Todd Shipyards Corp. v. City of Los Angeles

• Decision Date: 25 March 1982
• Citation: 130 Cal.App.3d 222,181 Cal.Rptr. 652
• Court: California Court of Appeals Court of Appeals
• Parties: TODD SHIPYARDS CORPORATION, Plaintiff and Appellant, v. CITY OF LOS ANGELES, Defendant and Respondent. Civ. 63009.

Page 652

181 Cal.Rptr. 652

130 Cal.App.3d 222

TODD SHIPYARDS CORPORATION, Plaintiff and Appellant, v. CITY OF LOS ANGELES, Defendant and Respondent.

Civ. 63009.

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

March 25, 1982.

Hearing Denied July 7, 1982.

Parker, Milliken, Clark & O'Hara and Everett F. Meiners and Bruce D. May, Los Angeles, for plaintiff and appellant.

Ira Reiner, City Atty., Thomas C. Bonaventura, Senior Asst. City Atty., and Ronald A. Tuller, Asst. City Atty., for defendant and respondent.

DALSIMER, Associate Justice.

Plaintiff and appellant, Todd Shipyards Corporation, appeals from a judgment of Appellant brought an action to recover business taxes overpaid to respondent under Los Angeles Municipal Code section 21.190 for the years 1963 through 1973. Respondent voluntarily refunded to appellant $156,198.83 in overpaid business taxes for the years 1966 through 1973 under an agreement which permitted appellant to seek interest on the amount refunded. Each party then moved for summary judgment. The sole issue before the superior court in said motions was whether respondent was liable for interest on the amounts refunded to appellant. The court denied appellant's motion for summary judgment and granted that of respondent, and this appeal ensued.

the superior court entered in favor of defendant and respondent, City of Los Angeles.

STATEMENT OF FACTS

The facts are undisputed. Appellant operates a shipyard within the City of Los Angeles where it constructs, overhauls, modifies, and repairs ocean-going vessels. Work performed for the United States government was done pursuant to contracts containing "passage of title" clauses which provided that once materials or components required under the contract were acquired or produced by appellant or appropriated to the contract, title to such material or components passed to the United States government.

With respect to "passage of title" contracts, respondent took the position that there was a sale of goods only to the extent that the title to the material and components passed to the United States government. After title passed, all payment for work performed by appellant was considered to be service income subject to tax under Los Angeles Municipal Code section 21.190 at a higher rate than that imposed on sales. Commencing with tax year 1963, appellant, under protest, paid its business taxes in accordance with respondent's position, and in 1968 commenced this action for refund thereof. The parties agreed to hold the action in abeyance pending the outcome of litigation involving other government contractors contesting the same issue. It was ultimately decided in ITT Gilfillan, Inc. v. City of Los Angeles (1977) 72 Cal.App.3d 421, 140 Cal.Rptr. 193 that gross receipts arising after passage of title to the materials and components were part of the sale of goods and should not have been taxed under Los Angeles Municipal Code section 21.190.

The only question to be decided on this appeal is: May a taxpayer who recovers a city business tax paid under protest also recover prejudgment interest under Civil Code section 3287, subdivision (a)?

We hold that he may.

DISCUSSION

California Civil Code section 3287, subdivision (a), reads as follows:

"Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except during such time as the debtor is prevented by law, or by the act of the creditor from paying the debt. This section is applicable to the recovery of damages and interest from any such debtor, including the state or any county, city, city and county, municipal corporation, public district, public agency, or any political subdivision of the state."

Respondent argues that Civil Code section 3287, subdivision (a), has no application to this case because of the "home rule doctrine."

In Bishop v. City of San Jose (1969) 1 Cal.3d 56, 61-62, 81 Cal.Rptr. 465, 460 P.2d 137, the court said: "At all times since adoption of the Constitution in 1879, section 11 of article XI has specified that 'Any county, city, town, or township may make and enforce within its limits all such local, police, sanitary, and other regulations as are not in conflict with general laws.' (Italics added.) In 1896 section 6 of article XI was amended to provide a limited amount of autonomy for freeholders' charter cities, and in 1914 sections 6 and 8 of article XI were amended to permit such cities, by appropriate charter amendments, to acquire autonomy with respect to all municipal affairs. A city which adopted such 'home rule' amendments thereby gained exemption, with respect to its municipal affairs, from the 'conflict with general laws' restrictions of section 11 of article XI. [p] As to matters which are of statewide concern, however, home rule charter cities remain subject to and controlled by applicable general state laws regardless of the provisions of their charters, if it is the intent and purpose of such general laws to occupy the field to the exclusion of municipal regulation (the preemption doctrine). [Citations.]"

