in the supreme court of the state of montana … · 511 p.2d 318 (1973 ... woodward, 2012 mt 19,...
TRANSCRIPT
IN THE SUPREME COURT OF THE STATE OF MONTANA
Case No. DA 17-0131 __________________________________________________________________ DUANE C. KOHOUTEK, INC., a Montana Corporation, BUCHER SALES, LLC, a Montana Limited Liability Company, NOBLES, INC., a Montana Corporation, and SPIRITS PLUS, LLC, a Montana Limited Liability Company, individually and on behalf of others similarly situated,
Plaintiffs, Appellees and Cross-Appellants, v.
STATE OF MONTANA, by and through MONTANA DEPARTMENT OF REVENUE.
Defendant, Appellant, and Cross-Appellee. __________________________________________________________________
BRIEF OF APPELLEES/CROSS-APPELLANTS __________________________________________________________________
On Appeal From the Eighth Judicial District Court, Cascade County The Honorable Gregory G. Pinski, Presiding.
__________________________________________________________________ Jonathan McDonald Daniel J. Whyte McDONALD LAW OFFICE, PLLC Teresa G. Whitney P.O. Box 1570 Dave Burleigh Helena, MT 59624-1570 MT DEPT. OF REVENUE Telephone: (406) 442-1493 Legal Services Office E-mail: [email protected] P.O. Box 7701 Helena, MT 59604-7701 Michael J. George Telephone: (406) 444-3340 MICHAEL J. GEORGE, P.C. E-mail: [email protected] P.O. Box 2505 [email protected] Great Falls, MT 59403 [email protected] Telephone: (406) 315-3434 E-mail: [email protected] Attorneys for Appellees/Cross-Appellants Attorneys for Appellant/Cross-Appellee
i
TABLE OF CONTENTS STATEMENT OF ISSUES ....................................................................................... 1 STATEMENT OF THE CASE ................................................................................. 1 STATEMENT OF FACTS ........................................................................................ 2 A. The Discounts. .............................................................................................. 2 B. The Lawsuit. ................................................................................................. 7 STANDARDS OF REVIEW .................................................................................... 9 SUMMARY OF THE ARGUMENT ...................................................................... 11 ARGUMENT .......................................................................................................... 12
I. The District Court Correctly Concluded the Use of 1994 Sales Data to Govern 2014 Reimbursements Was Unconstitutional. However, Having Found the Statute Invalid, the District Court Erred in Relying on it to Set Storeowner Expectations in the Takings Claim ........................................................................................ 13
A. The Use of 1994 Sales Data to Govern Storeowner
Reimbursements is Wholly Arbitrary and Violates Substantive Due Process. The DOR’s Effort to Redefine Legislative Intent Should be Rejected ......................................... 14
1. While the Purpose of § 16-2-101(2)(b)(ii)(B), MCA, Related to a Legitimate Governmental Concern, the Statute’s Means Were Irrational. ........................................... 15 2. The DOR’s Efforts to Redefine the Purpose of the Law Should be Rejected; Even if Correct, the DOR Admits To an Equal Protection Violation. .......................................... 19 3. A Statute’s Validity is Assessed at the Time of Challenge, Not Passage. To Find Otherwise Would Severely Curtail The Power of the Judiciary to Address Current Harms. ......... 21
ii
B. The WADR Statute Violated Equal Protection. .......................... 23
C. The District Court Erred in Using the WADR Statute
To Set the Reasonable Expectations of Storeowners in The Takings Claim. ..................................................................... 26
II. DOR’s Statute of Limitations and Laches Defenses Do Not
Affect the Outcome of this Case. ........................................................... 27
A. The District Court Properly Denied DOR’s Motion to Amend Because DOR Raised the Statute of Limitations Defense as a Shield in Briefing and Sought Amendment Seven Days Before Oral Argument and After Briefing Had Been Completed. .................................................................. 28
B. Laches Does Not Bar a Substantive Constitutional Challenge. Laches Does Not Reduce Storeowners’ Recovery Because DOR is not Prejudiced by Repaying Money it Could Not Constitutionally Take. ................................................................. 32
III. The District Court Provided Storeowners the Appropriate Remedy
Even if Its Use of a ‘Constitutional Tort’ was Unnecessary. DOR’s Myriad Complaints Regarding the Remedy are Unfounded .................. 35
A. Government Has ‘Not a Particle of Right’ to Retain Funds
Exacted Through Unconstitutional Means. ................................. 36
B. The District Court Provided the Correct Remedy, But Unnecessarily Created a Constitutional Tort. DOR’s Consequent Reliance on the Administrative Presentment Provisions in the State Tort Claims Act is Misplaced. ................ 38
1. Recognition of a Constitutional Tort was Unnecessary. ........ 39 2. Even if Recognition was Needed, DOR’s Effort to Raise the State Tort Claims Act Must Fail. ............................ 41 3. DOR Failed to Raise §2-9-103(1), MCA Prior to Appeal; The Defense is Waived and Inapplicable in Any Event. ........ 43
iii
C. The District Court Correctly Found Unjust Enrichment. ............ 44
D. The District Court Properly Calculated the Pre-2006 Loss. ........ 47
E. Interest Was Properly Awarded Under § 17-8-242, MCA. ......... 48
F. If Monetary Relief is Unavailable, the Private Attorney General Doctrine Applies. ............................................ 50
CONCLUSION ....................................................................................................... 51 CERTIFICATE OF COMPLIANCE ...................................................................... 53 CERTIFICATE OF SERVICE ................................................................................ 53
iv
TABLE OF AUTHORITIES CASES Abie State Bank v. Bryan, 282 U.S. 765 (1931) ..................................................... 23 Bardsley v. Pluger, 2015 MT 301, 381 Mont. 284, 358 P.3d 907 ................... 30, 31 Betz v. City of New York, 119 App. Div. 91, 92 (N.Y. 1907) ................................. 37 Blanton v. DPHHS, 2011 MT 110, 360 Mont. 396, 255 P.3d 1229 ..... 11, 32, 40, 41 Buhmann v. State, 2008 MT 465, 348 Mont. 205, 201 P.3d 70 ....................... 11, 35 Cole v. State ex rel. Brown, 2002 MT 32, 308 Mont. 265, 42 F.3d 760 ................ 33 Columbia Falls Elem. v. State, 2005 MT 69, 326 Mont. 304, 109 P.3d 257 ......... 10 Delaney & Co. v. City of Bozeman, 2009 MT 441, 354 Mont. 181 ....................... 42 Dep’t of Revenue v. Kuhnlein, 646 So.2d 717 (Fla. 1994) ..................................... 37 Diaz v. State of Montana, 2013 MT 219, 371 Mont. 214, 308 P.3d 38 ................. 40 DOR v. Baron, 245 Mont. 100, 799 P.2d 533 (1990) ............................................. 25 DOR v. Sheehy, 262 Mont. 104, 862 P.2d 1181 (1993) ......................................... 25 Dorwart v. Caraway, 2002 MT 240, 312 Mont. 1, 58 P.3d 128 ........................ 9, 39 Ellison v. State, 2013 MT 376, 373 Mont. 159, 315 P.3d 950 ............................... 15 Filip v. Jordan, 2008 MT 234, 344 Mont. 402, 188 P.3d 1039 ............................. 32 Goble v. Montana State Fund, 2014 MT 99, 374 Mont. 453, 325 P.3d 1211 ........ 25 Great-West Annuity Co. v. Knudson, 534 U.S. 204 (2002) .................................... 40 Hunter v. Rosebud County, 240 Mont. 194, 483 P.2d 927 (1989) ......................... 33
v
In re New Jersey State Board of Dentistry, 84 N.J. 582, 423 A.2d 640 (1980) ..... 38 JTL Group, Inc. v. New Outlook, LLP, 2010 MT 1, 355 Mont. 1, 223 P.3d 912 ... 10 Kauffman-Harmon v. Kauffman, 2001 MT 238, 307 Mont. 45, 36 P.3d 408 ........ 50 Maine Assoc. of Interdependent Neighborhoods v. Petit, 659 F.Supp. 1309 (D. Me. 1987) ..................................................................................................... 18 Marias Healthcare Svcs. v. Turenne, 2001 MT 127, 305 Mont. 419, 28 P.3d 491 ........................................................................................................ 30 Masters Group Int’l v. Comerica Bank, 2015 MT 192, 380 Mont. 1, 352 P.3d 1101 .............................................................................................. 10, 30 McKesson Corp. v. Division of Alcoholic Beverages & Tobacco, 496 U.S. 18 (1990) ................................................................................ 36, 37, 44 Meadow Lake Est. Homeowners Ass’n v. Shoemaker, 2008 MT 41, 341 Mont. 345, 178 P.3d 8 ................................................................................ 31 Montana Cannabis Indus. Ass’n v. State, 2016 MT 44, 382 Mont. 256, 368 P.3d 1131 .................................................................................................... 22 Montana National Bank of Billings v. Yellowstone County, 276 U.S. 499 (1928) .................................................................................... 36, 37 Newton v. Consolidated Gas Co. of New York, 258 U.S. 165 (1922) .................... 23 Newville v. Dept. of Family Services, 267 Mont. 237, 883 P.2d 793 (1994) ......... 15 N. Cheyenne Tribe v. Roman Catholic Church, 2013 MT 24, 368 Mont. 330, 296 P.3d 450 ............................................................................ 45 Owen v. Skramovsky, 2013 MT 348, 372 Mont. 531, 313 P.3d 205 ...................... 46 Peuse v. Malkuch, 275 Mont. 221, 911 P.2d 1153 (1996) ..................................... 31 Plumb v. Fourth Judicial District, 279 Mont. 363, 927 P.2d 1011 ........................ 15 Quaglia v. Munsey Park, 54 A.D.2d 434 (N.Y. 1976) ........................................... 23
vi
Reier Broadcastng Co. v. Montana State University, 2005 MT 240, 328 Mont. 471, 121 P.3d 549 ...................................................................... 42, 43 Schindler v. USAA, 2011 MT 129, 254 P.3d 583 ................................................... 34 Shelby County v. Holder, 570 U.S. 2, 133 S. Ct. 2612 (2013) ............................... 22 Snetsinger v. Mont. Univ. Sys., 2004 MT 390, 325 Mont. 148, 104 P.3d 445 ....... 24 South Carolina v. Katzenbach, 383 U.S. 301 (1966) ............................................. 22 State v. Adgerson, 2003 MT 284, 318 Mont. 22, 78 P.3d 850 ............................... 10 State v. Ellis, 2007 MT 210, 339 Mont. 14, 167 P.3d 896 ..................................... 24 State v. McCurley, 412 So.2d 1236 (Ala. 1982) ..................................................... 38 State ex rel. Woodahl v. Second Judicial District Court, 162 Mont. 283, 511 P.2d 318 (1973) .......................................................................................... 27 Sunburst School Dist. No. 2 v. Texaco, Inc., 2007 MT 183, 338 Mont. 259, 165 P.3d 1079 .............................................................................................. 41, 50 Timm v. Montana DPHHS, 2008 MT 126, 343 Mont. 11, 184 P.3d 994 ............... 24 Vaquieria Tres Monjitas, Inc. v. Laboy, 2007 U.S. Dist. LEXIS 98950 (D.P.R. July 13, 2007) ............................................................................ 18 Wagner v. Woodward, 2012 MT 19, 363 Mont. 403, 270 P.3d 21 ........................ 31 Welu v. Twin Hearts, 2016 MT 347, 386 Mont. 98, 386 P.3d 937 ........................ 45 Western Tradition Partnership, Inc. v. Attorney General, 2011 MT 328, 363 Mont. 220, 271 P.3d 1 ................................................................................ 22 Williams v. Bd. of County Comm’rs, 2013 MT 243, 371 Mont. 356, 308 P.3d 88 10
