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Litigation Tips for Local Taxpayer Groups

Litigation can be expensive and stressful, but sometimes it is appropriate, as a last resort, to correct an illegal tax when political efforts to prevent its enactment have failed.

HJTA tries to take on major cases, especially those that will impact all California taxpayers. We do not have the resources to take on all cases, and in some situations a suit by local taxpayers may be warranted.

Here is information that taxpayers will want to be aware of when considering litigation against a local government entity.

  1. Make friends with lawyers. Lawyers are expensive, and HJTA has limited staff and resources. So if you can find a fiscally conservative attorney in your area, invite him or her to join your organization.
  2. Consider litigation a last resort. Litigation is expensive, lengthy, stressful and rarely leaves anyone feeling fully vindicated. Try every other means along the way to derail bad ideas before they become law.
    1. To that end, if you live in a small city (population of 100,000 or less), make friends with your city council members. Go to their fundraisers. Invite them to speak at your tax group’s meetings. Catch them doing something right, then praise and thank them for it, not just face to face, but at the microphone and in a letter to the editor. Minimize your complaining! Save it for the really important issues. Then you’ll be taken seriously when you do speak out.
  3. Hijack the administrative record: Speak at the hearing. Prepare your remarks in advance, edit them down, and practice saying them so that if the governing board limits public comment to two or three minutes per person, you can fit it all in. Bring multiple people with you, and each of you use your minutes to make a different point. Bring printed copies of your remarks, along with every document you might want the court to consider someday. Bring enough copies for every board member and the clerk, pass them out and ask the clerk to include a set in the record. If the board hired a consultant, have your attorney provide an opinion on its adequacy and include that in the record too. If you have an expert witness who can contradict the consultant, put his or her opinion and credentials in the record as well. HJTA does not believe fee or tax challenges are limited to an administrative record, but government lawyers have argued that they are. To be safe, have all of your evidence in the record.
  4. If you are fighting a nonexempt fee or a tax (i.e., if it requires voter approval in an election), consult the election calendar and make sure you timely submit a ballot argument against the measure and a rebuttal to the agency’s argument in favor of it. The old saying “God helps those who help themselves” may not apply to God, but it sure applies to courts. Courts frown on litigants not trying to defeat an allegedly illegal fee or tax at the ballot box, then asking a court to overturn the election.
  5. Pay under protest any fees or taxes you think you might be challenging. HJTA does not believe this is a requirement, but government lawyers have argued that it is. To avoid wasting time and money fighting the issue, just pay under protest.
  6. Exhaust your administrative remedies. This usually means paying the fee or tax, then filing a claim for refund. If the agency has its own form, use it. If the agency has its own refund ordinance, follow it. If the agency has an internal appeal procedure, go through that too. Again, HJTA does not necessarily agree that these are requirements, but government lawyers argue that they are. One caveat: If you are uncertain whether the agency’s form or ordinance applies, play it safe. Follow BOTH the agency’s procedure AND the Government Claims Act (see 6.a. below).
    1. If the agency does not have an ordinance or form, you can use the Government Claims Act, Gov. Code §§ 900 et seq., unless it’s a property tax, then the procedure and claim requirements are in the Rev. & Tax Code at §§ 4800 et seq.
  7. Mind the statute of limitations. It’s usually very short, like 30 or 60 days. For ballot-related matters, the whole case must be commenced and concluded within the 10-day public examination period.
  8. Mind the accrual date. Does your statute of limitations begin to run when the board first bills the fee or tax, or when it enacts the fee or tax, or when it executes a contract that will be repaid with the fee or tax?
    1. Again, for ballot-related matters your 10-day statute of limitations begins when the elections official makes the material available for public inspection. That may be as soon as the elections official receives the measure, or as late as just before the ballots go to print. Ask, early on preferably in an email so that you have it in writing.
  9. Does the validation statute apply? This is very important. If the validation statute applies, then notwithstanding whatever other statute of limitations might apply, the statute of limitations is no more than 60 days (sometimes less under special statutes).
    1. If the validation statute applies, your lawsuit must name as defendants not only the public agency, but also “all persons.” In other words, you’re suing the whole world. For that reason, you must not only serve the public agency with summons, you must also publish summons in a newspaper adjudicated to be a newspaper of general circulation in your jurisdiction. That may or may not be the most popular or widely circulated newspaper. The newspaper will know if it is adjudicated.
    2. There are other rules as well. The rules for validation actions can be found in Code of Civ. Proc. §§ 860 et seq. But what you won’t find there is a list of the government acts that are subject to the validation statute. Those are scattered throughout the Code. As a general rule, the validation statute applies to lawsuits alleging the invalidity of any of the following (this is not an exhaustive list):
       

      $ Bond
      $ Contract
      $ Payment
      $ Sales tax
      $ Voter-approved special tax
      $ Assessment for drainage, flood control, streets or street lighting
      $ Fire assessment
      $ Mello-Roos tax
      $ LAFCO-approved annexation or reorganization, or any financial obligation resulting therefrom
      $ Building permit fee or development fee

  10. Finally, beware of the anti-SLAPP statute. SLAPP stands for Strategic Lawsuit Against Public Policy. It prohibits lawsuits that are designed to squelch or punish free speech. If your lawsuit is deemed a SLAPP suit, it will not only be dismissed, you will be automatically ordered by the Court to pay the other side’s attorney fees.
    1. This comes up most frequently when a taxpayer group sues public officials for allegedly using public funds to campaign for or against some ballot measure. Be careful. Don’t name officials as defendants in their individual capacity. Don’t attack statements that officials make on their own time. Don’t attack statements that do not rise to the level of illegal advocacy. Consult an attorney.