This appeal has been taken from the trial court's ruling that sustained defendants' demurrer to all the causes of action of plaintiffs' complaint and dismissed the action. We find that plaintiffs cannot properly state a cause of action for breach of contract, and defendants have public entity immunity from the remaining noncontractual causes of action. We therefore affirm the judgment.
Plaintiffs in the present action are school districts that invested money in the San Mateo Pooled Investment Fund (the Pool), managed and operated by defendants San Mateo County (the County) and former County Treasurer Lee Buffington. A portion of the Pool was invested by defendants in nine notes issued by Lehman Brothers Holdings, Inc. (Lehman). When Lehman declared bankruptcy in September of 2008, the Pool lost approximately $155 million, plaintiffs' share of which was approximately $20 million.
After plaintiffs and defendants engaged in unsuccessful settlement discussions, and defendants rejected plaintiffs' formal written notice of tort claim (Gov. Code, §§ 905, 945.4),
Plaintiffs subsequently filed the pleading at issue here, the first amended complaint (the complaint), which included causes of action for breach of contract, statutory violations of the prudent investor standards (§§ 27000.3, 53600.3), violations of the statutory maximum securities maturity limits (§ 53601), and violations of the County's investment policies. Defendants again demurred to the complaint on grounds that plaintiffs failed to timely file a tort claim, immunity from liability for alleged statutory violations, and failure to properly allege a cause of action for breach of contract. Following a hearing the trial court sustained the demurrer without leave to amend. The court found that plaintiffs "failed to plead a cause of action for breach of contract," and defendants were "immune from liability pursuant to Government Code sections 815 and 820.2."
Plaintiffs argue that the trial court erred by sustaining defendants' demurrer without leave to amend. They claim that the County and Buffington are not immune from liability for violations of the mandatory prudent investor standard or the statutory "maturity limits" requirements. Plaintiffs also assert that they have properly pled a cause of action for breach of contract.
We review the trial court's ruling that sustained the demurrer to each cause of action of the pleading in accordance with established standards. "A demurrer tests the sufficiency of the complaint as a matter of law; as such, it raises only a question of law." (Osornio v. Weingarten (2004) 124 Cal.App.4th 304, 316 [21 Cal.Rptr.3d 246].) "`The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. [Citations.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.] The judgment must be affirmed "if any one of the several grounds of demurrer is well taken. [Citations.]" [Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. [Citation.]' [Citation.]" (Bagatti v. Department of Rehabilitation (2002) 97 Cal.App.4th 344, 352 [118 Cal.Rptr.2d 443]; see Lee v. Blue Shield of California (2007) 154 Cal.App.4th 1369, 1377-1378 [65 Cal.Rptr.3d 612].)
The material allegations in the action filed by plaintiff "must be accepted as true. [Citations.] In addition, the Supreme Court has held: `"[T]he allegations of the complaint must be liberally construed with a view to attaining substantial justice among the parties." [Citations.]' [Citations.]" (C.J.L. Construction, Inc. v. Universal Plumbing (1993) 18 Cal.App.4th 376, 382-383 [22 Cal.Rptr.2d 360].) "In addition to the complaint's allegations, we consider matters that must or may be judicially noticed. [Citations.] We also consider the complaint's exhibits." (Hoffman v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th 390, 400 [102 Cal.Rptr.3d 72]; see Banis Restaurant Design, Inc. v. Serrano (2005) 134 Cal.App.4th 1035, 1044-1045 [36 Cal.Rptr.3d 532].)
Our task as a "reviewing court, therefore, `is to determine whether the pleaded facts state a cause of action on any available legal theory.' [Citation.]" (Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 266 [130 Cal.Rptr.2d 601].) "If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer." (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 [77 Cal.Rptr.2d 709, 960 P.2d 513].) However, "[w]e may affirm a trial court
"On appeal from a judgment of dismissal after a demurrer has been sustained without leave to amend, the plaintiff has the burden of proving error. [Citation.] `Because the trial court's determination is made as a matter of law, we review the ruling de novo.' [Citation.]" (E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1315 [64 Cal.Rptr.3d 9].)
This means that the "`liability of public entities must be based on a specific statute declaring them to be liable, or at least creating some specific duty of care ...'" to the plaintiff. (All Angels Preschool/Daycare v. County of Merced (2011) 197 Cal.App.4th 394, 400 [128 Cal.Rptr.3d 349], quoting Eastburn v. Regional Fire Protection Authority (2003) 31 Cal.4th 1175, 1183 [7 Cal.Rptr.3d 552, 80 P.3d 656] (Eastburn).) "The law's clear purpose was `"`not to expand the rights of plaintiffs in suits against governmental entities, but to confine potential governmental liability to rigidly delineated circumstances.'"' [Citation.]" (Ellerbee v. County of Los Angeles (2010) 187 Cal.App.4th 1206, 1214 [114 Cal.Rptr.3d 756].)
