Filed 7/21/16
                           CERTIFIED FOR PUBLICATION


                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                             SIXTH APPELLATE DISTRICT

CITY OF SAN JOSE,                                  H042481
                                                  (Santa Clara County
        Plaintiff, Cross-defendant, and            Super. Ct. No. CV272374)
        Respondent,

        v.

MEDIMARTS, INC. et al.,

        Defendants, Cross-complainants,
        and Appellants.


        The City of San Jose brought this action to collect unpaid business taxes from
defendants MediMarts, Inc. and its president, David Armstrong. In the course of the
proceedings defendants sought a preliminary injunction against the City’s attempts to
stop them from operating their medical marijuana collective. On appeal, defendants
contend that payment of the Marijuana Business Tax (San Jose Municipal Code,
§ 4.66.010 et seq.) would force Armstrong to incriminate himself in violation of his Fifth
Amendment privilege by admitting criminal liability for violating federal drug laws.
We conclude that the privilege against self-incrimination has no application in these
circumstances. We must therefore affirm the order.
                                          Background
        MediMarts was established in 2009 as a nonprofit collective under the name Bay
Pacific Care, Inc. Bay Pacific Care paid the Marijuana Business Tax (hereafter, MBT)
from March 2011 through July 2011. In August 2011 the collective changed its name to
MediMarts, and it continued paying the tax through April 2012. In May of 2012,
however, MediMarts discontinued paying the MBT, instead submitting tax returns
showing no money due. The City began sending tax assessments and overdue notices,
while Armstrong maintained that the tax itself was illegal under federal law. After a
hearing before the Acting Director of Finance, MediMarts was found to owe $58,788.53
as of August 24, 2012, along with the future accrual of penalties and interest. Armstrong
continued to protest the assessments to Wendy J. Sollazzi, a revenue management
division manager in the City’s finance department. Another hearing took place on
November 15, 2013. On July 11, 2014, the Director of Finance found that MediMarts
owed $215,111.17 as of the November 2013 hearing date.
       The City then brought this action against Armstrong and MediMarts to collect the
unpaid business taxes due under the MBT, chapter 4.66 of the San Jose Municipal Code
(hereafter, SJMC or the Code). In its first amended complaint, filed December 3, 2014, it
alleged that defendants were subject to the MBT and that by failing to pay the tax they
had incurred collection costs, interest, and penalties. The complaint specifically alleged
that Armstrong “was an agent of [MediMarts] acting in the scope of such agency and
with the permission and consent of [MediMarts].” Together the taxes, interest, and
penalties claimed by the City totaled $767,058.60 as of October 10, 2014.
       Defendants answered the complaint and filed a cross-complaint under 42 U.S.C.
sections 1983 and 1988. In this pleading they alleged that payment of the MBT “would
subject [d]efendants to self incrimination,” because the law “forces [defendants] to admit
to the sale or possession for sale of marijuana.” The tax also violated defendants’ due
process rights by failing to provide for notice or a hearing before declaring MediMarts a
nuisance and by forcing it to cease operations. Armstrong specifically was denied due
process because he was not afforded a hearing “on whether he should be personally liable
for the taxes of [MediMarts].” Finally, the cross-complaint alleged a violation of
defendants’ equal protection rights under the Fourteenth Amendment, because the MBT
“unjustly treats collectives and medical marijuana patients differently from other

