Opinion ID: 4575069
Heading Depth: 2
Heading Rank: 2

Heading: Constitutionally Excessive

Text: ¶ 62. The United States Constitution prohibits excessive fines. U.S. Const. amend. VIII. The Vermont Constitution provides that “all fines shall be proportioned to the offenses.” Vt. Const. ch. II, § 39. Citing United States v. Bajakajian, 524 U.S. 321 (1998), VNT argues the 24 $445,222 penalty is an excessive fine. The Department argues, however, that VNT failed to preserve this argument because it did not raise it before the Commissioner. We address VNT’s Eighth Amendment claim on the merits even though VNT failed to raise it before the Commissioner. We conclude, however, that the penalty is not excessive.
¶ 63. The Department argues that VNT failed to preserve its constitutional claim because it did not raise it before the Commissioner. VNT argues in response that the claim is preserved because there is “no daylight” between arguing that the penalty was arbitrary in violation of § 3202(b)(3) and arguing that the penalty is constitutionally excessive. Alternatively, VNT submits its constitutional claim falls within an exception to the preservation rule because the Department did not raise its preservation argument before the trial court, and the trial court addressed the claim on the merits. For the reasons articulated below, we will address VNT’s Eighth Amendment claim. ¶ 64. “We have repeatedly stressed that we will not address arguments not properly preserved for appeal.” White, 172 Vt. at 343, 779 A.2d at 1270. “[T]o properly preserve an issue, a party must present the issue to the administrative agency with specificity and clarity in a manner which gives the agency a fair opportunity to rule on it.” Pratt, 2017 VT 22, ¶ 16 (quotation and alteration omitted); In re Morrisville Hydroelectric Project Water Quality, 2019 VT 84, ¶ 17, ___ Vt. ___, 224 A.3d 473 (“To preserve an argument for appeal, a party must present an argument with specificity and clarity.” (quotation omitted)). Even constitutional claims are subject to the preservation rule. Clark v. Menard, 2018 VT 68, ¶ 6, 208 Vt. 11, 194 A.3d 752 (holding that petitioner failed to preserve constitutional argument because it was not raised with specificity below). ¶ 65. VNT did not preserve its constitutional argument. Contrary to VNT’s assertion, there is a significant difference between a statutory claim and a constitutional one. VNT advanced 25 a purely statutory claim below, arguing that the penalty violated § 3202(b)(3). The Commissioner accordingly decided only whether the penalty imposed was consistent with the statute. Whether the penalty is constitutionally excessive is a completely different argument that had to be preserved. See Martin, 2003 VT 14, ¶ 11 (holding that constitutional argument was not preserved because appellant’s argument throughout litigation was that regulation violated statute). ¶ 66. Nevertheless, in our discretion, we will address VNT’s argument that the penalty violated the Eighth Amendment because the “goals of our preservation rules are satisfied” with respect to that claim. In re LaBerge NOV, 2016 VT 99, ¶ 16, 203 Vt. 98, 152 A.3d 1165; see also State v. Nash, 2019 VT 73, ¶ 15, ___ Vt. ___, 221 A.3d 386 (noting that Court has discretion to consider unpreserved issues). “The purpose of our preservation rule is to ensure that the original forum is given an opportunity to rule on an issue prior to our review.” Vt. Built, Inc. v. Krolick, 2008 VT 131, ¶ 10, 185 Vt. 139, 969 A.2d 80 (quotation omitted). Preservation also “facilitates the development of a record for appeal.” State v. Wool, 162 Vt. 342, 