Coors Brewing Company v. Mendez-Torres ( 2012 )

United States Court of Appeals
For the First Circuit
No. 11-1559
COORS BREWING COMPANY,
Plaintiff, Appellant,
v.
JUAN CARLOS MÉNDEZ-TORRES, Secretary of the Treasury
Department of the Commonwealth of Puerto Rico,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Daniel R. Domínguez, U.S. District Judge]
Before
Lynch, Chief Judge,
Torruella and Lipez, Circuit Judges.
Helgi C. Walker, with whom William S. Consovoy, Claire J.
Evans, Brett A. Shumate, Wiley Rein LLP, Pedro Jiménez, and Adsuar
Muñiz Goyco Seda & Pérez-Ochoa, P.S.C. were on brief, for
appellant.
Susana I. Peñagarícano-Brown, Assistant Solicitor
General, with whom Irene S. Soroeta-Kodesh, Solicitor General,
Leticia Casalduc-Rabell, Deputy Solicitor General, and Zaira Z.
Girón-Anadón, Deputy Solicitor General, were on brief, for
appellee.
April 27, 2012
LYNCH, Chief Judge. The question presented in this case
is whether the Supreme Court's decision in Levin v. Commerce
Energy, Inc., 130 S. Ct. 2323 (2010), requires the federal courts
to refrain from exercising jurisdiction over this case, a dormant
Commerce Clause attack on Puerto Rico's differential taxation of
categories of brewers. We answer that question affirmatively and
affirm the district court's dismissal on comity grounds.
Puerto Rico has classified Coors Brewing Co. ("Coors") as
a "large brewer" under its beer tax schedule and accordingly taxes
Coors at a higher rate than it taxes "small brewers," including
local Puerto Rico brewer Cervecería India. In 2006, Coors brought
suit in federal district court against Juan Carlos Méndez–Torres,
Puerto Rico's Secretary of the Treasury Department (the
"Secretary"), challenging this differential treatment under the
dormant Commerce Clause. The district court originally dismissed
the case on comity grounds, but in 2009, this court reversed that
decision, interpreting the Supreme Court's decision in Hibbs v.
Winn, 542 U.S. 88 (2004), to conclude that neither comity nor any
federal statute barred Coors from seeking relief from the state
taxation scheme in federal court. Coors Brewing Co. v.
Méndez-Torres (Coors Brewing Co.), 562 F.3d 3 (1st Cir. 2009).
On remand to the district court, the parties moved toward
a final resolution of the case, stipulating to resolve Coors's
motion for summary judgment before any other matter pending in the
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case. As it turned out, the Supreme Court interpreted
Hibbs differently than we predicted. On June 1, 2010, the Supreme
Court decided Levin, which expressly abrogated this court's 2009
Coors Brewing Co. decision.
On July 14, 2010, the Secretary moved the district court
to dismiss the case based on Levin. The district court then issued
an opinion in which it reached Coors's motion for summary judgment,
which it denied, before granting the Secretary's motion to dismiss
on grounds of comity.
Coors has appealed both decisions, arguing primarily that
the Secretary consented to resolving this case in federal court,
and that, even if he had not, the Puerto Rico courts do not provide
the "plain, adequate, and complete" forum required under comity,
and that equity requires reversal here for other reasons.
Because we find that the Secretary has not consented to
litigate this case in federal court, and because we have long found
the Puerto Rico courts to provide an "adequate state forum" for the
adjudication of federal constitutional claims, and no other grounds
justify retention of jurisdiction, we affirm the district court's
grant of the Secretary's motion to dismiss. We also vacate the
district court's merits ruling denying Coors summary judgment; it
will have no effect on any later proceedings in the courts of
Puerto Rico.
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We do not address the merits of Coors's challenge to the
beer tax regime and make no ruling as to the validity of that
regime under the dormant Commerce Clause. Should Coors choose to
pursue its case in the Puerto Rico courts, it may press its federal
constitutional claims there and, should it receive an unfavorable
disposition, it may seek further review of any substantial federal
claims in the U.S. Supreme Court. Pleasures of San Patricio, Inc.
v. Méndez-Torres, 596 F.3d 1, 7 (1st Cir. 2010).
I.
Puerto Rico has a long history of differentiating in its
beer excise tax between "small" and "large" brewers, and the
"large" brewers have a long history of bringing challenges to this
differentiation. In 1969, Puerto Rico first imposed a uniform
excise tax of $0.75 per gallon on all beer sold within the
Commonwealth. P.R. Law 143 of June 30, 1969. In 1978, the
legislature began differentiating within this tax between "large
brewers," those producing more than 31 million gallons annually,
and "small brewers," those producing less than that amount. That
same year, the tax on large brewers was raised to $1.60 per gallon,
while the tax on small brewers was set at $1.05 per gallon. P.R.
Law 37 of July 13, 1978. This $0.55 differential between large and
small brewers held steady until 2002, when the legislature amended
the law to increase the difference to $1.90 per gallon. The large
brewer tax was raised to $4.05 per gallon; the small brewer tax to
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$2.15 per gallon, and four intermediate gradations were added in
between.1 P.R. Laws. Ann. tit. 13, § 9521 (2002). In 2004, the
legislature again amended the regime, this time, to permit small
brewers to pay the tax rates for each of the respective lower
gradations, so long as their total per annum production remained
below 31 million gallons. P.R. Laws. Ann. tit. 13, § 9574 (2004).
A. Early Litigation
Since the 1978 amendments, Puerto Rico's beer tax has
undergone almost continuous litigation in state and federal court.
