25 Cal. App. 5th 369
Cal. Ct. App. 5th2018Background
- Former Cal. Rev. & Tax. Code §17942 imposed an annual levy on LLCs based on "total income from all sources reportable to this state;" courts later found the levy unconstitutional as applied to some out-of-state LLCs.
- Northwest (159 Cal.App.4th 841) held the levy violated the Commerce Clause for an LLC with no California business; Ventas (165 Cal.App.4th 1207) addressed remedy where an LLC did some business in California and considered apportionment.
- The Legislature enacted AB 198 (amending §17942 for post‑2007 years) and added §19394 to prescribe recomputation/apportioned refunds for pre-2007 levies adjudged unconstitutional.
- The Franchise Tax Board (FTB) solicited protective individual refund claims and created a Claims Database; roughly 43,537 LLCs filed claims, many unprocessed.
- Bakersfield Mall, LLC and Centerside II, LLC filed coordinated class actions seeking full refunds for LLCs that timely filed individual refund claims and had not received full refunds; the trial court denied class certification on multiple grounds.
- The Court of Appeal reversed: it upheld that individual exhaustion satisfied jurisdictional requirements and concluded class certification should have been granted (ascertainability, numerosity, predominance, typicality, superiority).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Jurisdiction / administrative exhaustion (whether class action barred absent a §19322 class claim) | Individual LLCs filed timely individual refund claims; aggregation into a §382 class is permitted because each class member exhausted remedies. | §19322 requires class claims with written authorizations; absent such class claims, class action jurisdiction is barred. | Held for plaintiffs: exhaustion satisfied by individual claims; Woosley/Farrar do not bar aggregation where individual claimants are identified and have exhausted remedies. |
| Ascertainability / Numerosity (whether class can be defined/identified and is numerous) | Class defined by objective criteria (timely claim, at least some CA business, unpaid/full refund sought) and identifiable via FTB Claims Database (tens of thousands). | Database may be imprecise, contain invalid or ineligible claims; overlap/confusion between proposed classes undermines ascertainability. | Held for plaintiffs: class definitions objectively ascertainable; Claims Database provides reasonable means of identification; numerosity met. |
| Predominance / Typicality (whether common legal issues predominate and representatives are typical) | The core legal question—constitutionality of §17942 and appropriate remedy—is common to all members; representatives share the same injury. | Variations (in-state vs in/out-of-state income, some claimants already received apportioned refunds) create individualized issues defeating predominance/typicality. | Held for plaintiffs: predominant common legal questions exist (liability and remedy issues); typicality met because all paid under same statute and seek same relief. |
| Superiority / Remedy (whether class action is superior and whether AB198/§19394 governs remedies) | Class treatment is superior given administrative burden and small individual recoveries; §19394 and related remedial issues are intertwined with claims and may be considered. | Legislature intended class-claim procedure; §19394 requires apportioned recomputation and limits refunds—individualized remedies may be required. | Held for plaintiffs: class action under §382 is superior; remedial questions (including §19394) are appropriately considered as common, predominant issues in class proceedings. |
Key Cases Cited
- Northwest Energetic Servs., LLC v. California Franchise Tax Bd., 159 Cal.App.4th 841 (discusses constitutionality of LLC levy as applied to an LLC with no CA business)
- Ventas Finance I, LLC v. Franchise Tax Bd., 165 Cal.App.4th 1207 (addresses remedy and apportionment when LLCs did business both inside and outside California)
- Woosley v. State of California, 3 Cal.4th 758 (analyzes statutory limits on class claims for tax refunds and requirement of authorization for class claims)
- Farrar v. Franchise Tax Bd., 15 Cal.App.4th 10 (applies Woosley to deny class certification where claim procedure was not followed)
- State of California ex rel. Dept. of Motor Vehicles v. Superior Court, 66 Cal.App.4th 421 (clarifies that where individuals filed individual claims, class certification may aggregate those exhausted claims)
- J.H. McKnight Ranch, Inc. v. Franchise Tax Bd., 110 Cal.App.4th 978 (construes exhaustion statute liberally where FTB had actual notice of claim grounds)
- Brinker Restaurant Corp. v. Superior Court, 53 Cal.4th 1004 (explains predominance inquiry and when class treatment is appropriate)