Apache Bend Apartments, Ltd. v. U.S. Through I.R.S.

• Decision Date: 25 June 1992
• Docket Number: No. 91-1083,91-1083
• Citation: 964 F.2d 1556
• Parties: -5136, 92-2 USTC P 50,443 APACHE BEND APARTMENTS, LTD., et al., Plaintiffs-Appellants, v. UNITED STATES of America, Acting Through the INTERNAL REVENUE SERVICE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1556

964 F.2d 1556

70 A.F.T.R.2d 92-5136, 92-2 USTC P 50,443

APACHE BEND APARTMENTS, LTD., et al., Plaintiffs-Appellants, v. UNITED STATES of America, Acting Through the INTERNAL REVENUE SERVICE, Defendant-Appellee.

No. 91-1083.

United States Court of Appeals Fifth Circuit.

June 25, 1992.

E. Grady Jolly, Circuit Judge, dissented and specially concurred in result and filed opinion.

Patrick A. Barbolla, Ft. Worth, Tex., for plaintiffs-appellants.

Teresa E. McLaughlin, Gary R. Allen, Chief, Gilbert S. Rothenberg, Asst. Chief, Appellate Sec., Tax Div., Dept. of Justice, Washington, D.C., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before GOLDBERG, JOLLY, and WIENER, Circuit Judges.

GOLDBERG, Circuit Judge:

In an effort to dampen the impact of the radical changes brought about by the Tax Reform Act of 1986, Congress provided certain taxpayers exemptions from the new tax laws. In many instances, Congress designed these exemptions, known as "transition rules," to favor only one or a very few taxpayers. The method by which Congress selected those taxpayers that would enjoy the benefit of the transition rules is the subject of this lawsuit.

Plaintiffs are taxpayers that were not granted any relief under the transition rules. Claiming that they are similarly situated to those taxpayers to whom the transition rules do apply, they brought this lawsuit to challenge the constitutionality of the transition rules under the Uniformity Clause and equal protection component of the Due Process Clause of the United States Constitution. They argued that Congress exhibited favoritism to those taxpayers with strong congressional lobbies, and thus discriminated against those taxpayers, like plaintiffs, that "were not fortunate to have an ear in Congress." 132 Cong.Rec. H 8,389-90 (daily ed. Sept. 25, 1986) (statement of Rep. Kolbe). Plaintiffs sought declaratory and injunctive relief, requesting that the court enjoin the enforcement of the transition rules so that no taxpayer could benefit from them.

In a published opinion, the district court articulated the relevant facts, parsed the legislative history of the Tax Reform Act, studied the precedents germane to the issues raised, and detailed the legal basis for its decision. 702 F.Supp. 1285 (N.D.Tex.1988). In the end, it concluded that although these plaintiffs had standing to raise their claims, and although the court otherwise had jurisdiction to award the requested relief, the transition rules of the Tax Reform Act of 1986 were not constitutionally infirm. ¹

Our task on appeal is simplified by the exemplary efforts of the district court. ² We need not retrace all of its steps to affirm its judgment. Rather, we limit our discussion to two issues: first, whether these plaintiffs have standing to enjoin the application of the transition rules, and second, whether the transition rules violate the equal protection component of the Due Process Clause. In all other respects, we agree with the district court's reasoning. ³

I. STANDING

The district court concluded that plaintiffs have standing to challenge the constitutionality of the transition rules. Under what the district court described as general standing principles, the court reasoned that plaintiffs suffered an injury, traceable to the Tax Reform Act, which the court could redress by prohibiting the enforcement of the transition rules. 702 F.Supp. at 1291.

The standing question is complicated in this case by the nature of the relief sought by plaintiffs. They do not ask for the benefit of the transition rules that favor only the select taxpayers. Rather, they seek equality in treatment through the nullification of the transition rules. That is, they merely wish to have the court enjoin the government from providing the tax breaks presently accorded the select taxpayers through the transition rules so that all taxpayers will be treated alike. Thus, plaintiffs do not expect to obtain any tangible benefit or economic relief from their lawsuit, only the elimination of what they perceive to be discriminatory treatment.

