IN THE SUPREME COURT OF MISSISSIPPI NO.2011-CA-01274 COMMONWEALTH BRANDS, INC., THE CORR-WILLIAMS COMPANY AND VICKSBURG SPECIALTY COMPANY APPELLANTS vs. J. ED MORGAN, COMMISSIONER OF REVENUE OF THE DEPARTMENT OF REVENUE APPELLEE ON APPEAL FROM THE CHANCERY COURT OF THE FIRST JUDICIAL DISTRICT OF HINDS COUNTY, MISSISSIPPI CASE NO. G-2009-1681 W/4 HONORABLE PATRICIA D. WISE BRIEF OF APPELLANTS THE CORR-WILLIAMS COMPANY AND VICKSBURG SPECIALTY COMPANY ORAL ARGUMENT REQUESTED Stephen J. Carmody, Esq., MSB Louis G. Fuller, Esq., MSB Brunini, Grantham, Grower & Hewes, 190 East Capitol Street, Suite 100 (39201) Post Office Drawer 119 Jackson, Mississippi 39205 Telephone: (601) 948-3101 Facsimile: (601) 960-6902 scarmody@brunini.com lfuller@brunini.com Attorneys for The Corr-Williams Company and Vicksburg Specialty Company
IN THE SUPREME COURT OF MISSISSIPPI NO.2011-CA-01274 COMMONWEALTH BRANDS, INC., THE CORR-WILLIAMS COMPANY AND VICKSBURG SPECIALTY COMPANY APPELLANTS vs. J. ED MORGAN, COMMISSIONER OF REVENUE OF THE DEPARTMENT OF REVENUE APPELLEE CERTIFICATE OF INTERESTED PERSONS The undersigned counsel of record certifies that the following listed persons have an interest in the outcome of this case. These representations are made in order that the Justices of the Supreme Court and/or the Judges of the Court of Appeals may evaluate possible disqualification or recusal: 1. Commonwealth Brands, Inc., Appellant; 2. The Corr-Williams Company, Appellant; 3. Vicksburg Specialty Company, Appellant; 4. 1. Ed Morgan, Commissioner of Revenue of the Mississippi Department of Revenue, Appellee; 5. Fred L. Banks, Luther T. Munford, R. Gregg Mayer, Phelps Dunbar, LLP; Robert 1. Brookhiser, Elizabeth B. McCallum, Baker Hostetler, Attorneys for Commonwealth Brands, Inc.; 6. Stephen 1. Carmody, Louis G. Fuller, Brunini, Grantham, Grower and Hewes, PLLC, Attorneys for The Corr-Williams Company and Vicksburg Specialty Company; 7. Gary Stringer, Attorney for J. Ed Morgan; and 1
8. Honorable Patricia D. Wise, Hinds County Chancery Court Judge. SO CERTIFIED, this the 3/~ day of January, 2012. ~~~ STEPHEN J~ CARMODY, Attorney for The Corr- Williams Company and Vicksburg Specialty Company 11
TABLE OF CONTENTS CERTIFICATE OF INTERESTED PERSONS... i TABLE OF CONTENTS...""""''''''''''''''''''''''''''''''''... iii TABLE OF AUTHORITIES..."""''''''''''''''''''''''''''''''''... iv INTRO D U CTI ON... 1 STATEMENT OF THE ISSUES... 1 STATEMENT OF THE CASE..."..."""'"... 1 STATEMENT OF THE FACTS... 2 SUMMARY OF THE ARGUMENT...3 ARGUMENT... 3 I. The NSM Tax Discriminated Against Interstate Commerce...3 II. III. IV. A Tax to be Collected From Out-of-State Consumers is an Exercise of Extraterritorial Jurisdiction Which Violates the Due Process Clause....4 Corr-Williams and Vicksburg Specialty Are Entitled to an Award of Attorneys' Fees Under 42 U.S.C. 1983 and 1988...,.... 4 Taxes, Penalties and Interest Related to the NSM Tax Cannot be Collected From Corr-Williams and Vicksburg Specialty.. """"... 5 CONCLUSION... 7 CERTIFICATE OF SERVICE... ""'''''''''''''''''''''''''''''''''''' ""''''''''''''''''... 8 111
TABLE OF AUTHORITIES FEDERAL STATUTES: 42 U.S.C. 1983...4 42 U.S.C. 1988...4 OTHER STATUTES: Miss. Code Ann. 11-13-11... 4 Miss. Code Ann. 11-13-15... 6 Miss. Code Ann. 27-69-13...4 Miss. Code Ann. 27-69-41... 5, 6 Miss. Code Ann. 27-70-1, et seq... 6 Miss. Code Ann. 27-70-5(1)(b)... 6 Miss. Code Ann. 27-70-5(4)... 5 Miss. Code Ann. 27-70-19... 5, 6 Miss. Code Ann. 27-70-19(1)... 6 Miss. Code Ann. 27-77-1, et seq... 4 IV
