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City and County of San Francisco v. Regents of University of California

California Court of Appeals, First District, First Division

May 25, 2017

CITY AND COUNTY OF SAN FRANCISCO, Plaintiff and Appellant,
REGENTS OF THE UNIVERSITY OF CALIFORNIA et al., Defendants and Respondents.

         San Francisco County Superior Court No. CPF-14-513-434 Trial Judge: Hon. Ernest H. Goldsmith Hon. Marla J. Miller

          Counsel for Plaintiff and Appellant: Dennis J. Herrera; City Attorney, Jean H. Alexander; Chief Tax Attorney, Peter J. Keith; Deputy City Attorney

          Counsel for Defendant and Respondent, Kamala D. Harris; Attorney General of California, Paul D. Gifford; Senior Assistant Attorney General, Joyce E. Hee; Supervising Deputy Attorney General, David Lew; Deputy Attorney General, Robert E. Asperger; Deputy Attorney General, Benjamin P. Fay, Gabriel McWhirter; Jarvis, Fay, Doporto & Gibson, LLP, Elise Traynum, General Council; UC Hastings College of the Law, Charles F. Robinson, Karen J. Petrulakis, Margaret L. Wu; The Regents of the University of California Office of the General Counsel.

          Humes, P.J.

         This case asks us to decide whether the City and County of San Francisco can compel state universities that operate parking lots in the city to collect city taxes from parking users and remit them to San Francisco. The answer turns on whether the California Constitution's “home-rule provision”-which grants charter cities broad powers, including the power to tax-creates an exception to the long-recognized doctrine that exempts state entities from local regulation when they are performing governmental functions. We conclude that it does not. As a result, we affirm the trial court's denial of San Francisco's petition for writ of mandate.

         I. Background

         For over 40 years, San Francisco has had an ordinance that imposes a tax on parking lot users for the “rent” paid to occupy private parking spaces in the city. (S.F. Bus. & Tax Regs. Code, art. 9, §§ 602, 606; see City and County of San Francisco v. Flying Dutchman Park, Inc. (2004) 122 Cal.App.4th 74, 80.) Since 1980, the amount of the tax has been 25 percent of the rent. (S.F. Bus. & Tax Regs. Code, art. 9, §§ 602, 602.5.) Under the ordinance, parking lot users owe the tax, but parking lot operators are required to collect the tax when the users pay to park. (Id., art. 9, §§ 603, 604, subd. (a).) The operator is required to hold the collected taxes in trust for, and periodically remit them to, San Francisco. (Id., art. 6, §§ 6.7-1, 6.7-2.) If an operator fails to collect a parking tax from a user, the operator is liable for it. (Id., art. 6, § 6.7-1, subd. (d); id., art. 9, § 604, subd. (a).)

         The ordinance states it is not to be construed as imposing a tax on the state or its political subdivisions. (S.F. Bus. & Tax Regs. Code, art. 6, § 6.8-1, subd. (a)(2).) Still, these “exempt” entities must “collect, report, and remit” the tax (id., art. 6, § 6.8-1, subd. (b); id., art. 9, § 601, subd. (a)), pay any taxes that they fail to collect (see id., art. 9, § 604, subd. (a)), and comply with various administrative obligations, such as obtaining a certificate of authority to operate a parking lot; maintaining a log of, and bearing the burden of explaining, all lost parking tickets and cancelled transactions (id., art. 9, § 604, subd. (c)); and filing monthly parking tax returns (id., art. 6, § 6.7-2, subds. (b) & (c)).

         The defendants, which we will refer to as the universities, are the Regents of the University of California (Regents), which is responsible for the operation of the University of California at San Francisco (UCSF); the Board of Directors of Hastings College of the Law (Hastings); and the Board of Trustees of the California State University (CSU), which is responsible for the operation of San Francisco State University (SFSU). The universities operate parking lots within San Francisco on property that is mostly owned by the state. All of these lots are in close proximity to other university facilities. Students, faculty, administrators, guests, patients at certain medical facilities, and with a few exceptions, members of the general public may pay to park in them.

