Opinion
A160050
08-27-2021
PEOPLE OF THE STATE OF CALIFORNIA, ex rel. DENNIS J. HERRERA, et al., Plaintiffs and Respondents, v. STEPHENS INSTITUTE, Defendant and Respondent, MARGARET BASSLER, et al., Appellants,
NOT TO BE PUBLISHED
City & County of San Francisco Super. Ct. No. CGC-16-551832
NEEDHAM, J.
Margaret Bassler and Chloe Stanfield appeal from an order denying their application to intervene in this litigation under Code of Civil Procedure section 387. They argue that contrary to the trial court's ruling, their application was timely and they met the requirements for mandatory and permissive intervention. We will affirm the order.
I. FACTS AND PROCEDURAL HISTORY
A. This Litigation
On May 6, 2016, the People of the State of California, ex rel. Dennis J. Herrera, City Attorney for the City and County of San Francisco (People), and the City and County of San Francisco (City), sued Stephens Institute, dba Academy of Art University (Academy) and 23 limited liability entities for violation of the San Francisco Planning Code, violation of California's unfair competition law (Bus. & Prof. Code, § 17200 et seq.; UCL), and nuisance.
The limited liability entities are: 2300 Stockton Street, LLC, 1916 Octavia Street, LLC, 1153 Bush Street, LLC, 2209 Van Ness Avenue, LLC, 1835 Van Ness Avenue, LLC, 1080 Bush Street, LLC, 1069 Pine Street, LLC, 1055 Pine Street, LLC, 60 Federal Street, LLC, 491 Post Street, LLC, 701 Chestnut Street, LLC, 860 Sutter Street, LLC, S/F 466 Townsd, LLC, 620 RSSE, LLC, 2151 Van Ness Avenue, LLC, 2211 Van Ness Avenue, LLC, 825 Sutter Street, LLC, 601 Brannan Street, LLC, 1727 Lombard II, LLC, 2225 Jerrold Avenue, LLC, 460 Townsend Street, LLC, 950 Van Ness Avenue, LLC, and 2801 Leavenworth-Cannery, LLC.
As alleged in the complaint, the Academy, operating a for-profit art school based in San Francisco, “acquired buildings that are zoned and permitted for use as apartments and other residential purposes, only to convert them unlawfully to student dorms, depriving San Francisco of critical housing stock, especially affordable housing.”
On July 1, 2016, the People and the City filed a first amended complaint, asserting the same three causes of action and seeking injunctive relief and a declaration that the defendants violated the San Francisco Administrative Code, the San Francisco Building Code, the San Francisco Planning Code, and the UCL. The UCL cause of action specifically alleged the following as a predicate unlawful act: “Deceiving the public, potential students, and students by representing that [the Academy] was offering housing that was not subject to the San Francisco Rent Stabilization and Arbitration Ordinance[.]” (Italics added.)
In August 2016, the Academy filed a demurrer and motion to strike portions of the first amended complaint. In September 2016, the court took the matter off calendar pursuant to the parties' stipulation. As detailed post, the parties embarked on negotiations that spanned over three years and ultimately resolved the litigation (City Lawsuit).
B. Goldberg/Brassler Class Action Litigation
Meanwhile, individuals filed a putative class action against the Academy on behalf of students who had lived in its dormitories, relying on allegations and legal theories similar to those asserted in the City Lawsuit.
The litigation identified the “Stephens Institute” as the defendant but alleged that the wrongdoing was perpetrated by the “Academy, ” the name under which Stephens Institute allegedly did business. The parties to this appeal tend to use “Stephens Institute” and “Academy” interchangeably. For consistency, we use “Academy” to refer to the “Stephens Institute” as well as to the “Stephens Institute, doing business as the Academy of Act University.”
1. Federal Class Action-Goldberg I
On May 13, 2016-one week after the People and the City filed their lawsuit-Bennett Goldberg and Linda Kuckuk, as intestate successors in interest to Aaryn Goldberg, on behalf of themselves and all others similarly situated, filed a complaint against the Academy in the United States District Court for the Northern District of California, Case No.4:16-cv-02613-JSW (Goldberg I). The plaintiffs were represented by attorney William McGrane.
