An Atlanta solo practitioner may get his second trip to the U.S. Supreme Court to defend a victory he won at the Supreme Court of Kentucky that is potentially worth more than $212 million.

Last year, C. Christopher Trower was a U.S. Supreme Court novice when he won the Kentucky government's fight over the taxation of municipal bonds. Both he and his opposing counsel in the latest case say there are good reasons for the nation's highest court to take up the latest Kentucky tax case, too.

Trower said he's been helping Kentucky with the tax dispute for 12 years, beginning even before he took on the matter that went to the high court last year. "We'll see where it heads," said Trower. "It's been a long journey."

The history of the case is convoluted and involves both complicated tax issues and heady constitutional questions. At its core, it's a high stakes dispute between the Kentucky government and dozens of corporations over whether the companies can collect on refund claims they filed after the Kentucky Supreme Court changed corporate tax filing rules in 1994.

According to Trower, the pot of money corporations are claiming in refunds from Kentucky in the litigation, including interest, had grown to $212 million as of the end of June. The corporations with a stake in the battle include Phillip Morris, which, according to Trower, has more than $100 million at issue. Trower said the $212 million sought in refunds is equivalent to one year's worth of corporate income tax revenues for the commonwealth.

The corporations' lawyer, Erica L. Horn of Stites & Harbison in Frankfort, Ky., downplayed the amount of money at stake, saying it's impossible to know what the case is worth. She noted that even if her clients win this fight the commonwealth still may find other reasons to deny the corporations' right to file the sort of tax return they want to file.

"Certainly we recognize that the Legislature has not only the right but the obligation" to protect the public treasury, said Horn. But, she said, "to the extent that a statute is unconstitutional, it shouldn't matter whether there is a dollar or a billion dollars at stake. If it's unconstitutional, it's unconstitutional."

The corporations claim the right to file Kentucky tax returns under what's called a "unitary" business plan for certain past tax years. Under that method, various related corporations -- such as Phillip Morris' cigarette business and its Kraft food business, or the many newspaper subsidiaries of Gannett -- may be able to file one tax return together. While the effect of the unitary method depends on how much of a conglomerate's business is done in a given state or commonwealth, and therefore is subject to tax there, it would save money for the corporations fighting Kentucky in this case.

For years, in the 1970s and 1980s, the Kentucky Revenue Cabinet had allowed certain businesses to choose whether to file separate returns or a combined return under the unitary business concept. It made an about-face in 1988, saying Kentucky law forbid the filing of a combined, unitary return. That decision led to a bit of a corporate revolt, as companies disadvantaged by that change of policy argued that the key state statute in effect at the time allowed multiple corporations engaged in a unitary business to file combined tax returns. The Kentucky Supreme Court agreed with the corporate challengers in a 1994 decision known as GTE v. Revenue Cabinet, 889 S.W.2d 788.

Up to that time, Trower, a Kentucky native who began his legal career practicing there, had been representing corporations fighting Kentucky tax authorities over their returns. But in early 1997, after Kentucky had been deluged with refund claims in the wake of the GTE decision, Trower got a call from then-Gov. Paul E. Patton's general counsel.

"They hired me to figure out what to do," he recalled. (His prior unitary cases for private clients had been completed, he explained, and he got a waiver from the Kentucky government allowing him to complete two other cases he was handling for taxpayers against the commonwealth.) The answer he came up with, he said, was retroactive legislation.

For the tax years 1995 and beyond, the Legislature ruled out the filing of unitary returns like those allowed by GTE. But it did allow related parent-subsidiary groups of corporations to file joint returns under what's called an "affiliated group" approach, which lawyers on both sides agree sets a clearer bright-line rule for who can file jointly.

What the Kentucky Legislature did for the tax years prior to 1995 -- going back to the late 1980s -- is the subject of the ongoing litigation. For those years, the Legislature forbid corporations or groups of corporations who hadn't filed a unitary return prior to the date of the GTE decision to file an amended unitary or consolidated return. The Legislature said none of those claims for refunds based on a change from a separate to a unitary return would be "effective or recognized for any purpose," which the Kentucky government has characterized as a withdrawal of the waiver of its sovereign immunity from suit.

