Joseph, et al. v. Hyman, et al., No. 10-3943 (2d Cir. 2011)
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Appellants sued New York City and the State, along with a number of city and state officials, challenging a tax scheme that exempted New York City residents from a tax levied on parking services rendered in Manhattan. Appellees subsequently filed a motion to dismiss, arguing, among other things, that comity barred the federal courts from hearing appellants' challenge to the state law. The district court granted the motion and the court affirmed, holding that because New York state courts have the ability to implement a remedy that the federal courts could not, Levin v. Commerce Energy, Inc. counseled in favor of dismissing the complaint pursuant to comity.
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10-3943-cv Joseph, et. al v. Hyman, et. al 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2011 (Argued: September 12, 2011 Decided: October 12, 2011) Docket No. 10-3943-cv CHARLES JOSEPH, individually and on behalf of all others similarly situated, JEFFREY UNGER, individually and on behalf of all others similarly situated, STEFAN WOLKENFELD, individually and on behalf of all others similarly situated, ROCK STORE LLC, BRUCE GLICKMAN, individually and on behalf of all others similarly situated, BRUCE SCHWARTZ, individually and on behalf of all others similarly situated, Plaintiffs - Appellants, -v.MICHAEL HYMAN, individually and in his official capacity as Commissioner of the Department of Finance of the City of New York, MARTHA E. STARK, JAIME WOODWARD, individually and in her official capacity as Commissioner of the Department of Taxation and Finance of the State of New York, ROBERT L. MEGNA, BARBARA G. BILLET, CITY OF NEW YORK, STATE OF NEW YORK, MICHAEL BLOOMBERG, individually and in his official capacity as Mayor of the City of New York, ELIOT L. SPITZER, GEORGE PATAKI, DAVID PATERSON, DAVID M. FRANKEL, individually and in his official capacity as Commissioner of the Department of Finance of the City of New York, Defendants - Appellees. Before: Calabresi, Wesley, and Lohier, Circuit Judges. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Appeal from an order and judgment of the United States District Court for the Southern District of New York (Sullivan, J.), which granted Defendants motion to dismiss Plaintiffs complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The district court found that comity precluded federal court adjudication of Plaintiff s claims. We conclude that the district court properly dismissed the complaint. 36 This case requires us to examine the role federal 37 courts should play in settling challenges to state tax 38 schemes. 39 district court s well-written opinion declining to exercise AFFIRMED. HARLEY J. SCHNALL, Law Office of Harley J. Schnall, New York, NY (Brian Lewis Bromberg, Bromberg Law Office P.C., New York, NY, on the brief), for Plaintiffs-Appellants. STEVEN C. WU, Assistant Solicitor General, (Barbara D. Underwood, Solicitor General, Benjamin N. Gutman, Deputy Solicitor General, Cecilia C. Chang, Assistant Solicitor General, on the brief), for Eric T. Schneiderman, Attorney General of the State of New York, New York, NY, for State Defendants-Appellees. JOSHUA M. WOLF, Assistant Corporation Counsel, (Andrew G. Lipkin, Assistant Corporation Counsel, on the brief), for Michael A. Cardozo, Corporation Counsel of the City of New York, New York, NY, for City Defendants-Appellees. WESLEY, Circuit Judge: For the reasons that follow, we affirm the 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. 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 8 9 Pursuant Background New York State imposes, or authorizes New York City to impose, taxes of 18.375% on parking lots and garages in 10 Manhattan. 11 and mass-transit-funding taxes. 12 is a city-implemented 8% surtax on parking services rendered 13 in Manhattan. 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. 17 A(a)(1). 18 Jersey and New York outside of Manhattan, and a Queens 19 resident who does not commute to Manhattan. 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 These taxes include various statewide, citywide, Also included in that rate N.Y. Tax Law § 1212-A. In 1985, the state N.Y. Tax Law § 1212- Appellants include a group of commuters from New The exemption is narrow. Appellants sued 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. 9 N.Y.C. Admin. Code § 11-2051(d). N.Y. Tax Law § 1212-A(a)(1)(i)(B); 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. 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. Discussion1 17 18 19 20 The I. The Comity Doctrine Federal courts generally abstain from cases that 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. 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). 5 Congress partially codified the federal reluctance to 6 interfere with state taxation with the Tax Injunction Act 7 ( TIA ). 