# Reply Brief — Johnson Controls, Inc. v. Miller

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_1618%3A3

## Record

- **Collection:** Supreme Court brief
- **Document type:** Reply Brief
- **Published:** January 1, 2010
- **Citation:** 560 U.S. 935

## Text

No. 09-981 “ae
_ Ean MAY -3=2010
Jn The OFFICE OF THe CLERK
Supreme Court of the Gnited States
*

JOHNSON CONTROLS, INC.; SECURITY GROUP,
INC. AND SUBSIDIARIES, INCLUDING SARGENT
& GREENLEAF, INC.; WILLIS NORTH AMERICA,
INC. AND AFFILIATES; BUNZL USA, INC. AND
SUBSIDIARIES INCLUDING MAK-PAK, INC:;
TREDEGAR CORPORATION, INC. AND SUBSIDIARIES;
RAYCOM TV BROADCASTING, INC., AS SUCCESSOR-
IN-INTEREST OF COSMOS BROADCASTING
CORPORATION AND AFFILIATES, PETITIONERS,

1)

JONATHAN MILLER, SECRETARY OF THE
FINANCE AND ADMINISTRATION CABINET OF THE
COMMONWEALTH OF KENTUCKY: COMMONWEALTH
OF KENTUCKY, DEPARTMENT OF REVENUE

*

ON PETITION FOR A WRIT OF CERTIORARI
TO THE SUPREME COURT OF KENTUCKY

.
PETITIONERS’ REPLY BRIEF

+
ERICA L. HORN PAUL H FRANKEL
Counsel of Record MICHAEL A. PEARL
BRUCE F. CLARK MORRISON & FOERSTER LLP
MARGARET R. GRANT 1290 Avenue of the Amencas
R. BENJAMIN CRITTENDEN New York, NY 10104-0012
STITES & HARBISON, PLLC (212) 468-8000

421 West Main Street

P.O. Box 634

Frankfort, KY 40602-0654
(502) 223-3477
ehorn@stites.com

Counsel for Petitioners

“OCKLE LAW BRIEF PRINTING CO (800) 225-6964
OR CALL COLLECT +402) 342-2831

ITT.

[V.

V.

TABLE OF CONTENTS

IED oovcrtielipsvtdbisctinadcersiivncexsives

THE ADVERSE CONSEQUENCES OF
ALLOWING THE KENTUCKY OPINION
EE ta cttereadertnddathsadstgioteentescatecoavvorssess

SOVEREIGN IMMUNITY IS NOT APPLI-
CABLE TO THIS CASE AND THERE-
FORE, CANNOT BE A BASIS FOR
DENYING THE PETITION........................

THE OPPOSITION BRIEF SUPPORTS
GRANTING THE PETITION ............0.0......

A. UNRESOLVED QUESTIONS CON-
CERNING THE STANDARD ARTICU-
LG E Ee BOO Gt RREEsd GEN ce scesccvercvesvesarecveres

B. CONFUSION EXISTS AS TO THE
REACH OF MCKESSON ......................

C. RESPONDENTS’ MISCHARACTERI-
ZATION OF THE PETITIONERS’
EQUAL PROTECTION ARGUMENT
IS NOT A REASON TO DENY THE
I ID irsivnncncerscauddlvesctanasetiecevncnieesees

CONCLUSION ............. Sa Maseaa aan Coe

1]

i

TABLE OF AUTHORITIES

Page
CASES
Alden v. Maine, 527 U.S. 706 (1999)............0.... cece cee ee. 6
Atchison, T: & S.F-R. Co. v. O'Connor, 223 U.S.
PPI GL a Ree 4,10, 11
Baker v. Ariz. Dep’t of Revenue, 105 P.3d 1180
(Axis. CE, icc cccescccccscccsccccccccce ces 8
City of Modesto v. National Med, Inc., 128 Cal.
Ap. SEE Be Satie ssercrcccccccccsccccscsesceees. 8
Ex parte Vulcan Lands, Inc., 6 So. 3d 1157 (Ala.
2008), on remand at, remanded by Vulcan
Lands, Inc. v. Surtees, 6 So. 3d 1164 (Ala.
CiV, A, Re atts serecccccccccccccscsccscsecess 4
IEC Arab Ala., Inc. v. City of Arab, 7 So. 3d 376
(Alan, Cay, Fe ee irtciscccsccscccccceccscccccesceeeee 8

