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City of Philadelphia Loses TIA Challenge

The U.S. District Court (E.D. Pa.) remanded a case to Pennsylvania’s state courts in a suit challenging a local improvement district’s assessment scheme on the grounds that the federal courts lacked jurisdiction over the action based upon the

The U.S. District Court (E.D. Pa.) remanded a case to Pennsylvania’s state courts in a suit challenging a local improvement district’s assessment scheme on the grounds that the federal courts lacked jurisdiction over the action based upon the Tax Injunction Act (TIA). Nigro v. City of Philadelphia, No. 10-987 (E.D. Pa. Aug. 25, 2010). The TIA generally prohibits federal courts from entertaining cases regarding state and local “taxes” if the parties have a “plain, speedy and efficient remedy” available in state court. Taxing jurisdictions frequently raise the TIA as a basis for dismissing cases filed by taxpayers in federal court. However, in this case, after the taxpayer filed suit in state court, the City removed it to federal court and the taxpayer was seeking to have the case remanded back to state court pursuant to the TIA.

To determine whether the federal court was barred by the TIA from exercising jurisdiction, the court conducted a two-step inquiry examining: 

  1. Whether the assessment at issue was a “tax” versus a “fee,” and
  2. Whether the state court system provided a “plain, speedy and efficient remedy.”

The court easily found that the district’s assessment qualified as a “tax” because the assessment was imposed upon all property owners in a certain area, was not tied to the owners receiving a benefit for payment, and the funds were used to benefit the public generally.

The court then grappled with the question of whether the parties had a sufficient remedy in state court. Ironically, the City claimed that the taxpayer lacked an adequate remedy in state court because the taxpayer would not be permitted to maintain the class action lawsuit it had filed. The court found:

  • that the class procedure might be available in state court if the taxpayer could show that failure to maintain the class action would result in a multiplicity of duplicative lawsuits; and
  • even if the taxpayer could not assert claims on behalf of the class, the taxpayer’s legal remedy was sufficient to repair any harm that the taxpayer suffered as an individual, and thus provided the taxpayer with an adequate remedy.

The court thus remanded the case to the Pennsylvania Court of Common Pleas on the grounds that the case was barred by the TIA.

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