Jay v. Franchise Tax Bd.

Filed 10/11/06 Jay v. Franchise Tax Bd. CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from an order of the Superior Court of San Diego County, Albert T. Harutunian, III, Judge. Affirmed.

On this appeal, in which plaintiff Russell C. Jay challenges the trial court's ruling denying his petition for an order staying the defendant Franchise Tax Board's (FTB's) levy on bank funds belonging to him and the court's subsequent order denying his motion for reconsideration of that order, we liberally construe his notice of appeal to be timely filed from a "final" order. We, therefore, deny FTB's motion to dismiss, which had been deferred until this time and address the merits of Jay's contentions which essentially raise the question whether the trial court prejudicially erred in denying the stay because Jay showed his due process rights were violated when FTB served his bank the order to withhold (OTW) without providing him proper notice by certified mail of any tax deficiency. As we explain, Jay's assertions have no merit and we affirm the trial court's order denying Jay's petition.

FACTUAL AND PROCEDURAL BACKGROUND

On May 5, 2005, Jay filed an original verified pleading in San Diego Superior Court entitled "Ex Parte Petition for Order Staying the Franchise Tax Board Levy of Bank Fund Pending Full Hearing on Motion to Quash Levy."^[1] Putting substance above form, the petition essentially sought injunctive relief, i.e., an order restraining FTB from levying Jay's bank account, and declaratory relief by way of a judicial determination that the subject tax based on an October 11, 2004 Notice of Proposed Assessment (NPA #1) for the 2001 tax year,^[2] which subsequently formed the basis for FTB issuing an OTW of $93,018.95 for additional state taxes, interest and penalties, was assessed in violation of his due process rights. Jay argued FTB had no authority to issue the OTW, FTB could not enforce NPA #1 if a taxpayer had not actually received the notice of that NPA, and the issuance by FTB of a second NPA in March 2005 against him for $7,574.82 in additional tax and interest for the 2001 tax year (NPA #2) negated NPA #1.

Jay's attorney notified FTB that she was going to court on May 6, 2005 to request a stay on the OTW. Based upon Jay's counsel's representations of the substance of Jay's petition and motion, FTB filed opposition. In such, FTB pointed out that article XIII, section 32 of the California Constitution and section 19381 prohibit the issuance of an injunction, writ of mandate or any other legal process to prevent or enjoin the assessment or collection of state income tax, and that Jay's proper remedy is to pay the tax, file a claim for refund with FTB, exhaust his administrative remedies, and then sue FTB for a refund if it denied his claim.

In addition to showing it had the authority under section 18670 to direct OTW to banks, the documents in opposition by FTB also showed it had notified Jay in July 2003 that he needed to file a California state personal income tax return for tax year 2001; that not having received such return, but having received documents showing two business entities had reported to the Internal Revenue Service (IRS) Jay had received disbursements totaling $688,275 in 2001, it had issued NPA #1 and mailed it to Jay's long-standing address of record in Corona Del Mar, California; that NPA #1 became final December 10, 2004, when Jay did not protest or appeal NPA #1; that FTB issued an OTW on April 20, 2005, serving such on the Bank of the West (Bank), an institution in which Jay maintained one or more bank accounts; and that Bank "reportedly enforced this levy by earmarking [Jay's] funds on deposit, $18,000, and allegedly advised [Jay] that said funds would be remitted to FTB on May 10, 2005."

FTB further noted that it had issued NPA #2 on March 18, 2005, when it received information from the IRS that Jay had additional income of $90,641.00 for 2001, which computed to additional state personal income taxes of $7,574.82, including interest. FTB was not yet enforcing NPA #2 because it would not be final until May 17, 2005, the deadline for Jay to file a protest to this additional tax due.

On May 6, 2005, the trial court heard oral argument on Jay's motion. Jay's counsel argued there was no conclusive proof that FTB had sent proper notice of NPA #1 or that Jay had received such notice on which the OTW was based, only that he received NPA #2 which he planned to protest. Counsel submitted there was evidence Jay had not received notice of NPA #1, because he always protested everything he received from the taxing authorities. FTB disputed this fact, noting its files showed that Jay had only protested one of the numerous NPA's sent him over the years, and that in December 2004 Jay had contacted FTB to talk about NPA #1. The court took the matter under submission after expressing its concern about whether it was "really the Legislature's intention that the taxpayer completely lose all of the ability to dispute the amount prior to paying the taxes" where the mailed notice of an NPA is not received by the taxpayer through no fault of the taxpayer.

