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Union Pacific Railroad Co. v. Utah State Tax Commission

United States District Court, D. Utah, Central Division

July 17, 2019

UNION PACIFIC RAILROAD COMPANY, Plaintiff,
v.
UTAH STATE TAX COMMISSION; JOHN L. VALENTINE, Commissioner and Chair of the UTAH STATE TAX COMMISSION; and the STATE OF UTAH, Defendants,
v.
BEAVER COUNTY, BOX ELDER COUNTY, CARBON COUNTY, EMERY COUNTY, GRAND COUNTY, MILLARD COUNTY, SALT LAKE COUNTY, and TOOELE COUNTY, Intervenor Defendants.

          MEMORANDUM DECISION AND ORDER

          DALE A. KIMBALL UNITED STATES DISTRICT JUDGE

         This matter comes before the court on Plaintiff Union Pacific Railroad Company's “Motion to Dismiss Intervening Counties' Crossclaim and to Deny Intervening Counties' Request for Stay” [Docket No. 72].The court held a hearing on the motion on July 9, 2019. At the hearing, David J. Crapo represented the Plaintiff, Bridget K. Romano represented Intervening Defendant Salt Lake County, David W. Scofield and Thomas William Peters represented the other County Defendants, and Tyler R. Green, John C. McCarrey, and Michelle A. Lombardi represented the Tax Commission Defendants. Having fully and carefully considered the motion and memoranda submitted by the parties, as well as the facts and law relevant to this motion, the court enters the following Memorandum Decision and Order denying Plaintiff's Motion to Dismiss.

         BACKGROUND

         Plaintiff Union Pacific Railroad Company (“UPRR”) engages in interstate commerce as a common carrier by railroad. UPRR is duly qualified to do business in the State of Utah and owns property subject to ad valorem taxation in Utah. Defendant Utah State Tax Commission (“Commission”) is the agency of the State of Utah that assesses and enforces property taxes, Defendant John L. Valentine is a Commissioner and Chair of the Commission, and Defendant State of Utah is the government entity ultimately responsible for the assessment and enforcement of the property taxes at issue in this case (collectively “State Defendants”). Intervening Defendants (collectively “Counties”) are Salt Lake County, Beaver County, Box Elder County, Carbon County, Emery County, Grand County, Millard County, and Tooele County.

         In accordance with Utah law, the Commission determines the value of all rail transportation property by May 1st of each year. By May 1st of 2018, the Property Tax Division of the Commission issued a property tax assessment to UPRR determining that the fair market value of UPRR's taxable Utah rail transportation property was $1, 678, 511, 732 for the 2018 tax year. After a Section 306 reduction based on a sales ratio study, the resulting taxable amount was $1, 552, 959, 050. However, UPRR alleges that the true market value of its Utah rail transportation property should not be higher than approximately $885, 000, 000, and therefore its property is being assessed at a ratio of 175% its true market value, while other commercial and industrial property in Utah is assessed at a ratio of 92.52%.

         On July 27, 2018, UPRR filed a Request for Agency Action and Petition for Redetermination with the Commission to request a redetermination lowering its assessed value. Then, August 10, 2018, UPRR filed the instant action, seeking injunctive and declaratory relief for violations of 49 U.S.C. § 11501 (the “4-R Act”). Specifically, UPRR seeks a determination of the true market value of its Utah rail transportation property. In August and September of 2018, multiple counties filed separate objections and appeals with the Commission, requesting that the Commission re-determine and increase the assessed value of UPRR's taxable Utah rail transportation property. On October 26, 2018, nearly all of these counties filed motions to intervene in this federal 4-R Act proceeding. UPRR opposed the motions to intervene, but on January 2, 2019, Magistrate Judge Pead granted the Counties' motions and allowed the Counties to become intervenor defendants in this action.

