Nguyen v. City of L.A.

Summary

The California Court of Appeal affirmed summary judgment for the City of Los Angeles in a challenge to a franchise fee and customer surcharge paid in connection with SoCalGas's use of City streets and operation of its natural gas system. The court held that the charges qualified for the California Constitution's article XIII C, section 1, subdivision (e)(4) exemption for charges imposed for the use of local government property, and that apportionment was not required. The court further held that the exemption does not include a substantive reasonableness requirement, but concluded that the fee was supported by bona fide negotiations in any event.

Holdings

1. The franchise fee, including the portion passed through to customers as a surcharge, was a charge for use of local government property within the article XIII C, section 1, subdivision (e)(4) exemption and therefore was not a tax requiring voter approval.
2. The franchise fee did not have to be apportioned between amounts attributable to access to City property and amounts attributable to the right to operate the gas system or conduct business in the City.
3. Article XIII C, section 1, subdivision (e)(4) does not impose a substantive requirement that a franchise fee bear a reasonable relationship to the value of the franchise.
4. Even assuming a reasonable-value requirement applied, the City met its burden because undisputed evidence showed that the fee resulted from bona fide, arms-length negotiations and was supported by the franchise’s value.

Questions Presented

1. Whether the SoCalGas franchise fee and customer surcharge constituted a tax requiring voter approval under article XIII C of the California Constitution.
2. Whether article XIII C, section 1, subdivision (e)(4) required apportionment of the franchise fee between charges for use of City property and charges associated with the right to operate a gas business in the City.
3. Whether article XIII C required the City to prove that the franchise fee was reasonably related to the value of the franchise.
4. Whether disputed material facts concerning the value of the franchise, bona fide negotiations, the surcharge, or Street Damage Restoration Fee payments precluded summary judgment.

Disposition

affirmed