DATE: July 19, 2022
TO: Honorable Mayor and City Council
FROM: Dominic Lazzaretto, City Manager
By: Dr. Jennifer Brutus, Senior Management Analyst
Chile Gomez, Administrative Intern
SUBJECT: ORDINANCE NO. 2393 AMENDING THE ARCADIA MUNICIPAL CODE BY ADDING PART 10 TO CHAPTER 6 OF ARTICLE II (“THE
ADMINISTRATION CODE”) TO ESTABLISH AN ATTORNEY FEES
RECOVERY PROVISION FOR PREVAILING LITIGATION RELATED TO
ALL LOCAL TAX COLLECTION MATTERS WITH AN EXEMPTION
FROM THE CALIFORNIA ENVIRONMENTAL QUALITY ACT (“CEQA”)
Recommendation: Introduce
SUMMARY
In 2021, the City of Arcadia was a prevailing party in litigation with Southern California Edison Corporation (“SCE”) due to SCE’s under collection of Utility Users Tax (“UUT”), resulting in lost UUT revenue for the City. The City is entitled to penalties as a result of a tax operator’s improper assessment of UUT, but not attorney fees as no section of the Arcadia Municipal Code explicitly calls for this type of restitution. If the City were to become involved in future litigation with any another local tax collector, it is in the best interest of the City to be able to recover its attorney fees. Therefore, it is recommended that City Council introduce Ordinance No. 2393 (Attachment No. 1) updating the City Code to establish an attorney fees recovery provision for all tax collection matters, including but not limited to current local taxes established by ordinance such as UUT and Transit Occupancy Tax (“TOT”), and any future local taxes established by ordinance hereinafter approved by the voters of the City.
BACKGROUND
The City has been party to ongoing litigation with Southern California Edison, in which the City is one of many cities (the SCE Coalition Clients) being represented in a case involving SCE’s under collection of UUT, which resulted in a loss of revenue for the City.
The appellate court ruled in favor of the SCE Coalition Clients and directed that SCE start to collect the tax properly.
Ordinance No. 2393 - Attorney Fees Recovery Provision for Tax Matters July 19, 2022
According to the Arcadia Municipal Code, the City is entitled to penalties and interest as a result of the improper assessment of UUT and simple negligence (in the amount of 15%). However, the City Code is silent on whether the City is also entitled to recovery of attorney fees in a legal matter such as this.
Of all the SCE Coalition Cities, 67%, or 27 cities, have an attorney fees recovery provision in their Municipal Codes. Therefore, it is in the best interest of the City, when it is a prevailing party in any action, to be entitled to recover its attorney fees.
DISCUSSION
If the City were to become involved in similar future litigation with any local tax collector, it is in the best interest of the City to be reimbursed its attorney fees. Thus, the City Code should be amended to add an attorney fees recovery provision for all tax collection matters, including but not limited to current taxes established by ordinance such as UUT, TOT, or any future local taxes imposed by the voters of the City.
As a result of this amendment, the City will be entitled to recover reasonable attorney’s fees when determined to be the prevailing party in any action or proceeding involving tax matters. Under the new sections, any action to collect by a prevailing party shall not exceed the amount of the City’s actual attorney fees incurred in the action or proceeding; and the City must also elect, at the initiation of the action or proceeding, to seek recovery of its own attorney's fees.
It should be noted that the City Code already includes language for recovery of attorney fees in matters related to public nuisances or code enforcement cases. Ordinance No. 2393 will serve as a catch-all attorney fees recovery provision for actions by the City to collect taxes.
ENVIRONMENTAL ANALYSIS
The proposed action does not constitute a project under the California Environmental Quality Act (“CEQA”), and it can be seen with certainty that it will have no impact on the environment. Thus, this matter is exempt under CEQA under Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines.
FISCAL IMPACT
As a result of adopting Ordinance No. 2393, the City will help increase cost recovery in prevailing litigation related to tax collection matters involving current and future local taxes by ordinance.
Ordinance No. 2393 - Attorney Fees Recovery Provision for Tax Matters July 19, 2022
RECOMMENDATION
It is recommended that the City Council introduce Ordinance No. 2393 to amend the Arcadia Municipal Code by adding Part 10 to Chapter 6 of Article II (“The Administration Code”) to establish an attorney fees recovery provision for prevailing litigation related to all local tax collection matters with an exemption from the California Environmental Quality Act (“CEQA”).
Attachment No. 1: Ordinance No. 2393
Attachment No. 1