Opinion
A128989
09-20-2011
CALIFORNIA LOGISTICS, INC., Plaintiff and Appellant, v. EMPLOYMENT DEVELOPMENT DEPARTMENT OF THE STATE OF CALIFORNIA, Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Alameda County Super. Ct. No. RG09453960)
As described in a related opinion, California Logistics, Inc. "is a California corporation engaged in the business of arranging delivery for its clients." For a number of years it has been attempting to vindicate its belief "that the drivers who perform the deliveries for its clients are independent contractors rather than employees." (California Logistics, Inc. v. State of California (2008) 161 Cal.App.4th 242, 245.) The latest attempt is this dispute with the Employment Development Department (EDD) about whether California Logistics is required to make unemployment insurance contributions on behalf of its drivers, whom EDD treats as employees and not independent contractors.
California Logistics filed a complaint for refund of "disputed assessment[s] paid under protest" to EDD. The trial court sustained EDD's demurrer with leave for California Logistics to amend in order to allege that it had exhausted its administrative remedies prior to commencing its refund action. California Logistics then filed an amended complaint, to which the trial court again sustained EDD's demurrer with leave for California Logistics to amend in order to allege that it had exhausted its administrative remedies. California Logistics elected to stand on its complaint, following which the trial court entered an order of dismissal.
California Logistics filed an appeal, contending that its complaint qualifies under two exceptions to the exhaustion requirement. We reject the contention , and we affirm.
The following is not in dispute: California Logistics acquired L & D Browne Enterprises, Inc. (L & D) in 2003. During the first quarter of 2006, EDD issued two assessments totaling $1,032,668.09 against California Logistics—for itself and for L & D—comprising unemployment insurance contributions, interest, and penalties for the period January 1, 2003 to September 30, 2005. In February 2006, California Logistics filed claims for refund. But it was not until May 20, 2009, that California Logistics paid the $38,733.14 currently due and owing for the amount of the assessment attributable to L & D.
Two days later, California Logistics commenced this litigation. California Logistics' original complaint apparently sought to recover the entire amount of both assessments. However, in its order sustaining EDD's first demurrer, the trial court noted that California Logistics was "apparently only seeking a refund" of the smaller sum it had actually paid, and the court directed California Logistics to "omit from any amended pleading any suggestion" that the larger, as yet unpaid, assessment was at issue. California Logistics accepts that only the $38,733.14 is "at issue in the present matter."
The Court of Appeal in Merchandising Concept Group, Inc. v. California Unemployment Ins. Appeals Bd. (2010) 181 Cal.App.4th 1274 explained the analytical paradigm to be used:
"The California Constitution has granted the Legislature the power to prescribe the manner of proceeding in an action to recover a tax paid. (Patane v. Kiddoo (1985) 167 Cal.App.3d 1207, 1214 (Patane). Specifically, article XIII, section 32, of the California Constitution permits a tax refund only 'in such manner as may be provided by the Legislature.' [¶] The Legislature has adopted sections of the Unemployment Insurance Code [from which all subsequent statutory citations are derived] to 'implement th[is] constitutional provision,' which 'impose as a condition to the maintenance of an action to recover unemployment insurance taxes the exhaustion of administrative remedies.' (Patane, supra, 167 Cal.App.3d at p. 1214.)" (Merchandising Concept Group, Inc. v. California Unemployment Ins. Appeals Bd., supra, 181 Cal.App.4th 1274, 1279, fn. omitted.)
"Although exhaustion of administrative remedies is generally thought of as a judicially developed rule, in the case of an action to recover a tax paid, it is a statutory creation of the Legislature pursuant to the grant of power given in article XIII, section 32 . . . . This requirement of exhaustion is found in section 1241, subdivision (a). While the first sentence of subdivision (a) seems to require only the filing of the claim for refund, the second sentence of subdivision (a) makes clear a decision from the [Unemployment Insurance] Appeals Board . . . regarding the petition for review of the denial of claim for refund is also necessary for exhaustion.
"Thus, taking the statutory scheme as a whole, the Legislature has mandated the following six steps before a claimant may bring a lawsuit against the Employment Development Department to recover a tax paid in the unemployment insurance arena: (1) the claimant files a claim for refund or credit (§§ 1178, subd. (a), 1241, subd. (a)); (2) the director of the Employment Development Department denies the claim for refund or credit (§§ 1180, 1222); (3) the claimant files a petition for review with an administrative law judge (§ 1222); (4) the administrative law judge reviews the matter and renders a decision (§ 1223); (5) the claimant or director of the Employment Development Department files an appeal to the Appeals Board regarding the petition for review of the denial of the claim for refund (§ 1224); and (6) the Appeals Board issues its order or decision regarding the petition for review of the claim for refund and serves notice of the decision (§ 1224, 1241, subd. (a))." (Merchandising Concept Group, Inc. v. California Unemployment Ins. Appeals Bd., supra, 181 Cal.App.4th 1274, 1280-1281, fns. omitted.)
California Logistics makes no attempt either to plead in its amended complaint, or to argue in its brief, that it completed the administrative refund process before instituting this action at law to recover the assessment it believes was erroneously collected. Instead, it contends it is entitled to invoke two of the exceptions to the requirement that administrative remedies must be exhausted.
