Petition — El Paso Natural Gas Co. v. Arizona

Supreme Court, U. &

FILED

DEC 26 319

MICHABL RODAK, JR., CLERR

In THE

Supreme Court of the united States

OcroBEerR TERM, 1979

No. 79-994*

EL PASO NATURAL GAS COMPANY,

Petitioner,

Vs.

STATE OF ARIZONA, et al.,

: Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF ARIZONA

HAROLD C. WARNOCK

STEPHEN A. THOMAS

Two East Congress Street

Ninth Floor

Tucson, Arizona 85701

Attorneys for Petitioner

So

|

!

INDEX

PAGE

Cie Se se tee a 1

EEE GELS DELLD SS PEL A TERE 1

Questions Presented for Review ....................-.:-:s:seses-0+« 2

Constitutional Provision Involved ......................-..0+-+-+- 2

I rr 2

Reasons for Granting the Writ

1. The Opinion Below is Contrary to and in

Disregard of All Prior Decisions of this

Court Dealing with the Limitations Im-

posed by the Due Process Clause on the _.

Application of Res Judicata to Persons Not

Parties to an Action .............. 7

2. Unless Reversed by this Court, Applica-

tion of the Opinion Below in Future Ari-

zona Cases Will Lead to Violations of the

Due Process Rights of Other Litigants ........ 16

8. It Would Be Appropriate for this Court to

Define the Scope of Virtual Representa-

Ce okie Theat Sia i a a: 18

Ree te MERE 4 PMNS re MOE ARNO 2 SO OEE 21

CITATIONS

CASES:

Blount v. City of Laramié, 510 P.2d 294

he EE Bpitinel a SARE eo WSs VCC Oe 14, 20

Bogard v. Cook, 586 F.2d 399 (5th Cir. 1978) ............ 138

City of Hueytown v. Burge, 342 So.2d 389

CFA TE ceincstaidlits- deg ncdlpieeoscccscarsieiinpsacionapeitee 10

Cochise County v. Southern Pacific Co., 99 Ariz.

$85, 409 P.2d 549 (1966) 2.0... ee 46

ii

INDEX (continued )

PAGE .

Consumers Union of the United States, Inc. v.

Consumer Product Safety Commission,

590 F.2d 1209 (D.C. Cir. 1978) -ceccccessccvseseesesseeeee 19

E. B. Elliott Adv. Co. v. Metropolitan Dade

County, 425 F.2d 1141 (5th Cir.), cert. denied

rs Oe Or ee 10

Equal Employment Opportunity Commission v.

Datapoint Corp. 570 F.2d 1264 (5th Cir. 1978).... 19

Gist v. Stamford Hospital District, 557 S.W.2d 556

(Tex. Civ. App. 1977), cert. denied, 489 U.S.

ES aR REY ERS aaa 6, 18

Gonzales v. Cassidy, 474 F.2d 67 (5th Cir.1978)........ 18

Hamilton v. Town of Valley Brook, 487 P.2d 708

(COMM: OUR) th alah seit tl 18

Hansberry v. Lee, 311 U.S. 32 (1940)...: 8, 9, 11, 14, 15, 21

Humphreys v. Tann, 487 F.2d 666 (6th Cir. 1973),

cert. denied, 416 U.S. 956 (1974) ..s....s.ssesseeeo-- 10

In re Nissan Motor Corporation Antitrust Litiga-

tion, 471 F.Supp 754 (S.D. Fla. 1979) ................ 11

Jefferson v. Greater Anchorage Area Borough,

451 P.2d 730 (Alaska 1969) ..ccccccccccscssssssssssssss+s000 19

Mullane v. Central Hanover Bank & Trust Co., 339

US. 908 (10069 Lf OS iia tes 1.9 *yels

New Castle County v. Sterling Properties, Inc., 879

AO 1188 (ek 19PT) 5 19

Pollard v. Cockrell, 578 F.2d 1002 (5th Cir. 1978)...... 10

Roberts v. American Airlines, Inc., 526 F.2d 757

(7th Cir. 1975), cert. denied, 425 U.S.

ee RR ee oe wot meee 10

iii

INDEX (continued )

PAGE

Seibert v. City of Columbia,

461 S.W.2d 808 (Mo. 1971) ..eccccscssssscccscccsccecscessssee 14

Shutts v. Phillips Petroleum Co., 222 Kan. 527 :

et eS eae naeeiee ieee ae 12

Southwest Airlines Co. v. Texas International

Airlines, Inc., 546 F.2d 84 (5th Cir. )

cert. denied, 484 U.S. 882 (1977) ................ 18, 19

State v. Arizona Public Service Co., 24 Ariz. App.

