Bidart Bros. v. California Apple Com'n

Decision Date10 January 1996
Docket NumberNo. 95-15084,95-15084
Citation73 F.3d 925
Parties, 96 Cal. Daily Op. Serv. 237, 96 Daily Journal D.A.R. 362 BIDART BROTHERS, a California corporation, Plaintiff-Appellee, v. THE CALIFORNIA APPLE COMMISSION, Defendant-Appellant.
CourtU.S. Court of Appeals — Ninth Circuit

Appeal from the United States District Court for the Eastern District of California.

Dale A. Stern and Robert S. Hedrick, Kahn, Soares & Conway, Sacramento, California, for the appellant.

Brian C. Leighton, Clovis, California, for the appellee.

Before: WIGGINS and LEAVY, Circuit Judges and REAL, * District Judge.

WIGGINS, Circuit Judge:

The California Apple Commission ("the Commission"), created by a majority vote of California Apple producers, pursuant to California Food & Agriculture Code Secs. 75501 et seq., assesses a fee of one-fourth cent per pound of apples marketed on all producers of more than 40,000 pounds of California apples per year. The assessments are used predominantly to promote the sale of California apples. Bidart Brothers ("Bidart"), a major producer of California apples, brought suit in the Eastern District of California seeking declaratory and injunctive relief on the grounds that the Apple Commission legislation violated its First Amendment free speech and freedom of association rights, and its Fourteenth Amendment Equal Protection Rights. The district court granted a preliminary injunction, ordering the Commission to segregate all assessments on Bidart in a separate account, and to refrain from using those funds pending outcome of the case. The Commission appeals, arguing that the district court did not have subject matter jurisdiction because of the Tax Injunction Act ("TIA"), 28 U.S.C. Sec. 1341, which prohibits federal district courts from enjoining "the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such state." The Commission appeals only the district court's finding that the Apple Commission assessment is not a "State tax" under the TIA. We have jurisdiction under 28 U.S.C. Sec. 1292(a)(1) and affirm, finding that the Apple Commission assessment is not a tax under the TIA, and thus the TIA did not deprive the district court of subject matter jurisdiction.

FACTS

In 1990, California passed legislation authorizing the creation of the Commission. Cal.Food & Agric.Code Secs. 75501 et seq. ("Food Code"). The legislature made several declarations in the legislation regarding the apple industry and the purposes of the statute: the production and marketing of apples constitutes "an important industry of [California] which provides substantial and necessary revenues for the state and employment for its residents," id. Sec. 75501; "[t]he maintenance of the apple industry ... is necessary to assure the public of a continuous supply of this vital food product and the maintenance of needed levels of income for those persons engaged in the industry," id. Sec. 75502; the maintenance of the apple industry is a "public interest," id. Sec. 75503; and the legislation was enacted under California's police power to protect the "health, peace, safety, and general welfare of the state." Id.

In 1994, a majority of California's apple producers voted in favor of creating the Commission, pursuant to Food Code Secs. 75611-13. Commissioners were elected and organizational meetings were held, id. Secs. 75531-75546, and the schedule for assessments upon apple producers was established pursuant to Food Code Sec. 75630(c). The assessment is currently one-fourth cent, and cannot exceed three-fourths cent, unless a majority of apple producers approve. Id.

A failure to pay Commission assessments can result in penalties for late payment, id. Sec. 75636, or an injunction preventing a violator from marketing apples. Id. Sec. 75643(c). The Commission is given the power, inter alia, to conduct production research, id. Sec. 75592, promote the sale of apples, id. Sec. 75594, and collect and disseminate information. Id. Sec. 75595. The Commission will be terminated after five years if the majority of apple producers vote to do so. Id. Sec. 75651. If the Commission is terminated, funds remaining with the Commission will be returned on a pro rata basis to all producers from whom assessments were collected in the previous year. Id. Sec. 75655.

The Commission is explicitly declared to be a division of the state government, id. Sec. 75531, and the secretary of agriculture of California is given certain measures of control over it. See, e.g., id. Secs. 75532-34, 75585, 75589. However, the state is not liable for the Commission's acts or contracts, id. Sec. 75546, and the Commission may sue for relief from a decision of the secretary. Id. Sec. 75533.

