10-3943-cv
Joseph, et. al v. Hyman, et. al
1 UNITED STATES COURT OF APPEALS
2
3 FOR THE SECOND CIRCUIT
4
5
6
7 August Term, 2011
8
9 (Argued: September 12, 2011 Decided: October 12, 2011)
10
11 Docket No. 10-3943-cv
12
13
14
15 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 -v.-
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.
39
40
41 Before:
42 Calabresi, Wesley, and Lohier, Circuit Judges.
43
1 Appeal from an order and judgment of the United States
2 District Court for the Southern District of New York
3 (Sullivan, J.), which granted Defendants’ motion to dismiss
4 Plaintiffs’ complaint pursuant to Federal Rules of Civil
5 Procedure 12(b)(1) and 12(b)(6). 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.
9
10 AFFIRMED.
11
12
13
14 HARLEY J. SCHNALL, Law Office of Harley J. Schnall,
15 New York, NY (Brian Lewis Bromberg, Bromberg Law
16 Office P.C., New York, NY, on the brief), for
17 Plaintiffs-Appellants.
18
19 STEVEN C. WU, Assistant Solicitor General, (Barbara
20 D. Underwood, Solicitor General, Benjamin N.
21 Gutman, Deputy Solicitor General, Cecilia C.
22 Chang, Assistant Solicitor General, on the brief),
23 for Eric T. Schneiderman, Attorney General of the
24 State of New York, New York, NY, for State
25 Defendants-Appellees.
26
27 JOSHUA M. WOLF, Assistant Corporation Counsel,
28 (Andrew G. Lipkin, Assistant Corporation Counsel,
29 on the brief), for Michael A. Cardozo, Corporation
30 Counsel of the City of New York, New York, NY,
31 for City Defendants-Appellees.
32
33
34
35 WESLEY, Circuit Judge:
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
2
1 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.
7 Background
8 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.
23 The exemption is narrow. It exempts Manhattan
3
1 residents from the 8% surtax only at their primary parking
2 location and only where the resident can demonstrate:
3 (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.
17 Discussion1
18 I. The Comity Doctrine
19 Federal courts generally abstain from cases that
20 challenge state taxation schemes on the basis that those
1
We typically review a district court’s decision to dismiss a complaint
on jurisdictional grounds de novo. See Rivers v. McLeod, 252 F.3d 99, 101 (2d
Cir. 2001). But, where, as here, a district court dismisses the action based
on comity, we review the decision for abuse of discretion. AEP Energy Servs.
Gas Holding Co. v. Bank of America, N.A., 626 F.3d 699, 719 (2d Cir. 2010).
4
1 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
6
1 constitutionality of state taxation of commercial activity.”
2 Id. at 2330.
3 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.
22
23
7
1 II. Applying Levin v. Commerce Energy, Inc.
2 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).
8
1 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.2
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,
2
One of the plaintiffs, Bruce Schwartz, is not in Levin’s terms a
competitor and therefore this aspect of the Levin decision does not apply to
him. There are serious questions as to whether Schwartz would have standing.
See Arizona Christian Sch. Tuition Org. v. Winn, 131 S. Ct. 1436 (2011). But,
in any event, since the other two Levin factors apply as much to Schwartz as
they do to the other plaintiffs, we do not believe the district court
committed reversible error in applying the comity doctrine to Schwartz, as
well as to the other plaintiffs.
9
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, 2339.3
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
3
The Levin court noted that, in state tax cases on review from state
high courts, the Supreme Court, for reasons of “federal-state comity,” will
remand the case to the state court to formulate an interim solution if the tax
scheme suffers from a constitutional defect. 130 S. Ct. at 2334. The Court
noted the same is not true for matters begun in district court:
If lower federal courts were to give audience to the
merits of suits alleging uneven state tax burdens,
however, recourse to state court for the interim
remedial determination would be unavailable. That is
so because federal tribunals lack authority to remand
to the state court system an action initiated in
federal court. Federal judges, moreover, are bound by
the TIA; absent certain exceptions the Act precludes
relief that would diminish state revenues, even if such
relief is the remedy least disruptive of the state
legislature’s design.
Levin, 130 S. Ct. at 2334 (citations and footnotes omitted).
10
1 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.
13
14 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
11
1 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.
18 Conclusion
19 The district court’s order that dismissed Appellants’
20 Complaint without prejudice is AFFIRMED.
12