Opinion
CIVIL ACTION No. 03-0905 SECTION: 1/3
April 20, 2004
ORDER AND REASONS
Before the Court is a motion, filed on behalf of defendants, the City of New Orleans through its Department of Finance and Reginald Zeno (collectively, the "City"), to set aside the entry of default entered against the City. Plaintiffs, the Jackson Avenue Foundation, Inc. (" JAF") and Louis R. Koerner, Jr., oppose the motion. Because the arguments raised in defendants' motion demonstrate that this Court lacks subject matter jurisdiction over plaintiffs' claims for relief, defendants' motion is GRANTED, the entry of default is hereby VACATED, and this case is REMANDED to the Orleans Parish Civil District Court pursuant to 28 U.S.C. § 1447(c) because of a lack of subject matter jurisdiction.
Rec. Doc. No. 8. The entry of default was entered in the record on August 27, 2003. Rec. Doc. No. 6. The record reflects that no default judgment has been entered against either the City of New Orleans or Reginald Zeno.
BACKGROUND
On February 27, 2003, plaintiffs, the owners of certain properties located in New Orleans, filed this action in the Orleans Parish Civil District Court against defendants, the Louisiana Tax Commission and the City. JAF alleged that it was a non-profit corporation that purchased two properties from the City at a tax sale. JAF claimed that the defendants wrongfully assessed ad valorem taxes on the properties it owned with respect to tax years 2002 and 2003. It also claimed that the City wrongfully imposed tax liens and privileges on the properties with respect to taxes that were owed on the two properties prior to the tax purchase. In response to the tax assessments assessed against it, JAF paid under protest the taxes owed for tax years 2002 and 2003.
In the state court petition, Koerner alleged that the defendants wrongfully required him to pay taxes on real estate he owns because (1) the defendants improperly revoked his homestead exemption; and (2) the defendants assessed an unconstitutional property tax against him. Further, Koerner alleged that the taxes of which he complains were paid under protest, but the defendants nevertheless imposed a tax lien on the property for non-payment of such taxes. According to the petition, the City informed Koerner that in the event a taxpayer pays a tax under protest, those taxes which are contested are not recorded as paid even if monies are actually forwarded to the City in satisfaction of the tax debt. As a result of the City's alleged practice of treating taxes paid under protest as unpaid, Koerner's mortgage holder received a bill from the City of New Orleans stating that property taxes for tax years 2002 and 2003 were unpaid.
In the petition, plaintiffs assert a damages claim for violations of their civil and constitutional rights. They claim that the defendants' wrongful collection of taxes, some of which they contend are unconstitutional, as well as the City's practice of recording taxes paid under protest as unpaid, constitute a denial of equal protection for which they are entitled to collect actual and punitive damages. Plaintiffs also seek a refund of taxes that were allegedly wrongfully collected by defendants. Invoking La. Civ. Code arts. 2315 and 2316, plaintiffs claim that the defendants intentionally and negligently caused damage to them by requiring them to improperly pay ad valorem taxes, by requiring them to complete unnecessary tax forms, and by wrongfully imposing tax liens on the properties. Plaintiffs claim that the tax liens clouded the titles to the properties and prevented plaintiffs from reselling their properties. Additionally, plaintiffs seek declaratory relief with respect to whether JAF and Koerner are liable for ad valorem and sales taxes and injunctive relief implementing their request for declaratory relief.
Koerner also alleged that the City wrongfully assessed a sales tax against him despite his repeated attempts to inform the City that, because he practices law, he is exempt from sales tax.
Finally, Koerner seeks an award of attorney's fees, pursuant to 42 U.S.C. § 1988, with respect to claims asserted pursuant to 42 U.S.C. § 1983 in a prior federal court litigation captioned Louis Koerner, Jr. v. The Garden Dist. Assoc., et al, Civil Action No. 00-2206, (E.D.La. 2000). With respect to certain claims asserted in that litigation, the Court entered a consent judgment on February 10, 2003, whereby the Court ordered Betty Jefferson, individually and in her official capacity as tax assessor for the Fourth Municipal District of the City of New Orleans, to retroactively reinstate Koerner's homestead exemption and take any necessary steps in her official capacity to assist Koerner in effectuating the return of taxes which were paid or currently due on account of the revocation of his homestead exemption. Koerner claims that the consent judgment in the prior federal litigation made him a prevailing party in that action and, therefore, he seeks to collect attorney's fees attributable to that litigation in the present lawsuit.
