American States Ins. Co. v. State Dept. of Treasury

• Decision Date: 20 December 1996
• Docket Number: 182534-182540 and 182542,Docket Nos. 181244,181252
• Citation: 220 Mich.App. 586,560 N.W.2d 644
• Parties: AMERICAN STATES INSURANCE COMPANY, American Economy Insurance Company, Indiana Insurance Company, and Consolidated Insurance Company, Plaintiffs-Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee. MARYLAND CASUALTY COMPANY, Assurance Company of America, and Valiant Insurance Company, Plaintiffs-Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee. LUMBERMENS MUTUAL CASUALTY COMPANY, American Motorists Insurance Company, American Manufacturers Mutual Insurance Company, and American Protection Insurance Company, Plaintiffs-Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee. AETNA CASUALTY & SURETY OF ILLINOIS, Aetna Casualty & Surety Company of America, The Aetna Casualty & Surety Company, Farmington Casualty Company, and The Automobile Insurance Company of Hartford, CT, Plaintiffs-Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee. CONTINENTAL CASUALTY COMPANY, Transportation Insurance Company, National Fire Insurance Company of Hartford, Transcontinental Insurance Company, American Casualty Company of Reading, Pennsylvania, and Valley Forge Insurance Company, Plaintiffs-Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee. ALLSTATE INSURANCE COMPANY, Plaintiff-Appellant, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee. FARMERS INSURANCE EXCHANGE, a California Corporation, Mid Century Insurance Company, a California Corporation, and Truck Insurance Exchange, a California Corporation, Plaintiffs- Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee. TRAVELERS INDEMNITY COMPANY, The Travelers Indemnity Company of America, The Travelers Indemnity Company of Illinois, The Travelers Indemnity Company of Rhode Island, The Charter Oak Fire Insurance Company, and The Phoenix Insurance Company, Plaintiffs-Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee. FEDERAL INSURANCE COMPANY, Plaintiff-A
• Court: Court of Appeal of Michigan — District of US

Page 644

560 N.W.2d 644

220 Mich.App. 586

AMERICAN STATES INSURANCE COMPANY, American Economy

Insurance Company, Indiana Insurance Company, and Consolidated Insurance Company, Plaintiffs-Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee.

MARYLAND CASUALTY COMPANY, Assurance Company of America, and Valiant Insurance Company, Plaintiffs-Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee.

LUMBERMENS MUTUAL CASUALTY COMPANY, American Motorists

Insurance Company, American Manufacturers Mutual

Insurance Company, and American

Protection Insurance Company, Plaintiffs-Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee.

AETNA CASUALTY & SURETY OF ILLINOIS, Aetna Casualty & Surety

Company of America, The Aetna Casualty & Surety Company,

Farmington Casualty Company, and The Automobile Insurance

Company of Hartford, CT, Plaintiffs-Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee.

CONTINENTAL CASUALTY COMPANY, Transportation Insurance

Company, National Fire Insurance Company of Hartford,

Transcontinental Insurance Company, American Casualty

Company of Reading, Pennsylvania, and Valley Forge Insurance

Company, Plaintiffs-Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee.

ALLSTATE INSURANCE COMPANY, Plaintiff-Appellant, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee.

FARMERS INSURANCE EXCHANGE, a California Corporation, Mid

Century Insurance Company, a California

Corporation, and Truck Insurance

Exchange, a California

Corporation, Plaintiffs- Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee.

TRAVELERS INDEMNITY COMPANY, The Travelers Indemnity Company

of America, The Travelers Indemnity Company of Illinois, The

Travelers Indemnity Company of Rhode Island, The Charter Oak

Fire Insurance Company, and The Phoenix Insurance Company, Plaintiffs-Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee.

FEDERAL INSURANCE COMPANY, Plaintiff-Appellant, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee.

OHIO CASUALTY INSURANCE COMPANY and West American Insurance

Company, Plaintiffs-Appellants, v. STATE of Michigan DEPARTMENT OF TREASURY, Defendant-Appellee.

Docket Nos. 181244, 181252, 182534-182540 and 182542.

Court of Appeals of Michigan.

Submitted July 16, 1996, at Lansing.

Decided Dec. 20, 1996, at 9:45 a.m.

Released for Publication March 18, 1997.

Bodman, Longley & Dahling, LLP by James A. Smith and Christopher J. Dine, Detroit, for American States Insurance Company et al.

McGinty, Jakubiak, Frankland, Hitch & Henderson, P.C. by Kenneth P. Frankland, East Lansing, for Maryland Casualty Company et al.

Frank J. Kelley, Attorney General, Thomas L. Casey, Solicitor General, and Kevin T. Smith, Assistant Attorney General, for Department of Treasury.

Before SAWYER, P.J., and BANDSTRA and M.J. TALBOT, ^* JJ.

BANDSTRA, Judge.

In these ten consolidated actions, thirty-five foreign insurance companies challenge the constitutionality of § 27a(6) of the revenue act, M.C.L. § 205.27a(6); M.S.A. § 7.657(27a)(6). The Court of Claims determined that § 27a(6) is constitutional, and we affirm.

This case was decided on the basis of a stipulation of facts filed by the parties. At issue are retaliatory tax payments made by the plaintiffs for one or more of tax years 1990, 1991, and 1992. See M.C.L. § 500.476a; M.S.A. § 24.1476(1). In computing plaintiffs' Michigan tax burden for those tax years, assessments for the Michigan Assigned Claims Facility were excluded under § 134(6)(g) of the Insurance Code, M.C.L. § 500.134(6)(g); M.S.A. § 24.1134(6)(g). Late in 1992, the Court of Claims determined that this subsection of the Insurance Code is unconstitutional, a decision that the Department of Treasury has not challenged.

