Opinion
No. 2:16-cv-121
2022-08-11
KEWEENAW BAY INDIAN COMMUNITY, Plaintiff, v. Nick A. KHOURI, et al., Defendants.
Vernle (Skip) Durocher, Dorsey & Whitney LLP, Minneapolis, MN, for Plaintiff. Jaclyn Shoshana Levine, Kelly Marie Drake, Laura Rose LaMore, MI Dept. Attorney General (ENRA-Lansing), Environment, Natural Resources & Agriculture Division, Lansing, MI, for Defendants Nick A. Khouri, Walter Fratzke, Christopher Croley. Jaclyn Shoshana Levine, MI Dept. Attorney General (ENRA-Lansing), Environment, Natural Resources & Agriculture Division, Lansing, MI, for Defendants Rachel Eubanks, Jocelyn Benson.
Vernle (Skip) Durocher, Dorsey & Whitney LLP, Minneapolis, MN, for Plaintiff. Jaclyn Shoshana Levine, Kelly Marie Drake, Laura Rose LaMore, MI Dept. Attorney General (ENRA-Lansing), Environment, Natural Resources & Agriculture Division, Lansing, MI, for Defendants Nick A. Khouri, Walter Fratzke, Christopher Croley. Jaclyn Shoshana Levine, MI Dept. Attorney General (ENRA-Lansing), Environment, Natural Resources & Agriculture Division, Lansing, MI, for Defendants Rachel Eubanks, Jocelyn Benson. OPINION AND ORDER GRANTING IN PART DEFENDANTS' MOTION FOR POST-JUDGMENT RELIEF Paul L. Maloney, United States District Judge
Following cross motions for summary judgment, this Court enjoined "Michigan from enforcing its use tax statute, as it is currently written, against the [Keweenaw Bay Indian Community] and its registered members residing in the Community's Indian Country." (ECF No. 428 PageID.6653.) Defendants filed a motion for post-judgment relief. (ECF No. 430.) The Court will grant the motion in part.
I.
For the relief requested, Defendants rely on Rules 60(a), (b)(1) and (b)(6) of the Federal Rules of Civil Procedure. Rule 60(a) authorizes a court to correct clerical mistakes and mistakes arising from oversight or omission. To fall under Rule 60(a), the mistake must "in the nature of recitation of amanuensis mistakes that a clerk might make. They are not errors of substantive judgment." Olle v. Henry & Wright Corp., 910 F.2d 357, 363-64 (6th Cir. 1990) (quoting Jones v. Anderson-Tully Co., 722 F.2d 211, 212-13 (5th Cir. 1984)). Rule 60(b)(1) permits a court to provide relief for a "mistake, inadvertence, surprise, or excusable neglect." In contrast to Rule 60(a), rule 60(b)(1) addresses a court's substantive mistakes of fact or law. Penney v. United States, 870 F.3d 459, 461 (6th Cir. 2017) (quoting United States v. Reyes, 307 F.3d 451, 455 (6th Cir. 2002)); see Kemp v. United States, — U.S. —, 142 S. Ct. 1856, 1862-64, 213 L.Ed.2d 90 (2022). The rule may also be invoked to provide relief when a party makes an excusable mistake or when an attorney acts without authority. Reyes, 307 F.3d at 455. Rule 60(b)(6) permits a court to provide relief for "any other reason that justifies relief." This catch-all provision, "applies only in exceptional or extraordinary circumstances which are not addressed by the first five number clauses of the Rule." Ford Motor Co. v. Mustangs Unlimited, Inc., 487 F.3d 465, 468 (6th Cir. 2007) (internal quotation marks omitted) (quoting Blue Diamond Coal Co. v. Trs. of UMWA Combined Benefit Fund, 249 F.3d 519, 524 (6th Cir. 2001)). The decision to grant or deny post-judgment relief under Rule 60 constitutes an exercise of discretion. See Browder v. Director, Dept. of Corrs. of Illinois, 434 U.S. 257, 263 n.7, 98 S.Ct. 556, 54 L.Ed.2d 521 (1978).
II.