Section 815.6 has three discrete requirements which "must be met before governmental entity liability may be imposed under Government Code section 815.6: (1) an enactment must impose a mandatory duty; (2) the enactment must be meant to protect against the kind of risk of injury suffered by the party asserting section 815.6 as a basis for liability; and (3) breach of the mandatory duty must be a proximate cause of the injury suffered." (Ellerbee v. County of Los Angeles, supra, 187 Cal.App.4th 1206, 1215.) The first requirement, which is ultimately dispositive here, is that "the enactment at issue be obligatory, rather than merely discretionary or permissive, in its directions to the public entity; it must require, rather than merely authorize or permit, that a particular action be taken or not taken." (Haggis v. City of Los Angeles (2000) 22 Cal.4th 490, 498 [93 Cal.Rptr.2d 327, 993 P.2d 983], italics omitted; see California Highway Patrol v. Superior Court (2008) 162 Cal.App.4th 1144, 1155 [76 Cal.Rptr.3d 578].) "`Whether an enactment creates a mandatory duty is a question of law: "Whether a particular statute is
The court has also recognized that under section 815.6, inclusion of the term "shall" in an enactment "does not necessarily create a mandatory duty; there may be `other factors [that] indicate that apparent obligatory language was not intended to foreclose a governmental entity's or officer's exercise of discretion.' [Citations.]" (Guzman v. County of Monterey, supra, 46 Cal.4th 887, 898, 899.) "In determining whether a mandatory duty actionable under section 815.6 had been imposed, the Legislature's use of mandatory language (while necessary) is not the dispositive criteria. Instead, the courts have focused on the particular action required by the statute, and have found the enactment created a mandatory duty under section 815.6 only where the statutorily commanded act did not lend itself to a normative or qualitative debate over whether it was adequately fulfilled." (de Villers v. County of San Diego (2007) 156 Cal.App.4th 238, 260 [67 Cal.Rptr.3d 253], fn. omitted.) "It is not enough," the California Supreme Court has declared, "that the public entity or officer have been under an obligation to perform a function if the function itself involves the exercise of discretion." (Haggis v. City of Los Angeles, supra, 22 Cal.4th 490, 498.)
The court in de Villers concluded: "Here, the mandated act — to `guard against' theft with `effective controls and procedures' — does not involve a discrete act over which there can be no debate, but instead involves actions that admit to a qualitative debate over whether OME's actions were sufficient to fulfill its obligation. Indeed, the Code of Federal Regulations itself contemplates that `[s]ubstantial compliance with the standards ... may be deemed sufficient by the Administrator' to satisfy the mandate (21 C.F.R. § 1301.71(b) (2007)), which confirms that the qualitative judgments on the adequacy of the steps taken to fulfill the mandate have been vested in administrative agencies. We do not believe that 21 Code of Federal Regulations part 1301.71 imposes a duty that is mandatory for purposes of establishing damages liability under section 815.6, because the predicate enactment confers on government officials the discretion to evaluate and decide how best to implement the required security." (de Villers, supra, 156 Cal.App.4th 238, 261.)
In evaluating the immunity of Buffington, and vicariously the County, under section 820.2, we engage in a fundamentally similar analysis and reach the same result as we did to determine whether the treasurer's acts as an investor were mandatory or discretionary under section 815.6. Buffington was not engaged in ministerial or "operational" level decisions. The discretion he exercised involved crucial investment policy decisions that assessed the risks and advantages of competing investment opportunities. (See Jacqueline T. v. Alameda County Child Protective Services, supra, 155 Cal.App.4th 456, 468; Taylor v. Buff (1985) 172 Cal.App.3d 384, 390 [218 Cal.Rptr. 249].) His decisions as a public servant investor bear the hallmarks of discretionary activity which should not be the subject of scrutiny and second-guessing by a coordinate branch of government. (Thompson v. County of Alameda (1980) 27 Cal.3d 741, 748-749 [167 Cal.Rptr. 70, 614 P.2d 728]; Johnson v. State of California, supra, 69 Cal.2d 782, 793; Becerra v. County of Santa Cruz, supra, 68 Cal.App.4th 1450, 1463-1464; Masters v. San Bernardino County Employees Retirement Assn. (1995) 32 Cal.App.4th 30, 46 [37 Cal.Rptr.2d 860]; Ronald S., supra, 16 Cal.App.4th 887, 897.) We therefore conclude that pursuant to section 820.2 both Buffington and the County have immunity from liability for the acts alleged in the second cause of action. (Ortega, supra, 161 Cal.App.4th 713, 732.)
