562 F.3d 1002 (9th Cir. 2009), 05-15754, Winn v. Arizona Christian School Tuition Organization

Docket Nº:05-15754.
Citation:562 F.3d 1002
Party Name:Kathleen M. WINN, an Arizona taxpayer; Diane Wolfthal, an Arizona taxpayer; Maurice Wolfthal, an Arizona taxpayer Lynn Hoffman, an Arizona taxpayer, Plaintiffs-Appellants, v. ARIZONA CHRISTIAN SCHOOL TUITION ORGANIZATION; Arizona School Choice Trust; Luis Moscoso; Gale Garriott, in his official capacity as Director of the Arizona Department of Reve
Case Date:April 21, 2009
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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562 F.3d 1002 (9th Cir. 2009)

Kathleen M. WINN, an Arizona taxpayer; Diane Wolfthal, an Arizona taxpayer; Maurice Wolfthal, an Arizona taxpayer Lynn Hoffman, an Arizona taxpayer, Plaintiffs-Appellants,


ARIZONA CHRISTIAN SCHOOL TUITION ORGANIZATION; Arizona School Choice Trust; Luis Moscoso; Gale Garriott, in his official capacity as Director of the Arizona Department of Revenue; Glenn Dennard, Defendants-Appellees.

No. 05-15754.

United States Court of Appeals, Ninth Circuit.

April 21, 2009

Argued and Submitted Jan. 24, 2008.

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[Copyrighted Material Omitted]

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Marvin S. Cohen (argued), Sacks Tierney, P.A., Scottsdale, AZ; Paul Bender, Arizona State University College of Law, Tempe, AZ; and Isabel M. Humphrey, Three Gateway, Phoenix, AZ, for the plaintiffs-appellants.

Terry Goddard, Arizona Attorney General, and Paula S. Bickett (argued), Phoenix, AZ, for the defendants-appellees.

Timothy D. Keller (argued) and Clint Bolick, Institute for Justice, Phoenix, AZ; and Richard D. Komer, Institute for Justice, Washington, D.C., for intervenors-defendants-appellees, Arizona School Choice Trust, Glenn Dennard and Luis Moscoso.

Benjamin W. Bull, Gary S. McCaleb, Jeremy D. Tedesco, Alliance Defense Fund, Scottsdale, AZ, for intervenor-defendant-appellee,

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Arizona Christian School Tuition Organization.

Appeal from the United States District Court for the District of Arizona, Earl H. Carroll, District Judge, Presiding. D.C. No. CV-00-00287-EHC.



FISHER, Circuit Judge:

Arizona law grants income tax credits restricted to taxpayers who make contributions to nonprofit organizations that award private school scholarships to children. Plaintiffs, certain Arizona taxpayers, allege that some of the organizations funded under this program restrict the availability of their scholarships to religious schools, and that the program in effect deprives parents, the program's aid recipients, of a genuine choice between selecting scholarships to private secular schools or religious ones. We conclude that the plaintiffs' complaint, which at this stage of the litigation we must view in the light most favorable to the plaintiffs, sufficiently alleges that Arizona's tax-credit funded scholarship program lacks religious neutrality and true private choice in making scholarships available to parents. Although scholarship aid is allocated partially through the individual choices of Arizona taxpayers, overall the program in practice " carries with it the imprimatur of government endorsement." Zelman v. Simmons-Harris, 536 U.S. 639, 655, 122 S.Ct. 2460, 153 L.Ed.2d 604 (2002). We therefore hold, contrary to the district court, that plaintiffs' allegations, if accepted as true, are sufficient to state a claim that Arizona's private school scholarship tax credit program, as applied, violates the Establishment Clause of the United States Constitution.


Plaintiffs allege that Arizona's Revised Statute § 43-1089 (" Section 1089" ), as applied, violates the Establishment Clause of the First Amendment. Section 1089, first enacted by the Arizona legislature in 1997, gives individual taxpayers a dollar-for-dollar tax credit for contributions to " school tuition organizations" (" STOs" ).1 A STO is a private nonprofit organization that allocates at least 90 percent of its funds to tuition grants or scholarships for students enrolled in " a nongovernmental primary or secondary school or a preschool for handicapped students" within the state. Ariz.Rev.Stat. Ann. § 43-1089(G)(2)-(3) (2005).2 STOs may not provide scholarships to schools that " discriminate on the basis of race, color, handicap, familial status or national origin," but nothing in the statute precludes STOs from funding scholarships to schools that provide religious instruction or that give admissions preferences on the basis of religious affiliation. Id. § 1089(G)(2). Individual taxpayers can claim a tax credit of up to $500 for such contributions and married couples filing jointly can claim a credit of up to $1,000, provided the allowable tax credit does not exceed the taxes otherwise due. Id.

