Opinion
G053181
04-13-2017
IN RE 2009 AIRCRAFT TAX REFUND CASES
Greenberg Traurig, C. Stephen Davis, Cris K. O'Neall and Andrew W. Bodeau for Plaintiffs and Appellants. Thomas E. Montgomery, County Counsel, and Walter J. De Lorrell III, Deputy County Counsel, for Defendants and Respondents County of San Diego and Ernest J. Dronenburg, Jr. John C. Beiers, County Counsel, and Rebecca M. Archer, Deputy County Counsel, for Defendants and Respondents County of San Mateo and Mark Church. Mary C. Wickham, County Counsel, and Albert Ramseyer, Deputy County Counsel, for Defendants and Respondents County of Los Angeles and Jeffrey Prang. Donna R. Ziegler, County Counsel, and Andrew J. Massey, Deputy County Counsel, for Defendants and Respondents County of Alameda and Ron Thomsen. Daniel C. Cederborg, County Counsel, and Jane T. Smith, Deputy County Counsel, for Defendants and Respondents County of Fresno and Paul Dictos. Leon J. Page, County Counsel, and Steven C. Miller, Deputy County Counsel, for Defendants and Respondents County of Orange and Claude Parrish. Gregory P. Priamos, County Counsel, Marsha Victor and Kristine Bell-Valdez, Deputy County Counsel, for Defendants and Respondents County of Riverside and Peter Aldana. Robyn Truitt Drivon, County Counsel, and Rick Heyer, Deputy County Counsel, for Defendants and Respondents County of Sacramento and Kathleen Kelleher. Jean-Rene Basle, County Counsel, and Robert Messinger, Deputy County Counsel, for Defendants and Respondents County of San Bernardino and Bob Dutton. Michael C. Ghizzoni, County Counsel, and Marie A. Lasala, Deputy County Counsel, for Defendants and Respondents County of Santa Barbara and Joseph E. Holland. Orry P. Korb, County Counsel, Robert Nakamae and Mark Bernal, Deputy County Counsel, for Defendants and Respondents County of Santa Clara and Lawrence E. Stone.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. JCCP 4803) OPINION Appeal from judgments of the Superior Court of Orange County, Kim Garlin Dunning, Judge. Judgments affirmed. Request for judicial notice denied. Greenberg Traurig, C. Stephen Davis, Cris K. O'Neall and Andrew W. Bodeau for Plaintiffs and Appellants. Thomas E. Montgomery, County Counsel, and Walter J. De Lorrell III, Deputy County Counsel, for Defendants and Respondents County of San Diego and Ernest J. Dronenburg, Jr. John C. Beiers, County Counsel, and Rebecca M. Archer, Deputy County Counsel, for Defendants and Respondents County of San Mateo and Mark Church. Mary C. Wickham, County Counsel, and Albert Ramseyer, Deputy County Counsel, for Defendants and Respondents County of Los Angeles and Jeffrey Prang. Donna R. Ziegler, County Counsel, and Andrew J. Massey, Deputy County Counsel, for Defendants and Respondents County of Alameda and Ron Thomsen. Daniel C. Cederborg, County Counsel, and Jane T. Smith, Deputy County Counsel, for Defendants and Respondents County of Fresno and Paul Dictos. Leon J. Page, County Counsel, and Steven C. Miller, Deputy County Counsel, for Defendants and Respondents County of Orange and Claude Parrish. Gregory P. Priamos, County Counsel, Marsha Victor and Kristine Bell-Valdez, Deputy County Counsel, for Defendants and Respondents County of Riverside and Peter Aldana. Robyn Truitt Drivon, County Counsel, and Rick Heyer, Deputy County Counsel, for Defendants and Respondents County of Sacramento and Kathleen Kelleher. Jean-Rene Basle, County Counsel, and Robert Messinger, Deputy County Counsel, for Defendants and Respondents County of San Bernardino and Bob Dutton. Michael C. Ghizzoni, County Counsel, and Marie A. Lasala, Deputy County Counsel, for Defendants and Respondents County of Santa Barbara and Joseph E. Holland. Orry P. Korb, County Counsel, Robert Nakamae and Mark Bernal, Deputy County Counsel, for Defendants and Respondents County of Santa Clara and Lawrence E. Stone.
