Opposition Brief — Harper v. Virginia Dept. of Taxation

Peter W. Low, Esquire

; D FILED

)

No. 91-794 , DEC 1 8 199i

E CLERK |

a

In The

Supreme Court of the United States

October Term, 1991

o

HENRY HARPER, et al.,

Petitioners,

VIRGINIA DEPARTMENT OF TAXATION,

Respondent.

7

Petition For A Writ Of Certiorari To The

Supreme Court Of Virginia

°

BRIEF IN OPPOSITION TO PETITION FOR A

WRIT OF CERTIORARI

.

Mary Sur Terry

Attorney General of the

Commonwealth of Virginia

H. Lane KNEEDLER

Chief Deputy Attorney

General

Of Counsel: Gait STARLING MARSHALL”

Deputy Attorney General

Professor of Law Grecory E. Lucyx

University of Virginia Senior Assistant

School of Law Attorney General

Charlottesville, B H. Van

Virginia 22901 nce ne rata Phe

Assistant Attorney General

101 North Eighth Street

Richmond, Virginia 23219

(804) 786-2071

“Counsel of Record for Respondent

_

f2K KLE LAW BRIEF PRINTING CO. (60 225.6066

O}8 CALL COLLECT @) 342-263!

QUESTION PRESENTED

The Supreme Court of Virginia decided a federal

question when it determined that Davis v. Michigan

Department of Treasury, 489 U.S. 803 (1989), should not be

applied retroactively. As an alternative holding, the Vir-

ginia Supreme Court decided as a matter of state law that

the state tax refund remedy sought by these Petitioners

was unavailable. Petitioners do not argue that this alter-

native state law holding was in any way inconsistent

with, or should have been overridden by, principles of

federal law. The question for decision at this stage of the

case, therefore, is whether the state law basis for the

judgment below presents an adequate and independent

state law ground that, under accepted principles, pre-

cludes the exercise of jurisdiction by this Court to review

the federal question presented by the Petition for Cer-

tiorari.

ii

TABLE OF CONTENTS

Page

QUESTION PRESENTED ....cccccccccscsnnenuenune i

TABLES GF CUONTENED. ...cccccccsessscsssleeeenee ii

TABLE OF AUTIOORITIOS .....ccccccccscesncsunnes iii

STATEMENT OF THE CAGE... .200ccnsseesbaneneee 1

REASONS FOR DENYING THE WRIT.......... ot Oe

1. The Retroactivity Question................... 5

2. Equitable Considerations..................... 6

3. The Adequate and Independent State Ground 11

4. The Adequacy and Independence of the State

GOOURG....cccccccsccceseneesenes samen 15

5. Procedural Posture of the Case............... 21

6. The Relevance Of Baad... ..ccccccssccseseuaen 25

7. The Miitacy Retionss .....sccscssessecunnueee 27

eee Pe!!! Ut—~— 28

ia AM i A A

“-

TABLE OF AUTHORITIES

Page

Cases

American Trucking Ass‘ns v. Smith, 110 S.Ct. 2323

CSCC TECEGSawbsescecsecccccsccccscccces 6

Arnett v. Kennedy, 416 U.S. 134 (1974)............... 23

Barker v. Kansas, 249 Kan. 186, 815 P.2d 46, cert.

ranted, 60 U.S.L.W. 3402 (U.S. Dec. 3, 1991)

PPE CEEEGCREGheGececcesccesscccccces 27

Brown v. Board of Education, 347 U.S. 483 (1954) ..... 10

Capehart v. City of Chesapeake, No. 5459 (Circuit

Court, City of Chesapeake, decided October 16,

1974), petition for writ of error denied, 215 Va.

xlvii, cert. denied, 423 U.S. 875 (1975)....... 12, 14, 17

Chevron Oil Co. v. Huson, 404 US. 97 (1971)..... passim

Coleman v. Thompson, 111 S.Ct. 2546 (1991).......... 14

Davis v. Michigan Dept. of Treasury, 489 U.S. 803

PPE EE EGR GpGE Seeds secececesccccccce passim

Fountain v. Fountain, 214 Va. 347, 200 S.E.2d 513

(1973), cert. denied, 416 U.S. 939 (1974)............ 12

Goldberg v. Kelly, 397 U.S. 254 (1970)................ 23

James B. Beam Distilling Co. v. Georgia, 111 S.Ct.

Nee eect ckewecececcescccs passim

Mathews v. Eldridge, 424 U.S. 319 (1976)...... 13, 14, 16

McKesson Corp. v. Division of Alcoholic Beverages

and Tobacco, 110 S.Ct. 2238 (1990)............. passim

Michigan v. Long, 463 U.S. 1032 (1983)........ 13, 14, 16

Northern Pipeline Construction Co. v. Marathon Pipe

ED os 5 ence cceccceccccesece 10

iv

TABLE OF AUTHORITIES - Continued

Page

Perkins v. Albemarle County, 214 Va. 240, 198 S.E.2d

626, aff'd and modified on rehearing, 214 Va. 416,

See Es WD GUND kc ccccbescnccsssceseds 12, 14, 17

Quick v. Harris, 241 Va. 632, 202 S.E.2d 869 (1974),

cert. denied, 420 U.S. 907 (1975) ........ 2.0... e eee 12

Sutherland v. Swannanoa Corp., 189 Va. 149, 52

Ey GEE GE ccnccancnetccavaecanadacenceessens 13

Swanson v. Powers, 937 F.2d 965 (4th Cir.), petition

for cert. filed, 60 U.S.L.W. 3344 (U.S. Oct. 21,

See Cl Scns cccdccvedboanseconsauenss 18, 20

STATUTES AND REGULATIONS

Va. Code Ann. § 58.1-1821 (1991) ................ 22, 23

Va. Code Ann. § 58.1-1822 (1991) ................... 22

Va. Code Ann. § 58.1-1825 (1991) ................... 14

Va. Code Ann. § 58.1-1826 (1991) ............... passim

a, Rae Gh Oe GPG wdcencdcconddutedeescugnes 23

ee Ce es Oe OE Nactsncctseccsteuenen tinews 23

MisceLLANEOUS

Ch. 325, 1942 Va. Acts 481 (Reg. Sess.)............... 3

No. 91-794

e

In The

Supreme Court of the United States

October Term, 1991

>

HENRY HARPER, et al.,

Petitioners,

VIRGINIA DEPARTMENT OF TAXATION,

Respondent.

