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Reid v. City of San Diego

California Court of Appeals, Fourth District, First Division

May 25, 2018

YVONNE REID et al., Plaintiffs and Appellants,
v.
CITY OF SAN DIEGO et al., Defendants and Respondents.

          APPEAL from a judgment of the Superior Court of San Diego County No. 37-2016-00041207- CU-MC-CTL, Richard E. L. Strauss, Judge. Affirmed.

          Law Offices of Ronald A. Marron, Ronald A. Marron and Michael T. Houchin for Plaintiffs and Appellants.

          Mara 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.

          NARES, J.

         Yvonne 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.

         I. FACTUAL AND PROCEDURAL BACKGROUND[1]

         A. Legal Background-The Procedural Ordinance and 2008 Assessment

         Under the Property and Business Improvement District Law of 1994 (PBID of 1994) (Sts. & Hy. Code, [2] §§ 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, 865.)

         In 2007 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.

         The 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).

         To fund "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.)

         Under 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.

         With 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."

         B. Proposition 26

         In 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.)

         C. 2012 Renewal Assessment

         In 2012 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.

         D. The SDOG Lawsuit

         On 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.

         Defendants 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.

         The 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.

         In the 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."[3] 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.

         E. August 2016 Amendment

         In 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."

         F. Judgment in the SDOG Litigation

         After 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.

         On September 30, 2016, the trial court entered judgment for the defendants in the SDOG litigation, ruling the action was "moot."

         G. Reid's Action

         Approximately 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 hotel bill.

         The 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]."

         The 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 Assessment."

         H. Demurrer

         Defendants 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.

         Defendants 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."

         Defendants 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.[4]

         Opposing 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.

         The 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.

         DISCUSSION

         II. THE COURT CORRECTLY SUSTAINED THE DEMURRER

         A. The Standard of Review

         "The 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.)

         We will 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.)

         B. The First, Fourth, and Fifth Causes of Action Are Barred by the 30-Day Statute of Limitations

         1. The 30-day limitation period in Municipal Code section 61.2517

         The Procedural Ordinance contains two separate 30-day statutes of limitations for actions contesting ...


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