County of Los Angeles v. So. Cal. Edison

• Decision Date: 23 October 2003
• Docket Number: No. B159518.,B159518.
• Citation: 112 Cal.App.4th 1108,5 Cal.Rptr.3d 575
• Court: California Court of Appeals Court of Appeals
• Parties: COUNTY OF LOS ANGELES, et al., Plaintiffs and Appellants, v. SOUTHERN CALIFORNIA EDISON COMPANY, et al., Defendants and Respondents.

5 Cal.Rptr.3d 575

112 Cal.App.4th 1108

COUNTY OF LOS ANGELES, et al., Plaintiffs and Appellants, v. SOUTHERN CALIFORNIA EDISON COMPANY, et al., Defendants and Respondents.

No. B159518.

Court of Appeal, Second District, Division 3.

October 23, 2003.

Review Denied January 22, 2004.

Lloyd W. Pellman, County Counsel, Albert Ramseyer, Principal Deputy County Counsel, Derrick M. Au, Deputy County Counsel; Robert E. Shannon, City Attorney (Long Beach), Carol A. Shaw, Deputy City Attorney; Jerold A. Goddard, City Attorney (Redondo Beach) and John Eastman,

Assistant City Attorney, for Plaintiffs and Appellants.

J. Erie Isken, John D. Buchanan, Los Angeles, and Lisa Delorme, for Defendant and Respondent Southern California Edison Company.

Rodi, Pollock, Pettker, Galbraith & Cahill, Cris K. O'Neall and Wade E. Norwood, Los Angeles, for Defendants and Respondents The AES Corporation, AES Redondo Beach, L.L.C, AES Alamitos, L.L.C, and AES Southland, L.L.C.

CROSKEY, J.

County of Los Angeles together with City of Long Beach and City of Redondo Beach (collectively County) sued the buyer and seller of two electric power generating plants, alleging underpayment of documentary transfer taxes. The superior court conducted a nonjury trial, determined the value of the real property conveyed, and awarded County a total of $383,843 in damages. County appeals the judgment.

County contends (1) the buyer and seller must pay the full amount demanded in notices of tax delinquency before challenging the amount, but they failed to do so, so County is entitled to judgment in the full amount demanded as a matter of law, and the buyer and seller can challenge that amount and seek a refund only by filing a claim with the county and then seeking judicial review; (2) if the value of the real property is properly at issue in this action, a decision by the Public Utilities Commission (PUC) conclusively establishes the value; (3) the trial court's value analysis and conclusion are flawed; and (4) County is entitled to prejudgment interest under Civil Code section 3287, subdivision (a), and a penalty assessment under a Redondo Beach ordinance.

We conclude that County has not shown error and affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

1. Factual Background

Southern California Edison Company (Edison) offered for sale by auction several electric power generating plants, including three plants in Long Beach, Redondo Beach, and Huntington Beach known as the Alamitos, Redondo Beach, and Huntington Beach generating stations. The AES Corporation (AES) was the successful bidder for the three plants as a group, offering $781 million. The Alamitos and Redondo Beach plants are the subjects of this case.

Edison and AES executed asset sales agreements in November 1997 stating sales prices of $436 million and $249 million for the Alamitos and Redondo Beach plants, respectively. The parties agreed that before the transaction closed they would allocate the sales prices to the various assets conveyed and agreed to rely on that allocation "for all purposes (including, without limitation, financial, accounting, and federal and state tax purposes)...."

The PUC approved the sale of the three plants in December 1997 in decision No. 97-12-106, concluding that the auction was properly conducted and that the aggregate market value of the three plants was $781 million. The parties then allocated the $436 million sales price for the Alamitos plant as follows: $35,131,445 for land, $119,858,876 for machinery and equipment attached to the land, $263,569,780 for goodwill, and the remainder for other assets. They allocated the $249 million sales price for the Redondo Beach plant as follows: $32,145,180 for land, $77,685,539 for machinery and equipment attached to the land, $129,445,545 for goodwill, and the remainder for other assets. The parties completed the sales and recorded grant deeds in May 1998.

Edison reported to the county recorder that the documentary transfer tax due for recordation of the grant deeds was $171,167.15 for the Alamitos plant and a total of $365,032.25 for the Redondo Beach plant, including $121,677.05 payable to Los Angeles County and $243,355.20 payable to City of Redondo Beach. Edison reported that those amounts were calculated based on the full value of the properties. The amounts correspond to real property values of $155,606,500 for the Alamitos plant and $110,615,130 for the Redondo Beach plant.