°

Petition For A Writ Of Certiorari To The

Supreme Court Of Virginia

*

BRIEF IN OPPOSITION TO PETITION FOR A

WRIT OF CERTIORARI

°

STATEMENT OF THE CASE

The question in this case is whether the Common-

wealth of Virginia is obligated under state or federal law

to repay to the Petitioners and other similarly situated

claimants tax refunds in excess of $440 million. The fed-

eral component of the Petitioners’ claim is based on Davis

v. Michigan Department of Treasury, 489 U.S. 803 (1989)

(“Davis”). .

Petitioners are retired federal employees who receive

federal pension benefits and former members of active

military service who receive military pay. More than

192,000 federal and military retirees live in Virginia - no

other state has as many.

2

In May of 1989, these Petitioners filed suits in state

court against the Virginia Department of Taxation (here-

after “Commonwealth”), seeking refunds for state income

taxes paid for the taxable years 1985, 1986, 1987 and 1988.

The suits were filed under Va. Code Ann. § 58.1-1826

(1991), which provides that “[i)f the court is satisfied that

the applicant is erroneously or improperly assessed with

any taxes, the court may order [refunds].” The Peti-

tioners’ claim was that Davis applied retroactively to the

state taxes collected in the years in question, and that the

taxes were “erroneously and improperly assessed” under

this provision of state law. Analytically, therefore, the

case presented a situation where a state remedy was

being sought to enforce a federal right.

The state trial court on cross motions for summary

judgment on the issue of liability denied Petitioners relief

and the Supreme Court of Virginia affirmed.' In an opin-

ion published at 241 Va. 232, 401 S.E.2d 868 (1991), the

Virginia Supreme Court held two things, as we elaborate

below: (1) that no federal right had been established; and

(2) that in any event the state remedy was not available

on the facts presented.

The Petitioners sought certiorari in this Court from

the Virginia Supreme Court’s original decision on the

ground, among others, that the Virginia Supreme Court

was in error in applying the principles of Chevron Oil Co.

v. Huson, 404 U.S. 97 (1971) (“Chevron”), to determine

whether Davis should be given retroactive application. At

the time that petition was filed, argument had been heard

' Because summary judgment was granted to the Com-

monwealth, no evidence has been taken on the proper calcula-

tion of any refunds.

3

and decision was pending in James B. Beam Distilling Co.

v. Georgia, 111 S. Ct. 2439 (1991) (“Beam”), which pre-

sented an analogous issue. This Court followed its nor-

mal practice of withholding action on the Petition for

Certiorari in this case until Beam was decided. Again it

followed its normal practice after the decision in Beam, by

granting certiorari, vacating the Virginia Supreme Court

decision, and remanding for further consideration in light

of Beam.

The Supreme Court of Virginia has now reconsidered

its former decision, found that the holding in Beam did

not require a different result, and reaffirmed its former

decision “in all respects.” Petition for Certiorari, App. A.

at 5a. It therefore reconsidered and reaffirmed its position

that: (1) no federal right had been established; and (2) in

any event the state remedy sought by the Petitioners was

not available on the facts presented. The Petitioners seek

certiorari from that reconsideration.

The state tax challenged in this case was originally

adopted in 1942. See Ch. 325, 1942 Va. Acts 481, 500 (Reg.

Sess.). It was not challenged or protested by any taxpayer

for nearly 50 years. After this Court’s March 28, 1989,

decision in Davis, these Petitioners “discovered” that it

had been clear for all of these 50 years that the tax was

unconstitutional and should never have been assessed or

collected.

Whatever the merits of that position, it is at least

clear that such taxes could not be imposed after March 28,

1989. None have been. The Virginia General Assembly

met in special session shortly after Davis was decided,

repealed the tax under litigation in this case, and substi-

tuted a system of taxation for pensioners’ income that is

indisputably acceptable under Davis standards. Neither

4

these Petitioners nor any other taxpayers have suggested

that the new tax suffers from any constitutional infirmity.

It is important at the outset to set forth the analytical

structure of the issues presented in the Petition for Cer-

tiorari. Three quite separate steps are required before the

Petitioners can prevail on the merits.

First, they must establish that assessment and collec-

tion of the pre-Davis taxes violated a federal right. This

question turns on several issues of federal law, but funda-

mentally involves whether Davis is to be applied retroac-

tively to the taxes at issue here, all of which were based

on taxable events that occurred prior to the Davis deci-

sion.

Second, if they can establish that a federal right was

violated, they must then establish that the particular state

remedy on which they have based their suit supports the

relief they seek. The cause of action asserted by the

Petitioners here is based on state, not federal, law. It is

based on one particular state claim, not others that might

have been asserted. The questions of state law posed by

their reliance on the particular state claim they have

asserted are for the Supreme Court of Virginia to resolve.

Those questions have been resolved by the Virginia

Supreme Court against the Petitioners in this case.

Third, since the questions of state law have been

resolved against them by the Virginia Supreme Court, the

Petitioners can prevail in this Court only by advancing

reasons founded on federal law that would displace the

state-law conclusions on which the judgment below rests.

As we will elaborate, they have not sought to do so. Nor

could they do so. It follows that the Petition for Certiorari

should be denied. Under the rationale of the opinion

below, and given the federal questions the Petitioners

5

have raised in this Court, any resolution by this Court of

the issues of federal law raised by the Petitioners will

have no impact on the outcome of this lawsuit. When a

case is in this posture, it is traditional for this Court not

to reach out to resolve federal issues that may be of

importance to some other case, but cannot be for this one.

¢

REASONS FOR DENYING THE WRIT

1. The Retroactivity Question.

The federal issues presented by this case turn at the

outset on application of this Court’s decision in Beam.

