A homebuilder’s lawsuit over the City of Encinitas’s fee scheme, which allowed the city building official to implement automatic fee changes, has been allowed to proceed. The Fourth District Court of Appeal ruled that even though the fees took effect years before the homebuilder paid them, the normal statute of limitations did not apply because the city made no provision for public review.

"[T]he city’s regulatory scheme allowed the fees to be increased at the whim of its building official without providing any notice to the public of the impending change," Justice James McIntyre wrote for the court. "This scheme frustrates two fundamental purposes of the [Mitigation Fee] Act — ensuring that the public receives notice of proposed fee increases and that local government agencies do not charge excessive fees for services they provide."

The unanimous three-judge panel sent the lawsuit, filed by Barratt American, Inc., back to San Diego County Superior Court for further proceedings.

In 1987, the Encinitas City Council adopted an ordinance requiring building permit fees to be set by council resolution, but authorizing the city building official to assign a valuation (known as a valuation multiplier) to different categories of structures. In 1992, the council adopted a resolution that included a fee schedule, in which the city calculated building permit and other fees by multiplying the square footage of a proposed building by the valuation multiplier.

For three developments constructed by Barratt American, the city used valuation multipliers set forth by the San Diego Area Chapter of the International Conference of Building Officials (ICBO) that was effective on August 1, 1995. Those multipliers were not included by the city in the 1992 resolution.

Barratt American contended it was overcharged by the city and filed a lawsuit in October 2000 seeking a refund. San Diego County Superior Court Judge Thomas Nugent found that the statute of limitations had expired, and he ruled for the city. Barratt American appealed, and the Fourth District overturned part of Judge Nugent’s decision.

The appellate court determined that Barratt American’s challenge to the 1992 resolution was filed years too late because a 120-day statute of limitations applied. But the Fourth District ruled that Barratt American’s claim that the city improperly increased fees should be considered.

The developer argued that the fees it was charged were illegal because the 1995 ICBO multipliers were never adopted by City Council ordinance or resolution. Typically, the 120-day statute of limitations begins when the legislative body adopts the fee schedule. But the Encinitas City Council never specifically adopted this fee schedule.

The city argued that Barratt American had 120 days from the time it paid the fees to file a lawsuit. But the court rejected that contention, finding that the statute of limitations in Government Code § 66022 "expressly runs from the effective date of the fee legislation." In this case, there was no legislation.

The city also argued that the fee change was automatic because the 1987 ordinance gave the city building official authority to change the valuation multipliers. State law allows such automatic fee adjustments, the city contended.

But the court ruled that there was a difference between the automatic adjustments allowed by the Mitigation Fee Act and Encinitas’s approach.

"[W]hile enactment of both the ordinance and the 1992 resolution satisfied due process, neither expressly ‘provided for’ automatic fee adjustments. (Government Code § 66022, subdivision (a).) Stated differently, nothing within these two enactments put the public on notice that the city would periodically adjust the ultimate fees charged based on some objective criteria such as the ICBO publishing a changed valuation schedule," Justice McIntyre wrote.

Moreover, the city must provide evidence that fees charged under the ICBO schedule are related to the cost of providing the actual services, the court noted. "Here, nothing prevented the building official from changing the valuation multiplier, and thus changing the fees, in any way he or she desired," McIntyre wrote. "At a minimum, due process requires a local agency to adopt an automatic adjustment formula based on some readily determinable and objective criteria that are expressly stated."

Barratt American has challenged fees for plan checks, building permits and inspections in numerous jurisdictions. The developer even has a case pending before the state Supreme Court, Barratt American Incorporated v. City of Rancho Cucamonga, No. S117590.

The Case:
Barratt American v. City of Encinitas, No. D041162, 04 C.D.O.S. 1228, 2004 DJDAR 1510. Filed February 10, 2004.
The Lawyers:
For Barratt American: Jason Brent, Brent & Klein, (661) 823-1103.
For the city: Jeffrey Dunn, Best, Best & Krieger, (949) 263-2600.