                                             2
similarly situated individuals and organizations.” Defendants sought damages as well as
a “judicial determination as to whether: [(]1) the MBT is due and payable; [and] [(]2) . . .
the MBT violates Cross-Complainants[’] constitutional rights.”
       Defendants then applied for a preliminary injunction to restrain the City from
taking any action to shut down the collective or declare it a nuisance, to compel the City
to reinstate MediMarts’s business registration, and to require the City to remove its
classification of MediMarts as a nuisance per se during the pendency of the action.
Defendants cited the same grounds as in their cross-complaint and predicted “great and
irreparable injury” from the closing of MediMarts, not only to the collective but also to
the patient members who needed the medical marijuana to cope with their illnesses.
MediMarts as well as Armstrong could assert the Fifth Amendment here, they argued,
because it functioned “only to serve its member-patients”; that is, it existed not merely as
an organization, but as a collective of members who were all acting in their own personal
interest and on behalf of all members. Like the other members, Armstrong himself could
assert the Fifth Amendment because he was “not acting solely as a representative [of
MediMarts] but was “always acting in a partially personal capacity.” Defendants also
argued that the MBT was unconstitutionally vague and overbroad.
       The superior court was not persuaded. Applying the “collective entity rule,” the
court determined that neither MediMarts nor Armstrong was entitled to assert the Fifth
Amendment to resist the tax. (See Braswell v. United States (1988) 487 U.S. 99, 104-113
(Braswell).) The court rejected the argument as to MediMarts that it existed “only to
serve its member--patients”; it was nonetheless a separate incorporated legal entity “with
all the powers, benefits and responsibilities accorded to it by law.” Armstrong’s claim
that he could invoke the Fifth Amendment because he was not acting solely as a
representative of the collective was also deemed unavailing. From the court’s June 15,
2015 order, defendants filed this timely appeal.



                                             3
                                         Discussion
1. Legislative Framework
       The Compassionate Use Act of 1996 (CUA), passed by Proposition 215 in
November 1996, added section 11362.5 to the Health and Safety Code. It provides a
defense to prosecution for possession and cultivation of marijuana, which are otherwise
prohibited by sections 11357 and 11358, respectively, of that code. In 2004 the Medical
Marijuana Program (MMP) (Stats. 2003, ch. 875, § 2, p. 6424) took effect, providing
additional protection from specified criminal statutes for qualified patients, persons
holding authorized identification cards, and primary caregivers. (Health & Saf. Code,
§ 11362.765.) Section 11362.775 of the program exempts from the same criminal
statutes “qualified patients, persons with valid identification cards, and the designated
primary caregivers of qualified patients and persons with identification cards, who
associate within the State of California in order collectively or cooperatively to cultivate
cannabis for medical purposes.” (Stats. 2003, ch. 875, § 2, p. 6424; see amendment in
Stats. 2015, ch. 689, § 6, pp. 5319-5320 eff. Jan. 1, 2016 (A.B. 266).) MediMarts
operates as such a collective authorized under the MMP.
       Federal law, however, continues to prohibit possession, cultivation, and
distribution of marijuana notwithstanding modifications of drug laws in individual states.
Under the Controlled Substances Act (CSA), title II of the Comprehensive Drug Abuse
Prevention and Control Act of 1970 (21 U.S.C. § 801, et seq.), it remains unlawful to
manufacture, distribute, dispense, or possess any controlled substance except as
authorized by the CSA. (21 U.S.C. §§ 841(a)(1), 844(a); see Gonzales v. Raich (2005)
545 U.S. 1, 12 (Gonzalez).) Marijuana is listed as a Schedule 1 controlled substance.
(21 U.S.C. § 812, subd. (c)(10).) There is no exception under federal law for medical
use. (21 U.S.C. §§ 812, 844(a)); see United States v. Oakland Cannabis Buyers’
Cooperative (2001) 532 U.S. 483, 491-495 [medical necessity defense unavailable under



                                              4
the CSA]; Gonzales, supra, at pp. 27-29 [Congress may, under the Commerce Clause,
regulate cultivation and use of marijuana authorized by the CUA].)1
       The CSA has not, however, been held to preempt the CUA. Indeed, both
Congress and the United States Supreme Court have indicated otherwise, as have our
state’s appellate courts. (See 21 U.S.C. § 903; see Gonzales v. Oregon (2006) 546 U.S.
243, 251 [preemption provision of the CSA, 21 U.S.C. § 903,2 “explicitly contemplates a
role for the States in regulating controlled substances”]; see also City of Garden Grove v.
Superior Court (2007) 157 Cal.App.4th 355, 383-385 [CUA does not undermine the
stated objectives of the CSA and is not preempted by it]; Kirby v. County of Fresno
(2015) 242 Cal.App.4th 940, 963 [neither conflict preemption nor obstacle preemption
precludes application of the CUA and MMP through the CSA, citing rejection of
preemption arguments in Qualified Patients Assn. v. City of Anaheim (2010) 187
Cal.App.4th 734, 757-763]; accord, City of Palm Springs v. Luna Crest Inc. (2016) 245
Cal.App.4th 879, 884-886 [city’s issuance of permits for medical marijuana dispensaries
is not a regulation preempted by federal drug laws].)

