Court Opinion

ID: 4792054
Source: CourtListenerOpinion
Date Created: 2021-08-19 20:06:14.90238+00
Date Added: 2024-06-11T08:09:49.729068
License: Public Domain

Filed 8/19/21 Jacks v. City of Santa Barbara CA2/6

     NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                         DIVISION SIX

ROLLAND JACKS et al.                                             2d Civ. No. B299297
                                                               (Super. Ct. No. 1383959)
     Plaintiffs and Appellants,                                (Santa Barbara County)

v.

CITY OF SANTA BARBARA,

     Defendant and Respondent.

      “A franchise to use public streets or rights-of-way is a form
of property [citation], and a franchise fee is the purchase price of
the franchise.” (Jacks v. City of Santa Barbara (2017) 3 Cal.5th
248, 262 (Jacks).) The City of Santa Barbara (City) and Southern
California Edison (SCE) entered into a franchise agreement to
include as a surcharge on SCE’s electrical bills an amount equal
to 1 percent of SCE’s gross receipts from the sale of electricity
within the City, to be collected from SCE’s customers and
remitted to the City. (Id. at p. 254.) This 1 percent surcharge,
plus another 1 percent “initial term” charge, is the fee paid for
the privilege of using City property to deliver electricity.1 (Id. at
pp. 254-255.)
       Proposition 218 generally requires local governments to
obtain voter approval before imposing taxes. (Prop. 218, § 3,
approved Nov. 5, 1996; Cal. Const., art. XIII C, § 2.) Plaintiffs
Rolland Jacks and Rove Enterprises, Inc. dba Hotel Santa
Barbara filed this class action against the City, alleging the 1
percent surcharge is not compensation for the privilege of using
City property but rather a tax imposed without voter approval, in
violation of Proposition 218.
       In an earlier appeal, we concluded the 1 percent surcharge
is a tax requiring voter approval. The California Supreme Court
reversed our decision in part. (Jacks, supra, 3 Cal.5th at p. 274.)
It determined that “charges that constitute compensation for the
use of government property are not subject to Proposition 218’s
voter approval requirements,” but clarified that to constitute
compensation, “the amount of the charge must bear a reasonable
relationship to the value of the property interest.” (Id. at p. 254.)
If the charge exceeds any reasonable value of the interest, it is a
tax requiring voter approval. (Ibid.)
       The Court directed us to remand the matter to the trial
court for further proceedings consistent with Jacks. (Jacks,
supra, 3 Cal.5th at p. 274.) The trial court was tasked with
deciding whether the City’s 2 percent charge, including both the 1
percent initial term charge and the 1 percent surcharge, “bear[s]
a reasonable relationship to the value of the property interests
transferred.” (Id. at p. 270.)

      1 The 1 percent surcharge requires those receiving
electricity in the City from SCE to pay an additional 1 percent of
the amount of their electrical bill.

                                 2
       Following a bench trial, the trial court entered judgment
for the City. It concluded the 2 percent charge is a valid
franchise fee under Proposition 218 and not a tax. Plaintiffs
contend the court erred by finding (1) that the franchise fee
includes both the 1 percent initial term charge and the 1 percent
surcharge and (2) that a reasonable relationship exists between
the 2 percent charge and the value of the property interests
transferred.
       Plaintiffs’ position on the first issue is contrary to Jacks,
which held that the “[t]he fact that the [1 percent] surcharge is
placed on customers’ bills pursuant to the franchise agreement
rather than a unilateral decision by SCE does not alter the
substance of the surcharge; like the initial 1 percent charge, it is a
payment made in exchange for a property interest that is needed to
provide electricity to City residents.” (Jacks, supra, 3 Cal.4th at
p. 269, fn. omitted, italics added.) Given this instruction, the
trial court appropriately analyzed the entire 2 percent charge for
compliance with Proposition 218, finding it bears a reasonable
relationship to the value of the property interests transferred.
We affirm.
        I. FACTUAL AND PROCEDURAL BACKGROUND
       As summarized in Jacks, the parties stipulated to the
following facts in the trial court:
       “Beginning in 1959, the City and SCE entered into a series
of franchise agreements granting SCE the privilege to construct
and use equipment along, over, and under the City’s streets to
distribute electricity. At issue in this case is an agreement the
City and SCE began negotiating in 1994, when their 1984
agreement was about to expire. The 1984 agreement required
SCE to pay to the City a fee equal to 1 percent of the gross
annual receipts from SCE’s sale of electricity within the City in

