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District Court of Appeal, Fourth District, California.

ROHR AIRCRAFT CORPORATION, a California Corporation, Plaintiff and Appellant, v. COUNTY OF SAN DIEGO, a body Corporate, and City of Chula Vista, a Municipal Corporation, Defendants and Respondents.*

Civ. 5492.

Decided: October 09, 1958

Glenn & Wright, San Diego, for appellant. James Don Keller, Dist. Atty. and County Counsel of San Diego County, San Diego, Carroll H. Smith, Deputy Dist. Atty., San Diego, and Manuel L. Kugler, City Atty., of the City of Chula Vista, San Diego, for respondents.

This is an action to recover taxes paid by appellant, Rohr Aircraft Corporation, to the respondents, County of San Diego and City of Chula Vista, under an alleged illegal assessment.

During the years 1951 to 1955, inclusive, appellant occupied certain land and improvements, adjoining its plant in Chula Vista, under a written lease dated September 1, 1949, between ‘Reconstruction Finance Corporation * * * and the United States of America, both acting by and through the General Services Administrator’ as lessor, and said Rohr Aircraft Corporation, as lessee. By the provisions of this lease the lessee agreed to pay ‘all taxes, assessments and similar charges * * * taxed, assessed or imposed upon lessor or lessee with respect to or upon the leased premises.’ For the fiscal years 1951–1952, through 1954–1955, the Rohr Aircraft Corporation paid taxes levied by respondents upon the leased premises, pursuant to assessments thereon against Reconstruction Finance Corporation, which was a federal agency.

Thereafter, Rohr Aircraft Corporation duly presented to the proper authorities claims for a refund of the amounts so paid, contending that the taxes levied against the property were illegal and void; the claims were denied; this action was instituted to recover the payments; judgment denying recovery was rendered; and from this judgment the corporation has appealed.

This case does not involve the taxation of the possessory interest of the lessee under the aforesaid lease. At the trial it was stipulated that any refund would be subject to an offset for taxes against such possessory interest, in accord with a formula agreed upon by the parties.

Appellant contends that the taxes in question were illegal and void under the general rule that, lands owned by the United States of America, or its corporate instrumentalities, are immune from State or local taxes. McCulloch v. State of Maryland, 4 Wheat. 316, 4 L.Ed. 579; Van Brocklin v. Anderson, 117 U.S. 151, 6 S.Ct. 670, 29 L.Ed. 845; Clallam County, Wash. v. United States, 263 U.S. 341, 44 S.Ct. 121, 68 L.Ed. 328; Gottstein v. Adams, 202 Cal. 581, 584, 262 P. 314. Excepted from this immunity are those lands which Congress has consented may be subject to such taxation. Western Lithograph Co. v. State Bd. of Equalization, 11 Cal.2d 156, 158, 78 P.2d 731, 117 A.L.R. 838. Respondents contend that the property in question comes within the exception; that it was owned by the Reconstruction Finance Corporation; that the Reconstruction Finance Corporation Act expressly subjects it to local taxation (Act Jan. 22, 1932, sec. 8, as amended, 47 Stat. 10, 15 U.S.C.A. § 607); and that it was legally taxed. Art. XIII, Sec. 1, Calif. Const.; Boeing Aircraft Co. v. Reconstruction Finance Corp., 25 Wash.2d 652, 171 P.2d 838, 842, 845, 168 A.L.R. 539.

The congressional waiver of immunity in question was expressed in the following terms: ‘* * * any real property of the Corporation shall be subject to * * * county, municipal, or local taxation to the same extent according to its value as other real property is taxed.’ Act Jan. 22, 1932, sec. 8, 47 Stat. 8 as amended, 15 U.S.C.A. § 607. (Italics ours.)

The issue for determination on appeal is whether the premises described in the aforesaid lease constituted real property ‘of the’ Reconstruction Finance Corporation, within the meaning of said section 8 of the Act, during the time the taxes in question were levied. A decision upon this issue necessitates a consideration of the factual and legal background involved.

