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SUPERIOR COURT OF CALIFORNIACOUNTY OF SACRAMENTO

BILL CAMP, Case No. 03AS05478 Dept. 53

Plaintiff, RULING ON SUBMITTED MATTER;ORDER DENYING SLAPP MOTION,

v. OVERRULING DEMURRER, GRANTINGPRELIMINARY INJUNCION IN PART

ARNOLD SWARZENEGGER, et al. AND DENYING PRELIMINARYINJUNCTION IN PART

Defendants.__________________________/

Plaintiff Bill Camp has filed a verified complaint alleging

that Defendants Arnold Schwarzenegger and Californians For

Schwarzenegger (collectively Defendants) have violated the

Political Reform Act of 1974 as amended. The complaint alleges

that Defendant Schwarzenegger obtained signature bank loans at

prime totaling over $4,000,000 that were turned over to his

campaign committee a few days prior to the 2003 gubernatorial

recall election. Plaintiff seeks injunctive relief ordering

Defendants to refrain from receiving, making, or transacting any

loans with a third party in connection with Defendant

Schwarzenegger's campaign and from using or spending any loan

proceeds.

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Defendants have countered by filing a demurrer and A Special

Motion To Strike Complaint of Plaintiff Bill Camp pursuant to Code

of Civil Procedure section 425.16 (SLAPP motion). The demurrer to

the complaint contends that the complaint fails to state a cause

of action because the loans in question complied with the

provisions of the Political Reform Act and the implementing

regulations. The SLAPP motion asserts that the complaint should

be dismissed and this lawsuit terminated because the complaint was

filed for the purpose of chilling Defendants' First Amendment

rights and that Plaintiff cannot establish a likelihood that he

will succeed on the merits.

The Court has read and considered the parties' respective

points and authorities, supporting evidence including evidence

under seal, and oral arguments, and took the matters under

submission. The Court now rules on the three matters as

enumerated above in reverse order.

I. PROCEDURAL HISTORY

On October 2, 2003, the parties appeared before the Court

upon Plaintiff's Ex Parte Application For Temporary Restraining

Order and Order to Show Cause. Defendants filed a "Preliminary

Opposition" to Plaintiff's Application. The Court denied the

request for TRO by minute order of the same date. At that time,

the Court determined that Plaintiff had failed to present evidence

to demonstrate that the loan in question did not meet the

requirements of Government Code Section 85307, or that the

Defendants had solicited contributions in violation of the

Political Reform Act to repay the loan. However, by its minute

order, the Court did issue an Order to Show Cause to Defendants

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why a Preliminary Injunction should not issue against them as

requested by Plaintiff, setting that matter for hearing on

December 2, 2003. The Court further provided an expedited

discovery schedule to enable the parties to prepare for that

hearing.

On October 3, 2003, Defendants filed their Notice of Special

Motion To Strike Complaint and Demurrer, setting that matter for

hearing on October 30, 2003. Pursuant to Code of Civil Procedure

Section 425.16(g), all discovery was stayed pending a ruling upon

the motion.

The Court takes judicial notice that Defendant Schwarzenegger

was elected Governor in the recall election held on October 7,

2003, and took the oath of office in mid-November 2003.

On October 20, 2003, the Court heard Plaintiff's ex parte

application for relief from the discovery stay and continuance of

the hearing upon Defendants' SLAPP motion. The Court granted the

application providing that the Plaintiff's motion would be heard

on shortened time on October 23, 2003, and permitted the parties

to file any supplemental papers by October 21, 2003. The Court

further continued Plaintiff's time to file any opposition to the

SLAPP motion to October 27, 2003, and indicated that it would

entertain Plaintiff's request for continuance of that motion at

the October 23, 2003, hearing.

On October 23, 2003, the Court issued its minute order upon

Plaintiff's motion for relief from stay and continuance of the

SLAPP motion. The Court granted Plaintiff's motion permitting

limited and specific discovery, and continued the SLAPP motion

hearing to January 9, 2004. The Court also vacated the December

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2, 2003, hearing date on Plaintiff's Application for Preliminary

Injunction.

On December 2, 2003, the Plaintiff's Application for

Preliminary Injunction remained upon the Court's calendar despite

its prior order vacating that hearing date. Thus, the Court

issued a minute order on that date continuing the Plaintiff's

Application for Preliminary Injunction to January 9, 2004, to

coincide with the continued hearing upon the SLAPP motion and

demurrer to the complaint.

Prior to January 9, 2004, Plaintiff filed no further papers,

points and authorities, or evidence designated as being in support

of his Application for Preliminary Injunction. Likewise,

Defendants filed no additional opposition or evidence. The Court

invited and entertained oral argument upon Plaintiff's Application

for Preliminary Injunction at the hearing on

January 9, 2004, and no party questioned or objected to the

Court's consideration of the matter at that time. In light of the

foregoing, the Court has proceeded to rule upon Plaintiff's

application. In this respect, the Court has considered the

documentary evidence lodged by Plaintiff under conditional seal on

December 31, 2003, and documents similarly lodged by Defendants on

December 19, 2003, in ruling upon Plaintiff's application.

