McCLAIN v. SAV-ON DRUGS

Amicus Curiae Brief of League of California Cities and California State Association of Counties

Cal.April 20, 2018

SUPREME COURT FILED No. $241471 ; APR 20 2018 In the Supreme Courtof California Jorge Navarrete Clerk Deputy Michael McClain, Avi Feigenblatt, and GregoryFisher, Plaintiffs, Appellants andPetitioners, VS. Sav-On Drugs,etal., Defendants and Respondents. After a Decision of the Court of Appeal Second Appellate District, Division 2 Case Nos. B265011 and B265029 Affirming a Judgment of Dismissal Following An Order Sustaining Demurrer Without Leave to Amend Los Angeles County Superior Court, Case Nos. BC325272 and BC327216 Honorable John Shephard Wiley, Presiding APPLICATION TO FILE AMICUS CURIAE BRIEF AND BRIEF OF AMICI LEAGUE OF CALIFORNIA CITIES AND CALIFORNIA STATE ASSOCIATION OF COUNTIES *MICHAEL G. COLANTUONO,State Bar No. 143551 MColantuono@chwiaw.us ANDREW C. RAWCLIFFE,State Bar No. 259224 ARawcliffe@chwlaw.us COLANTUONO, HIGHSMITH & WHATLEY, PC 420 Sierra College Drive, Suite 140 GrassValley, California 95945-5091 Telephone: (530) 432-7357 Facsimile: (530) 432-7356 Attorneys for Amici Curiae League of California Cities and California State Association of Counties 191603.6 No. $241471 In the Supreme Court of California Michael McClain, Avi Feigenblatt, and Gregory Fisher, Plaintiffs, Appellants andPetitioners, VS. Sav-On Drugs,etal., Defendants and Respondents. After a Decision of the Court of Appeal Second Appellate District, Division 2 Case Nos. B26501 | and B265029 Affirming a Judgment of Dismissal Following An Order Sustaining Demurrer Without Leave to Amend Los Angeles County Superior Court, Case Nos. BC325272 and BC327216 Honorable John Shephard Wiley, Presiding APPLICATION TO FILE AMICUS CURIAE BRIEF AND BRIEF OF AMICI LEAGUE OF CALIFORNIA CITIES AND CALIFORNIA STATE ASSOCIATION OF COUNTIES *MICHAEL G. COLANTUONO,State Bar No. 143551 MColantuono@chwiaw.us ANDREW C. RAWCLIFFE, State Bar No. 259224 ARawcliffe@chwlaw.us COLANTUONO, HIGHSMITH & WHATLEY, PC 420 Sierra College Drive, Suite 140 GrassValley, California 95945-509 | Telephone: (530) 432-7357 Facsimile: (530) 432-7356 Attorneys for Amici Curiae League of California Cities and California State Association of Counties 191603.6 TABLE OF CONTENTS CERTIFICATE OF INTERESTED ENTITIES OR PERSONS..........ccsessesssessseees 6 APPLICATION FOR PERMISSION TO FILE AMICUS CURIAEBRIEF.......... 7 IDENTITY OF AMICUS CURIAE AND STATEMENT OF INTEREST.......... 8 INTRODUCTIONQuceceeessstesssecssssescnscsesssenscssensseceseenecsussecsrssesecseseessnsessesseees 10 ARGUMENTuceseesesssseescestesssesstecncsnsseesesssensesscsssessscssecnscsuesucsecasseneeessuseesssssess 10 I. THIRD-PARTY ECONOMIC INCIDENCE EXTENDS BEYOND SALES AND USE TAXES.......csesssssssessssstesssnscsssssecessrensenseeees 10 Il. ECONOMIC INCIDENCE DOES NOT CONFER STANDING TO CHALLENGE ATAX ..ecessssssssscsssscssecssesssccsveestessenssrenssseessseusreeneess 14 HI. LEGAL INCIDENCEIS A MATTER OF LAW; ECONOMIC INCIDENCEIS A QUESTION OF FACT REQUIRING EXPERT EVIDENCE...scccssssscseesssesssssesssssessessssssssesssorsseceensensseenes 22 CONCLUSION100eessccsscessscssnssnessseecasssssssssssecssssecssssussesesaserersesereeesesseenseesies 23 CERTIFICATE OF COMPLIANCE1...ccstesessscssssssssssssccecsecessseescearcsssesesseeasens 25 2 191603.6 TABLE OF AUTHORITIES Page(s) Federal Cases Dowsv. City of Chicago (1870) 78 U.S. 108 oseeeseseeeeeeseseeesseseescsesessssseuesessseeseeseseeeseseeerssssenes 17 Fulton Corp. v. Faulkner (1996) 516 U.S. 325 weeeeetees tees eeeeseesesesessessneneeeeneseeseneeseessnese 22, 23 State Cases Andalv. Stockton (2006) 137 Cal-App.4th 86 oo... cccesesessessseeseeseecsneseeeesssetsnsseeneeseeesees 18 Ardonv. City of Los Angeles (2011) 52 Cal4th 241oceesseeeeeeeesesesesesnesesnenenensneneseeseeneseeneneeses21 California Cannabis Coalition v. City of Upland (2017) 3 Cal5th 924ocecesecessesescscsssenesesssesseeensssnseesesessesesnsssnenessens21 Century Plaza Hotel Co. v. City of Los Angeles (1970) 7 Cal.App.3d 616 ....ccecesseesesessessessssecseessenssensesesesssseenenenenes 13 Chiatello v. City and County of San Francisco (2010) 189 CalApp.4th 472...cecccssseesesseeseeseneneens 14, 15, 17, 20, 21 City ofModesto v. Modesto Irrigation Dist. (1973) 34 Cal.App.3d 504.0... ecesseseseeeseeseseesesneseseessseeeneneesesaneneseeeees 12 City of San Diego v. Shapiro (2014) 228 Cal.App.Ath 