Plata v. City of San Jose

Filed 2/2/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
RAYMOND PLATA et al.,
Plaintiffs and Appellants, G060385
v. (Super. Ct. No. 2014-1-CV-258879)
CITY OF SAN JOSE, OPINION
Defendant and Appellant.
Appeals from a judgment of the Superior Court of Santa Clara County,
Thomas E. Kuhnle, Judge. Affirmed in part and reversed in part.
McManis Faulkner, James McManis, Matthew Schechter, Tyler Atkinson
and Hilary Weddell for Plaintiffs and Appellants Raymond and Michelle Plata.
Richard Doyle, City Attorney, Nora Frimann and Ardell Johnson, Assistant
City Attorneys, Kathryn Zoglin and Margo Laskowska, Deputy City Attorneys for
Defendant and Respondent City of San Jose.
Hanson Bridgett, Adam W. Hofmann and Sean G. Herman, as Amicus
Curiae on behalf of The League of California Cities.
INTRODUCTION
In 1996, California voters passed Proposition 218, also known as the Right
to Vote on Taxes Act, as an amendment to the California Constitution. (See Howard
Jarvis Taxpayers Assn. v. City of Roseville (2002) 97 CalApp.4th 637, 640.) This
measure was intended to fortify Proposition 13, the landmark 1978 ballot measure which
required local governments to obtain supermajority consent from the electorate in order
to enact any special property tax. (See Apartment Assn. of Los Angeles County, Inc. v.
City of Los Angeles (2001) 24 Cal.4th 830, 836 (Apartment Assn.).) By way of
Proposition 218, the voters of California added “‘assessments, fees, and charges’” to the
list of taxes which had to be approved through a vote. (Id. at p. 837, quoting Howard
Jarvis Taxpayer Assn. v. City of Riverside (1999) 73 Cal.App.4th 679, 682.) Proposition
218 added articles XIII C and XIII D to the Constitution. (Ibid.)
Article XIII D, subdivision 6 provides the procedures and criteria by which
a local government can lawfully impose or increase any fee or charge, as those terms are
defined in the article. (Cal. Const., art. XIII D, § 6.) The government agency must first
identify parcels upon which the fee or charge will be imposed and conduct public
hearings. (Id., subd. (a).) And, in part, it must ensure revenues to be obtained from the
fees do not exceed the cost of providing service and are not used for any purpose aside
from that for which the charge was imposed. (Id., subd. (b).)
A significant body of case law has developed around the application of
Proposition 218 in the area of water services. In fact, this is not our first assay of the
topic. In Capistrano Taxpayers Assn., Inc. v. City of San Juan Capistrano (2015) 235
Cal.App.4th 1493 (Capistrano), we considered the allowable measures a public water
agency could take to pass on costs of capital improvements and increased water
consumption. The latter aspect of our ruling was influential in the trial court proceedings
below. Today we are asked to review the constitutionality of a tiered rate structure
similar to that at issue in Capistrano.
2
But it turns out we cannot reach that issue. Unlike Capistrano, which was
always about how people should be charged for water, this case from the very beginning
has been about misuse of the revenues so collected – in the form of millions of dollars’
worth of transfers between the water agency, the San Jose Municipal Water System (or,
as the parties call it, Muni Water1), and the City of San Jose (the City). The trial court
found for the City on all of these transfers, and we uphold its ruling in that respect. We
reverse only to the extent the trial court permitted the rate payers to expand the scope of
their claim dramatically on the eve of trial to include the tiered rate issue. That issue is
not properly before us.
FACTS
Appellants Raymond and Michelle Plata are property owners in the City
and customers of Muni Water. Muni Water provides water service to over 26,000
metered customer connections in the area. The City has owned and operated Muni Water
for approximately 60 years.
Muni Water’s annual budget is reflected each year in a document called a
source and use of funds statement, which is part of the City’s annual operating budget.
The fund allocated for Muni Water revenues and charges is Fund 515.
On November 4, 2013, the Platas filed with the City a claim pursuant to
Government Code sections 910 and 910.2. In the claim, they accused Muni Water of
violating Proposition 218 ab initio – that is, since its passage in 1997 – by collecting
money from customers and illegally transferring it to the City’s own general fund. In
essence, they said, the City used Muni Water revenues not for operational costs
associated with water service, but for general purposes. So, the argument went, these
transfers depleted Muni Water’s own cash reserves and customers were required to pay
1 We adopt the parties’ and the trial court’s naming convention for purposes of clarity.
3
higher rates than they otherwise would have in order to make up the difference. The
claim asserted the unlawful practice continued through the 2013 to 2014 fiscal year.
