United States v. California

• Decision Date: 26 April 1993
• Docket Number: No. 91-2003,91-2003
• Citation: 507 U.S. 746,113 S.Ct. 1784,123 L.Ed.2d 528
• Parties: UNITED STATES, Petitioner v. CALIFORNIA and California State Board of Equalization
• Court: U.S. Supreme Court

507 U.S. 746

113 S.Ct. 1784

123 L.Ed.2d 528

UNITED STATES, Petitioner

v CALIFORNIA and California State Board of Equalization.

No. 91-2003.

Argued Feb. 23, 1993.

Decided April 26, 1993.

Syllabus ^*

After California issued sales and use tax deficiency notices to federal contractor Williams Brothers Engineering Company (WBEC) in 1978 and 1982, the State assessed approximately $14 million in such taxes against WBEC for the tax years 1975 through 1981. Under its contract with the United States, WBEC received an annual fixed fee plus reimbursement for costs, including the state taxes. At the Government's direction, WBEC applied to the State Board of Equalization for redetermination of the assessments, but each claim was denied, with minor exceptions. WBEC then paid the assessments under protest, using funds the Government provided, and filed timely actions in state court. In January 1988, the State and WBEC stipulated to a $3 million refund and to dismissal of the actions without prejudice. In May 1988, the Government filed suit in the Federal District Court, seeking a declaratory judgment that California had classified and taxed WBEC erroneously under state law and an $11 million refund plus interest. In granting the State summary judgment, the District Court rejected the Government's argument that it was entitled to recovery based on the federal common law cause of action for money had and received. The Court of Appeals affirmed.

Held: The Federal Government may not recover the taxes it claims were wrongfully assessed under California law against WBEC. Pp. ____.

(a) Shouldering the entire economic burden of a levy through indemnification does not give the Government a federal common law cause of action for money had and received to challenge a state tax on state-law grounds simply because it is the Government. The contract here is in all relevant respects identical to the ones discussed in United States v. New Mexico, 455 U.S. 720, 102 S.Ct. 1373, 71 L.Ed.2d 580, in which the Court held, inter alia, that federal contractors are not immune from state taxes simply because the Government reimburses all of the contractors' state tax expenditures, see id., at 734-735, 102 S.Ct., at 1382-1383. Moreover, the Government's voluntary agreement to reimburse (or even fund in advance) WBEC for the taxes does not make the Government's payments direct disbursements of federal funds to the State. Cf. Brady v. Roosevelt Steamship Co., 317 U.S. 575, 63 S.Ct. 425, 87 L.Ed. 471. Thus, the Government cannot use the existence of its obligation to indemnify WBEC to create the asserted federal cause of action. Bayne v. United States, 93 U.S. 642, 23 L.Ed. 997, and Gaines v. Miller, 111 U.S. 395, 4 S.Ct. 426, 28 L.Ed. 466, share two features this case lacks and therefore are inapposite. Because WBEC (1) did not steal or otherwise unlawfully take the money at issue from the Government, and (2) did not have a relationship with California that would make the State liable for WBEC's actions, the Court does not imply a contract in law between California and the Government. Without an implied contract, an action for money had and received will not lie against the State. See Bayne, supra, at 643. Pp. ____.

(b) Because it indemnified WBEC, the Government has a right to be subrogated to WBEC's claims against the State. Under traditional principles of subrogation, however, a subrogee takes no more rights than its subrogor had. In this case, WBEC dismissed its state-law actions and the state statute of limitations has run against it. The Government argues that state statutes of limitations do not apply to it, but in Guaranty Trust Co. v. United States, 304 U.S. 126, 58 S.Ct. 785, 82 L.Ed. 1224, this Court held that even if that were true, the principle did not apply when the Government acquired a right by assignment after the statute of limitations has run against the assignor. Id., at 141-142, 58 S.Ct., at 793. Although the Government acquired a right to be subrogated to WBEC's claims when it paid the taxes, it was not subrogated to those claims until it filed this proceeding in federal court. By then, the state statute of limitations had run; thus, the Government was not subrogated to "a right free of a pre-existing infirmity." Id., at 142, 58 S.Ct., at 793. Pp. ____.

932 F.2d 1346 (C.A.9 1991), affirmed.

O'CONNOR, J., delivered the opinion for a unanimous Court.

Kent L. Jones, Washington, DC, for petitioner.

Robert D. Milam, Sacramento, CA, for respondents.

Justice O'CONNOR delivered the opinion of the Court.

