superior court of california county of sacramento...
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SUPERIOR COURT OF CALIFORNIACOUNTY OF SACRAMENTO
BILL CAMP, Case No. 03AS05478 Dept. 53
Plaintiff, RULING ON SUBMITTED MATTER;ORDER DENYING SLAPP MOTION,
v. OVERRULING DEMURRER, GRANTINGPRELIMINARY INJUNCION IN PART
ARNOLD SWARZENEGGER, et al. AND DENYING PRELIMINARYINJUNCTION IN PART
Defendants.__________________________/
Plaintiff Bill Camp has filed a verified complaint alleging
that Defendants Arnold Schwarzenegger and Californians For
Schwarzenegger (collectively Defendants) have violated the
Political Reform Act of 1974 as amended. The complaint alleges
that Defendant Schwarzenegger obtained signature bank loans at
prime totaling over $4,000,000 that were turned over to his
campaign committee a few days prior to the 2003 gubernatorial
recall election. Plaintiff seeks injunctive relief ordering
Defendants to refrain from receiving, making, or transacting any
loans with a third party in connection with Defendant
Schwarzenegger's campaign and from using or spending any loan
proceeds.
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Defendants have countered by filing a demurrer and A Special
Motion To Strike Complaint of Plaintiff Bill Camp pursuant to Code
of Civil Procedure section 425.16 (SLAPP motion). The demurrer to
the complaint contends that the complaint fails to state a cause
of action because the loans in question complied with the
provisions of the Political Reform Act and the implementing
regulations. The SLAPP motion asserts that the complaint should
be dismissed and this lawsuit terminated because the complaint was
filed for the purpose of chilling Defendants' First Amendment
rights and that Plaintiff cannot establish a likelihood that he
will succeed on the merits.
The Court has read and considered the parties' respective
points and authorities, supporting evidence including evidence
under seal, and oral arguments, and took the matters under
submission. The Court now rules on the three matters as
enumerated above in reverse order.
I. PROCEDURAL HISTORY
On October 2, 2003, the parties appeared before the Court
upon Plaintiff's Ex Parte Application For Temporary Restraining
Order and Order to Show Cause. Defendants filed a "Preliminary
Opposition" to Plaintiff's Application. The Court denied the
request for TRO by minute order of the same date. At that time,
the Court determined that Plaintiff had failed to present evidence
to demonstrate that the loan in question did not meet the
requirements of Government Code Section 85307, or that the
Defendants had solicited contributions in violation of the
Political Reform Act to repay the loan. However, by its minute
order, the Court did issue an Order to Show Cause to Defendants
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why a Preliminary Injunction should not issue against them as
requested by Plaintiff, setting that matter for hearing on
December 2, 2003. The Court further provided an expedited
discovery schedule to enable the parties to prepare for that
hearing.
On October 3, 2003, Defendants filed their Notice of Special
Motion To Strike Complaint and Demurrer, setting that matter for
hearing on October 30, 2003. Pursuant to Code of Civil Procedure
Section 425.16(g), all discovery was stayed pending a ruling upon
the motion.
The Court takes judicial notice that Defendant Schwarzenegger
was elected Governor in the recall election held on October 7,
2003, and took the oath of office in mid-November 2003.
On October 20, 2003, the Court heard Plaintiff's ex parte
application for relief from the discovery stay and continuance of
the hearing upon Defendants' SLAPP motion. The Court granted the
application providing that the Plaintiff's motion would be heard
on shortened time on October 23, 2003, and permitted the parties
to file any supplemental papers by October 21, 2003. The Court
further continued Plaintiff's time to file any opposition to the
SLAPP motion to October 27, 2003, and indicated that it would
entertain Plaintiff's request for continuance of that motion at
the October 23, 2003, hearing.
On October 23, 2003, the Court issued its minute order upon
Plaintiff's motion for relief from stay and continuance of the
SLAPP motion. The Court granted Plaintiff's motion permitting
limited and specific discovery, and continued the SLAPP motion
hearing to January 9, 2004. The Court also vacated the December
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2, 2003, hearing date on Plaintiff's Application for Preliminary
Injunction.
On December 2, 2003, the Plaintiff's Application for
Preliminary Injunction remained upon the Court's calendar despite
its prior order vacating that hearing date. Thus, the Court
issued a minute order on that date continuing the Plaintiff's
Application for Preliminary Injunction to January 9, 2004, to
coincide with the continued hearing upon the SLAPP motion and
demurrer to the complaint.
Prior to January 9, 2004, Plaintiff filed no further papers,
points and authorities, or evidence designated as being in support
of his Application for Preliminary Injunction. Likewise,
Defendants filed no additional opposition or evidence. The Court
invited and entertained oral argument upon Plaintiff's Application
for Preliminary Injunction at the hearing on
January 9, 2004, and no party questioned or objected to the
Court's consideration of the matter at that time. In light of the
foregoing, the Court has proceeded to rule upon Plaintiff's
application. In this respect, the Court has considered the
documentary evidence lodged by Plaintiff under conditional seal on
December 31, 2003, and documents similarly lodged by Defendants on
December 19, 2003, in ruling upon Plaintiff's application.
