Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County, Jesus Rodriguez, Judge. Super. Ct. No. NA071074.
So’Hum Law Center of Richard Jay Moller and Richard Jay Moller, under appointment by the Court of Appeal, for Defendant and Appellant.
Edmund G. Brown, Jr., Attorney General, Dane R. Gillette, Chief Assistant Attorney General, Pamela C. Hamanaka, Assistant Attorney General, Jaime L. Fuster and Rama R. Maline, Deputy Attorneys General, for Plaintiff and Respondent.
CROSKEY, Acting P. J.
Defendant and appellant Earl Hobbs was a Deputy City Auditor for the City of Long Beach. He was also a licensed attorney. Defendant used documents and information that he had obtained in the course of his employment as a Deputy City Auditor to represent a client in a class action against the City of Los Angeles. Defendant was prosecuted for embezzlement (Pen. Code, § 504) and grand theft (Pen. Code, § 487), with respect to the documents and the confidential knowledge he had obtained. Defendant’s defense was that he had no fraudulent intent, because the documents he had used in his lawsuit were subject to disclosure under the Public Records Act (“PRA”), so he had an absolute right to possess them. At trial, the trial court instructed the jury that, as a matter of law, the documents defendant had taken from the Auditor’s office were not subject to disclosure under the PRA. Defendant appeals, arguing that this instruction took the determination of an element of the offense away from the jury. We agree, and therefore reverse.
Further, defendant had argued that he had a good faith belief that the documents were subject to disclosure under the Public Records Act, even if they were not.
FACTUAL AND PROCEDURAL BACKGROUND
Defendant was both an attorney and a CPA. He was employed by the City of Long Beach as a Deputy City Auditor. Defendant reported directly to Assistant Auditor James Clinton Squires, who, in turn, reported to City Auditor Gary Burroughs.
The City of Long Beach imposed a Utility User’s Tax (“UUT”), in the amount of ten percent, which was to be collected by utility providers and remitted to the City of Long Beach. In 1998, Squires assigned to defendant the task of auditing cellular telephone companies to determine whether they were paying Long Beach the proper amount of UUT. Defendant determined that they were not. Specifically, defendant concluded that while some cellular telephone companies were collecting the tax on the entire phone bill of each Long Beach customer, others were collecting the ten percent tax only on each customer’s “access fee.” AT&T and Verizon, the two largest cellular telephone companies, were identified as companies under-collecting and therefore underpaying the tax. The audit took a great deal of time because the cellular telephone companies, although required by the Long Beach Municipal Code to comply with audit requests, were, in fact, “uncooperative.”
Throughout the trial, the witnesses sometimes referred only to one of AT&T and Verizon, in a context suggesting that reference to one included reference to the other.
Long Beach was not the only California city with a UUT that discovered the discrepancy in the tax collection rates of different cellular telephone companies. Other cities and counties were reaching the same conclusion, but Long Beach was further along in its investigation than the others. In 2000, a task force was formed with other cities with the goal of jointly having talks with the cellular telephone companies and ultimately obtaining full payment of the UUT from all of them. Squires was a founding officer of the task force. Defendant was not a member; he was in charge of the day to day auditing of the cellular telephone companies for Long Beach, while Squires was handling the statewide negotiations. Squires and defendant communicated regularly to keep each other informed of their progress.
It was, at least, theoretically possible that AT&T and Verizon were correct in their interpretation of the UUT. In other words, it might have been the case that the UUT applied only to the access fees and not the remainder of customers’ cellular telephone charges. If that was the case, the cellular telephone companies that collected the tax on the entire bill were, in fact, over-collecting the tax – and their customers were therefore overpaying it. Defendant did not believe this was correct. He believed AT&T and Verizon were underpaying. He advocated bringing suit against AT&T and Verizon for the full amount of the tax. While Long Beach, and the other task force cities, agreed with defendant that AT&T and Verizon were underpaying, they chose to pursue a negotiated settlement rather than litigation. This frustrated defendant, who believed the cities were unduly afraid of litigating against Verizon, and believed they should stand up to Verizon.
The task force cities believed that if they brought a suit, AT&T and Verizon could respond by challenging the UUT ordinance itself, which risked a judgment striking the tax in its entirety.
