California Supreme Court Addresses Exhaustion of Administrative Remedies in Context of Proposition 218 BID Assessments

California Supreme Court holds that courts can entertain arguments that a BID assessment scheme violates certain provisions of Proposition 218 when raised by a party who did not articulate these objections in public hearings held to consider protests.

On December 20, 2021, the California Supreme Court reversed the court of appeal which had concluded that petitioners failure to present their objections to proposed business improvement districts (“BIDs”) and related assessment schemes at the appropriate public hearings meant they had not exhausted their extrajudicial remedies, a lapse that prevented the court from deciding petitioners’ claims on the merits.  Hill RHP Housing Partners, L.P. et al. v. City of Los Angeles, No. S263734.

Petitioners Mesa RHF Partners L.P., Hill RHF Housing Partners L.P., and Olive RHP Housing Partners L.P. (collectively petitioners) are nonprofit providers of housing and services to low-income seniors.  Petitioners own property in the two BIDs which were created pursuant to the Property and Business Improvement District Law of 1994 (Sts. & Hy. Code section 36600 et seq.).  Petitioners authorized representative voted against the proposed BIDs but did not raise any specific challenges to the BIDs at the public hearings before the Los Angeles City Council.  Following adoption of each BID, petitioners initiated two actions, each within the 30-day time frame prescribed by section 36633 of the Streets and Highway Code.  The trial court held that casting ballots against the BIDs sufficed to exhaust whatever exhaustion requirement might apply to them but then reaching the merits denied the petitions in full.

The Court of Appeal declined to address petitioners’ claims on the merits because it concluded petitioners had failed to exhaust their extrajudicial remedies by not presenting their specific objections to the BIDS at the appropriate public hearings.  The Court of Appeal applied a branch of the exhaustion doctrine known as issue exhaustion—administrative agencies must be given the opportunity to reach a reasoned and final conclusion on each and every issue upon which they have jurisdiction to act before those issues are raised in a judicial forum.

The California Supreme Court reversed the court of appeal, concluding that the opportunity to participate in a public comment session regarding a BID proposal does not involve procedures conducive to the submission, evaluation and especially the resolution of disputes comparable to those that are commonly found in administrative remedies that must be exhausted.  The  Supreme Court observed that its conclusion comports with its previous articulated understanding of Proposition 218’s goals—to stay true to the proposition’s intent, courts must apply their independent judgment when determining whether an agency has met the burdens assigned to it by section 4, subdivision (f) of the initiative—in any legal action contesting the validity of any assessment, the burden shall be on the agency to demonstrate that the property or properties in question receive a special benefit over and above the benefits conferred on the public at large and that the amount of any contested assessment is proportional to, and no greater than, the benefits conferred on the property or properties in question.  (Art. XIII D, section 4, subd. (f)).