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1 HARRIET A. STEINER, Bar No. 109436 Exempt from Filing Fees Pursuant
harriet.steiner@bbklaw.com to Gov. Code § 6103
2 KIMBERLY E. HOOD, Bar No. 229195
kimberly.hood@bbklaw.com
3 BEST BEST & KRIEGER LLP
500 Capitol Mall, Suite 1700
4 Sacramento, California 95814 10/30/2020
Telephone: (916) 325-4000
5 Facsimile: (916) 325-4010
6 Attorneys for Defendant/Respondent
Town of Hillsborough
7
8
9 SUPERIOR COURT OF THE STATE OF CALIFORNIA
10 COUNTY OF SAN MATEO
11
12 BRAD BARUH, KATHY BARUH, Case No. 16CIV02284
CHARLES BOLTON, ELDRIDGE GRAY,
13 JOHN LOCKTON, DAVID MARQUARDT, SUPPLEMENTAL BRIEF RE
PAUL ROCHESTER, ARTHUR OPPOSITION TO PLAINTIFFS’
14 STROMBERG, CHARLES SYERS, MOTION FOR CLASS
individually and on behalf of all others CERTIFICATION BY
15 similarly situated, DEFENDANT/RESPONDENT TOWN
OF HILLSBOROUGH
16 Plaintiffs and Petitioners,
17 v.
Date: January 21, 2021
18 TOWN OF HILLSBOROUGH and DOES 1- Time: 9:00 a.m.
100, inclusive, Dept.: 23
19 Judge: Hon. V. Raymond Swope
Defendants and Respondents.
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21 Complaint Filed: November 8, 2016
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TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION
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1 I. INTRODUCTION & SUMMARY OF ARGUMENT
2 The Town of Hillsborough respectfully submits this supplemental brief to address the
3 questions the Court requested that the Town address regarding the application of Health and
4 Safety Code sections 5471 and 5472, and the corresponding sections of the Revenue and Taxation
5 Code, in this action. These are the provisions that the Town asserted in its opposition barred
6 Plaintiffs’ class claims for water rate refunds.1 The Court identified several areas to address in
7 this supplemental briefing, which are summarized below along with the Town’s responses:
8 Whether the drought penalties are subject to Health and Safety Code sections 5471
9 and 5472? No, to clarify, these sections do not apply to the challenged drought penalties. The
10 drought penalties were adopted pursuant to other statutory authority in the Water Code and in
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11 response to State orders to conserve water during the drought emergency. Class certification
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12 should instead be denied on the other grounds asserted in the Town’s opposition.
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13 With respect to the challenged water rates, address whether the Town complied
14 with the notice and protest hearing procedures in Health and Safety Code sections 5473.1 (notice
15 of public hearing mailed to affected parcels) and 5473.2 (protest hearing). The Town complied
16 with the pertinent notice and protest hearing procedures. Sections 5473 through 5473.9 are only
17 applicable to water rates collected on the property tax roll, which the Town’s water rates are not.
18 Regardless, Proposition 218 imposes similar procedures on water rates, including a requirement
19 that notice of proposed rates increases be mailed to affected property owners at least 45-days
20 before a public hearing and precludes the Town from adopting the proposed rate increases if there
21 is a majority protest. (Cal. Const., art. XIII D, § 6, subd. (b)(1).) Town complied with these
22 notice and hearing requirements.
23 Were the challenged water rate revenues generated for the purposes authorized
24 under Health and Safety Code section 5471, subdivision (c)? Although the court need not reach
25 this question to determine whether a class action is barred by Section 5471, yes, the revenues
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27 1
The Town also raised Health and Safety Code sections 5471 and 5472 in its Answer filed on December 14, 2016.
(See Answer, Third and Fourth Affirmative Defenses, p. 6.) and in the parties’ Joint Supplemental Brief on
28 Adjudicating Writ of Mandate Prior to Class Certification filed on December 6, 2018 at p. 3:3.
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TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION
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1 generated were used to pay for the cost of water services and facilities furnished by the Town “in
2 connection with” its water system, including for operation and maintenance of the Town’s water
3 system. Operation of a water system also must include the cost of purchasing water. Proposition
4 218 imposes a similar requirement for the property related water use fees, i.e., that “[r]evenues
5 derived from the fee or charge shall not exceed the funds required to provide the property related
6 service.” (Cal. Const., art. XIII D, § 6, subd. (b)(1).) Plaintiff has not alleged that the water rate
7 revenues were generated for non-water service purposes, nor can they as the water rate study,
8 hearing notice, and evidence in the Record support that the water rate revenues were used to pay
9 for the operation, maintenance, capital, and debt service costs of the water system.
10 Did Proposition 218 supersede Health and Safety sections 5471 and 5472? No, the
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11 decision in Los Altos Golf and Country Club v. County of Santa Clara (2008) 165 Cal.App.4th
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12 198, cited in the Town’s opposition brief, involved a similar challenge to sewer rates under
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13 Proposition 218. The Los Altos court applied Section 5471 and 5472, and the corresponding
14 Revenue and Taxation Code sections, to sustain a demurrer and dismiss the action for failure to
15 comply with the requisite procedures for asserting a refund claim. Other courts have also
16 recognized that nothing in the language of Proposition 218 manifests an intent to abrogate the
17 established procedure of section 5472 for seeking a refund of water or sewer service charges.
18 II. THE DROUGHT PENALTIES ARE NOT SUBJECT TO HEALTH & SAFETY
CODE SECTIONS 5471 AND 5472
19
20 The Town is not asserting that the proposed class action related to the drought penalties is
21 prohibited by Health and Safety Code sections 5471 and 5472 and the corresponding Revenue
22 and Taxation Code provisions because the penalties are not charges for water service to support
23 the water system. The drought penalties were adopted as part of the Town’s Water Shortage
24 Contingency Plan and consistent with the additional authority of California Constitution article
25 XI, section 7, and the Water Code, including Water Code section 10632(a), and later Water Code
26 section 377(i). {See D-507-511}2 The drought penalties are not part of the Town’s water rates
27
2
Citations to the certifiedRecord are as follows: {Bates #}. The Record pages cited herein are included in the
28 Supplemental Declaration of Kimberly E. Hood filed with this supplemental brief.
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TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION
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1 (user charges) related to the operation and maintenance of the water system, which are codified in
2 Chapter 13.20 of the Hillsborough Municipal Code (HMC) regarding “Water Charges.” {See W-
3 1296; cf. D-507-511 (drought penalty ordinance and W-1164-1167[water rate ordinance]}
4 Rather, the drought penalties are distinct penalties codified in HMC Chapter 13.16 (“Water
5 Conservation”), which had their genesis many years ago under the Town’s Water Shortage
6 Contingency Plan that is part of its Urban Water Management Plan (UWMP). {See D-507-511;
7 see also D-1100-1102; D-1130; see generally W-1291-1306 [organization of HMC Chapters
8 13.16 and 13.20]}
9 The drought penalties were separately billed from the water rates and the only individuals
10 subject to the volumetric penalty were those users who violated the Town’s water conservation
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11 regulations. (See Amend. Cooke Decl., filed 9/11/2020, ¶ 12.) As discussed in greater detail in
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12 the Town’s opposition brief filed on May 29, 2018, the drought penalties were implemented only
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13 as necessary to comply with the State’s emergency regulations and to help the Town achieve
14 compliance with its mandatory conservation target. (See Water Code, § 10632(a)(6); D-507-511;
15 see also Water Code, § 377, subd. (i) [“[A] public entity may enforce water use limitations
16 established by an ordinance or resolution adopted pursuant to this chapter, or as otherwise
17 authorized by law, by a volumetric penalty in an amount established by the public entity.”).