         The universities have never collected or remitted city parking taxes. In 1983, San Francisco tried to recover an alleged parking-tax deficiency from UCSF, but the Regents claimed immunity and San Francisco dropped the matter. The current controversy was prompted almost 30 years later, when in 2011 San Francisco directed the universities to start collecting and remitting the parking tax. After the universities refused, San Francisco petitioned the trial court for a writ of mandate to force compliance. The court denied the writ, ruling that the universities are immune from complying with the ordinance because they have not expressly consented to collecting and remitting the tax and their parking-lot operations are a governmental, not a proprietary, function.

         II. Discussion

         A. The Standard of Review.

         “ ‘In reviewing a trial court's judgment on a petition for writ of ordinary mandate [brought under Code Civ. Proc., § 1085], we apply the substantial evidence test to the trial court's factual findings. However, we exercise our independent judgment on legal issues....' ” (City of Oakland v. Oakland Police and Fire Retirement System (2014) 224 Cal.App.4th 210, 226.) Where, as here, the facts are undisputed, the issue whether a state entity is exempt from complying with a local ordinance presents a question of law that we review de novo. (Bame v. City of Del Mar (2001) 86 Cal.App.4th 1346, 1354 (Bame); see also California Public Records Research, Inc. v. County of Stanislaus (2016) 246 Cal.App.4th 1432, 1443.)

         B. The Parties' Constitutional Powers.

         San Francisco is a charter city, and as such it has broad powers by virtue of the California Constitution's home-rule provision. (Cal. Const., art. XI, § 5, subd. (a).) These powers include the authority to “make and enforce all ordinances and regulations in respect to municipal affairs, subject only to restrictions and limitations provided in [its] several charters.” (Ibid.)The “power to tax for local purposes clearly is one of the privileges accorded chartered cities by [the home-rule provision].” (Weekes v. City of Oakland (1978) 21 Cal.3d 386, 392 (Weekes).)

         The universities' constitutional powers are similarly substantial. The Regents governs a statewide system of campuses, including UCSF, and is vested with “full powers of organization and government” and has “all the powers necessary or convenient for the effective administration of [the University of California's] trust, ” including “the management and disposition of the property of the university.” (Cal. Const., art. IX, § 9, subds. (a) & (f).) “Article IX, section 9, grants the [R]egents broad powers to organize and govern the university and limits the Legislature's power to regulate either the university or the [R]egents. This contrasts with the comprehensive power of regulation the Legislature possesses over other state agencies.” (San Francisco Labor Council v. Regents of University of California (1980) 26 Cal.3d 785, 788.)

         Hastings is “affiliated with the University of California and is the law department thereof, ” and it is governed by a Board of Directors appointed by the Governor and approved by the Senate. (Ed. Code, §§ 92201, 92206.) Its mission is to “afford facilities for the acquisition of legal learning in all branches of the law.” (Id., § 92202.)

         Lastly, CSU is a constitutionally authorized “state agency created by the Legislature in the field of public higher education which is charged with the management, administration, and control of the State College System of California.” (Cal. Const., art. XX, § 23; Ed. Code, §§ 66600 et seq., 89000 et seq.) The CSU system is governed by a board of trustees. (Ed. Code, § 66600.) SFSU is part of this system, and its structure and mission are set forth in state statutes. (Id., § 89001 et seq.)

         C. The Doctrine Exempting State Entities from Local Regulation.

         Over 60 years ago, our state Supreme Court held that when the state “engages in such sovereign activities as the construction and maintenance of its buildings, as differentiated from enacting laws for the conduct of the public at large, it is not subject to local regulation unless the Constitution says it is or the Legislature has consented to such regulation.” (Hall v. City of Taft (1956) 47 Cal.2d 177, 183 (Hall).) Under this doctrine, courts evaluate whether the endeavor in which a state entity is engaged is a “sovereign activit[y].” (Ibid.)If it is, the state entity is exempt from complying with local regulation unless constitutional or statutory provisions provide otherwise.[1] (Hall, at p. 183.)

