The Supreme Court/The Supreme Court.iso/pc/ascii/1991/91_2003/91_2003.zo

Text File | 1993-04-25 | 24.2 KB | 460 lines

NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports.  Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash-
ington, D.C. 20543, of any typographical or other formal errors, in order that
corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
--------
No. 91-2003
--------
UNITED STATES, PETITIONER v. CALIFORNIA and
CALIFORNIA STATE BOARD OF EQUALIZATION
on writ of certiorari to the united states court
of appeals for the ninth circuit
[April 26, 1993]

  Justice O'Connor delivered the opinion of the Court.
  This is another in the long line of cases, beginning with
McCulloch v. Maryland, 4 Wheat. 316 (1819), in which the
Federal Government asks this Court for relief from what
it considers illegal state taxes.  Unlike the typical tax
immunity case, however, we are not presented with a
claim that the state tax is unconstitutional; instead, the
question is whether the Federal Government may recover
taxes it claims were wrongfully assessed under California
law against one of the Government's private contractors.
                            I
  The United States has established three Naval Pe-
troleum Reserves in California and Wyoming, one of
which is Naval Petroleum Reserve No. 1, located in Kern
County, California.  10 U. S. C. 7420.  First through the
Department of the Navy and later through the Depart-
ment of Energy, the United States contracted with Wil-
liams Brothers Engineering Company (WBEC) to manage
oil drilling operations at Reserve No. 1 from 1975 to 1985.
Under the contract, WBEC received an annual fixed fee
plus reimbursement for costs, which the contract defined
to include state sales and use taxes.
  California assessed approximately $14 million in sales
and use taxes, pursuant to Cal. Rev. & Tax. Code Ann.

6384 (West 1987), against WBEC for the years 1975
through 1981.  The State informed WBEC of the tax
deficiencies through two notices, one issued in July 1978
and the other in December 1982.  WBEC, at the direction
of the United States, applied to the California Board of
Equalization for administrative redetermination of the
assessments, see Cal. Rev. & Tax. Code Ann. 6932 (West
1987).  WBEC argued that the State had misapplied its
own law, taxing property that was outside the scope of
6384.  The Board of Equalization denied each claim,
with minor exceptions.  Thereafter, WBEC paid the
assessments under protest, using funds the Federal
Government provided.  It then filed timely actions in state
court.  In January 1988, the State and WBEC stipulated
to a $3 million refund, for erroneous assessments on
property that WBEC had purchased and that Government
personnel had installed, and to dismissal of both actions
without prejudice.  The remaining $11 million resulted
from assessments on property that WBEC had purchased
and that private subcontractors, managed by WBEC, had
installed.
  In May 1988, the United States filed suit in the Eastern
District of California, seeking a declaratory judgment that
California had classified and taxed WBEC erroneously
under California law and that the taxed property actually
was exempt.  It sought a refund of the $11 million plus
interest.  In the course of the suit, the United States
argued it was entitled to recovery based on the federal
common law cause of action for money had and received.
The District Court rejected both grounds for recovery and
granted summary judgment for the State.
  The Court of Appeals for the Ninth Circuit affirmed.
932 F. 2d 1346 (1991).  The court began by noting that
the Government did not claim that either it or WBEC was
constitutionally immune from the tax, an argument this
Court rejected in United States v. New Mexico, 455 U. S.
720 (1982).  932 F. 2d, at 1347-1348.  Because the United
States lacked -a colorable constitutional challenge,- id., at
1349, the Court of Appeals looked to whether federal
common law might provide a cause of action.  It declined
to accept the Government's argument that the simple act
of disbursing federal funds was a -constitutional function-
that created a federal interest in conflict with state law.
The Government had done no more than pay state taxes
pursuant to state law; this did not rise to the level of a
federal interest requiring the application of federal law.
Ibid.  The Court of Appeals then held that the Govern-
ment could not maintain a quasi-contract cause of action
because the facts did not support a claim of unjust
enrichment.  Among other things, -WBEC, backed
throughout by the United States, had a fair chance to
argue against the validity of the assessments in the
administrative and state court proceedings.-  Id., at 1350.
