Pourier v. SD DEPT. OF REVENUE & REGULATION

#25198-a-DG

2010 SD 10

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

* * * *

LOREN POURIER d/b/a MUDDY CREEK
OIL AND GAS, INC. and MUDDY
CREEK OIL AND GAS, INC., Claimants and Appellants,

v.

SOUTH DAKOTA DEPARTMENT OF
REVENUE AND REGULATION, Respondent and Appellee.

* * * *
APPEAL FROM THE CIRCUIT COURT OF
THE SIXTH JUDICIAL CIRCUIT
HUGHES COUNTY, SOUTH DAKOTA

* * * *
HONORABLE JOHN BROWN
Judge
* * * *

VANYA S. HOGEN
JESSICA INTERMILL of
Jacobson, Buffalo, Magnuson,
Anderson & Hogen, P.C.
St. Paul, Minnesota Attorneys for claimants
and appellants.

MARTY J. JACKLEY
Attorney General

MEGHAN JO SONSTEGARD
MEGHAN N. DILGES
Assistant Attorneys General
Pierre, South Dakota Attorneys for respondent
and appellee.

* * * *
ARGUED NOVEMBER 17, 2009

OPINION FILED 02/03/10
#25198

GILBERTSON, Chief Justice

[¶1.] Loren Pourier and Muddy Creek Oil and Gas Inc. (collectively,

“Pourier”) appeal the circuit court’s order affirming the decision of the South Dakota

Department of Revenue and Regulation (Department). The Department’s order

denied Pourier’s motion for leave to amend his tax refund claims to include his

Oglala Sioux Tribe (OST) member customers as a class. The Department

determined, and the circuit court agreed, that South Dakota’s limited waiver of

sovereign immunity precludes a class action for motor fuel tax refunds. We affirm.

FACTS

[¶2.] This is the third time this case has come before us. An in-depth

narration of the facts can be found at Pourier v. S.D. Dep’t of Revenue (Pourier I),

2003 SD 21, 658 NW2d 395, modified on reh’g, 2004 SD 3, 674 NW2d 314. We

review the history of this case and recite the salient facts for purposes of this third

appeal.

[¶3.] In Pourier I, we unanimously ruled that South Dakota motor fuel taxes

were illegally collected from Muddy Creek Oil and Gas, Inc., a corporation solely

owned by an enrolled member of the Oglala Sioux Tribe and located on the Pine

Ridge Reservation. We decided Muddy Creek’s consumers who were enrolled

members of the Oglala Sioux Tribe, not Pourier and his company, bore the legal

incidence of the tax; therefore, those consumers were entitled to “the bulk of [the]

refund.” To the extent Pourier and Muddy Creek were consumers, we held they

were entitled to a refund. We reversed and remanded with specific instructions for

the trial court to: 1) determine the correct amount of the invalid tax (refund) that

-1-
#25198

applies to purchases by Muddy Creek for its use on the reservation; 2) determine,

upon proper application, the correct amount of the invalid tax (refund) that applies

to purchases by reservation Indian consumers; and, 3) determine related questions,

such as prejudgment interest. Pourier I, 2003 SD 21, ¶38, 658 NW2d at 407.

[¶4.] After Pourier I was handed down, both Pourier and the State

petitioned for rehearing. We granted the State’s petition on the question of the

proper limitations period for refund applications. We held that the fifteen-month

limitations period is applicable under SDCL 10-47B-141, and that claims predating

December 17, 1997, were untimely. We vacated Issue 4 of Pourier I and replaced it

with the discussion found in Pourier v. S.D. Dep’t of Revenue (Pourier II), 2004 SD 3,

674 NW2d 314. We specifically noted that Pourier I stands in “all other respects.”

Pourier II, 2004 SD 3, ¶2, 674 NW2d at 315.

