Appellate Court Orders Publication of Lease-Leaseback Decision, Making it Binding Precedent

June 2017
Number 32

On May 31, 2017, the First District Court of Appeal ordered publication of its decision in California Taxpayers Action Network v. Taber Construction, Inc. et al.(2017) 12 Cal.App.5th 115 (Taber), which upholds the validity of a lease-leaseback arrangement. This reversed the court’s initial decision not to publish the case. Publication of the Taber decision means that it serves as citable precedent upon which school districts and others may now rely.

In Taber, the Court of Appeal reviewed the validity of a lease-leaseback arrangement that was challenged on the grounds that it did not comply with Education Code section 17406, the lease-leaseback statute covering school districts. Agreeing withMcGee v. Balfour Beatty Construction, LLC (2016) 247 Cal.App.4th 235 (McGee), which was recently decided by the Second District Court of Appeal, the Taber court declined to follow the lease-leaseback holding ofDavis v. Fresno Unified School District (2015) 237 Cal.App.4th 261 (Davis) and to read Davis’ “genuine lease” and “financing” requirements into the lease-leaseback statute. On the other hand, the Taber court did agree with both Davis andMcGee that allegations that a lease-leaseback contractor acted as an officer or employee of the school district when performing pre-construction services was sufficient to allow a conflict of interest cause of action under Government Code section 1090 to proceed to trial. (For further discussion of the Taber decision, see 2017 Client News Brief No. 23.)

While the Taber decision represents the second appellate court ruling that specifically repudiates the holding of Davis, it does not overrule that case, as one Court of Appeal cannot overturn the ruling of another. In the event a lease-leaseback challenge is brought in state court, a trial court has the option of applying McGee,Taber or Davis. A trial court, however, will ordinarily follow an appellate opinion from its own district even though it is not bound to do so, meaning that trial courts in the First and Second Appellate Districts (generally, the greater San Francisco and Los Angeles areas) may be more inclined to follow Taber and McGee, respectively, while trial courts in the Fifth Appellate District (generally, the Central Valley) may be more inclined to follow Davis. Until and unless the California Supreme Court weighs in, uncertainty may remain.

If you have any questions about the legality of lease-leaseback and which appellate court decision may apply to your project, or about other project delivery methods, please contact the authors of this Client News Brief or
an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Travis E. Cochran

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Public Entities Must Proceed with Caution When Preparing an Addendum to a Negative Declaration

June 2017
Number 31

A California appellate court has held that a public entity violated the California Environmental Quality Act (CEQA) by preparing an addendum to a mitigated negative declaration. In Friends of the College of San Mateo Gardens v. San Mateo County Community College District (2017) 11 Cal.App.5th 596, the court found that proposed changes to the District’s original facilities project might have a significant effect on the environment, requiring further analysis, rather than use of an addendum.

The California Environmental Quality Act

Under CEQA, a public agency generally conducts an initial study to determine if a project may have a significant effect on the environment unless an exemption applies. If the initial study shows that there is no substantial evidence that the project may have a significant effect on the environment, CEQA requires the agency to prepare a negative declaration. Alternatively, if the project has potentially significant environmental effects but these effects will be reduced to insignificance by mitigation measures, CEQA requires the agency to prepare a mitigated negative declaration. Projects where the environmental effect cannot be reduced to insignificance by mitigation measures require an environmental impact report (EIR).

In the event an agency modifies a project after a negative or mitigated negative declaration has been adopted, CEQA outlines subsequent review provisions that apply so long as the original declaration is relevant. These provisions require the agency to prepare a subsequent negative or mitigated declaration or subsequent EIR depending on certain circumstances. The guidelines also allow the agency to prepare an “addendum,” rather than a subsequent negative or mitigated negative declaration, if there are only “minor technical changes or additions.” Such addenda have more limited analysis and do not reopen public comment opportunities. Alternatively, if the modifications are such that the original negative or mitigated declaration is no longer relevant, the public entity must start over by conducting a new initial study.

Background

The San Mateo County Community College District (District) adopted a facilities master plan proposing nearly $1 billion in new construction and facilities renovations that involved demolition of certain buildings and renovation of others. In order to comply with CEQA, the District published an initial study and mitigated negative declaration analyzing the physical environmental effects of implementing the plan’s proposed improvements in 2006. However, after the District failed to obtain adequate funding for its original plan, it added one building to its demolition list and removed two others. As a result of these changes, the District prepared an addendum to the 2006 mitigated negative declaration.