The City rejected the claim on November 12, 2013, and so in January 2014,
the Platas brought a class action lawsuit. They sought declaratory and injunctive relief
against the City under Proposition 218, as well as recovery of the amounts overpaid.2
On February 3, 2015, the Platas filed an amended and supplemental
complaint which folded in an additional government claim they had lodged with respect
to the 2014 to 2015 fiscal year.3 The City rejected that claim on November 6, 2014.
Thereafter, the Platas filed two more government claims, one on October 21, 2015, with
respect to the 2015 to 2016 fiscal year, and the other on December 1, 2016, with respect
to the 2016 to 2017 fiscal year. These subsequent claims became the subject of two more
lawsuits. Only the lawsuit concerning the 2015 to 2016 fiscal year was consolidated with
the present action. Thus, for all intents and purposes, 2016 marks the end of the relevant
factual timeframe in this case. In June of 2015, the trial court granted the Platas’ motion
to serve as lead plaintiffs in a class of “[a]ll past and current customers of the San Jose
Municipal Water System who have paid for water service from the San Jose Municipal
Water System since January 1, 1997.”
The Platas have isolated five categories of transfers within the City’s
budgets over the years which they claim were unlawful. The first is late fees charged to
customers who do not pay their water bill on time. The second is amounts transferred to
service the debt incurred in the financing of city hall and related structures and
appurtenances. The third is so-called “enterprise in lieu” transfers; these transfers
represent fees the City would otherwise charge a private utility to provide a similar
2 Causes of action alleged in the original complaint were: (1) violation of article XIII D of the
California Constitution, and (2) declaratory relief. In addition to a refund and declaratory and injunctive relief, the
Platas sought general and special damages as well as attorney fees.
3 The amended and supplemental complaint’s causes of action remained the same as in the original
complaint.
4
service. The fourth is “rate of return” transfers, or transfers the City made from Muni
Water to compensate the City for investing in the Muni Water system instead of investing
the funds elsewhere. And the fifth is transfers made to the City to compensate it for
overhead costs. As the issues are framed in this appeal, we need only address the first,
third, and fourth categories.
In September 2017, only a few weeks before trial was set to begin in the
matter, the parties filed a joint pretrial statement in which the Platas seemingly introduced
two new issues into the trial mix: (1) “[w]hether the City’s use of tiered water rates
violated Section 6” of article XIII D of the California Constitution, and (2) “[w]hether the
City charges Muni Water customers based on the cost of providing water service to their
parcel.”
Not long after this revelation, the City filed a motion to decertify the class,
arguing the addition of the “new theories” destroyed any community of interest between
the class members, as well as the other elements necessary for class certification. The
issue was also highlighted amongst the City’s numerous motions in limine. The City
contended neither theory had been mentioned in the Platas’ government claims or in their
pleadings.
After a lengthy bench trial, the trial court issued a statement of decision
making – among many – the following determinations pertinent to our inquiry. First, the
late fees charged by Muni Water were not a fee or charge covered by Proposition 218.
Second, any claims accruing prior to November 4, 2012 were time-barred because of the
statute of limitations provided under Government Code section 911.2, and there was no
basis for applying any equitable tolling doctrine. (The three bases proffered by the Platas
were delayed accrual, estoppel, and continuing violation, but they only raise the third in
this appeal.)
As for tiered water rates, however, the trial court found the discussion of
high rates in the Platas’ government claims adequate to give notice to the City that its rate
5
structure was being questioned. It found the tiered rate structure did not comply with
Proposition 218, but it was unable to award the Platas any relief because they did not
show individualized harm. The court also noted “[a] more significant complication”
raised by the City in its class decertification motion. The tiered rate structure would
impact different class members differently from month to month, thus making it
potentially “impossible” to draw a “line between ‘winners’ and ‘losers’ based on monthly
water consumption[.]” It granted the City’s motion to decertify the class, and refused to
grant the Platas any relief as to their tiered rate argument.