       1
         In recent years the stringency of the CSA has been mitigated with respect to
medical marijuana by section 538 of the Consolidated and Further Continuing
Appropriations Act, 2015 (Pub. L. No. 113-235, (December 16, 2014) 128 Stat. 2130)
and section 542 of the “Consolidated Appropriations Act, 2016” (Pub. L. No. 114-113,
(December 18, 2015) 129 Stat. 2242.) Under those provisions, funds made available to
the Department of Justice may not be used to prevent named states (including California)
from “implementing their own State laws that authorize the use, distribution, possession,
or cultivation of medical marijuana.” Notwithstanding this policy, section 809 of each
legislative act clarifies that federal funds authorized by the act may not be used to
legalize or reduce penalties associated with possession, use, or distribution of schedule 1
substances proscribed by the CSA.
       2
          21 U.S.C. section 903 states: “No provision of this subchapter shall be construed
as indicating an intent on the part of the Congress to occupy the field in which that
provision operates, including criminal penalties, to the exclusion of any State law on the
same subject matter which would otherwise be within the authority of the State, unless
there is a positive conflict between that provision of this subchapter and that State law so
that the two cannot consistently stand together.”

                                             5
       San Jose began taxing marijuana businesses following the adoption of Measure U
in the November 2, 2010 election. Measure U authorized the enactment of chapter 4.66
of the SJMC, thereby establishing the MBT. The chapter requires anyone engaged in a
marijuana business3 to pay up to 10 percent of its gross receipts to the City. (SJMC,
§ 4.66.250.) SJMC’s section 4.66.010 states that the purpose of the provision is “solely”
to raise revenue for the City “and is not intended for regulation.” A person who fails to
pay the tax when due incurs a 25 percent penalty, with an additional 25 percent penalty
imposed after one month’s delinquency. (SJMC, § 4.66.300.) Operation of a marijuana
business without a business tax certificate is deemed unlawful, and the certificate will not
be issued unless the tax has been paid. (SJMC, § 4.66.210(B).) The Code also imposes
personal liability for the tax, penalties, and interest on any person (including an officer or
employee of a corporation) who is required to “collect, truthfully account for, and pay
over any tax imposed by this code,” but who willfully fails to do so or attempts “to evade
or defeat any such tax or payment thereof.”4 (SJMC § 1.08.015.5.) The City cited this
provision both in its complaint and in its opposition to defendants’ injunction request.
2. The Preliminary Injunction
       When presented with defendants’ application for a preliminary injunction, the
superior court had two factors to consider: (1) the likelihood that defendants would

       3
         A marijuana business is defined to encompass the activities of “planting,
cultivating, harvesting, transporting, manufacturing, compounding, converting,
processing, preparing, storing, packaging, wholesale, and/or retail sales of marijuana and
any ancillary products in the City, whether or not carried on for gain or profit.” (SJMC,
§ 4.66.110)
       4
         This section states: “In addition to all other remedies provided by law, any
person required to collect, truthfully account for, and pay over any tax imposed by this
[C]ode who willfully fails to collect such tax , or truthfully account for and pay over such
tax or willfully attempts in any manner to evade or defeat any such tax or payment
thereof, shall be personally liable for the total amount of the unpaid tax and interest and
penalties on the unpaid tax evaded or not collected or not accounted for and paid over to
the city.” (SJMC § 1.08.015.5.)

