Ninth Circuit Rules That Partially Implemented, Multi-Stage IEP, As A Whole, Is Student’s Then-Current Special Education Placement

On November 17, 2016, the Ninth Circuit Court of Appeals decided N.E. v. Seattle School District, in which it considered how to identify a student’s “then-current”/“stay-put” special education placement when a parent brings a due process complaint. The facts are somewhat convoluted:  Student is disabled and exhibited serious behavioral problems.  District A provided Student with […]


Court Issues Ruling in Favor of State Allocation Board in Lawsuit Regarding Level III Developer Fees

On May 25, 2016 the State Allocation Board (“SAB”) voted to authorize Level III Developer Fees, consistent with Government Code section 65995.7. Shortly thereafter the California Building Industry Association (“CBIA”) filed a lawsuit in the Sacramento Superior Court challenging the action of the SAB, in a case entitled California Building Industry Association v. State Allocation Board. The court subsequently issued a temporary restraining order to temporarily halt the action of the SAB, and then later issued a tentative ruling in SAB’s favor. The case was heard on July 22, 2016. On August 22, the Court issued a final ruling denying CBIA’s request for a preliminary injunction. The Court’s conclusion, which mirrors its July tentative ruling in support of Level III Developer Fees, is that CBIA failed to prove any likelihood of success on the merits of its case. In addition to denying the preliminary injunction, the Court also terminated the previously issued temporary restraining order.

SAB argued that when funds are not available for new construction projects, pursuant to Article 5 (commencing with Section 17072.20 of the Education Code), that Level III Developer Fees may then be authorized. Conversely, CBIA argued that there were funds available, including Hardship Application and seismic repair funds, and the fact that any amount was available, however small, meant that funds were still available.

The Court examined whether funds available for new construction were based solely on Article 5 funds, or whether the SAB should consider alternative sources of funds. The Court concluded that authorization of Level III Developer Fees are appropriate “when Article 5 funds are insufficient to allow for continued apportionment for new construction.” Additionally, the Court concluded that although there are $2.2 million in Article 5 funds remaining, the next project in line for funding was Fresno Unified School District’s approved application for over $15 million, and that project alone would deplete remaining Article 5 funds. The Court found that SAB was “not approving apportionments as the funds provided fall far short of that needed for the ‘next in line’ approved application.”

The Court also noted that “the statute does not require [SAB] to wait for additional funds that may become available at some point in the future.” Although Proposition 51, regarding the statewide school bond, has been placed on the November ballot, SAB is not required to take a “wait-and-see” approach for funding new construction projects in the meantime.

In its August 22 ruling, the Court also directed SAB to prepare a final order incorporating the Court’s ruling to be entered by the Court and to finalize this matter, pending any appeals by CBIA.

SAB’s earlier finding that state funds for new construction are no longer available and that SAB is no longer approving apportionments for new construction due to lack of funds, which led it to authorize the implementation of Level III Developer Fees, has thus far withstood the legal challenge by CBIA.

We have previously covered the authorization of Level III fees and this legal challenge in our May 27 and July 21 Legal Updates, which can be accessed at, and we will continue to monitor the status of this case. Should you have any follow-up questions or comments on this information, please feel free to contact either our Southern California office at (714) 573-0900 or our Northern California office at (916) 245-8677 or visit our website at

Sacramento Superior Court Issues Tentative Ruling in Favor of State Allocation Board in Lawsuit Regarding Level III Developer Fees

Sacramento-County-Superior-CourtAs you will recall, on May 25, 2016 the State Allocation Board (“SAB”) voted to authorize Level III Developer Fees, consistent with Government Code section 65995.7. Shortly thereafter the California Building Industry Association (“CBIA”) filed a lawsuit in the Sacramento Superior Court challenging the action of the SAB, in a case entitled California Building Industry Association v. State Allocation Board.

Today the Court issued a tentative ruling denying CBIA’s request for a preliminary injunction. The Court’s tentative conclusion, in support of Level III fees, is that SAB may make a finding that state funds for new construction are no longer available and that SAB is no longer approving apportionments for new construction due to lack of funds.

