EQUITABLE SAVINGS LOAN ASS v. SUPERIOR COURT IN AND FOR LOS ANGELES COUNTY (1951)

The principal question to be determined is whether the superior court had jurisdiction to stay the operation of an order and decision of the building and loan commissioner when no previous application had been made or notice of motion given therefor, and no opportunity of hearing afforded to the commissioner or to the real party in interest.

Equitable Savings and Loan Association has presented a petition to review and annul a purported order of the superior court made in an action there pending entitled Long Beach Federal Savings and Loan Association and First Federal Savings and Loan Association of Bellflower vs. Frank C. Mortimer, [as] Building and Loan Commissioner, and others, on the grounds that the alleged order is void in that the court was without jurisdiction to make it. The order purports to stay the operation of the order and decision of the commissioner whereby he approved the proposed incorporation of petitioner Equitable, approved its articles of incorporation and the filing thereof with the Secretary of State, and the order authorizing, permitting and licensing Equitable to engage in business.

In response to the writ of review respondent court, in lieu of certifying its records to us, has lodged in this court the complete, original files in such action.

As shown by the petition herein and by the files of the superior court, the events leading to the instant proceeding are these: On May 11, 1950, an application for approval of articles of incorporation of a proposed building and loan association, to be known as Equitable Savings and Loan Association, was presented to the Building and Loan Commissioner. Pursuant to section 2.04 of the Building and Loan Association Act as amended, Stats. 1949, ch. 952, p. 1723; 1 Deering's Gen.Laws, 1949 pocket supp. p. 74, Act No. 986, the commissioner conducted a hearing and on July 12, 1950, issued findings, decision and an order approving the application and the articles of incorporation which were filed with the Secretary of State. A certified copy of the articles was filed with the County Clerk of Los Angeles County. On or about August 18, 1950, the commissioner issued his permit authorizing Equitable to issue its guarantee stock in the amount of $250,005.

The petitioner alleges that such sum was paid into Equitable by various persons, and, on or about August 20, 1950, the commissioner issued a license authorizing Equitable to transact the business of a building and loan association, such license being for the unexpired period of the year 1950; that thereafter the corporation commenced to do business as a building and loan association and accepted money from various investors in accordance with the purposes recited in its articles of incorporation.

At the hearing had before the building and loan commissioner Long Beach Federal Savings and Loan Association and First Federal Savings and Loan Association of Bellflower and other like associations appeared and sought to introduce evidence purporting to establish various grounds upon which they asserted the commissioner should deny Equitable's application for the approval of its articles of incorporation.

On August 21, 1950, Long Beach Federal and First Federal filed in the superior court a combined complaint for declaratory relief and petition for alternative writ of mandate in which the Building and Loan Commissioner, the Secretary of State, Equitable, and various individuals and other corporations were made defendants. In that complaint and petition the plaintiffs made various and sundry charges concerning alleged irregularities in the proceedings before the commissioner and asserted the lack of character, experience and general fitness of the incorporators of Equitable to engage in the building and loan business. Among the alleged irregularities it is asserted that the commissioner refused to receive or act upon the evidence offered by the objectors and refused to issue subpoenas duces tecum for the purpose of bringing before the commissioner various documents and writings which, it is asserted, would have operated against Equitable's application.

The prayer of the complaint is for a declaratory judgment adjudicating that the order of the commissioner approving the proposed incorporation of Equitable and approving its articles of incorporation and licensing it to do business are all null and void, and for an alternative writ of mandate commanding the Building and Loan Commissioner to vacate and revoke his proceedings or to show cause before the court why his orders and proceedings should not be annulled, vacated and set aside. Plaintiffs did not apply for the issuance of an alternative writ of mandate and none was ever issued.

The Building and Loan Commissioner and the Secretary of State demurred to the complaint and made a motion to strike out parts thereof. Defendants Equitable and other individual and corporate defendants likewise demurred, presented a motion to strike parts of the complaint, and at the same time filed a notice of motion either to dismiss the petition for a writ of mandate or to issue an alternative writ, with prompt return day, directed to the state officials and to Equitable, on the ground that the latter corporation is entitled to a prompt hearing of the application for writ of mandate which was brought by its business competitors in an effort to prevent or delay competition.

