United States v. Robbins, 2007 U.S. App. LEXIS 7539 (10th Cir. 2007).
2007 U.S. App. LEXIS 7539,*
UNITED STATES OF AMERICA, Plaintiff-Appellee, v. LEE E. ROBBINS, Defendant-Appellant.
No. 06-5014
UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT
2007 U.S. App. LEXIS 7539
March 30, 2007, Filed
NOTICE: [*1] RULES OF THE TENTH CIRCUIT COURT OF APPEALS MAY LIMIT CITATION TO UNPUBLISHED OPINIONS. PLEASE REFER TO THE RULES OF THE UNITED STATES COURT OF APPEALS FOR THIS CIRCUIT.
PRIOR HISTORY: (D.C. No. 04-CR-104-01-K). (N.D. Okla.).
DISPOSITION: AFFIRMED.
COUNSEL: For UNITED STATES OF AMERICA, Plaintiff-Appellee: David E. O’Meilia, U.S. Attorney, Kevin C. Leitch, Kevin C. Danielson, Melody Noble Nelson, Asst. U.S. Attorney, Office of the United States Attorney, Tulsa, OK; Philip E. Pinnell, Asst. U.S. Attorney, Office of the United States Attorney, Tulsa, OK.
For LEE E. ROBBINS, Defendant-Appellant: Art Fleak, Tulsa, OK.
JUDGES: Before LUCERO, McKAY, and GORSUCH, Circuit Judges.
OPINION BY: Monroe G. McKay
OPINION: ORDER AND JUDGMENT *
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* After examining the briefs and appellate record, this panel has determined unanimously to grant the parties’ request for a decision on the briefs without oral argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
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Appellant Lee E. Robbins was convicted by a jury of fifteen counts of tax fraud. In this direct criminal appeal, Mr. Robbins challenges the district court’s denial of his motion for severance, the adequacy of the verdict form, the calculation of tax loss for sentencing purposes, and the imposition of costs of prosecution.
I.
Robbins & Associates (R&A) was a bookkeeping and tax return preparation business which helped clients minimize their tax payments and maximize their refunds by falsely characterizing nondeductible personal expenses as deductible business expenses. Mr. Robbins, the principal of R&A, recruited, hired, and trained his co-defendant Gabriel Bonner for work in R&A’s office in Tulsa, Oklahoma. After Mr. Robbins moved to Georgia and opened an Atlanta office, he left Mr. Bonner in charge of the Tulsa office. Mr. Robbins continued to review Mr. Bonner’s work and he e-filed the returns prepared at both offices.
The government charged Mr. Robbins and Mr. Bonner with conspiracy to defraud the IRS, Mr. Robbins with 15 counts of aiding and assisting the preparation and submission of false and fraudulent tax returns in violation of 26 U.S.C. § 7206(2) [*3] , and Mr. Bonner with 50 different counts of the same crime. Before trial, Mr. Robbins moved for separate trials, arguing that he would be prejudiced by being tried with Mr. Bonner. The district court denied the motion and the parties proceeded to their joint trial.
At the close of evidence, Mr. Robbins renewed his motion for severance and the district court again denied it. The jury reached a verdict acquitting Mr. Bonner on all counts and finding Mr. Robbins not guilty of conspiracy but guilty of the 15 individual counts. The district court denied Mr. Robbins’ motion for a new trial and sentenced him to a total of 41 months’ imprisonment, based on a tax loss of over $ 400,000. It also ordered him to pay the costs of prosecution in the amount of $ 11,430.66, as provided by § 7206.
II.
On appeal, Mr. Robbins first asserts that the district court erred in denying his motion for a severance because his defense was antagonistic to that of Mr. Bonner. A motion for severance based on conflicting defenses triggers “a three-step inquiry” on the part of the trial court. United States v. Pursley, 474 F.3d 757, 765 (10th Cir. 2007). The first step requires a determination [*4] of “whether the defenses presented are so antagonistic that they are mutually exclusive,” so that “the acceptance of one party’s defense would tend to preclude the acquittal of the other, or that the guilt of one defendant tends to establish the innocence of the other.” Id. (quotations omitted). Next, “because mutually antagonistic defenses are not prejudicial per se, a defendant must further show a serious risk that a joint trial would compromise a specific trial right or prevent the jury from making a reliable judgment about guilt or innocence.” Id. (quotations and alterations omitted). “[I]f the first two factors are met, the trial court exercises its discretion and weighs the prejudice to a particular defendant caused by joinder against the obviously important considerations of economy and expedition in judicial administration.” Id. (quotations and alterations omitted). “Where the trial court ultimately denies severance,” this court will reverse the decision “only where the defendant has demonstrated an abuse of discretion.” Id.
At trial, Mr. Robbins and Mr. Bonner each attempted to cast all blame for tax fraud on the other. Mr. Robbins illustrates the antagonistic [*5] nature of their defenses by pointing out that Mr. Bonner testified that it was Mr. Robbins who “caused all the wrong and illegal tax returns to be filed.” Aplt. Br. at 21. And, according to Mr. Robbins, “Bonner’s counsel sought to deliberately undermine Robbins’ defense at trial with every witness so that Bonner appeared only to be someone who was a data clerk.” Id. at 10. Mr. Robbins also complains that Mr. Bonner’s counsel acted as an “additional prosecutor” by identifying himself as a former prosecutor and telling the jury to disbelieve the arguments made by Mr. Robbins’ attorney. Id. at 15.
Mr. Robbins has shown that he and Mr. Bonner presented defenses which “were sufficiently exclusive and antagonistic.” Pursley, 474 F.3d at 765. Nevertheless, he has not established the specific prejudice required at the second analytic step. “[D]efendants are not entitled to severance merely because they may have a better chance of acquittal in separate trials.” Id. at 766 (quotation and alteration omitted). “Despite their differing theories of defense, nothing prevented [Mr. Robbins] from presenting evidence [or argument] to support his theory [*6] even if it was inconsistent with [Mr. Bonner’s] defense.” Id.
