Tuesday, January 17, 2012

State ex rel. Collector of Winchester v. Jamison[1]

Opinion handed down January 17, 2012

The city of Winchester and its collector (Winchester) filed a class action against Charter Communications, Inc.; Charter Communications, LLC; and Charter Fiberlink – Missouri, LLC (Charter) to enforce the collection of certain telecommunications business taxes.  The circuit court dismissed Winchester’s claims based on Revised Statutes of Missouri § 71.675, which prohibited cities from participating as class representatives in such suits.  Winchester then sought a writ of mandamus from the Supreme Court of Missouri in order to compel the circuit court to vacate its order.  Winchester argued that it met the requirements for serving as a class representative under Missouri Supreme Court Rule 52.08, and that the legislature impermissibly changed the requirements set out in that rule by enacting § 71.675.  The court found that because the Missouri Constitution mandates that the legislature can only amend a procedural rule of the court when a statute is limited to that purpose and mentions the procedural rule by name, and because § 71.675 did not do either, the statute was void.

I.  Facts and Holding

Winchester filed suit against Charter in 2010 on behalf of itself and other similarly-situated Missouri municipal corporations and political subdivisions,[2] requesting a declaratory judgment that Charter and other telecommunications providers must conform to municipal ordinances subjecting them to a license tax on gross receipts from fees and services arising out of their operations.[3]  Winchester also sought an order compelling Charter to pay all such license taxes owed to the class.[4]  Charter moved to strike these allegations under Revised Statutes of Missouri § 71.675.[5]  The trial court held that this statute relates to the substantive issue of standing instead of the procedural issue of fulfilling the requirements for being a class representative, and so granted Charter’s motion to strike.[6]  Winchester subsequently moved for mandamus in the Supreme Court of Missouri.[7]

The Supreme Court of Missouri found that Rules of Civil Procedure 41 to 101 are promulgated by the court pursuant to article V, section 5 of the Missouri Constitution.[8]  Further, Rule 41.02 specifically provides that these rules “supersede all statutes and existing court rules inconsistent therewith.”[9]  However, the court explained that section 5 of the Missouri Constitution also allows the legislature to modify these rules by providing that “[a]ny rule may be annulled or amended in whole or in part by a law limited to the purpose.”[10]  The court observed that the constitution in no way limits the power of the General Assembly, as long as it follows the prescribed constitutional procedure.   For a statute to be considered “limited to the purpose” of amending or annulling a rule, it “must refer expressly to the rule” and be limited to the purpose of amending or annulling it.[11] 

The court affirmed that these principles control the question whether the restriction in § 71.675 on the right of cities to sue telecommunications companies was constitutional.[12]  Winchester contended that it was not constitutional because it did not specifically amend Rule 52.08 as required.[13]   Charter did not dispute the law regarding how the legislature may amend a procedural rule of the supreme court.[14]  Instead, Charter argued that § 71.675 was substantive rather than procedural, in that it stripped cities of standing to represent a class when suing telecommunications companies for taxes.[15]  Charter posited that because the court’s rules “shall not change substantive rights,” § 71.675 was a substantive law concerned with standing that must overcome Rule 52.08.[16]
The court stated that Charter’s argument was meritless because standing requires that “the parties seeking relief . . . have some personal interest at stake in the dispute”[17] that is “legally protectable.”[18]  The court confirmed that “a legally protectable interest exists if the plaintiff is affected directly and adversely by the challenged action or if the plaintiff’s interest is conferred statutorily.”[19]  The court found that Winchester and other similarly situated cities have a legally protectable interest in recovering taxes allegedly owed to them, which confers standing on them.[20]  The court recognized that even § 71.675 itself provided such because cities would not be able to sue under that statute if they did not have standing.[21]  Therefore, the court found that what the statute actually claims to deprive cities of is not their personal stake in the dispute or their standing to sue, but rather their right to do so as a representative of other municipalities in suits against telecommunications companies.[22]  Thus, the majority found that despite Charter’s arguments and those of the dissent, this matter does not concern standing but instead the power to sue in a representative capacity.[23]

