Validation Lawsuit Doesn’t Always Immunize Plaintiff From Attack

 

In many situations, the settlement of a lawsuit is a flexible tool to resolve disagreements between parties and allow the participants to move on with their lives. A settlement with a public agency invokes slightly different considerations then a matter resolved exclusively through private parties. As previously noted in Trancas Property Owners Association v. City of Malibu (2006) 138 Cal.App.4th 172, a public agency cannot rely upon a settlement agreement to bypass a required land use approval step.

Now, a new case from Los Angeles reaffirms this idea. The validation statutes do not immunize a settlement agreement with a city which exempts the plaintiff from compliance from land use regulations from collateral attack by a competitor that the underlying settlement agreement is an ultra vires act. The principles of Avco remain true against contracting away the police power.

The City of Los Angeles, like many other cities and counties, actively regulates offsite billboard displays. These regulations included an interim ordinance adopted in the year 2000, as well as formal amendments to the City code in 2002. The 2002 amendments authorized the City to charge an annual inspection fee for billboards. Vista Media Group, Inc., a billboard owner, brought a reverse validation action challenging the amendments. Other parties intervened in the litigation also seeking to challenge the ordinance. Vista eventually settled with the City. The settlement agreement operated to exempt Vista from many of the ordinance limitations, and allowed Vista to modernize its existing signs (eventually including conversions to digital display). 

Vista sought incorporation of the settlement into the judgment, the latter effort opposed by intevenors on the grounds that the settlement agreement was an ultra vires act. The trial court eventually issued a judgment based upon the Vista settlement, and the City and intervening real parties eventually settled separately as well. A new lawsuit by a competitor, Summit Media Inc. was filed, challenging the Vista settlement agreement. The trial court in the later action found the settlement agreement to be an ultra vires act, but declined to order all of the digital conversion permits issued based upon the settlement be revoked or set aside. Both sides appealed.

The City and Vista posited five grounds as a basis to reverse the trial court’s invalidation of the settlement agreement, all of which were rejected by the court of appeal. First, the court of appeal concluded that the validation statute did not operate to foreclose challenge. The court concluded that the settlement agreement embraced matters that went beyond the scope and purpose of the validation statutes -- a conclusion, by the way, that should give agencies pause in over reliance on the validation statute as an all encompassing get-out-of-jail card. Second, while collateral attacks on judgments are largely precluded, the court concluded that those limitations did not apply on grounds including that the later plaintiffs were not parties to the original judgment. 

Next, although the City and the original settling party argued that Summit failed to exhaust administrative remedies, the court rejected the contention, concluding that (a) the principle did not apply to contracts, (b) there was no identifiably process by which a party could contest the agreement and (c) it would have been a futile act as the outcome was pre-ordained. Next, the appellate court cited the leading case on preclusion of contracting away the police power (Avco Community Developers, Inc. v. South Coast Regional Commission (1976) 17 Cal. 3d 785, 800 as well as the later Trancas decision) to conclude that the settlement agreement was ultra vires.

The appellate court concluded by holding that the trial court properly invalidated the agreement. Then, drinking again deep from the legal well and citing Pettitt v. City of Fresno (1973) 34 Cal.App. 3d 813, 819 and City of Long Beach v. Mansell (1970) 3 Cal.3d 462, 496-497 (cases which strictly limit estoppel defenses in public matters), the appellate court then reversed the trial court on the scope of the remedy, and directed that the digital conversion permits be issued on the grounds appellants only sought to invalidate the settlement agreement.

 

Summit Media LLC v. City of Los Angeles (December 10, 2012, B220198) ___Cal.App.4th ___.