18 The intent of a penalty is not to raise revenue to operate a water system. Instead, a penalty
19 “regulates conduct (and indirectly raises revenue)” by deterring individuals from violating the
20 regulations. (Calif. Taxpayers Assoc. v. Franchise Tax Bd. (2010) 190 Cal.App.4th 1139, 1148.)
21 Stated another way, “a penalty raises revenue only if some legal obligation is disobeyed.” (Ibid.)
22 As explained in the Town’s opposition brief to the motion for class certification, Plaintiffs
23 have failed to meet their substantial burden to warrant class certification with respect to the
24 drought penalties because (1) the class representative claims are not common to the class, (2) not
25 all of the class representatives have paid their drought penalties, thus violating the “pay first,
26 litigate later doctrine,” (3) the availability of the appeals process and doctrine of exhaustion of
27 remedies preclude certification of the class, and (4) the burdens of class treatment weigh against
28 certification here. (Town’s Opp. Brief at p. 17:5-7, p. 18:5-23, 24-28. 19:1-7, 25-28; 20:1-11.)
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TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION
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1 III. THE TOWN COMPLIED WITH THE PERTINENT PROCEDURES FOR
ADOPTING WATER RATES THAT ARE BILLED MONTHLY AND NOT
2 COLLECTED ON THE TAX ROLL
3 The Court noted in its October 22, 2020 order that charges imposed “pursuant to Health
4 and Safety Code section 5471 may only be imposed following a noticed public hearing and
5 consideration of all objections or protests,” citing Health & Safety Code section 5473.1, 5473.2.
6 Those particular provisions, however, only apply when the rate or charges are being imposed for
7 collection on the tax roll. As explained in Utility Audit Co., Inc. v. City of Los Angeles (2003)
8 112 Cal.App.4th 950, “Section 5471 of the Health and Safety Code grants local entities power to
9 prescribe and collect fees for sewer services. Section 5473 grants them the power to have such
10 charges collected on the tax roll.” (Id. at p. 957.) Sections 5473.1 and 5473.2, and the additional
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provisions in subsections 5473.1-.9, impose additional procedures to such fees collected on the
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11
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12 tax roll pursuant to Section 5473.
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13 Section 5473.1’s noticed hearing requirement begins, “The clerk shall cause notice of the
14 filing of said report and of a time and place of hearing thereon to be published….” “Said report”
15 refers to the “written report” required in Section 5473 when imposing rates on the tax roll.
16 Neither sections 5471 nor 5472 refer to or require preparation of a “written report.” The second
17 paragraph of section 5473.1 clarifies this point, stating that it applies when collecting rates on the
18 tax roll: “Before any entity may have such charges collected on the tax roll for the first time
19 following the effective date of this section, the clerk shall cause a notice in writing of the filing of
20 said report ….” (§ 5473.1 [emphasis added].)
21 Similarly, Section 5473.2’s requirement that a hearing be held to “hear and consider all
22 objections or protests” again refers to protests to the “said report referred to in said notice.”
23 Again, the reference to “said report” is to the report required to impose fees and charges on the
24 tax roll” under section 5473, and a majority protest simply precludes the Town from adopting the
25 report to impose the charges on the tax roll. However, section 5473.2 allows the fees to still be
26 “collected separately” from the tax roll if the report required by section 5473 is not adopted, thus
27 clarifying that the added procedures of Section 5473.1 and 5473.2 (as well as sections 5473.3-.9)
28 are only applicable when collecting the water rates on the tax roll. (See, e.g., Utility Audit, supra,
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TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION
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1 112 Cal.App.4th at p. 957 [concluding that Health and Safety Code section 5473.8 did not apply
2 to sewer fees and charges not collected on the tax roll because the “charges referred to are sewer
3 service charges collected on the tax roll, not sewer service fees generally”].)
4 The Town’s water service rates are not collected on the tax roll (i.e., on the property tax
5 bill), but billed separately on a monthly basis sent to the customer of record. {W-1110 [compare
6 to W-1111 which notes that sewer rates are collected annually on the tax roll; W-1198; see also
7 Amend. Cooke Decl., Exh. B, filed 9/11/2020 [monthly water bill example].} Thus, the noticed
8 hearing and other requirements in Health and Safety Code sections 5473-5473.9 are not requisite
9 steps for adopting fees and charges under sections 5471 and 5472. Section 5471 expressly
10 authorizes a city to charge sewer and water fees. It only requires that the fees be imposed by an
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11 ordinance or resolution approved by a two-thirds vote of the members of the legislative body. The
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12 City complied with those requirements. (See Town’s RJN filed 9/11/2020, Exhs. A, C, and D.)
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13 Regardless, the Town held a noticed public hearing when it adopted its water rates
14 pursuant to the additional procedures required by Proposition 218. Proposition 218 imposes
15 notice, hearing and protest requirements, which require a majority-protest proceeding no less than
16 45 days after mailing notice to all property owners. (Cal. Const., art. XIII D, § 6(a).) The notice
17 must contain specific information, such as the amount of the fee, the reason and basis for the fee
18 increase, and the date, time and location of the public hearing. (Cal. Const., art. XIII D, § 6, subd.
19 (a)(1).) If at the conclusion of the public hearing the public agency receives written protests
20 against the imposition of the proposed fee or charge from a majority of the affected property
21 owners, the fee or charge may not be imposed. (Cal. Const. art. XIII D, § 6, subd. (a)(2).)
