Complaint Final (B&W Petition) (1)

2 Petition for Writ of Mandate and Complaint for Declaratory and Injunctive Relief

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

* * *

This Petition asks the Court to compel the Governor and other California officials to obey the

law. In 2012, following a settlement with five of the nations largest mortgage servicers that was

secured in large part due to the important role played by the California Attorney General, a Special

Deposit Fund was created as a repository of $369 million in settlement proceeds specifically

intended to give California homeowners the necessary counseling and assistance to save their homes

from foreclosure, among other similar purposes. The Governor promptlyand, indeed,

unlawfullydiverted most of the $369 million away from the Special Deposit Fund and into the

General Fund, with no apparent intention of reconstituting the special fund unless the Court compels

him to do so.

There is no question that the $369 million at issue was required to be deposited into a Special

Deposit Fund. There is no question that this sum was supposed to be devoted to the specific

purposes for which the Special Deposit Fund was created, as expressly recited in the pertinent

settlement documents co-signed by the California Attorney Generals Office. There is no question

that most of the money was instead diverted to the States General Fund to pay off the States

general debts. And there is no question that the Governor has projected a large budgetary surplus for

2014 and beyond, but has given no indication in his budget that he intends to replenish the diverted

funds, now or ever.

This Court should therefore compel the Governor and the other named Respondents to follow

the law and to allow California homeowners to reap the benefits of the settlement secured for them

by their Attorney General. The Governor had no legal right to divert these funds in the first place

and, even if he did, he certainly has the statutory duty to replenish them in this year of surplus.

Petitioners and their constituents, along with all other affected California residents, desperately

require the Special Deposit Fund to be replenished to give them a fighting chance to save their

homes from foreclosure and to equip them with the necessary counseling to help avoid future

struggles. For this reason, Petitioners ask the Court to issue a writ of mandate compelling the

Governor, along with his Director of Finance, the official who formulated the spending plan for the


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

funds in question, and the Controller, the officer who carried out that directive, to reconstitute the

Special Deposit Fund with the unlawfully diverted settlement proceeds.

Petitioners are three California-based Section 501(c)(3) organizations whose constituents

would benefit from replenishment of the Special Deposit Fund to help them weather the economic

storm that continues to sweep so many families out of their homes. Petitioner National Asian

American Coalition is a HUD-approved counseling organization that so far has helped more than

6,000 homeowners to avoid foreclosure and eviction. Petitioner COR Community Development

Corporation, affiliated with Christ Our Redeemer African Methodist Episcopal Church, is committed

to empowering impoverished communities by providing services in the areas of education, financial

literacy, affordable housing, and civic engagement. Petitioner National Hispanic Christian

Leadership Conference is the largest Latino Christian organization in America, with 6 million

members and 40,000 affiliated churches, including approximately 1,500 churches in California. The

latter two Petitioners have the infrastructure in place and the intent to provide counseling programs

and training to affected homeowners, but only if the required funding becomes available, such as

through replenishment of the Special Deposit Fund.

Petitioners bring this Petition on behalf of themselves and their California constituents,

seeking a writ of mandate, along with declaratory and injunctive relief, against Governor Edmund

Gerald Jerry Brown, Director of Finance Michael Cohen, and Controller John Chiang, and allege

as follows:

INTRODUCTION

1. Two years ago, the federal government and 49 states reached an historic $25 billion

settlement with five of the countrys largest mortgage servicers. That settlement, known as the

National Mortgage Settlement, promised retrospective compensation for millions of

U.S. homeowners who had allegedly been victimized by the defendant mortgage servicers in the

aftermath of the financial crisis. To limit future abuses, the settlement also promised prospective

support for housing counselors, consumer fraud education, and other programs designed to assist

Californians in their dealings with mortgage service providers, including in negotiating the often

convoluted mortgage modification process.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2. Under the terms of the National Mortgage Settlement, among other remedies,

borrowers who lost their homes to wrongful foreclosures were to receive payments for the harm they

suffered, other wronged homeowners were to receive loan modifications and principal reductions to

allow them to stay in their homes, and the federal and state governments were to receive direct cash

payments to be dedicated to further homeowner relief, including housing counseling and other

programs, as determined by state attorneys general. Through its Attorney General Kamala Harris

(Attorney General), the State of California obtained approximately $410 million of the roughly

$3.4 billion in direct payments to the federal and state governments. According to the express

settlement terms, 10% of this amount (roughly $41 million) was denoted a civil penalty and

allocated to the States Unfair Competition Law Fund, while the remaining 90% (roughly $369

million) was placed in a Special Deposit Fund to benefit the States borrowers and organizations that

support them.

3. However, as part of an all-too-familiar story for the struggling homeowners who were

the frontline victims of the financial and foreclosure crisis that swept the country, the promises of

government assistance soon proved illusory. In contravention of California law and disregarding the

commitment made by the Attorney General who forcefully fought to obtain these settlement funds,

Respondents unlawfully diverted the entire $369 million from the Special Deposit Fund, devoting

little if any of that amount to the benefit of California homeowners or the housing counselors that

serve them. Instead, the funds were sent to the States General Fund and spent for other purposes,

including the satisfaction of obligations arising from bond issuances that predated the National

Mortgage Settlement. To this day, countless California victims of the mortgage and foreclosure

crisis and their supporters are waiting to receive any benefit, much less the full benefit, of the

settlement the Attorney General obtained for the State of California as compensation for the harms

the victims suffered and continue to suffer.

4. Respondents diversion of Special Deposit Fund money violates California law. The

diversion ignores restrictions on the use of special or trust funds in the States possession and turns a

blind eye to a series of court-ordered Consent Judgments in derogation of the Attorney Generals

well-settled authority to bind the State in the confines of litigation. Petitioners therefore seek a writ


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

of mandate compelling Respondents to repay immediately to a Special Deposit Fund (administered

by the Attorney General) all unlawfully diverted proceeds of the National Mortgage Settlement, so

that California residents harmed by the mortgage and foreclosure crisis can finally realize their full

and fair share of that settlement.

National Mortgage Settlement

5. On March 12, 2012, just over two years prior to the date of this Petition, five consent

judgments were filed in the United States District Court for the District of Columbia (Consent

Judgments). In the Consent Judgments, formally entered on April 5, 2012, the U.S. Department of

Justice, the U.S Department of Housing and Urban Development (HUD), other federal agencies,

and the attorneys general of 49 states entered into a landmark multi-billion-dollar settlement with

five of the countrys largest mortgage servicers. The settlement resolved federal and state claims

arising from alleged widespread mortgage servicing abuses. Chief among these alleged abusive

practices were that the defendant servicers charged excessive or improper fees for default-related

services; misrepresented or miscalculated borrowers eligibility for loan modification programs;

failed to engage in required loss-mitigation efforts to avoid foreclosure of single-family residential

mortgages; engaged in dual-tracking, or the practice of referring loans to foreclosure or scheduling

and conducting foreclosure sales during the loan modification process; and engaged in

robosigning, or the practice of executing or filing affidavits in foreclosure proceedings without

personal knowledge or any verification of the assertions in the affidavits.

