United States v. Dorgan, Civ. No. A3-74-60.

• Decision Date: 17 May 1976
• Docket Number: Civ. No. A3-74-60.
• Citation: 413 F. Supp. 173
• Parties: UNITED STATES of America and Western Electric Company, Incorporated, Plaintiffs, v. Byron L. DORGAN, as State Tax Commissioner of and for the State of North Dakota, and his successors in office, et al., Defendants.
• Court: U.S. District Court — District of South Dakota

413 F. Supp. 173

UNITED STATES of America and Western Electric Company, Incorporated, Plaintiffs, v. Byron L. DORGAN, as State Tax Commissioner of and for the State of North Dakota, and his successors in office, et al., Defendants.

Civ. No. A3-74-60.

United States District Court, D. North Dakota, Southeastern Division.

May 17, 1976.

Harold O. Bullis, U. S. Atty., Fargo, N. D., and William L. Shraberg, Dept. of Justice, Washington, D. C., for the United States.

Frank J. Magill, Nilles, Hansen, Selbo, Magill & Davies, Ltd., Fargo, N. D., for Western Elec. Company, Inc.

Kenneth M. Jakes, Albert R. Hausauer, Robert W. Wirtz, Sp. Asst. Attys. Gen., State of N. D., Bismarck, N. D., for defendants.

Before BRIGHT, Circuit Judge, BENSON, Chief District Judge, and VAN SICKLE, District Judge.

MEMORANDUM AND ORDER

BENSON, Chief District Judge.

Plaintiffs, United States of America and Western Electric Company, Incorporated, have renewed their motion before this three-judge court, for an order staying, pending a final determination in this action, state administrative tax assessment proceedings. The Eighth Circuit Court of Appeals reversed an order of the trial court¹ granting such a stay, ruling a single federal judge was without jurisdiction to issue "an interlocutory injunction against enforcement of a state statute before the state has an opportunity for full hearing on its constitutional merits." United States v. Dorgan, 522 F.2d 969, 972 (8th Cir. 1975). The injunctive relief sought can only be granted by a three-judge district court. United States v. Dorgan, supra, at 973. The Court of Appeals further ruled the movants must satisfy the traditional prerequisites for injunctive relief, a substantial probability of success on the merits, and irreparable injury.²

After a hearing on the motion, this Court, for reasons that follow, finds the traditional prerequisites of injunctive relief to be present.

The right to a choice of forum is the issue presented to the Court on Plaintiffs' motion, which is corollary to one of the basic issues in the litigation, on whom does the incidence of the tax fall, and possible immunity. The United States courts alone can finally determine this basic issue, because the United States cannot be forced to submit to state court jurisdiction. See Leiter Minerals, Inc. v. United States, 352 U.S. 220, 77 S.Ct. 287, 1 L.Ed.2d 267 (1957).

Under a NDCC Section 57-39.2-15 administrative procedure, the State Tax Commissioner of the State of North Dakota, to avoid the possible running of a three year period of limitation, levied a sales and use tax assessment in the amount of $54,078,756.98 against Western Electric, which by law, would become finally and irrevocably fixed unless Western Electric made application for a NDCC Chapter 28-32 administrative hearing. In the administrative hearing, the burden would be on Western Electric to produce evidence that the tax determination was incorrect. On an appeal from a tax commissioner's administrative hearing determination the judicial review permitted by statute is limited to a review of the record. See, NDCC 28-32-19.

At the hearing before this three-judge United States District Court, it was brought out that the tax commissioner's determination of use and sales tax owed was made without audit, and it appears that it was probably based on gross estimates of materials and services purchased and consumed in the implementation of the contract between the United States and Western Electric for the design, production and installation of equipment for use in the Safeguard anti-ballistic missile defense system located within the State of North Dakota.

The United States has made a substantial showing before this Court that under its contract with Western Electric, it would be required to pay any amount of sales and use tax ultimately determined to be due the State of North Dakota arising out of the contract.

Only Western Electric is a party to the state proceedings. If a final judgment should be reached in the state proceedings before the final judgment is rendered in the action now pending in this Court, the state judgment would be res judicata as to Western Electric. Such a judgment would not bind the United States. If the final judgment of this Court should find Western Electric not liable for the tax, Western Electric would be caught between two conflicting judgments. It would be bound by the state judgment to pay the tax and at the same time, the United States, in reliance on the final judgment of this Court, could refuse to reimburse Western Electric. As the result of conflicting judgments, Western Electric would be forced to accept a loss which could be substantial. In addition, Western Electric would be compelled to litigate identical issues simultaneously in the...