Opinion ID: 2966527
Heading Depth: 3
Heading Rank: 3

Heading: Declaratory Judgments and Injunctions

Text: The Plan and Fund have argued that the district courts were stripped of subject matter jurisdiction by both the Anti-Injunction Act, 26 U.S.C. § 7421, and the tax-exclusion provision of the Declaratory Judgment Act, 28 U.S.C. § 2201. The Declaratory Judgment Act authorizes all United States courts to issue declaratory relief in cases within their jurisdiction except with respect to Federal taxes other than actions brought under section 7428 of the Internal Revenue Code of 1986 [or] a proceeding under section 505 or 1146 of title 11. 28 U.S.C. § 2201(a). The AntiInjunction Act states that, with certain exceptions,no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed. 26 U.S.C. § 7421(a). _________________________________________________________________ 11 We emphasize, though, that the question of whether the Plan and Fund have interests in the debtors' property within the meaning of the Bankruptcy Code is distinct from the question of whether third parties become the debtors' successors in interest within the meaning of the Coal Act upon purchasing that property. We express no opinion concerning the latter inquiry. 18 As a preliminary matter, we note that the tax-exclusion provision of the Declaratory Judgment Act cannot be regarded as a jurisdictional bar, per se, because [t]he Act does not itself confer subject matter jurisdiction, but, rather, makes available an added anodyne for disputes that come within the federal courts' jurisdiction on some other basis. Ernst & Young v. Depositors Economic Protection Corp., 45 F.3d 530, 534 (1st Cir. 1995); accord Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671-72 (1950). We will therefore proceed under the assumption that Appellants believe that the AntiInjunction Act posed a jurisdictional bar, while the Declaratory Judgment Act prohibited the issuance of declaratory relief. To determine whether the two statutes apply in the instant cases, we must first determine whether Coal Act premiums are taxes. We hold that they are. In United States v. City of Huntington, W. Va., 999 F.2d 71 (4th Cir. 1993), cert. denied, #6D 6D6D# U.S. ___, 114 S. Ct. 1048 (1994), we ascertained whether a service fee imposed by a city was a tax by asking whether it had each of four features: (a) An involuntary pecuniary burden, regardless of name, laid upon individuals or property; (b) Imposed by or under authority of the legislature; (c) For public purposes, including the purposes of defraying expenses of government or undertakings authorized by it; (d) Under the police or taxing power of the state. Id. at 73 nn.4 & 5 (quoting County Sanitation Dist. No. 2 of Los Angeles County v. Lorber Industries of California (In re Lorber Industries of California), 675 F.2d 1062, 1066 (9th Cir. 1982)); accord Williams v. Motley, 925 F.2d 741, 742 (4th Cir. 1991) (In the absence of a statutory definition, the Supreme Court has defined taxes as `pecuniary burdens laid upon individuals or their property, regardless of their consent, for the purpose of defraying the expenses of government or of undertakings authorized by it.') (quoting City of New York v. Feiring, 313 U.S. 283, 285 (1941)). Applying that four-part test, the Second Circuit in LTV Steel Co. held that Coal Act premiums are taxes within the meaning of a priority provision of the Bankruptcy Code: they are involuntary pecuniary burdens imposed by Congress for the public purpose of restoring financial stability to coal miners' benefit plans, and those burdens have been imposed as an exercise of Congress's taxing power. 12 53 F.3d at 498. _________________________________________________________________ 12 With respect to the last of the four elements, the court pointed out that the Coal Act was enacted as an amendment to the Internal Revenue Code of 1986 and that Congress conferred enforcement powers upon the Secretary of the Treasury. 53 F.3d at 498; see 26 U.S.C. § 9707(d)(1). 19 Finding the Second Circuit's reasoning persuasive, and discerning no basis for distinguishing the meaning of the wordtax in the Bankruptcy Code from the use of that term in the two statutes at issue before us, we adopt the Second Circuit's reasoning as our own. We must next determine whether the Anti-Injunction Act or the Declaratory Judgment Act barred the district courts from issuing the orders challenged here. We hold that they did not. Though the Anti-Injunction Act concerns federal courts' subject matter jurisdiction and the tax-exclusion provision of the Declaratory Judgment Act concerns the issuance of a particular remedy, the two statutory texts are, in underlying intent and practical effect, coextensive. Wyoming Trucking Ass'n v. Bentsen, 82 F.3d 930, 932-33 (10th Cir. 1996)13; Perlowin v. Sassi, 711 F.2d 910, 911 (9th Cir. 1983) (per curiam) (stating that [i]f [a] suit is allowed under the Anti-Injunction Act, it is not barred by the Declaratory Judgment Act); Investment Annuity, Inc. v. Blumenthal, 609 F.2d 1, 4 (D.C. Cir. 1979), cert. denied, 446 U.S. 981 (1980); Tomlinson v. Smith , 128 F.2d 808, 811 (7th Cir. 1942). The tax-exclusion provision was in fact added to the Declaratory Judgment Act in order to reaffirm the restrictions declared in the Anti-Injunction Act, Bob Jones Univ. v. Simon, 416 U.S. 725, 732 n.7 (1974), and to prevent taxpayers from us[ing] the Declaratory Judgment Act to do what they were prohibited from doing under the Anti-Injunction Act, Eastern Kentucky Welfare Rights Org. v. Simon, 506 F.2d 1278, 1285 n.11 (D.C. Cir. 1974), vacated on other