Preview
' • .FILED'
1 MILLSTONE PETERSON & WATTS, LLP ENDORSED
Attorneys at Law
2 GLENN W. PETERSON, ESQ. (SBN 126173) 2016 WAY 19 P« 3: 25
STEPHEN R. HAMILTON, ESQ. (SBN 243787) GOSSC C0llRTHOU.<5P
3 2267 Lava Ridge Court, Suite 210
SUPERIORCOURT
Roseville, CA 95661 - O F CALIFORNIA
4 Phone: (916)780-8222 SACRAMENTO COUNTY
Fax: (916)780-8775
5
Attomeys for Defendant,
6 State of Califomia
7
8 IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA
9 IN AND FOR THE COUNTY OF SACRAMENTO
10
11 SUSAN REYES AND JOSE REYES, DOING Case No. 34-2015-00185560
BUSINESS AS GLOBAL ATM NETWORK,
12 DEFENDANT'S REPLY MEMO
Plaintiffs, SUPPORTING SPECIAL MOTION TO
13 STRIKE
V. (ANTI-SLAPP MOTION)
14
THE STATE OF CALIFORNIA, RICK
15 REPOSA, KATHRYN YEE, DARRIN DATE: May 26,2016
GUTIERREZ, AND DOES 1 TO 50, inclusive. TIME: 9:00 a.m.
16 DEPT: 54
Defendants.
17 Reservation No: 2151717
Complaint Filed: October 14,2015
18 Trial Date: Not Schediiled
19
20
21
22
23
24
25
26
27
REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION)
1 Defendant, The State of Califomia ("Defendant" or "State") submits the following reply
2 memorandum supporting its Special Motion to Strike Plaintiffs' First Amended Complaint (the
3 "Motion").
4 L LAW AND ARGUMENT IN REPLY
5 Every one of the arguments made in Plaintiffs' opposition papers is dispatched with the same
6 five words: Peace Officers. Not tax administrators. Simply put, not one of their arguments applies
7 to on duty conduct of peace officers. When all the smoke clears. Plaintiffs cannot escape this
8 simple, case-dispositive tmth. Moreover, Rev. & Tax Code § 21002 makes clear that the Taxpayers'
9 Bill of Rights ("TBR") applies only to a "tax proceeding between the Franchise Tax Board and a
10 taxpayer." (Italics added) At issue here is the Underlying Action, which was not a proceeding
11 between the FTB and PlaintifFs; it was a criminal proceeding brought on behalf of the People ofthe
12 State of Califoraia.
13 Plaintiffs have offered in their opposition papers a litany of distortions and exaggerations,
14 which will be addressed in detail. But first, we must address the argument most easily dispatched:
15 i.e., the red herring assertion that to grant this motion the Court must embrace complete evisceration
16 of "the already minimal protections afforded under the Taxpayers' Bill of Rights." (Opp., p. 2:14).
17 In a criminal proceeding such as the Underlying Action, the TBR's protections are less than
18 minimal, they are nonexistent.
19 But first: We do not assert that aiy claim or action imder Section 21021 is trumped by Civil
20 Code § 47 or the State's stamtory inununities. We are simply claiming that this action is barred—
21 principally because this action solely targets law enforcement conduct. It is significant that each one
22 of the (now dismissed) individuals targeted by the FAC's allegations is a swom peace officer. All of
23 their on-the-job conduct is protected by long-standing privileges, immunities or both.
24 Plaintiffs make the doomsday assertion that the State vwll be completely immunizedfi'omall
25 lawsuits arising under the [TBR]" and "virtually any acts or omissions by FTB officers or
26 employees, no matter how egregious. . . ." (Opp., p. 2:20) Again, not so. The conduct at issue in
27 this case is prosecutorial in nature, not administrative. The individuals targeted are swom peace
28 officers, not tax administrators or tax collectors. And Plaintiffs' own evidence shows that the
1
REPLY MEMO I/S/O SPECL\L MOTION TO STRIKE (ANTI-SLAPP MOTION)
1 protections contemplated by the TBR are administrative in nature. Or, as put by then Assemblyman
2 Richard Katz, to protect honest taxpayersfromthe tax bureaucracies, and the burdens of tax traps
3 and audits. (See Plaintiffs' RFJN, Exhibit "A")
4 And it is nonsensical that an unqualified privilege that unconditionally protects
5 commimications designed to prompt action by a goverrunent entity—even if made in bad faith—
6 would somehow be trumped by the TBR. See Hansen v. Department of Corrections &
7 Rehabilitation 171 Cal.App.4tii 1537,1546-1574 (2008).
8 We will show how the Court can harmonize the TBR with the privileges and immunities we
9 have cited. It is neither necessary nor proper to determine whether the TBR is entirely displaced by
10 them. That is not before the Court on this motion. What is before the Court is the fact that disregard
11 of "board published procedures" is not and cannot be actionable in this context; i.e., where the
12 individual defendants communicated with criminal law enforcement authorities in order to prompt
13 actionfromthem. And one illustiration makes this point with the utmost emphasis. To accept
14 Plaintiffs' position on the TBR, the Court must also accept the following absurd result: i.e., even a
15 prosecution that results in felony convictions would be subject to an action under the TBR ifthe
16 board officers disregarded a published procedure somewhere along the way. That simple
17 proposition is entirely viable under Plaintiffs' theory that the TBR trumps all general privileges and
18 immunities. It offends logic and common sense, to be sure. But it also ignores the preclusive effect
19 of judicialfindingsthat there was sufficient, properly-obtained evidence to support the charges.
20 Suchfindings,for example, would be sufficient to bar the taxpayer's claims for civil rights
21 violations. But tmder Plaintiffs' view, the taxpayer would still have arightof action under Section
22 21021!
