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DRK Photo v. McGraw-Hill Global Education
Ninth Circuit Court of Appeals Courthouse - San Francisco, California
Case Number: 15-15296
Court: United States Court of Appeals for the Ninth Circuit on appeal from the Eastern District of California (Sacramento County)
Plaintiff's Attorney: Erwin Chemerinsky (argued), UC Irvine School of Law,
Irvine, California; Donald J. Kula and Oliver M. Gold,
Perkins Coie LLP, Los Angeles, California; Malcolm Segal,
Segal & Associates PC, Sacramento, California; for
Defendant's Attorney: Michael von Loewenfeldt (argued), Brady R. Dewar, and
James M. Wagstaffe, Kerr Wagstaffe LLP, San Francisco,
California; Seth P. Waxman (argued), Wilmer Cutler
Pickering Hale and Dorr LLP, Washington, D.C.; Debbie
Leonard, James Bradshaw, and Adam Hosmer-Henner,
McDonald Carano Wilson LLP, Reno, Nevada; Cynthia J.
Larsen, Katie DeWitt, and David W. Spencer, Orrick
Herrington & Sutcliffe LLP, Sacramento, California; for
Description: For over 22 years, Plaintiff Gilbert Hyatt has contested
in administrative proceedings a California Franchise Tax
Board ruling that he owed close to $7.4 million in taxes,
penalties, and interest. This initial deficiency, compounding
daily with 3% interest, grew to over $55 million at the time
he filed his complaint in this case. The taxes were assessed
on income he earned during the 1991 and 1992 tax years,
HYATT V. YEE 5
during which Hyatt alleges he had moved from California to
Nevada. Finally, while his administrative proceedings were
still pending, Hyatt filed this suit in the district court,
claiming that he had been unconstitutionally targeted and
that so much time had passed in the administrative review of
his tax claims that he can no longer receive due process. He
asked the district court to enjoin California from collecting
this tax bill.
Because we agree with the district court that the Tax
Injunction Act bars it from “enjoin[ing], suspend[ing] or
restrain[ing] the assessment, levy or collection of [this] tax
under State law where,” as here, “a plain, speedy and
efficient remedy may be had” in the state court, we affirm
the judgment of the District Court.
California’s Statutory Tax Framework
Under California law, a taxpayer seeking to “prevent or
enjoin the assessment or collection of” a California
residency-based income tax may not file suit in state court
without first exhausting the administrative remedies set forth
in the California Revenue and Taxation Code.1 In general, a
California taxpayer must “pay now, litigate later.”2
However, a taxpayer seeking to contest his tax bill solely on
the basis that he was not a resident of California during the
disputed period has two options. The taxpayer may either
pay now and litigate later, or may bring his claim through a
1 Cal. Rev. & Tax. Code § 19381.
2 Sahadi v. Scheaffer, 155 Cal. App. 4th 704, 734 (2007) (“[A]
taxpayer may not obtain judicial review of the validity of a tax which is
due but has not been paid.”).
6 HYATT V. YEE
protest-then-pay process, which allows him to delay paying
the disputed tax. There is a significant difference: a taxpayer
who pays now and litigates later can bring his claims to state
court within six months, which guarantees an expeditious
route to the state courts on the taxpayer’s liability. A
taxpayer who disputes his residency through the protestthen-
pay process, however, must wait until the
administrative agencies render their decisions before filing a
challenge in state court.
1. Postdeprivation “Pay-Then-Protest” Process
The “pay-then-protest” process3 requires the challenging
taxpayer to make “payment of the tax,” after which the
taxpayer can file a refund claim with the Franchise Tax
Board (the “Tax Board”).4 If the Tax Board “fails to mail
notice of action on [the] . . . refund claim within six months
after the claim [is] filed, the taxpayer may . . . bring an action
[in state court] against the [Tax Board] . . . on the grounds
set forth in the claim for the recovery of . . . [the]
overpayment.”5 If the Tax Board acts on the challenger’s
refund claim and denies it, a taxpayer “claiming that the tax
computed and assessed is void . . . may bring an action [in
state court], upon the grounds set forth in that claim for
refund . . . for the recovery of the . . . amount paid” plus
interest.6 These grounds need not be included in the “four
3 This proceeding is largely governed by California Revenue &
Taxation Code § 19382.