Upon the hearing of the several demurrers and motions the court, on November 29, 1950, by its minute order overruled the demurrers, denied the motions to strike portions of the complaint and adjudged ‘* * * that the order and decision of the building and loan commissioner be stayed pending judgment upon the trial of the action, in accordance with formal order this day filed.’

On the same day the court signed and filed a written order overruling demurrers and denying motions to strike and further providing:

[1] ‘That the question of issuing a writ of mandate be determined upon the trial of the action.

[2] ‘That the operation of the order and decision of the Building and Loan Commissioner be stayed pending the judgment of the court.’

Thereafter Equitable filed and presented to the court a motion to vacate that portion of the foregoing order contained in paragraph 2, which motion was by the court denied.

The petition now before this court seeks to have reviewed and annulled that portion of the order of November 29, 1950, purporting to stay the operation of the order and decision of the building and loan commissioner pending judgment of the court, which will hereafter be referred to as the ‘stay order.’

Since we have reached the conclusion that the stay order is void and should be annulled it will not be necessary to consider: (1) whether Long Beach Federal and First Federal had a right to offer evidence at the hearing before the commissioner; (2) whether Long Beach Federal and First Federal may maintain either (a) an action for declaratory relief to test the validity of the commissioner's orders and decisions, or (b) a petition for a writ of mandate for the purpose of reviewing the orders and decisions of the commissioner, and other questions argued by the parties.

When a writ of mandate is petitioned for and issued pursuant to Code Civ.Proc. section 1094.5 the court may stay the operation of the administrative order pursuant to subdivision (f). The court was without jurisdiction to exercise such power in the case under consideration since plaintiffs in the superior court, Long Beach Federal and First Federal, did not proceed or purport to proceed under section 1094.5. Subdivision (a) of that section provides: ‘Where the writ is issued for the purpose of inquiring into the validity of any final administrative order or decision made as the result of a proceeding in which by law a hearing is required to be given, evidence is required to be taken and discretion in the determination of facts is vested in the inferior tribunal, corporation, board or officer, the case shall be heard by the court sitting without a jury. * * *’ Plaintiffs in the superior court action did not apply for a writ, and when Equitable made a motion for the issuance of such writ in order that it might have an early hearing concerning its right to do business, the plaintiffs did not join in the motion and the court refused to grant it but ordered ‘That the question of issuing a writ of mandate be determined upon the trial of the action.’

It is manifest that plaintiffs and the court regarded the action as one for declaratory relief and not a mandamus proceeding authorized and contemplated by section 1094.5. If the proceeding is under that section the trial court may not reweigh the evidence and its sole function is to determine from a review of the record ‘whether there is sufficient evidence to sustain the ruling of the [commissioner].’ Southern Cal. Jockey Club v. Cal. Horse Racing Board, 36 Cal.2d 167, 175, 223 P.2d 1, 6. Since neither plaintiffs in the superior court nor the court purported to proceed under section 1094.5 they must be deemed to have considered and acted upon the action as one for declaratory relief. Such being the case the court was without jurisdiction to grant the stay order without notice to Equitable or a hearing, whether the court deemed the order to be a writ of mandate, a temporary restraining order or a preliminary injunction.

Inasmuch as the proceedings before the building and loan commissioner have not yet been certified to the superior court the order complained of was made before that court had had an opportunity to examine the record, hence its order was made solely on the allegations in the complaint upon which a declaratory judgment was sought. If the commissioner's proceedings had been before the court below it is possible that it would have concluded that there is no basis for the court's interference with the order.

The purpose of a proceeding under section 1094.5, as in the case of any other mandamus proceeding, is to obtain an early hearing in order that the rights of the parties may be speedily determined. That such proceedings are to be expedited is made manifest by the provisions of section 1086 of the Code of Civil Procedure requiring that the writ issue in all cases ‘where there is not a plain, speedy, and adequate remedy, in the ordinary course of law.’

The action insofar as it is for declaratory relief must proceed to trial and judgment ‘in the ordinary course of law’, including the introduction of evidence by both parties upon the issues raised by the pleadings, the possible taking of depositions, and other proceedings, attendant upon the trial of an ordinary lawsuit.

