Opinion
Page __
__ Cal.App.2d __259 P.2d 665LOS ANGELES COUNTYv.SOUTHERN COUNTIES GAS CO. OF CALIFORNIA.Civ. 19370.California Court of Appeals, Second District, Second DivisionJuly 3, 1953Rehearing Denied July 30, 1953.
Hearing Granted Aug. 27, 1953.
On Petition for Rehearing [259 P.2d 666] Harold W. Kennedy, County Counsel, Gerald G. Kelly, A. Curtis Smith, Asst. County Counsel, John H. Larson, Deputy County Counsel, Los Angeles, for appellant.
Le Roy M. Edwards, Oscar C. Sattinger, Frank P. Doherty, Los Angeles for respondent.
MOORE, Presiding Justice.
Pursuant to ordinances duly enacted by the Board of Supervisors of Los Angeles County and in conformance with the Broughton Act, Stats.1905, p. 777, now embodied in sections 6001-6006 of the Public Utilities Code, the County granted the Southern Counties Gas Company a series [259 P.2d 667] of franchises to lay its pipes under the public highways for the purpose of delivering gas to its patrons. Each franchise ordinance required the Gas Company to pay annually as a toll to the County, after the first five years, a sum equal to two per cent of the gross annual receipts of the grantee arising from the use, operation, or possession of the franchises. In 1939 and previous years the Gas Company had filed its statements of the amount of its tolls and had made payments for those years according to the statements. In 1940 when the matter was brought to their attention, the Board of Supervisors concluded that the statements previously filed by the Company were incorrect, and ordered this action to be filed for declaratory relief and for an accounting. Subsequently, pursuant to an agreement of the parties an amended complaint was filed in 1943 framing the issues to which the Gas Company filed its answer. With the issues thus joined, the action came on for trial in 1951 when the trial court made findings and entered judgment favorable to the Gas Company and denied the relief demanded. The County contends on appeal that the conclusions of the court below do not accord with a reasonable and fair construction of the statute or with the decision in County of Tulare v. City of Dinuba, 188 Cal. 664, 206 P. 983 (herein called Dinuba), which, it insists, 'must be followed by a franchise holder under the Broughton Act.'
Four franchises granted by Supervisors to Gas Company:
The importance of the Dinuba decision (May 1922) cannot be exaggerated. Since both parties maintain that it lays down the guiding rule or formula for computing payments due under the franchise, it will be discussed later in detail. Suffice it to say at this point that the court construed section 3 of the Broughton Act, Ibid., 188 Cal. at page 666, 206 P. 983, and derived a mileage formula for the allocation of the two per cent franchise toll among the various counties or municipalities covered by the franchise.
The Gas Company adopted a method of accounting in 1926 which it has applied to date. The County auditor's office objected to such accounting method in 1927 but after a reply from the Gas Company's attorney, no further action was taken until 1940 when the Board of Supervisors moved to effect a collection of tolls in conformance with their conclusion as to the amounts due. Complaints were filed, not only against the Southern Counties Gas Company, but also against the Southern California Gas Company and the Southern California Edison Company in related actions. It was agreed that the latter two suits should remain in statu quo until determination of the instant cause and that applicable portions of section 583 of the Code of Civil Procedure should not be operative.
The sole issue on appeal, as at the trial, is the legality of the Gas Company's accounting methods in computing the charges for the four franchises. The Gas Company insists that it stands squarely upon the formula derived by the Supreme Court in the Dinuba decision. On this appeal the County presents two formulas for computing the charges, but primarily stresses what it assert to be the correct Dinuba computation. Its contention is that the Dinuba decision does not authorize any deduction from the gross receipts, except as hereinafter more fully explained. On the contrary, it insists that the Dinuba opinion clearly implies the correctness of, and that the statute emphatically provides for, the annual payment by a utility of 'two per cent of the gross receipts of the company arising from the use, operation or possession of the franchise.' The Gas Company proceeds to develop a formula based upon the capital investment of the Company and of the County. It then conceives that before the toll is computed, it should deduct from the total receipts such a pro rata share of the gross collections as may be determined by dividing the mileage of its own private rights of way by the total mileage of the pipes on both private and public property under the franchise. A comparative study of the respective formulas will be hereafter set forth.
Dinuba Decision
In view of the wide divergence of the parties as to the formula declared in the Dinuba case, it is imperative that the basic decision upon which both parties rely as precedent be examined with care. The [259 P.2d 668] County of Tulare had recovered judgment against the San Joaquin Light and Power Company for two per cent of the latter's gross receipts arising from its use, operation or possession of it franchise from the County. The Company attacked the judgment on appeal on three grounds. The conclusions reached as to the first and second contentions are not material to this discussion but the court's response to the claim, 188 Cal. at page 667, 206 P. at page 984, that 'if the gross receipts from any given part of an electric distributing system extending through several counties can be ascertained as arising from the use of the franchise in one of the counties, it should be confined to the part of the system occupying the streets and avenues in use under the franchise from such county, and not include receipts arising from the part of the system over and upon private easements' is of great importance. (Italics added.) It is seen from the italicized passage that neither by the complaint nor from the contentions of the power company was any such elaborate formula contemplated by the parties to the Dinuba action as now symbolizes the controversy at bar.
In that action, the principal problem was the allocation of the two per cent charge among the various counties and municipalities covered by the franchise. Hence it was necessary to construe the meaning of a provision of section 3 of the Broughton Act which was then substantially the same as the following portion of present section 6006, Public Utilities Code: '* * * the successful bidder and his assigns shall during the life of the franchise pay to the county or municipality two percent (2%) of the gross annual receipts of the grantee arising from the use, operation, or possession of the franchise.' (Italics added.)
With reference to such statute the court said, 188 Cal. at pages 675 and 676, 206 P. at page 987: '* * * the purpose of the act was to impose only a two per cent. charge upon the gross receipts arising from the entire franchise rights enjoyed in all the highways covered by the system, whether in one or several counties or municipalities. When the company or corporation has paid two per cent. of all its earnings properly attributable to all its franchises, whether covering one or more counties, it has fulfilled its obligation. It, of course, cannot concern such corporation how this amount is distributed to the various municipalities, so long as it is released from further liability. The real issue is as to the several rights of the municipalities in sharing the payments. The state is at liberty to make this distribution upon any reasonable basis it sees fit to adopt. * * * The reasonable construction of the language used, is that each county or municipality is entitled to its percentage of the gross earnings arising from the use of its highway, in the proportion that the receipts arising from the use of such highways bears to the receipts attributable to all the rights of way of the entire system.
