Robert A. Ring, et al., Appellants, v. The Metropolitan St. Louis Sewer District, Respondent.

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court. Opinion Missouri Court of Appeals Eastern District Case Style: Robert A. Ring, et al., Appellants, v. The Metropolitan St. Louis Sewer District, Respondent. Case Number: 71864 Handdown Date: 01/13/1998 Appeal From: Circuit Court of the City of St. Louis, Hon. Joan M. Burger Counsel for Appellant: Lewis C. Green Counsel for Respondent: Alan Charles Kohn Opinion Summary: Robert A. Ring, et al. (plaintiffs) appeal the circuit court judgment of the City of St. Louis dismissing their class action suit for a refund of monies paid to respondent, the Metropolitan St. Louis Sewer District (MSD), under Ordinance 8657 which had been ruled unconstitutional. See Beatty v. Metro. St. Louis Sewer Dist., 867 S.W.2d 217 (Mo.banc 1993) (hereinafter "Beatty II"). TRANSFERRED. Division One holds: This Court has jurisdiction over the matter and concludes plaintiffs were required to comply with section 139.031, RSMo, in order to recover the taxes at issue. But due to this decision's ramifications as well as other issues the parties raised, we find the case to be of sufficient general interest and importance so as to transfer the matter to the Missouri Supreme Court pursuant to Rule 83.02. Citation: Opinion Author: PER CURIAM Opinion Vote: TRANSFERRED. Grimm, P.J., Pudlowski, and Gaertner, J.J., concur. Opinion: Appellants, Robert A. Ring, et al. ("plaintiffs"), appeal the judgment of the Circuit Court of the City of St. Louis

dismissing their class action suit for a refund of monies paid to respondent, the Metropolitan St. Louis Sewer District ("MSD"), under Ordinance 8657 which had been ruled unconstitutional. See Beatty v. Metro. St. Louis Sewer Dist., 867 S.W.2d 217 (Mo.banc 1993) (hereinafter referred to as "Beatty II"). This is the latest in a series of lawsuits filed against MSD. See id.; Beatty v. St. Louis Sewer Dist., 914 S.W.2d 791 (Mo.banc 1995) (hereinafter referred to as "Beatty III"). In the instant case, plaintiffs filed a petition with the trial court seeking certification as a class under Rule 52.08 in order to recover, on behalf of all MSD customers, charges paid pursuant to the unconstitutional ordinance.(FN1) MSD filed a motion to dismiss asserting plaintiffs' claim (1) was barred where they failed to follow the procedures set forth by RSMo section 139.031 (1994) governing tax refunds, and (2) was further barred by the doctrine of sovereign immunity. Plaintiffs filed an amended petition, and MSD once again filed a motion to dismiss on the same grounds listed previously. The trial court sustained MSD's motion finding RSMo section 139.031 was the exclusive means by which plaintiffs could recover any refund of monies paid to MSD and, because plaintiffs failed to follow that statutory procedure, their claim was barred.(FN2) This appeal followed. After initially filing their appeal with this Court, plaintiffs subsequently filed a motion to transfer asserting exclusive jurisdiction lies with the Missouri Supreme Court. Plaintiffs contend their appeal requires the construction of RSMo section 139.031, a revenue law of the state, thereby vesting our Supreme Court with exclusive jurisdiction pursuant to Article V, Section 3 of the Missouri Constitution. MSD responds jurisdiction lies with this Court, as the issues raised can be disposed of by application of previous Missouri Supreme Court decisions construing RSMo section 139.031. Plaintiffs' motion was taken to be decided with the case. After reviewing the jurisdictional arguments presented by both sides, we conclude disposition of the issues concerning RSMo section 139.031 would not require the construction of a revenue law of the state. Our Supreme Court recently redefined what constitutes "construction of the revenue laws of this state," in Alumax Foils, Inc. v. City of St. Louis, 939 S.W.2d 907, 910-11 (Mo.banc 1997). The Court defined a "revenue law" as one which directly creates or alters an income stream to the government. . . . [A] revenue law either establishes or abolishes a tax or fee, changes the rate of an existing tax, broadens or narrows the base or activity against which a tax or fee is assessed, or excludes from or creates exceptions to an existing tax or fee. Id. at 910. The provision which plaintiffs argue divests this Court of jurisdiction does none of these; rather, it sets forth guidelines for taxpayers to follow should they wish to obtain a refund for a tax which they believe is wrongfully levied. It reads in pertinent part:

1. Any taxpayer may protest all or any part of any taxes assessed against him, except taxes collected by the director of

revenue of Missouri. Any such taxpayer desiring to pay any taxes under protest shall, at the time of paying such taxes, file with the collector a written statement setting forth the grounds on which his protest is based. . . .

1. . . . [E]very taxpayer protesting the payment of taxes shall, within ninety days after filing his protest, commence an

action against the collector by filing a petition for the recovery of the amount protested in the circuit court of the county in which the collector maintains his office. If any taxpayer so protesting his taxes shall fail to commence an action in the circuit court for the recovery of the taxes protested within the time prescribed in this subsection, such protest shall become null and void and of no effect, . . . . RSMo section 139.031. Thus, as the statute does not alter, establish, or create an exception to a tax, we conclude RSMo section 139.031 is not a revenue law of the state, thereby vesting this Court with jurisdiction to hear the appeal.(FN3) Turning to the merits of plaintiffs' case, we first address their claim the trial court erred in ruling RSMo section 139.031 applied to both MSD and its sewer service charges so as to bar plaintiffs' claim. The Missouri Supreme Court has broadly construed this statutory provision, and particularly the first subsection, in Armco Steel v. City of Kansas City, 883 S.W.2d 3 (Mo.banc 1994). In Armco, the Court rejected the appellant-city's contention that the protest provisions of RSMo section 139.031 did not apply to municipal corporations. Id. at 7. In doing so, the Court made clear [t]he right to protest taxes under [RSMo section 139.031.1] is stated without equivocation or qualification, subject to the sole exception for the Director of Revenue. The right depends neither on the kind of tax assessed nor on the taxing authority. Id. (emphasis ours). The Court in Armco concluded the term "collectors" as used in RSMo section 139.031 "encompasses all kinds of tax collectors including city and municipal collectors." 883 S.W.2d at 8. MSD has previously been likened to a municipal corporation as used "in the broadest sense of the term[.]" Page v. Metropolitan St. Louis Sewer District, 377 S.W.2d 348, 352 (Mo. 1964). However, even if MSD were not to be categorized as such, the Supreme Court's construction of RSMo section 139.031 was not limited to municipal collectors, but merely included them among a host of other unnamed taxing authorities. Armco, 883 S.W.2d at 8. Additionally, in Beatty II, the Court ultimately concluded the charge levied by MSD under its ordinance was a tax. (FN4) 867 S.W.2d at 221. Accordingly, despite plaintiffs' arguments regarding the terminology employed by MSD and the "untraditional" nature of the tax, the sewer service charge is nonetheless a tax. Accordingly, because the charges paid by plaintiffs are a tax, and because RSMo section 139.031 applies to taxes levied by taxing authorities except for the Director of Revenue, we conclude plaintiffs were required to satisfy the payment under protest provisions in order to recover any refund, and their failure to do so acts to bar their claim.(FN5) Plaintiffs assert a variety of alternative reasons why their claim is not barred by RSMo section 139.031. First, plaintiffs claim they have a common law remedy to recover the unconstitutional charges which was not abrogated by RSMo section 139.031. We disagree. Generally, suits for refund of taxes mistakenly paid are looked upon with disfavor. Lett v. City of St. Louis, 948 S.W.2d 614, 620 (Mo.App.E.D. 1996). "Accordingly, in the absence of statutory authority, taxes voluntarily, although erroneously paid, albeit under an unconstitutional statute, cannot be refunded." Com. Fed.