23 And we hasten to emphasize that the so-called "Taxpayer Bill of Rights" was intended to
24 protect "honest taxpayers"from"tax bureaucracies" by "promoting voluntary compliance through
25 education and clarification of tax laws." (Plaintiffs' RFJN, Exhibit "A" thereto) It was not intended
26 to circumvent well-established prosecutorial and investigative conduct targeting criminals. Nor was
27 it intended to provide financial recourse in a context where other civil remedies must yield to
28 immunity, even claims for violation of constitutional rights!
2
REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION)
1 A. Plaintiffs' Contention That The Litigation Privilege Is Inapplicable Is
Disingenuous At Best.
2
1. Section 21021 and Civil Code §47 May Co-Exist.
3
Relying on Komarova v. National Credit Acceptance, Inc., 175 Cal.App.4th 324 (2009)
4
{^^Komarova "), Plaintiffs argue that the litigation privilege does not apply where conduct prohibited
5
by a specific statute underlying the cause of action would be negated by application of the privilege
6
In Komarova, the plaintifF prevailed at trial on its claims under the Robbins-Rosenthal Fair Debt
7
Collection Practices Act ("FDCPA"). On appeal, the defendant argued that the plaintifFs action was
8
barred by the litigation privilege. The Komarova court concluded that the litigation privilege cannot
9
be used to shield violations of the FDCPA. {Id. at 337) The court noted that conduct prohibited by
10
the Act, such as harassing phone calls, would be negated by the privilege. Unfair debt collection
11
practices could be immunized merely by filing suit on the debt. Id. at 340. Since applying the
12
privilege to the FDCPA would effectively vitiate the law and render its protections meaningless, the
13
court foimd the litigation privilege and the FDCPA could not be reconciled, {Id. at pp. 338-339).
14
Ultimately, the Court of Appeal "applie[d] the familiar principle of statutory constmction that, in
15
cases of irreconcilable conflict, the specific statute prevails over the general one" and exempted the
16
FDCPAfromprotections of the litigation privilege. Id.
17
Plaintiffs' reliance upon Komarova is a complete red herring'. The driving force behind the
18
court's decision in Komarova was the fact that filing an action on a debt would essentially allow a
19
creditor to engage in all types of harassing activities the act was designed to stop and there was no
20
way to reconcile the two statutes to allow them to co-exist. That is absolutely not the case here, as
21
the TBR and the litigation privilege are able to co-exist. Taxpayers can still take advantage of
22
Section 21021, for example, in the Franchise Tax Board's Audit and Protest process, or in any other
23
proceedings between taxpayers and FTB, as indicated in Section 21002. Thus, for example, ifthe
24
FTB had conducted an audit and determined that a taxpayer owed significantiy more tax than was
25
reported, but recklessly disregarded its own audit procedures in the process, then the taxpayer would
26
27 ' The Komarova holding is limited to the Robbins-Rosenthal Fair Debt Collection Practices
Act. There is nothing in the decision which would suggest it applies in any way to the provisions of
28 the tax code.
REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION)
1 have redress under Section 21021. The FTB could not claim that its failure to properly calculate the
2 tax due or audit the tax retum is protected by the litigation privilege. The statements made in the
3 audit and assessment example referenced here, are not made by the FTB in anticipation of litigation
4 such that they would not be privileged under Civil Code § 47. It is the taxpayer who would initiate
5 such litigation if it disagreed with the assessment and only then would certain communications
6 become entitled to the privilege.
7 The distinction here is that Plaintiffs are claiming that the FTB violated "published
8 procedures" which concem law enforcement/investigatory conduct itself (as opposed to the
9 calculation/audit of taxes). Because the very acts complained of are specific acts in furtherance of a
10 criminal investigation and actual prosecution by the District Attomey's Office, the FTB must be
11 entitled to rely on the litigation andrightto petition privilege. This is absolutely necessary to protect
12 the FTB and its employees in the performance of their duties without fear of subsequent civil suits.
13 So, the two statutes can co-exist. Taxpayers can rely upon Section 21021 where the FTB recklessly
14 disregards its assessment and audit procedures, but not as a sword when the FTB is investigating
15 suspected criminal activity.
16 Plaintiffs disingenuously urge the Court to believe that if the instant motion is granted, then
17 the litigation privilege would then bar any claun under Section 21021, rendering the latter
18 meaningless. As demonstrated above, that is just not so. Conversely, under Plaintiffs' constmction,
19 Section 21021 would actually eviscerate Civil Code §47 and all govenunental immunity enjoyed by
20 the FTB, which is expressly and specifically provided by others statutes. Ultimately, the Court must
21 focus on the issues under review and harmonize the two statutes so that they may co-exist. This is
22 especially necessary where there is nothing in Section 21021 (or its legislative history) which would
23 suggest that the legislature intended to completely eliminate the litigation privilege and applicable
24 governmental immunities. Revocation of both rights would certainly merit mention, if not
25 considerable ink, had our elected officials actually so intended.
26 2. The FTB Must Have The Unconditional Privilege To Request Another
Governmental Agency To Act On Suspected Wrongdoing.
27
As detailed in our moving papers, the conduct complained of concems three FTB peace
28
officers and their investigation and entreaties to the IRS and the District Attomey's office for pursuit
4
REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION)
1 of criminal charges. Now, PlaintifFs claim that this conduct is not privileged because it violated
2 "board published procedures". As noted. Section 21021 can co-exist with Civil Code §47 and must
3 be constmed accordingly. Otherwise, this would result in complete obliteration of the longstanding
4 absolute and unconditional privilege which allows anyone (including govemment agents) to report
5 suspected wrongdoing to prompt official action. This is a privilege that exists, even if the report to
6 authorities is made in bad faith. Brown v. Department of Corrections, 132 Cal. App. 4th 520, 525-
7 526 (2005); see Mulder v. Pilot Air Freight, 32 Cal. 4th 384 (2004). hideed, it is to be given "an
8 expansive reach" and any doubt as to whether the privilege applies is resolved in favor of applying
9 it. Comstock V. Aber, 212 Cal. App. 4tii 931, 952, (2012).
