California Supreme Court Allows Proposition 218 Challenge Without The Challenger Attending The Local Agency’s Rate Increase Hearing

06.11.2019

On Thursday, May 30, 2019, the California Supreme Court issued its opinion in Plantier v. Ramona Municipal Water District regarding a Proposition 218 (Prop 218) challenge brought by a San Diego County restaurant owner (Owner) against the Ramona Municipal Water District (District) alleging the District’s sewer fee charges are unlawful. The decision resolved the question of whether Prop 218’s procedural requirements of public hearings and notice (Art. XIII D §6(a)) prevented the Owner from bringing the challenge in court due to the Owner not participating in the District’s Prop 218 process, or legally speaking, exhausting administrative remedies prior to bringing a lawsuit. Ultimately, the Court ruled that the Owner did not have to exhaust administrative remedies because the Owner did not have an adequate remedy from the District even had the Owner participated in the Prop 218 process. In other words, under the specific circumstances of this case, because the Owner could not have obtained the relief from the District even if he had participated in the Prop 218 process, he did not have to participate prior to bringing his lawsuit.

Background

The District provides both water and sewer services for its region, but rather than compiling sewer fees into the water bill, the District assigns sewer fees to a property’s property taxes. Because of this, sewer fees are assessed on an annual basis. In calculating these fees, the District uses an Equivalent Dwelling Unit (EDU) system to determine the sewer usage of each parcel, assigning varying amounts of EDUs depending on the size and use of a parcel. The number of EDUs assigned to a parcel is then multiplied by the standard rate (Rate) for the sewer services of the District, resulting in a formula of [Rate]x[EDUs] for the fee assignment method (Method).

The Owner filed complaints with the District’s Board of Directors after having his sewer fees raised, from a multiplied rate of 2.0 to a multiple of 6.82. Asserting that the District’s Method was in violation of Prop 218’s substantive requirements, the Owner claimed that the Method was ambiguous and “exceed[s] the proportional cost of the service attributable to the parcel.” (Art. XIII D, §6, subd. (b)(3).)

The District’s Board of Directors rejected the Owner’s claim, and when the Owner filed an administrative claim with the District, that too was rejected.

In the same time period in which the Owner filed his complaints, the District sought to increase its Rate and sent out the appropriate notices and organized public hearings addressing the Rate increase in accordance with Prop 218 (Hearings).

After having the claims rejected, the Owner and two other commercial property owners (collectively, plaintiffs) filed a class-action suit against the District, where the trial court bifurcated the trial into two phases with the first dealing with the issue of exhaustion of administrative remedies.

The trial court concluded that the Hearings created an additional remedy which needed to be exhausted prior to judicial review, and that plaintiffs’ failure to challenge the Method at the Hearings barred them from bring suit. The Court of Appeals reversed, holding that a challenge to the Method is beyond the scope of the Hearings, and that even if it were within the scope, the Hearings do not provide an adequate remedy for resolving such a challenge as a matter of law.

The California Supreme Court granted review to resolve this dispute, resulting in affirmation of the appellate decision.

The California Supreme Court’s Ruling

While essentially of the same mind as the Court of Appeals, the Supreme Court found the construction of Prop 218 hearings to be overreaching. The Court of Appeals broadly asserted that a challenge brought for a violation of Prop 218’s substantive requirements are outside the scope of Prop 218 Hearings regarding a proposed fee, and further that such hearings are inadequate to remedy a substantive challenge even it were within the scope of the hearings. The Supreme Court agreed, but only under the limited circumstances of plaintiffs’ claim.

Prop 218 establishes procedural requirements for implementing proposed fees and increases by a public agency, stating that an agency seeking to do so must provide notice to all parcel owners and set up public hearings wherein the agency must “hear and consider” all protests to the proposed fee. Prop 218 also establishes a “majority veto” for any proposed fees whereby fee-payers can send in written protests to the proposed fee, and if the agency receives protests from a majority of owners, the proposed fee will be rejected. (Article XIII D §6(a).)

Additionally, Prop 218 also establishes substantive requirements for both existing and proposed fees. These substantive requirements include limitations such as the one at issue here - that the amount of the fee “shall not exceed the proportional cost of the service attributable to the parcel.” (Art. XIII D, §6, subd. (b)(3).)

In narrowly tailoring its decision, the Supreme Court assumed for discussion’s sake that some substantive challenges to an agency’s fees could fall under the scope of a Prop 218 Hearing on a proposed fee. The Supreme Court further assumed that a Prop 218 Hearing could act as an administrative remedy in some cases. Despite these assumptions, the District’s assertion that plaintiffs failed to exhaust all administrative remedies still failed.

The Supreme Court reasoned that the Hearings of this case addressed only the Rate of the sewer fees, whereas the challenge was brought against the Method used to calculate the total fee, and so the Hearing offered no possible remedy for the challenge to the Method. The Hearings only offered two primary remedies: (1) that the District would “hear and consider” all protests to the proposed fee and (2) that a majority of fee-payers could submit written protests to veto the proposed fee.

Addressing the first remedy, the Supreme Court noted that this is, in fact, no remedy at all. Although the Supreme Court did not ultimately answer the broad question of whether “hearing and considering protests” could ever be considered a remedy, the court rejected its application as a remedy in this case because it created no obligation for the District to act on any protests, even perfectly valid ones.

The “consideration” and the “majority veto” thus combine to result in only one possible remedial action: the non-imposition of the proposed fee. This non-imposition, however, would leave intact the challenged Method, and so it remains fully inadequate as a remedy for a challenge to the Method of calculating fees.

Ultimately, the Supreme Court’s decision held that the Hearings were inadequate to provide a remedy for plaintiffs’ Method challenge, thereby the plaintiffs were not required to attend the Hearings to exhaust their remedies.

Implications

Despite creating additional questions that remain to be resolved another day, the Supreme Court’s decision in Plantier v. Ramona Municipal Water District establishes an important holding regarding exhausting administrative remedies and standing in that particular circumstances may not require a rate payer to participate in a local agency’s Prop 218 rate-setting process, in order to exhaust their remedies prior to judicial review.