See Koerner v. The Garden Dist. Assoc., et al, 00-cv-2206 (E.D.La. 2000), Rec. Doc. No. 172.
In one paragraph of the petition, Koerner asserts that he is asserting the claim for attorney's fees in the present lawsuit because an award of attorney's fees against the Louisiana Tax Commission was barred by the Eleventh Amendment in the prior federal court litigation, See Rec. Doc. No. 1, pl. petition, ¶ 16. However, in another part of the petition, Koerner alleged that either the Louisiana Tax Commission, the City of New Orleans, or both are responsible for payment of his attorney's fees. Id., ¶ 22.
On March 31, 2003, the City removed this action to this Court. The City alleged that this Court had subject matter jurisdiction pursuant to 28 U.S.C. § 1331 due to the presence of a federal claim. Although the petition did not cite any particular statute with respect to the constitutional and civil rights claims asserted therein, defendants contended that plaintiffs' state court petition stated a cause of action pursuant to 42 U.S.C. § 1983. Subsequent to removing this action, the City failed to answer plaintiffs' petition. On August 27, 2003, the clerk of court entered a preliminary default against the City. On August 28, 2003, the City filed an answer to plaintiffs' petition. On September 2, 2003, the City filed the instant motion to vacate the Clerk's entry of default.
Rec. Doc. No. 1.
Id.
See Rec. Doc. No. 6.
Rec. Doc. No. 7.
Rec. Doc. No. 8.
The City contends that the entry of default should be vacated primarily because plaintiffs' claims for relief are barred by the Tax Injunction Act, 28 U.S.C. § 1341. Additionally, the City asserts that the entry of default did not comply with Federal Rule of Civil Procedure 55(a) because plaintiffs primarily seek declaratory and injunctive relief which is not "affirmative relief within the meaning of Rule 55(a).
Plaintiffs contend that the entry of default was proper because the City waived the right to rely on the Tax Injunction Act as a jurisdictional bar by removing the case to federal court. Furthermore, plaintiffs argue that their claims for refunds of taxes wrongfully collected constitutes "affirmative relief within the meaning of Rule 55(a) and, moreover, no good cause exists to set aside the entry of default.
LAW AND ANALYSIS
28 U.S.C. § 1341 provides:
The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.
Section 1341 "is not a narrow statute aimed only at injunctive interference with tax collection," but is instead a "broad jurisdictional impediment to federal court interference with the administration of state tax systems." United Gas Pipe Line Co. v. Whitman, 595 F.2d 323, 326 (5th Cir. 1980).
As the Supreme Court has often noted, a federal court order to restrain taxation inevitably interferes with the state's internal economy. See, e. g., Moe v. Confederated Salish and Kootenai Tribes of the Flathead Reservation, 425 U.S. 463, 470, 96 S.Ct. 1634, 1640, 48 L.Ed.2d 96 (1976). Such federal interference with the fiscal affairs of a state violates the tenets of the tenth amendment. See National League of Cities v. Usery, 426 U.S. 833, 96 S.Ct. 2465, 49 L.Ed.2d 245, (1976). Accordingly, equitable principles, principles of federalism, and "recognition of the imperative need of a State to administer its own fiscal operations" require that special restrictions be placed on federal jurisdiction when the validity of a state tax law is challenged. Tully v. Griffin, Inc., 429 U.S. 68, 73, 97 S.Ct. 219, 222, 50 L.Ed.2d 227(1976).A Bonding Co. v. Sunnuck, 629 F.2d 1127, 1130 (5th Cir. 1980). Applying the principle of federal court restraint pertaining to lawsuits involving the administration of state tax systems, the Fifth Circuit has held that, when state law provides an adequate remedy, § 1341 imposes a jurisdictional bar in federal court to lawsuits seeking declaratory relief in state tax cases, City of Houston v. Standard-Triumph Motor Co., 347 F.2d 194, 201 (5th Cir. 1965), and actions seeking refunds of taxes wrongfully collected. United Gas, 595 F.2d at 327; Bland v. McHann, 463 F.2d 21, 27 (5th Cir. 1971). Additionally, § 1341 precludes federal jurisdiction over damage actions that would have the same disruptive effect on the administration of state tax systems that actions for tax refunds, declaratory, or injunctive relief would have. Sunnuck, 629 F.2d at 1134.