Johnson Controls, Inc., et al. v. Commonwealth
of Kentucky, Finance and Administration
Cabinet, et al., U.S. District Court, Eastern
District of Kentucky, Central Division at
Frankfort, Civil Action No. 3:07-CV-65 ......00.0..000000.. 4

Jonathan Miller, Secretary of the Finance and
Administration Cabinet of the Common-
wealth of Kentucky, et al. v. Johnson Con-
trols, Inc., et al., 296 S.W.3d 392 (Ky. 2009).....1, 8, 9

McKesson Corp. v. Division of Alcoholic Bever-
ages & Tobacco, 496 U.S. 18 (1990).......... 4,9,10, 11

Reich v. Collins, 513 U.S. 422 (1998).........0.00...... 10, 1]

Revenue Cabinet v. Gossum, 887 S.W.2d 329
OAR Ee 7

il
TABLE OF AUTHORITIES — Continued

South Central Bell Telephone Co. v. Alabama,
Sa CLA. Be A See bittcivcctiscencdenensnnaniidasnnscantel 4

friple-S Management, Corp. v. Municipal Reve-
nue Collection Center, No. KLAN200701749
and No. KLAN200800249 slip op. (P.R. July
17, 2008) (unpublished), request for cert.
denied (P.R.S.C. March 16, 2009), and motion
for reconsideration denied (P.R.S.C. April 28,
2009), and second motion for reconsideration
denied (P.R.S.C. May 27, 2909), petition for
cert. filed, 78 US.L.W. 8, p. 3099 (U.S.
August 25, 2009) (No. 09-233)............... Sepdadadodanaasnic D
U.S. v. Carlton, 512 U.S. 26 (1994)............0.. cee. ¢,8,9

U.S. v. Darusmont, 449 U.S. 292 (1981)......................9

STATUTES

3 ¢ gt 2 ener eae
KRS § 141.200(17)......... RD eh ala hop Nom eT utente aa
i £971 e |} | NEES tO Acer se
artes B 141.205.....0c0crccesere seuicaeiglae teuanteceebenteitameeia 7

OTHER AUTHORITIES

MecNichols, E. and Johnson, N., Recession Con-
tinues to Batter State Budgets; State Responses
Could Slow Recovery, Center on Budget
and Policy Priorities. (February 25, 2010),
http://Awww.cbpp.org/cms/?fa=view&id=711................ 3

U.S. Const. amend. XIV, § 1...... bea 4,8

The Petitioners, Johnson Controls, Inc., Security
Group, Inc. and Subsidiaries, including Sargent &
Greenleaf, Inc.; Willis North America, Inc. and
Affiliates; Bunzl USA, Inc. and _ Subsidiaries,
including Mak-Pak, Inc.; Tredegar Corporation, Inc.
and Subsidiaries; and Raycom TV Broadcasting, Inc.,

as successor-in-interest of Cosmos’ Broadcasting
Corporation and Affiliates, respectfully submit this
Reply Brief in response to the Respondents’ Brief in
Opposition (“Opposition Brief” or “Op. Br.”), and in
further support of the Petition for Writ of Certiorari
to the Supreme Court of Kentucky (“Petition”) in the
case of Jonathan Miller, Secretary of the Finance and
Administration Cabinet of the Commonwealth of
Kentucky, et al. v. Johnson Controls, Inc., et al., 296
S.W.3d 392 (Ky. 2009). The Opinion of the Kentucky
Supreme Court is reprinted at Petitioners’ Appendix
(“Pet. App.”) 1-76.

