CITY OF SACRAMENTO, Plaintiff and Appellant, v. STATE of California, etc. et al., Defendants and Respondents.
In 1984, this court held costs incurred by local governments in complying with chapter 2, Statutes 1978 (Chapter 2), which, for the first time, required public employees to be covered by state unemployment insurance law, are costs incurred as a result of a state-mandated program, entitling local governments to reimbursement pursuant to constitutional and statutory provisions. (City of Sacramento v. State of California (1984) 156 Cal.App.3d 182, 203 Cal.Rptr. 258 (Sacramento I.) When this reimbursement was not forthcoming, City of Sacramento (City) filed a petition for mandate, seeking inter alia a declaration that Chapter 2 was unconstitutional absent an appropriation for reimbursement (Sacramento II ).
While the petition was pending, the California Supreme Court decided County of Los Angeles v. State of California (1987) 43 Cal.3d 46, 233 Cal.Rptr. 38, 729 P.2d 202 (Los Angeles ), in which the court analyzed article XIII B, section 6 of the California Constitution, (article XIII B) requiring reimbursement to local agencies for the cost of any “new program or higher level of service.” As detailed infra, the Los Angeles case also contained a footnote vaguely critical of Sacramento I. The Los Angeles case and doubtless the critical, somewhat unnecessary, footnote prompted respondent State of California (State) in Sacramento II to move for summary judgment, contending Chapter 2 did not meet the definition of “program” articulated in Los Angeles. The trial court agreed and granted summary judgment.
On appeal, City contends (1) State is precluded from relitigating the question of whether Chapter 2 is a program for reimbursement purposes and (2) even if Los Angeles is controlling, Chapter 2 meets its definitional requirements. We shall reverse the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
We recount events leading up to the present controversy, as outlined in Sacramento I. (156 Cal.App.3d at pp. 187–189, 203 Cal.Rptr. 258.) In 1976, Congress amended the Federal Unemployment Tax Act to make inclusion of public employees in the state unemployment insurance system a prerequisite to private employers in that state receiving a tax credit based on unemployment insurance taxes they had paid. California responded by enacting Chapter 2 as an urgency measure, effective January 30, 1978. (Stats.1978, ch. 2, § 108, p. 52.) This legislation required all local governmental employers to pay into the state unemployment insurance system on behalf of their public employees.
Reimbursement provisions for expenses incurred in complying with state-mandated local programs were embodied in Revenue and Taxation Code sections 2201 et seq. At the time of Sacramento I, Revenue and Taxation Code section 2231, subdivision (a) provided in part: “The state shall reimburse each local agency for all ‘costs mandated by the state’, as defined in Section 2207.” (Stats.1982, ch. 1586, § 3, p. 6264.) That section stated: “ ‘Costs mandated by the state’ means any increased costs which a local agency is required to incur as a result of ․ [¶] (a) [a]ny law enacted after January 1, 1973, which mandates a new program or an increased level of service of an existing program.” 1 Costs mandated by the federal government, however, are not subject to reimbursement. (See Rev. & Taxation Code, § 2271.)
In 1979, voters enacted Proposition 4, adding article XIII B to the California Constitution. Section 6 of that article provides: “Whenever the Legislature or any state agency mandates a new program or higher level of service on any local government, the state shall provide a subvention of funds to reimburse such local government for the costs of such program or increased level of service, except that the Legislature may, but need not, provide such subvention of funds for the following mandates: [¶] (a) Legislative mandates requested by the local agency affected; [¶] (b) Legislation defining a new crime or changing an existing definition of a crime; or [¶] (c) Legislative mandates enacted prior to January 1, 1975, or executive orders or regulations initially implementing legislation enacted prior to January 1, 1975.” This provision became effective July 1, 1980. (See Cal. Const., art. XIII B, § 10.)
These statutory and constitutional provisions granted relief to local governments whose powers to raise property taxes had been curtailed but who were still subject to increased expenses through the imposition of state-mandated local programs. The state was now required to reimburse local governments for costs associated with these programs.
