Supreme Court of California Justia
Citation 47 Cal. 4th 1050, 222 P.3d 214, 103 Cal. Rptr. 3d 767

Lexin v. Super. Ct.

Filed 1/25/10



IN THE SUPREME COURT OF CALIFORNIA



CATHY LEXIN et al.,

Petitioners,

S157341

v.

Ct.App. 4/1 D049251

THE SUPERIOR COURT OF SAN

DIEGO COUNTY,

San Diego County

Super. Ct. No. SCD190930

Respondent;

THE PEOPLE,

Real Party in Interest.



This case is a residuum of the fiscal crisis that swept the City of San Diego

(City) over the last decade. That crisis, arising from the City‟s failure to fund its

employee retirement system adequately, led to federal investigations of the City‟s

bond disclosures, suspension of the City‟s credit rating, class action lawsuits

against the City for underfunding, the mayor‟s resignation, and amendments of the

City‟s charter to change the composition of the board overseeing the retirement

system.

The six defendants below, Cathy Lexin, Mary Elizabeth Vattimo, Teresa

Aja Webster, Sharon Kay Wilkinson, John Anthony Torres, and Ronald Lee

Saathoff (collectively the Lexin defendants), were trustees of the board

administering the City‟s retirement system. They have been charged with felony

1


violations of state conflict of interest statutes (Gov. Code, § 1090 et seq.)1 for

allegedly voting to authorize an agreement allowing the City to limit funding of its

retirement system in exchange for the City‟s agreeing to provide increased pension

benefits to City employees, including the Lexin defendants.

The Lexin defendants brought a Penal Code section 995 motion to set aside

the information against them because, they argued, Government Code section

10902 and its exceptions were not intended to criminalize the making of contracts

by parties whose only financial stake was their interest in government pension

benefits. The trial court denied the motion because it concluded pension benefits

were not “salary” of the sort the Legislature intended to excuse when it created the

government salary exception to section 1090. (See § 1091.5, subd. (a)(9);

hereafter section 1091.5(a)(9).) The Court of Appeal rejected this reasoning, but

affirmed the denial because it found section 1091.5(a)(9) inapposite for other

reasons and because it further concluded the public services exception (§ 1091.5,

subd. (a)(3); hereafter section 1091.5(a)(3)) did not apply.

We reverse as to five of the six defendants. We conclude that, with one

exception, the defendant trustees‟ actions fall within statutory exceptions to

section 1090, and accordingly their motion to dismiss the information against them

should have been granted. This case turns on our conclusion that the trustees of

the City‟s retirement system board were not burdened by a conflict of the sort

section 1090 prohibits: a division in the loyalties of public servants between the

public interests of their constituents and private opportunities for their own


1

Government Code section 1090 prohibits public officials and employees

from having a financial interest in contracts they make in their official capacities.

2

All further statutory references are to the Government Code unless

otherwise specified.

2

personal financial gain. Rather, by intentional legislative design, many of the

board‟s trustees were members of the retirement system and thus had interests in

common with the membership as a whole. That the Lexin defendants were

financially interested in the agreement here — like thousands of their fellow

retirement system members — was a consequence of this fact. The public services

exception to section 1090 — section 1091.5(a)(3) — recognizes that financial

interests shared with one‟s constituency do not present the dangers the state‟s

conflict of interest laws were designed to eradicate. Accordingly, it excepts such

interests from section 1090‟s purview.

As applied here, the provision covers the actions of five of the six

defendants. The sixth, Ronald Saathoff, could on the preliminary hearing record

reasonably be suspected of having obtained a unique, personalized pension benefit

as a result of voting to approve the retirement board‟s contract with the City. Such

individually tailored benefits pose genuine conflict problems and do not fall under

any statutory exception. Accordingly, we affirm as to Saathoff, reverse as to all

other defendants, and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

I. THE SAN DIEGO CITY EMPLOYEES‟ RETIREMENT SYSTEM

San Diego is a charter city. It maintains a pension plan for its employees,

the San Diego City Employees‟ Retirement System (SDCERS). (San Diego City

Charter, art. IX, § 141; San Diego Mun. Code, § 24.0101.) SDCERS is a defined

benefit plan in which benefits are based upon salary, length of service, and age.

(San Diego Mun. Code, §§ 24.0402-24.0405.) The plan is funded by contributions

from both the City and its employees. (San Diego City Charter, art. IX, § 143; San

Diego Mun. Code, § 24.0402.) Membership is compulsory. (San Diego Mun.

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Code, § 24.0104, subd. (a).) As of June 2008, the plan had nearly 20,000

members. (SDCERS Comprehensive Annual Financial Rep. (2008) p. 29.)

The pension fund is overseen by a 13-member Board of Administration

(SDCERS Board or Board). (San Diego City Charter, art. IX, § 144.) Although

established by the City, the Board is a separate entity. (Ibid.; Bianchi v. City of

San Diego (1989) 214 Cal.App.3d 563, 571.) The SDCERS Board is a fiduciary

charged with administering the City‟s pension fund in a fashion that preserves its

long-term solvency; it must ensure that through actuarially sound contribution

rates and prudent investment, principal is conserved, income is generated, and the

fund is able to meet its ongoing disbursement obligations. (Cal. Const., art. XVI,

§ 17; San Diego City Charter, art. IX, § 144.) Consistent with that central mission,

the SDCERS Board has a range of ancillary obligations, including but not limited

to providing for actuarial services, determining member eligibility for and

ensuring receipt of benefits, and minimizing employer contributions. (Cal. Const.,

art. XVI, § 17, subds. (b), (e); San Diego City Charter, art. IX, §§ 142, 144; San

Diego Mun. Code, § 24.0901.) To carry out these duties, the Board is granted the

power to make such rules and regulations as it deems necessary. (San Diego City

Charter, art. IX, § 144; San Diego Mun. Code, §§ 24.0401, 24.0901; see generally

Bianchi, at p. 571; Grimm v. City of San Diego (1979) 94 Cal.App.3d 33, 39-40.)3

The composition of the Board is fixed by San Diego‟s charter; as of 2002,

the charter provided for three ex officio positions (the city manager, treasurer, and


3

SDCERS and the SDCERS Board are not unique. Other charter cities have

established similar pension funds and retirement boards (e.g., L.A. Charter, art.
XI, § 1104); counties throughout California have done likewise under the County
Employees Retirement Law of 1937 (§ 31450 et seq.); and the state has an
analogous pension fund, the California Public Employees‟ Retirement System
(CalPERS), and retirement board, the Board of Administration (§ 20000 et seq.).

4

auditor), one trustee elected by fire safety members, one elected by police safety

members, one elected by retired members, three elected by the active membership,

and four appointed by the city council. (San Diego City Charter, art. IX, former

§ 144.)4 All six Lexin defendants were trustees of the SDCERS Board. Cathy

Lexin, Mary Elizabeth Vattimo, and Teresa Aja Webster were the ex officio

designees; Sharon Kay Wilkinson and John Anthony Torres were elected from the

active membership; and Ronald Lee Saathoff was the fire safety representative.

The six were also City employees: Lexin was the City‟s human resources director,

Vattimo was the City treasurer, Webster was the City‟s assistant auditor and

comptroller, Wilkinson was a City management analyst, Torres was a fingerprint

examiner for the City police department crime lab, and Saathoff was a City fire

captain.

II. CONTRACT NEGOTIATIONS

A. City Manager’s Proposal 1

Until 1996, the City made contributions to the SDCERS pension fund

according to an actuary‟s annual determination of the rate. In 1996, the City

proposed, and the Board approved, an agreement modifying the method of

calculating the City‟s contribution. Under this agreement, commonly known as

the City Manager‟s Proposal 1 (MP1), the City contributed at a set rate, which was

less than an actuarially determined rate, under an agreed-upon schedule. The

schedule required the City‟s contribution rate to increase by 0.5 percent per year as

a percentage of payroll until the City‟s annual contribution rate equaled the


4

In the wake of the events that spawned the instant litigation, the City

Charter was amended to provide for seven mayoral appointees, one police safety
member, one fire safety member, two general members, one retiree member, and
one City management member. (San Diego City Charter, art. IX, § 144.)

5

actuarial rate. At the time the MP1 was adopted, the retirement system was 92.3

percent funded.5 As part of the MP1, there was a safety valve provision, known as

the “trigger,” that called for a balloon payment if the funded ratio of the system

dropped below 82.3 percent.

In 2001, in part because of the “dot-com” stock market crash, SDCERS

earnings began falling significantly. (See Perry, Fall from Frugality Puts San

Diego on Fiscal Brink, L.A. Times (Sept. 1, 2004) p. 1.) By October 31, 2001, the

fund had earned only $14.1 million dollars, a decrease of 87 percent from the

previous year. In February 2002,6 SDCERS actuary Rick Roeder completed a

draft actuarial report showing the funded ratio had dropped from 97 percent to 90

percent in one year. The City was concerned the 82.3 percent trigger would be

met, which would have required it to make an additional contribution to the

pension fund of approximately $25 million within one year.

B. Union Negotiations

At the same time, the City entered meet-and-confer negotiations with its

municipal unions over new labor agreements (memoranda of understanding or

MOU‟s), with defendant Lexin, the City‟s Director of Human Resources, acting as

lead negotiator. The County of San Diego had agreed in February to increase the

retirement multipliers for its employees.7 The City‟s four municipal unions, the

San Diego Municipal Employees Association (MEA), San Diego Police Officers

5

A retirement system‟s funding ratio is calculated by comparing the present

value of the system‟s assets against the present value of its future liabilities.

6

All further dates refer to the year 2002 unless otherwise specified.

7

In defined benefit pension plans like SDCERS, retirement benefits typically

are calculated by multiplying years of service, peak salary, and a multiplier that
varies according to retirement age. (See San Diego Mun. Code, § 24.0402, subd.
(d) & table 1.)

6

Association (POA), San Diego City Firefighters IAFF Local 145 (Firefighters),

and American Federation of State, County and Municipal Employees Local 127

(AFSCME), sought comparable improvements in the City‟s retirement benefits.

According to Assistant City Manager Lamont Ewell, if the SDCERS

funded ratio had continued to fall and the trigger had been reached, the resulting

balloon payment would have seriously hampered the City‟s ability to deliver

services and would have led to layoffs. Consequently, the City elected to

condition any increase in pension benefits on its obtaining relief from the

SDCERS Board from the effect of hitting the trigger. In May, it reached

agreements with the MEA, the Firefighters, and AFSCME that included enhanced

retirement benefits, but each agreement was expressly conditioned on the

SDCERS Board‟s granting the City contribution relief by lowering the MP1‟s

trigger to 75 percent. The City was ultimately unable to agree on a contract with

its fourth municipal union, the POA, and so declared an impasse and imposed its

last, best, and final offer; like the agreements with the other unions, that offer

included an SDCERS Board contingency.

Negotiations with the Firefighters and its president and lead negotiator,

defendant Ronald Saathoff, involved a unique issue. Union presidents received a

salary from the City and were also paid by the unions for serving as their

presidents. Beginning in approximately 1989, the POA president began

contributing to his pension based on both the president‟s salary paid him by his

union and his salary as a police officer, in exchange for having his pension

calculated based on his combined salary. In 1997, the MEA president secured the

same right.

During the 2002 negotiations, Saathoff sought the same treatment.

Concerned about potentially higher pension payments for union presidents, the

City considered discontinuing the existing program. However, the city attorney

7

advised that the unions would sue and might prevail based upon their presidents‟

detrimental reliance on years of informal agreements. Ultimately, the city council,

acting on the advice of the city attorney, decided to provide equivalent rights to

the union presidents of POA, MEA, and Firefighters, but only as to those presently

holding that title and certain former POA presidents; future presidents would not

be eligible.

Michael McGhee, a principal negotiator for the City with the Firefighters,

testified that he understood at the time that this incumbent union president benefit

was contingent on the Board‟s lowering the trigger. On cross-examination,

however, he indicated he had never heard anyone say that the incumbent union

president benefit was contingent on anything the SDCERS Board did, nor was

there a document that so stated.

C. Initial Discussions with SDCERS

On May 29, 2002, City Manager Michael Uberuaga presented the SDCERS

Board with the City‟s proposal to modify the MP1 to (1) lower the trigger to 75

percent and (2) add a five-year phase-in period for the payment of increased

contributions to reach the full actuarial rate if the trigger was hit. Uberuaga told

the Board a reduction in the trigger was a contingency of the tentative labor

agreements with three of the four municipal unions in the City.

The proposal ran into opposition. After the meeting, Board President

Frederick Pierce requested a meeting with Deputy City Manager Bruce Herring.

On June 7, Pierce, Herring, defendant Lexin, and SDCERS administrator

Lawrence Grissom met, at which time Pierce objected to the linkage between the

Board‟s actions and union benefits. Herring indicated he thought the city council

would refuse to drop the linkage. The Board‟s fiduciary counsel, Robert Blum,

also criticized the City‟s proposal, warning the Board in a draft letter dated

8

June 12 that adoption of the proposal would pose a “material risk that a court

would find that approval by the Retirement Board of the proposed amendment[,]

including the reduction in the floor in [MP1] to 75 [percent] was not a prudent

exercise of the Board‟s fiduciary responsibilities, particularly if insufficient

mitigating actions were taken by the Board.”

In response to criticisms of the City‟s proposal, the City modified the

proposal so as to accelerate the presumptive rate at which it would increase its

contribution in the event the trigger was not hit, offering a 1 percent of payroll

annual increase in lieu of the 0.5 percent the MP1 called for. Deputy City

Manager Herring presented this modified proposal to the Board on June 21.

Following a lengthy discussion of the City‟s proposal, the Board elected to defer a

vote and to seek more information and analysis. A decision on the proposal was

trailed for a future special meeting.

In advance of that special meeting, the City was aware that a Board trustee

might offer a counterproposal to the City‟s proposal. Lexin and Deputy City

Attorney Elmer Heap wrote the mayor and city council, explaining that they

“anticipate[d] a motion from a Board member which would further modify the

proposal before the Board, by eliminating the request to lower the funded ratio

floor [the trigger], and including the five year phase-in if the trigger (82.3%

funded ratio) is effectuated.” Lexin and Heap sought and obtained authorization

to agree to this counterproposal.

D. The July 11 SDCERS Board Meeting

At the July 11 special SDCERS Board meeting, the Board discussed in

detail the merits of the existing MP1, the City‟s proposal to reduce the trigger to

75 percent, and an alternative funding mechanism presented by the Board‟s

actuary, Rick Roeder. Roeder was concerned, as he had been at the June 21

9

meeting, about the effects of the City‟s request for contribution relief. Fiduciary

Counsel Blum was of the opinion that if the Board accepted the City‟s proposal,

there was a “material risk” that a court would find the Board had not properly

exercised its fiduciary responsibility. Others spoke in support of the City‟s

proposal.

Lexin made a motion to accept the City‟s proposal to lower the trigger to

75 percent, and Webster seconded it. Several Board trustees, including Saathoff,

expressed an intent to vote against the City‟s proposal. As Saathoff put it: “[T]his

proposal as it[]s currently written doesn‟t appear to pass muster in terms of

fiduciary counsel‟s opinion and[,] frankly, the actuary‟s.” He told the Board that

the City‟s proposal was not within what he considered a “fiduciarily prudent

guideline and should the motion not be successful, I will have another motion to

make that hopefully will address the [C]ity‟s concerns and give us comfort that the

actions we are taking are fiduciarily prudent as members of this Board.”

Trustee Diann Shipione made a formal motion to continue the matter.

Saathoff opposed the motion, indicating he thought it important to move forward.

Shipione‟s motion was not seconded.

Saathoff then made his substitute proposal, which, with some changes,

ultimately came to be known as City Manager‟s Proposal 2 (MP2). Saathoff

moved that (1) the 82.3 percent trigger be kept in place; (2) if the trigger was not

hit, the City would increase its contribution rate at 1 percent per year until it

reached the full actuarial rate; and (3) if the trigger was hit, the City would have

until 2009 to increase its contributions to reach the actuarial rate, in lieu of a

balloon payment of $25 million or more. The substitute proposal would be subject

to the fiduciary counsel‟s and the actuary‟s approval, as well as to negotiation of a

formal written contract with the City.