In 1978, the United States Brewers Association ("USBA") brought
initial challenges to the tax regime in both the federal district
and Puerto Rico courts. Under the Butler Act, 48 U.S.C. § 872, a
close analogue to the Tax Injunction Act ("TIA"), 28 U.S.C.
§ 1341,2 the federal district court directed USBA to seek a
1
As of 2002, the gradations within the excise tax were as
follows:
Gallons Produced Tax Rate (/gal.)
0 to 9 million $2.15
9 to 10 million $2.36
10 to 11 million $2.57
11 to 12 million $2.78
12 to 31 million $2.99
Over 31 million $4.05
P.R. Laws Ann. tit. 13, § 9521 (2002).
2
Under the Butler Act, "No suit for the purpose of
restraining the assessment or collection of any tax imposed by the
laws of Puerto Rico shall be maintained in the United States
District Court for the District of Puerto Rico." 48 U.S.C. § 872.
The TIA, which is not applicable to Puerto Rico, reads: "The
district courts shall not enjoin, suspend or restrain the
assessment, levy or collection of any tax under State law where a
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decision in state court on the merits of the tax challenge, but
retained jurisdiction over the suit in the event the state courts
failed to provide a "plain, speedy and efficient remedy." U.S.
Brewers Ass'n v. Cesar Perez, 455 F. Supp. 1159, 1164 (D.P.R. 1978)
(internal quotation marks omitted).
USBA accordingly brought its case in state court, where
it lost on the merits. The Puerto Rico Superior Court rejected
USBA's various constitutional and other challenges to the tax and
dismissed the complaint, U.S. Brewers Ass'n v. Perez, Civ. No.
PE-78-1137 (Dec. 12, 1978), and the Puerto Rico Supreme Court
upheld the dismissal, U.S. Brewers Ass'n v. Sec'y of the Treasury
(U.S. Brewers P.R.), 109 P.R. Dec. 456, 9 P.R. Offic. Trans. 605(1980).
Meanwhile, USBA appealed the federal district court's
decision to this court, arguing that the Butler Act did not bar
federal jurisdiction over the action since USBA was not seeking to
reduce Puerto Rico's tax revenue. This court rejected that
argument, holding that the action was barred by considerations
underlying the Butler Act, namely "equity practice, . . .
principles of federalism . . . and the imperative need of a State
to administer its own fiscal operations," U.S. Brewers Ass'n v.
Perez (U.S. Brewers), 592 F.2d 1212, 1214 (1st Cir. 1979)
plain, speedy and efficient remedy may be had in the courts of such
State." 28 U.S.C. § 1341.
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(omissions in original) (quoting Tully v. Griffin, 429 U.S. 68, 73
(1976)) (internal quotation marks omitted), and remanded to the
district court for dismissal, id. at 1215.
Later, on the very same day the 2002 Amendments went into
effect increasing the tax differential between small and large
brewers to $1.90 per gallon, a new suit was filed attacking the new
law. The Puerto Rico Association of Beer Importers ("PRABI"), of
which Coors was then a member, challenged the new law in Puerto
Rico Superior Court. PRABI argued that the special exemption for
small brewers -- which favored local Puerto Rico brewer, Cervecería
India -- violated the dormant Commerce Clause. The Superior Court
dismissed the case, and the Puerto Rico Supreme Court affirmed.
Puerto Rican Ass'n of Beer Imps. v. Puerto Rico (Beer Imps.), 171
P.R. Dec. 140 (2007), cert. denied, 552 U.S. 1257 (2008).
About two weeks after PRABI filed suit in Puerto Rico
Superior Court, and before that court had ruled on the merits,
Coors withdrew its claims without prejudice. Three days later, it
initiated its own suit in the U.S. District Court for the District
of Columbia, requesting a temporary restraining order and
preliminary injunction against the enforcement of the new tax. The
district court dismissed the suit with prejudice on jurisdictional
grounds under the Butler Act. Coors Brewing Co. v. Calderon
(Calderon), 225 F. Supp. 2d 22, 27 (D.D.C. 2002); see also id. at
26 ("Coors' argument that the Butler Act and [TIA] foreclose
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subject matter jurisdiction only in those instances where a party
seeks to enjoin the collection of taxes, thereby decreasing a
state's tax revenues, is similarly unconvincing as a thinly veiled
attempt to circumvent the clear will of Congress.").
On appeal, Coors settled the case, agreeing to a
stipulation that the district court's judgment "determines with
finality the Court's lack of jurisdiction but is without prejudice
to the substantive claims that the Court lacked jurisdiction to
address."
B. The Present Litigation over the 2004 Amendments
In 2004, the Puerto Rico legislature again amended the
tax regime, this time to permit small brewers to take advantage of
all five lower tax gradations. P.R. Laws. Ann. tit. 13, § 9574.
In response to these amendments, on November 17, 2006, Coors filed
suit in the U.S. District Court for the District of Puerto Rico.
It is in this suit that Coors's present appeal is taken. The suit
attacked the tax differential, sought a declaration that the
"Special Exemption" for small brewers violated section three of the
Federal Relations Act, 48 U.S.C. § 741a, as well as the dormant
Commerce Clause, and requested additional declaratory and
injunctive relief under 42 U.S.C. § 1983. See Complaint, Coors
Brewing Co. v. Méndez-Torres, No. 3:06-cv-02150 (Nov. 17, 2006).
The Secretary initially filed a motion to dismiss with prejudice on
grounds that the district court lacked subject matter jurisdiction
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under the Butler Act and TIA, on grounds of comity, and on grounds
of collateral estoppel based on the earlier decisions in U.S.
Brewers P.R., Beer Imps., and Calderon. The district court
dismissed the case on jurisdictional and collateral estoppel
grounds.
