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Last Updated: 3/13/2013
Budget Issue: Administration's trailer bill proposal related to attorney's fee awards
Program: Tax Agencies
Finding or Recommendation: Discusses administration's trailer bill proposal concerning awards of attorney's fees and litigation costs to certain successful litigants in tax and fee refund cases.
Further Detail

State law provides means by which successful litigants in certain legal actions can recover their attorney’s fees and litigation costs. The administration proposes budget trailer bill language (displayed on the Department of Finance website) to establish that several new and amended provisions of the Revenue and Taxation Code would be the exclusive remedies for certain successful litigants to obtain attorney’s fee and litigation cost rewards in tax or fee refund suits related to various state revenue and tax laws.


1983 Attorney’s Fee Law a Part of Federal “Tax Conformity” Legislation. Chapter 498, Statutes of 1983 (SB 813, Hart), was a wide-ranging bill that included sections intended to conform state tax law with the federal government’s 1982 tax legislation, the Tax Equity and Fiscal Responsibility Act of 1982 (Public Law 97-248). One tax provision in Chapter 498 was a new state tax code provision—now Section 19717 of the Revenue and Taxation Code, as amended—that established provisions for awarding attorney’s fees in certain tax refund cases related to California’s income and franchise taxes. According to the administration, the “Legislature’s intent was to conform California to [the] similar federal law” in Public Law 97-248, “which added a new attorney fee section to the Internal Revenue Code and amended [federal law] to make the new IRC provision [the] exclusive [attorney’s fee provision] for federal tax cases.”

Courts Have Found That 1983 Law and Similar Laws Were Not “Exclusive Remedies.” The administration acknowledges that the 1983 attorney’s fee law did not explicitly state it was to be the exclusive remedy in state law for successful litigants to win attorney’s fees and litigation costs in tax refund cases. Courts have examined this issue and have concluded that it was not the intent of the Legislature to make Section 19717 or Section 7156 (a similar provision adopted in 1988 related to attorney’s fee awards in sales and use tax cases) an exclusive remedy. For example, in Northwest Energetic Services, LLC v. Franchise Tax Board (FTB) (2008) 159 Cal.App.4th 841, the Court of Appeal ruled against FTB related to this exclusivity issue, noting that the legislative history of Section 19717 “nowhere mentions an intent to make Section 19717 the exclusive means of recovery attorney fees in a tax refund action.” In Agnew v. State Board of Equalization (BOE) (2005) 134 Cal.App.4th 899, a Court of Appeal stated that “when the Legislature intends to restrict the recovery of costs or fees it knows how to express such restriction,” and Section 7156 contained “no express exception disallowing a prevailing taxpayer from recovering costs except under its provisions.”

Recent Attorney’s Fee Awards in Tax Refund Cases Under Civil Procedure Code. The administration contends that a trailer bill is needed to ensure that Revenue and Taxation Code provisions are the exclusive remedies of awarding attorney’s fees in tax refund cases. The administration also contends that the Revenue and Taxation Code provisions provide sufficient compensation for attorneys who work on some such cases successfully. The administration notes that in four tax cases in the past 10 years, attorneys have successfully sought attorney’s fee awards under the Code of Civil Procedure (the provisions of which have been called by the courts “additional” and “complementary” means of making awards in tax cases), thereby resulting in state costs of over $2 million. “It is possible,” the administration concludes, “that the awarding of these fees will lead to even more and larger awards in the future.” We understand that the Code of Civil Procedure provisions at issue in these cases can result in substantially higher attorney’s fee awards and that the Revenue and Taxation Code provisions can result in awards that are well below the current prevailing rates for high-quality tax counsel.

We agree with the administration that as the use of the Civil Procedure Code for attorney’s fee awards grows in such cases, the state may be at risk of paying more and larger such awards than in the past. At least a part of the administration’s rationale for its trailer bill proposal is to avoid such higher costs.


Amendments to Various Tax Laws in the Revenue and Taxation Code. To implement its proposal, the administration has proposed a 25-page “RN” (draft legislation) amending various parts of the state Revenue and Taxation Code applicable to attorney’s fees, generally making these provisions the exclusive remedies for many tax refund cases, and applying various amendments to sections of the tax code applicable to various kinds of FTB and BOE tax cases. In general, with certain amendments, the bill applies the basic structure of existing Sections 19717 and 7156 to a variety of tax laws administered by FTB and BOE. As we understand the detailed legislative proposal, it would make the amended Revenue and Taxation Code attorney’s fee sections exclusive remedies for various tax, surcharge, fee, interest, penalty, or other payment refund court cases related to:

  • Articles XIII and XIII A of the State Constitution (Property and Certain Other Taxes)
  • Sales and Use Taxes
  • Income and Franchise Taxes
  • Motor Vehicle Fuel Taxes
  • Use Fuel Taxes
  • Private Railroad Car Taxes
  • Insurance Taxes
  • Cigarette Taxes
  • Alcoholic Beverage Taxes
  • Timber Yield Taxes
  • Energy Resource Surcharges
  • Emergency Telephone Users Surcharges
  • Hazardous Substances Taxes
  • Marine Invasive Species Fees
  • Integrated Waste Management Fees
  • Oil Spill Response, Prevention, and Administration Fees
  • Underground Storage Tax Maintenance Fees
  • Fees covered in the Fee Collection Procedures Law (beginning with Section 55001 of the Revenue and Taxation Code)
  • Diesel Fuel Taxes

In general, for these categories of tax, fee, and other payment refund cases, the trailer bill proposal would prevent successful litigants from seeking attorney’s fees under Code of Civil Procedure or other sections of the state code. In some instances, successful tax litigants’ awarded attorney’s fees may therefore be less for future cases. The trailer bill applies this limitation only to cases filed on or after the date the proposal takes effect.

LAO Comments

Our office makes no recommendation on this proposed trailer bill, but recognizes that it is a significant legislative proposal by the administration with the potential to relieve the state of millions of dollars of attorney’s fee award costs in future cases. Below we offer several issues for legislative consideration.

Courts Have Noted This Is an Important Issue for Litigants. In Northwest Energetic Services, the Court of Appeal noted that “it may matter a great deal whether Section 19717 is the exclusive means of recovering attorney fees, because a ‘prevailing party’ under Section 19717 is different from a ‘prevailing party’” under certain sections of the Code of Civil Procedure. Under Section 19717, for example, the court noted that a party is not a prevailing party if the state establishes that its position in the proceeding was “substantially justified.” Citing prior case law, the Court of Appeal noted that “substantially justified” is construed as meaning “justified to a degree that would satisfy a reasonable person” or has a “reasonable basis both in law and in fact.” Moreover, the court said, where “reasonable minds could differ…the FTB’s position has been deemed to be substantially justified.” In considering the term “substantially justified” as used in current law and the administration’s proposal, the Legislature should consider whether it wishes an exclusive remedy in the Revenue and Taxation Code to contain this somewhat restrictive provision.

Tax Code and Civil Procedure Code Have Different Bases for Awarding Fees. In the Northwest case, the Court of Appeal said the claimed exclusivity of Section 19717 by FTB (rejected by the court) was significant because that code section "provides a different basis for determining the entitlement and amount of fees," compared to Section 1021.5 of the Code of Civil Procedure and the common fund doctrine. Section 19717 “includes attorney fees at market rates, potentially subject to a statutory cap on the hourly rate,” while the Code of Civil Procedure allows awards that are reasonable “without regard to a statutory cap” in certain instances. Moreover, “under the common fund doctrine, reasonable attorney fees may be awarded where the litigation created a fund from which, in equity, the successful plaintiff’s attorney should be paid.” The administration’s trailer bill proposal—like current Revenue and Taxation Code sections—provides a cap. The proposed cap is $160 per hour (to be adjusted annually for inflation), although courts would continue, as under current Revenue and Taxation Code provisions, to have some ability to adjust that fee upward due to various special factors cited in the bill.

State Law Sometimes Encourages Suits By Providing Substantial Attorney Fees. The Northwest court added that the decision in Flannery v. California Highway Patrol (1998) 61 Cal.App.4th 629 recognizes an “equitable purpose” behind the attorney’s fee provisions of part of the Code of Civil Procedure (Section 1021.5) considered part of the “private attorney general doctrine.” The Flannery court said, “…privately initiated lawsuits often are essential to effectuate fundamental public policies embodied in constitutional or statutory provisions, and that without some mechanism authorizing a fee award, such private actions often will as a practical matter be infeasible.” The basic objective of the “private attorney general doctrine,” the Flannery court said, “is to encourage suits enforcing important public policies by providing substantial attorney fees to successful litigants in such cases” (emphasis added). In the Northwest Energetic Services decision, the court said, “FTB does not explain why this equitable concern might not also be appropriate in tax refund cases.” Accordingly, in considering this trailer bill proposal, the Legislature may wish to consider the extent to which exclusivity would undermine the intent of Section 1021.5 and other Civil Procedure Code sections and whether this is a desirable policy course related to future tax and fee policy lawsuits.

Are the Proposed Dollar Amount Guidelines the Right Ones? As noted above, the trailer bill—like current law—contains a cap on certain hourly attorney fees that could be awarded to successful litigants, subject to some adjustment by the courts in special instances. The cap would be adjusted for inflation in the future. If the Legislature were to adopt the trailer bill proposal, it could consider whether this dollar amount is the desired choice, given that many highly-qualified private-sector tax counsel apparently cost more than this.

Why Not Apply This Law to Other State Fee and Tax Refund Cases? The proposed trailer bill does not appear to us to apply to cases affecting all state taxes and fees. Instead, it focuses on cases affecting taxes and fees administered by FTB and BOE. If the Legislature were to decide to pass a version of the trailer bill, it seemingly would want to consider whether the same policy would make sense to be applied to all tax, fee, and other payment refund cases of state departments, including the Department of Motor Vehicles and other state entities.