Apartment Owners Assn. of Cal. v. City of L.A. CA2/4 ( 2022 )

Filed 12/28/22 Apartment Owners Assn. of Cal. v. City of L.A. CA2/4
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
APARTMENT OWNERS B313439
ASSOCIATION OF CALIFORNIA,
INC. et al., (Los Angeles County
Super. Ct. Nos. BC677423,
Plaintiffs and Appellants, BC709658)
v.
CITY OF LOS ANGELES,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of
Los Angeles County, Maren E. Nelson, Judge. Reversed and
remanded with instructions.
Arias Sanguinetti Wang & Torrijos, Mike Arias, Arnold C.
Wang, Alfredo Torrijos; Peluso Law Group and Larry A. Peluso;
Shining Law Firm and Carolin K. Shining for Plaintiffs and
Appellants Apartment Owners Association of California, Inc.,
Daniel C. Faller, Jasbir Dhillon, Gary Gillman and Anita
Haeggstrom.
Kellner Law Group and Richard L. Kellner; Kabateck and
Brian S. Kabateck; Ervin Cohen Jessup, Geoffrey M. Gold and
Jeffrey T. Harlan for Plaintiffs and Appellants Frederick H.
Leeds individually and as trustee for the Frederick H. Leeds
Intervivos Trust dated November 30, 1990, Malcolm Bennett and
7005 L.P.
Michael N. Feuer, City Attorney, Scott Marcus and Blithe
S. Bock, Assistant City Attorneys, Maureen Home, Sara Ugaz,
Deputy City Attorneys for Defendant and Respondent.
Respondent City of Los Angeles (the City) began a program
in 2017 called “recycLA.” Under that program, the City entered
into contracts with seven waste haulers, pursuant to which each
hauler would provide exclusive waste collection services to
commercial and multi-unit dwellings in a designated zone of the
city. The contracts provided that the haulers would pay the City
a percentage of their gross receipts as a “franchise fee.”
Appellants Apartment Owners Association of California,
Inc., Daniel C. Faller, Jasbir Dhillon, Gary Gillman, Anita
Haeggstrom, Frederick H. Leeds, individually and as trustee for
the Frederick H. Leeds Intervivos Trust Dated November 30,
1990, Malcolm Bennett, and 7005 L.P. are a group of property
owners and tenants who were required to pay for and use waste
hauling services under the recycLA system. They sued the City,
arguing that the franchise fees imposed under the program were
effectively a “tax” imposed on them without voter approval in
violation of Proposition 218.
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The trial court granted summary judgment in favor of the
City, finding that appellants lacked standing to pursue their
claims. While this appeal was pending, our Supreme Court
decided Zolly v. City of Oakland (2022) 13 Cal.5th 780 (Zolly),
which addressed a similar challenge to the waste hauling
franchise fees imposed by the city of Oakland. The Zolly court
found that the plaintiffs had adequately alleged that they
suffered “an economic injury caused by the challenged fees,” and
therefore had standing to file suit. (Id. at p. 790.)
Following Zolly, the City concedes that we must reverse
summary adjudication as to the first cause of action for a refund
of illegal taxes paid as franchise fees and remand for further
proceedings. However, the City argues that we may affirm
summary adjudication as to the second cause of action for
declaratory relief. We are not persuaded. We therefore reverse
the judgment and remand for further proceedings in light of
Zolly.
BACKGROUND
I. Propositions 218 and 26
California voters have approved several propositions
restricting the authority of state and local governments to impose
taxes. “In 1996, . . . voters passed Proposition 218, which
amended the Constitution’s voter approval requirements for local
revenue-raising measures by adding articles XIII C and XIII D.”
(Zolly, supra, 13 Cal.5th at p. 785, citing Citizens for Fair REU
Rates v. City of Redding (2018) 6 Cal.5th 1, 10 (Citizens).)
