Durand v. Hester

Full Case Name
 Type

 Decided

 Majority Opinion
 Dissenting Opinion

*Durand v. Hester* was a landmark Supreme Court case in 2015-II centered around the Brayer-Braugh Act and whether its tax on institutional savings was constitutional.

## Case Facts

The following facts were agreed to by both the plaintiff and the defendant:

1. On March 31, 2015, the government passed a law: Law 2015-I-10, or “A Law to eliminate the corporate tax and implement a corporate savings tax while reforming general banking regulations,” or the “Brayer-Braugh Act.”
2. The act as noted includes provisions for a 5% tax on funds remaining in corporate holdings at the end of each trimester but that “in the event that a corporation shall hold less than ∇30, it shall owe ∇30 in taxes,” with taxes to be paid at the end of the trimester.
3. The act goes into effect on August 1, 2015 so as to allow for tax collection for 2015-II at the end of the trimester.
4. This act exempts banking institutions, non-profits, “companies that never held at least ∇30 at any point during the trimester” (“unless a volume of at least ∇100 passed through the account over the course of the trimester, in which case they shall owe ∇30 in taxes”), and “companies that never held at least ∇100 at any point during the trimester and maintained at least two employees (excluding an owner or CEO)” (unless a volume of at least ∇300 passed through the account over the course of the trimester, in which case they shall pay ∇30 in taxes”) from having to pay taxes in accordance to this law and the 5% tax on holdings.
5. “Corporation” as described in this act, as it precedes the Business Standardization Act (Law 2015-II-7, passed June 14, 2015), describes all business institutions.

## Case Proceedings

Durand's attorney (Harrison Mearl of First Nation Consutling) submitted a complaint (File:Complaint - Durand v. Hester.pdf) to the courts on July 16, 2015; the Department of Justice (representing Andrew Hester as he was the Head of the Treasury) replied with an answer (File:Answer - Durand v. Hester.pdf) on July 20, 2015. Durand requested an injunction against Hester and the Department of the Treasury so as to "bar the collection of the taxes in question until the court has
decided on their legality." The court denied an injunction and issued the following notice on July 22, 2015:

> The court agrees with the defendant in response to the request by Mr. Durand for an injunction. It is impractical and counter-intuitive to place an injunction on government taxation due to a singular case and the court believes that, by doing so, it would initiate a dangerous precedent of allowing taxes and government revenue to be ignored simply due to legal disputes, something which is is not advised. Therefore, the court does not issue an injunction related to this case but, should the court rule in favor of Mr. Durand by the time taxes provided for by the act in question have been collected, there is an understanding that those funds shall be returned to those they were collected from.
>
>
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On July 24, 2015, the Department of Justice, representing Andrew Hester, submitted a summary judgement requesting that, as the core facts were not in dispute (the plaintiff dropped their assertion that Hester had acted to implement this act), the case proceed to the final stages. Durand agreed and the case was set to open in its final stages on July 31, 2015.

An amicus curiae brief (File:Stenbach and Crown's Amicus Curiae Brief on Durand v. Hester.pdf) was submitted by Dr. Edward Stenbach (former Major Executive, the Minor Executive, and the Head of Education) and Dr. Theodore Crown (former Justice on the Supreme Court, the Head of the Archive) which argued in support of the plaintiff's case that the tax was unconstitutional, though it defended the defense's argument that banks are unique institutions and ought to be treated uniquely.

In-court proceedings ended on August 10, 2015, and the court moved into private deliberation, issuing a ruling on August 16, 2015.

