Opinion ID: 2633444
Heading Depth: 2
Heading Rank: 2

Heading: Representative administrative claims.

Text: ¶ 10 In its main attack on the tax judge's certification of Ladewig's class, ADOR correctly notes that the Arizona Rules of Civil Procedure do not create substantive rights. See Ariz. Const., art. VI, § 5(5); Rule 82, Ariz.R.Civ.P.; see also A.R.S. § 12-109(A) (1992). ADOR claims that by certifying the class in Ladewig's lawsuit, the tax court expanded its own jurisdiction to include parties who have failed to exhaust their administrative remedies or whose claims are barred by the statute of limitationsparties who would otherwise be precluded from appearing before it. ADOR is certainly correct on the last point; the court cannot in effect repeal the statute of limitations on tax claims. On the first point, although the doctrine of exhaustion is settled law in Arizona, the propriety of exhaustion via class administrative claims is an unsettled question deserving careful analysis. See McNutt v. Department of Revenue, 196 Ariz. 255, 265 ¶ 35, 995 P.2d 691, 701 ¶ 35 (App.1998) (A party's failure to resort to and exhaust administrative remedies deprives the [tax] court of jurisdiction to hear the party's claim.) (citations omitted). McNutt, however, explicitly noted that an administrative claim on behalf of the class had not been filed. Id. at 263 ¶¶ 43-44, 995 P.2d at 703 ¶¶ 43-44. ¶ 11 Pursuant to its taxing authority under Arizona Constitution article IX, § 12, the Arizona legislature has enacted specific requirements that taxpayers must satisfy in pursuit of their refund claims. Our tax code currently requires that each claim for refund shall be filed ... and shall identify the claimant ... [and] shall provide the amount of the refund ... and the specific grounds for the claim. A.R.S. § 42-1118(E) (1999) (emphasis added). [7] ADOR argues that the language quoted above can only be interpreted to mean that each individual taxpayer seeking refund must first file an individual administrative claim with ADOR. We disagree. ¶ 12 To begin, we note that nothing in the plain language of A.R.S. § 42-1118(E) requires each taxpayer to file a claim for refund. It clearly states that each claim must be filed in writing with ADOR and that the claim must provide specific information about the claimant. We see no reason why the statutory requirements cannot be satisfied through a single representative claim that provides the requisite information about the representative claimant. With respect to the class membership at large, specific information regarding the amount of individual claims will usually be unavailable to the class representative at the time of filing the administrative claim. However, the grounds of each claim are made perfectly clear in the representative claim and by the mere fact of a given individual taxpayer's membership in the class. ¶ 13 Nothing in our previous cases suggests that a class administrative claim cannot be made against the government. In fact, the court of appeals has suggested that such claims are permissible. [I]t appears to be generally agreed that a class action cannot be maintained unless at least one member of the putative class has exhausted applicable administrative remedies. Zeigler v. Kirschner, 162 Ariz. 77, 85, 781 P.2d 54, 62 (App.1989). In Estate of Bohn v. Waddell, the court of appeals cited our opinion in Arena for the proposition that, in some instances, a class administrative claim is appropriate. 174 Ariz. 239, 251, 848 P.2d 324, 336 (App.1992). While Bohn itself may be distinguishable on the grounds that the representative taxpayer in that case had not exhausted all administrative remedies, its characterization of Arena is generally apt. ¶ 14 Furthermore, while not fully analyzed, class exhaustion of administrative claims is alluded to in Arena. We stated that a claim against a public entity may be presented as a class claim. If the claim is denied [by the relevant administrative agency], the court may thereafter entertain a class action on the claim provided that the case is appropriate as a class action under the applicable principles of law. Arena, 163 Ariz. at 426, 788 P.2d at 1177. This language is susceptible to dual interpretations. Under one, we could interpret the quoted language as assuming that class exhaustion is permissible; if it were not, the need for individual exhaustion would surely have been addressed given the fact that Arena was based on a representative administrative claim. See Arena, 163 Ariz. at 424, 788 P.2d at 1175. Under the other interpretation, individual exhaustion is a condition precedent under one of the applicable principles of law mentioned in the quoted language. We adopt the former interpretation because Arena was directly based on a representative notice of claim, and its disposition speaks to administrative remedies generally, citing only Rule 23 as the applicable principle of law in determining the propriety of filing a class notice of claim. Id. at 424, 426, 788 P.2d at 1175, 1177. Moreover, as noted above, in the present