SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO DATE/TIME JUDGE OCTOBER 31,2018 HON. RICHARD K. SUEYOSHI JOHN TOS,e/a/., DEPT. NO CLERK 28 E. GONZALEZ Case No.: 34-2016-00204740 Petitioners and Plaintiffs, V. THE STATE OF CALIFORNIA, et aL, Respondents and Defendants. Nature of Proceedings: RULING ON SUBMITTED MATTER: PETITIONERS' MOTION FOR JUDGMENT ON THE PLEADINGS Petitioners' motion forjudgment bn the pleadings as to the first cause of action came before the Court for oral argument on October 26, 2018. Prior to the hearing, the Court issued a tentative ruling. Upon hearing oral argument, the Court took the matter under submission. Having considered the briefs and arguments pertaining to the petition, the Court now rules as set forth herein. I. Factual Background The Legislature enacted the Califomia High-Speed Rail Act in 1996. (Pub. Util. Code, § 185000, et seq. (hereinafter, the "Rail Act").) The Rail Act created the High-Speed Rail Authority (hereinafter, the "Authority") (Pub. Util. Code § 185012) and tasked it with developing and implementing an intercity high-speed rail service (hereinafter, the "HSR system"). (Pub. Util. Code §§ 185030,185032.) In 2008, Proposition 1A was placed before Califomia voters to enact the "Safe, Reliable High-Speed Passenger Train Bond Act for the 21^' Century." The Official Voter Information Guide for November 4,2008 summarized the decision whether to enact Proposition 1A as, [t]o provide Califomians a safe, convenient, affordable, and reliable altemative to driving and high gas prices; to provide good-paying jobs and improve Califomia's economy while reducing air pollution, global warming greenhouse gases, and our dependence on foreign oil, shall $9.95 billion in bonds be issued to establish a clean, efficient high-speed train service linking Southern Califomia, the Sacramento/San Joaquin Valley, and the San Francisco Bay Area, with at least 90 percent of bond funds spent for specific - 1 - projects, with private and public matchingfimdsrequired, including, but not limited to, federalfimds,funds from revenue bonds, and localfimds,and all bond funds subject to independent audits?" (Pet. RJN, Exh. J.) The Official Voter Information Guidefiartherindicated that a "yes" vote meant "[t]he state could sell $9.95 billion in general obligation bonds, to plan and to partially fimd the construction of a high-speed train system in Califomia, and to make capital improvements to state and local rail services." A "no" vote meant, "[tjhe state could not sell $9.95 billion in general obligation bonds for these purposes." {Id.) The description of Proposition 1A and arguments for and against it were followed by "an Overview of State Bond Debt." {Id.) The Voter Information Guide includes a bullet-point list in the "Official Title and Summary" section conceming the proposed Bond Act. This list includes, among others, • • • • Establishes a clean, efficient 220 MPH transportation system. Improves existing passenger rail lines serving the state's major population centers. Provides that at least 90% of [the] bondfimdsshall be spent for specific constmction projects, with private and public matchingfimdsrequired, including but not limited to, federalfimds,fimdsfrom revenue bonds, and local funds. Requires that use of all bondfimdsis subject to independent audits. (Mat 4.) In the "Analysis by the Legislative Analyst" section, there is a subdivision titled "Proposal" {Id. at 5.) The introduction to this section provides. This measure authorizes the state to sell $9.95 billion in general obligation bonds to fimd (1) pre-constmction activities and constmction of a high-speed passenger train system in Califomia, and (2) capital improvements to passenger rail systems that expand capacity, improve safety, or enable train riders to connect to the high-speed train system. The measure requires accountability and oversight of the authority's use of bond fimds authorized by this measure for a high-speed train system. Specifically, the bondfimdsmust be appropriated by the Legislature, and the State Auditor must periodically audit the use of the bondfimds.In addition, the authority generally must submit to the Department of Finance and the Legislature a detailed fimding plan for each corridor or segment of a corridor, before bond fimds would be appropriated for that corridor or segment. The fimding plans must also be reviewed by a committee whose members include financial experts and highspeed train experts. An updated funding plan is required to be submitted and approved by the Director of Finance before the authority can spend the bond fimds, once appropriated. {Id. at 5.) - 2 - Califomia voters approved Proposition 1A (also referred to herein as the "Bond Act.") (Streets and Highways Code §§ 2704, et seq.^) The Bond Act is in Division 3 of the Streets and Highways Code, which Division concems the "Apportionment and Expenditure of Highway Funds." The Bond Act identifies requirements the high-speed rail system must meet prior to receipt of the funds, including that the high-speed rail system "shall be designed to achieve the following characteristics... (b) Maximum nonstop service travel times for each corridor that shall not exceed the following: (1) San Francisco-Los Angeles Union Station: two hours, 40 minutes. (2) Oakland-Los Angeles Union Station: two hours, 40 minutes. (3) San Francisco-San Jose: 30 minutes... (c) Achievable operating headway (time between successive trains) shall be five minutes or less... (g) In order to reduce impacts on commimities and the environment, the alignment for the high-speed train system shall follow existing transportation or utility corridors to the extent feasible and shall be financially viable, as determined by the authority." (§ 2704.09.) The Authority must prepare, publish, adopt, and submit to the Legislature, a business plan, which they must review and resubmit