Opinion
No. CS-01-298-FVS
September 9, 2002
ORDER
THIS MATTER comes before the Court based upon the defendants' motion to dismiss. They are represented by Assistant Attorney General Kent M. Nakamura. The plaintiffs are representing themselves.
THREE-TIER DISTRIBUTION SYSTEM
The plaintiffs are law students who seek to obtain wine directly from sources outside the State of Washington. Given the regulatory system created by Title 66 of the Revised Code of Washington ("RCW"), the plaintiffs have been denied direct access to a number of out-of-state sources. This is the second time they have filed a lawsuit alleging that the existing system is unconstitutional because it violates the "dormant" Commerce Clause and the First Amendment. To understand the plaintiffs' contentions, one must be familiar with some of the restrictions imposed by Title 66.
A company that manufactures wine in another state must obtain a license before shipping wine to this state. RCW 66.24.206. The license is referred to as a "certificate of approval." Id. A certificate of approval is limited in scope. The holder is not authorized to ship wine directly to consumers. Rather, the holder may sell wine to licensed wine distributors and importers. Id. They constitute a separate tier in the liquor-distribution system. Like manufacturers, they must obtain licenses from the state. RCW 66.24.200 (distributors); RCW 66.24.203 (importers). In many respects, they function as wholesalers. See WAC 314-24-180. For example, one of the chief privileges of a wine distributor — though the privilege is not exclusive — is to supply wine to retailers. RCW 66.24.200; WAC 314-13-010. Retailers make up the third tier of the system. WAC Chapter 314-02. The State of Washington has made a significant effort to preserve their independence. Generally speaking, neither manufacturers, nor importers nor distributors may engage in retail sales. RCW 66.28.010. The three-tiered system described above serves a number of purposes. Besides protecting the "welfare, health, peace, morals, and safety of the people of the state," RCW 66.08.010, it facilitates the collection of taxes. See, e.g., RCW 66.24.210(1). WAC Chapter 312-19 sets forth the responsibilities of various licensees with respect to the payment of taxes.
Despite the comprehensive character of the regulatory system established by Title 66, there are important exceptions. A person who is at least 21 years old may bring two liters of wine into the state each month without paying tax on the wine. RCW 66.12.120. In addition, an out-of-state manufacturer may ship two cases of wine per year to a resident of the state who has reached the age of 21. RCW 66.12.190. This shipment may be made without payment of liquor taxes and markup. WAC 314-24-230. The exception created by RCW 66.12.190 is a limited exception. First, it is available only to manufacturers of wine. RCW 66.12.190. Out-of-state retailers are not eligible for a wine shipper's license. WAC 314-24-230. Second, the state in which the manufacturer is located must extend a reciprocal privilege to duly licensed Washington wine manufacturers. RCW 66.12.190. According to the plaintiffs, there are only 13 other states that have extended such a privilege to Washington wine manufacturers. Third, it is unlawful to accept wine from an out-of-state manufacturer who does not have a wine shipper's license. RCW 66.12.210. Finally, an out-of-state manufacturer that holds a wine shipper's license may not advertise the existence of the exemption created by RCW 66.12.190. A company that does so may lose its wine shipper's license. RCW 66.12.220.