4 Cal. Rev. & Tax. Code § 19382.
5 Cal. Rev. & Tax. Code § 19385 (emphasis added).
6 Cal. Rev. & Tax. Code § 19382.
HYATT V. YEE 7
corners of the initial claim,” but the Tax Board must have
“actual notice” of them.7
2. Predeprivation “Protest-then-Pay” Process
The plaintiff in this case chose to challenge his tax
assessment through the protest-then-pay process. A taxpayer
who challenges an assessment through this process8 must
“file with the [Tax Board] . . . a written protest against the
proposed deficiency assessment, specifying in the protest the
grounds upon which it is based.”9 If the protest is filed, the
taxpayer may request that the Tax Board “reconsider the
assessment of the deficiency.”10 If the protest is denied, the
taxpayer may “appeal[ ] in writing from the action of the
[Tax Board] ... to [the California State Board of Equalization
(“Appeals Board”)].”11 “The [Appeals Board] . . . shall hear
and determine the appeal,” and an unsuccessful taxpayer
7 J.H. McKnight Ranch, Inc. v. Franchise Tax Bd., 110 Cal. App.
4th 978, 987 (2003) (“We see no basis for construing the statutes setting
out the administrative exhaustion requirement so as to ignore actual
notice the Board may have had from sources other than the four corners
of the initial claim. The Supreme Court has at least implicitly agreed with
this conclusion” (citing Wallace Berrie & Co. v. State Bd. of
Equalization, 707 P.2d 204 (1985)).
8 This proceeding is largely governed by California Revenue &
Taxation Code § 19381.
9 Cal. Rev. & Tax. Code § 19041.
10 Cal. Rev. & Tax. Code § 19044.
11 Cal. Rev. & Tax. Code § 19045.
8 HYATT V. YEE
may “file[ ] a petition for rehearing.”12 After rehearing
before the Appeals Board, a taxpayer may seek review in a
California state court.13
A taxpayer who initially challenges a residency-based
income tax assessment through the protest-then-pay
administrative process may elect to use the pay-then-protest
process at any point by paying the disputed tax, thus
guaranteeing a route to state court within six months.14
Hyatt alleges that in 1991, he moved from California to
Nevada. Two years later, the Tax Board commenced an audit
to determine whether Hyatt owed additional California state
income taxes for the 1991 tax year. The Tax Board initiated
a second audit in 1996 regarding the 1992 tax year.
Ultimately, the Tax Board determined that Hyatt owed
12 Cal. Rev. & Tax. Code §§ 19047–48.
13 Cal. Rev. & Tax. Code § 19381.
14 Cal. Rev. & Tax. Code § 19335.
15 Defendants brought both a facial and a factual challenge to
jurisdiction, but the District Court decided only the facial challenge. “A
‘facial’ attack asserts that a complaint’s allegations are themselves
insufficient to invoke jurisdiction.” Courthouse News Serv. v. Planet,
750 F.3d 776, 780 n.3 (9th Cir. 2014). “The district court resolves a facial
attack as it would a motion to dismiss under Rule 12(b)(6): Accepting
the plaintiff’s allegations as true and drawing all reasonable inferences
in the plaintiff’s favor, the court determines whether the allegations are
sufficient as a legal matter to invoke the court’s jurisdiction.” Leite v.
Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014). However, “a court may
take judicial notice of matters of public record.” Lee v. City of Los
Angeles, 250 F.3d 668, 689 (9th Cir. 2001) (internal quotations and
HYATT V. YEE 9
$1.8 million for the 1991 tax year and $5.6 million for the
1992 tax year.
