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Espinoza v. Montana Department of Revenue

Supreme Court of Montana

December 12, 2018

KENDRA ESPINOZA, JERI ELLEN ANDERSON, and JAIME SCHAEFER, Plaintiffs and Appellees,
v.
MONTANA DEPARTMENT OF REVENUE, and MIKE KADAS, in his official capacity as DIRECTOR of the MONTANA DEPARTMENT OF REVENUE, Defendants and Appellants.

          Argued: April 6, 2018

          Submitted: April 10, 2018

          APPEAL FROM: District Court of the Eleventh Judicial District, In and For the County of Flathead, Cause No. DV-15-1152C Honorable Heidi J. Ulbricht, Presiding Judge.

          For Appellants: Daniel J. Whyte (argued), Brendan Beatty, Nicholas J. Gochis, Special Assistant Attorneys General, Helena, Montana

          For Appellees: William W. Mercer (argued), Holland & Hart LLP, Billings, Montana Richard D. Komer (argued), Erica Smith, Institute for Justice, Arlington, Virginia

          For Amicus American Civil Liberties Union, ACLU of Montana Foundation, Inc., Americans United for Separation of Church and State, and the Anti-Defamation League: Alex J. Luchenitser, American United for Separation of Church and State, Washington, District of Columbia James Goetz, Goetz, Baldwin and Geddes, P.C., Bozeman, Montana Heather L. Weaver, American Civil Liberties Union, Washington, District of Columbia Alex Rate, ACLU of Montana Foundation, Missoula, Montana

          For Amicus Montana Quality Education Coalition: Karl J. Englund, Karl J. Englund, P.C., Missoula, Montana Jonathan McDonald (argued), McDonald Law Office, PLLC, Helena, Montana

          For Amicus United States: John M. Gore, Acting Assistant Attorney General, Eric W. Treene, Thomas E. Chandler, Bethany Pickett, Department of Justice, Washington, District of Columbia Kurt G. Alme, United States Attorney, Leif Johnson, First Assistant United States Attorney, Billings, Montana

          For Amicus The Becket Fund for Religious Liberty: Charles A. Harball, Kalispell City Attorney, Kalispell, Montana Eric C. Rassbach, Joseph C. Davis, The Becket Fund for Religious Liberty, Washington, District of Columbia

          For Amicus Alliance for Choice in Education Scholarships: Anita Y. Milanovich, The Bopp Law Firm, PC, Bozeman, Montana

          For Amicus Pride School Atlanta: Thomas Hydrick, Baker Botts L.L.P., Washington, District of Columbia Chris J. Gallus, Gallus Law Firm, Helena, Montana

          For Amicus EdChoice: Kristin Hansen, Kristin Hansen, PLLC, Helena, Montana Russell Menyhart, Taft Stettinius & Hollister LLP, Indianapolis, Indiana Leslie Davis Hiner, EdChoice, Indianapolis, Indiana

          For Amicus Agudath Israel of America: Jennifer Wendt Bordy, Attorney at Law, Bozeman, Montana Mordechai Biser, Agudath Israel of America, New York, New York

          OPINION

          Laurie McKinnon Justice.

         ¶1 The Montana Department of Revenue (the Department) appeals from an order of the Eleventh Judicial District Court, Flathead County, granting Kendra Espinoza, Jeri Ellen Anderson, and Jaime Schaefer (collectively, Plaintiffs) summary judgment. The Department is responsible for administering § 15-30-3111, MCA (the Tax Credit Program), which provides a taxpayer a dollar-for-dollar tax credit based on the taxpayer's donation to a Student Scholarship Organization (SSO). SSOs fund tuition scholarships for students who attend private schools meeting the definition of Qualified Education Provider (QEP). The Legislature instructed the Department to implement the Tax Credit Program in compliance with Article V, Section 11(5), and Article X, Section 6, of the Montana Constitution. Pursuant to that grant of authority, the Department implemented Admin. R. M. 42.4.802 (Rule 1), which it believed was necessary to constitutionally administer the Tax Credit Program. Rule 1 adds to the Legislature's definition of QEP and excludes religiously-affiliated private schools from qualifying as QEPs.

