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concluding that the TIA barred plaintiffs' action raising federal law and state law claims and seeking declaratory relief as to state taxing authority
Summary of this case from Smith v. ConwayOpinion
Civil File No. 02-649 (MJD/JGL)
September 24, 2002
MEMORANDUM AND ORDER
This matter is before the Court on Defendants' Motion to Dismiss. For the reasons that follow, the Court grants Defendants' motion.
BACKGROUND
Plaintiffs Peter and Charmaine Kraemer are residents of Turtle Lake, Wisconsin. (Am. Compl. at ¶¶ 10 and 11.) Defendants are the Minnesota Department of Revenue ("MDOR"), Wisconsin Department of Revenue ("WDOR"), and P.L. Feneis ("Feneis") and V.A. Colombo ("Colombo"), employees of MDOR, and G.O. Olson ("Olson") and Jay Gebert ("Gebert"), employees of WDOR. In the underlying lawsuit, Plaintiffs allege nine causes of action stemming from Minnesota and Wisconsin's income tax treatment of Plaintiffs' alleged casino gambling losses incurred during the years 1997, 1998, and 1999. In short, Plaintiffs assert that they incurred no income for these years because their total losses exceeded their winnings, and therefore, they are not required to report any state income tax earnings for those years. Apparently, Plaintiffs and MDOR have already resolved issues surrounding Plaintiffs' 1996 income tax return and gambling losses. (Am. Compl. at ¶ 27.) Plaintiffs allege that they exchanged correspondence repeatedly with Defendants MDOR, Colombo, Feneis, and Jerry McClure, Minnesota Director of Individual Tax Division, in an attempt to dispute tax liability for the years in question.
Plaintiff's version of the facts are as follows. On December 1, 2000, Plaintiffs sent a letter to MDOR requesting that they issue a subpoena pursuant to Minn. Stat. § 289A.36, subd. 6, in order to obtain casino records and witness testimony concerning Plaintiffs' tax liability for 1996, 1997, and 1998. On December 27, 2000, Feneis sent Plaintiffs a letter indicating that Plaintiffs owe taxes on estimated slot winnings for 1997. On January 16, 2001, Plaintiffs again requested Feneis to utilize subpoena power to procure Plaintiffs' records. On January 17, 2001, Feneis cited to federal law requiring Indians who live off the reservation to pay taxes, and requested Plaintiffs to file taxes for 1998 and 1999. On January 20, 2001, Plaintiffs responded via letter that they are not Indians or employees of the casino, that they have no tax liability for years 1997, 1998, and 1999, and that they again request an audit. On June 18, 2001, McClure sent a letter that Plaintiffs failed to provide information regarding tax years 1997 and 1998, taxes are due, and that failure to pay the taxes would result in collection action, including seizing money from bank accounts and wages or filing liens on real or personal property. On June 22, 2001, Plaintiffs responded to McClure's letter by stating that they had provided the necessary reports, requested that the commissioner utilize its subpoena power to gather additional material, and planned to commence legal action. Again, on June 26, 2001, Plaintiffs sent a letter to the Taxpayer Rights Office, stating that they did not have any tax liability. Thereafter, Feneis sent Plaintiffs an order for tax, penalty, and interest on "gambling winnings," along with an appeal voucher. Ultimately, on November 13, 2001, Plaintiffs filed an appeal "for an audit of all relevant records and witness testimony to prove the accuracy of plaintiffs' tax filings." (Am. Compl. at ¶ 37.) On December 13, 2001, Dwight Remmers, Supervisor of Appeals and Legal Services Division, sent a letter confirming that MDOR received Plaintiffs' appeal to the audit reports issued with regard to their 1997 and 1998 Minnesota Income Tax Returns and that the file would be referred to the Income Tax Division. On January 17, 2002, Plaintiffs received a letter from Feneis requesting copies of all documents pertaining to their claim that they had no tax liability to the State of Minnesota.
