The opinion
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
LAKE CHARLES DIVISION
ROCK CREEK OIL, INC. CASE NO. 2:19-CV-00815
VERSUS JUDGE JAMES D. CAIN, JR.
LOUISIANA DEP’T OF REVENUE, MAGISTRATE JUDGE KAY
ET AL.
MEMORANDUM RULING
Before the court is a Motion to Dismiss for Lack of Jurisdiction [doc. 7] and Motion
to Dismiss for Failure to State a Claim [id] filed by the Louisiana Department of Revenue
(“Department”) under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), in response
to the civil rights complaint filed by Rock Creek Oil, Inc. (“RCO”). RCO opposes the
motions. Doc. 11.
1.
BACKGROUND
RCO, a Texas corporation, owns and operates an oil and gas well in Jefferson Davis
Parish, Louisiana. Doc. 1, pp. 4—5. Following an audit covering the time period of May 1,
2016, to August 31, 2018, the Department determined that RCO had failed to file reports
on its oil and gas severance for each period he maintained that well, as required by
Louisiana Revised Statute § 47:635, or to pay applicable taxes on same. /d. at 2-4; see doc.
7, att. 2, pp. 2-3. On February 15, 2019, he was sent two Notices of Proposed Tax Due
from revenue tax auditor specialist Kerya Drummond. Doc. 7, att. 2, pp. 5-8. These notices
reflected $6,721.49 owed in taxes, $559.86 in interest, and $9,822.19 in penalties for the
gas severance, for a total proposed amount of $16,653.54; and $7,000 in penalties for the
oil severance.
RCO submitted a waiver of penalty request and the Department waived half of the
failure to file penalties, reducing that amount from a total of $14,000 to $7,000 for the oil
and gas severances. Jd. at 9-10. On March 26, 2019, the Department issued two Notices of
Assessment, showing that RCO owed $11,742.44 in tax, interest, and penalties for the gas
severance, less payments of $6,859.30, for a total amount due of $4,883.14; and $3,500 for
the oil severance. Id. at 11-15. With these assessments RCO was also informed of its right
to pay under protest while filing suit in the state district court and/or filing a petition with
the Louisiana Board of Tax Appeals. /d.
RCO instead filed the instant civil rights complaint against the Department, auditor
specialist Drummond, and auditor George Gaiennie IV, invoking this court’s jurisdiction
on the basis of a federal question under 28 U.S.C. § 1331. Doc. 1. Specifically, it alleges
that the penalties assessed amount to excessive fines in violation of the Eighth Amendment
and that the defendants have committed other constitutional violations relating to the
exercise of their authority. It seeks declaratory and injunctive relief, in addition to damages
in the amount assessed under the original notice. See id. at p. 11.
The Department, which is the only defendant to make an appearance, now moves
for dismissal of the claims under Federal Rules of Civil Procedure 12(b)(1) and (6). Doc.
7. Specifically, it asserts that the court lacks subject matter jurisdiction over the suit under
2.
the Tax Injunction Act and that RCO otherwise fails to state a claim on which relief can be
granted. RCO opposes the motion. Doc. 11.
IL.
LAW & APPLICATION
Generally, the court should consider any jurisdictional attack before addressing the
merits of the case. See Ramming v. United States, 281 F.3d 158, 161 (Sth Cir. 2001). “This
requirement prevents a court without jurisdiction from prematurely dismissing a case on
the merits.” Jad. Accordingly, the court first addresses jurisdictional grounds for dismissal
and then, if necessary, the remaining arguments raised under Rule 12(b)(6).