         In the decades since Hall, courts have applied the doctrine to bar attempts by local jurisdictions to regulate state entities engaged in governmental activities. (See, e.g., Bame, supra, 86 Cal.App.4th at p. 1357 [state agricultural district's operation of fairground governmental activity and therefore operators contracting with district exempt from local regulation]; Laidlaw Waste Systems, Inc. v. Bay Cities Services, Inc. (1996) 43 Cal.App.4th 630, 637-639 (Laidlaw) [school district is state agency exempt from city regulations involving trash collection]; Del Norte Disposal, Inc. v. Department of Corrections (1994) 26 Cal.App.4th 1009, 1015 [“state prisons are matters of state, not local, concern” and their operations therefore exempt from local ordinance giving exclusive franchise to certain trash hauler]; City of Santa Ana v. Board of Education (1967) 255 Cal.App.2d 178, 180 [same as Laidlaw].)

         The doctrine has specifically been applied to bar a charter city's attempt to regulate the construction of a university building by the Regents. In Regents of University of California v. City of Santa Monica (1978) 77 Cal.App.3d 130, the Court of Appeal cited Hall in holding that Santa Monica could not force the Regents to obtain a building permit and pay city inspection fees as a condition for constructing a university building in the city. (Id. at p. 136.) In concluding that constructing university buildings is a governmental activity, the court pointed to the constitutional provision that vests the Regents with “ ‘the legal title and management of [the] property of the University of California' ” and gives it “the unrestricted power to take and hold real and personal property for the benefit of the university.” (Ibid.; see Cal. Const., art. IX, § 9, subd. (f).)

         While courts since Hall have barred local regulation of state entities engaged in governmental activities, they have allowed local regulation of state entities engaged in proprietary activities. In Board of Trustees v. City of Los Angeles (1975) 49 Cal.App.3d 45, the Court of Appeal held that Los Angeles, a charter city, could regulate a circus held on property owned by CSU at Northridge. (Id. at p. 47.) The court determined that the doctrine exempting state entities from local regulation was inapplicable because the circus operations were a “revenue-producing activity” that had “no relation to the governmental functions of the university.” (Id. at p. 50.) Similarly, in City of Modesto v. Modesto Irrigation Dist. (1973) 34 Cal.App.3d 504 (City of Modesto), the Court of Appeal held that Modesto could require state irrigation districts to collect a tax imposed on users of the districts' electricity because “an irrigation district which manufactures, distributes[, ] and sells electrical energy, in competition with public service corporations, is engaged in a proprietary activity.” (Id. at pp. 506-507.)

         Thus, the analytical framework under the doctrine is straightforward: state entities are exempt from otherwise-valid local regulation when they are engaged in governmental activities unless a constitutional provision or statute says they are not exempt. (Hall, supra, 47 Cal.2d at p. 183.) While state entities are free to comply voluntarily with local measures to further the public interest, and we expect they often do, they cannot be forced to comply with those measures when they are performing their governmental functions.

         D. The Universities Are Exempt from the Ordinance Under the Doctrine Recognized in Hall.

         Applying Hall's analytical framework to the case before us, we conclude that the doctrine exempting state entities from local regulation defeats San Francisco's effort to compel the universities to comply with the ordinance.[2] The universities' parking operations are governmental activities, and the universities are therefore exempt from the ordinance, as it is undisputed that no constitutional provision or statute provides otherwise.