10 The FTB is permitted to investigate and request that other governmental agencies pursue
11 suspected criminal wrongdoing and Civil Code §47 must continue to protect them, even if done so in
12 bad faith. The whole point of the TBR is to protect the honest taxpayer, who may continue to rely
13 upon Section 21021 to hold the FTB accountable for its reckless disregard of procedures in the
14 assessment and collection of taxes, or other administrative functions. What Section 21021 cannot do
15 is trump the necessary and absolute privilege afforded to litigants under Civil Code §47.
16 3. Plaintiffs' Ar^ment Would Produce Absurd Results.
17 The notion that Civil Code §47 must yield to Section 21021 is best negated by contemplation
18 of the absurd results that would make possible. It would permit a convicted criminal to recover
19 damages based on clerical missteps that led to his conviction! Assuming, arguendo, that PlaintifFs
20 were convicted of felony tax evasion, but that a board published procedure was flubbed in the
21 process, the litigation privilege and corresponding criminal conviction would not prevent their action
22 under Section 21021 and collecting damages despite their criminal liability. Reasonable minds
23 cannot differ that this result fits any definition of absurd.
24 Further, Plaintiffs completely ignore the preclusive effect of judicialfindingsthat there was
25 sufficient, properly-obtained evidence to support the charges against them. Already in evidence is
26 the transcript of the lengthy preliminary hearing before Judge Pamela Smith-Steward. Judge Smith-
27 Steward independently evaluated the evidence and mled that there was sufficient cause to believe the
28 defendants were guilty as charged. She ordered all three held over for trial. (See Prelim. Hrg. Tr. at
5
REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION)
1 p. 380:6-9; attached to RFJN as Exhibit "E"). At law, her probable cause determination would be
2 entitied to preclusive effect if PlaintifFs were to pursue an action for malicious prosecution or
3 violation of civil rights. See, e.g., Haupt v. Dillard, 17 F.3d 285, 289 (9tii Cir. 1994) (probable
4 cause determination at preliminary hearing provides fiill and fair opportunity sufficient to support
5 collateral estoppel in subsequent civilrightsaction).
6 Ultimately, the FTB is entitied to all the protections of the litigation privilege and application
7 of the privilege would not render Section 21021 inoperable. It is still available to the taxpaying
8 public to challenge disregard of procedures outside the criminal investigation and prosecution arena.
9 B. Plaintiffs Have Failed To Establish A Probability Of Avoiding The Many
Immunities Which Bar Their Claim.
10
1. Govemment Code §815.2 Does Not Extinguish The State's Litigation
11 Immunity.
12 Govemment Code §815.2(b) provides:
13 (b) Except as otherwise provided by statute, a public entity is not liable for an injury resulting
from an act or omission of an employee of the public entity where the employee is inrunune
14 from liability.
15 PlaintifFs must admit that any FTB employee is completely immune from "instituting or
16 prosecuting any judicial or administrative proceeding within the scope of his employment, even if he
17 acts maliciously and without probable cause." Govemment Code §821.6.
18 Plaintiffs' argument here seems simple, but it is completely misleading. PlaintifFs rely upon
19 Govemment Code §815.2 and argue that Section 21021 specifically provides for a cause of action
20 against the State for reckless disregard of "board published procedures" despite the fact that their
21 employees enjoy complete immunity from such an action when based upon litigation conduct. If
22 that were the case. Section 21021 would have to address the pre-existing and significant immunity
23 head on! In other words, the Court can only find the State liable for actions from which its
24 employees are immune if the other statute expressly provides for that. Nothing in Section 21021
25 speaks to litigation conduct. And, in actuality, it is Govemment Code § 821.6 that is the more
26 specific statute entitied to precedence. This section immunizes a public employee "for injury caused
27 by his instituting or prosecuting any judicial or administrative proceeding within the scope of his
28 employment, even if he acts maliciously and without probable cause." Thus, tmder Section 815.2,
6__ '
REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION)
1 the govemment agency caimot be liable for such conduct either. Section 21021 does not provide
2 otherwise because it applies only to proceedings between the FTB and the taxpayer as noted above.
3 Another example may be seen in the private right of action afforded citizens against the
4 federal govemment ifthe IRS recklessly disregards applicable law in the collection of taxes. See 28
5 USCA §7433(a) ("Section 7433").^ Section 7433 was originally enacted in the federal Taxpayers'
6 Bill of Rights and Congress was clear in its legislative history about what right of action was
7 specifically provided. The federal Taxpayers' Bill of Rights was the model upon which Califomia's
8 TBR is based. (See Assemblyman Katz's letter; Plaintiffs' RFJN, Exhibit "A") There, Congress
9 created a private right of action against the govemment where IRS employees are reckless in the
10 "collection" of taxes. Thisrightdoes not extend to "any damages arisingfromthe investigation and
11 determination of tax liability," where Congress chose not to create any express remedies "as part of
12 the complex statutory scheme regulating the relationship between taxpayers and the IRS". Judicial
13 Watch, Inc. v. Rossotti, 317 F.3d 401, 411 (4tii Cir. 2003). Furthermore, since Section 7433 is a
14 waiver of sovereign immunity, it must be strictly constmed. Federal courts have found that Section
15 7433 only applies to actions of IRS employees, not Department of Justice Attomeys prosecuting a
16 case related to the collection of an unpaid tax. Grant v. U.S., 289 F.Supp.2d 1361, 1366
17 (S.D.Fla.2003).
