Taxpayer Settlement Agreement Waives Future Claims and Judicially Estops Contradictory Claims

After challenging a 1991 Utility User Tax, taxpayers negotiated a monetary settlement agreement with Los Angeles County.  The settlement agreement also provided for an election to validate the tax.  After the election, a member of the class and two other taxpayers challenged the validity of the election.  The lower court found that the class action member, who was party to the settlement agreement, had waived his right to re-assert claims arising out of the same facts and circumstances.  The court of appeal affirmed the lower court’s decision and further determined that the class action member was estopped from asserting a claim that was contradictory to the settlement agreement.  (Owens v. County of Los Angeles (— Cal.Rptr.3d —-, Cal.App. 2 Dist., October 2, 2013).


In January 1991, the County of Los Angeles (“County”) enacted the Utility User Tax Ordinance, establishing a utility user tax (the “1991 UUT”) which imposed a 5% tax on telephone, electricity, and gas usage.  In May 2005, Joe Oronoz and Larry Pitts filed a class action suit on behalf of taxpayers in the unincorporated parts of the County (the “Class Action”) challenging the 1991 UUT on the grounds that it violated Propositions 13 and 62 because it was enacted without voter approval.  On January 4, 2007, the trial court certified as a class all persons who paid the 1991 UUT since February 16, 2004.

At mediation in June 2008, the parties agreed to hold an election in November 2008 to validate the UUT.  On November 4, 2008, the measure was approved by the voters.

On November 5, 2008, the Class Action plaintiffs confirmed and memorialized their settlement agreement.  Under the settlement agreement, the County agreed to pay $10 million to a general fund and $65 million to a claims fund, that the County would not increase the UUT rate above 4.5% at any time prior to November 4, 2023, and memorialized the agreement to hold the validation election.  The settlement agreement also stated that the plaintiffs and class members released the County of all claims.

On August 11, 2009, Patrick Owens and Patricia Munoz filed a complaint against the County challenging the validation election and alleging that the measure violated the class members’ due process and free speech rights, as well as Proposition 218.  Soon thereafter, Larry Pitts filed a motion to enforce the settlement in the Class Action, alleging that the November 4, 2008, election was not held pursuant to applicable law.  On April 26, 2012, the superior court held a hearing and rejected the motions filed in each case.  The court found that Pitts waived his claims by signing the settlement agreement and was judicially estopped from challenging the election.  Both parties appealed.


The appellate court upheld the lower court’s finding that Pitts waived his right to challenge the validation measure by executing the settlement agreement.  Under the settlement agreement, Pitts discharged the County from any and all claims that were or could have been brought against the County from the period of February 16, 2004, to November 4, 2008.  The court found that Pitts’s current substantive claims arose from the same basic grievance he asserted in his pleadings.  The court also noted that the County agreed to make tens of millions of dollars in payments and to hold an election to validate the 1991 UUT in order to resolve all claims regarding the tax.  It was clear that Pitts and the other plaintiffs understood that the settlement resolved all of their potential claims against the County.  Pitts knew or should have known about any deficiencies concerning the election, since the election occurred before the settlement agreement was signed, and he could have raised them at that time.  He chose to sign the settlement agreement and, as a result, was barred from raising any further claims against the County.

The court also upheld the lower court’s findings that Pitts was judicially estopped from challenging the election.  Pitts’s attempt to revive his action against the County is exactly the kind of litigation conduct judicial estoppel is meant to prevent.


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