Rolland Jacks v. City of Santa Barbara
Case No: 1383959
Hearing Date: Thu May 24, 2018 9:30

Nature of Proceedings: Motion Strike Portions of Amended Complaint

Motion of Defendant to Strike Jury Demand

Attorneys:

For Plaintiffs Rolland Jacks and Rove Enterprises, Inc., dba Hotel Santa Barbara: Paul E. Heidenreich, David W.T. Brown, Huskinson, Brown & Heidenreich LLP

For Defendant City of Santa Barbara: Ariel Pierre Colonne, Tom R. Shapiro, Office of the City Attorney; Michael G. Colantuono, Ryan Thomas Dunn, Aleks R. Giragosian, Colantuono, Highsmith & Whatley, PC

pheidenreich@hbhllp.com; mcolantuono@chwlaw.us; acalonne@SantaBarbaraCA.gov; dwtbrown@aol.com; tshapiro@SantaBarbaraCA.gov; rdunn@chwlaw.us;

Ruling:

For the reasons set forth herein, the motion of defendant City of Santa Barbara to strike from the first amended complaint plaintiffs’ request for trial by jury is granted.

Background:

Plaintiffs Rolland Jacks and Rove Enterprises, Inc., dba Hotel Santa Barbara, on their own behalf and on behalf of all others similarly situated, filed their operative complaint, the first amended complaint (FAC), on September 12, 2012. The FAC asserts a putative class action consisting of two causes of action: (1) “For Violations of Proposition 218”; and, (2) for declaratory relief. All claims in the FAC assert that defendant City of Santa Barbara (City) has illegally collected a tax in violation of Proposition 218 by denominating the tax as a franchise fee. The prayer of the FAC requests “reimbursement of all Illegal Taxes imposed and collected by defendants against the entire class of plaintiffs from September 22, 2008 to date and continuing in an amount to be proven at time of trial” and for declaratory relief that the collection of such taxes is illegal. The caption of the complaint includes the phrase, “Request for Jury Trial.”

City denies that what it collects as a franchise fee is a tax. The law applicable to this issue has been addressed by the California Supreme Court in this case, Jacks v. City of Santa Barbara (2017) 3 Cal.5th 248 (Jacks). The result of the Supreme Court’s ruling is a remand for proceedings in this court consistent with the Supreme Court’s ruling. (Id. at p. 274.)

In this motion, City seeks to strike the request for jury trial from the FAC on the grounds that there is no right to trial by jury for the proceedings required by the Supreme Court. The motion is opposed by plaintiffs.

Analysis:

“The court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading.” (Code Civ. Proc., § 436.) “Irrelevant matter” includes a “demand for judgment requesting relief not supported by the allegations of the complaint.” (Code Civ. Proc., § 431.10, subds. (b)(3), (c).) A request for jury trial in a complaint may be challenged by a motion to strike. (See DiPirro v. Bondo Corp. (2007) 153 Cal.App.4th 150, 186.)

(1) General Principles

“‘In California, our Constitution [art. I, § 16] guarantees the right to a jury trial in actions at law, not those in equity. [Citations.] If the action deals with ordinary common law rights cognizable in courts of law, it is to that extent an action at law. [Citation.] To determine whether the action was one triable by a jury at common law, the court is not bound by the form of the action but rather by its nature, and a jury trial must be granted only ‘where the gist of the action is legal.’ [Citation.] If the action is essentially one in equity and the relief sought depends upon the application of equitable doctrines, the parties are not entitled to a jury trial. Although the legal or equitable nature of a cause of action ordinarily is determined by the relief sought, the prayer for relief in a particular case is not conclusive—and the inclusion of a request for damages as one of a full range of possible remedies does not guarantee the right to a jury trial. [Citation.]’ [Citation.]” (People v. Englebrecht (2001) 88 Cal.App.4th 1236, 1244-1245.)