vii
CONSTITUTIONAL PROVISIONS Mont. Const. Art. II, § 4 ............................................................................. 14, 24, 26 Mont. Const. Art. II, § 17 ................................................................................. 14, 26 Mont. Const. Art. II, § 29 ....................................................................... 7, 14, 26, 27 U.S. Const. Amd. XIV ............................................................................................ 36 STATUTES Revised Codes of Montana: § 4-2-201, R.C.M. (1975) ................................................................................... 2, 16 Montana Code Annotated: § 1-3-208, MCA ..................................................................................................... 34 § 2-9-101(1), MCA ................................................................................................. 41 § 2-9-103(1), MCA ........................................................................................... 43, 44 § 2-9-301, MCA ............................................................................................... 41, 43 § 16-1-305, MCA ..................................................................................... 3, 6, 17, 20 § 16-2-101(2)(b)(ii)(B), MCA ......................................................................... passim § 16-2-101(4)(a), MCA ...................................................................................... 6, 13 § 16-2-201, MCA ............................................................................................ passim § 17-8-101(4), MCA ............................................................................................... 40 § 17-8-241(1), MCA ............................................................................................... 49 § 17-8-242, MCA ................................................................................................... 12
viii
§ 17-8-242(1), MCA ......................................................................................... 49, 50 § 17-8-244(2), MCA ......................................................................................... 49, 50 § 17-8-244(2), MCA ......................................................................................... 49, 50 § 18-1-404, MCA ................................................................................................... 49 § 18-4-242(7), MCA ............................................................................................... 42 § 26-1-303(5), MCA ............................................................................................... 48 § 27-1-713, MCA ................................................................................................... 38 § 27-2-211(1), MCA ............................................................................................... 32 § 27-2-231, MCA ................................................................................................... 32 § 27-8-313, MCA ............................................................................................. 11, 41 § 28-2-604, MCA ................................................................................................... 45 RULES M.R.Civ.P. 8(c) .......................................................................................... 29, 30, 43 M.R.Civ.P. 15 ......................................................................................................... 30 TREATISES 3 AmJur.2d Agency § 38 ........................................................................................ 49 11 Am.Jur., Constitutional Law 827 § 148 ............................................................ 27 16A AmJur.2d Constitutional Law § 371 ............................................................... 23 Restatement (Third) of Restitution § 2, cmt. c ........................................................ 45 Restatement (Third) of Restitution § 19 ........................................................... passim
ix
OTHER AUTHORITIES Herbert Broom & Robert Henry Kerley, A Selection of Legal Maxims (10th ed. 1969) ...................................................................................... 35
1
STATEMENT OF ISSUES
1. Did the District Court correctly conclude the DOR’s permanent use of
1994 sales information to govern reimbursements to its agency stores for
contemporary discounts made on liquor sold to tavern owners violates
equal protection and substantive due process? If so, was it error to use
the invalid statute to set the agency storeowners’ “reasonable
expectations” for purposes of a Takings claim?
2. Did the District Court abuse its discretion in not allowing DOR to amend
its Answer to raise a statute of limitations defense after DOR attempted
to use the defense as a shield during summary judgment briefing, its
pleading failure was pointed out by the adverse party and oral arguments
took place as scheduled seven days later?
3. Whether laches applies to a substantive (as opposed to procedural)
constitutional challenge?
4. Whether DOR must restore unpaid funds to its agency stores that were
under-reimbursed over the past two decades? If so, is interest owed
under § 17-8-242, MCA?
STATEMENT OF THE CASE By statute, the Department of Revenue (“DOR”) “must” provide tavern
owners an 8% discount on sales of unbroken cases of liquor. DOR contractually
2
requires owners of its agency liquor stores to sell the discounted liquor on its
behalf. The agency stores provide DOR monthly statements listing the amount of
case-lot discounts made and the identities of the tavern owners receiving discounts.
However, from 1995 until 2016, the DOR did not reimburse the storeowners
for the discounts made on DOR’s behalf; instead it reimbursed using a formula tied
to the case-lot discounts each agency liquor store made in 1994. In so doing, DOR
enjoyed a windfall whereby its statutory obligation to make the discounts was
reduced through systematic under-reimbursement of its agents.
A class of historically undercompensated agency storeowners
(“Storeowners”) sued, arguing the system governing reimbursement for case-lot
discounts was unconstitutional. The District Court agreed. This case will decide
whether the District Court was correct and whether the storeowners may recover
the funds deprived them under the unconstitutional system.
STATEMENT OF FACTS
A. The Discounts
Montana began offering discounts on case-lot liquor purchases in 1975.
Section 4-2-201, R.C.M. (1975). The legislative history shows the purposes of
discounting volume purchases of liquor was to increase the amount sold and
3
increase profits. (Doc. 25, Ex. 1-004, 017-018)1. For 20 years, the DOR paid the
full cost of the discounts. (Doc. 132, p. 2, ¶2).
In 1995, the Legislature passed HB574, which completed the privatization of
agency liquor stores and increased the case-lot discounts for liquor licensees (i.e.
tavern owners) to 8%. (Doc. 132, p.2, ¶2). Following passage of HB574, the
discount statute read in relevant part:
16-2-201. Reduction for quantity sales of liquor. (1) Reduction of 8% of the posted price of liquor sold at the agency liquor store must be made by the department for sales to any licensee purchasing liquor in unbroken case lots. (emphasis added).
The code further commanded “All expenses, debts, and liabilities incurred by the
department in connection with the administration of this code shall be paid by the
department from the moneys received by the department under such
administration.” Section 16-1-305, MCA (1995).
The legislative history from 1995 includes a DOR-authored document
entitled, “Description, State Liquor Retail Privatization Proposal” that includes a
section entitled “How do agents get compensated for full case discount sales?”
(Doc. 25, Ex. 2-051). This is the only place in the legislative history where
compensation for case-lot discounts is discussed. (Id.). The document states, “So
if the agent makes full case sales to licensees in the same proportion that occurred 1 References to “Doc.” refers to documents listed by number in the Clerk’s Case Register Report; “Tr. Trans.” is the Transcript of Appeal, Vol. II., containing the transcript of the bench trial held on Feb. 4-5, 2016.
4
in FY94, the cost of discounts will be a wash.” (Id.). Statutorily, the obligation to
make the discounts remained with the DOR. Section 16-2-201, MCA (1995). The
Legislature never discussed changing the 20-year-old practice of DOR paying for
the discounts and it certainly never discussed turning the provision of discounts
into a profit center for DOR by foisting the financial burden onto Storeowners.
(Doc. 25, Ex. 2).
DOR required Storeowners to file monthly reports (“RLDs”) with the DOR
listing the discounts made and the identities of tavern owners who receive the
discounts. (Doc. 132, p. 3, ¶4; Tr. Trans. 90:15-92:4). However, Storeowners
were not fully reimbursed for discounts made on DOR’s behalf. (Doc. 115, p. 3,
¶7). Rather, the law fixed their compensation based on what each store sold in
1994. This “weighted average discount ratio” (“WADR”) 2 was codified at § 16-2-
101(2)(b)(ii)(B), MCA. DOR can identify no other state in the nation with a
similar system to pay for case-lot discounts. (Tr. Trans. 263:23-264:7).
Contractually, DOR gives storeowners no discretion in providing case-lot
discounts to tavern owners. “Agent will sell liquor to all beverage licensees at …
the full case discount price.” (Doc. 55, p.23).
2 DOR calls this “a complicated formula that considered sales and ratios.” (DOR Brief at 19). It is not. It simply takes each store’s ratio of case lot sales to gross sales from 1994 and mathematically adjusts it to account for increasing the 5% discount made in 1994 to the new 8% discount made since 1995.
5
Besides the WADR, each agency store received a commission rate, which
was adjusted every three years to ensure stores of similar size remain similarly
profitable. Section 16-2-101(4)(a), MCA; (Doc. 132, p.8, ¶15). Since 2001, stores
also received a gross volume discount adjusted annually based on the previous
fiscal year sales. Section 16-2-101(4)(b), MCA (2001). The WADR, however,
remained forever fixed in 1994 data.
Efforts in 2004 to address the under-reimbursement for case-lot discounts
failed when DOR informed a storeowner that any solution to pay actual discount
costs would not be “revenue neutral” and DOR would oppose them. (Tr. Trans.
268:15-269:23). A 2007 legislative effort to fix the problem failed, prompting
lawmaker Rep. Llew Jones to state:
If I was Belgrade, Missoula, Evergreen, some of these folks that are being underpaid to the tune of in some cases $153,000, I would guess that I would be doing what Mark Staples had kind of said. I would be approaching a lawyer and saying, “Hey, there is a great class-action lawsuit here,” and I wouldn’t be just asking for this change. I’d be asking to go back to 1994. Transcript, House Business and Labor Committee, 01/19/07 at 13:10-18. (Doc. 26, Ex.6).