PRIOR LAWSUIT
This is not the first lawsuit in which the plaintiffs have attacked restrictions on the direct shipment of wine to consumers in this state. The first lawsuit was assigned cause number CS-01-091-FVS. In that action, the plaintiffs challenged the constitutionality of four statutes: RCW 66.12.120 (permitting certain persons to bring two liters of wine into the state each month tax free), RCW 66.12.190 (permitting a properly-licensed, out-of-state manufacturer to ship two cases of wine each year to certain persons in this state), RCW 66.12.210 (it is unlawful to accept wine from an out-of-state manufacturer who is not licensed under RCW 66.12.190), and RCW 66.12.220 (a manufacturer may not advertise the exemption created by RCW 66.12.190). The plaintiffs argued that RCW 66.12.120, RCW 66.12.190 and RCW 66.12.210 violate the dormant Commerce Clause and that RCW 66.12.220 violates the First Amendment. The defendants disagreed and moved to dismiss. They argued, among other things, that the plaintiffs had failed to serve process on the proper persons; that the Court lacked jurisdiction over the subject matter of the lawsuit by virtue of the Tax Injunction Act, 28 U.S.C. § 1341; and that the plaintiffs could not establish standing. Ultimately, the Court granted the defendants' motion, concluding with the following statement, "The plaintiffs have failed to bring the defendants within the jurisdiction of this Court, and, even if they had, the Court lacks jurisdiction over most (if not all) of the subject matter of this action." (Order at 9.) Judgment was entered. The plaintiffs did not appeal.
FINAL DECISION
Since their complaint in cause number CS-01-091-FVS was dismissed on jurisdictional grounds, the plaintiffs insist the order of dismissal was not a final decision on the merits, and, thus, it was not appealable pursuant to 28 U.S.C. § 1291. This assertion is incorrect. The finality of the order was reflected in at least two ways. To begin with, the Court ruled it lacked both personal jurisdiction over the defendants and subject matter jurisdiction over several of the constitutional challenges mounted by the plaintiffs. Given these rulings, the Court could proceed no further. See Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583-85, 119 S.Ct. 1563, 1569-70, 143 L.Ed.2d 760 (1999) (a federal court may not adjudicate a claim without jurisdiction over the subject matter and parties of the action). The Court emphasized the finality of its decision by granting the defendant's motion to dismiss and by entering judgment. The fact the Court dismissed the plaintiffs' case on jurisdictional grounds, as opposed to reaching the merits of their claims, may limit the preclusive effect of the order, but not its finality. An order dismissing a case on jurisdictional grounds is a final order and is appealable under 28 U.S.C. § 1291. See McGuckin v. Smith, 974 F.2d 1050, 1053 (9th Cir. 1992) (citations omitted), overruled on other grounds, WMX Techs., Inc. v. Miller, 104 F.3d 1133, 1136 (9th Cir. 1997).
EFFECT OF DISMISSING A CASE FOR LACK OF JURISDICTION
An order dismissing a complaint for lack of jurisdiction does not operate as an adjudication on the merits. Fed.R.Civ.P. 41(b). As a result, a judgment dismissing an action on jurisdictional grounds "does not bar another action by the plaintiff on the same claim." Segal v. American Tel. Tel. Co., 606 F.2d 842, 844 (9th Cir. 1979). This is not to say that a dismissal on jurisdictional grounds is without preclusive effect. To the contrary, "[t]he judgment remains effective to preclude relitigation of the precise issue of jurisdiction . . . that led to the initial dismissal." 18 Charles Alan Wright et al., Federal Practice and Procedure § 4436 (1981).
In cause number CS-01-091-FVS, the rulings that led to dismissal were ones which involved matters of personal and subject matter jurisdiction. Although the existence of personal jurisdiction is no longer an issue, the parties continue to disagree as to whether the Court has jurisdiction over the subject matter of the plaintiffs' claims. Thus, in order to determine the preclusive effect of the Court's prior rulings in cause number CS-01-091-FVS, it is necessary to reexamine the nature of those rulings.
