Opposition Brief — McGee v. County of Orange, 120 S. Ct. 71 (1999) (No. 98-2035)

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: ox FILED

¢ Ju. 8 1999

| OFEICE OE TH BLERM

No. 98-2035

In The

Supreme Court of the United States

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FRANK AND HELEN McGEE

Petitioners,

COUNTY OF ORANGE,

A Political Subdivision of the State of California,

Respondent.

o

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

°

RESPONDENT'S BRIEF IN OPPOSITION

¢

LAuRENCE M. Watson

County Counsel and

James P. PeRsINGER*

Deputy - CA Bar No. 67115

10 Civic Center Plaza, 4th Floor

Post Office Box 1379

Santa Ana, California 92702-1379

Telephone: 714/834-6257

Facsimile: 714/834-2359

Attorneys for Respondent

County of Orange

* Counsel of Record

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

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TABLE OF CONTENTS

pO Re Rk rrr rrr rrr rr rrr rer

Se ee yr arr

STATEMENT OF THE CASE. .....cccccescccccccees

ee PP eer eT eer Teer er

ie | NE SE oh eosuducdeeuads nosedeees:

C. Petitioners’ Right To A Refund Of Excess

1980-1991 Taxes Must Be Found Within Cali-

fornia’s Property Tax Law...................

REASONS FOR DENYING THE WRIT............. 3

A. Petitioners Have Failed To Show Ary Special

And Important Reasons Why The Court

Should Grant The Petition................... 3

B. Petitioners’ Reargue Factual Determinations

Found Against Them In The Lower Courts... 3

C. Petitioners’ Misstatements Of Law........... 7

1. Petitioners Misstate The Holding in The

Sunrise Retirement Villa v. Dear (Placer

Cae MII SN ok kev hes ecdicncenees 7

2. Petitioners Misstate The BAP Memoran-

dum Decision, The Plain Meaning Of The

Language Of Cal. Rev. & Tax. Code § 2635

And The Cases Interpreting That Statute 9

THE NINTH CIRCUIT WAS CORRECT IN FINDING

THAT THE BAP DID NOT ABUSE ITS DISCRE-

TION IN DENYING EQUITABLE RELIEF........ 12

CPR EEE Wekeeeekscacadedsacunssaeassacereres 16

ii

TABLE OF AUTHORITIES

Page

CASES

Bishop, Mcintosh & McIntosh v. Molen, 116 Cal.

App. 3d 278, 172 Cal. Rptr. 38 (1991)... 9, 10, 11, 12

Clementson v. Williams, 12 U.S. 72, 3 L. Ed. 69

CRESS 0 + ic pee br ee 13

Shepherd v. Thompson, 122 U.S. 231, 7 S. Ct. 1229

tL 1) PT rr os 13

Sunrise Retirement Villa v. Dear (Placer County

Assessor), 58 Cal. App. 4th 948, 68 Cal. Rptr. 2d

416 (1997) «++ .00040n0ceug ee eee 7, 8, 12

STATUTES

28 U.S.C. § 12860)... ee eee 1

Cal. Rev. & Tax. Code @ 1602, 1603 ....ccscsesnsescs 15

Cal. Rev. & Tax. Code § 2635.......sseeeecees 9, 10, 11

Cal. Rev. & Tax. Code 6 SOF... ...-scesnvsess 4, 5, 6, 11

Cal. Rev. & Tax. Code § 5240 ef seq.........ceeseees 15

Cal. Rev. & Tax. Code § 4831................... > 6&7

CONSTITUTIONAL PROVISIONS

Cal. Const. Act. SEE &, © tee ices cane an en aneen 8

JURISDICTION

Respondent County of Orange does not contest this

Court’s jurisdiction over this petition pursuant to 28

U.S.C. § 1254(1).

STATEMENT OF THE CASE

This petition seeks to attack the Ninth Circuit's opin-

ion below, which affirmed the lower court’s determina-

tion that the applicable state statutes of limitations barred

petitioner’s claim in bankruptcy.

