Morgan v. Ygrene Energy Fund, Inc.: PACE Assessments as “Taxes” and the Exclusivity of California’s Tax-Refund Procedures

I. Introduction

In Morgan v. Ygrene Energy Fund, Inc. (Cal. Supreme Ct. Dec. 4, 2025, S277628), the California Supreme Court addressed a novel intersection of consumer protection law and local tax procedure. The case arises out of California’s Property Assessed Clean Energy (PACE) program—a statutory scheme that allows local governments to finance energy-efficiency improvements for homeowners through voluntary special assessments added to property tax bills.

The plaintiffs—elderly homeowners who had entered into PACE financing—sued private PACE administrators under the Unfair Competition Law (UCL), alleging violations of various consumer protection and finance statutes. Central to the dispute was their request for injunctive and restitutionary relief that would, in substance, undo or bar collection of the PACE assessments appearing on their property tax bills.

The Supreme Court was asked to decide whether such plaintiffs, even though they sued only private entities, were required to utilize California’s statutory property tax challenge mechanisms—specifically, the “pay first, litigate later” refund process in the Revenue and Taxation Code—before obtaining judicial relief that would effectively invalidate or halt collection of PACE assessments.

The Court’s decision articulates and refines an important principle: when relief sought in civil litigation—whatever its label, theory, or target defendant—would functionally cancel, refund, or enjoin a tax (including PACE assessments collected with property taxes), the taxpayer must use the Legislature’s exclusive tax-challenge procedures. At the same time, the Court carefully preserved room for UCL and other consumer protection actions against private PACE administrators where the requested relief does not directly or indirectly dispute the obligation to pay the PACE assessments themselves.

II. Background of the Case

A. The PACE Program

The Legislature created the PACE program in 2008 to promote renewable energy and energy efficiency improvements to real property. The statutory framework allows local governments to:

Issue bonds to fund PACE loans to property owners for approved improvements (e.g., solar panels, energy-efficient windows); and
Recoup the loaned funds through a special assessment or special tax added to the homeowner’s property tax bill, secured by a priority lien that runs with the land.

PACE financing can be structured under:

The Improvement Act of 1911 (Sts. & Hy. Code, § 5000 et seq.), using assessments to repay bonds; or
The Mello-Roos Community Facilities Act of 1982 (Gov. Code, § 53311 et seq.), using special taxes on properties in a community facilities district.

In either configuration, the PACE obligation is added to the county property tax bill and is collected “in the same manner and at the same time” as general property taxes. (Sts. & Hy. Code, § 5898.30; Gov. Code, § 53340, subd. (e).) For purposes of the Court’s analysis, the opinion refers collectively to these charges as “PACE assessments.”

Although the Legislature might have anticipated that cities and counties would administer PACE programs directly, in practice most local governments promptly contracted the administration out to private entities such as Ygrene Energy Fund, Inc. and Renew Financial Group, LLC. These PACE administrators:

Coordinate with local governments to structure and finance bond issuances;
Oversee contractors who market and install PACE improvements to homeowners;
Process loan applications and originate PACE financing; and
Arrange for the PACE assessments to be placed on the county tax roll.

B. The Plaintiffs’ Allegations

The named plaintiffs are homeowners over age 65 who obtained PACE financing. They allege that, when they agreed to participate, they did not understand the magnitude of the financial burden or the foreclosure risks associated with the PACE lien on their homes.

They do not allege classic fraud or misrepresentation in the opinion as described, but instead contend that private PACE administrators should have complied with various statutes applicable to consumer lenders and home improvement sellers, and that their failures to do so constitute “unlawful” business practices actionable under the UCL (Bus. & Prof. Code, § 17200 et seq.)—which “borrows” violations of other laws.

Their UCL theories include underlying violations of:

Civil Code provisions governing home improvement contracts for seniors
- Civ. Code, § 1804.1, subd. (j): Prohibits taking a security interest in the primary residence of a buyer age 65 or older in certain home improvement contracts. Plaintiffs allege that the PACE contracts include such a security interest (the PACE lien on their homes), in violation of this protection.
- Civ. Code, § 1803.2, subd. (b)(3): Requires a conspicuous boldface warning in certain contracts advising that the homeowner’s property may be subject to foreclosure if they fail to pay. Plaintiffs allege that this warning was absent from their PACE contracts.
California Financing Law – licensing and loan validity
- Plaintiffs allege that PACE administrators were required to be licensed as finance lenders under the California Financing Law (Fin. Code, § 22100, subd. (a)), but were not.
- They rely on Fin. Code, § 22750, which voids certain loan contracts and provides strong remedies where a person willfully engages in finance lending without a license.
Business and Professions Code joint check requirement
- Bus. & Prof. Code, § 7159.2, subd. (b) generally requires that in designated home improvement transactions, the financing entity issue checks jointly to the contractor and the homeowner (rather than paying the contractor directly). Plaintiffs allege that PACE administrators paid contractors directly in violation of this requirement.

