Opinion ID: 751919
Heading Depth: 4
Heading Rank: 2

Heading: Do the Defendants Come Within The Federal

Text: 31 Instrumentality Exception to the TIA? 32 We have found no direct evidence of congressional intent to allow the defendants to bypass the TIA in the language of the statutes at issue. However, in Department of Employment v. United States, 385 U.S. 355, 358, 87 S.Ct. 464, 467, 17 L.Ed.2d 414 (1966), the Supreme Court set forth a judicial exception to the TIA based on implied congressional intent, holding that [the TIA] does not act as a restriction upon suits by the United States to protect itself and its instrumentalities from unconstitutional state exactions. The Court's holding was based on the understanding that the government is not bound by its own legislative restrictions unless it expressly intends to bind itself. See Farm Credit Servs., 520 U.S. at ----, 117 S.Ct. at 1781; see also Dollar Sav. Bank v. United States, 86 U.S. (19 Wall.) 227, 239, 22 L.Ed. 80 (1873). In other words, the Court assumed that in enacting the TIA Congress did not intend to prevent the United States from asserting its own tax immunity in federal court. Thus the judicial exception, also known as the federal instrumentality exception, allows the federal government to contest state taxation of its instrumentalities in federal court notwithstanding the restrictions of the TIA. See, e.g., United States v. Broward County, 901 F.2d 1005, 1008 (11th Cir.1990); Dawson v. Childs, 665 F.2d 705, 710 (5th Cir. Unit A Oct.1980); United States v. Lewisburg Sch. Dist., 539 F.2d 301, 310 (3d Cir.1976). 1. Arkansas v. Farm Credit Services 33 Read literally, however, the exception articulated in Department of Employment only applies to suits by the United States to protect itself and its instrumentalities from state taxation. 385 U.S. at 358, 87 S.Ct. at 467 (emphasis added). The few circuit court cases addressing the issue are split on whether federal instrumentalities may contest state taxes in federal court without the government as a co-party. Compare, e.g., FDIC v. City of New Iberia, 921 F.2d 610, 613 (5th Cir.1991) (FDIC is federal instrumentality that may contest state tax in federal court without United States as co-plaintiff) with, e.g., Housing Auth. of Seattle v. State of Washington, Dep't of Revenue, 629 F.2d 1307, 1311 (9th Cir.1980) (joinder with the United States as co-plaintiff necessary for instrumentality to avoid TIA). This was the issue the Supreme Court set out to address in Farm Credit Services. 34 Farm Credit Services concerned Production Credit Associations (PCAs), federally chartered corporations whose organic statute explicitly designates them as instrumentalities of the United States. See 12 U.S.C. §§ 2071(b)(7), 2077 (1994). PCAs are exempt by federal statute from state taxes on their notes, debentures, and other obligations. See 12 U.S.C. § 2077 (1994). In Farm Credit Services, four PCAs sued the state of Arkansas in federal district court, claiming immunity not only from the taxes explicitly designated in § 2077, but from Arkansas sales and income taxes as well. The government did not participate in the suit, and the Solicitor General submitted an amicus brief opposing jurisdiction. Thus, the case turned on whether the PCAs could utilize the Department of Employment exception without the joinder of the government as a co-party. The Supreme Court held that the TIA barred the PCAs from contesting the tax in federal court unless the United States participated on their behalf. Farm Credit Servs., 520 U.S. at ----, 117 S.Ct. at 1780. 35 The Court has directed us to consider the jurisdictional issue in this case in light of Farm Credit Services. While the Farm Credit Services Court held that PCAs could not sue in federal court without the United States as co-party, it did not extend that holding to other instrumentalities; the result in Farm Credit Services seems to hold open the federal instrumentality exception for entities litigating on their own. Jefferson County's brief characterizes Farm Credit Services as holding that federal courts [have] no jurisdiction over a dispute involving the collection of a state tax from a federal instrumentality unless the United States [is] a co-party.  