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City of Industry et al v. City of Fillmore et al

August 10, 2011

CITY OF INDUSTRY ET AL., PLAINTIFFS AND APPELLANTS,
v.
CITY OF FILLMORE ET AL., DEFENDANTS AND RESPONDENTS.



APPEALS from judgments and orders of the Superior Court of Los Angeles County, Michael L. Stern, Judge. (Los Angeles County Super. Ct. No. BC411865)

The opinion of the court was delivered by: Croskey, Acting P. J.

CERTIFIED FOR PUBLICATION

Judgments and order awarding attorney fees and costs reversed with directions; order granting special motion to strike affirmed in part and reversed in part.

The City of Industry (Industry) and the City of Livermore (Livermore) sued the City of Fillmore (Fillmore), Inspired Development, LLC (Inspired Development), MTS Consulting, LLC (MTS), and Owens & Minor, Inc. (Owens & Minor), alleging several counts arising from the alleged diversion of local sales tax revenues to Fillmore and away from Industry and Livermore. The trial court sustained demurrers to the complaint without leave to amend, granted a special motion to strike several counts, and dismissed the complaint.

Industry and Livermore contend the demurrers to several counts cannot be sustained based on their purported failure to comply with Fillmore's claims presentation requirement, failure to exhaust administrative remedies, or lack of standing. We agree. They also contend they adequately allege counts for fraud and conspiracy. With respect to those counts, we conclude that together they constitute a single count for fraud against all defendants as coconspirators and that the sustaining of the demurrers to those counts was error.

Industry and Livermore also contend their fraud and conspiracy counts do not arise from protected activity under the anti-SLAPP statute (Code Civ. Proc., § 425.16).*fn1 We hold that the routine submission of sales tax returns to the State Board of Equalization (SBE) was not an act in furtherance of the defendants' constitutional right of petition or free speech in connection with a public issue within the meaning of the anti-SLAPP statute and that the striking of the fraud and conspiracy counts was therefore error. We will, however, affirm the trial court's order granting the defendants' special motion to strike with respect to several of the causes of action alleged by Industry and Fillmore. As a result, we will reverse the trial court's order awarding attorney fees to the defendants and remand the matter with directions to conduct further proceedings with respect to that issue.

FACTUAL AND PROCEDURAL BACKGROUND

1. Factual Background

Fillmore entered into written agreements with MTS and Inspired Development in 2003 providing economic incentives for MTS and Inspired Development to cause retailers to establish sales offices in Fillmore. Fillmore agreed to pay MTS and Inspired Development 85 percent of the local sales tax revenues received by Fillmore attributable to such retailers.*fn2

Industry and Livermore jointly presented two claims to Fillmore in August 2008, alleging that Fillmore had participated in a scheme to illegally divert local sales tax revenues away from Industry and Livermore. Fillmore responded with a Notice of Return of Claim Without Action, stating that the claims were not presented within six months after the occurrence, that Fillmore therefore would take no action on the claims, and that the only recourse available to Industry and Livermore was to apply for leave to present a late claim.

2. Administrative Proceedings

Industry and Livermore filed petitions with the SBE to reallocate local sales tax revenues. They argued that Fillmore and certain retailers had devised a means to divert sales tax revenues away from the cities where the taxable business activities actually occurred by setting up sham offices in Fillmore and falsely claiming that the taxable business activities occurred in Fillmore. The SBE's Allocation Group issued a decision in August 2008 stating that sales by a particular taxpayer did not occur in Fillmore and that the sales tax revenues allocated to Fillmore for the fourth quarter of 2007 would be reallocated. Fillmore objected to the decision. The Allocation Group issued a supplemental decision in February 2009 explaining the basis for its decision and granting the petitions for reallocation.

Fillmore objected to the supplemental decision and requested an appeals conference. The Allocation Group referred the matter to the SBE's Appeals Division, noting the existence of a dispute as to the timeliness of the appeal. The Appeals Division conducted a hearing on the reallocation dispute in August 2009. It issued its decision and recommendation on November 29, 2010, finding among other things that Fillmore's objection to the supplemental decision was untimely and that the supplemental decision therefore became final on April 15, 2009, as to tax reallocations for the period from October 1, 2007, to December 31, 2008.*fn3 The Appeals Division also concluded that Fillmore's untimely objection to the supplemental decision constituted a new petition for reallocation for the period beginning January 1, 2009. The Appeals Division granted Fillmore's new petition in part, denied it in part, and ordered an audit to determine the proper amounts to be reallocated for the period beginning January 1, 2009. Several parties have appealed the decision by the Appeals Division to the SBE's board members, and those appeals are currently pending.

3. Complaint by Industry and Livermore

Industry and Livermore filed a complaint against Fillmore, MTS, Inspired Development, and Owens & Minor in April 2009. They allege in the complaint that Fillmore entered into contracts with MTS and Inspired Development for the purpose of diverting sales tax revenues away from the cities where the taxable business activities actually take place. They allege that MTS and Inspired Development solicited retailers, including Owens & Minor, to set up sham offices in Fillmore and then falsely report those office locations as the point of sale in exchange for a share of the sales tax revenues. They allege that Owens & Minor and other retailers have established sham offices in Fillmore and falsely reported to the SBE that those office locations were the point of sale, and that Fillmore has received allocations of sales tax revenues based on those false representations.