         As we have mentioned, the state's exemption from local regulation “is limited to situations where [a state entity] is operating in its governmental capacity” as opposed to engaging in “proprietary activity.” (Bame, supra, 86 Cal.App.4th at p. 1356.) This distinction between governmental and proprietary activity “remains viable in the context of encroachment of municipal regulations” even though it “is no longer applicable to determine governmental tort liability [under principles of sovereign immunity], ” the area in which it developed. (Ibid.; 8 Witkin, Summary of Cal. Law (10th ed. 2005) Constitutional Law, § 991.) “The scope of the relevant inquiry is defined by the particular activities in question” and whether they are related to the state entity's governmental purposes. (Bame, at p. 1357.)

         The trial court found that the universities are furthering governmental purposes in operating their parking lots, and we agree. As the court explained, the undisputed evidence established that providing parking for students, faculty, staff, and visitors is integral to the universities' educational and, in the case of the UCSF hospitals, clinical purposes.

         As to UCSF, the trial court found that the “parking facilities are used for staff, faculty, students, researchers, patients receiving inpatient and outpatient care, and visitors. Parking facilities are critical to UCSF because it is located in a densely populated urban environment and is a very decentralized campus. UCSF's parking facilities are important in meeting [its] clinical and life-safety mission, ” and “UCSF uses its parking fee revenue to fund a shuttle bus service for students, faculty[, ] and staff between its various locations, including San Francisco General and the VA Hospital.”

         As to Hastings, the trial court found that “[t]he garage provides access to the campus”-which “is located in an urban area with limited street parking”-“for students, faculty, staff, [and] others who attend events [there].” The garage also “plays an important role in... Hastings'[s] effort to maintain a safe and secure environment for its students. The... library is open until 11:00 p.m. and even later during finals, ” and “[t]he garage provides a safe, well-lit[, ] and convenient way to leave the campus and encourage continued use of the library and other school facilities for study purposes.”

         Finally, as to CSU, the trial court found that “the operation of nine parking facilities on the SFSU campus constitutes an activity that is integral to CSU's educational mission and bears a direct and necessary relationship to its functioning. [SFSU] is located in an urban environment where available parking for students, staff[, ] and visitors in scarce. Each of CSU's parking stations provides ready access to campus facilities for those who cannot use public transportation to get there. The parking stations are also used by visitors to the [SFSU] campus for the purposes of attending meetings, lectures, arts performances[, ] and other educational events.”

         In challenging the trial court's determination that the operation of the universities' parking lots is a governmental activity, San Francisco contends that “[t]he essential question in the analysis... is whether the municipal provision regulates the ‘main purpose' of the [state] agency.” (Quoting City of Modesto, supra, 34 Cal.App.3d at p. 507.) It argues that the universities' “main purpose is not to provide parking, let alone paid parking, ” but “is education. The tax here, however, is not on the education of undergraduates, training in medicine, training in law, or the like. It is on paid parking.”

         We reject San Francisco's cramped view that the universities' governmental role is to provide education but nothing related to it. To be sure, we agree with San Francisco that an activity is not necessarily governmental just because it generates revenue used to support a state entity's purpose. (See, e.g., Board of Trustees v. City of Los Angeles, supra, 49 Cal.App.3d at pp. 47, 49-50; City of Modesto, supra, 34 Cal.App.3d at p. 507.) But operating university parking lots is not simply a revenue-generating endeavor; it is an activity that directly supports the universities' educational and clinical functions by enabling students, staff, and visitors to access university programs and facilities.

         Even if operating parking facilities might fall outside the governmental mission of some state entities, it is within the mission of the universities. All of them are directly or indirectly empowered to operate parking facilities by constitutional or statutory provisions that allow them generally to manage their facilities and real estate or specifically to provide parking. (Cal. Const., art. IX, § 9, subd. (f) [Regents vested with “management... of... property”]; Ed. Code, §§ 89701, subd. (a) [CSU “authorized to... construct, operate, and maintain motor vehicle parking facilities”], 92202 [Hastings “shall afford facilities” for legal learning].)

