State of Ariz. v. Atchison, T. & S. F. R. Co.

Citation656 F.2d 398
Decision Date12 June 1981
Docket NumberNo. 79-3183,79-3183
PartiesSTATE OF ARIZONA and Arizona Department of Revenue, Plaintiffs-Appellants, v. ATCHISON, TOPEKA AND SANTA FE RAILROAD COMPANY and Southern Pacific Transportation Company, Defendants-Appellees, and United States of America, Intervenor/Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Mary A. McReynolds, Washington, D. C., Anthony B. Ching, Sol. Gen., Phoenix, Ariz., argued, James D. Winter, Asst. Atty. Gen., on brief, for plaintiffs-appellants.

Philip E. Von Ammon, Fennemore, Craig, Von Ammon & Udall, Lex J. Smith, Phoenix, Ariz., argued, Andrew S. Friedman, Earl Carroll, Evans, Kitchel & Jenckes, Phoenix, Ariz., on brief, for defendants-appellees.

Appeal from the United States District Court for the District of Arizona.

Before WALLACE and FARRIS, Circuit Judges, and KING, * District Judge.

WALLACE, Circuit Judge:

The State of Arizona and Arizona Department of Revenue (Arizona) brought this action for a declaratory judgment in the district court against the Atchison, Topeka and Santa Fe Railroad Company and the Southern Pacific Transportation Company (the railroads). Arizona sought a declaration that its scheme of assessing property for the purpose of collecting ad valorem property taxes was consistent with section 306 of the Railroad Revitalization and Regulatory Reform Act of 1976, Pub.L. 94-210 § 306, 90 Stat. 31, 54-55, 94th Cong., 2nd Sess., reprinted in (1976) U.S.Code Cong. & Ad.News, p. 14 (the 4R Act) (current version at 49 U.S.C. § 11503). In the alternative, Arizona contended that section 306 of the 4R Act was unconstitutional. The district judge permitted the United States to intervene as a party defendant. Subsequently, he denied Arizona's motion for summary judgment and granted the railroads' and the United States' motions for summary judgment. Arizona now appeals from this judgment. We affirm.

I

In 1976, Congress passed the 4R Act for the purpose of promoting the revitalization of the railway system of the United States. 4R Act, supra § 101(a). Section 306 declared it unlawful, as "an unreasonable and unjust discrimination against, and an undue burden on, interstate commerce," 4R Act, supra, § 306, for a state to assess,

for purposes of a property tax levied by any taxing district ... transportation property at a value which bears a higher ratio to the true market value of such transportation property than the ratio which the assessed value of all other commercial and industrial property in the same assessment jurisdiction bears to the true market value of all such other commercial and industrial property.

4R Act, supra, § 306. 1 Although the 4R Act became law on February 5, 1976, the effective date of section 306 was set for three years after that date. Id. Section 306 was originally codified at 49 U.S.C. § 26c. Before it went into effect, however, Congress recodified the section as part of its revision of the Interstate Commerce Act. Section 306 is now codified at 49 U.S.C. § 11503. See Pub.L. 95-473 § 11503, 92 Stat. 1445, 95th Cong., 2nd Sess., reprinted in (1978) U.S.Code Cong. & Ad.News, p. 3009. Although there are some differences between the two codifications, we shall simply refer to "section 306" to mean both versions, and cite to the current codification, except when the differences between the two are at issue.

When this suit was filed, Arizona divided property into seven classes for the purpose of property tax assessment. Class 1, which was assessed at 60% of its full cash value, included railroad property as well as "flight property," property used by private car companies, various mine property, and standing timber. Ariz.Rev.Stat. §§ 42-136, 42-227 (1978). The other classes of property had lower assessment ratios ranging down to 8% of full cash value. Most, if not all, other commercial and industrial property was contained in class 2, which was assessed at 50% of full cash value, and class 3, which was assessed at 27% of full cash value. 2

In this case, Arizona seeks a declaration that its property assessment scheme is consistent with section 306. Its position is that section 306 prevents states only from assessing railroad property at a higher ratio than it assesses every other piece of commercial and industrial property. The parties have stipulated that Arizona assessed railroad property at a ratio that exceeds by at least 5% the average assessment ratio of all other commercial and industrial property in the state. 3

In the alternative, Arizona asserts that section 306 is unconstitutional because it was beyond the power of Congress, acting pursuant to its Commerce Clause power, to enact, and that it violates the Tenth Amendment. Arizona also contends that section 306 impermissibly requires federal courts to assess and levy taxes. We shall discuss these contentions in order after we analyze our jurisdiction to entertain this case.