[¶5.] On remand after Pourier II, Pourier filed a motion for leave to amend

his claims to add a class of Oglala Sioux tribal-member-customer claimants. The

circuit court remanded the matter to the Department. A hearing was held before a

Hearing Examiner where briefs and oral arguments were considered. Prior to a

final decision by the Department, Pourier stipulated to a judgment determining the

amount of the refund due to him as a consumer between December 17, 1997, and

November 30, 2003. However, the State and Pourier stipulated that his receipt of

those funds would not preclude Pourier from appealing any final decision denying

his motion for leave to amend his pleadings to include class claimants.

[¶6.] Subsequently, Secretary Kinsman of the Department adopted the

proposed decision submitted by the Office of Hearing Examiners and issued a final

-2-
#25198

decision denying Pourier’s motion for leave to amend. The basis for this decision

was that the State has waived its sovereign immunity in a limited fashion for motor

fuel taxes claims according to SDCL 10-59-1, 10-59-17, and 10-47B-131.2. The

Secretary reasoned that because class actions are not expressly permitted under

those statutes, South Dakota has not waived its sovereign immunity for a class

action refund lawsuit. On appeal, the circuit court affirmed the decision of the

Department. Pourier appeals the circuit court’s judgment. We affirm.

ISSUES

[¶7.] We rephrase the issues:

1. Whether SDCL ch. 1-26 or SDCL ch. 10-59 constitute an express
waiver of sovereign immunity which authorizes a class action tax
refund claim against the State.

2. Whether a class action lawsuit is outside the scope of the remand
order of this Court.

3. Whether this case should be remanded back to the Department if
Pourier is allowed to amend his pleading.

STANDARD OF REVIEW

[¶8.] Our standard of review for administrative appeals is provided by

SDCL 1-26-36.

The statute requires us to give great weight to the findings and
inferences made by the [agency] on factual questions. We
examine agency findings in the same manner as the circuit court
to decide whether they were clearly erroneous in light of all of
the evidence. If after careful review of the entire record we are
definitely and firmly convinced a mistake has been committed,
only then will we reverse. Questions of law, of course, are fully
reviewable.

Pourier I, 2003 SD 21, ¶6, 658 NW2d at 398 (citing Sopko v. C & R Transfer Co.,

1998 SD 8, ¶6, 575 NW2d 225, 228) (internal citations omitted). “Statutory

-3-
#25198

interpretation and application are questions of law, and are reviewed by this Court

under the de novo standard of review.” State v. Anders, 2009 SD 15, ¶10, 763

NW2d 547, 551 (citation omitted).

ANALYSIS & DECISION

[¶9.] 1. Whether SDCL ch. 1-26 or SDCL ch. 10-59 constitute an
express waiver of sovereign immunity which
authorizes a class action tax refund claim against the
State.

[¶10.] The Department and circuit court properly denied Pourier’s motion for

leave to amend his pleadings to include class claimants. Pourier contends the

circuit court and Department erred because class action claims are permitted for

motor fuel tax refund claims. Pourier notes SDCL ch. 10-59 mandates that tax

refund claims “shall follow the procedure established in this chapter[,]”and because

that chapter does not prohibit class action claims, they are necessarily allowed.

Pourier also argues that because SDCL 1-26-32.1 applies the rules of civil procedure

to administrative appeals, a class action pursuant to SDCL 15-6-23(a) is possible

under SDCL ch. 1-26. Therefore, Pourier contends class action claims are allowed

for motor fuel tax refund claims with the Department. However, the statutory basis

for administrative review of motor fuel tax refund claims and the State’s limited

waiver of sovereign immunity suggest an interpretation contrary to Pourier’s.

[¶11.] The statutory basis for a motor fuel tax refund claim is found in SDCL

10-59-1, SDCL 10-59-17, and SDCL 10-47B-131.2. SDCL 10-47B-131.2 provides for

motor fuel tax refund claims. It states:

A consumer of motor fuel or undyed special fuel may apply for
and obtain a refund of fuel taxes imposed and paid to this state,
if a state or federal court of final appeals finds that taxation of

-4-
#25198

the purchase or use of the fuel is preempted by federal law or
unconstitutional. If applicable, the claim shall be supported by
fuel purchase invoices, odometer readings, log books and
calculated on an average mile per gallon basis.