The Kentucky government has defended the retroactive legislation on the grounds that it needed to prevent a massive loss of public revenues and that a state or commonwealth's consent to be sued in its own courts is voluntary in the first place. Still, Trower allowed, "As you can expect, the immediate reaction of a lot of people is, 'wait a minute, that can't be.'"

Indeed, several companies mounted challenges to the retroactive rules. They claim that their due process rights will be violated if the legislative changes from 2000 mean they can't get a refund for the years the GTE decision would have allowed them to file unitary returns. The companies also raised equal protection and other arguments.

A Kentucky trial court judge granted summary judgment to the Revenue Cabinet, but the Court of Appeals reversed, saying the period of retroactivity -- reaching back, by the Court of Appeals' count, five to nine years -- was too long. In a 4-2 decision, the Supreme Court of Kentucky ruled for the government defendants.

In her majority opinion, Justice Mary C. Noble touched only briefly on the commonwealth's sovereign immunity argument, saying, "If there is a federal constitutional violation, that law prevails." But she rejected the corporations' due process and equal protection arguments.

The Supreme Court majority said that the Court of Appeals placed too much importance on a 1994 concurring opinion by now-retired U.S. Supreme Court Justice Sandra Day O'Connor, in which she implied that it would offend due process for retroactive legislation to reach too far back into the past, requiring that legislatures act with "modesty" when passing retroactive statutes.

"The issue instead is only whether the retroactive statute of 2000 rationally furthers the legitimate governmental purpose of raising and controlling revenue to prevent a significant and unanticipated revenue loss," wrote Noble. "Applying that test here, there can be no question that the legislature acted to correct what it viewed as a mistake in GTE's interpretation of the law, that it had a legitimate governmental purpose (raising and controlling revenue) and that the statute rationally furthers this purpose."

In a dissenting opinion, Justice Lisabeth Hughes Abramson sounded troubled by the commonwealth's sovereign immunity argument, saying, "The sovereign is powerful but it too must answer to the Constitution." And she agreed with the Court of Appeals that the commonwealth's interest in avoiding the financial consequences of refunds is an inadequate justification for what she called "belated legislation with such a long retroactivity period."

"Simply put," wrote the dissenting justice, "difficult economic consequences can never justify disregarding citizens' due process rights."

Horn, who argued the case for the corporations along with Paul H. Frankel of Morrison & Foerster's New York office, expressed dismay over the Kentucky Supreme Court's ruling.

"I was disappointed, to say the least, in the majority's decision to read out of the country's constitutional law the modesty requirement for retroactive statutes," said Horn. "I also think the court erred in concluding that a taxpayer is not entitled to a post-deprivation remedy unless a statute is unconstitutional."

Horn said her clients are discussing asking the U.S. Supreme Court to look at the case. "But I don't know what that decision will ultimately be," she added.

The case very well may be worthy of Supreme Court review, said Horn. Besides adding to a body of arguably conflicting legal opinions, she said the case has national implications as state legislatures struggle to balance their recession-depleted budgets.

Lawmakers "would never intentionally overreach," she said kindly, but "they could inadvertently overreach and deny due process to corporate citizens by using what we would perceive as excessively retroactive legislation."

Trower said he would be surprised if the companies don't file for Supreme Court review, given the amount of money at stake. He said there's a good chance the court would take up the case. "This case presents a very clear opportunity to put to bed the issue of whether there is some sort of absolute temporal limitation on retroactive economic legislation," Trower said.

The issue of retroactive legislation arises outside the tax context, he noted. Moreover, he said, echoing Horn's remark, "I would think that this might have ... a heightened importance in a world where the states are scrambling to conserve scarce resources."

The case is Miller v. Johnson Controls Inc., Nos. 2006-SC-000416-DG and 2007-SC-000819-DG.