With respect to the Wisconsin Department of Revenue, Plaintiffs allege as follows. On April 15, 2001, Plaintiffs filed for a 1996 Wisconsin Homestead Credit following MDOR's determination that Plaintiffs had no tax liability for tax year 1996. On May 25, 2001, Olson sent Plaintiffs a letter requesting specific information regarding Plaintiffs' gaming activities in Minnesota. On June 4, 2001, Plaintiffs responded by indicating that all gaming activity for that year was conducted at Grand Casino in Hinckley, Minnesota, and that MDOR made a determination of no tax liability for that year. On July 2, 2001, Olson sent a Notice of Amount Due demanding payment of tax, penalty, and interest on a "guess amount" of Plaintiffs' gambling winnings in Minnesota. On July 8, 2001, Plaintiffs filed an appeal and requested an audit with WDOR. WDOR referred the matter to Jay Gebert on July 31, 2001. On December 4, 2001, Gebert sent Plaintiffs a letter requesting that they attend a conference scheduled for December 19, 2001, and bring any records to support their objections. The letter also indicated that Plaintiffs could reschedule the matter, and that if Plaintiffs failed to appear or reschedule, WDOR would assume that Plaintiffs have nothing further to present on the matter. On December 17, 2001, Plaintiffs responded via letter, indicating that they have no tax liability. On January 3, 2001, Gebert sent a letter denying Plaintiffs' petition on the basis of lack of supporting material.
Plaintiffs allege that Defendants violated federal and state law for their repeated requests of payment of tax liability, failure to investigate Plaintiffs' tax liability, including the failure to use its subpoena power, and method for calculating Plaintiffs' tax liability. Accordingly, in the Amended Complaint, Plaintiffs assert claims for violation of the Indian Gaming Regulatory Act of 1988, 25 U.S.C. § 2701 et seq. (Count 1); violation of 42 U.S.C. § 1983 (Count 2); harassment in violation of Wisconsin Statute § 947.013(1)(b) (Count 3); abuse of process (Count 4); conspiracy to defraud, deceive, harass, extort, abuse process, and inflict emotional distress (Count 5); extortion (Count 6); fraud (Count 7); intentional infliction of emotional distress (Count 8); and arbitrary and capricious use of power (Count 9). Plaintiffs seek declaratory relief
. . . that Congress and the state legislatures intend that the purpose of an investigation is to verify and ascertain the correctness of the taxpayers' tax filing; alternately, Congress and the state legislatures did not intend to give these defendants license to pursue a course of conduct of willful violations of due process, abuse of power, usurpation of authority, harassment, extortion by intimidation, conspiracy, dishonesty, deception, fraud, and infliction of mental and emotional distress; and, that these defendants are liable for such unlawful conduct.
(Am. Compl. at 19.) Plaintiffs also seek declaratory relief that Minnesota has statutory authority to allocate in-state Indian gaming activity for their review, examination, determination, and resolution; and alternatively, that Wisconsin does not have statutory authority to allocate out-state Indian gaming activity for their review, examination, determination, and resolution. Plaintiffs further seek compensatory damages in excess of $100,000 and punitive damages in excess of $100,000. Plaintiffs seek the $1,160 of Wisconsin Homestead Credit for 1996. Defendants move to dismiss the Amended Complaint on various grounds.
DISCUSSION 1. Standard
On a motion to dismiss, the Court must take the plaintiff's facts as alleged as true. Wescott v. Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). Additionally, the Court must construe the allegations in the compliant and reasonable inferences arising from the complaint favorably to the plaintiff. Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986). A motion to dismiss will be granted if it appears beyond a reasonable doubt that the plaintiff can prove no set of facts that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957).
2. Jurisdiction A. Eleventh Amendment
Defendants argue that the Court lacks jurisdiction to hear this matter because the States of Minnesota and Wisconsin have not waived their Eleventh Amendment immunity. See Seminole Tribe v. Florida, 517 U.S. 44, 54 (1996). Specifically, Defendants argue that Plaintiffs' claims for compensatory and punitive damages fall squarely within this rule. Edelman v. Jordan, 415 U.S. 651 (1974). Defendants argue that neither state has waived sovereign immunity. See id. Defendants also point out that although Congress abrogated state immunity in the Indian Gaming Regulatory Act, 25 U.S.C. § 2710(d), with respect to the limited extent of permitting tribes to sue states for failure to perform duties set forth in the Act, the Supreme Court held that the Commerce Clause did not give Congress the power to abrogate unilaterally Eleventh Amendment immunity from suit. Seminole Tribe, 517 U.S. 44. To the extent that Plaintiffs seek compensatory and punitive damages from the States of Minnesota and Wisconsin, the Court concludes that Plaintiffs' claims are barred.
