Rea Paeste v. Government of Guam

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
REA MIALIZA O. PAESTE; JEFFREY F. Nos. 13-15389
PAESTE; SHARON M. ZAPANTA, 13-17515
GLENN ZAPANTA, individually and 14-16247
on behalf of all others similarly
situated, D.C. No.
Plaintiffs-Appellees, 1:11-cv-00008
v.
OPINION
GOVERNMENT OF GUAM; EDDIE
BAZA CALVO, in his official
capacity; BENITA MANGLOÑA, in her
official capacity; JOHN CAMACHO, in
his official capacity,
Defendants-Appellants.
Appeal from the United States District Court
for the District of Guam
Consuelo B. Marshall, Senior District Judge, Presiding
Argued and Submitted
June 9, 2015—Honolulu, Hawaii
Filed August 26, 2015
Before: Kim McLane Wardlaw, Marsha S. Berzon,
and John B. Owens, Circuit Judges.
Opinion by Judge Berzon
2 PAESTE V. GOV’T OF GUAM
SUMMARY*
Civil Rights
The panel affirmed the district court’s summary judgment
and permanent injunction in a class-action brought by Guam
taxpayers against Guam and several of its officers in their
official capacities alleging (1) that defendants violated the tax
provisions of the Organic Act of Guam, 48 U.S.C. § 1421i, by
failing timely to refund income tax overpayments, and (2) in
a claim brought pursuant to 42 U.S.C. § 1983, that Guam’s
expedited tax refund program violated plaintiffs’ equal
protection rights.
On appeal, Guam challenged the taxpayers’ equal
protection claim as not cognizable under 42 U.S.C. § 1983,
arguing that no defendant was a “person” within the meaning
of § 1983 and that the challenged actions were not taken
under “color of territorial law.” Guam asserted that it could
raise the definition of “person” for the first time on appeal
because it implicated subject matter jurisdiction. The panel
held that the question of whether a party is a person under
§ 1983 is not a jurisdictional question but rather a statutory
one and therefore Guam’s § 1983 arguments did not
implicate subject matter jurisdiction. The panel, however,
exercised its discretion to consider the arguments.
Determining that it was bound by Guam Society of
Obstetricians & Gynecologists v. Ada , 962 F.2d 1366, 1371
(9th Cir. 1992), the panel held that the official-capacity
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
PAESTE V. GOV’T OF GUAM 3
defendants were “persons” within the meaning of § 1983 for
purposes of prospective relief. Addressing the merits, the
panel held that the district court did not abuse its discretion in
issuing a permanent injunction that required Guam to pay
refunds within six months once it determined that the requests
were valid and not subject to investigation or audit. The
panel held that the six-month provision was well-supported
and within the court’s broad discretion in fashioning relief.
The panel noted that Guam raised no substantive challenge to
the district court’s holding that Guam violated equal
protection, nor to its holding that Guam violated the Organic
Act.
COUNSEL
William N. Hebert (argued), Kathleen V. Fisher, and
Genevieve P. Rapadas, Calvo Fisher & Jacob LLP, San
Francisco, California for Defendants-Appellants.
David Stein (argued), Daniel C. Girard, and Amanda M.
Steiner, Girard Gibbs LLP, San Francisco, California; Ignacio
Cruz Aguigui, Lujan Aguigui & Wolff LLP, Hagåtña, Guam,
for Plaintiffs-Appellees.
4 PAESTE V. GOV’T OF GUAM
OPINION
BERZON, Circuit Judge:
Like many state, local, and territorial jurisdictions, Guam
has struggled for years with chronic budget deficits. Guam
settled on a unique solution to its financial problems: It
refused to refund over-withheld income taxes, using the
money to fund government spending. Confronted with
meritorious and uncontested claims for tax refunds, Guam did
not issue the refunds, often for several years at a time.
Apparently recognizing that some Guam taxpayers
desperately needed their excess tax payments — to which the
Guam government has no legal claim — Guam established an
“expedited refund” process. Purportedly, taxpayers facing,
for example, medical or funeral expenses, would move to the
front of the line and be granted refunds without waiting for
Guam to make good on the huge backlog of claims. In
practice, the expedited refund process was effectively
standardless, and it devolved into arbitrariness and favoritism.
A group of Guam taxpayers brought this class-action suit
against Guam and several of its officers in their official
capacities. The taxpayers alleged that Guam violated the tax
provisions of the Organic Act of Guam, 48 U.S.C. § 1421i, by
failing timely to refund overpayments, and, via a claim
brought under 42 U.S.C. § 1983, the taxpayers also
challenged the arbitrary expedited refund program as a
violation of equal protection.
The district court granted summary judgment to the
taxpayers on both claims, entered a permanent injunction
both ending the expedited refund program and requiring
PAESTE V. GOV’T OF GUAM 5
Guam to pay approved refunds in a timely manner, and
awarded substantial attorney’s fees and costs. Guam
challenges the district court’s orders on a number of grounds.
We affirm.
I.
Taxpayers Rea Mializa Paeste, Jeffrey Paeste, Sharon
Zapanta, and Glenn Zapanta, on behalf of a class of Guam
taxpayers (collectively, “the Taxpayers”), brought this suit
against Guam, along with the Governor, the Director of the
Department of Revenue and Taxation, and the Director of the
Department of Administration of Guam in their official
capacities (collectively, “Guam”), challenging systematic
delay and unfairness in Guam’s handling of income tax
refunds. The Taxpayers asserted one claim, against all the
defendants, under the Organic Act of Guam, 48 U.S.C.