The use of 1994 sales data to govern reimbursements led to a two-tiered
system. (Doc. 55, p. 23). Some liquor stores ended up being fully reimbursed or
even slightly overcompensated while the majority of stores were
undercompensated—with a few high-volume stores by $100,000 or more a year.
(Trial Ex. 001-1). During the unsuccessful 2007 effort to achieve a legislative
6
change, DOR estimated it would cost $854,000 per year to reimburse storeowners
for their actual case-lot discounts instead of just paying the WADR reimbursement
using 1994 data. (Tr. Trans. 293:2-17).
During the 2013 legislative session, DOR brought forth a “housekeeping”
bill that amended § 16-2-201, MCA, to remove the words “by the department” so
the statute now reads, in the passive voice, that a discount on unbroken case lots of
liquor must be made, but fails to identify by whom. DOR and the District Court
both agreed the 2013 amendment did not change DOR’s obligations. (Doc. 132,
p.13, ¶11, Tr. Trans. 305:13-17). Indeed, it cannot, for the Legislature declared
that all liabilities incurred in the operation of the Montana Alcoholic Beverage
Code “shall be paid by the department from the moneys received by the
department under such administration.” Section 16-1-305, MCA.
In FY2015 alone, the DOR generated profits of $37.9 million from its liquor
enterprise operation. (Tr. Trans. 261:22-262:7).
Because of the District Court’s rulings, the 2015 Legislature changed the
system so as to no longer use 1994 sales data. Instead, effective Feb. 1, 2016,
DOR annually adjusts each store’s rate based on prior year sales. Section 16-2-
101(4)(a), MCA (2015); (Doc. 146, Ex. 1, pp. 20-21).
///
7
B. The Lawsuit.
The 2013 “housekeeping” bill sparked concerns that DOR was attempting to
further change the system to its agents’ disadvantage. (Tr. Trans. 88:23-89:8). As
a consequence, in February 2014, four Storeowners sued, alleging the ongoing use
of outdated sales information instead of the current information they provided each
month was unconstitutional. (Doc. 1, p.2). The Complaint sought declaratory,
injunctive and class-wide relief in the form of calculation and restoration of the
money the DOR failed to reimburse storeowners for actual discounts made on
DOR’s behalf. (Doc. 1, pp. 12-13). Besides the constitutional claims, the
Complaint alleged the State had been unjustly enriched through the DOR’s
systematic under-reimbursement of Storeowners. (Id., p. 9).
A class was certified and after discovery, briefing and oral argument, the
District Court found the use of 1994 data to govern ongoing reimbursements
violated constitutional guarantees of equal protection and substantive due process.
(Doc. 55, pp. 18, 24). The District Court rejected Storeowners’ argument the
system effected a Taking under Mont. Const. Art. II, §29. (Id., p. 28).
Having established the unconstitutionality of the WADR, Storeowners
sought disgorgement of the profit DOR enjoyed by compensating Storeowners less
than the full discounts made. Such result would require DOR to “make” discounts
as required by statute and ensure equal treatment of agency stores. The DOR
8
claimed even if it acted unconstitutionally, it should not have to pay anything. The
DOR informed a legislative committee this case could cost as much as $37 million.
(Doc. 132, p. 9, fn. 2; Tr. Trans. 287:8-289:22). Computation of Storeowners’
losses proved complicated because computer failures led to the DOR’s failure to
retain records showing discounts made, each month, by each store. (Doc. 132, pp.
3,6,7; ¶¶5, 12-13). Other records were properly retained, but were incorrectly
entered into the DOR database, leading to erroneous data. (Tr. Trans. 112:2-113:1;
113:20-118:3).
The DOR had incomplete records from March 2006 forward but it had no
records prior to that month. (Tr. Trans. 124:15-18). Counsel solicited records
from Storeowners, some of whom retained their RLD forms as part of their
business records. (Tr. Trans. 105:18-107:19). In addition, both Parties retained
mathematics experts to discuss the likely discounts made prior to March 2006.
(Doc. 115, pp. 9-11).
The District Court conducted a trial in February 2016 on the questions of (1)
when the use of 1994 data to govern reimbursements for case-lot discounts became
unconstitutional; and (2) the amount owed. (Doc. 65, p. 1, Doc. 115, p. 11).
On Aug. 2, 2016, the District Court issued its Findings of Fact, Conclusions
of Law, and Order RE: Damages. (Doc. 132). The court found the use of 1994
data to govern reimbursement rates became unconstitutionally arbitrary by July 1,
9
1998—three years after the effective date of HB574 and the date on which the
agency store commission rates (adjusted every three years) were first reviewed.
(Id., p. 8, ¶15). The District Court found that between July 1, 1998 and January 31,
2016 (the last day before the legislative changes abandoning the use of 1994 data
took effect) the storeowners were undercompensated by $14,722,297.88. (Id., p. 9,
¶16). In reaching this number, the District Court noted its size was caused by
Montana’s decision to “repeatedly kick[] the can down the proverbial road” rather
than “remedy these discrepancies decades ago.” (Id., ¶17).
In reaching its decision, the District Court declined to award the amount of
undercompensation as restitution or disgorgement, instead ruling that the State had
committed a “constitutional tort” of the type this Court recognized in Dorwart v.
Caraway, 2002 MT 240, 312 Mont. 1, 58 P.3d 128. (Id., p. 11, ¶3).
The Court ordered additional briefing on the remaining issues, including
whether to award interest. (Id., p. 14, ¶¶2-3).
After a hearing on all outstanding issues, the District Court in early 2017
entered a series of final orders, awarding the storeowners interest, clarifying the
District Court’s reasoning and entering judgment. (Docs. 177-179).
STANDARDS OF REVIEW
“The constitutionality of a statute is a question of law, and a district court’s
legal conclusions are reviewed for correctness.” Williams v. Bd. of County
10
Comm’rs, 2013 MT 243, ¶23, 371 Mont. 356, 308 P.3d 88. “Legislative
enactments are presumed to be constitutional, and the party challenging the
provision bears the burden of proving beyond a reasonable doubt that it is
unconstitutional.” Id.
“The Supreme Court of Montana reviews a district court’s findings of fact to
determine whether they are clearly erroneous, and a district court’s discretionary
rulings, such as the award or denial of attorney fees, for abuse of discretion.”
Columbia Falls Elem. v. State, 2005 MT 69, ¶12, 326 Mont. 304, 109 P.3d 257.
“This Court ‘must view the evidence in the light most favorable to the prevailing
party.’” JTL Group, Inc. v. New Outlook, LLP, 2010 MT 1, ¶ 30, 355 Mont. 1, 223
P.3d 912. “In considering whether a ruling constitutes an abuse of discretion, we
look to the situation that existed at the time the motion was made and the court
ruled; we do not employ hindsight[.]” Masters Group Int’l v. Comerica Bank,
2015 MT 192, ¶40, 380 Mont. 1, 352 P.3d 1101.
“A party may not raise new arguments or change its legal theory on appeal,
because it is fundamentally unfair to fault the trial court for failing to rule on an
issue it was never given the opportunity to consider.” State v. Adgerson, 2003 MT
284, ¶12, 318 Mont. 22, 78 P.3d 850.
“We are mindful that a district court is in the best position to determine the
most fair and efficient procedure for conducting litigation in a class action
11
context.” Blanton v. DPHHS, 2011 MT 110, ¶38, 360 Mont. 396, 255 P.3d 1229.
“The District Court is entrusted with authority to grant relief necessary or proper to
implement a declaratory judgment.” Id., citing § 27-8-313, MCA.
Finally, this Court “will affirm a district court’s decision even if it reaches
the right result for the wrong reason.” Buhmann v. State, 2008 MT 465, ¶91, 348
Mont. 205, 201 P.3d 70.
SUMMARY OF THE ARGUMENT
DOR offers no rational basis for using 1994 sales data to govern case-lot
reimbursements for two decades. Instead, it concedes an equal protection violation
by arguing it was the 1995 Legislature’s intent for DOR to pay either “some or all”
of the discount—demonstrating two classes treated disparately by receiving either
“some” or “all” of their reimbursements.
Laches may bar a procedural constitutional challenge, but never a
substantive one; if it were otherwise, unconstitutional conduct would become
unassailable through passage of time. The District Court did not abuse its
discretion in denying DOR’s motion to amend its answer to raise a statute of
limitations defense made seven days before oral argument and after the completion
of summary judgment briefing wherein DOR raised the unpleaded defense as a
shield to monetary relief.
12
The District Court awarded the correct remedy—the difference between
case-lot discounts made by Storeowners and reimbursements already received
under the WADR statute. While there was no need to resort to a constitutional tort
to award this relief, any error is immaterial. DOR’s claim a constitutional tort case
should have gone through the Tort Claims Act is incorrect—by its very terms that
Act applies to “personal injury or property damage caused by a negligent or
wrongful act or omission committed by any employee of the governmental entity
while acting within the scope of employment,” not a constitutional case involving a
challenge to a 20-year old statute.
Finally, because making the case-lot discounts for DOR was a service
required of Storeowners under their contracts with the State, interest is due on
unpaid amounts per § 17-8-242, MCA.
ARGUMENT
Storeowners will first address why the District Court correctly found the
ongoing use of 1994 sales data to govern contemporary reimbursements
unconstitutional, but why it erred using the unconstitutional statute to decide the
“reasonable expectations” of Storeowners in the Takings claim.
Next, Storeowners will demonstrate why the District Court was correct in
refusing to permit the DOR to amend its Answer to raise a statute of limitations
13
defense and why the equitable doctrine of laches does not preclude or limit this
action.
Finally, Storeowners will address the myriad issues raised by DOR
regarding the District Court’s remedial rulings and explain why requiring DOR to
return the difference between case-lot discounts made and WADR reimbursements
received, plus interest, is the correct result.
I. The District Court Correctly Concluded the Use of 1994 Sales Data to Govern 2014 Reimbursements Was Unconstitutional. However, Having Found the Statute Invalid, the District Court Erred in Relying on it to Set Storeowner Expectations in the Takings Claim.
DOR does not deny the ongoing use of 1994 sales data to govern case-lot
reimbursements resulted in disparate treatment of similarly situated agency
storeowners. When pressed to explain a rational basis for using 20-year-old data
rather than adjusting rates every one or three years as done with the commission
rate, the sales volume discount rate and the post-2016 version of § 16-2-101(4)(a),
MCA, DOR is silent.
