Pursue Energy Corporation v. Mississippi State Tax Commission

Citation: Not availableDocket: 1999-CA-01291-SCT

Court: Mississippi Supreme Court; July 9, 1999; Mississippi; State Supreme Court

Original Court Document: View Document

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Pursue Energy Corporation, an oil and gas producer, is appealing a judgment from the Rankin County Chancery Court that mandates it to provide documents related to a tax investigation by the Mississippi Attorney General and the State Tax Commission. The appeal arises from the assertion that the special assistant attorneys general, appointed in 1996 to assist with the investigation, lack legal authority to request such documents. The investigation concerns potential income and severance tax obligations stemming from settlements Pursue made in the 1990s involving significant payments over $100 million.

The key dispute centers on the retention agreement between the Attorney General and the special assistants, which establishes their role and compensation under a contingency fee arrangement. Pursue challenges this, arguing that a private attorney with a financial stake in tax collections should not conduct a tax examination or participate in tax assessments. In response, the Tax Commission claims the Attorney General has the constitutional and statutory authority to employ outside counsel and contends that Pursue did not exhaust its administrative remedies before pursuing litigation.

Additionally, Attorney General Mike Moore provided an affidavit indicating that all parties had orally agreed to clarify the retention agreement's payment terms, specifying that Blair would not receive compensation from any recovered tax revenues. The court ultimately affirmed the lower court's ruling and remanded the case for further proceedings.

Recovery under the retention agreement would require the Attorney General to seek legislative appropriations for payment to the law firm, which could be fully, partially, or not appropriated at all, but not directly from recovered tax funds. The trial court denied Pursue's summary judgment request and granted summary judgment for the Tax Commission, requiring Pursue to produce documents, but staying this requirement pending appeal. Pursue is appealing this ruling, seeking a reversal in favor of summary judgment for itself. 

The Court's review is de novo, allowing it to assess the facts as the Chancellor would. Key issues include the Attorney General's authority to appoint special assistant attorneys general for the Mississippi Tax Commission and the validity of the retention agreement between the parties. Pursue also contends that it should not have been compelled to disclose confidential information. Additionally, the State cross-appeals, arguing that Pursue did not exhaust its administrative remedies, rendering the appeal improper.

The State Tax Commission has exclusive jurisdiction over income and severance tax law enforcement. The Attorney General is authorized to appoint special counsel to assist in litigation. This includes the authority to act on behalf of state agencies, as confirmed by relevant Mississippi statutes, which empower the Attorney General to institute or defend suits related to tax commission actions affecting state laws and revenues.

Miss. Code Ann. 27-65-87 allows the State Tax Commission to utilize the Attorney General and outside counsel, with the Commission's chairman overseeing enforcement within the chapter. The Attorney General can assist in legal matters but does not receive additional compensation beyond their salary for enforcing tax laws. There is ambiguity regarding the extent of the Attorney General's assistance, as the statute does not specify this, yet the Attorney General retains the role of chief legal advisor. Jurisprudence supports the Attorney General's authority to enforce tax collection if the Commission fails to act, reflecting the powers vested in constitutional officers. Pursue contends that the Attorney General's involvement is limited to litigation and that the Commission cannot delegate its exclusive tax assessment authority. The Commission is responsible for examining tax returns through its agents, following a clear statutory procedure aimed at maintaining a fair tax system.

Litigation encompasses more than just filing and defending lawsuits; it also involves client consultations, document reviews, and preliminary legal tasks. Pursue's assertion that Blair acted as a private attorney undermining the Commissioner's authority in tax assessments is rejected. The statute allows the Tax Commissioner to request assistance from the Attorney General and hire special counsel with gubernatorial approval, although no approval is necessary in this case as the request came from the Tax Commissioner. An affidavit from the Attorney General confirmed prior discussions regarding tax liabilities that led to Blair's appointment as a Special Assistant. Consequently, Blair's role stems from the Tax Commissioner's request rather than a private initiative. 

Regarding the validity of the retention agreement between the Attorney General and Blair, Pursue contends it is invalid due to compensation being derived from taxes collected. However, Mississippi Code Sections 7-5-5 and 7-5-7 permit compensation for special counsel from the Attorney General's contingent fund or other appropriated funds, allowing payment on a fee or contract basis at the Attorney General's discretion. The statutes authorize the Attorney General to employ special counsel to assist in legal matters involving the state, affirming the legality of Blair's retention.

Compensation for appointees and employees will be sourced from the Attorney General's contingent fund or other appropriated funds. The retention agreement stipulates attorneys' fees at 15% of the net recovery from claims initiated by the firm or prosecuted by the Mississippi State Tax Commission, regardless of settlement timing; or 25% for claims resolved through litigation or appeals. Litigation costs, initially borne by the law firm, will be reimbursed from gross recoveries on a case-by-case basis, with approvals from the Attorney General.

An oral clarification later indicated that Blair would be compensated through legislative appropriations. Pursue argues this contingency fee arrangement is void, citing State ex rel. Brown v. Poplarville Sawmill Co., which invalidated a contract that paid a private attorney a percentage of recovery for prosecuting public land suits. The controlling statute (Section 2903 of Miss. Code 1906) allowed the land commissioner to engage counsel with the Governor's consent but did not authorize payment based on recovery percentage.

The court rejected the argument that this statute permitted the land commissioner or Governor to fix compensation for a private attorney. However, the principles from Poplarville do not apply here, as Section 2382 and its successor, Miss. Code Ann. 7-5-7, allow the Attorney General to hire special counsel on a fee or salary basis, with no restrictions on fee types, implying that the legislature could have limited contingency fees but chose not to.

In contrast to Poplarville, there is no conflict of interest in this case; the Tax Commissioner, Attorney General, and Blair share a unified goal in pursuing tax claims against Pursue.

The retention agreement grants the Attorney General control over all matters related to claims and litigation, asserting the Attorney General's independent authority to prosecute on behalf of the State. This arrangement resolves the conflict encountered in Poplarville and allows the Legislature to determine compensation for services rendered by Blair, including the option to withhold payment. The chancellor's ruling is upheld against Pursue's claims.

Pursue argues that disclosing its income and severance tax returns to the Attorney General and special assistant attorneys general breaches confidentiality statutes, which limit access to such information. However, exceptions in Mississippi law (Miss. Code Ann. 27-7-83 and 27-65-81) permit the Attorney General to access tax return information for litigation assistance. Additionally, a confidentiality agreement between the Attorney General and the Tax Commission ensures that disclosed information will be protected and used solely for tax compliance verification.

Regarding a cross-appeal from the Commission, it contends that Pursue's appeal should be dismissed due to a failure to exhaust administrative remedies, as established in prior case law (Davis v. Barr). The court finds that Pursue's claim regarding unauthorized taxation is properly suited for chancery court, thus rejecting the Commission's argument. The Commission also seeks immediate production of certain discovery documents; although initially ordered, production is currently stayed pending the appeal.

The Commission asserts that under Miss. Code Ann. 27-7-79(2), the Tax Commissioner can authorize any designated agent to examine relevant documents related to tax returns. Pursue's complaint aimed to prevent the Commission from using Blair for the tax examination and sought a declaratory judgment regarding its rights. Since Blair possesses the authority to request and review documents for the Commission, the need for a discovery stay is deemed unnecessary. However, the decision to lift the stay is left to the chancellor. The judgment of the Rankin County Chancery Court is affirmed, and the case is remanded for further proceedings. Several years into the investigation, McDaniel withdrew after being appointed as a Rankin County Judge and is no longer involved in the case. The opinions of the judges are noted, with Easley dissenting without a separate opinion and Waller not participating.