Court Opinion

ID: 6500391
Source: CourtListenerOpinion
Date Created: 2022-07-15 17:00:25.30043+00
Date Added: 2024-06-11T09:19:46.097371
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                  __________

                                       No. 21-2501
                                       __________

                   CHRISTOPHER LISOWSKI, on behalf of himself
                         and all others similarly situated,
                                      Appellant

                                             v.

                              WALMART STORES, INC.,
                                  __________

                     On Appeal from the United States District Court
                        for the Western District of Pennsylvania
                              (D.C. No. 2:20-cv-01729-NR)
                      District Judge: Honorable Nicholas J. Ranjan
                                       __________

                                 Submitted May 2, 2022

          Before: GREENAWAY, JR., PORTER, and PHIPPS, Circuit Judges

                              (Opinion Filed: July 15, 2022)
                                    ______________

                                        OPINION
                                     ______________


 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
PORTER, Circuit Judge.

       Christopher Lisowski purchased two 6-packs of 5‑Hour Energy on separate

occasions. Walmart charged him a 7% state and local sales tax of $1.88. Aggrieved by

the monetary loss of approximately two dollars, Lisowski filed a putative class action in

state court, alleging that 5‑Hour Energy drinks are “dietary supplements” exempt from

sales tax under Pennsylvania law. His claims for conversion, constructive trust, and

deceptive trade practices all stem from his belief that Walmart knowingly took this

charge to profit from the commission it receives for collecting sales tax. Walmart

removed the suit under the Class Action Fairness Act because the alleged damages

totaled more than $5 million.

       Lisowski filed a motion to remand, arguing that the Tax Injunction Act (“TIA”)

and principles of comity required remand. The District Court determined that the TIA did

not preclude jurisdiction because Lisowski, “if successful, would receive damages from a

private-party defendant.” Lisowski v. Walmart Stores, Inc., No. 2:20-CV-1729-NR, 2021

WL 62627, at *2 (W.D. Pa. Jan. 7, 2021). The District Court then dismissed the

complaint for failure to state a claim under Rule 12(b)(6). Lisowski appeals from the

denial of remand and the dismissal of the complaint. We will affirm.

                                             I

       “Because a motion to remand shares an essentially identical procedural posture

with a challenge to subject matter jurisdiction under Federal Rule of Civil Procedure

12(b)(1), it is properly evaluated using the same analytical approach.” Papp v. Fore-Kast

Sales Co., 842 F.3d 805, 811 (3d Cir. 2016) (citing Leite v. Crane Co., 749 F.3d 1117,

                                            2
1121 (9th Cir. 2014)). Thus, we review de novo whether the District Court had subject

matter jurisdiction. Id. “A challenge to subject matter jurisdiction under Rule 12(b)(1)

may be either a facial or a factual attack.” Davis v. Wells Fargo, 824 F.3d 333, 346 (3d

Cir. 2016). A facial attack “challenges subject matter jurisdiction without disputing the

facts alleged in the [notice of removal], and it requires the court to consider the

allegations . . . as true.” Papp, 842 F.3d at 811 (alteration in original) (quoting Davis, 824

F.3d at 346).

       The Tax Injunction Act states that “district 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.

The prototypical Tax Injunction Act case concerns charges that must be characterized as

either a fee or a tax. See, e.g., Texas Ent. Ass’n v. Hegar, 10 F.4th 495, 505 (5th Cir.

2021). Alternatively, they involve charges that are clearly taxes whose validity is being

challenged. See, e.g., Sipe v. Amerada Hess Corp., 689 F.2d 396, 404 (3d Cir. 1982) (TIA

is implicated when the court must determine “the validity of the state tax system”). But

here, the issue is whether the $1.88 charged by Walmart is a tax at all. Our jurisdiction

turns on that issue. If 5-Hour Energy is taxable, then Walmart’s charge is unambiguously

a tax, and we lack jurisdiction to enjoin its collection. If it is not taxable, then Walmart’s

charge is merely a fraudulent charge that it labeled as a tax, and we do have jurisdiction.

Lisowski argues that reaching the merits of whether an item is taxable or not falls under

the scope of the Tax Injunction Act or, alternatively, is barred by the principles of comity

due to its potential to interfere with the state tax system.

                                               3
       But Lisowski’s arguments cut against his own complaint. The complaint alleges

that the $1.88 is merely an improper charge that has been fraudulently labeled as a tax.

