Morgan v. Ygrene Energy Fund, Inc.
| Decision Date | 01 November 2022 |
| Docket Number | D079364, D079369 |
| Citation | 84 Cal.App.5th 1002,300 Cal.Rptr.3d 810 |
| Parties | Barbara MORGAN, et al., Plaintiffs and Appellants, v. YGRENE ENERGY FUND, INC., et al., Defendants and Respondents. Janet Roberts, et al., Plaintiffs and Appellants, v. Renew Financial Group, LLC, et al., Defendants and Respondents. |
| Court | California Court of Appeals Court of Appeals |
James Swiderski for Plaintiffs and Appellants.
Buckley, Fredrick S. Levin, Santa Monica, and Ali M. Abugheida, San Francisco, for Defendants and Respondents Ygrene Energy Fund, Inc., GoodGreen 2016-1, GoodGreen 2017-1, GoodGreen 2017-2, GoodGreen 2018-1, GoodGreen 2019-1, GoodGreen 2015 LLC, GoodGreen 2016-1 LLC, GoodGreen 2016-1 Trust, GoodGreen Holdings 2016-A Trust, GoodGreen 2017-1 Trust, GoodGreen Funding 2016-1 LLC, GoodGreen Funding 2017-1 LLC, GoodGreen 2017-2 LLC, GoodGreen Funding 2017-R1 LLC, GoodGreen Funding 2018-1 LLC, GoodGreen Holdings 2016-A Trust, Renew Financial Group LLC, Renew 2017-1, Renew 2017-2, and Renew 2018-1.
Reed Smith, Jesse L. Miller, David J. de Jesus and Emily F. Lynch, San Francisco, for Defendants and Respondents Wilmington Trust, N.A., as Trustee of Hero Funding Trust 2015-2, Hero Funding Trust 2015-3, Hero Funding Trust 2016-1, Hero Funding Trust 2016-2, Hero Funding Trust 2017-1, Hero Funding Trust 2017-3, and Hero Funding Trust 2018-1.
Akin Gump Strauss Hauer Feld and Neal R. Marder, Los Angeles, for Defendants and Respondents Golden Bear 2016-1, LLC, Golden Bear 2016-2, LLC, and Golden Bear 2016-R, LLC.
The issue in these consolidated appeals is not an unfamiliar one—whether plaintiffs were required to first exhaust administrative tax remedies before filing this lawsuit. But it arises in a novel context where property tax and home improvement financing intersect.
In 2008, California enacted a Property Assessed Clean Energy program (PACE) as a method for homeowners to finance energy and water conservation improvements. Like an ordinary home equity loan, a PACE debt is created by contract and secured by the improved property. But like a tax, the installment payments are billed and paid as a special assessment on the improved property, resulting in a first-priority tax lien in the event of default.
The named plaintiffs in these putative class actions are over 65 years old and entered into PACE contracts. Barbara Morgan, for example, borrowed over $100,000 for "reflective coating" and "energy efficient" windows. Her resulting 20-year special tax assessment bears 8.49 percent interest, increasing her property taxes by nearly $15,000 annually. Similarly, plaintiff John Brown borrowed over $100,000 for a new air conditioner, a "cool roof," and "permeable ground cover," a fancy name for concrete pavers. The annual percentage rate on his PACE loan is 9.29 percent. His property taxes increased by over $11,400 annually for 20 years.
The defendants are private companies who either made PACE loans to the plaintiffs, were assigned rights to payment, and/or administered PACE programs for municipalities. The gravamen of the complaint in each case is that PACE financing is actually, and should be treated as, a secured home improvement loan. Plaintiffs allege that defendants engaged in unfair and deceptive business practices by violating consumer protection laws, including Civil Code section 1804.1 subdivision (j), which prohibits taking a security interest in a senior citizen's residence to secure a home improvement loan.
The liability theories are intriguing, but we need not and do not address them here. The appeals turn instead on a procedural issue. Generally, a taxpayer may not pursue a court action for a refund of property taxes without first applying to the local board of equalization for a reduction and then filing an administrative claim for a refund. ( Rev. and Tax. Code,1 §§ 1603, 5097 ; see Steinhart v. County of Los Angeles (2010) 47 Cal.4th 1298, 1307–1308, 104 Cal.Rptr.3d 195, 223 P.3d 57 ( Steinhart ).) "[S]trict legislative control over the manner in which tax refunds may be sought is necessary so that government entities may engage in fiscal planning based on expected tax revenues." ( Woosley v. State of California (1992) 3 Cal.4th 758, 789, 13 Cal.Rptr.2d 30, 838 P.2d 758.)