756.0... cescccsssseessseressetenesesseeerseseessseeneseeeenenses22 Cornelius v. Los Angeles County etc. Authority (1996) 49 Cal.App.4th 1761...cceeceeesesesseseessenesecteneeeenensseesenenenenenes 15 Creed-21 v. City of Wildomar (2017) 18 Cal-App.5th 690... ccsccsssssesseseesecsessesecesesesesseeenssseseeneseeees20 191603.6 Decorative Carpets, Inc. v. State Bd. of Equalization (1962) 58 Cal.2d 252occceeeeeeeesneceesecsesteseeseeseeesessessseenecsnens 18 Howard Jarvis Taxpayers Ass'n v. City of Fresno (2005) 127 Cal.App.4th 914.0...cecessescssecesnessesseeenessanseeestees 19 Inland Oversight Committee v. City of Ontario (2015) 240 Cal-App.4th 1140oo.eeeceeeeeeeeeeseeneneseenees 11, 12 Jacks v. City of Santa Barbara (2017) 3 Cal.5th 248oo.cccseeeesseceecseseeeeeneeseseeeeeees 11, 14, 15, 16, 21 Loeffler v. Target Corp. (2014) 58 Cal.4th 1081 oo.ceeeeeeeeeeerseseeeese serene 11, 16, 19 McClain v. Sav-on Drugs (2017) 9 CalApp.5th 684.0... seeceeeeseeneeseeneeeereneene 10, 11, 18 Occidental Life Ins. Co. v. State Bd. of Equalization (1982) 135 Cal.App.3d 845 uo. sscsccssessessesteseeessessesseeeetsnessseensseenesesnes 14 Scol Corp. v. City of Los Angeles (1970) 12 Cal.App.3d 805 .....ccceccecesssesessesesesesessseeseseseseneeesesssesenes13 Sipple v. Hayward (2014) 225 Cal.App.4th 349 oo. ecececceseetsteeeeesssneesenseneneesees 17, 18, 21 Torres v. City of Yorba Linda (1993) 13 Cal.App.4th 1035.0... ccescceseesecssseneseteneeesenseensnenenees 15, 20 In re Transient Occupancy Tax Cases (2016) 2 Cal5th 131...ecceseeeeeetsesesteseeneneeneneneees 10, 13, 15, 16, 19 Weatherford v. City of San Rafael (2017) 2 Cal.5th 1241 oeccceeceeeeeeneseeneees 14, 15, 16, 17, 19, 20, 23 Western States Bankcard Assn. v. City and County of San Francisco (1977) 19 Cal.3d 208oe.eects eeensesessesscsesesesnesssenscsecsesceneasensesesces 19 191603.6 Statutes Codeof Civil Procedure, § 5268.0... csseeeeesecreesseeesceseeeerseesenes 15, 16 Revenue & Taxation Code, § 7200 occceseccceceeesceseeeecteeesenneens 7,19 Streets & Highway Code, § 36600...........cccsccceceecseeeseeseseseseetereneenenenees 11 Streets & Highway Code, § 36601, Subd (b).......ccccceccecsetetsteseeteeseneees 12 Streets & Highway Code, § 36632......cccccccssseseesesereesersseeseesereeneenees 12 Rules California Rules of Court, Rule 8.204(c) occeee esceesceeseeeseseneeeeeaeeees25 California Rules of Court, Rule 8.488............ccccccccccssccseceeeseeeetseeerseeenes6 California Rules of Court, Rule 8.520(b)occcece ceeseceeeseeeteeeeeeeeees25 California Rules of Court, Rule 8.520(f) oo... eeeccceeescceeeeseseseeteseesees 7 Other Authorities Cal. Municipal Law Handbook(Cont. Ed. Bar 2018) §§ 5.189 — 5.197, pp. 591-593 uo.ceccececseeseceseseseseseseneseeseseenesseaeeesseees 11 Pasadena Municipal Code, § 4.101.130 ......ccccccesseseseesceteteteseeeneenees12 San Diego Municipal Code, § 61.2510, subd. (a)(8)......---::seeesseeeeseees12 5 191603.6 CERTIFICATE OF INTERESTED ENTITIES OR PERSONS There are no entities or persons that must belisted in this certificate under California Rules of Court, rule 8.488. DATED: April 12, 2018 COLANTUONO, HIGHSMITH & WHATLEY, PC MICHAEL G. COLANTUONO ANDREW C. RAWCLIFFE Attorneys for Amici Curiae League of California Cities and California State Association of Counties 191603.6 APPLICATION FOR PERMISSION TO FILE AMICUS CURIAE BRIEF To the Honorable Chief Justice Tani Cantil-Sakauye: Pursuant to California Rules of Court, rule 8.520(f), the League of California Cities (the “League”) and the California State Association of Counties (“CSAC”), respectfully request permission to file the attached amicus curiae brief. This application is timely madewithin 30 daysof the filing of the reply brief on the merits. Counsel for the League and CSAC have reviewedthe parties’ briefs on file in this case and believe that additional briefing would be helpful to the Court. The League and CSAC have a substantial interest in this case because the local governments they represent are beneficiaries of the Bradley-Burns Uniform Sales and Use Tax and Transactions and Use Taxes, administered by the California Department of Tax and Fee Administration on a commonbasis for the State andall cities and counties. (Stats. 