672 S.E.2d 282
JUSTICE DAVIS delivered the Opinion of the Court.
JUSTICE ALBRIGHT not participating.
SENIOR STATUS JUSTICE McHUGH sitting by temporary assignment.
SENIOR STATUS JUSTICE MCHUGH disqualified.
JUDGE BEANE, sitting by temporary assignment.
JUSTICE BENJAMIN dissents and reserves the right to file a dissenting opinion.
Davis, Justice: (See footnote 1)
This is an appeal by Bayer Corporation, respondent below (hereinafter referred
to as “Bayer”), from a final order of the Circuit Court of Kanawha County that reversed a tax
exoneration decision by the Kanawha County Commission (hereinafter referred to as “the
Commission”). In this appeal, Bayer makes the following assignments of error: (1) the
Prosecuting Attorney of Kanawha County did not have authority to challenge the
Commission's ruling in circuit court, (2) the circuit court erred in applying a de novo
standard of review, and (3) the circuit court erred in reversing the Commission's ruling on
the merits of the issues presented. In addition, the Prosecuting Attorney of Kanawha County,
petitioner below (hereinafter referred to as “the Prosecutor”), has made a cross assignment
of error. The Prosecutor argues that the Commission applied the wrong standard of proof
in assessing the evidence. (See footnote 2) After a careful review of the briefs and record, and having
listened to the oral arguments of the parties, we affirm.
During the course of discovery in that litigation, an attorney for Bayer determined that Bayer
had made errors in its tax returns for the years 2001, 2002, and 2003. As a consequence of
believing that errors were made for those tax years, on August 21, 2003, Bayer made an
application to the Commission for relief from tax reporting errors for the years 2001, 2002,
and 2003. The errors alleged by Bayer included: (1) reporting inventory data for the wrong
month, (2) reporting raw materials as finished goods, (3) reporting materials as being in
inventory that were actually in transit, and (4) granting an exemption for raw materials in
2003. As a result of the errors, Bayer sought a total reduction in taxes in the amount of
$456,747 for all three years.
On November 6, 2003, the Commission held a hearing on Bayer's application.
Bayer was represented by counsel at the hearing and the State (and all affected lower
governmental entities) was represented by counsel for the Tax Commissioner. Bayer called
three witnesses during the hearing. The State cross examined two of Bayer's witnesses, but
did not call any witnesses of its own. At the conclusion of all the evidence, the Commission,
by a vote of 2-1, granted Bayer the relief requested.
The record indicates that by letter dated November 19, 2003, Bayer notified the
Prosecutor that it had applied to the Commission for relief from erroneous tax assessments
for the years 2001, 2002, and 2003. The letter further notified the Prosecutor that a hearing
on the matter would be held before the Commission on November 20, 2003.
On November 20, 2003, a hearing was held by the Commission. The hearing
was attended by Bayer, but neither the Prosecutor nor the Tax Commissioner were present. (See footnote 3) The hearing appears to have been called in order for the Commission to discuss the contents
of the order granting the relief Bayer requested. (See footnote 4) The Commission voted to approve the order
as drafted, but delayed entry of the order until the dissenting Commissioner had an
opportunity to compose a written dissent.
On February 19, 2004, the Commission entered the order granting Bayer the
relief it sought. On March 17, 2004, the Prosecutor filed a petition for a writ of certiorari
with the circuit court seeking to reverse the decision of the Commission. After reviewing the
case based upon the record, the circuit court entered an order on August 10, 2006, reversing
the decision of the Commission. Bayer subsequently filed a motion for new trial and a
motion to alter or amend the judgment. The circuit court denied the motions by order entered
April 20, 2007. Bayer subsequently timely filed this appeal.
Our reading of the language of Rule 17(a) is that it plainly indicates that its analysis applies only to claimants, that is, individuals who “prosecute[ ],” “sue,” or who may bring a lawsuit in the name of the state or others. The real party in interest analysis focuses upon a plaintiff, defendant, petitioner, or intervenor that is asserting a claim, counter-claim or cross- claim, as opposed to a defendant or respondent, that is, the persons against whom a claim is made.
