RALPH R. ERICKSON, Chief Judge.
PW Enterprises, Inc. appeals from an adverse bankruptcy court decision in which the bankruptcy judge concluded that North Dakota law authorized the collection of taxes on account wagering. Aside from the State,
North Dakota's parimutuel horse racing laws evolved over a number of years. A brief time line gives context to the status of the law during the time period in question. In 1987, North Dakota legalized parimutuel horse racing under the certificate system. N.D. Cent.Code § 53-06.2-10. In order to participate bettors had to attend a live horse race in North Dakota. The legislature also enacted a "take-out statute", N.D. Cent.Code § 53-06.2-11, which established formulas for collecting certain amounts from each day's parimutuel pool total, including allotments for tax payments to the State of North Dakota. Revenue derived from parimutuel horse racing was directed to the general fund under the state treasurer's control and to three special funds administered by the North Dakota Racing Commission — the North Dakota Breeders Fund, the North Dakota Purse Fund, and the North Dakota Promotions Fund.
Two years later, the legislature authorized off-track parimutuel wagering. N.D. Cent.Code § 53-06.2-10.1 (1989). This allowed bettors to wager on horse races within and outside of North Dakota. The legislature also modified the take-out formulas. In 1991, the legislature amended § 53-06.2-10.1 to reclassify "off track wagering" to "simulcast wagering."
It was not until 2001 that the North Dakota Legislature authorized "account wagering" as a form of parimutuel horse racing. N.D. Cent.Code § 53-06.2-10.1 (2001). The statute provided, in relevant part:
Players could thus bet against each other rather than the "house." An account wager could be made in person, by telephone, or through other electronic communication. Id. There was no change made to the take-out statute during the 2001 legislative session. Thus, the 1995 version remained in effect, which provided the following bet payoff formulas:
N.D. Cent.Code § 53-06.2-11 (1995).
In 2007, the legislature amended the take-out statute to create a new category for account wagering. N.D. Cent.Code § 53-06.2-11 (2007). This is the first time the legislature established formulas specific to account wagering:
N.D. Cent.Code § 53-06.2-11 (2007).
Gambling is a closely regulated activity that expanded over a number of years in North Dakota. The focal point of the dispute in this case is the State's authority to collect taxes on account wagering during 2002 and 2003.
RSI applied for a simulcast service provider
PW Enterprises developed software for the sole purpose of wagering on horse races in the United States and Canada. From 2002 to 2003, PW Enterprises engaged in parimutuel account wagering on horse races in North Dakota through an
In approximately July 2003, PW Enterprises learned RSI was under investigation for an illegal gaming operation. PW Enterprises stopped wagering through RSI. On July 31, 2003, PW Enterprises made a demand for its account holdings with RSI.
Between July 2003 and September 2003, PW Enterprises' attorney contacted the State on behalf of PW Enterprises to inquire about the State's plan for stabilizing RSI. PW Enterprises was concerned about protecting its interests and was open to discussing a mutually beneficial path for both the State and PW Enterprises. PW Enterprises had identified two options for recovering its money held by RSI: (1) file a lawsuit and seek a writ of attachment for the amount RSI owed PW Enterprises, or (2) support the State's decision to appoint a receiver and rely on the State to protect its interests.
As of August 18, 2003, PW Enterprises believed the State was going to protect its interests and that if it filed a lawsuit, it would have a catastrophic effect on the future business of RSI. PW Enterprises believed that if a "major player" filed a complaint against RSI alleging RSI was not distributing winnings there would be a tremendous disincentive to participate in North Dakota wagering. PW Enterprises was interested in (1) maximizing its recovery, and (2) exploring the possibility of once again wagering in North Dakota. PW Enterprises signed an affidavit supporting the State's decision to appoint a receiver.
The State sought a receiver for RSI on August 21, 2003, and the next day a receiver was appointed. PW Enterprises assumed the receiver would operate RSI, stabilize RSI, and find a way to maximize the monies owed to both the State and PW Enterprises. Between February 2003 and December 2003, the State collected a total of $5,320,101.20 from RSI as taxes due and owing for parimutuel account wagering.
