decided: August 24, 1979.
LASALLE NATIONAL BANK, TRUSTEE UNDER TRUST NO. 44891, PLAINTIFF-APPELLANT,
EDWARD J. ROSEWELL, TREASURER OF COOK COUNTY, AND THOMAS M. TULLY, ASSESSOR OF COOK COUNTY, DEFENDANTS-APPELLEES .
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 78-C-3746 -- Nicholas J. Bua, Judge .
Before Swygert, Circuit Judge, Moore, Senior Circuit Judge,*fn* and Tone, Circuit Judge.
This appeal involves the Federal Tax Injunction Act and its construction with section 1983 of the Civil Rights Act. Plaintiff-appellant LaSalle National Bank*fn1 brought this civil rights injunction action under 42 U.S.C. § 1983 against Edward J. Rosewell, Treasurer of Cook County and Thomas M. Tully, Assessor of Cook County. The action sought to enjoin the collection of excessive real estate taxes for 1977 allegedly imposed in violation of plaintiff's due process and equal protection rights under the Fourteenth Amendment. The sole issue on appeal is whether federal district court jurisdiction over this action is barred by the Tax Injunction Act of 1937. 28 U.S.C. § 1341. We conclude that jurisdiction is not barred and reverse the judgment of the district court.
Plaintiff is the owner of a twenty-two unit apartment building in the all black, economically depressed community of East Chicago Heights in Cook County, Illinois.*fn2 On January 1, 1977 this property had a fair cash value of $46,000. According to Illinois statute, the property should have been assessed at 33% Of its fair cash value: approximately $15,000. Nevertheless, the assessor assessed the property at $52,150, more than triple the correct assessment. As a result plaintiff's tax bill was $6,106 rather than $1,775. This bill was over three times the amount plaintiff would have been required to pay if she had been taxed at the correct rate.
Plaintiff alleges that the assessor knowingly as official policy or as governmental custom has maintained a system of assessment in Cook County which has produced egregious disparities in the ratio between the assessed valuation and the fair cash value of real property. The complaint further alleges that these over-assessments are greater in frequency and size in older communities in which property is owned and inhabited primarily by members of racial minority groups and the economically disadvantaged.
In 1977, as well as in each of the preceding three years (in which plaintiff's property similarly was overassessed), plaintiff sought administrative relief from the Board of Tax Appeals of Cook County. In each of those years, the Board referred plaintiff's complaint to the assessor for recommendation, and in each year the assessor recommended "no change" in the assessment. The Board denied plaintiff's petition for administrative relief each year.
Having been denied administrative relief, plaintiff's only remedy at law was to pay the full amount of the tax claimed by the county collector (defendant Rosewell, Treasurer of Cook County) pursuant to the assessor's assessment, and thereafter objecting and suing for refund at the collector's annual Application for Judgment in the Cook County Circuit Court. See Ill.Rev.Stat.1971, ch. 120, §§ 675, 716. According to plaintiff, the customary delay in receiving refunds after a successful prosecution of a tax refund suit is two years. Further, under Illinois law, no interest may be paid to a successful claimant who has secured the refund of real estate taxes paid under protest.
Plaintiff pursued her legal remedy in 1974, 1975, and 1976 and ultimately received refunds for the three years in May, 1978. Plaintiff had been required to deposit payments for illegally exacted taxes in the approximate amounts of $4,600 for 1974, $3,650 for 1975, and $3,950 for 1976, for three, two and one years, respectively. At 8% Interest (the average prime rate for the three-year period), plaintiff lost approximately $2,000 because of her inability to use money which ultimately was deemed to be rightfully hers. Plaintiff contends that approximately $4,300 of her 1977 tax bill of $6,106 is an illegal overcharge and that she would be forced to deposit the $4,300, with no possibility of receiving interest on a refund, along with her correct tax payment in order to seek legal redress.
Plaintiff has not paid her 1977 taxes. Instead, on September 19, 1978 she filed this action in federal district court to enjoin the county collector from listing, advertising, proceeding to judgment and order of sale, or selling plaintiff's property as payment for any outstanding tax bill in excess of the amount she is legally required to pay. On November 3, 1978 defendants moved to dismiss the complaint on the grounds that it was barred by the Tax Injunction Act. 28 U.S.C. § 1341. The district court agreed with defendants and dismissed plaintiff's complaint on November 30, 1978.*fn3 This appeal followed.
