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Franceschi v. Yee

United States Court of Appeals, Ninth Circuit

April 11, 2018

Ernest Joseph Franceschi, Jr., Attorney, an individual, Plaintiff-Appellant,
v.
Betty T. Yee, President of California Franchise Tax Board in her Official Capacity; George Runner, Board Member of California Franchise Tax Board in his Official Capacity; Jean Shiomoto, Director of California Department of Motor Vehicles in her Official Capacity; Michael Cohen, Board Member of California Franchise Tax Board in his Official Capacity, Defendants-Appellees.

          Argued and Submitted November 15, 2017

          Appeal from the United States District Court for the Central District of California Christina A. Snyder No. 2:14-cv-01960-CAS-SH, District Judge, Presiding

          Ernest J. Franceschi Jr. (argued), Franceschi Law Corporation, Los Angeles, California, pro se Plaintiff-Appellant.

          Matthew C. Heyn (argued), Deputy Attorney General; Stephen Lew, Supervising Deputy Attorney General; Paul D. Gifford, Senior Assistant Attorney General; Office of the Attorney General, Los Angeles, California; for Defendants-Appellees.

          Before: Michael Daly Hawkins, Barrington D. Parker, [*] and Sandra S. Ikuta, Circuit Judges.

         SUMMARY [**]

         Tax

         The panel affirmed the district court's judgment in an action under 42 U.S.C. § 1983, challenging the constitutionality of California Revenue and Tax Code § 19195 (which establishes a public list of the top 500 delinquent state taxpayers) and California Business and Professions Code § 494.5 (which provides for suspension of the driver's license of anyone on the top 500 list). The district court found the statutory scheme constitutional and dismissed the action under Federal Rule of Civil Procedure 12(b)(6).

         The panel first held that the taxpayer was not deprived of procedural due process based on his contention that he had an inadequate opportunity to be heard prior to license revocation. The panel explained that California provides tax delinquents with a constitutionally adequate procedure to challenge the amount of their tax delinquency, either before or after the deprivation of a driver's license.

          The panel next held that the taxpayer was not deprived of substantive due process based on his claims that the statutory scheme impermissibly burdened taxpayer's right to choose a profession, and that the scheme is retroactive. The panel observed that revocation of a driver's license does not operate as a complete prohibition on one's ability to practice law. The panel also explained that § 494.5 does not operate retroactively because it does not sanction taxpayer for past conduct, but for his current refusal to discharge his tax obligations.

         The panel was unpersuaded by the taxpayer's equal protection claim, that the challenged statutes impermissibly single out taxpayers who fall within the class of California's 500 largest tax delinquents, resulting in unequal treatment of similarly situated individuals. The panel found a rational basis for state action against a citizen for failing to pay two years' worth of past-due taxes (as taxpayer had done), given California's legitimate and significant interest in the prompt collection of tax revenue.

         Finally, the panel rejected the taxpayer's contention that the combined effect of the challenged statutes is to single out the largest 500 tax debtors for legislative punishment, amounting to a bill of attainder. The panel explained that membership in the group of taxpayers subject to suspension turns on the continuing fact of nonpayment, which a delinquent taxpayer can rectify.

          OPINION

          PARKER, Circuit Judge

         This action challenges the constitutionality of Section 19195 of the California Revenue and Taxation Code and Section 494.5 of the California Business and Professions Code. Section 19195 establishes a public list of the top 500 delinquent state taxpayers who owe in excess of $100, 000. In turn, Section 494.5 provides for suspension of the driver's license of a taxpayer on the delinquent list until full payment of the tax obligation is arranged.

         Appellant Ernest J. Franceschi, Jr., Esq. is a major tax delinquent. Anticipating the suspension of his driver's license after the publication of the next edition of the top 500 list-which would include him-Franceschi sued, under 42 U.S.C § 1983, challenging Sections 19195 and 494.5 on various federal constitutional grounds. The District Court rejected his claims and dismissed the complaint. See Franceschi v. Chiang, No. 2:14-cv-01960-CAS-SH, 2014 WL 12069866 (C.D. Cal. Aug. 4, 2014). Franceschi appeals and we affirm.

