City of Los Angeles v. California Towel & Linen Supply Co.

• Court: California Court of Appeals
• Writing for the Court: FOURT; WOOD, P. J., and LILLIE
• Citation: City of Los Angeles v. California Towel & Linen Supply Co., 31 Cal.Rptr. 832, 217 Cal.App.2d 410 (Cal. App. 1963)
• Decision Date: 20 June 1963
• Parties: The CITY OF LOS ANGELES, a municipal corporation, Plaintiff and Respondent, v. CALIFORNIA TOWEL & LINEN SUPPLY CO., a partnership, J. E. Wilkinson, F. J. Wilkinson and H. S. Wilkinson, Defendants and Appellants. Civ. 26973.

Page 832

31 Cal.Rptr. 832

217 Cal.App.2d 410

The CITY OF LOS ANGELES, a municipal corporation, Plaintiff and Respondent, v. CALIFORNIA TOWEL & LINEN SUPPLY CO., a partnership, J. E. Wilkinson, F. J. Wilkinson and H. S. Wilkinson, Defendants and Appellants.

Civ. 26973.

District Court of Appeal, Second District, Division 1, California.

June 20, 1963.

Greenbaum, Baker & Ancel, by Mark G. Ancel, Los Angeles, for appellants.

Rober Arnebergh, City Atty., Bourke Jones, James A. Doherty, Asst. City Attys., Robert C. Summers, Deputy City Atty., for respondent.

FOURT, Justice.

This is an appeal by defendants from a judgment on the pleadings rendered against them upon the grounds that their second amended verified answer does not state facts sufficient to constitute a defense to the complaint.

The complaint set forth among other things that the action was brought pursuant to the provision of the Los Angeles Municipal Code (hereinafter referred to as the 'code') relating to the imposition and collection of municipal license taxes. The provisions of section 21.102 of the code with reference to laundry operators were alleged. ¹ And further, that during the years in question, namely 1956 to 1960, inclusive, the defendants were doing the kinds of business described in section 21.102 of the code, but that no part of the sums due, namely $562.03 (including interest and penalties) had been paid. It was also set forth that on November 16, 1960, the clerk of the city levied an assessment ² for the unpaid business taxes against the defendants under authority of section 21.16 of the code. ³ A hearing on the assessment was requested by the defendants and the same was held on March 29, 1961, and on April 7, 1961, the Board of Review made its findings, ⁴ that no exceptions to the findings were filed by the defendants pursuant to the code or otherwise.

The defendants first demurred to the complaint and upon being overruled, filed an unverified answer. A motion to strike the answer was granted. A verified first amended answer was filed and ultimately a verified second amended answer (sometimes hereinafter referred to as the 'answer') was filed.

The appellants specifically allege in their answer that they did engage within the city in the linen supply business (subject to the tax) but assert that a portion of the gross receipts of their business came from outside of the city and therefore deny that they owe the city for the business taxes. By way of affirmative defenses the defendants allege that the city is attempting to levy taxes upon letting of the use of the linens to persons located outside of the city and that such a course is unconstitutional; that the city is estopped to claim that the defendants are engaged in business as a laundry operator because some assistant city attorney in a letter to the city clerk with reference to a different entity had recited that they were a linen supply house, and further that they were not required to exhaust their administrative remedies because the board had prejudged their case and they could have paid the tax and sued for a refund.

A motion for judgment on the pleadings was made by plaintiff and the court granted the same. This appeal followed.

On such an appeal this court will limit the scope of its inquiry to the issue of whether the answer does state a defense to the complaint. As a consequence various declarations of appellants not set forth in the answer will not be considered. See Anglo California Trust Company v. Kelley, 117 Cal.App. 692, 693, 4 P.2d 604; Dias v. California Employment Stabilization Commission, 113 Cal.App.2d 374, 376, 248 P.2d 427; Calif. Civil Procedure Before Trial--Continuing Education of Bar, page 834.

At the outset of considering the issues here involved it is to be particularly noted that this is not an action for a tax refund and as a consequence it would seem that the language used in the tax refund statutes generally to the effect that a taxpayer does not need to exhaust his administrative remedies will not apply in this particular case.

