bingham mccutchen llp exempt from filing fees … · bingham mccutchen llp james j. dragna (sbn...

Bingham McCutchen LLP JAMES J. DRAGNA (SBN 91492)

2 COLIN C. WEST (SBN 184095) THOMAS S. HIXSON (SBN 193033)

3 Three Embarcadero Center San Francisco, California 94111-4067

4 Telephone: 415.393.2000 Facsimile: 415.393.2286

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Morrison & Foerster LLP JAMES J. BROSNAHAN (SBN 34555) SOMNATH RAJ CHATTERJEE (SBN 177019) 425 Market Street San Francisco, CA 94105-2482 Telephone: 415.268.7000 Facsimile: 415.268.7522

MARCIA SCULLY (SBN 80648) SYDNEY B. BENNION (SBN 106749) HEATHER C. BEATTY (SBN 161907) The Metropolitan Water District Of Southern California 700 North Alameda Street Los Angeles, California 90012-2944 Telephone: 213.217.6000 Facsimile: 213.217.6980

Attorneys for Respondent and Defendant Metropolitan Water District of Southern California

EXEMPT FROM FILING FEES [GOVERNMENT CODE§ 6103]

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SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO

18 SAN DIEGO COUNTY WATER AUTHORITY,

19 Petitioner and Plaintiff,

20 v.

21 METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA; ALL PERSONS

22 INTERESTED IN THE VALIDITY OF THE RATES ADOPTED BY THE METROPOLITAN

23 WATER DISTRICT OF SOUTHERN CALIFORNIA ON APRIL 13, 2010 TO BE

24 EFFECTIVE JANUARY 2011; and DOES 1-10,

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Respondents and Defendants.

No. CPF-10-510830

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF RESPONDENT AND DEFENDANT METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA'S DEMURRERS TO, OR IN THE ALTERNATIVE MOTION TO STRIKE PORTIONS OF, SAN DIEGO COUNTY WATER AUTHORITY'S THIRD AMENDED PETITION/COMPLAINT

Date: Time: Dept.: Judge:

March 27, 2013 1:30 p.m. 304 Hon. Curtis E.A. Karnow

MWD'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRERS/MOTION TO STRIKE

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TABLE OF CONTENTS

Page

INTRODUCTION ............................... ................................. ........ .. .... .. ...... ...... ... .. .... ..... .. . 1

FACTUAL AND PROCEDURAL BACKGROUND ............... .. .. .... ..... .. .. .. .. .. .... .. ........ ... 2

THE COURT MAY GRANT THE REQUESTED DEMURRERS AND MOTION TO STRIKE ............ .. ... ........... ... ... ............. ... .......... ........ .. .... ............. .. .. ......... .. 4

ARGUMENT .... ...... ... .... .......... ....... ... ..... ... ... ... .... ... ....... ........ .... ...... .... ... .. ... ....... .. ........ ..... 5

A. Proposition 26, Enacted in November, 2010, Does Not Apply Retroactively to the Rates MWD Adopted Seven Months Earlier. .. .. ..... .. .... .. .. ... . 5

1. Proposition 26 Does Not Expressly State That It Applies Retroactively To Local Charges ....................................................... ... .. ..... 6

2. Proposition 26's Language Shows That It Applies Only Prospectively To Local Charges ................................................... ............. 6

3. There Is No Clear Extrinsic Evidence That Proposition 26 Was Intended to Apply Retroactively To Local Charges . ...... ..... .. .......... .......... 9

B. Proposition 26 Is Not a Procedural Amendment; It Substantially Affects Local Government Agencies' Existing Rights And Obligations ................ .... .. ... 11

C. Applying Proposition 26 Retroactively to Local Charges Would Lead to Absurd, Negative Results ........ .. .............. .. ... ... ....... .... ..... .. .. .. ... ... ............... .. .. .. .... 12

CONCLUSION ... .... ... ... .. ........................... ................................................................. .... . 14


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TABLE OF AUTHORITIES

Page(s) CALIFORNIA CASES

Bell v. Farmers Ins. Exchange 87 Cal. App. 4th 805 (200 1 ) .............................................................................................. ... .... 7

Blank v. Kirwan 39 Cal. 3d 311 (1985) ............................................................. ........................................... ...... 4

Brydon v. East Bay Mun. Utility Dist. 24 Cal. App. 4th 178 (1994) ................................................................................................... 14

Cal. Water Impact Network v. Newhall County Water Dist. 161 Cal. App. 4th 1464 (2008) .......................... ............ ................. .. ...... .. .............................. 13

Canon U.S.A., Inc. v. Super. Ct. 68 Cal. App. 4th 1 (1998) ......................................................................................................... 3

Citizens Association of Sunset Beach v. Orange County Local Agency Formation Commission 209 Cal. App. 4th 1182 (20 12) .............. ............................................................................... 8, 9

City of Port Hueneme v. City of Oxnard 52 Cal. 2d 385 (1959) ............................................................... ............ .. ........................... .. .... 7

City of Santa Cruz v. Local Agency Formation Com. 76 Cal. App. 3d 381 (1978) .................................................................................................... 14

Committee of Seven Thousand v. Superior Court 45 Cal. 3d 491 (1988) .............................................................................................................. 7

Costa v. State of Cal. 177 Cal. App. 3d 62 (1986) .................................................................................................... 13

Diageo-Guiness USA, Inc. v Board of Equalization (20 12) 205 Cal.App.4th 907 [140 Cal. Rptr. 3d 358] ........................ ....... ....................................... .... 9