Sav. & Loan v. Director of Rev., 752 S.W.2d 794, 797 (Mo.banc 1988). Here, as previously discussed, plaintiffs failed to comply with the statutory procedure enacted by the legislature, which was their sole recourse under these circumstances. Plaintiffs rely heavily on the rulings of our Supreme Court in John Calvin Manor, Inc. v. Aylward, 517 S.W.2d 59 (Mo. 1974), and Crest Communications v. Kuehle, 754 S.W.2d 563 (Mo.banc 1988), to support their argument. In John Calvin, the Court allowed a taxpayer to file a suit to enjoin the collection of a disputed tax assessment where the taxing authority's failure to give the taxpayer notice of the increased value deprived him of an administrative review, rather than requiring the taxpayer to pay the tax and file suit to recover the payment under the protest provisions of RSMo section 139.031 (1969). 517 S.W.2d at 63-64. It was in this context the Court held that [RSMo section] 139.031 is not the exclusive remedy available to a taxpayer who desires to contest the legality of an increased assessed valuation . . . where he has been totally deprived of his administrative remedies by the assessor's failure to give him the notice required by [RSMo section] 137.180. The traditional action in equity to enjoin collection of the tax has not been abrogated by [RSMo section] 139.031. Id. at 64. Thus, the case is distinguishable from the facts before us, where plaintiffs are not suing to enjoin the collection of a tax before payment, but are suing for a refund of monies already paid, which places them squarely within the purview of the statutory refund procedure. In Crest Communications, the Court concluded a taxpayer could commence with an action filed pursuant to RSMo section 139.031.5 (1986), though he had not made his payment under protest, but where he had previously initiated and pursued timely review of the disputed tax with the county board of equalization and the state tax commission, and where he had subsequently made a written application for a refund on the basis the tax was "erroneously or mistakenly paid."(FN6) 754 S.W.2d at 563-64. The Court allowed the taxpayer to proceed where the assessor had failed to give the taxpayer the statutorily mandated notice of the increased assessment, because the payment of such increase by the taxpayer falls within the plain meaning and scope of taxes "mistakenly or erroneously paid" in the context of [RSMo section] 139.031, at least in a case in which the public authorities are well aware of the disagreement with the taxpayer over valuation, as indicated here by the 1985 valuation litigation. Id. at 567. Again, these facts distinguish Crest Communications from the instant case, where plaintiffs filed a class action suit, alleging various common law theories as opposed to a statutory remedy, seeking to recover on behalf of approximately 420,000 people payments which had been made two to three years prior to the litigation with no notice to MSD of the taxpayers' dissatisfaction. The policy for prohibiting this sort of action was well-stated in B & D Inv. Co., Inc. v. Schneider, wherein our Supreme Court said: "The essential purposes of such statutes are to furnish an adequate and sufficient remedy to the taxpayer, and at the same time to provide an expeditious method by which the various branches of government affected can obtain the revenue necessary for their maintenance without protracted delay or

