Opposition Brief — Nivens v. Gilchrist

JRPIUING © OUTL, Ud.

FILED

MAY 9 - 2003

No. 02-1477 OFFICE OF THE CLERK

IN THE

Supreme Court of the Gnited States

KENNETH SCOTT NIVENS

GLEN LANCE MANERS

TERRI LYNN STORK,

Petitioners,

PETER S. GILCHRIST, III,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

BRIEF IN OPPOSITION

ROY COOPER

North Carolina Attorney General

Norma S. Harrell*

Special Deputy Attorney General

North Carolina Department of Justice

Post Office Box 629

Raleigh, North Carolina 27602-0629

(919) 716-6900

Attorneys for Respondent

May 9, 2003 *Counsel of Record

Il.

Il.

QUESTIONS PRESENTED

WHETHER ALLEGED CONFLICTS OF THE

COURT OF APPEALS’ DECISION WITH THOSE

OF OTHER CIRCUITS JUSTIFY GRANT OF

THIS COURT’S WRIT OF CERTIORARI, WHEN

THOSE ALLEGED CONFLICTS ARE AT MOST

INSUBSTANTIAL AND TANGENTIAL TO THE

DECISION OF THIS CASE.

WHETHER THE COURT OF APPEALS’

DECISION IS CORRECT AND CONSISTENT

WITH THIS COURT’S DECISION IN HUDSON V.

UNITED STATES, 522 U.S. 93 (1997).

WHETHER PETITIONERS HAVE CITED ANY

ADVERSE CONSEQUENCESTHE AVOIDANCE

OF WHICH WOULD MAKE THIS CASE

APPROPRIATE FOR REVIEW ON

CERTIORARI.

ll

[This page intentionally left blank]

ill

TABLE OF CONTENTS

gy eB ss er 1

pe Fe Peep ose Sige 8 4 gy | Vv

DRM RROOEeE COE BEM CARE 20. e ccc cccrencvcs 1]

REASONS FOR DENYING THE WRIT .............. 4

I. THIS COURT SHOULD NOT GRANT

CERTIORARI BASED ON ALLEGED

CONFLICTS OF THE COURT OF APPEALS’

DECISION WITH THOSE OF OTHER

CIRCUITS, WHICH ARE AT MOST

INSUBSTANTIAL AND TANGENTIAL TO

THE DECISION OF THIS CASE. ........... 6

A. Petitioners Have Failed To

Show A Genuine Conflict In

The Circuits Concerning The

Applicable Standard Of

RS A ee 6

B. Petitioners Have Failed To

Show A Conflict Among The

Circuits Concerning The

Effect Of Binding State

ee eth hak ee sce eeeee 8

iv

II. _THECOURTOF APPEALS’ DECISION

IS CORRECT AND CONSISTENT

WITH THIS COURT’S DECISION IN

HUDSON V. UNITED STATES, 522 U.S.

Pe ck eee 10

II. PETITIONERS HAVE CITED NO

ADVERSE CONSEQUENCES WHICH

WOULD MAKE THIS CASE

APPROPRIATE FOR REVIEW ON

eo Fee Pee rec ere ree ee rere 18

CAE. 6 ohooh serie eae ek neeae heme ten 22

APPENDIX:

RANE 5 xk os 4 CE ieee one ee RR el ode ee ees la

N.C. GEN. STAT. § 105-113.112 (2000) ............... 9a

N.C. GEN. STAT. § 105-236 (2000) ..............208- 9a

N.C. GEN. STAT. § 105-241 (2000) 2... ccc cicccssvccee l6a

N.C. Gen. Stat. § 105-241.1 (2000) .........2..00e0. 18a

Vv

TABLE OF CITED AUTHORITIES

CASES

Brooks v. New Hampshire Supreme Court,

oR ee ok | eee eee errr es rr 7

Bryant v. State, 660 N.E.2d 290 (Ind. 1995),

cert. denied, 519 U.S. 296 (1996) ..........00008. 16

City of Los Angeles v. Lyons, 461 U.S. 95 (1983) ....... 13

Commissioner of Revenue v. Mullins,

Fe Cee 0 CO, FN ok a ok vee besa ren sake 16

Covelli v. Commissioner of Revenue Servs.,

668 A.2d 699 (Conn. 1995), vacated

and remanded, 518 U.S. 1031 (1996),

prior opinion aff'd per curiam,

683 A.2d 737 (Conn. 1996), cert. denied,

Pee ee Ae Pe og oe en eee eee das 15,16

Department of Revenue of Montana v. Kurth

pe, S01 US. FST CIP skoda wk viscsvavenes 15

Desimone v. State, 996 P.2d 405 (Nev. 2000) .......... 16

Drayton v. Hayes, 589 F.2d 117 (2d Cir. 1979) ........ 12

vi

Dubinka v. Judges of the Superior Court,

(eR es oS eS er 9

Duty Free Shop, Inc. v. Administracion de Terrenos,

GOP F20 C16 CRG, TH ei 6 eck dawteead nade 9

Freeman v. Case Corp., 118 F.3d 1011 (4th Cir. 1997) . 6,7

Hansel v. Town Court for Springfield,

56 F.3d 391 (2d Cir.), cert. denied,

RUS 25, | rer ry ry 9

Hill v. State, 898 P.2d 155 (Okla. Crim. App. 1995) ..... 15

Hudson v. United States, 522 U.S. 93

CTOOEE ac cnnunnwecddadin et Raedn 10, 14, 15, 17

Kennedy v. Mendoza-Martinez, 372 U.S. 144 (1963) .... 14

Lynn v. West, 134 F.3d 582, 591 (4th Cir.),

cert. denied, 525 U.S. 813 (1998) ......... 3,5, 11,15

Martin Marietta Corp. v. Maryland

Commission on Human Relations,

0 Fe Be OE TE bk cbs se chveccevesdion 6

McMullin v. South Carolina Dep’t of Revenue

& Taxation, 469 S.E.2d 600 (S.C. 1996) .......... 16

Vil

Middlesex County Ethics Comm. v. Garden

State Bar Ass'n, 457 U.S. 423 (1982) ..... 3, 12, 18, 19

Milligan v. State, 522 S.E.2d 330

(N.C. Ct. App. 1999), disc. review denied,

543 S.E.2d 131 (N.C.), cert. denied,

ee Se kc eas ee ceeds eee 5

Milner v. State, 658 So. 2d 500 (Ala. Civ. App. 1994) ... 16

Padavich v. Thalacker, 162 F.3d 521

(8th Cir. 1998), cert. denied,

ee Ce FOE UNE iia va eh ic cana Weenedseeens 15

People v. Maurello, 932 P.2d 851

Pee Ae I EN ss coccheavacuecuabaneses 16

Riley v. Simmons, 45 F.3d 764 (3d Cir. 1995) ........... 7

Schlagler v. Phillips, 166 F.3d 439 (2d Cir. 1999) ....... 8

Simpson v. Bouker, 249 F.3d 1204 (10th Cir. 2001) ..... 15

State v. Adams, 513 S.E.2d 588 (N.C. Ct. App.),

disc. review denied, 538 S.E.2d 570 (N.C.),

cert. denied, 528 U.S. 1022 (1999) ................ 5

State v. Baehler, 604 N.W.2d 601 (Iowa 1999) ...... 16, 17

Vili

State v. Ballenger, 472 S.E.2d 572

(N.C. Ct. App. 1996), aff'd per curiam,

481 S.E.2d 84 (N.C.), cert. denied,

pee gE Sel). rere errr arr 5

State v. Foster, 519 S.E.2d 783 (N.C. Ct. App.),

disc. review denied, 538 S.E.2d 576 (N.C.),

cert. denied, 528 U.S. 1022 (1999) ..........ee00 es 5

State v. Gulledge, 896 P.2d 378 (Kan. 1995)........... 16

State v. Henry, 348 S.E.2d 593 (N.C. 1986) ........... 19

State v. Joseph, 374 S.E.2d 132

(N.C. Ct. App. 1988), cert. denied,

igen any er rae 19

State v. Shoff, 456 S.E.2d 875 (N.C. Ct. App. 1995),

aff'd per curiam, 466 S.E.2d 277 (N.C. 1996) ...... 19

United States v. Halper, 490 U.S. 435 (1989) ....... 16,17

United States v. Ward, 448 U.S. 242 (1980) ........ 10, 14

Vick v. Williams, 233 F.3d 213 (4th Cir. 2000),

cert. denied, 533 U.S. 952 (2001) .............. 5.12

Younger v. Harris, 401 U.S. 37 (1971) ........... 2, 4, 13

1X

STATUTES

An Act to Amend the Excise Tax on Controlled

Substances, 1998 N.C. Sess. Laws 218 ........ 11, 14

N.C; GEN, STAT. § 105-113.105 (2000) ............2..

N.C. GEN. STAT. § 105-113.112 (2000) ...............

ke EO Pere ene ree SDE rere

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]

STATEMENT OF THE CASE

Petitioners Kenneth Scott Nivens, Glen Lance Maners, and

Terri Lynn Stork (hereafter collectively “petitioners”) initiated

this civil action in the United States District Court for the

Western District of North Carolina on 18 October 2001 by

mailing and faxing their complaint to defendant Peter S.