Defendants allege two errors and seek correction of both. First, Defendants contend the injunction should be limited to the office of the Michigan Treasurer and any successors, agents and others acting in concert with the Treasurer. Second, Defendants request the Court clarify that the Michigan Treasurer may apportion the use tax to comply with this Court's opinion and order as permitted by Michigan Compiled Laws § 205.94(2) or following a legislative amendment to the Michigan Use Tax Act.
A.
Defendants argue the Court should alter the language of the injunction to show that the Michigan Treasurer, not the State of Michigan, is subject to the injunction. Defendants assert the Court can make the change under either Rule 60(a) or 60(b).
The Court declines to alter the language in the injunction under Rule 60(a). The Court did not make a clerical error when it enjoined "Michigan." The Court intentionally enjoined the State of Michigan. Plaintiff sued Defendants in their official capacities as state officials. Claims against state officials in their official capacities "should be treated as suits against the state." Hafer v. Melo, 502 U.S. 21, 25, 112 S.Ct. 358, 116 L.Ed.2d 301 (1991). Treating Plaintiff's Count 5 as a claim against the State of Michigan, the Court intentionally enjoined the State of Michigan.
Defendants have not identified a substantive error of fact or law that requires correction under Rule 60(b)(1). Defendants insist that only the State Treasurer has the authority enforce state tax law and conclude that only the State Treasurer should be subject to the injunction. Defendants assert that the injunction "applies to 'Michigan' even though the State of Michigan has never been a party to this litigation." (ECF No. 431 at 6 PageID.6669.) Semantically, Defendants are correct. Plaintiff did not name the State of Michigan as a defendant. But, Plaintiff sued Nick Khouri and Ruth Johnson in their individual and in their official capacities. At the time Plaintiff filed the third amended complaint, Khouri and Johnson were, respectively, the Treasurer for the State of Michigan and the Michigan Secretary of State. As Defendants are well aware, "a suit against a state official in his or her official capacity is not a suit against the official but rather is a suit against the official's office. As such, it is no different from a suit against the State itself." Will v. Michigan Dept. of State Police, 491 U.S. 58, 71, 109 S.Ct. 2304, 105 L.Ed.2d 45 (1989) (internal citation omitted).
Upon further consideration, however, the Court will amend the injunction under Rule 60(b)(1). Ordinarily, the Eleventh Amendment prohibits lawsuits against state officials when the state itself is the real party in interest. Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 101, 104 S.Ct. 900, 79 L.Ed.2d 67 (1984). "[A] suit against state officials that is in fact a suit against the State is barred regardless of whether it seeks damages or injunctive relief." Id. at 102, 104 S.Ct. 900 (citing Cory v. White, 457 U.S. 85, 91, 102 S.Ct. 2325, 72 L.Ed.2d 694 (1982)). Our Supreme Court recognized an exception to this general rule in Ex parte Young for plaintiffs who seek injunctive relief against individual state officials when sued in their official capacities. Diaz v. Michigan Dept. of Corrs., 703 F.3d 956, 964 (6th Cir. 2013); see Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). To fall within the exception, a plaintiff must seek prospective relief to end a continuing violation of federal law. Id.
The holding in Ex parte Young rests on a legal fiction. See Crugher v. Prelesnik, 761 F.3d 610, 616 (6th Cir. 2014); accord William v. Reeves, 954 F.3d 729, 736 (5th Cir. 2020); McDonough Assocs., Inc. v. Grunloh, 722 F.3d 1043, 1050 (7th Cir. 2013); Koslow v. Commonwealth of Pennsylvania, 302 F.3d 161, 168 (3d Cir. 2002); Cardenas v. Anzai, 311 F.3d 929, 935 (9th Cir. 2002); Gibson v. Arkansas Dept. of Corr., 265 F.3d 718, 719-20 (8th Cir. 2001). Although the lawsuit is brought against a state official in his or her official capacity, the lawsuit is not a claim against the state itself. The Court offered the following explanation.