Plaintiffs further note that the Legislature later enacted PACE-specific consumer protections—requiring, among other things, underwriting to ensure ability to pay and licensing of PACE administrators under the California Financing Law (Stats. 2017, ch. 475 (Assem. Bill No. 1284)). They contend that, before these reforms, private PACE actors operated in a “regulatory void.”

C. The Relief Sought

Under the UCL, plaintiffs primarily seek public injunctive and restitutionary relief related to the PACE assessments themselves, including:

An injunction barring PACE administrators from initiating collection procedures on delinquent PACE assessments;
An order compelling PACE administrators to return (i.e., make restitution of) all PACE assessment monies they have received from homeowners; and
Orders keeping these injunctions/restoration duties in place “unless and until” the PACE administrators successfully ask the local governments to remove the PACE assessments from class members’ property tax bills, and those assessments are actually removed.

In addition, tied to the alleged licensing and joint-check violations, plaintiffs seek:

Under the California Financing Law (Fin. Code, § 22750, § 22752):
- An injunction against any further collection activity on PACE loans if PACE administrators willfully violated licensing requirements; or
- If the violations were not willful, an injunction prohibiting the collection of interest or finance charges (but not necessarily principal).
Declaratory relief that PACE administrators are “finance lenders” and “sellers of home improvement services” subject to particular statutes; and
Prospective injunctive relief (especially for future PACE transactions) requiring:
- Licensing compliance before making consumer loans; and
- Issuance of joint checks to both homeowner and contractor for future PACE-funded work.

As framed, the core remedies are aimed at eliminating or refunding past and future PACE assessments on property tax bills; the “administration-focused” remedies are comparatively narrower and prospective.

D. Procedural History

The PACE defendants demurred, arguing that because PACE assessments are collected on the property tax roll, plaintiffs could not proceed in court without first exhausting administrative tax remedies—namely, paying the assessments and then pursuing refunds through the statutory tax refund process.

The trial court sustained the demurrers without leave to amend and dismissed the actions. The Court of Appeal affirmed in full, holding that:

PACE assessments qualify as “taxes” under Revenue and Taxation Code section 4801; and
Plaintiffs’ requested relief—return of assessment payments and injunctions against collection—constitutes a challenge to those taxes that must proceed via the statutory tax-challenge scheme (assessment appeals and refund claims) before any court action.

The Court of Appeal further held that even the plaintiffs’ other causes of action and their requests for public injunctive relief (such as those based on licensing and joint-check requirements) were barred because they arose from the same operative facts and legal theories as the tax-related claims.

The Supreme Court granted review, resulting in the opinion authored by Justice Kruger for a unanimous court.

III. Summary of the Supreme Court’s Opinion

The Supreme Court’s decision has three key holdings:

PACE assessments are treated as “taxes” for purposes of California’s property tax challenge and refund procedures.
Because the statutes governing PACE expressly provide that PACE assessments are levied and collected “at the same time and in the same manner” as property taxes, and because Revenue and Taxation Code section 4801 defines “taxes” (for correction, cancellation, and refund purposes) to include such assessments, challenges to PACE assessments must follow the same exclusive statutory procedures as other property tax challenges.
If the relief sought would invalidate, refund, or enjoin collection of PACE assessments, plaintiffs must use the Legislature’s tax-challenge process, regardless of whether the defendants are private entities.
The Court held that the requested injunctions and restitution orders in this case are, in substance, attempts to cancel the plaintiffs’ PACE assessment obligations. Such relief cannot be obtained through a UCL class action directly against PACE administrators; plaintiffs must instead pay the assessments and seek refunds via the administrative refund process (Rev. & Tax. Code, §§ 5096, 5097), followed by a judicial refund action under section 5140 if necessary.
However, plaintiffs may pursue “nontax-related” remedies—i.e., relief that does not directly or indirectly challenge the obligation to pay PACE assessments—without exhausting tax remedies, and must be given the opportunity to amend to assert such claims.
The Court reversed in part to allow plaintiffs to attempt to re-plead UCL claims for purely administrative or prospective relief (for example, injunctive orders about how PACE administrators must structure future transactions) that do not seek to invalidate or refund existing PACE assessments.

Additionally, the Court clarified an important procedural point: for challenges of the kind plaintiffs seek to raise here, homeowners need not file an assessment reduction application under Revenue and Taxation Code section 1603 (which concerns property valuation for ad valorem taxes). Instead, the relevant administrative step is a refund claim under section 5097, because PACE assessments fall within the definition of “taxes” for refund purposes, but are not part of the valuation-oriented assessment roll that section 1603 addresses.

IV. Detailed Analysis

A. The Constitutional and Statutory Tax-Challenge Framework

1. The anti-injunction rule and “pay first, litigate later”

California’s Constitution contains a strong rule against judicial interference with tax collection. Article XIII, section 32 provides:

“No legal or equitable process shall issue in any proceeding in any court against this State or any officer thereof to prevent or enjoin the collection of any tax. After payment of a tax claimed to be illegal, an action may be maintained to recover the tax paid, with interest, in such manner as may be provided by the Legislature.”

