Lawrence Gwozdz v. Healthport Technologies, LLC , 846 F.3d 738 ( 2017 )

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
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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
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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
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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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