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II. DEFENDANTS' SLAPP MOTION
Since the motion is potentially dispositive of the entire
case, the Court first considers Defendants' motion to strike
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Plaintiff's complaint pursuant to Code of Civil Procedure Section
425.16. The motion is DENIED for the reasons set forth below.
Where section 425.16 applies, the cause of action "shall be
subject to a special motion to strike, unless the court determines
that the plaintiff has established that there is a probability
that the plaintiff will prevail on the claim." (Code of Civ.
Proc., § 425.16, subd. (b)(1).) Code of Civil Procedure Section
425.16 applies to a cause of action against a person arising from
any act of that person in furtherance of the person's right of
petition or free speech under the United States or California
Constitution in connection with a public issue. The parties do
not dispute or argue that the conduct subject to the Plaintiff's
action is subject to Section 425.16.
Thus, the Court's consideration upon this motion is limited
to determining whether Plaintiff has established that there is a
probability that he will prevail on the claim.
In order to establish the necessary probability of
prevailing, a plaintiff is required both to plead claims that are
legally sufficient, and to make a prima facie showing, by
admissible evidence, of facts that would merit a favorable
judgment on those claims, assuming plaintiff's evidence were
accepted. (Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th
811, 821; Wilcox v. Superior Court (1994) 27 Cal.App.4th 809, 823-
824, 830; Evans v. Unkow (1995) 38 Cal.App.4th 1490, 1497-1498.)
The required showing has been termed one of "minimal merit."
(Navellier v. Sletten (2002) 29 Cal.4th 82, 89, 95 & fn. 11; 1-800
Contacts, Inc. v. Steinberg (2003) 107 Cal.App.4th 568, 582-585,
review denied.) When assessing the plaintiff's showing, the court
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must also consider evidence that the defendant presents. The
court does not, however, weigh that evidence against the
plaintiff's, in terms of either credibility or persuasiveness.
Rather, the defendant's evidence is considered with a view toward
whether it defeats the plaintiff's showing as a matter of law,
such as by establishing a defense or the absence of a necessary
element. (Wilson v. Parker, Covert & Chidester, supra, 28 Cal.4th
at p. 821; Kashian v. Harriman (2002) 98 Cal.App.4th 892, 906.)
Defendants argue that Plaintiff has shown no probability of
success on the merits of his action because Government Code
section 85307(a) and Title 2 CCR Section 18530.8, expressly
exclude Candidate Schwarzenegger's loan of the CNB loan proceeds
to his campaign from the $100,000 limitation of Section 85307(b).
The parties apparently do not dispute the following facts:
(1) Candidate Schwarzenegger received a line of credit from City
National Bank (CNB) upon which he was solely and personally
liable; (2) the general terms of the credit line, including the
loan amount, interest rate and loan maturity; (3) the increased
credit line was intended, in whole or in part, to be used for
Defendant Schwarzenegger's campaign, and was so used; (4)
Defendant Schwarzenegger drew a total of $4.5 million from that
credit line; (5) Defendant Schwarzenegger then loaned $4 million
of the proceeds of those credit draws to his campaign; (6) the
outstanding balance of the loans from Defendant Schwarzenegger to
his campaign exceed $100,000; and (7) between February and October
of 2003, CNB made more than 25 unsecured loans to members of the
general public, in amounts in excess of $4,000,000, for loan
periods of 12 months or less, at CNB's then prevailing prime rate
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or less. With these undisputed facts in hand, the Court's
consideration of the Plaintiff's likelihood of success upon the
merits of this action is narrowed to an interpretation of
Government Code Section 85307 and Title 2 CCR 18530.8(c), and
application of those laws to the undisputed facts.
A. The Loan was Made on "Terms Available to the General Public"
Defendants argue that Plaintiff has shown no probability of
success on the merits of his action because Government Code
section 85307(a) and Title 2 CCR Section 18530.8, expressly
exclude Defendant Schwarzenegger's loan of the CNB loan proceeds
to his campaign from the $100,000 limitation of Section 85307(b).
With respect to his argument under Government Code section
85301, Plaintiff contends that the exception of commercial loans
from the contribution limits under Section 85307(a), does not
apply to the subject loans from CNB to Candidate Schwarzenegger
because said loans were not made in CNB's "regular course of
business on terms available to members of the general public."
Consequently, Plaintiff contends that CNB's loan to Candidate
Schwarzenegger, if otherwise proper, could not exceed the $21,200
limit under Section 85301 since it constituted a contribution not
entitled to the 85307(a) exception.
The Court finds and determines that the subject loan was
made on "terms available to members of the general public" as that
phase is used in Government Code section 85307. Plaintiff's
contention to the contrary is rejected. Based upon the undisputed
facts, Defendants have demonstrated that the size, terms,
duration, and processing of the loan made by CNB to Candidate
Schwarzenegger were not aberrant from CNB's regular course of
business, and that CNB made many similar (or even more favorable
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and larger loans) to other individual members of the general
public within the preceding 6 month period. Section 85307(a)
excepts "loans made to a candidate by a commercial lending
institution in the lender's regular course of business on terms
available to members of the general public for which the candidate
is personally liable."