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After substantial further discussion, the motion to adopt the City‟s proposal

was withdrawn and the Board adopted Saathoff‟s proposal by a vote of eight to

two. Board President Pierce, John Casey, and the six Lexin defendants — Lexin,

Vattimo, Webster, Wilkinson, Torres, and Saathoff— voted in favor of the

proposal. Thomas Rhodes and David Crow opposed the motion. Ray Garnica

abstained. Trustees Shipione and Richard Vortmann left the meeting before the

vote.

E. Final Approval of Benefit Enhancements

From July 11 to November 15, Fiduciary Counsel Blum negotiated with the

City to memorialize Saathoff‟s counterproposal as a written agreement. During

this time period, according to Deputy City Attorney Heap, there were “sticking

points,” and an agreement, though likely, was not absolutely certain. For example,

Blum and Heap debated a nullification clause Blum wanted inserted that would

allow the Board to unilaterally rescind the agreement in the future, with Blum

ultimately prevailing.

On October 7, the POA, the Firefighters, and the MEA signed finalized

MOUs with the City, each effective retroactively to July 1. These final MOU‟s

eliminated any contingency requiring action by the SDCERS Board for benefit

increases to take effect. On October 21, the city council voted unanimously to

adopt and approve the MOU‟s.

The city council also enacted the incumbent union president benefit without

any reference to contingencies or action by the SDCERS Board. The City agreed

to base retirement benefits for incumbent union presidents on their highest one-

year combined City and union salary. In contrast, pension contributions for future

union presidents would be based solely on their City salary.

11

Under the MOU‟s, defendants Wilkinson and Torres, who were classified

general City employees,8 received the same benefits as all other classified general

employees, including an increase in their age-55 pension multipliers from 2.25

percent to 2.50 percent, with corresponding 0.25 percent adjustments of the

multiplier for each year above age 55. Defendants Lexin, Vattimo, and Webster

were unclassified general employees but received the same increased retirement

benefits under a City policy that afforded unclassified employees the same

benefits as classified employees. Defendant Saathoff, as a classified safety

employee, did not receive an increased multiplier but did receive the pension

increase accorded incumbent union presidents.

F. Final Approval of the MP2

On November 15, the SDCERS Board was presented with a draft of the

MP2, which, with some minor changes, essentially reflected the terms of

defendant Saathoff‟s counterproposal.

Fiduciary Counsel Blum gave a presentation to the Board emphasizing the

MP2‟s advantages over the MP1, including an acceleration of increases in the

contribution rate and a date certain by which the City had to accomplish full

actuarial funding. The finalized MP2 also granted the Board the right to nullify

the agreement “to the extent required by its duties established under the California

Constitution” and required the City to pay any costs incurred to secure

enforcement of the agreement‟s terms. Blum had tried, but failed, to get the City

to agree to language precluding it from “bargain[ing] additional benefits


8

A classified employee is governed by civil service rules; an unclassified

employee serves at will. A general member of the retirement system is any
nonsafety member, i.e., everyone other than firefighters, police officers, and
lifeguards.

12

conditioned on some approval of . . . funding relief” going forward. Blum opined

that the MP2 represented a “proper exercise” of the Board‟s fiduciary duties.

Actuary Roeder offered a series of opinions about the positive and negative

aspects of the proposal but no bottom line conclusion.

A vote on the MP2 was taken, and the Board approved it, 10 to 2.

Defendants Vattimo, Webster, Wilkinson, Torres, and Saathoff, as well as trustees

Casey, Crow, Garnica, Pierce, and Vortmann, voted for the contract. Trustees

Rhodes and Shipione voted against it. Defendant Lexin was absent. The final

MP2 agreement was approved by the City and signed by the Board on December

3, 2002, and by the City on December 11. Under its terms, the 82.3 percent

trigger would be kept in place, but in the event the trigger was hit, the City would

be given until 2009 to reach the actuarial rate, rather than having to pay a $25

million balloon payment within one year.9

III. PROCEDURAL HISTORY

In May 2005, the Lexin defendants were charged with felony violations of

section 1090. After a preliminary hearing, a magistrate found probable cause to

suspect the Lexin defendants had violated the conflict of interest laws.


9

We note that the MP2 did not survive for long. In 2003, a series of class

action lawsuits were filed alleging (1) the City had violated both the City charter
and its municipal code by underfunding the City pension fund, and (2) the
SDCERS Board had violated section 1090 and breached its fiduciary duties by
agreeing to the MP1 and MP2. (Gleason v. San Diego City Employees’
Retirement System
(Super. Ct. San Diego, 2003, No. GIC 803779); Gleason v. San
Diego City Employees’ Retirement System
(Super. Ct. San Diego, 2003, No. GIC
810837); Wiseman v. Board of Administration of the San Diego City Employees’
Retirement System
(Super. Ct. San Diego, 2003, No. GIC 811756).) In 2004, the
City and SDCERS Board settled these actions. Under the settlement, the City
agreed to resume actuarially based contributions in lieu of following the schedule
provided for by the MP2.

13

The magistrate concluded the Lexin defendants had participated in the

making of the MP2. He also found sufficient evidence had been presented to

support a reasonable suspicion that the Lexin defendants were financially

interested in the MP2 because pension benefit increases were contingent on its

approval. As to defendant Saathoff, the magistrate specifically found that whether

Saathoff‟s individual union president benefit was also contingent on the Board‟s

granting the City contribution relief was a question of fact, and at least one line of

evidence supported the conclusion that it was contingent. Finally, the magistrate

rejected the Lexin defendants‟ defense that a statutory exception to section 1090,

the government salary exception (§ 1091.5(a)(9)), applied because he concluded

pension benefits were not “salary” within the meaning of the statute. Each Lexin

defendant was bound over for trial.

After an information was filed, the Lexin defendants moved to set it aside

(Pen. Code, § 995), alleging inter alia that (1) section 1090 did not apply to their

actions, and (2) even if it did, their interest in the contract, i.e., pension benefits,

constituted government salary and was permitted under section 1091.5(a)(9).

The trial court denied the motion. In holding there was probable cause to

believe the Lexin defendants had violated section 1090, the trial court explained

that, in its view, by participating in discussions concerning MP1 modification at a

time when the City‟s tentative MOU‟s made enhanced pension benefits contingent

on rate relief, and by approving a counterproposal modifying the MP1 trigger, the

Lexin defendants had made a contract in which they had a financial interest. The

trial court also rejected the Lexin defendants‟ section 1091.5(a)(9) defense,

concluding that the defense applied only to a financial interest in government

“salary, per diem, or reimbursement for expenses” (§ 1091.5(a)(9)), categories not

intended to include pension benefits.

14

The Lexin defendants filed a petition for a writ of prohibition with the

Court of Appeal, seeking the issuance of a writ ordering the trial court to grant

their motion to set aside the information. The Court of Appeal summarily denied

the petition. We granted review and transferred the matter to the Court of Appeal

for issuance of an order to show cause. On remand, the Court of Appeal again

denied review, this time in a published opinion. Recognizing that retirement

benefits are just a deferred form of employment compensation, the appellate court

disagreed with the trial court‟s conclusion that under section 1091.5(a)(9) pensions

were not salary. It nevertheless rejected application of section 1091.5(a)(9)

because, it concluded, the benefits of the contracts at issue flowed to the respective

individual departments of the Lexin defendants, and section 1091.5(a)(9) was

inapposite when one‟s own department was directly involved in a contract. It

further rejected the Lexin defendants‟ alternate statutory ground for relief, the

public services exception (§ 1091.5(a)(3)), primarily because it concluded the

provision of pension benefits was not a “public service[] generally provided”

(ibid.) within the meaning of that provision.

We granted review to resolve the significant questions of first impression

this case raises concerning the application of the state‟s conflict of interest laws.

DISCUSSION

Penal Code section 995 allows a defendant to challenge an information

based on the sufficiency of the record made before the magistrate at the

preliminary hearing. (People v. Crudgington (1979) 88 Cal.App.3d 295, 299.) In

reviewing the denial of a Penal Code section 995 motion to set aside an

information, we “in effect disregard[] the ruling of the superior court and directly

review[] the determination of the magistrate holding the defendant to answer.”

(People v. Laiwa (1983) 34 Cal.3d 711, 718; accord, People v. San Nicolas (2004)

34 Cal.4th 614, 654.) Insofar as the Penal Code section 995 motion rests on issues

15

of statutory interpretation, our review is de novo. (People v. Superior Court

(Ferguson) (2005) 132 Cal.App.4th 1525, 1529.) Insofar as it rests on

consideration of the evidence adduced, we must draw all reasonable inferences in

favor of the information (Rideout v. Superior Court (1967) 67 Cal.2d 471, 474;

People v. Gnass (2002) 101 Cal.App.4th 1271, 1288-1289) and decide whether

there is probable cause to hold the defendants to answer, i.e., whether the evidence

is such that “a reasonable person could harbor a strong suspicion of the

defendant‟s guilt” (Cooley v. Superior Court (2002) 29 Cal.4th 228, 251; accord,

People v. Slaughter (1984) 35 Cal.3d 629, 636; People v. Uhlemann (1973) 9

Cal.3d 662, 667).

I. SECTION 1090 AND PROHIBITED CONFLICTS OF INTEREST

Section 1090 provides in relevant part: “Members of the Legislature, state,

county, district, judicial district, and city officers or employees shall not be

financially interested in any contract made by them in their official capacity, or by

any body or board of which they are members.” It codifies the long-standing

common law rule that barred public officials from being personally financially

interested in the contracts they formed in their official capacities. (Brandenburg v.

Eureka Redevelopment Agency (2007) 152 Cal.App.4th 1350, 1361; People v.

Honig (1996) 48 Cal.App.4th 289, 317 [“Section 1090, it has been said, is an

embodiment of the common law with respect to conflicts of interest.”].)10


10

As early as 1851, the Legislature acted to bar any government official or

legislator from being “interested in any Contract made by such Officer or
Legislature of which he is a member; or be[ing] a purchaser, or be[ing] interested
in any purchase at any sale made by such Officer, or a seller at any purchase made
by such Officer in the discharge of his official duties.” (Stats. 1851, ch. 136, § 2,
p. 522; see Brandenburg v. Eureka Redevelopment Agency, supra, 152
Cal.App.4th at p. 1362.) The prohibition was later codified in former section 920
of the Political Code and, in 1943, moved with only minor changes to the

(footnote continued on next page)

16

The common law rule and section 1090 recognize “[t]he truism that a

person cannot serve two masters simultaneously . . . .” (Thomson v. Call (1985)

38 Cal.3d 633, 637; see Stockton P. & S. Co. v. Wheeler (1924) 68 Cal.App. 592,

601 [the bar against being financially interested in the contracts one makes in an

official capacity “is evolved from the self-evident truth, as trite and impregnable

as the law of gravitation, that no person can, at one and the same time, faithfully

serve two masters representing diverse or inconsistent interests with respect to the

service to be performed”].) “The evil to be thwarted by section 1090 is easily

identified: If a public official is pulled in one direction by his financial interest

and in another direction by his official duties, his judgment cannot and should not

be trusted, even if he attempts impartiality.” (Carson Redevelopment Agency v.

Padilla (2006) 140 Cal.App.4th 1323, 1330.) Where public and private interests

diverge, the full and fair representation of the public interest is jeopardized.

Accordingly, section 1090 is concerned with ferreting out any financial

conflicts of interest, other than remote or minimal ones, that might impair public

officials from discharging their fiduciary duties with undivided loyalty and

allegiance to the public entities they are obligated to serve. (Stigall v. City of Taft

(1962) 58 Cal.2d 565, 569.) Where a prohibited interest is found, the affected

contract is void from its inception (Thomson v. Call, supra, 38 Cal.3d at p. 646 &

fn. 15) and the official who engaged in its making is subject to a host of civil and

(if the violation was willful) criminal penalties, including imprisonment and

disqualification from holding public office in perpetuity (§ 1097; see People v.

Honig, supra, 48 Cal.App.4th at pp. 333-338).


(footnote continued from previous page)

Government Code. (Former Pol. Code, § 920, enacted 1872, repealed by Stats.
1943, ch. 134, § 1, p. 956; see now Gov. Code, § 1090.)

17

The Legislature has ameliorated the harsh consequences of section 1090 by

creating two categories of interests subject to lesser or no restrictions. First,

section 1091 defines a series of “ „remote interest[s].‟ ” Where an interest is

remote, a board member may comply with section 1090 by making full disclosure

of the interest, noted in the entity‟s official records, and abstaining from voting on

the affected contract or influencing other board members in any way. (§ 1091;

People v. Honig, supra, 48 Cal.App.4th at p. 317; 89 Ops.Cal.Atty.Gen. 121, 123

(2006), hereafter Fellows.)

Second, section 1091.5 defines a series of noninterests (also occasionally

referred to as “minimal interests,” e.g., People v. Honig, supra, 48 Cal.App.4th at

p. 318), interests that, while technically within the scope of the financial interests

covered by section 1090, as a practical matter do not raise the sorts of conflict of

interest problems with which section 1090 is concerned and thus are statutorily

excluded from its purview. (83 Ops.Cal.Atty.Gen. 246, 247 (2000), hereafter

Cardoza [§ 1091.5 identifies instances where “the Legislature has determined that

the particular interest is insufficient to merit application of the prohibition”].)

While a section 1091 remote interest requires disclosure and abstention, a section

1091.5 noninterest generally is no bar at all to participation in the making of a

contract, though in some instances the definition of the noninterest includes

specific disclosure requirements. (E.g., § 1091.5, subd. (a)(7) [requiring

disclosure of nonsalaried membership in a nonprofit corporation]; § 1091.5(a)(9)

[requiring disclosure of government salary interest]; see 89 Ops.Cal.Atty.Gen.

217, 220 (2006), hereafter Strickland.)

To determine whether section 1090 has been violated, a court must identify

(1) whether the defendant government officials or employees participated in the

making of a contract in their official capacities, (2) whether the defendants had a

cognizable financial interest in that contract, and (3) (if raised as an affirmative

18

defense) whether the cognizable interest falls within any one of section 1091‟s or

section 1091.5‟s exceptions for remote or minimal interests.11 (§§ 1090, 1091,

1091.5; People v. Gnass, supra, 101 Cal.App.4th at p. 1288, fn. 6; People v.

Honig, supra, 48 Cal.App.4th at p. 322.) Proof of a violation of section 1097, the

provision criminalizing violations of section 1090, requires a further showing that

the section 1090 violation was knowing and willful. (§ 1097; Gnass, at p. 1305;

Honig, at pp. 333-338.)

II. APPLICABILITY OF SECTION 1090

What differentiates section 1090 from other conflict of interest statutes such

as the Political Reform Act of 1974 (Political Reform Act) (§ 87100 et seq.) is its

focus on the making of a contract in which one has an impermissible interest.

(People v. Honig, supra, 48 Cal.App.4th at p. 333.)12 The information alleges the

Lexin defendants illegally made the MP2 contract. The evidence supports, indeed

is undisputed, that the Lexin defendants participated in the making of the MP2

contract.13 Furthermore, the evidence is such that a reasonable person could

conclude the Lexin defendants had two separate financial interests in that contract.


11

Other affirmative defenses, such as the rule of necessity, may also apply.

(See Finnegan v. Schrader (2001) 91 Cal.App.4th 572, 581; Eldridge v. Sierra
View Local Hospital Dist.
(1990) 224 Cal.App.3d 311, 321-322; 65
Ops.Cal.Atty.Gen. 305, 309-310 (1982).)

12

For example, while section 1090 is confined to the making of contracts, the

Political Reform Act applies more broadly to cover participation in any
“governmental decision” in which one has a financial interest. (See § 87100.)

