Georgia Pacific Corporation v. County of Mendocino

• Decision Date: 12 April 1973
• Docket Number: C-71 1722 and C-71 1723.,No. C-71 366,C-71 366
• Citation: 357 F. Supp. 380
• Parties: GEORGIA PACIFIC CORPORATION, Plaintiff, v. COUNTY OF MENDOCINO, Defendant. INTERNATIONAL PAPER COMPANY, Plaintiff, v. COUNTY OF SISKIYOU, Defendant. DIAMOND INTERNATIONAL CORP., Plaintiff, v. COUNTY OF TEHAMA, Defendant.
• Court: U.S. District Court — Northern District of California

357 F. Supp. 380

GEORGIA PACIFIC CORPORATION, Plaintiff, v. COUNTY OF MENDOCINO, Defendant.

INTERNATIONAL PAPER COMPANY, Plaintiff, v. COUNTY OF SISKIYOU, Defendant.

DIAMOND INTERNATIONAL CORP., Plaintiff, v. COUNTY OF TEHAMA, Defendant.

Nos. C-71 366, C-71 1722 and C-71 1723.

United States District Court, N. D. California.

April 12, 1973.

COPYRIGHT MATERIAL OMITTED

Cooley, Crowley, Gaither, Godward, Castro & Huddleson, Paul A. Renne, Andrew Kopperud and John D. Hoffman, San Francisco, Cal., for Georgia Pacific.

Pillsbury, Madison & Sutro, Geo. A. Sears and John Hall, Jr., San Francisco, Cal., for International Paper Co. and Diamond International Corp.

Bagshaw, Martinelli, Corrigan & Jordan, with Leland H. Jordan, San Rafael, Cal., for defendants.

MEMORANDUM OPINION

WOLLENBERG, District Judge.

INTRODUCTION

The three cases in which this decision is rendered have been related and consolidated for purpose of trial on the merits. The questions of law and fact are identical, except insofar as No. C-71—366 challenges the valuation method used by the County of Mendocino in assessing a tax for the year 1970-71 against plaintiff Georgia Pacific Corporation (hereafter "Georgia"). A trial to the Court took place on November 13, 1972. All factual issues have been stipulated, except for questions of valuation. For a brief statement of the facts in the three cases, see the Opinion and Order Denying Plaintiffs Motions for Summary Judgment, Georgia Pacific Corporation v. County of Mendocino, 340 F.Supp. 1061, 1062-1063 (N.D.Cal. April 4, 1972). The stipulations upon which the three cases were tried are appended to this Opinion as Exhibits A and B, and are hereby incorporated as the Court's Findings of Fact.

The legal issues raised in these three cases were, for the most part, briefed, argued and ruled upon in plaintiffs' motions for summary judgment. The Court's prior opinion is, therefore, adopted as its Conclusions of Law as to all legal issues not specifically discussed in this Opinion. The following shall constitute the Court's Further Conclusions of Law on those issues which justify further consideration.

I. The Taxability of Plaintiffs' Interest

Plaintiffs do not concede, as the Court has concluded, that they have interests in timber standing on the property of the United States which are taxable as possessory interests under California law. See 340 F.Supp. at 1065-1068. They urge two further points after trial. Skate Creek Logging Co. v. Fletcher, 46 Wash.2d 160, 278 P.2d 1009 (1955), which the Court found not controlling as a matter of California law, is reasserted as being instructive on the issue of California law, and controlling on the issue of federal law. Plaintiffs contend, without giving any judicial or legislative citation, that the Skate Creek decision was not based on any peculiar features of Washington law. Contrary to plaintiffs assertion, it appears that the Skate Creek decision derives from an unusual rule of contracts law. In Washington, a vendee under a land sale contract acquires no title, legal or equitable, to the property. See Giustina v. United States, 190 F.Supp. 303, 312 (D.Or.1960). Hence, there would be no taxable interest until the sale was completed. The Court is aware of no similar rule under California law.¹

Plaintiffs also urge that the recent decision of United States v. County of Fresno, No. 136452 (Superior Court, Fresno County, Nov. 6, 1972; Jan. 8, 1973) holding that Forest Service employees have no possessory interest in cabins furnished to them by the Forest Service should be conclusive of the California tax law issue. The decision of a state trial court is not binding on a federal court sitting in diversity jurisdiction. But in any event, the decision in County of Fresno is inapposite to the present case because of the employment relationship involved and the interests of the United States in furnishing the cabins.²

