Grimes v. Hoschler

• Decision Date: 09 August 1974
• Citation: 115 Cal.Rptr. 625,525 P.2d 65,12 Cal.3d 305
• Parties: , 525 P.2d 65 Ray GRIMES, Plaintiff and Respondent, v. Leo B. HOSCHLER, as Registrar, etc., et al., Defendants and Appellants. L.A. 30173. In Bank
• Court: California Supreme Court

Page 625

115 Cal.Rptr. 625

12 Cal.3d 305, 525 P.2d 65

Ray GRIMES, Plaintiff and Respondent, v. Leo B. HOSCHLER, as Registrar, etc., et al., Defendants and Appellants.

L.A. 30173.

Supreme Court of California,

In Bank.

Aug. 9, 1974.

Rehearing Denied Sept. 19, 1974.

Evelle J. Younger, Atty. Gen., and Ronald F. Russo, Deputy Atty. Gen., for defendants and appellants.

Harrison W. Hertzberg and Joshua Kaplan, Los Angeles, for plaintiff and respondent.

SULLIVAN, Justice.

Defendants Leo B. Hoschler, the Registrar of Contractors (registrar), the Contractors' State License Board (board), ¹ and the members of the board appeal from a judgment entered in a proceeding in administrative mandamus ordering issuance of a peremptory writ of mandate commanding defendants to set aside their decision revoking the contractor's license of plaintiff Ray Grimes and to reinstate plaintiff's license.

The registrar of contractors filed an accusation (§ 7091; Gov.Code, § 11500 et seq.) against Grimes asserting as the sole ground for discipline that the latter had violated section 7113.5 ² in that by obtaining an adjudication in bankruptcy he had avoided lawful obligations incurred by him as a contractor. A hearing officer found the accusation to be true and proposed that plaintiff's license be revoked. The registrar adopted the proposed decision of the hearing officer.

Grimes sought review of that decision by administrative mandamus. (Code Civ.Proc., § 1094.5.) ³ He claimed that the provision in section 7113.5 establishing the basis for revocation of his license frustrates the purposes of the Bankruptcy Act under federal law and therefore is invalid under the supremacy clause of the federal Constitution. (U.S.Const. art. VI, cl. 2.) Relying on Perez v. Campbell (1971) 402 U.S. 637, 91 S.Ct. 1704, 29 L.Ed.2d 233 the superior court entered judgment in favor of Grimes, ordering issuance of a peremptory writ of mandate directing defendants to set aside the decision and ordering reinstatement of Grimes' license. This appeal followed.

Defendants contend that the pertinent provision in section 7113.5 is not in conflict with that part of the Bankruptcy Act allowing a debtor to discharge certain debts in a bankruptcy proceeding. (11 U.S.C.A. § 35.) They argue that Perez v. Campbell, Supra, 402 U.S. 637, 91 S.Ct. 1704, 29 L.Ed.2d 233, is distinguishable from the present case and that our opinion in Tracy v. Contractors' State License Board (1965) 63 Cal.2d 598, 599, 47 Cal.Rptr. 561, 407 P.2d 865, in which we sustained section 7113.5 against constitutional attack is still controlling. ⁴

In Perez v. Campbell, Supra, 402 U.S. 637, 652, 91 S.Ct. 1704, 29 L.Ed.2d 233 the United States Supreme Court struck down a state statute providing that a discharge in bankruptcy did not exonerate a judgment debtor from the requirements of a state law in respect to the financial responsibility of motorists. The state law involved there authorized the suspension of a driver's license and vehicle registration for nonpayment of a judgment debt attributable to an automobile accident. Under the provisions of the challenged statute, until the judgment was paid the suspension remained in effect and the judgment debtor continued under its restraint despite the fact that the debt might later be discharged in bankruptcy.

The Perez court carefully delineated the issue presented and explicated the principles for its resolution. The basis question, the high court explained, 'is the power of a State to include as part of this comprehensive enactment designed to secure compensation for automobile accident victims a section providing that a discharge in bankruptcy of the automobile accident tort judgment shall have no effect on the judgment debtor's obligation to repay the judgment creditor, at least insofar as such repayment may be enforced by the withholding of driving privileges by the State.' (Id., at p. 643, 91 S.Ct. at p. 1708.) The appropriate test for determining the validity of such state power was described as follows: 'Deciding whether a state statute is in conflict with a federal statute and hence invalid under the Supremacy Clause is essentially a two-step process of first ascertaining the construction of the two statutes and then determining the constitutional question whether they are in conflict.' (Id., at p. 644, 91 S.Ct. at p. 1708.)

