Berjikian v. Franchise Tax Bd.

• Decision Date: 12 January 2015
• Docket Number: B252427
• Court: California Court of Appeals Court of Appeals
• Parties: ENNA BERJIKIAN, et al., Plaintiffs and Appellants, v. FRANCHISE TAX BOARD, et al., Defendants and Respondents.

ENNA BERJIKIAN, et al., Plaintiffs and Appellants, v. FRANCHISE TAX BOARD, et al., Defendants and Respondents.

B252427

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN

January 12, 2015

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. BC514589)

APPEAL from a judgment of the Superior Court of Los Angeles County, Michael L. Stern, Judge. Reversed and remanded.

Vicken O. Berjikian, A Professional Law Corporation, and Freeman M. Butland for Plaintiffs and Appellants.

Kamala D. Harris, Attorney General, Paul D. Gifford, Senior Assistant Attorney General, W. Dean Freeman, William D. Gardner, Michael Yi, Marta L. Smith, and Leslie Branman Smith, Deputy Attorneys General, for Defendants and Respondents.

____________________

INTRODUCTION

Appellants Enna and Vicken Berjikian¹ challenge the constitutionality of Business and Professions Code section 494.5,² under which respondent Department of Motor Vehicles (the DMV) automatically suspended both the Berjikians' driver's licenses, and respondent Board of Pharmacy (the Pharmacy Board) automatically suspended Enna's pharmacist's license, after the Berjikians' names appeared on respondent Franchise Tax Board's (the FTB)³ list of the state's 500 most delinquent taxpayers.

Respondents demurred to the Berjikians' complaint, arguing that the Berjikians' action is barred under the California Constitution and the Revenue and Taxation Code because the Berjikians did not pay their outstanding tax liabilities prior to filing their complaint. Respondents also argued that even if the Berjikians' claims are not procedurally barred, section 494.5 is constitutional, and the DMV's and the Pharmacy Board's decisions made pursuant to that statute do not violate the Berjikians' due process or equal protection rights. The trial court sustained respondents' demurrer without leave to amend as to the Berjikians' entire complaint, imposed $5,000 in sanctions against the Berjikians, and entered judgment dismissing the Berjikians' action. We reverse the judgment, reverse in part the order sustaining the demurrer, and reverse the order imposing sanctions.

FACTUAL AND PROCEDURAL BACKGROUND

The following factual summary is drawn from the Berjikians' complaint. (See Howard Jarvis Taxpayers Ass'n v. City of La Habra (2001) 25 Cal.4th 809, 814 (HowardJarvis) [we assume the truth of the plaintiffs' pleaded facts when reviewing a judgment of dismissal following a sustained demurrer].)

1. The Berjikians' Licenses and Tax Liabilities

In 1981, Enna Berjikian received a pharmacist's license from the Pharmacy Board; she later received a license to practice law from the California State Bar in 2006. In 1983, Vicken Berjikian received a license to practice law from the California State Bar. At some time prior to their initiation of the instant lawsuit, the Berjikians received driver's licenses from the state.

In 1997, the FTB issued the Berjikians two Notices of Proposed Assessment (NPA), one assessing the Berjikians' outstanding tax liability for the 1990 tax year, and the other assessing the Berjikians' outstanding tax liability for the 1991 tax year. In 1998, the FTB issued the Berjikians three more NPAs assessing the Berjikians' outstanding tax liabilities for the 1992, 1993, and 1994 tax years. In April 2011, the FTB sent the Berjikians a sixth assessment addressing the Berjikians' outstanding tax liability for the 2004 tax year. The NPAs issued in 1997 and 1998 informed the Berjikians that they had 60 days to challenge the FTB's assessments in writing and, if requested, through an oral hearing before the FTB.

For the 1999, 2002, and 2008 through 2011 tax years, the Berjikians filed tax returns and assessed their own tax liabilities.

The Berjikians never administratively challenged any of the FTB's assessments. At the time the Berjikians initiated the instant case, they owed the FTB nearly $450,000, which consists of more than $100,000 in unpaid taxes.

2. The Berjikians' License Suspensions

The Berjikians' names appear on the FTB's list of the state's 500 most delinquent taxpayers owing more than $100,000 in unpaid taxes (delinquency list). In May 2013, after receiving the FTB's delinquency list, the DMV sent the Berjikians notice that pursuant to section 494.5, their driver's licenses would be suspended effective September 20, 2013. The DMV's notice informed the Berjikians that their licenses would be reinstated once their names are removed from the delinquency list. That same month, thePharmacy Board informed Enna that her pharmacist's license would be suspended pursuant to section 494.5 effective August 30, 2013. After receiving notice of their pending license suspensions, the Berjikians submitted to the FTB requests to have their names removed from the delinquency list due to alleged financial hardship. In July 2013, the FTB summarily denied the Berjikians' requests.

