IN THE SUPREME COURT OF THE STATE OF OREGON

HANNAH FREDRICKSON, ASHLEY KRENING, and MAURIALEE BRACKE,

Plaintiffs-Adverse Parties,

v.

STARBUCKS CORPORATION,

Defendant-Relator.

Multnomah County Circuit Court Case No. 121215734

SC No. S065165

MANDAMUS PROCEEDING

__________________________________________________

OPENING BRIEF FOR DEFENDANT-RELATOR STARBUCKS CORPORATION

AND OPENING EXCERPT OF RECORD

On Petition for Mandamus to the Multnomah County Circuit Court Honorable Henry C. Breithaupt, Judge

Circuit Court Order Entered on July 7, 2017 Peremptory and Alternative Writ of Mandamus Issued on October 5, 2017

DAVIS WRIGHT TREMAINE LLP Christopher F. McCracken, OSB # 894002 chrismccracken@dwt.com 1300 SW Fifth Avenue, Suite 2400 Portland, OR 97201-5610 Telephone: (503) 241-2300

AKIN GUMP STRAUSS HAUER & FELD LLP Daniel L. Nash, admitted pro hac vice dnash@akingump.com Pratik A. Shah, admitted pro hac vicepshah@akingump.com James E. Tysse, admitted pro hac vicejtysse@akingump.com 1333 New Hampshire Avenue, N.W. Washington, DC 20036-1564

Gregory W. Knopp, admitted pro hac vicegknopp@akingump.com 1999 Avenue of the Stars, Suite 600 Los Angeles, CA 90067-6022

Of Attorneys for Defendant-Relator

EGAN LEGAL TEAM Jon M. Egan, OSB #002467 jegan@eganlegalteam.com 547 Fifth Street Lake Oswego, OR 97034-3009 Telephone: (503) 697-3427

Of Attorney for Plaintiffs-Adverse Parties

November 30, 2017

November 30, 2017 03:35 PM

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TABLE OF CONTENTS

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

A. Nature of the Action and Relief Sought ................................................. 1

B. Nature of the Judgment Being Reviewed ............................................... 2

C. Basis for Mandamus Jurisdiction ........................................................... 2

D. Timeliness of Petition ............................................................................. 2

E. Question Presented ................................................................................. 2

F. Summary of Argument ........................................................................... 3

G. Summary of Facts ................................................................................... 5

ASSIGNMENT OF ERROR ..............................................................................11

The trial court erred in refusing to dismiss Plaintiffs’ suit against Starbucks on jurisdictional and immunity grounds. .................................. 11

A. Preservation of Error ............................................................................ 11

B. Standard of Review .............................................................................. 12

ARGUMENT ......................................................................................................12

I. THE TRIAL COURT LACKED JURISDICTION OVER PLAINTIFFS’ CLAIMS UNDER THE ANTI-INJUNCTION ACT AND STATE LAW. .................................................................................. 12

A. The Ninth Circuit’s Jurisdictional Holding Precluded Relitigation Of The Anti-Injunction Act’s Applicability. ........................................ 13

B. The Anti-Injunction Act Prevents Plaintiffs From Maintaining Claims Challenging Federal Tax Collection In Any Court. ................. 20

1. Federal Tax Withholding Is Exclusively Regulated By A Specialized Federal Remedial Scheme. ......................................... 20

2. The Anti-Injunction Act Withdraws Jurisdiction Over Plaintiffs’ Claims To Restrain Collection Of Federal Taxes. ........ 24

3. The Trial Court Erred In Asserting Jurisdiction In Spite Of The Anti-Injunction Act. ................................................................. 29

C. State Law Comity And Federal Supremacy Principles Bar Claims That Would Restrain Federal Tax Collection. ...................................... 33

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D. Because Plaintiffs’ Five Claims Are Not Severable Into Federal-Tax And State-Tax Components, The Trial Court Lacked Power To Adjudicate Them Entirely. .............................................................. 35

II. STARBUCKS IS STATUTORILY IMMUNE FROM PLAINTIFFS’ CLAIMS ............................................................................ 36

A. Federal Law Immunizes Starbucks From Plaintiffs’ Tax-Withholding Claims. ............................................................................. 37

B. State Law Immunizes Starbucks From Plaintiffs’ Tax-Withholding Claims. ............................................................................. 41