Plaintiffs also complain that defendants are not immune from liability for the acts alleged in the third and fourth causes of action. The third and fourth causes of action are each based on different claimed violations. The third cause of action alleges that defendants "purchased two Lehman notes in violation of the Government Code, which prohibited the County from purchasing corporate debt securities with a remaining maturity of more than five years (Gov. Code, § 53601(k).)" The fourth cause of action seeks to impose liability for Buffington's violation of the County's "Investment Policy," which was approved by the board of supervisors. Plaintiffs argue that section 53601 "requires compliance" with stated maturity limits, and thus "creates a mandatory duty from which the County is not immune."
Defendants' sole response is that plaintiffs "waived" or "actively invited the supposed error" by failing to object to the trial court's announced tentative decision to sustain the demurrer "to all causes of action." We examine the issue of forfeiture
Two hearings on the demurrer took place. At the first hearing the parties discussed immunity as related to the claim that the County and Buffington failed to comply with the prudent investor standard. At the second hearing the discussion primarily centered on the issue of plaintiffs' compliance with the tort claims filing requirements, but defendants' counsel also specifically argued that the immunity defense "went to all" of the four causes of action. When ruling on the demurrer to the first amended complaint, the court seemed to express agreement, and found, without explanation, that discretionary immunity applied to all four causes of action, including the "maturity limits" cause of action. Counsel for plaintiffs expressed confusion that the trial court seemed to rule in the tentative decision and at the hearing "that there was discretionary immunity for all of the other claims in the Complaint," yet the court also "talked about taking a writ," which was inappropriate if the entire complaint was "thrown out." The court indicated that "no causes of action" remained to be litigated, so an appeal rather than a writ was
On this record we cannot conclude that plaintiffs invited any error with respect to the immunity ruling on the third and fourth causes of action. "The `"doctrine of invited error" is an "application of the estoppel principle": "Where a party by his conduct induces the commission of error, he is estopped from asserting it as a ground for reversal" on appeal.' [Citation.] The purpose of the doctrine is to `prevent a party from misleading the trial court and then profiting therefrom in the appellate court.' [Citation.]" (Saxena v. Goffney (2008) 159 Cal.App.4th 316, 328-329 [71 Cal.Rptr.3d 469].) As we read the record, plaintiffs did not mislead the court or induce any error. Plaintiffs' counsel merely sought clarification of the court's ruling on the scope and breadth of the immunity finding — that is, whether it applied to defeat all of the causes of action. When the court explained that the second, third and fourth causes of action were all embraced within the immunity finding,
While plaintiffs had no reason to focus on the immunity issue as related to the third and fourth causes of action when filing opposition to the demurrer,
We turn to the fourth cause of action, which alleges that Buffington "violated the Investment Policy" approved by the County's board of supervisors, as "set forth in paragraphs 61 through 63." The allegations of violation of the Investment Policy are thus based on the same failure to "adhere to the prudent investor standard, as described by Government Code sections 27000.3
Plaintiffs' final contention is that the first cause of action of the complaint "properly pled a breach of contract," which, according to settled law, is not defeated by any statutory immunity.
Plaintiffs alleged in the first cause of action that the parties "entered into a contract, implied by the conduct of the parties." The alleged terms of the contract are enumerated in the pleading: plaintiffs transferred money into the Pool; defendants agreed to manage the Pool and make investment decisions in compliance "with California law and its own investment policies," as periodically amended, including the "prudent investor standard" mandated by the Government Code; in consideration, plaintiffs paid the County fees charged for management of the Pool. The allegations of breach of the contract essentially parrot the claims of statutory violations: lack of compliance with "California law that governed investments by the Pool," particularly the prudent investor standard; excessive investment of the Pool's funds in Lehman and other companies in the financial sector; failure to recognize the impending collapse of Lehman's stock, and violations of statutory maturity limits in the purchase of Lehman notes.
The flaw in plaintiffs' contract action is the lack of any proper allegation of breach of the contract. Under a contract theory plaintiffs must establish that defendants' breach of its obligation proximately caused harm. (Cooper v. State Farm Mutual Automobile Ins. Co. (2009) 177 Cal.App.4th 876, 896 [99 Cal.Rptr.3d 870].) Plaintiffs have not alleged that defendants failed to perform investment duties. Defendants invested the money plaintiffs contributed to the Pool, as called for by the alleged implied agreement. The gravamen of plaintiffs' claim is the failure of defendants to manage the Pool competently, in accordance with investment policies and statutory requirements, not breach of any separate or additional contractual obligations. The first cause of action asserts a relationship created, defined, and entirely governed by existing independent legal duties. No other duties established by an agreement between the parties have been alleged.
