Case Title: Zolly v. City of Oakland

Citation: 

Docket Number: S262634

State: california

Court: California Supreme Court

Date: 2022-08-11T00:00:00Z

Document:
IN THE SUPREME COURT OF 
CALIFORNIA 
 
ROBERT ZOLLY et al., 
Plaintiffs and Appellants, 
v. 
CITY OF OAKLAND 
Defendant and Respondent. 
 
S262634 
 
First Appellate District, Division One 
A154986 
 
Alameda County Superior Court 
RG16821376 
 
 
August 11, 2022 
 
Justice Liu authored the opinion of the Court, in which Chief 
Justice Cantil-Sakauye and Justices Kruger, Groban, and 
Guerrero concurred. 
 
Justice Jenkins filed a concurring opinion, in which Justice 
Corrigan concurred. 
 
1 
ZOLLY v. CITY OF OAKLAND 
S262634 
 
Opinion of the Court by Liu, J. 
 
Through a series of ballot initiatives, California voters 
have imposed several constitutional limitations on the ability of 
local governments to tax.  Because these limitations may apply 
to charges that a local government does not formally designate 
as taxes, whether particular charges fall within the scope of the 
Constitution’s taxation limitations is a recurring issue that both 
voters and the courts have addressed. 
In 2012, the City of Oakland approved two contracts 
granting private waste haulers the right to “transact business, 
provide services, use the public street and/or other public places, 
and to operate a public utility” for waste collection services.  As 
“consideration for the special franchise right,” the waste haulers 
agreed to pay certain fees to Oakland.  We granted review to 
decide how such fees should be treated under article XIII C of 
the California Constitution, which sets forth voter approval 
requirements that apply to taxes imposed by local government.  
(All references to articles are to the California Constitution.)  
Oakland claims that article XIII C, as amended in 2010 by 
Proposition 26, categorically exempts its challenged fees from 
such voter approval requirements, while plaintiffs Robert Zolly, 
Ray McFadden, and Stephen Clayton argue that the fees are 
exempt only if the amount of the fee bears a reasonable 
relationship to the value of the franchise. 
We hold that Oakland has not shown on demurrer that its 
challenged fees are exempt from article XIII C’s voter approval 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
2 
requirements.  Accordingly, we affirm the Court of Appeal’s 
judgment. 
I.   
Proposition 26 provides the general definition of a “tax” 
and a list of enumerated exemptions that are at the center of 
this dispute.  To understand this measure, it is helpful to place 
it in the context of other voter initiatives that have limited the 
ability of local governments to tax, beginning in 1978 with the 
passage of Proposition 13. 
Proposition 13 required the imposition of any “special 
taxes” to be approved by two-thirds of the qualified electors of 
the city, council, or special district.  (Art. XIII A, § 4.)  
Proposition 13 did not define “special taxes.”  In City and County 
of San Francisco v. Farrell (1982) 32 Cal.3d 47, “we construe[d] 
the term ‘special taxes’ . . . to mean taxes which are levied for a 
specific purpose . . . .”  (Id. at p. 57.) 
In 1996, California voters passed Proposition 218, which 
amended the Constitution’s voter approval requirements for 
local revenue-raising measures by adding articles XIII C and 
XIII D.  (Citizens for Fair REU Rates v. City of Redding (2018) 
6 Cal.5th 1, 10.)  Article XIII D, which is not relevant here, 
“limits the authority of local governments to assess taxes and 
other charges on real property.”  (Citizens for Fair REU Rates, 
at p. 11.)  Article XIII C “buttresses article XIII D by limiting 
the other methods by which local governments can exact 
revenue using fees and taxes not based on real property value 
or ownership.”  (Citizens for Fair REU Rates, at p. 10.)  
Specifically, article XIII C provides that “[a]ll taxes imposed by 
any local government shall be deemed to be either general taxes 
or special taxes.”  (Art. XIII C, § 2, subd. (a).)  General taxes 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
3 
must be approved by a majority vote at a general election, while 
special taxes must be approved by a two-thirds vote.  
(Art. XIII C, § 2, subds. (b), (d).) 
Proposition 218 did not define what constitutes a “tax.”  
The electorate addressed that issue in 2010 with the enactment 
of Proposition 26.  (Jacks v. City of Santa Barbara (2017) 3 
Cal.5th 248, 260 (Jacks).)  This measure amended article XIII C 
to provide that a “ ‘tax’ means any levy, charge, or exaction of 
any kind imposed by a local government.”  (Art. XIII C, § 1, 
subd. (e).)  This general definition is qualified by seven 
exemptions: 
“(1) A charge imposed for a specific benefit conferred or 
privilege granted directly to the payor that is not provided to 
those not charged, and which does not exceed the reasonable 
costs to the local government of conferring the benefit or 
granting the privilege.  
“(2) A charge imposed for a specific government service or 
product provided directly to the payor that is not provided to 
those not charged, and which does not exceed the reasonable 
costs to the local government of providing the service or product. 
“(3) A charge imposed for the reasonable regulatory costs 
to a local government for issuing licenses and permits, 
performing investigations, inspections, and audits, enforcing 
agricultural 
marketing 
orders, 
and 
the 
administrative 
enforcement and adjudication thereof.  
“(4) A charge imposed for entrance to or use of local 
government property, or the purchase, rental, or lease of local 
government property. 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
4 
“(5) A fine, penalty, or other monetary charge imposed by 
the judicial branch of government or a local government, as a 
result of a violation of law.   
“(6) A charge imposed as a condition of property 
development.   
“(7) Assessments and property-related fees imposed in 
accordance with the provisions of Article XIII D.”  (Art. XIII C, 
§ 1, subd (e)(1)–(7).)  Here the parties dispute the scope of the 
fourth exemption. 
Following this list of exemptions, Proposition 26 provides 
that “[t]he local government bears the burden of proving by a 
