Citizens for better Rancho Sante Fe Schools v. Rancho Sante Fee School Dist. Bd. of Trustees

Filed 4/20/06 Citizens for better Rancho Sante Fe Schools v. Rancho Sante Fee School Dist. Bd. of Trustees CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL - FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, Michael M. Anello, Judge. Reversed with directions.

Plaintiffs and appellants Citizens For Better Rancho Santa Fe Schools et al. (Citizens) appeal the judgment of dismissal entered against them after a demurrer to their complaint for injunctive relief, filed as taxpayers under Code of Civil Procedure section 526a^[1] and related theories, was sustained without leave to amend. The demurrer was brought by defendant and respondent Rancho Santa Fe School District Board of Trustees (District), arguing that as a matter of law, Citizens could not state their statutory or common law causes of action for waste of public funds or illegal expenditures of public money. The trial court agreed, stating that neither the statutory nor common law definitions of waste had been met, because even though the disputed purchase price for certain real property as a schoolsite represented a premium over the appraised value, and even if there were other alternatives, there was some public benefit in the purchase and therefore the expenditure was not actionable. (Sundance v. Municipal Court (1986) 42 Cal.3d 1101, 1139 (Sundance).) Similarly, the trial court found no statutory requirement for a public hearing applied to this contingent purchase contract which had not yet been finalized. (Ed. Code, § 17211 [requiring a public hearing "prior to commencing the acquisition of real property"].)

Based on the applicable statutory language and case law interpreting it, we find the court erred in sustaining the demurrer without leave to amend, and we reverse the judgment of dismissal with directions to allow an answer to be filed and the matter to proceed on the merits. The stay issued on October 31, 2005 shall remain in effect until this opinion becomes final and the remittitur has been issued.

FACTUAL AND PROCEDURAL BACKGROUND

A. Complaint

For purposes of reviewing the ruling on demurrer, we take as true the allegations of the complaint. (Rathbun v. City of Salinas (1973) 30 Cal.App.3d 199, 203 (Rathbun).) Citizens allege they are taxpayers who reside within the District. The District has been looking for a new schoolsite for a decade. There is a dispute among various residents of the District about whether a new schoolsite should be located within or without the boundaries of the protective covenant land use regulations (the covenant) governing a portion of the town of Rancho Santa Fe, and about how this would affect property values. The Rancho Santa Fe Association (the Association), which governs the covenant area, opposes placing a new schoolsite within the covenant area. A majority of the members of the District board of trustees are property owners within the covenant area, and allegedly have an interest in accommodating the wishes of the Association regarding the placement of the new school, with regard to applicable property values and preferred attendance policies.

On March 23, 2005, Citizens filed suit for injunctive relief to restrain the District from purchasing the subject property for more than its fair market value. In February 2005, this purchase agreement was entered into with the real parties in interest, the Bishops/Espola Trust (sellers), for this parcel of improved property, located outside the covenant area, for a purchase price of $9 million. However, a contemporaneous appraisal obtained by the District board concluded the sellers' property was worth only $6.5 million. Citizens therefore allege in their first cause of action for waste (§ 526a), that when four members of the District board voted to approve this purchase contract, they agreed to pay the sellers a $2.5 million premium (38.5 percent above the appraised fair market value of the sellers' property), and this constituted waste of public funds "that could be used in furtherance of innumerable useful purposes, such as providing greater resources and more advanced teaching materials for the District's students." They allege this was done to give benefit to the Association, a private entity. The initial payment of $250,000 was made with local District funds, rather than state funds.

Also in the first cause of action, Citizens allege the District's related agreement to lease the property back to the sellers for $1,000 per month, pending a nine-month escrow period, was wasteful of public funds, because $1,000 per month rent is significantly less than fair market rental value of a $6.5 million residence in Rancho Santa Fe.

In their second cause of action for injunctive relief restraining the illegal expenditure of public funds, Citizens allege the purchase agreement was improper because it was negotiated in secret and the District did not hold the public hearing required by Education Code section 17211 "prior to commencing acquisition of the subject property." Such a hearing is required to evaluate the sellers' property using the State Department of Education's site selection standards. (Ed. Code, § 17251.)^[2] Previously, the District considered acquiring an alternative schoolsite ("the Quantum site") and passed a resolution designating it for school purposes. That resolution is now allegedly in conflict with the existing resolution to authorize purchase of the subject property. Citizens allege that these facts show the District is not fulfilling its ultimate charge of providing the best educational experience possible for all of its students, in making its site selection decisions.

