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Bekkerman v. California Board of Equalization

United States District Court, E.D. California

March 20, 2017




         Through the present consumer class action, Plaintiffs seek to force cellphone carriers to apply to the State Board of Equalization (“Board”) for a refund of sales taxes they claim was illegally collected. Plaintiffs' suit was originally filed in the Sacramento County Superior Court. On April 4, 2016, Defendant AT&T, Inc., with the consent of the other carrier Defendants, removed the case to federal court pursuant to Section 4 of the Class Action Fairness Act of 2005 (“CAFA”), which amended 28 U.S.C. § 1332 to grant district courts original jurisdiction over putative class actions with 100 or more class members, where the aggregate amount in controversy exceeds $5 million, and where any member of the class of plaintiffs is a citizen of a state different from any defendant. 28 U.S.C. § 1332(d). Presently before the Court are Motions to Remand filed by both the State of California (ECF No. 19) and Plaintiffs (ECF No. 22). As set forth below, both Motions are GRANTED, but the Court declines to award attorneys' fees as requested by Plaintiffs.[1]


         Plaintiffs allege that they each purchased one or more cellular telephones or similar devices from a retail store operated by one of the carrier Defendants. Pls.' Compl., ¶¶ 50, 63, 73, 83, 90. Plaintiffs further claim that they received a discounted price for the cellular telephones because they agreed to a “bundled transaction” in which they were required to sign a contract to purchase cellular service for a set period of time (usually two years) from the same carrier who had sold the cellular phone. Id. at ¶¶ 51, 64, 75, 85, 92. Plaintiffs go on to allege that in each sales transaction, they were charged sales tax based on the unbundled price of the cellular phone (i.e., the price they would have paid for the cellular telephone had they not agreed to a service contract with one of the carriers), rather than the discounted price they actually paid. Id. at ¶¶ 53-56, 66-69, 77-80, 87-89, 94-97.

         The sales tax was calculated in this matter due to the Board's interpretation of the California Revenue and Taxation Code through a regulation it issued in 1989. Plaintiffs claim that this regulation, as embodied in Cal. Code Regs., tit. 18, § 1585 (“Regulation 1585”) incorrectly required cellphone carriers to charge sales tax on the unbundled, full value of cellphones rather than the discounted amount actually charged for the phones when connected with a service plan. Regulation 1585 requires sales tax on the full value rather than the discounted price because, in a bundled transaction, carriers pay the retailer a commission to offset the discount that the retailer offers to the consumer. This is based on the California Taxation Code, which mandates that sales tax be payable on a retailer's “gross receipts, ” with gross receipts including not only the price paid by the consumer but also amounts paid by a manufacturer or other third party to the retailer, such as rebates, reimbursements, and in this case, commissions. Cal. Rev. & Tax. Code §§ 67012 and 6051.

         Plaintiffs nonetheless claim that Regulation 1585 is invalid as applied to carrier-operated stores because it is not consistent with the Taxation Code. Pls.' Compl., ¶¶ 5, 8. Plaintiffs further allege, in the alternative, that Regulation 1585 is void in any event because it was not promulgated in a manner consistent with the California Administrative Procedures Act, Cal. Gov't Code § 11340 et seq. Id. at ¶ 10.

         On November 19, 2015, about three months before filing the present lawsuit, Plaintiffs instituted an action in the California County Superior Court seeking a writ of mandamus declaring Regulation 1585 to be void pursuant to California Government Code § 11350. While that action remained pending, Plaintiffs filed the present class action which seeks refunds/damages on behalf of a class of consumers based on the alleged invalidity of Regulation 1585. According to Plaintiffs, because they cannot seek sales tax refunds directly from the Board, they must instead rely on retailers to make an application for such refunds on their behalf. Plaintiffs accordingly included the carriers as defendants in this action as an enforcement mechanism.

         Both cases filed by Plaintiffs in state court were related and assigned to the same judge. State's Request for Judicial Notice, Ex. C.[2] As indicated above, however, the class action was subsequently removed to this Court, and the present Motions to Remand followed.


         When a case “of which the district courts of the United States have original jurisdiction” is initially brought in state court, the defendant may remove it to federal court “embracing the place where such action is pending.” 28 U.S.C. § 1441(a). There are two bases for federal subject matter jurisdiction: (1) federal question jurisdiction under 28 U.S.C. § 1331, and (2) diversity jurisdiction under 28 U.S.C. § 1332. A district court has federal question jurisdiction in “all civil actions arising under the Constitution, laws, or treaties of the United States.” Id. § 1331. A district court has diversity jurisdiction “where the matter in controversy exceeds the sum or value of $75, 000, . . . and is between citizens of different states, or citizens of a State and citizens or subjects of a foreign state . . . .” Id. § 1332(a)(1)-(2).

         A defendant may remove any civil action from state court to federal district court if the district court has original jurisdiction over the matter. 28 U.S.C. § 1441(a). “The party invoking the removal statute bears the burden of establishing federal jurisdiction.” Ethridge v. Harbor House Rest., 861 F.2d 1389, 1393 (9th Cir. 1988) (citing Williams v. Caterpillar Tractor Co., 786 F.2d 928, 940 (9th Cir. 1986)). Courts “strictly construe the removal statute against removal jurisdiction.” Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (internal citations omitted). “[I]f there is any doubt as to the right of removal in the first instance, ” the motion for remand must be granted. Id. Therefore, “[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded” to state court. 28 U.S.C. § 1447(c).

         The district court determines whether removal is proper by first determining whether a federal question exists on the face of the plaintiff's well-pleaded complaint. Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987). If a complaint alleges only state-law claims and lacks a federal question on its face, then the federal court must grant the motion to remand. See 28 U.S.C. § 1447(c); Caterpillar, 482 U.S. at 392. Nonetheless, there are rare exceptions when a well-pleaded state-law cause of action will be deemed to arise under federal law and support removal. They are “(1) where federal law completely preempts state law, (2) where the claim is necessarily federal in character, or (3) where the right to relief depends on the resolution of a substantial, disputed federal question.” ARCO Envtl. Remediation L.L.C. v. Dep't of Health & Envtl. Quality, 213 F.3d 1108, 1114 (9th Cir. 2000) (internal citations omitted).

         If the district court determines that removal was improper, then the court may also award the plaintiff costs and attorney fees accrued in response to the defendant's removal. 28 U.S.C. § 1447(c). The court has broad discretion to award costs and fees whenever it finds that removal was wrong as a matter ...

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