601, 540 P.2d 727 (1975), appeal dismissed,

426 U.S. 981 (1976) .................... 3, 4, 5, 6, 16, 17

United States v. East Baton Rouge Parish School

Board, 594 F.2d 56 (5th Cir. 1979)... 10

United States v. State of Texas, 430 F.Supp.

ON a 10

CONSTITUTIONAL PROVISIONS, STATUTES

AND RULES:

ik ae ate 2 Ree emereet 2, 12, 16

i 2

Arizona Revised Statutes § 42-204(B) 0.00.00... 20

Federal Rules of Civil Procedure, Rule 28 ........ 9, 12, 18

Rule 41(b) ............ 17

Arizona Rules of Civil Procedure, Rule 8(d) .......... 5

Raine &6 .........:..... 20

Rule 41(b) ........ 17

MISCELLANEOUS:

46 Am.Jur.2d, Judgments, § 589 .0.0..........cccccccssececeeeseees 20

iv

INDEX (continued )

PAGE

74 Am.Jur.2d, Taxpayers Actions, §§ 1, 2, 52 ............ 20

§§ 40-48... 20

Restatement (Second) of judgments (Tent. Draft

en, A FO i ip cas ah ciao pat

Restatement (Second) of Judgments (Tent. Draft

_ No. 2, 1975)

Reporters Memorandum .......................:.ss-cs0-s+-00-- 18

i gp We AER EES A 9, 10, 19, 21

BCS Peat Ria ithe Seas a 14, 19

7A Wright & Miller, Federal Practice and

SS Sh ee ee 9, 18

In THE

Supreme Court of the United States

OcroBER TERM, 1979

No.

EL PASO NATURAL GAS COMPANY,

Petitioner,

vs.

STATE OF ARIZONA, et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF ARIZONA

The petitioner, El Paso Natural Gas Company, re-

spectfully requests that a writ of certiorari issue to review

a judgment of the Supreme Court of Arizona in this case.

OPINION BELOW

The opinion of the Supreme Court of Arizona (Appen-

dix A) is reported at Ariz. , 599 P.2d

175 (1979).

JURISDICTION

The judgment of the Supreme Court of Arizona was

entered on June 19, 1979. A timely petition for rehearing

was denied on September 6, 1979. On November 26,

1979, Mr. Justice Rehnquist entered an order extending

petitioner's time to file this petition to and including

December 28, 1979. This petition is filed within the time

/

2

permitted, as so extended. This Court’s jurisdiction is in-

voked under 28 U.S.C. § 1257(3).

QUESTIONS PRESENTED FOR REVIEW

1. Whether the Supreme Court of Arizona denied

petitioner's right to procedural due process by applying

the doctrine of res judicata to a prior judgment entered

in a case in which petitioner was neither a party nor

represented.

2. Where a taxpayer unsuccessfully sues, not in a

representative or class capacity, but on its owr behalf, to

recover a money judgment for ad valorem taxes illegally

collected by a state, is due process violated if the adverse

judgment is held to bar, as res judicata, the refund claim

of another taxpayer on the ground that it was virtually

represented by the plaintiff in the first case?

CONSTITUTIONAL PROVISION INVOLVED

U.S. Const. amend. XIV, § 1:

All persons born or naturalized in the United States,

and subject to the jurisdiction thereof, are citizens of the

United States and of the State wherein they reside. No

State shall make or enforce any law which shall abridge

the privileges or immunities of citizens of the United

States; nor shall any State deprive any person of life, lib-

erty, or property, without due process of law; nor deny to

any person within its jurisdiction the equa! protection

of the laws.

STATEMENT OF THE CASE

In 1975 petitioner E] Paso Natural Gas Company

8

(El Paso) filed this suit for the recovery of ad valorem

property taxes illegally collected by the State of Arizona

for the year 1970. The named defendants included the

State of Arizona, tax officials of the state, each county in

the state, and the various county treasurers who, pursuant

to Arizona law, levy and collect the ad valorem property

taxes attributable to the state tax rate on property in their

counties. Appendix B contains a complete list of thé de-

fendants, now respondents. E] Paso owned property in

and paid taxes to each county.

The complaint alleged that two legislative appropria-

tions funded by the 1970 state tax rate violated various

provisions of the Arizona Constitution and statutes, and

sought the recovery of $990,659.23, the amount of taxes

paid under protest by El Paso attributable to the funding

of the illegal appropriations through the state tax rate. No

injunctive or declaratory relief was requested.