13

In this court, the People argue for the first time that the Lexin defendants

also illegally participated in making each of three 2002 MOU‟s between the City
and its various unions, and that a section 1090 violation can be predicated on their
involvement in these MOU‟s. While these allegations were not included in the
information, the People are free to seek, or a court may order sua sponte,
amendment to add additional claims, so long as those claims are supported by

(footnote continued on next page)

19

“[T]he term „financially interested‟ in section 1090 cannot be interpreted in

a restricted and technical manner.” (People v. Honig, supra, 48 Cal.App.4th at

p. 315.) The defining characteristic of a prohibited financial interest is whether it

has the potential to divide an official‟s loyalties and compromise the undivided

representation of the public interests the official is charged with protecting. (See

Stigall v. City of Taft, supra, 58 Cal.2d at p. 569.) Thus, that the interest “might be

small or indirect is immaterial so long as it is such as deprives the [people] of his

overriding fidelity to [them] and places him in the compromising situation where,

in the exercise of his official judgment or discretion, he may be influenced by

personal considerations rather than the public good.” (Terry v. Bender (1956) 143

Cal.App.2d 198, 208; see also Thomson v. Call, supra, 38 Cal.3d at p. 645 [direct

and indirect interests are equally prohibited].)

The Lexin defendants participated in making a contract between the

SDCERS, on whose Board they served, and the City, for which they each worked

and from which they would receive present and future employment compensation.

Under section 1090, this is a potential conflict of interest; indeed, it is a

paradigmatic conflict of interest. We and the Courts of Appeal have long

recognized that where public officials on behalf of a public entity participate in

making a contract with a second entity for which they work, the scenario poses at


(footnote continued from previous page)

evidence taken at the preliminary hearing. (Pen. Code, § 1009; People v. Graham
(1974) 38 Cal.App.3d 251, 255.) However, we need not decide whether the Lexin
defendants also made each MOU. As the People correctly note, irrespective of
whether the Lexin defendants can be treated as having made any of the MOU‟s,
we can still consider any financial benefits to the Lexin defendants arising from
the MOU‟s to the extent their execution was linked to approval of the MP2.
Accordingly, on the facts as presented at the preliminary hearing, the issue
whether the Lexin defendants made any of the MOU‟s is not dispositive.

20

least the risk that the officials will be compromised by serving “two masters.”

(Thomson v. Call, supra, 38 Cal.3d at p. 645 & fn. 14; People v. Gnass, supra, 101

Cal.App.4th at p. 1303; Miller v. City of Martinez (1938) 28 Cal.App.2d 364, 370

[contract with the petroleum company for which a city council member works is

void]; see also 86 Ops.Cal.Atty.Gen. 138, 139-140 (2003) [contract with a city

council member‟s law firm is not permitted].)

The People focus on a second set of alleged interests: the Lexin

defendants‟ interest in enhanced pension benefits arising from the various City

MOU‟s and from defendant Saathoff‟s incumbent union president benefit. The

Lexin defendants, the People argue, considered whether to pass the MP2 proposal

at a time when approving it would have satisfied a condition inserted in the

MOU‟s and enhanced the likelihood of future benefits for them. Engaging in such

deliberations at a time when they stood to benefit financially from approval of the

MP2, and ultimately approving it, constitutes the making of a contract in which

they had a prohibited financial interest.

The record offers substantial evidence such that a reasonable person could

believe as much. SDCERS Board approval of a contribution rate reduction was

inserted as a condition precedent in each of the City‟s MOU‟s with the MEA, the

Firefighters, the POA, and AFSCME in May 2002. Also in May, the City

tentatively approved an incumbent union president benefit for defendant Saathoff.

With the contingency in place, the City presented, and the SDCERS Board

considered, a rate reduction agreement at meetings in June and July. On July 11,

the SDCERS Board preliminarily approved the MP2, which granted the City relief

from having to make an immediate $25 million payment if pension funding fell

below the 82.3 percent trigger. Each of the Lexin defendants participated in these

deliberations and the July 11 vote.

21

Evidence in the record further supports the conclusion that the City viewed

the preliminary approval of the MP2 as sufficient to satisfy the MOU

contingencies and, in reliance on it, thereafter agreed to remove the contingencies

and award the additional pension benefits. In October 2002, MOU‟s were signed

that dropped the condition precedent and the City separately passed a resolution

formally approving Saathoff‟s benefit. In November, the MP2 was finalized, and

in December it was signed.

In response, the Lexin defendants argue they had no conflict of interest

because any linkage between the MOU‟s and the MP2 contract had been severed

by the time the SDCERS Board finally approved the MP2 contract in November

2002. However, that all MOU contingencies technically were first removed is, for

purposes of section 1090, not dispositive. If the record is otherwise sufficient to

support an inference that the Lexin defendants participated in making a contract in

which they were financially interested, evidence of severance will not at this stage

rebut it.

The essence of this point we established nearly half a century ago. In

Stigall v. City of Taft, supra, 58 Cal.2d 565, we considered whether the following

scenario violated section 1090: A city council member owned shares in a

plumbing company and also was head of the city‟s building committee. The city

solicited bids for plumbing work, with the council member‟s company submitting

the low bid. In short order, the city council member resigned from the city council

and, after accepting his resignation, the city council voted to award the contract to

his company. We concluded such a scenario could in fact violate section 1090,

notwithstanding that the council member technically had removed himself from

the city council before a final, formal contract was approved. As we there

explained, an interpretation of section 1090 that focused only on contract

formalities might permit the following subterfuge: “A council member could

22

participate in all negotiations giving a contract its substance and meaning, be

instrumental in establishing specifications and schedules most advantageous to his

or his firm‟s particular mode of operation, participate in the selection of his or his

firm‟s offer, resign just prior to formal acceptance of that offer and execute the

contract as the other party thereto.” (Stigall, at p. 570.)

Similarly, in Thomson v. Call, supra, 38 Cal.3d 633, a city council

approved rezoning that would allow a private developer to construct a high-rise

complex and in a separate action also agreed to have the developer acquire certain

private lands for conveyance to the city for creation of a city park. Thereafter, the

developer purchased the private land from, inter alia, one of the city council‟s

members. No purchase contract existed at the time the city council gave its zoning

approval, and the contract had neither an express term nor a condition that the

developer purchase any land from the affected council member. Nevertheless, all

parties contemplated that the subsequent land purchase would occur. That, we

concluded, was enough to establish a financial interest in the actions taken earlier

and ultimately to violate section 1090. (Thomson v. Call, at pp. 644-646; see also

People v. Gnass, supra, 101 Cal.App.4th at pp. 1299-1301 [financial interest

extends to expected or foreseeable future benefits]; People v. Vallerga (1977) 67

Cal.App.3d 847, 866-867 [same].)

Here too, it matters not that any contingencies linking the MOU‟s and the

MP2 were removed before formal, final execution of the MP2. From the

preliminary hearing record, a reasonable person could conclude the Lexin

defendants considered and preliminarily approved the MP2 when they stood to

benefit financially from its execution. From that same record a reasonable person

could also conclude that the contingencies were removed only because all

concerned believed the preliminary approval the Lexin defendants and the

SDCERS Board gave for the MP2 would ripen into signed, contractually binding

23

rate relief for the City. Thus, the evidence supports the People‟s argument that the

Lexin defendants were financially interested in the making of the MP2.

The financial interest for defendant Saathoff is slightly different; it

allegedly arose from the incumbent union president benefit, rather than from a

pension formula multiplier increase. The Lexin defendants argue there is no proof

this benefit was conditioned on any specific action by Saathoff or the SDCERS

Board and it thus was not a financial interest in the MP2. At this stage of the

proceedings, however, the only question we may ask is whether a reasonable

person could harbor a “strong suspicion” of a connection between the benefit and

the SDCERS Board approving the MP2. (People v. Uhlemann, supra, 9 Cal.3d at

p. 667.) The magistrate concluded it was at least a question of fact whether one

could infer from the sequence of events in the negotiations an implicit message

that the incumbent union president benefit would be looked on more favorably if

the SDCERS provided rate relief. We agree.

While the evidence is disputed, for purposes of a Penal Code section 995

motion we focus on the evidence supporting an inference that Saathoff‟s benefit

was contingent on the Board‟s granting the City rate relief. Circumstantially, in

April 2002, City negotiators recommended refusing to extend the incumbent union

president benefit to Saathoff. In May, the city council met and, against that

recommendation, favored extending the benefit to Saathoff. However, final

approval of the benefit was withheld until October, after Saathoff had presented

the counterproposal that became the MP2.

More directly, in a May 21 e-mail from defendant Webster to Michael

McGhee, a lead City negotiator on the Firefighters contract, Webster asked: “The

[Firefighters] write up you sent out did not state that their increased offset was

contingent on the Board [re]laxing the trigger . . . . I thought ALL retirement

improvements (including the preside[n]tial leave (?)) were contingent on the

24

trigger . . . . [E]specially need Ron [Saathoff] behind releasing the trigger since he

runs the show at [SD]CERS . . . .” In an e-mail reply, McGhee confirmed the

retirement benefits were contingent. At the preliminary hearing, McGhee testified

that he understood Saathoff‟s incumbent union president benefit was contingent on

the SDCERS Board providing relief.

“[P]rohibited financial interests are not limited to express agreements for

benefit and need not be proven by direct evidence. Rather, forbidden interests

extend to expectations of benefit by express or implied agreement and may be

inferred from the circumstances.” (People v. Honig, supra, 48 Cal.App.4th at

p. 315; accord, People v. Gnass, supra, 101 Cal.App.4th at pp. 1298-1299.) At the

stage of a motion to set aside the information, the People‟s evidence is, under this

standard, strong enough to proceed.

We turn to the question whether any exception applies that categorically

excludes the Lexin defendants‟ interests from the scope of section 1090. As we

shall explain, each financial interest the Lexin defendants arguably had is (at least

as to five of the six Lexin defendants) covered by an exception. First, any

financial interest the Lexin defendants had arising from the formal fact of their

employment with the City falls within section 1091.5(a)(9). Second, while any

financial interest arising from linkage between the MP2 and the MOU‟s falls

outside section 1091.5(a)(9), it is nevertheless covered by section 1091.5(a)(3).

Finally, as to defendant Saathoff, we conclude no exception covers his alleged

interest in an incumbent union president benefit and accordingly the prosecution

of Saathoff may proceed.

25

III. THE “GOVERNMENT SALARY” EXCEPTION (SECTION 1091.5(a)(9))

A. Interpretation of Section 1091.5(a)(9)

Like the parties, we focus first on section 1091.5(a)(9), the government

salary exception. Under that exception, “[a]n officer or employee shall not be

deemed to be interested in a contract if his or her interest is any of the following:

[¶] . . . [¶] (9) That of a person receiving salary, per diem, or reimbursement for

expenses from a government entity, unless the contract directly involves the

department of the government entity that employs the officer or employee,

provided that the interest is disclosed to the body or board at the time of

consideration of the contract, and provided further that the interest is noted in its

official record.” (§ 1091.5(a)(9).)

In analyzing the exception‟s scope, we will, as in every case of statutory

interpretation, begin with its language. (Microsoft Corp. v. Franchise Tax Bd.

(2006) 39 Cal.4th 750, 758.) If the language is clear, our search for meaning is at

an end; if it is ambiguous, we may then turn to other tools to divine the

Legislature‟s intent. (Ibid.)

The language of the government salary exception suggests it was intended

to apply to situations where the body or board of which an official is a member is

contemplating a contract with — or on behalf of — a government entity for which

the official also works. “Body or board” is used in section 1090, and again in

section 1091.5(a)(9), to reference the entity of which the official is a member and

which he or she is serving “in [his or her] official capacity.” (§ 1090.)

“Government entity” is used in section 1091.5(a)(9) to reference the party to the

prospective contract with whom the official has an employment relationship.

Nothing in the language of the statute compels a reading that the “government

entity” need be distinct from the “body or board.” Thus, the provision may apply

26

both to contracts made with one‟s employer and contracts made on behalf of one‟s

employer.

The text suggests a second point. Section 1091.5(a)(9) creates an exception

to the government salary exception for situations where the contract “directly

involves the department of the government entity that employs the officer or

employee . . . .” (Italics added.) Thus, section 1091.5(a)(9) assumes the covered

interest is an interest in an existing employment relationship.

The exception to the exception, for contracts that “directly involve[]” the

official‟s or employee‟s own department, limits this provision slightly. We infer

that while the subdivision was intended to excuse an existing government

employment relationship as itself insufficient to give rise to a conflict, where a

particular contract involved the official‟s own department, the risk that it might

have personal impacts, generating additional income or other benefits for the

employed official, was in the Legislature‟s eyes too great a risk to permit. Thus,

while section 1091.5(a)(9) excludes from section 1090 an existing interest in

government salary, it does not permit contracts — those with or directly involving

one‟s own department — that pose a risk of potentially changing the official‟s

salary or other employment financial interests. Prophylactically, contracts directly

affecting the official‟s department are excluded.

We recognize, however, that section 1091.5(a)(9) is no model of clarity; its

text alone is insufficiently clear to establish definitively its meaning. (See People

v. Gnass, supra, 101 Cal.App.4th at p. 1302 [“We are at somewhat of a loss to

figure out what section 1091.5, subdivision (a)(9) means from its language

alone.”]; 78 Ops.Cal.Atty.Gen. 362, 369 (1995), hereafter Aguiar [“The scope of

subdivision (a)(9) is not readily apparent.”].) We thus turn to other sources such

as legislative history to supplement our understanding. (See Microsoft Corp. v.

Franchise Tax Bd., supra, 39 Cal.4th at p. 758.)

27

Here, the legislative history strongly supports the reading suggested by the

text. Under the statutory scheme prior to 1991, it had been a conflict of interest

for an individual who was separately employed by a public entity to participate in

the making of contracts involving that public entity. Thus, it would have been

illegal for an individual who worked as a city police officer, in his simultaneous

capacity as a city council member, to also vote on any contracts the city made,

because he had a financial interest (his salary) in one of the parties to all such

contracts (the city for whom he worked). (See Assem. Com. on Elections,

Reapportionment, and Const. Amends., 3d reading analysis of Assem. Bill No.

1402 (1991-1992 Reg. Sess.) as amended May 15, 1991, p. 1; Sen. Com. on

Governmental Organization, background information request for Assem. Bill No.

1402 (1991-1992 Reg. Sess.) as introduced Mar. 7, 1991, p. 1.)

The Legislature added section 1091.5(a)(9) to reduce the number of such

conflicts by limiting section 1090‟s prohibition to a public employee‟s

participation in contracts affecting the specific department for which the employee

works. (See Assem. Com. on Elections, Reapportionment, and Const. Amends.,

3d reading analysis of Assem. Bill No. 1402 (1991-1992 Reg. Sess.) as amended

May 15, 1991, p. 1.) Thus, the aforementioned city council member/police officer

could not make contracts relating to the police department, but would now be

permitted to participate in making other city contracts, as those would not directly

affect or benefit his own employment status. (Ibid.; see Assem. Com. on

Elections, Reapportionment, and Const. Amends., Republican Analysis of Assem.

Bill No. 1402 (1991-1992 Reg. Sess.) as introduced Mar. 7, 1991, p. 1 [bill

“simply clarifies the practice of participating in decisions that do not directly

benefit the city councilmember”].)

The 1991 legislation, as noted, still treated as a conflict of interest a public

employee‟s participation in any contract dealing with the specific department for

28

which that employee worked. (Assem. Com. on Elections, Reapportionment, and

Const. Amends., 3d reading analysis of Assem. Bill No. 1402 (1991-1992 Reg.

Sess.) as amended May 15, 1991, p. 1; Aguiar, supra, 78 Ops.Cal.Atty.Gen. at pp.

370-372.) In 1999, the Legislature clarified that in this circumstance, absent any

personal financial gain, the interest involved would be only a remote interest under

section 1091, so a board with an affected member could still act provided the

affected member recused himself or herself. (§ 1091, subd. (b)(13), added by

Stats. 1999, ch. 349, § 1.) The intent of the amendment was to “define as a

„remote interest‟ a situation where the contract is with the specific unit that

employs the official which does not result in any direct financial gain to that

official.” (Assem. Com. on Local Government, Analysis of Sen. Bill No. 689

(1999-2000 Reg. Sess.) as amended June 30, 1999, p. 2, italics added.)