Because Mr. Robbins did not demonstrate the requisite prejudice, there is no need “to explicitly engage in the third step of our inquiry-weighing prejudice to the defendant against considerations of judicial economy.” Id. at 767. On this record, the district court’s denial of the motion to sever does not amount to an abuse of discretion.
III.
Mr. Robbins next argues that he is entitled to a new trial because the jury verdict form was “irregular” and “bogus.” Aplt. Br. at 7, 31. We review the propriety of verdict forms under an abuse of discretion standard. United States v. Stiger, 413 F.3d 1185, 1190 (10th Cir. 2005). Applying that standard, we will reverse only if we have “substantial doubt that the jury was fairly guided.” United States v. Smith, 13 F.3d 1421, 1424 (10th Cir. 1994) (quotation omitted). Moreover, because there was no objection at trial, we review only for plain error, which is “error that affects the defendant’s right to a fair and impartial trial.” Id.
Mr. Robbins argues that the only possible explanation for the jury’s acquittal of Mr. [*7] Bonner and conviction of Mr. Robbins is confusion attributable to the verdict form. Aplt. Br. at 27. The verdict form submitted to the jury was a table with columns providing the date of each charged offense, the name of the filing taxpayer, and a place for the jury foreperson to circle either “guilty” or “not guilty.” R., Vol. I, Doc. 72. In his closing argument, Mr. Robbins’ attorney advised the jurors that the table “mirrors the one in the indictment and it has on there the years and so forth. . . . If you correlate the exhibits with the chart, you should be able to make your decisions on these individual counts.” Id., Sup’l Vol. II, at 35.
On appeal, however, Mr. Robbins claims the form is flawed for failure to “set out details of each count.” Aplt. Br. at 7. We have previously held that “[t]he purpose of the verdict form is not to repeat the elements of the offense. The language on the form serves only to identify where the jury should indicate its verdict on each count. . . . The fact that the question on the verdict form does not contain the language the instructions contain is immaterial.” United States v. Overholt, 307 F.3d 1231, 1248 (10th Cir. 2002). [*8] The form submitted to the Robbins/Bonner jury fulfilled its intended purpose. As a consequence, we see no error in connection with the jury verdict form.
IV.
Mr. Robbins asserts that the district court erred in calculating the tax-loss amount attributable to his crimes, a determination which affects his sentence under the advisory Federal Sentencing Guidelines. See U.S.S.G. § 2T1.1. On guideline issues, we review legal questions de novo, factual findings for clear error, and give due deference to the district court’s application of the guidelines to the facts. United States v. Wolfe, 435 F.3d 1289, 1295 (10th Cir. 2006).
In determining the total tax loss, “all conduct violating the tax laws should be considered as part of the same course of conduct or common scheme or plan unless the evidence demonstrates that the conduct is clearly unrelated.” U.S.S.G. § 2T1.1, cmt. n.2. See also United States v. Hayes, 322 F.3d 792, 801-02 (4th Cir. 2003) (holding that tax loss may include amounts in returns prepared by the defendant but not included in the indictment). The tax loss proved at [*9] trial amounted to $ 376,000. At the sentencing hearing, the government produced two tax-filer witnesses, whose false returns were not included in the indictment, and an IRS agent. Partially crediting the witnesses’ testimony, the district court found that Mr. Robbins was responsible for an additional loss in the amount of $ 90,675. Under the guidelines, this additional amount increased Mr. Robbins’ base offense level by two points. See U.S.S.G. §§ 2T1.1(a), 2T4.1 (Tax Table).
Mr. Robbins asserts that the trial court improperly based the tax-loss amount on surprise testimony relating to returns not listed in the indictment and not considered by the jury. As for the alleged “surprise” aspect of the testimony, we note that defense counsel objected to the appearance of the witnesses, but did not ask for a recess or continuance to develop rebuttal evidence. See R., Vol. XII at 4. And after the district court overruled the objection, Mr. Robbins’ counsel thoroughly cross-examined the witnesses. Thus, there is no indication that the government used an element of surprise to present misinformation to the court. Cf. [*10] United States v. Sunrhodes, 831 F.2d 1537, 1542 (10th Cir. 1987) (”Due process insures that a defendant will not be sentenced on the basis of ‘misinformation of a constitutional magnitude.’”) (citation omitted).
An equally unavailing contention is that the teachings of United States v. Booker, 543 U.S. 220, 125 S. Ct. 738, 160 L. Ed. 2d 621 (2005) prohibit the inclusion of tax loss arising from uncharged conduct that was not proven beyond a reasonable doubt. It is now well-settled that Booker does not preclude “judicial fact-finding by a preponderance of the evidence standard” at the sentencing stage unless the factual findings “operate[] to increase a defendant’s sentence mandatorily.” United States v. Hall 473 F.3d 1295, 1312 (10th Cir. 2007). Here, the district court explicitly “recognize[d] that the guidelines are advisory and not mandatory.” R., Vol. XII at 78. The district court committed no clear error in determining that Mr. Robbins caused a tax loss in excess of $ 400,000 and sentencing him based on that amount.
V.
Mr. Robbins’ final issue is his claim that the district court committed error in ordering him to pay $ 11,430.66 as [*11] the costs of prosecution without hearing evidence to justify the assessed amount. The imposition of the costs of prosecution is mandatory under the controlling statute, which provides that a person convicted of filing a false tax return “shall be fined not more than $ 100,000 . . ., or imprisoned not more than 3 years, or both, together with the costs of prosecution.” 26 U.S.C. § 7206 (emphasis added).