DISCUSSION
The Platas appeal four aspects of the trial court’s ruling. First, they think
the trial court erred in determining late fees were not governed by Proposition 218.
Second, they feel the trial court should have awarded relief on their tiered rate theory, or
should at least have allowed them the opportunity to present evidence of individualized
harm. Following from this is their third argument: the class should not have been
decertified based on the tiered rate theory because there was no significant change in
circumstances to warrant it. And finally, the trial court incorrectly applied the statute of
limitations to bar any recovery with respect to rate of return and enterprise in lieu
transfers. The City appeals the trial court’s ruling on tiered rates to the extent it allowed
the theory to be aired at all, for the reasons mentioned above. We think the City is
correct, and thus, we need not linger long on the Platas’ second and third arguments.
I. Standard of Review
The characterization of fees and charges under Proposition 218 is a
question of law which we give independent review. (See City of San Buenaventura v.
United Water Conservation Dist. (2017) 3 Cal.5th 1191, 1204 (San Buenaventura);
Apartment Assn., supra, 24 Cal.4th at p. 836.)
The trial court’s application of the statute of limitations to undisputed facts
is subject to independent review, but where “a fact-intensive exception to the statute [i]s
6
at issue,” any underlying factual findings are reviewed for substantial evidence.
(Daneshmand v. City of San Juan Capistrano (2021) 60 Cal.App.5th 923, 930, fn. 3
(Daneshmand).) We also independently review the trial court’s ruling that the City had
received fair notice of the claim under the Government Claims Act.
II. Late Penalty Charges
The Platas argued Muni Water violated Proposition 218 criteria by charging
late penalty charges which could not be tied to any cost of providing water. The trial
court did not think these charges needed to comply with those criteria. It was correct.
Proposition 218 requirements apply to “fees” or “charges.” (Cal. Const.,
art. XIII D, § 6, subd. (b).) A “fee” or a “charge” is “any levy other than an ad valorem
tax, a special tax, or an assessment, imposed by an agency upon a parcel or upon a person
as an incident of property ownership, including a user fee or charge for a property related
service.” (Cal. Const., art. XIII D, § 2.)
The dispute here focuses on the phrase “imposed by an agency upon a
parcel or upon a person as an incident of property ownership.” Thankfully, as the
Supreme Court itself has noted, construing it does not require us to “write on a clean
slate.” (San Buenaventura, supra, 3 Cal.5th at p. 1204.)
The first time the high court considered this phrase was in Apartment
Association, which involved an inspection fee imposed on private landlords. (Apartment
Assn., supra, 24 Cal.4th at p. 833.) The court ruled this did not constitute a fee or charge
under Proposition 218 because it was not incident to ownership. Plaintiffs were charged
for renting their property out, not for owning it. Once they ceased renting it, the fee
ceased as well, regardless of whether ownership remained the same. (Id. at pp. 838, 840.)
Thus, from Apartment Assn., we know “taxes, assessments, fees, and charges are subject
to the constitutional strictures when they burden landowners as landowners,” and not in
any other capacity. (Id. at p. 842.)
7
Similarly, in Richmond v. Shasta Community Services Dist. (2004) 32
Cal.4th 409 (Richmond), the court considered a $400 fire suppression charge imposed on
all applicants in the Shasta County water district for new service connections. (Id. at p.
416.) While it agreed “that water service fees . . . may be fees or charges within the
meaning of article XIII D,” it did not “agree that all water service charges are necessarily
subject to” the restrictions provided therein. (Id. at p. 427.) The charge must be imposed
“‘as an incident of property ownership,’” which means nothing else is required except
“normal ownership and use of property.” A new connection fee such as this requires an
additional voluntary step by the property owner: the “decision to apply for the
connection.” (Ibid., quoting Cal. Const., art. XIII D, § 2, subd. (e).) The court felt its
view was bolstered by article XIII D, subdivision (a). (Id. at pp. 427-428.) To comply
with subdivision (a), the government agency must “identif[y]” the “parcels upon which a
fee or charge is proposed for imposition,” and it must “calculate[]” the “fee or charge
proposed to be imposed upon each parcel[.]” (Cal. Const., art. XIII D, § 6, subd. (a).)
An agency would be unable to do this for new connection charges, the court noted, as it
would not be able to “determine in advance which property owners will apply for water
service connection.” (Richmond, supra, 32 Cal.4th at p. 428.)