18 By comparison. Section 21021 contains absolutely no language which would waive the well-
19 established sovereign immunity and render the State liable for an employee's acts of instituting or its
20 attomeys' acts of prosecuting claims within the scope of their employment. Nor does anything in the
21 legislative history point to any intended waiver by the State of such immunity.'' Since Section 21021
22 only provides redress generally where FTB employees recklessly disregard procedures, and
23
^ "If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or
24 employee of the Intemal Revenue Service recklessly or intentionally, or by reason of negligence,
disregards any provision of this titie, or any regulation promulgated under this title, such taxpayer
25 may bring a civil action for damages against the United States in a district court of the United States.
Except as provided in section 7432, such civil action shall be the exclusive remedy for recovering
26 damages resultingfromsuch actions."
27 The Legislature declared its intent for the TBR in Revenue and Tax Code § 21002. Nowhere
does it state that therightsof action created therein trump well established governmental immunities
28 or the litigation privilege.
REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION)
1 Govemment Code §821.6 provides for specific immunity relating to criminal
2 investigations/prosecutions, the specific statute controls. Plaintiffs' argument to the contrary is
3 unavailing.
4 2. The State Is Entitled To Complete Immunity Under Gov. Code
§ 860.2, An Even More Specific Statute Not Addressed By Section 21021.
5
6 Section 860.2(a) provides immunity to both the public employee and the public agency. It
7 states that "Neither a public entity nor a public employee is liable for an injury caused by: (a)
8 Instituting any judicial or administrative proceeding or action for or incidental to the assessment or
9 collection of a tax." PlaintifFs unbelievably argue that the Underlying Action was aimed only at
10 obtjiining convictions, not a proceeding "for or incidental to the assessment or collection of tax." It
11 is indisputable that the Criminal Investigation Bureau's principal mission is "to identify, investigate,
12 prosecute, deter tax evasion and fraud and encourage compliance with the Califomia income tax
13 laws and maintain the public's tmst through publicity." (See concurrently-filed Declaration of Dan
14 Gonzalez f6) But, PlaintifFs conveniently ignore the fact that the FTB has as the additional goal to
15 "[ojbtain court ordered restitution of tax, interest, and cost of Investigation". This statement comes
16 directly from Plaintiffs' opposition evidence, which includes a printout from the FTB's Criminal
17 Investigation Bureau webpage in April 2016. (Declaration of Matthew Carlson, Ex. "E"). There can
18 be little doubt, then, that at least one of the goals of the Underlying Action was also to collect the
19 alleged taxes which the FTB suspected had not been paid or reported. Since restitution in criminal
20 cases is required, a criminal action for evasion/underreporting is unquestionably "incidental to the
21 collection of tax bytiieFTB."
22 Plaintiffs claim that Defendant "relies principally upon Rev. & Tax Code §19722" for the
23 proposition that the Underlying Action was incidental to collection of past due tax. (Opp., p. 15:16-
24 19) In fact, our moving papers contained only one citation to that section, and only for the
25 proposition that restitution orders can be collected in the same fashion as delinquent taxes. The fact
26 that this statute was enacted in 2011 is of no moment and contrary to what PlaintifFs would have the
27 Court believe, Defendant's entitlement to immunity is premised upon the fact that the FTB seeks
28 collection of back taxes in all of its criminal tax cases conceming underreporting, on the grounds
8
REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION)
1 that restitution is required by law. And PlaintifFs ovm evidence establishes this fact. Accordingly, it
2 is quite clear that Defendant is entitled to complete immunity under Govemment Code §860.2 for its
3 criminal investigation and prosecution of PlaintifFs in the Underlying Action, which was incidental
4 to the collection of taxes.
5 3. Defendant Has Not Concealed Any Board Published Procedures From
The Public.
6
PlaintifFs make much ado about the fact that the Intemal Manuals are no longer posted on the
7
FTB's website. These manuals were never intended to be published by the FTB as procedures for
8
purposes of Section 21021. (See D. Gonzalez Decl, 114) The manuals were taken down, originally
9
because they were stale; but have not been restored to the web site in order to avoid any fiuther
10
mischaracterization of them. {Id.)
11
Tellingly, thefrontpage of the Criminal Investigation Bureau Resource Manual submitted by
12
PlaintifFs in opposition expressly states:
13
This is an advisory publication providing direction to the staff administering the Revenue and
14 Taxation Code of the State of Califomia. Although this material is revised periodically, the
material is not all-inclusive and does not address every possible situation. In the event of a
15 conflict between this manual and the law, the law prevails. (Carlson Declaration %3, Ex. "A")
16
This disclaimer is important for two reasons. First, it echoes the intent of the manuals, which
17
is to advise the FTB's Criminal Investigation Bureau staff. These Intemal Manuals are used for
18
training and advisory purposes. (C. Beach Decl. |3) But the substantive and procedural law that
19
applies to criminal investigations and enforcement proceedings is what trumps these training guides
20
in the event of any conflict. Accordingly, the Intemal Manuals cannot form the basis of a Section
21
21021 claim, and were never intended to. Similarly, on the Federal side, IRS policy manuals cannot
22
form tiie basis of a Claim under Section 7433. Shwarz v. United States, 234 F.3d 428, 434 (9tii Cir.
23
Cal. 2000). There should be no difiference in this case.
24
In addition, the FTB agents who are following the advice set forth in the manuals, which are
25
based upon procedural law, are completely immunefromsuit under Govermnent Code § 821.6, even
26
if they acted maliciously and without probable cause in carrying out their investigative duties.