The act to be enforced is alleged to be unconstitutional; and if it be so, the use of the name of the state to enforce an unconstitutional act to the injury of the complainants is a proceeding without the authority of, and one which does not affect, the state in its sovereign or governmental capacity. It is simply an illegal act upon the part of a state official in attempting, by the use of the name of the state, to enforce a legislative enactment which is void because unconstitutional. If the act which the state [officer] seeks to enforce be a violation of the Federal Constitution, the officer, in proceeding under such an enactment, comes into conflict with the superior authority of that Constitution, and he is in that case stripped of his official or representative character and is subjected in his person to the consequences of his individual conduct. The state has no power to impart to him any immunity from
responsibility to the supreme authority of the United States.Ex parte Young, 209 U.S. at 159-60, 28 S.Ct. 441. In this set of facts, the Eleventh Amendment does not prohibit a claim brought against a state officer to enjoin the enforcement of an unconstitutional statute because the claim is not against the state itself. Florida Dept. of State v. Treasure Salvors, Inc., 458 U.S. 670, 684, 102 S.Ct. 3304, 73 L.Ed.2d 1057 (1982). The same reasoning applies to unconstitutional acts taken by state officials enforcing constitutional state statutes. Pennhurst, 465 U.S. at 118, 104 S.Ct. 900 (citing Greene v. Louisville & Interurban R.R. Co., 244 U.S. 499, 507, 37 S.Ct. 673, 61 L.Ed. 1280 (1917)). In Treasure Salvors, the Supreme Court acknowledged the "well-recognized irony in Ex parte Young; unconstitutional conduct by a state officer may be a 'state action' for purposes of the Fourteenth Amendment yet not attributable to the State for purposes of the Eleventh Amendment." Id. at 685, 102 S.Ct. 3304.
This Court's substantive error arises from the legal fiction underlying Plaintiff's claim. In Count 5, Plaintiff alleged that the imposition of Michigan's use tax on goods used within the reservation violates federal law because the state statute does not apportion the tax. (ECF No. 58 ¶ 126 PageID.828-29.) To avoid the Eleventh Amendment, Plaintiff necessarily challenged the actions of Khouri and Johnson, the collection of use taxes without apportionment. The Court granted Plaintiff summary judgment on that claim. (ECF No. 423 at 41-45 PageID.6594-98.) Because official capacity claims are functionally claims against the state, the Court enjoined Michigan from enforcing the statute against Plaintiff. But, the Court overlooked the legal fiction that permitted the claim under Ex parte Young. That legal fiction requires the remedy be fashioned to address the acts of the state officials; "it is the fiction of Young that shelters such ancillary orders from not being orders against the state . . . ." Banas v. Dempsey, 742 F.2d 277, 288 (6th Cir. 1984). To avoid what the Eleventh Amendment prohibits, the Court must "order[ ] state officials to comply with federal law." Id.
The parties agree that the Court should enjoin "the Michigan Treasurer, her successors, agents, employees, attorneys, and anyone acting in active concert or participation with them." (ECF No. 431 at 9 PageID.6672; ECF No. 436 at 2 PageID.6694.) The Court will amend the injunction accordingly.
Both parties agree that this language would include the Michigan Secretary of State, who is charged with collecting certain use taxes on vehicles. (ECF No. 431 at 9 PageID.6672; ECF No. 436 at 5-6 PageID.6697-98.)
B.
For the second alleged error, Defendants ask the Court to clarify that the Michigan Treasurer may apportion the use tax as permitted by the statute. Defendants also ask the Court to clarify that the Michigan Treasurer may apportion the use tax following an amendment to the statute. For this request, Defendants rely on Rule 60(b)(1) and 60(b)(6).
For context, the Court provides a brief review. Michigan's application of the use tax on Plaintiff and the registered members of the tribe was an issue in this lawsuit. Section 205.93(1) of the Use Tax Act appears to impose the entirety of the use tax whenever tangible personal property is used for a taxable purpose, regardless of any exemption. The provision reads, in relevant part, as follows:
The tax levied under this act applies to a person who acquires tangible personal property or services that are subject to the tax levied under this act for any tax-exempt
use who subsequently converts the tangible personal property or service to a taxable use, including an interim taxable use. If tangible personal property or services are converted to a taxable use, the tax levied under this act shall be imposed without regard to any subsequent tax-exempt use.Mich. Comp. Laws § 205.93(1).
