Hannah Fredrickson v. Starbucks Corp
2016 U.S. App. LEXIS 19793
| 9th Cir. | 2016Background
- Plaintiffs are three former Starbucks baristas who sued on behalf of an Oregon class, alleging Starbucks withholds state and federal taxes from paychecks based on an imputed 50¢/hour tip amount.
- Plaintiffs assert five Oregon wage-and-hour statutory claims, seeking statutory penalties (30 days’ wages for some claims; $200 per paycheck for another) and declaratory/injunctive relief forbidding the withholding practice.
- Plaintiffs do not seek repayment of actual taxes (they obtained refunds via tax returns); they seek statutory penalties and prospective relief.
- Starbucks removed to federal court under the Class Action Fairness Act, moved to dismiss as preempted or barred; district court granted dismissal with prejudice and denied remand.
- The Ninth Circuit considered whether federal courts may hear the case given the Tax Injunction Act, the Anti-Injunction Act, and the federal–state comity doctrine, and whether state- and federal-tax theories can be severed for damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal court may grant declaratory/injunctive relief to stop withholding of state taxes | Relief seeks declaration/enjoin Starbucks’ withholding under Oregon law | Such relief would impede state tax collection and is barred by the Tax Injunction Act | Tax Injunction Act bars declaratory/injunctive relief concerning state-tax withholding |
| Whether federal court may grant declaratory/injunctive relief to stop withholding of federal taxes | Plaintiffs challenge federal withholding as unauthorized | Anti-Injunction Act forbids suits that restrain assessment/collection of federal taxes | Anti-Injunction Act bars declaratory/injunctive relief concerning federal-tax withholding |
| Whether district court may award statutory damages based on state-tax theory | Plaintiffs seek statutory penalties under Oregon law for wrongful deductions | Comity and state-revenue protection counsel keeping tax interpretation and related damages in state court | Federal–state comity bars federal adjudication of damages tied to state-tax interpretation |
| Whether federal-tax component can be severed so federal court can hear damage claims | Plaintiffs pleaded unitary claims combining state- and federal-tax theories for indivisible statutory penalties | Starbucks argues claims are unitary and not severable; federal defense argued | Claims are pleaded as indivisible; because state-tax component is barred by comity, the entire case must be remanded to state court |
Key Cases Cited
- California v. Grace Brethren Church, 457 U.S. 393 (holding Tax Injunction Act bars declaratory relief equivalent to injunction)
- Direct Marketing Ass'n v. Brohl, 575 U.S. 1 (defining Tax Injunction Act scope—limited to assessment, levy, collection)
- United States v. American Friends Serv. Comm., 419 U.S. 7 (Anti-Injunction Act bars suits to restrain federal tax collection; withholding is a method of collection)
- Hibbs v. Winn, 542 U.S. 88 (Tax Injunction Act protects state revenue and applies where relief would reduce state tax flow)
- Fair Assessment in Real Estate Ass'n v. McNary, 454 U.S. 100 (comity principle cautions federal courts from disrupting state tax administration)
- Levin v. Commerce Energy, Inc., 560 U.S. 413 (comity establishes broader prudential rule to avoid disrupting state tax systems)
- Sipe v. Amerada Hess Corp., 689 F.2d 396 (Third Circuit: employer withholding injunction barred by Tax Injunction Act)
- International Lotto Fund v. Virginia State Lottery Dep't, 20 F.3d 589 (Fourth Circuit: withholding lottery winnings part of tax collection; injunctive relief barred)
- May Trucking Co. v. Oregon Dep't of Transp., 388 F.3d 1261 (discussing comity and Tax Injunction Act implications)
- Bright v. Bechtel Petroleum, Inc., 780 F.2d 766 (9th Cir. case distinguished—did not involve a disputed state-law tax interpretation)
- Maxfield v. U.S. Postal Serv., 752 F.2d 433 (Anti-Injunction Act bars suits against employer withholding federal taxes)
- Brennan v. Southwest Airlines Co., 134 F.3d 1405 (private employer viewed as state’s private collection agent in withholding context)