The right to a jury determination of a cause of action is a different issue than the distinction between issues of law for determination by a court and issues of fact for determination by the trier of fact. “An issue of law must be tried by the court ….” (Code Civ. Proc., § 591; accord, Evid. Code, § 310, subd. (a).) “In actions for the recovery of specific, real, or personal property, with or without damages, or for money claimed as due upon contract, or as damages for breach of contract, or for injuries, an issue of fact must be tried by a jury, unless a jury trial is waived, or a reference is ordered, as provided in this Code. Where in these cases there are issues both of law and fact, the issue of law must be first disposed of. In other cases, issues of fact must be tried by the Court, subject to its power to order any such issue to be tried by a jury, or to be referred to a referee, as provided in this Code.” (Code Civ. Proc., § 592.)

“Except as otherwise provided by law, where the trial is by jury: (a) All questions of fact are to be decided by the jury.” (Evid. Code, § 312, subd. (a).) “When a trial judge sits as the trier of fact, the judge takes the place of a jury ….” (Guadalupe A. v. Superior Court (1991) 234 Cal.App.3d 100, 108.) Consequently, the existence of factual disputes requiring adjudication does not determine whether or not there is a right to trial by jury. The right to trial by jury is determined based upon the nature of the action as an action at law or as an action in equity.

(2) Application of Principles

There are two causes of action asserted by plaintiffs. The second cause of action is for declaratory relief. “Insofar as the right to a jury trial is concerned, it is erroneous to say that all declaratory relief actions are equitable; an action for declaratory relief has been characterized as ‘sui generis.’ [Citation.] Where an action for declaratory relief is in effect used as a substitute for an action at law for breach of contract, a party is entitled to a jury trial as a matter of right. [Citations.] ‘ “[C]ourts will not permit the declaratory action to be used as a device to circumvent the right to a jury trial in cases where such right would be guaranteed if the proceeding were coercive rather than declaratory in nature.” ’ [Citations.]” (Patterson v. Insurance Co. of North America (1970) 6 Cal.App.3d 310, 315.) Because the right to trial by jury in declaratory relief claim depends upon the underlying claim for which the declaration is sought, the existence of the declaratory relief claim provides no specific guidance as to whether there is a right to trial by jury. The right to jury in the declaratory relief claim exists or not depending upon the right to jury in plaintiffs’ first cause of action.

The parties disagree as to the nature of the first cause of action. City asserts that the first cause of action is a challenge to the City’s legislative act of granting a franchise and setting a franchise fee in the nature of a traditional writ of mandate under Code of Civil Procedure section 1085. Plaintiffs argue that this is a tax refund action for which a writ of mandate is improper.

In Jacks, the Supreme Court provided a new and comprehensive analysis of whether a franchise fee constitutes a tax under Proposition 218: “In sum, a franchise fee must be based on the value of the franchise conveyed in order to come within the rationale for its imposition without approval of the voters. Its value may be based on bona fide negotiations concerning the property’s value, as well as other indicia of worth. Consistent with the principles that govern other fees, we hold that to constitute a valid franchise fee under Proposition 218, the amount of the franchise fee must bear a reasonable relationship to the value of the property interests transferred.” (Jacks, supra, 3 Cal.5th at p. 270.) The issue of the relationship of the amount franchise fee to the value of the property interests transferred was not known by any of the parties or by this Court as an issue to be determined when this matter was originally before this Court prior to appellate review. As discussed below, the determination required for the analysis identified by the Supreme Court in part requires a factual determination because the reasonable relationship of the value of the property rights conferred to the amount of the franchise fee cannot be determined without reference to the facts of the respective amounts (whether or not the amounts are determined approximately or precisely) and those facts are necessarily outside of the administrative record prepared in adopting the “franchise fee” at issue.

Plaintiffs argue that, because the Court must make factual findings outside of the administrative record and because a traditional writ of mandate is ordinarily decided solely by a deferential review of the agency findings in the administrative record (Western States Petroleum Association v. Superior Court (1995) 9 Cal.4th 559, 573 (Western States)), the gist of the first cause of action cannot be a writ of mandate. Plaintiffs argue that this analysis is further supported by the Supreme Court’s discussion in Silicon Valley Taxpayers Association, Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431, 437 (Silicon Valley) that judicial review of Proposition 218 compliance is by exercise of independent judgment. (Id. at ap. 450.) The key problem with this argument is in the exceptions to the administrative record limitations as stated in Western States.

