Appendix — Kaucky v. Southwest Airlines Co.

App. 1

IN THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

No. 96-2736

ROBERT G. KAucKy, on behalf of himself

and all others similarly situated,

Plaintiff-Appellant,

v.

SOUTHWEST AIRLINES COMPANY, on behalf of itself

and all others similarly situated,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 96 C 750—James B. Zagel, Judge.

ARGUED JANUARY 10, 1997—DeEcIDED Marcu 20, 1997

Before POSNER, Chief Judge, and RIPPLE and ROVNER,

Circuit Judges.

POSNER, Chief Judge. Section 4261 of the Internal Rev-

enue Code required airline passengers to pay a 10 percent

excise tax on domestic air transportation commenced on

or before December 31, 1995, and required the airlines

to collect the tax from its customers, 26 U.S.C. § 4291,

and remit the proceeds twice a month to the Internal

Revenue Service. 26 C.F.R. § 40.6302(c)-1(bX1Xi). Failure

to collect and remit would have subjected the airlines to

heavy penalties. 26 U.S.C. §§ 6672, 7202, 7501. In mid-

December 1995, shortly after the President had vetoed

————

App. 2

included the 10 percent excise tax. tly Southwest

remitted the amount it received from cky for the fax

to the IRS, although this is not absolutely certain. Kaucky

was not subject tothe tax, because his tickets were not

for travel on or before December 31, 19965.

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against Southwest,

seeking on grounds of conversion and breach of contract

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and (as we shall see) the disparity in their handling of

the expired tax, it is doubtful defendant class action

treatment would be appropriate here. In any event no

class was certified, and we shall therefore treat this as

a suit against Southwest alone.

Southwest removed the case to federal district court on

the ground that the plaintiff and his class were really

seeking a refund-of federal taxes. That would make this

a suit arising under federal law (and hence removable

under 28 U.S.C. § 1441(b)), specifically the Internal Reve-

nue Code, which authorizes claims against the Internal

Revenue Service, and, if the claims are denied, suits in

federal court against the United States, for the recovery

| of federal tax alleged to have been erroneously or

| ill assessed or collected. 26 U.S.C. § 7422%a); 28 U.S.C.

§ 1346(aX1). The district ju agreed that Kaucky’s suit

| actually arose under federal law, and therefore denied the

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App. 3

laintiff's motion to remand the case to the state court.

a ne sat gio nate og Mgt ae

it. 26 U.S.C. § 7422(a); Kuznitsky v. United

States, 17 F.3d 1029, 1081 (7th Cir. 1994). Of course if

Kaucky were not the yer—if Southwest were—he

could not ask for a refund or bring a refund suit. But

the airline passenger is the taxpayer, 26 U.S.C. § 4261(d),

and is entitled to a refund or credit if he pays a tax that

he does not owe, §§ 6401(c), 6402(a); the question is whether

in suing Southwest, passenger-taxpayer Kaucky was seek-

ing a tax refund.

If he was, the suit was wy removed to the district

court despite the plaintiff's effort to base the suit on state

law grounds and his failure to name the United States

AS a ae. When ps creates 7 —e

rem or some wrong, di ing any rem t the

states may. have.created for it, a suit to redress that

pron Saag aa arises under federal law. There is no

state law for it to arise under because the state law that

the plaintiff thought he was vo to enforce has been

pushed to one side, and rep , by the federal law.

oo Corp. v. Myrick, 115 S. Ct. 1488, 1487 (1995);

English v. General Electric Co., 496 U.S. 72, 79 (1990);

Caterpillar Inc. v. Williams, 482 U.S. 386, 393 (1987);

Graf v. Elgin, Joliet & Eastern Ry., 790 F.2d 1341, 1344-

45 (7th Cir. 1986). But if this is not a suit for a refund

of taxes, then removal was improper even if Southwest

has a defense based on fi law. Caterpillar, Inc. v.

