No. 09-223

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RICHARD A. LEVIN, TAx COMMISSIONER OF OHIO,

Petitioner,

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COMMERCE ENERGY, INC., et al.,Respondents.

On Petition for Writ of Certiorari to the UnitedStates Court of Appeals for the Sixth Circuit

BRIEF IN OPPOSITION

September 22, 2009

STEPHEN C. FITCH

Counsel of RecordGERHARDT A. GOSNELL IICHESTER, WILLCOX ~ SAXBE, LLP

65 EAST STATE STREET, SUITE 1000

COLUMBUS, OH 43215

TELEPHONE: (614) 221-4000FACSIMILE: (614) 221-4012E-MAIL: sfitch@cwslaw.com

ggosnell@cwslaw.com

Counsel for Respondents

Becker Gallagher ¯ Cincinnati, OH ¯ Washington, D.C. ¯ 800.890.5001

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QUESTION PRESENTED

Under this Court’s decision in Hibbs v. Winn, 542U.S. 88 (2004), does either the Tax Injunction Act, 28U.S.C. § 1341, or comity principles bar federal courtjurisdiction over a case alleging federal equalprotection and dormant commerce clause claims wherethe plaintiffs do not challenge their own taxassessment and the relief sought is directed to specifictax exemptions or exclusions applicable to only fourother taxpayers.

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CORPORATE DISCLOSURE STATEMENT

Pursuant to Supreme Court Rule 29.6, Respondentsstate as follows:

Respondent Commerce Energy Inc. is a Californiacorporation and is a wholly-owned indirect subsidiaryof Just Energy Income Fund. Just Energy IncomeFund is an open-ended, limited-purpose trustestablished under the laws of Ontario, Canada. Trustunits of Just Energy Income Fund are traded on theToronto Stock Exchange. As of August 31, 2009,Acuity Investment Management Inc. ("Acuity") holdsapproximately 14.82% of the units of the Fund. Acuitypublicly reports that the units were acquired in theordinary course of business for investment purposesand not for the purpose of exercising control ordirection over the Fund. Other than Acuity, to theknowledge of the Just Energy Income Fund, nopublicly held company owns 10% or more of the trustunits in Just Energy Income Fund.

Respondent Interstate Gas Supply, Inc. is not apublicly traded company, has no parent company, andno publicly held company owns 10% or more of itsstock.

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TABLE OF CONTENTS

Page(s)

QUESTION PRESENTED ....................i

CORPORATE DISCLOSURE STATEMENT ....ii

TABLE OF CONTENTS .....................iii

TABLE OF AUTHORITIES ..................v

CONSTITUTIONAL AND STATUTORYPROVISIONS INVOLVED ................1

STATEMENT OF THE CASE ................1

SUMMARY OF ARGUMENT .................3

REASONS FOR DENYING THE WRIT ........3

Ao The District Court’s and Sixth Circuit’sDenial of Petitioner’s TIA ArgumentRequires No Review ................... 3

B. The Circuit Split Relied upon by Petitioneris One-sided, Becoming Increasingly So, andis Likely to Remedy Itself ...............4

C. The Sixth Circuit Correctly InterpretedHibbs ............................... 6

Do The Sixth Circuit’s Opinion Does Not LimitComity to the Parameters of the TIA .....7

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E. The Sixth Circuit Opinion Below may beReconciled with DIRECTV ..............7

F. The Fourth Circuit’s Opinion in DIRECTVisBased upon an Erroneous Analysis of thisCourt’s Decision in Hibbs ............... 8

G. Petitioner’s Consent to Federal CourtJurisdiction in Cuno Militates AgainstGranting a Writ ...................... 9

CONCLUSION ........................... 10

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TABLE OF AUTHORITIES

CASES

Columbia Gas Transm. Corp. v. Levin,117 Ohio St.3d 122 (2008) .................1

Commerce Energy, Inc. v. Levin,554 F.3d 1094 (6th Cir. 2009) .......4, 7, 8, 10

Coors Brewing Company v. Mendez-Torres,562 F.3d 3 (2009) ........................ 5

