As requested by Californians Aware, the Sixth District Court of Appeal recently ordered the publication of its decision in a case holding that taxpayers can sue to void government contracts infected with conflict of interest.

As reported by the Metropolitan News-Enterprise,

The decision in Holloway v. Showcase Realty Agents, Inc. reinstates two lawsuits brought by Bruce Holloway, a resident of the town of Boulder Creek in Santa Cruz County, in an effort to invalidate the San Lorenzo Valley Water District’s purchase of real property in that town from Gregory and Edwige Dildine.

A member of the water district’s board at the time of the purchase in 2010 was Terry Vierra (who is no longer a member of that body). He was a principal in Showcase Realty, which handled the transaction, and his wife was the listing agent. Vierra received a broker’s commission of $13,050, plus a community property interest in his wife’s commission.

Holloway’s action was dismissed after a judge sustained demurrers without leave to amend. Justice Eugene Premo wrote the opinion reversing that action. At issue was the applicability of Code of Civil Procedure §526a which says, in part:

An action to obtain a judgment, restraining and preventing any illegal expenditure of, waste of, or injury to, the estate, funds, or other property of a county, town, city or city and county of the state, may be maintained against any officer thereof, or any agent, or other person, acting in its behalf,…by a citizen resident therein…who is assessed for and is liable to pay, or, within one year before the commencement of the action, has paid, a tax therein.

The district and Showcase argued that the section cannot be invoked by Holloway because taxpayer suits are only authorized where the governmental entity lacks discretion.

In this case the district clearly had discretion to challenge the contract, but just as clearly had no interest in doing so—quite the contrary.

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Premo reasoned: “Here, Vierra was a District director who had a personal financial interest in the real estate contract, making the contract “void, not merely voidable,” and District had a duty to act to avoid it….

“Our Supreme Court has specifically stated that taxpayers have standing to sue under Code of Civil Procedure section 526a to set aside void or illegal contracts.” The jurist also pointed to Government Code §1092, which provides: “Every contract made in violation of any of the provisions of Section 1090 may be avoided at the instance of any party except the officer interested therein.” Sec. 1090 says, in part:

Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members.

Premo said there is a conflict among the districts but that “[w]e are persuaded by the weight of authority favoring standing to assert conflict of interest claims” pursuant to §1092.

CalAware urged the Sixth District to publish the decision, making it available as citable precedent, to encourage citizens to take the initiative in enforcing laws against official fraud, waste and abuse of public resources in general and self-dealing in particular.

CalAware’s concern here is that citizens unable to take effective curative action on improper or ethically tainted use of public funds when they see such abuses may lapse into a cynical suspicion of the claimed virtues of open government, freedom of information and civic engagement. Erosion of trust in the political efficacy of such principles and practices is simply fatal to democracy as we know it.