LEVIN v. COMMERCE ENERGY, INC.

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ORAL ARGUMENT OF BENJAMIN C. MIZER ON BEHALF OF THE PETITIONER

Chief Justice John G. Roberts: We will hear argument next this morning in Case 09-223, Levin, the Tax Commissioner, v. Commerce Energy.

Mr. Mizer.

Mr. Mizer: Mr. Chief Justice, and may it please the Court:

Respondents are natural gas suppliers who object to the way Ohio taxes them.

Their suit belongs in State court rather than Federal court for two independent reasons.

First, principles of comity and federalism dictate that the State court should resolve challenges to the validity of their own tax laws.

And second, the Tax Injunction Act squarely prohibits Federal courts from issuing declaratory judgments holding State tax laws unconstitutional.

Although either of these grounds would independently support reversal of the Sixth Circuit here, the analysis can really begin and end with the comity doctrine, because that is where the lower courts have shown confusion in the--

Justice Stephen G. Breyer: Before you get into that, I have a question that there may be an obvious answer to, but I haven't found it.

My understanding is -- it's a standing question.

My understanding is that they are asking as relief, and the only relief they ask for, is to raise the taxes of a competitor.

Am I right?

Mr. Mizer: --That is how they have -- that is the case, correct.

Justice Stephen G. Breyer: Okay.

If that's correct, I have found no case that -- I haven't looked that hard, but certainly no case in this Court -- that said there is standing for a firm to challenge the taxes of a competitor where the remedy is: Raise his taxes.

If there were standing for such a thing, it would -- I'm surprised that there aren't competitors all over the country doing business out of State bringing diversity cases in Federal court, saying: My competitor's taxes should increase; it's all very complicated, but the Commissioner didn't properly follow State law.

Now, I have found no case, certainly not in this Court, which said: Where all you want is to raise the tax of a competitor, you have standing.

So perhaps this is well-settled that you can do it, but I thought I would raise that for both of you at the beginning in case there is something you want to say about it, which might save me a little time looking it all up.

Mr. Mizer: Well, I think there is a good reason that there -- there aren't cases in the Federal courts to that effect, but it's not a standing problem.

And to address the standing point directly, it's because they do claim an injury that is cognizable.

Under Dennis v. Higgins, they are claiming a dormant Commerce Clause injury.

Justice Stephen G. Breyer: I have no doubt, and the standing rule I think is clear, that if we're saying because I am injured, and they have injury, you can't -- you must give me reduction in my tax.

That's what those cases say.

I have no problem with that.

Absolutely clear.

You can do it.

But where all you want is to raise somebody else's taxes, that I had thought -- and probably wrongly, but I had thought there is a prudential standing rule that says you cannot bring such a lawsuit.

And I don't see why you should be able to.

It seems to me it would be a nightmare if you could, which doesn't surprise.

So there we are.

That's the question.

And you will tell me: No, it's all clear; they can do it.

And I would like some citation or something and explain why they should be able to do it.

But you don't want to, anyway.

It's really for them.

Mr. Mizer: I am not aware of any prudential standing rule, Your Honor, any case, but that's because the Tax Injunction Act and the comity doctrine have always prohibited such a case.

And so that's why there's a lack of citation in the--

Justice Anthony Kennedy: Well, I suppose in discrimination cases, if there is a discrimination men versus women one way to resolve it would be to have either -- either rule apply to both sides.

Mr. Mizer: --That's right.

And the Court has said that in cases like Davis and McKesson, where a tax credit has been struck down as unconstitutional for either dormant Commerce Clause or equal protection reasons.

And this Court, in Davis and McKesson, said: Well, you can extend the credit if you wish or you can also contract the credit, but either way--

Justice Antonin Scalia: On the other hand, until the Administrative Procedure Act was enacted, which -- which eliminated all prudential bars to standing -- it clearly was the law that you could not complain about preference, unlawful preference, being given by the government under regulatory provisions to a competitor.

The law was: That's tough luck.

There was no standing.

And that was a prudential law, I assume.

And I don't know why it's any different from the tax law.

Mr. Mizer: --And cases would have existed challenging State tax laws, regardless of the APA for Federal challenges, because the -- and those cases all would have existed in the State courts, because that is where State tax laws and State administrative procedures are best challenged.

The -- the rule of comity holds that the Federal courts should not entertain a challenge to a State tax law where that challenge would either disrupt the operation of the State tax regime or would intrude into the meaning or application of the State tax law.

Both of those elements are true here.

This suit is disruptive because the suit goes to the very core--

Justice Sonia Sotomayor: --State law is unclear here that would require Federal interpretation?

Mr. Mizer: --At pages 27 to 33 of the blue brief, we identify all of the ways in which the parties, the State and the Respondents, dispute the application and meaning of State tax law, particularly as to what taxes should be compared for apples and oranges purposes.

And the tax -- the Ohio tax question that's at issue is: What is a franchise tax versus what is a State tax?

There is also the disruption of the application of State tax law here, because any remedy that would be afforded would necessarily alter the way that the State can -- can tax--

Justice Sonia Sotomayor: So why can't the Pullman doctrine or the Burford doctrine, abstention doctrines, be enough to counsel Federal abstention in this case?

Why do we have to create another exception to Hibbs and not go to another established abstention doctrine?

Mr. Mizer: --The Court doesn't have to create anything, Your Honor, because Fair Assessment and Great Lakes already say that the Burford and Pullman principles get sort of bonus points in the tax context.

And then--

Justice Sonia Sotomayor: So why did you -- did you argue Pullman in the court below?

Mr. Mizer: --Yes, the principles of abstention were argued in the district court and--

Justice Sonia Sotomayor: No, no, no, no.

Did you cite Pullman and did you argue it on a Pullman abstention basis?

Mr. Mizer: --To be frank, I don't know if Pullman was -- was specifically cited, but that's because Fair Assessment itself, which was heavily cited in the lower courts, incorporates the principles of Pullman and Burford and says that these tax questions raise -- that these tax challenges raise questions about the meaning of State law, about the operation of a complicated regulatory regime, and so they are better left to the State court.

The -- the application of the State law here is particularly disruptive, because the tax laws being challenged intersect integrally with the regulatory regime.

Just to give one example, among the taxes that Respondents are objecting to is the gross receipts tax, which public utilities, the local distribution companies, pay, but the non-public utilities like Respondents do not pay.

