Carson Redevelopment Agency v. Padilla

In Carson Redevelopment Agency v. Padilla (2006) 140 Cal.App.4th 1323, the defendants, owners of a senior housing complex, entered into an agreement with a municipal redevelopment agency under which the defendants would receive rental assistance. (Id. at p. 1327.) When the defendants thereafter requested an extension of the agreement and an increase in the rental assistance, the agency proposed instead making a low-interest loan to the defendants that would be used by them to pay down the mortgage on their senior housing complex. (Id. at pp. 1327-1328.) The defendants were told by a city official--the mayor--that they would need to pay him $50,000 if they wanted the city council to approve the loan. (Id. at p. 1328.) The defendants paid the mayor $50,000 for city council approval, plus another $25,000 to have the agency sign the agreement. (Ibid.) The municipal redevelopment agency sued the defendants to void the loan agreement pursuant to sections 1090 and 1092. (Carson, supra, 140 Cal.App.4th at p. 1328.) The trial court granted summary adjudication in favor of the agency and entered a judgment requiring the defendants to pay the agency the entire amount of the loan proceeds. (Ibid.) In affirming the trial court's ruling on the cause of action for violation of section 1090, the court in Carson, supra, 140 Cal.App.4th 1323 reviewed the authorities on the appropriate remedy for a violation of section 1090 and concluded that the disgorgement remedy was "automatic." (140 Cal.App.4th at pp. 1335-1336.) According to the court, "Our holding sends a message. If a corrupt public official demands an extortion payment in exchange for a public contract, the victim should not pay. Instead, the victim should report the corrupt public official to local, state or federal law enforcement. If the victim pays and the extortion is discovered, the victim will not be permitted to retain any consideration received. The reason is simple. A public contract obtained through an extortion payment is not valid, and no one should believe that it is valid. A bright-line rule is required." (Id. at p. 1337.)