Opposition Brief — Thiokol Corp. v. Revenue Division, Department of Treasury of Michigan

October Term, 1995

THIOKOL CORPORATION, et al.,

Petitioners,

v.

‘

| ne eel

Oe 5 tt ee HA Iw Rete d

REVENUE DIVISION, DEPARTMENT OF TREASURY,

STATE OF MICHIGAN; DOUGLAS B. ROBERTS, in his

official capacity as Treasurer of the State of Michigan;

and THOMAS M. HOATLIN, in his official capacity as

Commissioner of Revenue of the State of Michigan,

Respondents.

On Petition For Writ Of Certiorari

To The United States Court of Appeals

For The Sixth Circuit

BRIEF FOR RESPONDENTS IN OPPOSITION

FRANK J. KELLEY

Attorney General

Thomas L. Casey

Solicitor General

Counsel of Record

P. O. Box 30212

Lansing, Michigan 48909

(517) 373-1124

Daniel M. Greenberg

Michael R. Bell

Assistant Attorneys General

Attorneys for Respondents

June 28, 1996

ihe

QUESTIONS PRESENTED

The Michigan Single Business Tax ("SBT"), Mich.

Comp. Laws § 208.1 et seq. is a value-added tax using an

addition method of calculating value added. It requires

taxpayers doing business in Michigan to include in their tax

base “compensation”, including payments to employee

benefit plans covered by the Employee Retirement Income

Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 ef Seq.

Another Michigan statute, Mich. Comp. Laws § 205.27a(6),

imposes a statute of limitations and requires taxpayers

seeking refunds on the ground that the tax violates the

federal constitution to file such claims within 90 days after

the date set for filing a return.

Specifically the issues presented in this case are:

|. Whether ERISA § 514(a) pre-empts the Michigan

SBT.

Il. Whether ERISA § 514(a) pre-empts the statute of

limitation in Mich. Comp. Laws § 205.27a(6).

Ill. Whether the federal courts have jurisdiction to

consider a declaratory judgment seeking declaration

that the statute of limitations in Mich. Comp. Laws

§205.27a(6) violates the Due Process and Equal

Protection Clauses of the United States Constitution.

TABLE OF CONTENTS

QUESTIONS PRESENT Bi iiiicicsisccinsicin een

TABLE OF AUTHORIT Tos ict canitionsonmamnsans

OPTIONS GELOW ..adicnciiinicenaeame

COUNTERSTATEMENT OF THE CASE...................

A. Parties and Nature of the Issue.............0.. cee

Sei iis cas dexeissrcsdsianetetaieantanes

C. The Single Business Tax ACt...........:ccccsrssscssreeees

REASONS FOR DENYING THE WRIT...............0008

A. The Court of Appeals correctly decided that

Michigan's value-added SBT is not pre-empted

because it affects ERISA plans in too tenuous,

remote, or peripheral a manmet...............0:::ccc0008

1. The Court of Appeals properly recognized

the principles of ERISA pre-emption

announced by this Court...

ho

The Court of Appeals properly applied

this Court's principles of ERISA pre-

emption when concluding that Michigan's

value-added SBT is not pre-empted...............

B. The Court of Appeals properly rejected

Petitioners’ challenges to Michigan's Statute

OE FAUT iii gai ister sac eich hanks canes

1. ERISA does not pre-empt the Michigan

Statute of Limitations governing tax refunds

2. Federal Courts lack jurisdiction to address

the constitutionality of Michigan's Statute

Po MEF, SRR RENT SAREE MRNAS ast exe rare

aduals 3

C. Petitioner's arguments improperly elevate form

over substance and were appropriately rejected

Or I RN ci cee ceencasosmosnn 16

1. There is no basis for the claim that the

SBT affects employee plans...........0.ccccccccccccceeen. 16

2. The SBT is not a tax on employer

ett to LOLS RATT ARE 18

3. Cases relied on by Petitioners are

distinguishable and irrelevant.............................. 19

D. There are no compelling reasons to grant

I adecenbibidctatdlatwlde ladies ied alec eel ca apo 21

1. There is no conflict with decisions of

NCI poe i a ee ae 21

2. Petitioners grossly overstate the policy

concerns inherent in this case................... SO anes 22

ss ES te St eet ee ee 24

-IV-

TABLE OF AUTHORITIES

Pages

Cases

Akzo America, Inc. v. Revenue Division, Case No.

4:93-CV-101, 1995 U.S. Dist. LEXIS 1784,

1995 WL 44043 (W.D. Mich. Jan. 13, 1995)................ 12,14

The District of Columbia and Sharon Pratt Kelley, Mayor

v. Greater Washington Board of Trade, 506 U.S. 125;

113 S. Ct. 580; 121 L. Ed. 2d 513 (1992).......... 7,8,11,12,13

Firestone Tire & Rubber Co. v. Neuser,

gf 8 Fg Ja He - : Wma erenece 13,14

Green v. Mansour, 474 U.S. 64;

106 S. Ct. 423; 6 L. Ed. 26 371 (196S).........0:.cccccesrscconss: 16

McLeod v. ]. E. Dilworth Co., 322 U.S. 327;

GOS. Ch Bae Be BB. - Se Br ave vacivvetecticserexncecesees 20

New York State Conference of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co., __ U.S. _;

115 S. Ct. 1671; 131 L. Ed. 2d 695 (1995). Selicenisanotnes passim

Oklahoma Tax Comm. v. Jefferson Lines, Inc.,

_._ U.S. _; 115 S. Ct. 1331; 131 L. Ed. 2d 261 (1995).....20

Shaw v. Delta Airlines, Inc., 463 U.S. 85;

103 S. Ct. 2890; 77 L. Ed. 2d 490 (1983).................. passim

Thiokol Corp. v. Roberts, 76 F.3d 751

ORS Ge I a iaitrtcei whlesditaiicineepnclintesdiacennes 1,4,5,13

Thiokol Corp. v. Roberts, 858 F. Supp. 674

COE. Bas: DE A Ab isdsdnicicseineeuletbccutehodbasdebsiuceta' passim

Thiokol Corp. v. Roberts, Case No. 4:90-CV-12,

1994 U.S. Dist. LEXIS 1864

COE. Ea TR IR Fi a cite nierrciteiicciadioniies 1,15,16

Thiokol Corp. v. Dep't. of Treasury,

SEZ F.20 SFO (GA Cit, TOR) cccccsecevccssnsscsenesisoscsseveenes 13,33

Travelers Insurance v. Cuomo,

14 F.38 FOR Gand Che. WIG

Trinova Corp. v. Michigan Dep't. of Treasury,

498 U.S. 358; 111 S. Ct. 818;

ee Sar SR, Oe CAP aa

United Wire v. Morristown Memorial Hospital,

99S F.2d 1179 (3rd Cir. 1993).......ccccccccccocecococscss:

Statutes

29 U.S.C.

TO On ee

OR Oe tie cds ee

Pe OM ae ee

Rev. Stat. § 3701, 31 U.S.C. § 742..................

Mich. Comp. Laws § 205.1 ef Se0...cccccccccccccssessseoe

Mich. Comp. Laws § TN eo

Mich. Comp. Laws § 208.1 ef S@9....ccccccccscscesseessse.

Mich. Comp. Laws § 208.3(3).....ccccccccecccccscesesese.

Mich. Comp. Laws § 208.4(3).......cccccccccccccc---....

Mich. Comp. Laws § 208.9.0.......0.ccccccessescsssessesces

Mich. Comp. Laws § 208.9(5).......cccccccccsesccsssessee

Mich. Comp. Laws § 208.31...0.....c.cccccccscsescscoseese.

Mich. Comp. Laws 2 3 |: SRIESE Rane aie

Other Source

Jenkins, State Taxation of Interstate

Commerce, 27 Tenn. L. Rev. 239 RRS

Dc). RRS aaeee creer

ee EET ee

iatiersakias 23

“hs

OPINIONS BELOW

In addition to the opinions cited by Petitioners and

attached in their appendix, Respondents alert the Court to

the March 5, 1993 decision of the Sixth Circuit Court of

Appeals in Thiokol Corp. v. Dep't. of Treasury,' 987 F.2d 376

(6th Cir. 1993), which addressed jurisdictional issues

involving the Tax Injunction Act, 28 U.S.C. § 1341, and the

Eleventh Amendment of the United States Constitution.

(Respondents' App. 9b). In their decision the Court of

Appeals affirmed the District Court's dismissal of all claims

for monetary damages against all of the Defendants as well

as all claims against the Department of Treasury. The Court

of Appeals reversed the District Court's dismissal of claims

for injunctive and declaratory relief under ERISA as against

the Respondent-officials acting in their official capacities

and remanded for determination of those issues.

Subsequently, the District Court denied Petitioner Thiokol

Corporation's request to amend its complaint to seek

declaratory relief with respect to the statute of limitations

applicable to tax refunds. Thiokol Corp. v. Roberts, Case No.

4:90-CV-12, 1994 U.S. Dist. LEXIS 1864 (W. D. Mich. Jan.

28, 1994).’ (Respondents' App. 1b).

"The complaints filed in this matter named as Defendants

the Department of Treasury, State of Michigan, Revenue

Division; the State Treasurer in his official capacity; and the

Commissioner of Revenue in his official capacity.

’ This unpublished opinion of the District Court is referenced

at footnote 6 in the Court of Appeals opinion on the merits

in Thiokol Corp. v. Roberts, 76 F.3d 751 (6th Cir. 1996).

(Petitioners' App. 26;

By

COUNTERSTATEMENT OF THE CASE

A. Parties and Nature of the Issue

Petitioners are corporate entities that by virtue of

engaging in business activity in the State of Michigan are

Michigan Single Business Tax taxpayers. Petitioners also act

as sponsors and administrators of qualified employee

benefit plans governed by ERISA. When engaged in certain

activities specified at Section 3(21), 29 U.S.C. §1002(21)(A),

of ERISA, Petitioners are fiduciaries with respect to the

benefit plans that they sponsor and administer.

Respondents are the Treasurer of the State of Michigan and

the Commissioner of Revenue of the State of Michigan, both

of whom are statutorily obligated to administer and

implement the State's taxing laws, including the Single

Business Tax Act, ("SBTA" or "SBT"), Mich. Comp. Laws

§ 208.1 et seq.

