When an organization called San Diegans for Open Government (SanDOG) discovered that Sweetwater Union High School District (District) officials allegedly received gifts from Gilbane Building Company (Gilbane) in exchange for the award of construction contracts worth several million dollars, it informed the District of its intent to sue Gilbane and asked the District if it wished to join the action. The District did not respond.
SanDOG brought an action against Gilbane to disgorge funds the District paid to Gilbane. Gilbane raised two arguments that SanDOG could not bring the action. First, it argued that SanDOG had no standing to bring an action because it did not pay taxes and could not rely on the standing of its members. Second, it argued that SanDOG failed to allege that it demanded the District sue or that the District refused to bring the action. The trial court dismissed SanDOG's complaint and SanDOG appealed.
The Court of Appeal agreed with SanDOG, finding that a representative organization may have standing to bring an action if its members would have standing as individuals. An organization may file suit on a District's behalf even if it does not pay taxes as an organization itself as long as the organization represents individuals who could file suit against a District. Here, SanDOG's members had individual standing. Therefore, the court allowed the action by SanDOG.
In addressing SanDOG's second argument regarding the requirement to demand the District sue and its refusal, the Court looked to the underlying allegation to determine whether the District had discretion and refused to act. Where the District has no discretion to act, a taxpayer may interfere and bring an action on behalf of the District. A contract made by a financially interested member of a governing body under Government Code section 1090 will be void. The law provides that the District is entitled to recover amounts paid under a contract made in violation of Government Code section 1090. If the contracts are void, then the District expended funds illegally. Here, the District had no discretion. The court concluded that because the District had no discretion, SanDOG was not required to make a demand and receive a refusal from the District before filing the action. The court reasoned that the only purpose of the demand is to put the District on notice and give it the opportunity to commence an action. If the District's refusal was a prerequisite to a taxpayer filing an action, then public agencies could prevent taxpayer litigation by failing to respond to demands. This would frustrate the public purpose of supporting taxpayer actions.
This case acts as a reminder that a school district or community college district is entitled to recover amounts paid under a void contract. If the district fails to proceed with such an action, an organization may do so (as long as its members have taxpayer standing) without having to make a demand and receive a refusal from the district to prosecute the action.
Gilbane Building Company v. Superior Court of San Diego County (San Diegans for Open Government) (2014) 223 Cal.App.4th 1527 [168 Cal.Rptr.3d 1].