No such trial is contemplated or permitted under section 1094.5. Subdivision (b) provides that the inquiry to be made by the court shall extend to questions whether the administrative officer or board has proceeded without or in excess of jurisdiction, whether there was a fair trial, and whether there was any prejudicial abuse of discretion; that abuse of discretion is established if the board or officer has not proceeded in the manner required by law, if the order or decision is not supported by the findings, or if the findings are not supported by the evidence. The court's power is limited to determining whether the commissioner's findings are supported by substantial evidence in the light of the whole record. Section 1094.5(c). If substantial evidence appears in the record the court is without power to set aside the judgment of the commissioner even though the judgment is not supported by the weight of the evidence. Housman v. Board of Medical Examiners, 84 Cal.App.2d 308, 315, 190 P.2d 653, 192 P.2d 45.

The procedure under subdivisions (d) and (e) is to be had pursuant to a writ of mandate and not in an action for declaratory relief.

Had Equitable's right to engage in business been refused by the commissioner, or had it been dissatisfied with any ruling of the commissioner it would not have been entitled to a trial de novo, but the court's inquiry would have been limited to an examination of the record before the commissioner. Housman v. Board of Medical Examiners, supra, 84 Cal.App.2d at page 312, 190 P.2d at page 655 and cases cited. Since, when the application of a party who is seeking the privilege of engaging in business and in obtaining a permit or license so to do is denied, such party is not entitled to a trial de novo, it manifestly follows that an objector to the commissioner's order approving Equitable's articles of incorporation and licensing it to engage in business is not entitled to any greater latitude in a proceeding to review such order than Equitable itself would have had if the commissioner's decision had been adverse to its application. If the case may proceed at all for declaratory relief and evidence be received on the allegations in the complaint, a question we do not decide, it would amount to a trial de novo of the proceedings before the commissioner which is just what is not permitted in a proceeding for review by mandamus.

The postponement of the issuance of the writ of mandate until the termination of the trial of the declaratory relief action is not a compliance with section 1094.5 or with the other provisions of the code relating to a writ of mandate. Such provisions contemplate the issuance of an alternative writ of mandate (section 1088) and a speedy hearing.

Subdivision (f) of section 1094.5 provides that ‘The court in which proceedings under this section are instituted may stay the operation of the administrative order or decision pending the judgment of the court, * * *.’ Since the proceedings in the superior court are not under section 1094.5, the power granted by subdivision (f) to stay proceedings is inoperative and the court was not authorized to issue the stay order.

Respondent's argument is novel, though impotent, that the stay order merely deferred the operation of the commissioner's order and did not impose any restraint upon any person or upon an act of any person. The provisions of the statute negate such statement. A building and loan association is forbidden by law to engage in business without a license from the commissioner and without procuring renewal annually of its license. B. & L. Ass'n Act, sec. 12.02, Stats. 1931, ch. 269, pp. 483, 530; 1 Deering's Gen.Laws, 1944 Ed., p. 579, Act No. 986. A renewal must have an original license as a basis, hence a stay of the operation of the commissioner's original order would suspend such order, thus destroying, temporarily at least, the foundation on which a proposed renewal must necessarily rest. Manifestly the stay order, if valid, imposed a restraint upon Equitable and operated as an injunction prohibiting it from continuing the business which it had been authorized to conduct since, without the renewal, it is forbidden by the statute above cited to continue to function as a building and loan association.

The petition before this court states that a copy of the stay order was served on the Building and Loan Commissioner; that the license of Equitable to do business expired on December 31, 1950; that on January 1, 1951, Equitable filed its application for a renewal of its license for the calendar year 1951; that the commissioner, on advice of the attorney general, has declined to issue such license; that the commissioner has advised Equitable that he cannot renew the license by reason of the stay order; that as a result of such refusal Equitable cannot do business as a building and loan association and has been compelled to cease all business activity, to its irreparable damage and to the damage of its investors and stockholders. This situation makes it clear that petitioner, its stockholders and its customers, have been and will be damaged in an immeasurable amount if its petition be denied.