The presentence report (PSR) was the source of the assessed amount. In his written response to the PSR, Mr. Robbins objected generally to the imposition of the costs of prosecution, but made no objection to the proposed amount. Outside of the Booker context, a court may rely “on . . . unobjected-to facts for . . . sentencing purposes.” United States v. Wolfe, 435 F.3d 1289, 1299 (10th Cir. 2006).
This practice is consistent with Fed. R. Crim. P. 32(i)(3)(A), which obliges a defendant “to point out factual inaccuracies included in the PSR. And requiring a defendant to challenge any factual inaccuracies in the PSR before or during sentencing permits the district court to address those objections [*12] at a time and place when the district court is able to resolve those challenges.” Id.
Moreover, Mr. Robbins was given a second opportunity to make an appropriate objection. At the sentencing hearing, the district court made findings of fact, including a determination that costs of prosecution amounted to $ 11,430.66. It then specifically asked if there were “[a]ny objections to the Court’s findings of fact that haven’t already been discussed.” R., Vol. XII at 69. Mr. Robbins’ counsel responded that he had no further objections.
Contrary to Mr. Robbins’ contentions, an objection to the imposition of prosecution costs is analytically distinct from an objection to the calculation of the amount of those costs. Because Mr. Robbins did not make a proper objection at the appropriate time, we review the costs issue for plain error. United States v. Traxler, 477 F.3d 1243, 2007 WL 614266, *6 (10th Cir. 2007). And we find no such error in the district court’s adoption of the amount of prosecution costs proposed in the PSR.
The judgment of the district court is AFFIRMED.
Entered for the Court
Monroe G. McKay
Circuit Judge
Private Letter Ruling 132947-06 (2007).
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 200713002
Release Date: 3/30/2007
Index Number: 3402.15-00
Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact: ———————, ID No. —————
Telephone Number: ———————
Refer Reply To: CC:PA:APJP:B01 PLR-132947-06
Date: December 21, 2006
Section 3402 – Income Tax Collected at Source
Section 3402.15-00 – Withholding on Gambling Winnings
LEGEND:
State Lottery = —————————————
$X = —
Dear —————————————:
This is in response to State Lottery’s request dated June 28, 2006, in which it requested a ruling under I.R.C. § 3402(q). Specifically, State Lottery requests a ruling that if a player purchases one lottery ticket for an online game, and that ticket has more than one panel for the same lottery drawing, then all winning panels for the same lottery draw from the single lottery ticket are treated as “Identical Wagers.”
FACTS
A player of an online State Lottery Game may purchase one ticket with up to ten different panels for the same draw date. The player selects six numbers on a panel. Each panel on the single ticket represents a separate “play” for that lottery draw date. Each play costs $X. A player may play the same numbers for more than one draw. A player may have multiple winning panels from the same lottery draw on a single lottery ticket.
LAW AND ANALYSIS
Section 3402(q)(1) of the Internal Revenue Code provides the general rule that every person, including the Government of the United States, a State, or a political subdivision thereof, or any instrumentalities of the foregoing, making any payment of winnings which are subject to withholding shall deduct and withhold from such payment a tax in an amount equal to 25 percent of such payment.
Section 3402(q)(3)(B) of the Code provides that for purposes of section 3402(q), the term “winnings which are subject to withholding” means proceeds of more than $5,000 from a wager placed in a lottery conducted by an agency of a State acting under authority of State law, but only if such wager is placed with the State agency conducting such lottery, or with its authorized employees or agents.
Section 31.3402(q)-1(c)(1) of the Employment Tax Regulations provides definitions and special rules for determining the amount of proceeds from a wager. Section 31.3402(q)-1(c)(1)(ii) provides, in part, that for
Amounts paid after December 31, 1983, with respect to identical wagers are treated as paid with respect to a single wager for purposes of calculating the amount of proceeds from a wager. For example, amounts paid on two bets placed in a parimutuel pool on a particular horse to win a particular race are treated as paid with respect to the same wager. However, those two bets would not be identical were one “to win” and the other “to place”, or if the bets were placed in different parimutuel pools, e.g., a pool conducted by the racetrack and a separate pool conducted by an off-track betting establishment in which the wagers are not pooled with those placed at the track. Tickets purchased in a lottery generally are not identical wagers, because the designation of each ticket as a winner generally would not be based on the occurrence of the same event, e.g., the drawing of a particular number. . . .
The identical wager provisions in Section 31.3402(q)-1(c)(1)(ii) were adopted pursuant to Treasury Decision 7919, 48 F.R. 46296, 1983-2 C.B. 213. The preamble to T.D. 7919 explains the rule, in part, as follows:
Under § 31.3402(q)-1…. Identical bets are those in which winning depends on the occurrence (or non-occurrence) of the same event or events. For example, two wagers on a horse to win a particular race generally are identical. … [But] … wagers containing different elements, e.g., and “exacta” and a “trifecta,” are not identical.
Although multiple winning panels are based on the occurrence of a single lottery draw, just as trifecta and exacta winning tickets are based on a single horse race, the wagers on each panel of a single ticket are not identical unless the player selects the same six numbers on the multiple panels. That is, assuming the numbers are not the same, the panels contain different elements and thus constitute multiple wagers. Because the wagers are not identical, the winning amounts do not need to be aggregated under the identical wagers provisions of I.R.C. § 3402(q) and Treas. Reg. § 31.3402(q)-1(c)(1)(ii).
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
Sincerely,
Carol Nachman
Acting Senior Technician Reviewer
Administrative Provisions and Judicial Practice
(Procedure & Administration)
cc: Federal, State & Local Governments Group Manager
Prebola v. Commissioner, 2007 U.S. App. LEXIS 7071 (2nd Cir. 2007).
