Service Oil, Inc. v. State

• Decision Date: 09 January 1992
• Docket Number: 910168,Nos. 910135,s. 910135
• Parties: SERVICE OIL, INC., Plaintiff and Appellee, v. STATE of North Dakota, Defendant and Appellant. Civ.
• Court: North Dakota Supreme Court

Page 815

479 N.W.2d 815

60 USLW 2462

SERVICE OIL, INC., Plaintiff and Appellee, v. STATE of North Dakota, Defendant and Appellant.

Civ. Nos. 910135, 910168.

Supreme Court of North Dakota.

Jan. 9, 1992.

Joseph A. Turman (appearance), of DeMars & Turman, Fargo, and Rebecca Lippman (argued), of Swidler & Berlin, Washington, D.C., for plaintiff and appellee.

Joy L. Wezelman (argued) and Robert W. Wirtz (appearance), Asst. Attys. Gen., State Tax Dept., Bismarck, for defendant and appellant.

ERICKSTAD, Chief Justice.

The State of North Dakota appeals from a judgment declaring Section 57-43.1-02(3), N.D.C.C., unconstitutional and ordering the State to refund $102,300.58 in excess taxes paid by Service Oil, Inc., or to collect back taxes from taxpayers favored by that statute. The State also appeals from a judgment awarding Service Oil $54,191.83 in attorneys' fees. We affirm in part and reverse in part.

Section 57-43.1-02, N.D.C.C., ¹ imposes a per gallon tax on all motor vehicle fuels sold or used in North Dakota. Subsection (2) reduces the per gallon tax for motor vehicle fuels containing at least a ten percent blend of "qualifying alcohol," i.e., methanol produced from coal or from agricultural products produced entirely in the United States. Subsection (3), enacted effective July 1, 1985, eliminates the tax reduction for motor vehicle fuels containing qualifying alcohol manufactured outside of North Dakota unless the state where the qualifying alcohol was manufactured provides a similar tax reduction for motor vehicle fuels containing qualifying alcohol manufactured in North Dakota. Subsection (3) also limits the tax reduction for motor vehicle fuels containing qualifying alcohol manufactured in another state to the lesser of North Dakota's tax reduction or the other state's tax reduction for motor vehicle fuels containing qualifying alcohol manufactured in North Dakota.

Service Oil, a North Dakota corporation, purchases and blends motor vehicle fuels. Between July 1985 and December 1987, Service Oil purchased motor vehicle fuels containing qualifying alcohol manufactured outside North Dakota and received a smaller tax reduction than it would have received if it had purchased motor vehicle fuels containing qualifying alcohol manufactured in North Dakota.

On May 31, 1988, the United States Supreme Court held that an Ohio reciprocity provision similar to Section 57-43.1-02(3), N.D.C.C., impermissibly discriminated against interstate commerce, therefore violating the Commerce Clause of the United States Constitution. ² New Energy Company of Indiana v. Limbach, 486 U.S. 269, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988).

On August 11, 1989, Service Oil sued the State, asserting that Section 57-43.1-02(3), N.D.C.C., violated the Commerce Clause of the United States Constitution and seeking a refund of discriminatory taxes. The State admitted that Section 57-43.1-02(3), N.D.C.C., was unconstitutional under New Energy, but asserted that Service Oil was not entitled to a refund. On December 12, 1989, the parties agreed to postpone any further proceedings in this action until the United States Supreme Court rendered decisions in McKesson Corp. v. Division of Alcoholic Beverages and Tobacco, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990) [McKesson ], and American Trucking Associations, Inc. v. Smith, 496 U.S. 167, 110 S.Ct. 2323, 110 L.Ed.2d 148 (1990) [ATA ]. McKesson and ATA were decided on June 4, 1990.

Service Oil moved for summary judgment on September 5, 1990. On September 28, 1990, the State requested a six-month continuance to conduct discovery and to file a responsive brief. On November 29, 1990, the district court denied the State's request for a six-month continuance and instead allowed the State until January 4, 1991, to conduct discovery and to file a responsive brief.

Thereafter, the district court granted Service Oil's motion for summary judgment concluding that Section 57-43.1-02(3), N.D.C.C., discriminated against interstate commerce in a manner that was not demonstrably justified by a factor unrelated to economic protectionism. Relying on Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971), the district court concluded that its decision applied retroactively. Relying upon McKesson, the court concluded that, for the period from July 1985 to December 1987, due process required the State to refund $102,300.58 in discriminatory taxes to Service Oil, or to collect back taxes from all taxpayers favored by the unconstitutional tax scheme, ³ or to implement a combination of those two remedies.