CONCLUSION ...................................................................................................45

OPENING EXCERPT OF RECORD

STATUTORY APPENDIX

26 U.S.C. § 3102 ....................................................................................... 1a

26 U.S.C. § 3121 ....................................................................................... 3a

26 U.S.C. § 3401 ....................................................................................... 4a

26 U.S.C. § 3402 ....................................................................................... 5a

26 U.S.C. § 3403 ....................................................................................... 7a

26 U.S.C. § 7421 ....................................................................................... 8a

26 U.S.C. § 7422...................................................................................... 9a

ORS 316.197 ........................................................................................... 14a

ORS 652.610 ........................................................................................... 15a

iii

TABLE OF AUTHORITIES

CASES:

Baldwin v. Iowa State Traveling Men’s Ass’n, 283 US 522, 51 S Ct 517, 75 LEd 1244 (1931) ............................................ 17

Begier v. I.R.S., 496 US 53, 110 S Ct 2258, 110 LEd2d 46 (1990) ........................................ 20

Berera v. Mesa Med. Grp., 779 F3d 352 (6th Cir 2015) ..................................................................... 23, 31

Bey v. United Parcel Serv., Inc., No. 11-CV-2993 (SJF) (ETB), 2012 WL 4328379 (EDNY Sept 20, 2012) ........................................................................................................ 42

Bob Jones Univ. v. Simon, 416 US 725, 94 S Ct 2038, 40 LEd2d 496 (1974) ........................................ 24

Brennan v. Sw. Airlines, Co., 134 F3d 1405 (9th Cir 1998) ....................................................... 21, 23, 32, 33

Brewer v. Dep’t of Fish & Wildlife, 167 Or App 173, 2 P3d 418 (2000) ............................................................... 12

Bright v. Bechtel Petroleum, Inc., 780 F2d 766 (9th Cir 1986) ....................................................................passim

Burda v. M. Ecker Co., 2 F3d 769 (7th Cir 1993) ......................................................................... 31, 39

Confederated Tribes & Bands of Yakama Indian Nation v. Alcohol & Tobacco Tax & Trade Bureau, 843 F3d 810 (9th Cir 2016) ........................................................................... 30

Crim v. Tad Tech. Servs. Corp., 978 F2d 1267 (10th Cir 1992) ....................................................................... 28

Davis v. Rosenblatt, 208 AD2d 297 (NY App Div 1995) .............................................................. 42

Direct Mktg. Ass’n v. Brohl, 135 S Ct 1124, 191 LEd2d 97 (2015) ............................................................ 26

iv

Durham v. City of Portland, 181 Or App 409, 45 P3d 998 (2002) ............................................................. 17

Edgar v. Inland Steel Co., 744 F2d 1276 (7th Cir 1984) ................................................................... 38, 41

Engweiler v. Persson, 354 Or 549, 316 P3d 264 (2013) ................................................................... 19

Enochs v. Williams Packing & Navigation Co., 370 US 1, 82 S Ct 1125, 8 LEd2d 292 (1962) ........................................ 24, 33

Fair Assessment in Real Estate Ass’n, Inc. v. McNary, 454 US 100, 102 S Ct 177, 70 LEd2d 271 (1981) ........................................ 26

Fernleaf v. Publishers Paper Co., 61 Or App 439, 657 P2d 723 (1983) ......................................................... 3, 34

Fredrickson v. Starbucks Corp., 980 F Supp 2d 1227 (D Or 2013) ...........................................................passim840 F3d 1119 (9th Cir 2016) ..................................................................passim

Giles v. Volvo Trucks N. Am., 551 F Supp 2d 359 (MD Pa 2008) ................................................................. 38

Green Sol. Retail, Inc. v. United States, 855 F3d 1111 (10th Cir 2017) ....................................................................... 29

In re J.J. Re-Bar Corp., 644 F3d 952 (9th Cir 2011) ........................................................................... 29

In re Norman’s Estate, 161 Or 450, 88 P2d 977 (1939) ..................................................................... 15

Int’l Lotto Fund v. Va. State Lottery, 20 F3d 589 (4th Cir 1994) ............................................................................. 25

Judicial Watch, Inc. v. Rossotti, 317 F3d 401 (4th Cir 2003) ........................................................................... 30

Karas v. Katten Muchin Rosenman LLP, No. 07-1545-CV, 2009 WL 38898 (2d Cir Jan 8, 2009)............................... 31

Kaucky v. Sw. Airlines Co., 109 F3d 349 (7th Cir 1997) ..................................................................... 21, 23

v

Kennedy v. Wheeler, 356 Or 518, 341 P3d 728 (2014) ............................................................. 14, 15

Koch v. S. Pac. Transp. Co., 274 Or 499, 547 P2d 589 (1976) ....................................................... 14, 16, 19