In their third cause of action alleging the District failed to exercise due care in authorizing the expenditure of public funds, Citizens pursued a common law theory seeking to restrain the purchase as an ultra vires, negligent and/or collusive expenditure. Citizens contend the District did not have the discretion or the authority to purchase the subject site for a price greater than the appraised value. (Ed. Code, § 35160 [designating the duties of the District to carry out programs and activities that are not in conflict with the purposes for which school districts are established].)^[3]

B. Demurrer and Other Motions in Trial Court

Immediately after the complaint was filed, Citizens sought a temporary restraining order (TRO) from the trial court to restrain the purchase, but it was denied. The District filed its demurrer and also a motion to quash subpoenas seeking discovery from the District's environmental consultants about the suitability of the proposed site. The motion to quash was extensively litigated and evidence was submitted about the District's previous consideration of other sites that were within the covenant area, including the Quantum property, and a survey and election regarding proposed sites. Ultimately, the motion to quash was granted in part and denied in part, to allow Citizens to investigate why the District had chosen not to pursue one of the previous sites, the Quantum property.

In connection with the demurrer, the parties also were disputing and litigating whether the public hearing requirements of Education Code section 17211 were applicable, based on whether the schoolsite funding would be purely local or whether it would be supplemented from appropriations made by the State. The initial $250,000 deposit was paid with local funds but the District had not ruled out seeking state funds to pay the balance.

The District's demurrer attacked all the causes of action on grounds they failed to state facts sufficient to constitute a cause of action. The District primarily contended that Citizens could not show as a matter of law that the expenditure of funds to purchase and lease the property was "totally unnecessary" or "useless" or provided no public benefit. It also argued that even if it is subject to the requirements of Education Code section 17211, it has not violated those requirements, because a public hearing is required only before the entity takes title to the property, not before its representatives sign a contingent purchase agreement. (Cal. Code Regs., tit. 5, § 14011 [which provides that a school district must follow certain procedures "before acquiring title to real property for school use"].)

Finally, the District argued that Citizens' common law cause of action should fall with the others. The District requested that the court take judicial notice of various District records involving property matters, including minutes and agendas of board meetings and the purchase agreement.

In response, Citizens argued they had alleged all essential facts of the statutory cause of action for waste, as well as the illegal expenditure challenge. Citizens objected to the material for which judicial notice was requested, as bringing in factual matters that were not official records, and also for lack of specificity.

C. Ruling of Trial Court; Supersedeas; Judicial Notice

In its tentative ruling, the trial court initially overruled the demurrers. However, after oral argument, the court granted the judicial notice request in large part, and sustained the general demurrers without leave to amend as to the causes of action for waste and illegal expenditure of public funds. Leave was granted to amend the third cause of action to more fully allege collusion, in the event that Citizens were seeking to state a claim based on violations of conflict-of-interest laws.

With respect to the cause of action for waste of public funds, the court reasoned that Citizens were merely alleging there may be a "cheaper way" to purchase land for school-related uses, but that because "there is a public benefit -- ownership and use of land for a new school -- the expenditure is not actionable, even if there is an alternative that is not only less expensive but more efficient." (Sundance, supra, 42 Cal.3d 1101, 1139).

With respect to the second cause of action for injunctive relief (illegal expenditure of public funds), the trial court reasoned that Citizens had failed to allege how the District had exceeded the authority granted to it pursuant to Education Code section 35160, which provides: "On and after January 1, 1976, the governing board of any school district may initiate and carry on any program, activity, or may otherwise act in any manner which is not in conflict with or inconsistent with, or preempted by, any law and which is not in conflict with the purposes for which school districts are established." The court found that Citizens had "failed to explain what law (other than Education Code § 17211) [the District] was alleged to have violated or how purchasing a site for a school is in conflict with a purpose for which a school district is established."

Although Citizens were granted leave to amend their common law cause of action, they declined to do so, instead standing upon the pleadings and appealing the order sustaining the demurrer without leave to amend and the judgment of dismissal. Citizens brought a petition for supersedeas to prevent the District from proceeding with the purchase pending appeal. This court granted the petition and stayed the purchase, as well as expediting the appeal. Reconsideration or rehearing was denied while the expedited appeal was pending.

In a request filed in this court while the appeal was pending, the District asks us to take judicial notice of certain material filed in Parsky v. Rancho Santa Fe School District Board of Trustees (Dec. 14, 2005, D047562), a petition for writ of mandate involving a separate piece of property also sought to be acquired by the District. This material includes another recent appraisal of the subject property and a declaration to authenticate it. The matter was deferred to this merits panel.

DISCUSSION

I

PRELIMINARY ISSUES; JUDICIAL NOTICE

To address the issues of law raised by this appeal, we first set forth our standard of review for judgments of dismissal after the sustaining of a demurrer. We review the court's ruling sustaining the demurrer de novo. (Vasquez v. State of California (2003) 105 Cal.App.4th 849, 853-854 (Vasquez).) The "court 'gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. [Citations.] . . . The judgment must be affirmed "if any one of the several grounds of demurrer is well taken. [Citations.]" [Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. [Citation.]' [Citation.]" (Ibid.)

