Background
A. The District Act
Prior to adoption of the District Act, the Santa Clara Valley was plagued by overdraft of the underlying groundwater basin, causing among other things
The Act requires the District to issue an annual report containing "a recommendation as to whether or not a groundwater charge should be levied in any zone or zones of the district during the ensuing water year and, if any groundwater charge is recommended, a proposal of a rate or rates per acre-foot for agricultural water and a rate or rates per acre-foot for all water other than agricultural water for the zone or zones."
The Act declares that monetary claims against the District "are governed by Part 3 (commencing with Section 900) and Part
B. District's Zones
Although we are directed to no competent evidence on this point, Great Oaks asserted in its trial brief-and the District has never denied-that the District has only two permanent zones, designated W-2 and W-5. Great Oaks described Zone W-2 as comprising approximately 240 square miles in the northern part of the county, while W-5 consists of about 14 square miles in the southern part. They are sometimes referred to as the North County zone and the South County zone, respectively.
At the time of trial, Great Oaks operated 19 wells of which 16 were located in Zone W-2, and three in Zone W-5.
C. Notice and Hearings on 2005-2006 Charge
On or about March 1, 2005, the District mailed a "notice of hearings on groundwater charges for 2005-2006" to about 4,500 well owners in the county. (See pt. I(F)(1), post.) According to later recitals by the board, the accuracy of which is not contested, the written report required by section 26.5 of the Act was duly prepared, and was delivered to the clerk of the board on March 22, 2005. The board thereafter held hearings on the proposed rates on April 5, April 11, and April 19. On April 19, 2005, the board adopted Resolution 05-28 setting groundwater charges for 2005-2006. For extractions in Zone W-2, the per-acre-foot charge was $420 for non-agricultural use and $42 for agricultural use. In Zone W-5 the respective charges were $215 and $21.50.
D. Pre-Suit Claim
On May 20, 2005, Great Oaks submitted a claim to the District under Government Code sections 900 et sequitur. The sole stated ground for recovery was that the District was "illegally using pump tax revenues for purposes
E. Proceedings Below
Great Oaks filed this action on November 22, 2005. The matter was tried on an amended complaint, filed January 26, 2006, asserting eight causes of action: (1) "Demand for Refund," in that the District was (a) using charges for purposes not authorized by section 26.3, including flood control and revenue pooling; (b) including costs of treated water in the groundwater charge; and (c) imposing an improper tax "in violation of
A demurrer by the District was sustained without leave to amend as to the unfair competition cause of action, and was otherwise overruled. The District answered the remaining causes of action, generally denying them and asserting 46 affirmative defenses, including failure to give timely and proper notice of all claims under Government Code sections 905 et sequitur.
On June 12, 2008, the parties filed a joint case management statement requesting trial in two phases, the first addressing specified "threshold issues" and the second concerning "appropriate remedies, and any remaining non-substantive issues." The issues to be addressed in "Phase I" were: "(a) Whether the District has violated the District Act, including whether the District abused its discretion, or the Act, in the manner in which it accounts for the collection, use and allocation of groundwater charges; [¶] (b) Whether the District has violated Article XIII of the California Constitution [sic; see fn. 5, ante]; [¶] (c) Whether the District is required under the District Act to prevent the waste of water under the Water Code and collect groundwater charges for dewatering wells in Santa Clara County." The statement set forth a briefing schedule for these issues, and recited the parties' agreement that "with respect to the issues above, to the extent
Great Oaks filed a trial brief arguing that the groundwater charge was unlawful in several respects. The first five specifications posited that the charge was imposed on an incident of property ownership and was thus subject to the requirements imposed on such charges by Article 13D. Great Oaks contended that the District had violated that provision by failing to secure voter approval for the charge and failing to give notice and hearing conforming to the article's requirements. It also contended that the charge violated the substantive constraints of Article 13D in that it exceeded the proportionate cost attributable to Great Oaks, included charges for services not used by or immediately available to Great Oaks, and exceeded the sum
By stipulation, the parties submitted thousands of pages of documentary evidence including declarations and deposition excerpts, as well as live testimony, in support of their respective positions. (See pt. II(B)(3), post.) On June 9, 2009, the court issued an amended statement of decision on Phase 1. The court concluded that the groundwater charge was subject to Article 13D because it was "remarkably similar" to the one that this court held subject to that article in Amrhein, supra,
The court rejected the District's contention that Great Oaks had failed to exhaust its administrative remedies, finding that the pre-suit claim submitted by Great Oaks "complied with both the Government Code and Section 30 of the District Act."
For reasons that will appear, it is unnecessary to recapitulate the proceedings in Phase II. Trial proceedings concluded on February 2, 2010, with issuance of a judgment awarding Great Oaks "a refund of groundwater charges in the amount of $4,623,095.52 plus interest." The judgment also awarded $1,306,830 "under the District Act," but recited that the two awards were made "in the alternative," such that Great Oaks could recover one or the other, "but not both." The judgment included a declaration that "(1) The District was required to comply with Article XIII D before imposing the groundwater charge. The District imposed the groundwater charge without complying with Art XIII D, Section 6, including the failure to secure proper voter approval both by failing to comply with proper notice requirements and failing to obtain ballot affirmation; (2) [t]he Defendant violated the District Act by not basing the groundwater charge on the costs of service in accordance with § 26.3. As a result, the Plaintiff was overcharged because of, inter alia, subsidies made for treated water, over-budgeting for employees, cost of equipment and water contract purchases; and, (3) the Defendant abused its discretion under the District Act when it improperly used groundwater revenue for activities not within the scope of Section 26.3 of the District Act and when it commingled groundwater revenues with other monies." The court declined to issue an injunction or writ of mandate (see pt. II(B)(2), post ). It reserved the issues of costs and attorney fees.
District filed a timely notice of appeal.
F. Attorney Fees
On or about April 5, 2010, Great Oaks filed a motion for reasonable attorney fees under Code of Civil Procedure section 1021.5. The motion asserted that Great Oaks had incurred fees of some $1.45 million, which should be multiplied by a lodestar of two to yield an award of about $2.9 million. By order made and entered on July 19, 2010, the court denied the
I. Article 13D
A. Introduction
Article 13D was adopted in 1996 as part of Proposition 218. It limits the power of local public entities to impose "assessments, fees, and charges." (Article 13D, § 1.) It is not suggested here that the groundwater charge constitutes an assessment, so the question is whether it constitutes a " '[f]ee' or 'charge.' " The two terms are interchangeable for purposes of Article 13D, which defines them to mean "any levy other than an ad valorem tax, a special tax, or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property related service."
If Article 13D applied, it subjected the charge to three requirements. First, it required the District to give advance notice of the proposed charge to affected owners and to conduct a hearing at which owners could submit protests; if a majority of owners lodged such protests, the charge could not go into effect. (Article 13D, § 6, subd. (a).) Second, unless the charge was for "sewer, water, [or] refuse collection services," it could not take effect unless it was ratified by a majority of affected owners or, at District's option, by two-thirds of voters. (Id., § 6, subd. (c).) Finally, the charge had to satisfy a number of substantive constraints, essentially to the effect that it be tailored to the benefit conferred on each affected parcel or owner. (Id., § 6, subd. (b).)
B. Standard of Review
The characterization of a fee or charge for purposes of Article 13D presents " 'a question of law for the appellate courts to decide on independent review of the facts.' " (
Great Oaks agrees that we should "employ a de novo standard of review when examining the District's assertions of error under Article XIIID, exercising [our] independent judgment in reviewing the District's levy and collection of groundwater charges." However, Great Oaks emphasizes that Article 13D "shift[s] the burden of proof of procedural and substantive compliance with Article XIIID to the local agency." (Emphasis omitted.) It thus alludes to, but does not cite, Article 13D, section 6, subdivision (b)(5), which states, "In any legal action contesting the validity of a fee or charge, the burden shall be on the agency, to demonstrate compliance with this article. " The plain meaning of this language is that once a charge is
Of course, application of an independent standard of review does not require or permit us to substitute our judgment for that of the trial court on purely factual questions as to which the trial court's finding is supported by substantial evidence. (See Morgan v. Imperial Irrigation Dist. (2014)
C. Property-Related Charge
In two previous opinions we have contended with the issue of Article 13D's applicability
An overlying right is the right of the owner of land to extract as much of the water lying under it as can be beneficially used on it. (Barstow, supra,
An appropriative right differs from an overlying right in that it does not depend on ownership of overlying land.
