Settlement between city, developer tossed out: state Supreme Court hears arguments in complicated building fee lawsuit.

REDDING _ A developer that has fought a variety of government fees levied by numerous jurisdictions had its day in front of the state Supreme Court in October. But during an hour of oral argument, California's high court justices offered few hints of how they might rule.

"I certainly find this to be a very technically difficult case," Justice Joyce Kennard commented at one point.

During its first-ever session in Redding, the state Supreme Court heard from Barratt American attorney Walter McNeill and California Building Industry Association attorney David Lanferman, who argued that the City of Rancho Cucamonga's build permit and plan review fees were excessive and that Barratt American was due a refund. Tilden Kim, representing the city, and Jeffrey Dunn, representing the League of California Cities and the California State Association of Counties, contended that Barratt American was relying on the wrong statute and had challenged the fees after the statute of limitations expired.

Barratt American has made a habit of suing local governments over fees. The English company often argues that fees do not reflect the cost of providing service, are actually illegal taxes and were improperly adopted. A particular target has been jurisdictions that use building valuations to determine fees. The company has had limited success in court, but it has forced some jurisdictions to change the way they calculate building permit fees.

The case at the Supreme Court involves a 123-unit Barratt American subdivision in Rancho Cucamonga. In 2002, the developer sued the city, arguing that the fees and fee schedule were improper because they were not based on the cost of providing service. Barratt American had paid the fees under protest and in court demanded a refund of $143,000.

Under its fee schedule, the city charges $555 for a building permit for construction valued at up to $100,000. The city charges an additional fee of $2.50 for every $1,000 in building value over $100,000. The plan review fees are a percentage of the building permit fees.

The developer presented numerous arguments to a San Bernardino County Superior Court judge and to the Fourth District Court of Appeal, but both courts ruled for the city (see CP&DR Legal Digest, July 2003).

At the state Supreme Court, Barratt American attorney McNeill said the company was not attacking the validity of the fees or the city's fee ordinance. Rather, the company wanted the city to reduce its fees by $3 million in excess revenue that the city collected over a period of years, to refund Barratt American $143,000 and to provide an annual audit of the fee revenues and expenditures.

With regard to the refund, McNeill argued that Government Code [section][section] 66020 and 66021 provide for refunds of "any kind of payment" related to approval of a development project.

Justice Kennard responded that [section] 66020 refers generally to development fees, while [section] 66016 addresses building permit fees. Why, she asked, should the general statute apply when there is a statute specifically for building permit fees?

The CBIA's Lanferman responded that [section] 66016 provides only a prospective remedy for excessive fees--namely, lower fees in the future. But, he argued, due process requires a retrospective remedy, and [section] 66021 provides for it.

"If the only remedy is the possibility that the city may review its fees from time to time ... that is no remedy for the fee payer who is overcharged now," Lanferman told the justices. "The fee payers don't consider themselves interchangeable."

Kim, the city's attorney, said that Barratt American and the CBIA were actually attacking the wisdom of the statutes, not the city's application of the laws. That line of reasoning prompted Kennard to ask whether the lack of a possible refund presented an "inherent unfairness" to Barratt American.

But Kim said any unfairness is a question for the Legislature. Government Code [section][section] 66014 and 66016 apply here because they speak directly to building permit fees--not to "development fees" that are collected specifically for public improvements related to a development, he argued.

Kim rejected the notion of annual audits, saying that state law does not require them and that they would be impractical because developments often take multiple years to complete.

Kim and Dunn also argued that Barratt American filed its challenge too late. The city first adopted the fee scheme in question in June 1999, and readopted it with only one typographical change in January 2002. The 120-day statute of limitations started to run in June 1999, but Barratt American filed its lawsuit in May 2002, Kim said.

"There is no question that this is a developer who waited too long to challenge this city's fee," contended Dunn, who said the statute of limitations issue was of great concern to local governments.

But McNeill countered that the January 2002 action was more than a mere recodification. The city went though the entire fee-justification process, and Barratt American filed within 120 days of the city's decision, he said.

The court is due to issue a decision by about the first of the year. The case is Barratt American v. City of Rancho Cucamonga, No. S117590.