Thus, while the 1999 amendment adding section 1091, subdivision (b)(13)

relaxed the prohibition against contracting in a way that affected one‟s own

department, it did so only so long as the contract in question would not result in

personal financial gain. By inference, that same restriction is implied in section

1091.5(a)(9). If a contract with an employee‟s own department qualifies as a

remote interest, so long as it involves no direct financial gain to the employee,

then a contract with one‟s government employer not directly affecting one‟s own

department may qualify as a noninterest, provided it too does not involve direct

financial gain. Section 1091.5(a)(9) excuses conflicts that arise from the identity

of the party with or on whose behalf one is contracting (one‟s employer, other than

one‟s own specific department), but not conflicts that arise from the actual terms

of the contract.

The result is a logical statutory scheme. If a contract an official considers

in his or her official capacity is with the official‟s government employer and

involves direct financial gain, the official is prohibited from participating under

29

section 1090. If the contract involves no direct financial gain, but is with or

affects the official‟s own department, the official‟s interest is a remote interest

under section 1091, subdivision (b)(13) and subject to the disclosure and recusal

requirements of section 1091. Finally, if the contract involves no direct financial

gain, does not directly affect the official‟s employing department, and is only with

the general government entity for which the official works, the interest is a

minimal or noninterest under section 1091.5(a)(9) and no conflict of interest

prohibition applies.

Court of Appeal and Attorney General opinions interpreting section

1091.5(a)(9) are consistent with this understanding. For example, in Strickland,

supra, 89 Ops.Cal.Atty.Gen. 217, the Attorney General considered whether a

community college district board member could participate in collective

bargaining negotiations when his own personal health benefits, as a retired faculty

member, were directly tied to those of the faculty with whom the district board

would be negotiating. The Attorney General correctly concluded that,

notwithstanding section 1091, subdivision (b)(13) and section 1091.5(a)(9), the

board member could not. (Strickland, at p. 221 & fn. 6.) While the retirement

health benefits qualified as government salary for purposes of the two provisions,

the contract nevertheless created a personal financial interest — the board

member‟s health benefits would rise or fall according to the results of the

negotiations. The board member thus faced a “two masters” problem: as a board

member he was obligated to conserve the district‟s resources, while personally he

stood to benefit if the board was lavish in increasing faculty benefits.

In People v. Gnass, supra, 101 Cal.App.4th 1271, the leading Court of

Appeal treatment of section 1091.5(a)(9), the court likewise recognized that the

provision was not intended to insulate all participation in contracts that carry the

prospect of changes in one‟s own government salary. In Gnass, a city attorney

30

was criminally prosecuted for (1) representing his city‟s public financing authority

in forming a series of joint powers agencies and then (2) being hired by the

resulting joint powers agencies to serve as bond disclosure counsel for the

subsequent floating of public bonds. Defendant Gnass moved to set aside the

indictment on, inter alia, the ground that the grand jury should have been

instructed on section 1091.5(a)(9) as a potential defense. The Court of Appeal

correctly concluded the provision did not apply. It reasoned that the provision

should be “understood to apply to contracts under consideration between two

public agencies, one of which employs the interested person. Where, for example,

the person is an employee of public agency A and a board member of public

agency B (or is otherwise in a position to influence agency B‟s decision), a

conflict of interest might arise if agency B were considering making a contract

with agency A.” (Gnass, at p. 1303.) In such a scenario, a court would then be

called upon to decide whether the requisites of section 1091.5(a)(9) had been

satisfied. In contrast, the case before the Gnass court involved no such contract

between two existing government entities, with an employment relationship with

the second entity already extant; rather, it involved participation in a contract that

carried with it the prospect of future new government employment. (Gnass, at

p. 1303 [“Gnass‟s conflict of interest, if any, existed before the [new joint powers

agencies] were created, on the chance that, if they were, he might be hired as

disclosure counsel.”].) As Gnass and Strickland, supra, 89 Ops.Cal.Atty.Gen.

217, demonstrate, that a financial interest involves only government salary is a

necessary, but not sufficient, condition for section 1091.5(a)(9) to apply; contracts

that may result in future changes to one‟s government compensation are still

excluded from the exception.

In contrast, where the financial interest is only in an existing government

salary, and the proposed contract is generally with one‟s employer but carries no

31

prospect of personal financial benefit, the section 1091, subdivision (b)(13) and

section 1091.5(a)(9) exceptions may apply. Thus, a deputy county counsel can

serve on a city council and participate in making a contract for law enforcement

services between the city and county that does not involve the county counsel‟s

office and thus qualifies for an exception under section 1091.5(a)(9) (85

Ops.Cal.Atty.Gen. 115, 117-119 (2002), hereafter Battersby); a city council

member can participate in approving a contract for law enforcement services with

another city for which the council member once worked, and from which he

receives benefits, because those benefits will be unaffected by the contract (85

Ops.Cal.Atty.Gen. 6, 7 (2002)); and a deputy sheriff can serve on a city council

and, provided he recuses himself under section 1091, subdivision (b)(13), the rest

of the council may negotiate with the county sheriff for the provision of police

services (Cardoza, supra, 83 Ops.Cal.Atty.Gen. at pp. 248-250).

To summarize: section 1091.5(a)(9), the government salary exception,

applies to at least two archetypal scenarios. The first, the scenario the Legislature

expressly contemplated, involves a first party contract: an official has an existing

employment relationship with government entity A and also, in a separate

capacity, has the power to make or influence contracts made by A (other than

those sought by his or her own specific department), as with the city police

officer/city council member. (Assem. Com. on Elections, Reapportionment, and

Const. Amends., 3d reading analysis of Assem. Bill No. 1402 (1991-1992 Reg.

Sess.) as amended May 15, 1991, p. 1; Sen. Com. on Governmental Organization,

background information request for Assem. Bill No. 1402 (1991-1992 Reg. Sess.)

as introduced Mar. 7, 1991, p. 1.)14 The second involves a second party contract:


14

Relying on Strickland, supra, 89 Ops.Cal.Atty.Gen. 217, and People v.

Gnass, supra, 101 Cal.App.4th 1271, the People argue section 1091.5(a)(9)

(footnote continued on next page)

32

an official who makes or influences contracts on behalf of government entity A is

put in a position of considering a contract with government entity B, for which he

or she also works. (See, e.g., Battersby, supra, 85 Ops.Cal.Atty.Gen. 115.) In

each of these scenarios, section 1091.5(a)(9) is a defense if one‟s financial interest

in a proposed contract is only the present interest in an existing employment

relationship with a first or second party to the proposed contract, and thus an

interest in whatever indirect or incidental benefits might arise from the simple fact

of contracting with or on behalf of one‟s employer. It does not extend further to

contracts that more directly affect one‟s interests by involving one‟s own

department, or most directly affect one‟s interests by actually altering the terms of

one‟s employment; such interests directly implicate the “two masters” problems

section 1090 was designed to eliminate.15

(footnote continued from previous page)

applies only to contracts between two separate public agencies, and the contracts
here do not qualify. We disagree. The legislative history surrounding section
1091.5(a)(9)‟s adoption expressly contemplates application of the subdivision
where, for instance, a city employee is also a city council member of the same
city. Every city contract would arguably impact the employee, who draws a salary
from the city coffers — even contracts with private entities and thus involving
only a single public agency. Nevertheless, the Legislature apparently intended
section 1091.5(a)(9) to apply to such contracts to the extent they otherwise meet
the provision‟s requirements. (See Assem. Com. on Elections, Reapportionment,
and Const. Amends., 3d reading analysis of Assem. Bill No. 1402 (1991-1992
Reg. Sess.) as amended May 15, 1991, p. 1; Sen. Com. on Governmental
Organization, background information request for Assem. Bill No. 1402 (1991-
1992 Reg. Sess.) as introduced Mar. 7, 1991, p. 1.)

15

The Lexin defendants‟ position — that section 1091.5(a)(9) insulates any

interest, so long as it is an interest in government salary — is thus considerably too
broad. It would permit board members to freely select and hire themselves out for
any number of new government positions, or to act in their official capacities to
modify their own individual salaries without resort to the rule of necessity. This is
not now, nor has it ever been, the law. (See, e.g., Finnegan v. Schrader, supra, 91
Cal.App.4th 572 [§ 1090 prohibits a district board from hiring one of the board‟s

(footnote continued on next page)

33

B. Application of Section 1091.5(a)(9)

We consider section 1091.5(a)(9)‟s application to the two financial interests

we have identified: the Lexin defendants‟ interests arising from their ongoing

employment with the City and their interests arising from 2002 changes to their

pension benefits.

The application of the provision to the first set of interests is undisputed;

indeed, the People have never identified these interests as illicit. We nevertheless

address them briefly by way of illustration of the sorts of interests section

1091.5(a)(9) was intended to encompass.

The Lexin defendants are City employees. In their official capacities, they

participated in formation of a contract between the SDCERS Board, on which they

serve, and the City. Their interests fall squarely within section 1090; they had an

employment contract with the entity with which they were negotiating. In the

abstract, there is a concern that public officials negotiating with another entity for

which they work will have divided loyalties and fail to ensure that the agency they

represent (here, SDCERS) obtains the best deal from the entity that employs them

(here, the City).

However, these interests also fall squarely within the bounds of section

1091.5(a)(9). The Lexin defendants‟ interests in their existing employment

contracts consisted of government salary, disclosed to all as a matter of public

record (given especially that their City employment was a necessary condition of


(footnote continued from previous page)

own members to be the district manager]; cf. Thorpe v. Long Beach Community
College Dist.
(2000) 83 Cal.App.4th 655, 664-665 [interpreting § 1091.5, subd.
(a)(6) as permitting contracts that maintain the “status quo” of a spouse‟s
government employment but not extending to contracts that would involve a
promotion and pay increase].)

34

their service on the Board). The MP2 contract was with the City as a whole.

Section 1091.5(a)(9) allowed the Lexin defendants, as a general matter, to contract

with the City notwithstanding that the City also employed them; the Legislature

has deemed such an interest sufficiently inconsequential as to not raise concerns of

divided loyalty.

However, section 1091.5(a)(9) is not a complete defense because of the

existence of a second set of interests, the pension changes, to which the

provision‟s application is equally clear: to wit, it does not apply. As we have

explained, this provision was never intended to permit government officials to

negotiate prospective changes in their own government compensation. The

preliminary hearing evidence would allow a reasonable person to conclude the

Lexin defendants did so here; they participated in discussions of the MP2 when it

was linked to pension increases in various City MOU‟s, pension increases that

would apply to each of the Lexin defendants other than Saathoff. Additionally, as

the trial court found, the evidence was sufficient to at least raise a factual issue

whether Saathoff‟s incumbent union president benefit was a quid pro quo for

actions he took in connection with the MP2.

The Lexin defendants contend the Court of Appeal erred in concluding

section 1091.5(a)(9) did not apply because of the “department” proviso, the

exception to the exception for contracts “directly involv[ing]” one‟s own

department. (§ 1091.5(a)(9).) We need not reach this issue because the benefits at

issue here, direct changes to personal compensation, do not come within the

exception for existing interests in government salary in the first instance. This

obviates the question whether, if they did, the department proviso might then

exclude them from the exception.

In concluding section 1091.5(a)(9) does not apply here, we do not mean to

suggest there are not any number of other bases that may in particular well-defined

35

circumstances permit officials to negotiate contracts affecting their personal

salaries, as when the rule of necessity applies, when an official or employee is not

acting in an official capacity but on behalf of, for example, a collective bargaining

unit, or when some other exception to section 1090 applies. We next consider

another such exception pressed by the Lexin defendants — section 1091.5(a)(3).

IV. THE “PUBLIC SERVICES” EXCEPTION (SECTION 1091.5(a)(3))

A. Interpretation of Section 1091.5(a)(3)

1. Text and Existing Interpretations

As with section 1091.5(a)(9), we begin with the text. As of 2002, section

1091.5, subdivision (a) provided that “[a]n officer or employee shall not be

deemed to be interested in a contract if his or her interest is any of the following:

[¶] . . . [¶] (3) That of a recipient of public services generally provided by the

public body or board of which he or she is a member, on the same terms and

conditions as if he or she were not a member of the board.”16 Thus, so long as the

benefit an official receives from a contract is in the nature of a “public service[]

generally provided” by the official‟s agency, and so long as the benefit is received

without special or differential consideration — “on the same terms and

conditions” as if the official were not a member of the entity he or she serves — it

creates no conflict of interest.

The phrase “public service[] generally provided” is not self-defining, nor is

there any useful legislative history that might shed light on the Legislature‟s

intent. Sailing in largely uncharted waters, we find some useful illumination in the


16

The provision has since been amended to substitute “body or board” for

“board” at the end of section 1091.5(a)(3). (Stats. 2005, ch. 348, § 2.) The
amendment does not materially alter the provision‟s meaning.

36

few interpretations by the Courts of Appeal and the Attorney General. In City of

Vernon v. Central Basin Mun. Water Dist. (1999) 69 Cal.App.4th 508 (City of

Vernon), the lone prior published case to address the provision, a member of the

board of directors of a municipal water district participated in setting the uniform

rates at which the district would sell reclaimed water to wholesalers. He was also

the president and owner of one such wholesaler. The Court of Appeal concluded

section 1091.5(a)(3) permitted the board member‟s company to contract to buy

water, at rates the board member had participated in setting, without violating

section 1090‟s prohibitions. (City of Vernon, at pp. 514-515.)

In arriving at this conclusion, the Court of Appeal specifically rejected the

argument that the delivery of reclaimed water to wholesalers for resale could not

be a service generally provided by the agency because only a limited universe

(there, just 23 wholesalers) partook of the service. It explained that “ „public

services generally provided‟ ” was not synonymous with “ „services provided to

the general public‟ ” or to the “ „public at large,‟ ” interpretations that in its view

would require a “rewrit[ing of] the words of the statute.” (City of Vernon, supra,

69 Cal.App.4th at pp. 514-515.) “Public agencies provide many kinds of „public

services‟ that only a limited portion of the public needs or can use. This does not

derogate from their characterization as „public services‟ according to the ordinary

meaning of those words.” (Id. at p. 515.) Instead, it was enough that the service

was provided on uniform terms to an agency‟s customers. Members of the public

could avail themselves of the same terms if they joined that customer base (there,

the class of reclaimed water wholesalers).

37

The Attorney General has reached the same conclusion.17 In 88

Ops.Cal.Atty.Gen. 122 (2005), hereafter Spitzer, the Attorney General considered

whether the sale of advertising space in a 75-page city brochure could qualify as a

public service generally provided. To be sure, only a few members of the public

might seek to place advertising in the city‟s brochure. But the opinion correctly

recognized that while some public services may have a limited audience, this

alone does not disqualify them as public services generally provided under section

1091.5(a)(3). (See Spitzer, at p. 128 [quoting with approval both City of Vernon‟s

acknowledgement that “[p]ublic agencies provide many kinds of „public services‟

that only a limited portion of the public needs or can use” (City of Vernon, supra,

69 Cal.App.4th at p. 515) and the Massachusetts Supreme Court‟s recognition that

for many public services, “circumstances may be such that the [public] use or

service intended to be secured will practically affect only a small portion of the

inhabitants or lands of the Commonwealth. The essential point is, that it affects

them as a community, and not merely as individuals . . . .” (Lowell v. City of

Boston (1873) 111 Mass. 454, 470)].)

While it does not matter that the public constituency for a particular service

may be small, it does matter whether the service has been specifically designed to


17

Attorney General opinions are entitled to considerable weight. (California

Assn. of Psychology Providers v. Rank (1990) 51 Cal.3d 1, 17.) This is
particularly true when construing section 1090 and its related provisions because
“the Attorney General regularly advises local agencies about conflicts of interest
and publishes a manual designated to assist local governmental agencies in
complying with the conflict of interest statutes.” (Thorpe v. Long Beach
Community College Dist.
, supra, 83 Cal.App.4th at p. 662; see Freedom
Newspapers, Inc. v. Orange County Employees Retirement System
(1993) 6
Cal.4th 821, 829 [extra weight should be accorded Attorney General opinions in
areas of special expertise].)

