Arizona Dept. of Revenue v. Dougherty

• Decision Date: 29 August 2001
• Docket Number: No. CV-00-0242-PR.,CV-00-0242-PR.
• Citation: 200 Ariz. 515,29 P.3d 862
• Parties: ARIZONA DEPARTMENT OF REVENUE and its Director, in his official capacity, Petitioner, v. The Honorable Bernard J. DOUGHERTY, Judge of the Superior Court of the State of Arizona, in and for the County of Maricopa, Respondent Judge, Estate of Helen H. Ladewig, on behalf of itself and the class of all persons in the State of Arizona who, during any one of the years 1986 to 1989 paid income taxes to the State of Arizona on dividends paid by corporations whose principal business was not attributable to Arizona, Real Parties in Interest.
• Court: Arizona Supreme Court

29 P.3d 862

200 Ariz. 515

ARIZONA DEPARTMENT OF REVENUE and its Director, in his official capacity, Petitioner, v. The Honorable Bernard J. DOUGHERTY, Judge of the Superior Court of the State of Arizona, in and for the County of Maricopa, Respondent Judge, Estate of Helen H. Ladewig, on behalf of itself and the class of all persons in the State of Arizona who, during any one of the years paid income taxes to the State of Arizona on dividends paid by corporations whose principal business was not attributable to Arizona, Real Parties in Interest.

No. CV-00-0242-PR.

Supreme Court of Arizona.

August 29, 2001.

Janet A. Napolitano, Arizona Attorney General, by Patrick Irvine, Christine Cassetta, Phoenix, Attorneys for Petitioners.

Bonn & Wilkins Chartered, by Paul V. Bonn, Randall D. Wilkins, D. Michael Hall, Brian A. Luscher, John H. Cassidy and David L. Abney, Phoenix, and O'Neil, Cannon & Hollman, S.C., by Eugene O. Duffy, Milwaukee, Attorneys for Real Parties in Interest.

OPINION

FELDMAN, Justice.

¶ 1 In this tax case we consider whether, as a prerequisite to participating in a class action asserting a claim for refund, each taxpayer must file an individual administrative refund claim with the Arizona Department of Revenue ("ADOR"). In addition, we must resolve the related issue of whether filing a class claim in an administrative procedure will toll the statute of limitations for all putative class members.

FACTS

¶ 2 Since 1979,¹ the Arizona tax code has allowed a deduction from income for dividends received from Arizona corporations— those doing more than half of their business in Arizona. See former A.R.S. § 43-1052 (1992) (current version at A.R.S. § 43-1128 (1998)).² In 1991, taxpayer Helen H. Ladewig ("Ladewig") filed an administrative refund claim with ADOR, claiming that its denial of analogous deductions for dividends received from corporations not doing more than half of their business in Arizona was unconstitutional.³ As filed, the claim was to be "representative" of all taxpayers denied the extra deduction for dividends received during the years 1986 through 1989. While the administrative claim was pending, Ladewig also filed a class action based on the same claim in tax court; that action was dismissed without prejudice for failure to exhaust administrative remedies. Ladewig continued her representative pursuit of those remedies until they were exhausted and her claim denied. Ladewig then re-filed the complaint in the tax court, where she sought class action certification under Rule 23, Ariz.R.Civ.P. Over ADOR's opposition, the tax court certified a class comprised of all present and former Arizona residents who paid Arizona income taxes during the tax years 1986 through 1989 on dividends received from corporations whose business was principally outside the state of Arizona.

¶ 3 Relying on our decision in Andrew S. Arena, Inc. v. Superior Court, 163 Ariz. 423, 788 P.2d 1174 (1990), the tax court judge found that Ladewig's administrative refund claim satisfied the exhaustion requirements for the members of the putative class. The tax judge then granted summary judgment for the class, holding that A.R.S. § 43-1052 was unconstitutional as a violation of the federal Commerce Clause. See U.S. Const. art. I, § 8, cl. 3. Disagreeing with ADOR's objections, the judge held that ADOR was put on sufficient notice of the class claim when Ladewig filed her representative class refund claim. Thus, with regard to the putative class members, the date of that filing began the tolling period for the statute of limitations. The tax judge therefore ordered ADOR to give class action notice to the members of the class.

¶ 4 ADOR responded to the tax judge's rulings by bringing a special action in the court of appeals. While it did not challenge the ruling that A.R.S. § 43-1052 was unconstitutional, ADOR did challenge the ruling that required it to give notice of the class action to all members of the certified class, arguing that it would suffer irreparable harm in the amount of approximately $175,000 if that order was later vacated. Recognizing that the remedy by appeal was inadequate, the court of appeals properly exercised its discretion to accept jurisdiction. Arizona Dep't of Revenue v. Dougherty, 198 Ariz. 1, 2 ¶¶ 6-8, 6 P.3d 306, 307 ¶¶ 6-8 (App.2001); see also Rule 3, Ariz.R.P.Spec.Act.