Elsner v. Uveges 34 Cal. 4th 915 (2004) ........................................ ..... .............................................................. 11

Evangelatos v. Superior Court 44 Cal. 3d 1188 (1988) .................................................................................................... ... ..... 5

Fire Ins. Exch. v. Super. Ct. 116 Cal. App. 4th 446 (2004) ........... ............................. .............. .. .............................. ... .......... 4

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Ginns v. Savage 61 Cal. 2d 520 (1964) ....... ....... .. ... .. ..... .......... ......... .. ..... ... .... ...... .. ............ ............................... 6

Goldman v. Franchise Tax Bd. (2012) 202 Cal.App.4th 1193 [136 Cal. Rptr. 3d 373] .............................................. ....... ... ........... .. ... 9

Greene v. Marin County Flood Cont. and Water Conserv. Dist. 49 Cal. 4th 277 (201 0) .......................................................... ....... ... ..... ...... ... ....................... .. .. 8

Griffith v. City of Santa Cruz 207 Cal. App. 4th 982 (2012) ......................................... .... ..... ............ ... ... .... ................ ........ ... 6

Hess Collection Winery v. Agricultural Labor Relations Bd. 140 Cal. App. 4th 1584 (2006) ......................................... .. .. ......... ......... .................. ..... .. .. ..... 14

In re Cheri T. 70 Cal. App. 4th 1400 (1999) ........................ ......... ............................ ............ ..... .... ........... .. .. 12

Ingram v. Flippo 74 Cal. App. 4th 1280 (1999) ......................... ........ ..... ....... ............. ......................................... 4

Lilienthal & Fowler v. Super. Ct. 12 Cal. App. 4th 1848 (1993) ........... .. .............. ..... ........... .... .................................................... 4

Mathieu v. Norrell Corp. 115 Cal. App. 4th 1174 (2004) .... .. .. ... ...................................................................................... 4

Moore v. Cal. State Bd. Of Accountancy 2 Cal. 4th 999 (1992) ....................... .. ...................................................................................... 7

Morris v. Pacific Electric Railway Company 2 Cal. 2d 764 (1935) ... ... ....... ........ ............ .... ...... ............ ..... ..................................... .. ... .... ... . 12

NetJets Aviation, Inc. v. Guillory (2012) 207 Cal.App.4th 26 [143 Cal. Rptr. 3d 111] ....... .. ................ ................................................... 9

People v. Rizo 22 Cal. 4th 681 (2000) ....................................................... ..... ............................................... 10

PH II, Inc. v. Super. Ct. 33 Cal. App. 4th 1680 (1995) ........................... ........ ...... ................. ........... .............. ......... ....... 5

San Joaquin Local Agency Formation Comm 'n v. Super. Ct. 162 Cal. App. 4th 159 (2008) ............................................ ......................................... .. .......... 11

Shape!! Industries, Inc. v. Governing Bd. 1 Cal. App. 4th 218 (1991) ..................................................................... ................................ 13

Silicon Valley Taxpayers' Ass 'n v. Santa Clara County Open Space Auth. 28 44 Cal. 4th 431 (2008) .. ............................................ ... ........................................ ..... .... ......... 10

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South Sutter, LLC v. LJ Sutter Partners, L.P. 193 Cal. App. 4th 634 (2011) .......................................................... .. .. .. .............................. ..... 3

Strauss v. Horton 46 Cal. 4th 364 (2009) ........ ................ .............. ..... ....................................... ...... ... ... ...... passim

Swiss Park, Inc. v. City of Duarte 136 Cal. App. 3d 755 ( 1982) ............................... ...... .. ........................ ..................................... 3

Tarr v. Merco Constr. Engineers, Inc. 84 Cal. App .3d 707 (1978) ................. ...... ....... ... .. .. ............................. ........ ........... ... .............. 3

Western States Petroleum Assn. v. Super. Ct. 9 Cal. 4th 559 (1995) ..... .................. .................................... ........ .... .... ....... ......... ....... ........... 13

Winnaman v. Cambria Comm. Servs. Dist. 208 Cal. App. 3d 49 (1989) ............. ..................... ... ....... .. ........... .......... ............... ............. ..... 11

CALIFORNIA STATUTES

Cal. Code Civ. Pro c. § 4 30.1 0( e) ..... .. .. ...... .. ..................... .......... .. ...... .................. ...... ...... ............. 4

Cal. Code Civ. Proc. § 431.10(b) ............. ...... ............. .... ............................................................... 5

Cal. Code Civ. Proc. § 436 ........................ ..... .................. ..... ................... ........................ .............. 5

Cal. Gov. Code § 50076 .................................................. .... ... ...................... .................................. 2

Cal. Gov. Code § 53 750( e) ....................... .. ............. ............................... ................. ... ................ ... 8

Cal. Gov. Code § 53 7 50( e) & (h) .... .......... .. .. ............... ..................... ..................... .. ... ................. 11

Cal. Gov. Code§ 53750(h)(1) ................................ .. ....................... .. .............. .. ...... ...... .... ........... . 8

Cal. Gov. Code§ 54999.7(a) ...................... .... .......... ... ............... .... ... ............... ............. ... ............. 2

Water Code§§ 1810-14 ........................ ...... ... ..................... ........................................................... 2

OTHER AUTHORITIES

Cal. Const. Article XIII A, § 3( c) ..................... ..... .......... .. ... .... ................ ............................. .. ........ 6