                                  3
exchange for the franchise granted by the City. During the
course of extended negotiations regarding a new agreement, the
City and SCE extended the terms of the 1984 agreement five
times, from September 1995 to December 1999.
       “In the negotiations for a long-term agreement, the City
pursued a fee equal to 2 percent of SCE’s gross annual receipts
from the sale of electricity within the City. At some point in the
negotiations, SCE proposed that it would remit to the City as a
franchise fee 2 percent of its gross receipts if the Public Utilities
Commission (PUC) consented to SCE’s inclusion of the additional
1 percent as a surcharge on its bills to customers. Based on
SCE’s proposal, the City and SCE tentatively agreed to a 30-year
agreement that included the provisions for payment of 2 percent
of gross receipts. Following notice and a hearing, the City
Council of Santa Barbara adopted the agreement as City
Ordinance No. 5135 on December 7, 1999, with a term beginning
on January 1, 2000 (the 1999 agreement). The ordinance was not
submitted to the voters for their approval.
       “The 1999 agreement divides its 30-year period into two
terms. The first two years were the ‘initial term,’ during which
SCE was required to pay the City an ‘initial term fee’ equal to 1
percent of its gross receipts from the sale of electricity within the
City. The subsequent 28 years are the ‘extension term,’ during
which SCE is to pay the additional 1 percent charge on its gross
receipts, denominated the ‘recovery portion,’ for a total ‘extension
term fee’ of 2 percent of SCE’s gross receipts from the sale of
electricity within the City. At issue in this case is the recovery
portion, which we, like the parties, refer to as the surcharge.
       “The 1999 agreement required SCE to apply to the PUC by
April 1, 2001, for approval to include the surcharge on its bills to
ratepayers within the City, and to use its best efforts to obtain

                                  4
PUC approval by April 1, 2002. Approval was to be sought in
accordance with the PUC’s ‘Re Guidelines for the Equitable
Treatment of Revenue-Producing Mechanisms Imposed by Local
Government Entities on Public Utilities.’ (Investigation on the
Commission’s Own Motion to Establish Guidelines for the
Equitable Treatment of Revenue-Producing Mechanisms Imposed
by Local Government Entities on Public Utilities (1989) 32
Cal.P.U.C.2d 60, 63 [Cal. P.U.C. Dec. No. 89-05-063] (PUC
Investigation).) The 1999 agreement further provided that, in the
event the PUC did not give its approval by the end of the initial
term, either party could terminate the agreement. Thereafter,
the City agreed to delay the time within which SCE was required
to seek approval from the PUC, but SCE eventually obtained
PUC approval, and began billing its customers within the City for
the full extension term fee in November 2005.” (Jacks, supra, 3
Cal.5th at pp. 254-256, fn. omitted.)
       Plaintiffs filed this class action six years later. The first
amended complaint alleged violations of Proposition 218 and
sought declaratory relief. In ruling on cross-motions for
summary adjudication, the trial court determined the 1 percent
surcharge is not a tax under Proposition 218. We reversed,
reasoning that because the “primary purpose” of the surcharge is
to raise revenue, it is a tax under Sinclair Paint Co. v. State Bd.
of Equalization (1997) 15 Cal.4th 866 (Sinclair Paint). (Jacks,
supra, 3 Cal.5th at p. 257.)
       On review, the Supreme Court harmonized Proposition
218, Sinclair Paint and Proposition 26 – which states that
charges for use of government property are not taxes – to arrive
at the “reasonable relationship” test. (Jacks, supra, 3 Cal.5th at
pp. 267-268.) The Court recognized that all franchise fees raise
revenues but only those not reasonably related to the value of the

