Superior Oil Co. v. City of Port Arthur

• Decision Date: 17 February 1982
• Docket Number: Civ. A. No. B-80-459-CA.
• Citation: 535 F. Supp. 916
• Parties: The SUPERIOR OIL COMPANY v. The CITY OF PORT ARTHUR.
• Court: U.S. District Court — Eastern District of Texas

535 F. Supp. 916

The SUPERIOR OIL COMPANY v. The CITY OF PORT ARTHUR.

Civ. A. No. B-80-459-CA.

United States District Court, E. D. Texas, Beaumont Division.

February 17, 1982.

Thomas H. Lee, Foreman & Dyess, Houston, Tex., for plaintiff.

George Wikoff, City Atty., Port Arthur, Tex., Robert Q. Keith, Mehaffy, Weber, Keith & Gonsoulin, Beaumont, Tex., for defendant.

OPINION AND ORDER

ROBERT M. PARKER, District Judge.

This suit is brought on behalf of the Superior Oil Company, in which they allege an infringement of their right under the Fourteenth Amendment to the Constitution to be free of the deprivation of their property by a state without due process of law. The defendant, The City of Port Arthur, through a series of annexations in 1979¹ brought within its municipal boundaries a strip of submerged territory extending approximately ten miles into the Gulf of Mexico. The last of these annexations covered territory known as the Gulf of Mexico Tract No. 3 and included approximately 1,199 acres of land on which the plaintiff holds oil, gas and mineral leases from the State of Texas. Presently, the plaintiff has several facilities, including a drilling platform, located within this area used in the production of gas and condensate liquids.

Pursuant to its ad valorem tax ordinance, Port Arthur assessed the plaintiff's property and has demanded payment in the amount of $774,430.88 for the year of 1980. This sum has been paid into an escrow account pending the resolution of Superior Oil's challenge in the courts.

According to the plaintiff this tax results in a burden upon its property without any corresponding city services or benefits. Superior Oil does not question the validity of the City's ad valorem tax ordinance per se, but instead, its application to the Gulf of Mexico property through improper annexation. Superior Oil asserts that these annexations, although done in compliance with Texas's Municipal Annexation Act, Tex. Rev.Civ.Stat.Ann., art. 970a (1963 Supp. 1981), were aimed solely at generating tax revenues without any need or desire by the City to provide bona fide city services to the burdened property. Taxation on this basis is said to be offensive to the concept of due process embodied in our Constitution. I agree.

The evidence presented to this Court reveals that these annexations were motivated solely to increase tax revenue to the City. Further, those services which have been actually provided to the burdened property are only post hoc attempts to justify the tax burden. None are significant when compared to the huge tax levy assessed on the property. In short, the City's annexations have no relation to the traditional purposes of municipal government and its legitimate powers. This was merely a land grab.

The defendant, however, has raised objections which go to the power and propriety of this Court entertaining this suit. These primary concerns fall into three categories. First, the City contends that the Tax Injunction Act of 1937, 28 U.S.C. § 1341 (1976), destroys the Court's jurisdiction over this matter. Similarly, under precedent of a recent Supreme Court case,² the principle of comity is also said to oust jurisdiction. It is also argued, even with proper jurisdiction, comity and concerns of judicial administration, make this an appropriate suit for abstention. And, finally, assuming the power and will to adjudicate Superior Oil's constitutional claim, the defendant contends that this Court is bound by decisions made in Texas State courts concerning the same dispute under the doctrines of res judicata and collateral estoppel.

I. JURISDICTION

This Court is persuaded that neither the Tax Injunction Act, nor McNary obviate federal jurisdiction over this suit.

The Tax Injunction Act states:

The district courts shall not enjoin, suspend or restrain the assessment levy or collection of any tax under State law were a plain, speedy and efficient remedy may be had in the courts of such State. 28 U.S.C. § 1341 (1976).

This statute has been applied to suits challenging taxes imposed by municipalities. Tramel v. Schrader, 505 F.2d 1310 (5th Cir. 1975).

