicians.” (Sen. Com. on Business and Professions, Rep. on Assem. Bill No. 103 (1997-1998 Reg. Sess.) June 23, 1997.) It was sponsored to allow the public easy access to disciplinary information about physicians, particularly information about medical negligence. (Ibid.) In 2002, section 803.1 was amended to require disclosure of revocations, including those made part of a stipulated agreement, and section 2027 was changed to require disclosure of enforcement actions set forth in section 803.1. (Sen. Bill. No. 1950 (2001-2002 Reg. Sess.) §§ 6, 13.)

This history shows the Legislature intended that the Board disclose information about physicians’ disciplinary records to protect consumers and prevent medical malpractice. In interpreting these statutes, we presume “‘“the Legislature intended reasonable results consistent with its expressed purpose, not absurd consequences.”’” (Hellinger v. Farmers Group, Inc. (2001) 91 Cal.App.4th 1049, 1056.) In a literal sense, once a license is revoked, a former license holder is no longer a licensee. But public knowledge of the fact that a putative physician no longer holds a license to practice medicine in this state is central to the informative purpose of the statutes. Limiting the meaning of “licensee” to current license holders would defeat that purpose.

Perhaps in acknowledgment of this, appellant argues that the public would be equally protected if the Board only posted information showing when he surrendered his California license, without including information about his out-of-state license revocations and the medical malpractice judgment entered against him. The facts of this case illustrate the correctness of the Board’s interpretation of the statutes. Appellant repeatedly held himself out as a physician when marketing products and giving lectures in California. The public has an interest in the professional disciplinary history of an individual who affiliates with the practice of medicine, and the Board’s disclosures further the public safety and welfare. We note that even if appellant did not work in the medical field or represent himself as a physician, there is no reason why the Board would not disclose information in its custody or control on the Internet rather than require an inquiring member of the public to search through databases of different states.

A reasonable interpretation of the text of the statutes, made in consideration of their purpose, supports the Board’s position. We interpret sections 803.1 and 2027 to require the Board to publish information about enforcement actions initiated while an individual is licensed to practice medicine in California, and to correct those disclosures when new information becomes available.

DISPOSITION

The judgment is affirmed. Respondent to have its costs on appeal.

CERTIFIED FOR PUBLICATION.

EPSTEIN, P. J.

We concur:

WILLHITE, J.

MANELLA, J.

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

BRUCE E. ELLISON, M.D.,

Plaintiff and Appellant,

v.

SEQUOIA HEALTH SERVICES,

Defendant and Respondent.

A124408

(San Mateo County

Super. Ct. No. CIV469933)

Defendant and respondent Sequoia Health Services (Sequoia) terminated the medical staff membership and hospital privileges of plaintiff and appellant Bruce E. Ellison, M.D., a licensed physician specializing in orthopedic medicine. Dr. Ellison appeals from a judgment denying his petition for writ of mandate to compel the reinstatement of his privileges. (Code Civ. Proc., § 1094.5.) We affirm.

FACTS AND PROCEDURAL HISTORY

Dr. Ellison graduated from Stanford Medical school, where he also completed an internship in general surgery. He secured a research fellowship at the University of Massachusetts (UMass) and began a residency in orthopedic surgery. He resigned from this program, having been required to repeat a year, and finished his residency in orthopedics at the Phoenix Residency Program in Arizona. After a three-month fellowship in sports medicine/reconstructive surgery in Phoenix, he submitted an application for staff privileges to Sequoia, a community hospital in San Mateo.

Sequoia approved Dr. Ellison’s application in June 2004 and he became a member of the provisional staff with privileges to perform orthopedic surgery, subject to an initial period of proctoring. He was proctored on seven procedures between June and September 2004 and received favorable reports on all of them. In October 2004, the Surgical Control Committee at Sequoia notified Dr. Ellison that proctoring was no longer required for lower extremity procedures, but would continue on upper extremity procedures until further notification. It later came to light that Dr. Ellison performed several upper extremity procedures without a proctor.

In October 2005, Dr. Ellison was reappointed for a two-year period. In February 2006, the Medical Executive Committee (MEC) appointed an ad hoc committee composed of three staff physicians to review eight of Dr. Ellison’s cases: (1) a surgery to repair the patient’s anterior cruciate ligament (ACL), which had taken a relatively long time (five and a half hours) to complete; (2) the cancellation of an ACL repair after the patient had been anesthetized, due to the inexperience of the particular “scrub tech”; (3) a decision to forego leg splints as a palliative measure on a patient awaiting surgery to repair tibial fractures, who was transferred to another hospital due to insurance reasons; (4) a surgery to repair a left elbow fracture, which took approximately four hours due to Dr. Ellison’s ultimately unsuccessful attempt to preserve the radial head; (5) the surgical treatment of a six-year old with a broken arm, whose father was highly critical of Dr. Ellison’s follow-up care and demeanor in the face of the boy’s near-hysteria when the cast was removed; (6) a surgery to release the patient’s trigger finger, which required a second surgery by another physician; (7) a longer-than average surgery time for a lateral menisectomy; and (8) a complicated (and unproctored) hand surgery in which Dr. Ellison had to call a plastic surgeon for a consultation in the middle of the operation.

The ad hoc committee initially recommended that Dr. Ellison remain under proctorship for upper extremity cases and that Sequoia’s Orthopedics Department continue to review all of his surgeries. Later, the ad hoc committee recommended that Dr. Ellison’s staff privileges be revoked. The MEC decided that a revocation of privileges was too severe, but concluded that Dr. Ellison required additional training and should be accompanied by both a proctor and a board certified assistant surgeon during all surgical procedures. The MEC also found that Dr. Ellison had appeared non-responsive and evasive during the investigation.

Dr. Ellison filed a request for a hearing before the hospital’s Judicial Review Committee (JRC) as he was entitled to do under Sequoia’s written bylaws. The MEC filed a notice of charges alleging that, based on the eight cases described above, “Dr. Ellison appears to lack the requisite clinical judgment, technical capability and patient management skills to practice safely and competently as an orthopedic surgeon.” The notice also alleged, “There are questions and concerns regarding the adequacy of Dr. Ellison’s background and training as an orthopedic surgeon.”

In describing the “questions and concerns” in the second charge, the notice referred to Dr. Ellison’s lack of candor with respect to his background and training. The notice alleged: “Initially, based on the information provided in his application for Medical Staff membership and in a letter from the University of Massachusetts Medical School in 2003, it appeared that Dr. Ellison left the program voluntarily and for innocuous reasons. However on April 13, 2006, he admitted to the MEC that they ‘did not like him’ there and suggested that he leave.” Additionally, “In the past, Dr. Ellison has been evasive about his Board certification status. In his application for Medical Staff membership dated September 23, 2003, he wrote: ‘Board Eligible (Results Pending) Orthopedic Surgery.’ However, on February 5, 2004, when Dr. Margolis [of Sequoia] asked him about it, he denied that he had taken the exam. When asked again in the same conversation, he said that he had taken the exam, but when asked if he had passed, he said that he was ‘confused.’ Finally, he admitted that he had failed.” The notice did not specifically allege that this lack of candor rendered Dr. Ellison unfit to practice at Sequoia or required additional remedial measures.

An extensive hearing was held before the JRC, which was composed of four physicians from Sequoia’s medical staff and presided over by an attorney who was appointed to serve as the hearing officer. Although the MEC had previously concluded that Dr. Ellison should retain his privileges subject to the dual proctor/assistant surgeon requirement, it took the position before the JRC that all staff privileges should be revoked. Dr. Ellison took the position that the dual proctoring/assistant surgeon requirement was too restrictive.

The MEC presented the testimony of physicians who worked with Dr. Ellison at Sequoia and who had been involved in the cases at issue and/or the investigation of those cases. Broadly speaking, these doctors were critical of Dr. Ellison’s performance and believed additional training and/or supervision was necessary. Dr. Sampson, an outside orthopedic surgeon who had been retained by the hospital to evaluate the eight cases under review, concluded that Dr. Ellison had shown a lack of experience but did not fall below the standard of care. Dr. Schurman, an orthopedic surgeon whom Dr. Ellison called as an expert, opined that while proctoring should continue in upper extremity cases, the requirement of a Board certified assistant surgeon during all procedures was excessive. Dr. Ellison testified on his own behalf regarding his handling of the cases.

Evidence was also elicited on the subject of Dr. Ellison’s honesty. Although he had been asked by UMass to repeat the second year of his residency program, he did not specifically disclose this on his application for privileges at Sequoia (though he did accurately state the dates he was in the UMass program). When MEC members had questioned him about his reason for leaving UMass, he variously said that he wanted to be closer to his girlfriend, that the UMass people had not liked him, that it had been suggested he leave, and that he “snuck” out. When the MEC asked him about the number of times he had failed the first portion of his Board examination, Dr. Ellison claimed not to remember and then said he had failed it twice, even though he appeared to have failed the examination three times. Dr. Ellison had claimed not to remember the date of his graduation from medical school and gave varying answers about his training, among other things, saying that he did a sports medicine fellowship that he never completed. At the time of his initial appointment to Sequoia, Dr. Ellison had represented that he was “board eligible,” even though he had twice failed the first portion of his Board examination.

The JRC issued a written report in which it concluded that the eight cases it considered “demonstrate [ ] that Dr. Ellison was inexperienced and that the MEC’s concerns about the quality of his training were not unjustified. . . . However, based on the totality of the evidence the JRC considered, . . . the eight cases did not demonstrate a pattern proving that, in fact, Dr. Ellison so lacks clinical judgment, technical capability, and patient management skills, as to make the MEC’s dual corrective action regime reasonable.” It affirmed the MEC’s decision to require the presence of a board certified assistant surgeon during Dr. Ellison’s surgical procedures, but reversed the requirement that a separate proctor also be present. It recommended that the MEC formulate a protocol specifying the duration of the assistant surgeon requirement.

The JRC’s report also concluded: “1. Dr. Ellison was intentionally unclear and evasive about the circumstances and reasons for his departure from the orthopedic residency program at [UMass]. [] 2. Dr. Ellison was not candid or honest about the number of times he had taken and failed the Board Certification examination. [] 3. Dr. Ellison’s performance at [UMass] and, subsequently, at the Phoenix Orthopedic Residency Program, were both below average. [] 4. Dr. Ellison had low percentile scores on the three Board Certification exams he failed and the one he subsequently passed. [] . . . . [] Much more troubling to the JRC than Dr. Ellison’s post-medical training and education were Dr. Ellison’s lack of candor, evasiveness, and misrepresentations (whether intentional or not). . . . Rather than providing complete and truthful responses, Dr. Ellison frequently either temporized, was evasive, professed confusion or faulty memory, was incomplete, parsed words, or was untruthful. On occasion, his testimony during the JRC hearing was marked and marred by the same deficits. [] “There is no practical way to initiate a corrective action regime which can police or effectively assure honesty or ethical behavior. While Dr. Ellison professes to have learned much from this experience, there is no assurance that he will in the future be more candid and complete with respect to the problematic personal or clinical issues. [] “The MEC is entitled to expect honesty and ethical behavior from its Medical Staff members. While what has occurred in the past is now in the past, the JRC recommends to the MEC that it avail itself of all appropriate remedies available to it if in the future it documents or establishes conduct by Dr. Ellison which is not in keeping with the ethical requirements of medical staff membership.”

Both Dr. Ellison and the MEC appealed the JRC’s decision to Sequoia’s Board. As permitted by the bylaws, the MEC submitted a letter from El Camino Hospital showing that it had denied Dr. Ellison’s application for reappointment to its staff, based on (1) his failure to give El Camino access to peer review information from the proceedings at Sequoia; (2) a question about the accuracy of information in his initial application and reapplication for privileges concerning the severance of his relationship with UMass; and (3) concerns raised by staff during his proctoring at El Camino. The MEC argued the letter was relevant to show Dr. Ellison had not been truthful when, during the JRC hearing, he testified that there was a pending recommendation to deny his privileges at El Camino solely because of the peer review proceedings at Sequoia.

The Board concluded that the hearing officer had mistakenly ruled that the JRC could not impose a greater sanction than initially recommended by the MEC, and could not consider the MEC’s revised recommendation that Dr. Ellison’s privileges be revoked. Noting that Dr. Ellison’s honesty and credibility had been key issues throughout the proceedings, the Board remanded the matter to the JRC so that it could reconsider the revocation of his privileges on that basis. The Board authorized the JRC to take additional evidence.

On remand, Dr. Ellison chose not to reopen the proceedings on issues relating to his honesty. The JRC did not change its factual findings and rejected the MEC’s argument that revocation was the appropriate outcome: “The JRC has unanimously decided that revocation of Dr. Ellison’s professional staff membership as a remedy purportedly commensurate with its ‘findings’ regarding issues of Dr. Ellison’s honesty, credibility, and ethics, is not factually supportable. Accordingly the imposition of a more stringent corrective action is not warranted and, necessarily, not reasonable.”

The MEC again appealed to the Board, which reversed the JRC’s second decision and revoked Dr. Ellison’s hospital privileges. The Board concluded that in light of the JRC’s factual findings concerning Dr. Ellison’s lack of honesty, there was no substantial evidence that Dr. Ellison met the hospital’s standards of honesty and integrity. The JRC hearing officer submitted a letter in response to the Board’s decision, noting that the JRC had been “extraordinarily conscientious and thorough” and that it “unanimously never believed that there was any factual basis to support any decision other than the one the JRC made initially and reconfirmed on remand.” He further noted, “[T]he JRC was uniformly of the view that while, as noted in its initial Decision and Report, the [JRC] was troubled by certain cited examples of Dr. Ellison’s evasiveness and lack of candor, none of such deficiencies supported corrective action as draconian as termination of membership and privileges.” The Board did not revise its decision.

Dr. Ellison filed a petition for writ of administrative mandate challenging the Board’s decision. (Code Civ. Proc., § 1094.5.) The superior court denied the petition and this appeal follows.

DISCUSSION

Dr. Ellison argues that the Board’s decision must be reversed because: (1) the Board did not correctly apply the substantial evidence standard to the JRC’s decision; (2) the Board violated his right to a fair hearing and the peer review statutes by imposing a harsher corrective action than that initially recommended by the MEC and by basing its revocation of staff privileges on ethical issues distinct from the original charges regarding the quality of care; and (3) federal regulations preclude a hospital board from “unilaterally” revoking a physician’s privileges. We reject these claims.

I. Peer Review at Sequoia Hospital

California has enacted a comprehensive statutory scheme governing hospital peer review. (Bus. & Prof. Code, § 809 et seq.; Mileikowsky v. West Hills Hospital & Medical Center (2009) 45 Cal.4th 1259, 1267; Smith v. Selma Community Hospital (2008) 164 Cal.App.4th 1478, 1482-1484 (Smith).) The purpose of peer review is “to protect the health and welfare of the people of California by excluding through the peer review mechanism ‘those healing arts practitioners who provide substandard care or who engage in professional misconduct.’ ” (Mileikowsky, supra, 45 Cal.4th at p. 1267, citing Bus. & Prof. Code, § 809, subd. (a)(6).)

An acute care hospital such as Sequoia must have “an organized medical staff responsible to the governing body for the adequacy and quality of the care rendered to patients.” (Cal. Code Regs., tit. 22, § 70703, subd. (a).) The medical staff must adopt written bylaws establishing a process of peer review to deal with “staff applications and credentials, appointments, reappointments, assignment of clinical privileges, appeals mechanisms and such other subjects. . . .” (Id., subd. (b).) A hospital’s bylaws govern its peer review proceedings, subject to the requirements of the peer review statutes. (Payne v. Anaheim Memorial Center, Inc. (2005) 130 Cal.App.4th 729, 739-740, fn. 5; Kaiser Foundation Hospitals v. Superior Court (2005) 128 Cal.App.4th 85, 97; Unnamed Physician v. Board of Trustees (2001) 93 Cal.App.4th 607, 617, 622; see Bus. & Prof. Code, § 809, subd. (a)(8) [“It is the intent of the Legislature that written provisions implementing Sections 809 to 809.8, inclusive, in the acute care hospital setting shall be included in medical staff bylaws . . . .”].)

Sequoia’s written bylaws delineate a three-tier process of peer review relating to possible disciplinary action or restriction of hospital privileges. At the first level, the MEC, composed of professional staff members from various departments, is authorized to investigate a staff member when reliable information indicates that he or she “may have exhibited acts, demeanor, or conduct reasonably likely to be 1) detrimental to patient safety or to the delivery of quality patient care within the hospital; 2) unethical; 3) contrary to the Professional Staff Bylaws and Rules; or 4) below applicable professional standards.” (Sequoia Hospital Professional Staff Bylaws, September 7, 2005 revision (Bylaws), art. VII, § 1(a), art. XIII.)

At the second level of review, a staff member may appeal an adverse action by the MEC to the JRC, composed of not less than three members of the medical staff, and is entitled to a hearing before that body. (Bylaws, art. VIII, §§ 1(a), 4(d) .) In all cases except those involving an initial application for membership or clinical privileges, the MEC “shall have the burden of persuading the [JRC] by a preponderance of the evidence that the action or recommendation is reasonable and warranted. . . .” (Bylaws, art. VIII, § 2(j).) The JRC must issue a written report and decision containing “[f]indings of facts and a conclusion articulating the connection between the evidence produced at the hearing and the decision reached. . . .” (Bylaws, art. VIII, § 2(l)(1).)

Finally, a decision by the JRC may be appealed by the staff member or the MEC to the Board on the grounds of “(a) alleged substantial failure of the [JRC] or [MEC] to comply with the procedures required by the law in the conduct of hearings so as to deny due process and a fair hearing; (b) the action taken or recommended is not reasonable and warranted under the circumstances.” (Bylaws, art. VIII, § 3(a).) An appeal to the Board “shall be in the nature of an appellate hearing based upon the record of the hearing before the [JRC], provided that the Board [] may accept additional oral or written evidence subject to the same rights of cross-examination or confrontation provided at the [JRC] hearing. . . .” (Bylaws, art. VIII, § 3(d).) The Board “may affirm, modify or reverse the decision of the [JRC], or, in its discretion, remand the matter for further review and recommendation.” (Bylaws, art. VIII, § 3(e).)

II. Judicial Review of Peer Review Decision

A hospital’s final decision in a peer review proceeding may be judicially reviewed by a petition for writ of administrative mandate. (Code Civ. Proc., § 1094.5; Bus. & Prof. Code, § 809.8; Smith, supra, 164 Cal.App.4th at p. 1499.) As relevant here, the writ shall issue when necessary to correct a prejudicial abuse of discretion by the hospital’s governing body, which is established when “the findings are not supported by substantial evidence in light of the whole record.” (Code Civ. Proc., § 1094.5, subds. (b) & (d).) In an appeal from an order granting or denying the writ, the appellate court must apply the same standard of review as the trial court, giving no deference to the trial court’s decision. (Smith, at p. 1499.)

When a court reviews a hospital’s final decision in a peer review proceeding on the ground that its findings were not support by substantial evidence within the meaning of Code of Civil Procedure section 1094.5, subdivision (d), two issues must be determined: First, did the hospital’s governing body (in this case the Board) apply the correct standard when it conducted its own review of the matter? (Bode v. Los Angeles Metropolitan Medical Center (2009) 174 Cal.App.4th 1224, 1235 (Bode); Hongsathavij v. Queen of Angels etc. Medical Center (1998) 62 Cal.App.4th 1123, 1138 (Hongsathavij).) Second, assuming the governing body applied the correct standard, was its own decision supported by substantial evidence? (Ibid.)

When the issue presented is whether the hospital’s determination was made according to a fair procedure, the court will treat the issue as one of law, subject to independent review based on the administrative record. (Pomona Valley Hospital Medical Center v. Superior Court (1997) 55 Cal.App.4th 93, 101.)

III. Sequoia’s Bylaws Gave the Board the Authority to Exercise its Own Independent Judgment as to Penalty and it Properly Exercised that Power in this Case

We first address Dr. Ellison’s contention that the Board’s decision must be reversed because it substituted its own judgment for the JRC’s when determining the appropriate disposition, rather than applying the more deferential substantial evidence standard required by Sequoia’s written bylaws. We reject the claim because we disagree with its premise. As we explain below, Sequoia’s bylaws required the Board to accept the JRC’s factual findings if supported by substantial evidence, but gave the Board the power to exercise independent judgment as to the appropriate disposition. (Bylaws, art. VIII, § 3(a) & (d).) The Board in this case properly accepted the JRC’s findings as to the historical facts, but reasonably concluded that based on those facts, Dr. Ellison’s privileges should be revoked.

Sequoia’s bylaws provide that any party aggrieved by a JRC decision may file an appeal with the Board. (Bylaws, art. VIII, § 3(a).) This is consistent with the peer review statutes, under which a hospital’s medical staff and its governing body both play a role in peer review proceedings. Under Business and Professions Code section 809.05, “It is the policy of this state that peer review be performed by licentiates. This policy is subject to the following limitations: [] (a) The governing bodies of acute care hospitals have a legitimate function in the peer review process. In all peer review matters, the governing body shall give great weight to the actions of peer review bodies and, in no event, shall act in an arbitrary or capricious manner.”

Business and Professions Code section 809.05, subdivision (a) has been interpreted to mean that a hospital governing body may exercise its own independent judgment about evidence presented to a peer review committee composed of medical staff, provided that it gives due weight to the findings of that committee and provided that the hospital’s bylaws do not require the governing body to apply a more deferential standard of review. (Weinberg v. Cedars-Sinai Medical Center (2004) 119 Cal.App.4th 1098, 1103, 1108, 1110-1111 (Weinberg).) Our initial task is ascertaining whether Sequoia’s bylaws provide for a more deferential standard of review than it would otherwise exercise under the statute.

Sequoia’s bylaws provide that a proceeding before the Board “shall be in the nature of an appellate hearing.” (Bylaws, art. VIII, § 3(d).) Case law has construed this phrase to invoke a substantial evidence standard of review under which the governing body must uphold the factual findings of the peer review body if they are supported by substantial evidence. (Bode, supra, 174 Cal.App.4th 1224, 1235; Smith, supra, 164 Cal.App.4th 1478; Huang v. Board of Directors (1990) 220 Cal.App.3d 1286, 1293.) But this does not entirely resolve the issue before us.

The bylaws also give the Board the ultimate responsibility of determining whether the action taken or recommended by the JRC is “reasonable and warranted under the circumstances.” (Bylaws, art. VIII, § 3(a).) This is essentially a factual determination. (Smith, supra, 164 Cal.App.4th at pp. 1509-1510, 1515.) By giving the Board the power to make this factual determination based on evidence presented at the JRC hearing (and on any additional evidence taken by the Board under article VIII, § 3(d)), the bylaws effectively allow the Board to exercise its independent judgment as to what constitutes a reasonable disposition, even though it must defer to the JRC with respect to its findings on the underlying facts.

Our conclusion that the Board may independently determine the appropriate disposition of a case, based on the facts found true by the JRC and supported by substantial evidence, is consistent with other provisions of Sequoia’s bylaws. For example, the Board may take and consider additional evidence not presented to the JRC, a power that would be meaningless if the Board could not make certain factual determinations independent of the JRC’s. (Bylaws, art. VIII, § 3(d).) The Board also has the power to “affirm, modify or reverse” the JRC’s decision, specifically allowing it to structure a different disposition than the JRC’s if the latter’s is not reasonable and warranted.

Turning to the specifics of this case, we consider whether the Board applied the correct standard when reviewing the JRC’s decision. (Bode, supra, 174 Cal.App.4th at p. 1235.) The Board’s written decision indicates that it applied the substantial evidence standard of review to the JRC’s underlying factual findings and accepted as true those facts determined by the JRC. The Board went on to state that in light of the findings relating to Dr. Ellison’s honesty and integrity, there was no substantial evidence to support the JRC’s determination that he should retain his hospital privileges. Although the Board couched this conclusion in terms of a lack of substantial evidence, it effectively determined that the JRC’s decision was not “reasonable and warranted under the circumstances”—a finding it was authorized to make under the bylaws.

Because the Board appropriately reconsidered the JRC’s decision as to penalty, we must uphold that decision so long as it was itself supported by substantial evidence. (See Hongsathavij, supra, 62 Cal.App.4th at pp. 1136-1137; Bode, supra, 174 Cal.App.4th at p. 1235; Code Civ. Proc., § 1094.5, subds. (b)-(d).) It was. The Board reasonably determined that Dr. Ellison’s failure to honestly and completely respond to the questions about his board certification examinations and his reasons for leaving the UMass residency was behavior that could jeopardize patient safety in the future. A physician who conceals information about himself to protect his reputation might well withhold information about a case if it reflected negatively upon his skills as a practitioner. The JRC expressly found that there were no remedial measures available to assure honest and ethical behavior. “[I]t is absolutely vital that [a] physician be absolutely truthful in his or her application. Hospitals exist to help the sick and injured; they are not detective agencies. They should have the widest possible discretion in decisions affecting physician staff privileges.” (Oskooi v. Fountain Valley Regional Hospital (1996) 42 Cal.App.4th 233, 248-249 (Sills, J. conc.), fns. omitted.)

IV. The Board Did Not Violate Dr. Ellison’s Fair Procedure Rights or the Peer Review Statutes by Imposing a Disposition More Severe than that Initially Recommended by the MEC or by Basing its Decision on Ethical Issues Identified During the Peer Review Process

“[T]he overriding goal of the state-mandated peer review process is protection of the public and [] while important, physicians’ due process rights are subordinate to the needs of public safety.” (Medical Staff of Sharp Memorial Hospital v. Superior Court (2004) 121 Cal.App.4th 173, 181-182.) A physician facing peer review is not entitled to the same due process protections as a criminal defendant. (Ibid.) The question, rather, is whether the procedure leading to the revocation of privileges was fair. (Kaiser Foundation Hospitals v. Superior Court, supra, 128 Cal.App.4th at pp. 101-102.) In this context, we consider Dr. Ellison’s arguments that the Board violated the peer review statutes and his right to a fair hearing.

Dr. Ellison claims the peer review proceedings were unfair because the Board imposed a disciplinary measure more severe than the MEC’s decision to allow him to retain privileges subject to the requirement that he be monitored by a proctor and assisted by a board certified surgeon. We disagree. The bylaws expressly allow the Board to “affirm, modify or reverse” a peer review decision. (Bylaws, art. VIII, § 3(e).) So long as the Board applies the correct standard when reviewing the JRC’s decision and issues a decision that is itself supported by substantial evidence, the bylaws impose no barrier to the imposition of greater restrictions than recommended during the earlier stages of peer review. (See Hongsathavij, supra, 62 Cal.App.4th at pp. 1127-1128 [hospital appeals board removed physician from hospital panel even though judicial review committee found no sufficient basis for doing so]; Weinberg, supra, 119 Cal.App.4th at pp. 1105-1106 [same].)

We are not persuaded by Dr. Ellison’s argument that the MEC’s initial dual proctor/assistant surgeon requirement was the most restrictive action that could be taken by the Board. Though the governing statutes and bylaws require the MEC to recommend a “final proposed action” and to give notice of that action, this notice does not place a limit on what the governing body might ultimately decide. (See Bus. & Prof. Code, §§ 809.1, subds. (a)-(b).) As previously noted, Business and Professions Code section 809.05, subdivision (a) provides, “The governing bodies of acute care hospitals have a legitimate function in the peer review process. In all peer review matters, the governing body shall give great weight to the actions of peer review bodies and, in no event, shall act in an arbitrary or capricious manner.” The Board’s opinion demonstrates that it carefully considered the JRC’s decision and that it did not act in an arbitrary or capricious manner in reaching a different conclusion about the appropriate disposition.

Nor did the Board unfairly penalize Dr. Ellison for pursuing his right of administrative appeal. The goal of protecting the public would not be served by a rule that precluded the governing body from taking necessary action simply because the appealing physician assumed that the appeal would not result in a greater penalty. The bylaws expressly authorized the Board to reverse or modify the JRC’s decision, providing adequate notice that an appeal of the JRC decision could result in greater sanctions.

Dr. Ellison also complains he was deprived of his right to a fair hearing because he was not given adequate notice that his privileges could be revoked based on concerns about his honesty and integrity. Although the MEC’s initial investigation focused on quality of care issues, the notice of charges it filed before the JRC hearing specifically alleged that Dr. Ellison had provided incomplete and inconsistent answers to questions about his board certification and his reasons for leaving his first residency at UMass. Dr. Ellison was questioned extensively about both of these issues at the JRC hearing and had every opportunity to explain his behavior. When the Board remanded the case to the JRC following the first appeal, he was given the opportunity to present additional evidence on this subject, but he elected not to do so.

Finally, Dr. Ellison argues that the proceedings conducted in his case violated the peer review statutes and the bylaws because he did not receive two full levels of peer review. He relies on Mileikowsky, supra, 45 Cal.4th 1259, in which the JRC hearing officer had terminated peer review proceedings based on the physician’s failure to cooperate with discovery, without securing the JRC’s approval of that order. (Id. at pp. 1266, 1275.) The Supreme Court held that the dismissal was erroneous and could not be ratified by the governing body because the peer review body had never acted on the charges before it, thus depriving the physician of one level of peer review. (Id. at p. 1275.)

In this case, both the MEC and the JRC reviewed Dr. Ellison’s case. Though the MEC did not issue a proposed final action with respect to the allegations relating specifically to honesty and integrity, it identified these issues in its notice of charges and took the position before the JRC that a revocation of privileges was appropriate. Dr. Ellison has not demonstrated that he was deprived of meaningful peer review.

V. Federal Regulations Do Not Preclude the Result in this Case

Finally, we reject Dr. Ellison’s argument that federal regulations preclude a hospital board from taking “unilateral” action to revoke staff privileges. He notes that in hospitals accredited for Medicare purposes, “The governing body appoints and reappoints to the medical staff and grants initial, renewed, or revised clinical privileges, based on medical staff recommendations, in accordance with the bylaws, rules and regulations, and policies of the medical staff and of the hospital.” (Comprehensive Accreditation Manual for Hospitals (2000), MS 5.1.) These guidelines (which are not controlling) contemplate that members of a hospital’s medical staff will participate in the peer review process and make recommendations. They do not require a hospital’s governing body to follow staff recommendations in every case.

DISPOSITION

The judgment of the superior court denying the petition for writ of mandate is affirmed. Sequoia is awarded costs on appeal.

_________________________

Needham, J.

We concur:

_________________________

Jones, P. J.

_________________________

Bruiniers, J.

Ellison v. Sequoia Health Services (A124408)

Trial court: San Mateo County Superior Court

Trial judge: Hon. Steven L. Dylina

Moscone, Emblidge & Quadra, G. Scott Emblidge and Rachel J. Sater, for Petitioner and Appellant.

Law Office of Jeffrey C. Grass and Jeffrey C. Grass, for Semmelweis Society International, Inc. as Amicus Curiae on behalf of Petitioner and Appellant.

Manatt, Phelps & Phillips, Barry S. Landsberg, Doreen W. Shenfeld and Joanna S. McCallum, for Respondent.

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

EDWARD WALTON et al.,

Plaintiffs and Respondents,

v.

THE WILLIAM POWELL COMPANY,

Defendant and Appellant.

B208214

(Los Angeles County

Super. Ct. No. BC361382)

APPEAL from a judgment of the Superior Court of Los Angeles County, Ralph W. Dau, Judge. Reversed and remanded with directions.

Horvitz & Levy, Lisa Perrochet and Jason R. Litt; Foley & Mansfield, Douglas G. Wah and Khaled Taqi-Eddin for Defendant and Appellant.

Simon, Eddins & Greenstone and Brian P. Barrow for Plaintiffs and Respondents.

__________________________________

Respondents Edward and Carol Walton asserted claims for negligence and strict liability against appellant The William Powell Company (Powell), alleging that asbestos-laden materials associated with valves made by Powell injured Edward Walton. After the jury returned a verdict in the Waltons’ favor, a judgment was entered awarding them $5,660,624.39 in damages. We conclude that because Edward Walton’s injuries stemmed entirely from exposure to asbestos-laden products for which Powell is not liable, we must reverse.

RELEVANT FACTUAL AND PROCEDURAL BACKGROUND

A. Pretrial Proceedings

Beginning in the late 1940’s, Powell sold metal valves, together with asbestos gaskets and packing, to the United States Navy. Edward Walton served in the United States Navy from 1946 to 1968. During two periods of his service Walton repaired shipboard propulsion and heating systems, which used valves in conjunction with asbestos insulation and other asbestos-laden items. After leaving the Navy, Walton operated a painting business that brought him into contact with products containing asbestos. In November 2005, Walton was diagnosed as suffering from lung cancer.

On November 2, 2006, the Waltons filed their complaint for negligence and strict liability against Powell and approximately 45 other defendants. The complaint alleged that Edward Walton’s lung cancer and related medical conditions resulted from his exposure to asbestos in connection with the defendants’ products. The Waltons sought compensatory and punitive damages.

Several defendants other than Powell sought summary judgment on the Waltons’ claims, contending that the pumps, valves, and other items they had provided to the Navy did not, in fact, cause Edward Walton’s injuries. These motions relied in part on the so-called component parts doctrine, which in some circumstances shields a component manufacturer from strict liability for a finished product that incorporates its component. (Taylor v. Elliot Turbomachinery Co. Inc. (2009) 171 Cal.App.4th 564, 576 (Taylor).) In addition, Powell and other defendants joined in a motion in limine to exclude the Waltons’ evidence on the basis of the doctrine. The trial court denied all but one of the motions for summary judgment and the in limine motion.

