Court Opinion

ID: 194567
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:20:00+00
Date Added: 2024-06-11T13:14:46.718954
License: Public Domain

March 2, 1993     UNITED STATES COURT OF APPEALS
                      For The First Circuit
                                           

No. 92-1876

              BANK OF NEW ENGLAND OLD COLONY, N.A.,

                      Plaintiff, Appellant,

                                v.

                R. GARY CLARK, TAX ADMINISTRATOR,
                  FOR THE STATE OF RHODE ISLAND

                       Defendant, Appellee.

                                           

           APPEAL FROM THE UNITED STATES DISTRICT COURT

                 FOR THE DISTRICT OF RHODE ISLAND

          [Hon. Ronald R. Lagueux, U.S. District Judge]
                                                      

                                           

                              Before

                    Torruella, Circuit Judge,
                                            

                  Bownes, Senior Circuit Judge,
                                              

                    and Stahl, Circuit Judge.
                                            

                                           

     Lawrence  H. Richmond,  Counsel,  Federal Deposit  Insurance
                          
Corporation, with whom Ann  S. DuRoss, Assistant General Counsel,
                                     
Colleen  B. Bombardier,  Senior  Counsel, David  N. Wall,  Senior
                                                        
Counsel, Federal  Deposit Insurance  Corporation, Mark A.  Pogue,
                                                                
Alfred  S. Lombardi  and  Edwards &  Angell,  were on  brief  for
                                           
appellant Federal Deposit Insurance  Corporation, as receiver for
New Bank of New England, N.A.
     Bernard J. Lemos, Legal Officer (Taxation), with whom Marcia
                                                                 
McGair Ippolito, Chief Legal Officer (Taxation), was on brief for
               
appellee.

                                           

                          March 2, 1993
                                           

          TORRUELLA,  Circuit  Judge.   In  this  appeal we  must
                                    

resolve a  seemingly irreconcilable  clash between  two statutes.

One vests the Federal Deposit Insurance Corporation ("FDIC") with

the  power to remove "any action, suit, or proceeding" to federal

court.  12  U.S.C.   1819(b)(2)(B).  The other  commands that the

district court "shall not" grant relief in cases involving issues

of state tax  law.   28 U.S.C.    1341.  In  this case, the  FDIC

removed a Rhode Island tax dispute to the district court, and the

district court remanded the case to the state court under   1341,

finding that the statute required abstention.  Because we  concur

with the district court's result, we affirm.

                              FACTS
                                   

          Appellant bank claimed a refund of $419,025 on its 1987

Rhode Island  Bank  Institution Excise  Tax  Return.   The  Rhode

Island  Tax Division,  however, issued  only a partial  refund of

$285,347.    The  bank filed  an  administrative  appeal for  the

balance,  but the  partial  refund was  upheld.   The  bank  then

resorted to  the Rhode  Island state  court for  relief, alleging

only state law grounds for relief. 

          In 1991,  while that action  was pending, the  bank was

declared insolvent.   The  Comptroller of the  Currency appointed

the  FDIC  as receiver  and created  a  "bridge bank"  to provide

continued  service to the  bank's former  customers.   The bridge

bank assumed the tax  refund claim from the insolvent bank.  When

the  Comptroller later  declared the  bridge bank  insolvent, the

FDIC as  receiver took  possession of the  bridge bank's  assets,

                               -3-

including the pending tax refund suit.

          Pursuant  to    1819(b)(2)(B),1  the  FDIC removed  the

pending state court suit  to the federal district court  in Rhode

Island.2   The  state moved  to remand  or dismiss,  arguing that

  1341,  otherwise known as  the Tax Injunction  Act ("the Act"),

required the federal court to remand the case to the Rhode Island

                    

1  Section 1819(b) provides in relevant part:

            (1)  Status

            The Corporation, in  any capacity,  shall
            be  an agency  of  the United  States for
            purposes of  section  1345 of  Title  28,
            without regard to whether the Corporation
            commenced the action.

            (2)  Federal court jurisdiction

            (A)  In general

            Except as provided  in subparagraph  (D),
            all suits of a civil nature at common law
            or in equity to which the Corporation, in
            any capacity, is a party shall  be deemed
            to  arise under  the laws  of the  United
            States.

            (B)  Removal

            Except as provided  in subparagraph  (D),
            the  Corporation  may,  without  bond  or
            security,  remove  any  action, suit,  or
            proceeding  from  a  State court  to  the
            appropriate United States district court.

It is undisputed that subparagraph (D) does not apply here.