Beam held that decisions of this Court cannot be selec-

tively prospective, that is, cannot be applied to the parties

before the Court but not to others whose claims are based

on facts that arose before the decision. That is all that

Beam held. Beam was by its own terms a “narrow” deci-

sion:

The grounds for our decision today are narrow.

They are confined entirely to an issue of choice of

law: when the Court has applied a rule of law to

the litigants in one case it must do so with respect

to all others not barred by procedural requirements

or res judicata. We do not speculate as to the

bounds or propriety of pure prospectivity.

111 S. Ct. at 2448.

Disposition of the federal questions that arise in this

case, and specifically whether this Court’s decision in

Davis can be the source of the federal rights asserted,

necessarily involves the resolution of a number of issues

left open in Beam. The first is whether Davis is, as a

choice-of-law matter, a candidate for “pure” prospec-

tivity. The Virginia Supreme Court held, in effect, that it

6

was. In its first decision in this case, the Virginia Supreme

Court applied the Chevron factors and concluded that

Davis should not be applied to tax years that had ended

before the Davis decision. Petition for Certiorari, App. C

at Ida. After this Court’s remand order, the Virginia

Supreme Court again considered this issue. It held that

Davis itself did not resolve the question whether the

ruling in that case applied to the parties before the Court

and that it followed (applying the reasoning of Beam) that

the issue of prospective or retroactive application of Davis

was still open. Given this premise, the Virginia Supreme

Court decided that its former resolution was still a correct

and viable option, and adhered to this aspect of its former

judgment.

It may be that this basic question - whether a Chevron

analysis may be applied to resolve the choice-of-law issue

presented by Davis — presents an issue of sufficient gener-

ality and importance to warrant the grant of certiorari in

an appropriate case. But this is not that case, for reasons

fully recognized in the Petition for Certiorari itself.

2. Equitable Considerations.

Petitioners embrace “the position taken by Justice

Stevens in his dissent in American Trucking Associations v.

Smith, 110 S. Ct. at 2350, i.e., that courts enjoy latitude in

fashioning equitable remedies. . . . “ Petition for Cer-

tiorari at 9. They agree that “Chevron analysis would be

relevant . . . to determining, within constitutionally per-

missible bounds, an appropriate remedy.” /d. It is this

point, and this concession, that ultimately makes this case

an inappropriate vehicle for resolution of the retroac-

tivity-of-Davis issue that Petitioners seek to raise.

7

There are a number of equitable considerations that

are an appropriate part of the remedial issues raised by

this case. The ultimate question to be faced is who should

bear the cost of not having foreseen the invalidating

decision in Davis. There can, of course, be no debate that

Davis was not in fact foreseen. We know that it was not

foreseen by these Petitioners, because they and many like

them paid the taxes in question without protest for

almost 50 years. Hundreds of thousands of taxpayers had

paid this tax in Virginia from its enactment in 1942 until

the Davis litigation (as had taxpayers over approximately

the same period of time in 22 other states), without any

suggestion that there might be a constitutional problem

or any other legal difficulty with its imposition. As to the

Virginia taxing officials, the Virginia Supreme Court cor-

rectly observed in its first opinion below that there is

nothing in the facts or background of this case to suggest

“that the Commonwealth acted other than in good faith

reliance upon a presumptively valid taxing statute.” Peti-

tion for Certiorari, App. C at 10a. One can search the.

litigated cases, the applicable administrative proceedings,

and the relevant literature in vain for any warning or

prediction that either the tax-paying or the tax-imposing

communities anticipated the Davis result before it was

announced. The simple fact is that no one — neither the

Petitioners nor the Commonwealth nor their counterparts

in 22 other states — recognized the constitutional infirmity

in this particular Virginia tax prior to its articulation in

the Davis decision. If a constitutional harm was occurring

during this period of time, no one knew it or perceived

injury from it.

As the Commonwealth argued below and as the Vir-

ginia Supreme Court held, there can be no doubt about

8

where the equities lie in this case. The Petitioners seek a

windfall, the repayment of taxes which they thought to

be lawful when paid and which have long since been

budgeted and spent for state services, the benefits of

which these Petitioners - like the other citizens of the

Commonwealth - have fully enjoyed. They seek to shift

the cost of those services, after the fact, to other tax-

payers, taxpayers who are entirely innocent in this con-

troversy and who ~ unlike them - have not slept on their

rights for 50 years. A judgment in favor of the Petitioners

will be paid by other taxpayers either through an increase

in taxes or a reduction in services. In either event, there

will be proportionally less money for the state’s public

school system, for law enforcement and corrections, for

social programs, and for a wide variety of other state

services. At the margins, those who will suffer the most

will be those who are least able to provide fully for their

own needs. What the Petitioners seek is the redistribution

of $440 million from the other citizens of the Common-

wealth to themselves and other similarly situated tax-

payers as compensation for an abstract injury of which

they were not even aware when it occurred.

And the “constitutional harm” which they have suf-

fered is indeed abstract. One appropriate factor to aid the

resolution of where the equities lie in a case of unforeseen

constitutional developments is the nature of the harm

suffered by the individual. These taxpayer-Petitioners

were not harmed as the result of the denial! of a personal

constitutional right found in the Bill of Rights or the

Fourteenth Amendment. No one broke into their homes;

no one denied their freedom to speak or to worship; no

one denied their right t6 a fair adjudication of criminal

9

charges. They were “harmed” because the Common-

wealth of Virginia and 22 other states innocently failed to

anticipate the correct interpretation of a principle of inter-

governmental tax immunity that is designed to order the

relationship between federal and state government, not -

as in the case of the other rights mentioned above - the

relationship between government and the individual citi-

zen. We do not mean to suggest, of course, that these

Petitioners do not have “standing” in the constitutional

sense to complain about the violation of a prophylactic

principle designed to order the relationship between two

sovereigns, but we do suggest that their role in advancing

their own interests in the name of protecting that rela-

tionship can adequately be served without conferring

upon them a windfall profit at the expense of the remain-

der of the Commonwealth’s tax-paying community. Put

another way, prospective relief - freedom from future

imposition of the taxes, already accomplished here by

repeal of the offending tax - ought to be regarded as both

an adequate incentive to bring such suits in the future

(and thus insure protection of the principle of inter-

governmental immunity) and an adequate remedy for

uncovering the violation of the constitutional right. It is

the interests of the United States that are really at stake

here, and those interests are not advanced - indeed, they

are undermined — by inhibiting the ability of the States to

meet the basic needs of their citizens by such massive

transfers of money (potentially billions of dollars nation-

wide) from the hands of the many to the hands of a few.

