In Cam-Carson, LLC v. Carson Reclamation Authority, published August 23, 2022, the Second District Court of Appeal, Division 8 reversed dismissal of a lawsuit after demurrer. The plaintiff, a commercial real estate developer, contracted with the defendant city and the defendant reclamation authority (a joint powers authority created to oversee environmental remediation on the subject site) to develop a 40-acer site. The plaintiff alleged that the city and authority engaged in gross mismanagement and malfeasance that disrupted the project, causing damages to the plaintiff of over $80 million. Under the agreement between the plaintiff and the authority, the authority was responsible for constructing remedial systems, build offsite improvements. The authority allegedly mismanaged the project. The plaintiff alleges causes of action for breach of contract against the authority, and against the city and a successor interest to a redevelopment agency as alter egos of the authority; and breach of the implied covenant of good faith and fair dealing against the city and authority, and the city defendants as alter egos. The trial court sustained the city's and successor agency's demurrer to the complaint, on the ground that the city was not a party to the contract, and there were insufficient allegations of alter ego liability.
The appellate court ruled there were sufficient allegations of alter ego liability in the complaint. The court rejected the argument that alter ego liability, as a matter of law, cannot apply to public entities. The city formed the authority to pursue remediation of the side, and one of the goals was to protect the city from any liability that would arise to the landowner. Under the alter ego theory, if government entities are operated with integrated resources in pursuit of a single business purpose, and one of them so dominated the finances, policies, and practices of the other that the latter had no separate existence of its own, but was merely a conduit through which the former conducted its business, then alter ego liability may exist if an inequitable result would otherwise follow. The complaint alleged facts that, if proved, would allow a court to conclude that the elements of alter ego liability were met here. The demurrer to the bad faith cause of action was error not only because it was based on the trial court's rejection of the alter ego theory, but because it did not consider the allegations that the development agreement, to which the city was a party, was breached.
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