The U.S. Supreme Court on Monday delivered multimillion-dollar good news and bad news to two major law firms.

Skadden, Arps, Slate, Meagher & Flom got the bad news when the justices, without comment, declined to review the firm's claim that the Michigan Legislature violated the Constitution when it retroactively repealed the Multistate Tax Compact, an advisory compact that was set up to improve consistency in tax administration.

That repeal, along with a 2014 amendment to the Michigan Business Tax that changed the methodology businesses use to apportion their tax base, cost the firm $1.66 million in refunds for overpaid taxes in 2008, 2009 and 2010.

“The Legislature's fundamental—and retroactive—upheaval of the state's corporate taxation landscape overwhelmingly affected and harmed out-of-state businesses, who had been permitted to employ the three-factor apportionment standard and had relied for over 40 years on that bedrock component of the compact when planning their operations in Michigan,” Skadden lawyers wrote in their high-court petition.

A separate denial of review on Monday was good news for Jenner & Block. The firm held onto a $3 million contingency fee award in a long-running fight with a former client, Parallel Networks, a patent licensing company.

Skadden's Loss in Tax Dispute

In Skadden Arps Slate Meagher & Flom v. Michigan Department of Treasury, the firm, represented by partner Clifford Sloan, challenged the lawfulness of Michigan's retroactive repeal of the Multistate Tax Compact, which had allowed multistate businesses to apportion income under a three-factor formula.

Photo: Juan Manuel Herrera/OAS

Skadden wasn't alone in raising a challenge. Five other petitions from companies—including IBM Corp. and DirecTV holdings—also had asked the high court to review Michigan's actions, which reportedly led to an additional $1 billion in revenues to the state. The U.S. Chamber of Commerce, Business Roundtable and a number of tax organizations filed amicus briefs supporting the challengers.

Skadden's legal team argued the legislature's action was “an extreme example of the increasingly troubling trend of state laws that impose enormous retroactive tax liability on businesses.” They continued: “If left unchecked, states undoubtedly will follow the lead of Michigan, producing a race to the bottom in which states plug budgetary holes by reaching farther and farther back in time to retroactively increase the tax liability of disfavored out-of-state businesses—imperiling bedrock principles animating this court's commerce clause and due process jurisprudence.”

Michigan had countered that the 2014 amendment was a corrective measure and not retroactive “at all.”

The Supreme Court's denial of review was “disappointing,” Sloan said on Monday. “This is an important question of basic fairness and state power, and I think the Supreme Court will need to address it at some point.”