Opinion
Case No. 3:20-cv-00469-SB
07-09-2020
ALEX WRIGHT, both on behalf of himself individually and, in addition, on behalf of the other similarly situated employees, Plaintiff, v. ATECH LOGISTICS, INC., Defendant.
FINDINGS AND RECOMMENDATION
BECKERMAN, U.S. Magistrate Judge.
Plaintiff Alex Wright ("Wright") filed this proposed class action against Atech Logistics, Inc. ("Atech"), asserting claims for unpaid wages under OR. REV. STAT. § 652.120, wrongful deductions under OR. REV. STAT. § 652.610, unpaid overtime under OR. REV. STAT. § 653.261 and 29 U.S.C. § 207, and unpaid wages upon termination under OR. REV. STAT. § 652.140. Atech moves to dismiss Wright's claims relating to Atech's alleged unlawful withholding of federal payroll taxes, on the ground that those claims are barred by the Anti-Injunction Act (26 U.S.C § 7421(a)) and the Declaratory Judgment Act (28 U.S.C. § 2201(a)), and are preempted by 26 U.S.C. § 7422.
This Court has jurisdiction over Wright's claims pursuant to 28 U.S.C. §§ 1331 and 1367. For the reasons discussed below, the district judge should grant Atech's motion to dismiss.
BACKGROUND
Atech is a California corporation conducting business in Oregon and elsewhere. (Compl. ¶ 4, ECF No. 1.) Wright worked as a professional truck driver at Atech for approximately two months. (Def.'s Mot. to Dismiss at 1, ECF No. 7.) Wright alleges that during that time, Atech made unauthorized deductions from his paycheck by rounding Federal Insurance Contributions Act ("FICA") taxes up to the next penny instead of down as required by 26 C.F.R. § 31.3102-1(d). (Compl. ¶ 5.)
For example, if an employee's Social Security withholding was calculated to be $34.44410 ($555.55 times 6.2% for Social Security = $34.44410), Wright alleges that federal tax regulations required Atech to round down and withhold $34.44 from his paycheck, but Atech instead rounded up and withheld $34.45. (Pl.'s Resp. at 2-3, ECF No. 9.) Wright does not seek "the return of the overdeducted penny[,]" but instead seeks (on behalf of a proposed class of all current and former Atech employees) a $200 statutory penalty, a declaratory judgment that Atech violated the law, and attorney's fees and costs. (Pl.'s Resp. at 3; Compl. ¶¶ 17, 20, 31.)
On December 30, 2019, Wright filed this case in the Multnomah County Circuit Court, and Atech removed the case on March 20, 2020. (ECF No. 1.) On April 21, 2020, Atech filed a motion to dismiss (ECF No. 7), and the Court heard oral argument on July 7, 2020. ///
DISCUSSION
I. STANDARD OF REVIEW
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. "The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully." Mashiri v. Epstein Grinnell & Howell, 845 F.3d 984, 988 (9th Cir. 2017) (internal quotation marks omitted) (citing Iqbal, 556 U.S. at 678)).
II. ANALYSIS
Atech asserts that the Anti-Injunction Act and the Declaratory Judgment Act bar Wright's claims relating to Atech's alleged FICA tax miscalculation. The Court agrees.
The Court therefore need not reach Atech's alternative argument that Wright's claims are preempted by 26 U.S.C. § 7422(a).
The Anti-Injunction Act provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed." 26 U.S.C. § 7421(a). "[T]he Anti-Injunction Act applies to claims for declaratory as well as injunctive relief." Fredrickson v. Starbucks Corp., 840 F.3d 1119, 1124 (9th Cir. 2016) (citing Hansen v. Dep't of Treasury, 528 F.3d 597, 601 (9th Cir. 2007)); see also 28 U.S.C. § 2201(a) (providing that courts may issue declaratory judgments "except with respect to Federal taxes"). "The purpose of the statute is to allow the United States to assess and collect taxes without judicial intervention." Maxfield v. U.S. Postal Serv., 752 F.2d 433, 434 (9th Cir. 1984) (citing Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7 (1962)).
The Ninth Circuit recently held that the Anti-Injunction Act bars the same type of wage-and-hour claims Wright asserts here. In Fredrickson, employees alleged that Starbucks improperly withheld federal and state taxes from their paychecks based on an improper estimate of tips received. Fredrickson, 840 F.3d at 1124. The Ninth Circuit first examined "the plaintiffs' request for declaratory and injunctive relief with respect to Starbucks' withholding of state taxes[,]" and noted that "Congress has sharply curtailed the authority of federal courts to issue declaratory or injunctive relief that impedes the administration of state tax laws." Id. at 1122. "The Tax Injunction Act 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.'" Id. (citing 28 U.S.C. § 1341). "[I]t is well settled that the Tax Injunction Act bars the entry of declaratory judgments to the same extent that it bars the issuance of injunctions." Fredrickson, 840 F.3d at 1122.
