If your company is thinking about challenging a rate or fee that a city or public agency just imposed, you’re probably focused on the merits. Is the charge too high? Does it fold in costs it shouldn’t? Those are the questions that eventually win a case. But in California there’s a threshold question that can end the fight before a court ever looks at the merits, and a recent decision shows how unforgiving that threshold is.
In Toy v. City and County of San Francisco (Cal. Ct. App., 1st Dist., July 24, 2026), the First District Court of Appeal held that a challenge to municipal water rates has to be brought as a reverse validation action. That’s a specialized procedure, one with its own short deadline and its own strict notice rules, and the court held that failing to follow it is fatal no matter how strong the underlying claim.
Here’s the background in plain terms. California’s validation statutes let a public agency file a lawsuit to confirm, or validate, something it has done, such as adopting a rate. Private parties can bring the mirror image, a reverse validation action, to invalidate that same decision. When these statutes apply, they take over, and they replace whatever other route a private party might have imagined using to challenge the agency. In 2021 the Legislature added Government Code section 53759, which says any action attacking a water or sewer rate adopted after January 1, 2022 must be filed within 120 days and must run through the validation procedures.
The plaintiffs here didn’t do that. In October 2023 they filed an ordinary class action attacking San Francisco’s new water rates under Proposition 218, the voter initiative that bars local governments from charging more for a property-related service than the service actually costs. They styled it as a claim for a refund and related relief. The City answered, asserted its defenses, and then litigated. For roughly fourteen months it filed case management statements, posted jury fees, took depositions, and agreed to consolidate the two related cases. Then, in early 2025, the City moved for judgment on the pleadings, a motion that asks the court to decide the case on the complaint alone, on a single ground: the plaintiffs had used the wrong procedure. The trial court agreed and dismissed the case without leave to amend. The Court of Appeal affirmed.
The most useful part of the opinion for anyone who litigates against a government body is what the court did with the waiver argument. The plaintiffs said the City gave up the validation defense by litigating the case for over a year before raising it. The court disagreed, and the reasoning matters. Waiver means the intentional surrender of a known right, and simply defending a lawsuit isn’t that. A public agency doesn’t give anything up by answering a complaint and fighting it. More to the point, compliance with the reverse validation procedures isn’t an affirmative defense the agency has to raise early or lose. It’s a prerequisite to the court’s jurisdiction. If the plaintiff never satisfies it, the court never had the power to hear the case, and the agency can point that out late.
The plaintiffs also argued that because they really wanted a refund, validation law didn’t apply. The court rejected that too, consistent with earlier decisions holding that a refund label can’t rescue a claim that is, at bottom, an attack on the validity of an agency’s rate. And the court found no good cause to excuse the misstep, noting that the requirements were well established and, in its words, all in the books. The City’s own rate notice had even told ratepayers about the 120-day deadline and the reverse validation procedure.
What This Means for Businesses, Property Owners, and Ratepayers
If you might challenge a municipal water or sewer rate adopted after January 1, 2022, treat it as a validation action from the first day. That means a 120-day clock that starts running at adoption, a summons in the specific form the statute requires, and service by publication to all interested persons, not just service on the agency. Miss any of those, and the strength of your Proposition 218 argument won’t matter.
It also means you can’t read anything into the agency’s conduct. A city can litigate your case for a year and still move to dismiss it as procedurally improper, because the defect goes to the court’s power to act, not to a defense the city can forfeit. Waiting for the government to raise the issue is not a strategy.
The Bottom Line
Challenges to government rates and fees are won or lost on planning as much as on the merits. Before you file, confirm whether the validation statutes apply, calendar the 120-day deadline, and build the notice and publication steps into your plan from the start. A meritorious claim filed the wrong way is still a losing claim. Real estate litigation, disputes with public agencies, and challenges to government fees and assessments are central to our practice at Horst Legal Counsel. If you’re weighing a challenge to a rate or fee, or you’ve received a notice of a new one, we’re glad to talk it through. Contact us here.