Food & Water Watch v. Metro. Water Dist. of S. Cal.

FOOD & WATER WATCH et al., Plaintiffs and Appellants, v. METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA et al., Defendants and Respondents.

B297553

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION THREE

March 17, 2021

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(a). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115(a).

Los Angeles County Super. Ct. No. BC720692

APPEAL from a judgment of the Superior Court of Los Angeles County, Randolph M. Hammock, Judge. Affirmed.

Law Office of Adam Keats, Adam Keats; Law Office of Roger B. Moore and Roger B. Moore for Plaintiffs and Appellants.

Hanson Bridgett, Adam W. Hofmann; Marcia Scully and Patricia J. Quilizapa for Defendant and Respondent Metropolitan Water District of Southern California.

Procopio, Cory, Hargreaves & Savitch, Gregory V. Moser and P. Jacob Kozaczuk; Mark J. Hattam for Respondent San Diego County Water Authority.

____________________

INTRODUCTION

Food & Water Watch and Center for Food Safety (collectively, plaintiffs) are non-profit organizations who brought this reverse validation action challenging two resolutions adopted by Metropolitan Water District of Southern California (Metropolitan) concerning the agency's plan to purchase an interest in and help finance the since abandoned "California Waterfix" project. In the operative first amended complaint, plaintiffs assert the resolutions violate Propositions 13 and 26, as well as Metropolitan's contract with the State Water Project, because the resolutions might in the future require Metropolitan to raise water rates and property taxes without voter approval. Plaintiffs also assert the resolutions exceed the limits on Metropolitan's authority under the agency's District Act (Wat. Code Appen., § 109 et seq.) and the Joint Exercise of Powers Act (Gov. Code, § 6500 et seq.).

Plaintiffs appeal from a judgment of dismissal entered after the trial court sustained without leave to amend Metropolitan's and San Diego County Water Authority's (SDCWA) demurrers to the first amended complaint.¹ We affirm.

FACTS AND PROCEDURAL BACKGROUND

1. The Challenged Resolutions

In mid-2018, the California Department of Water Resources (DWR) planned to construct the Waterfix project (Project), which would create new intakes on the east bank of the Sacramento River in the northern California Delta, new tunnels connecting those intakes to a new forebay, and two new 30-mile tunnels carrying water from that forebay to a new waterpumping plant. Various water contractors throughout California had subscribed to about 67 percent of the Project's anticipated capacity. Metropolitan planned to purchase the Project's unsubscribed capacity interest.

In July 2018, Metropolitan's board of directors adopted Resolutions 9243 and 9244 (collectively, Resolutions). Resolution 9243 authorized Metropolitan to enter into a master agreement with DWR and a joint powers authority formed by Metropolitan (Capacity Interest JPA) to purchase the unsubscribed capacity interest in the Project. As part of the agreement, the Capacity Interest JPA would make payments to DWR to fund the Project's construction. To finance its payments to DWR, the Capacity Interest JPA would issue "one or more series of revenue bonds."

Metropolitan, in turn, would enter into an "installment purchase agreement" with the Capacity Interest JPA through which the joint powers authority would transfer its interest in the Project to Metropolitan in exchange for a series of installment payments. Metropolitan would secure its obligation to the Capacity Interest JPA through a lien on the agency's water revenues. As part of the resolution, Metropolitan could sell the unsubscribed capacity interest to other water agencies.

Resolution 9243 also authorized Metropolitan's general manager "to do any and all things necessary" to make arrangements for the purchase of the Project's unsubscribed capacity interest and to "negotiate, execute, and deliver[] one or more agreements and documents necessary or advisable to carry into effect" the purchase. The resolution precluded Metropolitan from entering into any agreement that would commit the agency to pay for more than 64.6 percent of the Project's estimated costs.

Resolution 9244 authorized Metropolitan to participate in the formation of a "Financing JPA" with other water agencies that agreed to help finance the Project. The Financing JPA couldissue its own bonds and help DWR issue bonds to finance the Project. To protect purchasers of DWR's bonds, the participating water agencies could directly purchase DWR's bonds or other property or enter into one or more debt service agreements. If DWR defaulted on its payment of debt service on its bonds, DWR would agree to transfer to the Financing JPA, or to another designated entity, DWR's right, title, and interest in the Project.