II
A.

Arizona has properly raised a federal question in its complaint. Arizona brought this lawsuit seeking a declaration that its property tax assessment scheme is consistent with section 306 or, in the alternative, that section 306 conflicts with the federal constitution. That the question is within Arizona's well-pleaded complaint for declaratory relief does not, however, necessarily dispose of the jurisdiction issue.

In Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 70 S.Ct. 876, 94 L.Ed. 1194 (1950), the Court held that the Declaratory Judgment Act is procedural only, and does not extend the jurisdiction of the federal courts. Id. at 671, 70 S.Ct. at 878-79. The plaintiff sought a declaration that a contract was still in effect because a condition of the contract that depended on the action of a federal agency pursuant to federal law had been fulfilled. The Court observed that absent the Declaratory Judgment Act the cause of action would have been one for breach of contract, which would not arise under federal law. The federal law in the case could be invoked only as a defense. Because federal question jurisdiction cannot be invoked when the plaintiff's claim does not contain an element of federal law, but merely anticipates that the defendant will raise a defense under the Constitution or federal law, the Court held that there was no federal question jurisdiction over the declaratory judgment action. Id. at 672, 70 S.Ct. at 879. The Supreme Court later observed that

(w)here the complaint in an action for declaratory judgment seeks in essence to assert a defense to an impending or threatened state court action, it is the character of the threatened action, and not of the defense, which will determine whether there is federal-question jurisdiction in the District Court.

Public Service Comm'n v. Wycoff Co., 344 U.S. 237, 248, 73 S.Ct. 236, 242, 97 L.Ed. 291 (1952) (dictum).

In essence, the Declaratory Judgment Act allows a plaintiff to bring a suit now when, if there were no such act, the plaintiff would be required to await further events. Although it provides for advanced ripening, it does not create federal jurisdiction over the issue presented. Thus, Skelly Oil teaches that we must analyze our jurisdiction in a declaratory judgment action as if the Declaratory Judgment Act did not exist.

The present lawsuit could arise in two different ways if there were no Declaratory Judgment Act. One would be a suit brought by the state pursuant to state law to collect taxes from the railroads. There would be no federal jurisdiction over this case, because the only issue of federal law would be the defense of section 306 that the railroads would raise. It would not be a ground for federal jurisdiction if the state merely anticipated the federal defense and asserted that the defense was not valid. Louisville & N. R. R. v. Mottley, 211 U.S. 149, 152, 29 S.Ct. 42, 43, 53 L.Ed. 126 (1908).

The other way in which this suit could arise is a suit by the railroads to enjoin the state from assessing taxes pursuant to the state's taxation scheme. This case would satisfy the requirements of federal jurisdiction under section 1331 because it would arise under section 306. Section 306 would be the basis asserted by the plaintiffs to have the state taxation scheme enjoined. This cause of action, however, would run afoul of 28 U.S.C. § 1341. Section 1341 provides that "(t)he 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." We have observed that section 1341 is a "jurisdictional bar." Mandel v. Hutchinson, 494 F.2d 364, 366 (9th Cir. 1974). Thus, even though the plaintiff's well-pleaded complaint would bring the case within federal question jurisdiction, section 1341 would divest the federal courts of jurisdiction.

We do not think the policy behind this divestiture of jurisdiction applies to a case such as this one. Section 1341 was designed to eliminate interference by federal courts in state internal economy and taxation matters. Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 298-99, 63 S.Ct. 1070, 1073, 87 L.Ed. 1407 (1943). This policy would not be served by applying the statute to bar a state itself from invoking the jurisdiction of the federal courts. In addition, Congress removed the jurisdictional bar of section 1341 for cases brought under section 306 after its effective date. 4 Under these circumstances, the jurisdictional bar of section 1341 cannot apply to this case. Therefore, because there is a federal question raised by the plaintiff in the action that underlies this declaratory judgment action, and the jurisdictional bar of section 1341 does not apply, the federal courts have jurisdiction to hear this case.

B.

A second jurisdictional problem in this case is whether the issues presented are ripe for adjudication. Arizona filed its lawsuit in the district court on August...

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