Preview
ELECTRONICALLY
F I L E D
Superior Court of California,
County of San Francisco
04/10/2020
Clerk of the Court
BY: LESLIE GOMEZ
Deputy Clerk
/s/ Thomas S. Lakritz
In the Matter Of:
GAJANAN, INC. vs CCSF, et al.,
MIL TRIAL
March 15, 2018
·1· · · · · ·SUPERIOR COURT OF THE STATE OF CALIFORNIA
·2· · · · · · · · · · COUNTY OF SAN FRANCISCO
·3· · · · · · · ·BEFORE THE HONORABLE GAIL DEKREON
·4· · · · · · · · · · · · DEPARTMENT 608
·5· · · · · · · · · · · · · ·---O0O---
·6· · GAJANAN, INC., a
· · · California corporation,
·7· · et al.,
·8· · · · · Plaintiffs,· · · · · · ·No. CGC-16-554309
·9· · vs.
10· · CITY AND COUNTY OF SAN
· · · FRANCISCO, et al.,
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· · · · · · Defendants.
12· · ________________________/
· · · AND CONSOLIDATED ACTIONS.
13· ·________________________/
14· · · · · · · · ·REPORTER'S TRANSCRIPT OF TRIAL
15· · · · · · · · · · · (Motions in Limine)
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18· · · · ·Taken before EARLY K. LANGLEY, B.A., RMR, RSA
· · · · · · · · · · · · · ·CSR No. 3537
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· · · · · · · · · · ·Thursday, March 15, 2018
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· · · · · · · · · · · · · · Full Session
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· · · · · · · · · · Aiken Welch Court Reporters
23· · · · · · · · · ·One Kaiser Plaza, Suite 250
· · · · · · · · · · · Oakland, California 94612
24· · · · · · · · · (510) 451-1580/(877) 451-1580
· · · · · · · · · · · · Fax:· (510) 451-3797
25· · · · · · · · · · · ·www.aikenwelch.com
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·1· ·APPEARANCES OF COUNSEL ON THE RECORD:
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·3· ·For the Plaintiffs:
·4· · · · · ·AMY L. SILVERSTEIN
· · · · · · ·MIRIAM HISER
·5· · · · · ·Silverstein & Pomerantz LLP
· · · · · · ·12 Gough Street, 2nd Floor
·6· · · · · ·San Francisco, California 94103
· · · · · · ·(415) 593-3502
·7· · · · · ·asilverstein@sptawlaw.com
· · · · · · ·Mhiser@hiserlaw.com
·8
·9· ·For the Defendants:
10· · · · · ·THOMAS S. LAKRITZ
· · · · · · ·MARK D. LIPTON
11· · · · · ·Deputy City Attorneys
· · · · · · ·1390 Market Street, 6th Floor
12· · · · · ·San Francisco, California 94102
· · · · · · ·(415) 554-3800
13· · · · · ·Tom.lakritz@sfgov.org
· · · · · · ·Mark.lipton@sfgov.org
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·1· · · · · · · · · · · · · · --oOo--
·2· · · · · · · · · · P R O C E E D I N G S
·3· · · · · · · · · · · · · · --oOo--
·4· · · · · · ·Thursday, March 15, 2018 - 9:51 a.m.
·5· · · · · · THE COURT:· So let's go on the record, please.
·6· ·Calling the case of Gajanan -- is that how you
·7· ·pronounce it? -- Gajanan Incorporated CGC -- excuse
·8· ·me -- Incorporated versus City and County of
·9· ·San Francisco, Jose Cisneros and Tax Collector's
10· ·Office, I believe, and there are six other plaintiffs.
11· ·The lead case number is CGC-16-554309.
12· · · · · · Counsel, your appearances.
13· · · · · · MS. SILVERSTEIN:· Amy Silverstein for the
14· ·plaintiff.
15· · · · · · MS. HISER:· Miriam Hiser for plaintiff.
16· · · · · · MR. LIPTON:· Deputy City Attorney Mark Lipton
17· ·for defendants.
18· · · · · · MR. LAKRITZ:· Deputy City Attorney Tom Lakritz
19· ·for defendants.
20· · · · · · THE COURT:· Everybody is here.· That's what I
21· ·thought.
22· · · · · · So I scheduled today for hearing on the motions
23· ·in limine, and we had some preliminary arguments on
24· ·Monday, the 12th, before I had a chance to really
25· ·review everything, and today we're going to resolve
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·1· ·everything and get ready for trial.
·2· · · · · · So what I'm going to address first is the
·3· ·standards of proof and take any arguments that either
·4· ·of you might have, and then we'll go to the plaintiff's
·5· ·motions in limine.· I will give my tentative as to each
·6· ·line and when I'm done invite argument and we'll plow
·7· ·our way through this, okay?
·8· · · · · · MR. LIPTON:· Thank you.
·9· · · · · · THE COURT:· So the one main issue that was
10· ·raised in both the trial briefs of both sides, both
11· ·parties, was the standard of proof, whether it was the
12· ·preponderance of evidence or the conclusive proof
13· ·standard.
14· · · · · · And this is my ruling.· Both counsels are
15· ·partly right and partly wrong in this case.· Both
16· ·standards of proof are at play in this case.
17· · · · · · The question of whether or not the penalties
18· ·assessed are proper must be proven by a preponderance
19· ·of the evidence.
20· · · · · · The question of whether or not the plaintiffs
21· ·are entitled to a waiver of the penalties pursuant to
22· ·the San Francisco Business and Tax Regulation Code,
23· ·Section 6.17-4 must be proven by conclusive proof.
24· · · · · · Generally, in a suit for tax refund, the
25· ·taxpayer has the burden of proof.
