NORTHWEST ENERGETIC SERVICES v. CALIFORNIA FRANCHISE TAX BOARD

Filed 1/31/08

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

Story continued from Part II..

By its terms, section 19717 plainly applies to a tax refund case brought, as Northwests was, under section 19382. FTBs argument that only section 19717 applies is more complicated, and actually begins with section 18401.

Section 18401 reads: Each provision of this part [Part 10.2, Div. 2 of the Code] shall apply to Part 10 (commencing with Section 17001) [the Personal Income Tax Law] . . . unless otherwise provided. (Italics added.) Section 19717 is a provision contained in part 10.2, division 2. Therefore, section 18401 mandates that section 19717 shall apply to part 10, which includes section 17942 (authorizing the Levy). In addition, subdivision (c) of section 17942 provides that the fee assessed under this section . . . shall be collected and refunded in the same manner as the taxes imposed by [Part 10]. Thus, FTB urges, section 18401 makes section 19717 the exclusive authority for obtaining attorney fees awards in suits for refunds of LLC fees.

FTB further points out that section 19717 was enacted by the Legislature pursuant to its authority in article XIII, section 32 of the California Constitution, which provides that refund actions must be brought in the manner mandated by the Legislature. (See Woosley, supra, 3 Cal.4th at p. 792 [Cal. Const., art. XIII,  32 precludes court from expanding methods for seeking refunds expressly provided by the Legislature].)^[1] The California Constitution imposes exclusive legislative control over the manner in which tax refunds may be sought so that governmental entities may engage in fiscal planning based on expected tax revenues. (Woosley, supra, at p. 789.) In addition, FTB argues, section 19717 prevails because a specific statute prevails over a general statute on the same subject, especially where the specific statute was adopted after the more general statute. (Citing Canteen Corp. v. State Bd. of Equalization (1985) 174 Cal.App.3d 952, 960-961; see also Miller v. Superior Court (1999) 21 Cal.4th 883, 895-896.)

Instructive on the exclusivity of section 19717 is Agnew v. State Bd. of Equalization (2005) 134 Cal.App.4th 899 (Agnew). There, the SBE contended that section 7156 barred the application of Code of Civil Procedure section 1032 for an award of attorney fees and costs. (Agnew, supra, at pp. 911-912.) Section 7156, applicable to sales and use tax controversies, is akin to section 19717 in that it permits an award of costs such as attorney fees, subject to specified limitations, where the states litigation position was not substantially justified. (See  7156, subd. (c)(2)(A)(i).) The court rejected the SBEs contention that section 7156 was the exclusive remedy, finding that Woosley and other cases holding that refund actions must be brought in the manner prescribed by the Legislature addressed procedures for filing and maintaining tax refund suits, not motions for costs. (Agnew, supra, at p. 912, fn. 21.) In addition, the Agnew court noted, although Code of Civil Procedure section 1032, subdivision (b) may be invoked [e]xcept as otherwise expressly provided by statute, Revenue and Taxation Code section 7156 contains no express exception to the general rule permitting a taxpayer as a prevailing party to recover his costs under Code of Civil Procedure section 1032, subdivision (b). (Agnew, supra, at p. 913, italics added.) The court in Agnew further observed that section 7156 and Code of Civil Procedure section 1032, subdivision (b) complement each other, containing different eligibility requirements and permitting different types of compensation. (Agnew, supra, at pp. 913-915; see Murillo v. Fleetwood Enterprises, Inc. (1998) 17 Cal.4th 985, 991 [seller could recover attorney fees under Code Civ. Proc.,  1032, subd. (b), where Code Civ. Proc.,  1794, subd. (d) provided that buyer could recover attorney fees but was silent as to seller].)

We conclude that section 19717 is not the only provision by which a party in a tax refund action may recover for its attorney fees. As the Agnew court noted, Woosley is not on point, because it did not involve an attorney fee claim. Moreover, section 19717 contains no express prohibition against a taxpayer seeking attorney fees pursuant to Code of Civil Procedure section 1032, subdivision (b).