8 590; see also 28 U.S.C. § 1341. 9 [t]he district courts shall not enjoin, suspend or restrain See In 1937, Nat l Private Truck Council, Inc., 515 U.S. at The TIA provides that 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. 13 28 U.S.C. § 1341. 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. 17 Winn, 542 U.S. 88, 101-10 (2004). 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. 23 Levin, 554 F.3d 1094 (6th Cir. 2009); Levy v. Pappas, 510 Hibbs v. After Hibbs, a number of See, e.g., Commerce Energy, Inc. v. 5 1 F.3d 755 (7th Cir. 2 (9th Cir. 2005). 3 Court resolved the issue in Levin. 4 2329-30; DIRECTV, Inc. v. Tolson, 513 F.3d 119 (4th Cir. 5 2008). 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 11 2007); Wilbur v. Locke, 423 F.3d 1101 Other circuits disagreed, and the Supreme See Levin, 130 S. Ct. at In Levin, the Court abrogated the post-Hibbs cases administration. Levin, 130 S. Ct. at 2328. In Levin, the plaintiffs (natural gas companies) 12 challenged tax exemptions granted to some of their 13 competitors. 14 challenged a state tax scheme; their challenge, if 15 successful, would have increased the flow of taxes to the 16 state. 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. 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 Like Appellants here, the Levin plaintiffs The Court rejected their claim, holding that even if Id. at 2332-33. 6 In rejecting the propriety 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). 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 Levin, on 1 2 II. Applying Levin v. Commerce Energy, Inc. 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. 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). At the time Hibbs was decided, moreover, the In this case, the rights asserted can 10 hardly be seen as fundamental in the relevant sense. 11 exemption burdens but one mode of travel, and not that 12 drastically. 13 amount to the denial of a fundamental right. 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 The [M]inor restrictions on travel simply do not Town of 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. 21 Constr. 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). See United Bldg. & Trades Council of Camden Cnty. v. 8 City of Camden, 1 Appellants are not true third parties to the tax 2 measure in question. 3 restricted to the exemption and the exemption impacts 4 Manhattan residents tax liability, rather than their own. 5 Levin foreclosed that argument. 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 They argue that their challenge is The Levin plaintiffs also 10 to the other taxpayers. 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 Levin, 130 S. Ct. at 2335. 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. 2 For this reason, 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. 5 2328, 2339.3 6 Id. at Appellants assert that the New York courts are unable 7 to grant any remedy that differs from that available in 8 federal court. 9 Appellants rely on Tennessee Gas Pipeline v. Urbach, 96 But Appellants misinterpret New York law. 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. 13 into that case and improperly separate the court s ruling Appellants read too much 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. 2 proposition that the state legislature cannot delegate its 3 law-making responsibilities to New York courts. 4 In Tennessee Gas, the court held that a savings provision in 5 the statute was invalid Tennessee Gas merely stands for the Id. at 134. 6 7 8 9 10 11 12 13 14 Id. 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 because it requires the Court to define the parameters of the credit and the manner in which it will be implemented. This violates fundamental separation of powers principles. The savings provision would require us to rewrite the statute and create quasi-judicial tax regulations. We are not well suited as an institution for such a task. That the court did not feel it should (or could) New York courts can, and do, enjoin the enforcement of 19 tax provisions. 20 A.D.3d 383, 384 (N.Y. App. Div. 4th Dep t 2008). 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 See Day Wholesale, Inc. v. New York, 51 New York 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. 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. 10 11 Levin, 130 S. Ct. at 2334. The Tully v. Griffin, Inc., 429 U.S. 68, 76- 77 (1976). We have considered the plaintiffs remaining arguments, 12 including their argument under the Dormant Commerce Clause, 13 and find them unavailing. 14 are present here, the district court wisely recognized that 15 Levin counseled it to dismiss Appellants complaint on 16 comity grounds. 17 affirmed. 18 19 20 Because none of the Hibbs factors The district court s decision to do so is Conclusion The district court s order that dismissed Appellants Complaint without prejudice is AFFIRMED. 12
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