(Cite as: 2003 WL 23997327 (W.D.Mich.))
United States District Court,W.D. Michigan, Northern Division.
CHIPPEWA TRADING COMPANY, Plaintiff,
Jennifer M. GRANHOLM and June Summer Haas, Defendants.
March 28, 2003.
Scott Michael Moore, Moore International Law Offices, P.C., San Francisco, CA, for Plaintiff.
Daniel M. Levy, Jennifer M. Granholm, Attorney General, E. David Brockman, Michigan Department of Attorney General (Revenue/Coll-Detrt) Revenue & Collections Division, Detroit, MI, for Defendants.
*1 This case involves a facial due process challenge to the Michigan Tobacco Products Tax Act (“TPTA”), M.C.L. 205.421 et seq., brought by plaintiff Chippewa Trading Company (“Chippewa Trading”) against defendants Jennifer M. Granholm and June Summers Haas. Now before the Court are plaintiff's motions for preliminary injunction (dkt.# 2) and for summary judgment (dkt.# 4), as well as defendant's motion to dismiss (dkt.# 11). The Court held a hearing on these motions on July 26, 2002, taking them under advisement and ordering supplemental briefing on the issue of abstension. Both parties subsequently filed such briefs (dkts.# 23, 25). Plaintiff then filed a second supplemental brief, raising further constitutional challenges to the TPTA under the Supremacy Clause and the Indian Commerce Clause, to which defendant responded (dkts.# 33, 34). After a thorough review of the pleadings and arguments, the Court finds that defendants' motion to dismiss will be GRANTED. Consequentially, plaintiff's motions will both be DENIED AS MOOT.
The facts of this case are not in dispute. On August 31, 2001, in Baraga County, Michigan, the Michigan State Police (“MSP”) stopped Andrew A. Arch, a Shinnecock Nation Indian and president of an on-reservation Indian shipping company. Arch was driving a truck containing tobacco products from International Native Company (INC), an on-reservation Indian seller located in New York, to various on-reservation Indian buyers in Michigan, including plaintiff Chippewa Trading. Chippewa Trading is an Indian corporation chartered under the laws of the Keweenaw Bay Indian Community, a federally recognized Indian tribe located on the L'Anse Indian Reservation in Michigan.
After detaining Arch and the truck for investigation, the MSP seized the truck, its contents, Indian commercial papers and invoices, and various personal papers of Arch. This seizure was based on a violation of the TPTA, sincenone of the products in the truck bore a tobacco tax stamp as required by the State of Michigan.
The MSP then inventoried the contents of the truck and sent notice of the seizure to INC, who it believed to be the owner of the property. In fact, however, Chippewa Trading had pre-paid for its goods in advance of delivery. Notice of the seizure was not sent to Chippewa Trading or to any other buyer, although the name of each was listed on the invoices seized by the MSP.
The only party to file a demand for an administrative hearing to contest the seizure was INC, even though INC and plaintiff here share the same attorney and Chippewa Trading admits to having received actual notice of the seizure from Arch within four days after it occurred. See Affidavit of Joseph Warra ¶ 6. At the conclusion of this hearing, which took place on October 17, 2001, the referee determined that the tobacco products seized fromArch's truck were contraband and recommended that they be forfeited to the state. The state issued this forfeiture order on October 30, 2001.
*2 Within the period allowed for appeal of this order, Chippewa Trading appealed the forfeiture order in state circuit court, arguing that the notice provisions of the TPTA forfeiture scheme did not comport with the Due Process Clause of the Fourteenth Amendment, as they require notice only to the “person from whom the goods are seized”-not the actual owner. This action was dismissed on February 8, 2002, after the state court concluded that plaintiff lacked standing to proceed. The court reaffirmed its ruling on Chippewa Trading's motion for reconsideration. Two months later, plaintiff filed suit in this Court under 42 U.S.C. § 1983, seeking declaratory, preliminary, and injunctive relief. Plaintiff again argues that the notice provisions of the TPTA violate the Due Process Clause. In addition, plaintiff contends that the TPTA as applied violates the Supremacy Clause and the Indian Commerce Clause.