/ / /

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/ / /

II. DEFENDANTS' SLAPP MOTION

Since the motion is potentially dispositive of the entire

case, the Court first considers Defendants' motion to strike

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Plaintiff's complaint pursuant to Code of Civil Procedure Section

425.16. The motion is DENIED for the reasons set forth below.

Where section 425.16 applies, the cause of action "shall be

subject to a special motion to strike, unless the court determines

that the plaintiff has established that there is a probability

that the plaintiff will prevail on the claim." (Code of Civ.

Proc., § 425.16, subd. (b)(1).) Code of Civil Procedure Section

425.16 applies to a cause of action against a person arising from

any act of that person in furtherance of the person's right of

petition or free speech under the United States or California

Constitution in connection with a public issue. The parties do

not dispute or argue that the conduct subject to the Plaintiff's

action is subject to Section 425.16.

Thus, the Court's consideration upon this motion is limited

to determining whether Plaintiff has established that there is a

probability that he will prevail on the claim.

In order to establish the necessary probability of

prevailing, a plaintiff is required both to plead claims that are

legally sufficient, and to make a prima facie showing, by

admissible evidence, of facts that would merit a favorable

judgment on those claims, assuming plaintiff's evidence were

accepted. (Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th

811, 821; Wilcox v. Superior Court (1994) 27 Cal.App.4th 809, 823-

824, 830; Evans v. Unkow (1995) 38 Cal.App.4th 1490, 1497-1498.)

The required showing has been termed one of "minimal merit."

(Navellier v. Sletten (2002) 29 Cal.4th 82, 89, 95 & fn. 11; 1-800

Contacts, Inc. v. Steinberg (2003) 107 Cal.App.4th 568, 582-585,

review denied.) When assessing the plaintiff's showing, the court

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must also consider evidence that the defendant presents. The

court does not, however, weigh that evidence against the

plaintiff's, in terms of either credibility or persuasiveness.

Rather, the defendant's evidence is considered with a view toward

whether it defeats the plaintiff's showing as a matter of law,

such as by establishing a defense or the absence of a necessary

element. (Wilson v. Parker, Covert & Chidester, supra, 28 Cal.4th

at p. 821; Kashian v. Harriman (2002) 98 Cal.App.4th 892, 906.)

Defendants argue that Plaintiff has shown no probability of

success on the merits of his action because Government Code

section 85307(a) and Title 2 CCR Section 18530.8, expressly

exclude Candidate Schwarzenegger's loan of the CNB loan proceeds

to his campaign from the $100,000 limitation of Section 85307(b).

The parties apparently do not dispute the following facts:

(1) Candidate Schwarzenegger received a line of credit from City

National Bank (CNB) upon which he was solely and personally

liable; (2) the general terms of the credit line, including the

loan amount, interest rate and loan maturity; (3) the increased

credit line was intended, in whole or in part, to be used for

Defendant Schwarzenegger's campaign, and was so used; (4)

Defendant Schwarzenegger drew a total of $4.5 million from that

credit line; (5) Defendant Schwarzenegger then loaned $4 million

of the proceeds of those credit draws to his campaign; (6) the

outstanding balance of the loans from Defendant Schwarzenegger to

his campaign exceed $100,000; and (7) between February and October

of 2003, CNB made more than 25 unsecured loans to members of the

general public, in amounts in excess of $4,000,000, for loan

periods of 12 months or less, at CNB's then prevailing prime rate

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or less. With these undisputed facts in hand, the Court's

consideration of the Plaintiff's likelihood of success upon the

merits of this action is narrowed to an interpretation of

Government Code Section 85307 and Title 2 CCR 18530.8(c), and

application of those laws to the undisputed facts.

A. The Loan was Made on "Terms Available to the General Public"

Defendants argue that Plaintiff has shown no probability of

success on the merits of his action because Government Code

section 85307(a) and Title 2 CCR Section 18530.8, expressly

exclude Defendant Schwarzenegger's loan of the CNB loan proceeds

to his campaign from the $100,000 limitation of Section 85307(b).

With respect to his argument under Government Code section

85301, Plaintiff contends that the exception of commercial loans

from the contribution limits under Section 85307(a), does not

apply to the subject loans from CNB to Candidate Schwarzenegger

because said loans were not made in CNB's "regular course of

business on terms available to members of the general public."

Consequently, Plaintiff contends that CNB's loan to Candidate

Schwarzenegger, if otherwise proper, could not exceed the $21,200

limit under Section 85301 since it constituted a contribution not

entitled to the 85307(a) exception.

The Court finds and determines that the subject loan was

made on "terms available to members of the general public" as that

phase is used in Government Code section 85307. Plaintiff's

contention to the contrary is rejected. Based upon the undisputed

facts, Defendants have demonstrated that the size, terms,

duration, and processing of the loan made by CNB to Candidate

Schwarzenegger were not aberrant from CNB's regular course of

business, and that CNB made many similar (or even more favorable

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and larger loans) to other individual members of the general

public within the preceding 6 month period. Section 85307(a)

excepts "loans made to a candidate by a commercial lending

institution in the lender's regular course of business on terms

available to members of the general public for which the candidate

is personally liable."