38

benefit only a select few: “Here, the particular „service‟ provided by the city is not

specially tailored or conditioned to meet the individualized needs or circumstances

of any city council member. [Citation.] We are not presented with discretionary

or highly customized services benefitting one or more council members.”

(Spitzer, supra, 88 Ops.Cal.Atty.Gen. at p. 128.) Accordingly, under the aegis of

section 1091.5(a)(3), a city council member lawfully could purchase advertising

space, at rates set by the city council, to publicize his private business.

Similarly, in Fellows, supra, 89 Ops.Cal.Atty.Gen. 121, the Attorney

General considered the application of section 1090 to airport commissioners who

rented airport hangar space from a city. Concluding such rentals were permitted,

the Attorney General “reject[ed] the suggestion that due to the limited number of

airport hangars and would-be renters (i.e., owners of airplanes), these particular

„public services‟ would not be „generally provided‟ within the meaning of section

1091.5, subdivision (a)(3).” (Fellows, at p. 124.)

We conclude these authorities correctly apprehend the scope of the services

covered by section 1091.5(a)(3). What matters is not the breadth of the actual

recipient class, but that the service has not been intentionally designed to limit that

class and is broadly available to all those potentially within it. Reclaimed water

sold to any wholesaler who chooses to buy it; advertising space made available to

any business that chooses to purchase it; hangar space any citizen-pilot may rent

on a first-come, first-served basis — all these are public services generally

provided and may be offered to public officials as well without violating the

conflict of interest laws.

Application of section 1091.5(a)(3) depends as well on a second key

phrase: “on the same terms and conditions as if he or she were not a member of

the body or board.” The phrase codifies a critical nondiscrimination principle.

The Court of Appeal in City of Vernon, supra, 69 Cal.App.4th 508, and the

39

Attorney General in Spitzer, supra, 88 Ops.Cal.Atty.Gen. 122 and Fellows, supra,

89 Ops.Cal.Atty.Gen. 121, concluded section 1091.5(a)(3) applied only because in

each instance one could determine the officials were being treated the same as any

other member of their agencies‟ constituencies. (See City of Vernon, at p. 515

[“There is no special rate for” the official‟s company]; Spitzer, at p. 128 [“Anyone

may pay for advertising space in the brochure at a predetermined rate . . .” and the

council member “would not receive a special rate or discount . . .”]; Fellows, at

p. 124 [“Airport commissioners receive no priority to the hangar space and receive

no preferential rental rate.”].)

Problems arise, however, when it is not possible to establish that an

official‟s contract was untainted by favoritism arising from the official‟s insider

status. In 80 Ops.Cal.Atty.Gen. 335 (1997), hereafter Herring, the Attorney

General considered the validity of a proposed transaction between an irrigation

district and one of its directors. In exchange for easements to build a canal

through private property, the district built bridges over the canal to preserve

property access and agreed to maintain them for individual affected private

landowners. It also routinely provided construction services to landowners on a

first-come, first-served basis at established rates. The director proposed to forgive

the district its future bridge maintenance obligation for a bridge servicing only his

property, in exchange for road construction services valued at considerably less

than the repair work his bridge then needed. (Id. at pp. 335-336.)

The Attorney General recognized section 1091.5(a)(3) was inapposite to

this sort of “unique exchange.” (Herring, supra, 80 Ops.Cal.Atty.Gen. at p. 338.)

The bridge maintenance termination element of the transaction was singular. For

purposes of section 1091.5(a)(3)‟s nondiscrimination requirement, it mattered not

whether experts might testify that this transaction, considered in a vacuum, was

fair. What mattered instead was that there was no way to compare the terms

40

offered the director to those offered others because the proposed exchange was

“not available to the other customers of the district at all.” (Herring, at p. 338.)

The Attorney General addressed a similar problem in 81 Ops.Cal.Atty.Gen.

317 (1998), hereafter Thomson. A city council member helped establish a

municipal small business loan program and, after leaving office, sought to avail

himself of the program by obtaining a loan. Problems of incommensurability

again barred the transaction. Unlike contracts involving standard goods or

services at set rates, “[o]btaining a government loan involves more complex

considerations. The loan applicant must qualify, and the public official approving

the loan must exercise some degree of discretion and judgment.” (Id. at p. 320.)

In such circumstances, it is impossible to demonstrate conclusively that other

nonofficials would have received similar terms. Accordingly, section 1091.5(a)(3)

would not shield the proposed loan from conflict of interest prohibitions.

These opinions establish, correctly, the principle that for any transaction to

pass muster under section 1091.5(a)(3) it must be provable that no preferential

treatment was involved. It was “the „apparent intent of this provision . . . to

exempt a board member‟s receipt of public services that are given under “the same

terms and conditions” to the other customers of the public agency.‟ ” (City of

Vernon, supra, 69 Cal.App.4th at p. 515, quoting Herring, supra, 80

Ops.Cal.Atty.Gen. at p. 338.) Thus, a party asserting section 1091.5(a)(3) as a

defense must establish that other constituents of an agency received, or would

have received, similar terms.18 There can be no special tailoring of a contract‟s

18

Term variations that hinge on neutral factors wholly independent of an

official‟s status, such as, e.g., price variations based on the size, duration, and
location of an advertisement (Spitzer, supra, 88 Ops.Cal.Atty.Gen. at p. 128 &
fn. 2) or residency considerations (Fellows, supra, 89 Ops.Cal.Atty.Gen. at p. 124,
fn. 2), do not affect the section 1091.5(a)(3) analysis.

41

terms, no discretion in determining what consideration a particular official must

relinquish or may receive.

We are mindful as well that when interpreting statutes “we must consider

the human problems the Legislature sought to address in adopting [the statute]

. . . .” (Burris v. Superior Court (2005) 34 Cal.4th 1012, 1018.) One of the

corollaries of a republican form of government is that in a “government of the

people, by the people, for the people,”19 public officials will often be part of their

own constituencies, at once representatives and members of the class they

represent, at once governors and the governed. In a government drawn from the

people as a whole, it is inevitable that government benefits may flow to citizen-

senators as well as everyday citizens. Public officials often may have a stake in

the decisions they make, albeit one undifferentiated from that of their fellow

constituents. They must be entrusted to enact laws, adopt rules, and make

decisions that affect both their constituency and themselves as members of that

constituency.

Such is an unavoidable consequence of representative democracy, but it is a

feature, not a bug.20 So long as the stakes are equal — so long as public officials

and their constituents have access to benefits “on the same terms and conditions,”

without respect to the public officials‟ status (§ 1091.5(a)(3)) — there is no

conflict of interest because the interests of the officials and their constituency

align, rather than diverge. Section 1091.5(a)(3), as we read it, alleviates the


19

President Abraham Lincoln, Gettysburg Address (Nov. 19, 1863).

20

See, e.g., Raymond, The Hacker‟s Dictionary (3d ed. 1996) p. 97; The

Jargon File, version 4.4.7 (Dec. 2009) <catb.org/jargon/html/F/feature.html>
[as of Jan. 25, 2010].

42

paralysis that would ensue if section 1090 prohibited even those contracts where

the public officials‟ financial interests mirrored those of any other constituents.

This conclusion is consistent as well with the long-standing recognition that

section 1090‟s concern is with personal interests, interests that may diverge from

those of the constituents the public official represents and place the official in the

position of responding to “two masters.” “The purpose of [section 1090] is to

prohibit self-dealing, not representation of the interests of others.” (BreakZone

Billiards v. City of Torrance (2000) 81 Cal.App.4th 1205, 1230; cf. People v.

Vallerga, supra, 67 Cal.App.3d at p. 870 [upholding conviction where the

defendant‟s interest in the contract was “purely personal” and did not involve (as

the defendant argued) representation of “dual public interests”].) The conflict of

interest laws are designed to address conflicts “arising between a public position

and personal interests.” (61 Ops.Cal.Atty.Gen. 396, 399 (1978).) In effect,

section 1091.5(a)(3) recognizes that an interest is not personal, and poses no “two

masters” problem, if it is shared with, and undifferentiated from the interest of, the

members of the broad class of constituents a public official represents.

2. Comparison with the Political Reform Act of 1974

As a further point supporting this interpretation of section 1091.5(a)(3), we

note the interpretation harmonizes section 1090 and its related provisions with the

Political Reform Act of 1974 (§ 87100 et seq.).

It is a basic canon of statutory construction that statutes in pari materia

should be construed together so that all parts of the statutory scheme are given

effect. (People v. Lamas (2007) 42 Cal.4th 516, 525; American Airlines, Inc. v.

County of San Mateo (1996) 12 Cal.4th 1110, 1129; City of Huntington Beach v.

Board of Administration (1992) 4 Cal.4th 462, 468.) Two “ „[s]tatutes are

considered to be in pari materia when they relate to the same person or thing, to

43

the same class of person[s or] things, or have the same purpose or object.‟ ”

(Walker v. Superior Court (1988) 47 Cal.3d 112, 124, fn. 4, quoting 2A

Sutherland, Statutory Construction (Sands, 4th ed. 1984) § 51.03, p. 467; see also

Altaville Drug Store v. Employment Development Department (1988) 44 Cal.3d

231, 236, fn. 4 [in pari materia means “ „[o]f the same matter‟ ” or “ „on the same

subject,‟ ” quoting Black‟s Law Dict. (5th ed. 1981) p. 1004].)

Section 1090 is the principal California statute governing conflicts of

interest in the making of government contracts. In turn, the Political Reform Act

is the principal California law governing conflicts of interest in the making of all

government decisions. It is well established that these two acts are in pari materia:

“Section 1090 and section 87100 of the [Political Reform Act] are two of the most

important statutes in California addressing the problem of conflict of interest by

public officials and employees. They both deal with a relatively small class of

people, public officers and employees, and share the same purpose or objective,

the prevention of conflicts of interests, and hence can fairly be said to be in pari

materia.” (People v. Honig, supra, 48 Cal.App.4th at p. 327; see also 65

Ops.Cal.Atty.Gen. 41, 57 (1982) [interpretation of what constitutes a financial

interest under § 1090 and the Political Reform Act should be consistent].)

Accordingly, to the extent their language permits, we will read section 1090 et seq.

and the Political Reform Act as consistent.

Pertinent here is the Political Reform Act‟s “public generally” rule. The act

prohibits participation in a decision in which one has a “financial interest”

(§ 87100); in turn, a financial interest is in part defined as a “material financial

effect, distinguishable from [the decision‟s] effect on the public generally . . .”

(§ 87103). Detailed Fair Political Practices Commission regulations further define

when a decision‟s effect may be considered indistinguishable as between the

official and the public generally. (See Cal. Code Regs., tit. 2, §§ 18707-18707.9.)

44

Two conditions apply: the decision must affect a “significant segment” of the

population in the jurisdiction of the official‟s agency (id., § 18707.1, subd. (b)(1)),

and it must “affect a public official‟s economic interest in substantially the same

manner as it will affect the significant segment” previously identified (id., subd.

(b)(2)). Notably, however, the effect “need not be identical.” (Ibid.)

Our interpretation of section 1091.5(a)(3) affirms for government contracts

principles akin to those the Legislature has adopted for government decisions. In a

democracy, government decision makers will inevitably make decisions that affect

themselves as well. Insofar as the impact they experience is substantially the same

as that experienced by a significant segment of their constituency, the concerns

that animate conflict of interest law are not implicated; the financial impact is not

personal to the official. By reading section 1091.5(a)(3) as incorporating

congruent principles, we render the laws governing government contracts

consistent with those governing government decisions more generally.

Having thus considered the text of the statute, judicial and Attorney

General interpretations, and the surrounding statutory scheme, we conclude

section 1091.5(a)(3) should be read as establishing the following rule: If the

financial interest arises in the context of the affected official‟s or employee‟s role

as a constituent of his or her public agency and recipient of its services, there is no

conflict so long as the services are broadly available to all others similarly

situated, rather than narrowly tailored to specially favor any official or group of

officials, and are provided on substantially the same terms as for any other

constituent.

45

B. Public Service Generally Provided

1. Application to the Provision of Pension Benefits

We turn to application of these principles to the SDCERS Board. What

constitutes a public service generally provided by it?

The SDCERS Board‟s role is to manage and administer the City‟s

retirement system. It is responsible for determining who may receive retirement

benefits, as well as ensuring that benefits are adequately funded through the sound

investment of City- and employee-provided contributions. (San Diego City

Charter, art. IX, § 144; San Diego Mun. Code, §§ 24.0401, 24.0901.) The state

Constitution obligates retirement board trustees to “administer the system in a

manner that will assure prompt delivery of benefits and related services to the

participants and their beneficiaries.” (Cal. Const., art. XVI, § 17, subd. (a).) The

SDCERS Board‟s trustees are fiduciaries, charged with acting in the best interests

of participants and beneficiaries of the plan. (Id., subds. (a)-(b).) In short, the

Board‟s purpose and function are to ensure long term that fully funded retirement

benefits are available and delivered to those it deems eligible. The ongoing

provision of these benefits to public employees — ensuring that an income stream

is available to provide for future pensions, so the promise of future compensation

becomes a reality — is the service public retirement boards have been established

to provide.

The City argues the provision of pension benefits is not a service “provided

by” the SDCERS Board, but rather one provided by the City itself. We are not

persuaded. The retirement system is funded by the City and its employees. (San

Diego City Charter, art. IX, § 143.) The system is “an independent entity; all

funds for the system are required to be segregated from [C]ity funds, placed in a

separate trust fund under the exclusive control of the [SDCERS] Board, and may

only be used for retirement system purposes.” (Bianchi v. City of San Diego,

46

supra, 214 Cal.App.3d at p. 571.) It is the SDCERS Board that is charged with

establishing contribution rates that will ensure the promise of a pension becomes a

reality. (San Diego City Charter, art. IX, § 143.)21 The Board is then responsible

for investing and managing those contributions, determining the conditions under

which individuals may receive benefits, and authorizing payments from the trust

fund it administers. (San Diego City Charter, art. IX, § 144; San Diego Mun.

Code, § 24.0901.) The Board, not the City, is granted “sole and exclusive

fiduciary responsibility over the assets of the public pension or retirement system.”

(Cal. Const., art. XVI, § 17, subd. (a).) The Board, not the City, is constitutionally

charged with ensuring “prompt delivery of benefits and related services to the

[system] participants and their beneficiaries.” (Ibid.)22 In every meaningful sense

of the words, then, pension payments are “provided by” the SDCERS Board.

We also conclude the administration of public employee pensions is a

service “generally provided” within the meaning of section 1091.5(a)(3). As the

Court of Appeal recognized in City of Vernon, supra, 69 Cal.App.4th at pages

514-515, services need not be provided to every member of the public at large to

qualify. There, only 23 companies availed themselves of the public water sales at


21

In passing, we note that the charter authorization for the SDCERS Board to

set contribution rates refutes the City‟s argument that the Board‟s actions in
approving the MP2 were ultra vires. In approving the MP2, the Board was setting
future contribution rates, as it was authorized, and indeed obligated, to do. That
the City had made various other legal consequences contingent on Board action
was a matter beyond the Board‟s control, as Fiduciary Counsel Blum‟s inability to
extract from the City an agreement to renounce such tactics in the future amply
illustrates.

22

Indeed, this duty to ensure delivery of benefits and services to participants

and their beneficiaries “shall take precedence over any other duty.” (Cal. Const.,
art. XVI, § 17, subd. (b).)

47

issue; in Fellows, supra, 89 Ops.Cal.Atty.Gen. 121, only a handful of individuals

presumably could take advantage of public airplane hangar space; and the

advertising space available in a 75-page brochure in Spitzer, supra, 88

Ops.Cal.Atty.Gen. 122, necessarily could be filled by only a few.23 What matters

is not the raw numbers, but whether the service in question is made available by a

public agency to a broad class of its constituents, the people on whose behalf and

for whose benefit it acts, rather than being targeted or tailored to a select few.

