ANR Pipeline Co. v. Lafaver

Page 1178

150 F.3d 1178

98 CJ C.A.R. 3924

ANR PIPELINE COMPANY and Colorado Interstate Gas Company Plaintiffs-Appellees, v. John D. LAFAVER, Secretary of the Kansas Department of Revenue, in his official capacity; Kansas Department of Revenue; Mark S. Beck, Director of the Division of Property Valuation of the Kansas Department of Revenue, in his official capacity; Division of Property Valuation of the Kansas Department of Revenue; and their respective predecessors and successors in office Defendants-Cross-claim defendants-Appellants and Brown County Board of County Commissioners; Judy Grathwohl Brown County Treasurer; Clark County Board of County Commissioners; Coleen Z. Brown, Clark County Treasurer; Comanche County Board of County Commissioners; Velma Basnett, Comanche County Treasurer; Dickinson County Board of County Commissioners; Louise Habacker, Dickinson County Treasurer; Edwards County Board of County Commissioners; Mary I. Carlson, Edwards County Treasurer; Finney County Board of County Commissioners;Raylene Nelson, Finney County Treasurer; Ford County Board of County Commissioners; Dorothy Hunter, Ford County Treasurer; Geary County Board of County Commissioners; Kathy Tremont, Geary County Treasurer; Grant County Board of County Commissioners; Rita Gee, Grant County Treasurer; Greeley County Board of County Commissioners; Mary D. Gentry, Greeley County Treasurer; Hamilton County Board of County Commissioners; Chris Squire, Hamilton County Treasurer; Haskell County Board of County Commissioners; Nancy Weeks, Haskell County Treasurer; Jackson County Board of County Commissioners; Marilyn K. Brown, Jackson County Treasurer; Kearney County Board of County Commissioners; Holly Lashmet, Kearney County Treasurer; Kiowa County Board of County Commissioners; Elsie Haraldson, Kiowa County Treasurer; McPherson County Board of County Commissioners; Brenda Becker, McPherson County Treasurer; Meade County Board of County Commissioners; Wynema Dye, Meade County Treasurer; Morton County Board of County Commissioners; Lois Hall, Morton County Treasurer; Nemaha County Board of County Commissioners; Rose M. Wilhelm, Nemaha County Treasurer; Pottawatomie County Board of County Commissioners; Linda Horgan, Pottawatomie County Treasurer; Pratt County Board of County Commissioners; Donna Shelite, Pratt County Treasurer; Reno County Board of County Commissioners; Larry R. Tucker, Reno County Treasurer; Rice County Board of County Commissioners; Lila Blackburn, Rice County Treasurer; Riley County Board of County Commissioners; R. Eileen King, Riley County Treasurer; Saline County Board of County Commissioners; Keith Lilly, Saline County Treasurer; Seward County Board of County Commissioners; Joe Neese, Seward County Treasurer; Stafford County Board of County Commissioners; Lynda L. McAllister, Stafford County Treasurer; Stanton County Board of County Commissioners; Phyllis Kistler, Stanton County Treasurer; Stevens County Board of County Commissioners; Belva Hickey, Stevens County Treasurer; Wabaunsee County Board of Commissioners; Ella Mae Kraus, Wabaunsee County Treasurer; and all their respective predecessors and successors in office, Defendants-Cross-Claim plaintiffs.

Nos. 96-3250, 96-3345.

United States Court of Appeals, Tenth Circuit.

July 21, 1998.

William E. Waters, Kansas Department of Revenue, Topeka, Kansas, for defendants-cross-claim defendants-appellants.

Richard D. Greene, Morris, Laing, Evans, Brock & Kennedy, Wichita, Kansas (Rebecca H. Noecker and Karen L. Pauley, Colorado Interstate Gas Co., Colorado Springs, Colorado, on brief), for plaintiffs-appellees.

Before ANDERSON, EBEL and KELLY, Circuit Judges.

EBEL, Circuit Judge.

This appeal involves the efforts of two natural gas pipelines, in the face of burgeoning economic competition in the deregulated energy industry, to deal with what they regard as the unequal property tax system in Kansas vis-a-vis the pipelines' traditional competitors, railroad companies, as well as the pipelines' claims of unfair judicial process in the state courts of Kansas. We must dismiss this appeal, vacate the district court's judgment, and direct the district court to dismiss all claims in this case against both the state agency defendants and the state official defendants. The Eleventh Amendment stands as a bar to federal jurisdiction over all of these claims, and the plaintiffs' suit is not saved by the Ex parte Young doctrine.