B. Trial

On February 20, 2008, at the commencement of jury selection, six defendants remained in the action, including Powell. The next day, when the Waltons made their opening statement to the jury, Powell and a pump manufacturer were the only defendants in the action. By midtrial, Powell was the sole defendant in the action.

At trial, evidence was presented that Powell manufactured metal valves for a large number of military and nonmilitary applications. The valves were of many types, and employed a variety of gaskets, some of which contained no asbestos. Although some of the valves used asbestos gaskets and packing, Powell made only the valves. The Navy was among Powell’s customers for these valves. From the late 1940’s to 1991, Powell provided asbestos gaskets and packing from other manufacturers with its valves; in addition, Powell sold replacement asbestos gaskets and packing, but received relatively few orders because the “end users” preferred to order directly from gasket and packing manufacturers, who sold the same items at lower prices. No warnings about asbestos were placed on the valves. According to Powell, it first became aware of the hazards of asbestos in the mid-1980’s, and began phasing out the use of asbestos in its products in 1987.

Edward Walton testified as follows: He enlisted in the Navy in 1946, and served as deckhand prior to 1953, when he began working as a welder and metal smith. From 1953 to 1959, and from 1966 to 1968, Walton repaired shipboard heating and propulsion systems. During these periods, he served aboard destroyer tenders, vessels that provided maintenance services for destroyers. The shipboard systems on the destroyers that he serviced used asbestos insulation and other asbestos-laden items. Among his tasks was the maintenance of valves and pumps below deck in the engine and fire rooms, where the boilers and turbines were located. The valves and pumps were supplied by several manufacturers. He first encountered a Powell valve after June 1956.

In working on a valve, Walton removed asbestos insulation from the valve’s exterior, removed the asbestos gaskets (if any) that sealed the valve to adjoining pipes, extracted asbestos packing from the valve’s interior, and installed new asbestos packing and gaskets, as needed. The gaskets were often cut from sheets of asbestos, and the packing was fashioned from rolls of replacement packing. Walton also encountered asbestos insulation and gaskets when he worked on pumps. During these activities, the air that Walton breathed became dirty and dusty. He removed asbestos insulation from Powell valves “numerous times, many, many times,” but saw no warnings about asbestos on the valves.

Walton attributed none of the asbestos products he contacted to Powell. He testified that he often serviced valves in destroyers built during or before World War II, and worked only on old valves “with many coats of paint.” Walton believed that the valves’ original gaskets and packing had been replaced before he worked on them. According to Walton, most of the replacement packing and gaskets came from a source other than Powell, and he otherwise could not specify their sources. He knew neither the manufacturer of the valves’ insulation nor the number of times that the insulation had been replaced.

Walton left the Navy in 1968 and operated a painting company until 1999. As a painter, he worked with asbestos-laden sheetrock, textured ceilings, and taping mud. In late 2005, he was diagnosed as suffering from lung cancer.

Dr. Edwin Crosby Holstein, a specialist in asbestos-related diseases, and Arnold R. Brody, a cell biologist and experimental pathologist, testified regarding Edward Walton’s medical condition and its causes. Holstein opined that Walton’s exposure to asbestos in connection with Powell valves was a significant contributing cause of Walton’s lung cancer. Brody testified that Walton’s history of asbestos-related and medical conditions were sufficient to establish that asbestos caused his lung cancer.

C. Verdict and Judgment

The jury found that Edward Walton had suffered $561,861 in economic damages and $20,000,000 in noneconomic damages, and allocated Powell a 25 percent share of the responsibility for the causation of these damages. In addition, the jury found that Powell had acted with malice, oppression, or fraud, but awarded no punitive damages. On March 6, 2008, a judgment was entered in favor of the Waltons awarding damages totaling $5,660,624.39. The trial court later denied Powell’s motions for a new trial and judgment notwithstanding the verdict. This appeal followed.

DISCUSSION

Powell contends that the Waltons’ claims for strict liability and negligence fail because its valves were not defective and caused no injury to Edward Walton. We agree. As explained below, Powell supplied none of the asbestos products to which Edward Walton was exposed, and its valves had no defect rendering Powell liable for the injuries that Walton may have sustained through exposure to asbestos products from other sources.

Generally, in a products liability case, a plaintiff may seek recovery on theories of strict liability and negligence. (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 478-479.) “[U]nder either a negligence or a strict liability theory of products liability, to recover from a manufacturer, a plaintiff must prove that a defect caused injury. [Citations.] Under a negligence theory, a plaintiff must also prove ‘an additional element, namely, that the defect in the product was due to negligence of the defendant.’” (Id. at p. 479, quoting Prosser, Strict Liability to the Consumer (1966) 18 Hastings L.J. 9, 50-51.) Here, the Waltons sought recovery on theories of strict liability and negligence, asserting that Powell’s valves lacked adequate warnings about the hazards of asbestos and were otherwise defective in their design.

A. Strict Liability
B.
C.
D.
1. Governing Principles

We begin with the Waltons’ claims based on strict liability. California law “provides generally that manufacturers, retailers, and others in the marketing chain of a product are strictly liable in tort for personal injuries caused by a defective product.” (Peterson v. Superior Court (1995) 10 Cal.4th 1185, 1188.) However, strict liability is not imposed on parties that are “not a part of the manufacturing or marketing enterprise of the allegedly defective product that caused the injury in question.” (Ibid.) The burden falls upon the plaintiff to produce adequate evidence “linking the injury-producing product with a particular entity in the stream of commerce of that product.” (Taylor, supra, 171 Cal.App.4th at p. 576.) Recovery is permitted in strict liability for three kinds of defects: manufacturing defects, design defects, and “‘warning defects,’ i.e., inadequate warnings or failures to warn.” (Anderson v. Owens-Corning Fiberglas Corp. (1991) 53 Cal.3d 987, 995.)

Pertinent to our inquiry is the component parts doctrine, which in some circumstances exempts a manufacturer from liability arising from a finished product that incorporates a component supplied by the manufacturer. (Taylor, supra, 171 Cal.App.4th at p. 576.) Generally, a component manufacturer is subject to liability only when the component itself has a defect that results in injury, or the manufacturer plays a material role in integrating the component into the finished product, whose defects cause injury. (Rest.3d Torts, Products Liability, § 5. )

Two policy considerations underlie the component parts doctrine. “First, requiring suppliers of component parts to ensure the safety of their materials as used in other entities’ finished products ‘“would require suppliers to ‘retain an expert in the client’s field of business to determine whether the client intends to develop a safe product.’” [Citation.] Suppliers of “products that have multiple industrial uses” should not be forced ‘to retain experts in a huge variety of areas in order to determine the possible risks associated with each potential use.’ [Citation.] A second, related rationale is that “finished product manufacturers know exactly what they intend to do with a component or raw material and therefore are in a better position to guarantee that the component or raw material is suitable for their particular applications.” [Citations.]’” (Taylor, supra, 171 Cal.App.4th at p. 584, quoting (Springmeyer v. Ford Moter Co. (1998) 60 Cal.App.4th 1541, 1554.)

2. No Strict Liability

The Waltons’ strict liability claim relies on allegations that Powell’s valves suffered from “warning” and design defects. For the reasons explained below, the claim fails under each theory.

a. No Duty to Warn
b.
c.
d.
At trial, the Waltons asserted that Powell’s valves were defective because they incorporated no warning regarding the hazards of asbestos packing, gaskets, and insulation. “Generally speaking, manufacturers have a duty to warn consumers about the hazards inherent in their products. [Citation.] The requirement’s purpose is to inform consumers about a product’s hazards and faults of which they are unaware, so that they can refrain from using the product altogether or evade the danger by careful use.” (Johnson v. American Standard, Inc. (2008) 43 Cal.4th 56, 64.) A product that is otherwise flawless in its design and manufacture “‘may nevertheless possess such risks to the user without a suitable warning that it becomes “defective” simply by the absence of a warning.’” (Finn v. G. D. Searle & Co. (1984) 35 Cal.3d 691, 699.)

In Taylor, on facts materially similar to those before us, the appellate court held that a strict liability claim predicated on a warning defect failed as a matter of law. (Taylor, supra, 171 Cal.App.4 at p. 571.) There, the widow of a Navy seaman sued several valve and pump manufacturers, alleging that they were responsible for her husband’s asbestos-related injuries. (Id. at pp. 570-571.) The defendants had supplied valves and pumps, along with asbestos gaskets and packing, to the Navy in the 1940’s. (Ibid.) The plaintiff asserted negligence and strict liability claims based on the theory that the defendants had a duty to issue a warning regarding the hazards of asbestos. (Id. at pp. 571, 593.) In seeking summary judgment on the claims, the defendants established that they had manufactured only the valves and pumps they had supplied the Navy; that the husband enlisted in 1964; and that he had repaired valves and pumps whose original packing and gaskets had been replaced by items from other manufacturers. (Id. at pp. 571-572.)

The appellate court affirmed the grant of summary judgment in the defendants’ favor, concluding that the plaintiff’s “duty to warn” strict liability claim failed for three reasons. (Taylor, supra, 171 Cal.App.4 at pp. 577-586.) First, as the court noted, the defendants were not part of the chain of distribution of the injury-causing products, as the husband had no contact with any asbestos-laden products that the defendants had provided. (Id. at pp. 577-579.) Second, following an examination of California law, the court determined that the defendants had no duty to issue warnings regarding the hazards of asbestos “released from products made or supplied by other manufacturers and used in conjunction with [the defendants’] equipment.” (Id. at pp. 579-583.) Third, the court concluded that the component parts doctrine shielded the defendants from liability, as there was no evidence that their valves and pumps were themselves defective or that the defendants played a material role in the design of the shipboard systems. (Id. at p. 585.) Although the defendants had provided valves and pumps in accordance with the Navy’s specifications, the court reasoned that this conduct was insufficient to support strict liability, pointing to the Restatement Third of Torts, which states: “A component seller who simply designs a component to its buyer’s specifications, and does not substantially participate in the integration of the component into the design of the product, is not liable . . . .” (Rest. 3d Torts, Products Liability, § 5, com. e., p. 135.)

We conclude that the Waltons’ strict liability claim based on the duty to warn fails for the same reasons. To begin, the Waltons did not establish that Powell was part of the chain of distribution of the asbestos products that contributed to Edward Walton’s injuries. Nothing before us supports the inference that Edward Walton had any contact with asbestos products supplied by Powell.

There is no evidence that Powell ever provided the type of insulation covering the valves that Walton repaired. Nor does the record support a reasonable inference that Powell supplied either the packing and gaskets that Walton removed from the valves or their replacements. On these matters, Walton testified that he first worked on a Powell valve no earlier than June 1956; that many of the ships whose valves he serviced were built during or before World War II; that all the valves he encountered were old, as evidenced by their “many coats of paint;” and that the original packing and gaskets had probably been replaced — perhaps many times — before he worked on the valves. He also stated that a manufacturer other than Powell provided most of the new packing, and that he did not know whether Powell had supplied any of the replacement gaskets or packing. There is no evidence that the Navy ever bought replacements from Powell; the only evidence suggested that the Navy did not, as Powell received relatively few orders for replacements due to its high prices.

On this record, any inference that Walton was exposed to asbestos from products supplied by Powell is speculation. Because the Waltons failed to “link[] the injury-producing product with [Powell] in the stream of commerce of that product,” Powell’s original provision of asbestos packing and gaskets to the Navy did not render it strictly liable for Walton’s injuries. (Taylor, supra, 171 Cal.App.4th at pp. 577-579; Cadlo v. Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 523-524 [former supplier of asbestos insulation to Navy was not strictly liable for seaman’s injuries from exposure to asbestos insulation, as there was no evidence that former supplier had role in the design and marketing of asbestos insulation to which seaman was actually exposed].)

Nor was Powell subject to a duty to warn because its valves were used in combination with the asbestos-laden products to which Walton was exposed. As explained in Taylor, the employment of a nondefective component in an injury-causing shipboard propulsion or heating system is not, by itself, sufficient to trigger the duty to warn; the plaintiff must show that component manufacturer “participated in the integration of the[] component[] into the design of the [system].” (Taylor, supra, 171 Cal.App.4th at p. 585.) The Waltons made no such showing. The record discloses only that the Navy, in ordering the valves from Powell, specified that the valves must have a certain type of flange (or fitting for gaskets); that Powell provided valves with the specified flange; and that Powell also supplied the Navy with technical documents and instruction manuals regarding the valves they provided. As these facts do not show that Powell participated in the design of the Navy’s systems or the system components provided by other manufacturers, they do not establish a duty to warn. (Id. at pp. 584-586; see also Blackwell v. Phelps Dodge Corp. (1984) 157 Cal.App.3d 372, 377-378 [acid manufacturer had no duty to warn about dangers of pressure formation from acid when manufacturer lacked control over shipping arrangements, and placed the acid as ordered in defective tank cars provided by other parties]; Garman v. Magic Chef, Inc. (1981) 117 Cal.App.3d 634, 637-638 [propane stove manufacturer had no duty to warn regarding hazards associated with pipe connecting stove to propane tank when it did not supply or install pipe].)

b. No Design Defect

At trial, the Waltons also asserted that Powell’s valves were defective because they were designed for use in concert with asbestos gaskets, packing, and insulation. They presented evidence that Powell’s valves were designed to permit the replacement of the packing and gaskets, and that Powell knew that insulation placed by others on its valves would have to be removed when the valves were repaired. On appeal, the Waltons contend that the valves were defective in their design even if none of the asbestos products with which Walton had contact were provided by Powell. The crux of their contention is that Powell intentionally designed their valves to be used with asbestos products from other manufacturers. In our view, the theory that the valves suffered from a design defect fails under the component parts doctrine.

Generally, the doctrine applies to items such as “raw materials, valves, [and] switches, [which] have no functional capabilities unless integrated into other products.” (Rest.3d Torts, Products Liability, § 5, com. a, pp. 130-131.) As explained in the Restatement Third of Torts, Products Liability, the doctrine encompasses such items — provided that they are nondefective in themselves — because “[i]mposing liability would require the component seller to scrutinize another’s product which the component seller has no role in developing. This would require the component seller to develop sufficient sophistication to review the decisions of the business entity that is already charged with responsibility for the integrated product.” (Rest.3d Torts, Products Liability, § 5, com. a, p. 131.)

Powell’s valves fall squarely within this rationale for the component parts doctrine. Powell made only metal valves, which had no functional value until integrated into broader systems with pipes and other elements, such as the Navy’s propulsion and heating systems. Because integration would have been impossible if the valves were not compatible with other products used in such systems, Powell designed metal valves that could be combined with gaskets, packing, and insulation from other sources, as Powell itself made none of these items. Nothing before us suggests that Powell had a role in designing the available gaskets, packing, and insulation or the shipboard systems into which its valves were integrated. To impose liability on Powell for the hazards associated with asbestos would have obliged it to scrutinize the development of several products — the gaskets, packing, and insulation made by others, and the Navy’s shipboard systems — over which it had no control. This would have required Powell to acquire “sufficient sophistication to review the decisions of the . . . entit[ies]” directly responsible for the products in question. (Rest.3d Torts, Products Liability, § 5, com. a, p. 131; see also Cadlo v. Owens-Illinois, Inc., supra, 125 Cal.App.4th at pp. 523-524 [former asbestos insulation manufacturer is not liable for injuries arising from exposure to asbestos insulation it neither designed nor marketed].)

c. The Waltons’ Contentions
d.
e.
f.
Pointing primarily to Tellez-Cordova v. Campbell-Hausfeld/Scott Fetzger Co. (2004) 129 Cal.App.4th 577, 579-581 (Tellez-Cordova), the Waltons contend that Powell is strictly liable for Edward Walton’s injuries, even if Powell did not supply the asbestos-laden products that he encountered while working on Powell’s valves. In Tellez-Cordova, the plaintiff asserted strict liability claims based on “warning” and design defects against manufacturers of grinding tools that the plaintiff had used. The plaintiff’s complaint alleged that he had suffered injury as the result of exposure to toxic dust released from abrasive discs powered by the tools. (Ibid.) The defendants successfully demurred to the complaint on the basis of the component parts doctrine. (Id. at p. 581.) In reversing, the appellate court noted that the complaint alleged that the tools were specifically designed to be used with the abrasive discs for the purpose of grinding metals, and that toxic dust was created when the tools were used for their intended purpose. (Id. at pp. 582-583.) In view of the allegations, the court concluded that the component parts doctrine was inapplicable, as the defendants’ grinding tools had only one intended purpose — that is, to power abrasive wheels — and there was no “‘finished product manufacturer’” in a superior position to issue warnings about the “completed product.” (Ibid.)

In our view, Tellez-Cordova stands for the proposition that the component parts doctrine is inapplicable when a manufacturer’s product is uniquely designed to complete a system that is hazardous in its intended use. That is not the case here. Unlike Tellez-Cordova, in which the tools and discs formed a single system over which the tool manufacturers had significant control, the combination of Powell’s valves with the packing, gaskets, and insulation formed no such system. Even when joined with the packing, gaskets, and insulation, the valves had no functional value until integrated into broader systems — for example, the Navy’s shipboard systems — containing other components; moreover, there is no evidence Powell played a role in developing the shipboard systems in which its valves were placed.

The remaining case authority upon which the Waltons rely is also distinguishable. In Wright v. Stang Manufacturing Co. (1997) 54 Cal.App.4th 1218, 1222 (Wright), the defendant manufactured a water cannon that had been mounted on a fire engine. When the plaintiff, a firefighter, used the water cannon, it broke loose, threw him to the ground, and fell on him. (Ibid.) The defendant obtained summary judgment on the plaintiff’s strict liability claim on the theory that the cannon’s mount, rather than the cannon itself, was defective. (Id. at pp. 1222-1223.) In reversing the summary judgment, the appellate court concluded that there were triable issues whether the cannon suffered from a design defect because it was incompatible with a sufficiently strong mounting system; in addition, the court determined that there were triable issues whether the defendant had failed to warn about a potential mismatch between the cannon’s water pressure and the strength of its mount. (Id. at p. 1236.)

In Wright, unlike here, the defendant’s product itself injured the plaintiff. Moreover, the design and warning defects were directly tied to features of the product — principally, the cannon’s water pressure and incompatibility with safe mounting — that its manufacturer was in the best position to identify as problematic. As explained above, Powell had no control over the development of the asbestos-laden products used in conjunction with its valves.

In Deleon v. Commercial Manufacturing & Supply Co. (1983) 148 Cal.App.3d 336, 340, the plaintiff, a worker in a fruit processing plant, was injured when her arm was caught in a rotating power shaft located three feet above a fruit bin she had been cleaning. She sued the bin’s manufacturer, which obtained summary judgment on her strict liability claims. (Id. at pp. 340-342.) The appellate court reversed, concluding there were triable issues regarding the application of the component parts doctrine, as there was evidence the manufacturer had participated in the design of the production line that incorporated the bin. (Id. at p. 345.) In contrast, here there was no evidence Powell contributed to the design of the asbestos products or the Navy’s systems.

Finally, in Gonzales v. Carmenita Ford Truck Sales, Inc. (1987) 192 Cal.App.3d 1143, 1145-1146, the plaintiff was injured when the brakes of his truck failed. The plaintiff asserted claims for negligence and products liability against the defendant, which had sold and serviced the truck. (Id. at p. 1146.) At trial, the court declined to instruct the jury on the plaintiff’s theory that the defendant had failed to give adequate warnings about the necessity for regular adjustments to the truck’s air brakes. (Id. at pp. 1147-1152.) In determining that the denial was error, the appellate court stated that warnings are in order when necessary to prevent a product from becoming unreasonably dangerous. (Id. at p. 1551.) Here, unlike Gonzales, Powell did not provide the products that injured Walton. As explained above (see pt. A.2.a., ante), Powell had no duty to provide a warning about products from other sources.

The Waltons also suggest that Powell was strictly liable for Edward Walton’s injuries because it was foreseeable to Powell that Walton would be exposed to asbestos while working on Powell’s valves, even if none of the asbestos he encountered came from products supplied by Powell. We disagree. As explained in Taylor, foreseeability alone does not warrant imposition of strict liability when, as here, the upshot of the imposition would be to require the component manufacturer to retain “‘“an expert in every finished product manufacturer’s line of business and second-guess the finished product manufacturer whenever any of its employees received any information about any potential problems.”’” (Taylor, supra, 171 Cal.App.4th at pp. 585-586, quoting Artiglio v. General Electric. Co. (1998) 61 Cal.App.4th 830, 838-839.) In sum, the Waltons’ strict liability claims fail as a matter of law.

E. Negligence
F.
G.
H.
At trial, the Waltons asserted that Powell was liable for Edward Walton’s injuries on a theory of negligence. We conclude that this theory also fails under Taylor. There, applying the multi-factored test stated in Rowland v. Christian (1968) 69 Cal.2d 108, the appellate court held that the defendants had no pertinent duty of care toward the plaintiff’s husband. (Taylor, supra, 171 Cal.App.4th at pp. 593-596.) In so concluding, the court placed special emphasis on the defendants’ lack of responsibility for injury under the theory of strict liability, as well as the fact that the husband was exposed to asbestos from third party products more than 20 years after the defendants provided their valves and pumps to the Navy. (Id. at pp. 594-596.) Here, as in Taylor, Powell is not strictly liable for Walton’s injuries, which arose from exposure to asbestos products from other sources long after Powell supplied the valves that Walton encountered. In view of Taylor, Powell had no duty of care toward him for purposes of a negligence claim. The Waltons therefore cannot state a claim for negligence.

DISPOSITION

The judgment is reversed, and the matter is remanded with directions to the trial court to vacate the judgment and enter a new judgment in favor of Powell on the Waltons’ claims. Powell is awarded its costs on appeal.

CERTIFIED FOR PUBLICATION

MANELLA, J.

We concur:

EPSTEIN, P. J.

WILLHITE, J.

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

CITY OF CERRITOS et al.,

Plaintiffs, Cross-defendants and Respondents,

v.

CERRITOS TAXPAYERS ASSOCIATION et al.,

Defendants, Cross-complainants and Appellants;

CUESTA VILLAS HOUSING CORPORATION et al.,

Cross-defendants and Respondents.

B214530

(Los Angeles County

Super. Ct. No. VC 050414)

APPEAL from a judgment of the Superior Court for the County of Los Angeles. John A. Torribio, Judge. Affirmed.

Timothy K. Quick for Defendant, Cross-complainant and Appellant Cerritos Taxpayers Association.

C. Robert Ferguson for Defendant, Cross-complainant and Appellant United Community Alliance.

Richard A. Rothschild, S. Lynn Martinez and Andrea Luquetta for Western Center on Law and Poverty, as Amicus Curiae on behalf of Defendants, Cross-complainants and Appellants Cerritos Taxpayers Association and United Community Alliance.

Rutan & Tucker, Dan Slater, Mark J. Austin and William H. Ihrke for Plaintiffs, Cross-defendants and Respondents City of Cerritos and Cerritos Redevelopment Agency and for Cross-defendants and Respondents Cuesta Villas Housing Corporation, Laura Lee, Jim Edwards, Bruce W. Barrows, Joseph Cho and John F. Crawley.

Atkinson, Andelson, Loya, Ruud & Romo, Constance J. Schwindt, Martin A. Hom and Jennifer D. Cantrell for Plaintiff, Cross-defendant and Respondent ABC Unified School District.

__________________________

SUMMARY

The principal questions in this case are two. The first is whether a city and a redevelopment agency may use funds earmarked for low- and moderate-income housing to purchase and renovate property which would then be leased to a school district, as part of an arrangement in which the district would in turn lease other property (currently housing its administrative offices) to the redevelopment agency (and ultimately to a non-profit housing corporation) for the construction of a low- and moderate-income apartment complex for senior citizens. The second question is whether the project, in which 16 percent of the apartments are designated for low-income households, must be submitted to a vote of the electorate under article XXXIV of the California Constitution, which requires voter approval for a “low rent housing project” developed, constructed or acquired by any state public body.

In a validation action brought under Code of Civil Procedure section 860 and Government Code section 53511, the trial court entered a judgment determining that the arrangements were valid and lawful in all respects and were not required to be submitted to a vote of the electorate. We agree and affirm the judgment.

LEGAL, FACTUAL, AND PROCEDURAL BACKGROUND

To provide context for our discussion of the facts and the points at issue, we briefly summarize the redevelopment principles at play here, and then describe the parties and the contemplated transactions in more detail.

1. The Community Redevelopment Law.
2.
The Community Redevelopment Law (CRL) was intended to help local governments revitalize blighted communities. (Health & Saf. Code, §§ 33000 et seq.; Lancaster Redevelopment Agency v. Dibley (1993) 20 Cal.App.4th 1656, 1658 (Lancaster).) Local redevelopment agencies have no power to tax, and instead are funded by “tax increment revenue.” (Craig v. City of Poway (1994) 28 Cal.App.4th 319, 325 (Craig). Tax revenues available for local agencies from land within a redevelopment area are frozen as of the date a redevelopment plan is adopted, and any tax revenues generated by an increase in property values after adoption of the plan — the tax increment — are paid to the local redevelopment agency for use in financing the redevelopment project. (§ 33670; Lancaster, at p. 1658, fn. 2.)

One of the goals of the CRL is to increase the supply of low- and moderate-income housing. (Lancaster, supra, 20 Cal.App.4th at p. 1658.) However, local redevelopment agencies have had broad discretion to spend redevelopment funds in a manner best suited to the community, and “have historically devoted their resources to the commercial sector, rather than low-income housing development.” (Craig, supra, 28 Cal.App.4th at p. 330.) Consequently, the CRL was amended in 1976 and now requires that at least 20 percent of the tax increment revenue be used by the agency “for the purposes of increasing, improving, and preserving the community’s supply of low- and moderate-income housing available at affordable housing cost . . . .” (§ 33334.2, subd. (a); Craig, supra, 28 Cal.App.4th at p. 334.) This 20 percent of the tax increment revenue is required to be set aside in a Low and Moderate Income (LMI) Housing Fund. (§ 33334.3.)

Since enactment of the 20 percent set-aside for low- and moderate-income housing, “the Legislature has repeatedly enacted amendments narrowing the agencies’ discretion to ensure that the agencies place sufficient funds in their LMI Housing Fund and spend that money in an appropriate manner.” (Craig, supra, 28 Cal.App.4th at p. 330.) Craig observed that the statutory provision at issue there — section 33334.2, subdivision (e)(2), governing onsite or offsite improvements — had been twice amended since 1979 to reflect “the Legislature’s continuing concern that redevelopment agencies were misusing [the provision on offsite improvements] as a broad loophole to fund community-wide infrastructure and commercial development without any connection to affordable housing.” (Craig, supra, 28 Cal.App.4th at pp. 335-336.)

3. The events in this case.
4.
The City of Cerritos (City) and the Cerritos Redevelopment Agency (sometimes collectively referred to as the Agency) adopted redevelopment plans for two areas in the 1970’s, making all the necessary findings that the project areas were blighted and the plans would redevelop the project areas in conformity with the CRL. Increases in property values in those areas has resulted “in tens of millions of dollars in tax-increment revenue being earned by the Agency each year” (italics and bold omitted), 20 percent of it set aside for low- and moderate-income housing. If the Agency fails timely to expend or encumber the LMI housing funds, the funds may be transferred to the county housing authority or another public agency exercising housing development powers. (§ 33334.12, subd. (a).)

To comply with their affordable housing obligations, the City and the Agency entered into an agreement denominated “Affordable Housing, Financing, and Disposition and Development Agreement” (the financing agreement), to which the ABC Unified School District (District) and Cuesta Villas Housing Corporation (Cuesta Villas), a nonprofit public benefit corporation formed by the City, are also parties. As of January 8, 2008, after notices and many months of public meetings and hearings, all parties had approved and signed the financing agreement.

The financing agreement will ultimately result in the construction of a 247-unit affordable senior citizen apartment development, together with a senior recreation center and a park (the senior housing project), located on Norwalk Boulevard in Cerritos, a property now owned and used by the District. The financing agreement involves both the Norwalk Boulevard property and another property to which the District offices would be relocated. Specifically:

1. The 15.7 acre Norwalk Boulevard property presently houses the District’s administrative office, warehouse, and kitchen facilities. Under the financing agreement:
2.
o The District, as lessor, will enter into a long-term ground lease with the Agency as lessee.
o
o The Agency will subsequently transfer its interest in the leasehold to a nonprofit housing corporation formed by the City (Cuesta Villas) for 55 years, for the construction, management, and operation of the senior housing project. (Cuesta Villas will apply for tax exempt status as a charitable organization, and approval of its tax exempt status is a condition precedent to the further implementation of the financing agreement.)
o
o When the ground lease is assigned to Cuesta Villas, Cuesta Villas will be obligated for ground lease payments to the District. The Agency will act as guarantor of Cuesta Villas’s ground lease payments, “and to that extent using [LMI] Fund monies . . . to pay the ground lease rents via [Cuesta Villas].”
o
o The Agency will finance Cuesta Villas’s clearance of the Norwalk Boulevard property and the subsequent construction of the senior housing project, providing a $46 million loan (the total estimated cost of the improvements) to Cuesta Villas, forgivable after 55 years. After construction of the project, Cuesta Villas will own and operate the project.
o
o Cuesta Villas will be required to deposit all net income from operation of the project into a trust fund to be used solely for the benefit of the project.
o
o The Agency will reimburse the District for the costs of relocating its administrative offices, not to exceed one million dollars.
o
o The total cost to the Agency of the conveyance of its ground lease interest in the Norwalk Boulevard property to Cuesta Villas totals $80,974,000: $33,974,000 for the ground lease payment guarantee, $46,000,000 for the improvements, and $1,000,000 in relocation costs to be paid to the District.
o
3. The District’s facilities (currently on the Norwalk Boulevard property) will be relocated to existing office and warehouse buildings located at two adjacent properties on Moore and 166th Streets (the Moore/166th Street properties), as follows:
4.
o The City, using LMI housing funds, will purchase the Moore/166th Street properties, totaling 4.6 acres, from private owners, and will lease the properties to the District, giving the District an option to purchase at a later date. (This purchase has occurred; the City and the seller executed an agreement for the purchase and sale of the properties effective January 28, 2008.)
o
o The City will renovate the Moore/166th Street properties to accommodate the District’s functions.
o
o Approximately $18,500,000 from the Agency’s LMI Housing Fund is allocated to the City’s purchase and renovation of the Moore/166th Street properties ($14.5 million for the purchase and $4 million for improvements to accommodate District functions). The purchase will be financed by the Agency’s LMI Housing Fund “because such purchase is necessary for the production of affordable housing on the Norwalk Boulevard property.”
o
o The revenue that will ultimately be generated in the form of lease payments by the District (and/or the sale of the property to the District under its purchase option) will be transferred to Cuesta Villas and deposited in the trust fund for use in the operation of the senior housing project.
o
o Under the District’s purchase option, it is entitled to purchase the Moore/166th Street properties at the same price the City paid ($14.5 million), reduced to reflect lease payments already made by the District.
o
Additional facts relevant to the project will be related as necessary in connection with our discussion of the various points raised on appeal.

After all the parties approved the above-described arrangements, the City, the Agency, and the District (sometimes collectively referred to as the public agencies) brought an action under section 860 of the Code of Civil Procedure to determine the validity of the financing agreement. The lawsuit sought a determination that the financing agreement was a valid, binding and lawful agreement, and specifically that the Agency was lawfully permitted to spend low- and moderate-income housing funds as contemplated in the agreement and without submitting the project to a vote of the electorate under article XXXIV, section 1 of the California Constitution. Cerritos Taxpayers Association and United Community Alliance answered the validation complaint and filed a cross-complaint against the public agencies and Cuesta Villas for declaratory and injunctive relief, claiming the public agencies’ actions were invalid on several bases and seeking to enjoin implementation of the financing agreement.

The trial court entered a judgment validating the financing agreement, and Cerritos Taxpayers Association and United Community Alliance (collectively, Taxpayers) filed a timely appeal. We granted an application by the Western Center on Law and Poverty for leave to file a brief as amicus curiae in support of Taxpayers.

DISCUSSION

Taxpayers contend the financing agreement is invalid for multiple reasons:

1. The expenditure of $18.5 million in LMI housing funds for the purchase and renovation of the Moore/166th Street properties was unlawful because the funds are being used to purchase and remodel property for the benefit of the District, and not for low- and moderate-income housing.
2.
3. The project is a low rent housing project requiring voter approval under article XXXIV of the California Constitution.
4.
5. The District was obliged under Government Code section 54222 to offer the Norwalk Boulevard property (which was designated surplus property) for sale or lease to other public agencies, and failed to do so.
6.
7. The Agency failed to comply with section 33433 (requiring a report containing an explanation of why the transaction would assist in the elimination of blight), because the Agency’s report did not refer to evidence supporting its finding that the project would “enable the provision of affordable housing in the community as a means to fulfill the obligation to eliminate blight . . . .”
8.
9. Because City Council members sit on the initial board of directors of Cuesta Villas, as well as on the City Council and on the Agency’s board, the common law doctrine of “incompatibility of office” applies, making those arrangements improper.
10.
Amicus curiae Western Center on Law and Poverty, like Taxpayers, argues that the LMI Housing Fund cannot be used to buy and remodel buildings for the District, but offers a reason not presented to the trial court: that the use is improper because section 33334.2 requires that offsite improvements paid for with the LMI Housing Fund be a “reasonable and fundamental component of the housing units” (§ 33334.2, subd. (e)(2)(A)) to be directly benefited.