Instead, DOR claims it was always the Legislature’s intent to pay “some or
all” of the cost of the discounts. DOR argues the 1995 Legislature meant to treat
agency stores disparately by fully reimbursing and even providing slight
overcompensation (i.e. free money) to a minority of stores who have not grown
sales in 20 years while only paying “some” of the cost of the discounts made at
other stores. The DOR’s evidence of this legislative intent, however, is not found
14
in the legislative history; rather, it is in a DOR “bid package” sent to prospective
storeowners after the 1995 legislative session ended.
At best, DOR’s evidence shows it was always DOR’s intention to profit
through systematic under-reimbursement of Storeowners; this has nothing to do
with the constitutionality of the WADR statute. The District Court correctly found
§ 16-2-101(2)(b)(ii)(B), MCA (1995) unconstitutional under Mont. Const. Art. II,
§§ 4, 17.
However, having invalidated the WADR statute, the District Court erred in
relying on a voided statute to define the property right of Storeowners in their
Takings claim under Mont. Const. Art. II, §29. (Doc. 55, p. 27). The District
Court incorrectly found, “the extent of the Class’ property interest is limited to the
reimbursement amount created in § 16-2-101(2)(b)(ii)(B), MCA.” This Court
should remand the Takings claim for further analysis with instruction that the
Storeowners’ reasonable expectations were to be treated equally and have DOR
pay for the cost of the discounts.
A. The Use of 1994 Sales Data to Govern Storeowner Reimbursements is Wholly Arbitrary and Violates Substantive Due Process. The DOR’s Effort to Redefine Legislative Intent Should Be Rejected.
How DOR reimbursed its agency storeowners for the discounts they were
required to make was arbitrary and irrational and therefore violated the due process
guarantees at Mont. Const. Art. II, § 17.
15
“The theory underlying substantive due process reaffirms the fundamental
concept that the due process clause contains a substantive component that bars
arbitrary governmental actions regardless of the procedures used to implement
them, and serves as a check on oppressive governmental action.” Newville v. Dept.
of Family Services, 267 Mont. 237, 249, 883 P.2d 793 (1994). This Court uses a
two-part test to identify substantive due process violations:
[S]ubstantive due process analysis requires that we decide (1) whether the legislation in question is related to a legitimate governmental concern, and (2) that the means chosen by the Legislature to accomplish its objective are reasonably related to the result sought to be obtained.
Plumb v. Fourth Judicial District, 279 Mont. 363, 927 P.2d 1011.
1. While the Purpose of § 16-2-101(2)(b)(ii)(B), MCA, Related to a Legitimate Governmental Concern, the Statute’s Means Were Irrational.
The Parties agree the WADR statute related to a legitimate governmental
purpose. The District Court found the means of accomplishing its objective was
irrational.
“We have many times stated that statutes must be read and considered in
their entirety and the legislative intent may not be gained from the wording of any
particular section or sentence, but only from a consideration of the whole.” Ellison
v. State, 2013 MT 376, ¶13, 373 Mont. 159, 315 P.3d 950.
16
For four decades, Montana has given discounts on case-lot purchases of
liquor. The objective of the discounts when passed by the 1975 Legislature was to
increase income for the biggest purchasers of liquor (i.e. tavern owners) and for the
cost of the discounts to be borne by the DOR, which benefits from increased sales.
The minutes of the House Business & Labor Committee hearing on March 10,
1975 demonstrate these objectives and lawmakers believed the expected growth in
sales would “somewhat compensate” for cost of the discounts to DOR. (Doc. 25,
Ex. 1, p. 01-017 & 018).
The 1975 statute codified a 5% discount on case-lots sold “shall be made by
the department.” Section 4-2-201, R.C.M.
In 1995, HB574 completed the privatization of agency liquor stores. The
law increased the discount from 5% to 8% and restricted its availability to liquor
licensees. Section 16-2-201, MCA (1995). The mandatory (“shall” became
“must”) obligation to make these discounts remained with DOR. Id. The
legislative history is devoid of intent to transfer the obligation to pay the cost of the
discounts to Storeowners or otherwise transfer the obligation away from DOR.
Mick Robinson, then DOR director, provided the Legislature a handout with a
section entitled, “How do agents get compensated for full case discount sales?”
(Doc. 25, Ex. 2, p. 02-051). In that document, Robinson wrote that if stores
“mak[e] full case sales to licensees in the same proportion that occurred in FY94,
17
the cost of discounts will be a wash.” (Id.). He describes no future profit to the
DOR—calling the discounts as “a wash” because the WADR covered their cost.
He describes no departure from the then-20-year-old precedent of the DOR paying
for the full cost of the discounts.
The plain language of § 16-2-201, MCA, the history of DOR paying for the
discount, the fact DOR director Robinson knew the storeowners needed to be
“compensated” for making the discounts, his description of the discounts as being
“a wash” and the mandate in § 16-1-305, MCA that DOR should pay for “all
expenses, debts and liabilities” arising from the administration of the Alcoholic
Beverage Code led the District Court to correctly determine the “clear intent” of
the statutory scheme was “to reimburse liquor store owners for the statutorily-
required case lot discount.” (Doc. 55 at p.14).
Having made this conclusion, the District Court considered the second prong
of the substantive due process test: whether “the means chosen by the Legislature
to accomplish its objective [was] reasonably related to the result sought to be
obtained.” The District Court correctly found the means chosen to reimburse
agency storeowners for discounts made on DOR’s behalf was irrational. (Id. at pp.
18-19).
The use of 1994 sales data to permanently govern reimbursements for case-
lot discounts is arbitrary. DOR receives actual monthly discount data. Discount
18
rates for Storeowner commissions and sales volume were adjusted annually or
triennially to account for actual market conditions, so it makes no sense to never
adjust the WADR’s basis. The District Court correctly observed the same
irrational outcome reached—undercompensating some stores while fully or even
over-reimbursing others—would occur if reimbursements were arbitrarily based on
any single year’s data. (Doc. 55 at p.16). The system was capricious in paying
some storeowners more in reimbursements than discounts made—if discounted
liquor increases sales, why reward with free money the agency stores that have
failed to grow sales for the principal in 20 years?
The District Court further supported its decision by pointing to case law
where governmental systems were struck down for being based on a outdated data
to set current prices or eligibilities. See, Maine Assoc. of Interdependent
Neighborhoods v. Petit, 659 F.Supp. 1309 (D. Me. 1987) (arbitrary and capricious
to deny Medicaid benefits in 1985 based on asset valuations rooted in a 1973
study); Vaquieria Tres Monjitas, Inc. v. Laboy, 2007 U.S. Dist. LEXIS 98950
(D.P.R. July 13, 2007)(“In the instant case the use of stale figures for establishing
the reasonable operational cost and expenses of the milk processors for 2005,
2006, and 2007 figures for 2003 were used when 2004 figures were available. The
court opines that said regulatory procedure is clearly “arbitrary” within the due
process mandate[.]”).
19
The District Court correctly determined the WADR statute arbitrary and
violated substantive due process guarantees.
2. The DOR’s Efforts to Redefine the Purpose of the Statute Should be Rejected; Even if Correct, the DOR Admits an Equal Protection Violation.
DOR offers no rational reason to use 1994 data to govern ongoing
reimbursements. Rather, it argues it was never the Legislature’s intent that DOR
pay the cost of the 8% case-lot discounts. The DOR is mistaken. Even if it were
not, its admission the Legislature meant to craft a system that underreimbursed
some agency stores while fully reimbursing others concedes the equal protection
violation.
DOR offers reasons this Court should find the Legislature’s intent was to
create this uneven system. “[A] review of the plain language clearly shows the
absence of wording that the liquor stores were to be fully reimbursed for the
unbroken case lot sales.” (DOR Brief at 16). Unaddressed by DOR is § 16-2-201,
MCA (1995), stating “Reduction of 8% of the posted price of liquor sold at the
agency liquor store must be made by the department[.]”
DOR argues the unsuccessful 2007 legislative effort to abandon the use of
1994 sales data proves that it was always the 1995 Legislature’s intent to under-
reimburse some of the DOR’s agency stores. If such were not the case, argues
DOR, then amendment to the law would never have been necessary. DOR’s
20
circular logic, however, is disproven by the 2007 testimony of the bill sponsor,
Rep. Doug Cordier:
The reimbursement by the Department of Revenue to the agency stores for this discount has been based on the last available year’s data which was 1994. Unfortunately, a provision to update any changes in the case sales to taverns since 1994 was overlooked in this legislation. As a consequence, over the last thirteen years a very large disparity has grown between the dollar amount administered by the agency stores to the licensees, and the reimbursement for that revenue from the Department of Revenue back to the agency stores … [HB174] is simply asking the State to reimburse them for the same dollar amount that they have been required to give to the taverns and by law the State has agreed to pay. Transcript, House Business and Labor Committee, 01/18/07 at 3:7-4:7 (Doc. 26, Ex. 4).
Third, DOR points to the Robinson handout to emphasize that when he
described compensation for the case-lot discounts as “a wash,” it was contingent
on stores selling case-lots in the same proportion as made in 1994. At no point did
Robinson describe the discounts as a future profit center for DOR or ask the
Legislature to remove the clear commands in §§ 16-2-201 and 16-1-305, MCA,
requiring his agency to make the discounts and pay for such expenses from DOR’s
liquor profits. The HB574 fiscal note projects no future gains DOR would enjoy
from only partially paying discount reimbursements. (Doc. 25, Ex. 2, p. 02-035,
036).
Fourth, DOR attempts to divine legislative intent not from anything
considered by the Legislature prior to passing HB574, but from a DOR-produced
bid package for agency stores that was sent to prospective bidders after the 1995
21
session. (DOR Brief at 17). The bid package noted the WADR would offset
“some or all of the cost” of making the discounts. All this shows is the DOR—not
the Legislature—knew using 1994 data would lead to underpayment of stores that
grew sales for their principal; and that such underpayment would be profitable to
DOR.
Even if this Court accepts DOR’s proposition the Legislature meant to create
a system that underreimbursed DOR’s agency stores that grew sales while giving
“free money” to a minority of stores that did not grow sales—this admits an equal
protection violation.
3. A Statute’s Validity is Assessed at the Time of Challenge, Not Passage. To Find Otherwise Would Severely Curtail the Power of the Judiciary to Address Current Constitutional Harms.
