Cedars of Lebanon Hospital v. Los Angeles County

• Decision Date: 18 August 1950
• Citation: 35 Cal.2d 729,221 P.2d 31
• Court: California Supreme Court
• Parties: , 15 A.L.R.2d 1045 CEDARS OF LEBANON HOSPITAL v. LOS ANGELES COUNTY et al. (and five other cases). L. A. 20610, L. A. 20611, L. A. 20613 to L. A. 20616.

Page 31

221 P.2d 31

35 Cal.2d 729, 15 A.L.R.2d 1045

CEDARS OF LEBANON HOSPITAL v. LOS ANGELES COUNTY et al. (and five other cases).

L. A. 20610, L. A. 20611, L. A. 20613 to L. A. 20616.

Supreme Court of California, in Bank.

Aug. 18, 1950.

Harold W. Kennedy, County Counsel, Andrew O. Porter, Deputy County Counsel, Ray L. Chesebro, City Attorney, Hugh H. MacDonald and Louis A. Babior, Deputy City Attorneys, all of Los Angeles, for appellants.

Faries & McDowell, Wayne R. Hackett, Musick, Burrell & Ingebretsen, Philip C. Jones, James E. Ludlam, Leonard G. Ratner, Beverly Hills, Joseph Scott, J. Howard Ziemann, Gibson, Dunn & Crutcher, Bert A. Lewis, all of Los Angeles, for respondents.

SPENCE, Justice.

These are appeals by both plaintiffs and defendants from judgments entered after rulings on demurrers in six separate actions, each of which was brought by one of plaintiff hospitals to recover certain taxes and assessments paid under protest in view of the recently enacted welfare exemption. Cal.Const. art. XIII, § 1c; Rev. & Tax.Code, § 214.

The California welfare exemption was operative for the first time in the tax year 1946-1947, and each of the plaintiffs duly filed its exemption claim. Rev. & Tax.Code, §§ 254, 254.5. Such exemption was granted by the taxing authorities in each case as to 90 to 95 per cent of the property of the respective hospitals, but denied as to the remaining 5 to 10 per cent on the ground that such portions were not being used for exempt purposes. Accordingly, a tax was levied upon such unexempted portions and, in addition, a Los Angeles County Flood Control District assessment was made in every case against all of the respective hospitals' real property. The hospitals paid the taxes and assessments under protest, and then commenced these actions to recover such portions of those payments as the respective plaintiffs deemed contrary to the provisions of the welfare exemption law. The complaint in each case was divided into several causes of action, each of which causes presented a phase of the numerous points in dispute. A general demurrer as to each cause of action was filed in each case, and all of the cases were consolidated for the purpose of hearing.

The major portion of the property which plaintiffs claimed to be tax exempt, despite the adverse rulings of the taxing authorities, was that devoted to the housing of essential hospital personnel and to the conduct of nurses' training schools operated in connection with the hospital. The trial court agreed with plaintiffs' contentions as to these matters and overruled defendants' demurrer to the causes of action relating to the hospital property as thus used by plaintiffs. Likewise the trial court sustained the contentions of those plaintiffs herein who sought exemption of their real property from the flood control district assessments, and overruled the demurrer to the causes of action so premised. From the portions of the judgments entered in accordance with these rulings, defendants have appealed.

The following pieces of hospital property, however, were not deemed to be tax exempt by the trial court, and it sustained demurrers without leave to amend as to the causes of action relating thereto: buildings under construction to furnish housing for student nurses (counts two and four of the complaint in action L.A. No. 20615, involving the Hollywood Presbyterian Hospital); a tennis court maintained as a recreational facility for hospital employees, and a 'thrift shop' operated for the sale of donated clothing, with the proceeds therefrom devoted to the unkeep of a free children's clinic (counts four and seven of the complaint in action L.A. No. 20616, involving plaintiff Lutheran Hospital Society of Southern California). Plaintiffs have filed appeals from the portions of the judgments accordingly entered. Also sustained without leave to amend was the demurrer to the fourth, sixth and eighth causes of action of plaintiff Monte Sano Foundation (action L.A. No. 20614) relating to portions of a building leased for use as an X-ray laboratory or doctor's office, but said plaintiff has not filed an appeal from such adverse rulings.

