I. BACKGROUND
Former section 17942 was enacted in 1994 as part of the Beverly-Killea Limited Liability Company Act (LLC Act),
In Northwest , supra ,
Northwest was followed by Ventas , supra ,
The Legislature was aware of this issue and thus-while Northwest and Ventas were pending-it enacted Assembly Bill No. 198 (AB 198), which amended former section 17942 for taxable years beginning on or after January 1, 2007, and added section 19394. (Stats. 2007, ch. 381, §§ 2-4, pp. 3562-3564.) The amendment to former section 17942 changed the language on which calculation of the levy was based from "total income from all sources reportable to this state" to "total income from all sources derived from or attributable to this state." (Stats. 2007, ch. 381, § 2, p. 3562, italics added; see Ventas , supra , 165 Cal.App.4th at pp. 1216-1217,
Under these circumstances, the FTB argued in Ventas that "the court should either: (1) judicially reform former section 17942 to preserve it against constitutional invalidity and apply it as reformed to Ventas; or (2) limit the amount of the refund in [the] case to the difference between the amount Ventas actually paid and the amount Ventas could have been taxed without violating the Commerce Clause using a method of fair apportionment." ( Ventas , supra ,
The appellate court agreed with Ventas that judicial reformation was inappropriate on these facts. ( Ventas , supra , 165 Cal.App.4th at pp. 1223-1226,
While Northwest and Ventas were pending-and the Legislature was taking its remedial action-the FTB also responded to the potential unconstitutionality of former section 17942. In July 2007, the FTB issued Public Service Bulletin 07-13-07, suggesting that LLCs might want to file protective claims for refund before the expiration of their statute of limitations periods given the pending litigation challenging the constitutionality of section 17942. (FTB, Public Service Bulletin 07-13-07: LLCs filing protective claims-LLC fee (supersedes 3-21-2006) (July 13, 2007) at p. 1 (Bulletin 07-13-07).) If an LLC wanted to file such a claim, the FTB required certain information,
In order to handle all of these anticipated LLC claims, the FTB formed the LLC Fee Protective Claims Project to receive, review, and process all claims related to the unconstitutionality of former section 17942 (Claims Project). As part of the Claims Project, a database was created containing information taken from the claims, including identifying information, the date of the claim, the tax year involved, the claimant's source of income (whether within and/or outside of California), and any action taken on the claim (Claims Database). Paper copies of the claims entered into the database were retained. As of June 2009, 43,537 LLCs had filed claims, which the FTB then characterized as "Northwest (outside CA)," "Ventas (within/out CA)," or "Bakersfield (within CA)" claims. Although designated as Bakersfield claims, this category apparently includes not only claimants with income solely within California, but also claimants that remained unclassified, even if they might possess claims similar to Northwest or Ventas. None of the 38,952 Bakersfield claims had been processed as of June 2009. Moreover, while the bulk of the Northwest claims had been processed, over 3,400 of the Ventas claims remained open as of that date.
It was against this statutory, administrative, and judicial landscape that Bakersfield Mall, LLC (Bakersfield) filed its class action complaint in April 2007 for a refund of all amounts paid pursuant to the levy for years 2000 through 2004. A first amended complaint was filed in September 2009. Bakersfield held title to a single property, a mall in Bakersfield, California. Its activities, however, were supported by personnel both inside and outside California, and it claimed it received some income from outside of California. Bakersfield had filed returns and paid the
In a similar fashion, Centerside II, LLC (Centerside) filed its class action complaint in February 2010-with a first amended complaint filed in March 2010-seeking a refund of all amounts paid pursuant to the levy for years 2000 through 2005. Centerside also held title to a single property, an office building in San Diego, California. It had filed returns and paid the levy for each of 2000 through 2005. Centerside filed claims for refund for 2000 through 2004 on grounds identical to Bakersfield. Its claim for 2005 sought a full refund of its levy payment on the grounds that the levy had been determined to be unconstitutional in Northwest .
The FTB demurred to the first amended complaints in both the Bakersfield and the Centerside litigation, arguing that the courts were without jurisdiction to proceed with the cases as class actions, since no class claims for refund had been filed as required by section 19322. However, both trial courts overruled their respective demurrers, and the FTB's subsequent writ petitions were denied both by this court and by the Fifth District. The FTB later filed an additional motion-making the same argument based on new case authority-which was similarly denied by the Centerside trial court. Again, the corresponding writ petition was summarily denied by the Fifth District. The FTB next sought to coordinate the two proceedings, which eventually occurred in early 2013.
