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

June 6, 2011


Court: Superior County: San Francisco Judge: John Kennedy Stewart Super. Ct. No.CGC-06-454297; Ct.App. 1/5 A122723

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

Does a taxpayer have the right to a jury trial in an action for a refund of state income taxes? The Court of Appeal said yes, reasoning that the gist of such an action is legal and therefore a jury trial is guaranteed by the state Constitution. We reverse.

The facts are undisputed, and may briefly be stated. Real party in interest Tom Gonzales, as personal representative of his son's estate, filed a complaint in 2006 seeking a refund of state personal income taxes for the years 2000 and 2001. Gonzales alleged that the estate had paid over $15 million as part of a tax amnesty program, reserving the right to seek a refund. He demanded a jury trial. The trial court denied a motion by defendant Franchise Tax Board to strike the jury demand. On the Board's application for writ relief, the Court of Appeal issued an order to show cause. After thorough consideration of the parties' arguments, the court declined to disturb the trial court's ruling as to the refund action, deciding as a matter of first impression that there is a state constitutional right to a jury trial in an action for a refund of state income taxes.*fn1 We granted the Board's petition for review.


The statutes governing suits for income tax refunds from the state are silent on the right to a jury trial. (Rev. & Tax. Code, § 19381 et seq.)*fn2 Gonzales relies on article I, section 16 of the California Constitution, which declares that "[t]rial by jury is an inviolate right and shall be secured to all . . . ." It is settled that the state constitutional right to a 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 v. Amber Steel Co. (1978) 23 Cal.3d 1, 8; see also Corder v. Corder (2007) 41 Cal.4th 644, 656, fn. 7; Crouchman v. Superior Court (1988) 45 Cal.3d 1167, 1173-1174; People v. One 1941 Chevrolet Coupe (1951) 37 Cal.2d 283, 286-287.)

"As a general proposition, '[T]he jury trial is a matter of right in a civil action at law, but not in equity.' [Citations.]" (C & K Engineering Contractors v. Amber Steel Co., supra, 23 Cal.3d at p. 8.) "[I]f 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." (Id. at p. 9.) And "if a proceeding otherwise identifiable in some sense as a 'civil action at law' did not entail a right to jury trial under the common law of 1850, then the modern California counterpart of that proceeding will not entail a constitutional right to trial by jury. [Citations.]" (Crouchman v. Superior Court, supra, 45 Cal.3d at p. 1174.)*fn3

We have explained that if the action deals 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. [¶] . . . The constitutional right of trial by jury is not to be narrowly construed. It is not limited strictly to those cases in which it existed before the adoption of the Constitution but is extended to cases of like nature as may afterwards arise. It embraces cases of the same class thereafter arising.' " (People v. One 1941 Chevrolet Coupe, supra, 37 Cal.2d at pp. 299-300, fn. omitted.)

Here, the Court of Appeal reasoned that the "gist" of a claim for a tax refund is legal. The plaintiff seeks monetary relief, and the proceeding is "in the nature of an action in assumpsit" (Northrop Aircraft v. Cal. Emp. etc. Com. (1948) 32 Cal.2d 872, 879), a common law form of action at law (Jogani v. Superior Court (2008) 165 Cal.App.4th 901, 906-907). The court was persuaded by the rationale of United States v. State of N. M. (10th Cir. 1981) 642 F.2d 397 (New Mexico), where the Tenth Circuit Court of Appeals observed that jury trials were available at common law in actions against tax collectors to recover illegally exacted taxes. Accordingly, the New Mexico court concluded that "the right of a taxpayer to a jury trial in refund cases is rooted in the common law and was preserved by the Seventh Amendment." (Id. at p. 401; see also Department of Revenue v. Printing House (Fla. 1994) 644 So.2d 498, 500 [following New Mexico and recognizing state constitutional right to jury trial in statutory tax refund actions].)

The Court of Appeal's reasoning is not without support. A tax refund action is legal rather than equitable in character. And in England and early America, common law actions for refunds were brought against officers who collected taxes and duties, though in some cases recovery was limited to amounts assessed without jurisdiction and did not extend to overcharges.*fn4

However, it is a general proposition, not an absolute rule, that the right to a jury trial attaches when the "gist" of the action is legal. (C & K Engineering Contractors v. Amber Steel Co., supra, 23 Cal.3d at p. 8.) The "gist" test does not apply in administrative proceedings. (McHugh v. Santa Monica Rent Control Bd. (1989) 49 Cal.3d 348, 379-380.) We have also held that the legal nature of small claims actions does not bring with it the right to a jury trial. (Crouchman v. Superior Court, supra, 45 Cal.3d at p. 1175.) And in Sonleitner v. Superior Court (1958) 158 Cal.App.2d 258, the court ruled that a jury trial was not available in a tax collection proceeding, even though the proceeding was statutorily designated "an action at law." Observing that the statutory proceeding was not equivalent to a common law debt collection action (id. at p. 261), the Sonleitner court noted that "the test is whether the gist of the action is legal in a common law context" (id. at p. 262, italics added). We look to whether a claim arising under a modern statute is "of like nature" or "of the same class" as a common law right of action. (People v. One 1941 Chevrolet Coupe, supra, 37 Cal.2d at p. 300.)

