The City of Clovis and six other Fresno County cities (cities) sued the County of Fresno (county) over the calculation of a fee the county withholds for the service of collecting property taxes from property owners and distributing the proceeds to the cities. In other litigation raising the same fee-calculation issue, the California Supreme Court rejected the county's position and required use of the methodology advocated by the
The county appeals. It does not challenge the orders to use the Alhambra methodology and issue refunds. It appeals only from the order to pay prejudgment and postjudgment interest, an issue the Alhambra opinion does not address.
As we will explain, the relevant statutes were amended on September 30, 2013, effective January 1, 2014. Having ordered supplemental briefing on the new law, we conclude that we must address it because it will be in effect at the time when the judgment in this case becomes final. As we will explain, interest was awardable even under the law in effect at the time of trial. Under the new law, interest is likewise awardable, though at different rates. The new law changes the applicable rates of interest.
We will affirm the trial court's judgment insofar as it awards prejudgment and postjudgment interest, but we will reverse with respect to the rate of interest on and after January 1, 2014.
The Alhambra opinion explains the legal issue behind the parties' primary dispute. To compensate counties for administrative costs incurred in their role as tax collectors, counties are authorized to charge cities a property tax administration fee (PTAF). (Alhambra, supra, 55 Cal.4th at p. 714.) A county withholds the PTAF from the tax revenues distributed to the cities. (Id. at p. 715.) The PTAF for each city is based on the ratio of the taxes collected on its behalf to the total property taxes collected by the county. (Ibid.) Excluded from this calculation, however, are taxes collected on behalf of cities and deposited into the county's Educational Revenue Augmentation Fund (ERAF). (Id. at pp. 713-714, 715.) The county ERAF's were created by the Legislature in 1992 to help resolve a budget crisis. Property tax revenue is diverted from local governments to each county's ERAF to maintain funding levels for education in the face of declining contributions from the state general fund. (Id. at p. 714.) Since property tax revenues diverted to ERAF's are not included in the calculation of the PTAF's withheld by the counties, each county must absorb the cost of administering those revenues and is not reimbursed for it by cities. (Id. at p. 715.)
In 2004, in response to another budget crisis, the Legislature diverted ERAF money to cover various budget gaps. This diversion took two forms.
Under the Triple Flip and the VLF Swap, property tax revenue that formerly went to the ERAF's now goes to cities, compensating them for lost sales tax and VLF funds. The California State Association of County Auditors prepared informal guidelines for use by counties implementing the statutory changes. According to these guidelines, the PTAF for each city should now be calculated on the basis of distributions, including the amount that formerly went to the county's ERAF, instead of excluding that amount as before. (Alhambra, supra, 55 Cal.4th at p. 717.) This means the administrative costs associated with collecting and distributing those funds would be shifted from counties to cities. (Ibid.) Los Angeles County followed the guidelines (ibid.), as did Fresno County and some other counties.
In Alhambra, our Supreme Court rejected these counties' interpretation of the statutory changes that resulted in the Triple Flip and the VLF Swap. The court concluded that counties "should be no better, or worse, off in recouping [their] costs of property tax administration as a result of" the statutory changes. (Alhambra, supra, 55 Cal.4th at p. 725.) Los Angeles County's method of calculating the PTAF was held to violate the law. (Id. at p. 729.)
In the present case, the cities initiated mandate proceedings against the county on grounds that, as the parties agree, are essentially identical to those on which the cities in Alhambra sued Los Angeles County. Before the Supreme Court's decision in Alhambra was issued, the trial court in this case anticipated that decision by holding the county's method of calculating the PTAF unlawful. It ruled that the county could withhold "the actual incremental costs to implement the Triple Flip and VLF Swap in lieu payments" but could not increase the basis on which the PTAF was calculated by including the ERAF revenue. The county was required to refund the difference to the cities for each year in which it had applied its erroneous new formula. The judgment also includes the following: "Petitioners are awarded costs of suit, prejudgment interest and postjudgment interest at the rate of 7% per annum as set forth in Civil Code section 3287 and article XV, section 1 of the California Constitution."
On September 30, 2013, after briefing was completed, the Legislature enacted legislation addressing prejudgment and postjudgment interest, and the rates of such interest, awardable to local government entities in certain types of cases. (Stats. 2013, ch. 424 (chapter 424).) Chapter 424 amended Civil Code section 3287
In other words, prejudgment interest accrues at a rate equal to the specified treasury yield, and postjudgment interest accrues at the same rate plus 2 percent, with neither rate to exceed 7 percent.