Id. (emphasis added). SDCL 10-59-17 provides:

A taxpayer seeking recovery of tax . . . imposed by [SDCL ch. 10-
47B] shall follow the procedure established in this chapter. No
court has jurisdiction of a suit to recover such taxes . . . unless the
taxpayer seeking the recovery of tax complies with the provisions
of this chapter.

(emphasis added). Moreover, “[a] taxpayer seeking recovery of an allegedly overpaid

tax . . . shall file a claim for recovery with the [S]ecretary[.]” SDCL 10-59-19

(emphasis added). Finally, SDCL 10-59-22 requires the Secretary to “determine

the amount of any tax overpayment recoverable by a taxpayer. The Secretary’s

determination of the amount of the overpayment recoverable is, for the purposes of

judicial review, a final decision in a contested case.” (Emphasis added.) These

statutes indicate that each taxpayer is required to pursue his claim individually

with the Secretary of the Department in order to receive a final decision for

appellate review. Simply put, subject matter jurisdiction of the circuit court does

not attach until each taxpayer exhausts the statutory prerequisites provided in

SDCL ch. 10-59.

[¶12.] Pourier and the dissent would have this Court adopt a type of

“vicarious exhaustion” allowing a single taxpayer (Pourier) to confer jurisdiction on

the circuit court on behalf of the entire class. This argument is misplaced. First,

Pourier and the dissent state that SDCL 1-26-32.1, the gap-filler statute, provides

for a class action claim in all administrative proceedings. SDCL 1-26-32.1 provides

Title 15 shall apply “so far as the same may be consistent and applicable[.]” Id.

-5-
#25198

Under the motor fuel tax refund statutes, a taxpayer seeking a refund must comply

with the procedures established in SDCL ch. 10-59. SDCL 10-59-17, -47B-131.2.

Those statutes outline a procedure whereby each individual taxpayer files a claim

for recovery with the Secretary. SDCL 10-59-17 (“A taxpayer seeking recovery . . .

shall follow the procedure established in this chapter.”); SDCL 10-47B-131.2 (“A

consumer . . . may apply for and obtain a refund[.]”); see SDCL 10-59-19 (“A taxpayer

seeking recovery . . . shall file a claim for recovery with the [S]ecretary[.]”).

Therefore, SDCL 15-6-23 is not applicable and should not be imposed by SDCL 1-

26-32.1.

[¶13.] Second, it is a “‘long-settled rule of judicial administration that no one

is entitled to judicial relief for a supposed or threatened injury until the prescribed

administrative remedy has been exhausted.’” Zar v. S.D. Bd. of Exam’rs of

Psychologists, 376 NW2d 54, 56 (SD 1985) (quoting Myers v. Bethlehem

Shipbuilding Corp., 303 US 41, 50-51, 58 SCt 459, 463, 82 LEd 638 (1938)). The

prescribed remedy in this case was for each individual taxpayer to file a claim.

SDCL 10-59-17, -59-19, -59-22, -47B-131.2. Contrary to the dissent’s suggestion,

our interpretation of the Legislature’s statutory use of the singular, i.e., “a

taxpayer” and “a consumer,” as a prohibition against class action claims upholds the

plain meaning of the statute. Compare U.S. Xpress, Inc. v. N.M. Taxation and

Revenue Dep’t, 139 NM 589, 591-92, 136 P3d 999, 1001-02 (2006) (noting “a

taxpayer” and “the taxpayer” in refund statute require individual claims), and Ariz.

Dep’t Revenue v. Dougherty, 200 Ariz. 515, 517-18, 29 P3d 862, 864-65 (2001)

(noting Arizona statute’s lack of individual taxpayer claim language permitted class

-6-
#25198

claims). See Hoffman v. Colo. Bd. of Assessment Appeals, 683 P2d 783, 787 (Colo

1984).