Gilchrist III, the elected District Attorney for North Carolina

Prosecutorial District 26, Mecklenburg County, North Carolina

(hereafter “Gilchrist”). Petitioners brought their action

pursuant to 42 U.S.C. § 1983, the Federal Declaratory

Judgment Act, 28 U.S.C. §§ 2201 and 2202, and the Fifth and

Fourteenth Amendments to the United States Constitution,

seeking declaratory and injunctive relief to prevent the State of

North Carolina from prosecuting petitioners for criminal

offenses involving the possession and sale of hundreds of

“ecstasy” pills. Appendix to Brief In Opposition (hereafter

“App.”) at la-8a.

According to their complaint, petitioners were all arrested

on 8 July 2000 for violations of North Carolina’s criminal laws

for offenses involving the sale by petitioner Stork of 15 ecstasy

pills, the sale by Chad Hess of 125 ecstasy pills, the sale by

petitioner Nivens of 184 ecstasy pills to petitioner Maners, and

the possession of 701 ecstasy pills by petitioner Nivens in a car

driven by petitioner Stork. Compl. J 9, App. at 4a. Also in

July of 2000, petitioners Stork, Nivens and Maners were

assessed with taxes, penalties, and interest pursuant to North

Carolina laws governing Unauthorized Substances Taxes (the

“drug tax”), N.C. GEN. STAT. §§ 105-113.105 ef seq., in the

2

amount of $6,259.67 on the 884 ecstasy pills that were the

subjects of several indictments. Compl. § 10, App. at 4a-5a.

In addition, petitioner Maners was assessed a tax which, with

penalty and interest, amounted to $1,336.33 on the 184 ecstasy

pills that were the subjects of three indictments. Compl. 4 11,

App. at 5a. Petitioner Stork was also assessed a tax which,

with interest and penalty, amounted to $1,081.13 on the 140

ecstasy pills that were the subject of four indictments. Compl.

4 12, App. at 5a. All of the petitioners paid the taxes in full

either the month they were assessed or the following month.

Compl. 4] 10-12, App. at 4a-5a.

On 13 November 2001, Gilchrist moved to dismiss the

complaint for lack of jurisdiction pursuant to F. R. Civ. P. Rule

12(b)(1) or to abstain from exercising jurisdiction under the

doctrine of Younger v. Harris, 401 U.S. 37 (1971), and, at the

same time, moved to dismiss the action for failure to state a

claim upon which relief may be granted pursuant to F.R. Civ.

P. Rule 12(b)(6). On 4 February 2002, the district court

granted the motion to dismiss based on the Younger abstention

doctrine, without prejudice, and denied all other outstanding

motions as moot. The district court thus avoided the need to

reach the question of whether the complaint failed to state a

claim upon which relief may be granted. Appendix to Petition

for Writ of Certiorari (hereafter “Pet. App.”) at 26a-34a. A

judgment of dismissal was entered the same day.

Petitioners appealed to the United States Court of Appeals

for the Fourth Circuit, and on 11 February 2003 the court of

appeals filed its decision affirming the district court. Pet. App.

|

3

at la-24a. Citing Middlesex County Ethics Comm. v. Garden

State Bar Ass’n, 457 U.S. 423 (1982), the court of appeals

concluded that the State of North Carolina, in its criminal

prosecution of petitioners, had an ongoing proceeding that

implicates important, substantial and vital interests of the State

in preventing criminal violations and that petitioners have an

adequate opportunity to raise their federal claims in the North

Carolina courts. Accordingly, the court of appeals declared

that the trial court did not abuse its discretion in abstaining

unless petitioners could show that their case fell within an

exception to the rule favoring abstention when a state has a

pending criminal prosecution. Pet. App. at Sa-6a. The court of

appeals further concluded that petitioners could not show they

fell within any exception to the Younger abstention doctrine.

In particular, petitioners did not allege bad faith or harassment,

and they still have an opportunity to have the state courts

address their constitutional claims. Pet. App. at 7a. Nor could

they show the lack of an adequate remedy at law or the danger

of irreparable injury in the absence of a preliminary injunction.

Pet. App. at 8a. Although petitioners argued that the North

Carolina courts had erroneously declared the State’ s “drug tax”

constitutional while, according to petitioners, the court of

appeals had reached the opposite conclusion, the court of

appeals noted that North Carolina had made substantial

changes to the state’s drug tax laws since the events giving rise

to the court of appeals’ decision in Lynn v. West, 134 F.3d5 82,

591 (4th Cir.), cert. denied, 525 U.S. 813 (1998) (holding that

prior, harsher version of North Carolina drug tax constituted a

criminal penalty). Therefore, Lynn was not precedent contrary

to the state courts’ decisions, and petitioners could not show the

4

kind of futility necessary to override Younger and justify the

issuance of a preliminary injunction. Pet. App. at 16a. Nor

could petitioners show that the threat of any alleged injury was

immediate and irreparable given their failure thus far to take

advantage of any pre-trial proceedings available to them to

raise the double jeopardy issue in state court. Pet. App. at 17a-

19a. Petitioners were equally unable to show that a “great” or

“substantial” likelihood existed that they would suffer any

irreparable constitutional injury because the current North

Carolina drug tax provisionsare arguably not criminal penalties

at all and, additionally, it is unclear that petitioners’ prompt

payment of the drug tax assessments they received from the

State constituted a “prior proceeding” to trigger a double

jeopardy analysis. Pet. App. at 20a-23a.

On 11 March 2003, petitioners’ petitioner for rehearing

and rehearing en banc was denied by the court of appeals. Pet.

App. at 35a-36a.

REASONS FOR DENYING THE WRIT

The petition should be denied because the United States

Court of Appeals for the Fourth Circuit correctly upheld the

district court’s decision to abstain under the principles of

Younger, 401 U.S. 37. Petitioners’ attempts to avoid criminal

prosecution for the serious drug charges they face in the North

Carolina criminal courts were correctly rejected by both the

district court and the court of appeals. Nor have petitioners

offered any valid reason for this Court to grant review.

Petitioners have failed to show any conflict among the circuit

5

courts or any conflict between the court of appeals’ decision in

this case and any of this Court’s opinions. Nor have they _

shown that they in fact have raised a serious double jeopardy

claim or that they face a substantial oz great threat of immediate

and irreparable harm to their rights. This Court has previously

rejected all petitions seeking review of cases involving the

North Carolina drug tax, including cases raising double

jeopardy claims by persons challenging their criminal

convictions as well as related civil cases. See State v.

Ballenger, 472 S.E.2d 572 (N.C. Ct. App. 1996), aff'd per

curiam, 481 S.E.2d 84 (N.C.), cert. denied, 522 U.S. 817

(1997); State v. Adams, 513 S.E.2d 588 (N.C. Ct. App.), disc.

review denied, 538 S.E.2d 570 (N.C.), cert. denied, 528 U.S.

1022 (1999); State v. Foster, 519 S.E.2d 783 (N.C. Ct. App.),

disc. review denied, 538 S.E.2d 576 (N.C.), cert. denied, 528

U.S. 1022 (1999); see also Milligan v. State, 522 S.E.2d 330

(N.C. Ct. App. 1999), disc. review denied, 543 S.E.2d 131

(N.C.), cert. denied, 531 U.S. 819 (2000); Vick v. Williams,

233 F.3d 213 (4th Cir. 2000), cert. denied, 533 U.S. 952

(2001); Lynn v. West, 134 F.3d 582. Petitioners’ quest for

review by this Court should similarly be denied.

6

I. THIS COURT SHOULD NOT GRANT

CERTIORARI BASED ON ALLEGED CONFLICTS

OF THE COURT OF APPEALS’ DECISION WITH

THOSE OF OTHER CIRCUITS, WHICH ARE AT

MOST INSUBSTANTIAL AND TANGENTIAL TO

THE DECISION OF THIS CASE.

Petitioners have attempted to justify certiorari on the

theory that the court of appeals’ decision conflicts with that of

other circuits. They are wrong because the purported conflicts

are illusory, at best. Additionally, the issues as to which

petitioners allege the court of appeals’ decision conflicts with

those of other circuits are tangential to the results in this case.

A. Petitioners Have Failed To Show A Genuine

Conflict In The Circuits Concerning The

Applicable Standard Of Review.

Petitioners complain first that the Fourth Circuit Court of

Appeals applied an abuse of discretion standard in reviewing

the trial court’s decision to abstain. According to petitioners,

this creates a conflict with decisions of other circuits that apply

a de novo standard of review on abstention issues. Petitioners,

however, have oversimplified the Fourth Circuit’s standard.

The court of appeals did state that it “review[ed] the district

court’s decision to abstain under Younger for abuse of

discretion,” citing Martin Marietta Corp. v. Maryland

Commission on Human Relations, 38 F.3d 1392, 1396 (4th Cir.

1994). Pet. App. at 4a. However, the court of appeals also

cited to Freeman vy. Case Corp., 118 F.3d 1011, 1014 (4th Cir.

7

1997), for the proposition “that an error of law constitutes an

abuse of discretion.” Pet. App. at 4a. Then, it proceeded to

review the district court’s decision, first determining that the

basic requirements for Younger abstention existed, and then

exploring whether the circumstances of this case met the legal

standard for an exception to Younger. The court of appeals’

ultimate conclusion was that “[b]ecause Appellants failed to

establish any of the exceptions to Younger,” “the district court

did not abuse its discretion in abstaining from adjudicating

Appellants’ double jeopardy claim.” Pet. App. at 24a. In other

words, the court of appeals examined the questions raised by

petitioners and determined that the prerequisites for Younger

abstention existed and further that petitioners failed to establish

legally that any of the Younger exceptions applied. There was

no error of law in the district court’s decision, and consequently

there was no abuse of discretion. In this respect, the court of

appeals was applying essentially a de novo standard of review

to determine whether abstention was required.