The court further emphasized the distinction between substantive and procedural law, in that substantive law relates to the rights and duties giving rise to the cause of action, while procedural law is the machinery used for carrying on the suit.[24]  Statutes only concerned “with the means by which the parties may assert their underlying rights,” but not otherwise prescribing “the nature or the extent of the underlying rights,” are procedural.[25]  As such, because § 71.675 directed the machinery to be used for bringing the suit and the means by which cities may declare their rights, the court found that § 71.675 was procedural.[26]

Next, the court addressed Winchester’s arguments regarding the constitutionality of § 71.675.[27]  The majority found that the statute amended Rule 52.08(a) by tacking on an additional requirement to those already set forth for being a class representative.[28]  In addition to requiring a class representative to show that it has typical claims and defenses and that it will fairly and adequately represent the class, § 71.675 excluded representatives if a city or town where the defendant was a telecommunications company.[29]  The court found that such an amendment to Rule 52.08(a) would be valid except the General Assembly did not follow the rule-amending procedures specifically laid out by the constitution by failing to expressly mention the rule or its intent to amend it.[30]  Because “Supreme Court rules govern over contradictory statutes in procedural matters unless the General Assembly specifically annuls or amends the rules in a bill limited to that purpose,”[31] the court found that Rule 52.08 governs whether Winchester may serve as a class representative.[32]

Thus, the majority held that the trial court exceeded its authority in dismissing Winchester’s class allegations and issued a permanent writ of mandamus.[33]
In Justice William Ray Price Jr.’s dissent, he observed that defining the authority and responsibilities of Missouri municipalities has traditionally been a power of the legislature.[34]  The legislature originally gave cities and towns the power to sue,[35] but the legislature also limited the exercise of that power in § 71.675.[36]  While Justice Price agreed with the principal opinion in that court rules supersede contradictory procedural statutes, he redefined the question in this case as being “whether § 71.675 [was] a valid exercise in legislative control over the substantive powers of Missouri’s cities and towns or an intrusion into the separate powers of the courts to control the procedures followed in litigation.”[37]  He reasoned that § 71.675 did not interfere with the function of Rule 52.08 because it only forbade cities and towns the substantive power of serving as a class representative.[38]  As such, Justice Price would not have held that § 71.675 violated article V, section 5 of the Missouri Constitution.[39] 

II.  Legal Background

At issue in this case was whether Revised Statutes of Missouri § 71.675 violated article V, section 5 of the Missouri Constitution in its amendment of Supreme Court Rule 52.08, dealing with class actions. 

Section 71.675 was included in House Bill 209, which was passed in 2005.[40]  The supreme court found in this case that the bill was not limited to the purpose of amending Rule 52.08, but instead contained eighteen provisions amending various other statutes and laws.[41]  Some of these other provisions favoring telecommunications companies were invalidated by the supreme court in City of Springfield v. Sprint Spectrum, L.P.[42]  In that case, the City of Springfield filed suit against a telecommunications provider in order to collect gross receipt taxes on its wireless service pursuant to a city ordinance.[43]  The supreme court held that a statute contained in House Bill 209 that imposed a five percent cap on municipal business license taxes on telecommunications companies for certain cities was an unconstitutional special law.[44]  Because the court found that this statute was nonseverable from the Municipal Telecommunications Business License Tax Simplification Act, the court struck down that entire Act.[45]

