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STEIN v. VALLAS

October 6, 1993

ARTHUR STEIN, SALVATORE ALVAREZ, BRIDGET MURPHY, CARL STOMP, SANG CHOI, and on behalf of themselves and all others similarly situated, Plaintiffs,
v.
PAUL G. VALLAS, Director of the Chicago Department of Revenue, RICHARD M. DALEY, Mayor of the City of Chicago, and the CITY OF CHICAGO, an Illinois Municipal Corporation, Defendants.


ALESIA


The opinion of the court was delivered by: JAMES H. ALESIA

The purported class of current or former city-licensed laundromat owners ("Plaintiffs") filed this class action against the Defendants, the City of Chicago, its Mayor, and its Director of the Department of Revenue (collectively the "City"), on October 2, 1992. The City filed a Motion to Dismiss the Plaintiffs' Complaint under FED. R. CIV. P. 12(b)(1) and 12(b)(6). For the reasons set forth below, the City's Motion is granted, and the Plaintiffs' Complaint is dismissed without prejudice to seek relief in state court.

 Background

 Plaintiffs seek declaratory relief and damages for the City's alleged discriminatory enforcement of the Chicago Transaction Tax ("Transaction Tax"), codified at Chapter 3-32 of the Municipal Code of Chicago (1992). The Transaction Tax took effect in February of 1987 and assessed a 6% tax on leases of personal property. The Transaction Tax, as originally enacted, applied to leases of coin-operated clothes washers and dryers.

 The City eventually amended the Transaction Tax. Effective March 1, 1992, Chapter 3-32 no longer applied to leases of personal property where the entire consideration for the lease is made by placing money into an attached mechanism. Thus, as of March 1, 1992, the Transaction Tax no longer applied to coin-operated clothes washers and dryers.

 The gist of the Plaintiffs' Complaint is that the City declined to enforce the Transaction Tax against members of a local industry group, the Coin Laundry Association, *fn1" while strictly enforcing it against non-members. The Plaintiffs allege that the City's unequal enforcement of the Transaction Tax denied them equal protection of law as guaranteed by the Fourteenth Amendment to the United States Constitution. Consequently, they bring this suit under 42 U.S.C. § 1983. The City asserts the statute of limitations, mootness, and failure to allege class-based discrimination in its Motion to Dismiss.

 Discussion

 The petitioner's complaint in McNary specifically alleged that two of the respondents' practices denied them due process and equal protection. First, the petitioners alleged that higher assessments levied on newly improved properties denied them equal protection because properties without new improvements were taxed at a lower rate. Second, the petitioners alleged that the respondents denied them due process because respondents specifically targeted for reassessment those taxpayers who successfully challenged their property assessments. Id. at 106, 102 S. Ct. at 181, 70 L. Ed. 2d at 277.

 As the City has done in this suit, the respondents in McNary asserted the Tax Injunction Act ("Act") *fn2" as a defense. The Act deprives district courts of subject matter jurisdiction over suits to enjoin state tax collection, suits to order a state to refund taxes paid, or suits challenging the validity of state tax systems. Cases arising before the Act, moreover, prohibited federal courts sitting in equity from enjoining state tax collection so long as available state remedies adequately protected federal rights. See Matthews v. Rodgers, 284 U.S. 521, 52 S. Ct. 217, 76 L. Ed. 447 (1932); Singer Sewing Machine Co. v. Benedict, 229 U.S. 481, 33 S. Ct. 942, 57 L. Ed. 1288 (1913); Boise Artesian Water Co. v. Boise City, 213 U.S. 276, 29 S. Ct. 426, 53 L. Ed. 796 (1909).

 Furthermore, even after Congress passed the Act in 1937, federal courts continued to rely on this earlier principle of comity. McNary, 454 U.S. at 103, 102 S. Ct. at 179, 70 L. Ed. 2d at 275. In Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 63 S. Ct. 1070, 87 L. Ed. 1407 (1943), for example, the Supreme Court held that federal courts may not render declaratory judgments on the constitutionality of state tax laws in deference to comity. Thus, the Court in Huffman found it unnecessary to rely on the Act because the comity principal alone precluded federal jurisdiction. *fn3"

 The Supreme Court in McNary, however, recognized that conflict arises when defendants assert the Act as a defense in § 1983 suits. On the one hand, the Act and prior cases based on comity bar federal injunctive challenges to state tax laws. The Court's Huffman decision, for example, reaffirms that comity alone bars declaratory judgments against state tax laws. McNary, 454 U.S. at 105, 102 S. Ct. at 180, 70 L. Ed. 2d at 276. Section 1983, on the other hand, "cut a broad swath" and "gave a federal cause of action to . . . anyone . . . who was able to prove that his constitutional or federal rights had been denied by any State." McNary, 454 U.S. at 103-04, 102 S. Ct. at 180, 70 L. Ed. 2d at 275.

 The McNary court rejected the petitioners' argument that actions for damages intruded upon state tax systems far less than injunctions or declaratory judgments. The Court reasoned that, before assessing damages in such actions, the district court would in effect enter a declaratory judgment that the respondents' acts violated the Constitution. Thus, the Court found that a suit for damages under § 1983 would entail the equivalent of a declaratory judgment. The Court, ...


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