This is a tentative ruling that is scheduled to be argued before the Court tomorrow. A final decision will be issued at a later date.

We will continue to provide ongoing updates on this important case.

Should you have any follow-up questions or comments on this information, please feel free to contact either our Southern California office at (714) 573-0900 or our Northern California office at (916) 245-8677 or visit our website at

Students Entering Kindergarten or 7th grade Can No Longer Rely on Personal Belief Exemptions to Avoid Vaccination Requirements


July 1, 2016

 SB 277 Reminder: Law Now Fully In Effect


Effective today, July 1, 2016, students entering kindergarten or 7th grade (known as “vaccination checkpoints”) must be vaccinated and can no longer rely on a personal belief exemption (“PBE”).  Students who have a PBE may be “grandfathered in” if they are not entering kindergarten or 7th grade.  However, once a student rises to the 7th grade, that PBE will no longer be accepted.  There are generally two exceptions to the vaccination requirement: (1) obtaining a medical waiver from a doctor or (2) enrolling the student in independent study or homeschool (non-classroom based instruction).  Districts should ensure that students entering kindergarten or 7th grade on or after July 1 show proof of current vaccinations.

However, the law does not prohibit students from accessing special education or related services required by their individualized education program.  Some school districts have constructively exempted special education students from the vaccination requirement since the districts are legally mandated to provide services to students who qualify for special education and related services, and failure to do so could leave the district open to legal challenge.  However, other districts have insisted all students, including those receiving special education services, be vaccinated.  The State or CDE has yet to clarify the intent of SB 277 regarding students receiving special education services.

Should you have any follow-up questions or comments on this information, please feel free to contact either our Southern California office at (714) 573-0900 or our Northern California office at (916) 245-8677.

U.S. Department of Education Releases Updated Clery Act Handbook for Colleges and Universities

2000px-US-DeptOfEducation-Seal.svg[1]                                                      June 30, 2016

The Jeanne Clery Disclosure of Campus Security Policy and Campus Crime Statistics Act (“Clery Act”) is a federal statute codified at 20 U.S.C. § 1092(f), which requires all colleges and universities who receive federal funding to share information about crime on campus and their efforts to improve campus safety, as well as inform the public of crime in or around campus.

The U.S. Department of Education recently released an updated handbook for 2016 which reflects the Department’s interpretations and guidance to assist colleges and universities in understanding and meeting the various requirements of the Clery Act, as well as other related safety and security reporting laws.

The updated handbook is available from the U.S. Department of Education website by following this link.



State Allocation Board Authorizes Level III Developer Fees for the First Time; TRO Issued

May 27, 2016

At Wednesday’s meeting of the State Allocation Board, the Board voted to authorize Level III developer fees, consistent with Government Code section 65995.7.  This is the first time the Board has authorized the levying of Level III fees.

Senate Bill 50, which was enacted in 1998, authorized school districts to levy developer fees at one of three levels:

  • Level I fees, the basic statutory mitigation fees, are established by the State Allocation Board.  Currently, Level I fees are $3.48 per square foot of residential development and $0.56 for commercial development.  The amount is adjusted by the State Allocation Board every other year.
  • Level II fees are generally intended to represent approximately 50% of a district’s matching share for new school construction projects and are typically higher than Level I fees.  Level II fees must be adopted annually by a school district based on a School Facilities Needs Analysis.  The fees may be used for facilities that are attributable to projected enrollment growth from the construction of new residential units.
  • Level III fees are intended to represent approximately 100% of the costs of new school construction projects.  Level III fees cannot be collected unless the State Allocation Board finds that state funds for new school construction are no longer available.  At its May 25th meeting, the State Allocation Board took this step and authorized Level III fees.  In order to collect Level III fees, in addition to action taken by the State Allocation Board to authorize the fees, a school district must qualify for Level III fees pursuant to the process set forth at Section 65995.7.

Several concerns have been raised in response to the State Allocation Board’s authorization of Level III fees.  A state-wide school bond measure has been placed on the November 2016 ballot and passage of the state-wide bond may mean that once again, state funds for new school construction are available, eliminating the basis for Level III fees under Section 65995.7.  It is not clear how Level III fees are terminated once they are no longer needed.