Richmond’s analysis was applied in Bighorn-Desert View Water Agency v.
Verjil (2006) 39 Cal.4th 205 (Bighorn). There, the court invalidated a proposed ballot
initiative which would have not only reduced water rates but also required the water
agency to obtain voter approval before increasing rates further or charging new fees. (Id.
at pp. 209-210.) In examining the validity of the initiative, the court found “a public
water agency’s charges for ongoing water delivery” were fees and charges under section
XIII D because they were “user fees” for “a property related service.” (Id. at pp. 216-
217, quoting Cal. Const., art. XIII D, § 2, subd. (e).) It noted this conclusion was in line
with the distinction drawn in Richmond between charges for new connections versus
charges for existing ones. (Id. at p. 215.) “Accordingly, once a property owner or
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resident has paid the connection charges and has become a customer of a public water
agency, all charges for water delivery incurred thereafter are charges for a property-
related service, whether the charge is calculated on the basis of consumption or is
imposed as a fixed monthly fee.” (Id. at p. 217.)
Most recently, in San Buenaventura, supra, the Supreme Court examined
whether groundwater pumping charges constituted a fee or charge for a “property related
service,” and concluded they were not fees. (San Buenaventura, supra, 3 Cal.5th at pp.
1207-1208.) The text of article XIII D requires fees to be proportionate to the cost of
providing services to individual parcels. Thus it stands to reason that a fee or charge
must comply with article XIII D “if it is imposed on a property owner, in his or her
capacity as a property owner, to pay for the costs of providing a service to a parcel of
property.” (Id. at p. 1208.) The groundwater charges in question were for purposes of
conservation and management of groundwater, which is not delivered to particular
parcels of property. (Ibid.)
Based on these authorities, the analysis of late penalty charges seems
straightforward to us. These charges do not burden landowners as landowners – as
Apartment Association and its progeny contemplate – but landowners as delinquent bill
payers. An owner will not incur a late penalty charge merely through ownership and
normal use of property, as Richmond states, but through an additional act – or in this
case, omission: failing to pay his or her bill by the due date. This issue is, in our view,
dispositive. Without the benefit of a crystal ball, Muni Water cannot identify in advance
which property owners will become delinquent on their bills. Thus, it would be unable to
9
calculate a per-parcel charge and notify those property owners of a public hearing as it
would be required to do under article XIII D, section 6, subdivision (a).4
The Platas believe Bighorn and San Buenaventura support their position
because those opinions stressed that all post-connection charges for water delivery were
encompassed by article XIII D. But late penalty charges are not charges for water
delivery, they are charges for money non-delivery, for failure to pay the bill. They are
charged, as one of the City’s accountants testified, to incentivize customers to pay their
bills on time. They have nothing to do with water usage any more than failure to pay
your Mastercard bill has to do with the dinner you put on your card. They are not “fees”
as contemplated in the constitutional definition.
A final entreaty by the Platas is that the trial court’s ruling creates a late
penalty charge loophole in Proposition 218 because it would allow the City to raise
revenue through a so-called penalty. They remind us that we raised such a specter in
Capistrano. (See Capistrano, supra, 235 Cal.App.4th at p. 1515). But that is where the
similarities end. In Capistrano, the water agency attempted to justify its tiered rates as
penalties for excessive consumption. (Ibid.) We observed such a rationale could be used
to create pricing structures with no discernible relationship to the cost of service, thus
“mak[ing] a mockery of the Constitution.” (Ibid.) Here, the penalty in question is not
tacked to water rates and is not dependent on a customer’s usage. It is charged if and
only if a customer fails to pay his or her bill in a timely fashion. Any suggestion the
District might someday attempt to raise revenue by encouraging non-payment fails the
straight-face test. We never intended in Capistrano to circumscribe a local government’s
4 The Platas do not find this an insurmountable hurdle, arguing the City could and does simply
notify all Muni Water customers about late fees. Such an interpretation would render subdivision (a) nugatory and
we reject it. If it were sufficient to notify all customers of a fee or charge, there would be no need to identify parcels
upon which the charge would be imposed. (Cal. Const., art. XIII D, § 6, subd. (a)(1).) And there would be no need
to calculate the amount of the fee per parcel. (Ibid.)
