No. 383 January Term, 1978, Appeal from the Order of the Commonwealth Court affirming the Decree of the Court of Common Pleas of Montgomery County, Pennsylvania: Civil Action No. 77-993 In Equity Dated November 7, 1977
Benjamin R. Jones, Jeffrey A. Less, Patrick J. Broderick, Dilworth, Paxson, Kalish, Levy & Kauffman, Philadelphia, for appellants.
Charles Potash, Roger B. Reynolds, Samuel H. High, Jr., Michael D. Marino, Morristown, Clark F. Hess, King of Prussia, G. Alan Kramer, Harrisburg, for appellees.
Eagen, C. J., and O'Brien, Roberts, Nix, Manderino and Larsen, JJ. Pomeroy, former J., did not participate in the consideration or decision of this case. Roberts, J., filed a concurring opinion. Manderino, J., filed a dissenting opinion.
Appellants, Cedarbrook Realty, Inc. and John W. Merriam and Thomas Wynne, Inc., t/a Cedarbrook Joint Venture (hereinafter collectively referred to as "Cedarbrook" or
"taxpayer"), timely received its real estate billings from Appellees, School District of Cheltenham Township, Montgomery County, Cheltenham Township, and Montgomery County Institution District in 1977. The aggregate asserted tax liability of Cedarbrook to these taxing entities was approximately one million, eight hundred thousand dollars ($1,800,000.00). Cedarbrook failed and refused to pay any sums on account of its tax liabilities to any of the taxing districts. In an effort to collect the substantial tax revenues owed by Cedarbrook for 1977, the taxing districts informed Cedarbrook prior to October 7, 1977, that they would order Charles F. Nahill, Jr., the tax collector of Cheltenham Township to begin sequestration of Cedarbrook's rents if Cedarbrook's taxes became delinquent and remained unpaid on November 1, 1977 pursuant to the statutory authority vested in that official by Section 19 of the Local Tax Collection Law of 1945, Act of May 25, P.L. 1050 § 19, 72 P.S. 5511.19.*fn1 On October 7, 1977, Cedarbrook began an action in equity in the Court of Common Pleas of Montgomery County seeking to restrain the taxing districts from availing themselves of the statutorily granted rent sequestration remedy. The requested injunctive relief was denied by the Court of Common Pleas of Montgomery County and that ruling was sustained on an appeal to the Commonwealth Court. Cedarbrook Page 446} Realty, Inc., et al. v. Nahill et al., 35 Pa. Commw. 352, 387 A.2d 127 (1978). Because of the importance of the questions raised in this action, this Court granted Cedarbrook's Petition for Allowance of Appeal, but denied its request for a continuation of the Stay pending the disposition of this Appeal. For the reasons that follow, we now affirm the Order of the Commonwealth Court.
Cedarbrook asserts that the Chancellor was incorrect in denying the requested injunctive relief arguing that Section 19 is unconstitutional in that it deprives the taxpayer of procedural due process by not providing for a hearing prior to (or after) seizure of the taxpayer's property and in the alternative that Section 19 was impliedly repealed by the provisions of the Real Estate Tax Sale Law of 1947. Act of July 7, 1947, P.L. 1368, No. 542, art. I, § 101, et seq. ; 72 P.S. 5860.101, et seq.
Normally, equity has no jurisdiction to restrain the collection of taxes and the parties should be made to seek the statutorily prescribed remedies. Rochester and Pittsburgh Coal Co. v. Indiana County Board of Assessment and Revision of Taxes, 438 Pa. 506, 266 A.2d 78 (1970). Where there is a challenge that the statutory remedy does not meet the mandate of due process, as is the case here, the claim is in essence an assertion of the inadequacy of the statutorily prescribed remedy and equitable intervention for the consideration of such a complaint is obviously appropriate.*fn2 Thus, the Chancellor properly entertained the challenge and it
would have been appropriate to have given relief if the taxpayer had sustained the due process complaint. We must now consider the Chancellor's determination that Cedarbrook failed to justify the issuance of a preliminary injunction.
When an individual is deprived of property by governmental action, he must be afforded at some point in the proceeding an opportunity to be heard. The point at which this hearing must take place, however, varies with the circumstances. Earlier decisions of the United States Supreme Court clearly approved of tax collection procedures that only provided an opportunity for a hearing through a subsequent suit for redress.*fn3 In Phillips v. Commissioner of Internal Revenue, 283 U.S. 589, 51 S.Ct. 608, 75 L.Ed. 1289 (1931), Mr. Justice Brandeis, writing for the Court, noted that the right of the government to collect its internal revenue by summary administrative proceedings "has long been settled". Id. at 595, 51 S.Ct. 608.