Following that decision, plaintiffs filed amended returns for the tax years at issue. They sought refunds based on the recalculation of their retaliatory tax liability as determined by including, as a part of their Michigan tax burden, payments made to the Michigan Assigned Claims Facility. The department denied the claims as untimely under § 27a(6), which provides:

[A] claim for refund based upon the validity of a tax law based on the laws or the constitution of the United States or the state constitution of 1963 shall not be paid unless the claim is filed within 90 days after the date set for filing a return. [M.C.L. § 205.27a(6); M.S.A. § 7.657(27a)(6).]

This subsection is an exception to the general statute of limitations that allows a taxpayer to claim a refund within four years after the date set for filing an original return. M.C.L. § 205.27a(2); M.S.A. § 7.657(27a)(2). Subsection 27a(6) thus treats "preemption claimants," i.e., those whose claims arose because a Michigan tax statute has been preempted by a constitutional provision or federal law, differently than other refund claimants.

Plaintiffs do not contend that, if constitutional, § 27a(6) is inapplicable to their claims. The department does not contest that some refund will be owed to plaintiffs, subject to audit of the claimed amounts, if § 27a(6) is unconstitutional. The sole issue on appeal is the constitutionality of § 27a(6).

Due Process

Plaintiffs first argue that § 27a(6) violates the Due Process Clauses of the United States and Michigan Constitutions. U.S. Const., Am. XIV; Const.1963, art. 1, § 17. ¹ Under McKesson Corp. v. Division of Alcoholic Beverages & Tobacco, 496 U.S. 18, 36-39, 110 S.Ct. 2238, 2250-2252, 110 L.Ed.2d 17 (1990), the Due Process Clause is satisfied if the state provided plaintiffs an adequate predeprivation remedy (allowing them to avoid paying the contested tax) or postdeprivation remedy (allowing them an opportunity to contest the tax after it was paid). Plaintiffs argue that neither a predeprivation nor a postdeprivation remedy was available; the state argues that both remedies were provided. Because either remedy would suffice to satisfy the Due Process Clause and because we conclude that an adequate postdeprivation remedy was provided, we need not consider whether an adequate predeprivation remedy was available.

In McKesson, supra at 44, 110 S.Ct. at 2254, a unanimous Supreme Court held that the Due Process Clause of the United States Constitution requires the provision of retrospective relief as part of the postdeprivation procedure available to a taxpayer who has paid taxes under a statute later determined to be invalid. However, the Court recognized the "concern that a State's obligation to provide refunds for what later turns out to be an unconstitutional tax would undermine the State's ability to engage in sound fiscal planning." Id. The Court specifically limited its holding as permitting a number of state options to address that concern:

A State's freedom to impose various procedural requirements on actions for postdeprivation relief sufficiently meets this concern with respect to future cases. The State might, for example, provide by statute that refunds will be available only to those taxpayers paying under protest or providing some other timely notice of complaint; [or] ... enforce relatively short statutes of limitations applicable to such actions.... The State's ability in the future to invoke such procedural protections suffices to secure the State's interest in stable fiscal planning when weighed against its constitutional obligation to provide relief for an unlawful tax. [Id. at 45, 110 S.Ct. at 2254-2255; accord id. at 50, 110 S.Ct. at 2257].

This language has been applied to uphold state refund procedures that require a taxpayer to challenge a tax within thirty days after payment of the tax, Swanson v. North Carolina, 335 N.C. 674, 441 S.E.2d 537, 545 (1994), and that taxpayers protest a tax at the time of payment as a prerequisite to relief, Jenkins v. Missouri, 962 F.2d 762, 766 (CA 8, 1992).

Consistent with these precedents, we conclude that the ninety-day limitation period found in § 27a(6) is a constitutionally valid limitation on plaintiffs' postdeprivation remedy. Plaintiffs argue that a ninety-day statute is too short to fall within the "relatively short statutes of limitations" authorized by McKesson. However, McKesson also allows states to limit refunds "only to those taxpayers paying under protest," i.e., only to those taxpayers who contest the imposition of the tax on the date payment is required. Subsection 27a(6) is more lenient to taxpayers because it provides an additional ninety days beyond the date set for filing a return to claim a refund. We conclude that § 27a(6) passes due process muster under the standards of McKesson. ²

Equal Protection

Plaintiffs further argue that § 27a(6), which treats preemption claimants differently than others seeking a tax refund, violates the Equal Protection Clauses of the United States and Michigan Constitutions. ³ U.S. Const., Am. XIV; Const.1963, art. 1, § 2. Plaintiffs argue that the Court of Claims improperly used a rational relationship test in analyzing their equal protection claim. Further, they contend that, even if a rational relationship test is appropriate, the statute is unconstitutional under that standard.

When legislation is challenged as being in violation of the equal protection guarantee, it is subjected to judicial scrutiny to determine whether the goals of the legislation justify the differential treatment it authorizes. Doe v. Dep't of Social Services, 439 Mich. 650, 661-662, 487 N.W.2d 166 (1992). Different review standards apply to different kinds of cases. A rational basis standard is used for the review of most legislation, meaning that "a statute will not be struck down if the classification scheme it creates is rationally related to a legitimate governmental purpose." Id. at 662, 487 N.W.2d 166. On the other hand,

in two situations the equal protection guarantee is less tolerant of legislation that creates a...