[¶14.] Moreover, settled case law regarding limited waiver of sovereign

immunity makes clear that without specific “constitutional or statutory authority,

an action cannot be maintained against the State.” See Lick v. Dahl, 285 NW2d

594, 599 (SD 1979) (citing Darnall v. State, 79 SD 59, 108 NW2d 201 (1961)

(additional citations omitted); S.D. Const. art. III, § 27 (“The Legislature shall direct

by law in what manner and in what courts suits may be brought against the

[S]tate.”). SDCL 10-47B-131.2 of the motor fuel tax refund statutes provides that

authority and allows “[a] consumer . . . may apply for and obtain a refund of fuel . . .

.” However, the extent of the waiver of sovereign immunity is limited to the express

language of SDCL 10-59-17. This statute provides: “A taxpayer seeking recovery of

tax . . . imposed by [chapter 10-47B] shall follow the procedure established in this

chapter.” SDCL 10-59-17 (emphasis added). As noted above, SDCL ch. 10-59 does

not authorize class actions. As we stated in Lick:

[I]t seems patently clear from a reading of the statutes that any
[claim] under these statutes must be brought by each individual
on his or her own behalf. . . . The state has waived its right of
sovereign immunity only to the extent provided by the express
terms of these statutes. . . . Therefore, we conclude that since
class actions are not expressly provided for in either statute,
SDCL 15-6-23 cannot be employed in suits for [motor fuel] tax
refunds.

285 NW2d at 600 (emphasis added) (internal citations omitted). Other

jurisdictions have found that class action suits to recover illegal taxes are not

-7-
#25198

allowed in the absence of a specific statute authorizing recovery. 1 See Hooks

v. Comptroller of Treasury, 265 Md 380, 289 A2d 332 (1972); Charles v.

Spradling, 524 SW2d 820 (Mo 1975); Hansen v. County of Lincoln, 188 Neb

461, 197 NW2d 651 (1972); Lilian v. Commonwealth, 467 Pa 15, 354 A2d 250

(1976). See generally Propriety of Class Action in State Courts to Recover

Taxes, 10 ALR4th 655, 663 (1981).

CONCLUSION

[¶15.] Pourier correctly asserts the “State’s immunity cannot block the OST

member customers’ recovery of this unconstitutional tax.” 2 We agree. SDCL 10-

1. The dissent relies heavily upon the recent Georgia Supreme Court decision
City of Atlanta v. Barnes, 276 Ga 449, 578 SE2d 110 (2003). Barnes’s
overruling of the holding in Henderson v. Carter, 229 Ga 876, 195 SE2d 4
(1972) was summarily overruled by the Georgia Legislature which in its next
session reinstated the holding of Henderson by statute barring class actions
for refund claims. See GaCodeAnn 48-2-35(c)(5). More importantly, the
statutory scheme Barnes interpreted was not the same as South Dakota’s.
Our statutes expressly require individual exhaustion of administrative
remedies as a prerequisite to waiver of sovereign immunity. Moreover, the
dissent’s analysis of Lick overlooks the remaining cases Lick cites as
supporting authority and which are also still good law. See Lick, 285 NW2d
at 600 (citing Spradling, 524 SW2d 820; Hooks, 265 Md 380, 289 A2d 332;
Hansen, 188 Neb 461, 197 NW2d 651; Lilian, 467 Pa 15, 354 A2d 250).
Finally, Lick also relies heavily upon prior decisions of this Court concerning
sovereign immunity, none of which have been overruled.

