SUPERIOR COURT OF CALIFORNIA

COUNTY OF SACRAMENTO

DATE/TIME: 1:30 p.m. November 15, 2013 DEPT. NO.: 14
JUDGE: HON. EUGENE L. BALONON CLERK: P. MERCADO

ISAAC GONZALEZ, JAMES CATHCART, and Case No.: 34-2013-80001489
JULIAN CAMACHO,

Petitioners and Plaintiffs,

vs.

KEVIN JOHNSON, JOHN SHIREY, JOHN
DANGBERG, CITY OF SACRAMENTO, and
DOES 1 through 40, inclusive,

Respondents and Defendants.

Nature of Proceedings: DEMURRER TO COMPLAINT; MOTION FOR
DISCOVERY PROTECTIVE ORDER

The following shall constitute the Court’s tentative ruling on the above matter, set for
hearing in Department 14, on Friday, November 15, 2013, at 1:30 p.m. The tentative
ruling shall become the final ruling of the Court unless a party wishing to be heard so
advises the clerk of this Department no later than 4:00 p.m. on the court day preceding
the hearing, and further advises the clerk that such party has notified the other side of its
intention to appear.

If a hearing is requested, oral argument shall not exceed 20 minutes per side.

Defendants and Respondents (Defendants) demur to Petitioners’ and Plaintiffs’
(Plaintiffs) Complaint and Writ of Prohibition (Complaint), and move for protective
orders prohibiting or limiting discovery as to Councilmember Kevin McCarty and City
Director of Economic Development Jim Rinehart.

I. BACKGROUND

The Complaint challenges the City Council of the City of Sacramento’s (City) adoption
of a Term Sheet for development of a sports arena and entertainment center (ESC), made
between the City and the Sacramento Investor Group (SIG). The gravamen of the
Complaint is that Defendants fraudulently concealed or misrepresented information
regarding the value of items specified in the Term Sheet, so that when the City Council
approved the Term Sheet, SIG would receive more City monies or subsidies than
disclosed.

On October 23, 2013, this Court granted Defendants’ request to stay discovery pending
its consideration of Defendants’ demurrer.

II. DISCUSSION

Defendants’ requests for judicial notice (RJN) in support of the demurrer are
GRANTED.

Defendants object to Exhibits 2, 3, and 4 in Plaintiffs’ RJN in support of their opposition
to the demurrer, on the grounds that Exhibits 2 and 4 are only excerpts, and Exhibits 3
and 4 are not regulations or legislative enactments and are irrelevant. These objections
are SUSTAINED. Exhibits 2, 3, and 4 appear to be excerpts and Plaintiffs furnish no
declaration attesting that these documents are true and correct copies of what Plaintiffs
state that they are. Accordingly, the Court GRANTS Plaintiffs’ RJN as to Exhibits 1 and
5 and DENIES Plaintiffs’ RJN as to Exhibits 2 through 4.

Plaintiffs have also filed a Supplemental RJN. Defendants object on the basis that it is
untimely. The Court SUSTAINS Defendant’s objections to the Supplemental RJN. All
moving and supporting papers must be filed and served within the time specified in Code
of Civil Procedure section 1005. (Cal. Rules Ct., Rule 3.1300(a).) Plaintiffs filed the
Supplemental RJN one week after filing their Opposition to the demurrer. Moreover,
they have not shown any good cause as to why they should be excused from timely filing
the Supplemental RJN.

a. Demurrer

A demurrer tests the sufficiency of a pleading by raising questions of law. (Herman v
Los Angeles Met. Transp. Authority (1999) 71 Cal.App.4th 819, 824.) In reviewing a

demurrer, the Court will not “assume the truth of contentions, deductions or conclusions
of fact or law and may disregard allegations that are contrary to the law or to a fact of
which judicial notice may be taken.” (Cochran v. Cochran (1998) 65 Cal.App.4th 488,

483.)