“In reaching the conclusion we provide today, we do not foreclose the possibility that extra-record evidence may be admissible in traditional mandamus actions challenging quasi-legislative administrative decisions under unusual circumstances or for very limited purposes not presented in the case now before us. Indeed, as we noted earlier, the federal courts have allowed admission of extra-record evidence under certain circumstances. [Citation.] … In addition, commentators have suggested other limited exceptions to the general rule of inadmissibility. [Citation.] However, extra-record evidence can never be admitted merely to contradict the evidence the administrative agency relied on in making a quasi-legislative decision or to raise a question regarding the wisdom of that decision.” (Western States, supra, 9 Cal.4th at pp. 578-579.)

The circumstances here are unusual. At the time the administrative record was created neither City nor plaintiffs were aware of the test later articulated by the Supreme Court in this case and neither had any reason to prepare or to evaluate evidence as to the relative value of the franchise to the franchise fee. Extra-record evidence is not just appropriate here—it is required. (See Jacks, supra, 3 Cal.5th at p. 270, fn. 11 [valuation of franchise rights to be addressed by expert opinion and subsequent case law]; Voices of the Wetlands v. State Water Resources Control Bd. (2011) 52 Cal.4th 499, 532 [in administrative mandate case, extra-record evidence may be presented where such evidence was not available or was improperly excluded at the original agency proceeding].) So, if the gist of the first cause of action is a petition for traditional writ of mandate, that characterization does not preclude the consideration of extra-record evidence and the evaluation of that evidence by the court as trier of fact.

Plaintiffs argue that the standard of review for writs of mandate discussed in Silicon Valley weighs against characterizing the first cause of action as a petition for writ. In Silicon Valley, the Santa Clara County Open Space Authority (OSA) imposed a countywide assessment to fund a program to acquire, improve, and maintain unspecified open space lands in the county. (Silicon Valley, supra, 44 Cal.4th at p. 437.) The plaintiffs, a taxpayer association and individual taxpayers, filed an action for a writ of mandate, declaratory relief, and an injunction to invalidate the assessment and a subsequent (later consolidated) action to invalidate a renewed assessment. (Id. at p. 440.) The trial court granted summary judgment in favor of OSA. (Id. at pp. 440-441.) The Court of Appeal affirmed. (Id. at p. 441.)

The California Supreme Court reversed. (Silicon Valley, supra, 44 Cal.4th at p. 458.) The Silicon Valley court first addressed the standard of review, noting that “[b]efore Proposition 218 was passed, courts reviewed quasi-legislative acts of local governmental agencies, such as the formation of an assessment district, under a deferential abuse of discretion standard.” (Id. at p. 443.) After an extensive analysis of the constitutional burden shift enacted by Proposition 218, the court concluded: “Because Proposition 218’s underlying purpose was to limit government’s power to exact revenue and to curtail the deference that had been traditionally accorded legislative enactments on fees, assessments, and charges, a more rigorous standard of review is warranted. We construe article XIIID, section 4, subdivision (f)—the ‘burden … to demonstrate’ provision—liberally in light of the proposition’s other provisions, and conclude that courts should exercise their independent judgment in reviewing local agency decisions that have determined whether benefits are special and whether assessments are proportional to special benefits within the meaning of Proposition 218.” (Id. at p. 448.)

