Thibodo v. United States

¶4STEPHENS, Circuit Judge.

¶5The plaintiff Thibodo is here appealing from a judgment dismissing his complaint without leave to plead further. On August 24, 1931, the Treasurer of the City of National City, California, apparently in conformity with state law, issued to appellant certain street improvement bonds. The *251bonds in suit according to law provided that they be paid in ten annual installments beginning January 2, 1932, and constituted liens on the lands in suit. Appellant has continued to own and does now own- these bonds and no payment of principal or interest has ever been paid thereon.

¶6On or about February 9, 1943, the United States brought an action in the District Court for the Southern District of California to condemn land, including the land in suit, and thereupon filed a Declaration of Taking and the court made its order of possession in pursuance thereof. Title 40, U.S.C.A. § 258a.

¶7Appellant was not made a party to the -above action, and was not served with summons.

¶8On November 23, 1948, appellant filed this action in the district court, asking for judgment against the United States in the amount of the principal and interest on the bonds and that it be decreed that each bond constitute a lien upon the property described therein until the due amounts are paid. It is alleged in the complaint that the total of the amounts involved is less that $10,000, bringing the action within the terms of Section 1346(2), Title 28 U.S.C.A.

¶9In granting the government’s motion to dismiss the action the district court ruled as follows:

¶10“I. That plaintiff herein, although a proper, was not a necessary party to the condemnation proceedings affecting the real property which is the subject matter •of the instant action, and which was involved in case No. 172-SD Civil, entitled ‘‘United States of America v. 107.28 Acres ■of Land in the City of San Diego, etc. et al.,’ and there was no necessity for the United States to serve plaintiff herein or to make him a party-defendant in the aforesaid condemnation proceeding; and that, accordingly, plaintiff herein was not entitled to be heard in the matter of the determination of just compensation for the condemnation and taking of the real property in said condemnation proceeding.

¶11“II. That the bond register maintained in the office of the County Treasurer, as provided for by the Public Improvement Act of 1911, and acts amendatory thereof, and the California Street and Highway Code, Section 6400, et seq., is not such a public record as constitutes either actual or constructive notice to the United States of America of the existence of the claims of this complainant arising out of the ownership of Public Improvement Street Lien Bonds.

¶12“III. That the Complaint herein does not state facts sufficient to constitute a cause of action against the United States of America. … ”

¶13Plaintiff does not contend that the taking was wrong or tortious, but does claim that the Government took his interest in the property for public use without just compensation and thereby violated the Fifth Amendment to the Constitution of the United States, and that such taking gave rise to an implied contract with the United States to pay therefor.

¶14We look to the cases to determine whether on this state of the record the complaint lacks substance.

¶15In Jacobs v. United States, 1933, 290 U.S. 13, 16, 54 S.Ct. 26, 78 L.Ed. 142, petitioners brought suits to recover just compensation for property taken by the United States for public use in the exercise of the power of eminent domain. The Supreme Court there stated that the right to recover just compensation for property taken for public use by the United States in the exercise of its power of eminent domain gave rise to an implied promise to pay, based upon the duty imposed by the Fifth Amendment to the Constitution of the United States.

¶16An action based upon an implied promise to pay for the taking of private property for public purposes comes within Title 28 U.S.C.A. § 1346(2), which allows suits against the sovereign on contracts “express or implied”. The Constitution requires that the owner be compensated in the amount of the loss caused by the appropriation of a valuable property interest. Bauman v. Ross, 1897, 167 U.S. 548, 17 S.Ct. 966, 42 L.Ed. 270; Phelps v. United States, 1927, 274 U.S. 341, 47 S.Ct. 611, 71 L.Ed. 1083; see United States v. Sponenbarger, 1939, 308 U.S. 256, 60 S.Ct. 225, 84 *252L.Ed. 230; United States v. Great Falls Mfg. Co., 112 U.S. 645, 5 S.Ct. 306, 28 L.Ed. 846.

¶17Similar questions to those raised in the case before us were involved in Mullen Benevolent Corp. v. United States, 1933, 290 U.S. 89, 95, 54 S.Ct. 38, 78 L.Ed. 192, where an action was brought to recover the balance due on improvement district bonds issued by a village for sidewalk and sewer construction. The United States had acquired the land for construction of a reservoir under the authority of an act of Congress, and had caused to be paid all assessments against the land which had been levied up to the taking. Later, the city reassessed all of the lands within the districts. As the land was then owned by the United States, the assessment was a nullity.