6. Popularly known as the National Mortgage Settlement, the agreement was hailed by

participating government officials as a victory not only for homeowners across the nation but

specifically for those in California, which, in addition to other relief, secured a direct payment of

approximately $410 million (Direct Payment) to help fund ongoing consumer protection, housing

counseling, and foreclosure prevention efforts within the State.

7. To remediate and prevent the alleged harms underlying the settlement, the Consent

Judgments required that 90% of the Direct Payment, or approximately $369 million, be paid to the

Office of the Attorney General and placed in a Special Deposit Fund created for the express

purposes of funding consumer fraud education and enforcement operations; funding grant programs


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

for the benefit of California homeowners affected by the mortgage and foreclosure crisis; providing

further borrower relief; and engaging third parties to develop or administer any such programs or

efforts. The remaining 10% was denoted a civil penalty and paid into the States Unfair Competition

Law Fund.

8. Upon information and belief, after the Direct Payment had been received by the State of

California, by trailer legislation to the 201213 fiscal year budget, a Special Deposit Fund was

created in the California State Treasury as a repository for 90% of the Direct Payment (National

Mortgage Special Deposit Fund). The relevant portion of the trailer bill is codified at Cal. Gov.

Code 12531 (Section 12531).

9. The Direct Payment was, and still is, sorely needed, with the potential of being the

difference between home retention and foreclosure for a vast number of Californians. Shortly after

the settlement was announced, and fully consistent with its terms, the Attorney General relayed her

intention to use the Direct Payment to pay an independent monitor she hired to make sure banks

comply with the settlement, as well as to provide housing counseling, education, and outreach

services. Quoting a spokesperson for the Attorney General, the San Francisco Chronicle relayed the

Attorney Generals plan to set up an advisory committee and put out much of this money through

grants to existing organizations.

10. Respondents have blocked the Attorney Generals plans to implement the National

Mortgage Settlement as required by the Consent Judgments. Respondents drained nearly the entire

Special Deposit Fund and used the proceeds almost entirely to offset preexisting obligations and,

indirectly, to enable the funding of projects and commitments that have nothing to do with the

permissible uses of the Direct Payment or the object for which the National Mortgage Special

Deposit Fund was required to be created.

Respondents Unlawful Diversion of the Settlement Funds

11. Respondent Governor Brown proposed, and the State legislature enacted, a budget

provision that created the National Mortgage Special Deposit Fund, see Cal. Gov. Code

12531(b), and then, in direct contravention of California law governing such funds, Respondents


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

promptly diverted the entire $369 million in settlement proceeds from that special fund to the States

General Fund and used nearly all of the money instead for preexisting general obligations.

12. Under California law, money in a Special Deposit Fund may be transferred to the

States General Fund only if the transfer does not interfere with the object for which the special fund

was created and the transferred amount is repaid when feasible. Here, the special funds object was

clearly and expressly defined by the Consent Judgments themselves, which required that

$369 million of the Direct Payment be paid and deposited into a Special Deposit Fund created for

the following purposes:

[F]or the administration of the terms of this Consent Judgment; monitoring compliance with the terms of this Consent Judgment and enforcing terms of this Consent Judgment; assisting in the implementation of the relief programs and servicing standards as described in this Consent Judgment; supporting the Attorney Generals continuing investigation into misconduct in the origination, servicing, and securitization of residential mortgage loans; to fund consumer fraud education, investigation, enforcement operations, litigation, public protection and/or local consumer aid; to provide borrower relief; to fund grant programs to assist housing counselors or other legal aid agencies that represent homeowners, former homeowners, or renters in housing-related matters; to fund other matters, including grant programs, for the benefit of California homeowners affected by the mortgage/foreclosure crisis; or to engage and pay for third parties to develop or administer any of the programs or efforts described above.

(Ex. 1, at B2-3 (emphasis added).)

13. Similarly, where funds in the nature of trust funds are raised by an agency in the

exercise of its police power for a specific purpose, as occurred here, California law prohibits

permanent diversion of the funds to unintended uses.

14. In January 2012, facing a budgetary shortfall, Governor Brown proposed a 201213

fiscal year budget replete with necessary spending cuts to balance the State budget and to build a

$1.1 billion reserve. On May 14, 2012, however, shortly after the National Mortgage Settlements

consummation, Governor Brown unveiled his revised 201213 budget, this time filling part of the

budgetary hole with Californias share of settlement proceeds. The enacted budget retained the

billion-dollar reserve.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

15. As reflected in the official summary of the enacted 201213 fiscal year budget, 81% (or

$298 million) of the $369 million that should have been placed in a Special Deposit Fund went not

to its originally intended purpose, but rather to make regular payments on preexisting debtin

particular, several billion dollars worth of government bonds, issued pursuant to ballot initiatives in

2002 and 2006. Although the previously authorized bond issuances touched on housing matters, this

use ran far afield of the stated and legally required purposes of the Direct Payment. Further, no plan

to repay these diverted funds has been announced.

16. Even the remaining 19% of the $369 million was not completely used for additional

programs and services relating to foreclosure relief or the other purposes enumerated in the Consent

Judgments. Most of the remaining payments simply offset or zeroed out General Fund liabilities:

$44.9 million (12%) to the Department of Justice for programs relating to public protection and

consumer fraud enforcement, and $8.2 million (2%) to the Department of Fair Employment and

Housing to combat housing discrimination. The only part of the $369 million arguably spent

properly was $18.4 million (or just 5%) allocated to the Department of Justice to support homeowner

counseling services and the Office of the California Monitor (California Monitor) for enforcement

activities to oversee compliance with the National Mortgage Settlement.

17. As a result of these diversions, large numbers of homeowners who are eligible for loan

modifications or other relief have been left stranded, and countless fiscally imperiled California

homeowners remain unaware of the full scope of their rights. Meanwhile, HUD-approved

counseling groups and other aid organizations, which stand ready and willing to effectuate the terms

of the Consent Judgments for the benefit of homeowners statewide, remain understaffed and

underfunded.

18. This permanent diversion of the Direct Payment to offset existing general liabilities

violates the language and spirit of the Consent Judgments and runs afoul of California law governing

the use of special or trust funds. As a repository of trust and agency funds, the National Mortgage

Special Deposit Fund could not permissibly have been created as a mere conduit for general-purpose

revenues. The diversion at issue thwarted that Funds clear, obvious, and prospective objective of

remediating and preventing ongoing mortgage- and foreclosure-related harms. Indeed, under the


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

guise of a budgetary maneuver, Respondents have effectively abolished the National Mortgage

Special Deposit Fund altogether.

19. In further direct contravention of California law, Respondents budgetary maneuver

usurped the Attorney Generals well-established authority to bind the State within the confines of

litigation and to implement court-ordered settlements according to their express terms.

Reaction to the Unlawful Diversion of Settlement Funds

20. Reaction to the Governors plan to divert the vast majority of Californias National

Mortgage Settlement Direct Payment to unauthorized uses was swift, loud, and bipartisan.

21. On May 14, 2012, the same day the impending diversion of funds appeared in the

Governors revised budget summary, the Attorney General immediately sounded the alarm.

Specifically, she cited the States obligations to Californias homeowners under the National

Mortgage Settlement, reiterated the Direct Payments express purpose to get homeowners the

expert help they need to keep their homes, and noted that the Governors actions would redirect

$410 million from the states homeowners to other budget purposes. The Attorney General stated,

these funds should be used to help Californians stay in their homes. (See Ex. 2 for the full

statement.)

