Employment Development Dept. v. U.S. Postal Service

• Decision Date: 10 February 1983
• Docket Number: Nos. 80-5694,80-5700,s. 80-5694
• Citation: 698 F.2d 1029
• Parties: EMPLOYMENT DEVELOPMENT DEPARTMENT, Plaintiff-Appellant, v. UNITED STATES POSTAL SERVICE, Defendant-Appellee. FRANCHISE TAX BOARD, Plaintiff-Appellant, v. UNITED STATES POSTAL SERVICE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1029

698 F.2d 1029

EMPLOYMENT DEVELOPMENT DEPARTMENT, Plaintiff-Appellant, v. UNITED STATES POSTAL SERVICE, Defendant-Appellee.

FRANCHISE TAX BOARD, Plaintiff-Appellant, v. UNITED STATES POSTAL SERVICE, Defendant-Appellee.

Nos. 80-5694, 80-5700.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 8, 1981.

Decided Feb. 10, 1983.

Jeffrey M. Vesely, Los Angeles, Cal., for Employment Development Dept. and Franchise Tax Bd.

David Epstein, Dept. of Justice, Washington, D.C., for U.S. Postal Service.

Appeal from the United States District Court for the Central District of California.

Before SCHROEDER and REINHARDT, Circuit Judges, and THOMPSON, ^* District Judge.

PER CURIAM:

At issue is whether California state agencies may use California summary tax collection procedures to reach funds in the hands of the United States Postal Service. The district court consolidated these two cases involving similar facts and legal questions but different statutes, and granted summary judgment for the Postal Service. In both cases, California state taxing authorities sought to utilize administrative collection procedures resembling garnishment in order to collect sums owed by the Postal Service to delinquent taxpayers.

Plaintiff in the first case is the Employment Development Department, seeking to recover unemployment insurance taxes owed to the state by contractors who have done work for the Postal Service. Plaintiff in the second case is the Franchise Tax Board, seeking to collect personal income taxes owed by Postal Service employees. Because the applicable statutes and resulting analysis differ, we discuss each case separately.

I. The Employment Development Department

In February 1978, the Employment Development Department (the Department) issued two "notices of levy" pursuant to Sec. 1755 ¹ of the California Unemployment Insurance Code, notifying the Postal Service that two of its mail transportation contractors were delinquent in paying taxes to the Department. The notices purported to constitute a levy on monies owed to those tax debtors by the Postal Service. The Postal Service refused to comply, stating that it was not authorized to make the payment requested. In October 1978, the Department filed this action seeking judgment in the amount of the tax delinquencies, and court costs.

The district court granted summary judgment for the Postal Service, holding Cal.Unemp.Ins.Code Sec. 1755 inapplicable to the Postal Service because that statute does not expressly include within its reach the United States and its agencies or instrumentalities. In the alternative, the district court found the Department's claim barred by 39 U.S.C. Sec. 5006, on the theory that that section is the exclusive statutory authority for reaching funds in the hands of the Postal Service owed to its contractors, and that the Department is not one of those authorized to proceed under that section.

We consider first whether Cal.Unemp.Ins.Code Sec. 1755 authorizes the Department to proceed by administrative levy against the Postal Service. If it does, we must also consider whether such levies are nevertheless prohibited by applicable federal law.

The Postal Service contends that state law does not authorize use of the levy procedures against an agency of the United States because such agencies are not expressly made subject to levy by the statute. The Postal Service does not contend that it is immune from all suits, for Sec. 401(1) of the Postal Reorganization Act ² clearly and unambiguously waives sovereign immunity by providing that the Service "may sue and be sued." See generally FHA v. Burr, 309 U.S. 242, 245, 60 S.Ct. 488, 490, 84 L.Ed. 724 (1940). Rather, the Service argues that the state statute is by its own terms inapplicable.

The statute provides that the Director may serve the notices of levy on "all persons" having under their control any assets of the tax debtor. Section 1757 states that "any person" failing to turn over such credits shall be liable to the Department in the amount owed to the tax debtor, but not exceeding the amount specified in the notice of levy.

