Macy v. City of Fontana

Filed 3/23/16 Unmodified opinion attached
CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

VIRGINIA MACY et al., D068508

Plaintiffs and Appellants,

v. (Super. Ct. No. CIVDS1107686)

THE CITY OF FONTANA,
ORDER MODIFYING OPINION
Defendant and Respondent;
[NO CHANGE IN JUDGMENT]
TEN-NINETY, LTD.,

Real Party in Interest and Respondent.

THE COURT

It is ordered that the opinion filed herein on February 23, 2016 be modified as
follows:

On page 14, the first paragraph of section III, beginning with "Finally, we must
reject plaintiffs' contention," is replaced with the following paragraph:

Finally, we must reject plaintiffs' contention the city's role as
a party to the OPA and, under its terms, a recipient of tax
increment funds, makes the city responsible for the agency's
past failures to meet its low- and moderate-income housing
obligations. As plaintiffs point out, under the 1992
amendment to the OPA, which made the city a party to the
OPA, the city warranted and covenanted that the agency had
met its low- and moderate-income housing obligations under
the CRL, and the parties agreed that an amount equal to 35
 percent of the agency's tax increment revenues pledged and
payable to Ten-Ninety would be paid into a fiscal agent
account owned and controlled by Ten-Ninety and thence to
the city as compensation for negative fiscal impacts which
development by Ten-Ninety had on the city. As we have
indicated, these provisions were the subject of a successful
validation proceeding under Code of Civil Procedure section
860.

THERE IS NO CHANGE IN JUDGMENT

BENKE, Acting P. J.

Copies to: All parties

2
Filed 2/23/16 Unmodified opinion
CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

VIRGINIA MACY et al., D068508

Plaintiffs and Appellants,

v. (Super. Ct. No. CIVDS1107686)

THE CITY OF FONTANA,

Defendant and Respondent;

TEN-NINETY, LTD.,

Real Party in Interest and Respondent.

APPEAL from a judgment of the Superior Court of San Bernardino County, David

S. Cohn, Judge. Affirmed.

Western Center on Law and Poverty, S. Lynn Martinez, Richard A. Rothschild,

Stephanie E. Haffner, Sue L. Himmelrich, Maria Eugenie Palomares; The Public Interest

Law Project, Deborah Collins and Michael Rawson for Plaintiffs and Appellants.

Best Best & Krieger, Victor L. Wolf, Danielle G. Sakai and Kevin J. Abbott for

Defendant and Respondent.
 No appearance for Real Party in Interest and Respondent.

In 2011, the Legislature adopted legislation, which as of June 29, 2011, dissolved

the redevelopment agencies (RA's) that had been formed by municipalities throughout the

state under the provisions of the Community Redevelopment Law (Health & Saf. Code,1

§ 33000 et seq.; hereafter CRL). (See § 34170; see also Assem. Bill No. 26 (2011-2012

1st Ex. Session); hereafter AB 26.) Before their dissolution, the operations of RA's were

funded by way of so-called "tax increment" financing.

AB 26 provided a fairly detailed scheme for winding down the operations of RA's,

distributing their assets, and resolving claims against them. In particular, AB 26 created

successor agencies that were given responsibility over certain obligations of each

dissolved RA. Importantly, under the dissolution legislation, the liability of successor

agencies was limited to the value of the assets those agencies received from their

respective predecessor RA's.

Shortly before the Legislature dissolved RA's, plaintiffs and appellants Virginia

Macy, a low-income resident of the city; Libreria Del Pueblo, Inc.; and California

Partnership (collectively plaintiffs) filed a petition for a writ of mandate against the

Fontana Redevelopment Agency (the agency), alleging the agency failed to provide the

low- and moderate-income housing required under the CRL. Plaintiffs asked for relief in

the form of the payment of $27 million into the agency's low- and moderate-income

housing fund (LMIHF).

1 All further statutory references are to the Health and Safety Code unless otherwise
indicated.
2
 After enactment of AB 26, plaintiffs amended their petition and added defendant

and respondent City of Fontana (the city), initially in its role as the successor agency

provided by AB 26, and later also in its separate capacity as a municipal corporation. In

its capacity as a municipal corporation, the city filed a demurrer to the petition, arguing

that under AB 26 only a successor agency may be held liable for the preexisting

obligations of an RA. The trial court sustained the demurrer without leave to amend.