1955, ch. 1311; Rev. & Tax. Code, § 7200 et seq.) Although local government revenue streams vary, local sales and use tax revenue constitute a large fraction of city and county discretionary revenue, funding essential services for city and county residents, businesses and property owners. The League and CSAC therefore have an interest in the orderly administration of the state sales and usetax. The League and CSAC take no position on the merits of Appellants’ claim they are entitled to a refund remedy.Instead, the 7 191603.6 League and CSAC write to provide a wider policy framework for deciding this case and, in the event the Court wereto find a refund remedy appropriate, encourage the Court to write narrowly to avoid unintended consequences for the cities and counties who are not party to this case but might be affected by its outcome. The League and CSAC believe the brief will aid this Court and respectfully request leavetofile it. IDENTITY OF AMICUS CURIAE AND STATEMENT OF INTEREST The Leagueis an association of 474 California cities dedicated to protecting andrestoring local control to provide for the public health, safety, and welfare of their residents, and to enhance the quality oflife for all Californians. The Leagueis advised byits Legal Advocacy Committee, comprised of 24 city attorneys from all regions of the state. The Committee monitors litigation of concern to municipalities and identifies those cases of state or national significance. The Committee has identified this case as having such significance. | CSACis a non-profit corporation. The membership consists of the 58 California counties. CSAC sponsorsa Litigation Coordination Program administered by the County Counsels’ Association of California and overseen by the Association's Litigation Overview Committee, comprised of county counsels throughoutthe state. The 191603.6 Litigation Overview Committee monitorslitigation of concern to counties statewide and has determinedthat this case affectsall counties. DATED: April 12, 2018 COLANTUONO, HIGHSMITH & WHATLEY, PC / MICHAEL G. COLANTUONO ANDREWC. RAWCLIFFE Attorneys for Amici Curiae League of California Cities and California State Association of Counties 191603.6 INTRODUCTION Amici do not advocate for or against a refund remedy for those who bear the economicincidence of state sales taxes without bearing their legal burden. Instead, Amici write to limn the broader policy context in which the distinction betweenthelegal and economic incidence of taxes arises and to encourage this Court to write narrowly should it find a refund remedy for those who bear the economic, but notlegal, burden of a revenue measure, to avoid disrupting local governmentfinance. ARGUMENT 1. THIRD-PARTY ECONOMIC INCIDENCE EXTENDS BEYONDSALES AND USE TAXES The distinction between the taxpayer whois legally obliged to paysales taxes here and the consumers whobearthe economic incidence of those taxes in most instances (McClain v. Sav-on Drugs (2017) 9 Cal-App.5th 684, 698 (McClain)) is not uniqueto the state sales tax. As the Court of Appeal observed, the division between the “legal taxpayer” and “economic taxpayer” is an inherent feature of the state sales tax law.(Ibid.) But this structure is not “peculiar” to the state sales tax. (Ibid.) In fact, local governments obtain substantial funding for essential public services from revenue measuresthat follow similar models, such as hotel bed taxes and franchise fees. (In re Transient 10 191603.6 Occupancy Tax Cases (2016) 2 Cal.5th 131 [San Diego TOT not incidenton online resellers of hotel stays]); Jacks v. City of Santa Barbara (2017) 3 Cal.5th 248, 262 (Jacks) [Santa Barbara’s franchise fee on electric utility passed through to customers nota tax for that reason alone].) Local governments charge fees for a variety of franchise rights. (Cal. Municipal Law Handbook (Cont. Ed. Bar 2018) §§ 5.189 — 5.197, pp. 591-593 [discussing electrical, eas, water, video, and telephonefranchises].) While franchisees bearthe legal incidence of suchfees(i.e., the legal duty to pay), consumers or ratepayers typically bear the economicincidence(i.e., cost). (E.g., Jacks, supra, 3 Cal.5th atp. 271.) Electrical utilities, for example, recover the cost of franchise fees by includingthe fee in their rates or as a separate item on bills. (Id. at pp. 266-267.) Retailers similarly recover sales taxes from their customers except, perhaps, on “sales tax holidays.” (McClain, supra, 9 Cal.App.5th at pp. 689, 692-693;see also Loeffler v. Target Corp. (2014) 58 Cal.4th 1081, 1093, 1103-1109 (Loeffler) [a separate “sales tax reimbursement” may bechargedorthesales tax