Appeal from a judgment of the United States District Court for the Eastern District of New York (Spatt, Judge). VACATED and REMANDED.
Before: WALKER and CALABRESI, Circuit Judges.*fn1
Plaintiff-Appellant County of Nassau (the "County" or "Nassau") appeals a decision of the District Court dismissing its complaint pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction. County of Nassau v. Hotels.com, LP, 594 F. Supp. 2d 251 (E.D.N.Y. 2007). The District Court based its decision on the failure of the County to allege that it complied with administrative processes for assessing and collecting taxes, thus exhausting its administrative remedies, prior to commencing its action to recover those taxes. See id. at 258-59. On appeal, the County argues that no requirement of exhaustion exists, that the District Court failed to defer to the County Treasurer's interpretation of the County tax law at issue, and that exhaustion would in any event be futile.
Without considering whether the County needed to exhaust administrative processes to sustain jurisdiction, we remand for consideration of a different jurisdictional concern, which we raised nostra sponte at oral argument: whether the complaint meets the requirements for class certification under Fed. R. Civ. P. 23, without which both we and the District Court would lack jurisdiction over the suit as presently constituted.
The County's allegations are set out at length in the District Court's opinion. See 594 F. Supp. 2d at 252-54. Relevant to our purposes, the County alleges that the defendants are online sellers and/or resellers of hotel rooms who negotiate discounted room rates with hotels and then resell the rooms at higher retail rates. The State of New York authorizes the County to impose a tax "upon persons occupying hotel or motel rooms in such county." N.Y. Tax Law § 1202-q(1). Pursuant to this authority, the County enacted the Nassau County Hotel and Motel Occupancy Tax, which provided that the tax: shall be paid by the person liable therefor to the owner of the hotel or motel room occupied or to the person entitled to be paid the rent or charge for the hotel or motel room occupied for and on account of the County of Nassau imposing the tax and that such owner or person entitled to be paid the rent or charge shall be liable for the collection and payment of the tax....
Nassau County Misc. Local Laws tit. 24 § 3(D) ("Nassau County Hotel Tax Law"), available at http://www.nassaucountyny.gov/website/GenericServices/docs/NassauCountyMiscLaws_Dec200 8.pdf.
The County alleges that the tax owed under this law is correctly calculated as a percentage of the price that occupants pay to the defendant resellers, and that the defendants are required to remit that amount to the County. It further alleges that, rather than paying this amount, each defendant has been calculating its taxes based on the discounted price that it negotiated with the hotels and accordingly remitting too little to the County.
In its complaint, the County sought jurisdiction under the Class Action Fairness Act of 2005 ("CAFA"), 28 U.S.C. § 1332(d)(2). It requested certification of a "state-wide class of all New York cities, counties and other local governmental entities that have imposed hotel taxes since March 1, 1995." Compl. ¶ 34.
"'It is a fundamental precept that federal courts are courts of limited jurisdiction' and lack the power to disregard such limits as have been imposed by the Constitution or Congress." Durant, Nichols, Houston, Hodgson, & Cortese-Costa, P.C. v. Dupont, 565 F.3d 56, 62 (2d Cir. 2009) (quoting Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374 (1978)). Because the case presents no federal questions, the only statutory jurisdictional grant that might allow us to consider the case with its current parties is CAFA, which grants district courts original jurisdiction over class action suits on certain conditions, among them that "the number of members of all proposed plaintiff classes in the aggregate" be no less than one hundred. 28 U.S.C. § 1332(d)(5)(B). Although the parties stipulated that the requirements of CAFA are met, we asked nostra sponte whether they are in fact satisfied, as the District Court lacked jurisdiction to hear the case if they were not. See Durant, Nichols, 565 F.3d at 62 ("If subject matter jurisdiction is lacking and no party has called the matter to the court's attention, the court has the duty to dismiss the action sua sponte.").
There are substantial questions as to whether class certification would be appropriate in this case. To warrant certification of a federal class action ...