Proposition 218: Home Occupation Fee Withstands Challenge From Taxpayer Group
A City of Los Angeles home occupation permit fee has survived a legal challenge from the Howard Jarvis Taxpayers Association. The Second District Court of Appeal ruled that the Jarvis lawsuit was filed too late, that the organization failed to follow administrative procedures for refunds and that a later repeal of the fee made claims for injunctive and declaratory relief moot.
The court said a lawsuit challenging such fees must be brought within 90 days of their enactment so municipalities can have fiscal certainty.
The decision brought outrage from Jarvis attorney Richard Fine, who said, "There's a definite split between the judiciary and the will of the people."
The Los Angeles City Council approved a home occupation ordinance on November 20, 1996. The ordinance, which amended the city's zoning code, allowed a broad array of home-based businesses in all agricultural and residential zones, so long as they did not disturb the neighborhood. The measure required business owners to register with the city and pay a $25 registration fee to defray costs of administering the ordinance. The ordinance became effective January 4, 1997, and operative on March 5, 1997. Eighteen months later, the city amended the ordinance to eliminate the $25 fee.
The Jarvis organization filed a lawsuit on October 24, 1997, seeking to overturn the fee and force the city to refund what it had collected. Jarvis argued that the fee violated Proposition 218, which requires a vote on property-based assessments. But Los Angeles County Superior Court Judge Edward Ross issued summary judgement for the city because the lawsuit was filed 203 days after the deadline for bringing a legal challenge.
On appeal, Jarvis argued that the 90-day statute of limitations was inapplicable because the group was not challenging the ordinance itself — only the fee — and because the general three-year limitation periods of Code of Civil Procedure §338 (a) overrode the 90-day limit.
A unanimous three-judge panel of the Second District said the 90-day limitations period applied. The opinion by Presiding Justice Roger Boren noted that the Jarvis lawsuit specifically sought to declare the ordinance "illegal" and "invalid."
Citing Trend Homes, Inc. v. Central Unified School Dist., (1990) 220 Cal.App.3d 102, the court ruled that the shortened limitation period for lawsuits applies "where, as in the present case, the lawsuit claims that a zoning ordinance violates a constitutional spending limitation."
Boren continued, "If the Association were permitted to wait three years before suing and then seek a three-year refund of fees and business taxes paid by all persons operating businesses out of their residences, the City's ability to plan fiscally would be improperly compromised."
Even if the statute of limitations did not bar the lawsuit, the claim for injunctive and declaratory relief would be moot because the city had revoked the $25 fee prior to the trial court's summary judgement, the court ruled. As for the requested refunds, the court could not order the city to repay money unless each plaintiff had first filed a claim with the city, Boren wrote. Jarvis had submitted a claim naming only one plaintiff, and he later backed out.
Fine, the attorney for Jarvis, disagreed with the court's interpretations. "Under Prop. 218, if you have any type of fee based on property, you have to go out to the public. Here, they tried to call it a zoning change," he said.
Fine said that although he lost the case, he was glad the court published the opinion because, "I think it's about time the that the public see what the court is doing." He contended that courts "are trying to emasculate Proposition 218."
Deputy City Attorney Judith Reel, however, said the city was glad win the case and see it published because the lawsuit was a "wholesale challenge" to the city's ability to tax businesses. For decades, the city has levied assessments under a business tax ordinance no matter where the enterprise was located, she said.
"It's not a property-related tax," Reel said. "If a fee is imposed on optional activity, it is not subject to Prop. 218."
The city also wanted the opinion published because it is defending five other lawsuits in which people seeking various refunds did not file claims, Reel added.
The Case:
Howard Jarvis Taxpayers Association v. City of Los Angeles, No. B130247, 00 C.D.O.S. 2303, 2000 Daily Journal D.A.R. 3095, filed February 28, 2000, ordered published March 22, 2000.
The Lawyers:
For Jarvis: Richard Fine, Richard I. Fine & Associates, (310) 277-5833.
For Los Angeles: Judith Reel, deputy city attorney, (213) 847-0504.