A. Standard of Review
When the defendant challenges subject matter jurisdiction through a motion to dismiss under Fed.R.Civ.P. 12(b)(1), the plaintiff bears the burden of establishing jurisdiction. Moir v. Greater Cleveland Reg'l Transit Auth., 895 F.2d 266, 269 (6th Cir.1990). Specifically, the plaintiff must show that the complaint “alleges a claim under federal law, and that the claim is ‘substantial.’ ” Musson Theatrical, Inc. v. Federal Express Corp., 89 F.3d 1244, 1248 (6th Cir.1996). The plaintiff's case will survive the motion to dismiss by showing “any arguable basis in law” for the claims set forth in the complaint. Id.
Defendants' argue that this Court lacks subject matter jurisdiction on three grounds: 1) the Tax Injunction Act (“TIA”), 28 U.S.C. § 1341; 2) principles of comity; and 3) the Eleventh Amendment to the Constitution.FN1 The comity issue will be considered first.
FN1. The Court initially notes that while the TIA, when applicable, divests this Court of subject matter jurisdiction to hear actions challenging the assessment or collection of state taxes, see California v. Grace Brethren Church, 457 U.S. 393, 408, 102 S.Ct. 2498, 73 L.Ed.2d 93 (1982), neither comity nor the Eleventh Amendment similarly divest the Court of subject matter jurisdiction. See Wisconsin Dep't of Corrections v. Schacht, 524 U.S. 381, 389, 118 S.Ct. 2047, 141 L.Ed.2d 364 (1998) (holding that the Eleventh Amendment does not destroy original jurisdiction, it merely grants the State a legal power to assert a sovereign immunity defense should it choose to do so); City of Columbus v. Leonard, 443 U.S. 905, 907, 99 S.Ct. 3097, 61 L.Ed.2d 872 (1979) (noting that principles of federal-state comity give rise to limitations on the exercise of federal jurisdiction over state laws and actions).
The concept of comity between federal courts and state governments, often referred to as “Our Federalism, “Fair Assessment in Real Estate Ass'n v. McNary, 454 U.S. 100, 103, 102 S.Ct. 177, 70 L.Ed.2d 271 (1981), represents:
[A] system in which there is sensitivity to the legitimate interests of both State and National governments, and in which the National Government, anxious though it may be to protect federal interests, always endeavors to do so in ways that will not unduly interfere with the legitimate activities of the States.
Younger v. Harris, 401 U.S. 37, 44 (1971). This equitable principle “may ... counsel the withholding of relief,” Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 525 n. 33, 101 S.Ct. 1221, 67 L.Ed.2d 464 (1981), and is particularly applicable to the area of state taxation. McNary, 454 U.S. at 103.
The policies underlying the application of the comity doctrine in the area of state tax matters were explained by the Supreme Court in Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 63 S.Ct. 1070, 87 L.Ed. 1407 (1943):
It is in the public interest that federal courts of equity should exercise their discretionary power to grant or withhold relief so as to avoid needless obstruction of the domestic policy of the states. “The scrupulous regard for the rightful independence of state governments which should at all times actuate the federal courts, and a proper reluctance to interfere by injunction with their fiscal operations, require that such relief should be denied in every case where the asserted federal right may be preserved without it. Whenever the question has been presented, this Court has uniformly held that the mere illegality or unconstitutionality of a state or municipal tax is not in itself a ground for equitable relief in the courts of the United States. If the remedy at law is plain, adequate, and complete, the aggrieved party is left to that remedy in the state courts, from which the cause may be brought to this Court for review if any federal question be involved.” Matthews v. Rogers, supra, 284 U.S. [521, 525, 526, 52 S.Ct. 217, 76 L.Ed. 447 (1932) ].
*3 Id. at 298. These principles of comity pre-date and are substantially broader than the federal court deference accorded under the Tax Injunction Act (“TIA”), 28 U.S.C. § 1341. See In re Gillis, 836 F.2d 1001, 1006 (6th Cir.1988) (“[T]he principle of comity, which predated the [TIA], was not restricted by passage of the Act.”).
In keeping with this breadth, comity operates to bar not only federal court injunctive and declaratory relief in state tax cases, but also suits for damages under 42 U.S.C. § 1983. McNary, 454 U.S. at 107. Furthermore, principles of comity apply equally to facial and as-applied constitutional challenges, since “[t]he focus of whether comity bars federal court jurisdiction rests not on whether the state tax law is constitutionally challenged on its face or as applied, but rather on the concomitant respect that should be accorded state tax laws in federal court.” Winicki v. Mallard, 615 F.Supp. 1244, 1248 (M.D.Fl.1985), aff'd 783 F.2d 1567 (11th Cir.1986), cert. denied 479 U.S. 815, 107 S.Ct. 70, 93 L.Ed.2d 27 (1986).
