Motion for Summary Judgment in FRANCHISE TAX BOARD LIMITED LIABILITY CORPORATION TAX REFUND CASES| Trellis.Law

On December 27, 2012 a Motion-Secondary was filed involving a dispute between Bakersfield Mall Llc, Ca-Centerside, Ii, L.L.C., Franchise Tax Board, and Franchise Tax Board, for COORDINATION in the District Court of San Francisco County.

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1 AMY L. SILVERSTEIN (BAR NO. 154221)
ROBERT T. PETRAGLIA (BAR NO. 264849)
2 JOHN ORMONDE (BAR NO. 308524)
SILVERSTEIN & POMERANTZ LLP ELECTRONICALLY
3 12 Gough Street, 2nd Floor
SAN FRANCISCO, CA 94103
F I L E D
Superior Court of California,
4 Tel: (415) 593-3500 County of San Francisco

Fax: (415) 593-3501 08/07/2020
5 E-mail: asilverstein@sptaxlaw.com Clerk of the Court
BY: RONNIE OTERO
6 KATHLEEN V FISHER (BAR NO. 70838) Deputy Clerk

ALEXANDER M. FREEMAN (BAR NO. 237811)
7 CALVO FISHER & JACOB LLP
555 Montgomery Street, Ste. 1155
8 San Francisco, CA 94111
Tel: (415) 374-8370
9 Fax: (415) 374-8373
10 Attorneys for Plaintiffs
BAKERSFIELD MALL LLC
11 CA-CENTERSIDE II, LLC
12
SUPERIOR COURT OF THE STATE OF CALIFORNIA
13 CITY AND COUNTY OF SAN FRANCISCO
UNLIMITED CIVIL JURISDICTION
14

15 FRANCHISE TAX BOARD LIMITED JUDICIAL COUNCIL COORDINATION
LIABILITY CORPORATION TAX REFUND PROCEEDING NO. 4742
16 CASES
OPPOSITION TO FRANCHISE TAX
17 BOARD’S CROSS MOTION FOR
SUMMARY JUDGMENT
18
Date: September 17, 2020
19 Time: 2:00 p.m.
Dept: 304
20 Judge: Hon. A.C. Massullo
21 Trial Date: October 5, 2020
Coordination Ordered: January 30, 2013
22

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1
OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
1 Table of Contents
2 TABLE OF CONTENTS .................................................................................................................................2
3 TABLE OF AUTHORITIES ...................................................................................................................... 4
4 I. INTRODUCTION ................................................................................................................................... 6
5 II. LEGAL BACKGROUND...................................................................................................................... 7
6 III. MATERIAL FACTS ............................................................................................................................ 7
7 A. FTB DID NOT PROCESS ALL VENTAS AND NORTHWEST TYPE CLAIMS. .......................................... 7
8 1. FTB’S PROCEDURE FOR CLASSIFYING CLAIMS AS VENTAS, NORTHWEST, OR BAKERSFIELD
9 INCORRECTLY PLACED MOST CLAIMS IN THE BAKERSFIELD CATEGORY. ................................. 8

10 2. FTB DOES NOT KNOW WHICH CLASS MEMBERS’ CLAIMS ARE REALLY “BAKERSFIELD”
11 CLAIMS AND WHICH ARE VENTAS OR NORTHWEST CLAIMS. ..................................................... 9

12 3. FTB HAS NOT PROCESSED 80% OF CLAIMS, INCLUDING VENTAS CLAIMS. .............................. 9
13 B. FTB PLACED AN UNREASONABLE BURDEN ON CLASS MEMBERS. .................................................. 9
14 C. ALMOST ALL CLASS MEMBERS RECEIVED NO REFUND................................................................. 11
15 D. PLAINTIFFS ARE PROPER CLASS REPRESENTATIVES. ................................................................... 12
16 1. CENTERSIDE FILED TAX RETURNS, PAID THE LEVY, AND SOUGHT A REFUND. ....................... 12
17 2. BAKERSFIELD IS ENTITLED TO DUE PROCESS AND A TAX REFUND........................................... 12
18 IV. LEGAL STANDARD ........................................................................................................................ 13
19 V. ARGUMENT ....................................................................................................................................... 14
20 E. FTB FAILS TO PROVE ALL VENTAS TYPE LLCS RECEIVED AN APPORTIONED REMEDY. .............. 14
21 F. FTB’S APPORTIONED REMEDY FOR VENTAS TYPE LLCS IS UNCONSTITUTIONAL. ...................... 15
22 1. FTB’S APPORTIONED REMEDY VIOLATES THE DUE PROCESS CLAUSE. .................................. 16
23 2. FTB’S REMEDY PLACES AN UNREASONABLE BURDEN ON TAXPAYERS. ................................. 17
24 3. FTB CANNOT REASONABLY ADMINISTER AN APPORTIONED REMEDY. ................................... 18
25 4. REV. & TAX. CODE § 19394 VIOLATES THE DUE PROCESS CLAUSE. ..................................... 19
26 G. ALL CLASS MEMBERS HAVE VALID, OPEN CLAIMS. .................................................................... 19
27 H. THE LEVY IS UNCONSTITUTIONAL AND CANNOT BE APPLIED TO ANY CLASS MEMBERS. ............ 20
28 1. THE LEVY CANNOT BE REFORMED; THEREFORE IT MUST BE STRICKEN. ................................. 22
2
OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
1 VI. CONCLUSION................................................................................................................................... 23
2

