Judge: Olivia Rosales, Case: 22NWCV00036, Date: 2022-10-25 Tentative Ruling

Case Number: 22NWCV00036    Hearing Date: October 25, 2022    Dept: SEC

HERNANDEZ v. THE COUNTY OF LOS ANGELES; et al.

CASE NO.:  22NWCV00036

HEARING:  10/25/22 @ 1:30 PM

 

#5

TENTATIVE RULING

 

     I.        Defendant County of Los Angeles’s demurrer to Plaintiff’s first amended complaint is OVERRULED. 

 

    II.        Defendant County of Los Angeles’s motion to strike is DENIED.

 

Defendant is ORDERED to file and serve its Answer within 10 days.

 

Opposing Party to give NOTICE.

 

 

I-II.    Demurrer and Motion to Strike

 

Defendant County of Los Angeles demurs to all causes of action on the ground that they fail to state facts sufficient to constitute a cause of action.

 

The operative First Amended Complaint (“FAC”) alleges that Plaintiff Luis Enrique Hernandez is a low-income homeowner who has an $88,000 tax assessment on his property for an accessory dwelling unit (ADU) that was never even started.  (FAC, ¶ 1.)  “The assessment on Plaintiff’s property is the result of Los Angeles County’s now-defunct Property Assessed Clean Energy (PACE) Program.”  (Id., ¶ 2.)  “Despite proving to the County that he never received an ADU, Plaintiff remains saddled with this unaffordable PACE assessment and an ongoing obligation to make annual payments of nearly $6,000, which places him at grave risk of foreclosure.”  (Id., ¶ 3.) 

 

“To finance the cost of the home improvements through PACE, a homeowner enters into an Assessment Contract with a public entity (here, Plaintiff entered into an Assessment Contract with the County). The Assessment Contract grants the County the right to place a lien on the homeowner’s property in the amount of the cost of the improvement, plus fees and capitalized interest (the “PACE Lien”). The PACE Lien takes first priority, ahead of any pre-existing loan or mortgage. Like a mortgage and other financing arrangements, the PACE Lien remains on the home until the PACE loan has been fully repaid. Unlike property taxes, the PACE Lien is recorded when the loan proceeds are initially disbursed, and not as a result of nonpayment of taxes.”  (Id., ¶ 17.)  “To collect payments on the PACE loan, plus interest and additional fees, the County adds an additional assessment to the owner’s annual property tax bill.”  (Id., ¶ 18.)  “The County ended its PACE program in May 2020, publicly acknowledging that it could not protect homeowners from consumer protection abuses.”  (Id., ¶ 26.)  “Nevertheless, the County has not remedied the egregious harm suffered by homeowners, such as Plaintiff, who is burdened by an existing PACE assessment that he cannot afford and for work that was never performed.”  (Id., ¶ 27.) 

 

“The County contracted out to Renovate America the job of obtaining homeowner signatures on these Assessment Contracts. Renovate America, in turn, used home improvement contractors, like A&JB, who had a personal stake in the homeowner signing up for PACE-financed home improvements to present the Assessment Contract to the homeowner for signature.”  (Id., ¶ 41.)  “Plaintiff was approached at his home by a door-to-door salesperson who Plaintiff later learned was acting on behalf of a home improvement contractor, A&JB General Contractor’s Inc.”  (Id., ¶ 29.)  “This A&JB representative misrepresented to Plaintiff that he could finance an accessory dwelling unit (ADU) on the property through the PACE program. In fact, ADU construction is not an authorized use of PACE financing.”  (Id., ¶ 30.)  “At every stage of the process of enrolling in the County’s PACE program, Plaintiff was misled and defrauded, and the County failed to exercise requisite oversight.”  (Id., ¶ 31.)  “County disbursed funds to the contractor based on a facially defective completion certificate dated two weeks following the date of Plaintiff’s initial PACE application, and obligated Plaintiff to repay approximately $88,000… County did not review geo-tagged photos or verify building permits before taking these steps, as required by County policy. Further, the completion certificate obtained by the County’s administrator explicitly states that the building permit for a roof is a required attachment, but no permit was attached as required.”  (Id., ¶ 31(e).)  Plaintiff has exhausted his administrative remedies.  (Id., ¶¶ 42-54.)  Based thereon, the FAC asserts causes of action for:

