Case Name: City of San Jose. v. MediMarts, Inc., et al.
Case No.: 2014-1-CV-272374 (consolidated with 2015-1-CV-287935)
After full consideration of the evidence, the separate statements submitted by the parties, and the authorities submitted by each party, the court makes the following rulings:
According to the allegations of the first amended complaint (“FAC”), plaintiff City of San Jose (“Plaintiff” or “City”) is authorized to impose and collect a tax on any person who engaged in marijuana business activities as defined by San Jose Municipal Code Chapter 4.66. (See FAC, ¶ 10.) City is authorized to additionally collect penalties, interest and recovery of collection costs, attorney fees and administrative costs incurred for delinquent marijuana business taxes. (See FAC, ¶¶ 11-13.) Personal liability of any person who willfully fails to pay marijuana business taxes is also provided pursuant to the San Jose Municipal Code. (See FAC, ¶ 14.)
Defendant David Armstrong (“Armstrong”) is alleged to be the owner, manager, controlling person, and/or operator of defendant MediMarts, Inc. and/or MediMarts, the Collective (collectively, “MediMarts”), and an agent of MediMarts. (See FAC, ¶¶ 15-16.) Between May 2012 and May 2014, it is undisputed that MediMarts and Armstrong (collectively, “Defendants”) failed to pay any marijuana business taxes to City—an amount City contends to be $420,788.63. (See FAC, ¶ 17.) As a result of Defendants’ failure to pay those taxes, Defendants have also incurred $210,394.34 in penalties. (See FAC, ¶ 19.) On December 3, 2014, City filed the FAC against Defendants, asserting a single cause of action for collection of unpaid marijuana business taxes.
On April 13, 2015, Defendants answered the FAC and also filed a cross-complaint against City, alleging that: City violated their rights against self-incrimination provided by the Fifth Amendment because payment of the marijuana business tax requires them to admit to the sale or possession for sale of marijuana (see Defs.’ cross-complaint, ¶¶ 33-41); City violated their due process rights provided by the 5th and 14th Amendments by failing to provide notice or hearings on declaring MediMarts a nuisance (see Defs.’ cross-complaint, ¶¶ 43-50); violated the Equal Protection Clause of the 14th Amendment by treating collectives and medical marijuana patients differently from other similarly situated individuals and organizations (see Defs.’ cross-complaint, ¶¶ 52-56); and, that an actual controversy exists regarding whether the marijuana business tax is due or owed and payable to the City or whether it violates their rights (see Defs.’ cross-complaint, ¶¶ 58-60.)
On April 15, 2015, Defendants filed an application for a preliminary injunction to restrain City from taking any action to shut down the collective or declare it a nuisance, to compel City to reinstate MediMart’s business regulation, and to require City to remove its classification of MediMarts as a nuisance per se during the pendency of the action. Defendants cited the same grounds as in their cross-complaint and predicted “great and irreparable injury” from the closing of MediMarts, not only to the collective but also to the patient members who needed the medical marijuana to cope with their illnesses. According to Defendants, MediMarts as well as Armstrong could assert the Fifth Amendment because it functioned “only to serve its member-patients” and was not merely an organization but a collective of members who were all acting in their own personal interest and on behalf of all members. Defendants argued that Armstrong could assert the Fifth Amendment because he was “not acting solely as a representative of MediMarts” but was “always acting in a partially personal capacity.” Defendants also argued that the marijuana business tax was unconstitutionally vague and overbroad. On June 15, 2015, the Court [Hon. Folan] denied the application.
On December 18, 2015, Armstrong filed a separate first amended complaint against City, alleging that the imposition of the MBT violated constitutional rights, asserting causes of action for:
1) Violation of constitutional rights—equal protection of the laws;
2) Violation of the fourth amendment;
3) Violation of rights against self-incrimination pursuant to the Fifth Amendment;
4) Violation of due process rights protected by the Fifth and Fourteenth Amendments’
5) Violation of constitutional rights protected by the Equal Protection Clause of the Fourteenth Amendment;
6) Violation of the right to privacy;
7) Violation of the Confidentiality of Medical Information Act;
8) Violation of due process rights—vagueness; and,
9) Declaratory relief.
City demurred to the third through fifth causes of action of Armstrong’s first amended complaint, and also moved to consolidate the first, second and sixth through ninth causes of action with the 2014 action. On March 14, 2016, City filed a cross-complaint against Defendants for public nuisance in violation of San Jose Municipal Code Chapter 6.88 and sections 1.13.050 and 1.08.010. On March 29, 2016, the Court signed an order sustaining City’s demurrer without leave to amend as to the third through fifth causes of action of Armstrong’s FAC and granted the motion to consolidate the remaining causes of action with the 2014 action.
