In re Tax Appeal of Greene ( 2021 )

NOT DESIGNATED FOR PUBLICATION
No. 122,379
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
In the Matter of the Appeal of
DAVID GREENE JR., MARCIA GREENE, and C&J WHOLESALE,
LLC, From an Assessment of Tax Upon Marijuana and Controlled
Substances.
MEMORANDUM OPINION
Appeal from Butler District Court, JANETTE L. SATTERFIELD, judge. Opinion filed May 14, 2021.
Affirmed.
Jay D. Befort, of Legal Services Bureau, Kansas Department of Revenue, for appellant.
Gerald N. Capps, of Wichita, for appellees.
Before POWELL, P.J., GREEN and HILL, JJ.
PER CURIAM: The Kansas Department of Revenue (KDOR) appeals the district
court's denial of its motion for summary judgment and the district court's grant of
summary judgment to David M. Greene Jr., Marcia Greene, and C & J Wholesale, LLC
(Petitioners). KDOR assessed drug taxes against the Petitioners for possession of
controlled substances. KDOR first assessed taxes on a product which the Board of Tax
Appeals (BOTA) later ruled was not a controlled substance when the tax was imposed.
KDOR then issued an amended assessment which included other controlled substances,
but KDOR later abated the amended assessment. Because no outstanding tax assessments
remained for consideration, we affirm the district court's summary judgment.
KDOR taxed Petitioners $460,000 under K.S.A. 79-5201 et seq. (the Kansas Drug
Tax Act). This case began with a search and seizure of controlled substances, involving
two buildings, two LLCs, multiple people, and multiple categories of controlled
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substances. Petitioners contend that KDOR only assessed taxes against them for the
potpourri product called "Diablo," which was seized from 2502 W. Central in El Dorado,
Kansas. Diablo was not a controlled substance then, and BOTA ruled that tax
assessments on Diablo were invalid. KDOR issued amended tax assessments against
Petitioners, but then it later abated those amended assessments. Because no tax
assessments against Petitioners remain, the district court properly entered judgment for
Petitioners.
The potpourri called "Diablo" was not a controlled substance in August 2012.
In July 2012, the Kansas Board of Pharmacy adopted a temporary K.A.R. 68-20-
30, adding tetramethylcyclopropanoylindoles, commonly referred to as UR-144 or F-UR-
144 to the K.S.A. 2012 Supp. 65-4105 list of schedule I controlled substances.
In August 2012, KDOR assessed drug taxes in the amount of $460,000 against
David Greene Jr. (David) and Marcia Greene for possession of UR-144 and F-UR-144 in
the form of a potpourri product called Diablo.
In September 2014, BOTA held that UR-144 and F-UR-144 were not properly
included in the statutory definition of controlled substances until July 2013. Accordingly,
BOTA ruled that tax assessments against these substances before July 1, 2013, were
invalid. On appeal, this court affirmed. In re Tax Appeal of Hasting, No. 112,700, 2016
WL 763569 (Kan. App. 2016) (unpublished opinion).
220 Metcalf Road
David and Marcia Greene are husband and wife. They are the owners of C & J
Distributing (Distributing), a sole proprietorship. Distributing is in the wholesale
business, and its activities include selling candy, tobacco, cigarettes, and restaurant
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supplies to retailers such as gas stations and convenience stores. David also
acknowledged that he bought and sold Diablo.
David and Marcia Greene are the parents of David Greene III (Davy) and Jonathan
Greene. Davy and Jonathan own C & J Wholesale, LLC (Wholesale). Jonathan, however,
did not do any work or perform services for Wholesale. Instead, he was a long-term
employee of Distributing. Wholesale sold novelty items, rented properties, and set up
events. Wholesale's phone number was Davy's cell phone. The Greene family had an
understanding that both Distributing and Wholesale would use "C & J" so that Davy and
Jonathan could keep their parents' direct account status with major tobacco manufacturers
and carry on the cigarette business after David and Marcia retired.
David owns the building located at 220 Metcalf Road in El Dorado, Kansas.
Distributing operated at that location from 1981 to August 2010. The building has 16
rooms and a warehouse area. In August 2010, David and Marcia moved Distributing out
of the building and leased 220 Metcalf to Century Plastics, Inc. Century Plastics stored its
inventory in the warehouse on the east side of the building, but it did it not use the rooms
on the west side of the building. From August 2010 to September 2012, Century Plastics
possessed the entire property as the only tenant. As the tenant at 220 Metcalf, Century
Plastics had keys to the building and openers for the overhead garage door.