2. Pourier and the dissent rely on SDDS, Inc. v. South Dakota, 2002 SD 90, 650
NW2d 1, for the proposition that state agencies cannot assert sovereign
immunity for taxes collected in violation of the United States Constitution.
Their application of SDDS is misguided. In that case, we held that the
“Eleventh Amendment will not immunize states from compensation
specifically required by the Fifth Amendment.” Id. ¶23, 650 NW2d at 9. In
this case, however, the State is not immune from suit and there is a remedy—
a remedy that allowed Pourier, as a consumer, to get a refund in the amount
of $18,843.75 including statutory interest. Therefore, any assertion that
South Dakota’s procedural protections provided in SDCL ch. 10-59 do not
(continued . . .)
-8-
#25198

47B-131.2 and SDCL ch. 10-59 do, however, provide the only avenue for relief. The

motor fuel tax refund statutes provide no authority for class action claims to recover

illegal taxes; rather, those statutes specifically require that each individual

taxpayer file a claim with the Secretary. Absent individual claims, the circuit court

is without jurisdiction. For that reason, SDCL 15-6-23 is not applicable via SDCL

1-26-32.1. Therefore, we hold that neither SDCL ch. 1-26 nor SDCL ch. 10-59

authorize class action claims against the State nor waive sovereign immunity to

such an extent as to allow class actions. See Lick, 285 NW2d at 600 (“The [S]tate

has waived its right of sovereign immunity only to the extent provided by the

express terms of [the applicable refund] statutes.” (citing Darnall, 79 SD 59, 108

NW2d 201)); see also U.S. Xpress, 139 NM at 591-92, 136 P3d at 1001-02 (noting “a

taxpayer” and “the taxpayer” in New Mexico refund statute require individual

claims as prerequisite to appellate jurisdiction). Pourier’s motion for leave to

amend to include other OST member consumers as class claimants was properly

denied. Because we affirm the Department and circuit court on this issue, we need

not reach the remaining issues.

[¶16.] The record reflects that the State is aware of our previous holdings in

this litigation and has already earmarked approximately $3.6 million for

________________________
(. . . continued)
provide a “meaningful remedy” are without merit. See McKesson Corp. v.
Div. of Alcoholic Beverages and Tobacco, Dep’t of Bus. Reg. of Fl., 496 US 18,
49-51, 110 SCt 2238, 2257-58, 110 LEd2d 17 (1990) (regarding a refund for
taxes collected in violation of the Commerce Clause and stating that the
“States may avail themselves of a variety of procedural protections against
any disruptive effects of a tax scheme’s invalidation”).

-9-
#25198

distribution to seven of the eight tribes in South Dakota as compensation for the

unconstitutional tax. The State has testified on the record that the amount due

OST members will similarly be earmarked at the conclusion of this appeal unless

this Court determines that the funds go elsewhere. The State will also continue to

process any claim that is properly submitted as required by our prior decisions in

Pourier I and Pourier II.

[¶17.] Affirmed.

[¶18.] KONENKAMP, Justice, and MILLER, Retired Justice, concur.

[¶19.] MEIERHENRY and SEVERSON, Justices, dissent.

[¶20.] MILLER, Retired Justice, sitting for ZINTER, Justice, disqualified.

MEIERHENRY, Justice (dissenting).

[¶21.] I respectfully dissent. Pourier should be allowed to amend his refund

claims to allow his OST member customers as a class of fellow claimants. It was,

after all, Pourier who challenged the constitutionality of the motor fuel tax and who,

under protest, collected and paid the unconstitutional tax since 1999. It is certainly

not a stretch of our legal procedures to also allow him to join the claims of those

customers that had to pay the unconstitutional tax. The State should not be able to

retain $1.6 million, or over $3 million with interest, of illegally collected taxes

through stonewalling and procedural maneuvering.

[¶22.] Sovereign immunity, limited or otherwise, cannot shield the State

because the State’s collection of the tax was unconstitutional. See SDDS, Inc., 2002

SD 90, ¶20, 650 NW2d at 8-9. Construing the statutory scheme as a limited waiver

-10-
#25198

of immunity defeats any meaningful remedy for the OST member customers who

were required to pay the unconstitutional motor fuel taxes. 3 While states may

enact statutes to ensure procedural protections are afforded for wrongfully collected

taxes, see 16D CJS Constitutional Law § 2060 (2009) (citing Williams v. State, 156

Vt 42, 589 A2d 840 (1990)), those statutes must still afford a meaningful remedy.

