Abcarian v. Levine

• Decision Date: 25 August 2020
• Docket Number: No. 19-55129,19-55129
• Parties: R. ABCARIAN; R. Reyes; H. Reyes; J. Petrie, Plaintiffs-Appellants, v. Meldon Edises LEVINE; William Watson Funderburk, Jr.; Jill Banks Barad; Michael F. Fleming; Christina E. Noonan; David H. Wright; Marcie L. James-Kirby Edwards; Joseph A. Brajevich; Eric Garcetti; Gilbert Cedillo; Paul Krekorian; Bob Blumenfield; David E. Ryu; Paul Koretz ; Nury Martinez ; Felipe Fuentes; Marqueece Harris-Dawson; Curren D. Price; Herb J. Wesson, Jr.; Mike Bonin; Mitchell Englander; Mitch O'Farrell; Jose Huizar ; Joe Buscaino; Michael Nelson Feuer; and James Patrick Clark, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

972 F.3d 1019

R. ABCARIAN; R. Reyes; H. Reyes; J. Petrie, Plaintiffs-Appellants,

v.Meldon Edises LEVINE; William Watson Funderburk, Jr.; Jill Banks Barad; Michael F. Fleming; Christina E. Noonan; David H. Wright; Marcie L. James-Kirby Edwards; Joseph A. Brajevich; Eric Garcetti; Gilbert Cedillo; Paul Krekorian; Bob Blumenfield; David E. Ryu; Paul Koretz ; Nury Martinez ; Felipe Fuentes; Marqueece Harris-Dawson; Curren D. Price; Herb J. Wesson, Jr.; Mike Bonin; Mitchell Englander; Mitch O'Farrell; Jose Huizar ; Joe Buscaino; Michael Nelson Feuer; and James Patrick Clark, Defendants-Appellees.

No. 19-55129

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 15, 2019 Pasadena, California

Filed August 25, 2020

Marion R. Yagman (argued) and Joseph Reichmann, Yagman & Reichmann, Venice Beach, California, for Plaintiffs-Appellants.

Michael Martin Walsh (argued), Deputy City Attorney; Blithe S. Bock, Managing Assistant City Attorney; Michael N. Feuer, City Attorney; Office of the City Attorney, Los Angeles, California; for Defendants-Appellees.

Before: Kim McLane Wardlaw and Daniel P. Collins, Circuit Judges, and Benjamin H. Settle,^* District Judge.

COLLINS, Circuit Judge:

Plaintiffs are customers of the Los Angeles Department of Water and Power ("DWP") who claim that DWP overcharged for electric power and then transferred the surplus funds to the City of Los Angeles ("City"), thereby allowing the City to receive what amounts to an unlawful tax under California law.¹ Plaintiffs brought suit in federal court, asserting claims under the Hobbs Act, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and 42 U.S.C. § 1983, as well as claims under state law. The district court dismissed Plaintiffs’ federal causes of action for failure to state a claim, and it declined to retain jurisdiction over the remaining state-law claims. We affirm.

I

In reviewing the district court's dismissal under Federal Rule of Civil Procedure 12(b)(6), we may consider only "the complaint, materials incorporated into the complaint by reference, and matters of which the court may take judicial notice." Metzler Inv. GMBH v. Corinthian Colls., Inc. , 540 F.3d 1049, 1061 (9th Cir. 2008). "[W]e take all well-pleaded factual allegations in the complaint as true, construing them ‘in the light most favorable to the nonmoving party.’ " Keates v. Koile , 883 F.3d 1228, 1234 (9th Cir. 2018) (quoting Silvas v. E*Trade Mortg. Corp. , 514 F.3d 1001, 1003 (9th Cir. 2008) ). We review de novo whether these allegations " ‘plausibly give rise to an entitlement to relief.’ " Id . (quoting Ashcroft v. Iqbal , 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ).

A

DWP is governed by a Board of Water and Power Commissioners composed of five members who are ordinarily appointed by the Mayor with the approval of the City Council. See L.A. City Charter §§ 502(a), 670. Under the City Charter, the Board fixes the rates to be charged to DWP customers for electric power, "[s]ubject to approval by ordinance" of the City Council. See id . § 676(a); see also id . § 675(b)(3).

Any city ordinance, including one approving DWP rates, must "be presented to the Mayor for approval and signature," and if the Mayor vetoes the ordinance, the Council may override the veto by a prescribed supermajority. Id . § 250(b), (c). The Charter provides that all revenues collected from the provision of electric power service shall be deposited in a "Power Revenue Fund" in the City Treasury. Id . § 679(b). These funds may be used only for specified purposes, such as costs of operation and maintenance, employee benefits, and business promotion. Id . § 679(c).