INTRODUCTION

A grant of certiorari is appropriate in this case
because of the egregious error made by the Kentucky
Supreme Court in applying the important judicial
precedents of this Court, which resulted in a denial of
due process. Equally important, certiorari 1s appro-
priate because of the slippery slope onto which the
Kentucky opinion, if it is not reviewed, will poten-
tially place taxpayers across the country. Indeed,
nothing in the Opposition Brief addresses the far-
reaching, adverse consequences of the Kentucky
Supreme Court’s decision. Initially, rather than

2

providing the Court with reasons that the Petition
should be denied, the Respondents provide an
eighteen page “Statement” hardly germane to the
merits of the dispute between the parties ~ much less
to the question of certiorari. This “Statement” is
followed by nine pages of argument asserting that a
state legislature has an unfettered right to invoke
sovereign immunity without regard to any limits that
might be imposed by the federal constitution.
However, this argument has been clearly rejected by
each of the three courts in which it has been raised.
Finally, the Opposition Brief concludes with eight
pages that primarily address the merits of Peti-
tioners’ claims.

In reply, the Petitioners will forego a lengthy
repudiation of the factual assertions unsupported by
the record and other clear errors set forth in the
Respondents’ “Statement” and, instead, will focus
on three salient points: (1) the potential adverse
consequences of allowing the Kentucky opinion to
stand without further review; (2) the lack of merit of
the Respondents’ sovereign immunity argument as a
reason for denying the Petition; and (3) a showing
that the Opposition Brief actually supports the
granting of the Petition.

Il. THE ADVERSE CONSEQUENCES OF
ALLOWING THE KENTUCKY OPINION
TO STAND

The national import of this case is demonstrated,
in part, by the fact that three major business tax-
payer advocacy groups in the country — Council on
State Taxation, Institute for Professionals in Taxation
and Tax Executives Institute, Inc. — filed amicus
curiae briefs in support of Petitioners. This is because
the approach employed by Kentucky in this case — if
followed nationally, will encourage states to address
their budget woes by first demanding taxes not due,
and by then later escaping the duty to refund the tax
overpayments by legislatively eliminating all refund
claims filed.

The projected total budget shortfall for the 50
states for 2010-2011 is estimated to be $375 billion.
One way of easing these budget deficits would be for
each state to adopt the approach employed by the

Kentucky Revenue Cabinet and Kentucky General

Assembly in this case (as sanctioned by the Kentucky
Supreme Court). The approach works like this — the
executive branch taxing authority applies = an
aggressive, overreaching and unlawful interpretation
of a taxing statute to increase state revenues.
Because most states, if not all, lack a “pre-deprivation

McNichols, E. and Johnson, N , Recession Continues to
Batter State Budgets; State Responses Could Slow Recovery,
Center on Budget and Policy Priontics, (February 25, 2010),
http://www.cbpp.org/cms/?fa=view&id=711

remedy” many taxpayers will comply with the
potentially erroneous statutory interpretation when
filing their tax returns. They will do so to avoid the
imposition of interest and penalties and a payment of
tax will be made in reliance on the “clear and certain
remedy” promised by the refund statutes of their
respective states, which are required by the Due
Process Clause of the Fourteenth Amendment’ as
interpreted by this Court in McKesson Corp. uv.
Division of Alcoholic Beverages & Tobacco, 496 U.S.
18, 32 (1990), quoting Atchison, T: & S.F.R. Co. v.
O’Connor, 223 U.S. 280, 285 (1912). Then, when the
taxpayers learn that the taxing authority’s inter-
pretation was erroneous and they file proper refund
claims, the legislature acts to retroactively extinguish
the claims — thus allowing the state to keep monies to
which it was not entitled in the first place.* The best

“Nor shall any State deprive any person of life, liberty, or
property, without due process of law.” U S. Const. amend XIV, § 1.