22 The Town complied with these notice, public hearing, and protest procedures. The Town
23 noticed a public hearing more than 45 days prior to the date of the public hearing on the water
24 rates, which was held on December 14, 2015. {W-1110-1111} The Town held numerous public
25 forums for the community to be involved in discussions on the water rates. For example, the
26 water rates were discussed at a November 4, 2015 public meeting, in which the public was invited
27 to ask questions and learn about the proposed rates. {See, e.g.,W-1063-1064} At the December
28 14, 2015 public hearing, the Town invited the public to make comments and file written protests
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TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION
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1 against the water rates. {W-1130} Although there were a total of 4,028 property owners eligible
2 to file written protests, only 13 written protests were received. {Id.} The City Council
3 unanimously introduced Ordinance No. 731 at the conclusion of the public hearing and held a
4 further public hearing on January 11, 2016 at the conclusion of which the Town adopted
5 Ordinance No. 731 imposing the challenged water rates by a unanimous vote of the entire Town
6 Council. {W-1137-1138; W-1129-1130; W-1164-1167} Plaintiffs have not challenged the
7 Town’s procedural compliance with Proposition 218 in adopting the challenged water rates.
8 IV. THE WATER RATES ARE SUBJECT TO AND COMPLY WITH THE
REQUIREMENTS OF HEALTH & SAFETY CODE SECTION 5471
9
10 The Town does not dispute that the provisions of Health and Safety Code section 5471
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11 supplement rather than limits a public agency’s authority to impose charges for water or sewer
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12 services in connection with a water or sewer system. (Richmond v. Shasta Cmty. Servs. Dist.
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13 (2004) 32 Cal.4th 409, 430.) As explained in Richmond, the “[i]n addition to the powers granted
14 in the principal act” language of Health and Safety Code section 5471, “by its terms, confers
15 authority ‘[i]n addition to’ the authority otherwise granted to a public entity,” such as a
16 community services district, which also has authority to set rates under the specific procedures of
17 the Community Service District (CSD) Law. (Ibid.) The Town, a general law city, does not have
18 a similar provision like the CSD Law on which to rely and, as explained further below,
19 complying with Proposition 218 does not provide the substantive authority for imposing rates and
20 did not supersede the application of the Health and Safety Code even though the ordinances
21 setting the rates may not explicitly reference section 5471 in those sections. The statutes impose
22 no such requirement to expressly identify section 5471 in the implementing ordinance or
23 resolution, and Plaintiffs cite no authority for their position, though section 5471 is in fact
24 referenced in HMC, Chapter 13.20 regarding “Water Charges.” {See W-1303-1304} Again,
25 Section 5471 expressly authorizes a city to charge water fees. It only requires that the fees be
26 imposed by an ordinance or resolution approved by a two-thirds vote of the members of the
27 legislative body, which the City did in adopting its water rates. (See Town’s RJN filed
28 9/11/2020, Exhs. A, C, and D.) Proposition 218 imposes certain requirements on how property
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TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION
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1 related fees are to be adopted along with additional substantive requirements, but does not alter a
2 city’s authority to adopt such fees under section 5471. Put differently, a general law city’s
3 compliance with Proposition 218 is distinguished from its compliance with any requirements
4 imposed by the statutory authority enabling the city to adopt fees.
5 Plaintiffs’ reply brief further asserts that Health and Safety Code section 5471, subdivision
6 (c), “clearly” limits Section 5471 revenues to “the building, maintenance, and operation of
7 infrastructure” and that it “just as clearly does not allow revenues to be used to purchase water
8 from another public entity, which is how the Town of Hillsborough obtains all of its water, or to
9 perform any other non-infrastructure related tasks.” (Reply, p. 4:19-22.) Not so. Section 5471 is
10 not narrow but broad, covering a range of costs associated with providing water service as
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11 confirmed when reading the first sentence of section 5471, which begins by affirming the power
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12 of the Town to “prescribe, revise and collect, fees, tolls, rates, rentals, or other charges for
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13 services and facilities furnished by it … in connection with its water … system.” (§ 5471, subd.
14 (a) [emphasis added].) In other words, section 5471 authorizes use of revenues for a broad range
15 of uses connected with providing water service, including operation and maintenance of the water
16 system and debt service for capital projects. The Town cannot operate the water system and
17 provide water service without the key component of water. (See, e.g., Rincon del Diablo Mun.
18 Water Dist. v. San Diego County Water Authority (2004) 121 Cal.App.4th 813, 819
19 [“Historically, water rates are usually used to recover all costs incurred in providing water,
20 including the costs of building, maintaining and improving the water system.”].) Water supply
21 costs are a key component of the water system’s operations and services and thus are permissible
22 under section 5471, as are other operation and maintenance costs necessary to support the water
23 system and ensure that customers receive water when they turn on their taps. {W-2199; W-1198}
24 The cost of service study and supporting records for the challenged rates confirms that the
25 revenues to be generated by the proposed rates were only for necessary water system costs of
26 service. In August 2014, the Town’s City Council approved a contract with HF&H Consultants
27 LLC to conduct a cost of service analysis and rate study. The study’s purpose was to determine
28 the revenue requirements to cover operations and maintenance costs and capital improvements for
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TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION
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1 the Town’s water system for the succeeding five years. {W-471-472} This rate study was
2 conducted in the midst of the Statewide drought and mandatory water cutbacks. {W-587}
3 Mandatory cutbacks in water demand were projected to result in a nearly $2.1 million revenue
4 shortfall that jeopardized the Town’s bond rating. {W-1198, W-1201, W-1208}
5 As set forth in the rate study, the Town provides water service to its customers through a
6 complex water distribution system that includes at least 108 miles of water mains, 10 water
7 storage facilities consisting of 18 water tanks, 14 water pump stations, and over 7,500 assets, such
8 as valves, hydrants, and meters. {W-574} The Town has to pay to store and pump the water it
9 purchases from San Francisco Public Utilities Commission (SFPUC) to push the water through
10 steep elevation changes. {W-1203} The Town also has larger residential lots with much higher
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11 per capita water usage than in most communities. {W-1213} A significant portion of its water
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12 storage facilities, are necessary to ensure sufficient system capacity to meet the peak demands of
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13 these highest water users. {W-1199; W-2199}
14 Additionally, the Town’s Capital Improvement Plan identified significant infrastructure
15 improvements necessary to meet the demands placed on the Town’s water system by its
16 customers, including replacement of aging water mains and rehabilitation and restoration of water
17 tanks. {W-574-576; W-587-588; W-1110, W-1023-1032; W-1196-1198} Approximately $12
18 million of water projects were projected to be required over the five-year period to be covered by
19 the rate study, with $1.4 million per year projected for ongoing capital spending. {Id.} As
20 summarized in the public hearing notice, the proposed rate adjustments were “needed to fund
21 future operating [and] capital needs,” including to:
22 Fund the cost of water purchased from the SFPUC, which will continue to increase
23 steeply to fund the $4.8 billion upgrade of the regional water supply system. The cost of
24 SFPUC water is one of the Town's largest costs that is covered by its water rates, accounting
25 for 35% of the water system’s budget.
26 Fund $10.7 million in water system capital improvements for pipeline replacements
27 and other projects that will improve reliability of delivery, maintain water quality, and
28 improve operations over the next five years.
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TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION
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1 Maintain adequate operating and capital reserves, which will enable the Town to
2 retain its high credit rating, thereby minimizing the cost of debt.
3 Keep revenues aligned with operating, capital, and regulatory costs and provide a
4 stable revenue base.