Plaintiff asserts that the phrase "members of the general
public" as employed in Section 85307(a) means a "significant
segment" or "diverse group" of the population. Plaintiff
essentially argues that if a "significant" and/or "diverse"
segment of the population cannot qualify for the terms of the loan
in question, then the loan is not available to members of the
general public. Plaintiff then concludes, without evidentiary
bases, that the loan extended to Defendant Schwarzenegger was not
available to "members of the general public" because a significant
and diverse segment of the population could not qualify to receive
the same loan. The Court disagrees with Plaintiff's argument.
The phrase "members of the general public" means the people as a
whole, subject only to reasonable limitations imposed by
application of other laws, e.g. excluding individuals who cannot
lawfully enter into loan contracts.
Plaintiff's argument is much more dependent upon the meaning
of the words "terms" and "available," and much less upon the noun
phrase "members of the general public." However, Plaintiff's
proposed interpretation of 85307(a) ignores the scope of these two
other essential words in the statute. Specifically, Plaintiff's
position necessarily disregards the fact that loan "terms" may
also include conditions such as terms of borrower qualification.
Further, Plaintiff's argument also misconstrues the word
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"available" to mean "affordable" or "financially attainable."
The word "terms" in the context of loans of money cannot be simply
limited to the interest rate, payment schedule and duration of a
loan. "Terms" necessarily includes all of the terms upon which a
lender is willing to make a loan. For example, most of the loans
provided as evidence to the Court in this matter contain terms
requiring the borrower to at all times maintain "liquid assets" in
amounts equal to or greater than the principal amount of the
credit. The borrower's breach of that term is an event of
default. In those circumstances, the borrower's financial liquid
net worth was a qualifying "term," and is a continuing condition,
of the loan. Thus, if a bank offers all members of the general
public an unsecured six-month line-of-credit at its prime rate in
an amount equal to or lesser than the sum of the borrower's
current liquid assets, the "terms" of the offered loan are the
same to every member of the public regardless of whether he or she
is ultimately qualified to borrow $100 or $1,000,000 based upon
personal liquid net worth. The "available" terms of the offered
loan never change. Only the amount of the loan changes based upon
the credit-worthiness and net worth of the borrower. If one offers
to sell a mansion on the terms of $4,000,000 cash to all members
of the public, the terms of the offer are "available" to all
members of the public regardless of the presumably small segment
of the population that could actually "afford" or "financially
accept" those terms.
The statutory use of the phrase "terms available to the
general public," or similar phrases, is not limited to Section
85307. (See Bus & Prof Code section 2426 (b)(3); Civil Code
Section 1789.13(c); Health & Safety Code Section 33130(c)(1).) In
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each of the three cited statutes, all enacted before Section
85307(a), application of Plaintiff's "significant and diverse
segment" definition would be exceptionally difficult. "While
interpretation of similar words in other statutes is not
controlling, such interpretation is helpful in arriving at the
legislative intent." (Gleason v. Santa Monica (1962) 207
Cal.App.2d 458, 461.)
Thus, a loan made to a candidate by a commercial lending
institution in the lender's regular course of business falls
within Section 85307(a) if it is made upon terms available to
members of the general public, despite the fact that only a small
percentage of the public can, or do, take advantage of those
available terms due to their financial status or credit-
worthiness.
Nonetheless, even if the Court accepted Plaintiff's
interpretation, the record still demonstrates that Plaintiff is
not likely to prevail on this point. Specifically, Plaintiff has
not shown that a "significant" and "diverse" segment of the
population could not qualify for terms of the loan in question.
The Court has no evidence before it from which it may render such
a conclusion. The Court has no lender surveys, borrower
demographics, or relevant qualified expert opinions regarding the
lending industry, lending standards, or market analyses
quantifying public eligibility for similar loan facilities. It is
interesting to consider that even if only 10% of the financial
lending institutions in the United States merely matched CNB's
relevant large loan activity during the six-month period ending
October 2003, it would be very difficult to say that the
population segment qualifying for, and availing themselves of,
such loans was "insignificant." And, absent private census
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information like borrower gender, race, and age, it would be
impossible to determine whether the eligible population was
"diverse" even if it was found to be "significant" in size. The
record certainly does not reflect that CNB's loan was made upon
terms available only to Defendant Schwarzenegger, or even upon
that bank's most favorable terms.
B. The Campaign Loan Violates the $100,000 limitation of Section85307(b)
With respect to his argument under Government Code 85307(b),
Plaintiff makes four general points: (1) Section 85307(b)
prohibits a candidate from personally loaning to his or her
campaign an amount, the outstanding balance of which, exceeds
$100,000, and Defendants' disclosure statements demonstrate that
Defendant Schwarzenegger loaned his campaign $4,000,000.00; (2)
Section 85307(a) which excludes certain commercial lending
institution loans to candidates from the provisions of Title 9,
Chapter 5, Article 3 of the Government Code (including the
contribution limits of Section 85301), does not apply to the
subject loans from CNB to Candidate Schwarzenegger because those
loans were not made in CNB's "regular course of business on terms
available to members of the general public" as required for
application of the exception under Section 85307(a); (3) Title 2
California Code of Regulations section 18530.8, which provides
that the $100,000 loan limit for candidate loans under Government
Code section 85307(b) does not apply to a candidate's loan of
monies obtained from a commercial lending institution in
accordance with Section 85307(a), does not apply to the subject
loans because they were not made in CNB's "regular course of
business on terms available to members of the general public" in
accordance with Section 85307(a); and (4) Title 2 CCR section
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18530.8 is unlawful and unenforceable to the extent it contradicts
or exceed the express $100,000 limitation set forth in Section
85307(b).