Contrary to petitioners’ contentions, the court of appeals

in this case applied an analysis equivalent to that used in other

cases cited by petitioners to support their claims that the proper

standard of review is de novo. See, e.g., Brooks v. New

Hampshire Supreme Court, 80 F.3d 633, 637 (1st Cir. 1996)

(although denial of preliminary injunction is normally an

“abuse of discretion” standard, “[i]f Younger applies, however,

abstention is mandatory”); Riley v. Simmons, 45 F.3d 764, 770

(3d Cir. 1995) (“We review the district court’s decision to

abstain for abuse of discretion, but the district court’s analysis

of the law on abstention is subject to de novo review.”); see

8

also Schlagler v. Phillips, 166 F.3d 439, 441 (2d Cir. 1999)

(citing and following Brooks).

In sum, the court of appeals recognized the need to address

the legal question of whether the conditions for abstention had

been met, and did so. Its analysis is consistent with that of

some of the very cases cited by petitioners and is not

meaningfully different from cases simply citing a standard of

de novo review. At any rate, the fine points of the standard of

review had no significant effect on the decision of the court of

appeals and provide no basis for this Court to grant its writ of

certiorari.

B. Petitioners Have Failed To Show A Conflict

Among The Circuits Concerning The Effect Of

Binding State Precedent.

Petitioners also seek to persuade this Court to grant review

on the theory that a conflict exists among the circuits as to

whether abstention is appropriate if state court “precedent

makes submitting the federal rights to a state forum futile.”

Pet. at 7. Petitioners cannot show a conflict in the circuits

because the cases they cite for this proposition are all district

court cases, and other circuit courts agree with the Fourth

Circuit.

What petitioners are complaining about is the failure of the

court of appeals to agree that they were entitled to obtain a

preliminary injunction because the North Carolina courts have

consistently determined that the State’s drug tax is not a

9

criminal penalty on which they can base a double jeopardy

claim. The court of appeals, instead, concluded that

petitioners’ “assertion that the North Carolina courts will likely

decide a constitutional issue in a way contrary to what

Appellants believe the Constitution mandates is nota sufficient

basis to avoid application of Younger abstention.” Pet. App. at

15a-16a. Other circuit courts, rather than disagreeing, have

reached the same conclusion as the Fourth Circuit. See Hansel

v. Town Court for Springfield, 56 F.3d-391, 394 (1995) (even

if New York’s highest court had already rejected plaintiff's

claim, “[s]o long as a plaintiff is not barred on procedural or

technical grounds from raising alleged constitutional

infirmities, it cannot be said that state court review of

constitutional claims is inadequate for Younger purposes”),

cert. denied, 516 1J.S. 1012 (1995); Dubinka v. Judges of the

Superior Court, 23 F.3d 218, 224-25 (9th Cir. 1994)

(regardless of whether state supreme court had upheld

challenged law, Younger abstention applicable; “appellants do

have an opportunity to raise their claims in state court because

they are not procedurally barred from raising such claims”);

Duty Free Shop, Inc. v. Administracion de Terrenos, 889 F.2d

1181, 1183 (1st Cir. 1989) (fact that state courts have rejected

same or similar claims does not mean parties lack an adequate

opportunity to raise those claims in state court). Thus,

petitioners have failed to show a conflict in the circuits on the

question of whether they have an adequate opportunity to raise

their claims in state court despite the existence of contrary

precedent in the state courts. The court of appeals correctly

concluded that they had or have such an opportunity, and

petitioners’ failed efforts to coriure up a conflict among the

10

circuits on this issue create no basis for this Court to grant its

writ of certiorari.

Il. THE COURT OF APPEALS’ DECISION IS

CORRECT AND CONSISTENT WITH THIS

COURT’S DECISION IN: HUDSON V. UNITED

STATES, 522 U.S. 93 (1997).

Petitioners contend that the court of appeals’ decision is

inconsistent with this Court’s opinion in Hudson v. United

States, 522 U.S. 93 (1997). Petitioners, however, are mistaken

in their analysis of Hudson and their characterization of the

court of appeals’ decision. Because the court of appeals

reached the right result and dic so consistently with Hudson,

this Court should deny the petition for writ of certiorari.

— a

Despite petitioners’ arguments to the contrary, the court of

appeals’ decision is fully consistent with Hudson. In Hudson,

this Court clarified the rules governing the determination

whether a civil sanction is in fact a criminal penalty by

“reaffirm[ing] the previously established rule exemplified in

United States v. Ward, 448 U.S. 242, 248-249 (1980).”

Hudson, 522 U.S. at 96. Under that rule, the “court must first

ask whether the legislature, ‘in establishing the penalizing

mechanism, indicatedeither expressly or impliedly a preference

for one label or the other,’” and “‘only the clearest proof’ will

suffice to override legislative intent and transform what has

been denominated a civil remedy into a criminal penalty.” Jd.

at 99-100 (quoting Ward, 448 U.S. at 248-49).

_

11

The court of appeals recognized what Hudson established

as the overriding issue. Specifically, in discussing North

Carolina’s drug tax, the court noted that the North Carolina

General Assembly has expressly stated that the “intent” of the

drug tax legislation was “to raise revenue through a civil tax on

this highly profitable activity . . . [and] not to create a criminal

penalty.” Pet. App. at 12a (quoting An Act to Amend the

Excise Tax on Controlled Substances, 1998 N.C. Sess. Laws

218). However, the court of appeals never actually determined

whether the relevant drug tax provisions do in fact constitute a

criminal penalty under Hudson. Instead, the court determined

that the drug tax provisions applicable to petitioners have never

been addressed expressly by either federal or state courts. This

is true because, as the court of appeals recognized, the North

Carolina General Assembly has enacted extensive changes to

the State’s drug tax. They difier greatly from the statutes

examined in Lynn, 134 F.3d at 591, which declared a prior

version of the drug tax to constitute a criminal penalty. Besides

the language of legislative intent, the substantive drug tax

provisions were changed so that (1) the tax is payable upon

receipt of drugs rather than upon a criminal violation, (2)

violation of the drug tax laws is no longer a Class I felony, (3)

the rate of the tax was significantly reduced, (4) the tax was

expanded to cover certain categories of alcoholic beverages,

and (5) the penalty was reduced from a special 100% penalty

eventually to the same penalty and interest provisions

applicable to all late payments of taxes in North Carolina,

producing a penalty ranging from 10% to 40%. See Pet. App.

at 1la-12a; see also Pet. App. at 38a-43a; App. at 9a-15a.

12

Petitioners thus have missed the point of the court of

appeals’ consideration of Hudson. The reason for looking at

Hudson was not to determine definitively whether the drug tax

survives a double jeopardy analysis under Hudson, but to

determine whether the trial court erred in abstaining under

Younger. First, the court below correctly concluded that the

basic elements of Younger abstention existed, citing Middlesex

County, 457 U.S. 423, for the proposition.that there must be an

ongoing state judicial proceeding that implicates important,

substantial, or vital state interests and that provides an adequate

opportunity to raise the federal constitutional issue. Pet. App.

at 5a. The first two elements are plainly present in this case,

and the court of appeals held that the third element was present.

It looked at Hudson initially as part of its discussion of the

ways in which the drug tax laws had changed and the fact that

no court had yet evaluated the current drug tax laws, factors

which went into its decision that petitioners could not show that

they lacked an adequate opportunity to raise the issue in state

court. Pet. App. at 8a-16a.'

' Petitioners cited to Draytor: v. Hayes, 589 F.2d 117, 120 (2d Cir.

1979), for the proposition that no further deference is due the state courts

because, in petitioners’ view, “the state’s highest court has staked out its

position on the issue.” Pet. at 8. Drayton, however, is a habeas corpus

case, and the point in Drayton was that the petitioner had exhausted his state

court remedies as is required for habeas consideration. Here, petitioners

have not raised their double jeopardy claim in state court. Nor have they

brought this matter as a habeas claim. Significantly, the Fourth Circuit has

held that habeas is not available on double jeopardy claims seeking relief

from criminal prosecutions after imposition of a North Carolina drug tax,

even under the older, harsher version of the drug tax. Vick v. Williams, 233

F.3d 213, 220-22 (4th Cir. 2000), cert. denied, 533 U.S. 952 (2001) (North

Carolina decisions upholding drug tax not objectively unreasonable).

