Energy Transfer L.P. v. Ficara

• Decision Date: 29 November 2022
• Docket Number: Civil Action 21-3185 (MAS) (DEA)
• Parties: ENERGY TRANSFER L.P., Plaintiff, v. JOHN J. FICARA et al., Defendants.
• Court: U.S. District Court — District of New Jersey

ENERGY TRANSFER L.P., Plaintiff,
v.
JOHN J. FICARA et al., Defendants.

Civil Action No. 21-3185 (MAS) (DEA)

United States District Court, D. New Jersey

November 29, 2022

MEMORANDUM OPINION

MICHAEL A. SHIPP UNITED STATES DISTRICT JUDGE

This matter comes before the Court on Plaintiff Energy Transfer L.P.'s (“Energy Transfer”) motion for summary judgment. (ECF No. 26.) Defendants John J. Ficara and Elizabeth Maher Muoio (“Defendants”) opposed and filed a cross-motion to dismiss (ECF No. 34), to which Energy Transfer replied (ECF No. 35). The Court has carefully considered the parties' submissions and decides the motions without oral argument under Local Civil Rule 78.1. For the reasons below, the Court grants Defendants' cross-motion, denies Energy Transfer's motion as moot, and dismisses this case under the tax comity doctrine.

I. BACKGROUND

In this case, Energy Transfer challenges parts of New Jersey's partnership tax collection regime under the Dormant Commerce Clause of the U.S. Constitution. Energy Transfer is a publicly traded limited partnership that operates in and earns income from New Jersey. (Pl.'s Statement of Undisputed Material Facts (“PSUMF”) ¶¶ 1-3, ECF No. 26-2.) The company is owned by “tens of thousands of partners,” roughly six percent of which “have [a] physical nexus with New Jersey.” (Id. ¶ 2.)

1

Because Energy Transfer earns income in New Jersey, it pays taxes under New Jersey's partnership tax regime. (Defs.' Statement of Undisputed Material Facts (“DSUMF”) ¶ 7, ECF No. 34-4.) By statute, Energy Transfer must pay a “filing fee” of $150 per partner, capped at $250,000 (the “Partnership Fee”). N.J. Stat. Ann. § 54A:8-6(b)(2)(A) (West 2022).^[1] The statute assesses the $150 Partnership Fee against all partners in or having a physical nexus with New Jersey; for all other partners, the statute apportions the Partnership Fee based on a “corporate allocation factor.” Ferrellgas Partners, L.P. v. Dir., Div. of Tax'n, No. A-3904-18T1, 2021 WL 115643, at *2 (N.J.Super.Ct.App.Div. Jan. 13, 2021) (citation omitted). Apportioned Partnership Fees are also capped at $250,000. See id. So, for example, if a partnership with operations in New Jersey had 1,000 New Jersey resident partners and 500 nonresident partners (who also had no physical nexus to New Jersey), the partnership would pay 1,000 times $150, plus 500 times $150, times the fractional corporate allocation factor-all capped at $250,000. See id. (providing examples).

The New Jersey Legislature enacted the Partnership Fee as part of the broader Business Tax Reform Act of 2002, which sought to “address large and multi-national corporations that earn billions in New Jersey source income but pay minimal taxes.” Ferrellgas Partners, 2021 WL 115643, at *1 (citation omitted). More specifically, the Partnership Fee comprised “a revenue

2

stream that captures enforcement and processing costs that New Jersey incurs from processing the vast network of limited liability companies and partnerships.” Id. Since 2016, funds from the Partnership Fees were deposited into New Jersey's Property Tax Relief Fund, “a constitutionally established fund whose proceeds . .. ‘reduc[e] or offset[] property taxes.'” (DSUMF ¶¶ 22-23 (quoting N.J. Const, art. VIII, § I, ¶ 7).) Defendants report that, in 2021, proceeds from the Property Tax Relief Fund were used to fund “payments of direct aid to school districts and municipalities,” “employee and retirement benefits,” and “statutory programs providing aid to individuals.” (Id. ¶25.)

As a partnership with thousands of partners around the country, Energy Transfer owes $250,000 for the 2021 tax year. (PSUMF ¶¶ 8-9.) Energy Transfer has not paid the assessed 2021 Partnership Fee. (Id. ¶ 12.) Instead, it has launched at least five lawsuits, claiming that the Partnership Fee is unconstitutional under the Dormant Commerce Clause. Energy Transfer filed four of those in state tax court; the fifth is the instant suit. (DSUMF ¶¶ 11, 18.) The Court understands that all four state court actions are currently stayed. (Pl.'s Resp. to Defs.' SUMF ¶ 17, ECF No. 35-7.)

