Johnson Controls, Inc. v. Rudolph, No. 2004-CA-001566-MR (KY 5/5/2006)
| Decision Date | 05 May 2006 |
| Docket Number | No. 2004-CA-001566-MR.,2004-CA-001566-MR. |
| Parties | JOHNSON CONTROLS, INC.; Security Group, Inc. and Subsidiaries, Including Sargent & Greenleaf, Inc., Willis North America, Inc. (f/k/a Willis Corroon Corporation) and Affiliates; Bunzl USA, Inc. and Subsidiaries, including Mak-Pak, Inc., Tredegar Corporation and Subsidiaries, Predecessor in Interest to Tredegar Industries, Inc. and Subsidiaries; and Cosmos Broadcasting Corporation and Affiliates, Appellants v. Robbie RUDOLPH, The Current Secretary of the Finance and Administration Cabinet, Revenue Department; and Commonwealth of Kentucky, Finance and Administration Cabinet, Revenue Department, Appellees. |
| Court | United States State Supreme Court — District of Kentucky |
Appeal from Franklin Circuit Court, Honorable William L. Graham, Judge, Civil Action Nos. 00-CI-00523 AND 00-CI-00661.
Bruce F. Clark, Margaret R. Grant, Erica L. Horn Frankfort, Kentucky, Paul H. Frankel, Michael A. Pearl, New York, New York, Briefs and Oral Argument for Appellants.
Thomas J. Luber, Mitzi D. Wyrick, Jennifer Starr Louisville, Kentucky, Amicus Curiae Briefs for Gannett Satellite Information Network, Inc.; Courier Journal and Louisville Times Co.; Gannett Direct Marketing Services, Inc.; Gannett River States Publishing Corp.; Courier Cellular Corporation; Computer Emporium; and Courier Broadway Corp.
Laura M. Ferguson, Frankfort, Kentucky, C. Christopher Trower, Atlanta, Georgia, Briefs and Oral Argument for Appellees.
Before: BARBER, MINTON, and TACKETT, Judges.
While the Appellants' administrative claims for income tax overpayment languished in the Kentucky Revenue Cabinet, the 2000 session of the Kentucky General Assembly enacted H.B. 541, which nullified these claims. Appellants then filed declaratory judgment actions in circuit court seeking to have the subsection of Kentucky Revised Statutes Chapter (KRS) 141.200 that codified H.B. 541 declared unconstitutional. Before us is the appeal from the unsuccessful declaratory judgment actions. We hold that the retroactivity period created by H.B. 541 exceeds the constitutional limits and violates Appellants' due process rights. Therefore, we reverse the circuit court.
Beginning in 1972, the Cabinet allowed unitary businesses to file combined or unitary tax returns.1 For reasons unnecessary to the resolution of this appeal, in 1988, the Cabinet issued a policy statement that "effectively halted the filing of combined [unitary] returns."2 GTE challenged the Cabinet's policy shift in a case that reached the Kentucky Supreme Court in 1994.
On December 22, 1994, the Kentucky Supreme Court decided in GTE's favor, permitting unitary businesses to resume the practice of filing unitary tax returns in Kentucky. In response to that decision, Appellants, twenty-six businesses that claim to be legally entitled to file unitary tax returns, each filed amended tax returns with the Cabinet seeking reimbursement for taxes they claimed to have overpaid during the period that the Cabinet's policy prevented them from filing unitary tax returns.3 Although the Cabinet purportedly acted on the overpayment requests of other similarly situated businesses, it took no immediate action on Appellants' claims.
At its next regular session following the GTE decision, 1996, the General Assembly enacted H.B. 599, which abolished unitary returns for the tax years after December 31, 1995. But that legislation had no effect on Appellants' pending claims for repayment. These claims were still pending before the Cabinet when the General Assembly convened its 1998 regular session. In that session, the General Assembly enacted H.B. 321. That bill did not retroactively nullify Appellants' pending claims. Rather, the statute only provided that no post-GTE repayment claims would be paid during the biennial budget period. In court action challenging H.B. 321, the Franklin Circuit Court declared it unconstitutional, a decision the Cabinet appealed to this Court. But before this Court could decide the appeal, H.B. 321 expired by its own terms; and we dismissed the appeal as moot.4
Appellants' claims for overpayment were actively pending with the Cabinet when the General Assembly convened for its 2000 session. The General Assembly, apparently alarmed that the appellants' pending claims could significantly drain the state's treasury, enacted H.B. 541, which substantially amended KRS 141.200. Specifically, after enactment of H.B. 541, KRS 141.200(9)5 provided that
[n]o claim for refund or credit of a tax overpayment for any taxable year ending on or before December 31, 1995, made by an amended return or any other method after December 22, 1994, and based on a change from any initially filed separate return or returns to a combined return under the unitary business concept or to a consolidated return, shall be effective or recognized for any purpose.
