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

UNION PACIFIC RAILROAD COMPANY, Plaintiff and Respondent, v. STATE BOARD OF EQUALIZATION, Defendant and Appellant.

A030006, A031647, A032316.

Decided: June 05, 1987

John K. Van De Kamp, Atty. Gen., Timothy G. Laddish, Calvin J. Abe, Deputy Attys. Gen., San Francisco, for defendant and appellant. Peter W. Davis, Jay R. Martin, John E. Carne, James C. Martin, Crosby, Heafey, Roach & May, Oakland, for plaintiff and respondent.

 We hold that the superior court cannot enjoin the production of a taxpayer's business records, unless the taxing authority fails to make a prima facie showing that the records subpoenaed may be reasonably relevant for assessment of taxable property.

This consolidated appeal involves three related appeals:  A030006 is an appeal from the grant of a peremptory writ of prohibition, preventing the Board of Equalization (the Board) from subpoenaing confidential portions of Union Pacific Railroad Company's (Union Pacific) 1983 “Strategic Plan”;  (2) A031647 is an appeal from an order preventing the Board from imposing or collecting any penalty from Union Pacific for its refusal to produce portions of its Strategic Plan;  and (3) A032316 is an appeal from an award of attorney fees to Union Pacific in bringing action number A031647.


As part of its duty to value the state-assessed property of Union Pacific for the 1984 tax year, the Board requested the company to produce its 1983 Strategic Plan (the Plan).   Among other things, the Plan contains:  (1) an assessment of major market and commercial opportunities and outlines the corporate strategy for the company's future, (2) a forecast of the future capital needed to meet potential acquisitions, (3) estimates of future asset requirements, and (4) evaluations of the strengths and weaknesses of the corporation and its competitors.   Union Pacific produced all parts of the Plan dealing with currently held property, including future use of that property, but the company declined to produce sections which discussed possible future acquisitions and the projected income from those potential acquisitions.   The company maintained that this information was irrelevant to the Board's function in valuing the railroad's property as of the March 1st lien date;  that this information was highly sensitive and its disclosure would cause irreparable harm.

The Board rejected this explanation and imposed a $5 million penalty, pursuant to Revenue and Taxation Code section 830, which resulted in an additional tax liability of $57,000.   Union Pacific petitioned for abatement of the penalty (Rev. & Tax. Code, § 830, subd. (d)) while the Board issued a subpoena duces tecum for the undisclosed portion of the Plan.   Union Pacific then petitioned for a writ of prohibition to prevent enforcement of the subpoena.   The Board agreed to postpone its decision on the request for an abatement of the penalty until the superior court ruled on Union Pacific's writ petition to quash the subpoena.   On November 30, 1984, the superior court issued a peremptory writ of prohibition finding the Board was acting in excess of its powers.   The Board was served with a copy of the order.   Nevertheless, on December 11, the Board denied Union Pacific's request for an abatement of the penalty.

On January 28, 1985, Union Pacific applied for a contempt order on the ground that the enforcement of the penalty by the Board, in the face of the successful writ petition, was in violation of the court's order.   After a hearing, the trial court refused to find the Board in contempt, but did find that the Board violated the spirit of the writ of prohibition and entered a second order prohibiting the Board from imposing or enforcing any penalty against Union Pacific.   The Board appeals from this order in case number A031647.

The court also indicated that it believed the Board's refusal to abate the penalty was in bad faith and indicated its determination to impose attorney fees as sanctions pursuant to Code of Civil Procedure section 128.5.   A noticed hearing was held on May 30, 1985, and the trial court awarded Union Pacific attorney fees and costs in the amount of $9,950.50.   The Board appeals from this order in case number A032316.


The central issue before us is whether the superior court has jurisdiction to issue a writ in this proceeding.   The Board argues, for the first time on appeal, that article XIII, section 32 of the California Constitution 1 prevents the trial court from enjoining it from collecting the penalty.   Union Pacific argues that the Board waived its right to raise this issue by not urging it below.