"Because the various sections of article XI fail to define municipal affairs, it becomes necessary for the courts to decide, under the facts of each case, whether the subject matter under discussion is of municipal or statewide concern." (Professional Fire Fighters, Inc. v. City of Los Angeles (1963) 60 Cal.2d 276, 294, 32 Cal.Rptr. 830, 384 P.2d 158.)

California courts have repeatedly applied section 3287 of the Civil Code to municipalities even though the obligations upon which the actions were based were indubitably municipal affairs, such as wages and pension plans for city employees. (Sanders v. City of Los Angeles (1970) 3 Cal.3d 252, 262-263, 90 Cal.Rptr. 169, 475 P.2d 201 [wages]; Benson v. City of Los Angeles (1963) 60 Cal.2d 355, 366, 33 Cal.Rptr. 257, 384 P.2d 649 [pensions]; Squire v. City and County of San Francisco (1970) 12 Cal.App.3d 974, 982, 91 Cal.Rptr. 347 [wages]; Mullins v. Toothman (1965) 231 Cal.App.2d 756, 769, 42 Cal.Rptr. 254 [wages]; Adler v. City of Pasadena (1964) 229 Cal.App.2d 518, 524-527, 40 Cal.Rptr. 373 [pensions].)

In Mass v. Board of Education (1964) 61 Cal.2d 612, 624, 39 Cal.Rptr. 739, 394 P.2d 579, the court noted that Civil Code section 3287 as it existed prior to 1955 did not apply to a " 'political subdivision of the State.' " In 1959 the Legislature amplified the meaning of a "political subdivision," describing it as "any county, city, city and county, municipal corporation, public district, public agency, or any political subdivision." The Mass court pointed out that prior to 1955, interest could not be obtained against a governmental entity without statutory authority, but that the amendment to section 3287 provides such authority. (Id., at p. 626, 39 Cal.Rptr. 739, 394 P.2d 579.) The court held that interest on a teacher's back salary was a proper element of damages. (Id., at pp. 624-627, 39 Cal.Rptr. 739, 394 P.2d 579.)

In Tripp v. Swoap (1976) 17 Cal.3d 671, 682, 131 Cal.Rptr. 789, 552 P.2d 749, the court built upon the foundation of Mass and held that in order to recover interest, a claimant must satisfy three conditions: "(1) There must be an underlying monetary obligation; (2) the recovery must be certain or capable of being made certain by calculation; and (3) the right to recovery must vest on a particular day."

Those conditions are met here. The City of Los Angeles has already recognized its legal obligation to repay the funds which were wrongfully collected, and that debt was due, in each instance, on the day the respective payments were wrongfully collected, and in each instance the right to recover vested on the same day on which the money was paid. Once the wrongfulness of the tax was ascertained, the right to recovery was established, and the amount of interest became solely a mechanical application of arithmetic.

In disapproving of Luna v. Carleson (1975) 45 Cal.App.3d 670, 119 Cal.Rptr. 711, the Tripp court stated emphatically, "While it is true that governmental entities traditionally have been immune from liability for interest, Civil Code section 3287 as amended in 1959 provides a clear statutory exception to the general rule, and this exception has been consistently recognized by this court as imposing liability for interest on such entities. [Citations.]" (Tripp v. Swoap, supra, 17 Cal.3d 671, 683-684, 131 Cal.Rptr. 789, 552 P.2d 749.)

The City of Los Angeles relies upon Ball v. County of Los Angeles (1978) 82 Cal.App.3d 312, 147 Cal.Rptr. 252, cert. den., 439 U.S. 1116, 99 S.Ct. 1021, 59 L.Ed.2d 75. The Ball case seems to be comparable to the case at bench, but a close reading discloses a marked dissimilarity. While there was a dispute between the taxpayer and the City of Los Angeles in this case, and the taxes were paid under protest, in Ball the taxpayer paid the taxes voluntarily though in error. ¹ As soon as the error was discovered by the taxpayer and pointed out to the county, the taxpayer's claim for a refund was processed, verified, and paid. As in the instant case, the taxpayer's claim for interest on the refund was denied on summary judgment, and an appeal ensued. The Ball court held that the county would be "liable to Ball for interest for the use of her money only if there is a specific statute authorizing the payment of interest on her refund." (Id., at p. 317, 147 Cal.Rptr. 252.) The court construed several sections of the Revenue and Taxation Code and found that none of them supported the taxpayer's claim to interest. Significantly, however, the court's attention apparently was not directed to Civil Code section 3287, as that statute was not mentioned by the court. Moreover, as the court pointed out in Ball, where money is paid by one private party to another under mutual...