preponderance of the evidence that a levy, charge, or other 
exaction is not a tax, that the amount is no more than necessary 
to cover the reasonable costs of the governmental activity, and 
that the manner in which those costs are allocated to a payor 
bear a fair or reasonable relationship to the payor’s burdens on, 
or 
benefits 
received 
from, 
the governmental 
activity.”  
(Art. XIII C, § 1, subd. (e).) 
Proposition 26 also amended article XIII A to include a 
similar, though not identical, definition and list of exemptions 
regarding what constitutes a tax imposed by the state 
government.  (Art. XIII A, § 3.) 
II. 
In this case, the trial court sustained Oakland’s demurrer 
to plaintiffs’ second amended complaint alleging that certain 
franchise fees were imposed in violation of article XIII C.  In 
considering whether a demurrer should have been sustained, 
“we accept as true the well-pleaded facts in the operative 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
5 
complaint . . . .” (Aryeh v. Canon Business Solutions, Inc. (2013) 
55 Cal.4th 1185, 1189, fn. 1.) 
Plaintiffs allege that in 2012, Oakland initiated a 
procurement process for franchise contracts regarding garbage, 
mixed materials and organics, and residential recycling 
services.  Following a settlement between the two firms that 
submitted proposals, Oakland awarded the garbage and mixed 
materials contracts to one firm and the residential recycling 
contract to the other firm.   
Oakland’s ordinance approving the mixed materials and 
organics contract provided for an initial annual franchise fee of 
$25,034,000, with subsequent franchise fees “ ‘ “adjusted 
annually by the percentage change in the annual average of the 
Franchise Fee cost indicator.” ’ ”  (Zolly v. City of Oakland (2020) 
47 Cal.App.5th 73, 79 (Zolly).)  Thereafter, Oakland passed an 
ordinance reducing this franchise fee by $3.24 million.  The 
ordinance approving the residential recycling contract provided 
for an initial annual franchise fee of $3,000,000, with a similar 
mechanism for annual adjustments. 
Based on “ ‘citizen complaints,’ ” an Alameda County 
grand jury “ ‘undertook a comprehensive investigation related 
to the solicitation and award’ ” of these contracts.  (Zolly, supra, 
47 Cal.App.5th at p. 79.)  The grand jury found that Oakland’s 
fees were disproportionately higher than franchise fees paid to 
other Bay Area municipalities and special districts.  It also 
found Oakland’s procurement process was mishandled and 
subject to political considerations. 
Plaintiffs are owners of multifamily properties who pay 
their tenants’ waste collection bills.  Their second amended 
complaint alleges that Oakland’s fees violated article XIII C 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
6 
because “ ‘[n]either of the franchise fees bears a reasonable 
relationship to the value received from the government and they 
are not based on the value of the franchises conveyed.’ ”  (Zolly, 
supra, 47 Cal.App.5th at p. 81.)  The trial court sustained 
Oakland’s demurrer to the second amended complaint, finding 
that plaintiffs’ allegations that the challenged fees were passed 
along indirectly to ratepayers were insufficient to establish that 
they were taxes imposed on consumers.  The Court of Appeal 
affirmed in part and reversed in part.  As relevant here, it held 
that plaintiffs adequately stated a cause of action under article 
XIII C by alleging that Oakland’s challenged fees did not bear a 
reasonable relationship to the franchises’ values, as required by 
section 1, subdivision (e) of that article. 
The Court of Appeal relied on our opinion in Jacks, supra, 
3 Cal.5th 248.  There, we addressed the circumstances in which 
franchise fees constitute “taxes” subject to the Constitution’s 
voter approval requirements.  Because the franchise fee there 
had been imposed prior to 2010, we limited our discussion to the 
interpretation of Proposition 218.  (Jacks, supra, 3 Cal.5th at 
p. 263, fn. 6.)  First, we acknowledged that “franchise fees” have 
“[h]istorically . . . not been considered taxes.”  (Id. at p. 267.)  
Next, we observed that the common denominator among the 
“categories of valid fees” we had previously recognized as falling 
outside the Constitution’s taxation limitations was that the 
charge or fee “was restricted to an amount that had a reasonable 
relationship to the benefit or cost on which it was based.”  (Id. 
at pp. 267–268.)  This “broader focus on the relationship 
between a charge and the rationale underlying the charge 
provides guidance in evaluating whether the [franchise fee in 
question was] a tax.”  (Id. at p. 269.)  We held that although a 
franchise fee is not per se a tax, “[t]o the extent a franchise fee 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
7 
exceeds any reasonable value of the franchise, . . . the excessive 
portion is a tax.”  (Ibid.)   
The Court of Appeal first rejected Oakland’s argument 
that Jacks’s holding should be limited to the narrow context 
where a surcharge is placed directly on customers’ bills, instead 
reasoning that “Jacks instructs us to look beyond any label and 
determine whether such a fee ‘reflect[s] a reasonable estimate of 
the value of the franchise.’ ”  (Zolly, supra, 47 Cal.App.5th at 
p. 85.) 
The Court of Appeal then considered whether the adoption 
of Proposition 26 altered the analysis.  The court assumed the 
applicability of article XIII C, section 1, subdivision (e)(4), which 
refers to charges “imposed for entrance to or use of local 
government property, or the purchase, rental, or lease of local 
government property,” and then focused its analysis on whether 
that exemption contained a reasonableness requirement.  (Zolly, 
supra, 47 Cal.App.5th at p. 86.)  The Court of Appeal observed 
that although the text of the specific exemption lacked an 
express reasonableness requirement, article XIII C, section 1, 
subdivision (e) contained a “broad statement regarding the 
government’s burden of proof,” including a requirement that the 
local government bear the burden of proving that a charge is 
“ ‘no more than necessary to cover the reasonable costs of the 
governmental activity.’ ”  (Zolly, at p. 86.) 
Turning to the ballot materials, the Court of Appeal found 
