Melof v. Hunt, Civ. A. No. 89-T-379-N.

Citation718 F. Supp. 877
Decision Date13 July 1989
Docket NumberCiv. A. No. 89-T-379-N.
PartiesFred MELOF, et al., Plaintiffs, v. Guy HUNT, et al., Defendants.
CourtUnited States District Courts. 11th Circuit. Middle District of Alabama

William J. Baxley, Joel E. Dillard, Birmingham, Ala., Jerrilee P. Sutherlin, James P. Smith, Smith and Waldrop, Huntsville, Ala., for plaintiffs.

Mark D. Griffin, Ron Bowden, Asst. Attys. Gen., Dept. of Revenue, State of Alabama, Montgomery, Ala., for defendants Hunt & Sizemore.

Stephen N. Dodd, Asst. Atty. Gen., Office of Atty. Gen., Alabama State House, Montgomery, Ala., for defendant Wallace.

MEMORANDUM OPINION

MYRON H. THOMPSON, District Judge.

This lawsuit, filed in the aftermath of the Supreme Court's decision in Davis v. Michigan Department of Treasury, ___ U.S. ___, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989), contests the manner in which the State of Alabama taxes retirement income. The plaintiffs, who receive retirement benefits, challenge the fact that the state wholly or partially exempts certain benefits while completely taxing others. The plaintiffs contend that the Alabama method of taxing retirement benefits violates the intergovernmental immunity doctrine, as limited and expressed by 4 U.S.C.A. § 111, and the equal protection and due process clauses of the fourteenth amendment, as enforced by 42 U.S.C.A. § 1983; they seek a declaration finding that Alabama's statutory taxation scheme is illegal, an injunction prohibiting the future collection of pensioner income, and an order mandating repayment of taxes illegally collected during the years 1985-1988.1 The plaintiffs have named as defendants the Governor of Alabama, the State Treasurer, and the State Commissioner of Revenue. This court's jurisdiction is invoked pursuant to 28 U.S.C.A. § 1331.

Presently before the court is the defendants' motion to dismiss. In their motion the defendants argue that the plaintiffs' action is barred and that the relief sought must be obtained in state court. For the reasons that follow, the court concludes that this action should be dismissed, albeit without prejudice.

I.

The law is now settled that, with but one important exception, the eleventh amendment bars suits by individuals against a state without the state's consent. The exception is that a suit against an officer of a state directing that officer to cease from acting in an unconstitutional manner is not barred. Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). This exception is, however, limited to instances in which plaintiffs seek prospective injunctive relief; claims for retrospective relief remain barred. See Edelman v. Jordan, 415 U.S. 651, 668-69, 677, 94 S.Ct. 1347, 1358-59, 1362, 39 L.Ed.2d 662 (1974).

In recognition of the above exception, the plaintiffs seek relief from state officials but not from the state. However, the court must still determine whether the relief sought from the state officials falls within the allowable prospective injunctive relief. According to the plaintiffs, they seek "a declaratory judgment as to the illegality or unconstitutionality of Alabama's statutory taxation scheme and a permanent injunction barring the future collection of taxes on pension income ... and a recovery of the taxes that were illegally collected for the years 1985, 1986, 1987 and 1988." Plaintiffs' Brief at 1.

While the first two forms of relief — for a declaratory judgment and a permanent injunction —clearly within the pale of prospective relief, the same cannot be said for their request for disgorgement of illegally collected taxes. Such relief runs contrary to the Supreme Court's holdings in Ford Motor Co. v. Department of Treasury, 323 U.S. 459, 65 S.Ct. 347, 89 L.Ed. 389 (1945), and Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974). In Ford Motor Co., the plaintiff sought a refund for gross income taxes collected by the state allegedly in violation of the United States Constitution. Although the plaintiff sued only various state officials, the Supreme Court, noting that the plaintiff's claim was for a "refund" and not for imposition of personal liability on the individual defendants for sums illegally exacted, concluded that the suit was, in reality, a suit against the state. Reasoning that "when the action is in essence one for the recovery of money from the state, the state is the real, substantial party in interest and is entitled to invoke its sovereign immunity from suit even though individual officials are nominal defendants," 323 U.S. at 464, 65 S.Ct. at 350, the Court held that the eleventh amendment precluded the claim.

In Edelman v. Jordan, the Supreme Court reaffirmed its holding in Ford Motor Co. In Edelman, the district court had entered an order requiring state officials who administered a state welfare program to pay individual class members benefits that had been wrongfully withheld prior to the date of the injunction. In affirming the district court's order, the court of appeals treated the monetary award as "equitable restitution" that therefore fell outside the eleventh amendment's proscription. See Jordan v. Weaver, 472 F.2d 985, 990-994 (7th Cir.1973). The Supreme Court rejected this distinction, holding that the order required an expenditure of state funds in contravention of the eleventh amendment's mandate. In reaching this conclusion, the Court reaffirmed that

a federal court's remedial power, consistent with the Eleventh Amendment, is necessarily limited to prospective injunctive relief, Ex parte Young, supra, and may not include a retroactive award which requires the payment of funds from the state treasury, Ford Motor Co. v. Department of Treasury, supra.

