SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO 17. March 27, :30 p.m. 304 Hon. Curtis E.A. Karnow 27

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1 Bingham McCutchen LLP JAMES J. DRAGNA (SBN ) COLIN C. WEST (SBN ) THOMAS S. HIXSON (SBN ) Three Embarcadero Center San Francisco, California -0 Telephone:..000 Facsimile:.. EXEMPT FROM FILING FEES [GOVERNMENT CODE ] Morrison & Foerster LLP JAMES J. BROSNAHAN (SBN ) SOMNATH RAJ CHATTERJEE (SBN ) Market Street San Francisco, CA - Telephone:..000 Facsimile:.. MARCIA SCULLY (SBN 0) SYDNEY B. BENNION (SBN ) HEATHER C. BEATTY (SBN 0) The Metropolitan Water District Of Southern California 00 North Alameda Street Los Angeles, California 00- Telephone:..000 Facsimile:..0 Attorneys for Respondent and Defendant Metropolitan Water District of Southern California SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO SAN DIEGO COUNTY WATER AUTHORITY, 0 Petitioner and Plaintiff, v. METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA; ALL PERSONS INTERESTED IN THE VALIDITY OF THE RATES ADOPTED BY THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA ON APRIL, 0 TO BE EFFECTIVE JANUARY 0; and DOES -, Respondents and Defendants. No. CPF--0 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF RESPONDENT AND DEFENDANT METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA'S DEMURRERS TO, OR IN THE ALTERNATIVE MOTION TO STRIKE PORTIONS OF, SAN DIEGO COUNTY WATER AUTHORITY'S THIRD AMENDED PETITION/COMPLAINT Date: Time: Dept.: Judge: March, 0 :0 p.m. 0 Hon. Curtis E.A. Karnow N 0.

2 TABLE OF CONTENTS Page I. INTRODUCTION II. FACTUAL AND PROCEDURAL BACKGROUND III. THE COURT MAY GRANT THE REQUESTED DEMURRERS AND MOTION TO STRIKE IV. ARGUMENT A. Proposition, Enacted in November, 0, Does Not Apply Retroactively to the Rates MWD Adopted Seven Months Earlier Proposition Does Not Expressly State That It Applies Retroactively To Local Charges Proposition 's Language Shows That It Applies Only Prospectively To Local Charges There Is No Clear Extrinsic Evidence That Proposition Was Intended to Apply Retroactively To Local Charges B. Proposition Is Not a Procedural Amendment; It Substantially Affects Local Government Agencies' Existing Rights And Obligations C. Applying Proposition Retroactively to Local Charges Would Lead to Absurd, Negative Results v. CONCLUSION N0.

3 TABLE OF AUTHORITIES Page(s) CALIFORNIA CASES Bell v. Farmers Ins. Exchange Cal. App. th 0 (00 ) Blank v. Kirwan Cal. d () Brydon v. East Bay Mun. Utility Dist. Cal. App. th ()... Cal. Water Impact Network v. Newhall County Water Dist. Cal. App. th (00) Canon U.S.A., Inc. v. Super. Ct. Cal. App. th ()... Citizens Association of Sunset Beach v. Orange County Local Agency Formation Commission 0 Cal. App. th (0 )......, 0 City of Port Hueneme v. City of Oxnard Cal. d () City ofsanta Cruz v. Local Agency Formation Com. Cal. App. d ()... Committee of Seven Thousand v. Superior Court Cal. d ()... Costa v. State of Cal. Cal. App. d ()... Diageo-Guiness USA, Inc. v Board of Equalization (0 ) 0 Cal.App.th 0 [ Cal. Rptr. d ] Elsner v. Uveges Cal. th (00) Evangelatos v. Superior Court Cal. d () Fire Ins. Exch. v. Super. Ct. Cal. App. th (00) N0.