This of course describes nearly all of the extractions at issue here. In a supplemental letter brief, Great Oaks asserted somewhat vaguely that some of the water it extracts is reserved for its own use. No thanks to it, we have found some comparably vague evidence to similar effect in the record. It is undisputed, however, that the vast majority of water extracted by Great Oaks is not put to beneficial use upon its own land, but is sold to others for their (presumably beneficial) use. The right thus exercised-and burdened by the extraction charge-is that of an appropriator, not an overlying owner.
We have nonetheless found authority to the effect that when a landowner operates a waterworks for commercial distribution of water to persons beyond his or her property, both the works and any distribution system connected to it are appurtenances to the owner's property. (Trask v. Moore (1944)
The applicability of this principle to the question before us presents a question that is far from simple. In City and County of San Francisco v. Alameda County (1936)
A similar question was presented in Waterford Irr. Dist. v. Stanislaus County (1951)
These cases suggest that the rights burdened by a groundwater extraction charge are themselves a species of real property, whether or not the charge is "incidental" to the ownership of any overlying or other property. Because the parties had not addressed the applicability of these decisions, we asked them to do so. The District pointed out quite correctly that neither Waterford nor CCSF rested solely or even primarily on the technical niceties of property law; both courts cited the policy objectives that apparently led voters to adopt the 1914 constitutional amendment limiting the exemption of public property from taxation. In CCSF the court noted that the "undoubted purpose of the amendment was primarily to safeguard the tax revenues of smaller counties wherein large municipal corporations had purchased, or would acquire, extensive holdings and which would, except for the amendment, be exempt from local taxation." (CCSF, supra, 5 Cal.2d at pp. 245-246,
In Waterford, as we have noted, the court acknowledged the historical differences between the appropriative rights before it and the rights, originally riparian, at issue in CCSF. However, after reviewing the above treatise and other cases discussing the policy of the amendment, the court reached the same result as in CCSF: "[B]earing in mind the purposes of the amendment and what we believe to be the common concept of the nature of appropriative water rights, we conclude that they constitute land, as that term is used in the Constitution." (Waterford, supra,
Here too the technical status of appropriative rights would seem to invite a simple answer to the question whether the constitutional provision before us applies:
In contrast to the constitutional provision at issue in CCSF and Waterford, Article 13D does not appear to address a narrowly conceived problem. Nor can a readily cabined intention be drawn from the materials before the voters when they adopted it. According to the Legislative Analyst's "Overview" of the enactment, its chief effects would be to "[r]educe the amount of fees, assessments, and taxes that individuals and businesses pay," and "[d]ecrease spending for local public services." (Ballot Pamp., Gen. Elec. (Nov. 5, 1996), analysis of Prop. 218 by Legis. Analyst, p. 73.) Assuming these to be the intended purposes of the enactment, they provide far too vague a guide to determine what exactions were intended to fall within its restrictions. The Legislative Analyst suggested a somewhat more concrete guideline by describing affected "[f]ees" as charges assessed by local governments for "services to their residents," some of which are assessed to "pay for service to property, such as garbage collection and
The argument in favor of the proposition could be understood to attribute a relatively narrow scope to the measure's operation. It opened with a statement that the proposition "guarantees your right to vote on local tax increases-even when they are called something else, like 'assessments' or 'fees' imposed on landowners." (Ballot Pamp., Gen. Elec. (Nov. 5, 1996), argument in favor of Prop. 218, p. 76.) It alluded repeatedly to the desirability of requiring voter approval to "raise taxes," and to some assessments and fees as a euphemism for new or increased taxes. (See
This background hardly provides the overall guidance the courts were able to draw from the circumstances surrounding the provision at issue in CCSF and Waterford. As potentially applicable here, however, the voter pamphlet provides strong evidence that the voters expected, and thus intended, that the article would reach charges for water service. The Legislative Analyst opined that the measure would
That the charge is one for water service follows directly from our decision in Griffith, supra,
This conclusion was presaged by our decision in Amrhein, which in turn rested on the Supreme Court's reasoning in Bighorn-Desert View Water Agency v. Verjil (2006)
In Griffith we took the further step of acknowledging that the indirect delivery of water to groundwater extractors-whether by replenishment of the groundwater basin, or by measures reducing demands on it-was conceptually indistinguishable from the direct delivery of water. The challengers there sought to distinguish between groundwater management services and "water service" as contemplated in Article 13D. Describing this as a "distinction without a difference," we said, "Domestic water delivery through a pipeline is a property-related water service within the meaning of Proposition 218. (Bighorn [, supra,]
Great Oaks argues that the charge cannot be viewed as one for water service because it "is not based at all on the delivery of water, but is instead based solely upon the 'production' or extraction of groundwater for beneficial use." It is true that the charge is occasioned and measured by the pumping of groundwater. This fact might be critical if the water service exemption were defined in terms of a charge on specified activities. But it instead applies to "fees or charges for sewer, water, and refuse collection services." The question is thus not what triggers a charge, or what activity it directly burdens, but what it is "for," i.e., where the proceeds go.
Here the District Act states that the charge is levied upon extraction facilities within affected zones "for the benefit of all who rely directly or indirectly upon the ground water supplies of such zone or zones and water imported into such zone or zones." (District Act, § 26.3) It then declares that the proceeds of the charge shall be used for importing, treating, and distributing water, as well as replenishing the groundwater basin. (District Act, § 26.3) We see no material distinction between these purposes and the purposes that, as we held in Griffith, made the charge in that case one for water service. Accordingly, the charge was generally subject to Article 13D, but was exempt from the requirement of voter ratification. To the extent the trial court's finding of a violation of Article 13D rested on the absence of such ratification, it was error.
E. Regulatory Purpose
The District suggests that even if the extraction charge is property-related, it falls outside the contemplation of Article 13D because it serves a regulatory purpose. This suggestion appears to be based on a passage in Amrhein, where we wrote, "The juxtaposition of [Apartment Association, supra,
The possibility we meant to hold open in Amrhein is that Article 13D might not be intended to foreclose the imposition of fees-or perhaps more precisely their structuring-in such a way as to regulate, through market forces, the consumption or use of a scarce or protected commodity or service. The quoted passage contemplated a hypothetical fee that was "structur[ed]" in such a way as to operate in this manner. The most obvious example would be a fee that scales up as consumption of the public service increases, or is triggered only after a certain threshold quantity has been taken. While we do not mean to suggest that this is the only way a fee might fall within our hypothetical "regulatory" rubric, we did indicate that any such regulatory purpose would have to be "clearly established."
The underlying rationale for such an exception would be that Article 13D is intended to regulate exactions that operate as de facto taxes, i.e., to produce revenue, in circumvention of the restrictions on taxation imposed by other initiatives. (See Ballot Pamp., Gen. Elec. (Nov. 5, 1996), argument in favor of Prop. 218, p. 76 ["After voters passed Proposition 13, politicians created a loophole in the law that allows them to raise taxes without voter approval by calling taxes 'assessments' and 'fees.' "];
The District directs us to nothing in the record that would compel or even permit a finding that the extraction fee here falls within the "regulatory purpose" hypothesis we posited in Amrhein. While the fee as a whole may be intended in part to influence the consumption of groundwater, it is not "structured" in the sense contemplated above. Nor does anything in the District Act "clearly establish[ ]" that it has a regulatory purpose. Nothing in the notice to owners explaining the basis for the fee alluded to any such
F. Notice and Hearing
1. Background
Article 13D requires an agency proposing to impose or increase a property-related charge to "provide written notice by mail of the proposed fee or charge to the record owner of each ... parcel upon which the fee or charge is proposed for imposition." (Art. 13D, § 6., subd. (a)(1).) The notice must set forth "the amount of the fee or charge proposed to be imposed upon each [parcel], the basis upon which the amount of the proposed fee or charge was calculated, the reason for the fee or charge, together with the date, time, and location of a public hearing on the proposed fee or charge." (Ibid.) The notice must be given at least 45 days before the hearing. (Id., § 6, subd. (a)(2).) At the hearing, "the agency shall consider all protests against the [written] fee or charge. If written protests against the proposed
The trial court found that the District "fail[ed] to comply with proper notice requirements" under Article 13D. It did not specify in what way the District's procedures were deficient. We detect no such deficiency.