200 W. Va. 667, 676, 490 S.E.2d 754, 763 (1997).
Keesecker, 200 W. Va. at 676, 490 S.E.2d at 763. See also Lincoln Prop. Co. v. Roche, 546
U.S. 81, 90, 126 S. Ct. 606, 614, 163 L. Ed. 2d 415 (2005) (“Rule [17(a)], as its text displays,
speaks to joinder of plaintiffs, not defendants.”).
In the instant proceeding, the Prosecutor has not asserted a claim against Bayer.
The Prosecutor is challenging a ruling by the Commission that granted a claim asserted by
Bayer. (See footnote 6)
To resolve the issue of the Prosecutor's authority to challenge the
Commission's ruling, we must look to the applicable statutes. In this regard, we have held
that “[t]he primary object in construing a statute is to ascertain and give effect to the intent
of the Legislature.” Syl. pt. 1, Smith v. State Workmen's Comp. Comm'r, 159 W. Va. 108,
219 S.E.2d 361 (1975). “In order to safeguard the expressed legislative intention, it is
imperative to view the precise language and terms employed in the statute at issue. Only
when such language is ambiguous may we interpret and construe a statutory provision.” Webster County Comm'n v. Clayton, 206 W. Va. 107, 112, 522 S.E.2d 201, 206 (1999). See
also Syl. pt. 1, Farley v. Buckalew, 186 W. Va. 693, 414 S.E.2d 454 (1992) (“A statute that
is ambiguous must be construed before it can be applied.”).
The statute authorizing Bayer to seek relief from the erroneous tax assessments
is W. Va. Code § 11-3-27 (2000) (Repl. Vol. 2008). The relevant provision in the statute
provides, in part, as follows:
Any taxpayer . . . claiming to be aggrieved by any entry in the property books of the county . . . resulting from a clerical error or a mistake occasioned by an unintentional or inadvertent act as distinguished from a mistake growing out of negligence or the exercise of poor judgment, may, within one year from the time the property books are delivered to the sheriff or within one year from the time such clerical error or mistake is discovered or reasonably could have been discovered, apply for relief to the county commission of the county in which such books are made out. . . . Before the application is heard, the taxpayer shall give notice to the prosecuting attorney of the county. . . . “[A]ny order or judgment shall show that either the prosecuting attorney or tax commissioner was present defending the interests of the state, county and districts[.]
W. Va. Code § 11-3-27(a) (emphasis added). It is clear from this statute that either the Tax
Commissioner or the Prosecutor could represent the interests of the state, county and districts
in this matter before the Commission. However, the statute does not provide express
authority for either the Tax Commissioner or the Prosecutor to challenge such a decision. (See footnote 7) In order to resolve the issue of whether the Prosecutor may challenge the
Commission's decision, we believe that W. Va. Code § 11-3-27 should be read in para
materia with W. Va. Code § 11-3-25 (1967) (Repl. Vol. 2008). This Court has held that
“[s]tatutes which relate to the same persons or things, or to the same class of persons or
things, or statutes which have a common purpose will be regarded in pari materia to assure
recognition and implementation of the legislative intent.” Syl. pt. 5, in part, Fruehauf Corp.
v. Huntington Moving & Storage Co., 159 W. Va. 14, 217 S.E.2d 907 (1975).
West Virginia Code § 11-3-25 sets out the appeal procedure from a tax
assessment ruling, by a County Commission sitting as a Board of Equalization and Review,
that did not involve a clerical error or a mistake occasioned by an unintentional or inadvertent
act. (See footnote 8) This statute provides that “[t]he right of appeal from any assessment by the county
[commission], as hereinbefore provided, may be taken either by the applicant . . . or
the State,
by its prosecuting attorney or tax commissioner[.]” W. Va. Code § 11-3-25 (emphasis
added). This provision is unambiguous. It permits the Tax Commissioner or a prosecuting
attorney to appeal a decision of a county commission, concerning an erroneous tax
assessment that did not involve a clerical error or a mistake occasioned by an unintentional
or inadvertent act.
In view of W. Va. Code § 11-3-25, we do not believe that the Legislature
intended to preclude the Tax Commissioner and county prosecutors from challenging a ruling
by a county commission under W. Va. Code § 11-3-27. Consequently, we now hold that, in
a proceeding brought before a county commission by a tax payer under W. Va. Code § 11-3-
27 (2000) (Repl. Vol. 2008), either the Tax Commissioner or the county prosecutor may
challenge the county commission's decision in circuit court through a petition for a writ of
certiorari.