The gross receipts tax is relevant on both the tax and regulatory side of the ledger, because it's a tax but it's then also a cost that as we explain at page 6 of the blue brief, may be included in the gas cost recovery formula for the rate that the public utilities may charge their customers.

And those rates are approved by the Public Utilities Commission of Ohio.

So if the gross receipts tax is eliminated, it will affect the regulatory side of things as well.

And that distinguishes this case from Hibbs.

Justice Samuel Alito: Do you think it's -- it's correct -- in relation to Hibbs, is it accurate to say that you think that this case is different from Hibbs for essentially three reasons: That this one involves a complicated analysis of State law and Hibbs did not; that this one would potentially have a substantial financial effect on the State and in Hibbs that would not happen; and this case involves claims under the dormant Commerce Clause and equal protection rather than the Establishment Clause?

Does that -- are those -- does that capture it or is there something more?

Mr. Mizer: The first two especially capture it, Your Honor.

And I think the third point is really just an additional explanation of the first two points, because in an establishment clause challenge like Hibbs, the remedy is often going to be very simple.

In Hibbs, for example, there was a credit being challenged.

And the Federal court could simply pull the thread of that credit, and the rest of the fabric of the Arizona tax scheme would remain intact.

Here, by contrast, if the thread of the gross receipts -- sorry, of the sales tax and the commercial activities tax is pulled, the fabric of the State's taxation and regulatory regime will unravel.

Justice Samuel Alito: Well, suppose if this -- you have the dormant Commerce Clause claim and it doesn't require a complicated analysis of State law.

You have different rates of taxation, let's say, for two different categories of entities, and it's really not a very important tax credit, so pulling the thread isn't going to have much effect.

And this case -- then the case would come out differently?

Comity would not bar that action?

Mr. Mizer: I think it would be a much closer case, Your Honor, but still there would be an interest in allowing the State courts to resolve that challenge, because as the Court has explained, when a State court is -- is trying to address a constitutional challenge that involves the application of State law, it can engage in constitutional avoidance in ways that the Federal courts cannot.

The State courts also have greater competency, of course, with their own tax law, and they have a greater remedial panoply available to them.

So, in your hypothetical, Justice Alito, the -- the Federal court could not order a decrease in the taxes of the challenger because that, as Hibbs explains, would be revenue depleting, whereas if it were in State court, the State court could decrease the revenue -- sorry -- decrease the taxes of the challenger, and then that would allow the State courts most naturally to remedy the--

Justice Sonia Sotomayor: Let's assume that States have a law that said, we are going to do different tax schemes for African Americans than from whites.

And they do exactly what is done here.

They are going to tax on one thing but not on another.

They are going to give an exemption in one area, but not another.

Is that a case that would have to be -- an equal protection challenge that would have to be decided in State court?

Mr. Mizer: --Fair Assessment says in footnote 4 that if it doesn't -- if such a challenge doesn't require scrutiny of the meaning and application of State laws, then it may -- Fair Assessment suggests that such a case might be able to proceed in Federal court.

But if the -- if the challenge does require scrutiny of State law or resolution of -- of unclear State law questions, then it should be in State court, and there is no reason--

Justice Sonia Sotomayor: I don't know if that is an answer to my question or not.

I -- I -- the only thing I changed in the hypothetical was that the challenge was an equal protection challenge race -- based on a suspect classification.

But the credit system is no different.

Would or would not that require--

Mr. Mizer: --I see, Your Honor.

And if it were equally complicated, then it is a challenge that should go to the State courts, because there is no doubt that the State court can handle Federal constitutional questions and along the way, they might be able to construe the State law in a way that avoids the constitutional shoals--

Justice Anthony Kennedy: And you reach that conclusion under the comity principles of Fair Assessment?

Mr. Mizer: --I do, but also because the Tax Injunction Act would exclude the case if it would have revenue depleting effects--

Justice Anthony Kennedy: Revenue depleting.

Mr. Mizer: --on the State coffers.

And the remedy might, in that case, have such an effect if -- if the -- if the result is to tilt the balance heavily against a party who then needs to have its own taxes assessed.

Justice Anthony Kennedy: I am curious to know why neither opinion in Hibbs addressed the comity principle and I would like your view on that.

I know what you are thinking.

Your answer is: Well, you tell me,--

[Laughter]

--but, why wasn't that addressed in your view?

Mr. Mizer: Well, it was fully briefed in Hibbs, and that is I think why the Court addressed comity in footnote 9.

And footnote 9 of Hibbs simply says that the comity doctrine doesn't cover such a challenge.

And the explanation, I think, of footnote 9 is that the Court cited both Fair Assessment and Great Lakes.

And those cases stand for the proposition that when a -- a tax challenge has a disruptive effect, for all practical purposes, on the collection or administration of the State tax regime, then comity bars it.

And so when the Court in footnote 9 of Hibbs said challenges are barred by comity if they arrest or countermand State tax collection, it was -- it was speaking about the kind of cases at issue--

Justice Ruth Bader Ginsburg: It wasn't brought up -- comity wasn't brought up in Hibbs because if the -- if there was an alleged constitutional violation, then there was only one way to go.

The parochial -- the payments to the parochial schools could not be -- had to be eliminated, so there was no question of abstention versus invalidation or doing something else that was fancy.

That's -- that's why this case is nothing like that, because there was only one way -- only one cure.

But you mentioned here there were various things.

What -- the Federal court could -- is -- is being asked to increase somebody else's taxes.

That's a very strange notion.

But what could the State court do?

The same case in State court -- and let's assume there is a constitutional violation, either the Commerce Clause or the equal protection.

What could the State court do that a Federal court couldn't?

Mr. Mizer: --I think there are three options available to the State court.

First, it could decrease the -- the taxes on the challengers, even if they don't ask for such a decrease.

They could also increase the challenges -- the taxes on the local distribution companies, or they can do what the Ohio Supreme Court has done in the education context, for example, which is to declare unconstitutionality and then leave it for the General Assembly, the Ohio legislature, to fix the problem and then come back with a remedy.

If -- if that kind of relief were ordered by the Federal court, it would mean Federal court oversight essentially of Ohio budgetary processes, which this Court has repeatedly discouraged--

Justice Samuel Alito: May I come back to your answer to Justice Ginsburg's question?