Williams, supra, 482 U.S. at 398; Doe v. Allied-Signal,

Inc., 985 F.2d 908, 911 (7th Cir. 1998).

In a literal sense this is not a suit for a refund of taxes,

because the plaintiff and the members of his class never

App. 4

paid the air transportation excise tax. Money was collected

from them to pay the tax if and when it was imposed

on air travel taking place in 1996; but the tax was not

imposed. Even if (as we assume) Southwest remitted the

money it collected on account of the excise tax to the In-

ternal Revenue Service, this did not automatically trans-

form the money that it had collected into a “tax.” Not

all the money that the Internal Revenue Service receives

is tax; it receives an annual appropriation from Co .

as well; and no doubt from time to time some deluded

taxpayer sends in money for the payment of a tax that,

unbeknownst to him, has expired.

But we do no think the literal sense is the right sense.

If it were, then anytime a taxpayer thought he could

prove that his employer had erroneously withheld a por-

tion of his salary for federal income tax he would have

an action in state court against the employer. The state

court might side with the mg and order the em-

ployer to refund him the money. federal government,

not having been sued in the state court—indeed not hav-

ing consented to be sued in state courts and so not hav-

ing waived its sovereign immunity from suit in those

courts—would not be bound by the judgment. It might

therefore refuse to credit the employer with the amount

of tax that the state court had ordered refunded to the

rg a then the employer would be caught in the

middle. We do not think that such a result was intended

or would be consistent with the system of federal tax col-

lection that Congress has created. The aoa” illustra-

tion that we have given is nixed by 26 U.S.C. § 6401(c),

which provides that an overpayment of tax does not lose

its character as a tax for which the taxpayer is entitled

to a credit or refund merely because he was not liable

for any part of the tax that was assessed against him.

But the principle is broader. When Congress makes a

private pin the Internal Revenue Service’s ee

agent” (we are not using “agent” in any technical sense),

as it has done with the airline tax and other excise taxes,

DuPont Glore Forgan Inc. v. American Tel. & Tel. Co.,

' : ee

LDPE NI AALS GIVES PALA ISP

App. 5

428 F. Supp. 1297, 1306 (S.D.N.Y. 1977), as well as with

yroll taxes, the firm corresponds to an employee of the

ice, and a suit for a refund of the taxes that the firm

collected—a suit necessarily based on a claim that the

taxes were collected in violation of law—is as much a suit

for the refund of federal taxes as if it had been brought

against the Commissioner of Internal Revenue. (Not that

such a suit would lie either, 26 U.S.C. § 7422(f1); the only

proper defendant is the United States. Our point is only

that such a suit would be understood as one for the re-

fund of taxes.) It makes no difference whether the firm

is still holding the “J it erroneously collected or has

passed it on to the IRS. The principal is bound by the

agent’s act. The IRS has plenty of remedies against its

collection agents who fail to remit taxes that they col-

lect. See 26 U.S.C. § 6672(a).

The plaintiff likens this to a case in which a con man,

ing as an IRS agent, collects and pockets “taxes” from

e citizens. The con man’s victims would have no ac-

tion against the IRS, because he was not an agent of the

IRS and presumably had not been clothed by it with ap-

parent authority to collect taxes. The victims would have

their usual state law remedies against the con man, be-

cause they would not be seeking a refund of federal taxes;

the con man had not even colorable authority to collect

taxes. That is not this case. Southwest, and any customer

of Southwest who thought about these matters, had every

reason to believe that a last-minute deal between the

President and Co would result in the extension of

the tax beyond its 31 expiration date. The sun-

set feature of the tax goes back to 1962. Pub. L. No.

87-508, § 5, 76 Stat. 114, 115 (1962). Between 1963 and

1990 Congress had four times extended the air rta-

tion excise tax shortly before (once on the very day) it

was due to expire. Pub. L. No. 88-52, § 3(aX3), 77 Stat.