RSI filed a petition for relief under Chapter 11 of the Bankruptcy Code on February 3, 2004. The case was converted to a Chapter 7 bankruptcy on June 15, 2004. The State submitted a proof of claim for taxes incurred by RSI between October 2002 and August 2003 in the amount of $6,726,872.72. PW Enterprises submitted a proof of claim for money loaned, wagering winnings, and deposits in the amount of $2,248,100.86.
The bankruptcy court found, in part, there was an authorized tax on account wagering and even if RSI was not statutorily obligated to pay the tax, there was no prohibition against RSI paying the tax. PW Enterprises contends that because the State had no right to tax account wagering, the State should be ordered to return all monies collected to the estate and the State's claim for taxes should be disallowed.
A district court reviewing a bankruptcy court's order on appeal adopts the following standard of review:
Fed.R.Bankr.P. 8013. The Eighth Circuit has further elaborated that when a bankruptcy court's judgment is appealed to the district court, the district court acts as an appellate court. Fix v. First State Bank of Roscoe, 559 F.3d 803, 808 (8th Cir.2009) (quoting In re Falcon Prods., Inc., 497 F.3d 838, 840-41 (8th Cir.2007)). Findings of fact are evaluated for clear error, and all legal determinations made by the bankruptcy court are reviewed de novo. DeBold v. Case, 452 F.3d 756, 761 (8th Cir. 2006). Conclusions involving mixed questions of law and fact are also reviewed de novo. Id. A factual finding is clearly erroneous "when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (quotation omitted).
The bankruptcy court found in the adversarial proceeding that the State conceded there was no direct legislative authority to collect a tax on account wagering prior to the 2007 amendments. On appeal, the State disputes it made such an admission and asserts, instead, that although the specific term "account wagering" did not appear in the statute before 2007, N.D. Cent.Code § 53-06.2-11 impliedly imposes a tax on account wagering (Doc. #12, p. 41).
The North Dakota Constitution provides that "No tax shall be levied except in pursuance of law, and every law imposing a tax shall state distinctly the object of the same, to which only it shall be applied." N.D. Const. Art. X, § 3. The North Dakota Supreme Court has reiterated that "[t]he taxing power is exclusively a legislative function." Scott v. Donnelly, 133 N.W.2d 418, (N.D.1965). The power to tax cannot be delegated to an administrative board. Id. at 426.
Statutes are construed to ascertain legislative intent. Stephenson v. Hoeven, 737 N.W.2d 260, 267 (N.D.2007). "In ascertaining legislative intent, [courts] look first to the words used in the statute, giving them their plain, ordinary, and commonly understood meaning. If the plain language of the statute is clear and unambiguous, the letter of the statute cannot be disregarded under the pretext of pursuing its spirit because legislative intent is presumed clear from the face of the statute." In re G.R.H., 711 N.W.2d 587, 593 (N.D. 2006) (citations omitted). Courts are to presume the legislature said all that it intended to say. Larsen v. North Dakota Dept. of Transp., 693 N.W.2d 39, 43 (N.D. 2005). Words or phrases cannot be added by a court. Id.
The taxes at issue arose out of PW Enterprises' account wagering at RSI during 2002 and 2003. Two prongs must be satisfied before a tax can be collected: (1) there must be legislative action, and (2) there must be specification as to the target of the tax. N.D. Const. Art. X, § 3; See Gange v. Clerk of Burleigh County Dist. Court, 429 N.W.2d 429, 435 (N.D.1988) (constitution requires a statutory objective before a tax can be collected). The 2001 version of the statute provided, in relevant part:
The statute's heading references simulcast wagering. A headnote, however, whether designating an entire title, chapter, section, subsection, or subdivision, is not part of the statute. N.D. Cent.Code § 1-02-12. The headnote cannot equate account wagering with simulcast wagering.