"If there is a reasonable possibility that the defect in a complaint can be cured by amendment, it is an abuse of discretion to sustain a demurrer without leave to amend. [Citation.] The burden is on the plaintiff, however, to demonstrate the manner in which the complaint might be amended. [Citation.]" (Hendy v. Losse (1991) 54 Cal.3d 723, 742.)

Here, Citizens propose only minimal amendments to the pleading, should this court order reversal of the judgment; such amendments would pertain mainly to the amount of public benefit from the purchase or the subsidiary lease transaction, and the fair market value thereof. Citizens appear to be essentially standing on the pleading and asserting that it adequately states all its claims. They are correct that the basic inquiry should be whether the complaint states the essential and substantial facts to apprise defendant of the nature of the cause of action. (Harman v. City and County of San Francisco (1972) 7 Cal.3d 150, 157 (Harman).) When a reviewing court considers an order sustaining a demurrer without leave to amend, it will not consider contentions newly raised by the parties on issues of fact. (Id. at p. 166.)

In light of these standards, we address the pleading as it is currently constituted. We acknowledge that the parties have argued several factual developments on appeal, including the source of funds used for the deposit on the subject property (local) and the funds to be used for the balance of the expenditures (either local or state). This dispute apparently involves disagreements about whether the District is justified in paying a premium for the property, so as to compensate for a long escrow period to be provided while studies are conducted, and whether a public hearing under Education Code section 17211 was required or adequately conducted due to the nature of the funds to be used. However, these are factual issues which cannot be resolved at this preliminary pleading stage. Similarly, the suitability of the alternative Quantum site and the status of its consideration by the District, as opposed to the current site, are not now before us.

On another preliminary issue, we deny the District's judicial notice request regarding the subsequent appraisal of the subject property. First, this was a demurrer proceeding, reviewable de novo on appeal, which did not resolve any factual disputes. Second, even if we were to take notice as requested, neither the appraisal nor the authenticating declaration are official records of the District, nor can they be considered for the truth of facts they state about the value of the property. (Evid. Code, § 459; Columbia Casualty Co. v. Northwestern National Insurance Co. (1991) 231 Cal.App.3d 457, 473.) "Judicial notice of the authenticity and contents of an official document does not establish the truth of all recitals therein, nor does it render inadmissible matter admissible. [Citations.]" (1 Witkin, Cal. Evidence (4th ed. 2000) Judicial Notice, § 19, p. 114.) The judicial notice requested is not appropriate, nor is Citizens' request to strike portions of the respondent's brief referring to it.

We now turn to the current record to review the viability of each cause of action as alleged. It is not disputed here that the background, procedural elements of each of the causes of action are adequately alleged, including the identity and standing of the plaintiff taxpayers, the identity of a proper public entity defendant, and an actual or threatened expenditure of public funds. (Harman, supra, 7 Cal.3d 150, 157.) Only the remaining, and crucial, elements are challenged, as explained below.

II

FIRST CAUSE OF ACTION; WASTE OF PUBLIC FUNDS

A

Statutory Standards; Case Authority

Citizens argue that the $2.5 million premium payment for the subject property, over an appraised fair market value, and the related lease agreement at a below market rate, each constitute "waste" as defined by statute and case law. The purpose of section 526a " 'is to permit a large body of persons to challenge wasteful government action that otherwise would go unchallenged because of the standing requirement. [Citation.] . . . [A]lthough by its terms the statute applies to local governments, it has been judicially extended to all state and local agencies and officials. [Citations.]' [Citation.] ' "[T]he individual citizen must be able to take the initiative through taxpayers' suits to keep government accountable on the state as well as on the local level." [Citations.]' " (Vasquez, supra, 105 Cal.App.4th 849, 854.)

The language of section 526a does not define the meaning of the term "waste" in this taxpayer context. In Sundance, supra, 42 Cal.3d 1101, 1138, the Supreme Court reiterated the views in Harnett v. County of Sacramento (1925) 195 Cal. 676, in which it had upheld a trial court order to enjoin an election, on the theory that "even if the electorate had approved the ordinance in question, the ordinance was unlawful and could not have been enforced. 'Where it is proposed to hold an election for the submission of a measure to the popular vote, and that measure will be wholly void and inoperative even if adopted by the people, the courts may, at the instance of a resident taxpayer, enjoin the holding of the election upon the ground that it will be a useless expenditure and waste of public funds (Code Civ. Proc., § 526a).' (Harnett, supra, 195 Cal. at p. 683.)" (Sundance, supra, at p. 1138, italics added.)