The undisputed facts are these: On or about March 1, 2005, the District mailed a "notice of hearings on groundwater charges for 2005-2006" to about 4,500 well owners in the county. One version of the notice concerned "Zone W-2 (North County)," while the other concerned "Zone W-5 (South County)." The Zone W-2 notice set out "minimum" and "maximum" proposed rates, per acre foot, of $40.50 and $43.50 for agricultural use, and $405.00 and $435.00 for other uses. The corresponding numbers for zone W-5 were $20.00, $24.00, $200.00, and $240.00. The notice invoked the District's authority to levy the charge and stated that it would be used to "fund the District's activities to protect and augment water supplies for the public health, welfare and safety of the community." The notice specified that the charge would be used to "[p]ay the costs of importing water to recharge the groundwater basin," to "[o]perate and maintain the pipelines and pumping plants that distribute imported water throughout our service area," to "[o]perate and maintain the District's reservoirs and recharge ponds which help replenish the groundwater basin," to "[p]lan and construct improvements to pipelines and reservoirs," to "[c]onduct groundwater protection programs such as the district's Well Ordinance program, and programs to detect and protect groundwater from perchlorate, nitrate and other contaminants," to
The notice for Zone W-5 stated that public hearings on the proposed rates would take place on April 1 and 19 in San Jose, and on April 11 in Morgan Hill. The notice for Zone W-2 referred only to the April 1 and 19 dates. The chief executive officer for Great Oaks declared below that the District did not disclose a fixed proposed rate until March 22, 2005, when it made available for public inspection a report apparently specifying the agricultural and non-agricultural rates ultimately adopted, i.e., $42.00/$420.00 for Zone W-2, and $21.50/$215.00 for Zone W-5.
2. Timeliness of Notice
In finding that the District's procedures did not comply with Article 13D's
Nothing in Article 13D prohibits a public agency from conducting public hearings within the 45 days following notice of a proposed increase in a charge or fee, provided it conducts at least one noticed hearing at least 45
The District gave timely notice of the hearing preceding imposition of the charge, as contemplated by the above provisions of Article 13D.
3. Notice of Proposed Charge
Great Oaks suggests that the March 1 notice was defective because it set forth a range of possible rates instead of a single, fixed proposed rate. Again the underlying premise-that a range of rates offends Article 13D-is never straightforwardly advocated, but is simply put forth by necessary implication. We reject it.
Article 13D requires that the agency give "written notice by mail of the proposed fee or charge." (Art. 13D, § 6, subd. (a)(1).) To the extent any argument on this point can be inferred from Great Oaks's brief, it appears to rest entirely on Article 13D's requirement that the notice set forth "the proposed fee or charge." (Ibid.) This use of the singular article can hardly be understood to preclude a notice stating a range of possible charges. Such a notice states in effect that the agency "propose[s]" to impose "the" maximum rate set forth, while reserving the option to select a lower rate. The disclosure of such an intention does not offend the letter of the cited requirement. Nor does it offend its purpose, which it to ensure that owners are notified of the financial burdens to which a proposed charge may expose them, so that they can decide whether to oppose it. This function is fully served by disclosing the maximum financial burden contemplated by the propounding agency. Should the agency elect to impose a lower rate than the one specified in the notice, no harm is done to the owners or to the constitutional requirement, and no ground appears to question the validity of the charge. (See Morgan v. Imperial Irrigation Dist., supra,
Any owner who objects to a charge above a given level is free to lodge an objection to that effect, and if a majority of owners do so they can effectively set a ceiling on the charge. By objecting to the minimum stated, they can effectively prevent the imposition of any charge. In no way is the purpose of the provision subverted by a notice such as was given here.
In so viewing this requirement we are apparently joined by the Legislature, which has expressly authorized an agency, when voter ratification of a charge is required, to "state a range of rates or amounts," and upon ratification, to impose any charge within the specified range. (Gov.Code, § 53739, subd. (a).) We can think of no reason that a more stringent rule should govern the notice mandated by Article 13D, section 6, subdivision (a)(1).
We conclude that the notice mailed on March 1 adequately notified owners of the "proposed fee or charge."
4. Basis of Calculation
Great Oaks also faulted the March 1 notice for failing to "set forth the basis upon which the amount of the proposed fee or charge was calculated." It made no attempt to elaborate upon or otherwise substantiate this objection in its trial brief, and in its brief here it merely alludes to the language of Article 13D while citing our summary of the article's requirements in Amrhein, supra,
Article 13D contemplates that an agency giving notice of a proposed charge will, after identifying the parcels subject to the charge, "calculate[ ]" the "amount of the fee or charge proposed to be imposed upon each parcel." (Art. 13D, § 6, subd. (a)(1).) Having done so, the agency is to give notice to each parcel's owner of "the proposed fee or charge ... the amount of the fee or charge proposed to be imposed upon each, the basis upon which the amount of the proposed fee or charge was calculated, the reason for the fee or charge, together with the date, time, and location of a public hearing on the proposed fee or charge." (Ibid. italics added.)
The requirement that the agency disclose the "basis" for the charge is thus tied directly to the specific "amount" to be charged to each parcel or owner, and is separate from the requirement that the agency disclose the "reason" for the charge. The underlying conception of a single charge against an identified parcel is of course underinclusive, since the fees and charges covered by the
When a charge depends in part on an unknowable variable such as consumption, all the agency can reasonably be expected to provide in a notice of the proposed charge are the known variables, i.e., the rate and the unit of measure. The amount actually due will consist of the rate times the units the addressee ultimately consumes. Here, by disclosing the rate and the unit of measure, the District disclosed all that possibly could be disclosed of the "basis upon which the amount of the proposed fee or charge [would be] calculated." (Art. 13D, § 6., subd. (a)(1).) Nothing in Great Oaks's presentation on this point suggests that this did not satisfy the letter and purpose of the cited provision.
5. Mechanism to Protest Fee
Great Oaks also suggested below that the District's procedures were defective for failure to "set forth a mechanism to protest the fee." This seems to hint at two distinct concepts: failure to notify owners of their power to nullify the proposed fee by majority protest; and failure to provide an adequate procedure for lodging objections toward that end.
Again Great Oaks failed to marshal any coherent argument in support of the implicit premise, i.e., that the District was under a duty to explicitly notify owners of their collective power to nullify the charge by objecting to it in writing. The relevant argument in Great Oaks's brief consists entirely of a statement that "at no time did the District notify property owners they had the right to protest the groundwater charge, or provide majority protest procedures, as required by Article XIIID, Section 6(a)(2)." (Italics added.) Nothing in the cited provision requires an agency either to notify owners of their rights in this regard, or to "provide majority protest procedures" to facilitate their doing so. Rather the relevant
Had the voters wished in 1996 to require express notification to owners of their nullification rights, or to prescribe a mechanism for the exercise of those rights, they were more than capable of doing so, as they demonstrated in the parallel provisions governing assessments. There they provided that the notice of a proposed assessment shall include (1) a ballot in prescribed form (Art. 13D, § 4, subd. (d)), and (2) "a summary of the procedures applicable to the completion, return, and tabulation of the ballots ..., including a disclosure statement [sic ] that the existence of a majority protest, as defined in subdivision (e), will result in the assessment not being imposed" (id. subd. (c)). In the Omnibus Proposition 218 Implementation Act, the Legislature adopted elaborate procedures for carrying out these provisions, including means of notice, protest, and balloting.
Given the seemingly deliberate difference between the procedures required for assessments and those imposed on property-related fees and charges, we cannot insert terms into the latter provisions based upon a mere surmise that voters failed to say what they meant. We are particularly loath to adopt such an approach where its effect is to impose unwritten procedural requirements on public agencies, increasing their administrative overhead and ultimately
We have no doubt that an agency imposing a property-related charge must afford a fair and reasonable opportunity for owners to express their opposition and, most importantly, to lodge their written objections. But there is no suggestion that the District's procedures fell short of that standard. The record fails to establish the precise manner in which any of the public hearings were conducted, but that failure appears to be the result of the parties' agreement to try this case without apparent regard for the procedures usually employed in challenges to administrative rulings-which require, among other things, the creation of an administrative record. (See pt. II(B), post.) All Article 13D required, however, was that District conduct a hearing, on proper notice, at which it would hear and receive owners' objections. That it conducted a hearing is undisputed. Great Oaks has never so much as asserted that the District did not afford due opportunity to object. Great Oaks asserted in its trial brief that the District had adopted the charge "[a]fter the public meeting was closed." Assuming this is true, it has no tendency to show that owners were afforded insufficient opportunity to be heard or to lodge objections to the charge.
