Fed. Land Bank of Wichita v. Bd. of County Com'rs, Civ. A. No. 84-K-126.

• Decision Date: 09 April 1984
• Docket Number: Civ. A. No. 84-K-126.
• Citation: 582 F. Supp. 1507
• Parties: FEDERAL LAND BANK OF WICHITA, Plaintiff, v. The BOARD OF COUNTY COMMISSIONERS OF the COUNTY OF ADAMS, et al., Defendants.
• Court: U.S. District Court — District of Colorado

582 F. Supp. 1507

FEDERAL LAND BANK OF WICHITA, Plaintiff, v. The BOARD OF COUNTY COMMISSIONERS OF the COUNTY OF ADAMS, et al., Defendants.

Civ. A. No. 84-K-126.

United States District Court, D. Colorado.

April 9, 1984.

Martin A. Rosen, Robert F. Wilson, and Michael J. Sternick, Pendleton & Sabian, P.C., Denver, Colo., for plaintiff.

S. Morris Lubow, Denver, Colo., for all defendants.

ORDER DENYING MOTION TO DISMISS

KANE, District Judge.

The Federal Land Bank of Wichita has brought this action against 50 Colorado Counties through their respective Board of County Commissioners, claiming jurisdiction under 28 U.S.C. §§ 1331 (federal question) and 1332 (diversity). The defendant counties have challenged the jurisdiction of this court, and have moved to dismiss the action.

Plaintiff is a federal instrumentality established pursuant to the Federal Farm Loan Act of 1916, as continued under the Farm Credit Act of 1971 (12 U.S.C. § 2001 et seq.). Plaintiff owns certain oil and gas royalty interests that burden producing properties in 21 of the defendant counties. It also owns non-producing properties in the other 29 counties. The bank's royalty interests in the 21 counties have been subjected to ad valorem taxes under the Colorado property tax scheme that is governed primarily by Colo.Rev.Stat. § 39-7-101 et seq. Its royalty interests in the other 29 counties will be similarly affected by the current tax scheme, if and when production of minerals occurs. Plaintiff is expressly immune from all local taxation except for taxes upon real estate, "according to its value." See 12 U.S.C. § 2055. The bank contends that the Colorado taxes are upon personal property and not upon real property based upon its value. Thus, the tax is unlawful under the federal statute. It also contends that the tax violates the Supremacy Clause of the U.S. Constitution.

The bank prays for (1) a declaratory judgment that its royalty interests are exempt from taxation under Colorado law; (2) a mandatory injunction prohibiting the counties from future assessments or collection of such taxes upon the Bank's mineral holdings; and (3) costs, attorneys fees, and other unspecified legal and equitable relief.

The defendants raise several grounds for the dismissal of this action. They argue (1) that the Tax Injunction Act precludes suit in federal court; (2) that there is no federal question involved in the action because the interpretation of the Colorado tax in question is a matter of state law; (3) that the 50 defendants are merely the cumulative alter ego of the State of Colorado, and hence immune from suit under the 11th Amendment; (4) that there is no justiciable controversy between the plaintiff and the 29 counties in which no production has yet occurred; and (5) that the plaintiff has failed to join indispensable parties, namely the State of Colorado and others.

I. THE TAX INJUNCTION ACT

Defendant counties assert first that this court does not have jurisdiction by virtue of 28 U.S.C. § 1341, the Tax Injunction Act:

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

The principle of comity underlying this statute, Fair Assessment in Real Estate Ass'n v. McNary, 454 U.S. 100, 103, 102 S.Ct. 177, 179, 70 L.Ed.2d 271 (1981), is subject to modification when it is in conflict with principles of federalism. Thus an action commenced by the United States is not barred by the statute:

We conclude, in accord with an unbroken line of authority and convincing evidence of legislative purpose, that § 1341 does not act as a restriction upon suits by the United States to protect itself and its instrumentalities from unconstitutional state exactions.

Department of Employment v. United States, 385 U.S. 355, 358, 87 S.Ct. 464, 466, 17 L.Ed.2d 414 (1966). The issue that is raised in this motion is whether an instrumentality of the federal government, such as the Federal Land Bank, can challenge the levy of a state tax in federal court without joining the United States as a plaintiff.

