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City of San Jose v. MediMarts, Inc.

California Court of Appeals, Sixth District

July 21, 2016

CITY OF SAN JOSE, Plaintiff, Cross-defendant, and Respondent,
v.
MEDIMARTS, INC., et al., Defendants, Cross-complainants, and Appellants

          Superior Court of Santa Clara County, No. CV272374, Maureen A. Folan, Judge.

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         COUNSEL

         Gates Eisenhart Dawson and Nicholas G. Emanuel for Defendants, Cross-complainants and Appellants

         Richard Doyle, City Attorney, Nora Frimann, Assistant City Attorney, Margo Laskowska, Kendra E. McGee-Davies and Mark J. Vanni, Deputy City Attorney, for Plaintiff and Cross-defendant and Respondent.

         Opinion by Elia, Acting P. J., with Bamattre-Manoukian and Mihara, JJ., concurring.

          OPINION

Page 846

          [205 Cal.Rptr.3d 181] Elia, Acting P. J.

          The City of San Jose (City) brought this action to collect unpaid business taxes from defendants MediMarts, Inc., and its president, David Armstrong. In the course of the proceedings defendants sought a preliminary injunction against the City's attempts to stop them from operating their medical marijuana collective. On appeal, defendants contend that payment of the marijuana business tax (San Jose Mun. Code, § 4.66.010 et seq.) would force Armstrong to incriminate himself in violation of his Fifth Amendment privilege by admitting criminal liability for violating federal drug laws. We conclude that the privilege against self-incrimination has no application in these circumstances. We must therefore affirm the order.

         Background

         MediMarts was established in 2009 as a nonprofit collective under the name Bay Pacific Care, Inc. Bay Pacific Care paid the marijuana business tax (hereafter, MBT) from March 2011 through July 2011. In August 2011 the collective changed its name to MediMarts, and it continued paying the tax through April 2012. In May of 2012, however, MediMarts discontinued paying the MBT, instead submitting tax returns showing no money due. The City began sending tax assessments and overdue notices, while Armstrong maintained that the tax itself was illegal under federal law. After a hearing before the Acting Director of Finance, MediMarts was found to owe $58,788.53 as of August 24, 2012, along with the future accrual of penalties and interest. Armstrong continued to protest the assessments to Wendy J. Sollazzi, a revenue management division manager in the City's finance department. Another hearing took place on November 15, 2013. On July 11, 2014, the Director of Finance found that MediMarts owed $215,111.17 as of the November 2013 hearing date.

         The City then brought this action against Armstrong and MediMarts to collect the unpaid business taxes due under the MBT, chapter 4.66 of the San Jose Municipal Code (hereafter, SJMC or the Code). In its first amended complaint, filed December 3, 2014, it alleged that defendants were subject to the MBT and that by failing to pay the tax they had incurred collection costs, interest, and penalties. The complaint specifically alleged that Armstrong " was an agent of [MediMarts] acting in the scope of such agency and with the permission and consent of [MediMarts]." Together the taxes, interest, and penalties claimed by the City totaled $767,058.60 as of October 10, 2014.

         Defendants answered the complaint and filed a cross-complaint under 42 United States Code sections 1983 and 1988. In this pleading they alleged that payment of the MBT " would ...


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