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Randolph “Dolph” Barnhouse (`83) may have been chastised for using the questionable word, “choate”, by U.S. Supreme Court Justice Antonin Scalia within the first few minutes of his first appearance before the high court, but he knew what he was talking about when he replied that he might be wrong on the word usage, but he was right on the law; the court ruled 5-3 in his favor in the case, Hemi Group v. City of New York.
Barnhouse, a partner with Luebben, Johnson & Barnhouse in Albuquerque, was arguing that a city government may not bring a RICO suit to recover taxes owed by New York City residents on cigarettes they purchased from low-tax jurisdictions and had shipped to them in New York City. His client, Kai Gachupin, owned the Hemi Group, a business that sold cigarettes via the Internet from the Jemez Pueblo, where he lives.
The cigarettes were bought by customers across the country, including some in New York City, which imposes a use tax on people who possess cigarettes in the city that they have purchased in other jurisdictions. Seeking to collect these possessory taxes, New York City sued nearly 80 out-of-state vendors, including the Hemi Group, alleging RICO Act violations based on failure to report the Internet sales to state taxing authorities.
Barnhouse, who was assisted by Kelli Keegan (`06), an associate at the firm, maintained that the customers were responsible for paying taxes in the state where they live and that Hemi, through its business, had not caused injury to New York City’s “business or property”, as required to state a claim under RICO.
At the trial level, Hemi won its case, which New York City appealed to the Second Circuit, where the various cases were combined. Barnhouse argued the case in New York City before the Second Circuit, with then-Judge Sonia Sotomayor on the panel. As a result, she did not participate in the Supreme Court proceedings. The appellate court ruled in his favor on about half of his case, but against him on one RICO claim. The other defendants settled their cases, but Barnhouse petitioned for a writ of certiorari on the RICO claim, which was granted.
Writing for the high court, Chief Justice John Roberts found that the city couldn’t show that its loss of tax revenue was proximately caused by Hemi, a requirement for stating a valid RICO claim, thus reversing the Court of Appeals’ opinion.
Significant about the case, Barnhouse says, is that RICO was not designed to be a tax collection mechanism for taxing authorities across the country. If the case had been decided against his client and New York City permitted to use RICO to collect this sort of tax from a company that never owed it, it would have expanded RICO to allow governments to use this as an additional revenue source.
Before he could file the petition for a writ of certiorari, Barnhouse scrambled to become licensed to practice before the high court. Keegan also had to seek the Supreme Court’s permission to sit at the table with him. The Supreme Court requires all lawyers appearing before it to be licensed for at least three years in state court, and Keegan was six months shy of that requirement.
“This experience has obviously been the highlight of my legal career,” says Keegan. “Never did I think that less than three years out of law school I would be sitting before eight justices of the U.S. Supreme Court. Finding out less than three months later that the court ruled in our clients' favor brought the entire experience to another level – a perfect outcome for our client became a reality.”
For Barnhouse, who has followed a meandering path since completing a dual-degree program at UNM, earning a J.D. in 1983, followed by an M.B.A. in 1984, the entire experience was both exciting and surreal. And it clarified for his teenage children, who were in the courtroom, what he does for a living. Barnhouse compared the experience with a Disneyland ride; for weeks before his appearance, he argued to a gallery of photos of each justice tacked to a wall in the order they sit on the bench (so he wouldn’t call anyone by the wrong name). “Then suddenly I’m in front of them,” he says. “It felt like the haunted house ride at Disneyland, where the pictures on the wall start talking to you.”
Between 1984 and his appearance at the Supreme Court last fall, Barnhouse has practiced business law in Phoenix, Indian law in Gallup, served as executive director at DNA-People’s Legal Services in Window Rock, Ariz., and as executive director of 1000 Friends of New Mexico, a smart-growth advocacy group. Tax law was not on his radar.
“If you had told me in law school that I’d go to the Supreme Court on a tax case, a RICO case, I’d have said you were crazy,” he says. “But sometimes, if you don’t know everything about a topic, you might see something others don’t see. With fresh eyes, you ask that always critical question, `Why?’”