                                 5
franchised interests are taxes. (Ibid.) It explained that “sums
paid for the right to use a jurisdiction’s rights-of-way are fees
rather than taxes. But . . . to constitute compensation for the
value received, the fees must reflect a reasonable estimate of the
value of the franchise.” (Id. at p. 267; Mahon v. City of San Diego
(2020) 57 Cal.App.5th 681, 704-705 (Mahon).)
       Jacks realized that “franchise fees [could] become a vehicle
for generating revenue independent of the purpose of the fees”
(Jacks, supra, 3 Cal.5th at p. 269), but “rather than guarding
against this possibility by concluding that surcharges paid by
ratepayers are not franchise fees, [Jacks] explained that its
‘reasonable value’ requirement provided the appropriate
limitation.” (Mahon, supra, 57 Cal.App.5th at pp. 705-706.)
       Noting that plaintiffs had adequately pled the lack of a
reasonable relationship between the franchise fee and the value
of SCE’s use of the City’s rights-of-way, Jacks determined
plaintiffs had alleged sufficient facts to overcome the City’s
motion for judgment on the pleadings. (Jacks, supra, 3 Cal.5th at
p. 274.) Plaintiffs had not, however, established their right to
summary adjudication and the matter was remanded for further
fact-finding. (Ibid.)
       The trial was conducted on the briefs and documentary
evidence, including deposition transcripts and expert reports.
The trial court found the City had “met its burden of proof to
show that the amount of the franchise fee, consisting of the sum
of the 1 percent initial term fee and the 1 percent surcharge (for a
total of 2 percent) of the gross receipts from the sale of electricity
within the City, bears a reasonable relationship to the value of
the property interests transferred by [the] City.” Plaintiffs
appeal.

                                  6
                          II. DISCUSSION
       There are two overarching issues on appeal. The first is
whether the charge to be analyzed for compliance with
Proposition 218 consists of just the 1 percent surcharge or both
the surcharge and the 1 percent initial term charge (for a total 2
percent charge). The second is whether that charge “bear[s] a
reasonable relationship to the value of the property interests
transferred” by the City. (Jacks, supra, 3 Cal.5th at p. 270.)
       Plaintiffs focus almost exclusively on the first issue. They
maintain the franchise fee is limited to the 1 percent initial term
charge that SCE includes in its electricity rates and does not
include the 1 percent surcharge paid by its customers.
                        A. Standard of Review
       In an action contesting the validity of a fee or charge under
Proposition 218, the burden is on the agency to demonstrate
compliance. (Capistrano Taxpayers Assn., Inc. v. City of San
Juan Capistrano (2015) 235 Cal.App.4th 1493, 1504).)
Proposition 218’s provisions are “‘liberally construed to effectuate
its purposes of limiting local government revenue and enhancing
taxpayer consent.’ [Citation.]” (Jacks, supra, 3 Cal.5th at
p. 267.) Both the trial court and the reviewing court exercise
their independent judgment to determine if the fee or charge
meets the mandates of Proposition 218. (Silicon Valley
Taxpayers’ Assn., Inc. v. Santa Clara County Open Space
Authority (2008) 44 Cal.4th 431, 448.)
       Even when we exercise our independent judgment,
however, “[w]e review the trial court’s resolution of factual
conflicts under the substantial evidence standard. [Citations.]
Under this standard, ‘the power of an appellate court begins and
ends with the determination as to whether there is any
substantial evidence, contradicted or uncontradicted, which will