4 Ginns v. Savage Cal. d 0 () Goldman v. Franchise Tax Bd. (0) 0 Cal.App.th [ Cal. Rptr. d ] Greene v. Marin County Flood Cont. and Water Conserv. Dist. Cal. th (0 0) Griffith v. City of Santa Cruz 0 Cal. App. th (0) Hess Collection Winery v. Agricultural Labor Relations Bd. Cal. App. th (00) In re Cheri T. 0 Cal. App. th 0 () Ingram v. Flippo Cal. App. th () Lilienthal & Fowler v. Super. Ct. Cal. App. th () Mathieu v. Norrell Corp. Cal. App. th (00) Moore v. Cal. State Bd. Of Accountancy Cal. th () Morris v. Pacific Electric Railway Company Cal. d () NetJets Aviation, Inc. v. Guillory (0) 0 Cal.App.th [ Cal. Rptr. d ] People v. Rizo Cal. th (000) PH II, Inc. v. Super. Ct. Cal. App. th () San Joaquin Local Agency Formation Comm 'n v. Super. Ct. Cal. App. th (00) Shape!! Industries, Inc. v. Governing Bd. Cal. App. th () Silicon Valley Taxpayers' Ass 'n v. Santa Clara County Open Space Auth. Cal. th (00) N 0, I

5 South Sutter, LLC v. LJ Sutter Partners, L.P. Cal. App. th (0) Strauss v. Horton Cal. th (00) passim Swiss Park, Inc. v. City of Duarte Cal. App. d ( ) Tarr v. Merco Constr. Engineers, Inc. Cal. App.d 0 () Western States Petroleum Assn. v. Super. Ct. Cal. th () Winnaman v. Cambria Comm. Servs. Dist. 0 Cal. App. d () CALIFORNIA STATUTES Cal. Code Civ. Pro c. 0. 0(e) Cal. Code Civ. Proc..(b) Cal. Code Civ. Proc Cal. Gov. Code Cal. Gov. Code 0( e) Cal. Gov. Code 0(e) & (h) Cal. Gov. Code 0(h)() Cal. Gov. Code.(a) Water Code OTHER AUTHORITIES Cal. Const. Article XIII A, (c) Cal. Const. Article XIIIC, (e) ,,,, Cal. Const. Article XIIIC, Cal. Const. Article XIIIC, ( c) Cal. Con st. Article XIIIC, ( d) IV N0. I

6 The Metropolitan Water District of Southern California ("MWD") respectfully submits this memorandum of points and authorities in support of its demurrers to, or in the alternative motion to strike portions of, San Diego County Water Authority's ("SDCWA") Third Amended Petition for Writ of Mandate and Complaint for Damages and Declaratory Relief ("TAC"). I. INTRODUCTION SDCWA's TAC challenges rates that MWD's Board ofdirectors adopted in April, 0. SDCWA's first through third causes of action allege, in part, that those rates were adopted in violation of Proposition, a ballot initiative concerning state and local charges and taxes which was passed in November, 0. The Proposition claims fail as a matter of law. Voter initiatives are presumed to have no retroactive application absent express statutory language or very clear extrinsic evidence indicating that the voters intended otherwise. Proposition has a section addressing charges adopted by the state of California ("state provisions"), and a separate section addressing charges adopted by local agencies like MWD ("local provisions"). SDCWA's claims are based on the local provisions. Those provisions do not provide for retroactive application. And, the contrast with the state provisions is telling. The state provisions explicitly call for retroactive application to charges adopted after January, 0, but prior to Proposition 's effective date. No such language appears in the local provisions. Thus, fundamental principles of statutory construction dictate that Proposition was not intended to apply retroactively to local charges adopted before its passage, like those at 0 issue here. Nor is there any evidence that the voters intended the local provisions to apply retroactively. Next to the initiative's language, the most probative evidence of intent is the ballot pamphlet materials. Here, the pamphlet materials make it even clearer that the voters did not intend the local provisions to apply retroactively. In the findings and declarations, the drafters MWD disputes that Proposition applies at all to charges that are the subject of SDCW A's TAC. See, e.g., MWD Opp. to SDCWA's Motion for Leave to File Third Amended Petition/Complaint at :-:. However, that dispute is not the subject ofthese demurrers and motion. N0.

