Case Summary for April 6, 2005

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Case Summary for April 6, 2005

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DOCKET SUMMARIES
SUPREME COURT OF MISSOURI

Wednesday, April 6, 2005
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SC86347
Kirkwood Glass Co., Inc. v. Director of Revenue
St. Louis County
Validity of local use tax under federal commerce clause

Kirkwood Glass Co., Inc., sells window and window accessories as a retailer and also installs windows as a contractor. It self-accrues and remits state and local sales or use taxes on windows it installs. From April through June 2002, Kirkwood Glass incurred a 7.325-percent sales tax on purchases of tangible personal property in Kirkwood, Missouri; 4.725-percent sales tax on its purchases of tangible personal property in Williamsburg, Missouri; and a 5.475-percent use tax on its purchase of tangible personal property ordered from out-of-state and shipped to its business location in Kirkwood. Both the state sales tax and the state use tax for the time period in question was 4.225 percent; the remainder of the sales and use taxes Kirkwood Glass paid were local taxes – a 3.1-percent local sales tax in Kirkwood, a 0.5-percent local sales tax in Williamsburg and a 1.25-percent local use tax in Kirkwood. In January 2003, Kirkwood Glass applied for a sales and use tax credit with the director of revenue based on an alleged overpayment of local use taxes, which it argued violate the commerce clause of the United States constitution. In June 2003, the director denied the application, and Kirkwood Glass appealed to the administrative hearing commission the next month. In September 2003, the commission determined it lacked jurisdiction to declare the local use tax statutes unconstitutional and, therefore, denied Kirkwood Glass' refund application. Kirkwood Glass seeks review from this Court.

Kirkwood Glass argues the commission erred in denying its refund application. It contends the local use tax enabling legislation, codified in sections 144.757 to 144.761, RSMo 2000, violates the commerce clause. It asserts that different local taxing jurisdictions in Missouri have widely varying amounts of local use taxes imposed on out-of-state purchases. As a result, Kirkwood Glass argues it can be required to pay more total use tax where it uses such goods than it would pay if it purchased the same goods in Missouri in a neighboring local taxing jurisdiction with a lower total sales tax rate. It contends such a scheme favors in-state purchases over out-of-state purchases where a taxpayer resides in a locality that imposes a local use tax.

The state responds that, on its face, section 144.757 does not discriminate against interstate commerce. It argues local use tax is imposed in the Missouri locality to which tangible personal property purchased out-of-state is delivered for the purchaser. The state contends Missouri's local use tax scheme does not discriminate against interstate commerce. It asserts that a buyer taking delivery in either Kirkwood or Williamsburg pays a lower tax when purchasing from an out-of-state seller. The state responds that the authority cited by Kirkwood Glass, based on an Ohio local-option use tax, does not apply here because the "use" addressed in the Ohio case differs from "use" in Missouri. The state argues Missouri's current scheme is consistent with a Georgia law cited as an appropriate model. It contends the scheme permits local governments to set local sales taxes locally, with the local use tax automatically set at the same rate as the local sales tax. The state further asserts that it would be unreasonable, impractical and inconsistent with the goal of creating a compensatory tax to impose the local use tax where the buyer is located rather than the point of delivery.

Missouri Municipal League, Missouri Association of Counties, St. Louis County Municipal League, city of Kansas City, Missouri, and city of St. Louis, Missouri, argue, as friends of the Court, that the commission correctly denied the refund and that the local use tax does not violate the commerce clause. They contend the local use tax has a substantial connection with the taxing jurisdiction, is apportioned fairly and is related fairly to the services provided by the local taxing jurisdiction. They assert the local use tax does not discriminate against interstate commerce because both local sales and use taxes within a particular jurisdiction are equal. The cities and associations argue that, even if the local use tax discriminates against interstate commerce, it is a lawful compensating use tax because there is an intrastate tax burden for which the local government is attempting to compensate. They further contend the events on which interstate and intrastate taxes are imposed are substantially equivalent.

SC86363
Utility Service and Maintenance, Inc., and TIG Insurance Company v. Noranda Aluminum, Inc., and Zurich Insurance Company
St. Louis County
Insurance indemnification and right to deny coverage