* This scenario mirrors the facts of this case. Together with
passage of statutes with excess retroactivity this scenamno 1s
being played out in similar or analogous fact patterns in
California, Micmgan and Virginia within either the states’
administrative process or lower courts The battle continues to
rage in Kentucky — see the Bnef of Amicus Curiae Kentucky
Chamber of Commerce and Johnson Controls, Inc, et al. 1
Commonwealth of Kentucky, Finance and Administration
Cabinet, et al., U.S. District Court, Eastern District of Kentucky,
Central Division at Frankfort, Civil Action No. 3:07-CV-65
Furthermore, the ten year battle that began with South Central
Bell Telephone Co. v. Alabama, 526 US. 160 (1999) has only
recently concluded. See Ex parte Vulcan Lands, Inc., 6 So. 3d
1157 (Ala. 2008), on remand at, remanded by Vulcan Lands, Inc

(Continued on following page)

D

reason for granting certiorari in this case is to stop
the states from charging down this unconstitutional
and confiscatory slippery slope dragging taxpayers
with them.

lil. SOVEREIGN IMMUNITY IS NOT APPLI-
CABLE TO THIS CASE AND THEREFORE,
CANNOT BE A BASIS FOR DENYING THE
PETITION

The Respondents assert, “Petitioners’ tax over-
payment claims are barred by well settled principles
of state sovereign immunity which do not need to be
rehashed on certiorari.” Op. Br. at 19. A portion of the
Respondents’ statement is true; that is, “well settled
principles of state sovereign immunity [] do not need
to be rehashed on certiorari.” This is because the idea
that the Petitioners’ refund claims are barred by
passage of KRS § 141.200(17) has been rejected by
every court to which it has been addressed.

v Surtees, 6 So. 3d 1164 (Ala. Civ. App 2008). See also Triple-S
Management, Corp. v. Municipal Revenue Collection Center, No
KLAN200701749 and No KLAN200800249 slip op. (PR. July
17, 2008) (unpublished), request for cert denied (P.R.S C. March
16, 2009), and motion for reconsideration denied (P.R.S.C. April
28, 2009), and second motion for reconsideration denied (P_R.S.C
May 27, 2009), petition for cert. filed, 78 U.S.LW. &, p. 3099
(U.S August 25, 2009) (No 09-233) (Puerto Rico Supreme Court
upheld administrative action by the Municipal Revenue
Collection Center to retroactively impose property taxes for a
period of fifteen years).

6

On this issue, the Franklin Circuit Court (the
trial court) held, “The Defendants unconvincingly
assert the defense of sovereign immunity.” Pet. App.
p. 108, fn. 4. The Court of Appeals of Kentucky next
held: “Upholding the Cabinet’s sovereign immunity
claim would, therefore, improperly extinguish appel-
lants’ clear right to seek a post-deprivation remedy.”
Id. at 97. Finally, both the majority and dissenting
opinions of the Kentucky Supreme Court cite this
Court’s opinion in Alden v. Maine, 527 U.S. 706
(1999) as being dispositive of the Respondents’
argument. Pet. App. pp. 11, 55-57. In Alden, this
Court held: “The constitutional privilege of a State to
assert its sovereign immunity in its own courts does
not confer upon the State a concomitant right to
disregard the Constitution or valid federal law. * * *
Rather, certain limits are implicit in the constitu-
tional principle of state sovereign immunity.” 527

U.S. at 754-755.

Much of the Respondents’ lengthy sovereign
immunity argument is based on an improper framing
of the issue and citations to cases not applicable to
this case. Specifically, Respondents improperly frame
the issue as whether a state’s consent to suit confers
a property right protected by due process. Op. Br. at
19-28. However, the proper question is whether the

state can eliminate an existing property right arising
under the federal constitution (z.e., the mght to post-
deprivation relief from exaction of unlawful or

~

erroneous taxes), by simply withdrawing its “con-
sent” to be sued. This question has been addressed by
this Court and the answer is “No”. As a result, the
Petitioners’ claims are not barred by sovereign
immunity, and the doctrine therefore does not serve
as a basis for denying the Petition.

