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Court of Appeal Holds Proposition 218 Does Not Require Exhaustion of Administrative Remedies Before Filing a Lawsuit Challenging an Increase in a Fee or Charge

The California Court of Appeal, Fourth Appellate District, recently held that the California Constitutional provision governing imposition of fees and charges does not require exhaustion of administrative remedies before challenging a fee or charge in court.  Plantier v. Ramona Municipal Water Dist., Case No. D069798, 2017 Cal.App. LEXIS 542 (Ct. App. June 13, 2017) (Plantier).  Plaintiffs, commercial property owners located within the service area of the Ramona Municipal Water District (District), challenged a wastewater service fee imposed by the District for service for the years 2012, 2013 and 2014.  Plaintiffs sought a declaration that the District’s method of determining the costs of sewer service based on each parcel’s assigned Equivalent Dwelling Unit (EDU) violated the “proportionality” provision of subdivision (b)(3) of article XIII D, section 6 of the California Constitution (added in 1996 by Proposition 218), and sought a refund from the District of alleged overcharges for fees paid by District customers.

The trial court considered whether Proposition 218 imposed an exhaustion requirement and, if so, whether plaintiffs satisfied that requirement or were otherwise excused from doing so.  The trial court relied on Wallich’s Ranch v. Kern County Pest Control Dist., 87 Cal.App.4th 878 (2001), to find that the plaintiffs were required to have participated in the District’s annual Proposition 218 wastewater service fee increase process which, according to the trial court, was intertwined with the District’s annual budget process.  The trial court based its holding on the requirement in section 4 of article XIII D that an agency, at the public hearing required prior to increasing a fee, “shall consider all protests against the proposed assessment and tabulate the ballots.”  (In Plantier, the trial court substantially relied on section 4 of article XIII D.  Section 4 governs imposition of assessments, as opposed to fees or charges.  The parties, however, agreed that section 6 governed the appeal.)  The trial court reasoned that by requiring an agency to consider all protests, an avenue exists for a party to protest, and a party is not free to ignore this provision by failing to protest and simply proceeding to court.  The trial court ultimately determined that plaintiffs had not satisfied the exhaustion requirement because the plaintiffs had not given the District the opportunity to resolve plaintiffs’ dispute short of litigation by participating in the District’s annual budget process.

The Court of Appeal independently evaluated section 6 of article XIII D to determine whether the doctrine of administrative remedies applied.  Under section 6, similar to section 4, an agency shall “consider all protests against the proposed fee or charge” and if “written protests against the fee or charge are presented by a majority of owners of the identified parcels, the agency shall not impose the fee or charge.”  Cal. Const., art. XIII D, § 6(a)(2).  The Court of Appeal determined that subdivision (a)(2) of article XIII D, section 6 did not require plaintiffs to exhaust administrative remedies prior to challenging the District fee in court because the section 6 remedy is inadequate.  An exhaustion requirement is mandatory where a statute, ordinance or regulation establishing a remedy provides “clearly defined procedures for the submission, evaluation, and resolution of disputes.”  Plantier at *14.  Exhaustion is not required where the remedy is inadequate.  City of San Jose v. Operating Engineers Local Union No. 3, 49 Cal.4th 597, 609 (2010).  In this case, the Court of Appeal determined that the remedy in section 6 is inadequate because it would have been “nearly impossible” for plaintiffs to obtain written protests from a “majority” of parcel owners to trigger the primary administrative remedy – i.e., rejection of the imposed fee or charge.  The Court of Appeal also found it “implausible” that the plaintiffs would have ever been able to secure opposition by a majority of parcel owners because the relief plaintiffs sought would have required other, mainly residential, property owners, to pay higher fees or charges for wastewater services if the commercial wastewater service fee were rejected.

The Court of Appeal also found that section 6 lacks a meaningful remedy because it merely requires an agency to “consider all protests.”  According to the Court of Appeal, a remedy, to be meaningful, must provide for the taking of testimony, submission of legal briefs, or resolution by an impartial fact finder.  See City of Oakland v. Oakland Police & Fire Retirement System, 224 Cal.App.4th 210, 236-237 (2014).  Given the inadequacies of the remedy in section 6, the Court of Appeal ultimately concluded that plaintiffs were not required to exhaust the administrative remedy in subdivision (a)(2) of section 6 by either objecting in writing beforehand to the annual increases in fees or by appearing at the hearings in 2012, 2013, and 2014 to publicly challenge the increases.

For additional information please contact Aaron Ferguson at aferguson@somachlaw.com or 916-446-7979.

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