Notwithstanding the Tenth Circuit's opinion in New Mexico, supra, 642 F.2d at pages 400-401, statutory actions for tax refunds from the government have generally not been placed in the same class as the common law right of action against individual tax collectors. Most courts have viewed actions for a refund from the government as new and distinct proceedings, subject to such conditions as the legislative branch sees fit to impose. At common law, sovereign immunity barred actions against the government, by way of jury trial or otherwise. (People v. Superior Court (Pierpont) (1947) 29 Cal.2d 754, 756; Galloway v. United States (1943) 319 U.S. 372, 388; 5 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, §§ 203, 210, pp. 343-344, 354-355.) The right to a jury trial provided by the Seventh Amendment to the United States Constitution does not apply in statutory actions against the federal government. (Lehman v. Nakshian (1981) 453 U.S. 156, 160-161.) *fn5 That rule applies in tax refund actions. (Wickwire v. Reinecke (1927) 275 U.S. 101, 105 (Wickwire). *fn6 Several states have followed the federal example and refused to recognize a state constitutional right to a jury trial in tax refund cases. (Coeur D'Alene Lakeshore v. Kootenai County (Idaho 1983) 661 P.2d 756, 762; C. W. Matthews Contracting Co. v. S. C. Tax Comn. (S.C. 1976) 230 S.E.2d 223, 226; Dexter Horton Bldg. Co. v. King County (Wn. 1941) 116 P.2d 507, 511; see also Jernigan v. Jackson (Tenn. 1986) 704 S.W.2d 308, 309 [rejecting claim of right to jury trial without reference to federal law].)

Before we examine California's experience with common law and statutory refund actions, we briefly review the development of federal procedure in this area, which shows that the common law right of action was effectively superseded by statute well before California's statehood. The United States Supreme Court first recognized the right to seek refunds from tax collectors in 1836, when it ruled that collectors of customs duties were personally liable for illegal assessments even if they had transferred the money to the treasury. (Elliott v. Swartwout, supra, 35 U.S. 137, 159.) However, the claim permitted in Elliott "had, as a strictly common law action, a short and unhappy life." (Plumb, supra, 60 Harv. L.Rev. at p. 688.) Collectors asserted the right to withhold disputed payments, which "led to great abuses, and to much loss to the public." (Cary v. Curtis (1845) 44 U.S. 236, 243.) Three years after the Elliott decision, Congress enacted legislation requiring customs duties paid under protest to be transferred to the treasury, and authorizing the Secretary of the Treasury to make refunds. (Act of Mar. 3, 1839, § 2, 5 Stat. 339, 348); see Plumb, supra, 60 Harv. L.Rev. at p. 689.) The Supreme Court decided that this statutory remedy had replaced the common law right of action against collectors, and also that the new administrative remedy was not subject to judicial review. (Cary v. Curtis, supra, 44 U.S. at pp. 243-244.)

Congress again responded with legislation, explaining that the 1839 statute had not been intended to impair the right of action against a collector of customs, including the right to a trial by jury. (Act of Feb. 26, 1845, 5 Stat. 727.) No similar legislation covered internal revenue collectors, who were also required to turn tax payments over to the treasury regardless of protest by the taxpayer. In 1866, however, the Supreme Court held that a right of action against internal revenue collectors had been recognized by implication in a number of statutes. (City of Philadelphia v. The Collector (1866) 72 U.S. 720, 731-732; see Plumb, supra, 60 Harv. L.Rev. at p. 689.) "The action against the collector, therefore, was no longer a common law but a new statutory action, subject to such restrictions as Congress might provide." (Plumb, at pp. 690-691.)

Accordingly, in 1927 the Wickwire court had ample support for its conclusion that "[i]t is within the undoubted power of Congress to provide any reasonable system for the collection of taxes and the recovery of them when illegal, without a jury trial." (Wickwire, supra, 275 U.S. at pp. 105-106, citing Murray's Lessee v. Hoboken Land and Improvement Co. (1856) 59 U.S. 272, 283-284 [while customs collectors and the government "are exempt from suit, for anything done by the former in obedience to legal process, still, congress may provide by law, that both, or either, shall, in a particular class of cases, and under such restrictions as they may think proper to impose, come into a court of law or equity and abide by its determination"]; Nichols v. United States (1869) 74 U.S. 122, 127 [allowing actions for refunds of customs duties "was an act of beneficence on the part of the government . . . so it could have made [the Secretary of the Treasury] the final ...

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