Plaintiffs' more serious contention is that regardless of whether taxable possessory interests exist under California law, the titles and interests in federal property conveyed by federal contracts are, in the first instance, a matter of federal law. The Court agrees that if the property of the United States were being taxed by defendants, the tax would, absent express Congressional authorization, violate the federal Constitution. McCulloch v. Maryland, 4 Wheat. 316, 425, 4 L.Ed. 579 (1819); Van Brocklin v. Tennessee, 117 U.S. 151, 177, 6 S.Ct. 670, 29 L.Ed. 845 (1886). An examination of decisions of the Supreme Court ruling on the taxability of private parties dealing with the United States indicates, however, that the rights granted to plaintiffs in the standing timber, and the concomitant rights to go upon, possess and use the national forest land for the purpose of removing timber are sufficiently remote from and incidental to the federal interest that they may properly be taxed.³

In United States v. Boyd, 378 U.S. 39, 84 S.Ct. 1518, 12 L.Ed.2d 713 (1964) the Court summarized the rulings of its controlling earlier decisions as follows:

"The Constitution immunizes the United States and its property from taxation by the States, M'Culloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579, but it does not forbid a tax whose legal incidence is upon a contractor doing business with the United States, even though the economic burden of the tax, by contract or otherwise, is ultimately borne by the United States. James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155; Graves v. New York, 306 U.S. 466, 59 S.Ct. 595, 83 L.Ed. 927; Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3. Nor is it forbidden for a State to tax the beneficial use by a federal contractor of property owned by the United States, even though the tax is measured by the value of the Government's property, United States v. City of Detroit, 355 U.S. 466, 78 S.Ct. 474, 2 L.Ed.2d 424, and even though his contract is for goods or services for the United States. Curry v. United States, 314 U.S. 14, 62 S.Ct. 48, 86 L.Ed. 9; Esso Standard Oil Co. v. Evans, 345 U.S. 495, 73 S.Ct. 800, 97 L.Ed. 1174; United States v. Township of Muskegon, 355 U.S. 484, 78 S.Ct. 483, 2 L. Ed.2d 436. The use by the contractor for his own private ends—in connection with commercial activities carried on for profit—is a separate and distinct taxable activity." 378 U.S. at 44, 84 S.Ct. at 1521.

The contracts involved in these lawsuits involve two distinct aspects. It may be that each aspect is sufficient in itself to support a finding that the plaintiffs' interests are taxable, but because both aspects exist, the Court need not reach that question.

The first aspect is the right conveyed by the contract for plaintiffs to enter upon and use National Forest land to pursue their business. Under the contracts, plaintiffs felled trees marked by the Forest Service, cut the trees into logs, skidded the logs to a landing, marked and branded the logs and loaded them onto a truck bound for their mills. All this was accomplished on National Forest land. Plaintiffs contend that this use of National Forest land does not support a basis for state taxation because their activities were rigidly controlled by contract specifications, and because their right to use the land was non-exclusive. The Court cannot accept either contention.

Under the contracts, the Forest Service designated trees to be harvested, prescribed the location and construction standards for the access roads to such timber, and when the roads were built, approved compliance with the construction standards. The Service also determined whether plaintiffs' erosion control, slash disposal and obliteration of temporary roads were satisfactory. Such controls are necessary to assure that the timber operations under the contracts comply with the purposes for which national forests may be established and administered under 16 U.S.C. §§ 475 and 476. But the Government has not reserved such control over the activities and financial gain of plaintiffs that they could properly be called servants of the United States in agency terms. United States v. Township of Muskegon, supra, 355 U.S. at 486, 78 S. Ct. 483. Rather it has established conditions with which plaintiffs, as self-interested entities, must comply if they choose to avail themselves of the business opportunity of harvesting timber from Federal lands.

Nor is plaintiffs' reliance on the non-exclusive nature of the contracts persuasive. As plaintiffs point out, the sale areas were open to government personnel, hunters, grazers, and tourists, as well as plaintiffs' employees. Moreover, plaintiffs were periodically denied access to the sale areas because of the high fire weather index or wet roads, although others may have been permitted access at certain times. But plaintiffs were the only lumber companies permitted to bring in the heavy equipment needed for timber operations and, by the terms of the contracts, were the only operators permitted to harvest timber within the sale areas for the duration of the contracts.

The conclusion is inescapable that these contracts conveyed the exclusive right to use Federal land for commercial logging. "A tax for the beneficial use of property, as distinguished from a tax on the property itself, has long been a commonplace in this country. See Henneford v. Silas Mason Co., 300 U.S. 577, 582-583, 57 S.Ct. 524, 526-527, 81 L.Ed. 814." United States v. City of Detroit, supra, 355 U.S. at 470, 78 S.Ct. 474, 476. Moreover, plaintiffs have possessed Federal land in the sense that they have constructed temporary roads for their benefit and have maintained their equipment in the National Forests. "Lawful possession of property is a valuable right when the possessor can use it for his own personal benefit." City of Detroit v. Murray Corp., infra, 355 U.S. at 493, 78 S.Ct. at 461.

In addition to plaintiffs' right to use Federal lands, the contracts convey to plaintiffs a...