California taxpayers could potentially be responsible for absorbing a $16.4 million lien, depending on the outcome of a case getting underway in the United States District Court Eastern District of California involving a sovereign nation.
The Blue Lake Rancheria Tribal Government, which operated staffing firm Mainstay Business Solutions, alleges that an attempt made by the California Employment Development Department to collect $16.4 million in unpaid taxes violates their tribal sovereign immunity.
The outcome of the case could complicate current policy at the EDD, an organization that’s been plagued with complaints as it attempts to cope with an influx of unemployed workers since the Great Recession of 2008.
Most importantly, the court’s decision could potentially put $16.4 million on the backs of California taxpayers.
Following two years of negotiations with Mainstay, the EDD placed the $16.4 million lien on the staffing firm in April, and it’s a figure CEO Eric Ramos claims is inaccurate – by as much as 40 percent.
Soon after the lien was issued, Mainstay announced it was forced to close after its financial partner backed out after learning of the lien. Mainstay’s decision to close ultimately left thousands of California workers wondering if their jobs were in peril.
“Our question is why did the EDD take action they knew would cause layoffs and threaten the survival of hundreds of small businesses? They had the authority to avoid this and keep working with us,” asked Ramos.
Staffing Talk even tracked down a financial backer to Mainstay – Flexible Funding, a San Francisco-based company that provides funding to staffing agencies – and spoke with CEO Steven Elias.
According to Elias, his company did not force Mainstay to close.
“It was their choice; we did not shut them down. We said ‘What do you want to do?’ We absolutely did not say we would pull funding,” Elias explained. “We said, ‘As long as there’s a levy, if you want to fix it, we’ll continue to work with you.’ It was their choice to shut it down.”
“They had some options where they could have changed things,” he continued. “They could have pulled money from their casino (to pay the lien). They could have gone to another lender. We do not lock anyone in to a long term contract. They are free to go. So they could, if they wanted to, go to another lender, another bank, another funding company.”
“They were the ones who didn’t pay their taxes,” Elias added. “I didn’t pay their taxes. They created that themselves.”
“I’ve had a good relationship with them over the years. It’s been a good, cooperative relationship. I’m not saying what’s right or wrong, but sometimes there are gray areas,” he said, adding that being a sovereign nation complicates things significantly.
Jana Ganion, communication director for Blue Lake Rancheria, declined to comment on the tribe’s decision to file a complaint in federal court.
Meanwhile, many former employees of Mainstay have had to file unemployment claims with the very agency that issued the lien to their employer – the EDD.
Confusion and inconsistencies in filing claims with the agency have even prompted the workers to start a Facebook page called “Mainstay Business Solutions Former Employees.”
On the page, they detail the trials and tribulations of filing a claim with the EDD – the very agency Mainstay is saying put them out of work.
They’ve organized and sent letters to legislators complaining about the EDD.
Questions also have risen over the competency of their former employer, as Mainstay’s last payroll checks bounced.
“Warning!” urged Gary Bekowsky on the Facebook page. “Mainstay just made a withdrawal from our bank accounts. I went to the bank today and found out that Mainstay cleaned me out (and) they made a withdrawal from my account for over $600.”
“I know they levied Mainstay’s accounts, but they did not levy the tribe, right? So why can’t the tribe, which owned Mainstay, pay the final wages?” John Garcia asked.
Mark Parker responded, “The tribe could pay, but then the EDD would come along and say, ‘Oh, then all these people really worked for you directly because otherwise why would you pay them out of your pocket.’ The reality is that the tribe has zero business or moral obligation to spend any more money on Mainstay. Not only that, if they did pay everyone out of the goodness of their hearts, then the EDD would believe themselves to have justification to go after the tribe directly.”
Perhaps the most moving post came from Jenny Augst, shortly after Mainstay made its decision to close.
“I’ve cried four times today,” she said. “Twice for the fact that I have no income. Once for the fact that I am leaving my workplace of five years which felt like a home away from home with people I love and trust, and I cried again for my co-workers out there that have tougher situations than mine.”