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The first of many coastal land loss lawsuits filed by Louisiana coastal parishes has proceeded to judgment, with the result being the dismissal of the case based on the failure to exhaust administrative remedies prior to filing suit.

Since the filing of the politically-charged Southeastern Louisiana Flood Protection Authority lawsuit, four parishes – Plaquemines, Jefferson, and more recently Cameron and Vermilion – have filed 40 similar lawsuits against oil and gas exploration and production companies, and pipeline companies, alleging that these companies violated the State and Local Coastal Resources Management Act of 1978 (“SLCRMA”) and, in doing so, caused or contributed to coastal land loss. The foundation of the parish plaintiffs’ claims is that the oil and gas companies performed certain activities in Louisiana’s coastal zone either (i) without the Coastal Use Permits required by the SLCRMA or (ii) or in violation of the Coastal Use Permits which were issued under the SLCRMA. Recently, the Louisiana Attorney General and the Louisiana Department of Natural Resources, Office of Coastal Management (the “Intervenors”) intervened in the lawsuits, joining with the parish plaintiffs in order to ensure the protection of the State’s interests.

The oil and gas company defendants have raised various exceptions to the claims of the parishes and Intervenors, including the defense that the lawsuits are premature because the plaintiffs failed to pursue the administrative remedies available under the SLCRMA and related regulations prior to filing suit. This argument was considered in the case of The Parish of Jefferson v. Atlantic Richfield Company, et al., No. 732-768, 24th Judicial District Court, Jefferson Parish, with Judge Stephen D. Enright, Jr. issuing a Judgment on August 1, 2016 (published on August 8, 2016) agreeing with the oil and gas company defendants and dismissing the claims of Jefferson Parish and the Intervenors as premature for failure to exhaust administrative remedies.

In his Judgment, Judge Enright found that a comprehensive administrative remedy exists under the SLCRMA and the Louisiana Administrative Code (particularly La. Admin. Code tit. 43, pt. I sec. 723(D)(1-4)) to address potential violations of Coastal Use Permits. Accordingly, the Court ordered that Jefferson Parish and the Intervenors must pursue and exhaust this administrative remedy process prior to bringing suit in court seeking civil damages. As the Court stated, “in the absence of an exhaustion of administrative remedies, it is yet to be determined whether civil damages exist.”

While Jefferson Parish has indicated that it will file a motion for a new trial and/or appeal to the Louisiana Fifth Circuit, the Louisiana Attorney General Jeff Landry issued a statement on August 10, 2016, indicating that he will not seek to challenge Judge Enright’s ruling because the ruling is protective of the State’s interest, in that it allows the Louisiana Department of Resources to determine whether any violations of Coastal Use Permits have occurred through the administrative process established by the SLCRMA and the Louisiana Administrative Code. As stated by Attorney General Landry:

addressing the issues associated with permit violations through the administrative process is a cost-effective, efficient way to resolve any violations. That was clearly the purpose of the Legislature creating this regulatory scheme. I believe the Secretary of the Department of Natural Resources has been given ample tools by the Legislature to address these issues.

Full Statement.

While a victory for the oil company defendants, it is still expected that additional parishes will file coastal land loss lawsuits. We will continue to report on key developments in these cases.

 

The Louisiana Legislature is considering last minute legislation to change the effective date of legislation allowing the State to tax remote sellers but has not acted to make other centralized collection legislation operative.  It may not have to.

Today, in a 5-4 decision with far-reaching implications, the Supreme Court of the United States issued its most significant ruling on the constitutional limits – or expanse, as some may view it – of the states’ rights to impose sales/use tax since its 1992 decision in Quill Corp. v. North Dakota, 504 U.S. 298 (1992).  Indeed, in today’s South Dakota v. Wayfair, et al., __ U.S. __ (2018) decision, the Court expressly overruled Quill (and National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 (1967)), finding that Quill’s “physical presence rule…is unsound and incorrect.”  In overruling the “physical presence” (nexus) test, the Court relied on its long-standing test for whether state taxes meet constitutional scrutiny under the Commerce Clause, as set forth in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977)).  The Court abandoned the “physical presence” standard previously applied to the first prong of the Complete Auto test – whether a tax appl[ies] to an activity with a substantial nexus with the taxing State” – in favor a new standard (i.e., whether the taxpayer (or vendor) “avails itself of the substantial privilege of carrying on business in the taxing jurisdiction.”).  The implications of the new, broad test – which seems to overlap even more than before with the Due Process test for state taxation – are not yet fully clear. But there is no question they are significant.

