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Franchise Tax Board v. Superior Court of the City and County of San Francisco

August 27, 2009


Superior Court of the City and County of San Francisco, No. CGC-06-454297, John Kennedy Stewart, Judge. (San Francisco County Super. Ct. No. CGC-06-454297).

The opinion of the court was delivered by: Simons, J.


Section 19382 of the Revenue and Taxation Code (hereafter section 19382)*fn1 authorizes taxpayer refund actions against the Franchise Tax Board. The statute is silent as to the right to a jury determination of disputed facts in such actions. This case presents an issue of first impression: Is a taxpayer entitled to a trial by jury pursuant to article I, section 16 of the California Constitution in an action permitted by section 19382? Resolution of this question turns on whether an analogous action would have been cognizable in the common law courts in 1850, when the California Constitution was first adopted. (C & K Engineering Contractors v. Amber Steel Co. (1978) 23 Cal.3d 1, 8 (C & K Engineering Contractors).)*fn2 Our review of the relevant common law history demonstrates that, before adoption of our Constitution, taxpayers could sue tax collectors for a refund in a common law action for money had and received, and were provided the right to a jury. Thus, taxpayers should have the right to a jury in modern tax refund actions against the state, under section 19382. We conclude the superior court properly denied a motion of the Franchise Tax Board (petitioner) to strike the jury demand of real party in interest Tom Gonzales (Gonzales)*fn3 as to his refund claim. However, Gonzales does not have a right to a jury trial on petitioner‟s cross-complaint to recover a penalty. The petition for writ relief is granted in part.


In July 2006, Gonzales filed a complaint seeking refund of California personal income taxes for 2000 and 2001. The complaint alleges that, in 2004, the estate of decedent Thomas J. Gonzales II paid over $15 million to the state in connection with the California Voluntary Compliance Initiative, a tax amnesty program. The estate reserved the right to seek a refund. The complaint further alleges that the $15 million paid was not due because the estate was entitled to deductions for substantial capital losses from investments in the year 2000. The underlying dispute relates to whether the transactions resulting in the losses were "abusive tax avoidance transactions." Gonzales seeks refund of the entire $15 million paid in 2004 with respect to the 2000 tax year, and an additional refund of $2,175 with respect to the 2001 tax year. Petitioner filed a cross-complaint, which was subsequently amended, seeking to recover from the estate a penalty of almost $2.5 million.

Gonzales demanded a jury trial in a November 2006 joint case management conference statement. In May 2008, petitioner moved to strike Gonzales‟s jury demand. The motion was denied in July 2008, and in September 2008, petitioner filed the present petition for writ of mandate and/or prohibition, contending the superior court had erred. We issued an order to show cause to address this important issue of first impression. (See Southern Pac. Transportation Co. v. Superior Court (1976) 58 Cal.App.3d 433, 435 [propriety of order granting jury trial is appropriately tested in a prohibition proceeding]; accord, Hodge v. Superior Court (2006) 145 Cal.App.4th 278, 282.)


The issues of whether Gonzales has a right to jury trial with respect to the refund action and petitioner‟s cross-complaint are pure questions of law that we review de novo. (Caira v. Offner (2005) 126 Cal.App.4th 12, 23; accord, Mendoza v. Ruesga (2008) 169 Cal.App.4th 270, 283.)

I. General Principles Regarding the Right to Jury Trial in California

Article I, section 16 of the California Constitution provides in pertinent part that

"[t]rial by jury is an inviolate right and shall be secured to all . . . ." This right to jury trial "is the right as it existed at common law in 1850, when the Constitution was first adopted, "and what that right is, is a purely historical question, a fact which is to be ascertained like any other social, political or legal fact.‟ [Citations.]" (C & K Engineering Contractors, supra,23 Cal.3d at p. 8; see also DiPirro v. Bondo Corp. (2007) 153 Cal.App.4th 150, 178 (DiPirro).) " " "The term "Common Law‟ often refers to those principles of English Law which were evolved in the Common Law Courts, as opposed to the principles which were applied in the Courts of Chancery and Admiralty and the Ecclesiastical Courts. . . ." ‟ " (People v. One 1941 Chevrolet Coupe (1951) 37 Cal.2d 283, 288 (One 1941 Chevrolet Coupe).) Generally speaking, if a cause of action was cognizable in the English common law courts, as distinguished from the courts of equity (principally the Court of Chancery), there was a right to trial by jury.