Bayer also contends that, because the Tax Commissioner chose to not challenge
the decision of the Commissioner, the Prosecutor should be precluded from making such a
challenge. A case which helps guide our resolution of this argument is State v. Brandon B.,
218 W. Va. 324, 624 S.E.2d 761 (2005).
In Brandon B. two juveniles, in separate juvenile delinquency proceedings,
entered into plea agreements with prosecutors that called for their placement in out-of-state
juvenile facilities. The West Virginia Department of Health and Human Resources
(hereinafter referred to as “DHHR”) was not notified of the proceedings in both cases until
after the dispositions therein. DHHR filed appeals in both cases which were consolidated by
this Court. In the appeal, DHHR argued that the trial courts in both cases failed to convene
a multidisciplinary treatment planning process prior to the disposition hearings. The
juveniles and prosecutors in both cases argued on appeal that DHHR did not have standing
to appeal from the agreed upon disposition of the cases. We disagreed as follows:
The applicable statutes are clear that the WVDHHR is charged with an affirmative duty to participate in developing permanency plans, and also is financially obligated to expend its funds to provide services. In the present cases, the juveniles were placed in the WVDHHR's custody, and the WVDHHR was financially responsible for those placements. Moreover, the WVDHHR has an obligation under the applicable statutes to participate in the multidisciplinary treatment planning process. Therefore, we conclude that the WVDHHR does have standing to pursue this action.
Brandon B., 218 W. Va. at 329, 624 S.E.2d at 766. See also Carte v. Cline, 200 W. Va. 162,
488 S.E.2d 437 (1997) (holding that in a driving license revocation proceeding the right of
appeal extends to the arresting officer, licensee and the Commissioner of the Division of
Motor Vehicles).
In the instant case, the record reveals that Bayer did not notify the Prosecutor
of its application with the Commission for relief under W. Va. Code § 11-3-27 until after the
matter was heard and decided by the Commission on November 6, 2003. (See footnote 9) The failure to
notify the Prosecutor before the application was heard was a direct violation of W. Va. Code
§ 11-3-27. This statute expressly commands that “[b]efore the application is heard, the
taxpayer shall give notice to the prosecuting attorney of the county[.]” W. Va. Code § 11-3-
27(a) (emphasis added). Insofar as the Prosecutor was not at the hearing because Bayer
violated W. Va. Code § 11-3-27(a), the Prosecutor was prevented from exercising his right
to be present to consult with the Tax Commissioner on how the case should be defended. We
have previously noted that “the prosecuting attorney owes a duty to represent the interests
of the state, county, and district in matters involving property tax assessments.” In re Elk
Sewell Coal, 189 W. Va. 3, 7 n.2, 427 S.E.2d 238, 242 n.2 (1993). Bayer cannot now seek
to strip the Prosecutor of a right and duty he otherwise would have had if the Prosecutor had
been properly notified of the hearing. We have consistently held that “[a] party should not
be deprived of his opportunity to be heard on the merits when he failed to appear for lack of
notice.” Cordell v. Jarrett, 171 W. Va. 596, 598, 301 S.E.2d 227, 230 (1982). See also Cremeans v. Goad, 158 W. Va. 192, 195-196, 210 S.E.2d 169, 171 (1974) (“The original
movants in this case were given almost no notice of a hearing, and had no time to prepare
for it. This is a denial of procedural due process of law as guaranteed by the Fourteenth
Amendment to the United States Constitution, and Article III, Section 10 of the Constitution
of West Virginia.”); Syl. pt. 3, in part, State ex rel. Battle v. Demkovich, 148 W. Va. 618, 136
S.E.2d 895 (1964) (“A party who is not served with notice of a hearing . . . and does not
appear at the hearing, is denied a substantial right and is entitled to a reversal of the judgment
entered pursuant to the hearing[.]”). We therefore conclude that the circuit court did not
commit error in finding the Prosecutor had authority to file the petition for a writ of
certiorari.