                                 7
support the finding of fact.’ [Citation.]” (Morgan v. Imperial
Irrigation Dist. (2014) 223 Cal.App.4th 892, 916 (Morgan).) “We
are required to accept all evidence which supports the successful
party, disregard the contrary evidence, and draw all reasonable
inferences to uphold the verdict. [Citation.]” (Ibid.)
           B. The Charge to be Analyzed for Proposition
                     218 Compliance is 2 Percent
       Plaintiffs contend the 1 percent initial term charge and the
1 percent surcharge are separate items which must be analyzed
separately for compliance with Proposition 218. They claim the
trial court violated the law of the case doctrine by accepting the
City’s argument “that the 1999 SCE-City franchise agreement
imposed a 1% franchise fee and a 1% surcharge upon SCE and
that, as they are both paid by SCE, both charges represented
SCE’s negotiated lease payments for city property to operate the
franchise.” (Emphasis omitted.) Plaintiffs misstate both the
City’s position and the trial court’s ruling.
       The law of the case doctrine “‘deals with the effect of the
first appellate decision on the subsequent retrial or appeal: The
decision of an appellate court, stating a rule of law necessary to
the decision of the case, conclusively establishes that rule and
makes it determinative of the rights of the same parties in any
subsequent retrial or appeal in the same case.’ [Citation.]”
(Morohoshi v. Pacific Home (2004) 34 Cal.4th 482, 491.)
       Contrary to plaintiffs’ assertions, application of this
doctrine supports the trial court’s determination that the entire 2
percent charge must be analyzed for compliance with Proposition
218. Plaintiffs focus on Jacks’s statement that SCE did not
assume the burden of the 1 percent surcharge but disregard
language acknowledging “that the economic incidence of a charge
does not determine whether it is a tax. . . . Valid fees do not

                                 8
become taxes simply because their cost is passed on to the
ratepayers.” (Jacks, supra, 3 Cal.5th at p. 271.) The Court
elaborated: “[P]ublicly regulated utilities are allowed to recover
their costs and expenses by passing them on to their ratepayers.
Among the charges included in the rates charged to customers
within the City is the initial 1 percent of gross receipts paid in
exchange for franchise rights, yet plaintiffs do not contend that
this initial 1 percent is a tax because ratepayers do not receive
the franchise rights. The fact that the surcharge is placed on
customers’ bills pursuant to the franchise agreement rather than a
unilateral decision by SCE does not alter the substance of the
surcharge; like the initial 1 percent charge, it is a payment made
in exchange for a property interest that is needed to provide
electricity to City residents. Because a publicly regulated utility is
a conduit through which government charges are ultimately
imposed on ratepayers, we would be placing form over substance
if we precluded the City from establishing that the surcharge
bears a reasonable relationship to the value of the property
interest it conveyed to SCE because the City expressed in its
ordinance what was implicit — that once the PUC gave its
approval, SCE would place the surcharge on the bills of
customers within the City.” (Id. at pp. 268-269, italics added, fn.
omitted; see also id. at pp. 272-273 [“[T]he stipulated facts reflect
that the City and SCE agreed to double the amount to be paid for
the privilege of using the rights-of-way and to pass these charges
on to the ratepayers”].)
       Footnote 10 further explained that “the division of the
charge into two parts, with one included in the rates paid by
customers and the other separately stated on the bill, was driven
by the PUC’s effort to ensure that a local government’s higher-
than-average charges are not unfairly imposed on ratepayers

                                  9
outside of the local government’s jurisdiction; this division of the
charges is unrelated to the character or validity of the charges.”
(Jacks, supra, 3 Cal.5th at p. 269, fn. 10, italics added; Mahon,
supra, 57 Cal.App.5th at p. 705 [Jacks “specifically rejected the
plaintiffs’ contention that the surcharge was not a franchise fee
because the utility’s ratepayers, rather than the utility, paid the
surcharge”]; see Jacks, at p. 292 (dis. opn. of Chin, J.) [Majority
opinion requires consideration of “entire 2 percent – not just the
one percent Recovery Portion . . . in determining the amount of
the charge and whether it bears a ‘reasonable relationship’ to
‘value’”].)
       In Zolly v. City of Oakland (2020) 47 Cal.App.5th 73,
review granted Aug. 12, 2020, S262634, the Court of Appeal also
rejected the argument that Jacks adjudicated only the 1 percent
surcharge and not the 1 percent initial term charge. (Id. at
p. 85.) Zolly noted that “[w]hile a true franchise fee is
indisputably a nontax, 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.’ [Citation.] The Supreme
Court did not limit this analysis to the surcharge, but rather
addressed all ‘charges that constitute compensation for the use of
government property.’ [Citation.]” (Ibid.)
       Finally, we are not persuaded by plaintiffs’ argument that
the City was judicially or equitably estopped from arguing that
the franchise fee is 2 percent. As we have explained, Jacks
clarified that the charge to be analyzed for compliance with
Proposition 218 is the entire 2 percent. (Jacks, supra, 3 Cal.5th
at pp. 268-269.)

