STATE OF OHIO AND JOSEPH W. TESTA, TAX COMMISSIONER OF OHIO v. GREAT LAKES MINERALS, LLC
2018-SC-000161-TG
Supreme Court of Kentucky
December 19, 2019
Order Denying Petition for Rehearing and Modification entered April 30, 2020
RENDERED: DECEMBER 19, 2019
TO BE PUBLISHED
STATE OF OHIO AND
JOSEPH W. TESTA,
TAX COMMISSIONER OF OHIO APPELLANTS
2018-SC-000161-TG
ON TRANSFER FROM COURT OF APPEALS
V. CASE NO. 2018-CA-000484
GREENUP CIRCUIT COURT NO. 17-CI-00311
HONORABLE ROBERT B. CONLEY, JUDGE
GREAT LAKES MINERALS, LLC
OPINION OF THE COURT BY JUSTICE KELLER
REVERSING AND REMANDING
Appellants, State of Ohio and Joseph W. Testa, Tax Commissioner of
Ohio, appeal an order of the Greenup Circuit Court denying their motion to
dismiss Great Lakes Minerals, LLC’s suit against them. For the following
reasons, we reverse the decision of the Greenup Circuit Court and remand with
instructions to dismiss all claims.
I. BACKGROUND
Great Lakes Minerals, LLC (hereinafter, Great Lakes) is a mineral
processing company1 that sells minerals to buyers at its Greenup County,
Kentucky plant. Great Lakes maintains that it sells its products in Kentucky;
all transactions, including payment and delivery of goods, occur in Kentucky;
Great Lakes does not have a physical presence in Ohio; and Great Lakes
neither directly nor indirectly delivers its products to the State of Ohio.
Stated very simply, Ohio has created a commercial activity tax (CAT) that
taxes persons who do business and have a substantial nexus to Ohio. O.R.C.2
5751.02(A). Ohio’s Department of Taxation (Department) may issue a CAT
assessment to an out-of-state business for outstanding liability to Ohio arising
from transactions with an Ohio company. Businesses are provided
administrative remedies to protest CAT assessments to the Tax Commissioner
of Ohio, then the Ohio Board of Tax Appeals, and then the Ohio appellate
courts. O.R.C. 5751.09; O.R.C. 5717.02; ORC 5717.04.
$104 million in minerals that were then shipped to Ohio addresses. The
Department issued a CAT assessment against Great Lakes for $325,000. Great
Lakes paid a portion of the assessment but petitioned for reassessment with
the Commissioner, challenging the assessment’s validity.
One month after protesting to the Commissioner, Great Lakes sued Ohio
and Joseph W. Testa, Ohio’s Tax Commissioner, in his official and individual
capacities, in Greenup Circuit Court. Great Lakes sought: (1) a declaratory
judgment that it is not subject to Ohio’s CAT; (2) monetary relief pursuant to
42 U.S.C.A. § 1983 for the forced collection of taxes not owed, in violation of
the Ohio and United States Constitutions; and (3) a determination pursuant to
CR3 60.03 that it would be inequitable to require Great Lakes to defend an
action in a foreign state. Ohio moved to dismiss Great Lakes’ complaint on
grounds of sovereign immunity, qualified immunity, comity, lack of personal
jurisdiction, and failure to exhaust administrative remedies. The Greenup
Circuit Court denied Ohio’s Motion to Dismiss in a two-sentence order, and
Ohio filed a Notice of Appeal with the Court of Appeals. Ohio moved to transfer
jurisdiction over that interlocutory appeal to this Court, which this Court
granted. We then abated this case pending the Supreme Court of the United
States’ decision in Franchise Tax Board of California v. Hyatt, 139 S.Ct. 1485
(2019) (hereinafter “Hyatt III”). Following the rendition of Hyatt III, this Court
granted the Appellants’ motion for leave to file supplemental briefs.
Supplemental briefing by the parties has been completed, and the matter is
ripe for consideration.
II. ANALYSIS
The State of Ohio argues that it is protected by sovereign immunity
under Hyatt III. Testa argues that he is entitled to the same sovereign immunity
as Ohio in his official capacity and qualified official immunity in his personal
capacity. Great Lakes, on the other hand, argues that sovereign immunity does
not apply to actions for declaratory or injunctive relief and that sovereign
immunity does not apply to the appellants in the capacity in which they were
sued pursuant to 42 U.S.C.A. § 1983. The question of whether a defendant is
protected by sovereign immunity, governmental immunity, or official immunity
is a question of law. Rowan Cty. v. Sloas, 201 S.W.3d 469, 475 (Ky. 2006). This
Court reviews questions of law de novo. Cumberland Valley Contractors, Inc. v.
Bell Cty. Coal Corp., 238 S.W.3d 644, 647 (Ky. 2007).