Petitioners challenge the inclusion in the SBT tax base

of “compensation” to the extent it ree gg contributions

to employee benefit plans covered by ERISA. The statutory

definition of “compensation”, with its detailed list of

examples of taxpayer payments included within that

definition, reads as follows:

“Compensation” means all wages, sala-

ries, fees, bonuses, commissions or other

payments made in the taxable year on behalf

of or for the benefit of employees, officers, or

directors of the taxpayers and subject to or

specifically exempt from withholding under

section 3401 of the internal revenue code.

includes, on a cash or accrual

basis consistent with the taxpayer's method

of accounting for federal income tax

purposes, payments to state and federal

unempioyment compensation funds, pay-

ments under the federal insurance contri-

bution act and similar social insurance

programs, payments, including self-insurance,

for workmen's compensation insurance,

payments to individuals not currently

3.

working, payments to dependents and heirs

of individuals because of current or former

labor services rendered by those individuals,

payments to a pension, retirement, or profit

sharing plan, and payments for insurance for

which employees are the beneficiaries, includ-

ing payments under health and welfare and

noninsured benefit plans and payments of

fees for the administration of health and

welfare and noninsured benefit plans.

Mich. Comp. Laws § 208.4(3)' (emphasis added).

(Petitioners' App. 76-77).

The language which Petitioners contend preempts the

SBT is set forth at Section 514(a), 29 U.S.C. § 1144(a), of

ERISA. That provision reads as follows:

(a) Supersedure; effective date. Except

as provided in subsection (b) of this section,

the provisions of this title and title IV shall

supersede any and all State laws insofar as

they may now or hereafter relate to any

employee benefit plan described in section

4(a) [29 U.S.C.S. § 1003(a)} and not exempt

under section 4(b) [29 U.S.C.S. § 1003(b)}.

This section shall take effect on January 1,

1975.

(Petitioners' App. 2).

B. Jurisdicti

Petitioners assert federal court jurisciction pursuant to

28 U.S.C. §§ 1331 and 2201, and also under 29 U.S.C.

§1132(e)(1). (Petition p. 2). Respondents contend that

jurisdiction is established by, and limited as set forth in, the

Sixth Circuit Court of Appeals decision in Thiokol Corp. v.

Dep't. of Treasury, 987 F.2d 376 (6th Cir. 1993).

"1995 Mich. Pub. Acts, No. 285 effective January 9, 1996,

amended this definition to exclude specified unemployment,

federal insurance contribution act, and worker: compen-

sation payments. .

aie

(Respendents’ App. 9b). Jurisdiction is premised solely upon

29 U.S.C. §§ 1132(e)(1) and 1132(a)(3). The general juris-

dictional provision, 28 U.S.C. § 1331, is inapplicable

because suits against states and their officers named in their

official capacity are precluded by the Eleventh Amendment.

The Declaratory Judgment Act, 28 U.S.C. § 2201, is

inapplicable because 29 U.S.C. § 1132 of ERISA provides

for all appropriate declaratory and injunctive relief.

The federal courts lack jurisdiction over Petitioners’

challenge to the statute of limitations set forth at Mich.

Comp. Laws § 205.27a(6), of the Michigan revenue act,

Mich. Comp. Laws § 205.1 ef seq., for the reason that the

action is barred by the Tax Injunction Act, ("TIA"), 28 U.S.C.

§ 1341, the Eleventh Amendment of the United States

Constitution, and application of the comity doctrine.

C. The Single Business Tax Act

The Michigan SBT is a value-added tax imposed on the

privilege of engaging in business in Michigan. Mich. Comp.

Laws § 208.31(3). Value added by definition represents the

increase in the value of goods and services brought about by

whatever a business does to them between the time of

purchase and the time of sale. Trinova Corp. v. Michigan

Dep't. of Treasury, 498 U.S. 358, 362; 111 S. Ct. 818; 112 L.

Ed. 2d 884 (1991). A value-added tax is a tax on a bona

fide non-divisible tax base which is a measure of business

activity. Id. at 374-375.

Value added can be determined by two equivalent

means, i.e., the "subtractive" or the “additive” method. The

additive method expresses value added as: the sum of the

cosi of labor plus depreciation plus interest plus profit. The

subtractive method expresses value added as: revenues less

cost of materials. Each method provides an identical

measurement of value added. Id. at 364-365. The SBT tax

base, as statutorily prescribed, is calculated by the additive

method. Id. at 367; Thiokol Corp. v. Roberts, 858 F. Supp.

674, 677 (W.D. Mich. 1994) (Petitioners' App. 40), and

Thiokol Corp. v. Roberts, 76 F.3d 751, 755-756 (6th Cir. 1996)

(Petitioners' App. 10). Michigan uses the additive method

of calculating the tax base as a convenience to taxpayers for

aaa

-5-

whom federal taxable income pruvides a familiar starting

point. Trinova, 498 U.S. at 377, and Thiokol Corp., 76 F.3d

at 755. (Petitioners' App. 11). For corporate taxpayers the

calculation starts with business income (defined at Mich.

Comp. Laws § 208.3(3) to mean federal taxable income)

which is subjected to prescribed additions and subtractions.

Mich. Comp. Laws § 208.9. The specific provision at issue

(‘add back provision") requires the addition of

“compensation”, as defined in Section 4 of the SBTA, to

business income in the SBT tax base calculation. Mich.

Comp. Laws § 208.9(5).

In Trinova, this Court considered the constitutionality

under both the Due Process and Commerce Clauses of the

three-factor apportionment formula utilized by the SBTA.

498 U.S. at 361. The Trinova Court discussed in great detail

the theoretical underpinnings as well as the operational

mechanisms of value-added taxation and the Michigan SBT.

This Court rejected Trinova's argument that the Michigan

SBT can and should be analyzed as three separate and

distinct taxes on the major components of the tax base, i.e.,

compensation, depreciation and income. 498 U.S. at 374-

375.

The Trinova decision is important in the instant case

because it: (1) underscores the value-added nature of the

tax; (2) acknowledges the indivisibility of the tax base; and

(3) establishes the equivalence of the addition and subtrac-

tion methods of arriving at the tax base. This Court

explicitly rejected the contentions of Trinova which were

premised upon the additive method of the tax calculation:

Trinova's attempted characterization is

arguable only because Michigan calculates

value added by the addition method. The

addition and subtraction methods of calcula-

ting value, however, are but two different

paths to the same result. See n 2, supra. Had

Michigan calculated the SBT tax base by the

subtraction method, reporting total revenues

minus total cost of materials, Trinova's char-

acterization would collapse of its own weight.

Id. at 376.

In the present case, Petitioners’ claim for pre-emption

is predicated wholly on the required add-back of the con-

tributions to and fees associated with certain employee

benefit plans. The gravamen of Petitioners’ case is the defi-

nitional language defining “compensation” and establishing

the tax base. This language arises as a result of Michigan's

determination to utilize the additive, rather than the

subtractive, method of calculating the base.

REASONS FOR DENYING THE WRIT

A. The Court of Appeals correctly decided

that Michigan's value-added SBT is not pre-

empted because it affects ERISA plans in

too tenuous, remote, or peripheral a

manner.

1. The Court of Appeals properly recog-

nized the principles of ERISA pre-emption

, Ss

Section 514(a) of ERISA sets forth the statutory stan-

dard applicable in ERISA preemption cases. That section

provides that ERISA shall "supersede any and all State laws

insofar as they may now or hereafter relate to any employee

benefit plan.” 29 U.S.C. § 1144(a).

The operative words "relate to" were defined in Shaw

v. Delta Airlines, Inc., 463 U.S. 85; 103 S. Ct. 2890; 77 L. Ed.

2d 490 (1983), where the Court held that a state Human

Rights Law which prohibited employers from structuring

their employee benefit plans in a manner that discriminates

on the basis of pregnancy and a Disability Benefits Law

which required employers to pay employees specific benefits

“relate[d] to” ERISA benefit plans. 463 US. at 97.

In Shaw, the Court set forth what has become the

standard in pre-emption cases.

A law "relates to" an employee benefit plan,

in the normal sense of the phrase, if it has a

7

connection with or reference to such a plan.!6

Id. at 96-97.'

In reaching its conclusion, the Shaw Court stated that

§ 514(a) should not be read to "preempt only state laws

specifically designed to affect employee benefit plans", nor

should it be interpreted to preempt only state laws dealing

with the subject matters covered by ERISA. /d. at 98.

Additionally, the Court alluded to the legislative history

discussing the scope of the preemption provision which

reflects congressional concern with conflicting and incon-

sistent state and local regulation which could impact

negatively on employee benefit plans. Id. at 99.

Importantly, the Court in Shaw at footnote 21, which

immediately follows its holding on the “relates to" issue,

indicated that some state actions may affect an employee

benefit plan in "too tenuous, remote or peripheral” a way to

warrant a finding that the state action "relates to" the plan:

Some state actions may affect employee

benefit plans in too tenuous, remote, or

peripheral a manner to warrant a finding that

the law “relates to" the plan. Cf. American

Telephone and Telegraph Co. v. Merry, 592 F.2d

118, 121 (CA 2 1979) (state garnishment of a

Spouse's pension income to enforce alimony

and support orders is not pre-empted). The

present litigation plainly does not present a

borderline question, and we express no views

about where it would be appropriate to draw

the line.

463 U.S. at 101, n 21. (emphasis added).

The standard enunciated in Shaw is reiterated in all of

this Court's ERISA preemption cases that have been decided

since. See, The District of Columbia and Sharon Pratt Kelley,

“Footnote 16 in the above quotation sets forth Black's Law

Dictionary's definition of "relate" as: "to stand in some

relation; to have bearing or concern; to pertain; refer; to bring

into association with or connection with."

a

aeneeneneeeeel

-8-

Mayor v. Greater Washington Board of Trade, 506 U.S. 125;

113 S. Ct. 580; 121 L. Ed. 2d 513 (1992), where this Court

sets forth the standard established in Shaw and then cites to

all of the Supreme Court cases subsequent to Shaw which

utilize the standard. 506 U.S. at 129. The Greater Washington

Board Court in its statement of the applicable standard

paraphrases the Slaw exception to preemption at its

footnote 1:

Pre-emption does not occur, however, if the

state law has only a “tenuous, remote, or

peripheral” connection with covered plans,

Shaw, 463 US, at 100, n 21, 77 L Ed 2d 490,

103 S Ct 2890, as is the case with many laws

of general applicability, see Mackey, 486 US,

at 830-838, and n 12, 100 L Ed 2d 836, 108 S

Ct 2182; cf. Ingersoll-Rand, 498 US at 139,

112 L Ed 2d 474, 111 S Ct 478.

506 U.S. at 129.

This Court's most recent pronouncement on ERISA pre-

emption reiterated the S/aw standard and referred to the

exception to preemption as expressed in Greater Washington

Board. New York State Conference of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co., _. U.S. __; 115 S. Ct. 1671; 131 L.

