Attorneys: Plaintiffs Not Likely to Drop Case
By Richard Craver, Winston-Salem Journal, N.C.
May 16–A unanimous decision yesterday by the U.S. Supreme Court to reinstate a controversial Ohio tax credit could ease some concerns about North Carolina’s incentive packages, including the one granted to Dell Inc., according to analysts and local officials.
But the decision is not likely to persuade plaintiffs to withdraw a similar incentive lawsuit against Dell and state and local officials, said an attorney representing the plaintiffs.
The court ruled 9-0 that taxpayers in the case of DaimlerChrysler AG vs. Cuno did not have legal standing to sue to stop the company from receiving nearly $300 million in tax credits from Ohio.
“State taxpayers have no standing … to challenge state tax or spending decisions simply by virtue of their status as taxpayers,” Chief Justice John Roberts wrote in his opinion.
The court’s decision could have had a significant effect nationally because nearly every state uses tax breaks to attract companies.
The opinion also comes five days after Robert Hobgood, a judge for Wake Superior Court, similarly dismissed a taxpayer lawsuit challenging up to $305 million in state and local incentives for Dell, which built a computer-assembly plant in Forsyth County.
The Cuno decision, however, does not resolve the issue of whether the plaintiffs’ lawsuit has merit in its argument that incentives violate the interstate-commerce clause of the U.S. Constitution. The plaintiffs’ attorneys argued that the investment-tax credits give preference to doing business in one state over doing business in another. The 6th U.S. Circuit Court of Appeals agreed.
“Sooner or later, the U.S. Supreme Court is just going to have to rule on the legality of in-state tax-incentive plans relative to the restraint of interstate commerce, which was the basic argument raised in Cuno,” said Tony Plath, a finance professor at the University of North Carolina at Charlotte. “I suspect that, absent any sort of relief on the part of Congress, which is really where the issue of tax-based incentives ought to be settled in the first place, the Supreme Court would like to address the issue.”
Robert Orr, an attorney representing plaintiffs in the Dell lawsuit, said that the U.S. Supreme Court’s ruling isn’t likely to affect an appeal that may go directly to the N.C. Supreme Court.
“We are certainly looking at our options for moving forward with the case,” Orr said. That includes potentially finding other plaintiffs that would qualify for standing in the case.
“The issue before the N.C. Supreme Court is whether it will adapt the stringent federal stance on taxpayer standing in these case,” Orr said.
The plaintiffs in Cuno sued because they said their local and state tax burdens were increased by the tax breaks. Roberts said that the perceived injury to the taxpayers is hypothetical.
“A taxpayer plaintiff has no right to insist that the government dispose of any increased revenue it might experience as a result of his suit by decreasing his tax liability or bolstering programs that benefit him,” Roberts wrote. “To the contrary, the decision of how to allocate any such savings is the very epitome of a policy judgment.”
The U.S. Supreme Court’s ruling “is a big win for America,” said Frank Fountain, a senior vice president for external affairs and public policy for DaimlerChrysler.
“It sends a clear message that states will not be held hostage to lawsuits brought by individuals or groups with no direct connection to the issue at hand,” he said.
Allen Joines, the mayor of Winston-Salem, said he believes that the U.S. Supreme Court’s decision would strengthen the defense’s case if the Dell lawsuit goes to the N.C. Supreme Court.
“The lawsuit has been an issue raised by some of the companies we’ve spoken to about operating in our area, so we believe the decision will help alleviate some of their concerns,” Joines said. “We inform those companies that we follow the General Statutes of North Carolina, and those statutes have been previously upheld by the N.C. Supreme Court in the Maready case.”
Hobgood, in making his May 10 decision, cited a ruling 10 years ago in a case brought by William Maready, a lawyer from Winston-Salem who unsuccessfully sued over incentives to businesses offered by state and local governments.
“Stimulation of the economy involves a public purpose,” Hobgood said.
Hobgood said that the plaintiffs could not prove that they were harmed personally by the tax breaks that Dell is eligible to receive.
“They are not corporate taxpayers,” he said. “They are not computer manufacturers and do not belong to a class prejudiced by the legislation.”
Burley Mitchell, a former chief justice of the N.C. Supreme Court who represented Dell, predicted in October that the U.S. Supreme Court would dismiss Cuno on the lack-of-standing criteria.
“The decision is something we will definitely bring up at the appellate or state level if it goes that far,” Mitchell said.
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