By Sophia Blair

On January 24, 2017, the Fourth Circuit published Gwozdz v. Healthport Tech., LLC, a civil case. Lawrence Gwozdz (“Gwozdz”) requested his wife’s medical records from several Maryland Hospitals. Before releasing those documents to him, the hospitals, through their contractor Healthport Technologies, LLC (“Healthport”), sent him invoices demanding $23 in sales tax. Though he reluctantly payed those taxes, he initially protested on the basis that medical records were exempt from Maryland sales tax.

After Gwozdz filed in state court, Healthport removed to federal court and made a motion to dismiss. The district court granted Healthport’s motion and Gwozdz appealed to the Fourth Circuit. The Fourth Circuit remanded for lack of jurisdiction under the Tax Injunction Act.

Removal to Federal Court

Gwozdz filed a class action suit in Maryland state court seeking both damages and injunctive relief. Instead of requesting that Healthport refund the $23, Gwozdz asserted statutory consumer protection claims as well as common law claims including fraud, negligent misrepresentation, and unjust enrichment. Healthport removed to federal court pursuant to the Class Action Fairness Act, and moved to dismiss under Fed. R. Civ. P. 12(b)(6). Healthport argued that Maryland had an exclusive administrative procedure for handling tax disputes. Gwozdz responded that the administrative remedy did not apply because his claim concerned an unlawful billing practice, not an improper tax.

The district court dismissed the complaint, siding with Healthport. The court held that the only remedy that Gwozdz had available to him was to seek a refund from the Comptroller pursuant to the procedures established under Maryland law.

Maryland’s Administrative Refund Procedure

Maryland’s administrative refund procedure provides a remedial scheme for the refund of erroneously paid taxes. See Md. Code Ann., Tax-Gen. § 13-901(a)(2). It requires that the tax payer file a claim with the Comptroller for a refund. They may request an informal hearing and may appeal the Comptroller’s determination to the Maryland Tax Court, and then to the Maryland circuit court. It applies to all types of taxes and fees and Maryland courts have consistently held that it is a taxpayer’s only route for relief. Apstol v. Anne Arundel Cty., 421 A.2d 582, 585 (Md. 1980).

Gwozdz countered the application of the Maryland statute by arguing that he was “not a taxpayer disputing an improper tax, but a consumer challenging an unlawful billing practice.” Specifically, he argued that Healthport was the taxpayer under the statute, and he was merely the buyer. Gwozdz also contended that Maryland’s refund scheme did not preclude common law or statutory causes of action external to the code, including his fraud and consumer protection claims.

The Fourth Circuit rejected his counter because his artful pleading did not remove his claim from Maryland’s reach. Despite Gwozdz’s attempted characterization, the Fourth Circuit rejected that his claims were anything but a tax case. The court said it was clear that Gwozdz was plainly seeking relief from paying a tax he believed improper.

Tax Injunction Act

The Tax Injunction Act (“TIA”) removes federal jurisdiction over actions that “enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” 28 U.S.C. § 1341. Though it does not bar constitutional claims, the TIA was designed to to restrict federal judicial interference over state tax claims.

Therefore, because Gwozdz’s allegation was founded on the argument that the tax was improperly collected, the TIA bars injunctive relief in federal court. The TIA does not distinguish between claims for injunctive relief and damages because damages have the same potential to disrupt a state’s tax system. Though the Supreme Court has never decided this issue with respect to damages, the Ninth Circuit recently held that claims for damages were also barred by the TIA. Fredrickson v. Starbucks Corp., 840 F.3d 1119, 1124 (9th Cir. 2016).

Disposition

The Fourth Circuit vacated the District Court’s judgment because the TIA withholds federal jurisdiction over state tax claims, and remanded the case with instructions to remand back to Maryland.

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