Would it be beyond the ability of the Arizona courts, had that case been -- had Hibbs been brought in Arizona, to hold that under whatever principles of severability Arizona has, the tax credits for some private schools could not be stricken without striking the entire provision?

Mr. Mizer: --I think the entire provision would have to be stricken in Hibbs because of the nature of the as-applied challenge there.

They were saying that all the money was going to private schools, private religious schools--

Justice Samuel Alito: The point is that -- that one possible -- if there was an Establishment Clause violation, one remedy would be to prohibit credits for payments made to religiously affiliated schools, but allow the credits for other private schools.

But under principles of severability, couldn't an Arizona court say that can't be severed from -- from allowing the credits for payments to secular private schools?

Mr. Mizer: --That's probably right, Your Honor, and the -- what it illustrates is that often State courts have available to them remedies that Federal courts may not, particularly when plaintiffs have pleaded the case in such a way as to tie one hand behind the Federal court's back.

Justice Samuel Alito: Doesn't that suggest Hibbs should have come out the other way?

Mr. Mizer: Well, to be frank, Your Honor, the State of Ohio joined an amicus brief urging the opposite outcome in Hibbs.

But we are not urging the overrule of Hibbs here.

We think that, even on Hibbs' own terms, the Tax Injunction Act applies here to preclude this challenge in Federal court.

And to return to Justice--

Justice Anthony Kennedy: If -- just one more.

If the remedy is likely to be we will leave it up to the legislature -- you had -- you had two or three different optional remedies -- would we say that that is an adequate State remedy?

Mr. Mizer: --Yes, I believe so, Your Honor.

Because so long as the challenger would be able then to -- to seek some sort of contempt action if the -- if the remedy were not--

Justice Anthony Kennedy: Contempt of the legislature?

Contempt did you say?

Mr. Mizer: --Of the -- of the tax commissioner.

If the tax commissioner is continuing to collect unconstitutionally unbalanced taxes, then I should think that there should be some enforceability there.

But the adequacy of the challenge available is -- is measured, as this Court explained in Rosewell, purely by procedural measures.

And so for -- in Rosewell the question was whether or not the parties could go to State court and would procedurally be able to get access to State court to resolve their claim and that is clearly true and no one contests that here.

The -- to return to Justice Sotomayor's question about the -- the racial cases, that may seem troubling, if a racial challenge is excluded from Federal court, but -- but there is no doubt that State courts can resolve such claims and in fact the Ohio Supreme Court handles tax cases as a routine matter.

Justice Ruth Bader Ginsburg: Where is -- the cases running up to Hibbs, those were all cases that involved racial discrimination, and they were in the Federal courts.

Mr. Mizer: They were, Your Honor, and in -- in every case that we have examined one of two things was true: Either the party was claiming standing not based on the fact that he himself was subject to unconstitutional taxes; or the party was not -- did not have an adequate remedy in the State court.

For example, in the Griffin case this Court said that the problem was that in Virginia nothing was being done to remedy the -- the unconstitutional burdens imposed there.

And so the lack of an adequate remedy both under the comity doctrine and under the Tax Injunction Act allowed the plaintiffs there access to the Federal courts.

And so the comity rule that we are advocating, which is clearly laid out in both Fair Assessment and Great Lakes, would not have any effect on those cases because of the lack of an adequate remedy.

Justice Stephen G. Breyer: Is there anything -- I see in their complaint, they ask for

"such other relief to which plaintiffs are entitled. "

and therefore the judge, despite what they say, might just say: Well what you are entitled to is you are entitled to pay fewer taxes.

Is that a plausible thing, in which case it would interfere with the revenue collection of the State.

Mr. Mizer: We think--

Justice Stephen G. Breyer: What is -- what's your -- you better give me your accurate assessment, not just agree with me, because I would like to know what you -- I want to know both sides.

Mr. Mizer: --The Tax Injunction Act would bar the Court, I think, from entering an order that says the taxes on the challengers are decreased, which illustrates the reason that the State of Ohio with its sovereign interest in its own tax policy--

Justice Stephen G. Breyer: But I have no idea -- why I am asking the question is I have no idea or little idea of the underlying State law merits.

And my suspicion is in about 10 or 15 minutes I will hear that the State law merits are such that it's virtually impossible that they are going to say to us: Pay fewer taxes.

Rather they will say to our competitors: Pay more taxes.

So now is your chance to reply to that hypothetical argument just in case they make it.

[Laughter]

Mr. Mizer: --Well, first of all, Your Honor, the -- the merits of this case are very much like the merits of General Motors Corporation v. Tracy, which this Court decided about 13 years ago.

But the merits also illustrate the complexity of any remedy that -- that would be ordered in this case, because if it's so simple as the Federal court simply saying that the local distribution companies, the public utilities, now must pay the sales tax and the commercial activities tax, then suddenly those entities would be subject to five taxes, a -- a much greater burden then is imposed on the Respondents.

And then the General Assembly would have to go back to the drawing board to adjust the taxes on the local distribution companies.

So even if the simple remedy that they ask for is entered by the Federal courts, still the State of Ohio has to respond by readjusting its sales tax and its commercial activities tax; and in that event it first of all could easily end up in a net revenue loss for the coffers of the State of Ohio.

It also would mean that the regulatory side of thing would be affected, which brings us back to the Burford principles we discussed earlier, because the taxes, as I said, are integrally connected to the way Ohio regulates public utilities.

And those public utilities have obligations to a captive market that the Respondents don't have to meet.

They serve customers in their area no matter what, whereas Respondents don't have to--

Justice Antonin Scalia: Yes, but this -- but this doctrine, I -- I am not very sympathetic to that argument because this is a doctrine that is directed to the State collecting taxes, not to interfering with State regulation.

That -- that's a different doctrine.

Mr. Mizer: --But Your Honor, I think that Great Lakes and Fair Assessment stand for the proposition that when a Federal court issues an order that invalidates a State tax law, that has a disruptive effect on the collection of taxes; and that would be true here because the State of Ohio would no longer be able -- would not be able to collect five different taxes from local distribution companies without being -- turning around and facing a new challenge on -- on unconstitutionality of that burden by the local distribution companies.

And so the -- the complicated nature of the tax-regulation interplay here is all the more reason that this case belongs in State court, for the State courts to resolve those interconnected questions in ways that they are fully equipped to answer.

