Schettler v. County of Santa Clara

Decision Date09 November 1977
CourtCalifornia Court of Appeals Court of Appeals
PartiesErnest B. SCHETTLER, etc., Plaintiff and Appellant, v. COUNTY OF SANTA CLARA, Defendant and Respondent. Civ. 40141.

Baker, Ancel & Redmond, Gerald T. Manpearl, Richard C. Spencer, Los Angeles, for plaintiff and appellant.

O'Melveny & Myers, Frederick A. Richman, John W. Welch, Charles R. Ajalat, Los Angeles, for amicus curiae in support of plaintiff and appellant.

Selby Brown, Jr., County Counsel, Byron D. Athan, Deputy County Counsel, County of Santa Clara, San Jose, for defendant and respondent.

John B. Heinrich, County Counsel, Monte L. Fuller, Deputy County Counsel, County of Sacramento, Sacramento, John H. Larson, County Counsel, James Dexter Clark, Deputy County Counsel, County of Los Angeles, Los Angeles, for amicus curiae in support of defendant and respondent.

KANE, Associate Justice.

Plaintiff Ernest B. Schettler, doing business as Golden Gate Company (hereinafter appellant) appeals from the judgment dismissing the action pursuant to the order of the trial court granting respondent's motion for summary judgment. 1 The pertinent facts are included in an agreed statement and may be summarized as follows.

The instant lawsuit was brought to recover ad valorem property taxes imposed on imported inventory owned by appellant on March 1, 1972. On that date the goods were in the possession of appellant as the original importer, were held for resale and kept unopened in their original package. As the law was interpreted at that time, such goods were immune from local taxation (U.S.Const., art. I, § 10, cl. 2; Brown v. Maryland (1827) 25 U.S. 419, 12 Wheat. 419, 6 L.Ed. 687; Low v. Austin (1871) 80 U.S. 29, 13 Wall. 29, 20 L.Ed. 517; Simon v. County of Los Angeles (1956) 141 Cal.App.2d 74, 296 P.2d 381; Sterling Liquor Distributors, Inc. v. County of Orange (1970) 3 Cal.App.3d 510, 83 Cal.Rptr. 571). In accordance therewith, appellant was advised by respondent that the imported goods were immune from local taxation so long as they retained their character as imports. In fact, appellant filed a claim for immunity for imported goods for 1972, which was granted by the Santa Clara County Assessor.

On January 14, 1976, the United States Supreme Court overruled Low v. Austin, supra, by holding that the import clause of the federal Constitution does not bar the states from imposing nondiscriminatory ad valorem property taxes on imported goods (Michelin Tire Corp. v. Wages (1976) 423 U.S. 276, 96 S.Ct. 535, 46 L.Ed.2d 495). The court reasoned that importers should pay their fair share of local governmental services such as police and fire protection and the cost of such services should be passed on to the ultimate consumers. In the wake of the Michelin decision, the California State Board of Equalization issued a directive to all county assessors directing that they levy escaped assessments for all prior years still open under the statute of limitations covering the period from 1972 through 1975. In compliance with the directive, respondent levied escape assessments on appellant for each of the years not barred by the statute of limitations. In the case before us, however, only the escaped assessment for 1972 is disputed.

The parties stipulated that both appellant and respondent believed that the import immunity was available in 1972 and appellant was so advised by the county; that the prices of the goods were determined by appellant in reliance on the tax immunity; that the goods were sold at such lower prices prior to the decision of Michelin ; and, finally, that had appellant known that the goods in question would be subjected to ad valorem property taxation, he would have added the increased cost of taxes to the prices of the goods in order to pass the cost of taxation to the ultimate consumers.

After Michelin was decided and the directive of the State Board of Equalization issued, the California Legislature became concerned about the economic impact which the retroactive application of Michelin would have on the business community and the labor market of California. In order to avert any undue hardship flowing from the retroactive application of Michelin, Assembly Bill No. 3061 containing REVENUE AND TAXATION CODE SECTION 2262 was passed by the Legislature and signed into law on July 3, 1976. Section 226, in effect, provides that the validity of the ad valorem property tax assessments on imported goods must be determined pursuant to the law as it existed prior to Michelin. Nonetheless, the trial court granted respondent's motion for summary judgment and denied recovery to appellant on the stated ground that section 226, which mandates the prospective application of Michelin is unconstitutional.