                                              6
ultimately prevail on the merits and (2) the relative interim harm to the parties from
issuance or nonissuance of the injunction. (Common Cause v. Board of Supervisors
(1989) 49 Cal.3d 432, 441-442.) Because the decision whether to grant a preliminary
injunction rests in the sound discretion of the trial court, we generally review that
decision for abuse of discretion. (In re Marriage of Nadkarni (2009) 173 Cal.App.4th
1483, 1495, quoting Salazar v. Eastin (1995) 9 Cal.4th 836, 849-850.) It is defendants’
burden to make a clear showing of such abuse. (Ryland Mews Homeowners Assn. v.
Munoz (2015) 234 Cal.App.4th 705, 711.) However, to the extent that a trial court’s
grant or denial of a preliminary injunction and its assessment of the likelihood of success
on the merits depend on legal rather than factual questions, we review that decision
independently. (Huong Que, Inc. v. Luu (2007) 150 Cal.App.4th 400, 408; O’Connell v.
Superior Court (2006) 141 Cal.App.4th 1452, 1463.)
3. Viability of Armstrong’s Defense to Payment of the MBT
       Recognizing that MediMarts, a corporate entity, has no constitutional right against
self-incrimination, in seeking reversal defendants assert the Fifth Amendment only as to
Armstrong. (See Hale v. Henkel (1906) 201 U.S. 43, 75 (Hale) [corporation is not a
“person” for purposes of the privilege against self-incrimination], overruled in part on
other grounds in Murphy v. Waterfront Comm’n. (1964) 378 U.S. 52; United States v.
White (1944) 322 U.S. 694, 699 [“Since the privilege against self-incrimination is a
purely personal one, it cannot be utilized by or on behalf of any organization, such as a
corporation.”].) This constitutional provision declares that “[n]o person . . . shall be
compelled in any criminal case to be a witness against himself.” As the text has been
interpreted, “a communication must be testimonial, incriminating, and compelled.”
(Hiibel v. Sixth Judicial Dist. Court of Nev. Humboldt Cty. (2004) 542 U.S. 177, 189.)
In particular, “[t]he word ‘witness’ in the constitutional text limits the relevant category
of compelled incriminating communications to those that are ‘testimonial’ in character.”
(United States v. Hubbell (2000) 530 U.S. 27, 34; see also Hale, supra, at p. 67 [the

                                              7
“interdiction of the 5th Amendment operates only where a witness is asked to . . . give
testimony which may possibly expose him to a criminal charge”].) The act of filing a tax
return has not been considered testimonial. (See Hubbell, supra, at p. 35; United States v.
Sullivan (1927) 274 U.S. 259, 263 [Fifth Amendment did not exempt defendant from
paying taxes or filing a return for income derived from unlawful business].)
       The City did not focus on the testimonial aspect of the privilege, but relied
primarily on the “collective entity” doctrine, which was also the primary basis of the
superior court’s order. The underlying principle of this doctrine, as repeatedly explained
by the United States Supreme Court, is that a corporate officer may not rely on the Fifth
Amendment when required to produce the records of the corporation. For example, in
Hale, supra, 201 U.S. at 76, the United States Supreme Court rejected a corporate
officer’s reliance on the Fifth Amendment when, though given personal immunity, he
was required by a grand jury to answer questions and produce material demanded in a
subpoena. In Wilson v. United States (1911) 221 U.S. 361 the president of a corporation
unsuccessfully challenged a contempt order after he refused to produce subpoenaed
corporate records. The president “could assert no personal right to retain the corporate
books against any demand of government which the corporation was bound to
recognize.” (Id. at p. 385, italics added; see also Dreier v. United States (1911) 221 U.S.
394, 400 [corporate secretary properly found in contempt for refusing demand for
corporate documents, notwithstanding his claim that those papers would tend to
incriminate him].)
       As the high court subsequently made clear, “representatives of a collective entity
act as agents, and the official records of the organization that are held by them in a
representative rather than a personal capacity cannot be the subject of their personal
privilege against self-incrimination, even though production of the papers might tend to
incriminate them personally . . . Any claim of Fifth Amendment privilege asserted by the
agent would be tantamount to a claim of privilege by the corporation, which possesses no