In applying this test, the Perez court examined the purposes of the two acts. Relying on the construction of the state statute by the Arizona courts, the high court concluded that the 'sole emphasis in the (state) Act is one of providing leverage for the collection of damages from drivers who either admit that they are at fault or are adjudged negligent.' (Id., at pp. 646--647, 91 S.Ct. at p. 1710.) The court then examined the federal act: 'The Court on numerous occasions has stated that '(o)ne of the primary purposes of the Bankruptcy Act' is to give debtors 'a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt.' (Citations.)' (Id., at p. 648, 91 S.Ct. at p. 1710.)

The Supreme Court concluded that the state statute could not stand because of the apparent conflict between state law and federal law. (Id., at p. 652, 91 S.Ct. 1704.) In reaching this conclusion the Perez opinion made clear that the controlling principle is whether a state statute interferes with and frustrates a federal statute and not merely whether the former is designed for some conceivable state purpose. In other words, the existence Vel non of a conflict depends on the Effect of the state statute and cannot be determined merely by a consideration of its Purpose. Quoting from Hines v. Davidowitz (1941) 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581, the Supreme Court declared that "(i)n the final analysis,' our function is to determine whether a challenged state statute 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." (Perez v. Campbell, Supra, 402 U.S. at p. 649, 91 S.Ct. at p. 1711.)

The Perez court explained that a different principle was applied in two earlier decisions involving similar state statutes. (Kesler v. Department of Public Safety (1962) 369 U.S. 153, 82 S.Ct. 807, 7 L.Ed.2d 641 and Reitz v. Mealey (1941) 314 U.S. 33, 62 S.Ct. 24, 86 L.Ed. 21.) '(In Kesler the) statute, in short, frustrated Congress' policy of giving discharged debtors a new start. But the Kesler majority was not concerned by this frustration. In upholding the statute, the majority opinion did not look to the effect of the legislation . . .. (It considered only) the purpose of the state legislation and upheld it because the purpose was not to circumvent the Bankruptcy Act but to promote highway safety.' (Perez v. Campbell, Supra, 402 U.S. at p. 650, 91 S.Ct. at p. 1711; fn. omitted.) 'The opinion of the Court in Reitz was similarly concerned, not with the fact that New York's financial responsibility law frustrated the operation of the Bankruptcy Act, but with the purpose of the law, which was divined as the promotion of highway safety.' (Id., at p. 651, 91 S.Ct. at p. 1712.)

Finally, Perez emphasized that the ruling of Kesler and Reitz was no longer valid. 'We can no longer adhere to the aberrational doctrine of Kesler and Reitz that state law may frustrate the operation of federal law as long as the state legislature in passing its law had some purpose in mind other than one of frustration. Apart from the fact that it is at odds with the approach taken in nearly all our Supremacy Clause cases, such a doctrine would enable state legislatures to nullify nearly all unwanted federal legislation by simply publishing a legislative committee report articulating some state interest or policy--other than frustration of the federal objective--that would be tangentially furthered by the proposed state law. In view of the consequences, we certainly would not apply the Kesler doctrine in all Supremacy Clause cases although it is possible to argue that Kesler and Reitz are somehow confined to cases involving either bankruptcy or highway safety, analysis discloses no reason why the States should have broader power to nullify federal law in these fields than in others. Thus, we conclude that Kesler and Reitz can have no authoritative effect to the extent they are inconsistent with the controlling principle that any state legislation which frustrates the full effectiveness of federal law is rendered invalid by the Supremacy Clause.' (Id., at pp. 651--652, 91 S.Ct. at p. 1712.) ⁵

Our task in the case at bench, therefore, is to determine whether the challenged provision in section 7113.5 represents "an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." (Perez v Campbell, Supra, 402 U.S. at p. 649, 91 S.Ct. at p. 1711.) The purposes embodied in the Bankruptcy Act, as explained in Perez (402 U.S. at p. 648, 91 S.Ct. 1704) are to give debtors a 'new opportunity' and a 'clear field for future effort' by eliminating preexisting debts.

We turn to consider the purpose and effect of the challenged state provision. In Tracy v. Contractors' State License Board, Supra, 63 Cal.2d 598, 600, 47 Cal.Rptr. 561, 563, 407 P.2d 865, 867, this court concluded that the provision is 'not designed to aid collection of debts but to protect the health, safety, and welfare of the public.' ⁶ The purpose of the statute has also been declared to be 'frankly economic,' i.e., it reflects a 'state concern for the economic ills of society.' (Hope v. Contractors' etc. Bd., Supra, 228 Cal.App.2d 414, 425, 39 Cal.Rptr. 514, 521.) It would not seem, at first blush, that a statute whose purpose is to protect the 'health, safety, and welfare of the public,' even though motivated by 'frankly economic' reasons, would conflict with the purposes of the Bankruptcy Act. But we must probe further since we are commanded by Perez to...