Cal. Const. Article XIIIC, § 1(e) ...................................... ....... ............................ .... ... 2, 3, 6, 12, 14

Cal. Const. Article XIIIC, § 2 ................................... ..... .. .. ... ...... ......................... .......................... 2

Cal. Const. Article XIIIC, § 2( c) ........ ..... ... ............ ......... ............................... ... .. ... ........................ 7

Cal. Con st. Article XIIIC, § 2( d) ............................. .... ........ .............. ........... .. ................... ... .... ... .. 7

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IV


The Metropolitan Water District of Southern California ("MWD") respectfully submits

2 this memorandum of points and authorities in support of its demurrers to, or in the alternative

3 motion to strike portions of, San Diego County Water Authority's ("SDCWA") Third Amended

4 Petition for Writ of Mandate and Complaint for Damages and Declaratory Relief ("TAC").

5 I. INTRODUCTION

6 SDCWA's TAC challenges rates that MWD's Board ofDirectors adopted in April, 2010.

7 SDCWA's first through third causes of action allege, in part, that those rates were adopted in

8 violation of Proposition 26, a ballot initiative concerning state and local charges and taxes which

9 was passed in November, 2010. The Proposition 26 claims fail as a matter of law.

10 Voter initiatives are presumed to have no retroactive application absent express statutory

11 language or very clear extrinsic evidence indicating that the voters intended otherwise.

12 Proposition 26 has a section addressing charges adopted by the state of California ("state

13 provisions"), and a separate section addressing charges adopted by local agencies like MWD

14 ("local provisions"). 1 SDCWA's claims are based on the local provisions. Those provisions do

15 not provide for retroactive application. And, the contrast with the state provisions is telling. The

16 state provisions explicitly call for retroactive application to charges adopted after January 1,

17 2010, but prior to Proposition 26's effective date. No such language appears in the local

18 provisions. Thus, fundamental principles of statutory construction dictate that Proposition 26

19 was not intended to apply retroactively to local charges adopted before its passage, like those at

20 issue here.

21 Nor is there any evidence that the voters intended the local provisions to apply

22 retroactively. Next to the initiative's language, the most probative evidence of intent is the ballot

23 pamphlet materials. Here, the pamphlet materials make it even clearer that the voters did not

24 intend the local provisions to apply retroactively. In the findings and declarations, the drafters

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1 MWD disputes that Proposition 26 applies at all to charges that are the subject of SDCW A's TAC. See, e.g., MWD Opp. to SDCWA's Motion for Leave to File Third Amended Petition/Complaint at 5:19-9:4. However, that dispute is not the subject ofthese demurrers and motion.

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1 MWD'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF

DEMURRERS/MOTION TO STRIKE

1 repeatedly informed voters that the initiative would limit "new" taxes and tax "increases," not

2 existing taxes. The Legislative Analyst informed voters that Proposition 26 would not apply to

3 local charges adopted before its passage. And nothing in the arguments suggest that existing

4 local charges will be affected.

5 Moreover, interpreting Proposition 26 to apply retroactively would have significant

6 negative and absurd consequences for local government agencies throughout the state.

7 The evidence against retroactive application of the local provisions is overwhelming.

8 Accordingly, this Court should sustain MWD's demurrers to the Proposition 26 claims in the

9 first through third causes of action. Alternatively, the Court should strike all allegations related

10 to Proposition 26.

11 II. FACTUALANDPROCEDURALBACKGROUND

12 SDCWA filed this case in June, 2010, challenging the legality ofMWD'1rwatenates

13 adopted on April12, 2010. SDCWA's suit focused on three rate components, or charges, which

I4 MWD has used since January, 2003: (I) the System Access Rate, (2) the System Power Rate,

IS and (3) the Water Stewardship Rate. See SDCW A Complaint filed on June I1, 2010 ("Compl. ").

16 ~~ 21-23. Specifically, SDCWA contended that MWD's allocation of costs to its transportation

17 rate dther than its supply rate violates Proposition 13, i.e. Cal. Canst. art. XIIIA, § 4 and its

I8 implementing statute, Government Code§ 50076; Government Code§ 54999.7(a); Water Code

I9 §§ 18I0-14; the MWD Act; and California common law. See, e.g., Compl. ~~ 36,37-39,53.

20 Nearly seven months after MWD adopted its water rates, on November 2, 2010,

2I California voters adopted Proposition 26. Proposition 26 amended Article XIIIA, section 3 and

22 Article XIIIC, section I ofthe California Constitution, effective November 3, 2010. The

23 amendments to Article XIIIC apply to certain local charges, and the amendments to Article

24 XIIIA apply to certain state charges. See Cal. Const. art. XIIIA, § 3, art. XIIIC, § 1(e).

25 As to local charges, Article XIIIC provides that local agencies may not "impose, extend,

26 or increase" any charge that qualifies as a tax (general or special) as newly defined, without voter

27 approval (by a majority vote for a general tax, and by a two-thirds vote for a special tax). Cal.

28 Const. art. XIIIC, §§ 1(e), 2. Proposition 26 added section 1, subdivision (e) ("Article XIIIC

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Section (I)( e)"), which expands the definition of "taxes"; alters the traditional rule that

2 legislative enactments are presumed lawful; and shifts the burden to local agencies to prove by a

3 preponderance of the evidence that the charge is not a tax as defined. Id.; see also Ballot Pamp.,

4 General Elec. (November 2, 2010), 56-61, 114-115 (Request for Judicial Notice ("RJN"), Ex.

5 I). 2

6 The ballot materials which explained Proposition 26 to voters conveyed that Proposition

7 26 does not apply retroactively to local charges. For example, the Analysis of the Legislative

8 Analyst advised that "most other fees or charges in existence at the time of the November 2,

9 20 I 0 election would not be affected unless: The state or local government later increases or

I 0 extends the fees or charges [or] [ t ]he fees or charges were created or increased by a state law-

II passed between January 1, 20IO and November 2, 20IO." RJN, Ex. I at 58 (emphases added).

