City of Fishers, Indiana v. DIRECTTV
20-3478 (7th Cir. 2021) (2021)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The doctrine of comity abstention requires federal courts to decline jurisdiction over cases involving local revenue collection and taxation, even when the Tax Injunction Act does not apply, particularly when a confluence of factors indicates state courts are better positioned to resolve the dispute.
Facts:
- The Indiana Video Service Franchises Act of 2006 (the Act) regulates cable television companies, requiring anyone offering 'video service' to enter into a franchise agreement with the Indiana Utility Regulatory Commission for using public rights-of-way.
- The Act mandates video service providers to pay quarterly franchise fees to local government 'units' (counties, municipalities, townships) within their service area.
- Traditional cable and communications companies like Comcast and AT&T have historically signed these franchise agreements and paid the required fees, which generate substantial revenue for local governments.
- These franchise fees, totaling $19.4 million in 2019, are typically deposited into general operating accounts and spent on public safety, road maintenance, and infrastructure.
- Modern on-demand streaming platforms such as Netflix, Disney, Hulu, DIRECTV, and DISH Network offer 'video service' but have not applied for franchise agreements or paid the Act's fee obligations.
- The cities of Fishers, Indianapolis, Evansville, and Valparaiso believed that these streaming platforms provide 'video service' as defined by the Act and therefore should pay past and future franchise fees.
Procedural Posture:
- The cities of Fishers, Indianapolis, Evansville, and Valparaiso filed a putative class action lawsuit in Marion Superior Court (Indiana state court) against Netflix, Disney, Hulu, DIRECTV, and DISH Network.
- The defendant streaming platforms removed the case to the United States District Court for the Southern District of Indiana, Indianapolis Division, asserting jurisdiction under diversity and the Class Action Fairness Act.
- The cities filed a motion in the district court to remand the case to state court, arguing for comity abstention based on Levin v. Commerce Energy, Inc.
- The district court granted the cities' motion, relying on the Levin comity abstention doctrine, and remanded the case to Indiana state court.
- The streaming services (defendants-appellants) appealed the district court's remand order to the United States Court of Appeals for the Seventh Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the comity abstention doctrine, as reinforced by Levin v. Commerce Energy, Inc., require a federal district court to remand to state court a class action lawsuit initiated by municipalities seeking a declaration that streaming platforms owe franchise fees under a state statute?
Opinions:
Majority - Scudder, Circuit Judge
Yes, the comity abstention doctrine, as articulated in Levin v. Commerce Energy, Inc., requires a federal district court to remand to state court a class action lawsuit initiated by municipalities seeking franchise fees from streaming platforms under a state statute, as the Levin factors strongly support abstention. The court first confirmed appellate jurisdiction, citing Quackenbush v. Allstate Insurance Co. for the principle that § 1447(d) does not bar review of abstention-based remand orders. It reiterated the federal judiciary's 'virtually unflagging obligation' to exercise jurisdiction but distinguished the Tax Injunction Act (TIA), which does not apply to collection suits initiated by states, from the broader judicially created doctrine of comity abstention. Comity abstention is 'more embracive' than the TIA and counsels federal courts to resist engagement in cases challenging 'state taxation of commercial activity,' reflecting a fundamental respect for state functions. The court explicitly rejected a narrower interpretation of comity that some lower courts derived from Hibbs v. Wynn, reaffirming Levin's broad foundation that comity applies whenever federal interference with state fiscal affairs is at risk, regardless of who initiated the suit. Applying the 'confluence of factors' from Levin, the court found that: 1) the Indiana Video Service Franchises Act pertains to utility regulation and local revenue, areas where states enjoy 'wide regulatory latitude'; 2) the streaming platforms' resistance to paying fees sought to maintain a competitive advantage over traditional cable providers, akin to the plaintiff in Levin seeking to improve its competitive position; and 3) Indiana state courts are better equipped to interpret their own Video Service Franchises Act (especially as a matter of first impression) and resolve any associated federal defenses (e.g., preemption, First Amendment, Internet Tax Freedom Act) because they are more familiar with 'state legislative preferences' and their remedial options are not constrained by the TIA. Finally, the court dismissed the streaming platforms' counterarguments (regarding CAFA, the necessity of a pending state proceeding, and the nature of relief sought) primarily on grounds of waiver, as these arguments were not raised in the district court. The court concluded that the district court did not abuse its discretion in remanding the case.
Analysis:
This case significantly reinforces the expansive reach of the comity abstention doctrine, particularly in disputes impacting state and local revenue. It clarifies that Levin v. Commerce Energy, Inc. is not limited to cases where taxpayers challenge state tax schemes but extends to collection suits initiated by governmental units, emphasizing federal courts' deference to state authority in fiscal matters. The ruling underscores that abstention is appropriate when state courts are better positioned to interpret state law and adjudicate related federal defenses, thereby preventing federal interference with essential state functions. This decision will likely guide federal courts in channeling a broader range of state tax and fee disputes to state judicial systems, reinforcing principles of federalism and respect for dual sovereignty.
