U.S. Court of Appeals for the Federal Circuit, In Re: Google LLC, Docket No. 2023-101

Motion to Transfer

 

Venue

 

Jurisdiction

 

Federal Law

 

 

 

 

On Petition for Writ of Mandamus to the United States District Court for the Western District of Texas in No. 6:21-cv-00985-ADA

 

 

 

Google LLC (“Google”) petitions for a writ of mandamus directing the United States District Court for the Western District of Texas to vacate its order denying Google’s motion to transfer and to transfer the case to the United States District Court for the Northern District of California. (…) For the following reasons, we grant the petition and direct transfer.

 

 

Pursuant to 28 U.S.C. § 1404(a), a district court may transfer any civil action to any other district court where the action might have been brought for the convenience of parties and witnesses and in the interest of justice.

 

 

In re Planned Parenthood Fed. of Am., Inc., 52 F.4th 625, 629 (5th Cir. 2022), when a movant “demonstrates that the transferee venue is clearly more convenient” the district court “should” grant transfer, In re Volkswagen of Am., Inc., 545 F.3d 304, 315 (5th Cir. 2008) (en banc); see also Planned Parenthood, 52 F.4th at 629 (“The ultimate inquiry is whether the destination venue is ‘clearly more convenient than the venue chosen by the plaintiff.’”) (quoting Volkswagen, 545 F.3d at 315).

 

 

The Fifth Circuit has identified “private and public interest factors,” which are “not necessarily exhaustive or exclusive,” to be evaluated in connection with determining whether a case should be transferred. Planned Parenthood, 52 F.4th at 630 (internal quotation marks omitted). The private interest factors are: (1) the relative ease of access to sources of proof; (2) the availability of compulsory process to secure the attendance of witnesses; (3) the cost of attendance for willing witnesses; and (4) all other practical problems that make trial of a case easy, expeditious, and inexpensive. Id. The public interest factors are: (1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflict of laws or in the application of foreign law. Id.

 

 

The district court held that the “administrative difficulties flowing from court congestion” factor weighed slightly against transfer. While we defer to the district court’s assessment of the average time to trial data, see Planned Parenthood, 52 F.4th at 631; In re Genentech, Inc., 566 F.3d 1338, 1347 (Fed. Cir. 2009) (“We do not disturb the district court’s suggestion that it could dispose of the case more quickly than if the case was transferred to the Northern District of California.”), in this case it was a clear abuse of discretion to accord this factor any weight, see Juniper, 14 F.4th at 1322 (discounting time-to-trial difference because there was no “need of a quick resolution” where patentee lacked “position in the market . . . being threatened”). It appears undisputed that Jawbone (unlike its predecessor owners of the patents) is not engaged in product competition in the marketplace and is not threatened in the market in a way that, in other patent cases, might add urgency to case resolution and give some significance to the time-to-trial difference. Nor does the record reveal any other basis on which to accord significance to whatever greater speed the district court speculates it could reach trial as compared to Northern California. See Genentech, 566 F.3d at 1347 (describing this factor as “most speculative”). This factor, then, is neutral.

 

 

By contrast, the events giving rise to this patent infringement suit clearly have a particularized connection with Northern California. The patented technology was invented in, and the patents prosecuted from, that forum. Additionally, the district court found that Google developed the accused products in the Northern District, notwithstanding Google’s separate office in Austin. Appx932; see also Def. Distributed v. Bruck, 30 F.4th 414, 435 (5th Cir. 2022) (“The local interest in having localized interests decided at home, ‘most notably regards not merely the parties’ significant connections to each forum writ large, but rather the significant connections between a particular venue and the events that gave rise to a suit.’”) (quoting In re Apple Inc., 979 F.3d 1332, 1345 (Fed. Cir. 2020)). It was clear error not to find that the local interest factor favors transfer.

 

 

We agree with the district court, and both parties, that the “familiarity of the forum with the law that will govern the case” and the “problems associated with conflicts of law” are neutral.

 

 

In sum, on the record before us, four factors favor transfer and four factors are neutral. No factor weighs against transfer. The center of gravity of this action, focusing on the Volkswagen factors and the overriding convenience inquiry, is clearly in the Northern District of California, not in the Western District of Texas. The district court clearly erred in finding otherwise and its decision to deny Google’s motion to transfer was a clear abuse of discretion.

 

 

 

 

(U.S. Court of Appeals for the Federal Circuit, Feb. 1^st, 2023, In Re: Google LLC, Docket No. 2023-101)

U.S. Court of Appeals for the Seventh Circuit, Yancheng Shanda Yuanfeng Equity Investment Partnership v. Wan, Docket No. 22-1199

Recognition and Enforcement in the U.S. of a Foreign Judgment

 

Default Judgment

 

Illinois’s Uniform Foreign-Country Money Judgments Recognition Act

 

Subject Matter Jurisdiction

 

Diversity of Citizenship

 

Citizenship of a Corporation

 

Citizenship of an LLC

 

Citizenship of a Partnership

 

The Citizenship of Each Partner Must Be Established

 

 

 

 

 

Appeal from the United States District Court for the Central District of Illinois

No. 2:20-cv-02198

 

 

In May 2019, Yancheng Shanda Yuanfeng Equity Investment Partnership (“Yancheng Shanda”) filed a contract claim in a Chinese court against Kevin Wan, his company, and his brother. The Chinese court entered a default judgment against Mr. Wan after he failed to appear. In July 2020, Yancheng Shanda filed a complaint in the United States District Court for the Central District of Illinois, seeking enforcement of the Chinese judgment under the Illinois foreign judgment recognition law. In that complaint, it predicated subject matter jurisdiction on diversity of citizenship.

