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Upmc A Pennsylvania Nonprofit, Non-Stock Corporation v. City of Pittsburgh

United States District Court, Third Circuit

October 25, 2013

UPMC a Pennsylvania Nonprofit, Non-Stock Corporation. Plaintiff,
CITY OF PITTSBURGH a Pennsylvania Second Class City and Home Rule Municipality; LUKE RAVENSTAHL, in his, Official Capacity as Mayor, City of Pittsburgh, and Individually; FAIR SHARE PITTSBURGH ACTION FUND; JOHN DOE #1 and JOHN DOE #2, Defendants.


JOY FLOWERS CONTI, Chief District Judge.

Pending before the court are several related motions. First, are motions to dismiss the amended complaint filed by the City of Pittsburgh ("City") and its mayor, Luke Ravenstahl ("mayor") (collectively, the "City Defendants") (ECF No. 22) and Fair Share Pittsburgh Action Fund ("Fair Share") (ECF No. 37). The City Defendants filed a brief in support of their motion to dismiss (ECF No. 21), as well as a reply brief (ECF No. 51.) Fair Share also filed a brief in support (ECF No. 38) and a reply brief concerning its motion to dismiss. (ECF No. 52). UPMC filed an omnibus response in opposition to both motions to dismiss (ECF No. 43). Second, is the City Defendants' and Fair Share's (collectively, the "Defendants") joint motion to stay pending adjudication of the motions to dismiss (ECF No. 50). UPMC filed a brief in opposition to the motion to stay (ECF No. 53) and the Defendants filed a joint reply brief (ECF No. 56-1[1]). Finally, Fair Share filed a motion for sanctions in which it contends that UPMC violated Rule 11 by filing the amended complaint (ECF No. 40), and UPMC filed a response to that motion (ECF No. 46).

The court heard oral argument on the present motions on October 21, 2013, and held that the motion for sanctions would be denied. The other matters are now ripe for disposition. For the reasons set forth below, this court will exercise jurisdiction over UPMC's claims, but will stay adjudication of the claims pending resolution of the litigation currently pending in the Court of Common Pleas of Allegheny County, Pennsylvania. The joint motion to stay is moot in light of this ruling. As noted, the court orally denied Fair Share's motion for sanctions for the reasons set forth on the record at the October 21, 2013 hearing.

I. Factual Background

UPMC seeks a federal forum to resolve an ongoing, manifestly contentious, tax dispute between it and the City. On April 19, 2013, UPMC took two actions in furtherance of its quest for a federal forum: first, it filed the instant lawsuit in this court; and second, it filed a notice of removal asking this court to assert jurisdiction over a lawsuit the City filed in March 2013 in the Court of Common Pleas of Allegheny County, Pennsylvania, challenging UPMC's status as an Institution of Purely Public Charity ("IPPC") (the "State Court Action"). (No. 13-565, ECF No. 1.) The City's amended complaint in the State Court Action seeks a declaratory judgment that UPMC is not exempt from the City's payroll tax pursuant to Pennsylvania law and an order directing UPMC to file quarterly payroll tax returns covering all its operations from March 31, 2007, to the present. (13-565, ECF No. 17 ¶ 18.)

On August 6, 2013, this court remanded the State Court Action to the Court of Common Pleas. In doing so, the court explicitly stated that "UPMC's invocation of the dormant Commerce Clause and the Fourteenth Amendment are defenses to the City's claims that UPMC is no longer an IPPC" and could not support removal of the action to federal court. (13-565, ECF No. 32 at 11, 14.) The State Court Action was assigned to the Commerce and Complex Litigation Center of the Court of Common Pleas of Allegheny County, Pennsylvania. City of Pittsburgh v. UPMC, No. GD-13-005115 (Ct. Com. Pl., Alleg. Cnty.). In preliminary objections filed on September 9, 2013, UPMC claims, among other things, that the State Court Action violates the dormant Commerce Clause and that the City failed to adhere to due process procedures set forth by state law. ( Id., Doc. No. 10.) The City asked the state trial court to exercise jurisdiction over three appeals, pending before the Board of Property Assessment Appeals and Review, concerning UPMC's entitlement to claim IPPC status for real estate tax purposes. Id., Doc. No. 14. The court was informed at oral argument that the City will soon file a second amended complaint in the State Court Action.