This constitutional rule reflects two policy concerns:

Continuity of government services: Taxes must continue to flow while disputes are resolved so that essential public services are not disrupted.
Legislative control over tax challenges: The manner and scope of tax-refund actions are strictly controlled to allow governments to plan financially based on reasonably predictable revenue streams.

Article XIII, section 32 applies explicitly to state taxes, but courts long ago extended its logic to local governments as well. The Legislature later codified this extension in Revenue and Taxation Code section 4807, which states:

“No injunction or writ of mandate or other legal or equitable process shall issue in any suit, action, or proceeding in any court against any county, municipality, or district, or any officer thereof, to prevent or enjoin the collection of property taxes sought to be collected.”

Together, these provisions establish the familiar “pay first, litigate later” rule: a taxpayer cannot stop tax collection through injunctive or declaratory relief but must instead:

Pay the tax; then
Pursue a refund via administrative and judicial procedures designated by the Legislature.

Crucially, the prohibition applies not only to suits that explicitly seek to enjoin tax collection, but also to those that would functionally have that effect—even if styled as declaratory relief or framed against a third party. The Court emphasizes that allowing taxpayers to circumvent the tax-challenge scheme by recasting their claim or defendant identities would defeat the constitutional and statutory structure.

2. The statutory refund scheme: assessment reductions and refunds

California’s property tax system distinguishes between:

Valuation and assessment of property for ad valorem taxes (primarily addressed in Part 3 of Division 1 of the Revenue and Taxation Code, including § 1603); and
Correction, cancellation, and refund of taxes (primarily addressed in Part 9 of Division 1, starting with § 4801, and including §§ 5096–5097 and 5140–5144).

Historically, taxpayers challenging property taxes were understood to take two administrative steps before going to court:

Assessment reduction (valuation challenge) – Rev. & Tax. Code § 1603.
After receiving an annual notice of assessed value, a property owner can file an application with the county board of equalization (or assessment appeals board) seeking a reduction, typically on valuation grounds.
Refund claim – Rev. & Tax. Code §§ 5096–5097.
After paying the tax, the taxpayer may file an administrative refund claim with the county on various grounds, including that the tax was illegally assessed, levied, or collected.

If the refund claim is denied, the taxpayer can file a judicial refund action under section 5140 against the county or city. Section 5142 provides that no refund action may be commenced or maintained unless a claim for refund was first filed, and that recovery is limited to grounds specified in the refund claim.

Prior decisions such as Steinhart v. County of Los Angeles (2010) 47 Cal.4th 1298, 1308, described this two-step exhaustion requirement as ordinarily applicable to property tax disputes.

3. The definition of “taxes” – Revenue and Taxation Code § 4801

Revenue and Taxation Code section 4801 is central to the Morgan analysis. For purposes of Part 9 (corrections, cancellations, refunds), it defines “taxes” to include:

“assessments collected at the same time and in the same manner as county taxes.”

Thus, any special assessments that appear on the property tax bill and are collected through the same mechanism as ad valorem property taxes are treated as “taxes” for refund and correction purposes.

The PACE statutes deliberately place PACE obligations within this definition by mandating that PACE assessments be collected “at the same time and in the same manner” as other property taxes. (Sts. & Hy. Code, § 5898.30; Gov. Code, § 53340, subd. (e).) This statutory design is the pivot of the Court’s conclusion that PACE assessment challenges must proceed through the tax-refund system.

B. Key Precedents and How They Shape the Decision

1. Steinhart v. County of Los Angeles

In Steinhart, the Court described the general rule that a property taxpayer “ordinarily may not file or pursue a court action for a tax refund without first applying to the local board of equalization for assessment reduction under section 1603 and filing an administrative tax refund claim under section 5097.” (Steinhart, supra, 47 Cal.4th at p. 1308.)

Morgan refines that doctrine. The Court clarifies that the assessment reduction step is not universally required. When plaintiffs are not challenging the valuation of property or other issues the assessment appeals process is designed to handle—and when there is no statute indicating that a particular type of nonvaluation claim must go through that process—section 1603 does not apply.

2. Loeffler v. Target Corp.

Loeffler v. Target Corp. (2014) 58 Cal.4th 1081 is particularly important because it, like Morgan, involved a UCL action by private plaintiffs against a private defendant, rather than a direct suit against the taxing authority.

In Loeffler, consumers alleged that Target improperly charged them sales tax reimbursement on hot coffee, asserting that hot coffee was not taxable. They sought UCL relief to enjoin Target from collecting the reimbursement and to obtain restitution. The Court held that—even though the action was against a retailer, not a tax agency—the claim was fundamentally about the taxability of the transaction. Accordingly, the plaintiffs could not sidestep the exclusive procedures in the Sales and Use Tax Law by suing the retailer under the UCL.

Morgan reaffirms and extends this principle. The Court emphasizes that:

The critical inquiry is not who the defendants are (public vs. private), but;
Whether the relief sought would directly or indirectly challenge a tax—e.g., by determining taxability, refunding tax amounts, or enjoining tax-related collection mechanisms.