§ 1421i;1 and another, against all but Guam itself, under
42 U.S.C. § 1983, alleging a violation of the Equal Protection
Clause of the Fourteenth Amendment, extended to Guam by
48 U.S.C. § 1421b(u).2
1
“Congress organized Guam as an unincorporated possession of the
United States through the 1950 Organic Act of Guam” and “provided an
income tax scheme for Guam in 48 U.S.C. § 1421i.” Gumataotao v. Dir.
of Dep’t of Revenue & Taxation, 236 F.3d 1077, 1079 (9th Cir. 2001).
2
48 U.S.C. § 1421b(u) provides: “The following provisions of and
amendments to the Constitution of the United States are hereby extended
to Guam to the extent that they have not been previously extended to that
territory and shall have the same force and effect there as in the United
States or in any State of the United States: . . . the second sentence of
section 1 of the fourteenth amendment,” which includes the equal
protection clause. See also 48 U.S.C. § 1421b(n) (“No discrimination
shall be made in Guam against any person on account of race, language,
or religion, nor shall the equal protection of the laws be denied.”);
6 PAESTE V. GOV’T OF GUAM
The district court granted a motion for class certification.3
After discovery, the court granted the Taxpayers’ motion for
summary judgment as to both claims. It issued findings of
fact and conclusions of law in support of its grant of summary
judgment.
The district court’s findings of fact, which Guam does not
challenge on appeal, paint a troubling picture of Guam’s tax-
refund practices. Guam has, “[s]ince the early 1990s, . . .
Attorney Gen. of Territory of Guam ex rel. All U.S. Citizens Residing in
Guam Qualified to Vote Pursuant to Organic Act v. United States,
738 F.2d 1017, 1018 (9th Cir. 1984). Because the Taxpayers relied on this
statutory equal protection guarantee, we express no view as to the direct
applicability of constitutional equal protection. Cf. Examining Bd. of
Eng’rs, Architects & Surveyors v. Flores de Otero, 426 U.S. 572, 599–601
(1976) (holding that a Puerto Rico statute violated equal protection);
Wabol v. Villacrusis, 958 F.2d 1450, 1460 n.19 (9th Cir. 1990) (indicating
that “not every right subsumed within the [equal protection] clause can
ride the fundamental coattails of [equal protection] into the territories”).
We do note, however, that the so-called “Insular Cases,” which
established a less-than-complete application of the Constitution in some
U.S. territories, has been the subject of extensive judicial, academic, and
popular criticism. See, e.g., Juan Torruella, The Insular Cases: The
Establishment of a Regime of Political Apartheid, 77 Rev. Jur. U.P.R. 1
(2008); Last Week Tonight with John Oliver: U.S. Territories, Youtube
(Mar. 8, 2015), https://www.youtube.com/watch?v=CesHr99ezWE.
3
The class certified was defined, in relevant part, as:
All persons and entities who have filed or will file a
claim for refund of an overpayment of the Guam
Territorial Income Tax: (i) which the Government of
Guam has processed or will process and deemed valid;
(ii) who have met the procedural requirements outlined
in 26 U.S.C. §§ 7422(a) and 6532(a); and (iii) who
nonetheless have not received or will not receive their
refund six months after filing the claim for refund.
PAESTE V. GOV’T OF GUAM 7
financed chronic budget deficits by regularly delaying the
payment of [Guam income tax] refunds to its taxpayers” such
that “many . . . refunds [were] not paid in a timely manner”
and “during [some] periods, no refunds were paid to any
one.” Guam failed timely to pay refunds even after Guam’s
Legislature enacted two separate statutes requiring that
money be set aside for that purpose.
“Traditionally, the Government of Guam has paid
[income tax] refunds in a first-in, first-out order, the same
way the Internal Revenue Service ordinarily pays federal
income tax refunds.”4 But, in light of the chronic delays, for
years Guam paid some refunds on an “expedited” basis, out
of the chronological order otherwise applicable. The
expedited refund process was not governed by any “formal
rule-making process or any regulations,” — nor, it appears,
any consistently followed set of standards. The result was
starkly unequal treatment of refund requests.
The director of the Department of Revenue and Taxation
(“DRT”) testified, for example, that the reasons taxpayers
offered for requesting expediting returns were ranked, from
medical needs as the most serious to financial hardship as the
least. In reality, however, “[w]hile taxpayers experiencing
medical emergencies [were] often unable to obtain expedited
refunds, other taxpayers with less urgent [financial] needs
receive[d] their refunds on an expedited basis.” Indeed, “the
greatest number of refunds [was] paid to DRT’s ‘catch-all’
category of ‘financial’ hardship” despite it purportedly being
“the lowest priority.”
4
The IRS generally issues the vast majority of its refunds within twenty-
one days, including some 90% in 2012.
8 PAESTE V. GOV’T OF GUAM
The process was also opaque and tedious. Guam did not
“formally approve or reject requests for expedited refunds,”
so some taxpayers stood in line at DRT’s offices day after
day to check on the status of their refund requests. In
practice, to obtain an expedited refund, a taxpayer would
often need to “persuade one of a series of public officials to
include his or her name on a list,” given to DRT, resulting in
expedited refunds for those with the right political
connections. DRT employees also successfully expedited
their own refunds, and those of family and friends, often
without filling out the purportedly required form, submitting
supporting documentation, or visiting the DRT. Similarly,
the named plaintiffs’ refunds were expedited, even though
they submitted no requests for expedited treatment, in an
apparent attempt to render this case moot.
