In Campana v. East Bay Municipal Utility District (EBMUD), the First District Court of Appeal affirmed the trial court’s decision finding that Plaintiff’s claim for a partial refund of water charges adopted by EBMUD was time-barred. The Court held that the 120-day limitation period to determine the validity of a utility district’s rates or charges runs from the date the fee structure is adopted, and not when the fees are assessed and collected. The Court rejected Plaintiff’s efforts to avoid the statute of limitations by recharacterizing the complaint as merely seeking a refund of the excess charges.
Proposition 218 Legal Framework
Proposition 218, or the “Right to Vote on Taxes Act,” was approved by California voters in 1996, limiting the methods by which state and local governments exact revenue from taxpayers. Proposition 218 amended the California Constitution by adding articles XIII C and XIII D which included procedural and substantive limitations for levying assessments and imposing new, or increasing existing, property-related fees and charges.
Public Utilities Code section 14402 states that any interested person may challenge the validity of rates or charges within 120 days of the ordinance, resolution, or motion approving the rates or charges. The limitation period serves to protect districts from fiscal uncertainty resulting from legal challenges brought many years after the initial decision setting the rates or charges.
Background
In 2017 and 2019, EBMUD adopted resolutions creating a tiered-rate water structure to determine the cost of residential and commercial water service in Alameda and Contra Costa Counties. Plaintiffs alleged in their class action complaint that EBMUD’s tiered-rate structure charged some parcels a higher rate than others for the use of water in violation of Article XIII D of the California Constitution. Because Plaintiffs filed their complaint more than 120 days after EBMUD adopted the tiered water rates, Plaintiffs argued the 120-day limitation under section 14402 did not apply because they did not seek to invalidate the water rates. Instead, Plaintiffs argued they challenged EBMUD’s post-enactment conduct and merely sought a refund for the excessive charges. In the alternative, Plaintiffs argued even if section 14402 applied, the 120-day period had not been exhausted because the statute of limitations resets each month EBMUD collects the allegedly illegal tax.
The Court rejected that argument and stated, “Plaintiffs cannot avoid the applicable statute of limitations by characterizing their claim as merely seeking a refund of the excess fees that were paid.” The Court held that when the “inevitable effect” of the complaint would be to invalidate a district’s fee structure, the 120-day statute of limitations applies. Because Plaintiffs’ complaint was based on the alleged illegality of the 2017 and 2019 tiered-rate fee structure adopted by EBMUD, the complaint necessarily depended upon a finding that the fee structure was invalid under Article XIII D and, therefore, was subject to the 120-day statute of limitations under section 14402. Additionally, the Court found that assuming notice was required to EBMUD under the Government Claims Act, any time requirements applicable by the Act did not extend the shorter 120-day statute of limitations of section 1440.
Regarding the issue of when the 120-day period begins to run, the Court highlighted the express language in section 14402 which provides the limitations period runs from “the effective date of the ordinance, resolution, or motion,” regardless of whether the charges are assessed and collected much later. Thus, “the enactment of a utility rate or rate increase, and not a subsequent act which actually imposes a utility charge, triggers the 120-day statute of limitations.”
Finally, the Court noted its decision does not allow EBMUD to indefinitely collect the allegedly illegal service charges because the 120-day period will reset following any subsequent resolution adopting the tiered-rate water structure or after EBMUD extends, imposes, or increases its rates.
Helpful Tips
- This case was decided on the application of the Public Utilities Code section 14402 and applies to “district” rates or charges. Section 11503 defines “district” as a municipal utility district formed under this division or under Chapter 218 of the Statutes of 1921, as originally enacted or subsequently amended. However, on September 22, 2021, the Governor approved Senate Bill 323, adding Section 53759 to the Government Code. That section adopts a similar 120-day statute of limitations on water or sewer rates or charges but is more generally applicable to water agencies. There is yet another 120-day limitation period codified in Government Code section 66022. As such, this case is helpful for local agencies in general that levy water or sewer rates or charges that were adopted after January 1, 2022.
- When calculating the 120-day limitations period, make sure you are counting after the effective date of the rate, rather than the date the rate or charge was adopted because those two dates may be different.
Questions
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Mona Ebrahimi
mebrahimi@kmtg.com | 916.321.4597
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