In this case, plaintiff seeks a declaration that the forfeiture provisions of the TPTA violate the Due Process Clause of the Fourteenth Amendment. The forfeiture provisions challenged by plaintiff provide:
As soon as possible, but not more than 5 business days after seizure of any alleged contraband, the person making the seizure shall deliver personally or by registered mail to the last known address of the person from whom the seizure was made, if known, an inventory statement of the property seized.... Within 10 business days after the date of service of the inventory statement ... the person from whom the property was seized or any person claiming an interest in the property may ... file with the commissioner a demand for a hearing.... The person or persons are entitled to appear before the department ...
If, within 10 business days after the date of service of the inventory statement, the person from whom the property was seized or any person claiming an interest in the property does not file a demand with the commissioner for a hearing before the department, the property seized shall be considered forfeited to the state by operation of law ...
* * *
If a person is aggrieved by the decision of the department, that person may appeal to the circuit court of the county where the seizure was made to obtain a judicial determination of the lawfulness of the seizure and forfeiture. The action shall be commenced within 20 days after notice of the department's determination is sent to the person or persons claiming an interest in the seized property.
M.C.L. 429(3), (4). Plaintiff argues that these provisions provide inadequate notice to the actual owners of seized tobacco products, as they require that notice of the seizure be given only to “the person from whom the seizure was made.” Plaintiff also seeks an injunction against further implementation of these provisions, as well as damages for tobacco products already seized under its authority. In its supplemental briefing, plaintiff also asserts as-applied challenges to the entire TPTA under the Supremacy Clause and the Indian Commerce Clause.
*4 The Court finds that the relief requested, invalidation of and/or injunction against all or part of the TPTA, would unduly interfere with the fiscal operations and independence of the State of Michigan and its system of taxation. See Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 298, 63 S.Ct. 1070, 87 L.Ed. 1407 (1943). Given this potential intrusion, principles of comity established in the cases cited infra dictate that the Court decline to hear plaintiff's claims. See McNary, 454 U.S. at 116 (“[T]axpayers are barred by the principle of comity from asserting § 1983 actions against the validity of state tax systems in federal court. Such taxpayers must seek protection of their federal rights by state remedies.”)
2. Adequate State Remedy
Plaintiff's claims will only be barred by principles of comity, however, if a “plain, adequate and complete” state remedy is available. McNary, 454 U.S. at 116.FN2 This exception must be construed narrowly, California v. Grace Brethren Church, 457 U.S. 393, 413, 102 S.Ct. 2498, 73 L.Ed.2d 93 (1982), and is met if a state court remedy meets “certain minimal procedural criteria.” Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 512, 101 S.Ct. 1221, 67 L.Ed.2d 464 (1981) (emphasis in original). In other words, state remedies are plain, adequate, and complete “if they provide the taxpayer with a full hearing and judicial determination at which the taxpayer may raise any federal constitutional objections to the tax.” In Re Gillis, 836 F.2d 1001, 1010 (6th Cir.1988) (citing Rosewell, 450 U.S. at 514); see also Bland v. McHann, 463 F.2d 21, 29 (5th Cir.1972) (noting that it is not required “that the state remedy be the best remedy available or even equal to or better than the remedy which might be available in the federal court”).
FN2. The Supreme Court has noted that no significant differences exist between remedies which are “ ‘plain, adequate, and complete,’ as that phrase has been used in articulating the doctrine of equitable restraint, and those which are ‘plain, speedy and efficient,’ within the meaning of [the TIA].” Fair Assessment in Real Estate Ass'n v. McNary, 454 U.S. 100, 116 n. 8, 102 S.Ct. 177, 70 L.Ed.2d 271 (1981). Thus, cases under comity and the TIA are equally applicable to this analysis.