'We see no reason why this cannot be estimated on a mileage basis. It may be assumed that the distributing system covers 600 miles of easements. The proportion of the gross receipts derived from and chargeable to the use of the distributing system should be credited to this entire mileage. One-third of this mileage may extend over private rights of way, which are not subject to any franchise liability. The remaining two-thirds of the mileage covered by county franchises is entitled to two-thirds of the two per cent. of the gross amount, and each county is entitled to the percentage of this two-thirds, in the proportion that the mileage of its franchise bears to the total mileage covered by all the franchises.'
Neither the Gas Company nor the County disputes in the least the propriety of such 'mileage apportionment.' The controversy is with respect to the meaning of the following extract from the same opinion, 188 Cal. at page 681, 206 P. at page 989, where an additional point as to accounting method is made:
'The first step in this accounting should be to determine, as a question of fact, what proportion of the total annual gross receipts of the public utility should be justly accredited to its distributing system over various rights of way, as distinguished from its power plants or other producing agencies. This will establish the fund from which the percentage of earnings 'arising [259 P.2d 669] from the use, operation, or possession' of the various franchise easements shall be ascertained.
'The percentage of this fund, to be apportioned to the respective public franchises, will not include the proportion of such gross receipts of the distributing system as are attributable to the use of private rights of way occupied by the utility, as such part of the system is not subject to franchise charge. Each municipal franchise will be entitled to its two per cent. of whatever portion of such fund can be shown to arise wholly from the use of the easements under such franchise, and such portion of the remaining fund, as the mileage of the given franchise easement bears to the entire mileage of the distributing system contributing to such gross earnings.'
In interpreting the foregoing passage, the conflicting theories of appellant and respondent are brought into sharp focus. The County contends that the Supreme Court had in mind only the essential distinction between the activities of production and distribution, and hence, in the utilization of the 'capital investment' theory of accounting, only those receipts attributable toproduction capital can properly be excluded from the computation of the two per cent charge. The Gas Company, however, asserts that the use of 'production' and 'distribution' terminology was merely illustrative of such receipts as arise 'from the use, operation or possession' of the franchise and which do not arise therefrom and hence that it is proper to exclude, as it has since 1926, those receipts attributable to distribution capital situated on nonfranchise rights of way.
County's Computation
In order to make the differences of the parties stand out more clearly, the computations of both appellant and respondent for the year 1939 are explained and compared below. Computations for subsequent years were made in the identical manner. The County's interpretation of the Dinuba decision will be delineated first:
1. As a preliminary step, the County determines the capital invested in distribution as distinguished from capital invested in production. The Gas Company's total capital is conceded to be $31,216,087.13. The value of intangibles is $152,351.98; of capital in general facilities and office, $2,264,991.95. These latter two amounts are excluded from the amount of total capital, which has the effect of prorating them between distribution and production capital, and leaves $28,798,743.20 as the remaining capital in production and distribution.
2. To determine the capital in distribution, the County then deducts the production capital from the above sum. There is $134,111.96 capital in manufactured gas on private property and $116,251.07 capital in natural gas on rights of way, or a total of $250,363.03 in production capital. Deducting those amounts, the remaining capital in distribution is $28,548,380.17.
3. The capital investment of the Gas Company in production and distribution is $28,798,743.20 (step 1). The capital investment in distribution is $28,548,380.17 (step 2) or 99.1306% of the total capital investment; the capital investment in production is $250,363.03 (step 2) or .8694% of the total capital investment.
4. The Gas Company's gross revenue in 1939 was $9,620,838.45. Multiplying that amount by 99.1306% (step 3), the county derives the total of $9,537,137.16 attributable to distribution capital.
5. The Gas Company has 3,249.225 miles of pipeline, of which 2,969.673 miles, or 91.3963% is in public streets and highways. Multiplying that percentage by $9,537,137.16 (step 4) the County arrives at the sum of $8,716,509.49 of receipts arising from the use, operation or possession of public franchises.
6. The Gas Company has 456.829 miles of piepline on Los Angeles County public highways, which is 15.3831% of the Gas Company's total system of pipelines on public highways (step 5).
7. Multiplying $8,716,590.49, receipts arising from the use, operation or possession of all public franchises (step 5), by 15.3831%, Los Angeles County percentage of Gas Company's total public-franchise pipelines (step 6), the County obtains $1,340,881.83 [259 P.2d 670] as the portion of the Gas Company's annual gross receipts subject to the 2% charge due Los Angeles County.
8. The County multiplies $1,340,881.83 times 2% and obtains a total charge for 1939 of $26,817.64.
The County submitted also a series of computations, similar to that outlined above, in which it ignored that portion of the Dinuba opinion that prorated between production and distribution. The entire gross receipts in 1939 of $9,620,838.45 were multiplied by the same factors as in steps 5 through 8 to reach the sum of $27,053.
Gas Company's Computation
The parties are in accord in applying the steps 5, 6, 7 and 8 as used by the County. The same initial figures are utilized for invested capital and gross receipts; the same proportions hold true. The only real difference is that the Gas Company excludes certain amounts prior to applying County steps 5 through 8, while the County contends that such exclusion is unauthorized by and improper under the Dinuba decision. The following formula is proposed by the Gas Company as in conformance with the Dinuba decision:
1. Taking the total capital, $31,216,087.13, the Gas Company excludes the value of intangibles, $152,351.98, which has the effect of prorating the latter sum between production and distribution. The remaining capital in production and distribution, as in the County's computation is $31,063,735.15.
2. The Gas Company then deducts $134,111.96, that portion of production capital in manufactured gas on private property, leaving $30,929,623.19 as the remainder capital in distribution. The capital in natural gas on rights of way, $116,251.17 (County's step 2), is not deducted at this point.
3. All distribution capital on consumers' property and leased property, $7,556,603.15, is deducted from the remainder capital in step 2 leaving a balance of $23,373,020.04.
4. All distribution capital including office facilities on private property, $2,264,991.95, is deducted from the remainder capital in step 3, leaving a balance of $21,108,028.09 as the remainder capital for step 4. This figure includes $116,251.17 of production capital in natural gas on rights of way, as the portion of capital in distribution on all rights of way.
5. The Gas Company's total gross receipts in 1939, $9,620,838.45, are divided by the total capital investment, $31,063,735.15, to determine that 30.9713 cents of revenue were received per dollar of capital investment.
6. The amount in step 4, $21,108,028.09--the portion of the Gas Company's capital in distribution on rights of way--is then multiplied by 30.9713% to obtain $6,537,430.70 arising from the Gas Company's system on rights of way.
7. The last amount stated is then treated to the same procedures as in County steps 5 through 8. $6,537,430.70 is multiplied by 91.3963%; its product by 15.3831% and the last product by 2% which gives the $18,382.60, the amount of tolls the Company claims to be due the County for 1939.
The Approved Method
A study of the two formulas urged by the adversaries leaves no doubt that one of the two is not consistent with the holding of the Dinuba decision and it is equally clear that the formula used by the Gas Company is not in accord with the Supreme Court's pronouncement.