346, 648 A.2d 655, 658 (1994). Although VNT did not raise its constitutional claim before the Commissioner, it raised it with sufficient clarity to allow the trial court to address it. Both parties have briefed the Eighth Amendment claim on appeal. The goals of our preservation rule have therefore been met with respect to the Eighth Amendment claim, and we will address it. ¶ 67. The same cannot be said with respect to VNT’s claim under the Vermont Constitution. On appeal, VNT makes a brief reference to the Vermont Constitution’s Excessive Fines Clause. The trial court, however, decided only that the penalty did not violate the Eighth Amendment. Furthermore, “[m]erely citing the Vermont Constitution, without providing any analysis of how the state constitutional provision compares with its federal analog, does not adequately present the issue for our review.” State v. Brillon, 2010 VT 25, ¶ 6, 187 Vt. 444, 995 A.2d 557. 26
¶ 68. The trial court concluded that the penalty did not violate the Eighth Amendment because the penalty was “a small percentage of the outstanding liability.” The court also explained that civil tax penalties have repeatedly been held not to violate the Eighth Amendment’s Excessive Fines Clause, and VNT cited no case in which a similar penalty was held to be constitutionally excessive. VNT argues the $445,222 penalty is constitutionally excessive because in Bajakajian, 524 U.S. at 337, the United States Supreme Court held that a $357,144 fine was excessive. The Department argues, on the other hand, that the penalty is proportionate to the underpayment, which was substantial. ¶ 69. The Eighth Amendment to the United States Constitution prohibits “excessive fines.” U.S. Const. amend. VIII. In Timbs v. Indiana, the United States Supreme Court held that the Eighth Amendment’s Excessive Fines Clause was applicable to the states through the Fourteenth Amendment’s Due Process Clause. 139 S. Ct. 682, 689 (2019). “The Excessive Fines Clause . . . limits the government’s power to extract payments, whether in cash or in kind, as punishment for some offense.” Bajakajian, 524 U.S. at 328 (quotation omitted). A fine “violates the Excessive Fines Clause only if it is (1) punitive, and (2) grossly disproportional to the gravity of the defendant’s offense.” United States v. Jalaram, Inc., 599 F.3d 347, 351 (4th Cir. 2010).
¶ 70. A fine falls within the coverage of the Eighth Amendment’s Excessive Fines Clause if it “constitute[s] punishment.” Bajakajian, 524 U.S. at 328. Just because a fine serves both remedial and punitive purposes does not mean it is exempt from the Eighth Amendment’s protections. Austin v. United States, 509 U.S. 602, 610 (1993). Rather, the inquiry is whether the fine “can only be explained as serving in part to punish.” Id. ¶ 71. In this case, the Department’s penalty undoubtedly constitutes punishment. As we explained in TD Banknorth, N.A. v. Department of Taxes, § 3202 enables “the Commissioner to 27 penalize taxpayers when they have not properly discharged their tax burden” by assessing a penalty based on the outstanding tax liability. 2008 VT 120, ¶ 37, 185 Vt. 45, 967 A.2d 1148 (emphasis added). As such, a penalty assessed pursuant to § 3202 “does not serve the remedial purpose of compensating the Government for a loss.” Bajakajian, 524 U.S. at 329. While § 3203 allows the Commissioner to recover any underpaid taxes, § 3202 allows the Commissioner to assess a penalty in addition to the outstanding tax liability. The purpose of § 3202 is to penalize taxpayers and, in doing so, allows the state to recover an amount in excess of the outstanding tax liability.