But other people had keys to the Metcalf warehouse, namely, David, Marcia,
Davy, and Jonathan, plus Wade Hamilton, J.R. Carlisle, and Benjamin Huff. Carlisle
worked in construction and helped Davy maintain rental properties. Huff was a former
employee of Distributing, but he kept a key to 220 Metcalf because he was friends with
David. Huff operated two retail businesses: the Blitzed Detox Shop in Emporia and the
All Out Detox Shop in El Dorado.
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Law enforcement identified the Blitzed Detox Shop as a source of synthetic
cannabinoids, and Huff was eventually convicted on narcotics charges. During the
investigation, evidence connected Huff to Davy, Distributing, and the 220 Metcalf
warehouse. Police arrested Blitzed Detox Shop employee Jonathan Pope. Pope then told
police in an interview that Huff and Carlisle were manufacturing controlled substances in
Davy's warehouse at 220 Metcalf. Police obtained a search warrant for both Distributing
at 2502 W. Central and Wholesale at 220 Metcalf.
On August 7, 2012, police searched the 220 Metcalf warehouse. David let officers
into the building, unlocking the front door. But some unknown person had placed a lock
on the door to Room 5 in the warehouse. David did not have a key to Room 5, and police
had to kick the door open.
In Room 5, police found several controlled substances, which they sent to the
Kansas Bureau of Investigation Forensic Laboratory for testing. Property Item No. 3
weighed 1,465.73 grams and contained a controlled substance called AM-2201. It also
contained UR-144, F-UR-144, and CI-UR-144, which were later determined not to be
controlled substances. Property Item No. 17 weighed 835.05 grams and contained the
controlled substances AM-2201 and JWH-250.
2502 W. Central
In December 2010, just after leasing 220 Metcalf to Century Plastics, David and
Marcia moved Distributing to 2502 W. Central, Suite F, which was across the street from
220 Metcalf. The same day that police searched 220 Metcalf, they asked David to take
them to 2502 W. Central, where they collected evidence. Evidence obtained from 2502
W. Central included four vials of vegetation and a packet of Mega Buzz potpourri. Three
of the vials, labeled "Wicked X," contained AM-2201. The fourth vial, labeled "Happy
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Hour," contained RCS-4. And the Mega Buzz potpourri contained JWH-018 and JWH-
250.
Property Item No. 8 included 1,144 plastic vials labeled "Diablo." The Kansas
Bureau of Investigation determined that 65 of the vials weighed 73.48 grams and
contained F-UR-144 and UR-144. The remaining vials were not tested.
Agent Joseph Garman from KDOR served tax assessments on David and Marcia
for $460,000, including tax and penalty. KDOR issued one assessment to David M.
Greene, d/b/a C & J Distributing and one to Marcia Greene, d/b/a C & J Distributing.
Both were dated August 7, 2012. The record contains no assessment against Wholesale
dated August 7, 2012. The tax was based on the presence of 1,150 grams of a controlled
substance. David asked Garman what the tax was for, and Garman pointed to the Diablo
product and said it was for a controlled substance at 2502 W. Central.
Garman prepared an investigative report, which stated that agents located 1,150
grams of Diablo at 2502 W. Central. The report also stated that Diablo contained the
controlled substance UR-144.
In March 2013, KDOR sent David a letter stating that the August 7 tax
assessments were issued on a product labeled Diablo found in the warehouse at 2502 W.
Central.
But in April 2013, KDOR sent a letter to Wholesale, which stated the following:
"Although lab reports are not yet available for the various products seized during the
search of the two buildings under the control of the taxpayer on August 7, 2013, upon
which the assessment is based." (Emphasis added). Although this letter described the tax
assessment as based on substances from both buildings, KDOR's assertion is contradicted
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by the parties' stipulated facts, Nos. 35-37, which stated that the tax was assessed for
possession of 1,150 grams of a product known as Diablo.
The amended assessment
Significantly, BOTA ruled in 2014 that tax assessments against UR-144 and F-
UR-144 before July 1, 2013, were invalid, including the assessments against David and
Marcia Greene. This court affirmed in February 2016. See In re Tax Appeal od Hasting,
2016 WL 763569, at *1.
In April 2016, KDOR issued amended tax assessments against Wholesale and
David and Marcia Greene. In June 2016, KDOR abated the April 2016 assessments in
three separate letters from the Secretary's Designee to Wholesale, David Greene, and
Marcia Greene. KDOR did not appeal the abatement by the Secretary's Designee under
K.S.A. 2016 Supp. 74-2438(a).