every two years. (Pub. Util. Code § 185033.) Before committing appropriated bondfimdsto constmction, the Authority must approve and submit a detailed fimding plan conceming the specific corridor or usable segment, to the Director of Finance, the peer review group established pursuant to section 185035 of the Public Utilities Code, and the policy committees with jurisdiction over transportation matters and the fiscal committees in both houses of the legislature. (§ 2704.08.) Pursuant to section 2704.08, subdivision (c)(2)(H) the fimding plan must certify that "the corridor or usable segment thereof would be suitable and ready for high-speed train operation." This language is reiterated in subdivision (d) requiring the Authority to have obtained a "a report or reports, prepared by one or more fmancial services firms, financial consulting firms, or other consultants, independent of any parties, other than the authority, involved in funding or constmcting the high-speed train system, indicating that...(B) if so completed, the corridor or usable segment thereof would be suitable and ready for high-speed train operation." In 2014, The Third District Court of Appeal issued a mling on Petitioners' challenge in a separate lawsuit conceming the Authority's issuance of a preliminary fimding plan pursuant to section 2704.08, subdivision (c). {California High-Speed Rail Authority v. Superior Court (2014) 228 Cal.App.4th 676, 684.) In directing the superior court to vacate the writ of mandate, the Court noted, "[ajlthough we agree with the Tos real parties in interest that the voters clearly ' All further statutory references are to the Streets and Highways Code, unless otherwise indicated. - 3 - intended to place the Authority in a financial straitjacket by establishing a mandatory multistep process to ensure the financial viability of the project... [the] challenge to the preliminary fimding plan was too late to have any practical effect..." {Id. at 706.) Further discussing the intent ofthe voters, the court provided, "the voters designed afinancingprogram to ensure that constmction of a segment would not begin imtil potential financial or environmental obstacles were cleared." {Id. at 710.) The Third District did not analyze the language "suitable and ready for high-speed train operation" as part of its ruling in California High-Speed Rail Authority. In 2016 the Legislature passed AB 1889. It added section 2704.78, and provides in subdivision (a). For purposes of the funding plan required pursuant to subdivision (d) of Section 2704.08, a corridor or usable segment thereof is "suitable and ready for highspeed train operation" if the bond proceeds, as appropriated pursuant to Senate Bill 1029 of the 2011-12 Regular Session (Chapter 152 ofthe Statutes of 2012), are to be used for a capital cost for a project that would enable high-speed trains to operate immediately or after additional planned investments are made on the corridor or useable segment thereof and passenger train service providers will benefit from the project in the near-term. Shortly thereafter, the Authority began to prepare and approve Funding Plans. The first cause of action of the Second Amended Petition seeks declaratory relief that AB 1889, and consequently Streets «fe Highways Code section 2704.78 is unconstitutional. Petitioners have filed the instant motion forjudgment on the pleadings on the first cause of action to "determine the constitutionality and validity of AB 1889, enacting Califomia Streets & Highways Code section 21704.78." (Notice, p. 1.) II. Legal Standard The groimds for a motion forjudgment on the pleadings "shall appear on the face of the challenged pleading orfiromany matter of which the court is required to take judicial notice." (Code Civ. Proc, § 438(d).) The standard of review for a motion forjudgment on the pleadings is essentially the same as a demurrer. {County of Orange v. Association of Orange County Deputy Sheriffs (2011) 192 Cal.App.4th 21, 32.) In considering a motion forjudgment on the pleadings, the Court accepts the complaint's properly pleaded factual allegations as tme and gives them liberal constmction. {Ibid.) This facial challenge to the constitutionality of a statue requires the Court to determine the intent of the voters in passing Proposition lA, and whether AB 1889 is consistent with that intent. (See Arias v. Superior Court (2009) 46 Cal.4th 969, 979.) To do so, the Court must engage in statutory interpretation, which is an issue of law on which the court exercises its independent judgment. (See, Sacks v. City of Oakland (2010) 190 Cal. App.4th 1070, 1082.) "Ascertaining the will of the electorate is paramount." {Cal. High-Speed Rail Authority v. Superior Court (2014) 228 Cal.App.4''' 676, 708.) "Statutes adopted by the voters must be - 4 - constmed liberally in favor of the people's right to exercise their reserved powers, and it is the duty ofthe courts to jealously guard the right of the people by resolving doubts in favor of the use of those reserved powers." {Id.) However, whether a statute is enacted by the voters or passed by the Legislature, the same basic mles of statutory constmction apply. {Id.) The starting point for the task of interpretation is the wording of the statute itself, because these words generally provide the most reliable indicator of legislative, or elector, intent. (See, Murphy v. Kenneth Cole Productions (2007) 40 Cal.4th 1094, 1103.) The language used in a statute is to be interpreted in accordance with its usual, ordinary meaning, and if there is no ambiguity in the statute, the plain meaning prevails. (See, People v. Snook {1997) 16 Cal.4th 1210, 1215.) The court should give meaning to every word of a statute if possible, avoiding constmctions that render any words surplus or a nullity. (See, Reno v. Baird (1998) 18 Cal.4th 640, 658.) Statutes should be interpreted so as to give