A. Procedural Facts

On December 6, 1994 the County of Orange filed a

petition under Chapter 9 of Title 11 of the United States

Code. On February 23, 1996, Mr. and Mrs. McGee filed a

claim in the bankruptcy court for property tax refunds for

the years 1980 through 1994. On June 2, 1997 the bank-

ruptcy court entered a final order disallowing the claim

as to the years 1980-1991, finding that the claim for

refunds for those years was barred by the applicable state

statutes of limitations. [Petition App 16-App 17.] Mr. and

Mrs. McGee appealed to the United States Bankruptcy

Appellate Panel of the Ninth Circuit (the “BAP”). The

BAP entered a memorandum decision affirming the bank-

ruptcy court on February 4, 1998. [Petition App 4-App

15.] Mr. and Mrs. McGee appealed to the United States

Court of Appeals for the Ninth Circuit. The Ninth Circuit

entered a memorandum decision affirming the BAP’s

decision on February 17, 1999. [Petition App 2-App 3.]

Mr. and Mrs. McGee filed a petition for rehearing with

the Ninth Circuit, which was denied on March 19, 1999.

[Petition App 1.] Mr. and Mrs. McGee then filed this

petition.

B. Substantive Facts

Mr. and Mrs. McGee own a real property residence in

Orange County. They filed their claim in the County’s

bankruptcy case seeking a partial refund for property

taxes that they paid on their residence for the years

1980-1994. When the County reviewed the claim, the

County determined that it had merit as to the four years

prior to the filing of the claim. The County found that it

had entered an incorrect value on the property tax roll for

the year 1980 and that value had carried forward, plus

the applicable inflationary rate, for each year thereafter

pursuant to California property tax law. The County

thereupon revised the tax roll for 1995, and refunded the

overpaid property taxes for the years 1992, 1993, and

1994. The County then asserted the applicable four-year

statutes of limitations as to the years prior to 1992 in its

objections to the claim.

C. Petitioners’ Right To A Refund Of Excess 1980-1991

Taxes Must Be Found Within California’s Property

Tax Law

Under the County’s Chapter 9 Plan, all property tax

refund claims were classified as unimpaired and the

County and each claimant retained unaltered all legal,

equitable, and contractual rights each might have under

California law. Petitioners’ right to a refund of the excess

1980-1991 property taxes must be found within Califor-

nia’s property tax law.

+

REASONS FOR DENYING THE WRIT

A. Petitioners Have Failed To Show Any Special And

Important Reasons Why The Court Should Grant

The Petition

Petitioners Frank and Helen McGee have failed to

show any special and important reasons why the Court

should grant their petition for a writ of certiorari (“peti-

tion”) as required by rule 10. A reading of the petition

shows that Mr. and Mrs. McGee are upset that the district

court, the BAP, and the Ninth Circuit have held that the

applicable state statutes of limitations applies to their

claim in the County’s bankruptcy. There are simply no

federal questions or constitutional issues involved. The

questions presented by Mr. and Mrs. McGee are impor-

tant only to the parties involved.

B. Petitioners’ Reargue Factual Determinations Found

Against Them In The Lower Courts

Petitioners argued in the lower courts that the

County made a special agreement with them to waive the

applicable state statutes of limitations as to their claim for

property tax refunds. In support of their arguments in the

lower court they introduced the documents referred to in

their petition at pages 2-3, arguing that those documents

showed that the County waived the statutes of limita-

tions. The bankruptcy court found against petitioner as to

whether or not those documents waived the statutes of

limitations. [Petition App 17.] The Bankruptcy Appellate

Panel affirmed the court’s determination [Petition App

15] and the Ninth Circuit held that the BAP did not

clearly err in finding that the County did not waive the

statutes of limitations. [Petition App 3.]

The following re-arguments of the facts in this case

are found in the petition:

(1) “The County of Orange, by letter sub-

sequent, and after some refund checks were

issued, requested claimants to assert a claim for

the remainder of the property tax refund in the

U.S. Bankruptcy Court, Central District.” [Peti-

tion 2-3.]

