Mallon v. City of Long Beach

• Decision Date: 15 October 1958
• Citation: 164 Cal.App.2d 178,330 P.2d 423
• Court: California Court of Appeals Court of Appeals
• Parties: Felix MALLON, Plaintiff, v. CITY OF LONG BEACH, a Municipal Corporation; A. L. Parmley, Lyman B. Sutter, Raymond C. Kealer, James R. Seaton, Clarence E. Wagner, Max Livonl, Carl Fletcher, Bazil U. Carlson and John Doe, as Councilmen of the City of Long Beach, Frank W. Brejcha, as Treasurer of the City of Long Beach; and John R. Mansell, as Auditor of the City of Long Beach, Defendants and Respondents. Alma Swart, Plaintiff In Intervention In certain pleadings and Appellant. Civ. 22844.

Page 423

330 P.2d 423

164 Cal.App.2d 178

Felix MALLON, Plaintiff, v. CITY OF LONG BEACH, a Municipal Corporation; A. L. Parmley, Lyman B. Sutter, Raymond C. Kealer, James R. Seaton, Clarence E. Wagner, Max Livonl, Carl Fletcher, Bazil U. Carlson and John Doe, as Councilmen of the City of Long Beach, Frank W. Brejcha, as Treasurer of the City of Long Beach; and John R. Mansell, as Auditor of the City of Long Beach, Defendants and Respondents Alma Swart, Plaintiff In Intervention In certain pleadings and Appellant.

Civ. 22844.

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

Oct. 15, 1958.

Theodore R. Gabrielson, Los Angeles, for appellant.

Walhfred Jacobson, Long Beach, O'Melveny & Myers, Pierce Works, Los Angeles, for respondents.

LILLIE, Justice.

Plaintiff in intervention Alma Swart appeals from a judgment denying a permanent injunction.

The city of Long Beach, as trustee, held in its possession certain revenues received by it under a trust which it had used and intended to continue to use for general municipal purposes. These funds were derived from oil and gas developed on tide and submerged lands granted to the city by the state of California in 1911. Under this grant the state conveyed to the city of Long Beach all of the tide and submerged lands within the corporate limits of the city in trust for commerce, navigation and fishing.

In May, 1953, plaintiff Mallon, not an appellant herein, filed a 'taxpayer's' suit against the city of Long Beach and various city officials to enjoin them from using the revenues in question for municipal purposes, claiming they could be expended only for the trust purposes of commerce, navigation and fishing. Appellant was permitted to intervene. Demurrers to the complaints were sustained and appellant appealed to the Supreme Court from the order sustaining the same.

In the meantime the city filed its answer admitting its intention to use 50% of the oil and gas revenues and 100% of the dry gas revenues for general municipal purposes and not for the trust uses designated by the grant and alleging that under Assembly Bill 3400 (Stats.1951, Ch. 915, page 2443), hereinafter referred to as the Act of 1951, the funds had been released to it; that it owned the funds absolutely free from the terms of the trust and had a right to use them as its own.

On April 5, 1955, the Supreme Court rendered its opinion on the appeal from the order sustaining the demurrers (Mallon v. City of Long Beach, 44 Cal.2d 199, 282 P.2d 481), reversing the lower court and holding that the Act of 1951 effected a partial revocation of the trust over the tide and submerged lands releasing certain revenues from the trust, but that the monies were released not to the city of Long Beach but to the state of California, and operated to transfer to the state 50% of the income from oil and gas and 100% of the income (past, present and future) from dry gas derived from the city's tide and submerged lands.

After this decision and in July of 1955, the city amended its answer admitting the prior transfers of trust revenues into the municipal treasury, but contending it acted in good faith believing that under the Act of 1951 they had been released to it and therefore belonged to the city and that the expenditures were proper; and asserting that it would discontinue its prior practices of transferring and using the funds for its own purposes, did not intend to do so in the future, and that an injunction to prevent further diversion of funds was not necessary.

