Government Liability Update

Internet Service Provider May Pursue Claims for Refunds of Improperly-Paid Taxes to Fund Settlement with Customers

In Sipple v. City of Hayward, et al., published April 8, 2014, the Second District Court of Appeal, Division Two, reversed a dismissal based on demurrer in a lawsuit brought by an Internet service provider seeking refunds of improperly-paid taxes.  The plaintiff erroneously billed customers taxes on Internet access over several years, despite a federal moratorium on state and local government taxation on Internet access.  Several lawsuits were filed against the plaintiff.  The plaintiff settled the lawsuits.  As part of the settlement, the plaintiff agreed to assist the erroneously-taxed customers in obtaining refunds of the taxes, which the plaintiff had paid to various cities and counties.  In accordance with the settlement agreement, the plaintiff presented claims for damages to California cities and counties on behalf of the customers who had paid the taxes in California.  The defendant cities and counties denied or failed to respond to the claims.  The plaintiff then sued to obtain the refunds.  The trial court sustained the defendants' demurrers on the grounds that local ordinances required the customers to file individual claims, and that the plaintiff lacked standing to seek the refunds because it had not yet paid the taxes back to the customers.

The appellate court reversed on both grounds.  On the claim issue, it concluded that the Government Claims Act, in particular Government Code section 910 (governing the contents of claims), preempted local ordinances dictating claim forms and barring vendors from presenting claims on behalf of their customers.  Because the claims substantially complied with section 910, they were sufficient.  On the standing issue, the court found the question close; but under the unique circumstances of the case, in which the cities and counties would be unjustly enriched if they kept the money, and the plaintiff had a personal stake in carrying out the terms of the settlement, it found the plaintiff had standing to pursue the refund claims.

 

Design Immunity Defense Fails Absent Evidence of Discretionary Approval

In Martinez v. County of Ventura, published April 8, 2014, the Second District Court of Appeal, Division Six, reversed a defense jury verdict based on the defense of design immunity, concluding the evidence was insufficient as a matter of law to support the jury's finding that the immunity applied.  The plaintif fwas injured when his motorcycle struck a berm abutting a raised drain -- a "top-hat drain system."  He alleged the top-hat drain system was a dangerous condition of public property.  The defendant asserted design immunity, based on the county's road maintenance engineer's testimony that he "probably" approved the design of the drain.  But the evidence established that the installation of the drain system was a maintenance project, for which no engineering design plans were prepared; the systems were built "in the field" without plans or any scientific or engineering analysis.  The maintenance workers built and installed the drains in the field as they saw the need for them.

To prove design immunity, the entity must show that the design was approved in advance by the public entity's legislative body, or by another body or employee exercising discretionary authority to give approval; or where the plan or design is prepared in conformity with standards previously so approved.  The appellate court ruled that there was no evidence that the county or an employee approved the top-hat drain system before it was installed.  There was no design for the drain systems in advance of construction, the court ruled, so there was nothing to approve.  Further, even if there had been a design to approve, the county presented no evidence that the person whom the law authorized to approve the design  -- the county road commissioner -- had delegated authority to the engineer who approved the drains; or that the commisioner had the authority to delegate that power.  The public entity must show a basis in law for delegation of authority.  The court rejected the theory that discretionary approval may be implied from repeated use of the design for 25 years.

Change in Procedure for Asserting Affirmative Defense of Failure to Exhaust Administrative Remedy; Administrative Remedy Not Available if Inmate Can't Know of It

In Albino v. Baca, published April 3, 2014, the 9th Circuit Court of Appeals, sitting en banc, reversed summary judgment granted to defendants in a jail conditions case based on the affirmative defense of failure to exhaust administrative remedies, and ordered summary judgment entered for the pro se plaintiff on that defense.  The plaintiff alleged that he was repeatedly put into the jail's general population, despite receiving repeated beatings that caused permanent injuries.   He stated that he was never told about any administrative remedies, and was also told that any complaints should be made to his attorney.  The Prison Litigation Reform Act requires prisoners to exhaust the prison or jail's administrative remedies before suing pro se about prison conditions.  The district court granted the defendants summary judgment on the ground that the jail had administrative remedies, and the prisoner never exhausted them.

The en banc panel first reversed a 2003 9th Circuit case, Wyatt v. Terhune, which held that attacks on a pro se prisoner's complaint for failure to exhaust should be brought as an unenumerated FRCP 12(b) motion.  Instead, on the rare occasions where failure to exhaust appears on the face of the complaint, it should be addressed through a Rule 12(b)(6) motion to dismiss.  If the defense depends on external evidence, it should be raised by a FRCP 56 motion for summary judgment.  If issues of fact defeat the summary judgment, the court, sitting as trier of fact, should hold an evidentiary hearing on the failure to exhaust early in the litigation.  The same procedure should be followed in asserting the failure-to-exhaust defense in other areas of law that require exhaustion of administrative remedies.

The panel also concluded that the defendants had failed to establish the affirmative defense.  The evidence they provided failed to establish that the prisoner was informed about the jail's administrative remedies, and therefore whether they were available.  It directed that summary judgment be entered on the issue in the plaintiff's favor.