As a threshold matter, we must decide if the Board is barred from urging this issue for the first time on appeal.   Preliminarily, we note that the Board raised the bar of the anti-injunction provision of section 32 only in connection with the application of the penalty in case number A031647.   Because our decision on this issue will affect not only the propriety of imposition of the penalty but also the more fundamental issue of the right to subpoena the documents in the first instance, we will treat this issue as applying to this appeal generally.

Union Pacific contends that the Board's failure to urge this issue in the trial court constitutes a waiver of the jurisdictional issue and it is now estopped from urging lack of jurisdiction for the first time on appeal.   It is a fundamental principle that subject matter jurisdiction cannot be established by consent of the parties or by estoppel and it is always a proper subject of inquiry by a reviewing court.  (See Abelleira v. District Court of Appeal (1941) 17 Cal.2d 280, 303, 109 P.2d 942;  Consolidated Theatres, Inc. v. Theatrical Stage Employees Union (1968) 69 Cal.2d 713, 721, 73 Cal.Rptr. 213, 447 P.2d 325;  2 Witkin, Cal. Procedure (3d ed. 1985) Jurisdiction, § 10, pp. 374–376.)   The difficulty lies in defining what constitutes subject matter jurisdiction in this context.

Union Pacific asserts that in issuing its order quashing the subpoena, the trial court is alleged to have acted in “excess of jurisdiction,” and that this aspect of jurisdiction can be waived by failure to object in the court below.   In some instances, where a court has subject matter jurisdiction over a controversy, a party can consent to an act by the court which otherwise exceeds its jurisdiction.  (See Campbell v. Cory (1983) 142 Cal.App.3d 992, 995–996, 191 Cal.Rptr. 430 [probate court incorrectly imposed inheritance tax on property transferred outside the estate;  the beneficiary abandoned the appeal from that ruling, which was deemed a waiver];  Camp v. Board of Supervisors (1981) 123 Cal.App.3d 334, 357– 358, 176 Cal.Rptr. 620 [the court had subject matter jurisdiction to determine the validity of the county's “General Plan”;  the county was estopped from arguing, for the first time on appeal, that the court exceeded its jurisdiction];  West Coast Constr. Co. v. Oceano Sanitary Dist. (1971) 17 Cal.App.3d 693, 698–699, 95 Cal.Rptr. 169 [the district was estopped from arguing that time ran for issuing an injunction because it failed to object to a series of continuances];  see 2 Witkin, Cal.Procedure, supra, Jurisdiction, § 267, at pp. 665–667.)

 Whether a party should be estopped from challenging jurisdiction depends on the importance of the irregularity, the impact on the functioning of the courts and the public policy considerations.  (In re Griffin (1967) 67 Cal.2d 343, 348, 62 Cal.Rptr. 1, 431 P.2d 625.)   Often, the court's subject matter jurisdiction to act and an act in excess of that jurisdiction are so interrelated as to make any distinction unworkable and unwise.   In the cases cited by Union Pacific, it was determined that the courts had subject matter jurisdiction, but the relief granted was alleged to be in excess of that jurisdiction.   To the contrary, here the central question is whether, in light of the constitutional provision, the court had subject matter jurisdiction over the controversy at all.

 The constitutional provision, section 32, is more than a declaration of rules applicable for injunction, mandamus or other equitable relief;  it is part of this state's organic law, subordinate only to the United States Constitution.  (People ex rel. Franchise Tax Bd. v. Superior Court (1985) 164 Cal.App.3d 526, 550, 210 Cal.Rptr. 695;  Pacific Gas & Electric Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 282, 165 Cal.Rptr. 122, 611 P.2d 463;  Modern Barber Col. v. Cal. Emp. Stab. Com. (1948) 31 Cal.2d 720, 725, 192 P.2d 916.)   That provision goes further than merely proscribing the availability of a particular remedy;  it reflects a fundamental limitation on the jurisdiction to intervene, in the first instance, in the collection of taxes.  (See generally, Pacific Gas & Electric Co. v. State Bd. of Equalization, supra, 27 Cal.3d at pp. 282–283, 165 Cal.Rptr. 122, 611 P.2d 463.)   Under these circumstances, we conclude that the Board's reliance on the anti-injunction provision of section 32 is a challenge to the subject matter jurisdiction of the trial court and it may be argued for the first time on appeal.


