Paeste v. Gov't of Guam

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Citation: 798 F.3d 1228
• Docket Number: 14–16247.,Nos. 13–15389,13–17515,s. 13–15389
• Parties: Rea Mializa O. PAESTE; Jeffrey F. Paeste; Sharon M. Zapanta, Glenn Zapanta, individually and on behalf of all others similarly situated, Plaintiffs–Appellees, v. GOVERNMENT OF GUAM ; Eddie Baza Calvo, in his official capacity; Benita Mangloña, in her official capacity; John Camacho, in his official capacity, Defendants–Appellants.
• Decision Date: 26 August 2015

798 F.3d 1228

Rea Mializa O. PAESTE; Jeffrey F. Paeste; Sharon M. Zapanta, Glenn Zapanta, individually and on behalf of all others similarly situated, Plaintiffs–Appellees
v.
GOVERNMENT OF GUAM ; Eddie Baza Calvo, in his official capacity; Benita Mangloña, in her official capacity; John Camacho, in his official capacity, Defendants–Appellants.

Nos. 13–15389
13–17515
14–16247.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 9, 2015.
Filed Aug. 26, 2015.

798 F.3d 1230

William N. Hebert (argued), Kathleen V. Fisher, and Genevieve P. Rapadas, Calvo Fisher & Jacob LLP, San Francisco, CA, for Defendants–Appellants.

David Stein (argued), Daniel C. Girard, and Amanda M. Steiner, Girard Gibbs LLP, San Francisco, CA; Ignacio Cruz Aguigui, Lujan Aguigui & Wolff LLP, Hagåtña, GU, for Plaintiffs–Appellees.

Appeal from the United States District Court for the District of Guam, Consuelo B. Marshall, Senior District Judge, Presiding. D.C. No. 1:11–cv–00008.

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Before: KIM McLANE WARDLAW, MARSHA S. BERZON, and JOHN B. OWENS, Circuit Judges.

OPINION

BERZON, Circuit Judge:

Like many state, local, and territorial jurisdictions, Guam has struggled for years with chronic budget deficits. Guam settled on a unique solution to its financial problems: It refused to refund over-withheld income taxes, using the money to fund government spending. Confronted with meritorious and uncontested claims for tax refunds, Guam did not issue the refunds, often for several years at a time.

Apparently recognizing that some Guam taxpayers desperately needed their excess tax payments—to which the Guam government has no legal claim—Guam established an “expedited refund” process. Purportedly, taxpayers facing, for example, medical or funeral expenses, would move to the front of the line and be granted refunds without waiting for Guam to make good on the huge backlog of claims. In practice, the expedited refund process was effectively standardless, and it devolved into arbitrariness and favoritism.

A group of Guam taxpayers brought this class-action suit against Guam and several of its officers in their official capacities. The taxpayers alleged that Guam violated the tax provisions of the Organic Act of Guam, 48 U.S.C. § 1421i, by failing timely to refund overpayments, and, via a claim brought under 42 U.S.C. § 1983, the taxpayers also challenged the arbitrary expedited refund program as a violation of equal protection.

The district court granted summary judgment to the taxpayers on both claims, entered a permanent injunction both ending the expedited refund program and requiring Guam to pay approved refunds in a timely manner, and awarded substantial attorney's fees and costs. Guam challenges the district court's orders on a number of grounds. We affirm.

I.

Taxpayers Rea Mializa Paeste, Jeffrey Paeste, Sharon Zapanta, and Glenn Zapanta, on behalf of a class of Guam taxpayers (collectively, “the Taxpayers”), brought this suit against Guam, along with the Governor, the Director of the Department of Revenue and Taxation, and the Director of the Department of Administration of Guam in their official capacities (collectively, “Guam”), challenging systematic delay and unfairness in Guam's handling of income tax refunds. The Taxpayers asserted one claim, against all the defendants, under the Organic Act of Guam, 48 U.S.C. § 1421i ;¹ and another, against all but Guam itself, under 42 U.S.C. § 1983, alleging a violation of the Equal Protection Clause of the Fourteenth Amendment, extended to Guam by 48 U.S.C. § 1421b(u).²

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The district court granted a motion for class certification.³ After discovery, the court granted the Taxpayers' motion for summary judgment as to both claims. It issued findings of fact and conclusions of law in support of its grant of summary judgment.

