Opinion
D072987
12-04-2018
CALIFORNIA TAXPAYERS ACTION NETWORK, Plaintiff and Appellant, v. CITY OF SAN DIEGO, Defendants and Respondents; SAN DIEGO TOURISM MARKETING DISTRICT CORPORIATION, Real Party in Interest and Respondent.
Leibold McClendon & Mann and John G. McClendon for Plaintiff and Appellant. Mara W. Elliott, City Attorney, and Carmen A. Brock, Deputy City Attorney, for Defendant and Respondent. Colantuono, Highsmith & Whatley, Michael G. Colantuono, Ryan Thomas Dunn and Andrew C. Rawcliffe, for Real Party in Interest and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2016-00030603-CU-MC-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Kenneth J. Medel, Judge. Affirmed. Leibold McClendon & Mann and John G. McClendon for Plaintiff and Appellant. Mara W. Elliott, City Attorney, and Carmen A. Brock, Deputy City Attorney, for Defendant and Respondent. Colantuono, Highsmith & Whatley, Michael G. Colantuono, Ryan Thomas Dunn and Andrew C. Rawcliffe, for Real Party in Interest and Respondent.
In 2007, the City of San Diego (City) established a tourism marketing district (TMD) and approved a levy on lodging businesses with 70 rooms or more located within the district (the TMD assessment). The TMD assessment funds were used to market and promote tourism in San Diego. The City renewed the TMD assessment in 2012 and expanded the levy to all lodging businesses within the district, regardless of size. In 2016, the City amended the TMD assessment, returning it to its original scope so that it again applied only to lodging businesses with 70 or more rooms. Shortly thereafter, California Taxpayers Action Network (CTAN) filed this lawsuit alleging the 2012 renewal and the 2016 amendment violated California laws limiting the length of the levy and requiring the electorate to vote on new, extended, or increased taxes. The City and San Diego Tourism Marketing District Corporation (TMD Corporation; together with City, Defendants) demurred, arguing the levy is an assessment, not a tax, so no vote by the electorate was required. Defendants also argued CTAN lacked standing to bring the action, and the suit was precluded by an earlier lawsuit and barred by statutes of limitation. The court sustained the demurrer without leave to amend.
CTAN names as defendants "City of San Diego" in its allegations but lists in the caption "all persons interested in the matter of the renewal of the San Diego Tourism Marketing District, the levying of assessments upon the assessed businesses for a period of thirty-nine and one-half years, and the prescribing of a method for collection of assessments, and in the matter of the modification of the San Diego Tourism Marketing District and the San Diego Tourism Marketing District Management Plan." (Capitalization omitted.) The TMD Corporation subsequently appeared as a defendant and real party in interest.
On appeal, CTAN contends (1) it has taxpayer and voter standing to challenge the TMD assessment because the levy is a disguised tax requiring a vote by the electorate; and (2) the lawsuit is not precluded by a judgment in earlier litigation, nor is it time-barred. At the heart of CTAN's first contention is whether the TMD assessment is properly characterized as an assessment, the adoption of which is governed by approval procedures for assessments (Cal. Const., art. XIII. D), or as a tax, the approval of which requires a vote by the city's electorate (Cal. Const., art. XIII. C). If, as CTAN contends, the complaint alleges facts sufficient to demonstrate the levy is a tax, then any CTAN member liable to pay the tax provides the organization standing.
While the characterization of the levy as a tax or an assessment is key to the dispute, we do not resolve this question. Instead, procedural considerations lead us to affirm the trial court's order sustaining the demurrer without leave to amend, concluding the first cause of action is time-barred, and the second cause of action fails to state a claim.
I
BACKGROUND
Because the characterization of the levy as a tax or assessment is central to the parties' contentions and is helpful in understanding critical procedural issues, we provide a brief review of the four voter initiatives that require voter approval of taxes and the charges excluded from those requirements. A. Voter Initiatives
In 1978, Proposition 13 set the assessed value of real property to the "full cash value" on the 1975-1976 tax bill, limited the rate of taxation on real property to one percent of its assessed value, and limited increases in the assessed value to 2 percent per year unless there was a change in ownership. (Cal. Const., art. XIII A, §§ 1, 2.) It also required a two-thirds approval by the Legislature to increase state taxes, and a two-thirds approval in cities, counties, or special districts, to impose special taxes. (Cal. Const., art. XIII A, §§ 3, 4; Sinclair Paint Co. v. State Bd. of Equalization (1997) 15 Cal.4th 866, 872-873 (Sinclair Paint).)