2    Apparently  the  FDIC took  this  action  one  day  before a
discovery hearing  and three days before trial.   The case was to
be heard  together with  a related case  involving another  Rhode
Island bank and the same counsel. 

                               -4-

state court.3     The  FDIC,  in response,  claimed  that it  was

exempt from the operation of the Act under the judicially-created

"federal instrumentalities" exception, which establishes that the

Act does  not bar  access to  the  federal courts  by the  United

States  or its instrumentalities.   A magistrate  agreed that the

FDIC  was  a federal  instrumentality exempt  from  the Act.   On

review, however, the district court determined  that (1) the FDIC

was not entitled to  claim the federal instrumentality exemption;

(2)  section 1819  vested the  court with  jurisdiction over  the

matter; and (3) the Act nonetheless required the court to abstain

from deciding  the case.   The district court  therefore remanded

the  case  to  the Rhode  Island  state  court,  and this  appeal

followed.

                          LEGAL ANALYSIS
                                        

                                I.

          We   begin   by   addressing   the   district   court's

determination that the  Act is an abstention statute,  as opposed

to a jurisdictional statute.  If the district court is correct in

this ruling, then the apparent conflict between the two  statutes

is  resolved by  the workable  solution that  the district  court

proposed.   Unfortunately,  we  must conclude  that the  district

court erred in characterizing the Act as an abstention statute.

          The Supreme Court has instructed us, and  we have held,

                    

3  The Act states that federal 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 courts of such State."  28 U.S.C.   1341.

                               -5-

that the Act is "jurisdictional" in nature, and therefore  serves

to oust the federal  courts of jurisdiction in those  cases which

fall  within its reach.  California v. Grace Brethren Church, 457
                                                            

U.S. 393,  418-19 (1982)  (because of  Act, "no federal  district

court  had  jurisdiction");  Trailer  Marine  Transport  Corp. v.
                                                              

Rivera  V zquez,  977  F.2d  1,  4-5  (1st  Cir.  1992)  (Act  is
               

"jurisdictional" and "not subject to waiver").

          The  policies behind  the Act  explain  the need  for a

strong  limitation on  federal jurisdiction  in state  tax cases.

With  the Act, Congress sought  "to protect tax  collection as an

'imperative  need' of government."  Trailer Marine, 977 F.2d at 5
                                                  

(quoting  Tully v. Griffin,  Inc., 429 U.S.  68, 73 (1976)).   By
                                 

divesting  the federal  courts of jurisdiction,  Congress ensured

against  interference "with so  important a local  concern as the

collection of state taxes."   Grace Brethren Church, 457  U.S. at
                                                   

408-09 (citing Rosewell v.  LaSalle National Bank, 450  U.S. 503,
                                                 

522 (1981)).  It  was the paramount importance of  state taxation

to  state  governments  that  led Congress  to  restrict  federal

jurisdiction.

          Given this  authority, the district court  was wrong to

abstain.  The distinction  between abstention and jurisdiction is

important.   When a court lacks jurisdiction, it has no authority

to grant relief; when a court abstains, it has authority to grant

relief but does  not exercise it.  The fact  that the Act negates

jurisdiction creates  an apparent conflict with  the FDIC removal

statute, which grants jurisdiction.  

                               -6-

                               II.

          Before  directing our  attention to  this conflict,  we

must first  determine  whether  the  Act applies  in  this  case.

Specifically,  we  must address  whether  the FDIC  is  a federal

instrumentality entitled  to  an exemption  under the  Act.4   On

this issue, we agree with the district court that the FDIC cannot

escape from  the requirements of the  Act due to its  status as a

federal agency exempt from state taxation.

          Though  written in  absolute  terms, the  Act does  not

apply  to every  state tax  case.   The courts have  recognized a

significant  exception,  the  federal instrumentality  exception,

which allows the United States and its instrumentalities to bring

suits  on state tax issues in federal  court in spite of the Act.

Department of Employment v. United  States, 385 U.S. 355,  357-58
                                          

(1966).  The exception arises out of the assumption that Congress

would not have  denied the federal  government access to  federal

courts without a clear statement to that effect.  Id.
                                                     

          Courts  differ on  whether the  FDIC qualifies  for the

exception.  Compare Federal Deposit Insurance Corp. v. New  York,
                                                                

928 F.2d 56, 61 (2d Cir. 1991) (FDIC not federal instrumentality)

with Federal Deposit Insurance  Corp. v. City of New  Iberia, 921
                                                            

F.2d 610, 613  (5th Cir. 1991) (FDIC is federal instrumentality).