Finally, the Court of Appeals relied on the fact that the
Government's quasi-contract argument was -posited upon
the interpretation of a state-created exemption from a
state[-]created sales tax.-  Ibid.  The court found that the
State's claim filing requirements, including that a court
action be filed within 90 days of an administrative denial,
were conditions precedent to a cause of action for a tax
refund.  Id., at 1350-1351.  The Government had failed
to satisfy the conditions; therefore, the Court of Appeals
held, the Government had no state cause of action and no
quasi-contract action.  -Since federal statutes of limitations
become determinative only after the government acquires
a cause of action, and since the United States never
acquired a cause of action,- the court reasoned, the six-
year statute of limitations of -28 U. S. C. 2415 does not
apply.-  Id., at 1351.
  The Court of Appeals acknowledged that the Court of
Appeals for the Eleventh Circuit, in a factually similar
case, recently had reached the opposite conclusion.  Id.,
at 1351-1352.  In United States v. Broward County, 901
F. 2d 1005 (1990), the Eleventh Circuit rejected the
argument on which the Ninth Circuit relied and held that
the Government had a -federal common law cause of
action in quasi-contract for money had and received.-  Id.,
at 1008-1009.  We granted certiorari to resolve the
conflict.  506 U. S. ___ (1992).
                           II
  The Government concedes that it could have intervened
in WBEC's administrative and state court proceedings.
Tr. of Oral Arg. 17.  But it argues that whether it com-
plied with state procedural requirements or whether it
could have intervened is irrelevant, because it has a
federal right to recover the taxes under the federal
common law cause of action for money had and received
(also known as indebitatus assumpsit).  Prior to the
creation of federal administrative and statutory remedies
for the recovery of federal taxes, this Court held that a
taxpayer could bring an action for money had and received
to recover erroneously or illegally assessed taxes.  In City
of Philadelphia v. The Collector, 5 Wall. 720 (1867), the
Court stated:
      -[The] [a]ppropriate remedy to recover back money
paid [to federal tax collectors] under protest on ac-
count of duties or taxes erroneously or illegally as-
sessed, is an action of assumpsit for money had and
received.  Where the party voluntarily pays the
money, he is without remedy; but if he pays it by
compulsion of law, or under protest, or with notice
that he intends to bring suit to test the validity of
the claim, he may recover it back, if the assessment
was erroneous or illegal, in an action of assumpsit for
money had and received.-  Id., at 731-732 (citing
Elliott v. Swartout, 10 Pet. 137, 150 (1836)).
The Government reasons that it paid WBEC's taxes, that
the taxes were wrongfully assessed, and that therefore it
may recover the funds used to pay those taxes.  Since an
action for money had and received is based on a contract
implied in law, see Bayne v. United States, 93 U. S. 642,
643 (1876), the Government further reasons that its
claims are governed by the 6-year statute of limitations
in 28 U. S. C. 2415(a), and not the 90-day limitation
period in the California Code.
  The taxpayers in both City of Philadelphia and the case
on which it relies, Elliott v. Swartout, were attempting to
recover money they had paid under protest to the federal
tax collector in settlement of tax assessments erroneously
made against them.  In this case, by contrast, the tax-
payer-WBEC-has had its day in court and gone home.
The Government attempts to recover money it paid in
reimbursement for state tax assessments against the
contractor, even though the contractor already has chal-
lenged the assessment and accepted a resolution of its
claims.  The Government contends that, because its
contract with WBEC involved an advanced funding
arrangement, the Government was the one that actually
paid the state taxes.  Because the disbursement of federal
funds is involved, the Government asserts, the federal
action for money had and received is appropriate.  Even
assuming that federal courts may entertain a federal
common law action for the recovery of state taxes paid by
the Government, we conclude that a federal action is
inappropriate here because the Government is in no better
position than as a subrogee of its contractor WBEC.
  The management contract between the Government and
WBEC is in all relevant respects identical to the contracts
we discussed in United States v. New Mexico, 455 U. S.
720 (1982).  There, as here, the State had imposed sales
and use taxes on private contractors managing Depart-
ment of Energy sites.  Like WBEC, two of the contractors
received costs plus a fixed fee.  Id., at 723-724.  Like
WBEC's contracts, the contracts provided that title to all
tangible personal property passed directly from the vendor
to the Government.  Id., at 724.  -Finally, and most
importantly, the contracts use[d] a so-called `advanced
funding' procedure to meet contractor costs.-  Id., at 725.
