In its ongoing legal battle over local government fees and assessments, homebuilder Barratt American has lost one round and won one round — and has seen the state Supreme Court accept for review a case where the homebuilder was victorious at the appellate court level.

The English company’s loss came at the Fourth District Court of Appeal, which ruled that Barratt’s challenge of a facilities benefit assessment in the City of San Diego was filed after the statute of limitations had expired. Because the lawsuit was filed too late, the Fourth District did not consider the issue of whether the assessment violated Proposition 218.

Barratt’s victory came in Riverside County Superior Court, where a judge ruled that the City of Corona had improperly based its Building Department fees on the total cost of running the department. Judge Michael Kaiser ruled that the fees must be based on the actual cost of providing service. He determined the city had collected $332,000 too much and ordered the city to decrease its fees so that the excess will be gone in two years. Barratt had sought $4 million from Corona, which the builder has sued three times in seven years.

The state Supreme Court decided to review a case from Encinitas in which the Fourth District ruled that a lawsuit over automatic fee changes could proceed, but did not rule on the lawsuit’s merits. The appellate court ruled that the normal statute of limitations did not apply because Encinitas made no provision for public review (see CP&DR Legal Digest, April 2004). The state high court voted in late April to accept Barratt American v. City of Encinitas, No. S123510 but deferred consideration until the court decides Barratt American Incorporated v. City of Rancho Cucamonga, No. S117590. In the latter case, the Fourth District upheld Rancho Cucamonga’s building permit and plan review fees for a 123-unit subdivision, in part because the statute of limitations for challenging the fees had run out (see CP&DR Legal Digest, July 2003). The Rancho Cucamonga case has been fully briefed at the state Supreme Court, but the court has not scheduled oral arguments.

In the recently decided San Diego case, the controversy concerned a facilities benefit assessment (FBA) in Pacific Highlands Ranch, where Barratt was developing homes. The assessments were intended to pay for freeway and road construction, police and fire protection, and sewers. The San Diego City Council approved the benefit assessment on June 25, 2002.

On August 2, 2002, Barratt sued the city to determine the validity of the assessment. Barratt argued that Proposition 218 — the 1996 Right to Vote on Taxes Act — applied to the assessment and the city had not complied with the proposition’s requirements. San Diego County Superior Court Judge Patricia Cowett ruled that the statute of limitations was 30 days. Because Barratt filed its lawsuit 38 days after the City Council acted, Cowett dismissed the suit. Barratt appealed, and a unanimous three-judge panel of the Fourth District, Division One, upheld the lower court.

Barratt argued that Proposition 218 repealed the 30-day statute of limitations in Code of Civil Procedure § 329.5. But the Fourth District determined that neither Proposition 218 nor a follow-up measure approved by the state Legislature addressed the timing of challenges.

“Proposition 218 … conflicts with and renders unconstitutional contradictory procedures or process leading to the adoption or levy of an assessment falling within its ambit,” Justice Terry O’Rourke wrote for the court. “It does not conflict with process or procedures relating to the timing of legal challenges to such an assessment.”

Barrett also tried the “continuous accrual” theory based on the state Supreme Court’s decision in Howard Jarvis Taxpayers Association v. City of La Habra, (2001) 25 Cal.4th 809. In that case, the court ruled that the statute of limitations started anew every time the city collected a utility users tax under an ordinance that violated Proposition 62, a precursor to Proposition 218 (see CP&DR Legal Digest, July 2001). The decision was a victory for taxpayer advocates.

But the Fourth District said the San Diego assessments were different. “Essentially, Barratt would have us hold that it suffered a new injury each day the city did not bring the assessment into compliance,” O’Rourke wrote. “This reasoning is unsound. If Barratt sustained any injury from imposition of the FBA assessment and became entitled to a legal remedy, it was when the city levied it in June of 2002.”

The court never reached the question of whether the benefit assessment violated Proposition 218.

The Case:
Barratt American, Inc. v. City of San Diego, No. D042038, 04 C.D.O.S. 3111, 2004 DJDAR 4419. Filed April 9, 2004.
The Lawyers:
For Barratt: Walter P. McNeill, (530) 222-8992.
For the city: John P. Mullen, deputy city attorney, (619) 533-5800.