Reybold Venture Group XI-A LLC et al v. Delaware Department of Education

Filing 36

MEMORANDUM OPINION. Signed by Judge Sue L. Robinson on 5/30/2013. (nmfn)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

REYBOLD VENTURE GROUP,
XI-A LLC, et al.,
Plaintiffs,
v.

DELAWARE DEPARTMENT OF
EDUCATION,
Defendant.

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) Civ. No. 11-1297-SLR
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Jeffrey M. Weiner, Esquire of Jeffrey M. Weiner, Esq, Wilmington, Delaware. Counsel
for Plaintiffs.
Joseph C. Handlon, Deputy Attorney General, Delaware Department of Justice,
Wilmington, Delaware and John B. Hindman, Deputy Attorney General, Delaware
Department of Justice, Dover, Delaware. Counsel for Defendant.

MEMORANDUM OPINION

Dated: May2D, 2013
Wilmington, Delaware

~Nfobudge
I. INTRODUCTION
On December 28, 2011, plaintiffs Reybold Venture Group XI-A LLC, Reybold
Venture Group Xl-8 LLC, Reybold Venture Group XI-C LLC, Reybold Venture Group
XI-D LLC, Reybold Venture Group XI-E LLC, and Reybold Venture Group XI-F LLC
(collectively, "plaintiffs") filed a complaint alleging that the Voluntary School Assessment
Act ("VSA"), 9 Del. C. § 2661, is discriminatory and/or unconstitutional. (D.I. 1)
Defendant Delaware Department of Education ("defendant") answered the complaint on
February 7, 2012. (D. I. 4) Currently before the court are defendant's motion for
summary judgment (D.I. 21) and plaintiffs' motion for partial summary judgment (D.I.
22).

II. BACKGROUND
Plaintiffs are each Delaware Limited Liability Companies and hold the title
interest to the Meridian Crossing subdivision ("Meridian") originally designed to contain

738 residential units. 1 (D. I. 1 at mf 1, 4) Defendant is an Agency of the State of
Delaware. (D. I. 1 at ,-r 2)
The VSA was enacted on July 30, 1999. It provides2 that, prior to recording a
major subdivision plan in New Castle County, an applicant must either submit a
certification to the Department of Land Use that the appropriate school district has
adequate capacity or pledge to pay a Voluntary School Assessment ("VSA payment").
See 9 Del. C. § 2661. The VSA excludes developments restricted to individuals 55
1

99 of the units (22 apartments and 77 attached homes) are restricted for
individuals 55 years of age or older. (D.I. 1 at ,-r4)
2

Subject to exceptions not relevant here.

years of age or older and low income housing. 3 9 Del. C.§ 2661 (c)(2). The VSA
payment is calculated on a per-unit basis, based on the average cost of construction for
a public school. 14 Del C.§ 103(c)(3). It is capped at 5% of the total cost of the
residential unit. /d.
On June 9, 2003, plaintiffs entered into an agreement with defendant providing
that p·laintiffs would make VSA payments in the amount of $3,261 for each qualifying
residential unit built over the next five years. For any subsequent five year period, the
amount of the VSA payment would be recalculated based on then current construction
cost data. (D.I. 23 at 3-4); see 14 Del. C.§ 103(c). Plaintiffs made the VSA payments
as needed through September 23, 2011. (D.I. 28 at 16) As of November 21, 2011,
defendant recalculated the amount per the agreement as $6,088. (/d.)

Ill. STANDARD OF REVIEW
Not only may the lack of subject matter jurisdiction be raised at any time, it
cannot be waived and the court is obliged to address the issue on its own motion. See

Moodie v. Fed. Reserve Bank of NY, 58 F.3d 879, 882 (2d Cir. 1995). "Whenever it
appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the
subject matter, the court shall dismiss the action," without reaching the merits of the
remaining arguments. Fed. R. Civ. P. 12(h)(3); Moodie, 58 F.3d at 882. Once
jurisdiction is challenged, the party asserting subject matter jurisdiction has the burden
of proving its existence. See Carpet Group lnt'l v. Oriental Rug Importers Ass'n, Inc.,

3

The act defines low income housing as financed by a loan or mortgage that is
insured or held by the Secretary of HUD or the Delaware State Housing Authority or
which is developed by a nonprofit corporation certified under 26 U.S.C. § 501 (c)(3).

