CALIFORNIA FEDERAL SAVINGS LOAN ASSOCIATION v. CITY OF LOS ANGELES (1994)

This is a consolidated appeal by California Federal Savings and Loan Association (Cal Fed) and Trust Services of America (TSA) from a ruling and judgment in a coordinated action.   Cal Fed appeals from a postjudgment order awarding 7 percent interest upon a judgment for taxes illegally assessed by the City of Los Angeles (City).   TSA appeals from a judgment, contending the trial court abused its discretion in granting a motion by City to amend its answer to a complaint to assert the defense of the statute of limitations.

 The Cal Fed Action

 Background

On August 2, 1983, Cal Fed filed an action in superior court against City for a refund of business license taxes and interest, alleging Revenue and Taxation Code section 23182, as amended, nullified City's power to levy the business license tax upon it.

Similar suits were filed by numerous institutions and pursuant to Code of Civil Procedure section 404, were ordered coordinated.   The trial court ordered the prosecution of all other actions contained in the within proceeding be stayed pending further order of the trial court, and the Cal Fed action was tried.

Following a court trial, the superior court held that the taxation of financial corporations was a subject of “statewide concern” rather than a “municipal affair” and that Cal Fed was to recover business taxes paid for 1982, 1983 and 1984 as well as postjudgment interest, as allowed by law, until paid.

Division Four of this court reversed the judgment of the trial court and the California Supreme Court reversed that judgment.  (California Fed. Savings & Loan Assn. v. City of Los Angeles (1991) 54 Cal.3d 1, 7, 283 Cal.Rptr. 569, 812 P.2d 916.)

 Facts Relevant to Instant Appeal

The trial court had ruled Cal Fed was entitled to postjudgment interest as allowed by law, but had not set the rate of interest.   Thereafter, the trial court heard a motion regarding the amount of interest to be included in the judgments in the coordinated proceeding and ruled the judgment entered against City would bear interest at 7 percent per annum.   The court noted that “if it were writing on a clean slate,” it may have agreed with Cal Fed's position that 10 percent was the correct rate of interest, but it felt constrained to follow two appellate cases, San Francisco Unified School Dist. v. San Francisco Classroom Teachers Assn. (1990) 222 Cal.App.3d 146, 272 Cal.Rptr. 38 and Pacific Coast Medical Enterprises v. Department of Benefit Payments (1983) 140 Cal.App.3d 197, 189 Cal.Rptr. 558).  San Francisco Unified School Dist. v. San Francisco Classroom Teachers Assn., supra, 222 Cal.App.3d 146, 272 Cal.Rptr. 38 had considered the same issue and concluded that Government Code section 970.1, subdivision (b), precluded the application of Code of Civil Procedure section 685.010, subdivision (a), to judgments against local public entities.

DISCUSSION

 Appellant's contention that a postjudgment interest rate of 10 percent per annum should be applied to judgments against City is well taken.

Article XV, section 1 of the California Constitution provides a rate of interest on judgments rendered in this state and provides:  “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․  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.”

In asserting the trial court erred in awarding postjudgment interest at 7 percent instead of 10 percent, appellant argues, and this court agrees, that Code of Civil Procedure section 685.010, subdivision (a), operative July 1, 1983, applies to judgments against City.

Code of Civil Procedure section 685.010 provides in relevant part;  “(a) Interest accrues at the rate of 10 percent per annum on the principal amount of a money judgment remaining unsatisfied.”

City contends, however, that Government Code section 970.1 precludes the application of Code of Civil Procedure section 685.010 and the rate of interest is, therefore, governed by the California Constitution.

Government Code section 970.1 provides in relevant part:  “(b) A judgment [against a local public entity], whether or not final, is not enforceable under Title 9 (commencing with Section 680.010) of Part 2 of the Code of Civil Procedure but is enforceable under this article after it becomes final.”

