Federal-Mogul Corp. v. Department of Treasury

• Decision Date: 19 August 1987
• Docket Number: Docket No. 91474,FEDERAL-MOGUL
• Citation: 161 Mich.App. 346,411 N.W.2d 169
• Parties: CORPORATION, Petitioner-Appellee/Cross-Appellant, v. DEPARTMENT OF TREASURY, Respondent-Appellant/Cross-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 169

411 N.W.2d 169

161 Mich.App. 346

FEDERAL-MOGUL CORPORATION, Petitioner-Appellee/Cross-Appellant, v. DEPARTMENT OF TREASURY, Respondent-Appellant/Cross-Appellee.

Docket No. 91474.

Court of Appeals of Michigan.

Submitted Jan. 12, 1987.

Decided July 7, 1987.

Released for Publication Aug. 19, 1987.

Dickinson, Wright, Moon, Van Dusen & Freeman by Ernest Getz, Detroit, for petitioner-appellee/cross-appellant.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Richard R. Roesch and Charles E. Liken, Asst. Attys. Gen., for respondent-appellant/cross-appellee.

Before HOLBROOK, P.J., and WAHLS and CROCKETT, ^* JJ.

HOLBROOK, Presiding Judge.

Respondent appeals as of right the order entered on October 29, 1985, by the Michigan Tax Tribunal granting petitioner Federal-Mogul Corporation summary disposition on its petition for refund of franchise fees and awarding interest under the provisions of the Department of Revenue act. Respondent's motion for rehearing was denied. Petitioner has cross-appealed claiming entitlement to additional interest on the refund. We vacate the order with respect to the award of interest.

On June 18, 1974, Federal-Mogul filed with the Franchise Fee Division of the Michigan Department of Treasury a claim for refund of $202,398.02 for the years 1963 through 1968. That amount included annual franchise fees of $155,745.11 and interest of $46,652.91. Federal-Mogul had paid the fees and interest on or about August 18, 1972, pursuant to an assessment following an audit by the Department of Treasury. Federal-Mogul claimed a refund on the basis that the Franchise Fee Division had no power to make adjustments for the years 1963 through 1968. ¹ The Franchise Fee Division denied the claim on September 25, 1975.

Federal-Mogul had filed its application for refund under the franchise fee act, particularly § 10, 1921 P.A. 85, as amended. M.C.L. § 450.301 et seq.; M.S.A. § 21.201 et seq. A review of the franchise fee act reveals that it makes no provision for interest on a claim of refund. Section 10 of the franchise fee act was repealed by 1975 P.A. 230. Section 1(3) of 1975 P.A. 230 provided, however, that the franchise fee act would extend beyond its repeal date to the extent necessary for enforcement and collection of franchise fees due prior to its repeal. ²

On October 22, 1975, Federal-Mogul filed a petition with the Michigan Corporation Tax Appeal Board, appealing the denial of the request for refund. The Department of Treasury answered the petition on October 27, 1975. On or about June 18, 1976, Federal-Mogul filed with the appeal board a motion for summary judgment under GCR 1963, 117.2(3), for lack of a genuine issue of material fact such that the corporation was entitled to judgment as a matter of law.

Between 1975 and 1978, no further action was taken on the appeal. Extensive administrative changes occurred. 1975 P.A. 230 repealed the franchise fee act with the final levy of the franchise fee to occur on May 15, 1976. Section 2 of 1975 P.A. 230 provided that all cases pending before the Corporation Tax Appeal Board were to be transferred to the Michigan Tax Tribunal on December 31, 1977. On February 8, 1978, Federal-Mogul was notified that its petition had been transferred to the Michigan Tax Tribunal.

Meanwhile, certain legislative changes took place in response to corporate taxpayers' claims for refunds of franchise fee overpayments. ³ The end result was the passage of 1978 P.A. 392, ⁴ which was "a legislative attempt to validate retroactively the Treasury Department's consistent refusal to grant the requested refunds." Armco Steel Corp. v. Dep't of Treasury, 419 Mich. 582, 586, 358 N.W.2d 839 (1984).

On or about May 25, 1979, Federal-Mogul, together with ten other corporate taxpayers, filed in the Ingham Circuit Court a declaratory judgment action and a complaint for superintending control over the Tax Tribunal and the Michigan Court of Claims concerning all claims for refund under the franchise fee act. ⁵ The petitioners sought a declaration that 1978 P.A. 392 violated the equal protection provisions of the U.S. Const.Am. XIV, and Const.1963, art. 1, § 2. The petitioner taxpayers argued that the statute unfairly discriminated between two groups of taxpayers, those who did not pay their recomputed annual franchise fees because of the determination in Borden, Inc. v. Dep't of Treasury, 43 Mich.App. 106, 204 N.W.2d 34 (1972), aff'd 391 Mich. 495, 218 N.W.2d 667 (1974), that such fees were unlawfully recomputed and those taxpayers who did pay the fees, but, because of 1978 P.A. 392, would not receive a refund for their overpayment of the illegally determined recomputation.