Defendant also questioned the integrity of the task force. Don Maynor, an attorney, was the “main professional support for” the task force. Maynor had previously worked for a company called MRC, which had been retained by Long Beach to collect UUT for the city under an agreement by which MRC received 25% of all the taxes it collected. According to defendant, Maynor was the “architect” of the “deal” by which AT&T and Verizon had collected the tax on only a portion of the cellular telephone charges. As such, defendant believed that Maynor’s presence on the task force rendered the entire operation “corrupt.”
In April 2002, the audit was still ongoing, as were the task force negotiations. On April 23, 2002, defendant, in his capacity as a private attorney, filed suit against the City of Los Angeles. The complaint, which was denominated a class action, was brought on behalf of Diana M. Sanchez, a customer of Sprint for cellular telephone service. In the Sanchez complaint, defendant alleged that Los Angeles was applying its UUT unfairly, in that customers of AT&T paid the UUT on only their monthly access fees, while customers of Sprint paid the UUT on their entire bills. Defendant alleged that Los Angeles was collecting approximately $300,000 per month in “discriminatory taxes.” His prayer for relief sought a refund of more than three years of such discriminatory taxes. He sought an attorney fee award of 25% of the common fund recovered. Defendant’s name was on the complaint as counsel for plaintiff. He used his home address, but included his telephone number from his office with the City Auditor.
Defendant’s complaint, if successful, would have had a dramatic effect on Los Angeles, and all other cities collecting UUT. Under Public Utilities Code Section 799, subdivision (a)(3), “In the event a local jurisdiction is ordered to refund the tax, it shall be the sole responsibility of the local jurisdiction to refund the tax.” Nonetheless, defendant theorized that by suing Los Angeles for over-collecting the tax, Los Angeles would then sue Verizon “for any damages that had to be paid to the Sprint customers.” Defendant believed that Verizon could then limit its liability by complying with the UUT in full, which was Defendant’s ultimate goal. He therefore believed the suit was not contrary to the interests of Long Beach.
That subdivision goes on to state, “Unless a public utility or other service supplier is reimbursed by the local jurisdiction for the actual cost of assisting the local jurisdiction, including, but not limited to, calculating or verifying refunds, distributing refunds, providing data, or providing data processing assistance, the public utility or other service supplier shall not be required to assist the local jurisdiction to refund the tax, including but not limited to, calculating or verifying refunds, distributing refunds, providing data, or providing data processing assistance.”
The conclusion does not necessarily follow. If Sanchez and the remainder of the plaintiff class were entitled to damages, it could be because Sprint was overpaying the tax, and AT&T and Verizon were, in fact, correctly calculating it. Defendant’s lawsuit could have resulted in a judicial determination that the UUT was due only on the access fees – in which case the plaintiff class would be entitled to refunds from the City of Los Angeles, and Los Angeles would have no basis to pursue AT&T and Verizon.
Whether defendant violated any ethical rules by bringing a suit with the apparent aim of disproving the allegations asserted on behalf of his client is not before us.
In the complaint, defendant alleged that Los Angeles was aware of the policies of AT&T and Verizon, and allowed them to collect a lesser amount of UUT. Defendant attached to the complaint a letter, dated June 13, 2000, from counsel for AT&T and Verizon, to the City of Los Angeles, which set forth the rationale of those companies for collecting UUT on only the access fees. Defendant had received a copy of this letter in the course of his audit.
The effect of the lawsuit was to halt negotiations between the task force and the cellular telephone companies. It was believed that a settlement had been near, under which AT&T and Verizon would begin paying UUT on the entire phone bill. Defendant’s suit had the effect of delaying compliance from AT&T and Verizon, costing Long Beach and the other task force cities substantial lost revenue.
Defendant did not immediately inform Squires and Burroughs that he had brought the lawsuit, although his name clearly appeared on the complaint. In May 2002, Defendant attended a meeting regarding the UUT at which Judy Reel, a Deputy City Attorney for Los Angeles, was present. At the meeting, Reel mentioned that Los Angeles had just been sued regarding the UUT. There was some discussion of the suit. During this time, defendant remained silent, and did not volunteer that he was counsel for the plaintiff in that action. In June 2002, in the course of a routine meeting, defendant told Squires, and thereafter Burroughs, that he had brought suit against Los Angeles. Defendant was subsequently fired.
