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Pacific-Union Club v. Superior Court
Citations: 232 Cal. App. 3d 60; 283 Cal. Rptr. 287; 91 Daily Journal DAR 8466; 1991 Cal. App. LEXIS 799Docket: Docket Nos. A049863, A049416
Court: California Court of Appeal; July 10, 1991; California; State Appellate Court
Discrimination based on race, sex, age, or religion is condemned, yet purely private clubs can engage in such practices. However, members of these clubs are prohibited from deducting related business expenses on state income tax returns. The California Franchise Tax Board (Board) sought to obtain the membership list of the Pacific-Union Club to verify compliance with this tax regulation. The Club challenged the Board's administrative subpoena, arguing that disclosing its membership list would violate members' First Amendment rights to associational privacy, as the Board failed to demonstrate a compelling state interest for such disclosure. The court ruled in favor of the Club, emphasizing the protection of associational privacy despite disapproval of discriminatory practices. The Club is characterized as a private social organization focused on fostering member interaction, operating within strict membership and privacy guidelines, and prohibiting business activities on its premises. Membership is limited and exclusive, with a careful admission process and confidentiality surrounding membership identities and club activities. The court issued a writ of mandate to prevent enforcement of the subpoena. The admissions process for the Club involves distributing questionnaires to candidates' sponsors and conducting multiple personal interviews, where candidates are evaluated for congeniality and compatibility with existing members. Membership is determined by a secret ballot, requiring only two negative votes to reject an application. The Club acknowledges that its admissions process is "arduous" and among the most selective in the country. It has been conceded that the process discriminates based on age, as all prospective members must be at least 25 years old. Additionally, the Club is reputed to discriminate against women, permitting only male members, a claim supported by a 1952 tax application stating that membership is limited to "any male over 25 years of age approved by the current members." While this document reflects a longstanding reputation for sex discrimination, the court can only consider record evidence, and the 1952 application is the sole documented proof of current sex discrimination. The California Code of Regulations, section 17201, prohibits business expense deductions for clubs that discriminate based on age, sex, race, religion, color, ancestry, or national origin, confirming the Club's age discrimination but leaving the question of sex discrimination unresolved. The Board issued a subpoena for the Club's membership list to investigate potential improper tax deductions claimed by members on their 1988 California tax returns related to Club expenses. The Board stated that the list would facilitate random audits of members' tax returns, despite having no evidence of tax deduction violations and not expecting significant noncompliance. The Club has already informed its members that deductions for Club expenses are illegal and has included reminders on monthly statements since August 1987, clarifying that dues are not deductible as charitable contributions or business expenses for tax purposes. The Club opposed a subpoena issued by the Board, asserting a First Amendment right to associational privacy. The Board sought enforcement of the subpoena in superior court, referencing Government Code sections 11187 and 11188, which dictate that a court shall enforce a regularly issued administrative subpoena related to an investigation. The Board claimed the information was necessary to assess compliance with tax regulations, although it acknowledged a lack of specific evidence regarding illegal deductions by Club members. The trial court granted the Board's enforcement motion, ordering the disclosure of the membership list but stayed the order pending an appeal. The Board contended that the court could not assess the Club's privacy claim due to article XIII, section 32 of the California Constitution, which prohibits judicial interference in tax collection processes. This “anti-injunction provision” aims to ensure uninterrupted revenue collection for public services. It restricts not only injunctive relief but also declaratory or mandamus actions against tax collection efforts. The provision applies to pre-collection activities, including administrative subpoenas for tax-related information. Although the language of section 32 appears absolute, the California Supreme Court has indicated that limited judicial intervention is permissible under certain circumstances, particularly when federal constitutional requirements are at stake. The federal Constitution's supremacy is emphasized in the context of tax authorities demanding information, where courts have jurisdiction to assess if such inquiries violate protections against unreasonable searches, seizures, privacy rights, or self-incrimination. The court affirms its authority to evaluate the Club's First Amendment claim regarding associational privacy against the Board's subpoena. Privacy in personal associations is safeguarded by the First and Fourteenth Amendments. This protection consists of two components: intimate association and expressive association. Intimate association is constitutionally protected to secure personal relationships from excessive state intrusion, as these relationships are vital for individual freedom. In contrast, expressive association pertains to the right to engage in activities protected by the First Amendment, such as speech and assembly. In this case, the Club focuses solely on promoting friendship and camaraderie, not on expressive activities. Therefore, its claim for associational privacy relies on the freedom of intimate