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·1· · · · · · So generally in a suit for tax refund, the
·2· ·taxpayer has the burden of proof and he must
·3· ·affirmatively establish the right to refund of the
·4· ·taxes by a preponderance of the evidence, citing
·5· ·Consolidated Accessories Corporation versus Franchise
·6· ·Tax Board, 1984 161 Cal.App.3d 1038 and 1039.· This
·7· ·standard of proof seems to apply even when the
·8· ·Plaintiffs are seeking a refund by contesting a
·9· ·penalty, citing Microsoft Corporation v. Franchise Tax
10· ·Board, 2012.· I don't have a cite other than Westlaw
11· ·Number 7552604.
12· · · · · · In Microsoft, the Court applied a preponderance
13· ·of the evidence standard in determining whether
14· ·Microsoft should have been refunded tax penalties.
15· · · · · · However, Plaintiffs here seek reimbursement
16· ·under the San Francisco Business and Tax Regulations
17· ·code, section 6.17-4.· And the San Francisco Code gives
18· ·the Tax Collector authority to cancel an otherwise
19· ·properly imposed penalty.
20· · · · · · To understand that San Francisco Code 6.17-4,
21· ·we have to look to the California Revenue and Tax Code
22· ·section 4985.2:· The two statutes are almost identical,
23· ·and it's clear that the San Francisco Code was enacted
24· ·with the intent to have the same effect as the State
25· ·Revenue Tax Code, section 4985.2.· That State Revenue
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·1· ·and Tax Code section, Subdivision C, does not give a
·2· ·court independent authority to cancel a properly
·3· ·imposed penalty, citing People ex rel. Trumpfer
·4· ·T-r-u-m-p-f-e-r, vs. Westoaks -- one word -- Investment
·5· ·Number 27, 2006 case, 139 Cal.App.4th 1038 and 1052.
·6· · · · · · Instead, that subsection permits a Court top
·7· ·cancel tax penalty only if there is some other
·8· ·statutory basis for the cancellation.
·9· · · · · · Under subsections A and B, a Tax Collector
10· ·makes a determination as to whether a properly imposed
11· ·tax penalty should be cancelled for the reasons stated
12· ·in those subsections.
13· · · · · · And the Tax Collector does not have
14· ·unrestrained discretion when making this determination.
15· ·If a taxpayer presents conclusive proof to the Tax
16· ·Collector that they meet the requirements of either
17· ·subsection A or B, then the Tax Collector must cancel
18· ·the otherwise proper penalty.
19· · · · · · In reviewing a Tax Collector's refusal to
20· ·cancel a penalty -- this is not a writ case but first
21· ·impression for me -- but in reviewing a Tax Collector's
22· ·refusal to cancel a penalty under either subsections A
23· ·or B, the trial court must determine whether there was
24· ·conclusive proof that the taxpayer met the
25· ·requirements.· And the Tax Collector cannot deny the
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·1· ·request if the taxpayer presents conclusive proof.
·2· · · · · · Therefore, as to the first cause of action in
·3· ·this case when seeking cancellation of a penalty under
·4· ·San Francisco Business and Tax Regulation Code 6.17-4,
·5· ·a plaintiff is required to present conclusive proof
·6· ·that they are entitled to the relief.
·7· · · · · · As to the second cause of action, a
·8· ·preponderance of the evidence standard applies when
·9· ·determining whether a plaintiff is entitled to refund
10· ·by contesting a penalty, either the tax itself or the
11· ·penalty in this case, if they are in that cause of
12· ·action seeking a refund of the penalty.
13· · · · · · Does either side wish to be heard?
14· · · · · · MS. SILVERSTEIN:· I do, Your Honor.· So we
15· ·agree with their tentative with regard to the
16· ·imposition of the penalties themselves, but with regard
17· ·to the standard of proof on the waiver issue, I
18· ·actually think it's -- it's tremendously important and
19· ·determinative that the case that the City cites
20· ·involves a writ, because a conclusive proof standard
21· ·is -- is tied to the fact that the party in that case
22· ·was seeking a writ.
23· · · · · · So basically, I think what the Court was saying
24· ·in that case is if a party comes to the Court and asks
25· ·the Court to order the Tax Collector to waive
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·1· ·penalties, then, because it's a writ and the Court is
·2· ·stepping in front of it and ordering the Tax Collector
·3· ·to do that, that there's a higher standard of proof to
·4· ·get the writ.
·5· · · · · · But our case is actually a tax refund action
·6· ·as, Your Honor points out, under 6.17 -- well, it's
·7· ·actually -- 6.17-4 is the waiver position, but it's
·8· ·under the City's refund of tax code provision and it's
·9· ·a refund.
10· · · · · · It's the same statute applies to both taxes,
11· ·and penalties and because it's under the same statute,
12· ·the same standard of review should apply, or the same
13· ·burden of proof.· So, in other words, if you're seeking
14· ·a tax refund or a penalty refund, you're going under
15· ·the same statute and the standard -- or the burden of
16· ·proof is the preponderance of evidence, whether you're
17· ·seeking a tax refund or a penalty refund.
18· · · · · · And I think -- as I mentioned earlier, you
19· ·know, tax cases are somewhat different than other
20· ·cases, and the general procedure in tax cases is you
21· ·have to pay your tax first and then seek a refund, and
22· ·it's -- you know, it's kind of black letter law that
23· ·tax penalties and interest are all treated together the
24· ·same in a lawsuit, so whether you're seeking a tax
25· ·refund penalty or interest, the penalties and interest
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·1· ·kind of tack on to the tax.
·2· · · · · · So because we're seeking a refund under a
·3· ·single statute that applies to tax penalty and interest
·4· ·and we're seeking a refund as opposed to a writ, I
·5· ·believe that the caselaw is clear that the
·6· ·preponderance of evidence standard applies.
