CALIFORNIA ATTORNEY'S FEES

Taxation: Chinese Theatres Has Been Certified For Publication.

Revenue and Taxation Code § 1611.6 Fees Award Of $180,000 To Chinese Theatres Was Reversed On Appeal As A Matter Of Law

            In a December 9, 2020 post, we discussed Chinese Theatres, LLC v. County of Los Angeles, Case No. B302708 (2d Dist., Div. 3) which was unpublished at that time.

            In Chinese Theatres, which involved the historical Grauman’s Chinese Theatre in Hollywood, the 2/3 DCA reversed a Revenue and Taxation Code § 1611.6 fees award of $180,000 to Chinese Theatres.  The reversal was dictated by the narrow circumstances under which § 1611.6 fee entitlement arises in tax refund actions: (1) a county board fails to make requested findings, or (2) the lower court concludes the Board’s findings are so deficient that it remands the matter with directions for the Board to make findings that fairly disclose its determination on the point at issue.  Neither of the circumstances existed – with the Board making a finding, but simply failing to explain how it reached its finding, and with the superior court’s remand for a recalculation based on its finding – not a remand to correct deficient findings.

          We can now report that Chinese Theatres was certified for publication on January 4, 2021.

Taxation: $180,000 Fees Award To Chinese Theatres Under Revenue And Taxation Code Section 1611.6 Reversed As A Matter Of Law

Yes, The Case Did Involve The Historical Grauman’s Chinese Theatre In Hollywood.

Grauman’s Chinese Theatre. Carol M. Highsmith, photographer. Library of Congress.

            The real property upon which the historical Grauman’s Chinese Theatre in Hollywood was located happened to be involved in a tax assessment dispute in the next opinion we discuss, Chinese Theatres, LLC v. County of Los Angeles, Case No. B302708 (2d Dist., Div. 3 Dec. 8, 2020) (unpublished).

            The background facts were that Chinese Theatres, LLC, which owned the historical Hollywood real estate, entered into an agreement with another party involving naming rights, advertising rights, and operation rights relating to Grauman’s.  The L.A. County Assessor then assessed the value of the property at $69.3 million, with $26 million being allocated to the revenue generated by the third-party agreement.  Chinese Theatres appealed the $26 million allocation to the L.A. County Assessment Appeals Board, which found half of it was an intangible asset exempt from the property’s assessment under California law.  However, Chinese filed a refund lawsuit in superior court, also requesting that the entire $26 million be excluded and the Assessor challenged the $13 million exclusion.  The superior court judge decided that the entire $26 million was an intangible asset exempt from property assessment, specifically remanding to the Board to make an arithmetic calculation of the refund if the parties could not agree otherwise.  Then, upon motion by Chinese Theatres, the lower court awarded nearly $180,000 in attorney’s fees in its favor and against L.A. County under Revenue and Taxation Code section 1611.6. 

            County appealed, and good thing it did.

            The fee award was reversed as a matter of law in entirety.  That result was dictated by the narrow circumstances under which section 1611.6 fee entitlement arises in tax refund actions: (1) a county board fails to make requested findings, or (2) the lower court concludes the Board’s findings are so deficient that it remands the matter with directions for the Board to make findings that fairly disclose its determination on the point at issue.  However, neither of these circumstances existed in the case.  The Board actually made a finding on the $13 million exclusion, but simply didn’t explain how it found only half was a taxable asset (versus no finding at all).  The superior court did not remand to correct deficient findings, but simply did a more limited remand to calculate the refund mathematically based on the lower court’s finding that the entire $26 million was not taxable.  So, in the end, the plain meaning of the narrow fee entitlement statute warranted a reversal as a matter of law. 

BLOG UPDATE: We can now report that Chinese Theatres was certified for publication on January 4, 2021.

Celebrities, Employment, Taxation: 2017 Tax Amendments Do Not Allow Tax Reporter To “Expense” Attorney’s Fees Expended In A Sexual Harassment/Abuse Nondisclosure Settlement

“Weinsten Tax” Meant To Disincentivize Sexual Perpetrators/Harassing Employers From Trying To Prevent Reporting By Victims.

            As a response to some sexual harassers/abusers requiring use of confidentiality agreements to silence victims, Congress in December 2017 amended the Tax Code in what has been dubbed the “Weinstein tax.”

            Several bloggers indicate the repercussions of this.

