author: PER CURIAM. LYONS, Justice HARWOOD, Justice

text:
    Charles R. BUIST v. TIME DOMAIN CORPORATION et al.
    1031396.
    Supreme Court of Alabama.
    July 29, 2005.
    Rehearing Denied Oct. 21, 2005.

      James C. Alison, Huntsville; and Joseph C. Long, Norman, Oklahoma, for appellant.

      Frank McRight and J. Clark Pender-grass of Lanier Ford Shaver <& Payne, P.C., Huntsville, for appellees.
   PER CURIAM.

Charles R. Buist appeals from an order of the Madison Circuit Court entering a partial summary judgment for Time Domain Corporation (“Time Domain”), Ralph Petroff, Mark Petroff, Lori Sloan, and Kneeland Youngblood (collectively “the defendants”). We reverse and remand.

Facts and Procedural History

Time Domain, a Delaware corporation, has its principal place of business in Madison County. The individual defendants are officers and/or directors of Time Domain.

In 2001 and early 2002, Buist purchased stock in Time Domain, initially from stockholders and then directly from the corporation. Each purchase was reflected by a stock-purchase agreement. Each agreement explicitly stated that the securities being sold pursuant to the agreement were not registered with either the federal government or the government of any state.

In addition to issuing shares of its stock, Time Domain issued debt securities to raise additional capital. In September and October 2002, Time Domain solicited Buist to participate in this debt financing, and he did.

In April 2003, Buist learned that Time Domain would soon be taken over by new investors. During the ensuing reorganization, all existing shares in Time Domain would be “reverse split sixty-nine to one,” that is, for every 69 shares owned, the investor would be issued 1 share of the new class of stock. Displeased, and believing that as a result of the reverse stock split his ownership interest in Time Domain would be tremendously diluted, Buist wrote a letter to Time Domain’s board of directors dated May 6, 2003, demanding payment in full and interest on the promissory note in which he had invested, objecting to the reorganization, and requesting a valuation of his shares of stock in Time Domain.

On May 30, 2003, Buist filed this action in the Madison Circuit Court, alleging that the defendants were liable for violations of the Alabama Securities Act (“the ASA”), minority shareholder oppression, misrepresentation, fraud, and bad faith. Buist later amended his complaint to add a claim of breach of fiduciary duty.

The defendants filed a motion for a partial summary judgment as to the count alleging violations of the ASA. The defendants argued that Buist’s claims in that regard were preempted by federal law. Specifically, the defendants contended that the securities sold to Buist were sold as “covered securities” pursuant to Rule 506 of Regulation D promulgated by the Securities and Exchange Commission (“the SEC”) and, therefore, that federal securities law preempted Alabama’s securities law. Because the only claims of securities violations Buist raised were based on state law, the motion argued, the defendants were entitled to a judgment as a matter of law on the basis of federal preemption. The defendants supported their motion with evidence indicating that Time Domain had filed at least two Form D’s with the Alabama Securities Commission (“the ASC”) and that the ASC had found both filings to “satisfy [its] current requirements.”

In opposition to the defendants’ motion for a partial summary judgment, Buist argued that the defendants had not proved that Time Domain’s securities were “covered securities” under Rule 506. Buist asserted that there were numerous requirements one must fulfill under Rule 506 in order for securities to be “covered” under that rale and that Time Domain had failed to prove compliance with those requirements.

The defendants’ motion for a partial summary judgment was heard on May 28, 2004, and that same day the trial court granted the motion. On July 1, 2004, the trial court certified its order as final pursuant to Rule 54(b), Ala. R. Civ. P. Buist timely appealed.

Standard of Review

Our review of a summary judgment is de novo. To grant a motion for a summary judgment, the trial court must determine that there is no genuine issue of material fact and that the movant is entitled to a judgment as a matter of law. Rule 56(c)(3), Ala. R. Civ. P. Throughout the determination of a summary-judgment motion, the court must view the facts in the light most favorable to the nonmovant. Hanners v. Balfour Guthrie, Inc., 564 So.2d 412, 413 (Ala.1990).

A defendant bears the burden of proving an affirmative defense, Ex parte Fort James Operating Co., 895 So.2d 294, 297 (Ala.2004); Green Tree Fin. Corp. of Alabama v. Wampler, 749 So.2d 409, 415 (Ala.1999). Federal preemption is an affirmative defense. Triple E Transport, Inc. v. U.S. Pipe & Foundry Co., 732 So.2d 290, 292 (Ala.1999).

“Only ‘“[w]hen there is no genuine issue of material fact as to any element of an affirmative defense, ... and it is shown that the defendant is entitled to a judgment as a matter of law” ’ is a summary judgment proper. Wal-Mart Stores, Inc. v. Smitherman, 743 So.2d 442, 445 (Ala.1999) (quoting Bechtel v. Crown Central Petroleum Corp., 495 So.2d 1052, 1053 (Ala.1986)). ‘ “If there is a genuine issue of material fact as to any element of the affirmative defense, summary judgment is inappropriate.” ’ Id.
“Moreover, ‘ “[t]he manner in which the movant’s burden of production is met depends upon which party has the burden of proof ... at trial.”’ Ex parte General Motors Corp., 769 So.2d 903, 909 (Ala.1999) (quoting Berner v. Caldwell, 543 So.2d 686, 691 (Ala.1989) (Houston, J., concurring specially)). If, as is the case when the movant is the defendant asserting an affirmative defense, “the movant has the burden of proof at trial, the movant must support his motion with credible evidence, using any of the material specified in Rule 56(c), [Ala.] R. Civ. P. (‘pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits’).” ’ 769 So.2d at 909. ‘“The movant’s proof must be such that he would be entitled to a directed verdict if this evidence was not controverted at trial.” ’ Id. In other words, ‘when the movant has the burden [of proof at trial], its own submissions in support of the motion must entitle it to judgment as a matter of law.’ Albee Tomato, Inc. v. A.B. Shalom Produce Corp., 155 F.3d 612, 618 (2d Cir.1998) (emphasis added). See also Equal Employment Opportunity Comm’n v. Union Independiente de la Autoridad de Acueductos y Alcantarillados de Puerto Rico, 279 F.3d 49 (1st Cir.2002); Rushing v. Kansas City Southern Ry., 185 F.3d 496 (5th Cir.1999); Fontenot v. Upjohn Co., 780 F.2d 1190 (5th Cir.1986); Calderone v. United States, 799 F.2d 254 (6th Cir.1986).”

Denmark v. Mercantile Stores Co., 844 So.2d 1189, 1195 (Ala.2002).

Analysis

On appeal, Buist argues that the defendants are subject to the ASA and the rules and regulations promulgated pursuant to it, because, he says, federal law does not exempt Time Domain’s securities from the operation of the ASA. The defendants argue that Buist confuses preemption with exemption, that they sufficiently supported their summary-judgment motion, and that Buist failed to present substantial evidence in opposition to the motion.

The ASA, Ala.Code 1975, § 8-6-1 et seq., as Buist argues, requires that sellers and sales of securities be registered with the state. The ASC, however, is empowered to exempt various transactions from the general requirement of registration in the ASA. The defendants have not argued that they are exempt under the rules promulgated by the ASC. Rather, they argue that they are exempt solely upon the basis of the Securities Act of 1933 (“the Securities Act”).

Section 5 of the Securities Act, 15 U.S.C. § 77e, provides that before a security is sold through the use of either the mails or interstate commerce, the security must be registered with the SEC. Sections 3 and 4 of the Securities Act, 15 U.S.C. § 77c and d, exempt from the registration requirement of § 5 certain securities and transactions. Of particular importance to this appeal is Section 4(2) of the Securities Act, which exempts from the registration requirement of § 5 any transaction “not involving any public offering.” 15 U.S.C. § 77d(2).

In 1996, the Securities Act was amended by the National Securities Markets Improvement Act of 1996 (“the NSMIA”). Section 102(a) of the Capital Markets Efficiency Act of 1996, a part of the NSMIA, amended § 18 of the Securities Act to obviate the necessity of registering certain securities with both state and federal governments by providing that under certain conditions state laws requiring registration are preempted by the Securities Act. One such situation is when a security qualifies as a “covered security.” 15 U.S.C. § 77r(a)(l). Section 18 defines a “covered security” as, among other things, a security involved in a “transaction that is exempt from registration ... pursuant to ... [SEC] rules or regulations issued under [§ 4(2) of the Securities Act].” 15 U.S.C. § 77r(b)(4)(D).