## Decision

### Case Questions

**Is the institutional savings tax provided for in the Brayer-Braugh Act constitutional?**

On it being not a tax on institutional income: "For income to be demonstrated, the standard is a movement of value wherein there is a transfer of currency from any account or individual to the pasty in question... ...Considering as such and the definition of income we interpret from the Constitution, the court finds the savings tax unconstitutional as it is not, as the Constitution requires, a tax on institutional income."
On it being a standard rate: "This penalty and the exemptions to the savings tax make the tax undoubtedly neither simple nor uniform. Despite the fact that this sort of penalty and counter-incentive does make political and economic sense, there is a clear constitutional violation in that it does not meet the standards to be considered standard."
**Is a tax that applies to businesses in a standard fashion but excludes banks unconstitutional?**

"We recognize the argument that, as the Chief Attorney put it, '…As banks are a unique type of institution in that they do not sell a good, they are not producing something unlike other institutions, but they act as financial intermediaries, taking in deposits and providing loans. To tax them on savings would be nonsensical as it is nearly a direct tax on individual income, as the funds banks hold and ‘save’ are deposits placed there by individuals and companies.' The amicus curiae brief submitted by Dr. Stenbach and Dr. Crown only goes to further this point that, 'Banks deal in the provision of capital by means of deposits, and… …the basic principles of bank function should be recognized as fundamentally different from that of a business that provides a tangible product' and that banks should be excluded, 'Not because they are privileged or because they deserve it, simply because the nature of their dealings is entirely different.' Therefore, the court upholds exclusions to banking institutions." (3-1)
**Can you sue an individual for the responsibility of the institution? Was it appropriate to sue Andrew Hester in his capacity as Head of the Treasury for the government's tax policy that he is not liable for?**

"Regarding the placement of the lawsuit in the first place, the court would like to set a standard in that the accusation of liability be the defining attribute of the defense. As such, it was inappropriate to sue Mr. Hester and, rather, as this is a policy of the Triumvirate government as a whole, the government should have been sued, or, the executing agent of the government (in the Department of the Treasury)."
**In the event of part of a law being struck as unconstitutional, should the entire law be nullified?**

"It is unbefitting because it subverts the role of the courts and asserts that the courts should seek to legislate (or, in this case, to counter-legislate) by means of our decisions. Furthermore, by doing so, the court takes on engaging in political decisions, something similarly unbefitting of the courts." (3-1)
### Ruling

The court awarded no rewards or compensation, it solely struck down the institutional savings tax.

### Court Opinion

**Written by Chief Justice Evantsu:**

With regards to the challenge to Law 2015-I-10, otherwise dubbed “A Law to eliminate the corporate tax and implement a corporate savings tax while reforming general banking regulations” or the “Brayer-Braugh Act”, the court finds the following:

The first question to attend to is the question as to the definition of “institutional income” and whether a tax on money maintenance rather than money accumulation would meet this definition. The act in question dictates that money kept in an institutional for-profit account shall be taxed and the plaintiff argues that as there is not necessarily a guarantee that it is derived from income, this is unconstitutional as the Constitution states, “The Executive Branch shall have the power to… …By law, levy a tax on institutional income.” For income to be demonstrated, the standard is a movement of value wherein there is a transfer of currency from any account or individual to the pasty in question. As the plaintiff noted in their example, a company could possess ∇100, then, though they received no income, they would be taxed for simply retaining the money though the money did not move. The example only perpetrates the argument on noting that after one round of taxation on stagnant funds, the next round of taxation would, once again, tax the same stagnant funds even if there continued to be no movement of money within the account. Considering as such and the definition of income we interpret from the Constitution, the court finds the savings tax unconstitutional as it is not, as the Constitution requires, a tax on institutional income.

With regards to the second question in this case on the subject of whether this act imposes a tax of a standard rate, a more difficult interpretation is warranted. Consideration of the original intent in the imposition of the standard rate leads to a clearer means of determining whether this act violates the requirement for a standard rate among all institutions. This clause was added to the Constitution in December of 2012 following the passage of the Tax Code and its subsequent invalidation in the case of *First Nation Consulting v. The Universal Triumvirate* and was meant to require a basic flat tax on institutional income so that institutions would not be taxed at higher rates based on how much they made. A standard rate is a rate applied to funds that all businesses must comply with, wherein each business pays the same rate on the income they have regardless of how much income it may be. Where the issue with regards to this act comes from is the imposition of the fee when a minimum value is not maintained in a business account so that a business could end up paying excessively more if they attempt to subvert the system and avoid taxes. Though the argument has been made that this penalty is imposed on anyone who meets it, the same argument could be made with regards to a graduated tax and a flat tax is defined by the element of it being simple and uniform. This penalty and the exemptions to the savings tax make the tax undoubtedly neither simple nor uniform. Despite the fact that this sort of penalty and counter-incentive does make political and economic sense, there is a clear constitutional violation in that it does not meet the standards to be considered standard. A fee is not a rate!

