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20-A - Staff Report - California Environmental Quality Act Indemnification Requirement31 MEETING DATE: 7/19/99 ITEM NO. Zd,A COUNCIL AGENDA REPORT DATE: July 16, 1999 TO: MAYOR AND TOWN COUNCIL FROM: ORRY P. KORB, TOWN ATTORNEYQV- SUBJECT: OPPOSE LOCAL AGENCY FORMATION COMMISSION (LAFCO) PROPOSED CALIFORNIA ENVIRONMENTAL QUALITY ACT (CtEQA) INDEMNIFICATION $EQUIREMENT RECOMMENDATION: Oppose Local Agency Formation Commission (LAFCO) proposed California Environmental Quality Act (CEQA) Indemnification Requirement. BACKGROUND: The Local Agency Formation Commission (LAFCO) is pursuing an indemnification policy designed to protect the County General Fund from litigation costs related to challenges based on alleged violations of the California Environmental Quality Act (CEQA) when applications are approved at the request of a private party, city or special district. This policy would shift the fmancial responsibility for litigation costs away from the County to the Town. The LAFCO proposal requires that the applicant city and/or private party sign an indemnification agreement as a condition of project approval. Two years ago, LAFCO staff first proposed a very broad indemnification agreement without first adequately discussing the matter with the cities. At that time, in response to strong opposition by a few cities, the Commission referred the matter back to staff with the direction to work with the cities. The issue was delayed until this spring, when it resurfaced. On March 22, 1999, LAFCO staff held an informational meeting for all agencies. All attendees were unequivocally opposed to the LAFCO indemnification agreement proposal. The proposal will be reviewed by the Commission on August 11, 1999. Should Council approve this action, the attached opposition letter will be sent to LAFCO. DISCUSSION: The reason stated by LAFCO staff in support of this new policy is that LAFCO "cannot afford to respond to environmental litigation." The LAFCO proposal should be opposed for the following three reasons: (1) it is poor public policy; (2) there is a potential of a conflict of interest between the Town and LAFCO; and (3) there is no clear statutory authority for LAFCO's requirement of an indemnification agreement. Poor Public Policy: LAFCO has a prescribed statutory function of reviewing annexations and deannexations, and other incorporations and.reorganizations of cities and districts. The State legislature, in establishing that duty, must be presumed to have considered and assigned potential liability. LAFCO should take full responsibility for PREPARED BY: ORRY P. KORB, TOWN ATTORNEY Reviewed by: JIWK_.Manager Revised: 7/16/99 3:36 PM Reformatted: 10/23/95 File# 301-05 PAGE 2 MAYOR AND TOWN COUNCIL SUBJECT: July 16, 1999 performing that statutory function. The indemnification agreement is an overreaction because there is no demonstrated need for the agreement. LAFCO staff is able to recall only one instance of environmental litigation against LAFCO, and in that case the County prevailed. The indemnification agreement would constitute a shift of the County's fiscal responsibilities to cities, which unilaterally establishes a precedence of County funds over city funds in LAFCO's performance of its responsibilities. Potential Conflict of Interest: • LAFCO and the indemnifying city may have conflicting interests, in which case it is particularly inappropriate for the city to be required to fund both sides of any litigation. • Two cities appearing before LAFCO on the same application may have conflicting interests, and again it would be inappropriate for the cities to fund LAFCO's litigation costs. • A city and the real party -in -interest may have conflicting interests, and it would be a conflict of interest for the City to fund LAFCO's litigation costs. • As in the examples set forth, the agreement could result in a city being in a position to both challenge and indemnify and defend LAFCO (or hire outside counsel to defend LAFCO). No Clear Statutory Authority LAFCO's legislation does provide for the collection of fees and charges at