The complaint alleged violations of the California False Advertising Law (Bus. & Prof. Code, § 17500 et seq.) and the UCL, seeking restitution and a judicial declaration that the student's residential units were subject to the rent ordinance. The complaint was explicitly based on the People and City's complaint, attached a copy of that complaint, referenced its allegations, and asserted the theory that the Academy's use of the buildings as dormitories violated city planning law and the rent ordinance in the City's administrative code.
On March 29, 2017, the court granted the Academy's motion to dismiss Goldberg I without prejudice for lack of subject matter jurisdiction.
2. State Class Action-Goldberg II (Bassler)
On March 30, 2017, Goldberg and Kuckuk, on behalf of themselves and others similarly situated, filed a “Complaint for Penal Fines” against the Academy in San Francisco Superior Court, case number CGC-17-557866 (Goldberg II). In lieu of damages, plaintiffs sought an award of a collective penal fine of not less than $5,000,000 pursuant to the rent ordinance.
A second amended complaint “for Penal Fines; Public Injunction, ” filed in November 2018, added Margaret Bassler and Chloe Stanfield-appellants here-as putative class representative plaintiffs. Both the original complaint and the second amended complaint referenced the City Lawsuit. The second amended complaint noted the City's allegations regarding the “Academy's knowing, intentional, and deliberate bad faith violations of the City Rent Ordinance.”
In January 2019, the Academy filed a demurrer to the second amended complaint, seeking dismissal of the first cause of action for penal fines as to Goldberg and Kuckuk as individuals; a motion to strike certain allegations in the second amended complaint; and a petition to compel arbitration of the individual claims.
In February 2019, the court sustained the Academy's demurrer to the first cause of action without leave to amend, granted in part the motion to strike, and denied the petition to compel individual arbitration.
This court affirmed the trial court's rulings in August 2020. According to the parties to this appeal, Bassler and Stanfield are consequently the only remaining class representatives, and the matter is referred to as Bassler, et al. v. Stephens Institute. (Bassler v. Stephens Inst. (Aug. 28, 2020, No. A156949) ___Cal.App.5th___ .)
C. Settlement of The City Lawsuit
As mentioned, while the Academy was litigating Goldberg I and Goldberg II with appellants, it was engaged in court-supervised negotiations with the People and the City to resolve this case. A settlement conference with Judge Harold E. Kahn commenced on October 25, 2016.
1. The 2016 Term Sheet
With Judge Kahn's assistance, and after multiple in-person joint settlement sessions, the parties to the City Lawsuit entered into a Term Sheet for Global Resolution, dated November 15, 2016 for reference purposes (2016 Term Sheet).
The 2016 Term Sheet announced the parties' intention to “provide a framework under which they can resolve all of the pending land use issues related to the Project and the Lawsuit through a global resolution, and establish appropriate land use principles and processes for Academy properties and future operations.” Among other things, the Academy was to provide at least 160 new and rehabilitated units of affordable housing on two properties it controlled (valued at $36 million), and the limited liability companies were to pay the City $20 million in settlement.
By the provisions of the 2016 Term Sheet, this global resolution was to be documented in a consent judgment that would include a settlement agreement, a stipulated injunction, a development agreement by which the Academy's urban campus would be brought into compliance with the planning code, and real estate transaction agreements for the affordable housing units. The 2016 Term Sheet explained that, under the settlement agreement, the City would “fully release the Academy and LLC Parties from any and all liabilities related to any of the land use violations and other matters alleged in the Lawsuit.”
On December 19, 2016, the City published the 2016 Term Sheet on the City Attorney's website, where it remains publicly available.
2. 2019 Supplement
After the parties reached agreement on the 2016 Term Sheet, the City, the People, and the Academy worked to implement it, including finalizing the development agreement for approval by the Historic Preservation Commission, the San Francisco Planning Commission, the San Francisco Board of Supervisors, and the mayor.
When the parties reached impasse in September 2018, they again turned to Judge Kahn for assistance. After multiple settlement sessions, the parties entered into a supplement to the 2016 Term Sheet in July 2019 (2019 Supplemental Term Sheet). In place of the development of the two affordable housing projects, the Academy agreed to make payments to the City for affordable housing in the approximate amount of $37,600,000.