In 1986, voters approved Proposition 62, which amended the Government Code and required all new local taxes to be approved by the local electorate. (Jacks v. City of Santa Barbara (2017) 3 Cal.5th 248, 258 (Jacks), citing Santa Clara County Local Transportation Authority v. Guardino (1995) 11 Cal.4th 220, 231.) Excluded from the definition of "special taxes" were fees levied for a specific purpose. (Gov. Code, § 53721; see City and County of San Francisco v. Farrell (1982) 32 Cal.3d 47, 57 [defining "special taxes" before the adoption of Prop. 62]; see also Jacks, at p. 258.) "By the time Proposition 62 was proposed, courts as well as the Legislature had recognized that various fees were not taxes for purposes of Proposition 13 [citations], but Proposition 62 was silent with respect to the imposition of fees." (Jacks, at p. 259.)
In 1996, the electorate approved Proposition 218, the "Right to Vote on Taxes Act," which added voter approval requirements for general and special taxes and clarified that the requirements apply to charter jurisdictions. (Cal. Const., art. XIII C, §§ 1, 2.) Proposition 218 also defined "[a]ssessment" to mean a "levy or charge upon real property by an agency for a special benefit conferred upon the real property." (Cal. Const., art. XIII D, § 2, subd. (b).)
Proposition 218 also added section 4 to article XIII D of the Constitution, which detailed the procedures necessary to levy valid assessments. These procedures "require[] an agency proposing an assessment on property to determine the proportionate special benefit to be derived by each parcel subject to the assessment; to support the assessment with an engineer's report; to give written notice to each parcel owner of the amount of the proposed assessment and the basis of the calculation; and to provide each owner with a ballot to vote in favor of or against the proposed assessment. It also requires the agency to hold a public hearing, and bars imposition of the assessment if a majority of parcel owners within the assessment area submit ballots in opposition to the assessment, with each ballot weighted based on the proposed financial obligation of the affected parcel. In the event legal action is brought contesting an assessment, the agency has the burden to establish that the burdened properties receive a special benefit and the assessment is proportional to the benefits conferred." (Jacks, supra, 3 Cal.5th at pp. 259-260; Cal. Const., art. XIII D, §§ 4, subds. (a)-(e).) Though the language detailing the procedures addresses parcel owners, the procedures apply to "[a]ll assessments." (Cal. Const., art. XIII D, § 4.)
Following the enactment of Proposition 218, the Legislature amended the Streets and Highway Code, which authorized cities to form "property and business improvement districts" for the purpose of levying assessments within a business improvement area, updating it to harmonize with Article XIII D of the California Constitution, which addressed assessments that provide special benefits as an incident of real property ownership. (Sts. & Hy. Code, §§ 36601, subds. (f), (h) & 36602.) The amendments explained that an "[a]ssessment" may be used to provide activities that will benefit property or businesses located within a "property and business improvement district," including promotion of tourism within the district. (Sts. & Hy. Code, §§ 36606.5, 36606, subd. (c).) Additionally, "[a]ssessments levied for the purpose of conferring special benefit upon the real property or a specific benefit upon the businesses in a business district are not taxes for the general benefit of a city, even if property, businesses, or persons not assessed receive incidental or collateral effects that benefit them." (Sts. & Hy. Code, § 36601, subd. (d).)
In 2010, Proposition 26 amended the Constitution to "provide that for purposes of article XIII C, which addresses voter approval of local taxes, ' "tax" means "any levy, charge, or exaction of any kind imposed by a local government," ' " with seven exceptions. (Jacks, supra, 3 Cal.5th at p. 260; Cal. Const., art. XIII C, § 1, subd. (e).) Excluded from the definition of "tax" is "[a] charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege." (Cal. Const., art. XIII C, § 1, subd. (e)(1).) Another exception is an assessment or property-related fee imposed under article XIII D. (Cal. Const., art. XIII C, § 1, subd. (e)(7).)
The other five exceptions are: (1) a charge for a specific government service or product provided directly to the payer and not provided to those not charged, as long as it does not exceed the reasonable cost to the local government; (2) a charge for reasonable regulatory costs for issuing licenses and permits, performing investigations, inspections and audits, enforcing marketing orders, and the administrative enforcement and adjudication thereof; (3) a charge for entrance to or use of local government property, or the purchase, rental, or lease thereof; (4) a fine, penalty, or monetary charge resulting from violation of law; and (5) a charge imposed as a condition of property development. (Cal. Const., art. XIII C, § 1, subd. (e)(2)-(6).)
