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SCOTUS Asked Whether Tax Commissioner's 500% Penalty Violates Excessive Fines Clause

02.14.2019

On February 6, Counsel for Ashland Specialty filed a Petition for Certiorari with the Supreme Court of the United States, Docket No. 18-1053, to request review of the Supreme Court of Appeals of West Virginia’s opinion in Ashland Specialty Co. Inc. v. Dale W. Steager, State Tax Comm’r of West Virginia, 241 W. Va. 1 (2018), which rejected Ashland Specialty’s Excessive Fines Clause challenge to the State’s imposition of a 500% civil penalty for inadvertent civil noncompliance.

The U.S. Supreme Court granted certiorari in Timbs v. Indiana, No. 17-1091 (argument on Nov. 28, 2018) to consider whether the Eighth Amendment prohibition on excessive fines applies to the states. We believe that the Court should likewise grant certiorari in Ashland Specialty v. Steager to provide clear standards and appropriate limits on state imposition of civil penalties.

500% Civil Penalty Assessed Against Ashland Specialty for Inadvertent Noncompliance

Ashland Specialty is a small business with a few dozen employees. It distributes cigarettes and other sundries to convenience stores in several states, including West Virginia. Ashland Specialty unintentionally sold cigarettes that had been temporarily removed from West Virginia’s Directory of Cigarette Brands Approved for Stamping and Sale (“List”) as a result of uncertainty, reported those sales to the state, and rectified its mistake on its own. The record discloses no actual harm caused. This is confirmed by the fact that the cigarette brand sold was off the List only for a few months before being put right back on the List. Nevertheless, West Virginia automatically assessed a 500% civil penalty against Ashland Specialty.

Questions Presented to the U.S. Supreme Court

A State punished a small business’s inadvertent civil noncompliance by automatically applying a civil monetary penalty at the maximum percentage rate – 500% – without exercising discretion or considering any mitigating circumstances. Was the penalty grossly disproportionate to the offense and unconstitutional under the Eighth Amendment’s Excessive Fines Clause and United States v. Bajakajian? In light of the myriad criteria currently employed by state and federal courts to evaluate gross disproportionality, should the Court resolve the multiple splits and affirmatively adopt factors, like those in Cooper Industries v. Leatherman, to decide whether a civil monetary penalty is grossly disproportionate to the underlying offense?

 Importance of Questions

This case presents a significant issue, i.e., application of the Eighth Amendment’s Excessive Fines Clause to civil penalties imposed by the federal government and the states. The Excessive Fines Clause is to state tax penalties what the Commerce Clause and the Due Process Clause are to multi-state taxes – constitutional limits on state powers that protect all citizens in all 50 states. We all need constitutional protection from overreaching taxing authorities. Defining clear, consistent standards for evaluating a penalty’s constitutionality under the Excessive Fines Clause will benefit all of us, much like the Supreme Court’s articulation of the four-part Commerce Clause test for multi-state taxpayers in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977).

States and lower federal courts have developed myriad factors for evaluating a penalty’s excessiveness under the gross disproportionality standard first articulated in United States v. Bajakajian, 524 U.S. 321 (1998), considering all manner of facts and circumstances. Each court reads Bajakajian in a different way, distilling from its holding three, four, or even five factors for reviewing a penalty for gross disproportionality. Then there are those courts that hold they have no power to review a legislatively-enacted penalty for excessiveness. Meanwhile, faced with revenue shortages and budget cuts, states and localities are enacting – and enforcing – more civil (and criminal) monetary penalties than ever before.

Here, the Supreme Court of Appeals of West Virginia’s decision to uphold a 500% penalty against Ashland Specialty for civil noncompliance, notwithstanding the inadvertent nature of the noncompliance and Ashland Specialty’s self-reporting and self-correcting of its mistake, illustrates the undesirable consequences of applying different tests in every jurisdiction: gross unfairness and inequity. This case is the right opportunity, at the right time, to examine Excessive Fines jurisprudence with a fresh perspective. Ashland Specialty’s Petition proposes adopting the workable factors from Cooper Industries v. Leatherman Tool Group, 532 U.S. 424 (2001) to evaluate civil penalties.

A 500% civil penalty equating to 64 times the profit Ashland Specialty made on these sales must be constitutionally excessive, i.e., grossly disproportionate to the offense. The legislative range of civil penalties was utterly ignored in lieu of the automatic imposition of the maximum possible percentage penalty without the use of any discretion and without consideration of any mitigating factors. The lower courts reached the incorrect conclusion in this case because they lacked a clear standard to follow, a standard the Supreme Court is in the perfect position to provide.

A copy of the Petition can be found at https://www.supremecourt.gov/DocketPDF/18/18-1053/87260/20190206141720215_Ashland%20Specialty%20-%20Petition%20for%20Writ%20of%20Cert.pdf.

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