Legal Alerts Jun 19, 2017

No Mandatory Exhaustion of Administrative Remedies for Proposition 218 Challenge

California Court of Appeal Allows Challenge to Prop. 218 Without Public Protest

No Mandatory Exhaustion of Administrative Remedies for Proposition 218 Challenge

A ratepayer is not required to file a written protest or appear at a public hearing for the adoption of new or increased property-related fees prior to filing a legal challenge to those fees, a California Court of Appeal decided last week. While protest proceedings provide an opportunity to be heard, the court found that — given the near impossibility of a successful majority protest — filing a written protest or appearing at a public hearing to object to the fees or charges is not a mandatory administrative remedy that must be exhausted prior to bringing suit.
 
In Plantier v. Ramona Municipal Water District, a group of commercial property owners challenged the District’s wastewater service fees as violating the substantive provisions of Article XIII D, section 6 of the California Constitution. The District’s wastewater service fees are calculated on an equivalent dwelling unit, or EDU, basis, whereby each account is assigned a number of EDUs. The number of EDUs is based on the estimated wastewater capacity needs and flow and strength of the wastewater discharged by different customer types or classes. The District argued, and the trial court agreed, that the lawsuit was barred because the plaintiffs did not file written protests or appear at the public hearing to object to the proposed fees, and therefore did not exhaust their administrative remedies prior to filing their lawsuit.
 
Article XIII D, section 6, which was added to the California Constitution in 1996 as a result of Proposition 218, requires that public agencies comply with certain substantive and procedural requirements for the adoption of any new or increase in any existing property-related fee or charge. The substantive limitations restrict the use of the revenues collected from fees and charges, as well as the amount of the fee or charge that may be imposed on each parcel. Procedurally, public agencies must conduct a public hearing on a proposed fee or charge not less than 45 days after mailing the notice to the record owner of each parcel upon which the fee or charge will be imposed. At the public hearing, the public agency must consider all protests against the proposed fee or charge. If it receives written protests to the proposed fees or charges from a majority of the property owners, the fees or charges may not be adopted or increased.
 
On June 13, the Fourth District Court of Appeal overruled the trial court’s decision on two independent bases. First, the court found that the protest proceeding is an “inadequate administrative remedy” due to the unlikelihood of receiving a majority protest. Here, the District provides sewer service to 40,000 people, or about 6,900 parcel owners, and in recent years only received written protests from between four to 12 people.
 
Second, the court found that, even if Article XIII D, section 6 imposed a mandatory administrative remedy, it only applied to lawsuits challenging compliance with the procedural requirements of Article XIII D. Challenges to the method used by the District to calculate its rates, however, are outside the scope of the administrative remedies set forth in section 6.
 
If you have any questions about this opinion or how it may impact your agency, please contact the authors of this Legal Alert listed to the right in the firm’s Special Districts or Public Finance practice groups, or your BB&K attorney.
 
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