maybeincludedin item’s cost].) Local business improvementdistrict assessments that fund public facilities and services are similarly structured. (Sts. & Hy. Code, § 36600 et seq.; see generally Inland Oversight Committee v. City of Ontario (2015) 240 Cal.App.4th 1140, 1145 & fn. 4 (Inland Oversight Committee).) Local governments use business assessments to fund 11 “191603.6 facilities and services to aid businesses andcreatejobs. (Sts. & Hy. Code, § 36601, subd (b).) The tourism marketing district described in Inland Oversight Committee is an example. Formed to market and promote the hotel industry and tourism, hotel marketing districts are financed by an assessment on lodging businesses authorized to passit through to their guests, which typically must showit on hotelbills if they do. (Inland Oversight Committee, supra, 240 Cal.App.4that p. 1141, citing Sts. & Hy. Code, § 36632; e.g., San Diego Mun. Code, § 61.2510, subd.(a)(8); see also Pasadena Mun. Code, § 4.101.130.)! | Local governments also require third parties to collect taxes andfees legally incident on customers of those businesses. The legal incidence of a utility user tax, for example,falls on utility users, not suppliers. (City ofModesto v. Modesto Irrigation Dist. (1973) 34 Cal.App.3d 504, 505-506.) Yet, utility suppliers mustcollect the tax from their ratepayers and remitit to local governments.(Ibid.) Thus, an incidental but not insubstantial economic burdenof the tax necessarily falls on utility suppliers which are often themselves exempt from the tax to reflect their contribution of services.(Id. at 1 Amici requestjudicial notice of the municipal code sections cited in this brief in the accompanying Motion for Judicial Notice (“MJN”), dated April 12, 2018. 12 191603.6 p. 508 [tax collection costs would exceed tax revenue withoutthis meansof tax collection].) Transient occupancy taxesare similarly structured.(In re Transient Occupancy Tax Cases (2016) 2 Cal.5th 131 [hotel operators collect and remit transit occupancy tax levied on their guests].) So, too, was the tippler’s tax. (Scol Corp. v. City of Los Angeles (1970) 12 Cal.App.3d 805[retailers collect and remit tippler’s tax levied on customers].)? The Petition — as currently framed — asks the Court to fashion a tax refund remedy for circumstances uniqueto the state sales tax. Yet circumstances in which the legal and economic incidence of a tax do not coincide are not unique. Essential local revenue sources share the third-party tax structure of the state sales tax. Thus, the Court should be cognizant that a broadly worded opinion that embracesthe tax refund remedy the Petition requests may unintentionally destabilize these local revenue sources. 2 This charter city tax was found preempted by state alcohol excise taxes in anothercaseof this era. (Century Plaza Hotel Co. v. City of Los Angeles (1970) 7 Cal.App.3d 616, 622-626.) 13 191603.6 iil. ECONOMIC INCIDENCE DOES NOT CONFER STANDING TO CHALLENGE A TAX The distinction between the legal incidence of a tax (who bears the burdento payit underthe legislation imposing the tax) and the economic incidence of a tax (who ends up payingit after private transactions play out) is fundamentalto tax law. (Occidental Life Ins. Co. v. State Bd. of Equalization (1982) 135 Cal.App.3d 845, 850 [“[u]nder California law the legal incidence and the economic burden are two separate and distinct concepts” ], citation omitted.) Asthis Court recently noted in Jacks: [A]ll that the City ultimately contendsin this regard is that the economicincidence of a charge does not determine whetherit is a tax. We agree. Valid fees do not becometaxes simply because their cost is passed on to the ratepayers. (Jacks, supra, 3 Cal.5th at p. 271.) Thus, this distinction underlies the Court’s standing jurisprudence. Standing fundamentally “reflects a sensitivity to broader prudential and separation of powersconsiderations elucidating how and when parties should be entitled to seek relief.” (Weatherford v. City of San Rafael (2017) 2 Cal.5th 1241, 1248 (Weatherford).) “The issue of standing is determined by the courts as a matter of policy.” (Chiatello v. City and County of San Francisco (2010) 189 Cal.App.4th 472, 481 (Chiatello), quotation omitted.) 