Title: State of Ohio v. Great Lakes Minerals, LLC

State: kentucky

Issuer: Kentucky Supreme Court

Document:

RENDERED: DECEMBER 19, 2019 TO BE PUBLISHED 2018-SC-000161-TG STATE OF OHIO AND APPELLANTS JOSEPH W. TESTA, TAX COMMISSIONER OF OHIO ON TRANSFER FROM COURT OF APPEALS V. CASE NO. 2018-CA-000484 GREENUP CIRCUIT COURT NO. 17-CI-00311 HONORABLE ROBERT B. CONLEY, JUDGE GREAT LAKES MINERALS, LLC APPELLEE OPINION OF THE COURT BY JUSTICE KELLER REVERSING AND REMANDING Appellants, State of Ohio and Joseph W. Testa, Tax Commissioner of Ohio, appeal an or d er of the Gr eenup Cir cuit Cour t d enying their motion to d ismiss Gr eat Lakes Miner als, LLC’s suit against them. For the following r easons, we r ever se the d ecision of the Gr eenup Cir cuit Cour t and r emand with instr uctions to d ismiss all claims. I. BACKGROUND Gr eat Lakes Miner als, LLC (her einafter , Gr eat Lakes) is a miner al pr ocessing company1 that sells miner als to buyer s at its Gr eenup County, Kentucky plant. Gr eat Lakes maintains that it sells its pr od ucts in Kentucky; all tr ansactions, includ ing payment and d eliver y of good s, occur in Kentucky; Gr eat Lakes d oes not have a physical pr esence in Ohio; and Gr eat Lakes neither d ir ectly nor ind ir ectly d eliver s its pr od ucts to the State of Ohio. Stated ver y simply, Ohio has cr eated a commer cial activity tax (CAT) that taxes per sons who d o business and have a substantial nexus to Ohio. O.R.C.2 5751.02(A). Ohio’s Depar tment of Taxation (Depar tment) may issue a CAT assessment to an out-of-state business for outstand ing liability to Ohio ar ising fr om tr ansactions with an Ohio company. Businesses ar e pr ovid ed ad ministr ative r emed ies to pr otest CAT assessments to the Tax Commissioner of Ohio, then the Ohio Boar d of Tax Appeals, and then the Ohio appellate cour ts. O.R.C. 5751.09; O.R.C. 5717.02; ORC 5717.04. Ohio d eter mined that between 2009 and 2016, Gr eat Lakes sold over $104 million in miner als that wer e then shipped to Ohio ad d r esses. The Depar tment issued a CAT assessment against Gr eat Lakes for $325,000. Gr eat Lakes paid a por tion of the assessment but petitioned for r eassessment with the Commissioner , challenging the assessment’s valid ity. . 1 Accor d ing to the business r ecor d s of the Kentucky Secr etar y of State, Gr eat Lakes is a limited liability company or ganized und er the laws of Delawar e. 2 Ohio Revised Cod e. 2 One month after pr otesting to the Commissioner , Gr eat Lakes sued Ohio and Joseph W. Testa, Ohio’s Tax Commissioner , in his official and ind ivid ual capacities, in Gr eenup Cir cuit Cour t. Gr eat Lakes sought: (1) a d eclar ator y jud gment that it is not subject to Ohio’s CAT; (2) monetar y r elief pur suant to 42 U.S.C.A. § 1983 for the for ced collection of taxes not owed , in violation of the Ohio and United States Constitutions; and (3) a d eter mination pur suant to CR3 60.03 that it would be inequitable to r equir e Gr eat Lakes to d efend an action in a for eign state. Ohio moved to d ismiss Gr eat Lakes’ complaint on gr ound s of sover eign immunity, qualified immunity, comity, lack of per sonal jur isd iction, and failur e to exhaust ad ministr ative r emed ies. The Gr eenup Cir cuit Cour t d enied Ohio’s Motion to Dismiss in a two-sentence or d er , and Ohio filed a Notice of Appeal with the Cour t of Appeals. Ohio moved to tr ansfer jur isd iction over that inter locutor y appeal to this Cour t, which this Cour t gr anted . We then abated this case pend ing the Supr eme Cour t of the United States’ d ecision in Franchise Tax Board of California v. Hyatt, 139 S.Ct. 1485 (2019) (her einafter “Hyatt IIT). Following the r end ition of Hyatt III, this Cour t gr anted the Appellants’ motion for leave to file supplemental br iefs. Supplemental br iefing by the par ties has been completed , and the matter is r ipe for consid er ation. 