INTRODUCTION Appellants The Corr-Williams Company ("Corr-Williams") and Vicksburg Specialty Company ("Vicksburg Specialty") (sometimes referred to collectively as the "Wholesalers") join in the Introduction, the Statement of the Issues, the Statement ofthe Case, and the Statement of Facts, and Summary of Argument submitted by Co-Appellant Commonwealth Brands, Inc. ("Commonwealth"). For the reasons set forth in Commonwealth's Brief and one other additional reason that applies only to wholesalers like Corr-Williams and Vicksburg Specialty, the Chancellor erred as a matter of law. STATEMENT OF THE ISSUES Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the Statement of the Issues as set forth by Co-Appellant Commonwealth Brands. In addition to the succinctly stated issues (1-3) set forth by Commonwealth, Wholesalers submit the following additional issue: 4. To the extent the Judgment allows the Department of Revenue to seek unpaid NSM taxes, interest and penalties from Wholesalers, it is invalid and the Department of Revenue's position is erroneous. STATEMENT OF THE CASE Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the Statement of the Case as set forth by Commonwealth in its Brief. In addition to Commonwealth's statement, Wholesalers would also add that the Department of Revenue has insisted in court pleadings and in its cross-appeal that Wholesalers are liable for taxes, interest and penalties and that the judgment amount can be levied on their 1
injunction bonds. However, the applicable statutes and the legislative intent are clear -- the NSM fee is imposed on out-of-state "non-settling" manufacturers, not in-state wholesalers of the NSM products. Accordingly, Corr-Williams and Vicksburg Specialty are not liable for any of the NSMtaxes. STATEMENT OF THE FACTS Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the Statement of the Facts as set forth by Co-Appellant Commonwealth in its Brief of Appellant. In addition, Wholesalers provide the following additional relevant facts: Commonwealth and Corr-Williams filed a Complaint and Motion for Expedited Declaratory and Injunctive Relief against the Department of Revenue on October 9, 2009, seeking preliminary and permanent injunctive relief from the Department's collection of the NSM tax. (R.E. 2, 3). In their Complaint and Motion, Commonwealth and Corr-Williams contended that the NSM tax violates the Interstate Commerce Clause as it is a discriminatory tax on the distribution of cigarettes in interstate commerce and violates the Due Process Clause when passed on to the ultimate consumer or user in another state. (R.E. 2, 3). On October 12, 2009, Corr-Williams filed a Motion for Temporary Restraining Order against the Department. (R.E. 4). A TRO was issued against the Department on October 19, 2009 and subsequently continued on October 29, 2009. (R.E. 5). On November 9, 2009, the Department filed an Answer to Plaintiffs' Complaint, denying Plaintiffs' claims. (R. 114) On December II, 2009, the trial court entered a preliminary injunction against the Department of Revenue. (R.E. 6). Vicksburg Specialty, another cigarette wholesaler adversely affected by the NSM tax, filed a motion to intervene in this lawsuit on December 18,2009. (R.E. 7). After the trial court granted the wholesaler's motion, Vicksburg Specialty filed a Motion for Expedited Declaratory 2
and Injunctive Relief on January 13, 2010, and the trial court issued a preliminary injunction against the Department of Revenue. (R.E. 8,9). After the parties submitted proposed findings of fact and conclusions of law, the trial court entered an Order and Opinion on August 9, 2010. (R.E. 10). In the Order and Opinion, the trial court applied the four-part test from Marx for determining whether a taxation statute in accordance with the Commerce Clause and concluded that the NSM tax statutes did not violate the Commerce Clause or Due Process Clause. (R.E. 10). On September 1,2010, the Department of Revenue filed its Motion for Entry of Final Judgment. (R. 344). In its motion and in its Cross-Appeal, the Department of Revenue seeks to assess and collect the NSM taxes at issue in this lawsuit directly from Corr-Williams and Vicksburg Specialty. For the reasons set forth more fully below, the Supreme Court should reject the Department of Revenue's argument seeking assessment of the NSM tax, interest, and penalties against the Wholesalers. SUMMARY OF THE ARGUMENT Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the Summary of the Argument as set forth by Co-Appellant Commonwealth in its Brief of Appellant. In addition to these arguments, Wholesalers further identify an additional argument: Taxes, penalties and interest related to the NSM Tax cannot be collected from Corr-Williams and Vicksburg Specialty. ARGUMENT I. The NSM tax discriminated against interstate commerce. Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the arguments of Co-Appellant Commonwealth at Section I of its Brief of Appellant. 3
