Court Opinion

ID: 7799878
Source: CourtListenerOpinion
Date Created: 2022-08-11 17:02:43.160827+00
Date Added: 2024-06-11T16:29:00.615002
License: Public Domain

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.
                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

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                    Opinion of the Court by Liu, J.

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

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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.

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      “(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

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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

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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

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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

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                   ZOLLY v. CITY OF OAKLAND
                    Opinion of the Court by Liu, J.

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

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                    ZOLLY v. CITY OF OAKLAND
                    Opinion of the Court by Liu, J.

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.

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                     ZOLLY v. CITY OF OAKLAND
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      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

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                   ZOLLY v. CITY OF OAKLAND
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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

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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,

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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

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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.

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      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

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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

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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.

                                  17
                   ZOLLY v. CITY OF OAKLAND
                    Opinion of the Court by Liu, J.

       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

                                  18
                    ZOLLY v. CITY OF OAKLAND
                    Opinion of the Court by Liu, J.

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

                                  19
                   ZOLLY v. CITY OF OAKLAND
                    Opinion of the Court by Liu, J.

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]

                                  20
                   ZOLLY v. CITY OF OAKLAND
                       Opinion of the Court by Liu, J.

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.

                                     21
                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.)

                                 1
                    ZOLLY v. CITY OF OAKLAND
                        Jenkins, J., concurring

      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.

                                  2
                   ZOLLY v. CITY OF OAKLAND
                       Jenkins, J., concurring

                                 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,

                                 3
                    ZOLLY v. CITY OF OAKLAND
                        Jenkins, J., concurring

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.

                                  4
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