Also in Sundance, the Supreme Court relied on City of Ceres v. City of Modesto (1969) 274 Cal.App.2d 545 (Ceres), as setting forth these accepted guidelines on the issue: " '[T]he term "waste" as used in section 526a means something more than an alleged mistake by public officials in matters involving the exercise of judgment or wide discretion. . . . Thus, the courts should not take judicial cognizance of disputes which are primarily political in nature, nor should they attempt to enjoin every expenditure which does not meet with a taxpayer's approval. On the other hand, a court must not close its eyes to wasteful, improvident and completely unnecessary public spending, merely because it is done in the exercise of a lawful power.' [Citation.]" (Sundance, supra, 42 Cal.3d at pp. 1138-1139.)

Examples of actions authorized by section 526a are those alleging fraud, collusion, ultra vires transactions, or failures on the part of the governmental body to perform duties that are specifically imposed on them by statute. (Harman, supra, 7 Cal.3d 150, 160, citing Gogerty v. Coachella Valley Junior College Dist. (1962) 57 Cal.2d 727, 730 (Gogerty).) "This well-established rule ensures that the California courts, by entertaining only those taxpayers' suits that seek to measure governmental performance against a legal standard, do not trespass into the domain of legislative or executive discretion. [Citations.] This rule similarly serves to prevent the courts from hearing complaints which seek relief that the courts cannot effectively render; the courts cannot formulate decrees that involve the exercise of indefinable discretion; their decrees can only restrict conduct that can be tested against legal standards. [Citations.]" (Harman, supra, 7 Cal.3d 150, 160-161.)

The importance of the use of such legal standards arises from the need to avoid claims by taxpayer plaintiffs merely that "some mistake of judgment may have occurred." (Rathbun, supra, 30 Cal.App.3d 199, 202-203.) The courts will not invalidate a transaction which accomplishes valid municipal purposes even though there is also incidental private benefit. (Ibid.) "But in measuring the transaction against a legal standard, the court, we take it, may consider the transaction as a whole." (Ibid.) Where injunctive relief is sought, this is an equitable determination. (Id. at pp. 201, 203, 206.)

Many cases have outlined the boundaries of the definition of waste under section 526a. The leading case, Sundance, supra, 42 Cal.3d 1101, 1138-1139, adopted the rationale of Ceres, supra, 274 Cal.App.2d at page 555, to determine that a plaintiff's allegations were insufficient that another significant policy choice might be a better one or be a more prudent allocation of funds. There, the Supreme Court rejected the taxpayer plaintiff's contention that criminal enforcement of Penal Code section 647, subdivision (f), to arrest and detain chronic alcoholics, provided "no public benefit," as opposed to a civil detoxification alternative sought by plaintiff. Even if the defendant County's decision to continue such criminal detention was an "alleged mistake by public officials in matters involving the exercise of judgment or wide discretion," the court would not allow the plaintiff to challenge it under a waste theory: "This court should not interfere with the [entity's] legislative judgment on the ground that [its] funds could be spent more efficiently." To do so would be to intrude too far into legislative prerogatives. (Sundance, supra, at pp. 1138-1139.)

In a case decided 11 years before Sundance, supra, 42 Cal.3d 1101, Los Altos Property Owners Assn. v. Hutcheon (1977) 69 Cal.App.3d 22 (Los Altos), the court of appeal found that those taxpayer plaintiffs had sufficiently alleged a school district was liable for waste, by claiming that the defendant district would be expending public funds on a school consolidation plan that cost more than alternative plans it had considered, and without any finding of any additional public benefit. The court said, "Such allegations go beyond a mere difference in judgment between plaintiffs and defendants, and are sufficient to state a cause of action for waste under section 526a." (Id. at p. 30.) Los Altos is still good authority, but the defendant District contends it is outdated by Sundance standards, which emphasize that courts should not interfere with significant policy choices; in that case, those involving value judgments such as penological choices. Sundance standards also require a very strong showing that an expenditure of funds would be "useless" in order to constitute waste, in the sense of being clearly futile or illegal under other legal standards.

In Rathbun, supra, 30 Cal.App.3d 199, the court dealt with purely financial concerns involving a municipal lease that was very favorable to a private party, and concluded, "A taxpayer's suit states a cause of action when, if the allegations be true (as on demurrer they must be deemed), it fairly discloses waste of public funds or property or a manifest use of such funds or property chiefly for long-term commercial use with substantial benefit to a lessee accompanied by diminution of active present use of the property for a municipal purpose. The city council's action in such a case is ultra vires." (Id. at p. 202.)

To compare the factual allegations of our case to the above authorities, we next examine the conditions under which a district may acquire property.

B

Comparable Factual Standards and Considerations

The District argues that Citizens cannot validly attack its decision to purchase this property for a premium price, because a voluntary buy-sell transaction has certain advantages, compared to the use of eminent domain. Education Code section 35160 sets forth the general empowerment and functions of a district as follows: "On and after January 1, 1976, the governing board of any school district may initiate and carry on any program, activity, or may otherwise act in any manner which is not in conflict with or inconsistent with, or preempted by, any law and which is not in conflict with the purposes for which school districts are established." A school district may legally acquire property in several ways. Education Code section 35270.5 expressly acknowledges, "The governing board of any school district may acquire by eminent domain any property necessary to carry out any of the powers or functions of the district."