Without first paying his taxes, Hyatt challenged his tax
bill on the grounds that he did not owe these taxes because
he was a resident of Nevada during 1991 and 1992. His Tax
Board protest lasted 11 years. Then, in 2008, Hyatt filed an
administrative appeal of the Tax Board’s determinations
before the Appeals Board. That appeal has yet to be decided.
Hyatt alleges that “the delays in completing the
administrative process fall squarely and primarily at the feet
of the [Tax Board].”
In April 2014, Hyatt brought this action in the district
court against the members of the Tax Board and Appeals
Board under 42 U.S.C. § 1983, seeking to enjoin the pending
administrative tax review process. At the time he filed suit,
his tax bill had ballooned to over $55 million. In his
Complaint, Hyatt alleges violations of the due process and
equal protection clauses of the Fourteenth Amendment, and
alleges that he “can no longer receive a full and fair
adjudication on the merits due to the extreme passage of time
and resulting loss of material evidence.” He claims that
during the long delay in the administrative process, “material
witnesses have passed away, memories of witnesses have
faded, and documents relevant and important to Hyatt are no
longer available.” Because of these events, he claims that he
cannot properly challenge the Tax Board’s allegations
concerning his residency. Hyatt further states that during this
administrative process, the Tax Board was out to “get” him
and that the Tax Board singled him out for reasons not
rationally related to any legitimate state interest.
10 HYATT V. YEE
The Tax Injunction Act
The Tax Injunction Act provides that: “The district
courts shall not enjoin, suspend or restrain 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.”16 This provision “restricts the power of federal
district courts to prevent collection or enforcement of state
taxes.”17 The Supreme Court has “interpreted and applied
the Tax Injunction Act as a ‘jurisdictional rule’ and a ‘broad
The Tax Injunction Act was passed as “only one of
several statutes reflecting congressional hostility to federal
injunctions issued against state officials in the aftermath of
[the Supreme] Court’s decision in Ex parte Young.”19 It “has
its roots in equity practice, in principles of federalism, and
in recognition of the imperative need of a State to administer
its own fiscal operations.”20 It prevents federal courts from
intruding into state tax collection, “an area which deserves
16 28 U.S.C. § 1341.
17 Arkansas v. Farm Credit Servs. of Cent. Arkansas, 520 U.S. 821,
18 Id. at 825 (quoting Moe v. Confederated Salish and Kootenai
Tribes of Flathead Reservation, 425 U.S. 463, 470 (1976)). See also
Franchise Tax Bd. of California v. Alcan Aluminium Ltd., 493 U.S. 331,
338 (1990) (The Act “limit[s] drastically federal district court
19 Rosewell v. LaSalle Nat’l Bank, 450 U.S. 503, 522 n.28 (1981).
20 Tully v. Griffin, Inc., 429 U.S. 68, 73 (1976).
HYATT V. YEE 11
the utmost comity to state law and procedure.”21 This is
because “[t]he power to tax is basic to the power of the State
to exist.”22 Thus, “[g]iven the systemic importance of the
federal balance, and given the basic principle that statutory
language is to be enforced according to its terms, federal
courts must guard against interpretations of the Tax
Injunction Act which might defeat its purpose and text.”23
Under the Tax Injunction Act, a litigant cannot challenge
the administration of state tax law in federal court if the state
court provides “a plain, speedy and efficient remedy” for the
taxpayer’s claims. This “narrow exception”24 requires only
that a state court remedy “meet ‘certain minimal procedural
21 Jerron West, Inc. v. State of Cal., State Bd. of Equalization,
129 F.3d 1334, 1338 (9th Cir. 1997) (citing Rosewell, 450 U.S. at 522
(stating that the Act “was first and foremost a vehicle to limit drastically
federal district court jurisdiction to interfere with so important a local
concern as the collection of taxes”); Great Lakes Dredge & Dock Co. v.