Coors made several arguments in its first appeal in this
case. First, it challenged the district court's collateral
estoppel ruling, arguing that its suit challenged the new, 2004
Amendments to the tax, and thus presented circumstances unaddressed
in Calderon, Beer Imps. and U.S. Brewers P.R. It also argued that
there had been an intervening change in the law since the district
court dismissed its 2002 suit. In 2004, the Supreme Court decided
Hibbs v. Winn, which held that the TIA did not bar a challenge by
Arizona taxpayers to a tax credit for donations to school tuition
organizations which were then permitted under state law to award
tuition grants for religious schools. 542 U.S. at 92. The Supreme
Court reasoned that Congress had only intended the TIA to bar
federal jurisdiction in cases where state taxpayers sought to avoid
paying state taxes or sought to decrease state tax revenues
overall. Id. at 107. Extending this reasoning to the Butler Act,
Coors argued that because it did not seek to decrease its own tax
burden, but sought a higher tax rate on small brewers, neither
comity not the Butler Act barred its requested relief.
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As said, this court ruled in favor of Coors in 2009,
holding that the suit was not precluded and that neither the Butler
Act nor principles of comity barred the exercise of federal
jurisdiction. Coors Brewing Co., 562 F.3d at 3. We briefly
summarize the reasoning set forth in that opinion. First, we held
that because Calderon merely found the federal courts to be without
jurisdiction to address Coors's claims, and Hibbs altered the
applicable legal standard, Calderon did not foreclose a new
jurisdictional inquiry. 562 F.3d at 12. Under the logic of Hibbs,
we held that the Butler Act did not bar federal jurisdiction over
Coors's suit. 562 F.3d at 15-16. We also rejected the Secretary's
comity argument, finding that Hibbs had narrowed the comity
doctrine.3 562 F.3d at 18. Thus overruling our previous decision
in U.S. Brewers, we reversed the district court's grant of the
Secretary's motion to dismiss and remanded for further consistent
proceedings. 562 F.3d at 22-23.
3
In a footnote, the Hibbs majority had dispensed with the
comity argument in that case by noting that traditionally, the
Court has relied on comity "to preclude original federal-court
jurisdiction only when plaintiffs have sought district-court aid in
order to arrest or countermand state tax collection." Hibbs v.
Winn, 542 U.S. 88, 107 n.9 (2004). This court joined several other
circuit courts of appeal in reading this footnote broadly, see
Commerce Energy, Inc. v. Levin, 554 F.3d 1094 (6th Cir. 2009),
rev'd, Levin v. Commerce Energy, Inc., 130 S. Ct. 2323 (2010); Levy
v. Pappas, 510 F.3d 755 (7th Cir. 2007); Wilbur v. Locke, 423 F.3d
1101 (9th Cir. 2005); but see DIRECTV, Inc. v. Tolson, 513 F.3d 119(4th Cir. 2008) (construing Hibbs more narrowly), and as lifting
the bar on federal court review of state tax challenges so long as
the requested relief does not "arrest state revenue generation,"
Coors Brewing Co. v. Méndez-Torres, 562 F.3d 3, 18 (1st Cir. 2009).
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At this point, the Secretary elected not to seek further
review of this court's adverse decision in the U.S. Supreme Court.
He requested two extensions of time to consider whether to seek
certiorari, noting that the case presented issues of "exceptional
importance" and that he must "carefully consider the issues
involved and fittingly set forth the public policy of the new
administration as well as the judicial ramifications." Ultimately,
he elected not to seek certiorari.
C. Procedural History Since Our 2009 Opinion
Soon after the mandate from this court issued in Coors
Brewing Co., Coors renewed its motion for summary judgment, which
it had initially filed on July 30, 2007. On July 16, 2009, the
district court ordered the Secretary to show cause why the court
should not grant Coors's motion. The Secretary responded in a
motion requesting leave to conduct discovery pursuant to Rule
56(f), and the parties agreed to meet to resolve these discovery
issues.
On November 2, 2009, the U.S. Supreme Court granted
certiorari in Levin v. Commerce Energy, Inc., 130 S. Ct. 496, thus
raising the issue of whether comity precluded a challenge to an
allegedly discriminatory state taxation scheme even where the
challenger did not seek to reduce state tax revenue. That petition
had been filed on August 20, 2009, about three months after the
mandate had issued in Coors Brewing Co. The Secretary did not
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bring this relevant development to the attention of the district
court at this juncture; indeed, he did not even mention the case
until he filed his motion to dismiss, more than one month after the
Supreme Court had decided Levin.
On December 23, 2009, the parties submitted a Joint
Status Report in compliance with the district court's order, in
which they informed the court that (1) they had agreed to limited
discovery, (2) they would attempt to file a joint stipulation of
certain facts within three months, and (3) they had "agreed to hold
all other proceedings in abeyance until the Court rules on the
Motion for Summary Judgment." After several additional discovery
motions were filed, which the district court did not act upon, the
parties filed their joint stipulation of facts in accordance with
their agreement on March 16, 2010.4
On June 1, 2010, the Supreme Court decided Levin v.
Commerce Energy, Inc., 130 S. Ct. 2323, reversing the U.S. Court of
Appeals for the Sixth Circuit and abrogating this court's decision
in Coors Brewing Co. On July 14, 2010, the Secretary filed a
motion to dismiss in light of Levin; however, he did not seek
relief from or even mention in this motion the stipulation
agreement to hold all other matters in abeyance until a decision on
summary judgment. In its opposition, Coors argued that by entering
4
On that same day, the Secretary filed a motion requesting
relief from the agreement regarding discovery on other grounds not
at issue here.
