UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2011
October 12, 2011
CHARLES JOSEPH, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS 16 SIMILARLY SITUATED, JEFFREY UNGER, INDIVIDUALLY AND ON BEHALF 17 OF ALL OTHERS SIMILARLY SITUATED, STEFAN WOLKENFELD, 18 INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, 19 ROCK STORE LLC, BRUCE GLICKMAN, INDIVIDUALLY AND ON BEHALF OF 20 ALL OTHERS SIMILARLY SITUATED, BRUCE SCHWARTZ, INDIVIDUALLY 21 AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, 22 23 PLAINTIFFS - APPELLANTS, 24
25 26 MICHAEL HYMAN, INDIVIDUALLY AND IN HIS OFFICIAL CAPACITY AS 27 COMMISSIONER OF THE DEPARTMENT OF FINANCE OF THE CITY OF NEW 28 YORK, MARTHA E. STARK, JAIME WOODWARD, INDIVIDUALLY AND IN HER 29 OFFICIAL CAPACITY AS COMMISSIONER OF THE DEPARTMENT OF 30 TAXATION AND FINANCE OF THE STATE OF NEW YORK, ROBERT L. 31 MEGNA, BARBARA G. BILLET, CITY OF NEW YORK, STATE OF NEW YORK, MICHAEL 32 BLOOMBERG, INDIVIDUALLY AND IN HIS OFFICIAL CAPACITY AS MAYOR 33 OF THE CITY OF NEW YORK, ELIOT L. SPITZER, GEORGE PATAKI, DAVID 34 PATERSON, DAVID M. FRANKEL, INDIVIDUALLY AND IN HIS OFFICIAL 35 CAPACITY AS COMMISSIONER OF THE DEPARTMENT OF FINANCE OF THE 36 CITY OF NEW YORK, 37 38 DEFENDANTS - APPELLEES.
Appeal from an order and judgment of the United States District Court for the Southern District of New York (Sullivan, J.), which granted Defendants' motion to dismiss Plaintiffs' complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).
The opinion of the court was delivered by: Wesley, Circuit Judge:
Joseph, et. al v. Hyman, et. al
Argued: September 12, 2011
Calabresi, Wesley, and Lohier, Circuit Judges.
The district court found 6 that comity precluded federal court adjudication of 7 Plaintiff's claims. We conclude that the district court 8 properly dismissed the complaint.
36 This case requires us to examine the role federal 37 courts should play in settling challenges to state tax 38 schemes. For the reasons that follow, we affirm the 39 district court's well-written opinion declining to exercise jurisdiction over plaintiffs' challenge to a New York state 2 tax scheme that exempted New York City residents from a tax 3 levied on parking services rendered in Manhattan. Pursuant 4 to Levin v. Commerce Energy, Inc., 130 S. Ct. 2323 (2010), 5 comity concerns counsel against federal court adjudication 6 of plaintiffs' claims.
New York State imposes, or authorizes New York City to 9 impose, taxes of 18.375% on parking lots and garages in 10 Manhattan. These taxes include various statewide, citywide, 11 and mass-transit-funding taxes. Also included in that rate 12 is a city-implemented 8% surtax on parking services rendered 13 in Manhattan. N.Y. Tax Law § 1212-A. In 1985, the state 14 legislature amended the tax law to provide an exemption from 15 the 8% surtax for Manhattan residents for one parking space 16 leased for one month or longer. N.Y. Tax Law § 1212- 17 A(a)(1). Appellants include a group of commuters from New 18 Jersey and New York outside of Manhattan, and a Queens 19 resident who does not commute to Manhattan. Appellants sued 20 New York City and the State, along with a number of city and 21 state officials, challenging the tax exemption granted to 22 Manhattan residents but not the 8% surtax.
The exemption is narrow. It exempts Manhattan residents from the 8% surtax only at their primary parking 2 location and only where the resident can demonstrate:
(1) that Manhattan is their primary residence; (2) that they 4 pay for parking services rendered on a monthly or 5 longer-term basis; (3) that the vehicle is not used to carry 6 on any trade, business, or commercial activity; and (4) that 7 the vehicle is registered to the individual's primary 8 residence in Manhattan. N.Y. Tax Law § 1212-A(a)(1)(i)(B); 9 N.Y.C. Admin. Code § 11-2051(d). Appellees filed a motion 10 to dismiss, arguing, among other things, that comity barred 11 the federal courts from hearing plaintiffs' challenge to the 12 state law; the district court granted the motion.
The 13 district court held that comity concerns, explained by the 14 Supreme Court in Levin v. Commerce Energy, Inc., 130 S. Ct. 15 2323 (2010), counseled against hearing Appellants' claims in 16 federal court.