2

227 F.3d 62, 69 (3d Cir. 2000). Under Rule 12(b)(1 ), the court's jurisdiction may be
chall~nged

either facially (based on the legal sufficiency of the claim) or factually

(based on the sufficiency of jurisdictional fact). See 2 James W. Moore, Moore's
Federal Practice § 12.30[4] (3d ed. 1997). Under a facial challenge to jurisdiction, the

court must accept as true the allegations contained in the complaint. See id. Dismissal
for a facial challenge to jurisdiction is "proper only when the claim 'clearly appears to be
immaterial and made solely for the purpose of obtaining jurisdiction or ... is wholly
insubstantial and frivolous."' Kehr Packages, Inc. v. Fide/cor, Inc., 926 F.2d 1406,
1408-09 (3d Cir. 1991) (quoting Be// v. Hood, 327 U.S. 678,682 (1946)).
Under a factual attack, however, the court is not "confine[ d) to allegations in the .
. . complaint, but [can] consider affidavits, depositions, and testimony to resolve factual
issues bearing on jurisdiction." Gotha v. United States, 115 F.3d 176, 179 (3d Cir.
1997); see a/so Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891-92 (3d
Cir. 1977). In such a situation, "no presumptive truthfulness attaches to plaintiff's
allegations, and the existence of disputed material facts will not preclude the trial court
from evaluating for itself the merits of jurisdictional claims." Carpet Group, 227 F.3d at
69 (quoting Mortensen, 549 F.2d at 891 ). Although the court should determine subject
matter jurisdiction at the outset of a case, "the truth of jurisdictional allegations need not
always be determined with finality at the threshold of litigation." 2 Moore§ 12.30[1].
Rather, a party may first establish jurisdiction "by means of a nonfrivolous assertion of
jurisdictional elements and any litigation of a contested subject-matter jurisdictional fact
issue occurs in comparatively summary procedure before a judge alone (as distinct

3

from litigation of the same fact issue as an element of the cause of action, if the claim
survives the jurisdictional objection)." Jerome B. Grubart, Inc. v. Great Lakes Dredge &
Dock Co., 513 U.S. 527, 537-38 (1995) (citations omitted).

IV. DISCUSSION
A. Tax Injunction Act
As defendant has challenged the court's subject matter jurisdiction in its motion
for summary judgment, the court begins by assessing the effect of the Tax Injunction
Act, 28 U.S.C. § 1341 (the "Act"). The Act prohibits federal courts from enjoining "the
assessment, levy or collection of any tax under state law" where state law provides a
"plain, speedy and efficient" remedy. Kerns v. Dukes, 153 F.3d 96, 101 (3d Cir. 1998);
Raskauskas v. Town of Bethany Beach, 555 F. Supp. 783, 786 (D. Del1983).
Generally, a district court is precluded from issuing an injunction or granting declaratory
relief from the collection of state taxes. Raskauskas, 555 F. Supp. at 787. Application
of the Act is not discretionary; "rather, the Act creates a 'non-waivable jurisdictional bar
that absolutely precludes federal courts from assessing the validity of state or local
taxation schemes."' Kerns v. Dukes, 944 F. Supp. 1214, 1219 (D. Del1996), aff'd, 153
F.3d 96, 101 (3d Cir. 1998). Moreover, the principles of comity restrict federal courts
from interfering in this area recognized as a compelling state interest. See Fair
Assessmentin Real Estate Assoc. v. McNary, 454 U.S. 100, 102-103 (1981 ); Lang v.
Remington, 1999 WL 33220547 at 3-4 (D. Del. 1999). For example,·federal courts may
not entertain suits brought under 42 U.S.C. § 1983 for damages in connection with
state tax suits. Fair Assessment, 454 U.S. at 111.

4

Here, plaintiffs seek a declaration that the VSA is unenforceable, an order to
enjoin defendant from collecting VSA payments, and a refund of all of their VSA
payments. (D.I. 1 at 4-5

mf 1-3)

