Pacific-Union Club v. Superior Court

Page 287

283 Cal.Rptr. 287

232 Cal.App.3d 60

The PACIFIC-UNION CLUB, Petitioner, v. The SUPERIOR COURT of San Francisco County, Respondent;

STATE FRANCHISE TAX BOARD, Real Party in Interest.

STATE FRANCHISE TAX BOARD, Plaintiff and Respondent, v. PACIFIC-UNION CLUB, Defendant and Appellant.

Nos. A049863, A049416.

Court of Appeal, First District, Division 5, California.

July 10, 1991.

Review Denied Sept. 26, 1991.

William I. Edlund, Walter R. Allan, Dennis K. Bromley, Craig E. Stewart, Pillsbury, Madison & Sutro, San Francisco, for petitioner.

No appearance for respondent.

John K. Van de Kamp, Former Atty. Gen., Daniel E. Lungren, Atty. Gen., Richard F. Finn, Julian O. Standen, Deputy Attys. Gen., San Francisco, for real party in interest.

LOW, Presiding Justice.

Discrimination based on characteristics such as race, sex, age, and religion is repugnant in any form. Nevertheless, purely private clubs are free to engage in such discrimination. However, members of private discriminatory clubs may not deduct club-related business expenses on their state income tax returns. The Franchise Tax Board seeks disclosure of a private club's membership list in order to test for compliance with the ban on deductions. This raises a sensitive issue of First Amendment associational privacy. To retain its vitality the First Amendment must protect the ideas society condemns as well as those it embraces. In this case we must therefore prevent disclosure to the government of a membership list of a private social club.

The Pacific-Union Club (the Club) seeks a writ of mandate to compel respondent superior court to vacate its order enforcing an administrative subpoena duces tecum (Gov.Code, §§ 11187, 11188) issued by real party Franchise Tax Board (the Board). The Club is a private club which concededly engages in discriminatory practices. The Board subpoenaed the Club's membership list to determine whether any members had violated a tax regulation banning business deductions for private clubs which discriminate. The Club contends enforcement of the subpoena would violate the First Amendment associational privacy rights of its members, because the Board has not shown a compelling state interest for disclosure. Given the Board's lack of grounds to believe that any Club member has violated the regulation, we are constrained to protect the right of associational privacy however much we disagree with the practice of discrimination. We issue the writ of mandate.

I

The Club describes itself as a purely private social organization. Article I of the Club's constitution provides that the Club's exclusive purpose is "to promote social intercourse among its members." The Club maintains a restaurant and other club facilities, for the exclusive use of members and a limited number of guests, in the former Flood mansion atop San Francisco's Nob Hill. Club members are prohibited from conducting business on Club premises. Club members must certify that charges incurred for use of Club facilities, including meals, were not incurred in the furtherance of trade, business or a profession.

The Club is one of the most selective private clubs in California. Membership is restricted to 760 resident members who live in the Bay Area, 50 other California members, and 148 out-of-state members. The Club does not advertise or recruit new members, nor does it encourage expansion of its membership. The Club's membership list is strictly private and is not disclosed outside the Club. Club functions are also private; photography is generally prohibited and members and guests are prevented from describing Club functions to the media.

The rules for admission provide for a deliberate, gradualistic process for qualification as a new member, with a waiting period of up to 12 months. The admissions process includes the distribution of questionnaires to the candidate's sponsors, plus numerous personal interviews. Throughout the several stages of the process the candidate is continuously and subjectively evaluated for the degree of congeniality and compatibility with existing members. Membership is ultimately decided by a secret ballot, at which only two negative votes defeat the application. The Club describes this process as "arduous" and as "one of the most highly selective in the country."