2007 U.S. App. LEXIS 7071,*
SHIRLEY B. PREBOLA, N.K.A. SHIRLEY D. BEGY, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
Docket No. 05-6953-ag
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
2007 U.S. App. LEXIS 7071
March 8, 2007, Submitted
March 27, 2007, Decided
PRIOR HISTORY: [*1] Appeal from a decision of the United States Tax Court (Cohen, J.) holding that a lump-sum payment received in exchange for the right to receive future annual lottery payments is ordinary income and not capital gain. Prebola v. Comm’r, T.C. Memo 2005-261, 2005 Tax Ct. Memo LEXIS 260 (T.C., 2005)
DISPOSITION: Affirmed.
COUNSEL: GERALD W. DIBBLE, Dibble, Miller & Burger, P.C., Rochester, NY, for Petitioner-Appellant.
RICHARD FARBER and REGINA S. MORIARTY, Attorneys, Tax Division, United States Department of Justice (Eileen J. O’Connor, Assistant Attorney General, on the brief), Washington, DC, for Respondent-Appellee.
JUDGES: Before: MESKILL, WINTER, and STRAUB, Circuit Judges.
OPINION: Per curiam:
The issue in this case is whether lump-sum proceeds received from a sale of future interest in lottery payments should be characterized for income tax purposes as a capital gain or as ordinary income. The United States Courts of Appeals for the Third, Ninth, and Tenth Circuits, along with the United States Tax Court in numerous rulings, have all held that such proceeds are properly characterized as ordinary income. See Lattera v. C.I.R., 437 F.3d 399 (3d Cir. 2006); United States v. Maginnis, 356 F.3d 1179 (9th Cir. 2004); Watkins v. C.I.R., 447 F.3d 1269, 1271 (10th Cir. 2006); [*2] see, e.g., Womack v. C.I.R., T.C. Memo 2006-240 (Nov. 7, 2006); Simpson v. C.I.R., T.C. Memo 2003-155, 85 T.C.M. (CCH) 1421 (2003); Davis v. Comm’r, 119 T.C. 1, 2002 WL 1446631 (2002). We have no difficulty reaching the same conclusion.
Petitioner Shirley D. Begy won $ 17.5 million in the New York State Lottery in 1997, payable in 26 annual installments. After receiving her first three installment payments — which she reported on her income tax returns as ordinary income — Begy sold her interest in the remaining payments to a third party for a lump sum of $ 7.1 million. On her 2000 income tax return, Begy reported the $ 7.1 million as a long-term capital gain. The Internal Revenue Service disagreed with this treatment and issued a notice of deficiency for $ 1.31 million on the ground that the proceeds from the sale should have been reported as ordinary income. The Tax Court agreed with the I.R.S.’s position. See Prebola v. Comm’r, 90 T.C.M. (CCH) 485, 2005 WL 3068344 (T.C. Nov. 8, 2005).
The Tax Court reasoned that the asset Begy sold — the right to future lottery installment payments — did not constitute a “capital asset” [*3] within the meaning of Section 1221 of the Internal Revenue Code. See id. at [WL] *2. We agree. Although the tax code defines “capital asset” broadly as “property held by the taxpayer,” I.R.C. § 1221(a), the Supreme Court has limited the scope of this provision in contexts, such as here, where the “property” at issue is a right to receive ordinary income payments in the future. See, e.g., Commissioner v. P. G. Lake, Inc., 356 U.S. 260, 266, 78 S. Ct. 691, 2 L. Ed. 2d 743 (1958) (holding that capital gains treatment was inappropriate where “[t]he substance of what was assigned was the right to receive future income” and the “substance of what was received was the present value of income which the recipient would otherwise obtain in the future”).
Under what has become known as the “substitute-for-ordinary-income doctrine,” the Supreme Court and the courts of appeals have held that where lump-sum payments are received in exchange “for what would otherwise be received at a future time as ordinary income,” the payments should be treated as ordinary income, not capital gains. Id. at 265; see also United States v. Midland-Ross Corp., 381 U.S. 54, 57-58, 85 S. Ct. 1308, 14 L. Ed. 2d 214 (1965) [*4] (treating gain on sale of non-interest-bearing notes as equivalent of interest and thus as ordinary income); Hort v. Commissioner, 313 U.S. 28, 31, 61 S. Ct. 757, 85 L. Ed. 1168 (1941) (lump sum paid for cancellation of rental payments owed under fifteen-year lease treated as ordinary income); C.I.R. v. Ferrer, 304 F.2d 125, 131, 134 (2d Cir. 1962) (right to receive percentage of film proceeds treated as ordinary income); Holt v. Commissioner, 303 F.2d 687, 690-91 (9th Cir. 1962) (lump sum received in exchange for future movie proceeds deemed ordinary income); Dyer v. Commissioner, 294 F.2d 123, 126 (10th Cir. 1961) (lump sum received for mineral leasehold payments held to be ordinary income); but see McAllister v. C.I.R., 157 F.2d 235 (2d Cir. 1946) (in a case decided before P. G. Lake, holding that a widow could treat as a capital gain the lump-sum payment she received when she was forced to sell her rights to future payments from a life estate in a trust).
As the Tenth Circuit noted, the “basic lesson” from this line of cases is that “when a party exchanges for a lump sum the right to receive in the future ordinary income already earned [*5] or obtained, the amount received serves as a substitute for the ordinary income the party had the right to receive over time. The lump sum is accordingly treated as ordinary income for taxation purposes.” Watkins, 447 F.3d at 1272. That is exactly what happened here: the $ 7.1 million Begy received was payment for a future stream of ordinary income that she had already earned the right to receive. Thus, just as her annual installments were treated as ordinary income, so should receiving a lump sum in exchange for the right to receive those installments. n1
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n1 Begy contends that her lump-sum payment should be treated as a capital gain because its value was determined, in part, by market forces outside of her control such as variable interest rates. By that logic, however, every right to a future income stream would have to be considered a capital asset because the market value of such rights are invariably dependent on the fluctuation of interest rates over time, thus rendering the substitute-for-ordinary-income doctrine a nullity.