         ¶2 Plaintiffs are parents whose children attend a religiously-affiliated private school. Because Rule 1 precludes religiously-affiliated private schools from the definition of QEP, SSOs cannot fund tuition scholarships at the school Plaintiffs' children attend. Plaintiffs filed this proceeding challenging Rule 1. The Department responded, arguing Rule 1 was necessary because the Tax Credit Program as enacted by the Legislature violates Montana's Constitution. The District Court determined the Tax Credit Program was constitutional without Rule 1 and accordingly granted Plaintiffs summary judgment. The Department now appeals, arguing that the Tax Credit Program is unconstitutional absent Rule 1. We address the following issue on appeal:

         Does the Tax Credit Program violate Article X, Section 6, of the Montana Constitution?

         ¶3 We conclude the Tax Credit Program violates Article X, Section 6, of the Montana Constitution and accordingly reverse the District Court's order granting Plaintiffs summary judgment.

         FACTUAL AND PROCEDURAL BACKGROUND

         ¶4 In 2015, the Legislature, through Senate Bill 410, enacted Title 15, chapter 30, part 31, MCA, entitled "Tax Credit for Qualified Education Contributions." Sections 15-30-3101 to -3114, MCA (Part 31); 2015 Mont. Laws 2165. Part 31 provides two types of dollar-for-dollar tax credits to taxpayers who donate to educational programs in Montana. Sections 15-30-3110 to -3111, MCA. A taxpayer may receive a tax credit for providing supplemental funding to public schools, § 15-30-3110, MCA, or for donating to the Tax Credit Program, § 15-30-3111, MCA. The only tax credit at issue in these proceedings is the credit a taxpayer receives based on her donation to the Tax Credit Program, § 15-30-3111, MCA.[1] The Tax Credit Program provides a taxpayer a dollar-for-dollar tax credit of up to $150 based on her donation to an SSO. Section 15-30-3111(1), MCA.

         ¶5 An SSO is a charitable organization in Montana that is (1) "exempt from federal income taxation under [I.R.C. § 501(c)(3)]"; (2) "allocates not less than 90% of its annual revenue for scholarships to allow students to enroll with any [QEP]"; and (3) "provides educational scholarships to eligible students without limiting student access to only one education provider." Section 15-30-3102(9)(a)-(c), MCA; see also § 15-30-3103, MCA (listing additional SSO requirements); §§ 15-30-3105 to -3106, MCA (setting forth SSO reporting requirements). The purpose of SSOs "is to provide parental and student choice in education with private contributions through tax replacement programs." Section 15-30-3101, MCA.

         ¶6 Taxpayer donors donate to SSOs generally; they "may not direct or designate contributions to a parent, legal guardian, or specific [QEP]." Section 15-30-3111(1), MCA. SSOs then use those donations to fund student tuition scholarships at private schools meeting the definition of QEP in § 15-30-3102(7), MCA. Section 15-30-3104(1), MCA. SSOs are responsible for maintaining "an application process under which scholarship applications are accepted, reviewed, approved, and denied." Section 15-30-3103(1)(h), MCA. After an SSO decides to grant a student a tuition scholarship, the SSO pays the scholarship directly to the scholarship recipient's QEP. Section 15-30-3104(1), MCA. The Legislature defined QEP as "an education provider that":

(a) is not a public school;
(b) (i) is accredited, has applied for accreditation, or is provisionally accredited by a state, regional, or national accreditation organization; or (ii) is a nonaccredited provider or tutor and has informed the child's parents or legal guardian in writing at the time of enrollment that the provider is not accredited and is not seeking accreditation;
(c) is not a home school as referred to in 20-5-102(2)(e);
(d) administers a nationally recognized standardized assessment test or criterion-referenced test and:
(i) makes the results available to the child's parents or legal guardian; and
(ii) administers the test for all 8th grade and 11th grade students and provides the overall scores on a publicly accessible private website or provides the composite results of the test to the office of public instruction for posting on its website;
(e) satisfies the health and safety requirements prescribed by law for private schools in this state; and
(f) qualifies for an exemption from compulsory enrollment under 20-5-102(2)(e) and 20-5-109.

