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Wednesday, Oct. 13, 2010

DIRECTV, Inc. et al. v. (Richard A. Levin), Tax Commissioner of Ohio, Case no. 2009-0627
10th District Court of Appeals (Franklin County)

The Office of the Ohio Consumers' Counsel v. The Public Utilities Commission of Ohio, Case no. 2009-1547
Appeal fromn Ruling of the Public Utilities Commission

Sandra L. Janosek v. James C. Janosek, Case no. 2009-1705
8th District Court of Appeals (Cuyahoga County)

State of Ohio v. Artem L. Feldman, Case no. 2009-1987
11th District Court of Appeals (Lake County)


Does Ohio Law Imposing Sales Tax on Satellite TV But Not on Cable Violate U.S. Commerce Clause?

Suit Alleges Unequal Treatment of  In-State, Interstate Competitors

DIRECTV, Inc. et al. v. (Richard A. Levin), Tax Commissioner of Ohio, Case no. 2009-0627
10th District Court of Appeals (Franklin County)

ISSUE:  Does an Ohio law that imposes state sales tax on pay TV services that are transmitted directly to a satellite receiver at the consumer’s location, but does not impose sales tax on competing pay TV services that are delivered to consumers via cable, violate the Commerce Clause of the U.S. Constitution by giving preferential treatment to companies that have a substantial “on-the ground” presence in Ohio over interstate competitors?

BACKGROUND: As part of a 2003 overhaul of Ohio’s tax statutes, the General Assembly enacted legislation imposing state sales tax on satellite television services, i.e., on retail pay television service that is provided to subscribers by companies that transmit programming directly from earth-orbiting satellites to roof-top or set-top receivers located at their subscribers’ homes or businesses. The legislation did not extend the sales tax to pay television services that transmit programming to subscribers by means of coaxial or fiber-optic cable that is buried underground or strung along telephone wires.

The two largest providers of satellite television service in Ohio and across the country, DIRECTV and EchoStar, filed suit against the state tax commissioner in the Franklin County Court of Common Pleas seeking a declaratory judgment that the portion of the tax legislation imposing sales tax on satellite television service but not on cable television service in Ohio was unconstitutional under the Commerce Clause of the U.S. Constitution. Their complaint asserted that the state’s unequal tax treatment of competing businesses provided a “direct commercial advantage” to cable companies that employ thousands of Ohio residents and own billions of dollars worth of commercial property in Ohio, and disadvantage the satellite companies, which are headquartered in other states and have very little physical presence in Ohio.

The trial court granted partial summary judgment in favor of the satellite companies, holding that although there was no deliberate intent to give in-state businesses an advantage over interstate competitors, the practical effect of the unequal tax was to impede the free flow of interstate commerce in violation of the Commerce Clause.  The state and the satellite companies each appealed portions of the trial court’s judgment that were unfavorable to them.

On review, the 10th District Court of Appeals reversed the trial court, holding that imposition of state sales tax on satellite TV services but not on cable TV services was not contrary to the Commerce Clause because both the satellite companies and the cable TV companies serving Ohio are business entities headquartered outside of Ohio that have facilities located both within and outside the state − and therefore both sets of providers are entities engaged in interstate commerce. The court of appeals held further that the Ohio legislature’s decision to impose sales tax on satellite TV service but not on cable service was not unconstitutionally discriminatory because it was based on the different nature of the companies’ business activities, not on the physical location of their facilities. The satellite companies sought and were granted Supreme Court review of the 10th District’s decision.

Attorneys for the satellite companies urge the Court to reinstate the trial court’s judgment that imposition of Ohio income tax on their pay TV services but not on competing cable TV services violates the Commerce Clause. They point to the disparity between the numbers of Ohio employees and the value of corporate property owned by cable companies in Ohio compared to their own relatively small corporate presence in the state. They also assert that testimony by cable company lobbyists and comments by legislators at the time the tax bill was under debate show that the General Assembly’s primary reason for exempting cable companies from the sales tax was in deference to their significant role as Ohio employers and taxpayers. 

The satellite companies argue that there is no difference in the nature of the business activity in which they engage and the business activity of competing cable companies, i.e., both provide consumers with multichannel pay-TV programming.  Rather than basing its action on the irrelevant fact that they use a different technology to provide the same service as cable companies, they contend, the legislature impermissibly imposed a state tax on their interstate business activity and not on their competitors’ business activity based on the cable companies’ role in the state and local economies.

