Filed 6/10/22 City of Fresno v. Pinedale County Water Dist. CA5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIFTH APPELLATE DISTRICT

APPEAL from a judgment of the Superior Court of Kings County. Kathy Ciuffini, Judge.

Costanzo & Associates and Neal E. Costanzo, for Defendant and Appellant.

Betts & Rubin and James B. Betts for Plaintiff and Respondent.

-ooOoo-

Appellant Pinedale County Water District (District) and respondent City of Fresno (City) are parties to a contract that requires the City to receive, transport, treat and dispose of the District’s sewage, and the District to bill and collect sewer charges from its customers at rates set forth by City ordinances and regulations and remit payment to the City as specified in the contract. Beginning in December 2007, the City informed the District it wanted to conduct an audit of the District’s fiscal records pursuant to an audit provision in the contract. The District refused to submit to an audit, contending the provision only required it to produce certain documents for the City to examine. After a six-month exchange of letters between the attorneys for both entities, the City filed suit against the District to compel the audit. After a bench trial held in 2011, the trial court found in the City’s favor and issued a judgment against the District that allowed the City to conduct the audit and awarded the City contractual attorney fees.

Despite our affirming the judgment and the award of attorney fees on the District’s appeal in 2013, the District continued to believe the audit was unjustified and the amount of attorney fees awarded unfair. The District declined to pay the judgment and instead attempted to negotiate a settlement with the City. The parties, however, did not settle and the City, who had not exercised its right to conduct the audit, brought this action for petition for writ of mandate to compel the District to pay the judgment as provided in Government Code section 970.2. In an attempt to nullify the judgment, the District filed a cross-complaint to rescind the parties’ contract based on illegality, which it incorporated as an affirmative defense in its answer, and asserted numerous defenses to the petition.

Following a bench trial, the trial court rejected the District’s rescission claim and its other defenses and granted the City’s petition for writ of mandate. The trial court issued a judgment ordering the District to pay the amount awarded in the judgment from the underlying action plus interest and the City to recover its attorney fees and costs as the prevailing party, which it awarded in a subsequent order and added to the judgment.

The District appeals, contending (1) the City forfeited its ability to recover the judgment in the underlying action under the security first rule of Code of Civil Procedure section 726; (2) it does not have a duty to pay the judgment in the underlying action because all of its funds are restricted; (3) the judgment is void because the petition for writ of mandate was filed without the city council’s authorization; (4) the judgment in the underlying action cannot be enforced because it is void as it is based on an illegal contract; (5) the trial court abused its discretion when it declined to bar the City from recovering under the unclean hands doctrine; and (6) there is no legal basis for an award of attorney fees. As we explain, we disagree with the District’s contentions and affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

The 1976 Contract and 2007 Agreement

The City owns and operates treatment works used to transport and treat wastewater and sewage. Between 1974 and 1977, the City expanded the treatment works by constructing a West Fresno-Herndon Interceptor and enlarging its regional wastewater treatment facilities (RWTF).

In the 1970’s, the California Regional Water Quality Control Board mandated the District, which had been treating and disposing of sewage in its service area through its own facilities, to solve treatment problems the District was experiencing. In 1976, the District and the City entered into a written contract for the City to transport and treat District sewage after the District determined disposal of its sewage through the City’s interceptor and RWTF was a more fiscally sound solution than upgrading its existing treatment facilities. Under the 1976 contract, the District would continue to charge and invoice its customers at specified rates, and pay a portion of the charges collected to the City to compensate for its use of the RWTF. After the 1976 contract was executed, the District was connected to the City’s treatment works via the interceptor, and the City received, transported, treated and disposed of all District sewage pursuant to the terms of the 1976 contract.

In the 1990’s, the City constructed capital improvements to the RWTF to restore and expand its capacity, the cost of which was incorporated into the sewer service charge. Thereafter, a dispute arose between the City and the District regarding the amounts the District was required to collect and remit to the City under the 1976 contract, which resulted in the City filing a lawsuit against the District in 2005.

The parties entered into an agreement, effective January 1, 2007, which settled the 2005 lawsuit (the Agreement). The Agreement rescinded the 1976 contract and set forth new terms and conditions for the transportation and treatment of District sewage. The Agreement required the District to bill and collect sewer charges from its customers at rates set forth by City ordinances and regulations, and remit payment to the City as specified in the Agreement.

Paragraph 19 of the Agreement, entitled “Maintenance of Records and Audit,” requires the District to “maintain all records pertaining to their sewage collection system and obligations under this Agreement including, without limitation, the identification of all District customers and respective premises, and all charges and receipts for sewer service.” Paragraph 19 further provides that “all books, documents, papers, and records of District pertaining thereto shall be available to City for the purpose of making audits, examinations, excerpts, and transcriptions,” and states the “District agrees to make available to City a copy of all independent audits and to allow City to conduct audits of the fiscal records of District pertaining to this Agreement as City may determine necessary.” Paragraph 19 specifically provides that it “shall survive expiration or termination of this Agreement.”