22. The California Senate Republican Caucus concurred. In a May 18, 2012 report,

affixing the label National Mortgage Settlement Rip-off to both the proposed use of the Direct

Payment and the Department of Finances expenditure accounting, that body concluded: Given the

apparently tenuous nexus between the settlement documents and the proposed use of funds, it would

be appropriate to institute a little bit of transparency for this issue.

23. These criticisms have been ignored by Respondents. Upon information and belief, no

provision to date has been made to repay the vast majority of the expropriated funds, and there is no

indication that any of the money will be returned to the National Mortgage Special Deposit Fund for

its intended uses.

The Foreclosure Crisis Continues in California

24. Notwithstanding the National Mortgage Settlement, California remains awash in

underwater mortgages (meaning the balance owed exceeds the homes current value), struggling


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

borrowers, and alleged mortgage-servicer malfeasance. A December 2013 State Department of

Justice press release announcing an unrelated mortgage servicing settlement quoted the Attorney

General as saying, [O]ur work isnt done. Too many California families are still coping with

uncooperative banks and mortgage service providers. My office will continue to fight on their

behalf.

25. A federal report issued that same month by the independent monitor appointed to

oversee compliance with the National Mortgage Settlement revealed that three of the five

participating loan servicers had failed to comply with certain servicing standards imposed by the

Consent Judgments. Another state has initiated a federal court action against one of the participating

servicers for violating the National Mortgage Settlement.

26. Homeowners trying to avert foreclosure are confronting problems from the specialized

loan-servicing companiesnon-parties to the National Mortgage Settlementthat have since

acquired mortgage payment rights in increasing numbers. As the New York Times reported on

February 18, 2014:

Shoddy paperwork, erroneous fees and wrongful evictions the same abuses that dogged the nations largest banks and led to a $26 billion settlement with federal authorities in 2012 are now cropping up among the specialty firms that collect mortgage payments, according to dozens of foreclosure lawsuits and interviews with borrowers, federal and state regulators and housing lawyers. . . . .

Katherine Porter, who was appointed by the California attorney general to oversee the national mortgage settlement, says complaints about mortgage transfers have surged, adding that the servicing companies have overpromised and underdelivered. Her office alone has received more than 300 complaints about servicing companies in the last year.

27. Reports issued by the California Monitor and other entities reveal that, while the

condition of Californias housing market has improved since entry of the National Mortgage

Settlement, as seen in decreasing delinquency and foreclosure rates, the States homeowners are not

receiving all the relief they need. As of September 2013, according to published reports, nearly one

in eight California home mortgages remained underwater. Moreover, as reported by the California

Monitor, in Sacramento Countyone of the counties hardest hit by the mortgage and foreclosure


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

crisisone in five home mortgages was underwater as of June 2013. And as reflected in the

California Monitors most recent report, communication problems continue to hamper relations

between borrowers and servicers.

28. Shortly after announcement of the challenged diversion, an Associate Director with the

California Reinvestment Coalition, a non-profit group that advocates for low-income and minority

communities, publicly observed: We are at a time when the demand for counseling agencies and

legal services is at its highest, but unfortunately the capacity to help those who need it is diminished.

A lot of agencies have had to shift funds away from foreclosure prevention because the funds arent

there.

29. As quoted in a State Department of Justice press release, the California Monitor has

separately noted the invaluable work being done by community-based organizations in working

with homeowners up-and-down California to keep struggling families on their feet and to remedy

and prevent foreclosure-related harms.

The Projected Budget Surplus

30. Although the initial unlawful diversion was purportedly executed to contend with a

budgetary shortfall, the State of California now envisions a significant budget surplus. Indeed, that

surplus is estimated to reach $2.4 billion by June 2014 and $5.6 billion by the end of the 201415

fiscal year. Rather than comport with the pertinent California law and use a small fraction of this

significant surplus to replenish moneys unlawfully diverted from the National Mortgage Special

Deposit Fund, the Governor has instead relayed an intention to reserve at least $1.6 billion of the

surplus for a rainy day, notwithstanding the torrent of potentially preventable foreclosures that

continue to injure California homeowners.

31. Respondents actions at once violate Californias Constitution, statutes, and case law.

Accordingly, Petitioners respectfully request, among other relief, a writ of mandate directing

Respondents immediately to replenish amounts wrongfully diverted from and through the National

Mortgage Special Deposit Fund and an order prohibiting Respondents from engaging in future

unlawful diversions of Californias National Mortgage Settlement Direct Payment.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

PARTIES

32. Petitioner National Asian American Coalition (NAAC) is a California-based, Section

501(c)(3) non-profit organization that focuses on financial literacy and homeowners rights. A

HUD-approved counseling organization, NAAC serves the greater metropolitan Sacramento area,

among others. With the aid of public grants, through its Housing Counseling Program, NAAC has

helped more than 6,000 homeowners to avoid foreclosures and evictions, achieving a loan

modification success rate of approximately 50%. NAAC also has assisted hundreds of homeowners

in obtaining settlements via independent foreclosure review. NAAC currently aids numerous

homeowners across California in their efforts to secure loan modifications, to undo account errors, or

to obtain other relief to thwart potential or imminent foreclosure and eviction. NAAC thus possesses

a beneficial interest in the return of funds meant for housing counseling and foreclosure relief that

are being spent instead on general expenditures and, accordingly, brings this Petition on its own

behalf and that of its California constituents.

33. Petitioner COR Community Development Corporation (COR CDC) is a

California-based, Section 501(c)(3) non-profit organization, affiliated with Christ Our Redeemer

African Methodist Episcopal Church. COR CDC is committed to empowering impoverished

communities by providing services in the areas of education, financial literacy, affordable housing,

and civic engagement. Based in Orange County, COR CDC provides such services in part through

its network of approximately 85 affiliated churches in California. Partnering with local government,

COR CDC has launched an Affordable Housing Initiative with the goal of creating affordable and

stable housing for low and moderate-income households. COR CDC has the intent and

infrastructure in place to provide additional counseling programs to benefit the many California

homeowners affected by the mortgage and foreclosure crisis and to train third parties to provide such

counseling on a community level. COR CDC thus possesses a beneficial interest in the return of

funds meant for housing counseling and foreclosure relief that are being spent instead on general

expenditures and, accordingly, brings this Petition on its own behalf and that of its California

constituents.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

34. Petitioner National Hispanic Christian Leadership Conference (NHCLC) is a

Sacramento-based, Section 501(c)(3) organization that provides leadership, networking, fellowship,

strategic partnerships, and public policy advocacy platforms in the areas of immigrant rights and

justice, among others. NHCLC is the largest Latino Christian organization in America, with more

than 40,000 affiliated churchesincluding approximately 1,500 in Californiaand 6 million

members overall. Facing increasing reports of congregants problems with credit and foreclosures,

NHCLC has the intent and infrastructure in place to provide counseling programs to benefit the

many California homeowners affected by the mortgage and foreclosure crisis and to train third

parties to provide such counseling on a community level. NHCLC thus possesses a beneficial

interest in the return of funds meant for housing counseling and foreclosure relief that are being

spent instead on general expenditures and, accordingly, brings this Petition on its own behalf and

that of its California constituents.