We affirm. Under the scheme adopted by the Legislature under AB 26, the

liabilities of dissolved RA's are limited to the assets transferred to successor agencies.

There is nothing in AB 26, or later amendments to the dissolution legislation, that would

extend that liability beyond an RA's assets to municipalities and their general funds. As

we explain, the low- and moderate-income housing liabilities plaintiffs seek to enforce

arose under the CRL and were calculated as a percentage of tax increment funds collected

by RA's; prior to dissolution of RA's, those liabilities were never the liabilities of

municipalities and their general funds. An extension of RA statutory liabilities to

municipalities and their general funds would require a very clear expression of the

Legislature's intention to depart from the historical treatment of low- and moderate-

income housing obligations; no such expression appears in AB 26 or later amendments to

the dissolution legislation.

Contrary to plaintiffs' argument on appeal, neither the city's control over the

agency, nor a 1992 agreement the city made with the agency and a developer with respect

to distribution of its tax increment revenue, will support a claim against the city in its

3
municipal capacity. Although the city controlled the agency, the city's control did not

make the city and its general fund liable for the agency's obligations with respect to

disposition of tax increment revenue. Admittedly, under the terms of the 1992

agreement, the city received a percentage of the agency's tax increment revenue, and in

light of the agency's obligations to its LMIHF, arguably those payments to the city were

improper. However, the agreement was subject to a successful validation proceeding

brought by the agency, which, as we explain, foreclosed any claims against the city with

respect to tax increment funds it received under the agreement.

FACTUAL AND PROCEDURAL BACKGROUND

A. 1992 OPA

Since 1976, the CRL has required that RA's use 20 percent of their revenue in

support of low- and moderate-income housing. (Fontana Redevelopment Agency v.

Torres (2007) 153 Cal.App.4th 902, 906 (Fontana I); see § 33334.2 et seq.) As fully set

forth in the court's opinion in Fontana I, for a number of years the agency failed to meet

the low- and moderate-income housing obligations imposed on it under the CRL. (Id. at

pp. 914-915.)

In substantial measure, this failure grew out of the agency's agreement to pay its

tax increment revenue to a developer, who was the predecessor in interest of real party in

interest, Ten-Ninety, Ltd. (Ten-Ninety). The agency agreed to pay its tax increment

revenues to Ten-Ninety in exchange for capital and construction financing Ten-Ninety

provided for the completion of infrastructure improvements needed for development of

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8,800 housing units and related commercial and other use facilities. (Fontana I, supra,

153 Cal.App.4th at p. 906.) The agreement with Ten-Ninety was called an Owner

Participation Agreement (OPA) and, in addition to the agency and Ten-Ninety, by way of

amendment, the city became a party to the OPA in 1992.

Under the amended OPA, the agency agreed that its tax increment revenues would

be paid to a fiscal agent and that the fiscal agent would pay 65 percent of the revenues to

Ten-Ninety and 35 percent of the revenues to the agency and the city. The amended

OPA stated that the infrastructure Ten-Ninety financed would support the development of

low- and moderate-income housing and that the agency's payments to Ten-Ninety thereby

met the agency's low- and moderate-income housing obligations under the CRL. The

amended OPA further stated that the payments the city received under the amended OPA

were compensation to the city for fiscal costs the city incurred as a result of Ten-Ninety's

development within the city. Importantly, the agency and the city brought a validation

action under Code of Civil Procedure section 860 with respect to the amended OPA, and

a final judgment finding that the amended agreement was valid was entered.

B. Fontana I

In 1992, the Legislature amended section 33334.2 and expressly required that

funds for low- and moderate-income housing be used for improvements if "the

improvements are made as part of a program which results in the new construction or

rehabilitation of affordable housing units for low[-] or moderate-income persons that are

directly benefited by the improvement or . . . the agency finds that the improvements are

5
necessary to eliminate a specific conditions that jeopardizes the health or safety of

existing low[-] or moderate-income residents." (Italics added.)2

In 2001, the State Department of Housing and Community Development (the

department) performed an audit of the agency's programs, including in particular its

compliance with the CRL's low- and moderate-income housing obligations. The

department's audit found that the agency needed to reimburse two of its LMIHF's a total

of $67 million. (See Fontana I, 153 Cal.App.4th at p. 907.) Following the department's

audit, the agency and the department entered into a settlement agreement under which the

agency agreed to pay $6.1 million into one of its LMIHF's. (Ibid.)

