Lead Opinion
[¶ 1.] Dan Nelson Automotive Inc. (Nelson) and the South Dakota Acceptance
Facts and Procedural History
[¶ 2.] Nelson and CNAC (collectively referred to as Nelson) are South Dakota corporations. Nelson sells motor vehicles, some on installment contracts. CNAC finances Nelson’s installment sales. The statutes at issue impose a three-percent excise tax on these vehicle sales. This dispute involves the tax on motor vehicles that are repossessed or returned before the initial installment buyer has paid the full contract price of the vehicle.
[¶ 3.] The excise tax is imposed on the “purchase price” of motor vehicles purchased or acquired for use on the streets and highways of this State. SDCL 32-5B-I.
[¶ 4.] Nelson brought this action under SDCL Ch. 21-24, South Dakota’s version of the Uniform Declaratory Judgment Act. Nelson did not seek a refund of taxes previously paid. Rather, Nelson only sought prospective declaratory relief “concerning the construction of [these] tax statutes and [the parties’] corresponding rights and obligations pursuant to SDCL Ch. 32-5B.”
[¶ 5.] The circuit court dismissed the action on procedural grounds without construing the statutes. That ruling raises the following issues on appeal:
(1) Whether administrative remedies must have been exhausted before the circuit court could entertain this action to interpret a tax statute un*242 der the Uniform Declaratory Judgment Act;
(2) Whether the State was joined as an indispensable party; and
(3) Whether the Uniform Declaratory Judgment Act or sovereign immunity precluded declaratory relief against the State.
Decision
[¶ 6.] This Court “reviews the trial court’s grant or denial of a motion to dismiss by determining whether the pleader was entitled to judgment as a matter of law.” Springer v. Black,
Exhaustion of Administrative Remedies
[¶ 7.] Two well-established doctrines are implicated when the issue of administrative exhaustion' is raised. The first “doctrine is primarily concerned with the timing of the judicial review of administrative action.” Mordhorst v. Egert,
[¶ 8.] In this case, there was no administrative decision to review, and both the Department and the circuit court had jurisdiction to interpret the excise tax statutes. Therefore, this case involves a question of primary jurisdiction. The question is who had jurisdiction to hear this case first. Must the Department have interpreted the excise tax statutes and determined the rights of the parties before the circuit court was authorized to do so? We conclude that the answer is no because the Department did not have exclusive jurisdiction to interpret tax statutes, and absent a request for a tax refund, the administrative remedies were not mandated.
[¶ 9.] We begin the exhaustion analysis by noting that South Dakota’s Declaratory Judgment Act “permits [circuit courts to make a] declaration of legal rights or relations before an actual injury occurs.” Boever v. South Dakota Bd. of Accountancy,
[¶ 10.] The Department, however, contends that two specific provisions of the Administrative Procedures Act require administrative review before allowing declaratory relief in circuit court. The Department first relies on the first sentence of SDCL 1-26-30, an administrative appeal statute. That statute provides: “A person who has exhausted all administrative remedies available within any agency or a party who is aggrieved by a final decision in a contested case is entitled to judicial review under this chapter.” SDCL 1-26-30.
[¶ 11.] We agree, that had administrative action been taken by the Department, SDCL 1-26-30 would have required an administrative appeal in circuit court before a declaratory action could be pursued. However, this statute presupposes that some administrative action has already occurred or been exhausted. Therefore, this statute only addresses the exhaustion doctrine involving the timing of judicial review of administrative action, which is not at issue here. The issue here is one of primary jurisdiction; ie. whether the court or the agency had jurisdiction to consider oñginal redress. And, with respect to that issue, SDCL 1-26-30 specifically disclaims primary jurisdiction by the administrative agency. That statute further provides: “This section does not limit utilization of or the scope of judicial review available under other means of review, redress, or relief, when provided by law.” Id. Because SDCL Ch. 21-24 and 15-6-57 authorize other means of review and redress through declaratory relief in circuit court even when “another adequate remedy” exists, SDCL 1-26-30 does not vest the Department with primary jurisdiction to interpret these statutes.
[¶ 12.] The Department also argues that it has primary jurisdiction under a second provision of the Administrative Procedures Act that authorizes administrative agencies to issue declaratory rulings. SDCL 1-26-15 provides in relevant part:
Each agency shall provide by rule for the filing and prompt disposition of petitions for declaratory rulings as to the applicability of any statutory provision or of any rule or order of the agency.... Rulings disposing of petitions have the same status as agency decisions or orders in contested cases....