72 (1963); Pub. L. No. 88-348, § 2(aX3), 78 Stat. 237 (1964);

Pub. L. No. 89-44, § 303(a), 79 Stat. 136, 148 (1965); Pub.

L. No. 100-228, § 402(aX1), 101 Stat. 1486, 1532 (1987); Pub.

L. No. 101-508, § 11213(dX1), 104 Stat. 1388-485 (1990). As

App. 6

a result, the tax had, as 1995 was drawing to a close,

never lapsed since its original imposition in the Revenue

a Be! yr ch. pels 554(b), pe pt oro 721 os.

rn) it now twice, for ing reimpose

in August of 1996 it vr on December 31, 1996, with-

out having been exten Pub. L. No. 104-188, § 1609(b),

110 Stat. 1755 (1996). It was reimposed on February 28 of

this year; and we note that the new statute avoids the refund

problem that gave rise to Kaucky’s suit by providing that

Che eed eens ae, 0 Sone inni i

gd a covered by the tax (which ends on September 30

of thi year) but also to “amounts paid during such iod

for rtation beginning after such period.” Pub. E. No.

105-2, § 2(bX1), 111 Stat. 4, amending 26 U.S.C. § 4261(¢).

If the new statute had been in effect when Kaucky bought

his ticket, he would have been liable for tax on it.

Had the tax not lapsed at the end of 1995—and, to re-

peat, it was a good bet, though as it turned out an erron-

eous one, that it would not lapse—Southwest would have

been in trouble had it failed to collect the tax from cus-

tomers buying tickets in 1995 for travel in 1996. The air-

line would have incurred expense and ill will in trying

to collect the tax from its customers after they had bought

their tickets, and might have faced penalties for failing

to collect and remit the tax promptly. See 26 U.S.C.

§ 6656. In these circumstances, Southwest was exercising

colorable authority to collect taxes, even though the col-

lection turned out to be in error. It was almost as if the

tax had had no Si ayraag ~ date but in 1997 had been re-

pealed retroactively to 1996.

We are told that the larger airlines kept sufficiently

complete records of tickets purchased in 1995 for use in

1996 to be able to refund the excise-tax portion of the

ticket price to their customers when the tax was not ex-

tended. Assuming those airlines had, like Southwest, paid

over this portion of the price to the IRS, they eald b be

entitled to a tax credit for the amount of any refunds that

they made to these customers. 26 U.S.C. § 6415(a). This

was a fine way to proceed, a way more considerate of

App. 7

the affected customers than Southwest’s method, which

interpreted as favorably to the plaintiff as the record will

allow involved collecting the tax and remitting it to the

IRS and requiring the customer if he wanted a refund

to file a sdelan ae the IRS. But Southwest’s way of pro-

ceeding was not so outlandish as to strip the airline of

the protection that it enjoys from state-law suits challeng-

ing actions done by it in its aroma as a collector of

federal excise taxes. The plaintiff was, it is true, denied

an opportunity to conduct discovery aimed at finding out

whether Southwest had been acting in bad faith. He

would have liked to show that Southwest pocketed the

money it collected for the nonexistent tax rather than

turning it over to the IRS. If that is what oss gevae and

poame who paid the tax later obtained refunds from the

for the money retained by its dishonest collection

agent, the IRS would have a number of remedies, crim-

inal as well as civil, against Southwest. E.g., 26 U.S.C.

$§ 6672(a), 7202; cf. 26 U.S.C. § 7501; Begier v. IRS, 496

U.S. 58, 60-62 (1990). But many people would not bother

to seek a refund from the IRS—they would not know that

the tax had expired, or would not have retained the re-

ceipt for their ticket, or would not have enough at stake

to warrant the bother of obtaining and filling out and sub-

mitting a claim for a refund—and the money those peo-

ple erroneously paid on account of the nonexistent tax

would lodge in Southwest’s pocket.

of the imposter, which we said could be brought under

state law, and the case of overpayment, which we said

fund from the IRS would have a claim against Southwest.

