Federal Reserve Bank of Richmond v. City of Richmond

• Decision Date: 26 February 1992
• Docket Number: No. 90-2097,90-2097
• Citation: 957 F.2d 134
• Parties: FEDERAL RESERVE BANK OF RICHMOND, A United States Corporation, Plaintiff-Appellee, v. CITY OF RICHMOND, A Virginia Municipal Corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 134

957 F.2d 134

FEDERAL RESERVE BANK OF RICHMOND, A United States Corporation, Plaintiff-Appellee, v. CITY OF RICHMOND, A Virginia Municipal Corporation Defendant-Appellant.

No. 90-2097.

United States Court of Appeals, Fourth Circuit.

Argued March 6, 1991.

Decided Feb. 26, 1992.

Michael King Jackson, City Atty's Office, Richmond, Va., argued (G. Timothy Oksman, City Atty's Office, on brief), for defendant-appellant.

Christopher Matthew Malone, Thompson & McMullan, Richmond, Va., argued (Charles L. Williams, Thompson & McMullan, on brief), for plaintiff-appellee.

Before WIDENER, Circuit Judge, HILL, Senior Circuit Judge of the United States Court of Appeals for the Eleventh Circuit, sitting by designation, and WARD, Senior District Judge for the Middle District of North Carolina, sitting by designation.

OPINION

WIDENER, Circuit Judge:

The City of Richmond (City) appeals the district court's grant of summary judgment in favor of the Federal Reserve Bank of Richmond (Bank). We find that the district court erred in concluding that the City's assessment, under 12 U.S.C. § 531, of penalty and interest charges against the Bank for delinquent payment of real estate taxes was improper. We therefore reverse the district court's grant of summary judgment.

The basic facts giving rise to the present controversy are not in dispute. The Bank maintains its principal offices on approximately seven acres of real estate located at 701 East Byrd Street in Richmond, Virginia. For calendar year 1989, the City assessed the property for purposes of real estate taxation at $66,000,000.00 and calculated that the total tax due was $1,009,905.91. When the Bank failed to pay this amount by the June 15, 1989 deadline established under local ordinance, the City notified the Bank of the delinquency and assessed a penalty of $100,990.59 for late payment, as well as interest charges. On August 9, 1989, the Bank paid the delinquent $1,009,905.91, but refused to pay the assessed penalty and interest charges.

On January 10, 1990, the Bank filed a complaint in the Eastern District of Virginia seeking a declaration under 28 U.S.C § 2201 that the City's penalty and interest assessment was barred as a matter of law. The parties subsequently filed cross-motions for summary judgment. The district court granted the Bank's motion and ordered that any lien for the City's penalty and interest assessment be expunged. This appeal followed.

Under 12 U.S.C. § 531, Federal Reserve banks are "exempt from Federal, State, and local taxation, except taxes upon real estate." The issue presented by this appeal concerns the scope of the Congressional grant of permission to tax property of the United States as to "taxes upon real estate." Specifically, we must determine whether such permission includes interest and late payment charges incurred by the Federal Reserve Bank of Richmond for being delinquent in the payment of real estate taxes.

Because section 531 does not itself define "taxes upon real estate," we initially consider the question of whether the interpretation of the statute should be guided by federal or state law. Generally, of course, it is assumed that the interpretation of a federal statute of nationwide application is not dependant on state law. Jerome v. United States, 318 U.S. 101, 104, 63 S.Ct. 483, 485, 87 L.Ed. 640 (1943). The Supreme Court, however, has indicated that this assumption of uniformity should not be made with regard to all statutes and recognized that state law may be incorporated as the federal rule of decision. United States v. Kimbell Foods, Inc., 440 U.S. 715, 728, 99 S.Ct. 1448, 1458, 59 L.Ed.2d 711 (1979); Reconstruction Finance Corporation v. Beaver County, 328 U.S. 204, 209-10, 66 S.Ct. 992, 995-96, 90 L.Ed. 1172 (1946).