3 Kentucky Rules of Civil Pr oced ur e. 3 II. ANALYSIS The State of Ohio ar gues that it is pr otected by sover eign immunity und er Hyatt III. Testa ar gues that he is entitled to the same sover eign immunity as Ohio in his official capacity and qualified official immunity in his per sonal capacity. Gr eat Lakes, on the other hand , ar gues that sover eign immunity d oes not apply to actions for d eclar ator y or injunctive r elief and that sover eign immunity d oes not apply to the appellants in the capacity in which they wer e sued pur suant to 42 U.S.C.A. § 1983. The question of whether a d efend ant is pr otected by sover eign immunity, gover nmental immunity, or official immunity is a question of law. Rowan Cty. v. Sloas, 201 S.W.3d 469, 475 (Ky. 2006). This Cour t r eviews questions of law de novo. Cumberland Valley Contractors, Inc. v. Bell Cty. Coal Corp., 238 S.W.3d 644, 647 (Ky. 2007). A. State of Ohio We will fir st ad d r ess whether the State of Ohio is pr otected by the d octr ine of sover eign immunity. Ohio r elies, in lar ge par t, on Hyatt III to ar gue that it is entitled to sover eign immunity pr otection. In that case, Hyatt sued the Fr anchise Tax Boar d of Califor nia in Nevad a state cour t for var ious tor ts the Tax Boar d alleged ly committed d ur ing a tax aud it. Hyatt III, 139 S.Ct. at 1491. After d iscussing the United States Constitution at length as well as the intent of the fr amer s, the United States Supr eme Cour t held that the Tax Boar d of Califor nia was pr otected by sover eign immunity and could not be sued in Nevad a state cour t. Id. at 1492. Gr eat Lakes, however , attempts to d istinguish the case at bar fr om Hyatt III because Hyatt was seeking a monetar y awar d of 4 d amages fr om Califor nia. Gr eat Lakes, conver sely, is only seeking monetar y d amages against Testa in his ind ivid ual capacity and d eclar ator y, injunctive, and equitable r elief against Ohio and Testa in his official capacity. Gr eat Lakes ar gues that the United States Supr eme Cour t’s 2016 d ecision in Franchise Tax Board of California v. Hyatt, 136 S.Ct. 1277 (her einafter “Hyatt IT), is actually the contr olling author ity.4 In Hyatt II, the pr ed ecessor of Hyatt III, the Supr eme Cour t r ever sed a monetar y awar d against the Fr anchise Tax Boar d of Califor nia, an out-of-state agency, that was gr eater than that which Nevad a would awar d in a similar suit against its own state agency. Id. The Cour t conclud ed that in awar d ing these higher -than-other wise-allowed d amages, Nevad a “applied a special r ule of law that evinces a policy of hostility towar d Califor nia.” Id. at 1281 (inter nal quotation mar ks omitted ). Hyatt IId oes not contr ol our d ecision her e tod ay. Hyatt III, however , d oes contr ol, at least in par t, our d ecision in this case. The United States Supr eme Cour t in Hyatt III held , unequivocally, that und er 4 Gr eat Lakes makes this ar gument by attempting to cite to Hyatt Ills summar y of the case’s histor y. Gr eat Lakes, in its supplemental br ief to this Cour t, includ es a block quote pur por ted ly fr om Hyatt HI, emphasizing the sentence, “This [United States Supr eme] Cour t r ever sed , hold ing that the Full Faith and Cr ed it Clause r equir ed Nevad a cour ts to gr ant the Boar d the same immunity that Nevad a agencies enjoy.” (Inter nal italics omitted ). It d oes not includ e a pin cite to the page in the U.S. Supr eme Cour t d ecision fr om which this quote is taken. The r eason for this is that the quote is not actually fr om the U.S. Supr eme Cour t’s opinion. Rather , it was taken fr om the Syllabus of the opinion. The Syllabus contains a footnote which says, “The syllabus constitutes no par t of the opinion of the Cour t but has been pr epar ed by the Repor ter of Decisions for the convenience of the r ead er .” This Cour t notes that the Syllabus of an opinion of the U.S. Supr eme Cour t is wholly inappr opr iate to quote and should never be cited as contr olling author ity. Par ties should take gr eat car e to r efr ain fr om d oing so in the futur e. 5 the United States Constitution, “States r etain their sover eign immunity fr om pr ivate suits br ought in the cour ts of other States.” 