¶ 72. “The touchstone of the constitutional inquiry under the Excessive Fines Clause is the principle of proportionality: The amount of the forfeiture must bear some relationship to the gravity of the offense that it is designed to punish.” Bajakajian, 524 U.S. at 334. A penalty accordingly violates the Excessive Fines Clause if it is grossly disproportionate. Id. at 336 (adopting the “standard of gross disproportionality articulated in . . . Cruel and Unusual Punishments Clause precedents”). Because “the relevant constitutional line is inherently imprecise,” each case requires “an independent examination.” Cooper Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424, 434-35 (2001). Some of the relevant factors to consider include the degree of culpability, the relationship between the penalty and the harm, and “the sanctions imposed in other cases for comparable misconduct.” Id. at 435. ¶ 73. As an initial matter, “judgments about the appropriate punishment . . . belong in the first instance to the legislature.” Bajakajian, 524 U.S. at 336. There is accordingly “a strong presumption that the amount of a fine is not unconstitutionally excessive if it lies within the range of fines prescribed by the legislature.” Moustakis v. City of Fort Lauderdale, 338 F. App’x 820, 821 (11th Cir. 2009) (quotation omitted). In this case, the penalty the Commissioner assessed fell within the statutory range prescribed by the Vermont Legislature. Section 3202(b)(3) provides that if a “taxpayer fails to pay a tax liability imposed by . . . [T]itle [32],” the Commissioner may 28 assess a penalty of “five percent[] of the outstanding tax liability for each month, or portion thereof, that the tax liability is not paid in full; provided, however, that in no event shall the amount of any penalty assessed . . . exceed 25 percent of the tax liability unpaid.” But see 32 V.S.A. § 3202(b)(3) (providing that for income tax, the Commissioner can only assess penalty equal to one percent of the outstanding tax liability). Pursuant to § 3202(b)(3), the Commissioner assessed a penalty of $445,222.52, which was approximately twenty-three percent of the outstanding tax liability. Because the penalty assessed fell with the statutory range, a strong presumption exists that the penalty is not constitutionally excessive. ¶ 74. The relevant factors outlined in Cooper Industries, Inc., confirm that the penalty imposed here is not unconstitutionally excessive. With regard to culpability, VNT argues its conduct was not culpable because VNT relied on the advice of its accounting firm, and it was never alleged they willfully or negligently underpaid. Although VNT may have relied upon the advice of its accounting firm, the memorandum VNT received from its accounting firm was just that—advice. The memorandum expressly cautioned that “[a]ny tax advice contained in this correspondence or attachments is based on upon our understanding of relevant facts and the tax law and governmental rulings that were in effect at the time the advice was given” and could not be used “for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service.” Despite receiving this cautionary advice, VNT did not seek a formal ruling from the Department. See Organization and Rules of Procedure Rule 7(b), Code of Vt. Rules 10 060 028, http://www.lexisnexis.com/hottopics/codeofvtrules (“Upon request of a taxpayer, the Department will issue a declaratory ruling to as to the applicability of any statutory provision or of any rule or practice of the Department.”). Although VNT may not have willfully or intentionally underpaid, by relying on the advice of its accountants and not seeking a formal ruling, it—as the Commissioner explained— “assumed the risk” of receiving a penalty. 29 ¶ 75. With regard to “the sanctions imposed in other cases for comparable misconduct,” Cooper Indus., Inc., 532 U.S. at 435, VNT argues the $445,222 penalty is constitutionally excessive because in Bajakajian, 524 U.S. at 337, the United States Supreme Court held that a $357,144 fine was excessive. In Bajakajian, the defendant was found guilty of failing to report, as required by federal law, that he was transporting $357,144 in cash, and the trial court determined the entire amount was subject to forfeiture. Id. at 324-25. The United States Supreme Court held that the forfeiture was an excessive fine because the crime “was solely a reporting offense,” and the forfeiture order was “many orders of magnitude” larger than the maximum $5000 fine for the offense under the sentencing guidelines. Id. at 337-38, 340. The Court also noted that the harm to the government was minimal because “[h]ad his crime gone undetected, the Government would have been deprived only of the information that $357,144 had left the country.” Id. at 339. ¶ 76. Nothing about Bajakajian indicates that the Commissioner’s twenty-three percent penalty in this case was excessive. Unlike Bajakajian, the $445,222 penalty the Commissioner assessed was not “many orders of magnitude” larger than the unpaid tax liability. Furthermore, in contrast to Bajakajian, the present case involved significantly more harm to the government because VNT initially failed to pay a tax liability of $1,947,437. Based on the foregoing, we conclude the penalty is not constitutionally excessive. Affirmed. FOR THE COURT: