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Caluda v. City of New Orleans

United States District Court, E.D. Louisiana

July 19, 2019

ROBERT J. CALUDA, APLC, ET AL., Plaintiffs
v.
CITY OF NEW ORLEANS, ET AL., Defendants

         SECTION: “E” (2)

          ORDER AND REASONS

          SUSIE MORGAN, UNITED STATES DISTRICT JUDGE

         Before the Court are (1) a motion to sever and remand, filed by Defendant the City of New Orleans (“the City”), [1] and (2) a motion to remand, filed by Plaintiffs[2] Robert J. Caluda, APLC, and Robert J. Caluda and New Orleans Private Patrol Services, Inc. n/k/a Gurvich Corporation (“Plaintiffs”).[3] Defendants Linebarger, Goggan, Blair & Sampson, L.L.P. (“Linebarger”) and United Governmental Services of Louisiana, Inc. (“UGSL”) oppose.[4]

         BACKGROUND

         This case relates to ad valorem tax penalties on business personal taxes. Plaintiffs are taxpayers who paid business personal ad valorem tax penalties[5] under an ordinance first imposed by the City in 1998.[6] The ordinance imposed an initial 3% penalty on the day of delinquency (February 1) and added a 30% penalty if the tax was unpaid by April 1. If the tax remained unpaid after April 1, the City referred the debt to a collection agency.[7] In order to challenge the penalties, taxpayers were required to file payment under protest by June 1 of the year the penalties were imposed.[8] However, because of a drafting error that included no prescriptive period in the ordinance amended on April 17, 2000, the payment-under-protest requirement did not apply from April 17, 2000 through March 5, 2002.[9]

         Delinquent taxpayers filed a class action suit against the City, Linebarger, and UGSL in the Civil District Court for the Parish of Orleans on April 1, 2002.[10] That suit led to the Louisiana Supreme Court declaring unconstitutional the tax penalties the ordinance imposed.[11] The class action is still ongoing.[12] On January 18, 2019, the state trial court issued a judgment certifying a class of those who paid real estate ad valorem taxes from April 17, 2000 through March 5, 2002.[13] The class does not include Plaintiffs in this case because it is defined as those who paid real estate (immovable) ad valorem taxes and does not include those who paid business personal (movable) property taxes. On May 8, 2019, the Louisiana Court of Appeal for the Fourth Circuit denied a writ seeking review of the judgment defining the class.[14]

         On February 15, 2019, while the writ application was pending, Plaintiffs filed the instant putative class action petition against the City, Linebarger and UGSL in the Civil District Court for the Parish of Orleans.[15] As to Linebarger and UGSL, Plaintiffs bring suit pursuant to “LSA-R.S. 9:3581 et seq.” and “applicable federal statutes.”[16] Plaintiffs allege Linebarger and UGSL acted as debt collectors for the City, but did not register as debt collectors. Plaintiffs argue Linebarger and UGSL were not authorized by law to collect the tax penalties.[17] Plaintiffs claim Linebarger and UGSL “acted intentionally, knowingly and in concert in depriving plaintiffs of funds by devices and actions that the defendants knew or should have known were unethical and/or illegal, and were not valid because defendants performed little or no work to obtain those sums[].”[18] Plaintiffs' claim against the City is based on the payment-under-protest provisions, “particularly LSA-R.S. 47:2110 and 47:2134 and City Code §150-4, ” which Plaintiffs claim “are likewise unconstitutional under the Constitutions of the United States and Louisiana, including, but not limited to, those provisions applicable to due process and the taking of property.”[19] Plaintiffs seek certification of a class defined as anyone who paid business personal ad valorem tax penalties to the City during the applicable time period.[20]

         On March 19, 2019, Defendants Linebarger and UGSL removed this matter to this Court under 28 U.S.C. §§ 1441 and 1453.[21] Linebarger and UGSL invoke this Court's jurisdiction under 28 U.S.C. § 1331, which governs federal question jurisdiction, and 28 U.S.C. § 1332(d), the Class Action Fairness Act (“CAFA”).[22] Furthermore, they allege this Court has supplemental jurisdiction over Plaintiffs' state law claims against them under 28 U.S.C. § 1367(a).[23]

         On April 10, 2019, the City filed a motion to sever Plaintiff's claims against the City from Plaintiff's claims against Linebarger and UGSL and to remand to state court only the claims against the City.[24] It argues the Court does not have jurisdiction over these claims under 28 U.S.C. § 1341, the Tax Injunction Act.[25]

         On April 16, 2019, Plaintiffs filed a motion to remand the entire case to state court.[26] The motion cites several exceptions that would make CAFA inapplicable and also argues the Tax Injunction Act precludes this Court from exercising jurisdiction over the claims against the City.[27]

         On April 23, 2019, Defendants Linebarger and UGSL filed their opposition and response to the instant motions.[28] Linebarger and UGSL do not oppose the City's request to sever and remand the claims against the City, so long as the claims against them are not remanded. They argue Plaintiffs have not proved any of the CAFA exceptions apply. Linebarger and UGSL also argue the Tax Injunction Act does not require this Court to remand claims against them.