5 Meet the Town’s water and sewer enterprise debt service obligations, including
6 maintaining reserves. {W-1110-1111; see also W-1196-1198}
7 Accordingly, the Town has established that the water rates were not only adopted in
8 compliance with section 5471’s procedural requirements, but also that the rates were adopted for
9 services and facilities furnished by it … in connection with its water system and that the revenues
10 to be derived from the rates were to be used for these water system for the “acquisition,
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11 construction, reconstruction, maintenance, and operation of water systems” and “to repay
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12 principal and interest on bonds issued for the construction or reconstruction of these water
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13 systems” i.e., debt service in compliance with section 5471, subdivisions (a) and (c).3
14 V. PROPOSITION 218 DID NOT SUPERSEDE HEALTH & SAFETY CODE
SECTIONS 5471 AND 5472
15
16 Proposition 218 did not supersede Health and Safety Code section 5472’s requirement that
17 a customer seeking a refund of water or sewer rates must first pay the challenged fees under
18 protest and may not seek a class refund under Revenue and Taxation Code section 5140. Los
19 Altos Golf and Country Club et al. v. County of Santa Clara et al. (2008) 165 Cal.App.4th 198 is
20 instructive here. In Los Altos, the plaintiffs filed a class action on behalf of all property owners
21 outside city limits who were charged more for sewer service than city residents. (Id. at p. 202.)
22 They alleged, among other things, that the excess sewer charges violated Proposition 218,
23 specifically article XIII D, specifically section 6, subdivision (b) of the California Constitution
24 governing fees and charges, which is the same provision of Proposition 218 that Plaintiffs rely on
25 in this action. (Ibid.) Respondents City of Los Altos and County of Santa Clara demurred to all
26 causes of action on the basis that the appellants had not perfected a refund claim because they had
27 3
Health and Safety Code section 5471, subdivision (b), concerns rates, fees, and charges for water standby charges,
which are a real property assessment under Proposition 218 and subject to the procedural requirements in article XIII
28 D, § 4, rather than the procedures in art. XIII D, § 6 that apply to water rates (user fees) like those at issue here.
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TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION
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1 not paid the challenged fees under protest pursuant to Health and Safety Code section 5472.
2 (Ibid.) The court of appeal agreed with the trial court that the refund action was barred by the
3 appellants’ failure to pay the challenged fees under protest, rejecting the argument that section
4 5472’s payment-under-protest procedures were optional and concluding instead that “[i]t is the
5 challenge itself that is optional, not the method of raising that challenge.” (Id. at 206.) While
6 sewer (and water) users may decide whether to challenge excessive fees, “the manner in which
7 they assert that challenge is prescribed by the statute.” (Id.)
8 There is no language in the pertinent provision of Proposition 218 (article XIII D, § 6)
9 indicative of an intent to nullify or supersede the established statutory procedures under section
10 5472 for seeking a refund of water rates allegedly imposed in violation of Proposition 218.
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11 “Proposition … 218 conflicts with and renders unconstitutional contradictory procedures or
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12 process leading to the adoption or levy of an assessment falling within its ambit. It does not
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13 conflict with process or procedures relating to the timing [or filing] of legal challenges to such an
14 assessment.” (Barratt American, Inc. v. City of San Diego (2004) 117 Cal.App.4th 809, 818.)
15 VI. CONCLUSION
16 Plaintiffs’ class motion as to the water rates is barred as a matter of law by Health and
17 Safety Code sections 5471 and 5472 and Revenue and Taxation Code section 5140. The motion
18 should also be denied on the alternative grounds set forth in the Town’s opposition brief as to the
19 water rates and the drought penalties because Plaintiffs have not identified an ascertainable class,
20 there is no well-defined community interest as individual determinations predominate and the
21 class representatives do not represent claims typical of the class, and the burdens of class
22 treatment predominate.
23 Dated: October 30, 2020 BEST BEST & KRIEGER LLP
24
By:
25 HARRIET A. STEINER
KIMBERLY E. HOOD
26
Attorneys for Defendant/Respondent
27 Town of Hillsborough
28
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TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION
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1 PROOF OF SERVICE
2 At the time of service I was over 18 years of age and not a party to this action. My
business address is 500 Capitol Mall, Suite 1700, Sacramento, California 95814. On October 30,
3 2020, I served the following document(s):
4 SUPPLEMENTAL BRIEF RE OPPOSITION TO PLAINTIFFS’
MOTION FOR CLASS CERTIFICATION BY
5 DEFENDANT/RESPONDENT TOWN OF HILLSBOROUGH
6 By
fax
fax transmission.
transmission, I faxed
Based
the
on an agreement
documents to the
of the
persons
parties
at the
to accept
fax
service
numbers
by
listed
7 below. No error was reported by the fax machine that I used. A copy of the record
8 of the fax transmission, which I printed out, is attached.
9 By United States mail. I enclosed the documents in a sealed envelope or package
addressed to the persons at the addresses listed below (specify one):
10
Deposited the sealed envelope with the United States Postal Service, with
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11 the postage fully prepaid.
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12
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Placed the envelope for collection and mailing, following our ordinary
business practices. I am readily familiar with this business's practice for
13
collecting and processing correspondence for mailing. On the same day that
14 correspondence is placed for collection and mailing, it is deposited in the
ordinary course of business with the United States Postal Service, in a
15 sealed envelope with postage fully prepaid.
16 I am a resident or employed in the county where the mailing occurred. The
envelope or package was placed in the mail at Sacramento, California.