13

The court further considered whether petitioners could

show a “great” or “substantial” likelihood that they would

suffer any constitutional deprivation, citing Younger, 401 U.S.

at 45 (“‘danger of irreparable loss [must be] great and

immediate’”) and City of Los Angeles v. Lyons, 461 U.S. 95,

111-12 (1983) (‘substantial and immediate irreparable injury’

is a precondition to invoking the exception cizcumstances

exception to Younger abstention”). Pet. App. at 20a. Because

petitioners could not show that any threatened violation of their

constitutional rights would be great or substantial, they had not

shown the existence of any exception to Younger’s strong

preference for abstention in these circumstances. In evaluating

the likelihood of any violation of petitioners’ rights, the court ;

concluded that “it is arguable whether the current version of

North Carolina’s drug tax constitutes criminal punishment

within the meaning of Hudson” in view of the wide-ranging

amendments to the North Carolina drug tax that rendered Lynn

non-controlling. Pet. App. at 20a. Additionally, the court of

appeals observed that “it is not clear that the payment of the

drug tax took place in a prior ‘proceeding’ within the meaning

of Hudson.” Pet. App. at 21a. Petitioners, of course, had

promptly paid the drug tax assessments as soon as they

received them, so it is not at all clear that those taxes were paid

as part of any proceeding whatsoever’. What is clear is that the

court of appeals correctly concluded that there was very little

? Petitioners have at times suggested that the drug tax was imposed

in a separate proceeding because they were subject to a lien as a result of

the assessment. However, the lien triggered by the assessment is the

automatic tax lien that generally attaches as a matter of law whenever a tax

is due in North Carolina. See Pet. App. at 44a; App. at 16a-17a.

14

basis for petitioners’ claim of a threatened double jeopardy

violation.

Petitioners are further mistaken in assuming that a full

Hudson analysis would help their cause. To the contrary, the

North Carolina drug tax is not, in fact, a criminal penalty if

analyzed under the factors reaffirmed in Hudson, factors

previously set out in Kennedy v. Mendoza-Martinez, 372 U.S.

144, 168 (1963), and endorsed in Ward, 448 U.S. at 249-50.

Hudson, 522 U.S. at 99-100. Specifically, the tax does not

involve an affirmative disability or restraint. Taxes have not

historically been considered punishment. The tax does not

depend on a finding of scienter. It is true that the tax does

promote at least one traditional aim of punishment, that of

deterrence, but so do other taxes and many other civil

sanctions. Thus, “the mere presence of this purpose is

insufficient to render a sanction criminal.” Hudson, 522 US.

at 105. Additionally, the behavior to which it applies is a

crime, but that factor is not dispositive, as this Court held in

Hudson. Id. The tax does serve an alternative purpose of

raising revenue through taxing a highly profitable enterprise.

N.C. GEN. STAT. § 105-113.105, Pet. App. at 38a; An Act to

Amend the Excise Tax on Controlled Substances, 1998 N.C.

Sess. Laws 218 (quoted in relevant part by court of appeals,

Pet. App. at 12a). Finally, the tax does not appear excessive in

relation to the alternative purpose assigned to it, that of raising

revenue. Indeed, the petitioners paid less than $9,000.00 total

for drug taxes plus penalties and interest, combined, in their

efforts to avoid prosecution for the serious criminal charges

15

facing them’. Significantly, the tax is imposed as part of the

North Carolina tax laws and administered by the North

Carolina Secretary of Revenue in a manner that is now utterly

consistent with North Carolina’s general tax practices. Thus,

contrary to petitioners’ contentions, the Hudson analysis does

not help their cause. Instead, it establishes the complete

absence of the “clearest proof” that would be required to

conclude that the drug tax provisions are criminal penalties.

Hudson, 522 U.S. at 100.

Other courts have analyzed similar drug tax laws under

the Kennedy factors and concluded that the taxes did not

constitute criminal penalties or give rise to double jeopardy

claims. See, e.g., Simpson v. Bouker, 249 F.3d 1204, 1213

(10th Cir. 2001) (addressing Kansas drug tax); Hill v. State,

898 P.2d 155, 161 (Okla. Crim. App. 1995). Still other courts

have upheld similar drug tax laws by applying, and

distinguishing, the decision in Department of Revenue of

Montana v. Kurth Ranch, 511 U.S. 767 (1994), which held that

> Petitioners contend that the court of appeals placed excessive

emphasis on the rate of tax. Pet. at9. The court of appeals, however, noted

the reduced rate of tax and the reduced penalty provisions partly because of

the emphasis on the rate of tax and the penalty in Lynn, which held the prior

North Carolina drug tax provisions were in fact a criminal penalty. See

Lynn, 134 F.3d at 589-90. The drastically reduced rate of tax, of course,

also made it very difficult to conclude that the present drug tax statutes are

not in fact the revenue-raising provisions that the North Carolina General

Assembly has declared them to be. Instead, it leads inevitably to the

conclusion that North Carolina’s current drug tax laws are not “so punitive

either in purpose or effect as to transform what was clearly intended as a

civil [tax] into a criminal penalty.” Hudson, 522 U.S. at 99 (citations

omitted).

16

the Montana drug tax was a criminal penalty for double

jeopardy purposes. See, e.g., Padavich v. Thalacker, 162 F.3d

521, 523 (8th Cir. 1998), cert. denied, 527 U.S. 1025 (1999)

(addressing Iowa drug tax in light of Kurth Ranch and

Hudson); Covelli v. Commissioner of Revenue Servs., 668

A.2d 699 (Conn. 1995), vacated and remanded, 518 U.S. 1031

(1996), prior opinion aff'd per curiam, 683 A.2d 737 (Conn.

1996), cert. denied, 520 U.S. 1174 (1997); State v. Baehler,

604 N.W.2d 601 (Iowa 1999) (taking Hudson into

consideration and rejecting contention that it threw any doubt

on court’s earlier case law rejecting contention that lowa drug

tax was a criminal penalty); State v. Gulledge, 896 P.2d 378

(Kan. 1995); McMullin v. South Carolina Dep’t of Revenue &

Taxation, 469 S.E.2d 600 (S.C. 1996); Milner v. State, 658 So.

2d 500 (Ala. Civ. App. 1994).

Admittedly, some other courts have concluded that their

states’ drug taxes did not pass muster. See, e.g., People v.

Maurello, 932 P.2d 851 (Colo. Ct. App. 1997); Bryant v. State,

660 N.E.2d 290 (Ind. 1995), cert. denied, 519 U.S. 296 (1996);

Commissioner of Revenue v. Mullins, 702 N.E.2d 1 (Mass.

1998); Desimone v. State, 996 P.2d 405 (Nev. 2000). In so

doing, however, they have generally relied on distinguishing

features not present in the North Carolina statutes, such as the

lack of confidentialityand protection from criminal prosecution

in the Colorado statute. (North Carolina’s drug tax statutes

provide for confidentiality and protection from prosecution.

‘N.C. GEN. STAT. § 105-113.112, App. at 9a.) In Indiana, the

tax was due every forty-eight (48) hours and was imposed at a

rate the court determined to be eight times the rate in Kurth

Ranch. In Mullins and Bryant, the courts tended to emphasize

17

the implementation of the statutes “rather than focusing on the

Statute ‘on its face,” as required by Hudson*. Baehler, 604

N.W.2d at 605 (citing Hudson, 522 U.S. at 101). These

decisions provide no support for the proposition that the North

Carolina drug tax, in its current form, can be considered a

criminal penalty when properly analyzed under Hudson.

In sum, petitioners have completely failed to show that the

court of appeals’ decision in any way conflicts with this

Court’s opinion in Hudson. Rather, the court of appeals

examined Hudson to the extent necessary to determine that

petitioners had failed to show any significant threat of the

immediate and irreparable harm necessary to override

Younger’s strong preference for abstention in cases seeking

injunctions against pending state criminal prosecutions.

Regardless of the lack of a full Hudson analysis, the court of

appeals’ decision is entirely consistent with Hudson. Indeed,

a full Hudson analysis would establish that the North Carolina

drug tax is not a criminal penalty, and its assessment would not

trigger double jeopardy claims. Consequently, petitioners have

* — Requiring that a challenged statute be analyzed on its face is one

of the big differences between Hudson and the case it overruled, United

States v. Halper, 490 U.S. 435 (1989). Petitioners mistakenly claim that the

court of appeals “disregarded” the reasoning of this Court in Hudson when

it overruled Halper. As petitioners assert, this Court did so in part to avoid

the consequence of the Halper approach that prevented a determination of

the double jeopardy question until the defendant proceeded to judgment.

What petitioners miss is that the remedy for this flaw in Halper was to

return to the Kennedy approach of analyzing the challenged statute on its

face. Hudson, 522 U.S. at 101-02. This is exactly what the court of appeals

_ did.

ee ee |

18

failed to show that the court of appeals’ decision is incorrect or

that it conflicts with any decision of this Court.

Ill. PETITIONERS HAVE CITED NO ADVERSE

CONSEQUENCES WHICH WOULD MAKE THIS

CASE APPROPRIATE FOR REVIEW ON

CERTIORARI.

Petitioners also seek review by this Court on the theory

that the court of appeals’ decision could cause what they

characterize as “serious adverse consequences.” Pet. at 10.

They seek to bolster this contention by arguing that the court of

appeals acted contrary to this Court’s decision in Middlesex

County Ethics Comm., 457 U.S. 423. They are wrong in

claiming that the court of appeals in any way acted contrary to

Middlesex, and they are equally wrong in asserting that the

court of appeals’ decision will result in consequences that

somehow justify this Court’s granting its writ of certiorari.

First, petitioners claim that Middlesex required the plaintiff

in that case to exhaust his state remedies because the New

Jersey Supreme Court had specifically provided for

interlocutory appeal to the state’s highest court. Petitioners

argue that no such interlocutory right of appeal exists for them

with regard to double jeopardy claims in North Carolina.