In this case, as noted, the trial court applied existing law and set the prejudgment and postjudgment interest rates at 7 percent. The weekly one-year constant maturity United States Treasury yield, by contrast, has been less than 1 percent since the end of 2008 and was considerably below 7 percent for many years before that. (<http://www.federalreserve.gov/releases/h15/ data.htm> [as of Jan. 16, 2014].)
When it passed chapter 424, the Legislature apparently believed the interest rates payable by government entities under existing law were too high. A Senate Rules Committee report on the legislation stated the views of the bill's author, Assemblymember Eggman, as follows:
Because chapter 424 was enacted on September 30, 2013, it became effective on January 1, 2014. (Cal. Const., art. 4, § 8, subd. (c)(1) ["a statute enacted at a regular session shall go into effect on January 1 next following a 90-day period from the date of enactment ..."].) Oral argument took place and this case was submitted on December 10, 2013. The new law will be in effect when the judgment becomes final.
On November 19, 2013, this court asked the parties to submit supplemental briefs on the effect of chapter 424 on this case. Specifically, we asked the parties to assume for the sake of argument that interest is awardable in this case and to explain whether the new interest rates apply to prejudgment and/or postjudgment interest here. We also asked whether the new rates apply to interest accruing on and after January 1, 2014, even if they do not apply to interest accruing before that date.
In their supplemental brief, the cities argue that the new law does not apply to any portion of the interest in this case because the cause of action arose long before its effective date, and statutes generally apply only prospectively unless the Legislature clearly expresses a contrary intent. The cities also
This appeal presents the following questions: Does the law authorize awards of prejudgment and postjudgment interest against the county? If it does, what are the applicable rates of interest? As these are pure questions of law, we review the judgment de novo. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799 [35 Cal.Rptr.2d 418, 883 P.2d 960]; Topanga and Victory Partners v. Toghia (2002) 103 Cal.App.4th 775, 779-780 [127 Cal.Rptr.2d 104].)
As we will explain, we agree with the cities' view that the interest awards were authorized under prior law. Additionally, we agree with the county that the present claim of the cities is the type of claim to which chapter 424 is applicable, thus reinforcing our view that interest awards are authorized in this action. However, we find the legislative modification of the rates of interest to be effective only as of the effective date of the legislation, namely January 1, 2014.
In their original briefs, the parties naturally analyzed the question of whether interest was awardable in this case under the law that applied before chapter 424 was enacted. As we will explain, interest was properly awarded under prior law.
Section 3287, subdivision (a), authorizes an award of prejudgment interest on damages awarded against a county: "A person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in the person upon a particular day, is entitled also to recover interest thereon from that day, except when the debtor is prevented by law, or by the act of the creditor from paying the debt. This section is applicable to recovery of damages and interest from any debtor, including the state or any county, city, city and county, municipal corporation, public district, public agency, or any political subdivision of the state."
The county does not contend that the money it has been ordered to pay cannot be made certain by calculation or that the cities were not entitled to recover it on a particular day. In our view, the plain meaning of section 3287, subdivision (a), calls for an award of prejudgment interest in this case.
The county's argument is that the money it has been ordered to pay is not "damages" within the meaning of section 3287. This argument is based on City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859 [62 Cal.Rptr.3d 614, 161 P.3d 1168] (Dinuba).
In Dinuba, the City of Dinuba sued Tulare County after that county distributed less property tax revenue to Dinuba's redevelopment agency than the agency was statutorily entitled to receive. (Dinuba, supra, 41 Cal.4th at p. 862.) Tulare County claimed it was immune from suit under the Government Claims Act
The Supreme Court disagreed. It gave two reasons for its holding. First, although the Government Claims Act immunizes a public agency from liability for "an injury" caused by an erroneous interpretation or application of "any law relating to a tax" (Gov. Code, § 860.2), it also defines "`injury'" as a harm "of such nature that it would be actionable if inflicted by a private person" (Gov. Code, § 810.8). Tulare County's erroneous tax distribution did
Second, "the immunity provisions of the [Government Claims] Act are only concerned with shielding public entities from having to pay money damages for torts." (Dinuba, supra, 41 Cal.4th at p. 867.) Government Code section 814 provides that "liability based on contract or the right to obtain relief other than money damages is unaffected by" the immunity provisions of the Government Claims Act. (Dinuba, supra, at p. 867.) The Supreme Court reasoned that Dinuba did not "seek damages; [it sought] only to compel [Tulare County] to perform [its] express statutory duty. While compliance with the duty may result in the payment of money, that is distinct from seeking damages." (Ibid.) As an example of the kind of remedy that probably would be excluded by the Government Claims Act as damages, the court mentioned "compensatory damages for a downgraded bond rating or increased interest rates as a result of [Tulare County's] failure to disburse the funds to which [Dinuba was] entitled ...." (Dinuba, supra, at p. 868.)