         On March 14, 2019, the Counties answered UPRR's Complaint and included a Crossclaim against the Commission. The Crossclaim, asserted under Fed.R.Civ.P. 13(g) and Utah Code Ann. § 59-2-1007, identifies only the Commission as a defendant, and challenges and objects to the Commission's 2018 Appraisal for Ad Valorem Taxation of UPRR's taxable property. The Counties asserted jurisdiction under 28 U.S.C. § 1367. By its Crossclaim, the Counties assert that the Commission undervalued UPRR's Utah property in violation of Utah law (Article XIII, §§ 2 and 3 of the Utah Constitution and Utah Code Ann. § 59-2-201) and seek an order determining the Utah taxable value of UPRR's properties to be at least $2, 200, 000, 000 in accordance with Utah law. For alternative relief, the Counties request this court to stay action on Plaintiff's principle Complaint, pending resolution of the Counties' Objections and Petitions before the Commission. In response, UPRR filed the instant motion, seeking to dismiss the Intervening Counties' Crossclaim for lack of jurisdiction and to deny their request for stay.

         DISCUSSION

         UPRR brings a Motion to Dismiss Intervening Counties' Crossclaim, pursuant to Federal Rules of Civil Procedure 12(b)(1) and (2), on the grounds that the court does not have subject-matter jurisdiction over the Crossclaim nor personal jurisdiction over the Utah State Tax Commission. UPRR also requests, pursuant to the 4-R Act, that the court deny the Counties' request for a stay of the federal proceedings as alternative relief. A motion to dismiss a claim for lack of subject matter jurisdiction is grounded in Federal Rule of Civil Procedure 12(b)(1).[1] It is axiomatic that a federal court must have jurisdiction over the subject matter of the claim in order to hear a civil case. To determine if subject matter jurisdiction is authorized, the court must examine applicable federal statutes and constitutional limitations.

         In the instant case, the court must determine whether the Tax Injunction Act, 28 U.S.C. § 1341 (“TIA”) applies to the Counties' ancillary Crossclaim, because the TIA prohibits federal jurisdiction over the majority of state tax claims. If the TIA applies, the court must then determine whether the 4-R Act allows the court to exercise jurisdiction over the Crossclaim. If neither federal statute prohibits the court from hearing the Crossclaim, the court must decide whether supplemental jurisdiction over the Crossclaim is proper under 28 U.S.C. § 1367. To make this decision, the court must ascertain whether the Commission has waived (or Congress has abrogated by federal statute) sovereign immunity over the Crossclaim. Otherwise, sovereign immunity is a constitutional limitation that would prohibit the court from hearing the Crossclaim.

         For reasons discussed below, the court finds that the TIA, the 4-R Act, and sovereign immunity do not restrict the court's jurisdictional authority over the Counties' Crossclaim and that supplemental jurisdiction is proper under 28 U.S.C. § 1367. Therefore, the court concludes that jurisdiction over the Crossclaim is proper and denies UPRR's motion. Because the court denies the motion, the Counties' request to stay is moot.

         I. The Tax Injunction Act (28 U.S.C. § 1341)

         A key dispute in this case is whether the TIA bars the court from exercising jurisdiction over the Counties' Crossclaim. The TIA mandates 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 TIA was enacted to limit federal court jurisdiction over state tax cases and to bar jurisdiction when federal court action would reduce state tax revenue, so that state taxpayers could not seek federal-court orders to avoid paying state taxes. See Hibbs v. Winn, 542 U.S. 88, 104-07 (2004); Burns v. Conley, 526 F.Supp.2d 235, 240-41 (D.R.I. 2007).

         UPRR argues that the TIA and supporting case law prohibit federal courts from exercising supplemental jurisdiction over state tax law claims in 4-R Act cases. UPRR asserts that the TIA bars the application of supplemental jurisdiction (including ancillary jurisdiction) under 28 U.S.C. § 1367, and that the Counties did not allege any independent jurisdiction that might abrogate the TIA's jurisdictional bar of the Crossclaim in this court. However, the Counties argue that the TIA does not bar supplemental jurisdiction over their Crossclaim because the Crossclaim falls under an exception to the TIA that allows for federal court jurisdiction over state tax claims where there is no sufficient, alternative state court remedy. The Counties assert that this exception applies because UPRR's 4-R Act filing in this court had the immediate effect of staying, and thus precluding, the Commission from considering the Counties' Objections and Cross-Petitions that the Commission undervalued UPRR's taxable property, thereby leaving the Counties with no effective state court remedy. The Counties also argue that the TIA does not ...


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