         Because the universities' parking operations support the universities' educational and clinical programs and are directly or indirectly authorized by constitutional or statutory provisions, we reject San Francisco's argument that they are a proprietary activity falling outside the doctrine exempting state entities from local regulation.

         E. There Is No Exception to the Doctrine Exempting State Entities from Local Regulation for Charter Cities' Tax-related Measures.

         San Francisco maintains that Hall's analytical framework is inapplicable because the ordinance's collection-and-remittance requirement is not “regulatory” but is instead a “revenue measure.” Although San Francisco does not dispute that the universities are exempt from paying local taxes themselves, it contends that the home-rule provision confers on charter cities the authority to require state entities to undertake “reasonable measures” to collect and remit local taxes. In other words, San Francisco asserts that, even though state entities are exempt from local taxes and local regulatory measures, they are not exempt from local measures requiring them to collect and remit taxes. We are not persuaded. San Francisco's argument draws from the law governing state preemption, but that law is largely inapplicable, and even under that law, the distinction between tax and regulatory measures has been abandoned. Our state Supreme Court has never endorsed extrapolating such a distinction to the doctrine exempting state entities from local regulation, and we decline to do so for the first time here.

         We begin by reiterating our agreement with San Francisco that the home-rule provision confers broad powers on charter cities. “Charter cities are specifically authorized by our state Constitution to govern themselves, free of state legislative intrusion, as to those matters deemed municipal affairs.” (State Building and Construction Trades Council of California v. City of Vista (2012) 54 Cal.4th 547, 555.) The home-rule provision “represents an ‘affirmative constitutional grant to charter cities of “all powers appropriate for a municipality to possess...” and [includes] the important corollary that “so far as ‘municipal affairs' are concerned” charter cities are “supreme and beyond the reach of legislative enactment.” ' ” (Id. at p. 556; see California Fed. Savings & Loan Assn. v. City of Los Angeles (1991) 54 Cal.3d 1, 11-18 (California Federal).) As we have observed, these broad powers include the power to tax. (Weekes, supra, 21 Cal.3d at p. 392.)

         But no Supreme Court case has intimated, and no Court of Appeal decision has directly held, that these broad powers trump the doctrine exempting state entities from local regulation. At least two Court of Appeal cases have explicitly held that they do not. In the first, Laidlaw, supra, 43 Cal.App.4th 630, the plaintiff argued that the home-rule provision authorized charter cities to regulate state entities engaged in governmental activities so long as the cities were regulating matters pertaining to municipal affairs, in that case garbage collection. In emphatically rejecting the argument, the Court of Appeal stated, “[This] argument confuses the issues of preemption and sovereign immunity. The issue... is not [as it would be under preemption analysis] whether the City has [authority under the home-rule provision] over garbage collection within its city limits. Unquestionably, local governments have that authority.... [Citations.]

         The issue here is not preemption; the issue is whether state agencies are exempt from local trash collection regulations under the doctrine of sovereign immunity. Hall, City of Santa Ana, and Del Norte make clear state agencies are indeed immune from such local regulation absent an express legislative or constitutional waiver of that immunity. Since the question is one of immunity, not preemption, it makes no difference whether the local governmental entity is a charter city as opposed to some other form of local government. The sovereign immunity of a state agency from local regulation does not depend upon the source of the local governmental entity's authority to make regulations, it depends upon whether consent to regulation has been expressly stated by the Legislature or in the state Constitution.”

         (Laidlaw, at pp. 638-639, italics added.) Laidlaw's holding that charter cities' powers under the home-rule provision do not overcome state entities' exemption from local regulation was decisively confirmed in Bame. Quoting Laidlaw at length, Bame repeated that the source of a city's authority is irrelevant to the analysis. (Bame, supra, 86 Cal.App.4that pp. 1355-1356.)

