Court Opinion

ID: 9409008
Source: CourtListenerOpinion
Date Created: 2023-07-14 16:08:56.27436+00
Date Added: 2024-06-11T17:20:48.261440
License: Public Domain

Supreme Court

                                               No. 2021-165-M.P.
                                               (6CA 21-1251)

                                               (Concurrence begins on Page 13)

        Gunvor USA, LLC                :

                 v.                    :

State of Rhode Island, acting by and   :
   through Division of Taxation.

           NOTICE: This opinion is subject to formal revision
           before publication in the Rhode Island Reporter. Readers
           are requested to notify the Opinion Analyst, Supreme
           Court of Rhode Island, 250 Benefit Street, Providence,
           Rhode Island 02903, at Telephone (401) 222-3258 or
           Email:      opinionanalyst@courts.ri.gov,     of     any
           typographical or other formal errors in order that
           corrections may be made before the opinion is published.
                                                    Supreme Court

                                                    No. 2021-165-M.P.
                                                    (6CA 21-1251)

                                                    (Concurrence begins on Page 13)

          Gunvor USA, LLC                 :

                   v.                     :

 State of Rhode Island, acting by and     :
    through Division of Taxation.

      Present: Suttell, C.J., Goldberg, Robinson, Lynch Prata, and Long, JJ.

                                    OPINION

      Justice Goldberg, for the Court. This case came before the Supreme Court

on May 10, 2023, pursuant to a writ of certiorari issued upon petition by the plaintiff,

Gunvor USA, LLC (Gunvor). Gunvor seeks review of a decision by the Sixth

Division District Court granting the motion to dismiss of the defendant, the State of

Rhode Island, acting by and through the Division of Taxation (the Division). The

parties were directed to appear and show cause why the issues raised in this case

should not be summarily decided. After considering the parties’ written and oral

submissions and reviewing the record, we conclude that cause has not been shown

and that this case may be decided without further briefing or argument. For the

reasons stated herein, we quash the order of the District Court.
                                         -1-
                                    Facts and Travel

      This tax appeal arises from a series of transactions for the purchase and sale

of gasoline and concerns the application of the Motor Fuel Tax.1 General Laws 1956

§ 31-36-7 establishes a tax “on all taxable gallons of fuel sold or used in [the] state.”

Section 31-36-7(a) requires that:

             “Every distributor shall, on or before the twentieth (20th)
             day of each month, render a report to the tax administrator,
             * * * of the amount (number of gallons) of fuels purchased,
             sold, or used by the distributor within this state and the
             amount of fuels sold by the distributor without this state
             from fuels within this state during the preceding calendar
             month, and, if required by the tax administrator as to
             purchases, the name or names of the person or persons
             from whom purchased and the date and amount of each
             purchase, and as to sales, the name or names of the person
             or persons to whom sold and the amount of each sale * *
             *.”

General Laws 1956 § 31-36-2 requires that “[e]very distributor shall, before

continuing or commencing to transact the business of a distributor, apply for

registration as a distributor at the office of the tax administrator” and obtain “a

certificate of the registration” which “entitle[s] the distributor to continue or to

commence to engage in the business within th[e] state.” A distributor is defined as:

1
 We pause to note that this is not the only case in which the Division’s imposition
of the Motor Fuel Tax has been challenged. See Apex Oil Company, Inc. v. State of
Rhode Island, Nos. 2021-116-M.P., 2021-117-M.P. (a challenge to the imposition
of the Motor Fuel Tax on a transaction between Glencore, Ltd. and Apex Oil
Company, Inc., pending before this Court and heard on the same day).
                                          -2-
              “[A]ny person, association of persons, firm, or
              corporation, wherever resident or located, who or that
              shall import, or cause to be imported into this state, for use
              or for sale, fuels, and also any person, association of
              persons, firm, or corporation who or that shall produce,
              refine, manufacture, or compound fuels within this state.”
              Section 31-36-1(2).2

        The tax at the center of this dispute was levied on a transaction between

Glencore, Ltd. (Glencore) and PetroChina International (America), Inc.