Pursuant to this statute, the Department has adopted rules authorizing declaratory rulings on the applicability of tax statutes. ARSD 64:01:01:08 provides:
An individual may apply for a declaratory ruling by filing a petition directed to the secretary which states generally the factual situation existing under which the question arises. The petition must be verified by the petitioner, except that matters not within the personal knowledge of the petitioner may be on information or belief. The petition shall identify all persons who have or claim any interest which would be affected by the declaratory ruling. When declaratory relief is sought all persons who have or claim any interest which would be affected by the declaration shall be*244 made parties.5
Thus, the Department correctly points out that its declaratory ruling process is available to obtain declaratory relief.
[¶ 13.] Although the Department further argues that this administrative alternative should be utilized first, we have stated that if “a party is not mandated or required to proceed administratively and a separate avenue of judicial review is available,” the use of administrative remedies is not required. Jansen v. Lemmon Fed. Credit Union,
[¶ 14.] However, in this case there is nothing to suggest that the Department’s declaratory process was intended to be the exclusive, mandated, or required means of relief. Furthermore, SDCL 15-6-57 “provides that the existence of other remedies does not preclude declaratory relief in circuit court.”
[¶ 15.] The circuit court, however, also concluded that a statutory alternative remedy, the tax refund procedure found in SDCL Ch. 10-59, was mandated and exclusive, thereby precluding declaratory relief in circuit court. Both the circuit court and the Department relied upon SDCL 10-59-17
[¶ 16.] We disagree with the circuit court’s “practical effect” analysis. Nelson
The tax here involved was, in fact, paid by the plaintiffs, with the court approved provision for ultimate disposition of the disputed portion according to the judgment of the trial court. Collection of the tax was in no way delayed or hindered by the maintenance of this action, which seeks only a declaration....
Id. This Court ultimately concluded that an analogous tax payment and refund scheme was not a taxpayer’s exclusive remedy, and therefore, declaratory relief was available in circuit court:
If [the alternative tax protest and refund scheme] is the exclusive remedy, it means that between thirteen and fourteen thousand taxpayers must pay the tax and bring separate actions to determine whether the officer acted within the law in enforcing the payment of the tax. Seeking a declaratory judgment does not delay the collection or payment of the tax as the officer in charge is in position to enforce its payment at all times while the action is pending. While it is true that no restraining order would lie during the pendency of the action, it does not follow that the legislature intended this to be the exclusive remedy which a taxpayer has- and that the declaratory judgment statute is not to apply-
Id. at 265,
[¶ 17.] The Department suggests that we should reach a contrary conclusion under our later decision in Agar School Dist. v. McGee,
This Court rejects the trial court’s reasons for dismissing the action for declaratory relief. A request for declaratory relief may be allowed even when another adequate remedy exists. As a general matter, the Uniform Declaratory Judgments Act provides: “No action or proceeding shall be open to objection on the ground that a declaratory judgment or decree is prayed for.” SDCL 21-24-1. More specifically, SDCL 15-6-57 states in pertinent part: “The existence of another adequate remedy does not preclude a judgment for declaratory relief in cases where it is appropriate.” Further, in Arneson v. Baker,76 S.D. 262 ,77 N.W.2d 325 (1956), this Court ruled that the payment under protest remedy provided by statute is not an exclusive remedy, and that declaratory relief is appropriate in cases alleging the illegality of a tax. Under the rationale of Ameson, an action for declaratory relief is consistent with [the tax refund statutes] because a request for declaratory relief does not hinder tax collection efforts. See Ameson,77 N.W.2d at 327 . Furthermore, a declaratory judgment action is a meaningful alternative to payment under protest statutes, because it permits “the joinder in interest of many plaintiffs who might otherwise, however much aggrieved, be individually unable to secure review of such questions.”
Agar I,
[¶ 19.] The circuit court and the Department finally relied on the “restriction on the availability of a declaratory judgment action with reference to its applicability to administrative matters” that was recognized in Rocky Mountain Oil & Gas Ass’n v. Wyoming,
Where the action would result in a prejudging of issues that should be decided in the first instance by an administrative body, it should not lie. This is because, if it be otherwise, all decisions by the several agencies could be bypassed, and the district court would be administering the activities of the executive branch of the government.... Accordingly, where the relief desired is in the nature of a substitution of judicial decision for that of the agency on issues pertaining to the administration of the subject matter for which the agency was created, the action should not be entertained.
Id. (internal citations omitted). We agree that courts should not be initially involved in this type of decision making concerning the administration of executive functions or programs. However, Rocky Mountain noted that the restriction is inapplicable in actions determining the constitutionality or interpretation of statutes upon which administrative action will be taken:
If, however, such desired relief concerns the validity and construction of agency regulations, or if it concerns the constitutionality or interpretation of a statute*247 upon which the administrative action is, or is to be, based, the action should be entertained. This is no more than that obviously and plainly provided for in the language of the Uniform Declaratory Judgments Act.
Id. at 1168-69. Thus, even under the Rocky Mountain analysis, the Department did not have primary jurisdiction because this action involved the interpretation of a statute, a matter clearly authorized by the Declaratory Judgment Act.