At the time of the settlement agreement, the agency also approved the issuance of

tax allocation bonds totaling $40 million. The agency planned to issue the proceeds of

the bonds as a means of meeting its obligations to Ten-Ninety.

The agency brought a validation proceeding in which it sought validation of both

its settlement agreement with the department and issuance of the bonds. In Fontana I, a

low-income resident of the city and a nonprofit community organization, Libreria Del

Pueblo, Inc. (Libreria), challenged the validation, and, on appeal, they were successful.

The court found that the settlement agreement with the department was not subject to

validation under Code of Civil Procedure section 860 and that the bond issue was invalid

because, if the bonds were issued, the agency would exceed debt limitations it had

adopted. (Fontana I, supra, 153 Cal.App.4th at pp. 910-913.) In the alternative, the

2 The amendment became effective on January 1, 1993. (See Stats. 1992, ch. 1356,
§ 8.)
6
court found the bonds were unlawful because they would perpetuate the agency's failure

to meet its low- and moderate-income housing obligations. (Id. at pp. 913-914.) The

court noted the defendants were not challenging the validity of prior implementation

plans the agency had adopted, the OPA, or any amendment of the OPA. (Id. at p. 913.)

However, the court found that the defendants in Fontana I could challenge the validity of

the agency's new effort, by way of the settlement agreement with the department and the

issuance of new bonds, to perpetuate its past unlawful practices. (Id. at pp. 913-914.)

The court stated: "What the record inescapably demonstrates is [the agency's] lack of

compliance with the required 20 percent contribution for affordable housing since

1987. . . . Although defendants may not be able to challenge earlier actions by [the

agency], they should be able to curtail this most recent effort to evade the statutory

obligation to provide and promote affordable housing." (Id. at p. 914.)

C. These Proceedings

On June 21, 2011, plaintiffs filed a petition for a writ of mandate in which they

alleged that the agency was continuing its practice of failing to use 20 percent of its tax

increment revenues in support of low- and moderate-income housing, as required by

section 33334.2 et seq. Plaintiffs alleged that between 2001 and 2010, the agency had

failed to pay into its LMIHF a total of $26 million otherwise required by section 33334.2

AB 26 became effective as of June 29, 2011. Under its terms, no new RA's could

be created, and, as we indicated, it provided a detailed scheme for winding down the

activities of existing RA's. In short, it provided that, other than an RA's' housing assets,

7
all assets and liabilities of individual RA's would be assumed by individual "successor

agencies" and that the RA's housing assets would be assumed by individual "housing

successors." AB 26 gave any municipality that created an RA the option of becoming

either the RA' s "successor agency," "housing successor," or both; AB 26 also permitted

local housing authority to become "housing successors." Significantly, AB 26,

discontinued as of June 29, 2011, the obligation of RA's and their successors to pay 20

percent of their tax increment revenue in support of low- and moderate-income housing.

(§§ 34163, subd. (c)(4), 34176, subd. (d), 34176.1.)

Following adoption of AB 26, the city elected to become the agency's successor

agency; because the city was not willing to do so, the Fontana Housing Authority

(housing authority) became the agency's housing successor. In light of the city's election,

plaintiffs amended their petition to add the city as a defendant in its capacity as the

agency's successor agency and the housing authority as housing successor. As we

indicated at the outset, later plaintiffs amended their petition to add the city in its capacity

as a municipal corporation. Plaintiffs alleged that under the amended OPA the city had

assumed responsibility for the agency's compliance with the CRL and further that it had

unlawfully received and continued to unlawfully receive tax increment revenues.