Resolution 9244 also authorized Metropolitan to invest in certain DWR bonds. The resolution granted Metropolitan's general manager the authority "do any and all things necessary" to effectuate the agency's participation in the Financing JPA, including negotiating, executing and delivering any necessary agreements.

2. The Lawsuit

In early September 2018, plaintiffs filed a reverse validation action against Metropolitan under Code of Civil Procedure section 860 et seq. and Government Code section 53511 challenging the validity of the Resolutions. In the operative first amended complaint, plaintiffs complain that the Resolutions authorize Metropolitan to incur exorbitant debt which may exceed the estimated costs of the Project and that Metropolitan may have no lawful means of repaying in the future. One reason the costs may exceed expectations, plaintiffs claim, is because Metropolitan had yet to execute any master agreements relating to the purchase of the Project's unsubscribed capacity.

The gravamen of plaintiffs' claims boils down to this: (1) Metropolitan may raise its water rates and property taxes in the future to ensure the agency has sufficient revenue to secure any debt related to its purchase of an interest in the Project; and (2) Metropolitan may raise its rates and increase property taxes without first obtaining voter approval in violation of Propositions13 and 26. Plaintiffs do not allege, however, that Metropolitan has imposed, let alone approved, any water rate or property tax increases as a result of the Resolutions. Nor do the Resolutions, which are attached to the first amended complaint, mention any plan by Metropolitan to increase water rates or property taxes.

The operative first amended complaint asserts four causes of action. The first cause of action seeks to invalidate the Resolutions on the ground that they violate Proposition 26. Specifically, plaintiffs allege the Resolutions are unlawful because they authorize Metropolitan's general manager to raise water rates in the future without first obtaining voter approval. The second cause of action states a similar claim: the Resolutions authorize the agency's general manager to increase property taxes in the future without voter approval in violation of Proposition 13. The third cause of action alleges the Resolutions authorize property tax increases and "issuance of charges that may be prohibited" by Metropolitan's contract with the State Water Project. Finally, the fourth cause of action alleges—without specifying how—the Resolutions authorize Metropolitan to engage in conduct that exceeds the limits on its authority under the District Act and the Joint Exercise of Powers Act.

Metropolitan demurred to the entire first amended complaint, and SDCWA demurred to the pleading's first cause of action.² The court sustained both demurrers without leave to amend.

As to the first and second causes of action, the court found the claims were not ripe. Specifically, the court found theResolutions establish only a framework through which Metropolitan could in the future increase water rates or property taxes. Plaintiffs did not allege, however, that Metropolitan approved or enacted any water rate or property tax increase without voter approval. Thus, plaintiffs failed to state a claim for violation of Proposition 13 or 26.

As to the third cause of action, the court found plaintiffs failed to plead a breach of Metropolitan's contract with the State Water Project. Specifically, plaintiffs did not allege Metropolitan assessed any taxes, imposed any charges, or issued any bonds in a manner that would violate the contract. And finally, for the fourth cause of action, the court found plaintiffs failed to plead with sufficient specificity the applicable statutory sections and manner of violations that form the basis of their claim.

In April 2019, the court entered a judgment dismissing plaintiffs' lawsuit. Plaintiffs timely appealed.

3. DWR Abandons the Project

In early May 2019, DWR's director rescinded the agency's approval of the Project. A few days later, DWR approved a resolution rescinding all of its prior authorizations to issue bonds to fund the Project.

In June 2019, at a meeting of Metropolitan's board of directors, Metropolitan's general manager stated that the Resolutions were "void" and "mooted" by DWR's decision to nix the Project since the Resolutions only authorized him to negotiate and execute agreements related to the Project. The general manager informed the board that it would have to issue new authorizations before Metropolitan could participate in, and spend money related to, any new project proposed by DWR.

In December 2020, Metropolitan staff prepared a letter advising the agency's board of directors to approve funding for DWR's new, single-tunnel project to convey water from theCalifornia Delta. That same month, Metropolitan's board of...