The Agreement contains an attorney fees provision that allows the prevailing party in an action “to enforce or interpret any term, covenant or condition” of the Agreement to recover reasonable attorney fees and legal expenses from the other party.

The Audit Lawsuit

Beginning in December 2007, the City informed the District it wanted to conduct an audit of the District’s fiscal records pursuant to paragraph 19, but the District refused to submit to an audit, contending the entirety of paragraph 19 only required it to produce certain documents to the City, which the City could then examine. After an exchange of letters between the attorneys for both entities over a six-month period, the City filed suit against the District in Fresno County Superior Court, asserting claims for breach of contract, declaratory relief, and accounting, seeking both specific performance and an injunction. The lawsuit subsequently was transferred to Madera County Superior Court.

After a bench trial based solely on documentary evidence, declarations and deposition testimony, the trial court issued a statement of decision in which it found in the City’s favor on all its claims. The trial court granted the City’s requests for specific performance of the Agreement, injunctive relief, and an accounting “to the extent that such remedies are congruent with an audit of District’s internal financial controls and operations involved in fulfilling its obligations under the 2007 Agreement.”

In October 2011, the trial court issued a judgment in the City’s favor which ordered that the City “shall be allowed to conduct an investigation and audit of the District’s internal financial controls and operations including, but not limited to, all records pertaining to the sewage collection system and the District’s obligations under the Agreement, in order to determine whether the [] District is fulfilling its obligations under the 2007 Agreement.” The judgment provided that the City could recover its costs, including attorney fees, as permitted by statute or contract via a timely filed memorandum of costs. The trial court retained jurisdiction to address and resolve any issues relating to costs or arising between the parties following issuance of the judgment which relate to the enforcement of the terms of the judgment and statement of decision.

In January 2012, the trial court issued an amended judgment which added a total of $86,658.53 in attorney fees and costs awarded to the City to the original judgment.

The District appealed the original judgment and the award of costs and attorney fees, both of which we affirmed in City of Fresno v. Pinedale County Water District (Sept. 17, 2013, F064112) and City of Fresno v. Pinedale County Water District (Sept. 17, 2013, F064758), respectively. In both appeals, we awarded costs to the City.

In December 2013, the City filed a memorandum of costs on appeal totaling $938.91; no motion to tax costs was filed. The next month, the trial court granted the City’s motion for attorney fees on appeal and awarded the City additional legal fees of $39,918 as part of the judgment.

The City’s Collection Efforts

On February 11, 2014, one of the City’s attorneys, Joseph Rubin, sent a letter to the District’s counsel, Neal Costanzo, recounting the three orders for attorney fees and costs, which remained unpaid. Rubin stated the attorney fees and costs the District owed the City totaled $127,515.44 and asked Costanzo to have the District submit payment to the City by February 14, or reach a mutually agreeable payment arrangement within 10 days, “otherwise, the City will proceed with collection proceedings.”

On February 14, 2014, Costanzo responded by letter that the District would not pay the judgment that day and while the City threatened “unspecified ‘collection proceedings,’ ” that was “not going to occur.” Costanzo explained as a county water district and local public entity, the District had until the end of the fiscal year to budget for payment of the judgment and if funds were not available, it had until the end of the following fiscal year to do so. Costanzo added the District’s ability to pay a judgment was restricted by the Constitution and various provisions of the Government Code, and the District would address the judgment in conformity with the applicable law.

Another of the City’s attorneys, James Betts, responded in a February 21, 2014 letter that “[a]s a professional courtesy, we take this opportunity to confirm that in the absence of any proposal from your client to pay some or all of its outstanding judgment, we will proceed with normal collection proceedings.”

On April 17, 2014, Costanzo received a call from the Madera County Superior Court clerk stating the City was applying for a writ of execution on the judgments entered against the District. The next day, Costanzo wrote Betts and Rubin a letter stating that a writ of execution can neither be obtained against a public entity nor executed on and the sole remedy to compel a local public entity such as the District to satisfy a monetary judgment is to file a petition for writ of mandate. Costanzo stated that unless he was apprised that a writ of execution had not been applied for or issued, or that if one was issued it would be recalled or rescinded, he would move ex parte to have the writ recalled. Betts responded in an April 21, 2014 letter that they would “pursue and file Abstracts of Judgment, but we will not seek collection by way of a Writ of Execution,” and the City would “pursue all available legal options to collect[] the $127,515.44, plus interest” the District owed.

The City recorded abstracts of judgment in Fresno County on May 13, 2014, and in Madera County on June 2, 2014. According to Costanzo, he sent Betts a letter on January 7, 2015, demanding that he immediately record releases of the abstracts because they were filed in violation of the law. Betts responded by letter that while he disagreed with Costanzo’s analysis, he would do so. The City recorded releases in Madera County on January 20, 2015, and in Fresno County on January 26, 2015.