See Appellant Br. 4–5 (“Walmart charged (and continues to charge) a higher purchase

price for dietary supplements than authorized, under the guise of collecting a lawful

tax.”); see also Lisowski, 2021 WL 62627, at *2 (noting that the “complaint assumes that

no tax is owed to begin with”). Nonetheless, Lisowski claims that his suit must be

remanded under the Tax Injunction Act because enjoining the collection of this charge

would prevent money from reaching Pennsylvania’s coffers. But assuming Lisowski’s

allegations are true, Pennsylvania has no interest in collecting that money at all. See

Freed v. Thomas, 976 F.3d 729, 735 (6th Cir. 2020) (TIA did not apply when the

government did not “have any property right or interest in the excess sale proceeds”).

And if Pennsylvania has determined that 5-Hour Energy is not taxable, Walmart does not

have the power to impose a tax, even if it labels it so on its receipts.

       Undeterred by the limitations of his own complaint, Lisowski argues that if

Walmart denies the allegations against it, then the court will be required to “wade into the

tax regulation waters,” but that if Walmart admits it violated Pennsylvania tax law, then

an injunction would be appropriate. Appellant Br. 18 n.6. Lisowski’s argument requires

that Walmart’s charge is a tax when convenient, and not a tax when inconvenient.

Compare App. 50 (requesting decree enjoining Walmart “from the further improper

collection of sales tax”), with Appellant Br. 4. (“Walmart charged . . . a higher purchase

price . . . under the guise of collecting a lawful tax” (emphasis added)).

                                               4
       We reject Lisowski’s “heads I win-tails you lose” argument. Walmart need not

admit it violated Pennsylvania tax law, nor was the District Court required to determine if

5-Hour Energy was taxable. Instead, the District Court merely held that the facts alleged

in the notice of removal did not implicate the Tax Injunction Act.1 Lisowski’s claims rest

solely on Walmart’s allegedly improper collection of a charge that it was not authorized

to take. And the mere potential for Walmart to eventually raise a tax-based defense did

not strip the District Court of jurisdiction. Cf. Krashna v. Oliver Realty, Inc., 895 F.2d

111, 113 (3d Cir. 1990) (actions not removable based on anticipated federal defenses);

App. 196 (“It’s true that one of our potential defenses down the line, among many, is that

these charges were statutorily authorized . . . .”). Because Lisowski merely seeks to

enjoin Walmart from charging an excess purchase price, we will affirm the District

Court’s denial of remand based on the TIA.2

       Alternatively, Lisowski argues that principles of comity require a remand. It is

well established that federal courts have a “virtually unflagging obligation . . . to exercise

the jurisdiction given them.” Colo. River Water Conservation Dist. v. United States, 424

1
  The District Court also held that the TIA is limited to suits challenging a taxpayer’s own
underlying tax liability and is thus inapplicable to suits between private parties. While we
do not reach this issue, we note that other circuits have applied the TIA to private suits.
See, e.g., Fredrickson v. Starbucks Corp., 840 F.3d 1119, 1122–23 (9th Cir. 2016) (TIA
barred relief against Starbucks’ withholding of state income tax); Gwozdz v. HealthPort
Techs., LLC, 846 F.3d 738, 744 (4th Cir. 2017).
2
  In reaching this conclusion, we recognize the Fourth Circuit’s contrary opinion in
Gwozdz, 846 F.3d at 744 (TIA barred taxpayers’ attempt to “repackage an allegedly
unlawful sales tax collection into a faux consumer protection suit”). There, plaintiffs sued
a private party for the collection of $23 on an allegedly untaxable item. Id. at 740. But we
do not view this case as “artful pleading.” Rather, we accept as true the allegations of the
complaint to determine whether the Tax Injunction Act applies.
                                              5
U.S. 800, 817 (1976). Thus, “[a]bstention from the exercise of federal jurisdiction is the

exception, not the rule.” Id. at 813. Comity is a discretionary doctrine, so we review the

District Court’s denial of remand for abuse of discretion. See Remington Rand Corp.-Del.

v. Bus. Sys. Inc., 830 F.2d 1260, 1266 (3d Cir. 1987).