            Section 162(q) of the Tax Cuts and Jobs Act of 2017 disallows the deduction of any sexual harassment or abuse settlement and attorney’s fees related to such a settlement or payment if “such a settlement or payment is subject to a nondisclosure agreement.”  Going further in that same section, attorney’s fees related to such a non-disclosure agreement are not deductible as a business expense by the harasser/abuser/employer after December 22, 2017.  This means that the Act applies after adjusted gross income is calculated. Before that calculation, this “penalty” provision removes from income any attorneys’ fees paid “in connection with any action involving a claim of unlawful discrimination.” Under the Act, plaintiffs are not taxed on the attorneys’ fees recovered from an unlawful-discrimination lawsuit, while defendants cannot include the settlement and fees as an itemized deduction.

            Recently, based on some ambiguous “under this chapter” language, the IRS clarified that “recipients of settlements or payments related to sexual harassment or sexual abuse, whose settlement or payment is subject to a nondisclosure agreement, are not precluded by section 162(a) from deducting attorney’s fees related to the settlement or payment, if otherwise deductible.”   This means that the tax liability rests with the employer (given these situations most frequently occur in an employment setting).

            California itself has passed new laws relating to nondisclosure agreements.  Under Code of Civil Procedure section 1001, a claimant cannot be silenced in California from disclosing factual information concerning actionable behavior, although the claimant can keep his/her identity confidential.  Pursuant to Government Code section 12964.5, it is an unlawful employment practice to require an employee to sign a nondisclosure agreement that denies a claimant the right to disclose information about actionable conduct. 

Taxation: Plaintiffs Obtaining Narrow Remand Relief In Tax Refund Dispute Were Not Entitled To Fee Recovery Under Revenue And Taxation Code Sections 1611.6 And 5152

Material Points Behind Initial Decision Were Disclosed And No Recovery Of Taxes Occurred.

            In SSL Landlord, LLC v. County of San Mateo, Case No. A151318 (1^st Dist., Div. 3 April 23, 2019) (published), plaintiffs appealed a denial of attorney’s fees to them, as against County, under Revenue and Taxation Code sections 1611.6 and 5152. In essence, after a bench trial from an appeal of an adverse administrative decision, plaintiffs won a very narrow remand on some deductions even though the County’s income approach to tax valuation was generally sustained. Section 1611.6 allows fee recovery if the County’s findings were arbitrary and capricious by failing to give a reasoned bases for the findings; but, here, that did not occur—the County Board did disclose its material points in the decision below. Section 5152 allows fee recovery to a plaintiff where a tax assessor ignored the law (unless in good faith thinking the governing law was unconstitutional or invalid) and there was recovery of taxes by plaintiff. In this one, plaintiff had yet to recovery taxes, the assessor did not ignore the law, and the unconstitutional/invalidity prong was not at issue. Fee denial affirmed.

Taxation: Land Partners, LLC Decision Construing Revenue And Taxation Code 5152 Now Published

Deals With Assessor Liability For Challenging A Law As Unconstitutional And Invalid.

            In our January 16, 2018 post, we discussed Land Partners, LLC v. County of Orange, a Fourth District, Division 3 decision—unpublished at the time—discussing a special fee-shifting statute under the Revenue and Taxation Code about faulty Assessor decisions.  We can now report that the opinion was certified for publication on January 22, 2018. 

Taxation: Revenue And Taxation Code Fee-Shifting Provision Did Not Allow For Fee Shifting Against Assessor Action Where There Was Simply A Misapplication Of Law

Subjective, Cognitive Decision By Assessor That Provision, Rule, Or Regulation Was Unconstitutional/Invalid Was Not Shown To Allow For Fee Shifting.

The Fountain of Taxation.  1909.  Library of Congress.

            The next case, Land Partners, LLC v. County of Orange, Case No. G053664 (4^th Dist., Div. 3 Jan. 10, 2018) (unpublished), involves a fee-shifting statute, Revenue and Taxation Code section 5152, which allows the trial judge discretion to award fees against a county assessor in a section 5152 taxpayer refund action where (1) the court must have allowed recovery of taxes; (2) the court must have found the void assessment, or portion thereof, was made in violation of a specific provision of the state constitution/property tax statutes/SBE rule or regulation; and (3) the court must find the assessor subjectively believed a specific provision of the (2) items was unconstitutional or invalid, and assessed property contrary thereto, but the assessor failed to bring the requisite declaratory relief action.

            Taxpayer moved for recovery of section 5152 fees after winning all of the elements but the subjective mindset of the assessor.  Both the trial and appellate courts found that this was fatal so as to justify the lower court’s denial of fees to taxpayer.  What the record did show was that the assessor just applied the law wrongly, which did not the satisfy the subjective mindset element. 