35. Nominal respondent the National Mortgage Special Deposit Fund was supposed to be

the exclusive repository of the $410 million Direct Payment made to California pursuant to the

National Mortgage Settlement, less the 10% denoted a civil penalty and deposited in the Unfair

Competition Law Fund as required by the Consent Judgments. See Cal. Gov. Code 12531(c).

36. Respondent Edmund Gerald Jerry Brown is Governor of the State of California. The

Governor is the elected officer who bears the Constitutional responsibility to see that the law is

faithfully executed. Cal. Const. art. 5, 1. The Governor is vested by State law with ultimate

authority over Californias budget. By January of each year, the Governor releases a proposed

spending plan to Californias legislature and later signs the enacted budget and any trailer bills into

law, which includes the power to reduce or eliminate individual appropriations. The Governor also

possess authority to direct transfers of money from Special Deposit Funds to the States General

Fund under restrictions imposed by law.

37. Respondent Michael Cohen is Director of Finance for the State of California. The

Director of Finance is a public official, appointed by the Governor to head the Department of

Finance, with power to supervise all aspects of State financial policy. The Department of Finance

analyzes the yearly budget and prepares a balanced expenditure plan for the Governors approval.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

After its enactment, the Department of Finance administers and oversees the States budget on an

ongoing basis. Relevant here, Section 12531 purportedly empowered the Director of Finance to use

moneys in the National Mortgage Special Deposit Fund to offset General Fund obligations during

the 201112, 201213, and 201314 fiscal years upon submission of an expenditure plan to the Joint

Legislative Budget Committee. See Cal. Gov. Code 12531(e)(f).

38. Respondent John Chiang is the Controller of the State of California. The Controller is

the Constitutional officer with authority to superintend the States fiscal affairs. In addition to

accounting for appropriations and disbursing State funds, the Controller implements inter-fund

transfers at the Governors direction.

PETITIONERS STANDING

39. The services provided by Petitioners, including but not limited to those described in

paragraphs 32 through 34, are precisely the types of services to which the Direct Payment should

have been dedicated, as expressly required by the Consent Judgments. (See Ex. 1, at B2-3.)

Specifically, Petitioner NAAC is a HUD-approved housing counselor that has worked, and continues

to work, with California homeowners, former homeowners, or renters in housing-related matters;

that aids borrowers in securing relief such as mortgage-loan modifications; and that otherwise

provides services to homeowners affected by the mortgage and foreclosure crisis. In addition,

Petitioners COR CDC and NHCLC have the infrastructure in place and the intent to develop or

administer programs to assist Californians in matters relating to housing and foreclosure, either alone

or in combination with other organizations, including through their networks of affiliated churches.

40. Thus, Petitioners and their constituents are beneficially interested in the return of

diverted National Mortgage Settlement proceeds.

41. Further, because this matter involves non-performance of a public duty and

enforcement of a right belonging to the public generally, Petitioners have standing to litigate in the

public interest.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

JURSIDICTION AND VENUE

42. The Court has jurisdiction over this Petition and authority to issue a writ of mandate

under Code of Civil Procedure Section 1085. The Court has authority to issue declaratory relief

pursuant to Code of Civil Procedure Section 1060 and Government Code Section 11350.

43. Venue is proper under Code of Civil Procedure Section 393 in that a part of the claim

against Respondents arose in the County of Sacramento.

44. Venue is also proper under Code of Civil Procedure Section 395 in that Respondent

Governor Brown resides in the County of Sacramento.

45. As described more fully herein, Respondents have breached mandatory duties imposed

by California law (a) not to divert special or trust funds in the States possession to meet general

expenditures without provision for the funds return, (b) not to divert moneys from a special fund to

meet general expenditures in a manner that interferes with the carrying out of the special funds

object, and (c) to return all moneys so diverted from a special fund as soon as there are sufficient

amounts in the General Fund to return them. Respondents are therefore liable in their official

capacities for injury caused by the failure to discharge these duties.

46. As further alleged herein, Petitioners do not have a plain, speedy, and adequate remedy

in the ordinary course of law.

FACTUAL ALLEGATIONS

General Allegations

A. The National Mortgage Settlement

47. On February 9, 2012, the federal government announced that it and 49 states had

reached an historic settlement with five of the nations largest bank mortgage servicers to address

alleged widespread mortgage servicing, foreclosure, and bankruptcy abuses. The United States

District Court for the District of Columbia approved the settlement on April 4, 2012, via Consent

Judgments entered against each defendant one day later in United States v. Bank of America,

No. 1:12-cv-00361-RMC (D.D.C.). This settlement has come to be known as the National Mortgage

Settlement.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

48. Among the allegations underlying the National Mortgage Settlement were that the

defendant banks systematically charged excessive or improper fees for default-related services;

misrepresented or miscalculated borrowers eligibility for loan modification programs; failed to

engage in required loss-mitigation efforts to avoid foreclosure of single-family residential

mortgages; engaged in dual-tracking, or the practice of referring loans to foreclosure or scheduling

and conducting foreclosure sales during the loan modification process; and engaged in

robosigning, or the practice of executing or filing affidavits in foreclosure proceedings without

personal knowledge or any verification of the assertions in the affidavits.

49. In addition to non-monetary remedies, the National Mortgage Settlement promised

approximately $25 billion worth of monetary relief to borrowers and federal and state agencies. Of

this total, $20 billion was required to fund various forms of relief for homeowners, including at least

$10 billion for principal reduction for delinquent or about-to-default underwater borrowers; at least

$3 billion dedicated to a refinancing program for current but underwater borrowers; and up to

$7 billion for other types of relief, including forbearance of principal for unemployed borrowers,

short sales, and transitional assistance. A separate $1.5 billion Borrower Payment Fund was created

to provide cash payments to persons whose homes were sold or taken in foreclosure between 2008

and 2011. As the largest state to take part in the National Mortgage Settlement, California secured

the largest share of settlement funds.

50. In addition to the relief described in paragraph 49, the federal government and states

received a total of approximately $3.4 billion in direct payments under the National Mortgage

Settlement to be used for, in the cases of individual states, purposes determined by state attorneys

general and explicitly set forth in the Consent Judgments.

51. Such designated uses of the direct payments to the states are recited in Exhibit B2 of

the Consent Judgments. Upon information and belief, the California Attorney General so designated

the uses of Californias $410 million Direct Payment.

52. Per the Attorney Generals instruction, the Consent Judgments required that 10% of the

Direct Payment, or approximately $41 million, be paid as a civil penalty into the Unfair Competition


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Law Fund. The Consent Judgments further required that the remaining $369 million be paid and

deposited into a Special Deposit Fund created for the purposes listed in paragraph 12.

53. Critically, nowhere do the Consent Judgments authorize use of any part of the Direct

Payment to California for purposes other than those listed, including to offset general expenditures.

B. Receipt of the Direct Payment by California

54. The Consent Judgments required the settling defendants to pay a Direct Payment

Settlement Amountincluding the direct payments to the individual statesinto an interest

bearing escrow account, which sum shall be distributed in the manner and for the purposes

specified in Exhibit B of the Consent Judgments. (Ex. 1, at 3.) The identified purposes include

those designated by the Attorney General and quoted in paragraph 12.