Having said this, we must determine if section 32 provides an absolute prohibition to judicial interference in the assessment and collection of the tax or if there exists circumstances which permit limited judicial intervention.   Preliminarily, we note that the request for documents in order to make an assessment is but the first step in collection of property taxes, and, if applicable, section 32 also operates at this early stage.  (See People ex rel. Franchise Tax Bd. v. Superior Court, supra, 164 Cal.App.3d at p. 545, 210 Cal.Rptr. 695.)

 Union Pacific contends that the constitutional provision, while entitled to the utmost compliance, is subordinate to the United States Constitution.  (People ex rel. Franchise Tax Bd. v. Superior Court, supra, 164 Cal.App.3d at p. 550, 210 Cal.Rptr. 695.)   We agree.   In this regard, the Board may compel the production of documents only where the request is consistent with the privilege against self-incrimination and the prohibition against unreasonable searches and seizures.  (Brovelli v. Superior Court (1961) 56 Cal.2d 524, 529, 15 Cal.Rptr. 630, 364 P.2d 462.)   As such, the subpoena must meet three requirements:  (1) it must be issued pursuant to authorized power, (2) the request must be specific, and (3) the information sought must be reasonably relevant.  (Ibid.;  see also United States v. Powell (1964) 379 U.S. 48, 57–58, 85 S.Ct. 248, 254–255, 13 L.Ed.2d 112.)   The Board does not dispute this general principle.   In light of these due process constraints on the Board's authority, we conclude that the superior court has jurisdiction to test the legal and constitutional sufficiency of the subpoena duces tecum before the taxpayer is required to produce the documents requested in the subpoena.  (See United States v. Powell, supra, at p. 58, 85 S.Ct. at p. 255;  People ex rel. Franchise Tax Bd. v. Superior Court, supra, 164 Cal.App.3d at p. 540, 210 Cal.Rptr. 95.)


 Union Pacific successfully argued that the Plan was irrelevant to the proper assessment function of the Board.   It is an unusual case when the government can be estopped in tax matters;  “the case must be clear and the injustice great [citations].”  (U.S. Fid. & Guar. Co. v. State Bd. of Equal. (1956) 47 Cal.2d 384, 389, 303 P.2d 1034.)   As we discuss below, the relevancy threshold is quite low.   Otherwise, were we to allow taxpayers to obtain injunctive relief based on a stricter relevancy standard, this would subvert the purpose behind section 32—“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, supra, 27 Cal.3d at p. 283, 165 Cal.Rptr. 122, 611 P.2d 463.)   Thus, in order to preserve the preeminance of section 32 in the overall taxation scheme, the availability of injunctive relief must be limited to those situations where the harm is irreparable and where it is clear that “ ‘under no circumstances' ” can the government prevail.  (Id., at p. 283, fn. 8, 165 Cal.Rptr. 122, 611 P.2d 463.)

The fear that persistent interference with the collection of taxes might endanger the government's ability to govern has been expressed in numerous judicial decisions and accounts for the strict compliance to the provision by all courts that have addressed this issue.  (State Bd. of Equalization v. Superior Court (1985) 39 Cal.3d 633, 638–639, 217 Cal.Rptr. 238, 703 P.2d 1131;  Pacific Gas & Electric Co. v. State Bd. of Equalization, supra, 27 Cal.3d at pp. 283–284, 165 Cal.Rptr. 122, 611 P.2d 463;  Hunter-Reay v. Franchise Tax Board (1983) 140 Cal.App.3d 875, 878–879, 189 Cal.Rptr. 810.)   Even the most severe hardship, like bankruptcy, has not been held to be irreparable injury sufficient to justify judicial intervention.  (Modern Barber Col. v. Cal. Emp. Stab. Com., supra, 31 Cal.2d at p. 732, 192 P.2d 916.)   The remedy of suit for refund is made the exclusive remedy for obtaining judicial review of the legality of the assessment.   (Rev. & Tax. Code, §§ 5096, 5140;  State Bd. of Equalization v. Superior Court, supra, 39 Cal.3d at p. 638, 217 Cal.Rptr. 238, 703 P.2d 1131;  Pacific Gas & Electric Co. v. State Bd. of Equalization, supra, 27 Cal.3d at p. 284, 165 Cal.Rptr. 122, 611 P.2d 463.)