Based on these facts, the district court concluded that the
Taxpayers were entitled to summary judgment on both
claims. It also entered a permanent injunction prohibiting
Guam from operating its expedited refund program. The
injunction further provided that, as to any refund claim that
contained no material errors and was not subject to an audit
or other investigation, “the Government of Guam shall pay
the corresponding refund no later than six months after the
filing of the claim for refund or six months from the due date
for filing the claim for refund, whichever is later . . . .”5
5
Since the injunction was entered, Guam has apparently timely paid all
refunds.
PAESTE V. GOV’T OF GUAM 9
Finally, the court awarded substantial attorney’s fees and
costs to the Taxpayers.6
These consolidated appeals followed.
II.
Guam challenges the Taxpayers’ equal protection claim
as not cognizable under § 1983, which provides:
Every person who, under color of any statute,
ordinance, regulation, custom, or usage, of
any State or Territory or the District of
Columbia, subjects, or causes to be subjected,
any citizen of the United States or other
person within the jurisdiction thereof to the
deprivation of any rights, privileges, or
immunities secured by the Constitution and
laws, shall be liable to the party injured in an
action at law, suit in equity, or other proper
proceeding for redress . . . .
42 U.S.C. § 1983 (emphases added). Guam contends that no
defendant is a “person” within the meaning of § 1983, and
that the challenged actions were not taken “under color of”
territorial law. Guam is wrong.
6
Guam’s challenges to the award of attorney’s fees and costs are
addressed in a memorandum disposition filed concurrently with this
opinion.
10 PAESTE V. GOV’T OF GUAM
A.
The Taxpayers contend that both of Guam’s arguments
regarding § 1983 are waived, as they were not raised before
the district court until long after judgment was entered on the
merits.7 See Dream Palace v. Cnty. of Maricopa, 384 F.3d
990, 1005 (9th Cir. 2003). Guam responds that at least the
definition of “person” may be raised for the first time on
appeal as it implicates subject matter jurisdiction, and, in the
alternative, that the court should exercise its discretion to
reach the § 1983 arguments.
Three circuits have held that “whether [a party] is a
‘person’ under § 1983 is not a jurisdictional question” but
rather “a statutory one.” Settles v. U.S. Parole Comm’n,
429 F.3d 1098, 1105 (D.C. Cir. 2005); accord Barker v.
Goodrich, 649 F.3d 428, 433 n.1 (6th Cir. 2011); Bolden v.
Se. Pa. Transp. Auth., 953 F.2d 807, 821 (3d Cir. 1991) (en
banc). We agree and so hold.
Whether the defendant is a “person” within the meaning
of the statute is “a necessary inquiry for the purposes of
7
In opposing taxation of costs, Guam eventually did argue to the district
court that the Taxpayers’ claims were under color of federal law rather
than territorial law. The territory now contends that raising this argument
before the district court in the context of taxation of costs was sufficient
to avoid waiver. We disagree. Guam filed three notices of appeal,
consolidated by this court: one as to the court’s summary judgment order
and permanent injunction, another as to attorney’s fees, and a third as to
costs. The “under color” argument was made to the district court only
after Guam filed its opening brief with this court as to the summary
judgment and permanent injunction issues, which included its § 1983
arguments. An argument made after final judgment on the merits as to a
derivative costs matter is not a timely presentation of a challenge to the
§ 1983 claim.
PAESTE V. GOV’T OF GUAM 11
establishing the essential elements of [a] § 1983 claim.”
Pistor v. Garcia, 791 F.3d 1104, 1114 (9th Cir. 2015). But,
as a general matter, “the absence of a valid (as opposed to
arguable) cause of action does not implicate subject-matter
jurisdiction.” Steel Co. v. Citizens for a Better Env’t,
523 U.S. 83, 89 (1998); see also Verizon Md., Inc. v. Pub.
Serv. Comm’n of Md., 535 U.S. 635, 642–43 (2002) (same).
Here, the Taxpayers’ § 1983 claim, including their contention
that the defendants are “persons” within the meaning of the
statute, was not “made solely for the purpose of obtaining
jurisdiction or . . . wholly insubstantial and frivolous.” Steel
Co., 523 U.S. at 89 (internal quotation marks omitted).
Indeed, that claim was not only arguable but, as the district
court held, actually meritorious. Thus, Guam’s statutory
argument does not implicate subject matter jurisdiction.
“Recharacterizing an issue of statutory interpretation as
‘jurisdictional’ is mere wordplay.” Settles, 429 F.3d at 1105.
Nor, as Guam contends, is there a circuit split on this
question. Both Seventh Circuit cases on which Guam relies
as holding to the contrary grounded their jurisdictional
holdings on Eleventh Amendment sovereign immunity. See
Sherman v. Cmty. Consol. Sch. Dist. 21, 980 F.2d 437, 441
(7th Cir. 1992) (concluding that a suit against a state official
was “an effort to obtain a judgment binding the State of
Illinois as an entity” and therefore barred by the Eleventh
Amendment); Toledo, Peoria & W. R. Co. v. State of Ill.,
Dep’t of Transp., 744 F.2d 1296, 1298-99 (7th Cir. 1984)
(relying on state sovereign immunity in concluding that
“[t]his section 1983 action against . . . a state agency[] fails
for lack of federal court jurisdiction”). While the statutory
definition of “person” is “[s]imilar to and often conflated with
Eleventh Amendment immunity,” the concepts are distinct.