II. A tax to be collected from out-of-state cousumers is au exercise of extraterritorial jurisdiction which violates the due process clause. Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the arguments of Co-Appellant Commonwealth at Section II of its Brief of Appellant. III. Corr-Williams and Vicksburg Specialty are entitled to an award of attorneys' fees under 42 U.S.c. 1983 and 1988. Appellants Corr-Williams and Vicksburg Specialty incorporate and adopt the arguments of Co-Appellant Commonwealth at Section III of its Brief of Appellant. In addition to the arguments presented by Commonwealth, Corr-Williams and Vicksburg Specialty present the following additional argument: Neither Miss. Code Ann. 11-13-11 nor 27-77-1, et seq., provide adequate relief to wholesalers such as Corr-Williams and Vicksburg Specialty. The first statute provides solely injunctive relief which is insufficient to compensate Corr-Williams and Vicksburg Specialty for the ill-implemented NSM tax statute. Pursuant to Miss. Code Ann. 27-77-\, taxpayers have rights to receive refunds. However, in order to receive a refund, a taxpayer must show that it "did not directly or indirectly collect the tax from anyone else." Vicksburg Specialty and Corr-Williams are not considered "taxpayers" for purposes of the statute, although they have been asked by manufacturers to bear the cost of the unconstitutional NSM tax at the risk of losing distribution business from these manufacturers. Further, in order to follow the statutory NSM tax scheme, Vicksburg Specialty and Corr-Williams must pass this tax along to the "ultimate consumer or user." Miss. Code Ann. 27-69-13. Because Vicksburg Specialty and Corr-Williams cannot show that they both satisfy the NSM tax statute and that they did not pass along the NSM tax burden, then they cannot receive relief pursuant to this statute. Thus, these Mississippi statutes do not provide a plain, efficient, speedy remedy for Vicksburg Specialty and Corr-Williams. In the event this Court 4
rules in favor of the Appellants, reversing the lower court's decision, Vicksburg Specialty and Corr-Williams should be allowed to collect reasonable attorneys' fees in an amount determined by the Chancellor. IV. Taxes, penalties and interest related to the NSM Tax cannot be collected from Corr Williams and Vicksburg Specialty. Pursuant to Miss. Code Ann. 27-70-5(4), the Mississippi Legislature authorized the assessment and collection ofthe NSM tax from non-settling cigarette manufacturers. "[T]he fee imposed by this chapter is imposed, collected, paid, administered and enforced in the same manner, taking into account that the fee is imposed on non-settling manufacturers, as the taxes imposed by the Tobacco Tax Law, as appropriate." Miss. Code Ann. 27-70-5(4) (emphasis added). Clearly, the NSM tax is not assessed against wholesalers like Corr-Williams and Vicksburg Specialty. Nonetheless, in its pleadings submitted to the trial court and the Cross- Appeal filed by the Department of Revenue, the Appellee seeks the assessment and collection of the NSM tax, together with penalties and interest, from Wholesalers. In support of its assessment position, the Department of Revenue relies on Miss. Code Ann. 27-70-19 and 27-69-41 arguing that it is entitled to a judgment against Wholesalers in the amount of the NSM taxes that were not assessed during the time of this litigation. The Department of Revenue also asserts that it is entitled to a judgment against Wholesalers which includes a ten percent (10%) penalty and twelve percent (12%) interest on the NSM taxes pursuant to these statutes. However, the Department of Revenue' s interpretation of these statutes is misguided and the logic in its conclusion is flawed. Over the objection ofthe Wholesalers, after this Court's issuance of preliminary injunctions for Wholesalers, they were required to post bonds in the amounts of $50,000 (Corr- Williams) and $60,000.00 (Vicksburg Specialty), respectively. (R. 161,201). As set forth by the trial court, the bonds represented "the estimated six-month liability for the fee imposed by Miss. 5
