Prang v. L.A. Cty. Assessment App. Bd.

548 P.3d 1002

321 Cal.Rptr.3d 351

Jeffrey PRANG, as County Assessor, etc., Plaintiff and Respondent,

v.LOS ANGELES COUNTY ASSESSMENT APPEALS BOARD, Defendant and Respondent;

Luis A. Amen et al., as Trustees, etc., Real Parties in Interest and Appellants.

S266590

Supreme Court of California.

May 30, 2024

Second Appellate District, Division Five, B298794, Los Angeles County Superior Court, BS173698, James C. Chalfant, Judge Greenberg Traurig, Colin W. Fraser and Cris K. O’Neall, Irvine, for Real Party in Interest and Appellant.

McDermott Will & Emery and Charles J. Moll III, San Francisco, for Charles J. Moll III as Amicus Curiae on behalf of Real Party in Interest and Appellant.

Lamb and Kawakami, Renne Public Law Group, Thomas G. Kelch, Michael K. Slattery; Mary C. Wickham and Rodrigo A. Castro-Silva, County Counsel, Nicole Davis Tinkham and Peter M. Bollinger, Assistant County Counsel, Richard Girgado and Justin Y. Kim, Deputy County Counsel, for Plaintiff and Respondent.

Jennifer B. Henning for California State Association of Counties and the California Assessors Association as Amici Curiae on behalf of Plaintiff and Respondent.

Ajalat, Polley, Ayoob & Matarese, Richard J. Ayoob, Christopher J. Matarese and Gregory R. Broege, Glendale, as Amicus Curiae.

Xavier Becerra, Attorney General, Tamar Pachter, Assistant Attorney General, Karen W. Yiu and Heather B. Hoesterey, Deputy Attorneys General, for California State Board of Equalization as Amicus Curiae.

Opinion of the Court by Evans, J.

Article XIII A of the California Constitution, added by Proposition 13, strictly limits increases in the assessed value of real property unless the property undergoes a "change in ownership." (Cal. Const., art. XIII A, § 2, subds. (a), (b); see Citizens for Fair REU Rates v. City of Redding (2018) 6 Cal.5th 1, 10, 237 Cal.Rptr.3d 179, 424 P.3d 268.)

A change in ownership generally occurs with a transfer of real property. In a typical real estate transaction where one party transfers real property to another, there is unquestionably a change in ownership as title passes from the transferor to the transferee. Whether there has been a "change in ownership" in transactions involving a legal entity, however, is a more complex issue that can give rise to certain anomalies. If individual owners transfer real property to an entity they own, for example, it can be argued that the transfer has not caused a change in underlying "ownership," but merely a change in the form of holding title. Likewise, when there is a significant change in the ownership of a legal entity, it can be argued that this causes a change in ownership of the entity’s real property despite no change in title.

In enacting a statutory scheme to implement Proposition 13, the Legislature sought to account for these anomalies. It also chose to adopt different rules to govern these different situations. Governing the transfer at issue here, Revenue and Taxation Code section 62, subdivision (a)(2)¹ identifies property transfers that, although they result in a change in title, nonetheless do not constitute a "change in ownership." The statute excludes from change in ownership any transaction involving a legal entity that "results solely in a change in the method of holding title to the real property and in which proportional ownership interests of the (transferors and transferees, whether represented by stock, partnership interest, or otherwise, in each and every piece of real property transferred, remain the same after the transfer." (§ 62, subd. (a)(2), italics added.)

Here, a family corporation transferred ownership of a pair of supermarkets to one of its shareholders, a revocable trust. The trust held all the corporation’s voting stock. The corporation also had a small number of individual shareholders who held nonvoting stock; those shareholders had no interest in the trust. The transfer of the properties to the trust thus eliminated whatever interests the individual shareholders held in the corporation’s real property. The question presented is whether this transfer of the properties nonetheless is excluded from change in ownership under section 62, subdivision (a)(2); that is, whether the proportional ownership interests in the real property transferred, as "represented by stock, partnership interest, or otherwise," remained the same before and after the transfer.