In deriving the Dinuba Formula, the Supreme Court did not indulge in any theory of ownership of property on which the facilities were located. That formula was predicated upon the premise that the two per cent toll is a charge for the use of the County's property, as both parties emphatically concede. Those gross receipts attributable to production capital are not considered by either the County or the Gas Company in calculating the franchise charge. The County receives only a proportionate share of the two per cent of the gross receipts attributable to distribution capital, based on mileage of the public property [259 P.2d 671] used under the franchises. In no event can the total amount payable by the Gas Company exceed the mileage of public rights of way divided by the mileage of all rights of way multiplied by two per cent of 'distribution-capital gross receipts.'
The Gas Company contends that the value of the use of the County's property should not be the real basis for computing the sums due under the statute, but that respondent can fully meet its obligation to the County by prorating two per cent of an amount less than the total gross receipts attributable to distribution capital. It does this by deducting over seven and a half million dollars ($7,556,603.13) representing distribution capital not located on public-franchise rights of way. And, as if resolved to erase all receipts from the base of computation, it deducts over two and a quarter million dollars ($2,264,991.95) representing general and office facilities not located on public-franchise rights of way. But the climax of the Gas Company's accounting procedure is reached by applying the Dinuba formula's private-right-of-way credit by prorating the two per cent in the same manner as done by the County.
The purpose of the Broughton Act formula is to allow the Gas Company to retain 98 per cent of its gross receipts, as the percentage applicable to the use of its private property, while two per cent is payable to counties and municipalities for the use of public property. The Dinuba case held that only those gross receipts attributable to distribution activities are subject to the two per cent charge. It is thus seen that in spite of both the statute and the cited case, the Gas Company asserts that nearly ten million dollars of invested capital may be entirely excluded from its distribution system and accordingly from consideration, in the earning of revenue subject to the statutory two per cent factor, simply because of its geographical location on private rather than public property. It does so by utilizing a flimsy legal non sequitur: its claim that the phrase 'arising from the use, operation, or possession of the franchise' necessarily excludes receipts attributable to distribution capital physically located on private property. The Broughton Act recognized the justice of allowing a public utility a credit for its private property by exempting 98 per cent of the gross receipts from the franchise charge. The Dinuba case went a step further in allowing an apportionment of the two per cent toll so as to eliminate any charge for that proportion of the mileage over private rights of way. The Gas Company is not satisfied to accept the benefits granted by both the Broughton Act and the Dinuba decision, but in addition thereto it takes the additional deduction for the facilities located on private property by the utilization of the so-called 'capital investment method' of accounting.
In the instant case, the Gas Company applies the 'capital investment method' to ownership of the real property on which the distribution equipment is situated. The County says there is no justification for this and no authorization in the Dinuba decision. But this resort to the 'capital investment method' is a mere technical disguise for a double deduction of the same factor. The Gas Company first relies on the arbitrary valuation of the earning capacity of the County's property at two per cent of the gross receipts, reduced by the Dinuba decision's mileage factor. It then further reduces the amount payable to the County by taking an additional credit for that portion of its capital investment in distribution facilities located on private property. After the two per cent deduction has been taken out of the total or gross receipts for the year, why should the 'capital investment method' be imported? While the Gas Company would concede the County's right to two per cent of the gross, it insists upon first deducting from the gross receipts all earnings attributable to its own property or to other privately owned property because, it asserts, revenues produced by their private property do not arise 'from the use, operation or possession of the franchise.' [259 P.2d 672] A scrutiny of the statute fails to disclose any language that in the remotest degree suggests that the utility may make any such deduction. It says the price of the franchise is to be 2% of the gross receipts. Such charge is for the Company's use of public highways and its requirement is stated in clear and forthright language. Nothing is said in the statute about capital investment. The immensity of the Company's capital invested in the system is not mentioned and it is wholly immaterial. The Legislature had in mind the value of the public highways to any private utility operating its business by fixing two per cent of the gross receipts as a fair compensation. While the Dinuba decision limited the amount of the charge to two per cent of the gross receipts of the distribution system that item is taken care of by the formula proposed by the County. By deducting additional credits from the gross receipts for that portion of its capital invested in the distribution system located on private property respondent goes beyond the intention of the Legislature evidenced by its act in authorizing the utility to take 98 per cent of the gross receipts and the County to take two per cent.
That method is based on the idea that each dollar of invested capital is presumed to earn an identical amount of receipts. Then if certain receipts must be apportioned, the apportionment is made in the same proportion as the capital investment.
To illustrate by statistical facts the seriousness of the Gas Company's claim: As shown above, in 1939 the total gross receipts were $9,620,838.45. The portion thereof attributable to the Company's production system is $83,701.29. But, of its total capital investment of $31,216,087.13, only $250,363 is invested in production. Now the $83,701.29 is all that can be deducted under the Dinuba decision. Subtract that sum from the total gross receipts, to wit, $9,620,838.45, and we have $9,537,137.16, the total of the Company's revenues attributable to its distribution system. Inasmuch as the County is, under the statute, entitled to two per cent and the Gas Company to 98 per cent of such gross receipts attributable to the distribution system, and since 91.3963 per cent of the entire mileage system is on public highways, all counties concerned are, under the Dinuba decision, entitled to two per cent of 91.3963 per cent of $9,537,137.16. That product is $8,716,590.49. Multiplying that sum by 15.3831 per cent, appellant's percentage of the total mileage of the distribution system, the new product is $1,340,881.85. Two per cent thereof is the arbitrary portion fixed by the statute as the earning capacity of the public property in use in 1939 and is $26,817.64. But the Gas Company is not satisfied with such arithmetic. It demands the right to deduct from the $8,716,590.49 the percentage of its gross receipts which it asserts has been earned by its capital invested in its own properties, its leased lands and in its general office and by its installations on consumers' property, a total of $9,821,595.10. That sum is almost one third of the Company's total capital investment of $31,216,087.13. The Dinuba decision determines that the Company is entitled to 98 per cent of the gross receipts for its capital investment, or for 1939, 98 per cent of $8,716,590.49. But the Company demands, also, the right to deduct from the County's two per cent of $8,716,590.49 such portion of the gross receipts which it ascribes to the total of $9,821,595.10 invested in its office and installations on owned and leased premises. To do this would reduce the total gross receipts earned by the public portion of the distribution system to two percent of $5,974,969.77 instead of two per cent of $8,716,590.49. By such an accounting method the Gas Company exacts a double credit for that portion of the gross receipts attributable to almost $10,000,000 of its capital investment in the distribution system. Thereby it deducts 98 per cent for the use of its own property as provided by statute but with respect to more than a third of its total assets it makes a complete deduction for the use of the Company's property. Despite the statute's authorization for the Gas Company to deduct 98 per cent of the gross receipts for all its property, including nearly ten million dollars invested in general office and installations on its own lands and leased properties, it first deducts $9,821,595.10, an insupportable conclusion.