RULING REGARDING RCW 66.12.120 AND RCW 66.12.190
The plaintiffs attacked the constitutionality of four statutes in cause number CS-01-091-FVS. One was RCW 66.12.120 (permitting certain persons to bring two liters of wine into the state each month tax free); another was RCW 66.12.190 (permitting a properly-licensed, out-of-state manufacturer to ship two cases of wine each year to certain persons in this state). Believing these statutes to be unconstitutional, the plaintiffs urged the Court to enjoin their enforcement. (Plaintiff's Complaint at 15-17.) As the defendants pointed out, this request seemed odd given the ostensible objective of the plaintiffs' lawsuit, viz., to obtain greater access to foreign wine. Both RCW 66.12.120 and RCW 66.12.190 create exceptions, albeit qualified exceptions, to laws that effectively restrict access to foreign wine. Enjoining the enforcement of these two statutes would not have created greater access to foreign wine. To the contrary, it would have done just the opposite. This circumstance prompted further analysis of the plaintiffs' position. A review of their pleadings and papers suggested that they were not seeking to eliminate the exceptions created by RCW 66.12.120 and RCW 66.12.190; rather, they seemed to be seeking an expansion of these exceptions. For example, both plaintiffs filed affidavits in opposition to the defendants' motion to dismiss. Their affidavits indicated, among other things, that the plaintiffs wanted to be able to "bring into Washington State more than 2 liters of wine at one time, without penalty of equivalent markup and tax, for personal consumption[.]" (Affidavit of William M. Mast at 1.) In other words, it was not RCW 66.12.120 per se to which the plaintiffs objected; instead, it was the two-liter limit to which they objected. This had potentially significant implications for purposes of the Tax Injunction Act. Not only does RCW 66.12.120 permit certain persons to bring up to 2 liters of wine into the state each month, but also they may do so "free of tax and markup" as long as the wine is for "personal or household use[.]" Eliminating the two-liter limit in RCW 66.12.120 would expand the tax exemption. Presumably, this would reduce the amount of tax revenue collected by the State of Washington under Title 66.
Although the plaintiffs were less explicit with respect to RCW 66.12.190, their pleadings and papers suggested that they had something similar in mind. Instead of attacking RCW 66.12.190 in its entirety, the plaintiffs seemed to be attacking only that clause which limited the exemption to certificate-of-approval holders who manufactured wine in states that granted a reciprocal privilege to Washington wine manufacturers. For example, in resisting the defendant's motion to dismiss their complaint, the plaintiffs asserted that "[n]o interest of the [State of Washington] is furthered by . . . protectionist statutes . . . that ban direct shipping of wine to consumers except by licensed reciprocal wine manufacturers[.]" (Plaintiff's Memorandum in Opposition at 6.) (Emphasis added.) If the plaintiffs were attacking only the reciprocal-privilege clause, their lawsuit arguably implicated the Tax Injunction Act. This is because RCW 66.12.190, like RCW 66.12.120, contains a tax exemption. Wine shipped into this state pursuant to RCW 66.12.190 is not taxed. Eliminating the reciprocal-privilege clause from RCW 66.12.190, but leaving the statute otherwise intact, would expand the tax exemption created by this statute.
Despite the defendants' allegation that the plaintiffs' lawsuit was barred by the Tax Injunction Act, the plaintiffs devoted scant attention to this issue. They did little to clarify the relief they were seeking, nor did they discuss Ninth Circuit jurisprudence concerning the Tax Injunction Act. See, e.g., Jerron West, Inc. v. California State Bd. of Equalization, 129 F.3d 1334, 1337-38 (9th Cir.), cert. denied, 525 U.S. 819, 119 S.Ct. 58, 142 L.Ed.2d 46 (1998); Blangeres v. Burlington Northern, Inc., 872 F.2d 327, 328 (9th Cir. 1989) (per curiam). Their most direct statement concerning the Tax Injunction Act was this: "[It] is not applicable here as the Washington State statute concerning the tax and mark-up of out-of-state wine is designed as a consumer penalty burdening interstate commerce, and not to effectuate a legitimate state concern." (Plaintiff's Memorandum in Opposition at 3.) This statement was not very helpful because "[t]he jurisdictional bar of [the Tax Injunction Act] is not avoided by challenging the constitutionality of the state statute that authorizes the subject assessment or collection." Capitol Industries-EMI, Inc. v. Bennett, 681 F.2d 1107, 1113 (9th Cir.), cert. denied, 459 U.S. 1087, 103 S.Ct. 570, 74 L.Ed.2d 932 (1982).