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OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
1 Table of Authorities
2 Cases

3 Aguilar v. Atlantic Richfield Co., 25 Cal. App. 4th 826 (2001).................................................... 13, 20, 23
4 Apex LLC v. Korusfood.com, 222 Cal. App. 4th 1010 (2013) .................................................................. 12

5 Armco, Inc. v. Hardesty, 467 U.S. 638 (1984).......................................................................................... 21
Cal. Trout, Inc. v. State Water Res. Control Bd., 201 Cal. App. 3d 552 .................................................. 22
6
Ceridian Corp. v. Franchise Tax Bd., 85 Cal. App. 4th 875 (2000) ........................................................ 23
7
Complete Auto Transit, Inc. v. Brady (1977), 430 U.S. 274..................................................................... 22
8
Container Corp. of Am. v. Franchise Tax Bd., 463 U.S. 159 (1983) ....................................................... 21
9 Crown v. Parker, 462 U.S. 345 (1983) ..................................................................................................... 19
10 FEC v. Wis. Right to Life, Inc., 551 U.S. 449 (2007) ............................................................................... 22
11 Franchise Tax Bd. Limited Liability Corp. Tax Refund Cases, 25 Cal. App. 5th 369 (2018) .................. 12

12 General Motors Corp. v. City and County of San Francisco, 69 Cal. App. 4th 448 (1999) ........ 16, 17, 19
Gonzales v. Superior Court, 189 Cal. App. 3d 1542 (1987) .................................................................... 13
13
Homestead Sav. v. Sup. Ct. (Dividend Develop. Corp.), 179 Cal. App. 3d 494 (1986) .......................... 13
14
Johnson v. American Standard, Inc., 43 Cal. App. 4th 56 (2008) ............................................................ 13
15 Jolly v. Eli Lilly & Co., 44 Cal.3d 1103 (1988) ........................................................................................ 20
16 Kopp v. Fair Pol. Practices Com., 11 Cal. 4th 607 (1995) ...................................................................... 22
17 Lopez v. Sup. Ct. (Friedman Bros. Inv. Co.), 45 Cal. App. 4th 705 (1996) ............................................. 13

18 Macy’s Dep’t Stores, Inc. v. City & Cty. of S.F., 143 Cal. App. 4th 1444 (2006)............................. 16, 23
McKesson Corp. v. Div. of Alcoholic Bevs. & Tobacco, 496 U.S. 18 (1990) .................................... 16, 19
19
Miller v. Am. Greetings Corp., 161 Cal. App. 4th 1055 (2008) ......................................................... 15, 23
20
Mitchell v. Cty. Sanitation Dist. No. One, 150 Cal. App. 2d 366 (1957) ................................................. 20
21 Modesto v. Nat’l Med. Inc., 128 Cal. App. 4th 518 (2005) .......................................................... 16, 17, 19
22 Northwest Energetic Services, LLC v. California Franchise Tax Bd., 159 Cal. App. 4th 841 (2008) ....... 6
23 Pac. Legal Found v. Brown, 29 Cal. 3d 168 (1981) ................................................................................. 22

24 Paine v. Franchise Tax Bd., 118 Cal. App. 4th 63 (2004)........................................................................ 10
River Garden Ret. Home v. Franchise Tax Bd., 186 Cal. App. 4th 922 (2010) ................................. 22, 23
25
Sanchez v. State of California, 179 Cal. App. 4th 467 (2009).................................................................. 22
26
Tenn. Gas Pipeline Co. v. Urbach, 96 N.Y.2d 124 (2001) ....................................................................... 21
27
Tobe v. City of Santa Ana, 9 Cal. 4th 1069 (1995) ................................................................................... 21
28 Unisys Corp. v. Commonwealth, 571 Pa. 139 (Penn. Sup. Ct., 2002) ...................................................... 21
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OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
United States v. Carlton, 512 U.S. 26 (1994) ........................................................................................... 19
1
Ventas v. California Franchise Tax Bd, 165 Cal. App. 4th 1207 (2008) .......................................... passim
2
Vergara v. State of Cal., 246 Cal. App. 4th 619 (2016) ........................................................................... 21
3
Vitkievicz v. Valverde, 202 Cal. App. 4th 1306 (2012)............................................................................. 20
4 Wash. State Grange v. Wash. State Republican Party, 552 U.S. 442, (2008) .......................................... 22
5 Weber v. John Crane, Inc., 143 Cal. App. 4th 1433 (2006) ............................................................... 13, 23
6 Statutes
7
Cal. Code Civ. P. § 437c(b)(1) ................................................................................................................. 20
8 Cal. Code Civ. P. § 437c(p)(2) ................................................................................................................. 13
9 Cal. Corp. Code §§ 17707.01-17702.0 ..................................................................................................... 12
10 Cal. Rev & Tax Code §§ 19057(a) ..................................................................................................... 16, 17

