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Morgan v. Imperial Irrigation District

California Court of Appeal, Fourth District, First Division

January 17, 2014

Michael W. MORGAN et al., Plaintiffs and Appellants,
v.
IMPERIAL IRRIGATION DISTRICT, Defendant and Respondent; Imperial County Farm Bureau, Real Party in Interest and Appellant.

APPEALS from a judgment and postjudgment order of the Superior Court of Imperial County, Rick S. Brown, Judge. (Retired Judge of the Santa Barbara Super. Ct., assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.) Judgment affirmed; order reversed. (Super. Ct. No. ECU04936).

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COUNSEL

[167 Cal.Rptr.3d 692] Law Offices of Patrick J. Maloney, Patrick J. Maloney, Alameda, Thomas S. Virsik; Law Office of Cressey H. Nakagawa and Cressey H. Nakagawa for Plaintiffs and Appellants.

Nossaman, Frederic A. Fudacz, Los Angeles; Allen Matkins Leck Gamble Mallory & Natsis, Mark J. Hattam, Kathryn D. Horning, San Diego; Walker & Driskill and Mitchell A. Driskill, El Centro, for Defendant and Respondent.

California Farm Bureau Federation, Nancy N. McDonough, Sacramento, and Christian C. Sheuring for Real Party in Interest and Appellant.

OPINION

HUFFMAN, Acting P. J.

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In this consolidated appeal, Imperial County Farm Bureau (Farm Bureau), Michael Morgan, John Elmore, and Walter Holtz (Morgan, Elmore, and Holtz collectively the Individuals) contend the trial court erred in determining that the Imperial Irrigation District (District) complied with Proposition 218 (Cal. Const., art. XIII D) in its passage of new water rates. Also, the District appeals a postjudgment order awarding the Individuals attorney fees under California's private attorney general statute, Code of Civil Procedure section 1021.5.

The District provides water to the Imperial Valley. Its customers use the water for a variety of purposes, including agricultural, municipal, industrial, and residential. The District charges varying rates depending on its customers' use of the water. In 2008, the District, after holding a protest election, increased rates for water usage for many of its customers. However, the rates differed among types of customer, creating rate classes. Farm Bureau argues Proposition 218 required the District to conduct a separate protest election for each different rate class the District sought to impose, rather than the omnibus protest election the District conducted, which considered the entire rate scheme. We disagree.

We see nothing in section 6 of article XIII D of the California Constitution[1] that prohibits the District from holding a single protest election for a collection of rate increases involving all its customers. Further, if we were to adopt the interpretation Farm Bureau urges, a minority of the customers could prevent any increase of their water rates and call into question the proposed rates for the remaining customer classes without regard to the desires of the majority of the customers as a whole. There is no support for such proportional voting in section 6.

The Individuals join Farm Bureau's argument, but also advance their own claims that the District failed to meet both the substantive and procedural requirements of Proposition 218. We conclude the Individuals forfeited some of their claims by failing to raise the issues with the trial court in the first

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instance. For the surviving challenges, the Individuals ask this court to reweigh evidence to ascertain if the District complied with the substantive requirements of section 6. This we cannot do. In addition, on the record before us, [167 Cal.Rptr.3d 693] we determine the District satisfied section 6's substantive requirements.

Like their challenges involving section 6's substantive requirements, the Individuals' claims that the District did not comply with the procedural requirements of section 6 are without merit. Because we determine that neither challenge to the District's increase of water rates is well taken, we affirm the judgment.

Finally, we see no basis on which to award the Individuals their attorney fees under Code of Civil Procedure section 1021.5. On the record before us, there is no substantial benefit the Individuals conferred on the public by virtue of their litigation. We thus reverse the order awarding attorney fees. [2]

FACTUAL AND PROCEDURAL BACKGROUND

The District

The District's water service area is located in the Imperial Valley, which is situated between the Colorado River and Arizona on the east, Mexico on the south, Riverside County and the Salton Sea on the north, and San Diego County on the west. ( Quantification Settlement Agreement Cases (2011) 201 Cal.App.4th 758, 784, 134 Cal.Rptr.3d 274.) All people in the Imperial Valley rely on the District for their water and power. ( Choudhry v. Free (1976) 17 Cal.3d 660, 663, 131 Cal.Rptr. 654, 552 P.2d 438.) Indeed, the District is the sole source of fresh water for the Imperial Valley, which comes from the Colorado River. ( Quantification Settlement Agreement Cases, supra, at p. 784, 134 Cal.Rptr.3d 274.) Its customers use the water for a variety of purposes, including agricultural, municipal, industrial, and residential. The District provides irrigation water and drainage for about 475,000 acres of farmland while also supplying water to cities and other users. To deliver water to its customers, the District maintains and operates an extensive delivery system