The Gas Company's contention cannot be sustained. The amount of its money invested in facilities on private rights of way bears no direct relation to the use of the County's highways. The proper [259 P.2d 673] allocation between conflicting interests is most reasonably and practically made by the Supreme Court's augmentation of the Broughton Act formula. The compensation for use of the County's property is by the statute based on the gross distribution receipts, not upon the physical location of the Gas Company's facilities. The proper allocation should be based on the extent to which the streets are used for pipelines, as the County maintains, in conformity with the Dinuba decision.
Gross Receipts
There is little room for doubt that the tolls payable to the County should be two per cent of respondent's total annual receipts attributable to distribution. Not only does the statute, Public Utilities Code, § 6006, require the holder of the franchise to 'pay to the county * * * two percent (2%) of the gross annual receipts of the grantee' arising from the use of the franchise, but the Supreme Court clearly discerned that under a distribution franchise the grantee must pay two per cent of the gross receipts earned by the distributing portion of its system on public property. See Dinuba Case, 188 Cal. at page 676, 206 P. 983. While the court acknowledged a distinction between the productive and distributive properties, it emphasized that there was but one system of distribution, that it was a single unit and that the two per cent payable to the County should be reckoned upon all the gross receipts attributable to distribution to be prorated according to the mileage of its pipes on public highways.
In computing the tollage due the County, therefore, the Gas Company should use as its multiplicand all the gross receipts, minus the share ascribed to production and as its multiplier, two per cent. The resulting product must be multiplied by the fraction whose numerator is the mileage of the public franchise rights of way and whose denominator is the aggregate mileage of the entire distribution system. There is no more reason for deducting any sum from the gross receipts of respondent earned by the pipe lines laid on privately owned lands then there would be for a Broadway merchant to deduct the factory costs from the retail sales price of his expensive merchandise in calculating his sales tax. In the Dinuba decision the Court held that the fund from which the two per cent of the receipts of the Light and Power Company was to be computed was the fund comprised of all the gross receipts attributable to the 'distribution system' and that the only receipts deductible from the total gross receipts were those earned by the production system. The public must be paid for its contribution of public property to the extent of two per cent of the gross receipts arising from the Gas Company's distribution system prorated according to the mileage of the public and private property used in distributing the gas.
The foregoing conclusions are reinforced by a brief study in semantics. No authority has been found to define the term 'gross receipts' to mean anything other than the total without deduction; it means "all receipts on business beginning and ending within this state". Pacific Gas & Electric Co. v. Roberts, 176 Cal. 183, 189, 167 P. 845, 847. The phrase is 'plain language which requires no interpretation * * * 'perfectly plain, unequivocal language,' * * * [it] must be taken in its plain sense without limitation or deduction save as expressly modified by the Legislature.' Bekins Van Lines, Inc. v. Johnson, 21 Cal.2d 135, 140, 130 P.2d 421, 424. Gross receipts means all receipts arising from or growing out of the employment of the corporation's capital in its designated business. Robertson v. Johnson, 55 Cal.App.2d 610, 131 P.2d 388. Is there any doubt then that the Legislature intended for the utility to pay as a toll for the use of public highways on which to lay its pipes, tracks or cables, two per cent of its gross receipts?
These conclusions are fortified by the doctrine of strict construction. The basic franchise ordinance (No. 1107, New Series, 1924) provides that 'the franchise is granted upon each and every condition contained herein, and in the ordinance granting the same and shall ever be strictly construed against the grantee.' When a franchise provides for the protection of the public interests, it is a fair assumption that the Board of Supervisors endeavored to [259 P.2d 674] perform its duty as trustees for the public and that the provisions were inserted for the purpose of securing for the public all substantial advantages. 38 Am.Jur. 214. It is a general principle of construction that franchises granted by the state to private persons or corporations must be construed most strongly in favor of the public. If a doubt arises, nothing is to be taken by implication as against public rights. Clark v. City of Los Angeles, 160 Cal. 30, 38, 116 P. 722; Sacramento v. Pacific Gas & Water Company, 173 Cal. 787, 791, 161 P. 978.
From all that is said above it is unavoidable that the franchise must be construed strictly in favor of the County and as so construed respondent should pay its full two per cent of its gross receipts each year of the life of its franchise with no deductions except that attributable to production capital and the proportion of the distribution system belonging to the utility.
Additional Arguments by Respondent
Ocean Park Pier Amusement Corporation v. City of Santa Monica, 40 Cal.App.2d 76, 104 P.2d 668, 879, cited by the Gas Company in support of its position, is readily distinguishable. In that case the city exacted the full statutory toll for the use of its own property and in addition sought to exact a charge for the use of the corporation's property. It was therefore properly held that no franchise payment need be made for the use of private property with respect to which no public property was contributed ur used. In the case at bar, however, the Gas Company has consistently utilized public property in its operations and of course could not operate for an instant without public franchises, but the record discloses no attempt by appellant 'to include in the grant, land over which it had no proprietary interest', as was true of the City of Santa Monica in the last cited authority, 40 Cal.App.2d page 86, 104 P.2d at page 674.
Respondent cites also City of Monrovia v. Southern Counties Gas Company, 111 Cal.App. 659, 296 P. 117, as authority for its contention. The court said, 111 Cal.App. at page 660, 296 P. at page 118, 'In accordance with this method [from the Dinuba decision] the defendant * * * [eliminated] that portion of its earnings attributable to the use of its properties located on private property.' The context of the above sentence, a portion of which respondent quotes, makes it clear that the mileage allocation formula of the Dinuba decision, under no dispute in the instant case, is referred to. But in any event, the only issue involved in the Monrovia action was whether or not the city was entitled to two per cent of the gross receipts collected within the city, a point not at all involved in the instant controversy.
The Superior Court cases cited by respondent did not decide the issues involved herein; hence a discussion of them would be futile. Neither do the other arguments raised by respondent merit further discussion.
It is the conclusion of this court that the Gas Company's accounting procedures are unauthorized and improper and that the conclusions of the trial court were erroneous.
Throughout the foregoing discussion only the computations for 1939 toll are mentioned. The identical methods were used by the Gas Company for the subsequent years, 1940 through 1951. Based upon its own calculations, the Company paid the County a total of $436,358.04 for the thirteen years in question; the County claims under the rules of the Dinuba decision and the court finds from the record that the sum of the accumulated tolls for the twelve years is $627,719.24. The difference of $191,361.20 is unpaid.