The right to engage in a lawful business is a valuable property right which is protected by the constitution and laws of the state and in the enjoyment of which one is entitled to be secured. Brecheen v. Riley, 187 Cal. 121, 125, 200 P. 1042; Hewitt v. Board of Medical Examiners, 148 Cal. 590, 592, 84 P. 39, 3 L.R.A.,N.S., 896; Bley v. Board of Dental Examiners, 87 Cal.App. 193, 196, 261 P. 1036; Laisne v. California State Board of Optometry, 19 Cal.2d 831, 835, 123 P.2d 457; Suckow v. Alderson, 182 Cal. 247, 249, 187 P. 965. The right of every person, and this includes corporations, American De Forest Wireless Tel. Co. v. Superior Court, 153 Cal. 533, 535, 96 P. 15, 17 L.R.A.,N.S., 1117; Riley v. Stack, 128 Cal.App. 480, 483, 18 P.2d 110, to the protection of his property is as securely safeguarded by both federal and state constitutions as is any other right. One of the ‘inalienable rights' named in section 1 of the Constitution of this State is the right of acquiring, possessing and protecting property. The protection extended to ‘property’ is not limited to tangible goods or real estate but extends to a business and the right to conduct it without unlawful or unauthorized interference or impediment. Possession of the right to carry on a business necessarily embraces the included right to purchase and sell commodities and to make contracts relating thereto. Without the privilege of so doing the business and the right to conduct it must cease. So in the instant proceeding if the stay of the operation of the commissioner's order remains in force, ipso facto Equitable's right to carry on the business for which it was organized, including the sale of its certificates and the making of loans, is prohibited. The Legislature is without power to expropriate one's property by a mere legislative enactment. Charnock v. Rose, 70 Cal. 189, 191, 11 P. 625. The court has no power so to do without notice and a hearing.

The case of Scripps-Howard Radio, Inc. v. Federal Communications Commission, 316 U.S. 4, 62 S.Ct. 875, 86 L.Ed. 1229, does not sustain respondent's argument that the court had power to make the stay order in question. In the cited case the commission had granted without a hearing a permit to change the frequency and increase the power of a broadcasting station. In the action brought by the operator of a neighboring station, which had been granted and had previously operated on the same frequency, to have the commission's order set aside, it was held that the court had power to defer its enforcement. Such a stay preserved the existing rights of the station which had had the prior use of the frequency and the public was not deprived of the broadcasting service of such station, thus preserving antecedent rights pending hearing and appeal. Without the stay order in the Scripps case vested rights would have been interfered with by the newcomer's use of the same broadcasting frequency.

The contrary results from the order of the superior court in question here. Existing property rights of Equitable are not safeguarded but are destroyed to the benefit of its competitors in the building and loan business. Preservation from competition is not a right which of itself entitles the plaintiffs in the superior court action to seek relief in a court of equity, nor to question the order of the commissioner licensing Equitable to do business. Legally speaking, an injury is a wrong done in violation of a right. Damage without injury does not furnish the foundation for an action, since if an act does not violate a legal right of a party, though he is damaged, he has no cause to complain. Hence, loss consequent upon competition of a rival engaged in the same business will not support a cause of action. Alabama Power Co. v. Ickes, 302 U.S. 464, 479, 58 S.Ct. 300, 82 L.Ed. 374, 378; Tennessee Elec. Power Co. v. Tennessee Valley Authority, 306 U.S. 118, 140, 59 S.Ct. 366, 83 L.Ed. 543, 551; Eastern Airlines, Inc. v. Civil Aeronautics Authority, D.C.Cir., 185 F.2d 426, 429. Since the stay order operates against existing property rights of Equitable and since the property rights of plaintiffs in the superior court action are not involved the ex parte order is in violation of due process.

