People ex rel. Franchise Tax Bd. v. Superior Court

• Decision Date: 07 February 1985
• Citation: 210 Cal.Rptr. 695,164 Cal.App.3d 526
• Court: California Court of Appeals Court of Appeals
• Parties: The PEOPLE of the State of California, acting By, Through, and for the FRANCHISE TAX BOARD of the State of California, Petitioner, v. The SUPERIOR COURT of the State of California for the County of Los Angeles, Respondent; SAFECO LIFE INSURANCE COMPANY, a Washington corporation, Real Party in Interest. Civ. B003338.

Page 695

210 Cal.Rptr. 695

164 Cal.App.3d 526

The PEOPLE of the State of California, acting By, Through, and for the FRANCHISE TAX BOARD of the State of California, Petitioner, v. The SUPERIOR COURT of the State of California for the County of Los Angeles, Respondent;

SAFECO LIFE INSURANCE COMPANY, a Washington corporation, Real Party in Interest.

Civ. B003338.

Court of Appeal, Second District, Division 3, California.

Feb. 7, 1985.

As Modified Feb. 25, 1985.

Hearing Denied April 25, 1985. ^*

[164 Cal.App.3d 532] John K. Van de Kamp, Atty. Gen., Edmond B. Mamer and Herbert A. Levin, Deputy Attys. Gen., for petitioner.

Parker, Milliken, Clark, O'Hara & Samuelian, Los Angeles, Richard L. Carico, San Francisco, Richard D. Robins, and Claire D. Johnson, Los Angeles, for respondent and real party in interest.

DANIELSON, Associate Justice.

The People of the State of California, acting through the Franchise Tax Board (FTB) have filed a petition for a writ of mandate to compel respondent superior court to vacate its order denying the petition of the FTB for an order to compel compliance with its subpoena duces tecum and to make a new and different order compelling such compliance. We grant the petition.

THE ISSUES PRESENTED

The issues presented in this proceeding are whether an administrative subpoena duces tecum issued by the FTB requiring an insurance company to identify policyholders under its deferred annuity plan and to disclose the [164 Cal.App.3d 533] amounts of interest and other income credited to the custodian accounts of those policyholders (1) was regularly issued, (2) whether it violates the right to privacy guaranteed by article I, section 1, of the California Constitution, (3) whether it violates the California Right To Financial Privacy Act, and (4) whether the FTB can be estopped to change its position retroactively as to the taxability of certain income, in a special proceeding under Government Code section 11188 to compel compliance with that administrative subpoena.

STATEMENT OF THE CASE

On February 25, 1982, the FTB issued a subpoena duces tecum (subpoena) to, and on March 2, 1982, served it on, Safeco Life Insurance Company (Safeco). ¹

The subpoena sought the following information:

"Names, addresses and social security numbers for each individual with a California address who is, or was, a policyholder in Safeco Life Single Premium Deferred Annuity Program for the period beginning January, 1977 through December, 1980.

"Furthermore, all books, records, statements and/or schedules indicating the amount of interest or other income credited to each individual's custodian account for the period beginning January, 1977 through December, 1980."

The subpoena was issued after a change in position by the FTB as to the taxability of income accumulated to the custodian accounts of policyholders in the Safeco Life Single Premium Deferred Annuity Program.

In early 1976 the FTB, following the lead of the Internal Revenue Service (IRS), had ruled that income accumulated and credited to an investor's custodian account during the period of accumulation between the purchase date [164 Cal.App.3d 534] and the annuity date would not be currently taxable as income to the annuitant but would be taxable to the custodian account as income earned by a trust. In May, 1977 the FTB, again following the lead of the Internal Revenue Service, changed its position to provide that such income would be includable in the gross income of the annuitant in the year so credited and would not be taxable to the custodian account as income earned by a trust.

The changed position of the FTB differed from that of the IRS in that the change of the IRS would apply only prospectively, but the change announced by the FTB would be retroactive to the date on which the policies were purchased.

The declaration of the representative of the FTB, requesting issuance of the subpoena, stated that FTB had determined "that the income and/or interest received by investors from the Safeco Life Single Premium Deferred Annuity Program is taxable" and that the FTB was requested to issue the subpoena "[i]n order to establish the taxable income of the individual investors". On its face, the subpoena recited that "The statutory purpose of this subpoena is to determine if the policyholders of Safeco Life Single Premium Deferred Annuity Program have complied with the provisions of the Personal Income Tax Law."

Contending that the subpoena suffered from statutory and constitutional defects, Safeco did not comply with it.