At the district court level, Senior U.S. District Court Judge Malcolm Marsh granted Starbucks' motion to dismiss the case, adopting the recommendation of U.S. Magistrate Judge Dennis J. Hubel. See Fredrickson v. Starbucks Corp., 980 F. Supp. 2d 1227 (2013).
The Ninth Circuit found that "the only question is whether the declaratory and injunctive relief the plaintiffs seek would 'enjoin, suspend or restrain'—that is, stop—the collection of state taxes within the meaning of the Act." Id. (citing Direct Mktg. Ass'n v. Brohl, 135 S. Ct. 1124, 1132-33 (2015)). The Ninth Circuit answered in the affirmative: "We think the plaintiffs' requested relief would do just that." Fredrickson, 840 F.3d at 1122. The Ninth Circuit reasoned that "[t]he plaintiffs want the district court to declare that Starbucks' withholding of state taxes on the basis of imputed tip income is illegal under Oregon law and to enjoin Starbucks from continuing to engage in that practice[,]" but "[t]he Supreme Court has held that an employer's withholding of tax payments from wages constitutes a method of tax 'collection,' and that an order enjoining employer withholding therefore stops collection of the tax." Id. (citing United States v. Am. Friends Serv. Comm., 419 U.S. 7, 10 (1974) (per curiam)).
The Ninth Circuit noted that "American Friends involved the Anti-Injunction Act, 26 U.S.C. § 7421(a), which bars actions seeking to restrain the collection of federal taxes, but the Court construes the two Acts in tandem." Fredrickson, 840 F.3d at 1122 (citing Direct Mktg., 135 S. Ct. at 1129).
The Ninth Circuit held that "[g]ranting the declaratory and injunctive relief requested here . . . would reduce the flow of state tax revenue" because "[i]f the relief were granted, Starbucks would no longer collect the state taxes in question and would no longer remit those funds to Oregon's treasury." Fredrickson, 840 F.3d at 1123. Noting that its holding was consistent with Supreme Court cases interpreting the Tax Injunction Act, the Ninth Circuit held that because "the plaintiffs challenge their employer's withholding practices[,]" "an employer's withholding of taxes constitutes a method of tax 'collection,'" and "an order enjoining that withholding stops collection of the tax[,]" the plaintiffs' wage-and-hour "case falls within the scope of the Tax Injunction Act." Id. The Ninth Circuit emphasized that the fact "that the plaintiffs are not challenging the amount in taxes ultimately owed" does "not change the outcome." Id. at 1123.
With respect to the claims challenging Starbucks' withholding of federal payroll taxes, the Ninth Circuit held that "[f]or similar reasons, we conclude that the district court lacks jurisdiction to issue declaratory or injunctive relief with respect to Starbucks' withholding of federal taxes." Id. at 1123-24. The Ninth Circuit noted that "the Supreme Court has squarely held that the Anti-Injunction Act bars actions against an employer's withholding of federal taxes from wages." Id. at 1124 (citing Am. Friends, 419 U.S. at 10 and Maxfield, 752 F.2d at 434). The Ninth Circuit held that "[o]ur analysis of the bar imposed by the Tax Injunction Act with respect to the state-tax component of the plaintiffs' claims applies equally under the Anti-Injunction Act to the federal-tax component of their claims" and "[t]he district court therefore lacks jurisdiction to issue declaratory and injunctive relief with respect to Starbucks' withholding of state or federal taxes." Fredrickson, 840 F.3d at 1124.
The Ninth Circuit did not need to reach the issue of whether the Tax Injunction Act or the Anti-Injunction Act also barred the plaintiffs' request for statutory damages, because the Ninth Circuit determined that "an award of statutory damages is precluded here by the federal-state comity doctrine" and therefore remand to the state court was appropriate. Id.; see also id. at 1126 ("The federal-state comity doctrine bars the district court from awarding statutory damages on the state-tax component of the plaintiffs' claims, from which the federal-tax component cannot be severed."). Nevertheless, the Ninth Circuit acknowledged that "[a]ny award of statutory damages here would have the same disruptive effect as entry of a declaratory judgment or issuance of an injunction, thereby undermining the state-revenue-protective objectives of the Tax Injunction Act." Id. at 1124 (citing May Trucking Co. v. Or. Dep't of Transp., 388 F.3d 1261, 1274 (9th Cir. 2004)). The Court reasoned that "[t]o award statutory damages, the district court would first have to declare that Oregon law prohibits Starbucks' practice of withholding state taxes on the basis of imputed tip income, and Starbucks would of course cease doing so in order to avoid future liability[,]" and "[t]he impermissible end result, as with declaratory or injunctive relief, would be to stop the flow of tax revenue into Oregon's coffers." Fredrickson, 840 F.3d at 1124.