27
Because the State and their agents cannot be held liable for violating the law through investigative
28
and prosecutorial conduct, they cannot be liable for disregarding the provisions of the Intemal
9
REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION)
1 Manuals based on those laws. There is simply no way that the Intemal Manuals can anchor
2 Plaintiffs' claim, which must be stricken in its entirety.
3 4. Plaintiffs Cannot Establish *
Preview
' • .FILED' 1 MILLSTONE PETERSON & WATTS, LLP ENDORSED Attorneys at Law 2 GLENN W. PETERSON, ESQ. (SBN 126173) 2016 WAY 19 P« 3: 25 STEPHEN R. HAMILTON, ESQ. (SBN 243787) GOSSC C0llRTHOU.<5P 3 2267 Lava Ridge Court, Suite 210 SUPERIORCOURT Roseville, CA 95661 - O F CALIFORNIA 4 Phone: (916)780-8222 SACRAMENTO COUNTY Fax: (916)780-8775 5 Attomeys for Defendant, 6 State of Califomia 7 8 IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 IN AND FOR THE COUNTY OF SACRAMENTO 10 11 SUSAN REYES AND JOSE REYES, DOING Case No. 34-2015-00185560 BUSINESS AS GLOBAL ATM NETWORK, 12 DEFENDANT'S REPLY MEMO Plaintiffs, SUPPORTING SPECIAL MOTION TO 13 STRIKE V. (ANTI-SLAPP MOTION) 14 THE STATE OF CALIFORNIA, RICK 15 REPOSA, KATHRYN YEE, DARRIN DATE: May 26,2016 GUTIERREZ, AND DOES 1 TO 50, inclusive. TIME: 9:00 a.m. 16 DEPT: 54 Defendants. 17 Reservation No: 2151717 Complaint Filed: October 14,2015 18 Trial Date: Not Schediiled 19 20 21 22 23 24 25 26 27 REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION) 1 Defendant, The State of Califomia ("Defendant" or "State") submits the following reply 2 memorandum supporting its Special Motion to Strike Plaintiffs' First Amended Complaint (the 3 "Motion"). 4 L LAW AND ARGUMENT IN REPLY 5 Every one of the arguments made in Plaintiffs' opposition papers is dispatched with the same 6 five words: Peace Officers. Not tax administrators. Simply put, not one of their arguments applies 7 to on duty conduct of peace officers. When all the smoke clears. Plaintiffs cannot escape this 8 simple, case-dispositive tmth. Moreover, Rev. & Tax Code § 21002 makes clear that the Taxpayers' 9 Bill of Rights ("TBR") applies only to a "tax proceeding between the Franchise Tax Board and a 10 taxpayer." (Italics added) At issue here is the Underlying Action, which was not a proceeding 11 between the FTB and PlaintifFs; it was a criminal proceeding brought on behalf of the People ofthe 12 State of Califoraia. 13 Plaintiffs have offered in their opposition papers a litany of distortions and exaggerations, 14 which will be addressed in detail. But first, we must address the argument most easily dispatched: 15 i.e., the red herring assertion that to grant this motion the Court must embrace complete evisceration 16 of "the already minimal protections afforded under the Taxpayers' Bill of Rights." (Opp., p. 2:14). 17 In a criminal proceeding such as the Underlying Action, the TBR's protections are less than 18 minimal, they are nonexistent. 19 But first: We do not assert that aiy claim or action imder Section 21021 is trumped by Civil 20 Code § 47 or the State's stamtory inununities. We are simply claiming that this action is barred— 21 principally because this action solely targets law enforcement conduct. It is significant that each one 22 of the (now dismissed) individuals targeted by the FAC's allegations is a swom peace officer. All of 23 their on-the-job conduct is protected by long-standing privileges, immunities or both. 24 Plaintiffs make the doomsday assertion that the State vwll be completely immunizedfi'omall 25 lawsuits arising under the [TBR]" and "virtually any acts or omissions by FTB officers or 26 employees, no matter how egregious. . . ." (Opp., p. 2:20) Again, not so. The conduct at issue in 27 this case is prosecutorial in nature, not administrative. The individuals targeted are swom peace 28 officers, not tax administrators or tax collectors. And Plaintiffs' own evidence shows that the 1 REPLY MEMO I/S/O SPECL\L MOTION TO STRIKE (ANTI-SLAPP MOTION) 1 protections contemplated by the TBR are administrative in nature. Or, as put by then Assemblyman 2 Richard Katz, to protect honest taxpayersfromthe tax bureaucracies, and the burdens of tax traps 3 and audits. (See Plaintiffs' RFJN, Exhibit "A") 4 And it is nonsensical that an unqualified privilege that unconditionally protects 5 commimications designed to prompt action by a goverrunent entity—even if made in bad faith— 6 would somehow be trumped by the TBR. See Hansen v. Department of Corrections & 7 Rehabilitation 171 Cal.App.4tii 1537,1546-1574 (2008). 8 We will show how the Court can harmonize the TBR with the privileges and immunities we 9 have cited. It is neither necessary nor proper to determine whether the TBR is entirely displaced by 10 them. That is not before the Court on this motion. What is before the Court is the fact that disregard 11 of "board published procedures" is not and cannot be actionable in this context; i.e., where the 12 individual defendants communicated with criminal law enforcement authorities in order to prompt 13 actionfromthem. And one illustiration makes this point with the utmost emphasis. To accept 14 Plaintiffs' position on the TBR, the Court must also accept the following absurd result: i.e., even a 15 prosecution that results in felony convictions would be subject to an action under the TBR ifthe 16 board officers disregarded a published procedure somewhere along the way. That simple 17 proposition is entirely viable under Plaintiffs' theory that the TBR trumps all general privileges and 18 immunities. It offends logic and common sense, to be sure. But it also ignores the preclusive effect 19 of judicialfindingsthat there was sufficient, properly-obtained evidence to support the charges. 20 Suchfindings,for example, would be sufficient to bar the taxpayer's claims for civil rights 21 violations. But tmder Plaintiffs' view, the taxpayer would still have arightof action under Section 22 21021! 23 And we hasten to emphasize that the so-called "Taxpayer Bill of Rights" was intended to 24 protect "honest taxpayers"from"tax bureaucracies" by "promoting voluntary compliance through 25 education and clarification of tax laws." (Plaintiffs' RFJN, Exhibit "A" thereto) It was not intended 26 to circumvent well-established prosecutorial and investigative conduct targeting criminals. Nor was 27 it intended to provide financial recourse in a context where other civil remedies must yield to 28 immunity, even claims for violation of constitutional rights! 