Univ. of Tex. Sys. v. Alliantgroup LP

400 F.Supp.3d 610

The UNIVERSITY OF TEXAS SYSTEM and the University of Houston System, Plaintiffs,

v.ALLIANTGROUP LP and WHRA Merger Sub II Inc. n/k/a WHRA Architects Inc., Defendants.

Civil Action No. H-17-2588

United States District Court, S.D. Texas, Houston Division.

Signed September 05, 2019

Michael E. McCue, Alex J. Pilawski, Meadows Collier et al., Dallas, TX, for Plaintiffs.

Jason Scott Varnado, William Roquemore Taylor, Jones Day, Houston, TX, Kathryn Keneally, Michael J. Scarduzio, Rajeev Muttreja, Jones Day, New York, NY, Heather Kristine Hatfield, John Reid Hawkins, Katelin Elizabeth Cox, Porter Hedges LLP, Houston, TX, for Defendants.

ORDER

DAVID HITTNER, United States District Judge

Pending before the Court are Defendant WHRA Merger Sub II Inc.'s Motion to Dismiss the Second Amended Complaint with Prejudice (Document No. 113) and Defendant Alliantgroup LP's Motion to Dismiss the Second Amended Complaint and Motion for Summary Judgment (Document No. 114). Having considered the motions, submissions, and applicable law, the Court determines the motions should be granted in part.

I. BACKGROUND

This is a business dispute concerning the allocation of tax deductions. Plaintiffs the University of Texas System and the University of Houston System (collectively, "Plaintiffs") manage public educational institutions within Texas. Defendant WHRA Merger Sub II Inc. n/k/a WHR Architects Inc. ("WHRA") provides architectural services and created architectural specifications for energy-efficient buildings (the "Buildings") constructed for Plaintiffs. Defendant Alliantgroup LP ("Alliant") provides tax-related services and allegedly rendered tax-related services in connection with the Buildings. Plaintiffs allege WHRA and Alliant (collectively, "Defendants") obtained certain tax deductions from Plaintiffs deceptively, fraudulently, and without providing compensation in return.

Based on the foregoing, on August 23, 2017, Plaintiffs filed this lawsuit against Defendants. On December 15, 2017, with the Court's leave, Plaintiffs filed an amended complaint. On August 17, 2018, after the Court denied without prejudice Defendants' motions to dismiss for failure to state a claim and allowed Plaintiffs to amend the complaint, Plaintiffs filed a second amended complaint. Plaintiffs bring claims against Defendants for declaratory judgment and unjust enrichment under Texas law. Additionally, Plaintiffs bring claims against only Alliant for fraud and misrepresentation under Texas law and for violating the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c). On September 14, 2018, Defendants moved to dismiss Plaintiffs' claims.

II. STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b)(6) governs dismissal for failure "to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Under Rule 8(a)(2), a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Although "the pleading standard Rule 8 announces does not require ‘detailed factual allegations,’ ... it demands more than ... ‘labels and conclusions.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).

In deciding a Rule 12(b)(6) motion to dismiss for failure to state a claim, the Court "accepts all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff." In re Katrina Canal Breaches Litig. , 495 F.3d 191, 205 (5th Cir. 2007) (quoting Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit , 369 F.3d 464, 467 (5th Cir. 2004) ). The plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Twombly , 550 U.S. at 570, 127 S.Ct. 1955. If "the allegations in a complaint, however true, could not raise a claim of entitlement to relief, this basic deficiency should ... be exposed at the point of minimum expenditure of time and money by the parties and the court." Cuvillier v. Taylor , 503 F.3d 397, 401 (5th Cir. 2007) (quoting Twombly , 550 U.S. at 558, 127 S.Ct. 1955 ).

III. LAW & ANALYSIS

Defendants move to dismiss Plaintiffs' claims for failure to state a claim. Alliant further contends the Court should dismiss the claims giving rise to federal jurisdiction—the claims for a declaratory judgment concerning federal preemption (the "Preemption Claim") and for violating RICO (the "RICO Claim")—and relinquish jurisdiction over the remaining Texas law claims. The Court addresses in turn: (1) the Preemption Claim; (2) the RICO Claim; and (3) dismissal of the remaining Texas law claims.

A. The Preemption Claim

Defendants move to dismiss the Preemption Claim for failure to state a claim, contending the Preemption Claim fails to sufficiently allege Texas law is preempted by federal law. Under the United States Constitution's Supremacy Clause, federal law is the "supreme law of the land." U.S. Const. art. VI, cl. 2. Federal law therefore preempts "any state law ... which interferes with or is contrary to federal law[.]" Gade v. Nat'l Solid Wastes Mgmt. Ass'n , 505 U.S. 88, 108, 112 S.Ct. 2374, 120 L.Ed.2d 73 (1992) (citing U.S. Const. art. VI, cl. 2 ). There are "three distinct types" of preemption: conflict, express, and field. United States v. Zadeh , 820 F.3d 746, 751 (5th Cir. 2016). The Court applies a presumption against preemption unless Congress indicates otherwise. Wyeth v. Levine , 555 U.S. 555, 565, 129 S.Ct. 1187, 173 L.Ed.2d 51 (2009). The party asserting preemption bears the burden of persuasion. Elam v. Kan. City S. Ry. Co. , 635 F.3d 796, 802 (5th Cir. 2011).