Plaintiff has shown a likelihood of success upon his argument
that Defendant Schwarzenegger's loan to his campaign in excess of
$100,000 violated Section 85307(b), notwithstanding the express
sanction of such a transaction by Title 2 CCR Section 18530.8(c).
Government Code section 85307 provides:
"Extensions of credit; Candidate's loans to campaign(a) The provisions of this article regarding loans applyto extensions of credit, but do not apply to loans madeto a candidate by a commercial lending institution inthe lender's regular course of business on termsavailable to members of the general public for which thecandidate is personally liable.(b) A candidate for elective state office may notpersonally loan to his or her campaign an amount, theoutstanding balance of which exceeds one hundredthousand dollars ($100,000). A candidate may not chargeinterest on any loan he or she made to his or hercampaign."
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Section 85307 is found in Article 3, Chapter 5, Title 9 of
the Government Code, consisting of Sections 85300 through 85321.
("Article 3")
Plaintiff argues that section 85307(b) prohibits a candidate
from personally loaning his or her campaign an amount, the
outstanding balance of which exceeds one hundred thousand dollars
($100,000), regardless of the original source of the monies used
by the candidate to fund the personal loan.
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Defendants argue that section 85307(b) is subject to the
commercial loan exception set forth in Section 85307(a).
Defendants state that pursuant to section 85307(a), all of the
provisions regarding loans found in Article 3, Chapter 5, Title 9
of the Government Code, including section 85307(b), do not apply
"to loans made to a candidate by a commercial lending institution
in the lender's regular course of business on terms available to
members of the general public for which the candidate is
personally liable." Thus, Defendants argue that the $100,000 loan
limit under section 85307(b) does not apply "to loans made to a
candidate by a commercial lending institution in the lender's
regular course of business on terms available to members of the
general public for which the candidate is personally liable."
Defendants implicitly argue that a loan "made to a candidate by a
commercial lending institution" is the same as a candidate's
personal loan to his or her campaign.
In further support of their argument, Defendants cite Title 2
CCR section 18530.8(c), which became operative March 21, 2002.
That regulation provides in part:
"Personal Loans ***(c) The proceeds of a loan made to a candidate by acommercial lending institution for which the candidateis personally liable, pursuant to the terms ofsubdivision (a) of Government Code section 85307, whichthe candidate then lends to his or her campaign do notcount toward the $100,000 loan limit of subdivision (b)of Government Code section 85307."
Defendants argue that their interpretation of Section
85307(a) and (b), as adopted by the FPPC in 2 CCR 18530.8(c), is
partially compelled by the fact that the introductory phrase of
section 85307(a) (The provisions of this article regarding loans
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do not apply to loans made to a candidate by a commercial lending
institutions) would be rendered nugatory or surplusage under
Plaintiff's alternative interpretation. Specifically, Defendants
argue that the only provision in Article 3 "regarding loans" other
than Section 85307(a), is the $100,000 limit under Section
85307(b). Thus, they argue that the exception language in the
introductory phrase of Section 85307(a) must refer and apply only
to Section 85307(b).
The Court finds that Section 85307(b) prohibits a candidate
from personally loaning his or her campaign an amount, the
outstanding balance of which exceeds one hundred thousand dollars
($100,000), regardless of the original source of the monies used
by the candidate to fund the personal loan. In this respect, the
limitation under 85307(b) applies even though the original source
of the funds used by the candidate to fund the loan to his or her
campaign is a commercial loan to the candidate that meets the
requirements of Section 85307(a). The provisions are not
ambiguous or susceptible of more than one reasonable
interpretation.
The rules of statutory construction are the same for
initiative enactments as for legislative enactments. (Williams v.
Superior Court (2001) 92 Cal.App.4th 612, 622.) The goal is to
determine and effectuate voter intent. (Ibid.; Westly v. Board of
Administration (2003) 105 Cal.App.4th 1095, 1109.) The Court is
directed to look to the language of the enactment first, giving
the words their usual and ordinary meaning. (Williams v. Superior
Court, supra, at p. 623.) Only if the statutory language is
susceptible of more than one reasonable interpretation may the
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Court resort to extrinsic evidence to determine the intent of the
voters. (Ibid.) When the language is ambiguous, the Court may
refer to other indicia of the voters' intent, particularly the
analyses and arguments contained in the official ballot pamphlet.
(People v. Rizo (2000) 22 Cal.4th 681, 685; Robert L. v. Superior
Court (2003) 30 Cal.4th 894, 900-909).
