ACF Industries v. Cal. State Bd. of Equalization
| Decision Date | 16 December 1986 |
| Docket Number | No. C-86-5438 DLJ.,C-86-5438 DLJ. |
| Citation | 653 F. Supp. 390 |
| Parties | ACF INDUSTRIES, INC., General American Transportation Corp., and Union Tank Car Company, Plaintiffs, v. CALIFORNIA STATE BOARD OF EQUALIZATION, Defendant. |
| Court | U.S. District Court — Northern District of California |
Fielding Lane, of the law firm Thelen, Marrin, Johnson & Bridges of San Francisco, and James W. McBride and Gregory G. Fletcher, of the law firm Laughlin, Halle, Gibson & McBride of Memphis, Tennessee, for plaintiffs.
Deputy Atty. Gen. Julian Standen, for defendant.
ORDER OF ABSTENTION
This matter came on for hearing on December 5, 1986, on plaintiffs' motion for a preliminary injunction and this Court's Order to Show Cause why it should not stay further proceedings under the Ninth Circuit's abstention order in Atchison, Topeka & Santa Fe Ry. v. Board of Equalization, 795 F.2d 1442 (9th Cir.1986) ("Santa Fe"). Plaintiffs ACF Industries, Inc. ("ACF"), General American Transportation Corp. ("GATC"), and Union Tank Car Co. ("UTC") were represented by their counsel, Fielding Lane, Esq., James McBride, Esq., and Gregory Fletcher, Esq. This Court admitted Mr. McBride and Mr. Fletcher to practice in this District pro hac vice. Defendant California State Board of Equalization ("Board") was represented by its counsel, Deputy Attorney General Julian Standen. After considering the parties' arguments on both the abstention issue and the merits of the motion for preliminary injunction, and examining the moving papers and records on file, the Court determines that under the abstention principles set forth in Santa Fe, supra, it must abstain from further proceedings in this action pending finality of the state-court valuation challenges noted in that case.
Plaintiffs filed this action on September 22, 1986 pursuant to § 306(c) of the Railroad Revitalization and Regulatory Reform Act of 1976 ("4-R Act"), codified at 49 U.S.C. § 11503(c). Plaintiffs are railroad car companies ("carlines") whose cars were assessed for the 1986 tax year by defendant Board on August 1, 1986. They contend that the Board has overvalued the true market value of their property which will cause discriminatory taxation in violation of the 4-R Act. Plaintiffs have submitted the affidavit of an expert witness to support this contention, and seek a preliminary injunction both to limit their 1986 tax to an amount based on the true market value asserted by plaintiffs and to prevent the State of California from collecting that portion of the 1986 tax which is based on the state's higher valuation of true market value. They seek, thereafter, at trial on the merits, to redetermine the true market value for their properties.
Plaintiffs have other actions before this Court under the 4-R Act which contend that the State of California has overvalued the true market value of their property in a tax year preceding 1986. C-82-6512-DLJ; C-82-6600-DLJ. On June 22, 1984, this Court consolidated plaintiffs' actions, which had been filed in 1982, along with other carlines' actions similarly challenging the Board's valuations and methodologies. Trailer Train Co. v. State Board of Equalization, No. C-81-4365-SW. (N.D. Cal. June 22, 1984). In that Master Consolidated Case, the Court issued a preliminary injunction against collection of more than 59.6% of property taxes assessed against plaintiff carlines for 1985-86 and subsequent tax years. Southern Pacific Transportation Co. v. California, No. C-81-4365-SW (N.D.Cal. Nov. 20, 1985). That order encompassed equalization relief. With respect to the carlines' overvaluation challenges, this Court ruled that it had no jurisdiction under the 4-R Act to hear valuation claims and granted carlines' petition to appeal. On appeal, the Ninth Circuit reversed, holding that a claim of a specific instance of overvaluation in state tax assessment of the true market value of rail transportation property can be heard in federal district court under the authority of the 4-R Act. At the same time the Circuit held that the district court should abstain from considering the merits of the claims at issue and stay consideration of the federal question pending finality of prior state court actions involving the merits of the valuation issue under California law. Atchison, Topeka & Santa Fe Ry. v. Board of Equalization, 795 F.2d 1442 (9th Cir. 1986) ("Santa Fe"). Accordingly, this Court stayed plaintiffs' actions contesting the valuation by the State of California of true market value in a tax year preceding 1986 along with all other proceedings in the Master Consolidated Case. Trailer Train Co. v. State Board of Equalization, C-81-4365-DLJ (N.D.Cal. Aug. 6, 1986).