Ed. 2d 695, 708-709 (1995). In Travelers, this Court upheld

a statutory scheme which exacted surcharges from patients

whose commercial insurance coverage was purchased by

employee benefit-care plans governed by ERISA as well as

patients whose health maintenance organization's fees were

paid by an ERISA plan. In reaching its conclusion, this

Court acknowledged that the phrase "relates to" constitutes

words of limitation in spite of the extreme breadth that

those words potentially convey. The Court explained:

If "relate to" were taken to extend to the

furthest stretch of its indeterminacy, then for

all practical purposes pre-emption would

never run its course, for "[rJeally, universally,

relations stop nowhere”, H. James, Roderick

Hudson xli (New York ed, World's Classics

1980). But that, of course, would be to read

I

i,

Congress's words of limitation as mere sham,

and to read the presumption against pre-

emption out of the law whenever Congress

speaks to the matter with generality. That

said, we have to recognize that our prior

attempt to construe the phrase “relate to"

does not give us much help drawing the line

here.

131 L. Ed. 2d at 705. (emphasis added).

The Court then set forth the Shaw definition of "relate

to" as encompassing a "connection with or reference to" and

states that the surcharge statute does not make "reference" to

ERISA plans. In construing the "connection with" language of

the standard the Court stated:

[A]n uncritical literalism is no more help than

in trying to construe "relate to." For the same

reasons that infinite relations cannot be the

unhelpful text and the frustrating difficulty of

defining its key term, and look instead to the

objectives of the ERISA statute as a guide to

the scope of the state law that Congress

understood would survive.

131 L. Ed. 2d at 705. (emphasis added).

Travelers emphasized the need to look to the objectives

of the ERISA statute as a guide to the scope of the state

laws that Congress understood would survive preemption.

Id. at 705. In this regard the Travelers Court mentioned the

need to minimize the administrative and financial burden of

complying with conflicting state regulations in order to

permit the nationally uniform administration of employee

benefit plans. Id. at 706. The Court discussed its prior

cases dealing with ERISA pre-emption to underscore the

congressional intent to preclude state laws from mandating

employee benefit structures, their administration, or alter-

native enforcement mechanisms. 131 L. Ed. 2d at 706-707.

-10-

The Travelers Court went on to note that while the New

York surcharge statute created an indirect economic effect on

choices made by ERISA plans, this was not in itself

sufficient to mandate pre-emption.

If a law authorizing an indirect source of

administrative cost [like the garnishment

statute in Mackey] is not preempted, it

should follow that a law [like New York's

surcharge statutes] operating as an indirect

source of merely economic influence on

administrative decisions, as here, should not

suffice to trigger pre-emption either.

Id. at 709.

2. The Court of Appeals properly

applied this Court's principles of ERISA pre-

emption when concluding that Michigan's

value-added SBT is not pre-empted

The District Court, in Thiokol Corp., 858 F. Supp. at

676, understood its task to be that of "determin[ing] the

precise relationship between a state law and an ERISA plan,

specifically answering the question of whether the state law

[at issue] affects an ERISA plan in too tenuous, remote or

peripheral a manner to ‘relate to’ the plan.” (Citation

omitted). (Petitioners' App. 46).

Realizing that Michigan's SBT is a value-added tax,

commonly utilized in Europe and Latin America but not the

United States, the District Court in Thiokol Corp., supra,

appropriately discussed at length the nature of value-added

taxation. In doing so, the District Court referred to this

Court's discussion of value-added precepts in Trinova v.

Michigan Dep't. of Treasury, supra.

The opinion set forth several findings regarding value-

added taxation in general and the SBT in particular.

Specifically, the District Court, in Thiokol Corp., supra,

concluded that value added is a measure of the entire

economic activity of a business which is defined as the

increase in the value of goods and services brought about by

Pre Sa rat a te ce eR ay ioe SY

tt.

whatever a business does to them between time of purchase

and time of sale. 858 F. Supp. at 676. (Petitioners’ App.

46, 50). The District Court, in Thiokol Corp., supra, also

stated that value added can be expressed by three different

methods -- subtraction, addition, or credit, and that the

method of calculation does not change the fundamental

nature or the amount of tax. 858 F. Supp. at 677-678.

(Petitioners’ App. 50). Further, the District Court

specifically found that the SBT is not a tax on the individual

components of the tax base and is not a tax on an

employer's ERISA plan contributions. 858 F. Supp. at 678-

679. (Petitioners’ App. 52).

Following its discussion of the nature of the tax, the

District Court, in Thiokol Corp., supra, undertook a thorough

analysis of preemption jurisprudence and concluded that

any effect or impact that the SBT may have on ERISA plans

is incidental and that the effect is tenuous, remote and

peripheral. 858 F. Supp. at 680. (Petitioners’ App. 57-59).

The District Court then discussed and rejected Petitioners’

suggestion that this Court's decision in Greater Washington

Board, supra, mandates a finding of preemption in all

instances where a state statute makes a reference to an

ERISA plan. 858 F. Supp. at 680-683. (Petitioners’ App.

59-65). In conclusion the District Court stated:

After a thorough review, | conclude that

the Michigan SBT is not preempted by ERISA.

This conclusion is based on the following

facts.

(1) The SBT is a neutral tax of general

application which does not single out ERISA

plans for special treatment nor predicate

rights or obligations on the existence of such

plans.

(2) The SBT does not regulate ERISA

plans.

(3) The SBT does not affect ERISA

plans or the relationships between, or among,

ERISA entities.

42.

(4) The SBT is neither a direct nor

indirect tax on employer contributions to

ERISA plans. The SBT is a value added tax,

akin to a sales tax, which merely does not

allow a deduction for ERISA contributions

made by an employer.

(5) Any minimal effect the SBT may

have on employer contributions to ERISA

plans is incidental and unavoidable; such an

effect could be found in nearly every state law

which regulates business. This incidental

effect is tenuous, remote and peripheral.

(6) | have found no case that has held a

state law "relates to" and is preempted by

ERISA merely because it refers to ERISA.

Likewise, | decline to so hold.

858 F. Supp. at 683-684. (Petitioners’ App. 66-67).

In Akzo America, Inc. v. Revenue Division, Case No.

4:93-CV-101, 1995 U.S. Dist. LEXIS 1784, 1995 WL 44043

(W.D. Mich. Jan. 13, 1995), the District Court agreed with all

of the conclusions of the Tiiokol court save one. (Petitioners'

App. 32-33). The District Court, in Akzo America, supra,

believed that the decision in Greater Washington Board man-

dated pre-emption in all cases where a state statute makes a

reference to an ERISA plan. (Petitioners' App. 36-37). The

District Court, in Akzo America, supra, reached this con-

clusion in spite of its finding that the SBT had no more than

a tenuous, remote or peripheral effect on an ERISA plan.

(Petitioners' App. 36). The District Court stated:

Since the “tenuous, remote, or

peripheral” exception does not apply to a

state law which refers to an ERISA plan, it is

of no effect, in this Court's estimation, that

the SBT has merely a tenuous, remote, or

peripheral effect on ERISA plans.

(emphasis added). 1995 U.S. Dist. LEXIS 1784 ‘at 7. (Peti-

tioners' App. 36).

ane ere

me

The Court of Appeals concurred with the detailed

analysis of Michigan's SBT in Thiokol Corp., supra, 76 F.3d at

755-756. (Petitioners’ App. 10-13). The appellate court

noted specifically that the SBT is a tax on value added, and

acknowledged that Michigan chose the addition method of

calculating value added as an accommodation to taxpayers

because it entailed easier calculations using as the starting

point federal taxable income which is familiar to all

corporate taxpayers. The Court of Appeals also concluded

that a value-added tax is not a tax on the individual

components that go into the calculation of value added. 76

F.3d at 755-756. (Petitioners’ App. 11-12).

The Court of Appeals began its consideration of

whether the SBT is preempted by acknowledging this Court's

previous decisions indicating the conspicuous breadth of the

ERISA preemption language used by Congress. Citing

specifically to this Court's decision in Shaw, supra, the Court

of Appeals noted that the Shaw decision carved out an

exception to the ERISA pre-emption provision for those

state laws that “affect employee benefit plans in too

tenuous, remote or peripheral a manner to warrant a finding

that the law ‘relates to’ the plan." The Court of Appeals

determined that the S/uw exception has continuing viability

as evidenced in this Court's decisions in Greater Washington

Board, and Travelers. Thiokol Corp., 76 F.3d at 754.

(Petitioners' App. 6-7).

In reaching its conclusion to uphold the Michigan

statutory provision the Court applied the three-part test

enumerated by the Sixth Circuit in Firestone Tire & Rubber Co.

-14-

v. Neuser, 810 F.2d 550 (6th Cir. 1987). Application of the

test resulted in a finding that the SBT provision is within the

Shaw exception as a statute that has "at most, a tenuous,

remote, or peripheral effect on an ERISA plan.” 76 F.3d at

754-755. (Petitioners’ App. 8). In its discussion of the Shaw

test and the application of ERISA pre-emption, the Sixth

Circuit emphasized that the preclusion of state laws creating

a burdensome effect on ERISA plans is at the heart of the

pre-emption doctrine.

Congress sought to pre-empt State laws that

have a burdensome effect on ERISA plans.

When a state law has such an effect on a

covered plan, it is pre-empted; when it does

not, it is not pre-empted even if it actually

refers to ERISA.

76 F.3d at 757. (emphasis in the original).

The Sixth Circuit went on to consider and reject

Petitioners’ contention, accepted by the District Court, in

Akzo America, that there is a per se rule of pre-emption in all

cases where a state statute makes a reference to ERISA. In

reaching its holding, the Court of Appeals concluded that

"connection with" and "refers to" cases are not "analytically

distinct" but rather are “approximations of the same test"

Petitioners at page 14 of their Petition mischaracterize the

method of analysis utilized by the Sixth Circuit in Firestone

and in Tiuokol. The three-prong analysis in Firestone is not an

analysis that is separate and distinct from the test

enunciated in Shaw as suggested by Petitioners. Rather, the

Firestone three-prong analysis is a methodology used to

assist the Court in determining whether the effect of a state

law is tenuous, remote or peripheral under the Shaw

standard. Firestone, supra at 555:

Although no single test has been for-

mulated for determining when a state law

falls within the "remote and peripheral”

exception to section 1144, several factors

have been used in the analysis.

Set es ee

-15-

which looks to evaluate and determine if the statutes at

issue have an "impermissible effect on a covered plan.” 76

F.3d at 758. (Petitioners’ App. 19).

B. The Court of Appeals properly rejected

Petitioners’ challenges to Michigan's

Statute of Limitations.

1. ERISA does not pre-empt the Michigan

Ss.

Petitioners assert that ERISA pre-empts Michigan's

statute of limitations for tax refunds. The Court of Appeals

succinctly and correctly addressed this issue. The statute of

limitations has no cognizable effect on employee benefit

plans. At most the limitations provision has only a

peripheral effect on ERISA-based challenges to Michigan's

tax laws. The Court of Appeals correctly held that the

statute of limitations provision is not pre-empted by ERISA.

76 F.3d at 761. (Petitioners’ App. 25-27).

2. Federal Courts lack jurisdiction to

address the constitutionality of Michigan's

Statute of Limitations.

