Swanson v. Powers

• Decision Date: 25 June 1991
• Docket Number: No. 90-1110,90-1110
• Citation: 937 F.2d 965
• Parties: Norman W. SWANSON, Henry F. Murray, Carl L. Whitney, William Z. Nicholson, III, Charles L. Dancey, Melvin F. Eyerman, Ira N. Schwarz, John L. Powell, Jr., Galena Elworth, Donald V. Wallace, William E. Denton, Robert A. Nisbet, Walter J. Bartnikowski, Ralph P. Hunt, Marion B. Zollicoffer, William H. Talbert, Billy Clark, Wallace M. Davis, Grady L. Strange, Hamilton M. Howe, Mary L. Pritchard, Robert B. Campbell, Individually and for the benefit and on behalf of all other similarly situated, Charles L. Berry, Robert D. Lennon, Zebulon V. Moseley, III, Gary W. O'Neal, Milton S. Price, Martin L. Speicher, Paul H. Turney, Plaintiffs-Appellees, v. Helen A. POWERS, Secretary of the North Carolina Department of Revenue, Defendant-Appellant, and North Carolina Department of Revenue; Harlon Boyles, Treasurer of the State of North Carolina, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 965

937 F.2d 965

60 USLW 2044

Norman W. SWANSON, Henry F. Murray, Carl L. Whitney, William Z. Nicholson, III, Charles L. Dancey, Melvin F. Eyerman, Ira N. Schwarz, John L. Powell, Jr., Galena Elworth, Donald V Wallace, William E. Denton, Robert A. Nisbet, Walter J Bartnikowski, Ralph P. Hunt, Marion B. Zollicoffer, William H. Talbert, Billy Clark, Wallace M. Davis, Grady L. Strange Hamilton M. Howe, Mary L. Pritchard, Robert B. Campbell Individually and for the benefit and on behalf of all other similarly situated, Charles L. Berry, Robert D. Lennon, Zebulon V. Moseley, III, Gary W. O'Neal, Milton S. Price, Martin L. Speicher, Paul H. Turney, Plaintiffs-Appellees, v. Helen A. POWERS, Secretary of the North Carolina Department of Revenue, Defendant-Appellant, and North Carolina Department of Revenue; Harlon Boyles, Treasurer of the State of North Carolina, Defendants.

No. 90-1110.

United States Court of Appeals, Fourth Circuit.

Argued March 4, 1991.

Decided June 25, 1991.

John Robbins Wester, David C. Wright, III, Robinson, Bradshaw & Hinson, P.A., Charlotte, N.C., argued (Lacy H. Thornburg, Atty. Gen. of North Carolina, Marilyn R. Mudge, Asst. Atty. Gen., Raleigh, N.C., on brief), for defendant-appellant.

Wallace R. Young, Jr., Womble, Carlyle, Sandridge & Rice, Charles H. Taylor, argued (G. Eugene Boyce, Donald L. Smith, Jasper L. Cummings, Jr., Mark E. Richardson, III, Womble, Carlyle, Sandridge & Rice, Winston-Salem, N.C., on brief), for plaintiffs-appellees.

Before SPROUSE and WILKINSON, Circuit Judges, and MacKENZIE, Senior District Judge for the Eastern District of Virginia, sitting by designation.

WILKINSON, Circuit Judge:

Helen Powers, former Secretary of Revenue for the state of North Carolina, faces potential liability of $140 million for her actions in enforcing the state revenue code. According to complainant taxpayers, Secretary Powers collected taxes from them during a four-year period when she should have known that to do so violated both the constitutional doctrine of intergovernmental tax immunity and the Public Salary Tax Act of 1939. Because the law that plaintiffs claim Powers violated was not clearly established at the time, however, we hold that she is entitled to immunity from suit and reverse the judgment of the district court.

I.

Under North Carolina law as of early 1989, former state and local government employees received a state income tax exemption for the full amount of their retirement benefits. Former federal civil service and military personnel could exempt up to $4000 of their retirement benefits. Private sector retirees in North Carolina received no exemptions, however.

On March 28, 1989, the United States Supreme Court reversed a decision of the Michigan Court of Appeals and declared unconstitutional a Michigan taxation scheme that was similar to North Carolina's in that it granted state income tax exemptions to retired state employees, but not to either federal or private retirees. See Davis v. Michigan Dep't of the Treasury, 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989). The Court held that such a tax system discriminated against the federal government and thus violated the constitutional doctrine of intergovernmental tax immunity as well as the Public Salary Tax Act of 1939, codified, as amended, at 4 U.S.C. Sec. 111. That decision affected approximately twenty states which had enacted exemptions similar to those promulgated by Michigan.