55. The Direct Payment Settlement Amountincluding the direct payments to individual

stateswas required to be paid into escrow no later than seven days after the Effective Date of

[each] Consent Judgment. (Ex. 1, at 3.) After these payments were made, the defendant loan

servicers relinquished all property right, title, interest or other legal claim in any funds held in

escrow. (Id.)

56. Upon information and belief, the Direct Payment Settlement Amount in fact was paid

into escrow within seven days of April 5, 2012, the date of entry of the Consent Judgments.

57. Per the Consent Judgments, the escrow agent was to distribute the direct payment to

each state in cash, [i]n accordance with written instructions from each State Attorney General.

(Id. at B-2.)

58. In addition, per the Consent Judgments, the Direct Payment to California was to be

made to the California Attorney Generals Office. (Id. at B2-3.)

59. Upon information and belief, the Direct Payment in fact was made to the Attorney

Generals Office in accordance with written instructions from the Attorney General, sometime

between April 5, 2012, the date of entry of the Consent Judgments, and June 27, 2012, the date of

enactment of Section 12531.

C. Funds Within the California State Treasury

60. Californias State Treasury maintains different funds or accounts.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

61. The General Fund consists of money received into the Treasury and not required by law

to be credited to any other fund. The General Fund is primarily sourced from personal and corporate

income taxes, property and sales taxes, and excise taxes. General Fund revenues are the main source

of State funding for programs and services and are not restricted to a particular purpose. See

generally Cal. Gov. Code 16300.

62. The Special Deposit Fund consists of money which is paid into it in trust pursuant to

law. The fund is appropriated to fulfill the purposes for which payments into it are made.

Cal. Gov. Code 16370. Trust funds which have come into the possession of any agency of the

State may be paid into the Special Deposit Fund in trust, subject to the right of recovery to fulfill the

purposes of the trust. Id. 16371. Whenever any law provides for the payment of money into the

treasury which has been collected or received for specific purposes by any State agency, and no fund

has been created in the treasury to which it is to be credited, the money shall be credited to the

Special Deposit Fund, and shall be held subject to the right of the State agency to recover it, on

claims properly presented, for fulfilling the purposes for which the money was collected or

received. Id. 16372.

63. Upon information and belief, in addition to the Special Deposit Fund described in

paragraph 62, Special Deposit Funds may be created by operation of law, including by statute.

These special funds also are used to budget and account for moneys that have been collected or

received for specific purposes by any State agency. In many cases, such funds are continuously

appropriated for specific agency purposes and are excluded from the general appropriations process.

D. Receipt of the Direct Payment by California

64. Upon information and belief, by the time of Section 12531s enactment in June 2012,

the Direct Payment was already in the Attorney Generals legal possession. This is because once the

settlement money was paid into escrow in April 2012, as required by the Consent Judgments, the

defendant loan servicers relinquished all property right, title, interest or other legal claim to the funds

held in escrow. In maintaining custody of the Direct Payment, in turn, the escrow agent acted as

sole agent to the Attorney General, who possessed unfettered ability to cause the funds distribution

to the Attorney Generals Office by written instruction.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

65. Upon information and belief, by the time of Section 12531s enactment, the Direct

Payment was not only in the Attorney Generals legal possession, but it was also in the Attorney

Generals actual possession. Upon information and belief, the funds in fact were distributed to the

Attorney Generals Office in accordance with written instructions from the Attorney General

sometime between April 5, 2012, the date of entry of the Consent Judgments, and June 27, 2012, the

date of enactment of Section 12531.

66. Upon information and belief, upon payment of the Direct Payment funds into escrow

for transmission to the Attorney General, they were, or should have been, deposited into the Special

Deposit Fund. As a result, and as discussed further in paragraph 62, the payment was required to be

held in trust, subject to the right of recovery to fulfill the purposes of the trust, and subject to the

right of the [Attorney General] to recover it, on claims properly presented, for fulfilling the purposes

for which the money was collected or received. Cal. Gov. Code 1637172. Accordingly, the

Direct Payment could not be permanently diverted by the Governor, the State legislature, or any

other State actor.

E. The National Mortgage Special Deposit Fund

67. Approved on June 27, 2012, Section 12 of Senate Bill 1006, trailer legislation to the

201213 fiscal year budget, created the National Mortgage Special Deposit Fund in the State

Treasury, with all moneys in the fund [to be] continuously appropriated. Cal. Gov. Code.

12531(b).

68. The statute creating the National Mortgage Special Deposit Fund begins, The

legislature finds and declares that California, represented by the California Attorney General, entered

a national multistate settlement with the countrys five largest loan servicers. Id. 12531(a). It

then expressly references the Consent Judgments and mentions Californias $410 million Direct

Payment pursuant to the National Mortgage Settlement. See id.

69. The same legislation provides that, less the 10% of the $410 million payment denoted a

civil penalty to be deposited in the Unfair Competition Law Fund, [d]irect payments made to the

State of California pursuant to the National Mortgage Settlement . . . shall be deposited in the

National Mortgage Special Deposit Fund. Id. 12531(d).


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

70. Section 12531 further states that moneys in the National Mortgage Special Deposit

Fund shall be allocated by the Department of Finance, id. 12531(b), and provides that,

[n]otwithstanding any other law, the Director of Finance may allocate or otherwise use the funds in

the National Mortgage Special Deposit Fund to offset General Fund expenditures in the 201112,

201213, and 201314 fiscal years, id. 12531(e).

71. Although the provisions legislative summary recites that Section 12531 authorize[s]

the Director of Finance to allocate moneys from the [National Mortgage Special Deposit Fund] to

offset General Fund expenditures during the 201112, 201213, and 201314 fiscal years for

purposes consistent with the National Mortgage Settlement, S.B. 1006, Legislative Counsels

Digest, 12 (emphasis added), the text of the bill itself contains no such express condition.

72. Section 12531 requires the Department of Finance in advance of any intended transfer

to submit an expenditure plan to the Joint Legislative Budget Committee detailing the proposed use

of the moneys in the National Mortgage Special Deposit Fund. Cal. Gov. Code. 12531(f).

F. Use of the National Mortgage Special Deposit Fund Proceeds

73. As reflected in the official summary of the enacted 201213 fiscal year budget,

Respondents allocated the overwhelming majority of proceeds in the National Mortgage Special

Deposit Fund to offset general expenditures in a manner incompatible with the language and purpose

of the Consent Judgments and the stated intention of the Attorney General. The distribution of these

funds is described in paragraphs 15 and 16.

74. Upon information and belief, with the exception of the $18.4 million allocated to the

Department of Justice to support homeowner counseling services and the Office of the California

Monitor, most if not all of the expenditures identified in paragraphs 15 and 16 used diverted moneys

from the Direct Payment to offset or zero out existing General Fund liabilities, rather than to fund

additional programs or services as expressly provided for by the Consent Judgments.

G. Treatment of National Mortgage Special Deposit Fund Offsets

75. Approved on June 27, 2012, Assembly Bill 1464, the appropriations bill relating to the

201213 fiscal year budget, lists a $100 million transfer by the Controller, upon order of the

Director of Finance, from the National Mortgage Special Deposit Fund to the General Fund. An


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

accompanying passage describes [t]he amount transferred in this item [a]s a loan to the General

Fund [to] be repaid upon the order of the Director of Finance by June 30, 2014, to be used to

reimburse the General Fund for purposes consistent with the National Mortgage Settlement.