Attorneys for the cable companies point out that the satellite companies have asserted the same Commerce Clause claims arising from unequal taxation of cable TV providers in lawsuits filed in North Carolina and Kentucky, and in both instances the courts have dismissed their claims as meritless. They point out that cable companies, but not satellite TV providers, are required by law to pay a franchise fee of up to 5 percent of their gross revenues to local governments in areas that they serve, and are also required to provide free broadcast channels and production facilities for local educational and nonprofit programming, furnish free cable service to schools and meet other regulatory requirements that are not applicable to competing satellite companies. They point to prior U.S. Supreme Court decisions finding no Commerce Clause violation where states have offset similarly unequal financial burdens by exempting one business from a “compensatory tax” imposed on a competitor, such as the sales tax imposed on satellite TV providers by Ohio in this case.

NOTE:  Multiple amicus curiae (friend of the court) briefs have been filed in support of both parties’ positions in this case. Those briefs can be read or downloaded by visiting the Court’s online docket at http://www.supremecourt.ohio.gov/Clerk/ecms/searchbycasenumber.asp  In the dialogue box, enter the eight-digit case number included in the header of this oral argument preview and click “Search.”

Contacts
E. Joshua Rosenkranz, 202.506.5000, for DIRECTV, Inc. and EchoStar Satellite LLC.

Lawrence D. Pratt, 614.466.5967, for State Tax Commissioner Richard Levin.

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Did Gas Company Comply With Notice Requirements In PUCO Filing Seeking Distribution Rate Change?

The Office of the Ohio Consumers' Counsel v. The Public Utilities Commission of Ohio, Case no. 2009-1547
Appeal fromn Ruling of the Public Utilities Commission

ISSUE: Should the Court overturn a 2009 order of the Public Utilities Commission of Ohio (PUCO) that approved a change in natural gas distribution charges collected by Vectren Energy Delivery of Ohio from its residential customers on the basis that the public notice of the proposed rate change published by Vectren in newspapers across the state did not fully disclose or adequately explain the financial impact of the proposed change on its customers?

BACKGROUND:  In 2007, Vectren filed an application with the PUCO seeking to change the way it charged its residential natural gas customers to recover the company’s costs of providing local distribution service (as distinct from the cost of acquiring gas itself).

Under the existing rate design, part of the company’s distribution costs were recovered by means of a fixed, uniform $7.00 monthly charge included in every customer’s bill, and the remainder was recovered through a “volumetric” surcharge included in the price of each cubic foot of gas used by a customer. Under the company’s proposed new “straight fixed variable rate” (SFV) rate design, during a transitional period identified as Stage 1 Vectren would increase the fixed monthly charge added to every customer’s bill to $10.00 during summer months and to $16.75 per month during the winter, and the per-cubic-foot surcharge would be decreased proportionally. Vectren’s application went on to propose that, after Nov. 1, 2010, it would implement Stage 2 rates in which each customer would pay a fixed charge of $10 per month during the summer and $22.00 per month during the winter for distribution service, with another accompanying decrease in the volumetric charge based on actual gas usage.

Under R.C. 4909.18 and 4909.19, regulated utilities seeking PUCO approval of significant changes in their rate schedules are required to provide notice to the public by publishing legal notices in newspapers of record across the state that describe “the substance” of the proposed changes. In January 2008, the PUCO approved a proposed public notice submitted by Vectren regarding its proposed distribution rate changes. That notice was published in newspapers of record pursuant to the statutory requirements. 

The Office of Consumers’ Counsel (OCC), the state agency responsible for advocating for consumers in cases involving public utility rates and regulations, filed objections to Vectren’s adoption of the proposed SFV rate design. Among other arguments, the OCC asserted that the proposed change would unfairly shift the financial burden of paying for gas distribution costs from high-volume users to low-volume (and presumably lower-income) users, and would decrease current financial incentives for consumers to reduce their use of natural gas in order to avoid paying the incremental volumetric surcharge for distribution services currently included in the cost of each cubic foot of gas they use. The OCC also argued that the public notice of the proposed rate change approved by the PUCO and published by Vectren in Ohio newspapers did not meet the requirements of R.C. 4909.18 and 4909.19.  

In January 2009, the PUCO issued an Opinion and Order approving a modified SFV rate design similar to the Vectren proposal for a 13-month transitional period, with a subsequent shift to a complete SFV design (in which all distribution costs are recovered through a fixed monthly per-customer charge and the former volumetric use-based surcharge is eliminated) effective in February 2010.  The OCC filed a petition for reconsideration of that order, which was denied by the PUCO.
The OCC has exercised its right to appeal the PUCO’s order approving the Vectren SFV rate proposal to the Supreme Court.

