Empress Casino Joliet Corp.. v. Balmoral Racing Club Inc.

• Decision Date: 08 July 2011
• Docket Number: No. 09–3975.,09–3975.
• Parties: EMPRESS CASINO JOLIET CORPORATION, et al., Plaintiffs–Appellants,v.BALMORAL RACING CLUB, INC., et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

651 F.3d 722

EMPRESS CASINO JOLIET CORPORATION, et al., Plaintiffs–Appellants,

v.BALMORAL RACING CLUB, INC., et al., Defendants–Appellees.

No. 09–3975.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 23, 2010.Reargued En Banc May 10, 2011.Decided July 8, 2011.

Robert M. Andalman (argued), Attorney, Loeb & Loeb, Chicago, IL, for Plaintiffs–Appellants.William J. McKenna, Jr. (argued), Attorney, Foley & Lardner, LLP, Gary S. Feinerman, Constantine L. Trela, Jr. (argued), Attorneys, Sidley Austin LLP, Edward M. White, Attorney, Carey, Filter, White & Boland, Chicago, IL, for Defendants–Appellees.Before EASTERBROOK, Chief Judge, and BAUER, POSNER, KANNE, WOOD, SYKES, TINDER, and HAMILTON, Circuit Judges.^*POSNER, Circuit Judge.

The plaintiffs, four riverboat casinos operating in Illinois, brought this RICO suit against five Illinois racetracks, charging that the owner of two of the tracks, in cahoots with Illinois' then governor, Rod Blagojevich, had “bought” a pair of Illinois statutes harmful to the casinos. Enacted in 2006 and 2008 by large margins, these statutes, which are to remain in effect until the end of this year, require the casinos to deposit 3 percent of their revenues in a segregated state fund—the “Horse Racing Equity Trust Fund”—for disbursement to the racetracks within 10 days of receipt; the racetracks are directed to use the money to increase winners' and runner-ups' purses and improve the tracks. Ill. Pub. Act 94–804, effective May 26, 2006; Ill. Pub. Act 95–1008, effective Dec. 15, 2008.

The plaintiffs asked the district court to impose, as a remedy for the alleged violation of RICO, a constructive trust in their favor on the money received by the racetracks under these laws. The district judge issued a temporary restraining order that required that any money paid by the state fund be placed in an escrow account that the racetracks could not reach while the litigation was pending. Later the judge ruled that the Tax Injunction Act, 28 U.S.C. § 1341, barred equitable relief, of which the imposition of a constructive trust is a form. So he dissolved the temporary restraining order.

The casinos appealed. A panel of this court reinstated the temporary restraining order pending appeal (so the escrow remains in force and no money is being disbursed to the racetracks), and then reversed the district court (with one judge dissenting), holding that the Tax Injunction Act did not bar the casinos' quest for equitable relief in federal court. 638 F.3d 519 (7th Cir.2011). We granted rehearing en banc to reexamine that holding. The merits of the suit were not before the panel and are not before us. Moreover, upon the grant of rehearing en banc, the panel opinion was vacated only with regard to appeal No. 09–3975; the part of the panel's opinion and order that relates to appeal No. 10–1019, which had been consolidated with No. 09–3975, was unaffected by the grant of rehearing en banc and is unaffected by the present opinion. And the temporary restraining order pending appeal remains in force.

The Tax Injunction Act forbids federal district courts to “enjoin, suspend or restrain the assessment, levy or collection of any tax under State law,” provided that an adequate remedy is available in the state courts, 28 U.S.C. § 1341, and it is in this case. The Act thus does not limit any substantive rights to enjoin a state tax but requires only that they be enforced in a state court rather than a federal court. The requirement serves to minimize the frictions inherent in a federal system of government, and is considered so important that the duty of federal courts to cede litigation seeking to enjoin state tax statutes to the state courts (a duty of “comity”—that is, of respect for another sovereign) extends beyond the limits of the Tax Injunction Act. Fair Assessment in Real Estate Ass'n, Inc. v. McNary, 454 U.S. 100, 110, 102 S.Ct. 177, 70 L.Ed.2d 271 (1981). The Act is just a “partial codification of the federal reluctance to interfere with state taxation.” National Private Truck Council, Inc. v. Oklahoma Tax Comm'n, 515 U.S. 582, 590, 115 S.Ct. 2351, 132 L.Ed.2d 509 (1995); see also Levin v. Commerce Energy, Inc., ––– U.S. ––––, 130 S.Ct. 2323, 2331–33, 176 L.Ed.2d 1131 (2010). The Supreme Court has told us to withhold decision even in situations to which the Act does not apply, though we won't have to take that step in this case.

Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908), had as a practical matter stripped away the states' sovereign immunity from equitable suits. So were it not for the Tax Injunction Act and the related doctrine of comity, “ ‘state tax administration might be thrown into disarray, and taxpayers might escape the ordinary procedural requirements imposed by state law. During the pendency of the federal suit the collection of revenue under the challenged law might be obstructed, with consequent damage to the State's budget, and perhaps a shift to the State of the risk of taxpayer insolvency.’ ” Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 527, 101 S.Ct. 1221, 67 L.Ed.2d 464 (1981), quoting Perez v. Ledesma, 401 U.S. 82, 128 n. 17, 91 S.Ct. 674, 27 L.Ed.2d 701 (1971) (separate opinion); see also Hill v. Kemp, 478 F.3d 1236, 1246–47 (10th Cir.2007). The Act is “first and foremost a vehicle to limit drastically federal district court jurisdiction to interfere with so important a local concern as the collection of taxes.” Rosewell v. LaSalle Nat'l Bank, supra, 450 U.S. at 522, 101 S.Ct. 1221. The reason for this drastic limitation is that “it is upon taxation that the several States chiefly rely to obtain the means to carry on their respective governments, and it is of the utmost importance to all of them that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may derange the operations of government, and thereby cause serious detriment to the public.” Dows v. City of Chicago, 78 U.S. (11 Wall.) 108, 110, 20 L.Ed. 65 (1871).

Not that enjoining a particular tax, depending on what it is, is certain to “derange the operations of government.” But a general lowering of standards under the Tax Injunction Act could result in state fiscal policy being nickeled and dimed to death by an avalanche of suits by disgruntled taxpayers. (When the suit is not by taxpayers, but by persons objecting just to how the money is being spent, as in Hibbs v. Winn, 542 U.S. 88, 124 S.Ct. 2276, 159 L.Ed.2d 172 (2004), the danger of interference with state tax administration is diminished; Hibbs holds that such suits are outside the Act's scope.) The application of the Act should not turn on judges' guesses about the importance of a particular tax to the legitimate operations of state government. Even the plaintiffs acknowledge that the allegedly corrupt origin of the statutes they attack does not bear on whether the exactions that those statutes impose are taxes within the meaning of the Tax Injunction Act. The Act would be thwarted if a taxpayer could get a federal court to enjoin the collection of a state tax just by presenting evidence of corruption in the process by which the taxing statute had been enacted. This principle has been recognized in analogous contexts, see, e.g., City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 374–78, 111 S.Ct. 1344, 113 L.Ed.2d 382 (1991) (state immunity from federal antitrust suits)—notably that of absolute immunity. Pierson v. Ray, 386 U.S. 547, 553–54, 87 S.Ct. 1213, 18 L.Ed.2d 288 (1967).

We are mindful that the state is not a party to this suit. But the relief sought both is equitable and would thwart the tax as surely as an injunction against its collection. The taxpayers (the casinos) are seeking a constructive trust of the tax revenues, which if imposed would result in their recapturing the taxes they have paid. The tax would be nullified. (If the tax statutes were not shortly to expire, the casinos would be seeking an injunction as well.)

The Act's forum-selecting character argues compellingly for a crisp rule distinguishing taxes from other exactions by states, such as fees charged for services provided (or prices charged for the sale or lease of state property), transfers of damages awarded to a state to the persons on whose behalf the state had sued (cf. Trailer Marine Transport Corp. v. Rivera Vazquez, 977 F.2d 1, 5 (1st Cir.1992) (“the accident-compensation statute is essentially a social welfare program and tort reform law to impose on motor vehicle owners as a class the cost of the accidents they cause and to assure compensation for accident victims ”) (emphasis added)), and fines. A crisp rule determining which court system has jurisdiction to decide a particular type of case is needful because until the proper forum for a lawsuit is determined, the case cannot proceed; and if at any time until the decision resolving the litigation becomes final by exhaustion of appellate remedies it is discovered that the court rendering the decision lacked jurisdiction, the suit must start over from scratch in the forum that has jurisdiction. A challenge to the constitutionality of the casino-tax statutes brought by the casinos in the Illinois state court system against public officials rather than the racetracks has already been decided (adversely to the casinos) by the Supreme Court of Illinois. Empress Casino Joliet Corp. v. Giannoulias, 231 Ill.2d 62, 324 Ill.Dec. 491, 896 N.E.2d 277 (2008). The casinos brought a second suit in the Illinois courts, making new allegations of corruption. While we federal judges are continuing to debate the proper venue of this case, the second state suit, too, has been decided on the merits, again adversely to the casinos. Empress Casino Joliet Corp. v. Giannoulias, 406 Ill.App.3d 1040, 347 Ill.Dec. 580, 942 N.E.2d 783 (2011), leave...