The first is the futility exception. " ' "[F]utility is a narrow exception to the general rule" ' requiring exhaustion of remedies. [Citation.] The exception applies only if the party invoking it can positively state that the administrative agency has declared what its ruling will be in a particular case." (Steinhart v. County of Los Angeles (2010) 47 Cal.4th 1298, 1313.) Although there are expressions from the Court of Appeal that the futility exception is categorically unavailable in refund actions (Shiseido Cosmetics (America) Ltd. v. Franchise Tax Bd. (1991) 235 Cal.App.3d 478, 488; Patane, supra, 167 Cal.App.3d 1207, 1214), our Supreme Court has not adopted this view. (See Steinhart v. County of Los Angeles, supra, at p. 1313; see also Agnew v. State Bd. of Equalization (1999) 21 Cal.4th 310, 319-320.)
The second exception is far less known or used. As explained by our Supreme Court: "Ordinarily a taxpayer seeking relief from an erroneous assessment must exhaust available administrative remedies before resorting to the courts. [Citations.] An exception is made when the assessment is a nullity as a matter of law . . . and no factual questions exist . . . , thereby making further litigation unnecessary [citations]." (Stenocord Corp. v. City Etc. of San Francisco (1970) 2 Cal.3d 984, 987.) Exhaustion is not strictly required when the taxpayer is threatened with criminal prosecution, but, again, the threat must be based on a void statute. (Bueneman v. City of Santa Barbara (1937) 8 Cal.2d 405, 408.)
California Logistics' attempt to bring itself within these exceptions is crippled by a matter that goes virtually unmentioned in its brief.
In its order sustaining EDD's initial demurrer, the trial court directed that "Plaintiff is directed to omit from any amended pleading any suggestion that any order in this case excuses it from having to pay taxes indicated on any Notice of Assessment other than the specific Notice that it is challenging in this action." Nevertheless, in its amended complaint California Logistics included a number of allegations detailing how its reasoning for not having to pay unemployment insurance contributions had repeatedly been upheld "in court and in administrative forums." Based on these allegations, California Logistics alleged: "In light of the foregoing circumstances, including . . . defendant EDD's repeated refusal to acknowledge and abide by the prior judicial and administrative decisions confirming the independent contractor status of its subject drivers, defendant EDD's threat to litigate this issue as many times as it wants . . . in light of the State of California's threat of criminal sanctions, in light of the State of California's blanket, across the board refusal to acknowledge that any transportation logistics company could ever properly operate under state law utilizing independent contactor drivers, further administrative action to attempt to obtain a refund of the payment of the disputed assessment is and would be futile." California Logistics further alleged that it "has complied with all pre-conditions for bringing the present action, except such pre-conditions compliance with which is excused."
EDD moved to strike these allegations, and the attached exhibits incorporated therein. The trial court granted this motion contemporaneously with its ruling on EDD's second demurrer.
In its brief, California Logistics complies with this ruling by not citing to any of the stricken allegations or exhibits. However, California Logistics' use of parallel allegations in its original complaint cannot make good the deficiency because it was superseded by the amended complaint which " 'alone will be considered by the reviewing court.' " (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 884; see State Compensation Ins. Fund v. Superior Court (2010) 184 Cal.App.4th 1124, 1131 ["the original complaint ceases to have any effect either as a pleading or as a basis for judgment"]; Baltins v. James (1995) 36 Cal.App.4th 1193, 1205 ["appellate courts will not consider the allegations of a superseded complaint"].) California Logistics thus has no operative allegations putting into play either exception to the exhaustion doctrine. Specifically, California Logistics cannot establish futility because it cannot "positively state" that EDD had publicly declared that California Logistics would lose in any administrative proceeding. (See Steinhart v. County of Los Angeles, supra, 47 Cal.4th 1298, 1313.)
As for the other exception, the unemployment insurance scheme has been upheld so many times that we could not possibly deem it void as an abstract matter of law. (E.g., Cal. Emp. Com. v. L.A. Etc. News Corp. (1944) 24 Cal.2d 421, 427; Abelleira v. District Court of Appeal (1941) 17 Cal.2d 280, 291; Gillum v. Johnson (1936) 7 Cal.2d 744, 761.) This removes the predicate for the criminal threat exception. (Bueneman v. City of Santa Barbara, supra, 8 Cal.2d 405, 408.) Moreover, given that the difference between employee and independent contractor is highly fact-dependent (see Lara v. Workers' Comp. Appeals Bd. (2010) 182 Cal.App.4th 393, 398-401 and authorities cited), it cannot be determined at the pleading stage that all factual questions have been resolved. (See Stenocord Corp. v. City Etc. of San Francisco, supra, 2 Cal.3d 984, 987.)
California Logistics does not contend that EDD's motion to strike portions of the amended complaint was erroneously granted. However, without the allegations thus stricken, and being unable to use its original complaint, California Logistics lacks the wherewithal to mount an attack on the decision to sustain EDD's second demurrer. The unavoidable consequence is that there is no basis for overturning the ensuing dismissal of California Logistics' amended complaint.
The order of dismissal is affirmed.
Richman, J.
We concur:
Haerle, Acting P.J.
Lambden, J.