2 REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION) 1 A. Plaintiffs' Contention That The Litigation Privilege Is Inapplicable Is Disingenuous At Best. 2 1. Section 21021 and Civil Code §47 May Co-Exist. 3 Relying on Komarova v. National Credit Acceptance, Inc., 175 Cal.App.4th 324 (2009) 4 {^^Komarova "), Plaintiffs argue that the litigation privilege does not apply where conduct prohibited 5 by a specific statute underlying the cause of action would be negated by application of the privilege 6 In Komarova, the plaintifF prevailed at trial on its claims under the Robbins-Rosenthal Fair Debt 7 Collection Practices Act ("FDCPA"). On appeal, the defendant argued that the plaintifFs action was 8 barred by the litigation privilege. The Komarova court concluded that the litigation privilege cannot 9 be used to shield violations of the FDCPA. {Id. at 337) The court noted that conduct prohibited by 10 the Act, such as harassing phone calls, would be negated by the privilege. Unfair debt collection 11 practices could be immunized merely by filing suit on the debt. Id. at 340. Since applying the 12 privilege to the FDCPA would effectively vitiate the law and render its protections meaningless, the 13 court foimd the litigation privilege and the FDCPA could not be reconciled, {Id. at pp. 338-339). 14 Ultimately, the Court of Appeal "applie[d] the familiar principle of statutory constmction that, in 15 cases of irreconcilable conflict, the specific statute prevails over the general one" and exempted the 16 FDCPAfromprotections of the litigation privilege. Id. 17 Plaintiffs' reliance upon Komarova is a complete red herring'. The driving force behind the 18 court's decision in Komarova was the fact that filing an action on a debt would essentially allow a 19 creditor to engage in all types of harassing activities the act was designed to stop and there was no 20 way to reconcile the two statutes to allow them to co-exist. That is absolutely not the case here, as 21 the TBR and the litigation privilege are able to co-exist. Taxpayers can still take advantage of 22 Section 21021, for example, in the Franchise Tax Board's Audit and Protest process, or in any other 23 proceedings between taxpayers and FTB, as indicated in Section 21002. Thus, for example, ifthe 24 FTB had conducted an audit and determined that a taxpayer owed significantiy more tax than was 25 reported, but recklessly disregarded its own audit procedures in the process, then the taxpayer would 26 27 ' The Komarova holding is limited to the Robbins-Rosenthal Fair Debt Collection Practices Act. There is nothing in the decision which would suggest it applies in any way to the provisions of 28 the tax code. REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION) 1 have redress under Section 21021. The FTB could not claim that its failure to properly calculate the 2 tax due or audit the tax retum is protected by the litigation privilege. The statements made in the 3 audit and assessment example referenced here, are not made by the FTB in anticipation of litigation 4 such that they would not be privileged under Civil Code § 47. It is the taxpayer who would initiate 5 such litigation if it disagreed with the assessment and only then would certain communications 6 become entitled to the privilege. 7 The distinction here is that Plaintiffs are claiming that the FTB violated "published 8 procedures" which concem law enforcement/investigatory conduct itself (as opposed to the 9 calculation/audit of taxes). Because the very acts complained of are specific acts in furtherance of a 10 criminal investigation and actual prosecution by the District Attomey's Office, the FTB must be 11 entitled to rely on the litigation andrightto petition privilege. This is absolutely necessary to protect 12 the FTB and its employees in the performance of their duties without fear of subsequent civil suits. 13 So, the two statutes can co-exist. Taxpayers can rely upon Section 21021 where the FTB recklessly 14 disregards its assessment and audit procedures, but not as a sword when the FTB is investigating 15 suspected criminal activity. 16 Plaintiffs disingenuously urge the Court to believe that if the instant motion is granted, then 17 the litigation privilege would then bar any claun under Section 21021, rendering the latter 18 meaningless. As demonstrated above, that is just not so. Conversely, under Plaintiffs' constmction, 19 Section 21021 would actually eviscerate Civil Code §47 and all govenunental immunity enjoyed by 20 the FTB, which is expressly and specifically provided by others statutes. Ultimately, the Court must 21 focus on the issues under review and harmonize the two statutes so that they may co-exist. This is 22 especially necessary where there is nothing in Section 21021 (or its legislative history) which would 23 suggest that the legislature intended to completely eliminate the litigation privilege and applicable 24 governmental immunities. Revocation of both rights would certainly merit mention, if not 25 considerable ink, had our elected officials actually so intended. 26 2. The FTB Must Have The Unconditional Privilege To Request Another Governmental Agency To Act On Suspected Wrongdoing. 27 As detailed in our moving papers, the conduct complained of concems three FTB peace 28 officers and their investigation and entreaties to the IRS and the District Attomey's office for pursuit 4 REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION) 1 of criminal charges. Now, PlaintifFs claim that this conduct is not privileged because it violated 2 "board published procedures". As noted. Section 21021 can co-exist with Civil Code §47 and must 3 be constmed accordingly. Otherwise, this would result in complete obliteration of the longstanding 4 absolute and unconditional privilege which allows anyone (including govemment agents) to report 5 suspected wrongdoing to prompt official action. This is a privilege that exists, even if the report to 6 authorities is made in bad faith. Brown v. Department of Corrections, 132 Cal. App. 4th 520, 525- 7 526 (2005); see Mulder v. Pilot Air Freight, 32 Cal. 4th 384 (2004). hideed, it is to be given "an 8 expansive reach" and any doubt as to whether the privilege applies is resolved in favor of applying 9 it. Comstock V. Aber, 212 Cal. App. 4tii 931, 952, (2012). 