At the time suit was filed, there was pending a similar

action by Arizona Public Service Company, State v. Ari-

zona Public Service Co., 24 Ariz. App. 601, 540 P.2d 727

(1975), appeal dismissed, 426 U.S. 981 (1976) (here-

after APSCO) (Appendix C). It is the application and

enforcement by the Arizona Supreme Court of the APSCO

judgment against E] Paso, under the doctrine of res judi-

cata, which El Paso contends constitutes a violation of

the Due Process Clause of the fourteenth amendment of

the United States Constitution.

Arizona Public Service had sought a money judgment

refunding taxes illegally collected from it, and did not

claim to represent any other taxpayers. Defendants’ motion

for judgment on the pleadings was denied. Upon subse-

quent cross-motions for summary judgment, the trial court

ruled that the appropriations were invalid, and entered

4

judgment in favor of Arizona Public Service in the amount

of $1,789,894.81. The state and the other defendants ap-

pealed, asserting that their motion for judgment on the

pleadings should have been granted on the basis of Cochise

County v. Southern Pacific Co., 99 Ariz. 385, 409 P.2d

549 (1966), in which the Supreme Court of Arizona had

held that in an action to recover a tax illegally collected,

the taxpayer must prove that the resulting tax rate “was

so grossly excessive as to show it was arbitrary or fraudu-

lent.” Id. at 398, 409 P.2d at 555.

Arizona Public Service contended that this rule ap-

plied only to valuation or other cases involving ministerial

or discretionary actions, and could not apply to the taxes

in question, since they were unconstitutional and illegal.

The Arizona Court of Appeals agreed with the position

of Arizona Public Service but reversed, stating that:

“[Arizona Public Service's] position is logically sound. . . .”,

but that it was bound by the Arizona Supreme Court

decision in Cochise County, since the court of appeals

has no “power to overrule Supreme Court decisions. . . .”

24 Ariz. App. at 604-605, 540 P.2d at 730-731. The court

of appeals concluded:

“Pursuant to the holding in Cochise v. Southern Pacific,

supra, we hold that APS having failed to allege and

prove that the alleged unconstitutional appropriation

resulted in an excessive tax rate so as to be fraudulent

or arbitrary, its complaint should have been dismissed.”

Id. at 605, 540 P.2d at 781.

See also 599 P.2d at 177.

At this point El] Paso filed a motion with the court

of appeals seeking leave to file a brief as amicus curiae

5

in support of Arizona Public Service's motion for rehearing.

Both motions were denied. Thereafter Arizona Public

Service's petition for review by the Supreme Court of

Arizona was denied, and an appeal to this Court was

dismissed.

Following the decision of the court of appeals E] Paso

amended its complaint to conform with APSCO to allege

that the state tax rate resulting from the invalid appropri-

ations was so excessive as to be fraudulent or arbitrary.

The defendants answered the amended complaint, but did

not assert res judicata as an affirmative defense, as required

by Rule 8(d) of the Arizona Rules of Civil Procedure,

16 Ariz. Rev. Stat.

The parties filed cross-motions for summary judg-

ment, and the trial court entered judgment in favor of the

defendants and against E] Paso. The decision was based

upon the merits of El] Paso’s challenges to the appropria-

tions, and did not refer to the doctrine of res judicata or

the APSCO opinion.

In its briefs on appeal, El Paso urged the court of

appeals to reconsider and overrule APSCO, as well as

asserting that the tax was so excessive as to be aribtrary

or fraudulent, to comply with the APSCO decision.

The defendants’ reply brief asserted that the trial

court's decision was correct as a matter of law, and further

claimed that the APSCO judgment was res judicata as to

El] Paso’s claim for a tax refund.

In reply, El] Paso demonstrated that such an applica-

tion of APSCO would violate due process.

The case was transferred to the Supreme Court of

Arizona, and set for oral argument.

The doctrine of virtual representation had not been

mentioned in the briefs, but two days before oral argu-

ment the defendants filed with-the court, as a supple-

mental authority, a copy of the opinion in Gist v. Stam-

ford Hospital District, 557 S.W.2d 556 (Tex.Civ.App.

1977), cert denied, 489 U.S. 822 (1978). This was the first

suggestion that E] Paso had been represented by Arizona

Public Service in APSCO, so it had no opportunity to

brief the point until its motion for rehearing.

In its judgment affirming the trial court (Appendix

A), the Supreme Court of Arizona considered neither the

merits of El] Paso’s claim, nor the findings of fact and con-

clusions of law of the trial court. Instead, the court held:

1. That its decision in Cochise County was erroneous

in holding that a taxpayer had to prove that an illegal tax

rate was so excessive as to be arbitrary or fraudulent.