Here, defendants demurred to the complaints on the sole ground that plaintiffs failed to allege they first exhausted administrative remedies. The trial court agreed, sustained the demurrers without leave to amend, and entered a judgment of dismissal in each case.
On appeal, plaintiffs primarily contend they were not required to pursue administrative remedies because they have sued only private companies and do not challenge "any aspect of the municipal tax process involved." (Italics omitted.) But as we will explain, the complaints seek tax refunds, an injunction against future tax assessments, and removal of tax liens. Despite their assertions to the contrary, plaintiffs do challenge their property tax assessments. And although they have not sued any government entity, the "consumer protection statutes under which plaintiffs brought their action cannot be employed to avoid the limitations and procedures set out by the Revenue and Taxation Code." ( Loeffler v. Target Corp. (2014) 58 Cal.4th 1081, 1092, 171 Cal.Rptr.3d 189, 324 P.3d 50 ( Loeffler ).)
Plaintiffs also contend that the exhaustion rule should not apply because their liability theories involve legal issues that an assessor's board lacks expertise to resolve. The Legislature, however, has given such boards " ‘jurisdiction over nonvaluation issues.’ " ( Williams & Fickett v. County of Fresno (2017) 2 Cal.5th 1258, 1271, 218 Cal.Rptr.3d 362, 395 P.3d 247 ( Williams & Fickett ).) Thus, we conclude that plaintiffs were required to submit their claims through the administrative appeals process in the first instance. Their failure to do so requires the judgments to be affirmed.
Because the appeals challenge a judgment of dismissal entered upon the sustaining of a demurrer without leave to amend, we draw the operative facts from the complaints. ( Steinhart, supra , 47 Cal.4th at p. 1304, fn. 1, 104 Cal.Rptr.3d 195, 223 P.3d 57.)
In 2008, the Legislature determined that promoting energy efficient improvements to real property was "necessary to address the issue of global climate change." (Stats. 2008, ch. 159 (Assem. Bill No. 811) § 2 ; Former Sts. & Hy. Code, § 5898.14, subd. (a)(1).) Recognizing that the cost "prevents many property owners from making these improvements," it authorized "the legislative body of any city" to "finance" the installation of energy efficiency improvements that are permanently affixed to real property. (Former Sts. & Hy. Code, § 5898.14 (Stats. 2008, ch. 159, § 2 ).) The Legislature envisioned that municipalities would borrow money by selling bonds to private investors. In turn, local government would lend the money to homeowners, who would use it to pay contractors for installing energy and/or water conservation upgrades. ( Sts. & Hy. Code, § 5898.22, subd. (d).) The PACE loan would be repaid by an assessment added to the homeowner's annual property tax bill, and thus secured by a priority tax lien that runs with the land.
As enacted in 2008, PACE seemingly offered many benefits for homeowners. Expensive improvements, such as solar energy panels could be purchased with no down payment. And because the maximum amount financed would be based on the property's value—not the borrower's net income or ability to repay—there was no need to verify employment or require good credit. PACE offered other benefits too. Anticipated energy savings were expected to at least in part offset the increase in property tax, and the improvements were expected to increase the property's market value.
When it first enacted PACE, the Legislature anticipated that local governments would operate their own programs, as they did with other aspects of municipal finance. This may explain why the 2008 legislation "did not provide any mechanism for disclosure of loan terms or regulation of the conduct of lenders."
But despite the public financing envisioned, private companies (with profit motives) soon offered turn-key solutions to local governments interested in establishing a PACE program. These companies, known as PACE program administrators (Administrators), contracted with local governments to handle the program on their behalf. Administrators screen contractors to work under the program, ensure construction permits are obtained, spot check the work, set price guidelines and, working through the contractors, solicit homeowners to borrow. In short order, Administrators were running almost all of the PACE programs throughout the state.
Administrators market municipal bonds to third parties, the proceeds of which fund the home improvements. Alternatively, Administrators buy the municipal bonds themselves—in effect becoming the PACE lender too.
The complaints allege that each of the Administrator/defendants "chose the more lucrative option of buying all of the bonds itself." Plaintiffs maintain that in economic substance, this is a two-party transaction consisting of the homeowner/borrower and the Administrator/lender. According to the complaints, the only difference between this type of financing and an ordinary home improvement loan is that the PACE debt is in the form of a municipal bond instead of a promissory note.2 The economic reality is that government does not fund the project or otherwise provide any financial subsidy. It is involved solely to provide tax exempt interest for investors who purchase the bonds and thereby fund the private work. Essentially, the government's issuance of bonds provides a " ‘conduit’ " for private financing to " ‘pass through’ " to the recipient of the bond proceeds. (See California Statewide Communities Development Authority v. All Persons Interested etc....
To continue reading
Request your trial