the hazards incident to the former procedure, since it is in effect a procedure to review the decisions of the taxing authorities. Moreover, the statutory requirement is intended not only to furnish proof that the payment was involuntarily made, but also to warn the tax collector that the tax is claimed to be illegal; . . . ." 646 S.W.2d 759, 762 (Mo.banc 1983) (citation omitted). Accordingly, as held in B & D, [i]n the circumstances of this case, the remedy under [section] 139.031 provided the taxpayer a fair and adequate remedy as contrasted with the so-called common law action. It is implicit in the decisions of this Court reviewed above that under such circumstances, the taxpayer's remedy under [RSMo section] 139.031(1) was exclusive. Id. at 763. See Gen. Motors v. Kansas City, 895 S.W.2d 59, 62 (Mo.App.W.D. 1995). Plaintiffs have presented no argument compelling us to find to the contrary.(FN7) In the alternative, plaintiffs argue Article X, Section 23 of the Missouri Constitution enables them to bring this suit to enforce MSD's compliance with the Hancock Amendment. We are not persuaded. This provision provides taxpayers with standing to enforce the provisions of Hancock, rather than providing them with an independent remedy for money damages. We find guidance for this conclusion in Fort Zumwalt School Dist. v. State, 896 S.W.2d 918, 923 (Mo.banc 1995). In concluding Article X, Section 23 did not waive the state's sovereign immunity so as to allow the plaintiffs to recover monetary damages, the Court discussed the purpose of the Hancock Amendment, which is to limit the expenditures of state and local governments. Id. The Court found money damages were not essential to enforce the plaintiffs' rights under Article X, Section 21 of the state constitution, which was the provision at issue. Id. While we believe this case presents a closer question than that presented in Fort Zumwalt, in that here plaintiffs request a refund of monies MSD actually received from the taxpayers, nonetheless we must conclude the refund of the previously paid taxes is not essential to enforce plaintiffs' rights in the present case, in light of the public policy against such refunds, as well as the purpose behind the enactment of provisions like RSMo section 139.031. For these reasons, we reject all arguments incorporated in plaintiffs' first point. Secondly, plaintiffs argue section 12 of MSD's Ordinance No. 8657, which established the sewer service charge, entitles plaintiffs to at least credit-refunds. Section 12 provides: Any funds owed by the District to any Person for any reason may be used by the District as a set- off against any charges owed by the Person to the District, whether delinquent or not. 40 The overpayment by any Person of any charges made by the District, shall be available and may be used by the District as a set-off of any unpaid or delinquent charges against such person. To begin, we note plaintiffs' first amended petition does not reference section 12 nor does it set forth the substance and content of the ordinance.(FN8) Courts cannot take judicial notice of municipal ordinances, but such must be pleaded and proved as does any fact of a plaintiff's case. Sirna v. APC Bldg. Corp., 730 S.W.2d 561, 566 (Mo.App.W.D. 1987).

Second, plaintiffs' contention "there is no difference between the three named plaintiffs in the Beatty case and the others of the 420,000 customers" is not true: the plaintiffs in Beatty II and III were suing to enjoin the collection of the tax, which the trial court erroneously denied. See Beatty II, 867 S.W.2d at 219; Beatty III, 914 S.W.2d at 796. The law provides a prevailing appellant is entitled to restitution of money lost by reason of the erroneous judgment. Beatty III, 914 S.W.2d at

1. Contrary to plaintiffs' assertion, it was on this ground the Court awarded the Beatty plaintiffs a refund. Id. Section

12 of Ordinance No. 8657 was merely the vehicle by which the Court found MSD had waived its defense of sovereign immunity to a suit involving a monetary remedy. Id. Accordingly, plaintiffs' second argument is without merit. As their third alternative, plaintiffs contend the class, or at least some in the class, are entitled to restitution due to MSD's bad faith in collecting delinquent payments under the ordinance for two years after it was ruled unconstitutional. While this argument is advanced in plaintiffs' brief, that theory of recovery is not asserted in plaintiffs' petition. In the petition, plaintiffs alleged MSD continued to collect the unconstitutional charge from delinquent taxpayers until January 1996, at which time MSD stopped representing such charges were due, and instead began crediting those accounts. Plaintiffs alleged MSD's action in crediting some taxpayers' accounts and not others created two different rates, thereby violating the uniformity requirement of Article X, Section 3 of the state constitution, as well as certain provisions of MSD's plan. Thus, plaintiffs did not premise a cause of action for the recovery of taxes paid on MSD's alleged "bad faith," but rather charged other constitutional violations based on MSD's actions.(FN9) However, as plaintiffs do not argue those constitutional issues on appeal, we need not address this claim further, and plaintiffs' third point is denied. Next, plaintiffs contend they are entitled to recover under RSMo section 139.290 (1994). This provision allows a taxpayer to recover taxes paid under an illegal levy irrespective of compliance with the requirements of RSMo section 139.031. Ackerman Buick, Inc. v. St. Louis County, 771 S.W.2d 343, 346 (Mo.banc 1989). In order to recover under this provision, the taxpayer must demonstrate (1) there was an illegal levy, and (2) the disputed revenue is either in the county treasury or within the control of the county commission. Tri-State Motor Transit Co. v. Holt, 921 S.W.2d 652, 655 (Mo.App.S.D. 1996). A review of the record fails to disclose plaintiffs raised this issue below.(FN10) We cannot address an issue raised for the first time on appeal and therefore decline to further review this claim. See B & D, 646 S.W.2d at 765. Lastly, plaintiffs argue the application of RSMo section 139.031 as the exclusive means of recovery deprives taxpayers of due process. We again disagree. See Jenkins v. State of Mo., 962 F.2d 762, 766 (8th Cir. 1992) (rejecting plaintiffs' argument application of RSMo section 139.031denied plaintiffs of due process). In the area of taxation, a state can choose to provide taxpayers with either predeprivation process or postdeprivation refund actions. McKesson v. Div. of