The parties contend that if the TMD assessment is a tax, its approval is governed by article XIII C's voting requirements, which mandate a vote of the general electorate (Cal. Const., art. XIII C, § 2, subds. (b) & (d)), and they agree that did not occur here. To understand how the TMD assessment was developed, we turn next to the factual and procedural details of this case. B. Tourism Marketing District
The parties separately dispute whether CTAN has taxpayer standing based on the allegation that at least one of its members is required to pay the TMD assessment as a hotel guest.
The Property and Business Improvement District Law of 1994 permits private property owners to form a business improvement district to assess themselves fees to use to promote their businesses. (Sts. & Hy. Code, § 36600 et seq.; Reid v. City of San Diego (2018) 24 Cal.App.5th 343, 350 (Reid).) In 2007, the City enacted the Tourism Marketing District Procedural Ordinance (Procedural Ordinance), San Diego Municipal Code section 61.2501 et seq.
The Procedural Ordinance authorized the establishment of the TMD, to coordinate joint marketing and promotion of San Diego businesses, retain and expand the lodging industry, and fund promotional activities for tourism development by levying assessments on member businesses. (San Diego Mun. Code, § 61.2501, subds. (a), (b).)
As permitted by the Procedural Ordinance, in 2007 the city council adopted Resolution R-303226, which established the TMD. The resolution also approved a five-year levy of 2 percent of gross room revenue from transient stays on lodging businesses of 70 or more rooms operating in the City, to be paid to the City. The City permitted lodging businesses to pass the TMD assessment to their guests. The City entered a separate agreement with the TMD Corporation, a nonprofit mutual benefit organization, to administer the TMD assessment funds consistently with the TMD Plan, which governed the district's activities. C. The 2012 Renewal
Just before the TMD assessment expired in November 2012, the city council passed Resolution R-307843 (the 2012 Renewal), which renewed the TMD assessment for 39.5 years, and applied to owners of all transient housing, not just hotels with 70 or more rooms. Business owners were permitted to pass on the assessment to guests. Before renewing the TMD assessment, the City sent ballots to affected lodging businesses to vote on its continuation, and the City determined a majority of affected businesses did not object to the levy. D. The San Diegans for Open Government Litigation
In December 2012, San Diegans for Open Government (SDOG) filed an action alleging the 2012 Renewal was an unconstitutional tax because the general electorate did not vote to approve it, San Diegans for Open Government v. City of San Diego (Super. Ct. San Diego County, 2017, No. 37-2012-00088065-CU-MC-CTL) (the SDOG litigation). In the operative complaint, SDOG alleged three causes of action: (1) the TMD assessment constituted a tax, and its adoption without a vote by the electorate violated article XIII C of the Constitution; (2) the 39.5-year renewal term violated time limits set by Streets and Highways Code section 36660 et seq.; and (3) the renewal violated the municipal code by spending revenue collected under the 2012 renewal to benefit small hotels that were not part of the TMD. SDOG alleged standing because at least one of its members owned a single unit subject to the TMD assessment.
The operative complaint alleged several other categories of plaintiffs: voters registered in the City; potential hotel guests who opted not to rent a room because of the assessment pass-through; hotel guests who paid the City's Transient Occupancy Tax and did not vote on the TMD assessment in 2012; lodging business owners who were not provided voting materials; lodging business owners who voted in opposition to the TMD assessment; people who benefit from tourism marketing, were not given ballot materials, and are not required to pay the TMD assessment; and San Diego residents who book hotel rooms without influence from tourism marketing funded by the TMD assessment. SDOG specifically alleged it had a member who was eligible to vote on the TMD assessment but did not receive ballot materials, and a member who must pay the assessment but was not given the opportunity to vote on it.
While we do not have the entire SDOG record before us, we glean from the documents in the record that, following several demurrers and a first phase of trial, standing ultimately depended on an allegation that a member of SDOG owned a lodging business with 70 or more rooms and was consequently required to pay the assessment.
SDOG voluntarily dismissed the third cause of action and the court granted summary adjudication of the second cause of action. This left only the claim that the TMD was an illegal tax disguised as an assessment to avoid the voter-approval requirements.
