Metropolitan Life Ins. Co. v. Commissioner of Dept. of Ins.
| Decision Date | 15 August 1985 |
| Docket Number | 10517,Nos. 10510,s. 10510 |
| Citation | 373 N.W.2d 399 |
| Parties | METROPOLITAN LIFE INSURANCE COMPANY, Prudential Insurance Company of America, Prudential Property and Casualty Insurance Company, Massachusetts Mutual Life Insurance Company, Plaintiffs, Appellants and Cross-Appellees, v. The COMMISSIONER OF the DEPARTMENT OF INSURANCE of North Dakota, and the State of North Dakota, Defendants, Appellees and Cross-Appellants. METROPOLITAN LIFE INSURANCE COMPANY, Mutual Life Insurance Company of New York, Equitable Life Assurance Society of the United States, Prudential Insurance Company of America, Prudential Property and Casualty Insurance Company, Transamerica Occidental Life Insurance Company (formerly Occidental Life Insurance Company of California), Transamerica Life Insurance and Annuity Company, Massachusetts Mutual Life Insurance Company, New York Life Insurance Company, Connecticut Mutual Life Insurance Company, John Hancock Mutual Life Insurance Company, Aetna Life Insurance Company, Standard Fire Insurance Company, Aetna Casualty and Surety Company, the Automobile Insurance Company of Hartford, Connecticut, and Manhattan Life Insurance Company, Plaintiffs and Appellants, v. The COMMISSIONER OF the DEPARTMENT OF INSURANCE of North Dakota, and the State of North Dakota, Defendants and Appellees. Civ. |
| Court | North Dakota Supreme Court |
Vogel, Brantner, Kelly, Knutson, Weir & Bye, Fargo, for plaintiffs, appellants and cross-appellees, argued by Mart R. Vogel.
Robert O. Wefald, Sp. Asst. Atty. Gen., Bismarck, for defendants, appellees and cross-appellants.
These consolidated appeals present the question whether or not North Dakota's pre-1983 version of the 2 1/2 percent gross insurance premiums tax, Sec. 26-01-11(1), N.D.C.C., from which insurance companies organized under the laws of this state were exempt, violates the equal protection components of the State and Federal Constitutions. The district court determined that the statute is unconstitutional and issued an injunction prohibiting its enforcement, but the court refused to grant damages or refunds for the tax years 1971 through 1981 to the 16 out-of-state (foreign) insurance companies that challenged the tax. The foreign insurance companies [plaintiffs] appeal from that part of two district court judgments denying their claims for refunds. The Commissioner of Insurance and the State [State] have cross-appealed Prompted by the United States Supreme Court's decision in Western & Southern Life Ins. Co. v. State Board of Equalization of California, 451 U.S. 648, 101 S.Ct. 2070, 68 L.Ed.2d 514 (1981), 18 foreign insurance companies brought two separate actions in December 1981 challenging the constitutionality of the gross premiums tax. District court case number 31,865 was filed by five of the companies and number 31,866 was filed by the remaining 13 companies. The complaints were substantively identical and alleged that the gross premiums tax was unconstitutional under the Equal Protection and Due Process Clauses of the Fourteenth Amendment of the United States Constitution and under Article I, Sec. 22 of the North Dakota Constitution. Each complaint also alleged a cause of action under 42 U.S.C. Sec. 1983. The companies requested a declaratory judgment that Sec. 26-01-11(1), N.D.C.C., is unconstitutional on its face and as applied to them; temporary and permanent injunctive relief enjoining the defendants from enforcing the provisions of the statute; a "refund of all premium taxes paid by the plaintiffs from 1970 to the present, an amount in excess of $6,500,000.00;" and attorney fees, disbursements and costs pursuant to 42 U.S.C. Sec. 1988. These cases were consolidated for trial.
from that part of one of the judgments holding Sec. 26-01-11(1), N.D.C.C., unconstitutional. We affirm.
Prior to trial, the district court granted the plaintiffs' motion to sever for trial the claims of Metropolitan Life Insurance Company, Prudential Insurance Company of America, Prudential Property and Casualty Insurance Company, and Massachusetts Mutual Life Insurance Company. The plaintiffs "stipulated that the constitutional claims of the remaining plaintiffs are identical and a decision applicable to the four plaintiffs identified above will also bind the remaining plaintiffs on the merits except any issues relating to damages." A bench trial was held on October 25 and 27, 1982.