It is also important to examine the “constitutional

harm” suffered by these Petitioners from another per-

spective. It is not our tradition that “constitutional

harms” are always remedied by compensatory relief. Two

10

examples come readily to mind. In the school litigation

inaugurated by Brown v. Board of Education, 347 U.S. 483

(1954), there was never any suggestion of retrospective

compensatory relief to all of the school children who

suffered the constitutional injuries remedied by that deci-

sion. The same was true, albeit in a dramatically different

context, in Northern Pipeline Construction Co. v. Marathon

Pipe Line Co., 458 U.S. 50 (1982), the result of which was

that the declaration that the Bankruptcy Act of 1978 was

unconstitutional was given only prospective effect.

A third example is provided by this very case. No

one is suggesting, in this litigation or in any of the

litigation based on the Davis decision, that relief should

be fully retroactive past the point where, for example, a

state statute of limitations would preclude a refund rem-

edy. There thus will not be “full” retroactive compensa-

tory relief under any view of the present litigation. There

is an important insight underlying this observation: the

fact that it is recognized that some doctrinal formulations

of state law (a statute of limitations, for example) can

serve to cut off an asserted right to compensatory relief

for the past “constitutional harm” involved in this case

suggests that other doctrinal formulations in which the

State seeks to close the book on prior transactions for

similar and equally valid reasons should be given the

same effect.

This is precisely what has happened in this case -

that is, the Virginia Supreme Court has adopted a doctri-

nal formulation of state law that effectively recognizes

repose interests similar to those typically formulated in a

statute of limitations, and that forecloses relief to the

Petitioners in this case even if imposition and collection of

the tax in question violated the Constitution for the years

11

involved in this suit. It is to the development of this point

that we now turn.

3. The Adequate and Independent State Ground.

The Virginia Supreme Court reached this result in

Part Il of its original opinion, affirmed on remand. Part |

applied the Chevron factors and held that Davis was not to

be applied retroactively. The Petitioners had argued that

they were nonetheless entitled to relief under state law

irrespective of the outcome of their federal claim. The

Virginia Supreme Court first rejected that argument,

holding that “because the Davis decision is not to be

applied retroactively, the pre-Davis assessments were nei-

ther erroneous nor improper within the meaning of Code

§ 58.1-1826.”2 Petition for Certiorari, App. C at 15a.

Beyond that, the Court continued:

2 Section 58.1-1826 provides in full as follows:

If the court is satisfied that the applicant is erroneously

or improperly assessed with any taxes, the court may

order that the assessment be corrected. If the assessment

exceeds the proper amount, the court may order that the

applicant be exonerated from the payment of so much

as is erroneously or improperly charged, if not already

paid and, if paid, that it be refunded to him. If the

assessment is less thgn the proper amount, the court

shall order that the applicant pay the proper taxes and

to this end the court shall be clothed with all the powers

and duties of the authority which made the assessment

complained of as of the time when such assessment was

made and all the powers and duties conferred by law

upon such authority between the time such assessment

was made and the time such application is heard. The

court may order that any amount which has been

improperly collected be refunded to such applicant. A

(Continued on following page)

12

Harper’s state-law contention also fails for

another reason. We previously have held that

this Court’s ruling declaring a taxing scheme

unconstitutional is to be applied prospectively

only. Perkins v. Albemarle County, 214 Va. 240, 198

S.E.2d 626, aff'd and modified on rehearing, 214 Va.

416, 200 S.E.2d 566 (1973). We adhere to our

holding in Perkins. In so doing, we follow the

criteria stated in Fountain v. Fountain, 214 Va.

347, 348, 200 S.E.2d 513, 514 (1973), cert. denied,

416 US. 939 (1974), that “consideration should

be given to the purpose of the new rule, the

extent of the reliance on the old rule, and the

effect on the administration of justice of a retro-

active application of the new rule.” See also

Quick v. Harris, 241 Va. 632, 202 S.E.2d 869, 871

(1974), cert. denied, 420 U.S. 907 (1975).

Petition for Certiorari, App. C at 15a-16a. In a footnote

omitted from the above passage, the Court added:

The case of Capehart v. City of Chesapeake, No.

5459 (Circuit Court, City of Chesapeake,

decided October 16, 1974), followed Perkins. In.

Capehart, more than one hundred taxpayers in

the City of Chesapeake, who had been subjected

to the same practice that was invalidated in

Perkins, brought suit in circuit court seeking,

among other things, refunds of the taxes “ille-

gally and unconstitutionally assessed.” The City

demurred, citing Perkins. The circuit court sus-

tained the demurrer, being of opinion that the

case was controlled by Perkins. We denied

(Continued from previous page)

copy of any order made under this section or

§ 58.1-1827 Correcting an erroneous or improper

assessment shall be certified by the clerk of the court

to the Tax Commissioner.

13

Capehart’s petition for appeal,[*] 215 Va. xlvii,

and Capehart’s petition for certiorari raising

due process grounds was denied by the

Supreme Court. 423 U.S. 875 (1975).

Petition for Certiorari, App. C at 16a n. 3. Finally, in its

summation of its holding in Part IV of its original opinion

in this case, the Virginia Supreme Court said:

In sum, we hold that, (1) under the Chevron test,

the Davis decision is not to be applied retroac-

tively, [and] (2) state law does not require tax

refunds, but to the contrary, grants prospective-

only application to decisions that invalidate a

taxing scheme... .

Petition for Certiorari, App. C at 17a.*

Several things need to be said about these passages.

