2016-00200378-CU-MC

Timothy J. Dummer vs. Ca Contractors State License Board

Nature of Proceeding: Motion for Summary Judgment and/or Adjudication

Filed By: Dummer, Timothy J.

*** If oral argument is requested, the parties are directed to notify the clerk and opposing counsel at the time of the request which of the Issues identified in the Notice of Motion and which of the Undisputed Material Facts offered by the moving defendant and/or the Additional Material Facts offered by plaintiff will be addressed at the hearing and the parties should be prepared to point to specific evidence which is claimed to show the existence or non-existence of a triable issue of material fact. ***

Pro per plaintiff Timothy Dummer’s (“Dummer”) Motion for Summary Judgment, or in the alternative, Summary Adjudication is ruled upon as follows.

Preliminarily, the Court rejects the arguments made in Dummer’s “Objection to Defendants’ Opposition.” Dummer insists that Defendants’ opposition is untimely. Dummer is incorrect. Here, the opposition was filed and served via overnight courier on February 6, 2018, exactly fourteen calendar days before the hearing. CCP § 437c (b)(2) requires oppositions to be “served and filed no less than 14 days preceding” the hearing. Dummer takes issue with the fact that he did not actually receive the opposition until February 7, 2018. CCP §1005(c) provides the method of service of opposition papers for a motion for summary judgment/adjudication. CCP §1005(c) requires service that is “reasonably calculated to ensure delivery to the other party or parties not later than the close of the next business day after the time the opposing papers or reply papers, as applicable, are filed.” Defendants complied with CCP §1005(c). Dummer also incorrectly argues that Defendants’ separate statement separate statement of additional facts is defective. Defendants separate statement complies with CRC Rule 3.1350(f)(3).

Overview

This is an action for injunctive relief against Defendants California Contractors State License Board (“CSLB”) and Franchise Tax Board (“FTB”) (collectively “Defendants”).

In his Second Amended Complaint (“SAC”), Dummer seeks an injunction reinstating his contractor’s license, which the CSLB suspended pursuant to B&P Code § 7145.5. B&P §7145.5(a) provides that “[t]he registrar…may suspend a license for the failure of a licensee to resolve all outstanding final liabilities, which include taxes….”

Dummer alleges that for the past 10 years the FTB and IRS sent letters to him regarding certain tax years and that he mailed written protests to the FTB before any final liability was assessed by Defendants. In particular, Dummer points to letters in 2010, 2011 and 2012 wherein he disagreed with the proposed amount assessed. Dummer claims that the FTB did not recognize his letters as a “legitimately informed letter of protest, and did not provide Plaintiff a hearing regarding same.” He further alleges that after he received the FTB’s January 2016 Collection Status Notice, he requested a hearing and waited for proper service of a notice of hearing which never came. Dummer alleges that the FTB asked CLSB to suspend his contractor’s license under B&P Code §7145.5. Dummer received the CSLB’s Notice of Suspension in August 2016. The CSLB did not afford Dummer a hearing before it suspended his license. There are no allegations that Dummer paid the taxes.

The SAC asserts causes of action for: (1) Injunctive Relief for Violation of Constitutional Due Process, (2) Injunctive Relief for Violation of Statutory Due Process (Rev. & Tax Code §19031 et. seq.), and (3) Injunctive Relief Challenge to the Constitutionality of B&P Code §7145.5.

Dummer seeks a permanent injunction ordering Defendants: (1) “to revoke the suspension of his contractor’s license, thereby automatically reinstating the license,” and (2) “to require personal service upon Plaintiff and a due process hearing prior to any further action against him under B&P Code §7145.5.” (SAC, Request for Relief.)

Trial is scheduled for March 26, 2018.

Dummer moves for summary judgment/adjudication on the following grounds:

1) There can be no genuine dispute that Plaintiff timely protested the alleged tax liability, and Defendants admit they never sent the required Notice of Action upon protest. Thus, Defendants denied Plaintiff due process by their violations of Cal. Rev. & Tax Code sections 19045(a), 19045(b)(1), and 19045(c).