The letter referred to merely informed the recipients

of property tax refunds that only a portion of the refund

amount, as calculated by the County, had been autho-

rized by the bankruptcy court and was being paid, and

that the remainder of the refund was subject to further

court order. The balances due on the refunds were paid

pursuant to a later court order. The letter does not con-

tain a waiver by the County of the statutes of limitations

defense to any claims for property tax refunds. Under the

County’s Plan of Adjustment, the County retained,

unaltered, all defenses under California property tax law

to all refund claims, including the statutes of limitations.

(2) “At the request of the County, a claim

for property tax refund was filed . . . well within

the required one year after notice, as required to

satisfy California Revenue and Taxation Code

5097(a), and within the six-month requirement

of California Revenue and Taxation Code

4831(a).” [Petition 3.]

The “request” that petitioners refer to was allegedly

contained in a letter sent out by the County. The letter,

which petitioners refer to as a “request,” did not

“request” that any recipient file a claim for a property tax

refund. The letter accompanied all property tax refund

checks and explained why only a portion of the refunds

were being paid. The reasons stated in the letter are that

the County portion was being held until further court

order and that the portion included is only that part of

the refund that is due from other taxing agencies. There is

no language in the letter that waives any statutes of

limitations. The Revenue and Taxation Code was not

mentioned, let alone sections 5097(a) and 4831(a).

(3) “This objection (that the claim was

barred because it was untimely) was withdrawn

by the County after a conversation between

Appellant’s Counsel and the County’s outside

Counsel, in which it was stated that: “overpay-

ment of taxes is undisputed by the County of

Orange and will be paid in full.” [Petition 3.]

Petitioners contended in the lower courts that during

a telephone conversation, their attorney had a meeting of

minds with the County’s outside counsel, in which the

County, through a special (and secret) agreement, waived

the applicable statutes of limitations to petitioners’ claim

for refunds of overpaid taxes for the years 1980-1991. The

truth is that no such statement was made and even peti-

tioners’ allegations of that conversation failed to show a

knowing understanding on both sides that the County

was waiving all statutes of limitations as to petitioners’

claim. The County’s actions and the County’s Plan of

Adjustment showed that it never waived any applicable

statutes of limitations as to property tax refunds.

(4) “This statement (that the County

intended to waive all applicable statutes of lim-

itations) was confirmed by letter sent to the

Trustee and to County Counsel, Karen Carroll,

dated August 18, 1996.” [Petition 3.]

Karen K. Carroll was not, and is not, a deputy county

counsel. Ms. Carroll worked for the bankruptcy law firm

employed by the County for its Chapter 9 proceeding.

The only evidence introduced by petitioners that the

County had waived all statutes of limitations was the

“confirming letter” prepared by petitioners’ attorney.

There is no reference in the letter to the applicable stat-

utes of limitations and there is no waiver of those statutes

expressed in the letter. The letter contains a misstatement

of law: “Since the Claim is not Barred and could not be

Barred since it was timely ... .” The truth is that the

applicable statutes of limitations did bar all claims prior

to 1991. This is such an important fact, that petitioners’

attorney would have mentioned it in the letter, if in fact

he had discussed the County’s waiver of the four-year

statutes contained in Revenue and Taxation Code §§ 5097

and 4831 with Ms. Carroll. Finally, the letter ends by

saying, “in the event this does not comport with your

understanding, a hearing is hereby requested.” Peti-

tioners received their hearing on May 29, 1997 and the

bankruptcy court determined that the notices and letters

did not waive the applicable statutes of limitations.

As stated by the Ninth Circuit: “The BAP did not

clearly err in finding that the County did not waive the

statute of limitations.” [Petition App 3.]

C. Petitioners’ Misstatements Of Law

1. Petitioners Misstate The Holding In The Sunrise

Retirement Villa Case

a. “The undisputed holding of [Sunrise

Retirement Villa v. Dear (Placer County Assessor),

58 Cal. App. 4th 948, 68 Cal. Rptr. 2d 416 (1997),

Petition App 18-34] was to strike down the stat-

ute of limitations in Cal. Rev. and Tax. Code

§ 4831(a) on facts similar to the case on hand.”

[Petition 6.]

b. “Based on the above-cited Sunrise

Retirement case, the California Appellant Court

had determined that the four-year Statute of

Limitations does not apply in situations such as

here, where a mistaken change of ownership

triggered incorrect evaluations over several

years.” [Petition 7.]

