Opinion ID: 1120875
Heading Depth: 1
Heading Rank: 7

Heading: Tax Court Authority to Proceed Without Exhaustion

Text: Taxpayers argue, first, that requiring them to exhaust their administrative remedies pursuant to ORS 305.275(4) is inappropriate in cases brought under 42 U.S.C. § 1983 because states may not erect procedural barriers to vindication of rights under that federal statute. We agree with this general proposition of law, but disagree that it has any applicability to the present case. State courts have concurrent subject matter jurisdiction with federal courts over § 1983 actions. Maine v. Thiboutot, 448 U.S. 1, 100 S.Ct. 2502, 65 L.Ed.2d 555 (1980). In fact, Oregon courts are available to hear claims under § 1983. See Rogers v. Saylor, 306 Or. 267, 280, 760 P.2d 232 (1988) (suggesting, but not holding, that Oregon courts may be required to hear such claims). A state generally may not erect procedural barriers such as requiring that state remedies be sought and denied, before the federal remedy is invoked. Rogers v. Saylor, supra, 306 Or. at 278, 760 P.2d 232 (citing Felder v. Casey, 487 U.S. 131, 139, 108 S.Ct. 2302, 2307, 101 L.Ed.2d 123 (1988)). From the foregoing, Taxpayers reason that they cannot be required to comply with ORS 305.275(4) before bringing their § 1983 action. Defendants respond that Taxpayers may be so required, because tax cases represent a special category of cases in which it is permissible for a state to require exhaustion of administrative remedies. There is no binding case law on point. Defendants rely on Fair Assessment in Real Estate Ass'n v. McNary, 454 U.S. 100, 102 S.Ct. 177, 70 L.Ed.2d 271 (1981). McNary was a § 1983 action brought by property owners and others against certain Missouri tax assessment officials in federal district court. A majority of the Supreme Court of the United States held that principle[s] of comity prevented a federal court from entertaining such an action challenging the validity of state tax systems. Id. at 116, 102 S.Ct. at 186. Four justices concurred on the ground that no issue of comity arose, because the fair import of the Tax Injunction Act, 28 U.S.C. § 1341, [6] indicated a congressional intent to limit the availability of § 1983 actions to those in which administrative remedies had been exhausted. Id. at 137, 102 S.Ct. at 197 (Brennan, J., concurring). In arguing to the contrary, Taxpayers rely on two cases decided since McNary. Neither case involved state taxation systems. In Felder v. Casey, 487 U.S. 131, 108 S.Ct. 2302, 101 L.Ed.2d 123 (1988), plaintiff sought damages in state court for alleged violations of his constitutional rights arising out of an arrest. The issue in the case was whether a Wisconsin statute that required potential plaintiffs to give notice of the circumstances giving rise to their claims, and then to refrain from bringing any action for 120 days thereafter, could bar a § 1983 action that was filed in violation of those limitations. The Supreme Court of the United States ruled that such a procedural bar could not be imposed. The Court first held that, as a general rule, a state could not require exhaustion of state law remedies as a prerequisite to filing a § 1983 action in state court. Id. at 146-48, 108 S.Ct. at 2311. If there were to be exceptions to this no exhaustion rule in particular classes of cases brought under § 1983, the Court held, the exceptions would have to come from choices made by Congress. Id. at 148-49, 108 S.Ct. at 2312. The Court did not purport to strike down all procedures required by state law, but it did indicate that any procedures that had the likely or intended effect of cutting down on the availability of the § 1983 remedy would not be acceptable. The Court by way of summary stated: In enacting § 1983, Congress entitled those deprived of their civil rights to recover full compensation from the governmental officials responsible for those deprivations. A state law that conditions that right of recovery upon compliance with a rule designed to minimize governmental liability, and that directs injured persons to seek redress in the first instance from the very targets of the federal legislation, is inconsistent in both purpose and effect with the remedial objectives of the federal civil rights law. Principles of federalism, as well as the Supremacy Clause, dictate that such a state law must give way to vindication of the federal right when that right is asserted in state court. Id. at 153, 108 S.Ct. at 2314. (Emphasis supplied.) We do not read Felder to state any new or surprising principle. Where a state procedural rule has the effect of minimizing government liability, as Minnesota's notice-of-claim statutes did in Felder, and as the damage limitations provisions of the Oregon Tort Claims Act did in Rogers v. Saylor , state law is inconsistent with the federal remedy, and cannot stand. Rogers v. Saylor, supra, 306 Or. at 280-85, 760 P.2d 232. But, as noted, Felder does not purport to strike down all statutory procedural rules that would apply to § 1983 actions in state court. It speaks only to those state