Court Opinion

ID: 4118006
Source: CourtListenerOpinion
Date Created: 2017-01-24 20:00:55.657865+00
Date Added: 2024-06-11T07:45:49.172001
License: Public Domain

PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 15-2586

LAWRENCE GWOZDZ, Individually and on behalf of Donna Gwozdz
and all others similarly situated,

                Plaintiff - Appellant,

           v.

HEALTHPORT TECHNOLOGIES, LLC,

                Defendant - Appellee.

Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Roger W. Titus, Senior District Judge.
(8:15-cv-02251-RWT)

Argued:   December 9, 2016                Decided:   January 24, 2017

Before WILKINSON, NIEMEYER, and DIAZ, Circuit Judges.

Vacated and remanded with instructions by published opinion.
Judge Wilkinson wrote the opinion, in which Judge Niemeyer and
Judge Diaz joined.

ARGUED:   Jonathan   Barry   Nace,   ANTONOPLOS   &    ASSOCIATES,
Washington, D.C., for Appellant. Alec Winfield Farr, BRYAN CAVE
LLP, Washington, D.C., for Appellee.    ON BRIEF: Barry J. Nace,
PAULSON & NACE, PLLC, Washington, D.C., for Appellant.
WILKINSON, Circuit Judge:

     Lawrence Gwozdz challenges HealthPort’s collection of $23

in sales tax on the sale of medical records. Under the Tax

Injunction Act (TIA), federal courts may 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. Here, Maryland

has established just such a remedy. Because the TIA and the

related principle of federal-state comity operate to deprive us

of jurisdiction, we vacate the judgment of dismissal and remand

to the district court with instructions to return the action to

state court. See Lawyer v. Hilton Head Pub. Serv. Dist. No. 1,

220 F.3d 298, 306 (4th Cir. 2000) (remanding removed portion of

consolidated case to state court due to jurisdictional bar of

TIA).

                                      I.

     Gwozdz     requested   his     wife’s   medical    records    from     two

Maryland     hospitals,   which   forwarded    his     inquiries   to     their

contractor, HealthPort Technologies, LLC. Before releasing the

documents,     HealthPort    sent     Gwozdz    two     itemized    invoices

demanding that he pay a total of $23 in sales tax, along with

other fees. Gwozdz protested, insisting that Maryland exempted

the sale of medical records from its general sales tax and that

the $23 charge was therefore unlawful. HealthPort defended the

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tax and refused to send the records unless Gwozdz pre-paid in

full. Despite his misgivings, he did so.

      Next,     Gwozdz      filed     a     class        action     complaint      against

HealthPort      in    Maryland        state      court       seeking        damages      and

injunctive relief. HealthPort removed the case under the Class

Action Fairness Act. Instead of requesting a refund, the typical

relief      sought    for     an     improperly      paid         tax,    the    operative

complaint asserts several statutory consumer protection claims

and a hodgepodge of common law claims including fraud, negligent

misrepresentation, and unjust enrichment.

      HealthPort moved to dismiss under Fed. R. Civ. P. 12(b)(6).

It   argued    that    Maryland       created       an    exclusive       administrative

procedure for settling tax disputes. Gwozdz responded that the

administrative        remedy       was      inapplicable           because       the    case

concerned an unlawful billing practice, not an improper tax.

Gwozdz sought to have the district court resolve his claims on

the merits.

      The     district      court,    ruling     from      the     bench,       sided   with

HealthPort     and    dismissed       the    complaint       in     its   entirety.      The

court concluded that “the exclusive remedy for the recovery of

taxes on the sale of medical records that are alleged to have

been improper is to seek a refund from the comptroller under the

procedures established by Maryland law.” J.A. 221.

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                                              II.

                                               A.