The Complaint arises from the City Council’s approval of a Term Sheet to facilitate
construction, operation, and use of the ESC that will host the Sacramento Kings
basketball team (Kings). The Term Sheet is an agreement between the City and SIG. It
sets forth the “process and framework by which the parties agree to negotiate definitive
documents” regarding development and operation of the ESC. (Defendants’ RJN, Exh.
D-1, p. 1 of 19.)

The Complaint alleges that Defendants made a secret agreement with SIG that they
would enable the City to subsidize the SIG’s purchase of the Kings franchise.
Specifically, Defendants averred that the City would give to SIG (1) a free 35-year lease
of 2,700 City-owned parking places at Downtown Plaza, (2) six free electronic billboard
leases on City-owned land, and (3) seven City-owned parcels with an “assigned value” of
$37.98 million, but a higher fair market value. The Complaint alleges that Defendants
concealed or misrepresented the true value of these subsidies to the City Council.

The Complaint asserts causes of action for (1) fraud, (2) concealment, (3) writ of
prohibition, (4-5) waste and illegal expenditure of public funds pursuant to Code Civil
Procedure § 526a, (6) declaratory relief, and (7) injunctive relief. Each cause of action
arises from the City Council’s approval of the Term Sheet, e.g., that Defendants falsely
represented or concealed the nature and amount of the public subsidy to the City Council
to secure approval of the Term Sheet, and that the Term Sheet’s approval constitutes
wasteful and illegal expenditure of funds.

Defendants demur to the Complaint on the basis that it fails to state facts sufficient to
constitute a cause of action—there is no issue that is ripe for the Court’s review.

The basic premise underlying each cause of action in the Complaint is that, by approving
the Term Sheet, the City Council has taken action that commits City to expending funds
in an illegal or otherwise improper manner alleged by Plaintiffs, e.g., the subsidies, or
unlawful use of parking monies. However, Plaintiffs cannot show that the City has
committed funds in this manner, namely, because the Term Sheet does not require the
City to do so.

The Term Sheet sets forth the “process and framework by which the parties agree to
negotiate definitive documents and potential approvals to be considered by the City
regarding the potential location, financing, ownership, design, development, construction,
operation, use and occupancy” of the ESC. (Defendants’ RJN, Exh. D-1, p. 1 of 19.)

The Term Sheet “contains the proposed non-binding terms of a potential transaction
which the City has agreed to process.” (Ibid .) Further, “the parties agree that no
obligation to enter into definitive transaction documents, or any transaction shall exist
and no project or definitive transaction documents shall be deemed to be approved.”
(Ibid .)

Plaintiffs argue in the Opposition that the non-binding language of the Term Sheet is
1
irrelevant because they are pursuing their claims under Code of Civil Procedure section
526a, and the City has already expended some monies to carry out the Term Sheet and
will enter into “definitive agreements” and resolutions next year.

Section 526a provides in part, “[a]n action to obtain a judgment, restraining and
preventing any illegal 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.”

1 Unless otherwise specified, all statutory references shall be to the Code of Civil Procedure.
The purpose of this statute is to permit a large body of persons to challenge wasteful
government action that otherwise would go unchallenged because of the standing
requirement. (Blair v. Pitchess (1971) 5 Cal.3d 258, 267-268.) However, the cause of
action created by Section 526a must involve an actual or threatened expenditure of public
funds. (Fiske v. Gillespie (1988) 200 Cal.App.3d 1243, 1246.)

Here, Plaintiffs have not shown an actual or threatened expenditure of funds that is
illegal, wasteful or injurious under Section 526a.

th
In Cedar Fair, L.P. v. City of Santa Clara (2011) 194 Cal.App.4 1150 the Court of
Appeal considered a city’s approval of term sheet, which the petitioners alleged violated
the California Environmental Quality Act (CEQA). Although the petitioners did not
assert a Section 526a challenge, the Court finds Cedar Fair’s analysis instructive. In
Cedar Fair, the term sheet was between a city, redevelopment agency, and stadium
company for development of a stadium. The Court found that the City’s approval of the
term sheet was not an “approval” of a “project” within the meaning CEQA. After
examining the language of the term sheet, the Court of Appeal concluded that the term
sheet made clear that the parties did not intend to create any binding contractual
obligations as to the development of the stadium or commit the parties to any definite
course of action.