Petitioners have misread Middlesex and ignored the avenues

they do have to raise their double jeopardy claims in state

court. More precisely, in Middlesex the question was whether

the local bar proceedings offered any avenue whatsoever for

persons facing disciplinary action to raise federal constitutional

19

issues. Middlesex, 457 U.S. at 435. This Court concluded that

it did. Any doubt was laid to rest by the state Supreme Court’s

consideration of those issues. Additionally, this Court deemed

it significant that the New Jersey Supreme Court amended its

rules to permit a motion for interlocutory review of such issues

and specifying that the constitutional issues would be preserved

for later consideration if the motion were not granted. Jd. at

436 & n.15. Thus, the New Jersey rules did not guarantee

review on an interlocutory basis, but merely established that the

issues could be raised at the disciplinary level and, if not taken

on motion by the state supreme court on an interlocutory basis,

could be heard on later appeal. Under these circumstances,

especially since no proceedings had occurred in federal court

other than the determination of the abstention question,

Younger required abstention. Jd. at 436-37.

Petitioners can offer no basis for distinguishing their own

ability to raise their double jeopardy claims in state court from

the ability of-the plaintiff in Middlesex to raise his federal

claims. First, petitioners do not dispute that they could raise

their double jeopardy claims in the North Carolina state trial

courts or that they could do so on a pre-trial basis. What

petitioners do contend is that they lack the right of pre-trial

appellate review, citing North Carolina cases holding that there

is no right of interlocutory appeal of a double jeopardy claim.

See, e.g., State v. Shoff, 456 S.E.2d 875 (N.C. Ct. App. 1995),

aff'd per curiam, 466 S.E.2d 277 (N.C. 1996); State v. Joseph,

374 S.E.2d 132 (N.C. Ct. App. 1988), cert. denied, 377 S.E.2d

241 (1989). However, these cases merely follow the North

Carolina Supreme Court’s holding of statutory interpretation

20

that there are no statutory rights to interlocutory appeals in

criminal cases in the North Carolina courts. See State v. Henry,

348 S.E.2d 593 (N.C. 1986). Not only would petitioners’

double jeopardy issues, once raised at the trial level, be

preserved for review on a later appeal, but there is nothing to

prevent petitioners from seeking interlocutory review by filing

a petition for certiorari in the North Carolina appellate courts.

Rule 21 of the North Carolina Rules of Appellate Procedure

expressly permits petitions for certiorari, among other

circumstances, “when no right of appeal from an interlocutory

order exists.” Thus, petitioners are afforded the same types of

appellate avenues that were approved by this Court in

Middlesex, a petition for certiorari for petitioners here versus a

motion to the state supreme court in Middlesex, seeking

interlocutory review, which is not guaranteed in either case, or

the opportunity to raise the issues on a subsequent appeal.

Middlesex does not provide petitioners any relief from the court

of appeals’ decision; instead, it teaches that Younger abstention

was entirely appropriate, as the court of appeals determined.

Finally, petitioners seek to justify this Court’s review of

their claims on the theory that otherwise the state court criminal

proceeding will be further disrupted. According to them, they

will re-file in federal court under 42 U.S.C. § 1983 once the

state courts reject their double jeopardy claims, assuming the

state courts do in fact reject those claims. Petitioners suggest

this Court should grant its writ of certiorari to avoid the

disruption to the parties and the state court criminal proceeding

that will necessarily result once they re-file their § 1983 action.

Of course, petitioners could avoid this disruption if they did not

21

re-file the § 1983 action. Doing so is unlikely to benefit them

since the court of appeals abstained only in part because

petitioners had not exhausted potential pre-trial remedies, see

Pet. App. at 18a-19a &19a n.13, but also because petitioners

were unable to show that the threat of harm was substantial in

view of the serious questions about the viability of their double

jeopardy claims, Pet. App. at 20a-23a. Petitioners are therefore

highly unlikely to prevail on their double jeopardy claims under

any circumstances. The claims petitioners present do not merit

the Court’s review, and their threats of continued litigation are

insufficient grounds for this Court to grant its writ of certiorari.

22

CONCLUSION

Petitioners have offered no compelling reason for this

Court to grant its writ of certiorari, and the Petition should be

denied.

Respectfully submitted,

ROY COOPER

ATTORNEY GENERAL

Norma W. Harrell*

Special Deputy Attorney General

‘State Bar No. 6654

North Carolina Department of Justice

Post Office Box 629

Raleigh, NC 27602-0629

Phone: (919) 716-6917

Fax: (919) 716-6763

Attorneys for Respondent

May 9, 2003 *Counsel of Record

APPENDIX

APPENDIX

TABLE OF CONTENTS

Complaint ..........ccceeeee eee eeeeeererececees la

N.C. GEN. STAT. § 105-113.112 (2000) .....-----+-+:: 9a

N.C. GEN. STAT. § 105-236 (2000) ....-.-- +e eee reer 9a

N.C. GEN. STAT. § 105-241 (2000) ......---- eee ees 17a

N.C. Gen. Stat. § 105-241.1 (2000) ........00eeeeee: 19a

[This page intentionally left blank]

la

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF NORTH CAROLINA

CHARLOTTE DIVISION

3:01CV582-MLK

KENNETH SCOTT NIVENS,

GLEN LANCE MANERS,

TERRI LYNN STORK, individually

and as representatives of a class

pursuant to Rule 23, Fed.R.Civ.P, COMPLAINT

Plaintiffs,

v.

PETER S. GILCHRIST, ITI,

in his official capacity as District

Attorney for the 26th Prosecutorial

District for the State of North

Carolina, and as representative of a

class pursuant Rule 23, Fed.R.Civ.P.,

Defendant.

PRELIMINARY STATEMENT

1. This is a civil rights action in which the plaintiffs, for

themselves and those similarly situated, seeks to have this

Court declare unlawful prosecution on indictments which

allege conduct for which the State of North Carolina has

already exacted criminal penalties through a drug tax

assessment, under extraordinary circumstances in which, inter

alia, there is a conflict between the interpretation of the state's

drug tax statute and Fifth Amendment Double Jeopardy Clause

2a

by the state's highest court and United States Court of Appeals

for the Fourth Circuit.

2. This action arises under 42 U.S.C. §1983; the Federal

Declaratory Judgment Act, 28 U.S.C. §§2201 and 2202; and

the Fifth and Fourteenth Amendments to the United States

Constitution.

3. Jurisdiction is conferred on this Court by 28 U.S.C.

§1331 (federal question) and 28 U.S.C. § 1343(a)(3) (civil

rights).

PARTIES

4. The plaintiffs are defendants in several related

indictments joined for trial in the Mecklenburg County, North

Carolina, Superior Court, involving allege conduct for which

the State of North Carolina has already exacted criminal

penalties through a drug tax assessment, and a claim of double

jeopardy was not addressed by the state court.

5. The defendant is the Honorable Peter S. Gilchrist, III, in

his official capacity as the District Attorney for the 26"

Prosecutorial District consisting of Mecklenburg County, North

Carolina. Mr. Gilchrist was elected to that position pursuant to

Article IV §18 of the North Carolina Constitution and N.C.G.S.

Chapter 7-A. Mr. Gilchrist is responsible for the prosecution of

violations of the state criminal laws in the 26" Prosecutorial

District, Mecklenburg, North Carolina. Mr. Gilchrist personally

or through his assigned assistant district attorneys obtained the

indictments against the plaintiffs and calendared those matters

for trial in Mecklenburg County Superior Court. Mr. Gilchrist

is sued only in his official capacity.

6. The plaintiff's class is defined as persons (1) with

pending indictments or convictions that have not become final,

3a

(2) involving alleged conduct for which the State of North

Carolina has already exacted criminal penalties through a drug

tax assessment, and (3) a claim of double jeopardy was not

addressed by the state court. Based upon information and

belief, there are at least hundreds of individuals who qualify as

class plaintiffs, who have in common the fact that they have

been or will be assessed the drug tax and then prosecuted by

Mr. Gilchrist or one or more of the class defendants, the

plaintiffs' cases and the class plaintiffs' cases are typical, and

adequately addressed by plaintiffs’ counsel in this proceeding,

and the class plaintiffs would be prejudiced by a decision in the

case of the plaintiffs, and the relief sought is primarily

declaratory and injunctive.

7. The defendant's class is defined as every district attorney

for each county of the State of North Carolina. Based upon

information and belief, there are 38 who qualify as class

defendants, excluding Mr. Gilchrist, who have in common the

fact that they are or will be prosecuting those assessed the drug

tax, and are related by a juridical link in that they act on behalf

of the State of North Carolina in the aforementioned

prosecutions, see, e.g., Monaco v. Stone, 187 F.F.D. 50, 65-66

(E.D.N.Y. 1999)(the State of New York's criminal court judges

are related by juridical link); Luyand v. Bowen, 124 F.R.D. 52,

58 (S.D.N.Y. 1989)(the State of

New York's 58 social services district commissioners are

related by a juridical link), Mr. Gilchrist's case and the class

defendants’ cases are typical, and adequately addressed by Mr.

Gilchrist in this proceeding, the class defendants would be

prejudiced by a decision in the case of the plaintiffs’ claim

against Mr. Gilchrist, the relief sought is primarily declaratory

4a

and injunctive, and there are common questions of law in the

instant case which predominate over issues which affect only

individual class members and class action treatment of the

claims is superior to other available methods for the fair and

efficient resolution of the case.

STATEMENT OF THE CLAIM

8. At all times relevant herein, Mr. Gilchrist and other

class defendants have acted and will continued to act in their

official capacity and under color of state law.

