McCLAIN v. SAV-ON DRUGS

Appellants’ Petition for Review

Cal.April 24, 2017

Sc4i471 Case No. IN THE SUPREME COURT OF CALIFORNIA Michael McClain, Avi Feigenblatt and Gregory Fisher, Plaintiffs, Appellants and Petitioners, SUPREME COURT vs. FILED Sav-On Drugs,etal., APR 24 2017 Defendants and Respondents. ‘ Jorge Navarrete Clerk PETITION FOR REVIEW i Deputy After a Decision of the Court ofAppeal Second Appellate District, Division 2 Case Nos. B265011 and B265029 Affirming a Judgment OfDismissal Following An Order Sustaining Demurrer Without Leave to Amend Los Angeles County Superior Court, Case Nos. BC325272 and BC327216 Honorable John Shepard Wiley Service on the Attorney General and the Los Angeles District Attorney Required by Bus. & Prof. Code § 17209 and Cal. Rules of Court, Rule 8.29(a), (b), and (c)(1) *Taras Kick (SBN 143379) *Bruce R. Macleod (SBN 57674) Robert J. Dart (SBN 264060) ShawnaL. Ballard (SBN 155188) THE KICK LAW FIRM, APC MCKOOL SMITH HENNIGANP.C. 201 Wilshire Blvd 255 Shoreline Drive, Suite 510 Santa Monica, CA 90401 Redwood Shores, California 94065 Telephone: (310) 395 2988 Telephone: (650)394-1386 Facsimile: (310) 395 2088 Facsimile: (650) 394-1422 Email: taras@kicklawfirm.com Email: bmacleod@mckoolsmithhennigan.com Attomeysfor Plaintiffs and Petitioners Michael McClain, Avi Feigenblatt and Gregory Fisher Case No. IN THE SUPREME COURT OF CALIFORNIA Michael McClain, Avi Feigenblatt and Gregory Fisher, Plaintiffs, Appellants and Petitioners, VS. Sav-On Drugs,etal., Defendants and Respondents. PETITION FOR REVIEW 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 Shepard Wiley Service on the Attorney General and the Los Angeles District Attorney Required by Bus. & Prof. Code § 17209 and Cal. Rules of Court, Rule 8.29(a), (b), and (c)(1) *Taras Kick (SBN 143379) *Bruce R. Macleod (SBN 57674) Robert J. Dart (SBN 264060) Shawna L. Ballard (SBN 155188) THE KICK LAW FIRM, APC MCKOOL SMITH HENNIGANP.C. 201 Wilshire Blvd 255 Shoreline Drive, Suite 510 Santa Monica, CA 90401 RedwoodShores, California 94065 Telephone: (310) 395 2988 Telephone: (650)394-1386 Facsimile: (310) 395 2088 Facsimile: (650) 394-1422 Email: taras@kicklawfirm.com Email: bmacleod@mckoolsmithhennigan.com Attorneys for Plaintiffs and Petitioners Michael McClain, Avi Feigenblatt and Gregory Fisher Table Of Contents ISSUES PRESENTED FOR REVIEW uu... icccccceccsessccesseeeneeneecnsesesseesnnees ] INTRODUCTION 00... eececcceeeeceneseeseetseeeeseeseeeseeeessessaeessesssessssseesseeesseasnanes 1 HOW THS CASE PRESENTS GROUNDSFOR REVIEW........0.eee6 STATEMENTOF THECASE.Q.w..eee eeeesseeseesseceeseseeeeessessasseeseeesseenenes 15 FILING OF PETITION FOR REHEARING AND HOW THE COURT OF APPEAL RULED ooo...eeeceeeesccseesseeseseeseseeeesseneseseseeseeensees 16 ARGUMENT|... eccecsecsceseeeeseeseeecesseessensssssseussessesseseeeesesssesssssasesaessseaeegs 17 I. THE COURT OF APPEAL’S OPINION ADOPTS “PREREQUISITES” FOR THE JAVOR-STYLE REMEDY THAT NO CASE, NOT EVEN THE JAVOR CASEITSELF, COULD EVER SATISFY, THEREBY EFFECTIVELY ABOLISHING THE JAVOR -TYPE REMEDY.........cccceesseeseeees 17 I. THE COURT OF APPEAL’S OPINION DESTROYS THE CONSENSUAL BASIS FOR THE CONSTITUTIONALITY OF SALES TAX REIMBURSEMENT........ cc eeeeceeeeenesessesenseesenneeees20 I. BY EFFECTIVELY ABOLISHING THE JAVOR-TYPE REMEDY, THE COURT OF APPEAL’S OPINION MAKES TAX CODE §6901.5 UNCONSTITUTIONAL.......eee28 IV. PETITIONERS COULD HAVESTATED A CONSTITUTIONAL CLAIM AGAINST THE SBE UNDER THE TAKINGS CLAUSE; THE COURT OF APPEAL ERRED BY NOT REVERSING THE TRIAL COURT FOR DENYING LEAVE TO AMEND).000... eecccesseceeceeecessesessesesseesssecnessseesseesnssaesaes 32 CERTIFICATE OF WORD COUNT..... cececect eeeeeeeseesneeseeneeeereeneeey34 TABLE OF AUTHORITIES Cases Auto Equity Sales v. Superior Court (1962) 57 Cal.2d 456 oo... ceeecceesceeeteeeeeteenerseeeeseeseesessecseessesseresasenees 5 Cerajeski v. Zoeller (7th Cir. 2013) 735 F.3d 577 occceeeeseessseeseessesseseeees 32, 33 Diamond Nat’! Corp. v. State Bd. ofEqualization (1976) 425 U.S. 268, 96 S. Ct. 1530.eeeeceeeeeeereseseneeesererees 24 First Agricultural Nat’l Bank v. State Tax Commissioner (1968) 392 U.S. 339, 88 S. Ct. 2173eeececcecseeeenseneeecseeneereees 24 Harris v. Westly 116 Cal. App. 4th 214 (2004)oecscscseeseeerereeseererseeseeneess 29 Javor v. SBE | (1974) 12 Cal.3d 790 oo. eeceeeceeseeseeeeeessseseesssasenesseessessessteneespassim Loeffler v. Target Corp. (2014) 58 Cal.4th 108 ooo.eceeeceeesseeesssesseeesesseeeaeeenspassim Morris v. Chiang (2008) 163 Cal. App. 4th 753 occsecs ceeseeeeeeeeereeeees 29, 30 National Ice & Cold Storage Co. v. Pacific Fruit Express Co. (1938) 11 Cal.2d 283 oeeeecess reeeeeeeseasesseseeneaeeenesseeeespassim Oksner v. Superior Court ofLos Angeles County (1964) 229 Cal. App. 2d 672 oooceceeseeseseeseeteeeeseessesserereeneneens 23 State Dept. ofPublic Health v. Superior Court (2015) 60 Cal4th 940 ooo.cect eeeseeeeeeesesserseeeceesetesseeerereeses 13 State v. Savings Union Bank & Trust Co. (1921) 186 Cal.294 occeee eee reeseeereeeeneesaeeneeees 8, 14, 30, 31 Webb’s Fabulous Pharmacies v. Beckwith (1980) 449 ULS. 155occaete tects eeneeesee seats seeeenseeseeseseeeeeeee 8, 14 Statues and Regulations California Civil Code § 1656.1 oo.eeecceceesesseeeeeeeseeensseeneeeeseespassim California Code of Civil Procedure § 367 0.0... cece eeeeeeeseeteeeeeeeeeseeeeeeees 21 California Code of Civil Procedure § 1300 oo...eeeeects eee teneees 29, 30 California Government Code § 11340.6 0.0... eeeceeeeeeneeeeneeeseeerssseneaees 18 California Government Code § 11350 .........ccceessecceceeseeseseeeeseeeeseneeeaees 18 California Rule of Court 8.500(b)(1).......ccceecceeeeeeeeeeeeeeseeeeeseeneneneees 8, 14 California Tax Code § 6481.0... .ccccecceeeeceeeeceeeeeesaceseeeaeeseseeenscseeeneseeseenes 17 California Tax Code § 6483 00.0... eeceeseeeseeceseeeeseseeeeseesseeseseesnnesenssserenees 17 California Tax Code § 7054.0... esccecseseeceeeneecesseeeeeeesaeaseseneesgeensaseseseees 17 California Tax Code § 6901.5... .ecceceeseseesseceseeesseseseeseeesnseseneeeeeeespassim California Tax Code § 6905 .......ccceceeseseecesnreeessseeeeeessnseceseeseenessseneseeenes 18 Former California Civil Code § 1273 .....ccccccceccseceeeseceeeeeneereseeesnerenses 30, 31 Former Section 8 1/2 Retail Sales Tax Act of 1933, codified as former Tax Code §6052 o...ceececccccecsesceseeseeeseeseeeersssssessesessessecsssseeeesessenessecsseeeeaeees 22, 26 Regulation 1591.1(D)(5).....cece sccteeeceeeeeeecneeseenseeesecseeneseneeeseeaes 15,18 Section 3 Retail Sales Tax Act of 1933, currently R&TC §6051.....0...... 22 Utah Administrative Code, R865-198S-2 0.0... ceeeeceeeeeeeeeee ccecusseestssesen 21 Utah Code Ann. § 59-12-103 oo...ee ceeeeseeenneeceeseeeeeeessseesetenseseeseneneaees 21 Washington Rev. Code. (ARCW) § 82.08.0500... ecceceeteeteeteesseneeenes 21 1978 Senate Bill 472 as Stats. 1978, ch. 121] oo.eeeeeeees 24, 25 ISSUES PRESENTED FOR REVIEW l. Does the Court of Appeal’s opinion defacto overrule this Court’s opinions in Loeffler v. Target Corp. (2014) 58 Cal.4th 108 and Javor v. SBE (1974) 12 Cal.3d 790 by creating prerequistes to pursuing a Javor remedy which are by definition impossible to fulfill, not only for the three million California diabetics in this action, but for all California consumersregarding any sales tax issue? 2. In rewriting the presumption in California Civil Code §1656.1 from “rebuttable”to “irrebuttable,” does the Court of Appeal cause California’s sales tax schemeto violate this Court’s direct holding in National Ice & Cold Storage Co. v. Pacific Fruit Express Co. (1938) 11 Cal.2d 283, and by escheating money with no recourse,to violate the United States Constitution’s Due Process and Takings Clauses? INTRODUCTION The McClain opinionis the first interpreting Javor since this Court’s decision in Loeffler. Unfortunately, despite arising from a lower court, the McClain opinion would defacto overrule this Court’s holdings in Javor and Loeffler that a consumer, the real party in interest in a sales tax transaction, may compela retailer, the nominalparty in interest, to pursue a refund from the SBE. It would also overturn this Court’s holding in National Ice that for one legally responsible for a tax to collect reimbursement from another, consent must be obtained, “either expressly or impliedly given.” Before the McClain opinion, when a California retailer overcharged a customer by adding sales tax reimbursementto the sales price on a tax- exempt sale, the customer hadatleast two rights of recourse: (1) the customer could “join the Board as a party to his suit for recovery against the retailer in order to require the Board in responseto the refund application from the retailers to pay the refund owedtheretailers into court” (Javor at 802-803) and (2) the customer could suetheretailer by rebutting the rebuttable presumption“that the parties had agreed to the addition of sales tax reimbursement.” (Civil Code §1656.1.) Petitioners’ First and Fifth Causes of Action are based on precisely those tworights of recourse. In Loeffler, a 4-3 opinionofthis Court, Justice Liu, writing for the dissent, warned courts to not overread Loeffler as applyingto all cases involving a sales tax issue: “The court’s ruling...need not be read to broadly establish that a consumer action may never go forwardifit involves a tax issue.” (58 Cal.4th at 1142.) In fact, the majority opinion seemed careful to employ language signaling that the Court it was not doomingall consumeractions involving a sales tax issue, but waslimited to the claims and procedural peculiarities of the case beforeit. (E.g., 58 399, 66 Cal.4th at 1123-24 [a consumerclaim suchasplaintiffs’”; “[a] consumer S E S lawsuit in this context”]; at 1130 (“[a]ctions of this sort”]; at 1131-32 (“these plaintiffs’ UCL and CLRA claims”].) Yet despite these warnings, the McClain court has read this Court’s opinion in Loeffler so broadly as to make a Javor remedy definitionally impossible, effectively overrulingit. Important to bear in mind, in Loeffler, 1. the SBE wasnota party; 2. the plaintiff expressly disavowed any desire to pursue a Javor remedy; and, 3. the plaintiff did not pursue a breach of contract remedy. In this case, 1. the SBE is a party; 2. plaintiff wants to pursue a Javor remedy; and, 3. the plaintiff has pursued breach of contract. Regardingthefirst of these three importantdifferences, Loeffler makesclear its concern that when a court decides a taxability issue,it has the benefit of having the SBE present andits voice heard: [I]f the taxability question proceeds from administrative proceedings to court, the Board will be the opposing party in any ensuing legal challenge. (See § 6933; see also § 6711.) The Board will be present to fully and vigorously litigate its position, leading to a judgmentthat defines the law for all and is binding on the Board for the future.” (Id. at 1129.) In fact, although they advocate against it now, prior to Loeffler, the retailer defendants in this case themselves argued that Petitioner should be allowed to pursue a Javor remedy: The appropriate remedy for a consumerwhohaserroneously overpaid salestax to a retailer, who hasin turn paid the taxes to the Board,is to join the Board as a party to his suit for recovery againsttheretailer, so that the Board may be required to respondto refund applications bythe retailer and pay the refundsinto court .... [Citing Javor.] (Walmart's and Sav-on / Albertson's Separate Mem. ISO Demurrerto First Amended Complaint,both filed on or about April 19, 2005 (emphasis added), quoted at AA 496.) The California Supreme Court in Javor J intended to provide a specific remedy for taxpayers to recover improperly collected sales taxes from retailers. ...That remedyis all that Plaintiffs should be permitted to seek here.” (Defendants’ Reply ISO Mtn.to Strike Portions of Second Amended Complaint, 12/28/2005 [emphasisin original] quoted at AA 496-497).) Loeffler expressly confirmed the continuing utility of the Javor remedy in orderto preserve the integrity of the tax system and avoid unjust enrichmentto the state. (Loeffler at 1133) Loeffler noted that “such a remedy invokes, rather than avoids, tax code procedures.” (/d. at 1101.) But, becausethe plaintiffs in that case declined to pursue a Javor remedy, Loeffler left open the question as to what circumstances are neededfor a Javor remedy. (/d. at 1133-34.) But now, although Javor has never been overruled, the Court of Appealbelow interpreted Javor in such a mannerasto effectively abolish the Javor -type remedy. It