12 Consistently, the Legislative Analyst described the impact of Proposition-26 on "new-revenues," -

13 and described the manner in which the government can "create or increase" fees and taxes or

I4 "pass new laws that raise revenues." Id. at 56-57, 59 (emphases added). Proposition 26's

I5 "Findings and Declarations of Purpose" further describes the desire to restrict the government's

16 ability to "increase" taxes, adopt "new taxes," or to "disguise[] new taxes as 'fees."' Id. at II4

I7 (emphases added).

I8 Although SDCW A has amended its Petition/Complaint three times, it was not until

19 SDCWA amended its Petition/Complaint for the third time in December, 20I2, more than two

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2 It is well settled that a court can judicially notice documents when facts therein render the complaint defective. See Swiss Park, Inc. v. City of Duarte, 136 Cal. App. 3d 755, 758 (1982) ("It is well settled that, in ruling on a demurrer, a court may take judicial notice of facts that contradict the face of the complaint."); Tarr v. Merco Constr. Engineers, Inc., 84 Cal. App .3d 707, 712 (1978) (citations omitted) ("The doctrine is well settled that, in measuring the validity of a pleading in the face of a demurrer ... the trial court ... [is] entitled to consider the impact of information that has surfaced by reason of invocation of the doctrine of judicial notice."); South Sutter, LLC v. LJ Sutter Partners, L.P., 193 Cal. App. 4th 634, 655 (20 II) (the grounds for a motion to strike "must appear on the face of the complaint or be admissible by judicial notice) (emphasis added); Canon U.S.A .. Inc. v. Super. Ct., 68 Cal. App. 4th I, 5 (1998) ("where the invalidity of ... allegations is revealed on the face of the complaint, and/or by matters subject to judicial notice, . .. the issue may be properly disposed ofby ... motion to strike") (emphasis added).

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years after Proposition 26 was passed, that SDCW A included Proposition 26 allegations.

2 SDCWA now alleges that MWD's water rates, which were adopted before Proposition 26 was

3 passed, are invalid under Proposition 26 because it is a tax as now defined by Article XIIIC, and

4 MWD failed to obtain two-thirds voter approval ofthe water rates. See TAC ~~ 69, 95.

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6 III. THE COURT MAY GRANT THE REQUESTED DEMURRERS AND MOTION

TO STRIKE.

7 "The function of a demurrer is to test the sufficiency of the complaint ... " Ingram v.

8 Flippo, 74 Cal. App. 4th 1280, 1283 (1999). A demurrer must be sustained if the complaint fails

9 to state facts sufficient to constitute a cause of action upon which relief may be based. Code Civ.

10 Proc. § 430.10(e). The trial court may consider all material facts pled in the complaint, those

11 arising by reasonable implication therefrom, and those which can be judicially noticed. Blank v.

12 Kirwan, 39 Cal. 3d 311,318 (1985).

13 Although SDCWA challenges MWD's water rates on six legal theories in each of the

14 first through third causes of action, the Court may consider each asserted legal basis separately

15 here. In general, a "'cause of action' means a group of related paragraphs in the complaint

16 reflecting a separate theory of liability." Lilienthal & Fowler v. Super. Ct., 12 Cal. App. 4th

17 1848, 1853-54 (1993) (trial court not precluded from granting summary adjudication to part of

18 cause of action because it "involved two separate and distinct causes of action regardless of how

19 pled in the complaint") (emphasis in original). Accordingly, courts may dispose of claims that

20 constitute part of a cause of action if the claims could have been pled as separate causes of action

21 because they present "separate and distinct grounds for liability." Mathieu v. Norrell Corp., 115

22 Cal. App. 4th 1174, 1188 (2004) (a cause of action alleging employer was guilty of sexual

23 harassment and retaliation constituted separate causes of action because it was based on "two

24 separate and distinct grounds for liability"); see also Fire Ins. Exch. v. Super. Ct., 116 Cal. App.

25 4th 446, 452 (2004) ("Ordinarily, a general demurrer does not lie as to a portion of a cause of

26 action . . . . The trial court has broad discretion, however, to fashion suitable methods of practice

27 in order to manage complex litigation."). Here, SDCWA could have pled its Proposition 26

28 claims as a separate cause of action, since Proposition 26 represents a distinct basis for alleged

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1 liability from SDCW A's other legal challenges. Thus, the Court may sustain the demurrers to

2 the Proposition 26 claims in the first, second, and third causes of action.

3 Alternatively, the Court may strike the Proposition 26 allegations. The Court may grant a

4 motion to strike as to "any irrelevant, false, or improper matter inserted in any pleading," or "all

5 or any part of any pleading not drawn or filed in conformity with the laws of this state, a court

6 rule, or an order of the court." Code Civ. Proc. § 436. "Irrelevant matter" includes allegations

7 that are (1) "not essential to the statement of a claim or defense," and/or (2) "neither pertinent to

8 nor supported by an otherwise sufficient claim or defense." Code Civ. Proc. § 431.10(b). Where

9 portions of a cause of action are "substantively defective on the face of the complaint," "the

1 0 defendant should not have to suffer discovery and navigate the often dense thicket of

11 proceedings in summary adjudication." PHIL Inc. v. Super. Ct., 33 Cal. App. 4th 1680, 1682

12 ( 1995). "[W]hen a substantive defect is clear from the face of a complaint, such as ... a

13 purported claim of right which is legally invalid, a defendant may attack that portion of the cause

14 of action by filing a motion to strike." !d. at 1682-83. Because the Proposition 26 allegations in

15 the TAC are legally invalid, do not conform with state law, and are irrelevant, the Court may

16 strike them.