Returning to the instant lawsuit, this court is tasked with deciding whether this dispute is properly before a federal court at this juncture.

A. The Amended Complaint

The amended complaint in the instant action begins with a recitation of the Supreme Court's ominous admonition, in 1819, that the "power to tax involves the power to destroy" (ECF No. 18 at 1) and goes on to accuse the City Defendants and Fair Share of conspiring to violate UPMC's constitutional rights by filing a "sham lawsuit seeking to make payroll taxes" and launching a publicity campaign "concomitantly with the Mayor's sham lawsuit" to sabotage UPMC's tax-exempt status. (Id. at 2.)

The amended complaint is comprised of four counts, each of which aver violations of 42 U.S.C. § 1983, and seek monetary damages. Counts I through III are asserted against the City and its mayor, in both his official and individual capacities. Count IV, the conspiracy count, is asserted against all defendants and is substantively derivative of the preceding three counts. Count I alleges violations of UPMC's Fourteenth Amendment substantive and procedural due process rights. (Id. ¶¶ 194-215.) Count II alleges violations of UPMC's Fourteenth Amendment equal protection rights. (Id. ¶¶ 216-24.) Count III alleges violations of UPMC's Fourteenth Amendment rights, privileges and immunities through violation of the Commerce Clause. (Id. ¶¶ 225-34.)

In support of its procedural due process claim, UPMC accuses the City Defendants of "by-passing the procedures and rights set forth in the [Local Taxpayers Bill of Rights Act, 53 PA. CONS. STAT. § 8421 ("LTBRA")]" in favor of publically defaming UPMC by filing the purported "sham lawsuit" and releasing a letter containing the City's pre-litigation analysis of UPMC's tax-exempt status (the "Pre-Litigation Letter").[2] (Id. ¶ 205.) In support of its substantive due process claim, UPMC alleges that the City Defendants engaged in "conscious shocking" conduct aimed at depriving UPMC of its property interest in being able to "conduct operations" and its "constitutionally protected interest in being free from violation of its statutorily protected rights under the LTBRA and [the Local Tax Enabling Act, 53 PA. STAT. § 6924.101 ("LTEA")]." (Id. ¶¶ 211, 213.) UPMC claims that defendants violated its equal protection rights by selectively filing a baseless lawsuit only against it and not other similarly situated nonprofit entities. (Id. ¶¶ 220, 222.) Similarly, UPMC contends that "defendants are infringing on UPMC's rights to engage in interstate and foreign commerce, in violation of the dormant Commerce Clause" by "singling out UPMC for a lawsuit...base[d]...on UPMC's engagement in international commerce" (Id. ¶ 232.) Finally, UPMC contends that Fair Share conspired with the City Defendants to engage in a "public propaganda...[and] misinformation campaign instituted specifically to dovetail with the City's lawsuit and [disclosure of] the [Pre-Litigation Letter], for the sole purpose of damaging UPMC...." (Id. at ¶¶ 236-37.)

B. The City Defendants' Arguments in Support of Dismissal

The City Defendants argue that UPMC's amended complaint should be dismissed for six reasons: (1) federal courts should refrain from interfering in an on-going state court action pursuant to the Younger doctrine[3]; (2) the City Defendants are immune from suit because the activity UPMC complains of represents the exercise of the First Amendment right to petition the courts for redress, pursuant to the Noerr-Pennington doctrine[4]; (3) any civil rights action based on the City's filing of the State Court Action is barred unless and until that lawsuit is terminated in UPMC's favor; (4) the City's disclosure of the Pre-Litigation Letter does not give rise to any Constitutional claim; (5) UPMC has not alleged and cannot allege a violation of the Due Process, Equal Protection or Commerce Clauses; and (6) the mayor enjoys qualified immunity from suit. (ECF No. 21.) With respect to several of these arguments, the City Defendants advance the alternative position that, if the case is not dismissed, the court should abstain from adjudicating this matter until the State Court Action is resolved.

