Fidelity & Guaranty Ins. Co. v. Blount
Docket Number: | 2008-CA-01931-SCT Linked Case(s): 2008-CA-01931-SCT |
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Supreme Court: | Opinion Link Opinion Date: 03-24-2011 Opinion Author: Pierce, J. Holding: Affirmed |
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Additional Case Information: |
Topic: Taxation - Contractual obligation - Suretyship - Section 27-65-21 - Due process - Section 27-65-37 - Actual taxpayer - Section 27-65-3(e) - Section 27-3-73 - Section 27-65-81 - Section 27-65-57 - Standing Judge(s) Concurring: Waller, C.J., Carlson, P.J., Randolph, Kitchens and Chandler, JJ. Non Participating Judge(s): King, J. Concur in Part, Concur in Result 1: Dickinson, P.J. With Separate Written Opinion Concur in Part, Concur in Result Joined By 1: Lamar, J. Procedural History: Summary Judgment; Dismissal Nature of the Case: CIVIL - STATE BOARDS AND AGENCIES |
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Trial Court: |
Date of Trial Judgment: 10-21-2008 Appealed from: Hinds County Chancery Court Judge: Patricia D. Wise Disposition: On October 21, 2008, the trial court denied F&G's motion and granted the Tax Commission's motion for summary judgment. On February 13, 2009, St. Paul, Travelers, F&G, and USFG filed an action in the same court on similar facts and issues but with different sureties and bonded principals. The Tax Commission filed its motion to dismiss on March 17, 2009, and after briefing and oral arguments, the trial court again ruled in favor of the Tax Commission. The trial court concluded that a surety is not a taxpayer as contemplated under Mississippi sales-tax law, is not entitled to notice prior to a tax assessment or audit, and is liable for the entire amount of unpaid taxes, including damages, penalties, and interest. Case Number: G2002-1139 W/4 |
Party Name: | Attorney Name: | |||
Appellant: | Fidelity & Guaranty Insurance Company |
LISA ANDERSON REPPETO
MARK D. HERBERT
KEVIN ALAN CROFT |
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Appellee: | Joseph L. Blount, In the Official Capacity as Commissioner of the Mississippi State Tax Commission | MISSISSIPPI DEPARTMENT OF REVENUE: JAMES L. POWELL KENITTA FRANKLIN TOOLE |
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Topic: | Taxation - Contractual obligation - Suretyship - Section 27-65-21 - Due process - Section 27-65-37 - Actual taxpayer - Section 27-65-3(e) - Section 27-3-73 - Section 27-65-81 - Section 27-65-57 - Standing |
Summary of the Facts: | Fidelity and Guaranty Insurance Company, a surety company licensed and operating in Mississippi, filed suit in the Chancery Court of Hinds County challenging the Mississippi State Tax Commission’s right to threaten to seize F&G’s Mississippi assets within ten days if it did not pay the sum that the Tax Commission claimed was owed by F&G’s principal, Aaim Construction, Inc. for unpaid taxes, penalties and accrued interest. After discovery was completed, the Tax Commission moved for summary judgment; F&G filed a cross-motion for summary judgment. The trial court denied F&G’s motion and granted the Tax Commission’s motion for summary judgment. St. Paul Fire and Marine Insurance Company, Travelers Casualty and Surety Company of America, the United States Fidelity and Guaranty Company and F&G filed an action in the same court on similar facts and issues but with different sureties and bonded principals. The Tax Commission filed its motion to dismiss, and the trial court again ruled in favor of the Tax Commission. The sureties appeal. |
Summary of Opinion Analysis: | Issue 1: Contractual obligation The sureties argue that, as a matter of substantive and procedural due process, they are entitled to notice when their bonded principal is subject to an audit by the Tax Commission. Based on Mississippi contract law and the Mississippi Code, this contention is misplaced. Section 27-65-21 requires that any person entering into any contract of $75,000 or more must, before beginning the performance of such contract, execute and file with the Tax Commission a good and valid bond in a surety company authorized to do business in the State of Mississippi with the condition that all taxes which may accrue to the state be paid when due; or pay the contractor’s tax in advance. It is well settled that issuance of a surety bond creates a contractual relationship between the surety and its principal. The contract of suretyship binds the surety absolutely and unconditionally. The surety’s liability and obligation are the same as the principal’s, and the surety is liable only if the principal is liable. Because of the fiduciary overtones of the surety’s contract, a surety is regarded as in privity with the principal and generally is bound by the principal’s actions. The suretyship relationship, being contractual in nature, is governed generally by the familiar rules of contract law. The principal’s default or breach of the underlying contract does not discharge the surety, but generally puts the surety’s obligation in motion. The surety becomes the creditor of the principal after it has paid the principal’s debt in full or in part, for all purposes. It is clear that the sureties involved in this appeal willingly formed a contractual relationship with the principals they bonded. The language in the bonds in question “guaranteeing payment of all taxes, damages, interest and penalties which may accrue to the State of Mississippi” is clear and unambiguous and should be given its plain and ordinary meaning. Applying the plain and ordinary meaning of the relevant language in the riders leads to the conclusion that the sureties are liable for the payment of all taxes, damages, interest, and penalties which accrued to the State of Mississippi, as expressly provided in each rider. Issue 2: Due process The sureties argue that the Tax Commission deprived them of their substantive and procedural due-process rights when it failed to give notice of the tax audits, resulting in the additional taxes, penalties, damages, and interest owed to the State. Section 27-65-37 makes evident that the sureties are not by law entitled to notice of such audits and assessments. The word “taxpayer” as used in this statute is defined as any person liable for or having paid any tax to the State of Mississippi under the provisions of this chapter. Applying the plain language of the statute to the case at hand, it is clear that the only individual or entity entitled to notice under the assessment statute is the actual taxpayer, as defined by section 27-65-3(e). The sureties are not the taxpayers as contemplated by the Legislature and are not entitled to notice of an audit or default by their principals. Further, the actual bonds in question do not authorize the release of such information before the Tax Commission makes a claim to the surety. If the Commission had, in fact, released such information, it would have been in clear violation of sections 27-3-73 and 27-65-81. Clearly, the Tax Commission may not divulge any particulars regarding the principals’ financial status; and if the Tax Commission did so, it would face potential criminal liability. The statute which controls with regard to the sureties’ due-process arguments and the Commission’s demand for taxes plus penalties and interest is section 27-65-57. Not only does section 27-65-57 indicate that notice may not be given until after default, but the relevant statute as a whole also indicates the same. Issue 3: Standing The sureties argue that they stand in the shoes of the principals and are thus considered taxpayers entitled to notice and a hearing when their principals default. The sureties are undoubtedly taxpayers in their own individual rights for the businesses that they operate, and they probably do pay various taxes to the taxing jurisdictions in which they do business. However, they are not the taxpayers on the tax liability that the principals incurred as a result of their construction businesses. Once the surety and principal enter into an agreement, their duties become intertwined and must be construed together. It is clear that sureties are bound by the principals’ initial actions when they were first notified of their default. |
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