The district court's findings of fact, which Guam does not challenge on appeal, paint a troubling picture of Guam's tax-refund practices. Guam has, “[s]ince the early 1990s, ... financed chronic budget deficits by regularly delaying the payment of [Guam income tax] refunds to its taxpayers” such that “many ... refunds [were] not paid in a timely manner” and “during [some] periods, no refunds were paid to any one.” Guam failed timely to pay refunds even after Guam's Legislature enacted two separate statutes requiring that money be set aside for that purpose.

“Traditionally, the Government of Guam has paid [income tax] refunds in a first-in, first-out order, the same way the Internal Revenue Service ordinarily pays federal income tax refunds.”⁴ But, in light of the chronic delays, for years Guam paid some refunds on an “expedited” basis, out of the chronological order otherwise applicable. The expedited refund process was not governed by any “formal rule-making process or any regulations,”—nor, it appears, any consistently followed set of standards. The result was starkly unequal treatment of refund requests.

The director of the Department of Revenue and Taxation (“DRT”) testified, for example, that the reasons taxpayers offered for requesting expediting returns were ranked, from medical needs as the most serious to financial hardship as the least. In reality, however, “[w]hile taxpayers experiencing medical emergencies [were] often unable to obtain expedited refunds, other taxpayers with less urgent [financial] needs receive[d] their refunds on an expedited basis.” Indeed, “the greatest number of refunds [was] paid to DRT's ‘catch-all’ category of ‘financial’ hardship” despite it purportedly being “the lowest priority.”

The process was also opaque and tedious. Guam did not “formally approve or reject requests for expedited refunds,” so some taxpayers stood in line at DRT's offices day after day to check on the status

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of their refund requests. In practice, to obtain an expedited refund, a taxpayer would often need to “persuade one of a series of public officials to include his or her name on a list,” given to DRT, resulting in expedited refunds for those with the right political connections. DRT employees also successfully expedited their own refunds, and those of family and friends, often without filling out the purportedly required form, submitting supporting documentation, or visiting the DRT. Similarly, the named plaintiffs' refunds were expedited, even though they submitted no requests for expedited treatment, in an apparent attempt to render this case moot.

Based on these facts, the district court concluded that the Taxpayers were entitled to summary judgment on both claims. It also entered a permanent injunction prohibiting Guam from operating its expedited refund program. The injunction further provided that, as to any refund claim that contained no material errors and was not subject to an audit or other investigation, “the Government of Guam shall pay the corresponding refund no later than six months after the filing of the claim for refund or six months from the due date for filing the claim for refund, whichever is later....”⁵ Finally, the court awarded substantial attorney's fees and costs to the Taxpayers.⁶

These consolidated appeals followed.

II.

Guam challenges the Taxpayers' equal protection claim as not cognizable under § 1983, which provides:

Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress....

42 U.S.C. § 1983 (emphases added). Guam contends that no defendant is a “person” within the meaning of § 1983, and that the challenged actions were not taken “under color of” territorial law. Guam is wrong.

A.

The Taxpayers contend that both of Guam's arguments regarding § 1983 are waived, as they were not raised before the district court until long after judgment was entered on the merits.⁷ See Dream Palace v. Cnty. of Maricopa, 384 F.3d 990, 1005 (9th Cir.2004). Guam responds that at least the definition of “person” may be raised for the first time on appeal as it implicates subject matter jurisdiction, and, in the alternative, that the court should

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exercise its discretion to reach the § 1983 arguments.

Three circuits have held that “whether [a party] is a ‘person’ under § 1983 is not a jurisdictional question” but rather “a statutory one.” Settles v. U.S. Parole Comm'n, 429 F.3d 1098, 1105 (D.C.Cir.2005) ; accord Barker v. Goodrich, 649 F.3d 428, 433 n. 1 (6th Cir.2011) ; Bolden v. Se. Pa. Transp. Auth., 953 F.2d 807, 821 (3d Cir.1991) (en banc). We agree and so hold.

Whether the defendant is a “person” within the meaning of the statute is “a necessary inquiry for the purposes of establishing the essential...