638 F.3d 519
7th Cir.2011Background
- Four Illinois riverboat casinos sue five racetracks in a RICO action alleging pay-to-play corruption in enacting 2006 and 2008 Horse Racing Acts.
- The Acts imposed a 3% surcharge, deposited into the Horse Racing Equity Trust Fund, to be paid to racetracks within 10 days of receipt.
- Money in the Fund is not in the state treasury but held in private escrow and earmarked for purses and track improvements.
- The district court issued a TRO requiring escrow of the surcharge funds; later found the Tax Injunction Act (TIA) barred equitable relief and dissolved the TRO.
- The panel initially reinstated the TRO and reversed, but the en banc court reexamined the ruling on the TIA’s applicability.
- The court ultimately affirmed the district court’s judgment and extended the TRO for 30 days to allow further petitioning.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Tax Injunction Act bar federal equitable relief here? | Casinos contend TIA does not bar relief since no state tax relief is sought. | Racing defendants contend the surcharge functions as a tax and is barred from federal relief. | TIA does not bar the equitable relief sought. |
| Is there a plain, speedy, and efficient state remedy that defeats federal jurisdiction? | Illinois provides a state-court remedy to impose a constructive trust on tax proceeds. | State remedies are inadequate or improper to defeat federal jurisdiction in this context. | There exists a plain, speedy, and efficient state remedy; thus federal relief is constrained but not foreclosed. |
Key Cases Cited
- California v. Grace Brethren Church, 457 U.S. 393 (1982) (TIA bar applies to equitable relief against state tax collection)
- Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503 (1981) (importance of limiting federal interference with state tax collection)
- Trailer Marine Transport Corp. v. Rivera Vazquez, 977 F.2d 1 (1st Cir. 1992) (classification of charges as taxes or fees for TIA purposes)
- Sipe v. Amerada Hess Corp., 689 F.2d 396 (3d Cir. 1982) (TIA bars equitable relief against private employers' unemployment-tax deductions)
- Hager v. City of West Peoria, 84 F.3d 865 (7th Cir. 1996) (fee/tax distinctions under TIA; regulatory vs revenue-raising)
- Hill v. Kemp, 478 F.3d 1236 (10th Cir. 2007) (distinguishing taxes from fees for TIA purposes)