The order cannot be sustained on the theory that it is a temporary restraining order, since it is not limited as to time, or a preliminary injunction, since it is not a case in which an injunction is authorized by section 526 of the Code of Civil Procedure. Moreover, the order was made in violation of section 527. It was granted without notice to the opposite party. It is not limited as to the period of its effectiveness. McDonald v. Superior Court, 18 Cal.App.2d 652, 655, 64 P.2d 738; Kelsey v. Superior Court, 40 Cal.App. 229, 236, 180 P. 662. No order to show cause why such order should not be made was issued. Smith v. Superior Court, 64 Cal.App. 722, 730, 222 P. 857. No hearing was had. Points and authorities were not served. Kelsey v. Superior Court, supra; Northcutt v. Superior Court, 66 Cal.App. 350, 353, 355, 226 P. 25. No undertaking was required by the court which is a necessary prerequisite to the issuance of an injunction. Code Civ.Proc. sec. 529; Maier v. Luce, 61 Cal.App. 552, 555, 556, 215 P. 399. The theory that the stay order is either a temporary restraining order or a preliminary injunction is therefore without support.

Respondent's contention that the court had inherent power to delay enforcement of the directive of the building and loan commissioner ex parte is without merit. When the power of the court is expressly defined and delimited by statute the provisions of the statute measure the extent of the court's power. In a declaratory relief action the court is without power to issue an ex parte injunction or writ of mandate. Before an injunction may issue the defendants in such an action are entitled to notice and hearing as provided by section 527 of the Code of Civil Procedure. A writ of mandate may not be issued otherwise than as authorized by sections 1084–1094 of the same code which also require a hearing.

Section 1094.5 restricts the court's jurisdiction to stay the operation of an administrative order to cases in which the proceedings are carried on pursuant to that section. In any event the burden rests upon the party in whose behalf the restraint is issued definitely to show that for the purpose of protecting his property rights it is necessary to restrain the enforcement of the order. Champlin Refining Co. v. Corporation Comm., 286 U.S. 210, 238, 52 S.Ct. 559, 76 L.Ed. 1062, 1080. Plaintiffs in the superior court action did not show that their property rights were directly or at all affected by the order of the building and loan commissioner which the court purported to suspend.

Instead of issuing a writ of mandate as provided in section 1094.5 requiring the bringing up of the proceeding before the commissioner the court expressly refused so to do when requested by Equitable itself and ordered that the question of issuing the writ ‘be determined upon the trial of the action.’ We have not been cited to any case in which such a method has ever been attempted or even suggested in reviewing an administrative decision. Such procedure is incompatible with the provisions of section 1094.5. There is no authority for such procedure. It is apparent that the court, in requiring a trial before determining whether or not a writ shall issue, is attempting to place itself in the same position as that occupied by the commissioner before Equitable's articles of incorporation were approved and filed, notwithstanding the only function of the court is to pass upon the proceeding before the commissioner pursuant to the provisions of the statute and the rules hereinbefore stated. The court, by the method contemplated by its proposal to try the action and then determine whether a writ should issue, is attempting to proceed in a manner exactly the reverse of that specified by law. Section 1094.5 requires the issuance of the writ to precede the trial and that the court pass upon the proceedings certified to it pursuant to the writ. The court is without power, as it essayed to do, to substitute ‘for the statutory procedure a trial de novo before a jury without regard to what had happened before the commissioner—that is, just as if no proceedings had taken place before the commissioner.’ This method was declared to be ‘palpably erroneous, because thereby the jury and not the Commissioner became the primary licensing agency of the state’ in direct violation of the statute ‘and of the legal doctrines built up by the courts during the past ten years for the review of the determination of state-wide administrative boards. An approval of the substituted procedure so adopted by the trial court would clearly operate as a complete nullification of all statutes regulating the issuance of licenses by state agencies and require juries primarily to pass upon the qualifications of all applicants for licenses.’ McDonough v. Garrison, 68 Cal.App.2d 318, 332, 156 P.2d 983, 991. ‘The Superior Court has no statutory, inherent or constitutional power to decide’ issues of fact before the commissioner has acted. Id., 68 Cal.App.2d at page 333, 156 P.2d at page 991. The decision in the McDonough case was written four years before the adoption of section 1094.5 which codifies the law as previously declared by the Supreme Court in a long line of cases.