Thereafter, on May 1, 2013, Bakersfield and Centerside (collectively, plaintiffs) filed their joint motion for class certification in this coordinated proceeding. Plaintiffs sought an order certifying a class consisting of "those LLCs that earned some or all of their income from business operations inside California, timely filed claims for refund of the taxes unconstitutionally collected pursuant to Section 17942, have not received full refunds, and had open claims at the time at least one of the complaints in these coordinated
After opposition from the FTB and a hearing on the matter, the trial court denied the plaintiffs' certification motion. Although it concluded that a class action based on the aggregation of individual claimants was possible, it determined that plaintiffs had failed to demonstrate many of the necessary elements required for certification of a class, including ascertainability, numerosity, predominance, and superiority. Plaintiffs timely filed a notice of appeal, and the matter is now before this court for resolution.
II. DISCUSSION
A. Jurisdictional Challenge
As a preliminary matter, we must consider the FTB's strenuous assertion that there is no jurisdiction to proceed with this case as a class action because the putative class members did not exhaust their administrative remedies by filing class claims for refund as mandated by section 19322 prior to filing suit. (See JPMorgan Chase Bank, N.A. v. City and County of San Francisco (2009)
According to the FTB, the aggregation of individual LLC claimants as a class is impermissible under section 19322 and article XIII, section 32. Specifically, the FTB asserts that a class action can only be pursued in this context in accordance with section 19322's class claim requirements, under which all class members must have consented to representation. We disagree. And, indeed-while we have reviewed the question independently (see Alameda County Deputy Sheriff's Assn. v. Alameda County Employees' Retirement Assn. (2018)
It is true that article XIII, section 32 limits the manner in which taxpayers may seek a refund of taxes from a taxing entity, providing: "No legal or equitable process shall issue in any proceeding in any court against this State or any officer
In Woosley , supra ,
Since the DMV vehicle license fees and use taxes fell within the ambit of article XIII, section 32, the court looked at the procedures provided by the Legislature for seeking refunds of each. ( Woosley , supra , 3 Cal.4th at pp. 789-792,
The Supreme Court noted that "[w]hen Woosley filed his claim in 1977, section 6904 read: 'Every claim shall be in writing and shall state the specific grounds upon which the claim is founded.' " ( Woosley , supra ,
On this basis, the high court concluded that "prior to the 1986 and 1987 amendments, class claims seeking tax refunds were not statutorily authorized." ( Woosley , supra ,
The next year, in Farrar , supra,
Unsurprisingly, the FTB cites both Woosley and Farrar in support of its contention that a section 19322 class claim was required-with its attendant authorizations-to maintain the present proceedings as a class action. Indeed, it finds this court's decision in Farrar to be "precisely on point in this case." However, while the FTB's position is perhaps superficially plausible, when both Woosley and Farrar are considered in their particular contexts, it becomes clear that the agency has fundamentally misapprehended this controlling precedent. In short, both Woosley and Farrar involved situations in which an administrative class claim was purported to have been brought on behalf of taxpayers whose identities had not been specified and whose individual claims had not been exhausted. (See Woosley , supra ,
Moreover, following remand of Woosley , the Second District Court of Appeal addressed and rejected an argument similar to the FTB's in State of California ex rel. Dept. of Motor Vehicles v. Superior Court (1998)
Of course, in directing that individual claims for tax refund could be aggregated for purposes of a class action, the Woosley court was dealing with a statute that had
Rather, our conclusion-that there is no bar to certification of a class action for refund of unconstitutional taxes so long as all class members have filed their own individual claims and thereby exhausted their administrative remedies-is consistent with the underlying purpose of both section 6904 and section 19322. As stated above, the Woosley court opined that the amendments to both section 6904 and the predecessor statutes to section 19322 to allow for class claims "were intended to spare the state the substantial administrative costs associated with identifying and notifying class members once a case had been certified as a class action." ( Woosley, supra ,
