CITY OF CLOVIS et al., Plaintiffs and Respondents, v. COUNTY OF FRESNO, Defendant and Appellant.
No. F060148
Fifth Dist.
Jan. 16, 2014
A petition for a rehearing was denied February 13, 2014
222 Cal. App. 4th 1469
Freeman, D‘Aiuto, Pierce, Gurev, Keeling & Wolf, Thomas H. Keeling; Kevin Briggs, County Counsel, Arthur G. Wille and Peter J. Wall, Deputy County Counsel, for Defendant and Appellant.
Jennifer B. Henning for California State Association of Counties as Amicus Curiae on behalf of Defendant and Appellant.
McCormick, Kabot, Jenner & Lew and Nancy A. Jenner for Plaintiffs and Respondents.
Jarvis, Fay, Doporto & Gibson, Benjamin P. Fay, Rick W. Jarvis; Colantuono & Levin, Michael G. Colantuono and Jon R. DiCristina for League of California Cities as Amicus Curiae on behalf of Plaintiffs and Respondents.
OPINION
OAKLEY, J.*—The City of Clovis and six other Fresno County cities (cities) sued the County of Fresno (county) over the calculation of a fee the county withholds for the service of collecting property taxes from property owners and distributing the proceeds to the cities. In other litigation raising the same fee-calculation issue, the California Suрreme Court rejected the county‘s position and required use of the methodology advocated by the
The county appeals. It does not challenge the orders to use the Alhambra methodology and issue refunds. It appeals only from the order to pay prejudgment and postjudgment interest, an issue the Alhambra opinion does not address.
As we will explain, the relevant statutes were amended on September 30, 2013, effective January 1, 2014. Having ordered supplemental briefing on the new law, we conclude that we must address it because it will be in effect at the time when the judgment in this case beсomes final. As we will explain, interest was awardable even under the law in effect at the time of trial. Under the new law, interest is likewise awardable, though at different rates. The new law changes the applicable rates of interest.
We will affirm the trial court‘s judgment insofar as it awards prejudgment and postjudgment interest, but we will reverse with respect to the rate of interest on and after January 1, 2014.
FACTUAL AND PROCEDURAL HISTORIES
The Alhambra opinion explains the legal issue behind the parties’ primary dispute. To compensate counties for administrative costs incurred in their role as tax collectors, counties are authorized to charge cities a property tax administration fee (PTAF). (Alhambra, supra, 55 Cal.4th at p. 714.) A county withholds the PTAF from the tax revenues distributed to the cities. (Id. at p. 715.) The PTAF for each city is based on the ratio of the taxes collected on its behalf to the total property taxes collected by the county. (Ibid.) Excluded from this calculation, however, are taxes collected on behalf of cities and deposited into the county‘s Educational Revenue Augmentation Fund (ERAF). (Id. at pp. 713-714, 715.) The county ERAF‘s were created by the Legislature in 1992 to help resolve a budget crisis. Property tax revenue is diverted from local governments to each county‘s ERAF to maintain funding levels for education in the face of declining contributions from the state general fund. (Id. at p. 714.) Since property tax revenues diverted to ERAF‘s are not included in the calculation of the PTAF‘s withheld by the counties, each county must absorb the cost of administering those revenues and is not reimbursed for it by cities. (Id. at p. 715.)
In 2004, in response to another budget crisis, the Legislature diverted ERAF money to cover various budget gaps. This diversion took two forms.
Under the Triple Flip and the VLF Swap, property tax revenue that formerly went to the ERAF‘s now goes to cities, compensating them for lost sales tax and VLF funds. The California State Association of County Auditors prepared informal guidelines for use by counties implementing the statutory changes. According to these guidelines, the PTAF for each city should now be calculated on the basis of distributions, including the amount that formerly went to the county‘s ERAF, instead of excluding that amount as before. (Alhambra, supra, 55 Cal.4th at p. 717Ibid.) Los Angeles County followed the guidelines (ibid.), as did Fresno County and some other counties.
In Alhambra, our Supreme Court rejected these counties’ interpretation of the statutory changes that resulted in the Triple Flip and the VLF Swap. The court concluded that counties “should be no better, оr worse, off in recouping [their] costs of property tax administration as a result of” the statutory changes. (Alhambra, supra, 55 Cal.4th at p. 725Id. at p. 729.)