This assumption does not carry the day for Kaucky. Al-

though his brief speaks in general terms of Southwest's

bad faith, the worst it claims is that Southwest was over-

confident in believing that the tax would be extended and

App. 8

as a result failed to take the prudent measures that the

larger airlines took to refund the excise taxes that they

collected. This kind of error is no different from an error

by an internal revenue agent, an employer, or another

ss collection agent in ee the tax that it is

requi by law to collect. Money collected in error by

a lawful agent, public donde pre'sig of the Internal Revenue

Service can be recov only from the government, be-

cause a claim or suit to collect such money is a claim or

suit for a tax refund.

We are mindful that section 6415(c) of the Internal

Revenue Code A rhtrcey that airlines required by section

4261 to collect air ion excise tax shall, upon

proper application, refund any overcollection of the tax

that they have made. This provision may be limited to

errors in computation and designed only to spare the tax-

payer and the Internal Revenue Service the burden of

ini | and processing minuscule claims. DuPont Glore

organ Inc. v. American Tel. & Tel. Co., supra, 428 F.

Supp. at 1304-05; Lehman v. USAIR Group, Inc., 930 F.

Supp. 912, 915 (S.D.N.Y. 1996). Whatever the provision’s

recise. scope, there is no express authorization for suits

y taxpayers to enforce it; no indication that Congress

would have wanted the courts to entertain such suits

despite the absence of express authorization, cf. Trans-

america M Advisors, Inc. v. Lewis, 444 U.S. 11,

15-16 (1979); rigv. KFC Western, Inc., 116 S. Ct. 1251,

1256 (1996); and a practical reason for the courts not to

create such an action: it would throw a monkey wrench

into machinery designed to confine suits for the refund

of federal taxes to suits in the federal courts against the

vernment in order to protect its private as well as pub-

ic agents from being whipsawed. See id.; Middlesex County

Authority v. National Sea Clammers Ass’n, 453

U.S. 1, 1415 (1981). So this suit cannot be saved by re-

characterizing it as a suit to enforce section 6415(c). It

is a tax refund suit brought against the wrong party. It

was properly removed and properly dismissed.

AFFIRMED.

App. 9

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

JUDGMENT — WITH ORAL ARGUMENT

Date: March 20, 1997

BEFORE:

Honorable RICHARD A. POSNER, Chief Judge

Honorable KENNETH F.. RIPPLE, Circuit Judge

Honorable ILANA DIAMOND RovNnER, Circuit Judge

No. 96-2736

RoBERT G. Kaucky, on behalf of himself

and all others similarly situated,

Plaintiff-Appellant

v.

SOUTHWEST AIRLINES COMPANY, a Texas corporation, on

behalf of itself and all other entities similarly situated,

Defendant-Appellee

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division

No. 96 C 750, James B. Zagel, Judge

The judgment of the District Court is AFFIRMED, with

costs, in accordance with the decision of this court entered

on this date.

App. 10

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

H. Stuart Cunningham Office of the Clerk

CLERK

Ben Barnow

Barnow and Goldberg, P.C.

105 West Madison Street

Suite 2200

Chicago, IL 60602

Case Number: 1:96-cv-00750

Title: Kaucky v. SW AL Co

Assigned Judge: Honorable James B. Zagel

MINUTE ORDER of 6/14/96 by Hon. James B. Zagel :

Plaintiff's motion to alter or [30-1], amend judgment

denied [80-2]. Motion for leave to file supplement [29-1],

and to supplement motion to alter or amend is granted

[29-2]. Motion for reconsideration is denied. Motion to alter

or amend judgment is denied. (See reverse of minute

order). Mailed notice

This docket entry was made

by the Clerk on June 8, 1996

ATTENTION: This notice is being sent pursuant to Rule

77(d) of the Federal Rules of Civil Proce-

dure or Rule 4%c) of the Federal Rules

of Criminal Procedure. It was generated

by ICMS, the automated docketing system

used to maintain the civil and criminal

dockets of this District. If a minute order

or other document is enclosed, please refer

to it for additional information.