There is some dispute as to whether defendant was immediately fired or if he was initially permitted to stay.
In September 2002, after defendant’s employment with the City Auditor had been terminated, a search was conducted of defendant’s home. A collection of documents from the UUT audit were seized. They were introduced at defendant’s trial collectively as Exhibit 3. Exhibit 3 consists of 54 pages. It includes, but is not limited to, copies of: (1) letters transmitted as part of, and pursuant to, the audit; (2) the personal cellular telephone bill of a city councilmember; (3) the cellular telephone bill from the Long Beach Convention and Entertainment Center; and (4) the personal cellular telephone bill of a city employee.
As a Deputy City Auditor, defendant had been permitted to work at home. There was no evidence, however, that he had been permitted to keep audit documents at home after he was terminated.
The parties have not sought transmission of the exhibits for our review as part of the appeal.
One document in Exhibit 3 was an original.
On March 16, 2004, defendant was indicted for embezzlement by a public officer. He was arraigned and entered a plea of not guilty. Defendant then filed a motion to set aside the indictment under Penal Code section 995, which was granted on the basis that there was insufficient evidence of fraudulent intent. The prosecution appealed, and we reversed, concluding that the prayer for attorney’s fees in the Sanchez complaint constituted sufficient evidence of fraudulent intent. At some point, defendant was also charged with grand theft. The case proceeded to trial, and resulted in a mistrial, with the jury hanging seven to five in favor of acquittal.
In October 2006, a retrial was held. Defendant raised a defense based on Penal Code section 511. That section provides, “Upon any indictment for embezzlement it is a sufficient defense that the property was appropriated openly and avowedly, and under a claim of title preferred in good faith, even though such claim is untenable.” Defendant took the position that his purported appropriation of the documents was open and avowed, based on the facts that he had put his name and address on the Sanchez complaint, and had openly admitted to Squires that he had filed the suit. Defendant further took the position that his appropriation was under a good faith claim of title, in that he had believed he was entitled to the documents under the PRA.
The defense applies to all forms of theft (Pen. Code, § 490a), and the jury was instructed accordingly.
In the initial appeal in this matter, defendant had argued that he could not be held to answer for embezzling the documents, on the basis that the documents would have been subject to disclosure pursuant to a PRA request or a discovery request in his class action suit. We declined to determine whether defendant would have been able to obtain the documents, stating, “A determination that the documents are subject to disclosure does not mean any member of the public can help himself to the documents without going through the proper channels. ‘Merely because some—or even all—of the information contained in [the file] might at some future time have been lawfully obtained through discovery did not render lawful what otherwise constituted theft.’ (Williams v. Superior Court [(1978)] 81 Cal.App.3d [330,] 345; People v. Dolbeer [(1963)] 214 Cal.App.2d [619,] 623 [same result with respect to public information].) Defendant cannot embezzle the documents and then litigate his right to them under the Public Records Act or civil discovery.” (People v. Hobbs (July 26, 2005, B178103 [nonpub. opn.].) At his trial, defendant testified that he had previously disclosed documents to members of the public pursuant to the PRA, implying that he had the authority to give the documents to himself pursuant to his own PRA request. In any event, we are concerned here with whether defendant’s good faith belief that he was otherwise entitled to the documents defeats the element of fraudulent intent, not whether the documents themselves were capable of being embezzled.
There was a dispute in the evidence regarding whether the documents in Exhibit 3 could have been obtained under the PRA by defendant in his capacity as a private citizen. Defendant testified to his belief that the documents were subject to disclosure under the PRA. Prosecution witnesses disagreed, testifying that the documents were exempt from disclosure under the PRA, as well as provisions of the Revenue and Taxation Code. At the prosecution’s request, and over defendant’s objection, the trial court instructed the jury that “the records contained in [Exhibit] 3 are not subject to disclosure pursuant to the [PRA].”