The proposed changes to the plan prompted complaints by a number of students and faculty which ultimately led to a lawsuit challenging the addendum. (Friends of College of San Mateo Gardens v. San Mateo County Community
College Dist.
(Sept. 26, 2013, No. A135892) [nonpub. opn.].) The community members expressed concern that the proposed changes would eliminate a portion of an existing garden making up one-third of one percent of the total landscaped and open space on campus. The court concluded that the proposed changes constituted a “new” project, meaning that new CEQA review was required. However, the California Supreme Court disagreed and remanded the case with
additional instructions. (Friends of College of San Mateo Gardens v. San Mateo County Community College Dist. (2016) 1 Cal.5th 937.)

On remand, the appellate court found that substantial evidence supporting the District’s original mitigated negative declaration was still relevant and agreed with the District’s determination that CEQA’s somewhat more limited subsequent review provisions were applicable. However, the court concluded that the District did not properly comply with its obligations under those provisions. The court considered testimony from community members regarding the project’s aesthetic value to be substantial evidence that the project might have a significant environmental effect, rendering the proposed changes more than “minor technical changes or additions,” and therefore requiring more than the adoption of an addendum.

Takeaway

The lesson from this case is that, when modifying a project after a negative or mitigated negative declaration has been adopted, public entities should be very cautious when deciding whether to prepare an addendum or adopt a subsequent or supplemental negative declaration or EIR. Although courts give public entities deference when deciding whether to proceed under CEQA’s subsequent review provisions so long as there is evidence that the original negative or mitigated declaration remains relevant, the decision to prepare an addendum (rather than a subsequent or supplemental negative declaration or EIR) is reviewed with much more scrutiny. As we learn from San Mateo Gardens, even complaints about aesthetics from community members could be enough evidence for a court to conclude that modifications to a project may have a significant environmental effect, requiring further review. No matter what subsequent review process is selected, it is important to ensure that the rationale is well-documented in the administrative record in order to best defend the public entity’s decision.

For more information about the California Environmental Quality Act, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Anne L. Collins

Partner

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Bond Insurers on Credit Watch

June 2017
Number 30

On June 6, 2017, S&P Global Ratings (S&P) placed two of the three active municipal bond insurers, Build America Mutual Assurance Company (BAM) and National Public Finance Guarantee Corp. (NPFGC), on credit watch with negative implications.

S&P intends to review the insurers and may adjust their assigned rating based on their competitive strengths or weaknesses relative to their peers. S&P stated that its review may lead to a downgrade of BAM or NPFGC. S&P is of the view that the competitive position of BAM and NPFGC may be sufficiently weaker within the industry than Assured Guaranty Ltd. and its operating subsidiaries, making greater rating differentiation appropriate among the municipal bond insurers. S&P expects to complete its review within the next three months, per its statements given in a research update report issued on June 6, 2017.

What this means for you : Issuers of municipal bonds should review their outstanding bonds to determine if any are insured by BAM or NPFGC. If S&P moves forward with a rating downgrade of BAM or NPFGC, the downgrade is treated as a “material event” under SEC Rule 15c2-12 and, accordingly, must be reported as part of an issuer’s continuing disclosure obligations for any bonds insured by the downgraded insurer.

If your agency has outstanding bonds insured by either BAM or NPFGC and you have any questions regarding continuing disclosure compliance, please contact the authors of this Client News brief or an attorney at one of our nine offices located statewide. Lozano Smith serves as bond and disclosure counsel to school districts, community colleges, and other public agencies throughout California and would be happy to provide guidance regarding these developments. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Daniel Maruccia

Partner

Sean B. Mick

Associate

Jennifer Grant

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Federal Court Upholds Texas School Board’s Practice of Student Invocations at School Board Meetings

June 2017
Number 29

A federal appeals court recently upheld a Texas school district’s practice of permitting students to deliver a religious invocation at the beginning of governing board meetings. ( American Humanist Association et al v. Birdville Independent School District et al (5th Cir. 2017, Nos. 15-11067, 16-11220) ___ F.3d ___ (Birdville). While noteworthy, the opinion is not binding on public agencies in California, where a separate ruling on religious invocations at governing board meetings issued by a California-based district court is now being reviewed by the Ninth Circuit Court of Appeals.

