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HATTEM v. SCHWARZENEGGER

United States District Court, S.D. New York


May 26, 2004.

ALEX HATTEM, solely in his capacity as a participant in a pension plan funded by by The Long-term Investment Trust; J.P. MORGAN CHASE BANK, not in its individual capacity but solely in its capacity as trustee for The Long-term Investment Trust; AT&T INVESTMENT MANAGEMENT CORPORATION, not in its individual capacity but solely in its capacity as The Long-Term Investment Trust's "Named Fiduciary," Plaintiffs, -V- ARNOLD SCHWARZENEGGER, in his Official Capacity as Governor of the State of California; GERALD A. GOLDBERG, in his Official Capacity as Executive Officer of the California Franchise Tax Board; DESMOND PRESS in his Official Capacity as Program Manager of the California Franchise Tax Board, and DOES 1-10, Defendants

The opinion of the court was delivered by: GERARD E. LYNCH, District Judge

OPINION AND ORDER

Plaintiffs, respectively a participant, a trustee and a fiduciary in a pension plan funded by The Long-Term Investment Trust ("Trust"), allege that California statutes that tax the unrelated business taxable income of the Trust are preempted by the federal Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., and seek declaratory and injunctive relief and a refund of taxes previously paid under the relevant state statutes. Defendants move to dismiss, arguing that the action is barred by the Eleventh Amendment. The motion will be granted in part and denied in part.

  The Eleventh Amendment to the United States Constitution provides that "[t]he Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State." U.S. Const. amend. XI. While the plain language of the Amendment applies only to suits brought by citizens of other states, it is by now clear that the Supreme Court's Eleventh Amendment jurisprudence bears no relationship to the provision's text. See, e.g., Alden v. Maine, 527 U.S. 706, 713 (1999) (states' immunity from suit "neither derives from, nor is limited by, the terms of the Eleventh Amendment"); accord Fed. Mar. Comm'n v. S.C. State Ports Auth., 535 U.S. 743, 788 (2002) (Breyer, J., dissenting) (asserting that "interpretive principle" underlying Supreme Court's Eleventh Amendment jurisprudence "has no logical starting place"). Rather, notwithstanding the text of the Eleventh Amendment, the Supreme Court has declared a general principle of state immunity from private suit in federal court — whether by "Citizens of another State," "Citizens or Subjects of any Foreign State," or a state's own citizens — unless the State has consented to suit or Congress has explicitly and constitutionally abrogated the State's immunity. See, e.g., Lapides v. Bd. of Regents of Univ. Sys. of Ga., 535 U.S. 613, 618-20 (2002); McGinty v. New York, 251 F.3d 84, 90-91 (2d Cir. 2001).

  Congress lacks authority, however, to abrogate the sovereign immunity of the States under the Commerce Clause. Seminole Tribe of Florida v. Florida, 517 U.S. 44, 65-66 (1996). Accordingly, ERISA, which was adopted under the Commerce Clause power,*fn1 cannot have abrogated California's Eleventh Amendment immunity, and plaintiffs do not claim that California has consented to suits such as theirs. The state's immunity applies to its officers sued in their official capacities, where the lawsuit seeks monetary damages. Edelman v. Jordan, 415 U.S. 651, 663 (1974); Ford Motor Co. v. Department of Treasury, 323 U.S. 459, 464 (1945). It does not, however, preclude actions against state officials sued in their official capacities for prospective injunctive or declaratory relief. Ex parte Young, 209 U.S. 123, 159-60 (1908); Verizon Md., Inc. v. Pub. Serv. Comm'n of Md., 535 U.S. 651, 664 (2002); Edelman, 415 U.S. at 664-65; Ying Jing Gan v. City of New York, 996 F.2d 522, 529-30 (2d Cir. 1993).

  Plaintiffs' complaint centers on the argument that the tax is preempted by ERISA, and principally demands declaratory and injunctive relief, which are not barred by the Eleventh Amendment. See Commonwealth Edison Co. v. Vega, 174 F.3d 870 (7th Cir. 1999) (Posner, J.) (Eleventh Amendment does not bar suit for injunctive relief against state official based on ERISA preemption). The demand for a refund, which appears in only one sub-paragraph, is easily stricken. Thus, the well-established principles set forth above require that plaintiffs' action must be dismissed insofar as it seeks tax refunds, but not insofar as it seeks declaratory and injunctive relief. At least two circuits, faced with cases similar to this, have reached exactly this result. See Darne v. State of Wisconsin, 137 F.3d 484, 487-88 (7th Cir. 1998); Thiokol Corp. v. Department of Treasury, 987 F.2d 376, 381-82 (6th Cir. 1993);*fn2 see also Edelman, 415 U.S. at 664-65 (accepting "prospective portion of the [district] court's order under review" but overturning the "retroactive" portion ordering monetary payment).

