Colonial Pipeline Co. v. Morgan

• Decision Date: 09 January 2007
• Docket Number: No. 06-5220.,06-5220.
• Parties: COLONIAL PIPELINE COMPANY, Plaintiff-Appellant, v. John G. MORGAN, Tennessee Comptroller of the Treasury, Individually and as a Member of the Tennessee State Board of Equalization, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 211

474 F.3d 211

COLONIAL PIPELINE COMPANY, Plaintiff-Appellant, v. John G. MORGAN, Tennessee Comptroller of the Treasury, Individually and as a Member of the Tennessee State Board of Equalization, et al., Defendants-Appellees.

No. 06-5220.

United States Court of Appeals, Sixth Circuit.

Argued: December 6, 2006.

Decided and Filed: January 9, 2007.

COPYRIGHT MATERIAL OMITTED

ARGUED: Ron L. Quigley, Davis, Matthews & Quigley, Atlanta, Georgia, for Appellant. Charles L. Lewis, Office of the Attorney General, Nashville, Tennessee, for Appellees. ON BRIEF: Ron L. Quigley, Davis, Matthews & Quigley, Atlanta, Georgia, for Appellant. Charles L. Lewis, Office of the Attorney General, Nashville, Tennessee, for Appellees.

Before MOORE and CLAY, Circuit Judges; BELL, Chief District Judge.^*

OPINION

CLAY, Circuit Judge.

Colonial Pipeline Company ("Colonial") appeals the district court's dismissal of its complaint under Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction. Colonial challenges the constitutionality of Tennessee's statutory scheme for classifying real and personal property for purposes of ad valorem tax assessment under the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution; Article I, Section 8, Clause 3 (the Commerce Clause) of the United States Constitution; Article VI, Clause 2 (the Supremacy Clause) of the United States Constitution; and Article I, Section 8 and Article XI, Section 8 of the Tennessee State Constitution. The district court found that the Tax Injunction Act, 28 U.S.C. § 1341, and comity principles bar Colonial from suing in federal court. For the following reasons, we AFFIRM the district court's decision.

BACKGROUND

Colonial is a corporation "engaged in interstate commerce as a common carrier of refined petroleum products and operates a large diameter refined petroleum pipeline extending from Pasadena, Texas, to Linden, New Jersey (New York Harbor), with stub lines serving parts of Tennessee." (J.A. 26) Colonial's pipeline "is the largest refined petroleum products pipeline in the world," (J.A. 30), and serves as a "transportation system for ... heating oil, diesel fuel, kerosene, jet fuel and gasoline." (J.A. 29) Colonial has operated the pipeline in Tennessee for more than forty years.

Under Tennessee Code Annotated ("T.C.A.") § 67-5-501(8)(G), "Colonial's real and personal property is classified and assessed as public utility property." (J.A. 30) Under T.C.A. § 67-5-1301(a)(7), Colonial's property "is appraised and assessed by the Comptroller of the Treasury, Office of State Assessed Properties" ("OSAP"). (J.A. 30) OSAP appraises Colonial's property as a single unit pursuant to T.C.A. § 67-5-1302. "The unit value of Colonial, which traverses thirteen states, is apportioned to Tennessee by a recognized apportionment formula." (J.A. 30; see T.C.A. §§ 67-5-1322 and 67-5-1323) "OSAP then applies the public utility assessment percentage of 55% to Tennessee's share of Colonial's unit value." (J.A. 30)

The record indicates that in the 1990s, airlines and railroads sued the Tennessee State Board of Equalization ("the Board" or "the State Board") "seeking ad valorem tax relief in the form of equalization of ad valorem taxes." (J.A. 31-32) Prior to this legal action, "all public utility operating property in Tennessee was assessed at 55% of its equalized value, whether real property or person property." (J.A. 32) On September 30, 1997, the lawsuit resulted in "a new form of equalization adjustment factor to the personal property portion" of public utility property. (J.A. 33; 137)