See McKesson Corp., 496 US at 50, 110 SCt at 2257 (citing Mathews v. Eldridge,

424 US 319, 348, 96 SCt 893, 909, 47 LEd2d 18 (1976)).

[¶23.] It is unreasonable to conclude that the OST member customers in this

case had access to a meaningful remedy. The relevant statutes required them to

provide detailed fuel receipts for their fuel purchases from over ten years ago.

These purchases were predominantly under ten dollars and were paid in cash. Not

surprisingly, no other OST member customers have received refunds as a result of

these extreme statutory requirements. Consequently, the vast majority of OST

member customers had a remedy only in theory. In practice, under the majority’s

construction of the law, no meaningful remedy existed. This lack of a meaningful

remedy stands in opposition to the general requirements of the Due Process Clause.

[¶24.] Furthermore, the statutory language does not preclude a class action

claim. SDCL 1-26-32.1’s incorporation of the rules of civil procedure in Title 15 of

the Code would allow a class action. Interpreting the statutory use of the singular,

i.e. “a taxpayer” and “a consumer,” as a prohibition against class action lawsuits

3. While Pourier did receive his personal motor fuel tax refund, approximately
$18,000, the amount he received was not significant in light of the total
amount collected by the State, approximately $1.6 million. It is the much
greater amount not repaid by the State that is the subject of my dissent.

-11-
#25198

strains the plain meaning of the statutes. Class actions are allowed under our

statutes as follows: “one or more members of a class may sue or be sued as

representative parties on behalf of all. . . .” SDCL 15-6-23(a). Read together, the

statutes would permit “a taxpayer” or “a consumer” as “one member . . . of a class”

to claim as a representative party on behalf of the entire class.

[¶25.] The Georgia Supreme Court in Barnes addressed the availability of a

class action claim in a similar scenario. 276 Ga 449, 578 SE2d 110, superseded by

statute, Ga. Code Ann. § 48-2-35(b)(5) (2009), as recognized in Sawnee Elec.

Membership Corp. v. Ga. Dep’t of Revenue, 279 Ga 22, 25 n1, 608 SE2d 611, 614 n1

(2005). 4 In Barnes, the court analyzed a Georgia statute which provided the

procedure for bringing an action for a tax refund. Like South Dakota’s statutes,

class actions were not specifically mentioned or permitted by Georgia’s statutes.

The Georgia Supreme Court, however, overruled Henderson and its prior holding

that sovereign immunity must be waived by the express terms of the statute. The

court went on to state that “when a statute provides the right to bring an action for

a tax refund against a governmental body, that statute provides an express waiver

of immunity and establishes the extent of the waiver (the amount of the refund),

but does not purport to provide for the form of action to be utilized.” Barnes, 276 Ga

at 452, 578 SE2d at 113. The court further noted that “[b]y participating as a

4. The majority cites and discusses Lick. 285 NW2d at 600. Lick cites
Henderson, 229 Ga 876, 195 SE2d 4, to support the proposition that “[s]everal
jurisdictions have likewise held that class actions cannot be maintained to
recover taxes from the State in the absence of a specific statute authorizing
it.” Lick, 285 NW2d at 600. Henderson, however, was explicitly overruled by
Barnes, 276 Ga 449, 578 SE2d 110.

-12-
#25198

plaintiff in a class action that includes a claim for a tax refund, a taxpayer is

unquestionably bringing an action for a refund, which is what the [Georgia] statute

permits.” Id.

[¶26.] This is the precise situation faced by this Court. The amount of the

State’s obligation to be repaid does not change by permitting a class action, only the

form by which it is to be repaid. The Georgia Supreme Court’s analysis and

recognition of this fact upholds both the spirit of tax refund statutes as well as the

constitutional requirements of the Due Process Clause by permitting class actions

to provide a meaningful remedy. If we were to adopt the same reasoning, the OST

member customers adversely affected by the inappropriate collection of motor fuel

taxes would be afforded a meaningful remedy by not being procedurally barred from

recovery.

[¶27.] SEVERSON, Justice, joins this dissent.

-13-