Dillon v. State of Mont., s. 78-3422

• Citation: 634 F.2d 463
• Decision Date: 23 December 1980
• Docket Number: Nos. 78-3422,78-3495,s. 78-3422
• Parties: Dewitt DILLON et al., Plaintiffs, Appellees, Cross-Appellants, v. The STATE of MONTANA et al., Defendants, Appellants, Cross-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 463

634 F.2d 463

Dewitt DILLON et al., Plaintiffs, Appellees, Cross-Appellants, v. The STATE of MONTANA et al., Defendants, Appellants, Cross-Appellees.

Nos. 78-3422, 78-3495.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Oct. 15, 1980.

Decided Dec. 23, 1980.

Thomas J. Lynaugh, Lynaugh, Fitzgerald, Schoppert, Skaggs & Essman, Billings, Mont., for Dillon.

Susan Stratman, Missoula, Mont., on brief; Deirdre Boggs, Sp. Asst. Atty. Gen., Missoula, Mont., for State of Mont.

Appeal from the United States District Court for the District of Montana.

Before ANDERSON and POOLE, Circuit Judges, and WOLLENBERG, ^* District Judge.

POOLE, Circuit Judge:

The State of Montana appeals a district court judgment which declared American Indians (Indians) residing on the federally recognized Crow Indian Reservation (Reservation) exempt from Montana's personal income tax, enjoined collection, and ordered refunds of taxes paid. The court denied exemption status to those Indians whose incomes were earned on the Reservation but who resided elsewhere and they cross appeal. ¹ Montana argues that the Tax Injunction Act, 28 U.S.C. § 1341, denies federal jurisdiction over the Indians' complaint. We agree and accordingly reverse.

I.

The Indians filed this suit in 1973 under 42 U.S.C. § 1983, claiming that the state could not constitutionally tax their income earned on the Reservation. Their complaint sought an injunction prohibiting collection of the state income tax, refund of taxes paid over the last five years, and contained class allegations. Federal subject matter jurisdiction was alleged pursuant to 28 U.S.C. § 1343(3). On June 6, 1976, the district court found that it had jurisdiction. ²

The court certified the case as a class action with six subclasses. Three of the subclasses included Indians all of whom reside off but earn income on the Reservation. These were grouped by ethnic and tribal characteristics: (1) enrolled Crow, (2) enrolled members of other federally recognized tribes and (3) Indians not enrolled in any tribe. The remaining three subclasses included Indians who reside and earn income on the Reservation and were similarly grouped by ethnic and tribal characteristics.

On cross motions for summary judgment, the district court held that the three subclasses of Indians residing and earning income on the Reservation were exempt from the state income tax while the remaining subclasses residing off the Reservation were subject to the tax. Injunctive, declaratory and refund relief was ordered.

Montana acquiesced in the grant of a tax exemption to Indians in the first subclass-enrolled Crow residing and earning income on the Reservation and has not appealed that portion of the district court's judgment. The grant of tax exemption to the remaining Reservation resident subclasses and the denial of exemption to the nonresident subclasses is before us by virtue of timely notices of appeal and cross appeal by Montana and the Indians.

The Tax Injunction Act, 28 U.S.C. § 1341, denies federal court jurisdiction to entertain a suit seeking relief from state taxation so long as the state provides a "plain, speedy and efficient remedy" to an aggrieved taxpayer in state courts. As Montana provides such a remedy for challengers of the state income tax, we hold that § 1341 precluded the district court from entertaining this case.

II.

Analysis begins with examination of § 1341. That statute provides:

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

28 U.S.C. § 1341.

The scope of the jurisdictional bar of § 1341 is broader than its terms immediately indicate. It clearly bars injunctive relief. Decisions of this circuit apply it to suits seeking federal declaratory relief from state taxation. Housing Authority of City of Seattle v. State of Washington, 629 F.2d 1307 (9th Cir. 1980); Mandel v. Hutchinson, 494 F.2d 364, 366 (9th Cir. 1974). In so holding, this court has recognized that any effort to obtain tax exemption or adjustment in federal court interferes with the fiscal operations of the state. Mandel, supra, 494 F.2d at 365-66 & n.1. Section 1341 embodies a strong federal policy of noninterference with state taxation and tax administration. Id. at 366. As a suit for a tax refund inevitably requires a court to interpret state taxing statutes and analyze the ambit of state taxing power, we held in Kelly v. Springett, 527 F.2d 1090 (9th Cir. 1975), that § 1341 jurisdictionally barred a 42 U.S.C. § 1983 suit in federal court which sought a refund of state taxes. Id. at 1093-94.

In this case, also a § 1983 action, the district court enjoined collection of the Montana income tax, declared Indians exempt from payment and ordered the State to make refunds. Our prior decisions, outlined above, indicate that each of these forms of relief implicate § 1341.