                                              8
such privilege.” (Braswell, supra, 487 U.S. at pp. 99-100.) Thus, while business records
of a sole proprietor or practitioner may be protected from release by the Fifth
Amendment, an individual “cannot rely upon the privilege to avoid producing the records
of a collective entity which are in his possession in a representative capacity, even if
these records might incriminate him personally.” (Bellis v. United States (1974) 417 U.S.
85, 93-101 (Bellis).)
       Defendants maintain that the collective entity doctrine is inapplicable to divest
Armstrong of his own Fifth Amendment rights. They seek to avoid the
corporate-individual distinction by characterizing the issue without regard to
MediMarts’s corporate identity, asserting that “a person cannot be compelled to provide
evidence of their [sic] own illegal conduct.” Defendants refer to the tax as one “imposed
on the money he [i.e., Armstrong] received each month from the sale of marijuana.”
(Italics added.) But the tax is not the obligation of Armstrong; it belongs to MediMarts.
It makes no difference that the complaint accuses both defendants of failing to pay the
MBT; it is MediMarts that owed the tax. Armstrong’s duty to collect and turn over the
tax inhered in his representative capacity as president of the collective. His signature on
the tax returns that were filed in 2011 and 2012 properly reflected that duty, as he signed
on behalf of MediMarts, not himself.
       Nor can defendants escape the core principle of the collective entity doctrine by
pointing out that the cases illustrating it pertained to production of subpoenaed
documents. The point to be drawn from this abundant precedent is that a corporate
officer, even a president (such as Armstrong), cannot avoid an obligation imposed by the
government on the entity by asserting the Fifth Amendment on his own behalf.
       Defendants’ production of an excerpt from Spielbauer v. County of Santa Clara
(2009) 45 Cal.4th 704 does not advance their position. In Spielbauer, a deputy public
defender was being investigated by his county employer over allegations that he had
made deceptive statements to the court while representing a criminal defendant. When

                                              9
interviewed by the supervising attorney, Spielbauer was informed that his refusal to
cooperate would be deemed insubordination which could subject him to termination, but
he was assured that his answers could not be used in a criminal proceeding. Spielbauer,
however, invoked his privilege against self-incrimination and was thereafter terminated
by the county for failing to answer the questions posed by the investigator. Our Supreme
Court upheld the termination. It explained that the protection afforded the individual by
the Fifth Amendment is not against a nonpenal use, but against only the government’s
use in a criminal proceeding. (Spielbauer, supra, at p. 715.) Thus, “the right against self-
incrimination is not itself violated until statements obtained by compulsion are used in
criminal proceedings against the person from whom the statements were obtained.”
(Id. at p. 727.) The employer was entitled to discipline or even dismiss the employee
who refuses to answer job-related questions, “so long as the employee is not required, as
a condition of remaining in the job, to surrender his or her right against criminal use of
the statements thus obtained.” (Id. at pp. 725.) Only if compelled statements are used in
criminal proceedings against the person from whom the admissions of wrongdoing are
elicited does the Fifth Amendment come into play. (Id. at p. 727.)
       None of the decisions applying the Fifth Amendment to tax payments is helpful
either. Each of the cited cases involved an individual who successfully obtained reversal
of his conviction for tax evasion, where his defense was that payment of the tax would
expose him to prosecution for illegal “wagering.” (See Marchetti v. United States (1968)
390 U.S. 39 (Marchetti) [evasion of occupational tax in business of accepting wagers];
Grosso v. United States (1968) 390 U.S. 62 (Grosso ) [failure to pay excise and
occupational taxes on wagering proceeds]; see also Leary v. United States (1969) 395
U.S. 6, 29 [transportation of marijuana without paying transfer tax].) Moreover, in each
case it appeared that the challenged tax was directed to a group suspected of criminal
activity. (Cf. Marchetti, supra, at p. 57 [tax directed at “ ‘selective group inherently
suspect of criminal activities’ ”]; Grosso, supra, at p. 65-67 [same]; Leary, supra, at p. 18