         We take a moment to briefly discuss preemption because, as did the plaintiffs in Laidlaw and Bame, San Francisco and the dissent conflate principles of preemption with the doctrine exempting state entities from local regulation. “ ‘Under article XI, section 7 of the California Constitution, “[a] county or city may make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general [state] laws.” [¶] “If otherwise valid local legislation conflicts with state law, it is preempted by such law and is void.” [Citations.] [¶] “A conflict exists if the local legislation ‘ “duplicates, contradicts, or enters an area fully occupied by general law, either expressly or by legislative implication.” ' ” ' ” (O'Connell v. City of Stockton (2007) 41 Cal.4th 1061, 1067, italics omitted.) The consequence of the preemption of a local measure is that the measure is unenforceable against anyone. In contrast, the consequence of the application of the doctrine exempting state entities from local regulation is that the measure is unenforceable only against state entities. Thus, the law governing preemption has little to do with the doctrine exempting state entities from local regulation. Preempted local measures are unenforceable against state entities because they are void, not because of anything having to do with these entities' governmental status.

         Until our state Supreme Court stepped in, some appellate courts had treated charter cities' tax measures as different from, and weightier than, other regulatory measures in considering whether they were unenforceable against anyone because they conflicted with, and were therefore preempted by, state law. (California Federal, supra, 54 Cal.3d at pp. 13-14.) California Federal rejected this distinction and held that both types of measures, tax and non-tax, are subject to the same preemption analysis, which requires courts to focus on whether an actual conflict exists between the local measure and the state's governance in the field. (Id. at p. 7.) The Court explained, “In the event of a true conflict between a state statute reasonably tailored to the resolution of a subject of statewide concern and a charter city tax measure, the latter ceases to be a ‘municipal affair' to the extent of the conflict and must yield.” (Ibid.) The heart of California Federal'sholding was that a charter city's measure, whether tax-related or regulatory in some other sense, is void under the law of state preemption only if it truly conflicts with state law. Since California Federal, courts reviewing a charter city's measure to determine whether it is preempted consider the extent to which it conflicts with state law, regardless of whether the measure is tax-related.

         The two main cases that San Francisco relies on in urging us to adopt the distinction between tax-related and other local measures are Court of Appeal decisions announced before California Federal and involving circumstances far different than those presented here. Oakland Raiders v. City of Berkeley (1976) 65 Cal.App.3d 623 involved a Berkeley ordinance requiring private businesses pay a gross-receipts tax. (Id. at p. 626.) The Court of Appeal held that this tax could be imposed on a private business even though the business leased property from the University of California. Referring to the pre-California Federal distinction between tax and other local measures, the court stated that “whether or not the state law has occupied the field of regulation, cities may tax businesses carried on within their boundaries, ” including a business that is a “lessee of publicly owned property.” (Id. at pp. 626-627.) Similarly, City of Los Angeles v. A.E.C. Los Angeles (1973) 33 Cal.App.3d 933 authorized a charter city, Los Angeles, to impose a gross-receipts tax on a private business that was performing contract work for the state because there was no “state statutory scheme which preempt[ed] the area of taxation in which the City business tax operate[d].” (Id. at pp. 939-940.) The holdings in these cases do not apply to the case at hand. The issue here is whether the universities are exempt from collecting and remitting the parking tax, not whether third parties can avoid the tax by virtue of their business relationship with the universities or principles of state preemption.

         In arguing that charter cities' power to tax under the home-rule provision authorizes charter cities to require state entities to collect and remit taxes, San Francisco and the dissent also rely on an alternative rationale used by the Court of Appeal in reaching its holding in the decades-old case of City of Modesto, supra, 34 Cal.App.3d 504. In our view, that reliance is misplaced. In City of Modesto, Modesto, a charter city, imposed a tax on users of water, gas, electricity, and telephone services and required providers of those services to collect the tax. (Id. at p. 506.) As a consequence, the city sought to compel two state irrigation districts that sold electricity to city users to collect the tax. (Id. at pp. 505-506.) Although the districts conceded that the city had the power to impose the local tax on its residents, they claimed that they were not required to collect those taxes because if that power were ...

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