Section 4(2), in turn,- therefore serves both to define a transaction that is “exempt” from federal registration requirements and, by extension of a transaction’s status as exempt, to indicate when the Securities Act will preempt state securities law. In other words, under the NSMIA, state securities laws are preempted as to certain securities, some of which also happen to be exempt from federal registration requirements.

Regulation D, promulgated by the SEC, includes three exemptions from federal registration requirements: Rules 504, 505, and 506. Of these three, Rule 506, issued under § 4(2) of the Securities Act, defines what sort of offer and sale of securities by an issuer is, as § 4(2) requires, one “not involving any public offering.” 17 C.F.R. § 230.506. Rule 506 specifies various conditions that must be satisfied before a transaction is “deemed” to be one “not involving any public offering.” First among these conditions are those denominated “general conditions,” consisting of “all terms and conditions of’ Rules 501 and 502 of Regulation D. 17 C.F.R. § 230.506(b)(1). Rule 501 defines, often by resort to reference to various sections of the Securities Act or rules issued under it, eight terms used throughout Regulation D. 17 C.F.R. § 230.501. Rule 502 sets forth four conditions, with various subdivisions, applicable to all offerings that relate to what constitutes an “offering,” what information is to be supplied to offerees, how an offeror may solicit purchasers, and what limitations apply to resales of securities. 17 C.F.R. § 230.502. Many of the provisions refer, in turn, to other sections of the Securities Act or to regulations promulgated under it. 17 C.F.R. § 280.502. Assuming that all such “general conditions” are met, Rule 506 imposes two additional “specific conditions.” First, no single offering, as defined in Rule 502(a), may involve more than 35 purchasers, as “purchaser” is defined in Rule 501(e). 17 C.F.R. § 230.506(b)(2)(i). Second, any purchaser must be either an “accredited investor” as defined by Rule 501(a), his purchaser representative must be so accredited, the purchaser must have some sophistication in investing, or the issuer must reasonably believe that the purchaser is so knowledgeable immediately before selling the security to the purchaser. 17 C.F.R. § 230.506(b)(2)(h). If all of these conditions are met, the transaction “shall be deemed” to be one “not involving any public offering” pursuant to Rule 506(a) and thus exempt from federal registration.

In § 18 of the Securities Act, in the same subparagraph defining a covered security by reference to Rule 506, Congress has placed one qualification upon federal preemption of state law. Specifically, states are permitted to continue imposing “notice filing requirements” upon issuers of securities. 15 U.S.C. § 77r(b)(4)(D).

In the defendants’ narrative summary of undisputed facts and memorandum of law in support of their motion for a partial summary judgment (“the defendants’ narrative”), they argued that all shares of stock sold by Time Domain directly to Buist were sold “pursuant to a Form D filing under Rule 506 of Regulation D of [the Securities Act].” Consequently, the defendants argue, the sales constituted “covered securities,” and the Securities Act thus preempted the registration requirements of the ASA. Because the registration requirements of the ASA form the basis of Buist’s claims and yet were preempted, the defendants went on to argue, Buist had no viable cause of action under the ASA, and they were entitled to a summary judgment on Buist’s claim alleging that they had violated the ASA.

The defendants submitted the following evidentiary materials with their motion and narrative: 1) a Form D filed with the ASC on May 29, 2001; 2) a letter from the ASC to Time Domain dated August 17, 2001; 3) a Form D filed with the ASC on December 2, 2002; and 4) a letter from the ASC to Time Domain dated January 23, 2003. The letters, the bodies of which include identical text, state, in pertinent part:

“The [ASC] staff has reviewed the implications of the [NSMIA]. The [NSMIA] ... allows the states to require notice filings in terms of requiring the issuer to file a Form D and to assess filing fees.
“... [The Form D filed by Time Domain] shall be considered a notice filing.
“Based on the foregoing statute changes and notice requirements, the materials submitted on behalf of [Time Domain] satisfy the current requirements of the [ASC].”

(Emphasis added.) The ASC’s letters indicate that it receives Form D’s as “notice filings,” and there is no suggestion that the ASC evaluates, approves, or disapproves of the Form D’s or that it assesses them in any way for compliance with Rule 506.

Buist argues that the defendants did not prove that their sales to him complied with the conditions and requirements of Regulation D. Further, he argues, only by proving that one meets those requirements can a seller of securities prove it is entitled to the preemption afforded by § 18 of the Securities Act. The defendants, Buist argues, do not prove such preemption simply by proving that they filed Form D’s.

On appeal, the defendants argue that proving preemption entails a much lower burden than proving exemption. The defendants bear the burden of proof on the affirmative defense of preemption. Triple E Transport, 732 So.2d at 292. Likewise, “[t]he burden of establishing an exemption is on the [party] who claims it.” UBS Asset Mgmt. (N.Y.) Inc. v. Wood Gundy Corp., 914 F.Supp. 66, 68 (S.D.N.Y.1996) (citing SEC v. Ralston Purina Co., 346 U.S. 119, 126, 73 S.Ct. 981, 97 L.Ed. 1494 (1953)). The issue is how the party must prove this defense. As shown above, and contrary to the defendants’ argument, under Rule 506 exemption and preemption are functionally equivalent. Specifically, under the rule, the defendants can demonstrate that the Securities Act preempts the ASA because the transactions in question are exempt from the registration requirements of the Securities Act. The remaining question is whether evidence indicating that all of the requirements of Rule 506 were satisfied is necessary to prove preemption.

In In re Cherokee Energy Co., CD-2003-02, Feb. 4, 2003 (vacated April 18, 2003, OV-2003-0002), a case before the ASC, a dealer had sold unregistered securities to Alabama residents. The ASC found that the dealer had violated Rule 502(c), which prohibits any form of general solicitation, such as “cold calling.” See 17 C.F.R. § 230.502(c). Because of that violation, the ASC ordered Cherokee Energy and the other respondents to stop selling the securities, because the securities “fail[ed] to comply with the provisions relating to Rule 506[,] effectively voiding the federal exemption and in turn the ‘covered securities’ status as afforded by NSMIA.” The defendants argue that Cherokee Energy is distinguishable, because the parties in that case had no preexisting relationship, while Buist and Time Domain had a preexisting relationship with one another. Despite the distinction, however, the rationale of Cherokee Energy is that a failure to comply with a requirement of Rule 506 “voids” the exemption, thereby eliminating the possibility of preemption.

The defendants argue that Lillard v. Stockton, 267 F.Supp.2d 1081 (N.D.Okla.2003), and Temple v. Gorman, 201 F.Supp.2d 1238 (S.D.Fla.2002), support their position. Both cases, they contend, stand for the proposition that the filing of a Form D, in and of itself, qualifies a sale of the securities involved as one sold pursuant to Rule 506, thus preempting state law.

In Temple, the defendants sold securities to plaintiffs in a private placement. The “Subscription Agreement and Purchaser Questionnaire” acknowledged that the securities had not been registered, and the transaction purported to be exempt from registration pursuant to Rule 506. Temple, 201 F.Supp.2d at 1240. The defendants filed a Form D with the SEC. The plaintiffs alleged that the defendants violated Florida securities laws and argued that the sale was not exempt under Rule 506 because it did not meet the requirements of Rule 506. Temple, 201 F.Supp.2d at 1243. Emphasizing the importance of Congress’s stated purpose in passing particular legislation, the court noted that Congress intended for securities transactions to be preempted “ ‘if offered or sold pursuant to a Commission rule or regulation adopted under such section 4(2).’” Temple, 201 F.Supp.2d at 1243 (quoting H.R.Rep. No. 104-622, at 32 (1996)). The court’s analysis and holding consisted simply of the paragraph:

“Here, Plaintiffs have alleged that Defendants’ private placement of securities ‘purported to be exempt from registration pursuant to Rule 506 of Regulation D promulgated by the SEC.’ ... Construing this allegation in Plaintiffs’ favor, the Court finds that the securities in this case were ‘offered or sold pursuant to a Commission rule or regulation adopted under section 4(2).’ Regardless of whether the private placement actually complied with the substantive requirements of Regulation D or Rule 506, the securities sold to Plaintiffs are federal ‘covered securities’ because they were sold pursuant to those rules. As a result, Fla. Stat. § 517.07 does not require registration of such securities.”