(See Spitzer, at p. 128 [Is the service “specially tailored or conditioned to meet the

individualized needs or circumstances” of any government official? Is it a

“discretionary or highly customized service[] benefitting one or more”

government officials?].) Sometimes that universe is the public at large.

Sometimes it is a small group of water buyers or a few local pilots and airplane

owners. Sometimes it is thousands, or millions, of public employees. The central

point recognized by section 1091.5(a)(3) is the same — that the widespread

provision of services and benefits across a public agency‟s constituency avoids

problems of conflict of interest.

Under these guidelines, the pension services the SDCERS Board provides

qualify as generally provided. Its pension benefits are broadly available to the

agency‟s constituents, its past, present, and future public employees as well as


23

To be sure, many, many more individuals are recipients of the services at

issue here. According to the most recent available figures, SDCERS has just
under 20,000 members (SDCERS Comprehensive Annual Financial Rep., supra,
p. 29); it had more than 18,000 as of June 2002 (SDCERS Comprehensive Annual
Financial Rep. (2002) p. 34). As well, thousands more family members are
affected by the administration of the City‟s retirement system. A retirement
system like CalPERS provides benefits and services to more than 1.6 million
Californians. (See <www.calpers.ca.gov/eip-docs/about/facts/general.pdf> [as of
Jan. 25, 2010].)

48

their family members, a class that may potentially include anyone who chooses to

seek, and obtains, public employment.

The Court of Appeal rejected application of section 1091.5(a)(3) in part

because it read the provision as effectively including only public utilities,

extending only to “services provided by the agency to the public, such as water,

gas and electricity. ([Thomson, supra,] 81 Ops.Cal.Atty.Gen. [] at p. 320.) Here,

pension benefits are part of a compensation package that is conferred only on City

employees, as opposed to the public, through a contract with the City.” The

People press the same argument on appeal. This reading involves several errors.

First, contrary to City of Vernon, supra, 69 Cal.App.4th 508, and the

language of the statute, the Court of Appeal limited section 1091.5(a)(3) to

services provided to the public at large, rather than to a broad class of the public

agency‟s constituency, a constituency that in many cases may involve a smaller

subset of the public. As we have discussed, providing a benefit equally to a broad

segment of an agency‟s constituency, no less than the public as a whole, may

ameliorate conflict of interest concerns, and we see no reason to adopt the Court of

Appeal‟s more limited reading.

Second, the Court of Appeal read Attorney General opinions identifying

gas, water, and electricity as public services qualifying under section 1091.5(a)(3)

as providing an exclusive, rather than inclusive, list of the sorts of services that can

qualify as “generally provided.” In fact, the Attorney General has concluded only

that qualifying services include — but are not limited to — services of that sort.

(See Thomson, supra, 81 Ops.Cal.Atty.Gen. at p. 320 [“ „public services‟ would

include public utilities such as water, gas, and electricity, and the renting of hangar

space in a municipal airport on a first come, first served basis,” italics added].)

Before us here, the Attorney General takes precisely this position, reviewing in

detail its own opinions and arguing on behalf of amicus curiae CalPERS that “the

49

public services exception has never been viewed as applying solely to utilities

provided to the general public. Instead, it has been consistently extended to any

services generally provided by a public agency to the constituency served by that

agency, as long as those services were provided to the recipients, including public

officials and employees, on the same terms and conditions.” With this, we agree.

The provision of utilities is one kind of generally provided public service, but only

one kind. So long as a service is provided on the same terms and conditions to a

broad class of an agency‟s constituency, it may qualify under section 1091.5(a)(3).

Third, while it is true public employment is not available to every citizen

who may desire it, and it is also true that neither City of Vernon, supra, 69

Cal.App.4th 508, nor any of the previous Attorney General opinions deals with a

situation such as this where there are entry barriers wholly beyond the control of

people who may desire to join a particular constituency, this circumstance does

not preclude application of section 1091.5(a)(3). The text of the statute does not

define to whom a public service must be provided, and we see no reason to engraft

on it a limitation based on the broad, narrow, open, or closed nature of a public

agency‟s constituency. For purposes of the conflict of interest concerns that

animate section 1091.5(a)(3), it does not matter that external factors might limit

who may join an agency‟s constituency. It matters only whether the financial

interest in question is not personal to an employee or official because it is shared

with like members of the public agency‟s constituency.

2. Retirement Board Structural Considerations

Our conclusion that section 1091.5(a)(3) permits retirement boards to enter

contracts that affect board trustee pension benefits, at least insofar as the effect is

the same upon constituents who are not board trustees, is bolstered by a

consideration of the nature and composition of these boards. When interpreting a

50

statute, we endeavor to harmonize it with other enactments to the extent possible.

(Marathon Entertainment, Inc. v. Blasi (2008) 42 Cal.4th 974, 991; see

Department of Alcoholic Beverage Control v. Alcoholic Beverage Control Appeals

Bd. (2006) 40 Cal.4th 1, 15, fn. 11.) As we shall discuss, our interpretation avoids

a host of statutory and even constitutional problems that would arise if we were to

conclude, as the Court of Appeal did, that no exception to section 1090 permits

such contracts.

The Legislature has long embraced the principle of retirement system

member representation on public retirement boards. When it authorized the

formation of county retirement associations in 1937, the Legislature required that

each retirement board consist entirely of association members — one ex officio

trustee, one elected trustee, and one appointed trustee, all of whom were, under the

original version of the law, compulsory members. (Stats. 1937, ch. 677, §§ 42, 55,

pp. 1901-1903; see §§ 31520, 31520.1 [mandating member representation on

county boards].) The board for CalPERS, the state retirement system, has since

1945 followed the same plan; at present, six of the 13 trustees are elected from its

membership. (California State Employees’ Assn. v. Board of Administration

(2003) 113 Cal.App.4th 137, 139; § 20090.) The City has likewise adopted this

model; since at least 1931 its charter has provided for plan members to serve on

the SDCERS Board. (San Diego City Charter, art. IX, former § 144, as approved

by the Legislature, Apr. 15, 1931.) The state Constitution now includes special

protections for all retirement boards that contain employee representation, limiting

the extent to which the Legislature may alter their composition. (Cal. Const., art.

XVI, § 17, subd. (f).)

It is thus quite clear the Legislature intended for retirement board trustees to

share interests with their memberships. This is an understandable choice: as the

Court of Appeal has said in discussing the City‟s charter provision dictating ex

51

officio, employee, and retiree representation, “[t]he evident purpose of this latter

provision is to secure a board as objective, fair and competent as possible through

the representation of all those interests necessarily involved within a public service

retirement system.” (Grimm v. City of San Diego, supra, 94 Cal.App.3d at p. 39.)

Under the disinterested model of decisionmaking, one might seek fairness and

competence through a decisional body composed entirely of individuals cleansed

of any direct stake in the outcome — blue ribbon panels like the Warren

Commission, most outside boards of directors, the United States Supreme Court.

Alternatively, under the interested model of decisionmaking, one might seek the

same ends through a blend of individuals, each with a clear stake in many

decisions, with the belief that through the representation of all stakeholders, fair

and wise decisions will again emerge. The Legislature and the City have each

plainly chosen the latter model in composing public retirement boards.24

Having necessarily interested trustees on a governing board poses a

dilemma as to how to reconcile that potentially beneficial arrangement with


24

They are not alone. Member trustees have long been a standard feature of

the composition of most public retirement system boards. (See 49
Ops.Cal.Atty.Gen. 91, 94 (1967) [“It is customary in public retirement programs
to provide for employee representation on the board managing the plan.”].) A
recent study of a national public retirement system database suggests that, on
average, slightly over one-third of all public retirement board trustees are elected
from the membership. (Hess, Protecting and Politicizing Public Pension Fund
Assets: Empirical Evidence on the Effects of Governance Structures and
Practices
(2005) 39 U.C. Davis L.Rev. 187, 195.) Professor Hess argues that this
arrangement may have significant financial benefits: member trustees‟ interests
are aligned with the performance of the funds they oversee, and thus “board
members who are also plan members may improve the performance of the fund
due to their direct financial interest in the plan‟s performance.” (Id. at p. 198.) At
least one regression analysis confirms a positive impact on pension fund
performance arising from having at least some elected member trustees on a public
retirement system‟s board. (Id. at p. 214.)

52

conflict of interest prohibitions. Every decision a retirement board makes and

every contract it enters into is likely to affect the financial interests of its

employee/retiree members. As in this case, such contracts fall under section

1090‟s prohibitions. Unless an exception applies, a conflicted board can only

contract pursuant to the rule of necessity. (See Finnegan v. Schrader, supra, 91

Cal.App.4th at p. 581; Strickland, supra, 89 Ops.Cal.Atty.Gen. at p. 221.) The

rule of necessity permits a government body to act to carry out its essential

functions if no other entity is competent to do so (Eldridge v. Sierra View Local

Hospital Dist., supra, 224 Cal.App.3d at pp. 321-322; see Olson v. Cory (1980) 27

Cal.3d 532, 537), but it requires all conflicted members to refrain from any

participation. If a quorum is no longer available, the minimum necessary number

of conflicted members may participate, with drawing lots or some other impartial

method employed to select them. (Eldridge, at pp. 322-323.)

We think it clear the Legislature cannot have intended, in mandating

inclusion of employees on retirement boards, simultaneously to require under

section 1090 that these same employee trustees absent themselves from

participation in every contract into which the board enters. As the Attorney

General and numerous amici curiae argue, for retirement boards to make findings

of necessity and then either exclude all employee and retiree trustees or draw lots

before considering most contracts would fundamentally alter the way they operate

and substantially impair the effective representation of employee and retiree

interests.25 Such a result would be all the more unusual in light of the


25

Several amici curiae note a further consequence that would arise in the

absence of any section 1091.5 exception: retirement boards would be unable to
obtain any advice from their (now conflicted) staffs, who would share the same
interest in any contracts affecting the pension fund. In a drafting oddity, the
remote interest exceptions of section 1091 apply only to “officer[s]” (§ 1091,

(footnote continued on next page)

53

constitutional guarantees in place to ensure that the composition of retirement

boards with employee representation is insulated from unilateral legislative

tampering (see Cal. Const., art. XVI, § 17, subd. (f)); by effectively shifting the de

facto composition of such boards, it would accomplish indirectly what the

Legislature is constitutionally prohibited from accomplishing directly.26

Under our reading and application of section 1091.5(a)(3), such difficulties

are avoided. Section 1090 and the various legislative enactments mandating

employee participation on retirement boards must be harmonized if at all possible.

The Legislature and the City both clearly see having retirement board

representatives who share the interests of their constituents as beneficial. A

legislative body with this view cannot have intended simultaneously to establish a

set of conflict of interest rules that would expose to criminal liability every

employee trustee who fulfilled his or her board‟s duties to enter contracts of

general benefit to the retirement system membership as a whole. By reading


(footnote continued from previous page)

subd. (a)), not to “officer[s] or employee[s]” (§ 1091.5, subd. (a)), so pension fund
board members can obtain staff advice concerning contracts affecting the pension
fund only if some section 1091.5 minimal interest exception applies.

26

Proposition 162, the constitutional provision precluding legislative

tampering with public retirement board composition for those boards with
employee trustees, was passed to allow “retirement board trustees [to] be free from
political meddling and intimidation.” (Prop. 162, § 2, subd. (f), text reprinted at
Stats. 1992, p. A-230.) The apparent concern was that legislative alteration of a
public retirement board‟s composition could result in a board dominated by
trustees appointed by, and loyal to, the plan sponsor at the expense of the
membership. (See id., § 2, subd. (g) [safeguards needed “to prevent political
„packing‟ of retirement boards”]; see generally Hess, Protecting and Politicizing
Public Pension Fund Assets: Empirical Evidence on the Effects of Governance
Structures and Practices
, supra, 39 U.C. Davis L.Rev. at pp. 195-199 [discussing
dynamics of various retirement board compositions].)

54

section 1091.5(a)(3) to permit employee trustee participation in instances where

the trustee‟s financial interest mirrors that of the board‟s constituency as a whole,

we harmonize the rules governing conflicts of interest and those governing

pension fund management. Employee representation in decisionmaking and

contracting is preserved to the extent possible; contracts that actually involve

unique personal financial interests not shared by the board‟s constituency remain

prohibited. Section 1090 was adopted to curtail the “two masters” problem that

arises when an official‟s personal interests are at odds with those of the public

constituency he or she is duty-bound to represent; when those interests are in

alignment, no policy or statute compels us to disturb the composition of the boards

the legislative branch and the cities of this state saw fit to establish.27

C. Same Terms and Conditions

We further consider application of section 1091.5(a)(3) to the two distinct

pension-related financial interests disclosed in the record: (1) a 0.25 percent

increase in the basic pension formula multiplier at age 55, provided to five of the

six Lexin defendants but not defendant Ronald Saathoff, and (2) an incumbent

union president benefit, provided to Saathoff and apparently no one else. Other

than for Saathoff, the record here discloses no customized, specially tailored


27

As well, this interpretation alleviates the potential retirement board

paralysis that could result if section 1091.5(a)(3) were inapposite. The People
argue before us that the setting of contribution rates alone, when a contract
offering benefits is contingent on what rates are set, can constitute a prohibited
making of a contract under section 1090 and that no exception would apply. But
this raises the prospect that whenever a plan sponsor enters such contingent
agreements with its unions — a practice the SDCERS Board‟s fiduciary counsel
was unable to get the City to renounce — a retirement board would be precluded
from taking any action that might satisfy the contingencies, even if contribution
rates satisfying the contingencies were those deemed actuarially most sound and
most consistent with the board‟s fiduciary duties.

55

benefits. We thus conclude section 1091.5(a)(3) covers the actions of each of the

Lexin defendants except Saathoff.

1. Lexin, Vattimo, Webster, Wilkinson, and Torres

Defendants Cathy Lexin, Mary Vattimo, Teresa Webster, Sharon

Wilkinson, and John Torres each had the age-55 percentage multiplier that would

be used in their pension calculations increased from 2.25 percent to 2.50 percent.

This is the same increase that applied to every nonsafety City employee. These

defendants‟ interests thus mirrored those of their constituents; they received a

pension benefit on the same terms and conditions as did a broad segment of their

constituents, without regard to their board membership, and with no special

tailoring or individualized consideration. Similarly, the MP2 affected each of the

Lexin defendants and their members equally — they had the same financial

interest as their members in ensuring a stable pension fund. For public officials to

have a conflict of interest, there must be some differentiation between their

financial interests and the financial interests of those they represent. Here, there

was none.

The Court of Appeal nevertheless concluded section 1091.5(a)(3) could not

apply because the SDCERS Board was faced with an exercise of discretion in

deciding whether to approve modified contribution levels in exchange for

increased pension benefits. Relying on Thomson, supra, 81 Ops.Cal.Atty.Gen. at

page 320, the Court of Appeal reasoned that where an element of discretion is

involved, section 1091.5(a)(3) necessarily does not apply. The People echo this

argument.

The Court of Appeal, and the People, misapprehend when and where

discretion is problematic for purposes of section 1091.5(a)(3). As we have

explained, because section 1091.5(a)(3) requires Board members to receive any

56

benefit from a public service on the “same terms and conditions” as if they were

not Board members, discretion in the allocation of a benefit is problematic.

Discretion in either (1) who receives a benefit or (2) how much of a benefit one

should receive renders any benefit incomparable; one cannot determine whether

the board members have in fact received the benefit on the same terms and

conditions as would have been the case for other, nonboard members. Special

tailoring is forbidden; discretion in the allocation of a benefit raises the specter

that such special tailoring might have occurred. It is for this reason the Attorney

General correctly concluded the former council member in Thomson, supra, 81

Ops.Cal.Atty.Gen. 317, could not avail himself of a city loan program: receipt of,

and the amount of, a loan depended on a discretionary decision concerning the

individual business‟s creditworthiness. In contrast, benefits available on a

nondiscretionary basis — e.g., use of the hangar spaces on a first-come, first-

served basis in Fellows, supra, 89 Ops.Cal.Atty.Gen. 121 — pose no special

tailoring problems.

