Opinion
No. CV 09 4043592 S
May 5, 2009
RULING ON APPLICATION FOR TEMPORARY INJUNCTION
The plaintiffs, distributors of beer and soft drinks in the State of Connecticut, seek a temporary injunction prohibiting the defendants, Gina McCarthy, the Commissioner of the Department of Environmental Protection, Richard Blumenthal, the attorney general, and Jodi Rell, Governor, from enforcing portions of Public Act 09-01 which require the plaintiffs to pay revenue generated from beverage container deposits in violation of the 5th and 14th Amendments of the United States Constitution and Article I, Section 11 of the Connecticut Constitution, and 42 U.S.C. § 1983.
The parties have executed a Joint Proposed Finding of Facts not in Dispute in which they have agreed upon the following facts pertinent to the temporary injunction:
Stipulated Facts
The plaintiffs A. Gallo Company, Allan S. Goodman, Inc., Dichello Distributors, Inc., Dwan Company, Inc., F F Distributors, Inc., Franklin Distributors, Inc., G G Beverage Distributors, Inc., Hartford Distributors, Inc., Levine Distributing Co., Inc., Northeast Beverage Corp. of Connecticut, and Star Distributors, Inc., are Connecticut corporations and at all relevant times were distributors of beer in the State of Connecticut. The plaintiff, Pepsi Cola Newburgh Bottling Co., Inc., is a New York corporation and at all relevant times was a distributor of soft drinks in the State of Connecticut.
The defendant, Gina McCarthy, is the Commissioner of the Connecticut Department of Environmental Protection ("DEP"). Commissioner McCarthy and the DEP are charged with administering and enforcing Connecticut General Statutes § 22a-243, et seq., as amended by Public Act Nos. 08-1 and 09-1, and Ms. McCarthy is responsible for depositing the payment appropriated thereby in the state's General Fund.
The State is facing a significant economic crisis. On January 20, 2009, the Governor announced that the estimated budget deficit for the current fiscal year ending June 30, 2009 was at nearly $922 million. On April 20, 2009, the Governor announced that the 2009 budget deficit has increased to approximately $1.056 billion and that the estimated budget deficit for the next two fiscal years combined was $7.95 billion. To reduce the 2009 deficit, the Governor has submitted, and the legislature has passed, a number of deficit mitigation plans, including Public Acts 08-1 and 09-1. In addition the governor has sought state employee concessions, state agency budget rescissions, instituted a ban on state travel and nonessential purchasing by state agencies, and instituted a hiring freeze.
Public Act 78-16, effective January 1, 1980, codified as Connecticut General Statutes § 22a-243, et seq., is commonly known as the "Bottle Bill." In an effort to reduce litter and solid waste levels the Bottle Bill established a system of beverage container recycling to be administered, in part, by Connecticut's beer and soft drink distributors such as the plaintiffs. The Bottle Bill required the plaintiffs to pay a five cent refund value upon the return of empty beer or soft drink containers of the kind, size and brand sold by the distributor.
Under the provisions of the Bottle Bill and Connecticut's long standing and highly regulated three-tier alcoholic beverage distribution system (distributor — retailer — consumer), the basic mechanics of the return and refund process function as follows:
a. Beverage distributors such as the plaintiff "initiate," or charge and collect, a five cent refund value on each container sold to a retailer;
b. Retailers pay the five cent refund value on each container purchased from the distributor, and, in turn, charge and collect a five cent refund value from the end-purchaser/consumer of the beverage;
c. If a consumer returns the empty container to the retailer (or a redemption center), the retailer (or redemption center) is required to pay the consumer a refund of five cents; and
d. The retailer (or redemption center), in turn, will return the empty container to the distributor of the product, who must reimburse the retailer (or redemption center) five cents.
The plaintiffs also incur costs and expense administering portions of the Bottle Bill, including:
a. Paying a one and a half cent statutory handling fee to the retailer (or redemption center) for each empty beer container returned. In the case of soft drinks, the statutory handling fee for the return of empty containers is two cents;
b. Transporting empty containers from the retailer back to the distributor;
c. Providing dedicated space for processing returns;
d. Making arrangements for the processing and recycling of the empty containers; and
e. Incurring the costs of labor, overhead and insurance necessary to perform these functions and to comply with the mandates of the Bottle Bill.
After paying the refund value and the handling fee, the distributors own the returned containers, which are recyclable materials, and may dispose of them as they choose. Distributors may sell returns to third parties. The costs of performing the tasks described in the preceding paragraph are born by the Connecticut beverage distributors like the plaintiffs.