Cuno v. DaimlerChrysler, Inc.,154 F.Supp.2d 1196 (N.D. Ohio 2001) ......10

DaimlerChrysler v. Cuno,547 U.S. 332 (2006) ...................... 9

DIRECTV, Inc. v. Tolson,513 F.3d 119 (4th Cir. 2008) ...........passim

Fair Assessment in Real Estate Ass’n, Inc. v.McNary,454 U.S. 100 (1981) .................... 5, 6

General Motors Corp. v. Tracy,519 U.S. 278 (1997) .................... 1, 2

Hibbs v. Winn,542 U.S. 88 (2004) ................... passim

In re Gillis,836 F.2d 1001 (6th Cir. 1988) ..............7

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Levy v. Pappas,510 F.3d 755 (7th Cir. 2007) ...............5

U.S. Brewers Ass’n v. Perez,592 F.2d 1212 (lst Cir. 1979) ............5, 9

Wilbur v. Locke,423 F.3d 1101 (9th Cir. 2005) ..............5

Winn v. Killian,307 F.3d 1011 (9th Cir. 2002) ..............9

STATUTES

28 U.S.C. § 1331 ........................... 1

28 U.S.C. § 1341 .......................... i, 2

RULES

Sup. Ct. R. 29.6 ............................ ii

CONSTITUTIONAL AND STATUTORYPROVISIONS INVOLVED

28 U.S.C. § 1331 provides:

The district courts shall have original jurisdictionof all civil actions arising under the Constitution, laws,or treaties of the United States.

STATEMENT OF THE CASE

In General Motors Corp. v. Tracy, 519 U.S. 278(1997), a buyer of natural gas sought to challenge, ondormant commerce clause and equal protectiongrounds, Ohio’s exemption of local distributioncompanies ("LDCs") from sales and use taxes on salesof natural gas. This Court declined to reach thesubstance of the dormant commerce clause claim basedupon the Court’s determination that LDCs and retailgas suppliers were not "similarly situated" forpurposes of a commerce clause claim.

Since General Motors was decided, regulation ofnatural gas sales in Ohio has dramatically changed.LDCs and retail gas suppliers now compete directly invirtually all markets. Columbia Gas Transm. Corp. v.Levin, 117 Ohio St.3d 122, 136 (2008) ("... the maincompetitors of LDCs in the residential and small-business markets are not interstate pipelinecompanies. Rather, independent and LDC-affiliatedmarketers compete with LDCs for commodity sales inthis market.") Nonetheless, Ohio has maintained itsexemption from sales and use taxes for natural gaspurchases from LDCs while imposing the same taxeson purchases from retail gas suppliers. In addition, in2005, Ohio adopted a new commercial activities tax

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("CAT"), which is imposed upon retail gas suppliers,among others, but from which LDCs are specificallyexcluded.

Given these changes, and the competitive nature ofthe natural gas commodity market, Respondentssought to have the substance of the dormant commerceclause claims advanced in General Motors, as well asfederal equal protection claims, heard in the U.S.District Court for the Southern District of Ohio. Therelief sought in Respondents’ complaint was limited toa declaration that the exemptions/exclusions enjoyedby four LDCs under Ohio law violate the CommerceClause and/or the Equal Protection Clause of theUnited States Constitution, and a permanentinjunction enjoining recognition or enforcement ofthose exemptions/exclusions.

The District Court, on a motion to dismiss, heldthat its jurisdiction to hear Respondents’ claims wasnot barred by the Tax Injunction Act ("TIA"), 28 U.S.C.§ 1341, but was barred by general principles offederalism and comity. No discovery was had nor wasany factual record developed prior to or in connectionwith the motion to dismiss. Because the district courtfound dismissal appropriate on comity grounds, itdeclined to rule on Petitioner’s alternative argumentthat Respondents had failed to join indispensableparties. The Sixth Circuit affirmed with respect to theTIA but reversed the District Court’s federalism andcomity holding and remanded the case for furtherproceedings.

Petitioner filed a petition for rehearing en banc.After circulation to all active members of the Court, nojudge of the Sixth Circuit requested a vote on the en

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banc petition. The petition was subsequently deniedby the original panel.