Additionally, the California Building Industry Association has already challenged the action of the State Allocation Board.  A Temporary Restraining Order (“TRO”) has been granted by the Sacramento Superior Court in a case entitled California Building Industry Association v. State Allocation Board (filed May 25, 2016).  This TRO prevents the State Allocation Board from implementing or giving notice of any determination that state funds for new school facility construction are not available at this time and to refrain from authorizing the imposition of Level III fees, pending further order of the Court.  A later court date has been set to hear further arguments in this case.

School districts with Level II and Level III School Facilities Needs Analyses in place may be in a position to begin levying Level III fees in the near future, pending the outcome of the California Building Industry Association v. State Allocation Board case.  Other school districts may wish to take this opportunity to evaluate the underlying authority supporting the district’s developer fee program by preparing a School Facilities Needs Analysis (approved by the district’s board under Section 65995). Such a study may be the basis for enacting a Level III fee so long as the State Allocation Board’s May 25th findings remain in effect.  It should be noted however, that such a study may, over time, become obsolete and not provide adequate justification in support of a district’s fee program as required by law.  Accordingly, it is important that these studies are regularly reviewed and updated as necessary.

School districts planning to move forward with levying Level III fees should be aware of additional State and federal laws that also apply to impact fees since the provisions of Government Code section 65995 et seq. are not the only source of authority in this area.  Further, this issue is more critical since a Level III fee is potentially greater than a Level I or II fee and raises issues regarding the amount of the fee in relation to the facility costs it is intending to address.

Should you have any follow-up questions or comments on this information, please feel free to contact either our Southern California office at (714) 573-0900 or our Northern California office at (916) 245-8677, or click “contact” in the menu above.


Court of Appeal Rules Competitive Bids Not Required for School District Entering Into Lease-Leaseback Contracts for New Facilities

May 16, 2016

The California Court of Appeal hamachinery-1241377_1920s issued a new decision regarding the use of lease-leaseback  agreements for school construction projects.  In the case entitled Mcgee v. Balfour Beatty Construction LLC, (Cal App., 2016 DJDAR 4306) plaintiff McGee brought suit against defendants Balfour Beatty and the Torrance Unified School District. Torrance had entered into lease-leaseback agreements with Balfour Beatty for several construction projects relying on the authority of Education Code section 17406.

In its published decision, the Court highlighted the prior lease-leaseback based appellate decisions in Los Alamitos Unified School District v. Howard Contracting, Inc. (2014) 229 Cal App.4th 1222 (Los Alamitos),  and Davis v. Fresno Unified  School District (2015) 237 Cal App.4th 261 (Davis). Relying significantly on Los Alamitos, the Court in McGee held that Torrance was not required to obtain competitive bids prior to entering into contracts for its new facilities.

The Court however went on to conclude that plaintiff McGee should have been permitted to pursue its separate claim against Balfour on the basis that Balfour may have had an improper conflict of interest under Government Code section 1090. According to the court, such circumstances may arise when a construction firm provides pre-construction services to a school district and then enters into a non-competitively bid construction contract with such school district.

Separately, it should be noted that the State Legislature amended Education Code section 17406 effective January 1, 2016. None of those amendments however provided clarification of the issues that have been in dispute in the Los Alamitos, Davis or McGee litigation. Our office has prepared a separate Legal Alert on those amendments.

Should you have any follow-up questions or comments on this information, please feel free to contact either our Southern California office at (714) 573-0900 or our Northern California office at (916) 245-8677.


State Increases Limits to Developer Fees and Contracting Amounts

dollar-544956_1920Update: On February 24, 2016, the State Allocation Board approved adjustments to the Level I developer fees.  The residential development amount was increased to $3.48 per square foot (from $3.39) and $0.56 per square foot for commercial/industrial development (increased from $0.55).  The change was the result of a miscalculation in the original amounts approved at the January 27, 2016 meeting.  

In January, the State saw increases to two thresholds related to school district construction and contracting.  Level I Developer Fees were increased by 1.05% and the threshold for competitively bid projects was increased to $87,800.