In this case, according to the county, the excess PTAF withholding the cities will recover also is not damages. In the county's view, it will only be complying with its statutory duty when it follows the trial court's order to release the excess PTAF withholding, just as Tulare County was doing in Dinuba when it repaid the misallocated tax revenue. Therefore, the county maintains, the remedy the trial court ordered is not "damages" within the meaning of section 3287, subdivision (a), and an award of interest is not authorized by that provision.
Finally, Dinuba is distinguishable from this case on its facts. The dispute in Dinuba was over the question of whether a county had allocated the correct amount of tax revenue to a city. That is the context in which the Supreme Court held there to be no dispute of a kind that could arise between private parties. Here, as the cities point out, the dispute is over the amount of a fee charged by the county, a type of dispute that arguably could arise between private parties. Consequently, it is not at all clear that the Dinuba court's reasoning would point to the denial of an interest award here, even assuming its reasoning can be transferred to the context of this case. The considerations relevant to misallocation of tax revenue are different.
Amicus curiae California State Association of Counties (Association) also argues that Revenue and Taxation Code section 96.1, subdivision (c)(3), is a bar to the interest award in this case. Association relies on legislative history documents to support the contention that the statute reflects a desire on the part of the Legislature to relieve hardship for counties. Association says this desire is inconsistent with an intent to allow interest awards.
Even if the Legislature had this motivation, we do not think the statute bars interest awards for any category of judgments against counties. When subdivision (c)(3) of Revenue and Taxation Code section 96.1 was enacted in 2001 (Stats. 2001, ch. 381, § 1, p. 3591), section 3287 already provided for interest awards against counties (Stats. 1955, ch. 1477, § 1, p. 2689; Stats. 1959, ch. 1735, § 1, p. 4186), and the Legislature did not see fit to create an exception. We assume the Legislature knows existing law and legislates in light of it. (People v. Harrison (1989) 48 Cal.3d 321, 329 [256 Cal.Rptr. 401, 768 P.2d 1078].)
Association also contends that the Legislature must have intended to preclude interest awards in disputes like this one because "the Legislature has provided for the payment of interest in other sections of the Revenue and Taxation Code" but did not so provide in Revenue and Taxation Code section 96.1. The only example Association cites is Revenue and Taxation Code section 5151, which provides for interest on refunds of property taxes to taxpayers. We do not believe the Legislature's decision to authorize interest in that situation is an implied bar on interest awards against counties in all other cases involving taxes. Again, the Legislature acted against the background of section 3287 and did not choose to create any exception that would govern this case.
Finally, Association argues that the interest award in this case is inconsistent with public policy because it means a city could be ordered to pay interest if it were "erroneously allocated too much property tax." This would be inappropriate, Association says, because it would complicate financial planning.
The trial court's award of postjudgment interest was authorized by article XV, section 1, of the California Constitution, which states in part:
The county's argument about postjudgment interest is as follows: Code of Civil Procedure section 685.010, subdivision (a) provides for interest on a "money judgment"; Code of Civil Procedure section 680.270 defines a money judgment as "that part of a judgment that requires the payment of money";
The county's argument overlooks the plain language of Government Code section 970.1, subdivision (b). As our Supreme Court observed in California Federal, supra, 11 Cal.4th at page 344, that statute exempts local government entities from title 9 of the Code of Civil Procedure, in which Code of Civil Procedure sections 685.010 and 680.270 are contained. The issue of postjudgment interest against local government entities therefore was governed only by article XV, section 1, of the California Constitution, until the enactment of chapter 424. The constitutional provision does not refer to a "money judgment" or state any definition of a money judgment. It refers instead to "interest upon a judgment" and "interest on any judgment." Government Code section 970, subdivision (b), defines "`judgment'" as "a final judgment for the payment of money rendered against a local public entity."
The trial court's 7 percent postjudgment interest award was correct under article XV, section 1, of the California Constitution and California Federal.
This doctrine has been applied to changes in remedies with equal or greater consequences for the parties than the change in interest rates here at issue. In numerous cases, it has been held that new statutes allowing awards of attorney fees are applicable to litigation pending when the statutes came into effect, even though they were not in effect when the underlying facts took place. (Rumford v. City of Berkeley (1982) 31 Cal.3d 545, 559 [183 Cal.Rptr. 73, 645 P.2d 124] [attorney fees awardable under Code Civ. Proc., § 1021.5, which became effective while case was pending on appeal]; Woodland Hills Residents Assn., Inc. v. City Council (1979) 23 Cal.3d 917, 928-932 [154 Cal.Rptr. 503, 593 P.2d 200] [same]; Coast Bank v. Holmes, supra, 19 Cal.App.3d at pp. 593-594 [contractual attorney fee award upheld under § 1717, which became effective after execution of the contract and after alleged default]; Mir v. Charter Suburban Hospital, supra, 27 Cal.App.4th at p. 1478 [Bus. & Prof. Code, § 809.9 applicable as basis of attorney fee award in action pending on statute's effective date].)
