Opinion
1784CV03936BLS2
07-18-2018
COGNITION FINANCIAL CORPORATION fna The First Marblehead Corporation v. Christopher C. HARDING, Solely in His Official Capacity as Commissioner of Revenue of the Commonwealth of Massachusetts
UNPUBLISHED OPINION
File Date: July 19, 2018
OPINION
Kenneth W. Salinger, Justice of the Superior Court[3]
It is apparent on the face of the complaint that there is no actual controversy between the parties. The Court must therefore dismiss this complaint, which seeks a declaratory judgment under G.L.c. 231A and no other relief. See Alliance, AFSME/SEUI, AFL-CIO v. Commonwealth, 425 Mass. 534, 536-39 (1997).
1. Facts Alleged and Relief Sought
The complaint alleges the following facts.
The Commissioner of Revenue assessed Gate Holdings, Inc., for $20.4 million in tax, interest, and $4.1 million in penalties for the years 2008 and 2009. Gate Holdings is challenging that assessment in a proceeding before the Appellate Tax Board. That proceeding is still pending and has not been resolved.
Cognition sold Gate Holdings to VCG Owners Trust in March 2009. As part of that transaction, Gate Holdings was converted into a Delaware statutory trust named NC Residuals Owners Trust. In addition, Cognition and VCG entered into an indemnification agreement. Section 3.01 of that contract provides that Cognition will indemnify VCG Owners Trust and VCG Securities, LLC for any losses they may incur as a result of taxes not paid by NC Residuals Owners Trust.
The Department of Revenue has taken the position that, if the assessment against Gate Holdings is upheld, then Cognition would be obligated under its indemnification agreement with VCG Owners Trust to pay to the Commonwealth all of the taxes, interest, and penalties ultimately assessed against NC Residuals Owners Trust. Cognition disagrees.
Cognition alleges that there is an actual controversy between itself and the Department concerning whether Cognition would have any obligation under the[1] indemnification agreement to pay any taxes or other amounts arising from the notice of assessment issued to Gate Holdings. It seeks a declaration that Cognition has no obligation, under the indemnification agreement or otherwise, to pay the Commonwealth any taxes, interest, penalties, or other amounts owed by Gate Holdings, now known as NC Residuals Owners Trust.
2. Analysis
A Massachusetts court cannot exercise jurisdiction over a complaint seeking only a declaration of rights unless "an actual controversy has arisen." Alliance, 425 Mass. at 536 (ordering dismissal of claim for declaratory relief), quoting G.L.c. 231A, § 1. That means "there must be an actual controversy between the parties"; it is not sufficient that one party has a controversy with some other person or entity. Id. at 537 (emphasis in original). If there is no actual controversy between the parties, a court must "put aside the natural urge to proceed directly to the merits of [an] important dispute and to ‘settle’ it for the sake of convenience and efficiency." Id. at 538-39, quoting Raines v. Byrd, 521 U.S. 811, 820 (1997).
For there to be an actual controversy, there must be a "real dispute" between the parties that "will almost immediately and inevitably lead to litigation" unless it is resolved by a declaratory judgment. Jefferson Const. Corp. v. Commonwealth, 386 Mass. 142, 143 (1982) (vacating declaratory judgment and ordering dismissal), quoting School Comm. of Cambridge v. Superintendent of Schools of Cambridge, 320 Mass. 516, 518 (1946). Declaratory judgment "is a vehicle for resolving actual, not hypothetical, controversies." Lawyers’ Committee for Civil Rights and Economic Justice v. Court Administrator of the Trial Court, 478 Mass. 1010, 1011 (2017) (rescript) (affirming dismissal), quoting Quincy City Hosp. v. Rate Setting Comm’n, 406 Mass. 431, 439 (1990).
At present there is no actual controversy between Cognition and the Department of Revenue because we do not know whether the disputed tax assessment will be upheld by the Appellate Tax Board or in any subsequent appeal. If NC Residuals Owners Trust were ultimately to prevail in defeating the tax assessment, the Department’s legal position that it could collect that assessment from Cognition under the indemnification agreement would have no practical relevance. As a result, the parties’ disagreement regarding whether the Department would have[2] any right to collect against Cognition under the indemnification agreement will neither "inevitably" nor "almost immediately" lead to litigation if left unresolved, and thus there is no actual controversy at this time. Cf. Jefferson Const., supra .
The mere fact that Cognition and the Department disagree as to the meaning or legal effect of the indemnification agreement does not suffice to create an "actual controversy" within the meaning of G.L.c. 231A. Disputes over how to read a statute or contract, "by themselves, do not rise to the level of actual controversy." Entergy Nuclear Generation Co. v. Department of Envtl. Prot., 459 Mass. 319, 325 (2011), quoting Woods Hole, Martha’s Vineyard & Nantucket S.S. Auth. v. Martha’s Vineyard Comm’n, 380 Mass. 785, 792 (1980). The Court may not construe a contract, legal instrument, or statute in the abstract and render a declaratory judgment in the absence of some actual controversy that would be resolved by that judgment. See, e.g., Quincy City Hosp. v. Rate Setting Comm’n, 406 Mass. 431, 439 (1990); Commissioner of Correction v. Ferguson, 383 Mass. 651, 653 (1981).
Since at present there is no actual controversy between the parties to this action, this case must be dismissed. See Alliance, 425 Mass. at 539.
ORDER
The Commissioner of Revenue’s motion to dismiss this action is ALLOWED. Final judgment shall enter dismissing this action without prejudice.