The other factor that was relevant to the Court's analysis--

Justice John Paul Stevens: I'm just a little puzzled.

I think you are giving the State court an awful lot of power.

Can it do it without new legislation?

They have to adjust these other taxes, maybe the expenses they deduct in their regulatory filings and all the rest.

But I don't know that the State court has any more authority to grant a judicial remedy than the Federal court would have.

Mr. Mizer: --The State court might be able to enter a remedy, Justice Stevens, that is so simple as enjoining the sales tax exemption and the commercial activities tax exemption for local distribution companies, and then also saying that because the LDCs have to pay those taxes they no longer have to pay the gross receipts tax and the other two taxes that are imposed on them.

That's an order that the Federal court couldn't issue because under principles of both the Tax Injunction Act and the -- and comity--

Justice John Paul Stevens: But the Tax Injunction Act goes to the authority or the jurisdiction of the court to entertain the case in the first place.

I'm not sure the Tax Injunction Act prohibits the remedy that you describe, because there is a difference between filing the suit and entering relief after the suit's been filed.

Mr. Mizer: --With respect, Your Honor, I think that Great -- that Grace Brethren squarely stands for the proposition that a Federal court shouldn't enter an order that says that the State tax law is -- that declares the State tax law unconstitutional and then enjoins it.

And that is exactly what would be required in order to eliminate the additional taxes on local distribution companies.

And that analysis is done at the front end, not at the end after the Court has resolved the constitutional merits and then says, well, I guess I am not able to enter the order that makes the most sense here to resolve the constitutional question.

If there are no further questions I would like to reserve the balance.

Chief Justice John G. Roberts: Thank you, counsel.

Mr. Fitch.

ORAL ARGUMENT OF STEPHEN C. FITCH ON BEHALF OF THE RESPONDENTS

Mr. Fitch: Mr. Chief Justice, and may it please the Court:

Justice Breyer, if I can go directly to your question with respect to standing.

Standing has never been raised in this--

Justice Stephen G. Breyer: That's all right.

It's in the jurisdictional amount.

Mr. Fitch: --I understand, Your Honor.

But because it has never been raised.

I do not have a good answer for you.

What I can say to the Court is that in Hibbs -- recognizing Hibbs was an Establishment Clause claim -- the Court struck down the credit.

There is a recent case out of the First Circuit in Coors where Coors reversed their prior case out of -- involving the Butler Act out of Puerto Rico, and that involved beer distributors challenging a credit or an exemption that Puerto Rico was--

Justice Stephen G. Breyer: They might want to -- in all the Court's cases, the challenger wanted -- he said: I don't care; either make them pay or give me my money back.

Mr. Fitch: --Well--

Justice Stephen G. Breyer: So that -- that should be your case, I would have thought.

But you're not saying it so you can get into Federal court.

Now, that's how I read it.

And that seems -- that's worrying to me.

Mr. Fitch: --Well, Justice Breyer, so -- what I would say is that--

Justice Stephen G. Breyer: The Establishment Clause, I would add, there is a lot of reason for thinking it's special in respect to standing, because there is no other way to challenge the Establishment Clause.

And that is a long-festering disagreement within this Court, but I'm not sure you can apply these rules to everything else.

Mr. Fitch: --And I understand that, Your Honor.

And I guess the point that I'm trying to make is because that issue was not raised, based upon Hibbs, based upon the decision in Coors, we did not see a standing issue based upon this competitive situation you're talking about.

If in fact that is an appropriate question for additional briefing, we would obviously welcome that opportunity--

Justice Stephen G. Breyer: But you see what is worrying me.

What's worrying me is, is there are businesses all over the country and there's Federal tax law, too.

And suddenly people begin to think: Hey, this is a terrific idea; I am going to go through my competitor's tax returns and I will discover taxes they should have paid but didn't, and all of a sudden we will face a lot of lawsuits challenging other people's taxes.

That's what is worrying.

Mr. Fitch: --Okay.

And I would disagree with you, Justice Breyer, for this reason.

There are already substantial limitations on when this type of case can be brought.

We start with the TIA.

It says if we are -- we can't restrain the collection of taxes.

We have the abstention doctrines that have been mentioned.

We have the fact that the Court in a merits situation has to give deference to the States.

And so the point I'm trying to make is that we believe this is a very narrow window.

There is only a very narrow window open.

What we are doing is challenging an exemption granted to a competitor.

Justice Stephen G. Breyer: And this is not true of the other cases.

What do you think of the other half of their argument?

I'll have to think about the standing thing to see if I want to press it or not.

But the other half is: Look at your case.

Your case would just be like -- just like the other cases, if you just said: Give us a refund, as they did in the other cases.

But you haven't said that, because that would run afoul of the Tax Injunction Act.

Rather, what you have said is: Raise their taxes.

So the point of the State is: Now, wait a minute.

Leaving all of the things aside, you asked for other appropriate relief, and it's highly probable in such situations that a Court could -- would say: Give them the exemption.

And if it's going to say, give them the exemption, hey, this is now not within Hibbs.

So what's your response to that?

Mr. Fitch: Your Honor, I don't -- as my friend Mr. Mizer said, I don't believe a court could say: Give them an exemption.

Justice Stephen G. Breyer: Why not?

Mr. Fitch: It would be in violation of the TIA.

Justice Stephen G. Breyer: No, no.

There's a lot of things they could say--

Mr. Fitch: It would interrupt -- interrupt -- it would impede the collection of taxes.

Justice Stephen G. Breyer: --Of course.

Of course.

Absolutely right.

That's what worrying me.

That isn't the answer.

That's the question.

And -- and the -- it's what Justice Kennedy said in respect to discrimination problems.

Usually, either remedy is at issue.

You can't control the remedy because you asked for all other appropriate relief.

Ergo, it falls afoul of the Tax Injunction Act.

What's your response to that?

Mr. Fitch: And I -- I'm -- I'm sorry, Justice Breyer.

We are saying that if we ask for the other relief, if we ask for us to get the exemption, that would impede State taxes--

Justice Stephen G. Breyer: You didn't ask only for the other relief.

You asked for such other relief to which plaintiffs are entitled.

And what they say -- now I repeat the argument.

Okay.

Mr. Fitch: --We did include that phrase.

The relief we are seeking, Your Honor, is the declaratory relief and injunctive relief that we have spelled out with respect to the exemption.