Background

These two appeals arise out of a single district court order denying a motion to dismiss under Fed.R.Civ.P. 12(b)(1) for lack of subject-matter jurisdiction, filed by the state agency defendants and the state official defendants (collectively referred to as "state defendants") two weeks after the plaintiffs filed this suit. ¹ The state defendants filed one appeal, No. 96-3250, as an "appeal by right" based on the district court's denial of the state defendants' claim of sovereign immunity under the Eleventh Amendment. Subsequently, the state defendants also filed a separate motion seeking permission to file a second interlocutory appeal challenging that portion of the court's decision involving the Tax Injunction Act and the Rooker /Feldman doctrine. The motion was granted, and this second appeal was denominated No. 96-3345. Despite this procedural division of the issues between the two separate appeals, we believe the interests of justice would be best served by consolidating both appeals and disposing of this case in a single opinion. ²

1. The 4-R Act.

The seeds of this property tax dispute were planted in the Railroad Revitalization and Regulatory Reform Act of 1976 ("4-R Act"), Pub.L. 94-210, 90 Stat. 31 (codified as amended at 49 U.S.C. § 11501 (1994)). Under this legislation, Congress prohibited state and local taxing agencies from imposing discriminatory taxes on railroads. See 49 U.S.C. § 11501(b). The legislation generated vast amounts of litigation in which railroads alleged that various taxing schemes by states and local governments violated the 4-R Act. See, e.g., Burlington N. R.R. Co. v. Huddleston, 94 F.3d 1413 (10th Cir.1996) (the most recent Tenth Circuit case on 4-R Act). One of those 4-R Act lawsuits involved a challenge by railroads operating in Kansas against the state's taxation scheme for the railroads' personal property. On August 11, 1989, that litigation was resolved with a consent decree that required the Kansas Division of Property Valuation to exempt 80% of the railroads' personal property from the tax roll, and then to levy a 30% tax assessment on the remainder of the railroad's real and personal property.

Seeing this dramatic tax break for their competitors, several natural gas pipeline companies requested similar treatment from the Kansas Division of Property Valuation, but the state refused. The pipeline companies then went to court. From the outset of the litigation underlying these appeals, the pipeline companies have argued that they are similarly situated vis-a-vis the railroad companies, i.e., that both are public utilities under Kansas law. See Kan. Stat. Ann. §§ 79-5a01(a)(1) & (a)(4) (1989). The pipelines argue that they have an equal protection right to the same tax breaks provided to the railroads. See U.S. Const., XIV amend., § 1.

Key to the pipelines' equal protection claim is their concomitant allegation that they were denied procedural due process by the tax appeal proceedings in Kansas at both the administrative and judicial level. For this reason, the sequence of events in the underlying litigation is important.

2. The pipelines' state-court litigation.

After the August 11, 1989, consent decree exempting much of the railroads' Kansas personal property from taxation, the pipelines filed suit in Shawnee County District Court claiming their 1989 tax assessment by the Kansas Division of Property Valuation violated state and federal guarantees of equal protection. In an unreported decision, the state district court dismissed the suit for lack of subject-matter jurisdiction because the pipelines had failed to file an appeal of the assessment before the Kansas Board of Tax Appeals ("BOTA"). In 1993, the Kansas Court of Appeals reversed the district court's decision and remanded the case for consideration of the pipelines' equal protection arguments. See Colorado Interstate Gas Co. v. Beshears, 18 Kan.App.2d 814, 860 P.2d 56, 61-62 (1993) [hereinafter "CIG I "] (holding that the failure to exhaust administrative remedies was no bar to jurisdiction when no actual administrative remedies were available).

During the pendency of this first case, the pipelines filed appeals of their 1990 and 1991 tax assessments with BOTA, again claiming that the lack of favorable exemptions for themselves, vis-a-vis the railroads, violated the pipelines' rights to equal protection. The 1990 and 1991 appeals were submitted to BOTA on a stipulated record, and the Board rejected the challenges. The pipelines appealed that decision to the Kansas Supreme Court, which affirmed the BOTA decision. See In re Appeal of ANR Pipeline Co., 254 Kan. 534, 866 P.2d 1060 [hereinafter "CIG II (ANR Pipeline) "], cert. denied, 513 U.S. 917, 115 S.Ct. 296, 130 L.Ed.2d 209 (1994). The Kansas Supreme Court held that any disparate treatment between the pipelines and the railroads--including the 80% exemption of personal property--was mandated by the 4-R Act. See id. at 1067-68. The court also held that Kansas' constitutional guarantees of equal protection and uniform taxation were preempted by the 4-R Act. See id. at 1066-68.

Just three days after the Kansas Supreme Court filed its decision in CIG II (ANR Pipeline), the Supreme Court of the United States filed a decision in an unrelated case dealing with a similar issue of state property tax exemptions for railroads under the 4-R Act. See Department of Revenue v. ACF Indus., Inc., 510 U.S. 332, 114 S.Ct. 843, 127 L.Ed.2d 165 (1994). In ACF Industries, the state of...