United States District Court, Eastern District of Pennsylvania
April 8, 1999
SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY
BOARD OF REVISION OF TAXES OF THE CITY OF PHILADELPHIA, ET AL.
The opinion of the court was delivered by: Bartle, District Judge.
Plaintiff Southeastern Pennsylvania Transportation Authority
("SEPTA") seeks a declaration that its headquarters and all other
property it owns is exempt from local real estate taxes. It also
requests an injunction to prohibit the assessment and levying of
such taxes. Before the court is the motion of the defendants to
dismiss for lack of subject matter jurisdiction because of the
Tax Injunction Act, 28 U.S.C. § 1341, and for lack of ripeness.
According to the complaint, SEPTA is a metropolitan
transportation authority, a body corporate and politic, created
under the laws of the Commonwealth of Pennsylvania to provide
commuter rail service to the City of Philadelphia ("City") and
neighboring suburban counties. See 74 Pa. Cons.Stat. Ann. §§ 1711
et seq. Its headquarters, which is a subject of the present
dispute, is located at 1234 Market Street in Philadelphia. Since
SEPTA does not presently require the use of the entire building,
it leases a portion to the City and other tenants. In May, 1994,
SEPTA filed an application for a real estate tax exemption with
the Philadelphia Board of Revision of Taxes, which granted SEPTA
an exemption for 85% of the value of the premises. Dissatisfied
with this result, SEPTA has appealed to the Court of Common Pleas
of Philadelphia County.
In the present action, SEPTA contends that it is entitled to be
free of local real estate taxes not only pursuant to state law
but pursuant to federal law as well. SEPTA relies on 49 U.S.C. § 24301(f)
Tax exemption for certain commuter authorities.
— A commuter authority that was eligible to make a
contract with Amtrak Commuter to provide commuter
rail passenger transportation but which decided to
provide its own rail passenger transportation
beginning January 1, 1983, is exempt, effective
1981, from paying a tax or fee to the same extent
Amtrak is exempt.
Defendants do no challenge that SEPTA is a commuter authority
described under § 24301(f).*fn1
Thus, for local tax purposes, §
24301(f) treats SEPTA in the same way as it treats Amtrak. Under
49 U.S.C. § 24301(l)(1), Amtrak is exempt from local real estate
Amtrak, a rail carrier subsidiary of Amtrak, and any
passenger or other customer of Amtrak or such
subsidiary, are exempt from a tax, fee, head charge,
or other charge, imposed or levied by a State,
political subdivision, or local taxing authority on
Amtrak, a rail carrier subsidiary of Amtrak, . . .
after September 30, 1981. In the case of a tax or fee
that Amtrak was required to pay as of September 10,
1982, Amtrak is not exempt from such tax or fee if it
was assessed before April 1, 1997.
Congress enacted this tax exemption as part of comprehensive
legislation to save the nation's dying rail passenger system.
See Nat'l R.R. Passenger Corp. v. Commw. of Pa. Pub. Util.
Comm'n, 848 F.2d 436, 438 (3d Cir. 1988). Through tax
relief, it has sought to help financially strapped rail passenger
commuter authorities and to place part of the burden on the
communities benefiting from their presence. See Southeastern
Pa. Transp. Auth. v. Pa. Pub. Util. Comm'n, 802 F. Supp. 1273,
1278-79 (E.D.Pa. 1992).
Defendants argue, however, that even if SEPTA is exempt from
local taxes, the Tax Injunction Act bars a federal court from
hearing this action. The Act reads:
The district courts shall not enjoin, suspend or
restrain the assessment, levy or collection of any
tax under State law where a plain, speedy and
efficient remedy may be had in the courts of such
28 U.S.C. § 1341. Defendants contend that it would violate the
Act for this court to interfere with the City of Philadelphia's
collection of local real estate taxes when, it is undisputed,
SEPTA has a "plain, speedy and efficient remedy" to challenge the
tax in the courts of Pennsylvania.
In support of its position, defendants cite the Supreme Court's
decision in Tully v. Griffin, Inc., 429 U.S. 68, 73, 97 S.Ct.
219, 50 L.Ed.2d 227 (1976), and its progeny, that the Tax
Injunction Act is to be interpreted broadly. It "has its roots in
equity practice, in principles of federalism, and in recognition
of the imperative need of a State to administer its own fiscal
operations." Tully, 429 U.S. at 73, 97 S.Ct. 219. In keeping with
the Act's purpose, it has been read not only to prohibit
injunctions but declaratory judgments as well. See Behe v.
Chester County Bd. of Assessment Appeals, 952 F.2d 66, 68 (3d
Cir. 1991). The Tax Injunction Act, when applicable, is a
jurisdictional bar to an action in the federal courts. See id.
