Background –
On 10/18/13, Plaintiff Extra Express (Cerritos), Inc. filed this action against Defendant Employment Development Department to recover unemployment insurance contributions, taxes, and penalties assessed and collected by Defendant.

Plaintiff alleges that Defendant erroneously determined Plaintiff to have employed certain transportation providers who were in fact independent contractors (Complaint ¶¶ 2, 12-13), and issued assessments in July and November 2008 for unpaid unemployment insurance contributions, taxes, and penalties (id. ¶¶ 18-23). Plaintiff alleges that it timely challenged the assessments through petitions for reassessments (id. ¶¶ 25-29), paid the assessments on 6/18/11 pending its challenges (see id. ¶¶ 32-33), and that the challenges resulted in full and partial cancellation of the assessments on 6/14/12 (id. ¶¶ 41-42).

Plaintiff asserts causes of action for (1) recovery of unlawfully collected contributions, interest and penalties; (2) injunctive relief; (3) declaratory relief; and (4) attorneys’ fees and costs.

Demurrer –

1. “Pay First, Litigate Later” Doctrine
Defendant demurs to the 2nd and 3rd COAs on the ground that they violate the Article XIII, Section 32 of the Constitution and Unemployment Insurance Code § 1851. These statutes prohibit legal or equitable process that would prevent or enjoin the collection of any tax (Constitution, Art. XIII, § 32) or unemployment insurance contributions (Unemployment Ins. Code § 1851). This “pay first, litigate later” doctrine bars not only injunctions but also prepayment judicial declarations or findings that would have the effect of impeding the prompt collection of a tax or contribution. Water Replenishment Dist. of Southern Cal. v. City of Cerritos (2013) 220 Cal.App.4th 1450, 1465; Employment Develop. Dept. v. Cal. Unemployment Ins. Appeals Bd. (2010) 190 Cal.App.4th 178, 197.

In opposition, Plaintiff argues that it has paid the assessments and does not seek to enjoin assessment or collection of taxes in the future, and only seeks to ensure compliance with the Court’s determination on a prospective basis.

The 2nd COA for injunctive relief seeks to prohibit Defendant from prospectively issuing assessments against Defendant on the same alleged incorrect determination of employment without preliminary evidentiary showing of a material change in Plaintiff’s relationship with its vendors. Complaint ¶ 66. The 3rd COA seeks a declaration that Defendant’s methodology used to determine Plaintiff’s employment relationship violate due process (id. ¶¶ 69-74), which finding is necessary to prevent Defendant’s further use of the same or similar methodologies in future audits (id. ¶ 75).

Both COAs have the effect of impeding Defendant’s collection of taxes and contributions against Defendant, even if directed at prospective or future collections. Plaintiff fails to show how there is no other adequate remedy at law such that injunctive and declaratory relief is proper. Flying Dutchman Park, Inc. v. City and County of San Francisco (2001) 93 Cal.App.4th 1129, 1138 (“The rule in this state is that injunctive and declaratory relief will not be granted where there is a plain, complete, speedy, and adequate remedy at law.”). Therefore, they are barred under the “pay first, litigate later” doctrine.

2. Constitutional Challenge

The Court notes that this argument relies on facts not alleged in the Complaint.

Ruling
Therefore, the Court is inclined to sustain the demurrer as to the 2nd and 3rd COAs without leave to amend.