The city, in its capacity as a municipal corporation, demurred to the complaint,

and its demurrer was sustained without leave to amend. A judgment of dismissal was

entered in the city's favor, and plaintiffs filed a timely notice of appeal.3

3 The city and the housing authority in their successor capacities also filed
demurrers to the plaintiffs' petition on the grounds it was barred by provisions of AB 26.
8
 DISCUSSION

I

Contrary to plaintiffs' suggestion on appeal, nothing in the CRL itself makes a

municipality, such the city, responsible for the obligations of an RA. (See Pacific States

Enterprises, Inc. v. City of Coachella (1993) 13 Cal.App.4th 1414, 1424-1425 (Pacific

States Enterprises).) In Pacific States Enterprises, a developer sued a city alleging

breach of contract by the city's RA. In affirming an order sustaining the city's demurrer

without leave to amend, we stated: "Redevelopment agencies are governmental entities

which exist by virtue of state law and are separate and distinct from the communities in

which they exist. Health and Safety Code section 33100 states: 'There is in each

community a public body, corporate and politic, known as the redevelopment agency of

the community.' Health and Safety Code section 33125 states: 'An agency may: (a) Sue

and be sued. . . . (c) Make and execute contracts and other instruments necessary or

convenient to the exercise of its powers.' [¶] . . . [¶]

"Well-established and well-recognized case law holds that the mere fact that the

same body of officers acts as the legislative body of two different governmental entities

does not mean that the two different governmental entities are, in actuality, one and the

same. [Citations.] This principle was perhaps stated most succinctly in the County of

L.A. v. Continental Corp. [(1952) 113 Cal.App.2d 207] opinion: 'Thus, the Board of

The trial court overruled their demurrers, and we denied the agency and the city's petition
for a writ of mandate, although we noted that there are substantial obstacles to the relief
the plaintiffs seek.
9
Supervisors of the Los Angeles County Flood Control District [which is comprised of the

same legislative body of persons as the Board of Supervisors of the County of Los

Angeles], when acting as such, are not county officers, but state officers, and any action

taken by such board is not action by the Board of Supervisors of the County of Los

Angeles, as such, or of the county of Los Angeles.' (113 Cal.App.2d at p. 220; bracketed

material added.)

"Thus, . . . the legislative body which exercises local governmental power within a

given jurisdictional territory (a community) may, if it so chooses, also exercise the

powers of the redevelopment agency in that territory. But: When a 'dual capacity

legislative body' acts as the governing board of a redevelopment agency, it is the

redevelopment agency which is acting by and through that legislative body; and when

that same legislative body acts as the governing body of the 'community' (i.e., city) over

which it exercises local governmental powers, it is the 'community' which is acting by

and through that legislative body. The redevelopment agency and the 'community' are

not one and the same governmental entity. The redevelopment agency, by state law,

exists 'in each community' with certain limited powers and functions (Health & Saf.

Code, §§ 33020, 33100, 33120)--it is not the same entity as the community within which

it exists. The mischief which would be done if it were otherwise is apparent. As argued

by the City in its respondent's brief: 'Permitting a damages suit against the City for an

alleged breach of contract by the Redevelopment Agency is as improper as allowing a

redevelopment agency to take [city] funds earmarked for welfare assistance and spend it

10
on a new commercial development.' Although the City's hypothetical example may be a

bit extreme, we agree in principle with the concern which it highlights." (Pacific States

Enterprises, supra, 13 Cal.App.4th at pp. 1424-1425, fn. omitted.)

The holding of Pacific States Enterprises with respect to an RA's contractual

liability applies to its statutory responsibilities as well. An RA and a municipality may,

as here, have the same governing body; however, given their separate identities and

liabilities, the statutory duties imposed on the RA may not be ascribed to the

municipality.4

In this regard, we note that the low- and moderate-income housing obligation of

RA's was defined as a percentage of tax increment revenues received by RA's.

(§ 33334.2.) Plainly, given this definition, this obligation was never considered one

imposed on a city's general fund.

II5

We also reject plaintiffs' suggestion that the city may be held liable under AB 26

and related legislation for the agency's low- and moderate-income housing obligations.

4 Although plaintiffs rely on the holding in Nolan v. Redevelopment Agency (1981)
117 Cal.App.3d 494, 498, in Pacific States Enterprises we expressly rejected Nolan.
(Pacific States Enterprises, supra, 13 Cal.App.4th at pp. 1424-1425.) We see no reason
to depart from our holding in Pacific States Enterprises or its rejection of Nolan.

5 We grant in their entirety plaintiffs' and the city's requests for judicial notice of
city ordinances, agency agreements, earlier validation proceedings and AB 26 as
approved by the Legislature and signed by the Governor. (Evid. Code, §§ 451, subd. (a),
452, subds. (c) & (d), 459.)