Meanwhile, Betts sent a letter to the Madera County Superior Court on January 15, 2015, asking the court to execute a second amended judgment. Costanzo sent a letter to the superior court objecting to the request, asserting the court did not have jurisdiction to grant the request because the original judgment was final. Apparently, the trial court did not enter the second amended judgment.

The City then filed a motion to include the trial court’s postjudgment award of appellate attorney fees and costs in the judgment by issuing either an amended judgment or a judgment awarding costs on appeal. The District opposed the motion, again arguing the court did not have jurisdiction to issue an amended judgment. The trial court issued the second amended judgment on April 6, 2015, which states the amended judgment in the amount of $86,658.53, should be amended to include the costs and attorney fees the City incurred on appeal, and the City “shall recover the sum of $127,515.84” against the District.

Meetings Between the District and City Concerning the Amount Owed

According to David Rodriguez, the president of the District’s board of directors, he contacted Steve Brandau, the City councilmember who represented the area where the District is located, concerning the judgment in April 2015. Rodriguez testified he told Brandau the auditor wanted to download all the files on the District’s computer, which Rodriguez believed was “totally insane.” Brandau agreed that was improper. Brandau did not know anything about the attempted audit or the lawsuit. Brandau called the City’s public utilities director, Thomas Esqueda, who also did not know anything about the audit or lawsuit.

However, Brandau, who did not become a member of the city council until 2012, testified he was not aware of the judgment until a month or so before July 11, 2017, when he attended a District board meeting. His best recollection was that Rodriguez told him there was a disagreement between the City and District concerning the amount that should be paid on the judgment, and Rodriguez told him the District felt it was being overcharged and the amount was unfair. While he did not remember the details of the conversation, he recalled Rodriguez asked him to attend the board meeting, where he figured he would learn more. Brandau recalled asking Esqueda about what was happening. Esqueda told him there was a disagreement over the amount owed and a conflict over whether the District wanted to pay that amount.

Rodriguez and the District’s general manager, Jason Franklin, both testified about a meeting they said they attended with Esqueda and City Manager Bruce Rudd in April or May 2015. Rudd, who was not aware of the attempted audit or litigation, asked what the money judgment was for. Franklin and Rodriguez explained the City sent an auditor who wanted to download everything on the District’s computers, but the District refused, and the judgment was for attorney fees awarded in a suit the City brought to compel the audit.[1] Esqueda and Rudd responded it did not sound like something the City would do, namely, try to take everything from the District’s hard drive, and they did not know why the City attempted to conduct the audit. Rodriguez claimed Rudd agreed the audit, as Rodriguez described it, would be improper. Rodriguez pointed out the City had a court order allowing them to conduct the audit and asked if the City was going to do so. Esqueda and Rudd told them the City would not conduct the audit, as they did not see any basis for it. According to Franklin, Esqueda and Rudd did not indicate what they were going to do about the judgment, but he and Rodriguez left the meeting feeling they might be able to work something out.

Esqueda, who began working at the City as the director of public utilities in June 2014, remembered being present at a meeting with Rudd, Franklin and Rodriguez, but he did not recall what was discussed and he did not recall talking about the litigation. He felt the meeting was an introductory one because he had not previously met Franklin or Rodriguez.

In October 2015, Esqueda drafted a letter to the District proposing that it pay the $127,515.84 judgment in equal payments over 10 years with no interest, but rather than mail the letter, he emailed the draft to Franklin to let Franklin know what he was thinking. Around that time, Esqueda attended a District board meeting to discuss the judgment and the City’s proposal for its payment over 10 years. Esqueda remembered some board members commenting about the audit and that they did not view the City’s approach to exercising the audit provision favorably. After he presented the City’s proposal, the board went into closed session.

The next month, Esqueda met with Franklin and Costanzo. Esqueda recalled Costanzo telling him the judgment rendered based on the attorney’s work did not seem appropriate and the amount was not reasonable, and Costanzo thought $30,000 to $40,000 was an appropriate level of compensation the City would have paid its attorney. Esqueda did not recall hearing anything about the 2007 contract needing to be changed or modified. Esqueda never saw the discussion as an offer, it was more a statement of the range the District thought would be more appropriate for attorney fees and costs.

Franklin, however, testified Esqueda was told the contract was illegal and would be rescinded. Franklin further testified the District offered to pay 25 percent of the judgment, but if the City made a counterproposal of $40,000, it would seriously consider paying that amount. Franklin acknowledged the District did not make a written settlement offer to the City and they did not discuss when a payment would be made or whether it would be made in a lump sum or installments. The District had $40,000 in general funds available to make a lump sum payment. Franklin did not discuss whether the settlement, if it was accepted, would be a written or oral agreement, but he assumed it would be a written formal agreement.

