California Court of Appeals, Second District, Third Division
APPEALS from a judgment and an order of the Superior Court of Los Angeles County No. BC419572, BC334027, John Shepard Wiley, Jr., Judge.
Law Offices of Steven F. Carvel and Steven F. Carvel for Plaintiffs and Appellants Patrick Owens and Patricia Munoz.
Huskinson, Brown & Heidenreich, Paul E. Heidenreich and David W.T. Brown for Plaintiff and Appellant Larry Pitts
Jones Day, Elwood Lui, Brian D. Hershman and Erica L. Reilley for Defendant and Respondent.
In this opinion we adjudicate two appeals challenging a user utility tax (UUT) enacted pursuant to a measure approved by the voters. The appellants contend the UUT is unlawful because it violated the voters’ due process and free speech rights and because the tax was imposed in violation of Proposition 218 and the Elections Code. We publish this case to address these important substantive legal issues and to provide an example of when the doctrine of judicial estoppel should apply.
The present appeals arise from two separate superior court class actions against defendant and respondent County of Los Angeles (County); the first by plaintiff and appellant Larry Pitts and the second by plaintiffs and appellants Patrick Owens and Patricia Munoz. Pitts appeals an order denying his motion to enforce a settlement and Owens and Munoz appeal a judgment. We affirm the order and the judgment.
In both appeals appellant(s) challenge the legality of the County’s UUT enacted pursuant to a measure approved by the voters on November 4, 2008 (Measure U). We reject all of the appellants’ arguments on the merits.
We also conclude that Pitts is judicially estopped and barred by the terms of a settlement agreement he executed from pursuing his challenge to the UUT. As we shall explain, the litigation conduct of Pitts and his counsel is precisely the kind of conduct the doctrine of judicial estoppel is meant to prohibit.
1. The Oronoz/Pitts Class Action—The Challenge to the 1991 UUT
In January 1991, the County enacted the Utility User Tax Ordinance (L.A. County Code, § 462.010 et seq.), establishing a utility user tax (the 1991 UUT). The 1991 UUT imposed a 5 percent tax on telephone, electricity and gas usage.
In May 2005, Joe Oronoz and Larry Pitts filed a class action suit on behalf of taxpayers in the unincorporated parts of the County (the Oronoz/Pitts class action) challenging the 1991 UUT on the grounds that it violated Propositions 13 and 62 because it was enacted without voter approval. (County of Los Angeles v. Superior Court (2008) 159 Cal.App.4th 353, 357.) The County denies that the 1991 UUT was unlawful. On January 4, 2007, the trial court certified as a class all persons who paid the 1991 UUT since February 16, 2004.
2. Short Form Settlement Agreement
At a mediation on June 30, 2008, the parties in the Oronoz/Pitts class action executed a two-page short form settlement agreement. The agreement provided that the County would place $10 million in a general fund to be used to address education, medical needs, homelessness and/or police and fire protection in the unincorporated areas of the County. It also stated that the County would place $65 million in a claims fund to be used for taxpayer refunds.
The short form settlement agreement also stated: “County to hold an election in November 2008 to validate the UUT pursuant to applicable law at a rate of 4.5%. County agrees not to seek to raise the UUT rate for a period of 15 years following the election.” Additionally, the agreement provided that if the UUT was not approved by the voters, the amount of money collected by the County from July 1, 2008 to the date of election would be added to the claims fund. Appellants contend that the amount of UUT the County was likely to generate during this time period was $25 million.
The agreement further provided that the settlement was contingent upon approval by the County Board of Supervisors (Board) and that retired judge Dickran Tevrizian retained “jurisdiction to mediate any disputes in the drafting of the settlement agreement.” The agreement also stated that notice to class members of the settlement “shall not be sent until after the election is held in November, 2008.” Class counsel was required by the agreement “to cooperate with the County in seeking voter approval of the UUT.”
On July 1, 2008, the Board approved of the settlement in the Oronoz/Pitts class action in a closed session. The Board resolved that “[t]he substance of the settlement will be disclosed upon inquiry by any person as soon as the settlement becomes final following approval by all parties.”
3. The Ballot Materials Related to Measure U
In the official ballot sent to voters in unincorporated areas of the County, Measure U stated: “THE UNINCORPORATED LOS ANGELES COUNTY UTILITY USERS’ TAX CONTINUATION MEASURE. 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, including sheriff’s deputies, parks, libraries, street repairs, and other general fund 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 official ballot also included an impartial analysis by County Counsel, arguments in favor and against Measure U, and a redlined version of the Utility Users Tax Ordinance, which set forth the exact language of the proposed ordinance and the changes made to the previous ordinance. We shall discuss the ballot materials in greater detail in our discussion of the merits of appellants’ challenge of the legality of Measure U.