7 repeatedly informed voters that the initiative would limit "new" taxes and tax "increases," not existing taxes. The Legislative Analyst informed voters that Proposition would not apply to local charges adopted before its passage. And nothing in the arguments suggest that existing local charges will be affected. Moreover, interpreting Proposition to apply retroactively would have significant negative and absurd consequences for local government agencies throughout the state. The evidence against retroactive application of the local provisions is overwhelming. Accordingly, this Court should sustain MWD's demurrers to the Proposition claims in the first through third causes of action. Alternatively, the Court should strike all allegations related to Proposition. II. FACTUALANDPROCEDURALBACKGROUND SDCWA filed this case in June, 0, challenging the legality ofmwd'rwatenates adopted on April, 0. SDCWA's suit focused on three rate components, or charges, which I MWD has used since January, 00: (I) the System Access Rate, () the System Power Rate, IS and () the Water Stewardship Rate. See SDCWA Complaint filed on June I, 0 ("Compl. "). ~~ rate dther than its supply rate violates Proposition, i.e. Cal. Canst. art. XIIIA, and its I implementing statute, Government Code 00; Government Code.(a); Water Code I I0-; the MWD Act; and California common law. See, e.g., Compl. -. Specifically, SDCWA contended that MWD's allocation of costs to its transportation ~~,-,. 0 Nearly seven months after MWD adopted its water rates, on November, 0, I California voters adopted Proposition. Proposition amended Article XIIIA, section and Article XIIIC, section I ofthe California Constitution, effective November, 0. The amendments to Article XIIIC apply to certain local charges, and the amendments to Article XIIIA apply to certain state charges. See Cal. Const. art. XIIIA,, art. XIIIC, (e). As to local charges, Article XIIIC provides that local agencies may not "impose, extend, or increase" any charge that qualifies as a tax (general or special) as newly defined, without voter approval (by a majority vote for a general tax, and by a two-thirds vote for a special tax). Cal. Const. art. XIIIC, (e),. Proposition added section, subdivision (e) ("Article XIIIC N0.

8 Section (I)(e)"), which expands the definition of "taxes"; alters the traditional rule that legislative enactments are presumed lawful; and shifts the burden to local agencies to prove by a preponderance of the evidence that the charge is not a tax as defined. Id.; see also Ballot Pamp., General Elec. (November, 0), -, - (Request for Judicial Notice ("RJN"), Ex. I). The ballot materials which explained Proposition to voters conveyed that Proposition does not apply retroactively to local charges. For example, the Analysis of the Legislative Analyst advised that "most other fees or charges in existence at the time of the November, 0 I 0 election would not be affected unless: The state or local government later increases or I0 extends the fees or charges [or] [t]he fees or charges were created or increased by a state law- II passed between January, 0IO and November, 0IO." RJN, Ex. I at (emphases added). Consistently, the Legislative Analyst described the impact of Proposition- on "new-revenues," - and described the manner in which the government can "create or increase" fees and taxes or I "pass new laws that raise revenues." Id. at -, (emphases added). Proposition 's I "Findings and Declarations of Purpose" further describes the desire to restrict the government's ability to "increase" taxes, adopt "new taxes," or to "disguise[] new taxes as 'fees."' Id. at II I (emphases added). Although SDCWA has amended its Petition/Complaint three times, it was not until I SDCWA amended its Petition/Complaint for the third time in December, 0I, more than two 0 It is well settled that a court can judicially notice documents when facts therein render the complaint defective. See Swiss Park, Inc. v. City of Duarte, Cal. App. d, () ("It is well settled that, in ruling on a demurrer, a court may take judicial notice of facts that contradict the face of the complaint."); Tarr v. Merco Constr. Engineers, Inc., Cal. App.d 0, () (citations omitted) ("The doctrine is well settled that, in measuring the validity of a pleading in the face of a demurrer... the trial court... [is] entitled to consider the impact of information that has surfaced by reason of invocation of the doctrine of judicial notice."); South Sutter, LLC v. LJ Sutter Partners, L.P., Cal. App. th, (0 II) (the grounds for a motion to strike "must appear on the face of the complaint or be admissible by judicial notice) (emphasis added); Canon U.S.A.. Inc. v. Super. Ct., Cal. App. th I, () ("where the invalidity of... allegations is revealed on the face of the complaint, and/or by matters subject to judicial notice,... the issue may be properly disposed ofby... motion to strike") (emphasis added). A/0

