Berryessa Cattle Co. v. Sunset Pacific Oil Co., 8182.

• Decision Date: 18 January 1937
• Docket Number: No. 8182.,8182.
• Citation: 87 F.2d 972
• Parties: BERRYESSA CATTLE CO. v. SUNSET PACIFIC OIL CO. SUNSET OIL CO. v. STATE OF CALIFORNIA et al.
• Court: U.S. Court of Appeals — Ninth Circuit

87 F.2d 972 (1937)

BERRYESSA CATTLE CO. v. SUNSET PACIFIC OIL CO.

SUNSET OIL CO. v. STATE OF CALIFORNIA et al.

No. 8182.

Circuit Court of Appeals, Ninth Circuit.

January 18, 1937.

Mitchell, Silberberg & Knupp and Ross R. Hastings, all of Los Angeles, Cal., for appellant.

U. S. Webb, Atty. Gen., and John O. Palstine, Deputy Atty. Gen., for appellees.

Before WILBUR, GARRECHT, and HANEY, Circuit Judges.

WILBUR, Circuit Judge.

The property of the Sunset Pacific Oil Company was in the hands of a receiver appointed August 28, 1931, by the District Court of the United States for the Southern District of California in a creditors' bill, and also in a suit to foreclose a trust deed.

The Sunset Pacific Oil Company was engaged in the business of producing oil and through a subsidiary, the Seaboard Petroleum Company, a corporation, operated an oil refinery. On December 24, 1931, the Controller of the State of California, acting on behalf of the estate, filed a claim for taxes which had accrued prior to the receivership, amounting with penalties to $6,519.27 upon gasoline produced by the Sunset Pacific Oil Company. This tax was for the quarter ending March 31, 1931. The total tax due at that time was $51,021.72. The corporation paid $45,095.11 and declined to pay the balance of the tax, $5,926.61. By reason of the nonpayment of this portion of the tax a 10 per cent. penalty attached on May 15, 1931. The refusal to pay this portion of the tax concededly due is based upon the contention that the Sunset Pacific Oil Company had theretofore paid $5,926.61 upon gasoline produced between September 1, 1929, and January 7, 1930, being the tax upon 197,322 gallons of gasoline in excess of the amount of gasoline actually produced.

The error of 197,322 gallons arose from the fact that the account between the Sunset Pacific Oil Company and its subsidiaries involving the sale of crude petroleum to the subsidiary provided for the refining of the oil by the subsidiary and the payment therefor to the Sunset Pacific Oil Company, that in the accounting between the two affiliated corporations the transactions were carried on the books on the basis of the computation of the gasoline content of the oil before it was refined, spoken of in the findings of the special master as "the theoretical gasoline content." It was discovered in January, 1930, that the gasoline on hand was short of the amount demanded by the books of the two companies in the amount of 197,322 gallons. It is assumed by the parties in the presentation of the case on appeal that this difference between the gallons of gasoline on hand and the gasoline as shown by the books based upon the theoretical content of the crude oil was not produced, and therefore the appellant contends that the tax imposed upon that amount of gasoline was erroneous in that no such gasoline was ever produced. The tax on this amount of gasoline was included in three accounting periods as follows: As to the deficiency from September 1, 1929, to September 30, 1929, in the third quarter of 1929; as to the deficiency from October 1, 1929, to December 31, 1929, in the fourth quarter of 1929; as to the deficiency from January 1, 1930, to January 7, 1930, in the first quarter of 1930. The taxes paid during these periods were very large. For instance the tax for the quarter ending December 31, 1929, was $395,811.71, and for the previous quarter, $358,457.77; for the quarter ending March 31, 1930, $325,116.86.

The appellees contend that there is no right to set-off in this case because the exercise of such a right is inconsistent with the right of a sovereign state not to be sued without its consent. The Motor Vehicle Act under which the tax was levied contains the following provision: "All matters of procedure relating to refunds of taxes or the cancellation of any assessment levied under the provisions of this act shall be governed by the provision of section three thousand six hundred sixty-nine of the Political Code." Cal.St.1925, p. 661. Section 3669 of the California Political Code is shown in footnote.¹

The Supreme Court of California in People v. Miles, 56 Cal. 401, stated the general rule with reference to the allowance of set-off against the state, as follows: "It would seem to be hardly necessary to cite authorities to the proposition, that a State cannot be sued in her own State, directly or indirectly, as by setting up a counterclaim or set-off; nor can any judgment be recovered against the State, except when the same is permitted by express statute."

The first question for consideration is whether or not the state has authorized a suit to be brought against it to recover a tax illegally and erroneously collected. The burden lies upon the parties suing the state to show that such a suit has been authorized by the state. The appellant points to section 3669, subd. 3, of the Political Code, as authorizing a suit to recover motor vehicle fuel taxes erroneously or illegally collected because of the provision of the Motor Vehicle Act making such section applicable to refunds or cancellation of assessments under the Motor Vehicle Act. This section does not purport to authorize a suit against the state to recover taxes erroneously or illegally collected, but provides an administrative method for securing a set-off. Unless the recognition of the substantive right of the taxpayer to have the benefit of such payment as a set-off against subsequent taxes implies a right to bring a suit for such recovery in the event that the claim is disallowed by the state officers no provision of law has been cited by the appellant which authorizes the court to entertain the claim for set-off. The rule is that authority to sue must be expressly given. It is therefore not to be inferred from a mere recognition of substantive right to be established by administrative procedure that authority, has been given to sue. The Supreme Court of California had under consideration the right to sue the state to recover license taxes which had been collected under an unconstitutional law. The Supreme Court held that the right of recovery in such a case arose from an implied contract to be recovered in an action indebitatus assumpsit and that such an action was expressly authorized by an act of the California Legislature of February 28, 1893 (Cal.St.1893, p. 57). Welsbach Co. v. State of California, 206 Cal. 556, 275 P. 436. This decision, and its companion case, Whyte v. Jordan, 206 Cal. 552, 275 P. 438, was rendered February 26, 1929. The Legislature of the State of California was then in session and immediately passed an act, approved May 27, 1929, repealing the act of February 28, 1893 (Session Laws of Cal.1929, c. 516, p. 890), which had been held to authorize a suit against the state. By the same act it provided for the method of ascertaining and paying claims against the state, adding sections 686 to 692, inclusive, to the Political Code. None of these sections authorizes a claim against the state upon...