Bidart grows approximately ten percent of the apples in California. Bidart paid the first Commission assessment on September 15, 1994, under protest. Bidart filed a complaint in the district court on October 4, 1994, seeking declaratory and injunctive relief, contending that the Apple Commission legislation violated its First Amendment free speech and freedom of association rights, and its Equal Protection rights.

The district court held that the TIA did not deprive the court of jurisdiction because the Apple Commission assessment was not a state tax within the meaning of the TIA. Finding that Bidart had demonstrated a probability of success on the merits, a possibility of irreparable harm, and the balance of hardships tipping in its favor, the court granted a preliminary injunction in favor of Bidart. The court ordered the Commission to place the assessments collected from Bidart in a segregated interest bearing account pending the final outcome of the case.

On appeal, the Commission challenges the jurisdiction of the district court, arguing only that the Commission assessments are state taxes within the meaning of the TIA. The existence of subject matter jurisdiction is a question of law reviewed de novo. Hoeck v. City of Portland, 57 F.3d 781, 784 (9th Cir.1995).

DISCUSSION

The TIA is a limitation on the jurisdiction of federal courts. It reads in full:

The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.

28 U.S.C. Sec. 1341.

The Ninth Circuit has not articulated a standard for determining whether an assessment imposed by a state entity is a tax within the meaning of the TIA. 1 The Commission argues that we should apply the standard for determining whether an assessment is a tax entitled to priority under the bankruptcy laws, articulated in In re Farmers Frozen Food Co., 221 F.Supp. 385 (N.D.Cal.1963), aff'd sub nom. J.M. Dungan v. Department of Agric., 332 F.2d 793 (9th Cir.1964) (per curiam). That test, derived from a number of other bankruptcy cases, listed four "elements which characterize an exaction of a 'tax' within the meaning" of the bankruptcy laws. Id. at 387.

(a) An involuntary pecuniary burden, regardless of name, laid upon individuals or property;

(b) Imposed by, or under authority of the legislature;

(c) For public purposes, including the purposes of defraying expenses of government or undertakings authorized by it;

(d) Under the police or taxing power of the state.

Id. 2 Much like the assessments in the case at bar, the assessments in Farmers Frozen Food were imposed upon strawberry handlers and producers after the approval of those entities, and were used for, inter alia, the marketing of strawberries. Id. at 389. The Farmers Frozen Food test was endorsed again by this court in In re Lorber Industries of California, Inc., 675 F.2d 1062, 1066 (9th Cir.1982), in finding that unpaid sewer user fees were debts and not unpaid taxes for the purpose of bankruptcy priority. Id. at 1067.

The Farmers Frozen Food test, however, does not provide a universal definition of "tax" applicable in every legal context. In Union Pacific Railway Co. v. Public Utility Commission, 899 F.2d 854 (9th Cir.1990), this court considered whether Oregon's assessment upon railroads operating in Oregon was a "tax" under 49 U.S.C. Sec. 11503(b)(4), which prohibits the imposition by states of a "tax that discriminates against a rail carrier." We observed that a number of "cases have held in a variety of contexts that government levies did not constitute 'taxes' in light of the nature of the levy and the purpose of the pertinent constitutional or statutory provision," id. at 858, and because the assessments had been imposed mainly for the purpose of regulation, rather than to raise revenue. Id. at 859. We found that the Oregon assessment was not a tax because the funds did not go into Oregon's general fund, but were used exclusively to defray the costs of an elaborate regulatory system. Id. We declined to apply the Farmers Frozen Food test, finding that " 'the characterization of a payment as a "tax" in certain contexts has no "talismanic significance," ' " especially "when the term is used in the context of an elaborate statutory scheme such as that created by the Bankruptcy Act." Id. at 861 & nn. 13-14 (internal citations omitted).

In light of the purpose of the TIA, it would not be appropriate to adopt the Farmers Frozen Food test to determine whether a state assessment is a tax under the TIA. The legislative history of the TIA reflects Congress's concerns about the damaging effect of state tax suits in federal court on state budgets.

The existing practice of the Federal courts in entertaining tax-injunction suits against State officers makes it possible for foreign corporations doing business in such States to withhold from them and their governmental subdivisions, taxes in such vast amounts and for such long periods of time as to seriously disrupt State and county finances. The pressing needs of these States for...

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