MLB Enterprises, Corp. v. New York State Dept. of Taxation…

20-993
MLB Enterprises, Corp. v. New York State Dept. of Taxation & Finance, et al.

                           UNITED STATES COURT OF APPEALS
                               FOR THE SECOND CIRCUIT

                                          SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT
ON ANY PARTY NOT REPRESENTED BY COUNSEL.

        At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
19th day of October, two thousand twenty.

Present:
            DEBRA ANN LIVINGSTON,
                  Chief Judge,
            DENNY CHIN,
                  Circuit Judge,
            KATHERINE POLK FAILLA,
                  District Judge.*
_____________________________________

MLB ENTERPRISES, CORP.,

                          Plaintiff-Appellant,

                 v.                                                            20-993

NEW YORK STATE DEPARTMENT OF TAXATION AND
FINANCE, COMMISSIONER OF THE NEW YORK STATE
DEPARTMENT OF TAXATION AND FINANCE.

                  Defendants-Appellees.
_____________________________________




*
   Judge Katherine Polk Failla, of the United States District Court for the Southern District of New York,
sitting by designation.


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For Plaintiff-Appellant:                   JENNIFER M. KINSLEY, Kinsley Law Office (Daniel A.
                                           Silver, Silver & Silver LLP, New Britain, CT, on the
                                           brief), Cincinnati, Ohio.

For Defendants-Appellees:                  CAROLINE A. OLSEN, Assistant Solicitor General
                                           (Barbara D. Underwood, Solicitor General, and Steven
                                           C. Wu, Deputy Solicitor General, on the brief), for
                                           LETITIA JAMES, Attorney General for the State of New
                                           York.


       Appeal from a judgment of the United States District Court for the Southern District of

New York (Furman, J.).

       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgment of the district court is AFFIRMED.

       Plaintiff-Appellant MLB Enterprises, Corp. (“MLB”) appeals from a February 26, 2020

decision of the district court dismissing its complaint for lack of subject matter jurisdiction

pursuant to Federal Rule of Civil Procedure 12(b)(1).      We affirm the district court’s dismissal

and conclude that the Tax Injunction Act (“TIA”), 28 U.S.C. § 1341, prevented the district court

from exercising subject matter jurisdiction over this matter.        On appeal from a judgment

dismissing a suit for lack of subject matter jurisdiction, we review a district court’s factual

determinations for clear error, and legal conclusions de novo.     Lotes Co. v. Hon Hai Precision

Indus. Co., 

753 F.3d 395

, 403 (2d Cir. 2014).        We assume the parties’ familiarity with the

underlying facts, the procedural history of the case, and the issues on appeal.

       1. Background & Prior Proceedings

       MLB brought suit in the court below against the New York State Department of Taxation

and Finance (“NYSDTF”) and its Commissioner (collectively, “Defendants-Appellees”) on May

22, 2019, challenging MLB’s assessment for several million dollars in unpaid taxes and seeking

declaratory and injunctive relief. MLB disputes its assessment pertaining to its strip club, “Lace,”


                                                 2
which it owned and operated until the club closed in 2018.         At the crux of its dispute is an

alternative currency called “scrip,” which patrons of Lace would use to tip dancers who performed

at the club. Scrip was sold at Lace for purchase with a credit card, which had the benefit of

avoiding ATM limits. MLB contracted with Metro Enterprises Corp. (“Metro”) to facilitate the

sale of scrip. Neither MLB nor Metro reported the sale of scrip in its gross taxable receipts and

instead both claim to have treated the scrip as “gratuities belonging to the entertainers.”

       NYSDTF conducted an audit of Lace’s operations for the period beginning March 1, 2010

and extending through February 28, 2014. NYSDTF determined that MLB “had underreported

amounts received for ‘party room’ rentals, bar sales, coat check and general door admissions, and

had not remitted sales tax for transactions conducted in ‘scrip.’” The auditors also found that

MLB had not maintained records demonstrating that it ultimately remitted to its dancers the money

received in relation to purchases of scrip. On December 1, 2016, NYSDTF issued Notices of

Determination indicating that MLB and Anthony Capeci, MLB’s president and sole corporate

officer, owed several million dollars in unpaid taxes, penalties, and interest. The NYSDTF

considered Capeci jointly liable with MLB for the full amount as an “Officer/Responsible Person”

under §§ 1138(a), 1131(1), and 1133 of the New York Tax Law.

       After a hearing before the Bureau of Conciliation and Mediation Services, MLB and

Capeci appealed the Notices of Determination through New York State’s administrative tax appeal

process. On March 23, 2019, MLB and Capeci submitted petitions requesting review by the

Division of Tax Appeals. An evidentiary hearing was held before an ALJ on January 29, 2020,

and a separate evidentiary hearing was set for Capeci in September 2020.

       While these state administrative proceedings were pending, MLB filed this action below,

challenging the tax assessments under 42 U.S.C. § 1983 and N.Y. C.P.L.R. § 3001.              Seeking a


                                                  3
declaratory judgment that the tax assessments were invalid and an injunction barring their

enforcement, MLB argued that scrip sales and rental party room charges are not taxable under

New York law.     MLB also argued that taxing the sale of scrip violates its due process rights under

the Fourteenth Amendment and the New York State Constitution because it would require it to

retain entertainers’ tips in violation of the Fair Labor Standards Act, and the New York Labor Law.

On July 26, 2019, the Defendants-Appellees filed a motion to dismiss for lack of subject matter

jurisdiction, which the district court granted on February 26, 2020.