We treat the parties’ contentions in turn.

A. The purchase and renovation of the Moore/166th
B.
Street properties was a proper use of the LMI

Housing Fund.

Taxpayers assert — as does amicus curiae — that LMI housing funds cannot be used for the purchase and renovation of the Moore/166th Street properties to which the District offices will be moved in order to accommodate the senior housing project. Taxpayers contend this is so based on two case precedents which have held, respectively, that use of LMI housing funds for a road project and for an overpass were not permitted uses because, in each case, there was no nexus between the road project or the overpass and affordable housing. (Craig, supra, 28 Cal.App.4th at p. 336; Lancaster, supra, 20 Cal.App.4th at p. 1663.) Amicus curiae contends the use is improper because, after Craig and Lancaster, the Legislature again amended the statutory provision on offsite improvements (§ 33334.2, subd. (e)), making it clear that LMI housing funds may be used to pay for offsite improvements only when those improvements are “a reasonable and fundamental component of the housing units” (italics omitted) (and the housing units are “directly benefited” by the offsite improvements).

We conclude that subdivision (e)(2) of section 33334.2 (section 33334.2(e)(2)) does not apply in this case, because the purchase and renovation of the Moore/166th Street properties do not constitute “offsite improvements” within the contemplation of that subdivision. Further, under the reasoning in Craig and Lancaster — requiring (in the context of expenditures for offsite improvements) “a nexus between the expenditures and the goal of improving and increasing affordable housing” (Craig, supra, 28 Cal.App.4th at p. 336, fn. 16) — the expenditures for the Moore/166th Street properties are clearly appropriate.

We begin with the relevant text of the CRL provision governing LMI housing funds. As we have seen, subdivision (a) of section 33334.2 requires the funds to be used “for the purposes of increasing, improving and preserving” the supply of low- and moderate-income housing. Subdivision (e) of section 33334.2 now provides that, “[i]n carrying out the purposes of this section,” the agency “may exercise any or all of its powers for the construction, rehabilitation, or preservation of affordable housing . . . including the following”:

• “Acquire real property or building sites subject to Section 33334.16.” (§ 33334.2, subd. (e)(1).)
•
• “Improve real property or building sites with onsite or offsite improvements, but only if . . . the improvements are part of the new construction or rehabilitation of affordable housing units for low- or moderate-income persons that are directly benefited by the improvements, and are a reasonable and fundamental component of the housing units . . . .” (§ 33334.2, subd. (e)(2)(A).)
•
• “Donate real property to private or public persons or entities.” (§ 33334.2, subd. (e)(3).)
•
• “Construct buildings or structures.” (§ 33334.2, subd. (e)(5).)
•
• “Acquire buildings or structures.” (§ 33334.2, subd. (e)(6).)
•
• “Rehabilitate buildings or structures.” (§ 33334.2, subd. (e)(7).)
•
From this statutory language, it is clear that a redevelopment agency may, with LMI housing funds, construct, acquire and renovate buildings or structures, as well as make onsite or offsite improvements. (§ 33334.2, subd. (e)(2)(A), (5), (6) & (7).) Moreover, this list of powers is inclusive, not exclusive; the introductory language to section 33334.2, subdivision (e), tells us that the agency may exercise “any or all of its powers for the construction, rehabilitation, or preservation of affordable housing . . . .”

Among the agency’s powers is that conferred by section 33445, which allows the agency — if the legislative body makes certain determinations — to “pay all or a part of the value of the land for and the cost of the installation and construction of any building, facility, structure, or other improvement that is publicly owned and is located inside or contiguous to the project area . . . .” (§ 33445, subd. (a).) That is exactly what the City and Agency have done in this case with respect to the Moore/166th Street properties: they have paid for “the land . . . and the cost of . . . [an] improvement that is publicly owned . . . .” (Ibid.) Consequently, unless the use of LMI housing funds for this purpose is expressly prohibited by the CRL, in our view the Agency’s action is proper if — as is the case here — it is directly and specifically connected to the provision of low- and moderate-income housing. As will appear, we see no statutory prohibition, and find the use of the LMI housing funds fully consonant with the statutory objectives.

First, we see no express statutory prohibition on the Agency’s expenditure of LMI housing funds to purchase and renovate property to house the District’s offices. Amicus curiae contends the purchase and renovation of the Moore/166th Street properties does not qualify “as an offsite improvement for which money meant to develop and improve affordable housing may be justifiably spent.” With the first point we agree: the plain language of section 33334.2(e)(2) shows that an offsite improvement paid for with LMI housing funds must be “part of the new construction or rehabilitation of affordable housing units” and “a reasonable and fundamental component of the housing units . . . .” (§ 33334.2, subd. (e)(2)(A).) The Moore/166th Street properties are not “offsite improvements” within the meaning of section 33334.2(e)(2); they are more properly “buildings or structures” that are being acquired and rehabilitated. (See § 33334.2, subd. (e)(6)&(7).) As amicus curiae itself recognizes, an offsite improvement “is understood to mean ‘offsite infrastructure necessary for new construction,’ such as roads and utility connections,” and the Moore/166th Street properties “are therefore not an offsite improvement to the Norwalk property . . . .” (See Craig, supra, 28 Cal.App.4th at p. 339; Lancaster, supra, 20 Cal.App.4th at p. 1662; see also Fontana Redevelopment Agency v. Torres (2007) 153 Cal.App.4th 902, 914 [amendments to section 33334.2(e)(2) changed the law “to limit use of tax increment designated for affordable housing to pay for infrastructure improvements unless they are part of new construction or rehabilitation of affordable housing”].) But the fact that the Moore/166th Street properties do not qualify as “offsite improvements” does not mean that the purchase and renovation of the property is forbidden.

And so we turn to the real question: may LMI funds be used to acquire and renovate buildings that will not themselves be used for affordable housing? Taxpayers say no, citing Craig and Lancaster, and stating, without analysis, that $18.5 million in LMI housing funds “are being used to purchase and remodel property for the benefit of the District[,]” and “are not being used for low and moderate [income] residential housing.” But Craig and Lancaster, while directed to the propriety of the use of LMI housing funds for offsite improvements, provide the analytical framework for determining whether the use proposed here is proper: does the use promote the statutory objective of increasing the supply of low- and moderate-income housing (see Lancaster, supra, 20 Cal.App.4th at p. 1658), and is there “a nexus between the expenditures and the goal of improving and increasing affordable housing”? (Craig, supra, 28 Cal.App.4th at p. 336, fn. 16.)

Clearly there is a nexus between the expenditures for the Moore/166th Street properties and an increase in the supply of affordable housing, and the nexus is, as it must be, direct and specific: the purchase of the Moore/166th Street properties, as the trial court observed, “facilitates the housing project as it opens up the Norwalk Street property for the low and moderate income housing complex.” In addition, the monies the District pays to lease (or purchase, if it exercises its option) the Moore/166th Street properties from the City is deposited in a trust fund to be used for the operation of the housing project, so, as the trial court also observed, there “is no net payment out of these restricted funds.” In short, the expenditures for the Moore/166th Street properties will result in an increase in the supply of low- and moderate-income housing — a “fundamental goal[]” of the CRL in general and of section 33334.2 in particular. (Lancaster, supra, 20 Cal.App.4th at p. 1658.)

Neither Craig nor Lancaster — both of which found that no nexus was established between expenditures for offsite improvements and the goal of improving or increasing affordable housing — supports a contrary conclusion. Craig involved a claim that the redevelopment agency had improperly used LMI housing funds to pay for construction of road improvements (a sound wall, sidewalk and gutter and lighting improvements) along a multi-lane street, adjoining which approximately 60 of the 90 households were of low or moderate income. (Craig, supra, 28 Cal.App.4th at pp. 333.) In Craig the question was whether the road project “improved” — as opposed to “increased” — the community’s supply of affordable housing within the meaning of section 33334.2. (Craig, at p. 336). The court observed the agency had to show the LMI Housing Fund expenditures for the road project “served to directly improve affordable housing” (id. at p. 339), but the agency “failed to establish the requisite nexus between the [road project] and the statutory goal of ‘improving’ affordable housing.” (Id. at pp. 341-342.) This was because the agency presented no evidence establishing that the road project “improved” the housing adjacent to the road (e.g., no evidence that the sound attenuation wall “made the sound problem better or in any other way had a beneficial effect on the homes in the neighborhood”). (Id. at pp. 340, 338, italics omitted [a redevelopment agency “must establish a direct link between the use of the LMI Housing Fund and the beneficial change in the condition of the affordable housing supply”].) There is no inconsistency between Craig’s conclusion and this case, where the expenditures for the Moore/166th Street properties, because they free the Norwalk Boulevard property for the housing project, are a “direct link” to the increase in the supply of affordable housing. (Id. at p. 338.)

Lancaster likewise provides no assistance to Taxpayers. Lancaster held that the redevelopment agency could not use LMI housing monies “to fund an ‘improvement’ which has little, if anything, to do with the construction of affordable housing for the persons intended to be benefitted” by the CRL. (Lancaster, supra, 20 Cal.App.4th at p. 1658.) In Lancaster, the city wanted to build two overpasses to provide access to an undeveloped desert area approved for future development as a business park. (Id. at p. 1659.) The court said the overpasses were clearly an offsite improvement within the meaning of section 33334.2(e)(2), but “[w]hat is missing is the nexus between the overpasses and affordable housing.” (Lancaster, at pp. 1662-1663.) The agency’s theory was that the overpasses would open up the desert area to development in general, and that “[i]t follows . . . that housing will be built and . . . affordable housing opportunities will necessarily follow.” (Id. at p. 1663.) The court observed that “[p]ure speculation . . . is not enough because it does not show that the program is one ‘which results’ in new affordable housing.” (Id. at p. 1663.) Here, the opposite is so; the expenditures for the Moore/166th Street properties are directly linked to the provision of new affordable housing on the Norwalk Boulevard property. Indeed, as Lancaster observed, “Under the plain language of the statute, an Agency may legitimately undertake efforts to increase the supply of affordable housing by innovative projects which do not include the present construction of new units.” (Id. at p. 1662.)

Amicus curiae make two other arguments. One involves section 33445 — which authorizes the agency to pay for land and improvements that are publicly owned — and one involves the District’s relocation costs. Neither has merit.

First, section 33445. A redevelopment agency may, with legislative consent, pay “the value of the land for and the cost of the installation and construction of any building . . . or other improvement that is publicly owned,” if the legislative body determines that (1) the acquisition or construction are of benefit to the project area by helping to eliminate blight or providing housing for low- or moderate-income persons, (2) no other reasonable means of financing the acquisition or construction of the improvements are available, and (3) the payment is consistent with the agency’s implementation plan under section 33490. (§ 33445, subd. (a).) Amicus curiae claims the Agency failed to show there were no funds available other than LMI housing funds to purchase and renovate the Moore/166th Street properties. (See § 33445, subd. (a)(2).) Amicus curiae is mistaken. The City and Agency made all the findings required by section 33445, subdivision (a), both when they approved the financing agreement and later when they approved the acquisition of the properties from the prior owner — including a finding that no funds were available other than those from the Agency’s budget. Nothing further is required by section 33445. And, as subdivision (b) of that section states, “The determinations made by the agency and the local legislative body pursuant to subdivision (a) shall be final and conclusive.” (§ 33445, subd. (b)(1).)

Second, amicus curiae argues that a school district is not an entity entitled to relocation assistance under either redevelopment or relocation law, and even if it were, relocation assistance cannot include the purchase and renovation of the Moore/166th Street properties. As the Agency points out, these arguments are wholly irrelevant, as the laws to which amicus curiae refer merely describe the circumstances under which an agency must provide relocation assistance to families, persons, and nonprofit local community institutions that are temporarily or permanently displaced by a project. (§ 33411.) The relocation provisions in the CRL (§§ 33410-33418) do not limit the circumstances in which an agency may reimburse relocation costs so long as the agency otherwise complies with the CRL. (See § 33415 [“[t]his section [requiring the agency to provide relocation assistance required by the Government Code (§§ 7260 et seq.)] shall not be construed to limit any other authority which an agency may have to make other relocation assistance payments”]; Gov. Code, § 7272.3 [same].)

In sum: The use of LMI housing funds to purchase and renovate the Moore/166th Street properties is a permissible use of those funds. Section 33334.2(e)(2) is applicable to offsite improvements — “infrastructure necessary for new construction” (Craig, supra, 28 Cal.App.4th at p. 339) — and does not apply here. The question is whether the agency may use LMI housing funds to acquire and renovate buildings that will not themselves be used for affordable housing, and the answer is that it may, if the acquisition is directly linked to a transaction that will increase the supply of affordable housing. As Craig tells us, “there is no question but that the primary purpose of section 33334.2 was to compel redevelopment agencies to increase the supply of affordable housing.” (Craig, at p. 338.) That objective is fully accomplished in the circumstances of this case.

C. Article XXXIV of the California Constitution does not require
D.
submission of the project to a vote of the electorate.

The senior housing project will contain 247 units. Twenty-five units are restricted to “very low income” households; 15 units are restricted to “low income” households, and 207 units are restricted to “moderate income” households. Thus only 16 percent of the units will be dedicated to very low or low income households.

Article XXXIV of the California Constitution is addressed to public housing project law. It was adopted by initiative in 1950, and provides that “[n]o low rent housing project shall hereafter be developed, constructed, or acquired in any manner by any state public body” until a majority of the electorate vote in favor of the project. (Cal. Const., art. XXXIV, § 1.) The term “low rent housing project” means “any development composed of urban or rural dwellings, apartments or other living accommodations for persons of low income, financed in whole or in part by the Federal Government or a state public body . . . .” (Ibid.) The term “persons of low income” is defined, for purposes of article XXXIV only, as “persons or families who lack the amount of income which is necessary (as determined by the state public body developing, constructing, or acquiring the housing project) to enable them, without financial assistance, to live in decent, safe and sanitary dwellings, without overcrowding.” (Ibid.)

Several legal authorities are relevant to assessing whether or not the senior housing project at issue here is a “low rent housing project” within the meaning of article XXXIV.

• In California Housing Finance Agency v. Elliott (1976) 17 Cal.3d 575 (Elliott), the Supreme Court held that article XXXIV required a local election for a housing program involving “mixed income housing,” in which 75 percent of the units were allocated to low income housing, with the remainder for persons of moderate income. (Elliott, at pp. 581-582, italics omitted; see California Housing Finance Agency v. Patitucci (1978) 22 Cal.3d 171, 175-176 (Patitucci).) The court found “persuasive” the reasoning that “where a housing project will be a low-income housing project in effect, if not by exact definition, article XXXIV, section 1, is applicable.” (Elliott, at pp. 592-593.) The court concluded that the “substance and primary purpose” of the project at issue was “to provide housing for those who cannot otherwise afford quality housing,” and the addition of units for other tenants “does not substantially affect either the basic character of the low-rent housing program or its potential impact on the community.” (Id. at p. 593.) As the court later said in Patitucci, the Elliott decision established several principles:
•
o Article XXXIV is “not unambiguous in all of its applications; ample room remains under the constitutional language for honest disagreement as to whether a particular mixed income development constitutes a ‘low rent housing project.’” (Patitucci, supra, 22 Cal.3d at p. 176.)
o
o A “realistic and functional approach” is to be taken in considering the application of article XXXIV, so that “the potential economic impact on the affected community is the primary test to be applied.” (Patitucci, at p. 176.)
o
o The Elliott decision was limited to its facts, “and did not preclude a different result in other cases in which other or lesser proportions of housing units were reserved for low income tenants.” (Patitucci, at p. 176.)
o
• In reaction to the Elliott decision, the Legislature adopted the Public Housing Election Implementation Law (§§ 37000-37002), “to clarify ambiguities relating to the scope of the applicability of Article XXXIV which now exist.” (§ 37000.) Section 37001 provides that the term “low-rent housing project” as defined in article XXXIV does not apply to any development meeting any one of several criteria. As relevant here, the statute clarifies that article XXXIV does not apply if:
•

“(1) The development is privately owned housing, receiving no ad valorem property tax exemption, other than exemptions granted pursuant to subdivision (f) or (g) of Section 214 of the Revenue and Taxation Code, not fully reimbursed to all taxing entities; and (2) not more than 49 percent of the dwellings, apartments, or other living accommodations of the development may be occupied by persons of low income.” (§ 37001, subd. (a).)

• In Patitucci, the Supreme Court held that sections 37000-37002 represented a constitutionally valid interpretation of article XXXIV, and that a project meeting the statutory criteria, “that is, a privately owned, nontax-exempt housing development, in which no more than 49 percent of the units will be available to low income persons,” is not a “low rent housing project” within the meaning of article XXXIV. (Patitucci, supra, 22 Cal.3d at pp. 174-175, 179.) In concluding the statute was reasonable and consistent with article XXXIV, the court looked to evidence of the purpose of article XXXIV, observing that its proponents were moved by two primary concerns, “the direct drain on a community’s finances and the effect on its aesthetic environment, represented by the tax exempt publicly owned low income housing of that day [1950].” (Patitucci, at pp. 177, 178.) And when the Legislature sought to repeal article XXXIV by referendum in 1974, the argument for its retention stated that “[i]t is important to remember that [article XXXIV] applies only to conventional public housing which is publicly owned and tax exempt.” (Patitucci, at p. 178.) The court concluded that, “Unlike the 75-25 percent housing mixture which we examined in Elliott, a development meeting the characteristics of section 37001 is not low income ‘in effect.’ Rather, it is truly ‘mixed income’ housing, since it represents an obvious good faith effort to integrate low income tenants into a larger community in which the majority of people (at least 51 percent) are higher on the economic scale.” (Patitucci, at p. 178.)
•
That brings us to this case. The substance of Taxpayers’ argument is that Cuesta Villas, the private, not-for-profit corporation that will own (by virtue of its 55-year ground lease) and operate the senior housing project, is a “shell corporation” controlled by the City and Agency and was created by the City to circumvent article XXXIV. Consequently, the argument continues, the project does not meet the “privately owned housing” requirement and hence does not qualify for the section 37001 statutory exemption from article XXXIV. We find no merit in this contention.

First, we note several points relating to Cuesta Villas. It is a duly incorporated domestic corporation of the State of California, organized under the Nonprofit Public Benefit Corporation Law for charitable purposes, and specifically for the primary purposes of developing, owning, maintaining and operating an affordable senior citizen housing development on Norwalk Boulevard. Cuesta Villas was formed by the City on September 12, 2007, and members of the City Council were appointed as officers and board members, with the appointments to remain in effect in accordance with the corporation’s bylaws. The bylaws identify the initial directors of the corporation, and provide that this initial board “shall prepare the corporation to begin operations by attending to such matters as” electing officers, submitting applications for recognition of tax-exempt status, opening bank accounts if necessary, and so on, and “[t]hereafter, the permanent board shall be elected . . . .” The permanent board members are to be nominated and elected by the members of the City Council. The public agencies’ validation complaint stated that the transition from the initial board to the permanent board composed of members of the general public would “likely occur shortly after the construction of the Senior Facilities and the initiation of its operations, but may occur sooner.”

Taxpayers assert several complaints about these arrangements. Their principal contention, within which the others are subsumed, is that the City and Agency control Cuesta Villas, and therefore the senior housing project cannot be considered “privately owned.” Taxpayers claim the principles enunciated in Rider v. County of San Diego (1991) 1 Cal.4th 1 (Rider I) — where the Supreme Court held that an intent to circumvent Proposition 13 could be inferred where plaintiffs proved a newly created tax agency was “essentially controlled” by a city or county that otherwise would have had to comply with a super-majority vote requirement — (Rider I, at p. 11, italics omitted) — also apply here. But, as is apparent from the Supreme Court’s subsequent decision in Rider v. City of San Diego (1998) 18 Cal.4th 1035 (Rider II), they do not.

Rider I involved the validity of a taxation scheme “enacted for the apparent purpose of avoiding the super-majority voter approval requirement” imposed by Proposition 13 “with respect to any ‘special taxes’ sought to be imposed by ‘cities, counties and special districts’ [citation].” (Rider I, supra, 1 Cal.4th at p. 5.) The Legislature had created an agency charged with imposing a supplemental sales tax to finance the construction of justice facilities, subject to a simple majority vote. County taxpayers challenged the validity of the tax approved by a simple majority, and the trial court concluded the tax constituted a deliberate attempt to circumvent the two-thirds voter approval requirement in Proposition 13 for special taxes imposed by special districts. (Rider I, at p. 6.) The Supreme Court agreed, concluding the record amply supported the trial court’s findings that Proposition 13 had been purposely circumvented and that the agency was created solely for the purpose of avoiding the strictures of Proposition 13. (Rider I, at pp. 6, 8.) The court concluded the evidence that the agency “was created to raise funds for county purposes and thereby circumvent Proposition 13” was strong, and further that courts could infer such intent “whenever the plaintiff has proved the new tax agency is essentially controlled by one or more cities or counties that otherwise would have had to comply with the super-majority provision of section 4 [of Proposition 13].” (Rider I, at p. 11.) Considerations relevant to whether such control exists included the presence or absence of:

“(1) substantial municipal control over agency operations, revenues or expenditures, (2) municipal ownership or control over agency property or facilities, (3) coterminous physical boundaries, (4) common or overlapping governing boards, (5) municipal involvement in the creation or formation of the agency, and (6) agency performance of functions customarily or historically performed by municipalities and financed through levies of property taxes.” (Rider I, supra, 1 Cal.4th at p. 12.)

Rider II, however, shows that there is no basis for applying the “essential control” standard in a context having nothing to do with the creation of a taxing agency or with Proposition 13. Rider II involved the validity of a financing plan under which a city and a port district created a third public entity (a joint powers agency, referred to as the financing authority) which could issue bonds without complying with voter approval requirements imposed by the California Constitution (with which the city would have had to comply if it had issued the bonds itself). (Rider II, supra, 18 Cal.4th at p. 1039.) Rider II rejected claims that the joint powers agency was “a mere financing ‘shell’ that acts at the City’s behest, doing for the City what the City may not do in its own name” (id. at p. 1041) and that the City was “once again trying to circumvent constitutional constraints.” (Id. at p. 1042.) The court observed:

• “The short answer to plaintiffs’ argument is that the Constitution and the City’s charter permit the City to avoid the two-thirds vote requirement by creating a joint powers agency to finance public works projects. Therefore, however we might characterize the financing plan at issue here, we cannot characterize it as unlawful.” (Rider II, at p. 1042.) (The court explained that the constitutional provision listed six specific types of governmental entities that may not incur indebtedness without a two-thirds vote, and “joint powers agencies are not on the list.”) (Id. at p. 1043.)
•
• The court rejected the argument that the City’s control of the joint powers agency rendered the two entities indistinguishable for purposes of the constitutional debt limitation (Rider, at pp. 1043-1044), and expressly stated that the “essential control” standard did not apply:
•

“[W]e have never held that control by itself establishes the identity of two separate governmental entities. Our adoption of the ‘essential control’ standard in [Rider I] was in the context of construing the term ‘special districts’ in Proposition 13.[ ] [Citation.] . . . In [Rider I], we expressly rejected the conclusion that the essential control standard established the identity of two separate governmental entities: ‘Rather than attempting to demonstrate that the subject agency and county are identical entities, application of the “essential control” test simply affords ground for reasonably inferring an intent to circumvent Proposition 13.’ [Citation.]” (Rider II, supra, 18 Cal.4th at p. 1044.)

• “Because the Financing Authority has a genuine separate existence from the City [citation], it does not matter whether or not the City ‘essentially controls’ the Financing Authority.” (Rider II, supra, 18 Cal.4th at p. 1044.)
•
• “We are not naive about the character of this transaction. If the City had issued bonds to pay for the Convention Center expansion, the two-thirds vote requirement would have applied. Here, the City and the Port District have created a financing mechanism that matches as closely as possible (in practical effect, if not in form) a City-financed project, but avoids the two-thirds vote requirement. Nevertheless, the law permits what the City and the Port District have done.” (Rider II, supra, 18 Cal.4th at p. 1055.)
•
So it is here. The law permits what the City and the Agency have done. Section 37001 expressly provides that when a development is privately owned, receives no ad valorem property tax exemption other than those specified, and does not allocate more than 49 percent of its accommodations to persons of low income, it is not subject to voter approval. Here, the project will be privately owned, as Cuesta Villas is a private, nonprofit corporation duly formed under California law. We are not at liberty to ignore the corporation’s status; it has a “genuine separate existence” from the City and Agency, so “it does not matter whether or not the City ‘essentially controls’” Cuesta Villas. (Rider II, supra, 18 Cal.4th at p. 1044.) Taxpayers have cited no authority that would allow us to conclude otherwise. As in Rider II, the City and Agency have avoided the voter approval requirement of article XXXIV, but the law permits what has been done.

Finally, Taxpayers point out that Cuesta Villas will not own the land on which the senior housing project will be constructed (since it has only a 55-year ground lease). From this fact Taxpayers claim, without citation to the record or to any authority, that if Cuesta Villas should fail to qualify for the tax exemptions specifically permitted by section 37001, “it will have an ad valorem tax exemption through the District’s ownership of the land[]” and therefore will not meet the requirement in section 37001 of “receiving no ad valorem property tax exemption . . . .” (§ 37001, subd. (a)(1).) This claim is directly contradicted by the principle pointed out in Conway v. City of San Mateo (1981) 127 Cal.App.3d 330 (Conway), which held that a proposed project was not subject to article XXXIV voter approval. Conway pointed out that it is “well-established that when there is a lease to a private owner of government-owned tax exempt land, the possessory right under the lease is subject to taxation.” (Id. at p. 336, italics added.) Taxpayers identify no other basis for claiming the project would have a tax exemption that is not permitted by section 37001.

One final note. The Agency argues that, even if the senior housing project were not expressly excepted from article XXXIV under section 37001, the project would nevertheless not be subject to article XXXIV, because it does not in any event qualify as a “low rent housing project” under the Supreme Court’s rational in Patitucci. Patitucci pointed out that Elliott “left unresolved . . . whether a mixed income project which includes a ‘relatively small’ percentage of low income units may be deemed a ‘low rent housing project’ under article XXXIV.” (Patitucci, supra, 22 Cal.3d at p. 176.) Further, Patitucci pointed out that the proponents of the article XXXIV initiative were primarily concerned with “the direct drain on a community’s finances and the effect on its aesthetic environment” so that the primary test to be applied to a determination of whether article XXXIV applies was the “potential economic impact on the affected community . . . .” (Patitucci, at pp. 178, 176.) Those concerns are not applicable to this project, the Agency argues, because only 16 percent of the project’s units are reserved for low income housing (and the project does not give rise to any aesthetic concerns); “there can be no concern regarding the economic drain of the Project on the community” (italics and bold omitted) because it is being financed with LMI housing funds which the Agency is required to spend on affordable housing projects. Thus, under the Patitucci rationale, whether or not the section 37001 exemption applies, the project would not be a “low rent housing project” within the meaning of article XXXIV. Taxpayers do not respond to this contention. While the Agency’s position appears to have considerable force, we need not decide the point in view of our conclusion that the project in any event meets the requirements stated in section 37001, subdivision (a).

C. The transaction is not invalidated by reason of the District’s lease of the Norwalk Boulevard property without complying with Government Code section 54222.

Government Code section 54222 provides procedures to be followed when a local agency disposes of surplus land. Prior to doing so, the local agency “shall send” a written offer to sell or lease the property, for the purpose of developing low- and moderate-income housing, “to any local public entity, as defined in [section 50079], within whose jurisdiction the surplus land is located.” (Gov. Code, § 54222, subd. (a).) Similarly, the local agency must send a written offer to sell or lease “for park and recreational purposes or open-space purposes” to local park or recreation departments or authorities and the State Resources Agency. (Id., subd. (b).) Written offers to sell or lease the property for other purposes not applicable here are also required. (Id., subds. (c)-(e).) The Legislature explained its policy in Government Code section 54220, declaring that housing was a priority of the highest order, that “there is a shortage of sites available for housing for persons and families of low and moderate income and that surplus government land, prior to disposition, should be made available for that purpose.” (Gov. Code, § 54220, subd. (a).) The Legislature likewise “reaffirm[ed] its belief that there is an identifiable deficiency in the amount of land available for recreational purposes and that surplus land, prior to disposition, should be made available for park and recreation purposes or for open-space purposes.” (Id., subd. (b).) Further (with one inapplicable exception), if an agency disposing of surplus land receives offers for purchase or lease “from more than one of the entities to which notice and an opportunity to purchase or lease shall be given pursuant to this article, the local agency shall give first priority to the entity that agrees to use the site for housing for persons and families of low or moderate income . . . .” (Gov. Code, § 54227.)

Taxpayers argue the District was obliged under Government Code section 54222 to offer the Norwalk Boulevard property (which was designated surplus property) to other public agencies (in addition to the Cerritos Redevelopment Agency) engaged in the development or operation of low- or moderate-income housing, and failed to do so; as a result “the District’s Project and the entire Agreement are invalid.” The District, which admits it did not follow the dictates of Government Code section 54222, takes the position that sales or leases of surplus school property are generally governed by the Education Code, rather than the Government Code. The Education Code contains provisions governing a school district’s sale or lease of real property. (Educ. Code, §§ 17455-17484.) Those provisions expressly require compliance with the Government Code provisions on the sale of surplus property only in specific instances. Thus:

1. Education Code section 17459 provides that a school district’s “sale of real property . . . shall be subject to” the Government Code provisions on the disposition of surplus land. (This provision does not apply because the transaction here is not a sale, but rather a 55-year ground lease.)
2.
3. The Education Code also provides that in the case of a sale, or lease with an option to purchase, of real property by a school district, the property must first be offered for park or recreational purposes under sections 54220 to 54232 of the Government Code “in any instance in which that article is applicable.” (Educ. Code, § 17464, subd. (a).) (This provision does not apply here because the lease of the Norwalk Boulevard property contains no option to purchase.)
4.
5. The Education Code also governs the sale or lease of surplus school playgrounds, playing fields, and recreational property. (Educ. Code, §§ 17485-17500.) Section 17489 of the Education Code states that “[n]otwithstanding Section 54222 of the Government Code,” the governing board must first offer to sell or lease such land to (in order of priority) any city, park or recreation district, regional park authority having jurisdiction, and county within which the land is situated. (Educ. Code, § 17489.)
6.
The District points out that none of the above Education Code provisions is applicable: that is, the Education Code does not expressly require compliance with the Government Code provisions on surplus property in the case — as here — of a lease of improved property containing no classrooms or open lands. The District argues that, under the rules of statutory construction, when the Legislature identifies specific categories of transactions that are subject to Government Code section 54222, and omits others, there is a presumption that the omitted categories were not intended to be subject to Government Code section 54222.

We are inclined to agree with the District. But we need not opine definitively on that point because, even if the District should have offered the Norwalk Boulevard property “for the purpose of developing low- and moderate-income housing” to all the public entities identified in Government Code section 54222, we can discern no conceivable prejudice suffered by the Taxpayers or anyone else as a result of its failure to do so. Taxpayers say only that the Norwalk Boulevard property is within a school district that serves several cities besides Cerritos, many of which have redevelopment agencies, and none of them was contacted, so “[i]t cannot be known what would have happened had [Government Code section] 54222[, subdivision] (a) been followed” and “there could have been a whole new chain of events . . . .” But this entirely speculative possibility cannot serve to obscure the fact that the express statutory purpose — requiring surplus property to be sold or leased for purposes of developing low- and moderate-income housing — has been fully met. Indeed, the statute specifically requires the local agency to give “first priority” to the entity that agrees to use the site for low- or moderate-income housing. (Gov. Code, § 54227.) Government Code section 54222 itself states that, with respect to any offer to purchase or lease, “priority shall be given to development of the land to provide affordable housing for lower income elderly or disabled persons or households, and other lower income households.” (Gov. Code, § 54222, subd. (a).) Moreover, we note that, under section 54230.5 of the Government Code, “[t]he failure by a local agency to comply with this article” — which includes Government Code section 54222 — “shall not invalidate the transfer or conveyance of real property to a purchaser or encumbrancer for value.” While this provision may not on its face apply to this transaction, because the City and the Agency are leasing, not purchasing the property, it clearly demonstrates the Legislature’s intention not to elevate form over substance. Consequently, we have no hesitation in concluding that the District’s failure to comply with Government Code section 54222 — assuming it applies — does not operate to invalidate the transaction.

D. There is no merit to Taxpayers’ claim that the

Agency failed to comply with section 33433.