First, it is clear that the Virginia Supreme Court is relying

solely on state law in the conclusions stated. This is not a

case where “a state court decision fairly appears to rest

primarily on federal law, or to be interwoven with the

federal law, and when the adequacy and independence of

any possible state law ground is not clear from the face of

the opinion.” Michigan v. Long, 463 U.S. 1032, 1040-41

(1983). There is thus no need for the “plain statement” of

exclusive reliance on state law grounds contemplated by

3 This denial of the petition for appeal by the Virginia

Supreme Court was a decision on the merits. Sutherland v.

Swannanoa Corp., 189 Va. 149, 154, 52 S.E.2d 92, 95 (1949).

* The Virginia Supreme Court reaffirmed these portions of

its first opinion in the opinion from which this writ of cer-

tiorari is sought. The last line of its second opinion states that

“we reaffirm our prior decision in all respects.” Petition for

Certiorari, App. A at 5a. And the two preceding paragraphs, as

elaborated below; can only be read as referring to the “state-

law ground” portions of its first opinion.

14

Michigan v. Long to resolve ambiguous references to fed-

eral law in state court opinions. See Coleman v. Thompson,

111 S.Ct. 2546, 2558-59 (1991). There is no ambiguity here

about the state-law grounds on which the state court

relied in this part of its original opinion.

Second, what the Virginia Supreme Court is saying -

and note that the cases on which it relies were decided

long before the tax years at issue here — is that the remedy

sought by these Petitioners under Va. Code § 58.1-1826

can be asserted only for assessments that were “erro-

neous and improper” under established law at the time of

the assessment. What Perkins and Capehart mean is that

the state law remedy under § 58.1-1826 is unavailable in a

case like the present one, irrespective of the fact that the

Federal Constitution may have been violated at the time

the assessment was made. As has been pointed out

above, the same could be said of a suit brought today for

a refund of a tax “unconstitutionally” imposed and col-

lected from a retired federal employee in 1942. In that

case, the analysis presumably would be that the statute of

limitations policy expressed in Va. Code § 58.1-1825

(three years) would stand as a legitimate state-law pro-

cedural barrier to compensatory relief for the violation of

federal law. What we have here is really the same thing.

The Virginia Supreme Court has enforced a limitation on

the remedy sought by these Petitioners that has been

recognized in state law since 1973. It, just as would a

statute of limitations, forecloses compensatory relief for

previously paid taxes that are invalidated by the recogni-

tion of a new principle of law. Both principles of state law

are grounded in policies of respose that recognize legiti-

mate state interests in fiscal stability and planning. Nei-

ther is it unfair to people in the Petitioners’ shoes, it

15

should be added, because in both cases - the case of a

Statute-of-limitations foreclosure and the case of an

unavailable remedy under Va. Code § 58.1-1826 - alterna-

tive remedies were available at an earlier day under

which they could have protected their rights.

Third, it is of course within the competence of this

Court to examine principles of state law such as these in

order to determine their acceptability under appropriate

federal standards. We will have more to say about this

point immediately below. But what by longstanding tra-

dition is not within the competence of this Court is to

challenge state courts on their determination of the mean-

ing and application of state law. It is for the Virginia ~

Supreme Court to say what state law is, and that Court

has done so in this case. That premise can be challenged

on federal grounds, and we now turn to how that chal-

lenge plays out in the present case.

4. The Adequacy and Independence of the State

Ground.

This case turns, in the language of this Court's ade-

quate and independent state ground doctrine, on whether

principles of federal law have been evaded or under-

mined by the application of state law in the courts below.

Within the framework of accepted doctrine, the question

is whether the state law ground that supports the judg-

ment below is either “inadequate” to foreclose reaching

the federal questions or “not independent” of appropriate

federal principles. .

There can be no argument here that the conclusions

of state law on which the decision below rests are “not

independent” of federal law. No federal cases are cited in

16

this portion of the state court opinion, no federal law

discussed. As noted above, there is no ambiguity here of

the sort that concerned the Court in Michigan v. Long.

Substantial questions could be raised, perhaps, about

the “adequacy” of the state ground advanced in the court

below. It could be argued, for example, that due process

requires the states to afford a backward looking remedy

in at least some cases of unconstitutional taxation. This

Court held as much in McKesson Corp. v. Division of Alco-

holic Beverages and Tobacco, 110 S. Ct. 2238 (1990)

(“McKesson”). Respondent has no quarrel with McKesson,

nor with the principles that underlie it. But that case is

dramatically different from the situation here.

McKesson establishes that prospective relief alone is

not adequate in a case where it was entirely foreseeable at

the time of enactment of a challenged state tax statute

that the tax in question would be contested and invali-

dated. McKesson addressed the state interest in sound

fiscal planning in the following passage:

[W]e do not find this concern weighty in these

circumstances. A State’s freedom to impose var-

ious procedural requirements on actions for

postdeprivation relief sufficiently meets this

concern with respect to future cases. The State

might, for example, provide by statute that

refunds will be available only to those taxpayers

paying under protest or providing some other

timely notice of complaint; execute any refunds

on a reasonable installment basis; enforce rela-

tively short statutes of limitation applicable to

such actions; refrain from collecting taxes pur-

suant to a scheme that has been declared invalid

by a court or other competent tribunal pending

further review of such declaration on appeal;

and/or place challenged tax payments into an

17

escrow account or employ other accounting

devices such that the State can predict with

greater accuracy the availability of undisputed

treasury funds. The State's ability in the future

to invoke such procedural protections suffices to

secure the State’s interest in stable fiscal plan-

ning when weighed against its constitutional

obligation to provide relief for an unlawful tax.

110 S. Ct. at 2254-55 (emphasis added). The Court

observed that “in the present case, Florida’s failure to

avail itself of certain of these methods of self-protection

weakens any ‘equitable’ justification for avoiding its con-

stitutional obligation to provide relief” and added that, in

any event, Florida had ample notice that the statute in

litigation in McKesson was potentially defective when

measured against constitutional standards. Id. at 2255.

From this it followed that Florida’s “ ‘equitable’ justifica-

tion” for withholding relief was without basis.

