Midway Tobacco Co. v. Mahin, 61305

• Court: United States Appellate Court of Illinois
• Citation: 356 N.E.2d 909,42 Ill.App.3d 797,1 Ill.Dec. 627
• Docket Number: No. 61305,61305
• Parties: , 1 Ill.Dec. 627 MIDWAY TOBACCO CO., et al., and Capitol Cigar Co., et al., Plaintiffs below, Appellees, v. George E. MAHIN et al., Defendants below, Appellees, On Appeal of S. Bloom, Inc., et al., Respondents below, Appellants.
• Decision Date: 07 September 1976

Page 909

356 N.E.2d 909 42 Ill.App.3d 797, 1 Ill.Dec. 627 MIDWAY TOBACCO CO., et al., and Capitol Cigar Co., et al.,
Plaintiffs below, Appellees,
v.
George E. MAHIN et al., Defendants below, Appellees,
On Appeal of S. Bloom, Inc., et al., Respondents below, Appellants. No. 61305. Appellate Court of Illinois, First District, First Division. Sept. 7, 1976.
Supplemental Opinion on Denial of Rehearing Nov. 1, 1976.

Page 911

[42 Ill.App.3d 798] [1 Ill.Dec. 629] William J. Scott, Atty. Gen. of Ill., Chicago (Paul J. Bargiel, Stephen R. Swofford, Asst. Atty. Gen., of counsel), for George E. Mahin, Chicago, defendants-appellees.

Maurice P. Raizes, Sam Schactman, Howard R. Slater, Edward A. Gorenstein, Douglas Donenfeld, Sam Shkolnik, Chicago, Hudson, Sours, Peoria, and Lyle C. Brown, Elgin, for respondents-appellants.

[42 Ill.App.3d 799] SIMON, Justice.

This appeal results from a holding by the circuit court in 1969 that the Illinois

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[1 Ill.Dec. 630] Tobacco Products Tax Act, referred to herein as 'the Act' (Ill.Rev.Stat.1969, ch. 120, pars. 453.81 to 453.91), was unconstitutional. During that proceeding the court ordered a protest fund created into which tobacco distributors (who are the respondents herein) and others who were attacking the Act were directed to deposit taxes they had collected pursuant to the Act. The issues raised by this appeal revolve around the jurisdiction of the circuit court to compel remittance into that protest fund of the taxes collected by the respondents. The circuit court ruled that it had jurisdiction to enter an order requiring payments into that fund, and this court granted leave to appeal pursuant to Rule 308 of the Illinois Supreme Court Rules (Ill.Rev.Stat.1975, ch. 110A, par. 308). A statement of the procedural posture of these cases and a companion case since their filing will be helpful in understanding the issues which must be considered in resolving this appeal.

Bloom v. Mahin was filed in the circuit court on July 18, 1969, seeking a declaratory judgment that the Act was unconstitutional and an injunction against its enforcement. Shortly thereafter, the class actions entitled Capitol Cigar Co. v. Mahin and Midway Tobacco Co. v. Mahin were filed; they assailed the constitutionality of the Act and requested the creation of a protest fund to segregate the monies collected pursuant to the Act from the general revenue fund. The class plaintiffs in Capitol were defined as 'sellers of tobacco products * * * other than distributors' and in Midway as 'distributors of tobacco products' as defined for purposes of the tax. The circuit court consolidated the Midway and Capitol cases and they were heard as companion cases with Bloom.

On December 17, 1969, the circuit court entered final decrees holding the Act unconstitutional. It found Midway and Capitol to be proper class actions, that due notice was served upon all parties entitled thereto and that the cause had been diligently prosecuted as a class action. It entered decrees in Midway and Capitol permanently enjoining the defendants, including the Director of Revenue, from enforcing the tax. In the companion case, Bloom, the court declared the Act to be unconstitutional, but determined it was unnecessary to issue an injunction because the enforcement of the tax was being enjoined in Midway.

The following provisions in the decrees in Midway and Capitol are pertinent to the issues in this appeal:

'6. The Defendant, George E. Mahin, as Director of the Department of Revenue of the State of Illinois, is hereby permanently enjoined and restrained from enforcing or administering the Act herein involved, and the Rules of the Department of Revenue herein involved, and the Rules of the [42 Ill.App.3d 800] Department of Revenue herein found to be invalid, in any manner except to remit to the Treasurer of the State of Illinois with notice to said Treasurer to hold in the Protest Fund heretofore designated, any and all Tobacco Products tax payments now and heretofore received by him, until further order of this Court.