case a class administrative claim was exhausted by the representative claimantsimilar to the manner in which the Arena claimants, on behalf of the class, exhausted their remedy under the notice of claim statute. ¶ 15 ADOR raises several challenges to our interpretation of Arena. First, it claims that Arena is distinguishable because the general notice of claim statute with which Arena was concerned does not contain a provision for administrative review, as do the statutes dealing with tax refund claims. Compare A.R.S. § 12-821, with A.R.S. § 42-1254(C). [8] Second, it suggests that the general claim statute is subject to certain exceptions while the tax refund statute is not. See A.R.S. § 42-1118(E). Finally, it attacks the continuing validity of the California cases on which the Arena court relied. ¶ 16 While the lack of a formal administrative review process in the general notice of claim statute is a distinction of sorts, we believe the two statutes share enough functional similarities that the reasoning applied in Arena may extend not only to class actions in tax court but also to the administrative claim process set forth in A.R.S. § 42-1118(E). For example, though it is not a formal administrative review process, the notice of claim statute requires mandatory administrative procedures, stating that [p]ersons who have claims against a public entity... shall file claims with the person ... authorized to accept service for the public entity.... Any claim which is not filed within one hundred eighty days after the cause of action accrues is barred and no action may be maintained thereon. A.R.S. § 12-821.01(A) (1999 Supp.). Compare the quoted language with the requirement that [e]ach claim for [tax] refund shall be filed with the department in writing.... A.R.S. § 42-1118(E) (1999). ¶ 17 Moreover, the well-settled doctrine of exhaustion renders the act of filing a claim with ADOR a necessary prerequisite to bringing a lawsuit. See Univar Corp. v. City of Phoenix, 122 Ariz. 220, 223, 594 P.2d 86, 89 (1979) (This doctrine [of exhaustion] is firmly entrenched in Arizona....). In like fashion, the quoted portion of the general claim statute requires exhaustion before action by making clear that no action may be maintained against a public entity without first filing a notice of claim. Moreover, Arizona authority affirms the compulsory nature of the claim process. See, e.g., Grimm v. Ariz. Bd. of Pardons & Paroles, 115 Ariz. 260, 263, 564 P.2d 1227, 1230 (1977) (action against state could not proceed because plaintiff had not first filed claim against agency); see also Andress v. City of Chandler, 198 Ariz. 112, 115 ¶ 15, 7 P.3d 121, 124 ¶ 15 (App.2000) (affirming summary judgment against plaintiffs who failed to serve notice of tort claim within time limit set by A.R.S. § 12-821.01(A)). ¶ 18 ADOR next argues that the tax refund statute is distinguishable from the general notice of claim statute because, in some instances, claims may be brought against the government without strict compliance with the notice statute. It quotes Nation v. Colla on the doctrine of excusable neglect: the test is whether the [claimants] have put forth sufficient evidence such that a reasonable jury could find the failure to comply with the claims notice statute was the result of excusable neglect. 173 Ariz. 245, 256, 841 P.2d 1370, 1381 (App.1991). This is a rather hollow distinction in light of the futility doctrine applied in tax cases. See, e.g., Owens v. City of Phoenix, 180 Ariz. 402, 409, 884 P.2d 1100, 1107 (App.1994) (claimant need not pursue administrative remedies that would prove useless or futile); Zeigler, 162 Ariz. at 85-86, 781 P.2d at 62-63. Despite what we have characterized as the mandatory nature of these statutes, each is subject to exception in limited circumstances. See, e.g., Univar, 122 Ariz. at 224, 594 P.2d at 90 (This Court has held that the exhaustion of remedies rule should not be summarily applied under certain circumstances.). ¶ 19 In addition to the functional similarities between the two statutes, the Arena court cited with approval two California tax and claim statute decisions, both of which interpreted statutes very similar to those in Arizona. In the first of the California cases cited in Arena, the California Supreme Court construed a claim statute (Cal.Gov.Code § 910) very similar to the one at issue in Arena. City of San Jose v. Superior Court, 12 Cal.3d 447, 115 Cal.Rptr. 797, 525 P.2d 701 (1974). [9] Ultimately, the California court held that  `claimant,' as used in section 910, must be equated with the class itself and therefore [we] reject the suggested necessity for filing an individual claim for each member of the purported class. To require such detailed information in advance of the complaint would severely restrict the maintenance of appropriate class actions.... Id., 115 Cal.Rptr. 797, 525 P.2d at 707. That language was relied on by Judge Grant in dissenting to Evans v. Ariz. Dep't of Corr., 139 Ariz. 321, 678 P.2d 506 (App.1983). We have since expressly agreed with that dissent. See