DOR argues because the WADR’s use of 1994 data to govern
reimbursements for case-lot discounts was rational in 1995, it could not be
unconstitutional in 2014. Restated, DOR claims that if a law was constitutional
when passed, it is constitutional forever.
DOR cites no legal authority for its novel concept, which would bar
substantive constitutional challenges alleging current harms if a rational basis
existed when a statute was passed. Instead, DOR attempts to support its argument
by citing cases where this Court declined to second-guess rational legislative
decisions, even where the Legislature allegedly relied on incomplete or inaccurate
22
facts. E.g., Montana Cannabis Indus. Ass’n v. State, 2016 MT 44, ¶25, 382 Mont.
256, 368 P.3d 1131. These are different concepts entirely.
The District Court properly held, “This Court concludes the proper focus of
rational basis analysis under the Montana Constitution is what the government is
actually doing to its citizens in enforcing a law, not what the legislature did long
ago.” (Doc. 55, p. 13). This ruling follows this Court’s inquiry in Western
Tradition Partnership, Inc. v. Attorney General, 2011 MT 328, ¶37, 363 Mont.
220, 271 P.3d 1. (“The question then, is when in the last 99 years did Montana
lose the power or interest sufficient to support the statute, if it ever did.”).
The District Court’s conclusion also follows U.S. Supreme Court precedent.
In striking down part of the Voting Rights Act of 1965, the Court found a formula
placing states with histories of race-based voter suppression under federal election
supervision was “based on 40-year-old facts having no logical relation to the
present day.” Shelby County v. Holder, 570 U.S. 2, 133 S. Ct. 2612 (2013). The
U.S. Supreme Court had previously upheld the formula’s constitutionality in 1966,
when the facts were fresh. South Carolina v. Katzenbach, 383 U.S. 301 (1966).
The Shelby County Court held that the statute imposed “current burdens and must
be justified by current needs.” Shelby County at 2622.
The concept particularly applies in cases involving economic harms from
stale governmental regulation. A 1906 law requiring utilities to sell gas to New
23
York for 80-cents per 1,000 cubic feet was upheld before being struck down in
1922 as unconstitutionally confiscatory. Newton v. Consolidated Gas Co. of New
York, 258 U.S. 165 (1922). See also, Abie State Bank v. Bryan, 282 U.S. 765
(1931). A New York state court lyrically rejected the argument it must review a
challenged zoning law in light of the circumstances present during enactment
rather than when challenged because such “would shackle this court to chains
which had already rusted and broken apart through the passage of time.” Quaglia
v. Munsey Park, 54 A.D.2d 434 (N.Y. 1976). “The reasonableness of a regulation
asserted to constitute an exercise of the police power is to be determined as of the
time the validity of the regulation is drawn into question.” 16A AmJur.2d
Constitutional Law § 371 (West 2009).
DOR’s argument must be rejected or this Court will severely curtail the
power of the judiciary to address present harms wrought by antiquated laws. Here,
the burdens placed on Storeowners through DOR’s ongoing use of 1994 sales data
could not be justified in 2014, given the availability of current information and
DOR’s ability to adjust other discount rates on an annual or triennial basis.
B. The WADR Statute Violated Equal Protection.
The WADR statute divided agency stores into two groups and treated them
differently by reimbursing for either “some” or “all” of the discounts made on
DOR’s behalf. This violates equal protection. Further, in two prior cases
24
involving DOR, this Court has held it violates equal protection to force some
taxpayers to bear a disproportionate share of the public burden; while not a tax in
the classic sense, the cost of the liquor discounts was disproportionately borne by
Storeowners.
The Montana State Constitution guarantees “[n]o person shall be denied the
equal protection of the laws.” Mont. Const. Art. II, § 4. “Article II, Section 4, of
the Montana Constitution provides even more individual protection that the Equal
Protection Cause in the Fourteenth Amendment of the United States Constitution.”
Snetsinger v. Mont. Univ. Sys., 2004 MT 390, ¶15, 325 Mont. 148, 104 P.3d 445.
“Equal protection of the laws requires that all persons be treated alike under like
circumstances.” Timm v. Montana DPHHS, 2008 MT 126, ¶34, 343 Mont. 11, 184
P.3d 994. “A party claiming violation of the right to equal protection must first
demonstrate that the law at issue discriminates by impermissibly classifying
individuals and treating them differently based on that classification. Once the
classification has been identified and it has been established that members of the
different classes are similarly situated, we determine the appropriate level of
scrutiny to apply.” State v. Ellis, 2007 MT 210, ¶20, 339 Mont. 14, 167 P.3d 896.
Here, the District Court applied rational basis scrutiny. (Doc. 55, p.21).
The District Court found all agency liquor stores are similarly situated.
(Doc. 55, p. 24). All agency storeowners operate under a contract with DOR and
25
under the Alcoholic Beverage Code rules. All are required by DOR to sell case-
lots of liquor at discount to tavern owners. All are reimbursed based on what their
store made in case-lot discounts in 1994. “The goal of identifying a similarly
situated class is to isolate the factor allegedly subject to impermissible
discrimination[.]” Goble v. Montana State Fund, 2014 MT 99, ¶29, 374 Mont.
453, 325 P.3d 1211. In Goble, the factor was the incarcerated status of workers’
compensation recipients. Id. at ¶¶29, 34. Here, it was the State’s use of 1994 sales
data to govern reimbursements.
As with the substantive due process challenge, the District Court correctly
found no rational basis to continue using 1994 data to govern reimbursements in
2014 because it bears no reasonable relationship to discounts being made. It is
especially irrational given DOR’s access to current discount data, the fact the use
of 20-year-old data leads to a minority of stores receiving more money in
reimbursements than they make in discounts and DOR adjusts the commission and
sales volume discounts triennially and annually.
This Court has twice held DOR’s “indiscriminate use of an across-the-
board” factor resulting in some people bearing a disproportionate economic burden
violates equal protection. DOR v. Baron, 245 Mont. 100, 799 P.2d 533 (1990),
DOR v. Sheehy, 262 Mont. 104, 862 P.2d 1181 (1993). These cases involved
DOR’s efforts to equalize property tax burdens by applying an equalization factor
26
to all properties in an area. This resulted in wild swings in valuation that ignored
other factors affecting the market value of each property. The Baron Court held
that DOR’s equalization practice “require[s] certain taxpayers … to bear a
disproportionate share of Montana’s tax burden in violation of the Equal Protection
requirements[.]” Baron at 111.
Here, the Legislature’s decision to give tavern owners an 8% discount on
certain liquor purchases unequally burdened DOR’s agency stores by fully
reimbursing some for the cost of discounts made while requiring other stores to
absorb thousands of dollars in costs related to a public policy decision. As with
DOR’s indiscriminate equalization factors, the indiscriminate use of 1994 sales
data in the WADR statute resulted in unequal burdens and violated equal
protection.
C. The District Court Erred in Using the WADR Statute to Set the Reasonable Expectation of Storeowners in the Takings Claim.
Having concluded the WADR statute violates Mont. Const. Art. II, §§4, 17,
the District Court turned to the Storeowners Takings challenge under Art. II, § 29.
On cross-appeal, Storeowners believe the District Court erred in using the invalid
WADR statute to determine the reasonable expectations of the Storeowners:
The Class has a vested property interest in 2014 for reimbursement of the case lot discount using the statutorily-mandated 1994 sales calculation. The Class does not, however, have a vested property interest in 2014 for reimbursement of the case lot discount using 2013 sales, because that is not provided by statute. (Doc. 55, p. 27).
27
“The general rule is that an unconstitutional statute, though having the form and
name of law, is in reality no law, but is wholly void, and in legal contemplation is
as inoperative as if it had never been passed. Such a statute leaves the question
that it purports to settle just as it would be had the statute not been enacted.” State
ex rel. Woodahl v. Second Judicial District Court, 162 Mont. 283, 511 P.2d 318
(1973), citing 11 Am.Jur., Constitutional Law 827 § 148.
Here, the District Court erred in using an invalid statute to set the reasonable
expectation of Storeowners rather than § 16-2-201, MCA, which requires DOR to
make the discounts. The reason this matters is because Storeowners have an
additional constitutional remedy under Art. II, § 29 unavailable under the equal
protection and substantive due process challenges: the payment of “necessary
expenses of litigation.”
If this Court affirms § 16-2-101(2)(b)(ii)(B), MCA, is unconstitutional, it
should remand to the District Court to continue its Takings analysis without using
the invalid statute as a basis to decide the Storeowners’ reasonable expectations.
II. DOR’s Statute of Limitations and Laches Defenses Do Not Affect the Outcome of this Case.
The District Court correctly rejected DOR’s attempt to raise a new
affirmative defense seven days before oral argument on the dispositive motions.
Laches does not bar Storeowners’ substantive constitutional challenge.
28
A. The District Court Properly Denied DOR’s Motion to Amend Because DOR Raised the Statute of Limitations Defense as a Shield in Briefing and Sought Amendment Seven Days Before Oral Argument and After Briefing Had Been Completed.
The District Court did not abuse its discretion in denying DOR’s effort to
amend its Answer to plead a statute of limitations defense. DOR’s motion was
made after the Parties had completed dispositive summary judgment briefing in
which DOR improperly sought to bar monetary relief based on an affirmative
defense it did not plead. DOR’s motion to amend was made after its failure to
plead was pointed out by Storeowners and seven days before oral arguments on the
dispositive motions. Contrary to DOR’s arguments, the second phase was needed
to determine the difference in case-lot discounts made and WADR reimbursements
received; it was needed to decide the scope of the remedy, not whether a remedy
itself was available. When considered in light of the “situation that existed at the
time the motion was made” the District Court did not abuse its discretion.
Pursuant to the scheduling order (Doc. 12) and minute entry (Doc. 19),
Storeowners filed their summary judgment motions on Oct. 15, 2014. (Doc. 24).
Storeowners asked the District Court to declare the WADR statute unconstitutional
and “[o]rder the State of Montana to begin the process of calculating all sums
wrongfully withheld as a result of the unconstitutional system.” (Id., p.2).
