Lilli Ann Corp. v. City and County of San Francisco

• Decision Date: 31 May 1977
• Citation: 70 Cal.App.3d 162,138 Cal.Rptr. 759
• Court: California Court of Appeals Court of Appeals
• Parties: LILLI ANN CORPORATION, Plaintiff and Appellant, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Respondent. SAFEWAY STORES, INCORPORATED, a Maryland Corporation, Plaintiff and Appellant, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Appellant. Civ. 36199, Civ. 38099.

Page 759

138 Cal.Rptr. 759

70 Cal.App.3d 162

LILLI ANN CORPORATION, Plaintiff and Appellant, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Respondent.

SAFEWAY STORES, INCORPORATED, a Maryland Corporation, Plaintiff and Appellant, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Appellant.

Civ. 36199, Civ. 38099.

Court of Appeal, First District, Division 1, California.

May 31, 1977.

Hearing Denied Aug. 11, 1977.

V. Judson Klein, Paul W. Baker, Johnston, Klein, Horton, Solomon & Baker, Oakland, for Safeway Stores, Inc.

Thomas M. O'Connor, City Atty., George E. Baglin, Deputy City Atty., San Francisco, for City and County of San Francisco.

James K. Haynes, William F. Alderman, Justin T. Beck, Orrick Herrington, Rowley & Sutcliffe, San Francisco, for Lilli Ann Corp.

SIMS, Acting Presiding Justice.

These two appeals, which have been ordered consolidated for the purposes of oral argument and decision, involve the validity of taxes paid to the City and County of San Francisco (the city) under protest by each of the plaintiff taxpayers. The taxes were assessed in 1967 as escaped assessments (REV. & TAX.CODE, S 531 )¹ on the basis of reappraisals and reassessments of personal property for the years 1964, 1965 and 1966. The reappraisals and reassessments were made and the taxes were levied as a result of the so-called 'Knoff mandate,' which followed a grand jury investigation of the assessment practices during the years in question. The background and the resulting escaped assessments have been the subject of other litigation. ² The taxpayers take the position that the convicted assessor, as did the legendary Robin Hood, took from the rich--the owners of personal property consisting of business inventories and equipment--and thereby relieved the poor--the owners of real estate, particularly owners of residential real property and household furnishings and equipment--from the burden of an equalized contribution to local and ad valorem taxes. They assert that the city cannot assert a right to collect taxes from those among the disfavored taxpayers who allegedly received special treatment through assessments lower than generally imposed on business inventories and equipment, because they were still assessed higher than the general ratio to actual market value of assessments of all taxable property within the city and county.

On the other hand the city contends that in Knoff v. City, etc., of San Francisco (1969) 1 Cal.App.3d 184, 81 Cal.Rptr. 683, the court approved proceedings in which it and its responsible officials were mandated to make the assessments and levy the taxes which have been attacked in these cases. It also asserts that there was no error in assessing personal property used in business by standards which produced assessments which were a greater percentage of actual market value than resulted from the method of assessing residential real property, because the taxpayers here can only compare their assessments on business property with those of property of like character similarly situated. Finally it contends that the taxpayers should be denied relief because of their participation, by act or omission, in the original unequal assessments.

We conclude that the general contentions of the taxpayers must be sustained. ³ The judgment in favor of plaintiff Safeway Stores, Incorporated (Safeway) must be affirmed. The judgment denying recovery to plaintiff Lilli Ann Corporation (Lilli Ann) must be reversed. The cross-appeal of Safeway from so much of the judgment as denied it compound interest is found to be without merit.

Appeal of Lilli Ann

Lilli Ann sought the recovery of $79,898.65 in taxes paid under protest on its personal property to the city for the years 1964--1966. The complaint filed October 26, 1967, alleged that on or about March 8, 1967, the county assessor levied escaped and penal assessments on its personal property, purporting to be on the supplemental roll for the tax-year 1966. So far as is material to this appeal, the complaint alleged, among other grounds, as had been stated in the protest accompanying the payment of taxes, as follows:

'In each of the years 1964 through 1966, plaintiff was originally assessed at a ratio of assessed value to full cash value for its locally assessable tangible personal property at a ratio very substantially in excess of the ratios for the years in question for all locally assessable real property in the City and County of San Francisco and for all locally assessable tangible property in the City and County of San Francisco, in violation of Article I, Sections 11 and 13, Article XI, Section 12, and Article XIII, Sections 1 and 14 of the Constitution of the State of California, ⁴ the due process and equal protection clauses of the Fourteenth Amendment to the Constitution of the United States of America, and the Revenue and Taxation Code of California, including Section 1605 thereof. The escaped and penal assessments with respect to each of the years 1964 through 1966 were, and are, wholly void, illegal, unlawful and unconstitutional in that they and each of them increase the original discrimination. . . .'