10 The FTB is permitted to investigate and request that other governmental agencies pursue 11 suspected criminal wrongdoing and Civil Code §47 must continue to protect them, even if done so in 12 bad faith. The whole point of the TBR is to protect the honest taxpayer, who may continue to rely 13 upon Section 21021 to hold the FTB accountable for its reckless disregard of procedures in the 14 assessment and collection of taxes, or other administrative functions. What Section 21021 cannot do 15 is trump the necessary and absolute privilege afforded to litigants under Civil Code §47. 16 3. Plaintiffs' Ar^ment Would Produce Absurd Results. 17 The notion that Civil Code §47 must yield to Section 21021 is best negated by contemplation 18 of the absurd results that would make possible. It would permit a convicted criminal to recover 19 damages based on clerical missteps that led to his conviction! Assuming, arguendo, that PlaintifFs 20 were convicted of felony tax evasion, but that a board published procedure was flubbed in the 21 process, the litigation privilege and corresponding criminal conviction would not prevent their action 22 under Section 21021 and collecting damages despite their criminal liability. Reasonable minds 23 cannot differ that this result fits any definition of absurd. 24 Further, Plaintiffs completely ignore the preclusive effect of judicialfindingsthat there was 25 sufficient, properly-obtained evidence to support the charges against them. Already in evidence is 26 the transcript of the lengthy preliminary hearing before Judge Pamela Smith-Steward. Judge Smith- 27 Steward independently evaluated the evidence and mled that there was sufficient cause to believe the 28 defendants were guilty as charged. She ordered all three held over for trial. (See Prelim. Hrg. Tr. at 5 REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION) 1 p. 380:6-9; attached to RFJN as Exhibit "E"). At law, her probable cause determination would be 2 entitied to preclusive effect if PlaintifFs were to pursue an action for malicious prosecution or 3 violation of civil rights. See, e.g., Haupt v. Dillard, 17 F.3d 285, 289 (9tii Cir. 1994) (probable 4 cause determination at preliminary hearing provides fiill and fair opportunity sufficient to support 5 collateral estoppel in subsequent civilrightsaction). 6 Ultimately, the FTB is entitied to all the protections of the litigation privilege and application 7 of the privilege would not render Section 21021 inoperable. It is still available to the taxpaying 8 public to challenge disregard of procedures outside the criminal investigation and prosecution arena. 9 B. Plaintiffs Have Failed To Establish A Probability Of Avoiding The Many Immunities Which Bar Their Claim. 10 1. Govemment Code §815.2 Does Not Extinguish The State's Litigation 11 Immunity. 12 Govemment Code §815.2(b) provides: 13 (b) Except as otherwise provided by statute, a public entity is not liable for an injury resulting from an act or omission of an employee of the public entity where the employee is inrunune 14 from liability. 15 PlaintifFs must admit that any FTB employee is completely immune from "instituting or 16 prosecuting any judicial or administrative proceeding within the scope of his employment, even if he 17 acts maliciously and without probable cause." Govemment Code §821.6. 18 Plaintiffs' argument here seems simple, but it is completely misleading. PlaintifFs rely upon 19 Govemment Code §815.2 and argue that Section 21021 specifically provides for a cause of action 20 against the State for reckless disregard of "board published procedures" despite the fact that their 21 employees enjoy complete immunity from such an action when based upon litigation conduct. If 22 that were the case. Section 21021 would have to address the pre-existing and significant immunity 23 head on! In other words, the Court can only find the State liable for actions from which its 24 employees are immune if the other statute expressly provides for that. Nothing in Section 21021 25 speaks to litigation conduct. And, in actuality, it is Govemment Code § 821.6 that is the more 26 specific statute entitied to precedence. This section immunizes a public employee "for injury caused 27 by his instituting or prosecuting any judicial or administrative proceeding within the scope of his 28 employment, even if he acts maliciously and without probable cause." Thus, tmder Section 815.2, 6__ ' REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION) 1 the govemment agency caimot be liable for such conduct either. Section 21021 does not provide 2 otherwise because it applies only to proceedings between the FTB and the taxpayer as noted above. 3 Another example may be seen in the private right of action afforded citizens against the 4 federal govemment ifthe IRS recklessly disregards applicable law in the collection of taxes. See 28 5 USCA §7433(a) ("Section 7433").^ Section 7433 was originally enacted in the federal Taxpayers' 6 Bill of Rights and Congress was clear in its legislative history about what right of action was 7 specifically provided. The federal Taxpayers' Bill of Rights was the model upon which Califomia's 8 TBR is based. (See Assemblyman Katz's letter; Plaintiffs' RFJN, Exhibit "A") There, Congress 9 created a private right of action against the govemment where IRS employees are reckless in the 10 "collection" of taxes. Thisrightdoes not extend to "any damages arisingfromthe investigation and 11 determination of tax liability," where Congress chose not to create any express remedies "as part of 12 the complex statutory scheme regulating the relationship between taxpayers and the IRS". Judicial 13 Watch, Inc. v. Rossotti, 317 F.3d 401, 411 (4tii Cir. 2003). Furthermore, since Section 7433 is a 14 waiver of sovereign immunity, it must be strictly constmed. Federal courts have found that Section 15 7433 only applies to actions of IRS employees, not Department of Justice Attomeys prosecuting a 16 case related to the collection of an unpaid tax. Grant v. U.S., 289 F.Supp.2d 1361, 1366 17 (S.D.Fla.2003). 