St. Louis County, Missouri-based Utility Service & Maintenance, Inc., specializes in painting high voltage electrical equipment and apparatus for large industrial customers. It bought a $1 million comprehensive general liability policy and a $4 million excess policy from TIG Insurance Company. It also bought a $2 million commercial general liability policy and a $5 million excess liability policy from Zurich Insurance Company. In July 1992, Noranda Aluminum, Inc., formally asked Utility for a bid quotation for repainting some of the electrical substation structures at its New Madrid, Missouri, aluminum manufacturing plant. The next month, Noranda issued Utility a purchase order reciting that acceptance confirms Utility's acknowledgement of Noranda's standard terms and conditions. Paragraph 19 of these standard terms and conditions contained an indemnification clause requiring Utility to indemnify and hold Noranda harmless from liability, regardless of whose fault an injury might be. The comprehensive general liability policy that Utility bought from TIG specifically provided coverage for such claims. In October 1992, Utility employee Gary Murphy was injured seriously on the job when certain electrical transformers exploded. He was severely burned over most of his body, lost some fingers and his earlobes, no longer could grow hair on top of his head, and was unable work. In June 1995, Murphy filed a personal injury and premises liability action against Noranda and its safety manager, alleging that Noranda negligently allowed him to get up in the grid when the top line remained electrically charged. Noranda demanded that Utility indemnify it for the lawsuit. Utility passed the request on to TIG, which indicated to Noranda in December 1995 that it would defend Noranda unconditionally in the lawsuit. In 1997, however, TIG attempted to reserve its rights to deny coverage if the indemnity agreement was not enforceable. In November 1998, TIG settled the Murphy case for $4.3 million. The next month, it filed an action for declaratory judgment and indemnity, arguing the painting contract did not contain an enforceable indemnification clause. In March 2000, Utility and TIG filed an amended petition, naming both Noranda and Zurich as defendants and seeking to recover the $4.3 million settlement TIG paid to Murphy to settle the claims against Noranda plus all attorneys' fees, expenses and costs that TIG incurred in defending Noranda. Following a June 2002 trial to the court, the court in October 2002 awarded TIG a judgment of nearly $5.85 million. In so doing, the court determined that because paragraph 19 was unenforceable as a matter of law, it did not require Utility to indemnify Noranda for Noranda's own negligence and that TIG was not estopped from denying its liability to Noranda. Noranda and Zurich appeal.

Noranda argues the court erred in entering judgment in favor of TIG. It contends TIG is estopped from contesting coverage because it unconditionally accepted tender of defense without reserving its rights. Noranda asserts that TIG is estopped from contesting coverage under paragraph 19 because it never questioned the validity of this paragraph before settling the underlying lawsuit. Noranda argues TIG was a volunteer because it assumed the defense and paid the settlement with full knowledge of the facts. Noranda further contends TIG was obligated to defend and indemnify Noranda because paragraph 19 of the terms and conditions unambiguously required Utility Service to indemnify Noranda for Noranda's own negligence.

Zurich argues the court lacked subject matter jurisdiction to adjudicate TIG's claims against it. Zurich contends the only claim against it impliedly but necessarily sought the court's declaration of Noranda's rights against Zurich under a Noranda/Zurich insurance policy. Zurich asserts that because neither Utility nor TIG was a party or third-party beneficiary of the Noranda/Zurich policy, they lacked standing to seek such a declaration. Zurich argues the only claim against it sought entry of judgment against it as Noranda's liability insurer for payment of Noranda's liability damages to Utility and TIG. It contends this claim is barred by section 379.200, RSMo, and State ex rel. Anderson v. Dinwiddie, 224 S.W.2d 985 (Mo. banc 1949), unless and until Utility and TIG obtain a final judgment against Noranda for damages. It asserts that, without a judgment against Noranda, Utility and TIG cannot proceed against Zurich for proceeds of the Noranda/Zurich policy. Zurich argues the court erred in requiring Noranda and Zurich to indemnify TIG for TIG's settlement payment, attorneys' fees and expenses. It contends TIG had no right to seek such indemnification or reimbursement because TIG had full knowledge of all material facts bearing on its obligation or not to make such payments, remained uncertain whether it was obligated to pay and, nevertheless, paid the monies. Zurich asserts that, traditionally, an insurer's payment with full knowledge of the facts supporting a defense to payment constitutes a waiver of the insurer's right to recover the payment made. Zurich further asserts that, traditionally, an insurer's payment with uncertainty as to whether payment is due constitutes the insurer's assumption of the risk that payment is not due, barring the insurer from obtaining restitution if it had no obligation to pay. Zurich argues there is no fraud, duress or independent equitable considerations in this case that would nullify these traditional rules and permit TIG to recover any payment it made voluntarily.

TIG responds that the court correctly found that it was not estopped from asserting non-liability and claiming reimbursement. It argues its continued defense of Noranda was not inconsistent with its later claim for reimbursement, particularly because its actions were based on Noranda's repeated assertion that there was a valid and enforceable indemnity agreement between Noranda and Utility. TIG contends substantial evidence supported the court's finding that TIG provided notice that its defense no longer was unconditional and that, if there was no enforceable indemnity provision, Noranda should take over the defense and reimburse TIG for its costs. TIG asserts that Noranda did not inform TIG that this conditional defense was unacceptable and did not take over defense of the Murphy lawsuit but instead demanded that TIG settle that suit. TIG responds that the court correctly held that TIG was entitled to restitution of the amounts it incurred in defending Noranda in the Murphy lawsuit. It argues that it did not have full knowledge of the facts when it made the defense and payment. Alternatively, TIG argues that even if it made the defense and payment under a mistake of law, it was entitled to restitution because the mistake was induced or accompanied by Noranda's inequitable conduct and misleading statements that paragraph 19 was a part of the painting contract. TIG contends the court correctly found that the painting contract did not contain a provision requiring Utility to indemnify Noranda for Noranda's own negligence because it was sent to Utility as a supplement to the contract after Utility had been awarded the contract. TIG asserts that paragraph 19 was not part of the negotiated contract and does not clearly, conspicuously and unequivocally express the parties' intention to indemnify Noranda for Noranda's own negligence. TIG argues the worker's compensation public policy behind section 287.120, RSMo, would be violated if paragraph 19 were extended to require Utility, as Murphy's employer, to indemnify Noranda for its own negligence. TIG responds that the court properly exercised subject matter jurisdiction over Zurich in the determination of the contractual obligations and liability between Utility and Noranda. It contends Zurich took an active role in inducing TIG to defend Noranda and to settle the Murphy case. It asserts that Zurich also had a financial interest in the court's determination of such liability. TIG further responds that the court correctly found that TIG had a right to seek indemnification and reimbursement from Noranda. TIG argues it did not waive that right because it did not possess all the material facts.