However, the Legislature refused to appropriate funds for reimbursement. In Sacramento I, City sought reimbursement for the costs of providing unemployment insurance to its employees as required by Chapter 2. The State Board of Control denied the claim, finding Chapter 2 was a federally-mandated program and therefore not subject to reimbursement. City sought relief in superior court. The trial court held Chapter 2 was a state-mandated local program and granted City's petition for mandate, directing the Board of Control to determine the amount owing to City. On appeal, this court affirmed, inter alia finding: “The Board was wrong as a matter of law in finding Chapter 2 was not a state mandate. The trial court properly rebuffed the State's efforts to uphold this erroneous decision and correctly ordered peremptory writ of mandate compelling a new hearing of [City's] claims on the basis that Chapter 2 constitutes a state-mandated local program.” (156 Cal.App.3d at p. 199, 203 Cal.Rptr. 258, hg. den. July 19, 1984.)
Following this decision, the Board adopted parameters and guidelines for reimbursement, finding all costs incurred on or after January 1, 1978, to be reimbursable. However, the Legislature again failed to appropriate funds for reimbursement. In July 1985, City filed its petition for mandate, naming as respondents the State of California, the State Employment Development Department (EDD), Controller Kenneth Cory, Treasurer Jesse Unruh, the California State Legislature and Governor George Deukmejian. In addition to damages, City sought to have Chapter 2 declared unconstitutional on its face or unenforceable due to lack of appropriations for reimbursement.2
State's demurrer to the petition was overruled except as to the period for which the Legislature had in fact appropriated reimbursement funds, fiscal years 1984–1985 and 1985–1986 (Stats.1985, ch. 1217, §§ 12, 17, subd. (b)). The court certified the suit as a class action 3 and granted City's motion for summary adjudication of the issues.
While the petition was pending, the Supreme Court decided County of Los Angeles v. State of California, supra, 43 Cal.3d 46, 233 Cal.Rptr. 38, 729 P.2d 202, in which local governments sought reimbursement for costs incurred in complying with legislation increasing workers' compensation benefit payments. The court held programs were reimbursable under article XIII B if they were “programs that carry out the governmental function of providing services to the public, or laws which, to implement a state policy, impose unique requirements on local governments and do not apply generally to all residents and entitles in the state.” (Id., at p. 56, 233 Cal.Rptr. 38, 729 P.2d 202.) The court concluded article XIII B “has no application to, and the state need not provide subvention for, the costs incurred by local agencies in providing to their employees the same increase in workers' compensation benefits that employees of private individuals or organizations receive.” (Id., at pp. 57–58, 233 Cal.Rptr. 38, 729 P.2d 202.) In a footnote, the court then noted: “The Court of Appeal reached a different conclusion in [Sacramento I ], with respect to a newly enacted law requiring that all public employees be covered by unemployment insurance. Approaching the question as whether the expense was a ‘state mandated cost,’ rather than as whether the provision of an employee benefit was a ‘program or service’ within the meaning of the Constitution, the court concluded that reimbursement was required. To the extent that this decision is inconsistent with our conclusion here, it is disapproved.” (Id., at p. 58, fn. 10, 233 Cal.Rptr. 38, 729 P.2d 202.)
Immediately after the Los Angeles decision became final, State moved for summary judgment, noting the Supreme Court's disapproval of Sacramento I and arguing Chapter 2 was not a reimbursable “program.” The trial court granted the motion and ordered summary judgment be entered, finding “there is no triable issue [of fact] in this case because the ․ program at issue in this matter is not a state mandated program as defined by the County of Los Angeles case.” This appeal followed.
Relying on principles of res judicata and collateral estoppel, City contends State is precluded from relitigating the issue of whether Chapter 2 is a state-mandated program. We conclude the doctrine of collateral estoppel controls the instant case.
“The doctrines of res judicata and collateral estoppel are based upon the sound public policy of limiting litigation by preventing a party who has had one fair trial on an issue from again drawing it into controversy. [Citation.] The purposes of the doctrines are to promote judicial economy by minimizing repetitive litigation, to prevent inconsistent judgments which undermine the integrity of the judicial system, and to provide repose by preventing a person from being harrassed by vexatious litigation.” (Jackson v. City of Sacramento (1981) 117 Cal.App.3d 596, 601, 172 Cal.Rptr. 826.)
