WASHINGTON -- The Supreme Court returns to the bench Monday to begin its 1993-94 term, a session that could reshape federal-state relations and affect the amount of tax money that flows into state treasuries.
The justices already have agreed to review a host of cases of interest to municipal governments, including a series of environmental disputes. And as early as Monday they may agree to hear oral arguments in others.
Colgate-Palmolive Co., for example, is asking the court to review whether California's use of worldwide combined reporting for tax purposes, as applied to U.S.-based multinational firms, violates the U.S. Constitution's foreign commerce clause. Like the domestic commerce clause, the foreign clause gives Congress the right to regulate international trade.
Under the California system, all of the worldwide affiliates of a multinational group are treated as a single enterprise. The worldwide income is then apportioned between California and the rest of the world based on a three-factor formula, and then assessed a tax.
Detractors claim the system results in a higher tax liability than would prevail under the international norm of the "arm's-length," or separate, accounting method. Under that method, the members of a multinational conglomerate are viewed as separate from one another, and the taxable income of any particular member of the group is determined on the basis of that member's internal accounting records.
Another challenge to the California system is being launched by Barclays Bank, which wants the court to strike down the law as applied to foreign-owned multinational businesses. The bank and other opponents warn that if the system is allowed to stand, the United States will face substantial retaliation from foreign governments, with potentially crippling economic results.
Other potential cases of note include: * Akridge v. AMBAC Indemnity Corp., a dispute challenging a Series 1988 Berrien County, Ga., revenue bond issue. Bobby C. Akridge Sr., a county resident, claims that a $2 million bond issue of the county Resource Recovery Development Authority violated the U.S. Constitution's due process clause because the debt, though advertised as a revenue bond issue, was secured by the full faith and credit of the county. * Quill Corp. v. North Dakota, a case arising from a 1992 Supreme Court ruling that states cannot require mail order companies to collect and remit use taxes unless the companies have a physical presence within the taxing jurisdiction. In the current dispute, Quill is challenging a North Dakota Supreme Court ruling that declined to allow the firm to pursue a federal civil rights claim against the state for having been forced to collect the illegal tax. * City of Chicago v. Billish, in which the city is trying to revive an affirmative action plan in the fire department. Local governments in a friend-of-the-court brief claim that unless they are able to adopt a flexible benchmark for promotions, an unacceptably long time could pass before vestiges of past discrimination against minorities are remedied.
In the securities law arena, the justices are being asked to decide the constitutionality of a federal law that reinstated pending securities law claims that were tossed out of court following the high court's 1991 ruling setting a uniform statute of limitations.
The case, Scientific-Atlanta Inc. v. Henderson, challenges the constitutionality of provisions of the Federal Deposit Insurance Corp. Improvement Act of 1991.
The challenged provisions reinstated securities fraud claims dismissed in the wake of the Supreme Court's June 20, 1991, ruling in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson.
The court in that case disapproved of lower courts' common practice of borrowing state statutes of limitations in federal lawsuits brought under the antifraud section of the Securities Act of 1934. Instead, the court said a uniform federal limitations period must be applied to all such cases. The limitations standard is one year from discovery of securities fraud, but in no event more than three years from the acts giving rise to the claim.
Also on June 20, 1991, the court ruled in a separate case that its rulings generally must be given retroactive effect. As a result, pending securities fraud cases not meeting the new federal standard were dismissed across the country.
Another case, Allen & Co. v. Pacific Dunlop Holdings Inc., asks the court to decide whether federal securities law sanctions for failing to provide material facts prior to a sale of securities applies only to initial offerings, or whether the sanctions also apply to secondary market transactions.
Also among the top cases of municipal concern that the justices have already agreed to resolve are a series of environmental disputes. The cases are important not only because of their ramifications for municipal autonomy, but because of their potentially disruptive impact on state and local finances.
The lead environmental case of the term, C&A Carbone Inc. v. Clarkstown, N.Y., asks the court to decide whether the U.S. Constitution's commerce clause forbids localities from requiring trash disposal only at a designated local facility.
Such requirements, known as flow control ordinances, are designed to ensure that municipally built waste facilities are economically feasible. Without them, bond-financed facilities may not be able to attract enough waste, and the fees it generates, to pay off bondholders.
The justices, however, are unlikely to be too concerned about bondholders. Instead, they will be looking to see whether the laws violate the commerce clause.
When Congress has not acted, the court uses what is called its dormant commerce clause doctrine, under which the justices analyze whether the challenged state law or regulation imposes burdensome hurdles to the free flow of goods and services across state lines.
There is some dispute as to whether Congress has spoken on the flow control issue. The National Association of Bond Lawyers, in a friend-of-the-court brief filed in the case, argues that in the federal Resource Conservation and Recovery Act, Congress specifically authorized localities to adopt flow control measures. As a result, the commerce clause is not implicated, the association says.
But in its initial court filings, Clarkstown did not claim Congress had authorized its statute, and the lower court proceedings were decided along commerce clause lines. In 1992, a New York appeals court upheld the law, saying that "any effect on the interstate flow of solid waste" was permissible because of "the legitimate and significant public concerns underlying the local law."
Former U.S. Solicitor General Kenneth W. Starr, now a partner in the Washington office of Chicago-based Kirkland & Ellis, said the Clarkstown law is likely to be viewed less favorably by the Supreme Court.
Speaking at a recent Supreme Court preview session sponsored by the U.S. Chamber of Commerce, Starr said the court "has been embracing a Madisonian view of the United States as a vast, united, commercial republic that must be guarded from protectionism."
He noted that the court last year struck down an Alabama law imposing a higher disposal fee on hazardous waste generated outside the state than on locally generated hazardous waste. "This is a budding problem that the court is arresting," Starr said of municipal efforts to restrict flows of waste. Consistent with that view, he predicted the court would strike down the Clarkstown ordinance as a violation of the commerce clause.
A similar fate might await an Oregon law that imposes a higher disposal fee on out-of-state waste than on local waste. Oregon Waste Systems Inc. v. Environmental Quality Department, is similar to the 1992 Alabama case, but there are distinguishing characteristics.
In Alabama, the state made n9 attempt to rationalize the fee differential other than to declare that the law protected citizens and the environment. The justices responded that hazardous waste is no less a threat to residents if it is produced in Alabama than somewhere else, concluding that the law was not based on a legitimate state interest that insulated the fee from commerce clause scrutiny.
In Oregon, by contrast, the state set the fee at a level sufficient to cover its regulatory costs. Oregon levies a $2.25 per ton special fee on disposal of waste from outside the state but only an 85 cents per ton fee on locally produced waste.
Because the law discriminates against out-of-state waste through a higher fee, Oregon will need to justify the differential both in terms of the local benefits from the law and the unavailability of nondiscriminatory alternatives.
Another environmental case of keen interest to municipalities is City of Chicago v. Environmental Defense Fund Inc. The city is challenging a ruling by the U.S. Court of Appeals for the Seventh Circuit that ash generated by a municipal waste-to-energy facility is a hazardous waste that must be dumped only in hazardous waste dumps.
Municipal governments warn that if the ash is required to be treated as a hazardous waste, the cost of municipal solid waste disposal would skyrocket and resource recovery facilities would be rendered economically unviable.