U.S. v. Dorgan

• Decision Date: 10 September 1975
• Docket Number: No. 75-1090,75-1090
• Parties: UNITED STATES of America and Western Electric Company, Incorporated, Appellees, v. Byron L. DORGAN, as State Tax Commissioner of and for the State of North Dakota, and his successors in office, et al., Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 969

522 F.2d 969

UNITED STATES of America and Western Electric Company Incorporated, Appellees, v. Byron L. DORGAN, as State Tax Commissioner of and for the State of North Dakota, and his successors in office, et al., Appellants.

No. 75-1090.

United States Court of Appeals Eighth Circuit.

Submitted May 16, 1975.

Decided Sept. 10, 1975.

Kenneth M. Jakes, Sp. Asst. Atty. Gen., Bismarck, N. D., for appellants.

Alfred S. Lombardi, Atty., Tax Div., Dept. of Justice, Washington, D. C., for appellees.

Before LAY and STEPHENSON, Circuit Judges, and REGAN, District Judge. ^*

LAY, Circuit Judge.

The United States and Western Electric seek a declaratory judgment that North Dakota sales and use taxes are unconstitutional as applied to Western Electric's purchases under a defense contract. In essence, they argue that Western Electric acts under the contract as a federal instrumentality and therefore enjoys the immunity of the Federal Government.

Western Electric contracted with the Army to design and install certain equipment at "Safeguard System" missile bases in North Dakota. When North Dakota informally evidenced an intention to tax the defense contractor, the United States and Western Electric filed this action seeking declaratory relief. The next day North Dakota's Tax Commissioner issued a "Notice of Determination", asserting that Western Electric owed in excess of $54 million in sales and use taxes and that the tax would become final unless Western Electric applied for an administrative hearing. Western Electric requested a hearing, but before one was held, the district court granted the government's motion for an order staying the state administrative proceedings pendente lite. From this interlocutory order the State Tax Commissioner appeals, urging that the district court abused its discretion in granting the stay.

We need not reach that issue, however, for we find that the district court was without jurisdiction to issue the stay. ¹ Under 28 U.S.C. § 2281, a three-judge district court must be convened to grant injunctive relief under the circumstances existing here. Section 2281 provides:

An interlocutory or permanent injunction restraining the enforcement, operation or execution of any State statute by restraining the action of any officer of such State in the enforcement or execution of such statute or of an order made by an administrative board or commission acting under State statutes, shall not be granted by any district court or judge thereof upon the ground of the unconstitutionality of such statute unless the application therefor is heard and determined by a district court of three judges under section 2284 of this title.

The government urges that since the constitutional challenge to the state statute is based on the Supremacy Clause, under Swift & Co. v. Wickham, 382 U.S. 111, 86 S.Ct. 258, 15 L.Ed.2d 194 (1965), a three-judge court is not required to enjoin enforcement of the state statute. In Swift, however, only the construction of two statutes, one state and one federal, was at issue rather than an interpretation of the Federal Constitution. More on point is Department of Employment v. United States, 385 U.S. 355, 87 S.Ct. 464, 17 L.Ed.2d 414 (1966). There the Red Cross and the United States sued as coplaintiffs to enjoin application of Colorado's unemployment compensation taxes to the Red Cross on the ground that it was a federal instrumentality immune from state taxation. A three-judge court had granted the injunction. When jurisdiction was challenged on direct appeal to the Supreme Court, that Court held:

Any challenge to the applicability of the three-judge court provision, 28 U.S.C. § 2281, is foreclosed by this Court's decision in Query v. United States, 316 U.S. 486 (62 S.Ct. 1122, 86 L.Ed. 1616) (1942), where the Court held that three judges were required to entertain a suit to enjoin a state tax statute sought to be enforced against an Army Post Exchange which asserted its immunity as a federal instrumentality, and we do not consider that our later decision in Swift & Co. v. Wickham, 382 U.S. 111 (86 S.Ct. 258, 15 L.Ed.2d 194) (1965), requires a different conclusion.

