California State Board of Equalization v. Renovizor's Inc. (In re Renovizor's Inc.)

Debtor, Renovizor’s, in bankruptcy court, objected to a claim filed by the California State Board of Equalization (“SBE”). In the trial held in bankruptcy court, SBE’s claim for civil tax fraud was upheld. On appeal, the United States District Court for the Northern District of California affirmed the bankruptcy court. Renovizor’s now appeals to our Court. The primary issue that we must decide is whether under California law civil tax fraud must be proved by clear and convincing evidence, as appellant Renovizor’s contends, or instead by a preponderance of the evidence, which was the standard adopted in the bankruptcy court and affirmed by the district court. We hold that clear and convincing evidence must be shown to establish civil tax fraud under California law. We therefore reverse the decision of the district court and remand to the district court so that it may remand to the bankruptcy court for further proceedings consistent with our opinion.

I.

Renovizor’s was an interior decorating and remodeling company that sold decorating products and provided residential remodeling services. Renovizor’s incorporated in late 1984, commenced business in the second quarter of 1985, and…