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ability to recoup collection costs through penalties, and we reject the idea that was its
effect. We uphold the trial court’s ruling as to late penalty charges.
III. Tiered Rate Structure
Relying on Capistrano, the trial court found Muni Water’s tiered rate
structure does not withstand constitutional scrutiny because the City did not perform a
proportionality analysis to understand how the tier prices relate to the actual cost of
providing water at those levels of consumption. Before we can consider the tiered rate
scheme, however, we must address the City’s cross-appeal. Satisfactory presentation
under the Government Claims Act (GCA) and fair notice under the rules of civil
procedure are threshold issues. And in our estimation the Platas never get across that
threshold.
A. Government Claims Act (Gov. Code, § 810 et seq.)
The Platas could not bring a suit “for money or damages” against the City
without properly presenting a claim first. (See Gov. Code, §§ 905, 945.4.)5 The City and
its amicus curiae argue none of the Platas’ government claims identify or “fairly
describe” the tiered rate structure as an issue. After careful consideration, we agree.
Amongst other details, a proper government claim must contain “[t]he date,
place and other circumstances of the occurrence or transaction which gave rise to the
claim asserted” and “[a] general description of the indebtedness, obligation, injury,
damage or loss incurred so far as it may be known at the time of presentation of the
claim.” (See Gov. Code, § 910, subds. (c) & (d).) The purpose of the claim presentation
requirement “is ‘to provide the public entity sufficient information to enable it to
adequately investigate claims and to settle them, if appropriate, without the expense of
5 The Platas refuse to concede the GCA applies to the dispute, but it seems clear to us. While the
trial court ultimately determined they could not recover damages under Proposition 218’s scheme, the fact remains
that their prayer for relief requested general and special damages. By the Platas’ own framing of the dispute from
the beginning, the GCA applied. Had the trial court decided damages were recoverable, surely the Platas would
have accepted them.
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litigation.’ (City of San Jose v. Superior Court (1974) 12 Cal.3d 447, 455.) . . . As the
purpose of the claim is to give the government entity notice sufficient for it to investigate
and evaluate the claim, not to eliminate meritorious actions (Blair v. Superior Court
(1990) 218 Cal.App.3d 221, 225), the claims statute ‘should not be applied to snare the
unwary where its purpose has been satisfied’ (Elias v. San Bernardino County Flood
Control Dist. (1977) 68 Cal.App.3d 70, 74).” (Stockett v. Association of Cal. Water
Agencies Joint Powers Ins. Authority (2004) 34 Cal.4th 441, 446 (Stockett).)
“If the claim is rejected and the plaintiff ultimately files a complaint against
the public entity, the facts underlying each cause of action in the complaint must have
been fairly reflected in a timely claim. (Nelson v. State of California (1982) 139
Cal.App.3d 72, 79.) ‘[E]ven if the claim were timely, the complaint is vulnerable to a
demurrer if it alleges a factual basis for recovery which is not fairly reflected in the
written claim.’ (Ibid.) [¶] The claim, however, need not specify each particular act or
omission later proven to have caused the injury. [Citation.] A complaint’s fuller
exposition of the factual basis beyond that given in the claim is not fatal, so long as the
complaint is not based on an ‘entirely different set of facts.’ (Stevenson v. San Francisco
Housing Authority (1994) 24 Cal.App.4th 269, 278.) Only where there has been a
‘complete shift in allegations, usually involving an effort to premise civil liability on acts
or omissions committed at different times or by different persons than those described in
the claim,’ have courts generally found the complaint barred. [Citation.] Where the
complaint merely elaborates or adds further detail to a claim, but is predicated on the
same fundamental actions or failures to act by the defendants, courts have generally
found the claim fairly reflects the facts pled in the complaint. (White v. Superior Court
(1990) 225 Cal.App.3d 1505, 1510–1511.)” (Stockett, supra, 34 Cal.4th at p. 447.)
The line between causes of action fairly reflected in, or absent from, a
government claim is – like so many things in the law – highly context-dependent. The
question is whether the new facts are “sufficiently related to those alleged in the
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[government] claim.” (See Smith v. County of Los Angeles (1989) 214 Cal.App.3d 266,
279.) Sufficiency of relationship will always be a difficult analysis to conduct. In
Stockett, our high court expanded on the factual divergence theme, finding additional
detail in a complaint was not fatal because the claimant’s new theories did not represent
new causes of action, a point which the defendant conceded in the trial court. (Stockett,
supra, 34 Cal.4th at p. 447.) But here, we have both new facts and a new cause of action.
