Rubinas v. Maduros
| Decision Date | 16 September 2021 |
| Docket Number | 1:21-CV-00096 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | ISABEL RUBINAS and IJR CORP., Plaintiffs, v. NICOLAS MADUROS, DIRECTOR OF THE CALIFORNIA DEPARTMENT OF TAX & FEE ADMINISTRATION, Defendant. |
Isabel Rubinas owns and operates a children's clothing business from her kitchen table in suburban Illinois. R. 1, Compl. ¶ 5.[1] Most of her sales are made online through Amazon.com. Id. She now faces a California tax bill for the sales she made in years past to California customers. Rubinas seeks declaratory and injunctive relief to prevent California's Department of Tax & Fee Administration from collecting taxes on those sales. (The co-Plaintiff in the lawsuit is the formal corporate entity through which she operates the business, id. ¶ 12, but for convenience's sake, the Court will refer just to Rubinas unless otherwise explained.) The Court previously denied Rubi-nas's motion for a temporary restraining order, R 16, 17, and now turns to her motion for a preliminary injunction. Rubinas asks to compel California to return money seized from her bank account and to prohibit the State from seizing any more of her funds during the pendency of this litigation.
Rubinas's motion for a preliminary injunction is denied on essentially the same grounds that her motion for a temporary restraining order was denied: the Court lacks subject matter jurisdiction to hear her claims. Under the Tax Injunction Act, no federal court may “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.” 28 U.S.C. § 1341. As detailed below and in the opinion rejecting a temporary restraining order, California does offer a plain, speedy, and efficient remedy, so the Tax Injunction Act prevents this Court from issuing the relief that Rubinas seeks.
For purposes of the preliminary injunction motion, the key facts are largely undisputed. For the reader's convenience, the facts are set out again here just as they were in the order that denied the temporary restraining order. R. 17. Isabel Rubinas owns and operates IJR Corporation, which does business as Lollipop Seeds. R. 1-2, Exh. 2, Rubinas Declaration ¶ 2. Lollipop Seeds sells children's clothing, and Rubinas runs the business out of her home in Glen Ellyn, Illinois. Id. She conducts most of her business over Amazon.com, through its Fulfilled by Amazon program. Id. ¶ 3. Under the program (which is widely known by the acronym FBA), once Amazon accepts a listing for clothing offered by Rubinas, Amazon then directs Rubinas to ship the clothing for storage in an Amazon warehouse. Id. ¶ 3. After Rubinas ships her products to Amazon, she has no control over where they are stored or where they are sold. Id. For example, Amazon can ship the clothing to other warehouses across the country, with no say-so in the matter by Rubinas. Id. After the products are listed on Amazon, Amazon also takes over the processing of any sales, including shipping the products to customers and receiving the payments from customers. Id. ¶ 4. Indeed, when the customers pay, the money goes to Amazon first; Rubinas receives her cut of the sale only after Amazon deducts its profit, fees, and so on. Id. On the back end of the sale, almost all customer service is handled by Amazon: “Amazon also generally prevents me from contacting consumers directly so that Amazon can control the customer relationship.” Id.
Until recently, neither Rubinas nor Amazon collected California sales and use tax on any of the products that she sold. See Rubinas Decl. ¶ 7. According to the Complaint, in 2012, California initially announced that it would require Amazon to collect sales and use tax on FBA sales, but then the State reversed that position. Compl. ¶¶ 32-33. It was not until July 2019, Rubinas says, that she first learned from California that she would be required to collect use tax on her California sales. Rubinas Decl. ¶ 5.[2]
After Rubinas learned about the tax obligation, she paid the assessed use tax of over $2, 600 for tax year 2019. Rubinas Decl. ¶ 9. In January 2020, Rubinas's accountant also prepared and filed sales-and-use tax returns for 2017 and 2018. R. 12- 1, Hale Declaration ¶ 5. Before filing those tax returns, IJR Corporation had submitted to California a Power of Attorney form authorizing the accountant to act on the company's behalf. Id. ¶ 6. Based on the filed tax returns, Rubinas's business owed $2, 621 for the 2017 tax year and $4, 630 for the 2018 tax year. Id. ¶ 5. Sometime after the January 2020 submission of the tax returns, Rubinas informed an employee of the California Department of Tax and Fee Administration, Shannon Hale, that Ru-binas would not be able to pay the assessed taxes. Id. ¶ 7. Hale emailed Rubinas with information about the Department's payment-plan options. Id. The two spoke on the phone on March 2, 2020, and Rubinas said that she would call Hale the next day to set up a payment plan. Id. But Rubinas did not call. Id.