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that includes the All American Canal, almost 1,700 miles of other delivery canals, and laterals going to thousands of headgates, numerous reservoirs, and over 1,400 miles of drainage ditches. The District delivers an average of 6,700 acre-feet of water on a daily basis.[3]

The Setting of New Water Rates

After several years of operating deficits in the District's water department and a forecast of continuing budget deficits, the District's Board decided to review its water rates. In February 2008, the District hired Entrix, Inc. to conduct a water rate cost of service study. The Entrix cost of service study (Cost of Service Study) is an analysis of the costs of providing services to District customers. It used historical costs and projection of future costs to determine revenue requirements that needed to be recovered by the water rates. The primary goal of the Cost of Service Study was to " equitably allocate costs among customer classes in proportion to the services provided to each."

In preparing the study, Entrix used certain guiding principles including that, [167 Cal.Rptr.3d 694] " [r]ate structures should be designed to ensure that users pay only their proportionate share of costs." The Cost of Service Study developed its revenue requirements on a six-year timeframe that encompassed 2009 through 2014. Entrix focused on the District's cash needs to provide water service, which included operations, maintenance, debt service reserves, and cost of capital expenditures. Entrix, however, only considered water rate related costs and revenues. The Cost of Service Study was " based strictly on cost-of-service principles, and [did] not consider any principles of value-of-service pricing...." It followed commonly accepted professional standards developed by the American Water Works Association (AWWA) for cost of service studies.

The Cost of Service Study took into account the character of the District and its customers. Most of the District's water system and its water delivery costs are shared by all users, and the study thus allocated costs to all users. However, some types of service require extra costs, and therefore, the study allocated those costs only to the corresponding more expensive services. For example, small pipe and small parcel accounts have particularized costs for repairs and maintenance and Entrix calculated a rate for these accounts that had to bear these special costs. Similarly, municipal and industrial users

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create special costs so their charges are higher per acre foot than agricultural users. Entrix considered this and similar information in preparing the Cost of Service Study.

Entrix determined that almost all of the actual District water rates were too low to meet the District's actual cost of service. Because there was a considerable gap between what the District was charging and what it needed to charge customers to cover the actual costs of its water service, the Cost of Service Study noted there might be practical difficulties in raising water rates immediately to close the gap. Thus, in the Cost of Service Study, Entrix developed three possible rate structure formats for the District's Board to consider: a single uniform water rate change for the whole period of the study to cover costs; annual water rate changes that attempted to cover costs each year as best as possible; and a phased rate change that started rates low in early years but then moved up significantly over time to cover costs. Each method was expected to reduce the cost deficit to $0 over the six-year period

The Cost of Service Study excluded certain classes of service that existed in the District's billing system, but for which there were no actual paying accounts and use data. The Cost of Service Study also pointed out that the District's untreated water rate was far below that of other public agencies in California.

Entrix did not have perfect data on which to base the Cost of Service Study. For example, the District lacked particularized volumetric use data for the pipe and small parcel and wholesale tier 2 customers. Therefore, Entrix used information from the District's staff to estimate the amount of water used by these customers annually. In addition, these estimates are buttressed by data published by the AWWA, water use data for local municipalities, and local evapotranspiration rates. Such method of average use calculation was utilized for any category of service to which the District did not have clear measurement data.

Additionally, prior to the current rates set by the District, it had certain free accounts for nonprofits, such as schools, cemeteries, and churches. In the Cost of Service Study, Entrix recommended that the District discontinue these accounts. [167 Cal.Rptr.3d 695] The District followed this recommendation in its new rate structure.

The Cost of Service Study was explained to the public in a workshop on March 17, 2009. In that presentation, Entrix explained in general terms the Cost of Service Study and the potential rate structures developed from it. Though Entrix's scope of work allowed it to make final minor edits to the

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Cost of Service Study after the workshop if necessary, there is no indication in the record that Entrix made any additional changes. As such, the February 13, 2009 Cost of Service Study was the final version of that study.

The Rate Change Notice

On February 19, 2009, the District mailed proposed rate notices in both English and Spanish to all affected property owners. The District took great care to ensure that it had an accurate list of all its customers. The rate notices provided the rates that were being proposed for the District water service and referenced the District rate regulations, the basis for the new charges, and description of the Cost of Service Study, including a website that would allow customers to review the study. The rates provided in the notice were generally the ones recommended by the District's finance department based on the Cost of Service Study annual rate, but less than the amounts called for in the Cost of Service Study's single uniform rate. Because the exact amounts that might be charged to a specific customer were unknown given that the rates were mainly for amounts of water consumed, the District provided average impact examples.

The notice informed the District's customers that they had the right to protest the rate increases and explained the protest procedure. The notice included a protest form. Additional protest forms were available at the District headquarters and on the District's website. The notice set forth the time and location of the hearing (5:00 p.m. on April 7, 2009 at the William Condit Auditorium) on the proposed rate increase where the protest votes would be counted.

The Protest Process

The protest forms requested property owners and tenant customers to identify the assessor's parcel number (APN), the District account number, and canal-gate-field (CGF) designation for each parcel being protested and identify the person or entity submitting the protest. The protest notice indicated where, how, and when the protests were to be submitted.

To allow for the greatest meaningful participation in the protest by all District water service customers, the District determined that protests would be considered by the CGF designation as a " parcel" because the District

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generally delivers water to particular fields at gates. Water delivery points within the District service area received CGF designation as provided on water bills. Each CGF designation was related to the APN at that CGF location.

There were 9,929 unique CGF parcels and 12,642 unique APNs. Each owner or tenant customer had the opportunity to submit a protest. The District counted every protest that was properly submitted by an owner or tenant customer of a CGF parcel or APN. The District liberally applied the rules so as to give as much opportunity for protest as possible. For example, a protest was accepted even if it technically violated the rules by not being turned in at the correct location, or it contained the wrong APN or CGF designation or had invalid account numbers, as long as the District could determine the correct information. If only one gate was listed, and no fields (multiple fields may be served by one gate) then the District [167 Cal.Rptr.3d 696] counted protests for all the fields served by that gate. Generally, the District attempted to correct the errors so the maximum number of protests could be counted.

The protests by owners/tenants were then counted by parcel per section 6 and Government Code section 53755, subdivision (b). Of the 9,928 CGF parcels, 4,018 of the parcels protested, a 40.47 percent protest rate. Of the 12,642 APNs, 3,950 parcels protested, a 31.25 percent protest rate. Therefore, under either method of parcel description, the protests did not pass the 50 percent threshold.

The District's Board Action

After the District staff counted the protests, the results were explained to the District Board. The District's general counsel noted that the Board could pass rates lower than those that were noticed, but not higher rates.

The District Board discussed the rates at length. Included in the discussion were concerns about: (a) raising agricultural rates; (b) municipal rates having already been increased significantly in 2005; and (c) other sources of possible income and cost-cutting. Ultimately, the board decided to increase the rates, except for municipal, which had been raised more recently, and industrial rates, which was the subject of further study tied to the integrated water resource management plan. Because the District's Board decided to not immediately raise the general agriculture rate to the $20 per acre-foot contained in the mailed, written notice, but to instead start at $18 per acre-foot and move to $20 gradually, the related rates that tiered off that agricultural rate were adjusted accordingly.

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On July 21, 2009, the results of the rate protest were presented to the District Board and the Board adopted the water rate increases.

The Litigation

The Individuals and Farm Bureau filed their initial complaint in case No. ECU04936 on January 16, 2009. The complaint was amended after the mailing of the notices of the proposed rate change. The first amended complaint included allegations that the District's written notice and protest forms were defective, the protest procedure was improperly conducted, plaintiffs were entitled to information concerning potential protesters in any proceeding under sections 4 or 6, and the Cost of Service Study was defective. [4]

On September 21, 2009, Plaintiffs commenced a new action in case No. ECU05549. The complaint in that action echoed the same allegations in the operative complaint in case No. ECU04936.[5] In addition, plaintiffs also added three new causes of action alleging that the District had improperly counted the protests.

The parties stipulated to consolidate case No. ECU05549 with case No. ECU04936 with the operative complaint becoming the complaint from the latter filed case.