Level I Developer Fee Increased:  On January 27, 2016 the State Allocation Board approved an increase to school facility fees imposed on development, known commonly as Level I Fees.  The increases take effect immediately and authorize an increase of the Level I Fee on residential construction from $3.36 to $3.39 per square foot.  The Level I Fee for commercial and industrial construction is now increased from $0.54 to $0.55.

Even though this increase is nominal, school districts with Level I Fees in effect, may wish to take this opportunity to evaluate the underlying authority supporting the district’s Level I Fee program.  Typically this authority will be in the form of a School Facility Fee Justification Study approved by the district’s board under Government Code section 65995. Such a study may over time become obsolete and not provide adequate justification in support of the Level I Fee as required by law.  Accordingly, it is important that these studies are regularly reviewed and updated as necessary.

In addition, school districts may wish to evaluate their present expenditure plans to ensure that fee revenue is being utilized in an authorized manner and to further ensure that the five year accounting requirements of Government Code section 66001 are being met.

Bid Threshold for Contracts Increased:  In the area of competitively bid public works projects, Public Contract Code section 20011(a) requires a school district to competitively bid and award contracts involving an expenditure of more than $50,000, adjusted for inflation, to the lowest responsible bidder.  Section 20011(a) authorizes the State Superintendent’s office to annually adjust the base bid amount to reflect certain inflationary cost factors as published by the United States Department of Commerce.  In accordance with this authority, the State Superintendent has recently adjusted the Section 20011(a) bid threshold to $87,800.  This represents an increase from last year’s $86,000 bid threshold.  Please note that certain public projects under Section 22002(c) have a lower bid threshold requirement in the amount of $15,000.

School districts may wish to review ongoing bid procedures to ensure that the appropriate bid limitation amounts are being applied to contracts that are determined to be subject to the Public Contract Code.


School Districts Must Initiate Due Process Hearing After Impasse

November 19, 2015

In a decision by the Ninth Circuit Court of Appeals, the panel concluded that a school district did not initiate a due process hearing within a reasonable time after a child’s parents failed to consent to the provision of services necessary to provide a free, appropriate public education (“FAPE”). The panel found that a period of a year and a half was too long for the school district to wait to initiate the hearing, and cited California Education Code section 56346(f) which requires a school district to initiate a due process hearing if it determines that a portion of an IEP to which the parents did not consent is necessary to provide the child with a FAPE under the IDEA. In this case, the Court found that the district’s failure to initiate a due process hearing directly resulted in a clear injury, namely the student remaining in an inappropriate program for a much longer period of time than should have been the case.

All IEPs developed for the student from November 2010 until February 2012 recommended placement in a special education environment. The parent consented to portions of the IEPs but never consented to the IEPs’ proposed placement outside of the general education classroom. The district implemented only those components to which the parent consented and, as a result, the student remained in a general education class with a special education aide. In affirming that the student would remain in the general education placement, the principal noted that the IEP members believed that the student required a smaller classroom setting with individualized instruction, which was not available in the general education classroom.

In May 2012, a request for a due process hearing was filed on behalf of the student. Among the issues was whether the district had denied the student a FAPE by failing to provide an appropriate placement. The AU concluded that the program proposed by the district was appropriate for the student and that the district had thus offered her a FAPE. However, the AU found that the district failed to provide a FAPE because the general education classroom placement was inappropriate, as acknowledged by the district. The AU did not hold the district liable for failing to request a due process hearing, concluding that the district offered an appropriate placement, but the parent’s refusal to consent prevented the district from implementing and providing a FAPE.

The student appealed the ALJ’s decision to the district court, focusing on the failure of the district to request a due process hearing. The court affirmed the ALJ’s decision, holding that the district could not initiate a hearing or take action to override the parent’s failure to consent, nor could the district be held liable for its failure to provide a FAPE. The case was appealed to the Ninth Circuit Court of Appeals and the Ninth Circuit disagreed with the lower court’s findings.