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into the stipulation agreement on December 23, 2009, the Secretary
had "voluntarily submitted" to a merits determination in federal
court. In addition, Coors argued that even if Levin applied,
comity did not justify dismissal in this case because the Puerto
Rico courts would not provide a "plain, adequate, and complete
remedy" for Coors's suit.
On December 29, 2010, the district court referred all
pending motions in the case to a magistrate judge for a report and
recommendation. On February 10, 2011, the magistrate judge
recommended that Coors's motion for summary judgment be denied and
the Secretary's motion to dismiss be granted. As an initial
matter, the magistrate judge recommended that the district court
bind the Secretary to the parties' agreement to resolve the summary
judgment motion before any other matter, including the motion to
dismiss, noting that the Secretary had agreed to the stipulation,
and would not "suffer any manifest injustice from having the
summary judgment motion decided first." Coors Brewing Co. v.
Mendez-Torres, 787 F. Supp. 2d 149, 186 (D.P.R. 2011). The
magistrate judge examined the merits of Coors's summary judgment
challenge to the excise tax first, and recommended the motion be
denied. Id. at 194. Then, turning to the motion to dismiss, the
magistrate judge applied Levin and recommended the suit be
dismissed. Id. at 198.
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On February 17, 2011, having lost both on its motion for
summary judgment and on the Secretary's motion to dismiss, Coors
filed its objections to the report and recommendation. On March 7,
2011, the Secretary filed a lengthy response to Coors's objections,
reasserting his comity claims under Levin and arguing that the
stipulation agreement "did not require or constitute[] a waiver of
the Secretary's arguments for dismissal on comity grounds" and
should not be construed as a voluntary submission to federal
jurisdiction.
On March 30, 2011, the district court issued an opinion
and order adopting the magistrate's report and recommendation.
Coors Brewing Co. v. Mendez-Torres, 787 F. Supp. 2d at 177. The
court found that the Secretary had failed to "set forth any showing
of good cause" as to why the stipulation agreement should be set
aside, and addressed and denied Coors's summary judgment motion.
Id. at 165, 173. It then granted the Secretary's motion to dismiss
on grounds of comity. Id. at 177. Coors has appealed from both
the dismissal and the denial of summary judgment.
II.
We review de novo the district court's grant of the
Secretary's motion to dismiss. Fothergill v. United States, 566
F.3d 248, 251 (1st Cir. 2009).
In Levin, the Supreme Court expressly abrogated this
court's decision in Coors Brewing Co. The Court held that in the
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state taxation context, the comity doctrine is "[m]ore embracive
than" the TIA and "restrains federal courts from entertaining
claims for relief that risk disrupting state tax administration."
130 S. Ct. at 2328. The Court explained that Hibbs had not changed
the basic principle that comity, a non-merits ground for dismissal,
"counsels lower federal courts to resist engagement in certain
cases falling within their jurisdiction."5 Id. at 2330. Thus,
even if the TIA does not bar federal court jurisdiction in certain
classes of state tax challenges, comity may require dismissal
nonetheless.
As a general matter, comity constrains the exercise of
federal jurisdiction in cases implicating a variety of important
state interests. See Quackenbush v. Allstate Ins. Co., 517 U.S.
706, 716-17 (1996). This includes cases that would interfere with
a state criminal proceeding, see, e.g., Younger v. Harris, 401 U.S.
37 (1971), or with certain types of state civil proceedings, see,
e.g., Huffman v. Pursue, Ltd., 420 U.S. 592 (1975); cf. Colo. River
Water Conservation Dist. v. United States, 424 U.S. 800 (1976);
cases in which a determination of the federal constitutional issue
5
In Hibbs, the Court held that neither the TIA nor comity
posed a hurdle to reaching the merits of the plaintiffs' tax
administration challenge in that case. However, in Levin v.
Commerce Energy, Inc., the Court distinguished Hibbs on its facts,
noting in particular that Hibbs had involved an Establishment
Clause challenge. 130 S. Ct. 2323, 2335-36 (2010). Specifically,
the Levin Court stated that "[a] confluence of factors . . . ,
absent in Hibbs, leads us to conclude that the comity doctrine
controls [in the present case]." Id. at 2336.
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might be made unnecessary by a state court interpretation of
ambiguous state law, see R.R. Comm'n of Tex. v. Pullman Co., 312
U.S. 496 (1941); cases in which federal adjudication could
interfere with a complex state administrative scheme, of which
state judicial review is an integral part, see Burford v. Sun Oil
Co., 319 U.S. 315 (1943); cases that implicate an important
"sovereign prerogative" and in which the state's law is unclear,
see La. Power & Light Co. v. City of Thibodaux, 360 U.S. 25 (1959);
and cases in which the federal courts might unduly interfere with
state tax administration, see Fair Assessment in Real Estate Ass'n
v. McNary, 454 U.S. 100 (1981).
Levin made clear that the rule of comity carries
"particular force" in this last context, where taxpayers file suit
in federal court under either dormant Commerce Clause or Equal
Protection theories, alleging that the state has singled them out
for discriminatory treatment by taxing them unevenly in comparison
to their competitors. Levin, 130 S. Ct. at 2330. There are
several reasons for this strict rule. For one, "in taxation, even
more than in other fields, legislatures possess the greatest
freedom in classification." Id. at 2333 (quoting Madden v.
Kentucky, 309 U.S. 83, 88 (1940)) (internal quotation marks
omitted). Even "upon finding impermissible discrimination in a
State's allocation of benefits or burdens," it is the Supreme
Court's usual practice to remand the case to the state court,
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"leaving the remedial choice in the hands of state authorities."