These statements misstate the holding in the Sunrise

Retirement Villa case. Sunrise Retirement Villa did not strike

down the applicable statutes of limitations for property

tax refunds. Sunrise Retirement Villa held that errors on

the property tax roll as to the base-year value of real

property, which are not based on judgment as to value,

could be corrected at anytime.

However, as the court pointed out: “There is a dis-

tinction between the reduction in a base-year value and a

right to a refund of taxes. The base-year value is a control

figure from which an assessment is determined. The cor-

rection of the base-year value allows the assessor to

determine whether there has been an overassessment or

an underassessment. Thereafter, an application must be

made for refund. (Citation omitted.)” Sunrise Retirement

Villa v. Dear, 58 Cal. App. 4th 948, 956, 68 Cal. Rptr. 2d

416, 423 (1997).

Therefore, the court found: “Correction of the base-

year value figure does not automatically entitle the tax-

payer to a refund. (Citation omitted.) Refunds are governed

by separate provisions of the code, and the taxpayer may only

recover a refund by complying with those statutes. (Citation

omitted.) As section 51.5, subdivision (d) states, if the

correction reduces the base-year value, ‘appropriate can-

cellations or refunds of tax shall be granted in accordance

with this division.’ ”' (Emphasis added.) Id., at 961.

Sunrise Retirement Villa stands for the rule that the

assessor, or the assessment appeals board, must correct

base-year non-judgment value errors, then revise the roll

value for each year following the revised date, adding

only the inflationary rate allowed by Cal. Const. Art. XIII

A, § 2(b).

This is what the County actually did in regard to

petitioners’ residence. The County corrected the base-

year value in 1980, then recalculated each years’ property

tax roll value, including the roll values for the years

' The California Revenue and Taxation Cede is divided into

two divisions, property taxes and other taxes. Division 1 covers

property assessments, equalization, taxation, collection, and

refund procedures.

a/

1992-1995. The County then calculated the refunds due

for 1992-1994 pursuant to the new roll values. The

County also revised the 1995 tax bill to reflect the new

roll value, as it had not yet been paid. The County also

determined that it could not make refunds for the years

1980-1991 because of the applicable statutes of limitations

for refunds of property taxes.

2. Petitioners Misstate The BAP Memorandum

Decision, The Plain Meaning Of The Language

Of Cal. Rev. & Tax. Code § 2635 And The Cases

Interpreting That Statute.

a. “The Panel further held that the notice

required by Cal. Revenue and Taxation Code

2635 was not sent and the notices sent by the

County did not satisfy the requirements set

forth in California Revenue & Tax. Code 2635.”

[Petition 6.]

b. “In light of [Bishop, McIntosh & McIntosh

v. Molen, 116 Cal. App. 3d 278, 172 Cal. Rptr. 38

(1991)], the duty to issue a 2635 [Rev. & Tax.

Code § 2635] Notice triggering the One-Year

Statute of Limitations still exists. .. . It would

certainly not be equitable to force the Appel-

lants [petitioners] back into the California State

Court to file a writ of mandate to compel the

County tax collector to issue a notice of potential

tax refund as required by Rev. & Tax. Code

§ 2635. As was stated in the above-cited Molen

case, there is evidence in this case of improper

valuation and the Notice must be issued with

Rev. & Tax. Code 2635.” [Petition 8-9.]

These statements misstate the BAP Memorandum

decision, the plain language of Cal. Rev. & Tax. Code

§ 2635 and the cases interpreting that statute.

10

The BAP’s Memorandum decision is found at pages

App 4-App 15 of the petition. The panel did not hold that

California Revenue and Taxation Code § 2635 applied to

the facts of the case.

Cal. Revenue and Taxation Code § 2635 provides

that:

“When the amount of taxes paid exceeds the

amount due by more than ten dollars ($10), the

tax collector shall send notice of the overpay-

ment to the taxpayer. The notice shall be mailed

to the taxpayer’s last known address and shall

state the amount of overpayment and that a

refund claim may be filed pursuant to Chapter 5

(commencing with Section 5096) of Part 9.”