Shortly thereafter in August of 1955 the state, seeking to recover the funds released to it under the ruling of the Supreme Court (Mallon v. City of Long Beach, 44 Cal.2d 199, 282 P.2d 481), unsuccessfully attempted to intervene in the instant case. On September 16, 1955, it filed an action of its own against the city entitled 'People of the State of California, et al. vs. City of Long Beach, et al., No. 649466, in the Superior Court of Los Angeles County' (hereinafter referred to as the People's case) to recover the revenues. Negotiations for settlement arose and no proceedings were taken until after the legislature passed the Act of 1956 (Ch. 29, Stats. 1st Ex.Sess. 1956), effective July 5, 1956, which supplied legislative approval of settlement of the People's case, fixing the sum payable by the city to the state as $120,000,000, for all claims to the funds as of January 31, 1956, monthly payments by the city to the state for future accruals of 50% of the oil and gas revenues and 100% of the dry gas revenues, and providing the judgment to be rendered in the People's case to be final. Pursuant thereto a stipulated judgment was entered in the People's case on September 11, 1956.

Under the consent decree the city of October 31, 1956, paid to the state, in full settlement of all claims to the funds in question up to February 1, 1956, the sum of $122,339,133.89. It thereafter started making monthly payments as provided in the judgment and as far as we know has continued to do so.

The trial of the instant case was held in February of 1957 principally on the issue of whether a permanent injunction would lie against defendants to enjoin them from expending for general municipal purposes the trust funds already covered by the Act of 1956 and the judgment in the People's case. It revolved around the issue of defendants' good faith in abandoning their prior expressed intent to use the funds for other than trust purposes. The assistant city attorney of Long Beach who interpreted the Act of 1951 for the city council and gave it advice on all of its proposed actions; a former member of the city council from 1950 to 1954, now a judge of the Long Beach Municipal court; a former mayor of Long Beach from 1942 to 1945; and the Long Beach city auditor testified on behalf of defendants. Numerous exhibits were received for both plaintiff and defendants, the majority of which were city council resolutions. The plaintiff offered no testimony. Defendants' witnesses were questioned extensively about various transfers of funds, under what authority they were made, the city council's belief concerning the construction of the Act of 1951, its general intent then and now, and its activities in connection with certain prior court litigation and legislative action.

The trial court found, among other things, that defendants, although mistaken in their construction of the Act of 1951, believed in good faith that the funds, released from the tidelands trust thereunder (50% of oil and gas revenues, and all past and future dry gas revenues), had been released to the city as absolute owner and not to the state of California; and as such they could use them as their own for general municipal purposes as distinguished from public tidelands or harbor purposes; that this belief and understanding was shared by the governor of the state, the then legislature, the attorney general and the legislative counsel. The trial judge also found to exist certain changed conditions or circumstances since the filing of the action. In denying injunctive relief the court concluded that due to changed circumstances occurring subsequent to the commencement of the action 'There is no reasonable expectation or probability that the acts complained of herein by plaintiff and by plaintiff in intervention will be either repeated or continued by defendants or any of them and no necessity for the granting of the injunctive relief prayed for herein now exists.'

The issue on this appeal is whether the trial judge abused his discretion in refusing the injunctive relief sought.

Appellant contends that since 1939 the city's conduct relating to its various transfers and use of trust funds for general municipal expenditures, its extended litigation over the use and ownership of the trust revenues and its lobbying activities in connection with the Act of 1951, clearly shows past deliberate 'misappropriation of trust funds' and that the city's protestations that it has ceased its transfer and expenditure of revenues and intends no further such activities are not in good faith. Appellant argues that defendants' past conduct, not having been in good faith, they are not now in good faith in 'abandoning' their previous intention to use the revenues as their own. To show that defendants are not to be trusted in the future she submits a history of the city's activities since 1939, which without doubt discloses numerous efforts on the part of the city to free itself from the status of trustee and use the funds as its own. This history constituted part of the record considered by the trial court in determining whether defendants were in good faith in their assertions of abandonment of earlier activities to gain control of the funds.

The record discloses prior extended litigation by the city, most of which was instituted either by it, or its officials, in the form of 'friendly suits' for judicial determination of its rights in the funds at various times.

The first, an original proceeding in the Supreme Court, was brought by the city against its port manager (City of Long Beach v. Marshall, 11 Cal.2d 609, 82 P.2d 362) in 1938 to determine if it had the right to drill for oil on the tidelands. The court held it could develop the mineral resources but that the lands were conveyed in trust for commerce, navigation and fishing. Thereafter the city developed gas and oil on the tidelands, receiving substantial revenues therefor. It arranged through its municipal gas department to sell dry gas and place the revenues therefrom in the gas revenue fund. By council resolutions it transferred the funds to the general purpose fund for general municipal uses. The trial court herein, having heard the testimony of the city officials concerning these transfers and their explanation for the council's activities, concluded: 'Now, with respect to their conduct after the Marshall case, so far as the holding of the Marshal...