See generally Pima Financial  Service Corp. v. Intermountain Home
                                                                 

                    

4   The parties agree that only  state tax issues are involved in
this  case, and do not  seriously argue that  Rhode Island courts
are inadequate under the  Act.  See Keating v.  Rhode Island, 785
                                                            
F. Supp. 1094, 1097 (D. R.I. 1992).

                               -7-

Systems, Inc., 786 F. Supp. 1551 (D. Colo. 1992) (cataloging FDIC
             

federal  instrumentality   cases;   holding  FDIC   not   federal

instrumentality).

          In this circuit, we have outlined no "bright line" rule

for  whether  a  particular  agency  is  entitled  to  claim  the

exception.  Federal Reserve  Bank v. Commissioner of Corporations
                                                                 

and  Taxation, 499 F.2d 60, 64 (1st  Cir. 1974).  Rather, we have
             

instituted a flexible test in which "each instrumentality must be

examined  in light  of its  governmental role  and the  wishes of

Congress as expressed  in relevant  legislation."  Id.   We  find
                                                      

that  this  test  does  not  allow  the  FDIC  to  claim  federal

instrumentality status.

          The FDIC's  governmental role in this  case is minimal.

Rhode  Island taxed a  private bank, not  the federal government.

The  FDIC  only  became  involved  when  the  bank  was  declared

insolvent.  As such, no issues  of intergovernmental tax immunity

exist in the case.  Furthermore, if successful, the benefits from

the refund  claim will flow  principally to the  bank's creditors

and depositors, not to the federal treasury.

          The   relevant  legislation  does   not  indicate  that

Congress  intended  to  accord the  FDIC  federal instrumentality

status  for the purposes of the Act.   We note that   1819(b)(1),

titled "Status,"  only  grants the  FDIC  agency status  for  the

purposes of   1345, not for all purposes.  Section 1345, in turn,

creates "agency  jurisdiction,"  a different  statutory grant  of

jurisdiction  than the  removal statute  in  question here.   See
                                                                 

                               -8-

Federal Savings and Loan Insurance Corp. v. Ticktin, 490 U.S. 82,
                                                   

85-87  (1989) (statutory  grant  of  agency jurisdiction  treated

differently   than   grant  of   "arising   under"   and  removal

jurisdiction).    In  contrast,  the  Federal  Savings  and  Loan

Insurance  Corporation  ("FSLIC"),  the  FDIC's  predecessor, was

granted agency  status for all  purposes, including for  the Act.

12 U.S.C.   1730(k)(1)(A) (repealed 1989). 

          It is apparent that Congress knew how to make an agency

a federal instrumentality  in the present context.   We therefore

must assume  that Congress chose not  to do so with  the FDIC, as

the  pertinent language is missing from the statute.  Because the

FDIC cannot claim to  be a federal instrumentality in  this case,

the Act applies.

                               III.

          Having  determined   that  the  Act  applies   in  this

situation,   we  come   to  the   apparent  conflict   between   

1819(b)(2)(B)  and the Act.5   For the  FDIC to prove  that the  

1819(b)(2)(B) removal statute  trumps the Act, it  must show that

Congress  clearly and  manifestly intended the  statute to  be an

exception to the  Act.6   This substantial burden  arises out  of

two sources.

                    

5    As stated  previously,    1819(b)(2)(B)  allows the  FDIC to
"remove any action, suit, or proceeding," while the Act  commands
that the  district court "shall not" adjudicate state tax issues.
See supra notes 1 and 3 for the full text of these statutes. 
         

6   Alternatively  it must show  that the  Rhode Island  does not
provide a "plain, speedy and efficient remedy," as required under
  1341.  See supra note 4.
                  

                               -9-

          First, in Franchise Tax  Board v. Construction Laborers
                                                                 

Vacation Trust, 463 U.S. 1 (1983), the Supreme Court noted that a
              

statute  granting   federal  court  jurisdiction   over  Employee

Retirement Income  Security Act  ("ERISA") cases only  trumps the

Act  in  two  situations.    The  party  claiming  federal  court

jurisdiction  can show  that the  state remedy  is not  speedy or

efficient, or the  party can show  that the jurisdiction  statute

was intended to be an exception to the Act.   While the Court did

not  resolve this  issue in  the case,  id. at  20 n.21,  and its
                                           

statements were therefore dicta,  we find its approach persuasive

in light of the strong policy embodied by the Act.

