A California court of appeal recently held that a public agency is not required to provide individual protest procedures for each customer class when proposing increases to its water service fees. The court based its decision in Morgan v. Imperial Irrigation District on Proposition 218 (California Constitution article XIII D, section 6) and the Proposition 218 Omnibus Implementation Act (Government Code section 53750 et seq.). The court also clarified the standard of review an appellate court should apply in reviewing a trial court’s determination of the facts in a case challenging property-related fees and charges.

In Morgan, the plaintiffs challenged the district’s fees on both procedural and substantive grounds. The district’s water rate structure was comprised of different customer classes, with different rates applying to each customer class. Of significance to public agencies is the plaintiff’s procedural challenge on the method for calculating a majority protest. The plaintiffs asserted that individual customer classes are entitled to protest rate increases to be imposed on them. The court rejected this claim, finding that to do so would in effect result in a minority of users vetoing an entire rate plan and call into question the proposed rates for the remaining customer classes without regard to the desires of the majority of the customers as a whole. Moreover, the court noted that if one rate class was allowed to object to its portion of the district’s rates, the district would have to reduce its services. The lower costs would correspondingly cause the proposed rate increases for the other customer classes to be disproportionate to the cost of service because they were based on the entire system of rates and the cost of service assuming those increased rates. 

The district engaged a rate consultant to prepare a cost of service study. The study followed commonly accepted professional standards developed by the American Water Works Association (AWWA). The rate structure included a volumetric charge. Among the substantive challenges asserted, the plaintiffs argued that the district’s proposed rates were not proportionate to the cost of service because in calculating the volumetric charge the rate consultant had used flawed data. The district presented evidence at trial that district staff estimated the annual amount of water used by certain customers. This data was buttressed by data published by AWWA, water use data for local municipalities and local evapotranspiration rates. The trial court rejected the plaintiff’s substantive challenge and found that the cost of service study was very thorough and not defective. Thus, based in part on the district’s reliance on the study, the trial court concluded that the district satisfied the substantive requirements of California Constitution article XIII D, section 6(b).

On appeal, the plaintiffs argued the applicable standard of review requires the district to prove to the appellate court’s satisfaction that the district’s rates are constitutional. The court of appeal rejected this argument, noting that the plaintiffs were challenging the sufficiency of the evidence presented at trial. As such, the court must review the trial court’s resolution of the factual conflicts under the substantial evidence standard. Under this standard of review, the court explained, its job begins and ends with the determination of whether there is any substantial evidence, contradicted or uncontradicted, that will support the finding of fact by the trial court. Accordingly, the court of appeal is required to accept all evidence that supports the successful party, disregard the contrary evidence and draw all reasonable inferences to uphold the verdict. The court found that the ultimate test is whether it is reasonable for a trier of fact to make the ruling in light of the whole record. If there is substantial evidence infavor of the respondent, no matter how slight it might appear in comparison to the contradictory evidence, the judgment must be upheld. 

The court of appeal found that the plaintiffs failed to articulate why the evidence was insufficient. Rather, they merely cited to evidence they believed showed the district’s data was inadequate. To resolve the plaintiff’s challenge to the rates would require the court of appeal to reweigh the evidence and independently resolve issues of disputed facts already decided by the trial court. The court found that this was not its role under the substantial evidence standard of review. Further, the court held that it was satisfied that there was substantial evidence to support the trial court’s factual determination that the district complied with the substantive requirements of California Constitution article XIII D, section 6(b) through its reliance on the cost of service study. In addition, the court noted that while the district’s water measurement system was not perfect “section 6 does not require perfection.”