Multistate Tax Commission v. Merck & Co., Inc.

• Decision Date: 07 October 1980
• Citation: 617 P.2d 1371,289 Or. 717
• Parties: MULTISTATE TAX COMMISSION, Eugene F. Corrigan, Executive Director of the Multistate Tax Commission, and the Department of Revenue of the State of Oregon, Respondents, v. MERCK & CO., INC., a New Jersey Corporation, Appellant. OTC 1295; SC 26499. . *
• Court: Oregon Supreme Court

Page 1371

617 P.2d 1371

289 Or. 717

MULTISTATE TAX COMMISSION, Eugene F. Corrigan, Executive Director of the Multistate Tax Commission, and the Department of Revenue of the State of Oregon, Respondents, v. MERCK & CO., INC., a New Jersey Corporation, Appellant.

OTC 1295; SC 26499.

Supreme Court of Oregon, In Banc. ^*

Argued and Submitted May 6, 1980.

Decided Oct. 7, 1980.

Maurice O. Georges, Portland, argued the cause for appellant. With him on briefs were Roger P. Jauch, James N. Westwood and Miller, Anderson, Nash, Yerke & Wiener, Portland.

William D. Dexter, Olympia, Wash., argued the cause for respondents. With him on brief were James A. Redden, Atty. Gen. and James D. Manary, Asst. Atty. Gen., Salem.

TANZER, Justice.

Appellant, a multistate corporation, appeals from a judgment and order of the Oregon Tax Court issued upon application of the Oregon Department of Revenue and the Multistate Tax Commission. The order requires appellant to make available to auditors of the Commission designated documents and key personnel for the purpose of its conduct of a joint income tax audit on behalf of several states, including Oregon, participating in the Multistate Tax Compact.

Oregon's adoption of the compact is embodied in ORS 305.655. Article VIII of the compact empowers the Commission to conduct tax audits at the request of member states and to examine documents and compel testimony in connection with audits. Article VIII also provides for enforcement of Commission requests for documents and testimony by the courts of any state on behalf of which the audit is made.

Eleven states, including Oregon, issued written authorizations to the Commission to conduct an audit of appellant for state income tax purposes. Appellant refused to comply with Commission requests for certain documents and testimony, and the Commission successfully petitioned the Oregon Tax Court for enforcement of its requests. Petitioner challenges the authority of Oregon to act pursuant to the compact, and if that fails, challenges various aspects of the order.

I. Oregon's Participation in the Compact

Appellant contends that Oregon cannot lawfully participate in this Commission audit and therefore the Oregon Tax Court may not enforce the Commission's informational requests, because a conflict exists between Multistate Tax Commission Bylaws, Section 5(e) and ORS 305.655, Article VI, paragraph 1, subparagraph c, regarding the weight to be given votes of member states of the Commission.

ORS 305.655, Article VI, paragraph 1, subparagraph c, enacted by the legislature in 1967, provides that each member state on the Commission has one vote:

"Each member shall be entitled to one vote. The Commission shall not act unless a majority of the members are present, and no action shall be binding unless approved by a majority of the total number of members."

Multistate Tax Commission Bylaw, Section 5(e), adopted in 1971, provides that the votes of Commission members are to be weighted by population:

"To be adopted, all matters voted upon must receive both a majority of the number of member states and a majority of the total population of all member states according to the current United States Statistical Abstract."

The appellant contends this difference in voting provisions negates Oregon's participation in the audit and the Commission's ability to obtain judicial enforcement of its requests in an Oregon court.

A. Res Judicata

Before reaching the merits, we must consider the Commission's argument that the appellant is precluded from litigating this issue because the judgment in a prior case involving the same parties, United States Steel Corp. v. Multistate Tax Comm., 417 F.Supp. 795 (S.D.N.Y.1976), aff'd, 434 U.S. 452, 98 S.Ct. 799, 54 L.Ed.2d 682 (1978), must be given res judicata effect. That case was a class action on behalf of all multistate taxpayers, including appellant, who were or might be threatened with audit by the Commission. The complaint sought a declaration of the invalidity of the Multistate Tax Compact under the United States Constitution, state constitutions, and "controlling state law." It also sought injunctive relief preventing the Commission from implementing the compact. A three-judge federal district court denied the requested relief in an opinion which addressed the federal constitutional issues but did not mention any state law issues.