In 1942 and 1943, a former Rohr Aircraft Corporation, the predecessor of appellant, by grant deeds, conveyed the real property in question to the Defense Plant Corporation, a federal agency. This agency improved the property and leased it to the grantor corporation for use during World War II. In June, 1945, the Defense Plant Corporation was dissolved and all of its assets were transferred to Reconstruction Finance Corporation, another federal agency. Joint Resolution June 30, 1945, c. 215, 59 Stat. 310, 15 U.S.C.A. § 611 note. It does not appear that the transfer of title to the real property was effected by the execution of a deed. On October 15, 1956, the lease by Defense Plant Corporation to Rohr Aircraft Corporation was terminated; the premises were vacated by the lessor; and the property was turned over to the Reconstruction Finance Corporation. On May 29, 1946, the latter corporation declared the premises to be surplus property under the Surplus Property Act of 1944. Act October 3, 1944, c. 479, 58 Stat. 765, 50 U.S.C.A.Appendix, § 1611 et seq. In the latter part of the same year the War Assets Administration, a federal instrumentality designated as a disposal agency to accept property declared to be surplus under that Act, took possession of the premises and thereafter used them as a storage facility and sales center for surplus property. No deed was executed transferring title.

The declaration by the Reconstruction Finance Corporation and acceptance of the property by War Assets Administration were done pursuant to the provisions of the Surplus Property Act of 1944, as amended and then existing, under which that corporation, and similar government agencies, had ‘the duty and responsibility continuously to survey the property in its control and to determine which of such property (was) surplus to its needs and responsibilities' (Act October 3, 1944, c. 479, sec. 11, 58 Stat. 769, 50 U.S.C.A.Appendix, § 1620); and was required to promptly report to the War Assets Administration, which then was the appointed disposal agency, all such surplus property in its control not disposed of under a specific authorization inapplicable to the present situation. 50 U.S.C.A.Appendix, § 1620(c). The report in question was filed on a prescribed form entitled ‘Declaration of Surplus Real Property.’ When any surplus property was so reported the disposal agency had the ‘responsibility and authority for the disposition of such property, and for the care and handling of such property pending its disposition, in accordance with regulations prescribed by the War Assets Administrator.’ 50 U.S.C.A.Appendix, § 1620(d). The statute also provided that the ‘disposal agency may execute such documents for the transfer of title or other interest in property or take such other action as it deems necessary or proper to transfer or dispose of property or otherwise to carry out the provisions of this Act, and, in the case of surplus property, shall do so to the extent required by the regulations of the War Assets Administrator’. Act October 3, 1944, c. 479, sec. 15, 58 Stat. 772, as amended, 50 U.S.C.A.Appendix, § 1624(b)

The War Assets Administration occupied the premises in question exclusively during the year 1947 and the first part of 1948. The Rohr Aircraft Corporation did not occupy the property from October 15, 1945, when its lease with Defense Plant Corporation was terminated, until May, 1948, when it began renting parts thereof on a month to month basis. Subsequent negotiations with the War Assets Administration resulted in extending the areas of occupancy from time to time, and the execution of interim leases on a month to month basis, to cover such extensions. Further negotiations with War Assets Administration culminated in the execution of the lease of the whole property to appellant, the present Rohr Aircraft Corporation, by the General Services Administrator acting for the Reconstruction Finance Corporation and the United States of America. This is the lease of September 1, 1947, under which the tax payments in question were made.