17 IV. ARGUMENT

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19 A. Proposition 26, Enacted in November, 2010, Does Not Apply Retroactively to

the Rates MWD Adopted Seven Months Earlier.

20 As noted, the voters passed Proposition 26 in November, 2010. See supra, Section II.

21 SDCWA's Proposition 26 claims challenge rates that MWD's Board adopted in April, 2010. See

22 id. Thus, SDCW A's Proposition 26 allegations fail as a matter of law unless Proposition 26

23 applies retroactively. It does not.

24 There are only two bases upon which a ballot initiative may be found to apply

25 retroactively. Ballot initiatives have no retroactive effect unless: (1) the measure expressly

26 provides otherwise, or (2) "it is very clear from extrinsic sources that ... the voters must have

27 intended retroactive application." Strauss v. Horton, 46 Cal. 4th 364, 470 (2009) (citing

28 Evangelatos v. Superior Court, 44 Cal. 3d 1188, 1208-09 (1988)). Proposition 26 does not

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expressly state that it applies retroactively to charges adopted by local government agencies like

2 MWD. Indeed, the Proposition's language precludes such an interpretation. Nor is there any, let

3 alone very clear, extrinsic evidence that the drafters or voters intended the local provisions to

4 apply retroactively. To the contrary, all relevant materials strongly support a purely prospective

5 application.3

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7 1. Proposition 26 Does Not Expressly State That It

Applies Retroactively To Local Charges.

8 Proposition 26's plain language is dispositive here. Proposition 26 does not expressly

9 provide for retroactive application of its local provisions. Strauss, 46 Cal. 4th at 470.

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11 2. Proposition 26's Language Shows That It Applies

Only Prospectively To Local Charges.

12 Although not required to defeat retroactivity (see id. ), it is helpful to recognize that

13 Proposition 26 actually discloses a clear intent that the local provisions apply prospectively only,

14 i.e., to govern only charges enacted or adopted after the Proposition's effective date.

15 First, the contrast between the local provisions and state provisions is compelling.

16 Proposition 26 does expressly apply retroactively to state charges adopted between January 2,

17 2010, and the measure's effective date. Cal. Const. art. XIIIA, § 3(c). Specifically, state charges

18 "adopted after January 2, 2010", but before Proposition 26's passage that fall within the new,

19 broader definition of"taxes" are void 12 months after Proposition 26's effective date unless

20 "reenacted by the Legislature and signed into law by the Governor" in compliance with

21 Proposition 26's requirements. See id. There is no such provision for local charges in the new

22 Article XIIIC Section (1 )(e). The inclusion of a retroactivity period for state charges, without a

23 similar provision for local charges, demonstrates that the local provisions were intended to apply

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3 In Griffith v. City of Santa Cruz 207 Cal. App. 4th 982 (2012), the Sixth District Court of Appeal applied Proposition 26's local provisions to charges adopted prior to the Proposition's effective date. See Griffith, 207 Cal. App. 4th at 995-97. But, the court did not address the retroactivity issue. See id. It is axiomatic that a decision is not authority for a proposition not considered. E.g., Ginns v. Savage, 61 Cal. 2d 520,524, n. 2 (1964).

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only prospectively, i.e., to charges adopted after Proposition 26's effective date. See Committee

of Seven Thousand v. Superior Court, 45 Cal. 3d 491, 507 (1988) ("Where a statute, with

reference to one subject contains a given provision, the omission of such provision from a similar

statute concerning a related subject is significant to show that a different intention existed.")

(quoting City of Port Hueneme v. City of Oxnard, 52 Cal. 2d 385, 395 (1959)).

Second, it is also significant that the pre-existing Article XIIIC, which was enacted as

Proposition 218 in November, 1996, expressly provided for retroactive application:

Any general tax imposed, extended, or increased, without voter approval, by any local government on or after January 1, 1995, and prior to the effective date of this article, shall continue to be imposed only if approved by a majority vote of the voters voting in an election on the issue of the imposition, which election shall be held within two years of the effective date of this article and in compliance with subdivision (b).

Cal. Canst. art. XIIIC, § 2(c). The drafters of Proposition 26 were presumably aware of Article

XIIIC's existing provisions and informed how to provide for retroactivity. Additionally, the

voters were generally aware ofthe types of terms that would provide for retroactive application.

The absence of any such terms in Proposition 26's local provisions is strong evidence of the

absence of any retroactive intent.

Third, in Proposition 26's local provisions, a word-"imposed"-was used that, in

context, applies prospectively. The meaning of a word may be determined by reference to other

terms that are associated with it in the same statute. Moore v. Cal. State Bd. of Accountancy, 2

Cal. 4th 999, 1011-12 (1992) ("[W]hen a statute contains a list of or catalogue of items, a court

should determine the meaning of each by reference to the others, giving preference to an

interpretation that uniformly treats items similar in nature and scope .... ").4

As mentioned, Article XIIIC provides that local agencies may not "impose, extend, or

increase" a charge that qualifies as a tax, without voter approval. Cal. Canst. art. XIIIC, § 2(b) &

4 See also Bell v. Farmers Ins. Exchange, 87 Cal. App. 4th 805, 832 (2001) (a term should be construed in context of the clause as a whole and construction should be consistent with the syntax ofthe statutory language).