       It         is   important      at   the       outset       to    review        Maryland’s

administrative refund procedure inasmuch as the TIA’s operation

depends upon the state’s establishment of an appropriate remedy

for a taxpayer to pursue. The Maryland legislature established

“a     comprehensive        remedial         scheme     for       the    refund       of   taxes

erroneously paid.” White v. Prince George’s Cty., 387 A.2d 260,

264 (Md. 1978). A taxpayer begins by requesting reimbursement

from the Comptroller: the Maryland Tax Code provides that one

who “pays to the State a tax, fee, charge, interest, or penalty

that        is     erroneously,       illegally,       or     wrongfully         assessed       or

collected in any manner” may file a claim with the Comptroller

for a refund. Md. Code Ann., Tax-Gen. § 13-901(a)(2); see also

id.     §        13-508(a)(2).     The     taxpayer         may    request       an    informal

hearing, id. § 13-904(a)(2), and may appeal the Comptroller’s

final       determination        to    the    Maryland        Tax       Court,    id.      §   13-

510(a)(2). Any dissatisfied party may appeal the Tax Court’s

decision to the Maryland circuit court. Id. § 13-532(a)(2). This

administrative remedy encompasses “every type of tax, fee, or

charge improperly collected by a Maryland governmental entity.”

Brutus 630, LLC v. Town of Bel Air, 139 A.3d 957, 967 (Md. 2016)

(emphasis omitted) (quoting Bowman v. Goad, 703 A.2d 144, 146

(Md. 1997)).

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      Maryland courts have uniformly held that the administrative

remedy is a taxpayer’s sole route to relief. “[W]here there is

statutory authorization for a refund and a special statutory

remedy   set    forth,”      the   Maryland     Court     of   Appeals    explained,

“that remedy is exclusive.” Apostol v. Anne Arundel Cty., 421

A.2d 582, 585 (Md. 1980); see Halle Dev., Inc. v. Anne Arundel

Cty., 808 A.2d 1280, 1290 (Md. 2002). Beyond the administrative

scheme, “no action lies to challenge the validity of a tax paid

under a mistake of law . . . regardless of the nature of the

legal attack mounted.” Apostol, 421 A.2d at 585.

      The Maryland Court of Appeals applied this rule in Bowman

v. Goad, a case with facts similar to those alleged here. The

plaintiff      in   Bowman    brought    a    putative     class   action    against

county sheriffs to recover erroneously charged fees. Bowman, 703

A.2d at 144. If the sheriffs had indeed “unlawfully collected

fees from the plaintiff Bowman and the other members of the

putative class, each one had an administrative remedy [and] that

administrative remedy is exclusive.” Id. at 146.

      Gwozdz does not contend in any non-conclusory manner that

the remedial scheme described above was in any way defective.

The   fact     that   his    initial    remedy      is    an   administrative      one

(followed    by     judicial   review)       does   not   place    it    outside   the

TIA’s purview. Nor does the provision of initial administrative

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exclusivity remove the state’s collection procedures from the

protection of the Act.

                                        B.

      Gwozdz counters with a sleight of hand, arguing that he is

not   a   taxpayer   disputing     an        improper    tax   but    a     consumer

challenging an unlawful billing practice. But artful pleading

cannot    remove   this   case   from    the     broad   reach   of       Maryland’s

administrative remedy.

      First, Gwozdz surmises that buyers like him are ineligible

for an administrative refund because vendors such as HealthPort

are the real taxpayers under the Maryland Tax Code. To reach

this interpretation, Gwozdz has to select some code provisions

and ignore others because the code’s plain language debunks his

theory. The Tax Code unmistakably states that the buyer “shall

pay the sales and use tax to the vendor” and the vendor “shall

collect the . . . tax from the buyer.” Md. Code Ann., Tax-Gen. §

11-403. In collecting the sales tax, a vendor “is a trustee for

the State and is liable for the collection of the sales . . .

tax for and on account of the State.” Id. § 11-401(a). Under

this scheme, then, suits against vendors have the same potential

of disrupting state tax collection efforts as suits against the

state itself. Although a vendor may “assume or absorb” the tax

and pay on the buyer’s behalf, id. § 11-402, HealthPort declined

to do so, identifying the charges as sales tax on its invoices.