The point to be made here is that Virginia has availed

itself of certain of these methods of “self-protection.” It

adopted the limitation on its state refund statute reflected

in Perkins and Capehart in 1973, long before the instant

litigation was filed. Petitioners were on notice at the time

they paid the taxes to which they now object that refunds

would not be available under Va. Code § 58.1-1826 based

upon subsequent legal developments.

And it does not follow from the reasoning of

McKesson, moreover, that the ability of the states to

engage in sound fiscal planning is an illegitimate consid-

eration in all cases where state taxes have been found to

violate federal law. Florida's ability “in the future” to

invoke procedural prasections of the sort suggested by

the Court in McKesson sufficed to secure its interest in

sound fiscal planning in that case because it was clearly

18

on notice that the tax in question was of doubtful legality

when that tax was adopted.® Florida, in other words,

could have adequately protected its fiscal interests by

paying more attention to this Court’s constitutional pre-

cedents. The same point could not in fairness be made in

a case where both the State and the taxpayer have had no

reason to question the legality of a tax for 30 or 40 or 50

years. In such a case, it is submitted, federal due process

would not be violated by a restriction of relief to prospec-

tive invalidation of the tax.

There should be room in the applicable principles of

federal due process, in other words, for consideration of

the reliance interests of state governments based upon

reasonable assumptions about the stability of law over

time. A related issue recently arose in Swanson v. Powers,

937 F.2d 965 (4th Cir.), petition for cert. filed, 60 U.S.L.W.

3344 (U.S. Oct. 21, 1991) (No. 91-666). The plaintiffs in

that case sued the former North Carolina Secretary of

Revenue for $140 million for her actions in collecting

> The Court was explicit about this rationale in McKesson,

110 S. Ct. at 2257, when it gave two reasons for the conclusion

that “the State’s interest in financial stability does not justify a

refusal to provide relief.” The first was that “the State here

does not and cannot claim that the Florida courts’ invalidation

of the Liquor Tax was a surprise... .” The second was that

Florida could take procedural steps in the future “against any

disruptive effects of a tax scheme’s invalidation.”

The situation now before the court is importantly different.

The decision calling the Virginia tax statute into question was a

surprise. And steps that Virginia - and other states now facing

huge tax refund claims - can take “in the future” are of little

value to mitigate the disruption and financial instability now

faced based on events that have already occurred. Legitimate

steps they have taken to protect these interests in the past,

moreover, should be respected.

19

North Carolina’s version of the same tax at issue in Davis.

The suit was brought in federal court under 42 U.S.C.

§ 1983 and was appealed to the Fourth Circuit on the

question whether the former North Carolina Secretary of

Revenue was entitled to qualified immunity. Judge J.

Harvie Wilkinson, writing for the court, held she was:

“We believe that to hold Secretary Powers liable because

she failed to accurately predict the outcome of the Davis

decision would work a miscarriage of justice... . ” 937

F.2d at 967. The court went on to say:

Only violations of those federal rights

“clearly recognized in existing case law” will

support an award in damages under 42 U.S.C.

§ 1983. Public officials must be able to discharge

their public duties free of an omnipresent fear of

§ 1983 liability. Only in that way can we be sure

that government can continue to function effi-

ciently while liability will fall properly upon

only “the plainly incompetent or those who

knowingly violate the law.”

This tolerance for a range of reasonable

public actions is particularly important for those

who must interpret often imprecise or incom-

plete legal precedent... .

In interpreting qualified immunity, then, we

must appreciate the fact that the direction of the

law may be difficult to ascertain. Thus, although

public officials may be “charged with knowl-

edge of constitutional developments, [they] are

not required to predict the future course of con-

stitutional law.” ... The requirement, after all, is

that the law be clearly established, not simply

possibly established or even probably estab-

lished. Since qualified immunity is appropriate

if reasonable officers could disagree on the rele-

vant issue, it surely must be appropriate when

reasonable jurists can do so.

20

937 F.2d at 967-68 (citations omi'ted). The plaintiffs

argued in Swanson, as the Petitioners argue here, that

nothing “new” was established in Davis. Judge Wilkinson

responded:

We disagree. Secretary Powers was enforcing a

long-standing statute that was similar to enact-

ments elsewhere. The most pertinent judicial

decisions had upheld comparable taxing

schemes and the doctrine of intergovernmental

tax immunity was, at best, ambiguous. We

decline to proclaim in hindsight after the Davis

decision, that the unconst#tutionality of differen-

tial tax exemptions had been clear all along.

937 F.2d at 968. “4

One of the premises of the judicial doctrine of quali-

fied immunity under § 1983 is that it is unfair to hold

public officials accountable for unforeseeable develop-

ments in constitutional law. The doctrine builds an ele-

ment of fault into the principles that determine the

accountability of public officials for the constitutional

harms they inflict. What the Virginia Supreme Court has

done in its decision below, and in the body of state law

precedent dating from 1973 on which the decision below

is grounded, is essentially the same thing. It has built an

element of fault into the refund remedy provided by Va.

Code § 58.1-1826. It puts upon taxpayers the burden of

raising “new” constitutional arguments before they pay

the tax, by limiting refund actions to cases where the

basis for the refund was reasonably predictable based on

established law. It is no less unfair to the citizens of

Virginia to require them to pay $440 million to these

Petitioners and other similarly situated taxpayers than it

would have been to require Secretary Powers to pay

comparable taxpayers in North Carolina. Both situations

21

call, in Judge Wilkinson’s words, for “tolerance for a

range of reasonable public actions.” 937 F.2d at 968. The

Virginia Supreme Court built that tolerance into its state-

law remedial structure.

5. Procedural Posture of the Case.

The state-law ground advocated by the Virginia

Supreme Court in support of its judgment below is fully

adequate under appropriate federal standards. It follows

from the normal application of accepted principles that

this Court should not reach the merits of the federal

question presented. For this reason ‘alone, the writ of

certiorari should be denied.

The Petition for Certiorari has chosen to ignore the

state-law basis for the decision below. Petitioners have

not argued that the state ground on which the decision

rests is either “inadequate” or not “independent.” But

there is yet another reason why the writ should be

denied.