Esqueda sent an email to Franklin on March 23, 2016, stating the settlement had “gotten away from [him],” but he recalled he was going to come back with a counter to Franklin’s counteroffer. Esqueda stated the City’s original proposal was for the District to pay the judgment over 10 years with no interest, and he believed the District’s board wanted a “counter with a proposal of $40k or something along those lines.” Esqueda apologized for forgetting Franklin’s counter and asked him to resend it as he needed to work on “this item.” Esqueda testified he needed a written settlement offer so he could “run it up the flagpole,” but he did not remember receiving one or receiving a response from Franklin. Esqueda had discussions with the city attorney, who was responsible for placing items on the agenda for closed sessions, about the situation between the City and the District. Esqueda, however, never presented a formal offer to anyone because the District never made a formal offer.

Franklin testified he sent an email to Esqueda on March 25, 2016, in which he stated that when he and the District’s legal counsel last discussed the matter with Esqueda, the District’s offer was to pay 25 percent of the judgment, which equals $31,250; the District’s position was that the $125,000 claimed was overstated since it incurred around $40,000 in costs for its legal counsel; and the board “has indicated they would seriously consider paying 40k if that was the City’s counter proposal.” Franklin did not receive a response to this email from Esqueda or anyone else at the City.

Esqueda contacted Franklin in June 2017 and asked to attend the next District board meeting to discuss the legal fees owed the City and the potential need for an audit, among other things. Esqueda and Brandau attended the July 11, 2017 District board meeting. According to Brandau, about a month before the board meeting an offer from the District was presented to the city council for approval, which the council rejected in closed session.

At the July 2017 board meeting, Esqueda informed the board members that due to the parties’ inability to agree on how the judgment was to be paid, the city attorney told him the “issue w[ould] go to court and a writ of mandate was issued in June of 2017.” Brandau believed a discussion took place at the board meeting about the District wanting to pay substantially less than the judgment, maybe a third of the judgment, and the District felt $40,000 was a fair price. Brandau did not see this as an offer but rather more like what the District felt was fair. Esqueda, however, held firm that the amount of the judgment was the “right price.”

The Petition for Writ of Mandate

On June 16, 2017, the City filed a petition for writ of mandate pursuant to Government Code section 970.2 in Fresno County Superior Court. The City sought to compel the District to pay the amended judgment of $86,658.53, the costs on appeal of $938.91, and the attorney fees on appeal of $39,918, as ordered by the court on January 31, 2014. The City alleged it demanded payment of these amounts on February 11, 2014, but the District failed and refused to pay. The City asked the trial court to issue a peremptory writ of mandate compelling the District to pay the judgment with interest, an award of attorney fees incurred in prosecuting the writ as provided in the Agreement, and costs of suit.

After the action was transferred to Kings County Superior Court, the District answered and filed a cross-complaint for rescission of the Agreement on the ground the agreement “is illegal, invalid and void” as the District has no authority to contract away its statutory and constitutional authority to set rates for sewer service, and is legally precluded from delegating its power and obligation to set sewer rates. The cross-complaint also contained a declaratory relief claim, in which the District sought a declaration that the City’s recording of the release of abstracts of judgment released and discharged the District from any obligation under the judgment the City sought to enforce in the petition. In the second affirmative defense alleged in the answer, the District incorporated the cross-complaint’s allegations.

The City demurred to the cross-complaint, which the District opposed. As pertinent here, the City asserted the court did not have jurisdiction over the cross-complaint as the City’s petition for writ of mandate is a special proceeding to compel the District to pay an outstanding judgment and to the extent the District had any independent causes of action it wished to assert against the City, it did not have authority to assert them through a cross-complaint to the petition. The trial court issued a tentative decision sustaining the demurrer without leave to amend on the ground the District failed to cite persuasive authority that it may file a cross-complaint to a petition for writ of mandate filed in accordance with Government Code sections 970.2 and 970.4, and it declined to exercise any discretion it had to entertain a cross-complaint. Following arguments at a July 23, 2018 hearing on the demurrer, the trial court stated it would adopt the tentative ruling. A written order sustaining the demurrer without leave to amend was filed on October 22, 2018, which incorporated the tentative ruling.

On August 9, 2018, the District filed a complaint for rescission of the Agreement in Fresno County Superior Court, which replicated the cross-complaint (the Fresno lawsuit). The next month, the District filed a motion in the Kings County action to transfer the Fresno lawsuit there, consolidate it with the proceeding on the City’s petition for writ of mandate, and stay the proceeding pending the transfer and consolidation. The City opposed the motion.

Following a hearing on October 4, 2018, the Kings County court issued an order denying the motion, finding that by filing a complaint in Fresno County alleging the same causes of action as the stricken cross-complaint, and seeking to transfer, consolidate, and stay the Kings County proceeding, was an improper and unsupported attempt to seek reconsideration of the ruling on the demurrer. The court further found the District did not cite any new facts or law to support consolidation of the complaint, as required for reconsideration under Code of Civil Procedure section 1008, and there was nothing to suggest the decision on the demurrer would have been different if a complaint was before the court rather than a cross-complaint.