Thus, the Court starts its analysis by looking to the
language of Section 85307, giving the words their usual and
ordinary meaning. In this respect, the Court is guided when
necessary by the definitions and provisions of Title 9 as required
by Section 85202.
The exception in Section 85307(a) applies expressly to loans
made "to a candidate by a commercial lending institution." On the
other hand, Section 85307(b) expressly applies only to personal
loans made by a "candidate for elective state office" to "his or
her campaign." The two referenced loans are not the same in any
respect. The term "candidate" is expressly defined under Section
82007, primarily as an "individual." The term "campaign" is not
directly defined by the Code, but it is clear from the separate
treatment of the terms throughout the PRA that a "campaign" is
neither an "individual" nor a "candidate."
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This interpretation does not render the introductory phrase
of Section 85307(a) nugatory as argued by Defendants. Section
85307(b) is not the only provision of Article 3 "regarding" loans.
To the contrary, every provision in Article 3 that employs the
term "contribution," by definition "regards" loans. The term
"contribution" as defined under Section 82015 includes "loans."
The term contribution is defined under Section 82015 in part as "a
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payment," and "payment" is defined in part as a "loan" pursuant
Section 82044. Thus, the exception in 85307(a) exempts qualifying
commercial loans to the candidate from restrictions upon
contributions like the contribution limits in Section 85301. This
interpretation is consistent with Section 84216, which provides
that a loan received by a candidate or a committee from a
commercial lending institution in the ordinary course of business
is not a "contribution."
Under the Court's interpretation, a candidate could receive
qualifying commercial loans without concern that the loans
constitute "contributions" and without regard or subject to the
contribution limits. Further, a candidate could receive a
qualified commercial loan and lend (interest free) up to $100,000
of its proceeds to his or her campaign. Moreover, a candidate may
receive an unlimited qualified commercial loan and give an
unlimited amount of the loan proceeds to his or her campaign.
That the Court's interpretation of section 85307 is correct
is made even more clear when the statutory history is considered.
Beginning with the enactment of Political Reform Act of 1974,
both the Legislature and the Voters have endeavored to enact
campaign laws that "inform the electorate and to prevent
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the corruption of the political process" (Socialist Workers 1974
Cal. Campaign Comm. v. Brown (1975) 53 Cal. App. 3d 879, 889).
Among other things, the 1974 Act imposed campaign contribution
limits and required disclosure of contributions (Government Code
section 82025 and 82015). The Political Reform Act of 1974 was
substantially amended in 1996 when the voters enacted Proposition
208 to limit campaign contributions. The Legislature placed
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Proposition 34 on the November 2000 ballot and the voters ratified
it. Proposition 34 repealed and amended many of the provisions
originally enacted by Proposition 208 concerning contribution
limits and disclosure requirements, including Government Code
section 85307.
Section 1 of Proposition 34 contains the findings and
declarations of the People in enacting the initiative. Subsection
(b) provides in part as follows:
"(b) The people enact the Campaign Contribution andVoluntary Expenditure Limits Without Taxpayer FinancingAmendments to the Political Reform Act of 1974 toaccomplish all of the following purposes:
(1) To ensure that individuals and interest groups inour society have a fair and equitable opportunity toparticipate in the elective and governmental processes.
. . . .(5) To increase public information regarding campaigncontributions and expenditures."
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Defendants' proposed construction of section 853071 would
authorize wealthy candidates to evade the $100,000 limitation on
1 The Court acknowledges that Defendant’s interpretation ofsection 85307 is in accord with the view expressed by the FairPolitical Practices Commission (FPPC). Indeed, Defendants’argument is supported by FPPC Regulation 18530.8(c). The Courtfurther acknowledges that Defendants no doubt acted in goodfaith when the subject loan was obtained since they had
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loans to a campaign by obtaining for his/her campaign a loan of an
unlimited amount simply by pledging his/her assets or
creditworthiness to a financial institution. Such an
interpretation flies in the face of the express purpose of the law
which, among other things, is "[t]o ensure that individuals and
interest groups in our society have a fair and equitable
opportunity to participate in the elective and governmental
processes." Proposition 34, Section 1(b)(1).2
Defendants' interpretation of the statute would also permit
the candidate to obtain contributions after the election has been
held to repay the loans obtained. Such a procedure advocated by
Defendants would decrease rather than " increase public
information regarding campaign contributions." The public would
not learn who financially contributed to the campaign until after
the election, when it would be too late to use such information in
making the determination for whom a vote would be cast.
Regulation 18530.8(c) to rely upon. The Court, however, rejectsthe FPPC Regulation and holds that it is of no effect since itconflicts with the express terms of Government Code section85307. See Part II C of this Ruling, infra.
2 Defendants asserted at oral argument that theirinterpretation of the statute “levels the playing field” byallowing candidates to obtain loans to finance their campaigns.The Court disagrees. The only persons who could obtain a loanon terms made available to Defendant Schwarzenegger here – $4.5million signature loan at prime – would have to be persons ofindependent wealth. The Court takes judicial notice of the factthat no financial institution would make such a loan in theregular course of business to persons who did not havesubstantial assets with a demonstrated ability to pay the loanback. The interpretation urged by Defendants would ensure thatindividuals of modes means do not have a fair and equitableopportunity to participate in the elective process, since thewealthy candidates would have a substantial advantage.