Defendants appealed the June 15, 2015 order and, on July 21, 2016, the Sixth District affirmed the Court’s order, stating:
The City of San Jose 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 Municipal 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.
…
San Jose began taxing marijuana businesses following the adoption of Measure U in the November 2, 2010 election. Measure U authorized the enactment of chapter 4.66 of the SJMC, thereby establishing the MBT. The chapter requires anyone engaged in a marijuana business to pay up to 10 percent of its gross receipts to the City. (SJMC, § 4.66.250.) SJMC’s section 4.66.010 states that the purpose of the provision is “solely” to raise revenue for the City “and is not intended for regulation.” A person who fails to pay the tax when due incurs a 25 percent penalty, with an additional 25 percent penalty imposed after one month’s delinquency. (SJMC, § 4.66.300.) Operation of a marijuana business without a business tax certificate is deemed unlawful, and the certificate will not be issued unless the tax has been paid. (SJMC, § 4.66.210(B).) The Code also imposes personal liability for the tax, penalties, and interest on any person (including an officer or employee of a corporation) who is required to “collect, truthfully account for, and pay over any tax imposed by this code,” but who willfully fails to do so or attempts “to evade or defeat any such tax or payment thereof.” (SJMC § 1.08.015.5.) The City cited this provision both in its complaint and in its opposition to defendants’ injunction request.
…
Recognizing that MediMarts, a corporate entity, has no constitutional right against self-incrimination, in seeking reversal defendants assert the Fifth Amendment only as to Armstrong. (See Hale v. Henkel (1906) 201 U.S. 43, 75, 26 S.Ct. 370, 50 L.Ed. 652 (Hale) [corporation is not a “person” for purposes of the privilege against self-incrimination], overruled in part on other grounds in Murphy v. Waterfront Comm’n. (1964) 378 U.S. 52, 84 S.Ct. 1594, 12 L.Ed.2d 678; United States v. White (1944) 322 U.S. 694, 699, 64 S.Ct. 1248, 88 L.Ed. 1542 [“Since the privilege against self-incrimination is a purely personal one, it cannot be utilized by or on behalf of any organization, such as a corporation.”].) This constitutional provision declares that “[n]o person … shall be compelled in any criminal case to be a witness against himself.” As the text has been interpreted, “a communication must be testimonial, incriminating, and compelled.” (Hiibel v. Sixth Judicial Dist. Court of Nev. Humboldt Cty. (2004) 542 U.S. 177, 189, 124 S.Ct. 2451, 159 L.Ed.2d 292.) In particular, “[t]he word ‘witness’ in the constitutional text limits the relevant category of compelled incriminating communications to those that are ‘testimonial’ in character.” (United States v. Hubbell (2000) 530 U.S. 27, 34, 120 S.Ct. 2037, 147 L.Ed.2d 24; see also Hale, supra, at p. 67, 26 S.Ct. 370 [the “interdiction of the 5th Amendment operates only where a witness is asked to … give testimony which may possibly expose him to a criminal charge”].) The act of filing a tax return has not been considered testimonial. (See Hubbell, supra, at p. 35, 120 S.Ct. 2037; United States v. Sullivan (1927) 274 U.S. 259, 263, 47 S.Ct. 607, 71 L.Ed. 1037 [Fifth Amendment did not exempt defendant from paying taxes or filing a return for income derived from unlawful business].)
The City did not focus on the testimonial aspect of the privilege, but relied primarily on the “collective entity” doctrine, which was also the primary basis of the superior court’s order. The underlying principle of this doctrine, as repeatedly explained by the United States Supreme Court, is that a corporate officer may not rely on the Fifth Amendment when required to produce the records of the corporation. For example, in Hale, supra, 201 U.S. at 76, 26 S.Ct. 370, the United States Supreme Court rejected a corporate officer’s reliance on the Fifth Amendment when, though given personal immunity, he was required by a grand jury to answer questions and produce material demanded in a subpoena. In Wilson v. United States (1911) 221 U.S. 361, 31 S.Ct. 538, 55 L.Ed. 771 the president of a corporation unsuccessfully challenged a contempt order after he refused to produce subpoenaed corporate records. The president “could assert no personal right to retain the corporate books against any demand of government which the corporation was bound to recognize.” (Id. at p. 385, 31 S.Ct. 538, italics added; see also Dreier v. United States (1911) 221 U.S. 394, 400, 31 S.Ct. 550, 55 L.Ed. 784 [corporate secretary properly found in contempt for refusing demand for corporate documents, notwithstanding his claim that those papers would tend to incriminate him].)
As the high court subsequently made clear, “representatives of a collective entity act as agents, and the official records of the organization that are held by them in a representative rather than a personal capacity cannot be the subject of their personal privilege against self-incrimination, even though production of the papers might tend to incriminate them personally … Any claim of Fifth Amendment privilege asserted by the agent would be tantamount to a claim of privilege by the corporation, which possesses no such privilege.” (Braswell, supra, 487 U.S. at pp. 99–100, 108 S.Ct. 2284.) Thus, while business records of a sole proprietor or practitioner may be protected from release by the Fifth Amendment, an individual “cannot rely upon the privilege to avoid producing the records of a collective entity which are in his possession in a representative capacity, even if these records might incriminate him personally.” (Bellis v. United States (1974) 417 U.S. 85, 93–101, 94 S.Ct. 2179, 40 L.Ed.2d 678 (Bellis ).)
Defendants maintain that the collective entity doctrine is inapplicable to divest Armstrong of his own Fifth Amendment rights. They seek to avoid the corporate-individual distinction by characterizing the issue without regard to MediMarts’ corporate identity, asserting that “a person cannot be compelled to provide evidence of their [sic] own illegal conduct.” Defendants refer to the tax as one “imposed on the money he [i.e., Armstrong] received each month from the sale of marijuana.” (Italics added.) But the tax is not the obligation of Armstrong; it belongs to MediMarts. It makes no difference that the complaint accuses both defendants of failing to pay the MBT; it is MediMarts that owed the tax. Armstrong’s duty to collect and turn over the tax inhered in his representative capacity as president of the collective. His signature on the tax returns that were filed in 2011 and 2012 properly reflected that duty, as he signed on behalf of MediMarts, not himself.
Nor can defendants escape the core principle of the collective entity doctrine by pointing out that the cases illustrating it pertained to production of subpoenaed documents. The point to be drawn from this abundant precedent is that a corporate officer, even a president (such as Armstrong), cannot avoid an obligation imposed by the government on the entity by asserting the Fifth Amendment on his own behalf.
Defendants’ production of an excerpt from Spielbauer v. County of Santa Clara (2009) 45 Cal.4th 704, 88 Cal.Rptr.3d 590, 199 P.3d 1125 does not advance their position. In Spielbauer, a deputy public defender was being investigated by his county employer over allegations that he had made deceptive statements to the court while representing a criminal defendant. When interviewed by the supervising attorney, Spielbauer was informed that his refusal to cooperate would be deemed insubordination which could subject him to termination, but he was assured that his answers could not be used in a criminal proceeding. Spielbauer, however, invoked his privilege against self-incrimination and was thereafter terminated by the county for failing to answer the questions posed by the investigator. Our Supreme Court upheld the termination. It explained that the protection afforded the individual by the Fifth Amendment is not against a nonpenal use, but against only the government’s use in a criminal proceeding. (Spielbauer, supra, at p. 715, 88 Cal.Rptr.3d 590, 199 P.3d 1125.) Thus, “the right against self-incrimination is not itself violated until statements obtained by compulsion are used in criminal proceedings against the person from whom the statements were obtained.” (Id. at p. 727, 88 Cal.Rptr.3d 590, 199 P.3d 1125.) The employer was entitled to discipline or even dismiss the employee who refuses to answer job-related questions, “so long as the employee is not required, as a condition of remaining in the job, to surrender his or her right against criminal use of the statements thus obtained.” (Id. at pp. 725, 88 Cal.Rptr.3d 590, 199 P.3d 1125.) Only if compelled statements are used in criminal proceedings against the person from whom the admissions of wrongdoing are elicited does the Fifth Amendment come into play. (Id. at p. 727, 88 Cal.Rptr.3d 590, 199 P.3d 1125.)
None of the decisions applying the Fifth Amendment to tax payments is helpful either. Each of the cited cases involved an individual who successfully obtained reversal of his conviction for tax evasion, where his defense was that payment of the tax would expose him to prosecution for illegal “wagering.” (See Marchetti v. United States (1968) 390 U.S. 39, 88 S.Ct. 697, 19 L.Ed.2d 889 (Marchetti ) [evasion of occupational tax in business of accepting wagers]; Grosso v. United States (1968) 390 U.S. 62, 88 S.Ct. 709, 19 L.Ed.2d 906 (Grosso ) [failure to pay excise and occupational taxes on wagering proceeds]; see also Leary v. United States (1969) 395 U.S. 6, 29, 89 S.Ct. 1532, 23 L.Ed.2d 57 [transportation of marijuana without paying transfer tax].) Moreover, in each case it appeared that the challenged tax was directed to a group suspected of criminal activity. (Cf. Marchetti, supra, at p. 57, 88 S.Ct. 697 [tax directed at “ ‘selective group inherently suspect of criminal activities’ ”]; Grosso, supra, at p. 65–67, 88 S.Ct. 709 [same]; Leary, supra, at p. 18, 89 S.Ct. 1532 [same].) In this case, by contrast, it is a corporation, not an individual, that is required to pay the tax; the tax is imposed on legitimate businesses, not on those engaged in activity prohibited by the state or City; and it is not directed at a “selective and suspect group” but is a noncriminal measure with an express purpose solely of raising revenue. (Leary, supra, at p. 18, 89 S.Ct. 1532.) Filing the tax return itself is no more offensive to the Fifth Amendment than requiring a motorist involved in an accident to stop and provide his or her name and address (Veh. Code, § 20002, subd. (a)(1)); such requirements, too, have essentially regulatory, noncriminal purposes, and compliance is neither testimonial nor, by itself, incriminating. (California v. Byers (1971) 402 U.S. 424, 91 S.Ct. 1535, 29 L.Ed.2d 9.) Even viewing defendants’ business as potentially liable under federal law such as the CSA, any assumption that Armstrong will be subject to prosecution would be speculative and premature, as no criminal proceeding has yet been initiated for his privilege to come to the foreground. (Nor is it likely to, given Congress’s recently repeated admonition to the Justice Department not to interfere with states’ authorization of medical marijuana.)
We thus conclude, as did the superior court, that there is no likelihood that defendants will ultimately prevail in the City’s action against them or on their cross-complaint. Were we to endorse Armstrong’s position, we would only compromise the firm stance of our courts that “an individual acting in his official capacity on behalf of [an] organization may … not take advantage of his personal privilege. In view of the inescapable fact that an artificial entity can only act to produce its records [or pay its taxes] through its individual officers or agents, recognition of the individual’s claim of privilege … would substantially undermine the unchallenged rule that the organization itself is not entitled to claim any Fifth Amendment privilege, and largely frustrate legitimate governmental regulation of such organizations.” (Bellis, supra, 417 U.S. at p. 90, 94 S.Ct. 2179; Braswell, supra, 487 U.S. at pp. 108–112, 108 S.Ct. 2284 [Fifth Amendment objection to subpoena of corporate records unavailable to custodian even if producing them may prove personally incriminating].)
… As discussed above, neither the assertion of Armstrong’s constitutional rights nor the accommodation of them would abate MediMarts’ duty to pay the tax under SJMC chapter 4.66. The superior court properly denied the application for a preliminary injunction.
(City of San Jose v. MediMarts, Inc. (2016) 1 Cal.App.5th 842, 846–854.)
On October 5, 2016, Defendants filed an amended cross-complaint against City, and on November 1, 2016, Defendants filed a second amended cross-complaint (“SAXC”), asserting causes of action for:
1) Violation of the Fourth Amendment against unlawful searches and seizures;
2) Violation of right against self-incrimination;
3) Violation of due process rights;
4) Violation of Equal Protection rights;
5) Violation of the Confidentiality of Medical Information Act;
6) Unconstitutionally vague; and,
7) Declaratory relief.
On December 9, 2016, the Court granted City’s application for preliminary injunction, enjoining Defendants and its agents and employees from operating, conducting, using or occupying the subject property, or in any way permitting the operation, use or occupation of the subject property, as a public nuisance, including its use of the property as a medical marijuana collective, medical cultivation site, medical marijuana delivery service, or causing or allowing the selling or distributing of medical marijuana or otherwise making medical marijuana available at or from the subject property.
On February 3, 2017, the Court denied MediMarts, the Collective’s application for preliminary injunction premised on its positions of MediMarts’ second amended cross-complaint. In the February 3, 2017 order, the Court noted that, at the hearing, Defendants stated that the lone operative pleadings in the consolidated action are the first amended cross-complaint and the SAXC, but that, as a matter of law, the SAXC supersedes the first amended cross-complaint. (See February 3, 2017 order re: Collective’s application for preliminary injunction, p. 1:25-28, fn. 1 (stating “during the hearing, the Collective indicated that both its first amended cross-complaint and the SACC are the operative pleadings… [a]s a matter of law, however, the SACC supersedes the first amended cross-complaint”), citing State Comp. Ins. Fund v. Superior Court (2010) 184 Cal.App.4th 1124, 1130.) Thus, the lone operative pleadings are City’s complaint and Defendants’ SAXC.
City moves for summary judgment, or, in the alternative, for summary adjudication of all of its causes of action and the causes of action against it.
CITY’S MOTION FOR SUMMARY JUDGMENT, OR IN THE ALTERNATIVE, FOR SUMMARY ADJUDICATION
The SAXC
Cross-defendant’s burden on summary adjudication
“A defendant seeking summary judgment must show that at least one element of the plaintiff’s cause of action cannot be established, or that there is a complete defense to the cause of action. … The burden then shifts to the plaintiff to show there is a triable issue of material fact on that issue.” (Alex R. Thomas & Co. v. Mutual Service Casualty Ins. Co. (2002) 98 Cal.App.4th 66, 72; internal citations omitted; emphasis added.)
“The ‘tried and true’ way for defendants to meet their burden of proof on summary judgment motions is to present affirmative evidence (declarations, etc.) negating, as a matter of law, an essential element of plaintiff’s claim.” (Weil et al., Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2007) ¶ 10:241, p.10-91, citing Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 334; emphasis original.) “The moving party’s declarations and evidence will be strictly construed in determining whether they negate (disprove) an essential element of plaintiff’s claim ‘in order to avoid unjustly depriving the plaintiff of a trial.’” (Id. at § 10:241.20, p.10-91, citing Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107.)
“Another way for a defendant to obtain summary judgment is to ‘show’ that an essential element of plaintiff’s claim cannot be established. Defendant does so by presenting evidence that plaintiff ‘does not possess and cannot reasonably obtain, needed evidence’ (because plaintiff must be allowed a reasonable opportunity to oppose the motion.) Such evidence usually consists of admissions by plaintiff following extensive discovery to the effect that he or she has discovered nothing to support an essential element of the cause of action.” (Id. at ¶ 10:242, p.10-92, citing Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 854-855.)
City meets its initial burden
The SAXC seeks injunctive relief prohibiting City from taking any further action to collect the MBT tax from Defendants, declaring MediMarts a nuisance, shutting down MediMarts, disqualifying MediMarts from registration, revoking MediMarts’ registration, and a declaration that the MBT and Code are unconstitutionally vague. (See SAXC, prayer, ¶¶ 1-18.)
Article XIII, section 32 of the California state Constitution states that “[n]o legal or equitable process shall issue in any proceeding in any court against this State or any officer thereof to prevent or enjoin the collection of any tax. After payment of a tax claimed to be illegal, an action may be maintained to recover the tax paid, with interest, in such manner as may be provided by the Legislature.” (Cal. Const., art. XIII, § 32.) In State Bd. of Equalization v. Super. Ct (O’Hara & Kendall Aviation, Inc.) (1985) 39 Cal.3d 633, the California Supreme Court stated that “[r]ead together, these two portions of section 32 establish that the sole legal avenue for resolving tax disputes is a postpayment refund action. A taxpayer may not go into court and obtain adjudication of the validity of a tax which is due but not yet paid. (State Bd. of Equalization v. Super. Ct (O’Hara & Kendall Aviation, Inc.) (1985) 39 Cal.3d 633, 638.) The Court continued:
The important public policy behind this constitutional provision “is to allow revenue collection to continue during litigation so that essential public services dependent on the funds are not unnecessarily interrupted.” (Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 283, 165 Cal.Rptr. 122, 611 P.2d 463.) “The fear that persistent interference with the collection of public revenues, for whatever reason, will destroy the effectiveness of government has been expressed in many judicial opinions. [Citation.] As was said by Mr. Justice Field in Dows v. City of Chicago, 11 Wall. (78 U.S.) 108, 110 [20 L.Ed. 65], ‘Any delay in the proceedings of the officer, upon whom the duty is devolved of collecting the taxes, may derange the operations of government, and thereby cause serious detriment to the public.’ ” (Modern Barber Col. v. Cal. Emp. Stab. Com. (1948) 31 Cal.2d 720, 731–732, 192 P.2d 916.)
“ ‘The prompt payment of taxes is always important to the public welfare. It may be vital to the existence of a government. The idea that every taxpayer is entitled to the delays of litigation is unreason.’ (Springer v. United States [1880] [12 Otto 586] 102 U.S. 586, 594 [26 L.Ed. 253]; cited with approval in People v. Skinner [1941] 18 Cal.2d 349, 355 [115 P.2d 488].)” (Sherman v. Quinn (1948) 31 Cal.2d 661, 665, 192 P.2d 17.)
The constitutional provision has been construed broadly to bar not only injunctions but also a variety of prepayment judicial declarations or findings which would impede the prompt collection of a tax….
(Id. at pp.638-639.)
The rule of section 32 is known as the “pay first, litigate later” rule and there is no “inadequate remedy at law” exception. (See Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 282-283 (stating “[w]e hold that section 32 means what it says”); see also California Logistics, Inc. v. State (2008) 161 Cal.App.4th 242, 246-252 (no collateral estoppel doctrine exception to pay first, litigate later rule, and rule does not violate federal constitutional right to due process); see also Flying Dutchman Park, Inc. v. City and County of San Francisco (2001) 93 Cal.App.4th 1129, 1132-1141.) As to declaratory relief, “[u]ntil the tax is paid, there is no ‘actual, present controversy over a proper subject’… a requirement for declaratory relief under Code of Civil Procedure section 1061.” (Chodos v. City of Los Angeles (2011) 195 Cal.App.4th 675, 680, quoting City of Cotati v. Cashman (2002) 29 Cal.4th 69, 79.)
City presents evidence that Defendants have not paid the City’s MBT from May 2012 to May 2014—a fact that is not disputed. (See Defs.’ Separate statement of undisputed material facts, no. (“UMF”) 4.) City meets its initial burden to demonstrate that the SAXC’s causes of action lack merit as they are barred by section 32.
In opposition, Defendants fail to demonstrate the existence of a triable issue of material fact.
In opposition, Defendants cite to Water Replenishment District of Southern Cal. v. City of Cerritos (2013) 220 Cal.App.4th 1450; however, the case is not helpful to Defendants. In Water Replenishment, the city of Cerritos filed a lawsuit claiming an assessment by the water district was invalidated by article XIII D of the California Constitution, asserting causes of action seeking a writ of mandate, declaratory relief, and damages for the recovery of the assessment levied and collected by the district. (Id. at p.1455.) The writ and declaratory relief portion was bifurcated, and held before a judge who issued an interim ruling that the provisions of article XIII D invalidated the assessment; however, the judge expressly noted that he “can’t issue the writ until there’s a final judgment, that means no writ until your damages case is over… there is no writ; they don’t have to do anything until there’s a judgment in the case.” (Id. at pp.1455-1456.) After the judge issued the interim order, the city of Cerritos stopped paying the assessment. (Id. at p.1456.) The district informed the city that the assessment must be paid because no final judgment had been entered that excused them from paying the assessment. (Id.) The city, in the appeal, argued that the City did pay first and then litigated the validity of the assessment, and no authority existed holding as a matter of law that the City must pay the assessment “until there is a final judgment.” (Id. at p.1466.) With respect to these issues, the Water Replenishment court stated “section 32 of article XIII of the California Constitution “prohibits courts from ‘prevent[ing] or enjoin[ing] the collection of any tax’ during the pendency of litigation challenging the tax.” (Id. at pp.1468-1469.) “We conclude that the term ‘the pendency of litigation,’ as expressed in Ardon, means until a final judgment is reached.” (Id. at 1469.) “As noted, in making the April 2011 Order, Judge Chalfant commented that no writ could issue until the damages case is final.” (Id.) “The April 2011 Order is an interim order and is not yet final.” (Id.) “The damages portion of the Proposition 218 Lawsuit is still pending, and the amount of the assessment to be invalidated, if any, has not been determined.” (Id.) “It follows that the City must pay the assessment until there is a final judgment.” (Id.)
Defendants’ Opposition citation to and quoting of this portion of Water Replenishment only reinforces the applicability of the “pay first, litigate later” rule. Here, there has been no interim order—much less a final order—suggesting that City’s assessment is invalid. Thus, even Defendants’ cited authority mandates Defendants to have paid the assessments prior to challenging their validity.
