Ill. Fuel & Retail Ass'n v. Ill. Dep't of Revenue

608 F.Supp.3d 699

ILLINOIS FUEL & RETAIL ASSOCIATION, SAUNDERS OIL CO., INC., and Freedom Oil Company, on their own behalf and on behalf of a class of retailers similarly situated, Plaintiffs,

v.ILLINOIS DEPARTMENT OF REVENUE and David Harris, in his official capacity as Director of the Illinois Department of Revenue, and Dan Wright, in his official capacity and as representative for all Illinois State's Attorneys, Defendants.

Case No. 22-3089

United States District Court, C.D. Illinois, Springfield Division.

Signed June 23, 2022

Donald M. Craven, Craven Law Office, Springfield, IL, for Plaintiffs.

Alex Hemmer, Illinois Attorney General, Chicago, IL, David Tichy, Office of the Illinois Attorney General, Springfield, IL, for Defendants.

OPINION AND ORDER

SUE E. MYERSCOUGH, United States District Judge:

Before the Court is a Motion to Dismiss (d/e 10) filed by Defendants, the Illinois Department of Revenue ("IDR" or "the Department") and its director, David Harris, along with Sangamon County State's Attorney Dan Wright ("Defendants"). Plaintiffs, the Illinois Fuel & Retail Association, Sauders Oil Company, Inc., and Freedom Oil Company ("Plaintiffs"), have filed suit challenging the validity, under the U.S. Constitution and the Illinois Constitution of 1970, of Section 45-5 of Illinois Senate Bill 157 ("SB 157"). Ill. Legis. Serv. P.A. 102-700, § 45-5, codified at 35 ILCS § 505/2(a-5). Because Plaintiffs’ Complaint (d/e 1-1) fails to state a claim on which relief can be granted, Defendants’ Motion (d/e 10) is GRANTED.

I. BACKGROUND

The following facts are taken from Plaintiffs’ Complaint (d/e 1-1) and are accepted as true for purposes of Defendants’ Motion to Dismiss. Bible v. United Student Aid Funds, Inc., 799 F.3d 633, 639 (7th Cir. 2015).

Plaintiff Illinois Fuel & Retail Association is a trade association serving a large number of petroleum distributors and retailers in Illinois, among them Plaintiffs Saunders Oil Company, Inc., and Freedom Oil Company. Compl. (d/e 1-1) ¶¶ 4–5. Defendants are Illinois agencies and officials who are charged by statute with, among other things, enforcing the provisions of the Illinois Motor Fuel Tax Law, 35 ILCS § 505/1 et seq. (the "Motor Fuel Tax"). Id. ¶¶ 2, 8–10.

The Motor Fuel Tax imposes taxes on the operating of motor vehicles on public highways and recreational-type watercraft upon the waters of the State of Illinois. Id. ¶ 12. The Motor Fuel Tax was recently amended by SB 157 to provide,

Beginning on July 1, 2022 and through December 31, 2022, each retailer of motor fuel shall cause the following notice to be posted in a prominently visible place on each retail dispensing device that is used to dispense motor fuel in the State of Illinois: "As of July 1, 2022, the State of Illinois has suspended the inflation adjustment to the motor fuel tax through December 31, 2022. The price on this pump should reflect the suspension of the tax increase." The notice shall be printed in bold print on a sign that is no smaller than 4 inches by 8 inches. The sign shall be clearly visible to customers. Any retailer who fails to post or maintain a required sign through December 31, 2022 is guilty of a petty offense for which the fine shall be $500 per day per each retail premises where a violation occurs.

35 ILCS 505/2(a-5) ; Compl. ¶14. As part of the Illinois Department of Revenue's duty to administer and enforce the Motor Fuel Tax, the Department has disseminated notices to motor fuel retailers informing them of SB 157's amendments and providing them with copies of the required signage. Compl. ¶8, Exs. C & D. Senate Bill 157 also amended Illinois’ Use Tax Act ("Use Tax") to provide,

In addition, retailers who sell items that would have been taxed at the 1% rate but for the 0% rate imposed under this amendatory Act of the 102nd General Assembly shall, to the extent feasible, include the following statement on any cash register tape, receipt, invoice, or sales ticket issued to customers: "From July 1, 2022 through July 1, 2023, the State of Illinois sales tax on groceries is 0%.". If it is not feasible for the retailer to include the statement on any cash register tape, receipt, invoice, or sales ticket issued to customers, then the retailer shall post the statement on a sign that is clearly visible to customers. The sign shall be no smaller than 4 inches by 8 inches.

35 ILCS 105/3a ; Compl. ¶15. The amendment to the Use Tax does not contain criminal penalties if retailers fail to comply. Id.