The trustees, appellants here, argue that no change in ownership occurred because the trust held all the corporation’s voting stock. According to the trustees, the term "stock" in section 62, subdivision (a)(2) must be interpreted to mean voting stock. In advancing this argument, the trustees point to another Revenue and Taxation Code section concerning transfers of ownership interests in legal entities, which expressly refers to "voting stock" (§ 64, subd. (c)(1)), and argue that sections 62 and 64 must be read together. Section 64 provides a transfer of ownership interests in a corporation will result in a change in ownership of its real property only when there is a change in corporate "control," which is determined by ownership of a majority of its "voting stock." (§ 64, subd. (c)(1).) The county assessor, respondent here, argues section 62, subdivision (a)(2) is unambiguous and measures ownership interests in real property transferred to or from a corporation by all stock. Under that measure, a change in ownership occurred.

The Court of Appeal agreed with the county assessor and held the transfer of the property from the corporation to the trust resulted in a change in ownership. The trustees challenge that holding on the ground that the Court of Appeal failed to accord proper deference to the implementing regulation and interpretative materials issued by the state Board of Equalization. We conclude the agency's implementing regulation and interpretative materials do not support the trustees’ reading of section 62, subdivision (a)(2). To understand why that is the case, however, it is necessary to begin with the plain language of the statute and the usual statutory interpretation framework.

Applying this framework, we conclude that section 62, subdivision (a)(2) measures proportional beneficial ownership interests in corporate real property by corporate stock generally. Further, because sections 62 and 64 concern different ownership interests — ownership interests in real property and ownership interests in legal entities, respectively — section 64 does not compel a contrary reading of section 62. The Board of Equalization’s guidance either concerns section 64, and is therefore not pertinent, or fails to directly consider the issue presented here, and is therefore unpersuasive. Accordingly, we affirm the Court of Appeal, which held in a manner consistent with these conclusions.

I.Factual and Procedural Background

The real property at issue consists of two Los Angeles supermarkets operating under the brand name "Super A Foods" (the properties). In December 2014, Super A Foods, Inc., a corporation (the corporation), transferred the properties to the Amen Family 1990 Revocable Trust (the trust).

At the time of the transfer, the corporation had two classes of stock, "Voting Common Stock" and "Non-Voting Common Stock." Under its articles of incorporation, the sole difference between the rights possessed by holders of these respective classes of stock concerned control over corporate governance. Control over corporate governance was granted exclusively to holders of the voting stock: "Except with respect to all voting rights being vested exclusively in the holders of the Voting Common Shares, as herein above provided, the Voting Common Stock and the Non-Voting Common Stock shall be equal in all other respects including, but not limited to, dividend and liquidation rights."

The trust owned 92.8 percent of the corporation’s stock, which included 100 percent of the voting stock. The trust had two beneficiaries, Louis Amen and Dolores Amen. Four individuals — other members of the Amen family and a long-time employee of the corporation — owned approximately 5.2 percent of the corporation’s stock, all nonvoting stock.

The Los Angeles County Assessor, respondent Jeffrey Prang (assessor), determined that the transfer of the properties from the corporation to the trust constituted a change in ownership and conducted a reassessment of the properties, doubling their assessed value from $5,140,120 to $10,280,000. The assessor looked at all corporate stock and determined that the proportional ownership interests in the properties were not the same before and after the transfer because the interests of the individual shareholders were eliminated.

The Los Angeles County Assessment Appeals Board (Appeals Board) reversed the decision of the assessor. The Appeals Board asserted, without supporting authority, that "the beneficial interest in [corporate] real property is ultimately held by the persons who control the corporation through its voting stock." Looking at the corporation’s voting stock only, the Appeals Board determined that the proportional ownership interests in the properties were the same before and after the transfer because they remained with the trust. In reaching this conclusion, the Appeals Board also relied on guidance issued by the Board of Equalization (State Board), the agency responsible for promulgating property tax assessment regulations and guidance.

The assessor filed a petition for writ of mandate in the superior court. The superior court granted the petition and issued an order directing the Appeals Board to vacate its decision. The trustees appealed. In a published opinion, and over a dissent, the Court of Appeal affirmed, rejecting the Appeals Board’s interpretation of section 62 and agreeing with the assessor. (Prang v. Los Angeles County Assessment Appeals Bd. (2020) 58 Cal.App.5th 246, 261, 272 Cal. Rptr.3d 332 (Prang).)

The Court of Appeal majority held that section 62, subdivision (a)(2) is...