Temple, 201 F.Supp.2d at 1243-44. We note the absence of any citation to caselaw or other supporting authority. The court concluded that “[w]here a Form D was filed with the SEC for a transaction that purported to merit an exemption ..., Florida law could not require duplicative registration.” Temple, 201 F.Supp.2d at 1244.

In Lillard, the court adopted the report and recommendations filed by the magistrate judge first assigned to the case. 267 F.Supp.2d at 1088. In a fact situation similar in many material aspects to the one in Temple, the plaintiffs alleged that the defendants had violated federal and Oklahoma securities laws. Lillard, 267 F.Supp.2d at 1115. The defendants, citing Temple, argued that the plaintiffs’ state claims were preempted, because the securities had been sold pursuant to Rule 506. Lillard, 267 F.Supp.2d at 1116. The opinion does not indicate that a Form D had been filed. The magistrate quoted the statement from Temple that a sale of securities pursuant to the rules of Regulation D trumps actual compliance with the requirements of Regulation D or Rule 506. Lillard, 267 F.Supp.2d at 1116. He recommended, based solely on Temple, and the district court subsequently held, that the plaintiffs’ state-law claims were indeed preempted by federal law. Lillard, 267 F.Supp.2d at 1116.

The issues presented in Temple and Lillard are similar to the issue in this case. Even considering these cases directly on point, however, they are United States district court cases and can serve only as persuasive authority. See Glass v. Birmingham So. R.R., 905 So.2d 789, 794 (Ala.2004)(stating that “[l]egal principles and holdings from ... federal courts [inferior to the United States Supreme Court] have no controlling effect here, although they can serve as persuasive authority”). Moreover, Temple represents simply an ipse dixit without any accompanying analysis; Lillard, in turn, simply relies upon Temple.

The defendants’ motion for a partial summary judgment was filed on March 29, 2004. The Form D’s submitted in support of the motion were filed with the ASC on May 29, 2001, and December 2, 2002. The vast majority of the securities described in each Form D had not been sold before the filing of the Form D. Consequently, in each Form D, Time Domain promised a future course of conduct consistent with the requirements for an exempt offering. For example, in each Form D, Time Domain stated that it did not intend to sell to “non-accredited investors.” By relying upon the Form D’s as the basis for its claim of exemption, Time Domain necessarily failed to submit any evidence of its compliance with the promises set forth in the forms.

Even if the filing of a Form D is sufficient to obtain the exemption necessary for a finding of federal preemption, proof that an exemption was obtained is no evidence that the exemption exists at any later date, because, as discussed in Cherokee Energy, a failure to comply with a requirement of Rule 506 “voids” the exemption, thereby eliminating the possibility of preemption. In other words, the exempt status of the sale of securities that deviates from any of the material commitments made in its Form D filing is repealed retroactively. Therefore, because Time Domain submitted no evidence indicating that its sales of securities were actually made in conformity with Regulation D, it did not make a prima facie showing that there was no genuine issue of material fact as to its exemption under Rule 506. Without some evidence that the sale of securities as of the date of the affidavit was in conformity with the conditions indispensable to the exemption, the burden never shifted to Buist to demonstrate a genuine issue of material fact sufficient to avoid a summary judgment. Therefore, the partial summary judgment for the defendants is reversed, and the cause is remanded for further proceedings consistent with this opinion.

REVERSED AND REMANDED.

WOODALL, SMITH, BOLIN, and PARKER, JJ., concur.

LYONS, J., concurs specially.

NABERS, C.J., and SEE, HARWOOD, and STUART, JJ., dissent.

LYONS, Justice

(concurring specially).

I concur fully with the main opinion.

The principle that I distill from today’s holding is that, on a motion for a summary judgment, when the movant’s conduct consistent with an established norm is relevant, the movant does not shift the burden of production to the nonmovant by relying exclusively on evidence of the movant’s previous promise to conform its behavior to the established norm. Evidence of conduct in conformity with the promise, not merely evidence of the promise to conduct one’s self in a particular manner in the future, is necessary to shift the burden to the nonmovant. Because the movant has not offered any evidence of such conduct, the summary judgment must be reversed.

HARWOOD, Justice

(dissenting).

I respectfully dissent.

In the defendants’ narrative summary of undisputed facts and memorandum of law in support of their motion for a partial summary judgment, they argued to the trial court that all shares of stock sold directly to Buist by Time Domain were sold “pursuant to a Form D filing under Rule 506 of Regulation D of [the Securities Act].”

Although the Form D’s the defendants submitted with their motion are the particular copies filed with the Alabama Securities Commission (“ASC”), Buist concedes to this Court that the forms were also filed with the Securities and Exchange Commission (“SEC”). The “Federal Signature” portion of the Form D advised those signing on behalf of Time Domain that any “intentional misstatements or omissions of fact” would constitute federal criminal violations under 18 U.S.C. § 1001, which provides for fines and/or up to five years’ imprisonment for such intentional misstatements or omissions.

Buist argues that the defendants did not prove by the content of the filed Form D’s that théir sales to him complied with each of the conditions and requirements of Regulation D; he argues that only by proving that the seller has satisfied each of those requirements can a seller of securities prove its entitlement to the preemption afforded by § 18 of the Securities Act.

Buist frames the issue as follows:

“The point of disagreement [between the parties] lies with what is necessary to establish ‘covered securities’ status so that state registration is pre-empted. Dr. Buist rejects the Respondents’ simplistic approach that all that is required to gain ‘covered securities’ status and trigger the federal preemption under Section 18 of the 1933 Act is the filing of the Form D with both the SEC and the Alabama Commission.
“Dr. Buist believe that status as a [sic] ‘covered securities’ under Section 19(b)(4)(D) is only obtained by proof that the offering meets all the requirements and conditions of Rule 506.”

(Buist’s principal brief, p. 22-23.)

Because this matter comes to us as an appeal from a summary judgment where the movant provided evidentiary support for its motion but the opponent submitted only legal argument by way of response, I refine Buist’s statement of the issue to cast it in the proper procedural context: whether Time Domain’s proof of the filing of the Form D with both the SEC and the ASC was sufficient, given the content of the Form D, to make a prima facie showing that there was no genuine issue of material fact, thereby shifting the burden to Buist, the nonmovant, to present substantial evidence creating such an issue? In that regard, we should be mindful of exactly what the parties argued to the trial court in supporting and in opposing the summary-judgment motion.

The defendants argued to the trial court that Lillard v. Stockton, 267 F.Supp.2d 1081 (N.D.Okla.2003), and Temple v. Gorman, 201 F.Supp.2d 1238 (S.D.Fla.2002), supported their position. The main opinion notes, but discounts the probativeness of, those two decisions. Nonetheless, Buist acknowledged to the trial court that those were the only two cases that had “directly considered the issue,” and conceded that “[a]t the moment, the defendants have the precedential advantage.”

Buist argued in his response to the motion for a summary judgment that

“it appears clear that the sales of Time Domain securities can not qualify for a Rule 506 exemption. All the various sales will most likely be integrated into a single offering. See Rule 502 and SEC v. Murphy, 626 F.2d 633 (9th Cir.1980). If this is done, a number of disqualifications become apparent. For example, the number of persons sold to and the manner of such sales presents [sic] a major question of whether the offering is not a public offering rather than a private placement. Further, there is the issue of whether there are sales to only thirty-five unaccredited investors and whether all these accredited investors are sophisticated. Finally, there is a major issue of whether the investors were furnished the information required under Rule 502.”

Buist did not elsewhere in his response identify what “various sales” he had reference to. In his complaint as last amended, he asserted that he had first purchased shares in Time Domain directly from other shareholders on September 28 and October 13, 2000, respectively. Thereafter, he purchased shares directly from Time Domain itself for the first time on July 11, 2001, followed by additional purchases directly from Time Domain on October 5, 2001, and January 24, 2002. It is only these shareholder sales and Time Domain sales of stock that Buist references in Count I of his complaint, the subject of the partial summary judgment.