did so by imposing supposed “prerequisites” that by definition no case, not even Javoritself, could possibly satisfy. The Court of Appeal apparently believed that its result was preordained by Loeffler: Further, our Supreme Court in Loeffler-although silent on this point-noted no constitutional impedimentto its ruling that left consumers with no direct remedy for a refund and instead relegated them to urging Board inquiry andto filing claims or actions under the Administrative Procedure Act. (Loeffler, supra, 58 Cal.4th 1081.) Were we to come to a contrary conclusion, we would effectively overrule Loeffler, something weare not allowed to do except in narrow circumstancesnotpresent here. (Auto Equity Sales v. Superior Court (1962) 57 Cal.2d 450, 456.) (Op. 26-27.) The result reached by the Court of Appeal not only was not preordained by Loeffler, but violates it. IfJavor is no longer good law, despite this Court’s statementin Loeffler reaffirming the continuedutility ofJavor, then that conclusion must be reached by this Court and not by an intermediate court. The Attorney General of the State of California, now its Governor, wrote to this Court on April 1, 2010, as an amicus in support of the consumers’ position and contrary to the position of the SBE in Loeffler, in part as follows: Contrary to the reasoning put forth by Target Corporation (Target) and adopted by the Court of Appeal, the strictures of article XIII, section 32 of the state Constitution (article XIII, section 32) and Revenue and Taxation Code section 6931 (section 6931) do not apply to the claimsat issue. - Plaintiffs in this case are not attempting to impede, directly or indirectly, the state's collection of taxes; they are challenging Target's alleged unlawful and fraudulent practice of imposing a chargein the guise of a tax. Nothing in the language of article XIII, section 32 or the Revenue and Taxation Code suggests a prohibition on suits by private litigants alleging that a retailer is collecting money from consumers ina deceptive mannerby passing off charges as government mandates whenthey are not...[H]aving been given a "get-out- of liability-free" card, it is easy to imagine that some unethicalretailers will impose bogus charges underthe facade of charging a sales.” (AG Amicus Brief in Loeffler, at AA 374.) These concerns expressed by the Attorney General are now increased exponentially because the customerhas norights of recourse whatsoever under McClain. The Court of Appeal’s opinion concedes as much: Theretail pharmacies lack any financial incentive to challenge the Board’s implementation of Regulation 1591.1 by seeking a refund, and the statutory remedies available to the customers-urging the Board to conduct an audit orfiling a claim or lawsuit under the Administrative Procedure Act- while effective enough to satisfy due process, are nevertheless the practical equivalent of allowing them to tug (albeit persistently) at the Board’s sleeve. (Op. 28, emphasis added). Contrary to the Court of Appeal’s explanation, however, “tugging at a sleeve” does not satisfy due process. HOW THS CASE PRESENTS GROUNDS FOR REVIEW Although Javorhas never been overruled, the Court of Appeal below interpreted Javor in sucha restrictive manneras to effectively abolish the Javor -type remedy. It did so by imposing supposed “prerequisites” that no case, not even Javoritself, could possibly satisfy. It also expandedthe “safe harbor” recognized in Loeffler (for UCL and CLRA claims) to becomean all-encompassing “safe harbor”forall defendants for all claims: Judicial recognition of a right of customersto sue retailers when the Board has yet to determine whether a refund is due is also inconsistent with section 6901.5... . In Loeffler, our Supreme Court read this section as providing a “safe harbor” or “safe haven”for any retailer/taxpayer “vis-a-vis the consumer”if the retailer/taxpayer “remits reimbursement charges[it collects] to the Board. (Loeffler, supra, 58 Cal.4th at pp. 1100, 1103-1104, 1119.) (Op. at 22 (emphasis added)) According to the opinion, the “safe harbor” even immunizes the SBE from liability on the Javortype remedy by blocking thefirst step in the process, which is to compelthe retailer to file a tax refund claim with the SBE: If consumers can sue retailers to compel them to seek a refund from the Board, then the “‘safe harbor” from suit erected by section 6901.5 is no safe harboratall. (Accord, Loeffler, at p. 1126 [noting conflict]. (Op.22) Thereis nothing in Loeffler to suggest that the” safe harbor”thatit recognized was intendedto bar initiation of a Javor-type remedy. On the contrary, this court stated in Loeffler that “[t]he integrity of the tax system and avoidanceof unjust enrichment, possibly ofthe retailer, but more probably ofthe state, in certain circumstances may support a Javor-type remedy for consumers.” The Court of Appeal’s opinion is in conflict with other controlling decisions of this court and of the United States Supreme Court besides Javor and Loeffler. The conflicted decisions include State v. Savings Union Bank & Trust Co. (1921) 186 Cal.294 (California’s attempt to escheat customer money from a stakeholder bank without a procedure by which the rightful ownercanassert a claim to recover the moneyis a violation of due process): Webb’s Fabulous Pharmacies v. Beckwith (1980) 449 U.S. 155 [101 S.Ct. 446, 66 L.Ed.2d 358 (Florida statute providing that interest accruing on interpleader monies deposited with the clerk shall be deemed incomeofthe clerk’s office violates the Takings Clause of the Fifth Amendmentto the U.S. Constitution); and National Ice & Cold Storage Co. v. Pacific Fruit Express Co. (1938) 11 Cal.2d 283 (absent purchaser consent, either expressly or impliedly given, a statute authorizing retailers to collect sales tax reimbursement from customersis a violation of due process). Plenary review under California Rule of Court 8.500(b)(1) is required to resolve these conflicts and secure uniformity of decision. Review is also required to settle questions of law in order to avoid a constitutional crisis for sales tax. Besides effectively abolishing the Javor remedy, the Court of Appeal’s opinion rejected Petitioners’ cause of action againstthe retailers for breach of the contractual agreement required by Civil Code §1656.1 in orderfortheretailer to collect sales tax reimbursementfrom the customer. The Court’s groundfor this ruling is somewhat ambiguous,but probably is that the “safe harbor” bars the claim. Civil Code §1656.1 is the only statutory authority for retailers to collect sales tax reimbursement from consumers, and makessuch collection “depend[] solely upon the terms of the agreementof sale.” However, §1656.1 creates “rebuttable presumptions”that the parties “agreed to the addition of sales tax reimbursementto the sales price . . . if sales tax reimbursementis shown onthesales check or other proof of sale.” The effect of the Court of Appeal’s ruling is to make §1656.1’s “rebuttable presumption” of customer consent to pay sales tax reimbursement irrebuttable. This court has once before ruled sales tax reimbursement unconstitutional under the Due Process clause in a situation where there wasnobasis for finding that customer’s consent to paying sales tax reimbursement was “either expressly or impliedly given,”_ National Ice & Cold Storage Co. v. Pacific Fruit Express Co. (1938) 11 Cal.2d 283, 290 (“National Ice”’).) ' See Op. 27 (“Wereject the customers’ first argument because,as explained above, the premise of their breach of contract claimsis that the retail pharmacies wrongly collected sales tax reimbursement that was not due, yet they have no meansin this lawsuit of establishing whetherit was due.”’) The Javor -type remedy andthe cause of action against the retailers for breach of contractual agreement required by Civil Code §1656.1 may be the only legal recourse that survives Loeffler for customers whoare overchargedsales tax reimbursement. By effectively abolishing those two forms of recourse, the Court of Appeal’s opinion removesthe only constitutional justifications for a retailer’s right to collect reimbursement from its customer, given that the tax that is legally imposedontheretailer alone. Under the Court of Appeal’s “safe harbor”ruling,if sales tax reimbursementis shownonthe sales check or other proofofsale, customers have no legal powerto dispute the charge, no matter how clearly the sale is legally tax exempt. With customers having no powerto dispute the charge, thereis also no basis for presuming that customers agree with the charge. The consensualbasis for the constitutionality of sales tax reimbursementthat this court first suggested in NationalIce is therefore destroyed. And, as this court held in NationalIce, there is no other constitutional basis for customers being obligated to reimburseretailers for a tax obligationthat is statutorily imposed exclusively uponretailers. Additionally, Tax Code §6901.5 is the statutory requirement for retailers to remit excess sales tax reimbursementto the SBE. It only operates with respect to sales tax reimbursementthat was “computed upon an amountthat is not taxable or is in excess of the taxable amount.” The 10 conclusion is therefore inescapable that §6901.5 is not a taxation statute, precisely because the excesssales tax reimbursement funds governed by §6901.5 are, by definition, not owed as taxes. Rather, §6901.5 is an escheat statute. Dueprocess requires that an escheat be either a nonpermanent escheat “subject to the right of claimants to appear and claim the escheated property” and/or be accomplished by a judicial proceeding which,after notice satisfying due process standards,cuts off claimants permanently. (See pp. 29-30, infra.) After the Court of Appeal’s opinioneffectively abolished the Javor-type remedy, Tax Code §6901.5 immediately became a permanentescheat.and unconstitutional for lack of any right in customers to claim the escheated funds that they were overcharged (muchless a judicial proceeding to terminate their interest). A future judicial constitutional invalidation of California’s sales tax reimbursementregimeas a result of the Court of Appeal’s opinion would have severe economic consequences for Californiaretailers. Unable to collect sales tax reimbursement from their customersto offset the sales tax liability imposed onretailers by Tax Code §6051, California retailers would experience considerable financial distress from having to absorbthesales tax themselves. That economic distress could spread throughout the State’s economy and damagenotonlysales tax collections, but incometax and commercial property tax collections as well. 11 P R E Fortunately, these events can be avoided by this court accepting review andrestoring the law to what it was before the McClain ruling. This can be simply done. First, this court should holdthat the “safe harbor” found by this court in Loeffler does not apply to a cause of action for breach of the express or presumed agreement required by Civil Code §1656.1 in orderfor a retailer to collect sales tax reimbursement. There are solid reasons whythis is true as a matter of statutory interpretation. The fact that Civil Code §1656.1 was enacted as an integralpart of the 1978 overhaul of the tax code distinguishes Petitioner’s breach of contract claim from the UCL and CLRA claimsthat were the subject of the “safe harbor” recognized in Loeffler. See Loeffler at 1126 (“The UCL cannotproperly be interpreted to impose onretailers a duty with respect to sales tax that is contradicted by the statutory scheme governing the sales tax.””) (Emphasis added.) Civil Code §1656.1, by contrast, is part of “the statutory scheme governing thesales tax.” Immunizingretailers from liability for breaching the very contract that was enacted in order “to clarify that the incidence ofthe state sales tax is on retailers, not consumers” would seriously underminethe “statutory scheme governingthe sales tax.” Rather, Civil Code §1656.1 must be harmonized with the Tax Code rather than be preempted by it. Any interpretation that would bar remedies for breach of the contract contemplated by Civil Code §1656.1 would effectively repeal §1656.1, and “[a]ll presumptionsare against a repeal by 12 implication.” (State Dept. ofPublic Health v. Superior Court (2015) 60 Cal.4th 940, 955, 960-961, citations omitted.) Second, this court should rejectall of the supposed “prerequisites” for application of the Javor-style remedy that were found toexist by the Court of Appeal’s opinion. The Javor-style