MHC, Inc. v. Oregon Dept. of Revenue
| Decision Date | 29 September 1995 |
| Docket Number | 94-35941 and 94-36238,Nos. 94-35939,s. 94-35939 |
| Citation | 66 F.3d 1082 |
| Parties | 95 Cal. Daily Op. Serv. 7612, 95 Daily Journal D.A.R. 13,078 MHC, INC., an Oregon corporation; PLM International, Inc., a Delaware corporation; Celtran, Inc., a Delaware corporation, Plaintiffs-Appellants, v. OREGON DEPARTMENT OF REVENUE; Richard A. Munn, Director of the Dept. of Revenue of the State of Oregon, Defendants-Appellees. ACF INDUSTRIES, INC.; General American Transportation Corporation; General Electric Railcar Services Corporation; Pullman Leasing Company; Railbox Company; Railgon Company; Trailer Train Company; Union Tank Car Company, Plaintiffs-Appellants, v. OREGON DEPARTMENT OF REVENUE; Richard A. Munn, Director of the Dept. of Revenue of the State of Oregon, Defendants-Appellees. BURLINGTON NORTHERN RAILROAD COMPANY; Portland Terminal Railroad Company, Plaintiffs-Appellants, v. OREGON DEPT. OF REVENUE; Richard A. Munn, Director of the Dept. of Revenue of the State of Oregon, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Richard A. Hayden, Bogle & Gates, Portland, OR, Terrence J. Benshoof, Kanter & Mattensen, Chicago, IL for plaintiffs-appellants MHC, Inc. and PLM International, Inc.
James W. McBride, Baker, Donelson, Bearman & Caldwell, Washington DC, Stephen D. Goodwin, Baker, Donelson, Bearman & Caldwell, Memphis, TN, David L. Canary, Garvey, Schubert & Barer, Portland, OR, for plaintiffs-appellants Burlington Northern Railroad Company and Portland Terminal Railroad Company.
James W. McBride, Baker, Donelson, Bearman & Caldwell, Washington, DC, Stephen D. Goodwin, Baker, Donelson, Bearman & Caldwell, Memphis, TN, Gregory J. Miner, Bogle & Gates, Portland, OR, for plaintiffs-appellants ACF Industries Inc., General American Transportation Corp., General Electric Railcar Services Corp., Pullman Leasing Company, Railbox Company, Railgon Company, Trailer Train Company, and Union Tank Car Company.
James W. McBride argued for all plaintiffs-appellants.
Robert B. Rocklin (argued), Assistant Attorney General, Marilyn J. Harbur, Assistant Attorney General, Salem, OR, for defendants-appellees.
Appeals from the United States District Court for the District of Oregon.
Before: CANBY, REINHARDT, and LEAVY *, Circuit Judges.
These cases arise out of prior litigation brought by various railroads challenging provisions of the Oregon property tax scheme under the Railroad Revitalization and Regulatory Reform Act. Pending the outcome of the primary litigation, the disputed taxes were placed into escrow accounts pursuant to a consent order entered upon stipulation of the parties. Eventually, Oregon prevailed on the merits. The present dispute centers on whether the railroads must pay the Oregon statutory rate of interest of 16% applicable to untimely paid taxes.
Plaintiffs in these consolidated cases consist of various railroad and carline companies (hereinafter "railroads"). 1 This dispute arises out of lawsuits filed by the railroads under Sec. 306 of the Railroad Revitalization and Regulatory Reform Act, 49 U.S.C. Sec. 11503 ("4-R Act"), seeking to enjoin collection of allegedly discriminatory ad valorem property taxes. These challenges began in the mid-eighties and stretched over a long period of years. New suits were filed for each successive tax year on behalf of different railroads. Although only a small subset of the specific tax years is at issue in this appeal, numerous similar appeals have been stayed pending the resolution of this case.
The merits of the tax challenges were resolved by Department of Revenue of Oregon v. ACF Industries, --- U.S. ----, 114 S.Ct. 843, 127 L.Ed.2d 165 (1994), and are not at issue in this appeal. Oregon won. It did so by persuading the Court to reverse our decision in favor of the railroads. ACF Industries, Inc. v. Dep't of Revenue of Oregon, 961 F.2d 813 (9th Cir.1992). The issue presented here--how much interest the railroads must pay--involves various stipulations and escrow account agreements entered into between Oregon and the railroads, and the court orders issued pursuant to those stipulations, as well as the provisions of Oregon statutory law. The parties entered into agreements that were intended to remain in effect pending the ultimate resolution of the substantive issues of the tax disputes. These agreements were then embodied in stipulated consent orders approved by the court. Although there were minor variations, the key elements were virtually identical. As taxes became due, plaintiff railroads were to pay them into an interest-bearing escrow account. In return, Oregon agreed to instruct its various counties and taxing authorities to refrain from attempting to take any collection action against the railroads or their property, and from treating the taxes as delinquent in any other respect. Money could not be withdrawn from the escrow accounts except by agreement of the parties or by court order.
The agreements were intentionally silent as to the issue of interest. In Oregon, unpaid taxes are subject to a statutory interest rate of 16%. During the negotiations of the agreements, Oregon took the position that if the state's tax assessments were found to be valid, then the railroads would be required to pay the statutory rate of interest. It proposed a stipulation to that effect. 2 In contrast, the railroads maintained that the stipulation should read that the tax authorities were entitled only to the interest the escrow account actually accrued. The parties essentially agreed to disagree on this issue, and to litigate it later. That they are now doing. On this appeal, we must decide which party, if either, was correct.