It is therefore ordered that the judgment be and it is reversed with directions to the trial court to enter judgment for appellant in the amount of $191.361.20 and for costs. Code Civ.Proc. sec. 956a; Pereira v. Pereira, 156 Cal. 1, 12, 103 P. 488, 23 L.R.A.,N.S., 880.
FOX, J., concurs.
McCOMB, Justice.
I dissent. I am in accord with the views expressed by the learned trial judge, The Honorable Paul Nourse. His opinion is as follows: [259 P.2d 675] 'By this action the plaintiff seeks a judgment establishing the basis upon which the defendant must calculate the toll or charge under the franchises for pipe lines which have from time to time been granted it by the plaintiff.
'By the amended complaint as framed, plaintiff further seeks an accounting and for judgment in the amount found due under the accounting for the years 1936 to 1939 both inclusive. At the trial of the action, however, it was stipulated that a supplemental complaint might be filed covering the years 1940 to 1951 inclusive, and that if the Court declared that the basis upon which plaintiff had calculated and paid the tolls due under its franchise was an improper one and declared a basis which would result in a higher toll being due, that the parties would calculate the additional amounts due without the necessity of an accounting being had and that the Court might then render judgment for the additional amount fixed by the stipulation.
'There is no conflict in the evidence. The material facts shown by the admissions made in the pleadings and the evidence are:
'The defendant is and at all relevant times has been engaged in business as a public utility, in selling and distributing illuminating gas, both at retail and at wholesale. Its system is an integrated one and serves, either at wholesale or at retail, consumers or customers in six counties in Southern California and holds franchises not only in those counties but from many of the cities situate therein. It produces a small amount of the gas it sells.
'There have been granted to the defendant by the plaintiff four franchises. Each franchise was granted by a separate ordinance, each ordinance apparently having been adopted pursuant to the provisions of what is commonly known as the Broughton Act, Deering's General Laws, Act 2720, Public Utilities Code, Sections 6001-6006, inclusive. The language of the provisions of the Broughton Act and of each ordinance which affects the obligation of the defendant to pay an annual toll, are substantially the same. The language used in Ordinance 500 (new series) is typical. It provides:
"* * * the said grantee and his or its successors or assigns shall, during the life of said franchise, pay to the county of Los Angeles * * * two per cent (2%) of the gross annual receipts of such grantee, and his or its successors or assigns, arising from the use, operation or possession of said franchise.'
'Each ordinance requires the defendant to at the end of each franchise year (after the first five years) file with the Clerk of the Board of Supervisors a verified statement showing in detail the total gross receipts of the grantee during the preceding twelve months for the furnishing and distribution of gas 'through any part of the system for the construction and operation of which the franchise is granted.' (Certain of the ordinances require that the statement be filed with the Auditor and a copy delivered to the Board of Supervisors.)
'Prior to 1926 the defendant calculated the amount due under all Broughton Act franchises then held by it under grants from plaintiff and other counties and municipalities upon the basis of the gross revenue received by it from the sale of gas within the territory covered by the franchise. In 1926 it changed its methods of accounting and for that year and for each year thereafter has accounted to the County and all other grantors on which has been denominated in the arguments here as the 'capital investment theory'. (The details of this accounting and the theory on which it is based will be discussed later.)
'Upon receiving the 1926 statement and the check in payment of the amount due the County in accordance therewith, the Auditor wrote to the defendant objecting to the method of accounting used, suggesting that a conference be had between the representatives of the defendant and the County Counsel in order that a satisfactory basis might be determined for the making of returns under the franchises. To this letter the defendant replied, suggesting a conference between the legal representatives of the County and the defendant's [259 P.2d 676] counsel, and enclosing an opinion rendered to the defendant by its counsel relative to the proper basis for accounting under the decision of the Supreme Court in the case of County of Tulare v. City of Dinuba. The plaintiff did not reply to this letter. The defendant continued to account and pay its tolls in accordance with the method of accounting used by it in 1926.
'The plaintiff made no objection to this method of accounting and accepted the tolls paid in accordance therewith until 1940 when it again objected to the defendant's method of accounting and in 1941 commenced this action.
'No question is raised here as to the good faith of the defendant or as to the accuracy of its accounts. The sole question here is as to whether or not the method of accounting used by the defendant is a proper one. The plaintiff asserts that the defendant's method is not proper and that under it plaintiff does not receive the amount to which it is entitled under the payment clauses of the franchise which I have hereinbefore quoted.
'Plaintiff asserts that the proper method of accounting is as follows:
'(a) Prorate on a mileage basis the entire annual gross receipts of the defendant between the pipelines located upon private rights of way held by the defendant and pipelines located in and upon public highways under franchise;
'(b) Prorate the part of gross revenues allotted to public franchise mileage under step (a) above, between the public bodies granting franchise to the defendant upon the basis which the number of miles covered by the franchise of each bears to the total number of miles covered by public franchises;
'(c) Pay to the County 2% of that part of gross receipts allotted to the mileage under its franchises under step (b) above.
'Under this theory of accounting the defendant would attribute to pipelines, facilities and equipment placed upon pipeline rights of way, the entire revenues received by the defendant from its operations.
'Plaintiff further contends that if the foregoing theory or method of accounting is not the proper method, that then the following method should be used:
'(a) That the gross receipts of defendant from its operations should be prorated between production facilities and distribution facilities on the basis of the ratio which the capital invested in each bears to the total invested capital of the defendant, excluding that invested in intangibles and general capital;
'(b) That the share of gross revenues allotted to transmission or distribution facilities under step (a) should then be prorated on a mileage basis between pipelines on private and public rights of way;
'(c) That the amount allotted to the public franchise mileage under step (b) should then be prorated between the different public bodies granting franchises on the basis of mileage, and the County paid 2% of the gross revenues to which it thus becomes entitled.
'Under this second theory, the County concedes that capital invested in production or manufacture of gas is a source of defendant's gross receipts and concedes that inasmuch as gross receipts cannot be prorated between production facilities and rights of way on the basis of mileage, it must be prorated between them on the basis of invested capital. It excludes from invested capital both the amounts invested in intangibles and that invested in what is termed general capital (this includes general office land, general office structures, general shop, transportation, construction, communication and laboratory equipment) and thus prorates these items of capital between production and distribution facilities. It credits to rights of way (public and private) all the remainder of invested capital except that invested in production facilities.
'While stoutly maintaining that a theory of accounting based on the theory of invested capital is not proper, the plaintiff has advanced two theories of accounting which are based upon invested capital. One is set forth in the amended complaint and the other was advanced in the oral argument. As no argument was made in support of the theory set forth in the complaint, [259 P.2d 677] I mention here only the theory advanced in the oral argument. Under this theory, the plaintiff assumes that 2% of gross earnings are set aside as attributable to the value of the property covered by franchise and other easements, and that the remaining 98% is attributable to the value of all other property, and they would thus divide between public and private rights of way on a mileage basis an amount equal to 2% of the total gross receipts of the defendant and then they give to each grantor of a franchise its proportion on a mileage basis of the amount attributable to the total public rights of way.