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Plaintiffs Airtran Airways Inc., American Airlines, Inc., Envoy Air Inc., Jetblue Airways Corporation, Skywest Airlines, Inc., Southwest Airlines Co., and United Airlines, Inc. filed 44 separate suits and generally identical against defendants for tax refunds and declaratory relief, challenging the imposition of property tax assessments on their commercial aircraft. They claim defendants deviated from the mandatory statutory formula to calculate the taxes, and as a result the assessments were void.
Defendants are the counties of San Diego, San Mateo, Los Angeles, Alameda, Fresno, Orange, Riverside, Sacramento, San Bernardino, Santa Barbara, and Santa Clara (Counties), and their respective assessors Ernest J. Dronenburg, Jr., Mark Church, Jeffrey Prang, Ron Thomsen, Paul Dictos, Claude Parrish, Peter Aldana, Kathleen Kelleher, Bob Dutton, Joseph E. Holland, and Lawrence E. Stone (Assessors; together with Counties, defendants.)
The court sustained defendants' demurrers without leave to amend on the ground plaintiffs had not exhausted their administrative remedy by challenging the assessments before the local boards of equalization (Boards). Plaintiffs appeal the ruling as to the refund cause of action, contending they were not required to appeal to the Boards before seeking a refund because the tax assessments were void.
Demurrers to two of the 44 complaints were overruled because plaintiffs alleged they had properly exhausted their administrative remedies by appealing to the respective Boards before seeking a refund.
Defendants argue to the contrary, claiming there was no basis to excuse plaintiffs from fully exhausting their administrative remedies.
We agree with defendants and affirm.
REQUEST FOR JUDICIAL NOTICE
Plaintiffs filed a request for judicial notice asking us to take notice of a portion of the trial transcript in the two cases in which a demurrer was overruled because the parties had fully exhausted their administrative remedies. (See fn. 2 below.) We deny the request.
First, the trial in those cases occurred long after the appeal was filed. On appeal the record is limited to documents that were before the trial court. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444, fn. 3.) There are no exceptional circumstances that would justify our considering these documents. (Ibid.)
Second, plaintiffs argue the testimony is relevant because defendant County of Los Angeles concedes that if you "look at the statute literally," the formula it used was different. But as discussed below, the issue is not whether defendants applied the statute correctly. Rather, the question is whether plaintiffs should have appealed the appraisal to the Boards before filing a superior court action.
FACTS AND PROCEDURAL HISTORY
Plaintiffs own commercial aircraft subject to property tax assessments within the jurisdictions of the Counties. According to the complaints, defendants were required to assess the aircraft according to a statutory formula set out in Revenue and Taxation Code section 401.17 (all further statutory references are to this code). Plaintiffs alleged Assessors failed to correctly apply the provisions of section 401.17 in calculating economic obsolescence, resulting in excessive assessments. Plaintiffs pleaded the taxes charged were void.
Plaintiffs sought a refund for the excess taxes they allegedly paid. Plaintiffs pleaded they exhausted their administrative remedies by filing refund claims with their respective counties. They did not, however, first challenge the allegedly incorrect assessments with the Boards. They contend they were not required to do so because there is only one way to apply the formula set out in section 401.17 and the Boards have no "special competence to decide" valuation.
The complaints alleged Assessors contend section 401.17 is void or "does not establish a mandatory statutory duty that requires them to apply the statute as written." The complaints also alleged Assessors complied with the statutory formula in certain respects.