This is another in the long line of cases, beginning with McCulloch v. Maryland, 4 U.S. (Wheat.) 316, 4 L.Ed. 579 (1819), in which the Federal Government asks this Court for relief from what it considers illegal state taxes. Unlike the typical tax immunity case, however, we are not presented with a claim that the state tax is unconstitutional; instead, the question is whether the Federal Government may recover taxes it claims were wrongfully assessed under California law against one of the Government's private contractors.

I

The United States has established three Naval Petroleum Reserves in California and Wyoming, one of which is Naval Petroleum Reserve No. 1, located in Kern County, California. 10 U.S.C. § 7420. First through the Department of the Navy and later through the Department of Energy, the United States contracted with Williams Brothers Engineering Company (WBEC) to manage oil drilling operations at Reserve No. 1 from 1975 to 1985. Under the contract, WBEC received an annual fixed fee plus reimbursement for costs, which the contract defined to include state sales and use taxes.

California assessed approximately $14 million in sales and use taxes, pursuant to Cal.Rev. & Tax.Code Ann. § 6384 (West 1987), against WBEC for the years 1975 through 1981. The State imfrormed WBEC of the tax deficiencies through two notices, on issued in July 1978 and the other in December 1982/ WBEC. at the direction of the United applied to the California Board of Equalization for administrative redetermination of the assessments, see Cal.Rev. & Tax.Code Ann. § 6932 (West 1987). WBEC argued that the State had misapplied its own law, taxing property that was outside the scope of § 6384. The Board of Equalization denied each claim, with minor exceptions. Thereafter, WBEC paid the assessments under protest, using funds the Federal Government provided. It then filed timely actions in state court. In January 1988, the State and WBEC stipulated to a $3 million refund, for erroneous assessments on property that WBEC had purchased and that Government personnel had installed, and to dismissal of both actions without prejudice. The remaining $11 million resulted from assessments on property that WBEC had purchased and that private subcontractors, managed by WBEC, had installed.

In May 1988, the United States filed suit in the Eastern District of California, seeking a declaratory judgment that California had classified and taxed WBEC erroneously under California law and that the taxed property actually was exempt. It sought a refund of the $11 million plus interest. In the course of the suit, the United States argued it was entitled to recovery based on the federal common law cause of action for money had and received. The District Court rejected both grounds for recovery and granted summary judgment for the State.

The Court of Appeals for the Ninth Circuit affirmed. 932 F.2d 1346 (1991). The court began by noting that the Government did not claim that either it or WBEC was constitutionally immune from the tax, an argument this Court rejected in United States v. New Mexico, 455 U.S. 720, 102 S.Ct. 1373, 71 L.Ed.2d 580 (1982). 932 F.2d, at 1347-1348. Because the United States lacked "a colorable constitutional challenge," id., at 1349, the Court of Appeals looked to whether federal common law might provide a cause of action. It declined to accept the Government's argument that the simple act of disbursing federal funds was a "constitutional function" that created a federal interest in conflict with state law. The Government had done no more than pay state taxes pursuant to state law; this did not rise to the level of a federal interest requiring the application of federal law. Ibid. The Court of Appeals then held that the Government could not maintain a quasi-contract cause of action because the facts did not support a claim of unjust enrichment. Among other things, "WBEC, backed throughout by the United States, had a fair chance to argue against the validity of the assessments in the administrative and state court proceedings." Id., at 1350. Finally, the Court of Appeals relied on the fact that the Government's quasi-contract argument was "posited upon the interpretation of a state-created exemption from a state[-]created sales tax." Ibid. The court found that the State's claim filing requirements, including that a court action be filed within 90 days of an administrative denial, were conditions precedent to a cause of action for a tax refund. Id., at 1350-1351. The Government had failed to satisfy the conditions; therefore, the Court of Appeals held, the Government had no state cause of action and no quasi-contract action. "Since federal statutes of limitations become determinative only after the government acquires a cause of action, and since the United States never acquired a cause of action," the court reasoned, the six-year statute of limitations of "28 U.S.C. § 2415 does not apply." Id., at 1351.

The Court of Appeals acknowledged that the Court of Appeals for the Eleventh Circuit, in a factually similar case, recently had reached the opposite conclusion. Id., at 1351-1352. In United States v. Broward County, 901 F.2d 1005 (1990), the Eleventh Circuit rejected the argument on which the Ninth Circuit relied and held that the Government had a "federal common law cause of action in quasi-contract for money had and received." Id., at...