Bank of New England v. Clark ( 1993 )

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,
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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.
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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.
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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.
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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).
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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
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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.
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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
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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
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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
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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.
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