According to Rubinas, she “lost touch” with Hale during the 2020 pandemic. Rubinas Decl. ¶ 9. But that is not the complete picture: in fact, on July 27, 2020, Hale called Rubinas and set up a phone call for August 4 to begin arrangements for a payment plan. Hale Decl. ¶ 8. Rubinas did not answer the phone at the appointment time, and then did not respond to Hale's voicemail reminder. Id.[3]
On December 1, 2020, Hale called Rubinas and left a voicemail saying that IJR needed to pay its tax debt or enroll in a payment plan by December 4, or else California would pursue collection mechanisms. Hale Decl. ¶ 9, Rubinas Decl. ¶ 8. On December 8-apparently without further notice to Rubinas-California issued a levy on IJR's Chase bank account. Hale Decl. ¶ 12. The Department did not immediately apply the levy to Rubinas's tax debt, because she could have challenged the levy or requested a hardship hearing. Id. ¶ 12. On December 18, California issued a notice of the levy to IJR. Id. ¶ 13. The next day, on December 19, Rubinas received a notice from Chase reporting that her account had been frozen up to the levied amount based on California's levy notice. Rubinas Decl. ¶ 9. Two days later, California received $2, 367.56 from the account. Id. On December 28, another Department employee emailed Rubinas's accountant and left him a voicemail about payment-plan options and compromise offers. Hale Decl. ¶ 13. In response, the accountant submitted a revocation of the Power of Attorney authorization, so the Department directly contacted Rubinas (on December 30) about her options. Id. ¶ 14. She did not respond. Id. On January 7, 2021, the Department applied the levied funds to Rubinas's account. Id. ¶ 15.
Rubinas moved for a temporary restraining order and preliminary injunction, asking this Court to stop California from issuing further levies and to require the State to return the already-seized funds. The Court denied Rubinas's motion for a temporary restraining order because the Tax Injunction Act barred subject matter jurisdiction to hear her claims. R. 17 at 7. As this Opinion explains, the motion for a preliminary injunction must be denied for the same reason.
A preliminary injunction is “an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter v. Natural Res. Def. Council, 555 U.S. 7, 22 (2008). To prevail on a motion for a preliminary injunction, the moving party must show: “(1) a likelihood of success on the merits; (2) a lack of an adequate remedy at law; and (3) an irreparable harm will result if the injunction is not granted.” Lambert v. Buss, 498 F.3d 446, 451 (7th Cir. 2007) (cleaned up).[4] If the moving party meets these requirements, then the court balances the nature and degree of the potential harm to each party and the public interest. Girl Scouts of Manitou Council, Inc. v. Girl Scouts of U.S.A., Inc., 549 F.3d 1079, 1086 (7th Cir. 2008).
There is still no doubt that this case presents challenging questions of tax law and fundamental fairness. But Rubinas's claims for injunctive relief cannot succeed because this Court lacks subject matter jurisdiction to hear her case. The California state court system-and ultimately the United States Supreme Court-is where Ru-binas must present her claims. Just like the motion for temporary restraining order, the preliminary-injunction motion fails on the threshold issue of likelihood of success.
The Tax Injunction Act is concise (relative to most federal laws) and, as the Court previously explained, dispositive in this case: “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.” 28 U.S.C. § 1341. A state court remedy must meet “certain minimal procedural criteria” to suffice under the statute. Rosewell v. LaSalle Nat. Bank, 450 U.S. 503, 512 (1981) (emphasis in original). A state remedy is procedurally adequate if it “provides the taxpayer with a full hearing and judicial determination at which she may raise any and all constitutional objections to the tax.” Rosewell, 450 U.S. at 514 (cleaned up).
Each of the three statutory requirements-plain, speedy, and efficient-has received individual attention from the courts. A remedy is “plain” when it is clearly available to the party seeking it. Lowe v. Washoe Cty., 627 F.3d 1151, 1156 (9th Cir. 2010). A remedy is “speedy” if it does not take significantly longer than federal...
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