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Paul Katz

Built on Bedrock

My principled approach delivers favorable outcomes for my clients.

Katz Appellate Law Wins at the California Supreme Court About Taxes Disguised as Fees

In Zolly v. City of Oakland, Katz Appellate Law delivered a win about taxation that will have a far-reaching impact on governments and residents. Under the California Constitution, state or local government can impose a tax only with voter approval. But not all government-imposed charges are taxes.

The question in Zolly was whether two franchise fees approved by the City of Oakland—totaling about $28 million paid by companies to Oakland annually for the right to collect waste within city limits—include hidden taxes because they are passed on to ratepayers. The trial court sustained the city’s demurrer and dismissed the lawsuit, which had been filed by landlords who pay their tenants’ waste-collection rates. But Katz Appellate Law persuaded both the Court of Appeal and the California Supreme Court to reverse the trial court and to permit the landlords to continue their suit against the city.

In reaching this conclusion, the Supreme Court rejected two of Oakland’s arguments based on Katz Appellant Law’s reasoning that used bedrock legal principles. First, Oakland argued that plaintiffs did not have standing to contest the franchise fees because they paid for them only indirectly, in the form of higher waste-collection rates. But, as Katz Appellate Law and the high court noted , indirect payment is a form of economic injury—a classic basis for standing. Second, Oakland contended that the franchise fees fell outside the scope of the definition of “tax” entirely because the fees were not “imposed” by the city. Again, though, the Supreme Court adopted Katz Appellate Law’s argument that the term “imposed” merely requires a city’s approval, which Oakland had done by executing the franchise agreements and enacting ordinances.

The Supreme Court went on to hold that plaintiffs stated a claim that the franchise fees include illegal taxes. Article XIII C of the California Constitution broadly defines a “tax” as “any levy, charge, or exaction of any kind imposed by a local government.” But the Constitution excepts from that definition seven categories of charges, including “[a] charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property.” Oakland argued that, because a franchise is a type of local government property, their franchise fees were not taxes no matter their amounts. But the Supreme Court disagreed because a franchise is not the type of “local government property” contemplated by the exception, which covers only tangible property. And while Oakland’s streets are such property, it was unclear whether the waste-collection companies were paying for a “use” of that property beyond the free use enjoyed by people generally.

This victory will have an effect well beyond Oakland, the two waste-collection companies, and their ratepayers. The opinion affirms that residents have standing to contest invalid taxes under article XIII C so long as they allege economic injury—even if that injury is indirect. Further, the opinion puts to rest the argument that a charge cannot be a tax unless the direct payor is compelled to pay it. If a city helps establish a charge, it can be a tax.

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What’s in a Name: Attorney-Fees Awards

Attorney-fee awards are one of the most appealed issues. Yet the counterintuitive legal framework for those awards trips up appellants. This post provides a primer about how to approach attorney-fee awards.

Attorney-Fee Awards: Is a cost a cost?

When a party wins a lawsuit, they are entitled to “costs.” (Code Civ. Proc., § 1032, subd. (b).) And attorney fees are a type of cost. (Code Civ. Proc., § 1033.5, subd. (a)(10).) Doesn’t that mean that a prevailing party is normally entitled to attorney fees? Not quite, as California follows the default American rule under which parties ordinarily pay for their own attorney fees. (Trope v. Katz (1995) 11 Cal.4th 274, 278.) So what gives?

To collect attorney fees as a cost, the prevailing party needs a special legal hook—typically an authorizing statute or contract. (Santisas v. Goodin (1998) 17 Cal.4th 599, 606.) And this independent legal basis for the attorney-fee award will drive the analysis.

Statutory Attorney Fees: Is a prevailing party a prevailing party?

Many statutes authorize attorney-fee awards. But they often don’t define who is the prevailing party. The costs statute, though, specifies the prevailing party in four common situations, including a defendant in whose favor a dismissal has been entered. Does that mean a prevailing party for costs is a prevailing party for the statute authorizing attorney fees? Not necessarily.

The majority of recent cases rule that, to be the prevailing party for statutory-attorney-fee purposes, the party must have won the lawsuit as a practical matter. So even though a defendant in whose favor a dismissal has been entered is the prevailing party for cost purposes, that does not necessarily make them the prevailing party for statutory-attorney-fee purposes—especially if the plaintiff dismissed the lawsuit because they had already obtained their litigation objectives (through settlement or otherwise). (Santisas, supra, 17 Cal.4th at p. 621.)

Contractual Attorney Fees: Is it an action on a contract?

Parties can agree to supersede the American rule and allocate their respective attorney fees as they choose. (Code Civ. Proc., § 1021.) Often, contracts provide that the prevailing party in an action or proceeding is entitled to reasonable attorney fees. When one of the parties files an action, two questions arise:

  1. Does the attorney-fee clause cover the cause of action?
  2. If so, is that cause of action “on a contract”?

First, attorney fee clauses can have broad or narrow language. Broad clauses can cover not only contractual causes of action arising from the contract itself but also related tort actions.

Second, assuming a cause of action is covered, it matters whether that cause of action sounds in contract. If it is, Civil Code section 1717 governs the attorney-fee analysis and can displace contrary language in the clause. But if the cause of action is not “on a contract” (i.e., sounds in tort), then the plain language of the clause itself will control.

Appellate Attorney Fees: Is the party who prevails on appeal the prevailing party?

By default, a statute or contract that authorizes an attorney-fee award covers appellate attorney fees. Does that mean the party who wins an appeal gets an attorney-fee award? Not exactly. The prevailing party is the party who won the action as a whole. Thus, if a party wins an appeal that reverses less than the entire judgment, chances are good that the other party is still the prevailing party. This leads to the ironic possibility that a party who lost an appeal could have the other side reimburse them for their appellate attorney fees. But that perverse outcome is unlikely because a trial judge has discretion to lessen or eliminate fees based on lack of success.


When it comes to attorney-fee awards, appearances can be deceiving. Be sure to double-check that a legal label used in one context applies to your situation.

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