(PetroChina), in which PetroChina purchased 300,000 barrels of gasoline from

Glencore. The gasoline at issue was the subject of numerous transactions between

various entities—a series of transactions often referred to as a “chain transaction.”3

2
    General Laws 1956 § 31-36-16 also provides that:

              “Any person who shall receive fuels in any form and under
              any circumstances that shall preclude the collection of the
              tax provided for in this chapter, from the distributors, and
              shall then sell or use the fuels in any manner and under any
              circumstances that shall render the sale or use subject to
              the tax, shall be considered as a distributor, and shall make
              the same report, pay the same taxes, and be subject to all
              other provisions of this chapter relating to a distributor of
              the fuels; excepting, that the requirements under this
              chapter for the filing of a bond shall be discretionary with
              the tax administrator, and if the bond is required to be filed
              it shall be in an amount not to exceed seventy-five
              thousand dollars ($75,000).”
3
  A chain transaction is the “consecutive suppl[y] of goods between three or more
legal entities, where the contractual obligations of all parties in the chain are
discharged by a single movement of goods from the first supplier in the chain to the
final customer.” ECJ AG Allows Belgian Coordination Centers Through 2010, 17 J.
Int’l Tax’n 5 (2006).
                                          -3-
      The chain transaction at issue in the present case involved six entities. The

300,000 barrels of gasoline were first sold from BP Products North America (BP) to

Glencore. Glencore then sold the gasoline to PetroChina, which, in turn, sold it to

Gunvor. Gunvor next sold the gasoline to Atlantic Trading and Marketing, Inc.

(ATMI), which, lastly, sold it to ExxonMobil.

      According to Gunvor, it consummated its agreement to purchase the gasoline

from PetroChina on September 5, 2018, outside of Rhode Island, as both PetroChina

and Gunvor are entities located in Texas; at the time, the gasoline was in

international waters. Subsequently, on October 19, 2018, Gunvor agreed to sell the

subject gasoline to ATMI, again while the gasoline remained in international waters.

ATMI sold the gasoline to ExxonMobil, which directed the vessel carrying the

gasoline, the Mariposa, to Rhode Island. The gasoline arrived at ExxonMobil’s port

in East Providence on October 30, 2018, and was distributed by ExxonMobil

sometime thereafter in the course of its business.

      In November of 2018, the Division imposed a Motor Fuel Tax on the sale of

the 300,000 barrels of gasoline from Glencore to PetroChina. According to Gunvor,

the Division imposed the tax on Glencore because it was an unregistered distributor.

Under § 31-36-13, “any distributor shall be exempt from the payment of any tax on

fuels sold by the distributor to another distributor who is registered with the tax

administrator.”

                                        -4-
        In accordance with the terms of their contracts, Glencore passed the tax to

PetroChina, and PetroChina paid the tax to the Division.4 As part of Gunvor’s

contract with PetroChina, Gunvor agreed to pay any taxes assessed on the sale of the

300,000 barrels of gasoline. Thus, PetroChina sought reimbursement from Gunvor

per the terms of their contract for the tax and associated fees. Gunvor thereafter

reimbursed PetroChina. Gunvor requested a private-letter ruling5 from the Division

4
 We pause to note that there are discrepancies within the record regarding which
entity paid the tax to the Division. Gunvor alleges, in its complaint, that PetroChina
paid the tax to the Division. However, the Division, in its brief, represents that
Glencore, not PetroChina, paid the tax. This will be resolved on remand.
5
    According to the Division:

               “A General Informational Letter, (commonly referred to
               as a ‘Letter Ruling’) is unlike a Declaratory Order in that
               it generally seeks an interpretation of tax law or regulation
               without applying it to a specific set of facts. A General
               Informational Letter may be issued where it appears that
               general information only is requested, or where a request
               for a Declaratory Order does not comply with all the
               requirements for a Declaratory Order.                General
               Informational Letters may not be relied upon by any
               taxpayer other than the taxpayer who requested the
               information. General Informational Letters are not
               binding on the Tax Division if there has been a
               misstatement or omission of material facts or, on a
               prospective basis, if there has been a change in law or
               applicable regulations or a decision on point is issued by
               the Rhode Island or Federal Courts.” 280 RICR
               20-00-5.3(B).
                                           -5-
regarding its reasoning for imposing the tax; the Division failed to respond

substantively to this request.