11 Cal. Rev. & Tax Code § 19141.6(b)(1) .............................................................................................. 16, 17
Cal. Rev. & Tax Code § 19322 ................................................................................................................. 15
12
Cal. Rev. & Tax Code § 19382 ................................................................................................................. 20
13
Cal. Rev. & Tax Code § 19394 ................................................................................................................. 19
14 Cal. Rev. & Tax. Code § 18001 ................................................................................................................ 10
15 Del. Laws §§ 18-801-18-802 .................................................................................................................... 12
16

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OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
1 I. Introduction
2 Plaintiffs seek a full tax refund for a class of LLCs that paid a levy on 100% of their gross
3 receipts, wherever earned. This unapportioned levy was held to be unconstitutional in Ventas v.
4 California Franchise Tax Bd, 165 Cal. App. 4th 1207 (2008), and Northwest Energetic Services, LLC v.
5 California Franchise Tax Bd., 159 Cal. App. 4th 841 (2008). FTB now moves for summary judgment,
6 however its motion must be denied because Plaintiffs dispute the factual predicates of FTB’s motion,
7 and FTB’s evidence is insufficient to meet its burden of proof on any defense. Further, FTB does not
8 understand that the holdings of Ventas and Northwest were limited to the plaintiffs in those cases and is
9 confused about the constitutional violations at issue and the remedy required for those constitutional
10 violations.
11 Three types of taxpayers have sought refunds of the unapportioned, unconstitutional levy since
12 2005: (1) those who earned all their income outside of California, like the plaintiff in Northwest, (2)
13 those who earned their income both inside and outside of California, like the plaintiff in Ventas, and (3)
14 those who earned all their income in California, like Plaintiff Bakersfield alleged in its original
15 complaint. FTB’s first argument is that an apportioned remedy is sufficient for all LLCs and that it has
16 already given such a remedy to all “Ventas-type” taxpayers, but this is misleading. When FTB says
17 “Ventas-type” it does not mean class members with facts actually similar to the plaintiff in Ventas, i.e.,
18 with income earned within and without California—it means the small fraction of class members that
19 FTB initially flagged as “Ventas-types” upon receipt, and prior to any meaningful review, of their
20 refund claims. FTB’s witnesses admit that this initial classification was often incorrect, and many
21 Ventas type claims were misclassified and never reviewed. This dispute of fact is dispositive.
22 FTB’s second argument, that an apportioned remedy is adequate for Ventas type LLCs and no
23 remedy is owed to “Bakersfield types,” is also incorrect. The levy is unconstitutional as applied to all
24 class members. Further, administering an apportioned remedy based on out-of-state income would
25 require FTB to review and process over 37,000 LLCs’ claims covering over 100,000 tax years; would
26 require taxpayers to meet an unreasonable burden of proof; and, based on FTB’s assertions, could take
27 another decade to complete. Thus, FTB’s apportionment remedy does not provide the class members
28 with due process.
6
OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
1 II. Legal Background
2 FTB’s recitation of the legal background 1 fails to acknowledge that the holding in Ventas was
3 limited to the plaintiff in that case—an LLC that stipulated to its apportionment percentage, allowing the
4 Court to order an apportioned remedy without burdening the taxpayer. Ventas, 165 Cal. App. 4th at
5 1233, fn. 20. Accordingly, no “California Court of Appeal” has “heretofore declared that any
6 overreaching occasioned by the application of former section 17942 is to be corrected in accordance
7 with the principles of fair apportionment.” See MPA at 9:15-17 (citing no authority). Further, although
8 the legislature declared that an apportioned remedy was necessary to minimize the State’s revenue loss,
9 that remedy does not pass constitutional muster.
10 III. Material Facts
11 Plaintiffs have set forth the factual background of this case in their Motion for Summary
12 Judgment or in the Alternative Summary Adjudication. Therefore, the foregoing will focus on the
13 material facts in dispute or omitted from FTB’s motion.
14 A. FTB did not process all Ventas and Northwest type claims.
15 FTB claims that it “processed[2] all of the Ventas-type [refund claims] quickly and efficiently[.]”
16 MPA at 10:20-21. It has not. FTB’s PMK witnesses testified there are many Ventas type claims that
17 FTB has not and will not process because FTB initially misclassified them as Bakersfield type.
18 Declaration of Robert Petraglia (“Petraglia Decl.”) Ex. 1 at 41:8-12 (“[I]f we have to go back in [the
19 Bakersfield claims] and determine whether they are or they are not, there’s going to be a big percentage
20 that are not going to be Bakersfield[.]”), 30:22-32:6, 36:3-7 (explaining that FTB has not done “any
21 analysis of any LLC return of information or the paper claims” for Bakersfield claims), 35:20-36:25,
22 59:16-24, Ex. 2 at 51:20-53:6. FTB records confirm that the claims for a total of 108,676 tax years from
23 37,859 taxpayers have not been processed—including Ventas type claims. Petraglia Decl. Ex. 3 (“The