A, 12(b)(1) Motion
1. Standards
A motion under Rule 12(b)(1) attacks the court’s jurisdiction to hear and decide the
case. FED. R. Civ. P. 12(b)(1). The burden lies with the party seeking to invoke the court’s
jurisdiction. Ramming v. United States, 281 F.3d 158, 161 (Sth Cir. 2001). Lack of subject
matter jurisdiction may be found based on: (1) the complaint alone; (2) the complaint
supplemented by undisputed facts in the record; or (3) the complaint supplemented by
undisputed facts plus the court’s resolution of disputed facts. Jd. On a facial attack to
subject matter jurisdiction, which is based on the sufficiency of the complaint, court accepts
all well-pleaded allegations in the complaint as true and construes those allegations in a
light most favorable to the plaintiff. Garcia v. Copenhaver, Bell & Associates, M.D.’s,
P.A., 104 F.3d 1256, 1260-61 (11th Cir. 1997); Pike v. Office of Alcohol and Tobacco
Control of the La. Dep’t of Rev., 157 F.Supp.3d 523, 533 (M.D. La. 2015).
Ae
The court is not required to show such deference when resolving factual attacks,
however. “On a factual attack of subject matter jurisdiction, a court’s power to make
findings of fact and to weigh the evidence depends on whether the . . . attack .. . also
implicates the merits of plaintiff's cause of action.” Taylor v. Dam, 244 F.Supp.2d 747,
753 (S.D. Tex. 2003) (quoting Garcia, 104 F.3d at 1261). Where the facts necessary to
sustain jurisdiction do not implicate the merits of the plaintiff's case, “the trial court is free
to weigh the evidence and satisfy itself as to the existence of its power to hear the case,”
with no presumption attaching to the plaintiff's allegations or obligation that disputed facts
be construed in his favor. at 753-54 (quoting Garcia, 104 F.3d at 1261).
2. Application
Under the Tax Injunction Act (“TIA”), 28 U.S.C. § 1341, “[t]he 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 State.”
“Embodied within the statute is the duty of federal courts to withhold relief when a state
legislature has provided an adequate scheme whereby a taxpayer may maintain a suit to
challenge a state tax,” as the Fifth Circuit has already determined exists under Louisiana
law. ANR Pipeline Co. v. La. Tax Comm’n, 646 F.3d 940, 946-47 (Sth Cir. 2011) (internal
quotations omitted).
The TIA is only implicated by matters of state and local taxation, however, and does
not apply to regulatory fees. Home Builders Ass'n of Miss., Inc. v. City of Madison, Miss.,
143 F.3d 1006, 1010 (Sth Cir. 1998). What constitutes a “tax” for purposes of the TIA is a
question of federal law. Jd. at 1010 n. 10 (citing Ben Oehrileins, Inc. v. Hennepin Cnty., 115
-4.
F.3d 1372, 1382 (8th Cir. 1997)), To honor Congress’s goals in promulgating the TIA,
including that of preventing federally-based delays in the collection of state and local
revenues, the court must assign a broad construction to the term. Henderson v. Stalder, 407
F.3d 351, 356 (Sth Cir. 2005). The label affixed by the state legislature “has no bearing on
the resolution of the question.”! Home Builders Ass’n, 143 F.3d at 1010 n. 10 (citing
Robinson Protective Alarm Co. v. City of Philadelphia, 581 F.2d 371, 374 (3rd Cir, 1978)).
Instead, the Fifth Circuit looks to three key factors in identifying fees. “A fee ‘is imposed
(1) by an agency, not the legislature; (2) upon those it regulates, not the community as a
whole; and (3) for the purpose of defraying regulatory costs, not simply for general
revenue-raising purposes.’” Tex. Entertainment Ass’n, Inc. v. Hegar, 2018 WL 718549, at
*2 (WD. Tex. Feb. 5, 2018) (quoting Neinast v. Texas, 217 F.3d 275, 278 (Sth Cir. 2000)).