On January 13, 1983, 16 of the foreign insurance companies filed another action, district court case number 33,327, which was substantively identical to the other actions but sought "[d]amages based on taxes paid by the plaintiffs during 1982 for the tax year 1981 and for taxes paid in all subsequent years."
The district court issued its memorandum opinion in case numbers 31,865 and 31,866 on February 15, 1983. The court (1) determined that Sec. 26-01-11(1), N.D.C.C., is violative of the Equal Protection Clauses of the United States and North Dakota Constitutions; (2) dismissed the Sec. 1983 action against the Commissioner of Insurance and denied the request for attorney fees; 1 (3) granted permanent injunctive relief against the defendants enjoining them from enforcing the provisions of the statute; and (4) dismissed the companies' claims for refunds based on principles of voluntary payment, laches, sovereign immunity, windfall profit, and the "Sunburst Doctrine." In a separate order concerning case number 33,327, the district court also dismissed the 16 companies' claims for refunds for the 1981 tax year. The court determined that this action was "barred by concepts of res judicata, collateral estoppel, and merger and bar."
Following the issuance of the district court's initial memorandum opinion declaring Sec. 26-01-11(1), N.D.C.C., unconstitutional, the 1983 Legislature amended the gross premiums tax provision by imposing the tax on both North Dakota-incorporated and foreign-incorporated insurance companies. The Legislature also made the amendment retroactive "to taxable years beginning after December 31, 1981, ..." 1983 N.D.Sess.Laws Ch. 333, Sec. 11.
Judgments were entered on both actions during the summer of 1983, and these appeals followed. Supreme Court appeal number 10,510 concerns the claims of the By stipulation between the parties, the presentation and argument of the case before this court was suspended pending a decision by the United States Supreme Court in a similar case arising out of the state of Alabama. On March 26, 1985, the United States Supreme Court issued its opinion in Metropolitan Life Ins. Co. v. Ward, --- U.S. ----, 105 S.Ct. 1676, 84 L.Ed.2d 751 (1985). Supplemental briefs were then filed by the parties in this case and oral arguments were held before this court on May 7, 1985.
four companies that went to trial in October 1982 that they are entitled to damages for the tax years 1971 through 1980. Supreme Court appeal number 10,517 concerns the claims of the 16 companies that they are entitled to refunds for 1981 taxes paid under protest. The appeals were consolidated upon the plaintiffs' motion, which was supported by the State.
Prior to its amendment and reenactment by the 1983 Legislature, 2 Sec. 26-01-11(1), N.D.C.C., provided:
Under this statute, foreign insurance companies were subject to an annual assessment of 2 1/2 percent on the gross amount of premiums, membership fees, and policy fees received from North Dakota policyholders. The tax was not imposed on insurance companies incorporated under the laws of the state, but domestic-incorporated insurance companies were subject to the state corporate income tax under Sec. 57-38-30, N.D.C.C. This tax was assessed on "taxable income" at a graduated rate of between 2 percent and 7 percent. Foreign insurance companies that were assessed the gross premiums tax were not subject to the state corporate income tax because of an exemption provided for them under former Sec. 57-38-09(15), N.D.C.C. [amended and reenacted by 1983 N.D.Sess.Laws Ch. 631, Sec. 1]. Insurance companies organized under the laws of this state were also subject to a business and corporation In Western & Southern Life Ins. Co. v. State Board of Equalization of California, 451 U.S. 648, 101 S.Ct. 2070, 68 L.Ed.2d 514 (1981), the United States Supreme Court, in upholding California's imposition of a retaliatory tax on foreign insurance companies, rejected a line of cases exemplified by Lincoln National Life Ins. Co. v. Read, 325 U.S. 673, 65 S.Ct. 1220, 89 L.Ed. 1861 (1945), which held that a state may impose a more onerous tax on foreign corporations for the "privilege" of doing business in the state without any requirement of a rational relationship between the tax and a legitimate state purpose. The Court stated:
privilege tax of 1 percent of net taxable income [Sec. 57-38-66, N.D.C.C., repealed by 1979 N.D.Sess.Laws Ch. 612, Sec. 3], and the Vietnam bonus surtax which imposed a graduated tax of between $10 and $25 on domestic corporations for the tax years 1972 through 1974 [Sec. 57-38-30.2(2), N.D.C.C., repealed by 1975 N.D.Sess.Laws Ch. 476, Sec....
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