Franchise Tax Bd. v. the Superior Court of The City

• Decision Date: 13 July 2011
• Docket Number: No. S176943.,S176943.
• Citation: 252 P.3d 450,125 Cal.Rptr.3d 158,51 Cal.4th 1006
• Court: California Supreme Court
• Parties: FRANCHISE TAX BOARD, Petitioner,v.The SUPERIOR COURT of the City and County of San Francisco, Respondent;Tom Gonzales, as Personal Representative, etc., Real Party in Interest and Respondent.

51 Cal.4th 1006

252 P.3d 450

125 Cal.Rptr.3d 158

11 Cal. Daily Op. Serv. 6816

2011 Daily Journal D.A.R. 8189

FRANCHISE TAX BOARD, Petitioner,

v.The SUPERIOR COURT of the City and County of San Francisco, Respondent;Tom Gonzales, as Personal Representative, etc., Real Party in Interest and Respondent.

No. S176943.

Supreme Court of California

June 6, 2011.Rehearing Denied July 13, 2011.

OPINION TEXT STARTS HERE Edmund G. Brown, Jr., and Kamala G. Harris, Attorneys General, David S. Chaney, Chief Assistant Attorney General, Gordon Burns, Deputy State Solicitor General, Paul D. Gifford, Assistant Attorney General, William L. Carter and Jeffrey A. Rich, Deputy Attorneys General, for Petitioner.No appearance for Respondent.Martin A. Schainbaum and Bryant W.H. Smith, San Francisco, for Real Party in Interest and Respondent.CORRIGAN, J.

[51 Cal.4th 1009 , 252 P.3d 451]

Does a taxpayer have the right to a jury trial in an action for a refund of state income taxes? The Court of Appeal said yes, reasoning that the gist of such an action is legal and therefore a jury trial is guaranteed by the state Constitution. We reverse.

The facts are undisputed, and may briefly be stated. Real party in interest Tom Gonzales, as personal representative of his son's estate, filed a complaint in 2006 seeking a refund of state personal income taxes for the years 2000 and 2001. Gonzales alleged that the estate had paid over $15 million as part of a tax amnesty program, reserving the right to seek a refund. He demanded a jury trial. The trial court denied a motion by defendant Franchise Tax Board to strike the jury demand. On the Board's application for writ relief, the Court of Appeal issued an order to show cause. After thorough consideration of the parties' arguments, the court declined to disturb the trial court's ruling as to the refund action, deciding as a matter of first impression that there is a state constitutional right to a jury trial in an action for a refund of state income taxes.¹ We granted the Board's petition for review.

DISCUSSION

The statutes governing suits for income tax refunds from the state are silent on the right to a jury trial. (Rev. & Tax.Code, § 19381 et seq.) ² Gonzales relies on article I, section 16 of the California Constitution, which declares that “[t]rial by jury is an inviolate right and shall be secured to all....” It is settled that the state constitutional right to a jury trial “is the right as it existed at common law in 1850, when the Constitution was first adopted, ‘and what that right is, is a purely historical question, a fact which is to be ascertained like any other social, political or legal fact.’ [Citations.]” ( C & K Engineering Contractors v. Amber Steel Co. (1978) 23 Cal.3d 1, 8, 151 Cal.Rptr. 323, 587 P.2d 1136; see also Corder v. Corder (2007) 41 Cal.4th 644, 656, fn. 7, 61 Cal.Rptr.3d 660, 161 P.3d 172; Crouchman v. Superior Court (1988) 45 Cal.3d 1167, 1173–1174, 248 Cal.Rptr. 626, 755 P.2d 1075; People v. One 1941 Chevrolet Coupe (1951) 37 Cal.2d 283, 286–287, 231 P.2d 832.)

“As a general proposition, ‘[T]he jury trial is a matter of right in a civil action at law, but not in equity.’ [Citations.]” ( C & K Engineering Contractors v. Amber Steel Co., supra, 23 Cal.3d at p. 8, 151 Cal.Rptr. 323, 587 P.2d 1136.) “[I]f the action is essentially one in equity and the relief sought ‘depends upon the application of equitable doctrines,’ the parties are not entitled to a jury trial.” ( Id. at p. 9, 151 Cal.Rptr. 323, 587 P.2d 1136.) And “if a proceeding otherwise identifiable in some sense as a ‘civil action at law’ did not entail a right to jury trial under the common law of 1850, then the modern California counterpart of that proceeding will not entail a constitutional right to trial by jury. [Citations.]” ( Crouchman v. Superior Court, supra, 45 Cal.3d at p. 1174, 248 Cal.Rptr. 626, 755 P.2d 1075.) ³

We have explained that if the action deals with “ ‘ordinary common-law rights cognizable in courts of law, it is to that extent an action at law. In determining whether the action was one triable by a jury at common law, the court is not bound by the form of the action but rather by the nature of the rights involved and the facts of the particular case—the gist of the action. A jury trial must be granted where the gist of the action is legal, where the action is in reality cognizable at law. [¶] ... The constitutional right of trial by jury is not to be narrowly construed. It is not limited strictly to those cases in which it existed before the adoption of the Constitution but is extended to cases of like nature as may afterwards arise. It embraces cases of the same class thereafter arising.’ ” ( People v. One 1941 Chevrolet Coupe, supra, 37 Cal.2d at pp. 299–300, 231 P.2d 832, fn. omitted.)