FTB argues that reliance on Agnew is misplaced because the language of section 18401 differs from the language of the corresponding provision in the statutory scheme at issue in Agnew. Specifically, the taxpayer in Agnew sought recovery of litigation costs under section 7156, which is in the Sales and Use Tax Law, division 2, part 1, of the Code. The Sales and Use Tax Law also includes section 7082, which provides: Unless the context indicates otherwise, the provisions of this article shall apply to this part. (Italics added.) Unlike section 18401which states unconditionally that section 19717 applies to actions brought under part 10 of the Codesection 7082 provides discretion in sales tax litigation to resort to other statutes or laws for recovery of litigation costs if the context indicates otherwise.

FTBs attempt to distinguish Agnew ignores the Agnew courts reasoning. The basis of the Agnew decision was not that there was an exception built into the language of section 7082, but that section 7156 did not include an express exception to Code of Civil Procedure section 1032, subdivision (b). Because the court in Agnew did not base its decision on section 7082, the difference between section 18401 and section 7082 provides no persuasive distinction between this case and Agnew.

Moreover, FTB overstates section 18401. Although section 18401 may dictate that section 19717 shall apply to section 17942, it does not state that only section 19717 can apply to section 17942, or that any other provision shall not apply to section 17942. In short, section 19717 does not preclude application of Code of Civil Procedure section 1032 to Northwests tax refund case.

FTBs related argumentsthat section 19717 trumps Code of Civil Procedure section 1021.5also fail. FTB contends that Code of Civil Procedure section 1021.5 does not apply where, as here, the plaintiff has alleged a violation of a statute that itself provides a mechanism for obtaining an attorney fee award. (Flannery v. California Highway Patrol (1998) 61 Cal.App.4th 629, 637-638 [since Fair Employment and Housing Act has attorney fee provisions, resort to Code Civ. Proc.,  1021.5 is unnecessary] (Flannery).) FTB reads Flannery too broadly. The referenced statement was dictum, as the court in Flannery concluded that Code of Civil Procedure section 1021.5 did not apply because there was insufficient evidence that the lawsuit conferred a significant benefit on the general public. (Flannery, supra, at p. 637.) Moreover, the court in Flannery recognized a distinct equitable purpose behind Code of Civil Procedure section 1021.5: Underlying the private attorney general doctrine is the recognition that privately initiated lawsuits often are essential to effectuate fundamental public policies embodied in constitutional or statutory provisions, and that without some mechanism authorizing a fee award, such private actions often will as a practical matter be infeasible. The basic objective of the doctrine is to encourage suits enforcing important public policies by providing substantial attorney fees to successful litigants in such cases. [Citation.] (Flannery, supra, at p. 634.) FTB does not explain why this equitable concern might not also be appropriate in tax refund cases.

FTB further contends that the legal remedy of section 19717 precludes resort to Code of Civil Procedure section 1021.5, because the latter provides an equitable exception to the general rule that each party bears its own attorney fees. (See Serrano v. Unruh (1982) 32 Cal.3d 621, 632-635; Code Civ. Proc.,  1021.) In this regard, FTB refers us to Katsivalis v. Serrano Reconveyance Co. (1977) 70 Cal.App.3d 200, 213 (Katsivalis). In Katsivalis, the court merely acknowledged a partys contention that the trial court had erred in imposing an equitable lien on certain property because the lender had an adequate remedy at law. Katsivalis did not hold that statutory authority for recovering attorney fees precludes an equitable award of attorney fees, and it is not on point. Furthermore, while the private attorney general doctrine underlying Code of Civil Procedure section 1021.5 originated as a judicial exercise of equitable powers in Serrano v. Priest (1977) 20 Cal.3d 25 (Serrano III), it has since been codified in Code of Civil Procedure section 1021.5.

Lastly, FTB presents an argument in its reply brief based on the legislative history of section 19717. According to FTBs analysis, section 19717 derived from sections 19420 and 26491, which were enacted as part of a larger legislative package (Sen. Bill 813) intended to reflect and conform to provisions of the Internal Revenue Code. In particular, FTB asserts, sections 19420 and 26491 were conformed to Internal Revenue Code section 7430 (26 U.S.C.  7430). As described by the federal Joint Committee on Taxation, Internal Revenue Code section 7430 was intended to be the exclusive provision for an award of litigation costs in any civil action to which it applied. Likewise, FTB argues, the California Legislature chose to make section 19717 the exclusive provision for an award of attorney fees in any civil or administrative matter to which section 19717 applies.

