Union Pacific Railroad v. State Board of Equalization

776 P.2d 267, 49 Cal. 3d 138, 260 Cal. Rptr. 565, 1989 Cal. LEXIS 1531
CourtCalifornia Supreme Court
DecidedJuly 31, 1989
DocketS001602
StatusPublished
Cited by20 cases

This text of 776 P.2d 267 (Union Pacific Railroad v. State Board of Equalization) is published on Counsel Stack Legal Research, covering California Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Union Pacific Railroad v. State Board of Equalization, 776 P.2d 267, 49 Cal. 3d 138, 260 Cal. Rptr. 565, 1989 Cal. LEXIS 1531 (Cal. 1989).

Opinions

Opinion

EAGLESON, J.

The State Board of Equalization (board) seeks to obtain from Union Pacific Railroad Company (Union Pacific) portions of a confidential corporate plan that reveal Union Pacific’s strategy for possible future acquisitions. Union Pacific refused to produce the information on the ground that it is not reasonably relevant to a legitimate inquiry by the board regarding assessment of Union Pacific’s existing taxable property. The board rejected Union Pacific’s explanation and imposed a penalty assessment against it. Union Pacific seeks judicial relief from the board’s demand for information and from the penalty assessment.

The board contends the California Constitution, article XIII, section 32 (hereafter article XIII, section 32), prohibits any judicial review of matters relating to a tax assessment until after the assessee has paid the tax and filed an action for a tax refund. We hold that Union Pacific’s action is not barred [143]*143by article XIII, section 32, because the information as to possible future acquisitions is not reasonably relevant to the board’s assessment function. The penalty assessment was therefore improper and can be challenged before it is paid.

Facts

Union Pacific operates an interstate railroad system. The board is required to assess annually Union Pacific’s taxable property. (Cal. Const., art. XIII, § 19; Rev. & Tax. Code, § 721.) In 1984, the board requested Union Pacific to produce its 1983 Strategic Plan (the plan). It contains among other things: (1) an assessment of major market and commercial opportunities and a discussion of the company’s strategic direction; (2) estimates of future asset requirements; (3) forecasts of future capital and financing requirements for potential acquisitions; and (4) a self-evaluation of the strengths and weaknesses of groups within Union Pacific and of its competitors in related industries. Union Pacific analyzes in the plan what assets the company may or may not purchase in future years and projects what income might be produced by the expanded company if Union Pacific acquires those assets.

Union Pacific produced the parts of the plan dealing with currently held property but declined to produce the portions relating to possible future acquisitions of new property and the projected income from those possible acquisitions.1 Union Pacific contended this information was irrelevant to the board’s function of assessing the value of existing property; that this information was highly sensitive and confidential; and that its disclosure would cause irreparable harm to Union Pacific.

The board rejected Union Pacific’s explanation and imposed a $5 million penalty assessment pursuant to Revenue and Taxation Code section 830, which resulted in an additional tax liability of approximately $57,500. Union Pacific petitioned the board for abatement of the penalty. The board responded by issuing a subpena demanding immediate production of the entire plan.

Union Pacific petitioned the San Francisco Superior Court for a writ of mandate or prohibition quashing the subpena. The court issued an alterna[144]*144tive writ and order to show cause. The board obtained a continuance of the hearing of the matter and agreed to hold in abeyance until after the hearing Union Pacific’s petition to the board for abatement of the penalty.

On November 30, 1984, the trial court entered a judgment issuing a peremptory writ of prohibition “permanently restraining and prohibiting the California State Board of Equalization from demanding or requiring the production of the Union Pacific Railroad Company 1983 Strategic Plan.” On December 7, the board filed a notice of appeal and a return to the writ. The return stated that the board “plans to take no further action to demand or require the production of the Union Pacific Railroad Company’s 1983 Strategic Plan.”

On December 11, one day after the date on which unpaid taxes became delinquent, the board denied Union Pacific’s pending petition for abatement of the $5 million penalty assessment despite the board’s representation four days earlier that it would take no action to require production of the plan. Union Pacific paid approximately one-half of the penalty tax in December 1984 with its first installment payment of the 1984-1985 property taxes.

Contending the board’s decision was in violation of the writ of prohibition, Union Pacific applied to the trial court for an order to show cause why the board should not be held in contempt for refusing to abate the penalty assessment. The trial court declined to hold the board in contempt but expressly found that the board knew the court’s intent in issuing the writ of prohibition was “to prohibit the imposition of any penalty on UPRR [Union Pacific] for not producing its 1983 Strategic Plan” and that the board had violated this intent by refusing to abate the penalty assessment. The trial court prohibited the board from imposing or enforcing any penalty against Union Pacific and from acting to prevent Union Pacific from reducing its second installment payment for 1984-1985 taxes by the amount of the penalty previously paid. The board appealed from that order.

After further briefing and hearing, the trial court found the board’s actions in refusing to abate the penalty “were not based on good faith, were frivolous and caused unnecessary delay” within the meaning of Code of Civil Procedure section 128.5. The trial court awarded Union Pacific $9,950.50 in attorney fees and costs. The board appealed from that order as well.2

[145]*145The Court of Appeal reversed the three orders and remanded to the trial court for a determination of whether the information sought by the board was reasonably relevant to its assessment of Union Pacific’s taxable property. Although the board was the prevailing party, it petitioned this court for review of the Court of Appeal’s decision, arguing that the California Constitution prohibits any judicial review of matters relating to a tax assessment until after the assessee has paid the tax and filed an action for a tax refund. We granted review and held the matter pending our decision in Western Oil & Gas Assn. v. State Bd. of Equalization (1987) 44 Cal. 3d 208 [242 Cal.Rptr. 334, 745 P.2d 1360] (Western Oil), which also involved the propriety of a prepayment judicial challenge to a board request for information.

After we decided Western Oil, we transferred this case to the Court of Appeal for reconsideration in light of our decision. In its second opinion, the Court of Appeal concluded it was unable to find that the information as to Union Pacific’s possible future activity is not reasonably relevant to the board’s assessment of Union Pacific’s property. The Court of Appeal reversed the order granting the writ of prohibition and the order awarding attorney fees but affirmed the order prohibiting the imposition of a penalty. We granted review a second time.

Discussion

1. The Court of Appeal applied the correct standard in reviewing the order granting the writ of prohibition.

The Court of Appeal held that “. . .

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Bluebook (online)
776 P.2d 267, 49 Cal. 3d 138, 260 Cal. Rptr. 565, 1989 Cal. LEXIS 1531, Counsel Stack Legal Research, https://law.counselstack.com/opinion/union-pacific-railroad-v-state-board-of-equalization-cal-1989.