Client Alert

Court of Appeal Upholds CPUC Decision in Los Angeles v. Southern California Edison

In County of Los Angeles v. Southern California Edison, issued October 23, 2003, the Second District California Court of Appeal held that a CPUC decision approving the sale of three fossil fuel plants in Southern California as part of Edison's divestiture did not conclusively establish the value of the real property involved in the sale, and hence did not foreclose a subsequent judicial determination as to the value of that real property.

Southern California Edison Company ("Edison") offered for sale by auction several electric power generating plants, including three plants in Long Beach, Redondo Beach, and Huntington Beach. The AES Corporation and related entities ("AES") was the successful bidder for the three plants as a group, offering $781 million. The PUC approved the sale of the three plants in December 1997, concluding that the auction was properly conducted, and that the aggregate market value of the three plants was $781 million.

The dispute in this case concerned the proper basis for the calculation of the documentary transfer tax due to Los Angeles County, the City of Long Beach, and the City of Redondo (collectively "the County") for the Alamitos and Redondo Beach plants. The parties to the sale reported to the County Recorder amounts corresponding to the real property values of the plants. The County's position was that the transfer tax due should be based, not on the real property values, but on the total consideration paid for the plants. Prior to trial, the Superior Court concluded that the documentary transfer tax must be based on the "consideration or value" of the real property only, excluding personal and intangible property included in the sale. Trial was therefore limited to the issue of the proper value of the real property. The Superior Court filed a statement of decision in March 2002, which determined the value of the real property, and awarded damages of almost $384,000. But the County was not satisfied.

On appeal, the County argued that the PUC's decision approving the sale of the plants conclusively established the value of the real property, and therefore the trial court was not free to make its own determination as to value. However, the Court of Appeal affirmed, rejecting each of the municipalities' arguments. Applying settled principles of collateral estoppel, the Court of Appeal first noted that a final decision by an administrative agency may be given collateral estoppel effect in a subsequent judicial action if the agency acted in a judicial capacity and resolved factual issues that the parties had an opportunity to litigate. Collateral estoppel only applies, however, if the present issue is identical to an issue decided in a prior proceeding. Comparing the PUC's decision with the Superior Court's, the Court of Appeal concluded that the issue presented and decided in the PUC proceeding was not identical to the issue presented to the Superior Court in this case.

What the CPUC determined in its decision approving the sale of the three plants was the aggregate market value of the Alamitos, Redondo Beach, and Huntington Beach plants. The PUC did not distinguish the value of the real property from the value of the personal property involved in the sale, nor did it make a finding as to the value of each individual plant. Accordingly, because the County did not show that these issues were either presented to the PUC or actually decided by the PUC, the identity of issues necessary to trigger collateral estoppel was absent. It followed that the PUC's decision did not preclude the Superior Court from making its own, independent, determination as to the value of the real property.

In addition, the Court of Appeal ruled that the "pay first, litigate later" rule, which generally requires payment as a condition precedent to a challenge to tax collection, did not apply where the taxpayer defends a collection action filed by the taxing authorities, at least where it was asserted for the first time after trial. The Court of Appeal also affirmed the trial court's ruling that the County was not entitled to pre-judgment interest.




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