' 9, On July 8, 2000, the plaintiffs were arrested and

subsequently charged with various violations of the North

Carolina Controlled Substance Act relating to the alleged sale

of 15 ecstasy pills by Ms. Stork on June 9, 2000, to an

undercover police officer, (00CRS31384 through 31386), the

alleged sale of 125 ecstasy pills by Chad Hess on July 8, 2000,

to that same undercover police officer, (00CRS31387), the

alleged sale of 184 ecstasy pills by Mr. Nivens on July 8, 2000,

to Mr. Maners, (00CRS28894 through 28895, 00CRS28913,

00CRS28919, and 01CRS116689), and alleged possession of

701 ecstasy pills by Mr. Nivens on July 8, 2000, in a car driven

by Ms. Stork (00CRS28893, 28916, 28917, 28920, and

01CRS116688).

10. In July, 2000, Ms. Stork, Mr. Nivens, and Mr. Maners

were assessed with tax, penalty, and interest under the

provisions of the North Carolina Controlled Substance Tax Act,

N.C.G.S. §105-2D, in the amount 0f$6,259.67, which was paid

in full that same month. This drug tax was assessed on the 884

ecstasy pills that are the subject of indictments 00CRS28893

5a

through 28895, 28913, 28916, 28917, 28919, 28920, and

01CRSI16688 and 116689.

11. In July, 200, Mr. Maners was assessed with tax,

penalty, and interest under the provisions of the North Carolina

Controlled Substance Tax Act N.C.G.S. §§ 105-2D, in the

amount of $1,336.33, which was paid in full the following

month. This drug tax was assessed on the 184 ecstasy pills that

are the subject of indictments 00CRS28893 through 28895.

12. In January, 2001, Ms. Stork was assessed with tax,

penalty, and interest under the provisions of the North Carolina

Controlled Substance Tax Act N.C.G.S. §§105-2D, in the

amount of $1,081.13, which was paid in full the following

month. This drug tax was assessed on the 140 ecstasy pills that

are the subject of indictments 00CRS31384 through 31387.

13. Under North Carolina precedence interpreting the

North Carolina Controlled Substance Tax Act and the United

States Constitution, the tax is not a criminal penalty and

therefore tax assessment proceedings followed by indictments

for the same conduct do not violate the Double Jeopardy

Clause. See, e.g., State v. Ballenger, 345 N.C. 626 (1997); see

also State v. Creason, 346 N.C. 165 (1997).

14. Under United States Court of Appeals precedence

interpreting the North Carolina Controlled Substance Tax Act

and the United States Constitution, the tax is a criminal penalty

and therefore tax assessment proceedings followed by

indictments for the same conduct violate the Double Jeopardy

Clause. Lynn v. West, 134 F.3d 582 (4" Cir. 1998).

15. If Mr. Gilchrist and the class defendants are not

enjoined from subjecting the plaintiffs and class plaintiffs to a

criminal trial on indictments which alleged conduct for which

6a

the State of North Carolina has already imposed criminal

penalties, Mr. Gilchrist and the class defendants will subject the

plaintiffs and class plaintiffs to the great and immediate

irreparable deprivation of their right to be free from double

jeopardy, as secured by the Fifth and Fourteenth Amendments, -

without adequate remedy at law.

PRAYER FOR RELIEF

WHEREFORE, the plaintiffsrespectfully requests that this

Court:

1. Assume jurisdiction of this matter;

2. Certify the plaintiffs’ class pursuant to Rule 23(a),

(b)(1)(A), (b)(1)(B), and (b)(2), Fed.R.Civ.P., and the

defendant’s class pursuant to Rule 23(a), (b)(1)(A), (b)(1)(B),

(b)(2), and (b)(3), Fed.R.Civ.P.

3. Enter a declaratory judgment declaring that for the Mr.

Gilchrist and class defendants to subject the plaintiffs and the

class plaintiffs to a criminal trial, after the State of North

Carolina assessed a criminal penalty aga‘nst the piaintiffs and

the class plaintiffs pursuant to the North Carolina Controlled

Substance Tax Act, would unconstitutionally violate the

plaintiffs’ right and the class plaintiffs’ right to be free from

double jeopardy, and subject the plaintiffs and class plaintiffs

to great and immediate irreparable injury.

4. Enter an injunction restraining Mr. Gilchrist from

subjecting the plaintiffs to a trial on the above-referenced

indictments;

5. Enter an injunction restraining Mr. Gilchrist and the

class defendants from subjecting class plaintiffs to a trial, after

Ta

the State of North Carolina has assessed a criminal penalty

against class plaintiffs pursuant to the North Carolina

Controlled Substance Tax Act; |

6. Enter judgment against Mr. Gilchrist and the class

defendants in the sum of court costs and reasonable attorneys

fees pursuant to 42 U.S.C. §1988, see Supreme Court of

Virginia v. Consumers Union of the United States, Inc., 446

U.S. 719, 736-37 (1980); and,

7. Enter such other and further relief as the Court deems

just and proper.

Respectfully submitted,

This 18" day of October, 2001.

/s/Randolph Marshall Lee

Attorney for Mr. Nivens

/s/ Richard A. Culler

Attorney for Mr. Maners

/s/ Aaron E. Michel

Attorney for Ms. Stork

Sa

STATE OF NORTH CAROLINA

VERIFICATION

COUNTY OF MECKLENBURG

Pursuant to Title 28, United States Code, Section 1746,

and Title 18, United States Code, Section 1621, we, Randolph

Marshall Lee, Richard A. Culler, and Aaron E. Michel, declare

under penalty of perjury that we have read the foregoing

Complaint and it is true and correct to the best of our .

knowledge and belief. We declare under penalty of perjury that

the foregoing verification is true and correct.

This the 18" day of October, 2001.

/s/Randolph Marshall Lee

Attorney for Mr. Nivens

/s/ Richard A. Culler

Attorney for Mr. Maners

/s/ Aaron E. Michel

Attorney for Ms. Stork

Certificate of Service

The undersigned certifies that a copy of the foregoing was

served upon the defendant Peter S. Gilchrist, III, by faxing it to

him at 704-347-7891 and mailing it to him first class certified

mail return receipt requested to Peter S. Gilchrist, III, 700 E.

Trade St, 2" Fl., Charlotte, NC 28202-3016, on October 18,

2001.

/s/ Aaron E. Michel

9a

RELEVANT 2000

NORTH CAROLINA GENERAL STATUTES

§ 105-113.112. Confidentiality of information

Notwithstanding any other provision of law, information

obtained pursuant to this Article is confidential and may not be

disclosed or, unless independently obtained, used in a criminal

prosecution other than a prosecution for a violation of this

Article. Stamps issued pursuant to this Article may not be used

in a criminal prosecution other than a prosecution for a

violation of this Article. A person who discloses information

obtained pursuant to this Article is guilty of a Class 1

misdemeanor. This section does not prohibit the Secretary from

publishing statistics that do not disclose the identity of dealers

or the contents of particular returns or reports. (1989, c. 772, s.

1; 1993, c. 539, s. 702; 1994, Ex. Sess., c. 24, s. 14(c); 1997, c.

24,41.)

§ 105-236. Penalties

Penalties assessed by the Secretary under this Subchapter

are assessed as an additional tax. Except as otherwise provided

by law, and subject to the provisions of G.S. 105-237, the

following penalties shall be applicable:

(1) Penalty for Bad Checks. -- When the bank upon

which any uncertified check tendered to the

Department of Revenuein payment of any obligation

due to the Department returns the check because of

insufficient funds or the nonexistence of an account

(la)

(1b)

(2)

10a

of the drawer, the Secretary shall assess a penalty

equal to ten percent (10%) of the check, subject to a

minimum of one dollar ($ 1.00) and a maximum of

one thousand dollars ($ 1,000). This penalty does not

apply if the Secretary finds that, when the check was

presented for payment, the drawer of the check had

sufficient funds in an account at a financial

institution in this State to pay the check and, by

inadvertence, the drawer of the check failed to draw

the check on the account that had sufficient funds.

Penalty for Bad Electronic Funds Transfer. -- When

an electronic funds transfer cannot be completed due

to insufficient funds or the nonexistence of an

account of the transferor, the Secretary shall assess

a penalty equal to ten percent (10%) of the amount of

the transfer, subject to a minimum of one dollar ($

1.00) and a maximum of one thousand dollars ($

1,000). This penalty may be waived by the Secretary

in accordance with G.S. 105-237.

Making Payment in Wrong Form. -- For making a

payment of tax in a form other than the form

required by the Secretary pursuant to G.S. 105-

241(a), the Secretary shall assess a penalty equal to

five percent (5%) of the amount of the tax, subject to

a minimum of one dollar ($ 1.00) and a maximum of

one thousand dollars ($ 1,000). This penalty may be

waived by the Secretary in accordance with G.S.

105-237.

Failure to Obtain a License. -- For failure to obtain a

license before engaging in a business, trade or

(3)

(4)

lla

profession for which a license is required, the

Secretary shall assess a penalty equal to five percent

(5%) of the amount prescribed for the license per

month or fraction thereof until paid, not to exceed

twenty-five percent (25%) of the amount so

prescribed, but in any event shall not be less than

five dollars ($ 5.00).

Failure to File Return. -- In case of failure to file any

return on the date it is due, determined with regard to

any extension of time for filing, the Secretary shall

assess a penalty equal to five percent (5%) of the

amount of the tax if the failure is for not more than

one month, with an additional five percent (5%) for

each additional month, or fraction thereof, during

which the failure continues, not exceeding twenty-

five percent (25%) in the aggregate, or five dollars ($

5.00), whichever is the greater.