The Club's admissions process is also discriminatory. In negotiations with the Board, in the superior court proceedings, and in this court, the Club conceded that it discriminates on the basis of age by requiring all prospective members to be at least 25. The Club is also widely reputed among residents of the San Francisco Bay Area to discriminate against women, and to permitonly males to assume membership. The Board represented below that the subpoena was issued on the basis of "uncontroverted evidence that the Club discriminates against women." The only evidence of sex discrimination introduced in the trial court, however, was the Club's corporation exemption tax application, dated June 11, 1952, which defines its membership qualifications as "[a]ny male over 25 years of age approved by the current members." While the Club's reputation for sex discrimination is a widely held belief, this court is limited to record evidence. This 40-year-old document is the only record evidence of present sex discrimination.

The Board promulgated section 17201 of title 18, California Code of Regulations, relating to the Personal Income Tax Law. Section 17201 provides in part that "[o]n and after January 1, 1988, business expense tax deductions will not be allowed with respect to payments to a club which restricts membership or the use of its ... facilities on the basis of age, sex, race, religion, color, ancestry or national origin." ¹ Because the regulation applies to the Club on the conceded ground of age discrimination, the accuracy of the Club's widespread reputation for sex discrimination need not be conclusively resolved for purposes of our analysis.

The Board issued an administrative subpoena duces tecum for the Club's membership list, seeking the names, addresses and social security numbers of all persons who were members of the Club at any time in 1988. ² The subpoena's stated purpose was "to obtain records which the Franchise Tax Board requires to determine whether Pacific Union Club members have taken improper tax deductions on 1988 California tax returns with respect to expenses incurred at the Pacific Union Club." In previous informal negotiations Board representatives indicated that the membership list would be used to conduct random audits of individual Club members' state income tax returns, which would include, but not be limited to, the deduction of Club dues and expenses. The Board acknowledged that it had no evidence that any Club member took such deductions and that it did not expect to find much noncompliance with the regulation.

The Club had already informed its membership that the regulation applied and that business deductions for Club expenses were illegal. Since August1987 each member's monthly statement included a reminder that all Club expenses are to be paid from a member's personal funds and are not to be made in furtherance of a trade, business or profession. Since April 1, 1988, each monthly statement has included this instruction: "DUES ARE NOT DEDUCTIBLE AS CHARITABLE CONTRIBUTIONS. DUES & OTHER EXPENDITURES ARE NOT DEDUCTIBLE AS ORDINARY & NECESSARY BUSINESS EXPENSES FOR FEDERAL & CALIFORNIA STATE INCOME TAX OR FRANCHISE TAX PURPOSES."

The Club, citing its members' First Amendment right of associational privacy, resisted the subpoena. The Board petitioned the superior court for an order for its enforcement. (Gov.Code, §§ 11187, 11188.) Government Code section 11188 provides that if an administrative subpoena "was regularly issued" by the head of the pertinent administrative department, "the court shall enter an order" for its enforcement. The Board argued that the information sought was "relevant to an investigation currently being conducted by the Board to ensure compliance" with the tax regulation, and was thus regularly issued by the head of the Board.

At oral argument below the Board candidly admitted it had no information concerning any illegal deductions by members: "We [need] to determine the audit pool to find out whether or not any member of the Club has violated the regulations. It is the only way we have of determining who the members are ... at this time we do not have any information--specific information about whether any specific member is in violation of the regulations."

The trial court granted the motion for enforcement of the order, and directed disclosure of the membership list. The court stayed its order pending the expected appellate challenge. This petition followed. ³

II

The Board argues that this court may not examine the merits of the Club's privacy claim because article XIII, section 32 (hereafter section 32) of the California Constitution prevents any court from interfering with the Board's right to obtain taxpayer information. Section 32, the so called "anti-injunction provision," states: "No 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."

"The policy behind section 32 is to allow revenue collection to continue during litigation so that essential public services dependent on the funds are not unnecessarily interrupted. [Citation.]" (Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 283, 165 Cal.Rptr. 122, 611 P.2d 463.) Section 32 "means what it says" (id., at p. 284, 165 Cal.Rptr. 122, 611 P.2d 463), and bars not only suits for injunctive relief but those seeking declaratory relief or mandamus. (Id., at...