Online Retailer Incurs Sales Tax on Shipments Into State:
The California Court of Appeal has ruled that the California State Board of Equalization properly assessed sales and use tax on an out-of-state online retailer’s sales to California customers. The court found a sufficient factual connection between the online sales and California because the seller’s affiliate accepted returns of online sales at its brick-and-mortar stores in California (Borders Online, LLC v. State Board of Equalization, California Court of Appeal No. A105488, filed May 31, 2005). The court found the online retailer was obligated to collect use tax from its online California customers for its sales and deliveries made from out of state, because the online site was deemed a “retailer engaged in business in this state” through its affiliated-company “agent” stores which provided the post-sale services.
Gambling Ads in California Give Jurisdiction Over Out-Of-State Casinos:
The California Supreme Court decided this week that California courts have a sufficient constitutional basis to exercise personal jurisdiction over Nevada casino hotels targeted in a consumer class action, because the defendants advertise for business in California and maintain a website accessible to California residents, even though the defendants have no property, operations nor employees in California and provide their services to customers only at their places of business in Nevada.
The defendant hotel casinos are resisting a consumer class action filed in California for false advertising and unfair business practices, for failing to give notice of an “energy surcharge” imposed on hotel guests. California’s “long-arm” statute provides that California courts may exercise personal jurisdiction on any basis consistent with the Constitution of California and the United States (Code of Civil Procedure Section 410.10), which under extensive case law requires “such minimum contacts with the state” that personal jurisdiction “does not violate traditional notions of fair play and substantial justice”. In this case, the California Supreme Court finds the out-of-state defendants purposefully availed themselves of the privilege of doing business in California and are thus subject to suit in California courts, because the defendants’ promotional website inviting business from Californians establishes purposeful availment “by any standard”. The court goes on to say that even aside from the website targeting California residents, the defendants’ advertising by television and radio, billboards and mailings to California residents resulted in business for California such that the defendants are open to suit in California courts. Among other things, the state Supreme Court decision also indicates a potential basis for assertions that out-of-state online gaming operations may be within the state’s jurisdiction for purposes of the criminal statutes against publishing or advertising lotteries and games of chance (for example, California Penal Code Sections 322, 323). (Snoweny v. Harrah’s Entertainment, Inc., California Supreme Court Nos. 124286, June 6, 2005)
LLC Managers Not Immune from Personal Criminal Liability:
A California Court of Appeal held last week that “managers of limited liability companies are not immune to personal liability if they have participated in tortious or criminal conduct while performing duties as managers”, in a case arising from claims against the LLC managers of a landlord for a tenant’s house of prostitution masquerading as a chiropractic office and later as a newspaper office. The decision is generally consistent with existing law whereby LLC managers, like corporate officers, are immune from liability arising from “solely by reason of being a manager” for a legal entity, except to the extent of wrongful conduct for which they exercise the actual management authority (California Penal Code Section 387). As indicated in different words by the United States Supreme Court, corporate officers cannot be held liable solely by virtue of their corporate title, but can be held personally liable for actively participating personally in criminal and tortious conduct of the organization (United States v. Park, 421 U.S. 658, 1975). The new Court of Appeal case is moderately alarming however, in the sense that it gratuitously declared that the manager of an LLC was not immune from personal liability for criminal and tortious conduct, where the manager’s and the LLC’s only actual relationship to the criminal misconduct was to be the landlord of a misbehaving tenant whose lease they in fact terminated in cooperation with law enforcement authorities. (People v. Pacific Landmark, California Court of Appeal No. B171419, filed May 31, 2005)
Federal Action on Mutual Good Faith Retransmission Consent Bargaining; Spyware:
The FCC ordered this week that cable television and satellite providers are subject to reciprocal good faith bargaining obligations for retransmission consent, as are broadcasters, pursuant to recent legislation as previously reported. The FCC order lists seven specific test of conduct which are deemed to violate the duty of good faith negotiation, including among others, “refusal to put forth more than a single, unilateral proposal”, and execution of an agreement with any other party which precludes entering into a retransmission consent agreement. (Report and Order, FCC 05-119, released June 7, 2005) Meanwhile, anti-spyware legislation is active at the federal level, including the I-Spy Act, H.R. 744 and the Spy Act, H.R. 29, neither of which address the physical theft or loss of computers and storage media which have caused a number of recent corporate disclosures of volume losses of personal and consumer account information.
U.S. Supreme Court Redefines Regulatory Takings Test:
Our partner Kristen Thall Peters, practicing real estate, land use and environmental & safety law, reports:
The U.S. Supreme Court handed down its decision in Lingle v. Chevron U.S.A., Inc., USSC No. 04-163. The Court unanimously rescinded and invalidated a key regulatory takings test that it had set forth in 1980 in Agins v. City of Tiburon. Chevron sued Lingle (as the governor of the State of Hawaii) challenging a law enacted by the State of Hawaii which imposed certain sales-based rent controls on the lessors of gas stations. Chevron’s argument was that the state law violated the Fourteenth and Fifth Amendments as a “regulatory taking” under the first prong of the standards set by the U.S. Supreme Court in the 1980 decision of Agins v. City of Tiburon, 447 U.S. 255. The first prong of Agins stated that governmental regulation of private property constitutes a taking if it “does not substantially advance a legitimate state interest….”
The court traced through its prior jurisprudence of regulatory takings and a bit through its separate jurisprudence of substantive due process, and concluded that, in Agins, it had mistakenly merged the two lines of jurisprudence. Now undoing its own mistake, this court held that questions about whether governmental regulation of private property “does not substantially advance a legitimate state interest” should be considered questions of reasonableness under the substantive due process standards.
While invalidating the first prong of Agins, the Court also explained what it now views as the remaining universe of viable tests for finding a regulatory taking (i.e., where there is less that a complete, physical permanent or temporary appropriation of private property by the government). It set out four circumstances in which a regulatory taking could be found:
1) Where there is even a very minor permanent physical invasion of a property line, as where state law required a landlord to allow a cable company to install cable on the landlord’s property without compensation (citing Loretto v. Teleprompter Manhattan CATV Corp, 1982);
2) Where the regulation completely deprives the owner of ALL economically beneficial use of his property (citing Lucas v. South Carolina Coastal Commission, 1992);
3) Where a number of factors, principally the economic impact of the regulation measured by the extent to which it interferes with “distinct investment backed expectations,” and the nature of the governmental action (e.g., type, scope, impact), all taken together, rise to the level of the “functional equivalent” of a classic taking with a direct appropriation and ouster (citing Penn Central Transp. Co. v. New York City, 1982); and
4) Where the state unreasonably exacts an easement, such as those as issue in Nollan v. California Coastal Commission (1987 — the nexus test) and in Dolan v. City of Tigard (1994 — the rough proportionality test).