11
 AB 26 was enacted in 2011 in the midst of a state and local fiscal crisis

engendered by the economic recession that had commenced in 2008. (AB 26, § 1.)6 By

6 AB 26, section 1 states: "SECTION 1. The Legislature finds and declares all of
the following:
"(a) The economy and the residents of this state are slowly recovering from the
worst recession since the Great Depression.
"(b) State and local governments are still facing incredibly significant declines in
revenues and increased need for core governmental services.
"(c) Local governments across this state continue to confront difficult choices and
have had to reduce fire and police protection among other services.
"(d) Schools have faced reductions in funding that have caused school districts to
increase class size and layoff teachers, as well as make other hurtful cuts.
"(e) Redevelopment agencies have expanded over the years in this
state. The expansion of redevelopment agencies has increasingly shifted property taxes
away from services provided to schools, counties, special districts, and cities.
"(f) Redevelopment agencies take in approximately 12 percent of all
of the property taxes collected across this state.
"(g) It is estimated that under current law, redevelopment agencies
will divert $5 billion in property tax revenue from other taxing
agencies in the 2011-12 fiscal year.
"(h) The Legislature has all legislative power not explicitly restricted to it. The
California Constitution does not require that redevelopment agencies must exist and,
unlike other entities such as counties, does not limit the Legislature's control over that
existence. Redevelopment agencies were created by statute and can
therefore be dissolved by statute.
"(i) Upon their dissolution, any property taxes that would have been allocated to
redevelopment agencies will no longer be deemed tax increment. Instead, those taxes will
be deemed property tax revenues and will be allocated first to successor agencies to make
payments on the indebtedness incurred by the dissolved redevelopment agencies,
with remaining balances allocated in accordance with applicable
constitutional and statutory provisions.
"(j) It is the intent of the Legislature to do all of the following
in this act:
"(1) Bar existing redevelopment agencies from incurring new
obligations, prior to their dissolution.
"(2) Allocate property tax revenues to successor agencies for
making payments on indebtedness incurred by the redevelopment agency
prior to its dissolution and allocate remaining balances in accordance with applicable
constitutional and statutory provisions.
"(3) Beginning October 1, 2011, allocate these funds according to the existing
12
its terms, AB 26 was enacted as means of alleviating that crisis by dissolving RA's and

transferring to municipalities, school districts and community college districts, the

property tax increment revenue RA's would otherwise collect and devote to

redevelopment activities. (AB 26, § 1.) In particular, in enacting AB 26, the Legislature

expressly set forth its intent to "[a]llocate property tax revenues to successor agencies for

making payments on indebtedness incurred by the redevelopment agency prior to its

dissolution and allocate remaining balances in accordance with applicable constitutional

and statutory provisions." (AB 26, § 1, subd. (j)(2).) As we have indicated, among other

matters, AB 26 discontinued the requirement that agencies and their successors provide

support for low- and moderate-income housing. (§§ 34163, subd. (c)(4), 34176, subd.

(d), 34176.1.) Nothing on the face of AB 26 itself imposes on municipalities any liability

with respect to a dissolved RA's pre-existing low- and moderate-income housing

obligations; under AB 26, only successor agencies have such responsibility and then only

to the extent they have received funds from a dissolved RA. (See AB 26, § 1, subd.

(j)(2).)

In 2012, in follow-up legislation, the Legislature adopted and the Governor signed

AB 1484. As the city points out, AB 1484 was enacted as a means of assuring that assets

property tax allocation within each county to make the funds available for cities,
counties, special districts, and school and community college districts.
"(4) Require successor agencies to expeditiously wind down the affairs of the
dissolved redevelopment agencies and to provide the successor agencies with limited
authority that extends only to the extent needed to implement a winddown of
redevelopment agency affairs."

13
and income successor agencies received from dissolved RA's were in fact distributed to

all the local agencies,—e.g., school districts and community college districts—the

Legislature intended as recipients of the funds. In this regard, AB 1484 subjected

successor agencies and municipalities acting as successor agencies to an audit procedure

and, for purposes of conducting such audits, defined cities and counties as including

agencies it controlled. (§ 34167.10.) The audit procedures to which the expanded

definition of cities set forth in section 34167.10 applies do not expressly or by

implication expand the liability of municipalities; rather, as the city contends, the

expanded definition is simply a procedural device that gives the required audits necessary

breadth.

