Stettner v. Mercedes-Benz Fin. Serv. USA

316 Cal. Rptr. 3d 439

Lisa STETTNER et al., Plaintiffs and Appellants,

v.MERCEDES-BENZ FINANCIAL SERVICES USA, LLC et al., Defendants and Respondents.

C094345

Court of Appeal, Third District.

Filed November 29, 2023

APPEAL from a judgment of the Superior Court of Sacramento County, Christopher E. Krueger, Judge. Affirmed. (Super. Ct. No. 34-2020-00282700-CU-BT-GDS)

David Roger Markham, The Markham Law Firm, 888 Prospect Street, Suite 200, La Jolla, CA 92037, Malgorzata K. Realin, The Markham Law Firm, 888 Prospect Street, Suite 200, La Jolla, CA 92037, Lisa Rose Brevard, The Markham Law Firm, 888 Prospecte Street, Suite 200, La Jolla, CA 92037, for Plaintiff and Appellant.

Erik W. Kemp, Severson & Werson, One Embarcadero Center, Suite 2600, San Francisco, CA 94111, Mark D. Lonergan, Severson & Werson, One Embarcadero Center, Suite 2600, San Francisco, CA 94111, Jan T. Chilton, Severson & Werson, for Defendant and Respondent Mercedes-Benz Financial Services USA, LLC.

Kara D. Siegel, Deputy Attorney General, California Department of Justice, 600 West Broadway, Ste. 1800, San Diego, CA 92101-3375, Andrea Michelle Schoor, Deputy Attorney General, Office of the Attorney General, 300 S. Spring Street, Suite 1702, Los Angeles, CA 90013-1256, Lisa W. Chao, Deputy Attorney General, Office of the State Attorney General, 300 S. Spring Street, Suite 1702, Los Angeles, CA 90013-1256, Ron Bonta, Attorney General, Tamar Pachter, Assistant Attorney General, Molly K. Mosley, and Debbie J. Vorous, Deputy Attorneys General, for Defendant and Respondent California Department of Tax and Fee Administration.

McADAM, J.^*

Appellants Lisa Stettner (Stettner) and Michele Zousmer (Zousmer) challenge the taxability of a vehicle turn-in fee respon- dent Mercedes-Benz Financial Services USA, LLC (Mercedes-Benz) charges at the end of their lease agreements. Without first submitting their claims to respondent California Department of Tax and Fee Administration (Department), appellants filed suit for violation of California’s Unfair Competition Law, Business and Professions Code sections 17200 and 17203 (UCL) and for declaratory relief. Both causes of action required determination of the taxability question. The trial court sustained respondents’ demurrers and denied appellants’ request for leave to amend the complaint to include a copy of the lease agreements.

We affirm the trial court’s order sustaining the demurrers because appellants have failed to exhaust their administrative remedies, and they are not entitled to a judicially created remedy because there is no prior legal determination resolving the taxability issue. We also conclude that the trial court properly denied leave to amend because Mercedes-Benz’s definition of the vehicle turn-in fee in the lease agreements does not cure the defects in appellants’ first amended complaint.

At its core, this is a tax refund action that cannot be maintained in any court unless the Department first determines the taxability question.

BACKGROUND

Because this appeal follows a sustained demurrer, we summarize the underlying facts as alleged in the first amended complaint. (MCI Communications Services, Inc. v. California Dept. of Tax & Fee Administration (2018) 28 Cal.App.5th 635, 642, 239 Cal.Rptr.3d 241.)

Appellants each signed the same form automobile lease agreement with Mercedes-Benz. Under the lease, Mercedes-Benz charges appellants a " ‘Vehicle Turn-In Fee’ " at the end of the lease term. This vehicle turn-in fee "cover[s] the costs of the lessor in reconditioning and/or repairing a vehicle, including parts and labor, following the end of a lease so the vehicle can be disposed of in the wholesale or retail markets as a used car."

When Stettner’s lease ended, Mercedes-Benz charged Stettner and Stettner paid, among other things, the vehicle turn-in fee plus a $46.11 tax on the fee. The lease end statement from Mercedes-Benz characterized the tax as a "[s]ales [t]ax." Mercedes-Benz remitted the tax to the Department. Zousmer’s lease had not expired when this action was filed, but she will be subject to the same tax on the vehicle turn-in fee, and Mercedes-Benz will remit the tax to the Department, upon expiration of her lease. Appellants maintained the tax on the vehicle turn-in fee was unlawful under California Code of Regulations, title 18, section 1660 (Regulation 1660).

Although Mercedes-Benz described the tax on the vehicle turn-in fee as a sales tax, the Department "has taken the position that the tax collected is a use tax." Appellants, on the other hand, contend that the tax collected on the vehicle turn-in fee is a sales tax. They do not know whether Mercedes-Benz remitted the tax to the Department as a sales tax or a use tax, but argue the characterization of the tax affects only the remedies available and not its lawfulness.