Contrary to plaintiffs’ arguments, the independent review standard does not require or implicitly support trial by jury. The underlying procedural vehicle of Silicon Valley was a petition for writ of mandate to invalidate the assessment there at issue. Applying the independent review standard it described, the Supreme Court in Silicon Valley determined on the administrative record that the assessment was invalid for failing to meet the requirements of Proposition 218. (Silicon Valley, supra, 44 Cal.4th at pp. 456, 458.) A court, sitting as the trier of fact without a jury, can exercise its independent judgment both in reviewing the facts in the administrative record and also in finding appropriate extra-record facts on conflicting evidence. (See Code Civ. Proc., § 1090; Valtz v. Penta Investment Corp. (1983) 139 Cal.App.3d 803, 810 [“There is no right to a jury trial in a mandamus proceeding but the superior court has the discretion to grant one if there is an issue of fact essential to resolution of the case [citations].”].) In summary, the standard of review for a traditional writ of mandate does not imply that resolution of extra-record facts requires trial by jury.

The above discussion demonstrates that characterization of the first cause of action as a writ of mandate is compatible with disposition of factual issues required by the Supreme Court’s decision in this case. The above discussion does not, however, resolve the question of whether there is a right to trial by jury for the first cause of action.

City argues that the first cause of action is in essence a petition for traditional writ of mandate. This is consistent with the procedural posture in Silicon Valley. The gist of the first cause of action is the invalidation of the recovery portion of the franchise fee as an illegal tax. This is precisely the outcome in Silicon Valley: the assessment was found to be invalid for failing to meet the requirements of Proposition 218 and the case remanded for further proceedings. (Silicon Valley, supra, 44 Cal.4th at pp. 457-458.) The remedy for such invalidation is necessarily both prospective (declaring that future collection of the illegal tax is constitutionally prohibited) and retrospective (refunding the payments of illegally collected taxes). (See Howard Jarvis Taxpayers Association v. City of La Habra (2001) 25 Cal.4th 809, 822 [“We are aware of no comparable rule requiring an action to invalidate a tax be brought before, and separately from, an action for relief from particular payments of the tax.”].) The first cause of action of the complaint specifically seeks an order that the City cease and desist from imposing or collecting what plaintiffs allege is an illegal tax. (FAC, ¶ 71.) The gist of the FAC, taken together or separately by cause of action, is an action to invalidate the surcharge. An action to invalidate the surcharge is fundamentally review by traditional mandamus applying the standard of review explained in Silicon Valley.

Plaintiffs’ characterization, on the other hand, is that the first cause of action is an action for a refund of taxes, which plaintiffs assert is a legal cause of action entitling them to trial by jury, citing County of Los Angeles v. Superior Court (2008) 159 Cal.App.4th 353 (Oronoz), Ardon v. City of Los Angeles (2011) 52 Cal.4th 241 (Ardon), and McWilliams v. City of Long Beach (2013) 56 Cal.4th 613 (McWilliams). None of these cases supports plaintiffs’ assertion of a right to trial by jury. In Oronoz, the Court of Appeal addressed the issue of whether class claims in tax refund litigation required strict compliance with claims presentation requirements. (Oronoz, supra, 159 Cal.App.4th at p. 357.) The Oronoz court found that individual claims were not required for class claims. (Id. at p. 367.) The decision in Oronoz does not address the right to jury and does not contain the phrase “action at law.” In Ardon, the California Supreme Court addressed the same issue and reached the same result as Oronoz. (Ardon, supra, 52 Cal.4th at p. 245.) In Ardon, the trial court had granted the defendant’s motion striking the all class action allegations; the decision in Ardon does not address the right to jury and does not contain the phrase “action at law.” In McWilliams, the California Supreme Court addressed a local variation on the government claims requirement, and again held that class claims may be asserted without individual claims presentation. (McWilliams, supra, 56 Cal.4th at p. 616.) In McWilliams, the trial court sustained demurrers without leave to amend as to class claims for tax refunds. (Id. at pp. 617-618.) Following the decision in Ardon, the Court of Appeal in McWilliams reversed the trial court, holding that a city is not authorized to establish its own claims procedure. (Id. at p. 618.) The Supreme Court affirmed the Court of Appeal, but did not address the right to jury and did not mention “action at law.”