         LAW AND ANALYSIS

         Federal courts are courts of limited jurisdiction and possess only the authority conferred upon them by the United States Constitution or by Congress.[29] “Jurisdictional facts are determined at the time of removal, not by subsequent events.”[30]

         I. Under 28 U.S.C. § 1441(c), the Court must sever and remand Plaintiffs' claims against the City.

         Plaintiffs request this entire action be remanded to state court.[31] The City, Linebarger, and UGSL argue the claims against Linebarger and UGSL may remain in federal court, while the claims against the City must be remanded.[32] 28 U.S.C. § 1441(c) provides for the result requested by Linebarger and UGSL under certain circumstances.[33]Section 1441(c) provides:

(1) If a civil action includes-
(A) a claim arising under the Constitution, laws, or treaties of the United States (within the meaning of section 1331 of this title), and
(B) a claim not within the original or supplemental jurisdiction of the district court or a claim that has been made nonremovable by statute, the entire action may be removed if the action would be removable without the inclusion of the claim described in subparagraph (B).
(2) Upon removal of an action described in paragraph (1), the district court shall sever from the action all claims described in paragraph (1)(B) and shall remand the severed claims to the State court from which the action was removed. Only defendants against whom a claim described in paragraph (1)(A) has been asserted are required to join in or consent to the removal under paragraph (1).[34]

         The Court first addresses whether the instant action includes a claim arising under the Constitution, laws, or treaties of the United States under 28 U.S.C. § 1331. The Court then turns to whether the action includes a claim not within the original or supplemental jurisdiction of the district court or a claim that has been made nonremovable by statute. If both of these requirements are met, any claim that is not within the original or supplemental jurisdiction of the Court or that has been made nonremovable by statute must be remanded.

         A. Plaintiffs' claims against Linebarger and UGSL are within the Court's jurisdiction under 28 U.S.C. § 1331.

         In order for this Court to have original jurisdiction under 28 U.S.C. § 1331, a civil action must include a claim that arises under the Constitution, laws, or treaties of the United States.[35] The “well-pleaded complaint” standard determines whether a claim arises under federal law.[36] A suit arises under federal law “only when the plaintiff's statement of his own cause of action shows that it is based upon those laws or that Constitution.”[37] Courts evaluate the appropriateness of removal by looking at the complaint at the time the notice of removal is filed.[38]

         Plaintiffs bring a claim against Linebarger and UGSL seeking money Plaintiffs paid to the City, and the City subsequently paid to Linebarger and UGSL.[39] Plaintiffs argue Linebarger and UGSL were not authorized by law to engage in collection activities because they did not register as debt collectors with the state.[40] Plaintiffs bring this claim against Linebarger and UGSL under LSA-R.S. § 9:3581 et seq. and “applicable federal statutes” existing at the time.[41]

         In order to invoke federal question jurisdiction, a plaintiff need not reference the exact statute or legal theory under which he or she brings the claim.[42] Factual allegations alone may be sufficient to bring the claim within the jurisdiction of the federal courts, if facts in the complaint clearly show the Plaintiffs allege a cause of action under federal law.[43] Moreover, the federal cause of action need not be one on which the plaintiffs may recover.[44] A determination that there is no proper cause of action is a judgment on the merits that cannot be issued until jurisdiction is deemed proper.[45]

         In this case, Plaintiffs unambiguously bring a claim under “applicable federal statutes.”[46] The facts in the petition show Plaintiffs bring a claim against Linebarger and UGSL under the Fair Debt Collection Practices Act (“FDCPA”), which prohibits debt collectors from using “unfair or unconscionable means” to collect payment from debtors.[47] As a result, Plaintiffs bring a claim arising under federal law for purposes of § 1331.