Both parties were aware that the constitutionality of the use tax, as applied to Plaintiff, was in dispute. Plaintiff pleaded that the Use "Act does not provide for apportionment of the tax to apply only to use outside the Reservation and Ceded Area, and to the extent that such apportionment would be appropriate, the Department has not even attempted it." (ECF No. 58 ¶ 52 PageID.807.) Plaintiff moved for summary judgment, in part, arguing that Michigan's "Use Tax has no apportionment formula that would tailor it to the amount of actual use of tangible personal property outside the Reservation." (ECF No. 126 at 31 PageID.1630.)
Defendants did not dispute that the use tax statute did not have a specific apportionment formula that would consider and distinguish use inside and outside of Plaintiff's Indian Country. In their response to the motion for summary judgment, Defendants instead tried to distinguish the Michigan statute from other state statutes which were the subject of challenges addressed by the Supreme Court: "The Use Tax does not have language specifically apportioning the use tax for tribes and their resident members for tangible personal property used both inside and outside Indian country. But the Use Tax Act does not require that type of apportionment provision because it is substantively different from the annual personal property taxes in Moe, Colville, and Sac & Fox." (ECF No. 152 at 22 PageID.2118.) Later, Defendants summarized their position on the Use Tax and apportionment: "As a result, Treasury may tax those uses that occur outside Indian country without an apportionment mechanism in the Use Tax Act, as the Supreme Court recognized in [Washington v. Confederated Tribes of] Colville [Indian Reservation], 447 U.S. [134] at 163-64 [100 S.Ct. 2069, 65 L.Ed.2d 10 (1980)]." (Id. at 24 PageID.2120).
In the Opinion and Order granting Plaintiff's motion for summary judgment, the Court quoted § 205.93(a) and held that the use tax statute "does not permit apportionment of the use tax to distinguish between use of the tangible property in Indian country and the use of the property in Michigan but outside of Indian country." (ECF No. 423 at 10 PageID.6563.) Functionally, the parties and the Court all agreed that that the use tax statute did not include any specific language permitting apportionment for the purpose of taxing off-reservation use. In paragraph 3 of the injunction, the Court intentionally described the statute as follows: "[a]s currently written and enforced, the Michigan Use Tax, Michigan Compiled Laws § 205.91, et seq., does not apportion the use tax." (ECF No. 428 PageID.6653.) The Court then described the injunction.
4. Consistent with paragraphs 1-3, the Court ENJOINS Michigan from enforcing its use tax statute, as it is currently written, against the Community and its registered members residing in the Community's Indian Country. Specifically, Michigan must not collect its use tax or otherwise enforce the use tax on tangible personal property, and any services subject to the use tax, used by the Keweenaw Bay Indian Community or its registered members residing in the Community's Indian Country when the property or service is used in both in [sic] the Community's Indian Country
and outside the Community's Indian Country but in Michigan.(Id. PageID.6653-54.)
1.
Defendants first assert that the Court should clarify the injunction because the Michigan Treasurer can apportion the use tax under Michigan Compiled Laws § 205.94. Defendants assert that § 205.94(1)(b) includes an exemption for the use tax relevant to Plaintiff's constitutional challenge. Section 205.94(1)(b) exempts from the use tax any "[p]roperty, the storage, use, or other consumption of which this state is prohibited from taxing under the constitution or laws of the United State, or under the constitution of this state." Section 205.94(2) then allows for apportionment when an exemption exists and when the property is used for non-exempt purposes:
The property or services under section (1) are exempt only to the extent that the property or services are used for the exempt purposes if one is stated in subsection (1). The exemption is limited to the percentage of use to total use determined by a reasonable formula or method approved by the department.