'8. That each and all of the Defendants and their agents, representatives, employees and successors in office be, and they are permanently enjoined and restrained from demanding or collecting from the Parties-Plaintiff and other similarly situated in Illinois, any taxes under the Tobacco Products Tax Act.

'10. Provided, however, that during the period of time for appeal, or during the pendency of an appeal perfected from this Decree, and until the further order of this Court, Parties-Plaintiff and all other persons similarly situated shall continue to pay the tax on tobacco products, in accordance with the 'Tobacco Products Tax Act', and such payments shall continue to be remitted to the Defendant

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[1 Ill.Dec. 631] Director of Revenue to be transmitted by him with notice to Defendant Treasurer of the State of Illinois to hold such payments in the Protest Fund heretofore established; and such payments shall be so held by the State Treasurer.

'12. This Court reserves and retains jurisdiction of this cause for the purpose of hereafter ordering the refund and return by the Defendants of any and all amounts heretofore or hereafter held by them in the Protest Fund as directed by this Court, and for the purposes of determining and supervising the distribution of such amounts, and for fixing and determining attorneys' fees in connection with this proceeding, and for such other purposes which may be equitable, appropriate, or which may be required to effectuate the provisions hereof.'

The Department of Revenue issued a bulletin on December 22, 1969 to all distributors licensed under the Act informing them that the Act had been held unconstitutional and quoting paragraphs 8 and 10 (set forth above) of the final decrees. All of the respondents were licensed under the Act; none has stated that it did not receive this notice.

On July 21, 1969, the State through its Director of Revenue filed a petition seeking to compel the respondents to remit to a protest fund all monies collected by them but not paid. On April 16, 1974, the plaintiff consumer class, an intervenor in the original proceedings, filed a petition [42 Ill.App.3d 801] adopting the State's petition, and requesting that the taxes collected to paid directly into the protest fund so the court could make further appropriate orders as to its distribution. No summons was served, but each respondent, all of whom were either named as plaintiffs in Bloom or designated class members in Midway, were sent a copy of this petition and a notice of motion relating thereto. Many of the respondents filed limited appearances to contest the jurisdiction of the court and motions to quash.

On December 23, 1974, the circuit court held that the court had jurisdiction because (i) each respondent was a name plaintiff in Bloom or a member of the class certified in Midway; (ii) the petitions of the State and intervening consumer class were a continuation of Midway, Capitol and Bloom in which the court declared the Act unconstitutional and retained jurisdiction to enter such orders relating to the collection of the tax and such other orders as were necessary for a complete determination and disposition of all issues; (iii) a court sitting in equity has continuing jurisdiction to determine all matters relating to a case; and (iv) 17 of the respondents had already filed claims for refund from the court-created protest fund in Midway and Capitol, thereby submitting themselves to the court's jurisdiction.

It is from this order which the respondents appeal. They argue that the trial court erred in denying their motion to quash and in entering the requested order for the following reasons: First, they were not members of the class certified in Midway, the class action was improper because determination of the amount of taxes which each respondent was holding was dependent upon separate and unrelated transactions, and class action principles and due process prevent the court from applying the decision as Res judicata against them. Second, even if the class action were proper, the circuit court had no personal jurisdiction over the respondents because the Midway, Capitol and Bloom cases were no longer before the court. Moreover, the order being appealed from was erroneous because it was beyond the scope of the litigation attacking the constitutionality of the Act as well as beyond the scope of the relief permitted in a declaratory judgment action, and, therefore, the court lacked equity jurisdiction. Finally, they argue that the court was attempting to compel the collection of an unconstitutional tax, and it had no jurisdiction to do this.

The description of the class by the complaint in Midway as all 'distributors of tobacco

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[1 Ill.Dec. 632] products in the State of Illinois' as defined by the Act included the respondents now before us. All of the respondents were licensed by the Department of Revenue to distribute tobacco products as required by paragraph 453.84 of the Act, and this brings the respondents [42 Ill.App.3d 802] into the class defined by the Midway complaint. All respondents collected and remitted the tax as required by the Act until the fall of 1969.

The respondents contend, however, that the class as defined by the following language in the final decrees does not include them and that the extension of jurisdiction over them was, therefore, unwarranted:

'That this cause has been diligently and properly prosecuted, individually and as a proper class action on behalf of the respective Parties-Plaintiff and others similarly situated, being those taxpayers who were required to pay and Did consequently pay to the Defendants the tax due under the Tobacco Products Tax Act.' (Emphasis added.)

The respondents' position is that the class included only those who paid the tax, and not those who did not pay the tax. This is a simplistic and unrealistic...