                2. The Tax Injunction Act

       The TIA provides that federal 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 State.”     28 U.S.C. § 1341.      This prohibition is jurisdictional and

operates to strip the federal courts from exercising subject matter jurisdiction over claims for both

declaratory and injunctive relief. See Bernard v. Village of Spring Valley, 

30 F.3d 294

, 297 (2d

Cir. 1994). An analogous prohibition extends to claims for damages under 42 U.S.C. § 1983

through the principle of comity. See Long Island Lighting Co. v. Town of Brookhaven, 

889 F.2d 428

, 431 (2d Cir. 1989) (noting that there is “no significant difference” between the “‘plain, speedy

and efficient’ standard set forth in the [TIA] and the ‘plain, adequate, and complete’ standard

governing comity” (quoting Fair Assessment in Real Estate Ass’n v. McNary, 

454 U.S. 100

, 116

n.8 (1981))).

       MLB is seeking a declaratory judgment that the tax assessments against it are invalid and

an injunction barring New York from enforcing its tax law. Therefore, its suit plainly constitutes

the type of interference in state court proceedings that the TIA is meant to prevent. See Entergy

Nuclear Vt. Yankee, LLC v. Shumlin, 

737 F.3d 228

, 234 (2d Cir. 2013) (noting that the TIA aims


                                                 4
to “prevent[] the federal judiciary from interfering with the state collection of revenues”).   MLB’s

position is that the TIA does not apply because no remedy in New York state court “[is] actually

available to [it].”    We reject the contention.

        New York provides a “plain, speedy and efficient” remedy within the meaning of the TIA.

A state provides taxpayers with “plain, speedy and efficient” relief “where the available state-court

procedures satisfy certain ‘minimal procedural criteria,’ including a ‘full hearing and judicial

determination at which [a taxpayer] may raise any and all constitutional objections to the tax.’”

Entergy 

Nuclear, 737 F.3d at 233-34

(alteration in original) (quoting Rosewell v. LaSalle Nat’l

Bank, 

450 U.S. 503

, 512, 514 (1981)). The Supreme Court has previously concluded that New

York’s procedures for challenging tax assessments meet the “plain, speedy and efficient” standard.

See Tully v. Griffin, Inc., 

429 U.S. 68

, 74-77 (1976); see also Long Island Lighting 

Co., 889 F.2d at 431

(“Because New York provides several remedies which afford [the taxpayer] an opportunity

to raise all constitutional objections to the real property taxes imposed, . . . the Tax Injunction Act

bar[s] access to federal court.”).

        Here, MLB can seek judicial review of the Tax Tribunal’s decision in an Article 78

proceeding in New York state court. N.Y. Tax Law §§ 1138(a)(4), 2016.             MLB argues that it

cannot bring such a proceeding because it does not have the financial means to make prepayment

or post a bond as required to begin an Article 78 proceeding, N.Y. Tax Law § 1138(a)(4).           But

even assuming arguendo that this claim is relevant to its challenge to New York’s procedures,

New York’s statutory requirement does not apply to officers, directors, or employees of

corporations.

Id. Therefore, Capeci—who is

jointly liable for the same assessments as MLB—

could himself bring an Article 78 proceeding.      See Franchise Tax Bd. of Cal. v. Alcan Aluminum

Ltd., 

493 U.S. 331

, 339 (1990) (“[Taxpayers’] inability to bring state-court challenges in their own


                                                   5
names is not determinative where, as here, they control entities that can bring such challenges.

To rule otherwise would be to elevate form over substance.”).

        Further, MLB can also seek declaratory relief in state court. See Bankers Tr. Corp. v.

N.Y.C. Dep’t of Fin., 

1 N.Y.3d 315

, 321 (2003) (explaining that New York courts make an

exception to the requirement that taxpayers make “exclusive” use of the administrative process

when a tax statute is “alleged to be unconstitutional, by its terms or application, or where the statute

is attacked as wholly inapplicable” (quotation marks omitted)).      While MLB argues otherwise, it

points to a case that did not involve constitutional claims. See Metro Enters. Corp. v. Dep’t of

Taxation & Fin., 

98 N.Y.S.3d 652

(2019).         The other case on which it relies, Dennis v. 44th

Enterprises Corp., 

2019 WL 3802394

(Sup. Ct. N.Y. Cty.), does not shake our view that New

York state courts offer a “plain, speedy and efficient” remedy for constitutional claims. The

supreme court in Dennis did reach the merits of the plaintiff’s complaints, finding that “[i]n any

event, [the NYSDTF] is not . . . violating the constitutional rights of the defendants-stakeholders

by requiring them to violate the New York Labor Law in order to comply with the Tax Law.”

Id. at *9

(alterations and quotation marks omitted). Further, CMSG Restaurant Group, LLC v. State

of New York, 

145 A.D.3d 136

, 141 (N.Y. App. Div. 2016), remains good law.          See

id. (“[B]ecause plaintiffs challenge

the tax laws as unconstitutional . . . these claims are not limited by an exclusive

administrative remedy . . . .”).   Accordingly, MLB provides no reason to conclude that New York

lacks a “plain, speedy and efficient” remedy for purposes of the TIA.      Therefore, the district court

did not err in finding that it was prohibited from entertaining MLB’s action.

                                           *       *       *




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       We have considered MLB’s remaining arguments and find them to be without merit.

Accordingly, we AFFIRM the judgment of the district court.

                                                 FOR THE COURT:

                                                 Catherine O’Hagan Wolfe, Clerk




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