Phillips v. McCollum
| Decision Date | 09 February 2012 |
| Docket Number | CIVIL ACTION NO. 4:11-CV-00066-JHM |
| Parties | JAMES PHILLIPS PLAINTIFF v. CHARLES MCCOLLUM III, et. al. DEFENDANTS |
| Court | U.S. District Court — Western District of Kentucky |
This matter is before the Court on Defendants Joseph E. Ternes, Jr., Margaret Keaton, Charles Abbot, Paul Titzer, Robert Gunter, Russell Sights, Robert M. Mills, James A. White, William M. Farmer, Thomas E. Davis and the City of Henderson's (collectively referred to herein as the "City Defendants") Motion to Dismiss [DN 13] and Motion to Dismiss Amended Complaint [DN 34]. Fully briefed, this matter is ripe for decision.
On September 10, 2005, the City of Henderson enacted Ordinance No. 17-05 (the "Ordinance"). 1 The Ordinance assesses a 1% occupational license tax on the net profits of "every person or business entity engaged in any business, trade, occupation, or profession" operating within the city limits. (Id., Sec. 21-33(A).) Under the Ordinance, all business entities and employers that are required to obtain an occupational license from the city must file a city Occupational License Return by "April 15 of each year, except returns made on the basis of a fiscal year, which shall be made by the fifteenth day of the fourth month following the close of the fiscal year." (Id., Sec. 21-37(A).) Furthermore, anyone whowillfully fails to make a return with the intent to evade payment of the tax is guilty of a Class A misdemeanor. (Id. Sec. 21-46(F).) The Ordinance took effect on January 1, 2006. (Id., Sec. 21-48.)
Sec. 21-42 of the Ordinance charges the Finance Department with the enforcement of the provisions of the Ordinance. (Id., Sec. 21-42.) Furthermore, the Finance Department "is empowered to prescribe, adopt, promulgate, and enforce rules and regulations relating to any matter or thing pertaining to the administration and enforcement" of the Ordinance's provisions. (Id.) The Ordinance requires the Mayor to appoint a Board of Occupational License Appeals consisting of the Director of Finance, the city Manager, and two (2) citizens of the city. (Id., Sec. 21-43.) The Board of Appeals is empowered to hear appeals from licensees and to render decisions on questions of interpretation of the Ordinance, questions of allocation of payroll and net profits, on proceedings of delinquent tax collections, and on the waiver of penalties assessed. (Id.) However, after the effective beginning of the Ordinance, the Board of Appeals was not established as required by Sec. 21-43. (Compl., Count I ¶ 14.)
Following the enactment of the Ordinance, Plaintiff James Phillips, a C.P.A. in Henderson, "took an active interest" in the Ordinance and its applicability to tax year 2005. (Id. at ¶ 7.) Plaintiff had a number of concerns regarding the implementation of the Ordinance. For instance, he was concerned about the use of 2005 as a taxable year for determining a person's 2006 occupational tax since the Ordinance "is totally devoid of any language concerning retroactivity of the ordinance as to tax year 2005." (Id. at ¶ 8.) Plaintiff believed that because the Ordinance took effect on January 1, 2006, that his first return for an occupational tax under the new Ordinance would not be due until April 15, 2007, at the conclusion of the first full taxable year following the Ordinance's enactment.(See Compl. Ex. 7, Phillips v. Commonwealth, 324 S.W.3d 741, 744-45 (Ky. Ct. App. 2010)).
Plaintiff was also concerned with the City of Henderson's decision to treat taxpayers differently regarding the necessity of filing a 2006 return. The Finance Department determined that in 2006, the Ordinance's first year of implementation, calendar year-end filers whose taxable year ended in December would be required to file a return by April 15, 2006, but that fiscal year-end filers whose taxable year ended in any month other than December would not be required to file a return until 2007. (Compl. Count I ¶ 8.) This was done so that fiscal year-end filers would not be doubly taxed for their 2006 occupational license tax. Plaintiff, a calendar year-end filer, complained that because of this policy, and the manner in which he was taxed under the previous occupational tax ordinance, he would be doubly taxed for the months of January-April 2006 under the new Ordinance. (Compl. Count I ¶11.) Plaintiff was also concerned that the Board of Appeals had never been established as required by the Ordinance. (Id. at ¶ 14.)
