Judge: Stephen I. Goorvitch, Case: 22STCV17477, Date: 2022-10-21 Tentative Ruling

Case Number: 22STCV17477    Hearing Date: October 21, 2022    Dept: 39

Charles A. Mattera, et al. v. State of California, et al.

Case No. 22STCV17477

Demurrer

[TENTATIVE] ORDER

NOTICE

            The Court will be dark for motions on Friday, October 21, 2022.  The Court posts this tentative order in advance of the hearing.  Any party who wishes the Court to hold a hearing on this motion shall appear on Friday, October 21, 2022, at 8:30 a.m., and shall inform the Court’s clerk, who will continue the hearing to a date when the Court is available.  In the alternative, the parties may email the Court’s clerk at SMCDept39@LACourt.org before Friday, October 21, 2022, at 8:30 a.m. to request a hearing.  Any email shall copy all parties.  If neither party requests a hearing, the Court will decide the motion without holding a hearing and will adopt the following tentative order.

INTRODUCTION

Plaintiff Charles A. Mattera (“Mattera”) and United Studios of Self-Defense, Inc. (the “Studio”) (collectively, “Plaintiffs”) filed this action against two sets of defendants.  First, Plaintiffs named the State of California, Department of Financial Protection and Innovation and certain employees (collectively, the “State of California” or the “State”).  Second, Plaintiffs named three individuals: Kristopher R. Rinehart (“Rinehart”), Tyler Martin (“Martin”), and Anthony L. Davis (“Davis”) (collectively, the “Individual Defendants”).  The State investigated Plaintiffs for alleged tax violations relating to their franchises and filed a proceeding before an administrative law judge.  The Individual Defendants allegedly participated in the investigation.  Plaintiffs filed the instant case seeking declaratory and injunctive relief against the State to prevent the administrative proceeding from going forward.  The Court previously denied Plaintiffs’ motion for a preliminary injunction and now sustains the State’s demurrer without leave to amend.    

PROCEDURAL HISTORY

            The basic facts appear to be undisputed: Mattera and the Studio are longtime licensors and franchisors of martial arts studios.  Plaintiffs have offered and sold two different business models within California, franchises, which are registered with the State in accordance with the California Franchise Investment Law (the “CFIL”), and licenses, which are not.  In January 2022, the State issued a citation alleging 184 violations of the CFIL and seeks disgorgement in excess of $2 million.  Administrative proceedings have begun, and the parties are conducting discovery. 

            On May 26, 2022, Plaintiffs filed a civil complaint against the State and the Individual Defendants, and Plaintiffs filed a first amended complaint on June 10, 2022.  Plaintiffs sought a preliminary injunction enjoining the State from proceeding with the enforcement action before an administrative law judge.  Plaintiffs argued that the State’s action is not authorized by statute and is barred by the doctrine of latches and/or the limitations period.  Plaintiffs argued that the State’s administrative action would deprive them of due process because of lacking discovery.  Plaintiffs argue that potential penalties are not authorized by statute and are unconstitutionally excessive.  Finally, Plaintiffs argued that the State’s order to cancel franchises and licenses deprives them of due process.  Plaintiffs are pursuing their administrative remedies and seek to litigate these issues before the administrative law judge. 

            The Court held a hearing on Plaintiffs’ motion for a preliminary injunction on June 30, 2022, following which the Court denied the motion.  The Court ruled that Plaintiffs “must wait until the conclusion of the administrative proceedings and then proceed by way of a writ of administrative mandate.”  (Court’s Minute Order, dated June 30, 2022.) 

Plaintiffs filed a petition for writ of supersedeas and sought a temporary stay from the District Court of Appeal, Second District, Division Two.  Simultaneously, Plaintiffs argued before this Court that a stay was mandated under Code of Civil Procedure section 916(a).  (See Court’s Minute Order, dated August 29, 2022.)  Plaintiffs’ counsel cited Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th 180.  Inexplicably, the case stands for the opposition proposition: 

[A]n appeal from the denial of a preliminary injunction does not stay further trial court proceedings on the merits. Because the injunction amounts to a mere preliminary or interlocutory order to keep the subject of the litigation in status quo pending the determination of the action on the merits the affirmative or reversal of its denial does not and cannot eliminate the need for additional proceedings on the merits. Section 916 therefore does not automatically stay such proceedings.