A. State of Ohio
We will first address whether the State of Ohio is protected by the
doctrine of sovereign immunity. Ohio relies, in large part, on Hyatt III to argue
that it is entitled to sovereign immunity protection. In that case, Hyatt sued the
Franchise Tax Board of California in Nevada state court for various torts the
Tax Board allegedly committed during a tax audit. Hyatt III, 139 S.Ct. at 1491.
After discussing the United States Constitution at length as well as the intent
of the framers, the United States Supreme Court held that the Tax Board of
California was protected by sovereign immunity and could not be sued in
Nevada state court. Id. at 1492. Great Lakes, however, attempts to distinguish
the case at bar from Hyatt III because Hyatt was seeking a monetary award of
damages from California. Great Lakes,
damages against Testa in his individual capacity and declaratory, injunctive,
and equitable relief against Ohio and Testa in his official capacity. Great Lakes
argues that the United States Supreme Court’s 2016 decision in Franchise Tax
Board of California v. Hyatt, 136 S.Ct. 1277 (hereinafter “Hyatt II”), is actually
the controlling authority.4
In Hyatt II, the predecessor of Hyatt III, the Supreme Court reversed a
monetary award against the Franchise Tax Board of California, an out-of-state
agency, that was greater than that which Nevada would award in a similar suit
against its own state agency. Id. The Court concluded that in awarding these
higher-than-otherwise-allowed damages, Nevada “applied a special rule of law
that evinces a policy of hostility toward California.” Id. at 1281 (internal
quotation marks omitted). Hyatt II does not control our decision here today.
Hyatt III, however, does control, at least in part, our decision in this case.
The United States Supreme Court in Hyatt III held, unequivocally, that under
the United States Constitution, “States retain their sovereign immunity from
private suits brought in the courts of other States.” 139 S.Ct. at 1492. Great
Lakes argues that the word “retain” in the above quoted sentence dictates that
this Court look to our general immunity principles as applied to declaratory
and injunctive relief. However, the U.S. Supreme Court went on to say,
“[A]lthough the Constitution assumes that the States retain their sovereign
immunity except as otherwise provided, it also fundamentally adjusts the
States’ relationship with each other and curtails their ability, as sovereigns, to
decline to recognize each other’s immunity.” Id. at 1493. The Court then went
on to say, “Interstate immunity, in other words, is ‘implied as an essential
component of federalism.’” Id. at 1498 (quoting Nevada v. Hall, 440 U.S. 410,
430-31 (1979) (Blackmun, J., dissenting)).
The U.S. Supreme Court in Hyatt III made no distinction between claims
seeking monetary damages and claims seeking other types of relief. “The
Constitution...embeds interstate sovereign immunity within the constitutional
design.” Id. at 1497. Accordingly, the State of Ohio is protected by sovereign
immunity, and Great Lakes’ claims against it should have been dismissed. We,
therefore, reverse the Greenup Circuit Court’s denial of the State of Ohio’s
motion to dismiss.
B. Joseph Testa in his official capacity
We next address whether Joseph Testa is immune from suit in his official
capacity as Tax Commissioner of Ohio. In general,
action against an entity of which an officer is an agent.... As long
as the government entity receives notice and an opportunity to
respond, an official-capacity suit is, in all respects other than
name, to be treated as a suit against the entity.
Kentucky v. Graham, 473 U.S. 159, 165-66 (1985) (internal citations and
quotations omitted). As such, Testa is entitled to the same sovereign immunity
that protects the state of Ohio, and therefore Great Lakes’ claims against him
in his official capacity should have been dismissed. We, therefore, reverse the
Greenup Circuit Court’s denial of Testa’s motion to dismiss the claims brought
against him in his official capacity as Tax Commissioner of Ohio.
C. Joseph Testa in his personal capacity
Having concluded that both the state of Ohio and Joseph Testa in his
official capacity are immune from suit, we turn to the remaining question
before us, namely, whether immunity protects Joseph Testa in his personal
capacity. “Personal-capacity suits seek to impose personal liability upon a
government official for actions he takes under color of state law.” Id. at 165. As
such, the only claim against Testa in his personal capacity is that for monetary
relief pursuant to 42 U.S.C.A. § 1983 for the alleged forced collection of taxes
not owed, in violation of the Ohio and United States Constitutions.
On the merits, to establish personal liability in a § 1983 action, it
is enough to show that the official, acting under color of state law,
caused the deprivation of a federal right.... When it comes to
defenses to liability, an official in a personal-capacity action may,
depending on his position, be able to assert personal immunity
defenses, such as objectively reasonable reliance on existing law.
Id. at 166-67 (internal citations omitted).
The United States Supreme Court time and again has recognized that §
1983 “was not meant to effect a radical departure from ordinary tort law and
the common-law immunities applicable in tort suits.” Rehberg v. Paulk, 566
U.S. 356, 361 (2012). Our Court recently reaffirmed this principle when we
stated, “As explained in Rehberg, the scope of immunity available to state
government officials in a federal civil rights action under § 1983 derives from
the state’s common law immunity doctrine.” Martin v. O’Daniel, 507 S.W.3d 1,
5 (Ky. 2016). Thus, to determine whether Testa, in his personal capacity, is
immune from suit, we must turn to the common law doctrine of immunity. Any
immunity determination by this Court would require us not only to evaluate
Testa’s actions but also to interpret Ohio tax law.