Petitioners try to portray their claim raising consti-

tutional challenges to Michigan's statute of limitations

provision,’ governing claims for tax refunds as “closely

aligned” to their claim that a portion of the SBT tax base is

pre-empted by ERISA. (Petition p. 29). The District Court,

in Thiokol Corp. v. Roberts, Case No. 4:90-CV-12, 1994 U.S.

Dist. LEXIS 1864 (W. D. Mich. Jan. 28, 1994) (Respondents'

App. 1b), correctly perceived that Petitioners’ attack on the

statute of limitations is not aligned with the ERISA action

but is intertwined with their refund claims which are only

appropriately addressed in the state courts. Thiokol Corp.,

supra. (Respondents' App. 6b-7b). As such the Tax

Injunction Act and its underlying doctrine rooted in comity

militate against the federal courts addressing these issues.

This is precisely what the Sixth Circuit held in Thiokol Corp.

v. Dep't. of Treasury, 987 F.2d 376 (6th Cir. 1993).

(Respondents’ App. 9b).

“Mich. Comp. Laws § 205.27a(6).

“16-

Additionally, Petitioners sought a federal court ruling

in order to present it as res judicata on state refund claims

brought in state courts.’ As pointed out in Tiuokol Corp. v.

Roberts, Case No. 4:90-CV-12, 1994 U.S. Dist. LEXIS 1864,

at *9 (W. D. Mich. Jan. 28, 1994) (Respondents' App. 7b),

this is precluded by the rule of law announced in Green v.

Mansour, 474 U.S. 64, 73; 106 S. Ct. 423; 88 L. Ed. 2d 371

(1985).

C. Petitioners' arguments improperly ele-

vate form over substance and were appro-

priately rejected by the Court of Appeals.

1. There is no basis for the claim that the

SBT affects employee plans. =

The Third Amended Complaint filed by Thiokol Cor-

poration in Thiokol Corp. v. Roberts, 858 F. Supp. 674 (W.D.

Mich. 1994) (Petitioners’ App. 40), sets forth nine para-

graphs of allegations purporting to detail how the SBT

"relates to" ERISA benefit plans, burdens the "sponsoring

employer as plan sponsor, administrator and fiduciary”, and

“influences and affects” Thiokol Corporation and the plans.

In response to Respondents’ interrogatories seeking to flesh

out the factual basis supporting these claims, Thiokol

Corporation presented a short statement which reads as

follows:

** *

The ability of Petitioners to fund its [sic]

employee benefit plans is impacted not only

“Petition p. 30:

“a determination of the constitutionality of

§ 27a(6) made by this Court in the context

of Petitioners’ related ERISA claims would

have universal application, and would

resolve the issue with precision, authority

and finality.”

(emphasis in original).

of Fe

by the direct cost of making the required

contributions or paying the expenses incurred,

but also by every other expense of doing

business, which expenses exert a pressure

against the ability to fund employee benefit

plans. As the costs of doing business

increase, a prudent manager will look for

ways to hold total costs down. Some costs

can be controlled - others cannot.

ee

Since the Michigan single business tax (SBT) is

higher than it otherwise would be if the cost

of employee benefits was not included in the

tax base, it naturally follows that the SBT is

one of the non-controllable costs that brings

pressure on management to reduce the

amount of employee benefits, a controllable

cost. If management determines that benefit

levels are not to be decreased, then in the face

of other rising costs (including SBT) the cost

of maintaining the same level of benefits is

higher.

Because the SBT base includes the cost of

employee benefits, management can see a

direct correlation between that particular tax

and the cost of funding employee benefits.

This cost relationship effect [sic] Petitioners

in their capacities as business entities,

employers, plan sponsors, plan

administrators and fiduciaries.

(emphasis added).

As the foregoing response reveals, Petitioners assert

nothing more than the obvious--the SBT is a tax and as such

is another cost of doing business which results in a reduction

in funds to the business-taxpayer who is responsible for

paying the tax. While such a reduction in funds may

influence what an employer can or is willing to pay in wages

and employee benefits, it does so in precisely the same

-18-

manner as all other tax exactions and necessary expenses.”

2. The SBT is not a tax on employer

contributions.

The SBT is not a tax on plan contributions.” The SBT is

not a tax on compensation or profits. It is a tax on value

added. Because the SBT is not a tax on compensation, it

cannot be a tax on any of the separately enumerated

examples of compensaticn listed within the statutory

definition at Mich. Comp. Laws § 208.4(3). This is most

clearly evidenced by the fact that there is no direct

correlation between contributions to employee benefit plans

and SBT liability. To the extent that sums are retained as

profit or otherwise consumed in the economic endeavor of

the taxpayer the tax liability may not be impacted at all by a

decision to lower contributions to a qualified plan. This was

recognized by this Court in Trinova.

If Trinova had paid an additional $100

million in compensation during 1980, there is

no way of knowing whether, or to what

extent, value added would have increased. In

fact, value added would not have increased

so long as revenues did not increase. These

“Petitioners efforts to interject the “uncontraverted

testimony” of John C. Hedley into this case should be

scrutinized with care. The references cited do not support

the broad contentions that Petitioners attribute to them in

their Petition. (Petition pp. 3, 19). Rather, the deposition

testimony confirms what Respondents elicited from

Petitioner-Thiokol in its interrogatories.

* The District Court was emphatic. “Plaintiffs assert that the

SBT is a tax on contributions to ERISA plans. As such,

Plaintiffs argue that the SBT relates to ERISA and should be

preempted by ERISA. I am satisfied that Plaitniffs'

argument fundamentally misinterprets the nature of the

value added tax." 858 F. Supp. at 679.

-19-

elements of value added are inextricable,

codependent variables. Trinova, 498 U.S. at

376.

The decision in Trinova alerts to the need to determine

precisely what is being subjected to tax.

"A tax on sleeping measured by the number of

pairs of shoes vou have in your closet is a tax

on shoes.”

Trinova, 498 US. at 374, quoting Jenkins, State Taxation of

Interstate Commerce, 27 Tenn. L. Rev. 239, 242 (1960).

The Michigan SBT is precisely what it purports to be:

a generally applicable business tax on the privilege of

engaging in business in Michigan. Mich. Comp. Laws §

208.31.

When the SBT is understood for what it is, Petitioners’

contentions collapse. There is no "reversal" of federal tax

deductions for plan contributions as suggested by

Petitioners. (Petition p. 2). While federal taxable income is

utilized as a convenient starting point to calculate the base,"

the SBT is unrelated to the federal income tax or any type of

income tax. The SBT does not seek payment “for the privi-

lege of sponsoring employee benefit plans”. (Petition p. 3).

Rather, the SBT imposes a tax on the privilege of doing

business measured by value added.

3. Cases relied on by Petitioners are

distinguishable and irrelevant.

In their petition seeking certiorari in this Court,

Petitioners for the first time seek to rely on case law

discussing a federal statutory exemption from state or local

taxation for “all stocks, bonds, treasury notes, and other

obligations of the United States." Rev. Stat. § 3701, 31

™ Michigan chose the addition method of calculating value

added as a convenience to taxpayers for whom federal

taxable income provided an easy starting point. Trinova,

498 U.S. at 377. This point was recognized by the Court of

Appeals, as well. 76 F.3d at 755. (Petitioners App. 11).

-20-

U.S.C. § 742. These cases are inapplicable to the issue of

whether ERISA pre-empts state laws. There is an adequate

body of case law concerning ERISA pre-emption, and

Petitioners’ reference to bank share cases is an unnecessary

and distracting digression.

The test that is applicable to the determination of

ERISA pre-emption does not look to the manner of

calculation of a tax. Rather the “relates to" test as

established by Shaw and its progeny, looks to the "effect" a

state law has on ERISA-qualified plans.

Petitioners also cite McLeod v. J. E. Dilworth Co., 322

U.S. 327; 64 S. Ct. 1023; 88 L. Ed. 1304 (1944), and

Oklahoma Tax Comm. v. Jefferson Lines, Inc., _ U.S. __;

115 S. Ct. 1331; 131 L. Ed. 2d 261 (1995), to advance a

claim that the District Court in Tiiokol and the Court of

Appeals ignored the substance of the SBT by their refusal to

find preemption of that portion of the "compensation" add-

back provision which includes contributions to qualified

plans. The cases cited do not support Petitioners’

contention. Rather, they support Respondents’ position.

While the Court in Jefferson Lines acknowledged the

complementary goals of the sales and use taxes, the opinion

stressed the differences between the sales and use tax with

regard to the underlying taxable event and who is

responsible for the payment of the tax. Jefferson Lines, 131 L.

Ed. 2d 280. The discussion in Jefferson Lines and McLeod

fully recognized the differences in theory and application of

the sales tax as contrasted with the use tax.

In the present case there is only a value-added tax

involved. The fact that there are several methods of

calculation to arrive at the very same value-added tax base

does not alter the theoretical, factual or economic effect of

the tax. By beginning its analysis with a discussion of the

SBT as a value-added tax and then acknowledging the

equivalent calculation methods used to calculate its base, the

courts below rejected Petitioners’ form over substance

| Perera

91.

contentions and fairly analyzed the substance of the SBT."

D. There are no compelling reasons to

grant Certiorari.

1. There is no conflict with decisions of

this Court.

Petitioners contend that the Sixth Circuit Court of

Appeals decision conflicts with relevant decisions of this

Court. This is simply not true. The District Court, in Thiokol

Corp., supra, 858 F. Supp. at 674 (Petitioners' App. 40),

predicated its analysis on the specific and unique nature of

the SBT as discussed in this Court's decision in Trinova. The

Court of Appeals cited, and agreed with, the District Court's

analysis, in Thiokol Corp., supra, as to the nature of value-

added taxation. 76 F.3d at 755-756. (Petition App. 10-13).

In determining whether the Michigan SBT provision should

be pre-empted, both the District Court, in Thiokol Corp., and

the Court of Appeals relied upon and applied the pre-

emption standard set forth by this Court in Shaw. The Court

of Appeals found that the applicable pre-emption test is the

"relates to” test as expressed in Shaw which pre-empts state

laws that have a “connection with or reference to” an ERISA-

covered plan subject to the proviso that some state laws

may affect a plan in a manner that is too tenuous, remote, or

™The Sixth Circuit stated as much at p. 756 of its opinion:

Michigan would achieve the same results by

simply defining compensation as all expen-

ditures on behalf of employees, officers and

directors or by replacing its addition method

with a subtraction method of calculating a

value added tax base. Paying proper heed to

the Supreme Court's admonition that in tax

matters courts should consider “substance not

... form," see Diedrich v Commissioner of

Internal Revenue, 457 U.S. 191, 195, 102 S. Ct.

2414, 2417-2418, 72 L. Ed. 2d 777 (1982), it

would appear that Michigan's SBT fits within

the Shaw exception and is not pre-empted by

§514(a)." Thiokol Corp., 76 F.3d 751 (6th Cir.