Plaintiff asserts that the phrase "members of the general

public" as employed in Section 85307(a) means a "significant

segment" or "diverse group" of the population. Plaintiff

essentially argues that if a "significant" and/or "diverse"

segment of the population cannot qualify for the terms of the loan

in question, then the loan is not available to members of the

general public. Plaintiff then concludes, without evidentiary

bases, that the loan extended to Defendant Schwarzenegger was not

available to "members of the general public" because a significant

and diverse segment of the population could not qualify to receive

the same loan. The Court disagrees with Plaintiff's argument.

The phrase "members of the general public" means the people as a

whole, subject only to reasonable limitations imposed by

application of other laws, e.g. excluding individuals who cannot

lawfully enter into loan contracts.

Plaintiff's argument is much more dependent upon the meaning

of the words "terms" and "available," and much less upon the noun

phrase "members of the general public." However, Plaintiff's

proposed interpretation of 85307(a) ignores the scope of these two

other essential words in the statute. Specifically, Plaintiff's

position necessarily disregards the fact that loan "terms" may

also include conditions such as terms of borrower qualification.

Further, Plaintiff's argument also misconstrues the word

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"available" to mean "affordable" or "financially attainable."

The word "terms" in the context of loans of money cannot be simply

limited to the interest rate, payment schedule and duration of a

loan. "Terms" necessarily includes all of the terms upon which a

lender is willing to make a loan. For example, most of the loans

provided as evidence to the Court in this matter contain terms

requiring the borrower to at all times maintain "liquid assets" in

amounts equal to or greater than the principal amount of the

credit. The borrower's breach of that term is an event of

default. In those circumstances, the borrower's financial liquid

net worth was a qualifying "term," and is a continuing condition,

of the loan. Thus, if a bank offers all members of the general

public an unsecured six-month line-of-credit at its prime rate in

an amount equal to or lesser than the sum of the borrower's

current liquid assets, the "terms" of the offered loan are the

same to every member of the public regardless of whether he or she

is ultimately qualified to borrow $100 or $1,000,000 based upon

personal liquid net worth. The "available" terms of the offered

loan never change. Only the amount of the loan changes based upon

the credit-worthiness and net worth of the borrower. If one offers

to sell a mansion on the terms of $4,000,000 cash to all members

of the public, the terms of the offer are "available" to all

members of the public regardless of the presumably small segment

of the population that could actually "afford" or "financially

accept" those terms.

The statutory use of the phrase "terms available to the

general public," or similar phrases, is not limited to Section

85307. (See Bus & Prof Code section 2426 (b)(3); Civil Code

Section 1789.13(c); Health & Safety Code Section 33130(c)(1).) In

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each of the three cited statutes, all enacted before Section

85307(a), application of Plaintiff's "significant and diverse

segment" definition would be exceptionally difficult. "While

interpretation of similar words in other statutes is not

controlling, such interpretation is helpful in arriving at the

legislative intent." (Gleason v. Santa Monica (1962) 207

Cal.App.2d 458, 461.)

Thus, a loan made to a candidate by a commercial lending

institution in the lender's regular course of business falls

within Section 85307(a) if it is made upon terms available to

members of the general public, despite the fact that only a small

percentage of the public can, or do, take advantage of those

available terms due to their financial status or credit-

worthiness.

Nonetheless, even if the Court accepted Plaintiff's

interpretation, the record still demonstrates that Plaintiff is

not likely to prevail on this point. Specifically, Plaintiff has

not shown that a "significant" and "diverse" segment of the

population could not qualify for terms of the loan in question.

The Court has no evidence before it from which it may render such

a conclusion. The Court has no lender surveys, borrower

demographics, or relevant qualified expert opinions regarding the

lending industry, lending standards, or market analyses

quantifying public eligibility for similar loan facilities. It is

interesting to consider that even if only 10% of the financial

lending institutions in the United States merely matched CNB's

relevant large loan activity during the six-month period ending

October 2003, it would be very difficult to say that the

population segment qualifying for, and availing themselves of,

such loans was "insignificant." And, absent private census

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information like borrower gender, race, and age, it would be

impossible to determine whether the eligible population was

"diverse" even if it was found to be "significant" in size. The

record certainly does not reflect that CNB's loan was made upon

terms available only to Defendant Schwarzenegger, or even upon

that bank's most favorable terms.

B. The Campaign Loan Violates the $100,000 limitation of Section85307(b)

With respect to his argument under Government Code 85307(b),

Plaintiff makes four general points: (1) Section 85307(b)

prohibits a candidate from personally loaning to his or her

campaign an amount, the outstanding balance of which, exceeds

$100,000, and Defendants' disclosure statements demonstrate that

Defendant Schwarzenegger loaned his campaign $4,000,000.00; (2)

Section 85307(a) which excludes certain commercial lending

institution loans to candidates from the provisions of Title 9,

Chapter 5, Article 3 of the Government Code (including the

contribution limits of Section 85301), does not apply to the

subject loans from CNB to Candidate Schwarzenegger because those

loans were not made in CNB's "regular course of business on terms

available to members of the general public" as required for

application of the exception under Section 85307(a); (3) Title 2

California Code of Regulations section 18530.8, which provides

that the $100,000 loan limit for candidate loans under Government

Code section 85307(b) does not apply to a candidate's loan of

monies obtained from a commercial lending institution in

accordance with Section 85307(a), does not apply to the subject

loans because they were not made in CNB's "regular course of

business on terms available to members of the general public" in

accordance with Section 85307(a); and (4) Title 2 CCR section

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18530.8 is unlawful and unenforceable to the extent it contradicts

or exceed the express $100,000 limitation set forth in Section

85307(b).