In this case, at least two avenues for relief exist under state law. First, Michigan courts have long held that the state circuit courts have jurisdiction to entertain constitutional challenges to the validity of state tax laws, and may hold such statutes invalid. See Meadowbrook Village Associates v. Auburn Hills, 226 Mich.App. 594, 596, 574 N.W.2d 924 (1997); Kostyu v. Department of Treasury, 170 Mich.App. 123, 128, 427 N.W.2d 566 (1988). Moreover, claims under 42 U.S.C. § 1983 may be brought in the state court system. Jones v. Powell, 462 Mich. 329, 337, 612 N.W.2d 423 (2000). Adverse decisions of the circuit courts may be appealed to the state court of appeals, and, by leave, to the Michigan and United States Supreme Courts.
Second, the TPTA itself establishes a procedure for interested parties such as plaintiff to challenge the seizure and forfeiture of tobacco products by the state. See M.C.L. 205.429. Under these provisions, “the person from whom the property was seized or any person claiming an interest in the property” must file a demand for an administrative hearing within ten days after receiving notice of the seizure. M.C.L. 205.429(3). If forfeiture is ordered as a result of this hearing, aggrieved parties may appeal this order “to the circuit court of the county where the seizure was made to obtain a judicial determination of the lawfulness of the seizure and forfeiture.” M.C.L. 205.429(4).
*5 Courts hearing such appeals “shall hear the action and determine the issues of fact and law involved in accordance with the rules of practice and procedure as in other in rem proceedings.” Id.; see also Keweenaw Bay Outfitters & Trading Post v. Department of Treasury, 252 Mich.App. 95, 651 N.W.2d 138 (2002) (holding that circuit court proceedings on appeal from administrative determinations under the TPTA are governed by Rule 2 of the Michigan Court Rules, requiring discovery, motion practice, and possibly a trial).
In this case, plaintiff claims that the notice provisions of the TPTA are constitutionally inadequate on their face, as they require notice only to “the person fromwhom the seizure was made,” M.C.L. 205.429(3), not to the actual owner of the products. Plaintiff further argues that as a result of theseconstitutionally infirm provisions, no “plain, adequate, and complete” remedy exists under state law. This argument must be rejected, however, as plaintiff admitted at oral argument and in its pleadings that it had actual notice of the seizure within four days after it occurred. See Affidavit of Joseph G. Warra ¶ 6 (attached as exhibit 5 to plaintiff's response to defendants' motion to dismiss).
Given this, plaintiff could have filed a demand for an administrative hearing under M.C.L. 205.429(3) and followed the procedures outlined above. See Burris v. City of Little Rock, 941 F.2d 717, 721 n. 4 (8th Cir.1991) (“The relevant question is whether the remedy was available originally.”). That plaintiff failed to properly utilize this remedy, however, does not render it inadequate. See Aluminum Co. of America v. Department of Treasury 522 F.2d 1220, 1225 (6th Cir.1975); Sacks Bros. Loan Co., Inc. v. Cunningham, 578 F.2d 172, 178 (7th Cir.1978) (noting that application of the TIA “depends on whether a state remedy was at some time available to the taxpayer and the taxpayer's ... failure to use the remedy properly does not negate the existence of the remedy).FN3
FN3. The Court makes no findings as to whether plaintiff still has a state remedy in this case, although defendant has indicated that it would not challenge the filing of a state court action, and would indeed encourage that court to consider plaintiff's facial challenge on its merits. See Defendants' Supplemental Brief (dkt.¶ 25).
Furthermore, contrary to plaintiff's assertion, the fact that Michigan courts are prohibited from issuing injunctions tostay the assessment or collection of a tax, M.C.L. 205.28(b), is irrelevant so long a taxpayer has the ability to challenge the constitutionality of the tax provision at issue. California v. Grace Brethren Church, 457 U.S. 393, 415-16, 102 S.Ct. 2498, 73 L.Ed.2d 93 (1982). Here, the Court finds that requirement to be met and further finds that the plaintiff had a “plain, adequate and complete” remedy under Michigan law. Given the availability of this remedy, the Court will dismiss plaintiff's claims without prejudice under principles of comity and need not reach the applicability of the Tax Injunction Act or the Eleventh Amendment.
For the reasons set forth above, defendants' motion to dismiss will be granted and plaintiff's claims will be dismissed without prejudice. Furthermore, plaintiff's motions for preliminary injunction and summary judgment will be denied as moot. The Court will enter an order consistent with this opinion.
Chippewa Trading Co. v. Granholm
Not Reported in F.Supp.2d, 2003 WL 23997327 (W.D.Mich.)