1996) (Petitioners’ App. 13). ~

x

peripheral to mandate a finding of preemption. Specifically,

the Court of Appeals rejected a bright line test for pre-

emption predicated on the use of the "ERISA" word or a

mere reference to ERISA-qualified plans because such a test

failed to address the effect of a state law on a covered plan.

76 F.3d at 756-757. (Petitioners’ App. 17-20). Not only is

this conclusion fully in keeping with Shaw, it is fully in

accord with this Court's most recent expressions set forth in

Travelers in which this Court rejected “an uncritical literalism"

in favor of an analysis which looks to the objectives of the

ERISA preemption statute and its intent to avoid a

multiplicity of regulations impacting plan benefit levels, plan

structure or plan administration. Travelers, 131 L. Ed. 2d at

705-707.

The record in this case could not be clearer. The SBT

does not regulate directly or indirectly any employee benefit

plan. The SBT does not seek payment from a plan or trust,

mandate benefits, or require action or involvement on the

part of any plan, plan trust administrator or beneficiary.

The tax is determined and paid by the business- -taxpayer

with reference to its books and records only. A ruling in

favor of the Petitioners and any ensuing refunds paid to

Petitioners will not increase the assets of any plan or plan

trust. Any impact or effect of the SBT on a qualified plan is

at most tenuous, remote or peripheral within the terms of the

Shaw exception to pre-emption.

2. Petitioners grossly overstate the policy

Petitioners claim that allowing this case to stand "will

be a clarion call to every state and local taxing jurisdiction...

to descend upon employers with tax levies designed to

capitalize upon an employer's plan contributions." This

claim is utter nonsense. States and local tax authorities do

not need to await the outcome of this case to impose a

value-added tax upon employers. A subtractive type value-

added tax patterned after Michigan's SBT would share its

theoretical underpinnings and impact employers, plan

sponsors and ERISA-qualified plans in the same tangential,

remote and peripheral manner as the SBT. Since such a

similarly patterned tax would not be pre-empted because it

wool at nhs regen yA Abe 9

-23-

would neither "refer" to ERISA plans nor affect such plans in

more than a peripheral manner, logically the SBT should not

be pre-empted.

From the start Respondents’ position has been founded

specifically on the nature of the SBT as a value-added tax

which is capable of being calculated by use of either an

additive or subtractive method to arrive at an equivalent

measure. Respondents’ position as accepted by the courts

below is specific to value-added taxes and is not susceptible

to the broad application that Petitioners suggest.

While this case is of extreme importance to the fiscal

well being of the State of Michigan”, it is not a Case of

national significance. Unlike the surcharge statutes in

Travelers which exist in similar form in numerous states

throughout the country, and divided the federal circuit

courts” prior to this Court's decision in Travelers, no other

state, besides Michigan, presently is utilizing a value-added

tax.

"The record includes the Affidavit of David Kirvan,

Administrator for the Single Business Tax Division,

Department of Treasury, State of Michigan which indicates

that as of September 1995, there were 182 ERISA

preemption cases seeking refunds in Michigan Courts fora

total of $136,844,353.00. In addition, similar claims

awaiting administrative decision totaled approximately

$100,000,000.00. The annual reduction in single business

tax receipts would amount to approximately

$140,000,000.00.

'’ See, United Wire v. Morristown Memorial Hospital, 995 F.2d

1179 (3rd Cir. 1993), and Travelers Insurance v. Cuomo, 14

F.3d 708 (2nd Cir. 1993).

)

f

:

Respondents respectfully request that this Court deny

-24-

RELIEF SOUGHT

the Petition for a Writ of Certiorari.

June 28, 1996

cases/thiokol

FRANK J. KELLEY

Attorney General

Thomas L. Casey

Solicitor General

Counsel of Record

P. O. Box 30212

Lansing, Michigan 48909

(517) 373-1124

Daniel M. Greenberg

Michael R. Bell

Assistant Attorneys General

Attorneys for Respondents

ie Seeteths

APPENDIX

TABLE OF CONTENTS

Page

January 28, 1994 Opinion Re Appeal of

Magistrate Judge's Order Granting Leave

to File Third Amended Complaint ..............0...c..cccccceees Ib

Sixth Circuit Court of Appeals Opinion

Gated March. 5, 1993, No. 92-1611...W....0.-.<iecdesconsrseacsesss 9b

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-1b-

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

THIOKOL CORP., MORTON

INTERNATIONAL, INC., (as

successors through corporate

reorganization to Morton

Thiokol, Inc.) and BEE

CHEMICAL COMPANY,

Case No. 4:90-CV-12

Plaintiffs,

vV. HON. DOUGLAS W. HILLMAN

DOUGLAS B. ROBERTS, in his

official capacity as Treasurer

of the State of Michigan, and

THOMAS M. HOATLIN, in his

official capacity as Commissioner

of Revenue of the State of Michigan,

Defendants.

/

OPINION RE APPEAL OF MAGISTRATE

JUDGE'S ORDER GRANTING LEAVE

TO FILE THIRD AMENDED COMPLAINT

Plaintiffs Thiokol Corporation, Morton International,

Inc., and Bee Chemical Company, all Michigan corporations,

brought this action under the Employee Retirement Income

Security Act, 29 U.S.C. § 1144(a) ("ERISA") to challenge

provisions of the Michigan tax code that require them to pay

tax on their contributions to employee benefit plans. They

originally sought declaratory, injunctive and monetary relief,

the last in the form of refunds for their alleged overpayments

under the tax law. At the same time, plaintiffs filed com-

plaints in the Michigan Court of Claims.

Presently before the court is plaintiffs’ appeal from a

single portion of Magistrate Judge Scoville's September 27,

1993 order. Although permitting plaintiffs to file a third

amended complaint, that order prohibited them from seeking

x.

declaratory relief with respect to MCL 205.7a(6); MSA

7.657(27a)(6), a 90-day statute of limitations applicable to

the refund claims. Specifically, plaintiffs seek a declaration

that the state statute is preempted by ERISA, violative of

the Fifth and Fourteenth Amendments of the Constitution of

the United States, and inconsistent with Congress's regula-

tion of interstate commerce pursuant to Article 1, Section 8

of the Constitution of the United States. Unless declaratory

relief is granted on one of these grounds, plaintiffs will have

no opportunity to seek refunds for their alleged tax

overpayments.

Case History

In their original complaint, plaintiffs sought: (1) a

declaration that Michigan's taxation of contributions to

employee benefit plans are invalid and preempted by

ERISA; (2) injunctions on the future collection of these taxes

and on the defendants’ refusal to grant their refund requests;

and (3) refunds of their alleged tax overpayment, with

interest. Plaintiffs’ contemporaneous initiation of an action

for refunds in the Michigan courts was intended to preserve

their chance to seek refunds in the event this court was

unable to grant that relief.

On April 15, 1992, this court found that the Eleventh

Amendment of the United States Constitution and the Tax

Injunction Act, 28 U.S.C. § 1341 ("TIA"), barred not only

plaintiffs’ claims for refunds, but their demands for

injunctive and declaratory relief as well.

, No. 4:90-cv-12 (W.D. Mich. April 15,

1992). Plaintiffs appealed that ruling, and the Court of

Appeals for the Sixth Circuit granted the appeal in part and

denied it in part. The court held that the defendants’

Eleventh Amendment immunity precludes plaintiffs from

seeking monetary relief. It further held, however, that neither

the Eleventh Amendment nor the TIA prevents plaintiffs

from suing defendant Roberts, the Treasurer of the State of

Michigan, or defendant Hoatlin, the Commissioner of

Revenue for the State of Michigan, in their individual

capacities, for prospective injunctive or declaratory relief.

987 F.2d 376, 382 (6th

Cir. 1993). Thus the Sixth Circuit eliminated plaintiffs’

-3b-

refund claims. Plaintiffs’ only remaining opportunity to

obtain refunds is in the Michigan Court of Claims. The Sixth

Circuit did not specifically address whether or not the relief

plaintiffs seek with respect to the statute of limitations,

which is now relevant only to their state court claims for

refunds, is within the scope of the prospective declaratory

relief that they are permitted to pursue in federal court.

After the Sixth Circuit's decision, plaintiffs sought

leave to file this amended complaint on August 31, 1993.

Judge Scoville granted plaintiffs leave to file the amended

complaint, with the exception of several claims including

claims for monetary relief and claims for retrospective

declaratory or injunctive relief, which he held to be “outside

the scope of the mandate of the Court of Appeals." As a

consequence of this ruling, Judge Scoville further held,

plaintiffs would not be allowed to seek declaratory relief

concerning the statute of limitations pertaining to the refund

claims. This appeal followed.

Standard of Review

The first issue raised by this appeal is the appropriate

standard of review. Plaintiffs have requested that | treat

Judge Scoville’s order as an order that effectively dismisses

plaintiffs’ claim for declaratory relief with respect to MCL

205.7a(6); MSA 7.657(27a)(6), or that grants defendants

summary judgment on that claim. Therefore, plaintiffs

assert, this portion of the order is subject to de novo review.

28 U.S.C. § 636(b)(1)(A) provides that a magistrate

judge may be designated to decide “any pretrial matter

pending before the court, except a motion for injunctive

relief, for judgment on the pleadings, for summary judgment

..." (listing additional dispositive pretrial motions). The

magistrate judge's opinion on a nondispositive matter may

be reconsidered by a district judge if it is shown that it is

clearly erroneous or contrary to law. Id.; Fed. R.Civ. P. 72(a);

Co., 955 F.2d 1085, 1088 (6th Cir. 1992).

Normally, a motion to file an amended complaint is

just such a nondispositive motion. See, Parrish v. Ford

-4b-

Motor Co., 909 F.2d 1484 (Table), 1990 WL 109188, **3-**4

(6th Cir. Aug. 2, 1990). Considering plaintiffs’ motion

accordingly, I find that Judge Scoville's order is neither

clearly erroneous nor contrary to law, and therefore deny

plaintiffs’ appeal.

Were | to treat the order as having decided a

dispositive motion, | would be required to conduct a de novo

review of the portion of it to which plaintiffs object. 28

U.S.C. 636(b)(1)(C); United States Fidelity and Guaranty

Co., 955 F.2d at 1088. My conclusion under this standard

would be the same.

Analysis

The Sixth Circuit reviewed this court's earlier dismissal

of plaintiffs’ motion to file a second amend« ? complaint in

this case, Thiokol, 987 F.2d at 383, and its analysis is

applicable here.

Federal Rule of Civil Procedure 15(a) provides that

once a response to a plaintiff's complaint has been filed, the

plaintiff may amend the complaint "only by leave of court or

by written consent of the adverse party; and leave shall be

freely given when justice so requires." Fed. R. Civ. P. 15(a).