The Tax Injunction Act mandates that federal district courts "shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the court of such State." 28 U.S.C. § 1341. This command has been followed consistently. See e. g., Tully v. Griffin, 429 U.S. 68, 97 S. Ct. 219, 50 L. Ed. 2d 227; Huber Pontiac, Inc. v. Whitler, 585 F.2d 817 (7th Cir. 1978). The converse of this proposition, however, is equally true. As the legislative history of the Act clearly indicates, an action for injunctive relief brought in a federal district court "will not be withdrawn from the jurisdiction of the . . . court Except where there is a plain, speedy, and efficient remedy at law or in equity in the courts of the State. . . ." S.Rep.No.1035, 75th Cong., 1st Sess. 2 (1937) (emphasis added).
Defendants contend that there are two legal avenues available to plaintiff which offer "plain, speedy and efficient" relief within the judicial system of Illinois. First, defendants argue that the delay in payment and the failure to pay interest on refunds made pursuant to successful suits for tax refunds brought under Ill.Rev.Stat.1977, ch. 120, §§ 675, 716, do not render this statutory remedy (paying the full amount of the tax bill and then suing for refund) inadequate.*fn4 Our disagreement with this position is developed in Part A of this opinion. Second, defendants suggest that plaintiff can redress any alleged grievances concerning her property tax assessment by filing a civil rights action under 42 U.S.C. § 1983 in state court. The availability of this mode of relief, defendants argue, provides a "plain, speedy and efficient" remedy in the Illinois courts, thereby barring the equitable jurisdiction of the federal courts. Our analysis of this proposition and our conclusion that the availability of a section 1983 action in state court does not bar federal court jurisdiction comprise Part B of this opinion. We conclude that the Tax Injunction Act does not preclude federal jurisdiction over plaintiff's action, and thus the district court had and should have retained jurisdiction over plaintiff's prayer for relief.
Under Illinois law, the only remedy available to a Cook County property taxpayer billed pursuant to an erroneous assessment is to pay the tax in full and then sue in the Cook County Circuit Court for a refund of the erroneously collected portion of the tax payment. A taxpayer who successfully sues and receives a refund is not entitled, according to Illinois law, to interest on the funds which erroneously had been collected by the County. Lakefront Realty Corp. v. Lorenz, 19 Ill.2d 415, 167 N.E.2d 236 (1960). This rule was reiterated by the Illinois Supreme Court in Clarendon Assoc. v. Korzen, 56 Ill.2d 101, 109, 306 N.E.2d 299, 303 (1973):
(U)nder the statutory remedy provided by sections 194 and 235 of the Revenue Act of 1939 (Ill.Rev.Stat.1971, ch. 120, pars. 675 and 716) the taxpayer is not entitled to interest on the refund. This court also held in Lakefront that this fact does not render the remedy at law inadequate so as to justify equity in assuming jurisdiction. We see no reason to depart from that decision.
See also, Neubert v. Foxworthy, 71 Ill.App.3d 438, 27 Ill.Dec. 667, 389 N.E.2d 898 (1979); Uretsky v. Baschen, 47 Ill.App.3d 169, 5 Ill.Dec. 552, 361 N.E.2d 875 (1977).*fn5
The question we must answer is whether this remedy, which requires prepayment of the entire tax bill and refunds erroneously collected monies without interest (and allegedly with an average delay of two years), is "plain, speedy and efficient." The Supreme Court in Department of Employment v. United States, 385 U.S. 355, 358, 87 S. Ct. 464, 466, 17 L. Ed. 2d 414 (1966) left undecided the question "whether omission to provide interest on a successful refund application renders the state remedy here an inadequate one within the meaning of § 1341." See also, 28 East Jackson Enterprises v. Cullerton, 523 F.2d 439, 441 n.4 (7th Cir. 1975) Rehearing denied, 424 U.S. 959, 96 S. Ct. 1437, 47 L. Ed. 2d 365 (1976). There is no dispositive precedent on this issue. Our analysis of prior judicial decisions, however, indicates that the decisions which have considered the question most carefully have concluded that the failure to pay interest on a successful refund application makes the state remedy inadequate. Further, policy considerations, the legislative history of the Tax Injunction Act, and common sense all dictate the conclusion that the Illinois remedy is inadequate.