For a full discussion of the Wayfair decision, click here.

States’ Inability to Collect Sales Tax From Online Retailers, Background

Since the advent and, later, explosion of e-commerce, most states have bemoaned the loss of sales/use tax revenues that the Quill decision prevented them from collecting, because an online retailer selling into a state with which it had no physical presence did not have the “substantial nexus” required by Complete Auto.  Attempts at a legislative (Congressional) fix – which the Supreme Court actually invited in 1992 in its Quill decision – have effectively gone nowhere.  Recently, many states, like South Dakota, have enacted laws requiring online retailers selling into their state to register for and collect sales/use taxes if the retailer meets a minimum annualized threshold of sale amounts and/or number of sales.  Many of these laws were enacted specifically to force a showdown at the Supreme Court.  And while several states like South Dakota were in the vanguard of this new fight, states like Louisiana were watching on the periphery and preparing for a favorable decision.

Louisiana’s Remote Seller (Online Retailer) Taxing Regime, Generally

In 2018, the Louisiana Legislature passed a law (Act No. 5, Second Extra. Sess. of 2018) that would expand the definition of “dealer” to include any online retailer having no physical presence in the state, but who, “during the previous or current calendar year,” had either (i) gross revenues from sales or services delivered into Louisiana exceeding one hundred thousand ($100,000) dollars; or (ii) at least two hundred (200) sales into the state.  Online retailers meeting the expanded definition of “dealer” would then be required to register with the State for sales tax purposes and to collect state sales taxes on the transactions.  The law expressly provides, however, that Act No. 5 “shall apply to all taxable periods beginning on or after the date of the final ruling of the United States Supreme Court in [South Dakota v. Wayfair] finding South Dakota 2016 Senate Bill No. 106 constitutional.”  So, before the Wayfair decision was issued, it could not have applied.  While legislation has been introduced to change the effective date (discussed below), arguably, though, the law can still not be applied.  The results of the Legislature’s efforts to create a workable effective date will determine whether there is  a safe harbor economic nexus threshold in Louisiana and all businesses with a sufficient economic and virtual contacts to the state should evaluate whether they are subject to sales and use tax and remain alert to developments in this area.

Louisiana’s Remote Seller (Online Retailer) Tax Regime, However, is Inoperative Under its Terms, But Nonetheless (if the Effective Date is Fixed) May Not be Constitutional under Wayfair

Justice Kennedy, for the majority in Wayfair, wrote:

The question remains whether some other principal in the Court’s Commerce Clause doctrine might invalidate the Act. Because the Quill physical presence rule was an obvious barrier to the Act’s validity, these issues have not yet been litigated or briefed, and so the Court need not resolve them here.

Justice Kennedy went on to write that “[a]ny remaining claims regarding the application of the Commerce Clause in the absence of Quill and Bellas Hess may be addressed in the first instance on remand.”  So, while the Court ruled on the “physical presence” issue, it did not definitively rule that the South Dakota law was constitutional.

Act No. 5 is specific – it will only apply to taxable periods “beginning on or after the date of the final ruling by the United States Supreme Court in [Wayfair] finding [the South Dakota law] constitutional.”  As of this writing, that has not happened.  And unless and until the U.S. Supreme Court specifically rules that the South Dakota law is constitutional, Act No. 5’s provisions will never be triggered.  Without that trigger, the definition of “dealer” will not include online retailers (as described in the Act) and the current taxing regime in Louisiana will remain.

As noted above, late last evening (June 21, 2018) a bill (SB 1) was introduced in the Louisiana Senate that would remove the quoted language and replace it with “beginning on or after August 1, 2018,” which seems designed to correct the limitation in current law.  The late-filed bill is nevertheless constitutionally dubious, because, under the Louisiana constitution, bills that raise revenues must originate in the Louisiana House of Representatives.  SB 1 appears designed to raise revenues because it’s intent could be interpreted as ensuring that Louisiana’s existing sales tax regime survives Commerce Clause scrutiny with respect to remote sellers. If SB 1 is passed by the Louisiana Legislature, it will be subject to court challenge.  Unless and until the Senate bill is passed, current law holding Act No. 5’s application until the United States Supreme Court declares in Wayfair that the South Dakota law is constitutional remains in effect.  As a result, the U.S. Constitution appears to be the only limit on the state’s powers to impose the tax on remote sellers.