On May 10, 2005, the court filed its order denying Jay's ex parte petition to stay FTB's levy of bank funds, stating:

"Case authority precludes [Jay's] claim of lack of actual notice, where the notice was mailed to the taxpayer's last known address, as in this case. Policy reasons support removing from taxpayers the unfettered ability to invalidate assessments based on the alleged lack of receipt of notice. [Citations]. All other arguments raised by petitioner are unpersuasive. The petition is denied."

Ten days later, on May 20, 2005, Jay filed a motion for reconsideration of the May 10, 2005 order denying the petition to quash the FTB levy. Jay's points and authorities and his attorney's declaration in support of the motion, stated that it was ". . . really a full hearing on the facts and new facts as set out below. The initial pleadings only anticipated a short hearing to determine 'stay[,'] and not all issues were heard or developed in the emergency proceedings. . . . Therefore [Jay] is not sure if this is properly a motion for 'reconsideration' or for a full hearing after the initial motion for stay."

Jay essentially claimed the "new state of facts" were that the trial court "did not have an opportunity to review the actual documents involved in the seizure [of his bank funds] at the time of the hearing, . . . the initial Petition was filed requesting . . . a stay until time for a full hearing[, additional research has been done, and NPA #2, which was received and protested,] proves that there never was [an NPA #1] and that the Notice is invalid as not conforming to [section] 19043." Jay also included his own declaration and that of a person who worked with his attorney who both stated Jay always protested every notice or demand he received for any taxes owed and that the only notice Jay had received for the 2001 tax year was NPA #2. Although Jay conceded California case law supports "the proposition that when a taxing authority states it has mailed a document, it essentially is conclusively presumed that the taxpayer received it," he argued the better rule would be to follow federal law and require notices of tax deficiencies by certified mail as in IRS cases. He further argued the FTB's system of mailing by ordinary first class mail and the FTB's postseizure procedure do not meet due process standards.

FTB opposed the motion for reconsideration, filing a more comprehensive memorandum of points and authorities and documents than for the original motion. FTB again pointed out that the court had no legal basis to award Jay relief because "[n]o matter how one views the situation, the instant motion requests relief in violation of . . . the California Constitution, and outside the confines of the remedies available through the Personal Income Tax Law of California . . . ." FTB asserted Jay had not met the standard for reconsideration as there were no new facts or law that was not available at the time of the "ex parte petition," and argued there were "no factual or legal grounds for issuing a different ruling, or for otherwise quashing FTB's [OTW] taxes." FTB further argued there was no credible evidence Jay had not received NPA #1.

Via documents and declarations, FTB revealed Jay's address had been the same since at least 1978, that he had been mailed numerous notices and at least 16 NPAs between that time and the present, and that nothing had been returned to FTB as "undeliverable." Records showed that Jay had timely protested only four of those NPA's and one belatedly, which resulted in a downward tax adjustment. FTB records also showed that Jay had filed a 2001 income tax return with the State of California showing he had $0 income; that FTB notified Jay on February 4, 2003, about needing to file a nonfrivolous return after it had received information disclosing substantial income to Jay for 2001; that FTB notified Jay a second time on July 28, 2003, about his need to file a proper California return for 2001; and that a "Request for Tax Return for 2001" was also mailed to Jay, which required him to respond by August 27, 2003.

Without hearing from Jay, FTB issued and mailed NPA #1 on the same date (October 11, 2004) it mailed another NPA for tax year 2000 to Jay in separate envelopes. Although Jay filed a protest on December 7, 2004 to the NPA for 2000, he did not file one for NPA #1. FTB's records showed Jay subsequently telephoned FTB in January 2005, asking that a copy of NPA #1 be sent to him, which it then faxed to him, and that he did not complain that he had not originally received NPA #1 or ask for any extension to protest that assessment.