3. Approval of the Agreements
By November 2019, the parties had worked out the remaining core details of the development agreement, settlement agreement, stipulated injunction, consent judgment, and a guaranty.
Between October 15 and November 21, 2019, the Academy posted 252 posters across 43 of its properties. The posters included the November 2016 Term Sheet, the 2019 Supplemental Term Sheet, the development agreement, the settlement agreement, the proposed injunction, and the proposed consent judgment.
On November 20, 2019, the San Francisco Historic Preservation Commission adopted findings under the California Environmental Quality Act (CEQA) and approved a certificate of appropriateness consistent with the 2016 Term Sheet and the 2019 Supplemental Term Sheet. Those documents were publicly available.
On November 21, 2019, the San Francisco Planning Commission adopted findings under CEQA, approved a master conditional use authorization, and recommended approval of the development agreement by the San Francisco Board of Supervisors. Those documents were also publicly available.
In December 2019, two committees of the San Francisco Board of Supervisors held public hearings on the proposed agreements, and forwarded legislation approving them to the full board. These documents were publicly available too.
The San Francisco Board of Supervisors unanimously approved the first reading of the settlement agreement and development agreement on January 7, 2020, and unanimously approved them after a second reading on January 14, 2020. The mayor signed the ordinances approving the settlement agreement on January 17, 2020.
D. Appellants' Application to Intervene
On January 21, 2020-the first court day after the supervisors and mayor had approved the settlement-appellants Bassler and Stanfield sought to intervene in this litigation under Code of Civil Procedure section 387, so they could file a complaint for declaratory and injunctive relief as to the effect of the settlement on appellants' claims in their litigation against the Academy.
The trial court assigned appellants' ex parte application to Judge Andrew Y.S. Cheng in Department 613 on January 24, 2020. Appellants filed their Ex Parte Application to Intervene in Department 613 that same day.
In their application to intervene, appellants argued that the settlement among the City, the People, the Academy, and the LLC parties, if confirmed by the court, might impair or impede appellants' ability to protect their interests in the claims they had asserted in their separate putative class action against the Academy. Their stated basis for this fear was that the Academy's attorney had allegedly suggested he would take the position that the settlement would terminate appellants' claims.
Appellants' purported filing on January 21, 2020 is not in the appellate record. The record contains an application for intervention signed by attorney McGrane and filed by the court on January 24, 2020. It is that application we describe.
Appellants supported their application with a declaration from their lawyer, McGrane. McGrane averred: “Immediately following the Class's first learning of the Academy Settlement, I telephoned George Harris, counsel for the Academy in the Academy Litigation and inquired as to whether the Academy intended to take the position that any aspect of the Academy Settlement would impact the Academy Litigation. [¶] Mr. Harris replied that the Academy intended to take the position that the Academy Settlement ‘was the end of the road' for the Academy Litigation or words closely to that effect. [¶] I requested some analytical explanation for why that may be so, Mr. Harris declined to comment other than to say, once the Academy Settlement was final, the Academy would make its ‘end of the road' arguments to the courts and the Class members would have an opportunity to respond fully at that time.” McGrane thereafter spoke with Assistant City Attorney Kate Herrmann Stacey, who declined to comment on the City's position regarding the effect of the Settlement Agreement on Goldberg II, but noted that she “wanted nothing whatsoever to do with them as they were between the Academy and the Class.”
Attached as an exhibit to McGrane's declaration was appellants' proposed complaint in intervention, which alleged that as far as the “Class is presently able to determine from its examination of the public record, the portion of the Releases [in the settlement agreement] that appear to threaten its rights against the Academy in the Academy Litigation are as is set forth in Article 3, Section 3.1 of the Academy Settlement which reads as follows: ‘[The City and the People release] all Claims relating to the land use violations and other matters that were alleged or could have been alleged in the Lawsuit against the Stephens Institute and/or LLC Parties, including any Claims for violation of the City's Administrative Code, Planning Code, Building Code or the UCL that could have been asserted based on the conduct by the Academy alleged in the Lawsuit, excluding, without limitation, any Claims relating to payment of taxes.' ” (Italics removed.) The proposed complaint sought declaratory relief to the effect that the Academy has no defensive use of res judicata or collateral estoppel from the settlement, and there is no other impingement on the class's legal claims against the Academy.