Arena, 163 Ariz. at 425, 788 P.2d at 1176. ¶ 20 The second California case cited in Arena was Santa Barbara Optical Co. v. State Bd. of Equalization, 47 Cal.App.3d 244, 120 Cal.Rptr. 609 (1975) (allowing representative tax refund claim under statute requiring timely filing of claim as prerequisite to court action). In Santa Barbara Optical, the California Court of Appeal applied the San Jose reasoning to reject the argument that each individual claimant must be named and identified in a tax refund claim brought under the California statute as it existed at the time of that decision. See id. at 611. The California tax authority attempted to distinguish California's tax statute from its claims statute in a manner similar to that employed by ADOR in the present case. The court replied that the tax authority attempts to distinguish City of San Jose on the ground that it concerns a claim for nuisance and inverse condemnation, while this is a claim for refund of sales taxes; but it is a distinction without difference. Id. at 612. We find ADOR's alleged distinctions to be similarly unpersuasive. ¶ 21 ADOR then argues that neither San Jose nor Santa Barbara Optical is good authority, one having been expressly disapproved by the California Supreme Court and the other superseded by statute. See Woosley v. State of California, 3 Cal.4th 758, 13 Cal.Rptr.2d 30, 838 P.2d 758 (1992); Cal.Gov. Code § 905.1. Our view of San Jose and Santa Barbara Optical is not altered by the changes that have taken place. The cases were cited, first in Arena and now in this opinion, for their reasoning under analogous facts. In light of the 1987 amendments allowing class tax refund claims only where each member of the class signed the representative claim, Woosley concluded that the California statute did not authorize class claims before those amendments. See Woosley, 13 Cal.Rptr.2d 30, 838 P.2d at 777. Thus, assumed the Woosley court, San Jose should not be extended to include claims for tax refunds. Id. at 776, 13 Cal.Rptr.2d 30, 838 P.2d 758. ¶ 22 No doubt, the San Jose case is of questionable utility in present-day California tax refund disputes. We note, however, that it was decided in 1974, at a time when the California claim statute was similar to A.R.S. § 12-821.01(A) and before the amendment on which Woosley relies. The rationale in San Jose is still perfectly valid when applied to the California refund statute in its earlier incarnation, which is the only relevant version for our purposes. In like fashion, the analogy drawn in Santa Barbara Optical is valid. The case was superseded by statute after its use by the Arena court, and as a consequence, the analogy we now draw is in no way weakened by subsequent changes to the statute San Jose interpreted. Thus, applying our reasoning in Arena, absence of express authorization would have no preclusive impact in Arizona. Moreover, the Arena court's view that a lack of express authorization will not be read as a preclusion was founded on Arizona precedent, not the California cases it cites as additional support. See Arena, 163 Ariz. at 426, 788 P.2d at 1177 (citing Arnold v. Dep't of Health Servs., 160 Ariz. 593, 606-07, 775 P.2d 521, 534-35 (1989) (special action/class action proper in trial court where not expressly precluded)). Thus, Woosley is of little value in deciding the case at hand. ¶ 23 Finally, ADOR implies that Ladewig had not in fact fully exhausted the administrative remedies available to her or the class. She may have been required, ADOR says, to file an appeal with the Arizona Board of Tax Appeals after ADOR denied her claim for refund. See A.R.S. § 42-124 (1998); [10] see also Hamilton v. State, 186 Ariz. 590, 593-94, 925 P.2d 731, 734-35 (App.1996). We do not understand this point; ADOR's own brief to the court of appeals indicates that Ladewig did in fact pursue an appeal, which was rejected by the Board. That appeal was made on behalf of all similarly situated taxpayers. The Board determined that the class claim was invalid because nothing in either [A.R.S. § 42-124(A) ] or the Board's rules authorizes the certification of a class. Estate of Helen H. Ladewig v. Ariz. Dep't of Revenue, No. 1260-94-I, CCH Arizona Tax Reports, ¶¶ 400-463 (Jan. 27, 1997) (citing Ariz. Admin. Code R16-3-118). The Board went on to deny Ladewig's own claim on the merits. ¶ 24 ADOR has failed to make any showing that it will be prejudiced if Ladewig's lawsuit is allowed to proceed in class form, and requiring individual exhaustion in this case would essentially negate the possibility of bringing a class action in the tax court. [11] Following Arena, we hold that the class device is a suitable vehicle for exhaustion of administrative remedies when not expressly prohibited by statute. Nothing in A.R.S. § 42-1118(E) expressly precludes use of the class device as a means of exhausting administrative remedies with ADOR. No question having been raised about whether the requirements of Rule 23 were satisfied, we conclude the tax court did not err when it certified the class in Ladewig's lawsuit.