Moreover, although it is unnecessary to address the remainder of the bases for the motion as to the SAXC, it should be noted that the Sixth District has already determined that the City’s medical marijuana program does not implicate the Fifth Amendment right against self-incrimination. (See City of San Jose v. MediMarts, Inc. (2016) 1 Cal.App.5th 842, 846, 850-854 (stating that “[w]e conclude that the privilege against self-incrimination has no application in these circumstances”).) Further, Defendants apparently concede the issue with respect to their allegations regarding the Fifth Amendment right against self-incrimination, due process rights, equal protection rights, and unconstitutional vagueness, as they are not addressed by Defendants’ opposition. Moreover, Defendants have previously made identical arguments regarding the Fourth Amendment, and this Court has extensively explained why those arguments lack merit. (See February 3, 2017 order re: order denying the Collective’s application for preliminary injunction, pp.6:4-28, 7:1-28, 8:1-28, 9:1-27.) Defendants have not presented any evidence demonstrating a triable issue of material fact as to the Fourth Amendment. Lastly, Defendants neither present evidence nor persuasively rebut City’s argument as to how City has violated the Confidentiality of Medical Information Act when the Act expressly mandates any disclosure that is “specifically required by law.” (See Civ. Code § 56.10, subd. (b)(9).)
Defendants fail to demonstrate the existence of a triable issue of material fact as to their SAXC.
Accordingly, City’s motion for summary judgment of the SAXC is GRANTED.
City’s complaint for collection of unpaid marijuana business taxes
Plaintiff’s burden of proof for summary judgment
The moving party bears the initial burden of production to make a prima facie showing that there are no triable issues of material fact—one sufficient to support the position of the party in question that no more is called for. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850-851.) Plaintiffs moving for summary judgment bear the burden of persuasion that each element of the cause of action in question has been proved, and hence that there is no defense thereto. (Cal. Code Civ. Proc. § 437c.) Plaintiffs, who bear the burden of proof at trial by preponderance of evidence, therefore “must present evidence that would require a reasonable trier of fact to find the underlying material fact more likely than not—otherwise he would not be entitled to judgment as a matter of law, but would have to present his evidence to a trier of fact.” (Aguilar, supra, 25 Cal.4th at p.851.)
City meet their initial burden as to their complaint
City’s complaint is a single cause of action for collection of unpaid marijuana business taxes. City presents deposition testimony of David Armstrong demonstrating that: Defendants plant, cultivate, harvest, trim, dry, transport, store, weigh and take cash for the marijuana (Armstrong depo., pp.35:14-17, 70:9-25, 71:1-11, 104:8-25, 108:25, 109:1-4.) City also presents evidence that Armstrong is the President and CEO of MediMarts, Inc., and the founder, President, CEO, boss and leader of the Collective, and agent for Defendants responsible for the submission of MBT returns. (Id. at pp.12:2-12, 14:15-18:21-25, 81:1-16, 109:2-4, exh. J.) City presents undisputed evidence that Armstrong submitted MBT returns reflecting that MediMarts owed the tax and collected the tax from MediMarts and its predecessor for submission to the City from March 2011 to April 2012, and that Armstrong did not collect and Defendants did not pay the City any MBT from May 2012 to May 2014. (See evidence cited by UMFs 3-5.) City presents evidence that it issued eight assessments against MediMarts for the MBT, and held a hearing for each assessment for which MediMarts requested a hearing. (See Sollazzi decl., ¶¶ 1-30, exhs. 4-16, 18.) City presents evidence that City’s Finance Director upheld all the City’s tax assessments after hearings, and that the total amount that the Director ultimately determined that MediMarts owed in taxes to City was $420,788.63, and after penalties and interest, the amount owed is now $1,100,427.01. (See Sollazzi decl., ¶¶ 14, 27, 31, exh. 8, 17.) Lastly, City presents evidence that Defendants did not pay the taxes that the Director concluded were owed. (See Sollazzi decl., ¶ 32.)
Defendants object to the exhibits to the Sollazzi declaration; however, the objections do not comply with Rule of Court 3.1354, subdivisions (b) and (c), and Defendants’ objections are therefore OVERRULED.
City meets its initial burden with respect to the complaint.
In opposition, Defendants fail to demonstrate the existence of a triable issue of material fact.