            Justice Ikola authored the 3-0 panel opinion in affirming the fee denial decision below.

Sanctions/Taxation: $5,000 Sanctions Against Losing “Top 500” State Income Tax Debtor Affirmed On Appeal

 

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.

Taxation: Tax Court’s Denial Of Fee Recovery To Innocent Spouse, Whose Qualified Settlement Offer Was Rejected, Was Improper Because Later IRS Concession Of Relief Was Not A Settlement

 

Internal Revenue Code Section 7340(g) Fee-Shifting Provision Was At Issue.

    Knudsen v. Comm’r of Internal Revenue, No. 13-72077 (9th Cir. July 15, 2015) (published) dealt with a very narrow issue under Internal Revenue Code section 7340(g)’s fee-shifting statutory provision:  whether the IRS’s concession after letting a claimed innocent spouse taxpayer’s qualified offer to lapse was a settlement barring fee recovery to taxpayer as a prevailing party when the concession ceded entitlement to innocent spouse equitable relief.

    What happened, in brief, was that wife claimed innocent spouse protection against a tax delinquency, which was basically denied based on the expiration of a 2-year deadline.  However, she had earlier made an offer to settle which was allowed to lapse.  She caught a lucky break when the IRS instituted a policy to give a break from the deadline such that supplemental briefing occurred before the Tax Court, with the IRS eventually conceding that wife was entitled to equitable relief.   Wife never entered into any formal settlement contract and never agreed to anything other than stipulated facts as to what occurred before the Tax Court.

    The Tax Court denied wife’s request to be declared the prevailing party under section 7340(g) based on the theory that the IRS concession was a settlement, which precluded her recovery of $39,813 in fees.  The Ninth Circuit reversed, determining that a concession was not a settlement and also observing that the fee entitlement provision did not have any requirement that the court has to pass on whether the IRS’s position was substantially justified in light of the fact this controversy arose under the Qualified Offer Rule (QOR) context.

Taxation: $252,118.75 Fee Award Against Los Angeles County For Challenging Invalidity Of Certain Tax Rules Affirmed In Reassessment Dispute

 

Revenue And Taxation Code Section 5152 Was The Fee Entitlement Predicate.

     The home of the American citizen after the tax bill has passed.  July 19, 1862.  Library of Congress. The caption reads:  "Scroggs says he is ready and willing to pay any amount of tax, but he would like them to leave his wife's crinoline and other domestic trifles alone."

     Ocean Avenue, LLC filed a complaint for a sizable $314,680.95 tax refund, arguing there had been no change in a hotel’s ownership such that a reassessment was improper. The trial court found in favor of Ocean Avenue, a judgment affirmed in an earlier appellate opinion. Then, the lower court awarded Ocean Avenue $252,118.75 in attorney’s fees under Revenue and Taxation Code section 5152, which allows for recovery of attorney’s fees by the taxpayer where the assessor failed to follow a specific tax provision and did so under the belief the law was unconstitutional/invalid (versus just having a misunderstanding of the law). (Phillips Petroleum Co. v. County of Lake, 15 Cal.App.4^th 180, 197-198 (1993).)

     The County’s appeal of the fee award was unsuccessful in Ocean Avenue, LLC v. County of Los Angeles, Case No. B249722 (2d Dist., Div. 2 July 1, 2015) (unpublished).

     The record showed that the County did challenge the constitutionality/invalidity of certain tax provisions and failed to follow Revenue and Taxation Code section 538, which requires an assessor to file a declaratory relief action when he/she challenges a specific provisions of the law (something not done here, so there was a failure to follow a specific tax provision). County’s own statements during closing argument proved the point, and it could not backtrack from them on appeal. The appellate court, in affirming, also awarded costs on appeal, which also means Ocean Avenue can seek further fees for its appellate win.

Allocation/Special Fee Shifting Statute/Taxation: Prevailing Real Property Taxpayer Properly Awarded $70,806.71 Under Revenue And Taxation Code Section 1611.6

 

Government Code Section 800 Cap Does Not Apply to Section 1611.6 Awards.