The court's opinion in United States v. Livingston, like other opinions since the passage of section 1341, observed that,
It is well settled that a right to recover taxes illegally collected is not an adequate remedy if it does not include the right to recover interest at a reasonable rate for the period during which the taxpayer's money is withheld. Even if existence of the right be merely cast in substantial doubt, the remedy is not plain or adequate.*fn6
United States v. Livingston, 179 F. Supp. 9, 15 (E.D.S.C.1959) (three-judge court) (citations omitted) aff'd per curiam, 364 U.S. 281, 80 S. Ct. 1611, 4 L. Ed. 2d 1719 (1960). See also, Mullaney v. Hess, 189 F.2d 417, 420 (9th Cir. 1951); United States v. Department of Revenue, 191 F. Supp. 723, 727 (N.D.Ill.), vacated, 368 U.S. 30, 82 S. Ct. 146, 7 L. Ed. 2d 90 (1961).*fn7 And numerous cases prior to the passage of the 1937 Act held that the failure to pay interest on a tax refund constituted an alternative, but independent basis for concluding that the state remedy was inadequate. Educational Films Corp. v. Ward, 282 U.S. 379, 51 S. Ct. 170, 75 L. Ed. 400 (1931); Hopkins v. Southern Cal. Tel. Co., 275 U.S. 393, 399-400, 48 S. Ct. 180, 72 L. Ed. 329 (1928); Nutt v. Ellerbe, 56 F.2d 1058, 1062 (E.D.S.C.1932) (three-judge court); Procter & Gamble Distrib. Co. v. Sherman, 2 F.2d 165, 166 (S.D.N.Y.1924). As the Supreme Court concluded in Educational Films,
The legal remedy . . . falls short of adequacy in at least two respects. (First) refund, if any, is expressly without interest. § 219(d). See Procter & Gamble Distributing Co. v. Sherman (D.C.) 2 F.2d 165; Southern California Telephone Co. v. Hopkins (C.C.A.) 13 F.2d 814, 820, aff'd 275 U.S. 393, 48 S. Ct. 180, 72 L. Ed. 329.
Educational Films, supra, 282 U.S. at 386, n.2, 51 S. Ct. at 171 n.2.
Defendants cite a plethora of cases which they contend demonstrate that the failure to provide interest on a tax refund does not render a remedy inadequate. All of these cases are distinguishable from the problem raised by this appeal. Several of the cases analyzed the remedy provided by the state and, as defendants indicate, determined that it was adequate. See Aluminum Co. of America v. Department of the Treasury, 522 F.2d 1120 (6th Cir. 1975); Group Assisting Sewer Proposal-Ansonia v. City of Ansonia, 448 F. Supp. 45 (D.Conn.1978); Abernathy v. Carpenter, 208 F. Supp. 793 (W.D.Mo.1962), Aff'd 373 U.S. 241, 83 S. Ct. 1295, 10 L. Ed. 2d 409 (1963). But in each of these decisions the adequacy of the state remedy was based, in part, either on the availability of interest on refunds, Aluminum Co., supra, 552 F.2d at 1127-28; Group Assisting, supra, 448 F. Supp. at 47, or on the fact that prepayment of the contested tax was not required. Abernathy, supra, 208 F. Supp. at 796-97.*fn8 And in the other cases upholding the adequacy of a state remedy cited by defendants, the relationship of nonpayment of interest to the adequacy of the state remedy apparently never was raised by the litigants and certainly never was expressly considered by the courts. Board of County Comm'rs v. United States, 308 U.S. 343, 60 S. Ct. 285, 84 L. Ed. 313 (1939); Stratton v. St. Louis Southwestern Ry., 284 U.S. 530, 52 S. Ct. 222, 76 L. Ed. 465 (1932); Bland v. McHann, 463 F.2d 21 (5th Cir. 1972), Cert. denied, 410 U.S. 966, 93 S. Ct. 1438, 35 L. Ed. 2d 700 (1973); Bertelsen & Petersen Eng'r Co. v. United States, 60 F.2d 745 (1st Cir. 1932); United States v. Board of County Comm'rs, 13 F. Supp. 641 (N.D.Okl.1936); United States v. Board of Comm'rs, 6 F. Supp. 401 (W.D.Okl.1934).*fn9 Thus none of these cases provides persuasive support for defendants' position.