The cities attempt to distinguish Kuykendall, which was mentioned in our briefing letter. They point out that the Kuykendall court concluded that the Legislature clearly intended the statute there at issue to be applied retroactively (Kuykendall, supra, 22 Cal.App.4th at p. 1209), while there is no indication that the Legislature had a similar intent here. The cities overlook the fact, however, that the Kuykendall court also relied on the proposition that "the rule a statute should be construed as not operating retroactively absent a clear legislative direction does not apply where, as here, the statute is remedial or procedural in nature." (Id. at p. 1211, fn. 20.) As we have said, when statutes are remedial or procedural, courts consistently apply them in cases pending, including cases pending on appeal, when the statutes become effective, even though the underlying facts predate their effective dates.
Having concluded that chapter 424 applies in this case, we now consider the effect it has here.
Assemblymember Eggman's definition evidently is intended to exclude cases in which the dispute is over the amount of taxes allocated by a county to a city. If this case had involved a claim that the county had made an incorrect allocation and had given too much money to one city and too little to another, for instance, it would appear that Assemblymember Eggman's definition of a "tax or fee claim" would exclude it. But that is not what happened here. The cities simply claim that the county withheld too much for the PTAF.
The cities maintain that this case does not involve a tax or fee claim within the meaning of Assemblymember Eggman's letter because it is a claim for proper allocation of taxes between government entities. This is not correct. The cities' lawsuit did not claim the county incorrectly divided the tax money when it allocated that money to each city, for instance. Their only claim was that the county withheld too much for the PTAF. That, we conclude, is a "fee claim."
It is true that the PTAF is withheld from tax proceeds, so the county's incorrect PTAF calculation affected the distribution of tax revenue by the
A reference to this case in the legislative history reinforces our conclusion. A committee report discussing the fiscal impact of the legislation notes a potential reduction in revenue to government agencies that are plaintiffs in suits against other government agencies. This case, City of Clovis v. County of Fresno, is cited as an example in which plaintiffs would receive less interest under the new law. (Sen. Com. on Appropriations, Fiscal Summary, Analysis of Assem. Bill No. 748 (2013-2014 Reg. Sess.) as amended July 8, 2013, p. 1.)
As noted above, the trial court ordered both prejudgment and postjudgment interest on the cities' claims at the rate of 7 percent per annum. Chapter 424 provides a significant reduction in the rates of interest. Based upon recent market yields, the new legislation provides for prejudgment interest at a nominal rate and postjudgment interest at a rate of just over 2 percent per annum.
"The liability of the state to pay interest is `purely statutory.'" (People v. Union Oil Co. (1957) 48 Cal.2d 476, 480 [310 P.2d 409], quoting Gregory v.
In White v. Lyons, supra, 42 Cal. at pages 284-285, the Supreme Court wrote: "But, I think, the Court erred in fixing the rate of interest at ten per cent per annum up to the date of the judgment. When the conversion occurred that was the rate fixed by statute in transactions of this character. But the Act of March 30th, 1868, reduced the rate from ten to seven per cent per annum; and from the time when this Act took effect the interest should have been computed at seven per cent per annum. In the absence of a contract for interest, it is only allowed as damages for a failure to pay the money due [citation]; and it is competent for the Legislature to fix the amount which shall be recovered. But the Act reducing the rate was only prospective in its operation, and was not intended to take away or impair rights which had already accrued under the prior statute. In Bullock v. Boyle, 1 Hoffman, N. Y. Ch. R., 294, the effect of statutes modifying the rate of interest is fully and elaborately discussed, and the authorities collated by the Vice Chancellor; and the conclusion at which he arrived is, that a change in the rate, as a general rule, operates only prospectively, and does not affect rights already accrued.... [¶] The judgment is affirmed, except as to the rate of interest; and in respect to the computation of interest, the Court below is directed to modify the judgment by computing the interest at ten per cent per annum up to the time when the Act of March 30th, 1868, took effect, and thereafter at the rate of seven per cent per annum ...."
Since the new legislation applies to the present action, the applicable rate for postjudgment interest, effective January 1, 2014, is "equal to the weekly average one year constant maturity United States Treasury yield at the time of the judgment plus 2 percent ...." (§ 3287, subd. (c).)
The judgment is modified to reflect that, effective January 1, 2014, the rate of postjudgment interest on the judgment in this action is reduced from 7 percent to 2.39 percent.
Gomes, Acting P. J., and Detjen, J., concurred.