In sum, AB 26 and AB 1484 do not lend themselves to an interpretation under

which municipalities, although among the local agencies intended to benefit from

dissolution of RA's, would have their liabilities expanded beyond the assets transferred to

them when acting as successor agencies. Given that the expressed intention of AB 26

was to assist local municipalities in meeting their fiscal needs in a time of economic

crisis, it would be incongruous to interpret either AB 26 or AB 1484 in a manner that

expanded their liability to include responsibility for low- and moderate-income housing

obligations that had never previously been imposed on them.

III

Finally, we must reject plaintiffs' contention the city's role as a party to the OPA

and, under its terms, a recipient of tax increment funds, makes the city responsible for the

14
agency's past failures to meet its low- and moderate-income housing obligations.

As plaintiffs point out, under the 1992 amendment to the OPA, which made the city a

party to the OPA, the city warranted and covenanted that the agency had met its low- and

moderate-income housing obligations under the CRL, and the parties agreed that 35

percent of the agency's tax increment revenues would be paid into an account controlled

by the city as compensation for fiscal impacts development by Ten-Ninety had on the

city. As we have indicated, these provisions were the subject of a successful validation

proceeding under Code of Civil Procedure section 860.

As the city points out, the validation judgment forecloses any claims that attack

the validity of the OPA or its terms. Code of Civil Procedure section 870 provides in

pertinent part that a validation judgment "if no appeal is taken, or if taken and the

judgment is affirmed, shall, notwithstanding any other provision of law including,

without limitation, Sections 473 and 473.5, thereupon become and thereafter be forever

binding and conclusive, as to all matters therein adjudicated or which at that time could

have been adjudicated, against the agency and against all other persons, and the

judgment shall permanently enjoin the institution by any person of any action or

proceeding raising any issue as to which the judgment is binding and conclusive."

(Italics added.) "A validation action implements important policy considerations. '[A]

central theme in the validating procedures is speedy determination of the validity of the

public agency's action.' [Citation.] 'The text of section 870 and cases which have

interpreted the validation statutes have placed great importance on the need for a single

15
dispositive final judgment.' [Citation.] The validating statutes should be construed so as

to uphold their purpose, i.e., 'the acting agency's need to settle promptly all questions

about the validity of its action.' [Citation.]" (Friedland v. City of Long Beach (1998) 62

Cal.App.4th 835, 842)

Here, the central premise of the city's participation in the OPA is the agreement's

affirmation that the agency was meeting its obligations under the CRL and that it was

lawful to distribute the agency's tax increment funds to Ten-Ninety and the city. The

central premise of plaintiffs' claims is, of course, their assertion that the agency was not

meeting its obligations under the CRL and that its distributions to Ten-Ninety and the city

were not lawful. By obtaining the validation judgment, the city protected itself, as well

as the agency and Ten-Ninety, from precisely the claims that plaintiffs' now assert arise

under and by virtue of the agreement.

We recognize the amended version of the OPA expressly requires that the city and

the agency do nothing that adversely impacts Ten-Ninety's right to receive the pledged

tax increment revenue, unless ordered to do so by way of a final order in any action

challenging the validity of the OPA. This covenant and condition is part of a provision

which further requires that the agency cooperate with Ten-Ninety in "asserting all legal

and equitable defenses available to any such action." In simply recognizing the

possibility the OPA might be challenged and subject to conflicting orders of a court, but

promising not to undermine the OPA and agreeing to cooperate in defending the validity

of the pledge, the agency and the city in no sense waived one of the principle defenses to

16
validity of the OPA, the bar provided by Code of Civil Procedure section 870.

Moreover, plaintiffs' reliance on the holdings in Fontana I, County of Solano v.

Vallejo Redevelopment Agency (1999) 75 Cal.App.4th 1262 and Starr v. City and County

of San Francisco (1977) 72 Cal.App.3d 164, 178-179 (Starr) is unpersuasive. In

Fontana I, the court expressly noted the plaintiffs were not attacking the validity of the

OPA or any prior action of the agency, but only challenging its then most recent attempt

to perpetuate its improper distribution of tax increment funds. (Fontana I, supra, 153

Cal.App.4th at p. 913.) In County of Solano v. Vallejo Redevelopment Agency, the court

found that a city that improperly benefited from the distribution of its RA's tax increment

was subject to a claim for unjust enrichment. (County of Solano v. Vallejo

Redevelopment Agency, supra, 75 Cal.App.4th at pp. 1277-1280.) Significantly,

however, the city did not assert that mechanism by which it was benefitted, the use of

redevelopment funds for school and road improvements, was subject to a validation

judgment. Thus, the court in County of Solano v. Vallejo Redevelopment Agency was not,

as we are, compelled to give effect to such a validation judgment.

