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Topics: Ex Parte Attachment, Foreign Taxes, Income Tax

THE STATE OF NEW HAMPSHIRE
STRAFFORD COUNTY SUPERIOR COURT

The State of Maine Bureau of Revenue
v.
Victor H. Bourre Docket No.: 04-C-0046

ORDER ON PETITION FOR EX PARTE ATTACHMENT

The State of Maine Bureau of Revenue (“the Bureau”) commenced this action to perfect an attachment against the assets of Victor H. Bourre (“the defendant”) for purposes of collecting an $18,366.00 judgment originally rendered by the Kennebec County Superior Court in the State of Maine and recognized by this court on September 3, 2003. (See Docket No. 03-C-109.) The defendant objects to the Bureau’s petition for ex parte attachment and moves to dismiss the action. The court held a hearing on this matter on March 15, 2004. Upon review of the parties’ arguments and submissions, as well as the relevant law, the court finds and rules as follows.

The following facts are undisputed. The defendant is a resident of New Hampshire and has been at all times relevant to this matter. From 1993 to 1995, the defendant, who was then employed at the Portsmouth Naval Shipyard, did not pay income taxes to the State of Maine. Thus, in January 2002 the Bureau commenced action against the defendant in the Kennebec County Superior Court to collect the unpaid taxes, plus concomitant interest and penalties. In response to the Bureau’s collection action, the defendant asserted that because the shipyard is located in New Hampshire, his income from employment there was not taxable by the State of Maine.

The Bureau moved for summary judgment, arguing the defendant was barred from litigating his liability for the unpaid taxes because he was a named petitioner in a class action that the Kennebec court dismissed with prejudice. In the class action, the defendant and others filed petitions in the Kennebec court alleging the shipyard was not located in Maine and contending their income from employment at the shipyard was therefore not taxable by the State of Maine. The Kennebec court consolidated the actions and later dismissed the case for failure to prosecute. Consequently, the Kennebec court granted the Bureau’s motion for summary judgment in the collection action, finding that the defendant was barred from contesting liability for the taxes under the doctrine of res judicata, and entering judgment against the defendant in the amount of $18,366, with interest accruing as of September 15, 2002.

Approximately five months after the Kennebec court issued the foregoing order, the Bureau commenced action in this court seeking judgment on the order in the State of New Hampshire under both the full faith and credit clause of the United States Constitution and 28 U.S.C. §1738. (See Docket No. 03-C-109.) The Bureau then moved for summary judgment and the defendant objected, arguing, inter alia, that RSA 524:12 prohibited the Bureau from enforcing the Kennebec court’s judgment. This court granted the Bureau’s motion, finding that RSA 524:12 did not prohibit the Bureau’s action because, at that point, the Bureau sought only to have the Kennebec court’s judgment recognized in a New Hampshire court. This court further stated that “[e]nforcement will only be implicated and ripe for decision by this court if the defendant fails to pay on the Kennebec judgment once that judgment has been recognized by this court. Therefore, the role of RSA 524:12 in this action remains an issue that the court need not yet decide.” (Docket No. 03-C-109, Order at 5.)

In the instant action, the Bureau alleges that the defendant has not made any payments on the $18,366 judgment and seeks to enforce the judgment by attaching funds held in the defendant’s name at the Federal Savings Bank, the Bank of New Hampshire and the Holy Rosary Credit Union. Thus, the role of RSA 524:12 in this matter is now squarely before the court.

RSA 524:12 provides as follows: All property in this state of a judgment debtor where the judgment is in favor of any state for failure to pay that state’s income tax assessed on benefits received from a pension or other retirement plan, or with respect to income earned by an employee at the Portsmouth Naval Shipyard of Portsmouth, New Hampshire shall be exempt from attachment, garnishment of wages, trustee process, or forced sale under process of any court, and no such judgment or execution based thereon shall be a lien on such property. (1997). The Bureau contends it may maintain this collection action despite the statute’s express exemption from enforcement collection actions arising from unpaid income taxes on wages earned at the shipyard.

First, the Bureau argues that the purpose of RSA 524:12, which it contends is to protect New Hampshire residents employed at the shipyard during a time of uncertainty as to whether the shipyard was located in New Hampshire or Maine, no longer exists in the aftermath of the United States Supreme Court’s decision in New Hampshire v. Maine, 532 U.S. 742 (2001). According to the Bureau, the Court in New Hampshire ruled that New Hampshire was barred from claiming that the border between the states runs along the Maine shore, the result of which was to place the shipyard in Kittery, Maine. The Bureau further claims that following the United States Supreme Court’s decision in New Hampshire, there no longer exists a Portsmouth Naval Shipyard of Portsmouth, New Hampshire, thus rendering the statute inapplicable.

