JACKS v. CITY OF SANTA BARBARAAppellant's Response to Amicus Curiae BriefCal.November 12, 2015SUPREME ROHRT COPY em S$225589 IN THE SUPREME COURT OF THE STATE OF CALIFORNIA ROLLAND JACKSand ROVE ENTERPRISES, INC., Plaintiffs/Appellants Vv. CITY OF SANTA BARBARA Defendant/Respondent. ANSWERTO AMICUS CURIAE BRIEF OF THE LEAGUE OF CALIFORNIA CITIES After a Published Decision ofthe Second Appellate District, Division Six, Case No. B253474 Regarding a Judgmentofthe Superior Court of the State of California for the County of Santa Barbara Case No. 1383959 Honorable Thomas P. Anderle, Judge Presiding HUSKINSON, BROWN & HEIDENREICH, LLP David W.T. Brown (SBN 147321) Paul E. Heidenreich (SBN 116618) 1200 Aviation Boulevard, Suite 202 Redondo Beach, CA 90278 Telephone: (310) 545-5459 Email: huskinsonbrown@att.net Attomeys for Appellants ROLLAND JACKS,ET.AL. IL. TABLE OF CONTENTS INTRODUCTION ......... 0... ceccc eee ene 1-2 THE FACTUAL PREREQUISITES TO AMICUS’ CLAIMS ARE UNSUPPORTED ..... 2... ccceeeeens 2-16 A. THE FACTS REFUTE THE LEAGUE’S CLAIMS ........... 2 1. “This case challenges the ability of local governmentclaims to negotiate fees for the valuable use of their property by private, for-profit utilities.” 30)ene ee eeees 3,4 2. “The [lower court] Opinionplacesstrict limitations on the ability of local governments to adopt franchise fees...” [ACB at p.3] 0.0... eeecc cee eee teen ees 4 3. “The City granted only a temporary and -in franchise terms- brief extension of SCE’sprior franchise rights for a 1% fee. But the heart of the consideration the parties agreed to exchange was a 2% fee for a 30 year franchise.” [ACB p.4] ... 2. ce eee cece cee eet eee eee 4,5 4 4. “The City has no interest in or authority to direct the manner in which SCErecoversthe costs of its services.” [ACB p.5.] 0... eee eee eee n nee e eee 6,7 5. “If... any part of the franchise fee goes unpaid, SCE loses it franchise...” (ACB at p.6) 2.0... cece cece eee eens 7,8 6. After years of receiving a 1% franchise fee from SCE,the City sought to increase that fee to 2% beginning with a new franchise in 1999. SCE eventually agreed, and the City adopted the terms of their agreement by Ordinance No. 5135. Underthat agreement, the City granted a 30-year franchise “in exchange for” SCE’s agreement to pay 2% of its gross annual receipts—as defined—“as consideration . . . and as compensation for use ofthe streets in the City...” [ACB p. 10.] 2.0...eeeeee eee eens 8-11 7. “The City did not establish the mechanism SCEuses to recover the cost of its franchise from its customers.” [ACB p. 12] 0.06... eee cece eee eee ees 11, 12 8. “But the surcharge was not a requirementofthe City. The City has no interest in the manner SCE recovers the cost of paying a 2% fee. Nor does it have any legal authority to establish such a surcharge.” [ACB p. 13] 2...eeeeee teens 12, 13 9. “The franchise agreement provides that SCE ‘shall pay to the City’ the full 2% franchise fee.” [ACB p. 18] .....0.ccccesecceeeeeeeeeesecseneees 13-15 B. APPLICATION OF THEFACTS ..........0.-0. 000000: 15-16 Ill. PROPOSITION 26 AND PROPOSITION 218 .............005- 16-21 A. INTRODUCTION ..........00.0ceceeeeeeceeeeeeees 16-18 B. PROPOSITION 218 ........0..eccceceeeeeeeeeeees 18-20 C. FRANCHISE FEES .........0--.eccesceeseeeeeeees 20-21 IV. CONCLUSION ..........c0cccecceceeeeeeeeeeeeeeees tees21-22 CERTIFICATE OF COMPLIANCE PURSUANT TO CALIFORNIA RULES OF COURT REVISED RULE 14(c) .... 2... eee eee eens 23 PROOF OF SERVICE .... 1.ceeeeeee een e teens Wh TABLE OF AUTHORITIES * EK CASES City ofSanta Cruz v Pacific Gas & Electric Co. (2000) 82 Cal.App.4th 1167, 1171) ............ 00. e eee eee eae 20 Greene v Marin County Flood Control and Water Conservation District (2010) 49 Cal.4th 27720...1,18 Jacks v City ofSanta Barbara (2015)234 Cal.App.4th 925, 936 fn. 7 2.2.6... 18 Silicon Valley Taxpayers Association v. Santa Clara Open Space Authority (2008) 44 Cal.4th 431, 448 2...eeeeee ee 19 Tulare County v City ofDinuba (1922) 188 Cal. 664, 670 ..... 00... eee eee ee eee 18, 20, 21 KEK STATUTES California Public Utilities Commission Decision 89-05-63 [CPUC Recovery Guidelines] .............--- 222 eee eee passim Civil Code §3537 2... 0 ccccenteee e eet nee 2 PropoSition 13 01...eeteee 18 Proposition 26 0.0... 6c ccceeeeee eee ee 16, 17, 18 Proposition 218 [California Constitution Articles XIIIC and XIMD]............ passim Public Utilities Code §454 0.0.0...eceee enn eens 6 Public Utilities Code §§ 6201, et seq. (Franchise Act of 1937) .......... 10 ill Public Utilities Code §799 2.0.0.0... 0. cccnee ete e eee e ene 2 Santa Barbara City Ordinance 5135 [Santa Barbara 1999 Franchise Agreement] .................. passim aK ok CONSTITUTIONAL PROVISIONS California Constitution Article XM], §32 .......... 0.0 c cece eee 2,15 California Constitution Article XII C, §2(b) ........ 000.0. 