Thus, even a UCL action against private PACE administrators cannot avoid the tax-challenge framework if the requested remedies would effectively nullify or refund PACE assessments.

3. Woosley, PG&E, and the anti-circumvention cases

Several earlier authorities articulate and enforce the principle that taxpayers may not evade the tax-challenge scheme by clever pleading:

Woosley v. State of California (1992) 3 Cal.4th 758, 789:
Emphasized that “strict legislative control over the manner in which tax refunds may be sought is necessary so that governmental entities may engage in fiscal planning based on expected tax revenues.”
Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 283:
Warned that allowing pre-payment challenges could “derange the operations of government” by interrupting tax revenue flows.
State Bd. of Equalization v. Superior Court (1985) 39 Cal.3d 633, 640, and Honeywell Inc. v. State Bd. of Equalization (1975) 48 Cal.App.3d 907, 912:
Confirmed that taxpayers may not circumvent tax-collection restraints by seeking declaratory relief or similar indirect forms of pre-payment challenge.

Morgan applies these principles to PACE assessments: a suit that “unavoidably seek[s] to invalidate” the obligation to pay PACE assessments, or to enjoin collections on that obligation, cannot proceed outside the tax-refund channel—even if framed purely as a consumer protection action and even if the immediate orders would be directed to private PACE administrators rather than county tax collectors.

4. Security-First, Connolly, Cod Gas & Oil

The Court also builds on case law extending anti-injunction principles and the exclusivity of tax remedies to local governments:

Security-First Nat. Bank v. County of Los Angeles (1950) 35 Cal.2d 319:
Held that the anti-injunction principle applies to actions involving county taxes.
Connolly v. County of Orange (1992) 1 Cal.4th 1105, 1114:
Discussed Revenue and Taxation Code section 4807 as the codification of the local anti-injunction rule.
Cod Gas & Oil Co. v. State Bd. of Equalization (1997) 59 Cal.App.4th 756, 759:
Confirmed that “actions for refund of allegedly illegal taxes [may] be brought only in the manner prescribed by the Legislature.”

These authorities undergird the Court’s insistence that PACE assessment challenges must use the statutory refund route, not parallel private litigation structures.

5. Williams & Fickett and the limits of the assessment appeals requirement

In Williams & Fickett v. County of Fresno (2017) 2 Cal.5th 1258, the Court held that a party claiming it did not own certain property (and thus should not be taxed on it) had to pursue an assessment appeal under section 1603 before litigation, based on strong statutory indications that such ownership disputes were within the assessment appeal board’s purview.

Morgan distinguishes that scenario. Here, no comparable statutory “affirmative indication” suggests that disputes over the legality of PACE assessments—based on consumer protection and finance licensing theories—belong in the assessment appeals process. Those processes concern the value of property on the local assessment roll (e.g., comparable sales data, cash value), not the legality of separate special assessments collected via the tax bill.

Accordingly, Morgan holds that the section 1603 step is not required for challenges focused solely on PACE assessments; the relevant administrative path is the refund procedure under sections 5096 and 5097.

6. Harvill and Mello-Roos defenses

Community Facilities Dist. v. Harvill (1999) 74 Cal.App.4th 876 involved homeowners who defaulted on Mello-Roos special taxes. When foreclosure proceedings commenced, they defended by arguing that the county had not completed improvements as promised, which they characterized as a “contractual or quasi-contractual” failure.

The Court of Appeal rejected that defense, holding that allowing it to defeat foreclosure would effectively invalidate the special taxes and thus contravene Revenue and Taxation Code section 4807’s prohibition on enjoining tax collection.

Morgan draws a close analogy: plaintiffs’ attempts to stop the collection of PACE assessments or to nullify the PACE liens on their properties—grounded in alleged contractual illegality—would similarly operate to invalidate taxes. Under the Constitution and section 4807, such challenges must proceed through the statutory tax-refund procedures.

7. City of Oakland v. California Const. Co.

Plaintiffs relied heavily on City of Oakland v. California Const. Co. (1940) 15 Cal.2d 573, where the city sued a contractor to recover funds wrongfully paid out of assessment proceeds, without challenging any assessment itself. The Supreme Court there allowed the suit, noting that:

The city did not question the validity of any assessments;
No assessment would be altered by the recovery; and
Any recovery would simply benefit the property owners who had already been taxed.

Morgan distinguishes City of Oakland on precisely that ground. In City of Oakland, the underlying assessments remained valid, and the proceeding did not risk disturbing tax collection or validity at all; it only sought to recover misapplied proceeds from a third party.

By contrast, the Morgan plaintiffs contend that their PACE contracts—and thus the PACE liens tied to assessments—are “void” based on consumer protection statutes and licensing violations. Their requested injunctions and restitution orders would eliminate or suspend the obligation to pay PACE assessments. That is a direct challenge to the validity of the taxes themselves, not merely a collateral dispute over how proceeds were used. Accordingly, the tax-refund procedures apply.

