City of Maryland Heights et al v. TracFone Wireless, Inc.

Filing 38

MEMORANDUM AND ORDER: IT IS HEREBY ORDERED, that Plaintiffs motion to remand is GRANTED. (Doc. No. 10.) IT IS FURTHER ORDERED that Defendants motion to dismiss and all other pending motions are DENIED without prejudice. (Doc. No.14.) < b>IT IS FURTHER ORDERED that the Clerk of the Court shall take all necessary steps to deliver the file and all appropriate documents necessary for the remand of this matter to the Circuit Court for Saint Louis County, Missouri. Signed by District Judge Audrey G. Fleissig on 3/4/2013. (KSM)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

CITY OF MARYLAND HEIGHTS, et al., )
)
Plaintiffs,
)
)
vs.
)
)
TRACFONE WIRELESS, INC.,
)
)
Defendant.
)

Case No. 4:12CV00755 AGF

MEMORANDUM AND ORDER
This putative class action is before the court on the motion of Plaintiffs City of
Maryland Heights, Missouri (AMaryland Heights@) and City of Winchester, Missouri
(AWinchester@) (collectively, the APlaintiffs@) to remand this action to the state court in
which it was filed. Also before the Court is the motion of Defendant TracFone Wireless,
Inc., (“Defendant@) to dismiss for failure to state a claim upon which relief may be granted.
For the reasons set forth below, the motion to remand will be granted and the motion to
dismiss denied without prejudice.
BACKGROUND
Plaintiffs, two Missouri municipalities, filed this class action in the Circuit Court of
St. Louis County, Missouri, on behalf of themselves and others similarly situated, seeking
a declaratory and injunctive relief against Defendant, a telephone service provider and
Delaware corporation with its principal place of business in Florida.
In the complaint filed in Missouri state court, Plaintiffs allege that Defendant’s

business activity in Missouri is subject to local ordinances that impose certain business
license taxes. Plaintiffs further allege that they have informed Defendant of these
ordinances, but Defendant has failed to file the required statement or pay all required taxes
during the preceding five years. Plaintiffs seek a declaration that their tax ordinances
apply to Defendant=s gross receipts, an accounting of all taxes owed by Defendant to the
cities, an injunction requiring Defendant to pay taxes on its gross receipts, payment of
back taxes, interest, and penalties, and attorney’s fees and costs.
Defendant timely removed the action to this Court asserting that the Court has
jurisdiction pursuant to the Class Action Fairness Act of 2005 (“CAFA”). 28 U.S.C. '
1332(d). CAFA authorizes removal of putative class actions if: 1) the amount in
controversy exceeds $5,000,000 in the aggregate; 2) the citizenship of at least one member
of the proposed class is diverse from any defendant; and 3) the proposed class size is not
less than 100.” Id.
Plaintiffs moved to remand asserting that the CAFA amount in controversy and
class size requirements are not met here. Plaintiffs also assert that even if those
jurisdictional requirements are met that the Court should decline to exercise jurisdiction
pursuant to the principles set forth in Younger v. Harris, 401 U.S. 37 (1971).
Defendant contends that removal is proper but move to dismiss the complaint for
failure to state a claim, arguing that Plaintiffs, acting in violation of the Missouri
Constitution, seek to impose a tax on Defendant that they do not impose on “similarly
situated” taxpayers. In addition, Defendant assert that Plaintiffs lack authority under

Missouri law and the Commerce Clause of the United States Constitution to tax
Defendant’s business activities.
DISCUSSION
Statutes, such as CAFA, conferring federal jurisdiction, “should be read with
sensitivity to ‘federal-state relations’ and ‘wise judicial administration.’” Levin v.
Commerce Energy, Inc., 130 S. Ct. 2323, 2331 (2010) (quoting Quackenbush v. Allstate
Ins. Co., 517 U.S. 706, 716 (1996)). CAFA was enacted to address perceived abuses in
consumer class action practice, such as forum shopping, coupon settlements, awards of
little or no value, and confusing notices that prevent class members from being able to
fully understand and effectively exercise their rights. See Historical and Statutory Notes
to 28 U.S.C. § 1711 (emphasis added). There is no indication that matters of state and
local tax administration, like this one, were intended to fall within CAFA’s ambit. See 28
U.S.C. § 1332(d)(4)(A)(ii). In addition, principles of federalism and comity counsel
against the exercise of CAFA jurisdiction here. See Levin, 130 S. Ct. at 2331.
Courts may decline to exercise jurisdiction where issues of comity and federalism
counsel against entertaining claims that risk disrupting state and local tax administration. 1
Dows v. Chicago, 11 Wall. 108, 110 (1871) (holding that “[i]t is upon taxation that the
several States chiefly rely to obtain the means to carry on their respective governments,
and it is of the utmost importance to all of them that the modes adopted to enforce the
1

