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Worldwide Techservices, LLC v. Commissioner of Revenue

Supreme Judicial Court of Massachusetts, Suffolk

February 22, 2018

COMMISSIONER OF REVENUE & another [1] (and three consolidated cases [2]).

          Heard: November 7, 2017.

         Appeal from a decision of the Appellate Tax Board.

         The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.

          Edward D. Rapacki for the intervener. John A. Shope (Michael Hoven also present) for the taxpayers.

          Daniel J. Hammond, Assistant Attorney General (Daniel A. Shapiro also present) for Commissioner of Revenue.

          Ben Robbins & Martin J. Newhouse, for New England Legal Foundation, amicus curiae, submitted a brief.

          Present: Gants, C.J., Gaziano, Lowy, Budd, Cypher, & Kafker, JJ.

          KAFKER, J.

         Fifteen years and three Supreme Judicial Court decisions ago, this protracted case commenced regarding taxes imposed on computer service contracts. The litigation began when purchasers of the service contracts filed a putative class action against the sellers, [3] claiming under G. L. c. 93A that the imposition of these taxes was unlawful and an unfair and deceptive practice. The sellers successfully moved to compel arbitration pursuant to the terms of the computer service contracts, and a judge in the Superior Court eventually confirmed the award. The next chapter in this tax saga, and the one we are required to decide today, then ensued.

         For the sole and express purpose of hedging their bets in response to the class action, the sellers had applied for tax abatements from the Commissioner of Revenue (commissioner) beginning in 2004. The commissioner denied the applications, and the sellers petitioned the Appellate Tax Board (board). The appellant, Econo-Tennis Management Corp., doing business as Dedham Health and Athletic Complex (Dedham Health), one of the consumers who purchased these service contracts, moved to intervene in the proceedings, which the board allowed. Thereafter, the board, with certain exceptions, reversed the decision of the commissioner and allowed the abatements, ordering the parties to compute the amounts to be abated. Taxes totaling $215.55 were imposed on the service contracts purchased by Dedham Health.[4] After the class action litigation on the claims under G. L. c. 93A ended in the sellers' favor, the sellers withdrew their tax abatement petitions with prejudice. Dedham Health moved to strike the withdrawals. The board denied the motion to strike the withdrawals and terminated the proceedings, deciding that "any pending or further motions . . . [were] moot" and that it would "take no further action on these appeals." Dedham Health now appeals from that order. We transferred Dedham Health's appeal to this court on our motion and now conclude that although the board did not err as a matter of law in allowing the sellers' withdrawals, the board's termination of the proceedings in their entirety, after permitting Dedham Health to intervene and allowing the abatements, was an error of law. After the sellers' withdrawals were allowed, Dedham Health should have been allowed to proceed as an intervener on its own claim to recover the taxes imposed on the service contracts it purchased.[5]

         1. Background.

         The instant cases arise out of the same tax dispute at issue in Feeney v. Dell Inc., 454 Mass. 192 (2009) (Feeney I); Feeney v. Dell Inc., 465 Mass. 470 (2013) (Feeney II); and Feeney v. Dell Inc., 466 Mass. 1001 (2013) (Feeney III). As we summarized in Feeney I, supra at 194, "Dell Catalog Sales Limited Partnership (Dell Catalog) and Dell Marketing Limited Partnership (Dell Marketing), wholly owned subsidiaries of Dell Inc. (formerly Dell Computer Corporation), sold computers and related products to consumers and businesses and, in connection with such sales, also sold optional computer hardware service contracts under which [the sellers] agreed to provide onsite computer repairs to the purchasers." Dell Catalog and Dell Marketing collected tax on the optional service contracts from their customers and remitted the tax to the Department of Revenue. Id. at 194 & n.6. Under these service contracts, "BancTech, Inc. . . .; QualxServ LLC; or Dell Marketing agreed to provide onsite computer repairs to the purchasers."[6] Id. at 194. Dedham Health was one such consumer who purchased Dell computer hardware and the accompanying service contracts. Id. Dedham Health asserted that the tax on the optional service contracts was improper. Id. at 193.

         Dedham Health and one other plaintiff who bought Dell hardware and service contracts[7] commenced a putative class action against Dell Computer Corporation (Dell Computer) in 2003, alleging that it had improperly collected and remitted tax on the service contracts that the plaintiffs purchased, and that collecting the tax violated the Massachusetts consumer protection act, G. L. c. 93A. Ld. at 193, 196. "The 'Dell Terms and Conditions of Sale' ... in effect at the time of the plaintiffs' purchases contain an arbitration clause compelling arbitration of any claim against Dell . . . and mandating that any such claims be arbitrated on an individual basis" (emphasis in original; footnote omitted) .[8] Id. at 194-195. In July, 2003, Dell Computer moved to compel arbitration, and a judge in the Superior Court allowed the motion. Id. at 196-197. "[The plaintiffs] each filed a claim of arbitration 'under protest' in November, 2004." Id. at 197. The arbitrator denied the plaintiffs' request for class certification, and ruled in favor of the defendants on the merits in 2007. Id. at 198.