         I. Background

         Franceschi is an attorney who has been licensed to practice law in California since 1984. Appellee Betty Yee is the chairwoman of the California Franchise Tax Board (the "FTB"); appellees George Runner and Michael Cohen are members of the FTB; and appellee Jean Shiomoto is the director of the California Department of Motor Vehicles.

         Despite being a member of the bar for many years, Franceschi failed to file any California state income tax returns between 1995 and 2012 and failed to pay any state income taxes, penalties, or interest for those years, contending that he owed none. For each of those years, the FTB gave written notice of proposed deficiency assessments of taxes, interest and penalties (an "NPA").

         California's Revenue and Taxation Code sets forth a framework under which a delinquent taxpayer, like Franceschi, has multiple opportunities to challenge deficiency assessments. Cal. Rev. & Tax Code § 19031, et seq. At the outset, the FTB is required to send the taxpayer notice of the proposed deficiency assessment for any tax deficiency it proposes to assess. Id. § 19033(a). The taxpayer may then file a protest within sixty days. Id. § 19041(a). If the taxpayer files a protest, the FTB must reconsider the assessment and, if the taxpayer so requests, grant the taxpayer a hearing on the deficiency. Id. § 19044(a). If the deficiency is not resolved at this stage, a taxpayer has further recourse by appealing to the State Board of Equalization. Id. § 19045. After the State Board of Equalization rules on the matter, a still dissatisfied taxpayer can then petition the State Board of Equalization for rehearing. Id. § 19048.

         Still further, a taxpayer has an additional opportunity to be heard on the validity of his or her tax delinquency by paying the taxes and filing a claim for refund with the FTB. Id. § 19382. Utilization of this procedure here would have permitted Franceschi to both challenge the original assessments and to retain his driver's licence while doing so. If the FTB denied the claim he could have sued for a refund in California Superior Court. Franceschi concedes that he did not avail himself of any of these multiple remedial procedures.

         If, however, a taxpayer like Franceschi fails to protest the NPA within sixty days, the proposed deficiency assessment becomes final. Id. § 19042. Once the assessment becomes final, the FTB can demand payment and the amount owed becomes a lien on the taxpayer's real property in California. Id. §§ 19049, 19221.

         The FTB compiles a list of the top 500 tax delinquents in the state (the "Top 500 List"). Id. § 19195(a). Specifically, Section 19195 directs the FTB to "make available as a matter of public record at least twice each calendar year a list of the 500 largest tax delinquencies in excess of one hundred thousand dollars ($100, 000)[.]"[1] Id. Prior to placing a delinquent taxpayer on the Top 500 List, the FTB is required to provide thirty days' notice to the taxpayer. Id. § 19195(d). If within thirty days after this notice, the delinquent taxpayer does not remit the amount due or make arrangements with the FTB for payment, the delinquent taxpayer is named on the Top 500 List. Id.

         Important for this appeal, effective January 1, 2012, Section 494.5 was enacted to provide that a state governmental licensing entity "shall suspend" a license if a licensee's name is included on the Top 500 List.[2] Cal. Bus. & Prof. Code § 494.5(a)(1). Specifically, Section 494.5 provides that, on at least ninety days' notice, the California Department of Motor Vehicles "shall suspend" the driver's license of any licensee whose name is included on the Top 500 List. Id. § 494.5(a)(2), (b)(1), (f)(1).[3] Within this notice period, a delinquent taxpayer can challenge inclusion and seek to avoid revocation of a driver's license by (1) presenting a written submission that the tax delinquency was paid, (2) entering into a payment agreement, or (3) demonstrating financial hardship. Id. § 494.5(h).

         Franceschi's cumulative tax deficit encompasses the years 1995 through 2012. After the enactment of Section 494.5 in 2012, the FTB, in April 2012, March 2013, and March 2014, served him with NPAs for the years 2010 through 2012. Franceschi then had sixty days to protest these additional proposed deficiencies. He took no steps to do so.

          Franceschi alleges that he received notice from the FTB dated February 2014 indicating that he was to be included in the next publication of the Top 500 List because he owed $242, 276.73 in back taxes. Franceschi further alleges that he anticipated that the DMV ...


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