Alcoholic Beverages, 110 S.Ct. 2238, 2250 (1990). Missouri provides taxpayers with both: a taxpayer may proceed with a predeprivation action to enjoin collection of the tax pending the determination of the tax's validity, as did the plaintiffs in Beatty II and III, see McKesson, 110 S.Ct. at 2250; or the taxpayer may pay the tax and seek a postdeprivation refund as did the taxpayer in McKesson, id. at 2251.(FN11) The fact the state may require taxpayers to comply with certain procedural requirements in utilizing this postdeprivation refund method does not invalidate it or lessen the meaningfulness of the process, but rather serves to balance the state's legitimate interest in financial stability with the taxpayer's right to challenge the validity of his or her tax obligation. See id. at 2254-55. Moreover, we reject plaintiffs' contention that Missouri's predeprivation process affords no remedy because the trial court erroneously denied the injunctive relief requested by the taxpayers in Beatty II. Predeprivation due process guarantees the taxpayer's right to have a hearing before being deprived of a significant property interest. See McKesson, 110 S.Ct. at 2250. Due process -- be it predeprivation or postdeprivation -- does not guarantee a favorable result. Accordingly, we find plaintiffs' last argument unpersuasive. We believe, for the reasons discussed above, plaintiffs' remedy was to proceed under RSMo section 139.031, which remedy was exclusive under the present circumstances. We realize the foregoing analysis has the effect of requiring every taxpayer who is aggrieved by a charge that is subject to the Hancock amendment -- whether the charge is levied in compliance with the amendment or not -- to adhere to the protest procedures of RSMo section 139.031 if he or she wishes to recover the tax after it is paid. We further note the question to what extent Article X, Section 23 of the Missouri Constitution allows a taxpayer or other party with standing to "enforce" section 22(a) of the Hancock Amendment has not been previously addressed. For these reasons, we believe the issues raised by this case are of sufficient general interest and importance so as to transfer the case the Missouri Supreme Court pursuant to Rule 83.02. Footnotes: FN1.In Beatty II, our Supreme Court ruled MSD's ordinance 8657 was unconstitutional as it raised customer sewer charges, which were akin to a tax, without submitting the increase to voter approval as required by the Hancock Amendment, Mo. Const. art. X, section 22(a). 867 S.W.2d at 221. In Beatty III, the Supreme Court held the plaintiffs could not recover refunds on behalf of all customers who paid the unconstitutional levy where the plaintiffs brought the suit in their individual capacities, but left the door open as to whether the plaintiffs could so recover in a properly pursued class action suit. 914 S.W.2d at 795-96. FN2.The trial court did not decide the certification issue. FN3.In so holding we are aware of previous cases finding this particular statutory provision to be a revenue law of the state. However, we believe Alumax implicitly overrules those cases at least to the extent their interpretation of RSMo section 139.031 conflicts with the newly-defined guidelines set forth in the Alumax opinion. Moreover, as our analysis will reveal, infra, the disposition of the issues presented does not require construction of RSMo section 139.031, but merely entails application of prior case law. FN4.The Court decided the charge was a tax within the context of Article X, Section 22(a) of the Hancock