The case was tried via bench trial on April 13 and 14, 2011. At the conclusion of [167 Cal.Rptr.3d 697] the proceedings, the trial court announced its rulings, and on June 16, 2011, the court filed a pleading entitled " Statement of Decision After Hearing and Order Thereon" (statement of decision). In regard to the rate changes and the District's process for approving those rate changes, the court found: (1) the written notice of the proposed rate changes complied with section 6; (2) the new rates were not disproportionate to the cost of service; (3) plaintiffs were not entitled to the roll of protestors; (4) the Cost of Service Study was not defective; (5) there was no impropriety in the protest procedure; and (6) minor variations between the proposed and adopted water rates

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did not invalidate the Cost of Service Study or render the new rates disproportionate to the cost of providing service. [6]

On June 20, 2011, the District filed a notice of entry of judgment with the statement of decision attached. The Individuals and Farm Bureau timely appealed.

DISCUSSION

I

APPEALABILITY OF THE STATEMENT OF DECISION

There is no indication in the record that the court ever entered judgment following the statement of decision. " The general rule is that a statement or memorandum of decision is not appealable. [Citations.] The rule's practical justification is that courts typically embody their final rulings not in statements of decision but in orders or judgments. Reviewing courts have discretion to treat statements of decision as appealable when they must, as when a statement of decision is signed and filed and does, in fact, constitute the court's final decision on the merits." ( Alan v. American Honda Motor Co., Inc. (2007) 40 Cal.4th 894, 901, 55 Cal.Rptr.3d 534, 152 P.3d 1109.) Here, the statement of decision included a section entitled " Order on Causes of Action asserted by Plaintiff, Interested Party." This section addressed every cause of action asserted in the operative complaint and either dismissed them as moot or adjudicated them in favor of the District. The court clearly intended the statement of decision to constitute its final decision on the merits. No party argues otherwise. As such, we exercise our discretion and treat the statement of decision as the appealable, final judgment in this matter. ( Ibid .; see Griset v. Fair Political Practices Commission (2001) 25 Cal.4th 688, 698, 107 Cal.Rptr.2d 149, 23 P.3d 43; Jacobs-Zorne v. Superior Court (1996) 46 Cal.App.4th 1064, 1070, 54 Cal.Rptr.2d 385.)

II

PROPOSITION 218

Proposition 218 is a further limitation on government's imposition of taxes that began with the adoption of Proposition 13 in 1978.

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( Silicon Valley Taxpayers' Assn., Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431, 442-443, 79 Cal.Rptr.3d 312, 187 P.3d 37 ( Silicon Valley ).) It created a new category of property-related fees subject to its provisions. (§ 2, subd. (e) [" ‘ Fee’ or ‘ charge’ means any levy other than an ad valorem tax, a special tax, or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a [167 Cal.Rptr.3d 698] property related service." ].) Proposition 218 limits the imposition of taxes, assessments, or fees on property or on people as an incident of property ownership except as authorized. (§ 3.) As relevant to the issues raised here, it established new procedural and substantive requirements for the imposition of property-related fees. (§ 6, subds. (a), (b).) It also shifted to agencies the burden to demonstrate the lawfulness of the challenged fees. (§ 6, subd. (b)(5).)

A. The Required Protest Procedure

Farm Bureau's primary contention, joined by the Individuals, involves the protest procedures the District used in allowing its customers to disapprove of the proposed rate increases. Farm Bureau argues that section 6 requires the District to use individual fee protest procedures. Farm Bureau reasons that because the District proposed different rate increases across its spectrum of customers, each rate increase should have been subject to its own, separate protest process with only those customers voting who would be affected by the specific rate increase. Thus, according to Farm Bureau, the District should have calculated whether a majority of the customers protested the rate increase based on each individual protest group or rate class. The District counters, asserting that section 6 permits the protest process used here, namely an omnibus procedure where all its customers were permitted to vote on a new system of rate increases. To resolve this dispute, we must interpret section 6.

Ordinarily, " [r]ules of construction and interpretation that are applicable when considering statutes are equally applicable in interpreting constitutional provisions." ( County of Fresno v. Malmstrom (1979) 94 Cal.App.3d 974, 979, 156 Cal.Rptr. 777.) " The interpretation of a statute ... is a question of law, and we are not bound by evidence presented on the question in the trial court." ( California Teachers Assn. v. San Diego Community College Dist. (1981) 28 Cal.3d 692, 699, 170 Cal.Rptr. 817, 621 P.2d 856.) " When interpreting a provision of our state Constitution, our aim is ‘ to determine and effectuate the intent of those who enacted the constitutional provision at issue.’ [Citation.] When, as here, the voters enacted the provision, their intent governs. [Citation.] To determine the voters' intent, ‘ we begin by examining the constitutional text, ...


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