While there are two appellate opinions from the First District which have held that the plain language of Government Code section 970.1 “appears” to make Code of Civil Procedure section 685.010 inapplicable to local public entities (see San Francisco Unified School Dist. v. San Francisco Classroom Teachers Assn., supra, 222 Cal.App.3d 146, 151, 272 Cal.Rptr. 38;  Union Pacific Railroad Co. v. State Bd. of Equalization (1991) 231 Cal.App.3d 983, 1007, 282 Cal.Rptr. 745), we decline to follow them.   We have concluded that the words of the Government Code are not reasonably free from ambiguity and uncertainty and require us to make a closer analysis than was done in these two cases.

At issue is the interpretation and interrelationship of Article XV, section 1 of the Constitution, Government Code section 970.1 and Code of Civil Procedure sections 681.010, 685.010 and 695.050.

 “The fundamental rule of statutory construction is that the court should ascertain the legislative intent so as to effectuate the purpose of the law.   To this end, every statute should be construed with reference to the whole system of law of which it is a part, so that all may be harmonized and have effect.  [Citation.]  Legislative intent will be determined so far as possible from the language of the statutes, read as a whole.   If the words of an enactment, given their ordinary and proper meaning, are reasonably free from ambiguity and uncertainty, the court will look no further to ascertain the legislative intent.”  (County of Fresno v. Clovis Unified School Dist. (1988) 204 Cal.App.3d 417, 426–427, 251 Cal.Rptr. 170.)

 Upon reading Government Code section 970.1, subdivision (b), it might appear that its meaning is clear, that it makes inapplicable to judgments against local public entities, all of Title 9 of the Code of Civil Procedure.   Reading Government Code section 970.1 together with Code of Civil Procedure section 695.050, however, it is apparent the Government Code is only referring to and making inapplicable that part of Title 9 that contains enforcement provisions, that is, Division 2 of Title 9 of which Code of Civil Procedure section 695.050 is a part.

Code of Civil Procedure section 695.050 provides, “A money judgment against a public entity is not enforceable under this division if the money judgment is subject to Chapter 1 (commencing with Section 965) of, or Article 1 (commencing with Section 970) of Chapter 2 of, Part 5 of Division 3.6 of Title 1 of the Government Code.”

While Title 9 of the Code of Civil Procedure is entitled “Enforcement of Judgments,” and the First District has concluded the provisions of Government Code section 970.1 exempt all of the provisions of Title 9 from application against local public entities, we note that contained in Title 9 are five separate divisions—Division 1, entitled “Definitions and General Provisions”;  Division 2, entitled “Enforcement of Money Judgments”;  Division 3, entitled “Enforcement of Nonmoney Judgments;”  Division 4, entitled “Third–Party Claims and Related Procedures;”  and Division 5, entitled “Satisfaction of Judgment.”   Division 2 is the only division in Title 9 which contains the mechanics of enforcing judgments.   For example, Division 2 contains provisions regarding what property is subject to enforcement of judgments, the creation, duration and extinguishment of liens, and the issuance and execution of writs of execution.

Additionally, reading other sections of the Code of Civil Procedure persuades us that “enforcement of judgment” provisions are not contained in all of Title 9 but are limited to Division 2 of Title 9.   For example, Code of Civil Procedure section 681.010, subdivision (a), provides:  “A money judgment is enforceable as provided in Division 2 (commencing with Section 695.010).”   The Law Revision Commission Comment, 1982 Addition, for this section states in pertinent part:  “It refers to the provisions of this title that provide the means available for the enforcement of a judgment entered in this state.   The introductory clause recognizes that this title does not provide the exclusive means for enforcing all judgments entered in this state.   See, e.g., ․ Gov't Code [§ ]970.1 ․ (enforcement of money judgments against public entities).”  Code of Civil Procedure section 695.050 provides:  “A money judgment against a public entity is not enforceable under this division [Division 2] if the money judgment is subject to Chapter 1 (commencing with Section 965) of, or Article 1 (commencing with Section 970) of Chapter 2 of, Part 5 of Division 3.6 of Title 1 of the Government Code [emphasis added].”  Code of Civil Procedure section 683.320 provides, “This chapter does not apply to a money judgment against a public entity that is subject to Section 965.5 or 970.1 of the Government Code [emphasis added].”   Had the Legislature intended that all of Title 9 not apply to the enforcement of money judgments against local public entities, it would not have singled out and made inapplicable to local public entities a division and chapter of Title 9.