Few courts have considered this precise question. In Federal Reserve Bank of Boston v. Commissioner of Corporations & Taxation, 499 F.2d 60 (1st Cir.1974), the bank sought a declaratory judgment concerning the legality of a state's application of its sales tax to the purchase of materials for the construction of the bank's new building. The court held that the bank could maintain the action even though the United States was not a co-plaintiff. As a factual matter the bank could not be analogized to a private corporation, but was predominantly a:

fiscal arm of the federal government. Their interests seem indistinguishable from those of the sovereign... The banks were created and are operated in furtherance of the national fiscal policy. They are not operated for the profit of shareholders, and do not provide ordinary commercial banking services; their stockholders, the member banks, lack of powers and rights customarily vested in shareholders of a private corporation. Federal reserve banks act as depositories for money held in the United States Treasury and as fiscal and monetary agents of the United States.... They also provide important services for the Treasury with respect to the public debt... The limited income generated is used to pay expenses and dividends limited to six percent. Any remaining earnings are paid into the surplus fund ... where they may be used by the United States Treasury to supplement the gold reserve.

499 F.2d at 62-63. Having established the "governmental role" of the reserve bank, the court saw little reason to require "symbolic joinder by the United States itself." 499 F.2d at 62.

The second prong of the analysis examines the nature of the claim brought by the federal instrumentality. When a claim only raises issues of state law, the federal courts should renounce jurisdiction over the case, even when the United States is a party. See United States v. Nevada Tax Comm'n, 439 F.2d 435 (9th Cir.1971). The court in Boston, however, held that constitutional issues involving the Supremacy Clause, the federal charter and regulations of the bank were inextricably interwoven with the issue of the meaning of the state's tax statute. Abstention was therefore appropriate.

A year earlier, the First Circuit refused to extend the federal instrumentality doctrine to enable a party to challenge a state tax independently of the United States. United States v. State Tax Comm'n, 481 F.2d 963 (1st Cir.1973). The court prevented the intervention of 4,500 savings and loan associations in a suit by the United States, because even though the associations were entitled to wear the mantle of "federal instrumentalities" they were essentially private corporations. 481 F.2d at 975. The First Circuit's approach is thus to examine the nature of the party seeking the exemption before deciding if the federal instrumentality doctrine applies.

The emphasis in the Ninth Circuit is different. That court presumes that the United States must be joined as a party. It does not, however, deny that cases such as Boston deserve special consideration. Thus, in Housing Authority of Seattle v. Washington, 629 F.2d 1307 (9th Cir.1980), the court held that the federal instrumentality exception to § 1341 did not permit a public housing agency to maintain suit in federal court challenging state taxation without joining the United States as a party. The decision was based on the strong policy of noninterference with state taxation procedures. 629 F.2d at 1311. The court did recognize the Boston exception, but refused to discuss its validity because the plaintiff Housing Authority did not come within its ambit. 629 F.2d at 1311-12.

As with the First Circuit in the Boston case, the Ninth Circuit's decision in Housing Authority was an apparent volte face. In Agua Caliente Band of Mission Indians v. Riverside, 442 F.2d 1184 (9th Cir. 1971), cert. denied, 405 U.S. 933, 92 S.Ct. 930, 30 L.Ed.2d 809 (1972), the court allowed the plaintiff tribe to challenge the imposition of a state tax on lessees of Indian land, despite the absence of the United States. It argued that the reasons for exempting the United States from the operation of § 1341 were no less cogent when the right to the exemption was asserted by one who could properly be a co-plaintiff with the United States.¹

These cases² reveal that a principled, rather than formalistic approach requires an inquiry into the nature of the federal instrumentality and its claim. Where the instrumentality exists primarily to perform governmental functions, it is superfluous to require the United States to be joined as a party. I conclude that the Federal Land Bank is such an entity.

The federal land banks were created to implement the federal fiscal policy objective of supplying greater and cheaper land credit. United States v. Mississippi Chemical Corp., 405 U.S. 298, 301, 92 S.Ct. 908, 910, 31 L.Ed.2d 217 (1972). The system set up to accomplish this goal parallels the federal reserve system. Both systems are comprised of 12 banks that operate outside the "executive chain of command." Boston, 499 F.2d at 63. The banks comprising each system are unlike private corporations in that shareholders cannot freely transfer their shares, 12 U.S.C. § 2013(b). The federal land banks like the federal reserve banks can pay dividends. 12 U.S.C. § 2013(c).³ They also act as depositories of public money, can be employed as fiscal agents of the United States government, 12 U.S.C. § 2012(14), and perform important services for the government by buying and selling their securities. 12 U.S.C. § 2012(15).

While federal land banks have a lower profile than federal reserve banks, and are not as continuously involved in "governmental" duties such as issuing currency, I conclude that they further important governmental...