The Court also understands that the state courts have litigated this issue before. In Ferrellgas, the New Jersey Appellate Division affirmed the tax court's ruling that the Partnership Fee did not violate the Dormant Commerce Clause. 2021 WL 115643, at *10. It ruled that the plaintiff partnership failed to “present a prima facie case of disparate impact or other form of discrimination” that violated the Dormant Commerce Clause. Id. The court reasoned that the Partnership Fee “funds the cost of the [Tax] Division's processing and reviewing partnership and partner returns filed in New Jersey to track their New Jersey source income”-in other words, “purely intrastate activity.” Id. The court further concluded that the tax court “was not required to

3

apply the internal or external consistency tests or to determine whether the [Partnership Fee] amount is fairly related to the services provided by the State” because the statute is “facially neutral.” Id. Following the plaintiff partnership's appeal, the New Jersey Supreme Court denied certification, and the U.S. Supreme Court denied certiorari. Ferrellgas Partners, L.P. v. Dir., Div. of Tax'n, 251 A.3d 760 (N.J. 2021); Ferrellgas Partners, L.P. v. Dir., Div. of Tax'n, 142 S.Ct. 1440 (U.S. 2022).

Even with the Appellate Division's ruling, Energy Transfer maintains that the Partnership Fee violates the Dormant Commerce Clause and that clause's internal consistency test. (See generally Pl.'s Moving Br. 6-15, ECF No. 26-1.) Energy Transfer seeks declaratory relief and a permanent injunction to enjoin Defendants from collecting the Partnership Fee from the partnership. (Id. at 15-19.) In response, Defendants assert (among other arguments) that the Court lacks jurisdiction to hear the case under the Tax Injunction Act, 28 U.S.C. § 1341, or should dismiss this case under the tax comity doctrine. (See generally Defs.' Opp'n Br. 12-26, ECF No. 34-3.) Energy Transfer rebuffs that neither the Tax Injunction Act nor the tax comity doctrine apply because the Partnership Fee is not a tax but a filing fee. (See generally Pl.'s Reply Br. 5-19, ECF No. 35.)

II. LEGAL STANDARD

Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Kreschollek v. S. Stevedoring Co., 223 F.3d 202, 204 (3d Cir. 2000). In deciding a motion for summary judgment, a court must construe all facts and inferences in the light most favorable to the nonmoving party. See Boyle v. County of Allegheny, 139 F.3d 386,393 (3d Cir. 1998). The moving party bears the burden of establishing that no genuine dispute

4

of material fact remains. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). “[W]ith respect to an issue on which the nonmoving party bears the burden of proof. . . the burden on the moving party may be discharged by ‘showing'-that is, pointing out to the district court-that there is an absence of evidence to support the nonmoving party's case.” Id. at 325.

Once the moving party has met that threshold burden, the nonmoving party “must do more than simply show that there is some metaphysical doubt as to material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The opposing party must present actual evidence that creates a genuine dispute as to a material fact for trial. Anderson, 477 U.S. at 247-48; see also Fed.R.Civ.P. 56(c) (setting forth types of evidence on which the nonmoving party must rely to support its assertion that genuine disputes of material fact exist). “[U]nsupported allegations in . . . pleadings are insufficient to repel summary judgment.” Schoch v. First Fid. Bancorporation, 912 F.2d 654, 657 (3d Cir. 1990). If the nonmoving party has failed “to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial[,] . . . there can be ‘no genuine [dispute] of material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial.” Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 n.5 (3d Cir. 1992) (quoting Celotex, 477 U.S. at 322-23).

In deciding a motion for summary judgment, the Court's role is not to evaluate the evidence and decide the truth of the matter but to determine whether there is a genuine dispute for trial. Anderson, 477 U.S. at 249. Credibility determinations are the province of the fact finder. Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992). The summary judgment standard, however, does not operate in a vacuum. “[I]n ruling on a motion for summary

5

judgment, the judge must view the evidence presented through the prism of the substantive evidentiary burden.” Anderson, 477 U.S. at 254.

III. DISCUSSION

Before the Court turns to the merits of Energy Transfer's Dormant Commerce Clause challenge, it must assure itself of its jurisdiction. Defendants argue that the Tax Injunction Act bars the Court's jurisdiction and that the tax comity doctrine favors prudential dismissal. The Court agrees that the tax comity doctrine warrants dismissal. It thus need not consider whether the Tax Injunction Act separately forecloses suit in federal court. See Levin v. Com. Energy, Inc., 560 U.S. 413,432 (2010) (“Because we conclude that the comity doctrine justifies dismissal of respondents' federal-court action, we need not decide whether the [Tax Injunction Act] would itself block the suit.” (citing Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 299, 301 (1943))).

A....