While San Diego's Tourism Marketing District has spent more than three years defending a lawsuit over the legality of the 2 percent hotel tax, the marketing district's attorney, Michael Colantuono, was using many of the same arguments against special taxes for another client, Newhall County Water District. His argument helped to achieve a victory in court. The win, however, may have the opposite result for San Diego's Tourism Marketing District. The decision might set a legal precedent that could be used against his client.
Sacramento-based Colantuono specializes in municipal law and public finance issues such as assessment districts and special fees and charges, the hotel tax being one of them.
Elected officials in San Diego as well as boardmembers for the Tourism Marketing District have long touted the hotel tax. Revenues from the 2 percent fee are funneled to the marketing district and then used to buy ads and marketing campaigns promoting San Diego as a tourist destination. The increased tourism, in turn, helps the city by raising sales-tax revenues.
In 2012, elected officials agreed to extend the life of the marketing district by 39.5 years. It was that decision that prompted a lawsuit from San Diegans for Open Government and their attorney Cory Briggs.
In its complaint, San Diegans for Open Government likened the 2 percent fee to an illegal tax imposed by hoteliers on the general public in order to increase room rentals, thus lining their own pockets. In addition is the claim that the smallest hotels are not properly represented (votes are weighted according to size and number of rooms); nor do the revenues account for the same benefits that larger hotels receive.
Over the course of more than three years, the district has paid Colantuono's firm millions of dollars to represent them in court. The defense has, until now, not been successful.
As reported by the Reader, Colantuono has chosen to defend the suit by turning the tables on Briggs and the nonprofit he represents. The attorney and his co-counsel, Jennifer Pancake, have accused Briggs of using the nonprofit to file frivolous lawsuits with the hopes of making money in attorney fees. Colantuono and his colleagues have based their entire defense on claims that San Diegans for Open Government does not have standing to sue. Earlier this year a judge ruled against that claim, paving the way for a trial.
But at the same time Colantuono was collecting checks to defend what Briggs and San Diegans for Open Government believe is an illegal tax, Colantuono litigated against a municipal water supplier in Los Angeles County for increasing water rates without any specific benefit to the ratepayers — the same argument Briggs has used against the Tourism Marketing District on behalf of San Diegans for Open Government.
In the L.A. case, Colantuono represented the Newhall County Water District, a small water district located outside of Santa Clarita. The complaint, filed in July 2013 (only a few months after San Diegans for Open Government filed its lawsuit), challenged a 67 percent water-rate hike by the Castaic Lake Water Agency for imported water sent to the Newhall County Water District. The hike, argued Colantuono, did not reflect the actual need and use of residents; thus, it violated State Proposition 26, which prohibits public agencies and elected officials from imposing fees and charges without a public vote.
A trial court agreed. The Castaic Lake Water Agency filed an appeal. In January 2016, an appellant court sided with Colantuono and his client, bringing the case to an end.
In a statement to the Courthouse News Service, Colantuono celebrated the decision.
"There is a lot of water rate litigation going on right now," Colantuono told Courthouse News Service. "This is one of the first cases brought under Prop. 26."
What Colantuono didn't say, however, was he was simultaneously working to debunk the same argument he had made in San Diego, in hopes of saving the Tourism Marketing District.
California's State Bar requires that attorneys disclose any previous cases where the ruling could impact a future ruling for a different client. Rule 3-310, "avoiding the representation of adverse interests”, requires disclosure be made if the attorney "has or had a legal, business, financial, professional, or personal relationship with another person or entity the [attorney] knows or reasonably should know would be affected substantially by resolution of the matter; or [if] the member has or had a legal, business, financial, or professional interest in the subject matter of the representation."
Though it is unclear what, if any, violations occurred, Briggs believes the ruling helps his argument in court.
"The successful legal arguments made in the Newhall case are essentially the same as the arguments that [my client] has been making against the Tourism Marketing District tax," wrote Briggs in a March 3 email. "Now that we have a statewide precedent set by the Newhall case, our trial judge will find it very easy to reach the same conclusion reached in Newhall: that the challenged assessment is in fact a 'tax' that requires voter approval. Whether the hoteliers knew beforehand that their own lawyer would be responsible for achieving a precedent ruling that will invalidate the [Tourism Marketing District] tax is not yet known."
Colantuono has a different view. In a statement sent to the Reader, the attorney said that there are several distinctions that need to be made when comparing the two cases.
“Let me clarify my role with Newhall County Water as it relates to my role with the [the Tourism Marketing District]. In short, I only represent government and government is usually a defendant, but not always. A separate Rules of Professional Conduct allows lawyers to take separate sides of the same issue in different courts and even in the same court. In that respect I'm litigating different issues but I am still representing government. Both Newhall County Water District and [the Tourism Marketing District] retained my services because I am a recognized expert on Proposition 26. Both clients are aware of my other Prop. 26 cases."
Colantuono added, "Prop 26 provides for fees that are not considered taxes if these fees are for a service provided directly to the payor and not to others who get the service for free. This proposition also requires the cost of the service to be allocated among the payors in a fair or reasonable way. [The Tourism Marketing District] case concerns the first requirement and the Newhall case centered on the second requirement.”
On March 4, Superior Court judge Joel Wohlfeil is expected to set a date for trial.