If SB 1 does not pass the Legislature (or passes and is met with a court challenge), but the United States Supreme Court makes a definitive ruling that the South Dakota law is constitutional, thereby triggering Act No. 5, Louisiana’s proposed remote seller tax regime will nevertheless be subject to challenge, because its system of centralized administration, collection and enforcement cannot be implemented under current law.

La. R.S. 47:339 establishes the Louisiana Sales and Use Tax Commission for Remote Sellers (the “Commission”) within the Department of Revenue “for the administration and collection of the sales and use tax imposed by the state and political subdivisions with respect to remote sales.” La. R.S. 47:339(A)(2) provides, further:

The Commission shall…[w]ith respect to any federal law as may be enacted by the United States Congress authorizing states to require remote sellers, except those remote sellers who qualify for the small seller exceptions as may be provided by federal law, serve as the single entity in Louisiana to require remote sellers and their designated agents to collect from customers and remit to the commission sales and use taxes on remote sales sourced to Louisiana on the uniform Louisiana state and local sales and use tax base established by Louisiana law. (emphasis supplied)

Should the Supreme Court ultimately rule in the Wayfair case (on later writ of certiorari) that the South Dakota law is constitutional, remote sellers qualifying as “dealers” under Act No. 5 would then be subject to the Louisiana’s registration and reporting/collecting/remitting requirements.  But unless and until the Congress enacts a federal law dealing with sales tax reporting and remitting requirements for remote sellers, the Commission, by the express terms of La. R.S. 47:339, will have no authority to implement the centralized system the Legislature envisioned.  Such a system appears essential under Wayfair, however, for the state to constitutionally impose its proposed remote seller tax regime on nonresident businesses with no physical presence in the state.

Justice Kennedy made clear that the South Dakota law would likely survive Commerce Clause scrutiny because (i) it has a safe harbor provision; and (ii) that the taxes would not be applied retroactively. But his ultimate conclusion rested in no small part on South Dakota’s centralized system.  He wrote:

South Dakota is one of more than 20 States that have adopted the Streamline Sales and Use Tax Agreement.  This system standardizes taxes to reduce administrative and compliance costs.  It requires a single, state level tax administration, uniform definitions of products and services, simplified tax rate structures, and other uniform rules. It also provides sellers access to sales tax administration software paid for by the State.

Under current Louisiana law, unless and until (i) the United States Supreme Court expressly finds the South Dakota law constitutional (at the very least by denying certiorari from a lower court decision ruling the same); and (ii) the Congress passes a federal law specifically providing for taxation of remote sellers (as unambiguously required by La. R.S. 47:339(A)(2), Louisiana’s proposed centralized system (for so-called remote sales) will have no statutory basis for implementation and administration. The Wayfair decision suggests that the lack of such a centralized system would not withstand Commerce Clause scrutiny in the remote seller context because such a scenario may present discrimination against or undue burdens on interstate commerce.

All that being said, and despite the fact that neither of these two Louisiana statutes are (yet) effective according to their terms, remote vendors must nonetheless understand that the Supreme Court’s decision in the Wayfair case changes the landscape dramatically.  The Supreme Court in Wayfair introduced a new “substantial nexus” test under the Commerce Clause.  Undoubtedly the Louisiana Department of Revenue and each one of the sixty-three Louisiana parishes that impose sales and use tax are evaluating this new test and considering the possibilities.

The majority opinion leaves open that “[c]omplex state tax systems could have the effect of discriminating against interstate commerce.” There may be issues with undue burdens or outright discrimination. So conceivably the same nexus thresholds that on balance justify South Dakota’s sales and use tax collection obligation might not apply in a more complex state like Louisiana or Colorado.  Vendors should be on notice, however, that there is a high probability that neither the State nor the Parishes will feel constrained by these concerns.