remedy has beenin existence for 43 years sinceit was devised by this court, and until the Court of Appeal’s opinion, had done just fine without any restrictive “prerequisites” to preventits usage. While the Javor-style remedy has only been soughtin a handful of cases during those 43 years, it has nevertheless served vital purposein protecting Tax Code §6901.5 from unconstitutionality. Absent a functional Javor-type remedy, Tax Code §6901.5 is unconstitutional as a permanentescheat by the State of private property with no due process procedure by whichthe rightful owner(the customer) can assert a claim to recover its property. (See SectionIII et. seq., infra.) Conversely,if this court were to deny review, there may be no opportunity for any other California appellate court to re-interpret the sales tax law so asto correct the constitutional infirmities injected by the McClain opinion. Absenta ruling by this court, if future cases raise the sameconstitutional defects in federal courts, those courts may lookto the Court of Appeal’s opinion as a binding interpretation of California law. That would serve to lock-in a statutory interpretation establishing that California’s sales tax law violates the United States the Due Process and 13 Takings clauses of the Fifth Amendment. Accordingly,it is essential that this court accept review so as to supplant the Court of Appeal’s opinion with an interpretation ofthe sales tax law that does not run afoul of federal constitutional guarantees. Finally, the Court of Appeal’s opinionis in conflict with other controlling decisions of this court and of the United States Supreme Court besides Javor and Loeffler. The conflicted decisions include State v. Savings Union Bank & Trust Co. (1921) 186 Cal.294 (California’s attempt to escheat customer money from a stakeholder bank without a procedure by whichthe rightful owner can assert a claim to recover the moneyis a violation of due process); Webb’s Fabulous Pharmacies v. Beckwith (1980) 449 U.S. 155 [101 S.Ct. 446, 66 L.Ed.2d 358 (Florida statute providing that interest accruing on interpleader monies deposited with the clerk shall be deemed incomeofthe clerk’s office violates the Takings Clause of the Fifth Amendmentto the U.S. Constitution); and National Ice & Cold Storage Co. v. Pacific Fruit Express Co. (1938) 11 Cal.2d 283 (absent purchaser consent, either expressly or impliedly given, a statute authorizing retailers to charge customers for reimbursementofsales taxes imposed by law uponretailers is a violation of due process). Plenary review under California Rule of Court 8.500(b)(1) is required to resolvethese conflicts andto settle vital questions of law. 14 STATEMENT OF THE CASE In March 2000, Regulation 1591.1(b)(5) promulgated by the SBE went into effect, exempting the sale of glucosetest strips and skin puncture lancets from sales tax. Despite this, California retailers continued to charge California’s three million diabetics millions of dollars per year in “sales tax reimbursement.” They contend they remit these proceeds to the SBE. The SBEhasrefused to consider refunding the wrongfully collected sums, resulting in the State being unjustly enriched by millions of dollars each year. These lawsuits were brought on behalf of California diabetics who use blood glucosetest strips to monitor their blood sugarlevels to determine when they needto use insulin. First filed in December 2004.the cases were stayed while the Loeffler case was first pending before the appellate court, and then again while the Loeffler case was pending before this Court. The stay waslifted shortly after this Court’s opinion in Loeffler issued. Plaintiffs filed an amended complaint, including a cause of action carefully tracking the remedy allowed by this Court in Javor. Thetrial court sustained demurrers to Petitioners’ operative complaint, and also denied Petitioners’ requestfor leave to amendtostate a constitutional Takings Clause claim against the SBE. The Court of Appeal affirmed on March 13, 2017, in an opinioncertified for publication. 15 Petitioners are limiting this Petition to two of their causes of action: (1) the Fifth Cause of Action against all defendants for the equitable remedy devised bythis court in Javor v. State Board ofEqualization (1972) 12 Cal.3d 758 (“Javor’”), and (2) the First Cause of Action against the retailer defendants for breach of the contractual agreement required by Civil Code §1656.1 in order for retailers to collect sales tax reimbursement from their customers. In addition, Petitioners seek review of the Court of Appeal’s decision notto reverse the trial court’s denial of leave amend (which amendmentwasidentified to the trial court as beingto allege a constitutional Takings Clause claim). FILING OF PETITION FOR REHEARING AND HOW THE COURT OF APPEAL RULED Petitioners filed a Petition for rehearing. The Court of Appeal responded on April 10, 2017 by denying rehearing and modifying two paragraphsof its opinion. One of the modifications dealt with Petitioners’ constitutional Takings Claim. The other modification added footnote 9 to the opinion stating that the court declined to consider arguments “that appear nowherein [Petitioners’] prior briefs...” One of the arguments identified as being new and not considered wasPetitioners’ claim that “denying them a remedy violates due process becausethe collection of sales tax reimbursementbyretailers effects an ‘escheat’ to the state.” (Order, 4/10/2017,p. 2). 16 The Court of Appeal was wrongin stating that Petitioners had not raised the “escheat” argumentin their prior briefs. Escheat was a focus of Petitioners’ Due Process and Takings Clause argumentsin thetrial court (AA 517) and in all of Appellants briefs’ filed in the Court of Appeal (AOB 73-76; ARB 35-39; RP 20-21; 24; 26-36; and 40-43). ARGUMENT I. THE COURT OF APPEAL’S OPINION ADOPTS “PREREQUISITES” FOR THE JAVOR-STYLE REMEDY THAT NO CASE, NOT EVEN THE JAVOR CASEITSELF, COULD EVERSATISFY, THEREBY EFFECTIVELY ABOLISHING THE JAVOR -TYPE REMEDY. The Court of Appeal’s opinion holds that there are certain “prerequisites”that a customer’s case must meet to qualify for application of the Javor-type remedy. But by definition, no case, not even the Javor caseitself, could ever satisfy these supposed prerequisites. The Court of Appeal’s opinionfirst held that Petitioners fail to qualify for the Javor-type remedy becausethey “have several other remedies available to them,” pointing to Tax Code §§ 6481, 6483 and 7054. (Op. 20-21.) But those tax code sections apply equally to deficiency determinations with respect to any sales tax returns. If the mere existence of those sections disqualifies a customer from a Javor-type remedy, then no customer can ever qualify. Indeed, the Javorplaintiffs themselves could not have qualified for the remedy becauseall three sections were enacted 17 prior to the Supreme Court's 1974 decision in Javor, and have remained materially unchangedsince that time. The Court of Appeal’s opinion also identifies Government Code §§11340.6 and 11350 as being the source of “other remedies,” namely to petition the Board under the Administrative Procedure Act to compel the Board to "adopt, amendor repeal" Regulation 1591.1 (b)(5) or to sue the Board for declaratory relief “as to the validity of’ Regulation 1591.1. (Op. 21.) Not only do these “other remedies” not allow the consumerto pursue a return of the already paid wrongful sales tax reimbursement, but, again, they would be present in every case to block every potential claim for a Javor remedy. Further, in this case, Regulation 1591.1(b)(5) is the Board Regulation that exempts sales of glucosetest strips and lancets from the sales tax, and a cornerstoneofPetitioners’ case. Changing or challenging the validity of Regulation 1591.1(b)(5) is not Petitioners strategy. The Court of Appeal’s opinion next holds that Tax Code §6905, which forfeits and waives a tax refund claim that is not timely filed, is inconsistent with a Javor-type claim (Op. 21-22.) By definition, a Javor- type only arises when theretailer has refusedor failed to file a claim for a tax refund and therefore must be judicially compelled to do so, so §6905 would defeat every potential every potential Javor.claim. Indeed, the Javor plaintiffs could not have qualified for the remedy because § 6905 was 18 enacted in 1941, prior to the Supreme Court’s 1974 decision in Javor, and has remained materially unchangedsince that time. The Court of Appeal’s opinion next holds that f Tax Code §6901.5 is inconsistent with a Javor remedy. (Op. 22.) A Javor-type remedy against the SBE only arises when a customerclaimsthat a retailer has collected excess sales tax reimbursement and remitted it to the SBE under §6901.5. Therefore, by definition Section 6901.5 is involved in every case, so no customer could ever qualify for a Javor-type remedy. The Court Of Appeal’s opinion also holds that a prerequisite to the Javor-type remedyis that the Board already has determined that “the person seeking the new tax refund remedyis entitled to a refund.” (Op. 20.) If consumersare not entitled to pursue a Javor-type remedy unless the Board already has determinedthat they are entitled to a refund, but absent a Javor-type remedy, there is no occasion for the Board to make such a determination, then the Javor-type remedy will be a dead letter because the reasoning is circular. Additionally, although not described by the Court of Appeal’s opinion as being a “prerequisite,” the Court of Appeal’s opinion also applies a “safe harbor”to blockthe first step in theJavor process, which is to compeltheretailer to file a tax refund claim with the SBE: If consumers can sue retailers to compel them to seek a refund from the Board, then the “safe harbor’ from suit erected by section 6901.5 is no safe harboratall. 19 (Op.22) Finally, it should be noted that under the Court of Appeal’s opinion, failing to satisfy any one of the opinion’s supposed “prerequisites” would disqualify a case for a Javor-type remedy. It is abundantly clear that no case could ever meet any of the tests, muchless all of the them. II. THE COURT OF APPEAL’S OPINION DESTROYS THE CONSENSUALBASIS FOR THE CONSTITUTIONALITY OF SALES TAX REIMBURSEMENT Unlike in Loeffler, which involved only UCL and CLRA claims (58 Cal.4th at 1123-24 [“‘we conclude that permitting plaintiffs to use the UCL or CLRA ...”]), Plaintiffs allege a breach of contract cause of action based on Civil Code §1656.1(a), which provides that “[w]hether a retailer may add sales tax reimbursementtothe sales price of the tangible personal property soldat retail to a purchaser depends solely upon the termsofthe agreementofsale.” Section 1656.1(a) raises fundamental due process constitutional implications not present in Loeffler. The Court of Appeal failed to recognize that by turning the “rebuttable” presumption into an irrebuttable one, while also defacto eliminating the Javor remedy,its opinion effectively abolished a constitutionally required counterbalance for California’s sales tax reimbursementregimen. Without those rights of recourse, the collection of sales tax reimbursement becomes unconstitutional. 20 O R R S t et a hi c O A N A : S S Thebasic structure of California’s retail sales tax has always been doggedby constitutional concerns arising from the Legislature’s initial .. 2, . ; decision’ in 1933 to impose the sales tax onretailers rather than purchasers (as manyother states have done’). If California had imposed the sales tax on purchasersandtaskedretailers with the responsibility of collecting the tax and remitting the proceeds to the SBE,the collection and payment of sales tax would have been muchthe sameasit is now. However, purchasers would be “taxpayers” with standingto file and prosecute tax refund claims against the SBE,and Petitioners’ standing to obtain a tax refund from the SBE wouldnot be an issue. That also would beconsistent with C.C.P. §367’s public policy favoring real-parties-in-interest. (“Every action must be prosecuted in the nameofthe real party in interest, except as otherwise provided by statute”). But there was a countervailing consideration. In 1933, banks and insurance companies were exempt from California taxes beyond a few forms of tax that were specified to be “in lieu of all other taxes.” A retail sale to oneofthese entities would be exempt from the new California sales ; “I]t would have been within the powerofthe legislature to have imposed a tax uponeither the retailer or the purchaser...” (National Ice & Cold Storage Co. v. Pacific Fruit Express Co. (1938) 11 Cal.2d 283, 290 (“National Ice”’).) ° See, e.g. Washington Rev. Code. (ARCW)§ 82.08.050; Utah Code Ann,. § 59-12-103; Utah Administrative Code, R865-19S-2. 