In the present case, the cities initiated mandate proceedings against the county on grounds that, as the parties agree, are essentially identical to those on which the cities in Alhambra sued Los Angeles County. Before the Supreme Court‘s decision in Alhambra was issued, the trial court in this case anticipated that decision by holding the county‘s method of calculating the PTAF unlawful. It ruled that the county could withhold “the actual incremental costs to implement the Triple Flip and VLF Swap in lieu payments” but could not increase the basis on which the PTAF was calculated by including the ERAF revenue. The county was required to refund the difference to the cities for each year in which it had applied its erroneous new formula. The judgment also includes the following: “Petitioners are awarded costs of suit, prejudgment interest and postjudgment interest at the rate of 7% per annum as set forth in
*Judge of the Madera Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
On September 30, 2013, after briefing was completed, the Legislature enacted legislation addressing interest awardable against local government entities in certain types of cases. (Stats. 2013, ch. 424 (chapter 424).) Chapter 424 amended
In this case, as noted, the trial court applied existing law and set the prejudgment and postjudgment interest rates at 7 percent. The weekly one-year constant maturity United States Treasury yield, by contrast, has been less than 1 percent since the end of 2008 and was considerably below 7 percent for many years before that. (<http://www.federalreserve.gov/releases/h15/data.htm> [as of Jan. 16, 2014].)
When it passed chapter 424, the Legislature apparently believed the interest rates payable by government entities under existing law were too high. A Senate Rules Committee report on the legislation stated the views of the bill‘s author, Assemblymember Eggman, as follows:
“California‘s judgment interest rate against public entities such as schools, spеcial districts, local and state government is out-of-date and provides an artificially higher rate of return than what the current market could provide. These rates result in very large sums of taxpayer money being spent in legal costs.
“When California‘s judgment interest rate was codified, in the late 70s and early 80s, the U.S. had been in a severe economic recession—characterized by high inflation but low business activity—and interest rates had begun to skyrocket, reaching as high as 21 [percent].
“At the time, the rates adopted were considered significant relief. Now the reverse has happened and market rates are far lower, but there has been no adjustment to reflect this. At a time when local governments continue to struggle, with loss of revenue forcing cuts to vital services—education, public safety, social services—the rate of interest these public entities pay on judgments remains high. That rate is not responsive to the times or to the public interest. In current economic conditions, it is far higher than the market can justify, posing an unnecessary burden to taxpayers, contra[ry] to the public good. . . .
“This bill saves taxpayer money for vital services by tying the rate applying to public entities to a market rate—as does the federal government—that serves as a close indicator of the economy‘s health, and a fair approximation of the value of the judgment.” (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Assem. Bill No. 748 (2013-2014 Reg. Sess.) as amended Aug. 20, 2013, p. 7.)
Because chapter 424 was enacted on September 30, 2013, it became effective on January 1, 2014. (
On November 19, 2013, this court asked the parties to submit supplemental briefs on the effect of chapter 424 on this case. Specifically, we asked the parties to assume for the sake of argument that interest is awardable in this case and to explain whether the new interest rates apply to prejudgment and/or postjudgment interest here. We also asked whether the nеw rates apply to interest accruing on and after January 1, 2014, even if they do not apply to interest accruing before that date.
In their supplemental brief, the cities argue that the new law does not apply to any portion of the interest in this case because the cause of action arose long before its effective date, and statutes generally apply only prospectively unless the Legislature clearly expresses a contrary intent. The cities also
DISCUSSION
This appeal presents the following questions: Does the law authorize awards of prejudgment and postjudgment interest against the county? If it does, what are the applicable rates of interest? As these are pure questions of law, we review the judgment de novo. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799 [35 Cal.Rptr.2d 418, 883 P.2d 960]; Topanga and Victory Partners v. Toghia (2002) 103 Cal.App.4th 775, 779-780 [127 Cal.Rptr.2d 104].)