In a footnote to his principal brief to this Court, Buist clarifies his point when he speculates on the possibility that “four serious questions yet unresolved” could demonstrate “defects [that] should result in the loss of the federal pre-emption.” Speeifi-cally, Buist argues first that the fact that he first bought Time Domain securities from other shareholders “raises the question” whether those sales and subsequent ones should be “integrated” with the direct sales to Buist by Time Domain for the purpose of calculating the true scope of the Regulation D offering. He then goes on (1) to assert that “there is a question” whether the Form D was filed with the ASC within 15 days of the first sale in Alabama; (2) to postulate that subsequent sales by Time Domain might have obligated it to file a revised Form D; and (3) to argue that if other offerings by Time Domain were to be integrated, there would be an issue whether the two Form D’s submitted by Time Domain in support of its motion for a summary judgment were timely filed or “covered the entire block of securities actually sold thereunder.” (Buist’s principal brief, p. 21 n. 1.) None of these three possibilities were raised by Buist before the trial court in any form, and he presently proposes them simply as conjectured possibilities.

“An appellate court can consider an argument against the validity of a summary judgment only to the extent that the record on appeal contains material from the trial court record timely presenting that argument to the trial court for its consideration in the proceedings on the motion for summary judgment. Ex parte Ryals, 773 So.2d 1011, 1013 (Ala.2000).”

Ex parte Smith, 901 So.2d 691, 695 (Ala.2004).

Buist also argues on appeal that “there is no evidence that all investors were accredited investors as defined in Rule 501(a) ... [n]or is there any evidence that there were no more than 35 unaccredited investors who were sophisticated. Rule 506(b)(2)(I) and Rule 501(e).” (Buist’s principal brief, p. 29.) Again Buist never raised these possibilities before the trial court; consequently, they cannot be considered as a basis for reversing the summary judgment. Ex parte Smith, supra. Moreover, they are directly contradicted by the contents of the Form D’s. Both Form D’s declare themselves to represent “Notice of Sale of Securities Pursuant to Regulation D, Section 4(6) ...” filed under Rule 506 and contain the unequivocal statement that Time Domain had neither sold, nor would sell, to nonaccredited investors. Buist speculates in his principal brief that because certain Time Domain stockholders personally sold him some of their stock “prior to the subsequent direct sales by Time Domain claimed as exempt under rule 506,” those sales and Time Domain’s direct sales would “most likely be integrated into a single offering” and, if that integration were to be recognized, disqualifications to exemption might be shown, by way of sales in excess of the number permitted and sales constituting a public offering rather than a private placement. Lastly, he supposes that there might arise “a major issue of whether the investors were furnished the information required under Rule 502.” (Buist’s principal brief, p. 30.) Buist made none of these arguments to the trial court, however. Therefore, they cannot be considered as a basis for reversing a summary judgment. Ex parte Smith, supra. Furthermore, although Rule 502(a) stipulates that “[a]ll sales that are part of the same regulation D offering must meet all of the terms and conditions of regulation D,” Buist points to no evidence suggesting that the sales of stock by stockholders and the separate sales of stock by Time Domain should be considered part of the same “integrated” Regulation D offering. Rule 502(a) provides in part that “[ojffers and sales that are made more than six months before the start of a regulation D offering ... will not be considered part of that regulation D offering” so long as during the six-month period the issuer does not offer or sell securities of the same or a similar class. 17 C.F.R. § 230.502(a). Buist’s purchases of Time Domain stock from other shareholders preceded the May 29, 2001, filing of the first Form D by more than six months. Buist does not argue that any disqualifying offers or sales fell within the six-month period.

Although Rule 502(c) forbids an issuer of securities from offering or selling the securities “by any form of general solicitation or general advertising,” there is no evidence in the record indicating that Time Domain offered or sold any securities in violation of the restriction. The “information requirements” of Rule 502(b) are triggered only when “the issuer sells securities under [Rule 506] to any purchaser that is not an accredited investor ... [t]he issuer is not required to furnish the specified information to purchasers when it sells securities ... to any accredited investor.” As noted, the Form D’s filed by Time Domain declared that sales were to be to only accredited investors.

In his reply brief to this Court, Buist argues variations on these themes and additionally questions “whether Dr. Buist’s securities were covered by any of the Form D’s,” stating that he would need to conduct discovery on the issue whether “the tender forms cover the blocks of securities from which Dr. Buist’s came.” This possibility was never raised before the trial court and before this Court is raised for the first time in the reply brief.

“We note ‘the well-established principle of appellate review that we will not consider an issue not raised in an appellant’s initial brief, but raised only in its reply brief.’ Brown v. St. Vincent’s Hosp., 899 So.2d 227, 234 (Ala.2004)....
“Even if we were to ignore the fact that the only legal authority cited by [appellants] in support of their argument first appears in their reply brief, the record reveals that the [appellants] never presented this argument to the trial court.
“... We cannot put a trial court in error for failure to rule on a matter which, according to the record, was not presented to, nor decided by him.... ’ Defore v. Bourjois, Inc., 268 Ala. 228, 230, 105 So.2d 846, 848 (1958).”

Kyser v. Harrison, 908 So.2d 914, 917-18 (Ala.2005).

Moreover, given that Time Domain explicitly declared at more than one point in each of the two Form D’s at issue that the underlying offering of securities would not involve sales to nonaccredited investors and that the Time Domain officials signing the form were on notice that intentional misstatements or omissions of fact could expose them to significant federal criminal penalties, proof of the filing of the form with the SEC and the ASC makes a prima facie showing, for purposes of the summary-judgment motion, that there is no genuine issue as to that material fact. Thus, as to it, the burden then shifted to Buist to present substantial evidence creating such an issue. He did not do so; rather, before the trial court he simply took the position in his response to the summary-judgment motion that the defendants had to offer independent and direct proof of “each and every element of the exemption.” The only possible area of noncompliance with Rule 506 that Buist suggested to the trial judge was that if “various sales” were integrated with the Form D offerings, they could infect the overall transaction so as to disqualify it from exemption. Buist did not shore up this speculation with any evidentiary support; he simply took the position that the possibility of such fact issues made consideration of Time Domain’s summary-judgment motion premature.

I have carefully considered the “general conditions” of Rule 501 and 502 and the “specific conditions” of Rule 506, all of which would have application to an offering made solely to accredited investors, and I conclude that the Form D filings for the transactions in question fully address and satisfy those applicable conditions, with the exception of the prohibition of Rule 502(c) against any form of general solicitation or general advertising and the prohibition of Rule 502(d) on resale. All Buist argued to the trial court relevant to either of those conditions, however, was that if sales other than those contemplated by the Form D’s were to be integrated with them, so as to create a larger single offering, the increase in the number of persons sold to and the manner of such sales could present a question as to whether the offering was a public offering rather than a private placement. Such a two-step progression of speculation did not satisfy Buist’s burden under Rule 56(c)(1), Ala. R. Civ. P., whereby “[i]f the opposing party contends that material facts are in dispute, that party shall file and serve a statement in opposition supported in the same manner as is provided herein for a summary of undisputed material facts,” i.e., “supported by specific references to pleadings, portions of discovery materials, or affidavits and may include citations to legal authority.”

Buist argued to the trial court and he argues to this Court that a Rule 506 exemption can be “lost” and “destroyed” by subsequent activity, thereby causing a loss of the federal preemption. Consistent with this concept is the quotation Buist offers from the treatise authored by one of his appellate counsel: Joseph C. Long, Blue Sky Law. Citing “Long, p. 5-17,” Buist quotes from that treatise on page 43 of his principal brief as follows:

“ ‘In the case of Rule 506 offerings, this language would make clear that the securities are covered securities even though the 506 offering had not yet been completed, and[,] therefor[e], could be lost entirely by subsequent action of the issuer. In such case, the securities are covered, if the offering is successfully completed. The securities, however, are not covered securities, if the exemption is later lost Thus, an offering of nonexempt securities within six months of a Regulation D offering might be integrated with that offering causing the loss of the exemption for the first offering.’ ”

(Emphasis in original; footnote omitted.)