Plaintiff has shown a likelihood of success upon his argument

that Defendant Schwarzenegger's loan to his campaign in excess of

$100,000 violated Section 85307(b), notwithstanding the express

sanction of such a transaction by Title 2 CCR Section 18530.8(c).

Government Code section 85307 provides:

"Extensions of credit; Candidate's loans to campaign(a) The provisions of this article regarding loans applyto extensions of credit, but do not apply to loans madeto a candidate by a commercial lending institution inthe lender's regular course of business on termsavailable to members of the general public for which thecandidate is personally liable.(b) A candidate for elective state office may notpersonally loan to his or her campaign an amount, theoutstanding balance of which exceeds one hundredthousand dollars ($100,000). A candidate may not chargeinterest on any loan he or she made to his or hercampaign."

/ / /

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Section 85307 is found in Article 3, Chapter 5, Title 9 of

the Government Code, consisting of Sections 85300 through 85321.

("Article 3")

Plaintiff argues that section 85307(b) prohibits a candidate

from personally loaning his or her campaign an amount, the

outstanding balance of which exceeds one hundred thousand dollars

($100,000), regardless of the original source of the monies used

by the candidate to fund the personal loan.

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Defendants argue that section 85307(b) is subject to the

commercial loan exception set forth in Section 85307(a).

Defendants state that pursuant to section 85307(a), all of the

provisions regarding loans found in Article 3, Chapter 5, Title 9

of the Government Code, including section 85307(b), do not apply

"to loans made to a candidate by a commercial lending institution

in the lender's regular course of business on terms available to

members of the general public for which the candidate is

personally liable." Thus, Defendants argue that the $100,000 loan

limit under section 85307(b) does not apply "to loans made to a

candidate by a commercial lending institution in the lender's

regular course of business on terms available to members of the

general public for which the candidate is personally liable."

Defendants implicitly argue that a loan "made to a candidate by a

commercial lending institution" is the same as a candidate's

personal loan to his or her campaign.

In further support of their argument, Defendants cite Title 2

CCR section 18530.8(c), which became operative March 21, 2002.

That regulation provides in part:

"Personal Loans ***(c) The proceeds of a loan made to a candidate by acommercial lending institution for which the candidateis personally liable, pursuant to the terms ofsubdivision (a) of Government Code section 85307, whichthe candidate then lends to his or her campaign do notcount toward the $100,000 loan limit of subdivision (b)of Government Code section 85307."

Defendants argue that their interpretation of Section

85307(a) and (b), as adopted by the FPPC in 2 CCR 18530.8(c), is

partially compelled by the fact that the introductory phrase of

section 85307(a) (The provisions of this article regarding loans

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do not apply to loans made to a candidate by a commercial lending

institutions) would be rendered nugatory or surplusage under

Plaintiff's alternative interpretation. Specifically, Defendants

argue that the only provision in Article 3 "regarding loans" other

than Section 85307(a), is the $100,000 limit under Section

85307(b). Thus, they argue that the exception language in the

introductory phrase of Section 85307(a) must refer and apply only

to Section 85307(b).

The Court finds that Section 85307(b) prohibits a candidate

from personally loaning his or her campaign an amount, the

outstanding balance of which exceeds one hundred thousand dollars

($100,000), regardless of the original source of the monies used

by the candidate to fund the personal loan. In this respect, the

limitation under 85307(b) applies even though the original source

of the funds used by the candidate to fund the loan to his or her

campaign is a commercial loan to the candidate that meets the

requirements of Section 85307(a). The provisions are not

ambiguous or susceptible of more than one reasonable

interpretation.

The rules of statutory construction are the same for

initiative enactments as for legislative enactments. (Williams v.

Superior Court (2001) 92 Cal.App.4th 612, 622.) The goal is to

determine and effectuate voter intent. (Ibid.; Westly v. Board of

Administration (2003) 105 Cal.App.4th 1095, 1109.) The Court is

directed to look to the language of the enactment first, giving

the words their usual and ordinary meaning. (Williams v. Superior

Court, supra, at p. 623.) Only if the statutory language is

susceptible of more than one reasonable interpretation may the

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Court resort to extrinsic evidence to determine the intent of the

voters. (Ibid.) When the language is ambiguous, the Court may

refer to other indicia of the voters' intent, particularly the

analyses and arguments contained in the official ballot pamphlet.

(People v. Rizo (2000) 22 Cal.4th 681, 685; Robert L. v. Superior

Court (2003) 30 Cal.4th 894, 900-909).

Thus, the Court starts its analysis by looking to the

language of Section 85307, giving the words their usual and

ordinary meaning. In this respect, the Court is guided when

necessary by the definitions and provisions of Title 9 as required

by Section 85202.