This view is consistent with the approach taken by the federal courts in connection with the similarly worded federal anti-injunction statute.  (26 U.S.C. § 7421;  see Enochs v. Williams Packing Co. (1962) 370 U.S. 1, 7, 82 S.Ct. 1125, 1129, 8 L.Ed.2d 292;  Knoefler v. Schneider (9th Cir.1977) 565 F.2d 1072, 1073.)

The taxpayer must make the necessary showing at the time of suit for injunctive relief.  “Only if it is then apparent that, under the most liberal view of the law and the facts, the [government] cannot establish its claim, may the suit for an injunction be maintained.”  (Enochs v. Williams Packing Co., supra, 370 U.S. at p. 7, 82 S.Ct. at p. 1129.)   Otherwise, the trial court is without jurisdiction and the suit must be dismissed.  (Ibid.)


At the hearing to quash the subpoena, Union Pacific argued that the information sought is irrelevant to the assessment of currently held property.   The portion of the Plan withheld contains estimates of future income stream predicated upon anticipated acquisitions of significant amounts of new assets.   Union Pacific contended the Board should be concerned only with the anticipated income from property existing on the March 1st lien date, not on the anticipated income stream from property the railroad planned to acquire sometime in the future.

In opposition, the Board argued that future acquisitions significantly impact on the value of current assets.   The Board asserted that the Plan contained income projections and anticipated investments which are relevant to the Board's valuation of the railroad's property in light of the recent merger, and for which historical data is inadequate.   Also, the Board asserted this information was necessary to confirm the formula used by the Board for projecting future earnings.

Under the capitalized earnings approach used by the Board, the appraiser values an income property by computing the present worth of a future income stream.  (Cal.Admin.Code, tit. 18, § 8;  see also ITT World Communications, Inc. v. City and County of San Francisco (1985) 37 Cal.3d 859, 863–864, 210 Cal.Rptr. 226, 693 P.2d 811.)   It is the preferred approach for assessment of public utilities for which market data is usually unavailable.   It is used to estimate the income a purchaser of the property could reasonably expect to earn from future operations.  (See generally, California Portland Cement Co. v. State Bd. of Equalization (1967) 67 Cal.2d 578, 582– 583, 63 Cal.Rptr. 5, 432 P.2d 700.)

California Administrative Code, title 18, section 8 provides in pertinent part:  “(a) The income approach to value is used in conjunction with other approaches when the property under appraisal is typically purchased in anticipation of a money income and either has an established income stream or can be attributed a real or hypothetical income stream by comparison with other properties․  [¶] (c) The amount to be capitalized is the net return which a reasonably well informed owner and reasonably well informed buyers may anticipate on the valuation date that the taxable property existing on that date will yield under prudent management and subject to such legally enforceable restrictions as such persons may foresee as of that date.”   (Emphasis added.)   However, nothing in this section indicates, one way or the other, whether the Board may consider the economic impact of future acquisitions on the income stream of currently held property.

Relying on Roberts v. Gulf Oil Corp. (1983) 147 Cal.App.3d 770, 195 Cal.Rptr. 393, the Board contends that anticipated earnings can be based on future acquisitions.   There, the reviewing court rejected the taxpayer corporation's contention that the board was not entitled to the company's own “interpretive data” on recently acquired oil and gas holdings.  (Id., at pp. 782–783, 195 Cal.Rptr. 393.)   That case dealt exclusively with the capitalized income method on currently held property, not on anticipated income from future acquisitions.   That case provides no support for the Board's assertion.