As noted, Buist did not argue to the trial court that Time Domain had in fact engaged in any general solicitation or general advertising in connection with the offerings that embraced the sales to Buist, and he did not argue that any resales of those securities had occurred contrary to the limitations imposed by Rule 502(d); Buist offered no evidence to the trial court indicating that any such disqualifying activity had taken place. Rather, he only speculated that if other sales could be integrated with those covered by the two Form D’s, so as to constitute an enlarged Regulation D offering, it might turn out that reasons to disqualify the exemption were present. Such speculation, premised on mere possibilities, falls far short of satisfying Buist’s burden of showing by substantial evidence that material facts were in dispute on any of those issues. By filing the Form D’s with the SEC and the ASC and thus giving to those agencies “notice of sale of securities pursuant to Regulation D,” specifically under Rule 506, Time Domain asserted, under the pain of federal criminal sanctions, its compliance with the Rule 506 limitations on the manner of offering securities and limitations on their resale.

The main opinion takes the position that “because Time Domain submitted no evidence indicating that its sales of securities were actually made in conformity with Regulation D, it did not make a prima facie showing that there was no genuine issue of material fact as to its exemption under Rule 506.” 926 So.2d at 298. I disagree. Time Domain sufficiently supported its motion for a summary judgment so as to make a prima facie showing that the transactions forming the offering covered by each Form D were exempt from registration “pursuant to” Rule 506. Buist did not sustain the burden thereby shifted to him to present substantial evidence creating some genuine issue of fact material as to the issue of exemption. Consequently, I would affirm.

NABERS, C.J., and SEE, J., concur.

      . The Securities Act can thus reach intrastate activity by virtue of Congress’s power over both interstate commerce and the United States postal system. U.S. Const., art. I, § 8, els. 3 & 7.


source: Caselaw Access Project

author: HARWOOD, Justice.

license: Public Domain

text:
    Ex parte EXXON MOBIL CORPORATION. (In re Exxon Mobil Corporation v. Baldwin County et al.)
    1040538.
    Supreme Court of Alabama.
    Sept. 2, 2005.

      Duane A. Graham of Armbrecht Jackson, LLP, Mobile, for petitioner.
    Robert A. Wills of Wills & Simon, Bay Minette, for respondent Baldwin County Commission.
   HARWOOD, Justice.

Exxon Mobil Corporation (“Exxon”) petitioned this Court for a writ of certiorari seeking review of the judgment of the Court of Civil Appeals affirming, without an opinion, the judgment of the Baldwin Circuit Court upholding a final assessment against Exxon by Baldwin County of a use tax. Exxon Mobil Corp. v. Baldwin County (No. 2030648, Dec. 30, 2004), 921 So.2d 478 (Ala.Civ.App.2004) (table). We granted the petition to review an issue of first impression concerning the interpretation of § 40-20-2(e) and (d), Ala.Code 1975, imposing limitations on the power of a county to impose taxes on businesses such as Exxon. We reverse and remand.

Exxon produces natural gas from offshore wells located in Mobile Bay and in the Gulf of Mexico. To accomplish that purpose, Exxon established offshore drilling and production facilities. Some time before 1993, Exxon contracted with McDermott, Inc., a Louisiana company, to construct at McDermott’s plant in Morgan City, Louisiana, “platforms” and “templates” that compose the basic structures of offshore drilling and production facilities. The record contains the testimony of a design engineer for Exxon, who explained the nature and function of “platforms” .and “templates”:

“[A platform] is the main facility that gathers, treats, and processes natural gas from the wells out there.... [The templates] are structures adjacent or outlying to the main production platform that gathers [sic] natural gas before it is transported to the main hub ... [A] platform has many more facilities on it ... [;] the template serves only really one purpose, and that’s to gather the gas coming out of a well, or multiple wells, and then it cools the gas down, because it is very hot. And then it just transports those fluids across the bridge structure to the main platform, where that gas — water is removed from it, and it’s dehydrated. It’s treated so that some of the contaminants are removed so that it doesn’t corrode the pipelines on the way to the plant.”

After they were manufactured, the platforms and templates were transported by water to their intended offshore locations, being either towed or carried on a barge. One of these platforms and its associated templates were eventually located on submerged lands within the taxing jurisdiction of Baldwin County.

Although not entirely clear from the record, it would appear that Exxon itself purchased all of the materials, supplies, and equipment used to manufacture the platforms and templates, and, although again not entirely clear from the record, it apparently did so in Louisiana. Baldwin County notes in its brief, without any real explanation, that Exxon had obtained a “direct pay permit,” which allowed it to purchase the materials, supplies, and equipment without paying a sales tax in Louisiana. A letter in the record dated November 16, 1995, from an employee in the “foreign audit section” of the Alabama Department of Revenue to another employee, advises that “Exxon received a direct pay permit RA 000 RA 322 for the construction of Onshore treating facility and Offshore production platforms in state waters.”

In his testimony, the Exxon design engineer explained that once platforms and templates have been transported to the desired location over the gas well or wells to be serviced, the structures are placed on submerged caissons or foundations. The facility is then hooked up to pipelines to the processing plant and production commences. The interval between that setup and the production of natural gas can be as short as a couple of weeks or as long as several months. No witness testified concerning the time frame involved for the offshore drilling and production facility located in the submerged waters off the coast of Baldwin County. The portions of § 40-20-2, Ala.Code 1975, pertinent to an understanding of the issues in this case are as follows:

“(a)(1) There is hereby levied, to be collected hereafter, as herein provided, annual privilege taxes upon every person engaging or continuing to engage within the State of Alabama in the business of producing or severing oil or gas, as defined herein, from the soil or the waters, or from beneath the soil or the waters, of the state for sale, transport, storage, profit or for use. The amount of such tax shall be measured at the rate of eight percent of the gross value of said oil or gas at the point of production except as provided in subsequent subdivisions of this subsection.
“(b) The tax is hereby levied upon the basis of the entire production in this state, including what is known as the royalty interest, on which production the amount of such tax shall be a lien, regardless of the place of sale or to whom sold, or by whom used, or the fact that the delivery may be made to points outside the state; and the tax shall accrue at the time such oil or gas is severed from the soil or the waters, or from beneath the soil or the waters, and in its natural, unrefined or unmanufactured condition....
“(c) A county, city, town or municipality of the State of Alabama shall not establish, levy, impose or collect, as a condition of doing business or otherwise, any tax, fee, license or charge whatsoever, directly or indirectly, on or with respect to the production, treating, processing, ownership, sale, storage, purchase, marketing or transportation on any oil or gas produced in the State of Alabama and on which severance taxes have been paid to the State of Alabama, or upon the business of producing, treating, processing, owning, selling, buying, storing, marketing or transporting such oil or gas, or upon the ownership, operation or maintenance of plants, facilities, machinery, pipelines, gathering lines or any equipment whatsoever, which are, or may be, necessary or convenient to the production, treating, processing, ownership, storage, sale, purchase, marketing or transportation of such oil or gas; provided, that nothing herein shall be construed to prohibit, limit or restrict a county, city, town or municipality from imposing and collecting ad valorem taxes on any property, real or personal, not otherwise now exempted by law; further, the limitation herein imposed upon counties, cities, towns and municipalities shall not apply to any county, city, town or municipality which does not receive a share of the severance tax levied upon production other than offshore production as defined in Section 40-20-1 under the provisions of this article. Said limitation herein imposed upon counties, cities, towns and municipalities shall remain in full force and effect in regard to offshore production as defined in Section 40-20-1.
“(d) Nothing contained herein shall be deemed to limit or to enlarge the authority of a county, city, town or municipality to levy taxes or licenses on oil refining facilities located therein or on the suppliers of services or goods not including oil or gas to those persons engaging in the business of producing, treating, processing, owning, selling, buying, storing, marketing or transporting such oil or gas. Provided, however, no such taxes or licenses shall be levied on offshore drilling or production facilities as defined in Section 40-20-1.”

Consistent with the terminology used by the parties, § 40-20-2 is hereinafter sometimes referred to as “the severance tax statute,” and the tax imposed by it as “the severance tax.”