App. 11

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

Name of Assigned Judge or Magistrate: James B. Zagel

Case Number: 96 C 750 Date: June 14, 1996

Case Title: KAUCKY V. SOUTHWEST AIRLINES CO.

MOTION: Plaintiff's motion to alter or amend judgment

DOCKET ENTRY:

(1) & Filed motion of [use listing in “MOTION” box

above]

sexe kk &

(10) & [Other docket entry] Motion denied. Motion

(29-1 and 29-2) for leave to file supplement and

motion to supplement motion to alter or amend

is granted. Motion for reconsideration is denied.

Motion to alter or amend judgment is denied.

(11) [For further detail see order on the reverse of

the original minute order form.]

«ek ke &

ORDER

Kaucky v. Southwest Airlines

No. 96 C 750 Judge Zagel

The motion to reconsider is denied. The new evidence

Kaucky claims would change the result in this case does

not change the requirements of 26 U.S.C. § 7422.

/s/ James B. Zagel

United States District Judge

App. 12

[Dated May 16, 1996]

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

Rogert G. Kaucky, on behalf of himself

and all others similarly situated,

Plaintiffs,

v.

SouTHWEST AIRLINES Co., a Texas co ration, on behalf

of itself and all other entities similarly situated,

Defendants.

No. 96 C 750—Honorable James B. Zagel

MEMORANDUM OPINION AND ORDER

Robert Kaucky filed this class action lawsuit against

Southwest Airlines in the Circuit Court of Cook County,

Illinois. Southwest removed the case to federal court pur-

suant to 28 U.S.C. §§ 1441 and 1446. Kaucky then mov-

ed to have the suit remanded back to the Circuit Court.

This Court denied that motion to remand and the subse-

quent motion to reconsider the motion to remand. South-

west now moves to dismiss this action.

Kaucky represents a class of persons who purchased air-

line tickets from Southwest before January 1, 1996, for

travel after December 31, 1995. Kaucky paid a federal ex-

cise tax which was included in the price of his ticket. This

excise tax, 10 percent of the ticket price, was collected

by Congressional mandate pursuant to 26 U.S.C. § 4261,

which imposes a tax on air transportation. However, the

ree eoyeneten

App. 13

taxes imposed by this section expired on December 31,

1995, and Congress, in the midst of its budget impasse,

failed to renew the tax. 26 U.S.C. § 4261(g). Therefore,

any transportation that took place after December 31,

1995 was not subject to the tax. Kaucky seeks, on his

own behalf and as representative of a class, the return

of the excise tax collected by Southwest for travel after

December 31, 1995.

Federal law has imposed an excise tax on air transporta-

tion for over forty years. Congress has continually extend-

ed the effective date for this tax prior to the enabling

legislation’s expiration dates. Most recently in 1990, Con-

gress extended the effective date of the act from January

1, 1991 to January 1, 1996. As the expiration deadline ap-

proached in 1995, the airlines expected Congress to re-

enact the tax. In fact, in November 1995, the House and

Senate passed legislation that extended the federal ex-

cise taxes on air transportation for another six years. This

legislation, however, also contained a controversial bill

that proposed to alter Medicaid and Welfare, and Presi-

dent Clinton vetoed the bill on December 6, 1995. To date,

Congress has not passed any legislation that extends the

collection of this tax.

The excise tax is used by the Federal Aviation Adminis-

tration (FAA) to run this country’s air traffic control sys-

tem and make improvements to airports. It was therefore

surprising that this legislation was not passed and most

Yet, because there is no tax in effect for travel that began

or: January 1, 1996, passengers who paid the tax for these

flights are entitled to a refund. Some airlines have assist-

ed passengers in attaining their refunds by crediting their

charge accounts. Others, including Southwest, have re-

quired passengers to file their claims for refund with the

IRS, using IRS form 8849.

