On May 30, 2019, the California Supreme Court issued an opinion in Plantier v. Ramona Municipal Water District, addressing whether certain property owners had exhausted administrative remedies before litigating a Proposition 218 challenge against a local public agency’s method for applying rates to provide a property-related service. The Court held that where a property owner challenges the method by which the local agency applies its rates to particular customers—but not the rates themselves—the owner may challenge the method without first having participated in the Proposition 218 protest hearing called to raise the rates.
Background and Procedural History
Plaintiff Plantier, a restaurant owner, and two other owners of commercial property served by Defendant Ramona Municipal Water District (“District”) brought a class action lawsuit challenging a prior change in the District’s method of applying its sewer rates to commercial properties. Although the District had just increased its rates, Plaintiffs did not challenge the rates but instead challenged the District’s method of applying the rates according to the number of Equivalent Dwelling Units (“EDU”) the District had allocated to Plaintiffs.
The District argued that Plaintiffs were barred from bringing suit because they had failed to exhaust their administrative remedies by participating in a Proposition 218 protest hearing conducted to approve an increase in the District’s rates per EDU. Consistent with its hearing notice, the District’s hearing addressed only the proposed change in the per-EDU rates and not the methodology by which the District calculated the number of EDUs for which each customer would be charged the new rates. The District argued that Plaintiffs were able to raise their EDU-calculation challenges during the District’s Proposition 218 hearing but failed to participate.
Procedural Requirements of Proposition 218. Proposition 218 is a voter initiative that added Articles XIII C and XIII D to the California Constitution. Those Articles impose certain notice and hearing requirements on property-related charges and fees (i.e., rates) levied by local government agencies. Here, the District conducted this type of hearing only to consider a proposed rate increase per EDU and not to change its methodology for calculating the number of EDUs for which each customer would be charged the new rates.
Substantive “Proportionality” Requirement of Proposition 218. Additionally, section 6 of Article XIII D imposes substantive requirements, including that rates “shall not exceed the proportional cost of the service attributable to each parcel” (i.e., the proportionality requirement).
The District applied its new sewer rates to each parcel owner by multiplying the parcel’s assigned EDUs by the per-EDU rates. Plaintiffs asserted that it was the method of EDU assignment—not the per-EDU rates—that violated the Proposition 218’s proportionality requirement.
The trial court held for the District, finding that Proposition 218’s public protest hearing created an unexhausted administrative remedy. The trial court relied on Wallich’s Ranch v. Kern County Citrus Pest Control Dist., which required plaintiffs challenging an assessment under a pest control law to first exhaust administrative remedies by raising a challenge at the agency’s annual budget hearing. Equating that budget hearing to a Proposition 218 protest hearing, the trial court in Plantier concluded that Plaintiffs should have protested the District’s EDU allocation methodology at the hearing but failed to do so.
The Court of Appeals reversed the trial court decision, holding that Plaintiffs were not required to participate in the Proposition 218 protest hearing for raising per-EDU rates in order to challenge the District’s method for assigning EDUs to customers. The appellate court reasoned that changing the number of EDUs applied to commercial customers was different from increasing the rate assigned to an EDU, which was the subject of the public hearing notice. Accordingly, the appellate court reasoned that the District could not have changed its EDU-allocation method at the rate hearing even if Plaintiffs had objected to the allocation method at the hearing. The hearing was about raising per-EDU rates, not changing the allocation of EDUs to commercial customers, the appellate court found.
Discussion
In affirming the appellate court decision, the California Supreme Court concluded that Plaintiffs were not challenging the District’s new per-EDU rates and, therefore, were not required to exhaust their administrative remedies by participating in the Proposition 218 hearing on the proposed per-EDU rates increase. The Court explained that while exhaustion of administrative remedies is generally required before a claim can be validly brought before the courts, where the remedy is inadequate to resolve the dispute, plaintiffs may be excused for failing to exhaust that remedy. The Court held that a remedy is only adequate if it “establishes clearly defined machinery for the submission, evaluation, and resolution of complaints by the aggrieved parties.”
The Court reasoned that even if rate protest hearings under Proposition 218 were considered an administrative remedy, the District’s protest hearing would not have provided an adequate remedy for the Plaintiffs’ challenge to the methodology for calculating the number of EDUs assigned to their properties–because the hearing was limited to the per-EDU rate increase and did not encompass the EDU calculation or allocation method. Due to that limited hearing scope, the Court found Plaintiffs could not obtain an adequate remedy by participating.
Questions
If you have any questions regarding this Legal Alert, please contact the following at our office, or the attorney with whom you normally consult.
William T. Chisum
wchisum@kmtg.com | 916.321.4557
Andreas L. Booher
abooher@kmtg.com | 916.321.4372