The cities argue that the issues have not been preserved for appellate review because the county did not object to the interest award in the trial court. We ordinarily do not consider claims of error where an objection could have been, but was not, made in some appropriate form at trial. Such claims are generally forfeited. (People v. Saunders (1993) 5 Cal.4th 580, 590 [20 Cal.Rptr.2d 638, 853 P.2d 1093].) The rule of forfeiture does not apply, however, to “noncurable defects of substance where the question is one of law,” or to “matters involving the public interest or the due administration of justice. . . .” (9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 406, pp. 464, 465.) Further, we have discretion to consider a forfeited claim. (People v. Williams (1998) 17 Cal.4th 148, 161-162, fn. 6 [69 Cal.Rptr.2d 917, 948 P.2d 429]; In re Sheena K. (2007) 40 Cal.4th 875, 887-888, fn. 7 [55 Cal.Rptr.3d 716, 153 P.3d 282].) Here we deal with an asserted defect of law, a defect which (had it been a real defect) could not have been cured in the trial court by any means short of an opposite outcome. We also deal with a matter of public interest, since other counties using the accounting method rejected by the Supreme Court in Alhambra might be ordered to pay interest. We will decline the cities’ invitation not to address the merits.
As we will explain, we agree with the cities’ view that the interest awards were authorized under prior law. Additionally, we agree with the county that the present claim of the cities is the type of claim to which chapter 424 is applicable, thus reinforcing our view that interest awards are authorized in this action. However, we find the legislative modification of the rates of interest to be effective only as of the effective date of the legislation, namely January 1, 2014.
In their original briefs, the parties naturally analyzed the quеstion of whether interest was awardable in this case under the law that applied before chapter 424 was enacted. As we will explain, interest was properly awarded under prior law.
A. Prejudgment interest
The county does not contend that the money it has been ordered to pay cannot be made certain by calculation or that the cities were not entitled to recover it on a particular day. In our view, the plain meaning of
The county‘s argument is that the money it has been ordered to pay is not “damages” within the meaning of
In Dinuba, the City of Dinuba sued Tulare County after that county distributed less property tax revenue to Dinuba‘s redevelopment agency than the agency was statutorily entitled to receive. (Dinuba, supra, 41 Cal.4th at p. 862.) Tulare County claimed it was immune from suit under the Government Claims Act3 (
The Suprеme Court disagreed. It gave two reasons for its holding. First, although the Government Claims Act immunizes a public agency from liability for “an injury” caused by an erroneous interpretation or application of “any law relating to a tax” (
Second, “the immunity provisions of the [Government Claims] Act are only concerned with shielding public entities from having to pay money damages for torts.” (Dinuba, supra, 41 Cal.4th at p. 867.)
In this case, according to the county, the excess PTAF withholding the cities will recover also is not damages. In the county‘s view, it will only be complying with its statutory duty when it follows the trial court‘s order to release the excess PTAF withholding, just as Tulare County was doing in Dinuba when it repaid the misallocated tax revenue. Therefore, the county maintains, the remedy the trial court ordered is not “damages” within the meaning of
While superficially attractive, the county‘s argument does not withstand analysis. “Damages” for purposes of the Government Claims Act does not necessarily have the same meaning as “damages” for purposes of
Finally, Dinuba is distinguishable from this case on its facts. The dispute in Dinuba was over the question of whether a county had allocated the correct amount of tax revenue to a city. That is the context in which the Supreme Court held there to be no dispute of a kind that could arise between private parties. Here, as the cities point out, the dispute is over the amount of a fee charged by the county, a type of dispute that arguably could arise between private parties. Consequently, it is not at all clear that the Dinuba court‘s reasoning would point to the denial of an interest award here, even assuming its reasoning can be transferred to the context of this case. The considerations relevant to misallocation of tax revenue are different.
For these reasons, the appropriate inquiry is whether the money award is damages in light of the purposes of
The county asserts that no interest of any kind should be awarded because
Amicus curiae California State Association of Counties (Association) also argues that
Even if the Legislature had this motivation, we do not think the statute bars interest awards for any category of judgments against counties. When
Association also contends that the Legislature must have intended to preclude interest awards in disputes like this one because “the Legislature has provided for the payment of interest in other sections of the Revenue and Taxation Code” but did not so provide in
Finally, Association argues that the interest award in this case is inconsistent with public policy because it means a city could be ordered to pay interest if it were “erroneously allocated too much property tax.” This would be inappropriate, Association says, because it would complicate financial planning.