that they “uniformly indicate a desire to expand the definition 
of what constituted a ‘tax’ for purposes of article XIII C.”  (Zolly, 
supra, 47 Cal.App.5th at p. 87.)  This included the specific intent 
to prevent local governments from disguising taxes as “fees” in 
order to generate revenue without adhering to existing voter 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
8 
approval requirements.  (Ibid.)  In light of this “clear” intent to 
close loopholes and expand the definition of a tax, the Court of 
Appeal concluded that franchise fees “must still be reasonably 
related to the value of the franchise” to be exempt under article 
XIII C, section 1, subdivision (e).  (Zolly, at p. 88.) 
In addition, the Court of Appeal rejected Oakland’s 
argument that the challenged fees were not taxes “ ‘ “imposed 
by 
local 
government” ’ ” 
because 
they 
were 
merely 
“consideration” for a contract negotiated between Oakland and 
the utilities.  (Zolly, supra, 47 Cal.App.5th at p. 88.)  The Court 
of Appeal reasoned that allowing charges to escape the bounds 
of article XIII C on that theory would enable local governments 
to contract with third parties to impose a desired tax on 
residents, thereby undermining the purposes of Propositions 
218 and 26.  (Zolly, at p. 88.)  The Court of Appeal also reasoned 
that our opinion in Jacks “implicitly rejected this argument.”  
(Zolly, at p. 88.)  In particular, the Court of Appeal observed that 
although the charge at issue in Jacks was similarly established 
“ ‘[p]ursuant to an agreement between [the utility provider] and 
defendant City of Santa Barbara,’ ” this fact did not 
automatically exempt the charge from being treated as a tax.  
(Zolly, at pp. 88–89, quoting Jacks, supra, 3 Cal.5th at p. 254.)  
Instead, the court held, the crux of the analysis remained 
whether the fees imposed bear a reasonable relationship to the 
value received from the government.   
III. 
As an initial matter, Oakland argues that plaintiffs lack 
standing because they are not “directly obligated” to pay for the 
franchise fees; instead, any economic injury they suffer is only 
indirectly passed on to them in the form of waste management 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
9 
fees charged by the waste haulers.  Although Oakland did not 
raise this issue below, “ ‘[c]ontentions based on a lack of 
standing involve jurisdictional challenges and may be raised at 
any time in the proceeding.’ ”  (Californians for Disability Rights 
v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 233, quoting Common 
Cause v. Board of Supervisors (1989) 49 Cal.3d 432, 438.)  
Absent specific requirements for a statutory cause of 
action, standing in civil cases is governed by the “general 
standing requirements under [Code of Civil Procedure] section 
367.”  (Weatherford v. City of San Rafael (2017) 2 Cal.5th 1241, 
1249.)  Code of Civil Procedure section 367 requires that an 
action “be prosecuted in the name of the real party in interest,” 
and we have defined a “ ‘real party in interest’ ” as “ ‘any person 
or entity whose interest will be directly affected by the 
proceeding,’ ” including anyone with “ ‘a direct interest in the 
result.’ ”  (Connerly v. State Personnel Bd. (2006) 37 Cal.4th 
1169, 1178, quoting Sonoma County Nuclear Free Zone ‘86 v. 
Superior Court (1987) 189 Cal.App.3d 167, 173.)  In their 
operative complaint, plaintiffs allege that Oakland’s fees have 
caused their waste collection rates to increase every month.  
Such “lost money or property . . . is itself a classic form of injury 
in fact.”  (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 
323.)  Accordingly, plaintiffs’ allegations of economic injury 
caused by the challenged fees are sufficient to confer standing.     
Oakland relies on Chiatello v. City and County of San 
Francisco (2010) 189 Cal.App.4th 472 (Chiatello) and County 
Inmate Telephone Service Cases (2020) 48 Cal.App.5th 354 
(County Inmate) for the proposition that plaintiffs must be 
directly obligated to pay the fees in order to challenge them 
under Proposition 26.  But those cases are distinguishable. 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
10 
Although Oakland reads Chiatello to establish a general 
limitation on standing in tax challenges, Chiatello involved a 
specific statutory cause of action under Code of Civil Procedure 
section 526a.  (Chiatello, supra, 189 Cal.App.4th at pp. 480–
481.)  For that specific cause of action, the relevant statutory 
provisions limited standing to an individual “ ‘who is assessed 
for and is liable to pay . . . a tax’ ” in a given “ ‘county, town, city, 
or city and county of the state . . . .’ ”  (Id. at p. 481, citing Code 
Civ. Proc., § 526a.)  No similar requirement is present in article 
XIII C. 
In County Inmate, inmates in nine counties challenged the 
allegedly inflated commissions paid by telecommunications 
companies to the counties under contracts giving them the 
exclusive right to provide telephone services.  The inmates 
alleged that the companies passed on the cost of the 
commissions to the inmates and their families.  But the Court of 
Appeal held that because the inmates had “no legal 
responsibility to pay anything to the counties,” they lacked 
standing to “contend the commissions are an unconstitutional 
tax” under Proposition 26 and to seek a refund of those taxes.  
(County Inmate, supra, 48 Cal.App.5th at pp. 361, 360.)  As 
support for a “general rule . . . that a person may not sue to 
recover excess taxes paid by someone else,” the court cited 
Grotenhuis v. County of Santa Barbara (2010) 182 Cal.App.4th 
1158.  (County Inmate, at p. 360.)  But that decision does not 
claim to pronounce any general limitation on standing.  Instead, 
Grotenhuis involved the statutory requirements for a “tax 
refund action” under Revenue and Taxation Code section 5140, 
which expressly limits such an action to a “ ‘person who paid the 
tax.’ ”  (Grotenhuis, at p. 1164.)  That provision governs refund 
actions involving property taxes; different provisions apply to 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
11 
refunds involving other forms of taxes.  (See Rev. & Tax. Code, 
§ 19382 [franchise and income taxes]; id., § 6932 [sales and use 