association. The Supreme Court acknowledges that the Bill of Rights is intended to protect significant personal relationships from unjustified state interference, as such bonds are essential for culture and individual identity, enriching emotional well-being and fostering diversity. The United States Supreme Court has established a continuum of personal relationships ranging from intimate associations, which are strongly protected under the freedom of association, to more public and impersonal associations that lack such protection. Intimate relationships include marriage, childbirth, child-rearing, education, and cohabitation, characterized by deep attachments, selectivity, and privacy. These relationships involve a small number of individuals with whom one shares significant personal experiences and beliefs. Conversely, more impersonal associations, such as those in large corporations, are considered "remote" from constitutional privacy concerns, with less protection afforded to choices regarding colleagues compared to those regarding spouses. The Court has not defined precise boundaries for the degree of intimacy required for constitutional protection, but the assessment involves evaluating characteristics such as size, purpose, policies, selectivity, and congeniality. The Club in question is identified as a purely private social group deserving of intimate association protection, as it is significantly smaller and more focused than organizations like the Jaycees or Rotary, which have vast memberships and complex structures. The Club's attributes position it closer to the intimate end of the spectrum, justifying its claim to constitutional protection against state incursions. Local Rotary Clubs vary in size from 20 to 900 members, while Rotary International had approximately 907,750 members and 19,788 clubs in 157 countries at the time of trial. In contrast, the Club has a capped membership of 760 members from the San Francisco Bay Area, with additional members from California and other states. Unlike the Jaycees, which actively recruit members through various promotional activities, the Club does not advertise or seek new members, focusing solely on social enjoyment among a carefully selected group based on congeniality. The Jaycees aim to foster civic engagement and personal connections, while Rotary Clubs prioritize humanitarian service and ethical standards. Both the Jaycees and Rotary Clubs are large, nationally scoped organizations with community-oriented goals. Conversely, the Club lacks civic objectives and operates within a compact geographic area. Justice O'Connor noted that even in a large city, a club with over 400 members can maintain intimacy in terms of member relationships. The Club is more selective in its membership compared to the Jaycees, which have no stringent criteria beyond age and sex for recruitment, and the Rotary Club, which seeks inclusivity in membership. The Supreme Court determined that the lack of selectivity in the Jaycees and Rotary Club does not reflect the intimate personal relationships warranting First Amendment protections, emphasizing that large membership and active recruitment undermine claims of selectivity. The Club maintains a selective membership process that involves a thorough evaluation of potential members' personalities and compatibility, contrasting sharply with organizations like the Jaycees and the Rotary Club, which actively recruit and engage in public activities. The Jaycees organize community-focused events, while the Rotary Club conducts many activities in the presence of non-members, encouraging openness and media coverage. In stark contrast, the Club operates in a private setting—an exclusive mansion with restricted access, where security staff manage entry and limit guest visits. The Club’s atmosphere emphasizes privacy, reminiscent of intelligence agencies, and protects its internal proceedings from external observation. The legal question arises regarding the extent of constitutional protection over the Club’s membership list. The Board argues that disclosing this list to a taxing authority would minimally infringe on associational privacy rights, asserting that it would not harm member relationships. However, legal precedents indicate that the Club must demonstrate that such disclosure would objectively chill its members' associational rights, referencing cases where subjective fears alone do not suffice. The standard from Buckley v. Valeo suggests that a "reasonable probability" of harm is required to meet the burden of proof for claiming constitutional protection against disclosure. California case law suggests that once a group qualifies for associational privacy, any disclosure of its members is considered harmful. The Club meets the federal standard for privacy, as members express a strong attachment to their relationships formed through a careful selection process, fearing that loss of privacy would deter current members and potential applicants. One member noted past experiences with tax audits linked to club membership as harassing, and mentioned public criticism and threats received, indicating that disclosure could lead to public abuse. The potential for tax audits based solely on membership is viewed as intimidating. The Board argues that members' information will remain confidential and used solely for tax collection, citing legal protections against the unauthorized release of such information. However, the Club’s primary concern is the Board's access to this information for audits, which contradicts the purpose of privacy protections. The Board distinguishes between expressive and intimate associations, claiming only the former is entitled to privacy protections for membership lists. However, they fail to provide justification for treating intimate associations with less protection under the First Amendment. The Board argues that groups prioritizing private social interaction over political advocacy risk becoming second-class citizens under the First