9 years after Proposition was passed, that SDCWA included Proposition allegations. SDCWA now alleges that MWD's water rates, which were adopted before Proposition was passed, are invalid under Proposition because it is a tax as now defined by Article XIIIC, and MWD failed to obtain two-thirds voter approval ofthe water rates. See TAC III. ~~,. THE COURT MAY GRANT THE REQUESTED DEMURRERS AND MOTION TO STRIKE. "The function of a demurrer is to test the sufficiency of the complaint... " Ingram v. Flippo, Cal. App. th, (). A demurrer must be sustained if the complaint fails to state facts sufficient to constitute a cause of action upon which relief may be based. Code Civ. Proc. 0.(e). The trial court may consider all material facts pled in the complaint, those arising by reasonable implication therefrom, and those which can be judicially noticed. Blank v. Kirwan, Cal. d, (). Although SDCWA challenges MWD's water rates on six legal theories in each of the first through third causes of action, the Court may consider each asserted legal basis separately here. In general, a "'cause of action' means a group of related paragraphs in the complaint reflecting a separate theory of liability." Lilienthal & Fowler v. Super. Ct., Cal. App. th, - () (trial court not precluded from granting summary adjudication to part of cause of action because it "involved two separate and distinct causes of action regardless of how pled in the complaint") (emphasis in original). Accordingly, courts may dispose of claims that 0 constitute part of a cause of action if the claims could have been pled as separate causes of action because they present "separate and distinct grounds for liability." Mathieu v. Norrell Corp., Cal. App. th, (00) (a cause of action alleging employer was guilty of sexual harassment and retaliation constituted separate causes of action because it was based on "two separate and distinct grounds for liability"); see also Fire Ins. Exch. v. Super. Ct., Cal. App. th, (00) ("Ordinarily, a general demurrer does not lie as to a portion of a cause of action.... The trial court has broad discretion, however, to fashion suitable methods of practice in order to manage complex litigation."). Here, SDCWA could have pled its Proposition claims as a separate cause of action, since Proposition represents a distinct basis for alleged N0.

10 liability from SDCWA's other legal challenges. Thus, the Court may sustain the demurrers to the Proposition claims in the first, second, and third causes of action. Alternatively, the Court may strike the Proposition allegations. The Court may grant a motion to strike as to "any irrelevant, false, or improper matter inserted in any pleading," or "all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court." Code Civ. Proc.. "Irrelevant matter" includes allegations that are () "not essential to the statement of a claim or defense," and/or () "neither pertinent to nor supported by an otherwise sufficient claim or defense." Code Civ. Proc..(b). Where portions of a cause of action are "substantively defective on the face of the complaint," "the defendant should not have to suffer discovery and navigate the often dense thicket of proceedings in summary adjudication." PHIL Inc. v. Super. Ct., Cal. App. th, ( ). "[W]hen a substantive defect is clear from the face of a complaint, such as... a purported claim of right which is legally invalid, a defendant may attack that portion of the cause of action by filing a motion to strike."!d. at -. Because the Proposition allegations in the TAC are legally invalid, do not conform with state law, and are irrelevant, the Court may strike them. IV. ARGUMENT A. 0 Proposition, Enacted in November, 0, Does Not Apply Retroactively to the Rates MWD Adopted Seven Months Earlier. As noted, the voters passed Proposition in November, 0. See supra, Section II. SDCWA's Proposition claims challenge rates that MWD's Board adopted in April, 0. See id. Thus, SDCWA's Proposition allegations fail as a matter of law unless Proposition applies retroactively. It does not. There are only two bases upon which a ballot initiative may be found to apply retroactively. Ballot initiatives have no retroactive effect unless: () the measure expressly provides otherwise, or () "it is very clear from extrinsic sources that... the voters must have intended retroactive application." Strauss v. Horton, Cal. th, 0 (00) (citing Evangelatos v. Superior Court, Cal. d, -0 ()). Proposition does not N0.