The Ninth Circuit found that the lower court relied on 20 U.S.C. § 1414(a)(1)(D)(ii)(II), which states that if the parent refuses to consent to services, the school district shall not provide special education and related services to the child by initiating a due process hearing. However, 20 U.S.C. § 1414(a)(1)(D)(ii)(II) and its implementing regulations foreclose a school district from initiating a due process hearing only where a parent has refused consent before the initial provision of special education and related services. The statute relied upon by the district court does not apply where, as in this case, a parent consented to special education and related services, but did not consent to a specific component of the IEP. The Ninth Circuit further noted that 20 U.S.C. § 1415(b)(6)(A) provides an “opportunity for any party” to file a request for a due process hearing with respect to a child’s placement.

The California Education Code sets forth the steps that must be taken after an IEP is prepared and presented to the parent if the parent consents in writing to the receipt of special education and related services but does not consent to all components of the IEP. The school district must first determine whether the proposed special education program component to which the parent does not consent is necessary to provide a FAPE. If the disputed component is determined to be necessary, the school district must initiate a due process hearing expeditiously. The court noted that the school district may not “artificially prolong the process” by opting to hold additional IEP meetings or continue to the IEP process in lieu of initiating a due process hearing. Cal. Educ. Code § 56346(f) The school district’s failure to comply with the procedural requirement in Cal. Educ. Code § 56346(f) denied the child a FAPE because the student remained in a placement that was acknowledged as inappropriate. The district’s failure to act promptly to adjudicate the dispute with the parents resulted in the loss of educational opportunity and caused a deprivation of educational benefits. The district can therefore be held responsible for denying the student a FAPE for an unreasonably prolonged period of time. This office will keep you updated regarding further developments in this case.

This update is provided for informational purposes only. It is not intended as legal advice, nor does it create an attorney-client relationship between Parker & Covert LLP and any readers or recipients. Readers should consult counsel of their own choosing to discuss how these matters relate to their individual circumstances. © PARKER & COVERT LLP 2015
– –

Image Courtesy of Christopher Sessums under license of Creative Commons


Labor Code Legislation Mandating Equal Pay for “Substantially Similar Work”

Labor Code Section 1197.5 has been amended by SB 358 and will become effective on January 1, 2016. The law prohibits employers, including school and community college districts, from paying an employee wage rates less than rates paid to the opposite sex for “substantially similar work.” The work is to be reviewed as a composite of skill, effort, and responsibility, and must be performed under similar working conditions.

An employer paying different pay rates must demonstrate one or more of the following factors to avoid a violation:

  • Seniority system;
  • Merit system;
  • System measuring earnings by quantity or quality of production; or
  • A bona fide factor not based on or derived from a sex-based differential in compensation and is consistent with a business necessity (ex. different education, training, job-related experience).

The factor or factors relied upon by the employer to disprove disparity in wage rates must account for the entire wage differential.

The law also prohibits employers from discharging, discriminating, or retaliating against any employee for actions taken to invoke or assist in enforcement of this section. Employers shall not prohibit the following employee conduct:

  • Disclosing their own wages;
  • Discussing wages with others;
  • Inquiring of another’s wage; or
  • Aiding or encouraging any other employee to exercise their rights under this law.

An employee who has received lower wages than the opposite sex for doing substantially similar work or has been discharged, discriminated, or retaliated against for conduct protected under this section, may bring a civil case against the employer or file a complaint with the Division of Labor Standards Enforcement.

Employers who violate the law by paying lower wages to the opposite sex for doing substantially the same work, are liable to the employee for the amount of wages plus interest the employee lost as a result of the violation, plus an additional equal amount as liquidated damages. The employee will also receive attorney’s fees and costs. If the employee accepts payment in full, this shall constitute a waiver of the employee’s cause of action for unpaid wages plus interest, an equal amount in liquidated damages, and attorney’s fees and costs. A civil suit for payment of different wages must be brought within three years of the cause of action.

Employers who violate the law, by discharging, discriminating or retaliating against an employee for acting in any manner to enforce the law, are liable for reimbursement for lost wages and work benefits including interest, reinstatement of employment, and any other appropriate equitable relief. A civil suit resulting from an employer’s discharge, discrimination or retaliation against employee must be brought within one year of the cause of action.