Despite the Tax Injunction Act, 49 U.S.C. § 24301(l)(2)
provides that "[t]he district courts of the United States have
original jurisdiction over a civil action Amtrak brings to
enforce this subsection [prohibiting local taxes] and may grant
equitable or declaratory relief requested by Amtrak." In its
previous enactment as 45 U.S.C. § 546(b), the section contained
the additional language that the federal courts had authority to
enforce this tax exemption provision "[n]otwithstanding the
provision of section 1341 of Title 28 [the Tax Injunction Act]."
The present version omits the reference to the Tax Injunction
Act. Nonetheless, the congressional report accompanying the
amendments explained that the specific reference to the Act was
simply omitted as surplusage. See H.R.Rep. No. 103-180, at 123
(1994), reprinted in 1994 U.S.C.C.A.N. 4, 940. Thus, it is clear
that the Tax Injunction
Act does not prevent a federal action by Amtrak to enjoin states
and their political subdivisions from taxing it.
The question remains whether the access to the federal courts
afforded Amtrak also applies to commuter authorities such as
SEPTA. While § 24301(l)(2) does not specifically refer to suits
by such entities, we do not view this deficiency as controlling.
For purposes of local taxation, § 24501(g) treats SEPTA like
Amtrak: a commuter authority "is exempt . . . from paying a tax
or fee to the same extent Amtrak is exempt." Under the
legislative scheme designed to save financially threatened
commuter authorities, it would be anomalous for Congress to have
required local tax exemptions and then to have withheld from the
authorities the right to enforce those exemptions in the federal
courts. In Southeastern Pa. Transp. Auth., 802 F. Supp. at
1278-79, Judge Louis Pollak of this court faced the same issue as
we confront here. He held, correctly in our view, that subject
matter jurisdiction existed to enjoin the Pennsylvania Public
Utility Commission ("PUC") from making certain assessments
against SEPTA. The Court of Appeals ultimately affirmed the
District Court's injunction against the PUC. Southeastern Pa.
Transp. Auth. v. Pa. Pub. Util. Comm'n, 826 F. Supp. 1506 (E.D.Pa.
1993), aff'd, 27 F.3d 558 (3d Cir. 1994). Although the Court of
Appeals did so with an unpublished opinion, the very act of
affirmance necessarily signified that subject matter jurisdiction
existed notwithstanding the Tax Injunction Act. Had there not
been jurisdiction, the Court of Appeals would have dismissed the
lawsuit, not affirmed the District Court's decision. The
affirmance itself, without regard to the accompanying opinion, is
persuasive, even if not controlling. Since subject matter
jurisdiction existed there, we believe it exists here.
The result is not surprising. As Judge Pollak noted, there are
other precedents where parties were permitted to challenge local
taxes in federal court where the statutes in issue never
specifically abrogated the Tax Injunction Act. See Southeastern
Pa. Transp. Auth., 802 F. Supp. at 1282-83. In each instance, the
court concluded that Congress had implicitly authorized the
federal court to adjudicate the matter due to the nature of the
federal interest. The same is true in this case. Congress had
endeavored to resuscitate rail passenger service throughout the
country. One element of this effort was to exempt the commuter
rail authorities from the onus of local taxation. We do not
believe that the Tax Injunction Act, as broadly as it is to be
interpreted, blocks the federal courts from enforcing this strong
and clear congressional mandate. See id. at 1284-85. Otherwise,
SEPTA's exemption from local taxation, granted by federal law,
would be subject, as a practical matter, to the sufferance of
local officials with review by the state courts only. We do not
think this was what Congress intended.
Defendants next argue that the Tax Injunction Act bars this
court from deciding whether state law allows the taxation of
SEPTA. If this case involved only the question of whether the tax
is lawful under Pennsylvania law, we agree that we would not have
jurisdiction. See, e.g., Behe, 952 F.2d at 67-71. However, we may
have supplemental jurisdiction over the state law claims pursuant
to 28 U.S.C. § 1367. Assuming we could exercise supplemental
jurisdiction over the state law claims despite the Tax Injunction
Act, we elect not to do so. Section 1367(c)(4) gives the court
discretion to decline to exercise jurisdiction "in exceptional
circumstances" when "there are other compelling reasons for
declining jurisdiction." We believe it would be contrary to the
principles of federalism embodied in the Tax Injunction Act if we
were to become involved in deciding whether a local tax is lawful
under state law. Considering the "expansive reading" the Supreme
Court has given the Act and the purpose of Congress to limit
federal court interference with state tax
collection, id. at 68, we conclude there are "compelling reasons
for declining jurisdiction" over the state statutory and
constitutional claims, 28 U.S.C. § 1367(c)(4).
The defendants request that we abstain, in accordance with
Colorado River Water Conservation Dist. v. United States,
424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), because of
SEPTA's lawsuit pending against them in the Court of Common Pleas
of Philadelphia County. In order for a federal court to exercise
its discretion to dismiss or stay an action under Colorado River,
there must first be a pending state court proceeding involving
the same claims and parties or at least "nearly identical
allegations" and parties who are "essentially identical." Trent
v. Dial Medical of Florida, Inc., 33 F.3d 217, 224 (3d Cir.