11 expressly state that it applies retroactively to charges adopted by local government agencies like MWD. Indeed, the Proposition's language precludes such an interpretation. Nor is there any, let alone very clear, extrinsic evidence that the drafters or voters intended the local provisions to apply retroactively. To the contrary, all relevant materials strongly support a purely prospective application.. Proposition Does Not Expressly State That It Applies Retroactively To Local Charges. Proposition 's plain language is dispositive here. Proposition does not expressly provide for retroactive application of its local provisions. Strauss, Cal. th at 0.. Proposition 's Language Shows That It Applies Only Prospectively To Local Charges. Although not required to defeat retroactivity (see id. ), it is helpful to recognize that Proposition actually discloses a clear intent that the local provisions apply prospectively only, i.e., to govern only charges enacted or adopted after the Proposition's effective date. First, the contrast between the local provisions and state provisions is compelling. Proposition does expressly apply retroactively to state charges adopted between January, 0, and the measure's effective date. Cal. Const. art. XIIIA, (c). Specifically, state charges "adopted after January, 0", but before Proposition 's passage that fall within the new, broader definition of"taxes" are void months after Proposition 's effective date unless 0 "reenacted by the Legislature and signed into law by the Governor" in compliance with Proposition 's requirements. See id. There is no such provision for local charges in the new Article XIIIC Section ( )(e). The inclusion of a retroactivity period for state charges, without a similar provision for local charges, demonstrates that the local provisions were intended to apply In Griffith v. City of Santa Cruz 0 Cal. App. th (0), the Sixth District Court of Appeal applied Proposition 's local provisions to charges adopted prior to the Proposition's effective date. See Griffith, 0 Cal. App. th at -. But, the court did not address the retroactivity issue. See id. It is axiomatic that a decision is not authority for a proposition not considered. E.g., Ginns v. Savage, Cal. d 0,, n. (). N0.

12 only prospectively, i.e., to charges adopted after Proposition 's effective date. See Committee ofseven Thousand v. Superior Court, Cal. d, 0 () ("Where a statute, with reference to one subject contains a given provision, the omission of such provision from a similar statute concerning a related subject is significant to show that a different intention existed.") (quoting City of Port Hueneme v. City of Oxnard, Cal. d, ()). Second, it is also significant that the pre-existing Article XIIIC, which was enacted as Proposition in November,, expressly provided for retroactive application: Any general tax imposed, extended, or increased, without voter approval, by any local government on or after January,, and prior to the effective date of this article, shall continue to be imposed only if approved by a majority vote of the voters voting in an election on the issue of the imposition, which election shall be held within two years of the effective date of this article and in compliance with subdivision (b). Cal. Canst. art. XIIIC, (c). The drafters of Proposition were presumably aware of Article XIIIC's existing provisions and informed how to provide for retroactivity. Additionally, the voters were generally aware ofthe types of terms that would provide for retroactive application. The absence of any such terms in Proposition 's local provisions is strong evidence of the absence of any retroactive intent. Third, in Proposition 's local provisions, a word-"imposed"-was used that, in context, applies prospectively. The meaning of a word may be determined by reference to other terms that are associated with it in the same statute. Moore v. Cal. State Bd. ofaccountancy, 0 Cal. th, - () ("[W]hen a statute contains a list of or catalogue of items, a court should determine the meaning of each by reference to the others, giving preference to an interpretation that uniformly treats items similar in nature and scope... "). As mentioned, Article XIIIC provides that local agencies may not "impose, extend, or increase" a charge that qualifies as a tax, without voter approval. Cal. Canst. art. XIIIC, (b) & See also Bell v. Farmers Ins. Exchange, Cal. App. th 0, (00) (a term should be construed in context of the clause as a whole and construction should be consistent with the syntax ofthe statutory language). N0. I

13 (d). "Extend," "impose," and "increase" all have prospective meaning here. For purposes of Article XIIIC, '"extended,' when applied to an existing tax or fee or charge, means a decision by an agency to extend the stated effective period for the tax or fee or charge, including, but not limited to, amendment or removal of a sunset provision or expiration date." Cal. Gov. Code 0(e); see also Greene v. Marin County Flood Cont. and Water Conserv. Dist., Cal. th,0- (0) (Section 0 is part of the Proposition Omnibus Implementation Act, which is the Legislature's interpretation of Proposition ' s prescriptions and its provisions must be accorded "significant weight and deference by the courts."). The term thus refers to the time when the local agency acts to alter the charge. Here, I0 the TAC alleges that MWD adopted the subject rates in April, 0 and does not allege that MWD thereafter "extended" them after November, 0 0. "'Increased,' when applied to a tax, assessment, or property-related fee or charge, means a decision by an agency that does either of the following: (A) Increases any applicable rate used to calculate the tax, assessment, fee or charge[; or] (B) Revises the methodology by which the tax, assessment, fee or charge is calculated, if that revision results in an increased amount being levied on any person or parcel." Cal. Gov. Code 0(h)(). This term also refers to the time when the local agency acts to alter the charge. Here, the TAC does not allege that after November, 0, the MWD Board "increased" the rates adopted in April, 0. "Imposed"-which is in both the prior version of Article XIIIC, and also in Proposition 0 -should be construed consistently, to refer to the time the agency governing body acts to establish or adopt a charge. Recent case law supports this construction. In Citizens Association ofsunset Beach v. Orange County Local Agency Formation Commission, 0 Cal. App. th (0), the Court of Appeal held that Article XIIIC did not preempt statutes authorizing municipal annexation of small parcels of territory without a vote (known as involuntary island annexations), even if annexation resulted in a tax differential for the territory's residents. Citizens Association ofsunset Beach, 0 Cal. App. th at. In its analysis the court construed "impose" as used in Article XIIIC, Section, to refer to "the first enactment of a tax."!d. at. The court explained that this construction was most consistent with the syntax of the A/ 0.