      On February 14, 2020, Gunvor filed a complaint in the Sixth Division District

Court against the Division alleging constitutional violations (count one), violations

of the Motor Fuel Tax (count two), and seeking a declaratory judgment (count three)

(6CA 20-2187) (the 2020 declaratory judgment action). The Division moved to

dismiss, arguing that Gunvor (1) lacked standing to bring its claims, and (2) failed

to exhaust its administrative remedies. A hearing was held, after which the court

granted the Division’s motion to dismiss without prejudice. According to the parties,

the court concluded that the declaratory-judgment action should have been brought

in Superior Court pursuant to G.L. 1956 § 42-35-7, and granted the motion to dismiss

without prejudice in order to allow Gunvor to file its claims in the Superior Court.

      The plaintiff then initiated both this action in the Sixth Division District Court

(6CA 21-1251) and another action in the Superior Court (PC 21-1064) on February

11, 2021 (the 2021 declaratory judgment action). In the Superior Court action,

Gunvor sought a declaratory judgment that the Motor Fuel Tax applies only to

entities that import gasoline into Rhode Island. The Division filed a motion to

dismiss arguing that (1) the court lacked jurisdiction, (2) there was no actual

controversy at issue, (3) Gunvor lacked standing, and (4) Gunvor failed to exhaust

its administrative remedies. A hearing was held, and the Superior Court justice

                                         -6-
denied the motion to dismiss. The Division filed a petition for writ of certiorari

challenging the denial of its motion to dismiss. During the pendency of that petition,

the Division filed a motion to stay discovery. The trial justice, however, denied that

motion after a hearing. This Court also denied the Division’s petition for a writ of

certiorari. On October 11, 2022, the Division filed an answer, and the case remains

pending in the Superior Court at this time.

      The complaint in the case at bar asserted two counts, one alleging

constitutional violations, and the second asserting violations of the Motor Fuel Tax.

The complaint also alleged that administratively challenging the tax would be futile

based on the Division’s position “in similar cases” that “entities such as Gunvor and

others similarly situated do not have standing to challenge the tax imposed here.”

The Division filed a motion to dismiss based on its contention that (1) Gunvor lacked

standing to maintain the action, and (2) Gunvor failed to exhaust its administrative

remedies prior to bringing suit. At a hearing on the Division’s motion to dismiss,

Gunvor set forth its reasoning behind filing two separate cases—one in the Superior

Court and another in the District Court. Because the trial judge had granted the

Division’s motion to dismiss the 2020 declaratory judgment action without

prejudice, based on his conclusion that the action should have been filed in the

Superior Court, rather than in the District Court, Gunvor refiled the action in the

Superior Court. As to the action before the District Court trial judge, Gunvor argued

                                        -7-
that it was not required to exhaust its administrative remedies because attempting to

do so would have been futile in light of the tax administrator’s decision in Apex Oil

Company, Inc. v. State of Rhode Island, Nos. 2021-116-M.P., 2021-117-M.P.

(Apex). The trial judge disagreed, concluding that the futility exception did not apply

and, thus, granted the motion to dismiss. The trial judge did not address the issue of

standing. An order granting the Division’s motion to dismiss entered thereafter and

Gunvor filed a petition for a writ of certiorari, which this Court granted.

                                Standard of Review

      “On a motion to dismiss, the facts are gleaned from the complaint; we assume

all of the allegations in the complaint are true and resolve any doubts in favor of the

plaintiff.” Chhun v. Mortgage Electronic Registration Systems, Inc., 84 A.3d 419,

420-21 (R.I. 2014). “The sole function of a motion to dismiss is to test the

sufficiency of the complaint.” Benson v. McKee, 273 A.3d 121, 127 (R.I. 2022)

(quoting Gannon v. City of Pawtucket, 200 A.3d 1074, 1077 (R.I. 2019)). “In

passing on a Rule 12(b) dismissal, this Court applies the same standard as the trial

justice.”6 Ho-Rath v. Rhode Island Hospital, 89 A.3d 806, 810 (R.I. 2014) (quoting

Narragansett Electric Company v. Minardi, 21 A.3d 274, 278 (R.I. 2011)). “A

6
 Rule 12(b) of the District Court Civil Rules is identical to Rule 12(b) of the Superior
Court Rules of Civil Procedure. This Court will look to cases interpreting certain
Superior Court rules for guidance in interpreting District Court rules. See Verizon
New England Inc. v. Savage, 267 A.3d 647, 650-51 n.4 (R.I. 2022).
                                         -8-
motion to dismiss may be granted only if it appears beyond a reasonable doubt that

a plaintiff would not be entitled to relief under any conceivable set of facts.” Barnes

v. Rhode Island Public Transit Authority, 242 A.3d 32, 36 (R.I. 2020) (quoting

Narragansett Electric Company, 21 A.3d at 278).