RCO maintains that the TIA does not apply to this suit because its chief challenge
is to the penalties imposed under Louisiana Revised Statute § 47:642, for failure to file a
report on natural products severed as required under § 47:635. These penalties form the
majority of those still owed under the assessments. RCO does not challenge the taxes
RCO urges that the court should look to the reliance on labels in distinguishing taxes from fees under the Anti-
Injunction Act (“AIA”). The Supreme Court recently determined that the AIA’s jurisdictional bar against challenges
to collections of federal taxes, 26 U.S.C. § 7421(a), was not triggered by the exaction imposed under Affordable Care
Act’s (“ACA”) individual mandate because Congress had labeled the exaction a “penalty” rather than a “tax.” Nat 1
Fed. of Indep. Bus. v. Sebelius, 567 U.S. 519, 543-44 (2012), As the Court noted, however, both the AIA and ACA
“are creatures of Congress’s own creation. How they relate to each other is up to Congress, and the best evidence of
Congress’s intent is the statutory text.” Id. at 544. Meanwhile, the decision not to rely on state labels for purposes of
the TIA arises from recognition that the term “tax under state law” as used in the TIA “should be determined as a
matter of federal law by reference to congressional policies underlying the [TIA], rather than by adoption of state tax
labels developed in entirely different legal contexts.” Robinson Protective Alarm Co., 581 F.2d at 374 (citing Tramel
v. Schrader, 505 F.2d 1310 (5th Cir. 1975)). The separation between the United States Congress and the state
legislatures distinguishes the court’s review under the AIA from its inquiry under the TIA. Accordingly, recent
precedent acknowledging the value of labels under the AIA does not erode well-settled Fifth Circuit precedent marking
them as irrelevant under the TIA.
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assessed, and instead alleges that the Department committed various constitutional
violations in the imposition of these penalties. Accordingly, the 12(b)(1} motion turns on
the relationship between the TIA and the penalties imposed under § 47:642.
The Fifth Circuit has long recognized that, where a challenged penalty is
“inexorably tied” to tax collection, it falls within the “broad scope” of the TIA. Washington
v. City of New Orleans, 424 F. App’x 307, 310-11 (Sth Cir. 2011) (quoting Washington v.
Linebarger, Goggan, Blair, Pena & Sampson, LLP, 338 F.3d 442 (Sth Cir. 2003)). As the
Supreme Court recently held, however, information gathering — including the private
reporting of information used to determine tax liability — does not qualify as part of the
“assessment, levy or collection” of taxes protected under the TIA. Direct Marketing □□□□□
v. Brohl, US. __, 135 S.Ct. 1124, 1130-31 (2015). A federal suit challenging notice
and reporting requirements merely inhibits, rather than “enjoin[ing], suspend[ing] or
restrain[ing] the assessment, levy or collection of taxes,” and thus does not run afoul of the
TIA’s jurisdictional bar. Jd. at 1132-34; 28 U.S.C. § 1341.
Louisiana Revised Statute § 47:635(A)(2) requires that each person “severing oil or
gas from the soil or water of the state” file a report with the Department of Revenue by a
specified time, setting forth its business during the reporting period and showing the gross
quantity of oi] or gas severed or produced. It further provides that the reporting taxpayer
shall collect the proportionate parts of the total tax due by the owners ofthe natural resource
at the time of severance, and that the secretary may require any person engaged in
severance of natural products to furnish “any additional information necessary for the
purpose of computing the amount of tax due under this Part.” La. Rev. Stat. §§ 47:635(C)-
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(D). For failure to make the report itself, Louisiana Revised Statute § 47:642(A) imposes
penalties of two hundred and fifty dollars for each reporting period. Under Direct
Marketing, supra, the reporting requirement under § 47:635 is merely part of the
Department of Revenue’s information-gathering stage, rather than part of the assessment,
levy, or collection, because it involves “reporting information pertaining to tax liability”
rather than the official recording of taxpayer liability, the specific mode of collection, or
the act of obtaining taxes due. 135 S.Ct. at 1130-31. Accordingly, a challenge to it through
a federal lawsuit does not implicate the TIA and the 12(b)(1) motion fails.