It is well established that county, municipal and local taxes constitute “state taxes”
for purposes of the comity doctrine. See Fair Assessment in Real Estate Assn., Inc. v.
McNary, 454 U.S. 100, 112 (1981) (holding comity doctrine applicable to suit involving
St. Louis County property taxes).

taxes levied should be interfered with as little as possible.”). The doctrine of comity
reflects “‘a proper respect for state functions, a recognition of the fact that the entire
country is made up of a Union of separate state governments, and a continuance of the
belief that the National Government will fare best if the States and their institutions are
left free to perform their separate functions in separate ways.’” Fair Assessment in Real
Estate Assn., Inc. v. McNary, 454 U.S. 100, 112 (1981) (quoting Younger, 401 U.S. at 44).
The strong preference for the litigation of state tax issues in state courts rather than
in federal courts is reflected in the Tax Injunction Act (“TIA”), 28 U.S.C. § 1341, which
prohibits a federal court from (i) issuing an injunction that would enjoin, suspend, or
restrain the assessment, levy, or collection of a state tax; (ii) granting a declaratory
judgment as to the collectability of a state tax; or (iii) or entertaining a suit for damages in
connection with the administration of a state tax. See Rosewell v. LaSalle Nat. Bank, 450
U.S. 503, 522 (1981) (the principal purpose of the TIA is “to limit drastically federal
district court jurisdiction to interfere with so important a local concern as the collection of
taxes.”). Because the Court concludes that the comity doctrine justifies remand of
Plaintiffs’ suit, the Court is not required to decide whether the TIA would itself block the
suit. Levin, 103 S. Ct. at 2336-37 (citing Great Lakes Dredge & Dock Co. v. Huffman,
319 U.S. 293, 299, 301 (1943) (reserving judgment on the TIA’s application where
comity precluded suit)).
Although the predicates for the application of the TIA may not be present here, the
comity principle, broader in scope than the TIA, weighs against the exercise of

jurisdiction in this case. See Levin, 130 S. Ct. at 2336-37. Although the TIA did not
apply, the Supreme Court noted nevertheless that “[c]omity's constraint has particular
force when lower federal courts are asked to pass on the constitutionality of state taxation
of commercial activity.” Id. at 2330 (stating that “[a]n examination of [our] decisions
shows that a proper reluctance to interfere by prevention with the fiscal operations of the
state governments has caused [us] to refrain from so doing in all cases where the Federal
rights of the persons could otherwise be preserved unimpaired.”) (internal quotation
omitted); National Private Truck Council, Inc. v. Oklahoma Tax Com’n., 515 U.S. 582,
590 (1995) (stating that “[g]iven the strong background presumption against interference
with state taxation, the TIA may be best understood as but a partial codification of the
federal reluctance to interfere with state taxation.”); Fair Assessment, 454 U.S. at 110
(stating that “[n]either the legislative history of the [TIA] nor that of its precursor, . . .
suggests that Congress intended that federal-court deference in state tax matters be limited
to the actions enumerated in those sections. . . . Thus, the principle of comity which
predated the Act was not restricted by its passage.”).
Assuming without deciding, that the jurisdictional requirements for removal under
CAFA are satisfied here, the Court nonetheless concludes that pursuant to the reasoning
set forth in Levin it should properly decline to exercise jurisdiction here and remand this
action to state court. See Levin, 130 S. Ct. at 2331, 2336.
Levin settled a circuit split regarding the reach of the comity doctrine in cases
challenging the constitutionality of state tax schemes. Before Levin, the Fourth and