The legislative history of the Tax Injunction Act similarly lends little support to defendant's contention that the failure to pay interest on tax refunds does not affect the adequacy of the state remedy. The two purposes of the Act, as described in the legislative history, were, first, to eliminate discrimination between state citizens who were required to pursue relief regarding illegal tax assessments in the state court and foreign corporations operating in the state which were able to sue under the diversity jurisdiction of the federal courts and, second, to prevent these foreign corporations, which frequently refused to pay their large state taxes and then initiated dilatory and expensive legal actions in the federal courts, from paralyzing state fiscal operations. S.Rep.No.1035, 75th Cong., 1st Sess. (1937); 81 Cong.Rec. 1415-17 (1937). See also, Garrett, supra, 538 F.2d at 72; Tramel v. Schrader, 505 F.2d 1310, 1315-16 (5th Cir. 1975). Neither of these purposes conflicts with the rule suggested by federal cases decided prior to 1937 that the failure to provide for interest makes a tax refund remedy inadequate. See, Supra, p. 534.
Perhaps even more importantly, the express principle underlying both of these congressional goals was that justice is best served by the speedy judicial resolution of tax disputes. Foreign corporations had been able to secure financial benefits for themselves by delaying tax collection through federal court litigation; state governments often were forced to accept ungenerous out-of-court settlements in order to secure sorely needed tax revenues. The Tax Injunction Act was a response to the "needs of many States for a more prompt disposition of tax controversies . . . ." S.Rep., Supra, at 3. And excerpts from Congressional hearings regarding the Johnson Act of 1934, 28 U.S.C. § 1342, inserted into the Congressional Record in support of the Tax Injunction Act (often compared during its enactment process to the Johnson Act), decried the financial hardships imposed on a litigant drawn into federal court who is often unable to pursue his claim to a final judicial resolution. 81 Cong.Rec. 1415, 1417 (1937). The Illinois tax grievance remedy, which forbids the recovery of interest and allegedly involves a two year delay prior to refund payment, gives a financial incentive to one of the parties (the County) to delay dispute resolution and imposes severe financial hardships on private parties seeking to redress their grievances. Although the roles have been reversed, the available Illinois remedy exacerbates much the same evils as the Tax Injunction Act was designed to eliminate. See generally Garrett, supra, 538 F.2d at 72. It is unlikely that the drafters of the 1937 Act would have considered the Illinois statutory remedy "plain, speedy and efficient."
This concern with the economics of dispute resolution was reflected in the Supreme Court's decision in Georgia R. R. v. Redwine, 342 U.S. 299, 72 S. Ct. 321, 96 L. Ed. 335 (1952). In Redwine, one of the state remedies available to the aggrieved taxpayer required filing over three hundred separate claims in fourteen different counties in order to achieve full redress. And so while redress theoretically was possible in the state courts, the remedy's diseconomies rendered it inadequate. Id. at 303, 72 S. Ct. 321. See also, 28 East Jackson, supra, 523 F.2d at 441 (state remedy requiring full payment of tax not "available" when petitioner did not have and could not borrow sufficient funds to pay the full tax); Federal Courts, supra, at 217. Under present Illinois law, as under Georgia law in Redwine, relief is possible, but it imposes undue costs on taxpayers seeking redress. Under these circumstances, the state remedy is inadequate.
The most succinct analysis of the inadequacy of a tax grievance procedure which requires prepayment of the entire tax and then refuses to pay interest on the refunds awarded successful litigants was provided by Learned Hand over fifty years ago:
(I)t seems to me plain that it is not an adequate remedy, after taking away a man's money as a condition of allowing him to contest his tax, merely to hand it back, when, no matter how long after, he establishes that he ought never to have been required to pay at all. Whatever may have been our archaic notions about interest, in modern financial communities a dollar to-day is worth more than a dollar next year, and to ignore the interval as immaterial is to contradict well-settled beliefs about value. The present use of my money is itself a thing of value, and, if I get no compensation for its loss, my remedy does not altogether right my wrong.