SUMMARY OF ARGUMENT

No circuit has adopted the Petitioner’s positionwith respect to the TIA. With respect to federalismand comity, the Sixth Circuit’s opinion below is inaccord with three other circuits while the lone circuitsupporting Petitioner’s position, the Fourth Circuit,demonstrably erred in its analysis of this Court’sholding in Hibbs v. Winn, 542 U.S. 88 (2004). Inaddition, the Fourth Circuit’s judgment may bereconciled with the Sixth Circuit’s opinion below.Accordingly, Petitioner’s request for a writ of certiorarishould be denied.

REASONS FOR DENYING THE WRIT

A. The District Court’s and Sixth Circuit’sDenial of Petitioner’s TIAArgument RequiresNo Review.

Petitioner seeks review of the Sixth Circuit’saffirmation of the District Court’s decision thatRespondents’ claims are not barred by the TIA.Petitioner cites to no circuit court opinion in conflictwith the Sixth Circuit’s opinion on this issue. Nor doesPetitioner assert that the question of law at issue hasnot been settled by this Court. Rather, Petitionercontends that the District Court and the Sixth Circuiterroneously applied the rule of law set forth in Hibbsto the facts in this case. Even if true, themisapplication of a settled question of law does notpresent grounds for review by this Court.

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With respect to Petitioner’s claim that the decisionsbelow conflict with Hibbs, the District Court and theSixth Circuit correctly found that there is nomeaningful distinction between Respondents’ actionhere and the action in Hibbs. Respondents are notcontesting their own tax liability, are not trying toavoid paying their own taxes, and the relief requestedwould not disrupt the flow of tax revenue. In addition,Hibbs is not, by its terms or as applied, limited toEstablishment Clause cases as Petitioner suggests.Finally, Petitioner’s argument that the District Courtwould likely extend to Respondents the tax exemptionsat issue even though Respondents have not sought anextension is, as noted by the Sixth Circuit, "strained,to say the least." Commerce Energy, Inc. v. Levin, 554F.3d 1094, 1097 (6th Cir. 2009).

In short, Petitioner has set forth no persuasivereasons why this Court should review the lower courts’interpretation and application of Hibbs to the facts inthis case regarding the TIA.

B. The Circuit Split Relied upon by Petitioner isOne-sided, Becoming Increasingly. So, and isLikely to Remedy Itself.

The circuit split relied upon by Petitioner is due toa single circuit court decision, the Fourth Circuit’sopinion in DIRECTV, Inc. v. Tolson, 513 F.3d 119 (4thCir. 2008), which, when decided, contradicted two priorcircuit court decisions and which has since beenrejected by two other circuit courts, including the SixthCircuit below. Thus the split is the result of a singlecircuit decision that was an anomaly when decided andhas been rejected twice since being issued.

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Prior to the Sixth Circuit’s decision below, thecircuit courts were evenly split on how expansivelyfederal courts should apply this Court’s opinion in FairAssessment in Real Estate Ass’n, Inc. v. McNary, 454U.S. 100 (1981), regarding the applicability of generalcomity principles to constitutional challenges to statetax laws. As the Sixth Circuit’s opinion belowrecognized, the First Circuit (in a pre-Hibbs decision)and the Fourth Circuit (in a post-Hibbs decision) hadissued opinions broadly interpreting Fair Assessment.See U.S. Brewers Ass’n v. Perez, 592 F.2d 1212 (lst Cir.1979); DIRECTV, Inc., 513 F.3d 119. The Seventh andNinth Circuits, however, had recently held that underthis Court’s opinion in Hibbs, comity principlespreclude jurisdiction only where the plaintiff sought tocountermand state tax collection. See Levy v. Pappas,510 F.3d 755 (7th Cir. 2007); Wilbur v. Locke, 423 F.3d1101 (9th Cir. 2005). In its decision below, the SixthCircuit held that the Seventh and Ninth Circuits hadthe more persuasive view, thus creating a three to twocircuit split.