In McNary, the Supreme Court indicated that this statute arose from the common law principle of comity which is "essential to `Our Federalism.'" McNary, ___ U.S. at ___, 102 S.Ct. at 179 (citing Matthews v. Rodgers, 284 U.S. 521, 52 S.Ct. 217, 76 L.Ed. 447 (1932); Singer Sewing Machine Company v. Benedict, 229 U.S. 481, 33 S.Ct. 942, 57 L.Ed. 1288 (1913); Boise Artesian Water Co. v. Boise City, 213 U.S. 276, 29 S.Ct. 426, 53 L.Ed. 796 (1909)). This statute "with its antecedent basis in the comity principle" is said to bar "federal injunctive challenges to state tax laws." McNary, ___ U.S. at ___, 102 S.Ct. at 180 (emphasis supplied). The statute was passed to avoid a federal court's interference with the administration of state tax systems and to prevent the serious disruption of state taxing processes that such intervention entails.³

Careful examination of these purposes behind the statute indicate, however, that it is not applicable to the case at hand. This suit is not a challenge to a tax law, but instead, it attacks the validity of the municipal annexation which brings the plaintiff's property within the ambit of that ordinance. Because Port Arthur's ad valorem ordinance is not being questioned, there is no danger of disruption to the City's taxing scheme. Equitable relief for Superior Oil, in this instance, would not intrude on the enforcement of the City's taxing system. The principle of comity and the purposes of the Tax Injunction Act are not at stake here, and, consequently, federal jurisdiction is intact.

II. RES JUDICATA AND COLLATERAL ESTOPPEL

This Court has previously addressed the affirmative defenses of res judicata and collateral estoppel in its Memorandum Order of August 7, 1981. It was concluded then that these doctrines do not bind this Court from reaching an independent judgment. Because of changed circumstances in the state proceedings, these doctrines have new application.

In addition to the suit before this Court there have been several parallel suits in the state courts of Texas. Two quo warranto actions⁴ attacking the validity of Port Arthur's annexations on both state and federal grounds were consolidated in the 58th District Court of Jefferson County, Texas (hereinafter the "quo warranto action"). Port Arthur was granted a summary judgment on February 26, 1980, with the Court holding that she was entitled to a judgment as a matter of law. The State of Texas failed to perfect its appeal.

Thereafter, the Superior Oil Company elected to file its own state suit⁵ (hereinafter the "Superior Oil state suit") seeking an injunction against the assessment and collection of ad valorem taxes on the recently annexed property. Originally the company challenged the city's tax provisions because they allegedly allowed taxable property to be deliberately excluded from the roles. That claim was dropped in an amended petition and, instead, a declaratory judgment was sought, inter alia, on the very due process issue presented in this case. Summary Judgment for the city was granted on May 1, 1981. That judgment was upheld by the Ninth Supreme Judicial District Court of Appeals for Texas, Cause No. 8701, on December 22, 1981. In its opinion the Texas Appeals Court makes clear that the summary judgment was being upheld on the merits of Superior Oil's due process claim. Appeal to the Texas Supreme Court is pending.

Port Arthur contends that these state court proceedings act as a bar to the fresh adjudication of Superior Oil's constitutional claim in this Court. Port Arthur invokes both the doctrines of res judicata and collateral estoppel, but fails to distinguish between them in its pleadings and briefs. For the reasons previously stated in the August 7 Memorandum Order this Court is of the opinion that neither doctrine, when based upon the quo warranto action, is applicable. However, the recent Texas Court of Civil Appeals action in the Superior Oil state suit could act as a bar to this suit under res judicata principles.

Plaintiff brings suit in this Court based solely on federal question jurisdiction under 28 U.S.C. § 1331 (Supp.1981). Therefore, the federal law of res judicata and collateral estoppel is to be applied.⁶ These doctrines are distinguished in many salient features.

Essentially, res judicata is a doctrine of judicial finality. It requires that a judgment on the merits bar a subsequent suit involving the same parties or those in privity to them and based on the same cause of action. Collateral estoppel is a corollary doctrine of judicial finality. It operates to preclude the relitigating of issues which were litigated by a party or those in privity in a prior suit based upon a different cause of action. See generally, 1B J. Moore, Federal Practice, ¶ 0.401 (2d ed. 1974). Chief Justice Warren has described the distinction as follows:

Under the doctrine of res judicata a judgment `on the merits' in a prior suit involving the same parties or their privies bars a second suit based on the same cause of action. Under the doctrine of collateral estoppel, on the other hand, such a judgment precludes relitigation of issues actually litigated and determined in the prior suit, regardless of whether it was based on the same cause of action as the second suit. Lawlor v. National Screen Service Corp., 349 U.S. 322, 326, 75 S.Ct. 865, 867, 99 L.Ed. 1122 (1955).

Comparing the Superior Oil state suit with that before this Court, all the conditions for res judicata are met. Identical parties are involved in both suits. The identical cause of action⁷ in this suit was raised and adjudicated on the merits in the Superior Oil state suit and a valid judgment was rendered.

Superior Oil has not contested these conclusions.⁸ Instead, citing Texas law, Superior Oil contends that the pendency of appeal vacates the res judicata...