On the subject of banks, a much more complicated question emerged in whether banks should be given “special treatment” under tax law due to their distinct role in the economy and whether this contradicted with the requirement that taxes on institutional income must be a “standard rate among all.” On this subject, the court has agreed with the defense, that banks are indeed unique, to the point that they are organized differently and have different rules than other institutions do (the government recently passed a law clarifying that “banks” and “corporate banks” are different institutions than companies or corporations altogether). Though the court does not agree that “pragmatic” exclusion as was argued by the defense holds much weight as this only goes to imply that they are institutions equal to the others, we recognize the argument that, as the Chief Attorney put it, “…As banks are a unique type of institution in that they do not sell a good, they are not producing something unlike other institutions, but they act as financial intermediaries, taking in deposits and providing loans. To tax them on savings would be nonsensical as it is nearly a direct tax on individual income, as the funds banks hold and ‘save’ are deposits placed there by individuals and companies.” The amicus curiae brief submitted by Dr. Stenbach and Dr. Crown only goes to further this point that, “Banks deal in the provision of capital by means of deposits, and… …the basic principles of bank function should be recognized as fundamentally different from that of a business that provides a tangible product” and that banks should be excluded, “Not because they are privileged or because they deserve it, simply because the nature of their dealings is entirely different.” Therefore, the court upholds exclusions to banking institutions.

Regarding the placement of the lawsuit in the first place, the court would like to set a standard in that the accusation of liability be the defining attribute of the defense. As such, it was inappropriate to sue Mr. Hester and, rather, as this is a policy of the Triumvirate government as a whole, the government should have been sued, or, the executing agent of the government (in the Department of the Treasury). The suing of an office is improper though, as that implies individual action, and thus lawsuits should be engaged against the government, a government institution (not an office), or an individual. Were a policy of solely the Treasury (which this was not, this was a law of the entire government) executed that was not the core government's responsibility, then the Department of the Treasury is liable. Or, in the case that the Treasury was improperly carrying out its role, the Department of the Treasury is liable, not the core government. Similarly, were the Speaker to have massively violated Administrative procedure as ordained by the Constitution, then Luke Cannon is liable as an individual as the "office" itself is individual. However, we note Andrew Hester is a private citizen, not responsible for this law, and both the defense and plaintiff acknowledged his lack of liability in this case, which should indicate that it was inappropriate to sue him for this matter.

The final request in the course of the ruling on the Brayer-Braugh Act was that, in the event that the key provisions of the tax (and of this law) are ruled unconstitutional, that the court insist on repealing the entirety of the law due to the imbalance created by eliminating the core provisions when other elements of this law are in place under the assumption that the core provisions would be maintained. However, we find, 3-1, that such an action is unbefitting of the courts. It is unbefitting because it subverts the role of the courts and asserts that the courts should seek to legislate (or, in this case, to counter-legislate) by means of our decisions. Furthermore, by doing so, the court takes on engaging in political decisions, something similarly unbefitting of the courts. Finally, the implications of striking down the entirely of a law if a singular part were unconstitutional when a case is brought up against it months (or years) down the road are dire as law builds upon previous law and, were the court to become a legislative actor through its rulings, the implications could be severe in undermining an entire body of law.