Plaintiffs filed their complaints for refund and declaratory relief, which were coordinated in the Orange County Superior Court. Defendants jointly demurred to the complaints on the grounds plaintiffs failed to exhaust their administrative remedies by appealing the allegedly incorrect assessments to the Boards before seeking refunds. In addition, the demurrers argued declaratory relief was improper because the refund cause of action was an adequate remedy. The court sustained the demurrers without leave to amend and entered judgments.
DISCUSSION
1. Standard of Review and General Principles
An order sustaining a demurrer without leave to amend is reviewed de novo. (Del Cerro Mobile Estates v. City of Placentia (2011) 197 Cal.App.4th 173, 178.) "'[W]e treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law'" (National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 43) or speculative allegations (Rotolo v. San Jose Sports & Entertainment, LLC (2007) 151 Cal.App.4th 307, 318, disapproved on another ground in Verdugo v. Target Corp. (2014) 59 Cal.4th 312, 333, 334, fn. 15). "'[W]e give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.'" (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) 2. Requirements of Section 401 .17 and Allegations in Complaint
Section 401.17 sets out a detailed, multi-step formula for assessing commercial aircraft. Among the many components of the formula, the section provides for calculation of economic obsolescence (id., subd. (a)(1)(C)) and various factors to be used in doing so (id., subd. (a)(1)(C)(i)(I)).
Plaintiffs alleged section 401.17 required defendants to determine the original cost of the aircraft, adjust that cost to account for depreciation, and then further adjust that cost to account for economic obsolescence. They also alleged economic obsolescence is calculated in five steps. According to the complaints defendants performed all of the calculations correctly except the adjustment for economic obsolescence.
Plaintiffs pleaded the last part of the economic obsolescence formula required use of a 10-year benchmark but defendants used a calendar year benchmark instead. The complaints alleged the error led to less than 10 percent economic obsolescence rather than the 70 percent plaintiffs claim is correct.
The complaints pleaded the calculations failed to comply with the "procedures" required in section 401.17, subdivision (a)(1)(C). According to plaintiffs, the alleged failure to follow the statute only required the court to interpret the statute, and no factual findings were necessary. 3. Exhaustion of Administrative Remedies
When a taxpayer disputes a personal property tax, the general rule is it must exhaust its administrative remedies before filing suit. (Steinhart v. County of Los Angeles (2010) 47 Cal.4th 1298, 1307-1308 (Steinhart).) "In the property tax context, application of the exhaustion principle means that a taxpayer ordinarily may not file or pursue a court action for a tax refund without first applying to the local board of equalization for assessment reduction under section 1603 and [then] filing an administrative tax refund claim under section 5097." (Id. at p. 1308; § 1603, subd. (a) [assessment may not be reduced before taxpayer applies to board of equalization].)
In this case, plaintiffs skipped the first step in the exhaustion process. They did not apply for a reduction in the assessment before the Boards, but proceeded to the second step and filed an administrative claim for a refund. Plaintiffs assert they were not required to comply with the first step because the assessments were void. According to plaintiffs, there was only one set of numbers Assessors were allowed to use to compute economic obsolescence, and they had no discretion in calculating the amount of the assessment. As a result, plaintiffs maintain, there was no factual dispute and they were not required to seek a reduction from the Boards first. Plaintiffs contend their filing of a claim for refund was sufficient to exhaust their administrative remedies. This argument fails for several reasons. 4. Voidness and Exhaustion of Remedies
Plaintiffs' entire case rests on the argument the assessments were void, thus eliminating the necessity they first apply to the Boards for a reduction in assessment. We disagree.
An incorrect property valuation does not excuse exhaustion. (Stenocord Corp. v. City Etc. (1970) 2 Cal.3d 984, 990 (Stenocord), overruled in part by statute on another ground as noted in Steinhart, supra, 47 Cal.4th at p. 1310.) "'The fact that the assessor erroneously overvalues property which is otherwise subject to tax does not render the assessment a nullity under the foregoing rule, for disputes regarding valuation are within the special competence of the board of equalization. [Citations.] If any question of valuation exists, it would be irrelevant that plaintiff also challenges the assessment as "arbitrary" or void on constitutional grounds. [Citations.]'" (Plaza Hollister Ltd. Partnership v. County of San Benito (1999) 72 Cal.App.4th 1, 32-33 (Plaza Hollister), italics added.)