Section 15-30-3102(7), MCA. Essentially, the Legislature's definition of QEP means "a private school."

         ¶7 The Department is responsible for implementing and administering Part 31. Sections 15-30-3102(1), -3114, MCA. The Department must perform extensive administrative tasks to ensure Part 31 functions appropriately. Sections 15-30-3103, -3105, -3111 to -3113, MCA. The Legislature explicitly granted the Department rulemaking authority to "adopt rules, prepare forms, and maintain records that are necessary to implement and administer [Part 31]." Section 15-30-3114, MCA. The Legislature also instructed the Department to administer Part 31 in compliance with Article V, Section 11(5), and Article X, Section 6, of the Montana Constitution. Section 15-30-3101, MCA.

         ¶8 Beginning in fiscal year 2016, to accomplish these statutorily-mandated responsibilities, the Department required additional resources and personnel. Senate Bill 410's Fiscal Note estimated one-time costs to the Department of $420, 325 to develop new forms and add data processing systems. S. 410 Fiscal Note, 64th Reg. Sess., at 3 (April 21, 2015), https://perma.cc/6X7Z-GEEZ (hereinafter Fiscal Note). Further, the Department required two additional full-time employees: one to process and verify credit applications and annual reports from SSOs and another to verify and audit the new tax credits. Fiscal Note, at 3-4.

         ¶9 Tasked with constitutionally implementing Part 31, the Department identified what it saw as a constitutional deficiency: the Tax Credit Program aided sectarian schools in violation of Article X, Section 6, of Montana's Constitution. Under the Legislature's definition of QEP, most QEPs were religiously-affiliated private schools. The Department examined how the Tax Credit Program operated and determined it unconstitutionally aided those religiously-affiliated QEPs. To combat the issue, and pursuant to the rulemaking authority granted by the Legislature, §§ 15-30-3101, -3114, MCA, the Department adopted Rule 1.

         ¶10 Rule 1 added to the Legislature's definition of QEP, § 15-30-3102(7), MCA, providing:

(1) A "qualified education provider" has the meaning given in 15-30-3102, MCA, and pursuant to 15-30-3101, MCA, may not be:
(a) a church, school, academy, seminary, college, university, literary or scientific institution, or any other sectarian institution owned or controlled in whole or in part by any church, religious sect, or denomination; or
(b) an individual who is employed by a church, school, academy, seminary, college, university, literary or scientific institution, or any other sectarian institution owned or controlled in whole or in part by any church, religious sect, or denomination when providing those services.
(2) For the purposes of (1), "controlled in whole or in part by a church, religious sect, or denomination" includes accreditation by a faith-based organization.

Admin. R. M. 42.4.802. Simply put, Rule 1 excluded religiously-affiliated private schools from the Legislature's definition of QEP, § 15-30-3102(7), MCA.

         ¶11 Plaintiffs are parents whose children attend a religiously-affiliated private school in Montana. The school qualifies as a QEP under the Legislature's definition, § 15-30-3102(7), MCA, but does not qualify as a QEP under the Department's definition, Rule 1. Plaintiffs challenged Rule 1 in District Court, arguing it violated the free exercise clauses of the Montana and U.S. Constitution.[2] Plaintiffs further reasoned that Rule 1 was unnecessary because the Tax Credit Program and the Legislature's definition of QEP were constitutional. The Department responded, arguing that the Tax Credit Program is unconstitutional and reasoning that Rule 1 necessarily restricted the Tax Credit Program which, absent Rule 1, aided sectarian schools. Both sides filed cross-motions for summary judgment.