Justice Antonin Scalia: I think your--

Justice Ruth Bader Ginsburg: Suppose the answer -- suppose the answer--

Justice Antonin Scalia: --I think your answer is that relief that would violate the Tax Injunction Act is not appropriate relief.

Mr. Fitch: That's correct, Your Honor.

Justice Antonin Scalia: And therefore not covered by your plea.

Mr. Fitch: And that was not what we were seeking.

Justice Antonin Scalia: Makes sense to me.

Justice Ruth Bader Ginsburg: --Well, there's another little problem.

Do you know of any case where a benefit that A enjoys is taken away from A in a suit where A is not a party?

I mean, you are fighting the Ohio tax commissioner.

You want to take a benefit away from these LDCs, but they are not in the suit.

Don't -- isn't there a little due process problem with that?

Mr. Fitch: The response, Justice Ginsburg, is this.

Number one, in part it takes away a tax benefit from the LDC; in part it takes away a tax benefit from the customers of the LDC.

I know that doesn't make us any more sympathetic.

But the sales tax is paid by the customer.

Now, with respect to the joinder of necessary parties, the motion that was filed by the State, which started all of this 3 years ago after a complaint, also included a motion to dismiss for failure to join necessary parties.

That has also never been addressed.

We responded to that.

The court decided not to refer to it.

We made an argument that it was not necessary in this case to join the LDC's.

The Court has deferred and did not rule.

Justice Ruth Bader Ginsburg: What was that argument?

That you're taking a benefit -- you're saying: The only relief we want is to take this benefit away from people who are not in the lawsuit?

Mr. Fitch: Well, our argument was simply, Your Honor, that we are challenging the exemption issued by the State.

If the -- two points, quickly.

If the LDCs -- at that time, four; now two -- were -- wanted to be involved, they could certainly move to intervene.

The second point was if the Court, of course, ruled that they were necessary parties, then we would have the opportunity to adjoin them.

Justice Samuel Alito: Well, in Hibbs, were all the beneficiaries of the provision that was challenged parties--

Mr. Fitch: I'm sorry?

Justice Samuel Alito: --In Hibbs, were all of the beneficiaries of the provision that was challenged parties in that case?

Mr. Fitch: They were not, Your Honor.

They were not.

Justice Samuel Alito: Was there a due process problem there because of that?

Mr. Fitch: I cannot identify a due process problem there, Your Honor.

There is an issue that has been raised by several of the justices I'd like to address, I think Justice Stevens in particular, with respect to: What if this went to State court?

And I would disagree with my friend.

If this went to State court, we believe that under State law in the education cases that Mr. Mizer were referring to.

It's called the Duroff case, and we have the citation if the Court would like it.

What the Court said was, once we declare the matter unconstitutional, our job is at an end; that it had to go back to the legislature.

We challenged the proposition raised in the amicus brief and raised today, the notion that if this was in a State court, that a State court could go rewrite this statute--

Chief Justice John G. Roberts: You conceded -- I'm sorry.

You conceded below, to quote footnote 2 of the opinion below, that there is an adequate State court remedy available.

Mr. Fitch: --In State court.

We conceded that we could bring this action in State court.

We could seek the injunction in State court.

We could seek the declaratory judgment in State court.

But when we speak to remedy, the point that we are trying to make, Your Honor, because it is the remedy where the Federal court interference becomes the greatest.

What we are saying is: We do not believe a State court has necessarily brought our remedies.

And our--

Justice Sonia Sotomayor: So you are claiming that the Federal court could only power -- only power would be to declare it unconstitutional and send it back the State legislature to decide what to do?

Or you are claiming the Federal court has a power the State court doesn't have, which is to order the exemption to be rescinded?

I'm not sure what your point is.

Mr. Fitch: --Okay.

The point, Your Honor, is this: We believe the Federal court and the State court would have the power to declare under the dormant Commerce Clause and Equal Protection Clause, that this exemption is unconstitutional, that either court could, at that point, enjoin prospectively the operation of that exemption.

The question then becomes: What happens then?

Justice Stephen G. Breyer: So then, in your opinion, your next-door law firm, next to you, brings a case and says: Mr. Fitch should pay $1,000 more taxes next year because he deducted $2,000 that was illegal.

You see that?

You see?

Now I'm trying to bring it home.

There is something wrong with this picture, and I can't quite put my finger on it.

Justice Antonin Scalia: Your next-door neighbor has to be a competitor of yours before it would be an exact parallel, right?

Mr. Fitch: I believe that is correct, Justice Scalia.

Justice Stephen G. Breyer: I mean, your next-door neighbor in your business, which would be a competing law firm.

Mr. Fitch: Yes.

Yes.

But if I can try to bring that point home, because I--

Justice Stephen G. Breyer: But they don't actually bring you into the case.

[Laughter]

Mr. Fitch: --If I could try to bring that point home, Justice Sotomayor.

What we say is we are asking the Federal court to rule on the constitutionality on our Federal claims, enjoin this exemption and the court's work is at an end at that point.

What we believe will happen at that point is that the legislature will be faced with a choice.

How to deal with this--

Justice Ruth Bader Ginsburg: Why should -- why should the Federal court make that choice?

I mean, in the -- in the Federal cases where extension versus invalidation has come up, those were all Federal laws and the court said in the interim, we are going to extend the benefit, we are not going to take away benefits from anyone.

Every one of those cases they extended a benefit until -- unless and until Congress acts, but there was some comfort there because they were dealing -- the Federal court is dealing with Federal legislation.

It seems to me that -- that there is that choice, the State courts are much better equipped to say what should happen in the interim until the legislature acts.

Mr. Fitch: --We do not believe that the Federal court could extend that benefit.

I think we are in agreement there, Justice Ginsburg.

We--

Justice Ruth Bader Ginsburg: The State court could.

Mr. Fitch: --We questioned whether the State could.

We questioned whether if the State court found it was constitutional, whether under Ohio law the State court could extend that benefit.

We think this is a legislative issue.

And there is a point I need to make, because in the briefs and in the argument today you are saying there are two choices.

The two choices are you either extend the exemption to everyone or you eliminate the exemption.

I need to make this point tying into Mr. Mizer's comments about regulation.

There is another option which is the regulatory option.

What we are dealing with here is our utility mandate.