While discretion in the availability of the financial interest may bar

application of section 1091.5(a)(3), nothing in the language of that section or in

any case or opinion interpreting it suggests discretion in the establishment of

benefits that will then be available to a broad group of constituents is problematic.

Surely there was an element of discretion in the setting of reclaimed water rates,

advertising rates, and hangar rates (see City of Vernon, supra, 69 Cal.App.4th 508;

Spitzer, supra, 88 Ops.Cal.Atty.Gen. 122; Fellows, supra, 89 Ops.Cal.Atty.Gen.

121); once set, though, these rates applied equally to all. The SDCERS Board had

discretion over whether to enter into a contract that established a particular

contribution rate, but nothing about the allocation of benefits that might flow from

such a contract was discretionary; instead, future pension benefits are to be

distributed to all constituents, in accordance with strict formulas factoring in

57

salary, length of service, and age. (San Diego Mun. Code, § 24.0402.) Similarly,

retirement boards have discretion in negotiating with third party health care

providers for the provision of health benefits for their constituents, but that

discretion does not disable them from doing so notwithstanding that some board

trustees may be among the class who will receive health care — on a

nondiscriminatory basis according to uniformly applicable rates. The presence of

discretion in the formation of a contract that section 1091.5(a)(3) purportedly

permits is not fatal, unless the discretion can be exercised to permit the special

tailoring of benefits to advantage one or more board members over their

constituency as a whole. Absent such a risk of favoritism, discretion is

unproblematic.28

On appeal, the City raises an additional argument for finding the section

1091.5(a)(3) exception inapposite: the pension multiplier increase applied to

current employees but not to retirees. We conclude this fact does not foreclose

application of the exception.

As noted, the language of the subdivision specifies that the service a board

member receives must come “on the same terms and conditions as if he or she

were not a member of the body or board.” (§ 1091.5(a)(3).) There must be no

special treatment for the board member, either express or implied, as a


28

We note that the Attorney General, appearing on behalf of amicus curiae

CalPERS, agrees the Court of Appeal misread Thomson, supra, 81
Ops.Cal.Atty.Gen. 317. The Attorney General argues discretion per se is not fatal;
as we have previously recognized, “discretion” is a nebulous term because “almost
all acts involve some choice among alternatives . . . .” (Caldwell v. Montoya
(1995) 10 Cal.4th 972, 981.) Rather, the Attorney General explains, the discretion
it had in mind in Thomson that would render section 1091.5(a)(3) inapplicable was
the sort of discretion involved in crafting an “individually tailored contract.” We
agree with this view of section 1091.5(a)(3).

58

consequence of board membership. Where, however, the board member receives

benefits on the same terms and conditions as similarly situated constituents who

are not board members, section 1091.5(a)(3) may apply.

Here, active Board trustees received the same benefits as active nontrustees;

retired Board trustees received the same benefits as retired nontrustees. Saathoff

aside, the remaining Lexin defendants received the same pension benefit as the

more than 6,000 other active nonsafety City employees. Their interest was not

personal, but was shared with their constituents; they had the same interest every

other current nonsafety City employee had.29

2. Saathoff

We turn to the separate question of Ronald Saathoff‟s financial interests.

The record discloses that in 2002, the San Diego City Council approved a pension

benefit that uniquely applied to him as the incumbent president of the Firefighters:

Saathoff would be permitted to make pension contributions based on his union

salary and his City salary, and would have his eventual pension calculated based

on his combined salary. At the same time, the city council voted that no future

union president would receive this benefit; henceforth, union presidents‟ pension


29

A similar scenario arises when, for instance, a legislative body votes on tax

proposals. Such proposals will affect different members of the polity differently.
As every member of the legislative body is a citizen and constituent as well, the
proposals will inevitably affect members of the legislature differently too.
Ordinarily, however, every legislator will be affected the same as any and all
similarly situated nonlegislators. Such differences, generally speaking, are not
tailored to afford special benefits to the legislators themselves. This is an
unavoidable feature of a republic — representatives drawn from the polity as a
whole to represent the interests of a constituency will in some instances
necessarily be affected by the measures they must approve. (Cf. §§ 87102.5-
87103 [excluding from the purview of the conflict of interest laws legislators‟
decisions that affect a financial interest they share with the public generally].)

59

benefits would be calculated based only on their City salary. As the Lexin

defendants note, this benefit had previously been extended to the presidents of the

POA and the MEA, but this only underlines the point that the benefit voted

Saathoff in 2002, and denied prospectively to all future union presidents, was

unique to Saathoff. As such, it was an individually tailored benefit that raised the

prospect of favoritism or more nefariously — under the People‟s theory here —

buying off a key vote, the person who “runs the show” at SDCERS.

Section 1091.5(a)(3) does not insulate such unique benefits from

prosecution. A unique benefit cannot be said to have been provided “on the same

terms and conditions,” wholly independent of the recipient‟s board status; at a

minimum, as with the business loan at issue in Thomson, supra, 81

Ops.Cal.Atty.Gen. 317, on the record before us there is simply no way to know

whether favoritism played a role. Accordingly, Saathoff has failed to demonstrate

as a matter of law that section 1091.5(a)(3) applies. Because section 1091.5(a)(9)

likewise does not apply, the trial court was correct to deny the Penal Code section

995 motion as to him.30

30

The Lexin defendants raise due process concerns and argue the rule of

lenity should be applied to grant them relief. We need consider these arguments
only as they relate to Saathoff. We have explained that the rule of lenity is a tie-
breaking principle, of relevance when “ „two reasonable interpretations of the
same provision stand in relative equipoise . . . .‟ ” (Burris v. Superior Court,
supra, 34 Cal.4th at pp. 1022-1023, quoting People v. Jones (1988) 46 Cal.3d 585,
599.) It has no application where, “as here, a court „can fairly discern a contrary
legislative intent.‟ ” (Burris, at p. 1023, quoting People v. Avery (2002) 27 Cal.4th
49, 58.) Neither section 1091.5(a)(3) nor section 1091.5(a)(9) presents an
interpretive problem so close that we must resort to the rule.



Nor do due process considerations prevent the case against Saathoff from

proceeding. The Lexin defendants‟ argument rests on concern that the Court of
Appeal‟s interpretation of the “department” exception to the salary exception in
section 1091.5(a)(9) unforeseeably constricted that provision. As we do not rely

(footnote continued on next page)

60

* * *

In closing, we note that, the applicability of section 1090 aside, a wealth of

other legal remedies exists to ensure municipalities and retirement boards do not

abuse the public trust. Both groups are subject to actions for declaratory relief or

mandamus challenging their decisions (see, e.g., Bandt v. Board of Retirement

(2006) 136 Cal.App.4th 140; Board of Administration v. Wilson (1997) 52

Cal.App.4th 1109), as the City and SDCERS Board were sued here. Retirement

board trustees are fiduciaries (Cal. Const., art. XVI, § 17) and as such are subject

to suit for breach of fiduciary duty when their decisions fall short of the standard

the law demands. We express no opinion as to whether the Lexin defendants

breached their fiduciary duties here, nor whether they might otherwise have been

subject to civil liability for their actions. We hold only that, where retirement

board trustees approve contracts in which their only financial interest is an interest

in benefits shared generally with their constituency at large, section 1091.5(a)(3)

excludes such actions from the purview of section 1090.


(footnote continued from previous page)

on the Court of Appeal‟s interpretation, the argument has no force. Nor does
anything in our own interpretation of section 1091.5(a)(9) unforeseeably narrow
its scope — no existing precedent suggests the conduct the People allege Saathoff
engaged in was permissible. (See People v. Chacon (2007) 40 Cal.4th 558, 570.)

61

DISPOSITION

For the foregoing reasons, we affirm the Court of Appeal‟s judgment as it

relates to defendant Ronald Lee Saathoff, reverse it in all other respects, and

remand for further proceedings consistent with this opinion.

WERDEGAR, J.

WE CONCUR:

GEORGE, C. J.
KENNARD, J.
BAXTER, J.
CHIN, J.
MORENO, J.
CORRIGAN, J.




62

See last page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Lexin v. Superior Court
__________________________________________________________________________________

Unpublished Opinion

Original Appeal
Original Proceeding
Review Granted
XXX 154 Cal.App.4th 1425
Rehearing Granted

__________________________________________________________________________________

Opinion No.
S157341
Date Filed: January 25, 2010
__________________________________________________________________________________

Court:
Superior
County: San Diego
Judge: Frederic L. Link and Roger W. Krauel

__________________________________________________________________________________

Attorneys for Appellant:

Gibson, Dunn & Crutcher and Theodore J. Boutrous, Jr., for Petitioners.

Gibson, Dunn & Crutcher and Nicola T. Hanna for Petitioner Cathy Lexin.

Coughlan, Semmer & Lipman, R. J. Coughlan, Jr., and Earll M. Pott for Petitioner Ronald Lee Saathoff.

Steven J. Carroll, Public Defender, and Greg S. Maizlish, Deputy Public Defender, for Petitioner John
Anthony Torres.

Hahn & Adema and David A. Hahn for Petitioner Mary Elizabeth Vattimo.

Law Office of Frank T. Vecchione and Frank T. Vecchione for Petitioner Teresa Aja Webster.

Damiani Law Group and Lisa J. Damiani for Petitioner Sharon Kay Wilkinson.

Jennifer B. Henning, upon request of the Court of Appeal, and Daniel S. Hentschke for California State
Association of Counties, League of California Cities and Association of California Water Agencies as
Amici Curiae on behalf of Petitioners.

Klausner & Kaufman, Robert D. Klausner and Adam P. Levinson for National Conference on Public
Employee Retirement Systems as Amicus Curiae on behalf of Petitioners.

Schwartz, Steinsapir, Dohrmann & Sommers, Robert M. Dohrmann and Henry M. Willis for Local 18,
International Brotherhood of Electrical Workers, AFL-CIO as Amicus Curiae on behalf of Petitioners.

Reed Smith, Harvey L. Leiderman and Jeffrey R. Rieger for Board of Retirement of the Contra Costa
County Employees‟ Retirement Association and Board of Retirement of the Orange County Employees‟
Retirement System as Amici Curiae on behalf of Petitioners.









Page Two – counsel continued – S157341

Attorneys for Appellant:

Steefel, Levitt & Weiss, Manatt, Phelps & Phillips, Ashley K. Dunning, Amy B. Briggs and Kelly R.
Knudson for Los Angeles County Employees‟ Retirement Association, Los Angeles City Employees;
Retirement System, Los Angeles Fire and Police Pension System, Los Angeles Water and Power
Employees Retirement Plan, Alameda County Employees‟ Retirement Association, Kern County
Employees‟ Retirement Association, Marin County Employees‟ Retirement Association, Merced County
Employees‟ Retirement Association, Sacramento County Employees‟ Retirement Association, San
Bernardino County Employees‟ Retirement Association, San Mateo County Employees‟ Retirement
Association, Sonoma County Employees‟ Retirement Association, Stanislaus County Employees‟
Retirement Association, Ventura County Employees‟ Retirement Association, California Public
Employees‟ Retirement System and California State Teachers‟ Retirement System as Amici Curiae on
behalf of Petitioners.

Tosdal, Smith, Steiner & Wax, Ann M. Smith and Fern M. Steiner for San Diego Municipal Employees
Association, Deputy Sheriffs‟ Association of San Diego County, SEIU Local 221, Teamsters Local 542 and
Teamsters Local 952 as Amici Curiae on behalf of Petitioners.

Robert E. Lindquist, Alice O‟Brien, Rosalind D. Wolf, Michael D. Hersh, John F. Kohn and Brenda
Sutton-Wills for California Teachers Association as Amicus Curiae on behalf of Petitioners.

Edmund G. Brown, Jr., Attorney General, Christopher E. Krueger, Assistant Attorney General, Stephen P.
Acquisto and Mark R. Beckington, Deputy Attorneys General, for California Public Employees‟
Retirement System as Amici Curiae on behalf of Petitioners.

_________________________________________________________________________________

Attorneys for Respondent:

No appearance for Respondent

Bonnie M. Dumanis, District Attorney, Stephen R. Robinson, Craig E. Fisher and William J. La Fond,
Deputy District Attorneys, for Real Party in Interest.





Counsel who argued in Supreme Court (not intended for publication with opinion):

Theodore J. Boutrous
Gibson, Dunn & Crutcher
3161 Michelson Drive
Irvine, CA 92612-4412
(949) 451-3800

Ashley K. Dunning
Manatt, Phelps & Phillips
One Embarcadero Center, 30th Floor
San Francisco, CA 94111
(415) 291-7400

William J. La Fond
Deputy District Attorney
330 W. Broadway, Suite 860
San Diego, CA 92101
(619) 531-3657


Petition for review after the Court of Appeal denied a petition for peremptory writ of mandate. This case presents the following issue: Did petitioners' service on the Board of the San Diego Retirement System, as it related to an increase in pension benefits for members of the system, violate the conflict of interest provisions of Government Code section 1090, and subject them to criminal prosecution, or did the non-interest exemption of Government Code section 1091.5, subdivision (a)(9) apply?

Opinion Information
Date:Citation:Docket Number:Category:Status:
Mon, 01/25/201047 Cal. 4th 1050, 222 P.3d 214, 103 Cal. Rptr. 3d 767S157341Review - Criminal Original (non-H.C.)submitted/opinion due

Parties
1Lexin, Cathy (Petitioner)
Represented by Theodore J. Boutrous
Gibson Dunn & Crutcher, LLP
333 S. Grand Avenue
Los Angeles, CA

2Lexin, Cathy (Petitioner)
Represented by Nicola T. Hanna
Gibson Dunn & Crutcher, LLP
3161 Michelson Drive, Suite 1200
Irvine, CA

3Saathoff, Ronald Lee (Petitioner)
Represented by Raymond J. Coughlan
Coughlan Semmer & Lipman
501 W. Broadway, Suite 400
San Diego, CA

4Torres, John (Petitioner)
Represented by Greg S. Maizlish
Office of the Primary Public Defender
233 "A" Street, Suite 300
San Diego, CA

5Vattimo, Mary (Petitioner)
Represented by David Alan Hahn
Attorney at Law
501 W. Broadway, Suite 1600
San Diego, CA

6Webster, Teresa Aja (Petitioner)
Represented by Frank Vecchione
Attorney at Law
105 West "F" Street, Suite 215
San Diego, CA

7Wilkinson, Sharon Ray (Petitioner)
Represented by Lisa Jean Damiani
Damiani Law Group
701 "B" Street, Suite 1110
San Diego, CA

8Superior Court of San Diego County (Respondent)
330 West Broadway
San Diego, CA 92101

9The People (Real Party in Interest)
Represented by Attorney General - San Diego Office
P.O. Box 85266
P.O. Box 85266
110 West "A" Street, Suite 1100
San Diego, CA

10The People (Real Party in Interest)
Represented by William James LaFond
Office of the San Diego County District Attorney
330 W. Broadway, Suite 750
San Diego, CA

11The People (Real Party in Interest)
Represented by Stephen Riley Robinson
Office of the District Attorney
P.O. Box 121011
San Diego, CA

12Alameda County Employees' Retirement Association (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA

13Association of California Water Agencies (Amicus curiae)
Represented by Daniel S. Hentschke
San Diego County Water Authority
4677 Overland Avenue
San Diego, CA

14California State Association of Counties (Amicus curiae)
Represented by Daniel S. Hentschke
San Diego County Water Authority
4677 Overland Avenue
San Diego, CA

15California Teachers Association (Amicus curiae)
Represented by Michael D. Hersh
California Teachers Assn
11745 E. Telegraph Road
Santa Fe Springs, CA

16Contra Costa County Employees' Retirement Association (Amicus curiae)
Represented by Harvey L. Leiderman
Reed & Smith, LLP
101 Second Street, Suite 1800
San Francisco, CA

17Kern County Employees' Retirement Association (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA

18League of California Cities (Amicus curiae)
Represented by Daniel S. Hentschke
San Diego County Water Authority
4677 Overland Avenue
San Diego, CA

