Groves v. City of Los Angeles

• Decision Date: 28 April 1953
• Court: California Supreme Court
• Parties: GROVES v. CITY OF LOS ANGELES et al. L. A. 22110.

Page 309

256 P.2d 309

40 Cal.2d 751

GROVES v. CITY OF LOS ANGELES et al.

L. A. 22110.

Supreme Court of California, in Bank.

April 28, 1953.

Rehearing Denied May 21, 1953.

Ray L. Chesebro, City Atty., John L. Flynn, Asst. City Atty., and W. L. Weber, Dep. City Atty., Los Angeles, for appellants.

G. Revelle Harrison, Los Angeles, and Thomas B. Sawyer, San Pedro, for respondent.

Latham & Watkins and Keene Watkins, Los Angeles, and Edmund G. Brown, Atty. Gen., and Harold B. Hass, Dep. Atty. Gen. as Amici Curiae for respondent.

CARTER, Justice.

Defendants, the City of Los Angeles, and its chief of police and city clerk (who is its tax collector) appeal from a judgment declaring invalid its Ordinance No. 77,000 as amended by Ordinance No. 92,414, and enjoining the collection of the license tax thereunder. The court found that plaintiff is engaged in the business of soliciting, effecting and negotiating undertakings of bail in and out of Los Angeles as agent of National Automobile and Casualty Insurance Company, a corporation, (hereinafter called National) authorized to engage and engaged in the insurance business (including bail bonds) in California; he holds a bail agent's license issued under the law of this state. Ins.Code, § 1800 et seq.

Ordinance No. 77,000 as amended by Ordinance No. 92,414 provides that every person in the business of "* * * soliciting, negotiating, effecting, issuing, delivering, or furnishing bail bonds or of the posting of undertakings of bail for the release of persons charged with public offenses shall pay for each calendar year, or fractional part thereof, a license tax in the sum of $50 for the first $5,000 or less of gross receipts, and in addition thereto, the sum of $5 per year for each additional $1,000 of gross receipts, or fractional part thereof, in excess of $5,000. The term 'gross receipts' as used herein shall not include any insurance premiums received on behalf of any insurance company qualified to do business in the State of California, nor any commissions paid out of such premiums." Also thereunder it is unlawful for any person to engage in the specified business without a license and any person violating the Ordinance is subject to punishment. The license tax is, however, for purposes of revenue, not regulation. See Fox Bakersfield Theatre Corp. v. City of Bakersfield, 36 Cal.2d 136, 222 P.2d 879.

It was also found that plaintiff is not engaged in the business of posting bail bonds from which he receives gross receipts as defined in the Ordinance other than in the transaction of insurance business as defined by the Insurance Code. Hence the Ordinance violates the Constitution which provides that every insurance company (the term 'company' includes persons) doing business in the state shall pay to the state a tax consisting of a fixed per cent upon the amount of the 'gross premiums' received upon its business done in this state, and 'The tax imposed on insurers by this section is in lieu of all other taxes and licenses, State, county, and municipal, upon such insurers and their property' with exceptions not here pertinent. Cal.Const., art. XIII, § 14 4/5.

By its judgment is the court declared the ordinance invalid insofar as it purports to impose a tax on plaintiff and that he is not liable for a tax thereunder; defendants are enjoined from collecting any taxes levied on plaintiff by virtue of the ordinance.

According to the evidence plaintiff's business arrangement, generally, was as follows: Groves (not the plaintiff) and Rubin, a partnership doing business as Associated Bond & Insurance Agency (referred to as Associated) is in the surety bail bond business as general agent for National and the partners hold bail agents' licenses. Associated holds general power of attorney from National and power to appoint agents for it over whom it exercises close supervision. It appointed plaintiff as one of such agents for National. Upon receiving an application for a bail bond upon a form furnished by and addressed to National, plaintiff would send it to Associated. It is executed by Associated under its power of attorney from National and delivered to plaintiff National's agent. The agent reported to Associated every week on business transacted, and the latter reported weekly to National. Agents, such as plaintiff, could charge for a bail bond, any percentage of the face amount not exceeding 10%. They paid 2% of the face amount of the bond (part of which was for a reserve fund to meet losses on bonds) less a certain per cent to Associated and the latter paid 1% of the amount of the bond, less its commission to National. National is the surety or 'insurer' on the bond and the one to whom the state looks in case of forfeiture. As between the agent and Associated the former had to make good a loss from forfeiture, and Associated was in the same position as National in that respect.