Trial on the City’s petition for writ of mandate was set for May 28, 2019. In March 2019, the District filed a motion to stay, vacate or continue the trial date. The District attached an order from the Fresno County court transferring the Fresno lawsuit to Kings County and asserted that while the transfer had not yet occurred, it was imminent. The District asserted the rescission complaint was dispositive of the City’s petition and would render the matter moot. The City opposed the motion, arguing the District did not have authority to assert an independent claim in connection with the City’s petition and the District cannot collaterally attack the City’s judgment.

At the conclusion of the April 25, 2019 hearing on the motion, the trial court stated it would adopt its tentative ruling to deny the motion. The trial court subsequently issued a written order denying the motion on the grounds set forth in its tentative ruling. The trial court noted that while the Fresno lawsuit had allegedly been ordered transferred to Kings County, it had not yet been filed. The trial court found the Fresno lawsuit was a collateral attack on a lawful judgment since the invalidity of the judgment, as asserted by the District, did not appear on its face. Therefore, the District was required to seek relief from the judgment under Code of Civil Procedure section 473, subdivision (b), which it failed to do, and the presence of the Fresno lawsuit did not support a delay in collection of the judgment.

The Trial on the Petition

The case proceeded to a three-day court trial. The parties submitted trial briefs and requests for judicial notice, as well as motions in limine. The trial court took judicial notice of exhibits the parties submitted. Pursuant to the parties’ stipulation, the trial court took the deposition transcripts of Brandau and Esqueda into evidence, and Rodriguez and Franklin testified at the trial. The parties submitted posttrial briefs.

The trial court issued a proposed statement of decision on October 9, 2019, granting the petition for writ of mandate. The trial court found the City established the existence of a $127,515 judgment, the demand for payment of the judgment, and the District’s failure to pay any part of the judgment. The trial court rejected the following affirmative defenses: (1) the one form of action rule; (2) illegal contract, void judgment, and rescission; (3) unclean hands; (4) estoppel; and (5) futility. The trial court stated the City had calculated interest on the judgment as of June 1, 2019, as $18,080, which accrues at $7.41 per day. The trial court found the City, as the prevailing party, was entitled to attorney fees and costs, which were to be determined following a timely filed cost bill.

The District filed objections to the proposed statement of decision on October 31, 2019, to which the City filed a response. Meanwhile, the City filed a memorandum of costs and a motion for attorney fees on October 22, 2019. The District filed a motion to strike the memorandum of costs and an opposition to the attorney fees motion.

A hearing was held on the District’s objections to the proposed statement of decision on December 9, 2019. After hearing argument from the District’s counsel, the trial court overruled the District’s objections and adopted the proposed statement of decision as the final statement. The trial court executed a judgment, which states the petition for writ of mandate is granted, the District is ordered to pay the $127,515.84 awarded in the second amended judgment entered in the audit lawsuit, plus accrued interest of $18,080 as of May 31, 2019, and interest accruing thereafter at $7.41 per day. The judgment further states the City, as the prevailing party, shall recover its attorney fees and costs as permitted by statute or contract, as determined pursuant to a timely filed memorandum of costs, and the court shall retain jurisdiction to resolve disputes relating to the City’s recovery of costs or issues which arise between the parties relating to enforcement of the judgment. The statement of decision and second amended judgment filed in the audit lawsuit are attached to the judgment. The trial court set a hearing on the motion for attorney fees and costs for January 15, 2020.

After hearing argument at the January 15, 2020 hearing, the trial court announced it was granting the City’s motion. The trial court found the City was the prevailing party, it was entitled to its costs, and due to the enforcement of a judgment that included an attorney fee award, the City was entitled to $92,201 in attorney fees incurred in pursuing this collection action. The trial court denied the District’s motion to strike costs.

The District filed a notice of intention to move for a new trial or to vacate the judgment, followed by a memorandum of points and authorities in support of the motion. The trial court denied the motion without a hearing, stating in a written order that it did not find any legal or procedural grounds to support a modification of the statement of decision or a need to reopen the case for further proceedings.

Over the District’s objection, the trial court entered an amended judgment on January 29, 2020, which states the court entered its judgment on December 9, 2019, which was attached; it subsequently fixed the City’s recoverable attorney fees at $91,879, together with untaxed costs of $322, for a total award of fees and costs of $92,201; and the judgment was ordered amended to include the City’s recovery of fees and costs of $92,201 against the District. An order awarding the attorney fees and costs referred to in the amended judgment was entered on January 30, 2020.

The District filed a notice of appeal from the December 2019 judgment, the January 2020 amended judgment, the order granting an award of attorney fees, and the order denying the new trial motion.

DISCUSSION

Standard of Review

A money judgment against a local public entity is not enforceable by execution. (Code Civ. Proc., § 695.050; Gov. Code, § 970.1, subd. (b).) Rather, the appropriate remedy to compel payment by a local public entity is a writ of mandate. (Gov. Code, § 970.2; Joseph v. San Francisco Housing Authority (2005) 127 Cal.App.4th 78, 81 (Joseph).) “Mandamus [serves] to compel the performance of a clear, present, and ministerial duty where the petitioner has a beneficial right to performance of that duty.” (Carrancho v. California Air Resources Board (2003) 111 Cal.App.4th 1255, 1265.) In reviewing the trial court’s ruling on the writ of mandate petition, we defer to its express and implied factual determinations if supported by substantial evidence and review de novo the interpretation and application of statutes, regulations, and rules. (Joseph, at p. 81; SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 461–462.)

