California Court of Appeals, Fourth District, First Division
from a judgment of the Superior Court of San Diego County No.
37-2016-00041207- CU-MC-CTL, Richard E. L. Strauss, Judge.
Offices of Ronald A. Marron, Ronald A. Marron and Michael T.
Houchin for Plaintiffs and Appellants.
W. Elliott, City Attorney, and Carmen A. Brock, Deputy City
Attorney, for Defendant and Respondent City of San Diego.
Colantuono, Highsmith & Whatley, Michael G. Colantuono
and Ryan Thomas Dunn for Defendant and Respondent San Diego
Tourism Marketing District Corporation.
Reid and Serena Wong (collectively Plaintiffs) sued the City
of San Diego (City) and the San Diego Tourism Marketing
District (TMD) (together, Defendants) in a putative class
action complaint, challenging what they allege is "an
illegal hotel tax." The trial court sustained
Defendants' demurrer without leave to amend on statute of
limitations and other grounds. We affirm, concluding some of
the causes of action are time-barred and the remainder fail
to state facts constituting a cause of action.
FACTUAL AND PROCEDURAL BACKGROUND
Legal Background-The Procedural Ordinance and 2008
the Property and Business Improvement District Law of 1994
(PBID of 1994) (Sts. & Hy. Code,  §§ 36600
et seq.), private property owners in a geographical area can
initiate formation of a business improvement district to
assess themselves fees to be spent promoting their
businesses. (See Epstein v. Hollywood Entertainment Dist.
II Bus. Improvement Dist. (2001) 87 Cal.App.4th 862,
the City enacted the Tourism Marketing District Procedural
Ordinance, San Diego Municipal Code (Municipal Code) section
61.2501 et seq. (Procedural Ordinance). The Procedural
Ordinance, an exercise of the City's charter-city
authority to establish legislative authority for assessments,
is modeled after the PBID of 1994.
Procedural Ordinance authorized the TMD to be established for
five years "to retain and expand the lodging industry
which is one of the top revenue generators for the San Diego
economy and a key employment sector." The TMD is managed
by the San Diego Tourism Marketing District Corporation (TMD
Corporation). The guiding document for the TMD is the San
Diego Tourism Marketing District Management Plan (TMD Plan).
"coordinated joint marketing" and "promotional
activities for tourism development, " the Procedural
Ordinance authorized "the levy of assessments upon the
businesses to which the special and specific benefit from
those activities is conferred." (Mun. Code, §
61.2501, subds. (a) & (b), italics omitted.)
the Procedural Ordinance, in December 2007, the San Diego
City Council (City Council) passed a five-year resolution
levying assessments at the rate of 2 percent of gross room
revenue from transient stays for lodging businesses operating
in the City with 70 or more sleeping rooms.
the City's knowledge and approval, virtually all hotels
in the City pass the TMD assessment onto their guests. The
City oversees collecting the TMD assessment and ensures the
funds are spent consistent with the TMD Plan. During fiscal
year 2010, more than $22 million in assessments was collected
and disbursed to the San Diego Convention & Visitors
Bureau and other organizations promoting San Diego tourism
and "hotel room night consumption."
November 2010 California voters approved Proposition 26.
Proposition 26 sought to tighten existing restrictions on
local revenue-generating measures by defining "tax"
broadly to mean "any levy, charge, or exaction of any
kind imposed by a local government" that did not fall
within one of seven enumerated exceptions. It also required
the electorate to approve laws increasing taxes, and shifted
to the government the burden of demonstrating that any
charge, levy, or assessment is not a tax. (Cal. Const., art.
XIII C, § 1, subd. (e); see Schmeer v. County of Los
Angeles (2013) 213 Cal.App.4th 1310, 1322.)
2012 Renewal Assessment
San Diego hotel operators petitioned the City to renew the
TMD for another 39.5 years. On November 26, 2012, the City
Council adopted a resolution (R-307843) approving a renewed
TMD Plan and levied assessments for 39.5 years (the renewal
assessment). Under the renewal assessment, the City assessed
all hotels in the district, not just those with 70
or more rooms.
The SDOG Lawsuit
December 19, 2012, San Diegans for Open Government (SDOG)
filed an action challenging the renewal assessment as being
an unconstitutional tax in violation of Proposition 26,
San Diegans for Open Government v. City of San Diego
(Super. Ct. San Diego County, 2017, No.