each word some operative effect. (See, Imperial Merchant Services, Inc. v. Hunt (2009) 47 Cal.4th381,390.) Beyond that, the Court must consider particular statutory language in the context of the entire statutory scheme in which it appears, constming words in context, keeping in mind the nature and obvious purpose of the statute where the language appears, and harmonizing the various parts of the statutory enactment by considering particular clauses or sections in the context ofthe whole. (See, People v. Whaley (2008) 160 Cal.App.4th 779, 793.) When considering acts of the Legislature, courts must presume that a statute is "constitutional unless its unconstitutionality clearly, positively, and unmistakably appears; all presumptions and intendments favor its validity." {People v. Falsetta (1999) 21 Cal.4th 903, 913.) I I I . Discussion A. Requests for Judicial Notice There is dispute between the parties as to whether the only relevant evidence is that which was before the voters at the time they ratified Proposition 1 A, or whether the Court may also consider the intent of the Legislature that wrote and approved Proposition 1A for placement on the ballot. In support of their contention that evidence of such intent is relevant and appropriate for the Court's consideration. Petitioners cite to Rossi v. Brown (1995) 9 Cal.4th 688, FN 7. In footnote no. 7, the Califomia Supreme Court noted that when constming initiative measures, the "intent of the drafters may be considered by the court i f there is reason to believe that the electorate was aware of that intent [citation] and we have often presumed, in the absence of other indicia of the voters' intent such as ballot argviments [citation] or contrary evidence, that the drafters' intent and understanding of the measure was shared by the electorate, [citations] The historic context in which a measure is drafted is also relevant..." Respondents argue the Court "may consider ballot summaries and arguments in determining the voters' intent and imderstanding of a ballot measure." {Santos v. Brown (2015) 238 Cal.App.4th 398,409.) Respondents argue consideration of other materials is improper as - 5 - such material is irrelevant to the determination of voter intent. {Lorenzo Valley Community Advocates for Responsible Education v. San Lorenzo Unified School District (2006) 139 Cal.App.4th 1356, 1397 (providing that the court should consider the statute, resolution, and ballot proposition to determine voter intent).) Respondents also cite to Knight v. Superior Court (2005) 128 Cal.App.4th 14, FN 4, wherein the Third District Court of Appeal provided that a declaration of one of the drafters of an initiative measure was not "persuasive as to voter intent, and the ballot arguments are the only proper extrinsic aid that can be considered on the subject." The Court notes that in Los Angeles County Transportation Com. v. Richmond (1982) 31 Cal.3d 197, the Califomia Supreme Court held that for provisions adopted by initiative, "ambiguities may be resolved by referring to the ballot summary, the arguments and analysis presented to the electorate, and the contemporaneous construction of the Legislature." {Id. at 203 {cximg Amador Valley Joint Union High Sch. Dist. v. State Bd. Of Equalization (1978) 22 Cal.3d 208, 245-46).) The Court finds that the cases Respondents cite do not contradict this principle. While declarations of individual drafters, or purported legislative intent composed subsequent to adoption are not admissible and/or relevant (see C-Y Development Co. v. City of Redlands (1982) 137 Cal.App.3d 926, 932-33) contemporaneous indicia of legislative intent is relevant as indicated by the Califomia Supreme Court in Los Angeles County. With this in mind, the Court has received and reviewed Petitioners' request for judicial notice, as well as Respondents' objections. The Courtfindsthe judicial notice is appropriate as to Exhibits B, C, D, E, F, G, H, I, J, O, and P. The request is GRANTED as to these documents, and DENIED as to the remaining documents. Respondents have also filed a request for judicial notice, and Petitioners have filed objections. The Courtfindsjudicial notice is appropriate as to Exhibit 4. The request is GRANTED as to that exhibit, and DENIED as to the remaining documents. B. Article XVI. section 1 Petitioner alleges AB 1889 violates Article XVI, section 1 of the Califomia Constitution. Section 1 provides, The Legislature shall not, in any manner create any debt or debts, liability or liabilities, which shall, singly or in the aggregate with any previous debts or liabilities, exceed the sum of three hundred thousand dollars ($300,000), except in case of war to repel invasion or suppress insurrection, unless the same shall be authorized by law f o r some single object or work to be distinctly specified therein which law shall provide ways and means, exclusive of loans, for the payment of the interest of such debt or liability as it falls due.. .but no such law shall take effect imless it has been passed by a two-thirds vote of all the members elected to each house of the Legislature and until, at a general election or at a direct primary, it shall have been submitted to the people and shall have received a majority of all the votes cast for and against it at such election; and all moneys raised by authority of such law shall be applied only to the specific object therein stated or to the payment of the debt thereby created. (Emphasis added.) - 6 - In Veterans of Foreign Wars v. State of California (1974) 36 Cal.App.3d 688, the voters enacted a measure providing for the issuance of bonds to "provide farm and home aid for veterans." {Id. at 691.) Subsequent to the issuance of the bonds, the Legislature appropriated fimds annually to defi-ay county expenses of maintaining county veterans' service offices. {Id. at 692. ) Plaintiffs argued this appropriation was