21 California Constitution Article XUID [Proposition 218] ............. passim iv L. INTRODUCTION. The Amicus Curiae Brief [“ACB”] of the League of California Cities [“‘Amicus”or “League”] contendsthat this litigation is about a contractual relationship between the City of Santa Barbara [“City”] and Southern California Edison [“SCE”] and about contractual obligations that financially burden, and are paid directly by, SCE as compensation for SCE’s use of City rights-of-way. These claims are without merit or factual support. Asprovided by the Stipulations, Rolland Jacks and Rove Enterprises Inc. [“Plaintiffs”] and all utility users paid and pay the surcharge imposed by City Ordinance 5135.' The case does not addressfinancialobligations owed by SCE.” It is a Proposition 218 case, and Proposition 218 “protects taxpayers by limiting the methods by which local governments exact revenue from taxpayers without their consent.” Greene v. Marin County Flood Control and Water Conservation Dist (2010) 49 Cal.4th 277, 284-85. By paying their Ordinance 5135 surcharge obligations, the Plaintiffs andutility users obtained the due processright, pursuant to California ‘Pursuant to City Ordinance 5135, all PERSONSin the CITY receiving electricity from SCE are obligated to pay the 1% RECOVERY PORTION OF THE EXTENSION TERM FEE.”[Appellate Appendix [“AA”] volume3 at p. 679, Fact 16. [ie. AA 3:679]] “The SCE assessments, collections and remittance of the 1% RECOVERY PORTION OF THE EXTENSION TERM FEEwere required by Santa Barbara City Ordinance 5135... .” [AA 3:678,fact 8] 1 Constitution Article XIII section 32, to contest those financial burdens’. The ACBisirrelevant becauseit ignores the Plaintiffs’ rights, financial burdens, and constitutional protections. SCE is not a party to this action and did not pay a penny of the damages that are at issue. [AA 3:676- _ 681.] The League’s contradiction of the facts to contend that SCEis contractually indebted to pay the surcharges is unsupportable. Regardless of the numberoftimes that Amicus contendsthat Plaintiffs’ Ordinance 5135 financial burdens were SCE’s contract debts‘, the facts do not change. “Superfluity does not vitiate.” Civil Code § 3537. Il. THE FACTUAL PREREQUISITES TO AMICUS’ CLAIMS ARE UNSUPPORTED. A. THE FACTS REFUTE THE LEAGUE’S CLAIMS. ACBpresents a myriad of claims based upon “facts,” which are not facts at all. This Brief does not attempt to respond to every statement of “fact” but addresses representative misstatements offact. >The ACB,by essentially ignoring the Plaintiffs and their financial burdens, impliesthat utility users who pay the surcharge are irrelevant. However,it is SCEthatis irrelevant. Public Utilities Code § 799 and AA 2:407, section 7. ‘Thealleged split of the “economic” and “legal” incidence ofthe UUT [ACB p. 18] is ared herring for three primary reasons: (1) the City has no legal authority to split the alleged incidence of the UUT to avoid Proposition 218 duties, (2) Ordinance 5135 does not split the “incidence” ofthe tax, and, (3) pursuant to Article XIII section 32, the Proposition 218 causeof action presentsthe rights of utility users who pay the tax, not SCE whocollectsit. 2 1. “This case challengesthe ability of local governments to negotiate fees for the valuable use of their property by private, for-profit utilities.” [ACB p. 2] Response: First, the Complaint [AA 1:45-58 at paras 14,32, 34, 39-41 and 47], First Amended Complaint [AA 1:63-80 at paras 14, 16, 35, 38, 39, 43-45 and 52], Points and Authorities for Plaintiffs’ Motion for Summary Judgment [AA 1:81-110 at pp. 91:3-11, 92:6-10, 97:1-6, and 98:21 to 99:3], Plaintiffs’ Statement of Undisputed Facts for its MSJ [AA 2:480-499, Facts 13-27, 32 and 40], Plaintiffs’ Opposition to the City’s Motion for Summary Judgment [AA 3:533-556 at pp. 539:19-541:5, 542:2-10 and 542:15-544:1], Plaintiffs’ Opposition to the City’s Motion for Judgment on the Pleadings [AA 3:640-649 at pp. 641:1-6 and 642:23-644:3], Plaintiffs’ Opening Appellate Brief [pp. 1-2, 4-8 and 44-49], Plaintiffs’ Reply to the Respondent’s Briefat the Court of Appeal[pp.1-8], and Plaintiffs’ Supreme Court AnswerBrief [passim] expressly provide that the case is aboututility user payments only, not SCE contractual obligations. Second, the 1% surcharge is paid byutility users as required by City Ordinance. SCEis only a tax collector. As the parties stipulated: “g _.. The SCE assessments, collections and remittance of the 1% RECOVERY PORTION OF THE EXTENSION TERM FEE were required by Santa Barbara City Ordinance 5135... . 16. Pursuant to City Ordinance 5135, all PERSONSin the CITY receivingelectricity from SCE are obligated to pay the 1% RECOVERY PORTION OF THE EXTENSION TERM FEE. [emphasis added]” [AA 3:676-681] ACB misconstrues the issues in this legal action. [AA 1:63-80] As this suit does not contest SCE’s contractual franchise fee debts [the “1% Initial Term Fees”], the ACB analysis fails and ‘sky is falling’ argument that statewide contractual franchise fees paid by utilities are at risk fails.