The Platas’ government claims fairly describe a two-pronged theory. The
first prong encompasses the City’s purportedly illegal transfer of revenues out of Fund
515 into Fund 001. The second prong encompasses the allegedly “inflated” rates
customers were charged to make up for the transfers. The claim asserted the rates were
“pegged higher than necessary” and cited Proposition 218’s prohibition on charging fees
which exceed the cost of the service. The claims provided the City with notice that, in
part, its rates, and the bases for them, were being questioned. The complaint filed
thereafter tracked the language in the claims.
But we do not believe this was enough to put the City on notice that its
tiered rate structure was being attacked. Rates are quite a broad subject.6 The claim and
complaint framed inflated rates for customers overall as an effect of the unlawful
transfers – that is, as Muni Water’s cash reserves were depleted, the money had to be
made up in the rates. As a result, the City was on notice that it would have to explain the
basis for increases that occurred while it was drawing down from Fund 515. So the GCA
claim distilled to, “You’re using the money for the wrong purposes and making up for it
by inflating our rates.” It was not “Your rate system tiers are illegal.”
6 This case exemplifies the necessity for a clear factual structuring of claims under the GCA. While
a claim could conceivably be quite broad in scope, there is a point at which the scope is too broad to provide the
notice necessary to allow the public entity to feasibly and timely investigate the claim. A charge of inflated rates
alone no more necessarily implicates a tier structure than a dangerous condition of property claim alone necessarily
implicates poor lighting (see Turner v. State of California (1991) 232 Cal.App.3d 883, 888-889) or horseplay of
schoolchildren. (See Fall River Joint Unified School Dist. v. Superior Court (1988) 206 Cal.App.3d 431, 434.)
Plaintiffs need not include every detail in their claim, but they must give the public entity enough information to
understand its basic factual underpinnings.
13
The tiered rates challenge therefore, represents a whole new litigation
frontier. Such a theory necessarily involves an analysis of whether and to what extent the
cost of delivering water increases with customer usage. Justifying rates by this metric
requires wholly different evidence. We recognized this in Capistrano, finding the water
utility therein had to not only “balance its total costs of service with its total revenues” to
justify its rate tiers, but “also . . . correlate its tiered prices with the actual cost of
providing water at those tiered levels.” (Capistrano, supra, 235 Cal.App.4th at p. 1506.)
Subdivision (b)(1) covered the former, but subdivision (b)(3) covered the latter. And
satisfying each subdivision is a different endeavor. 7
Another rather conspicuous wrinkle in the Platas’ litigation fabric is their
own understanding of their claim: they themselves seemingly never understood the tier
structure to be at issue. Notably, they do not say the words “tiered rates” or implicate
subdivision (b)(3) in their claim or in their pleadings.8, Their motion for class
certification in April 2015 stated their lawsuit “challenge[d] the City’s systematic and
illegal use of Muni Water funds.” (Italics added.) It said nothing about challenging their
collection.
From the beginning of discovery in this case, the City gave the Platas
opportunities to describe the basis for their claim regarding rates. The Platas’ responses
continued to assert their claim was based on the illegal transfers and that the discussion of
rates was only relevant to explain how the City was recouping the transferred funds.
Even when they were asked what they believed they were overcharged, or what rates they
7 The trial court understandably used our decision in Capistrano as a guide in rejecting the City’s
notice argument. It noted the language in the Platas’ claims “frame[d] tiered rates in almost exactly the same way as
Capistrano framed its analysis of tiered rates.” But this is a major point of divergence between our case and
Capistrano. Capistrano was always, from government claim onward, a case about article XIID, subdivision (b)(3).
The tiered rate structure was the immediate focus of the case. Here, it was not.
8 This was probably why the City did not demur to the complaints on this ground, as the Platas’
counsel pointed out at oral argument. It was not because the City acquiesced to the tier structure being part of the
case. Quite the opposite – at the pleading stage, the City was not even aware the tier structure was being
challenged.
14
should have paid, they repeated the same allegations from the claim and the complaints,
and asserted that all amounts they paid to Muni Water were overpayments. They
asserted the City had violated article XIII D, subdivisions (b)(1) and (2).
