Wilson v. Commissioner of Revenue

• Decision Date: 22 November 2000
• Docket Number: No. C5-00-824.,C5-00-824.
• Citation: 619 N.W.2d 194
• Parties: James L. WILSON, Relator, v. COMMISSIONER OF REVENUE, Respondent.
• Court: Minnesota Supreme Court

619 N.W.2d 194

James L. WILSON, Relator, v. COMMISSIONER OF REVENUE, Respondent.

No. C5-00-824.

Supreme Court of Minnesota.

November 22, 2000.

Mark A. Pridgeon, Edina, for relator.

Michael Hatch, Atty. Gen., Barry R. Greller, Asst. Atty. Gen., St. Paul, for respondent.

Considered and decided by the court en banc without oral argument.

OPINION

LANCASTER, J.

Relator James Wilson appeals from a tax court order granting summary judgment in favor of the Commissioner of Revenue. The Commissioner found Wilson personally liable for an employment wage levy assessed against Hazardous Waste Controls of Bloomington, Inc. (HWC), a corporation Wilson founded in January 1994 and ran until it stopped doing business in December 1994. In granting summary judgment, the tax court upheld the Commissioner's personal assessment against Wilson. Wilson appeals, arguing that summary judgment was inappropriate because the tax court made two legal errors. Wilson first asserts that the court erred in holding that res judicata bars him from arguing that the assessment against him violates the Excessive Fines Clauses of Minn. Const. art. I, § 5, and U.S. Const. amend. VIII. Second, Wilson contends that the statutory scheme under which the Commissioner assessed Wilson's personal liability does not allow assessment of the total amount of the employee's tax liability, but limits the assessment to the amount of the state's actual pecuniary loss. Based on this second argument, Wilson contends that there are disputed issues of fact because the tax court did not calculate the Commissioner's actual pecuniary loss. We reverse the tax court's decision and hold that res judicata does not bar Wilson's excessive fines claim. Accordingly, we remand the case for further proceedings consistent with this opinion.

On May 12, 1994, the Commissioner of Revenue issued a third-party wage levy to Apple Valley Oldsmobile (Valley Olds), requiring it to pay to the State of Minnesota any wages earned by Jay R. Hanson III, an independent contractor who worked at Valley Olds and owed unpaid taxes. See Hazardous Waste Controls of Bloomington, Inc. v. Commissioner of Revenue, Docket No. 6589, 1997 WL 158263, at *1 (Minn.Tax Mar. 17, 1997) (HWC I). After the levy was issued, relator James Wilson, a former Internal Revenue Service collection agent who was at that time working as a tax consultant, contacted the Commissioner and indicated that he represented Hanson. Wilson tried unsuccessfully to negotiate a payment plan for Hanson. Wilson then arranged for his company, HWC, to become the new janitorial service contractor for Valley Olds, and he hired Hanson to work for HWC performing the same services Hanson previously provided directly to Valley Olds as an independent contractor. Now, though, Hanson earned $6 an hour, rather than the $18 he had earned as a contractor for Valley Olds. In addition, the Commissioner could only extract 25% of Hanson's wages now that he was classified as an employee, as opposed to the 100% that the Commissioner could have demanded when Hanson was an independent contractor. In HWC I, the tax court found that Wilson contrived this new employment arrangement to help Hanson avoid the 100% third-party levy on his earnings. See id. at *4.

The Commissioner issued a wage levy against HWC on September 12, 1994. Wilson failed to respond to the levy. The Commissioner then issued a "Wage Levy—No Response Received" letter to Wilson, indicating that if he failed to comply, HWC would be liable for the full amount of Hanson's tax liability. The letter requested that HWC fill out and return a disclosure form; the form was never returned. Ultimately HWC, via Wilson, made only one payment to the Commissioner. On November 2, 1994, the Commissioner issued HWC an "Order Assessing Liability for Failure to Honor Notice to Employer," which assessed HWC for $45,352.55, the total amount of Hanson's tax liability. HWC appealed. On November 4, 1994, the Commissioner issued an "Order Assessing Personal Liability" against Wilson, resulting in Wilson's personal liability for the failure of HWC to honor the wage levy. Wilson appealed this order, but the Commissioner held the personal assessment appeal in abeyance pending issuance of the tax court's decision in HWC's appeal.

On March 17, 1997, in HWC I, the tax court sustained the Commissioner's assessment against HWC. See id. at *2. HWC never appealed. On April 24, 1997, the Commissioner denied Wilson's appeal of the personal liability assessment. Wilson appealed this denial to the tax court.