On February 2, 2005, FTB mailed to Jay a Notice of State Income Tax Due package regarding tax year 2001, including interest and penalties. The package contained the notice of the final tax liability set forth in NPA #1, a form listing a taxpayer's rights, highlights of the Taxpayers' Bill of Rights (§ 21015.5), and laws concerning collection actions, including bank, wage and other levies. Not hearing from Jay regarding his 2001 tax liability, FTB issued the OTW sought to be stayed by Jay and served it on Bank for accounts belonging to Jay. Bank notified Jay about the levy on April 27, 2005, and he filed the instant petition. On June 3, 2005, Bank honored the OTW and remitted $18,896.06 to FTB which has been applied toward Jay's 2001 state income tax liability.

The court heard argument on the reconsideration motion on July 12, 2005. At that time, in addition to arguing its position above, FTB argued the whole matter was moot as Bank had already discharged the OTW sought to be stayed or quashed. Jay continued to argue the hearing was merely the full hearing requested by his petition and not really a reconsideration, and that FTB could not apply any presumption that he received notice of NPA #1 because it used ordinary mail rather than certified mail as required by federal cases. He denied money had been remitted to FTB and further argued NPA #2 was proof that there never was an NPA #1. The court took the matter under submission.

On July 14, 2005, the court filed its order denying Jay's motion. It stated:

"If construed as a motion for reconsideration of this Court's May 10, 2005 order denying [Jay's] 'petition,' the motion fails to raise new facts or law not available at the prior hearing. It therefore fails to comply with [Code of Civil Procedure section 1008, subdivision (a)]. [Citations.] If construed as a noticed motion hearing following an ex parte hearing seeking interim relief, the Court reaffirms its prior May 10 ruling denying the 'petition.' [Jay] has presented no evidence or argument establishing any failure by [FTB] to comply with the statutory requirements for assessment and collection of the tax. The Court is unpersuaded by [Jay's] argument that the October 11, 2004 assessment was never mailed. And the asserted lack of actual receipt by [Jay] of the October 11, 2004 Notice of Proposed Assessment for 2001 would not invalidate the assessment. [Jay] cites no authority that mail service under [section] 19033 is invalidated if a taxpayer establishes that the notice was not actually received. The argument that there is a due process violation if there is no actual receipt by the taxpayer ignores the taxpayer's right to pay and sue for a refund. While a taxpayer may prefer protesting without paying the tax, such a preference is not a constitutional right. An additional defect with [Jay's] case is the absence of a complaint or petition for a writ."

On August 11, 2005, Jay filed a notice of appeal from "the Order Denying Motion for Reconsideration 7-14-05 and each and every decision therein and in his Petition for Stay and Reconsideration."

DISCUSSION

I

APPEALABILITY AND TIMELINESS

In response to a letter received by counsel for FTB advising the court that Jay had never filed a complaint or actual petition for relief in this case, we asked Jay to submit a letter within 10 days explaining why his appeal should not be dismissed on grounds the July 14, 2005 order denying his motion for reconsideration is not appealable (see Annette F. v. Sharon S. (2005) 130 Cal.App.4th 1448, 1458-1459 (Annette F.)) and the appeal filed August 11, 2005, is untimely as to the underlying May 10, 2005 order denying his ex parte petition to stay FTB's levy of bank funds (Cal. Rules of Court, rule 2(a)(1) and (f), all further rule references are to the Cal. Rules of Court). We permitted FTB to also address these issues by letter within the same time period.

Both Jay and FTB filed responses. Jay argued his request for reconsideration was really a request for "a full hearing on the facts and new facts" and that "[t]here was no full hearing on the merits in this matter until the 'Motion for Reconsideration.' " He also asserted his notice of appeal as to the May 10 order was timely because "notice of entry" of the order was not served and therefore the 60-day period to file a notice of appeal under rule 2(a) had not been triggered.

FTB agreed with the statement in this court's letter that the notice of appeal is untimely under rule 2, but alluded to the possibility of a rule 3(d) extension for a valid motion for reconsideration. FTB then observed that "[g]iven the lack of an actual lawsuit, this Court can only review the papers filed below, and try to make some procedural sense out of them."