Failure to Pay Tax When Due. -- In the case of

failure to pay any tax when due, without intent to

evade the tax, the Secretary shall assess a penalty

equal to ten percent (10%) of the tax, except that the

penalty shall in no event be less than five dollars ($

5.00). This penalty does not apply in any of the

following circumstances:

a. When the amount of tax shown as due on an

amended return is paid when the return is filed.

b. When a tax due but not shown on a return is

assessed by the Secretary and is paid within 30

days after the date of the proposed notice of

assessment of the tax.

12a

(5) Negligence. --

a. Finding of negligence. -- For negligent failure to

comply with any of the provisions to which this

Article applies, or rules issued pursuant thereto,

without intent to defraud, the Secretary shall

assess a penalty equal to ten percent (10%) of the

deficiency due to the negligence.

b. Large individual income tax deficiency. -- In the

case of individual income tax, if a taxpayer

understates taxable income, by any means, by an

amount equal to twenty-five percent (25%) or

more of gross income, the Secretary shall assess

a penalty equal to twenty-five percent (25%) of

the deficiency. For purposes of this subdivision,

"gross income" means gross income as defined

in section 61 of the Code.

c. Other large tax deficiency. -- In the case of a tax

a other than individual income tax, if a taxpayer

understates tax liability by twenty-five percent

(25%) or more, the Secretary shall assess a

penalty equal to twenty-five percent (25%) of the

deficiency.

d. No double penalty. -- If a penalty is assessed

under subdivision (6) of this section, no

additional penalty for negligence shall be

assessed with respect to the same deficiency.

e. Inheritance and gift tax deficiencies. -- This

subdivision does not apply to inheritance, estate,

and gift tax deficiencies that are the result of

valuation understatements.

(6)

(7)

(8)

(9)

13a

Fraud. -- If there is a deficiency or delinquency in

payment of any tax because of fraud with intent to

evade the tax, the Secretary shall assess a penalty

equal to fifty percent (50%) of the total deficiency.

Attempt to Evade or Defeat Tax. -- Any person who

willfully attempts, or any person who aids or abets

any person to attempt in any manner to evade or

defeat a tax or its payment, shall, in addition to other

penalties provided by law, be guilty of a Class H

felony.

Willful Failure to Collect, Withhold, or Pay Over

Tax. -- Any person required to collect, withhold,

account for, and pay over any tax who willfully fails

to collect or truthfully account for and pay over the

tax shall, in addition to other penalties provided by

law, be guilty of a Class 1 misdemeanor.

Notwithstanding any other provision of law, no

prosecution for a violation brought under this

subdivision shall be barred before the expiration of

six years after the date of the violation.

Willful Failure tc File Return, Supply Information,

or Pay Tax. -- Any person required to pay any tax, to

make a return, to keep any records, or to supply any

information, who willfully fails to pay the tax, make

the return, keep the records, or supply the

information, at the time or times required by law, or

rules issued pursuant thereto, shall, in addition to

other penalties provided by law, be guilty of a Class

(9a)

l4a

1 misdemeanor. Notwithstandingany other provision

of law, no prosecution for a violation brought under

this subdivision shall be barred before the expiration

of six years after the date of the violation.

Aid or Assistance. -- Any person, pursuant to or in

connection with the revenue laws, who wiilfully

aids, assists in, procures, counsels, or advises the

preparation, presentation, or filing of a return,

affidavit, claim, or any other document that the

person knows is fraudulent or false as to any material

matter, whether or not the falsity or fraud is with the

knowledge or consent of the person authorized or

required to present or file the return, affidavit, claim,

or other document, shall be guilty of a Class H

felony.

(10) Failure to File Informational Returns. --

a. Repealed by Session Laws 1998-212, s.

29A.14(m), effective January 1, 1999.

b. The Secretary may request a person who fails to

file timely statements of payment to another

person with respect to wages, dividends, rents, or

interest paid to that person to file the statements

by a certain date. If the payer fails to file the

statements by that date, the amounts claimed on

the payer's income tax return as deductions for

salaries and wages, or rents or interest shall be

disallowed to the extent that the payer failed to

comply with the Secretary's request with respect

to the statements.

c. For failure to file an informational return

(11)

(12)

15a

required by Article 36C or 36D of this Chapter

by the date the return is due, there shall be

assessed a penalty of fifty dollars ($ 50.00).

Any violation of Subchapter I, V, or VIII of this

Chapter or of Article 3 of Chapter 119 of the General

Statutes is con idered an act committed in part at the

office of the Secretary in Raleigh. The certificate of

the Secretary that a tax has not been paid, a return

has not been filed, or information has not been

supplied, as required by law, is prima facie evidence

that the tax has not been paid, the return has not been

filed, or the information has not been supplied.

Repealed by Session Laws 1991, c. 45, s. 27. (1939,

c. 158, s. 907; 1953, c. 1302, s. 7; 1959, c. 1259, s. 8;

1963, c. 1169, s. 6; 1967, c. 1110, s. 9; 1973, c. 476,

s. 193; c. 1287, s. 13; 1979, c. 156, s. 2; 1985, c. 114,

s. 11; 1985 (Reg. Sess., 1986), c. 983; 1987 (Reg.

Sess., 1988), c. 1076; 1989, c. 557, ss. 7 to 10; 1989

(Reg. Sess., 1990), c. 1005, s. 9; 1991, c. 45, s. 27;

1991 (Reg. Sess., 1992), c. 914, s. 2; c. 1007, s. 10;

1993, c. 354, s. 22; c. 450, s. 10; c. 539, ss. 709, 710,

1292, 1293; 1994, Ex. Sess., c. 24, s. 14(c); 1995, c.

390, s. 36; 1995 (Reg. Sess., 1996), c. 646, s. 10; c.

647, s. 51; c. 696, s. 1; 1997-6, s. 8; 1997-109, s. 3;

1998-178, ss. 1, 2; 1998-212, s. 29A.14(m); 1999-

415, ss. 2, 3; 1999-438, ss. 15, 16; 2000-119, s. 2;

2000-120, s. 7; 2000-140, s. 70.)

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17a

§ 105-241. Where and how taxes payable; tax period; liens

(a) Form of Payment. -- Taxes are payable in the national

currency. The Secretary shall prescribe where taxes are to be

paid and whether taxes must be paid in cash, by check, by

electronic funds transfer, or by another method.

(b) Electronic Funds Transfer. -- Except as provided in

G.S. 105-163.40, the Secretary shall not require a taxpayer to

pay a tax by electronic funds transfer unless, during the

applicable period for that tax, the average amount of the

taxpayer's required payments of the tax was at least twenty

thousand dollars ($ 20,000) a month. The twenty thousand

dollar ($ 20,000) threshold applies separately to each tax. The

applicable period for a tax is a 12-month period, designated by

the Secretary, preceding the imposition or review of the

payment requirement. The requirement that a taxpayer pay a

tax by electronic funds transfer remains in effect until

suspended by the Secretary. Every 12 months after requiring a

taxpayer to pay a tax by electronic funds transfer, the Secretary

shall determine whether, during the applicable period for that

tax, the average amount of the taxpayer's required payments of

the tax was at least twenty thousand dollars ($ 20,000) a month.

If it was not, the Secretary shall suspend the requirement that

the taxpayer pay the tax by electronic funds transfer and shail

notify the taxpayer in writing that the requirement has been

suspended.

(c) Tax Period. -- Except as otherwise provided in this

Chapter, taxes are levied for the fiscal year of the state in which

they became due. .

18a

(d) Lien. -- This subsection applies except when another

Article of this Chapter contains contrary provisions with

respect to a lien for a tax levied in that Article. The lien of a tax

attaches to all real and personal property of a taxpayer on the

date a tax owed by the taxpayer becomes due. The lien

continues until the tax and any interest, penalty, and costs

associated with the tax are paid. A tax lien is not extinguished

by the sale of the taxpayer's property. A tax lien, however, is

not enforceable against a bona fide purchaser for value or the

holder of a duly recorded lien unless:

(1) In the case of real property, a certificate of tax

liability or a judgment was first docketed in the

office of the clerk of superior court of the county in

which the real property is located.

(2) In the case of personal property, there has already

been a levy on the property under an execution or

a tax warrant.

The priority of these claims and liens is determined by the date

and time of recording, docketing, levy, or bona fide purchase.

If a taxpayer executes an assignment for the benefit of

creditors or if insolvency proceedings are instituted against a

taxpayer who owes a tax, the tax lien attaches to all real and

personal property of the taxpayer as of the date and time the

taxpayer executes the assignment for the benefit of creditors or

the date and time the insolvency proceedings are instituted. In

these cases, the tax lien is subject only to a prior recorded

specific lien and the reasonable costs of administering the

assignment or the insolvency proceedings. (1939, c. 158, s.

912; 1949, c. 392, s. 6; 1957, c. 1340, s. 5; 1993, c. 450, s. 2;

1999-389, s. 8.)

19a

§ 105-241.1. Additional taxes; assessment procedure

(a) Proposed Assessment. -- If the Secretary discovers that

any tax is due from a taxpayer, the Secretary must notify the

taxpayer in writing of the kind and amount of tax due and of

the Secretary's intent to assess the taxpayer for the tax. The

notice must describe the basis for the proposed assessment and

identify the amounts of any tax, interest, additions to tax, and

penalties included in the proposed assessment. The notice must

also advise the taxpayer that the proposed assessment will

become final unless the taxpayer requests a hearing within the

time set in subsection (c) of this section.