taxes].)  Accordingly, County Inmate’s reliance on Revenue and 
Taxation Code section 5140 as support for a general limitation 
on standing in all cases where plaintiffs seek a tax refund, 
without regard to the specific form of tax at issue, is misplaced.   
In light of plaintiffs’ allegations of an economic injury 
caused by the challenged fees, we hold that plaintiffs have 
standing to file this suit. 
IV. 
In arguing that its challenged fees are not subject to the 
Constitution’s voter approval requirements, Oakland first 
contends that the fees in question do not fall within Proposition 
26’s general definition of a “tax” due to the manner in which they 
were negotiated and agreed upon.  Second, Oakland argues that 
even if the fees fall within the definition of a “tax,” Proposition 
26 
categorically 
exempts 
all 
franchise 
fees 
from 
the 
Constitution’s voter approval requirements.  We address each 
argument in turn. 
A. 
Turning to the general definition of a “tax” under 
Proposition 26, Oakland does not dispute its fees are a “levy, 
charge, or exaction of any kind.”  (Art. XIII C, § 1, subd. (e).)  
Instead, Oakland argues that these fees are not “imposed by a 
local government” because they were a product of voluntary 
contractual negotiations and are thus “consideration paid in 
exchange for those valuable franchise rights, including the right 
to do business with the municipality.”  Plaintiffs argue that 
Oakland’s view would improperly add a “coercion requirement” 
to the term “imposed.”  According to plaintiffs, it is sufficient 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
12 
that Oakland “established” the fees by exercising its legal 
authority to execute the two franchise agreements and then 
enacted those charges into law by ordinance.  We agree with 
plaintiffs. 
The text of article XIII C dispels the notion that a local 
government can only “impose[]” a tax by means of coercion.  We 
have held, in the context of the Constitution’s taxation 
provisions, that the “ordinary meaning” of “ ‘impose’ ” is merely 
to “ ‘establish.’ ”  (California Cannabis Coalition v. City of 
Upland (2017) 3 Cal.5th 924, 944.)  Additionally, the term 
“imposed” is used multiple times throughout article XIII C, 
including in the first and second exemptions.  (Art. XIII C, § 1, 
subd. (e)(1), (2).)  Because those exemptions apply to situations 
where a private party is paying a charge in exchange for a 
government benefit, service, or product, they plainly cover 
transactions 
resulting 
from 
contractual 
and 
voluntary 
negotiations between a private party and local government 
entity. 
Proposition 26’s use of the same term when referring to 
development charges, another form of voluntary charges, also 
indicates that the word “imposed” was not intended to limit 
article XIII C’s application to situations involving compulsory 
charges.  Prior to Proposition 26, courts had recognized that a 
general distinction between taxes and other charges was that 
“[m]ost taxes are compulsory rather than imposed in response 
to a voluntary decision to develop or to seek other government 
benefits or privileges.”  (Sinclair Paint Co. v. State Bd. of 
Equalization (1997) 15 Cal.4th 866, 874.)  Case law typically 
justified excluding property development charges from the 
category of special taxes on that basis.  (See, e.g., Shapell 
Industries, Inc. v. Governing Board (1991) 1 Cal.App.4th 218, 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
13 
240 [“Under one line of reasoning, development fees are not 
taxes at all since . . . they are not compulsory but rather apply 
only to those who voluntarily choose to develop”]; Terminal 
Plaza Corp. v. City and County of San Francisco (1986) 177 
Cal.App.3d 892, 907 [reasoning that development fee was not a 
special tax where it “is not compulsory in nature”].)  Against this 
backdrop, Proposition 26’s use of the term “imposed” in 
connection with these voluntary development fees confirms that 
the voters did not intend to limit the term to situations where a 
charge is imposed through coercion.  (See Art. XIII C, § 1, 
subd. (e)(6) [“[a] charge imposed as a condition of property 
development”].) 
Relatedly, Oakland argues that its fees were not 
“imposed” on customers because customers “may” only feel the 
indirect impact of those charges if the service provider uses it as 
“one cost factor among many in setting rates to customers.”  But 
as explained above, whether customers were directly obligated 
to pay the charge to Oakland is immaterial.  It is sufficient that 
Oakland, pursuant to its legal authority, enacted these 
franchise fee agreements into law, thereby imposing these fees 
on the waste haulers that are indisputably obligated to pay 
them.  If Oakland is suggesting there is uncertainty as to 
whether any portion of customers’ bills is actually attributable 
to the fees, that is a factual issue bearing on plaintiffs’ 
allegations of financial injury that cannot be resolved on 
demurrer. 
B. 
Having determined that the challenged fees fall within 
Proposition 26’s general definition of a tax, we now consider 
whether Oakland has demonstrated on demurrer that these fees 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
14 
are exempt from the Constitution’s voter approval requirements 
by virtue of Proposition 26’s express exemptions.     
While the parties’ briefing initially focused on whether 
article XIII C, section 1, subdivision (e)(4) (Exemption 4) 
includes 
a 
reasonableness 
requirement, 
we 
ordered 
supplemental briefing on the antecedent question of whether 
Oakland’s fees fall within the scope of that exemption.  In 
response, Oakland makes two arguments based on Exemption 
4’s two clauses.  First, it contends that because the franchise at 
issue includes both the right to use government property and 
the right to take profit from that use, it is itself a form of “local 
government property.”  Accordingly, any fee paid for the 
franchise constitutes a “charge imposed for . . . the purchase . . . 
of local government property” under the second clause of 
Exemption 4.  Second, Oakland argues that its fees also qualify 
as charges “imposed for . . . use of local government property” 