“Res judicata and collateral estoppel give conclusive effect to a former judgment in subsequent litigation involving the same controversy. [Citation.] In a new action on the same cause of action a prior judgment for the defendant acts as a complete bar to further litigation, and a prior judgment for the plaintiff precludes litigation because it results in a merger, superseding plaintiff's claim by a right of action on the judgment. In a new action on a different cause, the former judgment is not a complete merger or bar, but is effective as a collateral estoppel, being conclusive on issues actually litigated in the former action.” (Ibid.; see also Code Civ.Proc., § 1911; Henn v. Henn (1980) 26 Cal.3d 323, 329–330, 161 Cal.Rptr. 502, 605 P.2d 10; Harmon v. Mono General Hospital (1982) 131 Cal.App.3d 607, 616, 182 Cal.Rptr. 570.)
In Sacramento I, City sought reimbursement of the costs incurred in complying with Chapter 2. In Sacramento II, the instant case, City inter alia seeks damages and declaratory relief, i.e., a finding that Chapter 2 is unconstitutional. As different causes of action are involved in each case, the doctrine of res judicata is inapplicable.
Collateral estoppel will bar relitigation of an issue decided in an earlier trial if three conditions are met: (1) the previous trial resulted in a final judgment on the merits; (2) the party against whom collateral estoppel is asserted was either a party to the prior trial or in privity with such a party; and (3) the issue decided at the earlier trial is identical to the one which is sought to be relitigated. (People v. Sims (1982) 32 Cal.3d 468, 484, 186 Cal.Rptr. 77, 651 P.2d 321.)
Both City and State recognize the first element is met: Sacramento I clearly resulted in a final judgment on the merits. As to the second requirement, State contends collateral estoppel cannot be applied because the parties are not identical. In Sacramento I, the respondents were the State of California and the Board of Control; here, respondents are State, EDD, the controller, treasurer and governor. We agree the parties are not identical. They are, however, in privity. “ ‘Privity is essentially a shorthand statement that collateral estoppel is to be applied in a given case; there is no universally applicable definition of privity.’ [Citation.] The concept refers ‘to a relationship between the party to be estopped and the unsuccessful party in the prior litigation which is “sufficiently close” so as to justify application of the doctrine of collateral estoppel.’ ․ [¶] ‘[T]he courts have held that the agents of the same government are in privity with each other, since they represent not their own rights but the right of the government.’ ” (People v. Sims, supra, 32 Cal.3d at pp. 486–487, 186 Cal.Rptr. 77, 651 P.2d 321; see also Carmel Valley Fire Protection Dist. v. State of California (1987) 190 Cal.App.3d 521, 535–536, 234 Cal.Rptr. 795.) The parties in both suits are State, its agencies and officers; the privity requirement is met.
The third element of collateral estoppel, whether the issue necessarily decided in Sacramento I is identical to the one which is sought to be relitigated is the critical issue in the instant case. Did Sacramento I necessarily determine that Chapter 2 was a state-mandated new program, as article XIII B uses the term? We conclude it did.
The issue tendered in Sacramento I was whether costs incurred by local entities in complying with a new unemployment insurance law were costs mandated by the state within the meaning of article XIII B. The new law for the first time required local public employees be covered by unemployment insurance. Aside from its prospective/retroactive argument in Sacramento I, the state contended on appeal that the new law “relates to federally mandated, not state-mandated, costs.” (156 Cal.App.3d at p. 189, 203 Cal.Rptr. 258.)
We rejected that contention, holding that an incentive-induced choice does not constitute a federal mandate. We went on to state that “[i]f participation in a federal program is optional, it follows that state legislation requiring local participation involves a state mandate under article XIII B, section 6.” (At p. 198, 203 Cal.Rptr. 258.)