14 191603.6 It has long been held that the legal incidence of a tax — and not its economic incidence — confers standing to challengeit. (Torres v. City of Yorba Linda (1993) 13 Cal.App.4th 1035, 1042 (Torres) [paymentof sales tax did not give non-residents standing to challenge redevelopment project because legal incidence was on retailer]; Cornelius v. Los Angeles County etc. Authority (1996) 49 Cal.App.4th 1761, 1777-1778 (Cornelius) [sales and gas taxes did not give contractor standing to challenge affirmative action program because legal incidence was onretailer and gasoline distributor]; Chiatello, supra, 189 Cal.App.4th at p. 480 [non-payorof tax on partnership distributions lacked standing to challengeit]; see also In re Transient Occupancy Tax Cases, supra, 2 Cal.5th a 139 [hotel bed tax not incident on onlineresellers of hotel stays].) The Court reaffirmed this standing rule in two recentcases. (Jacks, supra, 3 Cal.5th at pp. 256, 271 [taxpayer standing to challenge a local government revenue measure in traditional mandate]; Weatherford, supra, 2 Cal.5th at pp. 1244-1245, 1252 [taxpayer standing to challenge a local government expenditure under Code Civ. Proc., § 526a].) In Weatherford, this Court rejected an interpretation of Code of Civil Procedure section 526a3— legislative grant of standing broader than would exist otherwise — that would confer “unrestricted” taxpayer standing.(2 Cal.5th at p. 1251.) The Court 3 Unspecified section references are to the Code of Civil Procedure. 15 191603.6 instead held section 526a required that the plaintiff had, at a minimum, “paid oris liable to pay, to the defendantlocality a tax assessed on theplaintiff by the defendantlocality.” (Id. at p. 1252.) Simply visiting the community and buying a packet of gum subject to sales tax was notsufficient to confer standing to challenge the municipality’s policies. Yet, Weatherford also recognized local government tax structures mayberelevant in determining taxpayer standing under section 526a. (2 Cal.5th at p. 1252 [“local governments’ tax structures might shed somelight on the consequences of a requirement that taxes be directly assessed against a plaintiff’ ].) Jacks also accepted that courts look to a revenue measure’s legal incidence, notits economic incidence, to determine standing.(3 Cal.5th at p. 271.) The Court howeverhas notdefinitively outlined the contours of taxpayer standing. (Weatherford, supra, 2 Cal.5th at pp. 1256-1257 (conc. opn. of KrugerJ.) [noting § 526a could be read to confer standing on anyone whoindirectly paysa local sales tax].) The Legislature has somerole to play in doingso. (Id., at p. 282, conc. opn. of Cantil-Sakauye, C.J.) In the century since section 526a was adopted, tax law and governmentfinance have become exceedingly complex. (Loeffler v. Target Corp. (2014) 58 Cal.4th at pp. 1123, 1127 (maj. opn. of Cantil-Sakauye, C.J.) [sales tax is comprehensive and exceedingly complex]; id. at p. 1136 (dis. opn. of Liu, J.) [same]; vy gt ib eR ne 85 . gp E & O R E N Soo Be 16 191603.6 Weatherford, supra, 2 Cal.5th at p. 1254. (conc. opn. of Cantil-Sakauye, C.J.) [examples of local and state revenue measures].) Taxes and other revenuesare, of course, the “lifeblood of modern government” andit is therefore a legal truism that special care mustbe taken in tax litigation so essential revenues are “interfered with as little as possible.” (Chiatello, supra, 189 Cal.App.4th at pp. 475, 492.) It has long been understood that even temporary interference “may derange the operations of government, and thereby causeserious detrimentto the public.” (Id. at p. 489, fn. 7, quoting Dowsv. City of Chicago (1870) 78 U.S. 108, 110, opn.of Field,J.) Amici therefore urge the Court to write narrowly and with attention to this broader contextif it identifies a refund remedy for those whoallegedly bear the economic incidenceof a tax, but not the legal obligation to payit. If not, the Court risks inadvertently conferring universal standingif it eliminates the legal incidence requirementin this case orelides the distinction betweenthelegal and economic incidences of revenue measures. Courts have broadly relied upon this Court's sales tax remedy jurisprudenceto find standing for challenges to local government revenue measures.In Sipple v. Hayward (2014) 225 Cal.App.4th 349, 358-363 (Sipple) for instance, the Court of Appeal held a cellphone company hadstanding to pursue a tax refund from a large group of cities and two countiesfor the benefit of a class of its customers who 17 191603.6 had prevailed in a federalclass action litigated outside this