G. Substantive Compliance
Article 13D, section 6, subdivision (b), imposes several substantive limitations on property-related fees and charges. In its trial brief Great Oaks argued that the groundwater extraction charge violated three of these limitations. The trial court did not address these contentions. Nor does Great Oaks offer them as alternative grounds to affirm the judgment. Accordingly we make no
H. Sufficiency of Pre-Suit Claim
1. Background
The District contends that even if the trial court had properly found a violation of Article 13D, it was precluded from awarding monetary relief on that basis because no such claim was ever communicated to the District by a pre-suit claim. We might seem to have mooted this contention by concluding, as we do in parts I(D) and I(F), ante, that the District did not violate the procedural requirements of Article 13D. However, our unqualified reversal of the judgment will set the matter " 'at large' " in the trial court, opening the possibility of a retrial or other further proceedings. (9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 869, p. 928; see
Insofar as the claimed violation of Article 13D concerns the District's notice and hearing procedures, monetary relief is indeed foreclosed by the failure to hint at any such cause of action or theory of relief in the pre-suit claim. It is undisputed that any monetary claims Great Oaks might pursue against the District were subject to the requirements of the Government Claims Act (Gov.Code, §§ 900 et seq.) (GCA). (See District Act, § 30 [requiring any claim against District for "money or damages" to comply with the GCA].) Among the GCA's key provisions is the requirement that, with stated exceptions, "all claims for money or damages against local public entities" must be presented in accordance with its terms.
Great Oaks submitted a claim to the District on May 20, 2005. However its sole stated grounds for recovery were that the District was violating the District Act in fixing the groundwater charge, which it called a "pump tax," and in spending the proceeds thereof. Great Oaks alleged that the District was "illegally using pump tax revenues for purposes outside the four (4) statutorily specified uses," that "to cover those unauthorized expenditures the amount of the pump tax is excessive," and conversely, that it had "charged and continues to charge an excessive pump tax and that those excessive pump tax revenues are used for purposes which are not expressly authorized by the Act." The claim further asserted that the District had "damaged Great Oaks by requiring it to pay more than necessary for the pump tax. Consequently, [District] is indebted to Great Oaks for the amount it charged over and above what was necessary to fulfill the statutorily listed uses for pump tax revenues. Great Oaks hereby makes a claim for the refund of the amount which it was overcharged for the pump tax and requests that the [District] lower the pump tax and modify its uses of pump tax revenues to come into conformity with the Act." (All italics added.)
The claim made no mention of the provisions of Article 13D. Nor did it refer to the notice of the proposed charge, the hearing on that subject, or any other procedural aspect of the matter. Further, there was no suggestion that Great Oaks claimed a right to a complete refund of the groundwater charge, as distinct from recovery of the amount by which it was "overcharged."
2. Procedural Noncompliance
The claim submitted by Great Oaks cannot sustain an award of monetary relief based on defects in the procedure by which the charge was imposed.
"The purpose of [the claims] statutes is 'to provide the public entity sufficient information to enable it to adequately investigate claims and to settle them, if appropriate, without the expense of litigation.' [Citation.] Consequently, a claim need not contain the detail and specificity required of a pleading, but need only 'fairly describe what [the] entity is alleged to have done.' [Citations.] As the purpose of the claim is to give the government entity notice sufficient for it to investigate and evaluate the claim, not to eliminate meritorious actions [citation], the claims statute 'should not be applied to snare the unwary where its purpose has been satisfied' [citation]." (Stockett v. Association of California Water Agencies Joint Powers Ins. Authority (2004)
At the same time, where a claimant seeks to pursue multiple causes of action resting on distinct facts, it is not enough that some of them were
Here the trial court's award of damages under Article 13D rests on facts-failure to give adequate notice and hearing, and failure to secure voter ratification-that were not fairly reflected, or even hinted at, in the pre-suit claim. The facts underlying the award were " 'entirely different' " from those asserted in the claim, i.e., spending funds on unauthorized activities and improperly inflating the charge to cover those expenditures. (Stockett, supra,
Great Oaks asserts that "[b]oth the government claim and the complaint are based upon the same set of facts: the District's improper use of groundwater charge revenues." (Underlining omitted.) This statement is only partly accurate. It is accurate, if vague, as a description of the pre-suit claim; but it is at best an incomplete characterization of the causes of action pursued by Great Oaks under Article 13D in the trial court.
The trial court could not properly impose monetary liability on grounds that were wholly unheralded in the pre-suit claim. Such a lacuna between the facts asserted in a claim and those ultimately adopted as grounds for liability "defeats the purpose of the statute, which is to give the public entity the opportunity to evaluate the merit and extent of its liability and determine whether to grant the claim without the expenses of litigation." (Crow v. State of California (1990)
Here too the District could have concluded that its imposition of the groundwater charge and use of the proceeds complied with the District Act, while the "new facts" of procedures allegedly violating Article 13D "might have changed its position." A claim of the latter type had the potential to completely invalidate the challenged fee and require a refund of the entire sum paid by Great Oaks. No such consequence was presaged by the pre-suit claim, which asserted only that the District was indebted to Great Oaks for "the amount which it was overcharged for the pump tax." Recognizing this limitation, the trial court awarded some $1.3 million as "damage[s]" under the District Act, including "the overcharge" and other unspecified elements. Yet on the Article 13D claim the court directed the District to refund the entire $4,623,095.52 paid by Great Oaks during the year the charge was in effect. Nothing in the claim alerted the District that it was exposed to any such liability.
Great Oaks urges us to defer to the trial court's ruling on the sufficiency of the claim because that question was vested in the trial court's discretion. Most of the cases it cites for this proposition concern the entirely distinct question of whether a claimant is entitled to relief from a failure to file a timely claim. (See Powell v. City of Long Beach (1985)
The concept of substantial compliance, however, has little if any bearing on the question at hand. That concept applies when the question is whether a claim conforms to statutory requirements. No one here suggests that the claim here was defective. Rather the question is whether it adequately apprised the District of the grounds on which Great Oaks ultimately sought, and the trial court decided, to impose monetary liability on the District. "[A]ny contention of substantial compliance 'is unavailing where the plaintiff seeks to impose upon the defendant public entity the obligation to defend a lawsuit based upon a set of facts entirely different from those first noticed. Such an obvious
The question is thus one of variance between the pre-suit claim and the grounds for relief ultimately asserted-in this case successfully-at trial. The leading case on this subject is probably Stockett, supra,
In challenging this conclusion before the Supreme Court, the plaintiff argued that he was "not precluded from raising additional reasons at trial for his termination because he was not required, in order to comply with section 910, to claim more than that [the defendant's] agents wrongfully terminated him, while giving the basic circumstances of that occurrence." (Stockett, supra,
Here, nothing in the pre-suit claim notified the District that liability might be predicated on an asserted failure to give notice and conduct a hearing pursuant to Article 13D, or on failure to secure voter ratification. All the claim called upon the District to investigate or consider was the extent to which it might be found to have expended revenues from the charge on activities for which the charge was not authorized under the District Act. Nor did anything apprise it that it might be exposed to a judgment ordering the refund of the entire sum paid by Great Oaks for a year, as opposed to a judgment based on the excess of the charge over the expenses it could properly use the charge to defray. The claim failed entirely to anticipate such an award on such a basis, and therefore could not sustain monetary relief.
Great Oaks observes in passing that the District "presented no evidence in support" of the defense that the pre-suit claim was insufficient to sustain all of the causes of action on which Great Oaks sought damages. The "evidence" relevant to the defense consisted entirely of the pre-suit claim as compared to the pleadings and the grounds of liability asserted by Great Oaks at trial. The District placed the claim before the court at or before the time it submitted its trial brief on Phase I. We are directed to no objection or other suggestion of evidentiary deficiency in the trial court.