'Under the theory adopted in 1926 by the defendant and under which it has since acounted for and paid its toll, each dollar of invested capital, excluding intangibles, is credited with its share of defendant's gross receipts. Its process is as follows: It first deducts from total invested capital the amount invested in intangibles. It treats the remainder as productive capital. It then divides the total gross receipts by the total amount of productive capital, arriving at the amount produced by each dollar of productive capital. It then determines the amount invested in both public and private rights of way, including all improvements and equipment situated thereon,--without respect to what proportion of that investment is in public rights of way and what proportion is in private rights of way,--and multiplies this amount by the earnings per dollar and arrives at the share of total gross receipts attributable to both public and private rights of way. It then prorates the amount thus arrived at between public and private rights of way on a mileage basis. From this point on, the accounting steps taken are the same as those taken in the first two methods advocated by the plaintiff and above described.
'The chief point of difference between plaintiff and defendant is that the defendant treats and the plaintiff does not treat certain properties or assets which are admittedly 'used or useful' for the conduct of the defendant's business in producing, manfacturing and distributing gas to the public but which are not located upon rights of way, either public or private, as a source from which a part of the total gross receipts arise.
'It seems to me self-evident that if each grantor of a franchise is only entitled to that portion of gross receipts which in the words of the statute arise from the 'use, operation or possession' of the franchise granted by it, that the defendant's method of accounting is fair and is the only practicable method of determining that portion.
'Defendant's operation is composed of many factors, each of which is essential to the production of income. Without office buildings to accommodate engineers, accountants, officers, and an administrative staff, it could no more operate than if it had no pipeline to transport the product it sells. Without storage facilities, repair equipment, metering devices and pressuring devices, it could not operate.
'Each factor produces its share of income. The only feasible method of measuring its share of total income (receipts) is the dollars invested in it.
'It is no more logical to say that a franchise produces all or any part of the income which is derived from a storage tank or a pressure station, each of which is a part of the distribution system, than it is to say that it produces the share derived from a pipeline on a private right of way. Yet, under each of te theories advanced by plaintiff, it is conceded that the franchises cannot share in that portion of the income that may be attributed to private right of way pipelines. It is true that both plaintiff and defendant divide gross receipts (that is, a portion of them) between franchise and private rights of way on a mileage basis, but this is because each have adopted that as a practical solution not because anything in the statute directs it.
'But it is not practicable to so prorate gross receipts between pipelines (public and private) and other income producing properties, for these other properties cannot be measured by the mile. Plaintiff recognized this when in two of the accounting methods advanced by it, it prorated gross receipts between production and distribution on the basis of invested capital. It is, of course, forced to do so, [259 P.2d 678] for, in order for there to be proration, the factors to participate in proration must be measured in the same terms as the thing to be prorated and in this case that is dollars.
'Plaintiff would, seemingly, read the payment clause as if it read: 'The grnatee shall pay that proportion of 2% of its entire gross receipts which the number of miles covered by the franchise granted, bears to the total number of miles of all pipeline laid by it.'
'In other words, it would measure the toll to be paid not by the gross receipts arising from the franchise granted but by the entire gross receipts, irrespective of their source.
'This is not what the statute provides for. It designates as the source of the gross receipts by which the grantor's toll is to be measured as those arising from the use, operation or possession of the franchise. There is no more warrant for the prorating of the entire gross receipts of the defendant between rights of way, public and private, on a mileage basis, than there would be in assigning the benefit of the entire gross receipts to each franchise granted. That is to say, that looking to the language of the statute itself, it would be just as logical to say that each franchise was the source of the entire gross receipts of the defendant and entitled to 2% thereof as a toll, as it is to say that the source of those receipts were the rights of way, public and private, held by the defendant.
'While the language used in the statute is unambiguous, insofar as it designates the source of the gross receipts upon which the toll under each franchise is to be measured, its application presents practical difficulties. But, as I have pointed out, the method used by the defendant is the only practical method by which the entire gross receipts may be allocated among the factors that produce it.
'It may very well be that defendant could have applied its method further and determined as to each separate franchise the amount invested in it rather than have determined as it did the entire amount invested in all rights of way, both public and private, prorating this amount upon a mileage basis. It is evident, however, from the evidence here, that the plaintiff is better off under the method used by the defendant.
'I have so far approached the question presented from the standpoint of the wording of the payment clause alone. My conclusion, however, is supported by the decision of the Supreme Court in the County of Tulare v. Dinuba, 188 Cal. 664 [206 P. 983], and by the interpretation placed upon the clause by the parties.
'The cited case involved an action brought by the County of Tulare to recover from the San Joaquin Light and Power Company the toll charges which it claimed to be due under a franchise granted to the defendant power company pursuant to the provisions of the Broughton Act. The defendant power company was engaged in the business of producing, transmitting and selling electricity in Tulare, Fresno and Kern Counties. Its transmission system extended over all three counties and was located both upon easements covered by franchise and private rights of way. Its generating plants were distributed over the counties to which its transmission system extended. The plaintiff sought and recovered judgment for 2% of the gross receipts derived from the sale of electricity in Tulare County.
'The Supreme Court, after holding that the 2% of gross receipts fixed as a charge under the Act was neither a tax nor a license, but a toll for the use of the highways covered by the franchise and after disposing of the contention that the Act was so uncertain as to be invalid and unenforceable, laid out a general scheme for the application of the payment clause, and, in so doing, said, in part, as follows:
"We are not concerned, however, in this case with any feature of the act other than that which attempts to determine the measure for computing the source and amount of gross receipts from which the two per cent payment is to be made. The defendant here admittedly holds and uses a franchise over 189.8 miles of the public highways of Tulare County; and is obligated to pay a certain per cent of its annual gross income to such county, if we can ascertain under the statutewhat the gross income referred [259 P.2d 679] to is, and how it is to be estimated.' ([188 Cal. at] page 672 [206 P. 983].)
* * *
* * *
"The corporation's gross receipts, to refer to the language of the act, arise from 'the use, operation or possession', not alone of these franchises over the streets and highways, but likewise from the use, operation, or possession of the powerhouses and private rights of way. The two last named are not subject to any franchise charges and the county or municipality is not entitled under the law to any part of the gross receipts attributable to these privately owned parts of the system. The percentage payment is not a tax upon the property of the corporation, nor a license charge for the privilege of operating its business. It is a compensation for the use of the portions of the highway covered by the franchise easement, and it is limited to such percentage of the total gross receipts as can be shown to have arisen from the use of the franchise. * * *
"The absurdity of the position that any integral part of an electric distributing system like this is entitled to credit for the whole of the earnings from deliveries and sales in a given county or municipality when a large part of such service is over parts of the system not subject to such franchise permit may be shown by various illustrations.' ([188 P. at] pages 673-674 [206 P. 983].)