                                      Analysis

      The Division contends that the trial judge properly dismissed Gunvor’s claims

because Gunvor failed to exhaust its administrative remedies prior to bringing suit.

According to the Division, the District Court has jurisdiction over an “appeal of a

final decision of the tax administrator” and in the case at bar, because there was no

such decision, the District Court lacked jurisdiction over Gunvor’s claims. The

Division asserts that none of the exceptions to the requirement that Gunvor exhaust

its administrative remedies apply in this case.

      Gunvor, however, claims that it was not required to exhaust its administrative

remedies prior to initiating this action against the Division because (1) the Division

exceeded its authority when it levied a Motor Fuel Tax on a transaction that occurred

outside of the state, resulting in double taxation on the same gasoline, (2) Gunvor

asserts violations of federal constitutional rights, and (3) a hearing before the tax

administrator would be futile based on the tax administrator’s decision in the Apex

                                         -9-
case.7 We agree with Gunvor’s futility argument.8

      “In tax aggrievement cases, a party first must exhaust administrative

remedies, including an appeal to the District Court[,] and then may seek a writ of

certiorari to this Court.” Long v. Dell, Inc., 984 A.2d 1074, 1079 (R.I. 2009); see

also Davis v. Town of Exeter, 285 A.3d 15, 22 (R.I. 2022) (“This Court has held that

a plaintiff must first ‘exhaust administrative remedies before bringing a claim in

court.’”) (quoting Bellevue-Ochre Point Neighborhood Association v. Preservation

Society of Newport County, 151 A.3d 1223, 1231 (R.I. 2017)). “Futility, however,

is an exception to the requirement that a plaintiff obtain an agency’s final decision

before seeking judicial review.” Davis, 285 A.3d at 22. “While this Court has

recognized that futility is difficult to define, it has looked to the United States Court

of Appeals for the First Circuit, which has ‘explained that futility may be established

in special circumstances when a permit application is not a viable option or where

the permitting authority has made it transparently clear that a permit application will

not be granted.’” Id. (quoting Cullen v. Town Council of Town of Lincoln, 850 A.2d

7
 Gunvor also claims that (1) it has standing to assert its claims against the Division,
(2) the Division lacked the authority to impose the Motor Fuel Tax on the transaction
because it occurred outside of the state, and (3) the Division taxed the same gasoline
twice. We decline to address these claims.
8
  Because we conclude that the futility exception to the requirement that a party
exhaust its administrative remedies prior to bringing suit applies in the case at hand,
we need not address the other exceptions.
                                         - 10 -
900, 906 (R.I. 2004)). “‘[T]he mere possibility, or even the probability, that the

responsible agency may deny the permit should not be enough’ to establish futility,

‘the prospect of refusal must be certain (or nearly so).’” Id. (quoting Cullen, 850

A.2d at 960).

      Gunvor argues that the futility exception to the requirement that it obtain the

Division’s final decision before seeking judicial review applies in this case based on

the tax administrator’s decision in Apex. In Apex, the Division levied a Motor Fuel

Tax of more than $4 million on the sale of 300,000 barrels of gasoline from Glencore

to Apex. Glencore paid the tax to the Division and Apex reimbursed Glencore, per

the terms of their agreement. Apex then sought to challenge the validity of the tax,

arguing that the transaction occurred outside of the state and therefore was not

subject to the Motor Fuel Tax. Apex first requested a private-letter ruling from the

Division on its reasoning for imposing the tax; the Division failed to substantively

respond to that request. Apex then submitted a claim for a refund of the tax pursuant

to § 31-36-13. The Division denied the claim and asserted that Apex did not have a

right to pursue a refund because Apex itself was not the entity charged the tax nor

the entity that had paid the tax. Apex appealed the Division’s decision and requested

an administrative hearing; the Division moved to dismiss the appeal. A hearing was

held, after which the hearing officer recommended that the tax administrator grant

the Division’s motion to dismiss. Among the findings of the hearing officer were

                                        - 11 -
that Apex neither had a statutory grant nor had it suffered an injury in fact and

therefore had no standing to challenge the tax, and because Glencore had entered a

settlement agreement with the Division regarding a penalty and interest assessed on

the tax, Apex’s claims were barred by the doctrines of res judicata and

administrative finality. The tax administrator adopted the hearing officer’s decision.

