Smith v. Sears, Roebuck & Co.

• Decision Date: 09 June 1995
• Docket Number: K-MART
• Citation: 672 So.2d 794
• Parties: Rebecca D. SMITH, et al. v. SEARS, ROEBUCK & COMPANY, et al. W.A. VISINTAINER, Steven T. Kabase, Charlotte J. Whitaker v.CORPORATION, Alabama Department of Revenue, James M. Sizemore, Jr. AV93000879, 2940077.
• Court: Alabama Court of Civil Appeals

Page 794

672 So.2d 794

Rebecca D. SMITH, et al. v. SEARS, ROEBUCK & COMPANY, et al.

W.A. VISINTAINER, Steven T. Kabase, Charlotte J. Whitaker v. K-MART CORPORATION, Alabama Department of Revenue, James M. Sizemore, Jr.

AV93000879, 2940077.

Court of Civil Appeals of Alabama.

June 9, 1995.

Rehearing Denied July 28, 1995.

Certiorari Denied Dec. 22, 1995

Alabama Supreme Court 1941739.

Thomas T. Gallion III and Richard H. Walston of Haskell, Slaughter, Young, Johnston & Gallion, Birmingham, L. Scott Coogler and David Sobel of Coogler & Copeland, P.C., Tuscaloosa, C. Knox McLaney III Montgomery, Edward H. Pradat, Tuscaloosa, for Appellants.

John R. Bradwell and Laura L. Crum of Hill, Hill, Carter, Franco, Cole & Black, P.C., Montgomery, for Wal-Mart Stores, Inc., d/b/a Sam's Wholesale Club.

Matthew C. McDonald and Elizabeth Barry Johnson of Miller, Hamilton, Snider & Odom, L.L.C., Mobile, for K-Mart Corp., Winn-Dixie Montgomery, Inc. and Kroger Co.

Julian L. McPhillips of McPhillips, Shinbaum & Gill, Montgomery, for Home Quarters Warehouse.

D.W. Wilson, Bruce P. Ely and Blake A. Madison of Tanner & Guin, P.C., Tuscaloosa, for Harco, Inc.

Jeff Sessions, Atty. Gen., Ron Bowden, Counsel, Department of Revenue and Asst. Atty. Gen., and J. Wade Hope, Asst. Counsel, Department of Revenue and Asst. Atty. Gen., for Appellees.

THIGPEN, Judge.

These consolidated appeals involve a dispute over the collection of sales tax on fertilizers, insecticides, and herbicides.

In July 1991, W.A. Visintainer and others (taxpayers), individually and as a class, filed a complaint against K-Mart and numerous other fictitious defendants (merchants), alleging that the merchants had illegally collected sales tax on fertilizers, insecticides, and herbicides, in violation of Ala.Code 1975, §§ 40-23-4(a)(2), (4), and (25). The taxpayers sought damages and refunds, as well as an injunction to prevent any future sales tax collections on these items.

K-Mart answered and asserted as defenses, among others, that the taxpayers had failed to join the Alabama Department of Revenue (Revenue) as a party defendant, that the identity of the individual class members is unknown, that any taxes collected had been paid to Revenue, which now holds all amounts collected, and that whether such sales were taxable events was a question of law. In November 1991, the taxpayers amended their complaint to join Revenue and James M. Sizemore, Jr., who was then the director of the Department of Revenue, as parties defendant.

In January 1992, the trial court entered an order restraining and enjoining K-Mart from collecting sales tax on the sale of fertilizers and insecticides in Alabama. Also, in January 1992, K-Mart filed a cross-claim seeking declaratory relief against Revenue, contending that, if any tax refunds are ordered, they should be paid by Revenue.

A similar action was filed in March 1992, by Rebecca D. Smith, and others (also referred to as taxpayers), against Sears, Roebuck & Company, The Great Atlantic & Pacific Tea Company, Winn-Dixie Stores, Inc., The Kroger Company, K-Mart Corporation, Wal-mart Stores Inc. d/b/a Sam's Wholesale Club, Harco Drug, Inc., Waccamaw Corporation, Phar-Mor, Inc., and Home Quarters Warehouse, Inc. (also referred to as merchants), alleging fraud, suppression, and money owed for the improper collection of sales tax on insecticides, insect repellent, and/or peat moss. The taxpayers sought a refund of the taxes collected, an injunction to prevent future collection of sales tax, and declaratory relief. In May 1994, the taxpayers amended their complaint to include an allegation regarding breach of contract.

The merchants answered, denying liability and asserting various defenses, including that any refund of taxes should be sought from Revenue. Thereafter, the merchants made motions to dismiss the action, alleging, inter alia, that the taxpayers had failed to exhaust their administrative remedies in seeking a refund from Revenue, had failed to include Revenue as an indispensable party, and had failed to properly assert the action as a class action.