Under the CRL, “before any property of the agency acquired . . . with tax increment moneys is sold or leased for development pursuant to the redevelopment plan, the sale or lease shall first be approved by the legislative body by resolution after public hearing.” (§ 33433, subd. (a)(1).) Before the hearing, the agency must prepare a report, available to the public, containing a copy of the proposed sale or lease and a summary describing a number of items, including an “explanation of why the sale or lease of the property will assist in the elimination of blight, with reference to all supporting facts and materials relied upon in making this explanation.” (§ 33433, subd. (a)(2)(B)(iv).) The resolution approving the lease or sale must contain a finding “that the sale or lease of the property will assist in the elimination of blight or provide housing for low- or moderate-income persons . . . .” (§ 33433, subd. (b), italics added.)

Taxpayers claim that the resolutions of the City and Agency expressly found that “the proposed improvements enable the provision of affordable housing in the community as a means to fulfill the obligation to eliminate blight[,]” and as a consequence, the report prepared by the Agency should have contained “supporting facts and materials relied upon” to explain why the lease of the Norwalk Boulevard property would “assist in the elimination of blight . . . .” (§ 33433, subd. (a)(2)(B)(iv).) Because there is nothing in the report that refers to any evidence that the project will assist in the elimination of blight, Taxpayers claim the City and Agency did not comply with section 33433 and “cannot be permitted to proceed.”

Taxpayers’ argument has no merit. The statute requires a finding by the legislative body that the transaction either will assist in the elimination of blight or will provide housing for low- or moderate-income persons. (§ 33433, subd. (b).) The resolutions expressly state the Agency’s intention to lease the Norwalk Boulevard property to Cuesta Villas “in order to meet its obligations under Redevelopment Law to provide for affordable housing in the City . . . .” That is one of the two alternatives specified by the statute. The added finding that the provision of affordable housing is “a means to fulfill the obligation to eliminate blight” is, at worst, superfluous; certainly it cannot operate to require the Agency to demonstrate that the senior housing project will eliminate blight when there is no statutory requirement that the project do so.

Taxpayers also contend that the report does not comply “with the remaining requirements” of section 33433, complaining — without elaboration — that there is no statement of clearance costs; no statement of relocation costs; and no discussion of whether or not the transaction is at or below fair market value. Taxpayers also complain that the report contains no “estimated value of the interest to be conveyed or leased, determined at the highest and best uses permitted under the plan” (and no highest and best use financial data) with respect to the Moore/166th Street properties. (See § 33433, subd. (a)(2)(B)(ii).)

We see no defect in the report that would render the expenditure of tax increment funds for the Norwalk Boulevard property invalid. Pages three to 10 of the report contain detailed information on the cost of the agreement to the Agency (including relocation costs), and the estimated value of the interest to be conveyed to Cuesta Villas. Taxpayers specify no reason why the information provided should be considered deficient. Certainly the information is in substantial compliance with statutory requirements. (See Contra Costa Theatre, Inc. v. Redevelopment Agency (1982) 131 Cal.App.3d 860, 865, 866 (Contra Costa) [summary comported with the requirements of section 33433 “by providing ample information for those interested in assessing the fairness and the tax cost of the transaction”; disclosures “substantially complie[d] with the relevant statutory requirements”].)

As to Taxpayers’ claim that there is no “estimated value of the interest to be conveyed” or financial data on the highest and best use of the Moore/166th Street properties that the City will lease to the District, the Agency’s report states that this portion of the project “does not require review under § 33433” because the Moore/166th Street properties will be owned by the City (as opposed to the Agency). (Section 33433 applies when “property of the agency acquired . . . with tax increment moneys is sold or leased for development pursuant to the redevelopment plan . . . .” (§ 33433, subd. (a)(1).)) Taxpayers counter that the property is being purchased with LMI housing funds. But in any event, the Agency’s report states that even if section 33433 applies, the estimates that appear elsewhere in the report (in connection with the requirements of section 33445, governing payment for land and improvements) would cover the point. The report shows the amount of tax monies to be used for the Moore/166th Street properties. It contains information on the total estimated cost of land acquisition and improvements on the Moore/166th Street properties (which were purchased from private owners), and shows that the revenue generated in the form of lease payments from (or purchase by) the District will be transferred to Cuesta Villas for operation of the senior housing project. In short, a perusal of the report shows it contains “ample information for those interested in assessing the fairness and the tax cost of the transaction.” (Contra Costa, supra, 131 Cal.App.3d at p. 865.)

E. The common law doctrine of “incompatibility of
F.
office” does not apply.

Finally, Taxpayers contend that, because the members of the City Council (who sit as the Board of the Agency) also sit on the initial board of directors of Cuesta Villas, the common law doctrine of “incompatibility of office” is violated. There is no merit in this contention.

The doctrine of incompatibility of office applies when the same person holds two public offices. For example, in People ex rel. Chapman v. Rapsey (1940) 16 Cal.2d 636, the court found the offices of city judge and city attorney incompatible, and held that when the respondent accepted the office of city attorney, his acceptance “had the effect of vacating or terminating his right to hold the office of city judge.” (Id. at p. 644.) The rule is “‘that where an individual is an incumbent of a public office and, during such incumbency, is appointed or elected to another public office and enters upon the duties of the latter, the first office becomes at once vacant if the two are incompatible [citations]’ . . . .” (Ibid.) Here, Cuesta Villas is a nonprofit corporation, and its board members do not hold public offices. (See id. at p. 640 [“‘“it is essential that the incumbent [of a public office] be clothed with a part of the sovereignty of the state to be exercised in the interest of the public”’”].) Consequently, there is no basis of any kind for application of the doctrine of incompatibility of office.

DISPOSITION

The judgment is affirmed. The respondents are to recover their costs on appeal.

CERTIFIED FOR PUBLICATION

LICHTMAN, J.*

We concur:

RUBIN, Acting P. J.

FLIER, J.

* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6, of the California Constitution.

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

CITY OF CERRITOS et al.,

Plaintiffs, Cross-defendants and Respondents,

v.

CERRITOS TAXPAYERS ASSOCIATION et al.,

Defendants, Cross-complainants and Appellants;

CUESTA VILLAS HOUSING CORPORATION et al.,

Cross-defendants and Respondents.

B214530

(Los Angeles County

Super. Ct. No. VC 050414)

APPEAL from a judgment of the Superior Court for the County of Los Angeles. John A. Torribio, Judge. Affirmed.

Timothy K. Quick for Defendant, Cross-complainant and Appellant Cerritos Taxpayers Association.

C. Robert Ferguson for Defendant, Cross-complainant and Appellant United Community Alliance.

Richard A. Rothschild, S. Lynn Martinez and Andrea Luquetta for Western Center on Law and Poverty, as Amicus Curiae on behalf of Defendants, Cross-complainants and Appellants Cerritos Taxpayers Association and United Community Alliance.

Rutan & Tucker, Dan Slater, Mark J. Austin and William H. Ihrke for Plaintiffs, Cross-defendants and Respondents City of Cerritos and Cerritos Redevelopment Agency and for Cross-defendants and Respondents Cuesta Villas Housing Corporation, Laura Lee, Jim Edwards, Bruce W. Barrows, Joseph Cho and John F. Crawley.

Atkinson, Andelson, Loya, Ruud & Romo, Constance J. Schwindt, Martin A. Hom and Jennifer D. Cantrell for Plaintiff, Cross-defendant and Respondent ABC Unified School District.

__________________________

SUMMARY

The principal questions in this case are two. The first is whether a city and a redevelopment agency may use funds earmarked for low- and moderate-income housing to purchase and renovate property which would then be leased to a school district, as part of an arrangement in which the district would in turn lease other property (currently housing its administrative offices) to the redevelopment agency (and ultimately to a non-profit housing corporation) for the construction of a low- and moderate-income apartment complex for senior citizens. The second question is whether the project, in which 16 percent of the apartments are designated for low-income households, must be submitted to a vote of the electorate under article XXXIV of the California Constitution, which requires voter approval for a “low rent housing project” developed, constructed or acquired by any state public body.

In a validation action brought under Code of Civil Procedure section 860 and Government Code section 53511, the trial court entered a judgment determining that the arrangements were valid and lawful in all respects and were not required to be submitted to a vote of the electorate. We agree and affirm the judgment.

LEGAL, FACTUAL, AND PROCEDURAL BACKGROUND

To provide context for our discussion of the facts and the points at issue, we briefly summarize the redevelopment principles at play here, and then describe the parties and the contemplated transactions in more detail.

1. The Community Redevelopment Law.
2.
The Community Redevelopment Law (CRL) was intended to help local governments revitalize blighted communities. (Health & Saf. Code, §§ 33000 et seq.; Lancaster Redevelopment Agency v. Dibley (1993) 20 Cal.App.4th 1656, 1658 (Lancaster).) Local redevelopment agencies have no power to tax, and instead are funded by “tax increment revenue.” (Craig v. City of Poway (1994) 28 Cal.App.4th 319, 325 (Craig). Tax revenues available for local agencies from land within a redevelopment area are frozen as of the date a redevelopment plan is adopted, and any tax revenues generated by an increase in property values after adoption of the plan — the tax increment — are paid to the local redevelopment agency for use in financing the redevelopment project. (§ 33670; Lancaster, at p. 1658, fn. 2.)

One of the goals of the CRL is to increase the supply of low- and moderate-income housing. (Lancaster, supra, 20 Cal.App.4th at p. 1658.) However, local redevelopment agencies have had broad discretion to spend redevelopment funds in a manner best suited to the community, and “have historically devoted their resources to the commercial sector, rather than low-income housing development.” (Craig, supra, 28 Cal.App.4th at p. 330.) Consequently, the CRL was amended in 1976 and now requires that at least 20 percent of the tax increment revenue be used by the agency “for the purposes of increasing, improving, and preserving the community’s supply of low- and moderate-income housing available at affordable housing cost . . . .” (§ 33334.2, subd. (a); Craig, supra, 28 Cal.App.4th at p. 334.) This 20 percent of the tax increment revenue is required to be set aside in a Low and Moderate Income (LMI) Housing Fund. (§ 33334.3.)

Since enactment of the 20 percent set-aside for low- and moderate-income housing, “the Legislature has repeatedly enacted amendments narrowing the agencies’ discretion to ensure that the agencies place sufficient funds in their LMI Housing Fund and spend that money in an appropriate manner.” (Craig, supra, 28 Cal.App.4th at p. 330.) Craig observed that the statutory provision at issue there — section 33334.2, subdivision (e)(2), governing onsite or offsite improvements — had been twice amended since 1979 to reflect “the Legislature’s continuing concern that redevelopment agencies were misusing [the provision on offsite improvements] as a broad loophole to fund community-wide infrastructure and commercial development without any connection to affordable housing.” (Craig, supra, 28 Cal.App.4th at pp. 335-336.)

3. The events in this case.
4.
The City of Cerritos (City) and the Cerritos Redevelopment Agency (sometimes collectively referred to as the Agency) adopted redevelopment plans for two areas in the 1970’s, making all the necessary findings that the project areas were blighted and the plans would redevelop the project areas in conformity with the CRL. Increases in property values in those areas has resulted “in tens of millions of dollars in tax-increment revenue being earned by the Agency each year” (italics and bold omitted), 20 percent of it set aside for low- and moderate-income housing. If the Agency fails timely to expend or encumber the LMI housing funds, the funds may be transferred to the county housing authority or another public agency exercising housing development powers. (§ 33334.12, subd. (a).)

To comply with their affordable housing obligations, the City and the Agency entered into an agreement denominated “Affordable Housing, Financing, and Disposition and Development Agreement” (the financing agreement), to which the ABC Unified School District (District) and Cuesta Villas Housing Corporation (Cuesta Villas), a nonprofit public benefit corporation formed by the City, are also parties. As of January 8, 2008, after notices and many months of public meetings and hearings, all parties had approved and signed the financing agreement.

The financing agreement will ultimately result in the construction of a 247-unit affordable senior citizen apartment development, together with a senior recreation center and a park (the senior housing project), located on Norwalk Boulevard in Cerritos, a property now owned and used by the District. The financing agreement involves both the Norwalk Boulevard property and another property to which the District offices would be relocated. Specifically:

1. The 15.7 acre Norwalk Boulevard property presently houses the District’s administrative office, warehouse, and kitchen facilities. Under the financing agreement:
2.
o The District, as lessor, will enter into a long-term ground lease with the Agency as lessee.
o
o The Agency will subsequently transfer its interest in the leasehold to a nonprofit housing corporation formed by the City (Cuesta Villas) for 55 years, for the construction, management, and operation of the senior housing project. (Cuesta Villas will apply for tax exempt status as a charitable organization, and approval of its tax exempt status is a condition precedent to the further implementation of the financing agreement.)
o
o When the ground lease is assigned to Cuesta Villas, Cuesta Villas will be obligated for ground lease payments to the District. The Agency will act as guarantor of Cuesta Villas’s ground lease payments, “and to that extent using [LMI] Fund monies . . . to pay the ground lease rents via [Cuesta Villas].”
o
o The Agency will finance Cuesta Villas’s clearance of the Norwalk Boulevard property and the subsequent construction of the senior housing project, providing a $46 million loan (the total estimated cost of the improvements) to Cuesta Villas, forgivable after 55 years. After construction of the project, Cuesta Villas will own and operate the project.
o
o Cuesta Villas will be required to deposit all net income from operation of the project into a trust fund to be used solely for the benefit of the project.
o
o The Agency will reimburse the District for the costs of relocating its administrative offices, not to exceed one million dollars.
o
o The total cost to the Agency of the conveyance of its ground lease interest in the Norwalk Boulevard property to Cuesta Villas totals $80,974,000: $33,974,000 for the ground lease payment guarantee, $46,000,000 for the improvements, and $1,000,000 in relocation costs to be paid to the District.
o
3. The District’s facilities (currently on the Norwalk Boulevard property) will be relocated to existing office and warehouse buildings located at two adjacent properties on Moore and 166th Streets (the Moore/166th Street properties), as follows:
4.
o The City, using LMI housing funds, will purchase the Moore/166th Street properties, totaling 4.6 acres, from private owners, and will lease the properties to the District, giving the District an option to purchase at a later date. (This purchase has occurred; the City and the seller executed an agreement for the purchase and sale of the properties effective January 28, 2008.)
o
o The City will renovate the Moore/166th Street properties to accommodate the District’s functions.
o
o Approximately $18,500,000 from the Agency’s LMI Housing Fund is allocated to the City’s purchase and renovation of the Moore/166th Street properties ($14.5 million for the purchase and $4 million for improvements to accommodate District functions). The purchase will be financed by the Agency’s LMI Housing Fund “because such purchase is necessary for the production of affordable housing on the Norwalk Boulevard property.”
o
o The revenue that will ultimately be generated in the form of lease payments by the District (and/or the sale of the property to the District under its purchase option) will be transferred to Cuesta Villas and deposited in the trust fund for use in the operation of the senior housing project.
o
o Under the District’s purchase option, it is entitled to purchase the Moore/166th Street properties at the same price the City paid ($14.5 million), reduced to reflect lease payments already made by the District.
o
Additional facts relevant to the project will be related as necessary in connection with our discussion of the various points raised on appeal.

After all the parties approved the above-described arrangements, the City, the Agency, and the District (sometimes collectively referred to as the public agencies) brought an action under section 860 of the Code of Civil Procedure to determine the validity of the financing agreement. The lawsuit sought a determination that the financing agreement was a valid, binding and lawful agreement, and specifically that the Agency was lawfully permitted to spend low- and moderate-income housing funds as contemplated in the agreement and without submitting the project to a vote of the electorate under article XXXIV, section 1 of the California Constitution. Cerritos Taxpayers Association and United Community Alliance answered the validation complaint and filed a cross-complaint against the public agencies and Cuesta Villas for declaratory and injunctive relief, claiming the public agencies’ actions were invalid on several bases and seeking to enjoin implementation of the financing agreement.

The trial court entered a judgment validating the financing agreement, and Cerritos Taxpayers Association and United Community Alliance (collectively, Taxpayers) filed a timely appeal. We granted an application by the Western Center on Law and Poverty for leave to file a brief as amicus curiae in support of Taxpayers.

DISCUSSION

Taxpayers contend the financing agreement is invalid for multiple reasons:

1. The expenditure of $18.5 million in LMI housing funds for the purchase and renovation of the Moore/166th Street properties was unlawful because the funds are being used to purchase and remodel property for the benefit of the District, and not for low- and moderate-income housing.
2.
3. The project is a low rent housing project requiring voter approval under article XXXIV of the California Constitution.
4.
5. The District was obliged under Government Code section 54222 to offer the Norwalk Boulevard property (which was designated surplus property) for sale or lease to other public agencies, and failed to do so.
6.
7. The Agency failed to comply with section 33433 (requiring a report containing an explanation of why the transaction would assist in the elimination of blight), because the Agency’s report did not refer to evidence supporting its finding that the project would “enable the provision of affordable housing in the community as a means to fulfill the obligation to eliminate blight . . . .”
8.
9. Because City Council members sit on the initial board of directors of Cuesta Villas, as well as on the City Council and on the Agency’s board, the common law doctrine of “incompatibility of office” applies, making those arrangements improper.
10.
Amicus curiae Western Center on Law and Poverty, like Taxpayers, argues that the LMI Housing Fund cannot be used to buy and remodel buildings for the District, but offers a reason not presented to the trial court: that the use is improper because section 33334.2 requires that offsite improvements paid for with the LMI Housing Fund be a “reasonable and fundamental component of the housing units” (§ 33334.2, subd. (e)(2)(A)) to be directly benefited.

We treat the parties’ contentions in turn.

A. The purchase and renovation of the Moore/166th
B.
Street properties was a proper use of the LMI

Housing Fund.

Taxpayers assert — as does amicus curiae — that LMI housing funds cannot be used for the purchase and renovation of the Moore/166th Street properties to which the District offices will be moved in order to accommodate the senior housing project. Taxpayers contend this is so based on two case precedents which have held, respectively, that use of LMI housing funds for a road project and for an overpass were not permitted uses because, in each case, there was no nexus between the road project or the overpass and affordable housing. (Craig, supra, 28 Cal.App.4th at p. 336; Lancaster, supra, 20 Cal.App.4th at p. 1663.) Amicus curiae contends the use is improper because, after Craig and Lancaster, the Legislature again amended the statutory provision on offsite improvements (§ 33334.2, subd. (e)), making it clear that LMI housing funds may be used to pay for offsite improvements only when those improvements are “a reasonable and fundamental component of the housing units” (italics omitted) (and the housing units are “directly benefited” by the offsite improvements).

We conclude that subdivision (e)(2) of section 33334.2 (section 33334.2(e)(2)) does not apply in this case, because the purchase and renovation of the Moore/166th Street properties do not constitute “offsite improvements” within the contemplation of that subdivision. Further, under the reasoning in Craig and Lancaster — requiring (in the context of expenditures for offsite improvements) “a nexus between the expenditures and the goal of improving and increasing affordable housing” (Craig, supra, 28 Cal.App.4th at p. 336, fn. 16) — the expenditures for the Moore/166th Street properties are clearly appropriate.

We begin with the relevant text of the CRL provision governing LMI housing funds. As we have seen, subdivision (a) of section 33334.2 requires the funds to be used “for the purposes of increasing, improving and preserving” the supply of low- and moderate-income housing. Subdivision (e) of section 33334.2 now provides that, “[i]n carrying out the purposes of this section,” the agency “may exercise any or all of its powers for the construction, rehabilitation, or preservation of affordable housing . . . including the following”:

• “Acquire real property or building sites subject to Section 33334.16.” (§ 33334.2, subd. (e)(1).)
•
• “Improve real property or building sites with onsite or offsite improvements, but only if . . . the improvements are part of the new construction or rehabilitation of affordable housing units for low- or moderate-income persons that are directly benefited by the improvements, and are a reasonable and fundamental component of the housing units . . . .” (§ 33334.2, subd. (e)(2)(A).)
•
• “Donate real property to private or public persons or entities.” (§ 33334.2, subd. (e)(3).)
•
• “Construct buildings or structures.” (§ 33334.2, subd. (e)(5).)
•
• “Acquire buildings or structures.” (§ 33334.2, subd. (e)(6).)
•
• “Rehabilitate buildings or structures.” (§ 33334.2, subd. (e)(7).)
•
From this statutory language, it is clear that a redevelopment agency may, with LMI housing funds, construct, acquire and renovate buildings or structures, as well as make onsite or offsite improvements. (§ 33334.2, subd. (e)(2)(A), (5), (6) & (7).) Moreover, this list of powers is inclusive, not exclusive; the introductory language to section 33334.2, subdivision (e), tells us that the agency may exercise “any or all of its powers for the construction, rehabilitation, or preservation of affordable housing . . . .”

Among the agency’s powers is that conferred by section 33445, which allows the agency — if the legislative body makes certain determinations — to “pay all or a part of the value of the land for and the cost of the installation and construction of any building, facility, structure, or other improvement that is publicly owned and is located inside or contiguous to the project area . . . .” (§ 33445, subd. (a).) That is exactly what the City and Agency have done in this case with respect to the Moore/166th Street properties: they have paid for “the land . . . and the cost of . . . [an] improvement that is publicly owned . . . .” (Ibid.) Consequently, unless the use of LMI housing funds for this purpose is expressly prohibited by the CRL, in our view the Agency’s action is proper if — as is the case here — it is directly and specifically connected to the provision of low- and moderate-income housing. As will appear, we see no statutory prohibition, and find the use of the LMI housing funds fully consonant with the statutory objectives.

First, we see no express statutory prohibition on the Agency’s expenditure of LMI housing funds to purchase and renovate property to house the District’s offices. Amicus curiae contends the purchase and renovation of the Moore/166th Street properties does not qualify “as an offsite improvement for which money meant to develop and improve affordable housing may be justifiably spent.” With the first point we agree: the plain language of section 33334.2(e)(2) shows that an offsite improvement paid for with LMI housing funds must be “part of the new construction or rehabilitation of affordable housing units” and “a reasonable and fundamental component of the housing units . . . .” (§ 33334.2, subd. (e)(2)(A).) The Moore/166th Street properties are not “offsite improvements” within the meaning of section 33334.2(e)(2); they are more properly “buildings or structures” that are being acquired and rehabilitated. (See § 33334.2, subd. (e)(6)&(7).) As amicus curiae itself recognizes, an offsite improvement “is understood to mean ‘offsite infrastructure necessary for new construction,’ such as roads and utility connections,” and the Moore/166th Street properties “are therefore not an offsite improvement to the Norwalk property . . . .” (See Craig, supra, 28 Cal.App.4th at p. 339; Lancaster, supra, 20 Cal.App.4th at p. 1662; see also Fontana Redevelopment Agency v. Torres (2007) 153 Cal.App.4th 902, 914 [amendments to section 33334.2(e)(2) changed the law “to limit use of tax increment designated for affordable housing to pay for infrastructure improvements unless they are part of new construction or rehabilitation of affordable housing”].) But the fact that the Moore/166th Street properties do not qualify as “offsite improvements” does not mean that the purchase and renovation of the property is forbidden.

And so we turn to the real question: may LMI funds be used to acquire and renovate buildings that will not themselves be used for affordable housing? Taxpayers say no, citing Craig and Lancaster, and stating, without analysis, that $18.5 million in LMI housing funds “are being used to purchase and remodel property for the benefit of the District[,]” and “are not being used for low and moderate [income] residential housing.” But Craig and Lancaster, while directed to the propriety of the use of LMI housing funds for offsite improvements, provide the analytical framework for determining whether the use proposed here is proper: does the use promote the statutory objective of increasing the supply of low- and moderate-income housing (see Lancaster, supra, 20 Cal.App.4th at p. 1658), and is there “a nexus between the expenditures and the goal of improving and increasing affordable housing”? (Craig, supra, 28 Cal.App.4th at p. 336, fn. 16.)

Clearly there is a nexus between the expenditures for the Moore/166th Street properties and an increase in the supply of affordable housing, and the nexus is, as it must be, direct and specific: the purchase of the Moore/166th Street properties, as the trial court observed, “facilitates the housing project as it opens up the Norwalk Street property for the low and moderate income housing complex.” In addition, the monies the District pays to lease (or purchase, if it exercises its option) the Moore/166th Street properties from the City is deposited in a trust fund to be used for the operation of the housing project, so, as the trial court also observed, there “is no net payment out of these restricted funds.” In short, the expenditures for the Moore/166th Street properties will result in an increase in the supply of low- and moderate-income housing — a “fundamental goal[]” of the CRL in general and of section 33334.2 in particular. (Lancaster, supra, 20 Cal.App.4th at p. 1658.)

Neither Craig nor Lancaster — both of which found that no nexus was established between expenditures for offsite improvements and the goal of improving or increasing affordable housing — supports a contrary conclusion. Craig involved a claim that the redevelopment agency had improperly used LMI housing funds to pay for construction of road improvements (a sound wall, sidewalk and gutter and lighting improvements) along a multi-lane street, adjoining which approximately 60 of the 90 households were of low or moderate income. (Craig, supra, 28 Cal.App.4th at pp. 333.) In Craig the question was whether the road project “improved” — as opposed to “increased” — the community’s supply of affordable housing within the meaning of section 33334.2. (Craig, at p. 336). The court observed the agency had to show the LMI Housing Fund expenditures for the road project “served to directly improve affordable housing” (id. at p. 339), but the agency “failed to establish the requisite nexus between the [road project] and the statutory goal of ‘improving’ affordable housing.” (Id. at pp. 341-342.) This was because the agency presented no evidence establishing that the road project “improved” the housing adjacent to the road (e.g., no evidence that the sound attenuation wall “made the sound problem better or in any other way had a beneficial effect on the homes in the neighborhood”). (Id. at pp. 340, 338, italics omitted [a redevelopment agency “must establish a direct link between the use of the LMI Housing Fund and the beneficial change in the condition of the affordable housing supply”].) There is no inconsistency between Craig’s conclusion and this case, where the expenditures for the Moore/166th Street properties, because they free the Norwalk Boulevard property for the housing project, are a “direct link” to the increase in the supply of affordable housing. (Id. at p. 338.)

Lancaster likewise provides no assistance to Taxpayers. Lancaster held that the redevelopment agency could not use LMI housing monies “to fund an ‘improvement’ which has little, if anything, to do with the construction of affordable housing for the persons intended to be benefitted” by the CRL. (Lancaster, supra, 20 Cal.App.4th at p. 1658.) In Lancaster, the city wanted to build two overpasses to provide access to an undeveloped desert area approved for future development as a business park. (Id. at p. 1659.) The court said the overpasses were clearly an offsite improvement within the meaning of section 33334.2(e)(2), but “[w]hat is missing is the nexus between the overpasses and affordable housing.” (Lancaster, at pp. 1662-1663.) The agency’s theory was that the overpasses would open up the desert area to development in general, and that “[i]t follows . . . that housing will be built and . . . affordable housing opportunities will necessarily follow.” (Id. at p. 1663.) The court observed that “[p]ure speculation . . . is not enough because it does not show that the program is one ‘which results’ in new affordable housing.” (Id. at p. 1663.) Here, the opposite is so; the expenditures for the Moore/166th Street properties are directly linked to the provision of new affordable housing on the Norwalk Boulevard property. Indeed, as Lancaster observed, “Under the plain language of the statute, an Agency may legitimately undertake efforts to increase the supply of affordable housing by innovative projects which do not include the present construction of new units.” (Id. at p. 1662.)

Amicus curiae make two other arguments. One involves section 33445 — which authorizes the agency to pay for land and improvements that are publicly owned — and one involves the District’s relocation costs. Neither has merit.

First, section 33445. A redevelopment agency may, with legislative consent, pay “the value of the land for and the cost of the installation and construction of any building . . . or other improvement that is publicly owned,” if the legislative body determines that (1) the acquisition or construction are of benefit to the project area by helping to eliminate blight or providing housing for low- or moderate-income persons, (2) no other reasonable means of financing the acquisition or construction of the improvements are available, and (3) the payment is consistent with the agency’s implementation plan under section 33490. (§ 33445, subd. (a).) Amicus curiae claims the Agency failed to show there were no funds available other than LMI housing funds to purchase and renovate the Moore/166th Street properties. (See § 33445, subd. (a)(2).) Amicus curiae is mistaken. The City and Agency made all the findings required by section 33445, subdivision (a), both when they approved the financing agreement and later when they approved the acquisition of the properties from the prior owner — including a finding that no funds were available other than those from the Agency’s budget. Nothing further is required by section 33445. And, as subdivision (b) of that section states, “The determinations made by the agency and the local legislative body pursuant to subdivision (a) shall be final and conclusive.” (§ 33445, subd. (b)(1).)

Second, amicus curiae argues that a school district is not an entity entitled to relocation assistance under either redevelopment or relocation law, and even if it were, relocation assistance cannot include the purchase and renovation of the Moore/166th Street properties. As the Agency points out, these arguments are wholly irrelevant, as the laws to which amicus curiae refer merely describe the circumstances under which an agency must provide relocation assistance to families, persons, and nonprofit local community institutions that are temporarily or permanently displaced by a project. (§ 33411.) The relocation provisions in the CRL (§§ 33410-33418) do not limit the circumstances in which an agency may reimburse relocation costs so long as the agency otherwise complies with the CRL. (See § 33415 [“[t]his section [requiring the agency to provide relocation assistance required by the Government Code (§§ 7260 et seq.)] shall not be construed to limit any other authority which an agency may have to make other relocation assistance payments”]; Gov. Code, § 7272.3 [same].)

In sum: The use of LMI housing funds to purchase and renovate the Moore/166th Street properties is a permissible use of those funds. Section 33334.2(e)(2) is applicable to offsite improvements — “infrastructure necessary for new construction” (Craig, supra, 28 Cal.App.4th at p. 339) — and does not apply here. The question is whether the agency may use LMI housing funds to acquire and renovate buildings that will not themselves be used for affordable housing, and the answer is that it may, if the acquisition is directly linked to a transaction that will increase the supply of affordable housing. As Craig tells us, “there is no question but that the primary purpose of section 33334.2 was to compel redevelopment agencies to increase the supply of affordable housing.” (Craig, at p. 338.) That objective is fully accomplished in the circumstances of this case.

C. Article XXXIV of the California Constitution does not require
D.
submission of the project to a vote of the electorate.

The senior housing project will contain 247 units. Twenty-five units are restricted to “very low income” households; 15 units are restricted to “low income” households, and 207 units are restricted to “moderate income” households. Thus only 16 percent of the units will be dedicated to very low or low income households.

Article XXXIV of the California Constitution is addressed to public housing project law. It was adopted by initiative in 1950, and provides that “[n]o low rent housing project shall hereafter be developed, constructed, or acquired in any manner by any state public body” until a majority of the electorate vote in favor of the project. (Cal. Const., art. XXXIV, § 1.) The term “low rent housing project” means “any development composed of urban or rural dwellings, apartments or other living accommodations for persons of low income, financed in whole or in part by the Federal Government or a state public body . . . .” (Ibid.) The term “persons of low income” is defined, for purposes of article XXXIV only, as “persons or families who lack the amount of income which is necessary (as determined by the state public body developing, constructing, or acquiring the housing project) to enable them, without financial assistance, to live in decent, safe and sanitary dwellings, without overcrowding.” (Ibid.)

Several legal authorities are relevant to assessing whether or not the senior housing project at issue here is a “low rent housing project” within the meaning of article XXXIV.

• In California Housing Finance Agency v. Elliott (1976) 17 Cal.3d 575 (Elliott), the Supreme Court held that article XXXIV required a local election for a housing program involving “mixed income housing,” in which 75 percent of the units were allocated to low income housing, with the remainder for persons of moderate income. (Elliott, at pp. 581-582, italics omitted; see California Housing Finance Agency v. Patitucci (1978) 22 Cal.3d 171, 175-176 (Patitucci).) The court found “persuasive” the reasoning that “where a housing project will be a low-income housing project in effect, if not by exact definition, article XXXIV, section 1, is applicable.” (Elliott, at pp. 592-593.) The court concluded that the “substance and primary purpose” of the project at issue was “to provide housing for those who cannot otherwise afford quality housing,” and the addition of units for other tenants “does not substantially affect either the basic character of the low-rent housing program or its potential impact on the community.” (Id. at p. 593.) As the court later said in Patitucci, the Elliott decision established several principles:
•
o Article XXXIV is “not unambiguous in all of its applications; ample room remains under the constitutional language for honest disagreement as to whether a particular mixed income development constitutes a ‘low rent housing project.’” (Patitucci, supra, 22 Cal.3d at p. 176.)
o
o A “realistic and functional approach” is to be taken in considering the application of article XXXIV, so that “the potential economic impact on the affected community is the primary test to be applied.” (Patitucci, at p. 176.)
o
o The Elliott decision was limited to its facts, “and did not preclude a different result in other cases in which other or lesser proportions of housing units were reserved for low income tenants.” (Patitucci, at p. 176.)
o
• In reaction to the Elliott decision, the Legislature adopted the Public Housing Election Implementation Law (§§ 37000-37002), “to clarify ambiguities relating to the scope of the applicability of Article XXXIV which now exist.” (§ 37000.) Section 37001 provides that the term “low-rent housing project” as defined in article XXXIV does not apply to any development meeting any one of several criteria. As relevant here, the statute clarifies that article XXXIV does not apply if:
•

“(1) The development is privately owned housing, receiving no ad valorem property tax exemption, other than exemptions granted pursuant to subdivision (f) or (g) of Section 214 of the Revenue and Taxation Code, not fully reimbursed to all taxing entities; and (2) not more than 49 percent of the dwellings, apartments, or other living accommodations of the development may be occupied by persons of low income.” (§ 37001, subd. (a).)