rules that would have the effect of limiting the remedy in a way that it would not be limited if the action were brought in federal court. Moreover, because § 1983 is a statute, it is clear that the Court was prepared to enforce any exhaustion requirement that the Congress considered appropriate. Taxpayers also rely on Patsy v. Florida Board of Regents, 457 U.S. 496, 102 S.Ct. 2557, 73 L.Ed.2d 172 (1982), a § 1983 case brought in federal district court alleging race and sex discrimination. The defendant university system argued that the plaintiff had an adequate administrative remedy that she should have pursued. The Supreme Court of the United States rejected this argument: Th[is] general rule [is] that federal courts cannot require exhaustion under § 1983. Id. at 512, 102 S.Ct. at 2565. The Court noted, however, that whether exhaustion of remedies was required in a given context was, first and foremost, a question of the intent of Congress: [L]egislative purpose    is of paramount importance in the exhaustion context because Congress is vested with the power to prescribe the basic procedural scheme under which claims may be heard in federal courts. Of course, courts play an important role in determining the limits of an exhaustion requirement and may impose such a requirement even where Congress has not expressly so provided. However, the initial question whether exhaustion is required should be answered by reference to congressional intent; and a court should not defer the exercise of jurisdiction under a federal statute unless it is consistent with that intent. Id. at 501-02, 102 S.Ct. at 2560. As was true of our review of Felder, we see no suggestion in this case that the Court meant to depart from its earlier holding in McNary, or limit the viability of state laws that do not affect or limit the substance of the federal right. We see no basis for saying that exhaustion of administrative remedies will be required, as a matter of law, in federal courts, but may not even be permitted, as a matter of sovereign choice, in state courts. We believe that the McNary decision states the correct rule. Although there were different rationale to support the result, McNary demonstrates that the general rule found in Felder and Patsy  that § 1983 actions may be brought in the state court without exhausting state administrative remedies  does not apply to cases in which the allegedly actionable behavior of the defendants implicates the state's method of assessing and collecting taxes. Under both the majority rationale in McNary and under the Tax Injunction Act, if Taxpayers had brought their § 1983 claim in the United States District Court for the District of Oregon, the claim would have been dismissed for failure to exhaust state administrative remedies. The McNary majority would so hold as a matter of comity. The four concurring justices in McNary and (as we read the decisions) the Patsy and Felder courts would so hold because requiring exhaustion is consistent with the congressional intent shown in the Tax Injunction Act. This does not mean that a state must, as a matter of federal law, impose a similar exhaustion requirement before it permits its courts to entertain such actions; neither Congress nor the federal courts has purported to control state trial procedure in such a way. What it does mean, we believe, is that a state may impose such a requirement without offending federal law. We understand McNary to hold that, given the prime importance of noninterference with state taxing practices, Congress' purposes in enacting 42 U.S.C. § 1983 will not be defeated by requiring that complaining taxpayers first exhaust their state administrative remedies. If Congress' purposes will not be defeated by such a requirement in federal court, we cannot conceive how those purposes would be any more thwarted by imposition of precisely the same kind of procedural requirement when the § 1983 action is brought in state court. We therefore hold that ORS 305.275(4), which imposes such an exhaustion requirement, is constitutionally valid. The Oregon Tax Court did not err in relying on it in dismissing Taxpayers' claim. Taxpayers argue, alternatively, that McNary was premised on the assumption that the plaintiffs in that case could bring their claims immediately in state court, without going through their state's administrative procedures. They quote and rely on the last sentence of the majority opinion in McNary, where the Court stated: [T]he Missouri Supreme Court has expressly held that plaintiffs such as petitioners may assert a § 1983 claim in state court. Fair Assessment in Real Estate v. McNary, supra, 454 U.S. at 116, 102 S.Ct. at 186. The quoted sentence does not mean what Taxpayers claim it means. That becomes clear when one reads the entire paragraph of which the quoted sentence was merely the last part: The adequacy of available Missouri remedies is not at issue in this case. The District Court expressly found `that [petitioners] have means to rectify what they consider an unjust situation through the state's own processes,' and petitioners do not