         "In February 2008, the plaintiffs moved in the Superior Court to vacate the arbitration award, " but their motion was denied and the case was dismissed with prejudice. Id. The plaintiffs appealed, and we granted their application for direct appellate review. Id. In Feeney I, this court held that the arbitration clause was void as against public policy, and reinstated the Superior Court action. Id. at 205, 214. Less than two years later, the United States Supreme Court ruled in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 351-352 (2011), that the Federal Arbitration Act precludes invalidating class waiver provisions in arbitration clauses on the basis of State public policy favoring class actions. In response to Concepcion, we held in Feeney II that "a court may still invalidate a class waiver" post-Concepcion where, as here, "class proceedings are the only viable way for a consumer plaintiff to bring a claim against a defendant." Feeney II, 465 Mass. at 501-502. One week later, the United States Supreme Court held in American Express Co. v. Italian Colors Restaurant, 570 U.S. 228, 238-239 (2013) (Amex), that an arbitration agreement's class waiver is enforceable even if the class waiver effectively precludes the plaintiff from vindicating his or her Federal statutory rights. In light of the Supreme Court ruling in Amex, we held in Feeney III that the class waiver in the present case could not be invalidated for effectively denying the plaintiffs a remedy, and remanded the case to the Superior Court. Feeney III, 466 Mass. at 1003.

         On remand, the Superior Court granted the sellers' motion to confirm the original arbitration award dismissing the plaintiffs' claims. Feeney vs. Dell Inc., Mass. Superior Ct., No. 2003-01158 (Middlesex County Oct. 24, 2013). The Appeals Court affirmed in a memorandum and order pursuant to its rule 1:28, 87 Mass.App.Ct. 1137 (2015), and this court denied the plaintiffs' application for further appellate review in October, 2015, ending the putative class action litigation.

         While the putative class action was still ongoing, the sellers brought abatement claims against the commissioner for the taxes collected on the service contracts. The sellers indicated in their abatement filings that they only sought abatement in the event that the class action litigation resulted in a judgment requiring the sellers to refund the taxes to their customers. The sellers' filings stated that if they prevailed in the class action, they would withdraw their abatement applications.

         The commissioner denied the sellers' abatement requests. The sellers filed timely petitions with the board challenging the commissioner's denial of their abatement requests, and the petitions were consolidated. In their petitions to the board, the sellers again emphasized that they sought abatement to protect against a possible judgment against them in the putative class action litigation.

         Dedham Health filed motions to intervene in the sellers' petitions before the board, arguing that it and "other similarly situated customers" were the "real parties in interest" because the customers were entitled to be refunded in the amount of any abatement paid out to the sellers. Dedham Health also asserted that the commissioner prohibits customers from pursuing abatement claims themselves "where the challenged 'tax' was paid to, and remitted by, the seller." However, Dedham Health did not ask for class action certification before the board because, as it conceded in its motion, "there is no procedure for certifying a class action to the [board]." The board granted

          Dedham Health's motions to intervene, concluding that it had alleged "sufficient facts ... to support its claims that the parties may not be adequately representing Dedham Health's interests" and that Dedham Health had "a substantial interest in the subject matter of this litigation." In allowing Dedham Health's intervention, the board noted that it "in no way extends or expands the limitations contained in G. L. c. 62C, § 37, " the statute that sets forth the procedure for pursuing abatement.

         The parties submitted a joint statement of facts and a joint evidentiary record to the board. The board ruled in December, 2013, that, with certain exceptions, the transactions did not fall within the statutory or regulatory framework for taxation and thus the sellers had not been required to collect the taxes at issue, and were therefore entitled to an abatement of all such taxes they had remitted. The board directed the parties to "compute the amounts to be abated based on the foregoing findings and rulings." Because computing the abatement amounts would be a complex and expensive task, the board granted the sellers' motion to stay the board proceedings until all appeals in the putative class action litigation had been exhausted.[9]

         After the final dismissal of the putative class action in favor of the sellers, the sellers withdrew all of their petitions before the board. Dedham Health filed a motion to strike the sellers' withdrawals, arguing that allowing the withdrawals would leave consumers without a forum to pursue a tax refund. In July, 2016, the board denied Dedham Health's motion to strike. Instead, the board ordered the proceedings closed in light of the sellers' withdrawals, ruling that "any pending or further motions and discovery are moot." The board's ruling did not include a rationale for its decision. Dedham Health did not request findings and a report, available pursuant to G. L. c. 58A, § 13.[10]

          On appeal, Dedham Health argues that the board (1) improperly denied Dedham Health's motion to strike the sellers' withdrawals, (2) incorrectly ruled that the withdrawals rendered all pending and future motions moot, and (3) violated Dedham Health's right to due process ...

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