N75399092. I



1 (d). "Extend," "impose," and "increase" all have prospective meaning here.

2 For purposes of Article XIIIC, '"extended,' when applied to an existing tax or fee or

3 charge, means a decision by an agency to extend the stated effective period for the tax or fee or

4 charge, including, but not limited to, amendment or removal of a sunset provision or expiration

5 date." Cal. Gov. Code§ 53750(e); see also Greene v. Marin County Flood Cont. and Water

6 Conserv. Dist., 49 Cal. 4th 277,290-91 (2010) (Section 53750 is part of the Proposition 218

7 Omnibus Implementation Act, which is the Legislature's interpretation of Proposition 218' s

8 prescriptions and its provisions must be accorded "significant weight and deference by the

9 courts."). The term thus refers to the time when the local agency acts to alter the charge. Here,

I 0 the TAC alleges that MWD adopted the subject rates in April, 2010 and does not allege that

11 MWD thereafter "extended" them after November, 201 0.

12 "'Increased,' when applied to a tax, assessment, or property-related fee or charge, means

13 a decision by an agency that does either of the following: (A) Increases any applicable rate used

14 to calculate the tax, assessment, fee or charge[; or] (B) Revises the methodology by which the

15 tax, assessment, fee or charge is calculated, if that revision results in an increased amount being

16 levied on any person or parcel." Cal. Gov. Code§ 53750(h)(1). This term also refers to the time

17 when the local agency acts to alter the charge. Here, the T AC does not allege that after

18 November, 2010, the MWD Board "increased" the rates adopted in April, 2010.

19 "Imposed"-which is in both the prior version of Article XIIIC, and also in Proposition

20 26-should be construed consistently, to refer to the time the agency governing body acts to

21 establish or adopt a charge. Recent case law supports this construction. In Citizens Association

22 of Sunset Beach v. Orange County Local Agency Formation Commission, 209 Cal. App. 4th

23 1182 (2012), the Court of Appeal held that Article XIIIC did not preempt statutes authorizing

24 municipal annexation of small parcels of territory without a vote (known as involuntary island

25 annexations), even if annexation resulted in a tax differential for the territory's residents.

26 Citizens Association ofSunset Beach, 209 Cal. App. 4th at 1199. In its analysis the court

27 construed "impose" as used in Article XIIIC, Section 2, to refer to "the first enactment of a tax."

28 !d. at 1194. The court explained that this construction was most consistent with the syntax of the

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relevant provisions (see id.) and the most familiar:

Black's Law Dictionary defines "impose" as meaning "To levy or exact," which suggests a discrete, initiating event. (Black's Law Diet. (7th ed. 1999) p. 759, col. 2.) Similarly, the very first definition of "impose" in the exhaustive Oxford English Dictionary suggests an origination of a burden ("to lay on or set on; to place or set in a position; to put, place, or deposit") as does the definition given with specific reference to taxation ("To put or levy (a tax, price, etc.) on or upon (goods, etc.)"). (7 Oxford English Diet. (2d ed. 1989) pp. 730-731, italics omitted.)

The first three references to taxes being "imposed" in published opinions this year all use the word "impose" to refer to the time of a tax's initial enactment. (See NetJets Aviation, Inc. v. Guillory (2012) 207 Cal.App.4th 26, 32 [143 Cal. Rptr. 3d 111]; Diageo-Guiness USA, Inc. v Board of Equalization (2012) 205 Cal.App.4th 907, 913 [140 Cal. Rptr. 3d 358]; Goldman v. Franchise Tax Bd. (2012) 202 Cal.App.4th 1193, 1203 [136 Cal. Rptr. 3d 373].)

Citizens Association of Sunset Beach, 209 Cal. App. 4th at 1194, n. 15 (all editorial marks in

Citizens Association).

Because Proposition 26's local provisions amended the pre-existing Article XIIIC,

"imposed" in the amendments should be construed consistently with the pre-existing use of that

word, to refer to the time of a charge's initial enactment. So construed, it is clear that "imposed"

local charges were intended to apply to charges adopted after the Proposition's effective date. In

contrast, the TAC concedes that MWD adopted the subject rates in April, 2010, before the

Proposition took effect. See, e.g., TAC ~ 3.

Proposition 26's language shows that its local provisions were intended to operate only

prospectively.

3. There Is No Clear Extrinsic Evidence That Proposition 26 Was Intended to Apply Retroactively To Local Charges.

23 It is also not "very clear from extrinsic sources that ... the voters must have intended

24 retroactive application." Strauss, 46 Cal. 4th at 470. Consequently, Proposition 26 cannot be

25 found to apply retroactively to local charges.

26 When construing a constitutional provision enacted by initiative, voter intent is

27 ascertained by the language of the provision; but, if the language is ambiguous, then courts may

28 tum to extrinsic sources, and "the most potentially informative extrinsic source is usually the

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DEMURRERS/MOTION TO STRJKE

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material contained in the ballot pamphlet that is mailed to each voter." (Strauss, 46 Cal. 4th at

472; see also People v. Rizo, 22 Cal. 4th 681, 685 (2000) (particularly informative are the

analyses and arguments contained in the official ballot pamphlet.) Here, if the Court extends its

analysis beyond the Proposition's language -and it need not since that language is not

ambiguous-to the voter pamphlet, it will see that this source does not disclose an intent that the

local provisions would apply retroactively, let alone a "very clear" intent. In fact, like the

Proposition's language, the voter pamphlet demonstrates the opposite: an understanding that the

local provisions would apply only to charges adopted, extended, or increased after Proposition

26's effective date.