SC86522
In re: William M. Tackett
Cole County
Attorney discipline

William Tackett is the Cole County, Missouri, prosecuting attorney. In December 2002, when he was prosecutor-elect and an assistant prosecutor in Cole County, he met with a Callaway County judge in chambers regarding speeding tickets issued in Callaway County against Tackett's brother and another man. Although Tackett was a special Callaway County prosecutor in a different case, he was not in these cases, and in these cases was representing the defendants. The judge was not clearly aware of Tackett's role. No one from the Callaway County prosecutor's office was aware of or present at the meeting, at which the judge made docket entries showing guilty pleas and suspended impositions of sentence in both speeding cases. In January 2003, on a motion by the Callaway County prosecutor's office, the judge set aside both dispositions. In September 2003, the Cole County circuit court presiding judge issued a letter to Tackett, on behalf of the court as a whole and the circuit clerk, advising him of certain conditions the court was imposing against him. Tackett subsequently made statements concerning the presiding judge's integrity and implying that the presiding judge alone was responsible for the letter and that the presiding judge's investigation was improper and inadequate. The chief disciplinary counsel instituted disciplinary proceedings against Tackett in January 2004. Eight months later, the chief disciplinary counsel and Tackett entered into a stipulation in which the chief disciplinary counsel agreed to recommend a public reprimand. About a week later, a regional disciplinary hearing panel rejected the recommendation. In November 2004, the panel recommended that Tackett be suspended from the practice of law for 30 days. The chief disciplinary counsel now seeks to discipline Tackett's law license.

The chief disciplinary counsel argues this Court should suspend Tackett's license for violating Rules 4-1.7, 4-3.3(a), 4-3.3(d), 4-3.5 and 4-8.2(a). She argues that, at a minimum, Tackett negligently failed to follow proper procedures and rules, damaging the integrity of the legal process, when he had an impermissible discussion with the Callaway County judge about pending criminal matters without clarifying his role and the purpose for the discussion. She contends this caused the judge to misunderstand Tackett's mission and to make an improper disposition of the traffic cases. The chief disciplinary counsel further asserts that, at a minimum, Tackett knowingly and publicly questioned a circuit judge's integrity by falsely stating that the Cole County circuit court's investigation into allegations against him was inadequate and pursued solely at the instigation of the presiding judge alone.

Tackett responds that there is no basis for this Court to impose discipline as to the allegations regarding his conduct in the Callaway County traffic cases. He argues that, although he did have an ex parte discussion with the judge about docketing issues, the stipulated facts and evidence do not prove he violated the rules of professional conduct in a knowing or willing manner. He contends he is not bound by any stipulation admitting a violation of Rules 4-1.7, 4-3.3(a), 4-3.3(d) or 4-3.5 because the existence of a violation of these rules is not a fact but rather is a conclusion of law. He asserts that there is no evidence he violated Rule 4-1.7, that he did not violate Rules 4-3.3(a) or (d), and that his violation of Rule 4-3.5 was technical in nature. Tackett further responds that, although he takes no exception to the points and authorities the chief disciplinary counsel raises as to the allegations regarding his conduct toward the Cole County presiding judge, the only appropriate sanction is a public reprimand.

Jefferson City, Missouri, attorney Neal Bisges argues, as a friend of the Court, that Tackett's violations of the rules of professional conduct are serious enough to warrant, if not a disbarment, then at least a 30-day suspension. He contends Tackett intentionally misled a judge into disposing of two criminal cases by failing to communicate material information to the judge. He asserts that Tackett knowingly made false statements about another judge. Bisges further argues Tackett's conduct in both instances breached multiple duties of honesty and brought the judiciary into disrepute.

The attorney general argues, as a friend of the Court, that should this Court either suspend or disbar Tackett, it also should remove him from his office as a prosecuting attorney without first requiring institution of a proceeding in quo warranto to remove him from office. The attorney general contends that the current ability to practice law is a qualification for election to the office of prosecutor and that losing the ability to practice law, even for a short time, must disqualify a person from continuing to serve as prosecutor. He asserts that, because state statutes do not provide a means of reassigning a prosecutor's duties, the fact that a prosecutor such as Tackett has duly appointed assistant prosecutors should not excuse him from removal upon suspension or disbarment.