Id. at 2333-34. This "leaves the interim solution in state-court
hands, subject to subsequent definitive disposition by the State's
legislature." Id. at 2334.
By contrast, if the lower federal courts were to find a
state tax system unconstitutional, they "lack authority to remand
to the state court system [any] action initiated in federal court,"
and they are severely constrained in their choice of remedies. Id.
Further, federal judges are bound by the TIA and Butler Act, which
preclude the diminishment of state revenues, even if that relief is
the least disruptive of the state legislature's design. Id.
Finally, state courts have the ability to construe narrowly, where
necessary, state statutory language so as to alleviate
constitutional concerns. Id. at 2334 n.7. "These limitations on
the remedial competence of lower federal courts counsel that they
refrain from taking up cases of this genre, so long as state courts
are equipped fairly to adjudicate them." Id. at 2334.
The Levin Court discussed three factors which led it to
conclude that comity required dismissal. Id. at 2336. First, it
held that "respondents seek federal-court review of commercial
matters over which [the state] enjoys wide regulatory latitude" and
that "their suit does not involve any fundamental right or
classification" to which heightened judicial scrutiny would attach.
Id. Second, the Court found that the plaintiffs sought to enlist
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the aid of the federal courts "to improve their competitive
position." Id. Finally, it held that state courts "are better
positioned than their federal counterparts" to fashion a suitable
remedy "because they are more familiar with state legislative
preferences and because the TIA does not constrain their remedial
options." Id.; see also id. at 2334. The Court held that while
individually any one of these considerations might not compel
dismissal, "in combination" they require it. Id. at 2336.
The Court emphasized that none of these factors were
present in Hibbs. 130 S. Ct. at 2336. By contrast, all three
factors applied in Levin, and all three plainly apply here.
First, Coors seeks review of regulatory matters over
which Puerto Rico enjoys wide regulatory latitude under the Butler
Act, 48 U.S.C. § 872. The Supreme Court has recognized in Levin
and numerous other cases that states enjoy wide regulatory latitude
over the administration of their tax systems. See Levin, 130 S.
Ct. at 2330 n.2 ("The procedures for mass assessment and collection
of state taxes and for administration and adjudication of
taxpayers' disputes with tax officials are generally complex and
necessarily designed to operate according to established rules.
State tax agencies are organized to discharge their
responsibilities in accordance with the state procedures. If
federal declaratory relief were available to test state tax
assessments, state tax administration might be thrown into
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disarray, and taxpayers might escape the ordinary procedural
requirements imposed by state law." (citation and internal
quotation marks omitted)). Further, Coors's suit does not
implicate any fundamental right or classification that would
require heightened judicial scrutiny. See id. at 2336.
Second, Coors is explicitly seeking to improve its
competitive position with respect to Puerto Rico's local brewer,
Cervecería India, and has framed its arguments around the
competitive advantage that the tax differential bestows on that
company. See id.
Third, Puerto Rico's courts are better positioned than
are the federal courts to address and remedy any potential
constitutional violations because they are more familiar with state
legislative preferences and less constrained in their remedial
options. See id.
III.
Coors presents three arguments as to why comity does not
require dismissal here. Two are derived directly from Levin.
First, Coors correctly notes that if a state "voluntarily chooses
to submit to a federal forum, principles of comity do not demand
that the federal court force the case back into the State's own
system." Id. at 2336 (quoting Ohio Bureau of Emp't Servs. v.
Hodory, 431 U.S. 471, 480 (1977)) (internal quotation marks
omitted). Coors argues that the Secretary voluntarily consented to
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have this case adjudicated in federal court by his actions and
through a combination of waiver and sleeping on his rights.
Second, Coors argues that since dismissal on comity
grounds is an equitable doctrine, even if the Secretary has not
consented to have the case adjudicated in federal court, the unique
history and circumstances of this case justify our exercise of
equitable discretion to resolve the case on its merits.
Finally, Coors points to the condition underlying the
comity doctrine itself, recognized in Levin, that there exist "an
adequate state-court forum" competent "to hear and decide . . .
constitutional claims." Id. at 2330. Coors argues that Puerto
Rico does not meet this constitutional floor and will not, in this
case, provide an adequate forum for the full and fair resolution of
their constitutional claims. We reject each of these arguments for
the reasons laid out below.
A. Voluntary Consent
Coors's voluntary consent argument focuses on the actions
and inactions of the Secretary -- what it characterizes as a
pattern of failure by the Secretary to preserve and assert his
claims -- after this court's remand in Coors Brewing Co. First,
Coors argues that the Secretary and Solicitor General of Puerto
Rico, at the highest level of tax and legal policymaking, abandoned
the comity argument by not seeking certiorari from this court's
2009 decision in Coors Brewing Co. Further, Coors argues that the
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Secretary should have been aware of and alerted the court to the
Supreme Court's November 2, 2009, grant of certiorari in the
parallel case of Levin.
Coors notes that instead of reserving his rights in light
of the grant in Levin, the Secretary filed the stipulation
agreement on December 23, 2009, in which he agreed to hold all
other pending matters in abeyance until the district court ruled on
the summary judgment motion. At no point did the Secretary mention
Levin or reserve the comity issue. Not until the Supreme Court had
decided the case half a year later did the Secretary finally raise
Levin with the district court.