• In Patitucci, the Supreme Court held that sections 37000-37002 represented a constitutionally valid interpretation of article XXXIV, and that a project meeting the statutory criteria, “that is, a privately owned, nontax-exempt housing development, in which no more than 49 percent of the units will be available to low income persons,” is not a “low rent housing project” within the meaning of article XXXIV. (Patitucci, supra, 22 Cal.3d at pp. 174-175, 179.) In concluding the statute was reasonable and consistent with article XXXIV, the court looked to evidence of the purpose of article XXXIV, observing that its proponents were moved by two primary concerns, “the direct drain on a community’s finances and the effect on its aesthetic environment, represented by the tax exempt publicly owned low income housing of that day [1950].” (Patitucci, at pp. 177, 178.) And when the Legislature sought to repeal article XXXIV by referendum in 1974, the argument for its retention stated that “[i]t is important to remember that [article XXXIV] applies only to conventional public housing which is publicly owned and tax exempt.” (Patitucci, at p. 178.) The court concluded that, “Unlike the 75-25 percent housing mixture which we examined in Elliott, a development meeting the characteristics of section 37001 is not low income ‘in effect.’ Rather, it is truly ‘mixed income’ housing, since it represents an obvious good faith effort to integrate low income tenants into a larger community in which the majority of people (at least 51 percent) are higher on the economic scale.” (Patitucci, at p. 178.)
•
That brings us to this case. The substance of Taxpayers’ argument is that Cuesta Villas, the private, not-for-profit corporation that will own (by virtue of its 55-year ground lease) and operate the senior housing project, is a “shell corporation” controlled by the City and Agency and was created by the City to circumvent article XXXIV. Consequently, the argument continues, the project does not meet the “privately owned housing” requirement and hence does not qualify for the section 37001 statutory exemption from article XXXIV. We find no merit in this contention.

First, we note several points relating to Cuesta Villas. It is a duly incorporated domestic corporation of the State of California, organized under the Nonprofit Public Benefit Corporation Law for charitable purposes, and specifically for the primary purposes of developing, owning, maintaining and operating an affordable senior citizen housing development on Norwalk Boulevard. Cuesta Villas was formed by the City on September 12, 2007, and members of the City Council were appointed as officers and board members, with the appointments to remain in effect in accordance with the corporation’s bylaws. The bylaws identify the initial directors of the corporation, and provide that this initial board “shall prepare the corporation to begin operations by attending to such matters as” electing officers, submitting applications for recognition of tax-exempt status, opening bank accounts if necessary, and so on, and “[t]hereafter, the permanent board shall be elected . . . .” The permanent board members are to be nominated and elected by the members of the City Council. The public agencies’ validation complaint stated that the transition from the initial board to the permanent board composed of members of the general public would “likely occur shortly after the construction of the Senior Facilities and the initiation of its operations, but may occur sooner.”

Taxpayers assert several complaints about these arrangements. Their principal contention, within which the others are subsumed, is that the City and Agency control Cuesta Villas, and therefore the senior housing project cannot be considered “privately owned.” Taxpayers claim the principles enunciated in Rider v. County of San Diego (1991) 1 Cal.4th 1 (Rider I) — where the Supreme Court held that an intent to circumvent Proposition 13 could be inferred where plaintiffs proved a newly created tax agency was “essentially controlled” by a city or county that otherwise would have had to comply with a super-majority vote requirement — (Rider I, at p. 11, italics omitted) — also apply here. But, as is apparent from the Supreme Court’s subsequent decision in Rider v. City of San Diego (1998) 18 Cal.4th 1035 (Rider II), they do not.

Rider I involved the validity of a taxation scheme “enacted for the apparent purpose of avoiding the super-majority voter approval requirement” imposed by Proposition 13 “with respect to any ‘special taxes’ sought to be imposed by ‘cities, counties and special districts’ [citation].” (Rider I, supra, 1 Cal.4th at p. 5.) The Legislature had created an agency charged with imposing a supplemental sales tax to finance the construction of justice facilities, subject to a simple majority vote. County taxpayers challenged the validity of the tax approved by a simple majority, and the trial court concluded the tax constituted a deliberate attempt to circumvent the two-thirds voter approval requirement in Proposition 13 for special taxes imposed by special districts. (Rider I, at p. 6.) The Supreme Court agreed, concluding the record amply supported the trial court’s findings that Proposition 13 had been purposely circumvented and that the agency was created solely for the purpose of avoiding the strictures of Proposition 13. (Rider I, at pp. 6, 8.) The court concluded the evidence that the agency “was created to raise funds for county purposes and thereby circumvent Proposition 13” was strong, and further that courts could infer such intent “whenever the plaintiff has proved the new tax agency is essentially controlled by one or more cities or counties that otherwise would have had to comply with the super-majority provision of section 4 [of Proposition 13].” (Rider I, at p. 11.) Considerations relevant to whether such control exists included the presence or absence of:

“(1) substantial municipal control over agency operations, revenues or expenditures, (2) municipal ownership or control over agency property or facilities, (3) coterminous physical boundaries, (4) common or overlapping governing boards, (5) municipal involvement in the creation or formation of the agency, and (6) agency performance of functions customarily or historically performed by municipalities and financed through levies of property taxes.” (Rider I, supra, 1 Cal.4th at p. 12.)

Rider II, however, shows that there is no basis for applying the “essential control” standard in a context having nothing to do with the creation of a taxing agency or with Proposition 13. Rider II involved the validity of a financing plan under which a city and a port district created a third public entity (a joint powers agency, referred to as the financing authority) which could issue bonds without complying with voter approval requirements imposed by the California Constitution (with which the city would have had to comply if it had issued the bonds itself). (Rider II, supra, 18 Cal.4th at p. 1039.) Rider II rejected claims that the joint powers agency was “a mere financing ‘shell’ that acts at the City’s behest, doing for the City what the City may not do in its own name” (id. at p. 1041) and that the City was “once again trying to circumvent constitutional constraints.” (Id. at p. 1042.) The court observed:

• “The short answer to plaintiffs’ argument is that the Constitution and the City’s charter permit the City to avoid the two-thirds vote requirement by creating a joint powers agency to finance public works projects. Therefore, however we might characterize the financing plan at issue here, we cannot characterize it as unlawful.” (Rider II, at p. 1042.) (The court explained that the constitutional provision listed six specific types of governmental entities that may not incur indebtedness without a two-thirds vote, and “joint powers agencies are not on the list.”) (Id. at p. 1043.)
•
• The court rejected the argument that the City’s control of the joint powers agency rendered the two entities indistinguishable for purposes of the constitutional debt limitation (Rider, at pp. 1043-1044), and expressly stated that the “essential control” standard did not apply:
•

“[W]e have never held that control by itself establishes the identity of two separate governmental entities. Our adoption of the ‘essential control’ standard in [Rider I] was in the context of construing the term ‘special districts’ in Proposition 13.[ ] [Citation.] . . . In [Rider I], we expressly rejected the conclusion that the essential control standard established the identity of two separate governmental entities: ‘Rather than attempting to demonstrate that the subject agency and county are identical entities, application of the “essential control” test simply affords ground for reasonably inferring an intent to circumvent Proposition 13.’ [Citation.]” (Rider II, supra, 18 Cal.4th at p. 1044.)

• “Because the Financing Authority has a genuine separate existence from the City [citation], it does not matter whether or not the City ‘essentially controls’ the Financing Authority.” (Rider II, supra, 18 Cal.4th at p. 1044.)
•
• “We are not naive about the character of this transaction. If the City had issued bonds to pay for the Convention Center expansion, the two-thirds vote requirement would have applied. Here, the City and the Port District have created a financing mechanism that matches as closely as possible (in practical effect, if not in form) a City-financed project, but avoids the two-thirds vote requirement. Nevertheless, the law permits what the City and the Port District have done.” (Rider II, supra, 18 Cal.4th at p. 1055.)
•
So it is here. The law permits what the City and the Agency have done. Section 37001 expressly provides that when a development is privately owned, receives no ad valorem property tax exemption other than those specified, and does not allocate more than 49 percent of its accommodations to persons of low income, it is not subject to voter approval. Here, the project will be privately owned, as Cuesta Villas is a private, nonprofit corporation duly formed under California law. We are not at liberty to ignore the corporation’s status; it has a “genuine separate existence” from the City and Agency, so “it does not matter whether or not the City ‘essentially controls’” Cuesta Villas. (Rider II, supra, 18 Cal.4th at p. 1044.) Taxpayers have cited no authority that would allow us to conclude otherwise. As in Rider II, the City and Agency have avoided the voter approval requirement of article XXXIV, but the law permits what has been done.

Finally, Taxpayers point out that Cuesta Villas will not own the land on which the senior housing project will be constructed (since it has only a 55-year ground lease). From this fact Taxpayers claim, without citation to the record or to any authority, that if Cuesta Villas should fail to qualify for the tax exemptions specifically permitted by section 37001, “it will have an ad valorem tax exemption through the District’s ownership of the land[]” and therefore will not meet the requirement in section 37001 of “receiving no ad valorem property tax exemption . . . .” (§ 37001, subd. (a)(1).) This claim is directly contradicted by the principle pointed out in Conway v. City of San Mateo (1981) 127 Cal.App.3d 330 (Conway), which held that a proposed project was not subject to article XXXIV voter approval. Conway pointed out that it is “well-established that when there is a lease to a private owner of government-owned tax exempt land, the possessory right under the lease is subject to taxation.” (Id. at p. 336, italics added.) Taxpayers identify no other basis for claiming the project would have a tax exemption that is not permitted by section 37001.

One final note. The Agency argues that, even if the senior housing project were not expressly excepted from article XXXIV under section 37001, the project would nevertheless not be subject to article XXXIV, because it does not in any event qualify as a “low rent housing project” under the Supreme Court’s rational in Patitucci. Patitucci pointed out that Elliott “left unresolved . . . whether a mixed income project which includes a ‘relatively small’ percentage of low income units may be deemed a ‘low rent housing project’ under article XXXIV.” (Patitucci, supra, 22 Cal.3d at p. 176.) Further, Patitucci pointed out that the proponents of the article XXXIV initiative were primarily concerned with “the direct drain on a community’s finances and the effect on its aesthetic environment” so that the primary test to be applied to a determination of whether article XXXIV applies was the “potential economic impact on the affected community . . . .” (Patitucci, at pp. 178, 176.) Those concerns are not applicable to this project, the Agency argues, because only 16 percent of the project’s units are reserved for low income housing (and the project does not give rise to any aesthetic concerns); “there can be no concern regarding the economic drain of the Project on the community” (italics and bold omitted) because it is being financed with LMI housing funds which the Agency is required to spend on affordable housing projects. Thus, under the Patitucci rationale, whether or not the section 37001 exemption applies, the project would not be a “low rent housing project” within the meaning of article XXXIV. Taxpayers do not respond to this contention. While the Agency’s position appears to have considerable force, we need not decide the point in view of our conclusion that the project in any event meets the requirements stated in section 37001, subdivision (a).

C. The transaction is not invalidated by reason of the District’s lease of the Norwalk Boulevard property without complying with Government Code section 54222.

Government Code section 54222 provides procedures to be followed when a local agency disposes of surplus land. Prior to doing so, the local agency “shall send” a written offer to sell or lease the property, for the purpose of developing low- and moderate-income housing, “to any local public entity, as defined in [section 50079], within whose jurisdiction the surplus land is located.” (Gov. Code, § 54222, subd. (a).) Similarly, the local agency must send a written offer to sell or lease “for park and recreational purposes or open-space purposes” to local park or recreation departments or authorities and the State Resources Agency. (Id., subd. (b).) Written offers to sell or lease the property for other purposes not applicable here are also required. (Id., subds. (c)-(e).) The Legislature explained its policy in Government Code section 54220, declaring that housing was a priority of the highest order, that “there is a shortage of sites available for housing for persons and families of low and moderate income and that surplus government land, prior to disposition, should be made available for that purpose.” (Gov. Code, § 54220, subd. (a).) The Legislature likewise “reaffirm[ed] its belief that there is an identifiable deficiency in the amount of land available for recreational purposes and that surplus land, prior to disposition, should be made available for park and recreation purposes or for open-space purposes.” (Id., subd. (b).) Further (with one inapplicable exception), if an agency disposing of surplus land receives offers for purchase or lease “from more than one of the entities to which notice and an opportunity to purchase or lease shall be given pursuant to this article, the local agency shall give first priority to the entity that agrees to use the site for housing for persons and families of low or moderate income . . . .” (Gov. Code, § 54227.)

Taxpayers argue the District was obliged under Government Code section 54222 to offer the Norwalk Boulevard property (which was designated surplus property) to other public agencies (in addition to the Cerritos Redevelopment Agency) engaged in the development or operation of low- or moderate-income housing, and failed to do so; as a result “the District’s Project and the entire Agreement are invalid.” The District, which admits it did not follow the dictates of Government Code section 54222, takes the position that sales or leases of surplus school property are generally governed by the Education Code, rather than the Government Code. The Education Code contains provisions governing a school district’s sale or lease of real property. (Educ. Code, §§ 17455-17484.) Those provisions expressly require compliance with the Government Code provisions on the sale of surplus property only in specific instances. Thus:

1. Education Code section 17459 provides that a school district’s “sale of real property . . . shall be subject to” the Government Code provisions on the disposition of surplus land. (This provision does not apply because the transaction here is not a sale, but rather a 55-year ground lease.)
2.
3. The Education Code also provides that in the case of a sale, or lease with an option to purchase, of real property by a school district, the property must first be offered for park or recreational purposes under sections 54220 to 54232 of the Government Code “in any instance in which that article is applicable.” (Educ. Code, § 17464, subd. (a).) (This provision does not apply here because the lease of the Norwalk Boulevard property contains no option to purchase.)
4.
5. The Education Code also governs the sale or lease of surplus school playgrounds, playing fields, and recreational property. (Educ. Code, §§ 17485-17500.) Section 17489 of the Education Code states that “[n]otwithstanding Section 54222 of the Government Code,” the governing board must first offer to sell or lease such land to (in order of priority) any city, park or recreation district, regional park authority having jurisdiction, and county within which the land is situated. (Educ. Code, § 17489.)
6.
The District points out that none of the above Education Code provisions is applicable: that is, the Education Code does not expressly require compliance with the Government Code provisions on surplus property in the case — as here — of a lease of improved property containing no classrooms or open lands. The District argues that, under the rules of statutory construction, when the Legislature identifies specific categories of transactions that are subject to Government Code section 54222, and omits others, there is a presumption that the omitted categories were not intended to be subject to Government Code section 54222.

We are inclined to agree with the District. But we need not opine definitively on that point because, even if the District should have offered the Norwalk Boulevard property “for the purpose of developing low- and moderate-income housing” to all the public entities identified in Government Code section 54222, we can discern no conceivable prejudice suffered by the Taxpayers or anyone else as a result of its failure to do so. Taxpayers say only that the Norwalk Boulevard property is within a school district that serves several cities besides Cerritos, many of which have redevelopment agencies, and none of them was contacted, so “[i]t cannot be known what would have happened had [Government Code section] 54222[, subdivision] (a) been followed” and “there could have been a whole new chain of events . . . .” But this entirely speculative possibility cannot serve to obscure the fact that the express statutory purpose — requiring surplus property to be sold or leased for purposes of developing low- and moderate-income housing — has been fully met. Indeed, the statute specifically requires the local agency to give “first priority” to the entity that agrees to use the site for low- or moderate-income housing. (Gov. Code, § 54227.) Government Code section 54222 itself states that, with respect to any offer to purchase or lease, “priority shall be given to development of the land to provide affordable housing for lower income elderly or disabled persons or households, and other lower income households.” (Gov. Code, § 54222, subd. (a).) Moreover, we note that, under section 54230.5 of the Government Code, “[t]he failure by a local agency to comply with this article” — which includes Government Code section 54222 — “shall not invalidate the transfer or conveyance of real property to a purchaser or encumbrancer for value.” While this provision may not on its face apply to this transaction, because the City and the Agency are leasing, not purchasing the property, it clearly demonstrates the Legislature’s intention not to elevate form over substance. Consequently, we have no hesitation in concluding that the District’s failure to comply with Government Code section 54222 — assuming it applies — does not operate to invalidate the transaction.

D. There is no merit to Taxpayers’ claim that the

Agency failed to comply with section 33433.

Under the CRL, “before any property of the agency acquired . . . with tax increment moneys is sold or leased for development pursuant to the redevelopment plan, the sale or lease shall first be approved by the legislative body by resolution after public hearing.” (§ 33433, subd. (a)(1).) Before the hearing, the agency must prepare a report, available to the public, containing a copy of the proposed sale or lease and a summary describing a number of items, including an “explanation of why the sale or lease of the property will assist in the elimination of blight, with reference to all supporting facts and materials relied upon in making this explanation.” (§ 33433, subd. (a)(2)(B)(iv).) The resolution approving the lease or sale must contain a finding “that the sale or lease of the property will assist in the elimination of blight or provide housing for low- or moderate-income persons . . . .” (§ 33433, subd. (b), italics added.)

Taxpayers claim that the resolutions of the City and Agency expressly found that “the proposed improvements enable the provision of affordable housing in the community as a means to fulfill the obligation to eliminate blight[,]” and as a consequence, the report prepared by the Agency should have contained “supporting facts and materials relied upon” to explain why the lease of the Norwalk Boulevard property would “assist in the elimination of blight . . . .” (§ 33433, subd. (a)(2)(B)(iv).) Because there is nothing in the report that refers to any evidence that the project will assist in the elimination of blight, Taxpayers claim the City and Agency did not comply with section 33433 and “cannot be permitted to proceed.”

Taxpayers’ argument has no merit. The statute requires a finding by the legislative body that the transaction either will assist in the elimination of blight or will provide housing for low- or moderate-income persons. (§ 33433, subd. (b).) The resolutions expressly state the Agency’s intention to lease the Norwalk Boulevard property to Cuesta Villas “in order to meet its obligations under Redevelopment Law to provide for affordable housing in the City . . . .” That is one of the two alternatives specified by the statute. The added finding that the provision of affordable housing is “a means to fulfill the obligation to eliminate blight” is, at worst, superfluous; certainly it cannot operate to require the Agency to demonstrate that the senior housing project will eliminate blight when there is no statutory requirement that the project do so.

Taxpayers also contend that the report does not comply “with the remaining requirements” of section 33433, complaining — without elaboration — that there is no statement of clearance costs; no statement of relocation costs; and no discussion of whether or not the transaction is at or below fair market value. Taxpayers also complain that the report contains no “estimated value of the interest to be conveyed or leased, determined at the highest and best uses permitted under the plan” (and no highest and best use financial data) with respect to the Moore/166th Street properties. (See § 33433, subd. (a)(2)(B)(ii).)

We see no defect in the report that would render the expenditure of tax increment funds for the Norwalk Boulevard property invalid. Pages three to 10 of the report contain detailed information on the cost of the agreement to the Agency (including relocation costs), and the estimated value of the interest to be conveyed to Cuesta Villas. Taxpayers specify no reason why the information provided should be considered deficient. Certainly the information is in substantial compliance with statutory requirements. (See Contra Costa Theatre, Inc. v. Redevelopment Agency (1982) 131 Cal.App.3d 860, 865, 866 (Contra Costa) [summary comported with the requirements of section 33433 “by providing ample information for those interested in assessing the fairness and the tax cost of the transaction”; disclosures “substantially complie[d] with the relevant statutory requirements”].)

As to Taxpayers’ claim that there is no “estimated value of the interest to be conveyed” or financial data on the highest and best use of the Moore/166th Street properties that the City will lease to the District, the Agency’s report states that this portion of the project “does not require review under § 33433” because the Moore/166th Street properties will be owned by the City (as opposed to the Agency). (Section 33433 applies when “property of the agency acquired . . . with tax increment moneys is sold or leased for development pursuant to the redevelopment plan . . . .” (§ 33433, subd. (a)(1).)) Taxpayers counter that the property is being purchased with LMI housing funds. But in any event, the Agency’s report states that even if section 33433 applies, the estimates that appear elsewhere in the report (in connection with the requirements of section 33445, governing payment for land and improvements) would cover the point. The report shows the amount of tax monies to be used for the Moore/166th Street properties. It contains information on the total estimated cost of land acquisition and improvements on the Moore/166th Street properties (which were purchased from private owners), and shows that the revenue generated in the form of lease payments from (or purchase by) the District will be transferred to Cuesta Villas for operation of the senior housing project. In short, a perusal of the report shows it contains “ample information for those interested in assessing the fairness and the tax cost of the transaction.” (Contra Costa, supra, 131 Cal.App.3d at p. 865.)

E. The common law doctrine of “incompatibility of
F.
office” does not apply.

Finally, Taxpayers contend that, because the members of the City Council (who sit as the Board of the Agency) also sit on the initial board of directors of Cuesta Villas, the common law doctrine of “incompatibility of office” is violated. There is no merit in this contention.

The doctrine of incompatibility of office applies when the same person holds two public offices. For example, in People ex rel. Chapman v. Rapsey (1940) 16 Cal.2d 636, the court found the offices of city judge and city attorney incompatible, and held that when the respondent accepted the office of city attorney, his acceptance “had the effect of vacating or terminating his right to hold the office of city judge.” (Id. at p. 644.) The rule is “‘that where an individual is an incumbent of a public office and, during such incumbency, is appointed or elected to another public office and enters upon the duties of the latter, the first office becomes at once vacant if the two are incompatible [citations]’ . . . .” (Ibid.) Here, Cuesta Villas is a nonprofit corporation, and its board members do not hold public offices. (See id. at p. 640 [“‘“it is essential that the incumbent [of a public office] be clothed with a part of the sovereignty of the state to be exercised in the interest of the public”’”].) Consequently, there is no basis of any kind for application of the doctrine of incompatibility of office.

DISPOSITION

The judgment is affirmed. The respondents are to recover their costs on appeal.

CERTIFIED FOR PUBLICATION

LICHTMAN, J.*

We concur:

RUBIN, Acting P. J.

FLIER, J.

* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6, of the California Constitution.

CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

CAROLYN WALLACE,

Plaintiff and Appellant,

v.

GEICO GENERAL INSURANCE COMPANY et al.,

Defendants and Respondents.

D055305

(Super. Ct. No. 37-2008-00079950)

APPEAL from an order of the Superior Court of San Diego County, Timothy B. Taylor, Judge. Reversed and remanded.

Girardi & Keese and John A. Girardi for Plaintiff and Appellant.

Snell & Wilmer, Robert J. Gibson, Richard A. Delevan, Sheila Carboy and Todd E. Lundell for Defendants and Respondents.

Carolyn Wallace appeals from an order striking class allegations from the proposed class action lawsuit she filed against GEICO General Insurance Company, Government Employees Insurance Company, GEICO Casualty Company and GEICO Indemnity Company (collectively, GEICO). Wallace sued GEICO under Business and Professions Code section 17200 et seq., and other theories, alleging that GEICO wrongly denied coverage for body shop repairs performed at labor rates it considered to be above the prevailing rate. As we will explain, the trial court improperly concluded, as a predicate to its order striking the class allegations, that GEICO’s offer of monetary compensation to Wallace after she filed her lawsuit caused her to lose standing as the representative plaintiff. Accordingly, we reverse the order striking the class allegations and remand for further proceedings.

I

FACTUAL AND PROCEDURAL BACKGROUND

A. Wallace’s Proposed Class Action Complaint

On August 7, 2007, Wallace filed a proposed class action complaint against her automobile insurance carrier, GEICO. According to Wallace, her vehicle was damaged in a March 5, 2007 accident and required body work. She obtained an estimate from a repair shop of her choice and presented the estimate to GEICO. GEICO told her that it would not pay the full amount of the estimate because the hourly rate for labor charged by that business was above what GEICO considered to be the prevailing labor rate. Wallace had the repairs performed and paid the difference between what GEICO agreed to pay and what she was charged for the repairs.

The operative first amended complaint alleges three causes of action: (1) unfair competition in violation of section 17200 et seq., premised in part on GEICO’s alleged violation of the Insurance Code and related regulations in that it claimed prevailing labor rates without the proper support; (2) breach of contract; and (3) breach of the covenant of good faith and fair dealing. Wallace brought the lawsuit on behalf of a proposed class composed of:

“all individuals who, within four years preceding the date of this complaint and continuing while this action is pending, met and meet all of the following criteria:

• Resident of California;
•
• Purchased automobile insurance from [GEICO];
•
• Made a claim to [GEICO] for insurance coverage for automobile repairs;
•
• Submitted to [GEICO] a written repair cost estimate from an automobile repair shop of their choice;
•
• Whose claims were denied by [GEICO], either in whole or in part, because [GEICO] asserted that the labor rate in the automobile repair estimate exceeded the labor rate that [GEICO] [was] required to pay; and
•
• Were forced to either pay or become indebted to the automobile repair shop of their choice the difference between the rates provided by their automobile repair shop of their choice and the labor rate [GEICO] claim[s] [it was] required to pay.”
•

On behalf of the class, Wallace sought damages, including punitive damages, injunctive relief, disgorgement and attorney fees.

B. GEICO’s Motion for Summary Judgment

GEICO filed a motion for summary judgment or in the alternative for summary adjudication. In support of its motion, GEICO submitted evidence of a stipulation that GEICO entered into with the California Department of Insurance (DOI) in April 2007, and an implementing order issued by California’s Insurance Commissioner on May 2, 2007 (collectively, the consent order). The consent order was in response to orders to show cause that DOI issued in 2005 and 2006, and it covered the same subject matter as Wallace’s complaint, namely GEICO’s refusal to reimburse labor rates that it considered to be above the prevailing rate. In the consent order, GEICO was ordered to cease and desist from violations of certain Insurance Code provisions and related regulations; it agreed to submit a labor rate survey in compliance with existing law; and it was ordered to pay $60,000 to DOI. In addition, as highly relevant here, the consent order contained the following provisions regarding reimbursement of GEICO’s insureds and other claimants:

“D. [GEICO] will conduct an internal audit of complaints submitted to [GEICO] or [DOI] since January 1, 2004 regarding labor rates to identify those claims, if any, where the insured or claimant paid an additional amount to the repair shop as a result of the difference in the labor rate charged by the repair shop and the amount paid by [GEICO]. [GEICO] shall reimburse the insured or claimant the additional amount paid no later than ninety days after [GEICO] [is] served with the Commissioner’s Order approving final settlement of this matter. Further [GEICO] shall send [DOI] a report of the results of the audit and amounts reimbursed.

“E. Beginning no later than the 60 days after [GEICO] [is] served with the Commissioner’s Order approving the final settlement of this matter,[ ] [GEICO] shall calculate the cost of paint and materials on their repair estimates on an hour multiplied by rate basis only. . . .

“F. Any complaints concerning disputed labor rates or the calculation of paint and material on a repair estimate received by either [GEICO] or [DOI] during this 60 day period shall be submitted to [GEICO] and [GEICO] shall recalculate the labor rate on the estimate or the cost of paint and material and make the corresponding adjustment on the repair estimate that was the subject of the complaint and reimburse the insured or claimant the additional amount resulting from the adjustment. . . .”

The consent order further provided that it represented “a complete resolution of the issues raised [by the relevant orders to show cause], as well as all complaints against [GEICO] received by [DOI] on the issue of labor rates, steering, and paint and materials on or before 60 days after [GEICO] [is] served with the Commissioner’s Order approving the final settlement of this matter. Complaints received after this 60 day period may be subject to further action by [DOI].”

In further support of its motion, GEICO submitted evidence that on October 10, 2007, just over two months after Wallace filed her lawsuit, GEICO sent a check for $387.56 to Wallace to cover the amount that Wallace paid out of pocket for the repair of her vehicle. GEICO’s letter accompanying the check stated, “This payment is being made in accordance with the [consent order].”

GEICO argued, among other things, that summary judgment should be granted on the ground that Wallace’s claims had been completely remedied, and thus Wallace’s individual claims were moot and she lacked standing to pursue her class claims. According to GEICO, “[b]ecause the [consent order] covered Wallace’s request for relief, her injuries have been remedied.”

In opposition, Wallace argued that she did not lack standing and the case was not moot because, among other things, she did not accept the check tendered by GEICO, and she was injured by paying her insurance premiums in the expectation of obtaining coverage. However, Wallace also argued that even if she was found to lack standing to represent the proposed class, the trial court should allow the class action to proceed while she located a new representative plaintiff.

The trial court rejected GEICO’s argument that the tender of payment by GEICO mooted Wallace’s claims for relief on behalf of herself, as it was “undisputed [Wallace] had to employ legal counsel and pursue legal remedies to receive the $387.56.” However, the trial court concluded that “[Wallace] does not have standing to serve as a putative class representative, given [GEICO] [has] tendered a check to her as of November 2008 in compliance with the directions of the [consent order], for the difference between what the insurer paid and what [Wallace's] repair shop . . . charged, thus removing any injury she may have suffered.” The trial court ruled that it would give Wallace time to locate an adequate class representative, and it allowed Wallace to conduct discovery for that purpose.

C. GEICO’s Motion to Strike the Class Allegations from the Action

Less than two months after the trial court ruled on the summary judgment motion, GEICO filed a motion to strike the class allegations from the operative complaint. GEICO pointed out that despite the pending April 15, 2009 deadline for all fact discovery and the May 15, 2009 trial date, Wallace had not located a substitute class representative, and that a class action could not proceed without a class representative. It also argued that the absence of a class representative had prevented it from conducting discovery on the issues of typicality and numerosity to defend an eventual class certification motion.

Wallace opposed the motion on the basis, among others, (1) that because of GEICO’s alleged noncompliance with discovery requests, she had “encountered difficulties locating a new class member”; and (2) that case law prohibits a defendant from defeating a class action by compensating the representative plaintiff for her injuries after the filing of the complaint. (La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864, 871 (La Sala).)

On April 17, 2009, the trial court issued a ruling granting the motion to strike the class allegations on the ground that, despite the passing of the April 15 fact discovery deadline, “the class has no designated class representative and a class action cannot be prosecuted in the absence of a class representative.” The trial court rejected Wallace’s reliance on La Sala, supra, 5 Cal.3d 864, holding that it did not apply to claims brought under section 17200 et seq. The trial court also noted, “The case is twenty (20) months old . . . yet [Wallace] has failed to bring a motion to certify a class.”

The trial court gave Wallace the option of proceeding with her individual claims, which she elected to do, and the trial court then stayed the action pending Wallace’s appeal of the order striking the class allegations.

II

DISCUSSION

Wallace’s sole argument on appeal is that the trial court erred in ruling that she lacked standing to proceed as the representative plaintiff. Wallace contends that she should be permitted to act as a representative plaintiff under the doctrine described in La Sala, supra, 5 Cal.3d 864, and other cases, under which a defendant in a class action is not permitted to avoid a class suit by “picking off ” the representative plaintiffs and remedying the injuries they suffered. According to Wallace, if she is allowed to serve as a representative plaintiff, then there is no basis for striking the class allegations. However, before we turn to that issue, we must address a preliminary point raised in GEICO’s respondent’s brief.

A. The Trial Court’s Order Striking Class Allegations Was Not Based on the Independent Ground That Wallace Had Failed to Move for Class Certification

GEICO contends that the trial court’s order striking the class allegations rested on two independent grounds: (1) that the case lacked a representative plaintiff; and (2) that Wallace had not moved for class certification despite the fact that the case had been pending for 20 months. GEICO contends that we may thus affirm the order striking the class allegations by relying on the second ground for the trial court’s decision, without even reaching the issue of whether Wallace lacks standing to act as the representative plaintiff.

As we will explain, we reject this argument because we do not share GEICO’s interpretation of the trial court’s decision. More specifically, we conclude that the trial court did not base its decision to strike the class allegations on the ground that Wallace had not moved for class certification.

First, the trial court’s order does not state that the failure to move for class certification was a ground for its decision. Instead, the ruling clearly states that the motion is granted because “the class has no designated class representative.” The trial court mentions the fact that Wallace “has failed to bring a motion to certify a class,” but the analytical significance of that statement is not clear, and the trial court does not state that the lack of such a motion forms an independent basis for its decision.

Second, GEICO’s motion to strike the class allegations did not assert Wallace’s failure to move for class certification as a ground for striking the class allegations. Thus, it is illogical that the trial court would rely on that ground in granting the motion.

In sum, we will not affirm the ruling striking the class allegations by relying on the independent ground that Wallace failed to move for class certification, as we do not understand the trial court to have based its ruling on that ground.

B. The Trial Court Erred in Granting the Motion to Strike the Class Allegations

We now turn to the issue of whether, as a predicate to its order striking the class allegations, the trial court erred in ruling that due to GEICO’s offer to compensate her for her injury, Wallace lost her standing to act as a representative plaintiff.

1. Standard of Review

We apply a de novo standard of review to an order striking class allegation (Blakemore v. Superior Court (2005) 129 Cal.App.4th 36, 54), and to the extent we are required to consider the portion of the trial court’s summary judgment ruling that Wallace lacks standing to serve as class representative, we also apply a de novo standard of review. (State of California v. Allstate Ins. Co. (2009) 45 Cal.4th 1008, 1017 [a decision granting summary judgment is reviewed de novo]; IBM Personal Pension Plan v. City and County of San Francisco (2005) 131 Cal.App.4th 1291, 1299 ["Standing is a question of law that we review de novo."].)

