Court Opposes Raising Tax to Pay Judgment

In a decision involving a Ventura Harbor marina development bankruptcy, the state Supreme Court said Thursday that local governments cannot be forced to pay for lawsuit settlements by raising property taxes.

Taxpayer advocates praised the decision, saying a ruling favorable to the Ventura Port District’s creditors would have paved the way for tax increases statewide and would have virtually overturned portions of Proposition 13, which limits property tax increases.

Timothy A. Bittle, director of legal affairs for the Howard Jarvis Taxpayers Assn., called the ruling a victory for property owners. If the court had ruled against the port district, which operates the marina, “it would have resulted in a lot of tax increases” statewide, he said.

Robert Orellana, assistant counsel for Ventura County, agreed, saying that an adverse decision would have opened up tax hikes “whenever someone had a judgment, even for a slip and fall.”

The court rejected Ventura Group Ventures’ argument that Proposition 13, which requires a two-thirds approval of voters on property tax hikes, should not apply in cases of legal judgments.

Ventura Group Ventures has been trying since 1990 to collect on a $15.7-million court judgment stemming from a breach-of-contract lawsuit against the port district. The group contended that the port backed away from parts of a deal that would have allowed the group to develop much of the marina waterfront.

In 1993, the port filed for bankruptcy and later paid $8 million to Ventura Group Ventures’ creditors with money raised from a bond. The creditors then argued that port district property owners should be taxed to help pay the difference.

The case now returns to the 9th U. S. Circuit Court of Appeals, but lawyers said they expected no change because that court has said it would abide by the Supreme Court ruling. The 9th Circuit in Los Angeles asked the California Supreme Court to clarify state law because it was a constitutional issue.

“It’s the closing of the last chapter,” said Tom Bunn, an attorney for the port district. “This forced the [port district] into bankruptcy and into bond obligation, so I wouldn’t call it a major victory. But I think the port district is grateful it doesn’t have to go out and levy taxes.”

Attorneys for Ventura Group Ventures did not return calls.

The ruling comes more than two decades after an earlier incarnation of Ventura Group Ventures signed an agreement with the port district to build an aquarium, restaurant and retail facilities. The port district did not reveal that it had an agreement with another developer prohibiting retail facilities at the harbor.

That group, called Ocean Services, went bankrupt in 1987, and sued, receiving a $31-million jury judgment in 1990. The amount was later reduced to about $15 million by a trial judge.

Port district director Oscar Pena said Thursday’s decision would finally pull the harbor out from under a cloud it’s been living with since the bankruptcy filing.

“It was a wonderful day,” he said. “It just opens the door of opportunity for the district.”

The court appeared to have little patience for the creditors’ arguments, rejecting nearly all of their points, and writing at one point: “A district can no longer expect a county to levy taxes to raise whatever sum the district budget calls for. That those days are long gone should come as no surprise to [Ventura Group Ventures] or anyone else.”

Lawyers for the port district said they thought that it was unlikely that the court would rule against them because of the impact it would have on the landmark provisions of Proposition 13, which was passed in 1978.

“It would have been a major shift,” said Pat Leary, a legislative analyst with the California State Assn. of Counties. “Judgments against local governments do happen. That would open a door no one intended to open.”