Franchise Tax Board of California v. United States Postal Service

Citation104 S.Ct. 2549,81 L.Ed.2d 446,467 U.S. 512
Decision Date11 June 1984
Docket NumberNo. 83-372,83-372
PartiesFRANCHISE TAX BOARD OF CALIFORNIA v. UNITED STATES POSTAL SERVICE
CourtUnited States Supreme Court
Syllabus

After determining that four employees of appellee United States Postal Service were delinquent in their payment of state income taxes, appellant Franchise Tax Board of California served process on appellee ordering it to withhold the delinquent amounts from the employees' wages pursuant to a provision of the California Revenue and Taxation Code. When appellee refused to comply, appellant filed an action in Federal District Court, alleging that appellee was liable under the Code for failing to honor the orders. The District Court entered summary judgment for appellee, holding that 5 U.S.C. § 5517, which authorized the agreement that California and the United States had made regarding the withholding of state income taxes from federal employees' pay, applied only to withholding of anticipated tax liabilities and not to delinquent liabilities. The Court of Appeals affirmed, rejecting appellant's argument that 39 U.S.C. § 401(1), which provides that appellee may "sue and be sued in its official name," had waived any sovereign immunity that appellee might possess.

Held: When administrative process of the type employed by appellant issues against appellee, it has been "sued" within the meaning of § 401(1), and must respond to that process. Pp. 516-525.

(a) Not only must this Court liberally construe the sue-and-be-sued clause of § 401(1), but it also must presume that appellee's liability is the same as that of any other business. FHA v. Burr, 309 U.S. 242. No showing has been made to overcome that presumption. Since an order to withhold cannot issue unless appellee owes the employee wages, appellee is nothing but a stakeholder; the order has the same effect on its ability to operate efficiently as it does that of any other employer subject to the California statute. Pp. 516-521.

(b) It would be illogical to conclude that Congress differentiated between process issued by an administrative agency such as appellant and that of a court, for even if a court issued the order to withhold, neither appellee nor its employees would be in a materially different position. In operation and effect, appellant's orders to withhold are identical to a court judgment, since they give rise to a binding obligation to pay the assessed amounts. Neither appellee nor its employees would obtain any additional protections from a requirement that such orders be issued by a court, since the liability cannot be contested until after the tax has been paid and a refund action brought. Moreover, to construe § 401(1) to require the issuance of judicial process before appellee need honor an order to withhold would create unwarranted disruption of the State's delinquent tax collection process, while simultaneously depriving the orders of some of their efficacy. Pp. 521-525.

698 F.2d 1029 (CA9 1983), reversed and remanded.

Patti S. Kitching, Los Angeles, Cal., for appellant.

David A. Strauss, Washington, D.C., for appellee.

Justice STEVENS delivered the opinion of the Court.

Appellant, the Franchise Tax Board of California, determined that four employees of appellee United States Postal Service were delinquent in the payment of their state income taxes. The Board served process on the Postal Service directing it to withhold the amounts of the delinquencies from the employees' wages, pursuant to § 18817 of the California Revenue and Taxation Code, which authorizes the Board to require any employer to withhold delinquent taxes from an employee's salary and transfer those funds to the Board.1 The question presented is whether the Postal Service was obligated to honor these "orders to withhold."

I

When the Postal Service refused to comply with the four orders to withhold, the Board filed this action in the United States District Court for the Central District of California asserting that the Service was liable under the Revenue and Taxation Code for failing to honor the orders,2 and invoking federal jurisdiction pursuant to 39 U.S.C. § 409(a) and 28 U.S.C. § 1339.3 The District Court entered summary judgment for the Postal Service. It held that 5 U.S.C. § 5517, which authorized the agreement that California and the United States had made regarding the withholding of state income taxes from the pay of federal employees, applies only to withholding of anticipated tax liabilities and not to delinquent liabilities.4 The Court of Appeals affirmed, agreeing that 5 U.S.C. § 5517 excused the Service from complying with the orders. Employment Development Department v. United States Postal Service, 698 F.2d 1029 (CA9 1983).5 The Court of Appeals rejected the Board's argument that § 5517 did not prohibit issuance of the orders, and also rejected the argument that the provision in 39 U.S.C. § 401(1) declaring that the Postal Service may "sue and be sued in its official name" had waived any sovereign immunity that the Service might possess.6 This appeal followed.7