“Article XIII D, which is not relevant here, ‘limits the authority of
local governments to assess taxes and other charges on real
property.’ [Citation.] Article XIII C ‘buttresses article XIII D by
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limiting the other methods by which local governments can exact
revenue using fees and taxes not based on real property value or
ownership.”” (Zolly, supra, 13 Cal.5th at p. 785, citing Citizens,
supra, 6 Cal.5th at p. 10.) Pursuant to article XIII C, all taxes
must be approved by voters in a general election. (Art. XIII C,
§ 2, subds. (a), (b), (d).)
Proposition 218 did not define what constitutes a “tax.” In
2010, voters approved Proposition 26, which amended article XIII
C to provide that a “‘tax’ means any levy, charge, or exaction of
any kind imposed by a local government.” (Art. XIII C, § 1, subd.
(e); see also Zolly, supra, 13 Cal.5th at p. 785, citing Jacks v. City
of Santa Barbara (2017) 3 Cal.5th 248, 260.) This definition is
qualified by seven exemptions, including (e)(4), which exempts
“[a] charge imposed for entrance to or use of local government
property, or the purchase, rental, or lease of local government
property.” (Art. XIII C, § 1, subd. (e)(4).) The scope of this
exemption is relevant to the parties’ substantive dispute.
II. Factual and Procedural History
A. Complaint
Appellants filed a class action complaint in September 2018
against the City, arising out of the City’s implementation of the
recycLA program that “imposed a new commercial system for the
private hauling of waste and garbage from certain multi-unit
dwellings and commercial properties.” Appellants alleged that
under that program, the City entered into franchise agreements
giving seven private waste haulers the exclusive right to provide
waste collection services for all commercial establishments and
multi-family dwellings in a specified “franchise zone.” The
franchise agreements between the City and the waste haulers set
the rate that the haulers could charge the property owners for
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their services and established a percentage that the haulers must
pay to the City as a “franchise fee.”
Appellants are owners and tenants of commercial and
multi-family residential properties who paid waste haulers under
the recycLA program. Appellants alleged that the franchise fee
was in fact “an illegally imposed tax” that was passed through to
them in violation of Proposition 218, as well as articles XIII C
and XIII D of the Constitution, as amended by Proposition 26. In
the first cause of action, appellants sought an order directing the
City to “refund . . . the illegal taxes paid” under the guise of
franchise fees. In the second cause of action for declaratory relief,
appellants sought a “declaration as to the validity and
enforceability of the rates charged and fees collected pursuant to
the recycLA program . . . so that [appellants] may determine
their ongoing rights and obligations.”
B. Summary Judgment
In November 2020, the parties filed cross-motions for
summary judgment and/or summary adjudication. They also
filed a joint stipulation of undisputed facts in connection with
those motions.
The City moved for summary adjudication as to the first
and second causes of action, or, alternatively, summary
judgment. As relevant here, the City argued that appellants
lacked standing to pursue their first cause of action for a tax
refund because appellants paid the waste haulers, third-party
vendors, and did not pay any taxes directly to the City. Thus, the
City asserted that appellants lacked standing under then-
applicable case law, including County Inmate Tel. Serv. Cases
(2020) 48 Cal.App.5th 354, 357-359 (County Inmate).
The City also argued that appellants lacked standing to
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seek declaratory relief because even if the court found the
franchise fees were an unconstitutional tax, the waste haulers
could still charge appellants the same amount for their services
under the franchise contracts. Thus, appellants “have not
incurred an injury ‘capable of redress’” by the court.
Appellants sought summary adjudication on their
declaratory relief claim, arguing that the franchise fees were a
“tax” as defined under Proposition 26, the tax was illegally
imposed upon them, and none of the exceptions under article XIII
C, section 1, subdivision (e) applied. Accordingly, because the
City admitted that the fees had not been approved by the voters
as required for a tax, appellants contended they were entitled to
“summary adjudication on the issue of liability as a matter of
law.”
On March 16, 2021, the trial court granted the City’s
motion for summary judgment and denied appellant’s motion.