This case has been on appeal before Groves v. City of Los Angeles, 93 Cal.App.2d 17, 208 P.2d 254. There plaintiff appealed from a judgment of dismissal after defendants' demurrer was sustained without leave to amend. The judgment was reversed. Based upon the plaintiff's allegations that he was issuing bail bonds as agent of National and that the latter has paid all the in lieu taxes under § 14 4/5 of article XIII of the Constitution, supra, the court held the judgment erroneous, reasoning that no insurer could execute a bail bond except through a person holding a bail license, Ins. Code, § 1800, and that plaintiff alleged he was the agent for National and no more. Hence there was no basis for any assumption that plaintiff was engaged in an independent business or that the revenue from his business was derived from such independent activity within the meaning of the last sentence of the ordinance, supra, which excludes from its provisions, insurance premiums received on behalf of an insurance company qualified to do business in this state.

Defendants contend that plaintiff is an independent contractor rather than an agent for National and that hence neither he nor National through him is engaged in the insurance business in the state and thus the in lieu tax provisions of the Constitution, supra, do not apply, that the ordinance does not purport to tax an insurance business (exempted under last section, supra) and that therefore the judgment enjoining the collection of the tax is erroneous.

The law on the subject was settled in Hughes v. City of Los Angeles, 168 Cal. 764, 145 P. 94. When the Hughes case was decided the Constitution, Cal.Const., art. XIII, § 14(b), provided substantially the same as now for a state tax on the gross premiums of insurance companies which was 'in lieu of all other taxes or licenses, state, county and municipal upon the property of such companies * * *.' A Los Angeles revenue ordinance imposed a tax of $10 per quarter on every person or corporation carrying on the business of local or general insurance agent, solicitor or broker. The Court held the ordinance violated the Constitution, stating: 'Under the authority of Los Angeles Trust Co. v. City of Los Angeles (L. A. No. 3271), 168 Cal. 762, 145 P. 94, this day decided, no doubt can be entertained but that if this privilege tax were imposed upon the insurance companies themselves it would be invalid. The distinction sought to be drawn in this case is that this particular license fee is not imposed upon the companies but upon the agents of the companies. This is true, but upon the other hand it is equally true that every insurance corporation must act through agents and can act only through agents, and that, therefore, in a direct and immediate sense a tax upon such agents for the right to do business is a tax upon the corporation's right to do business. The agents of corporations are the means whereby the corporations live and in opposition to a tax upon their agents the corporations may well be heard to voice Shylock's expostulation:

'You take my house when you do take the prop

That doth sustain my house; you take my life

When you do take the means whereby I live."

Hughes v. City of Los Angeles, supra, 168 Cal. 764, 145 P. 94, 95.

In 1937, the Legislature adopted a statute providing that 'An insurer shall not execute an undertaking of bail except by and through a person holding a bail license issued as provided in this chapter.' Ins.Code, § 1800.

It was held in Edward Brown & Sons v. McColgan, 53 Cal.App.2d 504, 128 P.2d 186, that the in lieu tax provision of the Constitution, Cal.Const., art. XIII, § 14 4/5, supra, for insurance companies did not exempt a corporation, which was an agent representing and selling policies for some 18 insurance companies, from the state corporation franchise tax applicable generally to corporations. In view of the holding of this Court in the Hughes case, supra, 168 Cal. 764, 145 P. 94, the soundness of the last cited case may be questionable. However, it may be distinguished on the ground that, although the franchise tax is computed on the net income of the corporation, it is on the privilege of using the corporate mechanism to do business and hence has no relation to the nature of the business conducted. Thus the tax is not on the insurance business within the meaning of the Constitution.

Defendants argue, however, that here the plaintiff was an independent contractor rather than an agent of National and he was engaged in an independent business which was not the insurance business or National's business. Hence his business is taxable by the city, and by reason of the last sentence of the ordinance it does not purport to tax other than that business, and the Hughes case is distinguishable. In effect, they are asserting that the evidence does not support the trial court's findings that plaintiff was engaged in no business other than that of insurance and that he was National's agent.

At the outset, we have the statutory provision that an insurer cannot conduct a...