Indeed, in Reconstruction Finance Corp. v. Beaver County, the court specifically addressed a statute in many ways identical to the one at hand, which subjected real property owned by an instrumentality of the United States to local taxation. Beaver County was a case in which a subsidiary of the Reconstruction Finance Corporation had set up a manufacturing plant in Pennsylvania to manufacture aircraft propellers and had leased the same, land, plant and equipment, to Curtiss-Wright, the aircraft manufacturer. Under Pennsylvania law, as decided by the Supreme Court of that State, the equipment in the plant, although not affixed to the freehold and which it is obvious would ordinarily be considered personalty, was considered to be real estate because the plant was a manufactory, and without which equipment the plant would not be a manufactory at all. A statute of the United States, section 10 of the Reconstruction Finance Corporation Act, provided that States and local governments were not permitted "to impose taxation of any kind on the ... personal property" but the same section provided that "any real property" of the governmental agency "shall be subject to state, territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed." On this set of facts and under the statute just referred to, the Supreme Court held that the real property involved, including the machinery, was subject to the real estate tax of Beaver County. The Court held that "[t]his [the Pennsylvania Supreme Court's] interpretation of Pennsylvania's tax law is binding on us." 328 U.S. at 208, 66 S.Ct. at 995. So the Court held that it must accept the Pennsylvania definition of what constituted real estate. Despite the ordinary assumption that a statute of nationwide application should operate uniformly throughout the nation, the Court held that a federal definition of real property should not be applied. The Court reasoned that in permitting local taxation of the real property, Congress made it impossible to apply the law with uniform tax consequences within each State and locality. The several States, the Court pointed out, and even the localities within them, have diverse methods of assessment, collection, and refunding, and tax rates which vary widely. In view of the express provision for the taxation of real estate, the Court held that the normal assumption that Congress intends its law to have the same consequences throughout the nation could not be made. 328 U.S. at 209, 66 S.Ct. at 995. The Court further pointed out that had Congress desired nationwide uniformity, it could have required fixed payments in lieu of taxes, as it had done in other statutes. ¹ It added that local rules governing what is real property for tax purposes would not impair the Congressional program of the Reconstruction Finance Corporation any more than would the action of Congress in leaving the fixing of rates of taxation to local communities. The Court added that it must be plain that state rules do not effect a discrimination against the government or run counter to the ter to the terms of the statutes involved. It concluded by stating that concepts of real property are deeply rooted in state traditions, customs, habits, and laws, to which is geared local tax administration. To permit the States to tax, and yet to require them to alter their longstanding practice of assessments and collections, would create a kind of confusion and resultant hampering of local tax machinery which the Court was certain Congress did not intend. We see no meaningful distinction between the statute involved in Beaver County and the one involved here which permits "taxes upon real estate." Every reason given by the Court to justify the taxing of machinery as real estate by Beaver County applies here to support inclusion of interest and penalties as a part of the real estate tax of the City of Richmond.

The district court, however, did not mention Beaver County in its opinion, although that case is on quite similar facts as we have mentioned, and rejected the City's argument that state law should control the interpretation of section 531, relying upon United States v. Kimbell Foods, Inc. It largely analyzed the case as a question of sovereign immunity under cases involving claims against the Government such as Title VII and federal tort claims cases, which it is not, rather than a question of the tax exemption of property owned by the United States or an instrumentality thereof, which involves Congressional intent, the supremacy clause (M'Culloch v. Maryland, 17 U.S. [14 Wheat.] 316, 4 L.Ed. 579 [1819], and Article IV § 3 (the property power) (Reconstruction Finance Corporation v. Texas), which it is. ² We believe that Kimbell does not require such a result, because, not only did Kimbell adopt State law as the rule of decision, that opinion specifically recognized that the question of "[w]hether to adopt state law or to fashion a nationwide federal rule is a matter of judicial policy 'dependent upon a variety of considerations always relevant to the nature of the specific governmental interests and to the effects upon them of applying state law.' " 440 U.S. at 728, 99 S.Ct. at 1458 (quoting United States v. Standard Oil Co., 332 U.S. 301, 310, 67 S.Ct. 1604, 1609, 91 L.Ed. 2067 (1947)). As specific considerations to be taken into account by the courts, the Supreme Court mentioned several factors, including whether the federal program in question necessitates formulation of a uniform national rule and whether application of state law would frustrate specific objectives of the federal program. Kimbell, 440 U.S. at 728, 99 S.Ct. at 1458. Taking these factors into account, we are of opinion that application of state law is required in this case by Beaver County. There is no indication that a uniform national rule with respect to whether penalties and interest constitute a part of real estate taxes is necessary to protect the federal interest underlying the Federal Reserve system. Furthermore, we note that applying state law to determine whether penalties and interest are a part of the tax would not...