(See C & K Engineering Contractors, at p. 8 ["As a general proposition, "[T]he jury trial is a matter of right in a civil action at law, but not in equity‟ "]; One 1941 Chevrolet Coupe, at p. 296 [" " "broadly speaking, one may say that actions in the common law courts were tried by jury" . . . ‟ "]; 1 Holdsworth, A History of English Law (1956) p. 298 ["The method almost universally employed by the common law to ascertain the truth about disputed facts is the jury."]; id. at p. 453 [discussing equitable jurisdiction of Court of Chancery].)

Because of the many differences between modern and common law pleading requirements and forms of action, the critical inquiry is whether the cause of action at issue in the present case is analogous to an action cognizable in the common law courts in 1850. " " "If the action has to deal with ordinary common-law rights cognizable in courts of law, it is to that extent an action at law. In determining whether the action was one triable by a jury at common law, the court is not bound by the form of the action but rather by the nature of the rights involved and the facts of the particular case-the gist of the action. A jury trial must be granted where the gist of the action is legal, where the action is in reality cognizable at law." ‟ [Citation.] On the other hand, if the action is essentially one in equity and the relief sought "depends upon the application of equitable doctrines,‟ the parties are not entitled to a jury trial. [Citations.]" (C & K Contractors, supra, 23 Cal.3d at p. 9.) It is not critical whether a particular right of action existed in 1850; the critical inquiry is whether the current case is of the same " "nature‟ " or " "class‟ " as one which existed at law in 1850. (One 1941 Chevrolet Coupe, supra, 37 Cal.2d at pp. 299-300; see also Jefferson v. County of Kern (2002) 98 Cal.App.4th 606, 613-614.)

"The right to a trial by jury is fundamental and "should be zealously guarded by the courts.‟ [Citations.] "In case of doubt . . . , the issue should be resolved in favor of preserving a litigant‟s right to trial by jury. . . .‟ [Citation.]" (Blanton v. Womancare, Inc. (1985) 38 Cal.3d 396, 411.) " "Maintenance of the jury as a fact-finding body is of such importance and occupies so firm a place in our history and jurisprudence that any seeming curtailment of the right to a jury trial should be scrutinized with the utmost care.‟ [Citation.]" (Beacon Theatres v. Westover (1959) 359 U.S. 500, 501; accord, Mendoza v. Ruesga, supra, 169 Cal.App.4th at p. 284.)

II. A Tax Refund Claim Is "Legal" in Character

The "gist" of Gonzales‟s tax refund action is a legal, rather than equitable, claim.

It is true that, as petitioner points out, courts have stated that "[a]ctions to recover taxes paid under protest are equitable in nature." (Simms v. County of Los Angeles (1950) 35 Cal.2d 303, 316; see also Jibilian v. Franchise Tax Bd. (2006) 136 Cal.App.4th 862, 868.) That language in Simms arose in the context of the court‟s assertion that a property owner seeking to challenge the validity of a tax must first pay the tax to the taxing authority, because "he who seeks equity must do equity . . . ." (Simms, at p. 316.) However, our Supreme Court has also made it clear that "a suit for a refund of taxes is in the nature of an action in assumpsit" (Northrop Aircraft v. Cal. Emp. etc. Com. (1948) 32 Cal.2d 872, 879), which is a common law action for money had and received (Philpott v. Superior Court (1934) 1 Cal.2d 512, 517). (See also Lewis v. Reynolds (1932) 284 U.S. 281, 283 [" "The action to recover on a claim for refund is in the nature of an action for money had and received, and it is incumbent upon the claimant to show that the United States has money which belongs to him.‟ "].) The action is legal, even though a plaintiff‟s right to recover depends on equitable principles. As explained in Philpott, at page 522, " "That an action is of an equitable nature does not make it an action in equity. . . . When, in an action for money had and received, all the facts show that the plaintiff is ex aequo et bono entitled to recover, his right to recover is a legal one, and maintainable in a court of law. . . .‟ " (See also Jogani v. Superior Court (2008) 165 Cal.App.4th 901, 907-909 (Jogani).)

That the relief sought is monetary, rather than equitable, is further confirmation that Gonzales‟s tax refund action is an action at law. (Wisden v. Superior Court (2004) 124 Cal.App.4th 750, 757-758; see also Asare v. Hartford Fire Ins. Co. (1991) 1 Cal.App.4th 856, 867 ["Determining whether the gist of a claim is in law or equity "depends in large measure upon the mode of relief to be afforded‟ "]; Flying Dutchman Park, Inc. v. City and ...

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