8. Kahan, Hanjin, Hovannisian, and similar assessment cases

To confirm that special assessments collected on the tax roll fall within the tax-refund scheme, the Court cites:

Kahan v. City of Richmond (2019) 35 Cal.App.5th 721, 737:
A case involving special assessment liens for unpaid garbage-collection fees. Because delinquent garbage fees were collected “at the same time and in the same manner” as ad valorem taxes, section 4801 and the refund scheme applied.
Hanjin Internat. Corp. v. Los Angeles County Metropolitan Transportation Authority (2003) 110 Cal.App.4th 1109, 1113:
Applied the statute of limitations for administrative refund claims (section 5097) to a special assessment collected with ad valorem taxes under the Public Utilities Code.
Hovannisian v. City of Fresno (2024) 107 Cal.App.5th 833, 843:
Recognized that other assessments collected “at the same time and in the same manner” as property taxes are treated as taxes for correction and refund purposes.

These decisions support the Court’s conclusion that PACE assessments, expressly collected through the property tax machinery, must be treated as “taxes” for refund purposes.

C. The Court’s Legal Reasoning Applied to PACE and the Morgan Plaintiffs

1. Why PACE assessments are treated as taxes in this context

The Court’s starting point is textual and structural:

Pursuant to Streets & Highways Code section 5898.30 and Government Code section 53340, subdivision (e), PACE assessments are added to property tax bills and collected in the same time and manner as general property taxes.
Revenue and Taxation Code section 4801 expressly includes in “taxes” any “assessments collected at the same time and in the same manner as county taxes” for purposes of correction, cancellation, and refunds.

Therefore, when a homeowner wants to challenge the legality of a PACE assessment, the Legislature has dictated that they must proceed as a taxpayer would in any other property tax dispute—through the tax-refund architecture in Part 9 of Division 1 of the Revenue and Taxation Code.

The Court acknowledges that PACE assessments are exempt from some constitutional assessment procedures (e.g., Proposition 218 notice and protest requirements; see Sts. & Hy. Code, § 5898.31; Gov. Code, § 53753), but emphasizes that those exemptions are limited and do not alter the Legislature’s explicit decision to treat PACE assessments as taxes for collection and refund purposes.

2. Identity of defendants is irrelevant; nature of relief controls

Responding to plaintiffs’ argument that Revenue and Taxation Code section 5140 speaks only of actions “against a county or a city,” the Court holds that this does not open a pathway for UCL suits against private entities that seek the functional equivalent of a tax refund or cancellation.

Section 5140 simply reflects that refund actions must include the governmental entity that actually received and is responsible for the tax revenues. It does not authorize litigants to bypass the statutory scheme altogether by selecting different defendants. Loeffler makes clear that what matters is the nature of the relief sought, not the public or private status of the parties being sued.

3. Why the plaintiffs’ primary UCL remedies are tax challenges

The Court focuses closely on the relief plaintiffs actually requested. Their central remedies include:

Injunctions prohibiting the collection of delinquent PACE assessments;
Orders forcing PACE administrators to “release back” PACE assessment payments to homeowners; and
Conditions that all such relief remain in effect “unless and until” local governments remove the PACE assessments from plaintiffs’ property tax bills.

The Court characterizes these requests as a demand “to cancel property tax obligations and obtain a refund of taxes” already paid, and to bar collection of future installments. That is the core of a tax challenge.

Furthermore, the plaintiffs’ substantive theories assert that the PACE contracts and liens are “void at inception for illegality,” including:

Voidness of security interests taken in seniors’ homes contrary to Civil Code sections 1804.1(j) and 1804.4;
Voidness of contracts that lack required foreclosure warnings under Civil Code section 1803.2; and
Voidness of loans under Financial Code section 22750 due to unlicensed lending.

If these arguments prevail, the PACE assessments and liens—created under the enabling statutes as the repayment mechanism—would collapse. Thus, plaintiffs’ requested injunctions against collection and requests for restitution are not incidental; they are the mechanism by which the asserted voidness of the PACE contracts would be translated into tax relief.

For the same reason, the Court rejects plaintiffs’ attempt to characterize their request as merely stopping Pace administrators from collecting, while leaving local governments free to collect if they wish. The relief, as pleaded, is fundamentally about preventing anyone from collecting PACE assessments that plaintiffs regard as void and about securing return of what has already been paid.

4. Attempts to recharacterize the relief (lien release, unsecured debt)

Plaintiffs suggested that the court might fashion relief that:

Removes or “lifts” the PACE liens from their properties; and
Converts the outstanding PACE obligations into an unsecured debt or purely contractual liability, separate from the tax system.

The Court rejects this as incompatible with the statutory design. Under Streets & Highways Code section 5898.30 and Government Code section 53340, subdivision (h), PACE assessments are expressly created as tax liens that attach to the property and continue “until they are paid.” Disabling the lien and converting obligations into unsecured debts would effectively nullify the legislatively mandated tax structure. Such a remedy still amounts to invalidating the tax, and therefore must proceed via the statutory tax-challenge scheme.