Attorneys for the OCC contend that the public notice approved by the PUCO and published by Vectren in Ohio newspapers was fatally defective because it did not “fully disclose the substance of the application” as required by R.C. 4909.19, and argue that Vectren’s failure to fully inform ratepayers about the consequences of its proposed rate change deprived the PUCO of jurisdiction to consider and approve Vectren’s application. They assert that the published notice merely made reference to a “straight fixed variable rate” design but did not explain that term in language understandable to residential consumers, and made no mention of the unequal impact the proposed change would have on high-volume and low-volume consumers.  They also point out that the notice listed only the proposed transitional Stage 1 distribution rate charges, and made no mention of the higher Stage 2 rates despite the fact that those rates were an integral part of Vectren’s application.

In addition to the statutory defects of the published notice, the OCC also argues that consumers have a constitutionally protected property right in the continuance of state regulated utility rates, and that in this case Vectren’s residential customers were deprived of that property right without due process when the PUCO improperly allowed Vectren to increase its distribution cost recovery charges without first giving them proper notice and an opportunity to oppose those increases before the commission.

Attorneys for the PUCO respond that the commission has broad discretion to determine whether the public notice of a proposed rate change meets the statutory requirements of R.C. 4909.18 and 4909.19, and in this case the commission reviewed the notice prepared and submitted by Vectren and found that it disclosed the essential nature and the general effects of the proposed change to an SFV rate design for recovering the company’s distribution costs.  They also point out that the interests of Vectren’s residential customers were represented in the case by the OCC, which intervened at the earliest stages of the PUCO proceedings and whose attorneys had full notice and complete understanding of what the proposed SFV rate design would entail and how its approval would impact those customers.

Contacts
Maureen R. Grady, 614.466.9567, for the Office of Consumers' Counsel.

Werner Margard III, 614.239.7432, for the Public Utilities Commission of Ohio.

Samuel C. Randazzo, 614.469.8900, for Vectren Energy Delivery of Ohio Inc.

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Does State Law Authorize 'Spousal Support' When Recipient's Income Already Covers All Living Expenses?

Court Asked to Determine Whether Support Order Requires Evidence of Need

Sandra L. Janosek v. James C. Janosek, Case no. 2009-1705
8th District Court of Appeals (Cuyahoga County)

ISSUE:  Do Ohio domestic relations courts have authority to order one divorced spouse to pay “spousal support” to the other spouse in cases where it is undisputed that the division of marital property provides the latter spouse with more than enough future income to sustain the standard of living approved by the court?

BACKGROUND: James and Sandra Janosek of Cleveland were divorced in 2005 after 27 years of marriage. After James successfully appealed the original court-approved property division, the Cuyahoga County domestic relations court entered a new order in 2007 setting the agreed value of the couple’s marital property at $22.4 million, and divided that sum equally between them. Having determined that it would cost approximately $15,000 per month to sustain Sandra at the standard of living she had enjoyed during the marriage, the court also ordered James to pay Sandra spousal support in the amount of $15,000 per month for 18 years.

James appealed the portion of the trial court’s order awarding Sandra spousal support, arguing that under a line of prior appellate and Supreme Court of Ohio decisions culminating in Kunkle v. Kunkle (1990), Ohio’s divorce statutes authorize domestic relations courts to make an award of spousal support only where there is a showing that, following the division of a couple’s marital property, an additional amount of income is necessary in order to provide “support and sustenance” of the lower-earning spouse at the standard of living established by the court.  

In a 2-1 decision, the 8th District Court of Appeals affirmed the ruling of the trial court. In holding that Sandra was entitled to spousal support in addition to her portion of the couple’s marital assets, the appellate majority held that amendments to the state’s divorce statutes enacted by the General Assembly in 1991 had effectively overruled the Kunkle decision and indicated legislative intent that spousal support be awarded without a showing of need.

James sought and was granted Supreme Court review of the 8th District’s ruling.

Attorneys for James Janosek argue that while the legislative changes to state divorce laws enacted in 1991 eliminated references to “alimony” and replaced that term with “spousal support,” the amended statute retained the “support and sustenance” language cited by this Court in its 1990 Kunkle decision. They contend that the legislature did not indicate any intent to eliminate the requirement set forth in Kunkle that domestic relations courts have authority to award spousal support only where a prospective recipient demonstrates that she is unable to “sustain” from her own post-divorce resources the standard of living determined by the court to be a reasonable equivalent of her living standard during the marriage.

In this case, they point out, the trial court made specific findings that  Sandra’s reasonable monthly expenses following the divorce would be $15,000 per month or $180,000 per year, and that the portion of marital assets she had received in cash alone, more than $8 million, if placed in safe investments, would provide her with income of approximately $320,000 per year or more than $26,000 per month – substantially more than the amount of income required to sustain her pre-divorce life style. In light of those findings, they urge the Court to apply Kunkle to this case and invalidate the portion of the trial court’s order requiring James to pay additional monthly spousal support to Sandra.