under the first clause of Exemption 4 because “the right to ‘use 
the public street and/or other public places’ was expressly 
identified as one part of the franchise property interests 
conveyed by Oakland to the private waste-haulers.”   
Beginning with the second clause of Exemption 4, we 
reject Oakland’s argument that a franchise is “local government 
property” within the meaning of article XIII C.  It is true that 
we stated in Jacks and other cases that “[a] franchise to use 
public streets or rights-of-way is a form of property . . . .”  (Jacks, 
supra, 3 Cal.5th at p. 262; see City & Co. of S.F. v. Market St. 
Ry. Co. (1937) 9 Cal.2d 743, 747 [“A franchise is property.”].)  
But none of those general statements were made in relation to 
the term “local government property” as used in article XIII C. 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
15 
The word “property” is commonly used in two different 
senses.  First, “ ‘property’ is used simply to refer to the physical 
object in question — that is the thing itself.”  (Pacific Gas & 
Electric Co. v. Hart High-Voltage Apparatus Repair & Testing 
Co., Inc. (2017) 18 Cal.App.5th 415, 426.)  Second, the word may 
“ ‘ “denote the legal interest (or aggregate of legal relations) 
appertaining to such physical object.” ’  [Citation.]  When used 
in the latter sense, ‘property’ is composed of a ‘ “complex 
aggregate of rights (or claims), privileges, powers, and 
immunities.” ’ ”  (Ibid.; see also In re L.T. (2002) 103 
Cal.App.4th 262, 263; 51 Cal.Jur.3d (2022) Property, § 1.)  
Oakland, invoking this latter sense of the word, argues that a 
franchise is “local government property” because it is a “bundle 
of property interests.”  Similarly, our previous statements 
equating franchises to “property” were premised on this broader 
understanding.  (See Jacks, supra, 3 Cal.5th at p. 254 [“the right 
to use public streets or rights-of-way is a property interest”], 
italics added.) 
However, the term “local government property” in article 
XIII C seems to refer to physical objects under the control of a 
local government, such as its streets and rights-of-way.  The 
first clause of Exemption 4 refers to charges imposed for “the 
entrance to or use of local government property,” suggesting 
that “local government property” means physical land, objects, 
or equipment that those who pay the charge can either enter or 
use.  The second clause of Exemption 4 refers to “the purchase, 
rental, or lease of local government property”; there, too, the 
phrase seems readily understood to mean tangible property 
such as land or buildings.  Similarly, article XIII C, section 1, 
subdivision (e)(6) and (7) refers to a “charge imposed as a 
condition of property development” and to “[a]ssessments and 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
16 
property-related fees imposed in accordance with the provisions 
of Article XIII D.”  In both contexts, the term “property” refers 
to actual physical objects or land, not property interests in such 
objects.  (See art. XIII D, § 2, subd. (g) [defining “property 
ownership” as including “tenancies of real property”].) 
But even if the term “property” in article XIII C includes 
property interests such as franchises, we conclude that a 
franchise cannot be local government property within the 
meaning of article XIII C for a separate reason.  Although a 
franchise becomes a property interest that vests in the holder 
once granted, it does not exist as the local government’s property 
prior to that vesting.  Even when we have referred to franchise 
rights as “property,” we have never held that such rights are 
property of the government awarding the franchise.  Instead, we 
have characterized a franchise as “property rights created by the 
original grant” (O’Sullivan v. Griffith (1908) 153 Cal. 502, 505), 
which are then “ ‘vested in [the] individuals’ ” who own the 
franchise (Spring Valley W. W. v. Schottler (1882) 62 Cal. 69, 
106).  Because a franchise “becomes property in the legal sense 
of the word” only “[w]hen granted” to a franchise-holder (12 
McQuillin, The Law of Municipal Corporations (3d ed. 2006) 
§ 34.2), it cannot be said to be property belonging to the local 
government before the grant occurs.  It is not “local government 
property” under article XIII C. 
At oral argument, counsel suggested that Oakland, even 
though it does not have a property interest in the franchise 
itself, nonetheless has a property interest in its antecedent right 
to grant a franchise.  But even if so, the challenged fees here 
were paid for the franchise that vested in the payors, not for the 
right to grant that franchise to another party.  Accordingly, the 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
17 
fees were not for the “purchase of” the “local government 
property” that Oakland posits. 
We turn next to Oakland’s argument regarding the first 
clause of Exemption 4 — namely, that the fees are charges 
“imposed for . . . use of local government property.”  Here, 
Oakland relies on our general statement in Jacks describing a 
franchise as encompassing “the right to use public streets or 
rights-of-way” (Jacks, supra, 3 Cal.5th at p. 254) and the terms 
of the specific ordinances enacting its challenged fees.  The 
ordinances describe the franchises as including the rights to 
“transact business, provide services, use the public street and/or 
other public places, and to operate a public utility for Mixed 
Materials and Organics [or Residential and Commercial 
Recycling] collection services.”  We conclude that Oakland has 
not proven, on demurrer, that its challenged fees fall within the 
first clause of Exemption 4. 
Oakland has not demonstrated as a matter of law that the 
payors paid the challenged fees in exchange for a specific use of 
government property that they would not have enjoyed had they 
not paid the fee.  The text of Exemption 4 supports such a fact-
specific requirement by focusing on the actual benefit exchanged 
between the payor and local government.  Exemption 4 does not 
use the term “franchise fees”; instead, it exempts “[a] charge 
imposed for entrance to or use of local government property.”  By 
describing the qualitative rationale for the charge instead of 
using any formal labels, this language indicates that the voters 