Amendment. Concern for privacy extends to requests for personal associations, akin to those for political affiliations. The Club's membership list is deemed protected under the First Amendment's right to intimate associational privacy, a right not absolute and subject to state interests. For the state to compel disclosure, it must demonstrate a compelling state interest and that the disclosure is the least intrusive means to achieve it, facing a heavy burden of proof. The Board claims a compelling interest based on public policy against sex discrimination in public accommodations, suggesting that preventing taxpayer subsidies for discriminatory practices justifies disclosure. However, the Board's evidence of discrimination is outdated and insufficient. While the Board presumes the Club might discriminate, it fails to establish a legal basis to override the privacy rights regarding the Club's membership list, thus raising the question of the legality of disclosing the list in the context of enforcing tax deduction regulations. The validity of a tax regulation aimed at preventing discrimination is acknowledged, given the state's compelling interest in combating discrimination based on various categories. However, the crucial issue is whether the state's interest justifies the disclosure of a constitutionally protected list of intimate associates. The conclusion reached is that the Board lacks a compelling interest to require such disclosure, as there is insufficient evidence suggesting Club members are violating the regulation. The Board admits to seeking this information primarily for random audits without any specific suspicion of wrongdoing among the members. Evidence indicates compliance with tax laws, including declarations from members stating they do not deduct Club expenses. The privacy rights of the members cannot be overridden by the state's administrative convenience. The legal precedent establishes that government agencies cannot subpoena protected information without demonstrating a particularized need related to suspected violations. The Board's argument that requiring knowledge of violations in advance of audits is impractical is dismissed as an exaggeration, emphasizing that even if some violations are suspected, the rights of uninvolved members must be protected. Additionally, the Board would need to prove that disclosing the membership list is the least intrusive means of achieving its goals, as random audits based solely on membership are significant intrusions. The assertion that tax audits are not intrusive is contested, suggesting that most taxpayers would disagree. The Club proposed alternative methods for identifying improper tax deductions, suggesting audits targeting wealthier male Bay Area residents with specific occupations and income levels, rather than conducting broad random audits. During oral arguments, the Board was questioned about the feasibility of amending state tax forms to include a requirement for taxpayers to list organizations to which they paid deductible business expenses, but the Board did not provide a satisfactory rationale for not implementing such less intrusive measures. The court emphasized that the First Amendment right to free association necessitates exploring these alternatives, especially when the only proposed method involves disclosing membership lists based on mere association with the Club. The court concluded that the Club is constitutionally entitled to keep its membership list private, as the Board had not demonstrated a compelling state interest or shown that disclosure was the only effective means to address tax violations. The Board's efforts to prevent discrimination are acknowledged, but the court asserted that the First Amendment protects all associations, regardless of their popularity. Consequently, a writ was issued to prevent enforcement of the administrative subpoena, and the court ordered the superior court to deny the Board's motion for enforcement. The Club is entitled to recover costs from this proceeding. The petition for Supreme Court review was denied, with one judge expressing the opinion that it should be granted. Additionally, it is noted that a related regulation was superseded by statute, and the subpoena was authorized under specific tax code provisions. The Club has also filed an appeal regarding the appealability of the order enforcing the subpoena. Government Code section 11188 orders have been subject to differing interpretations regarding their appealability. Some cases assert these orders are directly appealable as final judgments in special proceedings, while others maintain they can only be reviewed via writ. Despite the confusion, it was determined that the order was appealable since the Supreme Court appeared to assume so. However, the Supreme Court did not resolve this confusion in Craib v. Bulmash, as it did not address the appealability question itself. The current ruling opts to review the order by writ for judicial efficiency, dismissing the appeal in case No. A049416. The Board argues that the "reasonable relevance" standard used in judicial review does not dismiss the constitutional issues at hand, despite the language in Western Oil suggesting otherwise. The court clarifies that this standard must adapt to the evolving recognition of privacy rights, consistent with prior California cases. Furthermore, the interpretation of tax authority deference was refined in Union Pacific R.R. Co. v. State Bd. of Equalization, rejecting the notion that any tax validity precludes constitutional defenses. The Board also cites Warfield v. Peninsula Golf and Country Club to support the argument that the Club is not selective due to nonmember guests being allowed on premises. However, the degree of intimacy of a private club remains an open question. Lastly, reference to Tom v. Schoolhouse Coins, Inc. indicates that Government Code section 11183 was used to challenge a membership list privacy claim, although that commentary is considered dicta.