Darne v. State of Wis., Department of Revenue

• Decision Date: 23 April 1998
• Docket Number: No. 95-3615,95-3615
• Citation: 137 F.3d 484
• Parties: 21 Employee Benefits Cas. 2569, Pens. Plan Guide (CCH) P 23940Y Laura DARNE, Plaintiff-Appellant, v. STATE OF WISCONSIN, DEPARTMENT OF REVENUE, Cate Zeuske * and Bruce Gamber, Revenue Agent, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 484

137 F.3d 484

21 Employee Benefits Cas. 2569,

Pens. Plan Guide (CCH) P 23940Y

Laura DARNE, Plaintiff-Appellant, v. STATE OF WISCONSIN, DEPARTMENT OF REVENUE, Cate Zeuske ^* and Bruce Gamber, Revenue Agent,

Defendants-Appellees.

No. 95-3615.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 11, 1997.

Decided Feb. 23, 1998.

Rehearing and Suggestion for Rehearing En Banc Denied April 23, 1998.

Laura Darne, Green Bay, WI, pro se, John Y.E. Lee (argued), Oppenheimer, Wolff & Donnelly, Chicago, IL, for Plaintiff-Appellant.

F. Thomas Creeron (argued), Office of the Attorney General, Wisconsin Department of Justice, Madison, WI, for Defendants-Appellees.

John Lee, John Y.E. Lee (argued), Oppenheimer, Wolff & Donnelly, Chicago, IL, for Amicus Curiae.

Before POSNER, Chief Judge, EASTERBROOK and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

In this action, Laura Darne sought declaratory and injunctive relief against the State of Wisconsin ("State"), the Secretary of the Wisconsin Department of Revenue ("Secretary") and a subordinate officer to prevent them from collecting any taxes which have been or might be assessed against her under Wisconsin Statute § 71.83(1)(a)6. That section imposes a tax penalty of 33% of the federal early withdrawal fee that is imposed on funds removed from certain qualified retirement plans. Before the district court, Ms. Darne contended that this section of the Wisconsin tax code was preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461. The district court disagreed and dismissed the case on the ground that it was barred by the Eleventh Amendment and the Tax Injunction Act of 1937 ("TIA"), 28 U.S.C. § 1341. For the reasons set forth in the following opinion, we affirm the judgment of the district court. ¹

I BACKGROUND

A. Facts

During the 1980s, Laura Darne invested funds on a tax-deferred basis through corporate retirement programs offered by her employers under ERISA. In 1993, Ms. Darne withdrew $6,844.67 from her retirement accounts; in 1994, she withdrew an additional $7,069.07. These were early withdrawals of The State of Wisconsin assesses an additional tax penalty for early withdrawal of retirement funds. See Wis. Stat. § 71.83(1)(a)6. The State law penalty requires a payment of 33% of the applicable federal early withdrawal penalty to the State. Ms. Darne informed Wisconsin in a letter submitted with her 1993 state tax return that she would not pay Wisconsin's early withdrawal fee because she believed the State statute violated ERISA. ² Ms. Darne then filed, in January 1995, this action seeking declaratory and injunctive relief. She sought both a declaration that the Wisconsin tax penalty law was preempted by ERISA and an injunction against the collection of any taxes due under the law.

the retirement funds. Consequently, the withdrawals were subject to a 10% early withdrawal fee under federal law. See 26 U.S.C. § 72(t)(1). Ms. Darne appropriately reported the withdrawals as income and paid the 10% fee on her federal tax returns for 1993 and 1994.

The Wisconsin Department of Revenue ("Department") sent Ms. Darne a notice of delinquent tax, dated February 20, 1995, prior to any action on her suit by the district court. Ms. Darne apparently did not receive this notice until February 24th, the same day that she received a letter from her bank indicating that it had complied with a "Notice of Levy" dated February 23, 1995, which the Department had sent to the bank. The bank had remitted to the Department from Ms. Darne's account $288.39, the amount due under the Wisconsin statute for the 1993 early withdrawal penalty plus interest.

The defendants filed their motion to dismiss the suit on March 18, 1995. Ms. Darne was granted leave to amend her complaint on March 28, 1995, to join Bruce Gamber, the revenue agent for the Department who issued the levy notice, and Mark Bugher, the Secretary of the Department. Ms. Darne also added vague theories of liability in the amended action, alleging that the levy of her bank account funds violated her constitutional rights under the Fourth and Fourteenth Amendments and that the levy of her funds constituted theft by Gamber. Based on these theories, Ms. Darne sought to enjoin Wisconsin from collecting the additional tax for which she would be liable as a consequence of her 1994 early withdrawal of retirement funds. She also sought declaratory relief to the same effect. Essentially, therefore, the claims before the district court included requests for retrospective monetary relief for the money taken from her bank account, prospective injunctive relief for future collection of funds under the Wisconsin statute and declaratory relief stating that the Wisconsin statute violates ERISA.