Furthermore, Coors stresses that once the magistrate
judge recommended that the district court hold the Secretary to the
stipulation agreement, and rule on the summary judgment motion
before the motion to dismiss, the Secretary did not file any
objections to the recommendation in district court and did not
cross-appeal the issue to this court. Coors argues that as a
result, the Secretary has waived the right to contest the district
court's decision to enforce the stipulation agreement. Coors
relies on several decisions of this court discussing waiver in this
context. See, e.g., Santiago v. Canon U.S.A., Inc., 138 F.3d 1, 4
(1st Cir. 1998) ("[A] party's failure to assert a specific
objection to a report and recommendation irretrievably waives any
right to review by the district court and the court of appeals.").
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It is true that the Secretary could have sought
certiorari in Coors Brewing Co. and likely should have kept the
district court abreast of the developments in Levin even before the
Supreme Court decided that case. However, the Supreme Court has
made it clear that the rule of consent is a strict one: a state
must "expressly urge [the federal court] to proceed to an
adjudication of the constitutional merits." Ohio Civil Rights
Comm'n v. Dayton Christian Sch., Inc., 477 U.S. 619, 626 (1986).
This rule precludes a finding of voluntary consent to
federal jurisdiction in this case. While we have found no
"consent" case involving challenges to state tax laws, cases from
other contexts help provide guidance. In Dayton Christian Schools,
on facts similar to those here, the Court held that the district
court should have abstained, under Younger, from deciding the case.
Although the State had urged abstention in the district court and
on appeal, the plaintiff in that case argued that the state
nonetheless had waived its abstention claim because it had
stipulated to the district court's jurisdiction. Dayton Christian
Sch., 477 U.S. at 626. The Supreme Court rejected this argument as
"misconceiv[ing] the nature of Younger abstention," which "does not
arise from lack of jurisdiction in the District Court, but from
strong policies counseling against the exercise of such
jurisdiction where particular kinds of state proceedings have
already been commenced." Id.
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The Dayton Christian Schools Court contrasted the facts
of that case with those in other earlier cases in which states had
expressly urged the federal courts to resolve their cases on the
merits. Id. For example, in Ohio Bureau of Employment Services,
the state did not request Younger abstention in the Supreme Court
and the Court considered the issue at the request of an amicus
curiae. 431 U.S. at 480. The state had argued Younger abstention
to the district court, which had ruled against it, but at the
Supreme Court, the state opposed remand based on abstention. Id.
The Court noted that where the state opposed abstention6 and
specifically asked for a decision on the merits, the Younger
doctrine did not require dismissal. Id. Here, by contrast, the
state has requested dismissal based on comity both in this court
and the district court.
Similarly, in Brown v. Hotel & Restaurant Employees &
Bartenders International Union Local 54, 468 U.S. 491 (1984),
although the state had argued for Younger abstention below, it did
not press that claim at the Supreme Court but instead expressly
submitted to the jurisdiction of the Supreme Court "in order to
obtain a more expeditious and final resolution of the merits of the
constitutional issue," id. at 500 n.9. And in Sosna v. Iowa, 419
6
The Court noted that one reason the state might have
chosen to forego abstention was to avoid the "prospect of lengthy
administrative appeals followed by equally protracted state
judicial proceedings." Ohio Bureau of Emp't Servs. v. Hodory, 431
U.S. 471, 480 (1977).
-23-
U.S. 393 (1975), both parties addressed the question of Younger
abstention, and "urged that [the Court] reach the merits" of the
case, id. at 396 n.3.
Here, the Secretary's mere stipulation to a priority
decision on summary judgment (and, implicitly, to the retention of
federal jurisdiction), does not constitute the "express urg[ing]"
necessary for voluntary consent. While the Secretary did agree to
"hold all other proceedings in abeyance" until the district court
ruled on the summary judgment motion, he entered into that
agreement only after this court specifically rejected his comity
argument. And while it is true that the petition for certiorari
had been granted in Levin at the time he entered into the
agreement, the case had not yet been decided.7
Coors also argues that the Secretary waived any
objections to the enforcement of the stipulation agreement by not
objecting to the report and recommendation in the proper time
frame. But the Secretary had prevailed on the merits on both
issues: the magistrate judge recommended the denial of Coors's
motion for summary judgment and the grant of the motion to dismiss.
7
In addition, the Secretary's decision not to seek
certiorari in Coors Brewing Co. did not amount to consent to the
exercise of federal jurisdiction and certainly did not amount to
consent to forgo the benefit of a later Supreme Court decision
expressly abrogating Coors Brewing Co. The reality is that the
public law offices of state attorneys and solicitors general have
limited resources and must choose how best to deploy them.
-24-
The Secretary wanted an affirmance, so he instead filed a lengthy
response to Coors's objections to the report and recommendation.
That the Secretary did not consent to the exercise of
jurisdiction was made plain in this response, in which he
reiterated that he did not consent to the federal forum and argued
that the stipulation agreement should not be construed as such.
Indeed, he argued, his compliance with court orders "while forced
to litigate against his will in [the federal] forum can hardly be
construed as a waiver of [his] prior request for dismissal, or as
a voluntary submission to the federal forum." He also argued, once
Levin was decided, that the district court was obligated to
consider his motion to dismiss on comity grounds before considering
the merits of Coors's constitutional claims on summary judgment.
We agree.8
From the outset of this litigation, the Secretary has
claimed the protection of comity. Once the Supreme Court abrogated
this court's decision in Coors Brewing Co., he notified the
district court within a month and sought immediate dismissal on
grounds of comity. In summary, none of his actions in this case
8
Normally, of course, a court must address jurisdiction
before it addresses the merits of plaintiff's claims. See, e.g.,
Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95
(1998). The question here is not one of Article III jurisdiction
but whether the federal court was required to refrain from
exercising jurisdiction. Here, the Levin decision was an
intervening event which should have been given preference and
priority. The district court was incorrect, in light of Levin, to
address the merits of Coors's claims before dismissing on grounds
of comity.