4. The Election
Prior to the election, the County provided the ballot materials discussed ante to the voters. Larry Pitts received these materials. On November 4, 2008, 62.92 percent of the voters approved Measure U. We shall refer to the UUT enacted pursuant to Measure U as the “2008 UUT.”
5. Long Form Settlement Agreement
On November 5, 2008, after lengthy negotiations, the Oronoz/Pitts plaintiffs executed an 18-page long form settlement agreement. This agreement incorporated most of the principal terms of the short form settlement agreement. Under the long form settlement agreement, the County was required to pay $10 million to a general fund and $65 million to a claims fund. The agreement also stated the County would not increase the UUT rate above 4.5 percent at any time prior to November 4, 2023 and that the County would hold an election in November 2008 to “validate” the UUT at a rate of 4.5 percent.
The long form settlement agreement further provided that plaintiffs Joe Oronoz and Larry Pitts and all class members released the County of all claims. We shall discuss this release in more detail post.
The agreement also stated that the County denied any wrongdoing or liability in connection with the 1991 UUT. Additionally, the agreement provided that if the superior court did not approve the settlement, the agreement would be null and void.
6. Joint Motion for Preliminary Approval of Settlement and Motion for Preliminary Approval of Attorney Fees
On November 6, 2008—two days after the election—the Oronoz/Pitts plaintiffs and the County filed a joint motion for preliminary approval of the settlement and approval of forms and methods of notifying the certified class of the settlement (preliminary settlement approval motion). In this motion, the parties argued that the settlement provided non-monetary benefits, including requiring the County “to hold an election to validate the UUT pursuant to applicable law.” The motion emphasized that the settlement was fair because it secured for the taxpayers the “right to vote” for the UUT, i.e., the “right to decide whether the County can assess the UUT.”
In his declaration in support of the preliminary settlement approval motion, lead class counsel Paul Heidenreich stated that the non-monetary benefits of the settlement, including the November 4, 2008, election, “were important to the settlement obtained for the class.” Heidenreich further stated: “Without the inclusion in the settlement package of the non-monetary benefits, the proposed settlement was not acceptable to class counsel.”
Concurrently with the preliminary settlement approval motion, the Oronoz/Pitts plaintiffs filed a motion for preliminary approval of attorney fees, costs and payments to representative plaintiffs. In this motion, the Oronoz/Pitts plaintiffs sought an award of $50, 000 to each class representative and an award of attorney fees in the amount of $25 million to class counsel. They argued that their counsel deserved to be paid $25 million because they secured many benefits for the class, including the “Constitutional right to vote.” (Italics and boldface omitted.)
Indeed, in listing the six primary benefits secured by the settlement, the Oronoz/Pitts plaintiffs placed the election held on November 4, 2008, at the top of the list. The motion stated: “The benefits are: [¶] First, the settlement vindicated the taxpayers[’] California Constitution, Article XIII right to vote and participate in the tax enactment process. Value of the Constitutional right: Priceless.” (Fn. omitted.)
On November 20, 2008, the trial court entered an order granting preliminary approval of the settlement and authorizing notice to be provided to the class. Pursuant to this order, over 390, 000 taxpayers were given notice of the settlement and a right to object. Only one taxpayer filed an objection.
On December 1, 2008, the trial court granted the Oronoz/Pitts plaintiffs’ motion for preliminary approval of attorney fees and costs, and awarded plaintiffs’ counsel $7, 637, 868.75 in attorney fees. The order further provided that the attorney fees “shall be paid from the settlement funds if and when final approval of the class settlement is granted.”
7. Final Judgment and Order in the Oronoz/Pitts Class Action
Both the County and the Oronoz/Pitts plaintiffs filed briefs in support of the trial court’s final approval of the settlement. In one of their briefs, the Oronoz/Pitts plaintiffs acknowledged that the sole objector to the settlement argued that Measure U was “confusing.”
On April 28, 2009, the superior court entered a final order and judgment (judgment) in the Oronoz/Pitts class action. The judgment approved the settlement agreement, stating that it was “fair, adequate, and reasonable.” It also dismissed the action, awarded class counsel $7, 637, 868.75 in ...