This, then, was the context in which the Court had to determine whether the Tax Injunction Act applied: The plaintiffs had elected to challenge the State of Washington's restrictions on consumer access to out-of-state wine by attacking the constitutionality of four specific statutes of the four statutes, two created limited exceptions to the state's regulatory system. Although the plaintiffs formally sought to enjoin the enforcement of these two statutes, i.e. , RCW 66.12.120 and RCW 66.12.190, this relief appeared to be inconsistent with the actual objectives of their lawsuit. Instead, their pleadings and papers seemed to indicate that they were i challenging only selected clauses in RCW 66.12.120 and RCW 66.12.190. As a practical matter, a decision to enjoin only the clauses challenged by the plaintiffs would have expanded the tax exemptions contained in RCW 66.12.120 and RCW 66.12.190. The plaintiffs did not deny that this would effectively restrain the state's ability to collect tax revenue, nor did they deny that they had "a plain, speedy and efficient remedy" in the courts of the State of Washington. Consequently, given the Ninth Circuit's interpretation of the Tax Injunction Act, the Court concluded that it did not have "authority to consider the plaintiffs' attack upon RCW 66.12.120 and RCW 66.12.190." (Order at 6.) By phrasing its conclusion in this manner, the Court stated in reasonably clear terms that its ruling was jurisdictional in nature.
RULING REGARDING RCW 66.12.210 AND RCW 66.12.220
Two other statutes figured prominently in the plaintiffs' prior lawsuit. One was RCW 66.12.210 (it is unlawful to accept wine from an out-of-state manufacturer who is not licensed under RCW 66.12.190); the other was RCW 66.12.220 (a manufacturer may not advertise the exemption created by RCW 66.12.190). The Court ruled that the plaintiffs had standing to challenge the former, but not the latter. Insofar as the latter statute was concerned, the Court did not decide whether the plaintiffs could satisfy the irreducible constitutional requirements for standing. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 2136, 119 L.Ed.2d 351 (1992). Instead, the Court ruled that the plaintiffs had not satisfied the requirements for third-party standing. See Voigt v. Savell, 70 F.3d 1552, 1562 (9th Cir. 1995). Although the rules regarding third-party standing are prudential rather than constitutional in nature, they are equally binding limitations upon the exercise of federal jurisdiction. See, e.g., Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315, 3324, 82 L.Ed.2d 556 (1984).
THE INSTANT ACTION
Having reviewed the history of cause number CS-01-091-FVS, it is appropriate to turn to the instant action. As in the prior action, the plaintiffs challenge certain aspects of the three-tier regulatory scheme described above. Their complaint divides the allegedly unconstitutional statutes into three groups: (1) statutes requiring local wine importers and foreign wine manufacturers to obtain licenses, RCW 66.24.203 and .206; (2) statutes creating limited exemptions to Washington's regulatory scheme, RCW 66.12.190, .210, and .220; and (3) statutes enforcing the regulatory scheme, RCW 66.44.090, .150, .175, and .180. Although, in some respects, the instant action is broader in scope than its predecessor, the plaintiffs' principal objective is the same. They seek to eliminate the distinctions contained in RCW 66.12.190. Under that statute, out-of-state manufacturers arguably are treated differently than out-of-state retailers, and manufacturers in "reciprocal" states arguably are treated differently than manufacturers in "non-reciprocal" states. According to the plaintiffs, these distinctions violate the dormant Commerce Clause.
A company that manufactures wine in another state may ship two cases of wine per year directly to a resident of this state without paying liquor taxes and markup on the wine. This privilege is limited to manufacturers; out-of-state retailers are not eligible. Furthermore, the privilege is limited to manufacturers that are located in states which extend a similar privilege to Washington wine manufacturers.