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We recognize that there are contexts in which the substitute-for-ordinary-income doctrine does not or should not apply. See Maginnis, 356 F.3d at 1182 (”an approach that [takes] the doctrine too far . . . would hold that no sale of an asset that produces revenue, even common stock, could be taxed as a capital gain”); Lattera, 437 F.3d at 404 (”in theory, all capital assets are substitutes for ordinary income”); Thomas G. Sinclair, Comment, Limiting the Substitute-for-Ordinary-Income Doctrine: An Analysis Through Its Most Recent Application Involving the Sale of Future Lottery Rights, 56 S.C. L. Rev. 387, 421-22 (2004). But whatever the doctrine’s outer limits, this case falls squarely within them, as there is no question that Begy received her lump sum payment in exchange for the right to be paid income that had already been earned and that was, until the sale, being taxed as ordinary income. In other words, the $ 7.1 million is a clear substitute for the remainder of the $ 17.5 million in lottery payments she was to receive in the future.
Accordingly, we AFFIRM the decision of the Tax Court.
Barber v. Governor of the State of Colorado, 2007 Colo. App. LEXIS 480 (Colo. Ct. App. 2007).
2007 Colo. App. LEXIS 480,*
Douglas H. Barber; Heggem-Lundquist Paint Company, a Colorado corporation; and Rick Kerber, d/b/a Kerber’s Oil Company, Plaintiffs-Appellants, v. Bill Ritter, Jr., as Governor of the State of Colorado, and Cary Kennedy, as Treasurer of the State of Colorado, Defendants-Appellees.
Court of Appeals No. 05CA0752
COURT OF APPEALS OF COLORADO, DIVISION TWO
2007 Colo. App. LEXIS 480
March 22, 2007, Decided
NOTICE: [*1] THIS OPINION IS NOT THE FINAL VERSION AND IS SUBJECT TO REVISION UPON FINAL PUBLICATION
PRIOR HISTORY: City and County of Denver District Court. No. 04CV6602. Honorable R. Michael Mullins, Judge. Barber v. Owens, 2005 Colo. LEXIS 501 (Colo., May 23, 2005)
DISPOSITION: JUDGMENT AND ORDER AFFIRMED IN PART, REVERSED IN PART, AND CASE REMANDED WITH DIRECTIONS.
COUNSEL: Head & Associates, P.C., John F. Head, Denver, Colorado, for Plaintiffs-Appellants.
John W. Suthers, Attorney General , Maurice G. Knaizer, Deputy Attorney General, Monica Marquez, Assistant Attorney General, Denver, Colorado, for Defendants-Appellees.
Larry W. Berkowitz, Brad D. Bailey, Littleton, Colorado, Amici Curiae for City of Littleton.
JUDGES: Opinion by: JUDGE ROTHENBERG. Roy, J., concurs. Hawthorne, J., concurs in part and dissents in part.
OPINION BY: ROTHENBERG
OPINION: In this case involving the Taxpayer’s Bill of Rights (TABOR), Colo. Const. art. X, § 20, and Colo. Const. art. XI, §§ 3-4, plaintiffs, Douglas H. Barber, Rick Kerber, and Heggem-Lundquist Paint Company (collectively, the Taxpayers), appeal the trial court’s order dismissing their general claims and Heggem-Lundquist’s individual claims, and the summary judgment in favor of defendants, former Governor Bill Owens and former State Treasurer [*2] Mike Coffman (the state defendants). After the notice of appeal was filed, a notice of substitution was filed pursuant to C.A.R. 43(c)(1), reflecting that Bill Ritter, Jr. has succeeded Bill Owens as Governor and Cary Kennedy has succeeded Mike Coffman as Treasurer, and the caption was changed accordingly. We affirm in part, reverse in part, and remand with directions.
The primary issue here is this: May the legislature transfer to the general fund cash funds that were collected by the state and designated by statute for specific purposes, or do such transfers violate TABOR and Colo. Const. art. XI, §§ 3-4? With limited exceptions described below, we hold that the legislative acts at issue here which authorized such transfers do not violate TABOR or Colo. Const. art. XI, §§ 3-4.
I. Background
Between 2001 and 2004, during an economic downturn in Colorado, the General Assembly enacted a series of acts that were signed by the governor to address general fund revenue shortfalls. These acts directed the state treasurer to transfer to the state’s general fund over $ 442 million from thirty-one cash funds, which had been established by the General Assembly for [*3] specific purposes.
The Taxpayers filed this action in August 2004, asserting that (1) the transfers of these cash funds represented a “new tax” or a “tax policy change causing a net tax revenue gain” and occurred without voter approval in violation of TABOR; (2) some of the funds were “public trusts,” and therefore, the state as trustee had an obligation to repay the money it had transferred; and (3) the transfers created an unconstitutional “debt” in violation of Colo. Const. art. XI§§ 3-4, . The Taxpayers sought a declaratory judgment invalidating these acts and an order requiring the legislature to return the money to the funds.
Apart from their general assertions based on their status as Colorado taxpayers, Barber, Kerber, and Heggem-Lundquist also asserted individual claims alleging that transfers from the real estate recovery fund, the petroleum storage tank fund, the major medical fund, the subsequent injury fund, and the workers’ compensation cash funds, caused them economic injury.
The state defendants admit they took drastic measures, including these cash transfers, to enhance revenues to balance the state budget as required by Colo. Const. art. X, § 16. However, they [*4] maintain that the transfers were properly made and did not violate the Colorado Constitution. They point out that the General Assembly has enacted similar legislation at least twice in the past when the state faced fiscal shortfalls. In 1983, the legislature transferred money from the lottery fund, the severance tax trust fund, and sales taxes designated for the highway users tax trust fund, see 1983 Colo. Sess. Laws, ch. 438, § 6 at 1519; and in 1987, it transferred money from the water conservation board construction fund and the severance tax trust fund to prevent shortages in the general fund. See 1987 Colo. Sess. Laws, ch. 199, §§ 2 & 3 at 1108.