IV. THE OPPOSITION BRIEF SUPPORTS
GRANTING THE PETITION

The Respondents assert that the Court should
reject the Petition because, “The Court has already
provided ample ‘guidance’ on the ‘due process limits of
retroactive legislation.’” Op. Br. at 28. Thus, if this
assertion is incorrect, this Court should accept
review. As shown in the original Petition, and as
further addressed below, much remains unsettled
after this Court’s decision in U.S. v. Carlton, 512 U.S.
26 (1994).

A. Unresolved Questions Concerning the
Standard Articulated in Carlton

As an initial matter, courts have taken con-
flicting positions on whether due process merely

‘ The Commonwealth has enacted two applicable refund
statutes’ a specific income tax refund statute, KRS § 141 235;
and a general tax refund statute, KRS § 134.580. By enacting
these tax refund statutes, the Commonwealth has provided
taxpayers the constitutionally required clear and certain remedy

for an overpayment of taxes. See also Revenue Cabinet 1
Gossum, 887 S.W.2d 329, 333 (Ky. 1994)

8

requires that states have a “rational basis” for
implementing a retroactive tax statute or whether
there is a two-part (or three-part) test for deter-
mining whether a retroactive tax violates the Due
Process Clause (1.e., requiring a rational purpose for
the retroactivity and a modest period of retroactivity
and prompt legislation).”

As alluded to above, courts are at odds as to
whether the second prong of the test from Carlton
contains its own two-part test requiring both a
modest period of retroactivity and prompt legislative
action, or whether it requires only a modest period of
retroactivity. Compare IEC Arab Ala., Inc. v. City of
Arab, 7 So. 3d 370 (Ala. Civ. App. 2008) (discussing
only modesty) and Baker v. Ariz. Dep’t of Revenue,
105 P3d 1180, 1186-1188 (Ariz. Ct. App. 2005)
(discussing only modesty) with City of Modesto vw.
National Med, Inc., 128 Cal. App. 4th 518, 528, 529
(2005) (discussing both promptness and modesty).
Furthermore, as described, on pages 16-19 of the
Petition, there has been much discussion of what
constitutes a “modest” period of retroactivity.

With regard to legislative promptness, the
Respondents chastise the Petitioners for “asking the

* In this case, the precise test rehed upon by Kentucky
Supreme Court appears to be something of a hybnd —
“retroactive application of a statute need only be (1) supported
by a legitimate legislative purpose (2) furthered by rational
means, which includes an appropriate modesty requirement.”
296 S.W.3d at 399, Pet. App. p 16

9

Court ‘to establish that retroactive legislation violates
due process when a state legislature fails to enact the
legislation at the first possible legislative session.’”
Op. Br. at 28. The respondents continue, “Presumably
this Due Process Clause requirement would shackle
Congress as well.” Id. In fact, Congress has set its
own limits. In Carlton, the Court recognized that the
brief retroactive nature of a curative statute is a
“customary congressional practice,” one that is
generally confined to short and limited periods
required by the practicalities of producing national
legislation. 512 U.S. at 33 (quoting U.S. uv.
Darusmont, 449 U.S. 292, 296-97 (1981)). The variety
of opinions in the cases cited above establish, and
require, that this Court has the last word on the
standard for analyzing a retroactive tax statute.
Thus, granting the Petition is proper.

B. Confusion Exists as to the Reach of
McKesson

The Kentucky Supreme Court took the position
that McKesson applies only to situations in which the
tax statute generating the refund claim is found to be
in violation of the constitution. Johnson Controls, 296
S.W.3d at 402. Pet. App. pp. 24-25. The Respondents

* In its Opposition Bnef, the Respondents make numerous
statements in support of the idea that the Kentucky General
Assembly acted at the first possible legisiative session Op Br
at 10-15, 29, fn. 14. The record, if cited in its entirety, does not
support such a claim.

