Hogan v. Musolf

• Decision Date: 05 July 1990
• Docket Number: No. 89-1175,89-1175
• Citation: 459 N.W.2d 865,157 Wis.2d 362
• Parties: , 12 Employee Benefits Cas. 2622 J. Gerard HOGAN, Delores M. Hogan, Jerome S. Poker, Margaret H. Poker, on behalf of themselves and all residents of the State of Wisconsin who were paid retirement benefits by the United States Government in any one or all of the years 1982, 1983, 1984, 1985, 1986, 1987 and 1988, similarly situated, Plaintiffs-Respondents, v. Mark E. MUSOLF, individually and as former secretary of the State of Wisconsin Department of Revenue, Michael Ley, individually and as former secretary of the State of Wisconsin Department of Revenue, Karen A. Case, individually and as former secretary of the State of Wisconsin Department of Revenue, Mark D. Bugher, individually and as secretary of the State of Wisconsin Department of Revenue, and all their unknown agents, employees, successors in office, assistants and all others acting in concert or cooperation with the current and former secretaries of the State of Wisconsin Department of Revenue or at the direction of the current and former secretaries of the State of Wisconsin Department of Revenue, Defendants-Appellants. d
• Court: Wisconsin Court of Appeals

Page 865

459 N.W.2d 865

157 Wis.2d 362, 12 Employee Benefits Cas. 2622

J. Gerard HOGAN, Delores M. Hogan, Jerome S. Poker, Margaret H. Poker, on behalf of themselves and all residents of the State of Wisconsin who were paid retirement benefits by the United States Government in any one or all of the years 1982, 1983, 1984, 1985, 1986, 1987 and 1988, similarly situated, Plaintiffs-Respondents, v. Mark E. MUSOLF, individually and as former secretary of the State of Wisconsin Department of Revenue, Michael Ley individually and as former secretary of the State of Wisconsin Department of Revenue, Karen A. Case, individually and as former secretary of the State of Wisconsin Department of Revenue, Mark D. Bugher, individually and as secretary of the State of Wisconsin Department of Revenue, and all their unknown agents, employees, successors in office, assistants and all others acting in concert or cooperation with the current and former secretaries of the State of Wisconsin Department of Revenue or at the direction of the current and former secretaries of the State of Wisconsin Department of Revenue, Defendants-Appellants. ^d No. 89-1175.

Court of Appeals of Wisconsin.

Submitted on Briefs Jan. 12, 1990.

Opinion Released July 5, 1990.

Opinion Filed July 5, 1990.

Donald J. Hanaway, Atty. Gen., with F. Thomas Creeron III, Asst. Atty. Gen., on the briefs, for defendants-appellants.

O'Neil, Cannon & Hollman, S.C. by Eugene O. Duffy, Gregory W. Lyons, and Mark S. Poker, on the briefs, Milwaukee, for plaintiffs-respondents.

Before EICH, C.J., GARTZKE, P.J., and DYKMAN, J.

GARTZKE, Presiding Judge.

The present and three former secretaries of the Wisconsin Department of Revenue (DOR) appeal from an order certifying the plaintiff class of federal retirees, preliminarily enjoining DOR from taxing retirement benefits received by the class, and denying defendants' motion to dismiss in part. We granted defendants leave to appeal pursuant to sec. 808.03(2), Stats. The issues are whether: (1) the trial court had jurisdiction to issue the preliminary injunction; (2) subsequent legislation has mooted the issues; and (3) the court abused its discretion by certifying the plaintiff class.

We conclude plaintiffs have a cause of action for an injunction under 42 U.S.C. sec. 1983, ¹ the case is not moot, and the court did not abuse its discretion in certifying the class. We hold that the former DOR secretaries in their official capacities are not proper parties to the action. We remand with directions that judgment be entered dismissing the action against the former DOR secretaries in their official capacities (but not in their personal capacities) and otherwise affirm the order appealed from.

1. FACTS

This action results from the decision of the United States Supreme Court in Davis v. Michigan Dep't of Treasury, 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989). In that case, Davis petitioned for a refund of Michigan state income taxes he paid on his federal retirement benefits. Id. 109 S.Ct. at 1503. Michigan exempted from taxation retirement benefits paid by the state or its political subdivisions. Because Michigan did not exempt federal retirement benefits from taxation, Davis claimed that the tax scheme discriminated against federal employees, contrary to 4 U.S.C. sec. 111. ² The Court agreed.

The Davis Court held that 4 U.S.C. sec. 111 applies to federal retirees as well as current employees. 109 S.Ct. at 1504-05. The Michigan income tax statute discriminated against retired federal employees and in favor of retired state employees, id. 109 S.Ct. at 1507, and the inconsistent treatment was not justified by significant differences between the two classes. Id. 109 S.Ct. at 1508. For that reason, the Michigan tax statute violated the principles of intergovernmental tax immunity "granted or retained by" sec. 111. Id. 109 S.Ct. at 1507. Michigan conceded that a tax refund to Davis was appropriate. Id. 109 S.Ct. at 1508-09. The Court remanded the matter to the Michigan courts to determine a proper remedy. Id. 109 S.Ct. at 1509.