Employees who file a complaint with the Division of Labor Standards Enforcement under this section grant the Division the authority to commence and prosecute a civil action on behalf of the employee to recover unpaid wages, liquidated damages, and shall be entitled to recover costs of suit.

Districts will not be entitled to reimbursement, pursuant to Section 6 of Article XIIIB of the California Constitution, for costs related to violations of this section.

If you have any questions or need further information relating to SB 358, please contact our office.

SB 532 Amends Education Code § 35012 Regarding Student Board Members

Effective January 1, 2016, Education Code section 35012 regarding student representation on governing boards maintaining one or more high schools is amended to provide:

1. The governing board has 60 days after receipt of a petition for pupil representation to include the nonvoting student within the membership of the governing board. The board may include more than one nonvoting pupil member.

2. The governing board may only eliminate the nonvoting or preferential voting pupil member by approving an agendized motion in open session.

3. SB 532 does not substantively amend the use of “preferential voting” as defined in section 35012.

4. If the Commission on State Mandates determines that SB 532 contains costs mandated by the state, the District shall receive reimbursement pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.


Use of Lease-Leaseback Contracting Method in light of Davis v. Fresno Unified School District

For the past several years, school districts throughout the State of California have increasingly utilized the lease-leaseback contracting method to complete their new construction and modernization projects. Since 1957, the Legislature has provided an exemption to the normal design-bid-build competitive bidding process under Education Code section 17406(a)(1) which permits a lease-leaseback structure for builder-financed construction.

Using this contracting structure, a school district leases real estate it owns to a construction firm for $1.00 per year and the contractor agrees to build new facilities on that real estate. This gives the contractor sufficient property rights to “leaseback” the property, and serves as collateral the construction firm can use to obtain third-party financing.

School Districts utilizing the lease-leaseback structure have claimed significant monetary and time savings on their public works projects by using a competitive best value selection process rather than awarding strictly on the basis of the lowest responsive and responsible bid. Since the awarded lease-leaseback contractor must build the project for a Guaranteed Maximum Price (“GMP”), with limited exceptions, contractors are incentivized to work closely with the district to minimize change orders and delays in the completion of the project.

Fresno Unified School District’s Project

Relying on Education Code section 17406(a)(1), the Fresno Unified School District’s governing board in 2012 authorized the execution of a contract for the construction of buildings and facilities at a middle school. Under the contracts associated with the project, Fresno Unified was to lease the project site to Harris Construction Co., Inc. (Contractor). The Contractor would then build the project and lease the improvements and site back to Fresno Unified.

The Site Lease made the project site available to the Contractor for $1 in rent. The Facilities Lease provided that the Contractor would build the project in keeping with lengthy “Construction Provisions” and then sublease the site and project back to Fresno Unified in exchange for payments under a “Schedule of Lease Payments.”

The Schedule of Lease Payments was keyed to payments set out in the Construction Provisions, so that, in effect, the funds paid by Fresno Unified under the Facilities Lease were based solely on the construction services performed by the Contractor. The Facilities Lease was scheduled to terminate when the construction project was completed and the final lease payment was made. Construction was completed in 2014.

Fresno Unified was not scheduled to, and did not occupy the school facility until the lease was terminated. Stephen Davis, a local taxpayer and principal at Fresno-based Davis Moreno Construction, challenged Fresno Unified’s arrangement with the Contractor as in violation of the Public Contract Code’s competitive bidding requirements. Davis alleged the school construction project should have been competitively bid because the lease-leaseback arrangement did not create a true leaseback or satisfy the criteria for a statutory exception in §17406.

Davis also alleged Fresno Unified’s board breached its fiduciary duties by approving the costly arrangement, and that the Contractor had an impermissible conflict of interest that rendered the lease-leaseback agreement void.

The District filed a demurrer, which was sustained by the trial court, claiming that courts in similar cases found that site leases, subleases, and pre-construction services agreements entered into by school districts pursuant to Section 17406 were not subject to the competitive bidding requirement to award to the lowest responsible bidder.

On appeal, the Fifth Appellate District reversed the trial court decision notwithstanding that there have been approximately 10 appellate court decisions prior to the Davis opinion which have validated the use of the lease-leaseback documents and structure similar to what the District has been using.