It may be that the legislature opts on a regulatory basis to eliminate this problem and that goes to footnote -- the footnote we have in the brief--

Justice John Paul Stevens: That raises another -- another problem for me.

Your basic standing is similarly situated competitors, one is being taxed and the other is not.

But you are not similarly situated competitors because they are regulated utilities and you are unregulated.

Isn't that right?

Mr. Fitch: --No, Your Honor.

No, Justice Stevens, that's -- that is not correct and that is the whole basis for our filing this complaint, if you looked at the complaint.

That is what the Court said in General Motors v. Tracy.

Justice John Paul Stevens: Right.

Mr. Fitch: And what our -- what our complaint lays out is the sea change of change, we have gone from a regulated situation to essentially an unregulated situation on the gas commodity piece.

There are two pieces.

There is delivery, there is gas commodity.

The gas commodity piece has been essentially deregulated and that is what the Court was focused on in Tracy.

What our complaint very clearly lays out is we believe there has been a change, a factual change in circumstance that will result in a different ruling in Tracy.

Justice Antonin Scalia: Counsel, I -- I hate to introduce another procedural glitch into this thing, but as I -- as I understand it, the State's motion to dismiss was under -- under 12(b)(1), which is a motion to dismiss for lack of subject matter jurisdiction, and that was granted by the court.

The TIA is assuredly a jurisdictional statute, but I had never thought that the comity doctrine was a doctrine of jurisdiction.

In fact, by -- almost by definition it says the court has jurisdiction but nonetheless should decline to exercise any.

You didn't make that objection, though.

Mr. Fitch: I'm sorry, Your Honor?

Justice Antonin Scalia: You did not make that objection.

Mr. Fitch: We did not -- we did not make that objection, I do not believe.

That is the entire discussion of Justice Brennan in his concurring opinion in Fair Assessment, and we think it is an -- an extremely important point.

The district court has jurisdiction in this case.

It has jurisdiction.

The question is, does comity -- should comity tell it not to use that jurisdiction.

And what we are really fighting about here is what are those standards that a district court is going to use to decide whether to -- to use comity to not exercise that jurisdiction.

And what we are saying -- what we are saying in our case is Hibbs did address comity.

The issue was before the Court in comity and Hibbs said, and now four circuits have followed that ruling in Hibbs as well as lower courts and have said, if you are not seeking to impede State tax collection, comity does not bar--

Justice Ruth Bader Ginsburg: But that's because there was only one way to go.

Either the benefit is removed or it's not.

There wasn't the other possibility of decreasing the taxes on your client.

There wasn't an extension versus invalidation.

It was if the constitutional claim was good, it had to be invalidated, the credit had to be invalidated.

Mr. Fitch: --And -- and I think what we are trying to say, Justice Ginsburg, in our -- in our case is we are not trying to seek invalidation.

We -- we -- we are not going to seek the benefit for us.

Justice Ruth Bader Ginsburg: It is not up to you to make that decision, if the State can go either way.

I mean in the extension versus invalidation cases this Court made it very clear, you could go one way or the other, and that was a decision for the court to make, not the litigant.

Mr. Fitch: But, Your Honor, the point we are making is that some court somewhere has to make the decision whether this exemption violates the dormant Commerce Clause in the equal protection case.

And it was our judgment that the best forum for that was in Federal court.

And again, and I -- and I -- if I am not responsive to your question, I apologize, but what we are saying is that, we want to reach the merits on that question of constitutionality.

And once that is done, the remedy is going to lie with the State.

We are not going to ask the Federal judge to decrease our taxes.

We question whether a State judge could decrease our taxes.

We want that declaration and we want that injunction.

That's what -- that's what we are seeking in this case.

And we--

Justice Samuel Alito: Do you -- do you recognize that comity is broader than the Tax Injunction Act, and if it is, how do you justify your argument that would essentially limit the comity doctrine to the contours of the Tax Injunction Act?

Mr. Fitch: --Justice Alito, what the court has said, not only this Court but the First Circuit said in Coors, is what the Sixth Circuit says is that comity extends broader than the TIA.

What they point to repeatedly is Fair Assessment, because Fair Assessment got damages and it was on a comity basis that the Court held in Fair Assessment that you couldn't get around your own liability by bringing a damage claim.

So there's one example.

We believe to some extent, National Private Truck Council is an example.

Because in National Private Truck Council, recall we are dealing with a State court action, not a Federal court action.

In a National Private Truck Council what the court held was under 1983, a State court -- a -- a -- a Federal court would not order -- a State court was not obligated to grant injunctive relief to grant attorneys fees under 1988, and that was based on comity.

In that case there was still an issue of tax collection and impeding tax collection, but certainly that appeared to us to be at least an example of where comity would be brought in to TIA, because the TIA didn't apply in -- in National Private Truck Council.

There was reference to Burford before, as Justice Scalia mentioned.

This is not an abstention case.

There is no question of State law that has to be interpreted here.

There is no doubt who pays the tax and who doesn't pay the tax.

There is no doubt who is an LDC and who is not an LDC.

Justice John Paul Stevens: Let me just go back to my question before.

I understand your point about regulation and nonregulation, but -- but your competitors are subject to a different taxing regime than you are; is that correct?

Mr. Fitch: They are, Your Honor.

Justice John Paul Stevens: And isn't -- is not the reason they are subject to a different tax regime is historically they were in regulated utilities?

Mr. Fitch: To -- to -- to some extent I believe that's correct, Justice Stevens, but my response would be this: If we want to get into them, what taxes do they pay, versus what taxes do we pay -- that's a merits question.

That's a merits question.

Is this a compensatory tax?

I mean, have we made our case -- do they have a defense because they pay different taxes than we do -- that we do, and therefore the State should be permitted to do that?

We would like to reach that question.

But that's a merits question, that's not a -- not a jurisdictional question.

Justice Sonia Sotomayor: And you don't think that the very question of what taxes you compare and don't compare is a matter of interpreting State law?

You don't think that the meaning of State law in terms of what is comparable or not, is not implicated by any of these questions?

Mr. Fitch: We -- we believe it is not, Justice Sotomayor.

You can -- you can look at the taxes and see who they apply to.

It -- it is not a matter -- I -- I strongly disagree with -- with my counterpart.

This is not a matter of interpretation.