2. That the decision of the court of appeals in

APSCO, having been based on Cochise County, was there-

fore also erroneous.

8. That although erroneous, APSCO was a “final

judgment on the merits” for purposes of res judicata.

4. That petitioner, although not a party to the

APSCO decision, was nevertheless bound thereby under

the doctrine of virtual representation, and therefore pre-

cluded by the rules of res judicata from relitigating the

issues decided or which could have been raised in APSCO.

7

El Paso then filed a timely motion for rehearing

(Appendix D). The motion again raised the due process

issue.

The Supreme Court of Arizona entered its order deny-

ing the motion for rehearing without opinion on Septem-

ber 6, 1979 (Appendix E).

An application for an extension of time has been

granted, extending petitioner's time in which to file this

petition to and including December 28, 1979. This petition

is filed within the time permitted by law, as so extended.

REASONS FOR GRANTING THE WRIT

1: The opinion below is contrary to and in disregard

of all prior decisions of this Court dealing with the

limitations imposed by the due process clause on

the application of res judicata to persons not

parties to an action.

Due process imposes certain requirements which must

be met before a judgment in a class or representative

action may bind persons similarly situated to a party in

that suit. First, a class or representative action must be

commenced and conducted as such, by the named party

for and on behalf of himself and others similarly situated,

and the court must recognize the plaintiff's representative

status. Second, there must be the best notice practicable

to those similarly situated. Third, ven where these two

prerequisites have been met, a person claimed to be bound

must have an opportunity to show that he was not ade-

quately represented, or did not receive adequate notice,

and therefore is not bound by the judgment.

The first of these requirements was established by this

8

Court in Hansberry v. Lee, 311 U.S. 82 (1940), the seminal

case on the strictures imposed by due process upon the

application of the doctrine of res judicata to judgments in

class or representative actions. The Court began its analysis

by reiterating the basic principle that a person is not bound

by a judgment rendered in a case in which he was not a

party or served with process, and expressly held that

judicial action enforcing such judgment against a nonparty

violates the due process guaranteed by the fifth and

fourteenth amendments. Id. at 40-41.

However, the Court went on to state:

“To these general rules there is a recognized exception

that, to an extent not precisely defined by judicial opin-

ion, the judgment in a ‘class’ or ‘representative’ suit, to

which some members of the class are parties, may bind

members of the class or those represented who were not

made parties to it.” Id. at 41 (citations omitted).

Recognizing that due process is a fluid principle, this Court

refused to adopt any particular rule binding upon the

states for the establishment of the conclusiveness of judg-

ments in class or representative suits. Id. at 42. The Court

stated:

“Nor do we find it necessary for the decision of this

case to say that, when the only circumstance defining

the class is that the determination of the rights of its

members turns upon a single issue of fact or law, a state

could not constitutionally adopt a procedure whereby

some of the members of the class could stand in judg-

ment for all, provided that the procedure were so

devised and applied as to insure that those present are

of the same as those absent and that the litigation

is so conducted as to insure the full and fair consider-

oeay”t the common issue.” Id. at 48 (emphasis sup-

p ;

Thus Hansberry sets the first requirement which must

be met before a state may give preclusive effect to a

judgment in a class or representative suit against a non-

appearing member of the putative class: The court render-

ing the first judgment must have determined that the party

before the court purported to represent a class of persons

similarly situated, that the party was a typical member of

such a class, and that the party would adequately repre-

sent the interests of the nonappearing members of the

class.

This requirement applies to all class or representative

actions, and has been incorporated for federal class actions

in Rule 28 of the Federal Rules of Civil Procedure. The

requirements of Rule 23 “seem plainly intended to meet

the standard established by the Supreme Court in...

Hansberry v. Lee, to the effect that persons not parties

to an action may be bound by a judgment whenever

the procedure adopted ‘fairly insures the protection of

the interests of absent parties who are to be bound by

it.” 7A Wright & Miller, Federal Practice and Procedure,

§ 1789, p. 179 (1972) (footnotes omitted).

These standards are also recognized in the most recent

draft of the Restatement of the Law dealing with this issue.

Restatement (Second) of Judgments § 85(1)(e), p. 56-57

(Tent. Draft No. 2, 1975), provides that a nonparty to an

action is subject to the rules of res judicata on the basis

of a judgment in that action if he was represented by a

party who was “The representative of a class of persons

similarly situated, designated as such with the approval

of the court. . . .” And the comment to that subsection

provides that the representative of the class derives his

authority from his status as a member of the class, “coupled

with judicial approval of designation of the action as a

10

class suit and of the representative's status as such.” Id.,

Comment e, p. 68.

