Court Opinion

ID: 9408805
Source: CourtListenerOpinion
Date Created: 2023-07-13 19:04:07.16764+00
Date Added: 2024-06-11T17:20:46.950408
License: Public Domain

Filed 7/13/23

                             CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                              FOURTH APPELLATE DISTRICT

                                        DIVISION THREE

 KATHLEEN GRACE et al.,

      Plaintiffs and Appellants,                     G061004

          v.                                         (Super. Ct. No. 30-2019-01116850)

 THE WALT DISNEY COMPANY et al.,                     OPINION

      Defendants and Respondents.

                  Appeal from an order of the Superior Court of Orange County, William D.
Claster, Judge. Reversed.
                  McCracken, Stemerman & Holsberry, Richard G. McGracken, Sarah
Grossman-Swenson, Ivy Yan; Hadsell Stormer & Renick & Dai, Randy Renick and
Cornelia Dai for Plaintiffs and Appellants.
                  Wilmer Cutler Pickering Hale and Dorr, Alan Schoenfeld, Ryan Chabot
and David C. Marcus for Defendant and Respondent the Walt Disney Company.
                  Constangy, Brooks, Smith & Prophete and Carolyn E. Sieve for Defendants
and Respondents Sodexo, Inc., and SodexoMagic.

                                    *          *         *
              In 2018, Anaheim voters approved a Living Wage Ordinance (LWO).
                                      1
(Anaheim Mun. Code, § 6.99 et seq.) The LWO applies to hospitality employers in the
Anaheim or Disneyland Resort areas that benefit from a “City Subsidy.” (§ 6.99.060.)
              In 2019, Kathleen Grace and other plaintiffs (“the Employees”) filed a class
action complaint against the Walt Disney Company, Walt Disney Parks and Resorts,
U.S., Inc. (“Disney”) and Sodexo, Inc., and Sodexomagic, LLC (“Sodexo”) alleging a
violation of the LWO. Sodexo operates restaurants in Disney’s theme parks. Disney
filed a motion for summary judgment and Sodexo joined (its liability is derivative).
              It is undisputed the Employees were not being paid the required minimum
hourly wage under the LWO. However, Disney argued it was not covered under the
LWO as a matter of law because it is not benefitting from a “City Subsidy.” (See
§ 6.99.060.) The trial court granted the motion for summary judgment. We disagree.
              “A ‘City Subsidy’ is any agreement with the city pursuant to which a
person other than the city has a right to receive a rebate of transient occupancy tax, sales
tax, entertainment tax, property tax or other taxes, presently or in the future, matured or
unmatured.” (§ 6.99.030, italics added.)
              Generally, a “rebate” means “a return of a part of a payment.” (Webster’s
11th New Collegiate Dict. (2003) p. 1037.) A transient occupancy tax is paid by a
transient (a hotel guest) and collected by an operator (the hotel). (See § 2.12.120.) A
sales tax is paid by a consumer and collected by the retailer. (See § 2.04.040.) And a
property tax is paid by a property owner and collected by the county government. (See
§ 2.08.) The City of Anaheim (“the City”) imposes no entertainment tax.
              In 1996, Disney and the City signed an Infrastructure and Parking Finance
Agreement (the “Finance Agreement”). The City agreed to issue about $400 million in
municipal bonds. The money was to be used to revitalize the Anaheim and Disneyland
1
 Further undesignated statutory references are to the Anaheim Municipal Code (italics
within code omitted throughout).

                                              2
resort districts, to pay for infrastructure improvements, and to expand the Anaheim
Convention Center. The bondholders were to be repaid based on anticipated incremental
increases in the City’s transient occupancy taxes (paid by hotel guests), sales taxes (paid
by consumers), and property taxes (paid by Disney).
              The parties also signed a Disney Credit Enhancement Agreement (the
“Enhancement Agreement”) and a Reimbursement Agreement. Under the Enhancement
Agreement, Disney agreed that if there was any year in which the City’s incremental tax
revenues failed to meet its bond obligations, Disney would make up the shortfall. And
under the Reimbursement Agreement, the parties agreed Disney would be reimbursed for
its shortfall payments in those years when the City’s incremental tax revenues rebounded
and were sufficient to meet its bond obligations.
              We find the Reimbursement Agreement gives Disney the right to receive a
rebate—or a return—of transient occupancy taxes (paid by hotel guests), sales taxes (paid
by consumers), and property taxes (paid by Disney), in any rebound years when the
City’s tax revenues are sufficient to meet its bond obligations. Consequently, Disney
receives a “City Subsidy” within the meaning of the LWO and it is therefore obligated to
pay its employees the designated minimum wages. Thus, we reverse the trial court’s
order granting Disney and Sodexo’s motion for summary judgment.