24 Bakersfield claims probably include a certain amount of Ventas and NES claims.”). Less than 20% of
25 taxpayers’ claims were actually evaluated by FTB. See id.
26
1
Plaintiffs’ have summarized the legal background of this matter in their Motion for Summary
27 Judgment or in the Alternative Motion for Summary Adjudication.
28 2
For a description of the what FTB’s “process” entails, see infra Part III.B.
7
OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
1. FTB’s procedure for classifying claims as Ventas, Northwest, or Bakersfield
1 incorrectly placed most claims in the Bakersfield category.
2 FTB’s remedial efforts began in July 2007 while Northwest was pending. Defendant issued
3 Public Service Bulletin 07-13-07, alerting LLCs that they would lose their right to a refund if they did
4 not file a claim for refund challenging the constitutionality of § 17942 before the statute of limitations
5 closed. See Plaintiffs’ Request for Judicial Notice (“RJN”), Ex. 1 (Bulletin 07-13-07). FTB requested
6 that LLCs provide certain information with their claims, including identifying information for the LLC;
7 a statement of the tax years involved; a “description of the issue (stating that the LLC fee is
8 unconstitutional is enough)”; and the amount of the claim, “which should match the amount of the
9 annual fee that the LLC paid.” Id. at 1. After Northwest was final, the FTB issued another notice
10 indicating that LLCs with the “same facts” as Northwest must provide additional information and “[a]
11 statement that the LLC did no business in California” for each year in question. RJN Ex. 2 (FTB Notice
12 2008-2) at 2. Similarly, after Ventas was final, the FTB issued a notice indicating it would process
13 claims for LLCs like Ventas, with income from within and outside of California, and described the
14 additional information that should be submitted. RJN Ex. 3 at 1, 3-4.
15 To process the more than 100,000 claims filed, FTB created a database that categorized LLCs’
16 claims as either “Northwest (outside California), Ventas (inside and outside California), or Bakersfield
17 (inside California)” claims. Petraglia Decl. Ex. 4 at ¶ 2. The database includes fields for identifying a
18 claim as either a “Ventas or NES claim” when it is received by FTB. Petraglia Decl. Ex. 2 at 25:23-
19 26:19. This initial identification was based on whether the taxpayer was responding to FTB Notice
20 2008-02, which was directed to Northwest type LLCs, or FTB Notice 2009-04, which was directed to
21 Ventas type LLCs. Petraglia Decl. Ex. 1 at 32:9-32:25, Ex. 2 at 32:21-33:2. All other claims were
22 classified as Bakersfield type; and Bakersfield type claims have not been processed. Petraglia Decl. Ex.
23 1 at 35:5-36:21 (“all of the ones that haven’t responded [to a notice] and had the unchecked apportioning
24 box, we’re basically assuming that they are all in California”), Ex. 2 at 33:16-34:8, 52:3-7 (testifying
25 there are only three ways to identify a claim as either Ventas or Northwest: “the 2008 Notice, 2009
26 Notice, or [the claimant] marked the apportioning box”), 51:20-53:6 (testifying he is not aware of any
27 plan to review claims that have not already been identified as NES or Ventas claims), 50:21-51:14 (all
28 “Bakersfield” claims are “open”); see also Petraglia Decl. Ex. 3 (identifying claims as Bakersfield,
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OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
1 Northwest, and Ventas). Consequently, claims for 108,676 tax years from over 37,000 LLCs have not
2 been reviewed. Petraglia Decl. Ex. 3.
3
2. FTB does not know which class members’ claims are really “Bakersfield”
4 claims and which are Ventas or Northwest claims.
5 FTB admits that the initial classification of claims was often incorrect. Information provided by
6 taxpayers has been erroneous approximately 50% of the time, resulting in the claims being placed in the
7 wrong category (Petraglia Decl. Ex. 1 at 39:1-21); and FTB cannot determine which LLCs are in the
8 wrong category without fully reviewing all of the claims, FTB’s records, and the LLCs’ records. See
9 Petraglia Decl. Ex. 1 at 24:17-22, 36:1-25, 47:7-14; see also Petraglia Decl. Ex. 1 at 39:1-21 (“from
10 historical information, [FTB knows] that NES or Northwest, as well as Ventas [types], ha[ve] been
11 incorrectly filed”), 72:24-75:8 (incorrect taxpayer information included “mathematical errors,” incorrect
12 or incomplete information regard “California source income,” and “classification errors”). In fact, FTB
13 admits that Ventas and Northwest type claims are currently sitting in the Bakersfield category, and that
14 it will not process them. Petraglia Decl. Ex. 2 at 33:16-34:8, 50:21-51:14, 51:20-53:6, Ex. 1 at 39:23-
15 42:2 (“if we have to go back in [the Bakersfield claims] and determine whether they are or they are not,
16 there’s going to be a big percentage that are not going to be Bakersfield[.]”), Ex. 3.
17 3. FTB has not processed 80% of claims, including Ventas claims.
18 None of the claims categorized as Bakersfield type have been processed, regardless of whether
19 the claimant had income within California, outside California, or both. FTB has not even looked to the
20 relevant taxpayers’ income tax returns to confirm whether they were engaged in business outside the
21 state. See Petraglia Decl. Ex. 1 at 30:22-32:6, 36:3-7 (explaining that FTB has not done “any analysis of
22 any LLC return of information or the paper claims” for Bakersfield claims). To date, FTB has processed
23 the claims of 8,281 taxpayers, and has taken no action on 46,148 taxpayers’ claims. Petraglia Decl. Ex.
