Montana v. United States
440 U.S. 147 (1979)

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U.S. Supreme Court

Montana v. United States, 440 U.S. 147 (1979)

Montana v. United States

No. 77-1134

Argued December 4, 1978

Decided February 22, 1979

440 U.S. 147

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MONTANA

Syllabus

Montana levies a 1% gross receipts tax upon contractors of public, but not private, construction projects. A public contractor may credit against the gross receipts tax its payments of personal property, corporate income, and individual income taxes. Any remaining gross receipts tax liability is customarily passed on in the form of increased construction costs to the governmental unit financing the project. In 1971, the contractor on a federal project in Montana brought a suit in state court contending that the gross receipts tax unconstitutionally discriminated against the Government and the companies with which it dealt. The litigation was directed and financed by the United States. Less than a month later, the Government brought this action in the Federal District Court challenging the constitutionality of the tax. By stipulation, the case was continued pending resolution of the state court litigation, which concluded in a decision by the Montana Supreme Court upholding the tax. Kiewit I. The court found the distinction between public and private contractors consistent with the mandates of the Supremacy and Equal Protection Clauses. At the Solicitor General's direction, the contractor abandoned its request for review by this Court. The contractor then instituted a second state court action regarding certain tax payments different from those in Kiewit I. The Montana Supreme Court, finding the second claim essentially no different from the first, invoked the doctrines of collateral estoppel and res judicata to affirm the dismissal of the complaint. Kiewit II. Thereafter, the District Court heard the instant case on the merits, and concluded that the United States was not bound by Kiewit I and that the tax violated the Supremacy Clause.

Held: The United States is collaterally estopped from challenging the prior judgment of the Montana Supreme Court. Pp. 440 U. S. 153-164.

(a) The interests underlying the related doctrines of collateral estoppel and res judicata -- that a

"right, question or fact distinctly put in issue and directly determined by a court of competent jurisdiction . . . cannot be disputed in a subsequent suit between the same parties or their privies . . . ,"

Southern Pacific R. Co. v. United States,168 U. S. 1, 168 U. S. 48-49 -- are similarly implicated when nonparties assume control over litigation in which they have a direct financial or proprietary interest

Page 440 U. S. 148

and then seek to redetermine issues previously resolved. Here it is undisputed that the United States exercised sufficient control over the Kiewit I litigation to actuate principles of collateral estoppel. Pp. 440 U. S. 153-155.

(b) The precise constitutional claim advanced by the United States in this litigation was presented and resolved against the Government in Kiewit I. Pp. 440 U. S. 156-158.

(c) The factual and legal context in which the issues of this case arise has not materially changed since Kiewit I, and thus the normal rules of preclusion should operate to relieve the parties of "redundant litigation [over] the identical question of the statute's application to the taxpayer's status." Tait v. Western Maryland R. Co.,289 U. S. 620, 289 U. S. 624. Commissioner v. Sunnen,333 U. S. 591, distinguished. Pp. 440 U. S. 158-162.

(d) Though preclusion may be inappropriate when issues of law arise in successive actions involving unrelated subject matter, that exception is inapposite here, since the Government's "demands" are closely aligned in time and subject to those in Kiewit I. Nor is this a case where a party has been compelled to accept a state court's determination of issues essential to the resolution of federal questions. Rather the Government, "freely and without reservation submitte[d] [its] federal claims for decision by the state courts . . . and ha[d] them decided there. . . ." England v. Medical Examiners,375 U. S. 411, 375 U. S. 419. Since the Government has not alleged unfairness or inadequacy in the state procedures to which it voluntarily submitted, it is estopped from relitigating issues previously adjudicated. Pp. 440 U. S. 162-164.

437 F.Supp. 354, reversed.

MARSHALL, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, STEWART, BLACKMUN, POWELL, REHNQUIST, and STEVENS, JJ., joined. REHNQUIST, J., filed a concurring statement, post, p. 440 U. S. 164. WHITE, J., filed a dissenting opinion, post, p. 440 U. S. 164.

Page 440 U. S. 149

MR. JUSTICE MARSHALL delivered the opinion of the Court.

The State of Montana imposes a one percent gross receipts tax upon contractors of public, but not private, construction

Page 440 U. S. 150

projects. Mont. Rev.Codes Ann. § 84-3505 (Supp. 1977). [Footnote 1] A public contractor may credit against the gross receipts tax its payments of personal property, corporate income, and individual income taxes. [Footnote 2] Any remaining gross receipts liability is customarily passed on in the form of increased construction costs to the governmental unit financing the project. [Footnote 3] At issue in this appeal is whether a prior judgment by the Montana Supreme Court upholding the tax precludes the United States from contesting its constitutionality and if

Page 440 U. S. 151

not, whether the tax discriminates against the Federal Government in violation of the Supremacy Clause.