On October 27, 2005, this court deferred the issues of timeliness of the notice of appeal and whether such was from an appealable order to be "considered by the panel assigned to hear the appeal." Subsequently, FTB filed a motion to dismiss the appeal "for failure to appeal from a final order." Jay filed opposition to the motion, and both parties again extensively addressed the issues of timeliness and appealability in their respective appellate briefs before addressing the merits.

Before turning to those issues on this appeal, however, we address the threshold problem that there appears to be no statutory authorization for Jay's original filing in superior court. Instead, such filing appears to be a procedural anomaly of his attorney's invention which is not a statutorily recognized action or proceeding. Nevertheless, as we noted in the factual background above, the filing essentially sought injunctive relief via a judicial determination. The superior court took Jay's filing fees for such pleading and the trial court then treated it as a case properly before it for decision. The court scheduled a hearing on Jay's "petition," accepted points and authorities in support from Jay and in opposition from FTB, heard oral argument from both parties, took the matter under submission and then ruled on the merits of the petition. The court subsequently held another hearing reconsidering the ruling on Jay's petition and affirming it, and alternatively considering it as a fuller hearing on Jay's request for a stay of the OTW on the merits and again rejecting it. By doing so, the trial court essentially treated both its May 10 and July 14, 2005 orders alternatively as final resolutions of Jay's pleading.

Code of Civil Procedure section 904.1, however, provides that an appeal lies only from a final judgment that terminates the trial court proceeding by completely disposing of the matter in controversy. (Griset v. Fair Political Practices Comm'n (2001) 25 Cal.4th 688, 697.) In other words, such section codifies the "one final judgment" rule which prohibits review of intermediate rulings by appeal until final resolution of the case. (Ibid.) We must thus determine whether either order liberally construed provides Jay the right to appeal this action. Either way, however, because the trial court, with full briefing and participation by the parties, treated its resolution of Jay's "petition" as a final disposition of his case, in the interests of justice, we overlook the procedural anomaly caused by Jay's original filing,^[3] and also treat the trial court's respective alternative dispositive ruling on such as an appealable "final" judgment or order. (Code Civ. Proc., § 904.1, subds. (a)(1) & (6).)

Construing the May 10, 2005 order as the final "judgment" or dispositive ruling in this superior court action or special proceeding, we note that Jay did not specifically appeal from it.^[4] Rather he waited and appealed from the July 14, 2005 order denying his

motion for reconsideration of the May order. Although there is still a split of authority as to whether and under what circumstances an order denying a motion for reconsideration is appealable,^[5] this court has weighed in with the clear majority of cases that hold such orders are not appealable. (Annette F., supra, 130 Cal.App.4th at pp. 1458-1459.)

Nevertheless, under an analogous situation involving an appeal from a nonappealable order, our Supreme Court in Walker v. Los Angeles County Metropolitan Transportation Authority (2005) 35 Cal.4th 15 (Walker) held that "a reviewing court should construe a notice of appeal from an order denying a new trial to be an appeal from the underlying judgment when it is reasonably clear the appellant intended to appeal from the judgment and the respondent would not be misled or prejudiced." (Id. at p. 22.) The court in Walker noted the long-standing rule of liberally construing notices of appeal (former rule 1 and current rule 1(a)(2)) and case authority allowing appeals to go forward by construing notices from nonappealable orders to apply to and encompass existing appealable underlying orders or judgment. (Walker, supra, 35 Cal.4th at pp. 19-20.)

Applying the reasoning of Walker in this case, Jay's notice of appeal could be interpreted to apply to the May 10, 2005 order which we have already determined is appealable as a final determination under one view of Jay's proceeding taken by the trial

court. As so construed, however, it would have only been timely under rule 3(d)^[6] if Jay had properly filed a "valid" motion for reconsideration. (Code Civ. Proc., § 1008, subd. (a); see Advisory Com. com. (2002) to rule 3(d) [time not extended if motion for reconsideration is not valid].) Because the trial court specifically found Jay had not filed a valid motion for reconsideration, and the record supports this finding, rule 3(d) cannot be used to extend Jay's time to file his appeal from the May 10, 2005 even under a liberal reading pursuant to Walker. Therefore, an appeal deemed from the May 10, 2005 order would be untimely.