·7· · · · · · THE COURT:· Response?
·8· · · · · · MR. LAKRITZ:· So the City agrees with the
·9· ·Court's tentative.
10· · · · · · Just want to make two quick points.· One is the
11· ·case that we cited for the conclusive proof did not
12· ·turn on whether it was a writ case or a refund case,
13· ·and it doesn't really matter because a writ case is
14· ·like -- is a civil action like all other civil actions
15· ·in the State of California.
16· · · · · · So it's the same standard of review, whether
17· ·it's a tax refund case or a writ case.
18· · · · · · Here, as the Court pointed out, in the First
19· ·Cause of Action, the plaintiffs are seeking a refund of
20· ·penalties on a particular basis, which is different
21· ·from seeking a refund of taxes that may have not been
22· ·properly imposed.
23· · · · · · So I think -- so those are the two points.· So,
24· ·yes.
25· · · · · · THE COURT:· Actually, the way the law reads
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·1· ·whether they're seeking a refund of the tax or refund
·2· ·of the penalty attached to the tax, that's
·3· ·preponderance of the evidence.
·4· · · · · · MR. LAKRITZ:· Right.· But here it -- what was
·5· ·in front of -- here they're arguing about ordinary care
·6· ·and willful neglect.· And we think the case that we
·7· ·cited supports the Court's tentative that it should be
·8· ·conclusive evidence.
·9· · · · · · And there's no question about the taxes being
10· ·imposed properly.· Here the only question in the First
11· ·Cause of Action is whether they demonstrated
12· ·entitlement to a waiver of the penalties.
13· · · · · · THE COURT:· There were several penalties;
14· ·correct?
15· · · · · · MR. LAKRITZ:· Yes.· Depending on the hotel and
16· ·depending on the circumstance.
17· · · · · · MS. SILVERSTEIN:· May I respond, Your Honor?
18· · · · · · THE COURT:· Sure.
19· · · · · · MS. SILVERSTEIN:· So in a case tax it's
20· ·incredibly rare and almost unprecedented for this Court
21· ·to step in, in a writ posture.· As I said, the standard
22· ·way to bring a tax suit is by paying the tax,
23· ·penalties, and interest and bringing a refund action,
24· ·and you find almost no cases involving writs and
25· ·whether it's taxes, interest, or penalties because
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·1· ·there's an Anti-Injunction Act that prevents courts
·2· ·from basically adjudicating any tax case other than
·3· ·through a refund action.
·4· · · · · · And I think it's important to have that context
·5· ·because if -- when a court is asked to step in through
·6· ·a writ proceeding to order a Tax Collector to do
·7· ·something, the -- it makes sense that there's that
·8· ·higher standard because of this Anti-Injunction Act,
·9· ·the principle that, you know, you cannot seek relief
10· ·from taxes through a writ proceeding, you have to go
11· ·through the refund action.
12· · · · · · And so, you know, if you read the tax cases,
13· ·you're going to find, you know, 999 that are refund
14· ·actions and the one that's a writ.
15· · · · · · And as I said, it's standard.· And if you read
16· ·the code and you understand the structure of the code,
17· ·it's standard that tax, interest, and penalties are all
18· ·treated the same, you seek a refund under the same
19· ·statute, and so forth.
20· · · · · · And so, when you read the cases, I don't think
21· ·you're going to find -- and we've looked extensively.
22· ·You just don't find cases that say under -- that the
23· ·standard of review -- I'm sorry -- the burden of proof
24· ·for a refund of penalties is X or Y because it's
25· ·assumed because taxes, penalties, and interest are all
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·1· ·treated as a unit and the standard of review -- I'm
·2· ·sorry -- the burden of proof for a refund action,
·3· ·whether it's tax, interest, and penalties is
·4· ·preponderance of the evidence, the cases don't parse
·5· ·out.· So this case is a penalty case and so the
·6· ·standard of review is, you know, something -- is
·7· ·something other than preponderance of the evidence.
·8· · · · · · So it's -- it's kind of so well accepted and
·9· ·understood that you just don't find those cases.· So I
10· ·want to be clear that this is a real, real outlier in
11· ·the tax world and, you know, just so unusual that
12· ·there's a case involving taxes, interest, or penalties
13· ·in the writ context.· So it really has to be understood
14· ·in that context, that these parties were asking the
15· ·Court to do something extraordinary and unprecedented.
16· ·So the fact that it's a writ, I think, is, like I said,
17· ·is extremely important, probably determinative.
18· · · · · · THE COURT:· Any further response?
19· · · · · · MR. LAKRITZ:· I don't think the fact that it
20· ·was a writ was determinative in that case.· In terms of
21· ·the Anti-Injunction Act, that doesn't affect the
22· ·standard of review, that just determines whether or not
23· ·a court can take action.· So the Anti-Injunction Act
24· ·wasn't an issue in that case, and so it did not have an
25· ·impact on the court's adopted standard of review, a
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·1· ·burden of proof.· And, again, a writ is like any other
·2· ·civil action in the State of California.· So.· And it
·3· ·is -- and it is good -- it is caselaw.· It's good law.
·4· · · · · · THE COURT:· It does say that the Court doesn't
·5· ·have the authority to set aside tax unless there's
·6· ·some -- to set aside the penalty unless there is some
·7· ·law that allows it to do so, some statute that allows
·8· ·it to do so.
·9· · · · · · MR. LAKRITZ:· Right.
10· · · · · · THE COURT:· And -- which gets us to the tax --
11· ·the state tax and revenue statute and the City's, and
12· ·that's what they relied on.