The trial court had specifically found Chapter 2 to be a state-mandatedprogram, requiring reimbursement from its operative date of January 30, 1978, pursuant to Revenue and Taxation Code section 2231. The court also found reimbursement to be constitutionally compelled as of July 1, 1980, the date article XIII B became effective. These conclusions were expressly affirmed by this court when we held the trial court “correctly ordered a peremptory writ of mandate compelling a new hearing of plaintiffs' claims on the basis that Chapter 2 constitutes a state-mandated local program.” (Sacramento I, at p. 199, 203 Cal.Rptr. 258.)
State contends that because the question of whether Chapter 2 constituted a program at all went unaddressed, that issue was not “necessarily determined” and State is not collaterally estopped from raising it now. We disagree.
The issue adjudicated in Sacramento I was whether the new law constituted a state mandate under article XIII B. The state was free to raise any defense to the county's claim that the law was state mandated; it could have argued that it was federally mandated, or it was not a “new program” or a “higher level of service” within the meaning of the constitutional provision. The state chose only to make the federally-mandated argument. As the California Supreme Court explained in Henn v. Henn, supra, 26 Cal.3d 323, 331, 161 Cal.Rptr. 502, 605 P.2d 10, “the [collateral estoppel] rule prohibiting the raising of any factual or legal contentions which were not actually asserted but which were within the scope of a prior action, ‘does not mean that issues not litigated and determined are binding in a subsequent proceeding on a new cause of action. Rather, it means that once an issue is litigated and determined, it is binding in a subsequent action notwithstanding that a party may have omitted to raise matters for or against it which if asserted may have produced a different outcome.’ ” By ordering reimbursement, the trial and appellate courts necessarily determined Chapter 2 to be a state-mandated program. The issue of state-mandated costs was litigated and determined in Sacramento I and the fact that the state might have successfully argued that the new law was not a new program or a higher level of service does not help it now. It had its chance to litigate the question but elected to put all its eggs in the federal basket. State is collaterally estopped from splitting the concept of a state-mandated program into its component parts and relitigating the “program” issue.
Citing Consumers Lobby Against Monopolies v. Public Utilities Com. (1979) 25 Cal.3d 891, 902, 160 Cal.Rptr. 124, 603 P.2d 41, State contends the doctrine of collateral estoppel should not be applied herein as that would result in an unjust decision. We do not agree.
In Slater v. Blackwood (1975) 15 Cal.3d 791, 126 Cal.Rptr. 225, 543 P.2d 593, plaintiff raised an identical argument, urging the court to use its discretionary powers to reject res judicata as a defense. The court noted: “There is some authority for the proposition that, in particular circumstances, courts may refuse to apply res judicata when to do so would constitute a manifest injustice. (See Greenfield v. Mather (1948) 32 Cal.2d 23, 35 [194 P.2d 1]․) We consider the Greenfield doctrine of doubtful validity and it has been severely criticized. [Citation.] While we find it is unnecessary ․ to reach the question of whether Greenfield itself should be directly overruled, we expressly hold that the rule of that case is inapplicable where, as here, the only possible basis for its implementation is founded on a change in law following the original judgment.” (At p. 796, 126 Cal.Rptr. 225, 543 P.2d 593.)
The court explained: “It cannot be denied that judicial or legislative action which results in the overturning of established legal principles often leads to seemingly arbitrary and unwarranted distinctions in the treatment accorded similarly situated parties. However, ‘[p]ublic policy and the interest of litigants alike require that there be an end to litigation.’․ The consistent application of the traditional principle that final judgments, even erroneous ones [citations], are a bar to further proceedings based on the same cause of action is necessary to the well-ordered functioning of the judicial process.” (Id., at p. 797, 126 Cal.Rptr. 225, 543 P.2d 593.)
Slater involved principles of res judicata. Courts have traditionally been accorded more freedom in determining whether to apply collateral estoppel to certain situations. (see, e.g., Consumer's Lobby Against Monopolies, supra, 25 Cal.3d at p. 902, 160 Cal.Rptr. 124, 603 P.2d 141; Mountain Home Properties v. Pine Mountain Lake Assn. (1982) 135 Cal.App.3d 959, 964–965, 185 Cal.Rptr. 623.) However, we agree with the comments of the Slater court: When the only claimed injustice stems from a change in the law subsequent to the prior decision, there is no reason not to apply collateral estoppel. To hold otherwise would wreak havoc with the judicial process.