5. Which tax procedures apply: section 1603 vs. sections 5096–5097

Having determined that the plaintiffs’ primary relief is a tax challenge, the Court next clarifies the scope of the exhaustion requirement.

It emphasizes that the usual two-step path (assessment reduction under section 1603 plus refund claim under section 5097), described in Steinhart, is the ordinary rule. But the Court then carefully analyzes whether each step applies to PACE assessment disputes of the kind alleged here.

With respect to section 1603, the Court notes that:

Assessment reductions under Part 3 of Division 1 concern the assessed value of property on the local roll for ad valorem taxes (e.g., full value, comparable sales, cash value);
Statutes governing the local assessment roll (Rev. & Tax. Code, §§ 601–602) do not mention PACE assessments; and
PACE assessments are not valuation-based—they do not depend on market or assessed value, and they are not placed on the roll in the same manner as ad valorem assessments.

Moreover, unlike in Williams & Fickett, there is no statutory signal that consumer-protection-based challenges to PACE assessments have been assigned to assessment appeal boards. Thus, the Court concludes that homeowners seeking to dispute the legality of PACE assessments on grounds such as licensing or senior protections are not required to first file section 1603 assessment-reduction applications.

The Court then turns to sections 5096 and 5097. Because PACE assessments are collected “at the same time and in the same manner” as ad valorem taxes, section 4801 unambiguously includes them in the definition of “taxes” whose correction, cancellation, and refund are governed by Part 9. Thus:

Homeowners must pay the PACE assessments (or, at a minimum, the installments at issue) when due;
Then file refund claims under section 5097 asserting that the assessments were “erroneously or illegally collected” or “illegally assessed or levied” (Rev. & Tax. Code, § 5096, subds. (b), (c)); and
If denied, they may sue the relevant county or city under section 5140.

The Court also rejects the suggestion that local tax authorities lack competence to adjudicate such claims. Boards of supervisors (which act on refund claims under section 5099) are the same bodies that:

Created the PACE programs;
Authorized bond issuances; and
Entered contracts with PACE administrators.

Given this institutional role, it is appropriate to require that challenges to the legality of PACE practices and assessments be presented to those bodies first.

Notably, the Court declines to resolve whether certain exceptions (e.g., futility) or doctrines (e.g., equitable tolling of filing deadlines) might excuse exhaustion or extend time limits for refund claims in specific circumstances. Those questions remain open for future case-by-case development.

6. Policy arguments and the Court’s deference to legislative design

Plaintiffs and supporting amici argued that:

Local governments function largely as pass-through entities for PACE revenue, remitting it quickly to bondholders or private administrators; therefore;
Traditional fiscal-planning justifications for strict tax-refund exclusivity are less compelling in the PACE context; and;
Requiring homeowners, especially low-income seniors, to “pay first” before challenging PACE assessments could be onerous or practically prohibitive.

The Court acknowledges that local governments may retain only modest fees from PACE proceeds and that the usual concern about funding essential services may be somewhat attenuated. However, it identifies several ongoing governmental interests:

Pace assessment funds may be commingled with county funds and used for short-term fiscal operations;
Enjoining foreclosure or collection could undermine the marketability of PACE bonds and local governments’ ability to attract the private capital necessary to sustain PACE programs; and
The Legislature explicitly provided for foreclosure diligence “for the benefit of bondholders” (Sts. & Hy. Code, § 8830, subd. (b); Gov. Code, § 53356.1, subd. (b)), underscoring a policy to protect the tax-like character of PACE collections.

Most importantly, the Court stresses that the Legislature made a deliberate policy choice to integrate PACE into the tax-collection system and to subject PACE assessments to the same refund regime as other property taxes. The judiciary is not free to carve out ad hoc exceptions based on its own judgment of relative fiscal impact. If PACE-related hardship justifies a different balance, that adjustment must come from the Legislature, not the courts.

The Court notes, in a footnote relevant to the “pay first” burden, that foreclosure statutes for PACE-like assessments typically authorize collection of only delinquent installments, interest, and charges due “at the time” foreclosure commences (Sts. & Hy. Code, § 8830, subd. (c)), not acceleration of the entire principal. So, at least some challenges might proceed after paying only installments that have already become due.

D. The Carve-Out for Non–Tax-Related Remedies and the Possibility of Amendment

While the Court affirms that the plaintiffs’ core tax-related remedies are barred absent exhaustion, it rejects the Court of Appeal’s broader conclusion that all claims and requested relief must fail on the same footing.

The key principle: only those claims and remedies that “directly or indirectly challenge a tax” must go through the tax-refund process. Claims that genuinely target only the administration or conduct of private actors, without calling into question the validity or collectability of the PACE assessments themselves, may proceed in court without first invoking tax remedies.

The Court identifies at least one example from the complaint that appears, on its face, to fall into this non-tax category:

An injunction under Business and Professions Code section 7159.2, subdivision (b), requiring PACE administrators to issue joint checks to both the homeowner and the contractor for future PACE-financed improvements.