2. The “Pick Off ” Cases

We begin with the ” ‘elementary’ ” principle ” ‘that the named plaintiff in a class action must be a member of the class he purports to represent.’ ” (First American Title Ins. Co. v. Superior Court (2007) 146 Cal.App.4th 1564, 1573-1574.) GEICO argued that Wallace was no longer a member of the class she sought to represent because her injuries had been remedied by GEICO’s tender of payment in the amount of $387.56. The trial court agreed, and on that basis ruled that Wallace was no longer a proper class representative and eventually struck the class allegations from the action.

In the specific situation where a defendant in a class action has forced an involuntary settlement on the representative plaintiff after the lawsuit is filed, case law creates an exception to the requirement that a representative plaintiff continue to be a member of the proposed class. These cases, which are “sometimes referred to as ‘pick off ‘ cases” (Watkins v. Wachovia Corp. (2009) 172 Cal.App.4th 1576, 1590), “arise when, prior to class certification, a defendant in a proposed class action gives the named plaintiff the entirety of the relief claimed by that individual. The defendant then attempts to obtain dismissal of the action, on the basis that the named plaintiff can no longer pursue a class action, as the named plaintiff is no longer a member of the class the plaintiff sought to represent. . . . [T]he defendant seeks to avoid exposure to the class action by ‘picking off ‘ the named plaintiff, sometimes by picking off named plaintiffs serially.” (Ibid., citing, among others, La Sala, supra, 5 Cal.3d 864.) In this situation, “the involuntary receipt of relief does not, of itself, prevent the class plaintiff from continuing as a class representative.” (Watkins, at p. 1590; see also Larner v. Los Angeles Doctors Hospital Associates, LP (2008) 168 Cal.App.4th 1291, 1299 [case law "prevents a prospective defendant from avoiding a class action by 'picking off ' prospective class-action plaintiffs one by one, settling each individual claim in an attempt to disqualify the named plaintiff as a class representative"]; Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528, 548 [" '[A] prospective defendant is not allowed to avert a class action by “picking off ” prospective plaintiffs one-by-one. Thus, precertification payment of the named plaintiff ’s claim does not automatically disqualify the named plaintiff as a class action representative.’ “].)

Federal case law also disapproves of attempting to moot a class action by picking off a representative plaintiff. (Deposit Guaranty Nat. Bank v. Roper (1980) 445 U.S. 326, 339 [appeal of class certification ruling was justiciable even though defendant afforded relief to the representative plaintiff]; Weiss v. Regal Collections (3d Cir. 2004) 385 F.3d 337, 348 (Weiss) [where the defendant attempted to pick off the representative plaintiff in a proposed class action through an offer of judgment before the filing of a certification motion, the representative plaintiff would be permitted to proceed with the action and file a certification motion].)

Instead of a reflexive dismissal of the representative plaintiff on the basis that he or she lacks standing as the trial court did here — the proper procedure in a pick off situation is for the trial court to consider whether “the named plaintiffs will continue fairly to represent the class” in light of the individual relief offered by the defendant. (La Sala, supra, 5 Cal.3d at p. 872.) As a practical matter, in most cases, that evaluation may be performed in the context of a ruling on a motion for class certification, where the trial court inquires into the existence of, among other things, “(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.” (Sav On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326, italics added; see also Weiss, supra, 385 F.3d at p. 348 [allowing class certification motion to be filed after defendant attempted to pick off the representative plaintiff].)

3. The Pick Off Cases Apply to a Class Action Alleging a Violation of Section 17200 et seq.

Before we consider whether GEICO’s offer of settlement to Wallace falls into the situation described in the pick off cases, we first consider whether the pick off cases are applicable in a class action alleging violations of section 17200 et seq. In its ruling striking the class allegations, the trial court rejected Wallace’s citation to La Sala, supra, 5 Cal.3d 864, and the rule expressed in the pick off cases. It explained that “[t]he La Sala case relied on by [Wallace] is not persuasive in this setting, in light of the requirement under section 17200 that the plaintiff must have actually suffered injury.” The trial court was apparently referring to section 17204, as amended by Proposition 64 in November 2004 (see Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 227 (Californians for Disability Rights)), which states that “[a]ctions for relief pursuant to this chapter shall be prosecuted . . . by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” (§ 17204.) In Wallace’s opening appellate brief, she argues that the trial court erred in concluding that, because of the injury-in-fact requirement, the pick off cases are not persuasive here. Specifically, Wallace argues that applying the pick off cases to a class action complaint brought under section 17200 et seq. does not conflict with the injury-in-fact requirement, as the pick off cases presuppose an injury-in-fact at the time the lawsuit is filed. In its respondent’s brief, GEICO agrees with Wallace, stating it “does not . . . contend that Proposition 64 created any exception to the rule announced in the pick off cases.” Instead, GEICO argues that we should affirm the trial court’s order striking the class allegations because GEICO did not attempt to pick off Wallace as the representative plaintiff, but instead compensated her under the terms of the consent order.

We agree with the parties that the pick off cases are persuasive here, regardless of the injury-in-fact requirement set forth in section 17204. As required by section 17204, Wallace “suffered injury in fact” and “lost money or property” as a result of the practices at issue in this lawsuit. (§ 17204.) Specifically, Wallace was injured by paying for the repair work to her vehicle that GEICO did not agree to cover. Thus, at the time Wallace filed suit she was a proper plaintiff under section 17204. We see no indication in the history of Proposition 64, as reviewed by our Supreme Court in Californians for Disability Rights, supra, 39 Cal.4th 223, 228, that the voters amended section 17204 with the intent of allowing defendants in class actions brought under section 17200 et seq. to defeat class status by forcing an involuntary settlement. Our Supreme Court explained the voter’s intent:

“In Proposition 64, as stated in the measure’s preamble, the voters found and declared that the [unfair competition law]’s broad grant of standing had encouraged ‘[f]rivolous unfair competition lawsuits [that] clog our courts[,] cost taxpayers’ and ‘threaten[] the survival of small businesses. . . .’ (Prop. 64, § 1, subd. (c) ['Findings and Declarations of Purpose'].) The former law, the voters determined, had been ‘misused by some private attorneys who’ ‘[f]ile frivolous lawsuits as a means of generating attorney’s fees without creating a corresponding public benefit,’ ‘[f]ile lawsuits where no client has been injured in fact,’ ‘[f]ile lawsuits for clients who have not used the defendant’s product or service, viewed the defendant’s advertising, or had any other business dealing with the defendant,’ and ‘[f]ile lawsuits on behalf of the general public without any accountability to the public and without adequate court supervision.’ (Prop. 64, § 1, subd. (b)(1)-(4).) ‘[T]he intent of California voters in enacting’ Proposition 64 was to limit such abuses by ‘prohibit[ing] private attorneys from filing lawsuits for unfair competition where they have no client who has been injured in fact’ (id., § 1, subd. (e)) and by providing ‘that only the California Attorney General and local public officials be authorized to file and prosecute actions on behalf of the general public’ (id., § 1, subd. (f)).” (Californians For Disability Rights, supra, 39 Cal.4th at p. 228.)

We see no indication in this statement of intent that Proposition 64 was intended to render the pick off cases inapplicable in class actions brought under section 17200 et seq. The voter’s focus was instead on the filing of lawsuits by attorneys who did not have clients impacted by the defendant’s conduct. Here, Wallace’s lawsuit was filed by a client directly impacted by GEICO’s conduct. Further, as our Supreme Court stated in another case in which it reviewed evidence of the voter’s intent, the ballot materials for Proposition 64 contain no “indication that the purpose of the initiative was to alter the way in which class actions operate in the context of the [unfair competition law]” and there is no “indication that Proposition 64 was intended in any way to alter the rules surrounding class action certification.” (In re Tobacco II Cases (2009) 46 Cal.4th 298, 318.) Because the doctrine expressed in the pick off cases is an established part of class action procedure, there is no reason to believe that Proposition 64 was intended to alter that doctrine in the context of suits brought under section 17200 et seq.

4. Because the Pick Off Cases Apply Here, the Trial Court Erred in Concluding That Wallace Lacked Standing to Serve as the Representative Plaintiff

We now consider Wallace’s contention that, in light of the pick off cases, the trial court erred in ruling that GEICO’s offer of settlement caused her to lose standing to pursue her class allegations as a representative plaintiff.

GEICO contends that this case does not fall into the situation described in the pick off cases because GEICO was not affording special treatment to Wallace by offering to pay her the amount that she paid to the repair shop out of her own pocket. GEICO argues that, instead, it “paid her claim pursuant to a preexisting DOI order [i.e., the consent order] that provides the same relief to both Wallace and any other potential class member” and that the consent order “was entered . . . two months before Wallace filed this lawsuit.” GEICO contends that by entering into the consent order, it effectively agreed to compensate Wallace before she filed the lawsuit, and thus it did not as a factual matter engage in the conduct described in the pick off cases, namely offering individual compensation to a representative plaintiff after the filing of a lawsuit. Moreover, characterizing the consent order as an agreement to “reimburse all individuals — not just Wallace — who paid additional money to a body shop because GEICO had refused to pay that body shop’s labor rates,” GEICO argues that the policy behind the pick off cases is not implicated here in that “[t]here is simply no risk that GEICO’s agreement to class-wide relief and its reimbursement to Wallace could possibly ‘frustrate the objectives of class actions,’ ‘invite waste of judicial resources,’ . . . stimulat[e] successive suits’ ” or “open a ‘revolving door’ of litigation.”

We reject GEICO’s arguments because they rest on a flawed understanding of the consent order. As we have described, the consent order required GEICO to make payment only to a limited group of individuals. Specifically, GEICO was required to conduct an internal audit of relevant complaints submitted to it since January 1, 2004, and, within 90 days of the approval of the consent order, to reimburse the insured or claimants who made those complaints. Further, to the extent GEICO received additional complaints in the 60-day period after the approval of the consent order, GEICO was required to reimburse those insureds or claimants who made those complaints. Here, it is undisputed that Wallace did not make a complaint to GEICO prior to filing this lawsuit on August 7, 2007. This lawsuit was filed more than 60 days after the consent order was approved on May 2, 2007. Accordingly, Wallace does not fall within the scope of persons whom GEICO is required to reimburse under the terms of the consent order. Further, there may be other persons in the proposed class who, like Wallace, did not make a complaint to GEICO within the required time frame and thus are entitled to reimbursement under the terms of the consent order.

Under these circumstances, we find the pick off cases to be fully applicable. Because GEICO was not required to reimburse Wallace under the terms of the consent order, it voluntarily offered to settle with her after she filed a class action lawsuit. The pick off cases establish that in such a situation, Wallace does not automatically lose standing to act as a representative plaintiff. It was thus error for the trial court to grant GEICO’s motion to strike class allegations on the ground that the lawsuit lacked a representative plaintiff.

As the trial court erred in granting the motion to strike the class allegations, we will remand the action for further class action proceedings, during which the trial court should take into account the fact of GEICO’s settlement offer when deciding, in connection with class certification, whether Wallace will adequately represent the class. (La Sala, supra, 5 Cal.3d at p. 872.)

DISPOSITION

The order striking class allegations is reversed, and the matter is remanded for proceedings consistent with this opinion. Wallace shall recover her costs on appeal.

IRION, J.

WE CONCUR:

HUFFMAN, Acting P. J.

AARON, J.

CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

CAROLYN WALLACE,

Plaintiff and Appellant,

v.

GEICO GENERAL INSURANCE COMPANY et al.,

Defendants and Respondents.

D055305

(Super. Ct. No. 37-2008-00079950)

APPEAL from an order of the Superior Court of San Diego County, Timothy B. Taylor, Judge. Reversed and remanded.

Girardi & Keese and John A. Girardi for Plaintiff and Appellant.

Snell & Wilmer, Robert J. Gibson, Richard A. Delevan, Sheila Carboy and Todd E. Lundell for Defendants and Respondents.

Carolyn Wallace appeals from an order striking class allegations from the proposed class action lawsuit she filed against GEICO General Insurance Company, Government Employees Insurance Company, GEICO Casualty Company and GEICO Indemnity Company (collectively, GEICO). Wallace sued GEICO under Business and Professions Code section 17200 et seq., and other theories, alleging that GEICO wrongly denied coverage for body shop repairs performed at labor rates it considered to be above the prevailing rate. As we will explain, the trial court improperly concluded, as a predicate to its order striking the class allegations, that GEICO’s offer of monetary compensation to Wallace after she filed her lawsuit caused her to lose standing as the representative plaintiff. Accordingly, we reverse the order striking the class allegations and remand for further proceedings.

I

FACTUAL AND PROCEDURAL BACKGROUND

A. Wallace’s Proposed Class Action Complaint

On August 7, 2007, Wallace filed a proposed class action complaint against her automobile insurance carrier, GEICO. According to Wallace, her vehicle was damaged in a March 5, 2007 accident and required body work. She obtained an estimate from a repair shop of her choice and presented the estimate to GEICO. GEICO told her that it would not pay the full amount of the estimate because the hourly rate for labor charged by that business was above what GEICO considered to be the prevailing labor rate. Wallace had the repairs performed and paid the difference between what GEICO agreed to pay and what she was charged for the repairs.

The operative first amended complaint alleges three causes of action: (1) unfair competition in violation of section 17200 et seq., premised in part on GEICO’s alleged violation of the Insurance Code and related regulations in that it claimed prevailing labor rates without the proper support; (2) breach of contract; and (3) breach of the covenant of good faith and fair dealing. Wallace brought the lawsuit on behalf of a proposed class composed of:

“all individuals who, within four years preceding the date of this complaint and continuing while this action is pending, met and meet all of the following criteria:

• Resident of California;
•
• Purchased automobile insurance from [GEICO];
•
• Made a claim to [GEICO] for insurance coverage for automobile repairs;
•
• Submitted to [GEICO] a written repair cost estimate from an automobile repair shop of their choice;
•
• Whose claims were denied by [GEICO], either in whole or in part, because [GEICO] asserted that the labor rate in the automobile repair estimate exceeded the labor rate that [GEICO] [was] required to pay; and
•
• Were forced to either pay or become indebted to the automobile repair shop of their choice the difference between the rates provided by their automobile repair shop of their choice and the labor rate [GEICO] claim[s] [it was] required to pay.”
•

On behalf of the class, Wallace sought damages, including punitive damages, injunctive relief, disgorgement and attorney fees.

B. GEICO’s Motion for Summary Judgment

GEICO filed a motion for summary judgment or in the alternative for summary adjudication. In support of its motion, GEICO submitted evidence of a stipulation that GEICO entered into with the California Department of Insurance (DOI) in April 2007, and an implementing order issued by California’s Insurance Commissioner on May 2, 2007 (collectively, the consent order). The consent order was in response to orders to show cause that DOI issued in 2005 and 2006, and it covered the same subject matter as Wallace’s complaint, namely GEICO’s refusal to reimburse labor rates that it considered to be above the prevailing rate. In the consent order, GEICO was ordered to cease and desist from violations of certain Insurance Code provisions and related regulations; it agreed to submit a labor rate survey in compliance with existing law; and it was ordered to pay $60,000 to DOI. In addition, as highly relevant here, the consent order contained the following provisions regarding reimbursement of GEICO’s insureds and other claimants:

“D. [GEICO] will conduct an internal audit of complaints submitted to [GEICO] or [DOI] since January 1, 2004 regarding labor rates to identify those claims, if any, where the insured or claimant paid an additional amount to the repair shop as a result of the difference in the labor rate charged by the repair shop and the amount paid by [GEICO]. [GEICO] shall reimburse the insured or claimant the additional amount paid no later than ninety days after [GEICO] [is] served with the Commissioner’s Order approving final settlement of this matter. Further [GEICO] shall send [DOI] a report of the results of the audit and amounts reimbursed.

“E. Beginning no later than the 60 days after [GEICO] [is] served with the Commissioner’s Order approving the final settlement of this matter,[ ] [GEICO] shall calculate the cost of paint and materials on their repair estimates on an hour multiplied by rate basis only. . . .

“F. Any complaints concerning disputed labor rates or the calculation of paint and material on a repair estimate received by either [GEICO] or [DOI] during this 60 day period shall be submitted to [GEICO] and [GEICO] shall recalculate the labor rate on the estimate or the cost of paint and material and make the corresponding adjustment on the repair estimate that was the subject of the complaint and reimburse the insured or claimant the additional amount resulting from the adjustment. . . .”

The consent order further provided that it represented “a complete resolution of the issues raised [by the relevant orders to show cause], as well as all complaints against [GEICO] received by [DOI] on the issue of labor rates, steering, and paint and materials on or before 60 days after [GEICO] [is] served with the Commissioner’s Order approving the final settlement of this matter. Complaints received after this 60 day period may be subject to further action by [DOI].”

In further support of its motion, GEICO submitted evidence that on October 10, 2007, just over two months after Wallace filed her lawsuit, GEICO sent a check for $387.56 to Wallace to cover the amount that Wallace paid out of pocket for the repair of her vehicle. GEICO’s letter accompanying the check stated, “This payment is being made in accordance with the [consent order].”

GEICO argued, among other things, that summary judgment should be granted on the ground that Wallace’s claims had been completely remedied, and thus Wallace’s individual claims were moot and she lacked standing to pursue her class claims. According to GEICO, “[b]ecause the [consent order] covered Wallace’s request for relief, her injuries have been remedied.”

In opposition, Wallace argued that she did not lack standing and the case was not moot because, among other things, she did not accept the check tendered by GEICO, and she was injured by paying her insurance premiums in the expectation of obtaining coverage. However, Wallace also argued that even if she was found to lack standing to represent the proposed class, the trial court should allow the class action to proceed while she located a new representative plaintiff.

The trial court rejected GEICO’s argument that the tender of payment by GEICO mooted Wallace’s claims for relief on behalf of herself, as it was “undisputed [Wallace] had to employ legal counsel and pursue legal remedies to receive the $387.56.” However, the trial court concluded that “[Wallace] does not have standing to serve as a putative class representative, given [GEICO] [has] tendered a check to her as of November 2008 in compliance with the directions of the [consent order], for the difference between what the insurer paid and what [Wallace's] repair shop . . . charged, thus removing any injury she may have suffered.” The trial court ruled that it would give Wallace time to locate an adequate class representative, and it allowed Wallace to conduct discovery for that purpose.

C. GEICO’s Motion to Strike the Class Allegations from the Action

Less than two months after the trial court ruled on the summary judgment motion, GEICO filed a motion to strike the class allegations from the operative complaint. GEICO pointed out that despite the pending April 15, 2009 deadline for all fact discovery and the May 15, 2009 trial date, Wallace had not located a substitute class representative, and that a class action could not proceed without a class representative. It also argued that the absence of a class representative had prevented it from conducting discovery on the issues of typicality and numerosity to defend an eventual class certification motion.

Wallace opposed the motion on the basis, among others, (1) that because of GEICO’s alleged noncompliance with discovery requests, she had “encountered difficulties locating a new class member”; and (2) that case law prohibits a defendant from defeating a class action by compensating the representative plaintiff for her injuries after the filing of the complaint. (La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864, 871 (La Sala).)

On April 17, 2009, the trial court issued a ruling granting the motion to strike the class allegations on the ground that, despite the passing of the April 15 fact discovery deadline, “the class has no designated class representative and a class action cannot be prosecuted in the absence of a class representative.” The trial court rejected Wallace’s reliance on La Sala, supra, 5 Cal.3d 864, holding that it did not apply to claims brought under section 17200 et seq. The trial court also noted, “The case is twenty (20) months old . . . yet [Wallace] has failed to bring a motion to certify a class.”

The trial court gave Wallace the option of proceeding with her individual claims, which she elected to do, and the trial court then stayed the action pending Wallace’s appeal of the order striking the class allegations.

II

DISCUSSION

Wallace’s sole argument on appeal is that the trial court erred in ruling that she lacked standing to proceed as the representative plaintiff. Wallace contends that she should be permitted to act as a representative plaintiff under the doctrine described in La Sala, supra, 5 Cal.3d 864, and other cases, under which a defendant in a class action is not permitted to avoid a class suit by “picking off ” the representative plaintiffs and remedying the injuries they suffered. According to Wallace, if she is allowed to serve as a representative plaintiff, then there is no basis for striking the class allegations. However, before we turn to that issue, we must address a preliminary point raised in GEICO’s respondent’s brief.

A. The Trial Court’s Order Striking Class Allegations Was Not Based on the Independent Ground That Wallace Had Failed to Move for Class Certification

GEICO contends that the trial court’s order striking the class allegations rested on two independent grounds: (1) that the case lacked a representative plaintiff; and (2) that Wallace had not moved for class certification despite the fact that the case had been pending for 20 months. GEICO contends that we may thus affirm the order striking the class allegations by relying on the second ground for the trial court’s decision, without even reaching the issue of whether Wallace lacks standing to act as the representative plaintiff.

As we will explain, we reject this argument because we do not share GEICO’s interpretation of the trial court’s decision. More specifically, we conclude that the trial court did not base its decision to strike the class allegations on the ground that Wallace had not moved for class certification.

First, the trial court’s order does not state that the failure to move for class certification was a ground for its decision. Instead, the ruling clearly states that the motion is granted because “the class has no designated class representative.” The trial court mentions the fact that Wallace “has failed to bring a motion to certify a class,” but the analytical significance of that statement is not clear, and the trial court does not state that the lack of such a motion forms an independent basis for its decision.

Second, GEICO’s motion to strike the class allegations did not assert Wallace’s failure to move for class certification as a ground for striking the class allegations. Thus, it is illogical that the trial court would rely on that ground in granting the motion.

In sum, we will not affirm the ruling striking the class allegations by relying on the independent ground that Wallace failed to move for class certification, as we do not understand the trial court to have based its ruling on that ground.

B. The Trial Court Erred in Granting the Motion to Strike the Class Allegations

We now turn to the issue of whether, as a predicate to its order striking the class allegations, the trial court erred in ruling that due to GEICO’s offer to compensate her for her injury, Wallace lost her standing to act as a representative plaintiff.

1. Standard of Review

We apply a de novo standard of review to an order striking class allegation (Blakemore v. Superior Court (2005) 129 Cal.App.4th 36, 54), and to the extent we are required to consider the portion of the trial court’s summary judgment ruling that Wallace lacks standing to serve as class representative, we also apply a de novo standard of review. (State of California v. Allstate Ins. Co. (2009) 45 Cal.4th 1008, 1017 [a decision granting summary judgment is reviewed de novo]; IBM Personal Pension Plan v. City and County of San Francisco (2005) 131 Cal.App.4th 1291, 1299 ["Standing is a question of law that we review de novo."].)

2. The “Pick Off ” Cases

We begin with the ” ‘elementary’ ” principle ” ‘that the named plaintiff in a class action must be a member of the class he purports to represent.’ ” (First American Title Ins. Co. v. Superior Court (2007) 146 Cal.App.4th 1564, 1573-1574.) GEICO argued that Wallace was no longer a member of the class she sought to represent because her injuries had been remedied by GEICO’s tender of payment in the amount of $387.56. The trial court agreed, and on that basis ruled that Wallace was no longer a proper class representative and eventually struck the class allegations from the action.

In the specific situation where a defendant in a class action has forced an involuntary settlement on the representative plaintiff after the lawsuit is filed, case law creates an exception to the requirement that a representative plaintiff continue to be a member of the proposed class. These cases, which are “sometimes referred to as ‘pick off ‘ cases” (Watkins v. Wachovia Corp. (2009) 172 Cal.App.4th 1576, 1590), “arise when, prior to class certification, a defendant in a proposed class action gives the named plaintiff the entirety of the relief claimed by that individual. The defendant then attempts to obtain dismissal of the action, on the basis that the named plaintiff can no longer pursue a class action, as the named plaintiff is no longer a member of the class the plaintiff sought to represent. . . . [T]he defendant seeks to avoid exposure to the class action by ‘picking off ‘ the named plaintiff, sometimes by picking off named plaintiffs serially.” (Ibid., citing, among others, La Sala, supra, 5 Cal.3d 864.) In this situation, “the involuntary receipt of relief does not, of itself, prevent the class plaintiff from continuing as a class representative.” (Watkins, at p. 1590; see also Larner v. Los Angeles Doctors Hospital Associates, LP (2008) 168 Cal.App.4th 1291, 1299 [case law "prevents a prospective defendant from avoiding a class action by 'picking off ' prospective class-action plaintiffs one by one, settling each individual claim in an attempt to disqualify the named plaintiff as a class representative"]; Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528, 548 [" '[A] prospective defendant is not allowed to avert a class action by “picking off ” prospective plaintiffs one-by-one. Thus, precertification payment of the named plaintiff ’s claim does not automatically disqualify the named plaintiff as a class action representative.’ “].)

Federal case law also disapproves of attempting to moot a class action by picking off a representative plaintiff. (Deposit Guaranty Nat. Bank v. Roper (1980) 445 U.S. 326, 339 [appeal of class certification ruling was justiciable even though defendant afforded relief to the representative plaintiff]; Weiss v. Regal Collections (3d Cir. 2004) 385 F.3d 337, 348 (Weiss) [where the defendant attempted to pick off the representative plaintiff in a proposed class action through an offer of judgment before the filing of a certification motion, the representative plaintiff would be permitted to proceed with the action and file a certification motion].)

Instead of a reflexive dismissal of the representative plaintiff on the basis that he or she lacks standing as the trial court did here — the proper procedure in a pick off situation is for the trial court to consider whether “the named plaintiffs will continue fairly to represent the class” in light of the individual relief offered by the defendant. (La Sala, supra, 5 Cal.3d at p. 872.) As a practical matter, in most cases, that evaluation may be performed in the context of a ruling on a motion for class certification, where the trial court inquires into the existence of, among other things, “(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.” (Sav On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326, italics added; see also Weiss, supra, 385 F.3d at p. 348 [allowing class certification motion to be filed after defendant attempted to pick off the representative plaintiff].)

3. The Pick Off Cases Apply to a Class Action Alleging a Violation of Section 17200 et seq.

Before we consider whether GEICO’s offer of settlement to Wallace falls into the situation described in the pick off cases, we first consider whether the pick off cases are applicable in a class action alleging violations of section 17200 et seq. In its ruling striking the class allegations, the trial court rejected Wallace’s citation to La Sala, supra, 5 Cal.3d 864, and the rule expressed in the pick off cases. It explained that “[t]he La Sala case relied on by [Wallace] is not persuasive in this setting, in light of the requirement under section 17200 that the plaintiff must have actually suffered injury.” The trial court was apparently referring to section 17204, as amended by Proposition 64 in November 2004 (see Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 227 (Californians for Disability Rights)), which states that “[a]ctions for relief pursuant to this chapter shall be prosecuted . . . by a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” (§ 17204.) In Wallace’s opening appellate brief, she argues that the trial court erred in concluding that, because of the injury-in-fact requirement, the pick off cases are not persuasive here. Specifically, Wallace argues that applying the pick off cases to a class action complaint brought under section 17200 et seq. does not conflict with the injury-in-fact requirement, as the pick off cases presuppose an injury-in-fact at the time the lawsuit is filed. In its respondent’s brief, GEICO agrees with Wallace, stating it “does not . . . contend that Proposition 64 created any exception to the rule announced in the pick off cases.” Instead, GEICO argues that we should affirm the trial court’s order striking the class allegations because GEICO did not attempt to pick off Wallace as the representative plaintiff, but instead compensated her under the terms of the consent order.

We agree with the parties that the pick off cases are persuasive here, regardless of the injury-in-fact requirement set forth in section 17204. As required by section 17204, Wallace “suffered injury in fact” and “lost money or property” as a result of the practices at issue in this lawsuit. (§ 17204.) Specifically, Wallace was injured by paying for the repair work to her vehicle that GEICO did not agree to cover. Thus, at the time Wallace filed suit she was a proper plaintiff under section 17204. We see no indication in the history of Proposition 64, as reviewed by our Supreme Court in Californians for Disability Rights, supra, 39 Cal.4th 223, 228, that the voters amended section 17204 with the intent of allowing defendants in class actions brought under section 17200 et seq. to defeat class status by forcing an involuntary settlement. Our Supreme Court explained the voter’s intent:

“In Proposition 64, as stated in the measure’s preamble, the voters found and declared that the [unfair competition law]’s broad grant of standing had encouraged ‘[f]rivolous unfair competition lawsuits [that] clog our courts[,] cost taxpayers’ and ‘threaten[] the survival of small businesses. . . .’ (Prop. 64, § 1, subd. (c) ['Findings and Declarations of Purpose'].) The former law, the voters determined, had been ‘misused by some private attorneys who’ ‘[f]ile frivolous lawsuits as a means of generating attorney’s fees without creating a corresponding public benefit,’ ‘[f]ile lawsuits where no client has been injured in fact,’ ‘[f]ile lawsuits for clients who have not used the defendant’s product or service, viewed the defendant’s advertising, or had any other business dealing with the defendant,’ and ‘[f]ile lawsuits on behalf of the general public without any accountability to the public and without adequate court supervision.’ (Prop. 64, § 1, subd. (b)(1)-(4).) ‘[T]he intent of California voters in enacting’ Proposition 64 was to limit such abuses by ‘prohibit[ing] private attorneys from filing lawsuits for unfair competition where they have no client who has been injured in fact’ (id., § 1, subd. (e)) and by providing ‘that only the California Attorney General and local public officials be authorized to file and prosecute actions on behalf of the general public’ (id., § 1, subd. (f)).” (Californians For Disability Rights, supra, 39 Cal.4th at p. 228.)

We see no indication in this statement of intent that Proposition 64 was intended to render the pick off cases inapplicable in class actions brought under section 17200 et seq. The voter’s focus was instead on the filing of lawsuits by attorneys who did not have clients impacted by the defendant’s conduct. Here, Wallace’s lawsuit was filed by a client directly impacted by GEICO’s conduct. Further, as our Supreme Court stated in another case in which it reviewed evidence of the voter’s intent, the ballot materials for Proposition 64 contain no “indication that the purpose of the initiative was to alter the way in which class actions operate in the context of the [unfair competition law]” and there is no “indication that Proposition 64 was intended in any way to alter the rules surrounding class action certification.” (In re Tobacco II Cases (2009) 46 Cal.4th 298, 318.) Because the doctrine expressed in the pick off cases is an established part of class action procedure, there is no reason to believe that Proposition 64 was intended to alter that doctrine in the context of suits brought under section 17200 et seq.

4. Because the Pick Off Cases Apply Here, the Trial Court Erred in Concluding That Wallace Lacked Standing to Serve as the Representative Plaintiff

We now consider Wallace’s contention that, in light of the pick off cases, the trial court erred in ruling that GEICO’s offer of settlement caused her to lose standing to pursue her class allegations as a representative plaintiff.

GEICO contends that this case does not fall into the situation described in the pick off cases because GEICO was not affording special treatment to Wallace by offering to pay her the amount that she paid to the repair shop out of her own pocket. GEICO argues that, instead, it “paid her claim pursuant to a preexisting DOI order [i.e., the consent order] that provides the same relief to both Wallace and any other potential class member” and that the consent order “was entered . . . two months before Wallace filed this lawsuit.” GEICO contends that by entering into the consent order, it effectively agreed to compensate Wallace before she filed the lawsuit, and thus it did not as a factual matter engage in the conduct described in the pick off cases, namely offering individual compensation to a representative plaintiff after the filing of a lawsuit. Moreover, characterizing the consent order as an agreement to “reimburse all individuals — not just Wallace — who paid additional money to a body shop because GEICO had refused to pay that body shop’s labor rates,” GEICO argues that the policy behind the pick off cases is not implicated here in that “[t]here is simply no risk that GEICO’s agreement to class-wide relief and its reimbursement to Wallace could possibly ‘frustrate the objectives of class actions,’ ‘invite waste of judicial resources,’ . . . stimulat[e] successive suits’ ” or “open a ‘revolving door’ of litigation.”

We reject GEICO’s arguments because they rest on a flawed understanding of the consent order. As we have described, the consent order required GEICO to make payment only to a limited group of individuals. Specifically, GEICO was required to conduct an internal audit of relevant complaints submitted to it since January 1, 2004, and, within 90 days of the approval of the consent order, to reimburse the insured or claimants who made those complaints. Further, to the extent GEICO received additional complaints in the 60-day period after the approval of the consent order, GEICO was required to reimburse those insureds or claimants who made those complaints. Here, it is undisputed that Wallace did not make a complaint to GEICO prior to filing this lawsuit on August 7, 2007. This lawsuit was filed more than 60 days after the consent order was approved on May 2, 2007. Accordingly, Wallace does not fall within the scope of persons whom GEICO is required to reimburse under the terms of the consent order. Further, there may be other persons in the proposed class who, like Wallace, did not make a complaint to GEICO within the required time frame and thus are entitled to reimbursement under the terms of the consent order.

Under these circumstances, we find the pick off cases to be fully applicable. Because GEICO was not required to reimburse Wallace under the terms of the consent order, it voluntarily offered to settle with her after she filed a class action lawsuit. The pick off cases establish that in such a situation, Wallace does not automatically lose standing to act as a representative plaintiff. It was thus error for the trial court to grant GEICO’s motion to strike class allegations on the ground that the lawsuit lacked a representative plaintiff.