14 relevant provisions (see id.) and the most familiar: Black's Law Dictionary defines "impose" as meaning "To levy or exact," which suggests a discrete, initiating event. (Black's Law Diet. (th ed. ) p., col..) Similarly, the very first definition of "impose" in the exhaustive Oxford English Dictionary suggests an origination of a burden ("to lay on or set on; to place or set in a position; to put, place, or deposit") as does the definition given with specific reference to taxation ("To put or levy (a tax, price, etc.) on or upon (goods, etc.)"). ( Oxford English Diet. (d ed. ) pp. 0-, italics omitted.) The first three references to taxes being "imposed" in published opinions this year all use the word "impose" to refer to the time of a tax's initial enactment. (See NetJets Aviation, Inc. v. Guillory (0) 0 Cal.App.th, [ Cal. Rptr. d ]; Diageo-Guiness USA, Inc. v Board of Equalization (0) 0 Cal.App.th 0, [ Cal. Rptr. d ]; Goldman v. Franchise Tax Bd. (0) 0 Cal.App.th, [ Cal. Rptr. d ].) Citizens Association ofsunset Beach, 0 Cal. App. th at, n. (all editorial marks in Citizens Association). Because Proposition 's local provisions amended the pre-existing Article XIIIC, "imposed" in the amendments should be construed consistently with the pre-existing use of that word, to refer to the time of a charge's initial enactment. So construed, it is clear that "imposed" local charges were intended to apply to charges adopted after the Proposition's effective date. In contrast, the TAC concedes that MWD adopted the subject rates in April, 0, before the Proposition took effect. See, e.g., TAC ~. 0 Proposition 's language shows that its local provisions were intended to operate only prospectively.. There Is No Clear Extrinsic Evidence That Proposition Was Intended to Apply Retroactively To Local Charges. It is also not "very clear from extrinsic sources that... the voters must have intended retroactive application." Strauss, Cal. th at 0. Consequently, Proposition cannot be found to apply retroactively to local charges. When construing a constitutional provision enacted by initiative, voter intent is ascertained by the language of the provision; but, if the language is ambiguous, then courts may tum to extrinsic sources, and "the most potentially informative extrinsic source is usually the DEMURRERS/MOTION TO STRJKE N0.

15 material contained in the ballot pamphlet that is mailed to each voter." (Strauss, Cal. th at ; see also People v. Rizo, Cal. th, (000) (particularly informative are the analyses and arguments contained in the official ballot pamphlet.) Here, if the Court extends its analysis beyond the Proposition's language -and it need not since that language is not ambiguous-to the voter pamphlet, it will see that this source does not disclose an intent that the local provisions would apply retroactively, let alone a "very clear" intent. In fact, like the Proposition's language, the voter pamphlet demonstrates the opposite: an understanding that the local provisions would apply only to charges adopted, extended, or increased after Proposition 's effective date. The "Findings and Declarations of Purpose" make the point. By them, the voters were informed that Proposition would restrict the government's ability to "increase" taxes, adopt "new taxes," or to "disguise[] new taxes as 'fees."' RJN, Ex. at (emphasis added); see Silicon Valley Taxpayers' Ass 'n v. Santa Clara County Open Space Auth., Cal. th, (00) (analyzing findings and declarations set out in preamble to determine voter intent). These references demonstrate an understanding that Proposition would apply prospectively, that is to charges adopted, extended, or increased after the effective date of the measure. The other ballot materials are consistent. The Legislative Analyst's analysis is particularly instructive. After discussing Proposition 's effect on state and local charges, the Analyst identified charges that "are not affected," including local charges adopted prior to 0 November, 0 that are not extended or increased after that date: Some Fees and Charges Are Not Affected. The change in the definition of taxes would not affect most user fees, property developments charges, and property assessments. This is because these fees and charges generally comply with Proposition 's requirements already, or are exempt from its provisions. In addition, most other fees and charges in existence at the time of the November, 0 election would not be affected unless: The state or local government later increases or extends the fees or charges. (In this case, the state or local government would have to comply with the approval requirements of Proposition.) The fees or charges were created by a state law-passed between January, 0 and November, 0-that conflicts with Proposition (discussed further below). N0 I