 

 

The district court, determining that the Chinese judgment was enforceable under Illinois law, granted Yancheng Shanda’s motion for summary judgment. Mr. Wan now appeals the judgment of the district court. Because the factual predicates for the district court’s jurisdiction are not established firmly in the existing record, we vacate the judgment of the district court and remand the case for further proceedings consistent with this opinion.

 

 

Yancheng Shanda is a partnership based in Yancheng Shanda City, Jiangsu Province, People’s Republic of China. Mr. Wan is a United States citizen and the founder, owner, and chief executive officer of Zmodo Technology Shenzhen Corp., Ltd. (“Shenzhen Zmodo”), a Chinese company and global provider of security cameras.

 

 

(…) In the present action to enforce the Chinese court’s judgment, Mr. Wan maintains that he did not receive the summons mailed by the Chinese court or any other physical mail regarding the Chinese suit. He claims that he had no notice of the underlying action until August 3, 2020, when he received notice of the present attempt to enforce the judgment.

 

 

Having received a default judgment against Mr. Wan in the Chinese proceedings, Yancheng Shanda filed a complaint in the Central District of Illinois on July 13, 2020. It sought recognition and enforcement of the Chinese court’s judgment against Mr. Wan under Illinois’s Uniform Foreign-Country Money Judgments Recognition Act (“Recognition Act”), 735 ILCS 5/12-661 et seq. Invoking the district court’s diversity jurisdiction, Yancheng Shanda alleged that it was “a limited partnership organized under the laws of China” and therefore was “a citizen of a foreign state.”

 

 

The next day, the district court ordered Yancheng Shanda to make “adequate jurisdictional allegations.” The court explained that a partnership has the citizenship of all the partners and that, because Yancheng Shanda did not list its partners and their citizenships, its allegations were “insufficient to adequately establish diversity jurisdiction.” Yancheng Shanda then filed an amended complaint with an attachment alleging the Chinese citizenship of each of its four partners. Specifically, Yancheng Shanda alleged that each of its partners was a limited liability company (“LLC”) “organized under the laws of China and with its principal place of business in China.” Of particular relevance here, Yancheng Shanda alleged that one partner, Jiangsu Zhonghan Yancheng Industrial Park Investment Co., Ltd. (“Jiangsu Zhonghan”), was a Chinese LLC owned by six Chinese state or state-owned entities, each of which was “a foreign state as defined in 28 U.S.C. § 1603(a).”

 

 

The information before the district court was inadequate to establish subject matter jurisdiction. Yancheng Shanda, which had the burden on this issue, failed to present “competent proof” of its citizenship. Hertz Corp. v. Friend, 559 U.S. 77, 96–97 (2010). Yancheng Shanda did not present any evidence establishing its citizenship or the citizenship of its several partners. It submitted a declaration by its employee Mei Hu who stated simply that Yancheng Shanda “is and was domiciled in Yancheng City, Jiangsu Province, People’s Republic of China.”

 

 

However, a partnership does not have a “domicile” for purposes of diversity jurisdiction. Rather, to establish subject matter jurisdiction based on diversity of citizenship, the citizenship of each partner must be established. See Elston Inv., 731 F.2d at 439. There was no evidence in the district court record establishing the citizenship of each of Yancheng Shanda’s four Chinese LLC partners. As a result, there is no evidence to support a finding of complete diversity.

 

 

In this appeal, Yancheng Shanda presents a new declaration of employee Mei Hu. This declaration states that each of Yancheng Shanda’s partners “is a citizen of China” and further details characteristics of each partner’s business structures in an effort to establish that, as a matter of federal jurisdictional law, Yancheng Shanda’s partners are corporations and thus are considered citizens of their place of incorporation and principal place of business. Although United States LLCs are treated as partnerships for purposes of assessing diversity of citizenship, Yancheng Shanda submits that, based on our decision in BouMatic, LLC v. Idento Operations, BV, 759 F.3d 790 (7th Cir. 2014), Chinese LLCs should be treated as corporations for purposes of § 1332. In BouMatic, we identified factors for determining whether a foreign business entity is a “corporation” for diversity purposes, including whether the company has personhood, limited liability for shareholders, and shares that can be bought and sold subject to restrictions declared by the business. Id. at 791. The Mei Hu declaration states, albeit in summary fashion, that Chinese LLCs have these characteristics.

 

 

Classification of a foreign business entity can be difficult because other nations may use subsets of the characteristics that distinguish corporations from other business entities in the United States.” BouMatic, 759 F.3d at 791 (citation omitted). In the case of Chinese business entities, however, we already have indicated that significant care needs to be taken in determining the precise characteristics of the organization in question. See Fellowes, Inc. v. Changzhou Xinrui Fellowes Off. Equip. Co. Ltd., 759 F.3d 787 (7th Cir. 2014). Accordingly, in the present case, we vacate the district court’s judgment and remand the case so that the district court may explore in more depth the nature of the Chinese businesses in question and determine whether the requirements of diversity jurisdiction have been fulfilled. The district court is in a better position than this court to give the parties a plenary and even-handed opportunity to present evidence on the nature of these entities.