                                             I
                    FACTS AND PROCEDURAL BACKGROUND
              In 1996 and 1997, the Anaheim Public Financing Authority (the
                                                                          2
Authority), the City, Disney, and a bond trustee signed several contracts. Under the
Finance Agreement, Disney, the City, and the Authority agreed “to combine resources on

2
 The Authority is a “public agency” of the City, under the Joint Exercise of Powers Act.
(See Govt. Code, § 6500 et seq.) The Authority’s Board of Directors are the City’s
elected leaders. The entities share the same staff, facilities, etc.

                                             3
the terms and conditions hereof to bring about a revitalization of the entire Anaheim
Resort and to finance the public improvements needed for the Anaheim Resort, the
expansion of the Convention Center, and the Disneyland Resort Project.”
                The Anaheim Resort spans about 1046 acres. The Disneyland Resort is
located within the Anaheim Resort and includes all the theme parks, hotel rooms, retail
establishments, and other facilities located on Disney property. In the Finance
Agreement, Disney agreed to build a new theme park (California Adventure), a
pedestrian bridge, additional hotel rooms, as well as new retail, dining, and entertainment
facilities (Downtown Disney). The Authority agreed to issue municipal bonds to raise
money to help pay for the project.
                The Finance Agreement requires the bondholders to be repaid based on a
complex arrangement. In brief, the Authority nominally “leases” the Convention Center
to the City. The City makes “lease payments” to the Authority, which then uses those
revenues to meet its bond obligations. The City’s “lease payments” are calculated based
on a formula: the Lease Payment Measurement Revenues (LPMR). After deducting a
baseline figure (1996 local tax revenues), the LPMR is the sum of the incremental
increases in the local taxes generated on Disney property (transient occupancy taxes,
sales taxes, and property taxes), plus a percentage of the transient occupancy taxes paid
by guests staying at other hotels (not located on Disney property).
                The Finance Agreement also provides if the City imposes an entertainment
tax within 15 years of June 2001, then every quarter “the City shall pay to Disney . . . a
sum equal to the total amount paid to the City by Disney . . . during the preceding three
                                                            3
(3) month period as the result of such Entertainment Tax.”
                The Finance Agreement also includes the Enhancement Agreement. Under
the Enhancement Agreement, Disney is obligated to make up any shortfall if the City’s

3
    The Employees do not argue this provision gives Disney a right to a City Subsidy.

                                              4
tax revenues dedicated to the payment of the bonds in a given year (the LPMR) are less
than the bond payments that are due. Signed concurrently was the Reimbursement
Agreement, signed by the City, the Authority, Disney, and the bond trustee. Under the
Reimbursement Agreement, the parties agreed if Disney makes any shortfall payments
(payable to the bond insurer), when the City’s tax revenues rebound in subsequent years,
then the bond trustee is to use those funds (received from the City) to reimburse Disney.
              In November 2018, Anaheim’s voters adopted Measure L. Starting in
2019, affected employers were required to pay their employees a minimum of $15 per
hour under the LWO, with annual increases of $1 an hour. In 2023, the wage would then
be tied to the consumer price index. The ballot materials stated: “The measure would
apply to any for‐profit business that is a hotel, motel, amusement or theme park, or any
retail store, restaurant, or other venue offering food or beverages . . . that: (1) is located
in whole or in part within the Disneyland or Anaheim Resort Specific Plan Zones, (2) has
an agreement to receive a tax rebate from the City, or is a hospitality industry contractor
                                                                                           4
or tenant of an entity that has such an agreement, and (3) has 25 or more employees.”
(Anaheim Official Voter Information Guide, Gen. Elec. (Nov. 6, 2018) impartial analysis
of Measure L by the City of Anaheim.)