Here, the Court of Appeal reasoned that the “gist” of a claim for a tax refund is legal. The plaintiff seeks monetary relief, and the proceeding is “in the nature of an action in assumpsit” ( Northrop Aircraft v. Cal. Emp. etc. Com. (1948) 32 Cal.2d 872, 879, 198 P.2d 898), a common law form of action at law ( Jogani v. Superior Court (2008) 165 Cal.App.4th 901, 906–907, 81 Cal.Rptr.3d 503). The court was persuaded by the rationale of United States v. State of N.M. (10th Cir.1981) 642 F.2d 397 ( New Mexico ), where the Tenth Circuit Court of Appeals observed that jury trials were available at common law in actions against tax collectors to recover illegally exacted taxes. Accordingly, the New Mexico court concluded that “the right of a taxpayer to a jury trial in refund cases is rooted in the common law and was preserved by the Seventh Amendment.” ( Id. at p. 401; see also Department of Revenue v. Printing House (Fla.1994) 644 So.2d 498, 500 [following New Mexico and recognizing state constitutional right to jury trial in statutory tax refund actions].)

The Court of Appeal's reasoning is not without support. A tax refund action is legal rather than equitable in character. And in England and early America, common law actions for refunds were brought against officers who collected taxes and duties, though in some cases recovery was limited to amounts assessed without jurisdiction and did not extend to overcharges.⁴

However, it is a general proposition, not an absolute rule, that the right to a jury trial attaches when the “gist” of the action is legal. ( C & K Engineering Contractors v. Amber Steel Co., supra, 23 Cal.3d at p. 8, 151 Cal.Rptr. 323, 587 P.2d 1136.) The “gist” test does not apply in administrative proceedings. ( McHugh v. Santa Monica Rent Control Bd. (1989) 49 Cal.3d 348, 379–380, 261 Cal.Rptr. 318, 777 P.2d 91.) We have also held that the legal nature of small claims actions does not bring with it the right to a jury trial. ( Crouchman v. Superior Court, supra, 45 Cal.3d at p. 1175, 248 Cal.Rptr. 626, 755 P.2d 1075.) And in Sonleitner v. Superior Court (1958) 158 Cal.App.2d 258, 322 P.2d 496, the court ruled that a jury trial was not available in a tax collection proceeding, even though the proceeding was statutorily designated “an action at law.” Observing that the statutory proceeding was not equivalent to a common law debt collection action ( id. at p. 261, 322 P.2d 496), the Sonleitner court noted that “the test is whether the gist of the action is legal in a common law context ” ( id. at p. 262, 322 P.2d 496, italics added). We look to whether a claim arising under a modern statute is “of like nature” or “of the same class” as a common law right of action. ( People v. One 1941 Chevrolet Coupe, supra, 37 Cal.2d at p. 300, 231 P.2d 832.)

Notwithstanding the Tenth Circuit's opinion in New Mexico, supra, 642 F.2d at pages 400–401, statutory actions for tax refunds from the government have generally not been placed in the same class as the common law right of action against individual tax collectors. Most courts have viewed actions for a refund from the government as new and distinct proceedings, subject to such conditions as the legislative branch sees fit to impose. At common law, sovereign immunity barred actions against the government, by way of jury trial or otherwise. ( People v. Superior Court (Pierpont) (1947) 29 Cal.2d 754, 756, 178 P.2d 1; Galloway v. United States (1943) 319 U.S. 372, 388, 63 S.Ct. 1077, 87 L.Ed. 1458; 5 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, §§ 203, 210, pp. 343–344, 354–355.) The right to a jury trial provided by the Seventh Amendment to the United States Constitution does not apply in statutory actions against the federal government. ( Lehman v. Nakshian (1981) 453 U.S. 156, 160–161, 101 S.Ct. 2698, 69 L.Ed.2d 548.) ⁵ That rule applies in tax refund actions. ( Wickwire v. Reinecke (1927) 275 U.S. 101, 105, 48 S.Ct. 43, 72 L.Ed. 184 ( Wickwire ).)⁶ Several states have followed the federal example and refused to recognize a state constitutional right to a jury trial in tax refund cases. ( Coeur d'Alene Lakeshore v. Kootenai County (1983) 104 Idaho 590, 661 P.2d 756, 762; C.W. Matthews Contracting Co. v. S.C. Tax Comn. (1976) 267 S.C. 548, 230 S.E.2d 223, 226; Dexter Horton Bldg.Co. v. King County (1941) 10 Wash.2d 186, 116 P.2d 507, 511; see also Jernigan v. Jackson (Tenn.1986) 704 S.W.2d 308, 309 [rejecting claim of right to jury trial without reference to federal law].)

Before we examine California's experience with common law and statutory refund actions, we briefly review the development of federal procedure in this area, which shows that the common law right of action was effectively superseded by statute well before California's statehood. The United States Supreme Court first recognized the right to seek refunds from tax collectors in 1836, when it ruled that collectors of customs duties were personally liable for illegal assessments even if they had transferred the money to the treasury. ( Elliott v. Swartwout, supra, 35 U.S. 137, 159.) However, the claim permitted in Elliott “had, as a strictly common law action, a short and...