Jerron West, Inc. v. State of Cal., State Bd. of Equalization
| Decision Date | 29 January 1998 |
| Docket Number | No. 96-17209,96-17209 |
| Citation | 129 F.3d 1334 |
| Parties | 97 Cal. Daily Op. Serv. 9140, 98 Daily Journal D.A.R. 1066 JERRON WEST, INC., a California corporation, dba/J. Hettinger Interiors; Jerry Hettinger, individually; Ronald Smith, Plaintiffs-Appellants, v. STATE OF CALIFORNIA STATE BOARD OF EQUALIZATION; Board of Equalization of California, State of California State Board of Equalization Members; Johan Klehs; Dean Andal; Ernest J. Dronenburg, Jr.; Brad Sherman; Kathleen Connell, State Controller and Does 1 through 25, inclusive, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Edward O.C. Ord and Christian M. Winther (on the briefs), Ord & Norman, San Francisco, CA, for plaintiffs-appellants.
Paul D. Gifford, Deputy Attorney General, Oakland, CA, for defendants-appellees.
Appeal from the United States District Court for the Northern District of California; Charles A. Legge, District Judge, Presiding. D.C. No. CV-96-02687-CAL.
Before: CHOY, ALARCON and T.G. NELSON, Circuit Judges.
Plaintiffs-appellants Jerry A. Hettinger, Ronald Smith, and Jerron West, Inc. ("the Corporation") (collectively, "the Taxpayers") appeal the district court's dismissal for lack of jurisdiction of their 42 U.S.C. § 1983 action seeking to enjoin the California State Board of Equalization ("Board") from conducting administrative tax collection proceedings against them for the assessment and collection of state sales tax. We affirm the district court's dismissal because we hold that the Tax Injunction Act, 28 U.S.C. § 1341, divests the federal courts of jurisdiction over this action.
Hettinger and Smith are the two principals of the Corporation. Each own 50% of the Corporation's stock. In 1993, an employee left the Corporation and reported allegations of tax evasion by the Taxpayers to the IRS and the Board. Events followed which eventually led the Taxpayers to this court.
In May 1993, a government search of the Corporation's premises under an uncontested, valid warrant resulted in the confiscation of several volumes of records. After a lengthy investigation, the IRS Criminal Investigation Division recommended criminal prosecution of Hettinger and Smith for various income tax violations allegedly committed in 1989, 1990, and 1991. The U.S. Attorney General filed a nine-count information against them on December 12, 1996. On December 16, 1996, Hettinger and Smith were arraigned and entered not guilty pleas.
In August 1993, the Board conducted a sales tax audit of the Corporation, and on November 29, 1993, the Board issued a Notice of Determination for the period beginning April 1, 1989, and ending March 31, 1993. The notice proposed $683,132.19 as the total amount owed for sales taxes due, interest, and civil fraud penalties.
On December 29, 1993, the Corporation petitioned the Board for a redetermination, requesting a hearing on the matter. The Corporation also requested a stay of the hearing and any other administrative proceedings until the criminal investigation against Hettinger and Smith had concluded or the federal criminal statute of limitations had expired. The Corporation wrote to the Board on numerous occasions regarding a stay, claiming that a failure to grant it would result in a denial of the Taxpayers' constitutional rights. The Board denied the requests and set the redetermination hearing for August 21, 1996. The Corporation again requested a stay, asserting the same constitutional grounds. The Board again denied its request.
On July 29, 1996, the Taxpayers filed a civil rights action for an injunction and declaratory relief in district court alleging that the Board's denial of the stay requests violated their federally-protected civil rights. Specifically, they alleged the following: (1) violation of their Fifth Amendment right against a taking of property without due process of law; (2) violation of their Fifth Amendment right to remain silent and to decline to incriminate themselves; (3) violation of their Fourth Amendment right against illegal searches and seizures; and (4) violation of their post-indictment right to move to suppress evidence under the Federal Rules of Criminal Procedure.