In opposition, Defendants dispute the fact that any sales transactions occurred, that the amount owed is contested, and the assessments are not valid because Defendants were not granted a hearing on certain assessments, citing to certain portions of Armstrong’s deposition and Armstrong’s declaration. (See evidence cited by Defs.’ separate statement of undisputed material facts, nos. 1, 4, 6, 8-10; see also Defs.’ Opposition to motion for summary judgment, pp. 15:14-28, 16:14-23.) However, as already explained, Defendants may not contest the validity or amount of the assessments without paying the tax. In Water Replenishment, supra, relied on by Defendants in opposition to the motion, the Second District plainly noted that “any legal action or defense seeking ‘prepayment adjudication that would effectively prevent the collection of a tax is barred.” (Water Replenishment, supra, 220 Cal.App.4th at p.1466 (emphasis added).) Other cases cited by City are more direct. In Riverside County Community Facilities Dist. No. 87-1 v. Bainbridge 17 (1999) 77 Cal.App.4th 644 (“Bainbridge”), the district filed an action to foreclose the lien of special taxes, and then moved for summary judgment. (Id. at pp.647-652.) The trial court granted summary judgment in favor of the district, and the appellants argued that the taxes were invalid because of claimed construction irregularities by the district and the county. (Id. at pp. 652, 660.) The Bainbridge court, like the Water Replenishment court, stated that “any legal action or defense seeking ‘prepayment adjudication that would effectively prevent the collection of a tax is barred,’” but continued “[w]here as here, it is undisputed that special taxes levied under the Act remain unpaid, the court cannot prevent or enjoin the collection of those taxes.” (Id. at p.660; see also Community Facilities Dist. No. 88-8 v. Harvill (1999) 74 Cal.App.4th 876, 882 (defendants “claim they are not contesting the amount of tax nor seeking to enjoin collection of unpaid taxes but instead want to have past unpaid taxes offset… [h]owever stated, Harvills’ defense requests that the court find the special taxes are invalid because of claimed construction irregularities by CFD and County, and they effectively seek to prevent collection of these taxes by precluding a judgment of foreclosure… [t]his they cannot do…. any legal action or defense seeking ‘prepayment adjudication that would effectively prevent the collection of a tax is barred… [w]here, as here, it is undisputed Harvills’ special taxes remain unpaid, the court cannot prevent or enjoin the collection of those taxes”).) Defendants fail to demonstrate a triable issue of material fact through that evidence.
Defendants also argue that Municipal Code section 1.08.15.5.A does not demonstrate that Armstrong is liable. However, Defendants do not present any evidence supporting their assertion. Defendants dispute—despite Armstrong’s deposition testimony that he is or was the President and CEO for MediMarts, Inc. and is the “founder, President, CEO, boss, leader” of the MediMarts Collective” (see Armstrong depo, pp. 12:2-12, 14:14-18)—that the Collective has any officers, president or CEO. (See Defs.’ UMF 2; but see D’Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 21-22 (stating that “[w]here, as here, however, there is a clear and unequivocal admission by the plaintiff, himself, in his deposition . . . we are forced to conclude there is no Substantial evidence of the existence of a triable issue of fact” where counteraffidavit made statement to contrary).) Defendants’ evidence does not present a triable issue that Armstrong is indeed responsible for and required to collect, truthfully account for, and pay over any tax imposed by this code. Moreover, Defendants argue that “Armstrong disputed these assessments and continues to dispute them here.” (Opposition, p.16:18.) For reasons stated above, however, without paying the assessments, Armstrong may not demonstrate a triable issue of material fact as to the validity of the assessments against him. Accordingly, Defendants fail to demonstrate the existence of a triable issue of material fact and City’s motion for summary judgment as to its complaint for collection of unpaid marijuana business taxes is GRANTED.
City’s cross-complaint for public nuisance
City has alleged three causes of action for public nuisance. City argues that it is entitled to a judgment as to its cross-complaint. (See City’s memorandum of points and authorities in support of motion for summary judgment, pp.23:21-27, 24:1-21) City presents evidence demonstrating that: MediMarts is a marijuana business subject to the MBT; Defendants have not paid the taxes assessed for their collective operations between May 2012 and May 2014; and, Defendants’ continued operation as a collective would violate the San Jose Municipal Code and constitute a public nuisance per se under Chapter 6.88 and is thus subject to injunctive relief pursuant to the Code. City meets its initial burden to demonstrate that it is entitled to injunctive relief prohibiting Defendants from the operation or allowance of a medical marijuana collective within the City. Defendants apparently concede the issue, as it is not addressed by their Opposition. Accordingly, City’s motion for summary judgment of its cross-complaint for public nuisance is GRANTED.
City’s objections are not the basis for the Court’s ruling.
As it appears to the Court that this order disposes of all issues in the case, after notice of entry of this order signed by the Court, City shall submit a proposed judgment either approved as to form or with proof of compliance with Rules of Court, Rule 3.1312. The trial date of January 8, 2018 is vacated.
The Court will prepare the Order.