SDOG brought the action as a reverse validation claim, under Code of Civil Procedure section 860 et seq. A reverse validation action is one brought by an interested party wishing to challenge the validity of an action taken by a public agency. (§ 863; Golden Gate Hill Development Co., Inc. v. County of Alameda (2015) 242 Cal.App.4th 760, 766-767; City of San Buenaventura v. United Water Conservation Dist. (2017) 3 Cal.5th 1191, 1201.) Under validation procedures, "[i]f no action is brought within the . . . timeframe, the public is 'forever barred from contesting the validity of the agency's action in a court of law.' [Citations.]" (Golden Gate, at p. 766; California Commerce Casino, Inc. v. Schwarzenegger (2007) 146 Cal.App.4th 1406, 1420 [matters which could be adjudicated in a validation action are waived if not raised within the statutory time limit].) E. The 2016 Amendment
The parties later disputed whether the validation procedures were required.
Further statutory references are to the Code of Civil Procedure unless otherwise noted.
Sections 860 and 863 establish a 60-day statute of limitations to bring an action in rem to determine the validity of "any matter which under any other law is authorized to be determined" pursuant to the validation statutes.
In August, while the SDOG litigation was pending, the city council adopted Resolution R-310664 (the 2016 Amendment), which eliminated hotels with fewer than 70 rooms from the TMD assessment. As a result, hotels with fewer than 70 rooms were no longer subject to the assessment; the time period, rate of assessment, and TMD boundaries remained the same. F. SDOG Litigation Judgment
The resolution called for a notice of the hearing on the modification to be mailed to the affected lodging businesses. It does not appear from the record that a new election was held.
After the 2016 Amendment, defendants in the SDOG litigation moved for judgment on the pleadings, asserting (1) SDOG lost standing because the amendment eliminated property owners with fewer than 70 rooms from the assessment, and (2) the 2016 Amendment superseded the 2012 Renewal, making the action moot. The trial court entered judgment September 30, 2016, ruling the action was moot. G. CTAN's Action
SDOG acknowledged it did not meet this requirement.
On September 1, 2016, CTAN filed the instant action. In December, CTAN filed a first amended complaint, which alleged two causes of action: (1) failure to obtain general voter approval of the TMD assessment, which it characterized as a tax; and (2) violation of Streets and Highways Code section 36660, subdivision (c) for approving the TMD assessment for a period of 39.5 years. The first amended complaint expressly carved out from litigation any issue that could not be litigated as a consequence of the judgment in the SDOG litigation, but also alleged the judgment was not one in validation and the shortened statute of limitations outlined in the Municipal Code was not applicable. Defendants demurred, and the court sustained the demurrer with leave to amend.
This carve-out was not included in the operative complaint.
Defendant TMD also separately filed a motion for sanctions, alleging CTAN's complaint was filed for an improper purpose because it was repetitive of the earlier SDOG litigation, in which the trial court had dismissed similar standing allegations, and because CTAN had ties to SDOG that placed the entities in privity. The court denied the motion.
CTAN filed a second amended complaint April 26, 2017. In May, pursuant to a stipulation, CTAN filed a third amended complaint, the operative complaint. The operative complaint contains two causes of action. The first cause of action alleges that the 2012 Renewal is a disguised tax that violates constitutional requirements because the general public did not vote on it. It also alleges the 2012 Renewal violated the Streets and Highways Code because it renewed the TMD assessment for 39.5 years, and it violated the city charter by delegating responsibility to TMD Corporation to manage the funds. The second cause of action alleges the 2016 Amendment fails to comply with the California Constitution because it did not receive voter approval, and it violates the city charter because it gives TMD Corporation authority to manage the funds. H. Demurrer
The second cause of action also incorporated by reference claims that the 39.5-year length of the TMD assessment violates the Streets and Highways Code.
Defendants again demurred, arguing the challenge to the 2012 Renewal was time-barred by the Procedural Ordinance and the state's validation statutes, and precluded by the SDOG litigation judgment. Defendants also argued CTAN lacked standing.
Opposing the demurrer, CTAN asserted the SDOG judgment had no preclusive effect because it was not a reverse validation action and because judgment was not entered on the merits. It argued the Procedural Ordinance was inapplicable because the TMD assessment is a tax, not an assessment. It also argued CTAN had taxpayer standing and voter standing.
The trial court sustained the demurrer without leave to amend, concluding CTAN lacked standing and was precluded from bringing the action because the SDOG litigation was a reverse validation action reduced to a judgment, which was binding on future claims. The trial court alternatively concluded the 2012 Renewal was subject to validation procedures and, citing Embarcadero Mun. Improvement Dist. v. County of Santa Barbara (2001) 88 Cal.App.4th 781, 792, implied the action was separately time- barred by the statute of limitations outlined in the validation statutes. The court further explained the allegations regarding the 2016 Amendment "only narrowed the class of hoteliers who must pay for it" and "had no effect on the issue that is paramount in this litigation—whether the tax could be imposed at all." The court also commented that whether the tax could be imposed pertained to the 2012 Renewal, "and challenges to that issue are subject to the validation procedures above."