The prosecution also introduced evidence that the documents were required to be kept confidential pursuant to ethical rules for CPAs, and an unwritten policy of the Long Beach Auditor’s Office.
Defendant was found guilty as charged. His motion for new trial was denied. Defendant was sentenced to three years formal probation, including 180 days in jail. Defendant filed a timely notice of appeal.
CONTENTIONS OF THE PARTIES
On appeal, defendant challenges the propriety of three instructions given by the trial court: (1) the special instruction that the documents in Exhibit 3 are not subject to disclosure under the PRA; (2) CALJIC No. 2.51, relating to motive; and (3) CALJIC No. 2.15, relating to the possession of recently stolen property. We conclude the trial court erred in giving the first instruction, and that the error was not harmless as a matter of law. We therefore reverse the conviction, and need not reach defendant’s remaining contentions.
DISCUSSION
“Every officer of . . . any . . . city . . . and every deputy . . . of that officer . . . who fraudulently appropriates to any use or purpose not in the due and lawful execution of that person’s trust, any property in his or her possession or under his or her control by virtue of that trust, or secretes it with a fraudulent intent to appropriate it to that use or purpose, is guilty of embezzlement.” (Pen. Code, § 504.) Penal Code section 511 establishes a claim of right defense. “In effect, the claim of right defense provides that, if a defendant takes property in the good faith belief that it belongs to him, the defendant lacks the intent necessary to commit embezzlement.” (People v. Wooten (1996) 44 Cal.App.4th 1834, 1848-1849.) The defense does not apply where, even if the defendant believed he acted lawfully, he was aware of contrary facts which rendered such a belief wholly unreasonable and, therefore, in bad faith. (Id. at p. 1849.) Defendant’s pursuit of this defense was based on his belief that the documents were public records, freely open for citizen inspection under the under the PRA. (See Gov. Code, § 6253, subd. (a).) The prosecution opposed this theory with testimony that the documents were not subject to disclosure under the PRA, and that defendant would have known that he had a duty to keep the documents confidential. The trial court did not permit the jury to determine whether the documents were, in fact, subject to disclosure under the PRA, despite the conflict in testimony. Instead, the jury was instructed that the documents in Exhibit 3 were not subject to disclosure.
Our discussion is directed to the documents themselves, although defendant was prosecuted for embezzling both the documents and the knowledge he obtained from conducting the audit. As defendant obtained the knowledge in question from reading audit documents, it is apparent that if the documents were subject to disclosure under the PRA, the knowledge obtained from reading them would have been as well.
A jury instruction relieving the prosecution of the burden of proving, beyond a reasonable doubt, each element of the offense violates the defendant’s rights under the federal and California constitutions. (People v. Flood (1998) 18 Cal.4th 470, 479-480.) Such an instruction constitutes error even when the evidence of that element is undisputed. (People v. Figueroa (1986) 41 Cal.3d 714, 724.) Thus, in a prosecution for evading a “peace officer,” it was error to instruct the jury that the person the defendant evaded was, in fact, a “peace officer.” Instead, the jury should have been instructed that police officers are considered “peace officers,” leaving it to the jury to determine, on the evidence, whether the person in question was a police officer. (People v. Flood, supra, 18 Cal.4th at p. 482 & fn. 8.) Similarly, in a prosecution for the sale of unqualified “securities,” it was error to instruct the jury that the documents in question were “securities”; instead, the jury should have been instructed on the statutory definition of a “security,” so the jury could make the determination with respect to the documents at issue. (People v. Figueroa, supra, 41 Cal.3d at pp. 734, 740.) In contrast, in a prosecution for creating fraudulent “certificates” within the meaning of Vehicle Code section 4463, the trial court did not err in instructing the jury that “smog certificates” constitute “certificates” within the meaning of the statute. In that case, the jury was correctly instructed on the law, while the jury “was still permitted to determine the fact whether or not the exhibits themselves were smog certificates.” (People v. Avanessian (1999) 76 Cal.App.4th 635, 644-645.)