The Secretary must base a proposed assessment on the best

information available. A proposed assessment of the Secretary

is presumed to be correct.

(b) Delivery of Notice. -- The Secretary shall deliver the

notice of a proposed assessment to a taxpayer either in person

or by United States mail sent to the taxpayer's last known

address. A notice mailed to a taxpayer is presumed to have

been received by the taxpayer unless the taxpayer makes an

affidavit to the contrary within 90 days after the notice was

mailed. If the taxpayer makes this affidavit, the time limitations

in subsection (c) apply as if the notice had been delivered on

the date the taxpayer makes the affidavit.

(c) Hearing. -- A taxpayer who objects to a proposed

assessment of tax is entitled to a hearing before the Secretary

as provided in this subsection. To obtain a hearing, the taxpayer

must file a written request either for a hearing or for a written

statement of the information and evidence upon which the

proposed assessment is based. If the notice of a proposed

20a

assessment was mailed, the taxpayer's request must be filed

within 30 days after the date the notice was mailed; if the

notice of a proposed assessment was delivered in person, the

taxpayer's request must be filed within 30 days after the date

the notice was delivered.

When a taxpayer files a timely request for a written

statement of the information and evidence upon which a

proposed assessment is based, the Secretary must give the

written statement to the taxpayer within 45 days after the

taxpayer filed the request. A taxpayer who files a timely

request for a written statement concerning a proposed

assessment and who desires to have a hearing on the proposed

assessment must file a written request for a hearing within 30

days after the written statement was mailed.

When a taxpayer files a timely request for a nearing, the

Secretary must set the time and place at which the hearing will

be conducted and must notify the taxpayer of the designated

time and place within 60 days after the taxpayer filed the

request for a hearing and at least 10 days before the date set for

the hearing. The date set for the hearing must be within 90 days

after the timely request for a hearing was filed or at a later date

mutually agreed upon by the taxpayer and the Secretary. The

date set for the hearing may be postponed once at the request

of the taxpayer and once at the request of the Secretary for a

period of up to 90 days or for a longer period mutually agreed

upon by the taxpayer and the Secretary.

The taxpayer may present any objections to the proposed

assessment at the hearing. The rules of evidence do not apply

at the hearing.

Within 90 days after the Secretary conducts a hearing on

2la

a proposed assessment, the Secretary must make a decision on

the proposed assessment and notify the taxpayer of the

decision. The decision must assess the taxpayer for the amount

of any tax the Secretary determined to be due.

(d) Assessment. -- If a taxpayer does not apply for a

hearing in accordance with subsection (c) of this section, a

proposed assessment becomes final without further notice. Ifa

taxpayer applies for a hearing in accordance with subsection (c)

of this section, a proposed assessment becomes final when the

taxpayer is notified of the decision made after the hearing. An

assessment that is final is immediately due and collectible. G.S.

105-241.2, 105-241.3, and 105-241.4 apply to a tax assessed

under this section.

Except in the case of a jeopardy assessment, the Secretary

may not assess a taxpayer for a tax until the notice required by

subsection (a) has been given and one of the following has

occurred:

(1) The time for applying for a hearing has expired.

(2) The Secretary and the taxpayer have agreed upon

a settlement.

(3) The taxpayer has filed a timely application for a

hearing and the Secretary, after conducting the

hearing, has given the taxpayer written notice of

the decision.

(dl) Notice of Assessment. -- The Secretary must notify

the taxpayer when a proposed assessment becomes final and is

therefore collectible. The notice must identify the amounts of

any tax, interest, additions to tax, and penalties included in the

assessment. The notice must include or be accompanied by a

brief statement in simple and nontechnical terms of all of the

22a

following:

(1) The Department's authority to, and procedure for,

levy on and sale of the taxpayer's property.

(2) The taxpayer's available administrative appeals

regarding the levy and sale of property, including

the procedures for appeal.

(3) Other options available to the taxpayer that could

prevent levy on the property.

(4) Procedures to redeem property and obtain release

of a lien on property.

(e) Statute of Limitations. -- There is no statute of

limitations and the Secretary may propose an assessment of tax

due from a taxpayer at any time if (i) the taxpayer did not file

a proper application for a license or did not file a return, (ii) the

taxpayer filed a false or fraudulent application or return, or (iii)

the taxpayer attempted in any manner to fraudulently evade or

defeat the tax.

If a taxpayer files a return reflecting a federal

determination as provided in G.S. 105-29, 105-130.20, 105-

159, 105-160.8, 105-163.6A, or 105-197.1, the Secretary must

propose an assessment of any tax due within one year after the

return is filed or within three years of when the original return

was filed or due to be filed, whichever is later. If there is a

federal determination and the taxpayer does not file the

required return, the Secretary must propose an assessment of

any tax due within three years after the date the Secretary

received the final report of the federal determination.

If a taxpayer forfeits a tax credit or tax benefit pursuant to

forfeiture provisions of this Chapter, the Secretary must assess

any tax due as a result of the forfeiture within three years after

23a

the date of the forfeiture. If a taxpayer elects under section

1033(a)(2)(A) of the Code not to recognize gain from

involuntary conversion of property into money, the Secretary

must assess any tax due as a result of the conversion or election

within the applicable period provided under section

1033(a)(2)(C) or section 1033(a)(2)(D) of the Code. If a

taxpayer sells at a gain the taxpayer's principal residence, the

Secretary must assess any tax due as a result of the sale within

the period provided under section 1034(j) of the Code.

In all other cases, the Secretary must propose an

assessment of any tax due from a taxpayer within three years

after the date the taxpayer filed an application for a license or

a return or the date the application or return was required by

law to be filed, whichever is later.

If the Secretary proposes an assessment of tax within the

time provided in this section, the final assessment of the tax is

timely.

A taxpayer may make a written waiver of any of the

limitations of time set out in this subsection, for either a

definite or an indefinite time. If the Secretary accepts the

taxpayer's waiver, the Secretary may propose an assessment at

any time within the time extended by the waiver.

(f) Repealed by Session Laws 1993, c. 532, s. 2.

(g) Jeopardy Assessments. -- Notwithstanding any other

provision of this section, the Secretary may at any time within

the applicable period of limitations immediately assess any tax

the Secretary finds is due from a taxpayer if the Secretary

determines that collection of the tax is in jeopardy and

immediate assessment is necessary in order to protect the

interest of the State. For a jeopardy assessment, the Secretary

24a

may give the taxpayer the notice of proposed assessment

required by subsection (a) any time within 30 days after the

jeopardy assessment is made. The taxpayer may request a

hearing on the jeopardy assessment by following the procedure

described in the notice.

Within five days after a jeopardy assessment is made under

this subsection that is not the result of a criminal investigation

or of a liability for a tax imposed under Article 2D of this

Chapter, the Secretary must provide the taxpayer with a written

statement of the information upon which the Secretary relied in

making the assessment. Within 30 days after receipt of this

written statement or, if no statement is received, within 30 days

after the statement was due, the taxpayer may request the

Secretary to review the action taken. After receipt of this

request, the Secretary must determine whether making the

jeopardy assessment was reasonable under all the

circumstances and whether the amount assessed is reasonable

under all the circumstances. The Secretary must give the

taxpayer written notice of this determination within 30 days

after the request. The taxpayer may seek judicial review of this

determination as provided in G.S. 105-241.5.

(h) Repealed by Session Laws 1993, c. 532, s. 2.

(i) Interest. -- All assessments of tax, exclusive of penalties

assessed on the tax, shall bear interest at the rate established

pursuant to this subsection from the time the tax was due until

paid. On or before June 1 and December 1 of each year, the

Secretary shall establish the interest rate to be in effect during

the six-month period beginning on the next succeeding July 1

and January 1, respectively, after giving due consideration to

current market conditions and to the rate that will be in effect

25a

on that date pursuant to the Code. If no new rate is established,

the rate in effect during the preceding six-month period shall

continue in effect. The rate established by the Secretary may

not be less than five percent (5%) per year and may not exceed

sixteen percent (16%) per year.

(il) Repealed by Session Laws 1993, c. 532, s. 2.

(j) Construction. -- This section is in addition to and not in

substitution of any other provision of the General Statutes

relative to the assessment and collection of taxes. (1949, c. 392,

s. 6; 1951, c. 643, s. 9; 1955, c. 1350, s. 23; 1957, c. 1340, s.

10; 1959, c. 1259, s. 8; 1969, c. 1132, s. 1; 1973, c. 476, s. 193;

c. 1287, s. 13; 1977, c. 657, s. 6; c. 1114, ss. 1, 11; 1981 (Reg.

Sess., 1982), c. 1211, s. 2; c. 1223, s. 4; 1987, c. 827, s. 21;

1989, c. 530; 1993, c. 443, s. 6; c. 532, s. 2; 1993 (Reg. Sess.,

1994), c. 582, s. 5; c. 745, s. 14; 1995, c. 17, s. 18; c. 468, s. 2;

1995 (Reg. Sess., 1996), c. 646, s. 11; 1996, 2nd Ex. Sess., c.

13, s. 3.7; 1999-360, s. 16; 2000-140, s. 88.)