The trial court did not address the 30-day statute of limitations in the Procedural Ordinance separately from their incorporation via the validation statutes in section 860 et seq.
II
DISCUSSION
Though the crux of the parties' disagreement centers around the characterization of the TMD assessment as a tax, as we explain, we do not need to resolve this issue because procedural requirements lead us to affirm the trial court's sustaining of the demurrer without leave to amend on other grounds. A. Standards of Review
In reviewing the sustaining of a demurrer, we accept as true all properly pleaded allegations, and we consider judicially noticed matters. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081 (Schifando), citing Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) We test only the legal sufficiency of the pleading (Popescu v. Apple Inc. (2016) 1 Cal.App.5th 39, 50 (Popescu)), not the truth of the plaintiff's assertions or the accuracy with which they describe a defendant's conduct. (Ibid., citing Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213.) We will affirm " 'if proper on any grounds stated in the demurrer, whether or not the court acted on that ground.' " (Melton v. Boustred (2010) 183 Cal.App.4th 521, 528 (Melton).) "Thus, 'we do not review the validity of the trial court's reasoning but only the propriety of the ruling itself. [Citations.]' " (Popescu, at p. 50.) B. 2012 TMD Renewal
Defendants contend any challenge to the 2012 Renewal is barred by the 30-day statute of limitations detailed in the Procedural Ordinance. Although CTAN addressed this issue on appeal only in its reply brief, it is properly before us. (See Melton, supra, 183 Cal.App.4th at p. 528 [demurrer may be sustained on appeal if proper on any grounds stated in the demurrer].)
The gravamen of a complaint and not the form of the action determines the applicable statute of limitations. (The Inland Oversight Committee v. City of Ontario (2015) 240 Cal.App.4th 1140, 1145 (Inland Oversight Committee). In Inland Oversight Committee, two cities established a tourism marketing district comprised of lodging businesses operating within the district. (Id. at p. 1142.) Assessments that could be passed on to guests were imposed on member businesses to promote them as " 'tourist, meeting and event destinations.' " (Id. at pp. 1142-1143.) Plaintiffs sued the cities to invalidate the assessments, arguing they were an illegal tax. (Ibid.) The Court of Appeal affirmed the sustaining of a demurrer, finding the suit barred by the applicable statute of limitations. (Id. at p. 1145.) In so doing, it concluded the gravamen of the complaint was the invalidity of the assessments, not the characterization of the charge as a tax. (Ibid., citing McLeod v. Vista Unified School District (2008) 158 Cal.App.4th 1156, 1165.)
Although CTAN characterizes the City's action as creating a tax, the challenge here is to the city council's adoption of the resolution that renewed the TMD district and extended the TMD assessment. As was the case in Inland Oversight Committee, the relevant statute of limitations applies to " 'any action' " challenging " '[t]he validity' " of the assessment, regardless of the basis of the validity challenge. (See Inland Oversight Committee, supra, 240 Cal.App.4th at p. 1145.) The gravamen of the first cause of action is to contest the validity of the City's action renewing the TMD assessment. Moreover, the 2012 Renewal states it is governed by the Procedural Ordinance, and any legal challenge to the validity of the assessments levied under the terms of the Procedural Ordinance must commence within 30 days. (San Diego Mun. Code, § 61.2517.) Because the complaint challenges the validity of approving the TMD assessment, an action governed by the Procedural Ordinance, the statute of limitations is governed by the Procedural Ordinance.
The Procedural Ordinance contains a 30-day statute of limitations for challenges to resolutions forming a tourism marketing district and levying an assessment on the district. (San Diego Mun. Code, §§ 61.2510, 61.2517.) It also states that a challenge to government action for the purpose of determining the validity of an assessment must be "commenced within 30 days after the matter is deemed to be in existence," "upon its authorization by the City Council." (San Diego Mun. Code, § 61.2526, subds. (b) & (a), italics omitted.)
The TMD assessment was levied under the provisions of the Procedural Ordinance: The 2012 Renewal was a resolution to establish a tourism marketing district for 39.5 years and to impose a levy on the member businesses. Additionally, CTAN's action challenges the validity of the government action to adopt the TMD assessment. Thus, this suit falls squarely within the 30-day statute of limitations detailed in the Procedural Ordinance. (See San Diego Mun. Code, §§ 61.2510, subd. (a)(7) & 61.2517.)