These preliminary requirements, which must be met

in the earlier action for it to be considered as a class or

representative suit, have been consistently applied by the

courts ruling on the issue. Preclusion has been flatly denied

where the similarly situated parties in the first suit -ap-

peared only in their individual capacities and not as rep-

resentatives of a judicially recognized class. Pollard v.

Cockrell, 578 F.2d 1002, 1009 (5th Cir. 1978); E. B. Elliott

Adv. Co. v. Metropolitan Dade County, 425 F.2d 1141,

1148 (5th Cir.), cert. denied, 400 U.S. 805 (1970). The

same result was reached where the first and second suits

involved identical wrongful death claims arising out of

the same accident, even though the cases had been con-

consolidated for pretrial discovery. Humphreys v. Tann,

487 F.2d 666, 671 (6th Cir. 1978), cert. denied, 416 US.

956 (1974). Preclusion of nonparties has also been denied

on the basis of suits which were commenced as class ac-

tions under Rule 23, but where the trial court, before

rendering judgment, either failed to consider the question

of the certification of the named plaintiffs as representa-

tives of a class, or expressly rejected the adequacy of the

named plaintiffs to represent the class. United States v.

East Baton Rouge Parish School Board, 594 F.2d 56,

58-59 (5th Cir. 1979); United States v. State of Texas, 480

F.Supp. 920, 926 (S.D. Tex. 1977) (three judge panel);

Roberts v. American Airlines, Inc., 526 F.2d 757, 761 (7th

Cir. 1975), cert denied, 425 U.S. 951 (1976); City of

Hueytown v. Burge, 342 So.2d 339, 344 (Ala. 1977).

In fact, preclusion has been denied even where the

plaintiff in the first case was certified as a class representa-

tive, but only as to a limited class which did not include

ll

the plaintiffs in other pending lawsuits, despite the facts

that the suits had been consolidated for pretrial discovery,

the complaints were identical, all of the plaintiffs’ attorneys

had worked closely together and filed joint motions, and

the precise legal issue as to which preclusion was sought

had been decided after a full trial and affirmed on appeal.

In re Nissan Moior Corporation Antitrust Litigation, 471

F.Supp. 754, 759 (S.D.Fla. 1979). The court in the last

cited case also expressly rejected the defendants’ attempt

to have the court make an ex post facto determination that

the other plaintiffs had been adequately represented_in

the first suit, stating that such a procedure would violate

the principles set in Hansberry. Id.

The second requirement, dealing with the notice re-

quired in class or representative actions, is established by

Mullane v. Central Hanover Bank ¢ Trust Co., 339 U.S.

806 (1950). That case considered the binding effect which

could constitutionally be given to a judicial decree settling

the accounts of the trustee of a common trust fund as

against nonappearing members of a class consisting of

those persons who claimed an interest in the income of any

of the consolidated trusts. The New York statutes creating

the procedure in question took cognizance of Hansberry’s

requirement that the absent members of the class have a

representative in the suit, by requiring the court consider-

ing the account to appoint a special guardian and attorney

for all nonappearing persons who had or might have any

interest in the income.

The guardian pursued to this Court his challenge to

the trial court’s jurisdiction to enter a decree binding the

class of income beneficiaries on the basis of notice by

publication in a local newspaper. This Court reversed the

judgment as to those income beneficiaries whose names

12

and addresses were known to the trustee, holding that they

were entitled to individual notice of the proceeding. The

Court held that the Due Process Clause requires that ab-

sent members of the class be given the best notice practi-

cable under the circumstances. Id. at 318-319. This deter-

mination of the type of notice required by due process

depends upon the results of a balancing of the state’s inter-

est in assuring the finality of the judgments of its courts,

against the individual's interest in having an opportunity

to be heard. Id. at 313-314.

Thus, Mullane establishes an additional prerequisite

which must be met before the judgment in a class or

representative suit can bind nonappearing members of

the class, even where a representative is judicially ap-

proved to protect their interests: The absent members of

the class must be given the best notice practicable consid-

ering all of the circumstances.

The Court’s language in Mullane has been incorpo-

rated in Rule 23(c)(2) of the Federal Rules of Civil Pro-

cedure which requires that, as to those class actions based

upon a predominant common question of law or fact,

“the court shall direct to the members of the class the

best notice practicable under the circumstances, including

individual notice to all members who can be identified

through reasonable effort.”

