Justice Marla Miller affirms 6 of 7 causes of action in lease-leaseback contract lawsuit

By Pam Wright | Jun 13, 2017

SAN FRANCISCO – The California First District Court of Appeal agreed with six of seven causes of action in rulings by the Fourth District Court of Appeal and the Second District Court of Appeal rulings in a lawsuit filed by the California Taxpayers Action Network against the Mt. Diablo Unified School District.

The court affirmed the dismissal of six of the seven causes of action on the grounds that the lease-leaseback statutes are exempt from the competitive bidding requirements.

According to court documents, California Education Code Section 17406 authorizes school districts to use lease-leaseback agreements in contracting for construction or improvement of school facilities.

Under a lease-leaseback agreement, a school district leases its own property to a contractor for a nominal amount, and the contractor agrees to construct school facilities or improve existing facilities on the property and lease the property and improvements back to the school district.

The California Taxpayers Action Network filed a lawsuit challenging the $14 million lease-leaseback agreement with Taber Construction for heating, ventilation and air-conditioning work at eight schools.

Justice Marla J. Miller said in the appellate court’s opinion that the language of Education Code Section 17406 stipulated that the lease-leaseback project delivery method could be procured "without advertising for bids," and that the competitive bidding requirements found in Education Code Section 17417 were inapplicable because Section 17406 begins with the phrase "notwithstanding section 17417."

The court also determined that the lease-leaseback arrangements were exempted from the competitive bidding process under the education code.

The court noted that the lower courts’ rulings were consistent with decisions in three other lease-leaseback challenges that made it clear that the only requirements under the lease-leaseback statute was that the school district leases property it owns to the contractor, the contractor agrees to construct buildings for the school district’s use and lease the property and buildings to the school district and at the end of the lease, the titles to the property and buildings vest in the district.

The court, however, also reversed a conflict of interest cause of action by rejecting the contractor’s argument that a taxpayer association lacked standing to bring a conflict of interest cause of action. The court ruled based on several rulings that have allowed third parties to file suit for conflict of interest.

The court also found that the challenger alleged that the contractor performed the functions of an officer or employee of the school district and "was in a position to advise and provide considerable influence on the school district board and staff as to the actions the school district should take on the project.”

"Under Davis, McGee, HUB City, and Hanover, these allegations are sufficient to state a claim of conflict of interest,” Miller said in the decision.

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First District Court of Appeal California Mt. Diablo Unified School District

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