Barker, 649 F.3d at 433 n.1. There is no circuit split as to the
12 PAESTE V. GOV’T OF GUAM
non-jurisdictional nature of the statutory question “when
stripped of its Eleventh Amendment component.” Bolden,
953 F.2d at 821.
Guam does not contend that it is entitled to Eleventh
Amendment immunity, but does assert federal sovereign
immunity, arguing that it is entitled to immunity to the same
extent accorded the federal government. This argument is
also unavailing.
Even if Guam enjoys sovereign immunity, of whatever
sort, from the Taxpayers’ § 1983 claim, that claim was not
brought against Guam itself, but only against its officers in
their official capacities, and only for declaratory and
injunctive relief.8 Under the principle of Ex parte Young, 209
U.S. 123 (1908), “official-capacity actions for prospective
relief are not treated as actions against” Guam itself. Guam
8
We express no view as to Guam’s entitlement to sovereign immunity
from the § 1983 claim in this case. Compare Marx v. Gov’t of Guam,
866 F.2d 294, 297–98 (9th Cir. 1989) (holding that Guam enjoys
common-law sovereign immunity) with Fleming v. Dep’t of Pub. Safety,
837 F.2d 401, 408 (9th Cir. 1988) (holding that the Commonwealth of the
Northern Mariana Islands “lacks eleventh amendment immunity and . . .
in the Covenant [establishing the Commonwealth] it waived any common
law sovereign immunity from federal suit it might otherwise have
possessed”), abrogated on other grounds as recognized in DeNieva v.
Reyes, 966 F.2d 480, 483 (9th Cir. 1992); see also Ngiraingas v. Sanchez,
495 U.S. 182, 192 n.12 (1990) (“Ngiraingas II”) (declining to address
whether Guam was entitled to Eleventh Amendment immunity from a
§ 1983 suit); id. at 202–06 (Brennan, J., dissenting) (concluding that the
Eleventh Amendment does not apply to Guam, and that whatever
common-law immunity Guam enjoys grants it no immunity from suit
under federal law in federal court); see generally Adam D. Chandler,
Comment, Puerto Rico’s Eleventh Amendment Status Anxiety, 120 Yale
L.J. 2183 (2011) (surveying the caselaw regarding territorial sovereign
immunity).
PAESTE V. GOV’T OF GUAM 13
Soc. of Obstetricians & Gynecologists v. Ada, 962 F.2d 1366,
1371 (9th Cir. 1992) (internal quotation marks omitted).
In sum, Guam’s § 1983 arguments do not implicate
subject-matter jurisdiction. Thus, our ordinary practice
applies, under which we typically “decline to consider
arguments raised for the first time on appeal.” Dream
Palace, 384 F.3d at 1005. “We have, however, laid out
several narrow exceptions to the rule — among them, the
case in which the issue is purely one of law, does not affect
or rely upon the factual record developed by the parties, and
will not prejudice the party against whom it is raised.” Id.
(internal quotation marks omitted). Under this exception, we
exercise our discretion to consider Guam’s § 1983
arguments.9
B.
Guam Society of Obstetricians & Gynecologists v. Ada
held that a Guam officer sued in his official capacity is a
“person” within the meaning of § 1983. 962 F.2d at 1370–71.
Guam’s arguments to the contrary are meritless.
Two years before we decided Ada, Ngiraingas II held that
“neither the Territory of Guam nor its officers acting in their
official capacities are ‘persons’ under § 1983.” 495 U.S. at
192. Nearly all of the Supreme Court’s analysis addressed
whether Guam itself was a “person,” concluding, based
principally on § 1983 legislative history, that it was not. See
id. at 187–92. But the plaintiffs in that case had also sued
9
Because we find Guam’s contentions meritless, the Taxpayers will
suffer no prejudice as a result of Guam’s failure to raise these matters
before the district court.
14 PAESTE V. GOV’T OF GUAM
several Guam officials in their official capacities for
damages. Id. at 184. The Supreme Court noted the
conclusions of the district court and this court that “because
a judgment against those defendants in their official
capacities would affect the public treasury, the real party in
interest was the Government of Guam.” Id. at 184–85. The
Court’s own analysis as to the officials was limited to the
following: “Petitioners concede, and we agree, that if Guam
is not a person, neither are its officers acting in their official
capacity.” Id. at 192 (citation omitted).
Two years later, Ada held that a Guam official “is a
‘person’ when sued in his official capacity for prospective
relief.” 962 F.2d at 1370. Ada binds us, and Ngiraingas II,
an earlier-decided Supreme Court decision, offers no basis for
us, as a three-judge panel, to reconsider Ada. See Miller v.
Gammie, 335 F.3d 889, 900 (9th Cir. 2003) (en banc).