County counsel served notices of tax delinquency in September 1999 requesting payment of an additional $308,433 for the Alamitos plant and an additional $456,668 for the Redondo Beach plant, calculated based on the full sales prices of $436 million and $249 million, respectively. Edison and AES failed to pay the purported deficiency.

2. The Complaint

County sued Edison, The AES Corporation, AES Alamitos, L.L.C., AES Redondo Beach, L.L.C., AES Southland, L.L.C., and others in October 2000 seeking to recover delinquent documentary transfer taxes and to impose an equitable lien.¹ County filed a second amended complaint in April 2001 seeking a total of $765,101 in delinquent documentary transfer taxes payable to the county and the cities, calculated based on the total consideration paid for the plants.

3. Motion to Bifurcate

AES moved to bifurcate the trial asking the court to decide a preliminary legal question before conducting a trial on other issues. The question presented according to AES was how to determine "the consideration or value of the interest or property conveyed" (Rev. & Tax.Code, § 11911, subd. (a)) for purposes of calculating the documentary transfer tax when a sale includes real and personal property. AES argued that the "consideration or value" could be based on either the total consideration paid, the consideration paid for the real property pursuant to buyer's and seller's agreed allocation, or the fair market value of the real property.

County opposed the motion arguing that the court did not have sufficient information to decide how to determine the "consideration or value" of the property conveyed. County also argued that the "consideration or value" is the total consideration paid and that Edison and AES bear the burden of proof to show otherwise. County did not argue that it was entitled to the full amount demanded in the tax deficiency notices as a matter of law because the defendants failed to pay that amount or that the court was precluded from determining the consideration or value due to the defendants' nonpayment.

The court granted the bifurcation motion in May 2001, stating that it would decide the proper basis for calculation of the documentary transfer tax before conducting a trial on the remaining issues.

4. Ruling on How to Determine the Consideration or Value

The parties submitted briefs on the basis for calculation of the tax. After a hearing, the court concluded in July 2001 that (1) the documentary transfer tax must be based on the "consideration or value" of the real property only, excluding personal and intangible property included in the sale; and (2) the "consideration or value" is the agreed price for the real property if the agreed price is determinate and is the fair market value if the agreed price is not determinate, but the buyer's and seller's agreed allocation of the sales price is not conclusive as to the agreed price for the real property.

5. Stipulation

The parties filed a stipulation in October 2001 stating that the buyer's and seller's agreed allocation of the sales prices are "not `determinate' or `definite'" for purposes of calculating the documentary transfer tax and that the total consideration paid for the plants "does not properly measure the documentary transfer tax."

6. Trial on the Remaining Issues and Judgment

The trial of the remaining issues commenced in October 2001. Appraisers testified on the value of the real property and power plants. The court decided during trial that the defendants bore the burden of proof on the question of the value of the real property.

The court issued an extensive tentative decision setting forth the facts, restating its prior rulings, and explaining in detail its decision on the real property value. The parties each objected to parts of the tentative decision and proposed changes. The court filed a statement of decision and later an amended statement of decision in March 2002, concluding that the value of the real property as of the date of conveyance was $255.6 million for the Alamitos plant and $193.6 million for the Redondo Beach plant and directing the parties to calculate the amounts of documentary transfer tax deficiency to include in the judgment. The court denied County's request for an equitable lien.

The parties submitted proposed judgments in which they agreed on the total amount of documentary transfer tax due under the court's decision. County's proposed judgment also included prejudgment interest at the rate of 10 percent from the date of conveyance. County did not file a motion for prejudgment interest, but filed only a declaration stating the purported legal basis for prejudgment interest.

The superior court entered a judgment in April 2002 awarding a total of $383,843 in damages against Edison and AES, including $146,280 in documentary transfer taxes payable to the county, $54,996 payable to City of Long Beach, and $182,567 payable to City of Redondo Beach. The court denied County's request for prejudgment interest. No party moved for a new trial.

7. Related Actions

AES applied to the county's assessment appeals board to reduce the assessed real property value for the Alamitos and Redondo Beach plants. AES moved the board to stay the administrative proceedings until the superior court decided this case, arguing that the same question, the fair market value of the real property, was at issue in each proceeding and that the decision in this case would be collateral estoppel. The board concluded...