10

set forth this position on pages 25-28 of the
Opposition Brief with regard to both McKesson and
Reich v. Collins, 513 U.S. 422 (1998). To reach this
conclusion, though, both the Kentucky Supreme
Court and the Respondents had to ignore the
precedent leading up to McKesson and Reich and,
instead, had to view those two cases in a vacuum. For
example, nearly 100 years ago the Court in Afchison
did not limit the scope of due process remedies to only
constitutional violations. The Court held:

It is reasonable that a man who denies the
legality of a tax should have a clear and
certain remedy. The rule being established
that, apart from special circumstances, he
cannot interfere by injunction with the
state’s collection of its revenues, an action at
law to recover back what he has paid is the
alternative left. Of course we are speaking of
those cases where the state is not put to an
action if the citizen refuses to pay. In these
latter, he can interpose his objections by way
of defense; but when, as is common, the state
has a more summary remedy, such as
distress, and the party indicates by protest
that he is yielding to what he cannot
prevent, courts sometimes perhaps have
been a little too slow to recognize the implied
duress under which payment is made. But
even if the state 1s driven to an action, if at
the same time, the citizen is put at a serious
disadvantage in the assertion of his legal, in
this case of his constitutional, rights, by
defense in the suit, justice may require that

11

he should be at liberty to avoid those dis-
advantages by paying promptly and bringing
suit on his side.

223 U.S. 280, 285-286. The court below and
Respondents simply turn a blind eye to the roots of
the holdings in McKesson and Reich — roots implicit
in the expansive language used by the Court in
McKesson requiring a clear and certain remedy “for
any erroneous or unlawful tax collection to ensure
that the opportunity to contest the tax is a
meaningful one.” 496 U.S. at 39 (emphasis added).

Furthermore, taking the Kentucky Court’s and
Respondents’ position to its logical conclusion would
mean that McKesson and Reich have no precedential
value other than to factual situations identical to
those cases. The narrowing of the due process rights
of taxpayers by the Kentucky Supreme Court, and as
urged by the Respondents, is reason enough that this
Court should grant the Petition.

C. Respondents’ Mischaracterization of the
Petitioners’ Equal Protection Argument
Is Not a Reason to Deny the Petition

On pages 32-35 of the Opposition Brief, the
Respondents conclude by first reintroducing their
sovereign immunity argument and then by describing
the different treatment of “‘similarly situated tax-
payers” as a “function of the effective date of the two
statutes [KRS § 141.200(17) and KRS § 141.200(18)],
not of any legislative classification among taxpayers.”

12
Op. Br. at 33. The Petitioners’ equal protection
argument is set forth at pages 19-24 of their brief and
will not be repeated here. Suffice it to say that
Petitioners’ equal protection claim is not based on the
date of two statutes; rather it is based on similarly
situated taxpayers being treated different'y prior to
the date selected by the statute (December 22, 1994).
Thus, the 2000 Amendments, as applied, worked an
unconstitutional discrimination against the twenty-
nine taxpayers at whom those amendments were
directed. This discrimination warrants granting the
Petition.

Vv. CONCLUSION

For the reasons set forth in their Petition for
Writ of Certiorari and herein, the Petitioners
respectfully request that the Petition be granted.

Respectfully submitted,

ERICA L. HORN PAUL H. FRANKEL

Counsel of Record MICHAEL A. PEARL

BRUCE F. CLARK MORRISON & FOERSTER LLP
MARGARET R. GRANT 1290 Avenue of the Americas
R. BENJAMIN CRITTENDEN New York, NY 10104-0012
STITES & HARBISON, PLLC (212) 468-8000

421 West Main Street

P.O. Box 634

Frankfort, KY 40602-0634
(502) 223-3477

ehorn@stites.com

Counsel for Petitioners

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_1618%3A3. Public record. Not legal advice.