state in the absenceof local taxing agencies. By conferring standing on a business to sue for refund for a tax it did not pay, Sipple acknowledgedit was charting newterritory. (Id. at p. 361 [no published case closely resembled the disputeat issue].) Sipple, nevertheless, broadly read this Court's state sales tax refund remedy cases as support for standing under whatthat court viewed as “unique circumstances”of the case. (Id. at p. 361, citing Decorative Carpets, Inc. v. State Bd. of Equalization (1962) 58 Cal.2d 252, 256.) Taxpayer standing wasalso extended in Andalv. Stockton (2006) 137 Cal.App.4th 86 (Andal). There, three cell carriers challengeda fee the city levied on its customers.(Id. at p. 89.) Althoughthe businesses had no duty to pay the fee, but merely to collect it, Andal found the fee’s administrative burden on the businesses conferred standing to challengeit. (Id. at pp. 94-95.) Thus, if the Courtis inclined to fashion a consumersales tax refund remedy,it should write so that its conclusion doesnotinvite broad application to other third-party taxes, assessments andfees. Asillustrated above, local revenue measures share the third-party tax structure present here. (McClain, supra, 9 Cal.App.5th atp. 698.) Should the legal incidence / economic incidencedistinction underlying third-party tax structures be lost or obscuredin the fashioning of a tax refund remedyhere, lower courts may extend that analysis to other, local revenue and finance measures.(See 18 191603.6 Howard Jarvis Taxpayers Ass’n v. City ofFresno (2005) 127 Cal.App.4th 914, 925 [courts adhere to the Supreme Court's conclusions evenif dicta].) Courts may even find support for taxpayer standing in consumers who bear the economic, but not legal, burden of the Bradley-Burns Uniform Sales and Use Tax (Rev. & Tax. Code, § 7200 et seq.). (Weatherford, supra, 2 Cal.5th at pp. 1256-1257 (conc. opn.of KrugerJ.) [noting this possibility].) Yet the fiscal stability and orderly operation of local government require taxpayer standing be conferred only on those whobearthe legal incidence of a levy. The alternative is universal standing and perpetuallitigation. (Cf. Western States Bankcard Assn. v. City and County of San Francisco (1977) 19 Cal.3d 208, 217-218 [a levy’s economic incidence is generally “passed downthe commercial chain, link by link, until ... diffused in the pool of ultimate consumers”J.) Litigation costs will rise, too, if the Court erodesthe rule that standing to challenge a tax requires oneto bearits legal incidence. Courts warn of the potential for a “huge volumeoflitigation over the fine points of tax law [{] ... [{]] that could threaten revenue collection and ability of governmentto plan for expenditure.” (Loeffler v. Target Corp., supra, 58 Cal.4th at pp. 1130-1131.) This risk has been repeatedly recognized: [T]he most obvious negative consequence of allowing legal challenges by personslacking a directfinancial 19 191603.6 interest in the operation of a tax is the unacceptable risk of paralyzing the financial stability of local governments with a flood of lawsuits. (Chiatello, supra, 189 Cal.App.4th at p. 476.) A second policy consideration is groundedin studies that have showntaxpayeractions havethe potential of being broughtto, inter alia, improperly harass public officials with vexatious litigation, challenge policy decision, encourage governmental immobility and discourage community action. (Chiatello, supra, 189 Cal.App.4that p. 496, citations omitted.) This possibility only increasesif taxpayer standing is conferred to those who do not bear the legal incidenceof a tax. Consideration should be given to these possibilities. (Weatherford, supra, 2 Cal.5th at p. 1252 [consideration given to consequencesthat will flow from Court's interpretation], quotation omitted.) First, and foremost, the risk ofa flood of litigation is real — not merely an abstractpossibility. (See, e.g., Creed-21 v. City of Wildomar(2017) 18 Cal.App.5th 690, 697-698 (Creed-21) [documenting fee-seeking attorney’s creation of shell corporationsto file over a 100 lawsuits across the state]; Torres, supra, 13 Cal.App.4th at p. 1043 [similar reverse validation proceedingsfiled in multiple communities].) And this exposure is exponentially magnified by the prospect of massive tax refundclass actions. (Ardon v. City of Los 20 191603.6 Angeles (2011) 52 Cal.4th 241, 245 [allowingclass claimsfor tax refunds]; Sipple, supra, 225 Cal.App.4that p. 352 [tax refund class actionfiled against 115 cities and 2 counties].) Second, the paralyzing effect of universal standingis not imaginary, as voter approval requirements limit local governments’ ability to amendor increase revenue measures.