Huffman, 319 U.S. 293, 301 (1943) (stating that the Act “was predicated
upon the desirability of freeing, from interference by the federal courts,
state procedures which authorize litigation challenging a tax only after
the tax has been paid”); Dillon v. State of Mont., 634 F.2d 463, 466 (9th
Cir.1980) (concluding that the Act “is meant to be a broad jurisdictional
impediment to federal court interference with the administration of state
22 Arkansas, 520 U.S. at 826 (“The federal balance is well served
when the several States define and elaborate their own laws through their
own courts and administrative processes and without undue interference
from the Federal Judiciary.”).
23 Id. at 827.
24 Redding Ford v. Cal. State Bd. of Equalization, 722 F.2d 496, 497
(9th Cir. 1983).
12 HYATT V. YEE
criteria.’”25 Specifically, a plain, speedy, and efficient
remedy must provide a taxpayer with “a full hearing and
judicial determination at which [he] may raise any and all
constitutional objections to the tax.”26
For a remedy to be “plain,” “the procedures available in
state court must be certain.”27 A remedy is “efficient”
“unless it imposes an ‘unusual hardship . . . requiring
ineffectual activity or an unnecessary expenditure of time or
energy.’”28 A remedy is “speedy” “if it does not entail a
significantly greater delay than a corresponding federal
procedure.”29 To satisfy these requirements, a remedy “need
not necessarily be the best remedy available or even equal to
or better than the remedy which might be available in the
25 Lowe v. Washoe Cty., 627 F.3d 1151, 1155 (9th Cir. 2010)
(quoting Rosewell, 450 U.S. at 512).
26 Rosewell, 450 U.S. at 514.
27 May Trucking Co. v. Oregon Dep't of Transp., 388 F.3d 1261,
1270 (9th Cir. 2004) (citing Direct Mktg. Ass'n, Inc. v. Bennett, 916 F.2d
1451, 1453 (9th Cir.1990) (holding that a state remedy “is not plain
within the meaning of the Tax Injunction Act . . . if there is uncertainty
regarding its availability or effect” (internal quotation and citations
28 Lowe, 627 F.3d at 1156 (quoting Rosewell, 450 U.S. at 518).
29 US W., Inc. v. Nelson, 146 F.3d 718, 725 (9th Cir. 1998)
(interpreting the same language in a different statute).
30 Mandel v. Hutchinson, 494 F.2d 364, 367 (9th Cir. 1974) (internal
quotations and citations removed).
HYATT V. YEE 13
“A dismissal for lack of subject matter jurisdiction is a
question of law reviewed de novo.”31
Hyatt appeals the district court’s decision that, because
California’s pay-then-protest process continued to provide a
plain, speedy and efficient remedy for Plaintiff even though
he had decided to pursue the protest-then-pay process, the
Tax Injunction Act stripped the court of jurisdiction to hear
Hyatt’s appeal raises three principal arguments for
review:32 (1) a plain, speedy and efficient remedy is not
available because Hyatt cannot be required to pursue the
pay-then-protest process per California Revenue & Taxation
Code § 19382 to have his constitutional claims heard; (2) the
protest-then-pay method has not offered Hyatt a speedy
remedy and the pay-then-protest remedy will not, and
(3) Hyatt does not have a plain remedy, because it is
uncertain whether he could bring his constitutional claims as
part of either process.33
31 Jerron, 129 F.3d at 1337.
32 Hyatt’s brief raises additional bases of appeal, but they can be
more succinctly framed in these three arguments.
33 Defendants respond that even if this court finds that Hyatt’s suit
is not barred by the Tax Injunction Act, then (1) it is barred by the general
principles of comity; (2) we should abstain pursuant to Younger v.