The Supreme Court has interpreted the Rule as meaning that:

If the underlying facts or circumstances relied

upon by a plaintiff may be a proper subject of

relief, he ought to be afforded an opportunity

to test his claim on the merits. In the absence

of any apparent or declared reason -- such as

undue delay, bad faith . . . futility of

amendment, etc. -- the leave sought should, as

the rules require, be “freely given."

Foman vy. Davis, 371 U.S. 178, 182, 9 L. Ed. 2d 222, 83 S.

Ct. 227 (1962). This Circuit has held that an amendment to

a complaint would be “futile” in this context where the

proposed amendment “could not withstand a motion to

dismiss.”

Historic Preservation, 632 F.2d 21, 23 (6th Cir. 1980).

-5b-

Plaintiffs maintain that their proposed amendment is

within the scope of the Sixth Circuit's opinion and that it

would survive a motion to dismiss. The Sixth Circuit,

plaintiffs assert, explicitly permitted them to seek

“prospective declaratory and injunctive relief" in federal

court. The amendment they propose to make is a demand

for an order declaring that a state statute of limitations is

preempted by ERISA or unconstitutional or both. This order

was part of the relief sought in their original complaint, and

therefore, plaintiffs claim, the Sixth Circuit's permission for

plaintiffs to pursue their claims for "prospective declaratory

and injunctive relief" in federal court must be interpreted to

include this relief.

Defendants’ position, on the other hand, is that plain-

tiffs’ claim for declaratory relief with respect to the statute

of limitations is inextricably connected with their claim for

refunds. In addition, it pertains to past tax years.

Therefore, defendants maintain, for this court to grant

declaratory relief with regard to the statute of limitations

would be for it to violate the Eleventh Amendment bar on

plaintiffs’ claims for refunds and retrospective declaratory

relief. Instead, defendants assert, if plaintiffs are successful

in their remaining federal court claims, winning the other

injunctive and declaratory relief they seek, they may

subsequently bring this claim for declaratory relief in the

state court with their claim for refunds. For this reason,

defendants ask that plaintiffs’ appeal be denied.

In the Sixth Circuit's earlier opinion in this case, it

affirmed this court's dismissal of plaintiffs’ proposed

addition of a section 1983 claim to their complaint. Thiokol,

987 F.2d at 383. Plaintiffs then wished to seek damages

under the section 1983 claim for their claim that state

officials’ unlawful collection and retention of tax payments

had violated the Commerce Clause. Id. But the Sixth Circuit

had held earlier in its opinion that the Eleventh Amendment

precluded plaintiffs from seeking monetary relief against the

state defendants in federal court. Id. at 382. Section 1983,

the court reasoned, was not intended by Congress to be used

as a means of avoiding the Eleventh Amendment prohibition

on suits against state officials in federal court. Id. at 383,

citing, Quern v. Jordan, 440 U.S. 332, 59 L. Ed. 2d 358, 99 S.

-6b-

Ct. 1139 (1979). Therefore, the court held, the district court

was correct to deny plaintiffs leave to add a section 1983

claim to their complaint. Id.

Plaintiffs’ present attempt to seek declaratory relief

presents a similar problem. The Supreme Court of the

United States has held that where a federal court is barred

by the Eleventh Amendment from granting monetary relief,

and the plaintiffs then seek declaratory relief whose only

purpose would be as res judicata in a state court action for

the same monetary relief, the federal court may not grant the

declaratory relief. Green v. Mansour, 474 U.S. 64, 73, 88 L.

Ed. 2d 371, 106 S. Ct. 423 (1985).

In Green, two plaintiff classes had challenged

Michigan's methods for determining eligibility for benefits

under the Aid to Families with Dependent Children

("AFDC") program. Id. at 65. While the cases were pending

on the merits, Congress changed the relevant AFDC

provisions, and Michigan brought its policy into compliance

with the amendments, with the result that the violations of

which plaintiffs had complained ceased. ld. at 66. The

plaintiffs then pursued claims for declaratory and other

relief with respect to defendants’ past violations. Id. The

Eleventh Amendment precluded them from seeking monetary

relief or other retrospective relief against the defendants in

federal court. Prospective relief to prevent a continuing

violation of federal law would be available, however, under

Ex Parte Young, 209 U.S. 123, 52 L. Ed. 714, 28 S. Ct. 441

(1908). Id. at 68. In Green, however, no continuing violation

existed, because the challenged AFDC provisions had been

changed. Therefore, the only possible use for the declaratory

relief sought by the plaintiffs would be if it were

subsequently offered as res judicata on the issue of the

state's liability in a state court proceeding by the plaintiffs.

The state court could then be left to compute damages. Id. at

73. But the federal court's grant of declaratory relief would

then “have much the same effect as a full-fledged award of

damages or restitution by the federal court, the latter kinds

of relief being of course prohibited by the Eleventh

Amendment.” Id. To provide the declaratory relief would

thus create an "end run,” in the words of the Court, around

the Eleventh Amendment block. Id. citing, Edelman v.

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-7b-

Jordan, 415 U.S. at 651, 666-669 (1974).

This case is comparable. Here, the plaintiffs have

sought declaratory relief with respect to a statute of

limitations. The only possible use for a determination by

this court that the statute of limitations is either precluded

by ERISA or unconstitutional, however, would be in a state

court action for refunds. As noted earlier, no action for

refunds is possible in federal court due to the Eleventh

Amendment. A grant of declaratory relief in this case by

this court would not guarantee a finding of liability against

the defendants in plaintiffs’ state court refund claims, as

would a grant of the relief at issue in Green. Nevertheless,

the principle from that case that a federal court prohibited

by the Eleventh Amendment from granting certain relief

against state officials should not facilitate plaintiffs’

recovery of that same relief in state court, should apply here

as well. Thus, under Green, the declaratory relief may not be

awarded by this court. Plaintiffs are free, of course, to seek

declaratory relief with respect to the statute of limitations in

the Michigan courts.

The retrospective nature of plaintiffs’ requested order

pertaining to the statute of limitations is another reason for

which I cannot grant this appeal. The Sixth Circuit

authorized plaintiffs’ claims for “prospective declaratory

and injunctive relief" against the individual defendants in

their official capacity. Thiokol, 987 F.2d at 382. Plaintiffs’

seek a declaratory order with respect to a statute of

limitations applicable only to claims for refunds, which are

clearly retrospective relief. This relief is distinguishable from

the "prospective injunctive relief to prevent a continuing

violation of federal law” that is obtainable in federal court in

spite of the Eleventh Amendment. Green, 474 U.S. at 68,

citing, 209 U.S. 123, 155-56, 52 L. Ed. 714,

28 S. Ct. 441 (1908). For this additional reason, this court

could not grant plaintiffs’ request for declaratory relief, and

the amendment to their complaint would not survive a

motion to dismiss.

Because | conclude that plaintiffs’ claim for declaratory

relief would not survive a motion to dismiss, Judge Scoville's

denial of leave to include it in their amended complaint was

-8b-

neither clearly erroneous nor contrary to law. For this

reason, | affirm Judge Scoville’s order, and deny plaintiffs’

appeal.

Were | to review Judge Scoville's order de novo, as

proposed by plaintiffs, my analysis would be the same. For

the reasons above, plaintiffs’ appeal is denied.

Douglas W. Hillman

Senior District Judge

Dated: JAN 28 1994.

ORDER AFFIRMING DECISION OF MAGISTRATE JUDGE

In accordance with the opinion filed this date,

IT IS ORDERED that the decision of Magistrate Judge

Scoville, dated September 28, 1993, granting plaintiffs’ leave

to file a third amended complaint is hereby AFFIRMED,

and plaintiffs’ appeal is DENIED.

Douglas W. Hillman

Senior District Judge

Dated: JAN 28 1994.

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THIOKOL CORPORATION; Morton International, Inc., as

successors through corporate reorganization to Morton

Thiokol, Inc.; and Bee Chemical Company,

Plaintiffs-Appellants,

v.

DEPARTMENT OF TREASURY, STATE OF MICHIGAN,

REVENUE DIVISION; Douglas B. Roberts, in his official

capacity as Treasurer of the State Of Michigan; and Thomas

M. Hoatlin, in his official capacity as Commissioner of

Revenue of the State of Michigan,

Defendants-Appellees,

Robert Bowman, formerly Treasurer of the State of Michigan

in his official capacity; and Melvin Van Vorst, former Acting

Commissioner of Revenue of the State of Michigan, in his

official capacity,

Defendants.

No. 92-1611

United States Court Of Appeals,

Sixth Circuit

[987 F.2d 376]

Decided March 5, 1993

Rehearing Denied May 3, 1993

Before: KENNEDY and GUY, Circuit Judges; and BROWN,

Senior Circuit Judge.

KENNEDY, Circuit Judge.

Plaintiffs appeal an order dismissing their complaint

in this ERISA action challenging various provisions of the

Michigan Tax Code. On January 16, 1990, Thiokol

Corporation, Morton International, Inc. and Bee Chemical

Company ("plaintiffs"), all Michigan corporations, sued the

Revenue Division of the Michigan Department of Treasury,

Douglas B. Roberts, in his official capacity as Treasurer of

-10b-

the State of Michigan and Thomas M. Hoatlin, in his official

capacity as Commissioner of Revenue of the State of

Michigan ("defendants") in federal district court.' Under

Michigan's Single Business Tax ("SBT"), contributions to

employee benefit plans are taxed. Mich. Comp. Laws §§

208.4(3), 208.9(5). In their complaint, the plaintiffs sought

declaratory, injunctive and monetary relief. In count I,

plaintiffs sought a declaration that these provisions of the

SBT were invalid and preempted by section 514(a) of the

Emplovee Retirement Income Security Act ("ERISA"), 29

U.S.C. § 1144(a). In count II, plaintiffs asked the court to

enjoin the collection of taxes based on the payment by

employers to employee welfare benefit plans and to prohibit

defendants from refusing to honor their refund requests. In

count IIL, plaintiffs requested that taxes that they had

allegedly erroneously overpaid, be refunded with interest.

On April 15, 1992, the District Court adopted the

magistrate judge's Report and Recommendation, which

found that the suit was barred by the Eleventh Amendment

and the Tax Injunction Act ("TIA"), 28 U.S.C. § 1341, as the

opinion of the court. The District Court ordered that the

plaintiffs’ motions for partial summary judgment and leave

to file a second amended complaint be denied, and that the

defendants’ motion for dismissal be granted. This timely

appeal followed. For the reasons stated below, we affirm in

part and reverse in part.

I.

Two jurisdictional issues of first impression in this

Circuit are presented in this appeal. The first involves the

intersection of ERISA and the TIA; whether the TIA bars

ERISA challenges to state taxes in federal court. The second

asks whether by passage of ERISA, Congress intended to

abrogate the states’ immunity guaranteed by the Eleventh

Amendment and subject them to ERISA suits in federal

court.