Government Code section 970.1 addresses the time a judgment is enforceable and provides that judgments against local public entities are enforceable under “this article.”  “[T]his article” refers to Article 1 of Division 3.6 of Title 1 of the Government Code and addresses the duration a judgment is enforceable, the manner in which a local public entity shall make payments, the funds available for payment of judgments and the use of a writ of mandate as an appropriate method of enforcing money judgments against local public entities.   By making inapplicable Division 2 of Title 9 of the Code of Civil Procedure, plaintiffs are barred from using remedies provided in the Code of Civil Procedure for enforcement of money judgments, such as liens and writs of executions, and instead are restricted to the remedies in the Government Code.   The Law Revision Commission Comment, 1980 Addition, to Government Code section 970.1 provides in relevant part:  “Subdivision (b) changes prior law to provide that execution and other remedies under the Code of Civil Procedure for enforcement of money judgments do not apply to enforcement of a money judgment against a local public entity.   Such a judgment is payable under this article, and a writ of mandate is an appropriate remedy to compel payments.”

Based on the foregoing, we conclude that inasmuch as Government Code section 970.1, subdivision (b), states a judgment for money against local public entities “is not enforceable under Title 9 (commencing with Section 681.010) of Part 2 of the Code of Civil Procedure but is enforceable under this article ․,” that section means that such a judgment is not enforceable under those provisions of Title 9 that pertain to the mechanics of enforcing a judgment which are contained in Division 2 of Title 9 of the Code of Civil Procedure.  Code of Civil Procedure section 685.010, setting the rate of postjudgment interest at 10 percent per annum is contained in Division 1 of Title 9, and Government Code section 970.1, subdivision (b), does not preclude its application to postjudgment interest in this case.¹

 The TSA Action

 On October 23, 1987, TSA filed an action in superior court against City for a refund of business license taxes under the California Constitution, the Revenue and Taxation Code, City Charter, and the United States Constitution.

On March 14, 1988, City filed its answer to the complaint wherein it admitted and denied certain allegations of the complaint and alleged seven affirmative defenses.

On May 17, 1988, it was stipulated between the parties that the case be included in above mentioned coordinated proceeding.

Thereafter TSA filed three supplements to its complaint and City filed answers to two such supplements.   No answer was filed to the third supplement to TSA's complaint.

On July 1, 1992, City filed a motion pursuant to Code of Civil Procedure section 473 to amend its answer accompanied by a declaration of Myrtle Dankers, Deputy City Attorney.   City sought to amend its answer to allege that the complaint, insofar as it sought to recover taxes paid for the years 1982 through 1985, was barred by the statute of limitations in that it was not filed within six months of the date of denial of claims for payment of these taxes.

In support of the motion to amend, Danker declared the amendment was necessary and proper because otherwise TSA would be allowed to receive judgment for taxes paid in 1982 through 1985 when it had not complied with the government claim statutes.   The TSA proceedings are “part of Coordinated Proceeding No. 1770, entitled Business License Tax Cases.   The ruling of the Coordinating Judge was that one case should be tried to determine the issue of the validity of Revenue and Taxation [Code section 23182].   On July 29, 1991, the California Supreme Court issued its decision.   Thereafter post decision motions were made and heard concerning matters of general concern to the coordinated cases.   On conclusion of those proceedings, [City] began reviewing its files with the object of entering stipulations for judgment when possible.   In the course of review, it was discovered that the defense that causes of action for taxes paid in 1982 through 1985 were barred came to light.”