Judge Robert Holmes Bell issued an order for superintending control determining that the refund claims pending in the Tax Tribunal and in the Court of Claims raised common questions of law, particularly the constitutional issue surrounding 1978 P.A. 392, which only the circuit court was jurisdictionally empowered to decide. On the merits of the petitioners' claim, Judge Bell held that 1978 P.A. 392 constituted a denial of equal protection as to those petitioners who timely requested refunds for tax years prior to 1975. This Court and the Supreme Court affirmed. Armco Steel Corp. v. Dep't of Treasury, 111 Mich.App. 426, 315 N.W.2d 158 (1981), aff'd 419 Mich. 582, 358 N.W.2d 839 (1984).

On December 20, 1984, shortly after the Supreme Court had issued its decision in Armco, supra, the Department of Treasury issued thirty-two State of Michigan warrants to the corporate taxpayers involved in Armco, including Federal-Mogul. The warrants paid to each corporate taxpayer represented the claimed refund together with interest computed at the rate of five percent per annum pursuant to § 6455 of the Court of Claims Act, M.C.L. § 600.6455; M.S.A. § 27A.6455. Interest was paid from April 16, 1980, the date of the judgment issued by Judge Bell, through December 31, 1984. Federal-Mogul was issued a warrant in the amount of $250,058.50 representing the claimed refund of $202,398.02 and interest from April 16, 1980, through December 31, 1984. The payment was made to Federal-Mogul without prior consent or a settlement agreement between the parties and in the absence of any judgment which adjudicated the individual rights and liabilities of the parties to the refund.

On May 2, 1985, Federal-Mogul filed a motion in the Michigan Tax Tribunal to order payment of statutory interest. The motion asked for interest "on the judgment rendered pursuant to [Federal-Mogul's] Complaint filed on October 22, 1975, or in the alternative, pursuant to [Federal-Mogul's] June 18, 1975 claim for a refund." The motion did not further identify the forum which issued the alleged judgment. The motion acknowledged the payment of $250,058.50 on December 20, 1984. Initially, Federal-Mogul claimed that interest should be paid at the rate of nine percent in accordance with the provisions of the Department of Revenue act. The Department of Treasury responded that the five percent rate of interest under the Court of Claims Act applied and that the provisions of the Department of Revenue act did not apply. The corporation countered that if the Department of Revenue act did not apply, then statutory interest under the Revised Judicature Act (RJA) of six percent and twelve percent per annum would apply.

The Department of Treasury filed an answer asking that the motion be denied and alternatively asking the Tax Tribunal to order the return of interest paid because the franchise fee act never provided for interest. The Department of Treasury explained its payment of interest at five percent under the Court of Claims Act as follows:

"In its decision affirming the lower courts [419 Mich. 582, 358 N.W.2d 839] the Supreme court stated at page 594 :

" 'When faced, as in this case, with a choice between securing that which is due under the law and upholding the constitutional requirements of uniformity and equality, the latter is to be preferred "as the just and ultimate purpose of the law." '

"Therefore, under mandate of the Supreme Court, all claimants were paid interest in exactly the same manner. This would be especially true of Petitioner which was one of the petitioners in ARMCO, supra. Interest was paid in accordance with Section 6455 of the Michigan Court of Claims Act [MCL 600.6455; MSA 27A.6455]. That section requires interest to be paid from date of judgment which in the case of ARMCO was April 16, 1980. Respondent paid the interest in accordance therewith."

On October 29, 1985, the tribuanl issued an order sua sponte granting Federal-Mogul summary judgment on its refund petition of October 22, 1975. The order also awarded interest under the provisions added to the Department of Revenue act by 1980 P.A. 162. The order directed the department to recompute interest under the Department of Revenue act at the rate of three-fourths of one percent per month (which yields a nine percent per annum rate). The order directed the department to compute interest beginning forty-five days after the corporation filed its refund claim on June 18, 1974, to the present. Finally, the order allowed the department to credit the interest that it had voluntarily but erroneously paid in December of 1984.

On appeal the Department of Treasury contends that the Michigan Tax Tribunal did not have jurisdiction to enter the October 29, 1985, order, that the tribunal abused its discretion in granting Federal-Mogul summary judgment sua sponte without a hearing, and that it unlawfully ordered the Department of Treasury to pay interest on the refund for the 1963-1968 franchise fees under 1980 P.A. 162. Although we find that the Tax Tribunal had jurisdiction and the sua sponte order was not improper, we agree with the Department of Treasury's final argument that the interest award was unlawful.

The Department of Treasury first contends that the Tax Tribunal had no...