Lawsuit claims Montana discriminates against out-of-state financial advisers
(Daily Montanan) A Montana attorney has filed a class-action lawsuit against the state, the Montana Department of Revenue and the state auditor’s office for what they say is an illegal, unconstitutional fee charged to more than 100,000 investment advisers and representatives who live outside the Treasure State.
Even more, the lawsuit, filed in Lewis and Clark County on Friday, says that the 2019 Legislature knew that the law likely violated the privileges and immunities clause of the United States Constitution, but passed it anyway.
That constitutional clause prohibits treating residents from other states differently than residents in-state, and House Bill 694 sought to increase the licensing fees for out-of-state residents to $100 while keeping the fees for Montana-based investment advisers at $50.
Rep. Jim Hamilton, D-Bozeman, told fellow lawmakers in 2019 that, “the reason for raising this fee is that we have a group of people who are not contributing to the economy they are taking advantage of with their businesses, and therefore, I think it appropriate that we not sell Montana so cheaply.”
He said that because those same advisers don’t pay income tax or property tax in Montana, they should be charged more.
Different lawmakers and witnesses who testified in 2019 raised issues of legality with the bill, and it was even stopped in the Montana Senate because of constitutional concerns.
However, in 2019, Sen. Steve Fitzpatrick, now the Senate Majority Leader and a Republican from Great Falls, brought it back to life when it was eventually passed as part of the overall budget.
Because licensing fees are handled in a uniform way with a payment portal that’s consistent throughout the states, and because no other state differentiated between resident and non-resident licensees, Montana also developed a system where Montana resident licensees could apply for a $50 refund, while out-of-state licensees were ineligible.
In 2019, the state estimated that around 2,200 of the 108,000 financial adviser licensees were Montana-based, meaning that more than 97% financial advisers registered in the Big Sky State do not live in-state.
The class-action challenge is being brought by Thomas Strobhar, who has challenged laws and business practices in several different states on different topics. He is being represented by former state lawmaker and attorney Matthew Monforton.
“The committee knew that the discriminatory fee structure in HB 694 was unconstitutional, yet approved it anyway,” the lawsuit said.
The Montana Supreme Court has upheld the privileges and immunities clause of the U.S. Constitution, and said in 1981 that the “rights of nonresidents to ‘ply their trade, practice their occupation, or pursue a common calling in the state’” is something that shall be “free from discrimination based upon state residency.”
Even though lawmakers pointed out that Montana and other states may charge non-residents fees for recreational licenses, like hunting, that is limited to recreational, not occupational licenses.
“Montana’s policy of imposing discriminatory fees upon nonresident investment adviser representatives and securities salesperson (does not) bear a substantial relationship to any important state interest,” the lawsuit said.
The lawsuit asks that the courts declare the measure unconstitutional and issue an injunction prohibiting the state from charging a different fee for non-resident advisers as Montana-based advisers.
The lawsuit also seeks an award of damages to Strobhar and other class members.
If Strobhar and the class-action suit was successful, it would mean the state would have to disgorge as much as $25 million that Montana has collected from these fees since 2019.
Strobhar, a resident of Ohio, is no stranger to being in the middle of controversy.
Strobhar has authored more than 70 shareholder resolutions to ban corporate support for pornography, religious bigotry, fetal tissue research, abortifacients, Planned Parenthood, and policies he considers hostile to marriage. His resolutions have changed the way several large businesses operate, including American Express, AT&T, Berkshire Hathaway, General Mills and Target.
Last year, Strobhar also led an initiative that would force The Walt Disney Company to disclose charitable contributions of more than $10,000. Though Disney fought against that, arguing that Strobhar was attempting micromanagement of the company, the Securities and Exchange Commission ultimately allowed the a vote on the resolution.