514 P.3d 799
Cal.2022Background
- In 2012 Oakland awarded two exclusive waste-hauling franchise contracts that required annual franchise fees (initially ~$25 million and $3 million) payable to the City. The fees were later adjusted and one reduced by ordinance.
- Plaintiffs are multifamily property owners who allege the haulers passed the fees through to tenants, increasing their waste-collection bills.
- An Alameda County grand jury found Oakland’s fees disproportionately high and procurement problems.
- Plaintiffs sued under article XIII C (Prop. 218, as amended by Prop. 26) alleging the fees are taxes subject to voter-approval because they exceed any reasonable relationship to the franchises’ value.
- Trial court sustained Oakland’s demurrer; the Court of Appeal reversed in part, holding plaintiffs adequately alleged the fees were not reasonably related to franchise value. The California Supreme Court affirmed the Court of Appeal and remanded, holding Oakland failed on demurrer to prove the fees were exempt from article XIII C.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue | Zolly: plaintiffs suffered economic injury because fees were passed through to them | Oakland: plaintiffs lack standing because they were not directly obligated to pay the fees to the City | Plaintiffs have standing; alleged pass-through increases are a classic injury-in-fact sufficient to proceed |
| Whether fees are "imposed by a local government" (i.e., a "tax") | Zolly: Oakland established the fees by exercising its authority to grant and ordinance-approve franchises; no coercion required | Oakland: fees were voluntarily negotiated contractual consideration, not an "imposed" tax | "Imposed" means established; fees enacted by ordinance and required of haulers can be "imposed by a local government" |
| Whether franchise fees are categorically exempt under Prop. 26 (Exemption 4: "entrance to or use of local government property" / "purchase, rental, lease") | Zolly: fees are not necessarily fees for use or purchase of local government property and may be taxes if not tied to value/use | Oakland: franchise is "local government property" and fees are payment to purchase/use that property; alternatively fees pay for use of streets/rights-of-way | Oakland failed on demurrer to show Exemption 4 applies as a matter of law; a factual inquiry is required whether fees were paid for a specific use of local government property |
| Whether franchise fees must be reasonably related to franchise value to be exempt | Zolly: exemptions should incorporate a reasonableness/value relationship (as in Jacks) | Oakland: Prop. 26 categorically exempts such franchise fees without a separate reasonableness test | Court did not decide Exemption 4’s reasonableness element because Exemption 4 was not shown to apply; left open Exemption 1 and related reasonableness questions |
Key Cases Cited
- Jacks v. City of Santa Barbara, 3 Cal.5th 248 (franchise fees not per se taxes; to the extent a franchise fee exceeds reasonable value of the franchise the excess is a tax)
- Citizens for Fair REU Rates v. City of Redding, 6 Cal.5th 1 (context on Propositions 218 and 26 and article XIII C/D interplay)
- City and County of San Francisco v. Farrell, 32 Cal.3d 47 (interpretation of "special taxes")
- Kwikset Corp. v. Superior Court, 51 Cal.4th 310 (economic loss is a classic injury-in-fact for standing)
- Chiatello v. City and County of San Francisco, 189 Cal.App.4th 472 (standing limits under specific statutory refund cause of action distinguished)
- County Inmate Telephone Service Cases, 48 Cal.App.5th 354 (inmates lacked standing where they had no legal obligation to pay alleged unlawful charges)
- Mahon v. City of San Diego, 57 Cal.App.5th 681 (example of a franchise fee tied to a specific use/obligation concerning government property)