The 30-day statute of limitations outlined in the Procedural Ordinance is applicable independently from its incorporation into the validation statutes detailed in section 860 et seq. (See Reid, supra, 24 Cal.App.5th at p. 356 [finding 30-day statute of limitations applicable to challenges to assessment levied by 2012 Renewal].)
The city council adopted the 2012 Renewal on November 27, 2012. CTAN filed suit to challenge the validity of the 2012 Renewal on September 30, 2016, nearly four years after the city council adopted the resolution. Accordingly, CTAN's challenge to the 2012 Renewal is time-barred.
CTAN contends the 30-day statute of limitations is inapplicable because it violates taxpayers' due process rights. CTAN's theory is that taxpayers were denied the opportunity to challenge the TMD assessment under the "pay first-litigate later" rule, which requires a taxpayer to pay a levy before challenging its validity (California State University, Fresno Assn., Inc. v. County of Fresno (2017) 9 Cal.App.5th 250, 262), because the City approved the 2012 renewal on November 27, 2012, but the first payment was not due until more than 30 days later, on January 1, 2013. We disagree.
We recently addressed this issue in Reid. (Reid, supra, 24 Cal.App.5th 343.) The plaintiffs in Reid challenged the same 2012 TMD Renewal at issue here, and we explained, "[a] limitation period is consistent with due process if it provides a reasonable time to bring the action." (Id. at p. 356, citing Kupka v. Board of Administration (1981) 122 Cal.App.3d 791, 797.) The "pay first, litigate later" rule does not apply to the TMD assessment because the City provides an adequate prepayment remedy (Reid, at p. 357): "[A]s long as the City provides a clear and certain remedy, it may determine to provide predeprivation process instead of postdeprivation relief." (Id. at p. 358.) "Where, as here, the City in Municipal Code section 61.2517 has provided a 'form of "predeprivation process," ' under which a person seeking to invalidate the assessment may sue prior to its payment, then no postpayment remedy is required." (Ibid.)
Municipal Code section 61.2517 establishes a predeprivation process because it does not require payment of the fee to challenge its validity, and it requires a challenge to be made within 30 days. The "express language [of Municipal Code section 61.2517] is controlling as to the accrual of a cause of action challenging the assessment." (Reid, supra, 24 Cal.App.5th at p. 357, citing Barratt American, Inc. v. City of San Diego (2004) 117 Cal.App.4th 809, 820; Fahey v. City Council of Sunnyvale (1962) 208 Cal.App.2d 667, 677 [statute of limitations begins when assessment is adopted, not when city tax collector records assessment or it becomes a lien].) The Municipal Code identifies the date on which the statute of limitations begins to run as the date the assessment is adopted by resolution. (San Diego Mun. Code, § 61.2517.) The prepayment remedy began running November 27, 2012, the date the city council adopted the 2012 Renewal. Thus, CTAN's 2016 legal challenge to the 2012 Renewal comes too late and is barred by the Procedural Ordinance's 30-day statute of limitations. C. The 2016 Amendment
The second cause of action alleges the 2016 Amendment violated the California Constitution because the TMD assessment constitutes an illegal tax as there has been no vote of the electorate approving it. Central to this cause of action is the characterization of the TMD assessment as a tax. "The question of whether a charge is a tax is a question of law that we decide on independent review of the facts." (Webb v. City of Riverside (2018) 23 Cal.App.5th 244, 258, citing Sinclair Paint, supra, 15 Cal.4th at pp. 873-874.) We assume the truth of the operative complaint's properly pleaded facts and judicially noticed matters. (Schifando, supra, 31 Cal.4th at p. 1081.) Because the matter was dismissed on demurrer, " 'we determine whether the complaint states facts sufficient to state a cause of action.' " (Popescu, supra, 1 Cal.App.5th at p. 50.)
CTAN contends it has sufficiently alleged the TMD assessment is a tax because its complaint alleges facts which, if proven true, would demonstrate the levy is not an assessment. Moreover, CTAN notes it is Defendants' burden to prove the TMD assessment is an assessment by a preponderance of evidence, making it improper for dismissal at this juncture. (See Cal. Const., art. XIII D., § 4, subd. (f).) We need not determine whether the TMD assessment constitutes a tax or an assessment because even assuming—without deciding—the TMD assessment is a tax, the complaint fails to state a claim.