The Ninth Circuit's analysis in Fredrickson squarely applies here. Wright alleges state wage-and-hour claims based on his allegation that Atech miscalculated the amount of FICA taxes it withheld from his paychecks. Although Wright seeks only declaratory relief and statutory damages (and attorney's fees), to award any relief the Court necessarily must first determine that Atech miscalculated the federal tax withheld. As the Ninth Circuit recognized in Fredrickson, a declaration that Atech's tax calculation violated 26 C.F.R. § 31.3102-1(d) "would of course" cause Atech to "cease" its rounding error "in order to avoid future liability." Fredrickson, 840 F.3d at 1124. Thus, "[t]he impermissible end result" of either a declaratory judgment or a statutory damages award would be to reduce the amount of "tax revenue into [federal] coffers" (id.), which the Anti-Injunction Act clearly prohibits. See 26 U.S.C. § 7421(a) ("[N]o suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person[.]"); see also Wash. v. Internal Rev. Serv., No. EDCV 17-617-DSF (AGR), 2017 WL 3275888, at *5 (C.D. Cal. July 7, 2017) ("Plaintiff argues that the AIA does not apply because she is challenging her withholding[,]" but "the Ninth Circuit applied the AIA to such a claim, which is 'viewed as one to restrain collection (through withholding) of federal income tax.'" (citing Fredrickson, 840 F.3d at 1122)); cf. Schagunn v. Gilland, No. 3:13-cv-00359-HZ, 2013 WL 1914399, at *4 (D. Or. May 7, 2013) (holding that the Anti-Injunction Act barred claims challenging employer's withholding of federal taxes).
Wright argues that even if the Anti-Injunction Act applies here, the judicial exceptions discussed in Enochs and S. Carolina v. Regan, 465 U.S. 367, 381 (1984) save his claims. The Court disagrees. The Enochs exception does not apply because it requires Wright to demonstrate, inter alia, that he has no alternative legal remedy, a burden he cannot meet here in light of the fact that he can seek a refund of any amount Atech improperly withheld. See, e.g., Brennan v. Sw. Airlines Co., 134 F.3d 1405, 1413 (9th Cir. 1998), as amended, 140 F.3d 849 (9th Cir. 1998) (declining to apply Enochs exception where the employer had already collected the tax and the plaintiff could seek a refund). The Regan exception does not apply because Wright is not challenging the validity of the FICA tax, and even if he was, he has the alternative legal remedy of seeking a refund. See Regan, 465 U.S. at 373 (holding that an additional judicial exception applies where "Congress has not provided the plaintiff with an alternative legal way to challenge the validity of a tax").
Wright appears to acknowledge that the Ninth Circuit's jurisdictional analysis in Fredrickson is binding (i.e., the Anti-Injunction Act barred the employees' claims for injunctive and declaratory relief), but argues that the Ninth Circuit's analysis on the availability of statutory damages is "dicta" and on remand the state court disagreed with much of the Ninth Circuit's (and the district court) opinion. See Pl.'s Resp. at 1-2; see also Fredrickson v. Starbucks Corp., No. 121215734, at *6 (Mult. Cty. Cir. Ct. June 21, 2017) ("The court will also discuss why it disagrees with or does not follow the decisions in Fredrickson I and Fredrickson II."). Even if the Ninth Circuit's analysis of statutory damages was dicta, the analysis was well-reasoned and the Court should follow it here. Accordingly, the district judge should grant Atech's motion to dismiss Wright's claims relating to the FICA tax calculation.
CONCLUSION
For the reasons stated, the Court recommends that the district judge GRANT Atech's motion to dismiss (ECF No. 7), and dismiss with prejudice Wright's first and second claims and his declaratory judgment claim to the extent it relates to the dismissed claims.
At oral argument, Wright's counsel suggested that Claims One and Two would not survive Atech's motion to dismiss. If the Court is mistaken about whether Claim One relates to the tax issue, counsel may so clarify in their objections.
SCHEDULING ORDER
The Court will refer its Findings and Recommendation to a district judge. Objections, if any, are due within fourteen (14) days. If no objections are filed, the Findings and Recommendation will go under advisement on that date. If objections are filed, a response is due within fourteen (14) days. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement.
DATED this 9th day of July, 2020.
/s/_________
STACIE F. BECKERMAN
United States Magistrate Judge