While the plaintiffs attack a number of statutes in the instant action, their core contention is that RCW 66.12.190 is unconstitutional. The strategic importance of RCW 66.12.190 lies in the fact that it contains the distinctions to which the plaintiffs object. They cannot challenge these distinctions without attacking RCW 66.12.190. The problem, of course, is that the Court has ruled that it is barred by the Tax Injunction Act from considering the plaintiffs' attack upon RCW 66.12.190. This ruling cannot be ignored; the plaintiffs are bound by it. See Perry v. Sheahan, 222 F.3d 309, 318 (7th Cir. 2000) ("A dismissal for lack of jurisdiction I precludes relitigation of the issue actually decided, namely the jurisdictional issue."). See also Matosantos Commercial Corp. v. Applebee's Int'l., Inc., 245 F.3d 1203, 1209-10 (10th Cir. 2001) (same). Since the plaintiffs may not attack RCW 66.12.190 in this action, and since they cannot challenge the distinctions they find objectionable without attacking RCW 66.12.190, the Court must determine whether the instant action should go forward.
ABSTENTION
Although the Court lacks jurisdiction over the plaintiffs' central allegation, there may be peripheral allegations over which the Court does have jurisdiction. The existence of jurisdiction imposes significant responsibilities. Only in exceptional circumstances may a federal court abstain from resolving claims that are within its jurisdiction. United States v. Morros, 268 F.3d 695, 703 (9th Cir. 2001). There are four forms of abstention. See id. at 703-708 (discussing Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943); R.R. Comm'n of Tex. v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941); Colorado River Water Conservation Dist. v. United states, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976); and Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971)). This case does not fit squarely within any of the four. Nevertheless, abstention is consistent with the considerations set forth in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). In that case, the Supreme Court's chief concern was the impact of piecemeal litigation upon federal and state judicial systems. See Morros, 268 F.3d at 706. By itself, however, the problem of piecemeal litigation is not enough to justify abstention. Id. In addition, there must be a clear Congressional preference for resolving the disputed claim in state court. Id. at 707 (citing Ryan v. Johnson, 115 F.3d 193, 197-98 (3d Cir. 1997)). Both of these factors are present here. The plaintiffs' pivotal claim — i.e., their attack upon RCW 66.12.190 — is governed by the Tax Injunction Act. This statute reflects a determination on the part of Congress that federal courts must yield to state courts when it comes to disputes arising from the assessment, levying, or collection of state taxes. See, e.g., Jerron West, Inc., 129 F.3d at 1337. Since the plaintiffs' attempt to challenge the constitutionality of RCW 66.12.190 in federal court is foreclosed by the Tax Injunction Act, they will have to shift to state court to pursue this claim. This creates the potential for piecemeal litigation. Not only does piecemeal jurisdiction waste scarce judicial resources, but also it creates a threat of inconsistent dispositions. See, Morros, 268 F.3d at 1336 (quoting Colorado River, 424 U.S. at 819, 96 S.Ct. at 1247).
CONCLUSION
The defendants' motion to dismiss implicates two competing interests. On the one hand, a federal court has a duty to resolve claims over which it has jurisdiction. On the other hand, the plaintiffs are bound by the jurisdictional rulings in cause number CS-01-091-FVS. Having weighed these competing interests in light of the case as a whole, the Court concludes that the balance tilts in favor of abstention. Thus, to the extent that any claim in the instant action is not foreclosed by principles of collateral estoppel, the Court declines to address it.
IT IS HEREBY ORDERED:
1. The defendants' motion to dismiss (Ct. Rec. 8) is GRANTED. The plaintiffs' claims are dismissed. This order terminates the plaintiffs' claims in federal court.
2. All other pending motions are DENIED as moot.
IT IS SO ORDERED. The District Court Executive is hereby directed to file this order; enter judgment accordingly; furnish copies to counsel; and close this case.