(Jacks, supra, 3 Cal.5th at pp. 257-260[challenge to electric franchisefee as alleged tax requiring voter approval, remandedfor proof of a bonafide exchangeof value; California Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924 [challenge to marijuana dispensary licensing fee as a general tax]; Chiatello, supra, 189 Cal.App.4th at p. 496 [noting voter approval requirements make the consequencesfrom persistent challenges to local revenue sources even more problematic].) Thus, if the Court identifies a refund remedy for those who bear the economic, but not legal, burden of a tax, Amici urgeit to write narrowly to ensure that it does not inadvertently disrupt the orderly administration of local revenue measures andstatesales tax. 21 191603.6 Il. LEGAL INCIDENCE IS A MATTER OF LAW; ECONOMIC INCIDENCEIS A QUESTION OF FACT REQUIRING EXPERT EVIDENCE The economic incidence of a revenue measureis not a serviceable test of standing. Economic incidence analysis is complex and can diverge widely from the text of revenue legislation. (City of San Diego v. Shapiro (2014) 228 Cal.App.4th 756, 783, fn. 28, citing Fulton Corp. v. Faulkner (1996) 516 U.S. 325, 341-343 & fn. 7 (Fulton Corp.).) The U.S. Supreme Court stated the point in these terms: It is well established that ‘the ultimate distribution of the burden of taxes [may] be quite different from the distribution of statutory liability’ [citation], with such divergence occurring when the nominal taxpayer can pass it throughto otherparties ... . (Fulton Corp., supra, 516 U.S. at p. 341.) Courts discern the legal incidence of a revenue measure by applying the canonsof construction tolegislation, but economic incidenceis a factualissue that will often be disputable. The U.S. Supreme Court has recognized, “courts as institutions are poorly equipped to evaluate with precision the relative [economic] burden of various methodsof taxation.” (Fulton Corp., supra, 516 U.S.at p. 342.) Economic theory suggests the economic burdenof a levy will vary from placeto place and timeto time based onthe leverage 22 191603.6 of buyers andsellers to particular transactions.(Id. at pp. 341-343 & fn. 7.) And such factual determinations present a potentialforerror. (Id. at p. 342.) Exchanginga fixed standard that applies the ordinaryrules of statutory constructionfor a factualfree-for-all of competing expert opinion is a dangerous precedent.It injects uncertainty and unpredictability into local governmentfinance.It also sets the stage for universal standing in a global economy where the economic incidence of a local levy could be dispersed throughout the country or the world. Economic incidence therefore is simply not an adequate legal tool for determining standing to challenge local revenue and finance measures. CONCLUSION The distinction between the legal and economic incidenceof revenue measuresis fundamental to tax jurisprudence. Limiting standing to those whobear thelegal incidence of the measures they would challenge allows standing to be determined readily as a question of law. Extending standing to those whoclaim to bearthe ‘economic incidence of a tax will create universal standing in many contexts (e.g., the buyer of a packet of gum discussed in Weatherford) and will make standing jurisprudence uncertain. This will destabilize local governmentfinance, increase the risk of litigation, and makethatlitigation more costly to resolve. Accordingly, should 23 191603.6 this Court identify a refund remedy forthe plaintiffs here, Amici urge this Court to write narrowly so as not to destabilize local governmentfinance. DATED: April 12, 2018 COLANTUONO,HIGHSMITH & WHATLEY,PC — {WS MICHAEL G. COLANTUONO ANDREW C. RAWCLIFFE Attorneys for Amici Curiae Leagueof California Cities and California State Association of Counties 24 191603.6 CERTIFICATE OF COMPLIANCE Pursuant to California Rules of Court, rule 8.520(b) and 8.204(c), the foregoing Brief of Amici Curiae contains 3,132 words, including footnotes, but excluding the caption page, tables, Certificate of Interested Entities or Persons, the Application for Leave to File, and this Certificate. This is fewer than the 