Third-party complaints were filed against Revenue and George E. Mingledorff III, as its acting commissioner, by the merchants on the theory that, if any overcollections were made, the third-party defendants were liable for any refunds ordered. The merchants contended that it would be inequitable and would result in unjust enrichment to allow Revenue to retain the money and to require the merchants to refund the money to the taxpayers.

In May 1992, Act No. 92-343, 1992 Ala. Acts (First Special Session) (the Act), was signed into law. The Act retroactively amended Ala.Code 1975, § 40-23-4, to January 1, 1984, and it expressly provided that fertilizers and insecticides are not exempt from sales tax except "when used for agricultural purposes." Thereafter, the merchants in both actions filed suggestions of mootness, or, in the alternative, motions for summary judgment, contending that the enactment of the Act rendered the action moot, that no controversy or issue necessary for adjudication existed between the parties, and that they were entitled to a judgment as a matter of law. The merchants argue that the Act effectively forecloses any claim for relief by the taxpayers and fully supports the trial court's entry of summary judgment, even if this court disagrees with the analysis of the trial court in its memorandum opinion. The taxpayers in both cases filed motions for summary judgment.

Following a motion to transfer filed by the taxpayers, and consultation with the parties, the Smith case was transferred to the caseload of the same trial judge hearing the Visintainer case, in the interest of judicial economy and to avoid inconsistent results. On June 16, 1994, in substantially similar memorandum opinions and orders, the trial court ruled in both cases, granting the merchants' motions for summary judgment, and denying the motions of the taxpayers. The Visintainer plaintiffs appealed to the Alabama Supreme Court, and the case was transferred to this court, pursuant to Ala.Code 1975, § 12-2-7. After the Smith plaintiffs' post-judgment motion was denied, they appealed. To promote judicial efficiency and economy, and since the legal issues are identical, the two appeals were consolidated.

In their motions for summary judgment, the taxpayers in both cases discussed the constitutionality of the Act and the fact that the Alabama Supreme Court had rejected the Act as a defense in a similar case. They contend that the addition of the phrase "when used for agricultural purposes" and the retroactive application of the Act are attempts to override precedent and to eliminate their causes of action. The taxpayers cite Winn-Dixie Montgomery, Inc. v. Wright, 619 So.2d 1302 (Ala.1993), and contend that our Supreme Court affirmed the trial court's entry of summary judgment favoring the taxpayers in a similar action involving incorrect calculations of tax on beer, wine, and liquor. The taxpayers argue that the Supreme Court did not apply the new Act in that case; therefore, they argue, it could not reasonably be expected to apply to the instant case. In their narrative summary and memorandum supporting their motion for summary judgment, the taxpayers in each case made similar specific conclusions. The Smith plaintiffs' conclusions are as follows:

"The Defendants have improperly charged sales taxes to consumers purchasing fertilizer, insecticide and/or peat moss in direct derogation of the plain meaning of § 40-23-4(a)(2) & (4), Code of Alabama, 1975. Seeing that they had no defense to the liability aspect of Plaintiffs class action suit for refund of the improperly collected taxes, they caused to be concocted and passed an ill-conceived, misleading, and blatantly unconstitutional act, attempting to absolve themselves of liability for violation of the Alabama Law. The Supreme Court did not allow this in Wright, and neither should this Honorable Court. It is ludicrous to suggest that the rule of law in this state should be as follows: If you violate the law and incur liability, immediately change the law and absolve yourself of liability. The Alabama Constitution forbids it, prior case law forbids it, and common sense forbids it. The Defendants have collected money from the Plaintiffs that they were not authorized by statute to collect. Plaintiffs would submit that this Honorable Court must grant summary judgment and find that Defendants are liable to the Plaintiffs for the full amount of the illegally charged sales taxes collected by them in this case."

The merchants, however, argue that there is no evidence that the Supreme Court considered the Act in its opinion in the Wright case, nor did it declare the Act invalid or unconstitutional. We agree.

The merchants further argue that the issue of the constitutionality of the Act was not properly raised and ruled upon at the trial level, and that it is, therefore, not properly before this court. See King v. Reid, 428 So.2d 611 (Ala.1983); Williams v. State, 504 So.2d 282 (Ala.Civ.App.1986).

The merchants, likewise, filed motions for summary judgment; they argued that this action was rendered moot by the Act, that no controversy or issues remained between the parties, and, therefore, that adjudication was unnecessary. They argued that Ala.Code 1975, § 40-23-4(a)(2), was amended retroactively to January 1, 1984, by the new Act, which provided that fertilizers and insecticides are not exempt from sales tax except "when used for agricultural purposes." The merchants further argued that for these products to be exempt by the Act, the purchaser must use them for agricultural purposes only and must provide an SCS Farm Number, if available, on an exemption certificate. The merchants argued that there was no evidence presented that the taxpayers had used the products for agricultural purposes. They also argued that the legislature has indicated...