The Los Angeles Unified School District receives a school impact development fee on new residential construction. If a building is demolished, however, developers are eligible for a partial refund. To obtain the refund, a developer must apply with the District within 90 days after the payment of the development fees.

Merkoh Associates, LLC ("Merkoh") paid $25,052 in development fees to obtain a permit for residential construction at a single family residence. On July 30, 2013, Merkoh submitted to the District a request for a demolition refund. Over eight months later, the District issued a refund in the amount of $8,852. The refund did not include interest.

On August 21, 2014, Merkoh filed a lawsuit against the District alleging that the District wrongfully withheld the refund for over eight months and refused to pay interest. Merkoh claimed that under Civil Code Section 3287, it was owed interest from the time of its refund request to the time of the refund. Civil Code Section 3287 is a general statute that provides for the recovery of interest.

The District denied Merkoh's claim for interest under Civil Code section 3287. The District argued that the Mitigation Fee Act set forth in the Government Code provides the exclusive method for challenging development fees and recovering interest. The Mitigation Fee Act allows developers to protest the imposition of development fees in accordance with certain procedures. (Gov. Code, section 66020, et seq.) A developer who files a protest may then file an action "to attack, review, set aside, void, or annul the imposition of the fees" within 180 days after the imposition of the fees. (Gov. Code, section 66020 subd. (d)(2).) Under the Mitigation Fee Act, a successful developer is entitled to a refund of "the unlawful portion of the payment, with interest at the rate of 8 percent per annum." (Gov. Code. section 66020 subd. (e).)

The District also argued that it was too late for Merkoh to obtain interest under the Mitigation Fee Act because it did not file an action within the specified limitation period.

The trial court agreed with the District and dismissed Merkoh's lawsuit.

Merkoh appealed the trial court's decision. Merkoh argued that the Mitigation Fee Act did not preclude recovery of interest under Civil Code Section 3287. The Court of Appeal rejected Merkoh's argument. The Court held that because the Mitigation Fee Act specifically provides for the recovery of interest in the context of development fees, the Act controls and takes priority over Section 3287. The Court also agreed that it was too late for Merkoh to follow the procedures in the Mitigation Fee Act to obtain interest. "[Merkoh] cannot show that it followed the procedure in [Government Code] section 66020 for attacking the fee as it did not file an action within the specified limitation period. The timely filing of a written protest is a mandatory prerequisite to any later action to challenge the imposition of the fees, and any such action must be filed within 180 days after the imposition of the fees."

Merkoh Associates, LLC v. Los Angeles Unified School District (Mar. 22, 2016) [2016 WL 1109099] __Cal.App.4th __.