      We have opined “that futility may be established in special circumstances

* * * where the [agency] has made it transparently clear that [the requested relief]

will not be granted.” Cullen, 850 A.2d at 906 (internal quotation marks omitted); see

also Davis, 285 A.3d at 22 (explaining that the futility exception did not apply

because the plaintiff had failed to show that the town’s refusal to issue a permit

“would be a near certainty”).

      In the present case, we conclude that, given the inflexibility of the Division’s

position throughout the proceedings in Apex that only the entity that paid the tax

directly to the Division had standing, and the tax administrator’s decision concluding

that Apex lacked standing, it was “transparently clear” that, under identical factual

circumstances, Gunvor’s application for a refund of the Motor Fuel Tax “[would]

not be granted.” Davis, 285 A.3d at 22 (quoting Cullen, 850 A.2d at 906). In Apex,

the tax administrator concluded that Apex did not have standing to request a refund

of the Motor Fuel Tax because it was not the entity that had been charged the tax nor

                                        - 12 -
was it the entity that had actually paid it the tax.9 Thus, the tax administrator

concluded that Apex did not have statutory standing or standing as a result of an

injury in fact. Like Apex, Gunvor is not the entity upon whom the tax was levied or

the entity that actually paid the tax to the Division. Rather, Gunvor reimbursed

PetroChina $1.7 million for the tax that PetroChina paid. Thus, we conclude that it

was “certain (or nearly so)” that the tax administrator would have denied Gunvor’s

request for a refund of the tax, had one been made, based on its position that only

the entity that paid the tax has standing to challenge it. See id. (quoting Cullen, 850

A.2d at 906). We therefore hold that the trial judge erred in granting the Division’s

motion to dismiss based on Gunvor’s failure to exhaust its administrative remedies.

                                     Conclusion

      For the reasons set forth herein, we quash the order of the District Court. The

papers in this case may be returned to the District Court.

      Justice Long, concurring. While I agree with the Court’s determination that

Gunvor has exhausted its administrative remedies based on its successful

demonstration that pursuing them would be futile, I write separately to highlight my

concern with the Court’s discussion and characterization of the facts underlying

9
 Although we note that in Apex, before the District Court, the Division also sought
dismissal on res judicata and collateral estoppel grounds, the issues in these cases
are identical.
                                        - 13 -
Apex Oil Company, Inc. v. State of Rhode Island, Nos. 2021-116-M.P., 2021-117-

M.P.

       My review of the record leads me to conclude that the facts in this matter do

not present a set of “identical factual circumstances” to the Apex proceeding, as the

Court concludes. For example, Gunvor’s complaint does not contain an allegation

that it applied to the Division and sought a distributor license in an effort to exempt

itself from paying the applicable taxes. Additionally, Gunvor alleges that it paid the

amount equivalent to the taxes assessed in this matter based on the provisions of two

independent contracts, rather than the single contractual obligation involved in the

Apex matter. Consequently, I write separately to emphasize the existence of material

factual differences between the transaction in Apex and the transaction at issue in

this matter.

       Accordingly, I respectfully concur in the judgment.

                                        - 14 -
                                              STATE OF RHODE ISLAND
                                         SUPREME COURT – CLERK’S OFFICE
                                               Licht Judicial Complex
                                                 250 Benefit Street
                                               Providence, RI 02903

                                     OPINION COVER SHEET

                                         Gunvor USA, LLC v.
Title of Case                            State of Rhode Island, acting by and through Division
                                         of Taxation.
                                         No. 2021-165-M.P.
Case Number
                                         (6CA 21-1251)

Date Opinion Filed                       July 14, 2023

                                         Suttell, C.J., Goldberg, Robinson, Lynch Prata, and
Justices
                                         Long, JJ.

Written By                               Associate Justice Maureen McKenna Goldberg

Source of Appeal                         6th Division District Court

Judicial Officer from Lower Court        Associate Judge Christopher Smith

                                         For Plaintiff:

                                         Ryan M. Gainor, Esq.
Attorney(s) on Appeal
                                         For Defendant:

                                         Bethany M. Whitmarsh, Esq.

SU-CMS-02A (revised November 2022)