Great Oaks also alludes without further elaboration to the absence of evidence that the District "conducted an investigation into Great Oaks' claim, that any investigation was in any way limited by the precise wording of Great Oaks' government claim or that the District was either misled or prejudiced in its investigation with respect to Great Oaks' government claim." Whatever the intended import of this statement, it suggests no basis for affirmance. There is no requirement that an agency demonstrate prejudice in order to assert the inadequacy of a pre-suit claim to sustain all or part of a judgment. Even if prejudice were a relevant consideration, it would be absurd to say, in a case like this one, that an agency was not prejudiced "in its investigation" merely because there is no evidence that it conducted an investigation. Contrary to the seeming implication of such a contention, an agency's failure to investigate an omitted ground of relief is fully consistent with the agency's having examined the claim as submitted, concluded that it was meritless, and for that reason having taken no further action, including investigation. It cannot be supposed that the same agency, faced with a more
For all these reasons, we conclude that the pre-suit claim is insufficient to sustain monetary relief based upon deficiencies in the procedures utilized in the adoption of the 2005-2006 groundwater extraction fee.
3. Substantive Noncompliance
This leaves the question whether the claim submitted by Great Oaks would support a monetary award under Article 13D on the ground that the groundwater charge did not comply with the substantive limitations of Article 13D. This theory does not clearly appear in the complaint, but was asserted in Great Oaks's trial brief. It does not appear that the District objected to this theory as outside the pleadings. It therefore appears to have been properly before the trial court. (See 9 Witkin, supra, Appeal, §§ 407 pp. 466-468, 410, pp. 469-470.) Judging from its statement of decision, however, the court did not reach this theory-presumably because the court found it unnecessary to do so once it found that the charge violated Article 13D's procedural provisions. Now that we have foreclosed a monetary award on the latter ground, it will presumably remain open to Great Oaks on remand to reassert the claim that the charge does not conform to the substantive limitations of Article 13D. It therefore also remains open to the District to contend that such a theory cannot support monetary relief, because liability on that basis was not asserted in the pre-suit claim.
Nothing in the pre-suit claim apprised the District of any potential liability, on any factual basis, under Article 13D. But under the cases discussed in the previous section, the foremost question is not whether a claim
Here the pre-suit claim rested on two acts by the District: using groundwater proceeds for purposes outside those specified in section 26.3 of the District Act; and setting the charge at an excessive level in order to defray these improperly incurred expenses. In its trial brief, Great
Nothing in the pre-suit claim presaged an attempt to impose liability based on the differential in rates between agricultural and non-agricultural extractions. Nor does the claim hint at the possibility that the District had exposed itself to liability by charging for services not readily available to the extractor. It follows that no monetary relief can be predicated on either of these theories.
However, the factual predicate for the third theory noted above closely resembles the factual predicate for the District Act claims asserted by Great Oaks prior to suit. The pre-suit claim asserted that the District was overcharging extractors by assessing them for activities not authorized by the District Act; the third Article 13D theory asserted that the District was overcharging extractors by assessing them more than was required to provide the property-related services the District rendered to them. The only difference between the two theories is that the first posited charges for activities beyond those permitted to be financed by the charge, while the second posited charges beyond those actually provided to extractors by the District. Given the complex context of these charges, we cannot say that the factual variance
II. District Act
A. Introduction
As noted above, the only objection originally asserted by Great Oaks was that the District had violated the District Act by spending proceeds of the groundwater fee on activities for which the Act did not authorize such expenditures, and by overcharging extractors in order to defray these unauthorized expenses. (See Background pt. A, ante.) This theory was pursued through trial on the basis of multiple subsidiary allegations, most of which the court found "not supported by the evidence." The court was persuaded, however, that "the District abused its discretion, and violated Section 26.3 of the District Act, when fixing the Plaintiff's groundwater charges," in that the charges were not
The court also found that the District had abused its discretion "with regards to spending." Specifically, the District (1) "improperly used groundwater revenue for activities not within the scope of Section 26.3 of the Act"; (2) "unwisely commingled groundwater revenue with other monies"; and (3) overcharged Great Oaks by (a) over-budgeting for "employees, cost of equipment and water contract purchases," (b) "placing the excess money in its reserve fund," and (c) failing to credit these surpluses back to Great Oaks "when appropriate."
1. Background
In its Phase I trial brief the District argued that the court was obliged to apply a highly deferential standard of review to Great Oaks's claims that the District had violated the District Act in fixing the groundwater charge and spending the proceeds. It contended that these actions could only be overturned if Great Oaks demonstrated that they were "so palpably unreasonable and arbitrary as to indicate that [the District] abused its discretion as a matter of law." It asserted that the matter was governed by the principles applicable to "judicial review of a legislative or quasi-legislative action," which is to be conducted "under ordinary mandamus, and ... limite[d to] an examination of the proceeding to determine whether the agency's action was arbitrary, capricious, or entirely lacking in evidentiary support, or whether the agency has failed to give the notices and follow the procedures required by law." (Citing Harris v. Civil Service Com. (1998)
In its reply to the District's trial brief, Great Oaks failed to meet these assertions squarely. Rather, in a section of the brief purporting to address the applicable standard of review, it asserted that under authority applying Article 13D, courts are to exercise their independent judgment on the question "whether assessments, fees and charges are proportional to the benefits received by those paying the assessment, fee or charge." (Citing Silicon Valley, supra,
The trial court gave no indication of the standard of review it applied to the District Act claims other than to declare that the District had abused its discretion in fixing the charge and in spending the revenues received from it.
The District was quite correct to tell the trial court that the District Act claims were challenges to quasi-legislative acts and, as such, should be evaluated under the "arbitrary and capricious" standard of review. An administrative agency's decision to impose a fee, charge, or other exaction is a
An agency also exercises quasi-legislative power when it decides how to manage and spend the funds under its control. (See California Assn. of Professional Scientists v. Department of Finance (2011)
The quasi-legislative actions of administrative agencies are generally reviewed by a proceeding in ordinary mandate, in which judicial review is constrained by several principles. Foremost of these is that the judicial inquiry is generally " ' "confined to the question whether the classification is
As noted above, the District duly invoked this deferential standard of review in its trial brief, while Great Oaks evaded the issue. On appeal Great Oaks contends that this standard does not apply here because "this is not a review of a proceeding in mandamus, but is instead the review of the trial court's decisions on issues and procedures agreed and consented to by the District." This highly ambiguous statement suggests two possible grounds for holding the above standard of review inapplicable: first, that the trial court did not grant relief in mandamus-in fact it expressly denied such relief; and second, that the parties' agreed method of trying the case excused the court from applying this standard of review. Neither premise is sound.
It is true that the District stipulated to certain procedures that appear unusual in a proceeding of this kind. (See discussion in next sub-part.) But we see no indication that it waived the deferential standards ordinarily limiting judicial review of quasi-legislative actions. Nor is there any sign that the court believed the principles governing review by mandate were wholly inapplicable. The court apparently accepted as a rule of decision that the District could be liable only if found to have abused its discretion; to that extent the court's statement of decision echoes the general principles governing proceedings in mandate. (See American Coatings, supra,
Nor does the court's denial of relief in mandate exempt this action from these limitations on judicial review. In the first place, the court's decision not to grant writ relief seems to rest on the premise that as framed by Great Oaks, the prayer for such relief was moot. In its cause of action for a writ of mandate, Great Oaks alleged that the District had "abused its discretion" in five particulars, and prayed for a writ directing the District to take or refrain from six specified actions.
Although the parties have described this action at various times as an action for a refund, they have never offered statutory or other authority for entering a money judgment in such an action. In such circumstances the appropriate remedy appears to be a writ of mandate directing the District to refund all or part of the charges paid, and the action is governed by the standards of review described above. (See Balch Enterprises, Inc. v. New Haven Unified School Dist., supra,
Thus, while the trial court apparently denied writ relief in favor of a monetary judgment, it appears that the judgment can only be upheld if viewed as a grant of writ relief directing payment of money. Great Oaks's contention that we are not "review[ing] ... a proceeding in mandamus" is thus revealed as only superficially correct, at best. In substance that is exactly what we are doing.
Finally, and most fundamentally, the standard of review in an action seeking to overturn the quasi-legislative acts of an administrative agency does not depend on the form in which the challenge is framed, or on the nature of the relief prayed for. In
In other words, here as in so much of the law, substance must prevail over form. This is necessary to effectuate the fundamental policy concerns-in part, structural constitutional concerns-restricting judicial review of quasi-legislative actions. "The courts exercise limited review of
We conclude that the question whether the charge complies with the District Act should have been determined in accordance with the restrictive principles generally governing judicial review of quasi-legislative action.
3. Extrinsic Evidence
Although we see no sign that the District forfeited the restrictive standard of review described above, the same cannot be said for the principle, first cited in its opening brief here, that judicial review of quasi-legislative acts "is ordinarily limited to the administrative record." (Citing Western States Petroleum, supra,
First, the District has never identified an administrative record to which review should or can be confined. Indeed, as we have previously mentioned, at least some crucial documents that apparently led up to the adoption of the 2005-2006 groundwater extraction rates appear to be absent from the appellate record. (See fn. 12, ante.) In addition, an administrative record would ordinarily include some record of the hearings leading up to the adoption of the challenged rates and any objections or other submissions placed before the District in connection with those hearings. We see no such materials in the record.
Since the administrative record is an unknown quantity, and the rule confining review to that record seems never to have been pressed upon the
The District thus actively participated in trying this case entirely free of the rule it now seeks to invoke on appeal. Under the circumstances we must conclude that to the extent the trial court's admission of such evidence was error, it was invited. (See 9 Witkin, supra, Appeal, § 389, p. 447.)
However, the fact that the court cannot be faulted for admitting this evidence does not mean that it was free to depart from all constraints on judicial review of quasi-legislative actions. Regardless of the evidence before it, "[a] court reviewing a quasi-legislative act cannot reweigh the evidence or substitute its own judgment for that of the agency." (Plastic Pipe & Fittings Assn. v. California Building Standards Com. (2004)
Certainly the District's actions could not be invalidated based solely or primarily on the basis that expert witnesses, testifying after the fact, expressed disagreement with the District's approach to the issues at hand. The Supreme Court has indicated that while courts may admit evidence to establish that an agency has "adequately considered all relevant factors," they cannot allow the issue to become "whether the decision was wise or scientifically sound in light of the extra-record evidence," because "such questions are not for the courts to answer." (Western States Petroleum, supra,
C. Application
1. Introduction
In analyzing any challenge to quasi-legislative action, the first step is to clearly identify the manner or manners in which the action is claimed to infringe the law, and the legal principle or principles it infringes. It is not enough for a challenger to say that some ruling by the agency was unlawful; it is necessary to clearly delineate how the action was unlawful, i.e., what rule, standard, or provision of prescriptive law it is alleged to have transgressed. Only then is it possible to ascertain the rule of decision applicable to the claim. For these purposes, it is useful to subdivide the potentially relevant issues into the three familiar categories: questions of law, questions of fact, and questions entrusted to the decisionmaker's discretion.
A determination in the third of these categories-a purely discretionary determination-requires the highest degree of judicial deference. Such a determination will often include a large normative component; an example would be whether a particular methodology is fair or reasonable. Such a question is likely to call most heavily upon the agency's presumptive expertise, meaning essentially its familiarity with the competing interests, risks, benefits, and other concerns that must go into any reasoned policy assessment. Such determinations are also likely to lie nearest the heart of the
For determinations in the second category-administrative findings of fact-the basic rule is that an agency's finding must be sustained unless it is " 'entirely lacking in evidentiary support.' " (American Coatings, supra,
In reviewing an agency's determinations on questions of law, courts employ a less deferential standard than in either of the other two categories. This reflects the fact that our tripartite system of government charges the judiciary, not the legislative or executive branches, with the final responsibility to determine the meaning of laws. (See Yamaha Corp. of America v. State Bd. of Equalization (1998)
The trial court first found that the District had "abused its discretion, and violated Section 26.3 of the District Act, when fixing the Plaintiff's groundwater charges." This statement conveys not how the District is thought to have abused its discretion, but when it did so. The ensuing discussion of the evidence suggests that the abuse of discretion consisted of (1) failing to "levy charges based on a cost of service analysis" and (2) relying on a "determination of the cost of benefits to Great Oaks" that was "excessive." These subsidiary findings were expressed somewhat obliquely, i.e., by attribution to Thomas O'Rourke, a forensic accountant called by Great Oaks, whose opinions the court apparently meant to adopt, in part, as its own. This is an unfortunate mode of proceeding, particularly because the tenor of the findings thus adopted is not entirely clear. The court explicitly rejected the O'Rourke testimony insofar as it rested on the testimony of another Great Oaks expert, James Ulrick, who had testified in essence that due to hydrological barriers between some District projects and the wells operated by Great Oaks, the costs of those projects could not properly be assessed to Great Oaks. In rejecting that opinion, the court also rejected the O'Rourke testimony depending on it. The court presumably made some effort to quantify the effects of this partial rejection before it awarded "damages" to Great Oaks. Its methodology in doing so, however, is not apparent.
The tension between these findings can be traced, in part at least, to the court's failure-and an underlying failure by O'Rourke and Great Oaks-to distinguish among three potential faults in the District's determination of the groundwater charge: (1) failing to base the charge on costs (i.e., basing it on something else); (2) basing the charge on cost items not properly attributable to groundwater extractors; and (3) overstating costs otherwise properly attributed to extractors.
This last quotation seems to reflect a central point of O'Rourke's testimony: that the District was violating the District Act by charging groundwater extractors for services other than direct recharge of the groundwater basin. He expressed this opinion most clearly in the following passage of his declaration: "In accordance with § 26.3 of the District Act groundwater charges are to be levied and spent to pay for the cost of services that benefit all who rely directly or indirectly on the groundwater supplies of the zone or zones. In other words, the groundwater charges can be levied in order to recoup the [District's] costs in maintaining and recharging the groundwater basins.
Given this pervasive reliance on O'Rourke's interpretation of the District Act, and particularly section 26.3, it is not surprising that in a document entitled "Citation to Evidence," Great Oaks cited O'Rourke as the "Source" for the "Fact" that "[t]o comply with the groundwater provisions of the Act there should be separate accounting to insure groundwater charge funds are only spent on projects authorized under § 26.3 of the Act."
But of course the meaning of the District Act is not a "fact" subject to evidentiary proof. It is a pure question of law. It is a matter, furthermore, as to which the witness was never shown to possess any expertise, or for that matter competence. He was an accountant, not an attorney, and he gave no testimony of a type that an accountant might give bearing on the meaning of a statute-such as how similar statutes, if any, were understood or applied in contexts with which he was familiar. So far as the record shows, he simply took it upon himself-or had it given to him by Great Oaks-to give an interpretation of section 26.3 and to base much of his own opinion on that interpretation, which in turn furnished a foundation for many if not most of the challenges sustained by the court.
The trial court gave no explanation for its adoption of O'Rourke's interpretation of the District Act in preference to that implicitly adopted and applied by the District. It simply declared itself "convinced" by his testimony. Of course the meaning and effect of the statute was ultimately a question for the courts, and to that extent the District's interpretation could not bind the trial court. (See Murphy v. Kenneth Cole Productions, Inc. (2007)
Without foreclosing the possibility that this interpretation, or something like it, is correct, we note that it appears to require reading language into the statute that does not appear there. Section 26.3 of the District Act enumerates four "purposes" for which the "proceeds" of the groundwater charge "are authorized and shall be used exclusively." The first three are to "pay the costs" of (1) facilities for importing water, (2) purchases of imported water, and (3) "facilities which will conserve or distribute water within such zone or zones, including facilities for ground water re-charge, surface distribution, and the purification and treatment of such water." (District Act, § 60-26.3, subds. (1)-(3).) The fourth permitted purpose is to discharge indebtedness incurred for any of the first three. (District Act, § 60-26.3, subd.(4).)
Indeed, the foregoing language may be read as a ratification of the District's "conjunctive use" policy, which treated all forms of water as "fungible" and sought to equalize pricing accordingly. Elsewhere in its opinion the trial court appeared to conclude that this policy was not in itself a violation of the District Act. It declared that "Great Oaks is advantaged" by the policy, which "involves the coordinated management of both surface and groundwater in order to maximize the efficient use and preservation of the resource." It then proceeded to cite only the District's activities in direct recharge of groundwater. But it seems equally apparent that the provision of alternative supplies of water serves the long-term interests of extractors by reducing demands on the groundwater basin and helping to prevent its depletion. It is of course true that the short-term interests of water retailers
This same reasoning casts doubt on the suggestion in the O'Rourke testimony and the trial court's statement of decision that groundwater proceeds could not lawfully
We have structured our discussion largely around the O'Rourke testimony because the trial court's finding of violations of the District Act appears to have depended most heavily on that testimony. However the court also quoted the statement in a 2000 independent audit that " '[the] District's cost of service calculations may no longer be valid especially with respect to servicing [n]orth vs. [s]outh County [customers] ... the revenue recovered from one or more of the District's customer classes may be subsidizing those from other classes.... the District should review its agricultural water pricing practice[s] for adequacy and fairness.' " (Italics added; bracketed material added to conform to quoted source.) The court noted that the District had failed to "change its policy in spite of the audit." According to the quoted language, however, the audit was merely raising possibilities and questions
The trial court apparently relied largely on the studies just described for its conclusion that Great Oaks was "overcharged because of ... discounts given to agriculture water users." But the Act requires such "discounts," declaring that the charge for agricultural water "shall not exceed one-fourth of the rate for all water other than agricultural water." (District Act, § 26.7.) To be sure, the rates adopted by the District went well beyond this ratio; the 2005-2006 extraction charge for agricultural use was one-tenth of the charge for other extractors. The District defends this differentiation on the ground that, apart from the statutory mandate, "agricultural use puts less demands, including reliability demands, on the water supply." We will not attempt to evaluate this rationale except to observe that it appears never to have been challenged by Great Oaks
The District Act manifestly vested the District with discretion to determine what the "discount" for agricultural extractions should be when it decreed a ratio "not exceed[ing]" a specified fraction. We see nothing in the record sustaining a conclusion that the District's ten-to-one ratio was arbitrary, capricious, or irrational. Great Oaks offers no cogent criticism of the ratio adopted by the District, instead quoting the advisory reports while mysteriously asserting that the agricultural rate "is not at issue here." The most cogent evidence on the reasonableness of the District's ratio may be Great Oaks's own schedule of rates, under which it charged agricultural customers less than one-tenth of what it charged residential customers-$0.162 and $1.723 per 100 cubic feet, respectively. While this is hardly conclusive, it casts still more doubt on the trial court's conclusions, which apparently rested on recommendations of a purely suggestive and tentative character. We see no basis to conclude that the District acted arbitrarily or capriciously, or in defiance of the evidence, in adopting the ratio it adopted.
3. Misuse of Proceeds
The trial court also found that the District abused its discretion in spending the proceeds of the groundwater extraction charge. Although stated as a distinct finding, and based upon distinct aspects of the District's conduct, this misuse-of-funds theory seems conceptually to be merely the other side of the miscalculation-of-costs theory discussed above. The chief distinction between the two seems to be remedial: an overcharge might warrant a refund, while the expenditure of funds on activities in violation of restrictions on their use might more logically trigger some other remedy, such as a prohibition of future such misapplications, or perhaps a transfer of funds from unauthorized activities to authorized activities, perhaps with a corresponding reduction in groundwater charges. Suffice it to say that this is another point on which proper analysis was impeded by the parties' treatment of the matter as a garden-variety civil action, without focusing on the true nature of the obligations Great Oaks sought to enforce and the remedial consequences that flowed from such an analysis.
The court explained its misapplication-of-funds finding as follows: "The District improperly used groundwater revenue for activities not within the scope of Section 26.3 of the Act. The District unwisely commingled groundwater revenue with other monies. The [District] over budgeted for employees, cost of equipment and water contract purchases to the detriment of Great Oaks by placing the excess money in its reserve fund, thus the Plaintiff was overcharged for groundwater fees and not credited back when appropriate."
This finding also appears to rest largely on the testimony of Great Oaks accounting expert O'Rourke, who described several practices by which the District had built a large reserve fund at the expense of ratepayers. He first described a practice involving what he called "phantom employees," whereby the District would budget an anticipated hire from the beginning of the financial period even though the position might not be filled, and the District might not intend to fill it, until months later. "[T]he person who's budgeted wasn't there the full budget period. So the net difference goes to reserves or becomes
Similarly, he testified, the District had a practice of assigning excessive charges, which he said had been so declared by the county auditor's office, for interdepartmental equipment use. This practice too operated to fund a "very large reserve surplus" and violated "both State Controller and ... U.S. Controller's Office ... regulations." A third practice involved relying on initial estimated prices for State Water Project water, while ignoring any subsequent downward adjustments in the actual price paid.
By means such as these, O'Rourke testified, the District had amassed reserves of some $110 million prior to imposition of the 2005-2006 groundwater charge. He compared this sum to the District's annual revenues of about $100 million. He opined that the District used these reserve funds to finance "discretionary" investments, as "an alternative to borrowing funds." This had the effect of "front[-]load[ing] the expenditure" for projects, so that they were paid for by current users, in contrast to an investment financed with borrowed funds which would be repaid over the life of the asset by users actually benefiting from it. Insofar as the groundwater charge is used for such purposes, he opined, it "includes amounts for potential or future services or use."
While we do not wish to minimize the character of the practices thus described, we are once again left to guess at what evidence or rule of law supports the conclusion that they violated the District Act. Section 26.3 authorizes the District to use groundwater proceeds for specified activities. It does not forbid the District from attempting to estimate the cost of such activities prior to engaging in them; indeed, it is difficult to conceive how it could function without such forward budgeting. Nor does it place any express limits on how far in advance of planned activities the District may begin to accumulate funds for eventual application to them. There may be some applicable rule, custom, or other norm making it an abuse of discretion not to allocate surplus funds to present activities so as to reduce the burden on payers of the groundwater charge or other rates. But apart from the bald conclusions of an expert witness, nothing before us supplies any foundation on which to make such a declaration. We do not believe the acts of a public agency exercising the delegated power of the Legislature may be so lightly overturned.
III. Capacity Charge
Finally we will briefly acknowledge the District's contention that the challenged charge is, at least in part, a capacity charge, and thus subject to the Mitigation Fee Act, Government Code sections 66000 et sequitur. If accepted, this proposition would bar any challenge to the fee-or at least to the portion constituting a capacity charge-pursuant to Government Code section 66022, which provides that any judicial challenge to a capacity charge must
It is impossible in the present state of the case to resolve the many issues the parties have raised in connection with this defense. The defense is at most a partial one, requiring that some basis be found for determining how much of the groundwater charge, if any, satisfies the definition of a capacity charge. (See Gov.Code, § 66013.) For that reason we do not believe that it was waived by the District's failure to raise it in Phase I, which was supposed to be limited to issues of liability, reserving issues of remedy-including the allowable monetary relief-to Phase 2. In any event, as previously noted our reversal of the judgment will set the matter at large, presumably for retrial, and these issues can be addressed anew if the parties again elect to place them before the trial court. We decline to issue an advisory opinion on a subject so fraught with untried and as-yet unfocused subsidiary issues.
Disposition
The judgment is reversed for further proceedings consistent with this opinion. This disposition renders moot the companion appeal, in which Great Oaks challenged the trial court's order denying its motion for attorney fees.
WE CONCUR:
PREMO, J.
ELIA, J.
Notes
According to a 1987 report submitted below by the District, "[g]roundwater pumpage increased from 40,000 acre-feet per year in 1915 to 180,000 acre-feet per year in 1960's," resulting in a lowering of the "artesian head" from "near ground surface" to some 150-200 feet in depth. "This drawdown caused a maximum of almost 13 feet of irreversible land subsidence in San Jose by 1969." Saline groundwater, reflecting seawater intrusion, was detected near Palo Alto in 1910, and by 1987 extended east to Milpitas and "south along the Guadalupe River to the San Jose Municipal Airport."
The casebooks, new and old, are full of dramatic examples of groundwater depletion. (See Pajaro Valley Water Mgmt. Agency v. Amrhein (2007)
The Act was originally entitled "Santa Clara County Flood Control and Water District Act," with the District named accordingly. (Stats. 1951, ch. 1405.) Both were later renamed to omit the reference to flood control. (Stats. 1963, ch. 1941, §§ 1, 2, pp. 3993-3994; Stats 1973, ch. 56, pp. 92-93, §§ 1, 2.)
The Act also provides for mid-year adjustments to the charge, following similar procedures, "whenever the board determines that the imposition or adjustment of the charge is necessary." (District Act, § 26.7, subd. (b)(1).)
As most clearly illustrated by this reference, Great Oaks repeatedly referred to "Article 13" of the California Constitution-which governs the power to tax generally-when it might more cogently have referred to other provisions of the constitution specifically restricting taxation-in particular article 13D, which the trial court ultimately found the District had violated. The joint case management statement, in which the parties purported to limit the "threshold issues" to be considered, made no mention of any claim under article 13D.
It has not been suggested that the groundwater extraction charge is imposed "upon a parcel." By the terms of the District Act, the charge is imposed "against ... persons operating groundwater-producing facilities." (District Act, § 26.7, subd. (a)(2).) Great Oaks suggested below that the District relied on parcel maps in imposing the charge and that this favored a finding that the charge fell within Article 13D. (See Article 13D, § 6, subd. (b)(5).) However the trial court found no "particular relevance" in the District's occasional use of parcel maps to help identify pumpers, because the District offered testimony "that it relies primarily on the well records" for that purpose. The court noted our observation in Amrhein, supra, 150 Cal.App.4th at pp. 1382-1383,
Because the trial court granted declaratory relief on this point, we must address it even though, as we conclude below, Great Oaks failed to preserve a claim to monetary relief on these grounds. (See pt. I(H), post.)
For the most part, rights to groundwater resemble those to surface water in this regard, and the same terminology is employed, with the exception that the right to take surface water for use on adjacent land is labeled "riparian," while the comparable right to groundwater is labeled "overlying."
As a practical matter, of course, one cannot extract groundwater without occupying enough surface land to operate a well. But this might be accomplished by lease or license, without any ownership interest in the surface land.
Some cases contain language that might be understood to mean that all appropriative rights are necessarily appurtenant to land. (See, e.g., Nicoll v. Rudnick (2008)
The court acknowledged that the amendment would sometimes operate outside this big-vs.-small paradigm, but found that effect to be "but an incident [that] cannot disturb the manifest and general operation of the amendment." (CCSF, supra,
Deficiencies in the record and the briefs compel us to rely on the cited averment, rather than any primary document. Apparently the fixed rate, as ultimately adopted, would have been set out in a 2005 "Preliminary Water Utility Enterprise Report," which was apparently made public on March 22 of that year. Neither party has cited this seemingly critical document. Indeed, as far as we can tell, it is absent from the record. Instead our search of the 55-volume appendix has discovered a later, "final" version of that report, as well as similar reports from three other years.
Most pertinently, the notice of hearing on the assessment must enclose a ballot (Gov.Code, § 53753, subd. (c)), and must include "a statement that the assessment shall not be imposed if the ballots submitted in opposition to the assessment exceed the ballots submitted in favor of the assessment, with ballots weighted according to the proportional financial obligation of the affected property" (id. subd. (b)).
Nothing in this record indicates that Great Oaks or any other owner notified the District of any claim that its procedures might violate Article 13D in this or any other respect. There is much to be said for a requirement that any purely procedural objection to a charge of this kind be brought to the agency's attention before it is too late for the agency to cure it. To invalidate such a fee after the fact in favor of one objecting party effectively deflects the costs to other payers of the fee, past and future. As discussed below (pt. I(H)), the first notice the District received of any claimed deficiency under Article 13D apparently came in the form of Great Oaks's complaint in this matter.
None of the exceptions has been invoked here. The most nearly applicable appears to be for "[c]laims under the Revenue and Taxation Code or other statute prescribing procedures for the refund, rebate, exemption, cancellation, amendment, modification, or adjustment of any tax, assessment, fee, or charge or any portion thereof, or of any penalties, costs, or charges related thereto." (Gov.Code, § 905, subd. (a).) It has not been suggested here that any statute "prescribe[es] procedures" for Great Oaks's monetary claims against the District.
The matter is complicated by the fact that even the operative complaint alludes to only one of the several violations of Article 13D that Great Oaks pressed at trial. Apparently that pleading was superseded in this regard by the trial brief in which Great Oaks articulated these theories, with no apparent objection from the District that they strayed outside the pleadings.
Counsel for Great Oaks recapitulates some of the principles stated in Stockett, but describes them as elaborations on the concept of "substantial compliance." The court never used that term, but twice referred to the issue at hand as one of "variance." (Stockett, supra, 34 Cal.4th at pp. 445, 448,
Great Oaks acknowledged that this differential was mandated by the District Act. (See District Act, § 26.7, subd. (a)(3)(D).) It contended, however, that this mandate "must fall in the face of [Article 13D's] subsequent constitutional requirement." (Citing Silicon Valley, supra,
A quasi-legislative act will also be invalidated if it exceeds the authority delegated by the Legislature (see Diageo-Guinness USA, Inc. v. State Bd. of Equalization (2012)
Great Oaks prayed that the District be directed to (a) "limit future assessment of groundwater charges against Plaintiff to only the amount necessary to fund the specific purposes authorized by the [District] Act," (b) "limit spending of groundwater charge monies to the purposes set forth in § 26.3 of the Act," (c) "acknowledge that the setting of groundwater charge rates to encourage the purchase of treated water is a violation of Section 26.3 of the Act," (d) "not use groundwater charges to provide treated surface water; alternately, ... to revise the Groundwater Charge zones to reflect the specific purposes of Section 26.3 of the Act, including but not limited to the distinction between [those] who benefit and those who do not benefit from treated surface water," (e) "collect groundwater charges and fines from all persons producing groundwater in strict accordance with the Act," and (f) "obtain a favorable vote of zone residents before increasing groundwater charges."
Much of O'Rourke's testimony at trial is at best only semi-intelligible, perhaps due to mistranscription. An example is this pronouncement: "Cost of service obligations require you to keep some contract as to what the nexus or the correlation between the cost of recurred activity and the useful application of those incurred costs apply." Fortunately the testimony appeared to largely track the opinions he expressed in a declaration, which was also before the court.
Later O'Rourke asserted that the District engaged in various budgeting practices that resulted in the exaggeration of certain projected cost items, producing oversized reserves; we discuss this aspect of his testimony in the following section.
As pertinent here, section 26.3 provides: "Ground water charges levied pursuant to this act are declared to be in furtherance of district activities in the protection and augmentation of the water supplies for users within a zone or zones of the district which are necessary for the public health, welfare and safety of the people of this State. The ground water charges are authorized to be levied upon the production of ground water from all water-producing facilities, whether public or private, within said zone or zones of the district for the benefit of all who rely directly or indirectly upon the ground water supplies of such zone or zones and water imported into such zone or zones."The proceeds of ground water charges levied and collected upon the production of water from ground water supplies within such zone or zones of the district are authorized and shall be used exclusively by the board for the following purposes:"1. To pay the costs of constructing, maintaining and operating facilities which will import water into the district which will benefit such zone or zones, including payments made under any contract between the district and the State of California, the United States of America, or any public, private or municipal utility."2. To pay the costs of purchasing water for importation into such zone or zones, including payments made under contract to the State of California, the United States of America, or any public, private or municipal utility."3. To pay the costs of constructing, maintaining and operating facilities which will conserve or distribute water within such zone or zones, including facilities for ground water re-charge, surface distribution, and the purification and treatment of such water."4. To pay the principal or interest of any bonded indebtedness or other obligations incurred by the district on behalf of such zone or zones for any of the purposes set forth in paragraphs 1, 2 and 3 of this section.
Nor, incidentally, does this provision by its terms mandate or prohibit any particular methodology for fixing the charge; it regulates only the uses to which the proceeds are actually put. While this may amount to the same thing in practice, the statute provides no apparent basis for the attempt by Great Oaks to distinguish between a cost-of-service approach and one based on "revenue requirements." The question is not whether the actuating financial necessity is designated a "cost" versus a "requirement," but whether it is an expenditure of a type to which groundwater charge proceeds may be applied.
We are reminded of the song lyric from a half-century ago: "You don't miss your water / Till your well runs dry." (William Bell, "You Don't Miss Your Water" (Universal Music Pub. Group 1961).)
The court omitted some language further indicating the tentative nature of the audit's conclusions: "[T]he revenues recovered from one or more of the District's customer classes may be subsidizing those from other classes, creating an inequitable situation. If this assertion is valid, it is not surprising, in light of the considerable growth in Santa Clara County and the evolving environmental mandates." (Italics added.)
As in effect when the present charge was imposed, the statute provided in relevant part, "(a) Any judicial action or proceeding to attack, review, set aside, void, or annul an ordinance, resolution, or motion adopting a new fee or service charge, or modifying or amending an existing fee or service charge, adopted by a local agency, as defined in Section 66000, shall be commenced within 120 days of the effective date of the ordinance, resolution, or motion. [¶] ... [¶] (c) This section shall apply only to fees, capacity charges, and service charges described in and subject to Sections 66013 and 66014." (Former Gov.Code, § 66022, as in effect through Dec. 31, 2006.)