Tenth Circuits held that the principles of federalism and comity required federal
abstention in certain tax cases beyond the ambit of the Tax Injunction Act (TIA), see
DIRECTV, Inc. v. Tolson, 513 F.3d 119, 127 (4th Cir. 2008); Hill v. Kemp, 478 F.3d 1236,
1247 (10th Cir. 2007), while the First, Sixth, and Seventh Circuits held that the comity
doctrine was no more than coextensive with the TIA. See Coors Brewing Co. v.
Mendez–Torres, 562 F.3d 3, 18 (1st Cir. 2009); Commerce Energy, Inc. v. Levin, 554 F.3d
1094, 1097 (6th Cir. 2009), rev’d, 130 S.Ct. 2323 (2010); Levy v. Pappas, 510 F.3d 755,
760–61 (7th Cir. 2007). In Levin the Supreme Court made clear that the scope of the
comity doctrine is broader than the TIA.

Levin, 130 S.Ct. at 2336.

The considerations relevant to application of the comity principle and identified in
Levin also are present here. Id. First, in seeking removal of this action, Defendant
invites “federal-court review of commercial matters over which [Missouri and Missouri
municipalities] enjoy wide regulatory latitude.” Id. Second, certain defenses raised
here involve application of Missouri law and the Missouri Constitution. Without
question the state court is more familiar with Missouri’s tax laws and the intent of the
Missouri legislature. See id.; see also Rainbod Trout Farms, Inc. v. Brownback, No. 11–
1290–RDR, 2012 WL 3879890, at *5 (D. Kan. Sept. 6, 2012). Although Defendant
raises federal constitutional defenses as well, these do not involve “any fundamental right
or classification that attracts heightened judicial scrutiny” so as to justify the exercise of
federal jurisdiction. Levin, 130 S. Ct. at 2336 (noting that equal protection challenges to
classifications not warranting higher scrutiny will not mandate a federal forum). Third, if

the tax ordinances at issue here are declared unconstitutional, Missouri courts are “better
positioned than this Court to correct any violation because they are more familiar with
state legislative preferences and because the TIA does not constrain their remedial
options.” Id. at 2335. (holding that because the federal court is prohibited from enjoining
tax collection under state law and cannot reshape the relevant provisions of a state or
municipal tax code, the state court is better positioned to provide an adequate remedy if it
finds that the state’s taxation scheme is unconstitutional); see also Associated Elec.
Co-op., Inc. v. Town of Dell, No. 3:12CV00110–JMM, 2012 WL 2789708, at *1 (E.D.
Ark. Jul. 9, 2012) (same); Normand v. Cox Commc’ns, LLC , 848 F. Supp. 2d 619, 625
(E.D. La. 2012) (applying the comity principles set forth in Levin to the situation where a
municipality instituted suit to obtain a declaration that the local tax applied to a particular
business).
Finding the considerations noted in Levin applicable in the present case, the Court
is satisfied that the proper exercise of its discretion “demand[s] deference to the state
adjudicative process.”2 Levin, 130 S. Ct. at 2336; see also Normand v. Cox
Communications, LLC, 848 F. Supp. 2d at 625.

The Eighth Circuit’s decision in City of Jefferson City, Mo. v. Cingular Wireless,
LLC, 531 F.3d 595 (8th Cir. 2008), is not to the contrary. That case not only preceded the
decision in Levin and its delineation of the broad scope of the comity doctrine, but there
the plaintiff city chose to initiate suit in the federal forum. Id. at 595.

2

Accordingly,
IT IS HEREBY ORDERED, that Plaintiff’s motion to remand is GRANTED.
(Doc. No. 10.)
IT IS FURTHER ORDERED that Defendant’s motion to dismiss and all other
pending motions are DENIED without prejudice. (Doc. No.14.)
IT IS FURTHER ORDERED that the Clerk of the Court shall take all necessary
steps to deliver the file and all appropriate documents necessary for the remand of this
matter to the Circuit Court for Saint Louis County, Missouri.

AUDREY G. FLEISSIG
UNITED STATES DISTRICT JUDGE
Dated this 4th day of March, 2013.