 

1.        Refund of Taxes (v. County)

2.        Declaratory Relief (v. County)

3.        Declaratory Relief (v. County)

4.        Violation of the Home Solicitation Act (v. all Defendants)

5.        Declaratory Relief (v. all Defendants)

6.        Rescission of Contract (v. all Defendants)

7.        Violation of Financial Code 22686 and 22687 (v. all Defendants)

8.        Violation of Mandatory Duty (v. County)

9.        Violation of Due Process (v. County)

10.    Cancellation of Taxes (v. County)

11.    Declaratory Relief (v. all Defendants)

 

Immunity

 

County contends that it is immune pursuant to Rev. & Tax Code § 4807, which provides, “No injunction or writ of mandate or other legal or equitable process shall issue in any suit, action, or proceeding in any court against any county, municipality, or district, or any officer thereof, to prevent or enjoin the collection of property taxes sought to be collected.”  (Rev. & Tax. Code § 4807.)  Section 4807 “creates a statutory bar to orders enjoining the collection of a county tax which is comparable to the constitutional prohibition against enjoining the collection of a state-imposed tax.”  (Connolly v. County of Orange (1992) 1 Cal.4th 1105, 1114.)  This statutory bar precluding the courts from enjoining the collection of a county tax is “clear” and has “no exceptions.”  (Id.)

 

However, the California Supreme Court has explained that these provisions
merely “prohibit[] courts from ‘prevent[ing] or enjoin[ing] the collection of any tax’ during the pendency of litigation challenging the tax… [they do] “not purport to limit a court’s authority to fashion a remedy if it determines a tax is illegal, including its authority to issue an injunction against further collection of the challenged tax…  the important public policy… ‘is to allow revenue collection to continue during litigation so that essential public services dependent on the funds are not unnecessarily interrupted.’”  (Ardon v. City of Los Angeles (2011) 52 Cal. 4th 241, 252.)

 

County’s authorities are distinguishable because they relate to pre-payment of taxes.  Plaintiff is entitled to file action on taxes already paid for 2019-2021.  (Connolly v. County of Orange (1992) 1 Cal.4th 1105, 1115.)  Rev. & Tax Code § 4807 was not designed to force victims of fraud to pay the full amount of the lien (i.e. in Plaintiff’s case, $88,000 in 15 years), before seeking relief.  Plaintiff followed the claims procedure (FAC, ¶ 42-43), and has six months from denial to seek judicial review (Id., ¶ 47; Rev. & Tax Code § 5141). 

 

In Reply, County reverses course and argues that the authorities relied upon by Plaintiff are based on article XIII, section 32 of the California Constitution, and not Rev. & Tax Code § 4807.  Yet, it was County who initially cited to Section 32, and argued in various parts of its memorandum that Section 32 is “comparable” to Rev. & Tax Code § 4807, and “contains nearly identical language to section 4807.”  (Motion, 4:21-24; 5:4-8; 5:27-6:2.)  County cannot have it both ways. 

 

The court finds the California Supreme court’s rationale in Ardon instructive on how to address Rev. & Tax Code § 4807 to this action.  Plaintiff is entitled to bring suit for taxes already paid.

 

Accordingly, Rev. & Tax Code § 4807 does not immunize County from this action.  Demurrer is OVERRULED.

 

Alternatively, County contends that Gov. Code § 860.2 immunizes it from liability.  Gov. Code § 860.2 provides, “Neither a public entity nor a public employee is liable for an injury caused by: (a) Instituting any judicial or administrative proceeding or action for or incidental to the assessment or collection of a tax. (b) An act or omission in the interpretation or application of any law relating to a tax.”

 

“ ‘Injury’ means death, injury to a person, damage to or loss of property, or any other injury that a person may suffer to his person, reputation, character, feelings or estate, of such nature that it would be actionable if inflicted by a private person.”  (Gov. Code § 810.8.) 

 

The two cases cited by County relate to defamation and abuse of process (Rickley v. County of Los Angeles (2004) 114 Cal.App.4th 1002) and negligence, slander of title and interference with credit relations (Mitchell v. Franchise Tax Bd. (1986) 183 Cal.App.3d 1133).  Plaintiff is not making claims for defamation, abuse of process, or any tort claim like in the cases the County cites, nor is Plaintiff seeking damages for those claims. 