Supplemental En Banc Brief for Appellant at 16. This is a clear misreading of the opinion, which states only that instrumentality status does not in and of itself entitle an entity to the same exemption the United States has under the Tax Injunction Act. Farm Credit Servs., 520 U.S. at ----, 117 S.Ct. at 1782; see also City and County of San Francisco v. Assessment Appeals Bd., 122 F.3d 1274, 1277 (9th Cir.1997) (interpreting Farm Credit Services as allowing some instrumentalities to bypass the TIA without the United States' participation). In fact, the Farm Credit Services Court reviewed different approaches used by the circuits and noted that a rule barring all federal instrumentalities from federal court unless the United States participates is the most restrictive approach of those used. Farm Credit Servs., 520 U.S. at ----, 117 S.Ct. at 1781. 36 With respect to the PCAs, the Court held that [u]nder any of the tests ... described, PCA's would not be exempt from [the TIA]. Id. at ----, 117 S.Ct. at 1782. The factor that seems to have weighed most heavily in the Court's decision is the PCAs' quasi-private status: 37 The PCA's' business is making commercial loans, and all their stock is owned by private entities. Their interests are not coterminous with those of the Government any more than most commercial interests. Despite their formal ... designation as instrumentalities of the United States, ... PCA's do not have or exercise power analogous to that of ... any of the departments or regulatory agencies of the United States. 38 Id. Article III judges are completely dissimilar from PCAs. Farm Credit Services therefore informs our analysis, but does not answer the question before us with regard to Judges Acker and Clemon. However, the opinion cites with seeming approval two cases which are helpful to our inquiry: Moe v. Confederated Salish & Kootenai Tribes, 7 see id. at ----, 117 S.Ct. at 1781 (Moe is instructive here.), and Federal Reserve Bank v. Commissioner of Corps. and Taxation, 8 see id. at ----, 117 S.Ct. at 1782. We now examine those cases. 39 2. Moe v. Confederated Salish & Kootenai Tribes 40 In Moe, the Court affirmed a district court ruling that extended the United States' Department of Employment exception to Native American tribes suing in federal court. The district court allowed the tribes to bypass the TIA under the exception and enjoin the collection of state taxes from cigarette sales. It based this ruling on two alternative grounds: (1) that the United States' significant interest in the tribes qualified them for the exception, and a symbolic joinder of the United States would serve no purpose; and (2) that a separate jurisdictional statute, 28 U.S.C. § 1362, 9 which gives Native Americans special access to federal court, embodied a congressional purpose to allow the tribes to sue in federal court as if they were the United States. See Confederated Salish & Kootenai Tribes v. Moe, 392 F.Supp. 1297, 1303-04 (D.Mont.1974). 41 The Supreme Court affirmed the ruling, but found each of the district court's grounds insufficient standing alone to justify allowing the tribes to bypass the TIA. The Court first stated that although the tribes' asserted interests coincided with those of the federal government, perhaps qualifying them for federal instrumentality status, this congruence of interests was insufficient by itself to exempt the tribes from the TIA. See Moe, 425 U.S. at 471-72, 96 S.Ct. at 1640-41. Likewise, the Court refused to interpret § 1362 as a blanket exception to the TIA. See id. at 472, 96 S.Ct. at 1641. ([T]he mere fact that a jurisdictional statute such as § 1362 speaks in general terms of 'all' enumerated civil actions does not itself signify that Indian tribes are exempted from the provisions of [the TIA].). 42 Instead, the Court affirmed the district court on a hybrid of the two grounds. The Court assumed that the United States could have sued on behalf of the tribes by itself or as co-plaintiff, because of the congruence of the tribes' interests and those of the government. The Court also found that § 1362 evidenced a congressional intent to allow Native American tribes, in some circumstances, to participate in federal court as if they were the United States suing as the tribes' trustee. The Court held that under the circumstances of the case the tribes could use § 1362 to stand in the place of the United States and enjoy the benefit of the Department of Employment exception. See id. at 474-75, 96 S.Ct. 1641-42. 43