I

In 1971, Peter Kiewit Sons' Co., the contractor on a federal dam project in Montana, brought suit in state court contending that the Montana gross receipts tax unconstitutionally discriminated against the United States and the companies with which it dealt. The litigation was directed and financed by the United States. Less than a month after the state suit was filed, the Government initiated this challenge to the constitutionality of the tax in the United States District Court for the District of Montana. On stipulation by the parties, the instant case was continued pending resolution of the state court litigation.

That litigation concluded in a unanimous decision by the Montana Supreme Court sustaining the tax. Peter Kiewit Sons' Co. v. State Board of Equalization, 161 Mont. 140, 505 P.2d 102 (1973) (Kiewit I). The court found the distinction between public and private contractors consistent with the mandates of the Supremacy and Equal Protection Clauses. Id. at 149-154, 505 P.2d at 108-110. The contractor subsequently filed a notice of appeal to this Court, but abandoned its request for review at the direction of the Solicitor General. App. to Juris.Statement 86-87. It then instituted a second action in state court seeking a refund for certain tax payments different from those involved in Kiewit I. On determining that the contractor's second legal claim was, in all material respects, identical to its first, the Montana Supreme Court invoked the doctrines of collateral estoppel and res judicata to affirm the dismissal of the complaint. Peter Kiewit Sons' Co. v. Department of Revenue, 166 Mont. 260, 531 P.2d 1327 (1975) (Kiewit II) .

After the decision in Kiewit II, a three-judge District Court heard the instant case on the merits. In a divided opinion, the court concluded that the United States was not bound

Page 440 U. S. 152

by the Kiewit I decision, and struck down the tax as violative of the Supremacy Clause. 4 37 F.Supp. 354 (1977). The majority began with the premise that the Supremacy Clause immunizes the Federal Government not only from direct taxation by the States, but also from indirect taxation that operates to discriminate against the Government or those with whom it transacts business. Id. at 359. See United States v. Detroit,355 U. S. 466, 355 U. S. 473 (1958); Phillips Chemical Co. v. Dumas Independent School Dist.,361 U. S. 376, 361 U. S. 387 (1960). Because no private contractors were subject to the Montana gross receipts tax, the court reasoned that the statute impermissibly singled out the Federal Government and those with whom it dealt for disparate treatment. That the tax applied to state and municipal as well as federal contractors did not, in the majority's view, negate the statute's discriminatory character. For although contractors on state projects might pass on the amount of their tax liability to the State in the form of higher construction costs, Montana would recoup its additional expenditure through the revenue that the tax generated. By contrast, when federal contractors shifted the burden of their increased costs to the United States, it would receive no such offsetting revenues. Accordingly, the court concluded that the statute encroached upon the immunity from discriminatory taxation enjoyed by the Federal Government under the Supremacy Clause. 437 F.Supp. at 358-359. One judge argued in dissent both that the United States was estopped from challenging the constitutionality of the tax and that the statutory scheme, because it encompassed receipts of municipal and state as well as federal contractors, was not discriminatory within the meaning of Phillips Chemical Co. v. Dumas Independent School Dist., supra. 437 F.Supp. at 365-366 (Kilkenny, J., dissenting).

We noted probable jurisdiction. 436 U.S. 916 (1978). Because we find that the constitutional question presented by

Page 440 U. S. 153

this appeal was determined adversely to the United States in a prior state proceeding, we reverse on grounds of collateral estoppel without reaching the merits.

II

A fundamental precept of common law adjudication, embodied in the related doctrines of collateral estoppel and res judicata, is that a

"right, question or fact distinctly put in issue and directly determined by a court of competent jurisdiction . . . cannot be disputed in a subsequent suit between the same parties or their privies. . . ."

Southern Pacific R. Co. v. United States,168 U. S. 1, 168 U. S. 48-49 (1897). Under res judicata, a final judgment on the merits bars further claims by parties or their privies based on the same cause of action. Cromwell v. County of Sac,94 U. S. 351, 94 U. S. 352 (1877); Lawlor v. National Screen Service Corp.,349 U. S. 322, 349 U. S. 326 (1955); 1B J. Moore, Federal Practice

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