We begin by looking at the statute which broadly outlines the review standard
for a certiorari petition before the circuit court. It is provided in W. Va. Code § 53-3-3 (1923)
(Repl. Vol. 2000), in relevant part, that “[u]pon the hearing, [the] circuit court
shall . . . review such judgment, order or proceeding, of the county [commission] . . . upon
the merits, determine all questions arising on the law and evidence, and render such judgment
or make such order upon the whole matter as law and justice may require.” (See footnote 11) This Court has
recognized that “[o]n certiorari the circuit court is required to make an independent review
of both law and fact in order to render judgment as law and justice may require.” Syl. pt. 3, Harrison v. Ginsberg, 169 W. Va. 162, 286 S.E.2d 276 (1982). See also Davis v. Hix, 141
W. Va. 385, 391, 90 S.E.2d 357, 361 (1955) (“In this jurisdiction circuit courts, upon
certiorari, review matters of law and fact and make such disposition of a case as 'law and
justice may require.'”); Syl. pt. 1, Copley v. Trent, 117 W. Va. 768, 188 S.E. 138 (1936)
(“Circuit courts, upon certiorari, are authorized, under Code, 53-3-3, to review matters of law
and fact and to dispose of the cases as 'law and justice may require.'”). We have also
indicated that “[u]pon the hearing of [a] writ of certiorari, the circuit court is authorized to
take evidence, independent of that contained in the record of the lower tribunal[.]” Syl. pt.
4, in part, North v. West Virginia Bd. of Regents, 160 W. Va. 248, 233 S.E.2d 411 (1977). See also Adkins v. Gatson, 218 W. Va. 332, 336, 624 S.E.2d 769, 773 (2005). We have also
observed, in passing, that “under the expanded role accorded certiorari by West Virginia
Code § 53-3-3, the circuit court, in effect, takes the matter de novo.” Board of Educ., Lincoln
County v. MacQueen, 174 W. Va. 338, 340, 325 S.E.2d 355, 357 (1984). (See footnote 12) See also
Snodgrass v. Board of Educ. of Elizabeth Indep. Dist., 114 W. Va. 305, 306, 171 S.E. 742,
743 (1933) (“It is therefore seen that the circuit judge upon hearing . . . a writ of certiorari
as provided for in this statute, is reviewing both law and fact, and is vested with the power
to enter a proper judgment in consideration of both. This makes the circuit court, to all
intents and purposes, a fact finding tribunal upon the record as it was before the inferior
court.”). (See footnote 13)
It is clear from our prior cases, and we so hold that, unless otherwise provided
by law, the standard of review by a circuit court in a writ of certiorari proceeding under
W. Va. Code § 53-3-3 (1923) (Repl. Vol. 2000) is de novo. (See footnote 14) This standard is based upon
the fact that a circuit court is permitted to consider evidence that was not submitted to a lower
tribunal. In the instant proceeding the record reveals that Bayer attached to its pre- and post-
reversal memoranda of law exhibits and affidavits that were not submitted into the record
before the Commission. (See footnote 15) The circuit court was permitted to consider this evidence only
because W. Va. Code § 53-3-3 has been construed as authorizing the submission and
consideration of such evidence. (See footnote 16) In sum, we reject Bayer's contention that de novo review
was not permitted. (See footnote 17)
Any taxpayer . . . claiming to be aggrieved by any entry in the property books of the county, including entries with respect to classification and taxability of property, resulting from a clerical error or a mistake occasioned by an unintentional or inadvertent act as distinguished from a mistake growing out of negligence or the exercise of poor judgment, may, within one year from the time the property books are delivered to the sheriff or within one year from the time such clerical error or mistake is discovered or reasonably could have been discovered, apply for relief to the county commission of the county in which such books are made out.
(Emphasis added). Under this statute a taxpayer may obtain relief when it is established that
an entry in the property books of the county is wrong, due to a clerical error (See footnote 19) or a mistake
occasioned by an unintentional or inadvertent act. Conversely, relief must be denied where
it is shown that an incorrect entry on the county books was due to a mistake growing out of
negligence or the exercise of poor judgment. (See footnote 20) The problem we encounter with the standard
for obtaining relief under W. Va. Code § 11-3-27(a) is that the statute does not provide any
guidance as to the distinction that should be made between an “unintentional or inadvertent
act” and a “negligent act or exercise of poor judgment.” (See footnote 21) Absent evidence to the contrary,
“we are to assume the legislature intended [the phrases] to have a different meaning.” Wisconsin Cent. Ltd. v. Wisconsin Dep't of Revenue, 606 N.W.2d 226, 232
(Wis. Ct. App.1999). Consequently, we must endeavor to make a distinction between the
phrases “unintentional or inadvertent act” and a “mistake of growing out of negligence or the
exercise of poor judgment.” W. Va. Code § 11-3-27(a).
