Shuwa Investments Corp. v. County of Los Angeles

Decision Date24 December 1991
Docket NumberNo. B056571,B056571
Citation2 Cal.Rptr.2d 783,1 Cal.App.4th 1635
CourtCalifornia Court of Appeals
PartiesSHUWA INVESTMENTS CORPORATION, Plaintiff and Appellant, v. COUNTY OF LOS ANGELES, a political subdivision of the State of California, Defendant and Respondent.

O'Melveny & Myers, Frederick A. Richman, Thomas M. McCoy and Marcy Jo Mandel and Kindel & Anderson, Carlos Solis and Gary W. Maeder, Los Angeles, for plaintiff and appellant.

DeWitt W. Clinton, County Counsel, Dennis M. Devitt, Principal Deputy County Counsel, Albert Ramseyer, Deputy County Counsel and Nossaman, Guthner, Knox & Elliott, Alvin S. Kaufer and Jean F. Spitzer, Los Angeles, for defendant and respondent.

JOHNSON, Associate Justice.

Appellant, Shuwa Investments Corporation (Shuwa), appeals from a summary judgment in favor of defendant and respondent County of Los Angeles (County), denying its claim for partial refund of property taxes. The ultimate issue in this appeal is whether Shuwa's acquisition of the ARCO Plaza office building complex in downtown Los Angeles resulted in a 50% "change of ownership" as Shuwa contends, or in a 100% "change of ownership" as the County contends. We agree with the County that Shuwa's acquisition resulted in a 100% "change of ownership" and affirm the judgment.

FACTS AND PROCEEDINGS BELOW

Prior to September 16, 1986, the Flower Street partnership owned the ARCO Plaza. Flower Street Limited, a California general partnership, had two general partners: Atlantic Richfield Company ("ARCO") and Bank of America. Each owned a 50% partnership interest in Flower Street.

In 1985, ARCO decided to sell the interest it held in the ARCO Plaza through Flower Street. An ARCO/Bank of America working group formed to dispose of the ARCO Plaza. This group prepared hypothetical legal documents in preparation for the sale. The parties prepared the documents, expecting it would require several buyers to purchase the respective partnership interests.

On July 23, 1986, Shuwa submitted a letter of intent offering to buy 100% of the ARCO Plaza from Flower Street. Shuwa's offer was rejected. ARCO explained, that because of the unfavorable federal income tax consequences of such a sale, purchase by Shuwa of ARCO's partnership interest was the only way ARCO would agree to participate in the transaction. 1

On July 25, 1986, Shuwa, ARCO and Bank of America executed a letter of intent for Shuwa to purchase "all of the partnership interests". 2 The letter of intent also indicated the parties' desire to structure the transaction to minimize the "change in ownership" for property tax purposes. 3 Counsel for Shuwa testified it was assumed the terms of the letter agreement were not binding and that both the economic terms and structure of the transaction would be further negotiated prior to closing of the transaction. Counsel also testified he advised Shuwa not to purchase any more partnership interests than were necessary to consummate the transaction in order to limit partnership liability exposure.

The parties arrived at a structure for the transaction which satisfied ARCO's federal income tax requirements, Shuwa's opposition to the purchase of more partnership interests than were necessary and the parties' desire to minimize any property tax reassessment. The proposed structure was a three step transaction in which 1) ARCO would sell its partnership interest in Flower Street to Shuwa; 2) Bank of America and Shuwa would liquidate Flower Street and receive their respective 50% undivided interests in ARCO Plaza; and 3) Bank of America would sell its 50% undivided interest in the ARCO Plaza to Shuwa.

Section 12.14 was added to the draft purchase and sale agreement to reflect the contemplated three step structure. 4 This structure had been informally reviewed by the State Board of Equalization's chief counsel for property taxes who opined the transaction would result in a 50% "change in ownership".

On August 4, 1986, the parties signed a purchase and sale agreement providing for a sale of all the partnership interests agreeing to use their best efforts to structure the transaction through this three-step process.

On August 6, 1986, the parties sought a formal opinion from the State Board of Equalization regarding the tax consequences of the transaction to confirm there would be a change in ownership for property tax purposes of 50% of the property. On September 2, 1986, tax counsel for the State Board of Equalization issued an advisory opinion which concluded that, assuming the steps were necessitated by bona fide business purposes, independent of a desire to avoid property tax, the transaction would result in only a 50% change in ownership for reassessment purposes. 5

On September 3, 1986 the agreement was amended to adopt the three-step procedure. 6 Other changes to the purchase agreement included a reduction in purchase price and a modification to ARCO's lease. 7

On September 15, 1986, the parties delivered to escrow all documents required to consummate the transaction with instructions the documents were not to be effective until the closing on September 16, 1986. On September 16, 1986, escrow closed and Shuwa acquired title to the ARCO Plaza through the previously described three step process. Shuwa paid Bank of America and ARCO a total of $620,000,000.

