Judge: Anne Richardson, Case: 22STLC05484, Date: 2023-09-18 Tentative Ruling
Case Number: 22STLC05484 Hearing Date: September 18, 2023 Dept: 40
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MATTHEW STIBBE, an individual, Plaintiff, v. STATE OF CALIFORNIA, Defendant. |
Case No.: 22STLC05484 Hearing Date: 9/18/23 Trial Date: N/A [TENTATIVE] RULING RE: California Franchise
Tax Board’s Demurrer to Plaintiff’s Third Amended Complaint. |
Plaintiff Matthew Stibbe sues
Defendant State of California pursuant to a May 23, 2023 Third Amended
Complaint (TAC) alleging a single claim of Reckless Disregard of Published
Procedures [Rev. & Tax Code § 21021].
The claim arises from allegations
that, among other things, between 2018 through the filing of the TAC, California’s
Franchise Tax Board (FTB) informed Plaintiff that he is under audit review,
that he has been referred to an audit, that his account is in audit, that his
account is currently reviewed in audit, and other similar references to
Plaintiff’s account being in audit. Plaintiff alleges that, in making these
representations, the FTB’s employees recklessly disregarded numerous procedures
set forth in the FTB’s Publication 985—i.e., providing Plaintiff with a contact
letter setting forth specific necessary details, providing Plaintiff with an
audit plan, informing Plaintiff that he may request an opening conference,
providing Plaintiff with an audit issue presentation sheet, and holding a
closing conference.
Plaintiff prays for equitable
relief in the form of an order compelling that the FTB generally follow the protest
procedures in Publication 985 and the taxpayer’s rights stated in Publication
4058 California Taxpayers’ Bill of Rights Information for Taxpayers, i.e.,
follow these guidelines as to Plaintiff and other similarly situated
individuals. Plaintiff also prays for actual and direct damages “in a sum not
less than $375 for the bank fees incurred by Plaintiff” as a result of the
FTB’s debits of his Wells Fargo Bank account(s), reasonable litigation costs
pursuant to Revenue and Taxation Code section 21021, subdivision (b)(2), and
other relief the Court may deem proper.
On June 21, 2023, the State of
California demurred to the TAC’s sole cause of action.
On July 24, 2023, Plaintiff opposed
the demurrer.
On August 28, 2023, the State of
California replied to the opposition.
The State of California’s demurrer
is now before the Court.
The Court TAKES Judicial Notice of
the Government Claim form attached to the State of California’s reply. (Reply,
RJN, Ex. 1; Evid. Code, §§ 452, subd. (c), 453.)
Demurrer Sufficiency Standard
A demurrer for sufficiency tests
whether the complaint states a cause of action. (Hahn v. Mirda (2007)
147 Cal.App.4th 740, 747; see Code Civ. Proc., § 430.10, subd. (e).) This
device can be used only to challenge defects that appear on the face of the
pleading under attack or from matters outside the pleading that are judicially
noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a
[general] demurrer, the complaint need only allege facts sufficient to state a
cause of action; each evidentiary fact that might eventually form part of the
plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High
School Dist. (2012) 53 Cal.4th 861, 872.) In testing the sufficiency of the
cause of action, the demurrer admits the truth of all material facts properly
pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962,
966-67.) A demurrer, however, “does not admit contentions, deductions or
conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d
695, 713.) When considering demurrers, courts read the allegations liberally
and in context. (Taylor v. City of Los Angeles Dept. of Water and Power
(2006) 144 Cal.App.4th 1216, 1228, disapproved on other grounds, Jones v.
Lodge at Torrey Pines Partnership (2008) 42 Cal.4th 1158, 1162.) The face
of the complaint includes exhibits attached to the complaint. (Frantz v.
Blackwell (1987) 189 Cal.App.3d 91, 94.) If facts appearing in the exhibits
contradict those alleged, the facts in the exhibits take precedence. (Holland
v. Morse Diesel Intern., Inc. (2001) 86 Cal.App.4th 1443, 1447, superseded
by statute on other grounds as stated in White v. Cridlebaugh (2009) 178
Cal.App.4th 506, 521.)
TAC, First Cause of Action,
Reckless Disregard of Published Procedures [Rev. & Tax. Code § 21021]: SUSTAINED, Without Leave to Amend.
If any officer or employee of the
board recklessly disregards board published procedures, a taxpayer aggrieved by
that action or omission may bring an action for damages against the State of
California in superior court. (Rev. & Tax. Code § 21021.)
A
statute of limitations starts to run once the cause of action “accrues,” and
although a cause of action typically accrues when it is complete with all of
its elements, a cause of action will at times be deemed to accrue at a later
date, such as when the plaintiff did not discover and had no occasion to
discover the cause of action until that later date, when the defendant
fraudulently concealed the existence of a possible claim until that later date,
or when the defendant committed multiple wrongs that ended on that later date.
(Doe v. Roman Catholic Archbishop of Los Angeles (2016) 247 Cal.App.4th
953, 961.)