Harris, 401 U.S. 37 (1971); or (3) we should affirm dismissal under
Federal Rule of Civil Procedure 12(b)(6) because Hyatt fails to state a
claim. We need not reach the first two bases, because the suit is barred
14 HYATT V. YEE
At the outset, we note that the U.S. Supreme Court and
our court have held that, “[t]o the extent they are available,
California’s refund procedures constitute a plain, speedy,
and efficient remedy.”34 Moreover, the U.S. Supreme Court
has, on several occasions, approved of pay-then-protest
remedies as plain, speedy, and efficient.35 The issue then, is
whether the unique circumstances of this case have
prevented a plain, speedy, and efficient remedy from being
by the Tax Injunction Act. We cannot reach the last basis, because we do
not have jurisdiction to do so.
34 Alcan Aluminium, 493 U.S. at 338. See also Jerron, 129 F.3d at
1339 (“The Supreme Court and this court have concluded that
California’s tax refund remedy is generally a ‘plain, speedy and efficient’
remedy under the Act.”); Mandel, 494 F.2d at 367 (“We have held
previously that the California refund procedure is a plain, speedy and
efficient remedy.”); Aronoff v. Franchise Tax Bd. of State of Cal.,
348 F.2d 9, 11 (9th Cir. 1965) (“It has consistently been held, without a
single instance of deviation, that the refund action provided by California
Personal Income Tax Law is a ‘plain, speedy and efficient remedy’ such
as to invoke the restraints of 28 U.S.C. § 1341.”).
35 See Reich v. Collins, 513 U.S. 106, 111 (1994) (“Due process, we
should add, also allows the State to maintain an exclusively
postdeprivation regime”); California v. Grace Brethren Church,
457 U.S. 393, 416 (1982) (“Finally, we must keep in mind that at the
time that it passed the Tax Injunction Act, Congress was well aware that
refund procedures were the sole remedy in many States for unlawfully
collected taxes.”) (citing S.Rep.No.1035, 75th Cong., 1st Sess., 1 (1937);
H.R.Rep.No.1503, 75th Cong., 1st Sess., 2 (1937)); Rosewell, 450 U.S.
at 512, 523 (finding that a pay-then-protest process was a speedy,
efficient, and plain remedy under the Tax Act and relying on legislative
reports demonstrating congressional awareness that refunds were the
exclusive remedy in many state tax systems).
HYATT V. YEE 15
Does The Pay-Then-Protest Process Provide a
Sufficient Remedy Where Hyatt Chose to Use the
Hyatt objects to the district court’s determination that the
pay-then-protest process can provide him with “a plain,
speedy and efficient remedy” even though he has pursued a
protest-then-pay process for the past 22 years. Citing Reich
v. Collins,36 and Newsweek v. Florida Department of
Revenue,37 Hyatt argues that requiring him to pay his large
accrued tax bill and switch remedies in order to pursue his
constitutional claims would be a “bait and switch” in
violation of his due process rights.38
Hyatt’s reliance on Reich and Newsweek is misplaced. In
Reich, a taxpayer sued for a refund under Georgia’s tax
refund statute, but the Georgia courts held that the statutes
were not applicable and thus the taxpayer had no way to seek
a refund of his disputed tax.39 The U.S. Supreme Court,
however, held that, while a state is entitled to provide either
a protest-then-pay remedy, or a pay-then-protest remedy, or
both, it may not “reconfigure its scheme, unfairly, in
midcourse—to ‘bait and switch.’”40 Specifically, the Court
held that a state violated federal due process when it offered
a statutory pay-then-protest remedy, and then removed that
36 513 U.S. 106 (1994) (per curiam).
37 522 U.S. 442 (1998).
38 Hyatt’s Br. at 29.
39 513 U.S. at 108–09.