B. Tax Injunction Act and Comity
The Tax Injunction Act, 28 U.S.C. § 1341, forbids federal courts from exercising jurisdiction over certain kinds of claims involving state taxation: "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." 28 U.S.C. § 1341 (1988). The prohibition extends to declaratory judgment actions as well as to suits for injunctive relief. California v. Grace Brethren Church, 457 U.S. 393, 411 (1982). The prohibition has been applied specifically to § 1983 suits in which the plaintiff seeks an injunction. Burris v. City of Little Rock, 941 F.2d 717, 720 (8th Cir. 1991). These prohibitions have been applied to enforce Congress's intent in enacting the Tax Injunction Act to prevent federal court interference with the assessment and collection of state taxes. Grace Brethren, 457 U.S. at 411.
Alternately, the Supreme Court has also held that general principles of comity bar federal courts from granting damages relief in such cases. Fair Assessment in Real Estate Assoc., Inc. v. McNary, 454 U.S. 100, 105, 107 (1981) (holding that principals of comity barred a § 1983 challenge to the administration of state tax laws in a suit for damages and declaratory relief). Indeed, the Court concluded that the § 1983 suit for damages was controlled by the principles of comity, in part, because
[t]he 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."
Id. at 115-16.
Accordingly, a Court is without jurisdiction to hear such cases when a "plain, speedy, and efficient remedy" is available in the state courts. Id.; see also McNary, 454 U.S. at 116. The adequacy of the state remedy is measured according to procedural rather than substantive criteria. Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 512 (1981). As long as the taxpayer's federal rights receive full consideration, the remedy is adequate. Id. at 514-15.
In essence, Plaintiffs here challenge as unlawful the way Minnesota and Wisconsin have determined Plaintiffs' state income tax liability, including the processes it used and did not use in order to determine that liability, as well as its attempts to collect those taxes. Plaintiffs assert a § 1983 claim against individual employees of MDOR and WDOR who executed these tax determinations and collection processes. Plaintiffs seek a declaratory judgment with respect to the state's determination, calculation, and collection methods, as well as the individual employees' liability, compensatory and punitive damages, and Wisconsin homestead credit. Nevertheless, both the Tax Injunction Act and general principles of comity bar this action. As Defendants point out, Plaintiffs have a plain, speedy, and efficient remedy available in the state courts of Minnesota and Wisconsin over these matters, as well as administrative alternatives.
C. Supplemental Jurisdiction
Defendants next argue that because the Eleventh Amendment and the Tax Injunction Act preclude this Court's exercise of subject matter jurisdiction over the federal claims, the Court lacks supplemental jurisdiction over Plaintiffs' remaining state law claims. Federal courts are courts of limited jurisdiction, and subject matter jurisdiction is a threshold matter that must be established. Godfrey v. Pulitzer Publ. Co., 161 F.3d 1137 (8th Cir. 1998). Pursuant to 28 U.S.C. § 1367(c)(3), the Court "may decline to exercise supplemental jurisdiction over a claim . . . if the [Court] has dismissed all claims over which it has original jurisdiction." In making this decision, the Court should consider the principles of judicial economy, comity, fairness, and convenience. Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988). The Court should also recognize that the "normal practice" when federal claims are dismissed prior to trial is to dismiss the supplemental state claims as well. Kapaun v. Dziedzic, 674 F.2d 737, 739 (8th Cir. 1982). Where resolution of the remaining claim depends solely on a determination of state law, the Court should decline to exercise jurisdiction. See, e.g., Baggett v. First Nat'l Bank, 117 F.3d 1342, 1353 (11th Cir. 1997) ("State courts, not federal courts, should be the final arbiters of state law."). After considering all of the relevant factors, the Court declines to exercise supplemental jurisdiction over Plaintiff's state law claim.
CONCLUSION
Accordingly, based on all the files, records, and proceedings herein, IT IS HEREBY
ORDERED that:
1. Defendants' Motion to Dismiss (Clerk Doc. Nos. 7 and 11) is GRANTED; and
2. This matter is DISMISSED.
LET JUDGMENT BE ENTERED ACCORDINGLY.