FRANCHISE TAX BOARD OF CALIFORNIA v. UNITED STATES POSTAL SERVICE
APPEAL FROM THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
Argued April 17, 1984
Decided June 11, 1984
After determining that four employees of appellee United States Postal Service were delinquent in their payment of state income taxes, appellant Franchise Tax Board of California served process on appellee ordering it to withhold the delinquent amounts from the employees' wages pursuant to a provision of the California Revenue and Taxation Code. When appellee refused to comply, appellant filed an action in Federal District Court, alleging that appellee was liable under the Code for failing to honor the orders. The District Court entered summary judgment for appellee, holding that 5 U.S.C. 5517, which authorized the agreement that California and the United States had made regarding the withholding of state income taxes from federal employees' pay, applied only to withholding of anticipated tax liabilities and not to delinquent liabilities. The Court of Appeals affirmed, rejecting appellant's argument that 39 U.S.C. 401(1), which provides that appellee may "sue and be sued in its official name," had waived any sovereign immunity that appellee might possess.
When administrative process of the type employed by appellant issues against appellee, it has been "sued" within the meaning of 401(1), and must respond to that process. Pp. 516-525.
STEVENS, J., delivered the opinion for a unanimous Court.
Patti S. Kitching, Deputy Attorney General of California, argued the cause for appellant. With her on the briefs were John K. Van De Kamp, Attorney General, and Edmond B. Mamer, Deputy Attorney General.
David A. Strauss argued the cause for appellee. With him on the brief were Solicitor General Lee, Acting Assistant Attorney General Willard, Deputy Solicitor General Geller, and Joan M. Bernott. *
[ Footnote * ] A brief of amici curiae urging reversal was filed for the State of Delaware et al. by Stephen H. Sachs, Attorney General of Maryland, and Diane G. Motz, Assistant Attorney General, Charles M. Oberly III, Attorney General of Delaware, and John Fidele, Deputy Attorney General, Hubert H. Humphrey III, Attorney General Minnesota, and Kent G. Harbison, Chief Deputy Attorney General, Dave Frohnmayer, Attorney General of Oregon, and William F. Gary, Deputy Attorney General, and LeRoy S. Zimmerman, Attorney General of Pennsylvania, and Jay A. Molluso, Chief Deputy Attorney General.
JUSTICE STEVENS delivered the opinion of the Court.
Appellant, the Franchise Tax Board of California, determined that four employees of appellee United States Postal Service were delinquent in the payment of their state income taxes. The Board served process on the Postal Service directing it to withhold the amounts of the delinquencies from the employees' wages, pursuant to 18817 of the California Revenue and Taxation Code, which authorizes the Board to [467 U.S. 512, 514] require any employer to withhold delinquent taxes from an employee's salary and transfer those funds to the Board. 1 The question presented is whether the Postal Service was obligated to honor these "orders to withhold."
When the Postal Service refused to comply with the four orders to withhold, the Board filed this action in the United States District Court for the Central District of California asserting that the Service was liable under the Revenue and Taxation Code for failing to honor the orders, 2 and invoking federal jurisdiction pursuant to 39 U.S.C. 409(a) and 28 U.S.C. 1339. 3 The District Court entered summary judgment for the Postal Service. It held that 5 U.S.C. 5517, which authorized the agreement that California and the United States had made regarding the withholding of state income taxes from the pay of federal employees, applies only to withholding of anticipated tax liabilities and not to [467 U.S. 512, 515] delinquent liabilities. 4 The Court of Appeals affirmed, agreeing that 5 U.S.C. 5517 excused the Service from complying with the orders. Employment Development Department v. United States Postal Service, 698 F.2d 1029 (CA9 1983). 5 The Court of Appeals rejected the Board's argument that 5517 did not prohibit issuance of the orders, and also rejected the argument that the provision in 39 U.S.C. 401(1) declaring that the Postal Service may "sue and be sued in its official name" had waived any sovereign immunity that the Service might possess. 6 This appeal followed. 7
In this Court, the Postal Service does not argue that 5 U.S.C. 5517 and the agreement pursuant thereto between the United States and California prohibit the issuance of an order to withhold against the Postal Service with respect to delinquent tax liabilities of its employees. 8 To the contrary, [467 U.S. 512, 516] the Postal Service expressly concedes that it is amenable to judicial process and could be required to honor a garnishment order requiring it to withhold the salary of a federal employee in order to satisfy a delinquent tax liability if issued by a state court. 9 Instead, the Postal Service contends that although it must obey a judicial order, it retains sovereign immunity with respect to state administrative tax levies. It argues that while the provision that the Postal Service can "sue and be sued in its official name" waives immunity from suit, it does not apply to administrative proceedings.