Kosak v. United States, 465 US 848, 104 S Ct 1519, 79 LEd2d 860 (1984) ...................................... 44

Longo v. Premo, 355 Or 525, 326 P3d 1152 (2014) ................................................................. 12

Lonsdale v. Smelser, 553 F Supp 259 (ND Tex 1982) .................................................................... 41

Magee v. Boeing-Irving Co., No. CIV.A. 3:03-CV- 1265, 2004 WL 1515820 (ND Tex July 2, 2004) .......................................................................................................... 40

Malan v. Dalmer, 722 NE2d 1274 (Ind Ct App 2000) ......................................................... 24, 37

Merten v. Portland Gen. Elec. Co., 234 Or App 407, 228 P3d 623 (2010) ........................................................... 12 348 Or 669, 237 P3d 824 (2010) ................................................................... 12

Mid–Valley Res., Inc. v. Foxglove Props., LLP, 280 Or App 784, 381 P3d 910 (2016) ........................................................... 27

Mitchell v. Forsyth, 472 US 511, 105 S Ct 2806, 86 LEd2d 411 (1985) ...................................... 44

N.Y. & Presbyterian Hosp. v. United States, 128 Fed Cl 363 (2016) ............................................................................. 38, 40

Prof’l Eng’rs, Inc. v. United States, 527 F2d 597 (4th Cir 1975) ........................................................................... 28

Ruhrgas AG v. Marathon Oil Co., 526 US 574, 119 S Ct 1563, 143 LEd2d 760 (1999) .................................... 17

RYO Mach., LLC v. U.S. Dep’t of Treasury, 696 F3d 467 (6th Cir 2012) ............................................................... 30, 32, 33

vi

Schagunn v. Gilland, No. 3:13-CV-00359-HZ, 2013 WL 1914399 (D Or May 7, 2013) .............................................................................................................. 40 617 F App’x 814 (9th Cir 2015) .................................................................... 40

Schlesinger v. City of Portland, 200 Or App 593, 116 P3d 239 (2005) ........................................................... 43

Sierra v. United States, No. 97 CIV. 9329 (RWS), 1998 WL 599715 (SDNY Sept 10, 1998) .............................................................................................................. 42

Sigmon v. Sw. Airlines Co., 110 F3d 1200 (5th Cir 1997) ................................................................... 23, 32

South Carolina v. Regan, 465 US 367, 104 S Ct 1107, 79 LEd2d 372 (1984) ...................................... 30

State v. Peekema, 328 Or 342, 976 P2d 1128 (1999) ................................................................... 2

Steel Co. v. Citizens for a Better Env’t, 523 US 83, 118 S Ct 1003, 140 LEd2d 210 (1998) ...................................... 18

Sullivan v. Saenger, 152 Or App 46, 952 P2d 95 (1998) ............................................................... 15

Umland v. PLANCO Fin. Servs., Inc., 542 F3d 59 (3d Cir 2008) .............................................................................. 23

United States v. Am. Friends Serv. Comm., 419 US 7, 95 S Ct 13, 42 LEd2d 7 (1974) .............................................. 25, 31

United States v. Clintwood Elkhorn Mining Co., 553 US 1, 128 S Ct 1511, 170 LEd2d 392 (2008) .................................. 23, 33

United States v. Dalm, 494 US 596, 110 S Ct 1361, 108 LEd2d 548 (1990) .................................... 22

CONSTITUTION AND STATUTES:

US CONST, art VI, cl 2 .......................................................................................... 3

OR CONST, art VII (amended), § 2 ........................................................................ 2

vii

26 USC § 3102(a) .................................................................................................. 20, 21 § 3102(b) .................................................................................................. 22, 37 § 3102(f) ........................................................................................................ 21 § 3121(q) ........................................................................................................ 21 § 3401(f) ........................................................................................................ 21 § 3402 ............................................................................................................ 33 § 3402(a) .................................................................................................. 20, 21 § 3402(d) ........................................................................................................ 21 § 3403 .....................................................................................................passim§ 6053(a) ........................................................................................................ 21 § 6205 ............................................................................................................ 21 § 6402 ............................................................................................................ 22 § 6511 ............................................................................................................ 22 § 7421 .............................................................................................................. 3 § 7421(a) .................................................................................................passim§ 7422 ............................................................................................................ 21 § 7422(a) .............................................................................................. 6, 23, 32 § 7422(f)(1) .................................................................................................... 22 § 7811(a) ........................................................................................................ 23

28 USC § 1291 ............................................................................................................ 18 § 1341 ........................................................................................................ 7, 26