17
18 By personal service.
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19 attorney, delivery was made to the attorney or at the attorney's office by leaving the
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delivery was made to the party or by leaving the documents at the party's residence
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PROOF OF SERVICE
TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION
61236.00002\29431468.1
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1 HARRIET A. STEINER, Bar No. 109436 Exempt from Filing Fees Pursuant harriet.steiner@bbklaw.com to Gov. Code § 6103 2 KIMBERLY E. HOOD, Bar No. 229195 kimberly.hood@bbklaw.com 3 BEST BEST & KRIEGER LLP 500 Capitol Mall, Suite 1700 4 Sacramento, California 95814 10/30/2020 Telephone: (916) 325-4000 5 Facsimile: (916) 325-4010 6 Attorneys for Defendant/Respondent Town of Hillsborough 7 8 9 SUPERIOR COURT OF THE STATE OF CALIFORNIA 10 COUNTY OF SAN MATEO 11 12 BRAD BARUH, KATHY BARUH, Case No. 16CIV02284 CHARLES BOLTON, ELDRIDGE GRAY, 13 JOHN LOCKTON, DAVID MARQUARDT, SUPPLEMENTAL BRIEF RE PAUL ROCHESTER, ARTHUR OPPOSITION TO PLAINTIFFS’ 14 STROMBERG, CHARLES SYERS, MOTION FOR CLASS individually and on behalf of all others CERTIFICATION BY 15 similarly situated, DEFENDANT/RESPONDENT TOWN OF HILLSBOROUGH 16 Plaintiffs and Petitioners, 17 v. Date: January 21, 2021 18 TOWN OF HILLSBOROUGH and DOES 1- Time: 9:00 a.m. 100, inclusive, Dept.: 23 19 Judge: Hon. V. Raymond Swope Defendants and Respondents. 20 21 Complaint Filed: November 8, 2016 22 23 24 25 26 27 28 TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 61236.00002\33404395.3 1 I. INTRODUCTION & SUMMARY OF ARGUMENT 2 The Town of Hillsborough respectfully submits this supplemental brief to address the 3 questions the Court requested that the Town address regarding the application of Health and 4 Safety Code sections 5471 and 5472, and the corresponding sections of the Revenue and Taxation 5 Code, in this action. These are the provisions that the Town asserted in its opposition barred 6 Plaintiffs’ class claims for water rate refunds.1 The Court identified several areas to address in 7 this supplemental briefing, which are summarized below along with the Town’s responses: 8 Whether the drought penalties are subject to Health and Safety Code sections 5471 9 and 5472? No, to clarify, these sections do not apply to the challenged drought penalties. The 10 drought penalties were adopted pursuant to other statutory authority in the Water Code and in SACRAMENTO, CALIFORNIA 95814 500 CAPITOL MALL, SUITE 1700 11 response to State orders to conserve water during the drought emergency. Class certification BEST BEST & KRIEGER LLP 12 should instead be denied on the other grounds asserted in the Town’s opposition. LAW OFFICES OF 13 With respect to the challenged water rates, address whether the Town complied 14 with the notice and protest hearing procedures in Health and Safety Code sections 5473.1 (notice 15 of public hearing mailed to affected parcels) and 5473.2 (protest hearing). The Town complied 16 with the pertinent notice and protest hearing procedures. Sections 5473 through 5473.9 are only 17 applicable to water rates collected on the property tax roll, which the Town’s water rates are not. 18 Regardless, Proposition 218 imposes similar procedures on water rates, including a requirement 19 that notice of proposed rates increases be mailed to affected property owners at least 45-days 20 before a public hearing and precludes the Town from adopting the proposed rate increases if there 21 is a majority protest. (Cal. Const., art. XIII D, § 6, subd. (b)(1).) Town complied with these 22 notice and hearing requirements. 23 Were the challenged water rate revenues generated for the purposes authorized 24 under Health and Safety Code section 5471, subdivision (c)? Although the court need not reach 25 this question to determine whether a class action is barred by Section 5471, yes, the revenues 26 27 1 The Town also raised Health and Safety Code sections 5471 and 5472 in its Answer filed on December 14, 2016. (See Answer, Third and Fourth Affirmative Defenses, p. 6.) and in the parties’ Joint Supplemental Brief on 28 Adjudicating Writ of Mandate Prior to Class Certification filed on December 6, 2018 at p. 3:3. -1- TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 61236.00002\33404395.3 1 generated were used to pay for the cost of water services and facilities furnished by the Town “in 2 connection with” its water system, including for operation and maintenance of the Town’s water 3 system. Operation of a water system also must include the cost of purchasing water. Proposition 4 218 imposes a similar requirement for the property related water use fees, i.e., that “[r]evenues 5 derived from the fee or charge shall not exceed the funds required to provide the property related 6 service.” (Cal. Const., art. XIII D, § 6, subd. (b)(1).) Plaintiff has not alleged that the water rate 7 revenues were generated for non-water service purposes, nor can they as the water rate study, 8 hearing notice, and evidence in the Record support that the water rate revenues were used to pay 9 for the operation, maintenance, capital, and debt service costs of the water system. 10 Did Proposition 218 supersede Health and Safety sections 5471 and 5472? No, the SACRAMENTO, CALIFORNIA 95814 500 CAPITOL MALL, SUITE 1700 11 decision in Los Altos Golf and Country Club v. County of Santa Clara (2008) 165 Cal.App.4th BEST BEST & KRIEGER LLP 12 198, cited in the Town’s opposition brief, involved a similar challenge to sewer rates under LAW OFFICES OF 13 Proposition 218. The Los Altos court applied Section 5471 and 5472, and the corresponding 14 Revenue and Taxation Code sections, to sustain a demurrer and dismiss the action for failure to 15 comply with the requisite procedures for asserting a refund claim. Other courts have also 16 recognized that nothing in the language of Proposition 218 manifests an intent to abrogate the 17 established procedure of section 5472 for seeking a refund of water or sewer service charges. 18 II. THE DROUGHT PENALTIES ARE NOT SUBJECT TO HEALTH & SAFETY CODE SECTIONS 5471 AND 5472 19 20 The Town is not asserting that the proposed class action related to the drought penalties is 21 prohibited by Health and Safety Code sections 5471 and 5472 and the corresponding Revenue 22 and Taxation Code provisions because the penalties are not charges for water service to support 23 the water system. The drought penalties were adopted as part of the Town’s Water Shortage 24 Contingency Plan and consistent with the additional authority of California Constitution article 25 XI, section 7, and the Water Code, including Water Code section 10632(a), and later Water Code 26 section 377(i). {See D-507-511}2 The drought penalties are not part of the Town’s water rates 27 2 Citations to the certifiedRecord are as follows: {Bates #}. The Record pages cited herein are included in the 28 Supplemental Declaration of Kimberly E. Hood filed with this supplemental brief. -2- TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 61236.00002\33404395.3 1 (user charges) related to the operation and maintenance of the water system, which are codified in 2 Chapter 13.20 of the Hillsborough Municipal Code (HMC) regarding “Water Charges.” {See W- 3 1296; cf. D-507-511 (drought penalty ordinance and W-1164-1167[water rate ordinance]} 4 Rather, the drought penalties are distinct penalties codified in HMC Chapter 13.16 (“Water 5 Conservation”), which had their genesis many years ago under the Town’s Water Shortage 6 Contingency Plan that is part of its Urban Water Management Plan (UWMP). {See D-507-511; 7 see also D-1100-1102; D-1130; see generally W-1291-1306 [organization of HMC Chapters 8 13.16 and 13.20]} 9 The drought penalties were separately billed from the water rates and the only individuals 10 subject to the volumetric penalty were those users who violated the Town’s water conservation SACRAMENTO, CALIFORNIA 95814 500 CAPITOL MALL, SUITE 1700 11 regulations. (See Amend. Cooke Decl., filed 9/11/2020, ¶ 12.) As discussed in greater detail in BEST BEST & KRIEGER LLP 12 the Town’s opposition brief filed on May 29, 2018, the drought penalties were implemented only LAW OFFICES OF 13 as necessary to comply with the State’s emergency regulations and to help the Town achieve 14 compliance with its mandatory conservation target. (See Water Code, § 10632(a)(6); D-507-511; 15 see also Water Code, § 377, subd. (i) [“[A] public entity may enforce water use limitations 16 established by an ordinance or resolution adopted pursuant to this chapter, or as otherwise 17 authorized by law, by a volumetric penalty in an amount established by the public entity.”). 