On February 3, 2020, the People and the City, and the Academy and LLC parties, filed oppositions to appellants' application to intervene. Both groups argued, among other things, that the application was untimely. They also cast doubt on when McGrane's purported conversation with Harris occurred. In that regard, Harris submitted a declaration acknowledging that he was previously counsel for the Academy in the City Lawsuit and, from the time the 2016 Term Sheet was published on the city attorney's website in December 2016, McGrane had inquired several times about the status of the settlement and Harris had replied that the term sheet was being implemented and the case was on track for global resolution of all matters. However, Harris averred, he ceased being the Academy's counsel in the City Lawsuit in November 2018, and thereafter he also directed McGrane to successor counsel, Milstein & Associates. David Milstein submitted a declaration stating that he had not been contacted by McGrane in regard to the scope or effect of the settlement.
Appellants filed a reply brief on February 4, 2020. As to timeliness, they argued: “While the People and the Academy claim a motion for leave to intervene should have come years ago, how could Proposed Intervenors have guessed which way the political winds might blow, let alone what kind of exaggerated ‘end of the road' claims would suddenly be made by the Academy about where the settlement would leave the Proposed Intervenors once the Court entered a consent judgment.”
The trial court held a hearing on appellants' application to intervene on February 4, 2020. On February 5, 2020, the court denied the application, ruling as follows: “Because the application is untimely, and the reasons for intervention do not outweigh any opposition by the parties here, the Court denies the application.”
E. Consent Judgment
On February 13, 2020, the court entered the stipulated permanent injunction and consent judgment pursuant to the terms of the settlement agreement. This appeal followed.
II. DISCUSSION
Code of Civil Procedure section 387, subdivision (d)(1), allows for intervention in a civil action as of right if certain requirements are met: “The court shall, upon timely application, permit a nonparty to intervene in the action or proceeding if... [t]he person seeking intervention claims an interest relating to the property or transaction that is the subject of the action and that person is so situated that the disposition of the action may impair or impede that person's ability to protect that interest, unless that person's interest is adequately represented by one or more of the existing parties.” (Code Civ. Proc., § 387, subd. (d)(1)(B), italics added.) Subdivision (d)(2) of the statute provides for permissive intervention: “The court may, upon timely application, permit a nonparty to intervene in the action or proceeding if the person has an interest in the matter in litigation, or in the success of either of the parties, or an interest against both.” (Italics added.) Because a timely application is a requisite for both mandatory and permissive intervention, we discuss timeliness first.
A. Timeliness
The timeliness of an application to intervene is “determined based on the date the proposed intervenors knew or should have known their interests in the litigation were not being adequately represented.” (Ziani Homeowners Assn. v. Brookfield Ziani LLC (2015) 243 Cal.App.4th 274, 282 (Ziani); Lofton Wells Fargo Home Mortgage (2018) 27 Cal.App.5th 1001, 1013 (Lofton).) We review the court's untimeliness finding for an abuse of discretion. (Noya v. A.W. Coulter Trucking (2006) 143 Cal.App.4th 838, 842 (Noya); Lofton, supra, 27 Cal.App.5th at pp. 1012-1013.)
1. The Court Did Not Abuse Its Discretion
The trial court did not err in concluding that appellants' January 2020 application was untimely. The City Lawsuit was filed in May 2016, and an amended complaint followed in July 2016. Appellants were of course aware of the City Lawsuit and its claims and allegations, since they (or their predecessors) cited to them in their own pleadings filed in May 2016, March 2017, and November 2018. Indeed, the allegations of the City Lawsuit corresponded to appellants' concerns: the complaint alleged that the Academy “acquired buildings that are zoned and permitted for use as apartments and other residential purposes, only to convert them unlawfully to student dorms, depriving San Francisco of critical housing stock, especially affordable housing, ” and the amended complaint alleged that the Academy lied to students and potential students by representing that the Academy housing was not subject to the rent ordinance. Appellants knew their claims were based on the same facts, if not the same legal theory, as the City Lawsuit.