The Charter provides, however, that if there is a "surplus" in the Power Revenue Fund at the end of the City's fiscal year on June 30, then the City Council, acting by ordinance and with the consent of the Board, may direct that the surplus be transferred to the City Treasury's Reserve Fund. Id . § 344(a), (b); see also id . § 310 (City's fiscal year runs from July 1 through June 30 of the following year). The Reserve Fund may be used for "unanticipated expenditures and revenue shortfalls in the City's General Fund," id . § 302(b); however, with the Mayor's consent (or a two-thirds vote), the City Council may approve a transfer of funds from the Reserve Fund to the City's General Fund, id . § 341. See also id . § 679(c)(9) (expressly authorizing transfers, under these procedures, from the Power Revenue Fund "to the City General Fund"). For purposes of a potential transfer, a "surplus" is defined as "the amount remaining in the ... Power Revenue Fund, less outstanding demands and liabilities payable out of the fund ... as shown by audited financial statements." Id . § 344(b)(1). However, if the Board concludes that such a transfer would have "a material negative impact on [DWP's] financial condition in the year in which the transfer is to be made," then the Board can approve or disapprove the proposed transfer in whole or in part. Id . § 344(b)(2), (3).

At the time that the district court ruled in this case, the applicable rates for DWP electric power services were set by a combination of two City ordinances, one of which had been adopted in 2008, and the other in 2016. The 2016 ordinance, in turn, completely superseded a prior 2012 ordinance. All three ordinances were adopted by the City Council, and approved by the Mayor, after a series of at least three public meetings—one before the Council's Energy and Environment Committee to consider the rates, another before the full Council to consider the rates, and a final Council meeting to formally approve the ordinance setting the rates.²

Since at least 2010, the rates that DWP has charged its utility customers for electric power have exceed DWP's costs for providing that service, thereby yielding a surplus at the end of the fiscal year. Accordingly, each year over the same time period, the City Council, with the approval of the Board, has approved a transfer of surplus moneys from the Power Revenue Fund to the City's General Fund. The amounts transferred from the Power Revenue Fund have ranged from $254 million to $300 million.

B

Plaintiffs R. Abcarian, R. Reyes, H. Reyes, and J. Petrie³ are individuals who have public utility accounts with DWP for the provision of electric power. According to Plaintiffs, DWP's ability to make annual transfers from the Power Revenue Fund to the City's General Fund indicates that the electric power rates charged by DWP have consistently exceeded its reasonable costs of providing those services. Plaintiffs allege that, as a result, the above-cost utility rates constituted a "tax" within the meaning of Article XIII C of the California Constitution and are therefore subject to the voter-approval requirements established in that article. In defining what counts as a "tax" that must be approved by voters, Article XIII C broadly covers "any levy, charge, or exaction of any kind imposed by a local government," except for, inter alia , a "charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product." See Cal. Const. art. XIII C, § 1 (e)(2) (emphasis added). It is undisputed that the City has not submitted the relevant electric power rates to the electorate for its approval.

On September 21, 2016, Plaintiffs filed a putative class action complaint against various City and DWP officials, alleging that DWP "illegally overcharges its customers" for electric service and that the defendants were liable to ratepayers on a variety of federal and state-law grounds. Plaintiffs sought a preliminary injunction shortly thereafter, and Defendants opposed that motion and moved to dismiss or stay the action. Defendants’ motion argued, among other grounds, that the case should be stayed or dismissed under Colorado River Conservation District v. United States , 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), in light of a parallel state court class action challenging the legality of the City's electric rates under Article XIII C, see Eck v. City of Los Angeles , No. BC577028 (L.A. Super. Ct.). On November 28, 2016, the district court stayed this case pending resolution of Eck , concluding that Plaintiffs’ action "is essentially a dressed-up version of the Eck complaints." In light of the stay, the district court denied Plaintiffs’ request for a preliminary injunction. Shortly thereafter, the district court denied Plaintiffs’ separate motion to enjoin the Eck action. Plaintiff appealed these orders, and we affirmed. See Abcarian v. Levine , 693 F. App'x 487 (9th Cir. 2017). Our memorandum affirming the district court's orders expressed no view of the underlying merits of Plaintiffs’ claims.

After the state court subsequently granted preliminary approval for a class action settlement in the Eck litigation, Plaintiffs successfully moved to lift the stay of this action. Plaintiffs thereafter filed the operative First Amended Complaint ("FAC") against the following 27 City officers and employees ("Defendants"): the five members of the DWP Board; three "operating head[s] of DWP"; DWP's inhouse legal counsel; the fifteen members of the City Council; the Mayor; and the City Attorney and his chief deputy. The FAC asserts nine claims, three of which expressly arise under federal law.⁴

First, Plaintiffs allege that Defendants are personally liable under 42 U.S.C. § 1983 in their individual capacities, on the theory that the City's unlawful overcharges deprived Plaintiffs of property without due process of law. Second, Plaintiffs allege that Defendants are liable for these same due process violations under 42 U.S.C. § 1983 in their official capacities "pursuant to the principles set forth in Monell v. Dep't of Social Services ," 436 U.S. 658, 98 S.Ct. 2018, 56 L.Ed.2d 611 (1978). Third,...