° 2. “The [lower court] Opinion places strict limitations on the ability of local governments to adopt franchise fees ...” [ACB at p.3] Response: The lower court did not “place” limitations upon local governments. It applied Proposition 218 to Santa Barbara’s enactment of financial burdensuponutility users. The lower court applied existing law to preclude the City’s (1) efforts to create Proposition 218 loopholes, (2) proposed discretion to label taxes euphemistically as “fees”, and (3) enactment of a UUT without an election. This action seeks no more than to require taxing bodies extracting revenue from utility users toprovide the processes due to taxpayers as mandated bythe state constitution. 3. “The City granted only a temporary and-in franchise terms—brief extension of SCE’s prior 5ACB’sevidencethat local governments commonly impose similar revenue streams [ACB’s Mtfor Judicial Notice, Exh A] does not identify a single similar revenue stream imposed (1) by City Ordinance (2) uponutility users (3) by D.89-05-063 processes, but appearsto list contractual franchise fees similar to the “Initial Term Fee, which fee (and type of fee) is not at issue. 4 franchise rights for a 1% fee. But the heart of the consideration the parties agreed to exchange was a 2% fee for a 30 year franchise.” [ACB p.4.] Response: SCEdid not “agree” to pay a 2% franchise fee. It agreed: (1) to be indebted to pay a 1% franchise fee [AA 2:406, §§3, 5-6] (2) to seek CPUCapproval, pursuant to CPUC D.89-05-063to bill the surchargeto utility users [AA 2:405-407, §§ 3 and 6]; (3) if the CPUCdid not approve the Advice Letter, to pay the 1% Initial Term Fee. In that case, SCE agreed that the length or terms of the franchise could be affected (presumably to allow the City to conduct an election for the UUT). (AA 2: 403-413, Section 3E); and (4) if the CPUC approved the Advice Letter, to pay the 1% Initial Term Feeandto “levy, collect and deliver” the City’s 1% surcharge. (AA 2:403-413, Section 3D and 6D). SCE did not pay the 1% surcharge prior or subsequent to CPUC approval of the Advice Letter (AA 2:343-351, Facts 17-20 and 23), and Ordinance 5135 did not impose the 1% surcharge upon SCE.As Sections 3 and 6 of Ordinance 5135 provide that regardless of the CPUC response to’ the Advice Letter, SCE would not be obligated to pay more than the 1% Initial Term Fee, the theory that SCE “agreed” to pay a 2% fee fails. [AA 2:403-413, §§3, 5-6] 4. “The City has no interest in or authority to direct the manner in which SCE recoversthe costs ofits services.” [ACBp.5.] Response: This argument, by presuming the 1% surcharge was an SCE debt and cost ofproviding electricity, is contrary to facts, to Ordinance 5135, to Proposition 218, to CPUC D.89-05-063 and to the Public Utility Code processfor a utility to increaseutility rates to recover the costs of providing services. E.g., Public Utility Code section 454. The foundational fact for ACB’s statements is precluded by the following: 8. “The SCE assessments, collections and remittance of the 1% RECOVERY PORTION OF THE EXTENSION TERM FEE were required by Santa Barbara City Ordinance 5135.” [AA 3:676-681.] SCE doesnot pay the 1% Extension Term Fee, did not seek CPUC approvalto increase its rates, and did not unilaterally create the Advice Letter process.° Based uponthe City’s desire to obtain the 1% surcharge, based upon the decision not to follow Proposition 218, and based upontherisks of using CPUCprocesses(rather than Proposition 218 processes), the On November23, 2004, the Santa Barbara City Council authorized City staff to send a letter to SCE directing SCE to pursue the implementation of the increase in the City's franchise compensation from 1% to 2% of SCE’s Gross Annual Receipts by having SCE seek consent from CPUCto include the additional 1% recovery portion of Extension Term Feeasa line item surcharge on SCEbilling to its Santa Barbara customers. [emphasis added]” [AA 2:348, fact 18] franchise agreement imposedthe financial exposure of using CPUC processes uponthe City. The City would not assumethoserisksif it had “no interest in or authority” over the Advice Letter process. Section 7 provides: In the event that the CPUC or any court of competent jurisdiction orders the return to electric utility ratepayer(s) of any amount represented by the Franchise payments, which has been collected by Grantee and paid to the City, or in the event the parties agree as a result of a challenge andsettlement thereof that a refunding will occur, then City shall be solely responsible for such repayment. [Emphasis added]” [AA 2:403-413.] Therefore, ACB’sclaim is nottrue. 5. “If... any part of the franchise fee goes unpaid, SCEloses it franchise . . .” (ACBatp. 6) Response: First, the statement is vague, but appears to contend thatif any part of the 1% Initial Term Fee or the 1% Extension Term Feeis unpaid, SCE automatically “loses its franchise.” This statement is contrary to Ordinance 5135, the facts and the payment record for these fees.’ Asset forth by Ordinance 5135 sections 3, 5 and 6, SCE’s duties for the 1% surcharge were to submit an Advice Letter to the CPUC to request authority to bill the surcharge andto levy, collect and deliver the taxes to "ACBarguesthatif utility users fail to pay the surcharge, SCE must do so or lose the franchise. Ordinance 5135 includes no such obligation.In fact, if SCE paid unpaid surcharges, payments of the 1% Initial Term Fee and surcharge remittance would be identical; they are not. [AA 2:334.] 7 the City, if the CPUC approved the Advice Letter. Ordinance 5135 does not provide (1) that SCE loses its franchise if utility users fail to pay the surcharge or (2) that SCE is a guarantorofthe surcharge payments.’ As provided by Sections 3 and 6 of Ordinance 5135, the parties agreed that, depending upon the CPUCresponseto the Advice Letter, the franchise term and SCE’s franchise duties would be affected.’ Theinclusion of contingent terms based uponthe alternative CPUC responses, establishes that the City was cognizantofthe issue andthe effect that the CPUC decision would have on its revenues. Knowledge ofthese possibilities not lead to the inclusion of a contingent obligation for SCE to pay the surcharge. [AA 2:403-413.] Therefore, this claim fails. 6. After years of receiving a 1% franchise fee from SCE, the City sought to increase that fee to 2% beginning with a new franchise in 1999. SCE eventually agreed, and the City adopted the terms 5As this litigation addresses onlythe utility user payments, even if SCE was a contractual guarantor of unpaidutility users surcharge payments, any such SCE payments would not beat issue in this case. *The League presents a convoluted theory at pp. 10-12. The League argues that because Ordinance 5135 includes a contingency to address the City’s potential loss of revenue from an adverse CPUC decision, the agreement must include a duty upon SCEto “pay”the surcharge if the City’s right to terminate is triggered. However, the franchise does not include this SCE contingent duty. Further, had the agreement included such a contingency, because the CPUC did not deny the Advice Letter, the imposition of that imagined duty upon SCEto pay the surcharge never arose. 8 of their agreement by Ordinance No. 5135. Under that agreement, the City granted a 30-year franchise “in exchange for” SCE’s agreement to pay 2%ofits gross annualreceipts—as defined—“as consideration . . . and as compensation for use of the streets in the City ...” [ACB p. 10.] Response: As provided above, SCE only agreed to be indebted to pay the 1% Initial Term Fee as its contractual obligation. [AA 2:403-413, sections 3, 4, 5 and 6.] In fact, the City did not receive “2% beginning with a new franchise in 1999”. Forthe first six years of the 1999 franchise, the City only received 1% Initial Term Fee, and at no time has SCEpaid the surcharge. [AA 2:343-351 and 3:676-681] Asthe parties stipulated: 9. After a period of negotiations, SCE presented the City with a proposal for a new Franchise Agreement. That proposal provided that SCE would remit to the City a two percent (2%) franchise fee provided that the City agreed that the increase in the franchise fee would be payableto the City only ifthe California Public Utilities Commission [““CPUC”] consented to SCE’s requestthat it be allowed to include the additional 1% amountas a customer surcharge on the bills of SCE sent to its customersin the City. ... 10. On that basis, the City staff and SCEtentatively agreed to the terms of a new 30-year SCE Franchise Agreement with SCE agreeing to remit to the City two percent (2%) ofits gross receipts from its operations within the City, provided that the additional 1% portion ofthetotal 2% Franchise Fee would becomepayable only ifSCE was successful in obtaining CPUC consentthat the additional 1% would be billed as a customer surcharge imposed on the SCE customers within the City. ... 17. In April 2001, the City consented to SCE’s request to delay for up to two years an SCE“Advice Filing” with the CPUC ... Assuch, the original 1% franchise fee that wasset by the prior City/SCE Franchise agreement continued during the extension, and SCE did not pay the new 1% Recovery Portion of the Extension Term during that period oftime. .. 22. On April 20, 2005, the CPUC consentedto the SCE Advice Filing thereby allowing SCE to place upon its bills to its customers within the City a 1% electricity franchise surcharge .. 23. ...