'(Note: The word 'arise' in the foregoing quotation was italicized by the Court.)
"Notwithstanding the difficulties suggested we are of the opinion that there is an entirely practicable and consistent interpretation of this provision of the act which will permit a fair determination and distribution of the prescribed percentage of receipts arising from the use, operation, or possession of each franchise utilized by the distributing system.' ([188 P. at] page 675 [206 P. 983].)
* * *
* * *
"When the company or corporation has paid two per cent of all its earnings properly attributable to all its franchises whether covering one or more counties, it has fulfilled its obligation. It, of course, cannot concern such corporation how this amount is distributed to the various municipalities, * * * The state is at liberty to make this distribution upon any reasonable basis it sees fit to adopt. * * * The reasonable construction of the language used is that each county or municipality is entitled to its percentage of the gross earnings arising from the use of its highway, in the proportion that the receipts arising from the use of such highways bears to the receipts attributable to all the rights of way of the entire system.
"We see no reason why this cannot be estimated on a mileage basis. It may be assumed that the distributing system covers six hundred miles of easements. The proportion of the gross receipts derived from and chargeable to the use of the distributing system should be credited to this entire mileage. One-third of this mileage may extend over private rights of way which are not subject to any franchise liability. The remaining two-thirds of the mileage covered by county franchises is entitled to two-thirds of the two per cent of the gross amount, and each county is entitled to the percentage of this two-thirds in the proportion that the mileage of its franchises bears to the total mileage covered by all the franchises.' ([188 Cal. at] pages 675-676 [206 P. 983].)
"Under the conclusions herein reached the proper action against the defendant corporation is by way of an accounting, to which the defendant and all municipalities under whose franchises this distributing system is operated are necessary parties, in order to determine the entire liability of the defendant, and the proportion of the two per cent payment to which each franchise is entitled.
"The first step in this accounting should be to determine as a question of fact what proportion of the total annual gross receipts of the public utility should be justly accredited to its distributing system over various rights of way, as distinguished from its power plants or other producing agencies.
"This will establish the fund from which the percentage of earnings 'arising from the use, operation or possession' of the [259 P.2d 680] various franchise easements shall be ascertained.
"The percentage of this fund to be apportioned to the respective public franchises will not include the proportion of such gross receipts of the distributing system as are attributable to the use of private rights of way occupied by the utility, as such part of the system is not subject to franchise charge. Each municipal franchise will be entitled to its two per cent of whatever portion of such fund can be shown to arise wholly from the use of the easements under such franchise, and such portion of the remaining fund as the mileage of the given franchise easement bears to the entire mileage of the distributing system contributing to such gross earnings.
"We have adopted this appropriation, to the various rights of way, according to mileage, not necessarily as an exclusive method of distribution of the gross receipts, but as a practicable one where the contribution of the various franchise easements to the gross earnings cannot be otherwise determined. * * *' ([188 Cal. at] page 681 [206 P. 983].
'(All italics furnished, unless otherwise noted.)
'The quoted portions of the decision make it clear that there cannot be included in the gross receipts of which the grantors of franchises are entitled to 2%, any part of the income derived from or attributable to those portions of operating properties which are not subject to franchise.
'Plaintiff directs attention, however, to the fact that the Supreme Court in its decision only mentions three classes of assets, to-wit: Public rights of way (franchises), private rights of way, and power plants or other producing agencies, and that it approved the proration of a portion of the annual gross receipts between public and private rights of way upon a mileage basis. From this they argue that the Supreme Court in effect held that there were only two factors contributing to gross receipts, to-wit: Rights of way and powerhouses (which in this case would be natural gas wells or manufacturing plants), and that therefore all other capital investments should be ignored as a source of gross receipts if the decision of the Supreme Court is to be applied here, which, for reasons hereinafter mentioned, they insist it should not be.
'I think the plaintiff's argument looks more to the words of the decision than as to the reasons stated by the Court for it.
'The reason given by the Court for excluding gross receipts attributable to private rights of way and powerhouses from the gross receipts to which the 2% franchise tolls might be applied, was that these assets were not subject to franchise and that therefore the revenues arising from them could not be considered as arising from the use, operation or possession of franchises.
'This reasoning is just as applicable to other assets, not subject to franchise, used by the defendant in its operations and which contributed to its gross receipts. If the portion of the receipts attributable to a power plant or a private right of way are to be excluded for the reasons given, then certainly the receipts attributable to the portion of a pressure plant or a storage tank or an office building must, for the reasons given, be excluded.
'The fact that the Court approved and, in fact, suggested the proration of 'the receipts attributable to all of the rights of way of the entire system' between public and private rights of way on a mileage basis, does not show, or tend to show, that the Supreme Court intended to exclude from consideration as the producer of a part of gross receipts the capital invested in properties which are not included in either generating plants or rights of way.
'It is clear from the decision that the Supreme Court only suggested this method as a practicable one for the solution of a difficult part of the entire problem involved in applying the statute and that it did not intend to hold that that portion of gross receipts attributable to operating properties not included in either generating plants or rights of way should not be excluded in determining the portion of total annual gross receipts which arose from franchise properties.
'Plaintiff asserts that since its decision in the cited case, the Supreme Court has placed a different meaning upon the words [259 P.2d 681] 'gross receipts' than there applied by it. It cites three cases: Bekins Van Lines v. Johnson, 21 Cal.2d 135 [130 P.2d 421]; Pacific Greyhound Lines, etc. v. Johnson, 54 Cal.App.2d 297 [129 P.2d 32]; Robertson v. Johnson, 55 Cal.App.2d 610 [131 P.2d 388].
'All of these cases are readily distinguishable. All of them involve an interpretation of taxing statutes. In the present case neither the statute nor the ordinances involve taxation. In the cited cases, it was the gross receipts of the taxpayer from its operations upon the highways of the state which were taxed and in each of them the taxpayer sought, for varying reasons, to exclude a part of the receipts arising from that operation. That is not the situation here. The present case would be analogous to the cited cases if the defendant were attempting to exclude as a part of the capital invested in public rights of way the portion thereof invested in pipelines or equipment placed thereon. This the defendant has not done but on the contrary, through its method of accounting gives the plaintiff the advantage of several million dollars of capital invested in equipment situated upon private rights of way as well as that situated upon public right of way.
'It may be also noted that the courts, in each of the cases cited by plaintiff, in holding that 'gross receipts from operations' was plain language which required no interpretation, (and that is plaintiff's contention here), relied upon the decision in the case of Pacific Gas & Electric Co. v. Roberts, 176 Cal. 183 [167 P. 845]. This was decided long before the Dinuba case and it must be assumed that the Court in the cited cases would have applied that decision had it thought it applicable. It may be further noted that in none of the cases cited is there any reference to the Dinuba case. I cannot assume that the Court by its decision in the tax cases intended to overrule its decision in the Dinuba case.