' In the original and first amended complaint, Robert

Bowman, former Treasurer and Melvin Van Vorst, former

Commissioner of Revenue of the State of Michigan were the

named defendants.

Porm eT Ss air

-11b-

A.

The Tax Injunction Act

The TIA provides:

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 State.

28 U.S.C. § 1341. The TIA reflects “the fundamental prin-

ciple of comity between federal courts and state govern-

ments that is essential to ‘Our Federalism,’ particularly in the

area of state taxation." Fair Assessment in Real Estate Ass'n v.

McNary, 454 U.S. 100, 103, 102 S. Ct. 177, 179, 70 L. Ed. 2d

271, (1981). This exclusion of federal courts from the state

taxation area is so far reaching it precludes federal courts

from declaring state tax laws unconstitutional. /d. (citing

Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 63

S. Ct. 1070, 87 L. Ed. 1407 (1943)). Although the TIA men-

tions only injunctions, its policy of comity bars declaratory

judgment and 42 U.S.C. § 1983 damage actions as well. Id.

at 105.

ERISA contains an exclusive federal jurisdiction

provision that is also very broad. Section 502(e)(1) provides

that:

[T]he district courts of the United States shall

have exclusive jurisdiction of civil actions

under this subchapter brought by the

Secretary or by a participant, beneficiary or

fiduciary.

29 U.S.C. § 1132(e)(1). This grant of exclusive federal

jurisdiction intersects with the TIA's bar of federal juris-

diction and creates the issue in this case.

The issue of whether the TIA bars challenges to state

tax laws under ERISA in federal courts was expressly

reserved by the Supreme Court in Franchise Tax Board of

California v. Construction Laborers Vacation Trust For Southern

-12b-

California, 463 U.S. 1, 20, n. 21, 103 S. Ct. 2841, 2852 n. 21,

77 L. Ed. 2d 420 (1983).

We express no opinion, however,

whether a party in CLVT's position could sue

under ERISA to enjoin or to declare invalid a

state tax levy, despite the Tax Injunction Act,

28 U.S.C. § 1341. See California v. Grace

Brethren Church, 457 U.S. 393, [102 S. Ct.

2498, 73 L. Ed. 2d 93] (1982). To do so, it

would have to show either that state law

provided no "speedy and efficient remedy” or

that Congress intended [section] 502 of

ERISA to be an exception to the Tax

Injunction Act.

To decide this issue, which is squarely before

us, we must first determine whether a “plain,

speedy and efficient” remedy exists in the

Michigan courts, and then, if necessary,

determine whether Congress, in passing

ERISA, intended to create an exception to the

TIA.

Whether a “plain, speedy and efficient”

state remedy exists in this case depends on

whether the Michigan courts have jurisdiction

to decide plaintiffs’ ERISA claims despite

ERISA's grant of exclusive federal jurisdiction.

If they do not, there is, of course, no state

remedy. This Circuit has stated that the

statutory grant of exclusive jurisdiction in a

particular court strips other courts of their

original jurisdiction in all cases covered by the

statute. Greater Detroit Resource Recovery

Authority v. EPA, 916 F.2d 317, 322 (6th Cir.

1990). Similarly, the D.C. Circuit has found it

"well settled that . . . a statute which vests

jurisdiction in a particular court cuts off

original jurisdiction in other courts in all cases

covered by that statute." Telecommunications

Research & Action Center v. FCC, 750 F.2d 70,

77 (D.C. Cir. 1984) (citations omitted). See

-13b-

also Mississippi v. Louisiana,---- U. S. ----, 113

S. Ct. 549, 121 L. Ed. 2d 466 (1992) (28

U.S.C. § 1251(a), which gives "original and

exclusive jurisdiction” over all controversies

between the states to the Supreme Court,

necessarily denies jurisdiction of such cases to

any other federal court). Accordingly, we

find that ERISA's express grant of exclusive

jurisdiction to the federal courts divests state

courts of jurisdiction to hear claims brought

under ERISA. Accord E-Systems, Inc. v. Pogue,

929 F.2d 1100, 1102 (5th Cir.), cert. denied, ---

U.S. ----, 112 S. Ct. 585, 116 L. Ed. 2d 610

(1991). Cf. Shofer v. Hack Co., 970 F.2d 1316,

1319 (4th Cir. 1992) (where ERISA claims are

within the exclusive jurisdiction of the federal

courts, state courts are plainly without

jurisdiction); Pension Trust Fund for Operating

Engineers v. Triple A Machine Shop, 942 F.2d

1457, 1461 (9th Cir. 1991) (because of the

exclusive jurisdiction of federal courts over

ERISA § 502(a)(3) claims, state court had no

jurisdiction to hear these claims). But see

Barnes v. E-Systems, Inc., ---- U.S. ----, 112 S.

Ct. 1, 3, 115 L. Ed. 2d 1087 (1991) (Scalia,

Circuit Justice)’ ("That is not an inevitable

implication, and perhaps not a likely one.").

The lower court recognized that federal

courts have exclusive jurisdiction of all cases

"brought under" ERISA. It concluded,

however, that the instant case merely

involved an ERISA issue. It concluded that

"the state courts lack jurisdiction to determine

j ERISA preemption only when the plaintiffs’

. cause of action falls within the scope of

%

"Justice Scalia stayed the Fifth Circuit's judgment in E-

Systems, Inc. v. Pogue that states were without jurisdiction,

i finding that certiorari and ultimate reversal were likely.

However, the Supreme Court denied certiorari. ---- US. ----,

112 S. Ct. 585, 116 L. Ed. 2d 610 (1991).

-14b-

section 502(a) of ERISA, that is, if the action

is one by a participant, beneficiary, or

fiduciary for relief under ERISA, to enjoin an

act or practice violating ERISA, or to obtain

other relief enumerated in section 502(a)." It

further concluded that all of the plaintiffs’

claims fall outside of section 502(a), relying

upon Franchise Tax Board, supra. In Franchise

Tax Board, the Supreme Court ordered a

remand of an action to state court, even

though the central issue in the case was

ERISA preemption. 463 U.S. at 28, 103 S. Ct.

at 2856. However, in Franchise Tax Board, the

state had sued CLVT in state court seeking 1)

to enforce levies against funds covered by

ERISA, and 2) a declaration that such levies

were valid in anticipation of the defendant's

ERISA preemption defense. The defendants

removed the case to federal district court

under 28 U.S.C. § 1441. The Court heid that

under the well-pleaded complaint rule, the

case was not removable despite the fact that

the federal defense was the only question

truly at issue, because the plaintiff's claims

did not arise under federal law.

"A suit arises under the law that creates

the cause of action." /d. at 8-9 (quoting

American Well Works Co. v. Layne & Bowler Co.,

241 U.S. 257, 260, 36 S. Ct. 585, 60 L. Ed.

987, (1916)).

Section 502(a)(3) of ERISA, [29 U.S.C. §

1132(a)(3),] specifically grants trustees of

ERISA-covered plans like CLVT a cause of

action for injunctive relief when their rights

and duties under ERISA are at issue, and that

action is exclusively governed by federal law.

The express grant of federal jurisdiction in

ERISA is limited to suits brought by certain

parties . .. as to whom Congress presumably

tits “—

a Se ee ee en

-15b-

determined that a right to enter federal court

was necessary to further the statute's

purposes. It did not go so far as to provide

that any suit against such parties must also

be brought in federal court when they them-

selves did not choose to sue.

ERISA carefully enumerates the parties

entitled to seek relief under [section] 502; it

does not provide anyone other than partici-

pants, beneficiaries, or fiduciaries with an

express cause of action for a declaratory

judgment on the issues in this case. A suit for

similar relief by some other party does not

“arise under” that provision.

Id. at 19-21, 27, 103 S. Ct. at 2851-52, 2855 (footnotes

omitted) (emphasis in criginal). The Court twice warned

that it was expressing no opinion as to the effect of the Tax

Injunction Act. Id. at 20 n. 21, 27 n. 31, 103 S. Ct. 2851 n.

21, 2855 n. 31. However, the above passages tell us that a

claim brought by a fiduciary under section 502(a)(3) is

considered a claim brought under ERISA. Because the

Franchise Tax Board was not an “enumerated party” under

section 502(a), the Court held that the Board's claim for

declaratory relief on the preemption issue did not arise

under ERISA. Under these circumstances, the exclusive

federal jurisdiction provision, 29 U.S.C. § 1132(e)(1), is

inapplicable and state courts are free to decide the ERISA

preemption issue.

Plaintiffs seek two kinds of relief, a refund for past

taxes paid and injunctive or declaratory relief to prevent

future collection. Plaintiffs’ claim for a refund is created by

state law, M.C.L.A. § 205.1 et seq. Even though entitlement

to a refund will be dependent upon ERISA preemption,

section 502(a) does not expressly create a refund cause of

action. It is possible that section 502(a)(3)(B)(i), which

creates a cause of action for obtaining “equitable relief" to

redress ERISA violations, encompasses the refund of monies

wrongfully collected. However, we do not decide the issue

-16b-

of whether plaintiffs’ claim for a state tax refund arises

under ERISA because, as discussed below, the Eleventh

Amendment bars all claims for monetary relief against

defendants.

ERISA does, however, expressly create an injunctive

remedy. Section 502(a){3) provides in pertinent part:

A civil action may be brought--

By a... fiduciary (A) to enjoin any act or

practice which violates any provision of this

subchapter, . . . or (B) to obtain other appro-

priate equitable relief (i) to redress such

violations or (ii) to enforce any provisions of

this subchapter... .

29 U.S.C. § 1132(a)(3).’ Section 502 (a)(3)(B) has

been interpreted as creating a cause of action for a

declaratory judgment. Franchise Tax Board, 463 U.S. at 27

n.31, 103 S. Ct. at 2855 n. 31 (citing Cutaiar v. Marshall, 590

F.2d 523, 527 (3d Cir. 1979)). We find that plaintiffs’

claims for injunctive and declaratory relief against defen-

dants are brought under ERISA. Therefore, under Franchise

Tax Board, the exclusive federal jurisdiction provision of

ERISA, 29 U.S.C. § 1132(e)(1), applies, and under these

circumstances, the Michigan courts lack jurisdiction to

decide these ERISA claims.

Because the Michigan courts lack the jurisdiction to

decide the plaintiffs’ injunctive and declaratory ERISA

claims, the plaintiffs are without a “plain, speedy and

efficient” remedy at state law. Thus, the District Court has

jurisdiction over those challenges to Michigan's tax code

under ERISA seeking injunctive and declaratory relief.

Because we find that the "plain, speedy and efficient"

“Section 1144 preempts ali state laws relating to employee

benefit plans including state tax laws. 29 U.S.C. § 1144(a)

and (b)(5)(B)(i).

Soe Soe eee ae eats Sain eb

-17b-

exception to the TIA applies here, we find it unnecessary to

decide whether Congress intended section 502 of ERISA to

be an exception to the TIA.