In the meantime Congress had repealed parts of the Surplus Property Act of 1944, and enacted the Federal Property and Administrative Services Act of 1949 (Act June 30, 1949, c. 288, 63 Stat. 378, 41 U.S.C.A. § 201 et seq., which, in 1950, were transferred to titles 5 and 40 U.S.C.A. and renumbered) which created a General Services Administration and an Administrator of General Services (Act June 30, 1949, Title I, sec. 101, 63 Stat. 379, 41 U.S.C.A. § 211, 5 U.S.C.A. § 630); transferred the functions, property and commitments of War Assets Administration to the General Services Administration, and the functions of the War Assets Administrator to the Administrator of General Services (Act June 30, 1949, c. 288, Title I, sec. 105, 63 Stat. 381, 41 U.S.C.A. § 215, 5 U.S.C.A. § 630c); authorized the Administrator to delegate his functions, or those of the administration, to other executive agencies (Act June 30, 1949, c. 288, Title II, sec. 205, 63 Stat. 389, 41 U.S.C.A. § 235, 40 U.S.C.A. § 486); directed that all policies, procedures and directives theretofore prescribed, with respect to surplus property, should remain in full force and effect until superseded (Act June 30, 1949, c. 288, Title VI, sec. 601, 63 Stat. 399, 41 U.S.C.A. § 203, 40 U.S.C.A. § 473); provided that ‘The Administrator shall have supervision and direction over the disposition of surplus property. Such property shall be disposed of to such extent, at such time, in such areas, by such agencies, at such terms and conditions, and in such manner, as may be prescribed in or pursuant to this chapter. * * * The care and handling of surplus property, pending its disposition, and the disposal of surplus property, may be performed by the General Services Administration or, when so determined, by the Administrator, (or) by the executive agency in possession thereof * * * any executive agency designated or authorized by the Administrator to dispose of surplus property may do so by sale, exchange (or) lease * * * upon such other terms and conditions as the Administrator deems proper, and it may execute such documents for the transfer of title or other interest in property, * * * as it deems necessary * * *.’ (Act June 30, 1949, c. 288, Title II, sec. 203, 63 Stat. 385, 41 U.S.C.A. § 233, 40 U.S.C.A. § 484); also provided that where disposition of surplus property ‘has been by lease * * * the Administrator shall administer and manage such * * * lease * * * and may enforce, adjust, and settle any right of the Government (not of the Reconstruction Finance Corporation) with respect thereto in such manner and upon such terms as he deems in the best interest of the Government’ (Act June 30, 1949, c. 288, Title II, sec. 204, 63 Stat. 388, 41 U.S.C.A. § 234, 40 U.S.C.A. § 485); and directed the Administrator to ‘advise and consult with interested Feberal agencies with a view to obtaining their advice and assistance in carrying out the purposes of this chapter.’ Act June 30, 1949, c. 288, Title II, sec. 205, 63 Stat. 389, 41 U.S.C.A. § 235, 40 U.S.C.A. § 486. (Italics ours.)

The lease of September 1, 1949, states that the lessors, Reconstruction Finance Corporation and the United States of America are ‘both acting by and through the General Services Administrator under and pursuant to the powers and authority contained in the provisions of the Federal Property and Administrative Services Act of 1949, and the Surplus Property Act of 1944’; recites that the premises therein described have been declared ‘surplus property of the Government of the United States', and are included ‘in the tupes of surplus property which have been assigned to War Assets Administration for disposal’; and that the ‘Department of Air Force had determined that the use of the leased premises by the lease herein is necessary for the production of military equipment for the National Defense’; and is signed by a director of disposals of War Assets Administration under a delegation of authority from War Assets Administration, which authorized him ‘to execute * * * any * * * lease * * * or other instrument in writing in connection with the care, handling and disposal of surplus real property * * * and do * * * any other act necessary to effect the transfer of title to any such surplus real * * * property * * *’ (Italics ours.)

On March 17, 1955, which was after levy of the taxes under consideration in this case, the Reconstruction Finance Corporation, by a quitclaim deed, conveyed any interest it might have in the property in question to the United States of America.

Appellant contends that, upon the filing of the surplus property declaration and the entry into possession by War Assets Administration, the land and improvements under discussion ceased to be ‘real property of the’ Reconstruction Finance Corporation within the meaning of the statute subjecting such property to taxation by local governments.