The parties filed cross-motions for summary judgment, and after considering the parties’ submissions, the trial court dismissed the Taxpayers’ general claims, concluding they lacked standing to raise them. The court concluded Barber had standing to contest the constitutionality of the transfer from the real estate recovery fund, and Kerber had standing to challenge the constitutionality of the transfer from the petroleum storage tank fund. However, the court dismissed Heggem-Lundquist’s specific claims challenging the transfer [*5] from the major medical fund, the subsequent injury fund, and the workers’ compensation fund, concluding it failed to show economic injury and therefore lacked standing to bring those claims.
After dismissing most of the Taxpayers’ claims for lack of standing, the trial court nevertheless addressed the merits and concluded that the transfers did not violate the Colorado Constitution, and that even if the transfers were improper, the court lacked authority to grant the relief sought by the Taxpayers.
II. Moot Claims
Initially, we conclude some of the Taxpayers’ claims are moot. A case is moot when a judgment, if rendered, would have no practical legal effect upon an existing controversy. Campbell v. Meyer, 883 P.2d 617 (Colo. App. 1994).
We will not consider and rule on the merits of an appeal when the issues presented to the trial court have become moot due to subsequent events. Campbell v. Meyer, supra. “The duty of this court, as of every other judicial tribunal, is to decide actual controversies by a judgment which can be carried into effect, and not . . . to declare principles or rules of law which cannot affect the matter in issue before [*6] it.” Barnes v. Dist. Court, 199 Colo. 310, 312, 607 P.2d 1008, 1009 (1980) (quoting People v. Dist. Court, 78 Colo. 526, 530, 242 P. 997, 998 (1925)).
Barber is a real estate broker licensed by the Colorado Division of Real Estate. He alleged that he was injured by the transfer of funds from the real estate recovery fund to the general fund, and requested an order directing repayment of funds into the real estate recovery fund. However, it is undisputed that the real estate recovery fund and the surcharge imposed on real estate licenses have been abolished, there is no fund in existence to which to return transferred monies, and there is no longer an existing controversy regarding this claim. See Colo. Sess. Laws 2005, ch. 177, § 12-61-301 at 622.
Kerber does business as Kerber’s Oil Company. He buys fuel from a large oil company and delivers it in bulk to consumers. He pays an environmental response surcharge on every tank of fuel he purchases, which surcharge goes to the petroleum storage tank fund. See §§ 8-20-206.5, 8-20.5-103(1)(d), C.R.S. 2006 (providing funding for the remediation [*7] of contamination caused by leaking petroleum storage tanks). The amount of the surcharge paid by Kerber and others depends on the balance in the fund.
Kerber alleged that he was injured by the transfer of money from that fund to the general fund, and he requested an order requiring repayment to the petroleum storage tank fund. However, it is undisputed that the funds taken from the petroleum storage tank fund have been repaid. See §§ 8-20.5-103 (2)(b)(II), 24-75-217, C.R.S. 2006. Hence, there is no existing controversy for us to decide as to this claim.
We therefore address whether the Taxpayers and Heggem-Lundquist have standing to challenge the transfers of the remaining twenty-nine cash funds.
III. Standing
The Taxpayers contend the trial court erred in concluding they lacked standing to challenge, as unconstitutional, the transfers of the cash funds because they did not directly pay into those funds. We agree.
Standing is a question of law we review de novo. Corsentino v. Cordova, 4 P.3d 1082 (Colo. 2000). To establish standing to sue, the plaintiff must show (1) an injury in fact (2) to a legally [*8] protected interest. Wimberly v. Ettenberg, 194 Colo. 163, 570 P.2d 535 (1977).
There are at least three distinct forms of standing: taxpayer standing, individual standing, and organizational standing. See Women’s Emergency Network v. Bush, 323 F.3d 937, 943 (11th Cir. 2003)(citing Doremus v. Bd. of Educ., 342 U.S. 429, 434, 72 S. Ct. 394, 397, 96 L. Ed. 475 (1952); Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S. Ct. 2130, 2136, 119 L. Ed. 2d 351 (1992); Brotman v. E. Lake Creek Ranch, L.L.P., 31 P.3d 886 (Colo. 2001)(court concluded plaintiff lacked standing to bring the action (1) as an adjacent landowner, (2) as a taxpayer, or (3) as the beneficiary of a federal trust, and discussed the different requirements for each type of standing).
The Colorado Supreme Court has construed the law to provide “broad taxpayer standing in the trial and appellate courts.” Ainscough v. Owens, 90 P.3d 851, 856 (Colo. 2004); see Conrad v. City & County of Denver, 656 P.2d 662, 668 (Colo. 1982).
A. Injury in Fact
“The ‘injury-in-fact’ requirement is dictated by the need [*9] to assure that an actual controversy exists so the matter is a proper one for judicial resolution.” Conrad, supra, 656 P.2d at 668 (concluding taxpayer had standing to challenge the constitutionality of the use of public funds to display nativity scene on the steps of the city and county building).
“To determine whether there is an injury-in-fact, we accept as true the allegations set forth in the complaint.” Ainscough, supra, 90 P.3d at 857 (citing Dunlap v. Colo. Springs Cablevision, Inc., 829 P.2d 1286, 1289 (Colo. 1992)).
The alleged injury may be tangible, like an economic loss or physical harm, or it may be intangible, like the government’s violation of legally created rights. Ainscough, supra; Olson v. City of Golden, 53 P.3d 747, 750 (Colo. App. 2002)(concluding Urban Renewal Law does not reflect a legislative intent to grant taxpayers the right to enforce § 31-25-106(1), C.R.S. 2006).