[I]Jn Novemberof2005 SCE began billing and collecting the new Recovery Portion of the Extension Term Fee (the new 1% additional surcharge) from the electricity users within the City and remitting those revenues in their entirety to the City. [emphasis added]” [AA 2:343- 351] The contention that SCE agreed to “pay 2% of its gross receipts ... as a consideration”forits use of City streets is contrary to Ordinance 5135 and to the facts. [AA 2:343-351] Proofthat the surcharge is not an SCE Franchise fee obligation is provided by the Advice Letter: “SCE's electric franchise agreement (Franchise) . . was adopted on December 7, 1999. The Franchise requires SCEto pay a basic franchise fee equal to 1.0% of SCE' S "oross receipts" from the sale of electricity within the corporate limits of the City. This is the maximum fee providedfor in the Franchise Act of 1937, Cal. Pub. Util. Code § 6201, et seq. As an express condition of the City granting SCE a new franchise, the Franchise further requires that, upon City request, SCE useits best efforts to obtain Commission approvalto charge an additional 1.0% surcharge to the customers within the City.... 10 In accordance with D.89-05-063 and by the terms of the Franchise, which provides for the Franchise Extension Term Fee (surcharge), SCE shall collect, with the Commission's approval, the additional 1.0% as a surcharge to its existing franchise fee rate... . SCE will bill and collect the surcharge revenues and pass through the revenues directly to the City. [Emphasis added]” [AA 2:468-471.| Lastly, Section 4 of Ordinance 5135 states the “Compensation” owed by SCEtouseCity streets: “1% of the Gross Annual Receipts of Grantee (the “Tnitial Term Fee”).” The ACB can proclaim from the hilltops that SCE “pays” a 2% franchise fee as “compensation for use ofthe streets in the City.” That does not change the Franchise Agreementorstipulations. 7. “The City did not establish the mechanism SCE uses to recover the cost of its franchise from its customers.” [ACB p.12] Response: It is true that Santa Barbara did not establish the CPUC’s powers, the Public Utility Code provisionsto enactutility rate increases, or CPUC D.89-05-063. However, the Franchise Agreement did “establish” the use of the D.89-05-063 process. [AA 2:403-413, sections 3 and 6] In fact, SCE only moved forward with the Advice Letter process when it was “directed” by the City to do so. [AA 2:348, Facts 17-19] The claim that the City was uninvolvedin the agreement to use D.89-05-063 processesto collect the City’s revenue is unsupportable. il Further, the claim that the D.89-05-063 process was SCE’s effort to “recover the cost of the franchise” misrepresents Public Utility Code mandated processesfor a utility to increase utility rates to imposetheir “costs” on utility users. In fact, D.89-05-063, Guidelinesfor the Equitable Treatment ofRevenue Producing Mechanisms Imposed by Local Government Entities on Public Utilities, addresses city enacted revenue mechanisms. Further, D.89-05-063 acknowledges that the CPUC has no jurisdiction to determine the propriety of City enacted revenue streams. D.89-05-063 provides as a Finding of Fact: "The Commission has no jurisdiction to determine the authority of local taxing entities to impose taxes onutility customers, or utilities, or users' taxes on commodities used by a utility to produce its products." [AA 2:442] Additionally, D.89-05-063 provides: “This Commission does not dispute or seek to dispute the authority or right of any local governmental entity to impose or levy any form oftax or fee upon utility customersor the utility itself, which that local entity, as a matter of general law orjudicial decision, has jurisdiction to impose, levy, or increase. Any issue relating to such local authority is a matter for the superior Court, not this commission.” [AA 2:435-36] Therefore, ACB’s claim fails. 8. “But the surcharge was not a requirementof the City. The City has no interest in the manner SCE recovers the cost of paying a 2% fee. Nor does it have anylegal authority to establish such a surcharge.” [ACBp.13] 12 Response: The City, not SCE, desired a 2% revenue stream: SCE’s 1% Initial Term Fee andtheutility users 1% surcharge. Based uponthe City’s desire, it obligatedall utility users to pay the surcharge: “Pursuant to City Ordinance 5135, all PERSONSin the CITY receiving electricity from SCEare obligated to pay the 1% RECOVERY PORTION OF THE EXTENSION TERM FEE.” [AA 3:676-681, Fact 16.] The Franchise Agreementparties agreed to use a D.89-05-063 process to seek CPUCauthority for SCE tobill the City imposed utility user 1% surcharge. The argumentthat the City “has no interest” in the processes to collect its stream of revenue is inexplicable; as is the premise that the City had “no legal authority to establish such a surcharge” because, as the parties stipulated, City Ordinance 5135 did just that. [AA 3:679, Fact 16.] 