BILL ANALYSIS Ó SB 730 Page 1 Date of Hearing: February 9, 2012 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair SB 730 (Kehoe) - As Amended: Jan. 25, 2012 Policy Committee: AppropriationsVote: Urgency: Yes State Mandated Local Program: No Reimbursable: SUMMARY This bill appropriates $13 million to the Department of Justice (DOJ) to pay for settlements in six cases. Any funds appropriated in excess of the amount required for the payment of these claims reverts to the appropriate fund. FISCAL EFFECT This bill appropriates $12,992,000 ($11,492,000 GF; $1,500,000 State Parks and Recreation Fund) to pay for six settlements, including interest for two cases (Environmental Protection Information Center, et al v. California Department of Forestry and Fire Protection, et al and Steelworkers of American, et al, v. California Department of Forestry and Fire Protection, et al (Headwaters); and California School Boards Association, et al. v. State of California). Estimated interest on the Headwaters case is about $1,100 per day, beginning Nov. 15, 2011. Should payment not be made until Sept. 15, for example, interest would amount to about $315,000. Interest on the school boards case does not begin to accrue if the court-ordered payment is made within 180 days of the stipulation (Jan 20, 2012). Should the payment not be made until Sept. 20, for example, interest would amount to about $17,000. Any funds appropriated in excess of the amount required will revert to the appropriate fund. COMMENT. SB 730 Page 2 1)Rationale. This bill is one of two annual bills carried by the Appropriations chairs to provide appropriation authority for legal settlements approved by DOJ and the Department of Finance (DOF). These settlements were entered into lawfully by the state upon advice of counsel (DOJ). They are binding state obligations. 2)Case background . a) Aaron Ciccotti, Harold Ciccotti, and Bradley Ciccotti v. State of California; Merced County Superior Court - $1.5 million (State Parks and Recreation Fund). On October 23, 2009, plaintiffs brought an action against the state Department of Parks and Recreation as the result of a June 19, 2009 accident at the Los Banos Creek Reservoir in Gustine. Aaron Ciccotti was struck by a large tree that fell by his campsite. As a result of this accident, Aaron Ciccotti underwent three surgeries to his clavicles and right knee. The complaint included a cause of action for negligence and for dangerous condition of public property. The matter was resolved with a $1.5 million settlement. b) Environmental Protection Information Center, et al v. California Department of Forestry and Fire Protection, et al and Steelworkers of American, et al, v. California Department of Forestry and Fire Protection, et al; Humboldt County Superior Court - $5.5 million (GF), $3.5 million, plus interest, for EPIC, and $2 million, plus interest, for the steelworkers. The Headwaters Agreement entered into in 1996 between the state and federal governments and the Pacific Lumber Company (PLC) set aside the old-growth redwood trees of the Headwaters Grove for conservation purposes. This grove belonged to the PLC, and in return the PLC was authorized to harvest redwood trees on the remainder of its lands subject to permits. The plaintiffs challenged certain permits and findings associated with California Environmental Quality Act compliance. Petitioners alleged abuse of discretion and violations of the Forest Practice Act and the California Environmental SB 730 Page 3 Quality Act, among other things. From 1999 to 2010, the parties litigated the cases in the trial court, the Court of Appeal and the Supreme Court. Ultimately, the appellate courts found certain provisions of the incidental take permit and the sustained yield plan invalid. Petitioners moved for attorneys' fees, initially requesting nearly $14 million for their work in invalidating the sustained yield plan and certain provisions of the incidental take permit. In 2011, the agencies and the petitioners settled the attorneys' fees issue. A settlement to award attorney fees was agreed upon in lawsuits filed by the steel workers and the Environmental Protection and information Center (EPIC) against the Department of Forestry and Fire Protection (CAL FIRE), and the Department of Fish and Game (DFG). The settlement requires CAL FIRE and DFG to pay $2 million, plus interest, to the Steel Workers and $3.5 million, plus interest, to EPIC. c) California School Boards Association, et al. v. State of California; San Diego Superior Court - $312,000, with interest, (GF). This case challenged the practice of deferring education mandates by partially funding them with a $1,000 appropriation. The Court of Appeal ruled the partial funding practice was inconsistent with the constitutional and statutory scheme, but reversed the trial court's writ and injunctive relief. The school districts' cross-appeal seeking the right to $900 million owed the districts from existing state accounts was rejected. The Court of Appeal found that permitting such an incursion into the budgeting process would elevate the judiciary over the legislative branch and violate principles of separation of powers. The parties agreed to resolve the petitioners' attorney fees claim without further litigation. Fees and costs total $294, 974, plus interest. d) Mather Development Partners IV, L.P. v. EdFund, Inc., et al; Sacramento County Superior Court - $4,230,000 (GF). SB 730 Page 4 In October 2006, Mather entered into a 10-year commercial lease agreement with the California Student Aid Commission's (CSAC) auxiliary organization, EdFund, a nonprofit public benefit corporation. EdFund provided operational and administrative services related to CSAC's state guarantor responsibilities under the Federal Family Education Loan Program (FFELP). The State of California did not sign the lease, but CSAC and EdFund jointly solicited bids for the lease and shared a planning committee for the move to Mather's newly constructed buildings. Under an Operating Agreement between EdFund and CSAC, EdFund paid the lease payments and then sought approval and reimbursement from CSAC. On October 31, 2010, the U.S. Department of Education terminated CSAC's guarantor designation under the FFELP, and ordered the transfer of all CSAC and EdFund guarantor functions, operations, and assets to a private entity, causing EdFund to default on its lease with Mather. Mather claimed losses exceeding $40 million from the breach of the commercial lease and the failure to properly phase out the state's non-profit corporation. Claims against the state included breach of contract, negligent misrepresentation, fraudulent conveyance of funds, and third party beneficiary liability arising under the CSAC/EdFund Operating Agreement. Mather filed a lawsuit in March 2011 against the outstanding lease obligation. DOF participated in mediation in June 2011 with Mather, CSAC, and EdFund. Subsequent discussions resulted in a settlement of $4,230,000 for tenant improvements, real estate broker commissions, assets, and other costs. e) Entertainment Merchants Association v. Edmund Brown; U.S. Supreme Court, referred to Ninth Circuit - $950,000 (GF). On June 27, 2011, the U.S. Supreme Court affirmed the judgment of the Court of Appeal and the District Court for the Northern District of California to award attorney fees and expenses incurred by plaintiffs in their successful defense in the case of Entertainment Merchants Association v. Edmund Brown. The Supreme Court ruled that a 2005 California law that banned the sale of certain violent video games to children under 18 without parental SB 730 Page 5 supervision violated the First Amendment. The court's stipulation agreement requires that by no later than June 30, 2012, the state pay $950,000 in attorney fees. These fees are for U.S. Supreme Court proceedings only; the parties had previously settled fee requests in the district court and the Ninth Circuit. 3)Related Legislation . a) AB 140 (Fuentes) and SB 206 (Kehoe), both chaptered in 2011, appropriated funds state settlements last year. b) AB 1714 (Fuentes) and SB 911 (Kehoe), both chaptered in 2010, appropriated funds for state settlements in 2010. Analysis Prepared by : Geoff Long / APPR. / (916) 319-2081