The Indians do not dispute the state of the law in this circuit as to injunctive and declaratory relief. ³ Rather, they argue that to the extent our decision in Kelly held refund suits barred by § 1341, that holding must be reconsidered in light of Moe v. Confederated Salish & Kootenai Tribes, 425 U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96 (1976). They point to a single sentence in note 14 of the Supreme Court's opinion, which concluded with these words: "Any further proceedings with respect to refund claims by or on behalf of individual Indians ..., would not appear to implicate § 1341." Id. at 475, n. 14, 96 S.Ct. at 1642. Upon careful examination, we are confident that the Court did not intend by this language to overrule the view of this and other circuits that § 1341 withdraws federal jurisdiction over suits for state tax refunds when adequate state remedies exist.

The Moe comment must be viewed in context. The Supreme Court had before it consolidated appeals from a Montana three-judge district court involving that state's power to impose cigarette sales and various personal property taxes on reservation Indians. Joined as plaintiffs in each appeal were an Indian tribe and class representatives of individual tribal members. Only in the personal property tax case did the complaint include a prayer for refund of taxes paid. The district court found jurisdiction over both tribe and individual plaintiffs. Its only mention of § 1341 with respect to the individual plaintiffs was a sentence in each district court opinion to the effect that jurisdiction was not defeated by that section. See Confederated Salish & Kootenai Tribes v. Moe, 392 F.Supp. 1297, 1305 (D.Mont.1974) (per curiam), aff'd, 425 U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96 (1976); Confederated Salish & Kootenai Tribes v. State of Montana, 392 F.Supp. 1325, 1327 (D.Mont.1975) (per curiam), aff'd, 425 U.S. 463, 96 S.Ct. 1634, 48 L.Ed.2d 96 (1976) (the personal property tax case).

On appeal, the Supreme Court held that the tribe was not barred by § 1341 and therefore the district court had had jurisdiction. 425 U.S. at 474-75, 96 S.Ct. at 1641-1642. The Court then concluded "all of the substantive issues raised on appeal can be reached by deciding the claims of the Tribe alone ...." Id. at 475 n.14, 96 S.Ct. at 1642. Accordingly, the Court did not review the district court's finding of jurisdiction over the individuals as it was unnecessary to do so to resolve the substantive merits. Id. It is particularly noteworthy that the individual refund claims had not been adjudicated in the district court when the Supreme Court acted in Moe. None of the issues which might arise from those actions was before the Court. Indeed, the opinion reminded the district court that the remaining refund actions "must be properly grounded jurisdictionally." 425 U.S. at 469 n.7, 96 S.Ct. at 1639 n.7.

The Supreme Court was not called upon to consider, and did not consider, the interaction of § 1341 and state tax refund suits initiated in federal court. The justification for jurisdiction over the tribe did not turn on the relief sought by the tribe. Accordingly, the import of the Court's comment in note 14 ought not be unduly magnified. It was relegated to a footnote designed to reserve a question the Court expressly found it unnecessary to reach. To read one sentence of such dictum as a sweeping reappraisal by the Court of the law of § 1341 as interpreted in the lower federal courts is an invitation which we decline to accept. As that Court has admonished, "this Court does not decide important questions of law by cursory dicta inserted in unrelated cases. Whatever the dictum's meaning, we do not regard it as decisive ...." See, e. g., Permian Basin Area Rate Cases, 390 U.S. 747, 775, 88 S.Ct. 1344, 1364, 20 L.Ed.2d 312 (1968). Nor do we. We adhere to our holding in Kelly v. Springett, supra, 527 F.2d at 1090.

By enacting § 1341 in 1937, "Congress gave explicit sanction to the pre-existing federal equity practice" to refrain from adjudicating challenges to the legality or constitutionality of a State tax in federal court when a plain, adequate and complete remedy in a state forum was available. Moe, supra, 425 U.S. at 470, 96 S.Ct. at 1640. That practice had its roots in federalism, in the federal government's "scrupulous regard for the rightful independence of state governments" (Matthews v. Rodgers, 284 U.S. 521, 525, 52 S.Ct. 217, 219, 76 L.Ed. 447 (1932)) "and in recognition of the imperative need of a State to administer its own fiscal operations." Tully v. Griffin Inc., 429 U.S. 68, 73, 97 S.Ct. 219, 222, 50 L.Ed.2d 227 (1975). This equitable bar to jurisdiction was invoked in refund proceedings. See First National Bank v. Board of County Commissioners, 264 U.S. 450, 44 S.Ct. 385, 68 L.Ed. 784 (1929). The rule codified in § 1341 "is meant to be a broad jurisdictional impediment to federal court interference with the administration of state tax systems."...