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Under the construction of the statute urged by Defendants,
wealthy candidates could evade both the $100,000 loan limitation
and the requirement of pre-election disclosure of contributions,
while those limitations would apply to candidates of more modest
means. Since this construction is contrary to the expressed
purpose of the amendments enacted by Proposition 34 and leads to
an absurdity, it must be rejected.
Since the statute is not reasonably susceptible of a
different interpretation, the Court may not refer to extrinsic
evidence bearing upon the voters' intent, like the analyses and
arguments contained in the official ballot pamphlet. However, the
Court notes that its interpretation is consistent with the
information and arguments shared with the voters on Proposition
34. Specifically, the analysis and summary provided that,
"[u]nder this measure, candidates would be allowed to give
unlimited amounts of their own money to their campaigns. However,
the amount candidates could loan to their campaigns would be
limited to $100,000 and the earning of interest on any such loan
would be prohibited." (Bold added.) Moreover, the arguments in
favor of the proposition asserted, without response, that,
"[w]ealthy candidates can loan their campaigns more than $100,000,
then have special interests repay their loans. Proposition 34
closes this loophole."
/ / /
Under Defendants' interpretation of 85307, as adopted in 2
CCR section 18530.8, the loophole is not only opened, but the
$100,000 limit in 85307(b) is rendered meaningless. Specifically,
under Defendants' interpretation, if a candidate has $1,000,000 of
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personal cash, he or she may loan his or her campaign only
$100,000, interest free; however, the same candidate could borrow
$500,000 from a commercial lending institution secured by the same
$1,000,000, and then lend the entire $500,000 to his or her
campaign (presumably subject to interest since the last sentence
of Section 85307(b) would also not apply). This result is
patently absurd.3
C. Title 2 CCR Section 18530.8(c) Conflicts With Section 85307(b)
In light of the foregoing, the Court also finds that 2 CCR
section 18530.8(c) is an erroneous and unreasonable construction
of Section 85307, which fails to carry out the purpose of, and is
inconsistent with, Title 9 of the Government Code. The Court
disregards this specific regulation in ruling upon the pending
motions despite full and faithful adherence to the principles of
deference explained in Californians for Political Reform
Foundation v. Fair Political Practices Commission (1998) 61
Cal.App.4th 472, 484. "While the construction of a statute by
officials charged with its administration, including their
interpretation of the authority invested in them to implement and
carry out its provisions, is entitled to great weight,
nevertheless ‘Whatever the force of administrative construction
. . . final responsibility for the interpretation of the law
rests with the courts.' [Citation] Administrative regulations
3 Defendants’ proposed construction would legitimize a form of“money laundering.” While a wealthy candidate with $4.5 millionin his/her personal bank account may only loan his/her campaign$100,000 without running afoul of section 85307(b), according toDefendants, that limitation could be circumvented if thecandidate “launders” the money by pledging such funds assecurity for a loan from a commercial a commercial bank to thecampaign.
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that alter or amend the statute or enlarge or impair its scope are
void and courts not only may, but it is their obligation to strike
down such regulations." (Mooney v. Pickett (1971) 4 Cal. 3d 669,
681.) In the end, the FPPC may only adopt rules and regulations
to carry out the purposes and provisions of the Political Reform
Act (PRA), and those rules and regulations must be consistent with
the PRA and other applicable law. (Gov. Code § 83112.)
In light of the Court's analysis of Section 85307(b) and the
undisputed facts upon the motion, the Court finds the Plaintiff
has established that there is a probability he will prevail on his
claim. That being the case, Defendants' motion to strike the
complaint is DENIED.
III. DEFENDANTS' DEMURRER TO THE VERIFIED COMPLAINT
The Court must treat a demurrer as admitting all material
facts properly pleaded, but not contentions, deductions or
conclusions of fact or law. The Court may also consider matters
that may be judicially noticed. Further, the Court must give the
complaint a reasonable interpretation, reading it as a whole and
its parts in their context. (Zelig v. County of Los Angeles
(2002) 27 Cal.4th 1112, 1126.) 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. (Aubry v. Tri-City Hospital
Dist. (1992) 2 Cal.4th 962, 967.)
In light of the Court's analysis of Section 85307(b) set
forth above, and the allegations of the verified complaint, the
Court finds that the Plaintiff has stated sufficient facts to
constitute a cause of action.
Defendants' demurrer to the complaint is OVERRULED.
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IV. PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION
Plaintiff's Application for Preliminary Injunction is GRANTED
IN PART AND DENIED IN PART.
A. The Election Has Not Rendered the Lawsuit Moot
It is important to note that Plaintiff's lawsuit and
application for a temporary restraining order was filed five days
before the subject gubernatorial recall election held on
October 7, 2003, and that this matter was not heard until several
months after the election. As a consequence, a number of the
bases for Plaintiff's application have become moot by virtue of
the conclusion of that election. For example, to the extent the
Defendants' use of loan proceeds provided them with a campaigning
advantage over other candidates prior to the election, the
conclusion of the election has eliminated any conceivable remedy
by this Court under Section 91003(a) that could address that
circumstance. Nevertheless, the Court does note and address some
of the parties' pre-election arguments to the extent they still
bear upon questions at hand.