         Two exceptions may lead to a dismissal for lack of jurisdiction, even if the facts show a federal cause of action has been alleged.[48] First, jurisdiction may be found improper if the claim “appears to be immaterial and made solely for the purpose of obtaining jurisdiction.”[49] This exception does not apply because Plaintiffs filed their petition in state court, did not seek to obtain federal jurisdiction, and in fact oppose federal jurisdiction over this matter.[50] Second, jurisdiction may be found improper if the claim “is wholly insubstantial and frivolous.”[51] A federal question is wholly insubstantial or frivolous “either because it is obviously without merit or because its unsoundness so clearly results from the previous decisions of the Supreme Court as to foreclose the subject.”[52] “The test for dismissal is a rigorous one and if there is any foundation of plausibility to the claim federal jurisdiction exists.”[53] The Court finds Plaintiffs' federal claim is not obviously without merit or so unsound as to deprive this Court of federal question jurisdiction. As a result, the Court finds Plaintiffs' claims against Linebarger and UGSL arises under federal law for purposes of 28 U.S.C. §§ 1331 and 1441(c)(1)(A).

         B. Because the Tax Injunction Act precludes this Court from exercising jurisdiction over the claims against the City, those claims are not within the original or supplemental jurisdiction of the district court.

         The Tax Injunction Act provides “[t]he 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.”[54] It was enacted in order to “confine federal court intervention in state government.”[55] In determining whether the Tax Injunction Act precludes federal jurisdiction, courts in the Fifth Circuit apply the following two-part analysis:

[First, the court] must decide whether the law in question imposes a tax or merely a regulatory fee. Only if the law imposes a tax does the act preclude a federal district court from exercising jurisdiction. Second, even if the law imposes a tax for purposes of the Tax Injunction Act, a district court may decline to exercise jurisdiction only if the state court is equipped to furnish the plaintiffs with a plain, speedy, and efficient remedy.[56]

         With respect to the first prong, whether the law is a tax or a fee, the Fifth Circuit has the distinction as follows:

[T]he classic tax sustains the essential flow of revenue to the government, while the classic fee is linked to some regulatory scheme. The classic tax is imposed by a state or municipal legislature, while the classic fee is imposed by an agency upon those it regulates. The classic tax is designed to provide a benefit for the entire community, while the classic fee is designed to raise money to help defray an agency's regulatory expenses.[57]

         In Washington v. Linebarger, Goggan, Blair, Pena & Sampson, LLP (“Washington I”), the plaintiffs filed a putative class action challenging the constitutionality of the 30 percent collection penalty at issue in this case.[58] The Fifth Circuit held the penalty is a tax, not a fee because the penalty was “inexorably tied to the tax collection itself, which ‘sustains the essential flow of revenue to the government.”[59] Under Washington I, the business personal ad valorem tax penalties at issue in this case are a tax, not a fee, for purposes of the Tax Injunction Act.

         Because the penalty is a tax, the Court turns to the second prong and addresses whether Louisiana courts “furnish the plaintiffs with a plain, speedy, and efficient remedy.”[60] In Washington I, the Fifth Circuit held the payment-under-protest provision at issue in the instant case is an adequate remedy available to the plaintiffs in state court.[61] As a result, the Fifth Circuit affirmed the district court's dismissal for lack of jurisdiction.[62]

         In 2008, five years after Washington I, the Louisiana Supreme Court declared the penalty violated of the Louisiana Constitution in Fransen.[63] In 2011, the Fifth Circuit decided Washington v. City of New Orleans (“Washington II”), explaining that the existence of the Fransen case confirmed the Louisiana state courts offer a plain, speedy and efficient remedy for plaintiffs challenging the tax at issue.[64] The Fifth Circuit affirmed the dismissal by the district court for lack of jurisdiction based on the Tax Injunction Act.[65]Washington I and Washington II involved the same payment-under-protest provision at issue in this case. Under those cases, this Court holds the Louisiana state courts offer a plan, speedy, and efficient remedy for Plaintiffs. As a result, under the Tax Injunction Act, the Court does not have jurisdiction over Plaintiffs' claims against the City.

         Plaintiffs argue the payment-under-protest provision of the ordinance at issue violates their due process rights and their right to be free from unconstitutional takings under the United States Constitution and the Louisiana Constitution and, as a result, this Court has federal question jurisdiction.[66] Asserting a federal constitutional violation does not overcome the jurisdictional bar created by the Tax Injunction Act, so long as the state courts offer an adequate remedy.[67] Taxpayers challenging a state tax must bring their claims in state court and seek review of claims of unconstitutionality under the United States Constitution by writ to the United States Supreme Court.[68]

         In this case, the Tax Injunction Act precludes this Court from exercising jurisdiction over claims against the City. As a result, Plaintiff's claims against the City are not within the original or supplemental jurisdiction of this Court for purposes of § 1441(c)(1)(B).[69]