The contractors paid creditors and employees with drafts
drawn on a special bank account in which the Govern-
ment deposited funds, so that only federal funds were
expended when the contractors made purchases.  Id., at
726.  Compare App. 142-143 (Declaration of Kenneth
Meeks in Support of United States' Motion for Summary
Judgment, describing similar funding operations with
WBEC).
  In New Mexico, the Government brought an action
arguing that the contractors' expenditures, other than
those made out of the fixed fees, were constitutionally
immune from taxation.  We noted that the doctrine of
federal immunity from state taxation is -one that has
been marked from the beginning by inconsistent decisions
and excessively delicate distinctions.-  455 U. S., at 730.
After surveying our -confusing- precedents, we concluded
it was time to return to the underlying constitutional
principle of tax immunity: A State may not lay a tax
-`directly upon the United States.'-  Id., at 733 (quoting
Mayo v. United States, 319 U. S. 441, 447 (1943)).  But
whereas the Government is absolutely immune from direct
taxes, it is not immune from taxes merely because they
have an -effect- on it, or -even because the Federal
Government shoulders the entire economic burden of the
levy.-  455 U. S., at 734.  In fact, it is -constitutionally
irrelevant that the United States reimburse[s] all the
contractor's expenditures, including those going to meet
the tax.-  Ibid. (citing Alabama v. King & Boozer, 314
U. S. 1 (1941)).  Tax immunity is -appropriate in only one
circumstance: when the levy falls on the United States
itself, or on an agency or instrumentality so closely
connected to the Government that the two cannot realisti-
cally be viewed as separate entities.-  455 U. S., at 735.
  It is beyond peradventure that California did not
tax-indeed, could not have taxed-the Federal Govern-
ment in this case.  California taxed WBEC.  And the
Government's voluntary agreement to reimburse (or even
fund in advance) WBEC for those taxes does not make the
Government's payments direct disbursements of federal
funds to the State.  We addressed an analogous indemnifi-
cation relationship in Brady v. Roosevelt Steamship Co.,
317 U. S. 575 (1943).  The United States had contracted
with a private corporation to operate a Maritime Commis-
sion vessel.  A Customs Inspector suffered injuries on the
vessel that led to his death, and his widow brought a
maritime tort action against the private corporation.  In
defense, respondent contended -that if the judgment
against [it] stands, the United States ultimately will have
to pay it by reason of provisions of the contract between
respondent and the [Maritime] Commission.  It is there-
fore urged that the United States is the real party in
interest.-  Id., at 582.  We rejected respondent's argument
that petitioner could be deprived of her cause of action by
reason of the contract.  -Immunity from suit on a cause
of action which the law creates cannot be so readily
obtained.-  Id., at 583.  Absent congressional action, we
would not allow -concessions made by contracting officers
of the government- to make such a -basic alteration- in
the law.  Id., at 584.
  We conclude from Brady and New Mexico that the
Government cannot use the existence of an obligation to
indemnify WBEC to create a federal cause of action for
money had and received to recover state taxes paid by
WBEC any more than the Roosevelt Steamship Company
could use the existence of a right to indemnity from the
Government to defeat a claim for recovery.  See Brady,
supra, at 584.  Cf. Farid v. Smith, 850 F. 2d 917, 923
(CA2 1988) (a State's decision to indemnify its public
servants does not confer Eleventh Amendment immunity
on state officials sued in their personal capacity).
  Although the Government does not cite Brady, it does
cite two other cases that suggest the lesson of Brady
might not apply in an action for money had and received.
According to the Government, Bayne v. United States, 93
U. S. 642 (1877), and Gaines v. Miller, 111 U. S. 395
(1884), stand for the proposition that an action for money
had and received may -be employed by the United States
to recover money from a third party who received federal
funds that had been misappropriated by a government
agent.-  Brief for United States 14.  We find these cases
inapposite.  In Bayne, an Army paymaster withdrew
money from the paymaster's account, endorsed the checks
in blank, and sent them to Merchant's Bank with instruc-
tions to credit the account of Bayne & Co.  The Court
affirmed the Government's judgment against Bayne & Co.
under an action for money had and received.  93 U. S.,
at 643.  In Gaines, the agent of an estate's executors sold
estate property and illegally kept a portion of the money.