Second, the Bureau asserts RSA 524:12 violates both the full faith and credit clause of the United States Constitution and 28 U.S.C. §1738. Specifically, the Bureau contends that the statute impermissibly prohibits the State of New Hampshire from honoring the judgment of another state in the context of unpaid income taxes on wages earned at the shipyard while allowing enforcement measures in the context of virtually all other judgments.

The defendant’s primary objection to this action is that the New Hampshire decision did not resolve the location of the shipyard. According to the defendant, the Court in New Hampshire ruled simply that New Hampshire was barred from arguing that the inland boundary ran along the shore on the Maine side of the river, but did not affirmatively determine that the shipyard is located in Maine. Specifically, he maintains that the Court’s decision in New Hampshire established only that the boundary line between New Hampshire and Maine is in the center of the main channel of navigation of Portsmouth Harbor, and that New Hampshire could not argue a different position as to the inland boundary between Maine and New Hampshire. The defendant asserts that even if the inland river boundary is also the center of the main channel of the Piscataqua River, the location of the shipyard remains unresolved because the inland waterway completely surrounds Seavey Island, upon which the shipyard is sited. If the main channel of navigation of the inland waterway is the southern portion of the waterway around Seavey Island, the shipyard is located in Maine. However, if the main channel of navigation is the northern portion of the waterway around the island, the shipyard is located in New Hampshire. The defendant claims that the main channel of navigation was historically the northern portion of the waterway and, as a result, according to the defendant, the shipyard is located in New Hampshire.

The defendant also asserts that RSA 524:12 is not unconstitutional. The defendant maintains that because the statute prohibits both New Hampshire and Maine from collecting taxes on wages earned at the shipyard, the statute is even-handed in its prohibition and does not, as the Bureau argues, run afoul of either the federal full faith and credit clause or 42 U.S.C. §1738.

As a preliminary matter, the court declines to consider the parties’ arguments based on New Hampshire. The Kennebec court granted summary judgment in favor of the Bureau based on its conclusion that the defendant was barred from contesting liability for the taxes under the doctrine of res judicata. The court reached that conclusion because the defendant was previously involved in a class action that was dismissed with prejudice for failure to prosecute the claim that the shipyard is located in New Hampshire. Consequently, because this case is simply an action to enforce the Kennebec court’s order, the court declines to consider any arguments relative to the location of the shipyard. Such arguments could have and should have been raised before the Kennebec court. Accordingly, the court only considers the parties’ arguments as they relate to the validity RSA 524:12.

Under Article IV, §1 of the United States Constitution, “Full faith and credit shall be given in each state to the public acts, records and judicial proceedings of every other state. And the Congress may by general laws prescribe the manner in which such acts, records and proceedings shall be proved, and the effect thereof.” To that end, 42 U.S.C. §1738 provides as follows:

The records and judicial proceedings of any court of any such State,

Such . . . judicial proceedings or copies thereof, so authenticated, shall have the same full faith and credit in every court within the United States and its Territories and Possessions as they have by law or usage in the courts of such State, Territory or Possession from which they are taken.

(1994). As the United States Supreme Court has explained:

The animating purpose of the full faith and credit command . . . was to alter the status of the several states as independent foreign sovereignties, each free to ignore obligations created under the laws or by the judicial proceedings of others, and to make them integral parts of a single nation throughout which a remedy upon a just obligation might be demanded as of right, irrespective of the state of its origin.

Baker by Thomas v. General Motors Corp., 522 U.S. 222, 232 (1998) (citations omitted). See also Underwriters Nat. Assur. V. N.C. Life & Acc., Etc., 455 U.S. 691, 703-05 (1982) (same, conditioned on prior judgment being rendered by court with proper jurisdiction over subject matter and parties); Durfee v. Duke, 375 U.S. 106, 109-11 (1963) (same).

Consistent with the above, the New Hampshire Supreme Court has recognized that “[i]n order to fulfill [the mandate of Article IV, §1 of the United States Constitution], the judgment of a state court should have the same credit, validity and effect, in every other court of the United States, which it had in the state where it was pronounced.” Wilson v. Shepard, 124 N.H. 392, 394 (1983) (citations omitted).

Under the full faith and credit clause, states need not “adopt the practices of other States regarding the time, manner and mechanisms for enforcing judgments. Enforcement measures do not travel with the sister State’s judgment as preclusive effects do; such measures remain subject to the evenhanded control of forum law.” Baker, 522 U.S. at 235 (citations omitted) (emphasis added). However, the United States Supreme Court has cautioned that states “may not, under the guise of merely affecting the remedy, deny the enforcement of claims otherwise within the protection of the full faith and credit clause, when [their] courts have general jurisdiction of the subject-matter and the parties.” Broderick v. Rosner, 294 U.S. 629, 643 (1935) (citations omitted).