     Acting Presiding Justice Moore, in a 3-0 decision in Villa San Clemente LLC v. County of Orange, Case No. G04984 (4th Dist., Div. 3 Sept. 4, 2012) (unpublished), dealt with a $70,806.71 attorney’s fees award under Revenue and Taxation Code section 1611.6 to a prevailing taxpayer contesting a tax assessment on real property after a trial court denied relief on two arguments but remanded for consideration of one valuation issue (factoring in certain development expenses the board did not consider). Under section 1611.6, a taxpayer can be entitled to recover reasonable fees if an assessment appeal board’s initial action is deemed arbitrary and capricious, as it was on the one challenge. Taxpayer had requested $108,453.75 in fees.

     Both sides appealed, but the merits and fee orders were affirmed on appeal.

     County argued that the $7,500 cap contained under Government Code section 800, which authorizes the recovery of attorney’s fees in a civil action to review a determination of any administrative proceeding (but subject to the cap), was applicable. The appellate court said no, because Revenue and Taxation Code section 1611.6 expressly provides that the cap did not apply where a remand was necessary from the board’s action like this situation.

     The appellate court did not disagree with County’s argument that some fee apportionment was necessary because taxpayer lost two arguments, but the trial court certainly did that in reducing the requested amount and no abuse of discretion was committed in its allocation decision. Beyond that, section 1611.6 is unilateral, only authorizing fees to the successful plaintiff and encouraging taxpayers to “broadly litigate an improper assessment” regardless of whether the fee award is paid by a nongovernmental body or ultimately by public taxpayers.

Puck.  1894.  “Print shows a scene at the "Income Tax Office" with a crowd clamoring at the door where a notice states "One at a Time"; inside, a wealthy man is standing by a desk, on the floor at his feet, in his hat, are papers labeled "Personal Property Tax Sworn Off", "Tax on Capital Sworn Off", and "Tax on Investments", he kisses the Bible while a government official sits at the desk with his right hand raised.”  Library of Congress.

Prevailing Party/Special Fee Shifting Statute/Costs: Taxpayer Reaps $186,342.54 As Fee Recovery When Trial Court Remands Case Back For Assessment Board Base Tax Year Recalculation

 

Fees Justified Under Government Code Section 800 and Revenue and Taxation Code Section 1611.6; Costs Of $19,788.92 Justified Under CCP § 1032.

     Here are two companion cases from the Fifth District, Canandaigua Wine Co., Inc. v. County of Madera, Case Nos. F059256 and F059621 (Apr. 20, 2011) (unpublished), discussing fee-shifting statutes we do not frequently see.

     The fee shifting provisions are two in number. Government Code section 800 provides that a complainant prevailing in an appeal of an administrative proceeding award may be able to collect from the public entity reasonable attorney’s fees if the there was arbitrary or capricious action or conduct by the public entity. In turn, Revenue and Taxation Code section 1611.6 provides that a county board’s action is deemed to be arbitrary and capricious within the meaning of section 800 if the county board either fails to make findings of if the findings made are found to be so deficient by a reviewing court that a remand to the county board is ordered.

Assessment Lien Foreclosure: Streets And Highway Code Special Fee-Shifting Provision Does Not Require Fees To Be Taken Out of Excess Sale Proceeds

 

Fourth District, Division 2 Construes Arcane Provision, Streets and Highways Code Section 8831.

     Streets and Highways Code section 8831 provides that costs, including reasonable attorney’s fees, are fixed by the court for costs incurred by a city in pursuing a foreclosure action for unpaid assessments to repay bonds for improvements such as sewers. This foreclosure fee-shifting provision was front and center in the next case we discuss.

     In Hesperia Water District v. Myers, Case No. E046696 (4^th Dist., Div. 2 Mar. 30, 2010) (unpublished), District filed to foreclose an assessment lien of $10,831.54 as provided by Streets and Highways Code section 8830 et seq., seeking recovery for penalties, attorney’s fees pursuant to section 8831, and costs. District moved to stay the foreclosure litigation because San Bernardino County had conducted a tax lien sale of the property and was holding excess proceeds of the sale. District intended to apply to satisfy its lien from the excess proceeds, but the County was required to hold the funds for at least one year after the sale. District agreed to hold off on the litigation for purposes of this tax sale offsetting, but only if defendant owner paid current special assessments as they became due. The action was stayed based on this agreement. However, you probably know what came next: defendant denied he was personally the owner (based on a complicated LLC controversy) and failed to keep current on special assessments. Later, in case management conference statements, defendant no longer denied he owned the property. District obtained summary judgment against defendant for delinquent assessment installments as well as later requested an award of $28,098.23 in fees and costs under section 8831. The trial court eventually granted District $3,532.60 in delinquent assessments, $15,000 for reasonable attorney’s fees, and $4,364.98 in litigation costs.