Plaintiffs in the present action also have refund actions pending in state court with respect to tax years 1979, 1980, and 1981. Affidavit of Carl D. Eckhoff; Affidavit of Robert J. Zwartz; Affidavit of Alan Rusin. These refund actions include claims alleging overvaluation and challenging the Board's method of valuation. Plaintiffs have no state judicial or administrative proceedings pending with regard to their 1986 tax challenges. Affidavits of Eckhoff, Zwartz, and Rusin, supra.
On October 30, 1986, this Court ordered plaintiffs AFC, GATC, and UTC to show cause why it should not abstain from further proceedings, pursuant to the Santa Fe holding. The parties briefed both the abstention issue and the application for a preliminary injunction, and on December 5, 1986, this Court heard oral argument on both questions.
In Santa Fe, supra, the Ninth Circuit held that although this Court has the power to hear the carlines' overvaluation claims, it should abstain from hearing the merits of the valuation challenges until the State Courts have resolved the valuation issue in the first instance. The court explained that this holding rested on the "larger relationship" between federal courts and state taxation. Santa Fe, supra, 795 F.2d at 1446. The court balanced the congressional mandate that the 4-R Act provide a federal cause of action and a federal forum for rail companies' claims of discriminatory state taxation, against powerful countervailing concerns of comity in the overall structure of "Our Federalism," with regard to "the imperative need of a state to administer its own fiscal operations."
The Santa Fe Court reasoned that although Section 11503 is an exception to the Tax Injunction Act, it is not an exception to general principles of abstention. Santa Fe, supra, 795 F.2d at 1446. In deciding that abstention was called for in these cases, the court relied primarily on the rationale of judicial economy announced in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), where abstention was based on related proceedings pending in state court when the federal action was filed. Because appellant rail car companies in Santa Fe had attacked the same valuations in state court as they challenged in federal court, and because the state provides adequate protection for their discrimination claims by way of remedies which are "plain, adequate and complete," abstention was proper. That appellants had initially chosen a state forum was a factor obviously weighed by the Court, but the Court also indicated that the timely availability of an adequate state system of remedies counseled abstention. The court explained: "Our analysis might be different under a different state assessment structure, or if the railroads did not have the initial choice of forum." Santa Fe, supra, 795 F.2d at 1448 (emphasis added). This statement in the disjunctive highlights the considerations of comity which underlie the holding of Santa Fe.
Plaintiffs argue that the abstention directed by the Santa Fe court is to be viewed generally, in light of the policy which holds that abstention is the exception, not the rule, see, e.g., Alabama Pub. Serv. Comm'n v. Southern R. Co., 341 U.S. 341, 71 S.Ct. 762, 95 L.Ed. 1002 (1951), and in this specific case, is to be limited to those cases where there is a pending parallel state action where the railroad taxpayer has already invoked state remedies to challenge the state tax assessment of true market value in the tax year at issue. Plaintiffs contend that valuation decisions are necessarily based on year-by-year variations in company performance and economic environment and that, as a result, there must be a pending state challenge to valuation in the same tax year challenged in federal court for there to be "related proceedings" which require Colorado River abstention. The Board argues that the Santa Fe court did not adopt such a restricted view of "related proceedings" and that, in point of fact, as the parties to this action agreed at oral argument, the Ninth Circuit had directed abstention in the consolidated federal action covering tax years 1975-1983 regardless of the fact that not every taxpayer in Santa Fe had a pending parallel state action for every tax year involved.1 In light of the substantial basis, discussed below, for the broader definition of appropriate abstention in this case as well as the existing scope of abstention which has been directed, this Court rejects the narrow interpretation of plaintiff that there must be a pending state valuation challenge by the same taxpayer to the same year and adopts the position that a state proceeding can, in fact and law, be "related" for purposes of Santa Fe abstention even though it involves a different tax year or taxpayer.
The threshold issue before the Court is whether plaintiffs' instant action falls within the scope of the abstention rule laid down in Santa Fe. The Ninth Circuit there considered the several factors outlined in Colorado River, supra, and decided that: as to amount of activity, there were advanced state proceedings and no federal activity; as to the nature of the interest, property taxation is a matter of special...
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