Under the Bottle Bill, distributors do not hold refund values in a manner that makes them identifiable to a specific container or a specific consumer. The plaintiffs have a statutory obligation to pay retailers five cents when presented with an empty container of the kind, size and brand sold by the plaintiffs, regardless of when the container was actually sold to a retailer or consumer. The Bottle Bill does not refer to the amounts paid by a distributor to retailers upon the return of an empty container of the kind, size and brand sold by the distributor as a "deposit." Instead, the Bottle Bill defines such payments as "refund values."
On November 25, 2008, the legislature passed Public Act No. 08-1, entitled "An Act Concerning Deficit Mitigation." Said Act is hereinafter referred to as the "2008 Deficit Mitigation Act," and required each of the plaintiff distributors to "open a special interest-bearing account at a Connecticut branch of a financial institution, as defined in section 45a-557a of the general statutes, to the credit of the deposit initiator." P.A. 08-1, § 11(a). The 2008 Deficit Mitigation Act further provided that "[e]ach deposit initiator shall deposit in such account an amount equal to the refund values established pursuant to subsection (a) of section 22a-244 of the general statutes, for each beverage container sold by such deposit initiator." Id. "[F]or any beverage container sold during the period from December 1, 2008, to December 31, 2008, inclusive, such deposit shall be made not later than January 5, 2009." Id. All interest, dividends and returns earned on the special account were required to be paid into such account and such moneys were required to "be kept separate and apart from all other moneys in the possession the deposit initiator." Id. Lastly, the 2008 Deficit Mitigation Act provided that "[a]ny reimbursement of the refund value for a redeemed beverage container shall be paid from the deposit initiator's special account." Id. at § 11(b).
One of the purposes of the 2008 Deficit Mitigation Act was to provide the State and DEP with information concerning the container return rate and the amount of money representing the difference between refund values deposited and paid. The DEP published a document on its website entitle "bottle Bill FAQ." On January 5, 2009, DEP edited the webpage by changing the name of the person at DEP to whom public inquiries could be made about the subject matter of the webpage. The updated information provided, in pertinent part:
The defendants have not stipulated that this change was made in response to Public Act 08-1.
Who gets the money from bottles that are not returned?
Called unclaimed deposits, these monies accumulate from containers that are either thrown away, or recycled through curbside programs. These fund are kept by the distributors.
Beginning on December 1, 2008, the plaintiffs began opening and funding accounts in accordance with the terms of the 2008 Deficit Mitigation Act. On or before March 15, 2009, the plaintiffs were required to submit reports on their account activity for the period December 1, 2008 through February 28, 2009 to the DEP in accordance with the 2008 Deficit Mitigation Act.
On January 15, 2009, the legislature passed, and the Governor signed, Public Act No. 09-1, entitled "An Act Concerning Deficit Mitigation for the Fiscal Year Ending June 30, 2009." Section 15 of P.A. 09-1, the section relevant to this case, provides that it is "[e]ffective April 1, 2009, and applicable to periods commencing on or after December 1, 2008." P.A. 09-1 requires the plaintiffs to pay to the DEP (for deposit in the state's General Fund), not later than April 30, 2009, the balances in the plaintiffs' special accounts that are attributable to period December 1, 2008 through March 31, 2009, and further requires additional quarterly payments from the special accounts on an ongoing basis.
In accordance with section 15(c) of P.A. 09-1, 24 distributors submitted financial reports to DEP for the period December 1, 2008 to February 28, 2009. Of the 24 companies that submitted financial reports for the period December 1, 2008 to February 28, 2009, 13 provided information about the statutory "handling fees" they incurred for that period.
The Bottle Bill does not require the plaintiffs to charge retailers a five cent refund value at the time of sale and neither expressly prohibits nor permits the plaintiffs to specifically itemize the five cent refund value on their invoices and some distributors, including some of the plaintiffs, choose to incorporate this amount into the purchase price of beverages they sell to retailers without itemizing it. The Bottle Bill neither expressly prohibits nor permits the distributors from including the five cent refund value in the general revenues that they calculate on their financial statements. The plaintiffs have included said refund value amounts in their general revenues for accounting purposes.
The Bottle Bill neither expressly prohibits nor permits distributors from including the refund values they collect as revenues for purposes of calculating their income taxes. Nor does the Bottle Bill expressly prohibit or permit distributors from deducting redemption amounts they pay as expenses when calculating their income taxes. Under P.A. 08-01, sums deposited in the special accounts are determined by a formula, i.e., number of containers sold x 5 cents.