Subsequent to release of the Sixth Circuit’s opinionbelow, the circuit split has grown more one-sided.Seven weeks later, in March, 2009, the First Circuitfiled its opinion in Coors Brewing Company v. Mendez-Torres, 562 F.3d 3 (2009), in which it abrogated its1979 pre-Hibbs opinion in U.S. Brewers Ass’n. In sodoing, the First Circuit’s Coors decision relied heavilyon the Sixth Circuit’s opinion below as to the effect ofHibbs on the broad language in Fair Assessment andconcluded that comity was not a bar to a federal courtaction that did not seek to arrest state tax collection.Coors, 562 F.3d at 18.

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Since this Court’s decision in Hibbs, four circuitshave now applied Hibbs in a consistent mannerregarding comity principles while only one circuit, theFourth, has held to the contrary. The Fourth Circuit’sopinion in DIRECTV, Inc. stands as an anomalyamong otherwise uniform circuit court opinions.Contrary to Petitioner’s contention, Hibbs has notsown confusion among the lower courts that requiresresolution by this Court.

C. The Sixth Circuit Correctly InterpretedHibbs.

Petitioner argues that the federal courts shouldignore the specific language in this Court’s opinion inHibbs that it "has relied upon ’principles of comity,’...to preclude original federal-court jurisdiction onlywhen plaintiffs have sought district-court aid in orderto arrest or countermand state tax collection." Hibbsat 107, n.9. Rather, Petitioner seeks the adoption of abroad reading of Fair Assessment that wouldeffectively bar any federal court jurisdiction involvinga state tax-related matter.

The Sixth Circuit correctly determined thatadoption of Petitioner’s argument would not only becontrary to the express language in Hibbs but wouldalso render the TIA superfluous since, underPetitioner’s argument, principles of comity wouldalready bar any challenge in federal court to a statetax-related matter. The Sixth Circuit also correctlynoted that adoption of Petitioner’s argument wouldcall into question a series of important decisions wherethe federal courts had exercised jurisdiction in casesinvolving state taxation.

D. The Sixth Circuit’s Opinion Does Not LimitComity to the Parameters of the TIA.

In its opinion below, the Sixth Circuit stressed that"our holding is narrow." Commerce Energy, Inc., 554F.3d at 1102. The opinion rejects the Petitioner’sargument that comity principles "broadly bar fromfederal court nearly every state-tax challenge," butalso rejects the notion that principles of comity are co-extensive with the parameters of the TIA. Rather, theSixth Circuit held that because Respondents’ claimswere directed to a few limited exemptions that affectonly four specific entities, the relief sought would notsignificantly intrude upon traditional matters of statetaxation.

The Sixth Circuit distinguished this case from itsprevious holding in In re Gillis, 836 F.2d 1001 (6th Cir.1988), by noting that the plaintiff class in Gillisincluded every Kentucky citizen who owned taxableproperty assessed by the challenged method and thedefendant class included most Kentucky countyproperty tax administrators. As stated by the SixthCircuit, "In Gillis, the plaintiffs went too far; here,they have not." Commerce Energy, Inc., 554 F.3d at1100.

E. The Sixth Circuit Opinion Below may beReconciled with DIRECTV.

Contrary to the relief requested by Respondentsbelow, the relief in DIRECTV did not simply involvethe elimination of certain tax exemptions to third-parties. Rather, the plaintiffs sought relief that"would have the effect of restoring the system of localfranchise taxation coupled with state-level tax credits

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to cable providers" that existed prior to legislativeamendments. DIRECTV, 513 F.3d at 124. The FourthCircuit described the requested relief as "a federalcourt-ordered redistribution of intra-state taxationauthority." Id. at 127. Thus, while the opinion inDIRECTV stands alone as to the effect of Hibbs oncomity analysis, the relief requested in that casemakes it akin to the Sixth Circuit’s decision in In reGillis. Thus the judgment in DIRECTV may bereconciled with the Sixth Circuit’s decision below.