In this Court, the Postal Service does not argue that 5 U.S.C. § 5517 and the agreement pursuant thereto between the United States and California prohibit the issuance of an order to withhold against the Postal Service with respect to delinquent tax liabilities of its employees.8 To the contrary the Postal Service expressly concedes that it is amenable to judicial process and could be required to honor a garnishment order requiring it to withhold the salary of a federal employee in order to satisfy a delinquent tax liability if issued by a state court.9 Instead, the Postal Service contends that although it must obey a judicial order, it retains sovereign immunity with respect to state administrative tax levies. It argues that while the provision that the Postal Service can "sue and be sued in its official name" waives immunity from suit, it does not apply to administrative proceedings.

II

The Board does not dispute the proposition that, unless waived, sovereign immunity prevents the creditor of a fed- eral employee from collecting a debt through a judicial order requiring the United States to garnishee the employee's salary. See Buchanan v. Alexander, 4 How. 20, 11 L.Ed. 857 (1845). Rather, it places its primary reliance on 39 U.S.C. § 401(1), which indicates that the Postal Service may "sue and be sued." Thus the question in this case is whether this statutory waiver of sovereign immunity extends to the Board's orders to withhold.

This Court construed a statute providing that an agency created by Congress—the Federal Housing Authority—was empowered "to sue and be sued," in FHA v. Burr, 309 U.S. 242, 60 S.Ct. 488, 84 L.Ed. 724 (1940). In Burr the question presented was whether the agency had to honor a garnishment order issued by a state court. The Court began by observing: "Since consent to 'sue and be sued' has been given by Congress, the problem here merely involves a determination of whether or not garnishment comes within the scope of that authorization." Id., at 244, 60 S.Ct., at 490. It continued:

"[W]e start from the premise that such waivers by Congress of governmental immunity in case of such federal instrumentalities should be liberally construed. This policy is in line with the current disfavor of the doctrine of governmental immunity from suit, as evidenced by the increasing tendency of Congress to waive the immunity where federal governmental corporations are concerned. . . . Hence, when Congress establishes such an agency, authorizes it to engage in commercial and business transactions with the public, and permits it to 'sue and be sued,' it cannot be lightly assumed that restrictions on that authority are to be implied. Rather if the general authority to 'sue and be sued' is to be delimited by implied exceptions, it must be clearly shown that certain types of suits are not consistent with the statutory or constitutional scheme, that an implied restriction of the general authority is necessary to avoid grave interference with the performance of a governmental function, or that for other reasons it was plainly the purpose of Congress to use the 'sue and be sued' clause in a narrow sense. In the absence of such showing, it must be presumed that when Congress launched a governmental agency into the commercial world and endowed it with authority to 'sue or be sued,' that agency is not less amenable to judicial process than a private enterprise under like circumstances would be." Id., at 245, 60 S.Ct., at 490 (footnote omitted).10

The Court then explained why garnishment orders fell within the scope of the statutory waiver of sovereign immunity:

"Clearly the words 'sue and be sued' in their normal connotation embrace all civil process incident to the commencement or continuance of legal proceedings. Garnishment and attachment commonly are part and parcel of the process, provided by statute, for the collection of debt. . . . [H]owever it may be denominated, whether legal or equitable, and whenever it may be available, whether prior to or after final judgment, garnishment is a well-known remedy available to suitors. To say that Congress did not intend to include such civil process in the words 'sue and be sued' would in general deprive suits of some of their efficacy." Id., at 245-246, 60 S.Ct., at 490-491 (footnotes and citation omitted).

If anything, the waiver of sovereign immunity is broader here than it was in Burr. In passing the Postal Reorganization Act of 1970, 84 Stat. 719, Congress not only indicated that the Postal Service could "sue and be sued," 39 U.S.C. § 401(1), but also that it had the power "to settle and compromise claims by or against it," § 401(8), and that "[t]he provisions of chapter 171 and all other provisions of title 28 relating to tort claims shall apply to tort claims arising out of activities of the Postal Service." § 409(c).11...

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