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amounted to voluntary consent, as the Supreme Court has defined
that term, and, under the circumstances of the case, he has
preserved his comity claim.
B. Equitable Conduct
Coors argues that even so, the Secretary's conduct as
described above, combined with what Coors alleges to be a strategy
of "keep away," played by the Commonwealth these last thirty-five
years to forestall federal adjudication of the dormant Commerce
Clause question, justify setting aside comity in this instance. It
is far from clear that Levin permits us to retain jurisdiction over
this case on Coors's argument that it would be more equitable to do
so given the Commonwealth's conduct. We need not decide this
abstract issue, however, because the argument fails on its own
terms. We have already addressed and rejected most of the
substantive arguments advanced by Coors in support of our retaining
jurisdiction. These "equitable conduct" arguments are the same
arguments raised under Coors's voluntary consent theory, and merely
relabeling the arguments does nothing to advance them. Coors's
remaining arguments do not support our retaining jurisdiction even
if we had the power to do so.
Coors argues that once the Secretary had "finally
agreed[]" to the resolution of the summary judgment motion, and
after Coors had "fully performed its obligations under [that]
agreement and acted in reliance upon it," the Secretary sought to
-26-
renege on the agreement by requesting additional discovery "on
immaterial and irrelevant matters" and by reopening the comity
question. At this late stage of the litigation, Coors argues that
forcing it to file a new suit in the courts of Puerto Rico would
"impose an 'unusual hardship'" on it and require "'an unnecessary
expenditure of time or energy.'" (quoting Rosewell v. LaSalle
Nat'l Bank, 450 U.S. 503, 518 (1981)). Coors notes that it first
filed this case in federal district court five years ago and has
"expended significant time and costs in" its prosecution. Since
comity is an "equitable" doctrine, Fair Assessment in Real Estate
Ass'n, 454 U.S. at 116 n.8, Coors argues that the balance of
equitable considerations in this case justifies providing it with
a federal forum for resolution of its constitutional claims.
Even if the equitable discretion described by Coors
existed in these types of cases, this would not be an instance
where we would retain jurisdiction. The Secretary's conduct in
this case, including as to discovery and the stipulations, was not
inequitable and in any event carries little weight when compared to
the institutional rationales for comity here. Comity is a doctrine
of "equitable restraint," id. at 108 (emphasis added), and operates
to "stay [the] hand" of the federal courts when state-law remedies
are "plain, adequate, and complete," id. The balance in favor of
restraint arises here in the state taxation context: "comity . . .
counsel[s] that [federal] courts should adopt a hands-off approach
-27-
with respect to state tax administration." Nat'l Private Truck
Council, Inc. v. Okla. Tax Comm'n, 515 U.S. 582, 586 (1995); see
also Fair Assessment in Real Estate Ass'n, 454 U.S. at 108 ("The
reason for this guiding principle [of equitable restraint] is of
peculiar force in cases where the suit, like the present one, is
brought to enjoin the collection of a state tax in courts of a
different, though paramount sovereignty." (alteration in original)
(quoting Matthews v. Rodgers, 284 U.S. 521, 525 (1932))). Whether
or not inequitable conduct by a party could ever overcome these
concerns, the equities in this case weigh more heavily on the side
of "aversion to federal interference with state tax
administration." Nat'l Private Truck Council, 515 U.S. at 586.
C. Whether the Puerto Rico Courts Meet the Adequate State-Court
Forum Test
Coors's final argument is that dismissal on comity
grounds would be improper because the Puerto Rico court system will
not provide "an adequate state-court forum" to hear and decide the
merits of the federal constitutional claims. In Fair Assessment in
Real Estate Ass'n, the Court explained that under the doctrine of
comity, federal courts must refrain from deciding state tax matters
"when remedies at law are plain, adequate, and complete," 454 U.S.
at 108, and "where [federal rights] could otherwise be preserved
unimpaired," id. at 109 (quoting Boise Artesian Hot & Cold Water
Co. v. Boise City, 213 U.S. 276, 282 (1909)) (internal quotation
marks omitted).
-28-
Coors argues the Puerto Rico forum is stacked against it:
the courts all but certainly will "woodenly" reject its
constitutional challenge to the tax. Moreover, in the past, Coors
alleges, Puerto Rico's courts have exempted Puerto Rico from the
reach of the dormant Commerce Clause entirely and will continue to
do so here. Finally, Coors contends that the Puerto Rico courts
impermissibly refuse to consider legislative history in determining
whether a law has a constitutionally discriminatory purpose and in
doing so here, will hinder Coors's ability to present its claims.
See, e.g., Family Winemakers of Cal. v. Jenkins, 592 F.3d 1, 13
(1st Cir. 2010) ("[W]hen a state statute is allegedly motivated by
an intent to discriminate against interstate commerce," to
determine legislative purpose, "we look to 'the statute as a
whole,' including statutory text, context, and legislative history,
. . . [as well as] whether the statute was 'closely tailored to
achieve the legislative purpose' the state asserted" (quoting
Alliance of Auto. Mfrs. v. Gwadosky, 430 F.3d 30, 37-38 (1st Cir.
2005))); see also id. at 13 n.15 (describing methodologies employed
by other courts of appeal).