As the trial court erred in granting the motion to strike the class allegations, we will remand the action for further class action proceedings, during which the trial court should take into account the fact of GEICO’s settlement offer when deciding, in connection with class certification, whether Wallace will adequately represent the class. (La Sala, supra, 5 Cal.3d at p. 872.)

DISPOSITION

The order striking class allegations is reversed, and the matter is remanded for proceedings consistent with this opinion. Wallace shall recover her costs on appeal.

IRION, J.

WE CONCUR:

HUFFMAN, Acting P. J.

AARON, J.

CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

DAGMAR HALE,

Plaintiff and Appellant,

v.

SHARP HEALTHCARE et al.,

Defendants and Respondents.

D054637

(Super. Ct. No. 37-2007-00060598- CU-BT-CTL)

APPEAL from a judgment of the Superior Court of San Diego County, Luis R. Vargas, Judge. Reversed in part; affirmed in part.

Law Offices of Barry L. Kramer, Barry L. Kramer; Strange & Carpenter, Brian R. Strange and Gretchen Carpenter for Plaintiff and Appellant.

Higgs, Fletcher & Mack, John Morris and Alexis S. Gutierrez for Defendants and Respondents.

This is a putative class action by Dagmar Hale against Sharp Healthcare and Sharp Grossmont Hospital (together Sharp) for violation of the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.), violation of the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), breach of contract and breach of the implied covenant of good faith and fair dealing. Hale’s theory is that Sharp deceptively and unfairly charged her and other uninsured patients fees for medical services that substantially exceeded the fees it accepted from patients covered by Medicare or private insurance. Hale appeals a judgment of dismissal entered after the court sustained without leave to amend Sharp’s demurrer to her second amended complaint (SAC). We conclude the court erred by sustaining the demurrer to the UCL and CLRA causes of action, as the SAC sufficiently alleges Hale’s standing, but properly sustained the demurrer to the contract causes of action. Further, the court did not abuse its discretion by denying Hale’s motion for reconsideration or leave to amend the contract causes of action. We reverse the judgment insofar as it pertains to the UCL and CLRA causes of action. We affirm the judgment in all other respects.

COMPLAINT ALLEGATIONS AND FACTUAL BACKGROUND

On January 25, 2007, Hale was admitted to Sharp Grossmont Hospital. She was uninsured at the time, and on her admittance Sharp required her to sign a form entitled “Admission Agreement for Inpatient and Outpatient Services” (hereafter Admission Agreement). The Admission Agreement provided, “you hereby individually obligate yourself to pay the account of the hospital in accordance with the regular rates and terms of the hospital.” Sharp discharged Hale the following day. During her stay, Sharp provided her with “medical treatment, central services, lab work, medication, emergency hospital care, and C.T. scans.” Sharp billed her $14,447.65 for the services.

In August 2007 Hale filed a putative class action against Sharp for violation of the UCL, violation of the CLRA, breach of contract and breach of the implied covenant of good faith and fair dealing. In September 2007 Hale filed a first amended complaint (FAC) with the same causes of action.

Sharp successfully demurred to the FAC, and in May 2008 Hale filed the SAC, which contains the same causes of action and is the subject of this appeal. The SAC alleges that contrary to Sharp’s promise in its Admission Agreement to charge uninsured patients its “regular rates,” it engaged in an unfair and unreasonable pricing practice by charging them “exponentially more” for the same services than it accepted from patients covered by Medicare or private insurance. The SAC also alleges Sharp’s practice has “a significant detrimental impact on the large population of uninsured persons, who are generally the least able to afford medical care.”

Additionally, the SAC alleges that hospitals, including Sharp, “maintain documents called Chargemasters, which are spreadsheets that list the gross charge for each product and service provided by the hospital. Plaintiff is informed and believes . . . that these gross charges rarely, if ever, bear any relation to the hospital’s costs for providing treatment and differ from the actual, lower charges assessed against the overwhelming majority of patients who participate in Medicare or private insurance programs.” The SAC alleges the “Chargemaster rates often form the starting point for negotiations with insurance companies and managed care organizations to determine reasonable (and lower) reimbursement rates, or for determining Medicare outlier payments to hospitals.” Further, the SAC alleges that when Sharp admitted Hale to its hospital, she made a down payment of $500.

Sharp demurred to the SAC. In a tentative ruling, the court sustained the demurrer to the UCL claim with leave to amend. The ruling states the SAC sufficiently pleads injury in fact, but it is insufficient because it does not allege she “relied on Sharp charging its ‘regular rates’ in receiving treatment.” The ruling also sustained the demurrer to the CLRA claim with leave to amend, again on the ground the SAC does not plead reliance on an alleged misrepresentation. The ruling overruled the demurrer to the breach of contract and implied covenant claims, explaining the SAC sufficiently alleges Hale’s performance or excuse for nonperformance.

After a hearing, the court took the matter under submission. The court later sustained the demurrer to all causes of action, without leave to amend on the ground the SAC was Hale’s third attempt to plead a valid cause of action.

Hale moved for reconsideration and submitted a proposed third amended complaint (TAC). The court denied the motion. Sharp then moved ex parte for dismissal of the SAC, and the court granted the motion. A judgment was entered on January 5, 2009.

DISCUSSION

I

Standard of Review

“A demurrer tests the sufficiency of a complaint as a matter of law.” (City of Chula Vista v. County of San Diego (1994) 23 Cal.App.4th 1713, 1718.) In reviewing the propriety of the sustaining of a demurrer, the “court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. [Citations.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.] The judgment must be affirmed ‘if any one of the several grounds of demurrer is well taken. [Citations.]‘ [Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. [Citation.] And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

We review the trial court’s ruling independently. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) We uphold the court’s ruling “on any sufficient ground, whether relied on by the court below or not.” (Wheeler v. County of San Bernardino (1978) 76 Cal.App.3d 841, 846, fn. 3.)

II

Hospital Billing Practices

Preliminarily, we dispose of Sharp’s argument that courts should discourage lawsuits based on disparities in hospital billing rates for uninsured and insured patients, since the matter is highly regulated. Sharp cites such statutes as Health & Safety Code, section 1339.51, subdivision (a)(1), which provides that a hospital “shall make a written or electronic copy of its charge description master available” either on its Internet Web site or at the hospital, and Business and Professions Code section 657, subdivisions (a) and (b), which, respectively, allow a hospital to grant a discount in fees for services in exchange for prompt payment, or when it reasonably believes a patient is not entitled to or eligible for insurance coverage. Sharp asserts there is a “disturbing national trend of cases that, like this one involving Hale, seek to drag the judiciary into the complex area of health care finance and economic policy.” Further, Sharp cites out-of-state cases for the proposition these cases are “generally unsuccessful.”

“When ‘the Legislature has permitted certain conduct, “courts may not override that determination” by declaring such conduct to be actionable under [Business and Professions Code] section 17200.’ [Citation.] To forestall an action under the UCL, ‘[a] provision must actually “bar” the action or clearly permit the conduct. There is a difference between (1) not making an activity unlawful, and (2) making that activity lawful.’ ” (Puentes v. Wells Fargo Home Mortgage, Inc. (2008) 160 Cal.App.4th 638, 644.) Sharp does not defend the demurrer ruling on the ground the Legislature has permitted Sharp’s conduct or has actually barred this action. To the contrary, Sharp concedes the “statutes that govern the billing practices of hospitals are not precisely germane” to this appeal. Accordingly, Sharp’s argument is irrelevant.

III

UCL Cause of Action

A

Overview of Law

“The purpose of the UCL [citation] ‘is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services. [Citation.]‘ ” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1470.) “A UCL action is equitable in nature; damages cannot be recovered. [Citation.] . . . [U]nder the UCL, ‘[p]revailing plaintiffs are generally limited to injunctive relief and restitution.’ ” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144.)

The UCL does not proscribe specific acts, but broadly prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising . . . .” (Bus. & Prof. Code, § 17200.) “The scope of the UCL is quite broad. [Citations.] Because the statute is framed in the disjunctive, a business practice need only meet one of the three criteria to be considered unfair competition.” (McKell v. Washington Mutual, Inc., supra, 142 Cal.App.4th at p. 1471.) ” ‘Therefore, an act or practice is “unfair competition” under the UCL if it is forbidden by law or, even if not specifically prohibited by law, is deemed an unfair act or practice.’ ” (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1335 (Troyk).)

Historically, the UCL authorized any person acting for the interests of the general public to sue for relief notwithstanding any lack of injury or damages. (Troyk, supra, 171 Cal.App.4th at p. 1335.) At the November 2, 2004, General Election, the voters approved Proposition 64, which amended the UCL to provide that a private person has standing to bring a UCL action only if he or she “has suffered injury in fact and has lost money or property as a result of the unfair competition.” (Bus. & Prof. Code, § 17204; Troyk, supra, at p. 1335.) “A private plaintiff must make a twofold showing: he or she must demonstrate injury in fact and a loss of money or property caused by unfair competition.” (Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1590.)

“The voters’ intent in passing Proposition 64 and enacting the changes to the standing rules in Business and Professions Code section 17204 was unequivocally to narrow the category of persons who could sue businesses under the UCL.” (Hall v. Time Inc. (2008) 158 Cal.App.4th 847, 853.) “In Proposition 64, as stated in the measure’s preamble, the voters found and declared that the UCL’s broad grant of standing had encouraged ‘[f]rivolous unfair competition lawsuits [that] clog our courts[,] cost taxpayers’ and ‘threaten[] the survival of small businesses . . . .’ [Citation.] The former law, the voters determined, had been ‘misused by some private attorneys who’ ‘[f]ile frivolous lawsuits as a means of generating attorney’s fees without creating a corresponding public benefit,’ ‘[f]ile lawsuits where no client has been injured in fact,’ ‘[f]ile lawsuits for clients who have not used the defendant’s product or services, viewed the defendant’s advertising, or had any other business dealing with the defendant,’ and ‘[f]ile lawsuits on behalf of the general public without any accountability to the public and without adequate court supervision.’ [Citation.] ‘[T]he intent of California voters in enacting’ Proposition 64 was to limit such abuses by ‘prohibit[ing] private attorneys from filing lawsuits for unfair competition where they have no client who has been injured in fact’ [citation] and by providing ‘that only the California Attorney General and local public officials be authorized to file and prosecute actions on behalf of the general public’ [citation].” (Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 228.)

Hale contends the SAC sufficiently alleges her standing under Business and Professions Code section 17204 to bring an action under both the “unlawful” and “unfair” prongs of the UCL. (Bus. & Prof. Code, § 17200.)

B

Unlawful Business Practice

1

“By proscribing ‘any unlawful’ business practice, ‘[Business and Professions Code] section 17200 “borrows” violations of other laws and treats them as unlawful practices’ that the [UCL] makes independently actionable.” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.) “An unlawful business practice under [Business and Professions Code] section 17200 is ‘ “an act or practice, committed pursuant to business activity, that is at the same time forbidden by law. [Citation.]” ‘ ” (Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 287.) ” ‘Virtually any law — federal, state or local — can serve as a predicate for an action under Business and Professions Code section 17200. [Citation.]‘ ” (Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528, 539.)

The SAC’s predicate for the claim of unlawfulness is Sharp’s alleged violation of Civil Code section 1770, subdivision (a)(5), (9) and (16), provisions of the CLRA that pertain to misrepresentations and deceptive advertising in the sale of goods or services. The court found the SAC adequately pleads “injury in fact” within the meaning of Business and Professions Code section 17204, and Sharp does not challenge the finding. As this court explained in Troyk, supra, 171 Cal.App.4th at page 1346, “[a]n injury to a tangible property interest, such as money, generally satisfies the ‘injury in fact’ element for standing.” We also relied on the United States Supreme Court’s description of “injury in fact” for federal court standing purposes as ” ‘an invasion of a legally protected interest which is (a) concrete and particularized . . . and (b) “actual or imminent, not ‘conjectural’ or ‘hypothetical,’ ” [citations].’ ” (Ibid., quoting Lujan v. Defenders of Wildlife (1992) 504 U.S. 555, 560-561.) We cited a federal opinion that explained, ” ‘Injury-in-fact is not Mount Everest. [Citation.] (”The contours of the injury-in-fact requirement, while not precisely defined, are very generous,” requiring only that claimant “allege[] some specific, ‘identifiable trifle’ of injury”).’ ” (Troyk, supra, at p. 1347, quoting Danvers Motor Co., Inc. v. Ford Motor Co. (3d Cir. 2005) 432 F.3d 286, 294.)

Even though the SAC alleges Hale has paid only $500 of her $14,447.65 medical bill, it also alleges the Admission Agreement obligates her to pay Sharp the balance on her account. Thus, she faces at least an imminent invasion or injury to a legally protected interest. (See Troyk, supra, 171 Cal.App.4th at p. 1346.) The term “imminent” is defined as “ready to take place,” “hanging threateningly over one’s head,” and “menacingly near.” (Webster’s 3d New Internat. Dict. (1993) p. 1130.) Certainly, this is not the type of action Proposition 64 was intended to squelch. Hale was a bona fide consumer of medical services.

2

The court found the SAC insufficiently alleges standing, or the causation element of the claim — that Hale suffered injury “as a result of” Sharp’s unfair competition. (Bus. & Prof. Code, § 17204.) The court explained, “Plaintiff fails to allege she relied on Sharp charging its ‘regular rates’ in receiving treatment.”

The UCL does not define the phrase “as a result of” in Business and Professions Code section 17204. (In re Tobacco II Cases (2009) 46 Cal.4th 298, 325 (Tobacco II).) In Tobacco II, the California Supreme Court held that after Proposition 64, representative plaintiffs, but not absent class members, must meet Proposition 64 standing requirements. (Tobacco II, at p. 320.) The court also addressed the phrase “as a result of” in the context of a claim under the “fraud” prong of the UCL. The court explained “there is no doubt that reliance is the causal mechanism of fraud. [Citation.] Additionally, because it is clear that the overriding purpose of Proposition 64 was to impose limits on private enforcement actions under the UCL, we must construe the phrase ‘as a result of’ in light of this intention to limit such actions. [Citation.] Therefore, we conclude that this language imposes an actual reliance requirement on plaintiffs prosecuting a private enforcement action under the UCL’s fraud prong.” (Tobacco II, at p. 326.)

The court explained, ” ‘[R]eliance is proved by showing that the defendant’s misrepresentation or nondisclosure was “an immediate cause” of the plaintiff’s injury-producing conduct. [Citation.] A plaintiff may establish that the defendant’s misrepresentation is an “immediate cause” of the plaintiff’s conduct by showing that in its absence the plaintiff “in all reasonable probability” would not have engaged in the injury-producing conduct.’ [Citation.] [] While a plaintiff must show that the misrepresentation was an immediate cause of the injury-producing conduct, the plaintiff need not demonstrate it was the only cause. ‘ “It is not . . . necessary that [the plaintiff's] reliance upon the truth of the fraudulent representation be the sole or even the predominant or decisive factor in influencing his conduct. . . . It is enough that the representation has played a substantial part, and so has been a substantial factor, in influencing his decision.” [Citation.] [] Moreover, a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material. [Citations.] A misrepresentation is judged to be “material” if “a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question” [citations], and as such materiality is generally a question of fact unless the “fact misrepresented is so obviously unimportant that the jury could not reasonably find that a reasonable man would have been influenced by it.” [Citation.]‘ ” (Tobacco II, supra, 46 Cal.4th at p. 326.)

Hale asserts Tobacco II’s reliance requirement is only applicable to a claim under the “fraud” prong of the UCL, and thus she is not required to plead actual reliance to pursue a claim under the “unlawful” prong. Rather, the “as a result of” phrase in Business and Professions Code section 17204 is satisfied by the SAC’s general allegation that Sharp’s unlawful conduct was a proximate cause of her injury.

Construing the phrase “as a result of” in Business and Professions Code section 17204 in light of Proposition 64’s intention to limit private enforcement actions under the UCL, we conclude the reasoning of Tobacco II applies equally to the “unlawful” prong of the UCL, when, as here, the predicate unlawful conduct is misrepresentation. Indeed, the court explained in Tobacco II: “We emphasize that our discussion of causation in this case is limited to such cases where, as here, a UCL action is based on a fraud theory involving false advertising and misrepresentations to consumers. The UCL defines ‘unfair competition’ as ‘includ[ing] any unlawful, unfair or fraudulent business act or practice . . . .’ [Citation.] There are doubtless many types of unfair business practices in which the concept of reliance, as discussed here, has no application.” (Tobacco II, supra, 46 Cal.4th at p. 325, fn. 17, italics added.) The concept of reliance is unequivocally applicable here.

Hale also asserts reliance is immaterial because her claim for unlawfulness is not fraud-based. She concedes, however, that her “basic allegation” is that “Sharp promised to provide medical services at its ‘regular rates,’ but instead billed grossly excessive amounts which far exceeded its ‘regular rates.’ ”

We agree with Hale, however, that “to the extent [she] is bringing a fraud-based claim under the UCL, she has reasonably pled reliance.” The SAC alleges Hale signed the Admission Agreement, and “at the time of signing the contract, she was expecting to be charged ‘regular rates,’ and certainly not the grossly excessive rates that she was subsequently billed.” (Italics added.) This allegation appears in the breach of contract cause of action, but the UCL cause of action incorporates the allegations of all other causes of action. We must interpret the complaint reasonably, “reading it as a whole and its parts in their context.” (Stearn v. County of San Bernardino (2009) 170 Cal.App.4th 434, 439.) As Hale notes, the “difference between ‘expecting’ to be charged regular rates and ‘relying’ on being charged regular rates is a distinction without a difference.” We see no utility in requiring Hale to amend her complaint to exchange the term “expecting” for the term “relying.” We hold the trial court erred by sustaining Sharp’s demurrer to the UCL cause of action.

Sharp argues that Hale was required to allege she actually relied on its alleged misrepresentations “when she was deciding where to seek medical treatment,” and “Hale could not possibly have made any such allegation” because she would not have seen the Admission Agreement until after she arrived at the hospital. (Original italics.) It is possible, however, for a person who has arrived at the hospital to rely on the Admission Agreement in deciding whether to proceed with treatment. The SAC does allege Sharp misrepresented on its Web site that its goal is to provide patients with ” ‘cost-effective’ ” services, and if Hale based her UCL claim exclusively on that conduct the SAC would be insufficient. Her UCL claim, however, is also based on the language of the Admission Agreement.

IV

CLRA Cause of Action

Under Civil Code section 1780, subdivision (a), CLRA actions may be brought “only by a consumer ‘who suffers any damage as a result of the use or employment’ of a proscribed method, act, or practice. (Italics added.) ‘This language does not create an automatic award of statutory damages upon proof of an unlawful act. Relief under the CLRA is specifically limited to those who suffer damage, making causation a necessary element of proof.’ [Citation.] Accordingly, ‘plaintiffs in a CLRA action [must] show not only that a defendant’s conduct was deceptive but that the deception caused them harm.’ ” (Buckland v. Threshold Enterprises, Ltd. (2007) 155 Cal.App.4th 798, 809.) A “misrepresentation is material for a plaintiff only if there is reliance — that is, ‘ ” ‘ without the misrepresentation, the plaintiff would not have acted as he did.’ ” ‘ ” (Id. at p. 810.)

As with the UCL cause of action, Sharp defends the court’s demurrer ruling on the CLRA cause of action on the sole ground that Hale was required to allege reliance on a misrepresentation by Sharp in deciding to seek medical treatment at its hospital. Again, however, to the extent Hale’s CLRA claim is fraud-based, the SAC adequately alleges the reliance element. Thus, the court erred by sustaining the demurrer to the CLRA cause of action.

V

Contract Causes of Action

“A cause of action for breach of contract requires pleading of a contract, plaintiff’s performance or excuse for failure to perform, defendant’s breach and damage to plaintiff resulting therefrom.” (McKell v. Washington Mutual, Inc., supra, 142 Cal.App.4th at p. 1489.)

Hale contends the court erred by finding the SAC does not sufficiently allege her performance or excuse for nonperformance of the contract. “[P]revention of performance by one party to a contract excuses performance by the other party.” (Lortz v. Connell (1969) 273 Cal.App.2d 286, 290; Lewis Publishing Co. v. Henderson (1930) 103 Cal.App. 425, 429 ["it is elementary that one party to a contract cannot compel another to perform while he himself is in default"]; Wood, Curtis & Co. v. Seurich (1907) 5 Cal.App. 252, 254 ["refusal of one party to a contract to make payment as called for by the terms of the contract excuses the other party from further performance on his part"].)

The breach of contract claim is based on Sharp’s Admission Agreement, which obligates Hale to pay its ” ‘regular rates.’ ” The SAC alleges Hale was hospitalized overnight, and during her stay she “received medical treatment, central services, lab work, medication, emergency hospital care, and C.T. scans.” Yet, the SAC alleges she paid only $500 toward a $14,447.65 bill, which cannot be considered performance. Hale asserts she also alleged “payment of at least an additional $1,000.00 to medical providers including” Sharp. The SAC, however, actually alleges that “from March 2007 through July 2007, [Hale] made additional payments to various medical providers relating to her treatment at [Sharp's] hospital, totaling over an additional $1,000.” (Italics added.) In her opposition to Sharp’s demurrer, she admitted she paid Sharp only $500, and she paid the additional $1,000 “to other medical providers.”

The SAC also alleges that “[a]s a result of the grossly excessive billing, [she] was excused from paying the grossly excessive amounts for which she was billed, which were exponentially larger than the ‘regular rates.’ ” (Italics added.) This does not sufficiently allege an excuse for nonperformance. “[E]xcuses must be pleaded specifically.” (4 Witkin, Summary of Cal. Procedure (5th ed. 2008), Pleading, § 532, p. 661.) Even if Sharp’s conduct excused Hale from paying the portion of its bill that represented “grossly excessive” rates, the SAC does not allege the reasonable value of Hale’s services was only $500, that she made any effort to determine the reasonable value of the services, or that she made any effort to pay the discounted rates Sharp accepted from patients covered by Medicare or private insurance. The SAC does not suggest Sharp prevented Hale from paying at least what she considers is fair. Further, since Hale paid Sharp only $500, the SAC shows she suffered no damages for the alleged breach of contract.

The SAC’s cause of action for breach of the implied covenant and fair dealing includes the same performance and excuse allegations as the breach of contract action. The court properly sustained the demurrer to both contract-based claims.

VI

Motion for Reconsideration/Leave to Amend

Hale contends the court abused its discretion by denying her motion for reconsideration and leave to file her proposed TAC. The proposed TAC alleges Sharp’s bill to her of $14,447.65 “was substantially greater than [its] ‘regular rates’ charged to the great majority of patients, who are insured and/or covered by Medicare, which would have amounted to no more than $5,000.00 for the same services.” The allegation does not show performance or any excuse for nonperformance. To the contrary, it further clarifies that Hale did not perform, she was not excused from performing by paying Sharp substantially more than $500, and she suffered no breach of contract damages. Further, Hale does not suggest she could in good faith amend the complaint yet again to allege additional or different facts showing performance or excuse for nonperformance.

We find no abuse of discretion. In the case of a demurrer, “leave to amend should be granted if there is any reasonable possibility that the plaintiff can state a good cause of action.” (Virginia G. v. ABC Unified School Dist. (1993) 15 Cal.App.4th 1848, 1852.)

DISPOSITION

The judgment is reversed insofar as it pertains to the UCL and CLRA causes of action. The judgment is otherwise affirmed. The parties are to bear their own costs on appeal.

MCCONNELL, P. J.

WE CONCUR:

NARES, J.

IRION, J.

CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

DAGMAR HALE,

Plaintiff and Appellant,

v.

SHARP HEALTHCARE et al.,

Defendants and Respondents.

D054637

(Super. Ct. No. 37-2007-00060598- CU-BT-CTL)

APPEAL from a judgment of the Superior Court of San Diego County, Luis R. Vargas, Judge. Reversed in part; affirmed in part.

Law Offices of Barry L. Kramer, Barry L. Kramer; Strange & Carpenter, Brian R. Strange and Gretchen Carpenter for Plaintiff and Appellant.

Higgs, Fletcher & Mack, John Morris and Alexis S. Gutierrez for Defendants and Respondents.

This is a putative class action by Dagmar Hale against Sharp Healthcare and Sharp Grossmont Hospital (together Sharp) for violation of the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.), violation of the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), breach of contract and breach of the implied covenant of good faith and fair dealing. Hale’s theory is that Sharp deceptively and unfairly charged her and other uninsured patients fees for medical services that substantially exceeded the fees it accepted from patients covered by Medicare or private insurance. Hale appeals a judgment of dismissal entered after the court sustained without leave to amend Sharp’s demurrer to her second amended complaint (SAC). We conclude the court erred by sustaining the demurrer to the UCL and CLRA causes of action, as the SAC sufficiently alleges Hale’s standing, but properly sustained the demurrer to the contract causes of action. Further, the court did not abuse its discretion by denying Hale’s motion for reconsideration or leave to amend the contract causes of action. We reverse the judgment insofar as it pertains to the UCL and CLRA causes of action. We affirm the judgment in all other respects.

COMPLAINT ALLEGATIONS AND FACTUAL BACKGROUND

On January 25, 2007, Hale was admitted to Sharp Grossmont Hospital. She was uninsured at the time, and on her admittance Sharp required her to sign a form entitled “Admission Agreement for Inpatient and Outpatient Services” (hereafter Admission Agreement). The Admission Agreement provided, “you hereby individually obligate yourself to pay the account of the hospital in accordance with the regular rates and terms of the hospital.” Sharp discharged Hale the following day. During her stay, Sharp provided her with “medical treatment, central services, lab work, medication, emergency hospital care, and C.T. scans.” Sharp billed her $14,447.65 for the services.

In August 2007 Hale filed a putative class action against Sharp for violation of the UCL, violation of the CLRA, breach of contract and breach of the implied covenant of good faith and fair dealing. In September 2007 Hale filed a first amended complaint (FAC) with the same causes of action.

Sharp successfully demurred to the FAC, and in May 2008 Hale filed the SAC, which contains the same causes of action and is the subject of this appeal. The SAC alleges that contrary to Sharp’s promise in its Admission Agreement to charge uninsured patients its “regular rates,” it engaged in an unfair and unreasonable pricing practice by charging them “exponentially more” for the same services than it accepted from patients covered by Medicare or private insurance. The SAC also alleges Sharp’s practice has “a significant detrimental impact on the large population of uninsured persons, who are generally the least able to afford medical care.”

Additionally, the SAC alleges that hospitals, including Sharp, “maintain documents called Chargemasters, which are spreadsheets that list the gross charge for each product and service provided by the hospital. Plaintiff is informed and believes . . . that these gross charges rarely, if ever, bear any relation to the hospital’s costs for providing treatment and differ from the actual, lower charges assessed against the overwhelming majority of patients who participate in Medicare or private insurance programs.” The SAC alleges the “Chargemaster rates often form the starting point for negotiations with insurance companies and managed care organizations to determine reasonable (and lower) reimbursement rates, or for determining Medicare outlier payments to hospitals.” Further, the SAC alleges that when Sharp admitted Hale to its hospital, she made a down payment of $500.

Sharp demurred to the SAC. In a tentative ruling, the court sustained the demurrer to the UCL claim with leave to amend. The ruling states the SAC sufficiently pleads injury in fact, but it is insufficient because it does not allege she “relied on Sharp charging its ‘regular rates’ in receiving treatment.” The ruling also sustained the demurrer to the CLRA claim with leave to amend, again on the ground the SAC does not plead reliance on an alleged misrepresentation. The ruling overruled the demurrer to the breach of contract and implied covenant claims, explaining the SAC sufficiently alleges Hale’s performance or excuse for nonperformance.

After a hearing, the court took the matter under submission. The court later sustained the demurrer to all causes of action, without leave to amend on the ground the SAC was Hale’s third attempt to plead a valid cause of action.

Hale moved for reconsideration and submitted a proposed third amended complaint (TAC). The court denied the motion. Sharp then moved ex parte for dismissal of the SAC, and the court granted the motion. A judgment was entered on January 5, 2009.

DISCUSSION

I

Standard of Review

“A demurrer tests the sufficiency of a complaint as a matter of law.” (City of Chula Vista v. County of San Diego (1994) 23 Cal.App.4th 1713, 1718.) In reviewing the propriety of the sustaining of a demurrer, the “court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. [Citations.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.] The judgment must be affirmed ‘if any one of the several grounds of demurrer is well taken. [Citations.]‘ [Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. [Citation.] And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

We review the trial court’s ruling independently. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) We uphold the court’s ruling “on any sufficient ground, whether relied on by the court below or not.” (Wheeler v. County of San Bernardino (1978) 76 Cal.App.3d 841, 846, fn. 3.)

II

Hospital Billing Practices

Preliminarily, we dispose of Sharp’s argument that courts should discourage lawsuits based on disparities in hospital billing rates for uninsured and insured patients, since the matter is highly regulated. Sharp cites such statutes as Health & Safety Code, section 1339.51, subdivision (a)(1), which provides that a hospital “shall make a written or electronic copy of its charge description master available” either on its Internet Web site or at the hospital, and Business and Professions Code section 657, subdivisions (a) and (b), which, respectively, allow a hospital to grant a discount in fees for services in exchange for prompt payment, or when it reasonably believes a patient is not entitled to or eligible for insurance coverage. Sharp asserts there is a “disturbing national trend of cases that, like this one involving Hale, seek to drag the judiciary into the complex area of health care finance and economic policy.” Further, Sharp cites out-of-state cases for the proposition these cases are “generally unsuccessful.”

“When ‘the Legislature has permitted certain conduct, “courts may not override that determination” by declaring such conduct to be actionable under [Business and Professions Code] section 17200.’ [Citation.] To forestall an action under the UCL, ‘[a] provision must actually “bar” the action or clearly permit the conduct. There is a difference between (1) not making an activity unlawful, and (2) making that activity lawful.’ ” (Puentes v. Wells Fargo Home Mortgage, Inc. (2008) 160 Cal.App.4th 638, 644.) Sharp does not defend the demurrer ruling on the ground the Legislature has permitted Sharp’s conduct or has actually barred this action. To the contrary, Sharp concedes the “statutes that govern the billing practices of hospitals are not precisely germane” to this appeal. Accordingly, Sharp’s argument is irrelevant.

III

UCL Cause of Action

A

Overview of Law

“The purpose of the UCL [citation] ‘is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services. [Citation.]‘ ” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1470.) “A UCL action is equitable in nature; damages cannot be recovered. [Citation.] . . . [U]nder the UCL, ‘[p]revailing plaintiffs are generally limited to injunctive relief and restitution.’ ” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144.)

The UCL does not proscribe specific acts, but broadly prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising . . . .” (Bus. & Prof. Code, § 17200.) “The scope of the UCL is quite broad. [Citations.] Because the statute is framed in the disjunctive, a business practice need only meet one of the three criteria to be considered unfair competition.” (McKell v. Washington Mutual, Inc., supra, 142 Cal.App.4th at p. 1471.) ” ‘Therefore, an act or practice is “unfair competition” under the UCL if it is forbidden by law or, even if not specifically prohibited by law, is deemed an unfair act or practice.’ ” (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1335 (Troyk).)

Historically, the UCL authorized any person acting for the interests of the general public to sue for relief notwithstanding any lack of injury or damages. (Troyk, supra, 171 Cal.App.4th at p. 1335.) At the November 2, 2004, General Election, the voters approved Proposition 64, which amended the UCL to provide that a private person has standing to bring a UCL action only if he or she “has suffered injury in fact and has lost money or property as a result of the unfair competition.” (Bus. & Prof. Code, § 17204; Troyk, supra, at p. 1335.) “A private plaintiff must make a twofold showing: he or she must demonstrate injury in fact and a loss of money or property caused by unfair competition.” (Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1590.)

“The voters’ intent in passing Proposition 64 and enacting the changes to the standing rules in Business and Professions Code section 17204 was unequivocally to narrow the category of persons who could sue businesses under the UCL.” (Hall v. Time Inc. (2008) 158 Cal.App.4th 847, 853.) “In Proposition 64, as stated in the measure’s preamble, the voters found and declared that the UCL’s broad grant of standing had encouraged ‘[f]rivolous unfair competition lawsuits [that] clog our courts[,] cost taxpayers’ and ‘threaten[] the survival of small businesses . . . .’ [Citation.] The former law, the voters determined, had been ‘misused by some private attorneys who’ ‘[f]ile frivolous lawsuits as a means of generating attorney’s fees without creating a corresponding public benefit,’ ‘[f]ile lawsuits where no client has been injured in fact,’ ‘[f]ile lawsuits for clients who have not used the defendant’s product or services, viewed the defendant’s advertising, or had any other business dealing with the defendant,’ and ‘[f]ile lawsuits on behalf of the general public without any accountability to the public and without adequate court supervision.’ [Citation.] ‘[T]he intent of California voters in enacting’ Proposition 64 was to limit such abuses by ‘prohibit[ing] private attorneys from filing lawsuits for unfair competition where they have no client who has been injured in fact’ [citation] and by providing ‘that only the California Attorney General and local public officials be authorized to file and prosecute actions on behalf of the general public’ [citation].” (Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 228.)