We have previously observed that “[o]n occasion . . . , such as the case sub
judice, the language used by the Legislature may be plain but it may have neglected to define
a certain word or words used therein.” Bluestone Paving, Inc., v. Tax Comm'r of State, 214
W. Va. 684, 689, 591 S.E.2d 242, 247 (2003). In that regard, “[i]n the absence of any
definition of the intended meaning of words or terms used in a legislative enactment, they
will, in the interpretation of the act, be given their common, ordinary and accepted meaning
in the connection in which they are used.” Syl. pt. 1, Miners in Gen. Group v. Hix, 123
W. Va. 637, 17 S.E.2d 810 (1941), overruled on other grounds by Lee-Norse Co. v. Rutledge, 170 W. Va. 162, 291 S.E.2d 477 (1982). “However, when assigning a meaning to an
undefined term, we will not embrace a definition that would produce absurd, inconsistent,
or incongruous results.” Bluestone Paving, 214 W. Va. at 689, 591 S.E.2d at 247. It is “'the
duty of a court to disregard a construction, though apparently warranted by the literal sense
of the words in a statute, when such construction would lead to injustice and absurdity.'”
Syl. pt. 2, in part, Conseco Fin. Servicing Corp. v. Myers, 211 W. Va. 631, 567 S.E.2d 641
(2002) (quoting Syl. pt. 2, in part, Click v. Click, 98 W. Va. 419, 127 S.E. 194 (1925)).
Caselaw suggests that the terms unintentional, inadvertent, negligent and poor
judgment are synonymous, when not given specific definitions. It has been said that “poor
judgment . . . is the essential nature of negligent conduct.” General Accident Ins. Co. of Am.
v. Allen, 708 A.2d 828, 830 (Pa. Super. Ct. 1998). See also Dep't of Highways v. DeTienne,
707 P.2d 534, 536 (Mont. 1985) (“[T]he jury understood negligence . . . as it is commonly
understood by the layman to mean careless or showing poor judgment.”); Lang v. Cage, 554
So. 2d 1312, 1316 (La. Ct. App. 1989) (“[T]he accident and the consequent injuries resulted
solely from the negligent conduct of Freddie Cage, namely, his exercise of poor judgment
due to his intoxicated state[.]”). It has been correctly observed that “[i]nadvertent means
heedless, negligent, inattentive or unintentional.” State v. Szemple, 622 A.2d 248, 261
(N.J. Super. Ct. App. Div. 1993). See also Phillips Petroleum Co. v. Curtis, 85 F. Supp. 399,
401 (E.D. Okla. 1949) (“It does not follow that an unintentional or inadvertent act is not a
negligent act. Inadvertent is defined by Webster as heedless, inattentive, negligent.”).
Insofar as the popularly accepted meaning of unintentional, inadvertent,
negligent and poor judgment is the same, and W. Va. Code § 11-3-27(a) fails to provide any
specific differentiation between the terms, a literal application of the terms results in
circuitous absurdity. It has been said that “[t]he literal interpretation of the words of an act
should not prevail if it creates a result contrary to the apparent intention of the legislature and
if the words are sufficiently flexible to allow a construction which will effectuate the
legislative intention.” 2A Norman J. Singer and J.D. Shambie Singer, Statutes and Statutory
Construction § 46:7, at 260 (7th ed. 2007). See also Chickasaw Nation v. United States, 534
U.S. 84, 85, 122 S. Ct. 528, 535, 151 L. Ed. 2d 474 (2001) (“The canon requiring a court to
give effect to each word if possible is sometimes offset by the canon that permits a court to
reject words as surplusage if inadvertently inserted or if repugnant to the rest of the
statute[.]”) (internal quotations and citation omitted). In order to operationalize the standard
for relief under W. Va. Code § 11-3-27(a), we believe that the distinction to be drawn
between an unintentional or inadvertent act (See footnote 22) and a negligent act or exercise of poor
judgment, (See footnote 23) is contained in the definition of negligence that is found in our tort cases. This
Court has held that “'[n]egligence is conduct unaccompanied by that degree of consideration
attributable to the man of ordinary prudence under like circumstances.'” Syl. pt. 1, Honaker
v. Mahon, 210 W. Va. 53, 552 S.E.2d 788 (2001) (quoting Syl. pt. 4, Patton v. City of
Grafton, 116 W. Va. 311, 180 S.E. 267 (1935)). We have also stated that “'[n]egligence is
the violation of the duty of taking care under the given circumstances. It is not absolute; but
is always relative to some circumstance of time, place, manner, or person.'” Syl. pt. 2, Honaker (quoting Syl. pt. 1, Dicken v. Liverpool Salt & Coal Co., 41 W. Va. 511, 23 S.E.