24 3; see also Petraglia Decl. Ex. 1 at 59:16-24. FTB will not process the remaining claims unless this
25 Court compels it to do so. Petraglia Decl. Exs. 3, 1 at 35:20-36:25; see also Petraglia Decl. Ex. 2 at
26 51:20-53:6; 45:6-47:13 (explaining LLC Fee Protective Claims Summary Reports).
27 B. FTB placed an unreasonable burden on class members.
28 The claims initially identified by FTB as Northwest or Ventas were essentially approached as
9
OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
1 follows: FTB read the “correspondence claim,” 3 claimant’s tax return, and checked a database for
2 payment; and if FTB did not have enough information to compute the fee on an apportioned basis they
3 would follow-up with the LLC and request additional information or documentation. Petraglia Decl. Ex.
4 1 at 30:22-32:8.
5 FTB developed two methods to process claims classified by FTB as Ventas type. RJN Ex. 3.
6 The “Default Method” of processing claims required LLCs to submit a “Schedule R” (see RJN Ex. 5)
7 for each relevant tax year with their claims. Petraglia Decl. Ex. 4 at ¶ 5, Ex. 2 at 38:23-39:3; RJN Ex. 3
8 at 3-4. FTB admits, however, that Schedules R are not always “totally clear.” Petraglia Decl. Ex. 1 at
9 74:4-11. As FTB explains, sometimes “it’s very difficult for us to identify whether that is California
10 source [income] or not. So in order to do that, we have to work through the information that [the LLC]
11 provided or additional information that they provided to determine whether it is computed correctly or
12 not.” Id. at 74:12-22. Also, the majority of claimants did not attach the required Schedule R to their
13 original tax return (Petraglia Decl. Ex. 1 at 29:13-19), meaning these LLCs must complete new
14 Schedules R for each tax year for which they request a refund. RJN Ex. 3 at 4 (“[I]f the LLC did not
15 attach a Schedule R with its Form 568, the LLC needs to complete a Schedule R for each year that a
16 claim for refund has been filed and submit the Schedule(s) R to FTB[.]”); Petraglia Decl. Ex. 4 at ¶ 5.
17 Significantly, many LLCs that earned income outside California had no reason to apportion their income
18 and complete a Schedule R for income tax purposes during the years at issue. 4
19 FTB might also refer to “tax returns, amended returns, taxpayer correspondence, taxpayer
20 financial information worksheets, taxpayer claims for refund, tax return schedules, taxpayer income
21 3
“Claim correspondence is what the LLC filed initially when [FTB] advised them to file a Protective
22 Claim.” Petraglia Decl. Ex. 1 at 71:4-9.
4
23 For example, California resident-members of LLCs are not required to document their interstate
activities; residents are taxed on all income by the State, regardless of whether they also conduct
24 business through an LLC outside of California. See Paine v. Franchise Tax Bd., 118 Cal. App. 4th 63,
67 (2004). Therefore, LLCs with only California resident members have no incentive to maintain
25
documentation regarding activities conducted outside of the state (at least prior to the enactment of AB
26 198 in 2007). To be sure, California residents may choose to take a credit for “income” taxes paid in
other states (Rev. & Tax. Code § 18001), but many states do not have income taxes (e.g., Alaska,
27 Florida, Nevada, South Dakota, Texas, Washington, and Wyoming), and therefore, a credit would never
be available. See FTB Legal Ruling 2017-01 (Texas franchise tax does not qualify as an “income tax”
28 for purposes of the other state tax credit).
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OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
1 worksheets and other various information provided by individual taxpayers to demonstrate both its
2 California and non-California income for each year a protective claim has been filed” to evaluate claims.
3 Petraglia Decl. Ex. 5 at Response No. 2.
4 LLCs that opted not to use the Default Method could choose to have their refunds calculated
5 using an “Alternative Method.” RJN Ex. 3 at 3-4; Petraglia Decl. Ex. 4 at ¶ 5. Under this method LLCs
6 were required to submit the LLC “Income Worksheet from the 2008 LLC Tax Booklet (Form 568
7 Booklet),” more commonly referred to as Form 568. Petraglia Decl. Ex. 4 at ¶ 5 (emphasis added); RJN
8 Ex. 4. Most LLCs did not submit new Forms 568 with their refund claims. See Petraglia Decl. Ex. 1 at
9 68:1-7.
10 “As FTB worked its inventory of protective claims for entities claiming to be Ventas-type LLCs,
11 it frequently came across claims for which insufficient information was provided to enable FTB to make
12 that determination or to calculate the proper amount of refund the LLC was entitled to receive, if any.”
13 Petraglia Decl. Ex. 6 at Response No. 18. “In those circumstances FTB’s practice was to submit written
14 requests to the affected LLCs to provide the additional information needed[.]” Id. However, “FTB does
15 not know how many of these . . . were sent.” Id. This laborious process resulted in meritorious claims
16 being tossed aside, which was FTB’s intention. See Petraglia Decl. Exs. 3, 1 at 24:13-16 (“We try to
17 assume that [the LLC is] wholly within California, but historically . . . that hasn’t been the case. I mean,
18 they make errors.”). FTB placed the burden on LLCs, many of whom were small, unsophisticated, and
19 did not have enough at stake to undertake such a “lengthy process.” Petraglia Decl. Ex. 1 at 32:8.
20 C. Almost all class members received no refund.
21 Approximately 4,600 taxpayers’ claims that were classified as Northwest or Ventas were denied