Hale contends the SAC sufficiently alleges her standing under Business and Professions Code section 17204 to bring an action under both the “unlawful” and “unfair” prongs of the UCL. (Bus. & Prof. Code, § 17200.)

B

Unlawful Business Practice

1

“By proscribing ‘any unlawful’ business practice, ‘[Business and Professions Code] section 17200 “borrows” violations of other laws and treats them as unlawful practices’ that the [UCL] makes independently actionable.” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.) “An unlawful business practice under [Business and Professions Code] section 17200 is ‘ “an act or practice, committed pursuant to business activity, that is at the same time forbidden by law. [Citation.]” ‘ ” (Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 287.) ” ‘Virtually any law — federal, state or local — can serve as a predicate for an action under Business and Professions Code section 17200. [Citation.]‘ ” (Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528, 539.)

The SAC’s predicate for the claim of unlawfulness is Sharp’s alleged violation of Civil Code section 1770, subdivision (a)(5), (9) and (16), provisions of the CLRA that pertain to misrepresentations and deceptive advertising in the sale of goods or services. The court found the SAC adequately pleads “injury in fact” within the meaning of Business and Professions Code section 17204, and Sharp does not challenge the finding. As this court explained in Troyk, supra, 171 Cal.App.4th at page 1346, “[a]n injury to a tangible property interest, such as money, generally satisfies the ‘injury in fact’ element for standing.” We also relied on the United States Supreme Court’s description of “injury in fact” for federal court standing purposes as ” ‘an invasion of a legally protected interest which is (a) concrete and particularized . . . and (b) “actual or imminent, not ‘conjectural’ or ‘hypothetical,’ ” [citations].’ ” (Ibid., quoting Lujan v. Defenders of Wildlife (1992) 504 U.S. 555, 560-561.) We cited a federal opinion that explained, ” ‘Injury-in-fact is not Mount Everest. [Citation.] (”The contours of the injury-in-fact requirement, while not precisely defined, are very generous,” requiring only that claimant “allege[] some specific, ‘identifiable trifle’ of injury”).’ ” (Troyk, supra, at p. 1347, quoting Danvers Motor Co., Inc. v. Ford Motor Co. (3d Cir. 2005) 432 F.3d 286, 294.)

Even though the SAC alleges Hale has paid only $500 of her $14,447.65 medical bill, it also alleges the Admission Agreement obligates her to pay Sharp the balance on her account. Thus, she faces at least an imminent invasion or injury to a legally protected interest. (See Troyk, supra, 171 Cal.App.4th at p. 1346.) The term “imminent” is defined as “ready to take place,” “hanging threateningly over one’s head,” and “menacingly near.” (Webster’s 3d New Internat. Dict. (1993) p. 1130.) Certainly, this is not the type of action Proposition 64 was intended to squelch. Hale was a bona fide consumer of medical services.

2

The court found the SAC insufficiently alleges standing, or the causation element of the claim — that Hale suffered injury “as a result of” Sharp’s unfair competition. (Bus. & Prof. Code, § 17204.) The court explained, “Plaintiff fails to allege she relied on Sharp charging its ‘regular rates’ in receiving treatment.”

The UCL does not define the phrase “as a result of” in Business and Professions Code section 17204. (In re Tobacco II Cases (2009) 46 Cal.4th 298, 325 (Tobacco II).) In Tobacco II, the California Supreme Court held that after Proposition 64, representative plaintiffs, but not absent class members, must meet Proposition 64 standing requirements. (Tobacco II, at p. 320.) The court also addressed the phrase “as a result of” in the context of a claim under the “fraud” prong of the UCL. The court explained “there is no doubt that reliance is the causal mechanism of fraud. [Citation.] Additionally, because it is clear that the overriding purpose of Proposition 64 was to impose limits on private enforcement actions under the UCL, we must construe the phrase ‘as a result of’ in light of this intention to limit such actions. [Citation.] Therefore, we conclude that this language imposes an actual reliance requirement on plaintiffs prosecuting a private enforcement action under the UCL’s fraud prong.” (Tobacco II, at p. 326.)

The court explained, ” ‘[R]eliance is proved by showing that the defendant’s misrepresentation or nondisclosure was “an immediate cause” of the plaintiff’s injury-producing conduct. [Citation.] A plaintiff may establish that the defendant’s misrepresentation is an “immediate cause” of the plaintiff’s conduct by showing that in its absence the plaintiff “in all reasonable probability” would not have engaged in the injury-producing conduct.’ [Citation.] [] While a plaintiff must show that the misrepresentation was an immediate cause of the injury-producing conduct, the plaintiff need not demonstrate it was the only cause. ‘ “It is not . . . necessary that [the plaintiff's] reliance upon the truth of the fraudulent representation be the sole or even the predominant or decisive factor in influencing his conduct. . . . It is enough that the representation has played a substantial part, and so has been a substantial factor, in influencing his decision.” [Citation.] [] Moreover, a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material. [Citations.] A misrepresentation is judged to be “material” if “a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question” [citations], and as such materiality is generally a question of fact unless the “fact misrepresented is so obviously unimportant that the jury could not reasonably find that a reasonable man would have been influenced by it.” [Citation.]‘ ” (Tobacco II, supra, 46 Cal.4th at p. 326.)

Hale asserts Tobacco II’s reliance requirement is only applicable to a claim under the “fraud” prong of the UCL, and thus she is not required to plead actual reliance to pursue a claim under the “unlawful” prong. Rather, the “as a result of” phrase in Business and Professions Code section 17204 is satisfied by the SAC’s general allegation that Sharp’s unlawful conduct was a proximate cause of her injury.

Construing the phrase “as a result of” in Business and Professions Code section 17204 in light of Proposition 64’s intention to limit private enforcement actions under the UCL, we conclude the reasoning of Tobacco II applies equally to the “unlawful” prong of the UCL, when, as here, the predicate unlawful conduct is misrepresentation. Indeed, the court explained in Tobacco II: “We emphasize that our discussion of causation in this case is limited to such cases where, as here, a UCL action is based on a fraud theory involving false advertising and misrepresentations to consumers. The UCL defines ‘unfair competition’ as ‘includ[ing] any unlawful, unfair or fraudulent business act or practice . . . .’ [Citation.] There are doubtless many types of unfair business practices in which the concept of reliance, as discussed here, has no application.” (Tobacco II, supra, 46 Cal.4th at p. 325, fn. 17, italics added.) The concept of reliance is unequivocally applicable here.

Hale also asserts reliance is immaterial because her claim for unlawfulness is not fraud-based. She concedes, however, that her “basic allegation” is that “Sharp promised to provide medical services at its ‘regular rates,’ but instead billed grossly excessive amounts which far exceeded its ‘regular rates.’ ”

We agree with Hale, however, that “to the extent [she] is bringing a fraud-based claim under the UCL, she has reasonably pled reliance.” The SAC alleges Hale signed the Admission Agreement, and “at the time of signing the contract, she was expecting to be charged ‘regular rates,’ and certainly not the grossly excessive rates that she was subsequently billed.” (Italics added.) This allegation appears in the breach of contract cause of action, but the UCL cause of action incorporates the allegations of all other causes of action. We must interpret the complaint reasonably, “reading it as a whole and its parts in their context.” (Stearn v. County of San Bernardino (2009) 170 Cal.App.4th 434, 439.) As Hale notes, the “difference between ‘expecting’ to be charged regular rates and ‘relying’ on being charged regular rates is a distinction without a difference.” We see no utility in requiring Hale to amend her complaint to exchange the term “expecting” for the term “relying.” We hold the trial court erred by sustaining Sharp’s demurrer to the UCL cause of action.

Sharp argues that Hale was required to allege she actually relied on its alleged misrepresentations “when she was deciding where to seek medical treatment,” and “Hale could not possibly have made any such allegation” because she would not have seen the Admission Agreement until after she arrived at the hospital. (Original italics.) It is possible, however, for a person who has arrived at the hospital to rely on the Admission Agreement in deciding whether to proceed with treatment. The SAC does allege Sharp misrepresented on its Web site that its goal is to provide patients with ” ‘cost-effective’ ” services, and if Hale based her UCL claim exclusively on that conduct the SAC would be insufficient. Her UCL claim, however, is also based on the language of the Admission Agreement.

IV

CLRA Cause of Action

Under Civil Code section 1780, subdivision (a), CLRA actions may be brought “only by a consumer ‘who suffers any damage as a result of the use or employment’ of a proscribed method, act, or practice. (Italics added.) ‘This language does not create an automatic award of statutory damages upon proof of an unlawful act. Relief under the CLRA is specifically limited to those who suffer damage, making causation a necessary element of proof.’ [Citation.] Accordingly, ‘plaintiffs in a CLRA action [must] show not only that a defendant’s conduct was deceptive but that the deception caused them harm.’ ” (Buckland v. Threshold Enterprises, Ltd. (2007) 155 Cal.App.4th 798, 809.) A “misrepresentation is material for a plaintiff only if there is reliance — that is, ‘ ” ‘ without the misrepresentation, the plaintiff would not have acted as he did.’ ” ‘ ” (Id. at p. 810.)

As with the UCL cause of action, Sharp defends the court’s demurrer ruling on the CLRA cause of action on the sole ground that Hale was required to allege reliance on a misrepresentation by Sharp in deciding to seek medical treatment at its hospital. Again, however, to the extent Hale’s CLRA claim is fraud-based, the SAC adequately alleges the reliance element. Thus, the court erred by sustaining the demurrer to the CLRA cause of action.

V

Contract Causes of Action

“A cause of action for breach of contract requires pleading of a contract, plaintiff’s performance or excuse for failure to perform, defendant’s breach and damage to plaintiff resulting therefrom.” (McKell v. Washington Mutual, Inc., supra, 142 Cal.App.4th at p. 1489.)

Hale contends the court erred by finding the SAC does not sufficiently allege her performance or excuse for nonperformance of the contract. “[P]revention of performance by one party to a contract excuses performance by the other party.” (Lortz v. Connell (1969) 273 Cal.App.2d 286, 290; Lewis Publishing Co. v. Henderson (1930) 103 Cal.App. 425, 429 ["it is elementary that one party to a contract cannot compel another to perform while he himself is in default"]; Wood, Curtis & Co. v. Seurich (1907) 5 Cal.App. 252, 254 ["refusal of one party to a contract to make payment as called for by the terms of the contract excuses the other party from further performance on his part"].)

The breach of contract claim is based on Sharp’s Admission Agreement, which obligates Hale to pay its ” ‘regular rates.’ ” The SAC alleges Hale was hospitalized overnight, and during her stay she “received medical treatment, central services, lab work, medication, emergency hospital care, and C.T. scans.” Yet, the SAC alleges she paid only $500 toward a $14,447.65 bill, which cannot be considered performance. Hale asserts she also alleged “payment of at least an additional $1,000.00 to medical providers including” Sharp. The SAC, however, actually alleges that “from March 2007 through July 2007, [Hale] made additional payments to various medical providers relating to her treatment at [Sharp's] hospital, totaling over an additional $1,000.” (Italics added.) In her opposition to Sharp’s demurrer, she admitted she paid Sharp only $500, and she paid the additional $1,000 “to other medical providers.”

The SAC also alleges that “[a]s a result of the grossly excessive billing, [she] was excused from paying the grossly excessive amounts for which she was billed, which were exponentially larger than the ‘regular rates.’ ” (Italics added.) This does not sufficiently allege an excuse for nonperformance. “[E]xcuses must be pleaded specifically.” (4 Witkin, Summary of Cal. Procedure (5th ed. 2008), Pleading, § 532, p. 661.) Even if Sharp’s conduct excused Hale from paying the portion of its bill that represented “grossly excessive” rates, the SAC does not allege the reasonable value of Hale’s services was only $500, that she made any effort to determine the reasonable value of the services, or that she made any effort to pay the discounted rates Sharp accepted from patients covered by Medicare or private insurance. The SAC does not suggest Sharp prevented Hale from paying at least what she considers is fair. Further, since Hale paid Sharp only $500, the SAC shows she suffered no damages for the alleged breach of contract.

The SAC’s cause of action for breach of the implied covenant and fair dealing includes the same performance and excuse allegations as the breach of contract action. The court properly sustained the demurrer to both contract-based claims.

VI

Motion for Reconsideration/Leave to Amend

Hale contends the court abused its discretion by denying her motion for reconsideration and leave to file her proposed TAC. The proposed TAC alleges Sharp’s bill to her of $14,447.65 “was substantially greater than [its] ‘regular rates’ charged to the great majority of patients, who are insured and/or covered by Medicare, which would have amounted to no more than $5,000.00 for the same services.” The allegation does not show performance or any excuse for nonperformance. To the contrary, it further clarifies that Hale did not perform, she was not excused from performing by paying Sharp substantially more than $500, and she suffered no breach of contract damages. Further, Hale does not suggest she could in good faith amend the complaint yet again to allege additional or different facts showing performance or excuse for nonperformance.

We find no abuse of discretion. In the case of a demurrer, “leave to amend should be granted if there is any reasonable possibility that the plaintiff can state a good cause of action.” (Virginia G. v. ABC Unified School Dist. (1993) 15 Cal.App.4th 1848, 1852.)

DISPOSITION

The judgment is reversed insofar as it pertains to the UCL and CLRA causes of action. The judgment is otherwise affirmed. The parties are to bear their own costs on appeal.

MCCONNELL, P. J.

WE CONCUR:

NARES, J.

IRION, J.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

—-

IDA LANE et al.,

Plaintiffs and Appellants,

v.

CITY OF SACRAMENTO,

Defendant and Respondent.

C060744

(Super. Ct. Nos. 07AS02779, 07AS02030)

In these consolidated cases, plaintiffs John Montgomery and Ida Lane sought to hold defendant City of Sacramento liable for injuries they sustained when Montgomery’s car struck a concrete divider on a city street. Concluding that plaintiffs had failed to raise a triable issue of fact as to whether the divider constituted a dangerous condition of public property for which the city could be held liable under Government Code section 835, the trial court granted the city’s summary judgment motion.

On appeal, we conclude the trial court erred in granting the city’s motion because the city did not offer sufficient evidence to meet its initial burden of showing it was entitled to judgment as a matter of law. Accordingly, we will reverse the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Viewing the evidence in the light most favorable to plaintiffs (see Fischer v. First Internat. Bank (2003) 109 Cal.App.4th 1433, 1438), the following facts appear:

On October 31, 2006, Montgomery drove his Cadillac Seville to pick up Lane at Sacramento State University. The sun set at 5:07 p.m. that day, and it was getting dark when he picked her up.

At approximately 5:30 p.m., Montgomery was driving westbound (toward downtown) on J Street near its intersection with 48th Street, where there are two westbound lanes. Montgomery’s car was in the inside (No. 1) lane.

More than 6,000 cars pass westbound through the intersection of J Street and 48th Street every day. On the west side of the intersection there is a concrete center divider that separates the two westbound lanes of J Street from the two eastbound lanes. The divider is a concrete berm or curb that is 6 to 7 and one-half inches tall, 10 to 11 inches wide, and 120 to 125 feet long.

As Montgomery’s car approached the intersection, there was another car traveling next to his in the outside (No. 2) westbound lane. There were also other cars coming in the other direction. As Montgomery’s car entered the intersection, Lane told him to “watch out.” He turned to look to the right and got a glance of a car that appeared to be too close. He moved his car to the left to allow more room between the vehicles, and his car struck the end of the center divider, popping the left front tire. The car went up and came back into the No. 1 lane. The collision with the divider did not bring the car to a full stop but reduced the speed of the car from about 30 to 35 miles per hour to “just a few miles an hour.” Montgomery managed to pull the car to the left into an alley.

In May 2007, Montgomery sued the city for the injuries he sustained as a result of the collision with the divider. In his first amended complaint, he alleged the city had “failed to properly mark, sign and maintain a center median (lane divider) in accordance with [its] own regulations and requirements, resulting in a dangerous traffic condition.”

In June 2007, Lane sued the city also. Lane alleged the collision “was the result of improper, inappropriate, and unsafe design, installation, maintenance, supervision, monitoring, inspection, control and management of the roadway and/or center median” and “the accident location constituted a dangerous condition of public property.”

In October 2007, the cases were consolidated. In May 2008, the city moved for summary judgment on the grounds that “the center divider [was] not dangerous,” Montgomery “failed to use due care,” and “the divider did not cause the collision.” The city’s argument that the divider was not dangerous was based on evidence regarding the absence of any other claims relating to the divider. Specifically, the city offered evidence that Bragg and Associates is the city’s claims administrator and in that capacity maintains a computerized database of claims submitted to the city regarding injuries that might involve city property. The database contains records for claims submitted for at least the previous five years and may be searched for claims concerning specific locations in the city. At some unidentified time, Bragg and Associates searched the database for records of claims involving the center divider at J and 48th Streets but found none, other than the claims submitted by plaintiffs.

In support of its summary judgment motion, the city contended it was not liable for plaintiffs’ injuries because “the center divider did not create a substantial risk of injury.” The city contended the divider actually stopped Montgomery’s vehicle from going “‘head-on’ into opposing traffic” and, in any event, the divider could not “be considered to have created a ‘substantial risk of injury’ to anyone” because “Plaintiffs’ collision is the only reported collision, with the center divider, in the last seven years.”

The city also contended it was not liable because “Montgomery did not use due care or use the roadway in a foreseeable manner when he violated the law” by “mov[ing] his car from his lane when such movement could not be made with reasonable safety,” “by driving into the center median,” and by “attempt[ing] to drive his car to the left of the roadway when traversing the intersection.”

Finally, the city contended it was not liable because the center divider was not the proximate cause of plaintiffs’ injuries in that the divider did not cause Montgomery to move his car to the left.

In opposition to the summary judgment motion, both plaintiffs offered declarations from traffic engineering experts. Lane’s expert, William R. Neuman, asserted that the width of the No. 1 lane in which Montgomery was driving and the “travel way distance” from the center divider violated “minimum standards for traffic lanes of travel.” Specifically, Neuman asserted that “the [city’s] standards require lanes [to] be a minimum of 11 feet wide,” but the lane in which Montgomery was driving was only 8 feet 7 inches wide from the bottom edge of the center divider to the center of the westbound lane line. Neuman also asserted that “the AASHTO standards require vertical curbs more than 6 inches high [to] be offset 1-2 feet from the edge of the traveled way,” but here the center median had no “offset from [an] already too narrow travel way.” Neuman also asserted that “the AASHTO standards provide for and recommend sloped ends or ‘nose ramping’ if a concrete vertical curb 6 inches or more is used as a median island.”

Neuman expressed his opinion that “the extremely narrow lane width of the westbound number 1 lane, coupled with the lack of any offset from the travel way of . . . the concrete berm . . . is a dangerous condition of public property” because “it is reasonably foreseeable that a small deviation to the left in the path of a vehicle . . . would result in a collision with the raised concrete berm.” Neuman also expressed his opinion that “more likely than not, [Montgomery’s car] would not have collided with the raised concrete berm had the area [striped] as the number 1 lane met minimum standards for lane width and offset of a vertical curb from the travel way. “Furthermore, more likely than not, had the concrete berm met recommended standards for sloping ends of a median divider (berm), the force of the collision would have been reduced, minimized, or eliminated.”

Montgomery’s expert, Kim Nystrom, expressed a similar opinion that the width of the lane in which Montgomery was driving was well below the width recommended by AASHTO. Nystrom asserted that narrow lane width “increases the likelihood of sideswipe accidents as well as hitting nearby fixed objects.” Like Neuman, Nystrom expressed the opinion that the center divider constituted a dangerous condition.

Also in opposition to the summary judgment motion, plaintiffs offered photographic evidence of the condition of the center divider a couple of days after the accident. The photographs show the divider was scuffed and pitted, with much of its yellow paint worn or scraped off.

In ruling on the summary judgment motion, the trial court concluded that the city’s evidence regarding the lack of other claims relating to the center divider was “sufficient to meet the City’s initial burden of showing that the center median was not in a dangerous condition at the time of the injury.” Accordingly, the burden shifted “to plaintiffs to produce evidence raising a triable issue of material fact.” The court noted the opinions of plaintiffs’ experts but concluded they were not sufficient to “raise a triable issue of material fact that the median, even in combination with the narrow number-one lane, presented a dangerous condition, as despite the existence of these defects, there is no evidence of the occurrence of any other accidents involving a collision with the center median over a period of seven years during which millions of vehicles traveled the same route as plaintiffs. Where there is no evidence of prior accidents, evidence of purported hazards does not support inference of [a] dangerous condition of public property, expert opinion notwithstanding.” Consequently, the trial court granted the city’s motion for summary judgment.

From the subsequent judgment entered in December 2008, plaintiffs timely appealed.

DISCUSSION

I

Standard Of Review

A defendant may move for summary judgment “if it is contended that the action has no merit . . . .” (Code Civ. Proc., § 437c, subd. (a).) “A defendant . . . has met his or her burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to that cause of action. Once the defendant . . . has met that burden, the burden shifts to the plaintiff . . . to show that a triable issue of one or more material fact exists as to that cause of action or a defense thereto.” (Id., subd. (p)(2).) “The motion for summary judgment shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (Id., subd. (c).)

“When the defendant moves for summary judgment, in those circumstances in which the plaintiff would have the burden of proof by a preponderance of the evidence, the defendant must present evidence that would preclude a reasonable trier of fact from finding that it was more likely than not that the material fact was true [citation], or the defendant must establish that an element of the claim cannot be established, by presenting evidence that the plaintiff ‘does not possess and cannot reasonably obtain, needed evidence.’” (Kahn v. East Side Union High School Dist. (2003) 31 Cal.4th 990, 1003.)

“Because the trial court’s determination [on a motion for summary judgment] is one of law based upon the papers submitted, the appellate court must make its own independent determination regarding the construction and effect of the supporting and opposing papers. We apply the same three-step analysis required of the trial court. We begin by identifying the issues framed by the pleadings since it is these allegations to which the motion must respond. We then determine whether the moving party’s showing has established facts which justify a judgment in movant’s favor. When a summary judgment motion prima facie justifies a judgment, the final step is to determine whether the opposition demonstrates the existence of a triable, material factual issue.” (Hernandez v. Modesto Portuguese Pentecost Assn. (1995) 40 Cal.App.4th 1274, 1279.)

“The affidavits of the moving party are strictly construed, while those of the party opposing the motion are liberally construed, and doubts as to the propriety of granting the motion must be resolved in favor of the party opposing the motion.” (Miller v. Bechtel Corp. (1983) 33 Cal.3d 868, 874.)

II

Governing Legal Principles

Following the foregoing authorities, we begin by identifying the issues framed by the pleadings. Here, both plaintiffs alleged they were injured by a dangerous condition of public property. Thus, we turn to the pertinent law relating to a public entity’s liability for such an injury.

Section 835 provides as follows:

“Except as provided by statute, a public entity is liable for injury caused by a dangerous condition of its property if the plaintiff establishes that the property was in a dangerous condition at the time of the injury, that the injury was proximately caused by the dangerous condition, that the dangerous condition created a reasonably foreseeable risk of the kind of injury which was incurred, and either:

“(a) A negligent or wrongful act or omission of an employee of the public entity within the scope of his employment created the dangerous condition; or

“(b) The public entity had actual or constructive notice of the dangerous condition under Section 835.2 a sufficient time prior to the injury to have taken measures to protect against the dangerous condition.”

For purposes of liability under section 835, “‘Dangerous condition’ means a condition of property that creates a substantial (as distinguished from a minor, trivial or insignificant) risk of injury when such property or adjacent property is used with due care in a manner in which it is reasonably foreseeable that it will be used.” (§ 830, subd. (a).)

“Whether property is in a dangerous condition often presents a question of fact, but summary judgment is appropriate if the trial or appellate court, viewing the evidence most favorably to the plaintiff, determines that no reasonable person would conclude the condition created a substantial risk of injury when such property is used with due care in a manner which is reasonably foreseeable that it would be used.” (Mathews v. City of Cerritos (1992) 2 Cal.App.4th 1380, 1382, citing § 830.2.)

III

The City Did Not Meet Its Burden Of Showing It Was Entitled

To Judgment On Plaintiffs’ Claims Under Section 835

With the foregoing principles in mind, we turn to whether the city met its initial burden in moving for summary judgment. In support of its motion, the city offered three arguments as to why plaintiffs could not establish their claims for liability under section 835. First, the city argued the divider did not create a substantial risk of injury and therefore did not constitute a dangerous condition of public property. Second, the city argued Montgomery did not exercise due care or act in a reasonably foreseeable manner when he drove his car into the divider. Third, the city argued the divider did not cause the collision. The trial court agreed with the first argument; we, on the other hand, do not find merit in any of them.

A

Dangerous Condition Of Public Property

In its first argument for summary judgment, the city asserted the divider did not create a substantial risk of injury because Montgomery’s collision with the divider was “the only reported collision . . . in the last seven years.” In the city’s view, “Given the huge volume of traffic over that seven year period and the complete absence of any similar accidents, no reasonable person could conclude . . . that the center divider posed a substantial risk of injury to Plaintiffs.”

There are several problems with this argument. First, on summary judgment we must strictly construe the city’s affidavits. (Miller v. Bechtel Corp., supra, 33 Cal.3d at p. 874.) Viewed through the prism of strict construction, the city’s evidence did not establish a “complete absence of any similar accidents” involving the divider in the previous seven years. Rather, what the city’s evidence established was that someone acting on behalf of the city’s claims administrator had searched a computerized database of claims submitted to the city for records of claims involving the center divider at J and 48th Streets but found none, other than the claims submitted by plaintiffs. The city offered no evidence, however, on how the database was created or maintained, or how the search of the database was conducted. Thus, there was no evidentiary basis for determining that the database constituted a complete and accurate record of claims submitted to the city, let alone for determining that the search the unidentified person conducted retrieved all of the pertinent records within the database.

Moreover, even assuming the city’s evidence was sufficient to establish an absence of claims (other than plaintiffs’) related to the divider at J and 48th Streets, a tort claim filed with the city is not the same thing as an accident, and an absence of claims is not the same thing as an absence of accidents. It is possible other drivers collided with the divider, and suffered resulting injuries, but never thought to hold the city liable and therefore never filed a tort claim with the city. Thus, even if it had been provided, evidence the city never received any other claim relating to the divider would not have established a “complete absence of any similar accidents,” as the city contends.

The city’s argument on this point also suffers from another fatal flaw. It is true, as the city argues (and as the trial court apparently understood), that the absence of other similar accidents is “relevant to the determination of whether a condition is dangerous.” (See, e.g., Antenor v. City of Los Angeles (1985) 174 Cal.App.3d 477, 482 [inquiry into the question of dangerousness involves consideration of such matters as whether the condition has been the cause of other accidents]; Sambrano v. City of San Diego (2001) 94 Cal.App.4th 225, 243 [evidence of the lack of prior accidents is relevant to the definition of a dangerous condition under section 830, subdivision (a)].) But the city cites no authority for the proposition that the absence of other similar accidents is dispositive of whether a condition is dangerous, or that it compels a finding of nondangerousness absent other evidence.

In any event, as we have observed already, the city did not offer evidence sufficient to prove there had been no similar accidents involving the divider. What the city proved was that in an undefined search of a database of unknown reliability, its claims administrator found no record of any claim involving the divider other than plaintiffs’. To prevail on its motion for summary judgment on the ground that the divider did not constitute a dangerous condition, however, the city had to present evidence that would preclude a reasonable trier of fact from finding it was more likely than not that the divider posed a substantial risk of injury. (Kahn v. East Side Union High School Dist., supra, 31 Cal.4th at p. 1003.) Contrary to the trial court’s conclusion, the city’s evidence regarding the search of the database by its claims administrator was not sufficient to preclude a reasonable trier of fact from finding the divider posed a substantial risk of injury.

To the extent the city contends the divider did not pose a substantial risk of injury because it “may have saved [plaintiffs’] lives and the lives of other motorists,” that argument fails as well. The city’s evidence did not establish that Montgomery’s car would have collided with another car in the eastbound lane if it had not struck the divider first, let alone that such a collision would have been more injurious than the collision with the divider. Indeed, the only evidence the city cites in its brief on this point — a purported transcript of Montgomery’s telephone call reporting the accident — was excluded from evidence by the trial court when the court sustained Montgomery’s objection that the transcript was improperly authenticated and constituted inadmissible hearsay. Thus, on appeal, the city cites no admissible evidence of what would or even might have happened had the divider not been there.

Because the city’s evidence was not sufficient to demonstrate as a matter of law that the divider did not constitute a dangerous condition of public property, the burden never shifted to plaintiffs to demonstrate a triable issue of material fact on this issue, and the trial court erred in concluding otherwise. However, because we review the trial court’s ruling and not its rationale (Aaitui v. Grande Properties (1994) 29 Cal.App.4th 1369, 1373), this does not end our inquiry. Instead, we turn to the other two arguments the city offered in support of its summary judgment motion to determine if the trial court’s ruling can be sustained on the basis of those arguments.

B

Montgomery’s Exercise Of Due Care

In its second argument for summary judgment, the city contended plaintiffs could not prevail on their claims “because [Montgomery] did not exercise any care, let alone due care, or act in a reasonably foreseeable manner when he swerved into the center median.” Even assuming, however, that the evidence the city offered was sufficient to demonstrate, as a matter of law, that Montgomery was not using due care when his car struck the divider, that would not justify judgment in the city’s favor. When a plaintiff seeks to recover for injury caused by a dangerous condition of public property, “‘The Tort Claims Act does not require [the] plaintiff to prove that the property was actually being used with due care at the time of the injury, either by himself or by a third party (e.g., driver of automobile in which plaintiff was riding as a passenger).’” (Alexander v. State of California ex rel. Dept. of Transportation (1984) 159 Cal.App.3d 890, 899.) Thus, proof that Montgomery was not using due care is insufficient to show that plaintiffs cannot establish their claims in this case.

Rodkey v. City of Escondido (1937) 8 Cal.2d 685, 687, is of no assistance to the city on this point because Rodkey did not involve a claim for a dangerous condition of public property under the Tort Claims Act. Instead, Rodkey was decided on general negligence principles long before the enactment of the Tort Claims Act in 1963. (See Bahten v. County of Merced (1976) 59 Cal.App.3d 101, 105.) The court’s conclusion in Rodkey that the driver’s negligence had to be deemed the sole proximate cause of the injury to his passenger when he drove over a storm drain in excess of the posted speed limit simply has no bearing on whether proof that Montgomery failed to exercise due care would justify judgment in favor of the city on a claim for injury from a dangerous condition of public property under the Tort Claims Act. Thus, the summary judgment cannot be sustained based on the city’s second argument.

C

Causation

In its final argument for summary judgment, the city asserted plaintiffs could not establish the requisite causal connection because “[t]he center divider did not cause Montgomery to swerve or move to the left.” This argument, however, misapprehends the nature of the required causal connection. Under the governing statute, the pertinent question is not whether the divider caused Montgomery to swerve or move to the left; rather, the pertinent question is whether plaintiffs’ “injury was proximately caused by the dangerous condition.” (§ 835.)

There appears to be no dispute in this case that both plaintiffs suffered injuries as a result of Montgomery’s car striking the concrete divider. At the very least, the city did not attempt to demonstrate otherwise. Based on the evidence the city offered, a reasonable trier of fact could have found that but for the presence of the divider, Montgomery might have been able to successfully evade the car encroaching from the No. 2 lane and continue his course westbound on J Street without any collision or injury. On these facts, the city failed to show that the plaintiffs could not establish a proximate causal connection between the divider and their injuries from the collision with the divider. Accordingly, the summary judgment cannot be sustained based on this argument either.

Because the city failed to produce sufficient evidence to demonstrate it was entitled to judgment as a matter of law on plaintiffs’ claims for injury from a dangerous condition of public property, the trial court erred in granting the city’s summary judgment motion.

DISPOSITION

The judgment is reversed, and the trial court is directed to vacate its order granting the city’s motion for summary judgment and enter a new order denying that motion. Plaintiffs shall recover their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)

ROBIE , J.

We concur:

BLEASE , Acting P. J.

RAYE , J.

Filed 4/16/10

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

—-

IDA LANE et al.,

Plaintiffs and Appellants,

v.

CITY OF SACRAMENTO,

Defendant and Respondent.

C060744

(Super. Ct. Nos. 07AS02779, 07AS02030)

ORDER CERTIFYING OPINION FOR PUBLICATION

APPEAL from a judgment of the Superior Court of Sacramento County, Shelleyanne W. L. Chang, Judge. Reversed with directions.

Dreyer Babich Buccola Callaham & Wood, Hank G. Greenblatt and Jason J. Sigel for Plaintiff and Appellant Ida Lane.

Clayeo C. Arnold, PLC, Kirk J. Wolden and Douglas E. Stein for Plaintiff and Appellant John Montgomery.

Eileen M. Teichert, City Attorney, and Marcos A. Kropf, Senior Deputy City Attorney, for Defendant and Respondent.

THE COURT:

The opinion in the above-entitled matter filed on March 29, 2010, was not certified for publication in the Official Reports. For good cause it now appears that the opinion should be published in the Official Reports and it is so ordered.

BLEASE , Acting P. J.

RAYE , J.

ROBIE , J.