In Sunnuck, the Fifth Circuit held that "a federal court suit for damages against a state tax administrator, based on the theory that the administrator tortiously enforced an unconstitutional tax, would have many of the same detrimental effects that actions for tax refund, declaratory, or injunctive relief would have." 629 F.2d at 1133. It is unclear from the face of plaintiffs' petition whether plaintiff alleges that all of the taxes imposed on them are unconstitutional or whether plaintiffs' claims challenge only the method of tax collection employed by the City with respect to certain taxes. In either event, it is clear that plaintiffs' petition states that at least one tax imposed by the defendants is unconstitutional and the claim for damages states that the system by which the City collects taxes is unconstitutional because it denies them equal protection of the laws of the United States. In combination, these allegations clearly invoke the jurisdictional bar of § 1341. Id. (noting that § 1341 `"is meant to be a broad jurisdictional impediment to federal court interference with the administration of state tax systems'") (quoting United Gas, 595 F.2d at 326); Campbell v. Sales Tax Dist. #3 of St. Tammany Parish, 673 F. Supp. 790, 794-95 (E.D.La. 1987) (holding that § 1341 imposes a jurisdictional bar on federal court litigation of a lawsuit involving allegations of the disparate impact of the parish tax collection process).
Addressing whether the principle of comity precluded an award of damages in a § 1983 action challenging the alleged unconstitutional administration of a county property tax scheme, the United States Supreme Court noted:
The recovery of damages under the Civil Rights Act first requires a "declaration" or determination of the unconstitutionality of a state tax scheme that would halt its operation. And damages actions, no less than actions for an injunction, would hale state officers into federal court every time a taxpayer alleged the requisite elements of a § 1983 claim. We consider such interference to be contrary to "[t]he scrupulous regard for the rightful independence of state governments which should at all times actuate the federal courts." [Matthews v. Rodgers, 284 U.S. 521, 525, 52 S.Ct. 217, 219, 76 L.Ed 447 (1932)].Fair Assessment in Real Estate Ass'n, Inc. v. McNary, 454 U.S. 100, 115-116, 102 S.Ct. 177, 186, 70 L.Ed.2d 271 (1981).
The tax collection of which plaintiffs complain clearly is a collection of taxes "under State law." § 1341; Campbell, 673 F. Supp. at 793 (noting that local taxes are taxes "under State law" as defined by the Tax Injunction Act). Furthermore, plaintiffs do not contest that Louisiana provides a plain, speedy and efficient remedy in the Louisiana courts. Plaintiffs' claims for injunctive and declaratory relief and their claims for refunds of taxes allegedly wrongfully collected and paid to the City are clearly barred pursuant to § 1341. Additionally, plaintiffs' allegations in support of their claim for damages challenge whether the taxes may be legally collected and the constitutionality of the manner in which the tax scheme is administered. Such allegations demonstrate that plaintiffs' claims would unquestionably "have the same disruptive effect on the administration of state tax systems that actions for tax refunds, declaratory, or injunctive relief would have." Sunnuck, 629 F.2d at 1134. Accordingly, all of plaintiffs' substantive claims are barred by § 1341.
Relying on cases pertaining to a state's waiver of Eleventh Amendment immunity, plaintiffs argue that because the defendants removed this action to federal court, the City has waived its right to raise the jurisdictional bar of § 1341 to challenge the entry of default. See Lapides v. Board of Regents, 535 U.S. 613, 624, 122 S.Ct. 1640, 1646, 152 L.Ed.2d 806 (2002) (holding that "removal is a form of voluntary invocation of a federal court's jurisdiction sufficient to waive the State's otherwise valid objection to litigation of a matter . . . in a federal forum."). This Court need not, and does not, pass upon the question of whether Eleventh Amendment immunity is relevant to any defendant in this action because, in any event, plaintiffs' argument that a party's consent to federal court jurisdiction waives the applicability of § 1341 is without merit.