I. The Comity Doctrine
Federal courts generally abstain from cases that challenge state taxation schemes on the basis that those claims are more appropriately resolved in state court. See 2 Nat'l Private Truck Council, Inc. v. Oklahoma Tax Comm'n, 3 515 U.S. 582, 590 (1995); Boise Artesian Hot & Cold Water 4 Co. v. Boise City, 213 U.S. 276, 281-82 (1909). In 1937, 5 Congress partially codified the "federal reluctance to 6 interfere with state taxation" with the Tax Injunction Act 7 ("TIA"). Nat'l Private Truck Council, Inc., 515 U.S. at 8 590; see also 28 U.S.C. § 1341. The TIA provides that 9 "[t]he district courts shall not enjoin, suspend or restrain 10 the assessment, levy or collection of any tax under State 11 law where a plain, speedy and efficient remedy may be had in 12 the courts of such State." 28 U.S.C. § 1341.
13 The Supreme Court has interpreted the TIA as 14 prohibiting only those challenges to state tax schemes that 15 would inhibit state collection of taxes, as opposed to those 16 that would increase taxes a state could collect. Hibbs v. 17 Winn, 542 U.S. 88, 101-10 (2004). After Hibbs, a number of 18 circuit courts, relying on a footnote in Hibbs, held that 19 Hibbs cabined the comity doctrine, holding that it, like the 20 TIA, did not bar federal courts from adjudicating challenges 21 to state tax schemes that would result in an increase in the 22 state's tax revenue. See, e.g., Commerce Energy, Inc. v. 23 Levin, 554 F.3d 1094 (6th Cir. 2009); Levy v. Pappas, 510 5 1 F.3d 755 (7th Cir. 2007); Wilbur v. Locke, 423 F.3d 1101 2 (9th Cir. 2005). Other circuits disagreed, and the Supreme 3 Court resolved the issue in Levin. See Levin, 130 S. Ct. at 4 2329-30; DIRECTV, Inc. v. Tolson, 513 F.3d 119 (4th Cir. 5 2008). In Levin, the Court abrogated the post-Hibbs cases 6 that had crimped the comity doctrine and held that comity is 7 "[m]ore embracive" than the TIA because it restrains federal 8 courts from hearing not only cases that decrease a state's 9 revenue, but also those that "risk disrupting state tax 10 administration." Levin, 130 S. Ct. at 2328.
11 In Levin, the plaintiffs (natural gas companies) 12 challenged tax exemptions granted to some of their 13 competitors. Like Appellants here, the Levin plaintiffs 14 challenged a state tax scheme; their challenge, if 15 successful, would have increased the flow of taxes to the 16 state. The Court rejected their claim, holding that even if 17 the TIA did not bar the suit (because striking the exemption 18 would not decrease the state's tax revenues), comity 19 counseled against "the exercise of original federal-court 20 jurisdiction." Id. at 2332-33. In rejecting the propriety 21 of federal adjudication of plaintiffs' claims, Levin 22 explained that "[c]omity's constraint has particular force 23 when lower federal courts are asked to pass on the 1 constitutionality of state taxation of commercial activity."
Id. at 2330.
The Court differentiated Hibbs on its facts. It held 4 that Hibbs was appropriately heard in federal court because 5 it was not a "run-of-the-mine tax case" and was "not 6 rationally distinguishable from a procession of pathmarking 7 civil-rights controversies in which federal courts had 8 entertained challenges to state tax credits without 9 conceiving of the TIA as a jurisdictional barrier." Id. at 10 2335, 2332 (internal quotation marks omitted). Levin, on 11 the other hand, was distinguishable from Hibbs based on 12 three factors present in Hibbs, but absent in Levin, that 13 counseled in favor of federal court adjudication despite the 14 general rule of comity: (1) the legislation at issue 15 "employ[ed] classifications subject to heightened scrutiny 16 or impinge[d] on fundamental rights"; (2) the plaintiffs 17 were true "'third parties' whose own tax liability was not a 18 relevant factor"; and (3) both federal and state courts had 19 access to identical remedies because the claim concerned tax 20 credits and thus was not subject to the constraints of the 21 TIA. Id. at 2333-35.
II. Applying Levin v. Commerce Energy, Inc.
Here, dismissal of Appellants' complaint was proper. 3 Hibbs, unlike Levin, involved a right that was 4 unquestionably fundamental, concerning the establishment of 5 religion. At the time Hibbs was decided, moreover, the 6 Supreme Court had accorded special deference to that right.