B. Decision of the District Court

The district court, on September 22, 1995, entered an order disposing of all of Ms. Darne's claims. The court determined that the Eleventh Amendment barred the claims brought against Wisconsin and the Department because Congress had not abrogated expressly the State's immunity through ERISA and the State had not consented to the suit. The court also determined that the Eleventh Amendment barred any claims of retrospective monetary relief against the Secretary or Gamber because the relief would have to be paid from Wisconsin's treasury.

The court next concluded that the Eleventh Amendment was not a bar to Ms. Darne's claims for declaratory and injunctive relief against the Secretary and Gamber under the Ex parte Young doctrine. However, the court held that the Tax Injunction Act barred those claims. In doing so, it determined that ERISA does not preempt or supersede the TIA. The district court therefore dismissed Ms. Darne's remaining claims for injunctive and declaratory relief.

II DISCUSSION

A. Eleventh Amendment

Under the Eleventh Amendment, states are generally immune from suit "regardless of the nature of the relief sought." Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 100, 104 S.Ct. 900, 908, 79 L.Ed.2d 67 (1984). The claim for monetary relief for payments already made is, of course, barred by the Supreme Court's holding in Edelman v. Jordan, 415 U.S. 651, 669, 94 S.Ct. 1347, 1358-59, 39 L.Ed.2d 662 (1974). See also Ford Motor Co. v. Department of Treasury, 323 U.S. 459, 65 S.Ct. 347, 89 L.Ed. 389 (1945). The claims for declaratory and injunctive relief fare no better. See Cory v. White, 457 U.S. 85, 91, 102 S.Ct. 2325, 2329, 72 L.Ed.2d 694 (1982).

Recently, in Marie O. v. Edgar, 131 F.3d 610, 615 (7th Cir.1997), we had occasion to rehearse at some length the exceptions to a state's immunity under the Eleventh Amendment. We noted that three exceptions to the constitutional bar exist. First, suits against state officials seeking prospective equitable relief for ongoing violations of federal law are not barred by the Eleventh Amendment. Second, individuals may sue directly a state when Congress has abrogated the immunity in unequivocal terms and pursuant to a valid exercise of its own power. Finally, a suit may be brought against a state directly when a state has waived its immunity and validly consented to suit in federal court. Here, with respect to Ms. Darne's contention that she may sue the State directly, only the second of these exceptions is at issue.

The district court correctly held that the Eleventh Amendment bars Ms. Darne's claims against Wisconsin. Even if we were to assume that such an abrogation had an adequate constitutional foundation, see Seminole Tribe of Florida v. Florida, 517 U.S. 44, 57, 71-74, 116 S.Ct. 1114, 1124, 1131-32, 134 L.Ed.2d 252 (1996), we could not accept Ms. Darne's argument that ERISA's complete preemption provision is tantamount to an implicit abrogation of the Eleventh Amendment by Congress.

In Dellmuth v. Muth, 491 U.S. 223, 109 S.Ct. 2397, 105 L.Ed.2d 181 (1989), the Supreme Court made very clear that we are to find a congressional abrogation of a state's immunity to suit in federal court only when that intention is both "unequivocal and textual." Id. at 230, 109 S.Ct. at 2401; accord Seminole Tribe, 517 U.S. at 55-56, 116 S.Ct. at 1123; Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 242, 105 S.Ct. 3142, 3147, 87 L.Ed.2d 171 (1985); Barnes v. E-Systems, Inc., Group Hosp. Med. & Surgical Ins. Plan, 501 U.S. 1301, 1304, 112 S.Ct. 1, 3, 115 L.Ed.2d 1087 (1991) (Scalia, J., in chambers). Although our colleagues in the Fifth Circuit may have reached the opposite conclusion without discussion, see E-Systems, Inc. v. Pogue, 929 F.2d 1100 (5th Cir.), cert. denied, 502 U.S. 981, 112 S.Ct. 585, 116 L.Ed.2d 610 (1991), we believe that the better view is the one reached by the Sixth Circuit in Thiokol Corp. v. Department of Treasury, 987 F.2d 376, 381-82 (6th Cir.1993). The text of ERISA simply falls short of the clarity by which we would expect Congress to abrogate such an important guarantee of state sovereignty. "While no provision expressly excludes states as potential defendants, neither does any provision expressly include states or waive their traditionally held immunity from suits in federal court." Id. at 382.

B. The Tax Injunction Act

In addition to her claims for relief against the State, Ms. Darne also sought declaratory and prospective injunctive relief against the defendant tax officials. We now must address whether the Tax Injunction Act precludes the district court's granting such relief. ³

Ms. Darne submits that the district court erred in determining that the TIA precluded it from entertaining these claims. She points out that the TIA prevents a district court's enjoining the collection of a state tax only if there is "a plain, speedy and efficient" remedy in a state court. In this case, she submits, there could be no such state remedy because her action was brought under ERISA. ERISA actions by beneficiaries seeking injunctive relief for violations of ERISA's terms are exclusively within...