The Platas point to July 2017 – two months before trial – as a time they
raised the issue specifically when they sought the deposition of the City’s person most
qualified on several topics, including the basis for the tier structure. Tellingly, the City’s
counsel then asked the Platas’ counsel why they had asked for a deponent on the topic, an
odd question if everyone knew it to be an issue. The Platas’ counsel told her they had not
challenged the tier structure up to that time, but still wanted the information. It was not
until the filing of the joint pretrial statement that the City realized the tier structure was at
issue. That was too late to comply with the letter or the spirit of the GCA.
The trial court felt another piece of evidence showing the City had been
apprised of the theory was some wording lifted from the earlier class certification order.9
In opposing the Platas’ motion for class certification, the order said, the City had argued
that individual factors would predominate when determining harm, including “the
amount of water and charges at each tier during each billing period.” But in the line
directly following, the trial court made a crucial observation – those individual factors
“go to damages, not liability.” Quite right. Simply because the City had recognized that
the tier structure might impact class members’ damages did not mean it or the court the
recognized the tier structure per se was under attack. Clarity on such issues is especially
critical in Proposition 218 cases because the Constitution places the burden on the
government to show compliance with its requirements. The government cannot do this if
claimants are not specific.
Based on the record before us, the City was justified in believing both the
government claim and the lawsuit turned on the transfers and late penalty charges. And
9 The motion for class certification was heard and ruled upon by a different judge than the one who
presided at the bench trial.
15
even though the claim and the pleadings may have suggested rates in general as a point of
contention in the future, discovery had shown the focus of the litigation to be the transfers
and their downstream impact – so to speak – on customers. This appears to have been
both sides’ understanding of the case. Thus, the trial court abused its discretion in
permitting the Platas to “assert not merely a new theory, but liability on an entirely
different state of facts[.]” (See Shelton v. Superior Court (1976) 56 Cal.App.3d 66, 82-
83.) Allowing the Platas to expand the scope of issues on the eve of trial undermined the
purpose of the GCA, and we therefore reverse the aspect of the judgment pertaining to
tiered rates, which renders moot the Platas’ contention that they should have been
awarded relief with respect to this theory.10
IV. Statute of Limitations
Any claim against a public entity related to a cause of action that is not for
personal injury or property damage must be presented “not later than one year after the
accrual of the cause of action.” (Gov. Code, § 911.2, subd. (a).) “‘A period of
limitations ordinarily commences at the time when the obligation or liability arises,
regardless of the plaintiff’s ignorance of the cause of action. [Citation.]’ [Citation.]”
(Daneshmand, supra, 60 Cal.App.5th at p. 936.)
Here, the trial court barred recovery premised on violations taking place
before November 4, 2012, exactly one year before the filing of the Platas’ first
government claim. This ruling effectively eviscerated their claims for the rate of return
and enterprise in lieu transfers, which had ceased three years prior to their first
government claim. The Platas therefore argue such claims are not time-barred because
the City continues to unlawfully use the transferred revenues so the statute has not run;
accrual has been continuous. We think substantial evidence supports the trial court’s
finding.
10 Even if notice of the claim was sufficient, we agree with the trial court that there was a complete
failure of proof as to the amount of restitution conceivably owed.
16
Between 1997 and 2009, the City made millions of dollars in rate of return
and enterprise in lieu transfers between Fund 515 and its general fund, Fund 001. These
transfers were mentioned in the City’s adopted operating budgets, which were a matter of
public record. There is no dispute that both those types of transfers ceased, at the latest,
in 2009.
Once transferred to Fund 001, the funds were not separately tracked or
earmarked as being from Muni Water.11 Consequently, at trial, neither side was able to
trace exactly how or when the funds from those transfers were spent. Nevertheless, the
Platas presented an accounting expert, Robert Knudsen, who opined that it was possible
for the transferred funds to still be in Fund 001. Since the balance in Fund 001 never fell
below $27 million between 1998 and 2016, and the overall amount of money transferred
in enterprise in lieu, rate of return, and late charge fees between 1998 and 2016 was
approximately $25 million, Knudsen surmised at least some of the transferred funds
might still be in the account.