139 S.Ct. at 1492. Gr eat Lakes ar gues that the wor d “r etain” in the above quoted sentence d ictates that this Cour t look to our gener al immunity pr inciples as applied to d eclar ator y and injunctive r elief. However , the U.S. Supr eme Cour t went on to say, “[Although the Constitution assumes that the States r etain their sover eign immunity except as other wise pr ovid ed , it also fund amentally ad justs the States’ r elationship with each other and cur tails their ability, as sover eigns, to d ecline to r ecognize each other ’s immunity.” Id. at 1493. The Cour t then went on to say, “Inter state immunity, in other wor d s, is ‘implied as an essential component of fed er alism.”’ Id. at 1498 (quoting Nevada v. Hall, 440 U.S. 410, 430-31 (1979) (Blackmun, J., d issenting)). The U.S. Supr eme Cour t in Hyatt III mad e no d istinction between claims seeking monetar y d amages and claims seeking other types of r elief. “The Constitution...embed s inter state sover eign immunity within the constitutional d esign.” Id. at 1497. Accor d ingly, the State of Ohio is pr otected by sover eign immunity, and Gr eat Lakes’ claims against it should have been d ismissed . We, ther efor e, r ever se the Gr eenup Cir cuit Cour t’s d enial of the State of Ohio’s motion to d ismiss. B. Joseph Testa in his official capacity We next ad d r ess whether Joseph Testa is immune fr om suit in his official capacity as Tax Commissioner of Ohio. In gener al, [o]fficial-capacity suits...r epr esent only another way of plead ing an action against an entity of which an officer is an agent.... As long 6 as the gover nment entity r eceives notice and an oppor tunity to r espond , an official-capacity suit is, in all r espects other than name, to be tr eated as a suit against the entity. Kentucky v. Graham, 473 U.S. 159, 165-66 (1985) (inter nal citations and quotations omitted ). As such, Testa is entitled to the same sover eign immunity that pr otects the state of Ohio, and ther efor e Gr eat Lakes’ claims against him in his official capacity should have been d ismissed . We, ther efor e, r ever se the Gr eenup Cir cuit Cour t’s d enial of Testa’s motion to d ismiss the claims br ought against him in his official capacity as Tax Commissioner of Ohio. C. Joseph Testa in his personal capacity Having conclud ed that both the state of Ohio and Joseph Testa in his official capacity ar e immune fr om suit, we tur n to the r emaining question befor e us, namely, whether immunity pr otects Joseph Testa in his per sonal capacity. “Per sonal-capacity suits seek to impose per sonal liability upon a gover nment official for actions he takes und er color of state law.” Id. at 165. As such, the only claim against Testa in his per sonal capacity is that for monetar y r elief pur suant to 42 U.S.C.A. § 1983 for the alleged for ced collection of taxes not owed , in violation of the Ohio and United States Constitutions. On the mer its, to establish per sonal liability in a § 1983 action, it is enough to show that the official, acting und er color of state law, caused the d epr ivation of a fed er al r ight.... When it comes to d efenses to liability, an official in a per sonal-capacity action may, d epend ing on his position, be able to asser t per sonal immunity d efenses, such as objectively r easonable r eliance on existing law. Id. at 166-67 (inter nal citations omitted ). The United States Supr eme Cour t time and again has r ecognized that § 1983 “was not meant to effect a r ad ical d epar tur e fr om or d inar y tor t law and 7 the common-law immunities applicable in tor t suits.” Rehberg v. Paulk, 566 U.S. 356, 361 (2012). Our Cour t r ecently r eaffir med this pr inciple when we stated , “As explained in Rehberg, the scope of immunity available to state gover nment officials in a fed er al civil r ights action und er § 1983 d er ives fr om the state’s common law immunity d octr ine.” Martin v. O’Daniel, 507 S.W.3d 1, 5 (Ky. 2016). Thus, to d eter mine whether Testa, in his per sonal capacity, is immune fr om suit, we must tur n to the common law d octr ine of immunity. Any immunity d eter mination by this Cour t would r equir e us not only to evaluate Testa’s actions but also to inter pr et Ohio tax law. Because our d ecision would ultimately tur n on Ohio law, we feel compelled to consid er the d octr ine of comity. This d octr ine “is one of d efer ence and r espect among tr ibunals of over lapping jur isd iction; in accor d ance with comity, the cour ts of one state or jur isd iction give effect to the laws and jud icial d ecisions of another , not as a matter of obligation but out of d efer ence and r espect.” 