         The Court has found (1) Plaintiffs' federal claim against Linebarger and UGSL arises under federal law for purposes of § 1441(c)(1)(A) and (2) Plaintiffs' claims against the City are not within the original or supplemental jurisdiction of the district court under § 1441(c)(1)(B). Because the action would be removable without the inclusion of the claims against the City, the entire action was properly removed under § 1441(c)(1).[70]Pursuant to § 1441(c)(2), the Court must sever the claims against the City and remand those claims to state court.[71] The Court retains jurisdiction over the remaining claims because Plaintiffs' federal claim against Linebarger and UGSL fall within the Court's federal question jurisdiction under § 1331, and the state law claims fall within the Court's supplemental jurisdiction because they form part of the same case or controversy.[72]

         II. CAFA vests the Court with jurisdiction over Plaintiffs' claims against Linbarger and UGSL.

         Linebarger and UGSL argue this Court has jurisdiction over the claims against them under CAFA. The Court addresses whether CAFA provides an alternative basis for jurisdiction over Plaintiffs' claims against Linebarger and UGSL.

         CAFA defines a “class action” as “any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule or judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action.”[73] Plaintiffs filed their petition in state court as a class action petition pursuant to Louisiana Code of Civil Procedure Article 591 et seq.[74] Such actions are class actions for the purposes of CAFA.[75]

         CAFA vests federal district courts with original jurisdiction over class actions in which the amount in controversy exceeds $5 million, the plaintiff class includes more than 100 members, and the class fits one of the following categories:

(A) any member of a class of plaintiffs is a citizen of a State different from any defendant;
(B) any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or
(C) any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state.

28 U.S.C. § 1332(d) includes several statutory exceptions to jurisdiction. At issue in the instant motions are the “governmental entity exclusion, ” codified at 28 U.S.C. § 1332(d)(5), the “local controversy exception, ” codified at § 1332(d)(4)(A), and the “home state exception, ” codified at § 1332(d)(4)(B).

         A. This case satisfies the requirements of 28 U.S.C. § 1332(d)(2).

         Unlike traditional diversity jurisdiction, CAFA requires only minimal diversity.[76] Under CAFA, the minimal diversity requirement is met when any plaintiff is a citizen of a state different from any defendant.[77] Plaintiffs Robert J. Caluda, APLC and New Orleans Private Patrol Service, Inc. n/k/a Gurvich Corporation are corporations that are incorporated in Louisiana and have their principal place of business in Louisiana.[78]Plaintiff Robert J. Caluda, individually, is a citizen of Louisiana.[79]

         As a political subdivision, the City is a citizen of Louisiana.[80] UGSL is a citizen of Louisiana because it is organized under the laws of Louisiana and has its principal place of business in Louisiana.[81]

         Linebarger is a limited liability partnership organized under Texas law with its principal place of business in Texas.[82] 28 U.S.C. § 1332(d)(10) provides that under CAFA, “an unincorporated association shall be deemed to be a citizen of the State where it has its principal place of business and the State under whose laws it is organized.”[83] The term “unincorporated association” has not been clearly defined either by statute or by the Fifth Circuit or Supreme Court, but the Fourth Circuit has held the term refers to “all noncorporate business entities, ”[84] including limited liability partnerships.[85] The Court finds that Linebarger is a citizen of a different state from Plaintiffs and, as a result, CAFA's minimal diversity requirement is met.

         The Court turns to the amount-in-controversy requirement. The burden is on the removing party to establish the amount-in-controversy requirement has been met.[86]Defendants may either provide summary judgment evidence of the amount in controversy, or show from plaintiffs' pleadings it is “facially apparent” CAFA's amount in controversy has been met.[87] In their state court petition, Plaintiffs seek to proceed on behalf of any person or entity who paid the business personal ad valorem tax penalty over the two-year period.[88] In their notice of removal, Linebarger and UGSL assert business personal ad valorem taxes affected thousands of businesses, and the average cost per affected taxpayer was in the hundreds or thousands of dollars.[89] It is facially apparent the amount-in-controversy requirement has been met.

         With respect to the requirement that the plaintiff class includes more than 100 member, the Notice of Removal states “far more” than 100 businesses and persons paid the business personal ad valorem tax penalties.[90] The Court finds the putative class exceeds 100 members, and the requirements of § 1332(d)(2) are met.