Even if we could revisit Ada, we would decide the issue
in accord with that case. Ada acknowledged the general
statement as to Guam officers in Ngiraingas II, but pointed
out the established “distinction between suits against
governmental officials for damages, such as Ngiraingas, and
those for injunctive relief.” Id. at 1371. As Ada noted, “state
officers, when sued for damages in their official capacities,
are,” like states, “not ‘persons’ within the meaning of [§]
1983,” because “a judgment against a state official in his or
her official capacity runs against the state and its treasury.”
Id. (citing Will v. Mich. Dep’t of State Police, 491 U.S. 58,
63–65 (1989); Kentucky v. Graham, 473 U.S. 159, 166
(1985)). But, as Ada explained, the “rule is entirely different”
with regard to prospective relief, which does not run directly
against the state’s treasury; suits for such relief “are not
treated as actions against the State.” Id. (internal quotation
PAESTE V. GOV’T OF GUAM 15
marks omitted). The court concluded: “We can see no reason
why the same distinction between injunctive and damages
actions against officials should not apply to a territory.” Id.10
There is, indeed, no reason why these established
principles, applicable to states, should not apply to territories
as well. Accord McCauley v. Univ. of Virgin Islands,
618 F.3d 232, 240–41 (3d Cir. 2010) (citing Will, 491 U.S. at
71 n.10; Brow v. Farrelly, 994 F.2d 1027, 1037 n.12 (3d Cir.
1993), as amended (May 26, 1993)); see also Playboy Enter.,
Inc. v. Pub. Serv. Comm’n of Puerto Rico, 906 F.2d 25, 31
n.8 (1st Cir. 1990) (concluding that Ngiraingas II did not
foreclose § 1983 liability, in part because the plaintiffs sought
only injunctive relief); cf. Pistor, 791 F.3d at 1112 (noting
that Graham’s “same principles fully apply” in the context of
Indian tribes). Ngiraingas II did not, it is true, expressly state
that the prospective-relief exception applies to official-
capacity suits against territorial officers. But that silence
indicates little; the Court did not address prospective relief at
all, because the plaintiffs sought none. See 495 U.S. at 184.
Particularly given the cursory treatment of the official-
capacity defendants in that case, and the plaintiffs’
concession there that the same rule would apply to both
Guam and the official-capacity defendants, we do not read
Ngiraingas II to establish markedly different treatment of
official-capacity suits as between states and territories.
10
Guam’s suggestion that Ada was wrong because the Ex Parte Young
principle applies only to suits against state officers is baseless. See
Armstrong v. Exceptional Child Ctr., Inc., 135 S. Ct. 1378, 1384 (2015)
(noting that “federal courts may in some circumstances grant injunctive
relief” under the Ex parte Young principle “not only with respect to
violations of federal law by state officials, but also with respect to
violations of federal law by federal officials”).
16 PAESTE V. GOV’T OF GUAM
Guam puts forward another theory as to why Ada is not
binding — that it is inconsistent with Ngiraingas v. Sanchez,
858 F.2d 1368 (9th Cir. 1988) (“Ngiraingas I”), the case
reviewed by the Supreme Court in Ngiraingas II. Ngiraingas
I concluded that Guam “‘is in essence an instrumentality of
the federal government,’ much like a federal department or
administrative agency,” and so “Guam, like the federal
government, should not be held liable on the same terms as
other entities.” Id. at 1370–71 (citation omitted) (quoting
Sakamoto v. Duty Free Shoppers, Ltd., 764 F.2d 1285, 1286
(9th Cir. 1985)).11 Thus, we held, Guam itself was not a
“person” within the meaning of § 1983. Id. at 1372 (internal
quotation marks omitted).
In reliance on Ngiraingas I, Guam now argues that its
officers should be treated in the same way as federal officers
for the purposes of § 1983. Section 1983 “provides no cause
of action against federal agents acting under color of federal
law.” Billings v. United States, 57 F.3d 797, 801 (9th Cir.
1995). But Ngiraingas I is unhelpful to Guam for several
reasons.
First, if there really were an irreconcilable conflict in our
caselaw, “we could not simply pick one [case] to follow —
we would be required to call this case en banc.” United
States v. Torre-Jimenez, 771 F.3d 1163, 1167 (9th Cir. 2014)
(citing Atonio v. Wards Cove Packing Co., 810 F.2d 1477,
1478–79 (9th Cir. 1987) (en banc)); see also United States v.
11
Guam also relies on Sakamoto. But the relevant portion of Sakamoto
held only that Guam was entitled to immunity from antitrust law, did not
involve § 1983 or the meaning of “person,” and is not pertinent here
outside of Ngiraingas I’s reliance upon it. 764 F.2d at 1286, 1288–89.
PAESTE V. GOV’T OF GUAM 17
Washington, 593 F.3d 790, 798 n.9 (9th Cir. 2010) (en
banc).12
Second, the portion of Ngiraingas I on which Guam relies
is almost surely no longer binding precedent. Although
Ngiraingas II affirmed Ngiraingas I’s holding that Guam is
not a “person” under § 1983, it did so on an entirely different
rationale. See Ngiraingas II, 495 U.S. at 185, 187–92. The
dissent in Ngiraingas II understood the majority opinion in
Ngiraingas II as rejecting our “conclusion that Guam is
outside the coverage of § 1983 because it is an
instrumentality of the Federal Government,” observing that
our interpretation was “flatly inconsistent” with the statute’s
manifest intent that at least natural persons could be held
liable for acts under color of territorial law. 495 U.S. at 204
n.10 (Brennan, J., dissenting); see also Ada, 962 F.2d at 1371.