DOR responded Dec. 9, 2014. (Doc. 34). DOR raised in detail a statute of
limitations defense. (Id. pp. 36-44). DOR argued that all claims for monetary
29
relief were time-barred because “[t]he statute of limitations for each of Plaintiffs’
claims began to run as of 1995, the year in which the legislature enacted §§ 16-2-
201 and 16-2-101(2)(b)(ii)(B), MCA.” (Id. at 36). DOR argued several reasons
any tolling of the statute of limitations could not occur. (Id. at 37, 40).
Despite DOR’s argument, it failed to raise the statute of limitations in its
Answer as mandated by M.R.Civ.P. 8(c). (Doc. 3). In Storeowners’ reply, they
responded to the statute of limitations defense, including DOR’s failure to plead it.
(Doc. 36 at 41-50). Thirteen days later, DOR moved the court for leave to
amend—seven days before oral arguments that took place Jan. 20, 2015. (Doc.
40).
The District Court specifically found “[t]he State asserts statute of
limitations as a defense to the Class’ constitutional claims” in the dispositive
summary judgment briefing. (Doc. 55 at 29).
DOR insists “bifurcation” of liability and damages means it should have
been allowed to amend its pleadings. However, DOR had already raised this
defense in its briefing; the remedial phase was primarily to determine a factual
issue—the difference between case-lot discounts made by Storeowners and
amounts already paid under the WADR. As the Parties agreed in the Pre-Trial
Order, “[t]his trial is necessary to determine as a factual matter the difference
between the case-lot discounts provided by the liquor stores in the Class and the
30
amounts already received by those stores under the WADR, as well as the amount
of interest owed on the damages.” (Doc. 115, p.4, ¶19).
“A statute of limitations defense is an affirmative defense that is waived if it
is not raised in the answer to a claim.” Marias Healthcare Svcs. v. Turenne, 2001
MT 127, ¶9, 305 Mont. 419, 28 P.3d 491, citing M.R.Civ.P. 8(c)(1). A decision to
deny a M.R.Civ.P. 15 motion to amend is within a district court’s discretion.
Bardsley v. Pluger, 2015 MT 301, ¶20, 381 Mont. 284, 358 P.3d 907. A trial court
is justified in denying a motion to amend if granting the motion would cause
“undue prejudice to the opposing party.” Id. “In determining whether an
amendment would cause undue prejudice, a court must balance the prejudice
suffered by the opposing party ‘against the sufficiency of the moving party’s
justification of the delay.’” Id. “[L]itigants should be allowed to change legal
theories after a motion for summary judgment has been filed only in extraordinary
circumstances.” Id. In Bardsley, the plaintiff failed to offer “any reasonable
justification for the delay” and could not amend. Finally, in evaluating whether a
District Court abused its discretion, this Court will look to the circumstances in
place when the motion was made and not “employ hindsight[.]” Masters Group
¶40.
The District Court denied DOR’s motion to amend based on cases where
untimely amendment was refused. (Doc. 55 at 29-31). Meadow Lake Est.
31
Homeowners Ass’n v. Shoemaker, 2008 MT 41, ¶¶29-30, 341 Mont. 345, 178 P.3d
81. DOR unconvincingly attempts to distinguish Shoemaker by claiming DOR’s
motion to amend was unrelated to the dispositive briefing it had timely filed.
In Bardsley, this Court held, “We recognized in Peuse that a party’s
prolonged delay in adopting a new legal theory is prejudicial to the opposing party,
particularly when a party waits until after the opposing party files a motion for
summary judgment.” Bardsley at ¶21, citing Peuse v. Malkuch, 275 Mont. 221,
911 P.2d 1153 (1996).
DOR offered no explanation for its delay in raising the defense. In its
Answer it pleaded a laches defense, so clearly DOR was on notice that the passage
of time was a potential issue. Further, it is inherently prejudicial to an opposing
party to expect their counsel to point out the pleading failures of the adverse
party’s case, only to let the adverse party amend. Accordingly, the District Court
did not abuse its discretion because it did not act “arbitrarily without conscientious
judgment.” Wagner v. Woodward, 2012 MT 19, ¶18, 363 Mont. 403, 270 P.3d 21.
Should this Court disagree, it must determine which statute of limitations
applies and run such from the date this action was filed. DOR claimed in its
briefing before the District Court that a two-year statute applies because its
obligation to repay storeowners was a liability arising from a statute. Section 27-2-
211(1), MCA. This is incorrect because the statute does not create a new right of
32
action unknown at common law. Filip v. Jordan, 2008 MT 234, ¶11, 344 Mont.
402, 188 P.3d 1039. Rather, government has always had the obligation to restore
unconstitutionally exacted funds.
The proper statute is the five-year statute at § 27-2-231, MCA, which this
Court applied in Blanton at ¶33. Blanton was a class action alleging DPHHS
improperly subrogated against Medicaid recipients’ tort recoveries. As here,
plaintiffs sought declaratory and injunctive relief in the form of a determination the
liens violated federal statutory and Montana constitutional law and reimbursement
of improperly collected sums. Id. at ¶8. As here, “numerous statutes of limitation
conceivably apply to aspects of the relief sought by the plaintiffs.” Id. at ¶33.
Because “the substance of plaintiffs’ claim is not squarely addressed by any of
these statutes,” the Blanton Court applied the five-year statute at § 27-2-231,
MCA. Id.
B. Laches Does Not Bar a Substantive Constitutional Challenge. Laches Does Not Reduce Storeowners’ Recovery Because DOR is not Prejudiced by Repaying Money it Could Not Constitutionally Take.
Laches can preclude a procedural challenge to a statute’s enactment, but
never precludes a substantive constitutional challenge. Were it otherwise,
unconstitutional laws could never be challenged had sufficient time passed.
In Cole, this Court distinguished the application of laches to procedural and
substantive constitutional challenges and limited the equitable doctrine’s
33
application to only procedural challenges. Cole v. State ex rel. Brown, 2002 MT
32, ¶¶31, 42, 308 Mont. 265, 42 F.3d 760. Cole challenged the process by which
CI-64 enacted term-limits on certain Montana politicians. Cole did not challenge
the constitutionality of term-limits themselves. This case does not involve a
procedural challenge to the manner by which the WADR statute was passed.
Next, laches does not affect the remedy because (1) the only “prejudice” the
passage of time allegedly wrought was the requirement DOR restore
unconstitutionally exacted money to Storeowners; and (2) DOR lacks clean hands.
First, the mere lapse of time does not constitute laches. The passage of time
must prejudice the adverse party sufficiently to render enforcement of a claim
inequitable. Hunter v. Rosebud County, 240 Mont. 194, 199, 483 P.2d 927 (1989).
Storeowners concede they did not file suit until 2014. However, the only
“prejudice” DOR alleges is the judgment requiring it to pay the yet-unreimbursed
portion of discounts made on its behalf, plus interest required by statute.
It is the unconstitutional WADR statute and Montana law that requires
payment, not the passage of time. Implicit in DOR’s argument is that the size of
the judgment is prejudicial. Storeowners ask at what point the return of funds
taken under an unconstitutional scheme becomes prejudicial rather than a self-
evident remedy? Would laches be raised if only $1,000 were owed? $100,000?
34
When does the DOR—which earned $37.9 million selling liquor in FY15 alone—
become prejudiced by having to return profits it should not have made?
Next, DOR discreditably claims “only the stores’ own records reveal any
disparity between offset from WADR and mandatory case lot discounts.” The
DOR admitted in it knew since 1998 that Storeowners were being
undercompensated. (Tr. Trans. 264:13-265:8). Testifying before the 2007
Legislature, DOR estimated it would cost $854,000 a year to pay for the actual
costs of the discounts rather than just paying the WADR amount. (Tr. Trans.
293:2-17). The records used to calculate Storeowners’ loss are public records
maintained by the DOR—the only reason Storeowners were asked to produce their
duplicate copies of DOR “RLD” reports was because DOR lost and mishandled so
much data the head of its Liquor Control Division called it “a sad sight.” (Tr.
Trans. 284:18-21). This case was proven with public records, primarily those
produced by DOR itself.
Second, “one who seeks equity must do equity.” Schindler v. USAA, 2011
MT 129, ¶24, 254 P.3d 583. See, also, § 1-3-208, MCA. The District Court
correctly found, “[t]he State’s hands are hardly pristine.” (Doc. 55, p. 29). An
agency of the State may not violate Storeowners’ constitutional rights and then
raise an equitable defense predicated on a lack of wrongdoing.
35
III. The District Court Provided Storeowners the Appropriate Remedy, Even if Its Use of a ‘Constitutional Tort’ was Unnecessary. DOR’s Myriad Complaints Regarding the Remedy are Unfounded.
“[I]t is a vain thing to imagine a right without a remedy, for want of right and want of remedy are reciprocal.” Herbert Broom & Robert Henry Kerley, A Selection of Legal Maxims (10th ed. 1969), defining the maxim ubi jus ibi remedium.
DOR spends the remainder of its brief arguing it should be permitted to
retain the money it exacted from Storeowners under the unconstitutional system; in
so doing, DOR claims exemption from basic standards of honest conduct because
it was merely enforcing the law. This is not a defense, nor should it be. Such a
result would encourage the passage of profitable, but unconstitutional, legislation
because even when struck down government gets to keep the money. Everyone,
including government, has an obligation to return wrongfully retained sums.
Storeowners will first establish DOR’s obligation to restore to its agency
stores the yet-unreimbursed portions of case-lot discounts made on DOR’s behalf.
The District Court’s use of a ‘constitutional tort’ theory was unnecessary and
complicated the remedial phase of this action; however, this Court will “will affirm
a district court’s decision even if it reaches the right result for the wrong reason.”
Buhmann ¶91.
This section will address the remedy sought, obtained and available as well
as the DOR’s defenses.
36
A. Government Has ‘Not a Particle of Right’ to Retain Funds Exacted through Unconstitutional Means.
A government’s obligation to return improperly exacted money, whether
taxes, fines, fees or otherwise is well-established. Restatement (Third) of
Restitution § 19 recognizes that restitution should be made for every form of illegal
or unconstitutional governmental exaction:
§ 19. Recovery of Tax Payments. (1) Except to the extent that a different rule is imposed by
statute, the payment of tax by mistake, or the payment of a tax that is erroneously or illegally assessed or collected, gives the taxpayer a claim in restitution against the taxing authority as necessary to prevent unjust enrichment. “Tax” within the meaning of this section includes every form of imposition or assessment collected under color of public authority.
