Court of Appeal Rejects Challenge to LA’s Business Improvement Districts on Procedural Ground

Sheppard Mullin Richter & Hampton LLP

Sheppard Mullin Richter & Hampton LLP

At the end of June, in Hill RHF Housing Partners, L.P. v. City of Los Angeles, the Court of Appeal upheld the trial court’s denial of a challenge to the City of Los Angeles’s June 2017 establishment of the Downtown Center Business Improvement District (DCBID) and the San Pedro Historic Waterfront Business Improvement District (SPBID) (collectively, the LA BIDs), on the ground that the petitioners failed to exhaust administrative remedies – a jurisdictional prerequisite before seeking judicial review.  While the requirement for petitioners to exhaust administrative remedies is not new, Hills RHF Housing Partners, L.P. applied this well-established doctrine to a more nuanced set of laws applicable to the establishment of a business improvement district (BID).

The Property and Business Improvement District Law of 1994 (Streets & Highway Code §§ 36600 et seq.) (PBID Law) authorizes cities to establish property and BIDs in order to levy assessments[1] on real property.  However, prior to the establishment of a BID, an owner of a parcel in the area to be regulated must be given written notice of the proposed assessment, the total amount chargeable to the entire BID area, the amount chargeable to the owner’s particular parcel, the duration of the payments, the reason for the assessment, the basis upon which the amount of the proposed assessment was calculated and the date, time, and location of the public hearing on the proposed assessment.  Each notice, which is to be given by mail, must also include a summary of the procedures applicable to the completion, return, and tabulation of the assessment ballots.  PBID Law mandates that the applicable governmental agency shall not impose an assessment if there is a majority protest.

Prior to adoption of the LA BIDs, the City mailed notices to owners of property inside each BID area alerting them to the public hearings in which the City was to consider the establishment of the LA BIDs.  The notices included summaries of the management plans for each LA BID, assessment ballots and summaries of procedures for completing, returning, and tabulation of assessment ballots.  The petitioners returned ballots to the City opposing the establishment of the LA BIDs, but did not attend the public hearings or submit written objections.  Based on the public hearings and the ballots tabulated after those hearings, the City approved the ordinances establishing BIDs.  The petitioners subsequently filed a petition for writ of mandate and complaint for declaratory and injunctive relief against the City challenging the establishment of the LA BIDs.

The Court of Appeal held that by simply voting against the assessments without availing themselves of the protest and hearing process, the petitioners failed to exhaust the administrative remedies before seeking judicial relief.  The court reasoned that for a “no” vote to constitute exhaustion without further action or written or oral testimony would frustrate the purpose of the doctrine.  In the context of PBID law, exhaustion of administrative remedies requires a property owner to submit a ballot opposing the assessment and presenting to the governmental agency the specific reasons for its objection to the establishment of a BID in a manner the agency can consider at the designated public hearing.  The administrative procedure outlined in the Constitution and the Government Code[2] allows property owners to do that either orally or in writing at a public hearing. Because the petitioners did neither in this case, the court found the required jurisdictional requisite was not satisfied and, therefore, affirmed the trial court’s denial of the petition for writs of mandate.


[1]  The assessments are intended, among other things, to “promote the economic revitalization and physical maintenance of business districts in order to create jobs, attract new businesses, and prevent the erosion of the business districts.” (Sts. & Hy. Code § 36601(b).)

[2]  Cal. Const., art. XIII D, § 4(c); Govt. Code § 53753(b).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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