9. “The franchise agreement provides that SCE ‘shall pay to the City’ the full 2% franchise fee.” [ACB p. 18] The League extracts a portion ofa clause from the introductory sentence of Section 5 of Ordinance 5135 to support the claim that SCE is obligated to pay andactuallypays the 1% surcharge. In doing so the League misrepresents Ordinance 5135 and deniesthestipulations. The section 5 clause, with the qualifying terms, actually provides: “Grantee ... , as herein authorized and permitted shall pay to the City... the following.” Identifying the conditions precedentthat are “herein 13 authorized and permitted” and identifying “the following” payments requires greater analysis than provided by the ACB.First, the franchise agreementat Subsection 5(C) includes “conditions precedent”: C. The conditions precedentto the obligation of Grantee under this Section 5 to levy, collect, and deliver to City the Recovery Portion as a part of the Extension Term Fee, shall be the conditions set forth in Section 6 below [concerning CPUCapproval]. The conditions precedentare reiterated in Section 5B which identifies the funds to “pay” the surcharge. SCEis required (i.e., “shall’”’) collect the 1% surcharge “from all electric utility customers” which “collection shall be . . . based on consumptionor use of electricity.” [i.e., SCEassesses and collects a consumption based utility user tax.] In addition, application ofthe limiting clause “as authorized and permitted herein,” requires consideration of sections 3, 5, and 6 of the Ordinance which conflict with the League’s claim that SCE agreed to be directly obligated to “pay” the surcharge." Further, Section 4 of Ordinance 5135 identifies the “Compensation” that the City agreed to accept from SCEforits use of City rights-of-way: In the Advice Letter, SCE states that it did not agree to pay the surcharge. Neither the League nor the City proffered evidence that SCE ever intended to be obligated by the Franchise Agreementto pay the 1% surcharge. 14 the 1% “Initial Term Fee”. The implied claim that SCE agreed to “pay”the “full 2% franchise fee” as the charge/fee to use City streets, therefore,fails. Thetotality ofthe Ordinance explains that the Section 5 reference to SCE’sobligation to “pay” implicates two elements: SCE’s obligation to pay the 1% Initial Term Fee and SCE’s Section 5 duties to “collect” and “to levy, assess and deliver to the City” the 1% Extension Term Fee. Continuing, Section 6 mirrors the Section 3 requirement that SCE obtain CPUCapproval to bill and collect the 1% surcharge before it will be obligated to “deliver” payment to the City. Subsection 6(D) provides: D. If the Recovery Portion is approved by the CPUC, Grantee shall implement customercollections as soon as possible following the CPUC approval. . . As SCE’s obligationis to “levy, collect, and deliver to the City” the surcharge,it did not “agree”to “pay” a 2% franchise fee. B. APPLICATION OF THE FACTS. The Leaguefailed to apply the totality of Ordinance 5135, to acknowledge in a meaningful way the financial burdens the City imposed upon the taxpayers, to recognize the taxpayers’ Article XIII section 32 rights to contest their financial burdens, to apply the facts as stipulated by the parties, or to acknowledge the existence, terms or policy of Proposition 15 218 because to recognize or apply any of thesetruthsis to admit thatall of Santa Barbara’s defensesfail. Astheparties stipulated, beginning in 2005 and continuingto today, SCEcollects from Plaintiffs and all electricity users within the City, an Ordinance 5135 1% consumption-based utility surcharge that was enacted without an election and has never been paid by SCE. [AA 3:676-681] BecausePlaintiffs pay the 1% surcharge, because SCEis not a party to this lawsuit, because contract rights or duties of non-parties to the suit are irrelevant, and because the City enacted and receives the revenue stream created by the surcharge, Proposition 218 was violated by the City’s failure to provide an election. Il. PROPOSITION 26 AND PROPOSITION 218. A. INTRODUCTION. The ACB implies that because Proposition 26 does not impose an election obligation upon a city enacting contractual franchisefees, that Proposition 26, if applicable, would not mandate an election for the 1% surcharge andthatthat is an indication that the drafters of Propositions 26 and 218 neverintended for utility user consumption fees to be implicated by election processes. [ACB p. 8 and 15-16] This claim fails. 16 First, the trial court held that if Proposition 26 had been retroactive, the surcharge was tax, and wasnot a franchise fee. [AA 3:617-620] The League’s theory that Proposition 26 would not implicate this revenue stream ignoresthat ruling, which was not subject to appeal by the City. Next, for purposes ofthe City’s Motion for Judgment on the Pleadings [AA 3:622-639], the City did not deny or oppose the application by the court ofthe finding from cross motions for summary judgmentthat | the surcharge was not a franchise fee under Proposition 26. Instead,it argued that Proposition 26 should not be applied retroactively to its enactment of Ordinance 5135.In ruling upon the City’ Motion for Judgment on the Pleadings, thetrial court again held that the surcharge, because it was paid byutility users and did not grant any addedusesof City rights-of-way above