22 or partially denied. Petraglia Decl. Ex. 3; White Decl. ¶ 6. Further, FTB anticipates denying all Ventas
23 and Northwest claims that have been misclassified as Bakersfield. Petraglia Decl. Ex. 1 at 41:17-42:9
24 (testifying that such claims “would probably be denied”). Therefore, thousands of taxpayers will not
25 receive a refund because they did not explicitly identify an FTB notice in their claim, or could not
26 provide documentation for prior tax years, such as Schedules R, or complete the 2008 version of Form
27 568 for years prior to 2008, or otherwise answer FTB’s requests for additional information.
28
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OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
1 D. Plaintiffs are proper class representatives.
2 FTB argues, under the guise of “background,” that “neither plaintiff appears to be similarly
3 situated to the group of LLCs that earned income solely inside California.” MPA at 12:19-24. The
4 Court of Appeal already concluded that plaintiffs are typical of the class and appropriate class
5 representatives, and there has been no change in the facts since that time. See Franchise Tax Bd.
6 Limited Liability Corp. Tax Refund Cases, 25 Cal. App. 5th 369, 395-96 (2018) (“[G]iven plaintiffs’
7 theory of recovery—the state in which an LLC’s income was generated is essentially irrelevant.”).
8 1. Centerside filed tax returns, paid the Levy, and sought a refund.
9 FTB contends that “Centerside only existed as an entity for a one week period . . . FTB has no
10 records that Centerside filed a tax return, paid the LLC fee at issue, filed a claim for refund with the FTB
11 for the years at issue in this litigation, or ever notified the California Secretary of State of its existence or
12 that it was doing business in California.” MPA at 11:6-10. This is not accurate. Centerside changed its
13 name between the time it filed its tax returns and refund claims and the time of this case. See RJN Ex. 6.
14 LLCs do not cease to “exist” when they change names. See Del. Laws §§ 18-801-18-802 (setting forth
15 the ways an LLC may be dissolved); Cal. Corp. Code §§ 17707.01-17702.03 (same); Apex LLC v.
16 Korusfood.com, 222 Cal. App. 4th 1010, 1018 (2013) (“Felix and Sons, Inc., filed a certificate of
17 amendment of its articles of incorporation” amending the name of the corporation to “Korusfood.com . .
18 . . Korusfood therefore was the same entity as Felix and Sons, Inc.”). At various times Plaintiff has been
19 named EOP-Centerside II, L.L.C., CA-Centerside II, L.L.C., and CA-Centerside Associates, L.L.C.
20 See RJN Ex. 6. Significantly, Centerside’s identification number with the California and Delaware
21 Secretaries of State has not changed. See RJN Exs. 6, 7, 8. Further, FTB has been provided with
22 Centerside’s tax returns, claims, and documentation of its name change. See RJN Exs. 6, 9; Petraglia
23 Decl. Ex. 7. Centerside’s name-change was identified in its First Amended Complaint (RJN Ex. 9 at ¶
24 2), and further explained in responses to discovery requests. See Petraglia Decl. Ex. 8.
25 2. Bakersfield is entitled to due process and a tax refund.
26 FTB notes that more than 99% of Bakersfield’s income during the period at issue was derived
27 from California, and therefore Bakersfield is not entitled to an apportioned remedy. MPA at 11:19-22.
28 Bakersfield’s claim for relief is not based on its right to an apportioned remedy. Bakersfield contends
12
OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
1 (1) there can be no valid application of the Levy because the Levy is facially unconstitutional (infra at
2 V.D.), and (2) all class members must receive full refunds because the apportioned remedy violates the
3 Due Process Clause. Infra at V.B., V.D.1.
4 IV. Legal Standard
5 A defendant moving for summary judgment must show that either one or more elements of the
6 cause of action cannot be established; or there is a complete defense to that cause of action. Cal. Code
7 Civ. P. (“CCP”) § 437c(p)(2). Specifically, FTB “must present evidence that would require a
8 reasonable trier of fact not to find any underlying material fact more likely than not—otherwise
9 [defendant] would not be entitled to judgment as a matter of law, but would have to present his evidence
10 to trier of fact.” Aguilar v. Atlantic Richfield Co., 25 Cal. App. 4th 826, 851 (2001). As the moving
11 party, a defendant has the burden to show it is entitled to judgment with respect to all theories of liability
12 asserted by plaintiff. Lopez v. Sup. Ct. (Friedman Bros. Inv. Co.), 45 Cal. App. 4th 705, 717 (1996)
13 (emphasis added). Defendant’s declarations and evidence will be strictly construed in determining
14 whether they negate an essential element of plaintiff’s claim “in order to resolve any evidentiary doubts
15 or ambiguities in plaintiff’s favor.” Johnson v. American Standard, Inc., 43 Cal. App. 4th 56, 64 (2008).
16 Defendant must support its motion with admissible evidence showing that “plaintiff does not possess,
17 and cannot reasonably obtain, needed evidence.” Aguilar, 25 Cal. App. 4th at 854; Weber v. John
18 Crane, Inc., 143 Cal. App. 4th 1433, 1441-42 (2006).
19 When a notice of motion seeks only summary judgment, such as FTB’s notice of motion, the
20 presence of any triable issue requires denial of the motion. Homestead Sav. v. Sup. Ct. (Dividend
21 Develop. Corp.), 179 Cal. App. 3d 494, 498 (1986). “It would be unfair to grant a summary
22 adjudication order unless the opposing party was on notice that an issue-by-issue adjudication 5 might be
23 ordered if summary judgment was denied.” Gonzales v. Superior Court, 189 Cal. App. 3d 1542, 1546
24 (1987).
25