Although the parties and amici raise numerous issues in their extensive briefs, the fundamental and all decisive dispute on appeal is whether Michelin should be given retroactive effect so as to cover escaped assessments or whether the import tax immunity abolished by Michelin ought to be applied prospectively only.

Before answering this crucial question, we initially note that the retroactivity or prospectivity of Michelin need not be decided on general principles governing the prospective or retroactive application of judicial decisions (Chevron Oil Co. v. Huson (1971) 404 U.S. 97, 106-107, 92 S.Ct. 349, 30 L.Ed.2d 296; In re Marriage of Brown (1976) 15 Cal.3d 838, 850, 126 Cal.Rptr. 633, 544 P.2d 561; Ralston Purina Co. v. County of Los Angeles (1976) 56 Cal.App.3d 547, 559, 128 Cal.Rptr. 556). As we have just pointed out, the prospective application of Michelin has been determined by a legislative enactment in California. Therefore, the narrow issues awaiting determination in the case at bench are (1) whether the Legislature was authorized to provide for the prospective application of Michelin, and (2) whether section 226 passes constitutional muster.

In analyzing these vital issues, we first remark that under well recognized general principles, a decision of a court of supreme jurisdiction overruling a former decision is deemed to be retrospective in its operation on the assumption that the overruled decision merely misstated the applicable rules and in effect never was the law (County of Los Angeles v. Faus (1957) 48 Cal.2d 672, 680-681, 312 P.2d 680; In re McNeer (1959) 173 Cal.App.2d 530, 533, 343 P.2d 304). In most jurisdictions, however, courts have established exceptions to the general rule of retroactivity to protect those who acted in reliance on the overruled decision. Thus, the Supreme Court of the United States has held that the federal Constitution does not compel retroactive application of overruling decisions and a state may make a choice for itself between the principles of forward operation and that of relation back on the grounds of equity and fairness (Gr. Northern Ry. v. Sunburst Co. (1932) 287 U.S. 358, 53 S.Ct. 145, 77 L.Ed. 360). State courts have generally found state Constitutions equally permissive and have frequently stated that the determination of whether to apply an overruling decision retroactively or prospectively turns on considerations of fairness and public policy (Arizona State Tax Commission v. Ensign (1953) 75 Ariz. 376, 257 P.2d 392; State v. O'Neil (1910) 126 N.W. 454, 455, 147 Iowa 513; People v. Graves (1934) 242 App.Div. 128, 273 N.Y.S. 582, 587).

In consonance with these principles, the California Constitution permits an appellate court to restrict an overruling decision prospective application if fairness and equity are served thereby, even though the prospective application of the decision temporarily preserves a mistaken interpretation of the law (Forster Shipbldg. Co. v. County of L. A. (1960)54 Cal.2d 450, 459, 6 Cal.Rptr. 24, 353 P.2d 736; County of Los Angeles v. Faus, supra, 48 Cal.2d 672, 681, 312 P.2d 680). Even more to the point, the California case law underlines that the Legislature as well as the court, is competent to define the retroactive scope of an overruling decision (County of Los Angeles v. Superior Court (1965) 62 Cal.2d 839, 845, 44 Cal.Rptr. 796, 402 P.2d 868). As the court put it in Forster Shipbldg. Co. v. County of L. A., supra, 54 Cal.2d at page 459, 6 Cal.Rptr. at page 29, 353 P.2d at page 741: "Such temporary application of the rule of an overruled case may be prescribed by appropriate legislation as well as by judicial decision, for the Legislature is no less competent than the court to evaluate the hardships involved and decide whether considerations of fairness and public policy warrant the granting of relief." (Emphasis added; accord: Atlantic Richfield Co. v. County of Los Angeles (1977) 68 Cal.App.3d 105, 115, 137 Cal.Rptr. 84).

In the instant case, the Legislature not only provided for the prospective application of Michelin but also set out in detail the policy reasons served and promoted by such future application. Thus the Legislature found that importers had relied upon statutory and case law which was in effect prior to Michelin ; that they could not reasonably foresee the change of law; that the decision in Michelin, if applied retroactively, would cause many importers to become insolvent, relocate or go out of business; and that the decline of the import business would result in a further deterioration of the labor market in California. Based upon the foregoing considerations the Legislature declared that the retroactive application of Michelin would be manifestly unfair, would cause severe economic hardship, inequities and injustices and would run counter to public policy. 3

In sum, under well settled law the Legislature, as well as the courts, is empowered to provide for a prospective or retrospective application of an overruling judicial decision predicated upon principles of equity and public policy. In the case at bench, the California Legislature...

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