Procedural History
              In December 2019, the Employees filed a class action complaint. The
Employees alleged they were employed by either Disney or Sodexo, and they were not
paid a living wage, beginning on January 1, 2019. The Employees pleaded a violation of
the LWO, and four derivative causes of action: a violation of state waiting time
penalties, a violation of state overtime wage laws; unfair business practices, and civil

4
 On our own motion, we take judicial notice of the 2018 Anaheim Measure L ballot
materials after having provided the parties notice and an opportunity to be heard.
(See Evid. Code, § 459, subd. (d).)

                                               5
penalties under the Private Attorneys General Act.
              The Employees argued the City issued municipal bonds in 1997, which
gave “Disney over $200 million dollars to help finance the construction of California
Adventure and a parking garage to serve the new park.” The Employees claimed: “The
bonds are repaid with and secured by Disney taxes. Instead of going to the City for
general purposes, almost all of Disney’s transient occupancy, sales and real property
taxes go to payments on the bonds, which will not be paid off until 2036. Disney got a
rebate of the best kind: it got its taxes back before it paid them.”
              The Employees also argued: “In order to further secure the bonds to make
them attractive to buyers, the bonds are supported by a Disney Credit Enhancement.
Under this provision, Disney is obligated to make up any shortfall between bond
payments that are due and Disney’s taxes that are dedicated to the bonds. If this happens,
the City is obligated to pay Disney back by rebating Disney’s taxes . . . .”
              In February 2020, Disney filed a demurrer claiming they are not covered
under the LWO. Disney claimed the word “rebate” is narrowly defined as return of taxes
paid by a taxpayer to that taxpayer. Disney further claimed any shortfall payments under
the Enhancement Agreement are contractual in nature and not the payment of taxes;
therefore, any reimbursements under the Reimbursement Agreement are not a return of
Disney’s taxes, or a “rebate.”
              In August 2020, the trial court overruled Disney’s demurrer. The trial court
found, “even under the Disney Defendants’ definition [of a ‘rebate’], the Credit
Enhancement Agreement could be construed as creating a City Subsidy.”
              In April 2021, Disney filed a motion for summary judgment. The
following facts were undisputed: all of the City’s tax revenue goes into its general fund;
on a daily basis, the City calculates the LPMR and transfers that amount from the general
fund to a debt service fund; and on a monthly basis, the City wires the debt service fund
to the bond trustee. It was also undisputed Disney has never had to make a shortfall

                                              6
payment under the Enhancement Agreement, and therefore has never received a
reimbursement under the Reimbursement Agreement.
              In October 2021, the trial court granted Disney’s motion for summary
judgment. The court held: “A ‘rebate . . . of taxes,’ as that phrase is used in the [LWO],
refers not only to a refund of taxes already paid, but also to an abatement of taxes yet to
be paid, an exemption from taxes, etc.” Nonetheless, the court concluded “there is no
evidence that the Finance Agreement somehow lessens [Disney’s] tax obligation.
Therefore, the public benefit conferred . . . by the Finance Agreement does not create a
City Subsidy.”
              As to the Credit Enhancement and Reimbursement Agreements, the trial
court ruled, “all tax revenue, including Disney-related tax revenue, goes into the City’s
general fund. [Citation.] At that point, it is commingled with other revenue and ceases to
be identifiable as ‘Disney taxes.’ Not surprisingly, [the employees] are unable to
demonstrate how they would be able to trace/connect a particular Disney tax payment to
a future shortfall repayment.”

                                             II
                                       DISCUSSION
              In a motion for summary judgment, the “defendant meets its burden . . . by
negating an essential element of the plaintiff’s case, or by establishing a complete
defense, or by demonstrating the absence of evidence to support the plaintiff’s case.”
(First Commercial Mortgage Co. v. Reece (2001) 89 Cal.App.4th 731, 736-737.)
              The sole issue in this appeal is whether Disney benefits from a “City
Subsidy” under the LWO. (§ 6.99.060.) This is a matter of statutory interpretation, or a
pure question of law; therefore, our review is de novo and pays no heed to the trial
court’s ruling. (Lateef v. City of Madera (2020) 45 Cal.App.5th 245, 252.)
              In the remainder of this discussion, we will: A) review relevant legal

                                              7
principles; B) summarize Measure L and the LWO; and C) analyze the relevant laws as
applied to the facts in this case.