The "Findings and Declarations of Purpose" make the point. By them, the voters were

informed that Proposition 26 would restrict the government's ability to "increase" taxes, adopt

"new taxes," or to "disguise[] new taxes as 'fees."' RJN, Ex. 1 at 114 (emphasis added); see

Silicon Valley Taxpayers' Ass 'n v. Santa Clara County Open Space Auth., 44 Cal. 4th 431, 446

(2008) (analyzing findings and declarations set out in preamble to determine voter intent). These

references demonstrate an understanding that Proposition 26 would apply prospectively, that is

to charges adopted, extended, or increased after the effective date of the measure.

The other ballot materials are consistent. The Legislative Analyst's analysis is

particularly instructive. After discussing Proposition 26's effect on state and local charges, the

Analyst identified charges that "are not affected," including local charges adopted prior to

November 2, 2010 that are not extended or increased after that date:

Some Fees and Charges Are Not Affected. The change in the definition of taxes would not affect most user fees, property developments charges, and property assessments. This is because these fees and charges generally comply with Proposition 26's requirements already, or are exempt from its provisions. In addition, most other fees and charges in existence at the time of the November 2, 2010 election would not be affected unless:

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• The state or local government later increases or extends the fees or charges. (In this case, the state or local government would have to comply with the approval requirements of Proposition 26.)

• The fees or charges were created by a state law-passed between January 1, 2010 and November 2, 2010-that conflicts with Proposition 26 (discussed further below).



RJN, Ex. 1 at 58 (italics-only emphasis added). As explained above, "extended" and "increased"

2 refer to specific events and there is no allegation in the TAC that MWD's subject water rates

3 were extended or increased after Proposition 26's effective date. See Cal. Gov. Code§ 53750(e)

4 & (h). Further, the Legislative Analyst described the manner in which the government can

5 "create or increase" fees and taxes or "pass new laws that raise revenues." RJN, Ex. 1 at 56-57,

6 59 (emphasis added). The message to voters was that the local provisions would apply only to

7 fees adopted, extended, or increased after November 2, 201 0.

8

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B. Proposition 26 Is Not a Procedural Amendment; It Substantially Affects Local Government Agencies' Existing Rights And Obligations.

10 SDCWA may argue that even if the vote requirement is not retroactive, Proposition 26's

11 burden-shifting should still apply at any trial (or other dispositive proceeding) here. Such an

12 argument would be fatally flawed.

13 SDCWA's Proposition 26 claims challenge conduct- MWD's adoption of rates in April,

14 2010- that occurred before Proposition 26's passage. If a law regarding the conduct of a trial

15 "substantially affects existing rights and obligations," it cannot be applied to a claim based on

16 conduct that occurred before the law's enactment "absent an express legislative intent to permit

17 such retroactive application." Elsner v. Uveges, 34 Cal. 4th 915, 936-37 (2004). Without

18 question, Proposition 26 substantially affects all California local agencies' existing rights and

19 obligations.

20 First, Proposition 26 expands the definition of a "tax," increasing the number of local

21 charges that are subject to constitutional limitation and establishing new constitutional standards

22 which local agencies must follow. The Proposition thus necessarily redefines and expands the

23 scope of local government conduct subject to legal challenge.

24 Second, the impact of Proposition 26's burden-shifting provision is to eliminate the

25 presumption of validity ordinarily afforded legislative enactments. Prior to Proposition 26,

26 legislative and quasi-legislative acts, including rate determinations, were presumed lawful. See

27 San Joaquin Local Agency Formation Comm 'n v. Super. Ct., 162 Cal. App. 4th 159, 170 (2008);

28 Winnaman v. Cambria Comm. Servs. Dist., 208 Cal. App. 3d 49, 54 (1989) ("The long-standing

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1 rule is that rates fixed by a lawful rate-fixing body are presumed to be reasonable, fair and

2 lawful, and the burden of overcoming this presumption is on the party challenging the

3 ordinance."). For local charges, Proposition 26 eliminated the crucial presumption ofvalidity,

4 and imposed a new and greater evidentiary burden on local agencies. Local agencies now must

5 prove by a preponderance of the evidence that a charge does not qualify as a tax subject to

6 Proposition 26 and other matters, in order to prevail. See Cal. Const. art. XIIIC, § 1(e).

7 There is thus no doubt that Proposition 26 significantly affects local agencies' existing

8 rights and obligations. Applying Proposition 26 to agency actions, including rate-setting, that

9 occurred prior to its enactment would change the substantive rules and local agencies' and their

10 governing bodies' obligations with respect to that earlier action, after the fact. Retroactive

11 application would improperly substantially affect local agencies' existing rights and obligations

12 concerning their earlier actions. See Elsner, 34 Cal. 4th at 938 (holding statutes shifting

13 presumption of negligence should not be applied retroactively to causes of action that arose

14 before the law changed) (citing Morris v. Pacific Electric Railway Company, 2 Cal. 2d 764, 767-

15 69(1935)).