415 U.S. at 677, 94 S.Ct. at 1362.

Although the plaintiffs have sued the defendants in both their individual and official capacities, the monetary relief sought is for a refund of allegedly illegally collected taxes. Plaintiffs' Complaint, V.C. Were the court to order such relief, it would be requiring Alabama to reimburse the plaintiffs and expend itself on the public treasury since the money to reimburse the plaintiffs would come from the Alabama treasury. See Silver v. Baggiano, 804 F.2d 1211, 1214 (11th Cir.1986). As held in Ford Motor Co., such an order would violate the eleventh amendment.2

II.

As to the plaintiffs' claims seeking prospective relief, the court finds that, while such claims do fall outside the eleventh amendment's bar, they are still precluded by the interrelated doctrines of comity as constitutionally established by Fair Assessment in Real Estate Association v. McNary, 454 U.S. 100, 102 S.Ct. 177, 70 L.Ed.2d 271 (1981), and as statutorily set forth in the Tax Injunction Act, 28 U.S.C.A. § 1341.3 The basic principle underlying the doctrines is that, with rare exceptions, a federal court should not interfere with a state's manner of collecting taxes — the primary source of funding for a state's continued operations — unless the court is convinced that the state does not offer to the plaintiffs state remedies that are "plain, speedy and efficient."4 § 1341. "The scrupulous regard for the rightful independence of state governments which should at all time actuate the federal courts, and a proper reluctance to interfere by injunction with their fiscal operations, require that such relief be denied in every case where the asserted federal right may be preserved without it." Fair Assessment, 454 U.S. at 108, 102 S.Ct. at 182 (quoting Matthews v. Rodgers, 284 U.S. 521, 525, 52 S.Ct. 217, 219, 76 L.Ed. 447 (1932)) (footnote omitted).

A.

A state remedy is plain, speedy and efficient only if it provides the taxpayer with a full hearing and judicial determination at which she may raise her constitutional objections to the tax. California v. Grace Brethren Church, 457 U.S. 393, 411-12 & n. 26, 102 S.Ct. 2498, 2509 & n. 26, 73 L.Ed.2d 93 (1982). Alabama provides several means by which a taxpayer can raise the constitutional challenges the plaintiffs seek to make in this court. The court is therefore convinced that these provisions are sufficient to conclude that the plaintiffs must bring their challenges in state, rather than federal, court.

1.

The Protest Statute, 1975 Ala. Code § 40-1-11: Section 40-1-11 of the 1975 Alabama Code provides that a taxpayer who claims that a tax is excessive or illegal may pay the tax under protest. Should the taxpayer invoke this provision, she then has 60 days in which to commence a judicial proceeding to consider the challenge's merits. In that proceeding, she may raise a myriad of factual and legal contentions, including a claim that the tax is unconstitutional under federal law. Cf. American Cast Iron Pipe Co. v. Boswell, 350 So.2d 438 (Ala.1977) (considering commerce clause challenge raised after sales tax paid under protest); Rabren v. Pullman Co., 287 Ala. 623, 254 So.2d 324 (1971) (upholding commerce clause challenge to license tax paid under protest); Hamm v. Boeing Co., 283 Ala. 310, 216 So.2d 288 (1968) (addressing challenge that sales tax paid under protest violated doctrine of sovereign immunity), appeal dism'd, 394 U.S. 320, 89 S.Ct. 1194, 22 L.Ed.2d 308 (1969). Moreover, should a tax protest challenging the constitutionality of state tax statutes be unsuccessful in the state court system, the taxpayer may always petition the United States Supreme Court for review of the state court's determinations. See, e.g., Exxon Corp. v. Eagerton, 462 U.S. 176, 103 S.Ct. 2296, 76 L.Ed.2d 497 (1983), aff'g in part and rev'g in part 404 So.2d 1 (Ala.1981); Southern Railway Co. v. Greene, 216 U.S. 400, 30 S.Ct. 287, 54 L.Ed. 536 (1910), rev'g 160 Ala. 396, 49 So. 404 (1909).

During the pendency of a tax protest challenge, the state is required to place the contested monies in an account separate from other taxes collected, and may not disburse those funds until a judicial determination has been made as to the taxpayer's challenge, unless the taxpayer abandons the legal action. 1975 Ala.Code §...

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