111 U. S., at 396.  Many years later, the agent had died,
but Gaines, the legatee of the first estate, brought an
action in equity against the administrator of the agent's
estate.  The Court affirmed the lower court's judgment
against Gaines because, among other reasons, she had an
adequate remedy at law: an action for money had and
received.  Id., at 397-398.
  Bayne and Gaines share two features this case lacks.
The first is that, in each, the rightful owner of the money
lost it by way of theft.  That is, the money passed from
the first party to the second party unlawfully.  See Bayne,
supra, at 643; Gaines, supra, at 396.  The second feature
is that in both cases the rightful owner of the money sued
a third party who had a relationship that, at least for our
purposes, made that party legally responsible for the
actions of the one who unlawfully took the money.  The
Court was satisfied in Bayne that the transactions be-
tween the paymaster, the banks, and Bayne & Co. were
-the result of a fraudulent purpose to secure the use of
the public money to Bayne & Co., who received it with
full knowledge that it belonged to the United States, and
had been applied in manifest violation of the act of
Congress.-  93 U. S., at 643.  In other words, Bayne &
Co. and the paymaster were accomplices, each liable for
the acts of the other.  Cf. 18 U. S. C. 2.  In Gaines,
petitioner sued the administrator of the agent's estate,
who was legally responsible for paying the agent's debts
out of the estate.  See, e.g., 2 J. Perkins, Williams on
Executors and Administrators 988-990 (6th Am. ed. 1877).
  The Government does not contend that WBEC stole the
money at issue in this case or otherwise took money from
the Government unlawfully.  WBEC did not.  Nor does
the Government contend that California and WBEC had
a relationship that would make California liable for
WBEC's actions.  They did not.  In fact, California and
WBEC had an adverse relationship: that of creditor and
debtor.  California's demand that WBEC pay what Califor-
nia believed to be a lawful debt does not make California
legally responsible for the Government's indemnification
of WBEC.  In these circumstances, we do not imply a
contract in law between California and the Government.
Without an implied contract, an action for money had and
received will not lie against the State.
  Although the Government cannot proceed in an action
for money had and received, our discussion of indemnifica-
tion suggests the Government may not be without re-
course: Because it indemnified the contractor, the Govern-
ment has a right to be subrogated to the contractor's
claims against the State.  See 10 W. Jaeger, Williston on
Contracts 1265 (3d ed. 1967); Brief for Respondents 13
(conceding the same).  When proceeding by subrogation,
the subrogee -stands in the place of one whose claim he
has paid.-  United States v. Munsey Trust Co., 332 U. S.
234, 242 (1947).  Here WBEC's rights have lapsed and its
claims are barred.  Under traditional subrogation princi-
ples then, the claims of the United States also would be
barred.  The subrogee, who has all the rights of the
subrogor, usually -cannot acquire by subrogation what
another whose rights he claims did not have.-  Ibid.
Although WBEC filed actions in state court within 90
days of the Board of Equalization's administrative deci-
sions, WBEC later dismissed those cases without preju-
dice.  A dismissal without prejudice terminates the action
and -concludes the rights of the parties in that particular
action.-  Gagnon Co. v. Nevada Desert Inn, 45 Cal. 2d
448, 455, 289 P. 2d 466, 472 (1955).  A subrogee could
have proceeded only if WBEC could have filed a new
state-court action at that time, which it could not do.
  The traditional rules of subrogation, however, do not
necessarily apply to the Government.  But cf. United
States v. Standard Oil Co. of California, 332 U. S. 301,
309 (1947) (suggesting that state law controls -where the
Government has simply substituted itself for others as
successor to rights governed by state law-).  The Govern-
ment argues strenuously that, at the very least, state
statutes of limitations do not bind it.  It cites three cases
to support this position.  See United States v. Summerlin,
310 U. S. 414, 416 (1940); Board of Jackson County
Commrs. v. United States, 308 U. S. 343, 351 (1939);
United States v. John Hancock Mutual Life Ins. Co., 364
U. S. 301, 308 (1960).  In the cases the Government cites,
however, either the right at issue was obtained by the
Government through, or created by, a federal statute, see
Summerlin, supra, at 416 (United States suing under
claim received by assignment pursuant to Act of June 27,
1934, 48 Stat. 1246);  Board of Commrs., supra, at
349-350 (United States suing as Indian trustee pursuant
to congressional statute); or a federal statute provided the
statute of limitations, see John Hancock, supra, at 301
(United States redeeming mortgage foreclosure pursuant
to statute of limitations in 28 U. S. C. 2410(c)).  More-
over, in each case, the Government was proceeding in its
sovereign capacity.  As the Government rightly notes,
-When the United States becomes entitled to a claim,
acting in its governmental capacity, and asserts its
claim in that right, it cannot be deemed to have
abdicated its governmental authority so as to become
subject to a state statute putting a time limit upon
enforcement.-  Summerlin, supra, at 417.