grounds, 426 U.S. 26 (1976); see also Alexander v. Americans United Inc., 416 U.S. 752, 759 n.10 (1974) (observing that the District of Columbia Circuit had held that the two provisions are coterminous, declining to pass judgment on that holding, but conceding that the federal tax exception to the Declaratory Judgment Act is at least as broad as the prohibition of the Anti-Injunction Act). The purposes of the two statutory provisions are to allow the Federal Government to assess and collect allegedly due taxes without judicial _________________________________________________________________ 13 The Tenth Circuit stated that finding the two provisions coextensive is consistent with common sense, since an injunction of a tax and a judicial declaration that a tax is illegal have the same prohibitory effect on the federal government's ability to assess and collect taxes. Wyoming Trucking Ass'n, 82 F.3d at 933. 20 interference and to compel taxpayers to raise their objections to collected taxes in suits for refunds. Enochs v. Williams Packing Co., 370 U.S. 1, 7 (1962) (concerning the Anti-Injunction Act); Flora v. United States, 362 U.S. 146, 164 & n.29 (1960) (concerning the Declaratory Judgment Act). In light of the two provisions' coextensive nature, a finding that one of the two statutes does not bar the debtors in the instant cases from seeking and obtaining free and clear orders will necessitate a finding that the other statute does not pose an obstacle either. In South Carolina v. Regan, 465 U.S. 367 (1984), the Supreme Court was asked to determine whether the Anti-Injunction Act barred the State of South Carolina from seeking injunctive and other relief in a suit challenging the constitutionality of a provision of the Internal Revenue Code that imposed a tax on interest earned from bearer bonds. Id. at 370-71. The Court held that the Anti-Injunction Act was not intended to bar an action where . . . Congress has not provided the plaintiff with an alternative legal way to challenge the validity of a tax. Id. at 373. The Court observed that the statute has no recorded legislative history, but found that the circumstances of its enactment strongly supported the Court's finding: the Court observed that an earlier version of the statute provided an alternative legal avenue for challenging taxes--namely, a suit for a refund. Id. at 373. The Court further noted that, in cases in which it had held that the Anti-Injunction Act barred a suit, the taxpayers could have paid the disputed sums and then sued for refunds, and that it had previously declared that one of the central purposes of the Act was to require that the legal right to . . . disputed sums be determined in a suit for refund. Id. at 374-76 (quoting Williams Packing Co., 370 U.S. at 7). The Court then held that, because the challenged tax would be imposed on bondholders, rather than on South Carolina, and because the State would have no direct means of challenging that tax, the Anti-Injunction Act did not bar the suit. Id . at 378-80. In the cases at bar, we find that the debtors do not have any alternative legal way to challenge the imposition of Coal Act successor liability on the purchasers of their assets and that, consequently, neither the tax-exclusion provision of the Declaratory Judgment Act nor the Anti-Injunction Act barred the district courts from reaching the merits of the cases and ordering the appropriate relief. The debtors in 21 the cases before us are, in many respects, in the same position that the State of South Carolina occupied in Regan: they need to know, not whether they can themselves be held liable for particular taxes, but whether those taxes can be assessed against a third party. More specifically, the debtors need to know whether they can sell their assets free and clear of liability for their Coal Act premiums (while in no way thereby avoiding liability for those premiums themselves), so that, in the case of the Leckie Smokeless debtors, they can meet an absolute condition of purchase imposed by Royal Scot or, in the case of the Lady H debtors, they can gain the right to have escrowed funds added to the value of their bankruptcy estates. The debtors cannot themselves pay all Coal Tax premiums owed, whether already accrued or yet to be assessed, then challenge the imposition of joint and several liability on third parties, the purchasers of their assets. Nor does the Coal Act itself provide any means by which a coal operator can challenge the imposition of successor liability on a third party. The Plan and Fund disagree, pointing out that the debtors have always had the right to challenge their monthly and annual Coal Act assessments, and that the purchasers of their assets can bring similar challenges if joint and several liability is imposed upon them for the debtors' Coal Act obligations. See, e.g., 26 U.S.C. § 9706(f) (stating that an operator may ask the Commissioner of Social Security to review the assignment of a beneficiary to it). The Plan and Fund have misapprehended the nature of the orders sought by the debtors. The debtors have not disputed their own Coal Act liabilities; instead, they require a determination of whether, in an attempt to generate funds with which to pay at least a portion of their obligations to the Plan, the Fund, and their other creditors, they can sell their assets free and clear of those liabilities. We therefore find that the district courts had jurisdiction to reach the merits of the debtors' motions to sell their assets free and clear of their Coal Act obligations and had the authority to provide the necessary relief.