2) Defendants admit, in violation of both Cal. Rev. & Tax Code § 19044

(a) and due process of law, that Defendants never offered a single hearing to Plaintiff before suspending Plaintiff’s builder’s license.

3) As a matter of law. Defendants’ failure to send a Notice of Action upon protest, as required by Cal Rev. & Tax Code § 19044(a) & (b), and 19045(a), (b), & (c), means that Plaintiff’s protests are technically still active today. And it is undisputed that Cal. Labor Code §7145.5 (the statute used to suspend Plaintiff’s license) requires a “final liability” before
Defendants may suspend a builder’s license. Thus, Defendants are denying Plaintiff due process every day that continues without a hearing.

(Notice of Motion, 2:5-17.)

To the extent Dummer intends to seek summary adjudication of any individual cause of action, he failed to comply with CRC Rule 3.1350(b) and (h), which require not only that a notice of motion for summary adjudication to set forth the specific issues presented for summary adjudication but also that these issues be repeated verbatim in the separate statement. It is also unclear to the Court whether the above three issues will completely dispose of each cause of action.

Statutory Background

Rev. & Tax Code §19041(a) provides “[w]ithin 60 days after the mailing of each notice of proposed deficiency assessment the taxpayer may file with the Franchise Tax Board a written protest against the proposed deficiency assessment, specifying in the protest the grounds upon which it is based.” If no protest is filed, the amount of the proposed deficiency assessment becomes final on the expiration of the 60-day period. (Rev. & Tax Code §19042.) If a protest is filed, the FTB “shall reconsider the assessment of the deficiency and, if the taxpayer has so requested in his or her protest, shall grant the

taxpayer or his or her authorized representatives an oral hearing.” (Rev. & Tax Code §19044(a).)

The FTB’s action upon the protest is final upon the expiration of 30 days from the date when it mails notice of its action to the taxpayer, unless within that 30 days the taxpayer appeals in writing from the action of the FTB to the Board of Equalization. (Rev. & Tax Code §19045.)

The taxpayer may thereafter pay the taxes under protest and file an administrative claim for a refund. (Rev. & Tax Code §19306.) Only after payment of the taxes and denial by the FTB a claim for refund, may the taxpayer bring an action against the FTB for the recovery of the amount paid. (Rev. & Tax Code §19382.)

Analysis

Here, it is undisputed that from 2005-2012 Dummer worked as a framing subcontractor

for Via Builders, Inc. (“Via Builders”) of Los Altos, California. (Defendants’ Additional Material Facts (“AMF”), 5-6.) In 2005, Via Builders paid Dummer $125,809. In January 2006, CLSB issued Dummer a California Contractors license. (AMF 9.) From 2006 through 2012, Via Builders paid Dummer $442,633 for rough framing of residential construction. (AMF 10.) Dummer has never filed a tax return with FTB or paid any California State income tax. (AMF 11.) Dummer has maintained a California address since 2005. (AMF 1.) His first two California addresses were apartments in Dublin, California. (AMF 2.) In 2006, Dummer rented a house in San Ramon and has rented continuously since then. (AMF 3.) Dummer typically spends about a third of each year in California. (AMF 4.)

The Court notes that Dummer argues that he has standing to sue as a non-resident, even though he has not paid his taxes first. Statutory law entitles an individual claiming to be a nonresident for tax purposes to litigate that issue in court without having to tax first. (See CCP § 1060.5; Cal. Rev. & Tax. Code § 19381.) Such an individual must still exhaust administrative remedies first by timely protesting the FTB’s assessments and appealing to the State Board of Equalization. (See Cal. Rev. & Tax. Code § 19381.) Here, Dummer claims to be a Michigan resident. (Dummer’s Undisputed Material Facts (“UMF”) 23.) In its opposition, Defendants do not take issue with Dummer’s residency because the tax assessment was based on his California-source income; therefore, residency is not relevant. (Opposition, 19:14-20.) Moreover, even if Dummer’s residency were at issue, as will be seen below, Defendants have demonstrated a triable issue of material fact that Dummer did not protest the 2006 and 2011 Notices of Proposed Assessment.