intended to exempt only those fees that adhered to the rationale 
underlying that exemption — i.e., fees paid as consideration for 
a specific use of government property.   
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
18 
Comparing this language to article XIII C’s other 
enumerated exemptions reinforces this conclusion.  Like 
Exemption 4, the first two exemptions use the same “imposed 
for” language when referring to a charge paid in exchange for an 
exclusive benefit — “a specific benefit conferred or privilege 
granted” (art. XIII C, § 1, subd. (e)(1)) or “a specific government 
service or product” (id., subd. (e)(2)).  Article XIII C, section 1, 
subdivision (e)(3) also uses this “imposed for” language when 
referring to situations where a payor pays a fee in exchange for 
the provision of government services that allow it to operate in 
a regulated sphere.  (See Voter Information Guide, Gen. Elec. 
(Nov. 2, 2020), analysis of Prop. 26 by Legis. Analyst, p. 58 
[distinguishing between “regulatory fees” that “benefit the 
public broadly, rather than providing services directly to the fee 
payer”].)  Accordingly, when Exemption 4 refers to a charge 
“imposed for . . . use of local government property,” that latter 
term is most sensibly read to refer to the specific benefit that is 
being exchanged.  By contrast, article XIII C, section 1, 
subdivision (e)(5) employs different language — “imposed by [a 
government entity] as a result of a violation of law” — when 
describing fines or penalties.  (Italics added.)  Such a distinction 
makes sense because fines and penalties are not paid in 
exchange for a specific benefit. 
So understood, Exemption 4’s “imposed for” language 
applies naturally to traditional types of entrance and user fees 
for local government property.  For fees such as a park entrance 
fee, there is little question that payment is a necessary condition 
for “entrance to or use of” the property.  (Art. XIII C, C, § 1, 
subd. (e)(4).)  In other words, entrance to or use of a public park, 
bridge, or other government property is limited unless the 
entrance or user fee is paid.  Specific kinds of franchise fees may 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
19 
also meet this requirement.  In Jacks, for example, the utility 
had obtained a right to “construct and use equipment along, 
over, and under” public roadways to facilitate the distribution of 
electricity.  (Jacks, supra, 3 Cal.5th at p. 254.)  By paying the 
franchise fee, the utility there had gained a specific “use of local 
government property” beyond what was otherwise available to 
the public (i.e., an easement to install equipment).  (Art. XIII C, 
§ 1, subd. (e)(4), see also Mahon v. City of San Diego (2020) 57 
Cal.App.5th 681, 683–684 [describing a “franchise fee” paid by a 
private electric utility to a city as compensation for the 
“undergrounding” of electrical equipment].)   
Here, Oakland has yet to demonstrate that the waste 
management providers gained any “use of local government 
property” in exchange for their payment of the challenged fees.  
(Art. XIII C, § 1, subd. (e)(4).)    Although the ordinances refer to 
the service providers’ ability to “use the public street and/or 
other public places,” Oakland has not established that this “use” 
means anything more than the generally available prerogative 
to drive on public roads and rights-of-way.  (Cf. City of San Diego 
v. Southern Cal. Tel. Co. (1949) 92 Cal.App.2d 793, 800 [“There 
is a natural distinction between the ordinary use of streets by 
the public for travel and other purposes, and the exclusive and 
more or less permanent use of portions of streets for [utilities to 
lay their equipment].”].)  Counsel for Oakland suggested during 
oral argument that the waste haulers may have attained the 
special ability to drive heavy vehicles and to place waste 
receptables on Oakland’s streets, but these statements by 
counsel are not evidence and do not amount to an admission or 
stipulation of fact.  (Adelstein v. Greenberg (1926) 77 Cal.App. 
548, 552.)  Because there is a factual question as to whether the 
challenged fees were paid as consideration for a special “use of 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
20 
local government property” within the meaning of article XIII C, 
the applicability of Exemption 4’s first clause cannot be resolved 
in Oakland’s favor on demurrer.  As we conclude Oakland has 
not demonstrated that Exemption 4 applies to its challenged  
fees, we do not address the Court of Appeal’s holding that 
Exemption 4 should be interpreted to include a requirement 
that an exempt fee be “reasonably related to the value of the 
franchise.”  (Zolly, supra, 47 Cal.App.5th at p. 88.)   
Finally, we note that several amici argue that Oakland’s 
challenged fees should be subject to article XIII C, section 1, 
subdivision (e)(1) (Exemption 1), which exempts a charge 
“imposed for a specific benefit conferred or privilege granted 
directly to the payor that is not provided to those not charged,” 
but only if the charge “does not exceed the reasonable costs to 
the local government of conferring the benefit or granting the 
privilege.”  While counsel for plaintiffs acknowledged this 
possibility during oral argument, Oakland resists 
the 
application of Exemption 1.  Yet the language of the ordinances 
enacting these franchise fee agreements states that the 
“franchise property interests conveyed here” include the right to 
“transact business, provide services, . . . and to operate a public 
utility.” This language could potentially support amici’s 
argument, given that the text of Exemption 1 appears to apply 
to such specific benefits.  But we have no need to decide that 
question here.  We also leave open related questions of how the 
“reasonable costs” language in Exemption 1 may apply to 
franchise fees, including whether the term, considered in light 
of the voters’ intent behind Proposition 26, should be understood 
to extend beyond the purely administrative costs involved in 
granting a franchise.  (See Jacks, supra, 3 Cal.5th at pp. 262, 
269 [explaining how a “reasonable value” requirement “fit[s] 
ZOLLY v. CITY OF OAKLAND 
Opinion of the Court by Liu, J. 
 