contest this finding. In addition, the Missouri Supreme Court has expressly held that plaintiffs such as petitioners may assert a § 1983 claim in state court. Id. (Emphasis supplied.) (Citation omitted.) The words, [i]n addition, make it clear that the Court contemplated the Missouri procedure as an integrated whole, with administrative procedures followed by a § 1983 action, if necessary. Taxpayers' argument to the contrary is wrong. [7] Taxpayers further argue that, if this court holds that exhaustion of administrative remedies will be required before Taxpayers can bring their § 1983 action, then we will somehow be us[ing McNary ] as a guide to or invitation for state courts to decline jurisdiction. We do not deny that there is state court jurisdiction; we hold simply that the legislature has interposed a constitutionally permissible administrative process that must be followed before a plaintiff has standing to invoke the jurisdiction of the Oregon trial court. Although we have heretofore limited our discussion of the exhaustion requirement of ORS 305.275(4) to the Oregon Tax Court, the same requirement applies to an action in any other court initiated by Taxpayers that challenges the validity of the Oregon retirement income tax laws. ORS 305.275(4) provides that no person shall appeal to the Oregon Tax Court or other court on any matter arising under the revenue and tax laws    unless the person first exhausts the administrative remedies provided before the [D]epartment and the director. Administrative remedies available to the Taxpayers include a request for declaratory and injunctive relief, as well as for refunds. We do not read ORS 305.275(4) so narrowly as to limit the scope of the exhaustion requirement to those cases where the revenue system has generated a ruling that can be appealed. If the law provides an adequate administrative remedy, then ORS 305.275(4) requires that it be exhausted before a court challenge may be prosecuted. [8] Taxpayers further argue that, even if they are required to pursue their administrative remedies with respect to the damages portion of their § 1983 action, this court must nevertheless reverse that portion of the order [of the Oregon Tax Court] dismissing [Taxpayers'] claims of declaratory and injunctive relief under § 1983. The Supreme Court has consistently held that plaintiffs may bring actions for declaratory and injunctive relief directly into court where plaintiffs seek relief from state officials acting outside the bounds of their constitutional or jurisdictional authority. (Citation omitted.) Taxpayers are mistaken. We note, first, that there can be no doubt that, under the statutes regulating the Department and the Oregon Tax Court, Taxpayers are required to exhaust their administrative remedies with respect to declaratory relief. [9] ORS 305.105 provides: The Department of Revenue in its discretion may, on petition by any interested person, issue a declaratory ruling with respect to the applicability to any person, property or state of facts of any rule or statute enforceable by it. The department shall prescribe by rule the form, content and procedure for submission, consideration and disposition of such petitions. Full opportunity for hearing shall be afforded to interested parties. A declaratory ruling shall bind the department and all parties to the proceedings on the state of facts alleged, unless it is altered or set aside by a court. A ruling shall be subject to review in the Oregon Tax Court and Supreme Court in the manner provided by ORS 305.445[, which governs appeals to the Tax Court and to the Supreme Court in taxation cases generally]. The statutory reference to statute enforceable was added by the 1989 Legislative Assembly. Or. Laws 1989, ch. 414, § 2. The language appears to be a direct legislative response to Portland Adventist Medical Center v. Sheffield, 303 Or. 197, 735 P.2d 371 (1987), a case in which the Tax Court entertained an original proceeding for declaratory relief. The direct proceeding was necessary because, at the time, the Department had statutory authority to provide declaratory relief with respect to the meaning of rules, but not with respect to the meaning of tax statutes. There now being a state statutory exhaustion requirement for declaratory rulings such as that sought by Taxpayers here, it would be anomalous indeed to hold that, while Congress intended that federal courts not intervene in such a process, Congress nonetheless intended that state courts must interfere in it. Both the majority and concurring opinions in McNary relied on a long line of federal cases making it clear that, as a matter of comity, federal courts will not enjoin state officers in the assessment and collection of taxes, nor will they grant declaratory relief that would have the same effect. See, e.g., Great Lakes Co. v. Huffman, 319 U.S. 293, 63 S.Ct. 1070, 87 L.Ed. 1407 (1943) (illustrating rule). We see no constitutional or other basis for suggesting, much less holding, that Congress nevertheless intended that state courts may not withhold similar relief upon the same terms.