In Government Code section 7267, guidelines for public entities in the area of relocation assistance, stemming from the use of the eminent domain power, are set forth, providing that public entities should acquire property by negotiation wherever possible. (Gov. Code, § 7267.1, subd. (a), ["the public entity shall make every effort to acquire expeditiously real property by negotiation"].)^[4] Similarly, section 1240.130 provides, "Subject to any other statute relating to the acquisition of property, any public entity authorized to acquire property for a particular use by eminent domain may also acquire such property for such use by grant, purchase, lease, gift, devise, contract, or other means." (Also see Melamed, supra, 15 Cal.App.4th 70, 80, citing section 1230.030 ["Nothing in this title requires that the power of eminent domain be exercised to acquire property necessary for public use. Whether property necessary for public use is to be acquired by purchase or other means or by eminent domain is a decision left to the discretion of the person authorized to acquire the property"]; italics added.)

When eminent domain procedures are followed, section 1263.310 applies, providing: "Compensation shall be awarded for the property taken. The measure of this compensation is the fair market value of the property taken." Under section 1263.320, definitions of "fair market value of the property taken" are given as follows:

"(a) The fair market value of the property taken is the highest price on the date of valuation that would be agreed to by a seller, being willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing, and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available. [¶] (b) The fair market value of property taken for which there is no relevant, comparable market is its value on the date of valuation as determined by any method of valuation that is just and equitable."

Where an involuntary taking of property is pursued, Government Code section 7267.2 requires a public entity to offer market value as just compensation prior to exercising its eminent domain power. (Melamed, supra, 15 Cal.App.4th 70, 80.) That particular section is inapplicable to an ordinary buy/sell transaction, for these reasons: "However, outside the eminent domain context, no public policy is served by regulating the minimum price at which a public entity may purchase property. To the contrary, compelling a public entity to pay more than a seller is willing to accept is pointless and results in a waste of scarce public resources." (Ibid.)

General guidance is provided on the issue of the appropriate spending of public funds in a concurring opinion in Redevelopment Agency v. Gilmore (1985) 38 Cal.3d 790, 809 (conc. opn. of Mosk, J.) (Gilmore), in which Justice Mosk criticized the majority's conclusion that an award of the statutory rate of interest in an eminent domain case was insufficient to accomplish just compensation for the property (even though the majority admittedly reached the proper result when considering the then-current inflationary economy). Justice Mosk raised the following concerns: "A condemnee is entitled to just compensation. (Cal. Const., art. I, § 19.) That means not less than the current market value of money. It also means not more. Indeed, to assess more than just compensation runs the risk of violating the prohibition against making a gift of public funds. (Art. XVI, § 6.)" (Gilmore, supra, at p. 809 (conc. opn. of Mosk, J.); italics added.)

C

Analysis

To evaluate the pleadings' allegations about this transaction as a whole, in light of the requirement that "waste" be measured against known legal standards, we first acknowledge that the District may, in its discretion, prefer to proceed through a voluntary sale of real property. There are valid reasons for doing so, such as avoiding litigation costs and promoting community goodwill. Moreover, the District is correct that each piece of real property is unique and the value of it is always subject to negotiation or other factfinding. The unique nature of a desirable parcel of real property makes inapposite Citizens' argument that the District could, under its logic, purchase pencils for District use at $1 million each, if there are no enforceable upper limits on District spending in relation to fair market value.

Even so, we disagree with the District's extreme position, as stated in its response brief, that Citizens have failed to allege any legal standard "against which to determine . . . the amount of revenue required by law to be collected." The District goes on to say that Citizens have not alleged any District or other rule "requiring the District to collect specified lease payments or not to pay more than fair market value for real property." Even though the District has the basic discretion to decide whether to acquire property by purchase, or other means, or by exercise of the power of eminent domain, the discretion of the District is not unfettered by legal standards with respect to the spending of public funds and the determination of the value of desired property. (See Melamed, supra, 15 Cal.App.4th at pp. 78-81.) What are the boundaries of this discretion?

First, we are taught by Sundance, supra, 42 Cal.3d 1101 and previous authority that a public entity may be enjoined from taking certain action if it will be a useless expenditure and waste of public funds. (Id. at p. 1138, § 526a; Harnett, supra, 195 Cal. at p. 683.) The portion of the expenditure that is alleged to be "useless" here is the $2.5 million premium over an appraised value as of the relevant time period, not the entire purchase itself. It is not disputed that acquiring desirable school property is a proper concern of the District; however, that is not its only concern. Under Education Code section 35160, the District "may initiate and carry on any program, activity, or may otherwise act in any manner which is not in conflict with or inconsistent with, or preempted by, any law and which is not in conflict with the purposes for which school districts are established." Read together with Education Code section 35270.5, the District's powers may include acquiring by eminent domain any property necessary to carry out any of its powers or functions. Here, Citizens have alleged that the premium price being paid for the property is not in pursuit of such powers and functions, even taking into account the District's claimed justifications for it. Rather, allegations, as yet unproven, are made that other factors are primarily at work, the private interests of the association.