16 RJN, Ex. at (italics-only emphasis added). As explained above, "extended" and "increased" refer to specific events and there is no allegation in the TAC that MWD's subject water rates were extended or increased after Proposition 's effective date. See Cal. Gov. Code 0(e) & (h). Further, the Legislative Analyst described the manner in which the government can "create or increase" fees and taxes or "pass new laws that raise revenues." RJN, Ex. at -, (emphasis added). The message to voters was that the local provisions would apply only to fees adopted, extended, or increased after November, 0 0. Proposition Is Not a Procedural Amendment; It Substantially Affects Local Government Agencies' Existing Rights And Obligations. B. SDCWA may argue that even if the vote requirement is not retroactive, Proposition 's burden-shifting should still apply at any trial (or other dispositive proceeding) here. Such an argument would be fatally flawed. SDCWA's Proposition claims challenge conduct- MWD's adoption of rates in April, 0- that occurred before Proposition 's passage. If a law regarding the conduct of a trial "substantially affects existing rights and obligations," it cannot be applied to a claim based on conduct that occurred before the law's enactment "absent an express legislative intent to permit such retroactive application." Elsner v. Uveges, Cal. th, - (00). Without question, Proposition substantially affects all California local agencies' existing rights and obligations. 0 First, Proposition expands the definition of a "tax," increasing the number of local charges that are subject to constitutional limitation and establishing new constitutional standards which local agencies must follow. The Proposition thus necessarily redefines and expands the scope of local government conduct subject to legal challenge. Second, the impact of Proposition 's burden-shifting provision is to eliminate the presumption of validity ordinarily afforded legislative enactments. Prior to Proposition, legislative and quasi-legislative acts, including rate determinations, were presumed lawful. See San Joaquin Local Agency Formation Comm 'n v. Super. Ct., Cal. App. th, (00); Winnaman v. Cambria Comm. Servs. Dist., 0 Cal. App. d, () ("The long-standing N0.

17 rule is that rates fixed by a lawful rate-fixing body are presumed to be reasonable, fair and lawful, and the burden of overcoming this presumption is on the party challenging the ordinance."). For local charges, Proposition eliminated the crucial presumption ofvalidity, and imposed a new and greater evidentiary burden on local agencies. Local agencies now must prove by a preponderance of the evidence that a charge does not qualify as a tax subject to Proposition and other matters, in order to prevail. See Cal. Const. art. XIIIC, (e). There is thus no doubt that Proposition significantly affects local agencies' existing rights and obligations. Applying Proposition to agency actions, including rate-setting, that occurred prior to its enactment would change the substantive rules and local agencies' and their governing bodies' obligations with respect to that earlier action, after the fact. Retroactive application would improperly substantially affect local agencies' existing rights and obligations concerning their earlier actions. See Elsner, Cal. th at (holding statutes shifting presumption of negligence should not be applied retroactively to causes of action that arose before the law changed) (citing Morris v. Pacific Electric Railway Company, Cal. d, - ()). There is, moreover, no evidence that voters intended Proposition to apply retroactively. As described above, the text ofproposition and the extrinsic evidence shows that California voters intended that Proposition would apply to local charges only prospectively. RJN, Ex. at -; Strauss, Cal. th at c. Applying Proposition Retroactively to Local Charges Would Lead to Absurd, Negative Results. Statutes should be interpreted to avoid absurd results. In re Cheri T., 0 Cal. App. th 0, (). Interpreting Proposition to apply retroactively to local charges would lead to several absurd, negative consequences. First, how far back would the retroactivity extend? Five years? Twenty years? As explained, when the drafters intended for Proposition to apply retroactively-to the state provisions-they said so, and also explicitly set forth the retroactive period: less than one year. Here, if the Court were to find that the local provisions are retroactive, they would have to be N0.