And one of the justices asked the question about, was extension -- was Pullman -- was Pullman ever raised?

Pullman was never raised.

My recollection is that in the original motion, they raised Younger, but they quickly dropped Younger because there is no, you know, pending State -- pending State proceeding.

Justice Ruth Bader Ginsburg: But the idea was the Federal court should abstain.

Abstention doctrines are not the most easy to grant, so -- but they did bring up abstention.

Mr. Fitch: Well, but -- very early on they raised it.

They dropped it.

It was -- it was not followed up on, Your Honor.

So -- so the point we are -- we are -- here's the point we are trying to make, as we see it.

We believe the footnote in Hibbs was correct; in all of the Court's prior cases there has been an issue of a taxpayer trying to avoid their own tax and thus impede State tax collection.

We read Hibbs to say under the TIA or comity, you are not precluded from original Federal court jurisdiction if you are not attempting to impede State tax collection.

We do not believe there is any significant difference between our case or that analysis and the -- the case in Hibbs.

As I said, that -- we now have four circuits that have followed that.

But if I -- if I can bring us--

Justice Sonia Sotomayor: When you say that there is no impeding of State court process or taxes, because neither a Federal or State court could order the reduction of the exemption--

Mr. Fitch: --That -- that is correct, Your Honor.

Justice Sonia Sotomayor: --That is -- even though the practical consequence is that that is a remedy that the State could choose, or must consider.

Mr. Fitch: It -- it could, Your Honor.

But -- but--

Justice Sonia Sotomayor: That wasn't an issue, however, in Hibbs.

Mr. Fitch: --That -- that's right.

And the line that is repeated in a number of cases is, the net effect, whether you are talking about the credit in Hibbs or whether you're talking about the exemption in our case, is if the Court puts on that order and the legislature does not come up with a remedy, is that the State would have more money.

In fact it is a question to us, why -- since we have chosen to limit our remedies by seeking a Federal court forum, it -- it--

Justice Stephen G. Breyer: Or why isn't this a Hibbs?

You read the -- clearly the other side says to read the footnote, not as destroying the comity principle.

You know, this is right on the merits.

It still exists, comity.

And you say a strong case for withholding the -- the Federal court's jurisdiction on grounds of comity or withhold -- not hearing the case, is the natural remedy -- which is to give you a refund -- is available in State court.

Go apply for a refund.

No problem.

And that -- and the answer, you know, and then you don't get into all the problem of trying to assess somebody else's liability, et cetera.

What is wrong with that, precisely?

Mr. Fitch: --What's wrong with it, Your Honor, is because what we are trying to do is fix a problem.

The question is, are we forced -- are we limited only to seeking a refund?

Justice Stephen G. Breyer: Why not?

Mr. Fitch: What we're -- because that's not.

Justice Stephen G. Breyer: So not give it -- up to the State?

You could say give us a refund or raise their taxes, one or the other.

What's wrong with that?

Mr. Fitch: The point that we tried to get across in our brief, Your Honor, is that we are in a competitive situation where we are trying to solve a problem, the problem of policy that has been adopted in Ohio or freeing up this--

Justice Stephen G. Breyer: If doesn't solve the problem for you if you get a refund?

Mr. Fitch: --It does not.

Justice Stephen G. Breyer: Why not?

Mr. Fitch: The problem remains.

Justice Stephen G. Breyer: Why?

Mr. Fitch: Well, the problem remains because the exemption still exists.

Justice Stephen G. Breyer: Well, no, no, you have it, too -- they -- they work it out, so it equally applies to everybody including your clients, so you are all on the same footing.

Now what is the problem with that?

Mr. Fitch: And I guess we have to be careful with the term "refund", because what I am saying is -- is that we are dealing with primarily -- we have three taxes to deal with.

One of them is the sales tax, that's what is paid by the consumer; that would require all the consumers to seek, you know, refunds.

It's much cleaner in our view to simply go and get a determination whether this exemption was unconstitutional.

We have forgone the -- the request for damages, we have forgone request for attorneys fees because we have not alleged the 1983 claim.

We are trying to fix a problem.

Justice Breyer, if I can in wrapping this up.

We recognize -- we recognize that this Court has competing interests that it has to weigh in resolving this question.

What we are trying to say is that as I said a minute ago, if you put that in context, the context is there are numerous protections that are already in place for the State to protect them from Federal court interference, and we believe that the decision in Hibbs and the circuits that have followed Hibbs strikes a proper balance for this reason: You -- you -- first of all you protect State tax collection, which has been the historic concern of this Court.

Second, the broad jurisdiction that Congress has given in 1331 in a declaratory judgment statute, is harmonized with the historic comity concerns.

Third, the Court -- as this Court spoke in -- in Hertz, just very recently, as opposed to some vague intrusion test, you have got a clear test that the Court can apply early on to decide whether I got jurisdiction or not.

And finally, the historic right of a plaintiff, which this Court has long recognized -- if there is concurrent jurisdiction, the historic right of a plaintiff to choose the forum in which to have their claims adjudicated is preserved.

If there are no further questions I -- I yield my time.

Chief Justice John G. Roberts: Thank you, Mr. Fitch.

Mr. Fitch: Thank you, members of the Court.

Chief Justice John G. Roberts: Mr. Mizer, you have five minutes remaining.

REBUTTAL ARGUMENT OF BENJAMIN C. MIZER ON BEHALF OF THE PETITIONER

Mr. Mizer: First off, Justice Scalia's question about the 12(b)(1) dismissal motion.

This Court, just a couple of terms ago in the Sinochem case, said that the -- that a Federal court can answer questions of Younger abstention before answering questions of Article 3 abstention.

And so both of these, both the comity and TIA questions in this case, are threshold non-merits questions that can be reached under -- under the Steel Company approach.

Justice Antonin Scalia: All threshold non-merits questions are jurisdictional questions?

Mr. Mizer: No.

The point isn't that they are jurisdictional; the point is that in Sinochem -- the holding in Sinochem, for instance, was that--

Justice Antonin Scalia: What is the case you're citing.

Mr. Mizer: --It's Sinochem v. Malaysian -- Malaysia International Shipping.

And the holding was that the -- the formula--

Justice Antonin Scalia: Do you have a volume anywhere?

Mr. Mizer: --I don't have a volume number at the moment.

Justice Antonin Scalia: Okay.