Wayfair’s impact on Marketplace Facilitator’s in Louisiana

In March 2018, the Louisiana 24th Judicial District Court issued an unusual opinion that addressed the application of Louisiana’s existing sales and use tax laws to a marketplace facilitator.[1]  Specifically, the district court held that a marketplace facilitator was a dealer for purposes of Louisiana sales and use tax laws solely because it engaged in solicitation of a customer market and despite that fact that it never owned or sold the good at issue.  This case is unusual because it implies that both the remote seller and the marketplace facilitator are dealers and it could be read as standing for the proposition that any third party that plays any role in facilitating a transaction could be a dealer with respect to that transaction.

The Court’s decision in Wayfair, does not directly address how the Wayfair test would apply in the context of a marketplace facilitator.  So it is not clear whether an indirect virtual contact, e.g., a situation where the seller’s only contact is indirect through the marketplace facilitator’s website, could result in substantial nexus for the seller.  Nor is it clear whether a marketplace facilitator can be construed as a dealer for purposes of collecting use tax on a sale made by an unrelated third party using its platform.  This issue will likely continue to be litigated in Louisiana and throughout the country.

Louisiana’s Notice and Information Reporting Law Remains in Place

While it seems like piling on, Louisiana’s notice and information reporting statute remains in place, Louisiana law, specifically, La. R.S. 47.309.1 remains in effect for remote dealers selling $50,000.00 or more into the state.  Assuming, qualifying vendors do not voluntarily register to collect and remit state and local use taxes, they will have to consider the implications of the notice and information reporting statute.

For a more full discussion of the Wayfair decision’s effects on Louisiana state and local tax, contact Jaye Calhoun, Jason Brown, or Willie Kolarik.

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[1] Newell Normand, Sheriff and Ex-Offico Tax Collector For The Parish of Jefferson v. Wal-Mart.com USA, LLC, Dkt. No. 769-149 (La. 24th Judicial Dist. Ct. March 2, 2018).

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A federal judge dismissed the lawsuit that the New York Times referred to as “The Most Ambitious Environmental Lawsuit Ever” on February 13, 2015, with a finding that the plaintiffs did not state a viable claim for relief.

The Board of Commissioners of the Southeast Louisiana Flood Protection Authority-East (“SLFPA-E” or “Authority”) filed a lawsuit in the Civil District Court in Orleans Parish, Louisiana, against more than 90 oil and gas and pipeline companies on July 24, 2013.  The SLFPA-E filed the suit individually and as the Board governing the Orleans Levee District, the Lake Borgne Basin Levee District, and the East Jefferson Levee District, contending that it manages and is responsible for more than 150 miles of levees, 50 miles of floodwalls, and numerous drainage structures, pump stations, and floodgates in an area it described as the “Buffer Zone,” which includes coastal wetlands in eastern New Orleans, the Breton Sound Basin, and the Biloxi Marsh.  The SLFPA-E alleged that historical and current oil and gas and pipeline activities in the Buffer Zone, including the construction and use of oil and gas canals and pipeline canals, caused “direct land loss and increased erosion and submergence in the Buffer Zone, resulting in increased storm surge risk, attendant increased flood protection costs, and, thus, damages” to the Authority.

With this lawsuit, the SLFPA-E sought damages and injunctive relief “in the form of abatement and restoration of the coastal land loss” including backfilling and revegetating all canals, “wetlands creation, reef creation, land bridge construction, hydrologic restoration, shoreline protection, structural protection, bank stabilization, and ridge restoration.”

On August 13, 2013, the oil and gas defendants removed this case from state court to the United States District Court for the Eastern District of Louisiana.  On September 10, 2013, the SLFPA-E filed a motion to remand the matter to state court.  On June 27, 2014, the federal court denied the SLFPA-E’s motion to remand.  As a result, this matter continued in federal court, and the court considered a number of dispositive motions.

On February 13, 2015, the federal judge dismissed the wetlands damage lawsuit against 88 remaining oil and gas defendants.  At issue before the court was the defendants’ motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure.  Rule 12(b)(6) provides that an action may be dismissed “for failure to state a claim upon which relief can be granted.”  Therefore, for the Authority’s action to survive, its petition needed to contain sufficient factual matter to state a claim for relief that is plausible on its face.  A claim is considered facially plausible when the pleaded facts allow the court to draw a reasonable inference that the defendants are liable for the alleged misconduct.  All parties extensively briefed the issues, and the court heard oral argument.  The court then applied this legal standard to each of the causes of action brought by the SLFPA-E in its petition—(1) negligence, (2) strict liability, (3) natural servitude of drain, (4) public nuisance, (5) private nuisance, and (6) breach of contract as a third party beneficiary.