16 There is, moreover, no evidence that voters intended Proposition 26 to apply

17 retroactively. As described above, the text ofProposition 26 and the extrinsic evidence shows

18 that California voters intended that Proposition 26 would apply to local charges only

19 prospectively. RJN, Ex. 1 at 56-59; Strauss, 46 Cal. 4th at 470-72.

20

21 c. Applying Proposition 26 Retroactively to Local Charges Would Lead to

Absurd, Negative Results.

22 Statutes should be interpreted to avoid absurd results. In re Cheri T., 70 Cal. App. 4th

23 1400, 1404 (1999). Interpreting Proposition 26 to apply retroactively to local charges would lead

24 to several absurd, negative consequences.

25 First, how far back would the retroactivity extend? Five years? Twenty years? As

26 explained, when the drafters intended for Proposition 26 to apply retroactively-to the state

27 provisions-they said so, and also explicitly set forth the retroactive period: less than one year.

28 Here, if the Court were to find that the local provisions are retroactive, they would have to be

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retroactive for all California local agencies for an unlimited period of time since the drafters did

2 not, of course, state any retroactive period. This would be an absurd result, unsupported by any

3 text or extrinsic evidence.

4 Second, such retroactive application would undermine local government charges across

5 the state. At the time of Proposition 26's passage, thousands of local charges were in place. If

6 this Court were to conclude that Proposition 26's local provisions apply to pre-existing charges,

7 the decision would cast a long shadow, reaching nearly every local charge in existence.

8 Agencies would be forced to expend scarce resources assessing longstanding and past charges

9 against new standards. Courts would likely be presented with a flood of challenges. And, while

10 rate challenges such as this are typically decided on an administrative record, (see Western States

11 Petroleum Assn. v. Super. Ct., 9 Cal. 4th 559, 573-74, 576 (1995); Shapel!Industries, Inc. v.

12 Governing Bd., 1 Cal. App. 4th 218, 233 (1991 )), it is possible that a complete record would not

13 even exist for rates adopted years ago. It is unlikely that any such prior record was prepared with

14 Proposition 26's standards in mind. These far-reaching consequences and practical difficulties

15 are avoided by construing Proposition 26's local provisions consistent with the Proposition's

16 language and voters' intent-prospective application only.

17 Third, a finding of retroactivity would also undermine fundamental public law principles.

18 Generally, a party challenging a quasi-legislative act, such as the setting of a charge, must have

19 raised his or her challenge during the administrative proceeding. Cal. Water Impact Network v.

20 Newhall County Water Dist., 161 Cal. App. 4th 1464, 1485 (2008); see also County ofContra

21 Costa v. State of Cal., 177 Cal. App. 3d 62, 74 (1986) ("the doctrine of exhaustion of

22 administrative remedy applies to actions raising constitutional issues"). This principle ensures

23 that local agencies have the opportunity to develop the necessary factual background of the

24 dispute and affords the parties and the court the benefit of the agency's expertise and experience

25 on the issues raised. Cal. Water Impact Network, 161 Cal. App. 4th at 1489, 1491. If, as

26 SDCWA contends, charges for all local agencies can be measured against new post-adoption

27 legal standards, then the exhaustion rules become dead letters. Neither challengers nor

28 governing bodies can reasonably be required to anticipate future standards, particularly those that

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1 may arise years later. Local governing bodies and the local agencies' staff will have been

2 without the opportunity to consider and develop a record consistent with the not-yet-established

3 constitutional rules, and without the opportunity to apply their expertise to the issues under the

4 new Article XIIIC Section (1)(e). Responsibility for rate-setting (one ofthe most complex issues

5 a court can face (see Brydon v. East Bay Mun. Utility Dist., 24 Cal. App. 4th 178, 202, 203

6 (1994)) would essentially be transferred to strapped trial courts. Nothing suggests that the voters

7 intended such a result.

8 Finally, quasi-legislative acts, such as a local agency's rate-setting, are reviewed by way

9 of a traditional mandamus proceeding "limited to an examination of the proceedings before the

10 [agency] to dete1mine whether [its] action has been arbitrary, capricious, or entirely lacking in

11 evidentiary support, or whether [it] has failed to follow the procedure and give the notices

12 required by law." City ofSanta Cruz v. Local Agency Formation Com., 76 Cal. App. 3d 381,

13 393 (1978); accord Hess Collection Winery v. Agricultural Labor Relations Bd., 140 Cal. App.

14 4th 1584, 1597 (2006). Here again, under SDCWA's interpretation, local governing bodies and

15 staff will have been without the opportunity to develop a record consistent with not-yet-

16 established constitutional rules, which they could not reasonably be expected to anticipate,

17 including a two-thirds voter approval requirement in some cases. Local agencies cannot possibly

18 be found to have acted arbitrarily or capriciously with respect to standards that did not even

19 exist. SDCWA's position upends the established rules governing traditional mandamus

20 proceedings and would be wholly untenable as applied to local agencies across the state.

21 v. CONCLUSION

22 The Court should sustain MWD's demurrers to, or in the alternative grant its motion to

23 strike, the Proposition 26 claims in the first through third causes of action in SDCWA's TAC

24 without leave to amend.

25 II

26 II

27 II

28 II

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DATED: February 22 2013

1\175399092.1

BINGHAM MCCUTCHEN LLP

By:~~~~~~~==~=-------Thon as . so 1

Attorneys for Respondent d Defendant MetTopolitan Water Distlict of Southern California

15 MWD' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT or


bingham mccutchen llp exempt from filing fees … · bingham mccutchen llp james j. dragna (sbn...

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