Mr. Mizer: But the -- the holding was the forum non conveniens doctrine can be addressed before jurisdictional questions, and along the way the Court said that Younger -- specifically said that Younger can be answered before Article 3 standing.

Justice Antonin Scalia: Okay, fine.

It can be answered before jurisdictional questions, but you moved to dismiss for want of jurisdiction.

Mr. Mizer: Well--

Justice Antonin Scalia: And -- and that is not a basis for dismissal here.

The -- the basis is failure to state a claim, I guess, on which a Federal court can grant relief.

But I -- anyway.

Mr. Mizer: --Well, in any event, Your Honor, we do submit that the Tax Injunction Act and the jurisdictional doctrine which would prevail.

Justice Antonin Scalia: That is so -- okay.

Mr. Mizer: And on Justice Stevens' question about the similarly situated or not similarly situated nature of public utilities and nonpublic utilities, Mr. Fitch has pointed to the continuing deregulation in the wake of General Motors Corporation v. Tracy.

But as the Ohio Supreme Court just explained in the Columbia Gas case that we cite in our brief, that continuing deregulation does not change the -- the fundamental holdings in Tracy: That when there is a regulatory burden imposed on a public utility to serve a captive market, that makes that entity not similarly situated to other entities.

And the other point about Tracy and Columbia Gas is that both of those challenges came up to this Court through the lower courts, through the State courts of Ohio.

And so the State courts are perfectly capable of handling this case.

Justice Sonia Sotomayor: Could you answer your adversary's point that neither the Federal nor the State courts would have the power to -- to order the reverse, to order the exemption to be eliminated vis-à-vis -- or to order them to have the exception?

They are claiming that's a -- even in State court, that would not be a remedy that could be ordered.

Mr. Mizer: I disagree with that contention, Your Honor.

The -- Ohio's courts have struck down tax credits on dormant Commerce Clause and equal protection grounds, and so there is precedent for Ohio courts dealing with a challenge like this.

He provides no citation of the inability of State courts--

Justice Sonia Sotomayor: Can you -- can you give me the cite for that case?

Mr. Mizer: --Sure.

The MCI Telecom Corporation v. Limbaugh.

It's available at 625 Northeast 2d 597, and that's a 1994 Ohio case.

Also, SSA Folio Collection v. Tracy at 73 Ohio State Third 119.

The Sinochem citation, Justice Scalia, is at 549 United States 422.

Justice Stephen G. Breyer: Have you found any authority on the following proposition: That a plaintiff, an out-of-State company, brings a suit in Federal court, where the normal relief would be to give him a refund.

He says: I don't want a refund; I just want a declaration; I want to you declare this unconstitutional.

Have you found any case like that?

Mr. Mizer: Yes.

I think Mr. Fitch was correct to cite the Coors Brewing and U.S. Brewers cases out of the First Circuit.

And those cases illustrate the point that Justice Alito asked about, which was the continuing scope of the comity doctrine, because--

Justice Stephen G. Breyer: Wait.

Wait.

Forget comity.

I'm just asking you -- I want to read the right authority.

Can a person, in other words, get around the Tax Injunction Act by pleading his claim and just saying: I don't want an injunction; all I want is a declaration?

It seems to me it should have come up in history.

So I can have the First Circuit cases to look at.

Anything else?

Mr. Mizer: --The First Circuit cases are the most on point, but the other sister circuits who have joined the First Circuit in the circuit split at issue in this case hold to the similar effect, and those--

Justice Stephen G. Breyer: Well, then why don't they win?

Because their first thing, they say: Declaration.

They just want a declaration.

Strike their second claim.

All they want is a declaration.

Mr. Mizer: --Because of Grace Brethren, Your Honor.

If we are talking about the Tax Injunction Act, Grace Brethren holds that even a declaration of unconstitutionality is problematic under the Tax Injunction Act.

Chief Justice John G. Roberts: Thank you, counsel.

The case is submitted.

Print this transcript Transcript: 

Chief Justice John G. Roberts Jr.: Justices Ginsburg has an opinion in this morning in case 09-223, Levin versus Commerce Energy, Incorporated and she's asked me to announce the opinion.

This case concerns the proper forum, state court or federal court, for adjudication of a taxpayer's claim that a state tax system violates the Federal Constitution.

The plaintiffs below and the respondents here are independent marketers who compete with the local public utilities for the sale of natural gas to Ohio's consumers.

They brought suit in federal court complaining that Ohio favors the public utilities by according them certain tax exemptions that are not available to independent marketers.

The favoritism, the independent marketers alleged, is impermissible under the Constitution's Commerce and Equal Protection Clauses.

In 1937 Congress adopted the Tax Injunction Act which provides that federal district courts “shall not restrain the collection of any tax imposed by a state when a plain, speedy and efficient remedy is available in state court.”

The independent marketers argue that the act does not apply to their complaint because they sought no decrease in their own tax liability, instead they wanted Ohio to increase the tax bill payable by their competitors, the local public utilities.

United States Court of Appeals for the Sixth Circuit ruled in favor of the independent marketers holding that their suit could be maintained in federal court.

We reverse that determination.

A doctrine known as comity which antedates the Tax Injunction Act and survives its passage, bars federal court adjudication of challenges to state tax laws or their administration so long as plain, adequate and complete relief is obtainable in state court.

That's a doctrine more embracive than the Tax Injunction Act and it stops plaintiffs like the independent marketers here from resorting to federal courts in the first instance to redress their complaints about uneven state taxation of commercial activity.

Now in reaching our decision we distinguish the Court's 2004 ruling in a case called Hibbs versus Winn.

In that case, Arizona citizens with no tax liability whatever of their own at stake challenged tax credits said to serve as subsidies for parochial school education.

In that establishment clause context if plaintiffs succeeded on the merits only one remedy would address their grievance, invalidation of the credits at issue.

In contrast in the instant case if the independent marketer's Commerce Clause or Equal Protection claims prevailed elimination of the credits accorded to public utilities would not be the inevitable remedy.

The tax bill of the independent marketers might be lowered instead or some other means of equalization devised.

For reasons our opinion develops Ohio authorities are best position to engage in that remedial inquiry.

Justice Kennedy has filed a concurring opinion.

Justice Thomas has filed an opinion concurring in the judgment in which Justice Saclia joins.

Justice Alito has filed an opinion concurring in the judgment.