California Court Confirms Invalidity of California Tax Rules, Awards ACMA over $330,000 in Attorney Fees

On February 13, 2024, in a lawsuit brought by Brann & Isaacson on behalf of the American Catalog Mailers Association (ACMA) against the California Franchise Tax Board (FTB), San Francisco Superior Court Judge Ethan P. Schulman issued orders on post-judgment motions affirming the ACMA’s victory and awarding the association attorney fees of $332,895.50 and costs of $8,739.62.

In the first order, the Court emphatically rejected the FTB’s motion to vacate and modify the judgment, entered on December 18, 2023, declaring that the FTB’s Technical Advice Memorandum 2022–01 and FTB Publication 1050 interpreting Public Law 86–272 were “void and without force or effect” and that “their guidance could not be relied upon” because they had been issued in violation of the Administrative Procedure Act (APA). Addressing arguments the Court described as “verg[ing] on the frivolous” and “feckless,” the Court reaffirmed that judgment and that the ACMA, in securing it, was the prevailing party.

In the second order, the Court ordered an award of costs of $8,739.62 and attorney fees of $332,895.50 to the ACMA as the successful party. Finding that the ACMA had “conferred a significant benefit on retailers and the public by furthering the important statutory purposes underlying the APA” and the further benefit of  “invalidat[ing] regulations regarding the application of P.L. 86-272 to numerous out-of-state retailers,” the Court concluded that an award of attorney fees was appropriate under the state’s private attorney general statute, which provides substantial attorney fees to successful litigants who take on public interest litigation at their own expense.  

Martin I. Eisenstein, David Swetnam-Burland, and Nathaniel A. Bessey of Brann & Isaacson and co-counsel Richard Pachter of the Law Offices of Richard Pachter represented the ACMA in this action. “We are thrilled,” Swetnam-Burland remarked, “that the judge recognized that the ACMA achieved a substantial victory for its members and the general public—and at a substantial cost to the association caused by the FTB’s litigation strategy. These orders vindicate the ACMA’s commitment to resisting the FTB’s efforts to change the rules without public input and to deny the ACMA its day in court.”