37-2012-00088065-CU-MC-CTL) (the SDOG litigation). SDOG
alleged it is a "non-profit taxpayer and voter
organization" and asserted that one of its members owned
a single unit subject to the renewal assessment.
contend the judgment in the SDOG litigation bars
Plaintiffs' action here under claim preclusion (res
judicata) principles. To place those arguments in context, we
briefly describe the SDOG litigation.
SDOG lawsuit named as defendants "City of San Diego; and
all persons interested in the matter of the renewal of the
[TMD], the levying of assessments upon the assessed
businesses for a period of thirty-nine and one-half years,
and the prescribing of a method for collection of
assessments." Subsequently, the TMD Corporation also
appeared as a defendant.
operative complaint, SDOG alleged it brought the action
"under Code of Civil Procedure [s]ections 860 et seq.
and 1060 et seq., Streets and Highways Code [s]ection 36633,
and San Diego Municipal Code [s]ection 61.2526, among other
laws and as appropriate." After SDOG voluntarily
dismissed one cause of action and another was summarily
adjudicated in the City's favor, by 2016 "'[t]he
gravamen of SDOG's claim [was] that the TMD assessment is
an illegal tax that was euphemistically labeled an
"assessment" to get around the voter-approval
requirements'" in Proposition 26.
August 2016 Amendment
August 2016, while the SDOG litigation was pending, the City
Council adopted a resolution (R-310664) eliminating hotels
with fewer than 70 rooms from the TMD assessment (the 2016
amendment). The City believed the 2016 amendment was more
compliant with Proposition 26 because "[a]rguably, only
the larger hotels receive a direct benefit from the marketing
expenditures such that only the larger hotel operations
should be assessed."
Judgment in the SDOG Litigation
the 2016 amendment, the defendants in the SDOG litigation
moved for judgment on the pleadings, asserting (1) SDOG lost
standing because it claimed only one owner of one rental
property as a member, which was no longer subject to the
assessment; and (2) the action was moot because the 2012
renewal assessment was superseded by the 2016 amendment.
September 30, 2016, the trial court entered judgment for the
defendants in the SDOG litigation, ruling the action was
two months after the SDOG judgment, Reid filed the instant
action. The following month, Plaintiffs filed a first amended
complaint (complaint) "individually and on behalf of all
others similarly situated and the general public." The
class period is January 1, 2013 to August 31, 2016. Unlike
the SDOG litigation, Plaintiffs are alleged to be hotel
guests who paid the assessment as part of their
gravamen of Plaintiffs' claim is that the 2012 renewal
assessment is a disguised tax that violates Proposition 26
because it was never submitted to the electorate for a vote.
Plaintiffs allege that the City "uses the [TMD] as a
ruse to raise revenue for the general fund without having to
seek voter approval to impose a new tax." Plaintiffs
allege that Reid was charged TMD assessments for hotel stays
in December 2015 and March 2016, and Wong was charged such
assessments in December 2013, September 2014, and "on
other occasions during the [c]lass [p]eriod." The
complaint alleges that Plaintiffs and the class members
"paid this illegal 'hidden hotel tax' that
Defendants have disguised as a Tourism Marketing District
Assessment" by staying at one or more of the assessed
hotels during the period between January 1, 2013 and August
31, 2016. The complaint alleges the TMD assessment is
"really a 'tax'" within the meaning of
article XIII C, section 1, subdivision (e) of the California
Constitution and, because the TMD was formed without voter
approval as required by law, the City's imposition of the
TMD assessment is unlawful. The complaint challenges
"the legality of the TMD Procedural Ordinance" and
seeks a declaration of the parties' rights "with
respect to the TMD Operating Agreement dated November 26,
2012" [TMD Agreement] and the "TMD Management Plan
dated September 11, 2012 [TMD Plan]."
complaint contains five causes of action: (1) declaratory
relief that the TMD Plan and TMD Agreement are invalid
because the City lacked the legal capacity to authorize the
levy of the TMD assessment without first obtaining voter
approval as required by Proposition 26; (2) declaratory
relief challenging the TMD Procedural Ordinance as
unconstitutional because it "has imposed an illegal
tax"; (3) declaratory relief challenging the TMD
Procedural Ordinance as unconstitutional because it denies
equal protection by making classifications between business
owners with respect to the fundamental right to vote; (4)
waste of taxpayer funds; and (5) a petition for a writ of
mandate seeking a constructive trust and restitution of
"the amounts in which the [City] has been unjustly
enriched through its unlawful imposition of the TMD
demurred to the complaint, asserting the first (declaratory
relief Proposition 26 violation), fourth (taxpayer waste),
and fifth causes of action (writ of mandate) were barred by
(1) the res judicata effect of the judgment of dismissal in
the SDOG litigation and (2) either the 30-day statute of
limitations in Municipal Code sections 61.2517 and 62.2526,
subdivision (b) or the 60-day period for bringing a reverse
validation proceeding under Municipal Code section 61.2526,
subdivision (a) and Code of Civil Procedure section 860 et
seq. Defendants also asserted that the first cause of action
was moot because the 2012 renewal assessment had been
superseded by the August 2016 amendment.