Any procedure adopted by a state to bind absent per-

sons similarly situated must require that these prerequisites

be met in the first case to satisfy Hansberry’s “essential

requisite of due process as to absent plaintiff class mem-

bers, adequate representation.” Shutts v. Phillips Petroleum

Co., 222 Kan. 527, 544, 567 P.2d 1292, 1806 (1977).

Third, a mere determination that these prerequisites

18

were met in a previous case is not the full extent of the

analysis required by due process. In addition:

“[A]n absent member of the class, even when he is

nf tenets identified in the judgment, will not be bound

he can establish that to affect his rights would deprive

him of property without due process of law, either be-

cause the class was inadequately represented or because

of a failure to give him adequate notice.” Wright &

Miller, supra, § 1789, p. 178 (footnote omitted).

In other words, while compliance with the class suit pro-

cedures required in the first case may raise a presumption

that all class members were adequately represented and

had adequate notice, due process requires that absent

‘members be given an opportunity to overcome this pre-

sumption by proving that they were not in face adequately

represented or did not in fact receive adequate notice.

The constitutional right of absent class members to a

determination of adequacy of representation in a prior

Rule 28 class action was recognized in Gonzales v. Cassidy,

474 F.2d 67 (5th Cir. 1978). In that case the Fifth Circuit

formulated the following test:

“To answer the question whether the class representa-

tive adequately represented the class so that the judg-

ment in the class suit will bind the absent members of

the class requires a two-pronged inquiry: (1) Did the

trial court in the first suit correctly determine, initially,

that the representative would adequately represent the

class? and (2) Does it appear, after the termination of

the suit, that the class representative adequately pro-

tected the interests of the class?” Id. at 72.

See also Bogard v. Cook, 586 F.2d 399, 408 (5th Cir.

14

1978); Restatement (Second) of Judgments, § 86, p. 70-71

(Tent. Draft No. 2, 1975).

While the Supreme Court of Arizona has improperly

characterized this case as a “taxpayer lawsuit,” this third

requirement applies in true taxpayers actions. For example,

in Blount v. City of Laramie, 510 P.2d 294, 297 (Wyo.

1978), the court recognized the right of the plaintiffs to

assert “that all members of the class were not adequately

represented in the prior litigation .. . .” And, in Seibert v.

City of Columbia, 461 S.W.2d 808, 811 (Mo. 1971), one of

the cases cited by the Supreme Court of Arizona in support

of its holding, the court expressly refused to preclude a

group of taxpayers from challenging a city annexation on a

legal basis not asserted in an earlier taxpayers action,

citing Hansberry.

The holding of the Supreme Court of Arizona (Ap-

pendix A) contravenes each of these constitutional re-

quirements.

The court acknowledged that El Paso was not a party

to APSCO, and that the application of res judicata nor-

mally requires that the parties in the second suit be inden-

tical to the parties in the first suit. However, the court

held that El Paso had, in effect, been a party to APSCO

under the “equitable doctrine of virtual representation,”

which it characterized as follows: “Under that theory,

commonly encountered in class actions, a judgment in

favor of or against a party representing a general class

operates as res judicata in favor of or against all who are

thus represented.” 599 P.2d at 178.

The court noted that this doctrine had been applied

to litigation instituted by a taxpayer, without stopping to

15

analyze the particular type of taxpayers’ actions in which

the doctrine had been applied, and held:

“(W]e conclude that when a taxpayer or property owner

brings an action against the state or other governmental

subdivision, in the absence of fraud or collusion, a judg-

ment for or against the state or political subdivision,

upon a matter of public and general interest, is binding

and conclusive upon all other taxpayers and property

owners similarly situated.” Id.

The effect of this ruling on future litigants will be that

when a taxpayer or property owner brings a suit against

any unit of the state government on a matter which can

be characterized as involving the public and general inter-

est, that taxpayer becomes a representative of a class con-

sisting of all others similarly situated, whether or not the

plaintiff or the other taxpayers or the trial court desire

or intend such a result, and all of such others are thereafter

barred from litigating their similar cases, regardless of

whether notice was afforded, or the representation was

adequate. The only exception is when it can be proved

that the judgment in the first suit was fraudulent or col-

lusive.

The Arizona court did not, as suggested in Hansberry,

adopt a procedure “whereby some of the members of the

class could stand in judgment for all... .” 811 U.S. at 48.