C. Fair Share's Arguments in Support of Dismissal

Fair Share contends that UPMC's amended complaint must be dismissed in its entirety pursuant to the comity doctrine announced in Fair Assessment in Real Estate Association v. McNary , 454 U.S. 100 (1981) (Fair Assessment).[5] (ECF No. 38 at 5-9.) In the alternative, Fair Share argues, as do the City Defendants, that the Noerr-Pennington doctrine requires dismissal and that UMPC failed to plead viable constitutional claims. (Id. at 9-14.) Lastly, Fair Share alleges that UMPC failed to plead adequately that Fair Share is a member of a civil conspiracy with a state actor. (Id. at 15-17.)

D. UPMC's Responses

UPMC maintains that the exceptional circumstances justifying Younger abstention do not exist here and that the principles announced in Fair Assessment are not implicated. Specifically, UPMC asserts this case is not one challenging the constitutionality of a state tax or seeking a tax refund. (ECF No. 43 at 10-22.) UPMC also argues that the Noerr-Pennington doctrine does not apply because the State Court Action is a "sham litigation" and because the City's negative publicity campaign is not protected activity under the doctrine. (Id. at 22-27.) With respect to the substantive challenges made to each of its constitutional claims, UPMC contends that it meets the necessary minimal pleading requirements in order to survive a motion to dismiss. (Id. at 29-39.) Finally, UPMC argues that the mayor is not entitled to qualified immunity because he violated UPMC's clearly established constitutional rights (Id. at 39-40.)

II. Standard of Review

A. Principles of Comity and Abstention

Although federal courts have a duty to exercise jurisdiction conferred upon them by Congress, that duty is not absolute. Quackenbush v. Allstate Ins. Co. , 517 U.S. 706, 716 (1996). Numerous abstention principles direct federal courts to refrain from hearing matters where to do so would interfere with state court proceedings or a state's "sovereign prerogative." Id. at 716-19 (summarizing various abstention doctrines). The comity doctrine serves to ensure that "the National Government, anxious though it may be to vindicate and protect federal rights and federal interests, always endeavors to do so in ways that will not unduly interfere with the legitimate activities of the States." Levin v. Commerce Energy, Inc. , 560 U.S. 413, 130 S.Ct. 2323, 2336 (2010). Even where dismissal of a lawsuit is not warranted under abstention doctrines or comity principles, the United States Supreme Court has specifically instructed district courts to stay adjudication of a federal lawsuit where litigating the matter would disrupt state government or create needless friction between state and federal authorities. Quackenbush , 517 U.S. at 720-21. The Court has "long recognized that principles of federalism and comity generally counsel that courts should adopt a hands-off approach with respect to state tax administration." Nat'l Private Truck Council, Inc. v. Oklahoma Tax Comm'n , 515 U.S. 582, 586 (1995).

B. Motion to Dismiss

Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a complaint, in whole or in part, for failure to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). Dismissal is appropriate only if, accepting as true all the facts alleged in the complaint, a plaintiff has not pleaded "enough facts to state a claim to relief that is plausible on its face, " Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570 (2007), meaning enough factual allegations "to raise a reasonable expectation that discovery will reveal evidence of'" each necessary element. Phillips v. County of Allegheny , 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly , 550 U.S. at 556); see Kost v. Kozakiewicz , 1 F.3d 176, 183 (3d Cir. 1993) (requiring a complaint to set forth information from which each element of a claim may be inferred). Although a court must accept as true the allegations contained in a complaint, it need not accept legal conclusions or mere conclusory statements. Twombly , 550 U.S. at 555; Commonwealth of Pennsylvania v. PepsiCo, Inc. , 836 F.2d 173, 179 (3d Cir. 1988) (a court shall properly reject any "conclusory recitations of law" pled within the complaint); Morse v. Lower Merion School Dist. , 132 F.3d 902, 906 (3d Cir. 1997) (a court need not credit a complaint's "bald assertions" or "legal conclusions" when deciding a motion to dismiss).