27
5
Further, “[a] motion for summary adjudication shall be granted only if it completely disposes of a
28 cause of action, an affirmative defense, a claim for damages, or an issue of duty.” CCP § 437c(f)(1).
13
OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
1 V. Argument
2 Defendant first argues that Plaintiffs and class members have already received their remedy, but
3 this argument misstates both the law regarding the appropriate remedy and the facts. Most class
4 members’ refund claims have not been read, reviewed, or otherwise processed. Next, Defendant argues
5 that former Rev. & Tax. Code (“RTC”) § 17942 is constitutional as applied to LLCs that earned income
6 only in California. This is not correct. Section 17942 violates the Commerce Clause on its face.
7 Furthermore, even if the statute were facially valid, FTB cannot apply former § 17942 in a constitutional
8 manner because FTB cannot distinguish between class members that earned income only in California
9 and those that did not without undergoing a decade-long review process that places an unreasonable
10 burden on the class members. Therefore, due process requires a full refund for all taxpayers.
11 E. FTB fails to prove all Ventas type LLCs received an apportioned remedy.
12 Defendant’s first argument is that every Ventas claimant has been “reevaluated . . . under
13 principals of fair apportionment and, where appropriate, issued refunds.” MPA at 13:12-13. That is not
14 accurate. FTB relies upon the declaration of Amelia White, which states that all Ventas type claims
15 have been processed, and the remaining 37,800 protective claims for refund are from LLCs doing
16 business only in California. White Decl. ¶¶ 6, 9. Ms. White explained during her PMK deposition,
17 however, that FTB has not, and will not, review all Ventas type claims, and the remaining claims
18 include LLCs Ventas types, NES types, and Bakersfield types. See supra at III.A (explaining that
19 Ventas type claims have been miscategorized as Bakersfield types, and Bakersfield type claims have not
20 been processed); Petraglia Decl. Ex. 1 at 26:15-21 (“we’re basically assuming that they are [in the
21 Bakersfield category]”), 37:14-18 (“We didn’t classify [the claims] as Bakersfield type claims. We’re
22 assuming that they are.”), 39:1-5 (“from our database you wouldn’t be able to [determine whether LLCs
23 were doing business only in California]”), 39:6-9 (testifying that FTB cannot determine whether LLCs
24 are only doing business in California because Ventas type claims have been incorrectly filed), 40:7-15
25 (explaining that FTB will “slot [claims] as Bakersfield type LLCs” “for purposes of [creating] a number
26 . . . but not for purposes of determining that they are actually Bakersfield or in California”). This prior
27 testimony is corroborated by recent FTB records. See Petraglia Decl. Ex. 3 (explaining Ventas and
28 Northwest types may be included in the 37,800 protective claims currently in the Bakersfield category).
14
OPPOSITION TO FRANCHISE TAX BOARD’S CROSS MOTION FOR SUMMARY JUDGMENT
1 FTB asks the Court to “consider FTB’s successful implementation of an administrative remedy.” MPA
2 at 15-18. Plaintiffs agree that FTB’s “remedy” should be scrutinized carefully, because it resulted in
3 tens of thousands of class members’ claims being tossed in a proverbial bin without any meaningful
4 consideration.
5 Further, FTB’s only evidence regarding its processing of claims is a single self-serving
6 declaration, however a self-serving declaration is insufficient evidence to support a summary judgment
7 motion when the contents of that declaration are controverted by admissible evidence. See Miller v. Am.
8 Greetings Corp., 161 Cal. App. 4th 1055, 1062 (2008). Plaintiffs’ evidence shows that FTB has not
9 processed all Ventas claims, even though FTB agrees these class members that are Ventas type LLCs
10 are entitled to at least an apportioned refund. Therefore, Defendant’s motion must be denied.
11 F. FTB’s apportioned remedy for Ventas type LLCs is unconstitutional.
12 Defendant argues that LLCs with income from within and outside California “are Ventas
13 claimants” and “already have a remedy.” MPA at 14:8-14. The Ventas court explained, however, that
14 an apportioned remedy was only appropriate because it did not “create any procedural or practical
15 burden for Ventas that would undermine the clarity or certainty of the remedy in a manner inconsistent
16 with due process.” Ventas, 165 Cal. App. 4th at 1233. Specifically, where Ventas’s apportionment
17 percentage was stipulated by the parties, “allowing the FTB to recalculate the levy for the years in issue
18 will not require Ventas to bear any burden to prove the appropriate apportionment percentage, or to
19 produce documentation in support of the calculation that it might not have retained.” Id. The Court
20 explained that “the possibility that the remedy FTB proposes could impose an unreasonable burden on a