18 retroactive for all California local agencies for an unlimited period of time since the drafters did not, of course, state any retroactive period. This would be an absurd result, unsupported by any text or extrinsic evidence. Second, such retroactive application would undermine local government charges across the state. At the time of Proposition 's passage, thousands of local charges were in place. If this Court were to conclude that Proposition 's local provisions apply to pre-existing charges, the decision would cast a long shadow, reaching nearly every local charge in existence. Agencies would be forced to expend scarce resources assessing longstanding and past charges against new standards. Courts would likely be presented with a flood of challenges. And, while rate challenges such as this are typically decided on an administrative record, (see Western States Petroleum Assn. v. Super. Ct., Cal. th, -, (); Shapel!Industries, Inc. v. Governing Bd., Cal. App. th, ( )), it is possible that a complete record would not even exist for rates adopted years ago. It is unlikely that any such prior record was prepared with Proposition 's standards in mind. These far-reaching consequences and practical difficulties are avoided by construing Proposition 's local provisions consistent with the Proposition's language and voters' intent-prospective application only. Third, a finding of retroactivity would also undermine fundamental public law principles. Generally, a party challenging a quasi-legislative act, such as the setting of a charge, must have raised his or her challenge during the administrative proceeding. Cal. Water Impact Network v. 0 Newhall County Water Dist., Cal. App. th, (00); see also County ofcontra Costa v. State of Cal., Cal. App. d, () ("the doctrine of exhaustion of administrative remedy applies to actions raising constitutional issues"). This principle ensures that local agencies have the opportunity to develop the necessary factual background of the dispute and affords the parties and the court the benefit of the agency's expertise and experience on the issues raised. Cal. Water Impact Network, Cal. App. th at,. If, as SDCWA contends, charges for all local agencies can be measured against new post-adoption legal standards, then the exhaustion rules become dead letters. Neither challengers nor governing bodies can reasonably be required to anticipate future standards, particularly those that N0.l

19 may arise years later. Local governing bodies and the local agencies' staff will have been without the opportunity to consider and develop a record consistent with the not-yet-established constitutional rules, and without the opportunity to apply their expertise to the issues under the new Article XIIIC Section ()(e). Responsibility for rate-setting (one ofthe most complex issues a court can face (see Brydon v. East Bay Mun. Utility Dist., Cal. App. th, 0, 0 ()) would essentially be transferred to strapped trial courts. Nothing suggests that the voters intended such a result. Finally, quasi-legislative acts, such as a local agency's rate-setting, are reviewed by way of a traditional mandamus proceeding "limited to an examination of the proceedings before the [agency] to detemine whether [its] action has been arbitrary, capricious, or entirely lacking in evidentiary support, or whether [it] has failed to follow the procedure and give the notices required by law." City ofsanta Cruz v. Local Agency Formation Com., Cal. App. d, (); accord Hess Collection Winery v. Agricultural Labor Relations Bd., Cal. App. th, (00). Here again, under SDCWA's interpretation, local governing bodies and staff will have been without the opportunity to develop a record consistent with not-yet- established constitutional rules, which they could not reasonably be expected to anticipate, including a two-thirds voter approval requirement in some cases. Local agencies cannot possibly be found to have acted arbitrarily or capriciously with respect to standards that did not even exist. SDCWA's position upends the established rules governing traditional mandamus 0 proceedings and would be wholly untenable as applied to local agencies across the state. v. CONCLUSION The Court should sustain MWD's demurrers to, or in the alternative grant its motion to strike, the Proposition claims in the first through third causes of action in SDCWA's TAC without leave to amend. II II II II N.

20 DATED: February 0 BINGHAM MCCUTCHEN LLP By:~~~~~~~==~= Thon as. so Attorneys for Respondent d Defendant MetTopolitan Water Distlict of Southern California I IS 0 MWD ' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT or \.