B. 12(6)(6) Motion .
I, Standards
Rule 12(b)(6) allows for dismissal of a claim when a plaintiff “fail[s] to state a claim
upon which relief can be granted.” When reviewing such a motion, the court should focus
on the complaint and its attachments. Wilson v. Birnberg, 667 F.3d 591, 595 (Sth Cir.
2012). The court can also consider matters of which it may take judicial notice, including
matters of public record. Hall v. Hodgkins, 305 Fed. App’x 224, 227 (Sth Cir. 2008)
(unpublished) (citing Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1017-18 (sth Cir,
1996) and Norris v. Hearst Trust, 500 F.3d 454, 461 n. 9 (Sth Cir. 2007)).
Such motions are also reviewed with the court “accepting all well-pleaded facts as
true and viewing those facts in the light most favorable to the plaintiff.’ Bustos v. Martini
Club, Inc., 599 F.3d 458, 461 (Sth Cir. 2010). However, “the plaintiff must plead enough
facts ‘to state a claim to relief that is plausible on its face.’” In re Katrina Canal Breaches
Litig., 495 F.3d 191, 205 (Sth Cir. 2007) (quoting Bell At, Corp. v. Twombly, 550 US.
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544, 570 (2007)). Accordingly, the court’s task is not to evaluate the plaintiff's likelihood
of success, but instead to determine whether the claim is both legally cognizable and
plausible. Lone Star Fund V (U.S.), LP. v. Barclays Bank PLC, 594 F.3d 383, 387 (th
Cir. 2010).
2. Application
42 U.S.C. § 1983 provides a cause of action for violation of civil rights by a state
actor. To state a claim under this statute, “a plaintiff must allege the violation of a right
secured by the Constitution and laws of the United States, and must show that the alleged
deprivation was committed by a person acting under color of state law.” West v. Atkins,
487 US. 42, 48 (1988). Here RCO alleges that the defendants committed civil rights
violations by (1) imposing excess fines, in violation of the Eighth Amendment, (2)
depriving him of his right to due process, as guaranteed by the Fourteenth Amendment,
and (3) exceeding its statutory authority by imposing the penalties. Doc. 1. It also raises a
claim of estoppel. Jd. The Department maintains that RCO cannot obtain relief on any of
these claims.
a. Eighth Amendment claim
The Eighth Amendment’s Excessive Fines Clause is an incorporated protection
applicable to the states. Timbs v. Indiana, __ U.S. __, 139 S.Ct. 682, 686-87 (2019). A
fine is constitutionally excessive when it is “grossly disproportional to the gravity of a
defendant’s offense.” Vanderbilt Mortg. and Finance, Inc, v. Flores, 692 F.3d 358, 374
(5th Cir. 2012) (quoting United States v. Bajakajian, 524 U.S. 321, 334 (1998)). The Court
recognizes, however, that “judgments about the appropriate punishment for an offense
8.
belong in the first instance to the legislature.” Bajakajian, 524 U.S. at 336. Accordingly, a
fine is not excessive if it is within the limits of the statute authorizing it. Cripps v. La. Dep't
of Ag. and Forestry, 819 F.3d 221, 234-35 (Sth Cir. 2016).
RCO disputes the applicability of the statutory fines to its activities but does not
contest that the fines were within statutory bounds. For the only specific penalty
complained of — that imposed under Louisiana Revised Statute § 47:642 for failure to file
a report — the statute clearly authorizes a fine of $250 for each reporting period, and reports
are due on a monthly basis for each tax type under § 47:635. Through the audit the
Department found that RCO had failed to file reports for two tax types (oil and gas
severance) for twenty-eight consecutive periods, from May 2016 to August 2018. It
assessed RCO with $14,000 in penalties for this violation and then waived half the amount,
making the penalty within statutory bounds both before and after the waiver. RCO’s
arguments that the fines are excessive because they are disproportional to his alleged
actions and because they are used to raise revenue are thus unavailing, and it cannot show
aright to relief under this claim.
hb. Due Process claim
RCO also alleges that the Department violated its right to due process by imposing
the penalties without giving it opportunity to cross-examine the auditors or otherwise
defend against the fine. As the Department notes, however, a state may provide adequate
procedural safeguards for tax collection either through pre- or post-deprivation process.