       “The comity principle is commonly applied where a plaintiff seeks a remedy that

is not literally included in the text of the TIA, which by its terms is limited to

injunctions.” Am. Trucking Ass’ns v. Alviti, 944 F.3d 45, 57 (1st Cir. 2019). In other

words, the TIA “prevents federal courts from giving injunctive relief, [whereas] . . . it is

the principle of comity that prevents a taxpayer from seeking damages.” Dorce v. City of

New York, 2 F.4th 82, 97 (2d Cir. 2021) (alterations in original) (quoting Long Island

Lighting Co. v. Town of Brookhaven, 889 F.2d 428, 431 (2d Cir. 1989)). Here, we have

already established that the TIA does not apply to Lisowski’s claims for injunctive relief,

so it makes little sense to apply comity to his claims for damages.3

       Lisowski is correct, however, that the District Court could someday be faced with

the issue of deciding whether 5-Hour Energy is taxable, thus risking the possibility of

enjoining a tax. And courts should be hesitant when “entertaining claims for relief that

risk disrupting state tax administration.” Levin, 560 U.S. at 417. But the District Court

has ample tools to manage this case without abstaining from the outset. See Jefferson

3
  The Supreme Court has given several factors to consider when deciding whether to
refrain from deciding a case based upon comity. See Levin v. Com. Energy, Inc., 560 U.S.
413, 421 (2010). As the District Court noted, the comity factors are ill-fitting here.
Lisowski does not raise an “alleged constitutional defect” or otherwise challenge the
validity of Pennsylvania’s tax system. Lisowski v. Walmart Stores, Inc., 2021 WL 62627,
at *3 & n.1 (W.D. Pa. Jan. 7., 2021).
                                               6
Cnty. v. Acker, 527 U.S. 423, 435 n.5 (1999) (citing Burford v. Sun Oil Co., 319 U.S.

315, 332–34 (1943) (federal abstention where state agency action is involved);

Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 719–21 (1996) (in a case seeking

damages, a federal court may not abstain, but can stay the action pending resolution of

the state-law issue)). And given the ultimate dismissal of this case without reference to

the taxable status of 5-Hour Energy, “there is nothing unique, complex, or particularly

tax-centric about this case.” Lisowski, 2021 WL 62627, at *3. The District Court did not

abuse its discretion in determining that the mere potential for a tax-based defense to arise

in the future did not warrant setting aside its “virtually unflagging obligation” to hear

cases before it. Colo. River Water Conservation Dist., 424 U.S. at 817. So we will affirm

the District Court’s denial of remand.

                                              II

       Lisowski raised common law claims and a statutory claim under the Pennsylvania

Unfair Trade Practice and Consumer Protection Law (“UTPCPL”). After denying

Lisowski’s motion to remand, the District Court dismissed all other claims under Rule

12(b)(6). We will affirm.

       The District Court dismissed Lisowski’s UTPCPL claim because Walmart was not

conducting “trade or commerce” when collecting sales tax on behalf of Pennsylvania. 73

Pa. Stat. § 201‑3. According to the District Court, the statute aims at the “particular evils

of deception and unfairness in the commercial sphere.” Lisowski v. Walmart Stores, Inc.,

552 F. Supp. 3d 519, 524 (W.D. Pa. 2021). Thus, the statute does not apply when

Walmart collects sales tax where “state law requires [it] to do so.” Id. at 526 (citing

                                              7
McLean v. Big Lots, 542 F. Supp. 3d 343, 349–51 (W.D. Pa. 2021)). But the District

Court’s reasoning assumes that Walmart is a bona fide collector of sales tax. And as

discussed above, the complaint alleges that the $1.88 charge is not a sales tax.

       We nonetheless affirm, albeit on different grounds. See Hassen v. Gov’t of Virgin

Islands, 861 F.3d 108, 114 (3d Cir. 2017) (“[W]e may affirm on any grounds supported

by the record.”). Because Lisowski failed to establish justifiable reliance to support his

statutory claim, the District Court properly dismissed his UTPCPL claim. The UTPCPL

prohibits “deceptive conduct which creates a likelihood of confusion or of

misunderstanding.” 73 Pa. Stat. § 201‑2(4)(xxi). To state a claim, Lisowski must allege

that he justifiably relied on an unlawful practice. See Gregg v. Ameriprise Fin., Inc., 245

A.3d 637, 650 (Pa. 2021). Our precedent unambiguously recognizes that this is the rule

under Pennsylvania law. Hunt v. United States Tobacco Co., 538 F.3d 217, 224 (3d Cir.