In Freedom from Religion Found., Inc. v. Chino Valley Unified School Dist.Bd. of Ed (C.D. Cal. Feb. 18, 2016, No. 5:14-cv-02336-JGB-DTB) (Chino Valley ), the court ruled that a California school district board violated the Establishment Clause of the U.S. Constitution when it adopted a policy allowing a local clergy member or board member to deliver an invocation before each board meeting. The court also held that board
members citing Bible passages during board meetings in the presence of student board members constituted unlawful school prayer. ( See 2016 Client News Brief No. 20.)

In Birdville, two students opened each board meeting. One student led the Pledge of Allegiance and Texas pledge, while the other delivered “some sort of statement,” which often included an invocation. From 1997 through February 2015, the student comments were called “invocations,” but were dubbed “student expressions” after the District received a complaint from a former student and member of the American Humanist Association (AHA) that the invocation violated the Establishment Clause. The group later sued, claiming that the student invocation amounted to unconstitutional school prayer.

A federal district court ruled in favor of the District, holding that a legislative prayer exception developed by the United States Supreme Court in 1983 applied to the invocation. (See Marsh v. Chambers (1983) 463 U.S. 783.) The Fifth Circuit Court of Appeals agreed, holding that board members, and not the audience at board meetings, were the principal audience for the invocations and that students’ presence at the meetings did not make this a school prayer case because the invocation was delivered during the ceremonial portion of the meeting and was not directed at them. The court also rejected plaintiff’s argument that the District’s invocation policy lacked a “unique history,” noting that at least eight states have some history of opening prayers at school board meetings.

In Chambers, the Supreme Court upheld a chaplain’s invocation because “[t]he opening of sessions of legislative and other deliberative public bodies with prayer is deeply embedded in the history and tradition of this country.” More recently, the Supreme Court extended the legislative prayer exception to city council meetings, so long as the principal audience is the “lawmakers themselves” as opposed to members of the public in attendance and the prayer does not “denigrate nonbelievers or religious minorities.” (See Town of Greece v. Galloway (2014) 134 S. Ct. 1811.)

The court also acknowledged two pre-Galloway cases where school district board meeting invocations were determined to be unconstitutional school prayer. In those cases, the courts held that invocations at school board meetings were not covered by the legislative prayer exception because school board meetings are inextricably linked with the public school system. However, in those cases, the school boards had at least one student member or their meetings were attended by student representatives in their formal role as student government representatives, neither of which was the case in Birdville.

It is not yet clear whether this decision will be appealed to the Supreme Court.

Once issued, the Ninth Circuit’s opinion in Chino Valley will likely set the framework for the legality of invocations at California school board meetings. That ruling, which Lozano Smith is monitoring closely, is anticipated within the next year.

For more information on the Birdville ruling or invocations at school board meetings in general, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Kyle A. Raney

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

California Public Records Act Applies to Private Accounts

March 2017
Number 11

Emails, text messages and other written communications sent to or from a public official’s private account may be subject to disclosure under the California Public Records Act (CPRA), the California Supreme Court ruled unanimously in a highly anticipated decision published on March 2, 2017. (City of San Jose et al. v. Superior Court (March 2, 2017, No. S218066) ___ Cal.5th ___ < http://www.courts.ca.gov/opinions/documents/S218066.PDF>.)

The court held that the public has a right under the CPRA to access texts, emails and other records discussing public business regardless of whether the records were created, received by or stored in a private account. “If public officials could evade the law simply by clicking into a different email account, or communicating through a personal device,” the court wrote, “sensitive information could routinely evade public scrutiny.”

This case had its origin in a 2009 lawsuit against the City of San Jose, its redevelopment agency and several city officials. The plaintiff in that case, a community activist, claimed that the city’s failure to provide certain records regarding a downtown redevelopment project and other city business violated the CPRA. The city had provided certain records, but declined to provide voicemails, emails and text messages that were sent and received by city officials on personal devices using personal accounts. In 2013, a trial court judge ruled against the city, finding that communications sent to or received from city officials regarding public business are public records regardless of what device or account was used to create and deliver them. ( See 2013 Client News Brief No. 17.)

The city appealed the decision, and in 2014, the Sixth District Court of Appeal reversed the decision. The appellate court ruled that the CPRA’s definition of public records as communications “prepared, owned, used, or retained” by a public agency did not include messages sent or received on individual city officials’ and employees’ private devices and accounts. ( See 2014 Client News Brief No. 21.) Distinguishing between a public agency as the holder of public documents and its individual elected officials and employees, the appellate court held that, as a practical matter, the city could not use or retain a message sent from an individual council member’s phone that was not linked to a city server or account. While acknowledging the potential for abuses, the court determined that it is up to the Legislature to decide whether to require public agencies to police officials’ private devices and accounts.