21 tax if the tax incidence were on the tax-exempt purchaser, but would be subject to sales tax if the incidence were on the non-exemptretailer. (AA 410.) So instead of putting the tax incidence on purchasers, the Legislature put the tax incidenceonretailers “for the privilege of selling tangible personal property.” (Section 3 Retail Sales Tax Act of 1933, currently R&TC §6051.) However, the 1933 Act also provided that, “The tax hereby imposedshall be collected by the retailer from the consumerin so far as the same can be done...” (Former Section 8 1/2 Retail Sales Tax Act of 1933, codified as former Tax Code §6052.) In 1938, however, this Court was faced with the following question: By whatlegal principle is it constitutional for the Tax Codeto obligate a purchaserto reimburse retailer for sales taxes that are legally levied upon the retailer? This Court answered that question by holding that there is no such legal principle, and that Section 4 of the Retail Sales Tax Act of 1933 wasunconstitutional for lack of due process: [T]o baldly legislate that without, and in the absenceof either due or any processoflaw, a legal debt that is owed by one person mustbe paid by another, is quite at variance with ordinary notions of that which may be termed the administration ofjustice. . . [A]ny . . provision of the statute ... which purports either directly or indirectly to authorize the retailer to collect from or to charge to the purchaser... the tax imposed uponits retailer ... is unconstitutional and consequently invalid. National Ice at 291-292 (emphasis added). 22 However, this Court threw the SBE a life raft by which it could avoid unconstitutionality in future cases: However, such declaration of the law is not intended to indicate the illegality of authority which may be lodged ina retailer to “pass on” the tax to a purchaser with the latter’s consent thereto, either expressly or impliedly given. That sort of arrangement betweeninterested parties in such a sale is not here involved. National Ice at 292 (emphasis added).. Thus, the presence of customer consent “either expressly or impliedly given” becamethe cornerstoneconstitutional principal for retailers’ ability to charge andcollect sales tax reimbursement from customers. Absent customer consent, retailer collection of sales tax reimbursement would be no moreconstitutional than if the Legislature decreed that buyers of real property must reimburse the sellers for capital gains taxes that the sellers incur on the sale. Such shifting ofthe seller’s tax liability to the purchaser might be acceptable as a negotiated term of the agreementofsale, but a statute to that effect would bea clear deprivation of property without due process of law. Oksner v. Superior Court ofLos Angeles County, (1964) 229 Cal. App. 2d 672, 684 (“Due process forbids the seizure of one man’s property for satisfaction of the debt of another.”); National Ice at 291 (“to baldly legislate that . . . a legal debt that is owed by one person mustbe paid by another, is quite at variance with ordinary notions of . . . the administration ofjustice.”) 23 A consensual agreement by customersto pay sales tax reimbursement became even more necessary as result of the U.S. Supreme Court’s decision in Diamond Nat'l Corp. v. State Bd. of Equalization (1976) 425 U.S. 268, 96 S. Ct. 1530. Ina briefper curiam opinion,the court reversed the California Court of Appeal on the authority of First Agricultural Nat’l Bank v. State Tax Commissioner, (1968) 392 U.S. 339, 346-48; 88 S. Ct. 2173. In First Agricultural, the U.S. Supreme Court had held unconstitutional Massachusetts’ attempt to tax a retailer for sales to a national bank because the Massachusetts “sales tax...by its terms must be passed on to the purchaser”(i.e. the national bank that was tax-exempt under 12 U.S.C. §548). Several of the provisions of the Massachusetts Act that were determinative in First Agricultural had analogsin the California’s Retail Sales Tax Act. It is therefore not surprising that in Diamond the U.S. Supreme Court foundthat in California, as in Massachusetts, the incidence of the sales tax was on consumers, not retailers, notwithstanding that Tax Code §6052 said the opposite. See Diamondat 268 (“Weare not bound by the California court’s contrary conclusion and hold that the incidence of the state and localsales taxes falls upon the national bank as purchaser and not upon the vendors.”) The Legislature responded to the potential loss of tax base caused by Diamondby enacting 1978 Senate Bill 472 as Stats. 1978, ch. 1211. 24 (Loeffler at 1117.) The nature of the statutory changes made bythatbill and their motivation are well-described in Loeffler as follows: Whena federal decision found that the California sales tax fell on a bank as a purchaser (see Diamond), the revision was considered necessary. The 1978 enactmentclarified that the tax fell on the retailer “by removing from the code those provisions of law which havecharacteristics of laws which impose the tax upon the consumer.’ .... All of these repealed provisions evidently were thoughtto create a danger that they might support the view that consumersbore the economic burden ofthe tax and therefore were the actual taxpayers. In their place, the Legislature added Civil Code section 1656.1, described above, permitting but not requiring the addition of reimbursement charges, designating the charges as a matter for a contractual agreement between seller and buyer, and permitting the retailer to absorb the tax. (Loeffler at 1116-1117.) Thus, the Legislature’s goal in 1978 was to removethe State and the SBE from any role in determining whether a retailer may add sales tax reimbursementto the sales price by makingit “a matter for a contractual agreement betweenseller and buyer.” To further disentangle the SBE from sales tax reimbursement, the Legislature put the critical replacementstatute in the Civil Code rather than the Tax Code. The enactment of Civil Code §1656.1 was the polar opposite of an ill-conceived piece oflegislation. The reduction in California’s sales tax base as a result of the U.S. Supreme Court’s decision in Diamond wasof great concern for the State and the SBE. Civil Code §1656.1 wascrafted | 25 by the Legislature and the SBEto achievea delicate balance between the rights of retailers and the rights of consumers. It beginsbystating: Whethera retailer may add sales tax reimbursement to the sales price of the tangible personal propertysold atretail to a purchaser dependssolely upon the terms of the agreement of sale. However, §1656.1 then creates a presumption in favorofthe existence of an agreement by the consumerto pay sales tax reimbursement “if .. sales tax reimbursement is shownonthe sales check or other proof of sale.” (/d., Sub. (a)(3).) But in the final adjustment, the last subsection states: “The presumptionscreated by this section are rebuttable presumptions.” (Jd. Sub.(d).) Whydid the Legislature enact a presumption atall? Why notjust say “A retailer may add sales tax reimbursementto the salesprice... if... sales tax reimbursementis shown onthe sales check or other proof of sale’? The answeris that such a formulation would make the purchaser automatically obligated to reimbursethe retailer for the sale tax, to an even greater certainty than wasthe case at the time ofDiamond, when the obligation was qualified by the phrase “in so far as the same can be done. . _.” (Former Section 8 1/2 Retail Sales Tax Act of 1933, codified as former Tax Code §6052.) So in orderin order to avoid another federal court decision like Diamond, the Legislature included a rebuttable presumption in 26 Civil Code §1656.1 to act as a sort of “circuit breaker” to counter any argumentthat sales tax reimbursementis automatically imposed on customers, and therefore customersare the real taxpayers. That samelogic and rebuttable presumption did double duty by ensuring that the constitutional justification for sales tax reimbursement — purchaser agreement “either expressly or impliedly given”as per National Ice — would neverbe automatic (and therefore would always be deemed consensualrather that State-imposed). Unfortunately, the 1978 Legislature did not anticipate that 39 years later the Court of Appeal would issue an opinion overridingits carefully crafted statute by applying a “safe harbor” to immunizeretailers from all liability for breaching the contract specified in Civil Code §1656.1: Judicial recognition of a right of customers to sueretailers whenthe Boardhas yet to determine whether a refund is due is also inconsistent with section 6901.5... . In Loeffler, our Supreme Court read this section as providing a “safe harbor” or “safe haven”for any retailer/taxpayer“vis-a-vis the consumer”if the retailer/taxpayer“remits reimbursement charges[it collects] to the Board. Op. at _ (emphasis added). Under the Court of Appeal’s “safe harbor” ruling, if sales tax reimbursementis shown onthe sales check or other proofofsale, customers have no legal powerto dispute the charge, no matter how clearly the sale is legally tax exempt. With customers having no powerto dispute the charge, there is also no basis for presuming that customers agree with 27 the charge. The consensualbasis for the constitutionality of sales tax reimbursementthat this court first suggested in NationalIce is therefore destroyed. And, as this court held in NationalIce, there is no other constitutional basis for customers being obligated to reimburseretailers for a tax obligation thatis statutorily imposed exclusively uponretailers. Theresult of the Court of Appeal’s opinion, therefore, is that retailer collection ofall sales tax reimbursement from customers (not just excess sales tax reimbursement) is rendered unconstitutional as a deprivation of property without due process oflaw. Ill. BY EFFECTIVELY ABOLISHING THE JAVOR-TYPE REMEDY, THE COURT OF APPEAL’S OPINION MAKESTAX CODE §6901.5 UNCONSTITUTIONAL There is no doubt that Tax Code §6901.5 is an escheatstatute, not a taxation statute. Tax Code §6901.5 provides: When an amountrepresented by a person to a customeras constituting reimbursement for taxes due underthis part is computed upon an amountthat is not taxable or is in excess of the taxable amount. ... Tax Code §6901.5 (emphasis added). Thus, §6901.5 only operates whensales tax reimbursement was “computed upon an amountthat is not taxable or is in excess of the taxable amount.” The conclusionis therefore inescapable that §6901.5 is not a taxation statute, precisely because the excess sales tax reimbursement funds governed by §6901.5 are, by definition, not owed astaxes. 28 Whena retailer collects excess sales tax reimbursementfrom its customers, §6901.5 instructs the retailer to return the excess sales tax reimbursementto the customer “upon notification by the Board of Equalization or by the customerthat such excess has been ascertained.” Failing that (as is uniformly the case) §6901.5 instructs that the amount “shall be remitted by [the retailer] to this state” whereuponit will be “credited by the board on any amounts due and payable [as sales tax] on the sametransaction from the [retailer] and the balance, if any, shall constitute an obligation duefrom the [retailer] to this state.” (Emphasis added). In other words, the State escheats from the retailer the amount by which the sales tax reimbursement exceedsany sales tax due from theretailer on the same transaction. Most modern escheatstatutes are only provisional, nonpermanent escheats because they are “subject to the right of claimants to appear and claim the escheated property.” (Code Civ. Proc. 1300, subd. (c); Morris v. Chiang, (2008) 163 Cal. App. 4th 753, 756.) There are generally no constitutional concerns with nonpermanentescheats. See (2004) Harris v. Westly, 116 Cal. App. 4th 214 (“This case, however, doesnot involve * Loeffler at 1120. (“Section 6901.5 provides no procedure by which consumers can require the Boardto 'ascertain' whether excess reimbursementhas in fact been charged, noris there a statutory procedure by which the consumer can makecertain that the retailer will be ordered to refund an excess amountto the consumer.) 