The county assessor reassessed the ARCO Plaza 100% on the basis of 100% "change of ownership". For the 1986-1987 tax year, supplemental property taxes were levied in the amount of $3,248,182.74 based on the increase in the assessed value. For the 1987-1988 tax year, property taxes were levied in the amount of $6,679,149.45 based on the new assessed value. Shuwa paid these taxes and filed appeals before the Los Angeles County Assessment Appeals Board claiming a partial refund based on 50% change in ownership. 8

After Shuwa's appeals were denied, Shuwa filed a complaint for refund of property taxes alleging neither the transfer of ARCO's partnership interest nor Flower Street's pro-rata distribution of the ARCO Plaza was a "change in ownership" under the Revenue and Taxation Code. Shuwa's complaint further alleged Bank of America's transfer of its undivided interest in the ARCO Plaza was a "change of ownership" only as to the 50% interest transferred and the 100% reassessment was therefore erroneous.

In its answer, the County denied 100% reassessment of the ARCO Plaza was erroneous, alleging, inter alia, each of the three transfers was a step in a larger transaction, that Shuwa owned 100% of ARCO Plaza when it owned no interest in the property the day before, and that Shuwa's complaint was barred by the step transaction, business purpose, and substance over form doctrines.

Proceedings before the trial court were de novo. The County moved for summary judgment following completion of discovery. Shuwa filed opposition and its own motion for summary judgment. The trial court granted the County's motion based on its findings "the purpose of the transactions was to avoid property taxes" and that "there was a complete change in ownership". At the conclusion of the hearings on the County's motion, the trial court stated: "Just so there is clarity in the future of this case, I make the following two findings as a matter of law: One, that the purpose of the transactions was to avoid property taxes. Number two, I find that there was a complete change of ownership. [p] The motion for summary judgment is granted."

Shuwa appeals from the summary judgment entered in the County's favor.

DISCUSSION

What constitutes a "change in ownership" is a question of law subject to this court's independent de novo judicial review. (Pacific Grove-Asilomar Operating Corp. v. County of Monterey (1974) 43 Cal.App.3d 675, 680-683, 117 Cal.Rptr. 874.) We are, therefore, not bound by the trial court's conclusions. (Stratton v. First National Life Ins. Co. (1989) 210 Cal.App.3d 1071, 1083, 258 Cal.Rptr. 721.) "Since a summary judgment motion raises only questions of law regarding the construction and effect of the supporting and opposing papers, we independently review them on appeal,...." (AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1064, 225 Cal.Rptr. 203.) This court must independently identify the issues framed by the pleadings, determine whether the moving party has made a prima facie showing sufficient to justify a judgment, and determine whether the opposition demonstrates the existence of a triable issue of material fact. (Id. at p. 1064-1065, 225 Cal.Rptr. 203.) In so doing, we strictly construe the moving papers and liberally construe the opposing papers. Because summary judgment is such a drastic measure, all doubts concerning the propriety of granting the motion must be resolved in favor of its denial. (Stratton v. First National Life Insurance Co., supra, 210 Cal.App.3d 1071, 258 Cal.Rptr. 721.)

I. THE TRANSFERS TECHNICALLY COMPLIED WITH THE LETTER IF NOT THE SPIRIT OF THE REVENUE & TAXATION CODES.

Article XIIIA of the California Constitution (Proposition 13) provides that real property shall be reassessed for property tax purposes when a "change in ownership" occurs or the property is "newly constructed" or "purchased". (Cal. Const. art. XIIIA, § 2(a); Rev. & Tax Code, §§ 60 et seq., 70 et seq.; 18 Cal.Code Regs., § 463.) The Supreme Court in Amador Valley Joint Union High School Dist. v. State Board of Equalization (1978) 22 Cal.3d 208, 245, 149 Cal.Rptr. 239, 583 P.2d 1281, determined the meaning of "change of ownership" was left for resolution "by the contemporaneous construction of the Legislature or of the administrative agencies charged with implementing the new enactment." (Accord, Title Ins. & Trust Co. v. County of Riverside, supra, 48 Cal.3d 84, 95, 255 Cal.Rptr. 670, 767 P.2d 1148 ["Proposition 13, while directing reassessment of property upon a 'change of ownership', did not...

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