 

 

On remand, the district court must first address whether Yancheng Shanda’s partners can be characterized as corporations and, if so, the jurisdiction of their incorporation and of their principal place of doing business. If the district court determines that these entities do not qualify as corporations under the diversity statute, the court must treat them as partnerships. Because partnerships take the citizenship of each of their partners, the court must identify each partner’s citizenship.

 

 

Finally, the district court must address particular questions about one of the partners, Jiangsu Zhonghan, and its six state or state-owned entity owners.22

 

 

22 The exact shape of this inquiry will depend upon whether the district court determines that Jiangsu Zhonghan, as a Chinese LLC, should be treated as a corporation or a partnership under § 1332. If it is a corporation, then the district court should evaluate Jiangsu Zhonghan itself for potential status as a “foreign state” under §§ 1332(a)(4) and 1603(a). If, instead, it is a partnership, the district court will need to evaluate each of Jiangsu Zhonghan’s partners.

 

 

If this entity is directly and majority-owned by a “foreign state or political subdivision thereof,” it is itself a “foreign state” for purposes of federal jurisdiction. 28 U.S.C. §§ 1332(a)(4), 1603(a), (b)(2); Dole Food Co. v. Patrickson, 538 U.S. 468, 473–77 (2003).

 

 

 

(U.S. Court of Appeals for the Seventh Circuit, Jan. 31, 2023, Yancheng Shanda Yuanfeng Equity Investment Partnership v. Wan, Docket No. 22-1199)

U.S. Court of Appeals for the Ninth Circuit, Brown v. Commissioner of Internal Revenue, Docket No. 22-70001

 

Tax Law

 

Notices of Federal Tax Lien

 

Collection Due Process (“CDP”) Hearing  

 

Offer in Compromise (“OIC”)

 

The Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”), Pub. L. 109–222, Requires a Taxpayer Who Makes an OIC to Submit a Payment of Twenty Percent of the Value of the OIC

 

TIPRA Payments Are Not Refundable Deposits

 

Notice of Determination (“NOD”) Which Allows to Appeal to the Tax Court to Contest the Liens and the Return of an OIC

 

Tax Court Jurisdiction

 

Equity

 

 

 

 

Appeal from a Decision of the United States Tax Court

 

 

Michael D. Brown owes approximately $50,000,000 in unpaid federal taxes for various years between 2001 and 2011. In 2016, after the Internal Revenue Service (“IRS”) placed two tax liens on his property, Brown submitted an offer in compromise (“OIC”) to the Commissioner of Internal Revenue. An OIC allows a taxpayer to settle his outstanding tax liabilities for less than their total value if the IRS determines there are doubts as to collectability or that full payment would be inequitable or cause unusual economic hardship. IRM 33.3.2 (Aug. 6, 2019) (Offers in Compromise); IRS Form 656 (Offer in Compromise) at 3. Brown’s OIC offered to settle his $50,000,000 outstanding tax liability for a payment of $400,000, claiming that there were doubts as to collectability. The Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”), Pub. L. 109–222, requires a taxpayer who makes an OIC to submit a payment of twenty percent of the value of the OIC, in Brown’s case $80,000. See 26 U.S.C. § 7122(c)(1)(A)(i). As part of the OIC process, the taxpayer must acknowledge that he understands that the TIPRA payment will not be refunded if the OIC is not accepted. Brown acknowledged the following on his signed OIC submission form: “I voluntarily submit the payments made on this offer and understand that they will not be returned even if I withdraw the offer or the IRS rejects or returns the Offer.” IRS Form 656 (Offer in Compromise) at 5. The Commissioner returned Brown’s OIC after concluding that it was inappropriate to compromise his tax liability at that time because the existence of ongoing audits of Brown’s businesses made the overall amount of his tax liability uncertain. The IRS, in accordance with the terms of the OIC, did not return Brown’s $80,000 TIPRA payment. This litigation is Brown’s attempt to retrieve that money. In a previous appeal, we held that the IRS’s decision to return Brown’s OIC was proper but remanded to allow the Tax Court to determine if it had jurisdiction to refund Brown’s $80,000 TIPRA payment. Brown v. Comm’r, 826 F. App’x 673, 674 (9th Cir. 2020). On remand, the Tax Court held that it did not have jurisdiction to refund the payment because the power to do so had not been specifically granted to it by any statute. Brown v. Comm’r, 122 T.C.M. (CCH) 199, at *7 (2021). We agree and therefore we affirm.

 

 

This litigation began in 2015 when the IRS filed the first of two notices of federal tax lien (“NFTLs”) against Brown’s property as a consequence of Brown’s unpaid taxes. In response to the NFTLs, Brown requested a Collection Due Process (“CDP”) hearing and indicated that he intended to make an OIC. At that time, there were multiple ongoing audits of Brown’s businesses. In November 2016, Brown submitted his OIC. As noted, his OIC offered to settle his $50,000,000 tax liability for $400,000 and included the required twenty percent ($80,000) TIPRA payment. The law is clear that TIPRA payments are not refundable deposits but rather are non-refundable payments of tax. See Isley v. Comm’r, 141 T.C. 349, 372 (2013) (“The TIPRA payment constitutes a nonrefundable, partial payment of the taxpayer’s liability . . .”) (citing H.R. Conf. Rept. No. 109–455, at 234 (2006)); see also 26 U.S.C. § 7122(c)(2)(A)–(C) (establishing that any TIPRA payment goes to the taxpayer’s liabilities). The IRS accepted Brown’s OIC for processing but decided that it should be returned because of the ongoing audits. After the OIC was returned, Brown received a Notice of Determination (“NOD”) which permitted him to appeal to the Tax Court to contest the liens and the return of his OIC. See 26 U.S.C. § 6330(d)(1).