Code Ann. 27-70-5(1)(b) on manufacturers, excluding Commonwealth Brands, related to cigarettes that are sold, purchased, or otherwise distributed in this state for sale outside of this state" by Wholesalers. (R.E. 6, 9). From the language of its Orders, the trial court recognized that the NSM tax was imposed on manufacturers rather than wholesalers and the injunctions effectively enjoined the Department of Revenue from collecting the NSM tax from the nonsettling manufacturers selling cigarettes to Wholesalers. However, the Orders of the trial court in no way implied or even intimated that the Wholesalers would be ultimately liable for this tax assessment. The Department of Revenue seeks payment of the NSM taxes, together with interest and penalties, from Corr-Williams and Vicksburg Specialty, wholesalers of cigarettes produced by non-settling manufacturers. However, such action is not authorized by Miss. Code Ann. 27-70- 1 et seq. While Miss. Code Ann. 27-70-19(1) states that cigarettes manufactured by a nonsettling manufacturer that has not paid the NSM tax are treated as tobacco subject to the Tobacco Tax Law (permitting the imposition of penalties and interest), the statute also states that "the manufacturer is subject to all penalties imposed by that act for violations ofthat act." Miss. Code Ann. 27-70-19(1) (emphasis added). Thus, as with the NSM tax, cigarette wholesalers like Corr-Williams and Vicksburg Specialty are not subject to the penalties and interest assessment as described in Miss. Code Ann. 27-70-19, 27-69-41, and 11-13-15, and thus the Department of Revenue's position is flawed in that it attempts to seek assessment of such penalties and interest against Corr-Williams and Vicksburg Specialty.!fthe Department of Revenue eventually prevails on its position, there is absolutely nothing that would prevent it from assessing and collecting the NSM tax against the manufacturers. 6
CONCLUSION Appellants Corr-Williams and Vicksburg Specialty join in Co-Appellant Commonwealth's Brief. The Court should declare the NSM statute, at least as it applies to sales of products by wholesalers like Corr-Williams and Vicksburg Specialty to retailers and Williams and Vicksburg Specialty costs and attorneys' fees. Finally, under no circumstances should the Wholesalers be ordered to pay the NSM taxes. The NSM taxes at issue in this lawsuit should be assessed by the Department of Revenue, and the manufacturers should pay the tax - not Corr-Williams and Vicksburg Specialty. consumers in other states, to be unconstitutional. In addition, the Court should award Corr- ~I,I- RESPECTFULLY SUBMITTED, this the ~ day of January, 2012. THE CORR-WILLIAMS COMPANY AND VICKSBURG SPECIALTY COMPANY BY:~(~ ".. _... OF COUNSEL: Stephen J. Carmody, Esq., MSB Louis G. Fuller, Esq., MSB N" Brunini, Grantham, Grower & Hewes, PLLC 190 East Capitol Street, Suite 100 (39201) Post Office Drawer 119 Jackson, Mississippi 39205 Telephone: (601) 948-3101 Facsimile: (601) 960-6902 scarmody@brunini.com Ifuller@brunini.com 7
CERTIFICATE OF SERVICE I, Stephen J. Carmody, do hereby certify that I have this day by United States mail, postage prepaid, forwarded a true and correct copy of the foregoing document to: Fred L. Banks, Jr., Esq. Luther T. Munford, Esq. R. Gregg Mayer, Esq. PHELPS DUNBAR LLP Post Office Box 16114 Jackson, MS 39236-6114 Robert J. Brookhiser, Esq. Elizabeth B. McCallum, Esq. BAKR HOSTETLER LLP 1050 Connecticut Avenue NW, Suite 1100 Washington, DC 20036 Gary W. Stringer, Esq. P.O. Box 22828 Jackson,MS 39225 Honorable Patricia D. Wise Hinds County Chancery Court 316 S. President St. Jackson,MS 39201 f- This, the3tfl!.- day of January, 2012. Sp/~ Stephen J. Carmody 8