Subsequent to the Supreme Court's decision on the merits in favor of Oregon, the parties filed cross-motions for summary judgment with respect to the interest issue. The railroads urged that the funds in the escrow accounts including the accrued interest (less administrative fees and expenses) be disbursed to the Oregon counties, and that the court declare that the disbursements satisfy their tax liability and any additional liability for interest. Oregon did not challenge the proposed disbursement of the funds, but rather sought a declaration that the railroads were required to pay interest at the statutory rate of 16%. The district court denied the Railroads' motion, granted Oregon's, directed that the funds be disbursed to the railroads and ordered the railroads to pay the unpaid taxes plus interest at the statutory rate.
The difference between the statutory interest rate (16%) and the interest accrued on the escrow account (approximately 4%) is significant and amounts to millions of dollars for each tax year.
The primary argument urged by the railroads against imposition of the statutory interest rate is that the stipulated consent orders functionally served as interim equitable relief, and that the granting of interim equitable relief under the 4-R Act necessarily serves to prevent the imposition of state penalties for unpaid taxes. They further argue that the 16% interest rate constitutes a penalty. Finally, the railroads contend that because the disputed funds were paid into a restricted account pursuant to agreement of the parties, the taxes should be treated as timely paid, thus relieving them of the obligation to pay any interest other than that earned by the escrowed funds.
In contrast, Oregon argues that the agreements at issue here are distinct from a 4-R Act preliminary injunction, and that even if a preliminary injunction had been issued, the railroads would still have been responsible for the statutory interest. It further asserts that payment of the disputed funds into the specified accounts is immaterial because the state did not have the use of the money.
There is a split of authority on the question whether a railroad which obtains interim equitable relief under the 4-R Act is relieved of the obligation to pay statutory interest or penalties, and it is an open question in our circuit. However, before addressing it, we must answer the threshold question whether the consent orders here are the equivalent of interim equitable relief.
The 4-R Act prohibits the discriminatory taxation of railroads by state and local taxing authorities. Congress enacted this legislation to protect the financial stability of the railroad industry by shielding it from predatory acts of state and local tax assessors. See Dep't of Revenue of Oregon v. ACF Industries, --- U.S. ----, ----, 114 S.Ct. 843, 846, 127 L.Ed.2d 165 (1994). Section 306 of the Act, codified at 49 U.S.C. Sec. 11503, empowers the federal courts to take affirmative action to prevent the prohibited discrimination. See 49 U.S.C. Sec. 11503(c). Thus, the provision allows the federal courts to grant interim and permanent injunctive relief against one special type of invidious state taxation. This grant of power is an express exception to the general rule barring federal courts from interfering with the collection of state taxes.
The railroads urge that the stipulated consent orders are simply convenient substitutes for the interim equitable relief traditionally granted under the 4-R Act, namely, preliminary injunctions. In support of their argument, they point to the historical context of this case. The provisions of the Oregon tax scheme at issue in the underlying dispute were first challenged in 1985 by Union Pacific Railroad. The early suits, for tax years 1985 and 1986, apparently resulted in the grant of interim equitable relief by the district court which was upheld by this court on appeal. 3 Subsequent to obtaining this initial relief, Union Pacific and Oregon entered into stipulated consent orders which are the precursors of the orders in this case.
The Union Pacific litigation became the primary model for subsequent tax challenges brought by other railroads. From about 1...
To continue reading
Request your trial
-
Oregon Short Line Railroad Co. v. Department of Revenue Oregon
...on tax monies which had been kept in escrow accounts rather than actually turned over to the State. See MHC, Inc. v. Oregon Dep't of Revenue, 66 F.3d 1082 (9th Cir.1995). In MHC, we held that the State could not collect 16% interest on the funds that had been deposited in the escrow account......
-
Cement Div., Nat. Gypsum Co. v. City of Milwaukee
...Corporation, 474 U.S. 819, 106 S.Ct. 68, 88 L.Ed.2d 55 (1985); Harris v. Chicago Great Western Railroad, 197 F.2d 829, 836 (7th Cir.1952). ORDER For these reasons, the court ORDERS that, on or before January 15, 1997, the Plaintiffs shall calculate the amount of prejudgment interest due on ......
-
Saavedra v. Korean Air Lines Co., Ltd., s. 94-55018
...would be to award prejudgment interest from the date of injury, but at a fluctuating rate. See generally, MHC, Inc. v. Oregon Dep't of Revenue, 66 F.3d 1082, 1090-91, n. 10, n. 11 (applying fluctuating T-Bill rate, calculated daily from date obligation was due). None of the parties presente......
-
Van Asdale v. Int'l Game Tech.
...omitted). Consequently, prejudgment interest is often calculated at the same rate as postjudgment interest. MHC, Inc. v. Oregon Dep't of Revenue, 66 F.3d 1082, 1090 (9th Cir.1995) (“We have also determined that generally th[e] rate [of prejudgment interest] will be equivalent to the rate im......
-
Tax law - railroads may not challenge a state's valuation methodologies for ad valorum tax purposes under the 4-R Act - CSX Transportation, Inc. v. State Board of Equalization.
...[section] 11501 (2006) (forbidding discrimination against railway property for tax purposes); see MHC, Inc. v. Or. Dep't of Revenue, 66 F.3d 1082, 1086 (9th Cir. 1995) (summarizing 4-R Act intended to protect railroad industry's financial well-being); Trailer Train Co. v. State Bd. of Equal......