Thursday, October 3, 2013
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Court of Appeal Upholds Voter-Approved Utility Users Tax
Panel Rejects Challenge on Merits, Also Cites Judicial Estoppel Based on Prior Settlement
By KENNETH OFGANG, Staff Writer
The Court of Appeal for this district yesterday upheld Los Angeles County’s 4.5 percent utility users tax, approved by 63 percent of voters in the county’s unincorporated areas in November 2008.
Div. Three, in an opinion by Justice Patti S. Kitching, rejected claims by plaintiffs Patrick Owens, Patricia Munoz, and Larry Pitts, including that the ballot materials for the election were misleading. The court also held that Pitts was barred from challenging the measure because he had agreed, as part of the settlement of an earlier lawsuit, that the county could impose the tax if voters approved it.
The utility tax, imposed in the county’s unincorporated areas, was adopted in 1991. The tax ordinance imposed a five percent tax on telephone, electricity, and gas usage and was approved by the Board of Supervisors without a public vote.
In 2005, Pitts and Joe Oronoz filed a class action on behalf of all taxpayers in the unincorporated areas. They contended that the tax violated Propositions 13 and 62 due to the lack of voter approval.
The county denied that voter approval of the tax was required. The trial judge eventually certified a class made up of all persons who had paid the tax since the year preceding the filing of the suit.
The suit was mediated before retired U.S. District Judge Dickran Tevrizian. The mediation resulted in a settlement whereby the county set aside $10 million in a general fund to provide public services in the unincorporated areas and $65 million for possible taxpayer refunds.
Settlement Agreement
The two-page settlement agreement further provided that the county would “hold an election in November 2008 to validate the UUT pursuant to applicable law at a rate of 4.5%” and would not raise the rate for 15 years if voters approved the tax. It also provided that if the tax was not approved, all collections since the date of settlement—expected to be about $25 million—would be added to the claims fund.
The ballot for the election read:
“Shall an ordinance be adopted to validate and reduce Los Angeles County’s existing utility users tax from 5 percent to 4.5 percent; to continue funding essential services…; update definitions to require equal treatment of taxpayers regardless of technology used; provide public review of expenditures and independent audits, and continue the low-income senior exemption?”
The day after voters approved the measure, the parties to the litigation signed a more detailed settlement agreement, running 18 pages. Among other things, the long-form agreement specifically released all claims that members of the plaintiff class might have against the county with respect to the tax.
In moving for approval of the settlement, the parties argued that the class members received considerable non-monetary benefits, including the “right to decide whether the County can assess the UUT.”
‘Right to Vote’
The plaintiffs’ lawyers simultaneously moved for an award of $50,000 to each class representative and for $25 million in fees. As justification for the award, counsel asserted that they had secured the class members’ “Constitutional right to vote,” among other things.
The trial judge granted preliminary approval and authorized notice to more than 390,000 identifiable class members, only one of whom objected to the settlement. The objections were rejected and the settlement approved in April 2009.
The court awarded more than $7.6 million in fees to class counsel and $10,000 to each class representative.
In 2009, Owens and Munoz sued to invalidate the ballot measure and the tax, claiming violations of due process and free speech rights, and of Proposition 218, the Right to Vote on Taxes Act. They argued, among other things, that the county misled voters by not informing them that the tax would be repealed in its entirety if they did not approve it.
In the meantime, Pitts filed a motion to enforce the settlement of the prior action, claiming that the 2008 election was not held “pursuant to applicable law”—for many of the same reasons asserted in the Owens suit—and that the settlement was therefore violated.
Trial Court Ruling
Los Angeles Superior Court Judge John S. Wiley found for the county in both actions, saying the plaintiffs were wrong on the merits. He also found that Pitts had waived his claims by signing the settlement agreement and was estopped from challenging the election result based on his previous position that the tax would be valid if the voters approved it.
Kitching agreed, saying it was clear from the settlement agreement that all claims regarding the legality of the tax were being resolved in that litigation. Given that the county continued to maintain that the tax was levied lawfully, it clearly “settled to buy peace,” which it would not have done “if it knew that Pitts could challenge the 2008 UUT based on facts that already existed at the time.”
Turning to the judicial estoppel issue, the justice said Pitts was “totally inconsistent” in arguing that the election was both “a priceless benefit to the voters and a sham that deprived them of due process.”
On those facts, it was not an abuse of discretion to apply judicial estoppel, she said.
“This is not a difficult decision. Pitts’s attempt to revive his action against the County is exactly the kind of litigation conduct judicial estoppel is meant to prevent,” she said. “When it suited their interests, Pitts and class counsel championed the election that had already taken place. After securing millions of dollars in payments from the County, they attacked the election as an affront to the constitutional rights of the class they represent.”
Attorneys on appeal Steven F. Carvel for Owens and Munoz, Paul E. Heidenreich and David W.T. Brown of Huskinson, Brown & Heidenreich for Pitts, and Elwood Lui, Brian D. Hershman and Erica L. Reilley of Jones Day for the county.
The case is Owens v. County of Los Angeles, B242291.
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