                                 10
            C. The City Met Its Burden of Establishing a
       Reasonable Relationship Between the 2 Percent Charge
                      and the Franchise Rights
       Jacks “recognize[d] that determining the value of a
franchise may present difficulties. Unlike the cost of providing a
government improvement or program, which may be calculated
based on the expense of the personnel and materials used to
perform the service or regulation, the value of property may vary
greatly, depending on market forces and negotiations. Where a
utility has an incentive to negotiate a lower fee, the negotiated
fee may reflect the value of the franchise rights, just as the
negotiated rent paid by the lessor [sic] of a publicly owned
building reflects its market value, despite the fact that a different
lessor [sic] might have negotiated a different rental rate. In the
absence of bona fide negotiations, however, or in addition to such
negotiations, an agency may look to other indicia of value to
establish a reasonable value of franchise rights.” (Jacks, supra, 3
Cal.5th at pp. 269-270; see Mahon, supra, 57 Cal.App.5th at pp,
706-707.) Jacks left “this issue to be addressed by expert opinion
and subsequent case law.” (Jacks, at p. 270, fn. 11.)
       Plaintiffs contend it may be inferred from Jacks that the
surcharge bears no reasonable relationship to the value of the
franchise. To the contrary, Jacks noted that “[a]lthough
plaintiffs’ allegations and the stipulated facts adequately allege
the basis for a contention that the surcharge bears no reasonable
relationship to the value of the franchise, [their] motion for
summary adjudication did not establish this contention.” (Jacks,
supra, 3 Cal.5th at p. 273.) Had Jacks decided the issue, as
plaintiffs claim, a remand for further fact-finding would have
been unnecessary.

                                 11
       Plaintiffs further assert that the City must establish an
“actual, reasonable relationship” between the amount of the fee
and the franchise’s value and that the trial court must find a
value of “at least 2 [percent] of SCE’s gross annual receipts.”
They are incorrect on both counts. Jacks required the trial court
to determine whether the 2 percent charge bears a reasonable
relationship to the value of the franchise rights. (Jacks, supra, 3
Cal.5th at p. 271.) There is no requirement of an “actual”
relationship. Nor must the City demonstrate a value of at least 2
percent. It need only show that 2 percent reasonably
approximates the value of the franchise rights. (Jacks, supra, 3
Cal.5th at pp. 272-273.)
       As the City and amicus curiae League of California Cities
point out, plaintiffs make virtually no effort to challenge the trial
court’s factual finding that a reasonable relationship exists
between the total 2 percent charge and the value of the franchise
rights transferred by the City. Plaintiffs’ focus remains on their
argument that because SCE only actually incurs the 1 percent
initial term charge, that is the only possible franchise fee. Jacks
specifically stated, however, that “we would be placing form over
substance if we precluded the City from establishing that the
surcharge bears a reasonable relationship to the value of the
property interest it conveyed to SCE.” (Jacks, supra, 3 Cal.5th at
p. 269.)
       In a comprehensive, detailed opinion, the trial court
considered, as evidence of value, the negotiated 2 percent rate,
the non-expert evidence cited by the parties, the expert evidence
and other indicia of value. The court found that the outcome of
the parties’ negotiations “is the best indicator that ‘the amount of
the franchise fee [bears] a reasonable relationship to the value of
the property interests transferred.’ [Citation.]” It did “not find