19Local 18, International Brotherhood of Electrical Workers (Amicus curiae)
Represented by Robert M. Dohrmann
Schwartz et al., LLP
6300 Wilshire Boulevard, Suite 2000
Los Angeles, CA

20Los Angeles City Employees Retirement Association (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA

21Los Angeles County Employee Retirement Association (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA

22Los Angeles Fire & Police Pension System (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA

23Los Angeles Water & Power Employees Retirement Plan (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA

24Marin County Employees' Retirement Association (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA

25Merced County Employees' Retirement Association (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA

26National Conference on Public Employees Retirement Systems (Amicus curiae)
Represented by Robert D. Klausner
Klausner & Kaufman, P.A.
10059 N.W. First Court
Plantation, Fl

27National Conference on Public Employees Retirement Systems (Amicus curiae)
Represented by Adam P. Levinson
Klausner & Kaufman
10059 N.W. First Court
Plantation, FL

28Orange County Employee's Retirement System (Amicus curiae)
Represented by Harvey L. Leiderman
Reed & Smith, LLP
101 Second Street, Suite 1800
San Francisco, CA

29Public Employees Retirement System (Amicus curiae)
Represented by Mark R. Beckington
Office of the Attorney General
300 S. Spring Street, Suite 1702
Los Angeles, CA

30Public Sector Unions (Amicus curiae)
Represented by Ann M. Smith
Tosdal Smith et al.
401 West "A" Street, Suite 320
San Diego, CA

31Sacramento County Employees' Retirement System (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA

32San Bernardino County Employees' Retirement Association (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA

33San Mateo County Employees' Retirement Association (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA

34Sonoma County Employees' Retirement Association (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA

35Stanislaus County Employees' Retirement Association (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA

36Ventura County Employees' Retirement Association (Amicus curiae)
Represented by Ashley Kathleen Dunning
Steefel Levitt & Weiss
1 Embarcadero Center, 30th Floor
San Francisco, CA


Dockets
Oct 17 2007Petition for review filed
  John Anthony Torres, petnr. Greg S. Maizlish, counesl/Pub. Defender.
Oct 19 2007Received Court of Appeal record
  1 volume
Nov 6 2007Answer to petition for review filed
  counsel for People, RPI
Nov 6 20072nd record request
  2 boxes Overnight Mail
Nov 8 2007Received Court of Appeal record
  one file jacket and 2 boxes
Nov 16 2007Reply to answer to petition filed
  counsel for petnr. (Torres)
Nov 28 2007Petition for review granted (criminal case)
  Votes: George, C.J., Kennard, Baxter, Werdegar, Chin, Moreno, and Corrigan, JJ.
Dec 11 2007Request for extension of time filed
  Counsels for petnrs. jointly request an extension of time to 1-28-08 to file the opening briefs on the merits.
Dec 13 2007Extension of time granted
  On application of counsel for petitioners and good cause appearing, it is ordered that the time to serve and file the opening brief on the merits is extended to and including January 28, 2008.
Dec 18 2007Filed:
  counsel for petnr. (M. Vattimo) Notice of change of Law Frim.
Jan 28 2008Received:
  from counsel for petnr. over-sized brief on the merits
Jan 28 2008Application to file over-length brief filed
  counsel for petnr. John Torres
Jan 30 2008Opening brief on the merits filed
  counsel for petnr. w/permission
Feb 25 2008Request for extension of time filed
  counsel for real party in interest requests extension of time to March 28, 2008, to file the answer brief on the merits.
Mar 3 2008Extension of time granted
  On application of real party in interest and good cause appearing, it is ordered that the time to serve and file the answer brief on the merits is extended to and including March 28, 2008.
Mar 28 2008Received:
  from counsel for RPI over-sized answer brief on the merits.
Mar 28 2008Application to file over-length brief filed
  counsel for RPI
Apr 8 2008Answer brief on the merits filed
  counsel for RPI, w/permission
Apr 23 2008Request for extension of time filed
  Counsels for petitioners request extension of time to July 28, 2008, to file the reply brief on the merits.
Apr 28 2008Extension of time granted
  On application of counsel for petitioners and good cause appearing, it is ordered that the time to serve and file the reply brief on the merits is extended to and including July 28, 2008. No further extensions will be granted.
Jul 28 2008Received:
  Oversized Reply Brief on the Merits from John Anthony Torres, petitioner, by Greg S. Maizlish, deputy public defender
Jul 28 2008Application to file over-length brief filed
  for John Athony Torres, Petitioner, by Greg S. Maizlish, Counsel
Jul 31 2008Application to file over-length brief granted
  The application of petitioners John Anthony Torres, et al., for permission to file the reply brief on the merits in excess of the 4200-word limit is hereby granted.
Jul 31 2008Reply brief filed (case fully briefed)
  John Anthony Torres et al., Petitioners by Greg S. Maizlish, et al., counsel
Jul 31 2008Request for judicial notice filed (granted case)
  John A. Torres et al., Petitioners by Greg S. Maizlish et al., counsel
Jul 31 2008Exhibit(s) lodged
  One volume (Volume 32 - exhibits J-M)
Aug 4 2008Opposition filed
  counsel for RPI, People, partial opposition to Request for Judicial Notice
Aug 7 2008Received:
  Corrected Partial Opposition to Request for Judicial Notice, from the People, real party in interest, by Craig E. Fisher, deputy district attorney, county of San Diego
Aug 7 2008Received:
  Proof of service for corrected opposition to request for judicial notice, Craig E. Fisher, Deputy District Attorney, County of San Diego
Aug 19 2008Received application to file Amicus Curiae Brief
  California State Association of Counties, League of California Cities and Association of California Water Agencies (non-party)
Aug 21 2008Permission to file amicus curiae brief granted
  California State Association of Counties et al.
Aug 21 2008Amicus curiae brief filed
  The application of California State Association of Counties et al., for permission to file an amicus curiae is hereby granted. An answer thereto may be served and filed by any party within 20 days of the filing of the brief.
Aug 25 2008Request for judicial notice filed (granted case)
  Nat'l Conference on Public Employee Retirement Systems
Aug 25 2008Received application to file Amicus Curiae Brief
  National Conference on Public Employee Retirement Systems (non-party)
Aug 25 2008Application to appear as counsel pro hac vice (granted case)
  Robert D. Klausner to be permitted to appear in this matter on behalf of amicus, the Nat'l Conference on Public Employee Retirement Systems.
Aug 26 2008Received application to file Amicus Curiae Brief
  Boards of Retirement of LACERA, et al., in support of petnrs.
Aug 26 2008Request for judicial notice filed (granted case)
  Boards of Retirement of LACERA, et al.,
Aug 28 2008Received application to file Amicus Curiae Brief
  Local 18, et al., requests permission to file a joinder in amicus curiae brief of the Public Sector Unions, et al. *** granted *** order being prepared.
Aug 28 2008Received application to file Amicus Curiae Brief
  Public Sector Unions, et al. to file a joint a/c brief. (non-party)
Aug 28 2008Permission to file amicus curiae brief granted
  National Conference on Public Employee Retirement Systems for permission to file an amicus curiae brief in support of petitioners is hereby granted. An answer thereto may be served and filed by any party within twenty days of the filing of the brief.
Aug 28 2008Amicus curiae brief filed
  National Conference on Public Employee Retirement Systems in support of petitioners.
Aug 29 2008Received application to file Amicus Curiae Brief
  California Teachers Association (non-party)
Sep 2 2008Received application to file Amicus Curiae Brief
  Board of Retirement of the Contra Costa County Enployees' Retirement Assoc. and Board of Retirement of the Orange County Employee's Retirement System. (8.25(b))
Sep 3 2008Received application to file Amicus Curiae Brief
  California Public Employees' Retirement System (8.25(b))
Sep 3 2008Permission to file amicus curiae brief granted
  The application of Boards of Retirement of LACERA et al. for permission to file an amicus curiae brief in support of petitioners is hereby granted. An answer thereto may be served and filed by any party within twenty days of the filing of the brief.
Sep 3 2008Amicus curiae brief filed
  Boards of Retirement of LACERA et al.
Sep 4 2008Received:
  Amended proof of service, a/c Calif. Public Employees' Retirement System,
Sep 5 2008Change of contact information filed for:
  Harvey L. Leiderman, counsel for Board of Retirement Contra Costa County, Amici Curiae
Sep 8 2008Permission to file amicus curiae brief granted
  The application of California Teachers' Association for permission to file an amicus curiae brief is hereby granted. An answer thereto may be served and filed by any party within 20 days of the filing of the brief.
Sep 8 2008Amicus curiae brief filed
  California Teachers' Association
Sep 8 2008Permission to file amicus curiae brief granted
  The application of Public Sectors Unions, et al. for permission to file a joint amicus curiae brief in support of petitioners is hereby granted.
Sep 8 2008Amicus curiae brief filed
  Public Sectors Unions, et al.
Sep 9 2008Request for extension of time filed
  counsel for RPI, requests extension of time to October 10, 2008, to file a single response to amicus curiae briefs.
Sep 10 2008Amicus curiae brief filed
  Board of Retirement of the Contra Costa County Employees' Retirement Association, et al.
Sep 10 2008Permission to file amicus curiae brief granted
  The application of Board of Retirement of the Contra Costa County Employees' Retirement Association et al. for permission to file an amicus curiae brief is hereby granted. An answer thereto may be served and filed by any party within 20 days of the filing of the brief.
Sep 10 2008Amicus curiae brief filed
  California Public Employees' Retirement System.
Sep 10 2008Permission to file amicus curiae brief granted
  The application of California Public Employees' Retirement System for permission to file an amicus curiae brief is hereby granted. An answer thereto may be served and filed by any party within 20 days of the filing of the brief.
Sep 10 2008Amicus curiae brief filed
  Local 18, International Brotherhood of Electrical Workers, et al.
Sep 10 2008Permission to file amicus curiae brief granted
  The application of Local 18, International Brotherhood of Electrical Workers et al., for permission to file a joinder in amicus curiae brief of Public Sector Unions is hereby granted. An answer thereto may be served and filed by any party within 20 days of the filing of the brief.
Sep 17 2008Extension of time granted
  The application of real party in interest and good cause appearing, it is ordered that the time to serve and file the single response to amicus curiae briefs is extended and including October 10, 2008.
Sep 17 2008Change of contact information filed for:
  counsel for petnr. (Vattimo) change of law firm name.
Aug 31 2009Change of contact information filed for:
  counsel for amicus curiae Brd. of Retirement of Contra Costa Co. Employees' Retirement Asso. and Brd. of Retirement of Orange Co. Employee's Retirement System.
Sep 2 2009Case ordered on calendar
  To be argued Tuesday, October 6, 2009, 9:00 a.m., Los Angeles, California
Sep 9 2009Filed:
  Letter from theodore J. Bourtrous, Jr., counsel for petitioners Lexin et al., requesting that oral argument be delayed until November.
Sep 10 2009Argument rescheduled
  This case, set for argument on Tuesday, October 6, 2009, at 9:00 a.m., in Los Angeles, will be called and continued to the court's November 2009 calendar.
Oct 1 2009Case ordered on calendar
  to be argued Wednesday, November 4, 2009, at 9:00 a.m., in San Francisco
Oct 6 2009Cause called and continued
  (already set by the court to argument on Wednesday, November 4, 2009, at 9:00 a.m., in San Francisco)
Oct 13 2009Filed:
  Letter from Theodore J. Boutrous, jr., counsel for petitioners Lexin et al., requesting to divide oral argument time.
Oct 14 2009Change of contact information filed for:
  Greg S. Maizlish, counsel for petition Torres, informing the court of the retirement of Steven J. Carroll and the reorganization of the San Diego County Department of the Public Defender. That office has been renamed the "Office of the Primary Public Defender".
Oct 19 2009Filed:
  Letter from Theodore J. Broutrous, Jr., counsel for petitioners Lexin et al., revising request to divide oral argument time. Now requesting to share 10 minutes of time with amici curiae Los Angeles Count Employees Retirement Association et al.
Oct 20 2009Order filed
  The request of counsel for petitioners in the above-referenced cause to allow two counsel to argue on behalf of petitioners at oral argument is hereby granted. The request of petitioners to allocate to amici curiae Los Angeles County Employees Retirement Association et al. 10 minutes of petitioners' 30-minute allotted time for oral argument is granted.
Oct 29 2009Order filed
  Petitioners' request for judicial notice, filed July 31, 2008, is granted in part as to Exhibits J, K, and L, and denied in part as to Exhibit M. Amicus curia National Conference on Public Employee Retirement Systems' request for judicial notice, filed August 25, 2008, is denied. Amicus curiae the Boards of Retirement of LACERA et al.'s request for judicial notice, filed August 26, 2008, is granted. Robert Klausner's application to appear as counsel pro hac vice, filed August 25, 2008, is granted.
Oct 29 2009Note:
  Copy of order 10/29/2009 Faxed to T. Boutrous, lead counsel for petitioner. (C. Lexin) Faxed to SAC/Atty. General & SDG/Atty. General. lead counsel for real party in interest. (People)
Nov 4 2009Cause argued and submitted
 
Jan 22 2010Notice of forthcoming opinion posted
  To be filed on Monday, January 25, 2010 at 10 am.

Briefs
Jan 30 2008Opening brief on the merits filed
 
Apr 8 2008Answer brief on the merits filed
 
Jul 31 2008Reply brief filed (case fully briefed)
 
Aug 21 2008Amicus curiae brief filed
 
Aug 28 2008Amicus curiae brief filed
 
Sep 3 2008Amicus curiae brief filed
 
Sep 8 2008Amicus curiae brief filed
 
Sep 8 2008Amicus curiae brief filed
 
Sep 10 2008Amicus curiae brief filed
 
Sep 10 2008Amicus curiae brief filed
 
Sep 10 2008Amicus curiae brief filed
 
Brief Downloads
application/pdf icon
s157341_-_petition_for_review.pdf (256 bytes) - Petition for Review
application/pdf icon
s157341_-_real_party_in_interest's_answer_to_petiton_for_review.pdf (290 bytes) - Answer to Petition for Review
application/pdf icon
s157341_-_reply_to_answer_to_petiton_for_review.pdf (274 bytes) - Reply to Answer to Petition for Review
application/pdf icon
s157341_-_petitoners'_opening_brief_on_the_merits.pdf (276 bytes) - Opening Brief on the Merits
application/pdf icon
s157341_-_real_party_in_interest's_answer_brief_on_the_merits.pdf (288 bytes) - Answer Brief on the Merits
application/pdf icon
s157341_-_petitioners'_reply_brief_on_the_merits.pdf (275 bytes) - Reply Brief on the Merits
If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website
May 3, 2010
Annotated by lconniff

The defendants in this case, all trustees of the board administering San Diego’s retirement system, were accused of felony violations of state conflict of interest statutes, namely, Gov. Code § 1090, which prohibits public officials and employees from having a financial interest in contracts they make in their official capacities.

The trustees are alleged to have voted to authorize an agreement allowing the City to limit funding of its retirement system in exchange for the City’s agreeing to provide increased pension benefits to City employees, which would, by virtue of their employment by the city, benefit them as well. They argued that section 1090 and its exceptions were not meant to criminalize the making of contracts by parties whose only financial stake was their interest in government pension benefits.

The California Supreme Court agreed with the defendants, finding that, with one exception, the trustees’ actions fell within statutory exceptions to section 1090. The court determined that the defendants were not burdened by a conflict prohibited by section 1090. That section targets a conflict that results in a division in the loyalties of public servants between the public interests of their constituents and private opportunities for their own financial gain. Though they were financially interested in the agreement, they were no more financially interested than their fellow retirement system members. As such, the court concluded that their motion to dismiss the information against them should have been granted.

One defendant, however, did have a unique pension benefit as a result of this agreement. Ronald Saathoff, the fire safety representative and president of the firefighters’ union, stood to profit from the agreement’s preservation of a unique pension calculation for union presidents. That calculation allowed Saatoff to contribute to his pension based on both the president’s salary paid him by his union and his salary as a police officer. This, the court concluded, constituted an individually tailored benefit that did not fall under any of section 1090’s statutory exceptions.