Let's assume that you live in Toledo, Ohio. Also assume that the state legislature, to induce an automobile manufacturer to construct an assembly plant, has authorized tax incentives, which, together with other tax incentives, will total perhaps $280 million. The trouble is that your client has a business which will be displaced if the proposed plant is built and your client therefore wants to oppose the incentives.
Or assume you're an attorney for a group that is opposed to these types of tax incentives and the group wants to contest the tax incentives. Do you know what the winning argument was in the actual case in the U.S. Sixth Circuit Court of Appeals - - and would you have thought of it? (No, the winner was not an eminent domain argument. That argument lost in a related case.)
Here are the facts according to the Sixth Circuit in Cuno v. DaimlerChrysler, 386 F.3d 738 (6th Cir. 2004):
DaimlerChrysler entered into an agreement with the City of Toledo, Ohio to construct a new vehicle-assembly plant near the company's existing facility in exchange for various tax incentives. DaimlerChrysler estimated that it would invest approximately $1.2 billion in the project, which would either provide the region with several thousand new jobs or allow it to retain most of the old jobs from the prior plant in its new plant. In return, the City and two local school districts agreed to give DaimlerChrysler a ten-year 100 percent property tax exemption on personal property as well as an investment tax credit of 13.5 percent against the state corporate franchise tax for certain qualifying investments. The total value of the tax incentives was estimated to be $280 million.
The plaintiffs filed suit in state court in 2000 challenging the validity of the state tax credits and local property tax abatements.
Now, what would have been your theory for a challenge? (There was a separate suit that claimed it was unconstitutional to obtain certain plaintiffs' property by eminent domain. The property owner lost that case and the United States Supreme Court denied plaintiffs' application for cert. on June 28, 2005.)
So, again, what would you have argued?
Here's a hint: It's a constitutional argument.
What did the plaintiffs argue?
They argued that the tax scheme violated the Commerce Clause of the United States Constitution and the Equal Protection Clause of the Ohio Constitution because the incentives discriminated against interstate commerce by granting preferential treatment to in-state investment.
What was the result? The U. S. District Court, to which the defendants removed the case from state court, dismissed the complaint for failure to state a claim. The Sixth Circuit reversed, holding that the investment tax credit violated the Commerce Clause. However, it also held that the property tax exemption did not violate that clause.
The court further held that none of the incentives violated the Equal Protection Clause of the Ohio Constitution.
Various parties, including plaintiffs and DaimlerChrysler, have now applied for cert.
How did the plaintiffs come up with that winning Commerce Clause argument?
I recently had a telephone conversation with Peter D. Enrich, a law professor at Northeastern School of Law. Prof. Enrich was on the plaintiffs' brief to the Sixth Circuit and argued the case to that court. In addition, he is the author of a 1996 article in the Harvard Law Review, “Saving the States from Themselves: Commerce Clause Constraints on State Tax Incentives for Business,” 110 Harvard Law Review 377 (1996). (More of his articles are listed in Northeastern's site at http://www.slaw.neu.edu/faculty/scholar.htm.)
According to Professor Enrich, someone from the plaintiffs' side contacted Ralph Nader, who had had a long-standing relationship with activists in Toledo, where the plant was to be built. Mr. Nader knew Enrich and his tax incentive article, and got him involved in light of his Commerce Clause argument. The rest, as they say, is history.
How could you have “discovered” or have been reminded of the winning argument?
Would you have automatically thought of or remembered the Commerce Clause argument? If not, this posting may help you win what may have looked like a losing case. It may also help you win other “losing%#148; cases.
Here's one way. I call that way “Research by Wandering Around.” I previously wrote about another example of that type of research when I wrote about “exception finding” and how to find exceptions to whatever rule is against you. See http://www.outoftheboxlawyering.com/archives/000099.html.
Well, here's another example of “Research by Wandering Around,” and it involves looking for law review and other articles that potentially involve your issue and just seeing what you might see. (It's also another example of Edward deBono's Lateral Thinking. See http://www.outoftheboxlawyering.com/archives/000002.html.)
In my “wandering around,” I went to the 1997 volume of Current Law Index, which indexes, with topics and subtopics, over 900 law review and other law-related journals and publications. (The index is also online with at least Lexis and Westlaw under the online name Legal Resource Index. The same type of searching that I describe below could be done with the computer version. I went to the 1997 index volume because the case was from around that period.)
In the print version, I went to the various “Tax” topics and just started looking. I found the following article under “Tax Abatement”:
(You probably noticed that that's a Commerce Clause article by Professor Enrich. So you could have found him yourself without knowing Ralph Nader.)
In addition to the Enrich article, this is some of what I found under the topic “Tax Incentives”:
Tax incentives: to have or to have not, by Lawrence Kramer, George Denis, Steve Weitzer and Jenifer Young, 15 Journal of State Taxation 1-10, Winter ‘97 (There's that journal again.)
Saving the states from themselves: Commerce Clause constraints on state tax incentives for business, by Peter D. Enrich, 100 Harvard Law Review 377-468, Dec. ‘96 (This topic is another way you could have found Prof. Enrich's article.)
Since you would be opposing not only general tax incentives, but specifically state tax incentives, I went to the “State taxation” topics to see what might be helpful. There, under “Laws, regulations, etc.,” among other tax incentive articles, I found the following possibly valuable article:
But, under the “Litigation” subtopic, I found another potentially useful article:
Thus, by “wandering around,” there are several ways that you could have discovered or, perhaps, been reminded of a winning constitutional argument that you might not have otherwise considered.
Sample discussions of the case:
The Wall Street Journal also has a discussion not only of Cuno but also other suits which have challenged tax incentives. June 29, 2005, p. A4.
Addendum No. 1
The court in Cuno cited Walter Hellerstein and Dan T. Coenen, Commerce Clause Restraints on State Business Development Incentives, 81 Cornell L. Rev. 789, 806-09 (1996). However, I could not find that valuable 1996 article in any of the Current Law Index volumes from 1995 - 1998. It was included, however, in the Index to Legal Periodicals and could have been found by searching the topic "Tax incentives" in the September 1996 - August 1997 volume. Thus, it may sometimes be helpful to check both of these indexes because sometimes certain publications or articles are included in only one of the indexes.
Addendum No. 2:
Part of what I am trying to do in this blawg is to give examples of creative arguments that lawyers have used to win their cases.
Another part of what I want to do is show how lawyers can come up with winning arguments even if they don't know offhand of that potentially winning argument. Therefore, I would appreciate your commenting on this posting if the posting option has not been closed due to spammers. If the comments have been closed, you can email me your comments. My email address is in a link on the right side of the site in the “About” area.
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