 

 

(…)

 

 

As the Tax Court correctly noted, it is a court of limited jurisdiction and possesses no general equitable powers. See Comm’r v. McCoy, 484 U.S. 3, 7 (1987). In other words, it has only the jurisdiction specifically granted by statute and lacks the authority to expand upon that statutory grant. Id.; see 26 U.S.C. § 7442. We have been clear that “the Tax Court’s jurisdiction is defined and limited by Title 26 and it may not use general equitable powers to expand its jurisdictional grant beyond this limited Congressional authorization. It may exercise its authority only within its statutorily defined sphere.” Est. of Branson v. Comm’r, 264 F.3d 904, 908 (9th Cir. 2001).

 

 

Brown argues that 26 U.S.C. §§ 6320 and 6330 give the Tax Court jurisdiction to refund his TIPRA payment. This is not so. Section 6320 merely requires that taxpayers be given notice and an opportunity for a hearing when a tax lien is filed. And section 6330 deals with procedures governing levies on property and administrative reviews of both liens and levies. See 26 U.S.C. § 6320(c) (explaining that provisions of § 6330 shall apply to the review of tax-lien hearings). Nothing in either section grants the Tax Court the power to refund TIPRA payments.1

 

 

1Cf. 26 U.S.C. § 6512(b)(1) (giving the Tax Court, in its deficiency jurisdiction, the power to determine an overpayment and refund such overpayment to the taxpayer).

 

 

Thus, the Tax Court lacks jurisdiction to refund TIPRA payments because there is no specific statutory grant conferring jurisdiction to do so. We have considered Brown’s remaining arguments and find them to be without merit.

 

 

 

 

(U.S. Court of Appeals for the Ninth Circuit, Brown v. Commissioner of Internal Revenue, Jan. 24, 2023, Docket No. 22-70001, for Publication)

 

U.S. Court of Appeals for the Seventh Circuit, Komatsu Mining Corp. v. Columbia Casualty Comp., Docket No. 21-2695

 

Insurance Law & Securities

 

D&O Policies

 

Securities and State-Law Suits

 

Exclusions

 

Inadequate Consideration Claim

 

Wisconsin Law

 

 

 

 

Appeal from the United States District Court for the Eastern District of Wisconsin. No. 2:18-CV-02034

 

 

The policies in question address securities and state-law suits, which the insurers must defend at their expense. But the underwriters need not indemnify the insureds (directors and officers as well as Joy Global) for “any amount of any judgment or settlement of any Inadequate Consideration Claim other than Defense Costs”. In these policies, words and phrases in boldface are defined terms. The definition of “inadequate consideration claim” is: that part of any Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity is inadequate. And a “claim” is: any civil, criminal, administrative or regulatory proceeding (other than an investigation) or arbitration, mediation or any alternative dispute resolution proceeding, ...  alleging a Wrongful Act, including any appeal therefrom.

 

 

The district court, applying Wisconsin law (which the parties agree is appropriate), granted summary judgment to the insurers. 555 F. Supp. 3d 589 (E.D. Wis. 2021). The judge found that the suits assert the wrongful act of failing to disclose documents that could have been used to seek a higher price. That brought the suits within the definition of “inadequate consideration claim” and activated the exclusion from indemnification (though the insurers still had to cover defense costs). Consider why an insurance policy might exclude coverage for “inadequate consideration”. How much a company is worth depends on the market, but bidders would like to shift the cost to a third party if possible. Suppose Company X is worth $100 million. Company Y agrees to buy X for $80 million and promises that X’s shareholders will be made whole. The shareholders sue, contending that X has withheld the “fact” that the company is worth $100 million. X and Y settle that claim for $20 million and turn to their insurer for indemnity. The shareholders get their $100 million, but if this maneuver works Y completes the purchase for only $80 million, with the rest coming from insurance. Insurers use clauses about inadequate consideration to protect themselves from this moral hazard. The hypothetical in this paragraph looks a lot like the actual merger between Joy Global and Komatsu America. But an inadequate-consideration clause means that Y, not the insurer, pays the target’s full market value.

 

 

(…) The only objection to this merger was that Joy Global could and should have held out for more money, and that revealing this would have induced the investors to vote “no” (or file suit in state court) and so trigger a renegotiation of the price.

 

 

Like the district court, we recognize that one state judge’s decision supports the approach that Komatsu Mining pursues. Northrop Grumman Innovation Systems, Inc. v. Zurich American Insurance Co., 2021 Del. Super. LEXIS 92 (Feb. 2, 2021), application for interlocutory review denied, 2021 Del. LEXIS 106 (Mar. 18, 2021), finds an inadequate-consideration exclusion in a different policy inapplicable because the claim rested in part on inadequate disclosure. The judge of the Superior Court wrote that such exclusions apply only when inadequate price is the sole allegation in the underlying complaint. Any other kind of allegation (including insufficient disclosure) nullifies the exclusion, the state judge wrote.