         ¶12 The District Court narrowly focused its analysis on the tax credits themselves, noting the credits did not "involve the expenditure of money that the state has in its treasury." Instead, it determined the tax credits "concern[ed] money that is not in the treasury and not subject to expenditure." For that reason alone, the District Court concluded the Department incorrectly interpreted Article V, Section 11(5), and Article X, Section 6(1), of the Montana Constitution. Because it decided the Tax Credit Program was constitutional as enacted by the 2015 Legislature, the District Court did not further address Rule 1's constitutionality. The District Court granted Plaintiffs' motion for summary judgment, denied the Department's motion for summary judgment, and permanently enjoined the Department from applying or enforcing Rule 1. The Tax Credit Program remained as enacted by the 2015 Legislature. The Department now appeals the District Court's decision.

         STANDARD OF REVIEW

         ¶13 This Court exercises plenary review over constitutional law questions. Nelson v. City of Billings, 2018 MT 36, ¶ 8, 390 Mont. 290, 412 P.3d 1058. A statute is presumed constitutional unless it "conflicts with the constitution, in the judgment of the court, beyond a reasonable doubt." Gazelka v. St. Peter's Hosp., 2018 MT 152, ¶ 6, 392 Mont. 1, 420 P.3d 528 (quoting Powell v. State Comp. Ins. Fund, 2000 MT 321, ¶ 13, 302 Mont. 518, 15 P.3d 877). The party challenging the constitutionality of the statute bears the burden of proof. Mont. Cannabis Indus. Ass'n v. State, 2016 MT 44, ¶ 12, 382 Mont. 256, 368 P.3d 1131. If any doubt exists, it must be resolved in favor of the statute. Mont. Cannabis Indus. Ass'n, ¶ 12.

         ¶14 Whether an administrative rule impermissibly conflicts with a statute is a question of law to be decided by the court. Clark Fork Coal. v. Tubbs, 2016 MT 229, ¶ 18, 384 Mont. 503, 380 P.3d 771; Gold Creek Cellular of Mont. L.P. v. State, 2013 MT 273, ¶ 9, 372 Mont. 71, 310 P.3d 533. We review a district court's conclusions of law to determine if they are correct. Clark Fork, ¶ 18.

         DISCUSSION

         ¶15 The First Amendment's Religion Clauses-the Establishment Clause and the Free Exercise Clause-are "frequently in tension." Locke v. Davey, 540 U.S. 712, 718, 124 S.Ct. 1307, 1311 (2004). Yet, "there is room for play in the joints" between them. Walz v. Tax Comm'n of N.Y., 397 U.S. 664, 669, 90 S.Ct. 1409, 1412 (1970). A state's constitutional prohibition against aid to sectarian schools may be broader and stronger than the First Amendment's prohibition against the establishment of religion. See Locke, 540 U.S. at 722, 124 S.Ct. at 1313. Where a state's constitution "draws a more stringent line than that drawn by the United States Constitution," the "room for play" between the Establishment and Free Exercise Clauses narrows. See Locke, 540 U.S. at 718, 722, 124 S.Ct. at 1311, 1313. The Montana Constitution broadly and strongly prohibits state aid to sectarian schools, leaving a very limited amount of "room for play." See Mont. Const. art. X, § 6 (hereinafter, Article X, Section 6).

         ¶16 Our analysis, therefore, considers Article X, Section 6, within a narrower "room for play" between the federal Religion Clauses and, consequently, we do not address federal precedent. We conclude that Montana's Constitution more broadly prohibits "any" state aid to sectarian schools and draws a "more stringent line than that drawn" by its federal counterpart. See Locke, 540 U.S. at 722, 124 S.Ct. at 1313. Therefore, the sole issue in this case is whether the Tax Credit Program runs afoul of Montana's specific sectarian education no-aid provision, Article X, Section 6. For the following reasons, we conclude the Tax Credit Program aids sectarian schools in violation of Article X, Section 6.