inconsistent with the purpose of the act and violated article XVI, section 1 of the Califomia Constitution. {Id.) The Court of Appeal agreed with Plaintiffs, and found that the intent of the voters was that the fimds would be used solely for the farm and home building program. Instmctively, the court noted that the constitutional provision was designed to prevent the Legislature "from making substantial changes in the scheme or design which induced voter approval." {Id. at 693.) Such a change would impliedly repeal an important feature of the voter-approved scheme. When part of a fimd wholly committed by statute is later appropriated to an alien purpose, the appropriation necessarily causes a partial repeal by implication...The maintenance of county veterans' service offices is a fimction alien to the veterans' farm and home acquisition program.. .it is possible that county service offices receive inquiries which they refer to the nearest office of the Division of Farm and Home Purchases. With that negligible exception, no relationship between the veterans' farm and home program and the county veteran service offices is apparent. {Id. at 694-95.) Additionally, mO'Farrell v. County of Sonoma (1922) 189 Cal. 343, the plaintiff sought an injunction on the basis that the voters had approved bonds to build a roadway that would total 4.0 miles. {Id. at 345.) However, the fimds approved could only finance 1.93 miles, and the County was planning to proceed with this shortened distance, using the subject bond funds. {Id.) The Califomia Supreme Court held that the County did not have the right to so change the project, absent consent from the voters. {Id. at 348.) The court noted that every elector had the right to presume that the road would be constmcted in its entirety, "not one end, or the other end, or any part or portion - - but the whole." {Id.) C. AB 1889 and the Bond Act Petitioners argue that AB 1889 did not "clarify" the meaning of "suitable and ready for high-speed train operation" but instead made substantial changes in the scheme or design that had induced voter approval, in violation of Article XVI, section 1. (See VFW, 36 Cal.App.3d at 693. ) Petitioners initially argue the meaning of this phrase is clear on its face, and not subject to any purported "clarification" provided by AB 1889. In offering the definition of "suitable and ready for high-speed train operation," Petitioners contend, "[tjhe first phrase straightforwardly indicates that the usable segment being built would, when constmcted in accordance with the fimding plan, be appropriate for high-speed train use...it would have appropriate grades, curves, electrical supply, signals and other safety systems, etc. to allow high-speed train use. The second phrase says that once constmction was complete under the fimding plan, it would be ready for high-speed train operation - i.e., no further work would be needed for a high-speed train to begin operation." (Memo., p. 20.) Petitioners argue that this is the definition that the voters imderstood - 7 - and intended when they approved Proposition lA. Petitioners contend that although AB 1889 claims to "clarify" the phrase, it did not identify any ambiguity reasonably subject to multiple interpretations that required clarification. Petitioners then argue that even if there were an ambiguity in the Proposition 1A language, the legislative history supports a finding that AB 1889 contradicts its terms. Among other documents. Petitioners cite to "the Govemor's May revision to the 2008-2009 budget, as transmitted to the Legislature" wherein the Govemor provided that language was to be added to the bond act to require a complete funding plan providing assurance that all fimding needed to provide service on that portion of the system is secured. (Memo., p. 21)(citing Pet. RJN, Exh. F.) Respondents argue the key issue is whether AB 1889 made a change to the purpose for which bond fimds are used. Respondents contend that the "single object or work" remains the general constmction of a high-speed train system. Unlike in VFW ox O'Farrell. Respondents argue, the general nature and object ofthe project remains unchanged. With regard to the specific language at issue, "suitable and ready for high-speed train operation," Respondents argue the Court must examine, "not just the text of the provision at issue, but the stmcture of the statutory scheme of which it is a part." (Oppo., p. 17.) Respondents cite to the declaration of legislative intent in the Bond Act, codified in section 2704.04, subdivision (a). It is the intent of the Legislature by enacting this chapter and of the people of Califomia by approving the bond measure.. .to initiate the constmction of a high-speed train system... Respondents contend subdivisions (b) through (d) do not prohibit the language provided by AB 1889, and that the only "prohibition" is that bond funds "shall not be used for any operating or maintenance costs of trains or facilities." Respondents assert AB 1889's definition of "'suitable and ready' reflects the principle of incremental ism implicit in the Bond Act, and necessary to build a public works project of this scope; In crafting the Bond Act, the Legislature recognized, and in approving the Bond Act the voters imderstood, that for some period of time, segments of the high-speed rail system may be used by conventional passenger rail." (Oppo., p. 18.) It is incorrect that the only restrictions provided by Proposition 1A were that thefimdsbe used to constmct an amorphous high-speed rail project, and that funds "shall not be used for any operating or maintenance costs of trains or facilities." As the Third District Court of Appeal already noted, "the voters clearly intended to place the Authority in afinancialstraitjacket by establishing a mandatory multistep process to ensure thefinancialviability of the project." {California High-Speed