Pursuant to Section 28-32-21.1, N.D.C.C., Service Oil requested approximately $54,000 in attorneys' fees and costs. The State resisted, contending that its actions were substantially justified and that the requested attorneys' fees were not reasonable. The district court concluded that the State's position was not substantially justified ⁴ and awarded Service Oil $54,191.83 in attorneys' fees and costs. The State has appealed.

I. CONTINUANCE

The State initially contends that the district court abused its discretion in denying its request for a six-month continuance to conduct discovery. The State argues that additional time for discovery was essential to refute Service Oil's allegation that it had been economically disadvantaged by Section 57-43.1-02(3), N.D.C.C. The State asserts that it "justifiably chose not to initiate extensive discovery without knowing if the district court would grant the requested continuance."

The decision to grant or deny a motion for continuance is a matter within a trial court's discretion. E.g., Witthauer v. Burkhart Roentgen, Inc., 467 N.W.2d 439 (N.D.1991). In considering a motion for a continuance a trial court also has discretion to determine the length of a continuance. State v. Nagel, 75 N.D. 495, 28 N.W.2d 665 (1947). On appeal, we will not overturn the trial court's decision on a continuance absent an abuse of discretion. Witthauer, supra; Nagel, supra. A trial court abuses its discretion when it acts in an arbitrary, unreasonable, or unconscionable manner. Construction Associates, Inc. v. Fargo Water Equipment Co., 446 N.W.2d 237 (N.D.1989).

Service Oil commenced this action on August 11, 1989. The State was not precluded from conducting discovery from then until December 12, 1989, when the parties agreed to postpone any further proceedings pending the Supreme Court decisions in McKesson and ATA. After McKesson and ATA were decided on June 4, 1990, the State had until January 4, 1991, to conduct discovery. Even after Service Oil moved for summary judgment on September 5, 1990, the State still had four months to conduct discovery. Excluding the time when the parties agreed to postpone further proceedings in this case, the State had eleven months to conduct discovery. However, the State apparently made no effort to conduct discovery during any of these periods. Under these circumstances we cannot say that the district court acted arbitrarily, unreasonably, or unconscionably in denying the State's request for a six-month continuance and instead granting the State one additional month to conduct discovery. The district court did not abuse its discretion.

II. RIGHT TO REFUND

The State next argues that the district court erred as a matter of law in ordering it to refund $102,300.58 in discriminatory taxes for the period from July 1985 through December 1987, or to collect back taxes from taxpayers favored by the discriminatory tax scheme. In ATA, supra, and McKesson, supra, the Supreme Court identified two distinct issues involved in this analysis. In ATA, the Court considered the threshold issue of whether a judicial decision applies retroactively or prospectively. In McKesson, the court considered the issue of the appropriate relief once a judicial decision is determined to apply retroactively.

A. RETROACTIVITY

Within the analytical framework of ATA, we initially consider the threshold issue of retroactive or prospective application of New Energy and the district court's decision. In ATA, the Court considered whether its decision in American Trucking Associations, Inc. v. Scheiner, 483 U.S. 266, 107 S.Ct. 2829, 97 L.Ed.2d 226 (1987), applied retroactively or prospectively to Arkansas' taxation of highway use. In Scheiner the Court had held that Pennsylvania's unapportioned highway flat use tax violated the Commerce Clause. In ATA, a sharply divided Court held that Scheiner applied prospectively and not retroactively.

The plurality, written by Justice O'Connor and followed by three other justices, analyzed the retroactivity issue under the three-pronged analysis of Chevron Oil Co. v. Huson, 404 U.S. 97, 106-107, 92 S.Ct. 349, 355, 30 L.Ed.2d 296, 306 (1971):

"First, the decision to be applied nonretroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied ... or by deciding an issue of first impression whose resolution was not clearly foreshadowed.... Second, it has been stressed that 'we must ... weigh the merits and demerits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation will further or retard its operations.' ... Finally, we have weighed the inequity imposed by retroactive application, for '[w]here a decision of this Court could produce substantial inequitable results if applied retroactively, there is ample basis in our cases for avoiding the "injustice or hardship" by a holding of nonretroactivity.' " [Citations omitted.]

The plurality initially concluded that Scheiner applied prospectively because it clearly established a new principle of law by expressly overruling prior caselaw which Arkansas had relied upon in enacting its highway use tax. Second, the plurality concluded that the purpose of the Commerce Clause did not dictate retroactive application of the new rule of law announced in...