         I. Article X, Section 6, broadly and strictly prohibits aid to sectarian schools.

         ¶17 Article X, Section 6, of the Montana Constitution, entitled "Aid prohibited to sectarian schools," provides:

(1) The legislature, counties, cities, towns, school districts, and public corporations shall not make any direct or indirect appropriation or payment from any public fund or monies, or any grant of lands or other property for any sectarian purpose or to aid any church, school, academy, seminary, college, university, or other literary or scientific institution, controlled in whole or in part by any church, sect, or denomination.
(2) This section shall not apply to funds from federal sources provided to the state for the express purpose of distribution to non-public education.

         ¶18 The Constitutional Convention Delegates' (Delegates) intent controls our interpretation of a constitutional provision. Nelson, ¶ 14. We primarily discern the Delegates' intent "from the plain meaning of the language used." Nelson, ¶ 14 (explaining that we apply our rules of statutory construction to our analysis of constitutional provisions). However, we define the Delegates' intent "not only from the plain meaning of the language used, but also in light of the historical and surrounding circumstances under which the [Delegates] drafted the Constitution, the nature of the subject matter they faced, and the objective they sought to achieve." Nelson, ¶ 14. Accordingly, we "determine the meaning and intent of constitutional provisions from the plain meaning of the language used without resort to extrinsic aids except when the language is vague or ambiguous or extrinsic aids clearly manifest an intent not apparent from the express language." Nelson, ¶ 16 (emphasis added).

         ¶19 In determining what the Delegates intended Article X, Section 6, to mean, we first observe that the plain language of the provision's title is expansive and forceful: "Aid prohibited to sectarian schools." The title clearly manifests the Delegates' intent to broadly prohibit aid to sectarian schools. The provision's text is equally expansive, prohibiting numerous types of state actors, including the "legislature, counties, cities, towns, school districts, and public corporations" from making "any direct or indirect appropriation or payment from any public fund or monies, or any grant of lands or other property for any sectarian purpose or to aid any . . . school . . . controlled in whole or in part by any church, sect, or denomination." Mont. Const. art. X, § 6(1).

         ¶20 The provision's plain language begs three main inquiries, each of which cast a broad net clearly intended to prohibit "any" type of state aid being used to benefit sectarian education. First, the provision's plain language identifies the entity that is prohibited from providing the aid: Article X, Section 6, prohibits the "legislature, counties, cities, towns, school districts, and public corporations" from aiding sectarian schools. Second, the provision's plain language identifies the type of aid it prohibits: Article X, Section 6, broadly prohibits any type of direct or indirect aid to sectarian schools-"any direct or indirect appropriation or payment from any public fund or monies, or any grant of lands or other property." Third, the provision's plain language specifies that the aid is prohibited "for any sectarian purpose or to aid any church, school, academy, seminary, college, university, or other literary or scientific institution, controlled in whole or in part by any church, sect, or denomination."

         ¶21 The Delegates adapted Article X, Section 6, of the Montana Constitution from the 1889 Constitution's broad and general no-aid provision, recognizing that it was already "among the most stringent [no-aid clauses] in the nation." Montana Constitutional Convention, Verbatim Transcript, March 11, 1972, pp. 2008, 2011 (hereinafter Convention Transcript); see Mont. Const. of 1889, art. XI, § 8 ("[T]he Legislative Assembly . . . shall [n]ever make directly or indirectly, any appropriation, or pay from any public fund or moneys . . . in aid of any church, or for any sectarian purpose, or to aid in the support of any school . . . controlled in whole or in part by any church . . . .").

         ¶22 The Delegates' strong commitment to maintaining public education and ensuring that public education remained free from religious entanglement is evident from the Constitutional Convention Transcripts; the Delegates wanted the public school system to receive "unequivocal support." Convention Transcript, p. 2008. Delegate Burkhardt noted, "Under federal and state mandates to concentrate public funds in public schools, our educational system has grown strong in an atmosphere free from divisiveness and fragmentation." Convention Transcript, p. 2009. He further emphasized, "Any diversion of funds or effort from the public school system would tend to weaken that system in favor of schools established for private or religious purposes." Convention Transcript, p. 2009 (emphasis added).