Rail Authority 228 Cal.App.4th at 706.) The Legislature in drafting Proposition 1 A, and the voters in enacting it, were clearly concemed about potential squandering offimds,and the viability of a very ambitious high-speed rail project. However, the Court must also presume that a statute is "constitutional unless its unconstitutionality clearly, positively, and unmistakably appears; all presumptions and - 8 - intendments favor its validity." {People v. Falsetta (1999) 21 Cal.4th 903, 913 (emphasis added).) As discussed herein, giving due consideration to this presumption, and in consideration of that material properly before the Court, the Courtfindsthat Petitioner has failed to demonstrate sufficiently that AB 1889 violates Article XVI, section 1. The Court acknowledges that one arguable interpretation, as Petitioners offer, may be that the language, " i f so completed, the corridor or usable segment thereof would be suitable and ready for high-speed train operation," requires that a segment be ready for high-speed travel immediately upon completion of that particular segment and inherently includes the particular attributes argued by Petitioners, as referenced above. However, one such arguable interpretation is not dispositive of the issue before the Court. The Court is not persuaded that the language "suitable and ready for high-speed train operation" is subject to only the specific meaning and understanding proffered by Petitioner, that such interpretation is the only imderstanding that voters reasonably could have had, and that such specific meaning must have also induced voter approval. Indeed, as conceded by Petitioners, the ballot materials for Proposition 1A that were provided to the voters do not provide any definition of the phrase, "suitable and ready for highspeed train operation." Petitioners next point to the general reference to financial restraints and the requirement of funding plans, but once again, the text of Proposition 1A which sets forth the specific requirement of the fimding plans and uses the phrase, "suitable and ready for high-speed train operation" does not provide any definition of that phrase. Considering that neither the ballot materials provided to the voters, nor the text of Proposition 1A itself, defined "suitable and ready for high-speed train operation," the Courtfindsthat such language was properly subject to clarification by the Legislature through AB 1889. AB 1889 provides. For purposes of the funding plan required pursuant to subdivision (d) of Section 2704.08, a corridor or usable segment thereof is "suitable and ready for highspeed train operation" if the bond proceeds, as appropriated pursuant to Senate Bill 1029 of the 2011-12 Regular Session (Chapter 152 ofthe Statutes of 2012), are to be used for a capital cost for a project that would enable high-speed trains to operate immediately or after additional planned investments are made on the corridor or useable segment thereof and passenger train service providers will benefit from the project in the near-term. In reviewing the language of AB 1889 for constitutionality, the central question is whether AB 1889 impliedly repealed Proposition l A by making "substantial changes in the scheme or design which induced voter approval." {Veterans of Foreign Wars v. State of California (1974) 36 Cal.App.3d 688, 693-94.) In answering this question, paramount is the consideration of voter intent and whether AB 1889 "clearly, positively, and unmistakably" violates this intent, and is thereby, unconstitutional. (See Arias v. Superior Court (2009) 46 Cal.4th 969,979; People v. Falsetta (1999) 21 Cal.4th 903,913.) As mentioned above, AB 1889 is presumed to be constitutional and "all presumptions and intendments favor" AB 1889's validity. Considering the applicable law and the materials properly considered by the Court, the Courtfindsthat Petitioners have not demonstrated sufficiently that AB 1889 is unconstitutional. - 9 - The Court agrees with Respondents that in analyzing AB 1889, the Court must consider Proposition 1A and the statutory scheme as a whole. The Court does not analyze the phrase "suitable and ready for high-speed train operation" in a vacuum or in an otherwise isolated maimer. As a general matter, the statutory scheme anticipates that constmction will occur piecemeal, and that it will require pre-constmction activities as well as capital improvements to passenger rail systems. Proposition 1A contemplates that the project is of a large scale that will be constmcted over a period of time. The issues presented here are distinct from the type of issues in O'Farrell and VFW, cited by Petitioners. For instance, the language in AB 1889 does not truncate the project (as in O 'Farrell) or divert the funds to a tenuously connected separate project (as in VFW) or otherwise make a substantial change to the scheme or design which induced voter approval. AB 1889 did not change the single object or work that is being funded with the bond funds. AB 1889 did not modify the high-speed rail project from "(1) preconstmction activities and constmction of a high-speed passenger train system in Califomia, and (2) capital improvements to passenger rail systems that expand capacity, improve safety, or enable train riders to connect to the high-speed train system." (Pet. RJN, Exh. J, p. 5.) AB 1889 did not release the Authority from its obligation to spend the subjectfimdson the voter-approved high-speed rail project. Furthermore, nothing in the documentation that was before the voters at the time of consideration of Proposition l A clearly prohibits or contradicts the language of AB 1889. As for the general financial restrictions and requirement of funding plans, including the provision for consultant reports cited by Petitioners, none of these provisions define "suitable and ready for high-speed train operation" so as to require the sole conclusion that voter intent was and could only be that meaning and understanding proffered by Petitioners. As discussed earlier, the specific language, "suitable and ready for high-speed train operation," was not defined for the voters - i.e., not in the ballot materials provided directly to the voters, not in the text of Proposition 1 A, and not anywhere else, including in Govemor's budget as pointed to by Petitioners, or in appropriately considered legislative material. And certainly, the specific definition now argued by Petitioners was not before the voters. Under all of these circumstances, it cannot be concluded that AB 1889 "clearly, positively, and unmistakably" violates voter intent, and is thereby, unconstitutional.