A. Relevant Legal Principles
               In construing statutes adopted by voters, we apply the same principles of
interpretation we apply to statutes enacted by the Legislature. (People v. Park (2013) 56
Cal.4th 782, 796.) “‘The fundamental purpose of statutory construction is to ascertain the
intent of the lawmakers so as to effectuate the purpose of the law.’” (Horwich v.
Superior Court (1999) 21 Cal.4th 272, 276.) We begin with the language of the statute,
to which we give its plain and ordinary meaning, and construe in the context of the
statutory scheme. If the language is unclear, we can look to other indicia of voter intent,
such as the ballot materials. (People v. Briceno (2004) 34 Cal.4th 451, 459.)
               Courts may not insert words or delete words when interpreting a statute; the
drafting of statutes is purely a legislative power. (People v. Hunt (1999) 74 Cal.App.4th
939, 945-946.) “In construing this, or any, statute, our office is simply to ascertain and
declare what the statute contains, not to change its scope by reading into it language it
does not contain or by reading out of it language it does. We may not rewrite the statute
to conform to an assumed intention that does not appear in its language.” (Vasquez v.
State of California (2008) 45 Cal.4th 243, 253.)
               The Supreme Court has long “recognized that statutes governing conditions
of employment are to be construed broadly in favor of protecting employees.” (Murphy
v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1103.) That is, when
interpreting statutes approved by voters to protect employees, “we adopt the construction
that best gives effect” to the purposes of the electorate. (See Augustus v. ABM Security
Services, Inc. (2016) 2 Cal.5th 257, 262 [“In furtherance of that purpose, we liberally
construe the Labor Code and wage orders to favor the protection of employees”].)
               In the context of the Fair Labor and Standards Act (FLSA) and employment

                                             8
laws generally, courts look to the economic realities of the employment relationship,
rather than the labels used by the parties. (Real v. Driscoll Strawberry Associates, Inc.
(9th Cir. 1979) 603 F.2d 748, 755 [“Economic realities, not contractual labels, determine
employment status for the remedial purposes of the FLSA”]; Dynamex Operations West,
Inc. v. Superior Court (2018) 4 Cal.5th 903, 953-954 [“the federal courts have developed
what is generally described as the ‘economic reality’ test for determining whether a
worker should be considered an employee or independent contractor”].)
              Indeed, the economic reality test is used by courts in a variety of contexts.
(See, e.g., General Motors Corp. v. Franchise Tax Bd. (2006) 39 Cal.4th 773, 785 [“for
tax purposes the economic reality of a transaction, not the form the parties employ, is
dispositive”]; Buckeye Boiler Co. v. Superior Court (1969) 71 Cal.2d 893, 903 [in
jurisdiction matters, courts should “focus on economic reality rather than the outward
form of business transactions” in order “to determine the existence or nonexistence of
purposeful activity within the state”].)

B. Measure L and the LWO
              In November 2018, a majority of Anaheim voters voted “yes” when asked:
“Shall the initiative ordinance to increase the minimum wage payable by hospitality
industry employers located in the Anaheim or Disneyland Resort Specific Plan Zones that
have tax rebate agreements with the City, and to require that service charges imposed by
such employers be paid entirely to employees, be adopted?”
              In the ballot materials, there were arguments for and against Measure L. In
the arguments for Measure L, the proponents stated: “WHO IS AGAINST THIS
MEASURE? [¶] Large hospitality employers who are getting subsidies from the City of
Anaheim worth $600 million over the next 20 years!”
              The Measure L ballot materials also stated: “FACT: a February 2018
study conducted by Occidental College and the Economic Roundtable found that