 

 

The state judge invoked what he understood to be a rule of Delaware insurance law that all conceivable ambiguities be construed against an insurer. But as the district judge pointed out, 555 F. Supp. 3d at 595, that may be the law in Delaware but is not the law in Wisconsin. See, e.g., Danbeck v. American Family Mutual Insurance Co., 2001 WI 91 ¶10 (Sykes, J.). What’s more, the language of the exclusion in Northrop Grumman differs from the definition of “inadequate consideration claim” in Joy Global’s policies. Komatsu Mining wants us to proceed as if all D&O policies contain the same language, but they don’t, so we shouldn’t.

 

 

 

 

(U.S. Court of Appeals for the Seventh Circuit, Jan. 23, 2023, Komatsu Mining Corp. v. Columbia Casualty Comp., Docket No. 21-2695)

Supreme Court of Texas, Marcus & Millichap Real Estate Investment Services of Nevada, Inc. v. Triex Texas Holdings, LLC, Docket No. 21-0913

Statute of Limitations

 

Accrual and Limitations

 

Tolling

 

Discovery Rule

 

Fraudulent Concealment Distinguished from the Discovery Rule

 

Fraud Distinguished from the Discovery Rule

 

Equitable Estoppel

 

Breach of Fiduciary Duty

 

Texas Law

 

 

 

 

A cause of action for breach of fiduciary duty generally accrues, and limitations begins to run, when the claimant knows or should know of the wrongful injury. See Berry v. Berry, 646 S.W.3d 516, 525-26 (Tex. 2022). The court of appeals held that the discovery rule delays accrual and limitations until the claimant also knows of the wrongful acts and actors, without requiring the plaintiff to exercise reasonable diligence. 2021 WL 4318406 (Tex. App.—Amarillo Sept. 23, 2021). Because that holding conflicts with the established rule, and because respondents’ actions for fraud and conspiracy are also barred by limitations, we reverse the judgment of the court of appeals and reinstate the trial court’s summary judgment for respondents.

 

 

Taylor’s and Dorris’s deposition testimony caused Triex to suspect that Marcus & Millichap misrepresented the sale to Triex by omitting key details about the nature of the lease and overvaluing the property in order to raise its commission. As a result, Triex added Marcus & Millichap to the lawsuit in March 2017—more than four years after Taylor Petroleum breached the lease and more than eight years after Marcus & Millichap brokered the sale. In its amended petition, Triex asserted claims for breach of fiduciary duty, fraud by nondisclosure, and conspiracy.

 

 

Actions for breach of fiduciary duty are governed by a four-year statute of limitations.1 TEX.CIV.PRAC. & REM.CODE § 16.004(a)(5). Generally, a claim accrues when the defendant’s wrongful conduct causes the claimant to suffer a legal injury. Am. Star Energy & Mins. Corp. v. Stowers, 457 S.W.3d 427, 430 (Tex. 2015). This is true “even if the fact of injury is not discovered until later, and even if all resulting damages have not yet occurred.” S.V. v. R.V., 933 S.W.2d 1, 4 (Tex. 1996).

 

 

1 Triex’s claims for fraud and civil conspiracy also have a four-year limitations period. TEX.CIV.PRAC. & REM.CODE § 16.004(a)(4); see Agar Corp. v. Electro Cirs. Int’l, LLC, 580 S.W.3d 136, 142 (Tex. 2019) (holding that “civil conspiracy . . . shares a limitations period with that of its underlying tort”). “Generally, in a case of fraud the statute of limitations does not commence to run until the fraud is discovered or until it might have been discovered by the exercise of reasonable diligence.” Little v. Smith, 943 S.W.2d 414, 420 (Tex. 1997). Like its breach of fiduciary duty claim, Triex based its fraud claim on allegations that Marcus & Millichap failed to disclose certain information despite its duty to do so. Accordingly, we apply the same analysis to all three claims.

 

 