When considering a Rule 12(b)(6) motion, the court's role is limited to determining if a plaintiff is entitled to offer evidence in support of its claims. See Scheuer v. Rhodes , 416 U.S. 232, 236 (1974). The court does not consider whether a plaintiff will ultimately prevail. Id . A defendant bears the burden of establishing that a plaintiff's complaint fails to state a claim. Gould Elecs. v. United States , 220 F.3d 169, 178 (3d Cir. 2000).

Generally, if "matters outside the pleadings are presented to and not excluded by the court" a motion to dismiss must be treated as a motion for summary judgment. FED. R. CIV. P. 12(d). There are exceptions to this general rule. First, a court is permitted to consider documents "integral to or explicitly relied upon in the complaint" in ruling on a motion to dismiss. In re Burlington Coat Factory Sec. Litig. , 114 F.3d 1410, 1426 (3d Cir. 1997). "Plaintiffs cannot prevent a court from looking at the texts of the documents on which [their] claim is based by failing to attach or explicitly cite them." Id . Second, the court may rely on "undisputedly authentic document[s] that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document." Pension Benefit Guar. Corp. v. White Consol. Indus., Inc. , 998 F.2d 1192, 1196 (3d Cir. 1993). Third, the court may rely on public records. Id. at 1197.

III. Discussion

A. Fair Assessment

Fair Share contends that the United States Supreme Court's decision in Fair Assessment in Real Estate Association v. McNary , 454 U.S. 100 (1981) ("Fair Assessment"), prevents this court from exercising jurisdiction over this case. The City Defendants do not assert this basis for dismissal, but express their agreement with Fair Share's position in their reply brief. (ECF No. 51 at 4 n.1.) In Fair Assessment the Supreme Court held that a federal court could not entertain a taxpayer's § 1983 lawsuit alleging that a state tax system was being unconstitutionally administered. 454 U.S. at 101. In reaching this holding, the Court emphasized that taxpayers must protect their federal constitutional rights by following state tax procedures so that the "State" is "first permit[ed] rectify any alleged impropriety." Id. at 108 n.6, 114, 116. Succinctly summarizing its own holding in Fair Assessment almost fourteen years after the case was decided, the Supreme Court stated that "[Fair Assessment] held that because of principles of comity and federalism, Congress never authorized federal courts to entertain damages actions under § 1983 against state taxes when state law furnishes an adequate legal remedy." Nat'l Private Truck Council , 515 U.S. at 587.

According to UPMC, Fair Assessment is inapplicable to this case because its holding is limited to "state tax cases" in which a taxpayer seeks a declaration that a state tax scheme is unconstitutional or in which a taxpayer seeks to either avoid paying taxes or to collect a refund. (ECF No. 43 at 16-19.) UPMC argues that because this case "involves much more" than the City's attempt to collect taxes, Fair Assessment does not apply. (Id. at 20.) UPMC is incorrect regarding both the scope of the holding in Fair Assessment and the factual distinctions between this case and Fair Assessment.

UPMC contends that Quackenbush v. Allstate Insurance Company , 517 U.S. 706 (1996), and Hibbs v. Winn , 542 U.S. 88 (2004), "confirm[] the limited application" of Fair Assessment, and its inapplicability to this case. (ECF No. 43 at 24.) In Quackenbush, the Supreme Court held that federal courts do not have the power to remand or dismiss a common law action for damages, sounding in contract and tort, pursuant to the Burford abstention doctrine.[6] Quackenbush , 517 U.S. at 731. In Hibbs the Supreme Court held that the Tax Injunction Act (the "TIA"), 28 U.S.C. § 1341, did not bar a suit filed in federal district court by a group of Arizona taxpayers challenging a state law that provided tax credits to citizens who contributed money to private schools, including religious schools, on the ground that it violated the Establishment Clause. 542 U.S. at 93 , 94-95. As this is not a case in which any party asserts that Burford abstention or the TIA applies, both decisions are readily distinguishable. Nevertheless, this court has reviewed the manner in which the Supreme Court discussed Fair Assessment in both decisions in order to evaluate fully UPMC's position. The court concludes that neither decision compels the conclusion that the holding in Fair Assessment has been abrogated or otherwise does not apply here.