The Commissioner brought a motion in limine requesting that the tax court exclude certain evidence because it related to issues already decided in HWC I. Among the evidence the Commissioner sought to exclude was evidence relating to: whether HWC was liable for Hanson's tax liability; whether the amount of the liability was different from Hanson's full tax liability; and whether HWC had a full and fair opportunity to raise and argue the constitutionality of the assessment—specifically whether the assessment was an excessive fine. In an order dated May 5, 1999, the tax court granted the Commissioner's motion in limine relying on the doctrines of collateral estoppel and res judicata to exclude various pieces of evidence.¹ See Wilson v. Commissioner of Revenue, Docket No. 6918, 1999 WL 285896, slip op. at 1, 4-8 (Minn.Tax May 5, 1999).

The tax court ultimately granted summary judgment in favor of the Commissioner, upholding the personal assessment against Wilson. See Wilson v. Commissioner of Revenue, Docket No. 6918, 2000 WL 306677, slip op. at 1 (Minn.Tax March 14, 2000). Wilson appeals to this court from the tax court's grant of summary judgment.

Wilson and the Commissioner agree on the legal issues presented in this appeal. First, did the tax court err in applying res judicata to bar Wilson's claim that the assessment against him is an excessive fine in violation of Minn. Const. art. I, § 5, and U.S. Const. amend. VIII? Second, did the tax court err in concluding that Minn. Stat. § 270.101 (1994) authorizes the Commissioner to assess against Wilson the full amount of Hanson's tax liability rather than the actual pecuniary loss suffered by the Commissioner?

When reviewing a grant of summary judgment, this court must decide whether any issues of material fact exist and whether the lower court made any errors in its application of the law. See Care Inst., Inc.—Roseville v. County of Ramsey, 612 N.W.2d 443, 445 (Minn.2000)

. We review tax court decisions only to determine whether the decision is supported by sufficient evidence and is in conformity with the law. See id. In this case, the facts are essentially uncontested and the only questions are questions of law. Specifically, we must consider whether res judicata was appropriately applied, a question of law which we review de novo. See id. at 446. Additionally, Wilson raises a question of statutory construction, also a question of law subject to de novo review. See Koehnen v. Dufuor, 590 N.W.2d 107, 109 (Minn.1999).

The doctrine of res judicata bars a claim where litigation on a prior claim involved the same cause of action, where there was a judgment on the merits, and where the claim involved the same parties or their privies. See Beutz v. A.O. Smith Harvestore Prods., Inc., 431 N.W.2d 528, 531 (Minn.1988)

; Youngstown Mines Corp. v. Prout, 266 Minn. 450, 466, 124 N.W.2d 328, 340 (1963). In addition, the party against whom res judicata is applied must have had a full and fair opportunity to litigate the matter in the prior proceeding. See Dorso Trailer Sales, Inc. v. American Body and Trailer, Inc., 482 N.W.2d 771, 774 (Minn.1992). If those requirements are met, res judicata bars not only claims as to matters actually litigated, but also as to every matter that might have been litigated in the prior proceeding. See Care Inst.,

612 N.W.2d at 447; Beutz, 431 N.W.2d at 531; Youngstown Mines Corp.,

266 Minn. at 466,

124 N.W.2d at 340.

Res judicata exists "in order to relieve parties of the burden of relitigating issues already determined in a prior action, that a party may not be `twice vexed for the same cause.'" Beutz, 431 N.W.2d at 531 (quoting Shimp v. Sederstrom, 305 Minn. 267, 270, 233 N.W.2d 292, 294 (1975)). The doctrine of res judicata reflects courts' disfavor with multiple lawsuits for the same cause of action and wasteful litigation. See, e.g., Charboneau v. American Family Ins. Co., 481 N.W.2d 19, 21 (Minn.1992)

; Mattsen v. Packman, 358 N.W.2d 48, 50 (Minn.1984). Despite the strong policies supporting res judicata, this court will not apply the doctrine rigidly but will reject the rule when its application contravenes an overriding public policy. See AFSCME Council 96 v. Arrowhead Reg'l Corrections Bd., 356 N.W.2d 295, 299 (Minn.1984); see also Brown v. Felsen, 442 U.S. 127, 132, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979) ("Because res judicata may govern grounds and defenses not previously litigated, however, it blockades unexplored paths that may lead to truth. * * * It therefore is to be invoked only after careful inquiry.").

The tax court found that the elements of res judicata were satisfied and held that Wilson could not raise his excessive fines claim. See Wilson v. Commissioner of Revenue, Docket No. 6918, 1999 WL 285896, slip op. at 8 (Minn.Tax May 5, 1999). Specifically, the court found that HWC I resulted in a judgment on the merits, a finding not disputed by Wilson. Additionally, the court found privity between Wilson and HWC, also not disputed by Wilson. Finally, the tax court found that the excessive fines claim could have been litigated in the first case, but HWC failed to do so.² Wilson disputes this finding.³ He argues that the tax court did not have jurisdiction to hear constitutional arguments in HWC I and therefore his claim could not have been litigated.

This court recognizes "the general rule that a judgment rendered by a court which lacks...