The Court declines to use Rule 60(b)(1) to alter or amend the injunction to permit apportionment under § 205.94(2). The facts here do not support the finding of a mistake or neglect such that the Court should modify the injunction. Defendants did not raise the possibility of apportionment under § 205.94(2) in their response to Plaintiff's motion for summary judgment. The Sixth Circuit has held that Rule 60(b)(1) does not permit a district court to find excusable neglect and grant relief "each time a party forgets to raise a particular legal theory or defense at any state in the proceeding, . . ." Jinks v. AlliedSignal, Inc., 250 F.3d 381, 386 (6th Cir. 2001).
The record contains some evidence that Defendants were aware of the ability to apportion under § 205.94(2). In answers a request for admission, Defendants admitted that the text of the Use Act did not provide a mechanism that apportioned the tax, but denied that the statute failed to permit apportionment, citing Michigan Compiled Laws § 205.94(2). (ECF No. 126-6 PageID.1708.)
The Court will, however, provide Defendants some relief under Rule 60(b)(6). To avoid the Eleventh Amendment, Plaintiff necessarily had to challenge the acts of Defendants as unconstitutional. As evidenced by paragraph 3 in the injunction, the Court found that Defendants' interpretation of the Use Tax Act, and their present enforcement of the statute, violates our Constitution. The Court intended to enjoin Defendants from collecting the disputed use taxes as Defendants interpreted the statute and applied it to Plaintiff and its registered members. The Court attempted to write the injunction to address that situation.
Defendants have demonstrated that the language used in the injunction extends to situations beyond what the Court intended. Section 205.94(b)(1) identifies an exemption to the use tax that might apply to Plaintiff's challenge to the collection of use taxes. Section 205.94(2) appears to allow the Michigan Department of Treasury to create a formula that would permit collection of an apportioned use tax by comparing the non-exempt use of property to the total use of the property, including the exempt use. As written, paragraph 4 of the injunction would preclude the Michigan Department of Treasury from collecting use taxes if the Department of Treasury creates a "reasonable formula or method" for apportioning the use tax. Because the injunction extends beyond the Court's intention, the Court finds that Defendants have demonstrated an exceptional and extraordinary circumstance for which the Court may provide relief.
The Court will amend the injunction to reflect that Defendants are enjoined from collecting use taxes from Plaintiff and its registered members as Defendants have been interpreting and enforcing the use tax. Amending the injunction to address only Defendants' present interpretation and enforcement makes sense in light of the legal fiction underlying Plaintiff's claim. The Court may enjoin the current manner in which Defendants impose the use tax because Plaintiff has established that the current method lacks apportionment and is, therefore, unconstitutional.
Plaintiff requests the Court retain jurisdiction over future disputes should Defendants attempt to create a formula for apportioning the use tax as a "work-around of the injunction." (ECF No. 436 at 7 PageID.6699.) The Court declines to do so. This Court resolved Plaintiff's present challenge to the use tax based on the lack of apportionment. Any dispute about a future attempt to collect apportioned use taxes would be based on an entirely different set of facts and circumstances.
2.
Defendants argue that the Court should clarify the injunction because the State Legislature could amend the Use Tax Act.
The Court declines to provide Defendants any relief or clarification. The injunction speaks for itself and the injunction is not ambiguous. Plaintiff aptly points out it its response that, should the legislature amend the statute in the future, Defendants could seek relief under Rule 60(b)(5), which allows a court to grant relief when applying a judgment "prospectively is not longer equitable." Fed R. Civ. P. 60(b)(5).
III.
The Court will grant Defendants some of the relief requested in their motion for post-judgment relief. The Court will amend the injunction to apply to the Office of the State Treasurer and those assisting the Office in the collection of taxes. The amendment is necessary to avoid Eleventh Amendment immunity. The Court will also amend the injunction to apply to the manner in which the Department of Treasury presently interprets and enforces the use tax statute. Whether the Department can apportion the use tax under an existing statutory provision or whether the legislature modifies the statute to allow are not disputes presently before the Court.
ORDER
For the reasons provided in the accompanying Opinion, the Court GRANTS IN PART Defendants' motion for post-judgment relief. (ECF No. 430.) A modified injunction will issue contemporaneous with this Opinion and Order. IT IS SO ORDERED.