At no time during the years 1980 through 1995 did

petitioners pay an amount that exceeded the amount due

on the tax bills sent by the County tax collector. Nor have

petitioners alleged that they did so. Based on that fact

alone, petitioners cannot seriously contend that the tax

collector failed to comply with Cal. Revenue and Taxation

Code § 2635.

Petitioners rely upon Bishop, McIntosh & McIntosh v.

Molen, 116 Cal. App. 3d 278, 172 Cal. Rptr. 38 (1991) to

argue that the tax collector has a duty, even now, to

resurrect their time-barred claims as to tax years

1980-1991. [Petition 7-8.]

But, as the court in that case said:

“The question presented here is whether a tax-

payer who claims that the assessed value of his

property should have been lower for certain

years because it was subject to a scenic ease-

ment, but who has pursued no remedies within

11

the four-year limitation period, is entitled to a

writ of mandate compelling the tax collector to

send a section 2635 letter in order to renew his

right to file a claim. The trial court entered

judgment denying the writ, and we affirm.” Id.,

at 279.

Petitioners failed to pursue their remedies within the

four-year limitation period for each year 1980-1991. They

are now seeking a refund for the years in which they sat

on their rights. Just as the taxpayer in Bishop, McIntosh &

McIntosh v. Molen was denied a writ of mandate to renew

its right to file a claim, petitioners are not entitled to a

writ of mandate to require the County to violate the

applicable statutes of limitations, in this court or the state

court.

As the Ninth Circuit found: “The BAP did not err in

finding the statute of limitations barred the McGees’

claim. See Cal. Rev. & Tax. Code § 5097(a)(2).” [Petition

App 3.]

Revenue and Taxation section 5097(a)(2) provides, in

relevant part, that:

“No order for a refund . . . shall be made, except

on a claim... [fJiled within four years after

making of the payment sought to be refunded or

within one year after the mailing of the notice as

prescribed in Section 2635... .

No case or statute in California property tax law

allows a taxpayer to obtain a refund for every past year

for which the taxpayer might think that he should get a

refund. And, no statute allows the tax collector to violate

the law concerning the statutes of limitations as to prop-

erty tax refunds.

ee

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The state statutes of limitations prevent the County

from refunding the taxes claimed by petitioners for the

years prior to 1991. Petitioners are arguing that this

Court, or a state court through a writ of mandate, should

simply order the County to violate the applicable state

statutes of limitations on property tax refunds. That is not

what Sunrise Retirement Villa requires nor is it what

Bishop, McIntosh & McIntosh v. Molen will allow. Peti-

tioners’ arguments are apparently based on a serious

misreading of each case. Neither case eliminates the stat-

utes of limitations on property tax refunds.

THE NINTH CIRCUIT WAS CORRECT IN FINDING

THAT THE BAP DID NOT ABUSE ITS DISCRETION

IN DENYING EQUITABLE RELIEF

The Ninth Circuit found that “The BAP did not abuse

its discretion in denying equitable relief. [Citations omit-

ted.]” [Petition App 3.]

Petitioners’ equity appeal to the court for relief out-

side the tax code is misplaced. The lower courts’ denial

of equitable relief was within their discretion and was not

an abuse of that discretion.

The issuance of equity relief is a matter of discretion,

and the appellate court will not reverse unless there is a

definite and firm conviction that the court below commit-

ted a clear error of judgment upon a weighing of the

relevant factors. The lower courts, in their discretion,

2 See, “If this isn’t a case for equity, then equity in the

Bankruptcy Court is dead.” [Petition 11.]

13

determined that equity should not overrule the applicable

statutes of limitations.

Petitioners should not receive special benefits merely

because they are pursuing their claims in the bankruptcy

forum. Indeed, the Plan of Adjustment filed in this Chap-

ter 9 proceeding classified all property tax refund claims

as unimpaired. Under the Plan, each holder of a property

tax refund claim retained all legal, equitable, and contrac-

tual rights each might have under California property tax

law. The California legislature has determined that a

four-year from date of payment statutes of limitations

applies to property tax refund claims. Equity does not

require that the court redetermine where that line should

be drawn. Arguments could be made perhaps that it

should be at 1 year, or 3 years, or 6 years, or 12 years, or

24 years, but it cannot be shown that the four-year line is

inequitable or unfair.