13· · · · · · I'm going to take this under further submission
14· ·and I will let you know at the end of the day because
15· ·we are going to start the trial on Monday.· You raise
16· ·some interesting points, and I spent a lot of time on
17· ·your motions in limine.· So I'll give this some more
18· ·thought.· And I appreciate your comments this morning.
19· · · · · · Let's us move on, then, to the plaintiff's
20· ·motions in limine.
21· · · · · · Motion in Limine Number 1 is to exclude the
22· ·expert opinion of Forrest Vickery, and there were
23· ·several subparts to this motion.
24· · · · · · The first part was that the disclosure of this
25· ·expert witness, Mr. Forrest Vickery, who's offered as
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·1· ·an expert witness, did not comply with California Code
·2· ·of Civil Procedure 2034.260.
·3· · · · · · And my tentative on that is to deny.· He is
·4· ·qualified.· He does have a certain expertise, and --
·5· ·which goes into her second objection is that he
·6· ·doesn't -- he doesn't qualify as an expert, and he does
·7· ·possess and certain knowledge and expertise and he has
·8· ·been previously qualified as an expert in other court
·9· ·proceedings.
10· · · · · · But I am granting her request in part that his
11· ·testimony and opinions -- and it will be limited to his
12· ·qualifications and expertise, which is I have gleaned
13· ·from his CV, the offer made by defense counsel to the
14· ·plaintiffs to what he will be testifying to, and that
15· ·is business valuations, loss of business value,
16· ·shareholders dispute and dissolutions, the ability to
17· ·pay judgments, lost profits, economic damages.
18· · · · · · It appears to this Court from reviewing his
19· ·deposition testimony that was provided, his CV, your
20· ·representation of what he will testify to, defense
21· ·counsel, that he is not experienced in forensic
22· ·financial analysis or in willful negligence.
23· · · · · · It appears that his firm does advertise that
24· ·they do forensic financial analysis, but that does not
25· ·appear to be his expertise.· They are his writings, his
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·1· ·lectures, and his testimony in other cases have not
·2· ·been on those areas.
·3· · · · · · Does either side wish to be heard?
·4· · · · · · MR. LIPTON:· Your Honor, yes, I do wish to be
·5· ·heard.
·6· · · · · · It's clear from Your Honor's tentative that you
·7· ·did see the opposition that we filed to the
·8· ·supplemental brief, and we have served you with a
·9· ·courtesy copy of that yesterday.
10· · · · · · MS. SILVERSTEIN:· We think that was improper,
11· ·Your Honor.
12· · · · · · THE COURT:· I understand.
13· · · · · · Go ahead.
14· · · · · · MR. LIPTON:· And with regard -- so we obviously
15· ·agree with the first two tentative rulings that you
16· ·have.· But with regard to it sounds like the Court is
17· ·tentatively limiting his testimony to those items that
18· ·Your Honor just listed, and what we tried to address in
19· ·our supplemental briefing, because we didn't have the
20· ·transcript at the time before we came to court on
21· ·Monday, was --
22· · · · · · THE COURT:· You must have, because it was
23· ·included in plaintiff's papers.
24· · · · · · MR. LIPTON:· No.· That was the rough draft.· We
25· ·have the rough draft, that's true, but we didn't get
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·1· ·the final copy until that morning maybe as we were
·2· ·walking over -- it was electronically delivered -- and
·3· ·that's why I pointed out that their references are to
·4· ·the rough draft.· We attached the official transcript.
·5· · · · · · But the point is this, Your Honor, pretty
·6· ·simple with regard to that.
·7· · · · · · So our position is that he should not be
·8· ·limited to the -- and it sounds like the items that
·9· ·Your Honor mentioned are the items that expressly
10· ·appear in his disclosure; is that correct?
11· · · · · · THE COURT:· Yes.· And what his expertise is and
12· ·not just what was in the disclosures, sir, but what he
13· ·testified to in the deposition version that I have; his
14· ·CV, which included his writings and his lectures; and
15· ·his deposition testimony where he was very unclear as
16· ·to whether he had ever even done forensic financial
17· ·analysis.· All of his descriptions were of business
18· ·valuations.· His descriptions were not forensic
19· ·financial analysis and he had no knowledge about
20· ·willful negligence.
21· · · · · · MR. LIPTON:· What we attempted to do,
22· ·Your Honor, in section B of our opposition to the
23· ·supplemental brief was to point out that he does have
24· ·specific testimony that he did, in the context of his
25· ·financial valuation and his financial work, provide
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·1· ·testimony, do review, and have experience with regard
·2· ·to the operations of businesses.· He testified on
·3· ·multiple occasions, and we attached the testimonies and
·4· ·provided the page/line references in our briefing, that
·5· ·in doing these analyses, part of that is to understand
·6· ·the business interactions between the owners, between
·7· ·the managers, between -- specifically he said between
·8· ·CEOs, COOs, CFOs, and controllers, the information that
·9· ·was exchanged and how they were providing information,
10· ·what information they were putting down.