The exception in Section 85307(a) applies expressly to loans

made "to a candidate by a commercial lending institution." On the

other hand, Section 85307(b) expressly applies only to personal

loans made by a "candidate for elective state office" to "his or

her campaign." The two referenced loans are not the same in any

respect. The term "candidate" is expressly defined under Section

82007, primarily as an "individual." The term "campaign" is not

directly defined by the Code, but it is clear from the separate

treatment of the terms throughout the PRA that a "campaign" is

neither an "individual" nor a "candidate."

/ / /

This interpretation does not render the introductory phrase

of Section 85307(a) nugatory as argued by Defendants. Section

85307(b) is not the only provision of Article 3 "regarding" loans.

To the contrary, every provision in Article 3 that employs the

term "contribution," by definition "regards" loans. The term

"contribution" as defined under Section 82015 includes "loans."

The term contribution is defined under Section 82015 in part as "a

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payment," and "payment" is defined in part as a "loan" pursuant

Section 82044. Thus, the exception in 85307(a) exempts qualifying

commercial loans to the candidate from restrictions upon

contributions like the contribution limits in Section 85301. This

interpretation is consistent with Section 84216, which provides

that a loan received by a candidate or a committee from a

commercial lending institution in the ordinary course of business

is not a "contribution."

Under the Court's interpretation, a candidate could receive

qualifying commercial loans without concern that the loans

constitute "contributions" and without regard or subject to the

contribution limits. Further, a candidate could receive a

qualified commercial loan and lend (interest free) up to $100,000

of its proceeds to his or her campaign. Moreover, a candidate may

receive an unlimited qualified commercial loan and give an

unlimited amount of the loan proceeds to his or her campaign.

That the Court's interpretation of section 85307 is correct

is made even more clear when the statutory history is considered.

Beginning with the enactment of Political Reform Act of 1974,

both the Legislature and the Voters have endeavored to enact

campaign laws that "inform the electorate and to prevent

/ / /

the corruption of the political process" (Socialist Workers 1974

Cal. Campaign Comm. v. Brown (1975) 53 Cal. App. 3d 879, 889).

Among other things, the 1974 Act imposed campaign contribution

limits and required disclosure of contributions (Government Code

section 82025 and 82015). The Political Reform Act of 1974 was

substantially amended in 1996 when the voters enacted Proposition

208 to limit campaign contributions. The Legislature placed

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Proposition 34 on the November 2000 ballot and the voters ratified

it. Proposition 34 repealed and amended many of the provisions

originally enacted by Proposition 208 concerning contribution

limits and disclosure requirements, including Government Code

section 85307.

Section 1 of Proposition 34 contains the findings and

declarations of the People in enacting the initiative. Subsection

(b) provides in part as follows:

"(b) The people enact the Campaign Contribution andVoluntary Expenditure Limits Without Taxpayer FinancingAmendments to the Political Reform Act of 1974 toaccomplish all of the following purposes:

(1) To ensure that individuals and interest groups inour society have a fair and equitable opportunity toparticipate in the elective and governmental processes.

. . . .(5) To increase public information regarding campaigncontributions and expenditures."

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Defendants' proposed construction of section 853071 would

authorize wealthy candidates to evade the $100,000 limitation on

1 The Court acknowledges that Defendant’s interpretation ofsection 85307 is in accord with the view expressed by the FairPolitical Practices Commission (FPPC). Indeed, Defendants’argument is supported by FPPC Regulation 18530.8(c). The Courtfurther acknowledges that Defendants no doubt acted in goodfaith when the subject loan was obtained since they had

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loans to a campaign by obtaining for his/her campaign a loan of an

unlimited amount simply by pledging his/her assets or

creditworthiness to a financial institution. Such an

interpretation flies in the face of the express purpose of the law

which, among other things, is "[t]o ensure that individuals and

interest groups in our society have a fair and equitable

opportunity to participate in the elective and governmental

processes." Proposition 34, Section 1(b)(1).2

Defendants' interpretation of the statute would also permit

the candidate to obtain contributions after the election has been

held to repay the loans obtained. Such a procedure advocated by

Defendants would decrease rather than " increase public

information regarding campaign contributions." The public would

not learn who financially contributed to the campaign until after

the election, when it would be too late to use such information in

making the determination for whom a vote would be cast.

Regulation 18530.8(c) to rely upon. The Court, however, rejectsthe FPPC Regulation and holds that it is of no effect since itconflicts with the express terms of Government Code section85307. See Part II C of this Ruling, infra.

2 Defendants asserted at oral argument that theirinterpretation of the statute “levels the playing field” byallowing candidates to obtain loans to finance their campaigns.The Court disagrees. The only persons who could obtain a loanon terms made available to Defendant Schwarzenegger here – $4.5million signature loan at prime – would have to be persons ofindependent wealth. The Court takes judicial notice of the factthat no financial institution would make such a loan in theregular course of business to persons who did not havesubstantial assets with a demonstrated ability to pay the loanback. The interpretation urged by Defendants would ensure thatindividuals of modes means do not have a fair and equitableopportunity to participate in the elective process, since thewealthy candidates would have a substantial advantage.