Walker, however, provides further instruction regarding our consideration of liberally construing the notice of appeal from the July 14, 2005 order. Because " '[t]he law aspires to respect substance over formalism and nomenclature' [citation]" (Walker, supra, 35 Cal.4th at p. 22), and the court alternatively construed the reconsideration motion as "a noticed motion hearing following an ex parte hearing seeking interim [injunctive] relief" on Jay's request to stay the OTW levy on the Bank before ruling on the merits and denying his "petition,"' we construe the appeal to be from that alternative "final" ruling which is appealable as an order denying a restraining order. (Code Civ. Proc., § 904.1, subd. (a)(6).) Jay's notice of appeal filed August 11, 2005 from this order of final determination of his case is therefore timely. We thus deny FTB's motion to dismiss and proceed to the merits of Jay's appeal.

II

CLAIMED DUE PROCESS VIOLATION

As best we can tell, Jay essentially claims the trial court's denial of his "petition" denied him due process of law because he did not receive NPA #1 for tax year 2001 which FTB apparently mailed to him by regular mail on October 11, 2004. Although he concedes there is a conclusive presumption that a taxpayer has received notice of an NPA once it is mailed, Jay argues ordinary mail does not meet due process standards in today's world and should be sent by certified mail as required under federal law for federal tax matters.^[7] He also asserts the postseizure procedure in California, i.e., the remedy of filing suit for a refund, is not an adequate remedy when the taxpayer has not received notice of the NPA and that such does not comport with due process.

We need spend little time on the merits of Jay's assertions. He does not contest as wrong the address to which FTB sent him notices and correspondence, or the fact there is a conclusive presumption that notices sent to such a last known address by FTB are valid if FTB shows that such was mailed by first-class mail. Ample evidence in the record showed that FTB mailed Jay NPA #1 to his last known address.

More importantly, however, Jay concedes, as FTB points out in its respondent's brief, the relief he sought, to enjoin the OTW issued by FTB and levied on Jay's bank, is essentially barred by the California Constitution and sections of the Revenue and Taxation Code which prohibit the issuance of an injunction, writ of mandate or any other legal process to prevent or enjoin the assessment or collection of state income tax. (Cal. Const., art. XIII, § 32; § 19381.)^[8] Article XIII, section 32 further provides in part that ". . . [a]fter payment of a tax claimed to be illegal, an action may be maintained to recover the tax paid, with interest, in such manner as may be provided by the Legislature." The Legislature provided for such a scheme in section 19382, which provides in part that "after payment of the tax and denial by [FTB] of a claim for refund, any taxpayer claiming that the tax computed and assessed is void in whole or in part may bring an action upon the grounds set forth in that claim for refund. . . . " This statutory scheme has been held to be constitutional against claims such deprived taxpayers of due process. (Dupuy v. Superior Court (1975) 15 Cal.3d 410, 416; People ex rel. Franchise Tax Board v. Superior Court (Safeco Life Ins. Co.) (1985) 164 Cal.App.3d 526, 545-546.)

With regard to taxpayers seeking a refund of taxes alleged to have been improperly assessed, section 19381 provides that ". . . any individual after protesting a notice or notices of deficiency assessment issued because of his or her alleged residence in this state and after appealing from the action of the [FTB] to the State Board of Equalization may within 60 days after the action of the State Board of Equalization becomes final commence an action, on the grounds set forth in his or her protest, in the Superior Court of the County of Sacramento, in the County of Los Angeles or in the City and County of San Francisco against [FTB] . . . ." The record facts reveal Jay did not comply with existing tax law. He did not timely or even belatedly protest the validity of NPA #1. He did not pay an amount of tax he claims to be illegal and then file a claim with FTB for a refund. Nor did he exhaust his statutorily set administrative remedies and then sue FTB for a refund which is the exclusive means of obtaining judicial review of state tax proceedings in California. (Pacific Gas & Electric Co. v. State Board of Equalization (1980) 27 Cal.3d 277, 278-284; Horack v. Franchise Tax Board (1971) 18 Cal.App.3d 363, 370.)