Our own research has found no California or federal cases which expressly approve of the valuation method urged by the Board.2  In California Portland Cement Co. v. State Bd. of Equalization, supra, the Board served a subpoena upon the taxpayer corporation to produce its production and sales figures for the previous three years.   The company, which manufactured and sold cement and limestone products, petitioned for mandamus to quash the subpoena, contending the information was confidential and irrelevant to the fair assessment of its property.   The Supreme Court held that the profits from the prior years were clearly relevant to the capitalized earnings approach to valuation since that approach reflects “the price that a purchaser of the property could pay and recover a reasonable return on his investment․”  (67 Cal.2d at p. 582, 63 Cal.Rptr. 5, 432 P.2d 700.)

While that case confirmed the Board's broad powers of investigation, it concerned only income figures from currently owned property.

 We are mindful of the harm that unrestricted injunctive relief may cause to the government's ability to govern.  (See State Bd. of Equalization v. Superior Court, supra, 39 Cal.3d at pp. 638–639, 217 Cal.Rptr. 238, 703 P.2d 1131;  Pacific Gas & Electric Co. v. State Bd. of Equalization, supra, 27 Cal.3d at pp. 283–284, 165 Cal.Rptr. 122, 611 P.2d 463.)   However, based on the record before us, we are unable to determine if the undisclosed portion of the Plan meets even the minimal threshold requirement, i.e., that the information sought be “reasonably relevant” to an accurate valuation of the property to be taxed.  (See Brovelli v. Superior Court, supra, 56 Cal.2d at p. 529, 15 Cal.Rptr. 630, 364 P.2d 462.)

Because of the significance of this matter on the effective operations of government, and considering that the superior court was not apprised of the proper standards for deciding this issue, we conclude that it is in the interest of justice to remand this case for a redetermination of the issue of relevancy of the requested information.   In its discretion, the trial court may request further affidavits from the parties, including further briefing, which address the propriety of considering future acquisitions to value the taxable property.   In making its determination, the court may conduct an in-camera review of the documents sought.


 For the guidance of the trial court, we address Union Pacific's concern of confidentiality.   Union Pacific also argues that the disputed portions of the Plan are extremely sensitive and confidential and that the release to the Board will cause irreparable harm.   We do not deny the importance of the corporate strategy detailed in the Plan and the damage that would likely result should this information be disclosed to Union Pacific's competitors.   Nevertheless, the Board is compelled by statute to keep this information secret.  (Rev. & Tax. Code, § 833, subd. (a).)  If this information is supplied to sister-state taxing agencies, the state requesting this information must agree to maintain its confidentiality.  (Rev. & Tax.Code, § 833, subd. (e).)

While we do not minimize the need to maintain confidentiality, we conclude that the mere potential for harm which might result from disclosure is insufficient reason to justify an exception to the clear language of section 32.   Union Pacific has not presented us with any case to the contrary.


Should the superior court decide the information in the Plan is not relevant, then the orders preventing imposition of the penalty and the order awarding attorney fees must stand.   On the other hand, should the court find the information was relevant and thus wrongfully withheld, the order awarding attorney fees must be vacated.   In this instance, the order imposing the penalty shall be suspended while Union Pacific is given time to comply or until all of its avenues of appeal are exhausted.

The orders appealed from are reversed and the matter is remanded to the superior court for disposition consistent with this opinion.   Each party to bear its own costs on appeal.


1.   All section references are to the California Constitution, article XIII, unless otherwise indicated.

2.   In Union Pacific R. Co. v. Looney (1986) 111 Idaho 1000, 729 P.2d 1063, the Idaho Supreme Court decided the identical issue raised in this case in favor of the taxing authority.   Since the facts developed there are significantly different from the instant matter, we decline to follow that ruling.

LOW, Presiding Justice.

KING and HANING, JJ., concur.

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