From 1963 to 1988, Wisconsin exempted from income taxation all payments received from the retirement benefits systems for those state public school teachers and employees of the county and city of Milwaukee who were members of the systems as of December 31, 1963. Sec. 71.05(1)(a), Stats.1987; sec. 71.03(2)(d), Stats.1965 to 1985; sec. 71.03(2)(g), Stats.1963. Wisconsin did not exempt any federal retirement benefits. The complaint in this action is directed against that disparate treatment.

The Wisconsin legislature has eliminated the disparity as to tax years starting in or after 1989. For those years, the exemption also applies to payments received from the United States civil service or military retirement systems if the recipients were members of a federal retirement system on December 31, 1963. Secs. 1817m and 3203(48)(bg), 1989 Wis.Act 31.

Plaintiffs commenced this action on April 17, 1989. Jerome Poker alleges that the United States Postal Service employed him for twenty-eight and one-half years and that he received federal retirement benefits in the years 1985 through 1988. Gerard Hogan alleges that the Federal Bureau of Investigation employed him for thirty-two years and that he received federal retirement benefits in the years 1982 through 1988. Both plaintiffs allege they paid Wisconsin income tax on the benefits received before 1988 and that they will pay such tax on the benefits received in 1988.

Plaintiffs allege that the defendant DOR secretaries, in their personal and official capacities, discriminated against plaintiffs and in favor of state and local employees by taxing plaintiffs' federal retirement benefits. They aver that defendants have violated the supremacy clause (U.S. Const. art. VI, cl. 2), principles of intergovernmental tax immunity articulated in Davis, and 4 U.S.C. sec. 111. They ask for declaratory, injunctive, and monetary relief. The monetary relief consists of damages from monies unlawfully collected from plaintiffs by way of the unlawful tax on their federal retirement benefits. They do not allege that the former secretaries presently have official duties with DOR.

After issue was joined, defendants moved to dismiss the action on grounds that: the circuit court lacks jurisdiction over the defendants; the circuit court lacks subject matter jurisdiction; because of sovereign immunity defendants may not be sued in their official capacities; defendants are qualifiedly immune from suit in their personal capacities; and plaintiffs fail to state a claim upon which relief can be granted. We treat the motion as one for judgment on the pleadings made pursuant to sec. 802.06(3), Stats.

Plaintiffs moved for class certification under sec. 803.08, Stats., ³ and for a preliminary injunction. The proposed class was described as all present and former Wisconsin residents who in any of the years 1982 through 1988 paid income taxes to Wisconsin on federal retirement benefits and who were members of a federal system on December 31, 1963. The proposed preliminary injunction was to preclude enforcement of sec. 71.05(1)(a), Stats.1987, against plaintiffs and to require all funds collected in the future for the years in issue under that statute be held in constructive trust by defendants for plaintiffs. The trial court granted plaintiffs' motion and denied defendants' motion in part. The court decided only some of the issues raised by defendants' motion to dismiss, apparently at their request. ⁴ The preliminary injunction restrains the defendants from collecting taxes under and enforcing sec. 71.05(1)(a) from June 15, 1989 (the date the motion was granted) forward pending resolution of the merits of the case.

The trial court supported its order with findings of fact and conclusions of law. It found and concluded that: it has personal jurisdiction over the named defendants, subject matter jurisdiction over the action, and concurrent jurisdiction with the federal courts over claims brought under 42 U.S.C. sec. 1983; declaratory and injunctive relief as well as money damages are remedies available under sec. 1983; a violation of 4 U.S.C. sec. 111 is actionable under sec. 1983; and a reasonable probability exists that (a) the state has waived or is estopped from asserting sovereign immunity, (b) plaintiffs are not required to exhaust administrative remedies for refunds, (c) sec. 71.05(1)(a), Stats.1987, and its predecessor statutes violate 4 U.S.C. SEC. 111, (D)⁵ sec. 71.05(1)(a) is unconstitutional on its face, and (e) by enforcing sec. 71.05(1)(a), defendants violated the federal constitution and laws.

The trial court further found and concluded that: continuing to impose tax liability on the named plaintiffs and those similarly situated would result in irreparable injury to them; the issues in litigation involve common and general interests shared by all members of the class to be certified; the named plaintiffs fairly represent those interests and their interests do not conflict with the interests of others in the class; the class includes at least 25,000 persons; it would be impracticable to bring all the parties before the court; the named plaintiffs and their counsel are diligently and competently litigating the action; and the action is properly conducted as a class action under sec. 803.08, Stats.

Based on its findings and conclusions, the trial court ordered: DOR personnel are preliminarily enjoined from June 13, 1989 forward so that (a) they may not collect or impose on the plaintiff class Wisconsin income tax on retirement benefits received from the United States, (b) any money DOR collects shall be held in constructive trust, (c) all applicable DOR personnel shall be informed of the terms of the order; the class represented by the named plaintiffs is certified as all present and former Wisconsin residents, and their successors in interest, who paid income tax...