We disagree. The cited California legislative history nowhere mentions an intent to make section 19717 the exclusive means of recovering attorney fees in a tax refund action. Given the express mention of exclusivity in the legislative history of the federal statute, the California Legislatures silence on the issue is all the more significant. The logical inference is that the Legislature permitted recovery of attorney fees under section 19717 in order provide an additional, rather than exclusive, means by which a litigant might recoup its attorney fees in a refund action.

Attorney fees are not recoverable under Code of Civil Procedure section 1032, subdivision (b) unless they are recoverable under some contract, statute or law (Code Civ. Proc.,  1033.5, subd. (a)(10)). Most tax refund cases are not pursuant to a contract, statute or law that would afford such relief; few would meet the standards of Code of Civil Procedure section 1021.5 or the common fund doctrine. Section 19717 therefore provides an alternative means of recovering attorney fees in the limited instance in which FTBs position is without substantial justification.

Section 19717 and Code of Civil Procedure sections 1032, 1033.5, and 1021.5 are thus readily harmonized. Code of Civil Procedure section 1032, subdivision (b), in conjunction with Code of Civil Procedure section 1033.5, provides a general right to attorney fees where another statute, contract, or law authorizes such an award. One such statute is section 19717, which requires the movant to prove it was a prevailing party within the meaning of section 19717 and limits the movants recovery as set forth therein. Another such statute is Code of Civil Procedure section 1021.5, which does not compel the movant to prove the requirements of section 19717, but instead requires the movant to establish that it was a successful party in an action resulting in the enforcement of an important right affecting the public interest, conferring a significant benefit . . . on the general public or a large class of persons. (Code Civ. Proc.,  1021.5.) Thus, section 19717 and Code of Civil Procedure section 1021.5 (and the common fund doctrine) provide different remedies befitting different situations. (See Agnew, supra, 134 Cal.App.4th at pp. 913-915.)

Because we conclude that section 19717 is not the exclusive means or measure of attorney fees in a tax refund action, we turn to the basis of the trial courts award.

2. Code of Civil Procedure Section 1021.5

Code of Civil Procedure section 1021.5 provides: a court may award attorneys fees to a successful party . . . in any action which has resulted in the enforcement of an important right affecting the public interest if: (a) a significant benefit, whether pecuniary or nonpecuniary, has been conferred on the general public or a large class of persons; (b) the necessity and financial burden of private enforcement, or of enforcement by one public entity against another public entity, are such as to make the award appropriate; and (c) such fees should not in the interest of justice be paid out of the recovery, if any.

Of these requirements, FTB contends only that the lawsuit did not result in a significant benefit to the general public or a large class of persons.^[2] According to FTB, the trial court did not sustain a facial challenge to section 17942 that would affect all LLCs registered in California, so the courts decision applies only to the commercial interests of one business entity, Northwest. This is not so clear, however. The trial court

ruled: Simply, because the Levy is unapportioned, it violates the Commerce and Due Process Clauses. As such, the Levy cannot constitutionally be applied to Plaintiff, and Plaintiff is entitled to a full refund [of] all of its payments pursuant to Rev. & Tax. Code  17942 for the Years at Issue. From this it appears to us that the trial court did conclude that the statute was unconstitutional as to all LLCs and ruled that, as a result, the Levy was unconstitutional as to Northwest.

In any event, Code of Civil Procedure section 1021.5 requires that the action result in a significant benefit to the general public or a large class of persons. Thus, there need not be a significant benefit to many plaintiffs, but a significant benefit to many persons, whether plaintiffs or not. Therefore, even though the judgment applies only to Northwest, the precedent provides a basis by which many LLCs may seek refunds of taxes unconstitutionally levied on business outside of California.

