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State of Ohio v. Great Lakes Minerals, LLC

Supreme Court of Kentucky

December 19, 2019

STATE OF OHIO AND JOSEPH W. TESTA, TAX COMMISSIONER OF OHIO APPELLANTS
v.
GREAT LAKES MINERALS, LLC APPELLEE

          ON TRANSFER FROM COURT OF APPEALS CASE NO. 2018-CA-000484 GREENUP CIRCUIT COURT NO. 17-CI-00311 HONORABLE ROBERT B. CONLEY, JUDGE.

          COUNSEL FOR APPELLANTS: Thomas Edward Madden Daniel W. Fausey Assistant Attorneys General

          COUNSEL FOR APPELLEE: Thomas Dulaney Bullock Robert V. Bullock James Roscoe Stinetorf Bullock 85 Coffman, LLP

          OPINION

          KELLER JUSTICE.

         Appellants, State of Ohio and Joseph W. Testa, Tax Commissioner of Ohio, appeal an order of the Greenup Circuit Court denying their motion to dismiss Great Lakes Minerals, LLC's suit against them. For the following reasons, we reverse the decision of the Greenup Circuit Court and remand with instructions to dismiss all claims.

         I. BACKGROUND

         Great Lakes Minerals, LLC (hereinafter, Great Lakes) is a mineral processing company[1] that sells minerals to buyers at its Greenup County, Kentucky plant. Great Lakes maintains that it sells its products in Kentucky; all transactions, including payment and delivery of goods, occur in Kentucky; Great Lakes does not have a physical presence in Ohio; and Great Lakes neither directly nor indirectly delivers its products to the State of Ohio.

         Stated very simply, Ohio has created a commercial activity tax (CAT) that taxes persons who do business and have a substantial nexus to Ohio. O.R.C.[2]5751.02(A). Ohio's Department of Taxation (Department) may issue a CAT assessment to an out-of-state business for outstanding liability to Ohio arising from transactions with an Ohio company. Businesses are provided administrative remedies to protest CAT assessments to the Tax Commissioner of Ohio, then the Ohio Board of Tax Appeals, and then the Ohio appellate courts. O.R.C. 5751.09; O.R.C. 5717.02; ORC 5717.04.

         Ohio determined that between 2009 and 2016, Great Lakes sold over $104 million in minerals that were then shipped to Ohio addresses. The Department issued a CAT assessment against Great Lakes for $325, 000. Great Lakes paid a portion of the assessment but petitioned for reassessment with the Commissioner, challenging the assessment's validity. .

         One month after protesting to the Commissioner, Great Lakes sued Ohio and Joseph W. Testa, Ohio's Tax Commissioner, in his official and individual capacities, in Greenup Circuit Court. Great Lakes sought: (1) a declaratory judgment that it is not subject to Ohio's CAT; (2) monetary relief pursuant to 42 U.S.C.A. § 1983 for the forced collection of taxes not owed, in violation of the Ohio and United States Constitutions; and (3) a determination pursuant to CR[3] 60.03 that it would be inequitable to require Great Lakes to defend an action in a foreign state. Ohio moved to dismiss Great Lakes' complaint on grounds of sovereign immunity, qualified immunity, comity, lack of personal jurisdiction, and failure to exhaust administrative remedies. The Greenup Circuit Court denied Ohio's Motion to Dismiss in a two-sentence order, and Ohio filed a Notice of Appeal with the Court of Appeals. Ohio moved to transfer jurisdiction over that interlocutory appeal to this Court, which this Court granted. We then abated this case pending the Supreme Court of the United States' decision in Franchise Tax Board of California v. Hyatt, 139 S.Ct. 1485 (2019) (hereinafter "Hyatt IIT). Following the rendition of Hyatt in, this Court granted the Appellants' motion for leave to file supplemental briefs. Supplemental briefing by the parties has been completed, and the matter is ripe for consideration.

         II. ANALYSIS

         The State of Ohio argues that it is protected by sovereign immunity under Hyatt III. Testa argues that he is entitled to the same sovereign immunity as Ohio in his official capacity and qualified official immunity in his personal capacity. Great Lakes, on the other hand, argues that sovereign immunity does not apply to actions for declaratory or injunctive relief and that sovereign immunity does not apply to the appellants in the capacity in which they were sued pursuant to 42 U.S.C.A. § 1983. The question of whether a defendant is protected by sovereign immunity, governmental immunity, or official immunity is a question of law. Rowan Cty. v. Sloas, 201 S.W.3d 469, 475 (Ky. 2006). This Court reviews questions of law de novo. Cumberland Valley Contractors, Inc. v. Bell Cty. Coal Corp., 238 S.W.3d 644, 647 (Ky. 2007).

         A. State of Ohio

         We will first address whether the State of Ohio is protected by the doctrine of sovereign immunity. Ohio relies, in large part, on Hyatt III to argue that it is entitled to sovereign immunity protection. In that case, Hyatt sued the Franchise Tax Board of California in Nevada state court for various torts the Tax Board allegedly committed during a tax audit. Hyatt III, 139 S.Ct. at 1491. After discussing the United States Constitution at length as well as the intent of the framers, the United States Supreme Court held that the Tax Board of California was protected by sovereign immunity and could not be sued in Nevada state court. Id. at 1492. Great Lakes, however, attempts to distinguish the case at bar from Hyatt III because Hyatt was seeking a monetary award of damages from California. Great Lakes, conversely, is only seeking monetary damages against Testa in his individual capacity and declaratory, injunctive, and equitable relief against ...


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