Campbell v. Hilton Head No. 1 Public Service Dist.

• Decision Date: 06 October 1999
• Docket Number: No. C.A.9:98-1572-23-76.,No. 9:98-2972-23-43.,C.A.9:98-1572-23-76.,9:98-2972-23-43.
• Citation: 114 F.Supp.2d 482
• Court: U.S. District Court — District of South Carolina
• Parties: Irvin W. CAMPBELL, J.C. Lawyer, Backus Ferguson, and Thomas J. Hanahan III, on behalf of themselves and all other similarly situated, Plaintiffs, v. HILTON HEAD NO. 1 PUBLIC SERVICE DISTRICT, and Beaufort County, South Carolina, Defendants.

114 F.Supp.2d 482

Irvin W. CAMPBELL, J.C. Lawyer, Backus Ferguson, and Thomas J. Hanahan III, on behalf of themselves and all other similarly situated, Plaintiffs, v. HILTON HEAD NO. 1 PUBLIC SERVICE DISTRICT, and Beaufort County, South Carolina, Defendants.

No. C.A.9:98-1572-23-76.

No. 9:98-2972-23-43.

United States District Court, D. South Carolina, Beaufort Division.

October 6, 1999.

Joel D. Bailey, Beaufort, SC, A. Camden, Lewis, Lewis, Babcock & Hawkins, for Plaintiffs.

Douglas W. MacNeille, Ruth and MacNeille, Hilton Head Island, SC, Henry J. White, Steve A. Mathews, James L. Ward, Jr., Sinkler & Boyd, Columbia, SC, for Hilton Head No. 1 Public Service District.

Stephen P. Hughes, Ladson F. Howell, Howell, Gibson and Hughes, Beaufort, SC, for Beaufort County.

ORDER

DUFFY, District Judge.

Out of heed to the premise that the federal district courts are courts of limited jurisdiction, this court made a sua sponte inquiry into the extent and implication of jurisdiction over the issues raised in the plaintiffs' complaint, and the propriety of remand. Plaintiffs, taxpayers in the Hilton Head No. 1 Public Service District (the "District"), brought these two actions seeking refunds, damages, and declaratory relief from what they allege to be an unconstitutional assessment of state taxes. Based upon the immutable disfavor of federal interference in matters of exclusively state concern, this court deems remand proper.

I. PROCEDURAL HISTORY

On June 1, 1998, plaintiffs filed two similar complaints in South Carolina state court and in this federal district court. In September, 1998, plaintiffs filed amended complaints in the both state and federal actions. As amended, those complaints contained identical captions and were virtually identical in their underlying factual allegations. The allegations addressed the various mechanisms by which the defendants raised funds to finance operating and capital needs — in particular: property taxes, availability fees, developer contributions, and others.¹ They also included charges of self-dealing and unjust enrichment in the expenditure of those funds. With respect to the legal background, the amended complaints alleged a taking of property without due process under the Fourteenth Amendment; lack of state statutory authority to impose such fees and charges; violation of state constitutional prohibitions against taxation without representation; racial discrimination; fraud; and other matters.

On October 7, 1998, defendants removed the state action to federal court; and the case was assigned to Senior District Court Judge Sol Blatt, Jr. On January 6, 1999, Judge Blatt entered a Consent Order of Consolidation. While this Order appeared to completely merge the state action into the federal action, technically it consolidated the two cases for filing purposes only. Therefore, the two cases remain open and independent actions.

Following a hearing on class certification on June 17, 1999, Judge Blatt recused himself and the case was reassigned to the undersigned. Apparently as a result of the discussions held at and after the hearing on class certification, counsel for the parties agreed on a substantial restructuring of the parties and issues in the case.² On September 3, 1999, this court granted plaintiffs' motion to amend. Both defendants have now answered the Second Amended Complaint.

The Second Amended Complaint alleges: (1) violation of 42 U.S.C. § 1983 as a result of the deprivation of property without due process and the deprivation of equal protection arising from the allegedly unauthorized collections of real and personal property taxes; (2) violation of 42 U.S.C. § 1985 as a result of a conspiracy to effectuate the allegedly unauthorized collection of taxes, and thereby to deprive the plaintiff class of equal protection and protected privileges and immunities; and (3) an unlawful taking of property by the alleged unauthorized collection of taxes, in violation of state and federal constitutions.³ The Second Amended Complaint seeks a refund, damages, injunctive relief, and attorneys' fees.

