By David P. Lanferman

In Barratt American, Inc. v. City of Rancho Cucamonga, the California Supreme Court clarified questions of procedure and potential remedies available in actions challenging building permit and inspection fees under the Mitigation Fee Act, California Government Code § 66000 et seq. (the “Act”). Appellant Barratt American had sued the City on the basis that its inspection and permit fees (1) exceeded the City’s costs of providing building inspection services; and (2) the City was improperly accumulating excessive fee revenues from its building permit operations. The Court agreed with lower court holdings that, when building inspection and permit fees are at issue, the only statutory relief was an action for invalidation of the resolution pursuant to Gov. Code § 66022. However, the Court disagreed with lower courts that Barratt’s action was barred by the 120-day statute of limitations applicable under § 66022, finding instead that the City’s reenactment and minor modification of the building permit fee schedule started a new limitations period. Lastly, the Court held that, when building inspection and permit fees are at issue, the appropriate remedy under the Act was not a refund but rather to reduce the fees going forward.

In Barratt American, Appellants sought multiple and alternate forms of relief, including (1) invalidation of the City’s fee resolutions under Gov. Code §§ 66021 or 66022, (2) refunds of the allegedly excessive fees paid by Appellant under Gov. Code § 60220, (3) and mandamus to require the City to apply the remaining excessive fee revenues to reduce the fees going forward under Gov. Code § 66016. The trial court and the Court of Appeal had held that the Appellant was not entitled to any relief, because the only statutory relief from questionable building permit fees was an action for invalidation of the resolution or other legislative act establishing the fees pursuant to Gov. Code § 66022. Since Appellants had not commenced their action within the statutory period set out in Gov. Code § 66022 — within 120 days of the City’s enactment of the fees in 2000 — the lower courts held that the action was time barred. The lower courts rejected the Appellants’ argument that the City’s re-enactment and minor modification of the building permit fee schedule in 2002 triggered a new statute of limitations period.

The Supreme Court affirmed the lower court holdings to the effect that the statutory remedy under the Act for a challenge to allegedly excessive building permit fees is the remedy provided by Gov. Code §§ 66014 and 66022, i.e., an action for invalidation of the fee resolution. The Court affirmed that other sections of the Act (Gov. Code §§ 66020 and 66021) which provide for actions seeking refunds of improperly imposed development fees are not applicable to challenges to building permit and inspection fees. The Court carefully interpreted the wording of the Fee Act to mean that that the statutory “pay under protest” and sue for a refund remedy included in those section is applicable only to “development fees” as defined in § 66000, i.e., fees which are levied “in connection with the approval of a development project.” The Court concluded that fees assessed for building inspections and building permits are distinct from “development fees” generally. Rather, the Court considered the inspection and permit fees to be fees “to defray the administrative and enforcement costs of a local regulatory program.” Based on this distinction, the Court concluded that the appropriate remedy under the Act simply would be a prospective reduction of the fee in question. (Gov. Code § 66016.) Importantly, the Court also affirmed lower court rulings that water and sewer connection fees are properly considered regulatory fees, thus not eligible for the statutory refund remedy provided in § 66020.

The Supreme Court, however, reversed the lower courts with regard to the statute of limitations under Gov. Code § 66022. The Court adopted a “re-enactment rule,” holding that the City’s re-enactment of the fee resolution in 2002, even if done to merely correct typographical errors in the previously adopted fee schedule, commenced a new 120-day statute of limitations for a challenge to the re-enacted fees, regardless of the purpose of the City’s re-enactment.

The Court acknowledged the potential inequity of interpreting the Fee Act to limit relief for such fees to the prospective reduction remedy. That is, one fee payer would shoulder the burden of successfully challenging such illegal “regulatory” fees without receiving any individualized relief, only to allow future applicants, including competitors, to reap the benefits of the challenge. The Court concluded, however, that this issue of inequity is a matter to be addressed by the legislature.

For more information please contact David Lanferman. Dave Lanferman is a member of the Real Estate, Land Use and Environmental Practice Group in the firm’s San Francisco office.