In December 2017, BOTA upheld the tax assessment of $460,000 plus interest.
The district court's ruling
Petitioners appealed the BOTA decision to the district court. KDOR moved for
summary judgment. In July 2019, the district court held a hearing on KDOR's summary
judgment motion. At that hearing, KDOR told the court that the first assessment was no
longer part of the case because it assessed taxes only against the Diablo found at 2502 W.
Central. Petitioners explained that KDOR had also abated the amended assessment. Thus,
the district court sought clarification from KDOR's counsel by summarizing the facts of
the case as follows:
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"[I]t seemed to me, that everything was pretty well stipulated to, and if we're at that
point—and then, [Petitioner's counsel is] alleging one is—one is out the window because
of a Court of Appeals decision. The other is out the window because your own agency
decided to not go forward based on the amended assessment issued."
Counsel for KDOR agreed, indicating that the case would logically end once
KDOR abated the amended tax assessment. Counsel for Petitioners pointed to exhibits
showing that KDOR abated the amended tax assessment.
The district court then discussed the relevance of KDOR's factual claims about
possession over controlled substances in Room 5 of 220 Metcalf. The district court stated
the following: "[I]f there were any issues remaining in this case, that it was one of
proving the possession—sufficient possession to even be taxed in that room. But we don't
even get to that issue, because there's nothing left to be taxed." The district court then
denied summary judgment for KDOR and instead granted summary judgment for
Petitioners.
KDOR timely appeals.
Did the District Court Err by Ruling That the Petition Complied with the Requirements of
the Kansas Judicial Review Act (KJRA)?
KDOR argues that the district court erred by denying its motion to dismiss. First,
KDOR claims that it lacks the capacity to sue or be sued in this matter. Alternatively, it
claims that the petition did not comply with the requirements of the KJRA. Because
KDOR's first argument is irrelevant and the second is insufficiently briefed, this court
should affirm.
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Denial of a motion to dismiss is usually not an appealable order until final
judgment is rendered and appealed from. Donaldson v. State Highway Commission, 189
Kan. 483, 485, 370 P.2d 83 (1962). When appellate courts review a district court's ruling
on a motion to dismiss, review is unlimited. Williams v. C-U-Out Bail Bonds, 310 Kan.
775, 784, 450 P.3d 330 (2019).
First, KDOR claims that it lacks the capacity to be sued. But the action filed here is
a petition seeking judicial review under K.S.A. 74-2426. K.S.A. 74-2426(c) states the
following: "Any action of [BOTA] pursuant to this section is subject to review in
accordance with the Kansas judicial review act." And K.S.A. 74-2426(c)(4)(B) allows for
review in the district court. Petitioners cited to and filed under K.S.A. 74-2426(c)(4)(B).
Further, the petition to the district court did not name KDOR as a defendant. Instead,
Petitioners identified KDOR as a party to the BOTA proceedings which were the subject
of the appeal. The district court correctly ruled that Petitioners filed for review under the
KJRA. Thus, KDOR is not being sued, and KDOR's capacity to be sued is not at issue.
Second, KDOR claims that Petitioners did not comply with the requirements of the
KJRA. In KDOR's motion to dismiss before the district court, KDOR asserted that
Petitioners failed to obtain proper service, failed to make sufficient allegations, failed to
show exhaustion of administrative remedies, and failed to include mailing addresses. The
district court allowed Petitioners to file an amended petition rectifying these deficiencies.
On appeal, KDOR makes the conclusory statement that Petitioners made some
amendments but failed to comply with all the requirements of the KJRA. KDOR does not
explain which requirements Petitioners did not meet.
Also, KDOR's statement that the district court erred is similarly conclusory,
especially when it contended the following: "Petitioners' failure to follow the KJRA
pleading and practice requirements in K.S.A. 77-601 et seq. required the district court to
dismiss this matter as originally requested by the KDOR." KDOR, however, cites no
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legal authority supporting the idea that the district court erred by allowing an amended
petition rather than dismissing the petition. So KDOR fails to show why we should
accept its argument as correct. Also, issues not adequately briefed are deemed waived or
abandoned. In re Marriage of Williams, 307 Kan. 960, 977, 417 P.3d 1033 (2018). For
this reason, KDOR's argument fails.
Did the District Court Err in Granting Summary Judgment for Petitioners?