Local governments are prohibited from imposing, increasing, or extending any tax without voter approval. Citizens for Fair REU Rates v. City of Redding (2018) 6 Cal.5th 1, 4; Cal. Const., art. XIII C, § 2, subd. (b); see Gov. Code, § 53750, subds. (e) & (h).) A tax is imposed when first enacted. (California Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924, 944.) To extend a tax, the agency must lengthen the time period of its application. (Gov. Code, § 53750, subd. (e).) It is increased when there is an increase in the applicable rate used to calculate the charge, or the methodology for calculating the tax is revised, resulting in an increase being levied on a person or parcel. (Gov. Code, § 53750, subd. (h)(1)(a) & (b); see Citizens for REU Rates, at p. *4 [increase must be on ratepayers], citing Webb v. City of Riverside, supra, 23 Cal.App.5th at p. 232.) However, a tax is not increased when an agency "[i]mplements or collects a previously approved tax, fee, or charge, so long as the rate is not increased beyond the level previously approved by the agency." (Gov. Code, § 53750, subd. (h)(2)(B).)
After Proposition 218 passed, the Legislature added Government Code section 53750 et seq. to clarify its implementation. (Greene v. Marin County Flood Control & Water Conservation Dist. (2010) 49 Cal.4th 277, 286.)
The levy at issue here was imposed in 2007, when the city council first adopted Resolution R-303226 to establish the TMD and authorize the assessment. The TMD assessment was extended in 2012 when the city council adopted the 2012 Renewal, renewing the TMD assessment for 39.5 years. No additional time was added when the city council adopted the 2016 Amendment; thus, the 2016 Amendment did not extend the TMD assessment. The 2016 Amendment did not change the way the TMD assessment was calculated; lodging businesses with 70 or more rooms continued to calculate the assessments as 2 percent of the assessable rent. Because the 2 percent charge had been previously approved by the 2012 Renewal, there was no increase in the amount being levied on any person or parcel. Thus, CTAN has not and cannot allege the City's approval of the 2016 Amendment violated the California Constitution.
Finally, several of CTAN's allegations incorporated by reference or directly made within the second cause of action conflate the City's 2012 Renewal with the 2016 Amendment, demonstrating the 2016 Amendment allegations cannot easily be severed from the challenges to the 2012 Renewal to stand on their own.
For example, general allegations state that prior to September 1, 2016, lodging businesses with fewer than 70 rooms received no benefit from the money spent on the "20-Year Destination Master Plan," the "Report on Proposed Joint Development of a Stadium-Convention Center: Chargers Stadium-Convention Center," or the destination-marketing campaigns. These allegations reference the use of funds collected under the 2012 Renewal, and so they are barred by the statute of limitations.
Specific allegations within the second cause of action similarly reference the 2012 Renewal. For example, paragraph 15.B.iv. begins, "Pursuant to the 2016 [Amendment] and the San Diego Tourism Marketing District Procedural Ordinance, the San Diego City Council has delegated to the board of directors of the San Diego Tourism Marketing District Corporation, Inc. [the] power to control, appropriate, and supervise public money and personal property in the form of 'tax' revenues collected pursuant to the 2012 [Renewal] and the Ordinance." Although placed within the cause of action addressing the 2016 Amendment, this allegation relates to the City's actions in 2012. Similarly, paragraph 15.B.vii. discusses the way the City has allocated funding "[s]ince the 2012 [Renewal]," explaining the "2012 [Renewal] serves in substantial part to provide funding for the purpose of promoting the City." Again, although included within the cause of action challenging the 2016 Amendment, the allegation addresses a function of the 2012 Renewal. Other allegations similarly address the effects of the 2012 Renewal.
This allegation parallels an earlier paragraph challenging the 2012 Renewal, which alleges delegating power to TMD Corporation violates the San Diego City charter.
The 2016 Amendment did not authorize an agreement with TMD Corporation. Resolution R-310731, with final passage November 1, 2016, approved a new operating agreement with TMD Corporation, authorizing the mayor or the mayor's designee to execute the agreement.
As we explained ante, challenges to the 2012 Renewal are barred by the statute of limitations, and their inclusion in the cause of action challenging the 2016 Amendment, directly or by reference, does not avoid the time bar.
III
DEFENDANTS' MOTION FOR SANCTIONS IS DENIED
Defendants seek $33,826 in appellate sanctions against CTAN's attorneys for pursuing what Defendants contend is a "repetitive and meritless lawsuit." We notified counsel that we would consider the sanctions issue concurrently with the appeal, and CTAN filed an opposition. We have reviewed Defendants' arguments carefully and deny the motion for sanctions.