Two weeks after the Davis decision was announced, plaintiffs brought a class action under 42 U.S.C. Sec. 1983 on behalf of all federal retirees residing in North Carolina (the "Class A" plaintiffs), seeking a refund of unconstitutional taxes paid for the tax years 1985 through 1988. The suit named as defendants the North Carolina Department of Revenue as well as various state officers in both their official and individual capacities. Defendant Helen Powers was Secretary of the North Carolina Department of Revenue during the relevant period. ¹ Plaintiffs claimed that to give retired state employees a greater exemption than that granted to retired federal employees comprised unconstitutional discrimination under the doctrines underlying Davis. A second group of plaintiffs consisting of active-duty military personnel and reservists (the "Class B" plaintiffs) was later allowed to join the suit. They challenged a $1500 state income tax exemption granted to members of the North Carolina National Guard. While both classes of plaintiffs continue to pursue their claims against the state, they alternatively seek to hold Secretary Powers personally liable for the $140 million they claim to have overpaid.

Powers moved to dismiss the suit against her on the grounds of qualified immunity. Although she conceded that under Davis the unequal exemptions for federal and state retirees were unconstitutional, ² she claimed that her conduct in enforcing the North Carolina revenue statutes from 1985-88 did not violate "clearly established statutory or constitutional rights of which a reasonable person would have known." Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S.Ct. 2727, 2738, 73 L.Ed.2d 396 (1982). The district court denied the motion, ruling that the Supreme Court's decision in Davis was "inevitable" and that Powers should have known that she was collecting unconstitutional taxes. In so holding, the court pointed to the "long-standing principles" underlying the decision in Davis, specifically, the doctrine of intergovernmental tax immunity and the Public Salary Tax Act of 1939.

Powers appeals from the court's denial of her motion for dismissal.

II.

Government officials who are performing their official duties are generally shielded from liability for civil damages. Harlow, 457 U.S. at 818, 102 S.Ct. at 2738. Immunity from personal liability "reflects the concern that civil damages awards against public officers for every judicially determined violation of constitutional rights would prove too expensive to the public, discourage public service employment and impair governmental decisionmaking." Tarantino v. Baker, 825 F.2d 772, 774 (4th Cir.1987). We believe that to hold Secretary Powers liable because she failed to accurately predict the outcome of the Davis decision would work a miscarriage of justice leading to exactly such unacceptable consequences.

In this section we examine the law as it existed prior to the Supreme Court's decision in Davis and conclude that a reasonable state official would not have known that North Carolina's tax system was unconstitutional because at that time the law was not clearly established. Section III discusses the Secretary's potential liability to the Class A plaintiffs for her actions following Davis, and the final section examines aspects of the Class B plaintiffs' claims.

A.

Only violations of those federal rights "clearly recognized in existing case law" will support an award in damages under 42 U.S.C. Sec. 1983. Danenberger v. Johnson, 821 F.2d 361, 365 (7th Cir.1987). Public officials must be able to discharge their public duties free of an omnipresent fear of Sec. 1983 liability. Only in that way can we be sure that government can continue to function efficiently while liability will fall properly upon only "the plainly incompetent or those who knowingly violate the law." Malley v. Briggs, 475 U.S. 335, 341, 106 S.Ct. 1092, 1096, 89 L.Ed.2d 271 (1986).

This tolerance for a range of reasonable public actions is particularly important for those who must interpret often imprecise or incomplete legal precedent. "For the law, as lawyers best know, is full of perplexities." Pennekamp v. Florida, 328 U.S. 331, 371, 66 S.Ct. 1029, 1049, 90 L.Ed. 1295 (1946) (Rutledge, J., concurring). The dockets of courts are testaments in a sense to the many questions that remain reasonably debatable. Holmes touched on this uncertain process when he defined "the law" as "[t]he prophecies of what the courts will do in fact, and nothing more pretentious." O.W. Holmes, The Path of the Law, in The Common Law & Other Writings 173 (1982).

In interpreting qualified immunity then, we must appreciate the fact that the direction of the law may be difficult to ascertain. Thus, although public officials may be "charged with knowledge of constitutional developments, [they] are not required to predict the future course of constitutional law." Lum v. Jensen, 876 F.2d 1385, 1389 (9th Cir.1989). "A reasonable government official cannot necessarily be expected to recognize the significance of a few scattered cases from disparate areas of the law ..." Lojuk v. Johnson, 770 F.2d 619, 628 (7th Cir.1985). The requirement, after all, is that the law be clearly established, not simply possibly established or even probably established. Since qualified immunity is appropriate if reasonable officers could disagree on the relevant issue, Sevigny v. Dicksey, 846 F.2d 953, 957 (4th Cir.1988), it surely must be appropriate when reasonable jurists can do so.

B.

The question of clarity bears directly upon plaintiffs' contentions that Secretary Powers is personally liable for the $140 million that she collected in unconstitutional taxes from them during the years 1985-1988. They argue that even before Davis was decided, the doctrine of intergovernmental tax immunity as well as 4 U.S.C. Sec. 111 clearly established their right not to be taxed in a discriminatory manner, and that a reasonable Secretary of Revenue would have recognized that North Carolina's tax system was discriminatory.

We disagree. Secretary Powers was enforcing a long-standing statute that was similar to enactments elsewhere. The most pertinent judicial decisions had upheld comparable taxing schemes and the doctrine of intergovernmental tax immunity was, at best, ambiguous. We decline to proclaim in hindsight after the Davis decision that the unconstitutionality of differential tax exemptions had been clear all along.

Before turning to the specific case law,...