In J.H. McKnight , the FTB had actual notice of the basis of a taxpayer's claim, even though it was not expressly stated in the taxpayer's written claim for refund. ( J.H. McKnight , supra , 110 Cal.App.4th at pp. 985-987,
B. Denial of Class Certification
We recently had occasion to summarize the requirements for class certification pursuant to Code of Civil Procedure section 382, as well as the standards for our review of a certification order, as follows: " 'Originally creatures of equity, class actions have been statutorily embraced by the Legislature whenever "the question [in a case] is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court ...." [Citations.] Drawing on the language of Code of Civil Procedure section 382 and federal precedent, we have articulated clear requirements for the certification of a class. The party advocating class treatment must demonstrate the existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives. [Citations.] "In turn, the 'community of interest requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.' " ' " ( ABM Industries Overtime Cases (2017)
" ' "This state has a public policy which encourages the use of the class action device." ' [Citation.] Further, whether class certification should be
Finally, "[a] ruling on class certification is reviewed for abuse of discretion. [Citations.] Under this standard, ' "[a] certification order generally will not be disturbed unless (1) it is unsupported by substantial evidence, (2) it rests on improper criteria, or (3) it rests on erroneous legal assumptions." ' [Citations.] Moreover, '[a]n appeal from an order denying class certification presents an exception to customary appellate practice by which we review only the trial court's ruling, not its rationale. If the trial court failed to conduct the correct legal analysis in deciding
1. Ascertainability and Numerosity
First, with respect to the existence of an ascertainable and numerous class, the trial court had difficulty with the class definitions, which it found unclear because it appeared that "one of them (Bakersfield ) is comprehended by the other (Centerside )." In addition, noting that the plaintiffs could not legally raise arguments that had not been included in the underlying LLC claims (§ 19382), the trial court expressed concern that it could not know the basis for all of the many individual claims or whether individual claimants had " 'deemed' " their claims denied for purposes of inclusion in the class. The trial court also took issue with reliance on the Claims Database as a means of ascertaining the class, as it was subject to data entry errors and could include individual claimants with invalid claims. Thus, even if plaintiffs prevailed on the merits, it might be true that not every LLC in the Claims Database would be entitled to a refund. Finally, the trial court opined that the claims of the Ventas claimants may have been mooted by the FTB's payment to them of apportioned refunds, thereby negatively impacting numerosity.
"Ascertainability is achieved 'by defining the class in terms of objective characteristics and common transactional facts making the ultimate identification of class members possible when that identification becomes necessary.' " ( Bomersheim v. Los Angeles Gay & Lesbian Center (2010)
Demonstrably, then, plaintiffs have proposed class definitions using objective characteristics and common transactional facts sufficient to allow potential class members to identify themselves as having a right to recover. All LLCs notified of the pendency of the class action should know, or easily be able to determine, whether they: (1) filed a timely refund claim; (2) conducted at least some business in California; (3) did not receive a full refund; and (4) could have filed a timely refund action as of the operative dates listed. While the trial court expressed concern that the Bakersfield class was not needed, as it was a subset of the Centerside class, it appears at least theoretically possible that the Bakersfield class could include members excluded from Centerside's class definition. For example, an LLC that filed a claim which was denied by the FTB ten days before the filing of
Further, plaintiffs have supplied a reasonable means for identifying all potential class members by reference to the Claims Database and the underlying claims records possessed by the FTB. The Claims Database is certainly not underinclusive as, by definition, any class in this matter is limited to LLCs that filed refund claims. Thus, all potential class members can be notified and an objective means exists for identifying those persons who will be bound by the results of the litigation.