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August 07, 2020

Case Filing Date

December 27, 2012

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Parties

ANTOLIN, EDWIN P. Attorney for the Plaintiff
BAKERSFIELD MALL LLC Appellant
BAKERSFIELD MALL LLC Plaintiff
CA-CENTERSIDE, II, L.L.C. Appellant
CA-CENTERSIDE, II, L.L.C. Plaintiff
CHAIR, JUDICIAL COUNCIL OF CALIFORNIA Attorney
CHAIR, JUDICIAL COUNCIL OF CALIFORNIA Other
FISHER, KATHLEEN V Attorney for the Plaintiff
FRANCHISE TAX BOARD Defendant
FRANCHISE TAX BOARD Petitioner
ROBBINS, LAURA E. Attorney
ROBBINS, LAURA E. Attorney for the Defendant
SILVERSTEIN, AMY L Attorney for the Plaintiff
STRICKLIN, MARGUERITE CELESTE Attorney
STRICKLIN, MARGUERITE CELESTE Attorney for the Defendant
WANG, LUCY F Attorney
WANG, LUCY F Attorney for the Defendant
Rodney Jacob Attorneys for Plaintiffs
Alexander Freeman Attorneys for Plaintiffs
Edward Calvo Attorneys for Plaintiffs
Robert Petraglia Attorney
Richard Pearl Attorneys for Plaintiffs
Steven Green Attorneys for Plaintiffs
Johanna Roberts Attorney
Charles Olson Attorney
Lindsay Braunig Attorneys for Plaintiffs
Arne Wagner Attorneys for Plaintiffs
William Hebert Attorneys for Plaintiffs
Kevin Moon Attorneys for Plaintiffs
Matthew Borden Attorneys for Plaintiffs
Michael Stajer Attorney
Lisa Chao Attorneys for Defendants
John Ormonde Attorney
Andrew Sinclair Attorney
Dov Grunschlag Attorney
Renel Sapiandante Attorney
William Hilton Attorney
Joyce Hee Attorney
Adam Smith Attorney
Amy Winn Attorneys for Defendants
Seung Lee Attorneys for Plaintiffs

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Motion-Secondary: FRANCHISE TAX BOARD LIMITED LIABILITY CORPORATION TAX REFUND CASES

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