A limitations statute “is entitled to the same respect

with other statutes, and ought not to be explained away.”

Shepherd v. Thompson, 122 U.S. 231, 236, 7 S. Ct. 1229

(1887) (quoting Clementson v. Williams, 12 U.S. 72, 74, 3

L. Ed. 69 (1814)).

Here, the people of California, acting through their

legislature, have chosen to enact a four-year limitations

period for seeking a property tax refund as part of their

procedure to collect taxes in an orderly fashion. This

choice is not so manifestly inequitable as to amount to a

denial of justice. The Court should respect the legisla-

ture’s decision.

The County needs the security of knowing that at

some point its collected taxes cannot be challenged. If a

14

limitations statute did not exist, or if such a statute was

routinely disregarded by the courts, a county would be

forever vulnerable to refund claims no matter how

ancient the imposed levy. Errors committed decades ago

could be alleged at any time so that a county would

always be vulnerable to potentially heavy losses of reve-

nue.

In this case, Petitioners’ refund claim is $21,125.81 for

a tax error made over the course of eleven years. An

uncorrected error made on the tax rolls 10, 20, 30, or 50

years ago could easily add up to an extraordinarily large

refund claim with the potential to wipe-out a county’s

coffers. The statutes of limitations thus grants the County

a degree of certainty when it arranges its financial affairs,

that ancient and potentially large tax claims will not

drain the county budget.

The benefits of fiscal certainty are clear. A county

enacts a budget, usually made up of tax revenue, so that

it can fund public programs. If its tax collections were

forever subject to challenge, a county could never be

certain of its reservoir of revenue. Budgetary planning,

could become difficult, if not impossible. Such uncer-

tainty would surely effect budgetary priorities and possi-

bly public programs. A limitations line must be drawn

otherwise the County would be forever subject to the

financial turmoil caused by ancient and unpredictable tax

refund claims. The California legislature chose to draw

the line at four years. There is no equitable or public

policy reasons for ignoring the clear limitations statute

and subjecting a county or its taxpayers - who would

ultimately pay any refund — to that level of uncertainty.

15

Petitioners were not without recourse over the eleven

years they overpaid their property taxes. They could have

easily verified whether their property’s roll value was

correct each year the assessment was made. See Cal. Rev.

& Tax. Code § 1602. They also could have challenged an

assessment each year it was made. See Cal. Rev. & Tax.

Code § 1603 et seq. (procedures for filing applications for

reduction of roll value assessments); Cal. Rev. & Tax.

Code § 5240 et seq. (procedures for filing refund actions

by taxpayers). With property ownership comes respon-

sibilities. Among these responsibilities must be the

requirement for property owners to diligently investigate

whether they are being assessed the correct tax. That

petitioners have failed to do so, does not mean that the

Court should rescue them from their neglectful behavior.

California’s tax code works both ways. If petitioners

had been under-assessed on their property taxes, they

could have asserted a limitations statute to preclude the

County from collecting back taxes past four years. Under

such circumstances, petitioners would have benefited

from a roll value error. It cannot be said that all taxpayers

are prejudiced by a four-year limitations statute.

The bankruptcy court did not abuse its discretion

when it determined that petitioners had not proved that

the equity power of the court should require the County

to violate the applicable statutes of limitations as to their

claim. After weighing all the relevant factors set forth

above, the Court cannot have a definite and firm convic-

tion that the court below committed a clear error of

judgment in the conclusion it reached.

S

— —

16

CONCLUSION

The lower courts did not err in finding the statutes of

limitations barred petitioners’ claim. The courts did not

clearly err in finding that the County did not waive the

statutes of limitations. The courts did not abuse their

discretion in denying equitable relief.

DATED: July 8, 1999

Respectfully submitted,

LAURENCE M. Watson

County Counsel and

James P. Persincer*

Deputy

Attorneys for Respondent

County of Orange

*Counsel of Record