F. The Fourth Circuit’s Opinion in DIRECTV isBased upon an Erroneous Analysis of thisCourt’s Decision in Hibbs.

In DIRECTV, the Fourth Circuit based its decisionregarding comity on the proposition that the questionof comity "was simply not before the Supreme Court inHibbs." Id. at 127-128. That proposition was in error.As the Sixth Circuit noted in its opinion below:

In Hibbs, the Supreme Court affirmed in toto aNinth Circuit decision that-along with holdingthat the Act did not bar plaintiffs’ claims-hadspecifically addressed and rejected comity asgrounds for dismissal . Yet, though theSupreme Court did not extensively analyzecomity, it both affirmed the Ninth Circuit in fulland stated that its opinion doing so was notinconsistent with comity principles.

Commerce Energy, Inc., 554 F.3d at 1099 (citationsomitted).

The reference in Hibbs" footnote 9 to "Brief forPetitioner 26" refers directly to the alternative

argument advanced by Arizona’s Director of Revenuethat "even if the Tax Injunction Act did not precludeRespondents’ federal court action, the principles ofcomity would." Hibbs v. Winn, Petr.’s Br., 2003 WL22766739, *26. Further, the underlying opinion of theNinth Circuit in Hibbs affirmed by this Court dealtextensively with the Director’s alternative comityargument. Winn v. Killian, 307 F.3d 1011, 1018 (9thCir. 2002).

Thus, the Fourth Circuit’s opinion in DIRECTV,which Petitioner relies upon so heavily as a reason forgranting a writ as well as the .merits of his argument,was based upon a clearly erroneous reading of thisCourt’s opinion in Hibbs as well as a First Circuitopinion (U.S. Brewers Ass’n) that has now beenabrogated. The other circuits have recognized theinfirmities in the Fourth Circuit’s 6pinion in DIRECTVand do not need further guidance from this Court. Infact, the Fourth Circuit’s comity analysis contained inDIRECTV has yet to be followed by any other court.

G. Petitioner’s ConsentJurisdiction in CunoGranting a Writ.

to Federal CourtMilitates Against

Petitioner’s assertion that review by this Court isnecessary in this case in order to "restore the properfederalism balance in judicial scrutiny of state taxsystems" (Pet. at 3) is undermined by Petitioner’sprevious consent to federal court jurisdiction to resolvesimilar state tax-related claims in DaimlerChrysler v.Cuno, 547 U.S. 332 (2006).

In Cuno, plaintiff taxpayers filed an action in statecourt challenging certain state tax credits and local

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property tax abatements as being, inter alia, inviolation of the federal dormant commerce clause.Cuno v. DaimlerChrysler, Inc., 154 F.Supp.2d 1196(N.D. Ohio 2001). The defendants, including the OhioTax Commissioner, removed the action to the U.S.District Court for the Northern District of Ohio. Id.The Commissioner subsequently opposed remand tothe state courts (2000 WL 34611832), the DistrictCourt denied remand, and the action proceededthrough the Sixth Circuit and to this Court.

The significance of Cuno here is that itdemonstrates the situational nature of Petitioner’sfederalism and comity concerns. Where Petitionerbelieves a federal forum may be better suited for itsposition regarding state tax issues, he consents toremoval and opposes remand as in Cuno. WherePetitioner believes the converse is true, he urges thisCourt to impose a sweeping bar to federal courtjurisdiction. As the Sixth Circuit noted below in adifferent context, "the Commissioner’s argument is’heads I win, tails you lose.’" Commerce Energy, Inc.,554 Fo3d at 1101. Thus, based upon Petitioner’s priorconduct regarding federal court jurisdiction overanalogous state-tax related claims, this Court shouldreject Petitioner’s professed federalism concerns anddeny the writ.

CONCLUSION

For the reasons set forth above, Respondents askthat the petition for a writ of certiorari be denied.

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Respectfully submitted,

Stephen C. FitchGerhardt A. Gosnell IIChester, Willcox & Saxbe, LLP65 East State Street, Suite 1000Columbus, Ohio 43215Telephone: (614) 221-4000Facsimile: (614) 221-4012E-Mail: sfitch@cwslaw.com

ggosnell@cwslaw.com

Counsel for Respondents

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