B.

The Eleventh Amendment

The Eleventh Amendment provides:

The judicial power of the United States

shall not be construed to extend to any suit in

law or equity, commenced or prosecuted

against one of the United States by Citizens

of another State, or by Citizens of Subjects of

a Foreign State.

U.S. Const. amend. XI. This immunity is far reaching.

It bars all suits, whether for injunctive, declaratury or

monetary relief, against the state and its departments,

Pennhurst State School & Hospital v. Halderman, 465 U.S. 89,

100-01, 104 S. Ct. 900, 908, 79 L. Ed. 2d 67 (1984), by

citizens of another state, foreigners or its own citizens. Hans

v. Louisiana, 134 U.S. 1, 10 S. Ct. 504, 33 L. Ed. 842, (1890).

The amendment also bars suits for monetary relief against

State officials sued in their official capacity. However, the

amendment does not preclude actions against state officials

sued in their official capacity for prospective injunctive or

declaratory relief. Ex Parte Young, 209 U.S. 123, 28 S. Ct.

441, 52 L. Ed. 714, (1908).

The Eleventh Amendment has no application under

two circumstances: 1) where a state has itself waived its

immunity from federal suit; and 2) where Congress has

abrogated the states’ immunity. The plaintiffs make no

argument for waiver, but do argue that Congress intended to

abrogate the states’ immunity by passing ERISA.

Congress may override the states’ Eleventh

Amendment immunity when it acts pursuant to its powers

under the Fourteenth Amendment, Dellmuth v. Muth, 491

U.S. 223, 227, 109 S. Ct. 2397, 2400, 105 L. Ed. 2d 181

(1989) (citing Fitzpatrick v. Bitzer, 427 U.S. 445, 456, 96 S.

-18b-

Ct. 2666, 49 L. Ed. 2d 614 (1976)), or pursuant to the

Commerce Clause, Pennsylvania v. Union Gas Co., 491 U.S. 1,

14-19, 109 S. Ct. 2273, 2281-84, 105 L. Ed. 2d 1 (1989)

(plurality opinion). The Supreme Court has set forth and

adhered to a strict test for Congressional elimination of state

sovereignty. This test requires unequivocal and textual

support:

Congress may abrogate the States’

constitutionally secured immunity from suit in

federal court only by making its intention

unmistakably clear in the language of the

statute.

Atascadero State Hospital v. Scanlon, 473 U.S. 234, 242, 105 S.

Ct. 3142, 3147, 87 L. Ed. 2d 171 (1985). While falling short

of requiring Congress to explicitly annul state immunity by

making reference to the Eleventh Amendment or state

sovereign immunity, see Dellmuth, 491 U.S. at 233, 109 S. Ct.

at 2402 (Scalia, J., concurring), the Court has consistently

found no abrogation in the absence of the requisite clear

statutory language the Atascadero test requires. See Dellmuth,

491 U.S. at 227-32, 109 S. Ct. at 2399-402 (the Education of

the Handicapped Act ("EHA") does not abrogate state

immunity); Welch v. Texas Department of Highways & Public

Transportation, 483 U.S. 468, 475, 107 S. Ct. 2941, 2947, 97

L. Ed. 2d 389 (1987) (Congress did not express in

“unmistakable statutory language” its intention to abrogate

state immunity under the Jones Act); Atascadero, 473 U.S. at

242-46 105 S. Ct. at 3147-49 (statutory language of the

Rehabilitation Act not sufficiently clear to abrogate state

immunity).

In Union Gas, the Supreme Court held that the

Comprehensive Environmental Response, Compensation,

and Liability Act of 1980 ("CERCLA"), as amended by the

Superfund Amendments and Reauthorization Act of 1986

("SARA"), abrogated the states’ Eleventh Amendment

immunity to be free from suits in federal court. The Court

found in CERCLA's text the clear and unmistakable

statutory language it found lacking in the EHA, the Jones Act

and the Rehabilitation Act. What distinguishes CERCLA

are its provisions expressly subjecting states to suit for

-19b-

money damages under CERCLA.

Under CERCLA's liability scheme, persons who own

or operate hazardous waste facilities or who transport or

dispose of hazardous waste are liable for all costs of

removal and remediation at the site. 42 U.S.C. § 9607(a).

States are expressly included in the statute's definition of

“persons” potentially liable under CERCLA. Id. § 9601(21).

CERCLA also expressly provides that states are to be

treated in exactly the same manner as non-governmental

owner/operators, in all but one circumstance, including

liability. Jd. § 9601(20)(D). The Court found it “highly

significant” that Congress used language almost identical to

the language of the provision waiving federal immunity to

CERCLA suits in the state liability section. Another section

of the statute provides that states will not be liable where

“actions taken in response to an emergency created by the

release or threatened release of a hazardous substance

generated by or from a facility owned by another person." It

continues, "[t]his paragraph shall not preclude liability for

costs or damages as a result of gross negligence or intentional

misconduct by the State or local government.” Id. §

9607(d)(2). The Court concluded that the limitations on the

states’ liability found in sections 9601(20)(D) and

9607(d)(2) presupposed that states were liable as a general

rule. Union Gas, 491 U.S. at 8, 10, 109 S. Ct. 2277-78, 2279.

Based on the above language, the Court held that "the

language of CERCLA as amended by SARA clearly evinces

an intent to hold States liable in damages in federal court.”

Id. at 13, 109 S. Ct. at 2280.

When compared to the statutory language interpreted

by the Union Gas Court, the text of ERISA falls short of the

clarity by which Congress expressed its intent to subject

states to federal suits under CERCLA. In Dellmuth, Welch,

and Atascadero, the only statutory support for abrogation

was a general authorization for suits in federal court. The

Court found that "[a) general authorization for suit in federal

court is not the kind of unequivocal statutory language suffi-

cient to abrogate the Eleventh Amendment." Dellmuth, 491

U.S. at 231, 109 S. Ct. at 2402 (quoting Atascadero, 473 US.

at 246, 105 S. Ct. at 3149). In addition to granting federal

jurisdiction, ERISA provides for exclusive federal jurisdiction

-20b-

over all civil actions brought under ERISA. 29 U.S.C. §

1132(a). ERISA also preempts all state laws relating to

employee benefit plans, /d. § 1144(a), including state tax

laws. Id. § 1144(b)(5)(B)(i). Plaintiffs argue that when

viewed together, these provisions require them to bring their

preemption suit against the state in federal court. While no

provision expressly excludes states as potential defendants,

neither does any provision expressly include states or waive

their traditionally held immunity from suits in federal court.

In the absence of unmistakably clear language, we cannot

hold that ERISA abrogates the Eleventh Amendment.

This conclusion does not render section

1144(b)(5)(B)(i), subjecting state tax laws to ERISA’s pre-

emption provision, meaningless. Application of the Eleventh

Amendment has the following effects: 1) all claims against

the Department of Treasury are barred; and 2) all claims

against all parties for monetary relief are also barred. We

hold that neither the Eleventh Amendment nor the TIA bars

plaintiffs from suing defendant officials Roberts and Hoatlin

in their official capacity for prospective declaratory and

injunctive relief.

IL.

Motion for Leave to-File Second Amended Complaint

Plaintiffs sought to add a claim under 42 U.S.C. §

1983 for violation of the Commerce Clause. Where a

response to a complaint has been filed, the plaintiff may

amend the complaint “only by leave of court or by written

consent of the adverse party; and leave shall be freely given

when justice so requires.” Fed. R. Civ. P. 15 (a). The defen-

dants did not consent to the amendment. The Supreme

Court has set forth the general standard to be used under

Rule 15 (a):

If the underlying facts or circumstances

relied upon by a plaintiff may be a proper

subject of relief, he ought to be afforded an

opportunity to test his claim on the merits. In

the absence of any apparent or declared

reason--such as undue delay, bad faith or

-21b-

dilatory motive on the part of the movant,

repeated failure to cure deficiencies by

amendments previously allowed, undue

Prejudice to the opposing party by virtue of

allowance of the amendment, futility of

amendment, etc.--the leave sought should, as

the rules require, be "freely given.”

Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230, 9 L.

Ed. 2d 222 (1962). This Circuit has addressed the issue of

“futility” in the context of motions to amend, holding that

where a proposed amendment would not survive a motion

to dismiss, the court need not permit the amendment.

Neighborhood Development Corp. v. Advisory Council on

Historic Preservation, 632 F.2d 21, 23 (6th Cir. 1980).

The District Court found that it would be futile for

plaintiffs to amend their complaint to add a claim under

section 1983. Congress did not intend to abrogate the states’

Eleventh Amendment immunity by passing section 1983.

Quern v. Jordan, 440 U.S. 332, 99 S. Ct. 1139, 59 L. Ed. 2d

358 (1979). The Supreme Court has held that a state is not

a ‘person” who can be sued as that term is used in section

1983. Will v. Michigan Dep't of State Police, 491 U.S. 58, 67,

109 S. Ct. 2304, 2312, 105 L. Ed. 2d 45 (1989). These

holdings apply also to claims against officials acting in their

official capacities. Id. at 71, 109 S. Ct. at 2312.

4: The proposed claim for refund of taxes paid would

not be able to withstand a motion to dismiss by the

Department of Treasury since as part of the state it is

immune under the Eleventh Amendment, and it is not a

“person” within the meaning of section 1983. Nor would

that proposed claim be able to withstand a motion to

dismiss by the named officials. This Court has held that

section 1983 plaintiffs must Clearly set forth in their

pleadings that they are suing the officials in their individual

capacities for damages, not simply in their capacities as

State officials. Hardin v. Straub, 954 F.2d 1193, 1199 (6th

Cir. 1992); Wells v. Brown, 891 F.2d 591, 592 (6th Cir. 1989).

Failure to clearly name the officials in their individual

Capacities mandates the conclusion that jurisdiction is

lacking over any possible claims against the officials in their

OO

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individual capacities. Id. at 593-94. Moreover, since plain-

tiffs seek judgment for taxes unlawfully collected and

retained by the treasury of the state, the proposed claim can

only be against the officials in their official capacities.

Further, since the amended claim was to be based on the

Commerce Clause where there is no exclusive jurisdiction in

the federal courts, plaintiffs would have a speedy and

efficient remedy in state courts and the suit would be barred

by the TIA. The District Court did not err in dismissing the

motion to amend.

Il.

For the reasons discussed above, the District Court's

decision is AFFIRMED in part and REVERSED in part. We

AFFIRM the dismissal of all claims for monetary damages

against all of the defendants as well as all claims against the

Department of Treasury. We also AFFIRM the court's denial

of the plaintiffs’ motion for leave to file a second amended

complaint. We REVERSE the dismissal of the claims for

injunctive and declaratory relief under ERISA against the

defendant officials and REMAND the case to the District

Court.