Unless
a complaint affirmatively discloses on its face that the statute of limitations
has run, the general demurrer on these grounds must be overruled. (See Lockley
v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91
Cal.App.4th 875, 881 [“It must appear clearly and affirmatively that, upon the
face of the complaint, the right of action is necessarily barred”].) Instead,
“[t]he proper remedy ‘is to ascertain the factual basis of the contention
through discovery and, if necessary, file a motion for summary judgment ….’
[Citation.]” (Roman v. County of Los Angeles (2000) 85 Cal.App.4th 316,
325.)
The
Government Claims Act provides that any lawsuit must be brought “within two
years from the accrual of the cause of action” (Gov. Code, § 945.6, subd.
(a)(2).) Plaintiff first brought this action on August 18, 2022. (Complaint, p.
1.) Yet, Plaintiff alleges to have been aware that he was under audit as early
as August 13, 2018. (TAC, ¶ 6.) To the extent that Plaintiff was aware that he
was being harmed as a result of the audit, he discovered his injuries as of
that date, particularly where the TAC alleges that the FTB debited money from
Plaintiff’s Wells Fargo Account(s) around that time (on August 6, 2018). (TAC,
¶ 7(b).) Indeed, the TAC explicitly alleges that starting in August 2018, the
FTB failed to follow the procedures set out in Publication 985. (TAC, ¶ 6.) The
attachments to the TAC even show that Plaintiff contacted the FTB on August 13,
2018, at which time he was informed that he owed money for the 2009 and 2010
tax years. (TAC, Ex. 1, 8/13/18 Notes.) Thus, arguably Plaintiff’s cause of
action against the FTB accrued at least as of August 13, 2018. Yet, this action
was not brought for another four years, well beyond the two-year limit. The
opposition argument that Plaintiff had no basis for discovering that the FTB
“had recklessly disregard its published procedures regarding the conduct of an
audit” (Opp’n, pp. 9-10) falls flat where such procedures are alleged not to
have been followed in August 2018. (See TAC, ¶¶ 6-7.) The fact that the Protest
Letter dated July 16, 2020 demanded “that the FTB follow” Publications 985 and
4058 does not show discovery of any injury as of that date, but rather, shows
that at some point before that date, Plaintiff became aware of the FTB’s
alleged failure to follow its procedures. (TAC, ¶ 13, Ex. 4.) Regardless, even
if July 16, 2020 is the discovery date, this action was not filed until August
2022, more than two years after the letter was sent by Plaintiff, undeniably
past the two-year limit.
As
to whether estoppel saves the claim, the Court finds that it does not.
“Four
elements must be present in order to apply the doctrine of estoppel to a public
entity:
(1)
The party to be estopped must be apprised of the facts;
(2)
He must intend that his conduct shall be acted upon, or must so act that the
party asserting the estoppel had a right to believe it was so intended;
(3)
The other party must be ignorant of the true state of facts; and
(4)
He must rely upon the conduct to his injury.
[Citation.]”
(Elmore
v. Oak Valley Hospital Dist. (1988) 204 Cal.App.3d 719, 724.)
Here,
Plaintiff specifically alleges that the FTB debited his Wells Fargo Bank
account(s) on May 18, 2015 and again on August 2, 2018. (TAC, ¶¶ 7(a), 7(b).)
Plaintiff also alleges that because the FTB did not follow the procedure in
Publication 985, Plaintiff has never received an explanation of the basis for
the debits from his account. (Ibid.) Plaintiff thus can hardly be said
to have been unaware of the true facts relating to the FTB failing to follow
its procedures because the TAC acknowledges that Plaintiff was never informed
why his account(s) was/were debited as a result of the FTB failing to follow
the procedures in Publication 985.
Moreover,
it is not clear to the Court that the TAC alleges or can allege that, in
repeatedly informing Plaintiff that he was under audit, the FTB intended that
Plaintiff act upon those representations to refrain from filing this lawsuit. (See
TAC, ¶ 6.)
The
Court notes that, in the alternative, Plaintiff has not alleged satisfactory compliance
with Section 910 of the Government Code, where the allegation is that Plaintiff’s
Protest Letter was the claim presented. (TAC, ¶ 13.) As pointed out by the
State, the Protest Letter fails to comply with the Act in multiple ways: it was
not sent to the proper authority; was not on the proper form; does not state how
much the claim is for, or even that it is meant to serve as a claim preceding
litigation. (Gov. Code §§ 910, subd. (f), 910.4, 915, subd. (b); Green v.
State Center Comm. College Dist. (1995) 34 Cal.App.4th 1348, 1358.) Nor
does the Court find any of Plaintiff’s argument as to being excused from timely
compliance with that Act to be persuasive. (Opp’n at pp. 6-8.) While the complaint
requests equitable relief in addition to damages, the statute cited provides
for damages and the request for equitable relief is ancillary to the prayer for
damages. (Rev. & Tax. Code § 21021, subds. (a) and (b).)
Accordingly, the Court SUSTAINS the State of California’s demurrer, Without Leave to Amend. The expiration of the statutory deadline to file this lawsuit is clear here and cannot be cured.
California Franchise Tax Board’s Demurrer to Plaintiff’s Third Amended Complaint is SUSTAINED, Without Leave to Amend.