Issue 1: Protests of Tax Liability and Notice of Action Upon Protest

Dummer claims that he “protested the alleged tax liability for the years in

question.” (UMF 24.) Dummer does not specify “the years in question”, but it appears from the records that FTB assessed Dummer taxes for tax years 2006-2014. Although multiple tax were assessed for a number of years, Defendants’ opposition focuses on tax years 2006, 2010, and 2011, because just one final tax liability can support suspension under B&P section 7145.5. (B&P §7145.5(a) “[t]he registrar…may suspend a license for the failure of a licensee to resolve all outstanding final liabilities, which include taxes….”].)

Defendants proffer evidence that Dummer did not protest the 2006 and 2011 Notices of Proposed Assessment. With respect to the 2006 assessment, Defendants propounded Request for Admission No. 2 which sought an admission that “you did not mail to FTB a written protest of the April 1, 2008 Notice of Proposed Assessment for the 2006 tax year by June 2, 2008. (AMF 17.) Dummer responded that he could “neither admit or deny,” he explained that “Plaintiff has never received this document prior to the commencement of this action. Plaintiff did not live at the mailing address at the time this letter was sent. Plaintiff could not respond to a document that he didn’t receive.” (Id.) The Notice of Proposed Assessment was mailed to 7306 Parkwood Cir.

#A, Dublin, CA 94568-3385, which is the address CSLB had on file. (AMF 16.) Dummer had not advised FTB or CSLB that he had moved to the San Ramon house by this time. (AMF 18.) Dummer admits that there was no way for either CSLB or FTB to know of his change of address until he changed his address with the CSLB in June 2008. (AMF 18.) In reply, Dummer points to the January 27, 2009 letter to show that he protested the 2006 assessment. (Defendants’ Index of Exhibits, Ex. 1, 2006-011 [FTB -276].) The protest letter was due by June 2, 2008. (AMF 17.) Thus, the January 2009 letter was untimely.

With respect to the 2011 assessment, Dummer concedes that on 7/22/2013, the FTB mailed a Notice of Proposed Assessment to his correct mailing address. (Declaration of Timothy Dummer, ¶ 20.) He states that he never received the document because “from sometime in May of 2013 until sometime in September, I was in Michigan.” (Id.) The Notice of Proposed Assessment was sent to 7527 Blue Fox Way, San Ramon, CA 94583-3720. (AMF 27.) Dummer did not respond to the Proposed Notice of Assessment before September 21, 2013. (AMF 28.)

Dummer takes issue with the fact that the Notices of Proposed Assessment were not personally served on him. Dummer proffers no legal authority to support his position that he must be personally served. Indeed, service by mail to the taxpayer’s last known address is sufficient. (See Rev. & Tax Code §18416 [“(a) Unless expressly otherwise provided in this part, any notice may be given by first-class mail postage prepaid. (b) For purposes of this part, any notice mailed to a taxpayer shall be sufficient if mailed to the taxpayer’s last known address. (c) The last known address shall be the address that appears on the taxpayer’s last return filed with the Franchise Tax Board, unless the taxpayer has provided to the Franchise Tax Board clear and concise written or electronic notification of a different address, or the Franchise Tax Board has an address it has reason to believe is the most current address for the taxpayer.”].) Business and Professions Code sections 136, 7083 and 7083.1 require licensed contractors to keep their addresses current with CSLB. Here, both the 2006 and 2011 Notice of Proposed Assessment were mailed to Dummer at the respective addresses the CSLB and FTB had on file. By failing to protest the Notices of Proposed Assessment, the amount of the proposed deficiencies became final upon the expiration of the 60-day period – without a hearing. (Rev. & Tax Code §19042.)