After the trial courts decision, the FTB established a streamlined procedure for LLCs to file refund claims, and the Legislature passed Assembly Bill (AB) 1614, which would have applied apportionment and allocation rules (see  25101 et seq.) to section 17942 retroactive to 2001 (were it not for the Governors veto). In connection with AB 1614, the Senate Revenue and Taxation Committee observed that if the trial court decision prevailed, the revenue loss would be $1.4 billion through fiscal year 2007-2008. The Treasurers official statement, dated April 12, 2006, provided that [a] final decision in favor of these plaintiffs applied to all taxpayers similarly situated could result in loss of annual revenue in excess of $250 million and potential refunds exceeding $1 billion. (Italics added.) Based on these estimates, the benefit of the trial courts decision to LLCs could arguably exceed $1 billion.^[3]

The FTB contends that the Treasurers official statement is incorrect and the estimated benefit and the number of affected LLCs is much lower. A July 13, 2006

analysis of amended AB 1614 estimated that the benefit would be closer to $150 million for LLCs with income from sources outside of California. (Analysis of Amend. Assem. Bill 1614 (2005-2006 Reg. Sess.) as amended June 22, 2006.) Specifically, FTB estimated that LLCs would pay 13 percent less if the apportionment method of AB 1614 became law, and of the $1.4 billion collected for the years not closed by the statute of limitations (2001-2006), 80 percent of the LLCs that potentially benefitted by the trial courts decision would file valid claims for refund. Thus, the FTB contends, the benefit would be $145.6 million ($1.4 billion x 80 percent x 13 percent), or approximately $150 million.^[4]

Even if the projected refunds for LLCs amounts to just $150 million, it still reflects a significant benefit for a large number of LLCs. Since the maximum amount of Levy any LLC could pay in a given year is $11,790 (see former  17942), and the maximum look-back period for any refund claim (barring unusual circumstances) is four years given the statute of limitations, the maximum amount of any single LLCs refund claim is $47,160. If every LLC were to claim this amount, it would take at least 3,000 LLCs to claim the $150 million in refunds. This matter is thus easily distinguishable from cases holding that a judgment provided only a private benefit. (See, e.g., Flannery, supra, 61 Cal.App.4th at pp. 635-636 [insufficient that lawsuit sent a message to government agencies that sexual discrimination and harassment in violation of FEHA would not be tolerated]; Angelheart v. City of Burbank (1991) 232 Cal.App.3d 460 [no reasonable basis for concluding that lawsuit conferred benefit on large class of persons where there was no evidence of others similarly situated that would be affected by the changes in the law].)]

The trial court did not err in concluding that the litigation resulted in a significant benefit to a large class of persons. FTB fails to establish that the requirements for an award of attorney fees under Code of Civil Procedure 1021.5 were not met.

3. Common Fund Doctrine

The common fund doctrine is based on the principle that, where a common fund exists to which a number of persons are entitled and in their interest successful litigation is maintained for its preservation and protection, an allowance of counsel fees may properly be made from such fund. (Winslow v. Harold G. Ferguson Corp. (1944) 25 Cal.2d 274, 277.) The purpose of the doctrine is to allow the party who has paid for counsel to prosecute a lawsuit, where the lawsuit creates a fund from which others will benefit, to require those other beneficiaries to bear their fair share of the litigation costs. (Serrano III, supra, 20 Cal.3d at p. 35.) In other words, the common fund doctrine permits plaintiffs attorneys to recoup their fees from the fund.

The common fund doctrine plainly does not apply here. In the first place, the litigation did not result in the creation or preservation of a fund from which attorney fees could be paid. (See Serrano III, supra, 20 Cal.3d at p. 36 [[W]here plaintiffs efforts have not effected the creation or preservation of an identifiable fund of money out of which they seek to recover their attorneys fees, the common fund exception is inapplicable.].)

Here, to the extent FTB received Levy payments from LLCs, they were deposited into the states general fund. No separate fund was created. Although after the trial courts decision in this case the FTB announced contingent and protective administrative claims procedures, still no fund was created. In any event, to constitute a common fund within the meaning of the doctrine, the fund must be created or preserved by the litigation, not created in response to it. (Serrano III, supra, 20 Cal.3d at p. 36; Jordan v. Department of Motor Vehicles (2002) 100 Cal.App.4th 431, 446-447 (Jordan).