App. 14

Discussion

A complaint should not be dismissed under Rule 12(bX6)

for failure to state a claim upon which relief may be

granted unless “it appears beyond doubt that the plain-

tiff can prove no set of facts in support of his claim which

would entitle him to relief.” Leahy v. Board of Trustees

of Community College Dist. No. 508, County of Cook,

State of Itl., 912 F.2d 917, 921 (7th Cir. 1990), quoting

Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In analyzing

the sufficiency of plaintiff's complaint, the court must ac-

cept as true all well-pleaded factual allegations and draw

all reasonable inferences in favor of the plaintiff. Prince

v. Rescorp Realty, 940 F.2d 1104, 1106 (7th Cir. 1991).

1. Tax Refund

Kaucky claims this suit involves no disputable tax matter,

but only alleges breach of common law rules. He asserts

this suit falls outside the scope of the internal revenue

laws because no tax existed when the law expired and

thus the money was improperly collected under the “guise

of a tax.” However, the language of the Internal Revenue

Code makes clear that federal law applies even in a case

where a tax is alleged to have been “erroneously or il-

legally assessed or collected.” 26 U.S.C. § 7422(a). Further-

more, this Court has twice rejected Kaucky’s argument

that only common law issues exist, as I denied the mo-

tion to remand and the subsequent motion to reconsider

based on the fact that federal law is at issue here.

This case boils down to a simple tax refund suit under

26 U.S.C. § 7422. Although it is clear that Southwest was

App. 15

not entitled to collect the tax for travel occurring in 1996,

the Internal Revenue Code creates procedures to follow

when a tax has been improperly collected. Section 7422(a)

States:

No suit or proceeding shall be maintained in an

court for as recovery of any internal revenue rad

alleged to have been erroneously or illegally assess-

ed or collected . . . until a claim for refund or credit

has been duly filed with the Secretary .. .”

It is patent that a person must file a claim for refund

or credit with the Secretary prior to filing a suit in court

for recovery of the money. When that claim is ultimately

entitled to be filed in court, it may only be maintained

against the United States. 26 U.S.C. § 7422(fX1).

Kaucky has failed to comply with the procedural require-

ments of Section 7422 by not alleging that he, or any

other member of his class, filed a claim for a refund with

the Secretary. Kuznitsky v. United States, 17 F.3d 1029,

1031 (7th Cir. 1994) (a party seeking a refund must ini-

tially file an administrative claim with the IRS). Even if

he were entitled to sue, Kaucky has not sued the appro-

priate party, the United States. DuPont Glore Forgan

Inc. v. American Tel. & Tel. Co., 428 F. Supp. 1297, 1303

(S.D.N.Y. 1977), aff'd, 578 F.2d 1866 (2nd Cir. 1978) (“sec-

tion 7422(f) means precisely what it Says, and that plain-

tiffs may maintain a tax refund claim only against the gov-

ernment and not against collecting agents”).

|; cea

App. 16

Kaucky argues that even if Section 7422 applies to this

case, this Court has jurisdiction because an exception to

the procedural requirements exists when money is col-

lected in the “guise of a tax.” Kaucky cites two cases.

The first, Enochs v. Williams Packing & Nav. Co., 370

U.S. 1 (1962), involved 26 U.S.C. § 7421 which prohibits

courts from entertaining suits seeking injunctions prohibit-

ing the collection of federal taxes. In dicta, the Court

found a statutory exception would exist if “under the most

liberal view of the law and the facts, the United States

cannot establish its claim” and “equity jurisdiction other-

wise exists.” Enochs, 370 U.S. at 7. Enochs would grant

this exception when “the exaction is merely in ‘the guise

of a tax.’” Id.