The more pertinent case on the issue of a right to trial by jury in tax refund cases is Franchise Tax Board v. Superior Court (2011) 51 Cal.4th 1006 (FTB). In FTB, the plaintiff sought a refund of state personal income taxes after having paid tax reserving the right to seek a refund. (Id. at p. 451.) The plaintiff demanded a jury trial. (Ibid.) The trial court denied defendant Franchise Tax Board’s motion to strike the jury trial demand. (Ibid.) The Court of Appeal heard defendant’s application for a writ of mandate on the merits, but denied the application by deciding that there was a constitutional right to jury trial in an action for a refund of state income taxes. (Ibid.) The California Supreme Court granted review and reversed the Court of Appeal. (Id. at pp. 1009, 1019.)

The FTB court reasoned: “Statutory tax refund actions have been compared for some purposes to the common law writ of assumpsit, which was rooted in contract or quasi-contract. [Citations.] The [Southern Service Co. v. Los Angeles County (1940) 15 Cal.2d 1] court, however, held that the statutory cause of action for a tax refund is a purely legislative creation, with no foundation in contract. [Citation.] This settled proposition supports the conclusion that the statutory right of action occupies a different class from the common law form of action in which a jury trial was available.” (FTB, supra, 51 Cal.4th at pp. 1017-1018.) “The statutory cause of action is fundamentally different in character from the old private right of action against tax collectors. This is not an instance where the Legislature authorized ‘“the type of action which was cognizable in a common-law court … at the time of the adoption of the Constitution of California.”’ [Citation.] Although ‘“[t]he constitutional right of trial by jury is not to be narrowly construed”’ [citation], the distinctions between the common law and statutory rights of action for a tax refund are broad. Moreover, California’s Constitution took effect at a time when the federal right to seek a tax refund had evolved into a statutory one, subject to congressional restriction in its particulars, including the right to a jury trial. We conclude that article I, section 16 of the California Constitution does not require a jury trial in a statutory action for a state income tax refund.” (Id. at p. 1018, fn. omitted.)

Plaintiffs argue that their first cause of action cannot be a petition for writ of mandate because mandate is unavailable where there is an adequate remedy at law by action for a tax refund, citing, among others, William Jefferson & Co., Inc. v. Assessment Appeals Board (2014) 228 Cal.App.4th 1 (William Jefferson). In William Jefferson, the plaintiff challenged a county administrative determination as to his property’s base year value for property tax purposes by petition for writ of mandate. (Id. at pp. 7-8.) In affirming the trial court’s judgment for the defendant, the court stated:

“A property owner must exhaust this administrative appeals process before seeking judicial relief, and the failure to do so will result in dismissal of the property owner’s lawsuit. [Citation.] Although a local assessment appeals board decision arises from an administrative hearing process, the mechanism for seeking judicial review of the decision ‘ “is significantly different from that of other administrative agency decisions. Ordinarily the aggrieved taxpayer’s remedy is not to seek administrative mandate pursuant to Code of Civil Procedure section 1094.5, but to pay the tax and file suit in superior court for a refund. [Citations.]” [Citation.]’ [Citation.] Indeed, ‘[t]he exclusive means of review of tax proceedings in California has been the remedy of suit to recover alleged overpayments, and the power of the state to provide such suit as the exclusive remedy is unquestioned.’ [Citation.] [¶] Because a tax refund action provides property owners with an adequate remedy at law, equitable actions for mandamus, injunctive, and declaratory relief generally are unavailable to obtain judicial review of a local assessment appeals board decision.” (Id. at pp. 10-11.)

The “power of the state to provide such suit as the exclusive remedy” identified in William Jefferson was exercised in that case as set forth in Revenue and Taxation Code section 5140, which authorizes a refund action for property tax. (William Jefferson, supra, 228 Cal.App.4th at p. 11.) In this action, plaintiffs point to no statute that authorizes a claim for a refund. On the one hand, if plaintiffs’ first cause of action is analogized to a statutory cause of action for a tax refund, the rule of FTB applies and there is no right to trial by jury on that claim. On the other hand, the negative implication of the rule of William Jefferson that an application for writ is improper where there is an adequate remedy at law by a statutory action for a tax refund is that a writ of mandate is appropriate (and may be the exclusive) means of challenging an improper charge as a tax where there is no statutory action for a refund of the improper charge. By failing to identify any such statutory action, a writ proceeding is both necessary and proper to address the claims asserted by plaintiffs here. In either case, there is no right to trial by jury. The Court concludes that plaintiffs have no constitutional right to trial by jury for the claims asserted in the FAC.