 

“[T]he immunity provisions of the Act are only concerned with shielding public entities from having to pay money damages for torts.  Section 814 explicitly provides that liability based on contract or the right to obtain relief other than money damages is unaffected by the Act. Plaintiffs do not seek damages; they seek only to compel defendants to perform their express statutory duty. While compliance with the duty may result in the payment of money, that is distinct from seeking damages.”  (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 867.)

 

The court finds Gov. Code § 810.8 is inapplicable.  Demurrer is OVERRULED.

 

Validation Proceeding

 

County contends that it is also immune from liability because prior to County’s PACE program going into effect, County obtained a judgment of validation concerning the assessments, contractors, and any other related contracts or agreements.  “A validation judgment forecloses any claims that attack the validity of the agreement or its terms.”  (City of Galt v. Cohen (2017) 12 Cal.App.5th 367, 380.)  CCP § 870(a) provides, “The judgment, if no appeal is taken, or if taken and the judgment is affirmed, shall, notwithstanding any other provision of law including, without limitation, Sections 473 and 473.5, thereupon become and thereafter be forever binding and conclusive, as to all matters therein adjudicated or which at that time could have been adjudicated, against the agency and against all other persons, and the judgment shall permanently enjoin the institution by any person of any action or proceeding raising any issue as to which the judgment is binding and conclusive.”

 

Based on the Judgment of Validation (RJN Ex. 7), the court cannot find that the contract alleged by Hernandez was part of the contracts submitted for approval in the underlying Validation Proceeding in 2015.  The Complaint alleges that “Mr. Hernandez’s signature on the relevant contract documents were obtained by misrepresentations made to him by A&JB,” and also that he did not receive any of the improvements contemplated.  (FAC, ¶¶ 94-95.)  At this juncture, without more, this court cannot determine if the validation judgment bars Plaintiff’s claims.

 

Further, CCP § 870(a) prohibits claims as to “all matters therein adjudicated or which at that time could have been adjudicated.”  Hernandez’s claim was the result of misrepresentations and lack of oversight by the County over a program that is now defunct and terminated due to widespread fraud and consumer abuse.  (FAC, ¶ 26.)  The fraud and consumer abuse were not matters that were contemplated or could have been adjudicated during the validation proceeding. 

 

Demurrer is OVERRULED.

 

Government Tort Claims Act

 

County contends that Plaintiff’s claims are barred by the Government Claims Act.  However, Gov. Code § 905(a) specifically exempts from the claims presentation requirement “[c]laims under the Revenue and Taxation Code or other statute prescribing procedures for the refund, rebate, exemption, cancellation...of any tax, assessment, fee, or charge.”

 

Hernandez’s refund claim is brought pursuant to Rev. & Tax Code § 5140 (FAC, 12:12), and is therefore exempt.

 

Further, Plaintiff’s claims are exempt under Gov. Code § 905(h), which exempts “[c]laims that relate to a special assessment constituting a specific lien against the property assessed and that are payable from the proceeds of the assessment, by offset of a claim for damages against it or by delivery of any warrant or bonds representing it.”

 

Finally, the “claims statutes do not impose any...requirements for non-pecuniary actions, such as those seeking injunctive, specific, or declaratory relief.”  (Minsky v. City of Los Angeles (1974) 11 Cal. 3d 113, 114.)

 

Demurrer on this ground is OVERRULED.

 

4th, 5th, 7th, and 8th CAUSES OF ACTION

 

County contends that Plaintiff’s statutory claims in the 4th, 5th and 8th causes of action fail to state viable claims.

 

4TH CAUSE OF ACTION for VIOLATION OF THE HOME SOLICITATION ACT pursuant to CC § 1689.5 et seq.:

 

¶ 83 alleges that County violated CC § 1689.7 by failing to include the notice of cancellation.  County contends that RJN Ex. 8 demonstrates that a cancellation notice was contained in the contract.  In opposition, Plaintiff contends that County still violated CC § 1689.7(f) because Plaintiff should have been informed orally of his right to cancel. 