Plaintiffs cite Westinghouse Elec. Corp. v. County of Los Angeles (1974) 42 Cal.App.3d 32 (Westinghouse), which states that although normally a taxpayer must exhaust all administrative remedies, it is not necessary in certain cases, including "where the assessment is void for failure to follow statutory procedure." (Id. at pp. 36-37.) They rely on similar language from the State Board of Equalization's Assessment Appeals Manual (2003) page 109 (Manual), which, supported only by Westinghouse, also excuses application to an equalization board where the facts are not disputed and "the assessment is void for failure to follow statutory procedures." (https://www.boe.ca.gov/proptaxes/pdf/aam2003final.pdf [as of Apr. 10, 2017].) Plaintiffs' reliance is misplaced.
First, Westinghouse did not discuss or rely on the void assessment exception but instead held to the contrary—that the taxpayers had failed to exhaust their administrative remedies—and affirmed judgment in favor of the taxing authority. (Westinghouse, supra, 42 Cal.App.3d at p. 44.)
Second, the void assessment exception applies only in the limited circumstances where there is no factual dispute, not the case here, as explained in Section 5.b. below.
Even the Manual recommends that when a taxpayer is contesting an assessment as void or illegal and there is no issue of valuation, the taxpayer should nevertheless exhaust all administrative remedies. (Manual, supra, at p. 61.)
Third, the foundation of plaintiffs' entire theory, that defendants failed to follow "statutory procedure," is flawed. In the few cases in which exhaustion has been excused on this basis, the ignored procedure has generally been failure to give notice. This is illustrated by the two cases to which Westinghouse cited, Gaumer v. County of Tehama (1967) 247 Cal.App.2d 548 (Gaumer) and Tamco Dev. Co. v. County of Del Norte (1968) 260 Cal.App.2d 929 (Tamco).
In Gaumer, the assessor did not give the required notice the assessment had been substantially increased over the prior year. That rendered the assessment void because the taxpayer was not given the opportunity to participate in the equalization proceedings. Thus, exhaustion was excused. (Gaumer, supra, 247 Cal.App.2d at p. 551.)
Tamco had similar facts. The assessor did not give the taxpayers notice, preventing them from appearing before the board of equalization. There as well exhaustion was not required. (Tamco, supra, 260, Cal.App.2d at pp. 934-935.)
Plainly, failing to give notice when required by statute would violate a statutory procedure. But incorrectly applying part of the formula to establish economic obsolescence is different. It is an alleged inaccurate mathematical computation, having nothing to do with a statutory procedure. As defendants point out, adopting plaintiffs' argument means that any time an assessment allegedly did not comply with a statute, a taxpayer could claim a statutory procedure had been violated and bypass exhaustion. That is not what Gaumer and Tamco stand for
The complaint also alleged, and plaintiffs contend, defendants' purported violation of the section 401.17 formula only required the court to interpret the statute, not make any factual findings. From this they conclude the court has original jurisdiction of a legal question, making it unnecessary to apply to the Boards. In making this argument they rely on Star-Kist Foods, Inc. v. Quinn (1960) 54 Cal.2d 507 (Star-Kist).
Star-Kist was decided before enactment of section 401.17. (Stats. 2010, ch. 228 (A.B. 384).)
In Star-Kist the assessor failed to follow the valuation statute in question, claiming it was unconstitutional. The plaintiff did not file a claim with the board of equalization but proceeded to seek a writ. The court held the plaintiff was not required to apply to the board because the only issue was whether the statute was unconstitutional on its face. (Star-Kist, supra, 54 Cal.2d at p. 511.) It reasoned there was no valuation issue the board "had special competence to decide." (Ibid.) Additionally, there was no factual dispute or possibility the board could decide any issue that would eliminate a hearing by the court on the constitutionality claim. (Ibid.)