Northwest argues that Serrano III and Jordan are inapposite, in that the fund or potential fund in those cases were held insufficient because they derived from legislative action, while here no legislative action will be required. (Serrano III, supra, 20 Cal.3d at p. 36 [no fund created because any additional expenditure of educational funds as a result of decision holding public school financing system violative of equal protection was not a requirement of the judgment but a legislative response]; Jordan, supra, 100 Cal.App.4th at p. 447 [no common fund because refunds of contested smog fee was not mandated by judgment but the result of remedial action independently taken by the Governor and Legislature].) Northwest misperceives the rulings in Serrano III and Jordan, however, and we are not convinced that either Serrano III or Jordan may be distinguished from the matter at hand.

Moreover, even if the fund from which LLCs would obtain a refund constituted a common fund within the meaning of Serrano III, the common fund doctrine would not apply because Northwest is not seeking to recover its attorney fees from the fund, but from the FTBin effect, California taxpayers. (Serrano III, supra, 20 Cal.3d at pp. 37‑38 [common fund doctrine does not apply where fees would not be paid out of the purported fund]; Jordan, supra, 100 Cal.App.4th at p. 446 [application of the common fund does not conform to its equitable underpinnings where the attorney fees would not be paid out of the recovery and borne by all who benefitted].) The trial court erred in concluding that attorney fees could be awarded under the common fund doctrine.

4. Upward Adjustment of Lodestar

Lastly, we reach the issue of whether the trial court erred in adjusting the lodestar amount of Northwests attorney fees upward, to a total award of $3.5 million. We review the trial courts calculation of the attorney fee award for an abuse of discretion. (Serrano III, supra, 20 Cal.3d at p. 49; Lealao v. Beneficial California, Inc. (2000) 82 Cal.App.4th 19,40-41 (Lealao).) We nonetheless remain mindful that, in exercising its discretion, the trial court must not intertwine considerations relevant to the determination of the lodestar amount with factors relevant to whether the lodestar should be adjusted upward. (Flannery, supra, 61 Cal.App.4th at p. 647; Ramos v. Countrywide Home Loans, Inc. (2000) 82 Cal.App.4th 615, 625 (Ramos).) It is also imperative that the trial court provide a sufficient explanation for its upward adjustment of the lodestar. (Ramos, supra, at pp. 624, 629.)

The lodestar method begins by multiplying the number of hours spent by the attorneys by an hourly rate that is reasonable under the circumstances. (Serrano III, supra, 20 Cal.3d at p. 48.) The court may then adjust the lodestar upward or downward, depending on the circumstances of the litigation and counsels representation, such as the following: the novelty and difficulty of the questions involved and the skill displayed in presenting them; the extent to which the nature of the litigation precluded other employment by the attorneys; the contingent nature of the fee award; whether the award would be against the state and ultimately fall upon the taxpayers; whether the attorneys received public and charitable funding for the purpose of bringing lawsuits of the same character; and whether monies awarded would inure not to the individual benefit of the attorneys involved but to the organizations by which they are employed. (Serrano III, supra, 20 Cal.3d at p. 49.) This is an illustrative rather than exclusive list of potentially relevant factors. (Thayer v. Wells Fargo Bank (2001) 92 Cal.App.4th 819, 834.)

In the matter before us, the trial court identified several factors to justify its upward adjustment of the lodestar: the expertise of [Northwests] attorneys, novelty and difficulty of the questions involved, the skill displayed in presenting this case, the contingent nature of the fee award, the importance of the constitutional rights preserved through this action, the results achieved, and the substantial benefits conferred on the public through this action . . . . Without further elaboration, the court concluded: Accordingly, this Court awards attorneys fees in the amount of $3.5 million.