While Petitioners seem to argue in this Petition that

the failure of the State to supply a retrospective refund

remedy would be a violation of due process, this is not

the stage of this litigation where such questions should be

entertained by this Court. No such questions were passed

upon by the Virginia Supreme Court. Such questions can

be addressed when they are properly presented in a case

in which they have been properly litigated and decided

in the lower courts.

Moreover, as the Commonwealth argued below, the

“due process” issue now asserted by Petitioners is not a

clean “remedy or no-remedy” question. Petitioners sought

post-deprivation relief under Va. Code § 58.1-1826. They are

not, as the Virginia Supreme Court held below, entitled to

22 23

proper amount, the Tax Commissioner shail

order that the applicant be exonerated from

the payment of so much as is erroneously or

improperly charged, if not already paid into

that remedy. They were, however, entitled at another time on

another day to another remedy. What they failed to do was

pursue an avenue of predeprivation relief that was open to

them under Virginia law.

We repeat here the argument we made below:

A. In Virginia, a taxpayer is entitled to chal-

lenge a tax assessment in a pre-deprivation (i.e.,

prior to payment) procedure set forth in

§§ 58.1-1821 and 58.1-1822. Section 58.1-1821

provides:

Any person assessed with any tax adminis-

tered by the Department of Taxation may,

within ninety days from the date of such

assessment, apply for relief to the Tax Com-

missioner. Such application shall be in the

form prescribed by the Department, and

shall fully set forth the grounds upon which

the taxpayer relies and all facts relevant to

the taxpayer’s contention. The Tax Commis-

sioner may also require such additional

information, testimony or documentary evi-

dence as he deems necessary to a fair deter-

mination of the application.

On receipt of a notice of intent to file under

this section, the Tax Commissioner shall

refrain from collecting the tax until the time

for filing hereunder has expired, unless he

determines that collection is in jeopardy.

Section 58.1-1822 provides:

If the Tax Commissioner is satisfied, by evi-

dence submitted to him or otherwise, that

an applicant is erroneously or improperly

assessed with any tax administered by the

Department of Taxation, the Tax Commis-

sioner may order that such assessment be

corrected. If the assessment exceeds the

the state treasury, and, if paid, that it be

refunded to him. If the assessment is less

than the proper amount, the Tax Commis-

sioner shall order that the applicant pay the

proper taxes. He shall refund to the tax-

payer any exempt funds which have been

improperly collected. The Tax Commis-

sioner shall refrain from collecting a con-

tested assessment until he has made a final

determination under this section unless he

determines that collection is in jeopardy.

B. Virginia Regulation § 630-1-1820 provides

that § 58.1-1821 “may be used to protest any and

all issues connected with an assessment.” While

§ 58.1-1821 does not require a formal hearing, a

taxpayer may present his position both in writ-

ing and in person. Va. Reg. § 630-1-1821 (Appli-

cation under § 58.1-1821 “will be handled within

the Department [of Taxation] in the manner best

determined by the Commissioner to resolve the

dispute, which may include submission of addi-

tional documents and memoranda, further

audit, holding a conference with the taxpayer or

the taking of testimony.”). Under precedent

established by this Court, this procedure satis-

fies the demands of due process for a pre-depri-

vation administrative proceeding. Mathews v.

Eldridge, 424 U.S. 319 (1976); Arnett v. Kennedy,

416 U.S. 134 (1974); Goldberg v. Kelly, 397 USS.

254 (1970).

C. Applying this analysis to the facts pre-

sented here, it is clear that Virginia’s administra-

tive predeprivation remedy satisfies due

process. Section 58.1-1821 allows the taxpayer to

24

set forth the grounds for contesting the tax,

provides for the presentation of any evidence

necessary to a fair determination of the action,

and permits the exoneration from payments of

any amount erroneously or improperly charged.

Unless collection is in jeopardy, the Tax Com-

missioner must refrain from collecting a con-

tested assessment under the statute.

D. Plaintiffs had a clear, meaningful, pre-

deprivation opportunity to challenge the val-

idity of the tax provisions relating to pensions.

They chose not to,do so and, under McKesson,

must be considered to have paid the challenged

taxes voluntarily. Under the rule of McKesson,

due process does not now require additional

post-deprivation procedure with backward

looking relief.

We do not restate these arguments here in the view

that this Court should now resolve the questions of state

and federal law which they raise. But they do reinforce

the wisdom of this Court’s practice that it will not con-

sider issues that have not been fully ventilated below.

There are complex questions of state law intertwined in

any resolution of whether denial of a remedy under

§ 58.1-1826 is a violation of federal due process. But the

procedural posture of the present case makes it unnecess-

ary for this Court to reach those issues now. The

Petitioners did not challenge the adequacy of the prede-

privation remedy in the Virginia Supreme Court, and

accordingly, the questions of state law on which any

resolution of the federal due process issue would turn

were not presented by the Petitioners in the proceedings

below.

25

6. The Relevance of Beam.

Finally, the arguments made here must be considered

in light of the premises and structure of Beam. The Vir-

ginia Supreme Court has thoughtfully and carefully con-

sidered this Court’s pronouncements in Beam, and its

decision on remand is fully consistent with the require-

ments of that case.

The question in Beam was at what analytical points

the retrospectivity of a Supreme Court decision could be

considered. Beam divided the relevant landscape into two

kinds of issues, choice-of-law questions and remedy

questions. 111 S. Ct. at 2443.

The choice-of-law issue involved the operative sub-

Stantive principles that would determine the federal

rights sought to be asserted. There were three options:

complete retroactivity, complete prospectivity, and selec-

tive prospectivity. What Beam did was eliminate the third

option. 111 S. Ct. at 2446. Supreme Court decisions are

not going to be selectively prospective in the sense that

they apply to the parties before the Court but not to

others whose facts arose before the decision.