Colorado courts have recognized a wide variety of intangible injuries that may be asserted by taxpayers, including aesthetic and environmental injuries, City of Greenwood Village v. Petitioners for Proposed City of Centennial, 3 P.3d 427 (Colo. 2000) [*10] (citing Sierra Club v. Morton, 405 U.S. 727, 734, 92 S. Ct. 1361, 31 L. Ed. 2d 636 (1972)); injuries to the General Assembly’s power of appropriation, see Colo. Gen. Assembly v. Lamm, 700 P.2d 508, 510 (Colo. 1985); injuries caused by governmental preference for a particular religion, Conrad, supra; injuries based upon alteration of a particular form of government, Howard v. City of Boulder, 132 Colo. 401, 290 P.2d 237 (1955); Colo. State Civil Serv. Employees Ass’n v. Love, 167 Colo. 436, 448 P.2d 624 (1968); and injuries to taxpayers based upon unlawful expenditures of state funds, even without a direct economic injury, Dodge v. Dep’t of Soc. Servs., 198 Colo. 379, 600 P.2d 70 (1979)(concluding taxpayer had standing to challenge the constitutionality of the use of state funds to finance nontherapeutic abortions); Rocky Mountain Animal Defense v. Colo. Div. of Wildlife, 100 P.3d 508, 513 (Colo. App. 2004)(nonprofit corporation organized to enforce laws protecting wildlife and human-imposed suffering of animals had standing to challenge agency action poisoning [*11] prairie dogs, allegedly in violation of Amendment 14, which protects Colorado wildlife from inhumane and indiscriminate methods of killing; “[e]nvironmental organizations have a legitimate role in ensuring the proper interpretation and implementation of such laws”).
In cases involving a taxpayer’s standing, general allegations of injury are sufficient, and a plaintiff has standing as long as the taxpayer “argues that a governmental action that harms him [or her] is unconstitutional.” Ainscough, supra, 90 P.3d at 856. “Generally, the one who bears the financial burden of a tax is a party aggrieved and thus has standing to challenge an assessment.” Hughey v. Jefferson County Bd. of Comm’rs, 921 P.2d 76, 78 (Colo. App. 1996); see Conrad, supra, 656 P.2d at 668. “[E]ven where no direct economic harm is implicated, a citizen has standing to pursue his or her interest in ensuring that governmental units conform to the state constitution.” Nicholl v. E-470 Pub. Highway Auth., 896 P.2d 859, 866 (Colo. 1995).
B. Legally Protected Interest
The legally protected interest also may be tangible, such as a property [*12] right, or it may be intangible, such as an interest that the government acts in a manner that conforms to the Constitution. See Nicholl, supra, 896 P.2d at 866. The supreme court has held that taxpayers have an economic interest in having general tax dollars spent in a constitutional manner. Ainscough, supra, 90 P.3d at 856 (”[L]egally protected rights encompass all rights arising from constitutions, statutes, and case law.”); Conrad, supra.
TABOR also includes specific language that confers upon parties a legally protected interest to enforce its provisions. It provides: “Individual or class action enforcement suits may be filed and shall have the highest civil priority of resolution.” Colo. Const. art. X, § 20(1). This language has been interpreted to confer a legally protected interest to enforce the provisions of TABOR, which satisfies the second standing requirement. Nicholl, supra, 896 P.2d at 866 (”Although [TABOR], itself, did not create ‘rights’ vested in Colorado’s taxpayers but rather imposes ‘limitations on the spending and taxing power[s] of state and local government,’ under the [*13] terms of [TABOR], Nicholl may bring an enforcement action as an individual taxpayer.” (citation omitted)(quoting Bickel v. City of Boulder, 885 P.2d 215, 225 (Colo. 1994)).
C. Application to This Case
Accepting the allegations in the complaint as true and applying the broad taxpayer standing standard articulated by our supreme court, we conclude the Taxpayers have standing to challenge the constitutionality of the use of funds, and to present their argument that a vote of the electorate was required before the cash transfers could be effectuated. See Nicholl, supra; Conrad, supra; Dodge, supra. This standing exists because the Taxpayers have an interest in having general tax dollars spent in compliance with TABOR and Colo. Const. art. XI, §§ 3 and 4. If the Taxpayers here were determined to have no standing, we do not know who else could bring these constitutional challenges.
In reaching our conclusion, we acknowledge that taxpayer standing cases have generally involved expenditures by the legislature, whereas, here, the Taxpayers are challenging transfers of money from the cash funds into [*14] the general fund. Nevertheless, we perceive no reason for distinguishing between allegations of unlawful expenditures of state funds and the unlawful transfers of such funds. Compare Bobo v. Kulongoski, 338 Ore. 111, 107 P.3d 18 (2005)(taxpayers’ standing to bring an action against the state challenging a bill that retroactively transferred federal Medicaid funds out of the state’s general fund was unchallenged); with Rukavina v. Pawlenty, 684 N.W.2d 525, 531 (Minn. Ct. App. 2004)(taxpayers lacked standing to challenge transfer of funds from special mineral fund to the general fund to reduce budget deficit because they did not allege the action was unlawful; court concluded “the individual challenges in this case [were] based primarily on [taxpayers’] disagreement with policy or the exercise of discretion by those responsible for executing the law”).
We also distinguish the Taxpayers’ constitutional challenges in this case from circumstances in which taxpayers challenge a statute and there is no indication the legislature intended to confer upon them such an interest. See Olson v. City of Golden, supra.
The Supreme Court’s [*15] recent decision in Lance v. Coffman, U.S. , 127 S. Ct. 1194, 167 L. Ed. 2d 29 (2007), does not require a different result. That case arose after the Colorado Supreme Court announced People ex rel. Salazar v. Davidson, 79 P.3d 1221 (Colo. 2003), which invalidated a redistricting plan passed by the state legislature and ordered the use of a redistricting plan created by the state courts.