¶18The theory of petitioner, holder of the securities in the Mullen case, was that the bonds were property and were taken by the respondent, and in the alternative, that they were liens, actual or inchoate, on the realty, and as the lien could not be foreclosed against lands owned by the United States, the acquisition of the lots by the United States destroyed the value of the securities and gave rise to an implied promise to pay the sums remaining due to the bondholders. The municipality, under the local law, was not liable on the bonds, and its only duty was to collect the assessments against the lands upon which the bonds were liens and place them in a separate fund set apart for payment of principal and interest. In fulfillment of this obligation the city could bring suit to recover out of each lot the amount of the assessment against it, and if the municipality failed or neglected to collect, the bondholder could proceed to do so in his own name, and could foreclose the lien of the assessment. The plan appears to be similar, though there are important differences between them, to' that under which the bonds in suit were issued.

¶19The Supreme Court held that the United States did not take or destroy any lien belonging to the claimant, since “ … None remained upon the land, when the purchases were consummated. … ” By purchase of the lands the United States had “ … at most frustrated action by the city to replenish the assessment fund to which alone the bondholder must look for payment of his bonds. … ” 1 Passing the thought that perhaps a more realistic and less technical view of the government’s duty to compensate for property taken would be justified, we move on to distinguish our case from the one cited.

¶20The Supreme Court in that case did not have before it the question as to whether the United States would have been held responsible had the lien been upon the land for the full sum of the bonds when it was taken by the government,2 as is the case in this appeal as may be seen by reference to the California Improvement Act of 1911, Cal. Stats., 1911, p. 730, as amended. The text is in 3 Deering’s General Laws of California, 1931, p. 4519, et seq. We digest it in footnote 3.

¶21It is clear from the terms of the bonds involved in this case that they represent the cost of work which has been assessed *253against the land and which remains unpaid. Until paid, the bond provides that the amount, with accrued interest is a lien upon the property. According to the California Supreme Court, the bond itself represents the lien upon the land after it has been issued. Balaam v. Pacific States Savings and Loan Company, 1933, 219 Cal. 612, 28 *254P.2d 1053; Thompson v. Clark, 1936, 6 Cal.2d 285, 57 P.2d 490.

¶22Upon default in payment, two remedies are open to the bondholder under the Act: He may make a demand in writing upon the city treasurer to sell the land or he may himself proceed to file and maintain a suit to foreclose the lien and recover the amount due thereon.

¶23Both of the above doors to recovery on his bonds were closed to the plaintiff when the United States exercised its power over the land in 1943. Mullen Benevolent Corp. v. United States, supra.4

¶24We direct our attention first to the holding of the trial court that the records required by the Act did not charge the government with notice of plaintiff’s interest. As may be seen in footnote 3, Section 23 provides that the warrant, diagram and assessment shall be recorded in the office of the superintendent of streets, and after rec-ordation, “ … '* all persons shall be deemed to have notice of the contents thereof … and that under Section 37 the records so kept by the street superintendent are to have the same force and effect as other public records.

¶25Where bonds have been issued, the Act calls for two sets of records; the record of the street assessments to be kept in the office of the street superintendent, under Part I of the Act, and a record of the bonds issued to represent such assessments, kept in the office of the city treasurer, in conformity with Sections 60 and 66 of Part III of the Act.

¶26In Thompson v. Clark, supra, the California Supreme Court held that the provisions of the Improvement Act of 1911 must be *255construed together, and that where bonds have been issued, the lien referred to in Section 66 is a continuation of the lien declared in Section 23. The court stated that the lien under Section 23 continues until it be discharged of record, that' is, where bonds have issued, until the bond is paid in full and the record of the assessment marked paid by the superintendent of streets.

¶27The California cases indicate that once the assessment has been recorded in a proper book it operates to give constructive notice of its contents. Federal Construction Co. v. Curd, 1918, 179 Cal. 479, 177 P. 473. Where bonds have been issued, the holder of the bond becomes a lienholder of record. Castle v. Schulman, 1948, 32 Cal.2d 222, 195 P.2d 781. See McCabe v. Grey, 1862, 20 Cal. 509.

¶28We hold that the lien here involved is a subject of public record, charging a subsequent condemnor with constructive notice thereof. Armed with this knowledge, the amount of the lien could have been withheld for its rightful claimant.5*256Just what was doné in this regard the pleadings do not reveal.