11· · · · · · So it wasn't just the end result, it wasn't
12· ·just the balance sheet that he was looking at, but in
13· ·his review -- and I believe he testified and that we
14· ·gave examples -- that he has done forensic analysis,
15· ·and that he said specifically in testimony quoted here
16· ·that, while, strictly speaking, this was not a forensic
17· ·analysis, that was not the goal, but broadly speaking,
18· ·he did the same things here that he does in a forensic
19· ·analysis, i.e., look at the financial statements
20· ·produced, look into how that information was put into
21· ·those statements, look into the
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ELECTRONICALLY F I L E D Superior Court of California, County of San Francisco 04/10/2020 Clerk of the Court BY: LESLIE GOMEZ Deputy Clerk /s/ Thomas S. Lakritz In the Matter Of: GAJANAN, INC. vs CCSF, et al., MIL TRIAL March 15, 2018 ·1· · · · · ·SUPERIOR COURT OF THE STATE OF CALIFORNIA ·2· · · · · · · · · · COUNTY OF SAN FRANCISCO ·3· · · · · · · ·BEFORE THE HONORABLE GAIL DEKREON ·4· · · · · · · · · · · · DEPARTMENT 608 ·5· · · · · · · · · · · · · ·---O0O--- ·6· · GAJANAN, INC., a · · · California corporation, ·7· · et al., ·8· · · · · Plaintiffs,· · · · · · ·No. CGC-16-554309 ·9· · vs. 10· · CITY AND COUNTY OF SAN · · · FRANCISCO, et al., 11 · · · · · · Defendants. 12· · ________________________/ · · · AND CONSOLIDATED ACTIONS. 13· ·________________________/ 14· · · · · · · · ·REPORTER'S TRANSCRIPT OF TRIAL 15· · · · · · · · · · · (Motions in Limine) 16 17 18· · · · ·Taken before EARLY K. LANGLEY, B.A., RMR, RSA · · · · · · · · · · · · · ·CSR No. 3537 19 · · · · · · · · · · ·Thursday, March 15, 2018 20 · · · · · · · · · · · · · · Full Session 21 22 · · · · · · · · · · Aiken Welch Court Reporters 23· · · · · · · · · ·One Kaiser Plaza, Suite 250 · · · · · · · · · · · Oakland, California 94612 24· · · · · · · · · (510) 451-1580/(877) 451-1580 · · · · · · · · · · · · Fax:· (510) 451-3797 25· · · · · · · · · · · ·www.aikenwelch.com Page 2 ·1· ·APPEARANCES OF COUNSEL ON THE RECORD: ·2 ·3· ·For the Plaintiffs: ·4· · · · · ·AMY L. SILVERSTEIN · · · · · · ·MIRIAM HISER ·5· · · · · ·Silverstein & Pomerantz LLP · · · · · · ·12 Gough Street, 2nd Floor ·6· · · · · ·San Francisco, California 94103 · · · · · · ·(415) 593-3502 ·7· · · · · ·asilverstein@sptawlaw.com · · · · · · ·Mhiser@hiserlaw.com ·8 ·9· ·For the Defendants: 10· · · · · ·THOMAS S. LAKRITZ · · · · · · ·MARK D. LIPTON 11· · · · · ·Deputy City Attorneys · · · · · · ·1390 Market Street, 6th Floor 12· · · · · ·San Francisco, California 94102 · · · · · · ·(415) 554-3800 13· · · · · ·Tom.lakritz@sfgov.org · · · · · · ·Mark.lipton@sfgov.org 14 15 16 17 18 19 20 21 22 23 24 25 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 3 ·1· · · · · · · · · · · · · · --oOo-- ·2· · · · · · · · · · P R O C E E D I N G S ·3· · · · · · · · · · · · · · --oOo-- ·4· · · · · · ·Thursday, March 15, 2018 - 9:51 a.m. ·5· · · · · · THE COURT:· So let's go on the record, please. ·6· ·Calling the case of Gajanan -- is that how you ·7· ·pronounce it? -- Gajanan Incorporated CGC -- excuse ·8· ·me -- Incorporated versus City and County of ·9· ·San Francisco, Jose Cisneros and Tax Collector's 10· ·Office, I believe, and there are six other plaintiffs. 11· ·The lead case number is CGC-16-554309. 12· · · · · · Counsel, your appearances. 13· · · · · · MS. SILVERSTEIN:· Amy Silverstein for the 14· ·plaintiff. 15· · · · · · MS. HISER:· Miriam Hiser for plaintiff. 16· · · · · · MR. LIPTON:· Deputy City Attorney Mark Lipton 17· ·for defendants. 18· · · · · · MR. LAKRITZ:· Deputy City Attorney Tom Lakritz 19· ·for defendants. 20· · · · · · THE COURT:· Everybody is here.· That's what I 21· ·thought. 22· · · · · · So I scheduled today for hearing on the motions 23· ·in limine, and we had some preliminary arguments on 24· ·Monday, the 12th, before I had a chance to really 25· ·review everything, and today we're going to resolve 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 4 ·1· ·everything and get ready for trial. ·2· · · · · · So what I'm going to address first is the ·3· ·standards of proof and take any arguments that either ·4· ·of you might have, and then we'll go to the plaintiff's ·5· ·motions in limine.· I will give my tentative as to each ·6· ·line and when I'm done invite argument and we'll plow ·7· ·our way through this, okay? ·8· · · · · · MR. LIPTON:· Thank you. ·9· · · · · · THE COURT:· So the one main issue that was 10· ·raised in both the trial briefs of both sides, both 11· ·parties, was the standard of proof, whether it was the 12· ·preponderance of evidence or the conclusive proof 13· ·standard. 14· · · · · · And this is my ruling.· Both counsels are 15· ·partly right and partly wrong in this case.· Both 16· ·standards of proof are at play in this case. 17· · · · · · The question of whether or not the penalties 18· ·assessed are proper must be proven by a preponderance 19· ·of the evidence. 20· · · · · · The question of whether or not the plaintiffs 21· ·are entitled to a waiver of the penalties pursuant to 22· ·the San Francisco Business and Tax Regulation Code, 23· ·Section 6.17-4 must be proven by conclusive proof. 24· · · · · · Generally, in a suit for tax refund, the 25· ·taxpayer has the burden of proof. 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 5 ·1· · · · · · So generally in a suit for tax refund, the ·2· ·taxpayer has the burden of proof and he must ·3· ·affirmatively establish the right to refund of the ·4· ·taxes by a preponderance of the evidence, citing ·5· ·Consolidated Accessories Corporation versus Franchise ·6· ·Tax Board, 1984 161 Cal.App.3d 1038 and 1039.· This ·7· ·standard of proof seems to apply even when the ·8· ·Plaintiffs are seeking a refund by contesting a ·9· ·penalty, citing Microsoft Corporation v. Franchise Tax 10· ·Board, 2012.