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The Morning Star Company v. Board of Equalization et al

May 5, 2011

THE MORNING STAR COMPANY, PLAINTIFF AND APPELLANT,
v.
BOARD OF EQUALIZATION ET AL., DEFENDANTS AND RESPONDENTS.



APPEAL from a judgment of the Superior Court of Sacramento County, Lloyd G. Connelly, Judge. (Super. Ct. No. 34-2008-00005600-CU-MC-GDS)

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

CERTIFIED FOR PUBLICATION

Affirmed.

In this appeal, we uphold the validity of a regulation adopted by defendant Department of Toxic Substances Control (the Department)--California Code of Regulations, title 22, section 66269.1 (the Regulation)--which interprets its underlying statute, Health and Safety Code section 25205.6.*fn1 We also conclude that section 25205.6 imposes a constitutionally valid tax. Section 25205.6 imposes an annual charge on those types of businesses, with at least 50 employees, which use, generate, store, or conduct activities in California related to hazardous materials. (§ 25205.6, subds. (b), (c).)

We have seen this matter before. So too has the state Supreme Court. Contrary to our prior opinion,*fn2 the Supreme Court subsequently concluded in Morning Star Co. v. State Bd. of Equalization (2006) 38 Cal.4th 324 (Morning Star) that the Department's broad interpretation of former section 25205.6--as applicable to essentially all corporations with at least 50 employees, given that most modern office equipment contains hazardous materials--constituted a "regulation" subject to the formal rulemaking procedures of the Administrative Procedure Act (APA) (Gov. Code, § 11340 et seq.). (Morning Star, at pp. 332, 334, 342 [when Morning Star was decided, former § 25205.6 applied only to corporations; the statute was amended in 2006 to apply essentially to all business organizations, not just corporations (Stats. 2006, ch. 77, § 13, eff. July 18, 2006; Stats. 2006, ch. 344, §§ 1, 2, eff. Sept. 20, 2006)].) The Regulation was the result of Morning Star. (Cal. Code Regs., tit. 22, § 66269.1, Register 2007, No. 45 (Nov. 7, 2007).)

And the present appeal is the result of two questions left open in Morning Star, plus the issue of the Regulation's consistency with section 25205.6. (Morning Star, supra, 38 Cal.4th at pp. 332, 342.) Specifically, we conclude here that (1) the Regulation is consistent with section 25205.6; (2) section 25205.6 imposes a tax rather than a regulatory fee; and (3) this tax does not violate equal protection or substantive due process. Consequently, we shall affirm the judgment, which concluded likewise.

FACTUAL AND PROCEDURAL BACKGROUND

Instead of reinventing the wheel, we will draw much of our background from that provided in Morning Star, supra, 38 Cal.4th 324, with references to the current version of section 25205.6 (Stats. 2006, ch. 77, § 13, eff. July 18, 2006).

This case concerns an annual charge imposed on businesses that was enacted in 1989 as part of a comprehensive overhaul of state law concerning hazardous materials. (Morning Star, supra, 38 Cal.4th at p. 328.)

The charge works as follows. Pursuant to section 25205.6, subdivision (b), each year the Department must provide California's Board of Equalization (the Board) with a schedule (i.e., a list) of business classification codes that identifies the "'types of [businesses] that use, generate, store, or conduct activities in this state related to hazardous materials.'"*fn3 (Morning Star, supra, 38 Cal.4th at p. 327.) If a business has 50 or more employees in this state and falls within one of the listed codes, it must pay a graduated annual charge based on how many employees it has. The charge, which ranges from the hundreds to the thousands of dollars, is deposited in the state's Toxic Substances Control Account, to be disbursed to various programs relating to the control of hazardous materials. (§ 25205.6, subd. (d); see also § 25173.6, subd. (b) [identifying programs funded by this account].) (Morning Star, supra, 38 Cal.4th at pp. 327, 329.)

In the Regulation, the Department finds that "every" nonexempted "business in California with fifty or more employees uses, generates, stores, or conducts activities in this state related to hazardous materials." (Cal. Code Regs., tit. 22, § 66269.1; § 25205.6, subd. (b); Morning Star, supra, 38 Cal.4th at p. 327.) The Department reasons that materials it regards as inherent in everyday business activity, such as fluorescent light bulbs, batteries, inks, correction fluid, and toner used in printers and fax machines, constitute "hazardous materials," and that all qualifying companies "'use, generate, store, or conduct activities'" related to these items. (Morning Star, at p. 327.) Thus, each year the list submitted by the Department has included the codes for all businesses, except for one type of business that section 25205.6 specifically exempts from the charge--nonprofit residential care facilities (§ 25205.6, subd. (h)). (Morning Star, at p. 327.) This means that virtually all businesses with 50 or more employees in this state must pay the hazardous materials charge. (Morning Star, at p. 328.)

Plaintiff The Morning Star Company (the Company) is a California corporation that offers labor services to companies involved in the tomato processing business. (Morning Star, supra, 38 Cal.4th at p. 328.) The Company believes that it should not have to pay the hazardous materials charge. (Ibid.) The Company acknowledges that it uses computers, printers, fluorescent lights, and other items that the Department classifies as (or regards as containing) "hazardous materials." (Ibid.) But the Company asserts that the Legislature did not consider companies in its position as "'us[ing], generat[ing], stor[ing], or conduct[ing] activities . . . related to hazardous materials,'" and that the Department, therefore, has promulgated overly expansive lists of codes in the Regulation. (Ibid.)

Consistent with this position, the Company paid its section 25205.6 charges for the years 1993 through 1996 and 2003 through 2005 under protest, and sought refunds from the Board. (Morning Star, supra, 38 Cal.4th at p. 328.) The Company instituted this action when the Board rejected its demand. The Company seeks a refund, an injunction preventing collection of the charge, a declaration that the Regulation conflicts with section 25205.6, and a declaration that section 25205.6 is a regulatory fee that violates equal protection and substantive due process. (See Morning Star, at p. 328.)

In a bench trial, the trial court rejected the Company's position and denied it relief. So do we.

DISCUSSION

I. The Regulation Is Consistent and Not in Conflict with Section 25205.6

A. Legal Background

"Government Code section 11342.2 provides the general standard of review for determining the validity of administrative regulations. That section states that '[w]henever by the express or implied terms of any statute a state agency has authority to adopt regulations to implement, interpret, make specific or otherwise carry out the provisions of the statute, no regulation adopted is valid or effective unless [1] consistent and not in conflict with the statute and [2] reasonably necessary to effectuate the purpose of the statute.'

"Under the first prong of this standard, the judiciary independently reviews the administrative regulation for consistency with controlling law. The question is whether the regulation alters or amends the governing statute or case law, or enlarges or impairs its scope. In short, the question is whether the regulation is within the scope of the authority conferred; if it is not, it is void. This is a question particularly suited for the judiciary as the final arbiter of the law, and does not invade the technical expertise of the agency.

"By contrast, the second prong of this standard, reasonable necessity, generally does implicate the agency's expertise; therefore, it receives a much more deferential standard of review. The question is whether the agency's action was arbitrary, capricious, or without reasonable or rational basis." (Communities for a Better Environment v. California Resources Agency (2002) 103 Cal.App.4th 98, 108-109, fns. omitted; Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 11 & fn. 4.) A regulation which interprets a statute may be declared invalid if the agency's determination that the ...


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