Attorneys for Sandra Janosek point out that the 1991 legislation that rewrote Ohio’s guidelines for dividing marital property and replaced the term “alimony” with “spousal support” also eliminated the word “necessary” from the standards for setting spousal support, and adopted a list of 14 different factors that domestic relations courts should consider in determining whether an award of spousal support is “appropriate and reasonable.”  In this case, they argue, the trial court acted within its discretion in determining that James’ potential future earnings on his half of the marital property were considerably higher than Sandra’s potential earnings on her half, and that this discrepancy established a reasonable basis for an additional award of spousal support to Sandra for a limited number of years after the divorce.

Contacts
James A. Loeb, 216.621.0200, for James Janosek.

James C. Cochran, 216.664.2806, for Sandra Janosek.

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Must Court Disclose All Immigration Consequences Before Accepting Guilty Plea from Non-Citizen?

Where Felony Conviction Can Result in Deportation, Exclusion from U.S.

State of Ohio v. Artem L. Feldman, Case no. 2009-1987
11th District Court of Appeals (Lake County)

ISSUE:  Prior to accepting a guilty plea to a felony count by a person who is not a U.S. citizen, must Ohio trial courts specifically advise the defendant that a conviction for the offense to which he is pleading may result in 1) deportation, 2)  exclusion from admission to the United States or 3) denial of naturalization?

BACKGROUND:  In 2000 Artem Feldman of Lake County was indicted on one count of grand theft, a fourth-degree felony, and three counts of forgery, a felony of the fifth degree.  In exchange for dismissal of two of the forgery counts, Feldman agreed to plead guilty to grand theft and one count of forgery. Prior to accepting his guilty pleas, the Lake County Court of Common Pleas advised Feldman that conviction of the offenses to which he was pleading could result in “immigration consequences” including possible deportation. Feldman acknowledged that advisement and again indicated that he wished to plead guilty.  He was convicted on both charges.

In 2008, upon reentering the country following a trip abroad, Feldman was detained by U.S. Immigration and Customs Enforcement agents based on his felony convictions and legal proceedings to remove him from the U.S. were commenced. Shortly thereafter, Feldman filed a motion seeking leave of the trial court to withdraw his guilty pleas to the charges brought against him in 2000 on the ground that the trial court had not fully advised him of all the immigration consequences he could face as a result of that plea as required by R.C. 2943.031. The trial court denied that motion.

Feldman appealed.  On review, the 11th District Court of Appeals reversed the trial court’s ruling and ordered that Feldman be allowed to withdraw his guilty pleas and be tried on the theft and forgery counts.  The state sought and was granted Supreme Court review of the 11th District’s decision.

Attorneys for the state assert that the 11th District failed to follow a 2004 decision, State v. Francis, in which the Supreme Court of Ohio held that a trial court is not required to “strictly comply” with the notification requirements of R.C. 2943.031 in order to obtain a “knowing and voluntary” guilty plea from a non-citizen.  In this case, they argue, the trial judge substantially complied with the statutory requirements by determining that Feldman understood that convictions for felony theft and forgery could have a significant impact on his immigration status, including the possibility of causing him to be deported. Because the Francis decision specifically requires only “substantial compliance” with R.C. 2943.031, they contend, the 11th District erred in overruling the trial court and requiring that Feldman be allowed to withdraw his guilty pleas.

Attorneys for Feldman point out that in drafting R.C. 2943.031, the General Assembly did not merely enumerate three specific immigration consequences of which a non-citizen defendant must be advised, but actually provided a “script” that trial courts are required to read to such defendants before accepting their guilty plea to a felony. In light of that degree of specificity in the statutory language, they assert, the 11th District’s ruling did not impose a “strict compliance” standard, but merely held that a trial court does not  “substantially comply” with the statute unless it at least advises the defendant of all three possible consequences to the defendant’s immigration status that can result from a plea of guilty or no contest. Because the judge in this case advised Feldman only of possible deportation, and made no mention of either denial of entry or denial of naturalization, they say, the trial court failed to substantially comply with R.C. 2943.031 and the 11th District correctly held that Feldman must be allowed to withdraw his guilty pleas because those pleas were not entered with full knowledge of their consequences.

Contacts
Teri R. Daniel, 440.350.2683, for the state and Lake County prosecutor's office.

Rhys B. Cartwright-Jones, 330.757.6609, for Artem Feldman.

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These informal previews are prepared by the Supreme Court's Office of Public Information to provide the news media and other interested persons with a brief overview of the legal issues and arguments advanced by the parties in upcoming cases scheduled for oral argument. The previews are not part of the case record, and are not considered by the Court during its deliberations.

Parties interested in receiving additional information are encouraged to review the case file available in the Supreme Court Clerk's Office (614.387.9530), or to contact counsel of record.