· I don't have a cite other than Westlaw 11· ·Number 7552604. 12· · · · · · In Microsoft, the Court applied a preponderance 13· ·of the evidence standard in determining whether 14· ·Microsoft should have been refunded tax penalties. 15· · · · · · However, Plaintiffs here seek reimbursement 16· ·under the San Francisco Business and Tax Regulations 17· ·code, section 6.17-4.· And the San Francisco Code gives 18· ·the Tax Collector authority to cancel an otherwise 19· ·properly imposed penalty. 20· · · · · · To understand that San Francisco Code 6.17-4, 21· ·we have to look to the California Revenue and Tax Code 22· ·section 4985.2:· The two statutes are almost identical, 23· ·and it's clear that the San Francisco Code was enacted 24· ·with the intent to have the same effect as the State 25· ·Revenue Tax Code, section 4985.2.· That State Revenue 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 6 ·1· ·and Tax Code section, Subdivision C, does not give a ·2· ·court independent authority to cancel a properly ·3· ·imposed penalty, citing People ex rel. Trumpfer ·4· ·T-r-u-m-p-f-e-r, vs. Westoaks -- one word -- Investment ·5· ·Number 27, 2006 case, 139 Cal.App.4th 1038 and 1052. ·6· · · · · · Instead, that subsection permits a Court top ·7· ·cancel tax penalty only if there is some other ·8· ·statutory basis for the cancellation. ·9· · · · · · Under subsections A and B, a Tax Collector 10· ·makes a determination as to whether a properly imposed 11· ·tax penalty should be cancelled for the reasons stated 12· ·in those subsections. 13· · · · · · And the Tax Collector does not have 14· ·unrestrained discretion when making this determination. 15· ·If a taxpayer presents conclusive proof to the Tax 16· ·Collector that they meet the requirements of either 17· ·subsection A or B, then the Tax Collector must cancel 18· ·the otherwise proper penalty. 19· · · · · · In reviewing a Tax Collector's refusal to 20· ·cancel a penalty -- this is not a writ case but first 21· ·impression for me -- but in reviewing a Tax Collector's 22· ·refusal to cancel a penalty under either subsections A 23· ·or B, the trial court must determine whether there was 24· ·conclusive proof that the taxpayer met the 25· ·requirements.· And the Tax Collector cannot deny the 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 7 ·1· ·request if the taxpayer presents conclusive proof. ·2· · · · · · Therefore, as to the first cause of action in ·3· ·this case when seeking cancellation of a penalty under ·4· ·San Francisco Business and Tax Regulation Code 6.17-4, ·5· ·a plaintiff is required to present conclusive proof ·6· ·that they are entitled to the relief. ·7· · · · · · As to the second cause of action, a ·8· ·preponderance of the evidence standard applies when ·9· ·determining whether a plaintiff is entitled to refund 10· ·by contesting a penalty, either the tax itself or the 11· ·penalty in this case, if they are in that cause of 12· ·action seeking a refund of the penalty. 13· · · · · · Does either side wish to be heard? 14· · · · · · MS. SILVERSTEIN:· I do, Your Honor.· So we 15· ·agree with their tentative with regard to the 16· ·imposition of the penalties themselves, but with regard 17· ·to the standard of proof on the waiver issue, I 18· ·actually think it's -- it's tremendously important and 19· ·determinative that the case that the City cites 20· ·involves a writ, because a conclusive proof standard 21· ·is -- is tied to the fact that the party in that case 22· ·was seeking a writ. 23· · · · · · So basically, I think what the Court was saying 24· ·in that case is if a party comes to the Court and asks 25· ·the Court to order the Tax Collector to waive 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 8 ·1· ·penalties, then, because it's a writ and the Court is ·2· ·stepping in front of it and ordering the Tax Collector ·3· ·to do that, that there's a higher standard of proof to ·4· ·get the writ. ·5· · · · · · But our case is actually a tax refund action ·6· ·as, Your Honor points out, under 6.17 -- well, it's ·7· ·actually -- 6.17-4 is the waiver position, but it's ·8· ·under the City's refund of tax code provision and it's ·9· ·a refund. 10· · · · · · It's the same statute applies to both taxes, 11· ·and penalties and because it's under the same statute, 12· ·the same standard of review should apply, or the same 13· ·burden of proof.· So, in other words, if you're seeking 14· ·a tax refund or a penalty refund, you're going under 15· ·the same statute and the standard -- or the burden of 16· ·proof is the preponderance of evidence, whether you're 17· ·seeking a tax refund or a penalty refund. 18· · · · · · And I think -- as I mentioned earlier, you 19· ·know, tax cases are somewhat different than other 20· ·cases, and the general procedure in tax cases is you 21· ·have to pay your tax first and then seek a refund, and 22· ·it's -- you know, it's kind of black letter law that 23· ·tax penalties and interest are all treated together the 24· ·same in a lawsuit, so whether you're seeking a tax 25· ·refund penalty or interest, the penalties and interest 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 9 ·1· ·kind of tack on to the tax. ·2· · · · · · So because we're seeking a refund under a ·3· ·single statute that applies to tax penalty and interest ·4· ·and we're seeking a refund as opposed to a writ, I ·5· ·believe that the caselaw is clear that the ·6· ·preponderance of evidence standard applies. ·7· · · · · · THE COURT:· Response? ·8· · · · · · MR. LAKRITZ:· So the City agrees with the ·9· ·Court's tentative. 10· · · · · · Just want to make two quick points.