Moreover, where, as here, the FTB in Bulletin 07-13-07: suggested to LLCs that they file protective claims given the pending litigation regarding the constitutionality of former section 17942 ; informed potential claimants that stating the levy was unconstitutional was "enough" for purposes of such a claim; instructed claimants that the amount of the claim should match the amount of the levy paid; and developed the Claims Database precisely to catalogue and address every refund claim related to the unconstitutionality of the levy statute that it received, it seems reasonable to
Moreover, the proposed classes do not fail the ascertainability test merely because they could possibly include LLCs that may not wish to have their claims "deemed denied" for purposes of court action. Section 19385 provides in relevant part: "If the Franchise Tax Board fails to mail notice of action on any refund claim within six months after the claim was filed, the taxpayer may, prior to mailing of notice of action on the refund claim, consider the claim disallowed and bring an action against the Franchise Tax Board on the grounds set forth in the claim for the recovery of the whole or any part of the amount claimed as an overpayment." The FTB suggested below that some LLCs might not want to subject themselves to a court action as such litigation could "open up all issues" in their returns. The trial court concluded that, while any such LLCs could opt out if they wished to avoid the suit, it could not determine ascertainability or numerosity without first hearing from all of the individual LLCs on this issue. This was error. First, we believe the FTB's Pandora's box concerns are likely exaggerated, given the relatively straightforward nature of the LLC returns at issue and the remedy here sought-total refund, which would require nothing more than ascertaining the amount paid and reimbursing it. Further, section 19385's exhaustion requirement allows individual claimants to proceed to court after six months if the FTB has taken no action on their claims, and thus, all such claimants are potentially eligible for inclusion in the class. Under these circumstances, the usual opt-out procedure for class actions pursuant to Code of Civil Procedure section 382 seems entirely adequate to handle any LLCs who would like to be excluded from the class. (See Hypertouch, Inc. v. Superior Court (2005)
Specifically, the trial court believed that plaintiffs were focused on the idea of apportionment and concluded that LLCs with income solely within California would have "no apportionment claim at all." The trial court appears to have discounted these clearly-numerous Bakersfield claimants and was further concerned that almost all of the Ventas-type claims might have been mooted by the FTB's payment to those claimants of apportioned refunds. Under these circumstances-and in conjunction with its previously described improper focus on potential class members' ultimate right to recover-the trial court erroneously concluded that it could not determine numerosity on the record before it. But, as discussed above, plaintiffs in this case are not arguing for apportionment: Rather, they argue strenuously and repeatedly that all LLCs that paid the unconstitutional levy are entitled to a full refund, regardless of where their income was generated. Whatever the ultimate merits of their position, for purposes of class certification, this would include all Bakersfield claimants, a group sufficiently numerous in and of itself to support certification. Thus, even if Ventas claimants that have received apportioned refunds are excluded from the class (a legal issue which certainly appears to be a predominant common question for this subset of potential class members) and even if certain individual claimants are ultimately deemed unable to recover or to recover only apportioned refunds, numerosity is still established. (See Hendershot , supra , 228 Cal.App.4th at pp. 1223-1224,
Once it is clarified that plaintiffs have proposed ascertainable and sufficiently numerous classes, the trial court's remaining concerns-with respect to predominance, typicality, and superiority-are easily resolved in favor of certification. "The 'ultimate question' the element of predominance presents is whether 'the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants.' [Citations.] The answer hinges on 'whether the theory of recovery advanced by the proponents of certification is, as an analytical matter, likely to prove amenable to class treatment.' [Citation.] A court must examine the allegations of the complaint and supporting declarations [citation] and consider
The trial court, while indicating that it believed "these issues probably could be resolved as a general matter," concluded that it could not evaluate predominance without knowing what grounds for relief were stated in the individual claims for refund filed with the FTB, as a subsequent court proceeding may only be based "upon the grounds set forth in that claim for refund." ( § 19382 ; see also § 19322.) The trial court was also convinced that it could not consider any issues related to the legality of the partial refund remedy set forth in new section 19394 because the underlying refund claims had been filed prior to its enactment and thus could not possibly have raised the validity of that statute as an issue. As discussed above, however, the FTB in this case actively solicited claims for total refund from LLCs based on a general statement regarding the unconstitutionality of former section 17942.
In sum, if plaintiffs are ultimately successful on the merits in this action, the FTB's liability to all class members for a total refund will be firmly established, subject only to proof of each individual's entitlement to recovery. Indeed, even if plaintiffs are unsuccessful on the merits and it is determined that only an apportioned remedy is appropriate, this is also a finding on liability common to all proposed class members. Thus, predominant common questions exist here supporting class certification.