The second case, Econ, Inc. v. Illinois Bell Tel. Co.,

351 F. Supp. 1087 (N.D. Ill. 1972), also distinguished in

dicta between the collection of an excise tax and an ex-

action in the guise of a tax. The court in Econ, did not

define this difference because it found there was enough

reason to assume the collection was proper as an excise

tax. Econ, 351 F. Supp. at 1089. Kaucky says rightly that

it cannot be established under the most liberal view of

the law and the facts that Southwest’s exaction was au-

thorized by the Internal Revenue Code. And thus, the

exaction was merely in the guise of a tax and therefore

the suit may proceed in federal court under Enochs and

Econ.

These cases do not assist Kaucky. First, Enochs carved

| out a narrow exception for suits seeking injunctive relief.

There is a significant difference between seeking an in-

| junction against a tax and seeking a refund of a tax. An

injunction is possible only when there is no adequate

remedy at law to avoid a future or ongoing harm. When

one seeks a tax refund the harm is already complete, and

| ane ee renee ene ten

App. 17

the procedures set up by the Internal Revenue Code pro-

vide an adequate remedy at law to obtain a refund. There

is no reason to grant an exception to the statute when

seeking a tax refund. Unsurprisingly, the judge in Econ

explicitly stated that he did not “reach the question

whether the Enochs rule permits recovery of past ‘exac-

tions’ in addition to an injunction.” Econ, 351 F. Supp.

at 1089.2

Finally, Kaucky spends a great deal of time arguing that

requiring this claim to proceed under the Internal Rev-

enue Code contradicts the Code’s underlying purpose of

ensuring the orderly administration of the revenue and

revenue laws. Kaucky’s argument defeats itself. First, this

is not a claim based on common law issues as Kaucky con-

tinues to assert, but a claim for a tax refund, a situation

the Code was designed to deal with. Second, Kaucky as-

serts that the IRS gains nothing by overseeing cases with

no impact, relation or effect on the revenue laws, and that

allowing this suit would save the IRS from excess paper-

work and from reviewing individual claims. These argu-

ments are wholly without merit and in fact turn the issue

on its head. By attempting to sue in court, Kaucky has

simply shifted the burden from the Internal Revenue Ser-

vice to the federal court system. Kaucky, and all others

similarly situated, seeks a simple result in this case, the

refund of taxes paid prior to January 1, 1996 for air travel

Tihs tap have ane hy Moles chee oor e Sere Seem Ce tater

or cn eas na it i

district court the United directly as the real party

App. 18

that occurred after December 31, 1995. There is a simple

resolution to this matter, file form 8849 with the IRS.

It is an easy form to fill out, and like thousands of other

airline passengers in Kaucky’s position, he is almost cer-

tain to get his refund. The IRS procedures are efficient

and of minimal cost. On the contrary, by insisting on a

lawsuit, resolution of this matter has been delayed at sig-

nificantly greater expense to both the parties involved and

the judicial system.

2. Preemption

Kaucky asserts common law claims for breach of con-

tract and conversion. However, these claims are preempted

by 49 U.S.C. § 41713(bX1) (1995) (formerly the Airline

Deregulation Act of 1978, 49 U.S.C. § 1305(aX1)). Section

41713(bX1) provides:

a State . . . may not enact or enforce a law, regula-

tion, or other provision having the force and effect

of law related to a price, route or service of an air

carrier .

Both the breach of contract and conversion claim

“relate” to Southwest’s ticket prices within the meaning

of this section. Both claims expressly refer to the collec-

tion of the air transportation excise tax. The excise tax,

which is ten percent of the ticket price, ‘relates to price’

because it directly impacts the ticket price. Statland v.

American Airlines, Inc., 998 F.2d 589, 542 (7th Cir. 1993),

cert. denied, 114 S.Ct. 603 (1993) (challenged practice of

withholding ten percent of federal tax on canceled tickets

relates to rates.)