Under Rathbun, supra, 30 Cal.App.3d 199, 202-203, when the courts measure a particular transaction against a legal standard, they may take the transaction as a whole. A taxpayer's suit was properly stated when it alleged there was waste of public funds or property, through the allocation of same chiefly to long-term private use with substantial benefit to a private lessee, while the municipal use was diminished; this was an ultra vires action of the municipality.

In Los Altos, supra, 69 Cal.App.3d 22, allegations of waste were found sufficient, regarding a plan to expend public funds on a school consolidation plan that cost more than alternative plans considered, and without a finding of any additional public benefit. How much public benefit is enough, and what legal standards may be utilized to determine it? "[A] court must not close its eyes to wasteful, improvident and completely unnecessary public spending, merely because it is done in the exercise of a lawful power.' [Citation.]" (Sundance, supra, 42 Cal.3d at pp. 1138-1139.)

In light of the alternative ways in which a district may acquire property for public use, we think it is inevitable that the fair market value standards of the eminent domain statutory scheme must provide legal standards governing the outer boundaries of the price for a district's purchase of property for public use, where the other requirements of a taxpayer cause of action can be pled. Fair market value^[5] is a standard adopted from the common law into the statutory scheme. It is not too much of a stretch for the District to measure its transactions against such a well-accepted standard. This is not a morality-driven case such as Sundance, supra, 42 Cal.3d 1101, in which the taxpayers sought to impose their own preferred public policy alternatives over a legislative choice, in an area in which there were many competing value judgments and humanitarian concerns. Here, this is primarily a fiscal case, even though it has political overtones, and it should therefore be resolved within the arena of statutory standards governing the acquisition of property for public purposes, in the context of a taxpayer action.

In Gilmore, supra, 38 Cal.3d 790, the concurring opinion analyzed the just compensation requirement in the eminent domain context as meaning "not less than the current market value of money. It also means not more. Indeed, to assess more than just compensation runs the risk of violating the prohibition against making a gift of public funds. (Art. XVI, § 6.)" (Gilmore, supra, at p. 809 (conc. opn. of Mosk, J.); italics added.) Even though this transaction was a voluntary one, if Citizens' allegations are believed and proved, it was assuredly not an "ordinary" buy-sell transaction, but rather was governed by inappropriate factors such as promoting the private interests of a private association and its members. (See Melamed, supra, 15 Cal.App.4th at pp. 78-79.)

It is not enough for the District to contend that some benefit to the public will be created, i.e., more than zero, so that acquiring this property, even for a premium price, is a matter within its sole and unfettered discretion. We do not dispute that the property may be an appropriate schoolsite. Nor do we dispute that political factors will often play a part in schoolsite selection. However, Citizens have focused on the allegedly excessive price being paid for this property, as well as the lease provisions that are allegedly below market value, and have alleged they are without sufficient justification. Citizens have referenced a sufficient body of legal standards created by statutory provisions, both in the Education Code and in the eminent domain law, to provide a recognized framework against which the District's actions and assessment of public benefit may be evaluated. The courts have the ability to adjudicate taxpayers' actions that challenge inappropriate public spending, arguably amounting to useless actions or a gift of public funds, and the allegations here, taken as a whole, are sufficient on their face under the above standards. (Sundance, supra, 42 Cal.3d at pp. 1138-1139; Gilmore, supra, 38 Cal.3d at p. 809 (conc. opn. of Mosk, J.).)

We do not decide the merits of any of the above allegations, and instead conclude only that the trial court erred in sustaining the demurrer without leave to amend.

III

SECOND CAUSE OF ACTION, ILLEGAL EXPENDITURE OF PUBLIC FUNDS

A

Statutory Standards; Contentions

The disputed element of this cause of action is whether the District's proposed expenditure of funds is illegal within the meaning of any accepted legal standards. (Harman, supra, 7 Cal.3d 150, 160.) The applicability of Education Code section 17211 and the hearing requirements it sets forth, requires our interpretation of the statute, as a question of law subject to independent determination on appeal. (Melamed, supra, 15 Cal.App.4th 70, 76-77.) "In addressing the issue at hand we begin with the language of the statute. [Citation.] . . . [W] e are mindful of the settled principle in California law that when statutory language is ' "clear and unambiguous there is no need for construction, and courts should not indulge in it." [Citation.]' [Citations.] [¶] The literal words of a statute may be disregarded, however, to avoid absurd results or to give effect to manifest purposes that, in light of the statute's legislative history, appear from its provisions considered as a whole. [Citation.]" (Ibid.)