76. Upon information and belief, no other legislation reflects a loan in any amount from the

National Mortgage Special Deposit Fund to the General Fund.

77. A Department of Finance report entitled Outstanding Budgetary Loans Made to the

General Fund, dated January 31, 2014, identifies a $100 million Outstanding Loan Balance for the

National Mortgage Special Deposit Fund as of December 31, 2013, with a Projected Loan

Repayment Date of 201314.

78. Upon information and belief, the Governors Proposed Budget Summary for 201415

identifies no retransfer of money to the National Mortgage Special Deposit Fund as occurring in

either the 201314 or the 201415 fiscal year.

Respondents Permanently Diverted Trust Funds

79. Petitioners incorporate by reference the allegations in paragraphs 1 through 78 above.

80. The National Mortgage Special Deposit Fund is both a special fund within the meaning

of California statutes restricting inter-fund transfers, see Cal. Gov. Code 16310(a), 16382, and a

repository of trust funds.

81. Recognizing the National Mortgage Special Deposit Funds trust fund status, the

Department of Finance classifies the National Mortgage Special Deposit Funds contents as

Fiduciary Funds/Agency Funds, and designates the Funds Classification/Legal Basis as

Nongovernmental/Trust and Agency Funds-Non-Federal. (Ex. 3.) Noting the continuously

appropriated nature of the National Mortgage Special Deposit Fund, the Department of Finance

concludes that [r]evenues in this fund are not proceeds of taxes and even after transfer, will never

become proceeds of taxes because the major revenue source is derived from a Trust and Agency

fund. (Id.)

82. Additionally, proceeds in the National Mortgage Special Deposit Fund are in the nature

of trust funds under the common law definition. The Funds proceeds were raised in the exercise of

the States police power for a particular purposei.e., that of providing borrower relief and


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

counseling in the manner recited in the Consent Judgmentsand are permanently set apart for that

purpose in a continuously appropriated Special Deposit Fund.

83. Except for the 10% expressly designated a civil penalty and deposited in the Unfair

Competition Law Fund as required by the Consent Judgments, the Direct Payment pursuant to the

National Mortgage Settlement is not now, and has never been, a civil penalty.

84. Putatively under authority of Section 12531, Respondents diverted nearly the entire

Direct Payment to California (less the 10% denoted a civil penalty and deposited in the Unfair

Competition Law Fund) and used those funds permanently to offset general expenditures, as

described in paragraphs 15 and 16.

85. Upon information and belief, as described in paragraphs 64 and 65, the diverted funds

at the time of transfer were trust funds in the Attorney Generals legal and actual possession.

86. In providing for treatment of a $100 million transfer from the National Mortgage

Special Deposit Fund to the General Fund as a loan to the General Fund, the 201213 fiscal year

appropriations bill implies that Direct Payment proceeds in fact are special or trust funds, not

available for general purposes and therefore fully subject to the usual restrictions on transfer.

87. Upon information and belief, Respondents do not intend to make the $100 million

repayment in either the 201314 or the 201415 fiscal year.

88. Further, even if repaid, there is no indication that this $100 million loan will be used

for the purposes recited in the Consent Judgments. Rather, every available indication is that this

$100 million, like the other amounts diverted from the National Mortgage Special Deposit Fund, will

be used to offset general expenditures, as described in paragraphs 15 and 16, with no provision for

actual repayment.

89. A July 2012 report issued by the California Budget Project, a non-profit organization

that engages in fiscal policy and analysis, states that Californias 201213 budget agreement uses

$392 million in proceeds from the recent National Mortgage Settlement to offset an equivalent

amount of General Fund spending in 201112, 201213, and 201415. If that is true, then the

$100 million loan to the General Fund no more than stows that amount away until Respondents


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

use it to offset general expenditures for the 201415 fiscal year, further depriving the National

Mortgage Special Deposit Fund and deserving California homeowners alike.

The Diversion Thwarted the Object of a Special Fund


91. The Consent Judgments required that 90% of the Direct Payment (approximately $369

million) be paid and deposited into a Special Deposit Fund created for the . . . purposes recited in

Exhibit B2 of the Consent Judgments and quoted in paragraph 12.

92. Upon information and belief, $369 million in fact was paid and deposited into the

National Mortgage Special Deposit Fund pursuant to Section 12531 before being diverted to the

General Fund, almost completely for unauthorized purposes. Section 12531 provides that 90% of

the Direct Payment shall be deposited in the National Mortgage Special Deposit Fund. Cal. Gov.

Code 12531(d) (emphasis added). It further provides that the Director of Finance may allocate or

otherwise use the funds in the National Mortgage Special Deposit Fund to offset General Fund

expenditures in the 201112, 201213, and 201314 fiscal years. Id. 12531(e) (emphasis added).

Similarly, it provides that all moneys in the fund . . . shall be allocated by the Department of

Finance. Id. 12531(b) (emphasis added).

93. The statement of purpose for the Special Deposit Fund in the Consent Judgments,

which Section 12531 incorporates by reference, see Cal. Gov. Code 12531(a), reflects that Funds

actual and intended purpose.

94. Respondents diversion of the Direct Payment to offset general liabilities almost

completely unrelated to the stated goals of the Special Deposit Fund provided for in the Consent

Judgments violates those documents language and spirit and, in so doing, thwarts the National

Mortgage Special Deposit Funds objective and prospective purpose of remediating and preventing

ongoing mortgage- and foreclosure-related harms.

95. Even assuming that special funds may be earmarked for a particular general purpose,

allocating $298 million of the Direct Payment to debt service on State-issued bonds defied the object

of the National Mortgage Special Deposit Fund.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

96. By contrast, only a small fraction (5%) of the National Mortgage Special Deposit Fund

proceeds, or $18.4 million, has been allocated to an arguably intended use. As a result, untold

numbers of homeowners who are eligible for loan modifications or other relief have been left

stranded, and countless fiscally imperiled California homeowners remain unaware of the full scope

of their rights. Meanwhile, HUD-approved counseling groups and other aid organizations, which

stand ready and willing to effectuate the terms of the Consent Judgments for the benefit of

homeowners Statewide, remain understaffed and underfunded.

97. The transfer of nearly all of the National Mortgage Special Deposit Funds contents to

meet general obligations thus interfered with the object for which the Fund was created and left the

Fund unable to function according to the terms of the Consent Judgments and the intention of the

Attorney General.

The Diversion Impinges on the Attorney Generals Settlement Authority


99. The Attorney General is the Constitutional officer in California who shall be the chief

law officer of the State. Cal. Const. art. 5, 13. The Attorney General is in charge of all legal

matters in which the State is interested. In the absence of prior legislative restriction, the Attorney

General has the power to file any civil action deemed necessary for the enforcement of the laws of

the State and the protection of public rights and interests.

100. Absent indication of a conflict as determined by the Governor or Attorney General

during the pendency of litigation, the Attorney General has authority to bind the State and the People

of California to statements made and positions taken in the course of litigating on their behalf.

