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Milpitas Cab Co. v. Employment Development Department of The State of California

United States District Court, N.D. California

June 12, 2015

MILPITAS CAB CO., et al., Plaintiffs,


NATHANAEL M. COUSINS, Magistrate Judge.

Milpitas Cab and City Cab sued the Employment Development Department of the State of California ("EDD"), alleging that EDD deprived plaintiffs of their due process rights by assessing $1, 190, 052 in taxes. EDD moves to dismiss the complaint because the Tax Injunction Act prohibits district courts from restraining state tax collection where the state provides a plain, speedy and efficient remedy for taxpayers to challenge the tax. Plaintiffs argue that the Williams Packing exception permits this Court to retain jurisdiction because they allege that the government could not ultimately prevail on the merits, and plaintiffs would suffer irreparable injury if the Court does not enjoin the tax collection. Because the Court finds that the Williams Packing exception does not apply and that California has a plain, speedy, and efficient remedy for taxpayers, the Court is without jurisdiction to hear the case and GRANTS defendant's motion to dismiss.


Plaintiffs are Milpitas Cab and City Cab, two dissolved taxi cab companies. Compl. ¶ 5. The defendant EDD administers the State of California's unemployment insurance system pursuant to the California Unemployment Insurance Code ("the Code"). Compl. ¶ 7. Specifically, EDD has legal authority to assess and collect taxes from employers that do business in the State of California. Compl. ¶ 7.

On December 27, 2007, EDD issued an assessment of $690, 975 against Milpitas Cab and $499, 077 against City Cab due in taxes to EDD. Compl. ¶ 8. Plaintiffs timely filed petitions for reassessment, primarily asserting that plaintiffs did not pay "wages" as defined by California regulations, and that drivers were not employees. Compl. ¶ 9-10. On November 30, 2011, EDD commenced administrative hearings. Compl. ¶ 10. Plaintiffs allege that at the administrative hearing, they presented a closing brief that contained "extensive evidence and legal precedent to support its position that plaintiffs did not pay wages.'" Id. On August 23, 2013, the Administrative Law Judge ("ALJ") denied plaintiffs' petitions. Compl. ¶ 11. The decisions were fifty-eight pages long, and plaintiffs allege that most of it was "dedicated to destroying [plaintiffs'] credibility, " and they were therefore prevented from presenting evidence when they had the burden of proof. Compl. ¶ 11.

The ALJ's decision provides, "The Department's estimated wage calculations and estimated calculations of the number of drivers and other workers were all reasonably made by the Department based upon the information which was reasonably available and in the Department's possession." Compl. ¶ 12. However, the ALJ lowered the assessment by an amount not indicated in the complaint. Compl. ¶ 11. Plaintiffs appealed to the California Unemployment Insurance Appeals Board, which upheld the ALJ's decision. Compl. ¶ 13.

Plaintiffs allege that EDD violated its right of due process by: (1) making a decision on the issue of "wages" that was not supported by "substantial evidence"; (2) the ALJ conducted the hearings in a manner that resulted in an "abuse of power"; (3) the ALJ did not conduct a fair hearing; and (4) the ALJ exhibited disdain and disrespect toward plaintiffs during the administrative hearings. Compl. ¶ 14. Plaintiffs further contend that "under no circumstances can the EDD prevail." Compl. ¶ 17. Lastly, plaintiffs claim they have no adequate remedy at law to address or rectify the procedural due process violations alleged, and that unless an injunction is granted plaintiffs will suffer irreparable injury. Compl. ¶ 16.

On February 17, 2015, plaintiffs sued EDD in the present action under 42 U.S.C. § 1983 alleging a violation of their due process rights. Compl. ¶ 1. Plaintiffs seek to enjoin EDD from enforcing its tax assessments. Compl. at 6. Plaintiffs also ask this Court to remand to EDD with instructions to decide the issue of "wages" on the basis of substantial evidence, and conduct new hearings to the extent that the Court determines EDD's due process violations invalidated the proceedings. Compl. at 5. Plaintiffs and defendant consent to Magistrate Judge jurisdiction. Dkt. Nos. 9, 12.


The Tax Injunction Act (TIA) prohibits district courts from restraining the "assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." 28 U.S.C. § 1341 (2013). EDD argues that the TIA bars this suit from federal district court jurisdiction because California provides a plain, speedy, and efficient process for challenging taxes. Plaintiffs, however, assert that the state tax assessment is enjoinable under the exception set forth in Enochs v. Williams Packing & Navigation Co., 370 U.S. 1 (1962). There, the Supreme Court held that in order to seek injunction of the assessment or collection of taxes, the taxpayer must demonstrate that (1) under the most liberal view of the law and facts, the government cannot ultimately prevail on the merits; and (2) taxpayers will suffer irreparable injury without relief. Id. at 7.

In this order, the Court will first address California's tax remedies, then will examine plaintiffs' proposed exception to the TIA provided in Williams Packing.

A. Legal Standard

"It is a fundamental principle that federal courts are courts of limited jurisdiction. The limits upon federal jurisdiction, whether imposed by the Constitution or by Congress, must be neither disregarded nor evaded." Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374 (1978). Dismissal for lack of subject matter jurisdiction is governed by Federal Rule of Civil Procedure 12(b)(1). A Rule 12(b)(1) dismissal is appropriate when the complaint fails to establish the court's subject matter jurisdiction over the action. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987). The court presumes a lack of jurisdiction until the plaintiff proves otherwise. Stock W., Inc. v. Confederated Tribes of the Colville Reservation, 873 F.2d 1221, 1225 (9th Cir. 1989). "A party invoking the federal court's jurisdiction has the burden of proving the actual existence of subject matter jurisdiction." Thompson v. McCombe, 99 F.3d 352, 353 (9th Cir. 1996). The court must determine whether a lack of federal jurisdiction appears from the face of the complaint itself. Thornhill Publ'g Co. v. Gen. Tel. Elec., 594 F.2d 730, 733 (9th Cir. 1979).

Leave to amend "shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). The Court considers four factors in deciding whether to grant leave to amend: "bad faith, undue delay, prejudice to the opposing party, and the futility of amendment." Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir. 1994). Futility of amendment can, by itself, justify the ...

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