Jessica Cejnar Andrews / Friday, Feb. 25, 2022 @ 1:41 p.m. / Local Government
Crescent City Settles With Local Motel Owners Over Sewer Issues That Began in 1999
Crescent City has reached a settlement agreement with the owners of a local motel, concluding a dispute that has its origins during a contentious time between the city and county over water and sewer services, about 24 years ago.
According to the city’s agreement with Magan and Sarla Natha, owners of the Anchor Beach Inn, Crescent City will refund them $16,646.11 and relieve them of an obligation to pay a fee that amounts to 2 percent of their gross profits.
That obligation was part of a 1999 settlement agreement between Crescent City and the Nathas in exchange for the then-brand new Anchor Beach Inn, which is outside city limits, to access the city’s sewer system, City Attorney Martha Rice told the Wild Rivers Outpost on Thursday.
The $16,646.11 is what the Nathas paid to the city during the first quarter of the 2021-22 fiscal year, Rice said, comparing it to the transiency occupancy taxes local lodging facilities remit to the city or county.
“If we went to court and the city lost, it would be paying attorneys fees and back TOT, maybe $80,000,” Rice told the Outpost. “If they lost, they could be paying up to 38 years of 2 percent TOT, which is the terms of that fee — they were going to pay it for 60 years or until that property was annexed into the city.”
Rice reported that the city had reached a settlement agreement with the Nathas following a special closed session meeting on Feb. 17.
According to a petition the Nathas filed in Del Norte County Superior Court in July 2021, the Nathas filed a lawsuit against the city in 1998 stating they were entitled to connect the motel to its wastewater system.
At the time the city had a line that ran into the harbor closer to the motel, Rice said. But because Anchor Beach Inn is outside city limits, the Nathas were technically supposed to tap into the county’s collection system at Elk Valley Road and U.S. 101. This was further away and would have required the Nathas to put in a sewer main that would have cost hundreds of thousands of dollars, she said.
“The Nathas sued the city and said, ‘No, you have to allow us to hook into your line,’” Rice told the Outpost. “At the same time, there was a case between the city and the county that went up to the appellate court that said the city had discretion to set a policy based that based on justifiable reasons, said people couldn’t hook into their line” from outside their boundaries.
In August 1999, the Nathas and the city entered into an agreement that allowed the Anchor Beach Inn to connect to the city’s sewer system. In addition to the monthly sewer fees, the agreement required the Nathas to pay a fee “in lieu of the transitory occupancy tax” of 2 percent of the gross revenues its motel receives.
According to the Nathas’ attorney, Bradford C. Floyd and Carlton D. Floyd, of the Floyd Law Firm in Eureka, the 2 percent fee the city charged amounted to a transient occupancy tax, though the Anchor Beach Inn is outside the city.
“This charge by the city for connecting to the city’s effluent system was not a fee required of other motels and businesses and amounts to an improper tax and fee,” Floyd wrote in an an October 2021 opposition to a Demurrer the city submitted in September.
According to Bradford Floyd, there were portions in the original 1999 agreement between the Nathas and Crescent City that under California law were illegal, though he said he didn’t think any of the parties realized that.
Since February 2019, the Nathas paid the 2 percent fee to the city under protest. In September 2019, their attorney sent a letter to the city requesting it immediately cease charging the Nathas the 2 percent fee, calling it an illegal tax.
In January 2020, Rice sent a letter back stating that the 2 percent fee wasn’t illegal and was based on a contract between the city and the Nathas.
According to Rice, the letter the Nathas sent to the city asking that it stop charging them the 2 percent fee came after the Crescent City Harbor District passed Measure C, which increased the transiency occupancy tax in the county to 10 percent. As a result, she said, the Nathas were paying what amounted to a 12 percent TOT.
“They started saying, ‘We don’t like the deal. It’s not fair.’ Twenty years later,” Rice told the Outpost.
It wasn’t until the county’s TOT went up to 10% that the Nathas began looking at that 2 percent fee it was paying the city and trying to figure out if it could be changed, Floyd told the Outpost.
Floyd and Rice tried to resolve it out of court, but, Floyd said, because the city is a public entity, “you have to file a lawsuit for them to be able to negotiate, so we did.”
In the 2022 settlement agreement, both parties gave something up, Floyd told the Outpost.
“We wanted more of the money refunded than the Nathas had paid and the city wanted less of that money refunded and we came to a place where we went OK, both sides are good,” he said.
The outcome was “exactly what the (Nathas) were hoping for,” Floyd said.
According to Rice, while the judge acknowledged that the Nathas agreed to pay the city the additional 2 percent fee in addition to the sewer connection charges, if it was a fee that was adopted illegally, he would need to hear the case. Rice said the city didn’t want to spend years litigating the case.
“We’ve got 20 years worth of fees,” she said. “Nobody thought this was something we absolutely needed to hold onto into the future, so we decided to settle it and go our separate ways.”
If Crescent City winds up annexing the area Anchor Beach Inn sits on, the Nathas will pay its TOT to the city instead of the county. Now, they’re paying their 10 percent county TOT like any other motel, Floyd said.
Documents:
• City's Settlement Agreement with Magan and Sarla Natha
• Nathas' Opposition to Demurrer
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