 

Although this allegation does not appear in the FAC, ¶ 85 also alleges that County violated various other provisions of the Unruh Act.  “[E]very home solicitation contract . . . which provides for a lien on real property” is subject to the Unruh Act.  (CC § 1689.8(a).)  CC § 1803.3(b) provides that “[e]very contract subject to this chapter shall contain the disclosures required by Regulation Z whether or not Regulation Z applies to the transaction.”  The court finds the allegations survive demurrer.  A general demurrer does not lie to only part of a cause of action. If there are sufficient allegations to entitle plaintiff to relief, other allegations cannot be challenged by general demurrer. (Kong v. City of Hawaiian Gardens Redevelop. Agency (2003) 108 CA4th 1028, 1046.)

 

Further, Defendant contends PACE assessments are not subject to TILA, citing a District Court case that is not binding on this court. 

 

Demurrer to the 4th cause of action is OVERRULED.

 

5th CAUSE OF ACTION:  DECLARATORY RELIEF pursuant to B&P Code § 7153:

 

“Any security interest taken by a contractor, to secure any payment for the performance of any act or conduct described in Section 7151that occurs on or after January 1, 1995, is unenforceable if the person soliciting the act or contract was not a duly registered salesperson or was not exempt from registration pursuant to Section 7152 at the time the homeowner signs the home improvement contract solicited by the salesperson.”  (B&P Code § 7153(b).)

 

¶ 31(a) alleges that the A&JB representative who solicited Plaintiff at his home was not registered with the CSLB as a home improvement salesperson.  Thus, County’s security interest is unenforceable because the person soliciting the home improvement was not registered.  Demurrer is OVERRULED.

 

7th CAUSE OF ACTION:  VIOLATION of FIN. CODE §§ 22686 and 22687:

 

County contends it is exempt under Fin. Code § 22050(f).  However, Fin. Code § 22050(f) exempts public entities “when making any loan.”  However, County has taken the contradictory position that PACE assessments are not loans.  (RJN, Ex. B and County’s TILA arguments in this instant demurrer.)  County is judicially estopped from taking contrary positions in different judicial proceedings.

 

County also argues that because ¶ 19 alleges that Renovate and Renew Financial administered the PACE program, County is not liable under Fin. Code §§ 22686 and 22687.  However, Plaintiff has alleged that Renovate America was an “agent of the County” who had “the authority to act on behalf of the County in the administration of the PACE program,” and that the County “ultimately controlled the PACE program.”  (FAC, ¶¶ 19, 20, 100. )

 

Demurrer is OVERRULED.

 

8th CAUSE OF ACTION:  VIOLATION of GOV. CODE § 815.6:

 

“Where a public entity is under a mandatory duty imposed by an enactment that is designed to protect against the risk of a particular kind of injury, the public entity is liable for an injury of that kind proximately caused by its failure to discharge the duty unless the public entity establishes that it exercised reasonable diligence to discharge the duty.”  (Gov. Code § 815.6.)

 

As delineated in the 4th, 5th, and 7th causes of action, Plaintiff has asserted County’s violation of mandatory duties.  Demurrer is OVERRULED.

 

9th CAUSE OF ACTION:  VIOLATION of DUE PROCESS:

 

“Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress, except that in any action brought against a judicial officer for an act or omission taken in such officer’s judicial capacity, injunctive relief shall not be granted unless a declaratory decree was violated or declaratory relief was unavailable.”  (42 USCS § 1983.)

 

¶ 120 alleges that “County has deprived Plaintiff of property, including by
imposition of a yearly assessment and lien on Plaintiff’s home that continues to burden his rights on the property and places him at risk of foreclosure. Such a deprivation must comport with due process.’  ¶¶ 46 and 121 allege, “The administrative process that the County prescribed and Plaintiff followed to seek refund and cancellation of his PACE assessment and removal of the lien on his home was constitutionally inadequate. The process contained no clearly defined evaluation or resolution process, no evidentiary hearing, no impartial finder of fact, no submission of briefing or argument, no exchange of evidence, no taking of testimony or cross-examination, no standard of decision, no written findings of fact, and no process, standard, or timeline for reconsideration.”  ¶ 122 requests declaratory relief based on the County’s insufficient administrate process, an adequate opportunity to be heard, and reversal of the decision denying his administrative claim.

 

Plaintiff has alleged sufficient facts supporting the denial of his due process.  As alleged, demurrer is OVERRULED.

 

County’s accompanying motion to strike, based on the same defects argued in the demurrer, is DENIED on the same grounds as above.