In any event, since this case presents issues of great public
interest and importance, the Court should decide it
notwithstanding claims of mootness. (Davenport v. Blue Cross of
Calif. (1997) 52 C.A.4th 435, 445 [trial judge has authority to
grant injunctive relief when case presented matter of continuing
public importance]; Fresno v. Shelton (1998) 66 C.A.4th 996, 1006
[because of public interest, issue would be decided, although
subsequent facts rendered case moot]; California Correctional
Peace Officers Assn. v. California (2000) 82 C.A.4th 294, 302
[challenge to injunction not rendered moot by judgment confirming
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arbitrator's award concerning conduct at issue, where there was
strong public interest in determining issues involved]; Konig v.
Fair Emp. & Housing Com. (2002) 28 C.4th 743, 745, footnote 3
[question of great public interest properly decided despite death
of litigant]).
B. This is a Proper Case in Which to Grant a PreliminaryInjunction
Plaintiff's application asserts two primary bases for the
injunctive relief sought against Defendants. First, Plaintiff
contends that Defendant Schwarzenegger made personal loans to his
campaign in excess of $100,000 in violation of Government Code
section 85307(b). Second, Plaintiff contends that Defendant
Schwarzenegger accepted a loan in excess of $21,200 from a
commercial lending institution (i.e. defendant City National Bank
"CNB") which constituted a "contribution" pursuant to Government
Code sections 82015 and 82044, and thus violated the individual
gubernatorial contribution limits under Government Code section
85301. Thus, Plaintiff prays for preliminary injunctive relief
pursuant to Government Code section 91003(a) and Code of Civil
Procedure 526 (Complaint, para. 23, cites CCP § 529, but it is
presumed the relief is sought under Section 526). Plaintiff's
application prays for an order enjoining CNB "from making a loan
[to Defendants] on such unreasonably favorable terms, enjoining
Defendant Schwarzenegger from lending his campaign more than
$100,000, requiring that any funds already loaned be returned and
reversing any transactions funded with money unlawfully loaned to
the campaign." (Ex Parte Application, MPA, pp. 6:20-7:1.) The
Court notes that Plaintiff's Complaint prays for injunctive relief
of differing scope, including an order: (1) enjoining all
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defendants from transacting in loans in connection with Defendant
Schwarzenegger's campaign; (2) enjoining all use of all loan
proceeds in excess of $100,000 obtained by Defendant
Schwarzenegger in connection with his campaign; and (3) commanding
all defendants to annul, avoid, and reverse any transactions
undertaken using proceeds from any loan obtained by Defendant
Schwarzenegger in excess of $100,000, including un-aired campaign
advertisements.
Plaintiff argues that the balance of harms and equitable
considerations that the Court must consider on his application
weigh in his favor because the harm and unfair advantage caused by
a violation of the campaign laws cannot be effectively remedied
after the election. However, this argument bears more upon the
imminence and urgency of the threatened injury and less upon the
comparable harm to be suffered by the parties in the event
injunctive relief is or is not granted. Although Plaintiff's
argument on this point is not clear, he apparently contends that
if injunctive relief does not issue members of the public will be
harmed because they will be denied knowledge of all of Defendant
Schwarzenegger's contributors prior to the election since his
campaign will be institutionally financed pre-election and then
repaid by private contributions post-election. He also apparently
argues that without injunctive relief
Defendant Schwarzenegger would obtain a substantial monetary
advantage over other candidates who observed the $100,000 loan
limit of Section 85307(b), or who could not obtain the
"unreasonably favorable" loan terms and amounts received by
Defendant Schwarzenegger.
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The rules governing the Court's consideration of Plaintiff's
application are well known and need little discussion. "In
determining whether or not to issue a preliminary injunction, a
trial court must evaluate two interrelated factors. The first is
the likelihood that the plaintiff will prevail on the merits at
trial. The second is the interim harm the plaintiff may suffer if
the injunction is denied as compared to the harm that the
defendant may suffer if the injunction is granted. (Citation) In
thus balancing the respective equities of the parties, the court
must determine whether, pending a trial on the merits, the
defendant should or should not be restrained from exercising the
right claimed by it. (Citation)" Tahoe Keys Property Owners'
Ass'n v. State Water Res. Co. (1994) 23 Cal.App.4th 1459, 1471.
The trial court's determination must be guided by a "mix" of the
potential - merit and interim - harm factors; the greater the
plaintiff's showing on one, the less must be shown on the other to
support an injunction. (King v. Meese (1987) 43 Cal.3d 1217,
1227-1228.) Of course, "[t]he scope of available preliminary
relief is necessarily limited by the scope of the relief likely to
be obtained at trial on the merits." (Common Cause v. Board of
Supervisors (1989) 49 Cal.3d 432, 442.) A trial court may not
grant a preliminary injunction, regardless of the balance of
interim harm, unless there is some possibility that the plaintiff
would ultimately prevail on the merits of the claim. (Id., at pp.