In an effort to have these issues addressed, Plaintiff attended a two-hour private meeting with the City Attorney and two members of the City's Finance Department. . Plaintiff also wrote at least three letters to the Mayor and City Commissioners, (See Compl., Ex. 3 Letters), and attended two public City Commission meetings where he voiced his concerns. (See Compl. Count I ¶ 11). On June 27, 2006, the City Manager, City Attorney, and City Finance Director issued a letter to Plaintiff addressing the retroactivity of the Ordinance as well as a concern regarding the taxation of businesses that have ceased operations. (Compl. Ex. 4, Letter from City of Henderson). Notwithstanding the questions raised by Plaintiff in multiple venues, Plaintiff believed that many of his concerns had not been addressed to hissatisfaction and he did not file a return as required by the Ordinance in 2006.
In approximately January 2007, the County Prosecuting Attorney, Defendant Charles McCollum III, contacted Plaintiff to advise him that he was facing a potential misdemeanor charge for his failure to file a return as required by the Ordinance. (Compl. Ex. 5, Letter to McCollum.) Defendant McCollum advised Plaintiff that if he simply filed a return that the misdemeanor charge would not be filed. (Id.) Rather than file a return, Plaintiff sent a letter back to Defendant McCollum highlighting several issues that still concerned him regarding the operation of the Ordinance in 2006. (Id.) Thereafter, on March 13, 2007, Defendant Margaret Keaton, swore out an affidavit in support of a criminal complaint against Plaintiff for failure to file a return as required by Sec. 21-37 of the Ordinance. (See Compl., Ex. 6, Criminal Complaint.)
Plaintiff was tried before a jury on May 9, 2008. The jury found Plaintiff "guilty of willfully failing to file the return with the intent to evade payment of the occupational license tax." (See Compl., Ex. 7 Phillips, 324 S.W.3d at 743.) The jury recommended a sentence of 120 days in jail and a $500.00 fine. (Id.) The district court suspended the jail sentence but imposed the recommended fine and court costs. (Id.) Plaintiff appealed his conviction to the Henderson Circuit Court, which affirmed the conviction. Id. Thereafter, the Kentucky Court of Appeals took up Plaintiff's appeal on discretionary review. (Id. at 742.)
Before the Kentucky Court of Appeals, Plaintiff argued that the Ordinance was unconstitutional on its face and as applied to him. (Id. at 743.) Plaintiff argued that the failure to established the Board of Appeals was a violation of his due process rights. (Id.) Plaintiff further argued that his conviction was in error because the Ordinance, as written, did not allow the City to tax him in 2006 based on his 2005 income and because the Commonwealth had failed to prove thathe had the requisite intent to evade payment of the tax. (Id. at 744.)
The court found that the Ordinance was unconstitutional, as applied to Plaintiff, because the failure to establish the Board of Appeals denied him procedural due process. (Id.) The court also found that the Commonwealth had failed to prove that Plaintiff had the requisite intent to evade the tax necessary for a conviction. (Id. at 746.) However, the court ruled that the City's decision to implement the 2006 tax based on Plaintiff's 2005 income was permissible under the law. (Id. at 745.)
Following the reversal of his conviction, Plaintiff filed the instant suit alleging claims under 42 U.S.C. § 1983 and § 1985, as well as a litany of state law tort claims. Plaintiff named as Defendants the City of Henderson as well as the following people in their official and individual capacities: the County Attorney, Charles McCollum III; the City Attorney, Joe Ternes, Jr.; two occupational license representatives, Margaret Keaton and Charles Abbot; the Assistant Finance Director, Paul Titzer; the Finance Director, Robert Gunter; the City Manager, Russell Sights; the members of the City Commission, Robert Mills, James White, and William Farmer; the Mayor of Henderson, Thomas Davis; and a John Doe known by the blogger name Pinehurst II.
The City Defendants, (all Defendants but Charles McCollum and John Doe/Pinehurst II) have now moved to dismiss the Complaint [DN 13] and to dismiss the Amended Complaint [DN 34].
The City Defendants' Motion to Dismiss states that it is moving for dismissal pursuant to Fed. R. Civ. P. 12 without specifically referencing under which part of Rule 12 they are moving. (See Defs.' Mot. to Dismiss [DN 13].) However, the City Defendants have titled their variousargument sections as "failure to state a claim upon which relief can be granted," therefore the Court will analyze the motion under Fed. R. Civ. P. 12(b)(6).
Upon a motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6), a court "must construe the complaint in the light most favorable to plaintiff," League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007) (citation omitted), "accept all well-pled factual allegations as true[,]" id., and determine whether the "complaint states a plausible claim for relief[,]" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009). Under this standard, the plaintiff must provide the grounds for its entitlement to relief,...
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