'For fourteen years the defendant has rendered its accounting and paid its tolls under the method of accounting which is now attacked by the plaintiff. There is no contention that its reports did not, and in fact it is admitted that they do, show the basis upon which it was rendering its account. Exhibit K further conclusively shows that the defendant was seeking, by its method of accounting, to adapt itself to the decision of the Supreme Court in the Dinuba case.
'These facts demonstrate a contemporaneous and practical construction placed by the parties themselves upon their contract and while, in a case such as this, such a construction perhaps may not oeprate as an estoppel against the plaintiff, it is quite persuasive in arriving at the interpretation which should be now placed upon the statute and the Supreme Court decision construing it.
'Plaintiff argues that the canon of contemporaneous construction of a contract does not apply to municipalities. It has, however, been repeatedly held that the canon of contemporaneous construction does apply as against a public body. See: Notle [Nolte] v. Hudson Navigation Co., 2 Cir., 16 F.2d 182; Commissioner of Internal Revenue v. Leasing, etc., Co., 6 Cir., 46 F.2d [2], 4; Old Colony Trust Co. v. Omaha, 230 U.S. 100 [33 S.Ct. 967, 57 L.Ed. 1410]; City of South St. Paul v. Northern States Power Co., [189 Minn. 26], 248 N.W. 288; State, ex rel., etc. v. Kansas City, [319 Mo. 386], 4 S.W.2d 427.
'Plaintiff insists that it is only the Board of Supervisors which can contract for the county; that therefore it is only that Board that can interpret its contracts, and that as it is stipulated here that none of the correspondence contained in Exhibit K was called to the attention of the Board, the plaintiff cannot be held to have acquiesced in defendant's construction of the statute.
'Plaintiff overlooks, however, the fact that under the terms of some of the franchises the defendant has annually filed with the Board of Supervisors its accounting and that under the remainder of the ordinances it has filed with the Board a copy of its accounting. It overlooks the fact, also, that it is the statutory duty of the Auditor, as an executive officer of the county, to 'examine and settle the accounts of all persons indebted to the county or holding moneys payable into the county treasury', and to 'certify the amount to the treasurer'. (Pol.Code, [259 P.2d 682] § 4093). It is presumed that the Board of Supervisors and the Auditor performed their duty. If they did perform it they must have been cognizant of the method used by the defendant in computing the tolls due from it and it can only be assumed for a period of fourteen years they acquiesced in plaintiff's interpretation.
'Even if it be assumed that the Board of Supervisors are not charged with knowledge of the accounts filed with it pursuant to the statute, it still cannot be said that the plaintiff has not acquiesced and by its acquiescence joined in defendant's interpretation of the statute and the Supreme Court's decision in the Dinuba case. The Auditor, as I have pointed out above, is the officer of the county charged with the duty of determining the amount due to the county from persons indebted to it. He could only perform this duty by construing the instrument upon which the indetedness is based. It being his duty to do this, it must follow that he had the power to do it and, having that power, was expressly authorized so to do by Section 2 of the Los Angeles County Charter, which provides: 'The powers mentioned in the preceding section can be exercised * * * by officers acting * * * by authority of law * * *'
'I admitted into evidence certain exhibits which tended to prove that all public utilities holding Broughton Act franchises have since 1926 reported and paid tolls under those franchises under the same system of accounting used by the defendant and that with but one exception no objection has been made thereto.
'I also admitted into evidence the findings and judgment in actions subsequent to the decision of the Supreme Court in the Dinuba case but which directly involve the same questions and rights that were involved in that case.
'None of this evidence bears upon the question of contemporaneous construction. While it may be argued with much force that under the circumstances here, where each of the agencies acquiesced in the system of accounting in question, is an agency of the state, and each is governed by the same basic statute, that their action constitutes an administrative interpretation of the law, I have not taken any of such evidence into consideration in arriving at my conclusions. I do not strike it from the record, however, as it is clearly relevant, under the allegations of the amended complaint, as additional proof of the contentions made by the defendant as therein alleged.'
On Petition for Rehearing
PER CURIAM.
The Gas Company's repetition of its argument in support of the doctrine of contemporaneous construction after this court has followed the Supreme Court's pronouncement of thirty-one years ago is without avail. The Broughton Act was construed by the Dinuba decision in 1922 and the courts have at no time veered from that construction. Interpretations of the statute, contradictory of court decisions, by treasurers, auditors and the utilities have no sacramental significance. In fact, they are irrevelant. Why should administrative interpretations prevail if they are erroneous? Whether a legislative enactment shall be maintained as the law of the land, despite the views of individual executives, depends upon the conclusions of the court of last resort. "At most, administrative practice is a weight in the scale, to be considered, but not to be inevitably followed." Whitcomb Hotel, Inc. v. California Employment Commission, 24 Cal.2d 753, 757, 151 P.2d 233, 235, 155 A.L.R. 405.
However long administrative construction of a statute has continued, it does not for that reason become decisive. The Constitution empowers no entity other than the courts to invalidate a statute or to declare its meaning. When, by reason of its uncertainty, public agencies have given it a nonjudicial construction they are set aright by the final judgment of a court. An erroneous administrative construction does not control the courts in their interpretation of a statute. Ibidem.
Respondent says that following the Dinuba decision, 'a method of applying the principles of that case were worked out by gas and electric companies and by other utilities with various public agencies * * *.
[259 P.2d 683] It will thus be seen that the formula which the Gas Company has used to compute its payments to the County of Los Angeles is based on a long recognized interpretation of the Broughton Act and has been used by various other utilities throughout the State.' Such statement does not square with the record. Aside from the definite pronouncement by the Dinuba decision in 1922, Los Angeles County has since 1940 been engaged in a continuous controversy with respondent and other utilities with respect to the construction of the statute. This suit was authorized in 1939. Moreover, the action of City of San Diego v. Southern California Telephone Company, Cal.App., 251 P.2d 739, shows anything but a unanimity of public agencies in accepting the program of the utilities. The Telephone Company, from 1914 to 1944, paid on a formula wholly dissimilar from that urged here as lawful by respondent.
All other points are covered in the opinion.
Rehearing denied.
McCOMB, J., dissents.
Date Adopted Ordinance Number (New Series) Expiration Date
------------------
February 25, 1918 500 March 23, 1958
September 26, 1919 574 October 26, 1959
June 8, 1925 1300 July 8, 1965
February 17, 1930 1797 March 17, 1970
In view of the fact that the Dinuba case must control the outcome of this controversy, the alternate method presented by the County need not be discussed further.