Government Code section 56383, but indemnification for litigation cannot reasonably be interpreted to be the type of fees and costs contemplated by that code section. Yet, that is the authority LAFCO is relying upon as the justification for the indemnification agreement. While LAFCO's enabling legislation does not address indemnification, it does specifically address the defense of LAFCO decisions at Government Code section 56384, which provides that the County Counsel shall act as legal counsel to the Commission unless LAFCO appoints other legal counsel of their own. In summary, the necessity for this indemnification agreement is not justified based on the experience of Santa Clara County's LAFCO or on statutory grounds. Attachments: Proposed letter to LAFCO OPKICt [N; ATY\LAFCO.TCR] TOWN OF Los GATOS Office of the Town Attorney 408 / 354-6880 July _, 1999 Local Agency Formation Commission County Government Center East Wing 70 West Hedding Street, 10`' Floor San Jose, CA 95110 RE: PROPOSED INDEMNIFICATION AGREEMENT REQUIREMENT Dear Commissioners: Civic CENTER 110 E. MAIN STREET P.O. Box 949 Los GATOS, CA 95031 Thank you for the opportunity to review and comment on the proposed indemnification agreement requirements. The Town of Los Gatos strongly opposes this requirement, which is designed to protect the county General Fund from litigation costs related to challenges based on alleged violations of the California Environmental Quality Act (CEQA) when applications are approved at the request of a private party, city or special district. This policy will shift the financial responsibility for litigation costs resulting from LAFCO's independent decisions away from the county to the Town. The reason stated by LAFCO staff in support of this new policy is that LAFCO "cannot afford to respond to environmental litigation." The Town opposes the LAFCO proposal for the following three reasons: (1) it is poor public policy; (2) there is a potential of a conflict of interest between the Town and LAFCO; and (3) there is no clear statutory authority for LAFCO's requirement of an indemnification agreement. Poor Public Policy LAFCO has a prescribed statutory function of reviewing annexations and deannexations, and other incorporations and reorganizations of cities and districts to ensure orderly urban development patterns with appropriate consideration of the environmental effects of land use. In performing that duty, LAFCO is directed at government code Section 56301 to make studies, and to obtain and furnish information. LAFCO should take full responsibility for performing those statutory functions and for ensuring CEQA compliance. The indemnification agreement is an overreaction because there is no demonstrated need for the agreement. LAFCO staff was able to recall only one instance of environmental litigation against LAFCO, and in that case the County prevailed. The indemnification agreement will constitute a shift of the County's fiscal responsibilities to cities, which unilaterally establishes a precedence of County funds over city funds in LAFCO's INCORPORATED AUGUST 10, 1887 Local Agency Formation Commission July _, 1999 Page 2 performance of its responsibilities in excess of LAFCO's statutory authority. Government code Sections 56380 and 56381 specify that the Commission's expenses shall be furnished by the County Board of Supervisors. Potential Conflict of Interest LAFCO and the indemnifying city may have conflicting interests; two cities appearing before LAFCO on the same application may have conflicting interests; and the city and the real party -in - interest may have conflicting interests, in which case it is particularly inappropriate for the city to be required to fund both sides of any litigation. As in the examples set forth, the agreement could result in a city being in a position to both challenge and to indemnify and defend LAFCO (or hire outside counsel to defend LAFCO). No Clear Statutory Authority Government code Section 56383 does provide for the collection of fees and charges, but indemnification for litigation cannot reasonably be interpreted to be the type of