Carman v. Alvord

Decision Date10 May 1982
Citation644 P.2d 192,182 Cal.Rptr. 506,31 Cal.3d 318
CourtCalifornia Supreme Court
Parties, 644 P.2d 192, 3 Employee Benefits Cas. 1523 Richard M. CARMAN, Plaintiff and Appellant, v. H. B. ALVORD, as Tax Collector, etc., et al., Defendants and Respondents. L.A. 31516.

David Daar, Miller & Daar, Edwin Sobel, Beverly Hills, for plaintiff and appellant.

Graham A. Ritchie, City Atty., Los Angeles, for defendants and respondents.

NEWMAN, Justice.

Richard Carman, a landowner in San Gabriel (City), appeals from a judgment of dismissal after the demurrer to his third amended complaint for refund of 1978-1979 We conclude that the tax is permitted by section 1 of article XIII A, which provides: "(a) The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property.... [p] (b) The limitation provided for in subdivision (a) shall not apply to ad valorem taxes or special assessments to pay the interest and redemption charges on any indebtedness approved by the voters prior to the time this section becomes effective."

taxes was sustained without leave to amend. The issue is whether article XIII A of the State Constitution (the four-year-old Proposition 13) permits levy of an ad valorem tax in excess of the 1-percent-of-value limit, in order to meet City's obligations to the Public Employees' Retirement System (PERS).

In 1948 local electors approved a ballot measure authorizing City to join the State Employees' Retirement System (now PERS). (See Gov.Code, §§ 20000 et seq., 20450. 1 ) The City was empowered to "levy and collect annually, as contemplated in [the statewide statute], a special tax sufficient to raise the amount estimated by [the City] Council to be required to meet the obligations of said City to said retirement system." 2 City exercised the authority, contracted with PERS, and began collecting annual taxes to fund its contributions.

In June 1978 Californians added article XIII A to the Constitution. Its ceiling on ad valorem property taxes (§ 1, subd. (a), supra) became effective on July 1, 1978 (see § 5).

In September 1978 the council determined that the amount due PERS for that fiscal year was $450,619 and that the total assessed value of taxable real property was $93,879,005. It therefore levied a special 1978-1979 tax of 48 cents per $100 of assessed value to defray its PERS obligation.

In June 1979 plaintiff brought a class action for himself and all other City property taxpayers. He alleged that the PERS tax violated article XIII A because it exceeded the 1 percent limit. He requested a refund, an injunction against further levy and collection, and declaratory relief. City demurred, arguing that class actions for tax refunds are improper. The court sustained the demurrer and struck plaintiff's claim for class relief. He appealed (his first appeal).

While the appeal was pending, he filed amended complaints, the third of which included a count for class relief expressly designed to preserve that issue if it were won on appeal. City then demurred generally. Its memorandum of points and authorities argued that the class allegations had been disposed of, except for appeal, and that counts for injunctive and declaratory relief are improper in tax cases. In February 1980 the court sustained the demurrer without leave to amend, "as to all 3 causes of action pursuant to C.C.P. 430.10e [facts insufficient to state cause of action] and on all grounds raised in defendants Points and Authorities." The action was dismissed and plaintiff again appealed (the current appeal).

In June 1980, the Court of Appeal decided the first appeal, concluding that class tax-refund suits are permissible. Plaintiff's opening brief in the current appeal urged that ruling as "law of the case" and disclaimed intent to pursue the injunction and declaratory relief counts. Hence, he asserted, the grounds for demurrer accepted by the trial court no longer existed; and the judgment of dismissal should be reversed.

City's responsive brief raised the Proposition 13 issue for the first time. In effect

City conceded that earlier arguments for dismissal no longer applied. It argued nonetheless that the third amended complaint stated no claim because the challenged tax was authorized by section 1 of article XIII A. In reply plaintiff agreed that the legality of the tax was at issue, and he joined City in requesting a ruling on the requirements of Proposition 13.


A judgment of dismissal after a demurrer has been sustained without leave to amend will be affirmed if proper on any grounds stated in the demurrer, whether or not the court acted on that ground. (See E. L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 504 and fn. 2, 146 Cal.Rptr. 614, 579 P.2d 505; Weinstock v. Eissler (1964) 224 Cal.App.2d 212, 225, 36 Cal.Rptr. 537.) A general demurrer searches the complaint for all defects going to the existence of a cause of action and places at issue the legal merits of the action on assumed facts. (See Banerian v. O'Malley (1974) 42 Cal.App.3d 604, 610-611, 116 Cal.Rptr. 919; 3 Witkin, Cal.Procedure (2d ed. 1971) Pleadings, § 802, p. 2415.) The court here sustained the demurrer on the ground, among others, that the third amended complaint "does not state facts sufficient to constitute a cause of action." (Code Civ.Proc., § 430.10, subd. (e); see also § 472d.)

