Filed 1/6/15 Commissioner of Revenue of the State of Minnesota v. Nelson CA2/6

                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.


              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                   DIVISION SIX


COMMISSIONER OF REVENUE OF                                                    2d Civil No. B251215
THE STATE OF MINNESOTA,                                                     (Super. Ct. No. 1415616)
                                                                             (Santa Barbara County)
     Plaintiff and Respondent,

v.

BRUCE NELSON,

     Defendant and Appellant.




                   Bruce Nelson challenged several personal liability assessments that the
Minnesota Commissioner of Revenue ("the Commissioner") made against him and Scott
Stevens. The assessments were for unpaid petroleum and sales taxes. The amount of the
unpaid taxes exceeds $4 million. Nelson does not dispute his personal liability for the
taxes under Minnesota law but asserts the tax court erred in granting summary judgment
to the Commissioner by denying his request for additional discovery to explore an
estoppel defense. Nelson's appeal to the Minnesota Supreme Court was unsuccessful. In
2013, the resulting judgment was certified and registered in California. Nelson moved to
vacate the California judgment based on the contention that the tax court's discovery
ruling denied him due process of law. The trial court in California denied the motion to
vacate and Nelson appealed the ruling. We affirm.
                                             I.
                       FACTUAL AND PROCEDURAL HISTORY
                              Relevant Entities and Persons
              Avanti and Twin Cities Stores, Inc. ("T.C. Stores") were wholly-owned
subsidiaries of RM Group, Inc., a Delaware corporation. Nelson owned an 85 percent
interest in RM Group. Avanti and T.C. Stores owned or operated various retail
convenience stores that sold sundries and gasoline. Scott Stevens was Avanti's president.
                                   Unpaid Tax Liability
              Avanti purchased all of the petroleum products sold by both Avanti and
T.C. Stores. In 2008 and 2009, Avanti failed to pay to the Department of Revenue ("the
Department") petroleum and sales taxes for petroleum products sold by Avanti and T.C.
Stores. Because Avanti made all petroleum purchases and filed all petroleum tax returns
for the combined companies, the Department filed tax liens against Avanti alone.
Because T.C. Stores sold some of the gasoline, it may also have been liable for failing to
pay taxes on the petroleum products sold at its facilities. (See Minn. Stat. § 296A.10
(2010).)
              In 2009, Avanti submitted a proposal for the payment of the taxes that the
Department rejected. Avanti's request for reconsideration explained that Avanti and T.C.
Stores acted as a single economic unit and thus Avanti alone should not be entirely
responsible for the unpaid taxes. Avanti also pointed out that any plan to pay the tax
arrearages had to include the cash flow and assets of T.C. Stores in order for the payment
plan to be viable. Nevertheless, the Department rejected a revised proposal for payment
of the taxes. At Nelson's specific request, and because some of the petroleum products
were sold by T.C. Stores outlets, the Department also filed tax liens against T.C. Stores.
              Avanti and T.C. Stores filed petitions under Chapter 11 of the Bankruptcy
Code and sought joint administration of the bankruptcies. The companies' joint plan of
reorganization proposed selling one of the T.C. Stores locations, paying $750,000 of the


                                             2
proceeds toward the arrearages – about 16 percent of the amount due and giving the
Department an "IOU" from the bankrupt companies for the payment of the balance over
48 months.
               Creditors objected to the joint plan, pointing out 1) that only Avanti – not
T.C. Stores – was liable for the Minnesota petroleum tax arrearages and thus the assets
and cash flow of T.C. Stores should not be used to settle this debt but should instead be
used to cover the claims of secured and unsecured creditors; and, 2) that the plan was not
viable. Avanti and T.C. Stores responded that although the Department originally
assessed only Avanti, it later filed liens against T.C. Stores as well and that those liens
were still pending. The companies emphasized that their proposed repayment plan would
only be viable if T.C. Stores' assets and cash flow were also available to settle the tax and
other debts.
               Prior to the confirmation hearing on the joint plan, the Department
withdrew its tax liens against T.C. Stores. This eliminated the Department's secured
position with respect to other creditors' claims to the assets and cash flow of T.C. Stores
and correspondingly increased Nelson's individual exposure for the unpaid taxes. Avanti
and T.C. Stores then withdrew the joint plan, claiming that the State's removal of the
liens against T.C. Stores forced the withdrawal.
                               Proceedings in the Tax Court
               Nelson filed a Notice of Appeal in the Minnesota Tax Court seeking to
avoid the assessment against him personally. The Department's deputy director of the
special tax division told Avanti's bankruptcy counsel that he did not know who made the
decision to remove the T.C. Stores liens or why they were removed but that the
Department had received numerous calls concerning the case. Nelson then served the
Commissioner with discovery requests seeking the identities of all Department officials
and third parties who were involved in the decision to file and then withdraw the tax liens
against T.C. Stores.
               The Commissioner's response to the discovery requests provided some
information but not enough to satisfy Nelson and Stevens. At a prefiling conference, the