16 AM. Jur. 2d Conflict of Laws § 11 (2019). For example, [i]f Kentucky fails to r espect that a cause of action accr ues in a for eign jur isd iction, like New Yor k, although the final event necessar y for the cause of action occur r ed in New Yor k, Kentucky shows d isr espect for New Yor k’s ter r itor iality in d er ogation of comity pr inciples that the Kentucky Supr eme Cour t may value. Combs v. Int’llns. Co., 354 F.3d 568, 591 (6th Cir . 2004). The Supr eme Cour t of the United States has applied the d octr ine of comity in the context of a § 1983 action for the unlawful ad ministr ation of a state’s tax system, ultimately d ismissing such claims. For example, in Fair Assessment in Real Estate Association v. McNary, 454 U.S. 100 (1981), the 8 Supr eme Cour t held that “taxpayer s ar e bar r ed by the pr inciple of comity fr om asser ting § 1983 actions against the valid ity of state tax systems in fed er al cour ts,” includ ing actions for d amages. Id. at 116. In d oing so, the McNary Cour t explained the r easoning behind fed er al cour ts’ d efer ence to state tax ad ministr ation by citing with appr oval a concur r ing in par t and d issenting in par t d ecision by Justice Br ennan: The special r easons justifying the policy of fed er al noninter fer ence with state tax collection ar e obvious. The pr oced ur es for mass assessment and collection of state taxes and for ad ministr ation and ad jud ication of taxpayer s’ d isputes with tax officials ar e gener ally complex and necessar ily d esigned to oper ate accor d ing to established r ules. State tax agencies ar e or ganized to d ischar ge their r esponsibilities in accor d ance with the state pr oced ur es. If fed er al d eclar ator y r elief wer e available to test state tax assessments, state tax ad ministr ation might be thr own into d isar r ay, and taxpayer s might escape the or d inar y pr oced ur al r equir ements imposed by state law. Id. at 108, n.6 (quoting Perez v. Ledesma, 401 U.S. 82, 128, n.17 (1971) (Br ennan, J., concur r ing in par t and d issenting in par t)). Though McNary ad d r essed comity between fed er al and state cour ts, we feel compelled to apply similar pr inciples to the case at hand . As noted above, the question befor e us—whether Testa may be held per sonally liable for violations of § 1983—tur ns on Ohio law. In essence, then, we ar e r equir ed to d eter mine whether Testa’s imposition of the CATS assessment on Gr eat Lakes was consistent with Ohio law. As the McNary Cour t explained , any d eclar ation fr om this Cour t about the lawfulness of Testa’s application of Ohio law would be intr usive and could d isr upt Ohio’s state tax ad ministr ation. 9 In sum, we believe that Ohio’s state cour ts ar e better suited to efficiently evaluate and apply Ohio law to this issue. Should the case pr ogr ess fur ther , Ohio’s cour ts would also be better suited to evaluate the facts, and to consid er whether Testa caused the d epr ivation of a constitutional r ight while acting und er the color of Ohio state law. Accor d ingly, r elying on the pr inciple of comity, we her eby d ismiss Joseph Testa in his per sonal capacity. III. CONCLUSION For the for egoing r easons, we r ever se the jud gment of the Gr eenup Cir cuit Cour t and r emand to the Gr eenup Cir cuit Cour t for d ismissal of the claims. Minton, C.J.; Hughes, Keller , Lamber t, VanMeter , and Wr ight, JJ., sitting. All concur . Nickell, J., not sitting. COUNSEL FOR APPELLANTS: Thomas Ed war d Mad d en Daniel W. Fausey Assistant Attor neys Gener al COUNSEL FOR APPELLEE: Thomas Dulaney Bullock Rober t V. Bullock James Roscoe Stinetor f Bullock & Coffman, LLP 10