582 (1895)). For purposes of W. Va. Code § 11-3-27(a), we believe that the “duty of care”
element of negligence found in our tort cases should be used to distinguish an unintentional
or inadvertent act from that of a negligent act or exercise of poor judgment. “Generally
speaking, the negligence standard as in the tort context is objective, requiring a finding of a
lack of due care or a failure to do what a reasonable and prudent person would do under
analogous circumstances.” Neonatology Assocs., P.A. v. C.I.R., 299 F.3d 221, 233 (3rd Cir.
2002). See also Klein v. United States, 94 F. Supp. 2d 838, 843 (E.D. Mich. 2000) (“Tax
negligence is a lack of due care or a failure to do what a reasonable person would due under
the circumstances.” (internal quotations and citations omitted)). A breach of this duty “can
include any failure . . . to exercise ordinary and reasonable care in the preparation of a tax
return, to keep adequate books and records, or to substantiate items properly.” Neonatology
Assocs., 299 F.3d at 233.
In view of the foregoing, we hold that, under W. Va. Code § 11-3-27(a) (2000)
(Repl. Vol. 2008), a mistake occasioned by an unintentional or inadvertent act is established
by evidence showing that, although the duty of care was not breached, an error occurred in
the entry in the property books of the county, including entries with respect to classification
and taxability of property. Relief under the statute may not be granted if it is shown that a
taxpayer breached its duty of care.
We will now examine the facts of this case to determine whether the evidence
established that Bayer did not breach its duty of care in erroneously reporting data for
personal property taxes.
Bayer sought relief from the assessment of its 2001, 2002, and 2003 personal
property listings due to specific errors it made: (1) for the years 2002 and 2003 Bayer
reported the value of inventory as of July 31 of each year, when it should have been reported
as of June 30 of each year; (2) for all three years certain materials were reported as being
finished goods, but should have been reported as raw materials; (3) for all three years the
value of certain materials were included in inventory, when the materials were in fact in
transit; and (4) for the year 2003 certain materials were not included as raw materials but
should have been. (See footnote 24)
The circuit court found that each of the errors in question resulted from
negligence and not due to a mistake that was attributable to an unintentional or inadvertent
act. We agree.
Bayer attributed the errors for the taxing periods in question “to difficulties that
arose when reconciling the accounting system of Bayer with that of Lyondell Chemical
Company, which Bayer had purchased in 2000.” Although the three witnesses called by
Bayer testified that Bayer used reasonable care when reporting the tax data for the periods
in question, the statements were conclusory allegations that were not supported by any details
regarding the measures used to prevent or discover errors before reporting the tax data in
question. See Brown v. Meyer, 580 S.W.2d 533, 535 (Mo. Ct. App. 1979) (“The rule is that
a submissible case is dependent upon proof of facts. Mere conclusions do not satisfy that
standard.”); Dallas Ry. & Terminal Co. v. Gossett, 294 S.W.2d 377, 380 (Tex. 1956) (“It is
well settled that the naked and unsupported opinion or conclusion of a witness does not
constitute evidence of probative force[.]”).
Most of the testimony provided by Bayer's three witnesses addressed the issue
of the timeliness of the discovery of the errors after the tax data was filed. Two of the
witnesses, Glen W. Craney, Jr. (See footnote 25) and Gary Dzura, (See footnote 26) provided extremely limited testimony as
to the cause of the errors. Mr. Craney and Mr. Dzura attributed the errors to confusion that
was caused in Bayer's integration of Lyondell's accounting system with its accounting
system. This fact was illustrated by a question asked of Mr. Craney by Commissioner
Carper:
COMMISSIONER CARPER: Is it a fair statement to make that the transition from the predecessor company to Bayer was considerable confusion?