Proctor & Gamble, supra, 2 F.2d at 166. We agree with the conclusion of the court in United States v. Livingston, that
(A state) may allow interest upon refunds of taxes or not as she chooses. If she does not make clear the existence of the right to recover such interest, however, she necessarily opens the door to equitable relief to taxpayers and forecloses a remission of the parties to the legal remedy provided by her statutes.
179 F. Supp. at 15. The failure to pay interest on refunds to taxpayers who successfully challenge their tax assessment pursuant to the Illinois statutory procedures renders that remedy inadequate. Thus, the availability of this remedy in the state courts does not bar federal jurisdiction over injunction actions brought by aggrieved Cook County taxpayers.
Defendants also contend that plaintiff has a "plain, speedy and efficient remedy" in the state courts because she can challenge her allegedly discriminatory tax assessment by bringing an action pursuant to 42 U.S.C. § 1983 in an Illinois court.*fn10 We do not agree with defendant's contention, and we hold that the availability of a section 1983 action in state court does not bar federal jurisdiction over a section 1983 action alleging constitutional deprivations arising from an illegal state tax exaction.
As a predicate to their contention that a section 1983 state court action bars federal jurisdiction in this case, defendants, citing two recent Illinois appellate cases, assert that state courts have jurisdiction to hear federal civil rights actions filed pursuant to 42 U.S.C. § 1983. See Bohacs v. Reid, 63 Ill.App.3d 477, 20 Ill.Dec. 304, 379 N.E.2d 1372 (1978); Alberty v. Daniel, 25 Ill.App.3d 291, 323 N.E.2d 110 (1974). While this statement may well be true, it is by no means a settled rule of law.*fn11
Similarly, plaintiff argues that an Illinois court adjudicating her section 1983 claim would be bound by the rule of Lakefront that a taxpayer who has secured a refund cannot receive interest on that refund. See, supra, p. 533. Consequently, plaintiff contends that this definitive precedent in state law renders a state section 1983 remedy inadequate. Plaintiff's argument assumes that an Illinois court adjudicating a federal claim under section 1983 would be free to apply Illinois equity law, a proposition that is far from certain.*fn12 Nevertheless, we believe that the doubt whether an Illinois court would apply federal equity law instead of the Illinois rule against interest on tax refunds renders a remedy pursuant to a possible section 1983 action in the state court less than plain.
But independent of this uncertainty about the adequacy of the remedy, an exact reading of the Tax Injunction Act and strict attention to the principles underlying section 1983 compel the conclusion that the availability of a state court action under section 1983 does not bar federal jurisdiction. Reading the Tax Injunction Act to bar federal court jurisdiction on the basis of the possibility of bringing a federal cause of action under section 1983 in state court leads to an untenable conclusion: the Tax Injunction Act would bar federal jurisdiction in all cases involving state tax operations without exception. Defendants' position assumes that state courts generally have concurrent jurisdiction over federal causes of actions, including section 1983, and that a state court hearing that federal claim would apply federal equity law (if the state court were free to apply state equity law then, in this case, interest would not be available as part of the remedy and the remedy would be inadequate). But if both these assumptions were true, there would be no class of cases that would escape the bar on federal court jurisdiction contained in the Tax Injunction Act. Whatever action could be brought in federal court, given inadequate state statutory and judicial remedies, also could be brought in state court under federal law pursuant to the state court's concurrent jurisdiction. See generally, Iowa-Des Moines Nat'l Bank v. Bennett, 284 U.S. 239, 52 S. Ct. 133, 76 L. Ed. 265 (1931); General Oil, supra, 209 U.S. 211, 28 S. Ct. 475. Federal courts never would have jurisdiction over actions brought by taxpayers regarding illegal state tax assessments.