In Starr, a municipality and its local RA entered into a financing agreement under

which the municipality agreed to lease a sports and exhibition center to be financed by

way of bonds issued by the RA. The financing agreement expressly contemplated

execution of a more specific project lease and supplemental leases. The financing

agreement was the subject of a successful validation action, and a judgment validating it

was entered by default. Later, the city and the RA entered into a project lease and

17
separate repayment contract which obligated the city to make payments that exceeded the

debt limitations of article XVI, section 18 of the California Constitution. In finding that

the financing agreement validation judgment did not prevent a constitutional challenge to

the later repayment contract, the court stated: "The financing agreement and settlement

agreement which were validated by the court in the 1974 All Persons action contain no

hint of the provisions which are violative of the constitutional debt limitation, and which

were added in 1975. Under well settled law, the doctrine of res judicata does not apply

where there are changed conditions and new facts which were not in existence at the time

of the prior judgment, and upon which such judgment was based. [Citations.]" (Starr,

supra, 72 Cal.App.3d at pp. 178-179.)

In important respects Starr is analogous to Fontana I: In both cases, what was in

dispute was not any past action the municipality had already taken, but the validity of a

new, different action the municipality proposed to take. In both cases, the respective

courts found the new action was different from the past action and not protected by the

earlier validation judgment. Here, of course, neither the city nor the agency have

proposed any new action related to the agency's past payment of tax increment revenues

to either the city or Ten-Ninety. Rather, in the end, with respect to the city, plaintiffs at

most propose recovering from the city payments paid to the city and Ten-Ninety under

the terms of the validated 1992 amendment to the OPA. Under Code of Civil Procedure

section 870, the propriety of that past activity is not subject to relitigation.

Moreover, the 1992 amendment to the CRL, which more strictly limited the ways

18
in which an RA could meet its low- and moderate-income housing obligations, is not a

changed circumstance that would permit a challenge to the validated amendment to the

OPA. (See Slater v. Blackwood (1975) 15 Cal.3d 791, 796-797 [no relief from bar of res

judicata "founded on a change in law following the original judgment"]; Smith v. Brovan

(1979) 97 Cal.App.3d 19, 24.) Admittedly, where an agency has a continuing duty and

that duty is altered by way of an act of the Legislature, injunctive relief previously

granted with respect to that ongoing duty may be adversely affected. (See Welfare Rights

v. Frank (1994) 25 Cal.App.4th 415, 422-424.) Thus, in Frank, a consent judgment by

which a county agreed to calculate welfare assistance payments consistent with the then

controlling statutory authority, was, with respect to future payments, subject to change

when the underlying statutory requirement was altered. (Ibid.) Here, of course, the low-

and moderate-income housing obligation of RA's has been discontinued in its entirety,

and there is no longer any obligation going forward. Thus, what is at issue is the city and

Ten-Ninety's prior receipt of tax increment funds under the terms of the validated

amendment to the OPA. Having relied on the validation judgment in taking those funds,

the city cannot now be asked to return those funds without directly undermining the

validation judgment.7

7 In applying the bar provided by res judicata and Code of Civil Procedure section
870, we in no sense embrace the city's administration of the agency and the agency's
obvious and longstanding failure to meet its obligations under the CRL. (See Fontana I,
supra, 153 Cal.App.4th at pp. 913-914.) However, as the court in Slater v. Blackwood
stated: "The consistent application of the traditional principle that final judgments, even
erroneous ones [citations], are a bar to further proceedings based on the same cause of
action is necessary to the well-ordered functioning of the judicial process. It should not
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 DISPOSITION

The judgment is affirmed. The city to recover its costs of appeal.

BENKE, Acting P. J.

WE CONCUR:

HALLER, J.

PRAGER, J.*

be impaired for the benefit of particular plaintiffs, regardless of the sympathy their plight
might arouse in an individual case." (Slater v. Blackwood, supra, 15 Cal.3d at p. 797.)

* Judge of the San Diego Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
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