This kind of remedy:

Does not seek cancellation or refund of any existing PACE assessments;
Does not invalidate any existing liens; and
Regulates only the manner in which future funds will be disbursed as part of PACE transactions.

The Court holds that, although these claims may arise from the “same legal theories” and “same operative facts” as the tax-related claims, that alone does not justify dismissing them with prejudice. Instead, the appropriate approach is:

Recognize that the demurrer was properly sustained as to claims and remedies that function as tax challenges; but
Give plaintiffs an opportunity to amend to assert only those UCL theories and remedies that do not seek to invalidate, refund, or enjoin collection of PACE assessments.

The scope and viability of such amended claims will be for the trial court to evaluate on remand. The Supreme Court does not guarantee that any particular non-tax theory will survive; it merely holds that plaintiffs should not be categorically barred from attempting to reframe their complaint within the constraints of the tax-challenge doctrine.

V. Clarifying Key Legal Concepts

A. What Counts as a “Tax Challenge”?

A “tax challenge” in this context is not limited to a complaint that says “this tax is illegal” or names the county as the defendant. Instead, the Court looks at the practical effect of the relief sought. It is a tax challenge if:

The plaintiff seeks to have a tax or tax-like assessment cancelled or declared void;
The plaintiff seeks repayment or “restitution” of monies that were paid as taxes or tax-like assessments; or
The plaintiff seeks an injunction that would stop or materially interfere with the government’s ability (or legal obligation) to collect the tax or enforce tax liens.

Even if the claim is stylized as a UCL or consumer protection action, the Court evaluates whether its success would effectively reduce, eliminate, or block tax liability. If it would, then it is treated as a tax challenge.

B. “Pay First, Litigate Later” Explained

“Pay first, litigate later” means:

You must pay the tax (or the disputed installment) up front when it is due.
Only afterward may you pursue remedies to recover what you claim was illegally assessed or collected.

This rule ensures the uninterrupted flow of tax revenue, while still allowing taxpayers to challenge illegal or erroneous taxes—but through a controlled, post-payment refund process that the Legislature has crafted.

C. Exhaustion of Administrative Remedies in Tax Cases

“Exhaustion of administrative remedies” is a general doctrine holding that, where a statute provides a specific administrative procedure for resolving a dispute, a party usually must complete that procedure before asking a court to intervene.

In property tax disputes, this typically requires:

Using any applicable assessment appeals processes (e.g., valuation disputes under section 1603); and
Filing a refund claim with the county (e.g., under section 5097) before filing a lawsuit.

In Morgan, the Court holds that only the refund-claim step is required for this type of PACE challenge; the valuation-focused assessment appeal procedures are not implicated.

D. Assessment Appeals vs. Refund Claims

It is crucial to distinguish:

Assessment Appeals (Rev. & Tax. Code, § 1603 et seq.)
These are primarily about how much your property is worth (and thus the amount of ad valorem tax). They involve technical valuation disputes (market value, comparables, etc.) and are addressed by county boards of equalization or assessment appeals boards.
Refund Claims (Rev. & Tax. Code, §§ 5096–5097)
These address situations where a tax (or tax-like assessment) was “erroneously or illegally collected” or “illegally assessed or levied” for reasons that may include legal, constitutional, or procedural defects. They are typically decided by the board of supervisors (or city council).

Because PACE assessments are not part of property valuation and are statutorily separated from the local roll, Morgan holds that assessment appeals are not required for this kind of claim. Refund claims, however, are required because the PACE assessments fall squarely within the section 4801 definition of “taxes” for purposes of correction and refund.

E. PACE Assessments as a Hybrid Creature

PACE financing illustrates a hybrid structure:

From a homeowner’s perspective, it looks like a long-term loan for home improvement.
From the local government’s perspective, it is financed via municipal bonds and repaid through tax-like assessments secured by liens on the property.
By statute, the repayment mechanism is integrated into the property tax system.

Morgan confirms that for tax challenge purposes, the latter perspective controls: when the obligation is embodied in an assessment collected on the tax roll and secured by a tax lien, the challenge to that obligation is a tax challenge.

F. The Unfair Competition Law (UCL) and “Borrowed” Violations

The UCL (Bus. & Prof. Code, § 17200 et seq.) allows plaintiffs to challenge “unlawful, unfair, or fraudulent” business acts or practices. Under its “unlawful” prong, the UCL “borrows” violations of other statutes and makes them independently actionable as unfair competition.

In Morgan, plaintiffs use the UCL to aggregate alleged violations of:

Civil Code provisions protecting seniors from certain secured home improvement contracts;
California Financing Law licensing provisions; and
Home improvement contract joint-check rules.

The Court does not cast doubt on UCL’s ability, in general, to borrow these statutes. Instead, it holds that where the remedy sought under the UCL would effectively invalidate or refund taxes, UCL must give way to the exclusive tax-refund procedures. Conversely, UCL may still be used to seek purely regulatory or prospective relief in areas not touching the tax obligation itself.