The court held that appellants lacked standing to seek a refund
of taxes, as “the plaintiff must have paid the tax in order to have
standing” under County Inmate, supra, 48 Cal.App.5th at p. 360,
and it was undisputed that they had not paid any money directly
to the City. Thus, because the undisputed facts showed that
appellants lacked standing, the City was entitled to judgment on
appellants’ first cause of action as a matter of law.
Turning to the second cause of action, the court found that
appellants lacked standing to seek declaratory relief as they
suffered no injury capable of redress. The court agreed with the
City that “a declaration that the franchise fees are
unconstitutional . . . would not require [haulers] to charge lesser
amounts” and the court “could not reform the agreements
between haulers and the City . . . because the haulers are not
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parties to this action.” The court further found that appellants
lacked standing for the same reason as the first cause of action.
Accordingly, the court granted summary judgment in favor of the
City.
Appellants timely appealed.
DISCUSSION
I. Zolly
While this appeal was pending, the California Supreme
Court decided Zolly, supra, 13 Cal.5th 780. There, the property
owner plaintiffs raised a Proposition 26 challenge to a similar
waste hauling system used by the City of Oakland that also
included the imposition of franchise fees. The defendant argued,
as the City does here, that the plaintiffs lacked standing because
they were not “directly obligated” to pay the franchise fees. (Id.
at p. 789.) The court noted that the plaintiffs had alleged that the
franchise fees caused their waste collection rates to increase. The
court concluded that these “allegations of economic injury caused
by the challenged fees are sufficient to confer standing.” (Ibid.)
The court held that County Inmate, supra, 48 Cal.App.5th 354did not support a “general rule . . . that a person may not sue to
recover excess taxes paid by someone else,” and concluded that a
plaintiff need not be “directly obligated to pay the fees in order to
challenge them under Proposition 26.” (Zolly, supra, at pp. 789-
790.)
II. Remand
At our request, the parties submitted supplemental briefing
about the effect of Zolly on the issues in this appeal. The City
concedes that reversal of summary adjudication and remand is
necessary on the first cause of action for refund of illegal taxes
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pursuant to Zolly’s holding on standing. We agree.
However, the City contends that we should affirm
summary adjudication as to the second cause of action for
declaratory relief, because that ruling was unaffected by Zolly.
The City argues that Zolly neither addressed a similar claim for
declaratory relief nor undercut the trial court’s holding here that
appellants had no redressable injury. We disagree. Appellants’
second cause of action seeks a declaration of the same rights that
form the basis for appellants’ purported injury. As in Zolly,
appellants here asserted (and the City did not dispute for
purposes of summary judgment) that the recycLA program
“resulted in a drastic increase in rates charged to customers.”
They alleged in their first cause of action that such injury was
caused by the monopolistic system created under the franchise
agreements and the pass-through nature of the franchise fees.
As such, appellants have shown “economic injury caused by the
challenged fees . . . sufficient to confer standing.” (Zolly, supra,
13 Cal.5th at p. 790.) Thus, appellants have standing to assert
both claims.
The parties also disagree as to the posture of the case upon
remand. Appellants ask us to direct the trial court to reconsider
the cross-motions for summary judgment under Zolly, while the
City contends that those motions are now moot and the “parties
should litigate anew whether the franchise fees are taxes in light
of Zolly.”
The City’s reliance on Barnes v. Litton Systems, Inc. (1994)
28 Cal.App.4th 681, 683 (Barnes) is misplaced. In Barnes, the
court simply held that “reversal of a judgment places the case in
a posture as though one had never been entered at all.” (Ibid.)
The City cites no authority for the proposition that the trial court
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must act as though motions for summary judgment were never
filed. Here, having reversed the trial court’s granting of
summary judgment on the basis of standing, we remand for
further proceedings. We leave to the trial court’s discretion how
best to proceed on the summary judgment motions in light of
Zolly following remand, and express no opinion as to the
substantive issues raised.
DISPOSITION
The judgment is reversed and the matter is remanded to
the trial court for further proceedings in light of Zolly. The
parties are to bear their own costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
COLLINS, ACTING P.J.
We concur:
CURREY, J.
STONE, J. 
Judge of the Los Angeles County Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
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