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Under the construction of the statute urged by Defendants,

wealthy candidates could evade both the $100,000 loan limitation

and the requirement of pre-election disclosure of contributions,

while those limitations would apply to candidates of more modest

means. Since this construction is contrary to the expressed

purpose of the amendments enacted by Proposition 34 and leads to

an absurdity, it must be rejected.

Since the statute is not reasonably susceptible of a

different interpretation, the Court may not refer to extrinsic

evidence bearing upon the voters' intent, like the analyses and

arguments contained in the official ballot pamphlet. However, the

Court notes that its interpretation is consistent with the

information and arguments shared with the voters on Proposition

34. Specifically, the analysis and summary provided that,

"[u]nder this measure, candidates would be allowed to give

unlimited amounts of their own money to their campaigns. However,

the amount candidates could loan to their campaigns would be

limited to $100,000 and the earning of interest on any such loan

would be prohibited." (Bold added.) Moreover, the arguments in

favor of the proposition asserted, without response, that,

"[w]ealthy candidates can loan their campaigns more than $100,000,

then have special interests repay their loans. Proposition 34

closes this loophole."

/ / /

Under Defendants' interpretation of 85307, as adopted in 2

CCR section 18530.8, the loophole is not only opened, but the

$100,000 limit in 85307(b) is rendered meaningless. Specifically,

under Defendants' interpretation, if a candidate has $1,000,000 of

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personal cash, he or she may loan his or her campaign only

$100,000, interest free; however, the same candidate could borrow

$500,000 from a commercial lending institution secured by the same

$1,000,000, and then lend the entire $500,000 to his or her

campaign (presumably subject to interest since the last sentence

of Section 85307(b) would also not apply). This result is

patently absurd.3

C. Title 2 CCR Section 18530.8(c) Conflicts With Section 85307(b)

In light of the foregoing, the Court also finds that 2 CCR

section 18530.8(c) is an erroneous and unreasonable construction

of Section 85307, which fails to carry out the purpose of, and is

inconsistent with, Title 9 of the Government Code. The Court

disregards this specific regulation in ruling upon the pending

motions despite full and faithful adherence to the principles of

deference explained in Californians for Political Reform

Foundation v. Fair Political Practices Commission (1998) 61

Cal.App.4th 472, 484. "While the construction of a statute by

officials charged with its administration, including their

interpretation of the authority invested in them to implement and

carry out its provisions, is entitled to great weight,

nevertheless ‘Whatever the force of administrative construction

. . . final responsibility for the interpretation of the law

rests with the courts.' [Citation] Administrative regulations

3 Defendants’ proposed construction would legitimize a form of“money laundering.” While a wealthy candidate with $4.5 millionin his/her personal bank account may only loan his/her campaign$100,000 without running afoul of section 85307(b), according toDefendants, that limitation could be circumvented if thecandidate “launders” the money by pledging such funds assecurity for a loan from a commercial a commercial bank to thecampaign.

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that alter or amend the statute or enlarge or impair its scope are

void and courts not only may, but it is their obligation to strike

down such regulations." (Mooney v. Pickett (1971) 4 Cal. 3d 669,

681.) In the end, the FPPC may only adopt rules and regulations

to carry out the purposes and provisions of the Political Reform

Act (PRA), and those rules and regulations must be consistent with

the PRA and other applicable law. (Gov. Code § 83112.)

In light of the Court's analysis of Section 85307(b) and the

undisputed facts upon the motion, the Court finds the Plaintiff

has established that there is a probability he will prevail on his

claim. That being the case, Defendants' motion to strike the

complaint is DENIED.

III. DEFENDANTS' DEMURRER TO THE VERIFIED COMPLAINT

The Court must treat a demurrer as admitting all material

facts properly pleaded, but not contentions, deductions or

conclusions of fact or law. The Court may also consider matters

that may be judicially noticed. Further, the Court must give the

complaint a reasonable interpretation, reading it as a whole and

its parts in their context. (Zelig v. County of Los Angeles

(2002) 27 Cal.4th 1112, 1126.) It is error for a trial court to

sustain a demurrer when the plaintiff has stated a cause of action

under any possible legal theory. (Aubry v. Tri-City Hospital

Dist. (1992) 2 Cal.4th 962, 967.)

In light of the Court's analysis of Section 85307(b) set

forth above, and the allegations of the verified complaint, the

Court finds that the Plaintiff has stated sufficient facts to

constitute a cause of action.

Defendants' demurrer to the complaint is OVERRULED.

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IV. PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

Plaintiff's Application for Preliminary Injunction is GRANTED

IN PART AND DENIED IN PART.

A. The Election Has Not Rendered the Lawsuit Moot

It is important to note that Plaintiff's lawsuit and

application for a temporary restraining order was filed five days

before the subject gubernatorial recall election held on

October 7, 2003, and that this matter was not heard until several

months after the election. As a consequence, a number of the

bases for Plaintiff's application have become moot by virtue of

the conclusion of that election. For example, to the extent the

Defendants' use of loan proceeds provided them with a campaigning

advantage over other candidates prior to the election, the

conclusion of the election has eliminated any conceivable remedy

by this Court under Section 91003(a) that could address that

circumstance. Nevertheless, the Court does note and address some

of the parties' pre-election arguments to the extent they still

bear upon questions at hand.