We conclude this is an inappropriate case for application of the doctrine of res judicata. The doctrine of res judicata serves both the interests of the public in conserving judicial resources and in minimizing the possibility of inconsistent decisions and the interests of the parties in being protected from the expense and vexation of multiple lawsuits. In Slate Construction Co. v. Pacific General Contractors, Inc., 226 Or. 145, 149-150, 359 P.2d 530 (1961) we reiterated the principles of res judicata which carry out these purposes, stated in the earlier cases of Winters v. Bisaillon, 153 Or. 509, 513, 57 P.2d 1095 (1936) and Ruckman v. Union Pacific Railway, 45 Or. 578, 78 P. 748, 69 LRA 480 (1904). We reaffirmed that a final judgment on the merits bars relitigation of the same claim or cause of suit between the same parties in a subsequent proceeding. This bar extends to all matters which the parties might have litigated and had decided as incident to or essentially connected with the former cause as a matter of claim or defense. If, however, the second action is upon a different claim or demand, we reaffirmed that the former judgment is a bar only as to questions which were actually litigated or directly in issue.

This proceeding does not involve either the same claim or demand as the former federal suit. The objectives sought by the appellant in each case are different. In the former suit, the appellant sought an injunction preventing the Commission from implementing the compact due to its invalidity under controlling law. Here, the appellant sought at a show cause hearing to avoid the issuance of compulsory process by the Oregon Tax Court due to the asserted invalidity of the authority of the State of Oregon to participate in a Commission audit. Appellant need not have litigated the authority of Oregon to participate in the compact and the related power of the Oregon Tax Court to issue compulsory process in aid of a Commission audit as incident to or essentially connected with its former attempt to enjoin the Commission from implementing the compact. Therefore the former judgment is a bar only as to questions which were actually litigated.

The party who is relying on the doctrine of res judicata has the burden of proof on this point. Holmgren v. Westport Towboat Co., 260 Or. 445, 490 P.2d 739 (1971). The Commission has not shown that the question of the validity of Oregon's participation in Commission audits was actually litigated and decided in the prior federal action. Neither the complaint nor the decision submitted by the Commission as evidence indicate that the issue of the effect of an improperly weighted Commission vote upon Oregon's participation in Commission audits was actually litigated and decided in the prior federal action. Therefore we cannot regard the issue as having been formerly decided.

B. The Merits

Appellant's argument on the merits begins by observing the different vote-weighting provided by ORS 305.655, Article VI, paragraph 1, subparagraph c, and the Bylaws of the Commission as noted above. Thereafter, its argument is difficult to follow and we synthesize it primarily from appellant's reply brief. Appellant argues that the appointment by the Commission of its Executive Director (he having responsibility for administration of Commission affairs), the election of its officers, and the determination of Commission "directions" and "policies" are all decided by the vote of the Commission. Because those votes did not necessarily conform to ORS 305.655, the Commission may not lawfully act as an agent of Oregon. Because Article VIII, paragraph 4 of the Compact provides:

"* * * such application may be to a court in the state or subdivision on behalf of which the audit is being made or a court in the state in which the object of the order being sought is situated."

and because the audit cannot be lawfully made "on behalf of" Oregon, the Oregon courts have no authority to provide process for the Commission.

Assuming for argument that a taxpayer, rather than a member state of the Commission, may complain that a member's vote was improperly weighted, a taxpayer must at least show that the injury of which it complains was the result, at least in some substantial part, of an invalid vote. Appellant has not done this.

Appellant's challenge is abstract. Appellant has not shown that any decision of the Commission failed to conform to the one-state/one-vote requirement of ORS 305.655. Nor has it shown that any measure to repeal such a decision failed for lack of a one-state/one-vote majority.

Appellant's attempts to lend real effect to its abstract contention fail. It argues that the manner of the audit is controlled by the decision of and personnel appointed by the Executive...