29 permanentescheatto the state... Indeed, the statute is explicit in its provision to the contrary...We perceive no constitutional dimensiontothat deprivation underthe circumstances.”) Here, the Javor-type remedy provided such a “right of claimants [i.e. customers] to appear and claim the escheated property [i.e. excess sales tax reimbursement].” Tax Code §6901.5 wastherefore a “nonpermanent escheat,”at least over the period of the statute of limitations. But the Court of Appeal’s opinion effectively abolishes the Javor- type remedy by imposing supposed “prerequisites” that no case, not even Javoritself, could possibly satisfy. (See Section I, supra) It also changes the “rebuttable” presumption in Civil Code §1656.1 into an “irrebuttable” one. The Court of Appeal having eliminating the “right of claimants to appear and claim the escheated property,” Tax Code §6901.5 immediately becomesa “permanent escheat” See Civ. Proc. §1300, subd. (d) (‘Permanent escheat meansthe absolute vesting in thestate oftitle to property....”) A permanentescheat “generally requires a judicial proceeding ... .” (Morris v. Chiang, supra at 756). In the landmark case of State v. Savings Union Bank & Trust Co. (1921) 186 Cal. 294, the State contended that when money on deposit in a bank remained unclaimed for 20 or more years after the last deposit or withdrawal, it automatically, immediately and irrevocably escheated to the state under former Civil Code §1273 without any notice or judicial 30 proceeding. The California Supreme Court emphatically rejected that interpretation of former Civil Code §1273, stating that it would be an unconstitutional “taking of property without due process of law”: [T]he effect of the statute as it is claimed to be by thestate would be to divest a person ofhistitle without any proceeding against him for that purpose and would manifestly be a taking of property without due processof law. % Ok KK In view of . . . the fact that the statute would be utterly void if given the meaning attributedto it by the attorney-general,. . . the provision . . . must not be taken as intending to provide for an immediate escheat, but as providing that the same shall be taken over by the state as an escheat when so adjudged in the action so providedfor." (State v. Savings Union Bankat 300.) In summary, due process requires that an escheat be either a nonpermanentescheat“subject to the right of claimants to appear and claim the escheated property” and/or be accomplished by a judicial proceeding which,after notice satisfying due process standards, cuts off claimants. After the Court of Appeal’s opinion effectively abolished the Javor-type remedy, Tax Code §6901.5 satisfies neither of those tests, and accordingly is unconstitutional under the Due Process clause of the U.S. and California Constitutions. With no obligation on retailers to remit excess sales tax reimbursementthat they collect from customers to the SBE, a spiral of events could occur that may underminethe integrity of the sales tax and damage California's economy. 31 IV. PETITIONERS COULD HAVE STATED A CONSTITUTIONAL CLAIM AGAINST THE SBE UNDER THE TAKINGS CLAUSE; THE COURT OF APPEAL ERRED BY NOT REVERSING THE TRIAL COURT FOR DENYING LEAVE TO AMEND. Afterthe trial court had announcedits tentative ruling to sustain the demurrers, Petitioners’ counsel asked for leave to amend to add a claim for “just compensation”under the Takings Clause , noting that such claim had not been ripe “as long as Javor wasstill in play” (RT, 2/24/2015, 643:19- 644:3) andthat lack of leave to amend couldadversely effect the claims period. (/d. at 645:20-24.) Thetrial court, however, denied leave to amend (id. at 646:7-10.) The Court of Appeal’s opinion holds that no Taking claim could be brought: [C]Jonsumers’ paymentofthe sales tax reimbursement does not affect a ‘taking’ becausetheretailer is not a government entity [and] to the extent we focus on the Board’s subsequent receipt of that moneyaspart ofthe retailer’s sales tax, it is not a ‘taking’ because ‘taxes’ anduserfees are not ‘takings.’” (Op.25.) Asto the first phrase of the above holding, it is commonfor escheats to involve two steps. The consumertransfers funds to the stakeholder (usually a bank), and when the account becomesinactive, the funds escheats non-permanentlyto the state. The fact that two stepsare involved, or that the consumer doesnotdirectly pay the fundsto the state, has never been a defense to a Takings claim. See, e.g. Cerajeski v. Zoeller, (2013) 32 735 F.3d 577, 582-83 (7th Cir., Posner J.) (“[A] state may not escheat property without a judicial or administrative determination that the property has been abandonedoris otherwise subject to escheat opinion. . . . The plaintiff is entitled to just compensation from the state”). As to the second phrase of the above holding, it would overturn 84 years of efforts by the Legislature and SBEto keepsales tax reimbursement separate from sales tax. If the SBE were ever to equate sales tax reimbursement with “part of retailer’s sales tax,” that separation would dissolve, and it would be undeniable that the customers, rather than the retailers, are the real taxpayers entitled to directly file tax refund claims with the SBE. The state cannot have it both ways. The state cannotdefine sales tax reimbursementas a matter of private contract under Civil Code §1656.1 (whenit suits the State's tax maximization goalofplacing the tax incidence on retailers), and alternatively treat sales tax reimbursementas a "tax" (whenit suits the State's purpose of avoiding paying just compensation underthe Takings Clause). This court set forth the standard of review when a demurrer has been sustained without leave to amendas follows: On appeal, “[w]hen a demurrer... is sustained without leave to amend, we decide whetherthere is a reasonable possibility that the defect can be cured by amendment:if it can be, the trial court has abused its discretion and we reverse.” 33 (Loeffler at 1100.) Thetrial court abused its discretion here and the Court of Appeal erred by not reversing on that basis. For the foregoing reasons, the Petition for Review should be granted. DATED:April 24, 2017 Respectfully submitted, MCKOOLSMITH HENNIGAN,P.C. THE KICKLAW FIRM, APC By: /s/Bruce R. MacLeod Attorneys for Plaintiffs and Appellants CERTIFICATE OF WORD COUNT The undersignedcertifies, pursuant to California Rules of Court, Rule 14(c)(1), that this brief contains 8,122 words, including footnotes, as counted by Microsoft Word 2010, the word processing program used to preparethe brief. DATED: April 24, 2017 /s/Bruce R. MacLeod 34 PROOF OF SERVICE I declare as follows: I am citizen of the United States and employed in San Mateo County, California. I am over the age ofeighteen years and not a party to the within action. My business address is 255 Shoreline Drive, Suite 510 Redwood Shores, CA 94065. On April 24, 2017, I served the foregoing document(s) described as PETITION FOR REVIEWonthe interested partiesin this action follows: [_|by placing the documentlisted above in a sealed envelope with postage thereon fully prepaid, in the United States mail at Los Angeles, California addressed as set forth below. [<|by transmitting via e-mail or other electronic transmission the document(s) listed above to the person(s) at the e-mail address(es) set forth below. Joseph Duffy (SBN 241854) Joseph Bias (SBN 257127) MORGANLEWIS & BOCKIUS, LLP 300 South Grand Ave., 22nd Floor- Los Angeles, CA 90071-3132 Tel: (213) 612 2500 Fax: (213) 612 2501 Email: jduffy@morganlewis.com Attorneys for Defendants and Respondents Walgreen Co. and Rite Aid Corporation Robert P. Berry (SBN 220271) Carol M.Silberberg (SBN217658) BERRY & SILBERBERG, LLC 16150 Main Circle Dr., Suite 120 St. Louis, Missouri 63017 Tel: (314) 480 5882 Fax: (314) 480 5884 Email: rberry@berrysilberberg.com Email: csilberberg@pberrysilberberg.com Attorneys for Defendant and Respondent Wal-MartStores, Inc. Phillip J. Eskenazi (SBN 158976) Kirk A. Hornbeck (SBN 241708) HUNTON & WILLIAMSLLP 550 South HopeStreet, Ste. 2000 Los Angeles CA 90071 Telephone: (213) 532-2000 Facsimile: (213) 312-4769 Email: peskenazi@hunton.com Email: khornbeck@hunton.com Attorneys for Defendants and Respondents Albertson's Inc. and Sav-On Drugs David F. McDowell (SBN 125806) Miriam A. Vogel (SBN 67822) MORRISON & FOERSTER, LLP 707 Wilshire Blvd., Suite 6000 Los Angeles, CA 90017-3543 Tel: (213) 892 5200 Fax: (213) 892 5454 Email: dmcdowell@mofo.com Email: mvogel@mofo.com Attorneys for Defendant and Respondent Target Corporation Richard T. Williams (SBN 52896) Shelley Hurwitz (SBN 217566) HOLLAND & KNIGHT LLP 400 S. Hope St., 8th Floor Los Angeles, CA 90071 Tel: (213) 896 2400 Fax: (213) 896 2450 Email: shelly.hurwitz @hklaw.com Attorneys for Defendants and Respondents CVS Caremark Corporation, Longs Drug Stores Corporation and Longs Drug Stores California, Inc. Theodore Keith Bell (SBN 184289) Senior Corporate Counsel SAFEWAY, INC. Legal Division, Trial Group 5918 Stoneridge Mall Road Pleasanton, CA 94588 Tel: (925) 467 2422 Fax: (925) 467 3214 Email: tad.bell@safeway.com Attorneys for Defendants and Respondents The Vons Companies and Vons Food Services, Inc. Douglas C. Rawles (SBN 154791) JamesC. Martin (SBN 083719) Kasey J. Curtis (SBN 268173) REED SMITH LLP 355 South Grand Ave., Suite 2900 Los Angeles, CA 90071-1514 Telephone: (213) 457 8000 Facsimile: (213) 457 8080 Email: DRawles@ReedSmith.com Attorneys for Defendants and Respondents Walgreen Co. and Rite Aid Corporation Kamala D. Harris (SBN 146672) ATTORNEY GENERAL OF CALIFORNIA Lisa W. Chao (SBN 198536) Supervising Deputy Attorney General Nhan T. Vu (SBN 189508) Deputy Attorney General 300 South Spring Street, Suite 1702 Los. Angeles, CA 90013-1230 Tel: (213) 897 2484 Fax: (213) 897 5775 Email: nhan.vu@doj.ca.gov Attorneys for Defendant, Cross- Defendant and Respondent California State Board ofEqualization Taras P. Kick, Esq. (SBN 143379)JamesStrenio, Esq. (SBN 177624)THE KICK LAW FIRM, APC201 Wilshire Blvd., Ste. 350Santa Monica, CA 90401Telephone: (310) 395-2988Facsimile: (310) 395-2088E-mail: taras@kicklawfirm.comAttomeysfor Plaintiffs and AppellantsMichael McClain, Avi Feigenblatt andGregory Fisher I declare under penalty ofperjury underthe laws of the State of California that the above is true and correct. Executed on April 24, 2017, at Sanis Wf, \ ke j Lhd) ‘Bruce MacLeod I declare as follows: PROOF OF SERVICE I am a citizen of the United States and employed in San Mateo County, California. I am over the age of eighteen years and not a party to the within action. My business address is 255 Shoreline Drive, Suite 510 Redwood Shores, CA 94065. On April 24, 2017, I served the foregoing document(s) described as PETITION FOR REVIEW onthe interested parties in this action follows: (X|by placing the documentlisted above in a sealed envelope with postage thereon fully prepaid, in the United States mail at Los Angeles, California addressedas set forth below. [_|by transmitting via e-mail or other electronic transmission the document(s) listed aboveto the person(s) at the e-mail address(es) set forth below. Court of Appeals, 2"° District Ronald Reagan State Building 300 S. Spring Street 2nd Floor, North Tower Los Angeles, CA 90013 Tel: (213) 830-7000 Office of the Attorney General Appellate Coordinator Consumer Law Section 300 South Spring Street Nmth Tower, 5th Floor Los Angeles, CA 900 13 Office ofthe District Attorney Consumer Law Section Clerk, Honorable John Shepard Wiley Los Angeles County Superior Court Appellate Division CCW-Dept. 311 320 W. TempleSt., #540 600 S. Commonwealth A venue Los Angeles, CA 90012 Los Angeles, CA 90005 I declare under penalty ofperjury underthe laws ofthe State of California that the above is true and correct. Executed on April 24, 2017, at Redwood Sho A. VA LZ —— Adrian Corona COURT OF APPEAL — SECONDDIST. FILED ELECTRONICALLY Mar 13, 2017 JOSEPHA. LANE,Clerk Hatter Deputy Clerk Filed 3/13/17 CERTIFIED FOR PUBLICATION J IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION TWO MICHAEL MCCLAINetal., ~ B265011 & B265029 Plaintiffs and Appellants, (Los Angeles County Super. Ct. Nos. BC327216 v. & BC325272) SAV-ON DRUGSetal. Defendants and Respondents. APPEALfrom a judgment of the Superior Court of Los Angeles County. John Shepard Wiley, Jr., Judge. Affirmed. The Kick Law Firm, Taras P. Kick, G. James Strenio; McKool Smith Hennigan, Bruce R. MacLeod and ShawnaL. Ballard for Plaintiffs and Appellants. Reed Smith, Douglas C. Rawles, James C. Martin and Kasey J. Curtis; Morgan Lewis & Bockius, Joseph Duffy and Joseph Bias for Defendants and Respondents Walgreen Co. and Rite Aid Corporation. Berry & Silberberg, Robert P. Berry and Carol M. Silberberg for Defendant