Income Tax Debtor Lost Federal Court Action, So Dismissal In State Court Was Justified And State Proceeding Was Unreasonable As A Matter of Law.
In Franceschi v. Franchise Tax Bd., Case No. B267719 (2d Dist., Div. 2 July 8, 2016) (published), a plaintiff—who was on the Franchise Tax Board’s published list of “Top 500” income tax debtors—had his writ petition to remove his name from the list dismissed by the state court after he filed a federal action which was earlier dismissed with prejudice. The lower and appellate courts found that the state court dismissal was justified on res judicata grounds, or else a plaintiff could try to improperly “claim split” between federal and state courts. The lower court also imposed $5,000 in sanctions against plaintiff, finding the proceeding to be frivolous and groundless in nature.
The sanctions award was affirmed. Revenue and Taxation Code section 19174 does allow the FTB or court to award sanctions in the amount of $5,000 against a taxpayer whose action is determined to be frivolous or with no merit. Plaintiff’s state court action was unreasonable and lacked merit given what occurred in federal court, with the appellate court engaging in a nice discussion of what a litigant should do in federal court to avoid a future res judicata ruling in a later state court action.