18 The intent of a penalty is not to raise revenue to operate a water system. Instead, a penalty 19 “regulates conduct (and indirectly raises revenue)” by deterring individuals from violating the 20 regulations. (Calif. Taxpayers Assoc. v. Franchise Tax Bd. (2010) 190 Cal.App.4th 1139, 1148.) 21 Stated another way, “a penalty raises revenue only if some legal obligation is disobeyed.” (Ibid.) 22 As explained in the Town’s opposition brief to the motion for class certification, Plaintiffs 23 have failed to meet their substantial burden to warrant class certification with respect to the 24 drought penalties because (1) the class representative claims are not common to the class, (2) not 25 all of the class representatives have paid their drought penalties, thus violating the “pay first, 26 litigate later doctrine,” (3) the availability of the appeals process and doctrine of exhaustion of 27 remedies preclude certification of the class, and (4) the burdens of class treatment weigh against 28 certification here. (Town’s Opp. Brief at p. 17:5-7, p. 18:5-23, 24-28. 19:1-7, 25-28; 20:1-11.) -3- TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 61236.00002\33404395.3 1 III. THE TOWN COMPLIED WITH THE PERTINENT PROCEDURES FOR ADOPTING WATER RATES THAT ARE BILLED MONTHLY AND NOT 2 COLLECTED ON THE TAX ROLL 3 The Court noted in its October 22, 2020 order that charges imposed “pursuant to Health 4 and Safety Code section 5471 may only be imposed following a noticed public hearing and 5 consideration of all objections or protests,” citing Health & Safety Code section 5473.1, 5473.2. 6 Those particular provisions, however, only apply when the rate or charges are being imposed for 7 collection on the tax roll. As explained in Utility Audit Co., Inc. v. City of Los Angeles (2003) 8 112 Cal.App.4th 950, “Section 5471 of the Health and Safety Code grants local entities power to 9 prescribe and collect fees for sewer services. Section 5473 grants them the power to have such 10 charges collected on the tax roll.” (Id. at p. 957.) Sections 5473.1 and 5473.2, and the additional SACRAMENTO, CALIFORNIA 95814 provisions in subsections 5473.1-.9, impose additional procedures to such fees collected on the 500 CAPITOL MALL, SUITE 1700 11 BEST BEST & KRIEGER LLP 12 tax roll pursuant to Section 5473. LAW OFFICES OF 13 Section 5473.1’s noticed hearing requirement begins, “The clerk shall cause notice of the 14 filing of said report and of a time and place of hearing thereon to be published….” “Said report” 15 refers to the “written report” required in Section 5473 when imposing rates on the tax roll. 16 Neither sections 5471 nor 5472 refer to or require preparation of a “written report.” The second 17 paragraph of section 5473.1 clarifies this point, stating that it applies when collecting rates on the 18 tax roll: “Before any entity may have such charges collected on the tax roll for the first time 19 following the effective date of this section, the clerk shall cause a notice in writing of the filing of 20 said report ….” (§ 5473.1 [emphasis added].) 21 Similarly, Section 5473.2’s requirement that a hearing be held to “hear and consider all 22 objections or protests” again refers to protests to the “said report referred to in said notice.” 23 Again, the reference to “said report” is to the report required to impose fees and charges on the 24 tax roll” under section 5473, and a majority protest simply precludes the Town from adopting the 25 report to impose the charges on the tax roll. However, section 5473.2 allows the fees to still be 26 “collected separately” from the tax roll if the report required by section 5473 is not adopted, thus 27 clarifying that the added procedures of Section 5473.1 and 5473.2 (as well as sections 5473.3-.9) 28 are only applicable when collecting the water rates on the tax roll. (See, e.g., Utility Audit, supra, -4- TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 61236.00002\33404395.3 1 112 Cal.App.4th at p. 957 [concluding that Health and Safety Code section 5473.8 did not apply 2 to sewer fees and charges not collected on the tax roll because the “charges referred to are sewer 3 service charges collected on the tax roll, not sewer service fees generally”].) 4 The Town’s water service rates are not collected on the tax roll (i.e., on the property tax 5 bill), but billed separately on a monthly basis sent to the customer of record. {W-1110 [compare 6 to W-1111 which notes that sewer rates are collected annually on the tax roll; W-1198; see also 7 Amend. Cooke Decl., Exh. B, filed 9/11/2020 [monthly water bill example].} Thus, the noticed 8 hearing and other requirements in Health and Safety Code sections 5473-5473.9 are not requisite 9 steps for adopting fees and charges under sections 5471 and 5472. Section 5471 expressly 10 authorizes a city to charge sewer and water fees. It only requires that the fees be imposed by an SACRAMENTO, CALIFORNIA 95814 500 CAPITOL MALL, SUITE 1700 11 ordinance or resolution approved by a two-thirds vote of the members of the legislative body. The BEST BEST & KRIEGER LLP 12 City complied with those requirements. (See Town’s RJN filed 9/11/2020, Exhs. A, C, and D.) LAW OFFICES OF 13 Regardless, the Town held a noticed public hearing when it adopted its water rates 14 pursuant to the additional procedures required by Proposition 218. Proposition 218 imposes 15 notice, hearing and protest requirements, which require a majority-protest proceeding no less than 16 45 days after mailing notice to all property owners. (Cal. Const., art. XIII D, § 6(a).) The notice 17 must contain specific information, such as the amount of the fee, the reason and basis for the fee 18 increase, and the date, time and location of the public hearing. (Cal. Const., art. XIII D, § 6, subd. 19 (a)(1).) If at the conclusion of the public hearing the public agency receives written protests 20 against the imposition of the proposed fee or charge from a majority of the affected property 21 owners, the fee or charge may not be imposed. (Cal. Const. art. XIII D, § 6, subd. (a)(2).) 22 The Town complied with these notice, public hearing, and protest procedures. The Town 23 noticed a public hearing more than 45 days prior to the date of the public hearing on the water 24 rates, which was held on December 14, 2015. {W-1110-1111} The Town held numerous public 25 forums for the community to be involved in discussions on the water rates. For example, the 26 water rates were discussed at a November 4, 2015 public meeting, in which the public was invited 27 to ask questions and learn about the proposed rates. {See, e.g.,W-1063-1064} At the December 28 14, 2015 public hearing, the Town invited the public to make comments and file written protests -5- TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 61236.00002\33404395.3 1 against the water rates. {W-1130} Although there were a total of 4,028 property owners eligible 2 to file written protests, only 13 written protests were received. {Id.