The Board does not dispute the proposition that, unless waived, sovereign immunity prevents the creditor of a federal [467 U.S. 512, 517] employee from collecting a debt through a judicial order requiring the United States to garnishee the employee's salary. See Buchanan v. Alexander, 4 How. 20 (1845). Rather, it places its primary reliance on 39 U.S.C. 401(1), which indicates that the Postal Service may "sue and be sued." Thus the question in this case is whether this statutory waiver of sovereign immunity extends to the Board's orders to withhold.
This Court construed a statute providing that an agency created by Congress - the Federal Housing Authority - was empowered "to sue and be sued," in FHA v. Burr, 309 U.S. 242 (1940). In Burr the question presented was whether the agency had to honor a garnishment order issued by a state court. The Court began by observing: "Since consent to `sue and be sued' has been given by Congress, the problem here merely involves a determination of whether or not garnishment comes within the scope of that authorization." Id., at 244. It continued:
Here, the Board has employed the same "well-known" remedy that was held to be within the scope of a sue-and-be-sued clause in Burr. Moreover, as was true of the agency involved in Burr, Congress has "launched [the Postal Service] into the commercial world"; hence under Burr not only must we liberally construe the sue-and-be-sued clause, but also we must presume that the Service's liability is the same as that of any other business. No showing has been made to overcome that presumption. Since an order to withhold cannot issue unless the Postal Service owes the employee wages, the Service is nothing but a stakeholder; the order to withhold has precisely the same effect on its ability to operate efficiently as it does on that of any other employer subject to the California statute. It creates no greater inconvenience than did the garnishment order that this Court held could issue against a federal agency in Burr. 14 Indeed, the Board's [467 U.S. 512, 521] order to withhold contains the same direction as did the writ of garnishment served on the FHA in Burr.
The Postal Service attempts to distinguish Burr by observing that the waiver of sovereign immunity in 401(1) is limited to cases in which it has been "sued," and then arguing that because the process that has issued here is that of an administrative agency rather than a court, the Service has not been "sued" within the meaning of 401(1). This crabbed construction of the statute overlooks our admonition that waiver of sovereign immunity is accomplished not by "a ritualistic formula"; rather intent to waive immunity and the scope of such a waiver can only be ascertained by reference to underlying congressional policy. Keifer & Keifer v. Reconstruction Finance Corp., 306 U.S. 381, 389 (1939). 15 In this [467 U.S. 512, 522] case, at the level of policy and practicality it is illogical to conclude that Congress would have differentiated between process issued by the Board and that of a court, for even if a court issued the orders to withhold, neither the Postal Service nor its employees would be in a materially different position.
The operation of California's tax collection process makes it clear that there is no meaningful difference between an order to withhold issued by the Board and a garnishment order issued by a court. Under state law an assessment that has been validly made against a taxpayer 16 operates to impose an absolute liability for the tax that may not be contested except in an action seeking refund of amounts already paid. Indeed state law is unequivocal in requiring employers to honor orders to withhold - no defense is permitted. 17 Thus, a California [467 U.S. 512, 523] tax assessment, like a federal tax assessment, operates in a way that is functionally indistinguishable from the judgment of a court of law; it creates an absolute legal obligation to make payment by a date certain:
There is thus no reason to believe that Congress intended to impose a meaningless procedural requirement that an order to withhold be issued by a court. To distinguish between administrative and judicial process would be to take an approach to sovereign immunity that this Court rejected more than 40 years ago - "to impute to Congress a desire for incoherence in a body of affiliated enactments and for drastic legal differentiation where policy justifies none." Keifer & Keifer, 306 U.S., at 394 . 21 In cases of this kind, we believe [467 U.S. 512, 525] Congress intended the Postal Service to be treated similarly to other self-sustaining commercial ventures. Accordingly, we hold that when administrative process of the type employed by the Board issues against the Postal Service, it has been "sued" within the meaning of 401(1), and must respond to that process. 22
The judgment of the Court of Appeals is reversed, and the case is remanded to that court for further proceedings consistent with this opinion.