Focusing on the concerns addressed by the Act,

plaintiffs appear to argue that the fiscal consequences to the State of Delaware are
secondary to their constitutional concerns. Further, plaintiffs assert that a change in the
application of the VSA - from a per-unit basis to another assessment measure -would
likely have no fiscal consequences. (D .I. 28 at 11-12); Harvey & Harvey, Inc. v.
Delaware Solid Waste Authority, 600 F. Supp. 1369 (D. Del. 1985) (finding that cases

with outcomes having a secondary effect on the financial affairs of a state are not
always precluded by the Act).
Federal courts have analyzed the relevant case law on a continuum to determine
if they must decline jurisdiction. Kerns, 944 F. Supp. at 1220. At one end are cases
involving regularly assessed taxes, such as property taxes, where federal courts will
always lack jurisdiction. /d. Relief is also precluded in cases involving the manner in
which a statute is administered. /d. (citing Kimmey v. H.A. Berkheimer, Inc., 376 F.
Supp. 49, 54 (E.D. Pa.1974) (dismissing civil rights action challenging local tax
collection law where plaintiffs' challenge was to administration of law as opposed to
validity of actual tax), aff'd, 511 F .2d 1394 (3d Cir. 1975)). Federal courts have
declined jurisdiction as well in "cases in which the government has expended or
proposes to expend funds on projects, and the plaintiff has been hurt, or will imminently
be hurt, by reason of a governmental statute or ordinance creating an assessment or
lien," even when the plaintiffs have presented the court with a constitutional challenge.

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Kerns, 944 F. Supp. at 1220. At the opposite end of the continuum "are cases in which

the governing body has not and is not proposing to spend any funds, but through
allegedly unlawful governmental action seeks to increase its revenue by subjecting its
citizens to further tax levies." /d. at 1221.
The facts of this case fall squarely within the scope of the Act's jurisdictional bar.
The VSA is a one-time impact fee imposed on all new home construction to ensure
adequate funding for the local schools that may have to accommodate the new
residents. Those least likely to use public education 4 and developers of low income
housing are exempt. Plaintiffs paid their VSA fees on their Meridian property for years. 5
Clearly the VSA is a regularly assessed tax addressing a legitimate project, that
of public education. And, indeed, plaintiffs do not object to the assessment itself, only
to the way it is administered, i.e., on a per-unit basis rather than on an assessed value
or per-square foot basis. Although plaintiffs have asserted a constitutional challenge to
the administration of the VSA, 6 plaintiffs have not asserted the absence of a "plain,
speedy and efficient remedy" in Delaware state courts. Looking at the continuum of
cases, it is apparent that the Act mandates dismissal of plaintiffs' claims, in order to

4

Those aged 55 and older.

5

More specifically, VSA payments were made by plaintiffs until the assessment
doubled and the constitutionality of the VSA became apparent to them.
6

Based on two theories: Although the VSA fees are not passed directly on to
purchasers, the fees (1) somehow discourage developers like plaintiffs from building
housing for "minorities and the poor," again despite the specific exemption in the VSA
for low income housing; and (2) discriminate against minorities and the poor by unfairly
burdening them, when viewed as a percentage of income, and preventing them from
entering the real estate market.

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avoid substantial federal interference on the fiscal integrity of the state and local
governments involved.
B. Standing
Assuming for purposes of this proceeding that plaintiffs' suit is not barred by the
Act, the question of standing remains. The doctrine of standing incorporates both a
constitutional and a prudential element. See Pitt News v. Fisher, 215 F.3d 354, 359 (3d
Cir. 2000). Constitutional standing is a threshold issue that must be addressed before
examining issues of prudential standing and statutory interpretation. See Steel Co. v.

Citizens for a Better Environment, 523 U.S. 83, 94 (1998). Article Ill standing requires:
"(1) an injury-in-fact ... ; (2) a causal connection between the injury and the conduct
complained of; and (3) that it must be likely, as opposed to merely speculative, that the
injury will be redressed by a favorable decision." Winer Family Trust v. Queen, 503
F.3d 319, 325 (3d Cir. 2007). To have standing, "the 'injury in fact' test requires more
than an injury to a cognizable interest. It requires that the party seeking review be
himself among the injured." Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992)
(quoting Sierra Club v. Morton, 405 U.S. 734, 734-735 (1972)).
Generally, to have prudential standing, a party "must assert his own legal rights
and interests." Warth v. Seldin, 422 U.S. 490, 499 (1975). Prudential standing
embraces the following principles: "(1) the plaintiff generally must assert his own legal
rights and interests, and cannot rest his claim to relief on the legal rights or interests of
third parties; (2) even when the plaintiff has alleged redressable injury sufficient to meet
the requirements of Article Ill, the federal courts will not adjudicate abstract questions of