In further support of this theory, the Platas refer us to Bank of America
National Trust & Savings Association v. California Savings & Commercial Bank (1933)
218 Cal. 261 and Ennis-Brown Company v. Richvale Land Company (1920) 47 Cal.App.
508. We join the City in its confusion regarding the relevance of these authorities. Both
cases dealt with private commodities transactions in which the plaintiffs had either
pledged or advanced funds and were entitled to their return or reimbursement. The
present situation is very different. The class members did not specially pledge money to
the City and had no expectation of being reimbursed at the time of payment.
The Platas also argue it was the City’s burden to show the funds had all
been used prior to November 4, 2012. But clearly the trial court felt the City had met this
burden. The City offered its own accounting expert, Everett Harry, who took issue with
11 It is important to note that the concept of “transfer” in this context refers not to an actual transfer
of funds between depositary accounts, but rather an accounting transfer – a transfer on the books.
17
Knudsen’s characterization of the funds. He claimed Knudsen had used a “Last In First
Out” method of inventory accounting to determine that the wrongfully transferred funds
would be the last to be exhausted. However, one could just as easily use a “first in first
out” approach, which would mean the funds that had been sitting in the account longest
would be the first to be expended.
He raised three other questions with respect to Knudsen’s opinion. First,
Knudsen began his analysis July 1997, which is the earliest Proposition 218 could have
been in effect. The amount in Fund 001 at that time was $96 million. But Knudsen did
not analyze whether any of this $96 million was earmarked for other purposes. Second,
he noted Knudsen was giving “special priority” to water money in assuming it was first
in and thus, last out. He saw no reason to do that. Third, he said Knudsen started with
the wrong data point. Knudsen should have added the wrongfully transferred amounts to
the starting balance in Fund 001 (approximately $96 million) in order to determine a
baseline below which the fund balance would have to drop to consider all of the water
funds exhausted. The starting balance in Fund 001 was $96,235,875. Adding this amount
to the $25 million wrongfully transferred means the baseline is more like $120 million,
not $25 million. And the City fell below $120 million several times over the years. The
City’s expert was thus able to undermine Knudsen’s theory.12 The trial court was within
its province to believe him over Knudsen, and we defer to its credibility determination.13
12 The trial judge also seemed a bit skeptical of Knudsen’s reasoning, asking him “It’s true either
way; right? You don’t know if those funds are in there or they could be there. There’s no way to know, one way or
the other, because they’re not earmarked.”
13 And it was not just a witness credibility determination. The statement of decision indicates the
trial court itself viewed the Platas’ continuing use theory with great skepticism. The trial court made an analogy
between Fund 001 and a personal checking account through which paychecks pass and expenses are paid: “While
the balance of the account might not fall below $3000 at any time in a given year, the funds that pass through the
account might be 12 times higher. In this regard, one would never say ‘my January paycheck wasn’t used this year
because my checking account balance remained higher than the amount of that paycheck.’ A more common
response would be, ‘My January paycheck was used to pay for my February expenses.’” This seems not only a
reasonable analysis but one longer on common sense than the Platas’ assay.
18
Since the Platas succeeded on none of their claims, we need not address the
trial court’s order decertifying the class, which – while facially sound – was based on
circumstances related to the addition of the tiered water rate theory, which we conclude
should not have been in play.
DISPOSITION
The judgment is reversed only as to the trial court’s findings on the tiered
rate structure. In all other respects, it is affirmed. The City of San Jose shall recover its
costs on appeal.
BEDSWORTH, ACTING P. J.
I CONCUR:
MARKS, J.*
*Judge of the Orange County Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
19
Moore, J., Concurring and Dissenting:
I concur with most of the majority opinion. Unlike the majority, however, I
agree with the trial court and conclude plaintiffs’ governmental claim did place defendant
on notice that its rate structure was being challenged. A government claim need only
point the public entity in the right direction by giving a general description of the claimed
loss. (Stockett v. Association of Cal. Water Agencies Joint Powers Ins. Authority (2004)
34 Cal.4th 441, 445-446.) Here, the government claim implicated water rates. That it
didn’t state the magic words “tiered rates” is of no import. (Maj. opn., ante, p.14.) The
city was on notice that its rating system was being challenged.
Nonetheless, I agree with the majority there was a failure of proof of
damages. Thus, the adequacy or inadequacy of the governmental claim makes no
difference.
MOORE, J.
1