Although Congress possesses the power to legislate this result, there is no indication that the Tax Injunction Act was meant to do so.*fn13 The language of the Act on its face contemplates cases which will escape its jurisdictional proscription, and the explanations of the statute contained in its legislative history unmistakably corroborate this reading of the Act. See supra p. 532. See also 81 Cong.Rec. 1416 (1937) (remarks of Sen. Bone).*fn14 There is no reason to conclude that defendants' reading of the Tax Injunction Act a reading which would lead to a result clearly not contemplated by the drafters of the Act is correct.
Defendants' position makes even less sense as a practical matter. In order to argue that a section 1983 action brought in an Illinois court constitutes an adequate remedy, defendants must presume that federal equity law applies. But then it is difficult to conceive of any significant state autonomy interest that is served by barring federal court jurisdiction. Defendants' position leads to the scenario of a state court adjudicating a cause of action and formulating a remedy and throughout required to apply federal law. It would be difficult to say that this is less of an incursion into state autonomy than an action in federal court. And this result undermines judicial efficiency and legal expertise. It is unlikely that when Congress drafted the Tax Injunction Act it intended that all disputes in which state legal and equitable remedies were inadequate be resolved in state court under these conditions.
Our conclusion that the possibility of bringing a section 1983 action in state court does not bar, pursuant to the Tax Injunction Act, federal jurisdiction over an action alleging that state taxes were exacted unconstitutionally, is corroborated by the principles and policies underlying 42 U.S.C. § 1983.*fn15 The sponsors, supporters and even the opponents of the predecessor of section 1983 likely would be shocked indeed if they were to learn that the possibility of bringing a section 1983 action in state court had barred a section 1983 plaintiff from federal court.
The Supreme Court in Mitchum v. Foster, 407 U.S. 225, 92 S. Ct. 2151, 32 L. Ed. 2d 705 (1972) observed:
Section 1983 opened the federal courts to private citizens, offering A uniquely federal remedy against incursions under the claimed authority of state law upon rights secured by the Constitution and laws of the Nation.
Id. at 239, 92 S. Ct. at 2160 (emphasis added). When Congress passed the predecessor of section 1983,
(it) clearly conceived that it was altering the relationship between the States and the Nation with respect to the protection of federally created rights; it was concerned that state instrumentalities could not protect those rights; it realized that state officers might, in fact, be antipathetic to the vindication of those rights; and it believed that these failings extended to the state courts.
Id. at 242, 92 S. Ct. at 2162.*fn16 The failure of state courts to vindicate federal rights was one of the primary motivations for passage of the predecessor of section 1983. Id. at 240-42, 92 S. Ct. 2151. See also, Wiecek, The Reconstruction of Federal Judicial Power, 1863-1875, 13 Am.J.Legal Hist. 333, 338 (1969); Developments, supra, at 1142-50. The legislative history of the Act is replete with references to the inability and unwillingness of state courts to protect federal rights and, as a result, to the need to insure access to the federal courts. See Mitchum, supra, 407 U.S. at 241 n.31, 92 S. Ct. 2151; Developments, supra, at 1154-55 nn.112, 114. As the Supreme Court stated in Monroe v. Pape, 365 U.S. 167, 180, 81 S. Ct. 473, 480, 5 L. Ed. 2d 492 (1961):
It is abundantly clear that one reason the legislation was passed was to afford a federal right in federal courts . . . .
Defendants ask us to turn section 1983 on its head. If their argument were accepted, access to federal courts for the protection of Fourteenth Amendment rights would be denied because of the availability in state courts of "a uniquely federal remedy" which Congress enacted precisely because of the failure of state courts to protect federal rights. We do not embrace this perverse result. The legislative history of the statute compels our conclusion that the availability of a section 1983 action in state court does not bar federal jurisdiction over a section 1983 action brought in federal court to vindicate constitutional rights allegedly violated by an illegal state tax assessment.
Our review of the respective legislative histories of the Tax Injunction Act and section 1983 leads to the conclusion that Congress did not intend that the possibility of bringing a section 1983 action in state court would bar, pursuant to the Tax Injunction Act, federal jurisdiction over a section 1983 action brought in federal court. Further, we have concluded that there is no legal or equitable remedy available under Illinois law which is "plain, speedy and efficient."
For these reasons, we conclude that federal jurisdiction over plaintiff's suit was proper. The judgment of the district court is reversed.