As for typicality, the purpose of this requirement " 'is to assure that the interest of the named representative aligns with the interests of the class.' " ( Seastrom v. Neways, Inc. (2007)
Finally, and without any real analysis, the trial court mentioned that it was "unable to conclude that the class action approach is superior to an alternative, which is to move forward with declaratory relief and then if appropriate calculate the sums owing to taxpayers (or perhaps instruct the FTB to do so)." On appeal, plaintiffs challenge this conclusion on multiple grounds. For instance, they point out that under article III, section 3.5, the FTB is required to apply statutes (such as section 19394, which purports to establish an apportioned remedy for these proposed class members) until they are held unconstitutional by a court of appeal. Thus, the FTB could avoid or delay classwide relief by refusing to appeal an adverse judgment. (Cf. Miller v. Woods (1983)
The FTB has no real response to these arguments, seemingly and redundantly asserting only that the Legislature has determined that the class claim procedure
III. DISPOSITION
The judgment is reversed and the case remanded for certification of a class or classes consistent with this opinion. Plaintiffs are entitled to their costs on appeal.
We concur:
STREETER, ACTING P.J.
SCHULMAN, J.
Notes
All statutory references are to the Revenue and Taxation Code unless otherwise indicated. All article references are to the California Constitution. Following this court's practice in both Northwest and Ventas , we refer to the liability set forth in section 17942 as "the levy." (See Northwest , supra ,
Specifically, since January 1, 2001, the levy has been $900 for LLCs with total income of $250,000 or more, but less than $500,000; $2,500 for LLCs with total income of $500,000 or more, but less than $1,000,000; $6,000 for LLCs with total income of $1,000,000 or more, but less than $5,000,000; and $11,790 for LLCs with total income of $5,000,000 or more. (§ 17942, subd. (a)(1)-(4) ; see also Stats. 2002, ch. 664, § 203, p. 4008; Stats. 2008, ch. 763, § 6, p. 5612.) As discussed further below, the Legislature amended section 17942 effective January 1, 2007, to, among other things, change the way total income is calculated for purposes of the levy. (Stats. 2007, ch. 381, §§ 2-4, pp. 2562-3564.) We are here concerned with the pre-2007 version of section 17942.
Because it held that the levy was unconstitutional as applied to Northwest, the court did not decide whether former section 17942 was unconstitutional on its face or whether it violated due process. (Northwest , supra ,
The trial court declined the FTB's request in this case that it take judicial notice of the claims filed with the FTB by Bakersfield and Centerside, stating that the claims are not "official records" of the FTB. We disagree and, on our own motion, judicially notice the claims pursuant to Evidence Code sections 459, subdivision (a) and 452, subdivision (c). (See Fowler v. Howell (1996)
Section 19322 applies to, among other things, refunds for the "overpayment of any liability imposed under Part 10 (commencing with Section 17001)" of the Revenue and Taxation Code (§ 19301, subd. (a) ), which includes the levy here paid by the LLCs.
The FTB's argument that Woosley 's holding is only applicable to vehicle license fees-which they claim are analytically distinct from the LLC levy in this case-is not well taken. Woosley 's discussion of the permissible class clearly includes both individual license fee and use tax claimants. (Woosley , supra , 3 Cal.4th at pp. 774, 788, 795,
Equally misplaced is the FTB's additional suggestion that numerosity could not be established on remand with respect to the use tax claims discussed in Woosley because only class claims could be aggregated and included in the class as "valid" claims. The Woosley Court removed approximately 14 million potential claimants from the use tax class because their claims related to a period after November 1976, when the use tax issue was corrected. (Woosley , supra , 3 Cal.4th at pp. 774, 783-787, 795,
In making this determination, we are aware that our December 2007 order summarily denying the FTB's previous writ petition on this issue might be read as supporting the argument that a class claim is a jurisdictional prerequisite to a class action in this context. We believe, however, that our comments made in connection with this summary denial can be read narrowly as supporting the notion that a class claim is required where individual claimants have not been previously identified, as was the case in Farrar . (See Farrar , supra ,
The FTB argued below, and continues to assert on appeal, that the potential class members in this action cannot be identified through its records because it is statutorily prohibited from disclosing any taxpayer information. (§ 19542.) The trial court, however, did not cite this as a reason for its denial of class certification and thus we do not consider it here, except to note that any necessary confidentiality protections can likely be instituted in the trial court on remand. (See, e.g., Los Angeles Gay & Lesbian Center v. Superior Court (2011)
Judge of the Superior Court of California, County of San Francisco, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.