Section 907 "authorizes an award of monetary sanctions on appeal '[w]hen it appears to the reviewing court that the appeal was frivolous or taken solely for delay.' " (Bucur v. Ahmad (2016) 244 Cal.App.4th 175, 192, citing Cal. Rules of Court, rule 8.276(a)(1).) Courts apply an objective standard to assess the merits of the appeal and a subjective standard to evaluate motive. (Kleveland v. Siegel & Wolensky, LLP (2013) 215 Cal.App.4th 534, 556.) The objective standard considers the merits of the appeal from a reasonable person's perspective. (Ibid.) "Whether the party or attorney acted in an honest belief there were grounds for appeal is irrelevant 'if any reasonable person would agree the grounds for appeal were totally and completely devoid of merit.' " (Reid, supra, 24 Cal.App.5th at p. 370, quoting Kleveland, at pp. 556-557.)
The parties disagree regarding the applicability of the validation statutes to a suit challenging the TMD assessment. CTAN contends the present action is not governed by the validation statutes in the Code of Civil Procedure. (See § 860 et seq.) CTAN also contends that even though the SDOG litigation alleged it was being brought as a reverse-validation action under section 860, it was not a reverse-validation action and so cannot be used to bar the challenges to the 2012 Renewal.
SDOG later insisted it had characterized the action as one in reverse-validation only out of an abundance of caution, but that it should not be treated as one brought in validation.
The characterization of the SDOG litigation as one brought under validation statutes is important because a judgment in a validation proceeding "is binding against the world and cannot be collaterally attacked, even on constitutional grounds." (Reid, supra, 24 Cal.App.5th at p. 371, citing Colonies Partners, L.P. v. Superior Court (2015) 239 Cal.App.4th 689, 694.) Having reached our conclusion here on separate statute of limitations grounds, it is not necessary for us to evaluate the applicability of the validation statutes in the Code of Civil Procedure to the SDOG litigation or to the case before us, and we decline to do so. However, the parties' dispute over the applicability of section 860 et seq. to challenging the TMD assessment is relevant to evaluating whether the appeal is frivolous.
We also decline to resolve whether the TMD assessment is a tax and whether CTAN has standing, the other issues raised by CTAN on appeal. Instead, we adjudicate the matter under procedural considerations.
Our recent decision in Reid is instructive. In Reid, like here, the plaintiffs appealed the grant of a demurrer that had been sustained on the ground that validation procedures applied to a challenge of the TMD assessment. (See Reid, supra, 24 Cal.App.5th at pp. 354, 370.) In both Reid and the present matter, the trial court sustained demurrers on the ground that the 60-day statute of limitations required by validation procedures in the Code of Civil Procedure prevented challenges to the 2012 Renewal, and both concluded that the judgment in the SDOG litigation precluded the subsequent lawsuits challenging the TMD assessment. (See ibid.)
Nonetheless, as we explained in Reid, "an open question [remains] whether a charter city may self-trigger its actions to be validation proceedings under Code of Civil Procedure section 860." (Reid, supra, 24 Cal.App.5th at pp. 373-374.) Moreover, "under Municipal Code sections 61.2517 and 61.2526, a reasonable argument can be made that Plaintiffs' action is not subject to validation procedures and, therefore, their appellate arguments challenging the order sustaining the demurrer on that ground are not frivolous." (Id. at p. 373.)
Defendants argued the validation statutes found in section 860 et seq. incorporated the 30-day statute of limitations found in Municipal Code sections 61.2517 and 61.2526. As we explained ante, the 30-day statute of limitations also applies directly to the challenge to the 2012 Renewal here, separate from section 860 et seq. (See Reid, supra, 24 Cal.App.5th at p. 356 [finding 30-day statute of limitations applicable to challenges to assessment levied by 2012 Renewal].)
Defendants also suggest improper motive and delay as a basis for awarding sanctions. (See In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650-651.) Their theory of improper motive is premised on a claim that CTAN and SDOG are closely related entities with nearly identical allegations in their separate complaints. Defendants' theory of delay is based on noncompliance with the meet and confer process and CTAN's act of filing the appeal. If the evidence is as alleged, it might support a motion for sanctions. However, there is insufficient evidence in the record before us to sustain such a finding. Accordingly, we deny the request for sanctions.
IV
DISPOSITION
The judgment is affirmed. Respondents shall recover costs on appeal.
HALLER, J. WE CONCUR:
BENKE, Acting P. J.
NARES, J.