Defendants do not dispute the status of any of these plaintiffs as an institution qualifying for the welfare exemption, so that the parties' opposing arguments center on these two main considerations: (1) the particular uses to which certain portions of the hospital property were put as determining the status exempt or non-exempt of such portions; and (2) the extension of the claimed exemption to include flood control district assessments levied on the real property of the several hospitals. Upon an analysis of the welfare exemption law, it appears (1) that except for its rulings on the tax status of the tennis court, the trial court was correct in its allowance or disallowance of exemption claims as to the several plaintiffs' tax payments, but (2) that it erred construing the tax exemption to embrace the assessment levies.

Adopted at the general election of November 7, 1944, the relevant constitutional provision article XIII, § 1c reads as follows: 'In addition to such exemptions as are now provided in this Constitution, the Legislature may exempt from taxation all or any portion of property used exclusively for religious, hospital or charitable purposes and owned by community chests, funds, foundations or corporations organized and operated for religious, hospital or charitable purposes, not conducted for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.'

Pursuant to the authority thus granted, the legislature in 1945 enacted § 214 of the Revenue and Taxation Code, providing as follows:

'Property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations or corporations organized and operated for religious, hospital, scientific, or charitable purposes is exempt from taxation if:

'(1) The owner is not organized or operated for profit;

'(2) No part of the net earnings of the owner inures to the benefit of any private shareholder or individual;

'(3) The property is not used or operated by the owner or by any other person for profit regardless of the purposes to which the profit is devoted;

'(4) The property is not used or operated by the owner or by any other person so as to benefit any officer, trustee, director, shareholder, member, employee, contributor, or bondholder of the owner or operator, or any other person, through the distribution of profits, payment of excessive charges or compensations or the more advantageous pursuit of their business or profession;

'(5) The property is not used by the owner or members thereof for fraternal or lodge purposes, or for social club purposes except where such use is clearly incidental to a primary religious, hospital, scientific, or charitable purpose;

'(6) The property is irrevocably dedicated to religious, charitable, scientific, or hospital purposes and upon the liquidation, dissolution or abandonment of the owner will not inure to the benefit of any private person except a fund, foundation or corporation organized and operated for religious, hospital, scientific, or charitable purposes. * * *

'The exemption provided for herein shall be known as the 'welfare exemption.' This exemption shall be in addition to any other exemption now provided by law. This section shall not be construed to enlarge the college exemption or to extend an exemption to property held by or used as an educational institution of less than collegiate grade.' Stats. 1945, ch. 241, § 1.

Constitutional provisions and statutes granting exemption from taxation are strictly construed to the end that such concession will be neither enlarged nor extended beyond the plain meaning of the language employed. Cypress Lawn Cemetery Association v. City and County of San Francisco, 211 Cal. 387, 390, 295 P. 813; City and County of San Francisco v. San Mateo County, 17 Cal.2d 814, 817, 112 P.2d 595. In this regard, it is immaterial that the institutions in question may contribute to the public welfare and serve the interests of the state, for they, like other private owners of property, have the burden of showing that they clearly come within the terms of the exemption. 51 Am.Jur. § 633, p. 606; Corporation of Sisters of Mercy v. Lane County, 123 Or. 144, 261 P. 694, 697. This rule has been expressly recognized in this state in the application of the orphanage exemption. Cal.Const. art. XIII, § 1 1/2a; Helping Hand Home v. San Diego County, 26 Cal.App.2d 452, 458-459, 79 P.2d 778. Such rule of strict construction governing property tax exemptions is distinguished from the rule of liberal construction applying in the determination of exemption qualifications under social security and unemployment compensation acts. Scripps Memorial Hospital v. California Employment Comm., 24 Cal.2d 669, 676-677, 151 P.2d 109, 155 A.L.R. 360; Seaside Memorial Hospital v. California Employment Comm., 24 Cal.2d 681, 682, 151 P.2d 116. Exemption provisions in statutes of the latter character will be liberally construed so as to effectuate their beneficent purpose to encourage and promote organizations seeking classification within the broad scope of the statutory language. 61 C.J. § 396, p. 394; see Santa Fe Lodge No. 460 v. Employment Security Comm., 49 N.M. 149, 159 P.2d 312, 314-315. This is not, however, the rule to be applied where exemption is claimed from general property taxation as provided in our State Constitution. Art. XIII, § 1; Watchtower Bible & Tract Soc., Inc. v. County of Los Angeles, 30 Cal.2d 426, 429, 182 P.2d 178.

But the rule of strict construction does not require that the narrowest possible meaning be given to words descriptive of the exemption, for a fair and reasonable interpretation must be made of all laws, with due regard for the ordinary...