and Respondent Wal-Mart Stores,Inc. Morrison & Foerster, David F. McDowell and Miriam A. Vogel for Defendant and Respondent Target Corporation. Holland & Knight, Richard T. Williams and Shelley Hurwitz for Defendants and Respondents CVS Caremark Corporation, Longs Drug Stores Corporation and Longs Drug Stores California, Inc. Safeway, Inc., Theodore Keith Bell for Defendants and Respondents The Vons Companies,Inc. and Vons Food Services, Inc. Hunton & Williams, Phillip J. Eskenazi and Kirk A. Hornbeck for Defendants and Respondents Albertson’s Inc. and Sav-On Drugs. Kamala D. Harris, Attorney General, Stephen Lew, Supervising Deputy Attorney General, and Nhan T. Vu, Deputy Attorney General, for Defendant and RespondentCalifornia State Board of Equalization. KERR KK A customer buys skin puncture lancets and test strips used by diabetics to test blood glucose levels from a retail pharmacy store like CVS or Walgreens. Theretail pharmacy is the one obligated to pay sales tax to the State of California (Rev. & Tax. Code, § 6051),1 and accordingly charges the customera “sales tax reimbursement”to cover the cost of the sales tax and remits that amount to the state. If the retail pharmacy subsequently believes no sales tax is owed, it—as the taxpayer—canfile an 1 All further statutory references are to the Revenue and Taxation Code unless otherwise indicated. administrative claim for a refund with the state Board of Equalization (the Board) and challenge any adverse ruling in court. (§§ 6901 & 6932.) But the retail pharmacy usually has no financial incentive to pursue such a remedy because any refundit obtains from the Board must be passed back to the customer. (§ 6901.5; Decorative Carpets, Inc. v. State Board of Equalization (1962) 58 Cal.2d 252, 254-255 (Decorative Carpets).) Whatis more, and as our SupremeCourt recently reaffirmed in Loeffler v. Target Corp. (2014) 58 Cal.4th 1081, 1123-1124 (Loeffler), the customeris not the taxpayer and thus cannotherself seek a refund from the Board. May the customerobtain a court order compelling the retail pharmacyto file an administrative refund claim with the Board? Our Constitution strictly limits refund actions to those “provided by [our] Legislature” (Cal. Const., art. XIII, § 32), and no such statutory remedy exists. However, our Supreme Court in Javor v. State Board of Equalization (1974) 12 Cal.3d 790, 802 (Javor) held that the Legislature’s authority in this regard is not exclusive and that courts retain a residual powerto fill remedial gaps by fashioning tax refund remediesin “unique circumstances.” Loeffler had no occasion to define those “unique circumstances.” (Loeffler, supra, 58 Cal.4th at pp. 1101, 1133- 1134.) This case squarely presents this unanswered question. We conclude that a court may create a new tax refund remedy—and, accordingly, that the requisite “unique circumstances” exist— only if (1) the person seeking the new tax refund remedy has no statutory tax refund remedy available to it, (2) the tax refund remedy soughtis not inconsistent with existing tax refund remedies, and (3) the Board has already determinedthat the person seeking the new tax refund remedyis entitled to a refund, such that the refusal to create that remedy will unjustly enrich either the taxpayer/retailer or the Board. Here, a group of customersfiled a class action predicated on their ability to obtain an order compelling the retail pharmaciesto file an administrative claim with the Board seeking a refund of the sales tax paid for skin puncture lancets and glucosetest strips. Because the Revenue and Taxation Code does not provide for this remedy and because they have not established anyof the three prerequisites to the exercise of the judicial residual powerto fashion new remedies, the trial court correctly sustained demurrersto all of the claims in the customers’ operative complaint without leave to amend. We consequently affirm the judgmentbelow. FACTS AND PROCEDURAL BACKGROUND I. Facts Plaintiffs and appellants Michael McClain, Avi Feigenblatt, and Gregory Fisher(collectively, customers) each bought skin puncture lancets and glucosetest strips from retail pharmacy stores owned and/or operated by defendants and respondents Sav-On Drugs, Gavin Herbert Company, Longs Drug Stores Corporation, Longs Drug Stores California, Inc., Rite Aid Corporation, Walgreen Co., Target Corporation, Albertson’sInc., The Vons Companies, Inc., Vons Food Services, Inc., and Wal- Mart Stores, Inc. (collectively, the retail pharmacies). Skin puncture lancets (or lancets) and glucose test strips are used by personsliving with diabetes to draw their blood andtestits glucose level, whichis critical to knowing whento inject insulin to reduce their glucose levels. When the customers purchased lancets and test strips from the retail pharmacies,the retail pharmacies charged them “sales tax” on those items. Theretail pharmacies subsequently remitted the moneytheycollected as sales tax to the Board. II. Procedural History In the operative fourth amended complaintfiled in 2014,” the customers sued the retail pharmacies and the Board?for a refund of the “sales tax” they paid for lancets andtest strips, alleging that these items have been exempt from sales tax since March 10, 2000, the date on which the Board made effective California Code of Regulations,title 18, section 1591.1, subdivision (b)(5) (Regulation 1591.1). This complaint sought to certify a class comprised of “all persons who were charged by and paid one or moreof the [retail pharmacies] a sales tax on glucose test strips or skin puncture lancets in California when such should not have been charged.” 2 This litigation was initiated by different customers in two separate lawsuitsfiled in December 2004, and January 2005,the first seeking a refund for sales tax paid on lancets, and the second seekinga refundfor sales tax paid on test strips. The current customers were subsequently substituted in as the lead plaintiffs. 3 Although the Boardis notlisted in the caption of the operative complaint, the Board is named in that complaint’s claim for declaratory and injunctive relief, and the Board has appeared andactively litigated the demurrer thatis the subject of this appeal. We consequently conclude that although the Board wasinitially brought into this litigation whentheretail pharmaciesfiled cross-complaints against it for indemnity and declaratory relief, it is also now a defendantasto the claim for injunctive and declaratory relief in the main action. The operative complaint alleges that the retail pharmacies collected sales tax reimbursementfor lancets andtest strips whenno sales tax was due on these items and that this conduct (1) breached an implied term of the contract that is deemed by statute to exist whenevera retailer collects a sales tax reimbursement from a customer under Civil Code section 1656.1 and also breached the implied covenantof good faith andfair dealing; (2) constituted an unlawful, unfair and/or fraudulent business practice and thereby violates the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.); (3) constituted negligence; and(4) violated the Consumer Legal Remedies Act (Civ. Code, § 1750 et seq.) by misrepresenting the taxability of those items. The operative complaint further seeks declaratory and injunctive relief compelling the retail pharmacies to prosecute a tax refund claim with the Board and the Boardto award such a refund. The retail pharmacies and the Board demurred to the operative complaint. Followingbriefing, the trial court issued an oral ruling sustaining the demurrersto all of the claimsin the operative complaint without leave to amend. The court reasoned that Loeffler, supra, 58 Cal.4th 1081 held that a customercould not seek a tax refundof sales tax from a retailer; that Javor, supra, 12 Cal.3d 790 allowed a customerto seek a refundof sales tax where the Board had already decided the question of taxability and concluded that a refund was due; and that “[t]his case is more like Loeffler than Javor’ becausethe taxability of lancets andtest strips was “very hotly in dispute.” Following entry of judgment, the customersfiled this timely appeal. DISCUSSION I. Pertinent Legal Principles A. Relevant tax law 1. Sales tax generally In California, retailers are generally required to pay the state a sales tax on any “tangible personal property” they sell “at retail.” (§ 6051; Loeffler, supra, 58 Cal.4th at p. 1103 [“under California’s sales tax law, the taxpayeris the retailer, not the consumer”]; De Aryan v. Akers (1939) 12 Cal.2d 781, 783 [same].) Retailers pay the sales tax as a percentage of their “gross receipts” (§ 6051), and it is rebuttably presumedthatall “gross receipts” are subject to the tax (§ 6091). Retailers pay the sales tax they owe on a quarterly basis. (§§ 6451-6459; State Bd. of Equalization v. Superior Court (1985) 39 Cal.3d 633, 640.) 2. Collection of sales tax reimbursement from the customer Although retailers were in the past required to collect the money they had to pay as sales tax from their customers (former § 6052),4 our Legislature altered that approach after the United States Supreme Court held that a retailer’s mandatory collection of sales tax from customers rendered the customer the de facto taxpayer. (Diamond Nationalv. State Equalization Bd. (1976) 425 U.S. 268, 268 [96 S.Ct. 1530, 47 L.Ed.2d 780].) Under our 4 Manycounties and municipalities still employ such mechanisms. (E.g., Andal v. City of Stockton (2006) 137 Cal.App.4th 86, 93-95 (Andal) [so noting, and holding that retailer whocollects such fees may seek a refund]; Traclone Wireless, Inc. v. County of Los Angeles (2008) 163 Cal.App.4th 1359, 1361-1365 (TracFone) [same]; Sipple v. City of Hayward (2014) 225 Cal.App.4th 349, 358-362 (Sipple) [same].) Legislature’s current approach,it is up to each retailer to decide—as a matter of contract with its customers—whetherto charge its customers a “sales tax reimbursementto the sales price” for items subject to the sales tax, or whether to pay the sales tax itself. (Civ. Code, § 1656.1, subd.(a).)> Ifa retailer “show[s]” a charge for sales tax on the receipt or “other proof of sale,” or otherwise notifies a customerthatit has or will charge sales tax, it is rebuttably presumed that theretailer and customer have contractually agreed that the retailer is collecting a sales tax reimbursementfrom the customer. (Civ. Code, § 1656.1, subds. (a) & (d).) 3. Pertinent exemptions Theretail sale of many items of tangible personal property is exempt from the sales tax. (§§ 6351-6380 [exemptions from sales and use taxes], 6381-6396 [exemptionsfrom sales tax].) Since 1961, the sale of “medicines” has been exempt from sales tax if “[p]rescribed for the treatment of a human being by a person authorized to prescribe the medicines, and dispensed on prescription filled by a registered pharmacist in accordance with law.” (§ 6369, subd. (a)(1).) A few years later, in 1963, our Legislature declared “[iJnsulin and insulin syringes” exempt from the sales tax if they were “furnished by a registered pharmacist to a person for treatmentof diabetes as directed by a physician.” (Id., subd. (e).) On March 10, 2000, the Board promulgated 5 The retailer’s decision affects the amountof the sales tax to be collected: If the retailer pays the tax itself, it owes sales tax on the full amount charged for the item;if the retailer chargesits customer a “sales tax reimbursement,” it owes sales tax on the amountcharged for the item less the reimbursement amount collected. (§ 6012, subd. (c)(12).) Regulation 1591.1, which expandedthis statutory exemption from the sales tax to reach “[g]lucose test strips and skin puncture lancets”if they were “furnished by a registered pharmacist [and] used by a diabetic patient to determinehis or her own blood sugarlevel . . . in accordance with a physician’s instructions.” (Cal. Code Regs., tit. 18, § 1591.1, subd. (b)(5); see generally § 7051 [conferring upon Board the powerto “prescribe, adopt, and enforce rules and regulations relating to the administration and enforcement”of the sales tax].) The Board expandedthe sales tax exemption to these additional items because they “are an integral and necessary active part of the use of insulin and insulin syringes” expressly exempted by statute. (Cal. Code Regs., tit. 18, § 1591.1, subd. (b)(5).) B. Relevant statutory tax refund procedures 1, Forretailers If a retailer believes it has paid the state sales tax “in excess of the amountlegally due” (§ 6901), the retailer—as the taxpayer—hastwooptions available to it by statute. First, the retailer can file an administrative claim with the Boardfor a refund of any amount “not required to be paid.” (§ 6901.) It has three years from the last day of the quarter in whichit is seeking a refund to file such an administrative claim. (§ 6902, subd. (a).) If and only if the Board declinesto issue a refund, the retailer may challenge that denial in courtifit files suit “[w]ithin 90 days”of the Board’s mailing the notice of denial. (§§ 6932 & 6933; State Bd. of Equalization v. Superior Court (1980) 111 Cal.App.3d 568, 571 (State Bd. of Equalization) (“pending completion of . .. administrative proceedings [before the Board], [the] court lacks jurisdiction”].) Requiring the retailer to litigate its refund claim before the Board“in the first instance” is designed to “obtain the benefit of the Board's expertise, permit it to correct mistakes, and save judicial resources.” (Loeffler, supra, 58 Cal.4th at pp. 1103, 1127.) Ifa refund is ordered (either by the Board or in subsequentjudicial review), the retailer can either “return[]” the corresponding sales tax reimbursementit collected to “the customer”or leave the funds with the state. (§ 6901.5.) Second, the retailer can elect to waive its right to a refund by decliningto file a timely claim for administrative review. (§ 6905.) 