3. Court Proceedings

On July 9, 2013, the Berjikians filed a complaint against respondents seeking injunctive and declaratory relief. The complaint alleged that the DMV's and the Pharmacy Board's enforcement of section 494.5 violated the Berjikians' federal and state due process and equal protection rights. Respondents demurred, arguing the complaint should be dismissed because the Berjikians' claims were barred by Article XIII, section 32 of the California Constitution and Revenue and Taxation Code sections 19381 and 19382⁴ as a result of the Berjikians' failure to pay their outstanding tax liabilities prior to filing their complaint. Alternatively, respondents argued the complaint should be dismissed because their enforcement of section 494.5 did not violate the Berjikians' due process or equal protection rights.

On October 16, 2013, the trial court sustained respondents' demurrer without leave to amend. The trial court found the Berjikians' lawsuit was procedurally barred due to the Berjikians' failure to pay their outstanding tax liabilities prior to filing their complaint. The trial court also found that the Berjikians failed to allege a sufficient statutorily conferred interest or benefit to support a due process challenge to section 494.5. Notwithstanding these findings, the court addressed the merits of the Berjikians' claims, finding that respondents' enforcement of section 494.5 did not violate the Berjikians' due process or equal protection rights. After sustaining respondents' demurrer without leave to amend, the trial court imposed $5,000 in sanctions against the Berjikians, finding that the Berjikians' claims were factually and legally groundless. (SeeRev. & Tax. Code, § 19714.) Judgment of dismissal was entered, and this timely appeal followed.

DISCUSSION

I. Standard of Review

We apply a de novo standard of review to a trial court's order of dismissal following an order sustaining a demurrer. (Los Altos El Granada Investors v. City of Capitola (2006) 139 Cal.App.4th 629, 650.) In other words, we exercise our "independent judgment about whether the complaint states a cause of action as a matter of law." (Ibid.) "In reviewing a judgment of dismissal after a demurrer is sustained without leave to amend, we must assume the truth of all facts properly pleaded by the plaintiffs, as well as those that are judicially noticeable." (Howard Jarvis, supra, 25 Cal.4th at p. 814.)

When a demurrer "is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Such a showing can be made for the first time before the reviewing court. (Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 711.) "The burden of proving such reasonable possibility is squarely on the plaintiff." (Blank, supra, 39 Cal.3d at p. 318.)

A demurrer may be sustained without leave to amend where, " 'the facts are not in dispute, and the nature of the plaintiff's claim is clear, but, under the substantive law, no liability exists.' [Citation.]" (Seidler v. Municipal Court (1993) 12 Cal.App.4th 1229, 1233.) "A judgment of dismissal after a demurrer has been sustained without leave to amend will be affirmed if proper on any grounds stated in the demurrer, whether or not the court acted on that ground." (Carman v. Alvord (1982) 31 Cal.3d 318, 324.)

II. Relevant Statutory Framework

Under the Revenue and Taxation Code, the FTB is required to examine a taxpayer's tax return to determine whether the taxpayer reported the proper amount oftaxes. (Rev. & Tax. Code, § 19032.) In the event the FTB determines that the taxpayer disclosed taxes less than what the taxpayer actually owes, the FTB must notify the taxpayer of the deficiency. (Rev. & Tax. Code, § 19033.) Once the FTB's notice is mailed, the taxpayer has 60 days to file a written protest against the deficiency assessment. (Rev. & Tax. Code, § 19041.) If the taxpayer fails to timely challenge the deficiency assessment within 60 days of the date notice is mailed, the assessment becomes final. (Rev. & Tax. Code, §§ 19041 & 19042.) If the taxpayer files a timely challenge, the FTB is required to reconsider its assessment and, if the taxpayer so requests, must afford the taxpayer an oral hearing. (Rev. & Tax. Code, § 19044.) After a timely challenge, if the taxpayer is dissatisfied with the FTB's decision, the taxpayer may appeal that decision to the State Board of Equalization (the SBE). (Rev. & Tax. Code, § 19045.)

Under Revenue and Taxation Code section 19195, subdivision (a), the FTB is required to publish at least...