7 See Flast v. Cohen, 392 U.S. 83 (1968) (relaxing taxpayer 8 standing requirements for plaintiffs asserting Establishment 9 Clause violations). In this case, the rights asserted can 10 hardly be seen as fundamental in the relevant sense. The 11 exemption burdens but one mode of travel, and not that 12 drastically. "[M]inor restrictions on travel simply do not 13 amount to the denial of a fundamental right." Town of 14 Southold v. Town of E. Hampton, 477 F.3d 38, 54 (2d Cir. 15 2007) (quoting Cramer v. Skinner, 931 F.2d 1020, 1031 (5th 16 Cir. 1991)(internal quotation marks omitted).
17 There is, moreover, no authority that the right to park 18 one's vehicle at a particular rate relative to others is 19 sufficiently fundamental to trigger protection under the 20 Privileges and Immunities Clause. See United Bldg. & 21 Constr. Trades Council of Camden Cnty. v. City of Camden, 22 465 U.S. 208, 221 (1984); Lai v. New York City Gov't, 991 F. 23 Supp. 362, 365 (S.D.N.Y. 1998), aff'd 163 F.3d 729 (2d Cir. 24 1998).
Appellants are not true third parties to the tax 2 measure in question. They argue that their challenge is 3 restricted to the exemption and the exemption impacts 4 Manhattan residents' tax liability, rather than their own. 5 Levin foreclosed that argument. The Levin plaintiffs also 6 objected to an exemption awarded to another taxpayer, but 7 the Court noted that they were not true third parties 8 because they were "object[ing] to their own tax situation, 9 measured by the allegedly more favorable treatment accorded" 10 to the other taxpayers. Levin, 130 S. Ct. at 2335.
11 Appellants here do the same; although they claim to be third 12 parties challenging tax exemptions, they are really 13 challenging their own relative tax liability by asserting 14 that an exemption granted to a competitor was 15 unconstitutional.*fn2
16 Lastly, because the TIA prevents federal courts from 17 eliminating a source of tax revenue, federal courts are 18 limited in the remedies they may grant when deciding a 19 challenge to a state taxation scheme. For this reason, 1 Levin held that where the state court has more flexibility 2 to determine and choose a remedy, and where an adequate, 3 speedy, and efficient remedy exists in state court, the 4 federal courts should abstain from hearing the case. Id. at 5 2328, 2339.*fn3
6 Appellants assert that the New York courts are unable 7 to grant any remedy that differs from that available in 8 federal court. But Appellants misinterpret New York law.
9 Appellants rely on Tennessee Gas Pipeline v. Urbach, 96 10 N.Y.2d 124, 134 (2001), for the proposition that a New York 11 court is also limited in its ability to deal with an 12 unconstitutional taxing scheme. Appellants read too much 13 into that case and improperly separate the court's ruling from its context. Tennessee Gas merely stands for the 2 proposition that the state legislature cannot delegate its 3 law-making responsibilities to New York courts. Id. at 134.
4 In Tennessee Gas, the court held that a savings provision in 5 the statute was invalid 6 because it requires the Court to define the 7 parameters of the credit and the manner in which it 8 will be implemented. This violates fundamental 9 separation of powers principles. The savings 10 provision would require us to rewrite the statute and 11 create quasi-judicial tax regulations. We are not 12 well suited as an institution for such a task.
Id. That the court did not feel it should (or could) 15 rewrite a statute does not mean that New York courts cannot 16 prevent enforcement of tax provisions if the result would 17 decrease a state's revenue.
18 New York courts can, and do, enjoin the enforcement of 19 tax provisions. See Day Wholesale, Inc. v. New York, 51 20 A.D.3d 383, 384 (N.Y. App. Div. 4th Dep't 2008). New York 21 courts are not powerless to strike down unconstitutional 22 laws or otherwise prevent enforcement of unconstitutional 23 taxes. See, e.g., Urbach, 96 N.Y.2d at 124 (striking a 24 natural gas tax as unconstitutional).
25 Because New York state courts have the ability to 26 implement a remedy that the federal court cannot, Levin 27 counsels in favor of dismissing the complaint pursuant to comity because "limitations on the remedial competence of 2 lower federal courts counsel that they refrain from taking 3 up cases of this genre, so long as state courts are equipped 4 fairly to adjudicate them." Levin, 130 S. Ct. at 2334.
The 5 New York state courts are able to efficiently remedy an 6 unconstitutional tax statute, and the Supreme Court has long 7 held that New York law affords a "plain, speedy and 8 efficient" means to address constitutional challenges to 9 state tax actions. Tully v. Griffin, Inc., 429 U.S. 68, 76- 10 77 (1976).
11 We have considered the plaintiffs' remaining arguments, 12 including their argument under the Dormant Commerce Clause, 13 and find them unavailing. Because none of the Hibbs factors 14 are present here, the district court wisely recognized that 15 Levin counseled it to dismiss Appellants' complaint on 16 comity grounds. The district court's decision to do so is 17 affirmed.
The district court's order that dismissed Appellants' Complaint without prejudice is AFFIRMED.