fees and costs contemplated by that code section. Yet, that is the authority upon which LAFCO staff is relying as the justification for the indemnification agreement. While LAFCO's enabling legislation does not address indemnification, it does specifically address the defense of LAFCO decisions at Government code Section 56384, which provides that the County Counsel shall act as legal counsel to the Commission unless LAFCO appoints other legal counsel of their own. LAFCO is a procedurally oriented entity (see Government Code Section 56100). Its enabling legislation defines the process for a change of organization or reorganization. Section 56844 sets forth the conditions LAFCO may place on the conditional approval of an application, and indemnification is not on the list of approved conditions. The requirement of an indemnification agreement does not contribute to the process, it is not expressly authorized, and therefore the power to enact this requirement cannot be necessarily implied. Finally, although the May 5, 1999 draft of the indemnification agreement has been improved, the Town continues to object to particular provisions. Briefly, these objections include the lack of mutual indemnification provisions, the excessively lengthy 14-day period of LAFCO to notify the Town of a lawsuit and the lack of a provision for discontinuing the indemnification of LAFCO when the Town and the real party in interest could otherwise settle the litigation. In summary, the necessity for this indemnification agreement is not justified based on the experience of Santa Clara County's LAFCO or on statutory grounds. In the event litigation costs arise from a LAFCO decision, the Government code provides for the County Counsel to provide Local Agency Formation Commission July _, 1999 Page 3 legal services, and for the county Board of Supervisors to fund such reasonable operational expenses. For these reasons, the Town of Los Gatos respectfully requests that this proposal be rej ected. Very truly yours, Orry P. Korb Town Attorney OPK/ct (N\ATY\LAFCO.LTR] Motion by Mrs. Lubeck, seconded by Mr. Attaway, that Council adopt Resolution 1999-115 entitled, RESOLUTION OF THE TOWN OF LOS GATOS GRANTING AN APPEAL OF A DECISION FROM THE PLANNING COMMISSION APPROVING A CONDITIONAL USE PERMIT TO OPERATE AN EXISTING BOTANICAL NURSERY ON PROPERTY ZONED "0" OFFICE AND "LM" COMMERCIAL -INDUSTRIAL - PRJ-98-137. Carried unanimously. STACIA STREET 169/PRJ-99-023/RESIDENTIAL/RESOLUTION 1999-116 (19.09) Motion by Mrs. Lubeck, seconded by Mr. Attaway, that Council adopt Resolution 1999-116 entitled, RESOLUTION OF THE TOWN OF LOS GATOS GRANTING AN APPEAL OF A PLANNING COMMISSION DECISION DENYING AN APPLICATION TO SUBDIVIDE A LOT INTO THREE PARCELS ON PROPERTY ZONED R-1:10 - PRJ-99-023. Carried unanimously. WINCHESTER BOULEVARD 15350/VILLA FELICEBERSANO/RESOLUTION 1999- 117 (20.09) Motion by Mrs. Lubeck, seconded by Mr. Attaway, that Council adopt Resolution 1999-117 entitled, RESOLUTION OF THE TOWN OF LOS GATOS REMANDING: A GENERAL PLAN AMENDMENT TO CHANGE THE LAND USE DESIGNATION FROM LOW DENSITY RESIDENTIAL AND NEIGHBORHOOD COMMERCIAL TO MEDIUM FAMILY RESIDENTIAL; A PLANNED DEVELOPMENT TO CHANGE THE ZONING DESIGNATION FROM R-1:8PD TO RM:5-12:PD TO CONSTRUCT 36 TO 39 DWELLING UNITS; AND ARCHITECTURE AND SITE APPROVAL TO DEMOLISH A PRE-1941 DUPLEX; A PRE-1941 OFFICE BUILDING; A RESTAURANT AND HOTEL (VILLA FELICE); AND A MAINTENANCE BUILDING. Carried by a vote of 4 ayes. Mr. Pirzynski vote no as reflected in previous record. LAFCO/LOCAL AGENCY FORMATION COMMISSION/INDEMNIFICATION REQUIREMENT CEQA/CALIFORNIA ENVIRONMENTAL QUALITY ACT (20A.19) Motion by Mrs. Lubeck, seconded by Mr. Attaway, that Council oppose Local Agency Formation Commission (LAFCO) proposed California Environmental Quality Act (CEQA) indemnification requirement. Carried unanimously. VERBAL COMMUNICATIONS Villa Felice: Jim Casey, 120 Privada Luisita, spoke against the present proposal and submitted a list of requests from the neighbors for the record. Traffic Problems on Englewood: Amy Despars, 267 Longridge Road, spoke of the excessive traffic in the