2008) (“Given the Pennsylvania Supreme Court’s unequivocal holdings, . . . it is perhaps

unsurprising that our Court has already interpreted the justifiable-reliance standing

requirement to apply to all substantive subsections of the [UTPCPL], fraud-based or

not.”). Thus, a plaintiff “must allege reliance, that he purchased [an item] because he

heard and believed [defendant’s] false advertising.” Weinberg v. Sun Co., 777 A.2d 442,

446 (Pa. 2001); see also Yocca v. Pittsburgh Steelers Sports, Inc., 854 A.2d 425, 438 (Pa.

2004) (“To bring a private cause of action under the UTPCPL, a plaintiff must show that

he justifiably relied on the defendant’s wrongful conduct or representation and that he

suffered harm as a result of that reliance.” (citations omitted)).

                                              8
       But Lisowski has failed to allege reliance, or any facts supporting justifiable

reliance, in his complaint. App. 42–54. There is no indication that Lisowski purchased

the 5‑Hour Energy under the assumption that it was tax free. And there is no indication

that Walmart’s conduct or representations would lead a reasonable consumer to assume

that 5‑Hour Energy was tax free. In fact, Lisowski’s allegations show that he was charged

a sales tax of $.94 for his first purchase of 5-Hour Energy and that he nonetheless

purchased another 5‑Hour Energy, tax notwithstanding. So, we will affirm the dismissal

of Lisowski’s UTPCPL claim for failure to allege justifiable reliance.

       Lisowski has three remaining common law claims: (1) conversion; (2) unjust

enrichment; and (3) breach of constructive trust. The District Court properly dismissed

these claims because Lisowski has an exclusive statutory remedy under the Tax Reform

Code. See White v. Conestoga Title Ins. Co., 53 A.3d 720, 731 (Pa. 2012) (noting that one

of “Pennsylvania’s oldest legal principles” is that a statutory remedy bars common law

claims); see also 1 Pa. Stat. and Cons. Stat. § 1504 (codifying the principle that statutory

remedies displace common law). “[I]f the legislature provides a specific, [e]xclusive,

constitutionally adequate method for the disposition of a particular kind of dispute, no

action may be brought . . . to adjudicate the dispute by any kind of ‘common law’ form of

action other than the exclusive statutory method.” Lilian v. Commonwealth., 354 A.2d

250, 253 (Pa. 1976). As the District Court noted, the Tax Reform Act provides a refund

remedy for the improper collection of a charge under the guise of a sales tax. See 72 Pa.

Stat. § 7252 (requiring Department of Revenue to “refund all taxes, interest and penalties

paid to the Commonwealth under the provisions of this article and to which the

                                              9
Commonwealth is not rightfully entitled.”). This remedy is available to any “taxpayer

who has actually paid tax . . . to the Commonwealth or to an agent or licensee of the

Commonwealth authorized to collect taxes.” 72 Pa. Stat. § 10003.1 (emphasis added).

        Rather than launch a putative class action, Lisowski could have sought a simple

refund from the Pennsylvania Department of Revenue. In fact, Lisowski alleged that

another purchaser of 5-Hour Energy petitioned for a refund and was compensated $4.51.

That refund would fully compensate him for any alleged harm and would thus be

constitutionally adequate. So, Lisowski’s common law claims are barred by the existence

of a statutory refund mechanism that is available to him.

                                              III

        Lisowski contends that the District Court erred in dismissing his complaint with

prejudice. But Lisowski “did not ask the District Court for leave to amend [his]

complaint, . . . [so he] can hardly fault the Court for not granting relief [he] never

requested.” Fletcher-Harlee Corp. v. Pote Concrete Contractors, Inc., 482 F.3d 247, 253

(3d Cir. 2007). And we have noted that district courts do not have a duty to “sua sponte

grant leave to amend before dismissing a complaint for failure to state a claim.” Id. at

252.4

                                       *      *       *

4
 Lisowski cites Phillips v. Cnty. of Allegheny for the proposition that “a district court
must permit a curative amendment” even when a plaintiff does not seek leave to amend.
515 F.3d 224, 236 (3d Cir. 2008). We have limited this proposition to civil rights cases,
so it does not apply here. See Fletcher-Harlee Corp. v. Pote Concrete Contractors, Inc.,
482 F.3d 247, 252 (3d Cir. 2007) (“We have rarely applied the sua sponte amendment
rule outside of the context of a civil rights case, and we will not do so here.”).
                                              10
      For these reasons, we will affirm the District Court’s denial of remand and

dismissal of the complaint with prejudice under Rule 12(b)(6).

                                           11