Industry and Livermore allege counts for (1) gift of public funds in violation of article XVI, section 6 of the California Constitution, against Fillmore; (2) exceeding the debt limit established by article XVI, section 18 of the California Constitution, against Fillmore; (3) disbursing sales tax revenues in excess of the limit established by article XIIIB, section 1 of the California Constitution, against Fillmore; (4) contracting away police power, against Fillmore; (5) "fraud/indirect deception" (capitalization omitted), against all defendants; (6) racketeering in violation of title 18 United States Code section 1962, against all defendants; (7) unjust enrichment, against all defendants; (8) conversion, against all defendants; (9) unfair business practices (Bus. & Prof. Code, § 17200 et seq.), against all defendants; (10) conspiracy to defraud and to convert tax revenues, against all defendants; (11) denial of equal protection and due process in violation of title 42 United States Code section 1983, against Fillmore; and (12) declaratory relief, against all defendants.

4. Special Motion to Strike and Demurrers

MTS filed a special motion to strike the fifth through tenth counts in June 2009. MTS argued that those counts arose from statements made to the SBE in connection with administrative proceedings to determine the proper allocation of local sales tax revenues. MTS also argued that the allocation of local sales tax revenues was a matter of public interest. The notice of motion stated that each of the other defendants joined in the special motion to strike. The other defendants also filed separate notices stating that they joined in the special motion to strike by MTS.

Fillmore demurred to the complaint, arguing that (1) Industry and Livermore failed to present timely claims to Fillmore and failed to apply for leave to present late claims, so the first through third, fifth, and seventh through tenth counts were barred; (2) Industry and Livermore had petitioned the SBE for reallocation of the local sales tax revenues, and Fillmore's appeal of the supplemental decision by the Allocation Group was then pending before the Appeals Division, so there was no final administrative decision and Industry and Livermore failed to exhaust their administrative remedies on all counts; and (3) Industry and Livermore had no standing to sue Fillmore as taxpayers, so the first through fifth, eleventh, and twelfth counts were barred. Owens & Minor and Inspired Development joined in the demurrer by Fillmore as to counts five through ten and twelve of the complaint. MTS joined in the demurrer by Fillmore as to the twelfth count.

Owens & Minor also demurred to the complaint, arguing that (1) Industry and Livermore had no private right of action arising from the alleged misrepresentations, and their sole remedy was to petition the SBE for reallocation; (2) they failed to allege either a misrepresentation made to them or their reliance on a misrepresentation for purposes of their fifth count for fraud and tenth count for conspiracy; and (3) Owens & Minor was not a party to the alleged unlawful contracts and therefore was not a proper defendant to the twelfth count for declaratory relief. Fillmore, Inspired Development, and MTS joined in the demurrer by Owens & Minor. Inspired Development and MTS also filed separate demurrers to the complaint, incorporating by reference the arguments made by Fillmore and Owens & Minor.

The trial court heard argument on the special motion to strike and demurrers in July 2009, and took the matters under submission. The court filed an order on August 7, 2009, ruling on these matters.

The trial court concluded that Industry and Livermore failed to timely present claims to Fillmore as required by the Fillmore Municipal Code and failed to apply for leave to present late claims, so their first through third, fifth, and seventh through tenth counts against Fillmore were barred. The court also concluded that Industry and Livermore had no standing to sue Fillmore as taxpayers and therefore could not maintain the first through fifth, eleventh, and twelfth counts against Fillmore.*fn4 With respect to the exhaustion of administrative remedies, the court stated that the court was not persuaded that the exhaustion requirement applied to the first, fourth, and twelfth counts, but that the requirement "may apply to the remaining causes of action (Fifth through Tenth), as those causes of action regard the distribution of the tax."

The trial court concluded further that the SBE was not the agent of Industry and Livermore, that they failed to allege that the SBE relayed any misrepresentation to them or that they relied on any such misrepresentation, and that they failed to adequately allege fraud or an actionable conspiracy. The court concluded that Industry and Livermore failed to adequately allege the sixth through ninth and twelfth counts for other reasons. The court therefore sustained the demurrers to all counts against all defendants without leave to amend.

The trial court also concluded that the fifth through tenth counts were based on statements made to the SBE and arose from protected activity under the anti-SLAPP statute, and that Industry and Livermore failed to establish a probability of prevailing on those claims. The court therefore granted the special motion to strike the fifth through tenth counts. Having adjudicated all counts against MTS and Inspired Development in favor of those defendants, the court dismissed the complaint against those defendants.*fn5 The court later dismissed the complaint against Fillmore and Owens & Minor in an order filed on September 28, 2009.

Industry and Livermore timely appealed the orders of dismissal and the order granting the special motion to strike as to each defendant.*fn6

5. Attorney Fee Awards

Each defendant moved for an award of attorney fees and costs as the prevailing defendant on an anti-SLAPP motion (ยง 425.16, subd. (c)). Industry and Livermore filed opposition. The trial court granted the motions, awarding fees and costs to each defendant. Industry and ...


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