It should also be noted that section 21.102 of the code provides for the taxing of the business of washing or ironing linen, etc., and of the business of furnishing or letting the use of linens, etc. Both operations pay the same tax. The defendants affirmatively allege that they did engage in business within the city. It is uncontroverted that the appellants' laundry plant is located within the city and the record discloses in a document made a part of the findings of the board (which was admitted by appellants) that 'The companies concede, at the outset, that the city has jurisdiction to tax, by reason of the business domiciles being within the city, regular solicitation and sales conducted within the city and laundry facilities located within the city.'

It is of necessity admitted by the defendants in this case that they deliberately did not exhaust their administrative remedies to secure any correction of the assessment made.

The code provides as heretofore set forth an administrative review procedure for persons in the category of defendants. The board of review is composed of a representative of the controller, the city clerk and the city attorney and it is charged with considering all of the evidence and increasing or decreasing the assessment as the evidence may dictate. Written findings must be made and the assessee may file exceptions to the findings. If exceptions are filed the board of review must consider them within 30 days and either deny the exceptions in writing or prepare other written findings as the merit of the exceptions may require.

In this case the appellants, according to the admitted pleadings, requested a hearing before the board of review but did not appear at such hearing, and when the board made its findings did not file exceptions to such findings.

In People v. West Publishing Company, 35 Cal.2d 80, at page 88, 216 P.2d 441, at page 445, the appellants there made a contention similar in nature to the one advanced by appellants here and the court said:

'[The taxpayer] cannot complain of alleged errors in the computation of tax liability, when it refused to avail itself of its administrative remedies to prevent or correct such errors.'

In other words the appellants here not only failed to exhaust administrative remedies available to them but they knowingly neglected to make more than an insignificant use of the orderly procedure provided for securing a correct tax assessment. In stating the rule the court in Abelleira v. District Court of Appeal, 17 Cal.2d 280, 292, 109 P.2d 942, 949, 132 A.L.R. 715, said:

'This is the doctrine of 'exhaustion of administrative remedies.' In brief, the rule is that where an administrative remedy is provided by statute, relief must be sought from the administrative body and this remedy exhausted before the courts will act. The authorities to this effect are so numerous that only the more important ones need be cited here as illustrations.'

After the above quote in the Abelleira case, there follows the citation of fifteen or so cases plus many law review articles and the statement that '[t]he California cases have consistently applied this settled rule.' The court went on further to say 17 Cal.2d at page 293, 109 P.2d at page 949:

'The rule itself is settled with scarcely any conflict. It is not a matter of judicial discretion, but is a fundamental rule of procedure laid down by courts of last resort, followed under the doctrine of stare decisis, and binding upon all courts. We are here asked to sanction its violation, either on the ground that a valid exception to the rule is applicable, or that despite the uniformity with which the rule has been applied, it may be disregarded by lower tribunals without fear of prevention by the higher courts. This last point cannot be too strongly emphasized, for the rule will disappear unless this court is prepared to enforce it. To review such action of a lower court only on appeal or petition for hearing would permit interference with the administrative proceeding pending the appeal or hearing, with the effect of completely destroying the effectiveness of the administrative body. The writ of prohibition can alone operate surely and swiftly enough to prevent this unfortunate result; and only if we recognize that the rule is jurisdictional will it be uniformly enforced. Bearing in mind the analysis of jurisdiction which has heretofore been made, and examining the authorities dealing with the rule, we are necessarily led to the conclusion that exhaustion of the administrative remedy is a jurisdictional prerequisite to resort to the courts.'

In People v. Sonleitner, 185 Cal.App.2d 350, 361, 8 Cal.Rptr. 528, the court reviewed the rule and held in effect that where a defendant attempted to defend an action for collection of taxes upon the ground that his activities did not bring him within the purview of the tax law under which the assessment was made the rule of exhaustion of administrative remedies applied.

The respondent admits that a taxpayer may pay a city business tax and sue for a refund and since no administrative procedure is set up for such a tax refund the taxpayer may sue and collect the amount paid if his claim is denied. However, if the taxpayer does not pay the tax alleged to be due and is assessed for nonpayment he must exhaust the administrative remedies provided by the code to secure any correction of the assessment before a court will permit him to defend an action for collection of the tax. He must do one thing or the other. In other words, there are two procedures--the appellants here elected not to pay and to seek administrative assistance--this they did in part and then knowingly failed to appear in person or to have a representative appear at the hearing and failed to file any exceptions within the time allowed or otherwise to proceed. Appellants allege in effect as an...