-29-
As to legislative history,9 Coors attempts to rely on the
case of Chévere v. Levis, 150 P.R. Dec. 525 (2000). The Puerto
Rico Supreme Court there, however, expressly reviewed the
legislative history of the law in question to determine legislative
intent and stated:
[I]n the process of inquiry into the
legislature's intent, it is necessary to
examine the legislative history. If the law
has a statement of purpose, it generally
summarizes the purpose that inspired its
creation. In cases in which the law lacks a
statement of purpose or, even though it has
one, the statement does not contain the
legislative intent, it is useful to consult
other documents such as the reports from the
committees that studied the bill and the
debates held when the measure was discussed on
the floor of the legislative chamber, as
appears in the Record of Proceedings.
Likewise, the preliminary drafts and reports
surrounding them, which are prepared outside
the Legislative Assembly, may be used, when
the Assembly had the same before it and
substantially adopted the preliminary drafts.
Id. at 540-41 (translation available on Ct. App. Dkt. No. 11-1559).
We reject Coors's contention that the Puerto Rico courts
will impermissibly refuse to consider legislative history in
9
The Secretary argues that this is really a dispute about
which portions of the legislative history are to be given weight.
He cites to F. Vázquez, Inc. v. Sec'y of the Treasury, 103 P.R.
Dec. 388, 3 P.R. Offic. Trans. 539 (1975), in which the Puerto Rico
Supreme Court stated that, "statements of a lawmaker, on the floor
of the legislative body to which he belongs do not represent the
collective intent of the body enacting the statute." Id. at 390.
The Secretary argues that the Puerto Rico courts do review
legislative history and are capable of conducting a comprehensive,
"pithy" and "in-depth" review of the applicability of the dormant
Commerce Clause. (quoting Coors Brewing Co. v. Mendez-Torres, 787
F. Supp. 2d 149, 197 (D.P.R. 2011)).
-30-
considering Coors's claims. Nothing in Chévere suggests that the
courts, as a rule, will refuse to consider the legislative history
in ascertaining the purpose of the excise tax.
Coors also argues that the Puerto Rico courts have
refused to hold that the dormant Commerce Clause applies to the
Commonwealth, pointing to the concurring opinion of a single
justice in a 2007 case. See Puerto Rican Ass'n of Beer Imps. v.
Puerto Rico, 171 P.R. Dec. 140 (2007) (Fuster, J., concurring in
the judgment) (stating that the dormant aspect of the Commerce
Clause of the U.S. Constitution does not apply to Puerto Rico)
(translation available on Ct. App. Dkt. No. 11-1559). However, in
a more recent opinion the Puerto Rico Supreme Court clearly held
that the "limitations inherent in the interstate Commerce Clause in
its dormant state apply to Puerto Rico ex proprio vigore." Estado
Libre Asociado de P.R. v. Nw. Selecta, Inc., 2012 WL 1109131, 2012
TSPR 56, at *31 (P.R. Mar. 27, 2012). This opinion also reinforces
the rule articulated in Chévere as to when resort to legislative
history is appropriate.
Finally, the fact that the Puerto Rico courts ruled
against large brewers in earlier cases simply does not meet the
test for inadequacy. This court recently rejected a similar
inadequacy challenge brought by cigar manufacturers against a
Puerto Rico excise tax which allegedly discriminated against
mainland cigar manufacturers. Pleasures of San Patricio, 596 F.3d
-31-
1. We held that the cigar manufacturers could not demonstrate the
inadequacy of the Puerto Rico courts merely by predicting that they
would lose their case. Id. at 9. We reject Coors's inadequacy
argument.
Should Coors receive an unfavorable merits ruling from
the Puerto Rico courts, it may seek further review of "[a]ny
substantial federal question" in the U.S. Supreme Court. Levin,
130 S. Ct. at 2334 n.8 (citing McNeese v. Bd. of Educ. for Cmty.
Unit Sch. Dist. 187, 373 U.S. 668, 673 (1963)). In addition,
should the Puerto Rico courts, as Coors fears, fail to follow
federal constitutional precedent or unconstitutionally constrain
their analyses, that, in and of itself, may constitute grounds for
a petition for certiorari in the U.S. Supreme Court.10
10
The Supreme Court has addressed similar challenges under
what is known as the "fair support rule." Where a state court
engages in "an obvious subterfuge to evade consideration of a
federal issue," Radio Station WOW, Inc. v. Johnson, 326 U.S. 120,
129 (1945), the Supreme Court may look beyond an asserted state law
rationale to inquire whether the state court decision rests upon a
"fair or substantial basis," Broad River Power Co. v. South
Carolina ex rel. Daniel, 281 U.S. 537, 540 (1930); see, e.g.,
Howlett v. Rose, 496 U.S. 356, 366 (1990); Staub v. City of Baxley,
355 U.S. 313, 318-319 (1958). The Court has deployed this rule in
the context of dormant Commerce Clause challenges to state taxation
schemes, see, e.g., Union Pac. R.R. Co. v. Pub. Serv. Comm'n, 248
U.S. 67, 69-70 (1918); Gaar, Scott & Co. v. Shannon, 223 U.S. 468,
470 (1912), and where other state laws have been found to
unconstitutionally restrain interstate commerce, see, e.g., Davis
v. Wechsler, 263 U.S. 22, 24 (1923); Am. Ry. Express Co. v. Levee,
263 U.S. 19, 21 (1923); Sioux Remedy Co. v. Cope, 235 U.S. 197,
203-04 (1914); Vandalia R.R. Co. v. Indiana ex rel. City of South
Bend, 207 U.S. 359, 367 (1907).
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IV.
Because Levin applies and requires dismissal of this
federal case in favor of resolution of Coors's claims in the courts
of Puerto Rico, we affirm the district court's grant of the
Secretary's motion to dismiss and vacate the court's denial of
Coors's motion for summary judgment.
So ordered.
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