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Gwozdz paid the tax to Maryland (via HealthPort) and could have

taken    advantage     of    Maryland’s        administrative    remedy   if     he

thought the tax improper.

     Second,    Gwozdz      contends     that     the   administrative       refund

scheme   does   not   preclude     common      law   and   statutory   causes   of

action that are external to the Tax Code, such as his claims

against HealthPort for fraud and consumer protection violations.

We reject, however, Gwozdz’s attempt to characterize this action

as anything but a tax case. In his view, the “gravamen” of the

complaint   “is      not    that   he    paid     unlawful    taxes,   but     that

Health[P]ort has engaged in an unlawful billing practice.” Br.

of Appellant at 18. But each of his assorted claims turns on

whether HealthPort’s collection of the tax was improper under

the Maryland Tax Code. It is perfectly plain that Gwozdz seeks

relief for paying a tax that he believes was improper. *

                                        III.

     As noted, the Tax Injunction Act removes the jurisdiction

of federal courts over any action that would “enjoin, suspend or

     *  Gwozdz brings claims under the Maryland Consumer
Protection Act, the Maryland Consumer Debt Collection Act, and
the Fair Debt Collection Practices Act as well as claims for
fraud, constructive fraud, negligent misrepresentation, unjust
enrichment, and conversion. As the district court recognized,
none of the assortment of claims in the amended complaint
changes the nature of this lawsuit. It has been, and remains, a
suit against a vendor for wrongly assessing a sales tax on
behalf of a state government.

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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. Like its federal

counterpart,        the     Anti-Injunction           Act,    the       TIA     ensures       that

states are able to “assess and collect taxes as expeditiously as

possible       with         a     minimum           of      preenforcement              judicial

interference.”        Bob       Jones    Univ.      v.    Simon,     416       U.S.    725,    736

(1974). While Gwozdz purports to raise a federal claim under the

Fair Debt Collection Practices Act, the TIA makes no distinction

between federal and state law claims that serve to disrupt the

state’s tax collection efforts.

      In Hibbs v. Winn, 542 U.S. 88 (2004), the Supreme Court

entertained a challenge to the constitutionality of a tax credit

for      donations        to      non-profit             organizations           that        award

scholarships for private schools. The Court held that the TIA

did     not   bar    constitutional             challenges      to      the      tax    credits

authorized by state law. Id. at 93. The Court noted that it had

heard     such      cases        “without       conceiving         of      §     1341     as     a

jurisdictional        barrier.”          Id.     Hibbs,      then,       stands        for     the

proposition      that     not     every     constitutional          claim       bearing       even

indirectly on the subject of state taxes is jurisdictionally

barred.

      Hibbs, however, stopped well short of stripping the TIA of

all     jurisdictional          force.     In       fact,    Hibbs      itself         expressly

                                                8
deploys jurisdictional language. It recognizes that the TIA “was

designed expressly to restrict the jurisdiction of the district

courts    of      the     United        States         over      suits     relating          to     the

collection of State taxes.” Id. at 104 (internal quotation marks

omitted); see also id. at 107 (“We have read harmoniously the §

1341    instruction         conditioning            the       jurisdictional          bar    on    the

availability of ‘a plain, speedy and efficient remedy’ in state

court.”).      The    Hibbs       opinion      as      a    whole      underscores          that    the

purpose of the TIA was to “‘limit drastically’ federal-court

interference with ‘the collection of [state] taxes.’” Id. at 105

(quoting California v. Grace Brethren Church, 457 U.S. 393, 408–

09     (1982)).      Such     interference               is     exactly        what    this        suit

portends.      Gwozdz’s           allegation           that      the     tax     was    collected

improperly is the foundation for all of his claims.