Finally, there is a third reason that the argument based on
Ngiraingas I does not avail Guam. Ngiraingas I’s analysis of
official-capacity suits is not inconsistent with Ada. The
portion of Ngiraingas I on which Guam relies is its analysis
as to whether Guam was a “person,” not as to whether its
officials were. As to the officials sued in that case, we relied,
12
Guam suggests that, if there were an irreconcilable conflict, the proper
course would be to follow the earlier-decided case, relying on United
States v. Rodriguez-Lara, 421 F.3d 932, 943 (9th Cir. 2005), overruled on
other grounds by United States v. Hernandez-Estrada, 749 F.3d 1154 (9th
Cir. 2014). Not so. Rodriguez-Lara did approvingly cite H & D Tire &
Automotive-Hardware, Inc. v. Pitney Bowes Inc., 227 F.3d 326, 330 (5th
Cir. 2000), which noted that “[w]hen panel opinions appear to conflict,”
panels of the Fifth Circuit follow “the earlier opinion.” But we do not
follow the Fifth Circuit’s rule, and we do not understand Rodriguez-Lara
to have jettisoned the rule established by our en banc court in Wards Cove
with a “see also” citation.
18 PAESTE V. GOV’T OF GUAM
as the Supreme Court noted, Ngiraingas II, 495 U.S. at 185,
on the established doctrine that “a suit where the relief sought
would affect the public treasury and public administration[]
is deemed to be a suit against the government itself” in
holding that “the individual defendants acting in their official
capacities [were] not amenable to suit under section 1983,”
Ngiraingas I, 858 F.2d at 1372. In other words, Ngiraingas
I’s holding as to the official-capacity defendants was
explicitly predicated on the fact that the suit was one seeking
damages. Ada recognized the rule precluding suits for
damages against officials in their official capacities, but also
recognized the established, contrary principle applicable to
suits seeking prospective relief. 962 F.2d at 1371.
In sum, the official-capacity defendants in this case are
“persons” within the meaning of § 1983 for purposes of
prospective relief.
C.
Guam next argues that none of the conduct at issue in this
case was undertaken under color of territorial law. The
Organic Act, which established Guam’s territorial income
tax, is, indeed, a federal statute passed by Congress and
signed by the President. See 48 U.S.C. § 1421i. Section
1421i establishes, with some exceptions not important in this
case, a Guam tax code “mirroring the provisions of the
federal” Internal Revenue Code, another federal statute, and
delegates enforcement and collection authority to Guam
officials. Bank of Am., Nat. Trust & Sav. Ass’n v. Chaco,
539 F.2d 1226, 1227-28 (9th Cir. 1976) (per curiam); see also
Gumataotao, 236 F.3d at 1079–81; Sayre & Co. v. Riddell,
395 F.2d 407, 410 (9th Cir. 1968) (en banc). How, Guam
PAESTE V. GOV’T OF GUAM 19
asks, could the implementation of two federal statutes
constitute action under color of territorial law?
At the outset, we note some confusion regarding the
extent to which the Taxpayers rely on § 1983. In its briefing,
Guam asserted that both the claims in this case were brought
under § 1983; the oral argument suggested confusion on this
score. The complaint is quite clear, however, that only the
equal protection claim is asserted under § 1983, and the
district court was even clearer: “Plaintiffs’ first cause of
action . . . is for violation of the Organic Act of Guam,
48 U.S.C. § 1421i,” while “Plaintiffs’ second cause of action
. . . is under 42 U.S.C. § 1983 for violation of the Equal
Protection Clause.” The district court was right — only the
equal protection claim was asserted under § 1983.
This clarification goes a long way towards answering
Guam’s argument. The equal protection claim brought under
§ 1983 is that Guam officials established an expedited refund
process that was so standardless and arbitrary that it violated
principles of equal protection. That process was not
established by Congress and signed by the President; it is not
mentioned in the Organic Act or the Internal Revenue Code.
It was created and administered entirely by Guam officials.
Those officials used the power vested in them by virtue of
their position as territorial officers to authorize or refuse
refunds of tax overpayments collected by Guam, held by
Guam, and obliged to be refunded by Guam. No officer or
agency of the federal government was involved at any point.
Moreover, even if implementation of a federal law (other
than the Constitution) did in some sense underlay the § 1983
claim, that circumstance would not alter our conclusion that
the defendants acted under color of territorial law. “The
20 PAESTE V. GOV’T OF GUAM
traditional definition of acting under color of state law
requires that the defendant in a § 1983 action have exercised
power ‘possessed by virtue of state law and made possible
only because the wrongdoer is clothed with the authority of
state law.’” West v. Atkins, 487 U.S. 42, 49 (1988) (quoting
United States v. Classic, 313 U.S. 299, 326 (1941)). “Thus,
generally, a public employee acts under color of state law
while acting in his official capacity or while exercising his
responsibilities pursuant to state law.” Id. at 50; see also
Naffe v. Frey, 789 F.3d 1030, 1036 (9th Cir. 2015).
We recognize that suits against territorial officers are
importantly different from those against state officers.
Because territories are organized under federal law, see U.S.
Const. art. IV, § 3, cl. 2, the actions of territorial officers are
always, in some sense, under color of federal law. But that
cannot be, and is not, the sense in which that term is used in
§ 1983. Section 1983 does not generally authorize challenges
to actions taken under color of federal law, but it does,
expressly, contemplate suits for violations of federal rights
under color of territorial law. See District of Columbia v.