Bearing all such in mind, the court unanimously finds that the §4 provision of Law 2015-I-10, in imposing a sales tax, is unconstitutional as it does not tax institutional income. The court also finds that the §4 provision of Law 2015-I-10, in the imposition of a fee when an institution does not meet the minimum, is unconstitutional as it does not meet the qualifications for a standard rate in that it is neither standard, nor is it a rate. However, the placement of slightly different standards on banking institutions, providing they maintain to the majority purpose of banking, is appropriate considering their actual dealings and role in the economy, as this court agrees by 3-1. Finally, by 3-1, the court has selected to maintain all other pieces of the act that, on their own, are perfectly constitutional and valid. The Department of the Archive is hereby instructed to note the §4 provision as unconstitutional and the Department of the Treasury is to act as such.

### Partial Dissent

**Written by Justice Afferson:**

Though I agree with my associates on the bench with regards to the unconstitutionality of the actual aspects of the law, I have a strong dissent to both the decision to not strike down the entire law and to the exclusion of banking institutions from general tax policies.

I believe the court has made a grave error in selecting to only nullify the unconstitutional aspects of the law rather than the law in its entirety. The law, as most high profile laws are, was composed as part of political finagling in order to achieve the requisite number of votes to guarantee passage. By striking down solely the unconstitutional provisions and allowing the rest to stand, that political compromise is broken. From a pragmatic standpoint, striking solely §4 of the law, which provides for the corporate savings tax, leaves the Union without any valid tax structure as that was repealed by the same law (but as the repeal of the tax is not unconstitutional, it is allowed to stand). Clearly the two were related as the corporate savings tax (which is unconstitutional) was meant to supplement the now erased corporate income tax (which was repealed but is constitutional), to disconnect them for the sake of upholding parts of the law is totally asinine. Consider the consequences if, in an extreme circumstance, the government passed a law that repealed the entirety of the Universal Triumvirate Code and, instead, gave the Speaker of the Administration the sole power of creating new law. The courts would undoubtedly rule the latter action unconstitutional as the Speaker cannot create law unilaterally but, under the ruling of the court in this case, as it is not unconstitutional to repeal the entirety of the Universal Triumvirate Code, the Union would be left with no laws because the two elements were supplementing each other.

When reviewing whether or not to strike down the entire law or only a portion of it, I wish to adhere to what I’ve dubbed the “core element rule” wherein, if a core element of a law is unconstitutional, it is sensible to strike the law in its entirety and maintain the status quo as if the law had not been passed. As to what defines a “core element,” I would use the definition of “a portion of a law which is particularly significant, massive, controversial, or by which other elements of the law were framed around.” I believe my dissent in this case on this particular subject is warranted considering the pragmatic view of reality with the striking of the entirety of the tax system and the future implications of maintaining a restrained approach to the selective annulling of legislation due to specific unconstitutional elements.

With regards to banks, there is no constitutional justification for how my colleagues ruled. If we’re looking to the strict meaning of the Constitution, like my colleagues did for the law in question, then the Constitution is clear that a tax on income must be a “standard rate among all” and, as the Constitution prohibits taxation without it being explicitly stated, we are applying that standard to the Brayer-Braugh Act tax in question. As the Supreme Court ruled in *First Nation Consulting v. The Universal Triumvirate*, the requirement set by Article XVIII of the Constitution that “All those subject to the jurisdiction of Triumvirate domain as administered by the government are equal under the law and it's protection as the people of the Triumvirate” this means that a tax must be applied equally to all. This is deliberately exempting banks, a type of institution which is prone to risk, corruption, and financial calamity, yet we’re letting them go untaxed as a standard because they are “unique” and I believe the court is making a grave mistake, one that has no legal basis, because the Constitution does not say, “All those subject to the jurisdiction of Triumvirate domain as administered by the government are equal under the law and it's protection as the people of the Triumvirate, except for banks, which are unique” or “The Executive Branch shall have the power to… By law, levy a tax on institutional income, provided it be a standard rate among all, except banks, and that no institution pays more than 20% of their income in total dues per trimester.” If we’re taking a strict interpretation of the Constitution, to exempt banks is totally unreasonable.