McKesson Corp. v. Div. of Alcoholic Bev. and Tobacco, Dep't of Bus. Regs. of Fla., 496
U.S. 18, 19 (1990). In addition to the state Board of Tax Appeals, Louisiana offers post-
9.
deprivation relief through three remedy statutes. St Martin v. State, 25 So.3d 736, 738 (La.
2009). The Louisiana Supreme Court has held that these remedies provide adequate process
under both the federal and state constitutions. Tin, Inc. v. Washington Par. Sheriff's Office,
112 So.3d 197, 203 & n. 8 (La. 2013).
RCO contends that the existence of these remedies is irrelevant, because § 1983
generally does not require exhaustion of state remedies. E.g., Porter v. Nussle, 534 U.S.
516, 523 (2002) (citing Patsy v. Bd. of Regents of State of Florida, 457 U.S. 496, 516
(1982)). However, it cannot show liability for a due process violation under § 1983 when
it did not contest the assessments through the remedies made available by the state.
Accordingly, this claim must be dismissed.
c. Exceeding statutory authority
RCO also claims that the Department exceeded its statutory authority by imposing
penalties under Louisiana Revised Statute § 47:642. Under this claim, however, it only
contests the application of the penalty rather than the Department’s general authority to
conduct audits and impose fines. Accordingly, this claim is actually one of due process
violation and fails for the reasons stated above.
d. Estoppel
Finally, RCO contends that the Department is estopped from imposing penalties
because it accepted RCO’s severance returns without notifying it of any deficiencies.
Courts are “exceedingly reluctant” to grant equitable estoppel against a governmental
entity but have stopped short of ruling that it can never be applied in any circumstance.
Robertson-Dewar v. Holder, 646 F.3d 226, 229 (Sth Cir. 2011); Office of Personnel Mgmt.
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y. Richmond, 496 U.S. 414, 423 (1990). To state a cause of action for estoppel against the
government, a private party must prove affirmative misconduct in addition to the traditional
elements of the claim. Russo v. Johnson, 129 F.Supp.2d 1012, 1022 (S.D. Tex. 2001)
(citing Moosa v. INS, 171 F.3d 994, 1004 (Sth Cir. 1999)). “‘Affirmative misconduct’
requires an affirmative misrepresentation or affirmative concealment of a material fact by
the government.” /d. RCO alleges that the Department accepted its returns and made no
attempts to notify it of any missing forms or information.’ It fails to allege, however, any
misrepresentation or to show that the failure to notify RCO of a deficiency amounted to
“affirmative concealment.” Accordingly, RCO also fails to establish a claim for
government estoppel.
2 Italso contends that it was misled by conflicting information between the Department website and Louisiana Revised
Statute § 47:635, Doc. 1, pp. 3-4. The information he excerpts from the website relates to annual tax returns, while
§ 47:635 covers monthly reporting obligations. There is no conflict between the provisions and so no plausible
allegation of misrepresentation.
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Ul.
CONCLUSION
For the reasons stated above, the Motion to Dismiss for Lack of Jurisdiction will be
denied and the Motion to Dismiss for Failure to State a Claim will be granted, resulting in
the dismissal with prejudice of all claims in this suit. This ruling also inures to the benefit
of any unserved or defaulting defendants. See Armendariz v. Chowaiki, 2016 WL 8856919,
at *19 (W.D. Tex. Mar. 31, 2016) (collecting cases). It does not, however, prevent the
plaintiff from challenging the assessments on the merits using the remedies available to
him under state law.
THUS DONE in Chambers on this _/ day of 2019.
UNTTED STATES DISTRICT JUDGE
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