Through March 31, 2009, the plaintiffs maintained in their names special, interest-bearing accounts at Connecticut branches of financial institutions, as defined in section 45a-577, to the credit of the plaintiffs and maintained transactional authority over the accounts. Pursuant to sections 11(a) and (b) of P.A. 08-01, moneys deposited into the special accounts "shall be kept separate and apart from all other moneys in the possession of the deposit initiator" and "[a]ny reimbursement of the refund value for a redeemed beverage container shall be paid from the deposit initiator's special account." The Bottle Bill never dictated to the plaintiffs what amounts they may charge for their products.
Discussion of the Law and requiring
The parties agree that the effect of Public Act 09-1 is to escheat to the state a portion or all of the moneys deposited in the special accounts that are not paid out as refunds for returned beverage containers after March 31, 2009. The plaintiffs' application for temporary injunction addresses only amounts in the special accounts from December 1, 2008 through March 31, 2009. The plaintiffs assert a vested property interest in those amounts and request that this court enjoin the defendants from requiring the plaintiffs to pay those amounts and any associated penalties insofar as requiring such payment constitutes an unconstitutional taking of the plaintiffs' property in violation of the 5th and 14th Amendments of the United States Constitution and Article I, Section 11 of the Connecticut Constitution.
The Second Count of the plaintiffs' complaint sets forth the disagreement between the parties as to what portion of the moneys in the special accounts can be used by distributors to fund their operations pursuant to their statutory duties under the Bottle Bill.
"The purpose of a temporary injunction is to `[maintain] the status quo while the rights of the parties are being determined.' Ulichny v. Bridgeport, 230 Conn. 140, 147, 644 A.2d 347 (1994)." Massachusetts Mutual Life Ins. Co. v. Blumenthal, 281 Conn. 805, 811, 917 A.2d 951 (2007). The elements necessary to support a temporary injunction are:(1) the plaintiffs have no adequate legal remedy; (2) the plaintiffs will suffer irreparable injury absent an injunction; (3) the plaintiffs are likely to prevail on the merits; and (4) the balance of the equities favor a temporary injunction. Waterbury Teachers Ass'n. v. Freedom of Info. Comm., 230 Conn. 441, 446, 645 A.2d 978 (1994).
Where money damages are adequate compensation, a temporary injunction will not issue since equity should not intervene where there is an adequate remedy at law. Loveridge v. Pendleton Woolen Mills, Inc., 788 F.2d 914, 918 (2nd Cir. 1986). "Adequate remedy at law means a remedy vested in the complainant, to which he may, at all times, resort, at his own option, fully and freely, without let or hindrance." Stocker v. Waterbury, 154 Conn. 446, 449, 226 A.2d 514 (1967).
The plaintiffs cannot establish that they lack an adequate remedy at law because any damages they may suffer are reducible to monetary compensation. The remedy for a claim of taking pursuant to the 5th and 14th Amendments of the United States Constitution and Article 1, § 11 of the Constitution of the State of Connecticut is just compensation. Ruchelshaus v. Monsanto Co., 467 U.S. 986, 1016 (1984); Ives v. Addison, 155 Conn. 335, 341, 232 A.2d 311 (1967).
In Ruchelshaus the United States Supreme Court held that an injunction may not be used to stop a taking of private property for public use when a compensation suit can be brought against the sovereign subsequent to the taking. In this case the plaintiffs can seek to recover the amounts at issue either by refusing to pay those amounts, and defending against the Attorney General's suit to recover them, or by paying the amounts and then seeking to recover them as just compensation in the context of this action or a separate civil action. If the plaintiffs do have a vested property interest in the amounts at issue, then sovereign immunity would not bar such an action. See, e.g., 184 Windsor Avenue, LLC v. State, 274 Conn. 302, 318-19, 875 A.2d 498 (2005); Tamm v. Burns, 222 Conn. 280, 283, 610 A.2d 590 (1992); First Union National Bank v. HiHo Mall Shopping Ventures, Inc., 273 Conn. 287, 295-96 n. 3, 869 A.2d 1193 (2005); Textron, Inc. v. Wood, 167 Conn. 334, 342-43, 355 A.2d 307 (1974).
The Court in Textron stated, "[i]t would unduly strain the tendons of the legal imagination to hold that the doctrine of sovereign immunity prevents an allegedly aggrieved property owner from seeking the minimal relief of a declaration of his rights pursuant to article first, 11, of the Connecticut constitution when the doctrine may not be invoked as a bar to an action for monetary damages arising under that same provision." (Emphasis added.)