The Taxpayers filed an Ex Parte Motion for Temporary Restraining Order, Order to Show Cause, Preliminary Injunction, and Expedited Hearing in the district court. The district court denied the motion for a temporary restraining order and dismissed the action on August 13, 1996. The court determined that the Tax Injunction Act, 28 U.S.C. § 1341, deprived it of jurisdiction because the Taxpayers seek to enjoin, suspend, or restrain state tax proceedings and the Taxpayers had an adequate state remedy. The Taxpayers moved for reconsideration, but the court denied the motion on October 1, 1996.
Meanwhile, on August 21, 1996, the Board held the redetermination hearing. On September 18, 1996, the Board issued a Notice of Redetermination concluding that the Corporation 1) "has not presented any evidence to show that the retail sales established in the audit computations are excessive; 2) ... has not presented any evidence to show that certain sales are exempt on the basis of being made in interstate commerce."
On October 30, 1996, the Taxpayers timely appealed the district court's dismissal.
We must first address the Board's assertion that this appeal should be dismissed as moot. The Board contends that the complaint seeks an injunction barring it from conducting the administrative redetermination hearing and proceedings until after the completion of any criminal proceedings. The Board argues that an injunction is now pointless because it conducted the administrative hearing on the Taxpayers' petition for redetermination on August 21, 1996, and issued a notice of denial on September 18, 1996.
A controversy is moot if effective relief cannot be granted. Continental Casualty Co. v. Fibreboard Corp., 4 F.3d 777, 778 (9th Cir.1993). "The question is not whether the precise relief sought at the time the application for an injunction was filed is still available ... [but] whether there can be any effective relief." Northwest Envtl. Defense Ctr. v. Gordon, 849 F.2d 1241, 1244-45 (9th Cir.1988). The Board correctly asserts that the complaint seeks an injunction barring the Board from proceeding with the redetermination hearing. However, the complaint also seeks "[a]ny other relief in law or in equity that the Court deems appropriate." Thus, although the district court cannot enjoin proceedings that have already occurred, it still has the power to attempt to fashion an effective remedy to redress the alleged violations. Id. at 1245 (). Accordingly, the Taxpayers' action is not moot.
The Taxpayers assert that the district court erred in dismissing their complaint for lack of subject matter jurisdiction. A dismissal for lack of subject matter jurisdiction is a question of law reviewed de novo. Evans v. Chater, 110 F.3d 1480, 1481 (9th Cir.1997). The Taxpayers primarily contend that the Tax Injunction Act, 28 U.S.C. § 1341, ("Act") is inapplicable because it is a narrow jurisdictional withdrawal statute that only applies to actions challenging the constitutionality of California's sales tax and its accompanying procedures. They argue that their action is not barred by the Act because they merely seek to vindicate their civil rights by enjoining the Board's unconstitutional conduct. We disagree.
The Act states that "[t]he district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." 28 U.S.C. § 1341. Based on a plain reading of the statute, the district court does not have jurisdiction over the Taxpayers' action if it seeks district court interference with California's tax assessment and collection process. The only exception is where a state does not provide the Taxpayers with an adequate state remedy. We must first determine whether the Taxpayers seek district court interference with California's tax assessment and collection process as prohibited by the Act.
The relevant portion of California's sales tax assessment procedure is as follows. The Board initially conducts an audit and then issues a notice of its determination. The taxpayer can petition the Board for a redetermination of that assessment. See CAL. REV. & TAX. CODE § 6561. 1 The taxpayer can also request an oral hearing regarding the redetermination. See § 6562. After the redetermination process is complete, the Board issues a notice of its decision, and the assessed amount will become final and collectible 30 days after service of notice. See §§ 6564, 6565. If the taxpayer wishes to further contest the assessment, the taxpayer must pay the tax owed and then file an administrative claim for a refund. See § 6901 et seq. The taxpayer can also file a state court action for a refund after the Board has issued its decision on the refund claim. See § 6933.
The Taxpayers' action in federal district court seeks to enjoin the Board's redetermination hearing and any other proceedings while the threat of federal prosecution is pending. This request falls squarely within the prohibitions of the Act. The assessed tax is not due and collectible until 30 days after the Board has held the redetermination hearing and served its decision. See § 6564. Thus, the hearing and the administrative proceedings that the Taxpayers seek to enjoin in federal court are an integral part of California's sales tax assessment and collection scheme. See §§ 6561-62, 6565.
Any other form of effective relief from the allegedly unconstitutional assessment would...
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