Here, based on the foregoing, the court finds that RSA 524:12 violates the full faith and credit clause. Specifically, by exempting judgments in favor of any state for failure to pay taxes on income earned at the shipyard from “attachment, garnishment of wages, trustee process, or forced sale under process of any court,” and by prohibiting “such judgment[s] or execution[s] based thereon” from being “lien[s] on such property,” RSA 524:12 essentially attempts to accomplish what the Court’s decision in Broderick forbids: denial of the ability to access any mechanism to enforce of an otherwise protected claim under the full faith and credit clause “under the guise of merely affecting the remedy[.]” Id.

The court disagrees with the defendant’s assertion that RSA 524:12 is evenhanded in its application and therefore not unconstitutional. Apparently, the defendant premises his assertion on the language in the statute indicating its prohibitions apply to the judgment of any state with respect to income earned at the shipyard. While the statute’s prohibition as to any state may appear “even-handed,” it is the statute’s prohibition relative to income earned through employment at the shipyard, as opposed to income earned anywhere else, that renders the statute unconstitutional. In other words, by exempting from enforcement only judgments pertaining to income earned at the shipyard, the statute is not even-handed in its treatment of collection actions relative to income earned generally. Thus, the defendant’s assertion in this respect is unavailing.

Moreover, to the extent the defendant’s argument relative to the location of the shipyard could be construed as an argument that RSA 524:12 withstands the Bureau’s constitutional challenge based on legitimate public policy concerns of this state, namely, protecting New Hampshire citizens from taxation in the absence of an affirmative decision as to the location of the shipyard, the court disagrees. In Broderick, the Court noted that “[f]or the States of the Union, the constitutional limitation imposed by the full faith and credit clause abolished, in large measure, the general principle of international law by which local policy is permitted to dominate rules of comity.” 294 U.S. at 643. Indeed, over sixty years later, the Court expressly disavowed a public policy exception to the requirements of the full faith and credit clause:

A court may by guided by the forum State’s “public policy” in determining the law applicable to a controversy. But our decisions support no roving “public policy exception” to the full faith and credit due judgments. . . . We are aware of no considerations of local policy or law which could rightly be deemed to impair the force and effect which the full faith and credit clause and the Act of Congress require to be given a money judgment outside the state of its rendition.

Baker, 522 US at 234 (brackets and citations omitted) (emphasis in original). Id. at 234 [Kennedy, J., concurring] (“We have often recognized the second State’s obligation to give effect to another State’s judgments even when the law underlying those judgments contravenes the public policy of the second State.”) (citations omitted); see also Clark v. Rockwell, 435 S.E. 2d 664, 667 (W. Va. 1993) (citing United State Supreme Court cases discussing public policy under full faith and credit clause and concluding judgments of Maryland court entitled to full faith and credit in West Virginia, even assuming such judgments violate West Virginia public policy). But cf. Bartlett v. Dumaine, 128 N.H. 497, 517-18 (1986) (discussing public policy in context of determination that Massachusetts, not New Hampshire, was state of “primary supervision” over certain trusts and therefore proper forum in which to litigate trustees’ duty to account).

In this case, there is no question as to this court’s jurisdiction over both the parties and the subject matter of the dispute. Thus, the court declines to find RSA 524:12 valid under the full faith and credit clause despite the defendant’s arguable claim that the precise location of the shipyard has yet to be determined.

In considering a motion to dismiss, the court determines "'whether the allegations [in the plaintiff's pleadings] are reasonably susceptible of a construction that would permit recovery.'" Putnam v. University of New Hampshire, 138 N.H. 238, 239 (1994) (quoting Collectramatic, Inc. v. Kentucky Fried Chicken Corp., 127 N.H. 318, 320 (1985)). The court will "assume the truth of the plaintiff's pleadings and construe all reasonable inferences therefrom in a light most favorable to the plaintiff." Id.

Here, the underlying facts pertaining to the Bureau’s claim are not disputed.¹ Furthermore, the court finds the only legal bar to the Bureau’s collection action, namely, RSA 524:12 as it relates to the shipyard, unconstitutional. Accordingly, the Bureau’s petition to attach is GRANTED and the defendant’s motion to dismiss is DENIED.
So Ordered.

___________________________ Date: March 31, 2004 Bruce E. Mohl

Presiding Justice

¹ As previously explained, the court declines to consider the parties’ arguments with respect to the location of the shipyard.