'. . . (T)hat said escaped and penal assessments were made during the 1967--1968 assessment year. Accordingly, Section 1605 of the Revenue and Taxation Code of California as amended by Chapter 147, 1966 First Extraordinary Session California Legislature was, and is, applicable to said assessments. With respect to each of said years 1964 through 1966, the ratio of assessed to full cash value deviated, and continues to deviate, by more than 15 percent from the final ratio of assessment of all property in the county as found by the State Board of Equalization of the State of California in each of said years.'

'The audit, reassessment and making of escaped and penal assessments for each of the years 1964 through 1966 against plaintiff was, and is, void, illegal and unconstitutional, and in contravention of, and prohibited by Article I, Sections 1, 11 and 13 (see fn. 4 above) of the Constitution of the State of California and the due process and equal protection clauses of the Fourteenth Amendment to the Constitution of the United States of America for the reason that only the personal property of business taxpayers who previously had personal property assessments in excess of $50,000 were specially audited, specially reassessed or were the subject of special escaped assessments. The personal properties of smaller businesses, which during each of the years 1964 [70 Cal.App.3d 168] through 1966 were assessed at a lower ratio than plaintiff's personal property, were not specially reassessed or made the subject of special escaped assessments and non-business personal property and real property were not reassessed or made the subject of escaped assessments at all, all with the result that, even if 50% Were to be the proper ratio for each of the years 1964 through 1966, there was, is and will be discrimination in the application of such ratio in the application of the law resulting from the making of escaped assessments.'

Lilli Ann made application to the county board of equalization for a hearing for equalization with regard to the assessments. On April 24, 1967, the board denied the application for equalization and adopted the escaped and penal assessments made by the assessor. At the hearings on the application for equalization, Lilli Ann was not allowed to present evidence with respect to the application. On April 28, 1967, Lilli Ann paid the escaped and penal assessments of $79,898.65 under protest.

The city answered by general denials and affirmative defenses. It alleged that the escaped assessments were made in compliance with the Knoff writ and judgment. The city denied that the assessor had assessed all tangible personal property owned by Lilli Ann on the first Monday on March 1964, 1965 and 1966. In alleged that Knoff compelled the use of the 50 percent ratio, and that Lilli Ann's application for equalization went against the requirements of Knoff. Thus, the board of equalization purportedly acted according to the dictates of Knoff in denying the application. The additional defenses raised by the city included the following allegations:

That in 1964 and 1965, Lilli Ann failed to file property statements as required by the Revenue and Taxation Code and the California Constitution; that the 1966 property statement filed by Lilli Ann did not accurately set forth the costs of its taxable property and that there was intentional underreporting on the statement.

That Lilli Ann's action was a collateral attack on the Knoff judgment and mandate of March 28, 1966 and April 3, 1967, order and the continuing jurisdiction of the superior court in the matter. According to the city, the superior court could not in any way review or disturb the judgment or mandate of Knoff in this collateral action since Lilli Ann could have intervened in Knoff had it wanted to do so.

That Lilli Ann did not intervene in Knoff when it had an opportunity to do so and is now estopped from making a collateral attack.

That since Lilli Ann failed to file sworn property statements as required by law for the years 1959--1965 and there were under-assessments of its property in these years by former assessor Wolden, Lilli Ann is indebted to the city for over $79,898.65.

That Lilli Ann comes into court with unclean hands.

After hearing the court made findings which include the following:

'1. The assessments in question were levied as a consequence of, and in compliance with, the judgment and writ of mandate entered and issued March 28, 1966 in Knoff v. San Francisco, et al., San Francisco Superior Court Action No. 564237, aff'd 1 C.A.3d 184, (81 Cal.Rptr. 683) hereinafter referred to as the Knoff judgment and writ, and the taxes of which plaintiff seeks recovery were collected pursuant thereto.'

Other findings, which are reviewed below, sustained the city's position...