The One Form of Action Rule

At trial, the District argued the City’s recording of the abstracts of judgment and their subsequent release discharged the judgment debt secured by the abstracts under Code of Civil Procedure section 726. The District asserted the abstracts are the equivalent of a mortgage and by releasing the abstracts without the District’s consent, the City waived its right to enforce the underlying judgment.

The trial court rejected the District’s argument, explaining in its statement of decision that the District failed to produce persuasive authority the City’s filing and subsequent release of the abstracts of judgment prior to filing the petition for writ of mandate was the equivalent of initiating an action on a mortgage, thereby invoking the one form of action rule of Code of Civil Procedure section 726. The trial court found the District’s cases were distinguishable and did not support the District’s assertion that the filing and release of the abstracts of judgment waived the debt.

The District renews its argument on appeal. The District asserts that because an abstract of judgment and a mortgage both create liens against real property, abstracts of judgment are subject to the one form of action rule of Code of Civil Procedure section 726. The District argues that by releasing the abstracts of judgment the City forfeited its right to sue on the judgment. The District contends its argument is based on a purely legal question, namely, whether the abstracts qualify as a mortgage, which is subject to our independent review, and contends the “abstracts are a mortgage.”[2]

Code of Civil Procedure section 726, subdivision (a) provides, in pertinent part: “There can be but one form of action for the recovery of any debt or the enforcement of any right secured by mortgage upon real property ….” “Section 726, which sets forth the so-called ‘one form of action’ rule, is part of the statutory protections and procedures which restrict the secured creditor’s remedies for notes secured by real property. As judicially construed, section 726 is both a ‘security first’ and ‘one-action’ rule: It compels the secured creditor, in a single action, to exhaust his security judicially before he may obtain a monetary ‘deficiency’ judgment against the debtor.” (O’Neil v. General Security Corp. (1992) 4 Cal.App.4th 587, 597; see Coker v. JPMorgan Chase Bank, N.A. (2016) 62 Cal.4th 667, 690‒691.)

A debtor may invoke Code of Civil Procedure section 726, subdivision (a)’s protection “by either (1) raising it as an affirmative defense, compelling the creditor to first exhaust the security before being entitled to a monetary judgment on any deficiency, or (2) invoking it as a sanction, meaning that a creditor who obtains a monetary judgment rather than foreclosing on the security will be deemed to have waived the right to pursue the security interest.” (In re Prestige Ltd. Partnership-Concord (9th Cir. 2000) 234 F.3d 1108, 1114‒1115, citing Security Pacific National Bank v. Wozab (1990) 51 Cal.3d 991, 997.)

The District contends that by releasing the abstracts the City forfeited its right to sue on the judgment, citing cases that have held a creditor may not unilaterally divest its security interest without the debtor’s consent to bring an action on the note. (See, e.g., Hibernia Savings & Loan Society v. Thornton (1895) 109 Cal. 427, 429 [the mortgagee “will not be permitted without the consent of the mortgagor to release the mortgage for the purpose of bringing an action upon the note”]; Pacific Valley Bank v. Schwenke (1987) 189 Cal.App.3d 134, 137‒138, 140 [a creditor may not circumvent Code Civ. Proc., § 726 “by divesting himself of his security without the consent of the debtor”; if he does “he has waived his right to proceed on the note”].)

As the District recognizes, its argument hinges on whether an abstract of judgment is a mortgage since Code of Civil Procedure section 726 applies only to the “recovery of any debt or the enforcement of any right secured by mortgage upon real property.” (Code Civ. Proc., § 726, subd. (a), italics added.) The District, which states it was not “able to cite a single case involving an abstract of judgment and application of the security first rule because no such case exists,” asserts it is, since an abstract of judgment and a mortgage both create liens. But Code of Civil Procedure section 726 does not apply to all liens; it has been held not to apply to a vendor’s lien (Jones v. Evans (1907) 6 Cal.App. 88, 92), a judgment lien[3] (Lisenbee v. Lisenbee (1919) 42 Cal.App. 567, 569-570 (Lisenbee)), or a mechanic’s lien (Martin v. Becker (1915) 169 Cal. 301, 307), as in each situation the creditor was not required to first exhaust the security.

With respect to judgment liens, the appellate court explained in Lisenbee the lien’s effect is to preserve the judgment’s efficacy and become a remedy in aid of its execution, rendering the judgment capable of enforcement. (Lisenbee, supra, 42 Cal.App. at p. 569.) But it would “amount to a procedural circumvolution wholly unnecessary and antagonistic to the genius of the reformed procedure if the law contemplated and it was necessary to hold that, to secure the benefit of the lien … a proceeding to foreclose such lien was required.” (Id. at p. 570.) Thus, satisfaction of a judgment may “be secured by the usual method of executing judgments or without resorting to a proceeding to foreclose the lien.” (Ibid.)