¶29Since many western states, with their scores of municipalities, make use of similar plans in providing for a means of payment for improvements,6 it is not an unreasonable burden to require the condemnor with knowledge of a lien to make inquiry into the records of such matters, where it is clear that such a public record is required to be maintained. ' This is a normal part of the process of determining the proper parties to whom the award is to be paid.

¶30The holding of the trial court to the effect that the record did not impart actual or constructive notice to the condemnor leaves unanswered the question of whether the condemnor had actual notice of the appellant’s interest. The trial on the merits or the complaint upon amendment may reveal this important circumstance.

¶31We turn to a consideration of the holding of the trial court that the plaintiff was a proper, but not a necessary party to the condemnation proceedings.

¶32Under the California law, a lien-holder has a present proprietary interest in the subject matter of land sought to be taken by eminent domain proceedings which confers a right to have such interest considered and determined in said action. City of Vallejo v. Superior Court, 1926, 199 Cal. 408, 249 P. 1084, 48 A.L.R. 610; Calif. Code Civ.Proc. (1949) §§ 1244, subd. 2, 1246, 1246.1, 1248. See Harrington v. Superior Court, 1924, 194 Cal. 185, 228 P. 15. Section 1248, subd. 8, of the California Code of Civil Procedure provides that if the amount of a lien is not due at the time of entry of the judgment, the amount may be deducted from the judgment, with the lien continuing until the indebtedness is paid. This section is held applicable to street improvement liens. City of Los Angeles v. Superior Court, 1934, 2 Cal.2d 138, 39 P.2d 401. If the lien is due and overdue, the security holder is entitled to have the money awarded in the condemnation proceedings applied to the payment of his claim. City of Vallejo v. Superior Court, supra. The very purpose of the statute is to prevent a situation wherein the condemnor will pay the full value of the land, and thereafter will be forced to pay again to holders of liens on the land. City of Los Angeles v. Superior Court, supra.

¶33While it is true that the above cases seem to imply that the lienholder is not a necessary party to the proceedings, they leave no doubt of the fact that his interest must be protected in some practical manner.

¶34It is well established, however, that one seeking relief for the deprivation of constitutional rights must first exhaust his remedies in the state court. Phyle v. Duffy, 1948, 334 U.S. 431, 68 S.Ct. 1131, 92 L.Ed. 1494.

¶35The California courts recognize the doctrine that when land is taken for public use, the money awarded for such land remains, and is to be considered as, representing the land in respect to all rights and in*257terests relating thereto. The money is applied to discharge the liens upon the land in accordance with the rights of encumbrances in respect to the land. Los Angeles Trust & Savings Bank v. Bortenstein, 1920, 47 Cal.App. 421, 190 P. 850.7 The lien claimant may follow the fund in order to subject it to his claim even if it has been paid out to others. Rose v. Conlin, 1921, 52 Cal.App. 225, 198 P. 653.

¶36Plaintiff should be given the opportunity to amend his complaint to show that he has exhausted the state remedy or that this relief is not available to him, or that pursuit for relief through the state courts would be fruitless. When appellant has taken proper steps as just suggested he may then state his claim for relief based upon a deprivation of constitutional rights, by virtue of the “taking” of his right to have his bonds discharged through foreclosure of the lien upon the land.

¶37Plaintiff’s claim for relief is based upon the alleged violation of the Fifth Amendment to the United States Constitution. The Supreme Court has stated that “ … where federally protected rights have been invaded, it has been the rule from the beginning that courts will be alert to adjust their remedies so as to grant the necessary relief. And it is also well settled that where legal rights have been invaded, and a federal statute provides for a general right to sue for such invasion, federal courts may use any available remedy to make good the wrong done. … ” Bell v. Hood, 1946, 327 U.S. 678, 684, 66 S.Ct. 773, 777, 90 L.Ed, 939.

¶38The Government stresses its own assertion that plaintiff knew of the proceeding and therefore is estopped by laches from recovering in this action, but we find no admission of such fact in the pleadings. It may be that in the necessitous haste to get possession and title to the land in suit for navy use during the great war that the lien-holder was overlooked and if so, he should not be deprived of his day in court to show, if he can, that the Government’s action nullified his statutory right to enforce his claim, thereby depriving him of his constitutional right under the Fifth Amendment to the Constitution of the United States.

¶39The judgment on the motion to dismiss is reversed and the case is remanded.

¶40Reversed and remanded.