Citizens argue that the proposed purchase of the property is illegal within the standards of Education Code section 17211, which provides in relevant part: "Prior to commencing the acquisition of real property for a new schoolsite or an addition to an existing schoolsite, the governing board of a school district shall evaluate the property at a public hearing . . . ." (Italics added.) Citizens thus allege the District will expend public funds illegally, because it has violated Education Code section 17211 by entering into the subject contract without effectively evaluating the property at a public hearing. (Ed. Code, § 17251 and Cal. Code Regs., tit. 5, § 14010 [setting forth site selection standards established by the State Department of Education].) Although such a hearing was evidently held in October 2005, after this appeal was filed, Citizens do not concede this issue is moot, because they still contend no meaningful hearing took place before the actual approval of the contract by the District, to "commenc[e] the acquisition of the real property."

In contrast, the District claims that certain specific state regulations should govern, based on its status as a mainly locally funded district. These would require a hearing only "before acquiring title to real property for school use." (Cal. Code Regs., tit. 5, § 14011 [applicable to a state-funded school district, defined as "a school district having a project funded under Chapter 12.5 [citation] of the Education Code," and stating: "A state-funded school district, before acquiring title to real property for school use, shall obtain written approval from the California Department of Education using the following [specified] procedures . . . ."]; italics added.)

Alternatively, the District would rely on California Code of Regulations, title 5, section 14012, as applying to a locally-funded school district (defined as "a school district with a project not applying for funding from any state program administered by the State Allocation Board . . . ."; and stating: "A locally-funded school district, before acquiring title to real property for school use, shall (a) evaluate the property using the standards established in Section 14010 . . ." and additional specified procedures]; italics added.) As we have explained above (part I, ante), those issues regarding the actual sources of funding to be used cannot be resolved at the demurrer stage, as they are fact-intensive. Also, no issues are now before us about whether any preliminary evaluations of the subject property already took place on its suitability for a schoolsite, and whether it was found unsuitable at a prior stage in these transactions (in 2003, when the District was previously pursuing the Quantum site, as opposed to the current site). We further note that Education Code section 17251, subdivision (a) requires a hearing when a district selects a site deemed unsuitable for school purposes, but there has apparently been no such express "unsuitable" finding involved here.

We also reject the District's position that these background facts, outside the pleading, may be considered purely to show an administrative interpretation of regulatory provisions. Instead, we must focus on the pleadings as they are currently constituted, and whether Citizens have therefore alleged the purchase failed to comply with the requirements of a hearing under Education Code section 17211.

B

Analysis: Hearing Requirement

We seek to interpret the "manifest purposes" of Education Code section 17211 (Melamed, supra, 15 Cal.App.4th at pp. 76-77), stating in relevant part: "Prior to commencing the acquisition of real property for a new schoolsite or an addition to an existing schoolsite, the governing board of a school district shall evaluate the property at a public hearing using the site selection standards established by the State Department of Education pursuant to subdivision (b) of Section 17251 . . . ." (Italics added.) Pursuant to that requirement, California Code of Regulations, title 5, section 14010, provides administrative standards for schoolsite selection, in terms of providing safety and supporting learning.

In Arthur v. Oceanside-Carlsbad Jr. College District (1963) 216 Cal.App.2d 656, 657, 661, 664, this court acknowledged the discretionary nature of the selection of a schoolsite by a district. However, selection of such a site was assumed to be done within the prescribed procedures, and a failure to follow such procedures could undermine the authority of the Board to take appropriate action. (Ibid.)

Here, the only public hearing to evaluate this property took place after this appeal was filed. We think the only possible plain reading of the requirements of Education Code section 17211 is that the required public hearing, addressing site selection standards, must take place at an earlier stage of the process, in order to qualify as a meaningful hearing that allows an opportunity for public input. If the term, "[P]rior to commencing the acquisition of real property for a new schoolsite" means anything, it means that the hearing must take place early enough so that the acquisition of the property is not already a done deal. Even though a real property purchase contract may require an extended escrow period, and even though such contracts are normally contingent in nature, Citizens have successfully alleged that a district can find a way to build in the mandated hearing procedure to allow meaningful public input, as part of the process of acquiring property. Whether this "acquisition" of property is to be done voluntarily, as here, or by resolution, as in the eminent domain context, this statutory hearing requirement must still be observed, to promote safety and support learning through the selection of a schoolsite. (Ed. Code, § 17251, subd. (b), Cal. Code Regs., tit. 5, § 14010.)

On the face of the pleadings, read as a whole, Citizens have sufficiently stated that this expenditure of public funds was illegal for taxpayer action purposes, in light of the inadequate hearing procedure afforded here. The trial court erred in sustaining the demurrer without leave to amend.