  Nevertheless, both sides in this action press untenable positions that are inconsistent with these clearly established principles. Defendants argue that the entire lawsuit, and not merely the demand for monetary relief, must be dismissed. As defendants correctly note, "suits against states and their officials seeking damages for past injuries are firmly foreclosed by the Eleventh Amendment." Ward v. Thomas, 207 F.3d 114, 119 (2d Cir. 2000). Defendants cite no authority, however, nor do they make a reasoned argument, for the proposition that including a demand for damages in a suit that otherwise seeks available prospective relief against state officials requires a court to dismiss the entire suit, rather than simply to strike the demand for unauthorized monetary relief.*fn3 In fact, the authorities are clear that "[a] federal court must examine each claim in a case" separately in order to determine "if the court's jurisdiction over that claim is barred by the Eleventh Amendment." Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 121 (1984): see also Wisconsin Dept. of Corrections v. Schacht, 524 U.S. 381, 389-90 (1998) ("[W]here original jurisdiction rests upon . . . `arising under' jurisdiction, the Court has assumed that the presence of a potential Eleventh Amendment bar with respect to one claim, has not destroyed original jurisdiction over the case."). Thus, while plaintiffs' claim for monetary relief must be dismissed, its inclusion in the complaint provides no warrant for dismissing other claims that are not barred by Eleventh Amendment principles.

  Plaintiffs, even less persuasively, argue that their demand for a refund of the tax payments is somehow consistent with the Eleventh Amendment. Their argument is propped up by egregiously mis-cited authority. After correctly citing Ex parte Young and Verizon Maryland for the proposition that their demand for prospective equitable relief against the state officials is permissible (P. Br. 4-5), plaintiffs proceed to "distinguish" the unbroken line of authority that precludes monetary relief in such cases on the ground that none of those cases involved ERISA. (Id. 5 & n. 2.) They provide no explanation, however, for the untenable notion that ERISA can or did repeal a provision of the Constitution. Lacking any argument sounding in reason, plaintiffs resort to authority, claiming that the proposition for which they contend is established by "Second Circuit precedent" (id. 2), citing Travelers Ins. Co. v. Cuomo, 14 F.3d 708 (2d Cir. 1993), rev'd sub nom. New York State Conference of Blue Cross & Blue Shiled Plans v. Travelers Ins. Co., 514 U.S. 645 (1995), and NYSA-ILA Med. and Clinical Servs. Fund v. Axelrod, 27 F.3d 823 (2d Cir. 1994), rev'd sub nom. DeBuono v. NYSA-ILA Med. and Clinical Servs. Fund, 520 U.S. 806 (1997). Contrary to plaintiffs' contention, neither of these cases, both of which in any event pre-date Seminole Tribe, upholds a claim for a tax refund against Eleventh Amendment challenge. The Second Circuit described Travelers as a suit "to enjoin a practice violating ERISA." 14 F.3d at 714.*fn4 The Court held that such a suit was not precluded by the Tax Injunction Act, 28 U.S.C. § 1341. Id. at 713-14. Nowhere in the Court's lengthy opinion is there any mention of a claim for monetary relief, or of the Eleventh Amendment.

  In NYSA-ILA, the Court of Appeals dealt with the merits of an ERISA preemption claim, after having noted that the plaintiffs sought "declaratory and injunctive relief as well as restitution [of taxes] it had previously paid." 27 F.3d at 826. But the request for declaratory and injunctive relief adequately supported jurisdiction to address all issues presented to the Second Circuit in the case, and the Court simply reversed the District Court's conclusion that the tax was not preempted, without discussing possible relief, mentioning damages, or addressing the Eleventh Amendment. Id. at 828. The Supreme Court eventually reversed this holding and dismissed the case on the merits. 520 U.S. at 815-16. Thus, no award of damages was ever entered or sustained by any court in that case.*fn5

  Accordingly, plaintiffs' claim that Second Circuit precedent permits an award of monetary relief in a case such as this is completely devoid of support. Plaintiffs have not cited, nor has this Court discovered, any appellate case decided after Seminole Tribe that upholds a claim for a tax refund on grounds of ERISA preemption against an Eleventh Amendment challenge.*fn6 CONCLUSION

  For the reasons stated, the defendants' motion to dismiss is granted to the extent that plaintiffs' claim for monetary relief in the form of a tax refund is dismissed. In all other respects, the motion is denied.

  SO ORDERED.


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