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§ 1089(A)-(B). Taxpayers may designate their contribution to a STO that agrees to provide a scholarship to benefit a particular child, so long as the child is not the taxpayer's own dependent. Id. § 1089(E). The tax credit is available to all taxpayers in Arizona, regardless of whether they are parents of school-age children or pay any private school tuition themselves.

Section 1089 requires STOs to provide scholarships or tuition grants to children " to allow them to attend any qualified school of their parents' choice," but also states that STOs may not provide scholarships while " limiting availability to only students of one school." Id. § 1089(G)(3) (emphasis added). On its face, then, Section 1089 could have been interpreted to require all STOs to provide scholarships to any qualified private school in the state, or to permit STOs to provide scholarships to a limited set of schools, so long as that set was greater than one. In practice, plaintiffs allege, many STOs have opted to limit the schools to which they offer scholarships, and a number of STOs provide scholarships that may be used only at religious schools or schools of a particular denomination. For example, plaintiffs allege that Arizona's three largest STOs, as measured by the amount of contributions reported in 1998, each restricts its scholarships to use at religious schools. The largest of these, the Catholic Tuition Organization of the Diocese of Phoenix, restricts its scholarships to use at Catholic schools in the Phoenix Diocese such as St. Mary's, which advertises its mission as being " to provide a quality Catholic education by developing and sustaining a rich tradition grounded in Gospel and family values." The second largest STO, the Arizona Christian School Tuition Organization, expressly restricts scholarships to use at " evangelical" Christian Schools. The third largest, Brophy Community Foundation, restricts its scholarships to use at two Catholic schools, one of which advertises its goal to be " instill[ing] a knowledge of the truths of faith, enlightened by the post-Conciliar teachings of the Church," and the other of which promotes itself as offering students " an intimate relationship with God" through " the process of nurturing the soul."

Arizona does not specify scholarship eligibility criteria or dictate how STOs choose the students who receive scholarships, and STO-provided scholarships therefore vary considerably. Although STOs may choose to award scholarships primarily based on financial need, Section 1089 does not require it. The availability of scholarships to particular students and particular schools thus depends on the amount of funding a STO receives, the range of schools to which it offers scholarships and the STO's own scholarship allocation decisions and eligibility criteria. Therefore, plaintiffs allege, because the largest STOs restrict their scholarships to sectarian schools, students who wish to attend non-religious private schools are disadvantaged in terms of the STO-provided scholarships available to them. Thus, plaintiffs argue, the disparities in the availability and amount of scholarships for use at religious and secular schools show that the structure of Section 1089, as applied, favors religious over secular schools, and thereby violates the Establishment Clause.

Before Section 1089 became operative, the Arizona Supreme Court, based on its construction of the statute, held that it did not on its face violate the Establishment Clause or provisions of the Arizona state constitution. See Kotterman v. Killian, 193 Ariz. 273, 972 P.2d 606 (1999) (en banc).3 After the statute took effect, different

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plaintiffs filed this suit against the Director of Arizona's Department of Revenue in the United States District Court for the District of Arizona.4 Plaintiffs do not contest the facial validity of Section 1089, but rather assert that it violates the Establishment Clause as applied.5 The district court dismissed the suit as barred by the Tax Injunction Act. See Winn v. Killian, 307 F.3d 1011, 1013 (9th Cir.2002). We reversed the dismissal, see id. at 1020, and the Supreme Court affirmed our decision. See Hibbs v. Winn, 542 U.S. 88, 112, 124 S.Ct. 2276, 159 L.Ed.2d 172 (2004). On remand, the district court allowed two STOs, the Arizona Christian School Tuition Organization (" ACSTO" ) and Arizona School Choice Trust (" ASCT" ), and two parents of ASCT scholarship recipients, Glenn Dennard and Luis Moscoso, to intervene as defendants. ACSTO provides scholarships only to religious schools and the ASCT provides scholarships to any private school of the parents' choice.6 Defendants again moved to dismiss, contending that plaintiffs lacked standing, that the suit was barred by res judicata and that plaintiffs had failed to state a claim under the Establishment Clause. The district court granted defendants' motion to dismiss for failure to state a claim and plaintiffs appealed. We have jurisdiction under 28 U.S.C. § 1291 and we reverse and remand for further proceedings.


We review the district court's dismissal for failure to state a claim de novo, " accept[ing] all factual allegations in the complaint as true and constru[ing] the pleadings in the light most favorable to the nonmoving party." Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir.2005). We affirm the district court " only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Enesco Corp. v....

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