Amendment. Beatty II, 867 S.W.2d at 221. This constitutional provision has been construed to prohibit political subdivisions from increasing any tax without the approval of the voters, regardless of how the charge is characterized by the taxing authority. Keller v. Marion Ambulance Dist., 820 S.W.2d 301, 305 (Mo.banc 1991). FN5.We reject plaintiffs' contention the defense raised by MSD and relied on by the trial court could not be properly raised in a motion to dismiss, but rather was an affirmative defense which was to be pleaded in an answer. Even if the trial court assumed plaintiffs paid the tax levied by MSD accompanied by a written protest, it is clear on the faces of both plaintiffs' original and first amended petitions the suit was not filed within 90 days of the taxpayers' payments as is also required by RSMo section 139.031. FN6.In Crest, the disputed tax assessment occurred in two consecutive years. 754 S.W.2d at 563-64. In 1985, the county assessor notified the taxpayer of an increase in the assessed value of taxpayer's real and tangible personal property, which caused the taxpayer to seek review by the county board of equalization and caused him to pay the tax under protest. Id. at 564. In 1986, the county assessor again assessed the value of the property at an amount higher than that calculated by the taxpayer, but without sending the taxpayer notice of the increased assessment. Id. The taxpayer erroneously paid the tax based on the increased assessment. Id. After a favorable ruling by the state tax commission reducing the increased assessment for 1985, the taxpayer made written application to the county collector for the difference in the increased assessment for the year 1986, which was denied. Id. The taxpayer then sought relief pursuant to RSMo section 139.031, although the 1986 tax had been paid without protest. Id. FN7.We specifically reject plaintiffs' contention that to confine plaintiffs' remedy to RSMo section 139.031 would result in "chaos." This Court has recently upheld the exclusivity of the statutory refund procedure despite a taxpayer's possible difficulty in complying with its requirements. See Lett, 948 S.W.2d at 621. FN8.We quote the substance of Ordinance No. 8657 from plaintiffs' brief on appeal. FN9.We have examined the authority cited by plaintiffs in their brief on this issue. See Naegele Outdoor Advertising Co., Inc. v. Kansas City, 509 S.W.2d 128 (Mo. 1974). While true the Court in Naegele chastised the taxing authority for its actions and attitude, contrary to plaintiff's assertions on appeal, the Court said nothing about a cause of action premised on the taxing authority's "bad faith." See id. Rather, the Court affirm's the trial court's judgment in favor of the taxpayer on different grounds, namely that the taxing authority's act in question was subject to judicial redress where said act was arbitrary. Id. at 131. The only reference to arbitrary action in plaintiffs' petition came where, after pleading MSD's action created two different rates that were not based on a classification which MSD determined to be fair and reasonable, plaintiffs' pled in the alternative that any such determination by MSD was "arbitrary and capricious . . . ." FN10.The allegations in plaintiffs' petition were insufficient to state a claim under RSMo section 139.290: the petition alleges suit is brought pursuant to Article X, Section 23 of the Missouri Constitution, as well as pursuant to the Supreme Court's decision in Beatty III, 914 S.W.2d 791. No mention of RSMo section 139.290 is made in the petition, nor does the petition allege the money to be recovered is in the county treasury or within the control of the county commissioner. FN11.In McKesson, the taxpayer was challenging the constitutionality of a Florida statutory scheme which provided special rate reductions for alcoholic beverages made of products grown in Florida. 110 S.Ct at 2242-43. Florida did not provide for predeprivation challenges to the state's taxing scheme, but allowed postdeprivation refund actions. Id. at 2251. Separate Opinion: None This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.