demurred to the second cause of action (Procedural Ordinance
is an unconstitutional tax) on the grounds that the ordinance
does not itself impose anything, but "merely creates the
framework for the City Council to later do so."
demurred to the third cause of action (equal protection) on
the grounds a public entity may properly allow only those who
pay a levy to vote on its approval. Defendants also asserted
that Plaintiffs lacked standing to challenge the 2012 renewal
assessment because only owners or operators of hotels pay the
assessment to the City, and thus only they (and not hotel
guests) have standing.
the demurrer, Plaintiffs asserted the SDOG judgment had no
preclusive effects because that action was not a reverse
validation action and, in any event, judgment was not entered
on the merits. Plaintiffs also asserted the "primary
relief" sought is "equitable in nature" and,
therefore, "the statute of limitations set forth in the
validation statutes and the [Procedural Ordinance] simply do
not apply." Plaintiffs argued the validation statutes do
not apply because "this action does not involve the
issuance of bonds." Alternatively, plaintiffs asserted
that any limitation period was equitably tolled during the
pendency of the SDOG lawsuit. Plaintiffs asserted they had
standing because the assessed hotel owners and operators
"simply collect a tax that is imposed upon their hotel
guests." Plaintiffs asked for leave to amend if the
court was inclined to sustain the demurrer, but did not
specify what additional facts might be alleged.
court sustained the demurrer to the first, fourth, and fifth
causes of action "on the grounds the claims are barred
by the [60-day] statute of limitations" in Municipal
Code section 61.2526, subdivision (a) and Code of Civil
Procedure section 860 [validation statutes]. The court also
held such claims were precluded by the SDOG judgment. The
court sustained the demurrer to the second cause of action on
the grounds the Procedural Ordinance does not impose or
assess tax. Citing Salyer Land Co. v. Tulare Lake Basin
Water Storage Dist. (1973) 410 U.S. 719
(Salyer), the court sustained the demurrer to the
third cause of action (equal protection) on the grounds a
public entity may limit approval of an assessment to those
entities that pay it. Plaintiffs timely appealed from the
judgment of dismissal.
THE COURT CORRECTLY SUSTAINED THE DEMURRER
The Standard of Review
standards for reviewing a judgment of dismissal following the
sustaining of a demurrer without leave to amend are well
settled. '"'We treat the demurrer as admitting
all material facts properly pleaded, but not contentions,
deductions or conclusions of fact or law. [Citation.] We also
consider matters which may be judicially noticed.'
[Citation.] Further, we give the [complaint] a reasonable
interpretation, reading it as a whole and its parts in their
context. [Citation.] When a demurrer is sustained, we
determine whether the [complaint] states facts sufficient to
constitute a cause of action. [Citation.] And when it is
sustained without leave to amend, we decide whether there is
a reasonable possibility that the defect can be cured by
amendment: if it can be, the trial court has abused its
discretion and we reverse; if not, there has been no abuse of
discretion and we affirm. [Citations.] The burden of proving
such reasonable possibility is squarely on the
plaintiff."'" (Finch Aerospace Corp. v.
City of San Diego (2017) 8 Cal.App.5th 1248, 1251-1252.)
affirm "'if proper on any grounds stated in the
demurrer, whether or not the trial court acted on that
ground.'" (Melton v. Boustred (2010) 183
Cal.App.4th 521, 528.) "Thus, 'we do not review the
validity of the trial court's reasoning but only the
propriety of the ruling itself.'" (Popescu v.
Apple, Inc. (2016) 1 Cal.App.5th 39, 50.)
The First, Fourth, and Fifth Causes of Action Are Barred
by the 30-Day Statute of Limitations
The 30-day limitation period in Municipal Code section
Procedural Ordinance contains two separate 30-day statutes of
limitations for actions contesting ...