Plaintiffs' contention Star-Kist must apply because Steinhart, supra, 47 Cal.4th 1298 did not overrule it is incorrect. Steinhart specifically noted it was not required to either rely on or overrule Star-Kist because the issue was controlled by a particular statute requiring the taxpayer to appeal to the board of equalization. (Steinhart, supra, 47 Cal.4th at p. 1311.)
Plaintiffs liken that result to our case, claiming the only issue here is to construe the statute to determine whether the assessments were valid, a question the Boards could not resolve. Not so. As discussed below in Section 5.c., the Boards were competent to apply the statute and decide the assessments.
Further, defendants have not questioned the constitutionality of section 401.17. And the statute need not be construed to determine whether defendants properly applied it; there is a difference between ascertaining the meaning of section 401.17 and deciding whether Assessors correctly applied it.
In an alternative argument, plaintiffs contend filing the request for a refund was a sufficient exhaustion of their administrative remedies. This was alleged in the complaint as well. We are not persuaded. The same claim was made and rejected in, among other cases, Steinhart, supra, 47 Cal.4th at page 1309, footnote 6, Stenocord, supra, 2 Cal.3d. at pages 987-990 and Plaza Hollister, supra, 72 Cal.App.4th at page 34.
In sum, plaintiffs have not sufficiently alleged the assessments were void, and thus exhaustion of their administrative remedy was not excused. 5. Valuation, Factual Disputes, and the Boards' Special Competence
In an echo of their argument the assessments were void, plaintiffs contend there are neither factual nor valuation issues to be decided. As a result, they continue, an appeal to the Boards was not necessary because the Boards have no special competence to decide any disputed question. This argument is without merit.
a. Valuation
Plaintiffs maintain that in enacting section 401.17, with its mandatory provisions, the Legislature spelled out a specific formula and required data for Assessors to use, thus removing any discretion as to valuation. In support of their argument, plaintiffs set out portions of the legislative history of the bill that enacted section 401.17.
These include an explanation the bill's purpose was to "codify a valuation methodology" (Sen. Com. on Rev. & Tax., Analysis of Assem. Bill No. 964 (2005-2006 Reg. Sess.) Aug. 22, 2005, p. 3); and a statement bill will "establish detailed procedures in determining adjustment for economic obsolescence" (Sen. Com. on Rev. & Tax., Analysis of Assem. Bill No. 964, supra, at p. 4). Also, the bill would "specify a formula to determine the fair market value of certificated aircraft." (Legis. Counsel's Dig., Assem. Bill No. 964 (2005-2006 Reg. Sess.) Stats. 2005.) Further the uncodified statement of legislative intent stated in part the statute was enacted "to establish a uniform valuation methodology specifically designed and adopted for the unique circumstance of certificated aircraft." (Stats. 2005, ch. 671, § 1.)
Plaintiffs assert that because Assessors and the Boards have no discretion in assessing the aircraft, it would be "absurd" for them to be required to request the Boards reduce their assessments. We are not persuaded.
Even assuming the Boards have no discretion, there is nothing to prevent them from applying the section 401.17 formula to correct the alleged inaccurate assessments and properly valuing the aircraft. (See McAllister v. County of Monterey (2007) 147 Cal.App.4th 253, 287 [in California Environmental Quality Act case, court affirmed sustaining of demurrer where the plaintiff failed to exhaust administrative remedy; "Where the claimed deficiency can be corrected administratively . . . the beneficial purposes of the exhaustion doctrine are advanced"].) "[T]he 'primary purpose' of the exhaustion of administrative remedies doctrine '"is to afford administrative tribunals the opportunity to decide in a final way matters within their area of expertise prior to judicial review."'" (Duea v. County of San Diego (2012) 204 Cal.App.4th 691, 702.)
b. Factual Issues
Plaintiffs contend there are no factual issues requiring consideration before the Boards. They argue "rote compliance with the mandatory statute" does away with any possible factual dispute. Again we disagree.