[ Footnote 2 ] See Cal. Rev. & Tax. Code Ann. 18818 (West 1983) ("Any employer or person failing to withhold the amount due from any taxpayer and to transmit the same to the Franchise Tax Board after service of a notice pursuant to Section 18817 is liable for such amounts").
[ Footnote 3 ] Section 1339 vests in district courts jurisdiction over any action arising under an Act of Congress relating to the Postal Service. Section 409(a) provides:
[ Footnote 4 ] In the alternative, the District Court held that the state statute obligating employers to honor orders to withhold did not apply to the Postal Service.
[ Footnote 5 ] However, the Court of Appeals disagreed with the District Court's construction of the state statute, concluding that it did authorize issuance of the orders to withhold to the Postal Service.
[ Footnote 6 ] Judge Schroeder dissented, arguing that 401(1) constituted a waiver of the Postal Service's immunity from process, including the type of process embodied in the orders to withhold.
[ Footnote 7 ] While the Court of Appeals did not say in so many words that 18817 and 18818 could not constitutionally be applied to the Postal Service, it did expressly hold that the state statute required the Postal Service to honor the orders to withhold. Therefore, a necessary predicate to the Court of Appeals' holding is that enforcement of the state statute would be inconsistent with federal law and hence invalid under the Supremacy Clause of the Constitution. See California v. Grace Brethren Church, 457 U.S. 393, 405 -407 (1982); United States v. Clark, 445 U.S. 23, 26 , n. 2 (1980). Accordingly, we have jurisdiction over this appeal under 28 U.S.C. 1254(2). See City of Detroit v. Murray Corp., 355 U.S. 489 (1958).
[ Footnote 8 ] As the text of 5517 makes clear, it simply authorizes withholding agreements that otherwise the United States might be without statutory authority to enter, and limits the waiver of sovereign immunity with respect to these agreements. It does not concern the scope of the Postal Service's amenability to process under 39 U.S.C. 401(1): [467 U.S. 512, 516]
[ Footnote 9 ] See Brief for Appellee 13-15. In fact, the Postal Service's regulations provide for withholding of employees' wages when garnished by court order, United States Postal Service, Financial Management Manual 431.1(g) (1978); see 39 CFR 211.2(a)(2) (1983).
[ Footnote 10 ] Accord, Reconstruction Finance Corp. v. J. G. Menihan Corp., 312 U.S. 81, 84 -85 (1941); United States v. Shaw, 309 U.S. 495, 501 (1940). See also Petty v. Tennessee-Missouri Bridge Comm'n, 359 U.S. 275, 280 -281 (1959); Brady v. Roosevelt S. S. Co., 317 U.S. 575, 580 (1943). See generally National City Bank of New York v. Republic of China, 348 U.S. 356, 359 (1955) ("[E]ven the immunity enjoyed by the United States as territorial sovereign is a legal doctrine which has not been favored by the test of time. It has increasingly been found to be in conflict with the growing subjection of governmental action to the moral judgment"). Justice Frankfurter, writing for a unanimous Court in the Term prior to Burr, foreshadowed Burr's approach to waivers of sovereign immunity:
[ Footnote 11 ] Chapter 171 of Title 28 governs procedure under the Federal Tort Claims Act, 28 U.S.C. 2671-2680.