Dummer counters in reply, that pursuant to U.S. Treasury Regulation 26 C.F.R. §301.6212-2(a), Defendants were required to use the address on file with the Internal Revenue Service. (Defendants’ Index of Exhibits, Ex. 28 [“General rule. Except-as provided in paragraph (b)(2) of this section, a taxpayer’s last known address is the address, that appears on the taxpayer’s most recently filed and properly processed Federal tax return, unless the-Internal Revenue Service (IRS) is given clear and concise notification of a different address.”].) Dummer further argues that pursuant to 26 C.F.R. §301.6212-2(b)(2), Defendants were required to use the U.S. Post Office National Change of Address Database (“NCOA Database”) to locate him. (Defendants’ Index of Exhibits, Ex. 28 [“Exception for address obtained from the

United States Postal Service-(i) Updating taxpayer addresses. The IRS will update taxpayer addresses maintained in IRS records by referring to data accumulated and maintained in the United States Postal Service (USPS) National Change of Address database.”].) Although the “last known address” rule was incorporated into Rev. & Tax Code §18416 “to conform California income tax statutes to Federal income tax law and existing FTB practices” (Opposition, 16:1-3), Section 18416 did not incorporate the express language of 26 C.F.R. §301.6212-2(a) or §301.6212-2(b)(2). Thus, the Court is not convinced that FTB was required to use the address on file with the Internal Revenue Service or the NCOA database to locate Dummer’s current address. Additionally, Section 18416 explicitly allows the FTB to use the last known address “that appears on the taxpayer’s last return filed with the Franchise Tax Board, unless the taxpayer has provided to the Franchise Tax Board clear and concise written or electronic notification of a different address, or the Franchise Tax Board has an address it has reason to believe is the most current address for the taxpayer.”

The Court further rejects Dummer’s argument that FTB was required to mail the Notices of Proposed Assessment by certified or registered mail. Dummer’s reliance on Rev. & Tax Code §19033(e) does not support his argument. Section 19033 concerns Deficiency Assessments and only applies “[i]f the Franchise Tax Board determines that the tax disclosed by the taxpayer on an original or amended return, including an amended return reporting federal adjustments pursuant to Section 18622, is less than the tax disclosed by its examination.” It is undisputed that Dummer did not file any tax returns with the FTB thereby triggering Section 19033. Moreover, Section 19033(e) provides “[t]he notice described in subdivision (a) shall be mailed in a manner that includes a postmark. For purposes of this subdivision, postmark means a postal marking made on a letter, package, or postcard indicating the date on which the item is delivered to the United States Postal Service.” The section does not, as Dummer suggests, require the notices to be sent by certified or registered mail.

The Court concludes that Defendants have demonstrated a triable issue of material fact as to whether Dummer protested the 2006 and 2011 tax liabilities. The motion for summary judgment/adjudication is DENIED.

Issue No. 2: Offer of a Hearing Prior to Suspending License

Dummer insists that Defendants were required to provide him with a hearing prior to suspending his license. However, the Court has found a triable issue as to whether Dummer protested the 2006 and 2011 tax liabilities. Consequently, there is also a triable issue regarding whether Defendants were obligated to provide a hearing. The Court is also persuaded by Pickell v. Sands (E.D. Cal., Feb. 7, 2014) 2014 U.S. Dist. LEXIS 15905, a case upon which Defendants rely.

In Pickell, the plaintiff challenged the suspension of his contractor’s license. Pursuant to B&P Code § 7145.5, the suspension followed the FTB’s determination he had not met tax obligations. (See 2014 U.S. Dist. LEXIS 1509, *2-3.) In a summary judgment

proceeding, the plaintiff argued due process under the Federal Constitution required the CLSB to provide a hearing before the suspension took effect. (Id. at *3.) The federal magistrate disagreed because any hearing before the CLSB would have been redundant. The plaintiff was entitled to a hearing to challenge the underlying tax liability, and the CLSB’s suspension of his license was entirely derivative of that liability. In other words, the plaintiff was not entitled to a second hearing on the same issue. (See id. at 22-23; see also Russell v. Carleson (1973) 36 Cal.App.3d 334, 342 [California and federal due process clauses are essentially identical in scope and purpose].)

