“Pay First, Litigate Later” Doctrine Applies to Local Governments: Taxpayers Required to Pay Local Assessments Until Resolution of Tax Litigation

The Water Replenishment District of Southern California (“District”) protects groundwater quality in Los Angeles County groundwater basins from overuse and saltwater intrusion.  The District finances its efforts through an annual assessment on groundwater pumpers.  The City of Cerritos (“City”) sued the District, seeking money damages and claiming that the District failed to levy its assessment according to Proposition 218 requirements.  The City won the Proposition 218 portion of the lawsuit, but the monetary relief portion of the case has yet to be resolved.

After the order was issued in the Proposition 218 portion of the lawsuit, the City stopped paying the assessment.  The District applied for injunctive relief to order the City to stop using drawing groundwater unless it pays the delinquent assessment.  The trial court rejected the District’s application.  The court of appeal reversed the trial court, holding that under the “pay first, litigate later” doctrine, the City is required to pay the assessment pending resolution of the rest of the litigation.  (Water Replenishment Dist. of Southern California v. City of Cerritos (October 30, 2013, B242080) — Cal.Rptr.3d —- [13 Cal. Daily Op. Serv. 12,037].

The appellate court agreed with the District that Water Code section 60339 authorizes courts to grant an injunction against a groundwater producer that is delinquent in making an assessment payment.  The court rejected the City’s argument that the District was required to follow a special process in the Code of Civil Procedure to apply for injunctive relief, finding instead that the Water Code specifically allows for injunctive relief in these circumstances.

In discussing the “pay first, litigate later” doctrine, the appellate court explained that the doctrine is a well-established rule in tax cases and is based on the public policy of ensuring that essential public services dependent on tax funds are not interrupted by litigation.  The court rejected the City’s contention that the doctrine did not apply because the City was not seeking to enjoin the assessment.  The court pointed to case law that established that no legal process, including a defense, should be allowed to prevent collection of a tax before the resolution of a lawsuit over that tax.

The City’s argument that the “pay first, litigate later” doctrine did not apply to the District failed to move the court.  The court observed that case law supported the application of the doctrine to all levels of government: federal, state, and local, and that the public policy underlying the doctrine applied to local governments.  The court also found that public policy favored the District, because if the City were allowed to avoid paying the assessment until resolution of the lawsuit, the District’s finances would be pushed into the red, jeopardizing the groundwater supply for nearly 4,000,000 Los Angeles County residents.  The court also pointed out that even if the City wins the lawsuit, it would still likely have to pay some portion of the assessment, because the typical remedy in a tax refund suit is not a full refund, but only a refund of the difference between the amount assessed and the amount that should have been exacted.

The court was unmoved by the City’s argument that the District could not invoke the “pay first, litigate later” doctrine because it lacked an administrative refund process.  The court noted that in fact, the District did have “a refund procedure in the form of its claims presentation procedures for money or damages.”

However, the appellate court did find in the City’s favor on one point:  the court held that the City was not required to pay accrued interest on the delinquent assessment, only the assessment itself.


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