B. Postjudgment interest
The trial court‘s award of postjudgment interest was authorized by
“The rate of interest upon a judgment rendered in any court of this State shall be set by the Legislature at not more than 10 percent per annum. Such rate may be variable and based upon interest rates charged by federal agencies or economic indicators, or both.
“In the absence of the setting of such rate by the Legislature, the rate of interest on any judgment rendered in any court of the State shall be 7 percent per annum.”
The California Supreme Court has held that postjudgment interest can be awarded upon judgments entered against local government entities and that 7 percent is the correct rate. (California Fed. Savings & Loan Assn. v. City of Los Angeles (1995) 11 Cal.4th 342, 344-345, 347-348 [45 Cal.Rptr.2d 279, 902 P.2d 297] (California Federal).)
The county‘s argument about postjudgment interest is as follows:
The county‘s argument overlooks the plain language of
The trial court‘s 7 percent postjudgment interest award was correct under
II. Applicability of new law to cause of action arising before effective date
We agree with the county‘s view that the new law is applicable even though it became effective after the events underlying the cause of action took place. This is because it is a remedial or procedural statute and will be in effect when the judgment becomes final. The cities are mistaken in their reliance on the general rule that new laws apply only prospectively.
“A basic canon of statutory interpretation is that statutes do not operate retrospectively unless the Legislature plainly intended them to do so.” (Western Security Bank v. Superior Court (1997) 15 Cal.4th 232, 243 [62 Cal.Rptr.2d 243, 933 P.2d 507].) At the same time, it has been held that if a statute is remedial or procedural in nature, it may be applied in litigation pending when it came into effect, even if the events underlying the cause of action toоk place before it came into effect, so long as it does not create a new cause of action, deprive a defendant of a defense on the merits, or alter a party‘s vested rights. (Kuykendall v. State Bd. of Equalization (1994) 22 Cal.App.4th 1194, 1211, fn. 20 [27 Cal.Rptr.2d 783] (Kuykendall).)
Chapter 424 is remedial or procedural within the meaning of the case law on this topic. Plainly, it does not create a new cause of action or eliminate a defense on the merits. It is also clear that it does not alter the cities’ vested rights, for it has been held that no one has a vested right in existing remedies. (Kuykendall, supra, 22 Cal.App.4th at p. 1211, fn. 20;
Consequently, the antiretroactivity rule does not apply. The application of new procedural or remedial statutes to cases still pending on appeal when they becomе effective is deemed not to be retroactive—even though the cause of action arose earlier—because the change in the law affects only the conduct of the litigation and the provision of a remedy going forward, not the rights and duties of the parties in the past. (Coast Bank v. Holmes, supra, 19 Cal.App.3d at pp. 593-594.) New procedural or remedial laws are consistently applied to cases not yet final when they become effective, unless the Legislature expresses an intent not to so apply them. (Mir v. Charter Suburban Hospital (1994) 27 Cal.App.4th 1471, 1478 [33 Cal.Rptr.2d 243]; Hogan v. Ingold (1952) 38 Cal.2d 802, 814-815 [243 P.2d 1].)
This doctrine has been applied to changes in remedies with equal or greater consequences for the parties than the change in interest rates here at issue. In numerous cases, it has been held that new statutes allowing awards of attorney fees are applicable to litigation pending when the statutes came into effect, even though they were not in effect when the underlying facts took place. (Rumford v. City of Berkeley (1982) 31 Cal.3d 545, 559 [183 Cal.Rptr. 73, 645 P.2d 124] [attorney fees awardable under
The cities attempt to distinguish Kuykendall, which was mentioned in our briefing letter. They point out that the Kuykendall court concluded that the Legislature clearly intended the statute there at issue to be applied retroactively (Kuykendall, supra, 22 Cal.App.4th at p. 1209), while there is no indication that the Legislature had a similar intent here. The cities overlook the fact, however, that the Kuykendall court also relied on the prоposition that “the rule a statute should be construed as not operating retroactively absent a clear legislative direction does not apply where, as here, the statute is remedial or procedural in nature.” (Id. at p. 1211, fn. 20.) As we have said, when statutes are remedial or procedural, courts consistently apply them in cases pending, including cases pending on appeal, when the statutes become effective, even though the underlying facts predate their effective dates.