The requested relief raises concerns about redressibility. It is well settled that a plaintiff has standing to bring a claim in federal court only if he can show an actual or threatened injury, attributable to the defendant, which the court can redress. Heckler v. Mathews, 465 U.S. 728, 104 S.Ct. 1387, 1394, 79 L.Ed.2d 646 (1984). If we view the injury suffered by plaintiffs in this case as the increased tax liability attendant to the new tax laws, then one might argue convincingly that nullifying the transition rules will in no way redress plaintiffs' injury, for they will continue to bear the increased tax liability even in the absence of the transition rules. Indeed, the only impact of nullification would be to impose that same tax liability upon those taxpayers enjoying favorable treatment under the transition rules. Viewed in that light, it would appear that plaintiffs have no standing because the relief sought would not redress the economic injury suffered. In essence, they would be litigating the tax liability of third parties--the taxpayers favored by the transition rules.

But in fact, the injury alleged by plaintiffs is not exclusively an economic one. Rather, plaintiffs contend that the disparity in treatment is itself a judicially cognizable injury, attributable to the government by virtue of its enforcement of the transition rules, which the federal court can redress. The court can redress this injury, in plaintiffs' view, either by making the transition rules applicable to plaintiffs (insofar as they are similarly situated), or by eliminating the transition rules altogether so that no one gets a tax break. In their complaint, as we have indicated, plaintiffs have pursued the latter course. They seek the satisfaction of knowing that the Tax Reform Act treats no one any better than them: If plaintiffs are not going to get the tax break, then no other similarly situated taxpayer should receive one, either.

We believe that the nullification of the transition rules so as to abrogate the tax breaks accorded to the select few under the transition rules would provide appropriate redress for the injuries alleged by plaintiffs. With respect to plaintiffs' equal protection claim, Heckler v. Mathews, 465 U.S. 728, 104 S.Ct. 1387, 79 L.Ed.2d 646 (1984), is right on point. In that case, the Supreme Court held that nondependent male retirees had standing to bring an equal protection challenge to a law favoring nondependent female retirees, even though the only redress available to them would be the abrogation of benefits to the nondependent female retirees: A severability clause in the statute provided that if the statute were declared unconstitutional, the favorable treatment accorded to female retirees would be eliminated. Thus, the male plaintiffs had no chance of obtaining the benefits afforded to female retirees under the statute; the most they could hope for was equality in treatment through the discontinuation of benefits to females. Reasoning that the injury in an equal protection case is not the denial of benefits alone but the denial of equal treatment as well, the Court concluded that "the appropriate remedy is a mandate of equal treatment, a result that can be accomplished by withdrawal of benefits from the favored class as well as by extension of benefits to the excluded class." Mathews, 104 S.Ct. at 1395 (emphasis in original) (citing Iowa-Des Moines Nat'l Bank v. Bennett, 284 U.S. 239, 52 S.Ct. 133, 76 L.Ed. 265 (1931)). The Court explained:

[W]e have never suggested that the injuries caused by a constitutionally underinclusive scheme can be remedied only by extending the program's benefits to the excluded class. To the contrary, we have noted that a court sustaining such a claim faces "two remedial alternatives: it may either declare the statute a nullity and order that its benefits not extend to the class that the legislature intended to benefit, or it may extend the coverage of the statute to include those who are aggrieved by the exclusion."

Id. 104 S.Ct. at 1394-95 (quoting Welsh v. United States, 398 U.S. 333, 90 S.Ct. 1792, 1807, 26 L.Ed.2d 308 (1970) (Harlan, J., concurring in result)).

The equal protection challenge levied by plaintiffs in this case is, for standing purposes, identical to the equal protection claim made in Mathews. Plaintiffs contest the classification as "constitutionally underinclusive," attributable to plaintiffs' political impotence, an inability to garner political favoritism from members of Congress. Like Mathews, they ask the court to strike down the scheme even though such a remedy would only strip benefits from the favored class; it would not directly enlarge their own pocketbooks. ⁴ Of course, such a remedy would work to eliminate the disparity in treatment and thus restore equality to the statutory scheme. And

because [the taxpayer plaintiffs] personally [have] been denied benefits that similarly situated [favored taxpayers] receive, [theirs] is not a generalized claim of the right possessed by every citizen, to require that the Government be administered according to law.

Mathews, 104 S.Ct. at 1396 n. 9 (quotations and citations omitted).

Some might suggest that the rule of Mathews--conferring standing in equal protection cases in which the only remedy available to the disfavored class is the elimination of benefits to the favored class--should be reserved for those cases involving stigmatic injury of the "archaic" variety: discrimination based on a characteristic of the person disfavored, such as race, alienage, national origin, gender, residence, age, or legitimacy. ⁵ We do not share that view. As we explain in Part II.A. of this opinion, a classification scheme violates equal protection even if the classifications are not drawn along suspect or quasi-suspect lines;...