II. FACTUAL BACKGROUND

In 1969, the District was created by the South Carolina General Assembly as a special purpose district, governed by a five-member commission, to supply water and sewer services to residents and entities located on the northern portion of Hilton Head Island. Since its creation, the District has acquired the assets and facilities of various other smaller utility systems located within its areas of operation. By 1995, the District served nearly twelve thousand (12,000) water customers, most of whom consisted of commercial establishments, multi-family residential units, and residents of large planned communities or plantations. Residential customers in the District are charged a base rate for water and sewer services, plus an additional sum based upon actual consumption. Additionally, the District has historically charged both real and personal property taxes.

The District, through resolution of its governing board which is appointed by the Governor, historically set an ad valorem property tax millage for operating purposes within the limitation (not more than ten (10) mills) established by the South Carolina General Assembly in the Districts' enabling legislation. The South Carolina Supreme Court, in Weaver v. Richland Cty. Recreation District, 328 S.C. 83, 492 S.E.2d 79 (1997), determined that practice to be a violation of the South Carolina constitutional provision prohibiting taxation by unelected officials. See S.C. Const. art. X, § 5. The court, however, recognized that its decision in Weaver was a departure from prior generally-accepted understanding and practice. In order to avoid undue disruption to the proper functioning of governmental entities the court made its ruling in that case prospective, giving the General Assembly two (2) years to provide a new mechanism for affected political subdivisions to finance their operations, and permitted the continued taxation pursuant to the old procedures for that interim period. Id. at 82. The court did not order any remedy or refund for taxes imposed in earlier years, including the year that was specifically challenged.

In 1998, the General Assembly passed legislation which took all discretionary taxing power out of the hands of appointed bodies such as the District's governing board. See 1998 S.C. Acts 2389 (codified as S.C.Code Ann. § 6-11-271 (Supp.1998)). In its place, the General Assembly itself directly exercised its own taxing power for purposes of financing the operations of such entities. As a result of this legislative action, the District itself no longer imposes any taxes for operating and administrative purposes.

III. ANALYSIS

The Tax Injunction Act, 28 U.S.C. § 1341, provides that "[t]he 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." In Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 101 S.Ct. 1221, 67 L.Ed.2d 464 (1981), the Supreme Court recognized that "[t]he statute `has its roots in equity practice, in principles of federalism, and in recognition of the imperative need of a State to administer its own fiscal operations.'" Id. at 522, 101 S.Ct. 1221 (quoting Tully v. Griffin, Inc., 429 U.S. 68, 73, 97 S.Ct. 219, 50 L.Ed.2d 227 (1976)). According to the Court in Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 63 S.Ct. 1070, 87 L.Ed. 1407 (1943), the Tax Injunction Act should bar both injunctive and declaratory relief in state tax cases. Id. at 197-300. See also California v. Grace Brethren Church, 457 U.S. 393, 408, 102 S.Ct. 2498, 73 L.Ed.2d 93 (1982) (Tax Injunction Act prohibits declaratory judgment holding state tax law unconstitutional). Furthermore, the Supreme Court in Fair Assessment In Real Estate Ass'n, Inc. v. McNary, 454 U.S. 100, 116, 102 S.Ct. 177, 70 L.Ed.2d 271 (1981), held that because of principles of comity and federalism, Congress never authorized federal courts to entertain damages actions under section 1983 against the validity of state tax systems where state law furnishes an adequate legal remedy.<sup>4</sup> "[The Tax Injunction Act] and the decisions of this Court which preceded it, reflect the fundamental principle of comity between federal courts and state governments that is essential to `Our Federalism,' particularly in the area of state taxation." Id. at 103, 102 S.Ct. 177 (citations omitted). Only upon a showing that state law furnishes no adequate legal remedy, can a federal district court hear a case which seeks injunctive, declaratory, or monetary relief for the unconstitutionality of a state tax system.

In opposition to remand based upon these principles, the plaintiffs maintain that neither the Tax Injunction Act nor the Fair Assessment decision preclude the amenability of this action to federal court. Plaintiffs claim the subject tax scheme has already been declared unconstitutional by the South Carolina Supreme Court in Weaver v. Recreation District, 328 S.C. 83, 492 S.E.2d 79 (1997), and as such a § 1983 action seeking damages for an already adjudicated deprivation of constitutional rights does not fall within the confines of the justification for a refusal to exercise jurisdiction.⁵ Weaver, however does not relieve this court, if confronted with § 1983 claims, of the duty to declare the constitutionality of the taxes levied by the defendants. The court in Weaver declared the subject taxation scheme a violation of the South Carolina Constitution, not the Federal Constitution. In order to support a § 1983 cause of action, some violation of a federal right would have to be found. See Hodge v. Jones, 31 F.3d 157, 167 (4th Cir.1994); Clark v. Link, 855 F.2d 156, 161 (4th Cir.1988). Cf. Fair Assessment, 454 U.S. at 106-07, 102 S.Ct. 177 ("As in all other § 1983 actions, the award of such damages would...