The classification of Colonial's property as either real or personal property before September 30, 1997 is not legally significant because both the real and personal property of public utility companies was assessed and taxed at the same rate prior to the equalization adjustment. (J.A. 137; Def. Br. at 6) "On October 9, 1997, Colonial applied to the State Board to classify Colonial's operating pipeline property in Tennessee as personal property." (J.A. 33) "Subsequently, OSAP recommended to the State Board that substantially all of Colonial's operating pipeline property be classified as real property, thereby substantially depriving Colonial of the equalization relief afforded to personal property by the State Board's Order of September 30, 1997." (J.A. 33) The Board consolidated numerous pipeline classification appeals and on January 25-27, 1999, an administrative law judge ("ALJ") conducted a hearing on the appeals. On January 14, 2000, the ALJ upheld the pipeline classification as real property. On February 14, 2000, Colonial appealed to the Board. The Board held a hearing on January 31, 2001, and affirmed the ALJ's decision on March 14, 2001. On May 11, 2001, Colonial appealed the Board's decision to the Tennessee Court of Appeals. On December 19, 2002, the Tennessee Court of Appeals reversed the Board's decision finding that "the pipelines and surface equipment shall be treated as personal property for purposes of ad valorem taxation." ANR Pipeline Co. v. Tenn. Bd. of Equalization, No. M2001-0109-COA-R12-CV, 2002 WL 31840689, at *4 (Tenn.Ct.App. Dec.19, 2002) (unpublished case).¹ "[O]n February 14, 2003, the State Board filed an Application for Permission to Appeal in the Supreme Court of Tennessee." (J.A. 35) The application was denied on June 30, 2003. Pursuant to ANR Pipeline Co., OSAP classified Colonial's pipeline as personal property for 2003.

On May 18, 2004, the Tennessee state legislature enacted a law that "effectively nullifies the 2002 decision of the Tennessee Court of Appeals by amending T.C.A. § 67-5-501(9)," and "deprive[s] Colonial of the equalization relief afforded to centrally assessed owners of personal property." (J.A. 37; see 2004 Tenn. Pub. Acts, ch. 719 (effective May 18, 2004)) In pertinent part, T.C.A. § 67-5-501(9) was amended as follows:

For purposes of classification and assessment of property:

...

(9)(B) Real property includes, but is not limited to, the following:

...

(iii) Mains, pipes, pipelines and tanks permitted or authorized to be built, laid or placed in, upon, or under any public or private street or place for conducting steam, heat, water, oil, electricity or any property, substance or product capable of transportation or conveyance therein or that is protected thereby, excluding propane tanks for residential use and above ground storage tanks which can be moved without disassembly and are not affixed to the land[.]

T.C.A. § 67-5-501(9) (emphasis added).

On August 11, 2004, Colonial appealed its 2004 ad valorem property tax assessment. On August 18, 2004, a hearing was held on Colonial's appeal. On September 7, 2004, Colonial received a letter from the Comptroller's officer stating that: "[t]he exception filed on behalf of the company ... raised issues regarding equalization and classification.... The issue of classification is a matter pending litigation." (J.A. 40) Colonial maintains that the letter indicates that the Board "deems itself not to be the proper forum for an administrative appeal of the classification issued presented by" the amendment to T.C.A. § 67-5-501(9). (J.A. 40) Colonial filed an appeal with the Board on September 14, 2004. Since no hearing was scheduled to address the appeal, Colonial sued numerous Tennessee state agencies and officials in federal court on February 24, 2005, alleging that it "ha[d] no plain, adequate, or complete remedy at law to redress the wrongs complained of ... apart from the filing of this action." (J.A. 41)

In the district court, Colonial argued that the amendment to T.C.A. § 67-5-501(9) deprives it of equalization of the ad valorem taxation of its personal property, and maintained that the pipeline classification as real property is arbitrary, capricious, invidiously discriminatory and without a rational relation to any legitimate government interest in violation of the Equal Protection Clause of the Fourteenth Amendment and the Tennessee Constitution. Colonial contended that while motor carriers — namely, airplanes and trucks — are assessed at a forty percent tax rate for real property and thirty percent for personal property, Colonial's property is assessed at fifty-five percent even though it provides and performs similar transportation and delivery services. "Colonial asserts it is no different from any other transportation company and should be treated the same for property tax purposes." (J.A. 190) Colonial alleges that since Tennessee's definition of real property was enacted with a discriminatory purpose and results in discriminatory ad valorem taxation, the classification constitutes discrimination against and an undue burden on interstate commerce in violation of the Commerce and Supremacy Clauses.

Colonial sought declaratory and injunctive relief. More specifically, Colonial asked the district court to 1) declare that Tennessee state statutes governing real property classifications, including T.C.A. § 67-5-501(9), are unconstitutional and unenforceable, and 2) enjoin Tennessee from classifying and assessing Colonial's property in any way other than as provided in ANR Pipeline Co., 2002 WL 31840689, at *4.

On March 17, 2005, Defendants moved to dismiss Colonial's complaint under Fed. R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction arguing that the Tax Injunction Act, 28 U.S.C. § 1341, and comity principles barred Colonial from suing in federal court. Defendants maintained that Colonial has a plain, speedy and efficient remedy before the Board and Tennessee state courts. Contrary to Colonial's allegation that no hearing was scheduled to address its appeal, Defendants filed an affidavit from an ALJ assigned to Colonial's appeal indicating that a status conference was held on September 28, 2004. Defendants proffered an affidavit from the Comptroller's office stating that nothing in the September 7, 2004 letter "was intended to indicate...