Under this authority, it is apparent that the trial court erred in instructing the jury that the documents in Exhibit 3 were not subject to disclosure under the PRA. A proper instruction would have instructed the jury on which types of documents are exempt from disclosure, and left it to the jury to determine whether the documents in Exhibit 3 were such documents. The prosecution suggests the instruction given was not error, in that it is permissible to instruct the jury in the language of an applicable statute. It is enough to say that the jury was not instructed in the language of the PRA; instead, the trial court applied the PRA to the documents in this case, and instructed the jury as to its conclusion. Alternatively, the prosecution argues that there was no error in the instruction because it did not affect the prosecution’s burden of proof on an element of the offense. We disagree. Defendant’s claim of right defense was akin to an assertion that the prosecution could not establish the element of intent to defraud. The defense, in turn, relied on defendant’s purported belief, in good faith, that the documents were subject to disclosure under the PRA. If defendant’s belief was correct, and the documents were subject to disclosure, his belief clearly would have been held in good faith. The trial court’s instruction that the documents were not subject to disclosure under the PRA, in effect, directed the jury to conclude that defendant’s belief that the documents were subject to disclosure was simply wrong, and further made it difficult, if not impossible, for the jury to determine whether the defendant’s belief was in fact held in good faith.
Similarly, the prosecution argues that the question of whether records are subject to disclosure under the PRA is a question of law, not fact. (See Northern Cal. Police Practices Project v. Craig (1979) 90 Cal.App.3d 116, 122.) There is a difference between the procedures to be followed in a special proceeding seeking disclosure of documents under the PRA and a criminal prosecution in which the defendant’s state of mind depends on the good faith of his belief that certain documents are subject to disclosure.
The federal constitutional error inherent in taking away from the jury an element of the offense requires reversal unless it appears beyond a reasonable doubt that the error did not contribute to the verdict. (People v. Flood, supra, 18 Cal.4th at p. 504.) Here, we have no doubt concluding that it did. The evidence that the documents in Exhibit 3 were subject to disclosure under the PRA was not undisputed. Defendant, who testified that he had taught a class on the PRA in the City Auditor’s Office, opined that the documents in Exhibit 3 were subject to disclosure. If the jury had been permitted to accept defendant’s testimony, it would have provided a basis for a jury verdict in his favor.
Moreover, it is not at all clear that the documents in Exhibit 3 were, in fact, exempt from disclosure under the PRA. The prosecution relies on two exemptions to the PRA. First, we consider Government Code section 6254, subdivision (i), which exempts from disclosure “[i]nformation required from any taxpayer in connection with the collection of local taxes that is received in confidence and the disclosure of the information to other persons would result in unfair competitive disadvantage to the person supplying the information.” Even assuming that all of the information in Exhibit 3 was received in confidence, the prosecution did not establish that disclosure of that information would result in unfair competitive disadvantage. Indeed, it is difficult to see where the disclosure of certain individuals’ cellular telephone bills would have that result. As to the documents setting forth AT&T and Verizon’s rationale for collecting less UUT, defendant took the position that the fact that AT&T and Verizon were collecting less UUT than other cellular telephone providers resulted in an unfair competitive advantage in their favor, such that disclosure of these documents would eliminate the unfairness, not subject them to an unfair disadvantage. The prosecution simply failed to establish that disclosure of the documents in Exhibit 3 would result in an unfair competitive disadvantage. Therefore, the prosecution did not establish that those documents were exempt from disclosure under subdivision (i) of section 6254.
The second exemption on which the prosecution relies is contained in Government Code section 6254, subdivision (k), which does not directly exempt any documents from disclosure, but instead exempts “[r]ecords, the disclosure of which is exempted or prohibited pursuant to federal or state law.” At trial, the prosecution referenced Revenue and Taxation Code sections 7284.6 and 7284.7. These statutes specifically relate to the disclosure of information obtained in connection with a UUT, or a related audit. Revenue and Taxation Code section 7284.6, subdivision (a), prohibits the disclosure of “any utility user’s tax return or copy thereof, or any records of any payment of utility user’s tax.” Violation of the prohibition is a misdemeanor. (Rev. & Tax. Code, § 7284.6, subd. (d).) Revenue and Taxation Code section 7284.7, subdivision (a), prohibits the disclosure of “any information obtained from the records of a utility or other company required to report or pay a utility user’s tax to the local jurisdiction as a result of an audit, or any other information obtained in the course of an on-site audit.” This, too, is a misdemeanor. (Rev. & Tax. Code, § 7284.7, subd. (b).) Yet, interestingly, only the first statute – the one protecting tax returns and records of payment – provides an exemption from disclosure under the PRA. (Rev. & Tax. Code, § 7284.6, subd. (f).) The second statute, although it prohibits disclosure of information obtained from the records of a utility, specifically provides that it does not “create an exemption from disclosure under subdivision (k) of Section 6254 of the Government Code.” (Rev. & Tax. Code, § 7284.7, subd. (f).)