those obtained from the paymentofthe 1% Initial Term Franchise Fee, would be a Proposition 26 tax. [AA 1:24-44.] Becausethe facts cited by the trial court as proof that the surcharge was not a Proposition 26 franchise fee apply equally to the pre-Proposition 26 definitions of franchise fees and because the City did not appealthetrial 17 court’s Proposition 26 rulings, if Proposition 26 has any import to this case, it is to establish that Ordinance 5135 did not enact a franchise fee." However,as the trial Court held that Proposition 26 was not applicable to the subject action and as the position was not subject to appeal [See, Jacks v City ofSanta Barbara (2015)234 Cal.App.4th 925, 936 fn. 7], analysis ofthe intricacies of Proposition 26 is not necessary. Therefore, Proposition 218 (and the common law definitions of franchise fees, UUTs and taxes in place when Ordinance 5135 was enacted) must be applied. B. PROPOSITION 218. “Proposition 218’s findings and declarationsstate: “The people ofthe State of California herebyfind and declare that Proposition 13 was intendedto provide effective tax reliefand to require voter approval of tax increases. However, local governments have subjected taxpayers to excessive tax, assessment, fee and charge increases that not only frustrate the purposes of voter approval for tax increases, but also threaten the economic security of all Californians and the California economyitself. This measure protects taxpayers by limiting the methods by which local governments exact revenue from taxpayers without their consent.” ” Greene v. ~ Marin County Flood Control and Water Conservation District (2010) 49 Cal.4th 277, 284-285. "The definition of “franchise fee” was not affected by Proposition 26 and is unchanged since County ofTulare v. Dinuba (1922) 188 Cal. 664, 670. Therefore,the trial court conclusion that, in a Proposition 26 analysis, the 1% surchargeis not a franchise fee, would be similarly applicable to a pre- Proposition 26 analysis. 18 Proposition 218 constitutionally eliminated local government discretion or authority (legislative, contractual, or otherwise) to enact financial burdens uponcitizens unilaterally and empowered the people to make those decisions. The League’s claim that city councils for charter cities have constitutional or statutory authority to impose the subject charges upon utility users based upontheir right to “contract” (ACB pp.16- 17) fails because Proposition 218 is a constitutional provision limiting the authority ofall local taxing bodies. Further, Proposition 218 “specifically states that ‘[t]he provisionsofthis act shall be liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent.’ [citation omitted.]” Silicon Valley Taxpayers Association v. Santa Clara Open Space Authority (2008) 44 Cal.4th 431, 448. Silicon Valley explained: “The ballot arguments identify what was perhapsthe drafter’s main concern: tax increases disguised via 299 euphemistic relabeling as‘fees,’ ‘charges,’ or ‘assessments’ ”. [Emphasis added]” Id. at 449. The City had no constitutional or statutory right or discretion to euphemistically label UUTs imposed uponutility users as “franchise fees” to avoid the obligations to provide an election. 19 Proposition 218 does not include a loopholeto allow a city, by mere reference within a public contract of financial burdens a city imposed upon citizens, to eliminate citizens’ constitutional rights over those burdens. C. FRANCHISE FEES. The ACB admits at page 7 that a franchise fee is “a “charge which the holder of the franchise undertakes to pay as part ofthe consideration for the privilege of using the avenues and highways occupied by the public utility. (Ibid citing Tulare County v City ofDinuba (1922) 188 Cal.664, 670; City ofSanta Cruz v Pacific Gas & Electric Co. (2000) 82 Cal.App.4th 1167, 1171).” As provided above, SCE (1) does not, and never has, paid the 1% surcharge and (2) agreed that its consideration for use of City streets was limited to the 1% Initial Term Fee. [AA 2:405-406, section 4] Therefore, the ACB proclamation at pp. 6-8 that the 1% consumption basedutility user fees collected by SCE and remitted/delivered to the City are contractual franchise fees is unsupportable. ACB’s contention is expressly contrary to Ordinance 5135 Section 4 which providesthat the 1% Initial Term Feeis the consideration for SCE’s use of City rights-of-way. Asprovided throughout, ACB’s factual support for its franchise fee hypothesis contradicts the Ordinanceitself, the definition of franchise fee, andthe stipulated facts. The definition of “franchise fees” [See, County of 20 Tulare v. Dinuba (1922) 188 Cal. 664, 670] precludes the ACB’s proposed franchise fee claim becauseutility users do not pay franchise fees or pay “consideration” for a for-profit utility’s use of city streets. The continuing unsupportable theory that the “primary purpose”ofthe 1% surcharge imposed by the City uponutility