Carter, 409 U.S. 418, 424-25 (1973) (noting that, “with the
exception of the Territories, actions of the Federal
Government and its officers are at least facially exempt from
[§ 1983’s] proscriptions” (emphasis added)) (footnote
omitted); Ada, 962 F.2d at 1371. So the same general
principles apply to the interpretation of “under color” in cases
involving territorial officers as apply in cases involving state
officers. Otherwise, the inclusion of “Territory” in § 1983
would be rendered largely nugatory.
All of the § 1983 defendants in this case were territorial
officers, accused of administering the expedited refund
program while acting in their official capacities, or, in other
PAESTE V. GOV’T OF GUAM 21
words, using “power possessed by virtue of [territorial] law
and made possible only because [they were] clothed with the
authority of [territorial] law.” West, 487 U.S. at 49 (internal
quotation marks omitted).13 For that reason, Williams v.
United States, 396 F.3d 412 (D.C. Cir. 2005), on which Guam
relies, undercuts its argument. Williams held that the
defendant’s conduct was not undertaken under color of
District of Columbia law, even though he had arrested the
plaintiff for a violation of District of Columbia law, because
he was “a federal official, not a D.C. official” and “the
District of Columbia had no authority over him and thus did
not exercise coercive power through him.” Id. at 415
(internal quotation marks and alteration omitted). In other
words, while the officer applied and effectuated District of
Columbia law, he was still, as a federal official, acting under
color of federal law. Here, the opposite is the case. The
defendants are, and acted as, Guam officers, not officers of
the federal government, and so, even if they were effectuating
federal law, they were acting under color of territorial law.
Guam argues otherwise, maintaining that the particular
contours of Congress’s delegation to Guam officials of
authority to administer Guam’s income tax, see Chaco,
539 F.2d at 1227, indicates that the defendants were in reality
acting under color of federal law. We see no basis for
establishing a special carve-out limited to the relationship
between Congress and Guam officials established by the tax
provisions at issue here. Our caselaw indicates that these
13
While this case, unlike Ada, does not challenge the enforcement of a
territorial statute, see 962 F.2d at 1368, § 1983 refers as well to an
“ordinance, regulation, custom, or usage,” thereby expressing a
conception of action under color of territorial (or state) law broader than
one limited only to statutes. 42 U.S.C. § 1983.
22 PAESTE V. GOV’T OF GUAM
defendants would be properly sued under § 1983 even if the
actions they took as territorial officers were required by
federal law.
In Tongol v. Usery, 601 F.2d 1091 (9th Cir. 1979), a class
of plaintiffs sued the federal Secretary of Labor and three
California state defendants, seeking to invalidate a regulation
promulgated by the Secretary that required state officials to
recover overpayments of unemployment benefits despite state
laws permitting waiver of such recoupment. Id. at 1094. The
district court invalidated the regulation, and we affirmed. Id.
at 1095–96. The district court held, however, that attorney’s
fees were not available under 42 U.S.C. § 1988 for the
plaintiffs’ claim under § 1983, because the suit attacked a
federal regulation, and the state, through the official-capacity
defendants, was “simply implementing the federal regulations
as it was obliged to do.” Id. at 1096–97 (internal quotation
marks omitted). We disagreed.
The “under color” requirement of § 1983, we held in
Tongol, was satisfied even though the regulation implemented
was federal. “[T]he relevant inquiry focuses not on whose
law is being implemented, but rather on whether the authority
of the state was exerted in enforcing the law.” Id. at 1097.
“The state officials who sought to recover these . . .
overpayments were empowered to act only by virtue of their
authority under state law,” and so “were acting ‘under color
of state law’ within the meaning of section 1983.” Id.
Similarly here, even if the territorial officials had been
obliged by federal law to institute the arbitrary expedited
refund process — which they most certainly were not — they
were empowered to act only in their capacities as territorial
PAESTE V. GOV’T OF GUAM 23
officers. Thus, they were acting under territorial law within
the meaning of § 1983.14
III.
We arrive, finally, at Guam’s only challenge to the district
court’s merits decisions.15 Guam challenges one particular
provision of the district court’s permanent injunction, the
requirement that Guam pay refunds within six months once
Guam determines that the requests are valid and not subject
to investigation or audit. According to Guam, that
requirement is grounded in a legal error. We review the
district court’s legal conclusions underlying the injunction de
novo and the scope of the injunction for abuse of discretion.
Armstrong v. Brown, 768 F.3d 975, 979 (9th Cir. 2014).
The district court stated in its conclusions of law that “the
provisions of the Internal Revenue Code applicable on Guam
generally require Defendants to pay refunds to taxpayers no
later than six months after the filing date of the corresponding
claims for refund,” a legal conclusion Guam contends is
14
Nor do we think, as Guam suggests, that our decision today undercuts
our cases interpreting and applying the tax provisions of the Organic Act.
We are not interpreting those provisions, but simply applying the settled
meaning of § 1983. Furthermore, to the extent that, as Guam contends,
territorial residents may have greater access to attorney’s fees under
§ 1988 than those who challenge similar tax practices by the federal
government, that is a product of Congress’s choice to include those acting
under color of territorial law, but not those otherwise acting under color
of federal law, within the scope of § 1983.