The Preemption Claim seeks the Court to declare:

Texas Government Code § 447.004(b-3), to the extent it requires the Plaintiffs to allocate § 179D deductions,^{[1 ]} is preempted by 26 U.S.C. § 179D, and the IRS Notices and Memoranda regarding § 179D, in that those authorities make such allocations permissive, and not mandatory.^{[2 ]}

Defendants contend neither 26 U.S.C. § 179D nor the IRS Notices and Memoranda regarding § 179D preempt § 447.004(b-3). The Court addresses § 179D and the IRS Notices and Memoranda in turn.

1. § 179D

Defendants contend § 179D does not preempt § 447.004(b-3). Plaintiffs contend § 179D preempts § 447.004(b-3) under the doctrines of conflict and field preemption.³ The Court addresses conflict and field preemption in turn.

i. Conflict Preemption

Defendants contend § 179D does not preempt § 447.004(b-3) under conflict preemption. Under the doctrine of conflict preemption, state law is preempted when "it actually conflicts with federal law." English v. Gen. Elec. Co. , 496 U.S. 72, 79, 110 S.Ct. 2270, 110 L.Ed.2d 65 (1990). Conflict preemption may take one of two forms: (1) compliance with both federal and state law is impossible (the "Impossibility Form"); or (2) state law presents an obstacle to federal law (the "Obstacle Form"). Zadeh , 820 F.3d at 751 (quoting Hines v. Davidowitz , 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941) ). The Court addresses the Impossibility Form and the Obstacle Form in turn.

a. Impossibility Form

Defendants contend compliance with both § 179D and § 447.004(b-3) is not impossible. Plaintiffs contend compliance with both § 179D and § 447.004(b-3) is impossible because § 179D permits an activity § 447.004(b-3) prohibits. A plaintiff satisfies the Impossibility Form by demonstrating it would be "physically impossible" to comply with both federal and state law. Empacadora de Carnes de Fresnillo, S.A. de C.V. v. Curry , 476 F.3d 326, 334 (5th Cir. 2007) (quoting Planned Parenthood of Hous. & Se. Tex. v. Sanchez , 403 F.3d 324, 336 (5th Cir. 2005) ).

The relevant text of § 179D provides that, with regard to qualifying energy efficient commercial buildings on government properties, the Secretary of the Treasury (the "Secretary") "shall promulgate a regulation^{[4 ]} to allow the allocation of the deduction to the person primarily responsible for designing the property in lieu of the owner of such property. Such person shall be treated as the taxpayer for purposes of this section." 26 U.S.C. § 179D(d)(4). The relevant text of § 447.004(b-3) provides that a "governmental entity may not disallow the allocation of federal deductions to eligible design professionals authorized by [ § 179D ]." Tex. Gov't Code § 447.004(b-3). The Court finds § 179D addresses a delegation of authority to the Secretary and § 447.004(b-3) addresses the allocation of certain federal deductions. The Court therefore finds § 179D and § 447.004(b-3) address different issues and compliance with both § 179D and § 447.004(b-3) is not physically impossible. Thus, Plaintiffs fail to satisfy the Impossibility Form.

b. Obstacle Form

Defendants contend § 447.004(b-3) does not present an obstacle to § 179D. Plaintiffs contend § 447.004(b-3) does present an obstacle to § 179D because § 179D permits an activity § 447.004(b-3) prohibits. A plaintiff satisfies the Obstacle Form by demonstrating state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Zadeh , 820 F.3d at 751 (quoting Hines , 312 U.S. at 67, 61 S.Ct. 399 ).

As explained, under § 179D, Congress delegated authority to the Secretary to promulgate a certain regulation. 26 U.S.C. § 179D(d)(4). Under § 447.004(b-3), governmental entities may not disallow the allocation of certain federal deductions. Tex. Gov't Code § 447.004(b-3). The Court finds § 179D and § 447.004(b-3) address different issues. Having found § 179D and § 447.004(b-3) address different issues, the Court finds § 179D does not permit an activity § 447.004(b-3) prohibits and § 447.004(b-3) does not stand as an obstacle to the accomplishment and execution of Congress's purposes and objectives. Aside from contending § 179D permits an activity § 447.004(b-3) prohibits, Plaintiffs do not offer another contention as to the Obstacle...