                                 12
the parties’ other evidence of indicia of value persuasive one way
or the other.” The court found “the parties’ other evidence . . . to
be consistent with the negotiated franchise fee as bearing a
reasonable relationship to the value of the property interests
transferred. However, the Court [did] not find that this other
evidence either separately supports or separately undermines the
evidentiary persuasiveness of the negotiated result as the best
indicator of the reasonable relationship.”
       In sum, the trial court found “that all of the evidence taken
together shows that the amount of the franchise fee (i.e., the 2
percent) bears a reasonable relationship to the value of the
interests transferred by [the] City and that [the] City has met its
burden of proof on that issue. . . . The Court therefore
[concluded] that the 2 percent compensation for the franchise
rights set forth in Ordinance 5135 is a valid franchise fee under
Proposition 218 and not a tax.”
                   1. The Franchise Negotiations
       Under the Franchise Act of 1937 (1937 Act), the legally
permissible franchise fee applicable to general law cities is “not
less than 1 percent of the applicant’s gross annual receipts
derived from the sale within the limits of the municipality of the
utility franchise for which the franchise is awarded.” (Pub. Util.
Code, § 6231, subd. (c).) As a charter city, however, the City is
not bound by the 1937 Act’s 1 percent limitation. (Jacks, supra, 3
Cal.5th at pp. 264-265.)
       In May 1994, SCE applied to the City to renew the 1
percent franchise fee that was due to expire on September 30,
1994. SCE requested that the 1937 Act be followed. The parties
extended the franchise agreement for one year to permit
negotiations.

                                13
       In February 1995, the parties’ negotiations reached an
impasse. The City sought a 2 percent franchise fee while SCE
sought to maintain the 1 percent fee. At that time, Long Beach,
San Diego and San Jose, also charter cities, had fees above 1
percent. The parties agreed to extend the existing franchise
agreement for three more years. During that time, the City
considered municipalization of SCE’s facilities as a means of
gaining leverage in the negotiations.
       In September 1998, SCE reiterated its “strong position to
continue the then-current compensation method consistent with
the 1937 Act.” The City, which had decided against
municipalization, relied upon its appraisal of the rights-of-way,
other charter cities’ franchise fees and other indicia of the
franchise’s value. SCE acknowledged that the City could charge
more than 1 percent but noted the PUC requires that amounts
over the 1 percent be billed as a surcharge.
       The parties concluded their negotiations in November 1999,
agreeing upon the 1 percent initial term fee plus the 1 percent
surcharge on ratepayers. They further agreed that if the PUC
did not approve the surcharge, the franchise agreement would
expire upon written notice of either party.
         2. The Franchise Negotiations Establish that the 2
          Percent Charge is a Franchise Fee and Not a Tax
       As previously discussed, Jacks allows a municipality to
establish the value of a franchise through “bona fide negotiations
concerning the property’s value.” (Jacks, supra, 3 Cal.5th at
p. 270.) The parties’ experts also agreed “that the result of
negotiation is ‘the best indicator of the true market value of the
City’s franchise property rights.’”
       The trial court found that two things were clear from the
parties’ negotiations: “First, the parties each negotiated in good

