CALIFORNIA LOGISTICS, INC. v. State

California Logistics, Inc., appeals from a judgment of dismissal entered after the trial court sustained without leave to amend the State of California’s (State) demurrer to plaintiff’s amended complaint. California Logistics filed the action in response to a determination by the State’s Employment Development Department that delivery drivers used by the company are employees rather than independent contractors, which determination results in additional tax liability for the company. Appellant sought a declaratory judgment and injunctive relief establishing that its drivers are independent contractors. The trial court ruled the action was barred because, under section 32 of article XIII of the California Constitution (section 32), the company was obligated to first pay any taxes assessed by the state before its claim could be heard by the court. Appellant maintains that section 32, known as the “pay first, litigate later” rule, does not apply because it has been determined in prior proceedings that its drivers are independent contractors, and the State is collaterally estopped from claiming otherwise. We conclude that section 32 takes precedence over the collateral…