BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 730
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          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.









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          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 








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               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). 









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               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 








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               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