· One is the 11· ·case that we cited for the conclusive proof did not 12· ·turn on whether it was a writ case or a refund case, 13· ·and it doesn't really matter because a writ case is 14· ·like -- is a civil action like all other civil actions 15· ·in the State of California. 16· · · · · · So it's the same standard of review, whether 17· ·it's a tax refund case or a writ case. 18· · · · · · Here, as the Court pointed out, in the First 19· ·Cause of Action, the plaintiffs are seeking a refund of 20· ·penalties on a particular basis, which is different 21· ·from seeking a refund of taxes that may have not been 22· ·properly imposed. 23· · · · · · So I think -- so those are the two points.· So, 24· ·yes. 25· · · · · · THE COURT:· Actually, the way the law reads 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 10 ·1· ·whether they're seeking a refund of the tax or refund ·2· ·of the penalty attached to the tax, that's ·3· ·preponderance of the evidence. ·4· · · · · · MR. LAKRITZ:· Right.· But here it -- what was ·5· ·in front of -- here they're arguing about ordinary care ·6· ·and willful neglect.· And we think the case that we ·7· ·cited supports the Court's tentative that it should be ·8· ·conclusive evidence. ·9· · · · · · And there's no question about the taxes being 10· ·imposed properly.· Here the only question in the First 11· ·Cause of Action is whether they demonstrated 12· ·entitlement to a waiver of the penalties. 13· · · · · · THE COURT:· There were several penalties; 14· ·correct? 15· · · · · · MR. LAKRITZ:· Yes.· Depending on the hotel and 16· ·depending on the circumstance. 17· · · · · · MS. SILVERSTEIN:· May I respond, Your Honor? 18· · · · · · THE COURT:· Sure. 19· · · · · · MS. SILVERSTEIN:· So in a case tax it's 20· ·incredibly rare and almost unprecedented for this Court 21· ·to step in, in a writ posture.· As I said, the standard 22· ·way to bring a tax suit is by paying the tax, 23· ·penalties, and interest and bringing a refund action, 24· ·and you find almost no cases involving writs and 25· ·whether it's taxes, interest, or penalties because 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 11 ·1· ·there's an Anti-Injunction Act that prevents courts ·2· ·from basically adjudicating any tax case other than ·3· ·through a refund action. ·4· · · · · · And I think it's important to have that context ·5· ·because if -- when a court is asked to step in through ·6· ·a writ proceeding to order a Tax Collector to do ·7· ·something, the -- it makes sense that there's that ·8· ·higher standard because of this Anti-Injunction Act, ·9· ·the principle that, you know, you cannot seek relief 10· ·from taxes through a writ proceeding, you have to go 11· ·through the refund action. 12· · · · · · And so, you know, if you read the tax cases, 13· ·you're going to find, you know, 999 that are refund 14· ·actions and the one that's a writ. 15· · · · · · And as I said, it's standard.· And if you read 16· ·the code and you understand the structure of the code, 17· ·it's standard that tax, interest, and penalties are all 18· ·treated the same, you seek a refund under the same 19· ·statute, and so forth. 20· · · · · · And so, when you read the cases, I don't think 21· ·you're going to find -- and we've looked extensively. 22· ·You just don't find cases that say under -- that the 23· ·standard of review -- I'm sorry -- the burden of proof 24· ·for a refund of penalties is X or Y because it's 25· ·assumed because taxes, penalties, and interest are all 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 12 ·1· ·treated as a unit and the standard of review -- I'm ·2· ·sorry -- the burden of proof for a refund action, ·3· ·whether it's tax, interest, and penalties is ·4· ·preponderance of the evidence, the cases don't parse ·5· ·out.· So this case is a penalty case and so the ·6· ·standard of review is, you know, something -- is ·7· ·something other than preponderance of the evidence. ·8· · · · · · So it's -- it's kind of so well accepted and ·9· ·understood that you just don't find those cases.· So I 10· ·want to be clear that this is a real, real outlier in 11· ·the tax world and, you know, just so unusual that 12· ·there's a case involving taxes, interest, or penalties 13· ·in the writ context.· So it really has to be understood 14· ·in that context, that these parties were asking the 15· ·Court to do something extraordinary and unprecedented. 16· ·So the fact that it's a writ, I think, is, like I said, 17· ·is extremely important, probably determinative. 18· · · · · · THE COURT:· Any further response? 19· · · · · · MR. LAKRITZ:· I don't think the fact that it 20· ·was a writ was determinative in that case.· In terms of 21· ·the Anti-Injunction Act, that doesn't affect the 22· ·standard of review, that just determines whether or not 23· ·a court can take action.· So the Anti-Injunction Act 24· ·wasn't an issue in that case, and so it did not have an 25· ·impact on the court's adopted standard of review, a 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 13 ·1· ·burden of proof.· And, again, a writ is like any other ·2· ·civil action in the State of California.· So.· And it ·3· ·is -- and it is good -- it is caselaw.· It's good law. ·4· · · · · · THE COURT:· It does say that the Court doesn't ·5· ·have the authority to set aside tax unless there's ·6· ·some -- to set aside the penalty unless there is some ·7· ·law that allows it to do so, some statute that allows ·8· ·it to do so. ·9· · · · · · MR. LAKRITZ:· Right. 10· · · · · · THE COURT:· And -- which gets us to the tax -- 11· ·the state tax and revenue statute and the City's, and 12· ·that's what they relied on. 13· · · · · · I'm going to take this under further submission 14· ·and I will let you know at the end of the day because 15· ·we are going to start the trial on Monday.· You raise 16· ·some interesting points, and I spent a lot of time on 17· ·your motions in limine.