(2) If restitution pursuant to subsection (1) would disrupt orderly fiscal administration or result in severe public hardship, the court may on that account limit the relief to which the taxpayer would otherwise be entitled.
(Emphasis added).
The U.S. Supreme Court held the Due Process Clause of U.S. Const. Amd. XIV
requires “meaningful backward looking relief” and that government acting outside
the constitution cannot simply retain improperly exacted funds. McKesson Corp.
v. Division of Alcoholic Beverages & Tobacco, 496 U.S. 18, 32 (1990). See, also,
Montana National Bank of Billings v. Yellowstone County, 276 U.S. 499 (1928).
In Montana National Bank, this Court permitted taxation of federally
incorporated banks but not banks incorporated under state law. A group of
37
shareholders in a federally incorporated bank sued and this Court reversed itself,
agreeing equal taxation was required. However, this Court also ruled the money
collected under the unconstitutional system did not have to be returned. The U.S.
Supreme Court “noted, however, that prospective relief alone ‘did not cure the
mischief which had been done under the earlier construction.’ We held that the
Montana National Bank of Billings ‘could not be deprived of its legal right to
recover the amount of the tax unlawfully exacted of it by the later [Montana
Supreme Court] decision which, while repudiating the construction under which
the unlawful exaction was made, left the monies thus exacted in the public
treasury,’ and therefore the bank enjoyed ‘an undoubted right to recover’ the
moneys it had paid.” McKesson at 34-35, explaining Montana National Bank.
See, also, Dep’t of Revenue v. Kuhnlein, 646 So.2d 717 (Fla. 1994)(State required
to make immediate $118 million refund of unconstitutionally collected ‘Yankee
Tax’ on out-of-state cars brought to Florida); Betz v. City of New York, 119 App.
Div. 91, 92 (N.Y. 1907)(City efforts to keep amount wrongfully collected “is
wholly unjustifiable from any moral standpoint. An individual who should try to
do the like would be deemed a dishonest man”).
As the Restatement’s broad definition of ‘tax’ clearly shows, the obligation
to restore wrongfully retained monies is not limited to direct exactions using taxing
power, but includes all forms of exactions, including wrongfully collected fees and
38
fines. See, e.g., In re New Jersey State Board of Dentistry, 84 N.J. 582, 587, 423
A.2d 640, 643 (1980)(where increase in dentist license fees invalid, the collecting
entity “has not a particle of right to the money in question, which is due to the
taxpayer according to the principles of common honesty” [citations and internal
citations omitted]); State v. McCurley, 412 So.2d 1236 (Ala. 1982)(collecting cases
holding that when criminal conviction overturned, “fairness and equity compel” a
return of fines paid).
Montana has a statute requiring the restoration of things “wrongfully
acquired or retained.” Section 27-1-713, MCA. It does not exempt the
government from this universal requirement.
This situation is controlled both by ‘principles of common honesty’ and
Restatement (Third) of Restitution § 19. DOR must pay Storeowners for the
unreimbursed portion of discounts made. This will do two things: first, it ensures
all agency storeowners are treated equally by fully reimbursing them all for the
cost of discounts made on DOR’s behalf; second, it restores to Storeowners funds
that should never have been retained by DOR.
B. The District Court Provided the Correct Remedy, But Unnecessarily Created of a Constitutional Tort. DOR’s Consequent Reliance on the Administrative-Presentment Provisions of the State Tort Claims Act Is Misplaced.
While the District Court correctly concluded Storeowners’ were entitled to
the difference in discounts made and reimbursements received under the WADR, it
39
did not need to recognize a new constitutional tort because the District Court
recognized DOR was unjustly enriched through its use of the 1994 data to govern
case-lot reimbursements. (Doc. 177, pp. 17-19). The presence of such remedy
precludes the recognition of a new constitutional claim.
DOR embraced the ‘constitutional tort’ reasoning and claims Storeowners
are foreclosed all relief because this case is now controlled by the state Tort Claims
Act, which requires the pre-suit administrative presentment of claims. DOR’s
argument is based on the presence of the word ‘tort’ in ‘constitutional tort’ and
‘tort claims act.’ It ignores the statute’s plain language, which limits its application
to personal injury and property damage claims arising from the negligence or
wrongful acts of a state employee acting in the course and scope of their work.
1. Recognition of a Constitutional Tort Was Unnecessary.
The District Court ignored the broad definition of ‘tax’ in Restatement
(Third) of Restitution § 19 and held it could not form the basis of recovery of
unpaid sums. (Doc. 178, p. 6). Instead, the District Court found that absent a
statutory basis for recovery when a law is struck down as unconstitutional, a
District Court cannot award money damages. (Id.). Without a refund statute to
serve as a predicate for an award of such damages, the District Court found them
unavailable for constitutional violations, necessitating recognition of a constitution
tort under Dorwart v. Caraway, 2002 MT 240, 312 Mont. 1, 58 P.3d 128. (Id.).
40
The District Court distinguished this case from actions against the State seeking
the return of wrongfully withheld funds, such as Blanton and Diaz, by noting those
cases arose under statutory rather than constitutional violations. (Doc. 178, p. 5).
Diaz v. State of Montana, 2013 MT 219, 371 Mont. 214, 308 P.3d 38.
The District Court erred in conflating money damages, which are a legal
remedy, with the equitable relief Storeowners sought and which was sought in
Diaz and Blanton. See, e.g., Great-West Annuity Co. v. Knudson, 534 U.S. 204
(2002)(restitution is equitable relief while money damages are “the classic form of
legal relief”). Blivens and its state equivalents such as Dorwart address situations
where a claim for money damages (legal relief) is recognized because no other
adequate remedy exists for the harm. If an unconstitutional search by police
resulted only in the illegal confiscation of the victim’s cash-filled wallet, it is not a
constitutional tort because a remedy already exists: the police must return the
unconstitutionally taken money.
The Restatement on which Storeowners rely says that restitution is required
to prevent unjust enrichment—something the District Court correctly found.
Further, even if the District Court is correct and a statutory basis for monetary
relief is required, Montana law provides a process by which the State will return
money it cannot legally retain at § 17-8-101(4), MCA. The District Court’s effort
to distinguish this case from Blanton and Diaz creates the illogical dynamic
41
whereby relief may be had if the state profits from violation of a statute, but not
when it profits from violating the constitution.
In recognizing a constitutional tort, the District Court failed to appreciate the
equitable remedy sought by Storeowners (calculation and return of wrongfully
withheld monies) is available here, as expressed in the Restitution and its own
conclusion DOR was unjustly enriched. Because another adequate remedy exists,
there was no need for a constitutional tort. Sunburst School Dist. No. 2 v. Texaco,
Inc., 2007 MT 183, ¶64, 338 Mont. 259, 165 P.3d 1079.
A “District Court is entrusted with authority to grant relief necessary or
proper to implement a declaratory judgment.” Blanton ¶38; § 27-8-313, MCA.
The District Court’s error, however, is immaterial as it correctly granted
Storeowners the relief sought and doing so was well within its power.
2. Even if Recognition of a Constitutional Tort Was Needed, DOR’s Effort to Raise the State Tort Claims Act Must Fail.
DOR argues that because the word ‘tort’ appears in ‘constitutional tort,’
Storeowners’ should be denied a remedy because they did not present a pre-suit
claim under the Tort Claims Act. Section 2-9-301, MCA.
However, only “claims” need be presented and the term “claim” is defined at
§ 2-9-101(1), MCA:
“Claim” means any claim against a governmental entity, for money damages only, that any person is legally entitled to recover as damages because of personal injury or property damage caused by a
42
negligent or wrongful act or omission committed by any employee of the governmental entity while acting within the scope of employment, under circumstances where the governmental entity, if a private person, would be liable to the claimant for the damages under the laws of the state.
This Court has interpreted this language according to its plain meaning. Delaney
& Co. v. City of Bozeman, 2009 MT 441, ¶¶22-25, 354 Mont. 181, 222 P.3d 618.
In Delaney, Bozeman was not protected by the $750,000 damages cap where the
city tortuously interfered with a developer’s ability to acquire and develop a parcel
of real property because there was neither personal injury nor property damage
and, thus, no “claim.” Id.
Here, Storeowners do not claim personal injury or property damage. Rather,
Storeowners alleged a constitutional challenge to the WADR statute itself.
DOR erroneously relies on what it admits is dicta in Reier Broadcastng Co.
v. Montana State University, 2005 MT 240, 328 Mont. 471, 121 P.3d 549; (Trans.
of Appeal, Vol. I at 40:13). Reier wanted exclusive broadcasting rights to Bobcat
games but did not get the contract. It sued under several theories that the court
dismissed as a “thinly veiled attempt to avoid § 18-4-242(7), MCA,” (providing
“exclusive remedies for unlawful solicitation or award” of government contracts).
Reier was denied leave to amend to include a claim for “negligence” in connection
with its alleged due process rights. Leave was denied for failing to comply with
the tort claims act and Reier did not appeal that denial. This Court recounted the
43
procedural history in ¶5 and wrote in ¶13, “Reier does not appeal from that
determination, thereby conceding that those potential remedies became unavailable
by virtue of its own inaction.” Id. This Court ultimately concluded that based on
“the somewhat unique procedural facts of this case, we cannot conclude that the
District Court abused its discretion in denying Reier’s second motion to
amend[.]”). Id. at ¶15. The Reier Court never considered the issue DOR now
raises.
The District Court reviewed the briefing in Reier and found multiple efforts
to amend the complaint and only Reier’s effort to add a tortious interference with a
contract claim implicated the Tort Claims Act. (Doc. 178, pp. 8-9; Trans. of
Appeal, Vol. I: 36:4-39:6). The constitutional due process claim did not. (Id.).
Absent personal injury or property damage, a constitutional tort does not
require administrative presentation of a claim under § 2-9-301, MCA.
3. DOR Failed to Raise § 2-9-103(1), MCA, Prior To Appeal; The Defense is Waived. It is Inapplicable in Any Event.
On appeal, DOR raises a new defense under § 2-9-103(1), MCA. This
argument was never presented to the District Court and should not be considered
for the first time on appeal.
Further, while clearly an effort at avoidance, the statutory defense was not
raised as an affirmative defense in DOR’s Answer as M.R.Civ.P. 8(c) requires, nor
did DOR seek leave to amend to include this defense before noticing appeal.