                                             9
Disneyland Resort employees struggle to make ends meet: [¶] – 73% do not earn
enough money to pay for basic expenses [¶] – Two-thirds don’t have enough food to eat
three meals a day [¶] – One in 10, including 13% with young children, has recently been
homeless-or did not have a place of their own to sleep.”
              The LWO itself provides: “An Employer shall pay an Employee a wage of
no less than the hourly rates set under the authority of this article.” (§ 6.99.010.)
“‘Employer’ means any business in the hospitality industry which benefits from a City
Subsidy and directly or indirectly . . . employs or exercises control over the wages, hours
or working conditions of 25 or more employees.” (§ 6.99.060.) “‘Hospitality industry’
means a hotel, motel, amusement or theme park, or a restaurant, snack bar, bar, tavern,
lounge, club or other venue offering food or beverages which is within or adjacent to a
hotel, motel or amusement or theme park, or a retail store which is within or adjacent to a
hotel, motel or amusement or theme park, located in whole or in part within The
Anaheim Resort . . . or the Disneyland Resort . . . .” (§ 6.99.100.)
              “A ‘City Subsidy’ is any agreement with the city pursuant to which a
person other than the city has a right to receive a rebate of transient occupancy tax, sales
tax, entertainment tax, property tax or other taxes, presently or in the future, matured or
unmatured.” (§ 6.99.030.) “‘Person’ means an individual, corporation, partnership,
limited partnership, limited liability partnership, limited liability company, business trust,
estate, trust, association, joint venture, agency, instrumentality, or any other legal or
commercial entity, whether domestic or foreign.” (§ 6.99.110.)

C. Analysis and Application
              The word “rebate” is not defined within the LWO. Generally, a “rebate”
means “a return of a part of a payment.” (Webster’s 11th New Collegiate Dict. (2003)
p. 1037.) This definition is consistent with California statutes, in which a “rebate”
ordinarily means any kind of “retroactive abatement, credit, discount, or refund.” (See

                                              10
Gonzales & Co. v. Department of Alcoholic Bev. Control (1984) 151 Cal.App.3d 172,
176; see also Bus. & Prof. Code, § 25600.3, subd. (a)(4)(B) [“A discount or rebate that is
offered . . . or furnished by a distilled spirits manufacturer”]; Rev. & Tax. Code,
§ 17138.2, subd. (a) [“gross income does not include any amount received as a rebate,
voucher, or other financial incentive issued by a public water system, local government,
or state agency for participation in a turf replacement water conservation program”].)
              Consistent with the employee protection purposes of Measure L, we hold
an employer has a right to receive a rebate of taxes under the LWO when there is any
agreement with the City giving an employer a right to receive a return of taxes. By the
plain terms of the LWO, the agreement can give the employer a right to receive a return
of transient occupancy tax (paid by hotel guests), or a right to receive a return of sales tax
(paid by consumers), or a right to receive a return of property tax (paid by property
owners). Consequently, the right to receive a rebate of local taxes does not necessarily
mean a return of the employer’s own taxes; therefore, the monies returned to the
employer need not be traceable back to any taxes specifically paid by that employer.
              Here, under the Finance Agreement, the City agreed to issue municipal
bonds through the Authority. The bondholders were to be repaid based on the LPMR:
the incremental increases in the City’s transient occupancy tax (paid by hotel guests on
Disney property and other properties in Anaheim), sales tax (paid by consumers in
businesses located within Disney owned property), and property tax (paid directly by
Disney). Under the Enhancement Agreement, Disney agreed if there was any year in
which the City’s LPMR tax revenues in the debt service fund failed to meet its bond
obligations to the bond trustee, Disney would then make up the shortfall (by paying a
bond insurer who then pay the bond trustee). And under the Reimbursement Agreement,
the parties agreed Disney would then be reimbursed by the City (through the bond
trustee) for any of its shortfall payments in those years when the City’s incremental tax
revenues rebounded and were sufficient to meet its bond obligations.