     Defendant appealed the fee/costs award. It did not go well for defendant on appeal.

     His main argument was that the fees/costs award should have been charged to the District’s excess proceeds claim against the County rather than maintained against defendant. As Justice McKinster, writing for a 3-0 panel, said, “He is mistaken.” This litigation was occasioned by the delinquency of the assessment payments, which is independent of the District’s excess proceeds claim to the County. Even the tax lien sale provisions did not support defendant’s argument. (See Rev. & Tax. Code, § 3712(f).)

     Defendant also put a lot of emphasis on the argument that attorney’s fees in the litigation were “disproportionate” to the ultimate $3,532.60 recovery. Wrong, again, because there is no “proportionality” requirement in section 8831. (Accord, Bernardi v. County of Monterey, 167 Cal.App.4^th 1379, 1397 (2008) [no general proposition that a fees award under a fee statute must be commensurate with or in proportion to the degree of success obtained in the litigation].)

     Finally, defendant’s own conduct prolonged and increased the costliness of the litigation so that this weighed heavily in favor of the trial court’s award. After all, he failed to pay subsequent assessment installments, denied property ownership and then shifted course, and tried to unsuccessful displace blame onto others.

     Section 8831 does not require a memorandum of costs procedure, so the trial court properly decided the fees/costs issues on noticed motion.

     Affirmed, with District having the chance to recoup its appellate attorney’s fees in another law and motion proceeding before the trial court.

 

     Unable to "tap" into the "excess proceeds" in his fight with the water district, the defendant may have felt like the thirsty shipmates in the Rime of the Ancient Mariner:

     "Water, water, every where,
     And all the boards did shrink ;
     Water, water, every where,
     Nor any drop to drink."

Family Law: Attorney's Fees of Father Paid by Tribe Directly to Attorneys and Included as Taxable Income on a Federal Return, are Excluded as Gross Income for Purposes of Calculating Child Support

 

But Fourth District, Division One Also Rules that on Remand,Trial Court May Consider Whatever Impact the Attorney's Fees Have on Living Expenses and Resources.

     The typical attorney's fees issue addressed by the courts in family law disputes is:  who should pay attorney's fees, and how much?  The next case involves an altogether different attorney's fees issue:  did the trial court abuse its discretion by including in the father's income for purposes of guideline support attorney's fees that his tribe paid on his behalf?  M.S. v. O.S., Case No. D053996 (4th Dist., Div. 1, August 7, 2009) (certified for publication).

     The father is a member of the Sycuan Band of the Kumeyaay Nation.  He was unemployed.  However, he received $23,344 in monthly income from the tribe.  His 2007 federal income tax form showed the tribe paid him a total of $319,776.21 that year, including $35,162.25 for legal fees.  The father also received a three-bedroom, two-bath home on the reservation free of charge.  The trial court noted that the mother was a teenager with no high school education who had given birth prematurely to twins, and imputed no income to her.  In calculating the father's child support responsibilities, the trial court included the the $35,162.25 that the tribe paid directly to his lawyers.

     In a 3-0 opinion authored by Justice McConnell, the Court of Appeal, held that the father had rebutted the presumption that his income was as stated in his federal income tax statement, to the extent the tax return amount included the attorney's fees benefit, and thus no benefit was to be included in the guideline amount for purposes of computing annual gross income and child support.  See Family Code section 4058.  However, on remand, the trial court was entitled to consider under Family Code section 4057 whatever impact attorney's fees have on living expenses and resources.  Section 4057 allows for the rebuttal by admissible evidence of the presumptive correctness of the guideline support, because of various factors, including that guideline support "would be unjust or inappropriate due to special circumstances."

     BONUS:  What is the Sycuan Band of the Kumeyaay Nation, and how is the tribe able to pay O.S. $319,776.21 a year?  We found a clue in the opinion which we corroborated by checking Wikipeida.  The opinion states:  "Here, O.S. is unemployed and he receives his entire income from the Sycuan tribe.  He produced no evidence from the tribe or otherwise that there is any plight in the Indian gaming industry that may affecft future bonuses, either in frequency or amount."  Check out Sycuancasino.com ("2000 Slots, 63 Tables & Great Food - Friendly & Close To San Diego.).