In reaching its holding in Quackenbush, the Supreme Court characterized Fair Assessment as a decision about the "scope of the § 1983 cause of action, " instead of the abstention principles that were at issue in Quackenbush. Quackenbush , 517 U.S. at 719 (citing Nat'l Private Truck Council , 515 U.S. at 589-90). UPMC contends that Quackenbush limited the holding in Fair Assessment to only those "state tax cases that require a declaration that a state tax scheme is unconstitutional." (ECF No. 43 at 18.) The Supreme Court's holding in Fair Assessment is not limited in this way. Fair Assessment, 454 U.S. at 184 (noting that taxpayers "will not recover damages under § 1983 unless a district court first determines that [the government's] administration of the County tax system violated [the taxpayers'] constitutional rights" (emphasis added)). Quackenbush does not limit the holding in Fair Assessment in the manner asserted by UPMC. In Quackenbush, the Supreme Court stated that "we held in [Fair Assessment], that a federal court should not entertain a 42 U.S.C. § 1983 suit for damages based on the enforcement of a state tax scheme, " and immediately thereafter emphasized that "the damages action in [Fair Assessment] was based on the unconstitutional application of a state tax law...." Quackenbush , 517 U.S. at 719 (emphasis added). UPMC's contention that Quackenbush limited the holding in Fair Assessment to only those "state tax cases that require a declaration that a state tax scheme is unconstitutional" is erroneous. These passages instead confirm that Fair Assessment applies where taxpayers raise constitutional challenges to how a state tax scheme is being enforced against and applied to them.

The Court's citation in Quackenbush to National Private Truck Council is significant in proving this point. In that decision, the Oklahoma Supreme Court found that an Oklahoma tax on out-of-state vehicles violated the dormant Commerce Clause and awarded refunds to the taxpayer-litigants, but refused to grant injunctive relief under § 1983. Nat'l Private Truck Council , 515 U.S. at 584-85. The Supreme Court held that state courts, like their federal counterparts, must refrain from granting federal relief under § 1983 when there is an adequate state remedy, i.e., the refunds. Id. at 592. Although that holding is not directly applicable to the question before this court because UPMC does not seek an injunction, what is relevant is that in reaching its decision, the Supreme Court repeatedly emphasized Congress' and the high Court's longstanding aversion to federal interference with state tax administration, enforcement and collection. Id. at 586-89 ("[w]e have long recognized that principles of federalism and comity generally counsel that courts should adopt a hands-off approach with respect to state tax administration"; "[s]ince the passage of § 1983, Congress and this Court repeatedly have shown an aversion to federal interference with state tax administration"; "federal law generally will not interfere with administration of state taxes"; "denial of relief under § 1983 was consistent with the long line of precedent underscoring the federal reluctance to interfere with state taxation"). This language emphasizes that comity principles have special consequence in the realm of state taxation.

Likewise, the Supreme Court's discussion of Fair Assessment in Hibbs does not, as UPMC contends, indicate that the rule announced in Fair Assessment has been abrogated. In Hibbs, a case challenging a tax credit for contributions to religious schools on Establishment Clause grounds, the Supreme Court cited Fair Assessment twice as an example of the kinds of cases in which it previously found that the TIA and "principles of comity" barred suit because a federal litigant was seeking to avoid paying state taxes, to obtain a refund of state taxes or to "arrest or countermand state tax collection." Hibbs , 542 U.S. at 106, 107 n.9. The Court found, in Hibbs, that ...

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