The community activist then appealed to the California Supreme Court, where the case languished for nearly three years before the high court overturned the appellate decision.

In its ruling, the Supreme Court disagreed with the appellate court because records “prepared” on private devices could still qualify as public records. The high court observed that the agency itself is not a person who can create, send and save communications; rather, any such communication would come from or be received by an individual. As such, the city’s elected officials and employees were in essence acting as the city, and to the extent that their emails pertained to city business, they were public records.

The court did narrow the type of records that are subject to disclosure, holding that records containing conversations that are primarily personal in nature are not subject to disclosure under the CPRA. The court also acknowledged that determining whether particular communications constitute public records is a heavily fact-specific process, and decisions must be made on a case-by-case basis. This will create challenges for public agencies as they attempt to follow the reasoning of this decision.

The court also addressed the practical challenges around retrieving records from personal accounts, including ways to limit the potential for invading personal privacy. For guidance, the court offered examples of methods for retrieving records from personal accounts including procedures adopted by federal courts applying the Freedom of Information Act and followed by the Washington Supreme Court under that state’s records law that allow individuals to search their own devices for responsive records when a request is received and to submit an affidavit regarding potentially responsive documents that are withheld. The court also discussed adoption of policies that would prohibit the use of personal accounts for public business, unless messages are copied and forwarded to an official government account. While these methods were offered as examples, the court did not endorse any specific approach.

The opinion did not address a host of other practical issues, such as how public agencies should proceed when employees refuse or fail to provide access to records contained in their private accounts.

The decision means that public agencies must now carefully consider how to retrieve business-related public records that may be located in employees’ and officials’ personal accounts. One approach is to create new policies that address the decision. However, public agencies should consider the implications such policies may have on issues such as collective bargaining, records retention, acceptable use policies and other policies concerning technology.

Lozano Smith attorneys can provide a wide array of CPRA services, including preparing policies to address this opinion, responding to CPRA requests, analyzing documents and assisting in related litigation. Lozano Smith has a model email retention policy, and is in the process of reviewing and updating this and other model policies to reflect the impact of this decision. In order to receive our existing retention policy, which addresses individual employees’ obligations in relation to electronic communications, or to request our upcoming board policy to address the court’s decision, you may also email Harold Freiman at hfreiman@lozanosmith.com or Manuel Martinez at mmartinez@lozanosmith.com. We will also be producing webinars about the City of San Jose case and electronic records under the CPRA.

For more information on the City of San Jose opinion or about the California Public Records Act application to personal technology in general, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Change in Law May Require Shift to Even-Year Elections

February 2017
Number 8

In September 2015, Governor Jerry Brown signed into law Senate Bill (SB) 415. SB 415, which becomes operative on January 1, 2018, prohibits political subdivisions from holding odd-year regular elections if a prior odd-year election resulted in a “significant decrease in voter turnout,” as defined by statute. The new law reflects a policy of encouraging election consolidations to defray election costs and encourage voter participation. It applies only to regular elections and not to special elections.

Specifically, the new law, which is codified at Elections Code sections 14050 et seq., provides that a political subdivision (such as a city, school district, community college district or other district organized pursuant to state law) shall not hold an election other than on a statewide election date if holding an election on a “nonconcurrent date” has previously resulted in a “significant decrease in voter turnout.” “Nonconcurrent dates” are non-statewide election dates such as odd-year board member elections (or “off-cycle” election dates). A “significant decrease in voter turnout” is a voter turnout in a regular election in a political subdivision that is at least 25 percent less than the average voter turnout within that political subdivision for the previous four statewide general elections.

If a political subdivision has experienced such a “significant decrease in voter turnout” and is prohibited from holding future off-cycle elections, it may still hold off-cycle elections through 2021 if, by January 1, 2018, it has adopted a plan to consolidate a future election with a statewide election not later than the November 8, 2022 statewide general election.