Where, as here, adequate opportunity is afforded for a later judicial determination of the legal rights, summary proceedings to secure prompt performance of pecuniary obligations to the government have been consistently sustained. Compare Cheatham v. United States, 92 U.S. 85, 88-89, 23 L.Ed. 561; Springer v. United States, 102 U.S. 586, 594, 26 L.Ed. 253; Hagar v. Reclamation District No. 108, 111 U.S. 701, 708-709, 4 S.Ct. 663, 28 L.Ed. 569. Property rights must yield provisionally to governmental need. Thus, while protection of life and liberty from administrative action alleged to be illegal may be obtained promptly by the writ of habeas corpus, United States v. Woo Jan, 245 U.S. 552, 38 S.Ct. 207, 62 L.Ed. 466; Ng Fung Ho v. White, 259 U.S. 276, 42 S.Ct. 492, 66 L.Ed. 938,
the statutory prohibition of any "suit for the purpose of restraining the assessment or collection of any tax" postpones redress for the alleged invasion of property rights if the exaction is made under color of their offices by revenue officers charged with the general authority to assess and collect the revenue. Snyder v. Marks, 109 U.S. 189, 3 S.Ct. 157, 27 L.Ed. 901; Dodge v. Osborn, 240 U.S. 118, 36 S.Ct. 275, 60 L.Ed. 557; Graham v. du Pont, 262 U.S. 234, 43 S.Ct. 567, 67 L.Ed. 965. This prohibition of injunctive relief is applicable in the case of summary proceedings against a transferee. Act of May 29, 1928, c. 852, § 604, 45 Stat. 791, 873. Proceedings more summary in character than that provided in § 280, and involving less directly the obligation of the taxpayer, were sustained in Murray's Lessee v. Hoboken Land & Improvement Co., 18 How. 272, 15 L.Ed. 372. It is urged that the decision in the Murray case was based upon the peculiar relationship of a collector of revenue to his government. The underlying principle in that case was not such relation, but the need of the government promptly to secure its revenues. Id. at 595-96, 51 S.Ct. at 611 (Footnote omitted).
In Nickey v. Mississippi, 292 U.S. 393, 396, 54 S.Ct. 743, 744, 78 L.Ed. 1323 (1934) the Court stated:
There is no constitutional command that notice of the assessment of a tax, and opportunity to contest it, must be given in advance of the assessment. It is enough that all available defenses may be presented to a competent tribunal before exaction of the tax and before the command of the state to pay it becomes final and irrevocable. Wells, Fargo & Co. v. Nevada, 248 U.S. 165, 39 S.Ct. 62, 63 L.Ed. 190; Bristol v. Washington County, 177 U.S. 133, 146, 20 S.Ct. 746, 44 L.Ed. 701; McMillen v. Anderson, 95 U.S. 37, 23 L.Ed. 335; see American Surety Co. v. Baldwin, 287 U.S. 156, 168, 53 S.Ct. 98, 77 L.Ed. 231.
The classic rationale in tax collection cases was announced by Mr. Justice ROBERTS in Bull v. United States, 295 U.S. 247, 259-60, 55 S.Ct. 695, 699, 700, 79 L.Ed. 1421 (1935):
A tax is an exaction by the sovereign, and necessarily the sovereign has an enforceable claim against every one within the taxable class for the amount lawfully due from him. The statute prescribes the rule of taxation. Some machinery must be provided for applying the rule to the facts in each taxpayer's case, in order to ascertain the amount due. The chosen instrumentality for the purpose is an administrative agency whose action is called an assessment. The assessment may be a valuation of property subject to taxation which valuation is to be multiplied by the statutory rate to ascertain the amount of tax. Or it may include the calculation and fix the amount of tax payable, and assessments of federal estate and income taxes are of this type. Once the tax is assessed the taxpayer will owe the sovereign the amount when the date fixed by law for payment arrives. Default in meeting the obligation calls for some procedure whereby payment can be enforced. The statute might remit the Government to an action at law wherein the taxpayer could offer such defense as he had. A judgment against him might be collected by the levy of an execution. But taxes are the life-blood of government, and their prompt and certain availability an imperious need. Time out of mind, therefore, the sovereign has resorted to more drastic means of collection. The assessment is given the force of a judgment, and if the amount assessed is not paid when due, administrative officials may seize the debtor's property to satisfy the debt.
In recognition of the fact that erroneous determinations and assessments will inevitably occur, the statutes, in a spirit of fairness, invariably afford the taxpayer an opportunity at some stage to have mistakes rectified. Often an administrative hearing is afforded before the assessment becomes final; or administrative machinery is provided whereby an erroneous collection may be refunded; in some instances both administrative relief and redress by an action against the sovereign in one of its courts are permitted methods of restitution of excessive or illegal exaction. Thus the usual procedure for the recovery of Page 450} debts is reversed in the field of taxation. Payment precedes defense, and the burden of proof, normally on the claimant, is shifted to the taxpayer. The assessment supersedes the pleading, proof and judgment necessary in an action at law, and has the force of such a judgment. The ordinary defendant stands in judgment only after a hearing. The taxpayer often is afforded his hearing after judgment and after payment, and ...