The prosecution’s brief on appeal does not identify the particular statutory exemption which the prosecution asserts is borrowed by this subdivision in this case.
We need not here consider or discuss any constitutional difficulties raised by the statute’s criminalization of a disclosure which could be required by the PRA. It does, however, appear to be a statutory conflict to which the Legislature might want to give some attention.
The legislative history of these two Revenue and Taxation Code sections sheds some light on the distinction drawn between them with respect to the PRA. Initially, the bill contemplated the creation of a single statute only, which was to prohibit the disclosure of “[t]he business affairs, operations, or any other information pertaining to a utility or other company required to report to the local jurisdiction or to pay a utility user tax.” (Sen. Amend. to Assem. Bill No. 1043 (1997-1998 Reg. Sess.) June 16, 1997.) The bill was subsequently amended to indicate that the information was also exempt from disclosure under the PRA. (Sen. Amend. to Assem. Bill No. 1043 (1997-1998 Reg. Sess.) July 21, 1997.) Thereafter, however, the bill was amended to create both section 7284.6 and 7284.7 of the Revenue and Taxation Code. Section 7284.6 prohibited disclosure only of the utility user’s tax returns or records of payment, and provided that such information was exempt under the PRA. Section 7284.7 prohibited disclosure of other information obtained from the utility, but provided that such information was not exempt under the PRA. (Sen. Amend. to Assem. Bill No. 1043 (1997-1998 Reg. Sess.) Aug. 11, 1997.) A Senate Rules Committee Analysis explains the reason for the distinction. “This bill makes it a misdemeanor for local jurisdictions, employees, agents, or contractors to permit anyone other than city representatives or utility representatives to see a utility user’s tax return or record of tax payment. It also exempts tax returns and tax payment records from the [PRA] . . . . [¶] This bill also makes it a misdemeanor for local jurisdictions, employees, agents and contractors to disclose to third parties information during the course of an audit. However, it does not make this a specific exemption from the [PRA]; instead, these records can be withheld if the taxpayer demonstrates that disclosure would result in unfair competitive disadvantage to the person supplying the (confidential taxpayer) information. This language was drafted at the request of – and to respond to the concerns of – the California Newspaper Publishers Association that making a specific exemption to the [PRA] would allow the suppression of otherwise public documents that happen to wind up in audit work papers. Under this bill, such information could still be withheld i[f] the taxpayer demonstrates that its disclosure will result in an unfair competitive disadvantage.” (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Assem. Bill No. 1043 (1997-1998 Reg. Sess.) as amended Aug. 11, 1997.) In short, when the Legislature was faced with the specific question of whether to exempt from the PRA information obtained in the course of a UUT audit, the Legislature chose not to exempt such documents, preferring to exempt only tax returns, tax payment records, and documents otherwise exempt from the PRA. Exhibit 3 does not contain tax returns or any cellular telephone provider’s tax payment records. And, as discussed above, the prosecution did not establish that disclosing the documents in Exhibit 3 would work a competitive disadvantage. Thus, a properly instructed jury could certainly have determined that the documents in Exhibit 3 were not exempt from disclosure under the PRA – a conclusion that, when combined with defendant’s evidence that his appropriation of the documents was open and avowed, could have established his claim of right defense.
It is apparent that the state of the evidence at trial was not so overwhelming in favor of the conclusion that the documents were exempt from the PRA that the instruction was harmless beyond a reasonable doubt. The judgment must therefore be reversed.
DISPOSITION
The judgment of conviction is reversed.
We Concur: KITCHING, J., ALDRICH, J.