Without the adoption of any procedure, it can only

be deduced that in Arizona henceforth:

1. The plaintiff taxpayer in the first suit need not

claim to represent anyone other than himself, nor will the

court require that his claim be typical of those similarly

situated or that he adequately represent them;

16

2. Notice will not be required to others similarly

situated; and

8. Unless parties similiary situated can show that

the first judgment was a product of fraud or collusion, they

are absolutely bound, whether or not they were adequately

represented in the first case or had notice of it.

The Due Process Clause has been violated in this

case because APSCO was brought by Arizona Public Serv-

ice not as a representative of a class, but solely to recover

its own taxes. Petitioner was not adequately represented

because the decision against Arizona Public Service was

based, not on the merits, but on the ground that Arizona

Public Service had failed to make an essential allegation

and “therefore its complaint should have been dismissed.”

24 Ariz. App. at 605, 540 P.2d at 781. And, while El Paso

knew of the suit, it did not receive notice that it’s refund

claim was also being adjudicated.

The opinion of the Arizona Supreme Court violates

the procedural rights which due process requires be af-

forded before a judgment may be given res judicata effect

against a similarly situated nonparty. The court ignored

the prior decisions of this Court and other courts regarding

the due process limitations relevant to class or representa-

tive suits.

2. Unless reversed by this court, application of the

opinion below in future Arizona cases will lead

to violations of the due process rights of other

litigants. *

The preceding portion of this petition establishes that

El] Paso’s right to procedural due process was violated

17

by the Arizona Supreme Court’s misapplication of the

APSCO decision as a bar to El Paso’s claim for almost a

million dollars of illegally collected taxes. There are other

important considerations which call for the exercise of this

Court's jurisdiction. One is the potential violations of due

process rights by the future application of the holding.

The doctrine of virtual representation can be asserted

in Arizona as a defense by the government each time any

citizen sues it upon a matter which involves the public and

general interest, and due to its inherent nature, almost

anything the government does may be said to involve a

matter of public or general interest. Under this new Ari-

zona rule, the first final judgment rendered in any such

suit will become res judicata as to all pending or future

suits involving the same subject matter. And, as the court

chose to employ the doctrine of res judicata rather than

collateral estoppel, the first judgment will preclude the

plaintiffs in the other suits from litigating any of the issues

which could have been raised in the first suit, not merely

those issues which were actually fully and fairly litigated.

In this regard, we note the modern trend to expand

the definition of a “final judgment” for res judicata pur-

poses. When the same plaintiff brings a second suit against

the same defendant arising out of the same circumstances,

his action will be entirely precluded in many situations

where the actual merits of the claim were not considered

in the first suit. See Rule 41(b) of the Federal and Arizona

Rules of Civil Procedure and Restatement (Second) of

Judgments, § 48, p. 35 (Tent. Draft No. 1, 1978).

While it may be proper for courts to expand the

definition of a final judgment when only the original

parties are involved, due proces requires that “increasingly

18

close scrutiny be given to the question of procedural fair-

ness in binding a person who has not had an opportunity

to be heard.” Restatement (Second) of Judgments, Re-

porters Memorandum, p. xii (Tent. Draft No. 2, 1975).

The Arizona decision does not provide for.any examina-

tion of procedural fairness. It limits relief to proof of

fraud or collusion.

It does not appear that the Arizona court considered

the future implications of its decision upon the rights of

Arizona litigants to procedural due process in actions

against their government.

8. It would be appropriate for this Court to define the

scope of virtual representation at this time.

Each time a court is asked to bar the claim of a party

before it on the ground that the party was virtually repre-

sented in an earlier case, the question of due process

should be considered. However, many courts rest their

decisions solely on authorities defining the doctrinal scope

of virtual representation, a doctrine which the Fifth Circuit

has observed “offers little analytical assistance [in resolv-

ing the due process issue] because of its wide and incon-

sistent application.” Southwest Airlines Co. v. Texas Inter-

national Airlines, Inc., 546 F.2d 84, 97 (5th Cir.), cert.

denied, 434 U.S. 882 (1977).

The Arizona decision is not an isolated case of mis-

application of the doctrine of virtual representation.

A number of recent decisions in cases involving suits

against a government have also been based on this nebu- ©

lous concept, without consideration of procedural due

process. See Gist v. Stamford Hospital District, 557 $.W.2d

556 (Tex.Civ.App. 1977), cert. denied, 489 U.S. 822

(1978); Hamilton v. Town of Valley Brook, 487 P.2d 708

19

(Okl. 1971); Jefferson v. Greater Anchorage Area Bor-

ough, 451 P.2d.730 (Alaska 1969).