This conclusion is consistent with what should be the ordinary approach to judicial determination of whether a governmentally required charge is a tax. The Supreme Court in Jacks did not determine where in the enactment process to introduce evidence of the reasonable relationship between the amount of the charge and the value of the franchise. In the ordinary course (and presumably in future cases), the local agency should be required to include in the administrative record sufficient evidence to support its contention that the charge is a legally permissible fee and not a tax; correspondingly, a challenger would be required to provide the local agency in the course of the administrative proceedings enacting the fee the evidence the challenger urges supporting its view that the fee is actually a tax. Judicial review would be based on this administrative record: “Whether a statute imposes a fee or a tax is a question of law to be decided upon an independent review of the record.” (California Building Industry Association v. State Water Resources Control Board (May 7, 2018, S226753) ___ Cal.5th ___ [2018 WL 2090997, at *7]; accord, California Farm Bureau Federation v. State Water Resources Control Board (2011) 51 Cal.4th 421, 436.)

A right to jury trial premised on resolving the question of reasonableness of the relationship between the franchise fee and the value of the franchise would be an unworkable process. What would be presented to the jury in this ordinary case? The same evidence from the administrative record presented de novo? Extra-record evidence to rebut the evidence of the administrative record? Every choice violates one well- established principle or another from permitting extra-record evidence (and thereby encouraging the introduction of new and different evidence withheld from the administrative hearing) to permitting the jury to decide the legal issue of whether the charge is a permissible fee or an illegal tax under the rubric of deciding “reasonableness.” The well-established procedure of writ of traditional mandate, applying the standards of Silicon Valley, harmonizes all of these issues. Trial by jury is inconsistent with these principles.

This case is the exception because of the newly-required inquiry explained by the Supreme Court in Jacks. As discussed above, the Court will entertain extra-record evidence relating to this inquiry because, as an exception to the rule of Western States, neither party reasonably could have anticipated the need for such evidence at the time of the administrative hearings. As also noted above, although there is no right to jury trial, the court may, in its discretion, permit a jury trial as to factual issues. (Code Civ. Proc., § 1090.) The Court determines not to exercise any discretion it may have in that respect. As discussed above, the precise factual issue to be decided is not the absolute value of the franchise, but the relative value of the franchise as compared with the challenged franchise fee. The Court must necessarily decide among what it assumes will be conflicting evidence of value, but the Court can reach a conclusion on the ultimate issue in many different ways. The Court could, for example, decide that the evidence presented by City is insufficient to meet its burden of showing reasonableness without determining what the exact value of the franchise is; or, the Court could decide that the minimum value of the franchise the Court finds from City’s evidence is sufficient to meet the City’s burden of a reasonable relationship without deciding that the evidence may also support finding a specific value which could support as reasonable an even higher franchise fee. The factual determination to be made is too closely interwoven with the legal questions for referral of the question to a jury to be helpful to the Court or an efficient use of the Court’s or the parties’ resources. (Indeed, because the valuation evidence may be presented in substantial part either as expert valuation testimony or as evidence of particular negotiations between City and the utility, the Court may find the presentation of such evidence more effective in writing—perhaps as declarations, counter-declarations, or deposition testimony—rather than as oral testimony of witnesses at trial. The Court encourages the parties to consider and to discuss how the extra-record evidence may be presented in the most efficient and effective way.)

Accordingly, the Court determines that there is no right to trial by jury for the claims asserted by plaintiffs and will grant the City’s motion to strike the request for trial by jury from the FAC.