users was to provide “consideration” for SCE’suseof city streets has no support in the record, in Ordinance 5135, in the Advice Letter, or in the Stipulations. IV. CONCLUSION. Becauseutility users pay the surcharge pursuant to City Ordinance [AA 3:679, fact 16], because SCE’s surcharge obligationis “to levy, collect and deliver to the City” [AA 2:403-413, section 5C], because, at the time of contracting, SCE andthe City believed that SCE could not be burdened with a 2% franchise fee [AA 2:468-471], because the utility users do not receive any benefits or services from the city for paymentof the surcharges, because Ordinance 5135 Section 4 identifies the consideration paid by SCE for the use of City rights-of-wayas only the 1% Initial Term Fee, and because Article XIII C section 2(b) does not include the ACB’s proposed Proposition 218 loophole,the claim that the surcharge is a contractual fee fails. 21 For the above stated reasons, Plaintiffs request that this Court affirm the Court of Appeal Order to enter judgmentforthe Plaintiffs. Dated: November 4, 2015 Huskinson, Brown & H¢gidenreich, LLP Paul E. Heidenreich Attorneys for Appellants 22 CERTIFICATE OF WORD COUNT I, Paul E. Heidenreich, declare and state as follows: I am a Partnerof the law firm of Huskinson, Brown & Heidenreich, LLP. I am licensedto practice law before Courts of the State of California. I makethis declaration under penalty ofperjury. I was personally involved in the drafting of this Response to the Amicus Brief served by The League of California Cities and J conducted the word count of this Response using the Word Perfect computer program. Using this program, I determined that the word count for Plaintiffs’ Responseto theLeague of California Cities Amicus Curiae Brief (including headings, footnotes and this Word Count Declaration, but excluding table of contents and table of authorities) is 5,303 words. I certify and declare under penalty ofperjury pursuantto the laws ofthe eh Paul E. Heidenréich State of California that the forgoing is true and correct. Executed this 4"day ofNovember 2015 at Red 23 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PROOFOF SERVICE- 1013A (3) CCP STATE OF CALIFORNIA, COUNTY OF LOS ANGELES Iam employedinthe county ofLos Angeles, State ofCalifornia. [am over the age of 18 and not a party to the within action; my business addressis: 1200 Aviation Boulevard, Suite 202, Redondo Beach, CA 90278. On November (0. ,2015 I served the foregoing documents described as: ANSWER TO AMICUS CURIAE BRIEF OF THE LEAGUE OF CALIFORNIACITIES [] (BY MAIL) I deposited such envelope(s) inthe mail at Redondo Beach,California with pos age thereonfully prepaid, in the United States mail to the addressee(s) isted on the attachedlist. [] (BY PERSONAL SERVICE) I caused suchenvelope(s) to be delivered by handto the office(s) of the addressee(s) listed on the attachedlist. ty (BY OVERNIGHT MAIL) I placed such document(s) states above in a sealed envelope, for deposit in a designated Federal Express drop off location in for overnight delivery ursuant to C.C.P, §1013(c), with delivery fully prepaid or providedfor to the addressee(s) listed on the attached list. SEE ATTACHEDLIST I am readily familiar with the firm’s practice of collection and processing correspondencefor mailing. Underthe practice it would be deposited with the U.S. Postal Service on that same day with postage thereon fully prepaid in the ordinary course of business. I am aware that on motion of the party served, service is presumed invalid if postal cancellation date or postage meter date is more than one dayafter the date of deposit for mailing. Page 1 of2 M m W N h D N W m 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Hanson Bridgett, LLP Clerk, Court of Appeal ooo. Second Appellate District, Division Six 200 E. Santa Clara Place Ventura, CA 93001 Honorable Thomas P. Anderle Santa Barbara Superior Court 1100 Anacapa Street, Department 3 Santa Barbara, CA 9310 Trial Court Judge Ariel P. Calone, City Attorney City of Santa Barbara PO BOX 1990 Santa Barbara, CA 93012 Attorneysfor Defendant/RespondentCity ofSanta Barbara Michael G. Colantuono Colantuono, Highsmith & Whatley, PC 300 S. Grand Avenue, Suite 2700 Los Angeles, CA 90071 Attorneysfor Defendant/Respondent City ofSanta Barbara Trevor A. Grimm Howard Jarvis Taxpayers Foundation 921 Eleventh Street, Suite 1201 Sacramento, CA 95814 Attorneys for Amicus Curiae Howard Jarvis Taxpayers Association and California Taxpayers Association Jan I. Goldsmith, City Attorney City of San Diego 1200 Third avene, Suite 1100 San Diego, CA 92101 Attorneysfor Amicus Curiae City ofSan Diego Adam W.Hoffman 425 Market Stret, 26" Floor San Francisco, CA 94105 Attorneysfor Amicus Curiae League ofCalifornia Cities I declare under penalty ofperjury underthe lawsofthe State ofCalifornia that the aboveis true and correct. Executed on November [0 , 2015, at Redondo Beach, California. Page 2 of 2