       Whereas       Hibbs    was      willing         to     entertain    an     Establishment

Clause    challenge          to    a     tax       credit       allegedly        supporting         or

favoring parochial schools, the gravamen of this suit is far

different. Gwozdz’s direct challenge to an actual tax collection

is both far away from the subject matter of Hibbs and much

closer to the heart of state collection activities. (In fact,

invalidation         of      the       tax     credit           at     issue     in     Hibbs        on

constitutional          grounds        would       only     have     augmented        the    state’s

coffers. See id. at 106.) Because Congress enacted the TIA “to

stop    taxpayers,        with     the       aid    of      a   federal    injunction,             from

                                                   9
withholding     large    sums,     thereby        disrupting     state   government

finances,” id. at 104, the TIA plainly bars Gwozdz’s claims for

equitable relief.

     Gwozdz    included     claims       for      damages   in   addition    to    his

claims for equitable relief. The TIA applies by its terms to

suits to “enjoin” or “restrain” state tax collection efforts,

thereby speaking directly to equitable remedies. That does not

mean, however, that the text and purposes of the TIA suddenly

become null and void where a taxpayer’s claim for damages is

advanced. For as we have noted, the Act sounds the sharpest kind

of warning to a federal court that would interfere with the

sovereign     interest    of     the    states      in   their    own    systems   of

taxation. A claim for damages against vendors in the performance

of their tax collection duties has precisely the same potential

as a claim for equitable relief to disrupt a state’s entire

system of revenue collection.

     While the Supreme Court has not addressed whether the TIA

forbids damages claims, it has applied a principle of comity to

bar a Section 1983 action by landowners against state and local

officials   seeking      damages       for    the   allegedly     unconstitutional

administration of a state tax system. See Fair Assessment in

Real Estate Ass'n, Inc. v. McNary, 454 U.S. 100, 113 (1981)

(noting that damages actions “would be fully as intrusive as

. . . equitable actions”). The Court has since reaffirmed that

                                             10
the comity principle is “more embracive than the TIA.” Levin v.

Commerce Energy, Inc., 560 U.S. 413, 424 (2010).

       Moreover,     the    Ninth     Circuit      recently       concluded      that     a

federal    district     court    lacked      the   power    to    award    damages      or

injunctive relief for payroll taxes that were allegedly withheld

unlawfully: “Any award of statutory damages here would have the

same disruptive effect as entry of a declaratory judgment or

issuance    of     an   injunction,         thereby      undermining       the    state-

revenue-protective         objectives        of    the     Tax    Injunction          Act.”

Fredrickson v. Starbucks Corp., 840 F.3d 1119, 1124 (9th Cir.

2016). Indeed, if comity is to mean anything, it would seemingly

restrain    the    prospect     of    federal      court    orders     disrupting        a

state’s efforts to collect its life blood of revenue pursuant to

the state’s own law. Hence, this basic principle of comity bars

Gwozdz’s damages claims.

                                            IV.

       It is no secret that “taxpayers may strive to dispute their

tax liability, either armed with valid challenges or equipped

with     unfounded      ones,   beyond       the    avenues       provided       by    the

legislature.” Comptroller of the Treasury v. Zorzit, 108 A.3d

581, 595 (Md. Ct. Spec. App. 2015). But if taxpayers could “seek

relief    collateral       to   the    detailed       administrative        procedures

governing    tax     assessment       and    collection      at    their    will,      tax

litigation would be rampant, thereby vitiating the intent of the

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legislature.”       Id.     at   596.    And    if   Gwozdz    prevailed    here,

aggrieved taxpayers could repackage an allegedly unlawful sales

tax collection into a faux consumer protection suit and embroil

vendors    of   every      description     in   litigation,     thus   punishing

sellers for fulfilling their obligations to collect sales taxes

under     Maryland        law.   This    is     precisely     what     Maryland’s

administrative remedy was designed to prevent. While we believe

based upon our reading of Maryland law that a remand to the

administrative process lies in the offing for Mr. Gwozdz, that

clearly    is   a    decision      for    the    Maryland     courts   to   make.

Accordingly, we vacate the district court’s judgment and remand

with instructions to remand the action to state court.

                                   VACATED AND REMANDED WITH INSTRUCTIONS

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