We conclude State is collaterally estopped from challenging the decision in Sacramento I finding Chapter 2 to be a state-mandated program.4 We next consider the effect of the Los Angeles case on costs incurred since the date of that decision.
In Los Angeles, local governments sought reimbursement for costs incurred in complying with legislation increasing the amount of workers' compensation benefits to be paid by employers. The increase applied to all employees, private and public. The issue before the court was whether these increased costs fell within the scope of article XIII B, requiring reimbursement for the costs of any “new program or higher level of service.”
The court concluded the phrase “higher level of service” is meaningless without understanding what was meant by “program.” The court determined “the drafters and electorate had in mind the commonly understood meanings of the term—programs that carry out the governmental function of providing services to the public, or laws which, to implement a state policy, impose unique requirements on local governments and do not apply generally to all residents and entities in the state.” (43 Cal.3d at p. 56, 233 Cal.Rptr. 38, 729 P.2d 202.)
The court explained: “The concern which prompted the inclusion of section 6 in article XIII B was the perceived attempt by the state to enact legislation or adopt administrative orders creating programs to be administered by local agencies, thereby transferring to those agencies the fiscal responsibility for providing services which the state believed should be extended to the public. In their ballot arguments, the proponents of article XIII B explained section 6 to the voters: ‘Additionally, this measure: (1) Will not allow the state government to force programs on local governments without the state paying for them.’ (Ballot Pamp., Proposed Amend. to Cal. Const. with arguments to voters, Spec. Statewide Elec. (Nov. 6, 1979) p. 18. Italics added.) In this context the phrase ‘to force programs on local governments' confirms that the intent underlying section 6 was to require reimbursement to local agencies for the costs involved in carrying out functions peculiar to government, not for expenses incurred by local agencies as an incidental impact of laws that apply generally to all state residents and entities. Laws of general application are not passed by the Legislature to ‘force’ programs on localities.
“The language of section 6 is far too vague to support an inference that it was intended that each time the Legislature passes a law of general application it must discern the likely effect on local governments and provide an appropriation to pay for any incidental increase in local costs․
“We conclude therefore that section 6 has no application to, and the state need not provide subvention for, the costs incurred by local agencies in providing to their employees the same increase in workers' compensation benefits that employees of private individuals or organizations receive. Workers' compensation is not a program administered by local agencies to provide service to the public. Although local agencies must provide benefits to their employees either through insurance or direct payment, they are indistinguishable in this respect from private employers. In no sense can employers, public or private, be considered to be administrators of a program of workers' compensation or to be providing services incidental to administration of the program. Workers' compensation is administered by the state through the Division of Industrial Accidents and the Workers' Compensation Appeals Board. (See Lab. Code, § 3201 et seq.) Therefore, although the state requires that employers provide workers' compensation for nonexempt categories of employees, increases in the cost of providing this employee benefit are not subject to reimbursement as state-mandated programs or higher levels of service within the meaning of section 6.” (Id., at pp. 56–58, fn. omitted, 233 Cal.Rptr. 38, 729 P.2d 202.)
The differences between the legislation involved in Los Angeles and the instant case are striking. Los Angeles involved legislation aimed at all employers that increased the costs associated with workers' compensation benefits. Local governments already participated in this program and experienced only incidental increased costs. The case at bar, however, involves major expense to local government as a result of legislation directed solely at local entities requiring their participation, for the first time, in the unemployment insurance system. It was in short, a program forced on local governments by State.