THE WITNESS: That is a very fair statement.[ (See footnote 27) ]
(Footnote added). Insofar as Bayer attributed the tax reporting errors to the merger of its
accounting system with that of Lyondell, Bayer had the burden of providing evidence to
show that it took the appropriate level of care in making the merger of the accounting
systems so as to prevent the tax data reporting errors in question. See Phillips Petroleum Co.
v. Curtis, 85 F. Supp. 399, 401 (D.C. Okl. 1949) (“The more voluminous the records, the
more intricate the system, the greater is the required degree of care.”). No such evidence was
presented. As illustrated below, the evidence established that Bayer was negligent in
gathering and reporting data that was placed on the tax returns in question.
During the cross examination of Mr. Dzura by counsel for the Tax
Commissioner, Mr. Dzura was asked about Bayer's efforts to review information it was
reporting for tax purposes:
Q. Does that mean that none of the information on the
returns were troublesome to you? You had confidence in what
you were looking at as far as the books and records from
Lyondell?
A. We believed we had confidence in the information
concerning the inventory numbers.
Q. Okay. And you did a due diligence review of course,
did you not? You talked about how important that was at the
time you _
A. I don't think I discussed how important it is, but
frankly, in the course of Bayer's acquisitions, there is typically
not a property tax due diligence effort.
This testimony provides evidence that Bayer institutionalized a practice of not having a
reasonable review process for property tax data when it makes an acquisition.
In addressing the issue of errors involved specifically with the inventory
reports, Mr. Dzura responded to questions by Commissioner Hardy as follows:
COMMISSIONER HARDY: Were you able to
determine how the error, say with the inventory report, were you
able to determine how that was made?
THE WITNESS: Yes, sir.
COMMISSIONER HARDY: How did you do that?
THE WITNESS: There was a difference between the
accounting records from which the tax returns were prepared
versus the accounting records at the plant sites. I would say
generally, Mr. Commissioner, that we used corporate level
reports and believed them to be correct. However, because of
systemic problems that did not reflect the underlying reality in
the case of intransit inventories where the barges were located,
we believed those reports to be accurate. . . .
COMMISSIONER HARDY: What steps have you taken
to insure that this doesn't happen in the future?
THE WITNESS: We now verify those corporate level
reports directly with the plant sites.
This testimony highlights the fact that, at least for inventory data, Bayer could have
prevented the inventory errors by taking the reasonable step of having a verification process
in place.
During further questioning of Mr. Dzura by Commissioner Hardy, the
following was said about who actually caused the errors:
COMMISSIONER HARDY: When this error was
discovered, were you able to go back in your files and determine
who made the error in your group?
THE WITNESS: Yes, sir.
COMMISSIONER HARDY: And did you discuss that
with, was it one employee or two?
THE WITNESS: Two employees.
COMMISSIONER HARDY: Did you bring them in and
discuss the error with them?
THE WITNESS: They were no longer within our tax
group at the time the errors were discovered.
COMMISSIONER HARDY: Were they still employed
by Bayer Corporation?
THE WITNESS: Yes.
COMMISSIONER HARDY: Did you talk to them or
their supervisor or try and make investigation as to why _
THE WITNESS: They had moved on to different groups
within Bayer, so frankly, I didn't think it was appropriate to
follow up with them. It was not relevant to their current
positions any longer.
The above testimony reveals that Bayer failed to question the employees who allegedly made
the tax reporting errors. This omission perhaps explains why Bayer was unable to introduce
any evidence to show that it did not breach its duty of care in reporting the tax information.
Insofar as Bayer failed to provide any witness testimony on the critical issue
of what measures it took to prevent the taxing errors in question, Bayer failed to prove by
clear and convincing evidence (as well as the lower standard of preponderance of the
evidence) that the errors were caused by a mistake that was attributable to an unintentional
or inadvertent act. On the contrary, the record supports finding that the errors were caused
by Bayer's breach of its duty of care in collecting and reporting its tax data. See Leroy
Jewelry Co., Inc. v. C.I.R., 36 T.C. 443, 446 (Tax Court 1961) (“This underpayment was not
due to a mistake in interpreting the law or in applying the facts- it was due to errors in
properly recording transactions on its books which errors petitioner neither took precautions
to prevent nor attempted to check. In our opinion, this constitutes negligence[.]”).