Section 40-23-61(a) imposes an excise tax, also known and hereinafter referred to as a “use tax,” which, relevant to the instant action, is imposed upon “the storage, use or other consumption in this state of tangible personal property ... purchased at retail ... for storage, use or other consumption in this state at the rate of four percent of the sales price of such property or the amount of tax collected by the seller, whichever is greater....”

By adopting two virtually identical and overlapping ordinances, Baldwin County has established its own use tax. The ordinances contain the following language: “An excise tax is hereby imposed on the storage, use, or other consumption in Baldwin County of tangible personal property ... purchased at retail ... for storage, use or other consumption in Baldwin County.... ”

It is undisputed that Exxon paid the State the use taxes associated with the offshore drilling and production facility located within Baldwin County (hereinafter “the Baldwin offshore facility”), that it has paid all ad valorem taxes due with respect to the facility, and that it has paid the State substantial severance taxes due under § 40 — 20—2(a)(1) for the production of natural gas from the Baldwin offshore facility. Pursuant to § 40-20-8, prescribing the allocation and distribution of oil and gas severance taxes among the State, counties, and municipalities, Baldwin County has received 10 percent of all severance taxes paid by Exxon to the State based on the production of natural gas from the Baldwin offshore facility. Additionally, by virtue of a statute enacted on October 1, 1971, for the sole benefit of Baldwin County, it receives an additional 1% severance tax on oil and gas removed from its soil or waters or from beneath its soil or waters. Act No. 2120, Ala. Acts 1971.

At various times, Baldwin County has directly handled the assessment and collection of its use taxes, has arranged for the Alabama Department of Revenue to do so, or has outsourced the work to an independent contractor. On February 27, 1996, after Baldwin County had elected to change its collecting agent from the Alabama Department of Revenue to an independent contractor — Pash & Company, Inc. — an official with the Department of Revenue wrote the administrator for Baldwin County to advise the administrator of the following:

“During a routine audit of the records of Exxon Corporation, Mobile Bay project, which was begun prior to October 1, 1995, our Foreign Audit Specialist discovered the attached Baldwin County use tax liability. The amounts included in the attached schedule have not been verified in detail and should therefore be considered unaudited amounts. This information is being supplied under the exchange of information agreement between Baldwin County and the Alabama Department of Revenue.... ”

On April 10, 1996, the director of auditing of Pash & Company wrote the audit coordinator for Exxon to advise Exxon that it had received information reflecting a purported use-tax liability of Exxon and to assert that Exxon owed Baldwin County total use taxes in the amount of $449,819.75 for the audit period of January 19, 1991, through March 14, 1994. On June 20, 1996, an attorney in Exxon’s tax department replied to Pash & Company’s director of auditing, advising him that Exxon’s asserted use-tax liability to Baldwin County was prohibited by § 40-20-2(c) and (d), Ala.Code 1975. The attorney concluded the letter with the statement: “Accordingly, this proposed assessment should be withdrawn.”

Baldwin County did not again pursue the matter until June 12, 2001, when it issued to Exxon its “notice of preliminary assessment,” claiming not only the previously asserted use-tax liability but also accrued penalty and interest, bringing the total assessment to $605,913.37. On August 10, 2001, Exxon wrote Dan Bass, manager of the sales and use tax administration section of the Alabama Department of Revenue, asking for confirmation that during the three-year audit period, Exxon had filed all proper city and county use-tax returns, including those for Baldwin County, and that “there are no outstanding issues.” Mr. Bass signed and returned a copy of the letter confirming that understanding.

Baldwin County persisted in its assertion of Exxon’s use-tax liability, and Exxon petitioned for administrative review of the preliminary assessment. After an administrative hearing, the hearing officer declined to set aside the assessment, and on October 5, 2001, Baldwin County issued its final assessment, including penalty and an increased interest amount, of $841,384.77. Exxon then appealed to the Baldwin Circuit Court which, after conducting a nonju-ry hearing, issued an order, amended on January 7, 2004, awarding Baldwin County a judgment against Exxon, including additional accrued interest, in the total amount of $949,045.79.

Exxon appealed the trial court’s judgment to the Alabama Court of Civil Appeals. In its brief to that court, Exxon reviewed the history of § 40-20-2 and related Code sections and argued that under the plain language of § 40-20-2(c) and (d), the Baldwin offshore facility was exempt from the use tax imposed by Baldwin County. In its brief in response, Baldwin County argued that various rules of construction hostile to tax-exemption statutes supported its contention that its use tax could apply

“to all those items of tangible personal property which were purchased by Exxon in Louisiana and incorporated into the construction of the platform and templates which were ultimately brought from Morgan City to Baldwin County where they came to rest when they were put into place at Exxon’s gas wells in the submerged waters of Baldwin County.”

In its reply brief, Exxon addressed the rules of construction relied on by Baldwin County, citing Bean Dredging, L.L.C. v. Alabama Department of Revenue, 855 So.2d 513 (Ala.2003), for the basic proposition that the overriding purpose of any rule of statutory construction is to effectuate the intent of the legislature in enacting the statute and citing Gulf Stevedore Corp. v. Rabren, 286 Ala. 482, 242 So.2d 386 (1970), for the proposition that statutory tax exemptions should not be subjected to such strained constructions that the whole purpose of the statutory exemption is defeated. The Court of Civil Appeals affirmed the trial court’s judgment without an opinion; one judge dissented. Exxon Mobil Corp. v. Baldwin County (No. 2030468, Dec. 30, 2004), 921 So.2d 478 (Ala.Civ.App.2004) (table).

Exxon petitioned this Court for a writ of certiorari. We granted the petition to address an issue of first impression: whether the plain language of § 40-20-2(c) and (d) afforded Exxon an exemption from Baldwin County’s use tax, an issue Exxon adequately raised in its initial brief to the Court of Civil Appeals.

Standard of Review

In reviewing a decision of the Court of Civil Appeals on a petition for a writ of certiorari, this Court “accords no presumption of correctness to the legal conclusions of the intermediate appellate court. Therefore, we must apply de novo the standard of review that was applicable in the Court of Civil Appeals.” Ex parte Toyota Motor Corp., 684 So.2d 132, 135 (Ala.1996). Because the material facts before the Court of Civil Appeals were undisputed, that court’s review of the trial court’s ruling would be de novo as well. State Dep’t of Revenue v. Robertson, 733 So.2d 397, 399 (Ala.Civ.App.1998). This is particularly true where the intermediate appellate court is construing statutory provisions. Robertson, supra; Pilgrim v. Gregory, 594 So.2d 114, 120 (Ala.Civ.App.1991).

Analysis

The issue is whether Exxon’s Baldwin offshore facility is exempt from Baldwin County’s use tax by virtue of the limitations imposed on a county’s taxing power by § 40-20-2(c) and (d). We note that statutes that create an exemption from taxation are to be strictly construed against the exemption and in favor of the taxing party’s right to tax. Ex parte Fleming Foods of Alabama, Inc., 648 So.2d 577, 578 (Ala.1994). Whether these “limitations,” as they are denominated in subsection (c), technically represent a tax “exemption” is an issue we need not decide. Both Exxon and Baldwin County expressly characterize subsections (c) and (d) as establishing tax exemptions; they disagree only as to whether the exemptions apply with respect to Baldwin County’s use-tax ordinances. Accordingly, for the purposes of this case, but without deciding for any other context, we treat and analyze subsections (c) and (d) as tax-exemption clauses.