40 Id. at 110–11 (emphasis added).
16 HYATT V. YEE
remedy after a taxpayer had paid his disputed taxes, so that
he no longer had any means to challenge his tax bill.41 In
Newsweek, where the magazine Newsweek was given no
opportunity to seek a refund for a state tax it had already paid
that was later found invalid, the Court reiterated this
In this case, Hyatt had, and still has, a plain, speedy, and
efficient remedy available: he can pursue the pay-thenprotest
process. Unlike in Reich and Newsweek, the state did
not “bait and switch” Hyatt.43 Hyatt chose to pursue the
protest-then-pay process knowing that it only permitted him
to challenge his residency in California during 1991 and
1992. Hyatt now seeks to add additional claims nullifying
the tax, but he would have to pay his outstanding tax bill to
do so. Of course, if Hyatt pursues this path and is successful,
he will be refunded the entire amount of his tax bill,
including the taxes that have accrued during the period he
has pursued the protest-then-pay process.
42 522 U.S. at 444–45 (“While Florida may be free to require
taxpayers to litigate first and pay later, due process prevents it from
applying this requirement to taxpayers, like Newsweek, who reasonably
relied on the apparent availability of a postpayment refund when paying
the tax. Newsweek is entitled to a clear and certain remedy and thus it
can use the refund procedures to adjudicate the merits of its claim.”).
43 See also Colonial Pipeline Co. v. Collins, 921 F.2d 1237, 1242
(11th Cir. 1991) (rejecting “literal and technical attempts” to get around
the Tax Act in a way that “would clearly conflict with the principle
underlying the Tax Injunction Act that the federal courts should
generally avoid interfering with the sensitive and peculiarly local
concerns surrounding state taxation schemes.”).
HYATT V. YEE 17
Hyatt further argues that he cannot be forced to use the
pay-then-protest remedy to pursue his constitutional claims,
because he would need to forego his statutory right to, if
successful, recover the attorney’s fees that he has spent
challenging his tax bill already.44 It is not clear that Hyatt
would, in fact, be forced to forgo his attorney’s fees, but even
if Hyatt must abandon some of his claims to attorney’s fees
by pursuing the pay-then-protest process, this does not mean
that the state has deprived him of a plain, speedy, and
Does Hyatt Have A Speedy Remedy?
Hyatt notes that the Appeals Board has not completed his
administrative appeal, pending since 2008, and that, as of the
filing of this appeal, briefing before the Appeals Board was
not completed and no hearing date was set.46 Hyatt alleges
in his complaint that Defendants are responsible for this
delay. Thus, Hyatt argues, he does not have access to a
speedy remedy, and federal jurisdiction must lie.
44 Hyatt’s Br. at 29 (citing Cal. Rev. & Tax. Code § 19717 (“The
prevailing party may be awarded a judgment for reasonable litigation
costs incurred, in the case of any civil proceeding brought by or against
the State of California in a court of record of this state in connection with
the determination, collection, or refund of any tax, interest, or penalty
under this part.”)).
45 Cf. Rosewell, 450 U.S. at 517 (holding the same with regard to
payment of interest and stating that “There is no question that under the
Illinois procedure, the court will hear and decide any federal claim.
Paying interest or eliminating delay would not make the remedy any
46 Hyatt’s Br. at 24.
18 HYATT V. YEE
It would certainly be troubling if the administrative
protest-then-pay process had been delayed for so long due to
the fault of Defendants.47 However, we need not decide
whether Hyatt’s protest-then-pay process has been speedy to
date, and thus we need not consider whether Hyatt or
Defendants caused this significant delay.48 Even if the
protest-then-pay process has not provided Hyatt with a
speedy remedy, at any time during this process, Hyatt could,
and Hyatt still can, get to state court within six months if he
brings an action through the pay-then-protest process and the
Appeals Board does not render a final determination sooner.
The California Tax Code provides that,
47 See Long Island Lighting Co. v. Town of Brookhaven, 889 F.2d
428, 433 (2d Cir. 1989) (“Slightly more troublesome is [the] claim that
the . . . proceedings, the earliest of which have lingered over ten years in
pretrial proceedings, are simply not speedy . . . . [W]e have some
concern over any proceeding that takes over ten years to come to trial
. . . .”).
