Whether it was first said by Christopher Bullock in 1716, Edward Ward in 1724, or Benjamin Franklin in 1789, you have probably heard the phrase that “nothing in this world is certain, except death and taxes.” Part of that phrase held true for a contractor on a project for the Connecticut DOT (CTDOT).
In 1994, the contractor undertook construction of the Tomlinson Bridge in New Haven for the CTDOT. In 1997, that same contractor separately contracted for reconstruction of the Yellow Mill Pond Bridge in Bridgeport. Significant delays and conflicts arose on both projects. After assignment of the two contracts to a different contractor, the original contractor sought to arbitrate all disputes between it and CTDOT on both projects. The first arbitration award was issued in 2004 in favor of CTDOT for about $1.1 million. A second arbitration award was issued in 2009 in the contractor’s favor for over $8 million.
After nearly 25 years from formation of the first contract, through multiple arbitrations, several appeals, reconsiderations, and reviews, the contractor’s total ultimate award of over $8 million against CTDOT was finally over—or so it appeared. Subsequently, the Connecticut Supreme Court held that the state’s withholding of about $1.6 million for unpaid taxes from the $8 million judgment was valid.
Through the arbitration process, CTDOT alleged that the contractor owed unpaid taxes to the state. CTDOT sought a setoff or reduction of the arbitration judgment for the unpaid taxes. Such taxes were unrelated to the project, independent of the arbitration process, and had no connection with the first arbitration award to CTDOT. However, CTDOT presented no evidence to support the existence or amount of the alleged unpaid taxes. Neither CTDOT nor the contractor addressed the alleged unpaid taxes during oral arguments.
Nevertheless, in processing payment of the judgment the CT State Comptroller withheld about $1.6 million for the contractor’s unpaid taxes. A trial court denied the contractor’s first appeal of the state’s withholding for taxes. The state Supreme Court affirmed the trial court’s denial in the case of Connecticut DOT v. White Oak Corp., 332 Conn. 776 (2019).
On appeal, the contractor understandably argued that because CTDOT had alleged but failed to prove the unpaid taxes as a setoff during the arbitration process, the legal doctrine of collateral estoppel precluded the state from reducing the total arbitration award by the amount of the allegedly unpaid—and unproved—taxes. The legal doctrine of collateral estoppel is best summarized by the colloquialism that you should not get more than one bite at the same apple. Having had a bite, you are then finished.
However, even if the CTDOT had already taken its bite at the proverbial apple during the arbitration process, pertinent parts of the Connecticut state statutes imposed a mandatory obligation on the state’s Comptroller to reduce the amount actually paid to the contractor by the same amount of taxes that the contractor owed to the state. In the words of the state Supreme Court, “the comptroller’s obligation [under the State Statutes] is part of a comprehensive scheme for the collection of taxes and that scheme allowed [Contractor] to file a timely administrative appeal to challenge those taxes.” When the contractor did not appeal the withholding, “a mechanical application of collateral estoppel would frustrate the well recognized social policy of tax collection.”
Although not central to the court’s holding, part of the court’s opinion addressed that even if CTDOT was collaterally estopped from withholding for taxes, because the comptroller is a separate arm or agent of the government from CTDOT, state statutes mandated the withholding. The apple may have been the same, but the second bite was taken by someone or something else.