Similarly, after the enactment of H.B. 541, KRS 141.200(10)6 provided that
[n]o corporation or group of corporations shall be allowed to file a combined return under the unitary business concept or a consolidated return for any taxable year ending before December 31, 1995, unless on or before December 22, 1994, the corporation or group of corporations filed an initial or amended return under the unitary business concept or consolidated return for a taxable year ending before December 22, 1994.
The effect of H.B. 541 was to extinguish retroactively Appellants' pending claims for tax overpayment.
Arguing H.B. 541 to be unconstitutional, Appellants filed two separate declaratory judgment actions in the Franklin Circuit Court to have the retroactive portions of that law declared unconstitutional. Those two cases were consolidated; and the circuit court granted summary judgment to the Cabinet, expressly finding that H.B. 541 was not unconstitutional. The Appellants have appealed that ruling to this Court.
Initially, we were concerned about whether this appeal was properly before us because the Appellants filed their declaratory judgment actions while their administrative claims for tax overpayment were pending. Normally, such parallel actions regarding the same subject matter and parties are potentially problematic because, generally speaking, a party seeking to have a statute declared unconstitutional must show that the application of the statute has caused injury.7 At the time these declaratory judgment actions were filed in circuit court, the Appellants had suffered no harm from the application of KRS 141.200 because neither the Cabinet nor the Kentucky Board of Tax Appeals had relied upon that statute to deny Appellants' overpayment claims. And it appeared to us that the Appellants should have exhausted their administrative remedies8 by finishing the proceedings before the Cabinet and Board of Tax Appeals before proceeding in circuit court.9 So in order to allay our concerns and to broaden our understanding of the parties' positions, we asked for supplemental briefs. And after having examined those briefs and considering oral arguments, we have decided that exhaustion of administrative remedies is not required under these unique facts.
It is well settled that administrative bodies, such as the Cabinet and the Board of Tax Appeals, lack the power to declare a statute unconstitutional.10 Thus, exhaustion of administrative remedies is not required when a statute is challenged as being unconstitutional on its face.11 As the parties' supplemental briefs make clear, Appellants raise a facial challenge to KRS 141.200's constitutionality. So the exhaustion of administrative remedies doctrine is inapplicable, meaning that the Appellants were free to file their declaratory judgment actions in circuit court before the termination of their administrative claims with the Cabinet.12 Likewise, since the administrative bodies lacked the power to declare KRS 141.200 unconstitutional, it would have been futile for the Appellants to seek that type of relief from those bodies. So this case also fits within the futility exception to the exhaustion of administrative remedies requirement.13 Satisfied that no procedural impediment exists, we may examine this appeal on its merits.
In assessing the propriety of the trial court's grant of summary judgment to the Cabinet, we recognize that summary judgment was appropriate only if the Cabinet showed that Appellants "could not prevail under any circumstances."14 In ruling on a motion for summary judgment, the trial court must view the evidence in the light most favorable to the party opposed to the motion.15 And when we review a trial court's decision to grant summary judgment, we must determine whether the trial court correctly found that there were no genuine issues of material fact.16 Since findings of fact are not at issue here, the trial court's decision is entitled to no deference.17
Since Appellants are challenging the constitutionality of a statute, we must bear in mind that "[i]t is by now well established that legislative Acts adjusting the burdens and benefits of economic life come to the Court with a presumption of constitutionality . . . ."18 In Kentucky, "[t]he test of the constitutionality of a statute is whether it is unreasonable or arbitrary."19 Finally, a statute is constitutionally valid "if a reasonable, legitimate public purpose for it exists, whether or not we agree with its `wisdom or expediency.'"20
Appellants' first main argument is that H.B. 541 is special legislation that violates Section 59 of the Kentucky Constitution. That section prohibits the General Assembly from passing any "local or special acts" regarding, among other things, "the assessment or the collection of taxes . . . ."
According to Appellants, once H.B. 541 was enacted in 2000, the four-year...
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