[¶20.] Therefore, in accordance with Jansen, Agar I, Ameson, Dakota Sys., and SDCL 15-6-57, we conclude that the doctrine of primary jurisdiction did not preclude this action for a prospective interpretation of the excise tax statutes.
Was the State an Indispensable Party That Had Not Been Joined
[¶ 21.] The circuit court also dismissed because it concluded that the State was an indispensable party that had not been joined. Although this suit was filed against the Secretary in his official capacity, the court apparently concluded that was insufficient to make the State a party.
[¶ 22.] In analyzing this question, we agree that the State was required to be joined as an indispensable party. SDCL 21-24-7 provides that “[w]hen declaratory relief is sought all persons shall be made parties who have or claim any interest which would be effected by the declaration, and no declaration shall prejudice the rights of persons not parties to the proceeding.” Because the State clearly had an interest that would be prejudicially affected by an adverse decision, the State was an indispensable party.
[¶ 23.] However, the suit against the Department Secretary in his official capacity joined the State as a party defendant. The State was joined as a party because, by definition, an “official-capacity suit” is “[a] lawsuit that is nominally against one or more individual state employees but ... has as the real party in interest the state or a local government.” Black’s Law Dictionary (8th ed 2004). Thus, it is well-settled that suits against officers of the state “in their official capacity, [are] in reality [suits] against the State itself.” Pennington County v. State ex rel. Unified Judicial Sys.,
May the State be Sued for Declaratory Relief
[¶ 24.] The circuit court concluded that even if the State could be joined, it could not be sued for declaratory relief because (a) the State was not a “person” within the meaning of the Declaratory Judgment Act and (b) the State was immune from suit. We disagree with both conclusions.
(a) Is the State a Person Within the Meaning of the Declaratory Judgment Act
[¶ 25.] SDCL 21-24-3 provides in relevant part: “Any person ... whose rights, status, or other legal relations are affected by a statute, ... may have determined any question of construction or validity arising under the ... statute, ... and obtain a declaration of rights, status,
[¶ 26.] In determining whether this definition includes the State, we initially note that the State is considered to be a “person” or a “public corporation” in many provisions of South Dakota law.
(b) Is the State Immune from Suit for Declaratory Relief
[¶ 27.] The common-law doctrine of sovereign immunity
[¶ 28.] Although Dakota Systems involved a constitutional challenge to tax statutes, actions seeking interpretation of tax statutes are also permitted within this sovereign immunity exception. In Cobb v. Harrington,
It is generally held by the courts, both state and federal, that where the action taken or threatened by an officer, is alleged to be in violation of the complainant’s rights, either because of a misconstruction or misapplication by the officer of a statute, or on account of the alleged unconstitutionality of the statute, the action is not in fact one against the state [for purposes of sovereign immunity] but is rather against the individual because of his lack of power and authority to do the thing complained of.
Berlowitz v. Roach,
[¶29.] Notwithstanding this exception, the circuit court concluded and the State argues that the State is immune from suit under our decision in Pennington County,
[¶30.] The State correctly points out that in rendering that decision this Court discussed sovereign immunity and stated “[t]he State cannot be sued for declaratory relief.” Id. ¶ 16. However, that language must be considered in the context of the Court’s holding that counties, as creatures of the State, may not sue their creator. Furthermore, we have recently noted that Pennington County is distinguishable because the county was attempting to obtain a declaratory ruling to obligate the State to pay the county money for the State’s use of the Courthouse. Dakota Sys.,
[¶ 31.] In this case, Nelson only sought an interpretation of the excise tax statutes as they apply to its prospective sales of automobiles. Nelson neither sought a monetary judgment nor a refund of taxes that would be paid from the state treasury. Furthermore, the action did not attempt to control or impose affirmative action upon a state official that was allegedly acting within the scope of his legal authority. Rather, this action only sought a declara
[¶ 32.] Reversed and remanded.
Notes
.SDCL 32-5B-1 (2004) provides:
In addition to all other license and registration fees for the use of the highways, a person shall pay an excise tax at the rate of three percent on the purchase price of any motor vehicle, as defined by § 32-3-1 or 32-5B-21, purchased or acquired for use on the streets and highways of this státe and required to be registered under the laws of this state. This tax shall be in lieu of any tax levied by chapters 10-45 and 10-46 on the sales of such vehicles. Failure to pay the full amount of excise tax is a Class 1 misdemeanor.
. We have not been asked to determine whether the incidence of this tax is imposed upon the buyer or seller, and we express no opinion on that issue.
. Nelson contends that if:
taxes [are] assessed on that portion of the purchase price [of] an installment contract that a motor vehicle retailer never actually receives, whether due to return or default, the retailer may be subject to double or triple taxation on the full contract price for the same vehicle, despite only ever having actually “received” a small fraction of the contract price for each sale.