                                             11
               We find that under these three agreements, particularly the Reimbursement
Agreement, Disney has the right to receive a rebate—a return—of a portion of the
incremental transient occupancy tax (paid by hotel guests), the local sales tax (paid by
consumers), and the local property tax (paid by Disney) in those “rebound” years when
the City’s incremental tax revenues exceed its bond obligations.
               In short, we hold Disney receives a “City Subsidy” within the meaning of
the LWO and is therefore required to pay its employees a living wage. Thus, we reverse
the trial court’s order granting the defendants’ motion for summary judgment.
               Disney argues this interpretation “lacks the one thing it needs to possibly
succeed: a citation to a provision of these agreements granting [Disney] a right to receive
a rebate of its taxes.” (Italics added.) But Disney’s argument is flawed because it
mistakenly assumes the LWO requires an agreement with the City giving the employer a
right to receive a rebate of its taxes. The LWO contains no such limitation.
               Again, the LWO states: “A ‘City Subsidy’ is any agreement with the city
pursuant to which a person other than the city [an employer] has a right to receive a
rebate of transient occupancy tax, sales tax, entertainment tax, property tax or other
taxes, presently or in the future, matured or unmatured.” (§ 6.99.030, italics added.)
               The LWO does not state: A “City Subsidy” is any agreement with the City
pursuant to which an employer has a right to receive a rebate of its transient occupancy
tax, its sales tax, its property tax, or its other taxes.
               Indeed, Disney’s interpretation makes little sense because employers
ordinarily collect—but do not pay—transient occupancy and sales taxes. We cannot
rewrite the LWO to conform to Disney’s flawed interpretation. (See Vasquez v. State of
California, supra, 45 Cal.4th at p. 253 [“We may not rewrite the statute to conform to an
assumed intention that does not appear in its language”].)
               Disney also claims any shortfall payments under the Enhancement
Agreement would go to the bond trustee indirectly through the bond insurer, rather than

                                                 12
to the City. Disney further claims these shortfall payments are based on a contract, and
do not constitute taxes. (See Linnell v. State Department of Finance (1962) 203
Cal.App.2d 465, 469 [a “‘tax is . . . in no way dependent upon the will or contractual
assent, express or implied, of the person taxed’”].) Thus, Disney claims any return of
shortfall payments under the Reimbursement Agreement are not a rebate of its own taxes.
              Again, the Employees were not required to show that the Reimbursement
Agreement gives Disney the right to a rebate or a return of its own traceable tax payments
in order to survive the motion for summary judgment. (See § 6.99.030.)
              Moreover, our role in this appeal is not to engage in a parsing of the labels
used by the parties in the three underlying contracts. (See General Motors Corp. v.
Franchise Tax Bd., supra, 39 Cal.4th at p. 785 [courts look to the economic realities
rather than the labels employed by the parties].) Our role is to effectuate the intent of the
Anaheim voters as expressed through Measure L and the LWO. And when we put aside
Disney’s obfuscating labels, and consider the economic realities, it is plainly obvious that
in any “rebound” years under the Reimbursement Agreement, Disney “has a right to
receive a rebate of transient occupancy tax, sales tax, entertainment tax, property tax or
other taxes, presently or in the future, matured or unmatured.” (See § 6.99.030.)
              Finally, in support of its claims, Disney offers an analogy involving a
hypothetical bank that pays property taxes. Disney argues if the bank were to lend the
City money, and the City paid the bank back over time, some portion of the City’s loan
payments would be coming out of the bank’s property taxes, but no one would credibly
argue the bank was somehow receiving a rebate of its own property taxes.
              But yet again, Disney’s analogy misses the mark because the LWO does
not require an employer to receive a rebate of its own taxes. The LWO simply requires
there be an agreement with the City to receive a rebate (i.e., an abatement, a credit, a
discount, a refund, a reimbursement, etc.) of any local taxes identified in the LWO and
imposed by the City “presently or in the future, matured or unmatured.” (See

                                             13
§ 6.99.030.) Here, there is such an underlying agreement (specifically, the
Reimbursement Agreement). Thus, Disney’s flawed analogy is not persuasive.

                                           III
                                     DISPOSITION
             The trial court’s order granting the defendants’ motion for summary
judgment is reversed. The defendants are ordered to pay the Employees’ costs on appeal.

                                                 MOORE, J.

WE CONCUR:

O’LEARY, P. J.

DELANEY, J.

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