The court held that Davis stated a claim for violation of the requirement for competitive bidding on a public works project by alleging that a statutory exception for school construction did not apply where a school district’s lease-leaseback arrangement with a construction contractor was merely a subterfuge that disguised a traditional construction agreement. Davis construed the competitive bidding exception of §17406(a)(1) to apply only to genuine leases.

The court agreed. By referring to buildings for use of the school district during the term of the “lease,” the Legislature meant an agreement that had the real substance of a lease, and not merely something the parties called a lease. In addition,to meet the primary statutory purpose of providing financing for school construction, the arrangement had to include a financing component.

In this case, Davis sufficiently alleged that the lease at issue was a subterfuge that did not provide financing for the project. Compensation paid to the Contractor was for construction, not for a period of use of the project facilities. In addition, the arrangement did not contemplate that the Contractor and Fresno Unified would proceed under a true landlord- tenant relationship. Instead, Fresno Unified simply paid for construction and took title when that was completed. Davis therefore stated a cause of action for a violation of the competitive bidding requirements normally in place for such a project.

The court clarified, as well, that a qualifying lease-leaseback arrangement must have a term during which the school district uses the new buildings constructed under the arrangement.

Finally, Davis alleged sufficient facts to state a cause of action for a violation of Government Code §1090’s conflict of interest provisions, which also meant he stated a common law claim for a conflict of interest.

Davis’s allegation that the Contractor provided services to Fresno Unified as a paid consultant under the pre-construction services agreement and that this fact was sufficient to raise the possibility that the Contractor was a “public official” subject to conflicts of interest in Government Code §87100.

It is important to note that the appellate court did not determine that the District had improperly used the lease-leaseback structure, only that Davis had alleged sufficient facts to state a cause of action and therefore sent the case back to the trial court for further litigation on the above issues.

Petition for Review of Court of Appeal Decision

Once the Court of Appeal decision becomes final on July 1, 2015, trial courts will be required to follow the Davis decision. On Friday, June 12, 2015, the Board of Trustees for Fresno Unified voted to file a petition for review of the case before the California Supreme Court. The District has until July 10th to file the petition. Once filed, the California Supreme Court has 60 days in which to makes its decision whether to accept review of the case. If the high court accepts review of the case, the appellate court holding in Davis v. Fresno Unified School District will be set aside until the court makes a final decision, which may take more than a year. If either the California Supreme Court declines to accept review of the case or sustains the holding of the appellate court, the appellate court decision will be reinstated retroactively to the June 1, 2015 decision.

Revision of Lease-leaseback Documents

At the June 12, 2015 C.A.S.H. Legislative Advisory Committee meeting held at Long Beach Unified School District in which the Davis opinion was discussed, it was agreed that the lease-leaseback is still a practical and useful tool for school districts and the Davis decision did not change that.

It was the consensus from attendees that pending final resolution of the Davis decision, that school districts revise their existing lease-leaseback documents, as needed: (1) to ensure that a genuine lease is entered into by the parties; (2) that a financing component is included in the lease-leaseback arrangement; and (3) that the school district use the facilities constructed during the term of the lease.

There was no consensus regarding the potential conflict of interest claim other than to avoid if possible from entering into pre-construction services agreements until it is ultimately determined whether a contractor entering into a preconstruction services agreement with the District should be considered an officer or employee of the District subject to Government Code section 1090 and its prohibition from being “financially interested in any contract made by them in their official capacity.”

To comply with these recommendations, our office has revised its standard form of lease-leaseback documents to provide that the lease of completed facilities continue for a period of 6 months following the school district’s acceptance of the project as complete, and that 15% of the project cost be financed by the contractor during this extended 6 month period. Unfortunately, until a final decision is reached, it will not be known whether these fixes are necessary, and if so, whether they are sufficient.

Our office will continue to closely monitor the status of the Davis case as well as any other similar cases and will advise the District accordingly.

Should you have any questions, please do not hesitate to contact Douglas N. Yeoman at (714) 573-0900, or via the contact form on the menu above.