[ Footnote 12 ] The nearly universal conclusion of the lower federal courts has been that the Postal Reorganization Act constitutes a waiver of sovereign immunity. See Insurance Co. of North America v. United States Postal Service, 675 F.2d 756, 758 (CA5 1982); Portmann v. United States, 674 F.2d 1155, 1168 (CA7 1982); Associates Financial Services of America, Inc. v. Robinson, 582 F.2d 1 (CA5 1978) (per curiam); Beneficial Finance Co. of New York, Inc. v. Dallas, 571 F.2d 125 (CA2 1978); General Electric Credit Corp. v. Smith, 565 F.2d 291 (CA4 1977) (per curiam); Goodman's Furniture Co. v. United States Postal Service, 561 F.2d 462 (CA3 1977); May Department Stores Co. v. Williamson, 549 F.2d 1147 (CA8 1977); Standard Oil Division v. Starks, 528 F.2d 201 (CA7 1975) (per curiam); Kennedy Electric Co. v. United States Postal Service, 508 F.2d 954, 957 (CA10 1974); Butz Engineering Corp. v. United States, 204 Ct. Cl. 561, 566-567, 499 F.2d 619, 621-622 (1974); Milner v. Bolger, 546 F. Supp. 375 (ED Cal. 1982); Lutz v. United States Postal Service, 538 F. Supp. 1129, 1132 (EDNY 1982); Lincoln National Bank & Trust Co. v. Marotta, 442 F. Supp. 49 (NDNY 1977); Bank of Virginia v. Tompkins, 434 F. Supp. 787 (ED Va. 1977); United Virginia Bank/National v. Eaves, 416 F. Supp. 518 [467 U.S. 512, 520] (ED Va. 1976); Iowa-Des Moines National Bank v. United States, 414 F. Supp. 1393 (SD Iowa 1976); Colonial Bank v. Broussard, 403 F. Supp. 686 (ED La. 1975). But see Nolan v. Woodruff, 68 F. R. D. 660 (DC 1975); Drs. Macht, Podore & Associates, Inc. v. Girton, 392 F. Supp. 66 (SD Ohio 1975); Lawhorn v. Lawhorn, 351 F. Supp. 1399 (SD W. Va. 1972); Detroit Window Cleaners Local 139 Insurance Fund v. Griffin, 345 F. Supp. 1343 (ED Mich. 1972).
[ Footnote 13 ] See H. R. Rep. No. 91-1104, pp. 5, 11-12 (1970); 116 Cong. Rec. 19846 (1970) (remarks of Rep. Corbett); id., at 20226 (remarks of Rep. Udall). Perhaps the clearest practical expression of this intent was Congress' decision to create a new postal rate structure designed to make the Postal Service self-supporting. See 39 U.S.C. 3621; H. R. Rep. No. 91-1104, pp. 16-17 (1970). See also National Assn. of Greeting Card Publishers v. United States Postal Service, 462 U.S. 810, 813 -814 (1983).
[ Footnote 14 ] In Burr, the Court rejected the argument that the burden of responding to garnishment actions would interfere with its ability to perform its functions. See 309 U.S., at 249 . Moreover, the burden upon the Postal Service of responding to the Board's orders to withhold is no greater than the burden it would face if it had to comply with a similar order issued by a state court, which the Postal Service concedes would not be barred by sovereign immunity. It should be noted that the Postal Service cannot be [467 U.S. 512, 521] held liable for honoring the orders to withhold, see Cal. Tax. & Rev. Code Ann. 18819 (West 1983).
[ Footnote 15 ] Accord, Reconstruction Finance Corp. v. J. G. Menihan Corp., 312 U.S., at 84 . See also Federal Land Bank v. Priddy, 295 U.S. 229 (1935) (in order to interpret waiver of sovereign in a practical manner, sue-and-be-sued clause construed to extend to permit prejudgment attachment). In Keifer & Keifer, the Court wrote:
[ Footnote 16 ] California law requires that a taxpayer receive notice and opportunity for hearing prior to the assessment of a deficiency, both before the Board and then before the State Board of Equalization through an administrative appeal. See Cal. Rev. & Tax. Code Ann. 18581-18602 (West 1983). No question is raised as to the constitutional sufficiency of the notice and opportunity for hearing that the four Postal Service employees received. See generally Commissioner v. Shapiro, 424 U.S. 614, 629 -632, and n. 12 (1976).