Here, the Term Sheet is “non-binding” and creates “no obligation” to enter into further
transactions. Additionally, any future transactions committing the City to the ESC, if and
when they occur, may not commit the City to spending monies in the specific manner set
forth in the Term Sheet or alleged by Plaintiffs. Accordingly, the Court must speculate as
to when the City will enter binding agreements with the parties and pass resolutions, and
what conditions those documents will contain. The matter is not ripe for the Court’s
review. (Stonehouse Homes, LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 51,

541-542.)

Plaintiffs argue that under Section 526a, there is a sufficient threat that the City will
expend the funds in the manner set forth in the Term Sheet. Plaintiffs argue that the City
is poised to complete final transactions in March 2014, and the City has already
committed some monies—hiring consulting and other services—to implement the Term
Sheet.2 However, Plaintiffs have not shown that such commitment of monies results in

an actual or threatened expenditure of funds that is illegal, wasteful or injurious under
Section 526a.

Accordingly, the demurrer to the Complaint is SUSTAINED with leave to amend.
Leave to amend is granted as the Court is not yet convinced that Plaintiffs will be unable
to amend the Complaint to show a threatened improper expenditure of funds under
Section 526a.

2 These allegations are supported by exhibits in the RJN, many of which the Court did not take judicial

notice. However, the Court’s decision as to the RJN would not alter the Court’s conclusion that Plaintiffs
have failed to show an actual or threatened improper expenditure of monies under Section 526a.

b. Motion for Protective Order

On October 23, 2013, the Court stayed discovery until it ruled on Defendants’ demurrer
and indicated that it would consider Defendants’ request for a protective order at that
time.

Plaintiffs seek to depose Councilmember Kevin McCarty, and request him to produce
documents and communications with SIG or other Councilmembers or high-level City
staff relating to the SIG’s purchase of the Kings, the Term Sheet or the valuation of
specific items therein.

Plaintiffs seek to depose Jim Rinehart, Director of the Economic Development
Department for the City, and request documents regarding the value of items in the Term
Sheet, and documents that he viewed, prepared, or approved about valuation of such
items, his opinions about the valuation, and his communications to City staff or
Councilmembers regarding the same.

Defendants move for a protective order prohibiting the deposition of Councilmember
McCarty and relieving him from responding to requests for producing documents, citing
the legislative process, mental process or official information privilege. Defendants
request a protective order limiting the deposition of and prohibiting the production of
documents sought from Jim Rinehart, to the extent that such responses are protected by
the legislative process, mental process or official information privileges.

The Court has sustained Defendants’ demurrer to the Complaint with leave to amend
because Plaintiffs have not shown any action that is ripe for the Court’s review.
Although the proposed discovery relates to the City Council’s approval of the Term
Sheet, it will not allow Plaintiffs to amend the Complaint to overcome this basis for
sustaining the demurrer—e.g., showing an action that is ripe for the Court’s review. Nor
do Plaintiffs allege that the discovery is necessary for them to do so.

Accordingly, the Court stays discovery as to Councilmember McCarty and Jim Rinehart
until Plaintiffs file an amended complaint that is not subject to demurrer on the ground of
ripeness. (Terminals Equipment Co. Inc. v. City and County of San Francisco (1990) 221
Cal.App.3d 234, 246-247.)

III. DISPOSITION

Defendants’ demurrer to the Complaint is SUSTAINED with leave to amend.
Defendants shall file and serve a First Amended Complaint within 10 days from the date
of service of notice of the Court’s decision and order.

Discovery as to Councilmember McCarty and Jim Rinehart is STAYED until Plaintiffs
file an amended complaint that is not subject to demurrer on the ground of ripeness.

If this tentative ruling becomes the final ruling of the Court, counsel for Defendants is
directed to prepare a formal order, attaching this ruling as an exhibit; submit it to
opposing counsel for approval as to form; and thereafter submit it to the Court in
accordance with California Rule of Court rule 3.1312.