Based on the record, and in the absence of any further explanation by the trial court, the listing of these factors does not provide a persuasive justification for adjusting the lodestar upward. The expertise of Northwests attorneys, and to some extent the skill they displayed in presenting the case, is already included in calculating the lodestar and should have no or little significance in determining whether the lodestar should be enhanced. (Flannery, supra, 61 Cal.App.4th at p. 644 [factors upon which court explicitly relied in calculating the lodestar, such as the skill and experience of the attorneys and the nature of the work performed, cannot be used again to enhance or apply a multiplier to the attorney fee award].) Without explication by the trial court, the novelty or difficulty of the questions involved in this matter do not appear to be particularly great: Commerce Clause principles, including the Complete Auto test on which counsel primarily relied, have been part of the law for decades. While the contingent nature of the fee agreement is a factor that may be considered, it is not dispositive. The remaining items cited by the trial courtthe importance of the constitutional rights preserved through the action, the results achieved, and the substantial benefits conferred on the public through this actionare considered in determining whether Code of Civil Procedure section 1021.5 applies in the first instance. (Flannery, supra, at p. 647 [fact that litigation conferred a significant benefit on a large class of persons does not provide any basis for calculating the amount of an award, let alone for enhancing or applying a multiplier to the lodestar]; Ramos, supra, 82 Cal.App.4th 615 [2.5 multiplier was not a proper exercise of discretion if dependent on duplicative reweighing of factors such as the skilled nature of the representation and public interest benefits].)^[5]

Moreover, other factors suggest that an upward adjustment of the lodestar is inappropriate. One such factor, recognized by our Supreme Court, is the source from which an attorney fee award would be paid. (Serrano III, supra, 20 Cal.3d at p. 49.)

Here, the attorney fees award would not be paid out of a common fund or be borne by a private wrongdoer, but would ultimately fall upon the shoulders of California taxpayers.

Another such factor is whether the monies awarded would inure not to the individual

benefit of the attorneys involved but the organizations by which they are employed. (Serrano III, supra, at p. 49.) The attorney fees in this case would go not to Northwest or to other LLCs, but to Northwests private attorneys. Both of these circumstances militate against an upward adjustment of the lodestar.

Contrary to Northwests arguments, the $3.5 million attorney fee award may not be upheld by comparing it to the $1 billion (or $150 million) in benefits attained by LLCs through counsels efforts. Conceding that a court may not indulge in a mere

percentage-of-the benefit computation to determine a fee award, Northwest urges that the lodestar may be cross-checked against the value of the benefits delivered by counsel, by considering the amount counsel reasonably might have negotiated in the marketplace with those who benefited from its conduct. (See Lealao, supra, 82 Cal.App.4th at pp. 45, 49.) Given a $1 billion estimate of refunds to LLCs in the aggregate, Northwest asserts, the $3.5 million in attorney fees represents less than one-half of one percent of the benefit delivered by counsel.

Northwests argument is not persuasive. In the first place, this is not the only case on the subject of the section 17942 Levy. Ventas Finance and is now pending before this appellate district (appeal Nos. A116277 & A117751, consolidated). There, the plaintiff is a foreign LLC that registered in California and earned its income from both within and outside of California. Bakersfield Mall, LLC v. Franchise Tax Board, pending in San Francisco Superior Court (case No. 07-462728), is a putative class action in which the purported class is comprised of LLCs earning their income solely from California sources. (http://www.ftb.ca.gov/aboutFTB/psb/results.asp?bulletinTitle=

Public+Service+Bulletin+2007-07-13.) As acknowledged at oral argument, the LLC plaintiffs in those cases are represented by the attorneys for Northwest in this case. Northwest has not explained how the attorney fee award in this case may be justified by the benefit that was purportedly provided to all LLCs, when the claims of certain categories of LLCs are being addressed in other litigation. In any event,there is no indication from the written order that the trial court considered the fact of this other litigation in determining whether the lodestar should be enhanced.

Furthermore, Lealao is not as helpful to Northwest as it asserts. The court in Lealao stated its holding as follows: Accordingly, we hold that, in cases in which the value of the class recovery can be monetized with a reasonable degree of certainty and it is not otherwise inappropriate, a trial court has discretion to adjust the basic lodestar through the application of a positive or negative multiplier where necessary to ensure that the fee awarded is within the range of fees freely negotiated in the legal marketplace in comparable litigation. (Lealao, supra, 82 Cal.App.4th at pp. 49-50, italics added.) Thus, the cross-check procedure and Lealao itself were in the context of class and representative actions, not individual suits such as the matter before us.