· So I'll give this some more 18· ·thought.· And I appreciate your comments this morning. 19· · · · · · Let's us move on, then, to the plaintiff's 20· ·motions in limine. 21· · · · · · Motion in Limine Number 1 is to exclude the 22· ·expert opinion of Forrest Vickery, and there were 23· ·several subparts to this motion. 24· · · · · · The first part was that the disclosure of this 25· ·expert witness, Mr. Forrest Vickery, who's offered as 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 14 ·1· ·an expert witness, did not comply with California Code ·2· ·of Civil Procedure 2034.260. ·3· · · · · · And my tentative on that is to deny.· He is ·4· ·qualified.· He does have a certain expertise, and -- ·5· ·which goes into her second objection is that he ·6· ·doesn't -- he doesn't qualify as an expert, and he does ·7· ·possess and certain knowledge and expertise and he has ·8· ·been previously qualified as an expert in other court ·9· ·proceedings. 10· · · · · · But I am granting her request in part that his 11· ·testimony and opinions -- and it will be limited to his 12· ·qualifications and expertise, which is I have gleaned 13· ·from his CV, the offer made by defense counsel to the 14· ·plaintiffs to what he will be testifying to, and that 15· ·is business valuations, loss of business value, 16· ·shareholders dispute and dissolutions, the ability to 17· ·pay judgments, lost profits, economic damages. 18· · · · · · It appears to this Court from reviewing his 19· ·deposition testimony that was provided, his CV, your 20· ·representation of what he will testify to, defense 21· ·counsel, that he is not experienced in forensic 22· ·financial analysis or in willful negligence. 23· · · · · · It appears that his firm does advertise that 24· ·they do forensic financial analysis, but that does not 25· ·appear to be his expertise.· They are his writings, his 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 15 ·1· ·lectures, and his testimony in other cases have not ·2· ·been on those areas. ·3· · · · · · Does either side wish to be heard? ·4· · · · · · MR. LIPTON:· Your Honor, yes, I do wish to be ·5· ·heard. ·6· · · · · · It's clear from Your Honor's tentative that you ·7· ·did see the opposition that we filed to the ·8· ·supplemental brief, and we have served you with a ·9· ·courtesy copy of that yesterday. 10· · · · · · MS. SILVERSTEIN:· We think that was improper, 11· ·Your Honor. 12· · · · · · THE COURT:· I understand. 13· · · · · · Go ahead. 14· · · · · · MR. LIPTON:· And with regard -- so we obviously 15· ·agree with the first two tentative rulings that you 16· ·have.· But with regard to it sounds like the Court is 17· ·tentatively limiting his testimony to those items that 18· ·Your Honor just listed, and what we tried to address in 19· ·our supplemental briefing, because we didn't have the 20· ·transcript at the time before we came to court on 21· ·Monday, was -- 22· · · · · · THE COURT:· You must have, because it was 23· ·included in plaintiff's papers. 24· · · · · · MR. LIPTON:· No.· That was the rough draft.· We 25· ·have the rough draft, that's true, but we didn't get 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 16 ·1· ·the final copy until that morning maybe as we were ·2· ·walking over -- it was electronically delivered -- and ·3· ·that's why I pointed out that their references are to ·4· ·the rough draft.· We attached the official transcript. ·5· · · · · · But the point is this, Your Honor, pretty ·6· ·simple with regard to that. ·7· · · · · · So our position is that he should not be ·8· ·limited to the -- and it sounds like the items that ·9· ·Your Honor mentioned are the items that expressly 10· ·appear in his disclosure; is that correct? 11· · · · · · THE COURT:· Yes.· And what his expertise is and 12· ·not just what was in the disclosures, sir, but what he 13· ·testified to in the deposition version that I have; his 14· ·CV, which included his writings and his lectures; and 15· ·his deposition testimony where he was very unclear as 16· ·to whether he had ever even done forensic financial 17· ·analysis.· All of his descriptions were of business 18· ·valuations.· His descriptions were not forensic 19· ·financial analysis and he had no knowledge about 20· ·willful negligence. 21· · · · · · MR. LIPTON:· What we attempted to do, 22· ·Your Honor, in section B of our opposition to the 23· ·supplemental brief was to point out that he does have 24· ·specific testimony that he did, in the context of his 25· ·financial valuation and his financial work, provide 877.451.1580 www.aikenwelch.com MIL TRIAL· · · 03/15/2018 YVer1f Page 17 ·1· ·testimony, do review, and have experience with regard ·2· ·to the operations of businesses.· He testified on ·3· ·multiple occasions, and we attached the testimonies and ·4· ·provided the page/line references in our briefing, that ·5· ·in doing these analyses, part of that is to understand ·6· ·the business interactions between the owners, between ·7· ·the managers, between -- specifically he said between ·8· ·CEOs, COOs, CFOs, and controllers, the information that ·9· ·was exchanged and how they were providing information, 10· ·what information they were putting down. 11· · · · · · So it wasn't just the end result, it wasn't 12· ·just the balance sheet that he was looking at, but in 13· ·his review -- and I believe he testified and that we 14· ·gave examples -- that he has done forensic analysis, 15· ·and that he said specifically in testimony quoted here 16· ·that, while, strictly speaking, this was not a forensic 17· ·analysis, that was not the goal, but broadly speaking, 18· ·he did the same things here that he does in a forensic 19· ·analysis, i.e., look at the financial statements 20· ·produced, look into how that information was put into 21· ·those statements, look into the