As FTB notes, "[e]ven a cursory analysis of [Jay's petition] shows that it sought an order 'staying any action on the FTB's [OTW], levy, to Bank. . . .' '" Under these circumstances, as a matter of law, Jay's petition, treated as a request for injunctive relief was in violation of article XIII, section 32 of the California Constitution and section 19381, which justified the trial court's denial of the petition after both the "emergency" and subsequent fuller hearing. Moreover, because there was a statutory procedure for Jay to follow and exhaust before bringing to court his challenge to NPA #1, he had a recognized adequate remedy at law. On such grounds alone, the trial court properly denied Jay's petition for injunctive relief from the OTW levy on his Bank.

Having found the court properly denied Jay's "petition," we decline to address his additional contentions.

DISPOSITION

The order appealed from is affirmed.

HUFFMAN, J.

WE CONCUR:

BENKE, Acting P. J.

HALLER, J.

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^[1] The record reflects the term "ex parte" in the caption was crossed out at some point. We presume such editing was done by the superior court clerk who accepted Jay's petition for filing.

^[2] A notice of proposed assessment (NPA) is issued pursuant to Revenue and Taxation Code section 19033, which provides that FTB can assess additional tax if it determines that the amount of tax as set forth in a taxpayer's return is less than the amount FTB believes is owed. (All future statutory references are to the Revenue and Taxation Code unless otherwise specified.) The NPA provides the taxpayer with the last date upon which he or she can contest the proposed tax liability. (§ 19034.)

^[3] Although the court noted in its ruling that "[a]n additional defect with [Jay's] case [was] the absence of a complaint or petition for a writ," the court did not dismiss the proceeding.

^[4] If the notice of appeal filed on August 11, 2005 is deemed to be from the May 10, 2005 order, it is technically late under rule 2(a)(1) because a file-stamped copy of that order was mailed to Jay on May 11, 2005. Rule 2(a) provides in pertinent part that: "Unless a statute or rule 3 provides otherwise, a notice of appeal must be filed on or before the earliest of: (1) 60 days after the superior court clerk mails the party filing the notice of appeal a document entitled 'Notice of Entry' of judgment or a file-stamped copy of the judgment, showing the date either was mailed. . . ."

^[5] Moreover, even under the minority view that an order denying a motion for reconsideration when based upon new or different facts is appealable (see Blue Mountain Dev. Co. v. Carville (1982) 132 Cal.App.3d 1005, 1010-1011), the order denying the motion for reconsideration here was arguably not appealable because, as the trial court found on the record established in this proceeding, the reconsideration motion was not based upon new or different facts not available at the time of the hearing on Jay's original motion. (Wickware v. Tanner (1997) 53 Cal.App.4th 570, 574.)

^[6] Rule 3(d) provides: "If any party serves and files a valid motion to reconsider an appealable order under Code of Civil Procedure section 1008, subdivision (a), the time to appeal from that order is extended for all parties until the earliest of: (1) 30 days after the superior court clerk mails, or a party serves, an order denying the motion or a notice of entry of that order; (2) 90 days after the first motion to reconsider is filed; or (3) 180 days after entry of the appealable order."

^[7] During the pendency of this appeal, Jay brought to the attention of this court the recent United States Supreme Court case of Jones v. Flowers (2006) ___ U.S. ___ [126 S.Ct. 1708], which found notice sent by certified mail that had been returned to the tax commissioner marked "unclaimed" possibly insufficient to satisfy due process. We do not find this case persuasive here.

^[8] Article XIII, section 32 of the California Constitution provides in relevant part that: "No legal or equitable process shall issue in any proceeding in any court against this State or any officer thereof to prevent or enjoin the collection of any tax. After payment of a tax claimed to be illegal, an action may be maintained to recover the tax paid, with interest, in such manner as may be provided by the Legislature."

Section 19381 also provides in pertinent portion that: "No injunction or writ of mandate or other legal or equitable process shall issue in any suit, action, or proceeding in any court against this state or against any officer of this state, to prevent or enjoin the assessment or collection of any tax under this part . . . ."