A recent California Supreme Court case is enlightening on these distinctions. In Lucia Mar Unified School Dist. v. Honig (1988) 44 Cal.3d 830, 244 Cal.Rptr. 677, 750 P.2d 318, the court considered whether legislation requiring a school district to contribute part of the cost of educating pupils from the district at state schools for the handicapped constituted a reimbursable program under article XIII B. The court concluded the legislation funded a “program” within this definition since education of these children was “clearly a governmental function providing a service to the public, and the section imposes requirements on school districts not imposed on all the state's residents. Nor can there be any doubt that although the schools for the handicapped have been operated by the state for many years, the program was new insofar as plaintiffs are concerned, since at the time [the legislation] became effective they were not required to contribute to the education of students from their districts at such schools.” (Id., at p. 835, 244 Cal.Rptr. 677, 750 P.2d 318.)
The court reiterated that article XIII B, section 6 “was intended to preclude the state from shifting to local agencies the financial responsibility for providing public services․ [¶] The intent of the section would plainly be violated if the state could, while retaining administrative control of programs it has supported with state tax money, simply shift the cost of the programs to local government on the theory that the shift does not violate section 6 of article XIIIB, because the programs are not ‘new.’ Whether the shifting of costs is accomplished by compelling local governments to pay the cost of entirely new programs created by the state, or to accept financial responsibility in whole or in part for a program which was funded entirely by the state before the advent of article XIIIB, seems equally violative of the fundamental purpose underlying section 6 of that article.” (Emphasis added; fn. omitted.) (Id., at pp. 835–836, 244 Cal.Rptr. 677, 750 P.2d 318.)
We conclude Chapter 2 is a law “which, to implement a state policy, impose [s] unique requirements on local governments and do[es] not apply generally to all residents and entities in the state.” (Los Angeles, supra, 43 Cal.3d at p. 56, 233 Cal.Rptr. 38, 729 P.2d 202.) It is therefore a “program” within the meaning of article XIII B and reimbursement is required. (See also Carmel Valley Fire Protection Dist. v. State of California, supra, 190 Cal.App.3d at pp. 537–538, 234 Cal.Rptr. 795.)
We recognize the Los Angeles court criticized Sacramento I for “[a]pproaching the question as whether the expense was a ‘state mandated cost,’ rather than as whether the provision of an employee benefit was a ‘program or service’ within the meaning of the Constitution.” (43 Cal.3d at p. 58, fn. 10, 233 Cal.Rptr. 38, 729 P.2d 202.) The court stated: “To the extent that [Sacramento I ] is inconsistent with our conclusion here, it is disapproved.” (Ibid.) Given this oblique comment and the court's earlier unanimous decision to deny hearing in Sacramento I, we perceive the Los Angeles court found fault only with our method of analysis and not the conclusions drawn. Our decision today presumably resolves those concerns.
The judgment is reversed and the matter remanded to the trial court for further proceedings in accordance with this decision.
1. Revenue and Taxation Code section 2231 was repealed in 1986 (Stats.1986, ch. 879, § 23, p. ––––) and reenacted as Government Code section 17561 (Stats.1986, ch. 879, § 6, p. ––––). The definition of “costs mandated by the state is now embodied in Government Code section 17514 and provides: “ ‘Costs mandated by the state’ means any increased costs which a local agency or school district is required to incur after July 1, 1980, as a result of any statute enacted on or after January 1, 1975, or any executive order implementing any statute enacted on or after January 1, 1975, which mandates a new program or higher level of service of an existing program within the meaning of Section 6 of Article XIII B of the California Constitution.”
2. City also sought mandate to compel the Legislature to appropriate reimbursement funds. The Legislature's demurrer to this cause of action was sustained without leave to amend. In City of Sacramento v. California State Legislature (1986) 187 Cal.App.3d 393, 231 Cal.Rptr. 686, we affirmed, finding such an order would violate the doctrine of separation of powers.
3. The class is defined as “All local agencies and school districts which have been required to contribute to the Unemployment Insurance Fund, by Chapter 2, Statutes of 1978, and which have not been reimbursed by the State of California for the costs of Chapter 2, Statutes of 1978.”
4. City contends the doctrines of administrative collateral estoppel and waiver also preclude relitigation of this issue. Since we have held collateral estoppel applicable to this case, we express no opinion on these alternative theories.
CARR, Associate Justice.
PUGLIA, P.J., and SPARKS, J., concur.