In any event, since this case presents issues of great public

interest and importance, the Court should decide it

notwithstanding claims of mootness. (Davenport v. Blue Cross of

Calif. (1997) 52 C.A.4th 435, 445 [trial judge has authority to

grant injunctive relief when case presented matter of continuing

public importance]; Fresno v. Shelton (1998) 66 C.A.4th 996, 1006

[because of public interest, issue would be decided, although

subsequent facts rendered case moot]; California Correctional

Peace Officers Assn. v. California (2000) 82 C.A.4th 294, 302

[challenge to injunction not rendered moot by judgment confirming

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arbitrator's award concerning conduct at issue, where there was

strong public interest in determining issues involved]; Konig v.

Fair Emp. & Housing Com. (2002) 28 C.4th 743, 745, footnote 3

[question of great public interest properly decided despite death

of litigant]).

B. This is a Proper Case in Which to Grant a PreliminaryInjunction

Plaintiff's application asserts two primary bases for the

injunctive relief sought against Defendants. First, Plaintiff

contends that Defendant Schwarzenegger made personal loans to his

campaign in excess of $100,000 in violation of Government Code

section 85307(b). Second, Plaintiff contends that Defendant

Schwarzenegger accepted a loan in excess of $21,200 from a

commercial lending institution (i.e. defendant City National Bank

"CNB") which constituted a "contribution" pursuant to Government

Code sections 82015 and 82044, and thus violated the individual

gubernatorial contribution limits under Government Code section

85301. Thus, Plaintiff prays for preliminary injunctive relief

pursuant to Government Code section 91003(a) and Code of Civil

Procedure 526 (Complaint, para. 23, cites CCP § 529, but it is

presumed the relief is sought under Section 526). Plaintiff's

application prays for an order enjoining CNB "from making a loan

[to Defendants] on such unreasonably favorable terms, enjoining

Defendant Schwarzenegger from lending his campaign more than

$100,000, requiring that any funds already loaned be returned and

reversing any transactions funded with money unlawfully loaned to

the campaign." (Ex Parte Application, MPA, pp. 6:20-7:1.) The

Court notes that Plaintiff's Complaint prays for injunctive relief

of differing scope, including an order: (1) enjoining all

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defendants from transacting in loans in connection with Defendant

Schwarzenegger's campaign; (2) enjoining all use of all loan

proceeds in excess of $100,000 obtained by Defendant

Schwarzenegger in connection with his campaign; and (3) commanding

all defendants to annul, avoid, and reverse any transactions

undertaken using proceeds from any loan obtained by Defendant

Schwarzenegger in excess of $100,000, including un-aired campaign

advertisements.

Plaintiff argues that the balance of harms and equitable

considerations that the Court must consider on his application

weigh in his favor because the harm and unfair advantage caused by

a violation of the campaign laws cannot be effectively remedied

after the election. However, this argument bears more upon the

imminence and urgency of the threatened injury and less upon the

comparable harm to be suffered by the parties in the event

injunctive relief is or is not granted. Although Plaintiff's

argument on this point is not clear, he apparently contends that

if injunctive relief does not issue members of the public will be

harmed because they will be denied knowledge of all of Defendant

Schwarzenegger's contributors prior to the election since his

campaign will be institutionally financed pre-election and then

repaid by private contributions post-election. He also apparently

argues that without injunctive relief

Defendant Schwarzenegger would obtain a substantial monetary

advantage over other candidates who observed the $100,000 loan

limit of Section 85307(b), or who could not obtain the

"unreasonably favorable" loan terms and amounts received by

Defendant Schwarzenegger.

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The rules governing the Court's consideration of Plaintiff's

application are well known and need little discussion. "In

determining whether or not to issue a preliminary injunction, a

trial court must evaluate two interrelated factors. The first is

the likelihood that the plaintiff will prevail on the merits at

trial. The second is the interim harm the plaintiff may suffer if

the injunction is denied as compared to the harm that the

defendant may suffer if the injunction is granted. (Citation) In

thus balancing the respective equities of the parties, the court

must determine whether, pending a trial on the merits, the

defendant should or should not be restrained from exercising the

right claimed by it. (Citation)" Tahoe Keys Property Owners'

Ass'n v. State Water Res. Co. (1994) 23 Cal.App.4th 1459, 1471.

The trial court's determination must be guided by a "mix" of the

potential - merit and interim - harm factors; the greater the

plaintiff's showing on one, the less must be shown on the other to

support an injunction. (King v. Meese (1987) 43 Cal.3d 1217,

1227-1228.) Of course, "[t]he scope of available preliminary

relief is necessarily limited by the scope of the relief likely to

be obtained at trial on the merits." (Common Cause v. Board of

Supervisors (1989) 49 Cal.3d 432, 442.) A trial court may not

grant a preliminary injunction, regardless of the balance of

interim harm, unless there is some possibility that the plaintiff

would ultimately prevail on the merits of the claim. (Id., at pp.