What Beam did not do is select between the other two

options; complete prospectivity and complete retrospec-

tivity are still possible outcomes after Beam. 111 S. Ct. at

2448. As this result would apply to the present case, this

means that it remained open for the Virginia Supreme

Court to hold, as it did, that Davis was to be applied ina

purely prospective manner. That is the only federal ques-

tion decided in the opinion below. -

What is even more important to the ultimate issues in

this case is another point - the question of available

remedies — not resolved in Beam. As noted by the Justices

of the Virginia Supreme Court (Petition for Certiorari,

26

App. A at 5a), Justice Souter’s opinion stated at the end

of part III that “nothing we say here precludes consider-

ation of individual equities when deciding remedial

issues in particular cases.” 111 S. Ct. at 2448. He elabo-

rated at the beginning of Part IV of his opinion:

The grounds for our decision today are nar-

row. They are confined entirely to an issue of

choice of law: when the Court has applied a rule

of law to the litigants in one case it must do so

with respect to all others not barred by pro-

cedural requirements or res judicata. We do not

speculate as to the bounds of pure prospectivity.

Nor do we speculate about the remedy that

may be appropriate in this case; remedial issues

were neither considered below nor argued to

this Court, save for an effort by petitioner to

buttress its claim by reference to our decision

last Term in McKesson. As we have observed

repeatedly, federal “issues of remedy .. . may

well be intertwined with, or their consideration

obviated by, issues of state law.” Bacchus, 468

U.S., at 277. Nothing we say here deprives

respondent of his opportunity to raise pro-

cedural bars to recovery under state law or

demonstrate reliance interests entitled to consid-

eration in determining the nature of the remedy

that must be provided, a matter with which

McKesson did not deal.

111 S. Ct. at 2448.

Here, unlike Beam, remedial issues were considered

below. The Virginia Supreme Court accepted the invita-

tion in Beam to “consider[] . . . individual equities when

deciding [the] remedial issues in [this] particular case[].”

111 S. Ct. at 2448. It did so by applying established

precedent that had anticipated the issue, and that had

27

resolved the matter under Virginia law in 1973. Petition

for Certiorari, App. C at 15a-16a. And in the last three

paragraphs of its opinion, written in response to this

Court’s reconsideration order, the Virginia Supreme

Court reinforced these conclusions from its first opinion

by referring to precisely the above quoted passages in the

Beam decision. Petition for Certiorari, App. A at 5a.

What the Virginia Court did was entirely consistent

with Beam. And since the issues on which the decision

below turns involve questions of state law that have not

been challenged in the Petition for Certiorari, the Petition

should be denied.

7. The Military Retirees.

The Petitioners make one other argument that

requires a response, though it can be brief. They argue

that the Commonwealth’s effort to distinguish between

civil service retirees and military retirees “presents an

independent ground necessitating plenary review by the

Court.” Petition for Certiorari at 12. It is clear that cer-

tiorari should not be granted on this issue in this case.

And the fact that this issue is even raised in the Petition

suggests that a limited grant of the writ would be appro-

priate should the Court be inclined to hear the case on

other issues.

The reason certiorari on this issue is inappropriate is

straightforward. The Court has granted certiorari in a

case which clearly presents this issue. Barker v. Kansas,

249 Kan. 186, 815 P.2d 46, cert. granted, 60 U.S.L.W. 3402

(U.S. Dec. 3, 1991) (No. 91-611). Moreover, the Court

should not hold this case pending resolution of Barker

because Petitioners did not raise this issue below, nor did

the Virginia Supreme Court address the issue. It is true

28

that the Commonwealth argued in the trial court that there

was a relevant difference between how the Davis decision

should be applied to civil service retirees and how it

should be applied to military retirees (if it is to apply at

all to taxable events that concluded before the decision).

But it is also true, as the Petitioners conceded in their

previous Petition for Certiorari (Petition for Certiorari,

No. 90-1685, p. 19), that “[t]he court below did not reach

this argument... . ” They did not acknowledge then, as

they do not now, that they did not raise the argument they

now wish to make in the trial court below, thus preclud-

ing review by the Supreme Court of Virginia. It is surely

novel to assert that this Court should grant certiorari to

reject an argument made by the prevailing party below,

that was neither adverted to nor passed upon by the

court below, that was in no sense necessary to the judg-

ment below, that was in fact made unnecessary by the

basis for the decision below, and that raises an issue

never raised by the Petitioners until they reached this

Court. Petitioners would give a new dimension to the

“advisory opinion” concept if they were successful in

obtaining a grant of the writ on this issue.

e

CONCLUSION

In the end, there is only one federal question pre-

sented by this Petition for Certiorari that is of sufficient

importance as a general matter to warrant a grant of the

writ. That question - whether Davis can be applied in a

purely prospective fashion - may need to be resolved by

this Court at some juncture. But traditional principles

governing the jurisprudence of this court suggest that the

Court should do so in a case where resolution of the

29

issues makes a difference to the outcome of the case.

Principles that counsel against the rendering of advisory

opinions also counsel against granting the writ in this

case. This case involves an asserted federal right sought

to be enforced through an unavailable state cause of

action. The Petition for Certiorari suggests no ground

upon which the unavailability of the state cause of action

offends or is in any way inconsistent with federal inter-

ests. Were the Court to uphold the existence of the federal

right as Petitioners ask, the case still would reach the

same result because the Petitioners have not challenged

the state ground that fully supports the decision below.

The only effect of granting certiorari will be to require yet

another decision by this Court, followed by yet another

decision on remand by the Virginia Supreme Court, fol-

lowed by yet another round of certiorari proceedings in

this Court - all in a case where the ultimate outcome is

already plain. It is time for these proceedings to come to

an end.

30

Respectfully submitted,

ViRGINIA DEerparRTMENT OF TAXATION

Mary Sue Terry

Attorney General of Virginia

H. LANE KNEEDLER

Chief Deputy Attorney General

Gat STARLING MARSHALL"

Deputy Attorney General

Grecory E. Lucyk

Senior Assistant Attorney General

BarBarA H. VANN

Assistant Attorney General

101 North Eighth Street

Richmond, Virginia 23219

(804) 786-2071

Of Counsel:

Peter W. Low, Esquire

Professor of Law

University of Virginia

School of Law

Charlottesville, Virginia 22901

*Counsel of Record ‘.

for Respondent