2. For customers If the customer believes it has paid a sales tax reimbursementfor items on which nosales tax is due, the customerhas no statutory tax refund available to her—either administrative or judicial—against the Boardor theretailer. (See §§ 6901-6909 [no administrative refund procedure for person whodid not “collect” or “pafy]” the tax], 6931-6937 [no lawsuit “unless a claim for refund . . . has been duly filed”); Loeffler, supra, 58 Cal.4th at pp. 1092, 1133 [customer may not sue the retailer for excess sales tax reimbursement]; Javor, supra, 12 Cal.3d at p. 800 [customer hasno “direct cause of action against the Boardfor . . . erroneously collected sales tax reimbursements’]; see generally Delta Air Lines, Inc. v. State Bd. of Equalization (1989) 214 Cal.App.3d 518, 526 (Delta) (“Generally, persons who havenot paid the tax in question are barred from bringing suits for refund of that tax”].) C. Law governing demurrers andtheir review on appeal In reviewing an order sustaining a demurrer without leave to amend, we must ask (1) whether the demurrer was properly sustained, and (2) whether leave to amend was properly denied. 10 Thefirst question requires us to ““determine whether[that] complaint states facts sufficient to constitute a cause of action.” (Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1010 (Centinela Freeman), quoting Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) In undertaking this task, we accept as trueall “material facts properly pleaded”” and consider any materials properly subject to judicial notice; we disregard any “< standing in all circumstancesto ‘tax collectors.” (Sipple, at p. 359.) These cases are doubly irrelevant because they deal with 18 the standing of a retailer whois a tax collector and not the standing of a consumerwhois neithera tax collector nor a taxpayer, and because they deal with local taxes and thusare not constrained by article XIII, section 32’s mandate which,as noted above, does require “strict” construction of tax refund statutes. (Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 822, fn. 5 [art. XIII, § 32 does not apply to “local governments’]; City ofAnaheim, supra, 179 Cal.App.4th at pp. 830-831 [same].) The last category involves the right of a limited partnerto file a derivative action on behalf of a limited partnership. (Wallner v. Parry Professional Bldg., Lid. (1994) 22 Cal.App.4th 1446, 1449-1450.) Becauseit arises in a different context and involves a different statutory scheme,it is irrelevant. The customerslastly contend that limiting judicially created remedies to cases in which there has been a prior determination that a tax refundis due will lead to absurdresults. Weagree that courts are loathe to interpret the law in a way that yields absurd results (John v. Superior Court (2016) 63 Cal.4th 91, 96), but disagree with the customers’ prognostications. The customers assert that if consumerscan sue for a tax refund only if there is a prior determination that a refund is due, then the same must be true for retailers seeking a refund from the Board, which will make it nearly impossible for retailers to obtain a tax refund. But the conclusion of this argument does not flow from its premise. The reason whya prior determination is required for consumers is because they are asking the court to create a new tax refund remedy when noneexists by statute in order to avoid certain unjust enrichment; that reason has no application to retailers, who are authorized by statute to seek administrative and then judicial relief. The customers also argue the Board is 19 not infallible because its rulings are sometimes overturned, such that placing limits on the powerof courts to fashion new tax refund remedies makesit more possible for the Board’s incorrect interpretations to go unreviewed. However, the question before us is to define the conditions that must be satisfied before the judiciary may fashion tax refund remedies notwithstanding our Constitution’s primary commitment of defining remedies with the Legislature; it is not to afford maximum opportunities for judicial review. Moreover,retailers still have the right to directly challenge the Board’s rulings and, as we discussbelow, consumers have a more diluted right to do so. B. Application As explained above, a court maycreate a new tax refund remedy—and, accordingly, Javor’s “unique circumstances” exist—only if (1) the person seeking the new tax refund remedy has no statutory tax refund remedy available, (2) the tax refund remedy soughtis not inconsistent with existing tax refund remedies, and (3) the Board has already determined that the person seeking the new tax refund remedyis entitled to a refund, such that the refusal to create that remedy will unjustly enrich either the taxpayer/retailer or the Board. The trial court in this case ruled that it could not fashion a new judicial remedy to allow the customers to attack the Board’s collection of sales tax on lancets andtest strips. This ruling was correct because none of the three prerequisites is present in this case. First, the customers do not have a statutory right to directly file for a refund of the sales tax from the Boardor for a refund of sales tax reimbursementfrom theretailers, but they are not remedy-less. In fact, they have several other remedies available to them. They may urge the Boardto initiate an audit 20 of the retail pharmacies’ practices in collecting sales tax or to conduct a deficiency determination of the retail pharmacies’ sales tax payments (§§ 6481, 6483 & 7054; Loeffler, supra, 58 Cal.4th at pp. 1103-1104, 1123 [noting that “consumers whobelieve they have been charged excess reimbursement . .. may complain to the Board, which may in turn initiate an audit” or a “deficiency determination”].) They can, as “interested person[s],” petition the Board under the Administrative Procedure Act to compel the Boardto “adopt[], amend[], or repeal” Regulation 1591.1, subdivision (b)(5) and the collection of sales tax under that | regulation. (Gov. Code, § 11340.6; Loeffler, at p. 1123.) And they can, as “interested person[s],” sue the Board under the Administrative Procedure Act, for declaratory relief “as to the validity of’ Regulation 1591.1. (Gov. Code, § 11350; Loeffler, at p. 1128.) Second, judicial recognition of a right of customers to sue retailers and the Board for a sales tax refund when the Board has yet to determine whetherany refundis dueis inconsistent with at least two provisionsof the Revenue and Taxation Code. It is inconsistent with section 6905. That section allowsretailers to waive their right to seek a tax refund; if consumers can compel a retailer to seek a refund when it would rather waiveit, the retailer’s right to waiver would be negated. (Loeffler, supra, 58 Cal.4th at p. 1129 [so noting].) The consumersassert that the retailers’ powerto waive their right to a refundis irrelevant because theretailers’ powerto collect sales tax reimbursement from consumersis a matter of contract under Civil Code section 1656.1. But the contractual natureof the right to collect sales tax reimbursement in no wayaffects the fact that a judicial 21 remedy compellinga retailer to seek a refund overrides a retailer’s election not to seek one. Judicial recognition of a right of customersto sueretailers when the Board has yet to determine whethera refund is dueis also inconsistent with section 6901.5. That section requires a retailer that obtains from the Boarda sales tax refund collected from its customersto do one of two things: (1) return that money to the customersonce its entitlement to the refund “has been ascertained”; or (2) leave that money with the state. (§ 6901.5; see also Cal. Code Regs., tit. 18, § 1700, subd. (b)(1) [containing identical language].)7 In Loeffler, our Supreme Court read this section as providing a “safe harbor” or “safe haven” for any retailer/taxpayer “vis-a-vis the consumer”if the retailer/taxpayer “remits reimbursement charges[it collects] to the Board.” (Loeffler, supra, 58 Cal.4th at pp. 1100, 1103-1104, 1119.) If consumers can sue retailers to compel them to seek a refund from the Board, then the “safe harbor” from suit erected by section 6901.5 is no safe harbor at all. (Accord, Loeffler, at p. 1126 [noting conflict].) Indeed, the customers concede as much when 7 In pertinentpart, this provision provides: “When an amount represented by a person to a customeras constituting reimbursement for taxes due underthis part is computed upon an amountthat is not taxable or is in excess of the taxable amountandis actually paid by the customerto the person, the amount so paid shall be returned by the person to the customer upon notification by the Board of Equalization or by the customer that such excess has been ascertained. In the eventof his or her failure or refusal to do so, the amountso paid, if knowingly or mistakenly computed by the person upon an amountthatis not taxable or is in excess of the taxable amount, shall be remitted by that person to this state.” (§ 6901.5) 22 they raise the issue before us only to preserveit for challenge before the Supreme Court. To be sure, the regulation implementing section 6901.5 provides that it “do[es] not necessarily limit the rights of customers to pursue refunds from persons whocollected tax reimbursement from them in excessof the amount due.” (Cal. Code Regs., tit. 18, § 1700, subd. (b)(6).) But Loeffler held that this language did no more than “acknowledge[] that if other remediesare available, the regulation does not interfere with them.” (Loeffler, at p. 1122.) Third, the Board has yet to decide whethertheretail pharmacies—and, by extension, the customers—are entitled to a refund. Regulation 1591.1 exempts the sales of lancets and test strips, but only when theyare (1) “furnished by a registered pharmacist,” and (2) “used by a diabetic patient . . . in accordance with a physician’s instructions.” (Cal. Code Regs., tit. 18, § 1591.1, subd. (b)(5).) It has yet to be determined whetherthose two conditions are legally valid or were factually satisfied as to the customers’ purchases. In their reply brief on appeal, the customers argue that the Board has conceded that a refund was due because the Board,in its brief on appeal, did not address the merits of the taxability issue and admitted that a 2003 opinion letter sent by a Board staff member arguably setting forth additional prerequisites to application of Regulation 1591.1’s exemption was not a “binding determination of the Board.” There was no concession. The Board did not address the merits of the taxability issue because the chief issue in this appeal is not the merits, but where and by whom they maybelitigated. And the validity or invalidity of the 2003 opinion letter does not alter the undisputed fact that the Board hasyet to determinethatall 23 of the sales the customers challenge fall within the ambit of Regulation 1591.1’s exemption. For these reasons, the customers have not established that this case involves the “unique circumstances” that empower a court to fashion a new tax refund remedy.