48 After argument in this case, we issued an order inviting “[t]he state
parties . . . to move for judicial notice of documents that may shed light
on the administrative and judicial proceedings that have taken place, and
the possible reasons for delay, since the time Plaintiff-Appellant Hyatt
first contested the California income tax liability at issue in this case.”
See Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001) (“[A]
court may take judicial notice of matters of public record” (internal
quotations and citations omitted)).
Hyatt and Defendants both did so, disputing the cause of the delay
in this case. They offer documents from years of related litigation in
Nevada and New York. We need not consider whether judicial notice of
any documents addressing the cause in the delay is appropriate, as
whether Hyatt, the Defendants, or some combination caused the delay, it
does not affect the availability of a speedy remedy here. The pending
judicial notice motions are denied as moot.
HYATT V. YEE 19
[i]f the Franchise Tax Board fails to mail
notice of action on any refund claim within
six months after the claim was filed, the
taxpayer may, prior to mailing of notice of
action on the refund claim, consider the claim
disallowed and bring an action against the
Franchise Tax Board on the grounds set forth
in the claim for the recovery of the whole or
any part of the amount claimed as an
In our view, the pay-then-protest remedy now provides
Hyatt a speedy remedy, even if the protest-then-pay remedy
Does Hyatt Have Access to A Plain Remedy for His
Finally, Hyatt argues that it is unclear whether he would
be able to raise his constitutional claims in a pay-then-protest
proceeding, for two reasons.50 First, he says that Section
19832 authorizes a taxpayer to “claim that the tax
49 See Cal. Rev. & Tax. Code § 19385.
50 Hyatt also argues that the protest-then-pay process would not
provide him with a forum for raising these new constitutional claims,
because that statute limits the adjudication to the issue of the taxpayer’s
residency during the period in question. Hyatt’s Br. at 21; Franchise Tax
Bd. v. Superior Court, 212 Cal. App. 3d 1343, 1347 (Ct. App. 1989)
(“The statutes do not authorize the superior court to prevent or enjoin
collection of the tax, but permit it only to determine the fact of [the
taxpayer’s] residence in this State during the year or years set forth in the
notice or notices of deficiency assessment” (internal quotations and
citations omitted)). This is irrelevant, if the pay-then-protest process is
20 HYATT V. YEE
computed and assessed is void” and to file a claim for
“recovery of the whole or any part of the amount paid.”51
Hyatt argues that it is unclear whether a California court will
find that his constitutional claims contend that “the tax
computed and assessed is void” and thus can be heard in state
court. Second, Hyatt argues that he may be barred from
bringing these claims because they were not “the grounds set
forth in the claim for refund.”52 Therefore, he argues, his
remedy is not “plain” and this suit should not be barred.
First, as Hyatt’s own complaint makes clear, he does
seek to void a tax. In his complaint, Hyatt seeks to “enjoin
Defendants . . . from continuing the investigation and
administrative proceedings against Hyatt that seek to assess
California state income taxes, or adjudicate the assessment
and collection of California state income taxes, against Hyatt
for the 1991 and 1992 tax years.”53 He also seeks to “enjoin
Defendants from continuing to assess or threaten to assess,
or collect or threaten to collect, taxes, penalties and interest
from Hyatt for the 1991 and 1992 tax years.”54 The district
court correctly concluded that “[i]t is evident that Hyatt
51 Cal. Rev. & Tax. Code § 19382 (“Except as provided in Section
19385, after payment of the tax and denial by the Franchise Tax Board
of a claim for refund, any taxpayer claiming that the tax computed and
assessed is void in whole or in part may bring an action, upon the grounds
set forth in that claim for refund, against the Franchise Tax Board for the
recovery of the whole or any part of the amount paid.”).