These decisions, and many of the cases cited in them,

rest their holdings upon a ritual invocation of the doctrine

of virtual representation. The courts frequently incorporate

broad statements from previous decisions, without analysis

of the facts of the cases to determine whether reliance is

justified.

In some of the virtual representation cases, the gov-

ernment was a party to the earlier suit in which it repre-

sented the interests of its citizens. In such cases citizens

were properly held to be bound by a judgment against the

government. See Equal Employment Opportunity Com-

mission v. Datapoint Corp., 570 F.2d 1264, 1268 (5th

Cir. 1978); Southwest Airlines Co. v. Texas International

Airlines, Inc. supra, at 97-102; New Castle County v.

Sterling Properties, Inc., 879 A.2d 1125, 1127-1128 (Del.

1977). Cases of-this type need not be commenced and

conducted as representative actions because the govern-

ment already the legal authority to represent the in-

terests of its citizens. Restatement (Second) of Judgments,

§ 85(1)(d), p. 56 (Tent. Draft No. 2, 1975).

On the other hand, citizens are not precluded by a

judgment in an action by the government where the citi-

zens interests are not identical to that of the government.

Consumers Union of the United States, Inc. v. Consumer

Product Safety Commission, 590 F.2d 1209, 1217-1218

(D.C. Cir. 1978); Restatement (Second) of Judgments,

supra, § 86 (1)(d), p. 70. Therefore this line of cases has

no application to the situation where a citizen sues the

government, because the citizen's interest necessarily

differs from the government's.

20

There is another type of representative action in which

a taxpayer may be precluded by a suit by another taxpayer

involving the same issues. The courts have variously

labeled these cases as “taxpayers actions,” “taxpayers

suits,” or, as in the opinion below, “taxpayer lawsuits.”

599 P.2d at 176. These cases, by definition, must be com-

menced and conducted by the plaintiff taxpayer for and

on behalf of himself and all others similarly situated.

74 Am.Jur.2d, Taxpayers’ Actions, §§ 1, 2 and 52; 46

Am.Jur.2d, Judgments, § 539. Furthermore, true taxpayers’

actions always involve claims for equitable relief. See

74 Am.Jur.2d, Taxpayers’ Actions, §§ 40-48. The fact that

such relief, if obtained, will necessarily inure to the benefit

of all other taxpayers has been one of the principal justifi-

cations for holding that all others should be bound if the

first plaintiff is ursaccessful. See, e.g., Blount v. City of

Laramie, 510 P.2d 294, 297 (Wyo. 1978).

In the case before the Court, the Supreme Court of

Arizona has confused “an action by a taxpayer” solely for

a refund of its own taxes, with a “taxpayer lawsuit” or a

“taxpayers action.” Under Arizona law the most com-

mon types of true taxpayers’ actions are proscribed by

Ariz. Rev. Stat. § 42-204(B) (Supp. 1979), which abso-

lutely prohibits any actions against the state or its political

subdivisions to prevent the levy or collection of a tax.

Petitioner does not contend that all taxpayers’ actions

must be brought in Arizona pursuant to Rule 28 of the

Arizona Rules of Civil Procedure, which is identical to

the federal rule. There is a place for what might be called

a true or common law “taxpayers’ action,” but these are

still subject to the basic requisites of procedural due pro-

cess, and must be brought pursuant to “procedures essen-

21

tially similar to a class suit though not denominated as

such.” Restatement (Second) of Judgments, supra, § 85,

Comment e, p. 68.

The trend in the various states toward an unjustified

application of the doctrine of virtual representation, the

most recent of which is the case now before the Court,

invites the issuance of the writ sought here, so that this

Court may apply the rule set forth in Hansberry:

“State courts are free to attach such descriptive labels

to litigations before them as they may choose and to

attribute to them such consequences as they think ap-

propriate under state constitutions and laws, subject

only to the requirements of the Constitution of the

United States. But when the judgment of a state court,

ascribing to the judgment of another court the binding |

force and effect of res judicata, is challenged for want

of due process it becomes the duty of this Court to

examine the course of —— in both litigations to

ascertain whether the litigant whose rights have thus

been sis oar Aen Poe afforded on and

opportunity to eard as are requisite to the due pro-

cess which the Constitution prescribes.” 311 U.S. at 40

(citation ommitted ).

CONCLUSION

For the foregoing reasons, a writ of certiorari should

issue to review the judgment and opinion of the Supreme

Court of Arizona.

' Respectfully submitted,

HAROLD C. WARNOCK

STEPHEN A. THOMAS

Two East Congress Street

Ninth Floor

Tucson, Arizona 85701

Attorneys for Petitioner