Montana v. United States
440 U.S. 147 (1979)
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Rule of Law:
The doctrine of collateral estoppel bars a nonparty from relitigating issues decided in a prior case if the nonparty had a direct financial or proprietary interest and exercised control over the prior litigation.
Facts:
- The State of Montana imposed a one percent gross receipts tax on contractors for public construction projects, but not on contractors for private projects.
- The tax statute allowed public contractors to credit payments of personal property, corporate income, and individual income taxes against the gross receipts tax liability.
- Peter Kiewit Sons' Co. was a contractor performing work on a federal dam project in Montana.
- The United States government required Kiewit to file a lawsuit in Montana state court challenging the constitutionality of the tax.
- The U.S. government controlled the state court litigation by reviewing and approving the complaint, paying all attorneys' fees and costs, and directing all stages of the appeal.
- In the initial lawsuit, Kiewit's contract with the federal government prohibited it from taking the available tax credits.
- After 1971, the federal government changed its policy and began requiring its contractors in Montana to take all available tax credits.
Procedural Posture:
- Peter Kiewit Sons' Co. sued the Montana State Board of Equalization in a Montana state trial court.
- The United States filed a separate suit against Montana in the U.S. District Court for the District of Montana, which stayed its proceedings pending the outcome of the state litigation.
- The Montana trial court upheld the tax, and Kiewit, as appellant, appealed to the Montana Supreme Court.
- The Montana Supreme Court affirmed the trial court's decision in a case known as Kiewit I.
- Kiewit filed a notice of appeal to the U.S. Supreme Court but later abandoned it at the direction of the United States Solicitor General.
- After the state litigation concluded, the stay was lifted in the U.S. District Court.
- A three-judge panel of the U.S. District Court found that the United States was not bound by the state decision and ruled that the Montana tax was unconstitutional.
- Montana, as appellant, then appealed the District Court's decision directly to the U.S. Supreme Court.
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Issue:
Is the United States, which was not a party to a prior state court lawsuit but directed and financed it, barred by collateral estoppel from relitigating the constitutionality of a state tax that was upheld in the prior suit?
Opinions:
Majority - Mr. Justice Marshall
Yes. The United States is barred by collateral estoppel from relitigating the constitutionality of the Montana tax because it exercised sufficient control over the prior state-court litigation to be bound by its outcome. A fundamental precept of common-law is that an issue distinctly put in issue and directly determined by a court cannot be disputed in a subsequent suit between the same parties or their privies. This principle extends to nonparties who assume control over litigation in which they have a direct financial interest, as one who prosecutes a suit in the name of another to protect his own right is as bound as if he were a party. The United States stipulated to its extensive control over the Kiewit litigation, giving it a 'laboring oar' that triggers estoppel. The constitutional issues in this case are identical to those litigated and decided in the state case. Furthermore, there has been no significant change in controlling facts or legal principles since the state-court judgment, as the Montana Supreme Court's decision was not predicated on the assumption that the tax liability would be a 'total washout' from credits. Finally, no special circumstances, such as the exception for 'unmixed questions of law,' warrant an exception to preclusion, especially since the U.S. voluntarily submitted its federal claims for decision by the state courts.
Dissenting - Mr. Justice White
No. The United States should not be estopped from litigating its claim because the controlling facts have changed significantly since the first lawsuit, and on the merits, the tax is unconstitutional. Collateral estoppel does not apply where the controlling facts have changed. The Montana Supreme Court's initial decision in Kiewit I was based on the assumption that the tax was an enforcement measure that would result in a 'washout' after credits were applied. It is now uncontroverted that federal contractors are subject to a net tax, which is a material change in the facts rendering the prior decision obsolete. On the merits, the tax is unconstitutional because it discriminates against the federal government by taxing public contractors while exempting private contractors. This removes the 'political check' against abusive taxation, as private-sector constituents have no incentive to oppose the tax. Merely treating the federal government the same as the state government is insufficient; the tax is discriminatory when it passes over similarly situated private contractors.
Concurring - Mr. Justice Rehnquist
I join the Court’s opinion with the understanding that its citations to law review articles and the Restatement of Judgments are not intended to bind the Court to all views expressed in those sources on issues not directly presented by this case.
Analysis:
This case is significant for solidifying the application of nonparty preclusion, or collateral estoppel, against the United States government itself. It establishes that control over litigation is the key factor in binding a nonparty to a judgment, treating them as if they were a 'privy' to the original party. The decision serves as a strong cautionary tale for institutional litigants who might finance and direct 'test cases,' clarifying that they cannot treat state court litigation as a trial run and then proceed to federal court for a second attempt if the result is unfavorable. It reinforces principles of finality and comity, giving full preclusive effect to state court judgments on federal constitutional issues when a party has had a full and fair opportunity to litigate.
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