^ The Courtfindsthat AB 1889 did not impliedly repeal Proposition 1A by making "substantial changes in the scheme or design which induced voter approval." {Veterans of Foreign Wars v. State ofCalifornia (1974) 36 Cal.App.3d 688, 693-94.) IV. Conclusion For the aforementioned reasons. Petitioners' Motion for Judgment on the Pleadings on thefirstcause of action for declaratory relief is DENIED.'' Illllllllllllllllllllllllllllllllllllllllllllllllllllltllllllllllllllllllllllllllllllllll^ ^ While the Court does notfindrelevant the numerous "legislative history" documents Petitioners repeatedly cite as evidence that the voters intended Proposition 1A to proscribe AB 1889's language, even considering these documents the CourtfindsPetitioners have failed to demonstrate sufficiently a constitutional violation. ^ In light of this ruling, the Court will not address Respondents' arguments that Petitioners are otherwise not entitled to declaratory relief. - 10 - The Court's minute order will be effective immediately. No formal order or other notice is required. (Code Civ. Proc. § 1019.5; CRC Rule 3.1312.) Certificate of Service by Mailing attached. - 11 - CERTIFICATE OF SERVICE BY MAILING C C P . Sec. 1013a(3)) I, the imdersigned deputy clerk of the Superior Court of Califomia, Coimty of Sacramento, do declare under penalty of perjury that I did this date place a copy of October 31, 2018, RULING ON SUBMITTED MATTER: PETITIONERS' MOTION FOR JUDGMENT ON THE PLEADINGS in envelopes addressed to each ofthe parties, or their counsel of record as stated below, with sufficient postage affixed thereto and deposited the same in the United States Post Office at Sacramento, Califomia. Stuart M. Flashman, Esq. Law Offices of Stuart M. Flashman 5626 Ocean View Drive Oakland, CA 94618-1533 Sharon L O'Grady, Esq. Deputy Attomey General 455 Golden Gate Avenue, Suite 11000 San Francisco, CA 94102-7004 Michael J. Brady Ropers, Majeski, Kohn & Bentley Redwood City 1001 Marshall St, Suite 500 Redwood City, CA 94063 Dated: October 31,2018 Superior Court of California, County of Sacramento By: - 12 - ALEZ,^ Deputy Clerk Document ID: 16540439 Case Number ilMI 34-2012-00125011 -CU-BC-GDS Document Security Level Filing Document: Correspondence Re Proposed Judgment Filed By: Kevin Lewis-Grenz Date Filed: 10/29/2018 V3 Document Cover Page Date Printed: 10/29/2018 RADOSLOVICH SHAPIRO, PC Frank M. Radoslovich SBN 161457 701 University Avenue, Suite 100 Sacramento, CA 95825 Telephone: (916) 565-8161 Facsimile: (916) 565-8170 Attomey for Plaintiffs, Kevin Lewis-Grenz, an individual and Grenz & Company, Inc., A Califomia corporation SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SACRAMENTO o <^ 10 d a 11 .c W KEVIN LEWIS-GRENZ, an individual; CaseNo.: 34-2012-00125011 GRENZ & COMPANY, INC., a Califomia 12, « g 13 corporation. oE "o o [PROPOSED] COURT JUDGMENT CO ^ Plaintiffs, a:< 14 15 I 16 17 18 19 20 Complaint Filed: May 12,2012 First Amended: December 21,2012 MICHAEL KESMODEL, an individual; Cross-Complaint: Jime 10, 2013 RAYMOND DUSSAULT, an individual; STEMLER'S INSURANCE AGENCY, INC. Hon. Judge Alan G. Perkins dba STEMLER, MCTIGHE & LEWIS, a Califomia Corporation; and DOES 1 through Trial Held: March 29,2016 30, inclusive, V. Defendants. AND RELATED CROSS-ACTION 21 22 Following the Court's tentative mling issued on June 27, 2018, for the hearing regarding 23 PlaintifPs Motion to Tax and Strike Costs and Defendant's Motion for Attomey Fees the Court 24 issues the following order: 25 26 27 28 1 [PROPOSEDl COURT JUDGMENT The Court hereby mles on the Motion to Tax and Strike Costsfiledby Plaintiff7CrossDefendant Kevin Lewis-Grenz, and the Motion for Attomey Fees filed by Defendant/Cross3 4 Complainant Michael Kesmodel and Defendant Stemler's Insurance Agency. Civil Code section 1032 is the primary authority for awarding costs in civil cases. Section 1032 generally establishes that, except as other provided pursuant to the terms of the statute, a prevailing party is entitled to recover costs." (Code Civ. Proc. § 1032(b).) For purposes of section 1032, a party with "net monetary recovery ... is a 'prevailing party.'" {Scott Co. V. Blount. Inc. (1999) 20 Cal.4th 1103, 1108.) Other definitions of "prevailing party" under the statute include "a defendant in whose favor a dismissal is entered, a defendant where neither o 10 d plaintiff nor defendant obtains any relief, and a defendant against those plaintiffs who do not 5. 11 ct 11 recover any relief against that defendant." (Code Civ. Proc. § 1032(a)(4).) Section 1032 also X • provides, however, "[i]f any party recovers other than monetary relief and in situations other I » gl3 O w than as specified, the 'prevailing party' shall be as determined by the court, and under those circumstances, the court, in its discretion, may allow costs or not and, if allowed, may apportion "O o Q:< 14 t/) 15 I costs between the parties on the same or adverse sides[.]" (Code Civ. Proc. § 1032(a)(4).) This action arises out of a dispute among the parties involving their business 16 relationships in the course of acting as insurance brokers. The pertinent allegations were made 17 in Plaintiffs' First Amended Complaint and defendant Kesmodel's cross-complaint. The First 18 Amended Complaint alleged claims for breach of oral contract, breach offiduciaryduty, 19 20 21 22 23 24 misappropriation of trade secrets, constmctivefi"aud,conspiracy, intentional interference with economic relations, and unfair competition, and sought an accounting. The Cross-Complaint filed by Kesmodel made claims against Lewis-Grenz of conversion, unjust enrichment, breach of fiduciary duty, fi-aud (both intentional and negligent misrepresentation), fi"auduleiit concealment, constmctivefi-aud,conspiracy, and constmctive trust. The parties did not request a jury trial and thus the allegations were tried to the court. 