                                              3
Commissioner's counsel asserted that the Department was unaware of any third-party
communications regarding the withdrawal of the liens and said the requested material
was irrelevant in any event.
              Nelson and Stevens filed a joint motion to compel discovery. They argued
that filing the tax liens against T.C. Stores was essential to the success of the joint plan of
reorganization and that withdrawing the liens forced the companies into Chapter 7
bankruptcy liquidations. Nelson and Stevens claimed they relied on the Department's
filing tax liens against T.C. Stores' assets because it permitted them to avoid personal
liability for the tax arrearages. They argued the Commissioner should be equitably
stopped from seeking payment of the taxes from them individually. They did not argue
that withdrawing the tax lien was unlawful or that denying the request for additional
discovery was in some way a denial of due process.
              The Department moved for summary judgment. The tax court set the
motions for hearing at the same time. The tax court ruled Nelson and Stevens could
present their estoppel argument at trial but that they were not entitled to further discovery
to develop the claim. Later, the tax court granted the Commissioner's motion for
summary judgment, ruling that Nelson and Stevens were personally liable for the unpaid
petroleum taxes of Avanti. The tax court specifically rejected Nelson's estoppel claim on
the ground that "estoppel is not an available remedy because the Commissioner did not
misrepresent [taxpayers'] personal liability nor did the [taxpayers] reasonably rely on any
such alleged misrepresentation."
                       Proceedings in the Minnesota Supreme Court
              Nelson and Stevens separately appealed to the Minnesota Supreme Court
seeking to reverse the tax court judgment making them individually liable for the $4
million in petroleum and sales taxes. Nelson reiterated his argument that the tax court
should have granted the discovery motion and should have permitted him to take
depositions to develop the equitable estoppel theory. He made no due process claim.
              In 2012, the Minnesota Supreme Court concluded Nelson could not satisfy
the requirements of an equitable estoppel argument whether or not the discovery motion


                                               4
was granted. The Court stated, "[T]here is no evidence that the Department engaged in
wrongful conduct. Nelson was a beneficiary of a discretionary decision by the
Department—a decision he urged the Department to make—and now claims that he was
damaged when the Department reversed course. But equitable estoppel requires more
than an unfavorable decision by the government." (Nelson v. Commissioner of Revenue
(2012) 822 N.W.2d 654, 660.) The Court added, "Nelson has submitted no evidence to
suggest that the Department misrepresented anything regarding its lien filings to induce
the taxpayers to believe that they were not personally liable for Avanti's tax liabilities. In
fact, it was at the prompting of . . . Avanti and T.C. Stores, that the Department filed liens
against T.C. Stores. Additionally, Nelson has provided no authority that the Department
is obligated to assess tax liability against any specific entity or individual, including T.C.
Stores. The decision to withdraw the tax liens against T.C. Stores because T.C. Stores
has no underlying tax liability was within the Department's discretionary authority, and
we therefore cannot conclude that the Department's actions were wrongful. See Minn.
Stat. § 270C.63, subd. 15 (2010) ('If the commissioner determines that the filing of the
notice of any lien was erroneous . . . the commissioner must issue a certificate of release
of the lien. . . . Even if a lien is not erroneous, the commissioner may withdraw the lien if
the filing of the lien was premature or not in accordance with administrative procedures
of the commissioner, or withdrawal of the lien will facilitate the collection of the tax
liability.') [¶] Second, Nelson failed to establish that he incurred a 'unique expenditure'
in reliance on the Department's conduct. [Citation.] Although Avanti and T.C. Stores
filed bankruptcy petitions in reliance on the tax liens against T.C. Stores, there is no
evidence that Nelson changed his position personally in reliance on the tax liens. . . .
[¶] Here, Nelson suffered no loss from the commissioner's decision to withdraw the
liens. Once Avanti failed to pay its petroleum taxes, personal liability under Minn. Stat.
§ 270C.56 attached, and Nelson and Avanti were jointly and severally liable for Avanti's
tax liability. At that point, the Department had discretionary authority to pursue Avanti
or Nelson, or both, for payment of the tax liability. See Minn. Stat. § 270C.56, subd. 3(a)
(2010)." (Id., at p. 661.)