101. The Attorney General has authority to settle lawsuits brought on behalf of the State.

102. The Attorney General represented the State of California in negotiating the National

Mortgage Settlement, and her office co-signed the Consent Judgments as agent of the State

empowered to conduct litigation on its behalf and as representative of the People of California.

103. The Attorney General acted within the scope of her constitutional and statutory

authority in negotiating and entering into the National Mortgage Settlement.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

104. Upon information and belief, in accordance with the Consent Judgments express

directive, the Attorney General designated the uses of Californias $410 million Direct Payment

pursuant to the National Mortgage Settlement, as recited in Exhibit B2 of the Consent Judgments

and quoted in paragraph 12.

105. Consistent with the recited purposes, shortly after the settlement was announced, the

Attorney General relayed her intention to use the Direct Payment to pay for an independent monitor

to ensure compliance with the settlement, as well as for housing counseling, education, and outreach

programs, funded through grants to existing organizations.

106. Section 12531 purportedly allows the Direct Payment to be used for purposes other

than those for which the signatories to the settlement, including the Attorney General, agreed and

intended. In fact, Section 12531 would seem to permit the Director of Finance to allocate the Direct

Payment for any purpose, once deposited in the National Mortgage Special Deposit Fund.

107. By permitting the Director of Finance to allocate the moneys in National Mortgage

Special Deposit Fund [n]otwithstanding any other law, Section 12531(e) effectively allows the

Director of Finance unilaterally to amend the terms of the court-ordered Consent Judgments. This is

a grant of authority that the Department of Finance does not otherwise possess and one that usurps

the Attorney Generals authority and control over litigation.

The Diversion Abolishes a Special Fund Through General Appropriations


109. As dictated by statute, and as recognized by the Department of Finance, the National

Mortgage Special Deposit Fund is a continuously appropriated fund. In its Glossary of Budget

Terms, the Department of Finance defines a continuous appropriation as an amount available each

year, which may consist of all or a specified portion of the proceeds of specified revenues that have

been dedicated permanently to a certain purpose, under a permanent constitutional or statutory

expenditure authorization which exists from year to year without further legislative action.

110. Despite the National Mortgage Special Deposit Funds continuous appropriation, upon

information and belief, the Governor and Director of Finance submitted the challenged diversions of


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

National Mortgage Special Deposit Fund moneys for further legislative approval as part of the

201213 budget package.

111. No specific provision of Section 12531 requires that moneys in the National Mortgage

Special Deposit Fund be transferred to the General Fund. Under Section 12531, the Director of

Finance may allocate or otherwise use the funds in the National Mortgage Special Deposit Fund to

offset General Fund expenditures in any of three consecutive fiscal years, but is not required to do

so. Cal. Gov. Code 12531(e) (emphasis added).

112. By diverting nearly all of the National Mortgage Special Deposit Funds contents to the

General Fund with no provision for full repayment, Respondents have effectively abolished the

National Mortgage Special Deposit Fund.

Retransfer of the Diverted Sum is Feasible


114. Upon information and belief, the Governors proposed 201415 budget summary

identifies no retransfer to the National Mortgage Special Deposit Fund during either the 201314 or

the 201415 fiscal year.

115. Upon information and belief, California will have a budgetary surplus of $2.4 billion by

June 2014. The States reserves are predicted to reach $5.6 billion by the end of the 201415 fiscal

year and almost $10 billion by June 2018.

116. The Governor has publicly declared an intent to place $1.6 billion of the 201415 fiscal

year surplus into a rainy day fund.

117. Consequently, the General Fund is not exhausted and the return of up to $350 million to

the National Mortgage Special Deposit Fund is feasible.

Other Remedies are Unavailable

118. Petitioner NAAC has twice demanded the return of all unlawfully diverted National

Mortgage Settlement proceeds, to no avail.

119. On November 27, 2013, NAACs President & Chief Executive Officer wrote a letter to

Governor Brown urging him, in light of the States improved fiscal condition, to take the required

steps promptly to return the diverted money. (Ex. 4.) That request was ignored.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

120. On December 5, 2013, NAACs President & Chief Executive Officer again wrote to

Governor Brown, this time requesting a meeting with the Governor and his senior staff and

conveying a desire to resolve the matter without legal action. (Ex. 5.) That request, too, was

ignored.

121. Thus, there is no plain, speedy, or adequate remedy in the ordinary course of law as to

any of the claims asserted herein.

FIRST CAUSE OF ACTION

(Writ of Mandate, Code of Civil Procedure 1085; Injunction:

Permanent Diversion of Trust Funds)


123. Respondents are responsible for implementing the transfers of funds described herein.

124. California law prohibits the outright diversion of special or trust funds raised for a

specific agency purpose to meet general expenditures with no provision for the funds return.

125. Respondents thus had a mandatory duty not to engage in the outright diversion of

special or trust funds raised for a specific agency purpose to meet general expenditures with no

provision for the funds return.

126. Upon its payment into escrow and receipt by the Attorney Generals Office, the Direct

Payment to California pursuant to the National Mortgage Settlement became a trust fund within the

States possession.

127. By permanently diverting nearly all of the Direct Payment to meet general

expenditures, Respondents breached the mandatory duty described in paragraph 125.

128. Accordingly, Petitioners seek a writ of mandate directing Respondents immediately to

refund all unlawfully diverted moneys for payment into a Special Deposit Fund created for the

purposes expressed in Exhibit B2 of the Consent Judgments and quoted in paragraph 12.

129. Additionally, Petitioners seek an order enjoining Respondents from the future unlawful

diversion of funds received by California pursuant to the National Mortgage Settlement.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

SECOND CAUSE OF ACTION


Interference with Special Fund Object)


131. Respondents are responsible for implementing the transfers from the National

Mortgage Special Deposit Fund to the General Fund described herein.

132. Although California law allows the Governor and Controller to direct the transfer of

moneys not needed in other funds to the General Fund when the General Fund is or will be

exhausted, it does not authorize any transfer that will interfere with the object for which a special

fund was created. Cal. Gov. Code 16310(a); accord id. 16382.

133. Respondents thus had a mandatory duty not to transfer moneys from the National

Mortgage Special Deposit Fund to the General Fund in a manner that interfered with the object for

which the National Mortgage Special Deposit Fund was created.

134. By diverting nearly all of the National Mortgage Special Deposit Funds contents to

unauthorized uses, Respondents breached the mandatory duty described in paragraph 133.


refund all moneys unlawfully diverted from the National Mortgage Special Deposit Fund.


diversion of moneys in the National Mortgage Special Deposit Fund.

THIRD CAUSE OF ACTION


Single-Subject Rule)




139. Respondents are also responsible for proposing and implementing the budget

legislation described herein.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

140. Per the State Constitution, [a] statute shall embrace but one subject, which shall be

expressed in its title. Cal. Const. art. IV, 9. If a statute embraces a subject not expressed in its

title, then the part not expressed is void. Id.

141. This Constitutional provision not only requires all aspects of budgetary enactments to

be germane to the subject of appropriations, but it further prohibits budgetary measures that amend

existing substantive law or that expand or restrict the substantive authority of any state agency.

142. Masquerading as part of a budget bill, Section 12531 purports to amend court-ordered

Consent Judgments. It also expands the power of the Department of Finance over litigation

undertaken on behalf of the State and the People of California and correspondingly restricts the

substantive authority of the Office of the Attorney General.