Plaintiffs filed suit in the Circuit Court of the Seventh Judicial Circuit in Sangamon County, Illinois on May 9, 2022. See Compl. Plaintiffs allege SB 157's amendments to the Motor Fuel Tax and the Use Tax violate Plaintiffs’ free speech rights under the U.S. Constitution and Illinois Constitution, Plaintiffs’ rights to equal protection under the U.S. Constitution, and 42 U.S.C. § 1983. Id. ¶1, 3, 17. Defendants then removed the suit to this Court on June 2, 2022 pursuant to 28 U.S.C. § 1441 and filed the present Motion to Dismiss (d/e 10) and Memorandum in Support (d/e 11) on June 13, 2022.

II. JURISDICTION AND VENUE

The Court has jurisdiction under 28 U.S.C. § 1331 over Plaintiffs’ claims of violations of First and Fourteenth Amendment rights and 42 U.S.C. § 1983. The Court also has supplemental jurisdiction under 28 U.S.C. § 1367 over Plaintiffs’ claims of violations of the Illinois state constitution. Venue is proper in this district under 28 U.S.C. § 1391.

III. LEGAL STANDARD

Defendants move to dismiss Plaintiffs’ Complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure. "A Rule 12(b)(6) motion tests ‘the legal sufficiency of a complaint,’ as measured against the standards of Rule 8(a)." Gunn v. Cont'l Cas. Co., 968 F.3d 802, 806 (7th Cir. 2020) (quoting Runnion v. Girl Scouts of Greater Chicago and Northwest Indiana, 786 F.3d 510, 526 (7th Cir. 2015) ). Rule 8(a)(2) requires that a complaint contain "a short and plain statement of the claim showing that the pleader is entitled to relief." The pleading need not contain "detailed factual allegations" to pass a Rule 12(b)(6) challenge but still must "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Moreover, while all factual allegations are accepted as true on a motion to dismiss, courts "are not bound to accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986) ; see also Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ("A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’ " (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955 )). Accordingly, a complaint will be dismissed if it is legally insufficient to the extent that no set of facts could support the claims raised.

IV. ANALYSIS

Plaintiffs request in their Complaint that the Court enter a declaratory judgment stating that SB 157's amendment to the Motor Fuel Tax requiring Plaintiffs display certain signage is (1) compelled speech in violation of Plaintiffs’ rights under the First Amendment of the U.S. Constitution; (2) a violation of Plaintiffs’ right to equal protection under the Fourteenth Amendment of the U.S. Constitution; and (3) compelled speech in violation of Article I, Section 4 of the Illinois Constitution of 1970. Compl. ¶40. Defendants request the Court dismiss each claim because, in their view, each claim is legally insufficient on its face.

a. Under Zauderer, the mandated signage does not violate Plaintiffs’ First Amendment rights.

"The First Amendment, applicable to the States through the Fourteenth Amendment, prohibits laws that abridge the freedom of speech." Nat'l Inst. of Family & Life Advocates v. Becerra, ––– U.S. ––––, 138 S.Ct. 2361, 2371, 201 L.Ed.2d 835 (2018) (" NIFLA"). The First Amendment protects individuals from both unlawful restrictions on speech as well as from being unlawfully compelled to speak. United States v. United Foods, Inc., 533 U.S. 405, 410, 121 S.Ct. 2334, 150 L.Ed.2d 438 (2001) ("Just as the First Amendment may prevent the government from prohibiting speech, the Amendment may prevent the government from compelling individuals to express certain views.") The parties agree that SB 157 involves governmentally compelled speech. However, the parties disagree as to whether the compelled speech SB 157 mandates is political or commercial.

Defendants argue that the mandatory signage is commercial speech and should be analyzed under the Supreme Court's decision in Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio, 471 U.S. 626, 105 S.Ct. 2265, 85 L.Ed.2d 652 (1985). In Zauderer, the Supreme Court considered whether the First Amendment prevented the State of Ohio from requiring an attorney to disclose the percentages associated with his contingency-fee agreement in his advertisements. 471 U.S. at 633, 105 S.Ct. 2265. The Court first found that "the extension of First Amendment protection to commercial speech is justified principally by the value to consumers of the information such speech provides" and the advertiser's "constitutionally protected interest in not providing any particular factual information in his advertising is minimal." Id. (citing Virginia Pharmacy Bd. v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976) ) (emphasis in original). The Court then held that mandated disclosures which include "purely factual and uncontroversial information about the terms under which ... services will be available" do not offend the First Amendment so long as the disclosures "are reasonably related to the State's interest in preventing deception of customers." Id. at 651, 105 S.Ct. 2265 ; NIFLA, 138 S.Ct. at 2372. The Court later clarified that while this ‘reasonably...