(Id., p. 965-966, citations and internal quotations omitted.)  Regardless, the writ was denied on September 1, 2022.

            Plaintiffs named the Individual Defendants in the complaint.  The Individual Defendants filed a case management statement on June 16, 2022, indicating that they intended to file a special motion to strike under Code of Civil Procedure section 425.16, commonly known as an “Anti-SLAPP motion.”  On July 5, 2022, Plaintiffs’ counsel filed a Request for Dismissal with respect to the Individual Defendants. 

            Plaintiffs’ complaint “seek[s] only declaratory and injunctive relief against [the State].”  (First Amended Complaint, ¶ 30.)  After denying Plaintiffs’ motion for preliminary injunction as a matter of law, the Court issued an Order to Show Cause why this case should not be dismissed for the same reasons.  (See Court’s Minute Order, dated June 30, 2022.)  The Court then discharged the OSC in favor of Defendants filing a demurrer.  (See Court’s Minute Order, dated August 29, 2022.)    

LEGAL STANDARD

“It is black letter law that a demurrer tests the legal sufficiency of the allegations in a complaint.”  (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.)  In ruling on a demurrer, the court must “liberally construe[]” the allegations of the complaint.  (Code Civ. Proc., § 452.)  “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.”  (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

DISCUSSION

The Court sustains the demurrer for the same reasons it denied Plaintiff’s motion for a preliminary injunction, and the Court incorporates by reference its minute order of June 30, 2022.  Simply, Plaintiffs’ complaint seeking declaratory and injunctive relief that would prevent the State from prosecuting an administrative proceeding is defective as a matter of law.  In pursuing this action, Plaintiffs are “putting the cart before the horse” by asking this Court to intervene in an ongoing administrative proceeding and stay the administrative case so it may adjudicate Plaintiffs’ defenses to that action.  This is not appropriate.  Rather, Plaintiffs must wait until the conclusion of the administrative proceeding and then proceed by way of a writ of administrative mandamus.  (Code Civ. Proc., § 1094.5; Gov. Code, § 11523.)  A writ of administrative mandamus is the procedure for review of “any final administrative order or decision made as the result of a proceeding in which by law a hearing is required to be given, evidence is required to be taken, and discretion in the determination of facts is vested in the inferior tribunal.”  (Code Civ. Proc., § 1094.5, subd. (a).)  A party cannot seek review of the results of administrative proceedings until the administrative proceedings are complete.  “Intervention by the court before the administrative agency that has resolved the claim would constitute an interference with the jurisdiction of another tribunal.”  (California Correctional Peace Officers Assn. v. State Personnel Bd. (1995) 10 Cal.4th 1133, 1151.)  “Exhaustion of administrative remedies is a jurisdictional prerequisite to resort to the courts.”  (Johnson v. City of Loma Linda (2000) 24 Cal.4th 61, 70, internal quotations and emphasis deleted.)  Plaintiffs must complete the administrative proceedings, and then seek review of the results of the administrative proceedings via a writ of administrative mandamus.  The Court is not persuaded by Plaintiffs’ counsel’s arguments to the contrary. 

CONCLUSION AND ORDER

            Based upon the foregoing, the Court orders as follows:

            1.         Defendants’ demurrer is sustained without leave to amend. 

            2.         Because there are no other defendants, the Court sets no future dates, and this case is dismissed with prejudice.

            3.         This order shall not preclude Plaintiffs from seeking a writ of administrative mandamus at the conclusion of the administrative proceedings, per Code of Civil Procedure section 1094.5 and Government Code section 11523.

            4.         Defendants’ counsel shall provide notice and file proof of such with the Court.