                                             10
[same].) In this case, by contrast, it is a corporation, not an individual, that is required to
pay the tax; the tax is imposed on legitimate businesses, not on those engaged in activity
prohibited by the state or City; and it is not directed at a “selective and suspect group” but
is a noncriminal measure with an express purpose solely of raising revenue. (Leary,
supra, at p. 18.) Filing the tax return itself is no more offensive to the Fifth Amendment
than requiring a motorist involved in an accident to stop and provide his or her name and
address (Veh. Code, § 20002, subd. (a)(1)); such requirements, too, have essentially
regulatory, noncriminal purposes, and compliance is neither testimonial nor, by itself,
incriminating. (California v. Byers (1971) 402 U.S. 424. Even viewing defendants’
business as potentially liable under federal law such as the CSA, any assumption that
Armstrong will be subject to prosecution would be speculative and premature, as no
criminal proceeding has yet been initiated for his privilege to come to the foreground.
(Nor is it likely to, given Congress’s recently repeated admonition to the Justice
Department not to interfere with states’ authorization of medical marijuana.5)
       We thus conclude, as did the superior court, that there is no likelihood that
defendants will ultimately prevail in the City’s action against them or on their
cross-complaint. Were we to endorse Armstrong’s position, we would only compromise
the firm stance of our courts that “an individual acting in his official capacity on behalf of
[an] organization may . . . not take advantage of his personal privilege. In view of the
inescapable fact that an artificial entity can only act to produce its records [or pay its
taxes] through its individual officers or agents, recognition of the individual’s claim of
privilege . . . would substantially undermine the unchallenged rule that the organization
itself is not entitled to claim any Fifth Amendment privilege, and largely frustrate
legitimate governmental regulation of such organizations.” (Bellis, supra, 417 U.S. at
p. 90; Braswell, supra, 487 U.S. at pp. 108-112 [Fifth Amendment objection to subpoena

       5
           See fn. 1, ante.

                                              11
of corporate records unavailable to custodian even if producing them may prove
personally incriminating].)
       Finally, even if we were to agree with defendants that paying the MBT would
encroach on Armstrong’s Fifth Amendment privilege against self-incrimination, it would
not afford defendants the relief they seek. The injunction application sought to prevent
the City from shutting down the operation of MediMarts, disqualifying MediMarts from
renewing its registration, and declaring it a public nuisance. Defendants also asked the
court to require the City, while the action was pending, to reinstate MediMarts’s business
registration and remove its classification of MediMarts as a nuisance per se. As
discussed above, neither the assertion of Armstrong’s constitutional rights nor the
accommodation of them would abate MediMarts’s duty to pay the tax under SJMC
chapter 4.66. The superior court properly denied the application for a preliminary
injunction.
                                       Disposition
       The order is affirmed.




                                            12
                                             _________________________________
                                             ELIA, ACTING P.J.


WE CONCUR:




_______________________________
BAMATTRE-MANOUKIAN, J.




_______________________________
MIHARA, J.




City of San Jose v. Medimarts, Inc. et al.
H042481
Trial Court:                                 Santa Clara County Superior Court
                                             Superior Court No.: CV-272374


Trial Judge:                                 Honorable Maureen A. Folan


Counsel for Plaintiff, Cross-defendant       Richard Doyle, City Attorney
and Respondent:                              Nora Frimann, Assistant City Attorney
CITY OF SAN JOSE.                            Margo Laskowska, Deputy, City Attorney
                                             Kendra E. McGee-Davies, Deputy City Attorney
                                             Mark J. Vanni, Deputy City Attorney
                                             Office of the City Attorney


Counsel for Defendants,                      Nicholas G. Emanuel
Cross-complainants and Appellants:           Gates Eisenhart Dawson
MEDIMARTS, INC. et al.




City of San Jose v. Medimarts, Inc. et al.
H042481