         ¶23 A minority of Delegates sought to delete the language prohibiting indirect aid from Article X, Section 6. Those Delegates wanted to ensure private school students could receive federal aid under the United States Supreme Court's child-benefit theory, which allows federal aid as long as it directly supports the child and not the religious school. Convention Transcript, pp. 2010-11. Delegate Blaylock, however, expressed concern that deleting the indirect language would make it "fairly easy to appropriate a number of funds . . . to some other group and then say this will be done indirectly." Convention Transcript, p. 2015. The Delegates ultimately maintained the indirect language and instead added a separate subsection specifically addressing federal aid: "[Article X, Section 6] shall not apply to funds from federal sources provided to the state for the express purpose of distribution to non-public education." Mont. Const. art. X, § 6(2). Notably, the Delegates understood that Montana could prohibit forms of state aid that were otherwise permissible as federal aid. Convention Transcript, pp. 2008, 2011, 2024-25. Our conclusion that Article X, Section 6, more broadly prohibits aid to sectarian schools than the federal Establishment Clause is consistent with the Delegates' intent of the provision.

         ¶24 It is also worth observing that Montana's no-aid provision is unique from other states' no-aid provisions. Article X, Section 6's prohibition of "any direct or indirect appropriation or payment from any public fund or monies, or any grant of lands or other property for any sectarian purpose or to aid any . . . school . . . controlled in whole or in part by any church" make it a broader and stronger prohibition against aid to sectarian schools than other states.[3] Even other states whose no-aid provisions also contain "indirect" language only prohibit aid in the form of the direct or indirect taking of money from the public treasury. See Ga. Const. art. I, § II, ¶ VII ("No money shall ever be taken from the public treasury, directly or indirectly, in aid of any church . . . .");[4] Fla. Const. art. I, § 3 ("No revenue of the state or any political subdivision or agency thereof shall ever be taken from the public treasury directly or indirectly in aid of any church . . . .").[5] Such language is distinct from and less stringent than Montana's prohibition on any type of aid, whether it be a "direct or indirect appropriation or payment from any public fund or monies, or any grant of lands or other property." Mont. Const. art. X, § 6(1).

         ¶25 As a Court, we have not yet interpreted Article X, Section 6. However, the 1972 Constitutional Convention Delegates intended Article X, Section 6, to retain the meaning of Article XI, Section 8, of the Montana Constitution of 1889. See Convention Transcript, p. 2014. Accordingly, this Court's pre-1972 precedent analyzing Article XI, Section 8, of the Montana Constitution of 1889 remains helpful to our analysis of Article X, Section 6. In State ex rel. Chambers v. School Dist. No. 10, 155 Mont. 422, 436-41, 472 P.2d 1013, 1020-22 (1970), the Court considered whether a tax levy intended to fund general teaching positions at a religiously-affiliated private school violated Article XI, Section 8, of the Montana Constitution of 1889. The Court observed that the tax levy permitted a religiously-affiliated school to unconstitutionally obtain teachers at public expense. Chambers, 155 Mont. at 437-38, 472 P.2d at 1020-21. Even though the teachers would have taught general, secular subjects, the Court noted that the funding nonetheless aided sectarian schools, as there was no way to determine "where the secular purpose ended and the sectarian began." Chambers, 155 Mont. at 438, 472 P.2d at 1021. Accordingly, the Court determined Article XI, Section 8, of the Montana Constitution of 1889 prohibited "a public school board from making a levy for, or expending funds for the employment of teachers to teach in a parochial school." Chambers, 155 Mont. at 440, 472 P.2d at 1022.

         ¶26 The plain language of Article X, Section 6, and the Constitutional Convention Transcripts demonstrating the Delegates' clear objective to firmly prohibit aid to sectarian schools lead us to the conclusion that the Delegates intended Article X, Section 6, to broadly and strictly prohibit aid to sectarian schools.

         II.The Tax Credit Program aids sectarian schools in violation of Article X, Section 6, of the ...


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