We further conclude that the trial court did not err by sustaining the demurrer without leave to amend. We review the decision to deny leave to amend under the abuse of discretion standard. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081 [6 Cal.Rptr.3d 457, 79 P.3d 569].) In doing so, we decide whether there is a reasonable possibility that the defect can be cured by amendment. (Whittemore v. Owens Healthcare-Retail Pharmacy, Inc. (2010) 185 Cal.App.4th 1194, 1199 [111 Cal.Rptr.3d 227].) "The burden of proving such reasonable possibility is squarely on the plaintiff." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58].) "As a general rule, if there is a reasonable possibility the defect in the complaint could be cured by amendment, it is an abuse of discretion to sustain a demurrer without leave to amend." (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459 [80 Cal.Rptr.2d 329]; see, e.g., Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 810 [27 Cal.Rptr.3d 661, 110 P.3d 914]; Quelimane Co. v. Stewart Title Guaranty Co., supra, 19 Cal.4th 26, 39.) "Nevertheless, where the nature of the plaintiff's claim is clear, and under substantive law no liability exists, a court should deny leave to amend because no amendment could change the result." (City of Atascadero, supra, at p. 459.)
We conclude that there is no reasonable possibility the defects in the first amended complaint may be cured by yet another amendment of plaintiffs' pleading. Plaintiffs were granted ample opportunity to cure the defects in the pleading, but failed to do so. The first amended complaint is unsuccessful not because the pleading is inartful, but because neither the properly asserted facts nor the remaining conclusory allegations adequately state causes of action that are not defeated by immunity defenses. (Schauer v. Mandarin Gems of Cal., Inc. (2005) 125 Cal.App.4th 949, 961 [23 Cal.Rptr.3d 233].) Therefore, the trial court did not abuse its discretion by sustaining defendants' demurrer without leave to amend, and dismissing the action. (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 274-275 [129 Cal.Rptr.3d 467]; Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1158-1159 [121 Cal.Rptr.3d 819]; Soifer v. Chicago Title Co. (2010) 187 Cal.App.4th 365, 374 [114 Cal.Rptr.3d 1].)
Accordingly, the judgment is affirmed.
Marchiano, P. J., and Margulies, J., concurred.
Section 53600.3 states the standard for governing bodies or persons authorized to make investment decisions for local agencies as follows: "Except as provided in subdivision (a) of Section 27000.3, all governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law."
In County of Los Angeles v. Superior Court, supra, 102 Cal.App.4th 627, 641-643, the complaint alleged causes of action against the county for negligence and violation of mandatory statutory duties (§ 815.6) that required social workers to analyze selection criteria prior to foster placement of a child, adhere to a specified priority directive when selecting foster care placement, monitor a child placed outside the home, "`and take necessary actions to safeguard the child's growth and development while in placement.'" (County of Los Angeles v. Superior Court, supra, at p. 643.) The court concluded that the regulations set forth general policy guides for social workers, but neither specifically direct the manner in which the goals will be achieved nor "`require a particular result.'" (Id. at p. 641.) The goals and factors specified in the statute "`are left to the judgment of the social worker'" (ibid.), the court concluded, and therefore create "no mandatory duties" (id. at p. 642).
"For purposes of this section, `counterparty' means the other party to the transaction. A counterparty bank's trust department or separate safekeeping department may be used for the physical delivery of the security if the security is held in the name of the local agency. Where this section specifies a percentage limitation for a particular category of investment, that percentage is applicable only at the date of purchase. Where this section does not specify a limitation on the term or remaining maturity at the time of the investment, no investment shall be made in any security, other than a security underlying a repurchase or reverse repurchase agreement or securities lending agreement authorized by this section, that at the time of the investment has a term remaining to maturity in excess of five years, unless the legislative body has granted express authority to make that investment either specifically or as a part of an investment program approved by the legislative body no less than three months prior to the investment ...." (Italics added.)
Section 53601, subdivision (k) authorizes investment in: "Medium-term notes, defined as all corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment under this subdivision shall be rated `A' or better by an NRSRO. Purchases of medium-term notes shall not include other instruments authorized by this section and may not exceed 30 percent of the agency's moneys that may be invested pursuant to this section." (Italics added.)