15
Guam has raised no substantive challenge to the district court’s
holding that Guam violated equal protection, nor to its holding that Guam
violated the Organic Act by failing to “set[] aside revenues as needed to
refund overpayments and pay[] the refunds owed to Guam taxpayers.”
24 PAESTE V. GOV’T OF GUAM
wrong. In support of the six-month deadline in the
injunction, the district court provided the following analysis:
“Under the Internal Revenue Code, a taxpayer can sue to
recover his or her refund six months after its filing date,
26 U.S.C. § 6532(a)(1), signifying that a taxpayer’s right to
a refund vests at that time, unless there is an offset, audit, or
some other administrative reason that justifies continued
withholding of the payment.”
Section 6532(a)(1) provides, in relevant part:
No suit or proceeding under [26 U.S.C. §]
7422(a) for the recovery of any internal
revenue tax, penalty, or other sum, shall be
begun before the expiration of 6 months from
the date of filing the claim required under
such section unless the Secretary renders a
decision thereon within that time . . . .
26 U.S.C. § 6532(a)(1). As Guam points out, § 6532(a)(1) is,
on its face, a limitation, prohibiting suits until six months
have elapsed; it does not state directly when the IRS must
provide refunds within that period. The district court
recognized as much. Guam challenges the six-month
provision of the injunction as impermissibly based on an
interpretation of § 6532(a)(1) as something more than a
requirement that a request for a refund pend for the requisite
period before a suit seeking a tax refund can be filed in court.
We need not decide whether the district court’s
statements, if so understood, would constitute legal error.
Our question here is solely whether the district court’s
inclusion in the injunction of a six-month deadline for paying
refunds was an abuse of its discretion. To decide that
PAESTE V. GOV’T OF GUAM 25
question, we consider that provision in the context of the
totality of the district court’s articulated concerns, as
expressed during the summary judgment hearing.
In discussing the Organic Act claim at the hearing, the
Taxpayers suggested that an injunction should require Guam
to pay refunds “in a timely manner” and “in an ordinary
course.” The court expressed concern that an injunction
including a vague limitation “to the effect [of] ‘a reasonable
time period’ or ‘in due course,’” would “just bring another
lawsuit because there’s no guidance being given as to a time
frame for” disbursing refunds. The Taxpayers agreed that
was a “fair point” and suggested that “it’s fairly evident from
the Internal Revenue Code[,] which allows a taxpayer to file
a lawsuit to [sic] their refund after six months, that the
corollary to that is that once six months has passed, they have
a right to their refunds” and “[s]o if the Court is interested in
setting a time period, that would certainly be one which
makes sense to us.”
This colloquy indicates that the district court included the
six-month pendency period of § 6532(a)(1) only as a
benchmark for a reasonable time limitation, and included that
time period in the injunction to give sufficient specificity for
enforcement purposes. Understood in this light, the six-
month provision of the district court’s injunction was well-
supported. Section 6532(a)(1) is certainly indicative of
Congress’s expectation that six months is a sufficient period
for administrative processing of a valid claim for a tax refund.
And a reasonable time limitation was amply justified by
Guam’s chronic failure to pay refunds, sometimes for years,
and the court’s concern that an indefinite injunction would
only spark new litigation. Such a limitation was well within
the court’s broad discretion in fashioning relief. See State of
26 PAESTE V. GOV’T OF GUAM
Cal. Dep’t of Soc. Servs. v. Thompson, 321 F.3d 835, 857 (9th
Cir. 2003).
Guam contends that, even apart from the purported legal
error, the six-month period was simply too short, and
unjustifiably tied Guam’s hands in administering its budget.
More broadly, Guam suggests that, under the Internal
Revenue Code and the Organic Act, it has the power to defer
refund payments for its own budgetary purposes for as long
as it pleases, so long as it eventually pays the overpayment
back with interest. See 26 U.S.C. § 6611.
We thoroughly disagree. These tax overpayments were
never Guam’s to begin with, and it has no legal claim to
them. See Weber v. C.I.R., 138 T.C. 348, 356 (2012) (“[T]he
IRS ‘shall’ refund any overpayment not otherwise credited
. . . .”) (quoting 26 U.S.C. § 6402(a)); Estate of Michael ex
rel. Michael v. Lullo, 173 F.3d 503, 509 (4th Cir. 1999) (“If
a tax payment is an ‘overpayment,’ the IRS must refund it.”)
(quoting 26 U.S.C. § 6402(a)).16 If anything, allowing Guam
six months to honor refund requests it has determined to be
valid and not subject to audit or investigation is more
solicitous than necessary to Guam’s concerns. We discern no
abuse of discretion in the district court’s six-month limitation,
and affirm the district court’s injunction in full.
IV.
We acknowledge that many governments struggle to
balance their budgets, particularly in times of economic
uncertainty and increasing fiscal demands. But, as the district
16
We express no view as to extraordinary circumstances, such as war or
natural disaster, that might justify delay in refunding tax overpayments.
PAESTE V. GOV’T OF GUAM 27
court correctly concluded, Guam’s solution — refusing to pay
concededly valid requests for income tax refunds for years on
end — was illegal. Guam’s policy also fell most heavily on
taxpayers of limited means, while expedited refunds were
available to those with personal or political connections. As
the district court held and its injunction assures, Guam must
find another way to deal with its fiscal difficulties.
AFFIRMED.