442-443.)

1. Plaintiff Has Shown a Likelihood of Success on the Merits

In light of the Court's analysis of section 85307(b) set

forth in Part II B of this Ruling and the undisputed facts upon

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the motion set forth in Part II of this Ruling, the Court finds

the Plaintiff has established that there is a probability he will

prevail at trial on the merits of his claim. Since the issue to

be decided is a legal one, and since the Court has decided such

legal issue in favor of Plaintiff, the Court must necessarily

conclude that Plaintiff has made a very strong showing of success

on the merits.

2. The Balancing of the Hardships Weigh in Favor of Defendants

The Court is persuaded that the interim harm that Defendants

may suffer if the preliminary injunction is granted in several

respects outweighs the harm that Plaintiff or the public may

suffer if the injunction is denied. Since the election has

passed, the primary harm that may have been avoided by injunctive

relief is moot. While there is post-election conduct associated

with the alleged violation that may be enjoined under section

91003, much of such conduct is not particularly urgent or

irreparable. Such could readily be the subject of a permanent

injunction if Plaintiff were to prevail at trial or on summary

judgment. On the other hand, the harm that the Defendants would

suffer if they were forced to undo all transactions related to the

subject loan(s) would be tremendous should the Defendants

ultimately prevail at trial or on a motion for summary judgment.

/ / /

3. The Court Can Fashion Appropriate Injunctive Relief

Notwithstanding the Court's conclusions on the balance of

harms element, the Court is persuaded that preliminary injunctive

relief should be granted given the very strong showing made by

Plaintiff that he is likely to prevail on the merits. (See King

v. Meese, supra, 43 Cal.3d at 1227-1228.) A preliminary

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injunction can be fashioned in such a manner to protect the

interests of Plaintiff, while at the same time protecting the

interests of Defendants, should they ultimately prevail.

The Court determines that proper injunctive relief would

include enjoining Defendant Schwarzenegger from lending his

campaign more than $100,000, no matter what the source of the

funds, and specifically including loans obtained from commercial

institutions for the purpose of passing on to a campaign

committee. The Court further determines that all Defendants, and

their agents and those acting on their behalf, should be enjoined

from soliciting contributions designed to repay any loan made to

the campaign in excess of the $100,000 limit, including the

subject CNB loan(s). All contributions thus far received for the

purpose of repaying the loan be placed in an escrow account so

that they may be returned should that relief ultimately be ordered

in this proceeding.

Taking the balance of hardships into account, the Court at

this time denies without prejudice the requested injunctive relief

that would require, pending trial, that any funds already loaned

be returned and that any transactions funded with money loaned to

the campaign in violation of section 85307 be reversed. Of

course, with respect to those matters concerning which a

preliminary injunction has not issued, Defendants proceed at their

peril since Plaintiff may ultimately prevail on his claim and may

obtain the injunctive relief that he seeks. For the time being,

however, Plaintiff's, as well as the general public's, interests

are served by granting an injunction as set forth above.

V. DISPOSITION

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IT IS ORDERED THAT Defendants' motion to strike the complaint

(SLAPP Motion) is denied; Defendants' demurrer is overruled; and

Defendants shall file their answer to the complaint no later than

February 18, 2004.

IT IS FURTHER ORDERED THAT Plaintiff's motion for preliminary

injunction is granted in the following respects. Pending trial or

further proceedings, Defendants, their agents, and anyone acting

on their behalf are hereby enjoined from the following acts:

1. Defendant Schwarzenegger is hereby enjoined from lending

his campaign more than $100,000, regardless of the source of the

loan funds.

2. Defendant Schwarzenegger, his agents and those acting on

his behalf, is hereby enjoined from accepting contributions

intended to repay any loan made by Defendant Schwartzenegger to

the campaign in excess of the $100,000 limitation of section

85307(b).

3. All Defendants (except Defendant CNB), their agents and

those acting on their behalf are hereby enjoined from expending or

disposing in any manner any contributions already received for the

purpose of repaying loans made by Defendant Schwarzenegger in

excess of $100,000 to Defendant Californians for Schwarzenegger

except for placing such funds in an escrow account and not

expending such funds pending further order of the Court.

Plaintiff's motion for preliminary injunction is otherwise

denied without prejudice.

IT IS FURTHER ORDERED that, before this order shall take

effect, Plaintiff must file a written undertaking in the sum of

$50,000, as required by Code of Civil Procedure Section 529, for

the purpose of indemnifying Defendants, and each of them, for the

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damages as they may sustain by reason of this preliminary

injunction if the court finally decides that Plaintiff is not

entitled to it.

IT IS FURTHER ORDERED that the preliminary injunction as set

forth above shall issue on Plaintiff's filing a written

undertaking in the sum specified above.

The court reserves jurisdiction to modify this injunction as

the ends of justice may require.

The Court will entertain an objection by either party to the

amount of the bond set forth in this order. (See Code of Civil

Proc., § 995.920 et seq.)

Prevailing party Plaintiff shall prepare a formal order with

respect to the Preliminary Injunction.

Dated:

______________________________LOREN E. McMASTERJudge of the Superior Court