Russell City Energy Co., LLC v. City of Hayward

A city’s promise not to impose taxes other than real property taxes on plaintiff if it built a clean energy plant in the city was unenforceable as contrary to the state constitution, but plaintiff might be able to state a restitution claim to recoup sums it paid for that promise.  As part of the financial arrangements luring Russell to build a natural gas power plant in Hayward, the city entered into a contract with Russell that provided for Russell to pay Hayward $10 million to build a local library and also provided that Hayward would not impose any taxes on Russell other than generally applicable real estate taxes.  Held, the no-taxes clause was unenforceable as against public policy.  Art. VIII, sec. 31 of the California Constitution provides that the power of taxation shall never be suspended or surrendered by grant or contract.  The no taxes provision of Russell’s contract with Hayward violated this provision and thus was unenforceable.  However, the court also held that Russell should be allowed to amend its complaint to state a quasi-contractual claim for restitution of all or part of the $10 million it paid Hayward allegedly in consideration for the no-taxes pledge.

California Court of Appeal, First District, Division 5 (Jones, P.J.); August 7, 2017; 2017 WL 3381692

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