The District does not convince us that we should depart from the holding in Lisenbee. While the District asserts it cited numerous cases that “apply the statutory definition of a mortgage to any encumbrance created to pay a debt and not a conveyance in trust,” none of those cases concern a judgment lien. (See Jackson v. Lacy (1940) 37 Cal.App.2d 551, 558‒559 [“[a] mortgage is merely an incumbrance created to pay a debt and not a conveyance in trust”]; Banta v. Wise (1901) 135 Cal. 277, 279‒280 [deed purporting to convey specific land given to secure indebtedness was a mortgage]; Edwards-Town, Inc. v. Dimin (1970) 9 Cal.App.3d 87, 92 [a vendor’s lien arises with the sale and transfer of legal title if full consideration is not paid and the vendor has not taken other security; the vendor may waive his lien if he manifests an intent not to rely on it].)

Since Code of Civil Procedure section 726 does not apply to an abstract of judgment, the City was within its rights to bring a petition for writ of mandate under Government Code section 970.2 to enforce its judgment.

Restricted Funds

The District argued at trial the revenues it receives for providing sewer, water, and waste collection could not be used to pay the judgment because they were restricted funds. In its statement of decision, the trial court stated it agreed with the City that an argument that it would be futile to order a public entity to pay a judgment was rejected as a defense to payment in Joseph, supra, 127 Cal.App.4th at page 82. The trial court found the District’s position was contradicted by the District’s settlement offer and documents which showed the District had cash assets. Moreover, sewer fees may be used to pay for the sewer system’s maintenance and management, as stated in Moore v. City of Lemon Grove (2015) 237 Cal.App.4th 363, 369 (Moore); therefore, the litigation expenses relating to an audit of the collection of sewer fees may be paid as part of the sewage systems’ operating costs.

Government Code section 970.2 provides local public entities such as the District “shall pay any judgment in the manner provided in this article.” A local public entity is required to pay the full amount of any judgment, with interest, out of any unrestricted funds that are available for the fiscal year in which the judgment was entered, and if any amount remains unpaid, to obtain funds and pay that amount the following fiscal year. (Joseph, supra, 127 Cal.App.4th at p. 82; Gov. Code, §§ 970.4,[4] 970.5.[5])[6] In furtherance of these provisions, Government Code section 970.8 mandates that the budgets of local public entities for each fiscal year must include “a provision to provide funds in an amount sufficient to pay all judgments in accordance with this article.” (Gov. Code, § 970.8, subd. (a).)

In Joseph, surviving family members of five people killed when a fire broke out at a housing development owned and operated by the San Francisco Housing Authority (SFHA) obtained a $12 million judgment against SFHA, which a jury found liable for the deaths. (Joseph, supra, 127 Cal.App.4th at p. 80.) SFHA did not pay the plaintiffs, so they petitioned to compel SFHA to satisfy the judgment. SFHA opposed the writ petition, claiming it did not have the funds to satisfy the judgment and did not have the legal obligation or power to raise the funds. (Ibid.) The trial court granted the petition and issued an order requiring SFHA to, among other things, pay the judgment if funds were available and, if not, to take proper steps to appropriate the amount required to meet that obligation. (Id. at pp. 80‒81.)

SFHA appealed, claiming it demonstrated no funds were available to satisfy the judgment and it would be unable to obtain the funds. (Joseph, supra, 127 Cal.App.4th at p. 81.) The appellate court found the trial court’s order followed the procedure set forth in the Government Code, explaining while “SFHA may or may not have funds available at the present time … that means only it has an excuse for not paying the full amount of the judgment during the current fiscal year.” (Id. at p. 82.) SFHA argued it was prohibited from using the property and funds it received from the federal government and the tenants who paid discounted rents funded by the federal government, as its use of the funds was restricted by law. (Ibid.) The appellate court, however, found that nothing prohibited SFHA from using the federal funds or properties, or the rents obtained from the properties, to pay the judgment, its funding sources were not limited to the federal government, and SFHA had the independent power to raise revenues by issuing bonds and making or selling a mortgage loan. (Id. at pp. 85‒86.) Accordingly, the appellate court found a writ of mandate was properly issued to compel SFHA to pay the judgment entered against it and SFHA had not shown its issuance was a futile act. (Id. at p. 87.)

Like the public entity in Joseph, the District argues it demonstrated at trial that no funds were available to satisfy the judgment. The District, however, contends that rather than operating as a defense, i.e., that issuing the writ would be futile, its inability to pay shows the City cannot prove one of the elements essential to issuance of a writ of mandate, i.e., that the District has a clear, present, and usually ministerial, duty to pay. (Santa Clara County Counsel Attys. Assn. v. Woodside (1994) 7 Cal.4th 525, 539‒540 [to obtain writ relief a petitioner must show (1) the respondent’s “ ‘clear, present and usually ministerial duty[,]’ ” and (2) the petitioner’s “ ‘clear, present and beneficial right … to the performance of that duty’ ”]; 8 Witkin, Cal. Procedure (6th ed. 2022) Extraordinary Writs, § 74 [“n the absence of a showing of this correlative duty and right, the writ will be denied”].)

