Empress Casino Joliet Corp. v. Balmoral Racing Club, Inc.
2011 U.S. App. LEXIS 13898
| 7th Cir. | 2011Background
- Four Illinois riverboat casinos sue five racetracks in a RICO suit alleging that the governor and track owner conspired to pass laws harming the casinos.
- The 2006 and 2008 Racing Acts created the Horse Racing Equity Trust Fund, into which casinos must deposit 3% of adjusted gross receipts as a condition of licensure.
- Funds are earmarked for racetrack purses and improvements, deposited into a non-appropriated trust fund and disbursed to racetracks within 10 days of receipt; the funds are escrowed pending litigation.
- The district court initially denied equitable relief, invoking the Tax Injunction Act (TIA); the escrow remains in place during appeal.
- A panel initially held the TIA did not bar equitable relief; the case was reheard en banc to reexamine that ruling; the en banc court affirmed that the TIA bars equitable relief.
- The majority treats the casino surcharge as a tax for TIA purposes, not a fee, because the funds are earmarked, pass to beneficiaries, and do not fund state services; the relief sought would effectively enjoin tax collection.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Tax Injunction Act bar federal equitable relief on state tax receipts? | Casinos argue TIA does not apply to this relief. | State contends the relief is barred because it would impede tax collection. | TIA bars equitable relief. |
| Should the casino surcharge be classified as a tax or a fee for TIA purposes? | Casinos contend it's not a tax (and thus not within TIA). | Illinois treats it as a tax to subsidize racetracks. | Exaction is a tax, not a fee. |
| Would a constructive trust on the private escrow funds interfere with state tax collection? | Constructive trust is a permissible equitable remedy independent of tax collection. | Such relief would directly affect the state’s revenue process. | Constructive trust would effectively impede tax collection; barred by TIA. |
| Is there an adequate state remedy that would render federal relief inappropriate under the TIA? | State remedies are insufficient or unavailable against a private escrow. | Illinois provides a plain, speedy, efficient state-court remedy. | There is a proper state remedy; federal relief barred. |
Key Cases Cited
- Rosewell v. LaSalle Nat’l Bank, 450 U.S. 503 (1981) (necessity of comity to protect state tax administration)
- Fair Assessment in Real Estate Ass’n, Inc. v. McNary, 454 U.S. 100 (1981) (TIA framework and comity principles)
- Levin v. Commerce Energy, Inc., 130 S. Ct. 2323 (2010) (clarifies TIA and state remedies considerations)
- Empress Casino Joliet Corp. v. Giannoulias, 231 Ill.2d 62 (2008) ( Illinois Supreme Court on racing acts and related funds)
- Kathrein v. City of Evanston, 636 F.3d 906 (7th Cir.2011) (non-tax charges identified under Kathrein as non-taxes for TIA)
- Trailer Marine Transport Corp. v. Rivera Vazquez, 977 F.2d 1 (1st Cir.1992) (distinguishes fees vs. taxes for TIA purposes as compensation-like charges)