VI. Likely Impact and Broader Significance

A. Implications for PACE Borrowers and Consumer Advocates

For homeowners who believe they were inappropriately drawn into PACE transactions, Morgan has several practical consequences:

Limited ability to wipe out PACE obligations through UCL class actions.
Plaintiffs cannot use the UCL (or similar civil actions) to obtain court orders that cancel or refund PACE assessments without first going through the tax refund mechanism. Class-wide UCL relief targeting the assessments themselves is therefore heavily constrained.
Necessity of tax refund procedures.
A homeowner who wants to challenge the legality of their PACE assessment must:
1. Pay the challenged PACE installments;
2. File timely refund claims with the county under section 5097, setting forth detailed grounds (e.g., unlawful lien under the Civil Code, unlicensed lending); and
3. If denied, pursue a refund action in superior court against the appropriate local government under section 5140.
Deadlines and procedural complexity.
Section 5097 generally allows four years from payment to file a refund claim—more generous than the shorter filing window for assessment appeals. Nonetheless, navigating these procedures will require careful legal guidance, particularly where multiple years of PACE installments are at issue.
Residual room for consumer protection and regulatory litigation.
Plaintiffs and public interest organizations can still bring UCL or other actions that seek:
- Prospective injunctions regulating how PACE administrators conduct future transactions (disclosures, underwriting, contractor payment practices); and
- Declaratory relief about licensing and compliance status, so long as the relief does not invalidate existing assessments or liens.

B. Consequences for PACE Administrators and Local Governments

For private PACE administrators and local governments:

Greater protection against direct civil attacks on existing PACE assessments.
The decision strengthens the shield of the tax-refund framework around PACE revenue streams. Administrators and bond-holders benefit indirectly from the requirement that any challenge to the assessments themselves proceeds through structured county refund processes.
Administrative burden shifts to counties.
Counties (boards of supervisors) must be prepared to adjudicate potentially complex refund claims involving consumer protection and finance-law theories about PACE. They may need to develop expertise and policies for handling such claims consistently.
Incentive to ensure PACE program compliance and oversight.
Because counties ultimately own the tax-collection mechanisms and are responsible for refund decisions, they have strong incentives to monitor the legality of PACE administrators’ practices to minimize refund exposure.

C. Broader Effects on Private Actors Linked to Tax Mechanisms

Morgan also has implications beyond PACE:

Any private entity that administers programs funded through special assessments or charges collected on tax bills (e.g., garbage fees, transit assessments, local improvement districts) is likely to benefit from similar protections: suits seeking to cancel, refund, or restrain collection of those charges must go through tax-refund procedures, not direct civil litigation.
Consumer and taxpayer advocates must carefully structure litigation strategies, possibly pursuing:
- Tax refund claims and actions to address past collections; and
- Separate UCL or regulatory suits targeted at ongoing conduct and future transactions.

D. Doctrinal Clarification in California Tax Law

Doctrinally, Morgan:

Clarifies the scope of the “tax challenge” concept.
The decision reinforces that courts will look to the functional effect of relief, not labels or defendant identities, to determine whether a tax challenge is at issue.
Refines the relationship between assessment appeals and refund claims.
It confirms that not every property-related dispute on a tax bill requires an assessment appeal under section 1603. Where the issue is not valuation, and no statute channels the dispute into the assessment appeals process, a refund claim alone may suffice.
Reinforces the centrality of section 4801’s definition of “taxes.”
Any assessment or charge statutorily collected “at the same time and in the same manner” as property taxes will likely be treated as a “tax” for refund purposes, with corresponding exclusivity of remedy.

VII. Conclusion

Morgan v. Ygrene Energy Fund, Inc. offers a comprehensive and carefully calibrated ruling at the intersection of tax law, municipal finance, and consumer protection.

On one hand, the Court firmly applies California’s constitutional and statutory tax-challenge regime to PACE assessments. Because the Legislature explicitly integrated PACE obligations into the property tax system and defined “taxes” broadly in section 4801, taxpayers who seek to invalidate, refund, or enjoin PACE assessments must proceed by “paying first and litigating later” through section 5097 refund claims and, if needed, section 5140 refund actions against local governments. Clever use of the UCL or the choice to sue private administrators cannot alter this fundamental requirement.

On the other hand, the Court preserves a meaningful role for consumer protection and regulatory litigation. Plaintiffs can still pursue UCL and related claims against PACE administrators where the remedies sought are genuinely non-tax in nature—regulating future practices, enforcing licensing obligations, or requiring specific contractual formats—so long as they do not attack the validity of existing PACE assessments or liens. By remanding to permit amendment, the Court underscores that pleading and remedial tailoring matter: litigants who wish to avoid tax-challenge procedures must frame their claims and remedies so as not to disturb tax obligations.

In short, Morgan establishes an important precedent for how courts will treat hybrid arrangements where private financing is repaid through public tax mechanisms. It affirms the Legislature’s prerogative to route disputes over such obligations through the tax-refund machinery, while still allowing room for robust enforcement of consumer and finance laws in ways that do not impinge on the tax base itself.