In addition, the present case is not the first time the court has struck down statutes it found specifically in contradiction with the requirements of article V, section 5.[46]  In State ex rel. K.C. v. Gant, at issue was Rule 127.05, which permitted a minor or the minor’s guardian to a hearing if certain requirements were met.[47]  The legislature passed a bill purporting to grant the juvenile court discretion whether to hold the hearing.[48]  Yet, that law was not enclosed in a bill limited to the purpose of amending that rule, nor did the bill explicitly refer to the rule.[49]  Also, in State v. Reese,[50] the court held that a rule governing the procedures for substitution of a deceased party overcame a conflicting statute regarding the same issue because “[t]he General Assembly [had] not passed a law limited to the purpose of annulling or amending” the rule in question.[51]  The conflicting statutory provision was instead contained in legislation revising numerous previous statutes related to trusts and estates, which made no mention of the supreme court rule.[52] 

However, the General Assembly has also in the past specifically complied with article V, section 5.[53]  In 1984, the legislature enacted a law “to amend supreme court rule 54.22 . . . relating to process, return or proof of service.”[54]  That law referred to the rule it was amending in particular and was narrowed to that purpose in that it contained only a statement that Rule 54.22 was being amended and the language of the new rule.[55] 

III.  Comment

Based on the premise that Missouri law governing the requirements of being a class representative is procedural, it is clear the legislature did not follow the constitutionally-prescribed method of amending Rule 52.08 here.  However, the majority and dissent disagreed over the issue whether the law setting forth how to serve as a class representative was actually substantive or procedural in nature.  The Supreme Court of Missouri has recognized and consistently affirmed that “[a]ll of the authorities hold that a ‘substantive law is that part of the law which creates, defines and regulates rights as opposed to [procedural] law, which prescribes the method of enforcing rights or obtaining redress for their invasion.’”[56] 

Thus, in first determining that the law at issue simply governs the power to sue as a class representative rather than the substantive matter of standing, the majority could construe that such law was procedural.  Once it was announced that the law was procedural, the majority was then able to conclude that the legislature’s attempt to add to the supreme court rule in question was unconstitutional.  Perhaps the majority was motivated to find the law to be procedural here because, as previously mentioned, the supreme court has appeared hostile toward other statutes in H.B. 209 that favor the telecommunications industry.[57]