442-443.)
1. Plaintiff Has Shown a Likelihood of Success on the Merits
In light of the Court's analysis of section 85307(b) set
forth in Part II B of this Ruling and the undisputed facts upon
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the motion set forth in Part II of this Ruling, the Court finds
the Plaintiff has established that there is a probability he will
prevail at trial on the merits of his claim. Since the issue to
be decided is a legal one, and since the Court has decided such
legal issue in favor of Plaintiff, the Court must necessarily
conclude that Plaintiff has made a very strong showing of success
on the merits.
2. The Balancing of the Hardships Weigh in Favor of Defendants
The Court is persuaded that the interim harm that Defendants
may suffer if the preliminary injunction is granted in several
respects outweighs the harm that Plaintiff or the public may
suffer if the injunction is denied. Since the election has
passed, the primary harm that may have been avoided by injunctive
relief is moot. While there is post-election conduct associated
with the alleged violation that may be enjoined under section
91003, much of such conduct is not particularly urgent or
irreparable. Such could readily be the subject of a permanent
injunction if Plaintiff were to prevail at trial or on summary
judgment. On the other hand, the harm that the Defendants would
suffer if they were forced to undo all transactions related to the
subject loan(s) would be tremendous should the Defendants
ultimately prevail at trial or on a motion for summary judgment.
/ / /
3. The Court Can Fashion Appropriate Injunctive Relief
Notwithstanding the Court's conclusions on the balance of
harms element, the Court is persuaded that preliminary injunctive
relief should be granted given the very strong showing made by
Plaintiff that he is likely to prevail on the merits. (See King
v. Meese, supra, 43 Cal.3d at 1227-1228.) A preliminary
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injunction can be fashioned in such a manner to protect the
interests of Plaintiff, while at the same time protecting the
interests of Defendants, should they ultimately prevail.
The Court determines that proper injunctive relief would
include enjoining Defendant Schwarzenegger from lending his
campaign more than $100,000, no matter what the source of the
funds, and specifically including loans obtained from commercial
institutions for the purpose of passing on to a campaign
committee. The Court further determines that all Defendants, and
their agents and those acting on their behalf, should be enjoined
from soliciting contributions designed to repay any loan made to
the campaign in excess of the $100,000 limit, including the
subject CNB loan(s). All contributions thus far received for the
purpose of repaying the loan be placed in an escrow account so
that they may be returned should that relief ultimately be ordered
in this proceeding.
Taking the balance of hardships into account, the Court at
this time denies without prejudice the requested injunctive relief
that would require, pending trial, that any funds already loaned
be returned and that any transactions funded with money loaned to
the campaign in violation of section 85307 be reversed. Of
course, with respect to those matters concerning which a
preliminary injunction has not issued, Defendants proceed at their
peril since Plaintiff may ultimately prevail on his claim and may
obtain the injunctive relief that he seeks. For the time being,
however, Plaintiff's, as well as the general public's, interests
are served by granting an injunction as set forth above.
V. DISPOSITION
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IT IS ORDERED THAT Defendants' motion to strike the complaint
(SLAPP Motion) is denied; Defendants' demurrer is overruled; and
Defendants shall file their answer to the complaint no later than
February 18, 2004.
IT IS FURTHER ORDERED THAT Plaintiff's motion for preliminary
injunction is granted in the following respects. Pending trial or
further proceedings, Defendants, their agents, and anyone acting
on their behalf are hereby enjoined from the following acts:
1. Defendant Schwarzenegger is hereby enjoined from lending
his campaign more than $100,000, regardless of the source of the
loan funds.
2. Defendant Schwarzenegger, his agents and those acting on
his behalf, is hereby enjoined from accepting contributions
intended to repay any loan made by Defendant Schwartzenegger to
the campaign in excess of the $100,000 limitation of section
85307(b).
3. All Defendants (except Defendant CNB), their agents and
those acting on their behalf are hereby enjoined from expending or
disposing in any manner any contributions already received for the
purpose of repaying loans made by Defendant Schwarzenegger in
excess of $100,000 to Defendant Californians for Schwarzenegger
except for placing such funds in an escrow account and not
expending such funds pending further order of the Court.
Plaintiff's motion for preliminary injunction is otherwise
denied without prejudice.
IT IS FURTHER ORDERED that, before this order shall take
effect, Plaintiff must file a written undertaking in the sum of
$50,000, as required by Code of Civil Procedure Section 529, for
the purpose of indemnifying Defendants, and each of them, for the
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damages as they may sustain by reason of this preliminary
injunction if the court finally decides that Plaintiff is not
entitled to it.
IT IS FURTHER ORDERED that the preliminary injunction as set
forth above shall issue on Plaintiff's filing a written
undertaking in the sum specified above.
The court reserves jurisdiction to modify this injunction as
the ends of justice may require.
The Court will entertain an objection by either party to the
amount of the bond set forth in this order. (See Code of Civil
Proc., § 995.920 et seq.)
Prevailing party Plaintiff shall prepare a formal order with
respect to the Preliminary Injunction.
Dated:
______________________________LOREN E. McMASTERJudge of the Superior Court
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