385 U.S. at 357, 87 S.Ct. at 466.

The government next asserts that this order was not an injunction upon the ground of unconstitutionality within the meaning of § 2281, and that instead this order is governed by 28 U.S.C. § 2283 as necessary in aid of the court's jurisdiction. ² The government urges that the stay was aimed at aiding the district court to reach a substantive determination, and was not a substantive determination itself. The argument is premised on the assumption that the three-judge court requirement of § 2281 does not apply to injunctions in aid of jurisdiction under § 2283. ³

In analyzing this contention, it is helpful to review the history of the three-judge court statute and the background of the Declaratory Judgment Act, 28 U.S.C. § 2201. The original purpose of the predecessor to § 2281 is discussed in Goldstein v. Cox, 396 U.S. 471, 90 S.Ct. 671, 24 L.Ed.2d 663 (1970), where the Court observed:

As originally enacted, the Three-Judge Court Act required that no Interlocutory injunction restraining the operation of any state statute on constitutional grounds could be issued, except by a three-judge court, and provided that "(a) n appeal may be taken directly to the Supreme Court of the United States from the order granting or denying . . . an interlocutory injunction in such case." 36 Stat. 557. The Act grew out of the public furor over what was felt to be the abuse by federal district courts of their injunctive powers in cases involving state economic and social legislation. While broad and radical proposals were made to deal with the problem, including proposals to deprive the federal courts of all jurisdiction to enjoin state officers, Congress compromised on a provision that would deal with what was felt to be the worst abuse The issuance of temporary restraining orders and preliminary injunctions against state statutes, either Ex parte or merely upon affidavits, and subject to limited and ineffective appellate review. See Phillips v. United States, 312 U.S. 246, 250 (61 S.Ct. 480, 85 L.Ed. 800) (1941); Hutcheson, A Case for Three Judges, 47 Harv.L.Rev. 795, 803-810 (1934); Note, The Three-Judge District Court and Appellate Review, 49 Va.L.Rev. 538, 539-543 (1963).

396 U.S. at 476, 90 S.Ct. at 674 (emphasis added).

Thus, the very abuse at which the statute was aimed is the remedy the government requests here: a single federal judge issuing an interlocutory injunction against enforcement of a state statute before the state has an opportunity for a full hearing on its constitutional merits. In Steffel v. Thompson, 415 U.S. 452, 94 S.Ct. 1209, 39 L.Ed.2d 505 (1974) the Court expanded the historical perspective:

A "storm of controversy" raged in the wake of Ex parte Young (209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714), focusing principally on the power of a single federal judge to grant Ex parte interlocutory injunctions against the enforcement of state statutes. . . . This uproar was only partially quelled by Congress' passage of legislation, 36 Stat. 557, requiring the convening of a three-judge district court before a preliminary injunction against enforcement of a state statute could issue, and providing for direct appeal to this Court from a decision granting or denying such relief. See 28 U.S.C. §§ 2281, 1253. From a State's viewpoint the granting of injunctive relief even by these courts of special dignity "rather clumsily" crippled state enforcement of its statutes pending further review. . . . Furthermore, plaintiffs were dissatisfied with this method of testing the constitutionality of state statutes, since it placed upon them the burden of demonstrating the traditional prerequisites to equitable relief most importantly, irreparable injury. See, E. g., Fenner v. Boykin, 271 U.S. 240, 243 (46 S.Ct. 492, 70 L.Ed. 927) (1926).

Id. at 465-66, 94 S.Ct. at 1219.

Thus, in view of the onerous burden cast on a party requesting injunctive relief, the Declaratory Judgment Act was created to enable a federal court to determine the constitutionality of a statute without issuing a preliminary injunction with its coercive effect. As stated in Perez v. Ledesma, 401 U.S. 82, 91 S.Ct. 674, 27 L.Ed.2d 701 (1971):

The express purpose of the Federal Declaratory Judgment Act was to provide a milder alternative to the injunction remedy. . . .

. . . Though it may be persuasive, it is not ultimately coercive; non-compliance with it may be inappropriate, but is not contempt.

Id. At 111, 126, 91 S.Ct. at 690, 696.

If the government's position is correct, and a Single judge under § 2283 (or § 1651) may enjoin enforcement of a state statute by granting a stay in aid of its jurisdiction, then the government has discovered an easy way to circumvent the Congressional purpose in requiring three judges to hear such cases. Under the government's approach, a litigant could avoid the requirements of § 2281 merely by seeking declaratory relief before a single judge and then moving to stay the state proceeding in which the statute is being enforced. The trial court's characterization of its order as simply in aid of its jurisdiction or as in fact issued on the substantive grounds of irreparable harm and probability of success on the merits is of little moment. ⁴ The coercive effect is the same, and the provisions of § 2281 require three judges to grant the injunctive relief. ⁵

A party seeking a preliminary injunction is required to demonstrate the traditional prerequisites for injunctive relief. Leiter Minerals, Inc. v. United States, 352 U.S. 220, 225, 77 S.Ct. 287, 1 L.Ed.2d 267 (1957). ⁶ Movants must demonstrate a substantial probability of success on the merits and irreparable injury. See Minnesota Bearing Co. v. White Motor Corp., 470 F.2d 1323, 1326 (8th Cir. 1973). ⁷ It is not clear whether under ...