Kaucky argues that the breach of contract claim falls

within the exception drawn by the Supreme Court in

American Airlines Inc. v. Wolens, 115 S.Ct. 817, 826

(1995), which does not preempt a claim for breach of a

App. 19

contract term when set by the airline itself. Kaucky

asserts that the collection of money was not imposed by

federal statute or regulation, but was a self-imposed

undertaking by Southwest. While the air transportation

excise tax did expire for travel beginning on January 1,

1996, Southwest only collected the money in anticipation

of the tax being revived. When the law imposing the ex-

cise tax ultimately expired on December 31, 1995, South-

west stopped charging for it. Thus, while the money may

have been improperly collected, it related to airline ticket

prices.

Kaucky finally argues that the conversion claim is pro-

tected by the holding in Travel All Over the World, Inc.

v. The Kingdom of Saudi Arabia, 73 F.3d 1423 (7th Cir.

1996), because the conversion count makes no express ref-

erence to rates (price), routes, or services. Yet I have

already concluded that this count does refer to price since

it expressly refers to the collection of the excise tax.

Conclusion

Kaucky’s sole remedy is to file for a refund with the

IRS. Approximately 33,000 other individuals, who paid

this excise tax in 1995 and flew in tax-free 1996, have

already filed their refund claims with the United States.

Kaucky must follow the same route. Because Kaucky has

not yet filed his claim for a refund with the IRS, and

because his only source of relief is against the United

States, Southwest’s motion to dismiss is granted.

Enter:

/s/ James B. Zagel

United States District Judge

Date: May 16, 1996

App. 20

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

JUDGMENT IN A CIVIL CASE

ROBERT G. KAUCKY

Vv. Case No. 96 C 750

SOUTHWEST AIRLINES Co.

C) Jury Verdict. This action came before the Court for

a trial by jury. The issues have been tried and the jury

has rendered its verdict.

Decision by Court. This action came to a hearing

before the Court. The issues have been heard and a deci-

sion has been rendered.

IT IS ORDERED AND ADJUDGED defendant’s motion to

dismiss for lack of jurisdiction is granted. This case is

dismissed with prejudice and without costs.

May 16, 1996 H. Stuart Cunningham

Date

Clerk

/s/ Donald R. Walker

(By) Deputy Clerk

App. 21

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

H. Stuart Cunningham Office of the Clerk

CLERK

Ben Barnow

Barnow and Goldberg, P.C.

105 West Madison Street

Suite 2200

Chicago, IL 60602

Case Number: 1:96-cv-00750

Title: Kaucky v. SW AL Co

Assigned Judge: Honorable James B. Zagel

MINUTE ORDER of 2/22/96 by Hon. James B. Zagel :

Status hearing set for 10:00 4/18/96. Denying motion to

remand to Circuit Court of Cook County [10-1], Denying

motion and for attorney fees [10-2] and costs [10-3]. Ser-

vice of motion to dismiss for lack of jurisdiction plaintiff's

class complaint [8-1] due 2/26/96. Service of answer brief

due 3/21/96. Service of reply to answer brief due 4/4/96.

No notice (rm)

This docket entry was made

by the Clerk on March 8, 1996

App. 22

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

April 15, 1997

Before

Honorable RICHARD A. POSNER, Chief Judge

Honorable KENNETH F. RIPPLE, Circuit Judge

Honorable ILANA DIAMOND Rovner, Circuit Judge

Rosert G. Kaucky, on behalf of himself

and all others similarly situated,

Plaintiff-Appellant,

No. 96-2736 v.

SOUTHWEST AIRLINES COMPANY, on behalf of itself

and all others similarly situated,

Defendant-Appellee

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 96 C 750—James B. Zagel, Judge.

ORDER

On April 3, 1997, plaintiff-appellant filed a petition for

rehearing. All the judges on the original panel have voted

to deny the petition. The petition is therefore DENIED.

er re eae

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