Three days after Salazar was decided, four Colorado citizens, none of whom had participated in Salazar, filed a complaint in federal district court alleging that “Article V, § 44 of the Colorado Constitution, as interpreted in Salazar, violated [the Elections Clause of the United States Constitution] by depriving the state legislature of its responsibility to draw congressional districts.” Lance v. Davidson, 379 F. Supp. 2d 1117, 1122 (D. Colo. 2005). As relevant here, a three-judge panel of the United States District Court for the District of Colorado dismissed the case, concluding that issue preclusion barred the plaintiffs’ Elections Clause claim.
The plaintiffs appealed to the Supreme Court, which upheld [*16] the dismissal on other grounds, namely that the plaintiffs lacked standing to bring their action in federal court. The Court stated:
Federal courts must determine that they have jurisdiction before proceeding to the merits. Article III of the Constitution limits the jurisdiction of federal courts to “Cases” and “Controversies.” One component of the case-or-controversy requirement is standing, which requires a plaintiff to demonstrate the now-familiar elements of injury in fact, causation, and redressability. “We have consistently held that a plaintiff raising only a generally available grievance about government–claiming only harm to his and every citizen’s interest in proper application of the Constitution and laws, and seeking relief that no more directly and tangibly benefits him than it does the public at large–does not state an Article III case or controversy.”
Lance v. Coffman, supra, U.S. at , 127 S. Ct. at 1196 (citations omitted)(quoting Lujan v. Defenders of Wildlife, supra, 504 U.S. at 573-74, 112 S. Ct. at 2143).
The Court added: “[T]his general right [possessed by every citizen, to require that [*17] the Government be administered according to law and that the public moneys be not wasted] does not entitle a private citizen to institute [a suit] in the federal courts.” Lance v. Coffman, supra, U.S. at , 127 S. Ct. at 1197 (quoting Fairchild v. Hughes, 258 U.S. 126, 129-30, 42 S. Ct. 274, 275, 66 L. Ed. 499 (1922)).
Thus, the Court in Lance v. Coffman, supra, simply restated the requirement that plaintiffs demonstrate standing under Article III before they can bring an action in federal court. However, nothing in the Court’s decision affects the standing of private citizens and taxpayers to bring lawsuits in state court alleging violations of their rights under their state constitution. While federal decisions may be considered for guidance, we are ultimately governed by state principles of standing, rather than the federal principles created by Article III of the United States Constitution and addressed in federal decisions. See Grossman v. Dean, 80 P.3d 952, 959 (Colo. App. 2003)(Colorado Supreme Court cases “reflect a more expansive view of standing under Colorado law than that expressed under federal [*18] law”).
Accordingly, we conclude the Taxpayers have standing to challenge the transfers from the special funds into the general fund, and the trial court erred in ruling otherwise.
D. Heggem-Lundquist’s Standing
However, we agree with the trial court that Heggem-Lundquist lacks standing to raise its individual challenges to transfers from the major medical, subsequent injury, and workers’ compensation cash funds into the general fund.
Heggem-Lundquist is a paint company that does interior finishes for the construction industry and individual homeowners. It is required by Colorado law to obtain workers’ compensation insurance for its employees, and it asserts that it pays approximately $ 400,000 per year in workers’ compensation insurance premiums.
It is undisputed Heggem-Lundquist does not pay the surcharge on workers’ compensation insurance premiums that is allocated to the major medical, subsequent injury, and workers’ compensation cash funds. That surcharge is assessed to its insurer. We are also unaware of any evidence in the record showing that Heggem-Lundquist’s insurer is legally obligated to pass the surcharge on to its customers, or that Heggem-Lundquist is legally required [*19] to purchase coverage from an insurer who passes through that cost. We therefore conclude Heggem-Lundquist has not shown an injury in fact, and it lacks standing to bring its individual claims. Accordingly, we affirm that part of the trial court’s order.
Because individual standing and taxpayer standing have distinct requirements, our conclusion that Heggem-Lundquist lacks standing to bring its individual claims is not inconsistent with our conclusion that it has standing to file this lawsuit in its capacity as a taxpayer, as do the other Taxpayers. See Women’s Emergency Network v. Bush, supra; Lujan v. Defenders of Wildlife, supra; Brotman, supra.
IV. Taxpayers’ Constitutional Claims
Given our conclusion that the individual claims of Barber and Kerber are moot and that Heggem-Lundquist lacks standing to bring its individual claims, the only remaining claims before us are the Taxpayers’ claims that the transfers violated TABOR and Colo. Const. art. XI, §§ 3-4. Therefore, we next address the trial court’s summary judgment in favor of the state defendants on the Taxpayers’ constitutional claims, and its conclusion that [*20] the transfers did not violate either article of the Colorado Constitution. We conclude that certain of those claims should not have been dismissed.
A. Standard of Review
We review a grant of summary judgment de novo. BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66 (Colo. 2004). Summary judgment is proper if the pleadings, affidavits, depositions, or admissions show there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Civil Serv. Comm’n v. Pinder, 812 P.2d 645 (Colo. 1991). The moving party has the burden of establishing the nonexistence of a genuine issue of material fact. Pinder, supra.
We also review the interpretation of a constitutional provision de novo. Bruce v. City of Colorado Springs, 129 P.3d 988, 992 (Colo. 2006).
B. Did the Transfers Violate TABOR?
In their complaint, the Taxpayers allege that the transfers of the cash funds at issue violated TABOR, which circumscribes the revenue, spending, and debt powers of state and local governments, Bruce v. City of Colorado Springs, 131 P.3d 1187, 1189 (Colo. App. 2005), and requires [*21] voter approval in advance of the “creation of any multiple-fiscal year direct or indirect district debt or other financial obligation whatsoever.”