                               14
faith to achieve their respective negotiation goals. The Court
finds no evidence to suggest that the parties engaged in any
collusive or other non-competitive behavior. As the lengthy time
for the negotiations and frequent impasses demonstrate, each
party was earnestly negotiating in and for its own best interests.
Second, . . . [the] City negotiated to sell a unique asset (the
franchise rights) for which the City negotiated with SCE as the
only buyer. The one-buyer/one-seller negotiation here is different
from negotiations occurring with a vibrant market of alternative
buyers and sellers of comparable goods or services.”
       In Mahon, the respondent city similarly offered extensive,
undisputed evidence concerning the negotiations surrounding the
applicable franchise agreements. (Mahon, supra, 57 Cal.App.5th
at p. 720.) Among other things, the city’s representatives met
with the utility representatives more than 30 times during the
multi-year negotiating process and the parties exchanged
numerous offers, draft ordinances and agreements. The
plaintiffs, in turn, offered no evidence suggesting the negotiations
were not undertaken in good faith. (Id. at p. 721.) The court
found this evidence sufficient to establish that the disputed
undergrounding surcharge is a franchise fee and not a tax. (Id.
at pp. 720-722.)
       Mahon rejected the plaintiffs’ argument that “‘where a
utility merely collects a surcharge from its customers and remits
the revenue to a city, the utility has no reason to engage in bona
fide negotiations.’” (Mahon, supra, 57 Cal.App.5th at p. 721.)
The court reasoned: “As is true for any business, a utility plainly
has an incentive to minimize the total amount of money that its
customers will be required to pay in exchange for its goods and
services in order to maintain the goodwill of its customers. . . .
Further, while [the] plaintiffs suggest that Jacks supports the

                                15
proposition that a utility has ‘no incentive to negotiate a lower . . .
surcharge because the surcharge is a pass-through charge,’ in
fact, Jacks supports the opposite proposition. In Jacks, as in this
case, the surcharge at issue was to be paid directly by the utility’s
customers [citation], yet the Jacks court stated that a
governmental agency, such as the City, could look to ‘bona fide
negotiations . . . to establish a reasonable value of franchise
rights.’ [Citation.]” (Id. at pp. 721-722.)
       Applying these principles, we conclude substantial evidence
supports the trial court’s finding that evidence of the parties’
franchise negotiations establishes a reasonable relationship
between the 2 percent charge and the property interests
conveyed. (See Morgan, supra, 223 Cal.App.4th at p. 916.) As
described above, the 2 percent charge was the result of five years
of arms-length negotiations between a motivated municipal seller
and a motivated utility buyer. The City maintained from the
beginning that the 1 percent charge was too low and less than the
franchise fees commanded by other charter cities. SCE sought to
retain an even-playing field with all its customers by paying only
the 1 percent charge mandated by the 1937 Act. In the end, the
parties compromised by agreeing to the 2 percent charge, with
the 1 percent surcharge to be included on SCE customers’ bills.
Plaintiffs have not provided any evidence that the negotiations
were not in good faith. (See Mahon, supra, 57 Cal.App.5th at pp.
721-722.)
       As the trial court aptly summarized, “SCE had multiple
incentives to have negotiated to minimize the total compensation
to be paid for franchise rights and to separate for administrative
and regulatory purposes that compensation as between an
existing 1 percent ‘franchise fee’ calculation and a surcharge for
the excess. The evidence shows that SCE did in fact negotiate in

                                  16
good faith consistently with its incentives to minimize that total
compensation. The evidence shows that [the] City negotiated in
good faith consistently to increase the franchise fee to reflect its
perception of the value of the franchise rights.” Plaintiffs have
not demonstrated that the court erred by finding the 2 percent
compensation for the franchise rights is a valid franchise fee and
not a tax.
                        III. DISPOSITION
      The judgment is affirmed. The City shall recover its costs
on appeal.
       NOT TO BE PUBLISHED.

                                      PERREN, J.

We concur:

      GILBERT, P. J.

      YEGAN, J.

                                 17
                   Thomas P. Anderle, Judge
            Superior Court County of Santa Barbara
               ______________________________

      Huskinson Brown & Heidenreich, Paul E. Heidenreich and
David W.T. Brown, for Plaintiffs and Appellants.
      Colantuono, Highsmith & Whatley, Michel G. Colantuono
and Ryan Thomas Dunn; City of Santa Barbara, Ariel Pierre
Calonne, Daniel S. Hentschke and Tom R. Shapiro, for Defendant
and Respondent.
      Office of the San Diego City Attorney, Mara W. Elliott, City
Attorney, George F. Schaefer, Assistant City Attorney, Meghan
Ashley Wharton, Senior Deputy City Attorney, for Amicus Curiae
League of California Cities.

                               18