Appellants also knew that settlement was proceeding in the City Lawsuit, as evinced by the declaration of the Academy's attorney, who described conversations with McGrane after the 2016 Term Sheet was made public in December 2016. Appellants knew or should have known of the 2016 Term Sheet, which specified that the Academy would be released “from any and all liabilities related to any of the land-use violations and other matters alleged” in the City Lawsuit.
Moreover, appellants knew or should have known the parties to the City Lawsuit were not going to protect the rights and interests of the plaintiffs in the class action litigation-and therefore intervention would be necessary and appropriate. The point of the City Lawsuit was to obtain compliance with city law and protect city housing stock, not obtain monetary compensation for individual students. (See Payne v. National Collection Systems, Inc. (2001) 91 Cal.App.4th 1037, 1043-1046 [action filed by the People seeking injunctive relief and civil penalties “ ‘is fundamentally a law enforcement action designed to protect the public and not to benefit private parties' ”].)
Despite all this, appellants did not seek to intervene until after the 2016 Term Sheet and 2019 Supplemental Term Sheet were made public, settlement negotiations had continued for over three years with the trial court's assistance, the parties reached agreement on the required documents, the Historical Preservation Commission acted, the Planning Commission acted, two committees of the board of supervisors acted, the board of supervisors itself acted twice, and the mayor signed the ordinances authorizing the settlement.
Accordingly, it was well within the court's discretion to conclude that appellants waited too long after they knew or should have known that their interests, specifically their interests in the effect of the City Lawsuit on their putative class action lawsuit, were not being adequately represented in the City Lawsuit. (Noya, supra, 143 Cal.App.4th at p. 842 [trial court found it “significant that [proposed intervenor] took no steps to participate in the litigation until several years had passed and a comprehensive settlement agreement had been reached” between the parties].)
2. Appellants' Arguments are Baseless
Appellants contend the 2016 Term Sheet gave them no reason to know of any need to intervene, because the term sheet merely referred to releasing claims “alleged in the Lawsuit, ” as compared to the eventual language in the settlement agreement, which would release claims that “ ‘could have been alleged.' ”
Appellants are incorrect. The release language in the 2016 Term Sheet was not limited to claims that “were alleged” in the City Lawsuit. The 2016 Term Sheet warned that the Academy would be released “from any and all liabilities related to any of the land-use violations and other matters alleged in the Lawsuit.” (Italics added.) Certainly appellants' claims in their class action complaint were “related” to the “land-use violations” alleged in the City Lawsuit.
Moreover, even if there was a meaningful difference between the term sheet's language and the settlement agreement's language, appellants did not present any evidence as to when the change in language first appeared publicly or was otherwise ascertainable. Nor did they provide evidence as to when they discovered the change, when they should have discovered it, or why they did not seek to intervene earlier. (See Lofton, supra, 27 Cal.App.5th at p. 1013 [“the record contains no factual showing in the form of declarations from [proposed intervenors] specifying what they knew and when they learned it”].)
Instead, appellants argue that they filed their application to intervene “within days of being informed by the Academy that it intended to take the position that the ‘could have been alleged' language (AA 64) included in the broad release language contained in the Settlement Agreement eliminated the claims asserted by Appellants in Goldberg II.” This theory, however, lacks support in the evidence presented to the court.
In the first place, nowhere in McGrane's declaration does he state that Harris referred to the “could have been alleged” language in the release, let alone that Harris was basing his position on that language. To the contrary, McGrane averred that he asked Harris for “some analytical explanation for why” the settlement was “ ‘the end of the road' ” for the Academy's class action, and Harris “declined to comment other than to say, once the Academy Settlement was final, the Academy would make its ‘end of the road' arguments to the courts and the Class members would have an opportunity to respond fully at that time.” (Italics added.)
Moreover, while appellants represent to us that McGrane's conversation with Harris occurred in January 2020, the record does not support that proposition. McGrane averred that he “telephoned George Harris, counsel for the Academy in the Academy Litigation, ” “[i]mmediately following the Class's first learning of the Academy Settlement.” McGrane did not, however, specify a date for that phone call, or even the time when the “Class” first learned of the settlement. Harris, on the other hand, asserted in his declaration that he had told McGrane the case “continued to be on track for global resolution of all matters, ” but Harris ceased representing the Academy in the City Lawsuit in November 2018, and thereafter directed McGrane to successor counsel Milstein & Associates; David Milstein averred that he was never contacted by McGrane. A reasonable inference is that the purported “end of the road” conversation between Harris and McGrane could have occurred prior to November 2018, or some other time long before appellants filed their application for intervention.