As always, it is this Court’s responsibility in a case involving statutory construction to give effect to the legislature’s intent in enacting a statute when that intent is manifested in the wording of the statute. Bean Dredging, 855 So.2d at 517. A tax exemption must be expressed in clear and unambiguous terms and ought not to be deduced from language of doubtful import. Ex parte Emerald Mountain Expressway Bridge, L.L.C., 856 So.2d 834, 839 (Ala.2003). Although tax-exemption clauses are to be construed most strongly against the party or person paying the tax, they are not to be so strictly construed as to defeat or destroy the intent and purpose of the statute containing the exemption clause, and no statutory construction should be accepted that would have that effect. State v. Advertiser Co., 257 Ala. 423, 427, 59 So.2d 576, 579 (1952); State v. Union Tank Car Co., 281 Ala. 246, 248-49, 201 So.2d 402, 404 (1967); Rabren, 286 Ala. at 485, 242 So.2d at 388; Bean Dredging, 855 So.2d at 517; and Emerald Mountain, 856 So.2d at 839. If the statute containing the tax-exemption clause expresses an intent to exempt certain property from taxation, judicial construction is not appropriate to defeat the exemption. Advertiser Co., 257 Ala. at 428, 59 So.2d at 579; Union Tank Car Co., 281 Ala. at 249, 201 So.2d at 404; and Rabren, 286 Ala. at 485, 242 So.2d at 388. “‘“‘If the language of the statute is unambiguous, then there is no room for judicial construction and the clearly expressed intent of the legislature must be given effect.’”’” Pitts v. Gangi, 896 So.2d 433, 436 (Ala.2004) (quoting DeKalb County LP Gas Co. v. Suburban Gas, Inc., 729 So.2d 270, 275 (Ala.1998), quoting in turn earlier cases). In determining the intent of the legislature, we must examine the statute as a whole and, if possible, give effect to each section. Employees’ Retirement Sys. of Alabama v. Head, 369 So.2d 1227, 1228 (Ala.1979).

The Code section that is now codified at § 40-20-2 was originally enacted in 1945. See Act No. 2, Ala. Acts 1945. As it was originally enacted, § 40-20-2 contained no limitation on the power of counties, cities, towns, or municipalities to impose taxes. Rather, that Code section simply established the “severance tax” in favor of the State, allocating a percentage of the severance taxes thereby collected “to the county in which the oil or gas was produced and to the municipalities therein” in specified proportions. On October 1, 1971, the legislature enacted Act No. 2057, which increased the basic severance-tax rate and also increased the share of the tax the qualifying counties and municipalities were entitled to receive. At the same time, the legislature imposed limitations on the authority of a county, city, town, or municipality to impose “any tax, fee, license or charge, whatsoever, directly or indirectly” with respect to specified subjects; this feature of the legislative “package” is now codified as subsections (c) and (d), with the exception of the final sentence of (d), which was added in 1983 by Act No. 83-889, Ala. Acts 1983 (4th Special Session). That final sentence reads: “Provided, however, no such taxes or licenses shall be levied on offshore drilling or production facilities as defined in Section 40-20-1.”

Subsection (c) prohibits a county from “establishfing], levying], impos[ing], or collecting], as a condition of doing business or otherwise, any tax, fee, license or charge whatsoever, directly or indirectly, ... upon the ownership, operation or maintenance of plants, facilities, machinery, pipelines, gathering lines or any equipment whatsoever, which are, or may be, necessary or convenient to the production, treating, processing, ownership, storage, sale, purchase, marketing or transportation of’ oil or gas from beneath the soils or waters of the State. (Emphasis supplied.)

The legislature obviously resorted to “overkill” in the redundantly broad and all-encompassing language it used in subsection (c) to prevent a county or municipality that is receiving a share of the severance tax imposed on offshore drilling or production from levying, imposing, or collecting any other sort of tax on the ownership, operation, or maintenance of an offshore drilling or production facility. A county or a municipality is prohibited from levying “any tax, fee, license or charge whatsoever, directly or indirectly, ... upon the ownership, operation or maintenance of ... any equipment whatsoever, which are, or may be, necessary or convenient to the production, treating, processing, ownership, storage, sale, purchase, marketing or transportation of such oil or gas,” i.e., oil or gas severed from beneath Alabama waters. (Emphasis supplied.) The addition to subsection (d) in 1983 of the proviso that “no such taxes or licenses shall be levied on offshore drilling or production facilities” simply further emphasized the absolute nature of the prohibition as to offshore drilling or production facilities as that term is defined in § 40-20-1. The legislative intent being so emphatically manifest, the rule of strict construction against a tax-exemption clause must give way to “ ‘ “the all-prevailing rule that a statute is to be construed in accordance with its real intent and meaning, and not so strictly as to defeat the legislative purpose” ’ .... Arbitrary rules of construction are of little value when the real intent of the legislature can be gathered from the act itself.” State v. Taylor, 262 Ala. 639, 644, 80 So.2d 618, 621 (1954) (quoting Albama-Georgia Syrup Co. v. State, 253 Ala. 49, 52, 42 So.2d 796, 798 (1949), and State v. Calumet & Hecla Consol. Copper Co., 259 Ala. 225, 232, 66 So.2d 726, 730 (1953)).

Baldwin County does not contend that subsections (c) and (d) are ambiguous. Rather, relying on the various rules of statutory construction hostile to the recognition of tax exemptions, it argues first that had the legislature intended to create a use-tax exemption by subsections (c) and (d) it could have easily done so by using the same phrasing it used in § 40-23-62 in which it granted various exemptions from the State-levied use tax. In each instance, the exemption in that Code section uses the same language used to establish the State use tax, i.e., exemptions from use-tax liability are granted with respect to “the storage, use, or other consumption” of various articles.

The answer to this argument is that the legislature was not attempting by subsections (c) and (d) simply to impose limitations on, i.e., exemptions with respect to, use taxes. Rather, the legislature comprehensively and without exception prohibited counties and municipalities from imposing “any tax ... whatsoever, directly or indirectly” with respect to the categories it listed. “Any,” in the context used in subsection (c), means “all.” Baldwin County is arguing, in effect, that the all-encompassing language used by the legislature in subsection (c) was overly broad, because that language neglected to specify explicitly that use taxes were included in the exemption granted therein. We can only presume that the legislature would understand and intend that “any tax, fee, license, or charge whatsoever” would necessarily embrace use taxes, as regards the “ownership [or] operation” of offshore drilling or production facilities.

Baldwin County also argues that because subsections (c) and (d) are part of the severance-tax statute, those subsections should be interpreted to mean only that counties and municipalities “should not levy similar taxes.” (Baldwin County’s brief, p. 20.) We do not consider that placement to suggest a legislative intent to limit the reach of subsections (c) and (d) to “similar taxes,” i.e., severance taxes. Rather, the placement is logically consistent with the notion that granting a far-reaching local-tax exemption to owners and operators of “plants, facilities, machinery, pipelines, gathering lines or any equipment whatsoever” which were, or might be, necessary or convenient to the production, etc., of oil or gas in Alabama was a logical quid pro quo for the increase in the severance tax and the associated increase of the share of that tax being distributed to participating counties and municipalities. To place these limitations solely in the statute granting use-tax exemptions would have been misleading as to the omnibus nature of the limitations.

Section 40-20-1(10), Ala.Code 1975, defines “offshore drilling or production facilities” as “Marges, platforms or other drilling or production facilities located on submerged lands to drill or to produce oil or gas.” It is undisputed that the Baldwin offshore facility was, in the language of the Baldwin County use-tax ordinance, “purchased for use in Baldwin County” as an offshore drilling or production facility. It became an offshore drilling or production facility once it was “located on [the] submerged lands” of Baldwin County “to drill or to produce oil or gas.”

Attempting to avoid the restrictions clearly imposed by the legislature on the taxation of offshore drilling or production facilities, Baldwin County asserts in its brief to this Court that it is seeking to levy its use tax not on the Baldwin offshore facility, as such, but on the “numerous items of material, equipment and supplies which were utilized to construct [the] platform and templates” constituting the facility, there being “a distinction between the materials, equipment and supplies upon which the Baldwin County use tax was levied and the facilities described in § 40-20-2(c) and (d).” (Baldwin County’s brief, pp. 18 and 24; also pp. 8 and 22.) Baldwin County is somewhat inconsistent in stating in its brief its position as to just when its use tax attached to those materials, equipment, and supplies, so that a tax liability accrued. At one point, Baldwin County argues that its tax “applies to the material, equipment and supplies which were utilized to construct the platform and templates even if that platform and those templates would be exempt from use tax ... because the tax burden is fixed at the time of the purchase of those materials which is the taxable event even though they may be subsequently transformed into a non-taxable product.” (Baldwin County’s brief, p. 25.) The County cites Layne Central Co. v. Curry, 243 Ala. 165, 8 So.2d 839 (1942), for this proposition. Layne Central is readily distinguishable, however. In that case, a company erecting a paper mill hired another company to furnish and install pump houses, well connections, and pipelines for water transmission. As later summarized in State v. Ingalls Iron Works Co., 274 Ala. 162, 146 So.2d 87 (1962), the subcontractor in Layne Central apparently

“purchased out of the state certain raw materials (not fabricated for a special purpose) to be used by it in the construction of ‘... pump houses, well connections and pipe-lines to convey the water necessary to the ... manufacturing of ... paper ... ’. The court held that the use tax applied inasmuch as none of the purchases constituted a completed project. The court said that the use tax was ‘... upon the contractor as the user of the raw material which entered into the construction of those structures before they came into use as such.’ ...
“... In the Layne case, ... a use tax on raw items brought into Alabama was involved. Their subsequent fabrication by the taxpayer [subcontractor] for special purposes did not create an exemption.”

