Opinion
No. 07-1545-cv.
January 8, 2009.
Appeal from the United States District Court for the Southern District of New York (Stein, J.).
UPON CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment of said District Court be and it hereby is AFFIRMED.
For Appellant: Aaron B. Karas, pro se, New York, N.Y., on the brief.
For Appellee: Michael I. Verde and Philip A. Nemecek, Katten Muchin Rosenman LLP, New York, N.Y., on the brief.
Present: ROSEMARY S. POOLER, SONIA SOTOMAYOR, ROBERT A. KATZMANN, Circuit Judges.
Plaintiff-Appellant Aaron Karas appeals from two orders of the district court granting Defendant-Appellee Katten Muchin Zavis Rosenman's ("Katten") motions to dismiss Karas's breach of contract claim, Karas v. Katten Muchin Zavis Rosenman, No. 04cv9570, 2006 WL 20507 (S.D.N.Y. Jan. 3, 2006), as well as his restraint of trade claim, Karas v. Katten Muchin Zavis Rosenman, No. 04cv9570, 2006 WL 3635330 (S.D.N.Y. Dec. 12, 2006). Both claims sought declaratory and monetary relief. We assume the parties' familiarity with the facts, proceedings below, and the issues raised on appeal.
As to Karas's breach of contract claim, to the extent that it seeks an order restraining Katten from future withholding of federal and state taxes, the Anti-Injunction Act, 26 U.S.C. § 7421(a), and Tax Injunction Act, 28 U.S.C. § 1341, deprive the federal courts of jurisdiction, and the Declaratory Judgment Act, 28 U.S.C. § 2201, prohibits the issuance of any declaratory judgment to that effect. Nor has Karas shown that he falls within an exception to those bars. See South Carolina v. Regan, 465 U.S. 367, 381 (1984) (Anti-Injunction Act does not apply when Congress has not "provided an alternative avenue for an aggrieved party to litigate its claims on its own behalf"); Enochs v. Williams Packing Navigation Co., 370 U.S. 1, 6-7 (1962) (Anti-Injunction Act does not apply where "it is clear that under no circumstances could the Government ultimately prevail" and that "equity jurisdiction otherwise exists");Luessenhop v. Clinton Co., New York, 466 F.3d 259, 267 (2d Cir. 2006) (Tax Injunction tax applies only where "`state taxpayers seek federal-court orders enabling them to avoid paying state taxes'" (quoting Hibbs v. Winn, 542 U.S. 88, 107 (2004)).
Karas raises a substantial argument that the Anti-Injunction Act, the Tax Injunction Act, and the Declaratory Judgment Act do not preclude a district court from determining whether a party has breached an agreement to allocate consideration among the items being exchanged in a particular manner. Cf. Ullman v. Comm'r, 264 F.2d 305, 308 (2d Cir. 1959) (noting allocation of consideration among covenant not to compete and goodwill by parties with adverse tax interests can be strong evidence to IRS of appropriate tax treatment of a transaction); Stern Co. v. State Loan Finance Corp., 205 F. Supp. 702, 705 (D. Del 1962) (allowing action for alleged breach of agreement to allocate no part of purchase price to covenant not to compete). We need not decide whether that argument is correct, however, because it is clear in any event that Karas's breach of contract claim is without merit. Although Karas may be right that the payments are most properly allocated to goodwill, see Ullman, 264 F.2d at 307-08 (holding payment allocable entirely to goodwill when covenant not to compete "is so closely related to a sale of good will that it fails to have any independent significance apart from assuring the effective transfer of that good will"), nothing in the contract required Katten to take that position on its tax returns or to refrain from withholding. Indeed the contract does not address taxes at all. Consequently, Karas has no claim for breach of contract and must pursue his position with the IRS, for instance by filing for a refund pursuant to 26 U.S.C. § 6402 and the regulations thereunder.
As to Karas's restraint of trade claim, which asserts that the non-compete agreement between the parties violates Disciplinary Rule 2-108(A) of the New York Code of Professional Responsibility, Katten's release of Karas from the non-compete obligations moots the dispute at issue as to Karas's request for declaratory relief. In addition, his claim for monetary relief fails because as a general rule, there is no private right of action for a violation of a New York Disciplinary Rule. William Kaufman Org. v. Graham James LLP, 703 N.Y.S.2d 439, 442 (N.Y.App.Div. 2000); Mergler v. Crystal Props. Assocs. Ltd., 583 N.Y.S.2d 229, 233 (1st Dep't 1992). And Karas does not fall within the exception to this rule since the contract here, though possibly invalid,see, e.g., Denburg v. Parker Chapin Flattau Klimpl, 82 N.Y.2d 375, 381-82 (1993), Cohen v. Lord, Day Lord, 75 N.Y.2d 95, 98 (1989) (holding that a lawyer possesses a private right of action with which he can seek to invalidate a clause that hampers his ability to practice law), was not itself breached, see Kaufman, 703 N.Y.S.2d at 442.
We have considered all of Karas's other arguments and find them to be without merit. Accordingly, the judgment of the District Court hereby is AFFIRMED.