Finally, even if the conversation between McGrane and Harris did occur in January 2020 as appellants now represent, appellants presented no evidence to the trial court as to why they (or their predecessors) could not have ascertained the Academy's position earlier.
Appellants' reliance on Ziani, supra, 243 Cal.App.4th 274 is misplaced in this regard. There, a homeowner's association sued the builder of a condominium development for construction defects in their members' units and the common area. The association discouraged its members from filing their own individual lawsuits, promising that it would not settle its claims against the builder without obtaining recovery sufficient to pay for repairs to the individual units. (Id. at pp. 276-278.) When it later became apparent that the association had entered into a settlement that would not provide the funds needed to repair all those units, the members moved to intervene. (Id. at pp. 277-278.) The trial court denied the motion on the ground it was untimely, because the individual homeowners knew or should have known of the litigation when the complaint was filed two years earlier. (Id. at p. 280.) The appellate court reversed, holding that the starting point for determining the timeliness of a motion to intervene is not when the proposed intervenors knew or should have known the litigation was filed, but when they knew or should have known their interests in the litigation were not being adequately represented. (Id. at p. 282.) The matter was remanded for the trial court to make this factual finding and reconsider its ruling. (Id. at p. 283.)
Here, by contrast, there is no indication that the trial court employed the wrong standard for determining timeliness. Nor is there any evidence that the People or the City-or anyone-promised appellants that a settlement of the City Lawsuit would include or guarantee monetary relief for appellants, or insulate them from any consequential effect on their putative class action. To the contrary, ample evidence supported the conclusion that appellants knew or should have known that the parties in the City Lawsuit would not be adequately representing appellants' interests. Appellants fail to demonstrate that the trial court abused its discretion.
B. Merits and Harmless Error
Appellants contend that the interest they sought to protect in the City Lawsuit was their interest (and the interest of putative class members) as to the res judicata effect the consent judgment might have on appellants' class action. Their contention leads us to several observations.
Fundamentally, appellants do not explain how the release language in the settlement agreement, by which the City and the People release their claims, would actually pose a danger to the claims of non-party appellants in separate litigation, regardless of what the Academy's attorney had supposedly said. To the contrary, appellants assert, as a matter of law the claims of the class members could not have been released as part of the settlement of the “law enforcement action” between the City and the Academy. (See Payne, supra, 91 Cal.App.4th at pp. 1044-1046 [judgment obtained in an action pursued under Business and Professions Code section 17200 et seq. by a prosecutor would have no res judicata effect upon a class action].) This assertion, as well as the fact that the effect of a judgment on subsequent litigation is typically adjudicated in the subsequent litigation, tends to disprove appellants' contention that the judgment in the City Lawsuit would impair or impede their ability to protect their interests, as required to intervene.
Further, while appellants insist they wanted to establish their point in the City Lawsuit, they fail to show that the denial of intervention was prejudicial. There is no indication in the record that the Academy has asserted a res judicata defense in the class action litigation; if it ever does, the issue can be addressed by the trial court in that case; if appellants are correct on the law, they are not worse off than if the issue had been litigated in the City Lawsuit; if they are wrong and the City Lawsuit does have a preclusive effect, there is no indication that the parties in the City Lawsuit would have been compelled to unravel their long-negotiated settlement and agree to anything different anyway. In short, we question whether appellants have shown that it matters whether the adjudication is in the class action litigation rather than the City Lawsuit.
In the end, we need not and do not resolve these issues regarding the merits of the intervention request or harmless error. Because the trial court did not abuse its discretion in denying the intervention request on the ground it was untimely, we will affirm the order on that basis.
III. DISPOSITION
The order is affirmed.
We concur. SIMONS, Acting P.J., RODRIGUEZ, J. [*]
[*] Judge of the Superior Court of Alameda County, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.