25 At hearing on July 13, 2016, the Court issued its Notice of Intended Decision. The Court 26 determined that there was a partnership formed between Lewis-Grenz and Kesmodel in 2007 to 27 split the profits from clients obtained through joint marketing efforts. This partnership was 28 [PROPOSED] COURTJUDGMENT eventually dissolved by withdrawal and disassociation in May 2011. The Court concluded that 2 Kesmodel breached hisfiduciarypartnership duties by individually soliciting two entities (Al 3 Sal and Eichleay) prior to the dissolution of the partnership. In all other respects, the Court 4 concluded that Lewis-Grenz had norightto income from the seven partnership clients who ultimately left with Kesmodel, nor did Kesmodel have anyrightto income in those partnership clients who stayed with Lewis-Grenz. In addition, the Court found that Kesmodel had not violated any trade secret law because the client list was not a trade secret as defined by law. The Court deemed a further accounting was necessary, as requested by Lewis-Grenz, to determine either Plaintiff or Defendant had been over- or under-paid in terms of commissions. The Court o d 10 ordered thefiartheraccounting as requested by Plaintiff to also include COBRA fees and OJ then allow costs or not, or to apportion costs, in its discretion. The statute requires the trial court to determine which party is prevailing and then exercise its discretion in awarding costs. This o t 13 •o o (s s D:< 14 portion of the statute does not require the trial court to award costs to the prevailing party 'as a C/) 15 matter ofright.'"{Texas Commerce Bank v. Garamendi (1994) 28 Cal.App.4th 1234, 1248- I 16 1249, fii. and citations omitted.) In this case, other than Stemler's the Court concludes that there is no party under section 1032(a)(4) who fits the specified definition of a prevailing party. 17 Accordingly, Stemler's is the only party who is entitled to costs as a matter ofright.(Code Civ. 18 Proc. § 1032(b).) 19 "The determination of whether there is a prevailing party is to be made on a practical 20 level after considering what each party accomplished via the litigation." {James L. Harris 21 Painting & Decorating, Inc. v. West Bay Builders, Inc. (2015) 239 Cal.App.4th 1214, 1221.) 22 The Court concludes that neither Lewis-Grenz nor Kesmodel achieved their main litigations 23 objectives in this case. Both parties recovered certain sums of money from the other as being 24 owed themfromthe partnership, but neither amount was tmly significant so as to justify the 25 duration and acrimony engendered by this litigation. While Kesmodel recovered more money 26 from the partnership and did not misappropriate frade secrets, the Court also found that 27 Kesmodel had breached hisfiduciaryduty to the partnership. Lewis-Grenz's cause of action for 28 [PROPOSED] COURT JUDGMENT an accounting was granted. In all other respects, the Court found that no party was successful on any of the claims that either alleged against the other. In sum, the outcome was essentially even. In light of the allegations made, the length and related expense of this litigation, and the minimal evidence that existed to support either party's claims, the Court concludes that when the case is viewed in light of what the Parties originally desired to accomplish, neither LewisGrenz nor Kesmodel are prevailing parties in this case. The only prevailing party in this action is Stemler's. The Court had afready tentatively determined the appropriate amount of costs to which Stemler's is entitled and affirms its prior mling in full. With regard to attomey fees, the Gourt also concludes that neither Lewis-Grenz u 10 nor Kesmodel are prevailing parties for the same reasons stated above. In seeking fees, 11 Kesmodel makes the sweeping assertion that all of Lewis-Grenz's causes of action arose out of 12 alleged misappropriation offradesecrets and therefore are entitled to recovery of fees under the § 2, •5 gl3 Califomia Uniform Trade Secrets Act. Civil Code section 3426.4 provides, in relevant part: "If d I OT ^ o w •o o a claim of misappropriation is made in bad faith...the court may award reasonable attomey's CO ^ K < 14 15 fees and costs to the prevailing party. Recoverable costs hereunder shall include a reasonable 16 sum to cover the services of expert witnesses, who are not regular employees of any party, 17 actually incurred and reasonably necessary in either, or both, preparation for trial or arbifration, 18 or during trial or arbifration of the case by the prevailing party." (Emphasis added.) 