1994). The two actions must be "parallel." Ryan v. Johnson,
115 F.3d 193, 196 (3d Cir. 1997). SEPTA does not contest the fact
that these threshold requirements have been met. Therefore, in
determining whether we should exercise our discretion to abstain,
we must consider the following factors:
(1) Which court first assumed jurisdiction over
property involved, if any;
(2) Whether the federal forum is inconvenient;
(3) The desirability of avoiding piecemeal
(4) The order in which the respective courts obtained
(5) Whether federal or state law applies; and
(6) Whether the state court proceeding would
adequately protect the federal plaintiff's rights.
See Trent, 33 F.3d at 225.
The Supreme Court has stated that "[o]nly the clearest of
justifications will warrant dismissal" under this abstention
doctrine. Colorado River, 424 U.S. at 819, 96 S.Ct. 1236. In
making our determination, we do not go through a "mechanical
checklist." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 16, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). We
carefully balance the above factors, and we must remember that
"the balance [is] heavily weighted in favor of the exercise of
The first of the enumerated factors is not pertinent in this
action. However, the fourth consideration, closely related to the
first, is relevant. The parties agree in their briefs that the
federal action and the appeal of the Board of Revision of Taxes
decision to the Court of Common Pleas were filed "concurrently."
The parties represent to us that the state court action is still
in its very early stages. These circumstances do not weigh in
favor of abstention.
The federal forum is not significantly less convenient to the
parties than the state forum. Both courts are located within a
few blocks of each other in Philadelphia.
We turn next to the desirability of avoiding piecemeal
litigation. This factor is met "only when there is evidence of a
strong federal policy that all claims should be tried in the
state courts." Ryan, 115 F.3d at 198. There must be "a strongly
articulated congressional policy against piecemeal litigation in
the specific context of the case under review." Id. We do not
perceive such a policy with respect to the federal law at issue
in this action. Although federal courts were not given exclusive
jurisdiction over the federal claim at issue here, § 24301(f),
read together with § 24301(l)(1) and (2), signifies a strong
congressional policy that the federal courts should determine
SEPTA's federal claim.
The fifth consideration weighs heavily against our abstention.
This case involves an important question of federal law: whether
§§ 24301(f), (l)(1), and (l)(2) exempt SEPTA's headquarters from
local real estate taxes imposed by the City of Philadelphia and
the School District of Philadelphia. "[T]he presence of
federal-law issues must always be a major consideration
weighing against surrender" of jurisdiction. Moses Cone, 460 U.S.
at 26, 103 S.Ct. 927. The Board of Revision of Taxes has already
denied SEPTA's request for a 100% exemption. Given this history,
and because this case involves an important question of federal
law, we believe the federal court is the appropriate place to
adjudicate this question.
The Supreme Court has cautioned that we should use our power to
abstain sparingly since federal courts have "a virtually
unflagging obligation . . . to exercise jurisdiction given them."
Colorado River, 424 U.S. at 817, 96 S.Ct. 1236; see also Ryan,
115 F.3d at 198. For all of the above reasons, we will not
abstain from exercising jurisdiction over SEPTA's federal law
Finally, defendants ask that we dismiss this action as unripe
insofar as it relates to all of SEPTA's property other than its
headquarters at 1234 Market Street. According to the Supreme
Court, "the question in each case is whether the facts alleged,
under all the circumstances, show that there is a substantial
controversy, between parties having adverse legal interests, of
sufficient immediacy and reality to warrant the issuance of a
declaratory judgment." Maryland Cas. Co. v. Pacific Coal & Oil
Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941).
SEPTA's complaint simply alleges facts regarding its
headquarters. Plaintiff's application to the Board of Revision of
Taxes for exemption from taxes, attached to the complaint, was
also limited to its headquarters. There are no allegations before
us that defendants have attempted or threatened to tax any other
SEPTA property. As to any of SEPTA's property other than its
headquarters, then, there are no facts alleged which show the
existence of a "substantial controversy . . . of sufficient
immediacy and reality to warrant the issuance of a declaratory
judgment." Id. Therefore, we will dismiss the action as it
relates to property other than plaintiff's headquarters.
Accordingly, we will deny the defendants' motion to dismiss
the complaint or alternatively to abstain as to plaintiff's
federal claim. We will dismiss plaintiff's claims under state law
pursuant to 28 U.S.C. § 1367(c). We will also dismiss the
complaint without prejudice insofar as it seeks relief as to any
of SEPTA's property other than its headquarters at 1234 Market
AND NOW, this 8th day of April, 1999, for the reasons set forth
in the accompanying Memorandum, it is hereby ORDERED that:
(1) the motion of defendants to dismiss for lack of subject
matter jurisdiction or alternatively to abstain is DENIED as to
plaintiff's federal claim;
(2) the motion of defendants to dismiss is GRANTED as to
plaintiff's claims under state law; and
(3) the motion of defendants to dismiss for lack of ripeness is
GRANTED without prejudice as to any property belonging to
plaintiff other than 1234 Market Street, Philadelphia,