143. Respondents have no discretion to engage in cross-fund appropriations that violate

Californias Constitution.


refund all unlawfully diverted moneys for payment into a Special Deposit Fund created for the

purposes expressed in Exhibit B2 of the Consent Judgments and quoted in paragraph 12.

145. Additionally, Petitioners seek an order enjoining Respondents from taking any further

action under Section 12531(e) of the California Government Code.

FOURTH CAUSE OF ACTION

(Declaratory Judgment, Code of Civil Procedure 1060: Single-Subject Rule)






149. Per the State Constitution, [a] statute shall embrace but one subject, which shall be

expressed in its title. Cal. Const. art. IV, 9. If a statute embraces a subject not expressed in its

title, then the part not expressed is void. Id.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

150. This Constitutional provision not only requires all aspects of budgetary enactments to

be germane to the subject of appropriations, but it further prohibits budgetary measures that amend

existing substantive law or that expand or restrict the substantive authority of any state agency.

151. Masquerading as part of a budget bill, Section 12531 purports to amend court-ordered

Consent Judgments. It also expands the power of the Department of Finance over litigation

undertaken on behalf of the State and the People of California and correspondingly restricts the

substantive authority of the Office of the Attorney General.

152. An actual controversy exists between Petitioners and Respondents concerning

Respondents permanent diversion of special or trust funds within the States possession to

unintended uses.

153. Accordingly, Petitioners seek a judicial determination that the offsets at issue violate

Article IV, Section 9 of Californias Constitution.

154. Alternatively, to avoid a constitutional violation, Petitioners seek a judicial

determination that the purported offsets are temporary inter-fund loans, subject to the usual

restrictions on such transfers, which demand that the transferred funds be immediately repaid.

FIFTH CAUSE OF ACTION

(Declaratory Judgment, Code of Civil Procedure 1060: Special Fund Abolishment)






158. Section 12531 is internally inconsistent. It permanently sets aside 90% of the Direct

Payment in the National Mortgage Special Deposit Fund by continuous appropriation as dedicated to

a certain purpose, while purportedly granting permission to the Department of Finance to use the

National Mortgage Special Deposit Funds entire contents for general purposes.

159. The legislature could not logically have intended simultaneously to create a

continuously appropriated Special Deposit Fund (pursuant to the Consent Judgments) and to


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

facilitate its implied repeal through the diversion of its contents via general budgetary

appropriations.

160. Thus, the provision of Section 12531 creating the National Mortgage Special Deposit

Fund as a continuously appropriated fund must be given effect.

161. An actual controversy exists between Petitioners and Respondents concerning

Respondents permanent diversion of special or trust funds within the States possession to

unintended uses.

162. Accordingly, Petitioners seek a judicial determination that the purported offsets at

issue are temporary inter-fund loans, subject to the usual restrictions on such transfers, which

demand that the transferred funds be immediately repaid.

SIXTH CAUSE OF ACTION


Feasibility of Retransfer)




165. Although California law allows the Governor and Controller to direct the transfer of

moneys not needed in other funds to the General Fund when the General Fund is or will be

exhausted, [a]ll moneys so transferred shall be returned to the funds or accounts from which they

were transferred as soon as there are sufficient moneys in the General Fund to return them,

Cal. Gov. Code 16310(a), or else retransfers shall be made . . . in season so that the objects for

which [the special funds] were created may be carried out, id. 16382.

166. Respondents thus had a mandatory duty to return moneys diverted from the National

Mortgage Special Deposit Fund as soon as there were sufficient amounts in the General Fund to

return them, or else in season so that the object for which the National Mortgage Special Deposit

Fund was created may be carried out.


1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

167. By failing to return moneys diverted from the National Mortgage Special Deposit Fund

despite a projected multi-billion-dollar budgetary surplus, Respondents breached the mandatory duty

described in paragraph 166.


refund all moneys unlawfully diverted from the National Mortgage Special Deposit Fund.


diversion of funds received by California pursuant to the National Mortgage Settlement.

REQUEST FOR ATTORNEYS FEES

170. This Court has power under the equitable common fund doctrine to award attorneys

fees to Petitioners where the creation, recovery, preservation, or increase of an identifiable fund of

money benefits others as well as Petitioners.

171. This Court has power under the equitable substantial benefit doctrine to award

attorneys fees to Petitioners where they obtain a decision resulting in the conferral of a substantial

benefit of a pecuniary or nonpecuniary nature on others as well as Petitioners.

172. This Court has power under Code of Civil Procedure Section 1021.5, the Private

Attorney General statute, to award attorneys fees to Petitioners where (a) a significant benefit,

whether pecuniary or non-pecuniary, has been conferred on the general public or a large class of

persons; (b) the necessity and financial burden of private enforcement are such as to make this award

appropriate; and (c) such fees should not in the interest of justice be paid out of the recovery of funds

at issue in the action.

PRAYER FOR RELIEF

WHEREFORE, Petitioners pray that this Court:

173. Issue a writ of mandate directing Respondents immediately to refund all unlawfully

diverted moneys for payment into a Special Deposit Fund (administered by the Attorney General)

created for the purposes expressed in the Consent Judgments and quoted in paragraph 12, whether

the fund be the National Mortgage Special Deposit Fund or another Special Deposit Fund;

174. Issue an order directing Respondents to refrain from taking any further action under

Section 12531(e) of the California Government Code;

1 2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23 24

25

26 27

28

175. Issue a declaratory judgment that the purported offsets at issue violate the California Constitution and/or otherwise violate California law, and are in fact inter-fund loans that must be

immediately repaid;

176. Issue an order enjoining Respondents from the future unlawful diversion of funds received by California pursuant to the National Mortgage Settlement;

177. Award Petitioners costs and fees as permitted by law, including attorney's fees pursuant

to the equitable "common fund" doctrine, the equitable "substantial benefit" doctrine, and/or Code

of Civil Procedure Section 1021.5; and

178. Order such other and further relief as may be just and proper.

DATED: March 14, 2014 JENNER & BLOCK LLP

Attorneys for Petitioners National Asian American Coalition, COR Community Development Corporation, and National Hispanic Christian Leadership Conference


2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

VERIFICATION I am authorized to make this verification for and on behalf of the National Asian American

Coalition, COR Community Development Corporation, and the National Hispanic Christian

Leadership Conference, and I make this verification for that reason. I have read the foregoing

Verified Petition for Writ of Mandate and know its contents. Except as to those matters that are

stated on information and belief, and as to those matters I believe them to be true, and except as to

those matters which are evidenced by documents attached to this Petition (which I also believe to b|e true), the matters stated in the foregoing Verified Petition for Writ of Mandate are true of my own knowledge. I declare under penalty of perjury under the laws of the State of California that the foregoing is to the best of my knowledge true and correct.

Executed on March 14,2014, in Los Angeles, California.

Faith Bautista


Natl Asian Am. Coal. et al. v. Brown et al.

Verified Petition for Writ of Mandate and Complaint for Declaratory and Injunctive Relief

EXHIBIT 1

Case 1:12-cv-00361-RMC Document 11 Filed 04/04/12 Page 1

Documents

Complaint Final (B&W Petition) (1)