18 By comparison. Section 21021 contains absolutely no language which would waive the well- 19 established sovereign immunity and render the State liable for an employee's acts of instituting or its 20 attomeys' acts of prosecuting claims within the scope of their employment. Nor does anything in the 21 legislative history point to any intended waiver by the State of such immunity.'' Since Section 21021 22 only provides redress generally where FTB employees recklessly disregard procedures, and 23 ^ "If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or 24 employee of the Intemal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any provision of this titie, or any regulation promulgated under this title, such taxpayer 25 may bring a civil action for damages against the United States in a district court of the United States. Except as provided in section 7432, such civil action shall be the exclusive remedy for recovering 26 damages resultingfromsuch actions." 27 The Legislature declared its intent for the TBR in Revenue and Tax Code § 21002. Nowhere does it state that therightsof action created therein trump well established governmental immunities 28 or the litigation privilege. REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION) 1 Govemment Code §821.6 provides for specific immunity relating to criminal 2 investigations/prosecutions, the specific statute controls. Plaintiffs' argument to the contrary is 3 unavailing. 4 2. The State Is Entitled To Complete Immunity Under Gov. Code § 860.2, An Even More Specific Statute Not Addressed By Section 21021. 5 6 Section 860.2(a) provides immunity to both the public employee and the public agency. It 7 states that "Neither a public entity nor a public employee is liable for an injury caused by: (a) 8 Instituting any judicial or administrative proceeding or action for or incidental to the assessment or 9 collection of a tax." PlaintifFs unbelievably argue that the Underlying Action was aimed only at 10 obtjiining convictions, not a proceeding "for or incidental to the assessment or collection of tax." It 11 is indisputable that the Criminal Investigation Bureau's principal mission is "to identify, investigate, 12 prosecute, deter tax evasion and fraud and encourage compliance with the Califomia income tax 13 laws and maintain the public's tmst through publicity." (See concurrently-filed Declaration of Dan 14 Gonzalez f6) But, PlaintifFs conveniently ignore the fact that the FTB has as the additional goal to 15 "[ojbtain court ordered restitution of tax, interest, and cost of Investigation". This statement comes 16 directly from Plaintiffs' opposition evidence, which includes a printout from the FTB's Criminal 17 Investigation Bureau webpage in April 2016. (Declaration of Matthew Carlson, Ex. "E"). There can 18 be little doubt, then, that at least one of the goals of the Underlying Action was also to collect the 19 alleged taxes which the FTB suspected had not been paid or reported. Since restitution in criminal 20 cases is required, a criminal action for evasion/underreporting is unquestionably "incidental to the 21 collection of tax bytiieFTB." 22 Plaintiffs claim that Defendant "relies principally upon Rev. & Tax Code §19722" for the 23 proposition that the Underlying Action was incidental to collection of past due tax. (Opp., p. 15:16- 24 19) In fact, our moving papers contained only one citation to that section, and only for the 25 proposition that restitution orders can be collected in the same fashion as delinquent taxes. The fact 26 that this statute was enacted in 2011 is of no moment and contrary to what PlaintifFs would have the 27 Court believe, Defendant's entitlement to immunity is premised upon the fact that the FTB seeks 28 collection of back taxes in all of its criminal tax cases conceming underreporting, on the grounds 8 REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION) 1 that restitution is required by law. And PlaintifFs ovm evidence establishes this fact. Accordingly, it 2 is quite clear that Defendant is entitled to complete immunity under Govemment Code §860.2 for its 3 criminal investigation and prosecution of PlaintifFs in the Underlying Action, which was incidental 4 to the collection of taxes. 5 3. Defendant Has Not Concealed Any Board Published Procedures From The Public. 6 PlaintifFs make much ado about the fact that the Intemal Manuals are no longer posted on the 7 FTB's website. These manuals were never intended to be published by the FTB as procedures for 8 purposes of Section 21021. (See D. Gonzalez Decl, 114) The manuals were taken down, originally 9 because they were stale; but have not been restored to the web site in order to avoid any fiuther 10 mischaracterization of them. {Id.) 11 Tellingly, thefrontpage of the Criminal Investigation Bureau Resource Manual submitted by 12 PlaintifFs in opposition expressly states: 13 This is an advisory publication providing direction to the staff administering the Revenue and 14 Taxation Code of the State of Califomia. Although this material is revised periodically, the material is not all-inclusive and does not address every possible situation. In the event of a 15 conflict between this manual and the law, the law prevails. (Carlson Declaration %3, Ex. "A") 16 This disclaimer is important for two reasons. First, it echoes the intent of the manuals, which 17 is to advise the FTB's Criminal Investigation Bureau staff. These Intemal Manuals are used for 18 training and advisory purposes. (C. Beach Decl. |3) But the substantive and procedural law that 19 applies to criminal investigations and enforcement proceedings is what trumps these training guides 20 in the event of any conflict. Accordingly, the Intemal Manuals cannot form the basis of a Section 21 21021 claim, and were never intended to. Similarly, on the Federal side, IRS policy manuals cannot 22 form tiie basis of a Claim under Section 7433. Shwarz v. United States, 234 F.3d 428, 434 (9tii Cir. 23 Cal. 2000). There should be no difiference in this case. 24 In addition, the FTB agents who are following the advice set forth in the manuals, which are 25 based upon procedural law, are completely immunefromsuit under Govermnent Code § 821.6, even 26 if they acted maliciously and without probable cause in carrying out their investigative duties. 27 Because the State and their agents cannot be held liable for violating the law through investigative 28 and prosecutorial conduct, they cannot be liable for disregarding the provisions of the Intemal 9 REPLY MEMO I/S/O SPECIAL MOTION TO STRIKE (ANTI-SLAPP MOTION) 1 Manuals based on those laws. There is simply no way that the Intemal Manuals can anchor 2 Plaintiffs' claim, which must be stricken in its entirety. 3 4. Plaintiffs Cannot Establish *