. In Agar I, the Agar School District closed its high school, and the South Dakota Legislature enacted a statute that required school districts without a high school to reorganize its school district or adjust its taxation.
. ARSD 64:01:01:09 further provides:
A hearing on a petition for declaratory ruling may be held upon ten days written notice to all parties. The hearing must be public; testimony must be recorded on magnetic tape or by other equivalent means. At the request of any person, testimony given at such a hearing must be transcribed. The transcription expense must be borne by each person requesting a transcript. Parties may make their own provisions to have court reporters present at the hearing. Briefs may be filed by interested parties as the secretary may direct.
. But cf. infra note 9 (explaining that when the first exhaustion doctrine, involving the timing of judicial review of an administrative action is at issue, an administrative appeal statute limits the utilization of judicial relief).
. SDCL 10-59-17 provides:
A taxpayer seeking recovery of tax, penalty, or interest imposed by the chapters set out in § 10-59-1 shall follow the procedure established in this chapter. No court has jurisdiction of a suit to recover such taxes, penalty, or interest unless the taxpayer seeking the recovery of tax complies with the provisions of this chapter.
. SDCL 10-59-20 provides:
No court may restrain or delay the collection and payment of a tax, penalty, or interest provided for in this chapter. A taxpayer shall pay the taxes when due and may seek recovery as provided in this chapter.
. Agar II did, however, recognize the exception when administrative action has taken place and the exhaustion question involves the timing of judicial review. Agar II noted that when there has been administrative action and there is no request for a refund, "appeal statutes" (from the administrative action) are an exclusive remedy. Agar II,
. See SDCL Ch. 5-18 (governing public contracts awarded on competitive bids and defining public corporation to include “the state”); SDCL 25-5-15 (governing parental liability for willful acts and stating that a public corporation includes the “State of South Dakota”); SDCL Ch. 37-28 (governing foreign trade zones and defining public corporation to include "this state”); SDCL Ch. 43-41B (governing unclaimed property and defining a person as a “state or other government”); SDCL Ch. 49-34A (governing gas and electric utilities regulation and defining person to include "any of the federal, state and local governments”).
. See Hoiengs v. County of Adams,
Although one court concluded that the word "person” did not include a state or political subdivision based on general rules of statutory construction, see Bayshore Sanitary Dist. v. San Mateo County,
.See Parks,
Declaratory relief against the state has also been approved to challenge an agency's rules. Homestake Min. Co. v. Board of Envtl. Protection,
. We acknowledge the contrary dictum in Pennington County stating:
Under SDCL 21-24-2, the State does not meet the definition of a person because South Dakota is a state, not a person, partnership, joint stock company, unincorporated association, society or a municipal, public or other corporation of any character. Since the State is not a person, the State is not a proper party and the trial court did not have jurisdiction to enter declaratory relief in favor of the county.
Pennington County v. State ex rel. Unified Judicial Sys., 2002 SD 31, ¶ 16,641 N.W.2d 127 , 132.
However, considering South Dakota's long history of permitting such actions, the substantial authority not discussed in Pennington County, and the required liberal construction of the Act, we conclude that the State is a "person” within the meaning of the Act. To the extent contrary dictum is expressed in Pennington County, it is overruled.
. Sovereign immunity "was well established in English law [where] the Crown could not be sued without consent in its own courts.” Cromwell v. Rapid City Police Dep’t,
. "The Legislature shall direct by law in what manner and in what courts suits may be brought against the state.” SD const art III, § 27.
. See also Ex parte State Dep't of Human Res.,—So.2d—,—,
Concurrence Opinion
(concurring specially).
[¶ 35.] I agree with the holding of this case:
Nelson’s declaratory judgment action against the State of South Dakota was not barred by sovereign immunity and Nelson was entitled to a declaration concerning the applicability of the excise tax to motor vehicles returned or repossessed before installment sale contracts were completed.
This holding is completely within the power of courts to provide declaratory relief as provided in 1925 by the South Dakota Legislature in SDCL 21-24-1.
[¶ 36.] I challenge the implication in paragraphs 13 and 14 that a Department’s declaratory process could be intended to be exclusive, mandated, or required as the sole means of relief for all the reasons stated herein.
[¶ 37.] In addition, we should overrule Pennington County rather than simply “limit its reach” because, as I stated in my dissent therein, it was “inconsistent and ... wrong” on the issue of jurisdiction. Id. at 134.
. SDCL 21-24-1 provides:
Courts of record within their respective jurisdictions shall have power to declare rights, status, and other legal relations whether or not further relief is or could be claimed. No action or proceeding shall be open to objection on the ground that a de-
claratory judgment or decree is prayed for. The declaration may be either affirmative or negative in form and effect; and such declaration shall have the force and effect of a final judgment or decree.
(emphasis added).