The District asserts the parameters of its duty to pay is found in Government Code section 970.4, which requires it to pay the judgment out of funds that are “nappropriated for any other purpose [i]unless the use of such funds is restricted by law or contract to other purposes.” (Gov. Code, § 970.4, subd. (a), italics added.) The District argues all of its funds come from sources that are restricted by Proposition 218 (Cal. Const., arts. XIII C, XIII D),[7] namely, sewage fees, water rates, and solid waste collection rates, which cannot be used to pay the judgment because they are property-related fees or charges. (See Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, 217 [water delivery charges are charges for a property-related service under Prop. 218]; Paland v. Brooktrails Township Community Services Dist. Bd. of Directors (2009) 179 Cal.App.4th 1358, 1361‒1362 [basic cost of providing water or sewer service is a charge for a property-related water or sewer service under Prop. 218]; Howard Jarvis Taxpayers Assn. v. City of Roseville (2002) 97 Cal.App.4th 637, 638, 642 (Roseville) [Prop. 218 applies to in-lieu fee for city’s water, sewer, and refuse collection services].)

[u]DISPOSITION

The judgments and orders are affirmed. Costs on appeal are awarded to respondent.

DE SANTOS, J.

WE CONCUR:

DETJEN, ACTING P. J.

FRANSON, J.

[1] Rodriguez admitted he never read the trial court’s decision. While Rodriguez did not believe the City’s audit request was made in good faith, he did not know the District stipulated that the request was made in good faith during trial in the audit lawsuit.

[2] The District asserts the trial court did not set out the factual or legal basis for its decision on this issue in the statement of decision and that constitutes per se reversible error, citing Miramar Hotel Corp. v. Frank B. Hall & Co. (1985) 163 Cal.App.3d 1126, 1129‒1130. But as the District asserts, the resolution of whether an abstract qualifies as a mortgage is a legal issue, and therefore we are unconcerned with any purported inadequacy in the statement of decision. (City of Coachella v. Riverside County Airport Land Use Com. (1989) 210 Cal.App.3d 1277, 1291‒1292 [a statement of decision is required only as to issue of fact, not issues of law].)

[3] “A judgment lien on real property is created by recording an abstract of a money judgment with the county recorder. (Code Civ. Proc., § 697.310, subd. (a).) Upon recording, the lien automatically attaches to all real property the judgment debtor owns within that county. (Id., § 697.340, subd. (a).) The effect of the lien is to secure the debt: it allows the judgment to be satisfied from the proceeds of a sale of the property. [Citation.] The lien remains until the judgment creditor files an acknowledgement of satisfaction of judgment or agrees to release the lien.” (Longview Internat., Inc. v. Stirling (2019) 35 Cal.App.5th 985, 988–989.)

[4] Government Code section 970.4 provides: “Except as provided in Section 970.6, the governing body of a local public entity shall pay, to the extent funds are available in the fiscal year in which it becomes final, any judgment, with interest thereon, out of any funds to the credit of the local public entity that are: [¶] (a) Unappropriated for any other purpose unless the use of such funds is restricted by law or contract to other purposes; or [¶] (b) Appropriated for the current fiscal year for the payment of judgments and not previously encumbered.”

[5] Government Code section 970.5 provides: “Except as provided in Section 970.6, if a local public entity does not pay a judgment, with interest thereon, during the fiscal year in which it becomes final, the governing body shall pay the judgment, with interest thereon, during the ensuing fiscal year immediately upon the obtaining of sufficient funds for that purpose.”

[6] Pursuant to Government Code section 970.6, an entity can pay a judgment in 10 equal annual installments if (1) its governing body adopts an ordinance or resolution with findings that an unreasonable hardship will result unless installment payments are allowed; and (2) the court, following a hearing, finds that payment of the judgment in installments is necessary to avoid an unreasonable hardship. (Gov. Code, § 970.6, subd. (a)(1), (2).)

[7] All article references are to articles of the California Constitution.

[8] While the District asserts the trial court’s failure to address this issue in the statement of decision is per se reversible, the District also admits the issue involves a question of law. Since this is a legal issue, we are unconcerned with any purported inadequacy in the statement of decision. (City of Coachella v. Riverside County Airport Land Use Com., supra, 210 Cal.App.3d at pp. 1291‒1292 [a statement of decision is required only as to issue of fact, not issues of law].)

[9] In so holding, our Supreme Court noted “the statutory list of ‘persons’ contains no words or phrases most commonly used to signify public school districts, or, for that matter, any other public entities or governmental agencies.” (Wells v. One2One Learning Foundation, supra, 39 Cal.4th at p. 1190.)