While these two sections appear to be quite broad in scope, the current problem arises from the fact that section 1758 states only that "[a]s used in this article 'person' includes this State and any county, city and county, municipality, district or other political subdivision thereof." The Service argues that, in referring to state and local governmental entities but omitting any reference to their federal counterparts, the state legislature exempted federal agencies from the statute. ³

A specific reference to state governmental entities is necessary if the legislature intends to waive the immunity to which those entities would otherwise be entitled under state law. Cal. Const. art. 20, Sec. 6; Rose v. State, 19 Cal.2d 713, 123 P.2d 505, 512 (1942); Galbes v. Girard, 46 F. 500, 501 (C.C.S.D.Cal.1891). Cf. Florida Department of Health & Rehabilitative Services v. Florida Nursing Home Ass'n, 450 U.S. 147, 149-50, 101 S.Ct. 1032, 1033-1034, 67 L.Ed.2d 132 (1981) (per curiam) (waiver of state's eleventh amendment immunity found only by express language or such overwhelming implication from text that no other construction reasonable); Edelman v. Jordan, 415 U.S. 651, 673, 94 S.Ct. 1347, 1360-1361, 39 L.Ed.2d 662 (1974) (same). But reference to federal entities in a state statute would serve no similar purpose since an act of Congress, not of a state legislature, is necessary to effect a waiver of federal immunity. Army & Air Force Exchange Service v. Sheehan, 456 U.S. 728, 102 S.Ct. 2118, 72 L.Ed.2d 520 (1982); United States v. Testan, 424 U.S. 392, 399, 96 S.Ct. 948, 953-954, 47 L.Ed.2d 114 (1976); United States v. King, 395 U.S. 1, 4, 89 S.Ct. 1501, 1502-1503, 23 L.Ed.2d 52 (1969).

The Service argues that the term "person" when used in a state statute can never, as a matter of statutory interpretation, include federal entities, but it offers no persuasive authority for such a rule. It relies upon United States v. United Mine Workers, 330 U.S. 258, 272, 67 S.Ct. 677, 686, 91 L.Ed. 884 (1947), which stated that "statutes which in general terms divest pre-existing rights or privileges will not be applied to the sovereign without express words to that effect." The court there held that Congress did not intend to treat the United States in the same manner as other "employers" under federal labor laws. Id. at 276, 67 S.Ct. at 687. United Mine Workers establishes no general rule of construction applicable here. Interpretation of the California statute involves construction of state law, not the scope of federal sovereign immunity. ⁴ The Postal Service offers neither a reason why California should wish to treat federal agencies any differently than it treats other employers for purposes of state tax collection procedures, nor any indication that the state legislature intended to do so.

Our conclusion that state law authorizes the Department to direct notices of levy under Sec. 1755 to the Postal Service is reinforced by a rule of construction used by the California courts. In construing Cal.Civ.Proc.Code Sec. 17, which parallels section 1758 in stating that the term " 'person' includes" listed types of entities, the California court of appeal articulated the California rule:

The statement that the word person "includes" a natural person and a corporation leaves open for consideration what other types of entities that word includes when used in a particular context to meet a given situation. The word "includes" is not ordinarily a word of limitation but rather of enlargement.

Oil Workers International Union v. Superior Court, 103 Cal.App.2d 512, 230 P.2d 71, 105-06 (1951). Accord, People v. Western Air Lines, Inc., 42 Cal.2d 621, 268 P.2d 723, 733 (1954); Patricia J. v. Rio Linda Union School District, 61 Cal.App.3d 278, 132 Cal.Rptr. 211, 216 (1976); Datil v. City of Los Angeles, 263 Cal.App.2d 655, 69 Cal.Rptr. 788, 790 (1968); Durkin v. Durkin, 133 Cal.App.2d 283, 284 P.2d 185, 188-89 (1955). We therefore conclude that the Postal Service is a "person" against whom the Department may proceed under Sec. 1755. ⁵

The Service's alternative contention is that even if the California statute is construed to apply to the Postal Service, the statute is inconsistent with and therefore preempted by 39 U.S.C. Sec. 5006. ⁶ That statute by its terms governs the creation of liens in favor of those who perform services for a Postal Service contractor or subcontractor. The parties agree that the Department cannot become a lienor within the meaning of the statute, since it has not performed services for a Postal Service contractor or subcontractor. The Service goes on to argue, however, that because Sec. 5006 is the only statutory authority expressly conferring a right to proceed against the Service in order to reach funds owed to a postal contractor or subcontractor, the Department may not levy upon such funds in any other fashion.

The Service cites no cases in support of its position, and several courts have effectively established that Sec. 5006 is not the exclusive means of attaching Postal Service funds owed to contractors or subcontractors. In Kennedy Electric Co. v. United States Postal Service, 508 F.2d 954 (10th Cir.1974), a subcontractor was allowed to recover from the Postal Service money owed to the general contractor by the Service. The court did not mention Sec. 5006; recovery was permitted because the subcontractor had established an equitable lien, not a statutory one. Moreover, the Service's argument is inconsistent with other decisions allowing garnishment of Postal Service funds without regard to whether the debt garnished is owed to a contractor or subcontractor. General Electric Credit Corp. v. Smith, 565 F.2d 291 (4th Cir.1977) (per curiam); May Department Stores Co. v. Williamson, 549 F.2d 1147 (8th Cir.1977); Standard Oil Division,...