Appellants claimed they brought the instant action pursuant to Revenue and Taxation Code section 6901.5.¹ The first amended complaint asserts two causes of action: (1) violation of the UCL against Mercedes-Benz for collecting unlawful tax under Regulation 1660; and (2) declaratory relief as to the propriety of the tax, the classification of the tax, and the procedures for refund against Mercedes-Benz and the Department.

Appellants seek the following remedies under both causes of action: (1) a judicial declaration that collecting tax on the vehicle turn-in fee is unlawful under Regulation 1660; (2) a public injunction prohibiting Mercedes-Benz from collecting taxes on the vehicle turn-in fee and from remitting such taxes to the Department; (3) an order requiring Mercedes-Benz to provide an accounting of all such taxes collected and remitted to the Department in the last three years; (4) a judicial declaration determining whether the tax collected on the vehicle turn-in fee is a sales tax or a use tax; (5) if the court determines the tax is a sales tax, an order requiring Mercedes-Benz to file for refunds with the Department and place such refunds in a common fund for the benefit of consumers; (6) if the court determines the tax is a use tax, a judicial declaration as to whether Mercedes-Benz or the consumers should file for refunds with the Department; (7) if the court decides the consumers should file for refunds, an order directing the Department to process the refund claims submitted by Stettner and others; and (8) if the court decides Mercedes-Benz should file for said refunds, an order requiring Mercedes-Benz to file for refunds with the Department and placing any amounts received in a common fund for the benefit of the consumers.

After the commencement of this action, Stettner filed a provisional use tax refund claim with the Department, seeking a refund of the $46.11 tax on the vehicle turn-in fee. This claim was intended to exhaust administrative remedies in the event the tax was characterized as a use tax. The first amended complaint does not allege the Department has responded to Stettner’s claim.

Respondents demurred to the first amended complaint. Appellants attached a copy of Zousmer’s lease agreement with Mercedes-Benz to their counsel’s declaration accompanying their omnibus opposition. The lease agreement defined the vehicle turn-in fee as "a fee to cover the cost of disposing of the vehicle, commonly referred to as a disposition fee."

At the demurrer hearing, appellants’ counsel requested leave to amend the complaint to attach the lease and to allege that Mercedes-Benz deemed the vehicle turn-in fee as a disposition fee in the lease. According to appellants’ counsel, this was a material fact because, "although … referenced in the complaint and paraphrased, the Court did not have before it the full lease language which stated that the fee is to cover the cost of disposing the vehicle …."

The trial court sustained the demurrers without leave to amend, concluding that appellants failed to exhaust their administrative remedies before filing the claim, and also that Mercedes-Benz was protected by the " ‘safe harbor’ " provided in section 6901.5 because it remitted the tax to the Department. It also rejected appellants’ argument that they were entitled to a judicial remedy under Javor v. State Board of Equalization (1974) 12 Cal.3d 790, 117 Cal.Rptr. 305, 527 P.2d 1153 (Javor), finding the issue of the taxability of the vehicle turn-in fee remained unresolved.

Appellants timely appealed.

DISCUSSION

I Standard of Review

[1] We apply two separate standards of review on appeal from a judgment of dismissal after the trial court sustained a demurrer without leave to amend. (Aguilera v. Heiman (2009) 174 Cal.App.4th 590, 595, 95 Cal.Rptr.3d 18 (Aguilera).)

[2] First, we review the complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory, or whether the trial court erred in sustaining the demurrer as a matter of law. (Aguilera, supra, 174 Cal. App.4th at p. 595, 95 Cal.Rptr.3d 18.) In doing so, we treat all material facts properly pleaded and all reasonable inferences which can be drawn therefrom as true. (Bush v. California Conservation Corps (1982) 136 Cal.App.3d 194, 198, 185 Cal. Rptr. 892.) But this presumption does not extend to " ‘contentions, deductions or conclusions of fact or law’ " in the complaint. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

[3] Second, we decide whether the trial court abused its discretion in denying leave to amend. (Aguilera, supra, 174 Cal. App.4th at p. 595, 95 Cal.Rptr.3d 18.) We will not find an abuse of discretion unless there is a reasonable possibility that the defect in the complaint may be cured by amendment. (Ibid.)

[4] Under both standards, the appellant bears the burden of demonstrating that the trial court erred. (Aguilera, supra, 174 Cal.App.4th at p. 595, 95 Cal. Rptr.3d 18.)

II Legal Background

[5–7] California's Sales and Use Tax Law (§ 6001, et seq.) "embodies a comprehensive tax system created to impose an excise tax...