                                              5
                  Proceedings in the Santa Barbara County Superior Court
                On February 7, 2013, the Commissioner filed an ex parte application for the
entry of a sister state judgment. (Code Civ. Proc., §§ 1710.15, 1710.20.)1 On the same
day, the Santa Barbara County Superior Court entered a judgment for $4,051,173.12,
based upon the Minnesota judgment. (§ 1710.25.) On March 25, 2013, Nelson moved to
vacate the judgment arguing for the first time that he was not afforded due process of law
because the Minnesota Tax Court and the Minnesota Supreme Court refused to permit
him to conduct discovery he characterized as essential to his defense of estoppel.
                The superior court concluded that the Minnesota Supreme Court foreclosed
Nelson's argument that he was denied due process. The court reasoned, "by deciding that
the Minnesota Tax Court did not abuse its discretion in denying discovery, the Minnesota
Supreme Court correspondingly decided that the denial of discovery was not so
fundamental as to deprive Nelson of due process." The superior court also pointed out
that Nelson did not present any evidence in support of his position that had not already
been presented to and considered by the Minnesota courts. Citing Bank of America v.
Jennett (1999) 77 Cal.App.4th 104, 113-114, the court noted "a judgment is entitled to
full faith and credit – even as to questions of jurisdiction – when the second court's
inquiry discloses that those questions have been fully and fairly litigated and finally
decided in the court which rendered the original judgment." The court concluded the
discovery issue was thoroughly litigated in Minnesota and ruled Nelson's due process
right was not abridged.
                                        DISCUSSION
                We review an order denying a motion to vacate a sister state judgment for
an abuse of discretion. (State of Arizona ex rel. Arizona Dept. of Revenue v. Yeun (2009)
179 Cal.App.4th 169, 178.) We will not reverse the exercise of such discretion except
when there is clear abuse. We view all factual matters in the light most favorable to the



1
    All statutory references are to the Code of Civil Procedure unless stated otherwise.


                                               6
prevailing party. (Tsakos Shipping & Trading, S.A. v. Juniper Garden Town Homes, Ltd.
(1993) 12 Cal.App.4th 74, 89.)
              Under article IV, section 1, of the United States Constitution, courts shall
accord full faith and credit to a judgment of a sister state unless the rendering court
lacked jurisdiction. (Bank of America v. Jennett, supra, 77 Cal.App.4th at p. 113;
Washoe Development Co. v. Guaranty Federal Bank (1996) 47 Cal.App.4th 1518, 1521.)
"[A] judgment entered by one state must be recognized by another state if the state of
rendition had jurisdiction over the parties and the subject matter and all interested parties
were given reasonable notice and opportunity to be heard. [Citations.]" (World Wide
Imports, Inc. v. Bartel (1983) 145 Cal.App.3d 1006, 1010.) The "permissible scope of
inquiry" by the sister state is limited to a determination whether the forum court had
jurisdiction of the parties and the subject matter. (Ibid.) That is plainly the case here.
              Section 1710.40, subdivision (a) provides that a judgment entered pursuant
to California's Sister State and Foreign Money-Judgments Act (§ 1710.10 et seq.) "may
be vacated on any ground which would be a defense to an action in this state on the sister
state judgment . . . ." Following section 1710.40, the Law Revision Commission's
Comment sets forth "common defenses" to enforcement of the judgment. The list
includes lack of jurisdiction, misconduct by the plaintiff and extrinsic fraud. (Ibid.)
Nelson's motion to vacate the Minnesota judgment does not reach any of the common
defenses listed in section 1710.40. He cannot overcome the full faith and credit we must
afford the Minnesota judgment.
              Principles of res judicata apply to matters actually presented to sustain or
defeat the right asserted in the earlier proceeding as well as "'any other available matter
which might have been presented to that end.'" (Chicot Co. Drainage Dist. v. Baxter
State Bank (1940) 308 U.S. 371, 378.) "As long as the sister state court had jurisdiction
over the subject matter and the parties, a sister state judgment is entitled to full faith and
credit 'even as to matters of law or fact erroneously decided.' [Citations.]" (Bank of
America v. Jennett, supra, 77 Cal.App.4th at p. 118.) Contrary to Nelson's arguments,
differing policies about the discovery available to litigants cannot contravene the full


                                               7
faith and credit clause of the Constitution. (World Wide Imports, Inc. v. Bartel, supra,
145 Cal.App.3d 1006, 1011.)
              The trial court acted properly by denying Nelson's motion to vacate the
sister state judgment. Nelson appeared and defended in the Minnesota action. The
Minnesota Tax Court and the Minnesota Supreme Court concluded that the
Commissioner and the Department did nothing wrong in rescinding the tax lien against
T.C. Stores – an action expressly authorized by statute – and said nothing that would
permit him to infer that filing the tax lien against T.C. Stores meant he would no longer
be personally liable for misdirecting petroleum and sales taxes, that the State meant to
protect him from personal responsibility for the taxes or that the tax lien against T.C.
Stores would never be withdrawn. As the trial court noted, an ample measure of due
process has been afforded Nelson. California must accord full faith and credit to the
resulting judgment.
              The order denying appellant's motion to vacate the sister state judgment is
affirmed. Costs on appeal are awarded to respondent.
              NOT TO BE PUBLISHED.



                                           BURKE, J.*


We concur:


              GILBERT, P. J.




              YEGAN, J.



(Judge of the Superior Court of San Luis Obispo County, assigned by the Chief Justice
pursuant to art. 6, § 6 of the Cal. Const.)

                                              8
                              James E. Herman, Judge

                       Superior Court County of Santa Barbara
                        ______________________________


            Reetz, Fox & Bartlett LLP, Randall Fox, Anna M. D'Alessandro for
Defendant and Appellant.
            Kutock Rock LLP, Antoinette P. Hewitt, Christopher D. Glos for Plaintiff
and Respondent.