Likewise without merit is respondent's contention that the building and loan commissioner is a necessary party to the instant proceeding. The commissioner is not affected by the stay order since the business of his office is not interfered with in any particular. Inasmuch as Equitable's right to do business is suspended as a result of the order it is the only party in interest in opposition to the superior court action. There is no foundation for respondent's contention that the commissioner may be content with the stay order and that he may desire the court to pass upon his proceedings, to examine witnesses, issue subpoenas duces tecum—in other words, to do the things which the objectors sought to have done in the hearing before the commissioner. The commissioner's resistance to the contentions of plaintiffs in the superior court is shown by his answer denying all material allegations of their complaint.

Respondent contends that Equitable did not acquire a vested right by reason of the commissioner's decision, asserting, as did the trial judge, that its right to do business is dependent upon the finality of the decision of the commissioner and that because that decision is subject to review by the court it is not final until the decision of the superior court shall have become final. Since, by reason of the commissioner's order and decision Equitable has been authorized in the manner provided by law to conduct a building and loan business, and since its required capital has been paid up and it has actually commenced doing business by making loans and performing other acts that such associations may do, its right has become vested and can be terminated only in the manner provided by law. The situation of Equitable is not different from that of a person who has obtained a license to practice law, medicine or other profession in which a license is a prerequisite to engaging in such business. The right exists until the holder is legally divested thereof. The order of the commissioner is not, as respondent contends, analogous to a judgment of a court which is suspended by an appeal; it is not suspended by the filing of a petition to review it.

Respondent contends that petitioner, having made a motion to vacate the stay order and having had a hearing thereon, has had its day in court and therefore has no right to maintain this proceeding to review the order. Since the order was void ab initio the motion to vacate it did not breathe vitality into something that had not been imbued with life. Furthermore, by its motion to vacate, petitioner raised only the question of jurisdiction. It did not, as did the moving party in Lacey v. Bertone, 33 Cal.2d 649, 203 P.2d 755, relied on by respondent, request additional relief on the merits. It is a familiar rule, as stated in the Lacey case, that when a party relies on the special defense of absence of jurisdiction or of notice he must limit himself to such ground, and if in addition he seeks relief on the merits he has made a general appearance and has waived his special plea. Equitable did not so do.

Equitable filed notices of appeal both from the stay order and from the order denying its motion to vacate the same. Respondent maintains that such appeals divest this court of jurisdiction to review the order of the superior court. Since the order was neither an injunction nor a writ of mandate but is void and is not appealable, the motion to vacate is likewise nonappealable. Therefore the purported appeals are not an impediment to our determination of the question in issue.

Prior to the filing of the petition in the instant proceeding Equitable filed a petition for a writ of prohibition to restrain the enforcement of the order now in question. In Division 1 of this court the petition was denied without written opinion. A petition for hearing in the Supreme Court was denied, also without written opinion. Such orders are not, as respondent contends, res judicata in the matter now before us. The confusion found in prior decisions as to whether an ex parte denial of an application for an original writ was deemed to be an adjudication on the merits and conclusive upon the parties in a subsequent proceeding has been resolved by the Supreme Court in Funeral Directors Association v. Board of Funeral Directors, 22 Cal.2d 104, 105 ff. at page 110, 136 P.2d 785, in which it was determined that the denial without opinion of an application for a prerogative writ (except habeas corpus) is merely a refusal to exercise the court's original jurisdiction and is not res judicata upon the merits of the facts and the legal issues presented by the application. The exceptions noted in McDonough v. Garrison, 68 Cal.App.2d 318, 325, 156 P.2d 983, 987, are not present in the instant proceeding, to wit, it does not appear that the ‘sole possible ground of the denial was that the court acted on the merits,’ or ‘that such denial was intended to be on the merits.’

Since the court cannot review the order of the building and loan commissioner and determine its validity without examining the commissioner's record, certified and transmitted to the court in the manner provided by law, which is by a writ of mandate as required by section 1094.5, and since such writ has not been issued, manifestly the action in the superior court is not in compliance with that section and the court is without jurisdiction to suspend the commissioner's order.

The order of the superior court purporting to stay the operation of the order and decision of the building and loan commissioner is annulled.

WILSON, Justice.

MOORE, P. J., and McCOMB, J., concur.