concurring:
I concur in the judgment. However, I would affirm the district court on narrower grounds.
I agree that, under the circumstances presented by this case, the franchise agreement between the City of Santa Ana (“City”) and Southern California Gas Company (“Gas Company”) functions as a contract. I also agree that the City was prohibited from using its police power to alter unilaterally the terms of the contract. Thus, the question is whether the trench ordinance impairs the contract, and does so in a manner that violates the Contract Clause. U.S. Const., art. I, § 10.
To prove a violation of the Contracts Clause, the Gas Company must show that the City has substantially impaired the franchise agreement. “This inquiry has three components: whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial.” Gen. Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S.Ct. 1105, 117 L.Ed.2d 328 (1992). If the trench cut ordinance does substantially impair the franchise agreement, the burden shifts to the City to show that the statute is “both reasonable and necessary to fulfill an important public purpose such that the impairment is justifiable.” Univ. of Haw. Prof'l Assembly v. Cayetano, 183 F.3d 1096, 1106 (9th Cir.1999) (internal quotations omitted). If the City meets this burden, the statute will not violate the Contracts Clause. Whether the Gas Company has suffered a substantial impairment turns on whether the exercise of the police power in this case materially changed the terms of the contract.
The district court largely analyzed this case under § 10 of the franchise agreement. However, to me, the key contract clause is § 8(b), not § 10. Unlike the district court, I am not persuaded that § 10 exclusively controls the less immediate repairs at issue here. More plausibly, § 10 covers the initial patches needed to cover up the trenches themselves, while § 8(b) covers other repairs, including those made necessary by long term damage. Specifically, § 8(b) provides that the Gas Company shall “pay to the City, on demand, the cost of all repairs to public property made necessary by any operations of the grantee under this franchise.” Thus, by its terms, the City had the right to extract from the Gas Company the cost of public repairs at issue in this case. However, nothing in the franchise agreement provided the City the right to assess these costs in advance, nor to allocate estimated total costs of repair for all projects in the form of a fee unrelated to the specific damages caused by the Gas Company on a particular project.
Applying Contract Clause analysis to the undisputed facts, I would conclude that there is a contractual relationship, that the change in the law impaired the contractual relationship, and that the impairment is substantial. With that conclusion, the burden shifts to the City to show that the ordinance is “both reasonable and necessary to fulfill an important public purpose such that the impairment is justifiable.” Cayetano, 183 F.3d at 1106.
In my opinion, the City presented enough evidence to demonstrate the significant long term, hidden costs of trench cuts and the failure of the current franchise agreement to compensate it for these costs, largely unforeseen in 1938. Although the parties anticipated some dam*899age to street foundation in 1938, the City discovered new evidence in the 1990’s of long term structural damage following successful patch completion as well as unforeseen increases in pavement thickness and frequency of repaving. However, the City did not tender sufficient evidence to create a genuine issue of material fact that the trench fee ordinance has been sufficiently tailored to address only these costs. Thus, I agree that the judgment of the district court should be affirmed, albeit on different grounds. I write separately because of my concern that a more sweeping application of the Contracts Clause in this context will mean that the City, and those similarly situated, may be unnecessarily and inappropriately precluded from recovering the legitimate costs of structural damage under a more narrowly tailored approach.