Tulare County owes the Dinuba Redevelopment Agency property tax-increment dollars that the county erroneously distributed to itself and nine other local government agencies, the Fifth District Court of Appeal has ruled.

Tulare County officials had miscoded certain parcels within the City of Dinuba’s redevelopment project area. The county agreed to correct the errors prospectively but not retroactively. The city sued for all underpaid tax increment from the 1997-98 through 2003-04 fiscal years, and the Fifth District ruled for the city.

A 2002 audit conducted for the Dinuba Redevelopment Agency discovered that some parcels had been miscoded and that the agency had not received tax increment from those parcels for the 2002-03 fiscal year and the previous four fiscal years. Tulare County agreed to correct the errors for the 2002-03 assessment roll, but refused to make retroactive changes or pay the wrongly collected tax revenue.

Dinuba sued for the underpaid taxes beginning with the 1997-98 fiscal year. The county filed a demurrer, saying that the disputed tax revenue had already been distributed to other agencies and the county could not be required to make payments to Dinuba from the county general fund, and that the county was immune from liability under the Government Code.

Tulare County Superior Court Judge Patrick O’Hara ruled for the county but allowed the city to amend its lawsuit. The city did so, but in July 2004, O’Hara sustained a second demurrer filed by the county. O’Hara ruled the county was immune under Government Code § 860.2. The city appealed, and a unanimous three-judge panel of the Fifth District overturned the lower court.

On appeal, Tulare County continued to maintain that it was immune based on the Tort Claims Act (Government Code § 810 et seq.), under which public entities are not liable for injuries “except as otherwise provided by statute.” The specific section on which O’Hara based his ruling provides immunity for an “act or omission in the interpretation or application of any law relating to a tax.”

“However,” Fifth District Justice Herbert Levy wrote, “to make this ruling, the court must have first concluded that appellants [Dinuba] were suing in tort, not contract. Government Code immunities only extend to tort actions that seek money damages.”

Levy then cited several cases in which courts ruled that money wrongfully withheld by a public agency was a matter of contract, including Minsky v. City of Los Angeles, (1974) 11 Cal.3d 113, and Utility Audit Co., Inc. v. City of Los Angeles, (2003) 112 Cal.App.4th 950.

Dinuba is “entitled to the tax increment revenue by statute,” Levy wrote for the Fifth District. “Thus, appellants [Dinuba] are essentially seeking the release of property that is rightfully theirs but that was wrongfully detained. This is not an action for damages against the sovereign. Rather, the complaint is based on breach of a contractual duty. Accordingly, Tulare is not immune under Government Code § 860.2.”

The exact amount of money the county owes the redevelopment agency is unclear. The county may ask the state Supreme Court to accept the case.

The Case:
City of Dinuba v. County of Tulare, No. F046252, 06 C.D.O.S. 2640, 2006 DJDAR 3721. Filed March 28, 2006

The Lawyers:
For Dinuba: Andrea Saltzman, Meyers, Nave, Riback, Silver & Wilson, (510) 808-2000.
For the county: Michael Wallenstein, Brown, Winfield & Canzoneri, (213) 687-2100.