In determining when to make the transition, political subdivisions should build in an administrative time buffer. In order to consolidate a currently-scheduled election into a general election, cities will need to enact an ordinance and seek approval from their county board of supervisors, among other requirements. Likewise, certain other categories of political subdivisions that wish to consolidate a currently-scheduled legislative body member election will need to adopt a resolution, seek approval from their county board of supervisors and comply with other statutory preconditions. Elections Code sections 10404 and 10404.5 provide that such a resolution must be adopted and submitted for approval no later than 240 days prior to the date of the currently-scheduled election. For an election scheduled in November 2017, the deadline for such actions would be March 13, 2017.

Political subdivisions should also consider the short-term effects of the transition. School districts, for example, which may now be able to hold Proposition 39 bond measure elections on an annual basis, will be limited to holding such elections once every two years once they transition to even-year election cycles. Political subdivisions should also be aware that consolidating elections to move them from odd to even years may affect the duration of their officers’ or board members’ terms. Consolidating school board elections, for example, will result in extending terms for current board members by one year.

A political subdivision that holds an odd-year election after January 1, 2018 without first adopting a transition plan can be sued by a voter within the political subdivision and compelled to comply with SB 415. If the voter prevails, the political subdivision will be liable for attorney’s fees and litigation expenses.

Lozano Smith has assisted political subdivisions with applying the 25 percent rule of SB 415 and with the mechanics of transitioning to even-year election cycles. If you have questions about compliance with SB 415 or any other issues impacting school districts and other local government entities, please contact an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Steven Nunes

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

County Boards of Education May Not Exempt Charter Schools from Local Zoning Regulations

February 2017
Number 7

A California Court of Appeal has held that a county board of education may not grant exemptions from zoning ordinances under Government Code section 53094. ( San Jose Unified School District v. Santa Clara County Office of
Education
(Jan 24, 2017, No. H041088) ___ Cal.App.5th ___ < http://www.courts. ca.gov/opinions/documents/H041088.PDF >.) Specifically, county boards may not exempt the charter schools they authorize from zoning ordinances. School districts have this power; county boards do not.

The Santa Clara County Office of Education granted Rocketship Education (“Rocketship”) a countywide charter to operate up to 25 charter elementary schools within the county. Rocketship proposed to locate one of its elementary schools on property that was owned by the City of San Jose (“City”) and not zoned for school use. The proposed property was located within the jurisdiction of the San Jose Unified School District (“District”), but was zoned only for open space, parklands and habitat. Because the City’s General Plan prohibited operating a school on the property, the Santa Clara County Board of Education granted Rocketship an exemption to the City’s zoning ordinance under Government Code section 53094.

Under the language of Government Code section 53094, subdivision (b), only the “governing board of a school district” may grant zoning exemptions. The San Jose Unified School District and a local property owner filed separate petitions for writs of mandate seeking to invalidate the exemption. They argued that county boards of education are not school district governing boards, and lack authority to exempt property from local zoning laws. The trial court granted the District’s writ petition and ordered the County Office of Education to rescind Rocketship’s zoning exemption – thus leaving Rocketship without a school site.

The Court of Appeal upheld the trial court’s decision. In reaching its conclusion, the appellate court relied on the legislative history of section 53094, which was enacted in response to the decisions inHall v. City of Taft (1956) 47 Cal.2d 177 andTown of Atherton v. Superior Court (1958) 159 Cal.App.2d 417.Hall and Atherton generally held that school districts engage in sovereign activities of the state when they design and construct school facilities, and therefore are not required to comply with local zoning ordinances in designating school locations. These cases, however, unwittingly immunized a large number of state agencies from local regulation, and section 53094 was passed to narrow this exemption authority specifically to local school districts.

The court noted that, although county offices of education have authority to grant charter petitions and oversee charter schools, it is local school districts that are obligated to provide charter school facilities under Proposition 39 (Ed. Code, § 47614, subd. (b).) Because a county office of education does not bear responsibility to acquire sites for charter schools, it does not perform a sovereign activity on behalf of the state if it chooses to do so. This is because the state has tasked districts, not county offices of education, with such responsibility. Therefore, empowering county boards of education to issue zoning exemptions would not advance section 53094’s purpose – namely, preventing local interference with the state’s sovereign activities.

While each charter school’s situation is unique, this decision will likely impact the siting of county-authorized charter schools and require increased collaboration between government entities when zoning serves as an impediment to locating a charter school facility.

For more information on the San Jose Unified School District opinion or the Charter Schools Act, please contact the authors of this Client News Brief or an attorney in Lozano Smith’s Charter School Practice Group or at one of our nine offices located statewide. You can also visit our website , follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Edward Sklar

Partner

Erin Hamor

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.