In contrast, the Government here became entitled to its
claim by indemnifying a private contractor's state-law
debt.  It can assert its claim only by way of subrogation,
an equitable action created by the courts.  Summerlin is
clearly distinguishable.
  Whether in general a state-law action brought by the
United States is subject to a federal or state statute of
limitations is a difficult question.  We need not resolve it
today, however, because Guaranty Trust Co. v. United
States, 304 U. S. 126 (1938), provides guidance in this
case.  There the United States was proceeding as the
assignee of the Soviet Government and sought to collect
under state law.  The petitioner argued that the statute
of limitations had run, and the United States asserted,
among other defenses, that it was not bound by state
statutes of limitations.  We found that the circumstances
of the case -admit[ted] of no appeal to such a policy.-  Id.,
at 141.  Even if the United States had a right to be free
from the statute of limitations, it was deprived of no right
on those facts.  -[F]or the proof demonstrate[d] that the
United States never acquired a right free of a pre-existing
infirmity, the running of limitations against its assignor,
which public policy does not forbid.-  Id., at 142.
  Here, although the Government acquired a right to
subrogation to WBEC's claims upon payment of the taxes,
the Government did not assert that right until it filed the
federal judicial proceeding.  As the California Supreme
Court has held, -`[A] surety by payment does not become
ipso facto subrogated to the rights of the creditor, but only
acquires a right to such subrogation, and . . . before the
substitution or equitable assignment can actually take
place he must actively assert his equitable right thereto.
It is not a substantive tangible right of such nature and
character that it can be seized and held and enjoyed
independently of a judicial proceeding.'-  Offer v. Superior
Court of San Francisco, 194 Cal. 114, 117, 228 P. 11, 12
(1924) (quoting 25 Ruling Case Law 1391 (1929)).  Accord,
10 W. Jaeger, Williston on Contracts 1265, at 848, and
n. 9 (citing cases).  Because the Government waited until
after the state statute of limitations had run against
WBEC to bring suit, the Government was not subrogated
to -a right free of a pre-existing infirmity.-  Guaranty
Trust, supra, at 142.  That the doctrine of subrogation is
one of equity only strengthens our conclusion that the
Government may not proceed: The Government waited
ten years after the first notice of deficiency was issued,
eight years after the second notice was issued, and almost
six years after the state statute of limitations ran to bring
this suit.
  The Government argues that affirming the Court of
Appeals often will leave it -without an effective remedy
to contest a tax improperly exacted from a federal contrac-
tor- and subject it to the -vagaries- of 50 state tax-law
procedures.  Brief for United States 26-27.  But federal
contractors already are subject to the substantive tax laws
of the 50 States.  Nothing in our decision prevents the
Government from including in its contracts a requirement
that its contractors be responsible for all taxes the Gov-
ernment believes are wrongfully assessed, a contract term
that likely would remove any disinterest a contractor may
have toward litigating in state court.  If our decision
today results in an intolerable drain on the public fisc,
Congress, which can take into account the concerns of the
States as well as the Federal Government, is free to
address the situation.  See New Mexico, 455 U. S., at
737-738.
                           III
  In United States v. New Mexico, we held that the
Federal Government is immune only from state taxes
imposed on it directly.  Id., at 734.  In so holding, we
hoped to -forestall, at least to a degree, some of the
manipulation and wooden formalism that occasionally have
marked tax litigation-and that have no proper place in
determining the allocation of power between coexisting
sovereignties.-  Id., at 737.  Today we hold that shoulder-
ing the -entire economic burden of the levy,- id., at 734,
through indemnification does not give the Federal Govern-
ment a federal common law cause of action for money had
and received to challenge a state tax on state-law grounds
simply because it is the Government.  To do otherwise
would be to return to the -manipulation and wooden
formalism- we put aside in New Mexico.
  The judgment of the Court of Appeals is
                                              Affirmed.