Until 2001, only two types of parimutuel wagering were allowed in North Dakota — live race wagering and off-track simulcast wagering. In 2001, the legislature allowed for a third type of parimutuel wagering — account wagering — which it specifically defined as "a form of parimutuel wagering." Giving the words their ordinary meaning, account wagering in this context is simply is a type of betting pool in which the bettors place a sum of money on an horse race. Account wagering is not defined in the statute as a form of simulcast parimutuel wagering. If the legislature intended account wagering to equate to or be a subset of simulcast parimutuel wagering, it could have done so.
While there was legislative action expanding legal gambling in North Dakota to include account wagering, the legislature did not enact a law allowing the State to collect taxes for account wagering activities. N.D. Cent.Code § 53-06.2-11 (2001). There is nothing in the takeout statute prior to 2007 that would indicate the State was authorized to collect taxes on account wagering activities.
When PW Enterprises was engaged in account wagering through RSI, there was neither legislative action directed at the collection of taxes for account wagering nor was there specification as to the amount of the tax. The bankruptcy court erred when it concluded account wagering is simulcast wagering and thus the State was authorized to collect taxes on account wagering. Because the State lacked the authority to collect taxes for account wagering activities during the 2002 to 2003 time period in question, the taxes collected by the State must be returned to the bankruptcy estate.
The bankruptcy court stated: "Had the legislature not intended for account wagering to be subject to taxation under N.D.C.C. § 53-06.2-11, the activity authorized by the legislature in N.D.C.C. § 53-06.2-10.1
North Dakota's Constitution does not provide for implied taxes. Likewise, courts presume the legislature "meant what it said and said all it intended to say." Estate of Christeson v. Gilstad, 829 N.W.2d 453, 457 (N.D.2013). Courts are not to "correct an alleged legislative `oversight' by rewriting unambiguous statutes to cover the situation at hand." Id. (citation omitted). Moreover, there is no rule of construction requiring courts to ferret out an interpretation in order to preserve the constitutional integrity of an unambiguous statute.
Here, the legislature's intent is apparent from the words of the statutes and there is no room for construction. The legislature plainly defined "account wagering" in N.D. Cent.Code § 53-06.2-10.1. When it created this new form of parimutuel wagering, the legislature, either intentionally or unintentionally, did not amend the take-out statute, N.D. Cent.Code § 53-06.2-11, to provide formulas for account wagering activities. It is not within the Court's purview to rewrite the statutes to engraft additional meanings. Judges have no right to substitute their policy preferences for the legitimate policy preferences of the legislature, even though they might consider the policy unwise.
The Court need not delve into the legislative history because the statutes at issue are not ambiguous.
The State argues that PW Enterprises' statutory interpretation claim has been
In addition, the State refers to Bala's § 1983 complaint and order dismissing the claims filed in this Court in 2009. In that case, Judge Hovland determined that in 2001, N.D. Cent.Code § 53-06.2-10.1 did not expressly require that payments be made to the State from account wagering activities. Bala v. Stenehjem, 671 F.Supp.2d 1067, 1088-87 (D.N.D.2009). He found that in 2007, the legislature amended the statutory laws to specify the amount that must be deducted from account wagering activities.
The State contends that a logical inference or implication that can be gleaned from Bala's criminal and civil files is that the court must have concluded that statutory authority existed to collect taxes on account wagering prior to 2007. "Questions which merely lurk in the record, neither brought to the attention of the court nor ruled upon, are not to be considered as having been so decided as to constitute precedents." Webster v. Fall, 266 U.S. 507, 511, 45 S.Ct. 148, 69 L.Ed. 411 (1925). The Court declines the State's invitation to rely on inferences or implications in deciding whether the State was statutorily authorized to collect taxes on account wagering.
North Dakota's gambling laws are plain and unambiguous. The State was not authorized to collect taxes on account wagering during the time period in question. RSI had no obligation to pay taxes on account wagering and should not have depleted its assets to pay unowed taxes. The money collected from RSI in the form of taxes on account wagering must be returned to the bankruptcy estate. The bankruptcy court's decision granting summary judgment in favor of the State is
The remaining issues, including whether the bankruptcy court erred when it found RSI received reasonably equivalent value in exchange for the tax value, whether the State was a non-statutory insider, and whether the State's claims should be equitably subordinated, raised by PW Enterprises are moot.