The discovery rule is a “narrow exception” to the legal injury rule that “defers accrual of a cause of action until the plaintiff knew or, exercising reasonable diligence, should have known of the facts giving rise to the cause of action.” Berry, 646 S.W.3d at 524 (quoting Comput. Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996)). It “applies when the injury is by its nature inherently undiscoverable.” Agar Corp., 580 S.W.3d at 139 (citing Childs v. Haussecker, 974 S.W.2d 31, 36-37 (Tex. 1998)). “An injury is inherently undiscoverable if it is by nature unlikely to be discovered within the prescribed limitations period despite due diligence.” Berry, 646 S.W.3d at 524 (quoting S.V., 933 S.W.2d at 25). “The determination of whether an injury is inherently undiscoverable is made on a categorical basis rather than on the facts of the individual case.” Archer v. Tregellas, 566 S.W.3d 281, 290 (Tex. 2018) (citing HECI Expl. Co. v. Neel, 982 S.W.2d 881, 886 (Tex. 1998)). The question is whether the injury is “the type of injury that could be discovered through the exercise of reasonable diligence.”BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 66 (Tex. 2011) (citing Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734-35 (Tex. 2001)). We have held that “in the fiduciary context, . . . the nature of the injury is presumed to be inherently undiscoverable” because “fiduciaries are presumed to possess superior knowledge.” Comput. Assocs., 918 S.W.2d at 456. So “a person to whom a fiduciary duty is owed may be unable to inquire into the fiduciary’s actions or may be unaware of the need to do so.” Valdez v. Hollenbeck, 465 S.W.3d 217, 231 (Tex. 2015). Accordingly, “even if inquiry is made, ‘facts which might ordinarily require investigation likely may not excite suspicion where a fiduciary relationship is involved.’” Id. (quoting Willis v. Maverick, 760 S.W.2d 642, 645 (Tex. 1988)). Here the discovery rule applies, but it does not save Triex’s claims. The rule applies because a fiduciary relationship existed, and before Taylor Petroleum’s breach, Triex was unaware of the need to inquire into its fiduciary’s actions. See S.V., 933 S.W.2d at 8 (explaining that the rationale for finding a fiduciary’s misconduct to be inherently undiscoverable is that “a person to whom a fiduciary duty is owed is either unable to inquire into the fiduciary’s actions or unaware of the need to do so”). When the discovery rule applies, the statute of limitations does not begin to run “until the plaintiff knew or in the exercise of reasonable diligence should have known of the wrongful act and resulting injury.” Id. at 4. We have stated this rule in slightly different ways. But last Term, we explained that this means the discovery rule defers accrual “until the claimant knew or should have known of facts that in the exercise of reasonable diligence would have led to the discovery of the wrongful act.” Berry, 646 S.W.3d at 524 (quoting Little, 943 S.W.2d at 420). Or, in other words, accrual is deferred “until the plaintiff knew, or exercising reasonable diligence, should have known of the facts giving rise to the cause of action.” Id. (quoting Comput. Assocs., 918 S.W.2d at 455). Consistent throughout our cases is the requirement of reasonable diligence. We have also explained that “the discovery rule does not linger until a claimant learns of actual causes and possible cures.” PPG Indus., Inc. v. JMB/Hous. Ctrs. Partners Ltd. P’ship, 146 S.W.3d 79, 93 (Tex. 2004); see also KPMG Peat Marwick v. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746, 749 (Tex. 1999). Nor does it defer accrual until the plaintiff knows “the specific nature of each wrongful act that may have caused the injury,”KPMG, 988 S.W.2d at 749, or “the exact identity of the wrongdoer.” Childs, 974 S.W.2d at 40; see also PPG Indus., 146 S.W.3d at 93.

 

 

In 2012, Triex had actual knowledge of its injuries and became aware of the need to inquire into Marcus & Millichap’s actions. The court of appeals concluded that “the evidence conclusively established that appellants were aware that they had sustained an injury by December 1, 2012,” the date Taylor Petroleum defaulted. 2021 WL 4318406, at *4. But it determined that a fact issue existed as to whether Triex “knew or should have known on December 1, 2012, that the injury was the result of wrongful acts committed by Marcus & Millichap.” Id. The court of appeals came to this conclusion by “relieving Triex of the responsibility of diligent inquiry” because of its fiduciary relationship with Marcus & Millichap. Id. at *3. But as we reiterated last Term, “those owed a fiduciary duty are not altogether absolved of the usual obligation to use reasonable diligence to discover an injury.”Berry, 646 S.W.3d at 526 (citing Little, 943 S.W.2d at 420); see also Comput. Assocs., 918 S.W.2d at 456. Recognizing that “the presence of a fiduciary relationship can affect application of the discovery rule,” we explained that “it remains the case that ‘a person owed a fiduciary duty has some responsibility to ascertain when an injury occurs.’ ‘When the fact of misconduct becomes apparent it can no longer be ignored, regardless of the nature of the relationship.’” Id. (citations omitted) (quoting Comput. Assocs., 918 S.W.2d at 456, then quoting S.V., 933 S.W.2d at 8). Had Triex exercised reasonable diligence, it would have discovered Marcus & Millichap’s allegedly wrongful acts. See Little, 943 S.W.2d at 420. Part of Triex’s claim against Marcus & Millichap is that it misrepresented that “this was a sure-fire and financially sound investment,” and that “rent would be coming in every month without any issues or risk.” When Taylor Petroleum defaulted on the lease, Triex “knew or should have known that something was amiss.” See Berry, 646 S.W.3d at 525. Indeed, Weiner’s affidavit in response to the summary judgment motion admitted that at the time of the breach, he knew Marcus & Millichap did a “poor job” of representing him. His awareness of his injury and of Marcus & Millichap’s poor representation “obligated him to make further inquiry on his own if he wanted to preserve a timely claim.” Id. Instead, Triex waited three years to sue the initial defendants, and an additional year to take depositions (…)

 

 

(…) (Comput. Assocs., 918 S.W.2d at 455). But in that case, we explained that although fraudulent concealment is “similar in effect” to the discovery rule, it is a different doctrine that exists for different reasons: “Unlike the discovery rule exception, deferral in the context of fraud or concealment resembles equitable estoppel. ‘Fraudulent concealment estops the defendant from relying on the statute of limitations as an affirmative defense to the plaintiff’s claim.’” Comput. Assocs., 918 S.W.2d at 456 (alterations in original) (quoting Borderlon v. Peck, 661 S.W.2d 907, 908 (Tex. 1983)); see also Wagner & Brown, 58 S.W.3d at 736 (distinguishing fraudulent concealment from the discovery rule); Draughon, 631 S.W.3d at 93 (collecting cases).

 

 

 

(Supreme Court of Texas, Marcus & Millichap Real Estate Investment Services of Nevada, Inc. v. Triex Texas Holdings, LLC, Jan. 13, 2023, Docket No. 21-0913, Per Curiam)

California Court of Appeal, Grosz v. California Dept. of Tax and Fee Administration, Docket No. B309418

 

Judicial Notice

 

California Law

 

 

 

Chacon v. Union Pacific Railroad (2020) 56 Cal.App.5th 565, 573 [judicial notice may be taken of a document, but not the truth of its contents].

