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State High Court Clears Way For Proposition 218 Challenge

For the second time in less than a year, the California Supreme Court has ruled for individual property owners contesting local government assessments, opening the door for future challenges based on Proposition 218.

In the latest case, the court held that Tiburon property owners contesting an assessment levied under the Municipal Improvement Act of 1913 need not abide by cumbersome "reverse validation" procedures. The unanimous decision clears the way for the property owners to challenge the assessments as violations of Proposition 218.

The precise reach of the court's ruling is unclear. Attorney Frank Mulberg, who represented himself and the owners of one other home, said the decision "opens the door, at a minimum, for class action lawsuits. The validation procedure as it relates to homeowners who want to contest an assessment is now gone. It is no longer in the law."

That change is important, said Mulberg, because in a reverse validation lawsuit, a property owner has to prove an assessment is improper. But under the court's ruling, there is no assumption the assessment is legal, and the government entity bears the burden of proof.

"Any one homeowner can now challenge the assessment for any reason, Proposition 218 or otherwise," Mulberg said.

However, attorney Michael Colantuono, who represented the League of California Cities and the California State Association of Counties in the case, called the Supreme Court's decision "a big so-what." The ruling applies only to the 1913 improvement act, and local governments may utilize other statutes to levy property assessments, he said.

Tiburon Town Attorney Ann Danforth agreed the decision will not have major implications, because all the court did was clarify the rules for challenging assessments. "The ambiguity is gone," she said.

More important than the ruling itself is the state high court's ongoing treatment of local revenue measures, Colantuono suggested.

"The decision is evidence that this is a court that is conservative on matters on local government finance," said Colantuono, who helped argue the Tiburon case at the high court. He rejected the idea that the latest ruling bolstered Proposition 218, the 1996 follow-up to Proposition 13 that requires an election on tax increases special assessments and fees. Conversely, Mulberg said the ruling, combined with a 2008 state Supreme Court decision, has breathed new life into Proposition 218.

Last year, the state Supreme Court struck down a Santa Clara County open space assessment on 314,000 parcels. The court ruled the assessment – which an open space district had levied under the Landscaping and Lighting Act of 1972 – provided only general benefits and therefore was a special tax that was subject to Proposition 218's voter-approval requirement (see CP&DR Legal Digest, August 2008). The ruling in that case, Silicon Valley Taxpayers' Assn., Inc. v. Santa Clara County Open Space Authority, (2008) 44 Cal.4th 431, was a loss for local government and helped provide the basis for the more recent decision involving the Marin County town of Tiburon.

In 2003, the Tiburon Town Council began work on the Del Mar Valley Utility Undergrounding Assessment District based on the Municipal Improvement Act of 1913. The town commissioned an engineer's report, which determined that placing utility lines underground would provide aesthetic, service reliability and safety benefits to the owners of 221 parcels. The report estimated the project would cost $4.2 million, and individual assessments would range from about $7,200 to $31,200. In early 2005, the town mailed ballots to property owners. The ballots were weighted based on the amount of the assessments, and owners of parcels representing 71% of the total proposed assessment voted for the project. In May of 2005, the Town Council officially formed the district and assessed the property owners.

The owners of two properties – Mulberg and his wife, Shelley, and Jimmie and Jean Bonander (she's the city manager of neighboring Larkspur) – sued Tiburon. They argued the assessment violated Proposition 218 because the $31,146 assessment against each of their properties exceeded the special benefits conferred, as overhead wires would remain in place nearby. They further contended the town's procedures were illegal and the town had cherry picked parcels for inclusion in the assessment district.

A trial court judge decided that the lawsuit was a reverse validation action. (A local government will frequently file a validation lawsuit seeking court confirmation that an assessment is legal.) Because Mulberg did not meet the summons and publication requirements in the validation statutes (Code of Civil Procedure §§ 860 – 870.5), the court threw out the lawsuit. The First District Court of Appeal upheld the lower court, ruling the validation procedure applied "regardless of whether the challenge is premised on asserted violations of Proposition 218 or any other constitutional provision" (see CP&DR Legal Digest, April 2007).

The case then moved to the state Supreme Court. The issue, Justice Joyce Kennard summarized in the unanimous opinion, was whether the general validation procedure applied to assessments levied  under the 1913 act. The court undertook a lengthy discussion of the validation procedure, and the 1913 act (Streets and Highways Code § 10000 et seq.), both of which the Legislature updated in 1961. The validation statutes contain a procedure to validate and to invalidate public agency matters, the court concluded.

However, the 1913 act permitted only validation actions brought by the legislative body or the contractor involved. The 1961 legislative updates maintained this provision. "[W]hen the Legislature in 1961 amended [Streets and Highways Code] § 10601 to incorporate the general validation procedure, it expressly limited which parties might avail themselves of the new procedure," Kennard wrote. "[T]he Legislature intended to activate the general validation procedure set forth in the Code of Civil Procedure only for action to validate assessments, not for actions to contest assessments."

The court conceded this reading resulted in internal inconsistency, because § 10400 explicitly permits validation actions to contest an assessment. "In our view, the better interpretation of § 10601 is to give effect to the limiting language in that section even at the cost of rendering meaningless the section's cross-reference to § 10400," Kennard wrote.

Thus, the Tiburon property owners did not have to comply with the validation procedure in their suit contending the city should have complied with Proposition 218. The decision sends the case back to Marin County Superior Court, where Mulberg said he intends to argue the merits of the case.

Mulberg has filed two other lawsuits, as well. One suit involves a challenge to a second assessment district formed to cover the same undergrounding project. Tiburon formed the supplemental assessment district after learning the project would cost about twice as much as originally estimated. Tiburon won in the trial court, but the case, Bonander v. Town of Tiburon, No A119918 (Bonander II), is now at the First District Court Appeal. A third lawsuit, this one seeking damages for alleged breach of contract and breach of fiduciary duties, is pending in San Francisco Superior Court's Complex Civil Litigation department.

The actual undergrounding project remains on hold.

The Case:
Bonander v. Town of Tiburon, No. S151370, 2009 DJDAR 8246. Filed June 8, 2009.

The Lawyers:
For Bonander: Frank Mulberg, (415) 388-0605.
For Tiburon: Ann Danforth, town attorney, (415) 435-7370.

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