Sav-On Drugs, Inc. v. Superior Court

• Decision Date: 08 August 1975
• Docket Number: SAV-ON
• Citation: 538 P.2d 739,123 Cal.Rptr. 283,15 Cal.3d 1
• Court: California Supreme Court
• Parties: , 538 P.2d 739 DRUGS, INC., Petitioner, v. The SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; Allen E. BOTNEY, Real Party in Interest. L.A. 30375.

Page 283

123 Cal.Rptr. 283

15 Cal.3d 1, 538 P.2d 739

SAV-ON DRUGS, INC., Petitioner, v. The SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent;

Allen E. BOTNEY, Real Party in Interest.

L.A. 30375.

Supreme Court of California,

In Bank.

Aug. 8, 1975.

Lawler, Felix & Hall, Richard D. DeLuce and Bruce R. Corbett, Los Angeles, for petitioner.

No appearance for respondent.

Allen E. Botney, in pro. per., for real party in interest.

RICHARDSON, Justice.

Petitioner, seeking a writ of prohibition, is one of several defendants in a class action currently pending in the Los Angeles County Superior Court. That court granted the motion of plaintiff (real party in interest) for an order compelling petitioner to answer certain interrogatories concerning petitioner's state sales tax returns. Petitioner contends that the information sought is privileged or otherwise immune from discovery. We agree, in part, and issue the writ as to one of the interrogatories.

Since the dispute arises from the interrelationship between the sales tax and trading stamps, and to give meaning to the setting from which the litigation arises, we review certain general principles affecting tax and stamp. The sales tax is imposed on the gross receipts of a retailer (Rev. & Tax.Code, § 6051), but the retailer shall collect reimbursement of the tax 'from the consumer in so far as it can be done.' (Rev. & Tax.Code, § 6052.) Trading stamps given on taxable sales are considered a cash discount, and therefore are deductible from the retailer's gross receipts. (Eisenberg's White House, Inc. v. State Board of Equalization, 72 Cal.App.2d 8, 11, 164 P.2d 57; Rev. & Tax.Code, § 6012, subd. (c)(1).) However, a retailer who charges customers sales tax on the basis of the full sales price, but pays tax to the state on the basis of the sales price less the deduction, obviously collects from his customers more tax than he pays the state. (Cal.Admin.Code, tit. 18, § 1700(2) (B).) In such a situation, a statutory obligation of repayment is imposed upon the retailer in favor of, alternatively, the customer or the state. (Rev. & Tax.Code, § 6054.5.) To meet this obligation the State Board of Equalization by administrative regulation requires that retailers either (1) reduce the sales price upon which tax reimbursement is charged so it will correspond to the price upon which the retailer computes the tax he pays the state; (2) give the customers trading stamps for the total amount paid, i.e., both total retail sales price and the amount of tax charged; or (3) take no deduction from gross receipts on account of the cost of the stamps. (Cal.Admin.Code, tit. 18 § 1700(2)(B).)

Real party in interest brought this class action on behalf of himself and all others similarly situated against six defendant retailers, including petitioner Sav-On. Originally, the third amended complaint contained three causes of action. The first cause of action alleges that petitioner did not comply with any of the above three procedures, and that as a result petitioner charged excessive sales taxes to its customers, constituting the class which real party in interest claims to represent. The second caust of action alleges that petitioner did comply with the second procedure listed above, i.e., did give trading stamps for both the total retail sales and the amount of tax reimbursement charged, but that nonetheless such a procedure fails adequately to compensate customers for the tax charged, resulting again in a charge to customers of excessive sales taxes. The third cause of action did not concern the three alternative procedures but alleged instead that petitioner took an illegal deduction in determining its gross receipts, and thus paid the state less tax than it should have. Counsel informs us that petitioner has withdrawn this third cause of action, conceding that it fails to state a valid claim for relief.

During the course of pretrial discovery, real party in interest served upon petitioner three interrogatories which are the subject of petitioner's attack. Interrogatory 40 asks what specific deductions or adjustments petitioner made in respect to sales tax returns for the years 1967--1971, inclusive, and also what law or regulation permits them. Interrogatory 41 questions whether petitioner used a certain tax return form for the years in question. Interrogatory 42, directed at copies of the tax returns, inquires if petitioner has copies, where they are located, who the custodian is, and whether petitioner voluntarily will make them available to real party in interest. Petitioner objected to these questions on the grounds that the tax material was privileged, and that the laws upon which any deductions were based were not discoverable. The superior court granted real party in interest's motion to compel answers to the above interrogatories and the instant petition followed.

Preliminary, it may be observed that the prerogative writ is not the favored method of reviewing discovery orders. Ordinarily the aggrieved party must raise the issue on direct appeal from a final judgment. (Pacific Tel. & Tel. Co. v. Superior Court, 2 Cal.3d 161, 169, 84 Cal.Rptr. 718, 465 P.2d 854; Oceanside Union School Dist. v. Superior Court, 58 Cal.2d 180, 185--186, fn. 4, 23 Cal.Rptr. 375, 373 P.2d 439.) The premise upon which this general policy rests is that in the great majority of cases the delay due to interim review of discovery orders is likely to result in greater harm to the judicial process by reason of protracted delay than is the enforcement of a possibly improper discovery order. (2 Cal.3d at p. 170, 84 Cal.Rptr. 718, 465 P.2d 854.) Nonetheless, we have concluded that the instant case comes with in an exception recognized in Pacific Tel., supra, 2 Cal.3d at p. 170, fn. 11, 23 Cal.Rptr. 375, 373 P.2d 439 and more recently in Roberts v. Superior Court, 9 Cal.3d 330, 335--336, 107 Cal.Rptr. 309, 508 P.2d 309, to the effect that we may properly entertain a petition for extraordinary relief when the petitioning party asserts, as here, that no compel an answer would violate a privilege.

In considering the merits, we review first petitioner's claim that real party in interest cannot by discovery require disclosure of the specific statutes and administrative regulations supporting the tax deductions at issue herein. This is correct. Both the California Revenue and Taxation Code and the California Administrative Code are as readily available to real party in interest as to petitioner and no purpose of discovery is served by compelling the latter to perform legal research for the former. (Alpine Mutual Water Co. v. Superior Court, 259 Cal.App.2d 45, 54, 66 Cal.Rptr. 250.) Further, the request in essence seeks the legal reasoning and theories behind petitioner's contention that any sales tax deductions it took are proper. A party's contention may be the subject of discovery, but not the legal reasoning or theory behidn the contention. (Burke v. Superior Court, 71 Cal.2d 276, 284--285, 78 Cal.Rptr. 481, 455 P.2d 409; Southern Pacific Co. v. Superior Court, 3 Cal.App.3d 195, 197--198, 83 Cal.Rptr. 231.)

Petitioner next argues that the information sought by interrogatory 40, relating to the deductions and adjustments taken by it in the years 1967--1971, is privileged, and therefore not subject to discovery. (Code Civ.Proc., §§ 2030, subd. (b) and 2016, subd. (b).) Petitioner primarily relies in this connection upon Revenue and Taxation Code section 7056, which states in pertinent part: '. . . it is unlawful for the board or any person having an administrative duty under this part to make known in any manner whatever the business affairs, operations, or any other information pertaining to any retailer . . . required to report to the board or pay a tax pursuant to this part, or the amount or source of income, profits, losses, expenditures, or any particular thereof, set forth or disclosed in any return,...