Further, the rule that on appeal a litigant may not argue theories for the first time does not apply to pure questions of law. (Ward v. Taggart (1959) 51 Cal.2d 736, 742, 336 P.2d 534.) All parties and numerous amici urge that we resolve the Proposition 13 issue. 3 We conclude that the merits of that question are properly before us.


Subdivision (b) of article XIII A, section 1, provides, "The [1 percent] limitation ... shall not apply to ad valorem taxes or special assessments to pay the interest and redemption charges on any indebtedness approved by the voters prior to the time this section becomes effective." (Italics added.) City and amici contend that its PERS levy is within the exemption.

Plaintiff argues that the 1978-1979 payment owed PERS was not a prior "indebtedness approved by the voters" because the charge arises each year, is "annually executory," and may be terminated by City at will. (See § 20560 et seq.) He notes that, if on termination the employer fails to pay unfunded amounts due PERS, employees' benefits simply are reduced accordingly (§ 20564).

The contention has two prongs: first, that within the meaning of subdivision (b) no true indebtedness ever arises under a PERS contract; second, that no annual contribution assessed after the article XIII A limit became effective can meet the requirement of prior voter approval. Both prongs involve the premise that article XIII A seeks to exempt only traditional, fixed, long-term debt for borrowed funds.

What plaintiff's theory ignores is the employer's duty to employees to pay pensions promised and earned. By entering public service an employee obtains a vested contractual right to earn a pension on terms substantially equivalent to those then offered by the employer. (See, e.g., Olson v. Cory (1980) 27 Cal.3d 532, 540-541, 164 Cal.Rptr. 217, 609 P.2d 991; Betts v. Board of Administration (1978) 21 Cal.3d 859, 863-864, 148 Cal.Rptr. 158, 582 P.2d 614; Kern Theoretically, the employer can provide for the indebtedness in varying ways. It can pay obligations from current revenue as they accrue, or it can insure them through PERS (§ 20000 et seq.) or by other means (§ 45300 et seq.). Contributions to PERS are in the nature of insurance premiums (§ 20456); during the contract term they represent the employer's ongoing share of the actuarial equivalent of amounts necessary to fund current and future benefits due covered employees, statewide. (See, e.g., §§ 20564, 20750 et seq.) From premiums paid by all, PERS discharges each employer's indebtedness as it arises. (§ 21200 et seq.)

                v. City of Long Beach (1947) 29 Cal.2d 848, 852-853, 179 P.2d 799.)   On the employee's retirement after he has fulfilled pension conditions an immediate obligation arises to pay benefits earned.  Earned benefits are deferred compensation (Olson, supra, at p. 540, 164 Cal.Rptr. 217, 609 P.2d 991) and, [644 P.2d 196] when payable, become a fixed indebtedness of the employer. 4

City's voters empowered it to offer the pension plan provided by PERS. They authorized the special tax set by statute insofar as necessary to fund the obligations. (Former § 20532.) 5 Necessarily they approved all indebtedness to employees, current and future, that would be incurred. (Cf. fn. 11, post.) Contributions to PERS are an efficient means of discharging City's pension debts; the debts, as approved by the voters, continue to accrue regardless of participation in the state system. 6

"The term 'indebtedness' has no rigid or fixed meaning, but rather must be construed in every case in accord with its context." (County of Shasta v. County of Trinity (1980) 106 Cal.App.3d 30, 38, 165 Plaintiff and taxpayers argue that subdivision (b) limits the kinds of indebtedness exempted, since it applies only to "interest and redemption charges." Interest routinely is defined as compensation for the use or forbearance of money. (E.g., Civ.Code, § 1915.) Redemption often means "the act of buying back or repurchasing"; it may connote "a change of interest in the thing to be redeemed," implying that "there is something to be redeemed, 'something lost to be gotten back.' [Citation]" (Stafford v. Realty Bond Service Corp. (1952) 39 Cal.2d 797, 802-803, 249 P.2d 241.) Usually it suggests repurchase or retrieval of a security--whether evidence of indebtedness or tangible or intangible property--by paying...

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