274 Ala. at 164-66, 146 So.2d at 89-91.

Unlike the situation in Layne Central, here no raw materials entered the State of Alabama; rather, what entered Alabama was the completed project. The raw materials used in the construction of the platform and templates no longer retained their separate and individual identities. They had either been absorbed or consumed in the process or had become integrated and merged into the completed structures. In Layne Central, the raw materials purchased outside of Alabama were brought into Alabama and only thereafter used by the subcontractor in Alabama to build a completed project for the project owner; here, the raw materials purchased by the project owner were incorporated into the finished project out of state, and it was that finished project that subsequently entered Alabama.

Baldwin County argues at another point in its brief that the Alabama Department of Revenue had “concluded that the tax liability accrued in August 1993 ‘when the platform and templates entered State waters ....’” (Baldwin County’s brief, p. 9.) The taxable event could not occur until that process of transportation in interstate commerce came to an end, however.

“The levy of the [use] tax attaches after the act of transportation ends and the property comes to rest in this state for use or consumption....
“The insistence that the [use] statute burdens interstate commerce or otherwise impinges the constitutions, state or federal, is therefore without merit.”

Paramount-Richards Theatres, Inc. v. State, 252 Ala. 54, 59, 39 So.2d 380, 384 (1949). See also State v. Toolen, 277 Ala. 120, 123, 167 So.2d 546, 549 (1964). Layne Central likewise notes that “ ‘[a]s pointed out in [Henneford v. Silas Mason Co., 300 U.S. 577 (1937),] the fact that the buyer employs agencies of interstate commerce in order to effectuate his purchase is not material, since the tax is “upon the privilege of use after commerce is at an end.”’” 243 Ala. at 168, 8 So.2d at 841. Baldwin County apparently embraces this legal principle, stating in its brief to this Court:

“The levy of the tax attaches after the property comes to rest in Alabama. Paramount-Richards Theatres, Inc. v. State, 39 So.2d 380, 252 Ala. 54 (1949). The ‘storage, use or consumption’ is the taxable event triggering the use tax liability. This liability attaches when the tangible personal property comes to rest in Alabama regardless of the nature of the ‘storage, use or consumption’ thereafter. Paramount-Richards Theatres, supra; State v. Toolen, 167 So.2d 546, 277 Ala. 120 (1964); State v. Smith, 55 So.2d 130, 256 Ala. 426 (1951).”

(Baldwin County’s brief, p. 17.)

It is this latter statement of the taxable event that correctly states the rule to be applied. Baldwin County could not impose its use tax on the materials, equipment, and supplies used to construct the platform and templates in Morgan City, Louisiana, and it could not impose its use tax on the completed structures, which were transported across Alabama territorial waters as part of interstate commerce. Only when the platform and templates came to rest could there be a taxable event susceptible of the imposition of a use tax. Although the State did impose, and Exxon paid, such a use tax, the limitations imposed by § 40-20-2(c) and (d) do not apply to the State. The platform and templates came to rest when they were located on the submerged lands. As already noted, once they were “located on submerged lands to drill or to produce oil or gas,” they achieved the status of offshore drilling or production facilities.

Finally, Baldwin County asserts that “[t]he Alabama Department of Revenue determined that Exxon owed the use tax to Baldwin County” and argues, without citation to any authority, that “[tjhis interpretation of § 40-20-2(e) and (d) is entitled to given great weight.” (Baldwin County’s brief, p. 22.) Our cases have held that “a long-standing interpretation given a statute or ordinance by officials charged with its administration is highly persuasive as to ... the meaning of the statute or ordinance,” City of Birmingham v. AmSouth Bank, N.A., 591 So.2d 473, 477 (Ala.1991), and that “when the highest administrative officials charged with the duty of administering the tax laws have construed a tax statute, their construction should be given favorable consideration,” Bean Dredging, 855 So.2d at 517. In the present case, however, the Department of Revenue made no formal determination that the limitations found in subsections (c) and (d) were unavailable to Exxon. The Department preliminarily audited Exxon for both State and Baldwin County tax matters in 1995 and later passed on to the administrator for Baldwin County a schedule of unaudited amounts from Exxon’s records that might represent a local use-tax liability. The information was submitted to the administrator for Baldwin County by a Department of Revenue “disclosure officer,” and apparently no formal determination concerning possible tax exemption was made by the department at any higher level and no assessment of any kind was issued by it for any use tax imposed by Baldwin County. As noted, in response to inquiry made by Exxon in August 2001, the manager of the department’s sales and use tax administration section confirmed to Exxon that during the audit period in question Exxon had timely filed use-tax returns for Baldwin County and “there are no outstanding issues.” Accordingly, assuming that Baldwin County has in mind the principles quoted above from AmSouth Bank and Bean Dredging, they have no application to the facts of this case.

Conclusion

Having determined that the clear language of § 40-20-2(c) and (d) entitles Exxon to an “exemption” from the Baldwin County use tax under the facts and circumstances relating to the construction, transportation, and placement of the Baldwin offshore facility, we reverse the judgment of the Court of Civil Appeals and remand the case for that court to reverse the judgment of the Baldwin Circuit Court in favor of Baldwin County and against Exxon as to Exxon’s use-tax liability and to remand the case to the Baldwin Circuit Court, instructing that court to enter an order granting Exxon the relief it prayed for in its appeal from the final use-tax assessment, i.e., that the final assessment “be nullified and set aside in its entirety” and that Baldwin County, the Baldwin County Commission, and the Baldwin County Sales and Use Tax Department, be restrained from taking any steps to collect the final assessment.

REVERSED AND REMANDED.

NABERS, C.J., and SEE, SMITH, BOLIN, and PARKER, JJ., concur.

      . Also, as noted earlier, at that same time the legislature granted to Baldwin County the authority to levy its own local 1% oil and gas severance tax. Act No. 2120, Ala. Acts 1971.

      . In its notice of appeal to the Baldwin Circuit Court, Exxon names as "Appellees/Defen-dants'' Baldwin County, the Baldwin County Commission, and the Baldwin County Sales and Use Tax Department. In response to Exxon’s brief in this Court, those three entities filed a single brief and have consolidated their responses. Thus, we have treated Baldwin County in this opinion as representing the interests of all three entities.


author: PER CURIAM.

text:
    EXXON MOBIL CORPORATION v. BALDWIN COUNTY et al.
    2030468.
    Court of Civil Appeals of Alabama.
    Oct. 14, 2005.
    Duane A. Graham of Armbrecht Jackson LLP, Mobile, for appellant.
    Robert A. Wills of Wills & Simon, Bay Minette, for appellees.
   On Remand from the Alabama Supreme Court

PER CURIAM.

On December 30, 2004, this court affirmed, without an opinion, the judgment of the Baldwin Circuit Court. 921 So.2d 478 (Ala.Civ.App.2004)(table). This court’s judgment has been reversed and the cause remanded by the Alabama Supreme Court. Ex parte Exxon Mobil Corp., 926 So.2d 303 (Ala.2005). In compliance with the Supreme Court’s opinion, the circuit court’s judgment against Exxon Mobil Corporation as to Exxon’s use-tax liability is reversed. The cause is remanded to the circuit court with instructions to enter a judgment granting Exxon the relief it prayed for in its appeal from the final use-tax assessment, namely: that the final assessment “be nullified and set aside in its entirety” and that Baldwin County, the Baldwin County Commission, and the Baldwin County Sales and Use Tax Department be restrained from taking any steps to collect the final assessment.

REVERSED AND REMANDED WITH INSTRUCTIONS.

All the judges concur.