         B. Plaintiffs have not met their burden of showing the local controversy exception applies.

         Plaintiffs argue the Court must remand this case because the local controversy exception applies. Under the local controversy exception, a district court must decline jurisdiction if the following conditions are met:

(i) [the] class action [is one] in which-
(I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;
(II) at least 1 defendant is a defendant-
(aa) from whom significant relief is sought by members of the plaintiff class;
(bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and
(cc) who is a citizen of the State in which the action was originally filed; and
(III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed; and
(ii) during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons.[91]

         “[T]he exception is intended to be narrow, ‘with all doubts resolved in favor of exercising jurisdiction over the case.'”[92] The Fifth Circuit has held “the parties moving to remand the class action to state court must prove that the CAFA exceptions to federal jurisdiction divest the district court of subject matter jurisdiction.”[93]

         In this case, the only remaining local defendant is UGSL. Linebarger and UGSL do not allege principal injuries from the alleged conduct were incurred outside of Louisiana. They also do not assert that, during the three-year period before this suit was filed, any other class action was filed asserting similar allegations against Linebarger or UGSL. As a result, to determine whether the local controversy exception applies, the Court determines (1) whether Plaintiffs have established more than two-thirds of the proposed class is composed of Louisiana citizens, (2) whether Plaintiffs seek significant relief from UGSL, and (3) whether Plaintiffs have alleged UGSL's conduct forms a significant basis for their claims.

         The Court first determines whether it may look outside the allegations in the petition to determine whether the local controversy exception applies. The Fifth Circuit has not addressed this issue directly.[94] In Coleman v. Estes Exp. Lines, Inc., the Ninth Circuit held that a district court must narrow its inquiry to “what is alleged in the complaint rather than on what may or may not be proved by evidence.”[95] The Coleman court based its reasoning on the statutory language of the local controversy exception, particularly Congress' use of the phrases “from whom significant relief is sought” and “whose alleged conduct forms a significant basis for the claims asserted.”[96] The Coleman court also based its reasoning on CAFA's legislative history, which provides for jurisdictional fact finding “not unlike what is necessitated by the existing jurisdictional statutes, ” but cautions “jurisdictional determinations should be made largely on the basis of readily available information[, and a]llowing substantial, burdensome discovery on jurisdictional issues would be contrary to” Congress' intent in passing CAFA.[97] The Court finds persuasive the Ninth Circuit's reasoning in Coleman and holds it may consider only the allegations in Plaintiffs' state court petition in determining whether the local controversy exception applies.

         1. Plaintiffs have not met their burden of showing two-thirds of the class are citizens of Louisiana.

         For the first element of the local controversy exception, Plaintiffs must show two-thirds of the proposed plaintiffs are citizens of the state in which the action was filed.[98] In this case, the proposed plaintiff class is defined by Plaintiffs only as “all class members similarly situated” to Plaintiffs and “all persons and entities who paid the illegal penalties to the City of New Orleans and/or Linebarger and UGSL.”[99] Because the penalties cited by Plaintiffs were imposed on late payments of business personal ad valorem taxes, persons or entities with citizenship outside of Louisiana may be included as putative tax members.[100] Cases with far more “intuitive appeal” as to the citizenship of proposed plaintiffs have still faced a burden to prove citizenship of the putative class members.[101]In Phillips v. Severn Trent Envtl. Servs., Inc., the proposed class included only individuals who occupied or resided in a premise in Louisiana in May 2007, two months before the suit was filed in state court.[102] Upon removal, this Court held the plaintiff did not meet his burden of proof because he offered proof only as to the residence and not as to the citizenship of members of the proposed class.[103] In Preston v. Tenet Healthsystem Mem'l Med. Ctr., Inc., the Fifth Circuit held a submission of evidence which included only addresses of putative class members was “an incomplete picture of the citizenship determination, with no evidence of an intent held by at least two-thirds of the class members to maintain domicile in Louisiana.”[104] Ultimately, “plaintiffs must offer more than conclusory statements to prove citizenship at the relevant time period.”[105]

         As in Phillips, Plaintiffs in this case make no allegations as to the citizenship of members of the putative class.[106] In fact, the plaintiffs in Phillips and Preston both provided more detail than Plaintiffs in this case.[107] The class definition provided by the plaintiff in Phillips made clear that all class members had lived in Louisiana within two months of the suit being filed.[108] This court found even that information to be insufficient when unaccompanied by proof of citizenship.[109] Likewise, the plaintiff in Preston submitted medical records of class members that included their addresses.[110] The Fifth Circuit noted the plaintiffs must present “some modicum of evidence” regarding citizenship and held the plaintiffs failed to prove the citizenship requirement.[111] The evidence presented in Phillips and Preston was more comprehensive than the ...


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