III. Effect of new law
Having concluded that chapter 424 applies in this case, we now consider the effect it has here.
A. Prejudgment and postjudgment interest are awardable in this case
As the county concedes, if the new law is applicable, it means interest is awardable.
Assemblymember Eggman‘s definition evidently is intended to exclude cases in which the dispute is over the amount of taxes allocated by a county to a city. If this case had involved a claim that the county had made an incorrect allocation and had given too much money to one city and too little to another, for instance, it would appear that Assemblymember Eggman‘s definition of a “tax or fee claim” would exclude it. But that is not what happened here. The cities simply claim that the county withheld toо much for the PTAF.
The cities maintain that this case does not involve a tax or fee claim within the meaning of Assemblymember Eggman‘s letter because it is a claim for proper allocation of taxes between government entities. This is not correct. The cities’ lawsuit did not claim the county incorrectly divided the tax money when it allocated that money to each city, for instance. Their only claim was that the county withheld too much for the PTAF. That, we conclude, is a “fee claim.”
A reference to this case in the legislative history reinforces our conclusion. A committee report discussing the fiscal impact of the legislation notes a potential reduction in revenue to government agencies that are plaintiffs in suits against other government agencies. This case, City of Clovis v. County of Fresno, is cited as an example in which plaintiffs would receive less interest under the new law. (Sen. Com. on Appropriations, Fiscal Summary, Analysis of Assem. Bill No. 748 (2013-2014 Reg. Sess.) as amended July 8, 2013, p. 1.)5 This reference confirms our view that this case involves a “tax or fee claim” and falls within the scope of new
B. New statutory rates of interest are applicable commencing January 1, 2014
As noted above, the trial court ordered both prejudgment and postjudgment interest on the cities’ claims at the rate of 7 percent per annum. Chapter 424 provides a significant reduction in the rates of interest.
Chapter 424 is a remedial or procedural statute, and as we have explained, that means it applies in a case in which the cause of action arose before its effective date, but which is still pending on appeal on its effective date. Chapter 424 is also, however, a chаnge in a statutory interest rate. It has been settled law in this state for well over 100 years that, although a change in a statutory interest rate applies to a case pending on the effective date of the change, the new rate applies only to interest accruing on and after that date; the former rate applies to interest accruing before that date.
In White v. Lyons, supra, 42 Cal. at pages 284-285, the Supreme Court wrote: “But, I think, the Court erred in fixing the rate of interest at ten per cent per annum up to the date of the judgment. When the conversion occurred that was the rate fixed by statute in transactions of this character. But the Act of March 30th, 1868, reduced the rate from ten to seven per cent per annum; and from the time when this Act took effect the interest should have been computed at seven per cent per annum. In the absence of a contract for interest, it is only allowed as damages for a failure to pay the money due [citation]; and it is competent for the Legislature to fix the amount which shall be recovered. But the Act reducing the rate was only prospective in its operation, and was not intended to take away or impair rights which had already accrued under the prior statute. In Bullock v. Boyle, 1 Hoffman, N. Y. Ch. R., 294, the effect of statutes modifying the rate of interest is fully and elaborately discussed, and the authorities collated by the Vice Chancellor; and the conclusion at which he arrived is, that a change in the rate, as a general rule, operates only prospectively, and does not affect rights already accrued. [[] The judgment is affirmed, except as to the rate of interest; and in respect to the computation of interest, the Court below is directed to modify the judgment by computing the interest at ten per cent per annum up to the time when the Act of March 30th, 1868, took effect, and thereafter at the rate of seven per cent per annum . . . .”
The new legislation applies to interest in the present action beginning January 1, 2014.
DISPOSITION
The judgment is modified to reflect that, effective January 1, 2014, the rate of interest to be awarded in this action is controlled by
Gomes, Acting P. J., and Detjen, J., concurred.
A petition for a rehearing was denied February 13, 2014, and the opinion was modified to read as printed above.