To state a claim for negligence, a plaintiff must establish five elements:  duty, breach, cause-in-fact, scope of liability, and damages.  The Authority failed to show the threshold element of a legal duty owed by defendants.  Finding no legal duty under state law, the court reiterated its prior finding that oil and gas companies do not have a duty under Louisiana law to protect members of the public from the results of coastal erosion allegedly caused by operators that were physically and proximately remote from the Authority or its property.  The court also found that the federal statutes on which the SLFPA-E relied to establish the requisite standard of care—namely the Rivers and Harbors Act, the Clean Water Act, and the Coastal Zone Management Act—were not intended to protect the Authority.  Because the Authority failed to demonstrate that defendants owe a specific duty to protect it from the results of coastal erosion allegedly caused by defendants’ oil and gas activities, the court concluded that the Authority did not state a viable claim for negligence.

A claim for strict liability also requires a showing of a legal duty owed to the plaintiff.  Because the court already determined that defendants do not owe a legal duty to the SLFPA-E to protect it from the results of coastal erosion, the court found that the Authority did not state a viable claim for strict liability.

A claim for natural servitude of drain involves the interference with the natural drainage of surface waters over property—i.e., from an estate situated above (dominant estate) to an estate situated below (servient estate).  The owner of the lower estate may not do anything to prevent the flow of the water, and the owner of the higher estate may not do anything to render the flow more burdensome.  The SLFPA-E alleged that defendants possessed temporary rights of ownership in the lands they dredged to create the canal network and that those lands constituted a dominant estate from which water flowed onto its servient estate.  However, the Authority failed to show that a natural servitude of drain may exist between nonadjacent estates with respect to coastal storm surge.  As such, the court concluded that the Authority did not state a viable claim for natural servitude of drain.

The parties and the court addressed the Authority’s public and private nuisance claims together.  The obligations of neighborhood are the source of nuisance actions in Louisiana.  Generally, the owner of immovable property has the right to use the property as he pleases, but the owner’s right may be limited if the use causes damage to neighbors.  A claim for nuisance requires a showing of (1) a landowner (2) who conducts work on his property (3) that causes damage to his neighbor.  The court determined that the Authority failed to show sufficiently that it is a “neighbor,” within any conventional sense of the word, to any property of defendants.  To recover, the SLFPA-E must have some interest in an immovable “near” the defendant landowners’ immovable property; yet, it did not allege physical proximity of the servient and dominant estates whatsoever.  Moreover, nuisance claims after 1996 require the additional showing of negligence, except for damages resulting from pile driving or blasting with explosives.  Because the Authority did not allege that defendants engaged in pile driving or blasting with explosives, and it failed to state a claim for negligence upon which relief may be granted, the court dismissed the Authority’s claims for public and private nuisance.

For its breach of contract claim, the SLFPA-E characterized some of the dredging permits at issue as “contracts” between defendants and the US Army Corps of Engineers to maintain and restore.  The Authority contended that it is a third party beneficiary of those contracts; however, the Authority failed to present any authority suggesting that a dredging permit issued by the federal government is a contract.  The court noted that neither a permit nor a license is a contract.  Therefore, the court concluded that because the dredging permits do not constitute contracts, the third party beneficiary doctrine is not applicable.  The court additionally found that even if the permits were construed as contracts, the Authority did not establish that it is an intended beneficiary under the terms of the permits.  To be a third party beneficiary to a government contract, a third party must be an intended, rather than an incidental, beneficiary.  As such, the court found that the Authority failed to state a claim upon which relief may be granted for breach of contract as a third party beneficiary.

Because the SLFPA-E did not state a viable claim for relief, the court granted defendants’ motion to dismiss and dismissed the Authority’s claims against all remaining defendants with prejudice.  The SLFPA-E filed an appeal from this ruling, and the court’s prior remand ruling, with the Fifth Circuit on February 20, 2015.

The dismissal of this lawsuit by the federal court may not be the final word on coastal erosion lawsuits in Louisiana.  As noted, the SLFPA-E has appealed the court’s dismissal to the U.S. Court of Appeals for the Fifth Circuit.  Further, local governmental bodies and private landowners have filed over 30 additional lawsuits against various oil and gas and pipeline entities for related claims.