To the extent the Pickell plaintiff invoked the substantive component of federal due process, the magistrate concluded that the suspension provisions in B&P Code § 7145.5 rationally promoted California’s interest in collecting taxes. (Pickell at *17-18.) The district court judge adopted the magistrate’s findings and recommendations. (See Pickell v. Sands (E.D. Cal., May 12, 2014) 2014 U.S. Dist. LEXIS 65760, *2.)

Dummer’s motion for summary judgment/adjudication is DENIED.

Issue No. 3: Failure to Send a Notice of Action Upon Protest and a Final Liability

The motion for summary judgment/adjudication is DENIED. The Court has found a triable issue as to whether Dummer protested the 2006 and 2011 tax liabilities. Thus, there is also a triable issue as to whether Defendants were required to send a Notice of Action Upon Protest. (Rev. & Tax Code §19044(a) [If a protest is filed, the FTB “shall reconsider the assessment of the deficiency and, if the taxpayer has so requested in his or her protest, shall grant the taxpayer or his or her authorized representatives an oral hearing.”]; Rev. & Tax Code §19045 [the FTB’s action upon the protest is final upon the expiration of 30 days from the date when it mails notice of its action to the taxpayer, unless within that 30 days the taxpayer appeals in writing from the action of the FTB to the Board of Equalization.].)

Permanent Mandatory Injunction: Irreparable Injury

Defendants further advance that Dummer has not shown irreparable injury to justify the issuance of a permanent injunction.

A mandatory injunction such as the one requested here (i.e. compelling Defendants to perform an act), “is rarely granted.” (Davenport v. Blue Cross of California (1997) 52 Cal. App. 4th 435, 446.) Such an injunction is not permitted except in “extreme cases where the right thereto is clearly established and it appears that irreparable harm will flow from its refusal.” (Id.) To obtain a permanent injunction, the “plaintiff ordinarily must show that the defendant’s wrongful acts threaten to cause irreparable injury, meaning injury that cannot adequately be compensated in damages.” (Syngenta Crop Protection, Inc. v. Helliker (2006) 138 Cal.App.4th 1135, 1167.)

Dummer alleges that Defendants’ conduct will cause great and irreparable injury to him as it “takes away Plaintiff’s entire livelihood.” (SAC, ¶ 38.) In his declaration in support of this motion, Dummer conclusorily states “Defendants’ actions have prohibited me in California from practicing my profession as a builder. This has caused harm to my financial livelihood. I need to continue working in [t]his profession to meet expected contract obligations, and to maintain my professional reputation. I have no adequate remedy at law for my injuries incurred, because an award of monetary damages is not available and would not provide an adequate remedy and because future work is unknown.” (UMF 28.)

Defendants proffer evidence that belies Dummer’s assertions. Specifically, Dummer testified that the allegation that his “entire livelihood” would be taken away “could probably have been written in a different way.” (Defendants’ Ex. 30, 206:4-19.) He further acknowledges that he can still work in Michigan, and that his family can maintain his Michigan and San Ramon homes indefinitely, even with a suspended California license. (AMF 30.) Additionally, in 2017, Dummer continued to perform rough framing work for Via Builders, despite his license having been suspended. (AMF 30.)

The Court concludes that, for the purposes of this motion only, Dummer fails to demonstrate that he has a clearly established a right to a mandatory injunction. Defendants also show a triable issue of material fact as to whether irreparable harm exists. The motion for summary judgment/adjudication is DENIED. The Court emphasizes that this argument, by itself, is sufficient to deny Dummer’s entire motion for summary judgment/adjudication.

Having denied all grounds for summary adjudication, Dummer’s motion for summary judgment is DENIED.