Judge: Elaine W. Mandel, Case: 24SMCV02697, Date: 2024-11-19 Tentative Ruling

Case Number: 24SMCV02697    Hearing Date: November 19, 2024    Dept: P

Tentative Ruling

Tax Resolution Plus, Inc. v. Dijar Corporation, Case no. 24SMCV02697

Hearing date November 19, 2024

Defendant’s Motion for Sanctions

Plaintiff Tax Resolution Plus, Inc. sues defendant Dijar Corporation for breach of contract arising from the alleged failure to pay $84,909.92 for tax consulting services. Defendant moves for sanctions of $14,108.22, arguing the complaint was filed for an improper purpose, and plaintiff is attempting to enforce an illegal contract. Defendant requests judicial notice and objects to the declaration of plaintiff’s witness Shawn Zali.

Defendant’s Request for Judicial Notice

Defendant requests judicial notice of: (1) IRS Notice 2008-43 entitled “Contingent Fees Under Circular 230”; (2) IRS Feb. 13, 2024 News release entitled “7 Warning Signs Employee Retention Credit Claims May be Incorrect”; (3) IRS July 26, 2024 News release entitled “More Warning Signs of Incorrect Claims For the Employee Retention Credit”; and (4) May 14, 1990 Articles of Incorporation for Dijar Corporation. GRANTED.

Defendant’s Evidentiary Objections

Defendant’s 11 evidentiary objections to the declaration of Shawn Zali are OVERRULED.

Defendant’s Motion for Sanctions

Under CCP §128.7 sanctions may only be imposed where claims are presented for an improper purpose, lack factual support, have no basis in law or to deter frivolous filings, not to punish parties for asserting legitimate claims. California law mandates a court must view the evidence in a light most favorable to the party against whom sanctions are sought.

Defendant argues the parties’ contract is void as a matter of public policy, as it contemplates fraud, since defendant retained plaintiff to file for an employee retention credit for which it allegedly did not qualify. Defendant argues plaintiff attempted to engage in fraud by pursuing this credit on behalf of an unqualified entity, making the contract is unenforceable. This is unavailing. The contract between the parties was allegedly for legal tax consulting services.

Defendant argues the underlying contract is void as a matter of public policy. Defendant asserts the IRS bars contingency fee agreements for tax services, and the contract contained a contingency fee agreement. Plaintiff notes the IRS only bars contingency fee agreements for tax return filing services, not consulting services. Defendant’s argument is unavailing; the contract was not illegal nor void as a matter of public policy.

Defendant argues plaintiff’s allegations lack evidentiary basis, and plaintiff is unlikely to identify sufficient evidence through discovery. Defendant asserts plaintiff’s claim for $84,909.92 is arbitrary, as defendant did not deposit the funds received as part of the credit, so no evidence exists supporting the claim. Plaintiff’s claim is for unpaid fees for tax consulting services provided to defendant, which bears no relationship to funds allegedly received by defendant from the IRS.

Plaintiff argues the contract between the parties and Zali’s declaration establish the necessary evidentiary foundation for a breach of contract claim. Decl. Zali para. 13. Plaintiff alleged existence of a contract, plaintiff’s performance and defendant’s breach, such that the FAC has evidentiary basis. The argument that plaintiff cannot produce additional evidence through discovery is speculative.

Defendant argues the FAC was brought for an improper purpose to coerce defendant into paying, and the complaint is based on an illegal contract and unsupported by evidence. This is duplicative of prior arguments. Plaintiff’s FAC is allegedly based on a legal and enforceable contract and is supported by sufficient allegations of facts to establish proper purpose. There is no basis for the court to impose sanctions. DENIED.