526 U.S. 160 (1999)
Alabama requires each corporation doing business in the State to pay a franchise tax based upon the firm’s capital.1 A domestic firm organized under Alabama law pays tax equal to 1% of the par value of the firm’s stock.2 A foreign firm organized under the laws of another state pays tax equal to 0.3% of the value of the actual amount of capital employed in Alabama.3 Domestic firms enjoy considerable leeway in controlling their tax base by setting the par value of their stock at a low level.4
In 1986 Reynolds Metals Company and three other foreign corporations sued Alabama’s tax authorities seeking a refund of the foreign franchise tax they had paid on the ground that the tax discriminated against foreign corporations.5 The Alabama Supreme Court rejected their claims in 1989 in White v. Reynolds Metals Co.6 While that litigation was pending, a different foreign corporation, South Central Bell Telephone Company, brought the lawsuit now before the Court asserting similar claims for different tax years.7
Bell initially agreed to hold its suit in abeyance pending resolution of the Reynolds Metals claims.8 After the Alabama Supreme Court decided against the taxpayers in Reynolds Metals, Bell joined by other foreign corporations proceeded to trial.9 At trial the Bell plaintiffs presented evidence that Alabama’s franchise tax scheme discriminates substantially against foreign corporations in practice and that the domestic shares tax does not offset the discrimination.10
The Alabama trial court dismissed the claims on the ground that they were barred by res judicata based on the Reynolds Metals decision.11 The Alabama Supreme Court affirmed in a per curiam opinion by a 5 to 4 vote.12 The Supreme Court of the United States granted certiorari to review whether the res judicata application violated due process and whether the tax violated the Commerce Clause.13
Whether this Court has appellate jurisdiction over this case in light of the Eleventh Amendment?14
The Eleventh Amendment does not constrain the appellate jurisdiction of the Supreme Court over cases arising from state courts.15
Yes. The Eleventh Amendment does not bar review because the case arose in state court.16 The State assents to appellate review by this Court of the federal issues raised in the case.17 The Supreme Court granted certiorari to review federal constitutional claims arising from that state-court proceeding.18
The Court has appellate jurisdiction over the case.19
Whether the Alabama courts’ refusal to permit the Bell plaintiffs to raise their constitutional claims because of res judicata deprived the Bell plaintiffs of the due process of law guaranteed by the Fourteenth Amendment?20
The Fourteenth Amendment forbids an extreme application of state-law preclusion principles when the plaintiffs in the second case are strangers to the earlier judgment.21
Yes. The Bell plaintiffs are strangers to the Reynolds Metals judgment because the cases involve different plaintiffs and different tax years.22 Neither is a class action, and no privity or special representational relationship exists between the two sets of plaintiffs.23 The established facts confirm that Bell held its suit in abeyance pending Reynolds Metals.24
The letter requesting abeyance was merely a routine request for continuance that expressly allowed either party to proceed later.25 The Bell plaintiffs cannot be bound by the earlier judgment under Richards v. Jefferson County.26
The Alabama courts’ refusal deprived the Bell plaintiffs of due process of law.27
Whether the franchise tax impermissibly discriminates against interstate commerce in violation of the Commerce Clause?28
A state tax that facially discriminates against interstate commerce is unconstitutional unless the State proves the special burden on foreign corporations is roughly approximate to the special burden on domestic corporations. The taxes must also be similar enough in substance to serve as mutually exclusive proxies for one another.29
Yes. Alabama law gives domestic corporations the ability to reduce their franchise tax liability simply by reducing the par value of their stock while denying foreign corporations that same ability.30 The record shows the average domestic corporation pays only one-fifth the franchise tax it would pay if treated as foreign.31 The State has not shown the burdens are roughly approximate.32
The foreign franchise tax and domestic shares tax are not similar in substance, as one taxes the decision to do business in the State and the other taxes ownership of shares in domestic corporations.33
The franchise tax impermissibly discriminates against interstate commerce in violation of the Commerce Clause.34
Whether the Court should reconsider its negative Commerce Clause jurisprudence in this case?35
The Court will not entertain an invitation to reconsider longstanding negative Commerce Clause doctrine when the State did not make clear its intent to make the argument until it filed its brief on the merits rather than providing notice in the opposition to the petition for certiorari.36
No. The State did not provide notice of its far-reaching argument in the opposition to certiorari.37 There is no convincing reason to depart from the practice of expecting such notice to assure adequate preparation time for those likely affected.38 The established facts and procedural history show the reconsideration request appeared only in the merits brief.39
The Court declines to reconsider its negative Commerce Clause jurisprudence.40
Related opinions on this issue
Justice O’Connor joined the opinion of the Court.41 She agreed that the State’s failure to properly raise its challenge to negative Commerce Clause jurisprudence supports a decision not to pass on the merits of this claim.42 She further noted that the State does nothing that would persuade her to reconsider or abandon the well-established body of negative Commerce Clause jurisprudence.43
This concurrence reinforces the majority’s procedural ground for declining review while affirming the continued validity of the doctrine on its own terms.44
Justice Thomas joined the opinion of the Court.45 He agreed that it would be inappropriate to take up the State’s invitation to reconsider negative Commerce Clause doctrine in this case because the State did not make clear it intended to make this argument until it filed its brief on the merits.46 This approach ensures that parties provide adequate notice in the certiorari opposition, allowing the Court and affected parties sufficient preparation time.47
Thomas's concurrence underscores the procedural requirements for raising far-reaching challenges to established doctrine rather than surprising the Court and litigants at the merits stage.48