The plaintiffs rely on Miller v. Egan, 265 Conn. 301, 315-16, 828 A.2d 549 (2003) for the proposition that sovereign immunity is not waived in cases of unlawful, as opposed to lawful taking. Miller did not involve a 5th Amendment taking claim at all. Moreover, in Ruckelshaus v. Monsanto Co., 467 U.S. 986, 104 S.Ct. 2862 (1984), Monsanto sought to enjoin the dissemination of its trade secrets, which it claimed was an unlawful taking, and the Court held that under the 5th Amendment no equitable remedy was available to stop the taking because Monsanto had an adequate remedy at law.
The second prong that the plaintiffs must establish in order to obtain a temporary injunction is that they will suffer irreparable harm. The plaintiffs assert the existence of a per se irreparable harm rule where the likelihood of a constitutional violation is proved. A review of the case law, both state and federal, indicates that the application of a per se rule depends on the nature of the constitutional violation.
The plaintiffs rely on American Trucking Ass'n. v. City of L. A., Ninth Circuit Court of Appeals, Docket No. 08 56503 (9th Cir. March 20, 2009); Mitchell v. Cuomo, 748 F.2d 804, 806 (2d Cir. 1984); Jolly v. Coughlin, 76 F.3d 468, 482 (2d Cir. 1996); Stamford v. Kovac, 29 Conn.App. 105, 106 n. 1, 612 A.2d 1229 (1992), rev'd on other grounds by 228 Conn. 94, 634 A.2d 897 (1993); Hartford Electric Light Co. v. Levitz, 173 Conn. 15, 22, 376 A.2d 381 (1977). None of those cases involves a taking of property.
In Mitchell, supra, the plaintiffs filed an injunction to stop the closing of a prison. Irreparable harm was a violation of the 8th amendment caused by an over crowded prison. Jolly, supra, involved a violation of the right to freely exercise religion, which is a harm that could not be adequately compensated monetarily, and a violation of the 8th amendment.
In Stamford, supra, the Court held that in seeking an injunction, a municipality did not need to prove irreparable harm resulting from defendants' failure to comply with a wetlands statute because "[t]he enactment of the statute by implication assumes that no adequate alternative remedy exists and that the injury was irreparable, that is, the legislation was needed or else it would not have been enacted."
The Court in Hartford Electric Light Co., supra, considered the issue of irreparable harm with respect to the violation of a restrictive covenant.
Finally, American Trucking Ass'n., supra, deals with a violation of the Commerce Clause. In American Trucking Assn the Court reversed a district court's refusal to enjoin the implementation of mandatory concessions binding on motor carriers who worked at two ports. Id., 3572. The motor carriers had sought the injunction under the theory that these concessions were preempted by federal laws regulating their industry. Id. The court found that the motor carriers would suffer an imminent harm if no injunction were to issue because of the "Hobson's choice" they would face if the concessions were implemented, finding "a very real penalty attaches to the motor carriers regardless of how they proceed." Id., 3589-60.
The court explained this dilemma as follows: "Appellants . . . face a stark choice — either violation of their constitutional rights or loss of their [businesses]. The district court erroneously concluded that Appellants will not suffer any irreparable harm because they could be retroactively compensated for any temporary [loss or expenses]. It is true that monetary injury is not normally considered irreparable, and the [motor carriers] who choose to give up their [businesses] may later be made whole financially if the policy is struck down. However, in the meantime, there is a substantial risk that a number of [motor carriers] will not be able to finance such a principled position and so will be coerced into submitting to the allegedly unconstitutional [Concession agreements]." Id., 3591-92. Thus, because the concessions imposed substantial costs on these motor carriers that would "disrupt and change the whole nature of [their] business in ways that most likely cannot be compensated with damages alone" should the concessions prove unconstitutional, the court found that an injunction should issue to prevent their implementation. Id., 3590.
The plaintiffs argue that they face the same "Hobson's choice" as the plaintiffs in American Trucking Ass'n. because if they disobey the April Act, they could face significant penalties and interest, but if they comply with the April Act, they would suffer from an unconstitutional law, which is a harm unto itself that could not be remedied through money. Yet the present case and American Trucking Ass'n. are distinguishable on their facts. The motor carriers in American Trucking Ass'n. faced the loss of their businesses whether or not they complied with the allegedly unconstitutional concessions, which that court found could result in an emotional harm that could not necessarily be remedied with money. See, e.g., Tucker Anthony Realty Corp. v. Schlesinger, 888 F.2d 969, 975 (2d Cir. 1989) ("A monetary loss will not suffice unless the movant provides evidence of damage that cannot be rectified by financial compensation;" plaintiffs' risk of imminent bankruptcy absent an injunction against its creditors would constitute irreparable harm.) By contrast, the plaintiffs in the present case do not appear to be at risk of losing their livelihood if they comply with the April Act. Although unclaimed deposits used to be commingled with their operating accounts, Public Act No. 08-1 § 11 (the November Act), required the plaintiffs to keep these funds "separate and apart from all other moneys" in their possession. The plaintiffs have effectively been operating without the benefit of unclaimed deposits since the effective date of the November Act, and there is no evidence that their businesses will fail if these funds are not restored. Thus, the plaintiffs' options are not as stark as the motor carriers in American Trucking Ass'n.: they may assert their constitutional rights without losing their businesses.