- Jackie Whipple

[1] No. SC91631 (Mo. Jan. 17, 2012) (en banc), available at http://www.courts.mo.gov/file.jsp?id=51955.  The West Reporter citation is State ex rel. Collector of Winchester v. Jamison, 357 S.W.3d 589 (Mo. 2012) (en banc).
[2] According to Winchester, those similarly situated entities are: “[A]ll cities or other political subdivisions [that] have adopted an ordinance in effect that imposes a business or occupational license tax on any person engaged in the business of supplying or furnishing telephone service.”  Id. at 2 n.4.
[3] Id. at 2-3.  Specifically, Winchester alleged that Charter failed to pay license taxes on gross receipts derived from exchange access, interexchange access, special access, interconnection facilities and  equipment for use, toll or  long-distance, reciprocal compensation arrangements, Federal Universal Service Fund surcharges, State Universal Service Fund surcharges, End User Common Line charges, intrastate telephone service and other sources.  Id. at 3 n.5.  Gross receipts are “all receipts from the retail sale of telecommunications service taxable under section 144.020 and from any retail customer now or hereafter exempt from the state sales tax.”  Mo. Rev. Stat. §  92.083.1(1) (2009).
[4] Winchester, No. SC91631, slip op. at 3.
[5] Id.  The statute states in relevant part: “Notwithstanding any other provision of law to the contrary, no city or town shall bring any action in federal or state court in this state as a representative member of a class to enforce or collect any business license tax imposed on a telecommunications company.  A city or town may, individually or as a single plaintiff in a multiple-plaintiff lawsuit, bring an action in federal or state court in this state to enforce or collect any business license tax imposed on a telecommunications company.”  Mo. Rev. Stat. § 71.675.1 (2009).
[6] Winchester, No. SC91631, slip op. at 3.
[7] Id.
[8] Id. at 4.  That section of the constitution provides: “The supreme court may establish rules relating to practice, procedure and pleading for all courts and administrative tribunals, which shall have the force and effect of law.” Mo. Const. art. V, § 5.
[9] Winchester, No. SC91631, slip op. at 5.
[10] Id. (citing Mo. Const. art. V, § 5). 
[11] Id. (citing State ex rel. K.C. v. Gant, 661 S.W.2d 483, 485 (Mo. 1983) (en banc)).
[12] Id. at 6-7.
[13] Id. at 7.  That rule, which is denominated “Class Actions,” specifically delineates the requirements and qualifications for filing class action lawsuits: “One or more members of a class may sue or be sued as parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.”  Mo. Sup. Ct. R. 52.08(a). 
[14] Winchester, No. SC91631, slip op. at 8.
[15] Id.
[16] Id. (citing Mo. Const. art. V, § 5).
[17] Winchester, No. SC91631, slip op. at 9 (citing Ste. Genevieve Sch. Dist. R-II v. Bd. of Alderman of the City of Ste. Genevieve, 66 S.W.3d 6, 10 (Mo. 2002) (en banc)).
[18] Id. (citing Battlefield Fire Protection Dist. v. City of Springfield, 941 S.W.2d 491, 492 (Mo. 1997) (en banc)).
[19] Id. (citing Battlefield Fire Protection Dist., 941 S.W.2d at 492).
[20] Id.
[21] Id.
[22] Id.
[23] Id. at 9-10.
[24] Id. at 10 (citing Wilkes v. Mo. Highway and Transp. Comm’n, 762 S.W.2d 27, 28 (Mo. 1988) (en banc)).
[25] Id. (citing State ex rel. K.C. v. Gant, 661 S.W.2d 483, 485 (Mo. 1983) (en banc)).
[26] Id.
[27] Id. at 7.
[28] Id.
[29] Id.
[30] Id. at 7-8.
[31] Id. at 8 (citing Ostermueller v. Potter, 868 S.W.2d 110, 111 (Mo. 1993) (en banc)).
[32] Id.
[33] Id. at 10-11.
[34] Id. at 12 (Price, J., dissenting).
[35] Id. (Price, J., dissenting).  Mo. Rev. Stat. § 65.260 states that “[e]ach township, as a body corporate, shall have power and capacity … [t]o sue and be sued, in the manner provided by the laws of this state.”
[36] Id. (Price, J., dissenting).
[37] Id. at 14 (Price, J., dissenting).
[38] Id. (Price, J., dissenting).
[39] Id. at 15 (Price, J., dissenting).
[40] Id. at 8 (citing Act of July 14, 2005, enacting H.B. 209, 93rd Gen. Assem., 1st Reg. Sess. (Mo. 2005); 2005 Mo. Laws 429-41). 
[41] Id.
[42] 203 S.W.3d 177 (Mo. 2006) (en banc).
[43] Id. at 180.
[44] Id. at 182-83.
[45] Id. at 187-88.
[46] Id. at 5-6.
[47] Id. at 6.
[48] Id. (citing Act of June 17, 1980, enacting S.B. 512, 80th Gen. Assem., 2d Reg. Sess. (Mo. 1980); 1980 Mo. Laws 331-37). 
[49] Id.
[50] 920 S.W.2d 94 (Mo. 1996) (en banc).
[51] Winchester, No. SC91631, slip op. at 6 (citing Reese, 920 S.W.2d. at 95-6).
[52] Id. (citing Act of July 14, 1983, enacting S.B. 44 and 45, 82d Gen. Assem., 1st Reg. Sess. (Mo. 1983); 1983 Mo. Laws 804-906). 
[53] Id. at 5.
[54] Id. (citing Act of June 7, 1984, enacting H.B. 947, 82d Gen. Assem., 2d Reg. Sess. (Mo. 1984); 1984 Mo. Laws 792).
[55] Id.
[56] Maurizi v. W. Coal & Mining Co., 11 S.W.2d 268, 392 (Mo. 1928) (en banc).
[57] See City of Springfield v. Sprint Spectrum, L.P., 203 S.W.3d 177 (Mo. 2006) (en banc).