[ Footnote 17 ] Cal. Rev. & Tax. Code Ann. 18819 (West 1983) ("Any employer or person required to withhold and transmit any amount pursuant to this article shall comply with the requirement without resort to any legal or equitable action in a court of law or equity"); see Kanarek v. Davidson, 85 Cal. App. 3d 341, 346, 148 Cal. Rptr. 86, 89 (1978). California courts will not entertain a suit contesting the assessment of a tax until after the taxpayer has exhausted his administrative refund remedy. See Aronoff v. Franchise Tax Board, 60 Cal. 2d 177, 180-181, 383 P.2d 409, 411 (1963). Moreover, California law prohibits the issuance of an injunction restraining the [467 U.S. 512, 523] assessment or collection of any tax, Cal. Const., Art. XIII, 32; Cal. Rev. & Tax. Code 19081 (West 1983); see California v. Grace Brethren Church, 457 U.S., at 400 -401, n. 10, 415.
[ Footnote 18 ] See G. M. Leasing Corp. v. United States, 429 U.S. 338, 352 , n. 18 (1977); Palmer v. McMahon, 133 U.S. 660, 669 (1890); Hager v. Reclamation District No. 108, 111 U.S. 701, 710 (1884). See also Randall v. Franchise Tax Board, 453 F.2d 381 (CA9 1971); Greene v. Franchise Tax Board, 27 Cal. App. 3d 38, 44, 103 Cal. Rptr. 483, 486-487 (1972).
[ Footnote 19 ] The Postal Service argues that there is a significant distinction between administrative and judicial garnishment because it can remove the latter proceeding, unlike the former, to federal court under 39 U.S.C. 409(a). However, as an initial matter it is far from clear that the Postal Service may remove a garnishment action when it is merely a stakeholder and the real party in interest is the employee. See Jones Store Co. v. Hammons, 424 F. Supp. 494 (WD Mo. 1977); Armstrong Cover Co. v. Whitfield, 418 F. Supp. 972 (ND Ga. 1976). See also Murray v. Murray, 621 F.2d 103 (CA5 1980). Even assuming that such a case is removable, the facts of this case demonstrate the fallacy in the Postal Service's argument. If the Service feels it has a meritorious defense to the order to withhold, though it is hard to see how it could, see supra, at 522-523, it remains free to refuse to honor the order to withhold and force the Board to file suit against it, as it did here, or else it can initiate its own lawsuit against the Board under 409(a).
[ Footnote 20 ] See generally California v. Grace Brethren Church, 457 U.S., at 410 -411; Fair Assessment in Real Estate Assn., Inc. v. McNary, 454 U.S. 100 (1981); Rosewell v. LaSalle National Bank, 450 U.S. 503, 522 (1981); Great Lakes Co. v. Huffman, 319 U.S. 293, 298 (1943).
[ Footnote 21 ] In Keifer & Keifer, the Court held that a Regional Agricultural Credit Corporation, a Government corporation, was not protected by sovereign immunity even though its authorizing legislation contained no sue-and-be-sued clause; since its parent corporation and a wide variety of similarly situated [467 U.S. 512, 525] entities did not have immunity, the Court concluded that Congress could not have intended a different result with respect to the regional corporation. See 306 U.S., at 392 -394. See also Federal Land Bank v. Priddy, 295 U.S., at 235 -236.
[ Footnote 22 ] The Postal Service argues that Congress must have intended the Board to employ the "piggyback" provisions for collecting delinquent state tax liabilities found in 26 U.S.C. 6361-6365, since they were passed to address this problem. However, nothing in that statute, which permits States to use the summary collection procedures of the Internal Revenue Service, limits the power of States to use any other available procedure. The Postal Service also argues that when Congress enacted 5 U.S.C. 5520 in 1974, providing for the United States to enter withholding agreements for city and county income taxes, it must have assumed that the Service retained its sovereign immunity. Section 5520 is, however, no more relevant to this case than 5517; both provide the Secretary of the Treasury with explicit authority to enter into withholding agreements which he might not otherwise be able to make; neither addresses the scope of the Service's sovereign immunity. See n. 8, supra. Moreover, the Postal Service's position that Congress intended use of only 5517, 5520, and the piggyback provisions of the Internal Revenue Code to collect state taxes is inconsistent with the Services's position that it has no immunity from a judicial garnishment order. In light of our disposition, we need not reach the Board's contention that the Buck Act, 4 U.S.C. 105-110, requires the Postal Service to honor the orders to withhold. [467 U.S. 512, 526]