Neither state nor federal courts have held that the unconstitutional taking of property warrants an automatic finding of irreparable harm. To the contrary, the courts have held that equitable relief is not available to enjoin an alleged taking of private property for a public use when a suit for compensation can be brought against the sovereign subsequent to the taking. Ruckelshaus v. Monsanto Co., 467 U.S. 986, 104 S.Ct. 2862 (1984); Stocker v. Waterbury, 154 Conn. 446, 449, 226 A.2d 514 (1967); South Lyme Property Owners Ass'n. v. Town of Old Lyme, 121 F.Sup.2d 195 (D.Conn. 2000).
In Ruckelshaus v. Monsanto Co., 467 U.S. 986, 104 S.Ct. 2862 (1984), the plaintiff sought an injunction to prevent the disclosure of its proprietary trade secrets pursuant to a federal law. Id., 998-99. The court held that the 5th Amendment does not require that compensation precede the taking, and that the plaintiff had an adequate remedy at law through the Tucker Act to seek compensation. Id., 1016.
In South Lyme Property Owners Ass'n., supra, the District Court observed that the Second Circuit has "held that district courts should consider the nature of the constitutional injury before making a finding of irreparable harm." The court also stated that several district courts, following that admonition, have declined to find irreparable harm despite the alleged constitutional violation where "the movant could be made whole with money damages." 121 F.Sup.2d at 204 (citing Air Transport International Ltd. Liab. Co. v. Aerolease Financial Group, Inc., 993 F.Sup. 118, 124-25 (D.Conn. 1998).
The property subject to allegedly unconstitutional taking here is money. If the plaintiffs pay the money at issue to the state and they are found to have had a vested interest in the money, they can clearly be made whole with money damages. Unlike the plaintiffs in American Trucking, supra, the plaintiffs here do not make any claim that such payment will effectively put them out of business or have any other nonmonetary consequences. Therefore, there is no irreparable harm which would justify a granting of the temporary injunction.
Based on the foregoing, the court finds that the plaintiffs have an adequate remedy at law and will not suffer irreparable harm it the temporary injunction is not granted. Therefore, there is no need to consider at length whether the plaintiffs have satisfied the third and fourth requirements for injunctive relief.
As to the fourth requirement, balancing of the equities, the equities favor the state. In balancing the equities the court can consider whether the injunction would harm the public and/or frustrate the purposes of the legislature. See, Connecticut Coalition Against Millstone v. Rocque, 2001 Conn.Super. Lexis 833 (March 29, 2001). It is not disputed that Connecticut is facing a massive financial crisis involving huge budget deficits. The public's interest in reducing budget deficits has been held to outweigh individual interests. Local 732 of the International Assn of Firefighters, AFL-CIO v. City of Woonsocket, 2009 R.I. LEXIS 26 (Supreme Court of Rhode Island, 2009). Contrary to the plaintiffs' argument, the size of the fund at issue relative to the projected budget deficit has not been found to be a determinative factor, absent evidence that the state's taking of the fund will result in the ruination of the plaintiffs' businesses. See, i.e., American Trucking Ass'n., supra.
The plaintiffs may well be able to satisfy the third requirement, that is, likelihood of success on the merits. The actions of the Massachusetts Legislature with respect to the bottle bill vis a vis the Massachusetts distributors are analogous to those of the Connecticut Legislature under consideration here. In Massachusetts Wholesalers of Malt Beverages, Inc. v. Commonwealth, 414 Mass. 411, 418, 609 N.E.2d 67 (1993) ( Massachusetts Wholesalers II) the Supreme Judicial Court of Massachusetts held that the retroactive funding provision in an amendment to the bottle bill did constitute a taking because it disturbed the distributors and bottlers' vested property rights in the unredeemed deposits, which continued to exist until the amendment's effective date. Nevertheless, the plaintiffs' application for temporary injunction was denied in Massachusetts Wholesalers II. For the foregoing reasons, the application for temporary injunction is denied.