Because our decision would ultimately turn on Ohio law, we feel
compelled to consider the doctrine of comity. This doctrine “is one of deference
and respect among tribunals of overlapping jurisdiction; in accordance with
comity, the courts of one state or jurisdiction give effect to the laws and judicial
decisions of another, not as a matter of obligation but out of deference and
respect.” 16 Am. JUR. 2d Conflict of Laws § 11 (2019). For example,
[i]f Kentucky fails to respect that a cause of action accrues in a
foreign jurisdiction, like New York, although the final event
necessary for the cause of action occurred in New York, Kentucky
shows disrespect for New York’s territoriality in derogation of
comity principles that the Kentucky Supreme Court may value.
Combs v. Int’l Ins. Co., 354 F.3d 568, 591 (6th Cir. 2004).
The Supreme Court of the United States has applied the doctrine of
comity in the context of a § 1983 action for the unlawful administration of a
state’s tax system, ultimately dismissing such claims. For example, in Fair
Assessment in Real Estate Association v. McNary, 454 U.S. 100 (1981), the
Supreme Court held that “taxpayers are barred by the principle of comity from
asserting § 1983 actions against the validity of state tax systems in federal
courts,” including actions for damages. Id. at 116. In doing so, the McNary
Court explained the reasoning behind federal courts’ deference to state tax
administration by citing with approval a concurring in part and dissenting in
part decision by Justice Brennan:
The special reasons justifying the policy of federal noninterference
with state tax collection are obvious. The procedures for mass
assessment and collection of state taxes and for administration
and adjudication of taxpayers’ disputes with tax officials are
generally complex and necessarily designed to operate according to
established rules. State tax agencies are organized to discharge
their responsibilities in accordance with the state procedures. If
federal declaratory relief were available to test state tax
assessments, state tax administration might be thrown into
disarray, and taxpayers might escape the ordinary procedural
requirements imposed by state law.
Id. at 108, n.6 (quoting Perez v. Ledesma, 401 U.S. 82, 128, n.17 (1971)
(Brennan, J., concurring in part and dissenting in part)).
Though McNary addressed comity between federal and state courts, we
feel compelled to apply similar principles to the case at hand. As noted above,
the question before us—whether Testa may be held personally liable for
violations of § 1983—turns on Ohio law. In essence, then, we are required to
determine whether Testa’s imposition of the CATS assessment on Great Lakes
was consistent with Ohio law. As the McNary Court explained, any declaration
from this Court about the lawfulness of Testa’s application of Ohio law would
be intrusive and could disrupt Ohio’s state tax administration.
In sum, we believe that Ohio’s state courts are better suited to efficiently
evaluate and apply Ohio law to this issue. Should the case progress further,
Ohio’s courts would also be better suited to evaluate the facts, and to consider
whether Testa caused the deprivation of a constitutional right while acting
under the color of Ohio state law. Accordingly, relying on the principle of
comity, we hereby dismiss Joseph Testa in his personal capacity.
III. CONCLUSION
For the foregoing reasons, we reverse the judgment of the Greenup
Circuit Court and remand to the Greenup Circuit Court for dismissal of the
claims.
Minton, C.J.; Hughes, Keller, Lambert, VanMeter, and Wright, JJ.,
sitting. All concur. Nickell, J., not sitting.
COUNSEL FOR APPELLANTS:
Thomas Edward Madden
Daniel W. Fausey
Assistant Attorneys General
COUNSEL FOR APPELLEE:
Thomas Dulaney Bullock
Robert V. Bullock
James Roscoe Stinetorf
Bullock & Coffman, LLP
STATE OF OHIO AND JOSEPH W. TESTA, TAX COMMISSIONER OF OHIO v. GREAT LAKES MINERALS, LLC
2018-SC-000161-TG
Supreme Court of Kentucky
April 30, 2020
2018-SC-000161-TG
STATE OF OHIO AND JOSEPH W. TESTA, APPELLANTS
TAX COMMISSIONER OF OHIO
ON TRANSFER FROM COURT OF APPEALS
CASE NO. 2018-CA-000484-MR
V. GREENUP CIRCUIT COURT NO. 17-CI-00311
HONORABLE ROBERT B. CONLEY, JUDGE
GREAT LAKES MINERALS, LLC APPELLEE
ORDER DENYING PETITION FOR REHEARING AND MODIFICATION
The Petition for Rehearing and Modification, filed by the Appellee, of the
Opinion of the Court, rendered December 19, 2019, is DENIED.
All sitting. All concur.
ENTERED: April 30, 2020.