21 
within” the historical approach to distinguishing between taxes 
and other charges, including the “broader focus on the 
relationship between a charge and the rationale underlying the 
charge”].)  We have no occasion to further elaborate these terms, 
as Oakland has not sought to show that Exemption 1 applies to 
its challenged fees.  
CONCLUSION 
Because Oakland has not shown, as a matter of law, that 
article XIII C, section 1, subdivision (e)(4) applies to the 
franchise fees at issue here, the trial court erred in sustaining 
Oakland’s demurrer.  We affirm the Court of Appeal’s judgment 
and remand for proceedings consistent with this opinion. 
 
 
 
 
 
 
 
LIU, J. 
 
We Concur:  
CANTIL-SAKAUYE, C. J. 
KRUGER, J. 
GROBAN, J. 
GUERRERO, J. 
1 
ZOLLY v. CITY OF OAKLAND 
S262634 
 
Concurring Opinion by Justice Jenkins 
 
I agree with the majority that the trial court should have 
overruled the City of Oakland’s demurrer to the second 
amended complaint of plaintiffs Robert Zolly, Ray McFadden, 
and Stephen Clayton (plaintiffs) because Oakland has failed to 
show that the fees at issue here are, as a matter of law, exempt 
from the voter approval requirements of article XIII C of the 
California Constitution.  (All references to articles are to the 
California Constitution.)  Although I also largely agree with the 
majority’s reasoning, as explained below, I believe that some of 
the majority’s discussion is unnecessary to resolution of this 
case and I do not join that discussion.  I therefore concur in the 
judgment. 
I. 
For purposes of its voter approval requirements, article 
XIII C defines a “ ‘tax’ ” as “any levy, charge, or exaction of any 
kind imposed by a local government.”  (Art. XIII C, § 1, subd. 
(e).)  As the majority explains, Oakland argues that the fees at 
issue here “are not ‘imposed by a local government’ because they 
were a product of voluntary contractual negotiations and are 
thus ‘consideration paid in exchange for those valuable 
franchise rights, including the right to do business with the 
municipality.’ ”  (Maj. opn., ante, at p. 11.)  I agree with the 
majority’s rejection of this argument and its basis for doing so.  
(Id. at pp. 12–13.)    
ZOLLY v. CITY OF OAKLAND 
Jenkins, J., concurring 
 
2 
Oakland alternatively argues that the fees in question fall 
within one of the express exemptions to article XIII C’s 
definition of a “ ‘tax’ ” and therefore are not subject to the voter 
approval requirements.  Oakland relies exclusively on article 
XIII C, section 1, subdivision (e)(4) (Exemption 4), which applies 
to “[a] charge imposed for entrance to or use of local government 
property, or the purchase, rental, or lease of local government 
property.”  (Ibid.) 
I agree with the majority that Oakland has failed to show 
that, as a matter of law, the fees fall within this exemption.  
Oakland contends in part that the franchise itself is a form of 
“local government property” within the meaning of Exemption 
4, and that the fee is a charge imposed for “the purchase . . . of 
[that] local government property.”  However, as the majority 
explains, because “a franchise ‘becomes property in the legal 
sense of the word’ only ‘[w]hen granted’ to a franchise-holder,” 
and does not constitute “property belonging to the local 
government before the grant occurs,” the franchise “is not ‘local 
government property’ under article XIII C.”  (Maj. opn., ante, at 
p. 16.)  Oakland also argues that the fees qualify under 
Exemption 4 as charges “imposed for . . . use of local government 
property” because “the right to ‘use the public street and/or other 
public places’ was expressly identified as one part of the 
franchise property interests conveyed by Oakland to the private 
waste-haulers.”  However, as the majority explains, “Oakland 
has not demonstrated as a matter of law that the payors paid 
the challenged fees in exchange for a specific use of government 
property that they would not have enjoyed had they not paid the 
fee.”  (Maj. opn., ante, at p. 17.)  Because Oakland has failed to 
show that, as a matter of law, any part of the fees come within 
Exemption 4, its demurrer should have been overruled. 
ZOLLY v. CITY OF OAKLAND 
Jenkins, J., concurring 
 
