Opinion
04 Civ. 1944 (GEL)
May 26, 2004
Kevin C. Logue, Richard C. Schoenstein, Paul, Hastings, Janofsky Walker LLP, New York, New York, for plaintiffs
W. Dean Freeman, Steven Lew, Donald Currier, Bill Lockyer, Los Angeles, CA, for defendants
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, 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).
See 29 U.S.C. § 1001, 1103(a)(2) (declaring the policy of ERISA is "to protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries," and specifying that the statute applies to "any employer engaged in commerce or in any industry or activity affecting commerce" and/or "any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce").
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); 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).
In Thiokol, the Court decided that ERISA was not intended to abrogate the states' sovereign immunity, applying the standards set forth in Pennsylvania v. Union Gas Co., 491 U.S. 1, 14-19 (1989), which was later overruled in Seminole Tribe, 517 U.S. at 61-66. In light of Seminole Tribe, this discussion is no longer relevant, as the Supreme Court has now decided that Congress lacks power to displace Eleventh Amendment immunity pursuant to the Commerce Clause. Id. The Sixth Circuit's discussion of the consequences of a finding that the Eleventh Amendment is applicable, however, remains good law.
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. 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.
Defendants note that in Ward, the Court of Appeals ordered dismissal of an action for declaratory relief where the challenged state action had already ceased, holding that to permit such an action would effectively permit an action for retrospective relief for a past breach of legal duty, leaving only the computation of damages to a later state court action. 207 F.3d at 119. (D. Reply 4 n. 2.) But that case is not applicable here, where, as defendants acknowledge, the complaint "alleges that California has improperly taxed ( and continues to improperly tax)" the Trust's unrelated business income in violation of ERISA. (D. Br. 1; emphasis added.)
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 andVerizon 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-dateSeminole Tribe, upholds a claim for a tax refund against Eleventh Amendment challenge. The Second Circuit describedTravelers as a suit "to enjoin a practice violating ERISA." 14 F.3d at 714. 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.
The District Court's order appealed in Travelers had enjoined enforcement of various surcharges. It did not purport to award any damages or refunds. Travelers Ins. Co. v. Cuomo, 813 F. Supp. 996, 1012 (S.D.N.Y. 1993).
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.
In NYSA-ILA, as in Travelers, the only jurisdictional issue addressed by any court was the applicability of the Tax Injunction Act to defeat prospective relief. In both cases, the Supreme Court noted the issue, 520 U.S. at 810 n. 5; 514 U.S. at 652-53 n. 4, and assumed without deciding that the Second Circuit had correctly decided that the Act did not apply. As in Travelers, at no stage in the NYSA-ILA litigation did any court at any level from the District Court to the Supreme Court consider the question of monetary relief or the relevance of the Eleventh Amendment.
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.
The only case cited by plaintiffs that plausibly can be said to support their position is the pre-Seminole Tribe decision inE-Systems, Inc. v. Pogue, 929 F.2d 1100 (5th Cir. 1991). InE-Systems, a panel of the Fifth Circuit affirmed a judgment that "enjoined the collection of the tax and directed a return of the monies wrongfully received" on grounds that ERISA preempted the challenged state tax. Id. at 1101. The panel noted that the defendant had raised both the Tax Injunction Act and the Eleventh Amendment as bars to jurisdiction in the case. Id. However, the court did not discuss the Eleventh Amendment at all, devoting its entire discussion of jurisdiction to the Tax Injunction Act. The more thoughtful decisions of the Sixth Circuit in Thiokol and the Seventh Circuit in Darne expressly reject the authority ofE-Systems, see 987 F.2d at 381-82; 137 F.3d at 488, and this Court joins them in declining to follow it.
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.