     According to that ever useful and often reliable source, Wikipedia,      "The Sycuan Band of the Kumeyaay Nation is a minor tribal band of Mission Indians hailing from around the El Cajon, California, area."  The Wikipedia article further explains:  "The Sycuan band opened a gambling facility on their reservation (located in the hills east of El Cajon, California) in 1983. As a direct evolution from that successful venture, they now run a profitable casino, as well as an off-reservation golf course (purchased from a previous owner) and hotel (new construction on the golf course site) . . . ."  The tribe also purchased a well-known San Diego landmark, the U.S. Grant Hotel.

Special Fee-Shifting Statute In Taxpayer Dispute: Appellate Court Reverses $220,000 Fee Award In Taxpayer's Favor As Against Franchise Tax Board

First District, Division 4 Determines FTB Was Substantially Justified in Defending Case.

     In a lawsuit against the State of California (including the Franchise Tax Board) for a tax refund, a prevailing taxpayer may be awarded attorney's fees unless the State of California "establishes that its position in the proceeding was substantially justified." (Rev. & Tax. Code, §§ 19717(a), (c)(2)(B)(i).) The next case is one where taxpayer garnered a substantial fees award of $220,000 against the Franchise Tax Board in a vigorously contested case in which there was divergent documentary evidence and oral testimony that needed to be sorted out. On appeal, the First District, Division 4 reversed the fee award in Garcia v. Franchise Tax Board, Case No. A122710 (1^st Dist., Div. 4 July 16, 2009) (unpublished).

     The main reason for the reversal was the appellate panel's belief that the fee award was done "in hindsight" rather than looking at whether FTB's position was tenable at the outset of trial. Under the specific facts, the documentary evidence was subject to conflicting interpretations and the evidence was far from conclusive. Due to these factors, reversal was dictated.

Winning Plaintiffs In Tax Refund Cases Against Franchise Tax Board Can Seek Fees Under Either Revenue And Taxation Code Section 19717 Or Code of Civil Procedure Section 1021.5

First District, Division One Finds Revenue and Taxation Code section 19717 is Not the Exclusive Means of Recovering Attorney's Fees in a Tax Refund Case.

            Okay, for those tax practitioners representing California state taxpayers, we have a post of interest to you on a recent published decision coming out of the First District, Division One. 

            Revenue and Taxation Code section 19717 provides that a party who brings a civil proceeding against the state to recover franchise taxes may recover reasonable litigation costs, including attorney's fees, if these requirements are met:  (1) the suit is brought in a California court; (2) the party exhausted its administrative remedies under applicable tax laws; (3) the party establishes that the position of the state was not substantially justified (judged from an objective reasonable person standard, with the burden on the Franchise Tax Board); and (4) the party substantially prevails.  (Lennane v. Franchise Tax Bd., 51 Cal.App.4^th 1180, 1183-1184 (1996).)

            In contrast, Code of Civil Procedure section 1021.5—the private attorney general statutory provision—allows a successful party to obtain fees in an action resulting in the "enforcement of an important right affecting the public interest," conferring a "significant benefit …on the general public or a large class of persons."

            Northwest Energetic Services, LLC v. Franchise Tax Bd., 159 Cal.App.4^th 841, 869-875 (2008), rev. denied, decided by the First District, Division Five, held that section 19717 is not the exclusive means of recovering attorney's fees in a tax refund suit.  Alternatively, the successful taxpayer might be able to recoup fees if the taxpayer can satisfy the requisites of section 1021.5 (and the common fund doctrine). 

            Northwest's holding on this issue was followed by Division One of the same district in Ventas Finance I, LLC v. California Franchise Tax Bd., Case Nos. A116277 and A117751 (1^st Dist., Div. 1 Aug. 11, 2008) (certified for publication).  There, a limited liability company obtained a tax refund of $29,450 and a postjudgment award of $215,016 in attorney's fees (1.5 multiplier applied to a $143,343.75 lodestar) under section 1021.5.  Division One, in a 3-0 decision authored by Justice Stein, reversed a portion of the refund order and remanded for a redetermination of fee eligibility and (if eligibility was found) amount.  However, it also held that "section 19717 is not the exclusive means of obtaining attorney fees in a tax refund suit, and that fees may be awarded pursuant to Code of Civil Procedure section 1021.5, if the criteria specified therein are otherwise established," following the rationale of Northwest.  (Slip Opn., at pp. 2, 29-30.)  This alternative choice of fee entitlement bases was important to the winning taxpayer in Ventas Finance I, because it apparently did not file an appeal to the State Board of Equalization—a potential failure to exhaust administrative remedies that would render the taxpayer ineligible for relief under section 19717(b)(1).