¶ 5 The court of appeals held that Rule 23 permits class actions in the tax court; however, the court went on to hold that the class must be limited to taxpayers who had filed individual administrative claims with ADOR. Dougherty, 198 Ariz. at 5 ¶ 23, 6 P.3d at 310 ¶ 23. Because the putative class members had not done so, it was unnecessary for the court to reach the question of whether filing a class claim in an administrative action will toll the statute of limitations for the putative class members. Id. at 5 ¶ 22, 6 P.3d at 310 ¶ 22. It did hold, however, that filing the administrative claim tolled the statute of limitations with respect to Ladewig. Id.

¶ 6 Ladewig petitioned for review, claiming that the court of appeals' opinion effectively rendered the class action unavailable as a means of pursuing a refund claim in tax court. ADOR countered that Ladewig is attempting to use the class form as a means of circumventing the statutory requirement that each taxpayer must file an individual claim and then exhaust administrative remedies before resorting to the courts for relief. See A.R.S. § 42-1118(E) (1999). We granted review because the apparent conflict in the decision—allowing class actions in tax court while at the same time requiring prior individual exhaustion of administrative remedies—presents an issue of statewide importance that is likely to arise again. See Rule 23(c)(4), Ariz.R.Civ.App.P. We have jurisdiction pursuant to Ariz. Const. art. VI, § 5(3) and A.R.S. § 12-120.24. The main issue before us is quite narrow: Once the tax court judge decides that the requirements for a class action have been met, may the class include taxpayers who have not filed individual administrative claims?

DISCUSSION

¶ 7 Matters of statutory construction and interpretation are questions of law, which we review de novo. See Transp. Ins. Co. v. Bruining, 186 Ariz. 224, 226, 921 P.2d 24, 26 (1996). In general, the factual considerations inherent in the decision to grant or deny class certification are left to the trial judge's discretion and will not be set aside absent an abuse of that discretion. See London v. Green Acres Trust, 159 Ariz. 136, 140, 765 P.2d 538, 542 (App.1988).

A. The class action in tax cases.

¶ 8 The court of appeals was correct in relying on the Arena decision for the principle that class actions may be pursued against government entities in Arizona. See Arena,163 Ariz. at 426,788 P.2d at 1177. In Arena, a case in which class representatives sought refund of excessive building permit fees paid to Pima County, we stated that "[w]e will not read the absence of express [statutory] authorization as a preclusion against class claims," ultimately holding that A.R.S. § 12-821, the statute governing claims against government entities, "does not bar class actions against public entities. Therefore, a claim against a public entity may be presented as a class claim." Id. at 426, 788 P.2d at 1177. Despite the fact that Arena concerned refunds under the general governmental claim statute rather than under the statute governing tax claims, its rationale is applicable by analogy in the tax scenario; neither the tax statutes nor the claim statute in effect at the time of Arena addressed the subject of class actions.⁴ Moreover, ADOR is as much a public entity as is Pima County, which was the principal defendant in Arena. In either scenario, "class actions provide benefits to both claiming and defending parties and serve as a practical tool for resolving multiple claims on a consistent basis at the least cost and with the least disruption to an overloaded judicial system." Id. at 425, 788 P.2d at 1176. The lack of any express preclusion in the tax code, coupled with the fact that ADOR is a public entity, lends firm support to the argument that Ladewig's lawsuit was properly certified as a class action under Arena. So also does the fact that both the claim statute and the tax refund statute require that the claimant exhaust administrative remedies.

¶ 9 ADOR is quick to point out that no Arizona law or regulation expressly authorizes class actions in tax court; however, it fails to recognize the counterpoint made in Arena—because nothing in Rule 23 expressly precludes use of the class action device in tax cases, it is presumptively available in such cases. Furthermore, as noted by the court of appeals, the Arizona legislature has implicitly endorsed the application of Rule 23 in tax court proceedings. See A.R.S. § 12-166 ("[P]roceedings in the tax court shall be governed by the rules of civil procedure in the superior court."). We presume the legislature was aware of the class action rule when it enacted A.R.S. § 12-166. See State v. Garza Rodriguez, 164 Ariz. 107, 111, 791 P.2d 633, 637 (1990); Daou v. Harris, 139 Ariz. 353, 357, 678 P.2d 934, 938 (1984). In the absence of ambiguous statutory language or manifest legislative intent to the contrary, courts should look to the plain meaning of the words as enacted. See Mail Boxes Etc., U.S.A. v. Indust. Comm'n, 181 Ariz. 119, 121, 888 P.2d 777, 779 (1995) ("unambiguous language is normally conclusive, absent a clearly expressed contrary legislative intent."). ADOR has not pointed to any textual ambiguity in A.R.S. § 12-166, nor has it cited any contrary legislative history. Moreover, it has failed to offer any convincing argument that Rule 23 should not be applied in our tax courts.⁵ As a matter of policy, we see no reason to set up unnecessary obstacles for those seeking to require the state to refund taxes collected in violation of the constitution. Further, insofar...