} The City Council 3 unanimously introduced Ordinance No. 731 at the conclusion of the public hearing and held a 4 further public hearing on January 11, 2016 at the conclusion of which the Town adopted 5 Ordinance No. 731 imposing the challenged water rates by a unanimous vote of the entire Town 6 Council. {W-1137-1138; W-1129-1130; W-1164-1167} Plaintiffs have not challenged the 7 Town’s procedural compliance with Proposition 218 in adopting the challenged water rates. 8 IV. THE WATER RATES ARE SUBJECT TO AND COMPLY WITH THE REQUIREMENTS OF HEALTH & SAFETY CODE SECTION 5471 9 10 The Town does not dispute that the provisions of Health and Safety Code section 5471 SACRAMENTO, CALIFORNIA 95814 500 CAPITOL MALL, SUITE 1700 11 supplement rather than limits a public agency’s authority to impose charges for water or sewer BEST BEST & KRIEGER LLP 12 services in connection with a water or sewer system. (Richmond v. Shasta Cmty. Servs. Dist. LAW OFFICES OF 13 (2004) 32 Cal.4th 409, 430.) As explained in Richmond, the “[i]n addition to the powers granted 14 in the principal act” language of Health and Safety Code section 5471, “by its terms, confers 15 authority ‘[i]n addition to’ the authority otherwise granted to a public entity,” such as a 16 community services district, which also has authority to set rates under the specific procedures of 17 the Community Service District (CSD) Law. (Ibid.) The Town, a general law city, does not have 18 a similar provision like the CSD Law on which to rely and, as explained further below, 19 complying with Proposition 218 does not provide the substantive authority for imposing rates and 20 did not supersede the application of the Health and Safety Code even though the ordinances 21 setting the rates may not explicitly reference section 5471 in those sections. The statutes impose 22 no such requirement to expressly identify section 5471 in the implementing ordinance or 23 resolution, and Plaintiffs cite no authority for their position, though section 5471 is in fact 24 referenced in HMC, Chapter 13.20 regarding “Water Charges.” {See W-1303-1304} Again, 25 Section 5471 expressly authorizes a city to charge water fees. It only requires that the fees be 26 imposed by an ordinance or resolution approved by a two-thirds vote of the members of the 27 legislative body, which the City did in adopting its water rates. (See Town’s RJN filed 28 9/11/2020, Exhs. A, C, and D.) Proposition 218 imposes certain requirements on how property -6- TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 61236.00002\33404395.3 1 related fees are to be adopted along with additional substantive requirements, but does not alter a 2 city’s authority to adopt such fees under section 5471. Put differently, a general law city’s 3 compliance with Proposition 218 is distinguished from its compliance with any requirements 4 imposed by the statutory authority enabling the city to adopt fees. 5 Plaintiffs’ reply brief further asserts that Health and Safety Code section 5471, subdivision 6 (c), “clearly” limits Section 5471 revenues to “the building, maintenance, and operation of 7 infrastructure” and that it “just as clearly does not allow revenues to be used to purchase water 8 from another public entity, which is how the Town of Hillsborough obtains all of its water, or to 9 perform any other non-infrastructure related tasks.” (Reply, p. 4:19-22.) Not so. Section 5471 is 10 not narrow but broad, covering a range of costs associated with providing water service as SACRAMENTO, CALIFORNIA 95814 500 CAPITOL MALL, SUITE 1700 11 confirmed when reading the first sentence of section 5471, which begins by affirming the power BEST BEST & KRIEGER LLP 12 of the Town to “prescribe, revise and collect, fees, tolls, rates, rentals, or other charges for LAW OFFICES OF 13 services and facilities furnished by it … in connection with its water … system.” (§ 5471, subd. 14 (a) [emphasis added].) In other words, section 5471 authorizes use of revenues for a broad range 15 of uses connected with providing water service, including operation and maintenance of the water 16 system and debt service for capital projects. The Town cannot operate the water system and 17 provide water service without the key component of water. (See, e.g., Rincon del Diablo Mun. 18 Water Dist. v. San Diego County Water Authority (2004) 121 Cal.App.4th 813, 819 19 [“Historically, water rates are usually used to recover all costs incurred in providing water, 20 including the costs of building, maintaining and improving the water system.”].) Water supply 21 costs are a key component of the water system’s operations and services and thus are permissible 22 under section 5471, as are other operation and maintenance costs necessary to support the water 23 system and ensure that customers receive water when they turn on their taps. {W-2199; W-1198} 24 The cost of service study and supporting records for the challenged rates confirms that the 25 revenues to be generated by the proposed rates were only for necessary water system costs of 26 service. In August 2014, the Town’s City Council approved a contract with HF&H Consultants 27 LLC to conduct a cost of service analysis and rate study. The study’s purpose was to determine 28 the revenue requirements to cover operations and maintenance costs and capital improvements for -7- TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 61236.00002\33404395.3 1 the Town’s water system for the succeeding five years. {W-471-472} This rate study was 2 conducted in the midst of the Statewide drought and mandatory water cutbacks. {W-587} 3 Mandatory cutbacks in water demand were projected to result in a nearly $2.1 million revenue 4 shortfall that jeopardized the Town’s bond rating. {W-1198, W-1201, W-1208} 5 As set forth in the rate study, the Town provides water service to its customers through a 6 complex water distribution system that includes at least 108 miles of water mains, 10 water 7 storage facilities consisting of 18 water tanks, 14 water pump stations, and over 7,500 assets, such 8 as valves, hydrants, and meters. {W-574} The Town has to pay to store and pump the water it 9 purchases from San Francisco Public Utilities Commission (SFPUC) to push the water through 10 steep elevation changes. {W-1203} The Town also has larger residential lots with much higher SACRAMENTO, CALIFORNIA 95814 500 CAPITOL MALL, SUITE 1700 11 per capita water usage than in most communities. {W-1213} A significant portion of its water BEST BEST & KRIEGER LLP 12 storage facilities, are necessary to ensure sufficient system capacity to meet the peak demands of LAW OFFICES OF 13 these highest water users. {W-1199; W-2199} 14 Additionally, the Town’s Capital Improvement Plan identified significant infrastructure 15 improvements necessary to meet the demands placed on the Town’s water system by its 16 customers, including replacement of aging water mains and rehabilitation and restoration of water 17 tanks. {W-574-576; W-587-588; W-1110, W-1023-1032; W-1196-1198} Approximately $12 18 million of water projects were projected to be required over the five-year period to be covered by 19 the rate study, with $1.4 million per year projected for ongoing capital spending. {Id.} As 20 summarized in the public hearing notice, the proposed rate adjustments were “needed to fund 21 future operating [and] capital needs,” including to: 22 Fund the cost of water purchased from the SFPUC, which will continue to increase 23 steeply to fund the $4.8 billion upgrade of the regional water supply system. The cost of 24 SFPUC water is one of the Town's largest costs that is covered by its water rates, accounting 25 for 35% of the water system’s budget. 26 Fund $10.7 million in water system capital improvements for pipeline replacements 27 and other projects that will improve reliability of delivery, maintain water quality, and 28 improve operations over the next five years. -8- TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 61236.00002\33404395.3 1 Maintain adequate operating and capital reserves, which will enable the Town to 2 retain its high credit rating, thereby minimizing the cost of debt. 3 Keep revenues aligned with operating, capital, and regulatory costs and provide a 4 stable revenue base. 5 Meet the Town’s water and sewer enterprise debt service obligations, including 6 maintaining reserves. {W-1110-1111; see also W-1196-1198} 7 Accordingly, the Town has established that the water rates were not only adopted in 8 compliance with section 5471’s procedural requirements, but also that the rates were adopted for 9 services and facilities furnished by it … in connection with its water system and that the revenues 10 to be derived from the rates were to be used for these water system for the “acquisition, SACRAMENTO, CALIFORNIA 95814 500 CAPITOL MALL, SUITE 1700 11 construction, reconstruction, maintenance, and operation of water systems” and “to repay BEST BEST & KRIEGER LLP 12 principal and interest on bonds issued for the construction or reconstruction of these water LAW OFFICES OF 13 systems” i.e., debt service in compliance with section 5471, subdivisions (a) and (c).3 14 V. PROPOSITION 218 DID NOT SUPERSEDE HEALTH & SAFETY CODE SECTIONS 5471 AND 5472 15 16 Proposition 218 did not supersede Health and Safety Code section 5472’s requirement that 17 a customer seeking a refund of water or sewer rates must first pay the challenged fees under 18 protest and may not seek a class refund under Revenue and Taxation Code section 5140. Los 19 Altos Golf and Country Club et al. v. County of Santa Clara et al. (2008) 165 Cal.App.4th 198 is 20 instructive here. In Los Altos, the plaintiffs filed a class action on behalf of all property owners 21 outside city limits who were charged more for sewer service than city residents. (Id. at p. 202.) 22 They alleged, among other things, that the excess sewer charges violated Proposition 218, 23 specifically article XIII D, specifically section 6, subdivision (b) of the California Constitution 24 governing fees and charges, which is the same provision of Proposition 218 that Plaintiffs rely on 25 in this action. (Ibid.) Respondents City of Los Altos and County of Santa Clara demurred to all 26 causes of action on the basis that the appellants had not perfected a refund claim because they had 27 3 Health and Safety Code section 5471, subdivision (b), concerns rates, fees, and charges for water standby charges, which are a real property assessment under Proposition 218 and subject to the procedural requirements in article XIII 28 D, § 4, rather than the procedures in art. XIII D, § 6 that apply to water rates (user fees) like those at issue here. -9- TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 61236.00002\33404395.3 1 not paid the challenged fees under protest pursuant to Health and Safety Code section 5472. 2 (Ibid.) The court of appeal agreed with the trial court that the refund action was barred by the 3 appellants’ failure to pay the challenged fees under protest, rejecting the argument that section 4 5472’s payment-under-protest procedures were optional and concluding instead that “[i]t is the 5 challenge itself that is optional, not the method of raising that challenge.” (Id. at 206.) While 6 sewer (and water) users may decide whether to challenge excessive fees, “the manner in which 7 they assert that challenge is prescribed by the statute.” (Id.) 8 There is no language in the pertinent provision of Proposition 218 (article XIII D, § 6) 9 indicative of an intent to nullify or supersede the established statutory procedures under section 10 5472 for seeking a refund of water rates allegedly imposed in violation of Proposition 218. SACRAMENTO, CALIFORNIA 95814 500 CAPITOL MALL, SUITE 1700 11 “Proposition … 218 conflicts with and renders unconstitutional contradictory procedures or BEST BEST & KRIEGER LLP 12 process leading to the adoption or levy of an assessment falling within its ambit. It does not LAW OFFICES OF 13 conflict with process or procedures relating to the timing [or filing] of legal challenges to such an 14 assessment.” (Barratt American, Inc. v. City of San Diego (2004) 117 Cal.App.4th 809, 818.) 15 VI. CONCLUSION 16 Plaintiffs’ class motion as to the water rates is barred as a matter of law by Health and 17 Safety Code sections 5471 and 5472 and Revenue and Taxation Code section 5140. The motion 18 should also be denied on the alternative grounds set forth in the Town’s opposition brief as to the 19 water rates and the drought penalties because Plaintiffs have not identified an ascertainable class, 20 there is no well-defined community interest as individual determinations predominate and the 21 class representatives do not represent claims typical of the class, and the burdens of class 22 treatment predominate. 23 Dated: October 30, 2020 BEST BEST & KRIEGER LLP 24 By: 25 HARRIET A. STEINER KIMBERLY E. HOOD 26 Attorneys for Defendant/Respondent 27 Town of Hillsborough 28 - 10 - TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 61236.00002\33404395.3 1 PROOF OF SERVICE 2 At the time of service I was over 18 years of age and not a party to this action. My business address is 500 Capitol Mall, Suite 1700, Sacramento, California 95814. On October 30, 3 2020, I served the following document(s): 4 SUPPLEMENTAL BRIEF RE OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION BY 5 DEFENDANT/RESPONDENT TOWN OF HILLSBOROUGH 6 By fax fax transmission. transmission, I faxed Based the on an agreement documents to the of the persons parties at the to accept fax service numbers by listed 7 below. No error was reported by the fax machine that I used. A copy of the record 8 of the fax transmission, which I printed out, is attached. 9 By United States mail. I enclosed the documents in a sealed envelope or package addressed to the persons at the addresses listed below (specify one): 10 Deposited the sealed envelope with the United States Postal Service, with SACRAMENTO, CALIFORNIA 95814 500 CAPITOL MALL, SUITE 1700 11 the postage fully prepaid. BEST BEST & KRIEGER LLP 12 LAW OFFICES OF Placed the envelope for collection and mailing, following our ordinary business practices. I am readily familiar with this business's practice for 13 collecting and processing correspondence for mailing. On the same day that 14 correspondence is placed for collection and mailing, it is deposited in the ordinary course of business with the United States Postal Service, in a 15 sealed envelope with postage fully prepaid. 16 I am a resident or employed in the county where the mailing occurred. The envelope or package was placed in the mail at Sacramento, California. 17 18 By personal service. the persons at the At ____ a.m./p.m., I personally delivered the documents to addresses listed below. (1) For a party represented by an 19 attorney, delivery was made to the attorney or at the attorney's office by leaving the documents in an envelope or package clearly labeled to identify the attorney being 20 served with a receptionist or an Individual in charge of the office. (2) For a party, delivery was made to the party or by leaving the documents at the party's residence 21 with some person not less than 18 years of age between the hours of eight in the 22 morning and six in the evening. 23 By messenger service. I served the documents by placing them in an envelope or package addressed to the persons at the addresses listed below and providing them 24 to a professional messenger service for service. A Declaration of Messenger is attached. 25 26 27 28 PROOF OF SERVICE TOWN OF HILLSBOROUGH’S SUPPLEMENTAL OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 61236.00002\29431468.1 1 By overnight provided by an delivery. overnight I enclosed delivery the documents carrier and in addressed an envelope to the or persons package at the 2 addresses listed below. I placed the envelope or package for collection and