 

 

While courts take judicial notice of public records, they do not take notice of the truth of matters stated therein.” (Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1375.)

 

 

“A court will not take judicial notice of a case that was not cited in the briefs.” Neither will appellate courts “take judicial notice of matters irrelevant to the dispositive point on appeal.” The interpretation of a sister state’s statute by that state’s courts that was not discussed in the briefs is not relevant to our consideration of the issues on this appeal. Indeed, the question at issue on that appeal—whether non-Pennsylvania businesses that sell merchandise through Amazon’s FBA Program must collect and remit Pennsylvania sales tax—has no bearing on whether the determination of who is a retailer under California’s Sales and Use Tax Law is a ministerial task or involves the exercise of DTFA discretion.

 

 

 

(California Court of Appeal, Jan. 9, 2023, Grosz v. California Dept. of Tax and Fee Administration, Docket No. B309418, Certified for Publication)

 

California Court of Appeal, Grosz v. California Dept. of Tax and Fee Administration, Docket No. B309418

Sales and Use Taxes

 

Amazon

 

Taxpayer Action Under Code of Civil Procedure Section 526a

 

Tax Law

 

Standing

 

California Law

 

 

 

 

In addition to its own products, Amazon fulfills orders for products sold by third-party merchants through a program it calls “Fulfillment by Amazon” (FBA). The trial court in this action described the program as alleged in the First Amended Complaint (FAC): “To support this program, Amazon contracts with merchants (‘FBA Merchants’) who supply the products ordered by consumers through Amazon’s website. Amazon provides advertising, packaging, and delivery of the products supplied by the FBA Merchants. [Citation.] Amazon also processes payments for sales on behalf of the FBA Merchants.” According to the FAC, the state agency responsible for collecting sales and use tax (currently the California Department of Tax and Fee Administration (DTFA)) has historically not collected from Amazon sales and use taxes for products sold through the FBA program. Stanley Grosz filed a taxpayer actionunder Code of Civil Procedure section 526a (Section 526a) seeking a declaration that the DTFA “has a mandatory duty to assess and collect” sales and use tax specifically from Amazon for products sold through the FBA program, and an injunction requiring the DTFAto do so. The DTFA and its Director, Nicolas Maduro, and the Amazon entities that Grosz named in his FAC as Real Parties in Interest all demurred to the FAC. The trial court sustained the respondents’ demurrers without leave to amend. The trial court reasoned that the Revenue and Taxation Code vests the DTFA with discretion to determine whether the FBA Merchant or Amazon is the “retailer” in any given FBA transaction for purposes of collecting sales and use tax. Because the determination is discretionary and not ministerial, the trial court reasoned that Grosz had no standing to pursue his action. (See Silver v. Watson (1972) 26 Cal.App.3d 905, 909 (Silver).) We agree with the trial court, and will affirm the trial court’s order sustaining the respondents’ demurrers without leave to amend.

 

 

(Before July 1, 2017, the agency responsible for collecting sales and use taxes was the State Board of Equalization. The Taxpayer Transparency and Fairness Act of 2017 created the DTFA and transferred the Board of Equalization’s authority and responsibility for sales and use taxes (among other things) to the DTFA. (Stats. 2017, ch. 16, §§ 5, 14, 15; Gov. Code, §§ 15570, 15570.20, 15570.22; Rev. & Tax. Code, § 20.) (Fn. 3).

 

 

In his opening brief, Stanley Grosz—the taxpayer who filed suit against the DTFA—explains that this appeal is limited to DTFA’s “failure to collect tax from Amazon on FBA sales transacted prior to October 1, 2019. . . .” In 2019, the Legislature passed and the Governor signed Assembly Bill No. 147, which the Legislature called the Marketplace Facilitator Act (MFA). (Stats. 2019, ch. 5, § 2.) The bill made the MFA operative on October 1, 2019. (Stats. 2019, ch. 5, § 2; Rev. & Tax. Code, § 6049.5, subd. (a).) The MFA appears on its face to relate to transactions like the FBA transactions alleged in the FAC. We do not construe any part of the MFA here, but note only that it appears that Grosz has attempted to expressly exclude from his lawsuit any transactions occurring after the MFA’s operative date. (Fn. 4).

 

 

(…) The trial court (…) explaining: “The determination of which party—FBA Merchants or Amazon—was the retailer necessarily entailed consideration of all sections of the vast statutory scheme and required discretion especially considering ‘the “highly technical,” “intensely detailed and fact-specific sales tax system governing an enormous universe of transactions.”’”

 

 