          Second, the  Court's statements in  Franchise Tax Board
                                                                 

are   consistent  with   the  well-settled  canon   of  statutory

interpretation   disfavoring   the   repeal  of   a   statute  by

implication, especially  if that statute is  a long-standing one.

Andrus v. Glover Construction Co., 446 U.S. 608, 618 (1980).  The
                                 

same  principle applies to  partial repeals.   Kremer v. Chemical
                                                                 

Construction  Corp., 456  U.S.  461, 468  (1982).   As  has  been
                   

frequently stated, there are 

            two well-settled categories of repeals by
            implication  --  (1) where  provisions in
            the  two  acts   are  in   irreconcilable
            conflict . . .; and (2) if the  later act
            covers the whole  subject of the  earlier
            one   and  is   clearly  intended   as  a
            substitute . . . .  But,  in either case,
            the  intention  of  the   legislature  to
            repeal must be clear and manifest . . . .

United States v. Commonwealth  of Puerto Rico, 721 F.2d  832, 836
                                             

(1st  Cir. 1983) (citations omitted).  The FDIC, as a consequence

                               -10-

of this canon and  the Franchise Tax  Board case, must show  that
                                           

Congress  clearly   and  manifestly  intended  to   override  the

provisions of the Act by passing the FDIC removal statute.  

          We turn first to the language of the removal statute to

determine   what  Congress   intended.     The  mere   fact  that

  1819(b)(2)(B)  states that  the FDIC  may remove  "all" actions

does not in itself  demonstrate the clear and manifest  intent of

Congress to  trump the  Act.   See Moe  v. Confederated  Salish &
                                                                 

Kootenai Tribes of Flathead Reservation, 425 U.S. 463, 472 (1976)
                                       

(conflict between Indian tribe removal statute and Tax Injunction

Act).   Such language, rather, is consistent with a general grant

of jurisdiction which did not take into account the provisions of

the Act.  Id.
             

          The structure of   1819(b) does not demonstrate a clear

and  manifest intent  to override  the Act.   This lack  of clear

intent is underscored  by the contrast  between the FDIC  removal

statute, and  the removal statute applicable  to its predecessor,

the FSLIC.  The FSLIC statute began by stating "[n]otwithstanding

any other provision of law . . .," manifesting a  clear intent to

override any conflicting statutes in existence.  The FDIC statute

contains no such clause.  As  we stated above, it is obvious that

Congress knew how to  exempt the FSLIC from the operation  of the

Act when it so desired.   The absence of similar language  in the

revisited statute indicates to us that Congress did not intend to

override the Act. 

          Congress has  limited the FDIC's  jurisdiction in other

                               -11-

ways.   Agency jurisdiction,  pursuant  to    1345, is  expressly

subject  to the  provisions of  "other law."   Assuming  that the

federal instrumentality exception to the Act does not  apply, the

Act would be such  "other law" limiting the FDIC's  access to the

federal  courts.    The structure  of     1819(b)  thus does  not

demonstrate a clear and manifest intent to override the Act.

          We turn now to  the legislative history of  the removal

statute  for whatever light  it may shed  on the issue.   In this

regard, the parties  have directed us  to, and we have  found, no

reference in the relevant legislative history on how the  removal

statute affects the  operation of the Act.   Indeed, there is  no

reference  to the Act in  the extensive history  of the Financial

Institutions  Reform and  Recovery Act  ("FIRREA"), of  which the

removal statute forms a part.

          In support  of its position that  Congress intended the

removal statute as  an exception to the Act, the  FDIC directs us

to portions of  the legislative history stating that  the statute

expanded the scope of federal jurisdiction for the FDIC.  Indeed,

we  have already  acknowledged this  purpose in  another context.

Capizzi,  937 F.2d  8, 10-11  (1st Cir.  1991) (FIRREA  "expanded
       

federal jurisdiction"  beyond previous  removal provision).   The

fact  of expansion begs the  question, however, of  what, if any,

limits  on federal  jurisdiction exist.   We  must find  that the

expansion  specifically  reverses   the  prohibition  on  federal

jurisdiction mandated  by  the Act  for  the FDIC  to win.    The

absence of such concrete evidence, however, convinces us that the

                               -12-

removal statute does not trump the Act.

          Given the uncertainties we  have found in the language,

structure and  legislative history of    1819(b),  we cannot  say

that  the statute  clearly and  manifestly evinces  an  intent to

trump the  Act.  We  thus construe    1819(b) as  subject to  the

limitation on federal jurisdiction  in the Act.  As  the district

court  was correct in determining that this case belongs in state

court, we affirm.

          Affirmed.
                  

                               -13-