44
More broadly, the statute purports to offer civil immunity to government
employees who in good faith act under authority of a law later declared invalid. If
such occurs, neither the well-meaning employee nor the government entity is
liable. Section 2-9-103(1), MCA. The plain language shows the statute applies
only when an employee or agent has acted under an invalidated law. The statute
purports to preclude an individual claim against a governmental employee doing
her job or a respondeat superior claim against a governmental employer. It does
not provide blanket civil immunity to government’s enforcement of invalid laws.
To do so would invalidate the protections of the constitution itself, the guarantee of
a remedy for every wrong and the U.S. Supreme Court’s mandate that due process
requires “meaningful backward looking relief” when funds are unconstitutionally
exacted. McKesson at 32.
Finally, DOR did not always act in good faith—it used the WADR even
after the District Court declared it unconstitutional.
C. The District Court Correctly Found Unjustly Enrichment.
The District Court correctly held DOR was unjustly enriched. (Doc. 177,
pp. 17-19). This finding supports the equitable relief Storeowners sought and
applying Restatement (Third) of Restitution §19.
DOR argues the agency franchise agreement with Storeowners precludes an
unjust enrichment claim.
45
The District Court correctly concluded that the mere existence of a contract
between two parties does not preclude an unjust enrichment claim when the
contract merely mirrors a statutory provision held unconstitutional. (Doc. 106, p.
6; Doc. 177, p.18, ¶34). A unlawful contract provision is void. Section 28-2-604,
MCA. “Judicial statements to the effect that ‘there can be no unjust enrichment in
contract cases’ can be misleading if taken casually. Restitution claims of great
practical significant arise in a contractual context, but they occur at the margins,
when a valuable performance has been rendered under a contract that is invalid, or
subject to avoidance, or otherwise ineffective to regulate the parties’ obligations.”
Restatement (Third) of Restitution § 2, cmt. c. Here, if the WADR is invalid, DOR
cannot contract to use an unconstitutional statute to govern its relationship with
agency stores.
The elements of unjust enrichment require (1) a benefit conferred upon DOR
by another; (2) an appreciation of the knowledge of the benefit by the DOR; (3)
that the acceptance or retention of the benefit under such circumstances it is
inequitable for DOR to retain the benefit without repayment and (4) some element
of fault or misconduct by the State. (Doc. 177, pp. 17-18), citing N. Cheyenne
Tribe v. Roman Catholic Church, 2013 MT 24, ¶39, 368 Mont. 330, 296 P.3d 450;
Welu v. Twin Hearts, 2016 MT 347, ¶43, 386 Mont. 98, 386 P.3d 937.
46
The benefit conferred on the DOR is its retention of the difference between
case-lot discounts and WADR reimbursements. (Doc. 177, p. 18). DOR’s
argument that it could not have received a benefit because it was simply enforcing
the statute is irrelevant and circular.
Second, the DOR knew it was treating agency stores disparately as early as
1998 and by 2007 told the Legislature it would cost $854,000 a year to pay the cost
of discounts. (Tr. Trans. 264:10-24; 293:2-17). The DOR told storeowners it
would oppose efforts to treat its agency stores equally because such would not be
“revenue neutral.” DOR appreciated the benefit it was receiving.
Third, the District Court found it inequitable for DOR to retain funds it
obtained through a means determined to violate the Montana Constitution. (Id.).
The Constitution requires equal treatment and a rational basis for laws.
Finally, the fault or misconduct by the State was the enactment and
administration of an unconstitutional scheme and DOR resisting efforts to repair it
in 2004 and 2007. (Id. at p.19), citing Owen v. Skramovsky, 2013 MT 348, ¶¶26-
28, 372 Mont. 531, 313 P.3d 205 (underpayments below fair value sufficient for
finding of ‘wrongful act’ prong of unjust enrichment). DOR’s argument it had no
choice but to administer the laws as passed by the Legislature would excuse all
unconstitutional conduct and remove any meaningful remedy.
47
D. The District Court Properly Calculated the Pre-2006 Loss.
DOR next argues the District Court erred in determining the pre-2006 loss to
Storeowners. DOR’s loss of all data prior to March 2006 required counsel to
solicit from Storeowners any pre-2006 RLD forms they retained. Both Parties
employed expert statisticians.
Storeowners retained Jonathan Graham, Ph.D., a UM Professor of Statistics
in Missoula and DOR retained James McClave, Ph.D., a professional expert
witness and CEO of a professional consulting firm in Gainesville, Florida.
Dr. Graham developed an estimation model to assist the parties and the
district court in determining estimates of the lost data. He used a recognized
estimation model in statistics to estimate lost data points for 1995-2005.
Dr. Graham used 1994 as one anchor point because WADR data was
available for all stores that year. Dr. Graham also used the data from the stores and
the DOR from 2006 to present. The anchor points revealed a general upward trend.
The District Court properly concluded that Dr. Graham’s methodology and his
predictions captured this general upward trend and that his testimony was
admissible, credible and persuasive. (Doc. 132, pp 5-6).
DOR’s expert “did not create a damage statistical model”. (Id. p.6). At trial,
Dr. McClave testified he did not estimate pre-2006 losses because DOR did not
ask him to do so. (Tr. Trans. p. 366:9-12).
48
“[I]f weaker and less satisfactory evidence is offered and it appears it is
within the power of the party to offer stronger and more satisfactory evidence, the
evidence offered should be viewed with mistrust”. Section 26-1-303(5), MCA.
Here, the DOR elected not to provide any assistance to the district court or
Storeowners by offering independent estimates for pre-2006. Instead, DOR’s
expert testified that Dr. Graham’s confidence intervals in his computation were
wrong and therefore untrustworthy. No matter the confidence interval, the data
points remain the same under the model. (Doc. 132, pp. 5-6).
Based on the evidence, the District Court fairly concluded that while not
perfect, Dr. Graham’s estimates “are accurate enough to be given weight under the
preponderance of the evidence standard,” especially absent any numbers from
DOR. (Id.). This is not an abuse of discretion, it is the post-trial quibble of a party
whose tactical decision to not offer competing evidence and instead attack an
opposing expert failed.
E. Interest Was Properly Awarded Under Section 17-8-242, MCA.
Making case-lot discounts on DOR’s behalf was not a voluntary action for
Storeowners. The Agency Franchise Agreement contractually requires stores to
make discounts on case-lots of liquor sold. (Doc. 38, Ex. 1, p.5). The contract
requires Storeowners to provide at their own expense “all facilities, inventory,
49
equipment, supplies, services and employees necessary to carry out the duties and
responsibilities of operating the agency liquor store.” (Id. at p.4).
Montana law requires state agencies pay interest when they fail to make
timely payment for “services received[.]” Section 17-8-242(1), MCA. “Services”
is defined to mean, “the furnishing of labor, time, or effort … contracted for by the
state or any agency thereof.” Section 17-8-241(1), MCA.
Here, DOR contracted to have its agency stores provide the facilities,
inventory, services and employees necessary to provide tavern owners the statutory
discount. Giving the discounts is a “service.” Serving as a sales agent is a
‘service.’ 3 AmJur.2d Agency § 38. DOR contracted for this service but
unconstitutionally withheld full payment using the WADR statute.
DOR argued the “good faith” exception from § 17-8-244(2), MCA, applied.
That provision reduces interest owed under the statute from 0.05% per day to 10%
per annum by reference to § 18-1-404, MCA. The District Court agreed the good
faith exception applied and awarded 10% interest. (Doc. 177, pp. 21-22).
DOR argues that the reference to § 18-1-404, MCA in § 17-8-244(2) means
the Legislature intended interest would only be awarded in breach of contract
cases. However, § 18-1-404, MCA, stands alone and there is no need to reference
it in § 17-8-244(2), MCA except to reduce the interest on payments for “services”
that state agencies have contracted for but have not timely paid in cases involving a
50
good faith dispute. If the Legislature intended to entirely eliminate the application
of § 17-8-242(1), MCA, whenever there was a good faith dispute, it would have
put a period after the first clause of the sentence in § 17-8-244(2). The purpose of
§ 17-8-244(2), MCA, is to reduce what would otherwise be 18.25% interest
(0.05% per day) to 10% interest where a good faith dispute exists.
The Court also determined that DOR was unjustly enriched by its long
practice of undercompensating Storeowners and retaining the funds and owed
interest. The retention of Storeowners’ underreimbursed amounts is unjust
enrichment. “A court sitting in equity is empowered to fashion just results.”
Kauffman-Harmon v. Kauffman, 2001 MT 238, ¶11, 307 Mont. 45, 36 P.3d 408.
The District Court did so here and properly awarded 10% interest.
F. If Monetary Relief is Unavailable, the Private Attorney General Doctrine Applies.
DOR’s final issue need not be addressed unless this Court holds monetary
relief unavailable to Storeowners. The District Court ruled the availability of
monetary relief made application of the private attorney general doctrine
unnecessary, citing Sunburst, ¶91. (Doc. 177, p.10, ¶11).
DOR agues the doctrine is inapplicable. DOR’s sole argument is the third
prong of the test governing the private attorney general doctrine (considering the
number of persons who stand to benefit) cannot be satisfied because “[o]nly a few
liquor store owners benefit from this litigation.” (DOR Brief at p. 50). DOR
51
focuses exclusively on who received monetary relief under the District Court’s
orders. Losing such monetary relief, however, is concededly a prerequisite for
application of the private attorney general doctrine.
Instead, the District Court properly based its decision on the constitutional
issue that stands to affect everyone: whether the State can continue enforcing a law
long after its rational basis has passed? “This holding is important to all
Montanans, as it clarifies that the broad range of protections afforded by the
Montana State Constitution Declaration of Rights encompass current burdens
placed upon them by old laws.” (Doc. 177, p. 10, ¶9).
In its appellate brief, DOR refers to the District Court halting its
contemporary enforcement of a long-stale law as “suspect constitutional doctrine”
and argues government can keep enforcing any law if valid when passed. (DOR
Brief at 23). DOR seeks to establish the ability of government to continue the
enforcement of stale laws regardless of present constitutional harms caused by
such enforcement. All Montanans benefit by establishing government may not do
so. The District Court’s decision regarding the private attorney general doctrine
was correct.
CONCLUSION
DOR’s use of 1994 sales data to govern reimbursements for contemporary
case-lot discounts was very profitable, and very wrong. When legislative efforts to