Code of Civil Procedure Section 526a: “The purpose of Section 526a, ‘which applies to citizen and corporate taxpayers alike, is to permit a large body of persons to challenge wasteful government action that otherwise would go unchallenged because of the standing requirement. [Citation.]  . . . Although by its terms the statute applies to local governments, it has been judicially extended to all state and local agencies and officials. [Citations.]’ [Citation.] ‘ “The individual citizen must be able to take the initiative through taxpayers’ suits to keep government accountable on the state as well as on the local level.” ’ ” (Vasquez v. State of California (2003) 105 Cal.App.4th 849, 854, fn. omitted.) “It is established that an action lies under Section 526a not only to enjoin wasteful expenditures, but also to enforce the government’s duty to collect funds due the State. ‘ “A taxpayer may sue a governmental body in a representative capacity in cases involving its . . . failure . . . to perform a duty specifically enjoined.” [Citation.] This well-established rule ensures that the California courts, by entertaining only those taxpayers’ suits that seek to measure governmental performance against a legal standard, do not trespass into the domain of legislative or executive discretion. [Citations.] This rule similarly serves to prevent the courts from hearing complaints which seek relief that the courts cannot effectively render; the courts cannot formulate decrees that involve the exercise of indefinable discretion; their decrees can only restrict conduct that can be tested against legal standards. [Citations.]’ ” (Vasquez v. State of California, supra, 105 Cal.App.4th at pp. 854-855, italics added.) “The cases have . . . been careful to note that Section 526a has its limits. In particular, the courts have stressed that the statute should not be applied to principally ‘political’ issues or issues involving the exercise of the discretion of either the legislative or executive branches of government.” (Humane Society of the United States v. State Bd. of Equalization (2007) 152 Cal.App.4th 349, 356, italics added; see Silver, supra, 26 Cal.App.3d at p. 909 [“if the governing body has discretion in the matter, the taxpayer may not interfere”].)

 

 

Sales and Use Tax “Retailer”: “The California Sales and Use Tax Law (Rev. & Tax. Code, § 6001 et seq.) embodies a comprehensive tax system created to impose an excise tax, for the support of state and local government, on the sale, use, storage or consumption of tangible personal property within the state. [Citation.] The two taxes, sales and use, are mutually exclusive but complementary, and are designed to exact an equal tax based on a percentage of the purchase price of the property in question. In essence ‘ “a sales tax is a tax on the freedom of purchase. . . a use tax is a tax on the enjoyment of that which was purchased.’ ” Citations. The use tax supplements the sales tax by imposing on those subject to it the same tax burden as would otherwise be assessed under the sales tax.” (Wallace Berrie & Co. v. State Bd. of Equalization (1985) 40 Cal.3d 60, 66-67, fns. omitted.) Specifically, California law imposes a tax on “the gross receipts of any retailer from the sale of all tangible personal property sold at retail in this state. . . .” (Rev. & Tax. Code, § 6051.) The sales tax is imposed on and collected from “retailers.” (Ibid.) California law also imposes a tax on the “storage, use, or other consumption in this state of tangible personal property purchased from any retailer. . . .” (Rev. & Tax. Code, § 6201.) This tax is imposed on the retail purchaser, but is collected from the purchaser by the “retailer” and remitted to the state. (Rev. & Tax. Code, §§ 6202, 6203.) Pertinent to this appeal, the Sales and Use Tax Law states that “ ‘retailer’ includes,” among other things, “every seller who makes any retail sale or sales of tangible personal property . . .” and “every person engaged in the business of making sales for storage, use, or other consumption . . . .” (Rev. & Tax. Code, § 6015, subd. (a)(1) & (2).) A “ ‘seller’ includes every person engaged in the business of selling tangible personal property of a kind the gross receipts from the retail sale of which are required to be included in the measure of the sales tax.” (Rev. & Tax. Code, § 6014.) “A ‘retail sale’ . . . means a sale for a purpose other than resale in the regular course of business in the form of tangible personal property.” (Rev. & Tax. Code, § 6007.) And a “ ‘sale’ ” means, among other things, “any transfer of title or possession, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration. ‘Transfer of possession’ includes only transactions found by the DTFA to be in lieu of a transfer of title, exchange, or barter.” (Rev. & Tax. Code, § 6006, subd. (a).)

 

 

(…) Pawnbrokers, storage men, mechanics, artisans, or others selling the property to enforce a lien thereon, are retailers with respect to sales of the property to consumers and tax applies to the receipts from such sales.

 

 

(…) Grosz concedes that a sales or use tax can only be applied once to a retail transaction—that Amazon and any particular FBA Merchant “cannot both be held liable for tax on the same . . . sale.” (Fn. 8).

 

 

(…) On the statutory interpretation question, we conclude, as did the trial court, that the determination of who is a “retailer” under the Sales and Use Tax Law and relevant regulations is one that invokes the discretion of the DTFA; making that designation is not a ministerial task (…) as opposed to a discretionary action.

 

 

(…) Here, by contrast, the question is not whether the law imposes a tax, but rather on whom, based on language in several interrelated statutes. The question here, as the trial court pointed out, is not whether the DTFA has discretion, but rather how it must exercise that discretion. That is the critical distinction between this case and Sonoma (195 Cal.App.3d 982).

 

 

(…) In addition to expressly giving the DTFA discretion to determine who “may be regarded . . . as retailers” for purposes of the Sales and Use Tax Law under the circumstances outlined in Revenue and Taxation Code section 6015, subdivision (b), we note the broad discretion the Legislature has given the DTFA generally. (Gov. Code, §§ 15570 et seq.).

 

 

The statutory framework of the Sales and Use Tax Law and the statutes vesting the DTFA with authority to administer that statutory framework also generally lead us to conclude that whether a taxpayer is a retailer for purposes of the Sales and Use Tax Law is a discretionary determination and not a ministerial task. Consistent with those conclusions, we agree with the trial court that Grosz’s lawsuit may not proceed under Section 526a.

 

 

We affirm the trial court’s order sustaining the DTFA’s and Amazon’s demurrers and dismissing the lawsuit.

 

 

 

 

(California Court of Appeal, Jan. 9, 2023, Grosz v. California Dept. of Tax and Fee Administration, Docket No. B309418, Certified for Publication)