TSA filed its opposition to the motion to amend and the declaration of James R. Wegge, Jr.   Wegge declared he was senior vice president of Cal Fed;  he participated in the preparation and filing of certain claims for refund for TSA for the years 1982 through 1985;  TSA was a wholly-owned subsidiary of Cal Fed;  following the California Supreme Court decision in Cal Federal Savings and Loan Assn. v. City of Los Angeles, in December 1991, Cal Fed booked the intended TSA refund amount of approximately $100,000 plus interest of approximately $44,000 as income;  based on its status as a savings institution, Cal Fed is subject to certain capital requirements set by the Office of Thrift Supervision (OTS);  Cal Fed's equity is partially determined by its earnings;  part of the equity Cal Fed is relying upon to meet the capital requirements set by OTS is the booked income amount of approximately $144,000;  Cal Fed has reached agreement in principal with the OTS that it will achieve certain capital levels by June 1993 and the business license tax amount represents a portion of the capital.

At the hearing on the motion to amend, the court stated its tentative ruling was to grant the motions,² that these cases had been held in abeyance for years until the Supreme Court had decided the lead case and that it was not expected or anticipated or even appropriate to do anything in these cases pending the Supreme Court's decision.   The court further stated that since the time of the Supreme Court opinion, a lot had happened and in the court's view it was not unreasonable to be bringing these motions.   The court noted that Cal Fed had “no business” in booking the TSA refund as capital because they did not know it “was going to happen, and the cases were not complete.”

In granting the motion to amend, the court noted further it was the understanding of everyone that everything would be stayed pending the lead case going up to the Supreme Court and that it could not say that “anyone has dragged their feet” that they had been working very hard on these cases to get them resolved since the Supreme Court decision came down.   The court was aware that City had many cases, that there had been judgments in “40 or 50, and there [were] a whole lot ․ out there still.”

On July 31, 1992, pursuant to stipulation judgment was entered in favor of TSA and against City for certain of TSA's claims, and in favor of City and against TSA for refunds on taxes paid for 1982 through 1985.

DISCUSSION

 Code of Civil Procedure section 473 provides in pertinent part that a court may, in furtherance of justice, in its discretion, after notice to the adverse party, allow upon any terms as may be just, an amendment to a pleading.

Courts will ordinarily exercise liberality in permitting amendments to pleadings and in particular amendments to answers.   Whether such an amendment should be allowed is within the sound discretion of the trial court.  (See Permalab–Metalab Equipment Corp. v. Maryland Cas. Co. (1972) 25 Cal.App.3d 465, 472, 102 Cal.Rptr. 26.)   While it is true that courts are critical of proposed amendments to answers where there has been a long unexplained delay or a lack of diligence (ibid.), this case certainly does not present such a situation.   As the record reflects, the TSA cause was part of a coordinated proceeding and City litigated the “lead” case to the California Supreme Court.   The coordination trial judge had ordered that prosecution of all other actions, more than 100, in the coordinated proceeding, be stayed pending further order of court.   Only after the decision in the Supreme Court, did City begin to process all of the many cases in the coordinated proceeding and discover its failure to allege a statute of limitations defense.

There was no abuse of discretion by the trial court in granting City's motion to amend its answer.

DISPOSITION

The order in the Cal Fed action awarding postjudgment interest is modified to reflect that the judgment entered against City shall bear interest at 10 percent per annum.

That portion of the judgment entered in favor of City and against TSA with respect to tax years 1982 through 1985 is affirmed.³  Each party to bear its own costs on appeal.

FOOTNOTES

1.   We are aware of Scott v. County of Los Angeles (1994) 27 Cal.App.4th 125, 155, 32 Cal.Rptr.2d 643, filed July 1994, wherein the plaintiff conceded and the court therefore assumed Government Code section 970.1, subdivision (b), limited the rate of interest on a judgment against the County to 7 percent.   We are not compelled to accept the concession as establishing the applicable law.  (See Hahn v. Kelly (1868) 34 Cal. 391, 404–405.)

2.   It appears that City had filed motions to amend answers in other cases which were part of the coordinated proceeding.

3.   We have deemed TSA's appeal to be only from that part of the judgment in favor of City for tax years 1982 through 1985.

LILLIE, Presiding Justice.

JOHNSON and FRED WOODS, JJ., concur.