A taxpayer lawsuit challenging the City of Seaside’s discounted sale of 105 acres of the closed Fort Ord military base to housing developers appears headed for trial.
The Sixth District Court of Appeal ruled that the lawsuit contesting the city’s deal with a joint venture of KB Home and Bakewell Homes was not filed too late. A Monterey County Superior Court had ruled that the lawsuit was a validation suit that was filed after the 60-day deadline. But the Sixth District ruled that the validation statutes, which typically affect indebtedness, taxes and government organization, do not apply.
The lawsuit challenges the city’s 2002 sale of property that has since been developed into the 380-unit Seaside Highlands subdivision. In a double-escrow transaction, the city acquired the property from the federal government in July 2002 for $5.1 million. K&B Bakewell provided money for the city-federal deal. The city then immediately transferred the property to K&B Bakewell for $5.95 million. Development began in early 2003 on the subdivision of market-rate homes ranging from 1,700 to 3,600 square feet.
In May 2003, Seaside resident Benjamin Kaatz filed a lawsuit and even managed to get construction shut down for a week. As amended, the suit contends that the city’s sale of property for what Kaatz contended was 5% of its market value was invalid because it was a gift of public property, was not permitted under terms of the city’s deal with the developers, and was not properly noticed.
The Superior Court lifted the injunction quickly and, without ruling on the merits, dismissed the lawsuit in March 2004 because it was filed too late. On appeal, the Sixth District, which also did not consider the merits, overturned the lower court, clearing the way for a trial.
The city and K&B Bakewell have asked the state Supreme Court to review the Sixth District’s decision. Local government groups and the California Building Industry Association have said that allowing lawsuits over the government’s sale of large tracts of land long after the sale has been completed could chill interest in such transactions.
The question for the Sixth District was whether the validation statutes in Code of Civil Procedure §§ 860-870 apply. The validation statutes require legal action be filed within 60 days. The idea is that prompt resolution of any legal questions is necessary to provide for government certainty.
The city and the developers argued that the validations statutes apply in this case because the contract between the city and the developers embodies an “important policy decision affecting the public at large,” because the lack of a prompt validation procedure would impair the city’s ability to operate, and because the land disposition agreement (LDA) between the city and the developers concerned the city’s financial transaction with a third party.
The court rejected the arguments.
Government Code § 53511 — originally approved in 1963 and amended to § 53511 subdivision (a) in 2004 — specifically references the validation statutes adopted in 1961 and further references “bonds, warrants, contracts, obligations or evidences of indebtedness,” according to the court.
The city’s deal with K&B Bakewell does not relate to bonds or warrants, the court noted, and does not speak to a loan of funds. Therefore, the question is whether the LDA is a “contract” within the meaning of Government Code § 53511 and the validation statutes. Relying heavily on the state Supreme Court’s decision in City of Ontario v. Superior Court, (1970) 2 Cal.3d 335, the Sixth District said the LDA is not such a contract. In the City of Ontario case, the state Supreme Court adopted a narrow definition of the term “contract.”
“Rather than authorizing proceedings to validate any public agency contract — or even any contract constituting a financial obligation of a public agency — the ‘contracts’ under Government Code § 53511 are only those that are in the nature of, or directly relate to, a public agency’s bonds, warrants or other evidences of indebtedness,” the Sixth District ruled.
“[T]he execution of the LDA and the city’s subsequent conveyance of the property to K&B Bakewell pursuant to that agreement were not matters embraced by the validation statutes and Government Code § 53511,” the court concluded. Therefore, Kaatz’s lawsuit is not subject to the validation statute’s 60-day deadline.
Kaatz v. City of Seaside, No. H027562, 06 C.D.O.S. 8953, 2006 DJDAR 12793. Filed September 21, 2006.
For Kaatz, Jay Renneisen, (925) 280-8900.
For the city: Lee Rosenthal, Goldfarb & Lipman, (510) 836-6336.
For K&B Bakewell: Julie Woods, Horvitz & Levy, (818) 995-0800.