KDOR argues that the district court erred because it did not construe the facts in
the light most favorable to KDOR. In its summary judgment ruling, the district court
wrote that the evidence appeared insufficient to show that David and Marcia Greene
possessed the substances seized at 220 Metcalf. KDOR argues that the district court erred
by construing these facts against it when granting summary judgment to Petitioners.
"Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, admissions on file, and supporting affidavits show that no genuine issue
exists as to any material fact and the moving party is entitled to judgment as a matter of
law. The district court must resolve all facts and reasonable inferences drawn from the
evidence in favor of the party against whom the ruling [is] sought. When opposing
summary judgment, a party must produce evidence to establish a dispute as to a material
fact. In order to preclude summary judgment, the facts subject to the dispute must be
material to the conclusive issue in the case. Appellate courts apply the same rules and,
where they find reasonable minds could differ as to the conclusions drawn from the
evidence, summary judgment is inappropriate. Appellate review of the legal effect of
undisputed facts is de novo. [Citation omitted.]" GFTLenexa, LLC v. City of Lenexa, 310
Kan. 976, 981-82, 453 P.3d 304 (2019).
When the controlling facts are based on the parties' joint stipulations, an appellate
court determines de novo whether the moving party is entitled to a judgment as a matter of
law. Stewart Title of the Midwest v. Reece & Nichols Realtors, 294 Kan. 553, 557, 276
P.3d 188 (2012).
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The appellate court reviews the district court's denial of a motion for summary
judgment de novo, viewing the facts in the light most favorable to the party opposing
summary judgment. "If 'reasonable minds could differ as to the conclusions drawn from
the evidence'—in other words, if there is a genuine issue about a material fact—summary
judgment should be denied. [Citation omitted.]" Siruta v. Siruta, 301 Kan. 757, 766, 348
P.3d 549 (2015).
Here, the district court's written ruling memorialized its statements from the
bench. At the hearing, the district court stated that the first assessment was "out the
window" because it taxed Diablo, which was not a controlled substance, and the second
assessment was "out the window" because KDOR abated the second assessment. The
district court's written ruling explained as follows:
"The 'Diablo' David Greene Jr. and Marcia Greene possessed at the time of
assessment has been determined to not be a controlled substance. The substances seized
at 220 N. Metcalf, Room #5 and assessments thereto were abated as to David Greene Jr.
and Marcia Greene with no appeal sought."
The district court then commented on evidence of possession as follows:
"However, as a further note, the evidence appears to be insufficient to show David
Greene Jr. and Marcia Greene possessed the substances seized at 220 N. Metcalf, Room
#5." The district court also commented that Davy's connection to the controlled
substances does not establish his parents' liability. KDOR's complaint on appeal is that
the district court should have viewed evidence of possession in the light most favorable to
KDOR. But the district court's aside about possession was explicitly not the basis for its
ruling. The district court ruled simply that KDOR did not assess taxes on those controlled
substances against Petitioners, whether Petitioners possessed the substances or not.
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A review of the record shows that the district court was correct. The stipulated
facts and the documents in the record show that no genuine issue of material fact remains.
Each petitioner was released from tax assessments in some way. Firstly, KDOR assessed
taxes against petitioner David Greene for possession of Diablo at 2502 W. Central. But
those taxes were invalid because Diablo was not a controlled substance when the tax
assessment was made. Although KDOR amended its assessment, it later abated the
amended amendment. Secondly, KDOR's assessments against petitioner Marcia Greene
were first invalid and then abated by documents identical to David's assessment.
Lastly, KDOR did not initially assess taxes against petitioner Wholesale, or at
least there is no initial assessment in the record on appeal. The burden is on the party
making a claim to designate a record sufficient to present its points to the appellate court
and to establish its claims. Friedman v. Kansas State Bd. of Healing Arts, 296 Kan. 636,
644, 294 P.3d 287 (2013). Nevertheless, an amended assessment against Wholesale is in
the record, but so is KDOR's statement abating the amended assessment against
Wholesale. Thus, no tax assessments remain against any of the Petitioners. After
reviewing the stipulated facts and the tax assessments themselves, the district court
properly entered summary judgment for Petitioners. Under K.S.A. 60-256, a court may
enter summary judgment in favor of the nonmoving party on its own motion where there
remains no genuine issue as to any material fact and, on the evidentiary record, judgment
must be for one of the parties as a matter of law. Wilcox v. Wyandotte World-Wide, Inc.,
208 Kan. 563, 572, 493 P.2d 251 (1972). For the preceding reasons, we affirm.
Affirmed.
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