19 While alleged misuse of frade secrets may have given rise to certain claims against 20 Kesmodel, the Court views the actual basis for PlaintifPs claims as being a breach of fiduciary 21 duty, of which the alleged misappropriation of frade secrets was only a small part. This 22 detennination is reflected in the Court's mling, which found against Kesmodel with regard to 23 the breach of fiduciary duty to the partnership. To be more specific, there is nothing in the 24 claims alleged or in the evidence presented at trial that suggests that the issue of frade secrets in 25 this case was so predominant and pervasive that it separately impacted each and every cause of 26 action and defense to render this case a frade secrets lawsuit. By extension, there thus is no 27 preemption of any claims under the CUTS A (see K.C. Multimedia, Inc. v. Bank of America 28 [PROPOSED] COURT JUDGMENT Technology & Operations, Inc. (2009) 171 Cal.App.4th 939, 962), such as would automatically entitle Kesmodel to attomey fees under the Act pursuant to Civil code section 3426.1. Even assuming that Defendants could successfully persuade the Court that all of Plaintiffs claims were predicated on Kesmodel's the misappropriation offradesecrets, there is no basis for attomey fees under CUTSA. As reflected above, section 3426.4 makes clear that an award of attomey fees vmder CUTSA requires that the claim for misappropriation of trade secrets be pursued in bad faith. While Defendants now argue that it should have been clear that Plaintiffs claims of confidentiality in its client lists were notfradesecrets, that matter was decided only at trial based on the evidence presented. Defendants' characterization that u 10 customer lists are simply "generic" and do not qualify for trade secret protection is an overstated 5. 11 < «o g E 13 secrets (see, e.g., Morlife, Inc. v. Perry (1997) 56 Cal.App.4th 1514, 1522; ABBA Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 19; Courtesy Temporary Service, Inc. v. Camacho (1990) T5 O tr< 14 222 Cal.App.3d 1278, 1287; Hofmann Corp. v. Superior Court (1985) 172 Cal.App.3d 357, 15 362), but they are wholly dependent upon specific facts. If Defendants tmly believed that I 16 17 Plaintiffs production of thefradesecret disclosure at the beginning of the case established that the customer list was not tmly afradesecret, then they could (and should) have moved for summary judgment regarding the issue. Defendants did not do so and allowed the matter to 18 proceed to trial to be decided on the facts. While the Court may have found in favor of 19 Kesmodel regarding this discrete issue, the misappropriation claim was only one of several 20 Plaintiff alleged. Both Parties have cited to Gemini Aluminum Corp. v. Califomia Custom 21 Shapes, Inc. (2002) 95 Cal.App.4th 1249, as the criteria for evaluating the presence or absence 22 of bad faith. As stated in Gemini: "'[B]ad faith' means simply that the action or tactic is being 23 pursued for an improper motive. Thus, if the court determines that a party had acted with the 24 intention of causing imnecessary delay, or for the sole purpose of harassing the opposing side, 25 the improper motive has been found, and the court's inquiry need go no further." (Id. at 1263.) 26 Under these clear criteria, the Court finds no evidence to conclude that Plaintiff pursued his 27 misappropriation claim in bad faith. 28 [PROPOSED] COURT JUDGMENT Kesmodel and Stemler's acknowledge that they have made no effort to apportion the fees for any of the causes of action, or even as between each other, and instead simply rely on 3 all of the claims being subsumed or superseded by the Califomia Uniform Trade Secrets Act. 4 Since the Court disagrees with Defendants' position that the CUTSA provisions of section 5 3426.4 govem the entirety of Defendants' defenses and affirmative claims, and since the Court 6 finds that Stemler's is the only prevailing party, the failure to apportion out any claims that are 7 assignable only to the defense of Stemler's in this case is fatal to Defendants' fee motion. The Court will not perpetuate an injustice in awarding attomey fees to a party that arise out Of work that was not clearly part of the representation of that party in either prosecuting or defending u 10 d I 11 .c OT i '> « 12 against the claims against it. Finally, Defendants' failure to apportion costs and fees with regard to the claims and the parties also is fatal to Stemler's attempts to collect over $60,000 in expert fees. As Plaintiff correctly argues, it appears that the vast majority of that amount is clearly assignable to expert TJ o ct £ K < 14 fees pertaining to Kesmodel's pursuit of his own cross-claims against Plaintiff - claims in which t/) 15 Stemler's had no part. The remaining fees pertain to the accounting ordered by the Court, which I the Parties shall share equally (see Court's Order of November 9, 2016) since neither 16 substantively prevailed in the litigation. The Courtfiirtherconcludes that there is no basis by 17 which either Defendant can collect these fees pursuant to Code of Civil Procedure section 998: 18 the Court has already questioned the validity of Stemler's section 998 offer, and Kesmodel's 19 limited net recoveryfromthe partnership after trial is not more favorable than the $35,000 that 20 Kesmodel demanded in his section 998 offer. (See Code Civ. Proc. § 998(c)(1) ["If an offer 21 made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment 22 or award, the plaintiff shall not recover his or her post offer costs and shall pay the defendant's 23 costsfromthe time of offer. In addition ... the court or arbifrator, in its discretion, may require 24 the plaintiff to pay a reasonable sum to cover the post offer costs of the services of expert 25. witnesses..."].) 26 For the foregoing reasons, the Court GRANTS the Motion to Strike/Tax Costsfiledby 27 Plaintiff and affirms its prior order awarding costs in the amoimt of $6,101.00 to Stemler's. 28 8 [PROPOSED] COURT JUDGMENT Since the Courtfindsthat neither Lewis-Grenz nor Kesmodel substantially achieved the objectives of their litigation against each other, neither prevailed in the litigation as defined by Civil Code section 1032 and therefore the Court declines to award costs to either party. The motion for attomey feesfiledby Kesmodel and Stemler's is DENIED. IT IS SO ORDERED DATED: November ^2018 By: o d 10 HON. ALAN PERKINS JUDGE OF THE SUPERIOR COURT I 11 J: W ^ 12 I« 2, g 13 o E •o o ct S cr< 14 rv 16 17 18 19 20 21 22 23 24 25 26 27 28 [PROPOSED] COURT JUDGMENT