Moreover, by no means did Lealao suggest that the cross-check procedure could be employed to reach an unreasonable result. While it may not be error for a court to consider the extent to which non-party LLCs might benefit monetarily from the decision, the courts order does not explain why the ultimate fee award of $3.5 million bears a reasonable relationship to the $219,566.95 lodestar figure or to the purpose of the private attorney general doctrine, as it amounts to 16 times the amount of reasonable fees in this case and reflects a billing rate of approximately $5,546 per hour. This appears far beyond what might be necessary to ensure that the fee awarded is within the range of fees freely negotiated in the legal marketplace in comparable litigation. (Lealao, supra, 82 Cal.App.4th at pp. 49-50; see Ramos, supra, 82 Cal.App.4th at p. 626 [given that a well-established public policy in this area is to increase the predictability and to reduce the randomness of attorney fees awards in fee shifting cases, a reasonable exercise of discretion would not permit counsel to be paid around $800 per hour except in truly pioneering and high risk cases].) Without sufficient justification in the recordwhich we do not find herethe award cannot be upheld. (See Press v. Lucky Stores, Inc. (1983) 34 Cal.3d 311, 324; Ramos, supra, at p. 629.)

In sum, given the absence of explanation in the trial courts order, the record before us does not provide adequate support for the courts upward adjustment of the lodestar. The attorney fee award must be reversed and the matter remanded for further consideration. If the trial court on remand chooses to enhance the lodestar amount, it must more precisely articulate why such increment is appropriate. (Ramos, supra, 82 Cal.App.4th at p. 629.)^[6]

III. DISPOSITION

The judgment is affirmed with the exception that the order awarding attorney fees and costs is reversed. The matter is remanded to the trial court to determine anew the appropriate amount of fees and costs to be awarded consistent with this opinion. Each party shall bear its own costs on appeal.

NEEDHAM, J.

We concur.

JONES, P. J.

STEVENS, J.^*

Trial Judge: Hon. Donald S. Mitchell

Trial Court: San Francisco County Superior Court

Counsel for Defendant and Appellant: Edmund G. Brown, Jr.,

Attorney General,

Randall P. Borcherding,

Supervising Deputy Attorney General,

Jeffrey Rich,

Deputy Attorney General,

Marguerite C. Stricklin,

Deputy Attorney General

Counsel for Plaintiff and Respondent: Silverstein & Pomerantz,

Amy L. Silverstein,

Edwin P. Antolin

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^[1] Article XIII, section 32, of the California Constitution states: 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. (Italics added.)

^[2] FTB suggests that Code of Civil Procedure section 1021.5 requires that a readily ascertainable large class of persons be significantly benefited by the courts decision. There is no statutory requirement that the class be readily ascertainable. (Cf. Serrano III, supra, 20 Cal.3d at p. 40, fn. 10 [referring to ascertainable class with respect to substantial benefit doctrine, not private attorney general doctrine of Code Civ. Proc., section 1021.5].)

^[3] The Treasurers official statement referred to a final decision in favor of the plaintiffs in Northwests case and another case, Ventas Finance, supra. Both of the estimates presume that the Levy for applicable years would be struck down in its entirety.

^[4] On October 10, 2007, the Governor signed AB 198, amending former section 17942 for taxable years beginning on and after January 1, 2007, and adding section 19394. (Stats. 2007, ch. 381,  3.) The amendment changed the language in former section 17942, subdivision (a), from total income from all sources reportable to this state to total income from all sources derived from or attributable to this state. (Italics added.) It also added the following language: total income from all sources derived from or attributable to this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by regulations under Section 25137, other than those provisions that exclude receipts from the sales factor. ( 17942, subd. (b)(1)(B).) FTB advises that, if the Levy as previously enacted is held to violate the Commerce Clause, an LLC that has filed a valid protective claim will only receive a refund of LLC fees that exceed the amount that would have been assessed pursuant to the statute as amended. (See also Macys, supra, 143 Cal.App.4th at pp. 1449-1450.)

^[5] Contrary to Northwests representation, Serrano III did not state that the attorneys expertise (distinguished from their skill in presenting the case) was a factor favoring upward adjustment of the lodestar. (Serrano III, supra, 20 Cal.3d at p. 49.)

^[6] Northwest also requests an award of fees in this appeal. We deny the request in light of our conclusion that the attorney fee order must be reversed.

^* Retired Associate Justice of the Court of Appeal, First Appellate District, Division Five, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.