3 
II. 
Regarding the first aspect of Oakland’s argument for 
applying Exemption 4, the majority offers additional comment.  
Responding to Oakland’s assertion that the franchise itself is a 
form of “local government property” that the fees are paid to 
“purchase,” the majority first opines:  “[T]he term ‘local 
government property’ in article XIII C seems to refer to physical 
objects under the control of a local government, such as its 
streets and rights-of-way.”  (Maj. opn., ante, at p. 15.)   
I do not join this discussion because, in my view, it is 
unnecessary to resolve this case.  The majority’s conclusion — 
with which I agree — that the franchise itself does not 
constitute “local government property” within the meaning of 
Exemption 4 completely disposes of Oakland’s argument that 
the fee is payment for the “purchase . . . of local government 
property.”  We therefore need not speculate on whether “the 
term ‘local government property’ in article XIII C seems to refer 
[only] to [actual] physical objects” and not to mere “property 
interests in such objects.”  (Maj. opn., ante, at pp. 15, 16.)   
At the end of its opinion, the majority “note[s]” the 
argument of several amici that the fees here at issue are “subject 
to article XIII C, section 1, subdivision (e)(1) (Exemption 1), 
which exempts a charge ‘imposed for a specific benefit conferred 
or privilege granted directly to the payor that is not provided to 
those not charged,’ but only if the charge ‘does not exceed the 
reasonable costs to the local government of conferring the 
benefit or granting the privilege.’ ”  (Maj. opn., ante, at p. 20.)  
As the majority explains, “we have no need to decide” in this case 
whether “Exemption 1 applies to [the] challenged fees” because 
“Oakland has not sought to show” that it does.  (Maj. opn., ante, 
ZOLLY v. CITY OF OAKLAND 
Jenkins, J., concurring 
 
4 
at pp. 20, 21.)  Nor, accordingly, need we speculate or comment 
on what questions might “relate[]” to Exemption 1’s possible 
application.  (Maj. opn., ante, at p. 20.)  I therefore do not join 
the majority’s statement that “the text of Exemption 1 appears 
to apply to . . .  specific benefits” other than the use of Oakland’s 
property, or the majority’s comments about questions that may 
be “related” to that issue.  (Maj. opn., ante, at p. 20.) 
With these limitations, I concur in the judgment.  
 
 
 
 
 
 
 
 
JENKINS, J. 
 
I Concur: 
CORRIGAN, J. 
 
See next page for addresses and telephone numbers for counsel who 
argued in Supreme Court. 
 
Name of Opinion  Zolly v. City of Oakland 
__________________________________________________________  
 
Procedural Posture (see XX below) 
Original Appeal  
Original Proceeding 
Review Granted (published) XX 47 Cal.App.5th 73 
Review Granted (unpublished)  
Rehearing Granted 
__________________________________________________________  
 
Opinion No. S262634 
Date Filed:  August 11, 2022 
__________________________________________________________  
 
Court:  Superior  
County:  Alameda  
Judge:  Paul D. Herbert 
__________________________________________________________   
 
Counsel: 
 
Zacks, Freedman & Patterson, Andrew M. Zacks; Katz Appellate Law 
and Paul J. Katz for Plaintiffs and Appellants. 
 
Horvitz & Levy, Jason R. Litt, Jeremy B. Rosen and Joshua C. 
McDaniel for McLane, Bednarski & Litt LLP and Rapkin & Associates, 
LLP, as Amici Curiae on behalf of Plaintiffs and Appellants. 
 
Jonathan M. Coupal, Timothy A. Bittle and Laura E. Dougherty for 
Howard Jarvis Taxpayers Association as Amicus Curiae on behalf of 
Plaintiffs and Appellants. 
 
Peluso Law Group and Larry A. Peluso for Reuben Zadeh, Mable Chu 
and Herb Nadel as Amici Curiae on behalf of Plaintiffs and Appellants. 
 
Barbara Parker, City Attorney, Doryanna Moreno, Maria Bee, David 
Pereda, Celso Ortiz and Zoe Savitsky, Assistant City Attorneys; Chao 
ADR, Cedric C. Chao; DLA Piper, Tamara Shepard, Mauricio 
 
 
Gonzalez, Stanley J. Panikowski and Jeanette Barzelay for Defendant 
and Respondent. 
 
Best Best & Krieger, Joshua Nelson, Lutfi Kharuf and Joanna Gin for 
League of California Cities and the California State Association of 
Counties as Amici Curiae on behalf of Defendant and Respondent. 
 
Olson Remcho, Robin B. Johansen, Thomas A. Willis and Margaret R. 
Prinzing for Legislature of the State of California as Amicus Curiae on 
behalf of Defendant and Respondent. 
 
Orrick, Herrington & Sutcliffe, Brian P. Goldman, Devin Brennan, 
Monica Haymond, Ethan P. Fallon; Kathleen A. Kane and Adrienne D. 
Weil for Bay Area Toll Authority and Metropolitan Transportation 
Commission as Amici Curiae on behalf of Defendant and Respondent. 
 
Kabateck, Brian S. Kabateck and Mike Arias for Consumer Attorneys 
of California as Amicus Curiae. 
 
 
Counsel who argued in Supreme Court (not intended for 
publication with opinion): 
 
Paul J. Katz 
Katz Appellate Law PC 
484 Lake Park Avenue, #603 
Oakland, CA 94610 
(510) 920-0543 
 
Cedric C. Chao 
Chao ADR, PC 
50 California Street, Suite 1500 
San Francisco, CA 94111 
(415) 293-8088