Section 1341 "is a restraint on the court itself, not merely on the parties, and the parties by their consent may not subvert the statute's jurisdictional bar." United Gas, 595 F.2d at 328 n. 6. The Fifth Circuit has explicitly held that a state's waiver of Eleventh Amendment immunity from a lawsuit in federal court is not determinative of the issue of whether a federal court may exercise jurisdiction over a state tax case otherwise barred by § 1341:
A state may waive its sovereign immunity from suit, but it may not amend an act of Congress. It is axiomatic that federal courts are courts of limited jurisdiction and that only Congress may retract or expand the limits of federal judicial power. See, U.S. Const. Art. III; Ex Pane McCardle, 74 U.S. (7 Wall) 506, 19 L.Ed. 264 (1869). A state may no more authorize federal courts to hear a refund suit which Congress has prohibited, than it may, by waiving its sovereign immunity, also eliminate the requirement in a federal diversity action that the matter in controversy exceed the sum of [$75,000].Id. at 330 (alteration added); see also City of Houston, 347 F.2d at 201 (holding that the fact that state taxing authorities declined to object to a federal declaratory judgment action did not remove the jurisdictional bar of § 1341 because the statute acts as "a restraint, not upon the parties, but upon the Court"). Therefore, notwithstanding that this action was removed to federal court, this Court does not have jurisdiction over plaintiffs claims for a refund, damages, and injunctive and declaratory relief.
Finally, Koerner asserts a claim pursuant to 42 U.S.C. § 1988 for attorney's fees related to a prior federal court litigation. "It is well established that § 1988 is procedural and does not alone give rise to an independent cause of action." Redd v. Lambert, 522 F. Supp. 608 . 610 (E.D.La. 1981) (citing e.g., Taylor v. Nichols, 588 F.2d 561, 568 (10th Cir. 1977); Reeves v. American Optical Co., 408 F. Supp. 297, 302 (W.D.N.Y. 1976)). Accordingly, federal courts have held that where jurisdiction is not present to decide the merits of a substantive cause of action, a claim for attorney's fees pursuant to § 1988(b) does not alone provide a basis for federal jurisdiction under either 28 U.S.C. § 1331 or § 1334(3). See Missouri v. Cuffley, 112 F.3d 1332, 1338 (8th Cir. 1997)(§ 1331); Redd, 522 F. Supp. at 610(§ 1334(3)). Because this Court does not have subject matter jurisdiction over any of plaintiffs' substantive claims for relief in this action, this Court cannot exercise subject matter jurisdiction over plaintiffs' claim for attorney's fees.
28 U.S.C. § 1447(c) provides in pertinent part, "[i]f at anytime before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." It is well settled that "[f]ederal courts must be assured of their subject matter jurisdiction at all times and may question it sua sponte at any stage of judicial proceedings." In re Bass, 171 F.3d 1016, 1021 (5th Cir. 1999); see also F.D.I.C v. Loyd, 955 F.3d 316, 323 (5th Cir. 1992) ("[A] court must consider the existence of subject matter jurisdiction on its own motion."); see also Fed.R.Civ.P. 12(h)(3) ("Whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action."). Having found that the arguments raised in the City's motion to vacate the entry of default demonstrate that plaintiffs' claims for relief in this Court are barred by § 1341 . the lack of jurisdiction compels this Court to vacate the entry of default entered in this action and sua sponte remand this action to state court. Additionally, the lack of jurisdiction obviates the need to inquire whether defendants have demonstrated good cause to set aside the entry of default pursuant to Fed.R.Civ.P. 55(a).
Accordingly, for the above and foregoing reasons,
IT IS ORDERED that defendants' motion to vacate the entry of default is GRANTED, the entry of default is hereby VACATED, and this case is REMANDED to the Orleans Parish Civil District Court pursuant to 28 U.S.C. § 1447(c) because of a lack of subject matter jurisdiction.
New Orleans, Louisiana