14,000-word limit set by rules 8.520(b) and 8.204(c). In preparing this certificate, J relied on the word count generated by Wordversion 14, included in Microsoft Office Professional Plus 2010. DATED: April 12, 2018 COLANTUONO, HIGHSMITH & WHATLEY, PC MICHAEL G. COLANTUONO ANDREW C. RAWCLIFFE Attorneys for Amici Curiae Leagueof California Cities and California State Association of Counties 25 191603.6 PROOF OF SERVICE Michael McClain, Avi Feigenblatt, and Gregory Fisher, v. Sav-On Drugs,etal., California Supreme Court Case No. 5241471 I, Ashley A. Lloyd, declare: Iam employed in the County of Nevada, State of California. I am over the age of 18 and not a party to the within action. My business addressis 420 Sierra College Drive, Suite 140, Grass Valley, California 95945-5091. On April 12, 2018, I served the document(s) described as APPLICATION TO FILE AMICUS CURIAE BRIEF ANDBRIEF OF AMICI LEAGUE OF CALIFORNIA CITIES AND CALIFORNIA STATE ASSOCIATION OF COUNTIESon the interested parties in this action addressedas follows: SEE ATTACHEDLIST a BY MAIL: Byplacing a true copy thereof enclosed in a sealed envelope. The envelope was mailed with postage thereon fully prepaid. I am readily familiar with the firm’s practice of collection and processing correspondence for mailing. Underthat practice it would be deposited with the U.S. Postal Service on that sameday with postage thereon fully prepaid at Grass Valley, California, in the ordinary course of business. I am aware that on motionof the party served, service is presumed invalid if the postal cancellation date or postage meter date is more than one dayafter service of deposit for mailing in affidavit. I declare under penalty of perjury under the lawsof the State of California that the aboveis true and correct. Executed on April 12, 2018, } Grass Valley,yf Ashley A. Lloyd/ | / 26 191603.7 SERVICELIST Michael McClain, Avi Feigenblatt, and Gregory Fisher, v. Sav-On Drugs,etal, California Supreme Court Case No. 5241471 ThomasAlistair Segal Taras Peter Kick Robert James Dart Gerald JamesStrenio Attorneys for Plaintiffs and Appellants, Michael McClain, Aui Feigenblatt, and Gregory Fisher The Kick Law Firm, APC 201 Wilshire Blvd., Suite 350 Santa Monica, CA 90401 Bruce Russell MacLeod Attorneys for Plaintiffs and ShawnaLee Ballard Appellants, Michael McClain, McKool Smith Hennigan, PC 255 Shoreline Drive, Suite 510 Redwood Shores, CA 94065 Avi Feigenblatt, and Gregory Fisher Steven J. Bernheim The Bernheim Law Firm 6220 W.3*4 Street, Apt. 423 Los Angeles, CA 90036-3173 Attorneys for Plaintiffs and Appellants, Michael McClain, Avi Feigenblatt, and Gregory Fisher Nhan Thien Vu Office of the Attorney General 300 S. Spring Street, #1702 Los Angeles, CA 90013-1230 Office of the Attorney General Philip Jon EskenaziKirk Austin Hornbeck,Jr.Hunton & Williams LLP550 S. Hope Street, Suite 2000Los Angeles, CA 90071 Attorneys for Defendants andRespondents Sav-On Drugs, andAlbertson’s, Inc. 191603.6 27 Robert Paul Berry Carol Michelle Silberberg Berry & Silberberg, LLC 16150 Main Circle Dr., Ste. 120 St. Louis, MO 63017 Attorneys for Defendant and Respondent, Wal-Mart Stores, Inc. David F. McDowell Miriam A. Vogel Morrison & Foerster, LLP 707 Wilshire Blvd., Suite 6000 Los Angeles, CA 90017-3543 Attorneys for Defendant and Respondent, Target Corporation Joseph Duffy Joseph Henry Bias Morgan Lewis & Bockius, LLP 300 S. Grand Ave., 224 Floor Los Angeles, CA 90071-3132 Attorneys for Defendants and Respondents, Rite Aid Corporation, and Walgreen Co. JamesC. Martin Douglas C. Rawles Kasey James Curtis Reed Smith LLP 355 S. Grand Ave., Suite 2900 Los Angeles, CA 90071 Attorneys for Defendants and Respondents, Rite Aid Corporation, and Walgreen Co. Shelley Gershon Hurwitz Richard Thomas Williams Attorneys for Defendants and Respondents, CVS Caremark Corp., Holland & Knight LLP Longs Drug Stores Corp., Longs400 S. Hope Street, 8'* Floor Drug Store California Inc.Los Angeles, CA 90071Theodore Keith Bell Attorneys for Defendants andSafewayInc.5918 Stoneridge Mall RoadPleasanton, CA 94588-3229 Respondents, Safeway, Inc., TheVons Companies, and Vons FoodServices, Inc. 191603.6 28 Daniel Berko Attorneys for Pub/Depublication Law Office of Daniel Berko Requestor 819 Eddy Street San Francisco, CA 94109-7701 Mark A. Chavez Attorneys for Public Citizens, Inc., Chavez & Gertler, LLP Amicus Curtae 42 Miller Avenue Mill Valley, CA 94941-1904 29 191603.6