IV

THIRD CAUSE OF ACTION, COMMON LAW CAUSE OF ACTION:

ULTRA VIRES, NEGLIGENT OR COLLUSIVE EXPENDITURE OF PUBLIC FUNDS

The Supreme Court has recognized that not only a statutory cause of action under section 526a may be brought by taxpayers to object to allegedly illegal public expenditures, but also a common-law cause of action. (Harman, supra, 7 Cal.3d 150, 160, citing Gogerty, supra, 57 Cal.2d 727, 730.) Such a cause of action may allege the proposed expenditures were negligent, collusive, or ultra vires. (Harman, supra, at p. 160; Stevens v. Geduldig (1986) 42 Cal.3d 24, 32, 35.)

Here, Citizens are claiming the challenged expenditures had features of all of the above theories, particularly collusion, based on the District board members' alleged interests in accommodating the wishes of the private entity, the Association, with respect to schoolsite location, property values, attendance policies, and so forth. It would be premature at this point to disallow a common law cause of action, and it is currently unclear exactly what Citizens will be able to prove when the matter proceeds to a determination on the merits. In light of the alternative forms of pleading allowed in this area, Citizens have not waived any right to proceed on this cause of action by declining to amend it, as allowed by the trial court, and instead proceeding with this appeal. Although Citizens represent that they could possibly amend to add further allegations about fair market value with respect to the subject lease agreement, such an amendment is not essential to present the larger issues otherwise framed by the pleadings. Should Citizens seek to pursue such an amendment, that matter will be left to the discretion of the trial court. (§ 473.)

V

FURTHER PROCEEDINGS

In light of the above analysis, our disposition will be to reverse the judgment of dismissal with directions to the trial court to allow the District to answer and to proceed with an adjudication on the merits, rather than on the pleadings. We decline to issue any further directions, as requested by Citizens, regarding the immediate issuance of an injunction. (People ex rel San Francisco Bay etc. v. Town of Emeryville (1968) 69 Cal.2d 533, 548.) We are aware that the trial court previously denied the TRO; however, that was not dispositive of the ultimate rights in controversy. (Rathbun, supra, 30 Cal.App.3d at p. 201.) In any case, the test for whether an injunction should issue is entirely different from the test applicable to rulings on demurrers, and those equitable issues remain for the trial court to resolve in the wise exercise of its discretion, subject to further showings by the parties.

This court previously issued a writ of supersedeas and stayed the purchase of the property pending the disposition of this appeal. This stay shall remain in effect until this opinion becomes final and the remittitur has been issued. Whether any future stay should be ordered will be left up to the discretion of the trial court in any further appropriate proceedings that may be pursued. (Cal. Rules of Court, rules 24(b)(1), 49(d).)

DISPOSITION

The judgment of dismissal is reversed with directions to allow an answer to be filed and further appropriate proceedings to be held. The stay issued on October 31, 2005

shall remain in effect until this opinion becomes final and the remittitur has been issued. Each party is to bear its own costs.

HUFFMAN, Acting P. J.

WE CONCUR:

HALLER, J.

O'ROURKE, J.

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^[1] All further statutory references are to the Code of Civil Procedure unless otherwise noted. Section 526a provides in relevant part: "An action to obtain a judgment, restraining and preventing any legal expenditure of, waste of, or injury to, the estate, funds, or other property of a county, town, city or city and county of the state, may be maintained against any officer thereof, or any agent, or other person, acting in its behalf, either by a citizen resident therein, or by a corporation, who is assessed for and is liable to pay, or, within one year before the commencement of the action, has paid, a tax therein."

^[2] Education Code section 17211 provides: "Prior to commencing the acquisition of real property for a new schoolsite or an addition to an existing schoolsite, the governing board of a school district shall evaluate the property at a public hearing using the site selection standards established by the State Department of Education pursuant to subdivision (b) of Section 17251. The governing board may direct the district's advisory committee established pursuant to Section 17388 to evaluate the property pursuant to those site selection standards and to report its findings to the governing board at the public hearing." The briefs state that such a hearing was ultimately noticed and held in October 2005, after the filing of this appeal.

^[3] Citizens originally alleged a fourth cause of action for violation of the California Environmental Quality Act ("CEQA"), but have dismissed it as moot. (Pub. Resources Code, § 21167, subd. (a).)

^[4] Section 7267 is found in Government Code chapter 16, Relocation Assistance (§ 7260 et seq.) "It provides in substance a public entity which acquires real property for public use shall compensate a displaced person for relocation expenses and certain other losses." (Melamed v. City of Long Beach (1993) 15 Cal.App.4th 70, 77 (Melamed).)

^[5] Fair market value has been defined as "[t]he price that a seller is willing to accept and a buyer is willing to pay on the open market and in an arm's-length transaction . . . ." (Black's Law Dict. (8th ed. 1999) p. 1587, col. 1.)