When Safeco failed and refused to attend and produce the papers as required by the subpoena, the FTB petitioned respondent superior court, pursuant to Government Code sections 11186, 11187 and 11188, for an order compelling Safeco to attend, testify, and produce the papers. ² The court [164 Cal.App.3d 535] ordered

Safeco to appear before the court and show cause why it had not complied with the subpoena and why it should not be ordered to do so

After hearing argument, the court denied the petition of the FTB on January 26, 1983. The FTB filed a notice of appeal from the minute order, which we dismissed on May 2, 1983, without prejudice to the right of the FTB to seek a writ of mandate. (Barnes v. Molino (1980) 103 Cal.App.3d 46, 51, 162 Cal.Rptr. 786.) The FTB filed a petition for writ of mandate on January 26, 1984 ³ and on March 7, 1984, we issued an alternative writ requiring respondent court to vacate its order and make an order granting the petition of the FTB or to show cause why a peremptory writ ordering it to do so should not issue.

CONTENTIONS

The court's minute order recited that it denied the petition of the FTB "... for all of ..." (emphasis in original) the following reasons:

"The petition of the Franchise Tax Board should be denied because the subpoena was not regularly issued by the head of the department as that requirement has been interpreted by the courts of California.

"The subpoena duces tecum issued by the Franchise Tax Board violates the right to privacy of the policyholders as guaranteed by both Article I, Section 1 of the California Constitution and the California Right to Financial Privacy Act.

"The Franchise Tax Board is estopped from retroactively changing the method of taxing the investment annuities. Thus the subpoena seeks records which are irrelevant to any valid statutory purpose. Finally, the subpoena is overbroad. It does not relate to a particular taxpayer's records." (Emphasis in original.)

[164 Cal.App.3d 536] In its petition for writ of mandate the FTB controverts each of those reasons.

Further, the FTB contends that 1) the writ should issue because it has no plain, speedy and adequate remedy in the ordinary course of law to review the respondent court's order; 2) the respondent court's order is a failure of that court to exercise its jurisdiction and an act in excess of its jurisdiction, and that 3) the making of the order granting the relief for which the FTB had petitioned is an act the performance of which the law specially enjoins as a duty resulting from that court's office, trust and station. (Code Civ.Proc., §§ 1085-1086.)

In support of its contentions the FTB argues, inter alia, that it cannot be estopped or enjoined from the collection of any tax and that the refusal of the respondent court to compel compliance with its subpoena does, in effect, "prevent or enjoin the collection of" personal income tax in violation of California Constitution, article XIII, section 32.

DISCUSSION

Mandamus is the appropriate remedy to compel an inferior tribunal to perform a non-discretionary act which the law specially enjoins; the writ must be issued in all cases where there is no plain, speedy and adequate remedy in the ordinary

course of the law. By issuing the alternative writ we have determined that the FTB has no other adequate remedy and this is a proper case for the exercise of our original jurisdiction. (Code Civ.Proc., §§ 1085, 1086; Lewis v. Barclay (1868) 35 Cal. 213; Johnson v. Superior Court (1929) 102 Cal.App. 178, 191, 383 P. 331; Tri-County Elevator Co. v. Superior Court (1982) 135 Cal.App.3d 271, 273, fn. 1, 185 Cal.Rptr. 208.)

The Duty and Authority of the FTB To Investigate

The Franchise Tax Board is charged with the duties of administering and enforcing the Personal Income Tax Law. ⁴ (Rev. & Tax.Code, §§ 17001, 19251.) For the purpose of administering those duties, including determining or collecting the liability of any person imposed by the Personal Income Tax Law, the FTB has been given broad statutory powers. Those powers include the power to examine any data relevant to that purpose, to require the attendance of any person having knowledge in the premises, to take [164 Cal.App.3d 537] testimony, administer oaths and to require material proof for its information. The FTB may also issue subpoenas duces tecum which may be served on any person for any purpose. (Rev. & Tax.Code, § 19254, fn. 1, ante.)

The Jurisdiction Of The Superior Court In A Special Proceeding Under Government Code Sections 11187 And 11188 ^4.1

Respondent court erred in ruling that the subpoena "... was not regularly issued by the head of the department as that requirement has been interpreted by the courts of California." (Emphasis in original order.)

Sections 11180-11191 statutorily authorize investigations by each department of the executive branch of our state government of all matters under the jurisdiction of the department. As a part of those investigations section 11181 authorizes the department to inspect books and records and to "[i]ssue subpoenas for the attendance of witnesses and the production of papers, books, accounts, documents and testimony in any inquiry, investigation, hearing or proceeding pertinent or material thereto ...." This authority is substantially the same as that granted specifically to the FTB by Revenue and Taxation Code section 19254, supra (fn. 1). ⁵ These...