® Absent sucha remedy, there can be no judicial determination that the retail pharmacies’collection of sales tax reimbursement was improper. Andabsent that determination, none of the customers’ claims— all of which are premised on the unlawful collection of sales tax reimbursement—state a viable cause of action. (Centinela Freeman, supra, 1 Cal.5th at p. 1010.) C. Customers’ further arguments The customers level two further categories of arguments at our conclusion. First, the customers note that courts must generally “construe ... statute[s] in a mannerthat avoid[] doubts as to {their] constitutional validity.” (Steen v. Appellate Division of Superior Court (2014) 59 Cal.4th 1045, 1048.) From this, they argue that we must not construe the Revenue and Taxation Code to deny them judicially fashioned tax refund remedy because doing so will risk violations of the takings clause and due process. No suchrisksexist. . 8 In light of our conclusion that the requisite “unique circumstances” have not been shown, we have no occasion to reach the Board’s and retail pharmacies’ further arguments that Javor also requires a showingthat the consumersfirst demanded that the retail pharmacies file an administrative refund claim or a showingthat the retail pharmacies have maintained records making it possible to remit any refund to the correct customers. 24 The federal and California Constitutions guarantee that “private property” shall not “be taken for public use, without just compensation.” (U.S. Const., 5th Amend.; Cal. Const., art. I, § 19, subd. (a).) Two typesof “takings” are assured just compensation: (1) categorical or per se takings, which arise whenthe governmentphysically occupies property or deprives its owner of all viable uses of the property (Brown v. Legal Foundation of Wash. (2003) 538 U.S. 216, 233 [123 S.Ct. 1406, 155 L.Ed.2d 376]; California Building Industry Assn. v. City of San Jose (2015) 61 Cal.4th 435, 462); and (2) regulatory takings, which arise when governmentregulation of a property’s use sufficiently impairs its value (California Building Industry Assn., at p. 462.) However, it is well settled that “[t]axes and user fees... are not “takings.”(Koontz v. St. Johns River Water Mgmt. Dist. (2013) 570 U.S. __, __ [133 S.Ct. 2586, 2600-2601, 186 L.Ed.2d 697]; United States v. Sperry Corp. (1989) 493 U.S. 52, 62, fn. 9 [110 S.Ct. 387, 107 L.Ed.2d 290]; accord, San Remo Hotel v. City and County of San Francisco (2002) 27 Cal.4th 643, 671-672 [noting that “the taking of moneyis different, under the Fifth Amendment, from the taking of real or personal property”].) Thus, the collection of sales tax reimbursement from consumers does not implicate the takings clause. The federal and California Constitutions also provide that the state shall not deprive personsof their property “without due process of law.” (U.S. Const., 14th Amend., § 1; Cal. Const., art. I, § 7.) This guarantee applies to the payment of taxes (7. M. Cobb Co. v. County of Los Angeles (1976) 16 Cal.3d 606, 617, fn. 6), but authorizes a state to relegate taxpayers to a “nostpayment refund action”as long as they are afforded “meaningful backward-lookingrelief to rectify any 25 unconstitutional deprivation.” (River Garden Retirement Home v. Franchise Tax Bd. (2010) 186 Cal.App.4th 922, 937-938 (River Garden), quoting McKesson Corp. v. Florida Alcohol & Tobacco Div. (1990) 496 U.S. 18, 31 [110 S.Ct. 2238, 110 L.Ed.2d 17] (McKesson); City ofAnaheim, supra, 179 Cal.App.4th at p. 831.) A state provides “meaningful backward-lookingrelief” if it gives taxpayers (1) “a ‘fair opportunity to challenge the accuracy and legal validity of their tax obligation,” and (2) “a “clear and certain remedy”for the erroneousor unlawful tax collection.” (River Garden, at p. 938, quoting McKesson,at p. 39.) Weconclude that our refusal to craft a judicial tax refund remedy for consumersdoes not risk a due process violation. To begin, it is not precisely clear how due processapplies to them. The paymentof sales tax alleged in the operative complaint entails two sequential transactions: Consumers paysales tax reimbursementto retailers, and retailers pay sales tax to the state. Thefirst transaction is ostensibly outside the reach of due process becauseit reflects a contractual arrangement between two private parties (§ 1656.1; Coleman v. Department of Personnel Administration (1991) 52 Cal.3d 1102, 1112 [“Only those actions that may fairly be attributed to the state ... are subject to due process protections”]), and the consumersare not parties to the second transaction. Further, our Supreme Court in Loeffler—althoughsilent on this point—notedno constitutional impedimentto its ruling that left consumers with no direct remedy for a refund and instead relegated them to urging Board inquiry andto filing claims or actions under the Administrative Procedure Act. (Loeffler, supra, 58 Cal.4th 1081.) Were weto come to a contrary conclusion, we would effectively overrule Loeffler, something we are not allowed to do except in narrow 26 circumstances not present here. (Auto Equity Sales v. Superior Court (1962) 57 Cal.2d 450, 456.) Second, the customersassert that our ruling that we are powerless to craft a new judicial tax refund remedy does not warrant dismissalof their breach of contract claimsor their second UCL claim. Specifically, the customers urge (1) that their breachof contract claims are grounded in Civil Code section 1656.1, whichis effectively part of the Revenue and Taxation Code and is more specific than section 6901.5, and thus cannot be inconsistent with either the Code or section 6901.5, (2) their second breachof contract claim is premised on allegations that one of the retailers who charged sales tax reimbursement sometimesdid not meanto do so because its corporate policy did not call for it, and (3) that their second UCL claim is based upon allegations that the retail pharmacies should have informed them of the requirements to qualify for Regulation 1591.1’s exemption. Wereject the customers’ first argument because, as explained above, the premise of their breach of contract claimsis that the retail pharmacies wrongly collected sales tax reimbursement that was not due, yet they have no meansin this lawsuit of establishing whether it was due. Wereject the customers’ second argument because the only contract at issue is the one betweentheretailer and customer; because the express termsof that contract, which arise from the presumption in Civil Code section 1656.1 because the retailer showed a charge for sales tax on its receipts, are that the retailer is charging sales tax reimbursement; and because the retailer’s unexpressed intention not to charge sales tax in some transactions cannot alter the express termsof the parties’ contract or otherwise rebut the statutory presumption (Patel v. Liebermensch (2008) 45 Cal.4th 27 344, 352 [“The terms of the contract are determinable by an external, not by an internal standard”’]). We reject the customers’ third argument because the pharmacies owed no duty to explain how to qualify for the exemption. (Accord, Buller v. Sutter Health (2008) 160 Cal.App.4th 981, 987-988 [insurance companyhasno dutyto explain to clients how to get the best deal]; Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117, 1136-1137 [same].) III. Leave To Amend Was Properly Denied The customers arguethat the trial court erred in not allowing them to amendthe operative complaintto add a claim that they were suffering an unconstitutional taking. Because, as explained above, such a claim lacks merit as a matter of law, the trial court’s conclusion that there was no reasonable possibility the customers could amend their complaint to state a claim was correct. KKK KK*K The result we reach in this case is not an entirely satisfying one. The retail pharmacies lack any financial incentive to challenge the Board’s implementationof Regulation 1591.1 by seeking a refund, and the statutory remedies available to the customers—urging the Board to conduct an audit orfiling a claim or lawsuit under the Administrative Procedure Act—while effective enough to satisfy due process, are nevertheless the practical equivalent of allowing them to tug (albeit persistently) at the Board’s sleeve. However, this is the result we must reach because our Constitution chiefly assigns the task of creating tax refund remedies to our Legislature, and our Legislature has yet to address the situation that arises when the legal taxpayer has no incentive to seek a direct refund and the economic taxpayer 28 has no right to do so. Itisa topic worthy of legislative consideration. Because the prerequisites for makingit a topic of judicial consideration are not present, we adhere to the statutes as they are written andaffirm the order dismissing this case. DISPOSITION The judgmentis affirmed. The Board andtheretail pharmacies are entitled to their costs on appeal. CERTIFIED FOR PUBLICATION. Jd. HOFFSTADT Weconcur: , Acting P. J. CHAVEZ Jo.” GOODMAN * Retired judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuantto article VI, section 6 of the California Constitution. 29 COURT OF APPEAL — SECOND DIST. FILED Apr 10, 2017 Filed 4/10/17 JOSEPH A. LANE,Clerk CERTIFIED FOR PUBLICATION _QCarbone __peputyclerk IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION TWO MICHAEL MCCLAINetal., B265011 & B265029 Plaintiffs and Appellants, (Los Angeles County Super. Ct. Nos. BC327216 v. & BC325272) SAV-ON DRUGSetal., ORDER MODIFYING OPINION AND DENYING REHEARING Defendants and Respondents. NO CHANGEIN JUDGMENT THE COURT: It is ordered that the opinion filed herein on March 13, 2017, be modified as follows: 1. On page 25, the first paragraph, lines 13 through 22, following the sentence ending with “(California Building Industry Assn., at p. 462.)” the remainder of the paragraph is modified to read as follows: . CHAVEZ,Acting P. J.. HOFFSTADT, J.. GOODMAN,J.* + Retired judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuantto article VI, section 6 of the California Constitution. 2. No matter how it is viewed, consumers’ paymentof the sales tax reimbursementdoesnoteffect a “taking”: To the extent we focus on the retailer’s initial collection of the tax sales reimbursement, it is not a “taking” because the retailer is not a government entity (City of Perris v. Stamper (2016) 1 Cal.5th 576, 591 [“The takings clause .. . prohibits a governmental entity from taking private property for public use without just compensation’, italics added); to the extent we focus on the Board’s subsequent receipt of that moneyas part of the retailer’s sales tax,it is not a “taking” because “[t]axes and user fees . . . are not “takings”(Koontz v. St. Johns River Water Mgmt. Dist. (2013) 570 U.S. __, __ [133 S.Ct. 2586, 2600-2601, 186 L.Ed.2d 697]; United States v. Sperry Corp. (1989) 493 U.S. 52, 62, fn. 9 [110 S.Ct. 387, 107 L.Ed.2d 290]; accord, San Remo Hotel v. City and County of San Francisco (2002) 27 Cal.4th 643, 671-672 [noting that “the taking of money is different, under the Fifth Amendment, from the taking of real or personal property”]). Thus, the collection of sales tax reimbursement from consumersdoes not implicate the takings clause. On page 28, line 8, footnote 9 should be inserted after the sentence ending with “[same].)” The text of footnote 9 should read: In their 73-page petition for review, the customers thank this Court for “grappling with this difficult area of law” and, noting that briefing “may not have sufficiently anticipated and focused upon this [C]ourt’s concerns,” proceed to “supply the necessary focus” to their appeal by raising several new arguments that appear nowhere in their prior briefs—namely, that denying them a remedy violates the contract clause of our Constitution, that denying them a remedy violates due process because the collection of sales tax reimbursementbyretailers effects an “escheat” to the state, that denying them a remedy effectively invalidates section 6597, and that they can rebut Civil Code section 1656.1’s presumption of a contractual agreementwith the retailers to collect sales tax reimbursement by showing actualfraud, constructive fraud, undue influence, mistakeof fact, and mistake of law. Becausetheinitial round of briefing on appealis not a dry run for a whole new roundof post-opinion briefing on rehearing, we respectfully decline to consider these argumentsfor the first time on rehearing. (E.g., Conservatorship of Susan T. (1994) 8 Cal.4th 1005, 1013.) There is no changein the judgment. Appellants’ petition for rehearing is denied. CERTIFIED FOR PUBLICATION. LuunT OF aFPEAL - SECUNL U.S! Fh © D APR 17 2017 CERTIFIED FOR PUBLICATION