The complaints themselves presented factual issues. These included allegations regarding the complex calculations, the claim Assessors' computations had "no logical or mathematical relation" to those set out in section 401.17, and whether the schedules and "data sets" in the statute and those allegedly used are "comparable."
In addition, plaintiffs alleged defendants intentionally deviated from the statutory requirements. Intention too is a question of fact. (Shell Western E&P, Inc. v. County of Lake (1990) 224 Cal.App.3d 974, 981 [dispute over assessed values].) These are issues that must be decided by the Boards before plaintiffs resort to suit in the superior court. As set out in Howard v. County of Amador (1990) 220 Cal.App.3d 962, "[W]hat happened is a factual question . . . but the legal effect of those events . . . is a legal question." (Id. at p. 980.)
Plaintiffs seem to think that because they have alleged the mandatory statute was violated, it is in fact true defendants made miscalculations, eliminating any dispute over facts. Such is not the case.
That the allegations regarding how defendants deviated from the statutory formula are deemed true for the limited purposes of the demurrer does not mean they do not present factual issues. Nor does it mean there cannot be a factual question concerning application of the formula. These questions need to be determined in the first instance by the Boards.
Plaintiffs complain defendants did not point to any specific facts potentially in controversy. But defendants had no obligation to do so and were prohibited from raising any facts. The case was before the court on a demurrer whose sole function was to test the pleadings. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Extrinsic evidence was not allowed. (Hayter Trucking, Inc. v. Shell Western E&P, Inc. (1993) 18 Cal.App.4th 1, 17.)
In their reply brief, plaintiffs emphasize defendants never denied the taxes assessed were incorrect. That is not the point. Even assuming the taxes assessed were incorrect, plaintiffs were required to bring that argument to the Boards before resorting to a civil action.
c. The Boards' Special Competence
Again relying on Star-Kist, supra, 54 Cal.2d 507, plaintiffs claim that because there are no valuation or factual disputes, there is no requirement they first present the matter to the Boards because the Boards have no special competence to decide the issue. Assuming there is only one method to calculate economic obsolescence as set out in the statute and assuming defendants did not follow that formula, the Boards are fully able to apply the formula correctly. Plaintiffs apparently presume that if the issue is brought them, the Boards will not follow the statutory provisions. Plaintiffs have not alleged and we have no reason to believe that would be the case.
To the contrary, there is every possibility the Boards could have looked at section 401.17 and applied it in the manner plaintiffs claim is correct, thereby obviating the necessity for bringing an action. "[D]isputes regarding valuation are within the special competence of the board of equalization." (Stenocord, supra, 2 Cal.3d at p. 988.)
Further, "'[i]t is evident from the face of the complaint that the dispute herein involved a question of valuation which, if submitted to the board of equalization, might have obviated [the taxpayer's] action.'" (Steinhart, supra, 47 Cal.4th at p. 1311.)
The facts here are not comparable to those in the cases holding a taxpayer was not required to take this step. Again, this case is not like Star-Kist, supra, 54 Cal.2d 507, where the board had no "special competence" to decide the constitutionality of the statute. (Id. at p. 511.) Likewise, where the taxpayer is claiming it has been taxed on property it does not own, "there is no question of valuation which must be presented first to the board equalization for correction." (Parr-Richmond Industrial Corp. v. Boyd (1954) 43 Cal.2d 157, 165.) In that case, the property should not have been assessed at all. It was not a question of an erroneous assessment. (Ibid.) 6. Leave to Amend
Plaintiffs do not seek leave to amend the complaints. Their only argument is that the court erred in sustaining the demurrers at all. We see no basis to allow leave to amend.
DISPOSITION
The judgment is affirmed. The request for judicial notice is denied. Defendants are entitled to their costs on appeal.
THOMPSON, J. WE CONCUR: MOORE, ACTING P. J. IKOLA, J.