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wide public significance which amount to generalized grievances pervasively shared
and most appropriately addressed in the representative branches; and (3) the plaintiff's
complaint must fall within the zone of interests to be protected or regulated by the
statute or constitutional guarantee in question." Trump Hotels & Casino Resorts, Inc. v.
Mirage Resorts, Inc., 140 F.3d 478, 485 (3d Cir. 1998) (internal quotation marks and

citations omitted).
The Third Circuit determines the appropriateness of third-party standing with a
three-part test. Nasir v. Morgan, 350 F.3d 366, 376 (3d Cir. 2003) (citations omitted).
"To successfully assert third-party standing: (1) the plaintiff must suffer injury; (2) the
plaintiff and the third party must have a 'close relationship'; and (3) the third party must
face some obstacles that prevent it from pursuing its own claims." /d.
Plaintiffs first assert standing based on "common law property rights," alleging
that the VSA inflicts financial damage upon plaintiffs and diminishes their ability to sell
their properties at market rates. (0.1. 28 at 13) Since plaintiffs have not proffered any
showing that the VSA affected their property sales, there is no evidence of an injury or
causation as required for standing.
Plaintiffs next assert third-party standing on behalf of minorities or the poor by
virtue of their unique position to witness the discriminatory effects of the VSA. (0.1. 28
at 13) As indicated above, plaintiffs make the VSA payments and do not pass them on
to their purchasers. (0.1. 23 at 17, ex. A at 37-38) Plaintiffs have shown no evidence
that minorities have purchased a home in Meridian or were prevented from purchasing
a home in Meridian by virtue of the VSA. (0.1. 31 at 10) Plaintiffs offer no evidence of
the close relationship needed for third-party standing and do not sufficiently show that

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third-parties could not pursue their own claims. The court concludes that plaintiffs have
not shown injury to minorities or other "would-be purchasers," nor have they shown the
type of close relationship sufficient to confer third-party standing.

V. STATUTE OF LIMITATIONS
Although 42 U.S.C. § 1983 does not contain a statute of limitations period, the
Supreme Court has determined that the applicable limitations period should be the
period determined by each state for personal injury actions. Genty v. Resolution Trust

Corp., 937 F.2d 899, 919 (3d Cir. 1991) (citing Wilson v. Garcia, 471 U.S. 261, 266
(1985). The statute of limitations for personal injuries in Delaware is two years. See 10
Del. C. § 8119; see also McDowell v. Del. State Police, 88 F.3d 188, 190 (3d Cir. 1996).
The limitations period for purposes of § 1983 claims begins to run "from the time when
the plaintiff knows or has reason to know of the injury which is the basis of the section
1983 action." Genty, 937 F.2d at 919.
Plaintiffs entered into an agreement with defendant regarding the VSA on June
9, 2003 and subsequently made VSA payments. One such payment was made on
October 29, 2009. 7 As of November 21, 2011, the recalculated VSA payment amount
was $6,088. Plaintiffs argue "that assuming arguendo that the originally-enacted
per-unit fee was nominal, the doubling of the fee clearly resulted in denial of equal
protection." (D.I. 28 at 16-17) Plaintiffs do not dispute the two-year statute of
limitations and agree that a "challenge to a law's constitutionality must be brought within
the limitations period after the plaintiff is injured by the law in whatever form that injury

7

Th is is the earliest payment documented by the parties.

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might take." (ld. at 16) Plaintiffs offer no explanation for why the statute of limitations
would not run from the day of the agreement regarding VSA payments (June 9, 2003),
or at the latest from the making of the first of such payments (October 29, 2009).
Instead, plaintiffs appear to assert that the "unconstitutionality" began when the VSA
payment increased on November 21, 2011. 8 As plaintiffs' claims are based on equal
protection and assert that the VSA unequally burdens minorities and the poor, the court
concludes that the statute of limitations began running at least when plaintiffs made
their first payment (October 29, 2009), 9 making the instant lawsuit (filed December 28,
2011) untimely.

V. CONCLUSION
For the foregoing reasons, defendant's motion (D.I. 21) is granted in part and
denied in part as moot. Plaintiffs' action is dismissed for lack of subject matter
jurisdiction based on the Tax Injunction Act and considerations of comity, as well as for
lack of standing. Plaintiffs' motion (D.I. 22) for partial summary judgment as to the
constitutionality of the VSA is denied as moot.

8

Aithough plaintiffs focus on the doubling of the VSA payment, it is worth noting
that the agreement held the amount of the payment constant for five years. Therefore,
the VSA payment doubling occurred over an eight and a half year period, presumably
commensurate with construction cost increases.
9

lf there were earlier VSA payments made under the agreement, the statute of
limitations would have run from that time.
10