By Kim Lefner
A Class Action Lawsuit filed on January 8 by a group of San Juan Capistrano residents in OC Superior Court alleges that customers are due “millions of dollars… illegally and wrongfully assessed” for water services from at least February 2010 to July 2015.
The lawsuit states, “SJC failed to calculate its costs in setting its water rates, instead arbitrarily increasing those rates and using improper tiers with no support, justification or relationship to the cost of supplying the water, as required by Proposition 218 and was found by the Court of Appeal and the Orange County Superior Court. SJC’s attempt to escape the consequences of its illegal conduct by accounting sleight of hand should be rejected.”
The suit is based on the outcome of a 2013 lawsuit filed by the Capistrano Taxpayers Association (“CTA”), which successfully sued the City after repeatedly warning the City Council that customers were being overcharged for water in violation of the California Constitution. The council ignored the warnings. A lawsuit was subsequently filed, and an OC Superior Court judge agreed that the water rates violated Proposition 218, which holds that water fees must be reasonably related to actual cost of water service.
The CTA’s win in court was welcome news to the many residents who implored then-council majority members to address runaway costs in the utility department and lower, not raise, water rates. Rather than listening to the concerns and financial hardships expressed by residents, then-city council members Sam Allevato, Larry Kramer and John Taylor voted to use taxpayers’ monies to file an appeal of the ruling, and continued to charge the illegal water rates. On April 20, 2015, they lost again when the Fourth District Court of Appeal affirmed the lower court ruling.
The City was then faced with returning money to customers it had overcharged. However, while customers were overcharged for at least four years, the City Council, led by then Mayor Reeve, decided that it only owed one year of refunds due to a “statute of limitations”. A recent article in CCS questioned the City’s position that it prohibited illegal overcharges beyond a year. The case law on which the alleged limitation was based appears to apply only to the period of time claims for refunds could be filed, not on the refunds themselves. When informed of this theory in writing, the City refused to respond.
When questioned by CCS, CTA co-founder Jim Reardon stated, “Once the appellate court ruled in our favor, CTA was motivated to reach a settlement with the city that would protect the refund claims of residents and provide for a refund mechanism that would protect the city itself from future lawsuits. However, during negotiations, all reference to refunds were stripped from the settlement. Only the claim protection survived – a virtual invitation to file the present lawsuit.”
The resulting class action lawsuit alleges that the City “continues to retain overcharges… including interest on those overcharges.” The lawsuit states that, “In or around July 2015, SJC announced it was going to be issuing ‘refunds’ as a result of its illegal overcharges. Unfortunately, SJC’s ‘refund’ program was nothing more than a continuance of its illegal conduct. SJC failed to disclose that its water rates were charged in violation of state law and failed to disclose that the ‘refund’ it was offering included less than 20% of the overcharges SJC collected from Residents, and failed to provide this ‘refund’ offer to all of the people who were charged illegal rates. Further SJC’s ‘refund’ requires that claimants give up the legal right to collect the complete overcharges (which were concealed by SJC) by signing a complete release for all of SJC’s overcharges, and refused to refund Residents who submitted claims but did not sign the release.”
To read the full text of the lawsuit, click on “Class Action Lawsuit – SJC Water Rates” under “Community Links”.