Tower Acton Holdings, LLC v. Los Angeles County Waterworks District No. 37

Introduction

Los Angeles County Waterworks District No. 37 (District) was sued by Tower Acton Holdings, LLC (Tower) and Sierra Highway Partners, LLC (Sierra) for breach of contract and breach of the covenant of good faith and fair dealing allegedly implied by that contract. The contract in question was a master service agreement (MSA) entered into in-1989 by District and certain developers—not plaintiffs.

The MSA related to the creation of a water system (the Acton III Water Improvements), which was to be financed by bonds sold by a Mello-Roos Community Facilities District (the CFD), which the developers created and approved in order to obtain water service for their properties. The specific contractual provision allegedly breached by District was one that required District to ensure that “future development” would pay its “fair share” for the cost of building the Acton III Water Improvements.

Plaintiffs asserted they became intended third party beneficiaries of the MSA after Tower’s purchase of defaulted Mello-Roos bonds, and Sierra’s purchase of distressed real property subject to the Mello-Roos taxes. As property owner and bondholder, plaintiffs would benefit when…