Respondents contend that this land and improvements continued to be subject to local taxation until execution of the quitclaim deed on March 17, 1955, and cite the case of Continental Motors Corporation v. Township of Muskegon, 1956, 346 Mich. 141, 77 N.W.2d 370, in support of their contention. The facts of the cited case, although similar, are not identical to those in the case at bar. In the Michigan case the Defense Plant Corporation built a plant which was transferred to Reconstruction Finance Corporation by operation of law; the latter corporation declared the property surplus and it was accepted by War Assets Administration in June, 1948. Upon the dissolution of its subsidiary, which was some considerable time prior to the surplus property declaration, the Continental Motors Corporation had commenced its occupation of the property under a lease to the subsidiary from the Defense Plant Corporation and, as related by the court, ‘such use and occupancy has continued to the present time. The record does not indicate that any material change in operations has taken place.’ Ibid., 77 N.W.2d 370, 372. Although a lease dated April 1, 1949, by Reconstruction Finance Corporation, acting ‘by and through the War Assets Administrator’, to Continental Motors Corporation, was surrendered as of November 1, 1950, from the foregoing statement by the court, and the fact that the latter corporation sought a refund of taxes assessed for the years 1953, we must conclude that it remained in continuous possession. In holding that the property there in question was subject to local taxation under section 8 of the Reconstruction Finance Corporation Act, the Michigan Supreme Court relied upon its finding that Congress consented to local taxation of federal property for the public good; ‘to prevent prejudice to local economic conditions' and a realization of the hardship resulting from the removal of such property from the tax rolls which is ‘embarrassing to the functioning of local governments, and results in throwing a heavy burden on taxpayers generally’, (Ibid., 77 N.W.2d 370, 374) and, respecting the case before it, stated that ‘Declaring the property in question to be surplus did not operate to change the general purpose or character of its use. It continued to be occupied by Continental Motors as lessee, and that corporation continued to carry out the operations indicated by the agreements made by it with the Federal government through the latter's agencies. No reason is apparent why the waiver of immunity should have been terminated at that time. From the standpoint of local economy and well-being precisely the same reasons existed as during the prior years when it was assessed under the State law and taxes were paid without question’. Ibid., 77 N.W.2d 370–374. The same argument would support the obviously untenable contention that the property was taxable even though, coincidentally with its surplus property declaration, the Reconstruction Finance Corporation had executed a deed conveying it to the United States of America. The real question for determination in the cited case, as in the case at bar, was whether the property had ceased to be ‘real property of the corporation’, within the meaning of the Act which subject it to local taxation at the time of the levy under consideration.

Equally nonresponsive to the determinative issue was the Michigan court's consideration of the intention of Congress concerning the effect of the Surplus Property Act of 1944 on the provisions of said section 8 of the Reconstruction Finance Corporation Act, and its conclusion that ‘The waiver of immunity from taxation involved in the instant case came into being by express action of Congress. It is, we think, inconceivable that that body contemplated the revocation of such waiver by mere implication’. Ibid., 77 N.W.2d 370, 376. Respondents, relying on the cited case, contend that this court must determine whether or not there is an implied repeal of the express congressional consent to levy a local tax on real property of the Reconstruction Finance Corporation when it is declared surplus and custody thereof transferred to the War Assets Administration. It is our opinion that no question of an ‘implied repeal’ is involved in the decision of this case.

The tax levies under consideration here were made against surplus real property which had been disposed of by a lease made pursuant to the provisions of the Federal Property and Administrative Services Act; the terms and conditions of which were those agreed upon in accordance with the procedure prescribed by that Act; a lease executed under the authority of the Liquidator of War Assets, a federal official acting under a delegation of authority from the Administrator of General Services, who was vested with supervision and direction over the disposition of surplus property; and a lease subject to the administration and management of said Administrator who had authority to enforce, adjust, and settle any right of the Government—not of the Reconstruction Finance Corporation—with respect thereto, in such manner and upon such terms as he deems in the best interest of the Government.

The Department of Air Force had determined that the use of the leased premises was necessary for the production of military equipment. This was not a function of Reconstruction Finance Corporation.

It will be noted that, during the negotiations for the execution of, or occupancy under the lease, Reconstruction Finance Corporation neither was entitled to, under the law, nor did it actually control or manage the property in any way whatsoever. Prior to this lease, that corporation had declared the property ‘surplus to its needs and responsibilities'. Thereupon War Assets Administration entered into exclusive possession of the premises; used them for its needs; and subsequently negotiated for and executed interim leases respecting the same.

The War Assets Administration, General Services Administration, and officials acting for them referred to the premises as ‘surplus property of the Government’ (not of the Reconstruction Finance Corporation), and as included in the types of surplus property which have been assigned to War Assets Administration for disposal. (Italics ours.)