53 Compl. ¶ 107, ER 773–74.
HYATT V. YEE 21
seeks to void the tax or taxes assessed against him.”55
Moreover, California courts have found that constitutional
claims can qualify as claims seeking to void a tax.56 It is thus
clear that California allows such claims to be brought in the
pay-then-protest process. Hyatt’s argument thus fails to
show that the pay-then-protest process will not provide a
Hyatt’s second argument, that he will not be able to add
constitutional claims that arose after the filing of his protest
to a state court case, presents a much closer question. As
Hyatt understands the state statutes, “if [he] pays the tax
while his [Appeals Board] appeal is pending. . . [his] prior
‘protests’ . . . , for the 1991 and 1992 tax years, . . . will be
deemed to be his refund claim.”57 A problem arises because
[t]hose protests do not contain Mr. Hyatt’s
constitutional claims as grounds for the claim
because he filed the protest before the [Tax
Board]’s and [Appeals Board]’s offending
55 ER 12. See also Black’s Law Dictionary 1805 (10th ed. 2014)
(defining “void” as “[t]o render of no validity or effect; to annul;
nullify.”). Hyatt seeks to nullify his tax bill.
56 Capitol Indus.-EMI, Inc. v. Bennett, 681 F.2d 1107, 1117 (9th Cir.
1982). See, e.g., Jensen v. Franchise Tax Bd., 178 Cal. App. 4th 426, 433
57 Reply Br. at 14–15 (citing Cal. Rev. & Tax. Code § 19335 (“If,
with or after the filing of a protest or an appeal to the State Board of
Equalization . . . , a taxpayer pays the tax protested before the Franchise
Tax Board acts upon the protest, or the board upon the appeal, the
Franchise Tax Board or board shall treat the protest or the appeal as a
claim for refund or an appeal from the denial of a claim for refund filed
under this article.”)).
22 HYATT V. YEE
conduct. Under Section 19382, a refund
action is limited to the grounds set forth in the
refund claim. Accordingly, Mr. Hyatt could
not raise the constitutional issues in his newly
converted Section 19382 procedure because
his refund claims (i.e., his original protests)
do not include the constitutional violations.58
Under our reading of the statutes, if Hyatt pays and then
protests, the California state courts will likely allow Hyatt to
add these constitutional claims to a state court suit
challenging the tax. The state court may find that these are
not the sorts of claims that a taxpayer must include in his
initial protest or refund because they refer to conduct during
the ongoing Tax Board and Appeals Board review, rather
than the grounds on which the taxpayer contested the tax
initially. Thus, the legislative purpose served by applying the
administrative exhaustion requirement would not apply to
these claims. Moreover, even if the California courts do
apply the exhaustion requirement to these claims, they may
find that the Tax Board was “on notice” of these claims,
given the long history of litigation between these parties,
where Hyatt may have previously raised these issues.59 The
Appeals Board may also permit Hyatt to amend his petition
to add these additional grounds.60 At oral argument counsel
for the Tax Board and the Appeals Board both represented
58 Id. at 15.
59 See J.H. McKnight Ranch, 110 Cal. App. 4th at 986–87.
60 See Cal. Rev. & Tax. Code § 60351.
HYATT V. YEE 23
that the constitutional challenges raised here could be raised
in state court.61
* * *
61 Even if Hyatt is barred from bringing these constitutional claims
in a state court proceeding, he can seek to raise the same claims in a suit
in state court against the responsible individuals.
62 Redding Ford, 722 F.2d at 497.
63 This is particularly true in light of the fact that Hyatt’s own
decisions contributed to the constitutional claims he seeks to now bring.
While we do not consider whether Hyatt contributed to the delay in the
protest-then-pay proceedings, at any point, Hyatt could have paid his tax
bill and brought a suit in state court protesting the tax within six months.
Outcome: In light of the strong principles of comity that guide our
interpretation of the Tax Injunction Act, we decline to enjoin
the tax proceedings in this case. We hold that “narrow
exception”62 to the Tax Act’s jurisdictional bar cannot be
expanded to allow this suit, and we affirm the judgment of
the district court.63