The fact that the corporation did not execute a deed, quitclaiming any interest it had in the property to the United states of America, until March 17, 1955, is inconsequential to a determination of the issue at bar when compared with other facts in the case. The only title in the Reconstruction Finance Corporation was that vested by an Act of Congress transferring to it all assets of the Defense Plant Corporation Pub.Law 109, 79th Congress, i. e., Joint Resolution June 30, 1945, c. 215, 59 Stat. 310. See note 15 U.S.C.A § 611. It does not appear that any instrument evidencing such transfer of title ever was placed of record in this state. None was necessary. The corporation was a government agency. ‘That the Congress chose to call it a corporation does not alter its characteristics so as to make it something other than what it actually is, an agency selected by Government to accomplish purely Governmental purposes.’ Cherry Cotton Mills, Inc., v. United States, 327 U.S. 536, 539, 66 S.Ct. 729, 730, 90 L.Ed. 835. Any title to, rights in, control over, or use of the ‘real property of the corporation’ was subject to termination, transfer, regulation or limitation by whatsoever method Congress designated. United States v. Allegheny County, Pa., 322 U.S. 174, 64 S.Ct. 908, 913, 88 L.Ed. 1209. By the Surplus Property Act of 1944, and the Federal Property and Administrative Services Act of 1949, Congress decreed that property of the corporation might be declared surplus and thereupon another agency of government would take custody and control thereof, with exclusive authority to dispose of the same, and to execute such documents as it deemed necessary to transfer title. Whatever was left after such a declaration, within reason or the intent of Congress, may not be described as ‘real property of the corporation’. (Italics ours.) This residue was referred to as a ‘barren title’ in the case of United States v. Shofner Iron & Steel Works, 9 Cir., 168 F.2d 286, 287, which involved the right of the government to bring an action for possession of real property declared surplus by the Reconstruction Finance Corporation, where the court said: ‘Having declared the property surplus to its needs and responsibilities, that corporation retains no more than the barren legal title for the use of the United States to be transferred wherever the latter may direct.’ Pertinent, but not mentioned by the court, was the fact that Congress, in the Surplus Property Act, had designated an agent other than the Corporation to transfer the title, in substance reducing the status of the latter in relation to the property to that of a fictitious entity.

If the Reconstruction Finance Corporation had been a private corporation and as such, subject to local taxation, having only that interest in the property in question which the evidence in this case shows it did have, i. e., a bare legal title subject to transfer by an agent over which it had no control, the primary rights of ownership therein being vested in the Government, as was the fact in this case, that property would not have been subject to local taxes. Johns Hopkins University v. Board of County Commissioners of Montgomery County, 185 Md. 614, 45 A.2d 747. It is unreasonable to believe that Congress intended to subject property to local taxation because the bare legal title thereto was vested in a governmental agency, instead of in a private corporation.

The only reasonable conclusion which may be drawn from the facts and the law in this case is that the property in question, during the years 1951 through 1955, was not ‘real property of the corporation’ within the meaning of section 8 of the Reconstruction Finance Corporation Act, but rather, was surplus property of the United States of America.

This conclusion is in accord with the decision of the Court of Claims in Board of County Commissioners of Sedgwick County, Kansas v. United States, 105 F.Supp. 995, 123 Ct.Cl. 304, cited by appellant. The facts in the cited case are substantially similar to those of the case at bar except that in the former the lessee was in continuous possession before as well as after the surplus property declaration, and War Assets Administration did not dispose of the surplus property until after the levy of the taxes which were the subject of the action. The facts in the case at bar more firmly support our conclusion. In the cited case the court said (Ibid., at page 1001):

‘The waiver of constitutional immunity from taxes of ‘real property of the corporation’ * * * was undoubtedly intended to apply to that real property of the corporation held by it in the performance of the duties and responsibilities imposed upon it by law. But by the August 21, 1946, declaration of the property as surplus * * * the RFC declared that the property was surplus to its ‘needs and responsibilities', and by the acceptance of April 16, 1947, was divested of all control and responsibility. At no time after the acceptance by the WAA on April 16, 1947, did the RFC or any of its employees have physical possession, control, or custody of the property. It had neither the use nor the right to use the property. It could not even withdraw the declaration of surplus property without the approval of the War Assets Administrator, 32 CFR, 1946 Supp. 8301.15(b).’ And also that ‘The purpose of the waiver provision had been fully served when the property passed to the control of the WAA.

‘Upon consideration of these factors we cannot presume that Congress intended the waiver provision with respect to ‘real property of the corporation’ to extend to the lands in question after they passed to the responsibility and authority of WAA.'

The taxes under consideration in this case were levied illegally. Appellant is entitled to recover the difference between the taxes paid and those which it should have paid on its possessory interest. Parr-Richmond Industrial Corporation v. Boyd, 43 Cal.2d 157, 169, 272 P.2d 16.

The judgment is reversed with instructions to the trial court to enter judgment in favor of appellant in such amount as that court may determine in accord with this decision, the stipulation of the parties respecting appellant's possessory interest, and the law in the premises.

COUGHLIN, Justice pro tem.

GRIFFIN, P. J., and MUSSELL, J., concur.