NY Tax Law § 675 ............................................................................................. 42

ORS 19.225 ............................................................................................................ 10 34.100 .............................................................................................................. 2 34.120(2) .......................................................................................................... 2 43.130(2) ............................................................................................ 17, 18, 19 316.032(2) ...................................................................................................... 22 316.197(1) ...................................................................................................... 41 316.197(2) ...............................................................................................passim652.610 .......................................................................................................... 10

REGULATIONS

26 CFR § 31.3402(h)(1)-1(b) ...................................................................................... 21 § 31.6205-1 .................................................................................................... 21 § 301.6402-1 .................................................................................................. 22

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OTHER AUTHORITIES:

Employer’s Tax Guide, IRS Publ 15 (2016) ...................................................... 21

Hawley, Erin Morrow, The Equitable Anti-Injunction Act, 90 NOTRE DAME L REV 81 (2014) ...................................................................... 29

ORAP 11.05 .......................................................................................................... 2

ORCP 21 A ......................................................................................................... 11

Rev Rul 86-10, 1986-1 CB 358 (1986) .............................................................. 21

WRIGHT, CHARLES ALAN & ARTHUR R. MILLER, FEDERAL

PRACTICE & PROCEDURE JURISDICTION § 4478.4 (2d ed 2017) ......... 15, 20, 30

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STATEMENT OF THE CASE

A. Nature of the Action and Relief Sought

This mandamus proceeding arises out of a putative class action, in which

Plaintiffs-Adverse Parties Hannah Fredrickson and Maurialee Bracke assert five

wage claims that attack the manner in which Defendant-Relator Starbucks

Corporation withholds federal taxes from its employees’ wages.1 Upon remand

from the federal court to which the action was initially removed, Starbucks

moved to dismiss on various grounds, including that the Multnomah County

Circuit Court lacked jurisdiction over Plaintiffs’ claims challenging federal tax

withholding and that Starbucks was also immune from such claims. The trial

court denied the motion.

Starbucks petitioned this Court for a peremptory or alternative writ of

mandamus commanding the trial court to vacate its July 7, 2017 order and to

enter an order dismissing this case with prejudice on jurisdictional and

immunity grounds, or to show cause why it should not vacate and dismiss. This

Court allowed the petition and issued an alternative writ of mandamus to the

trial court directing vacatur and dismissal, or a showing of cause. The trial

court took no action in response to the writ during the specified 14-day period.

Starbucks now asks this Court to issue a peremptory writ of mandamus

commanding the trial court to vacate the July 7, 2017 order and to enter an

1 On September 29, 2017, the trial court granted Plaintiffs’ unopposed motion to remove a third plaintiff, Ashley Krening, from the case caption as a class representative.

2

order dismissing the case with prejudice on jurisdictional and immunity

grounds.

B. Nature of the Judgment Being Reviewed

The order on review is the trial court’s July 7, 2017 order, which (in

relevant part) denies Starbucks motion to dismiss this case on jurisdictional and

immunity grounds. OER-59-104.2

C. Basis for Mandamus Jurisdiction

This Court has original jurisdiction of this mandamus proceeding under

Article VII (Amended), section 2, of the Oregon Constitution and ORS

34.120(2).

D. Timeliness of Petition

Starbucks timely filed its mandamus petition on August 1, 2017, fewer

than 30 days after the trial court issued the challenged order on July 7, 2017.

See State v. Peekema, 328 Or 342, 346, 976 P2d 1128 (1999); ORS 34.100;

ORAP 11.05 n4.

E. Question Presented

Whether Plaintiffs’ five claims challenging the withholding of federal

and state taxes by their employer are barred by federal and Oregon law, and

therefore must be dismissed on jurisdictional and immunity grounds.

2 References to “OER-_” refer to the Opening Excerpt of Record attached to this brief. Starbucks uses “OER” to distinguish this excerpt from the original “ER” Starbucks filed with its mandamus petition. This OER combines in one place all materials from the original excerpt of record, the trial court’s order and opinion, and a few supplemental items.

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F. Summary of Argument

Plaintiffs’ five wage claims indisputably challenge the manner in which

Starbucks collects federal and state taxes from its employees’ wages: They are

expressly “base[d]” on the allegedly “wrongful deduction” of federal income,

FICA, and state income taxes by Starbucks. OER-3 ¶ 4. All five claims are

therefore foreclosed by both federal and Oregon law. The U.S. Court of

Appeals for the Ninth Circuit held at an earlier stage of this case that the Anti-

Injunction Act, 26 USC § 7421, withdraws jurisdiction over the declaratory

relief Plaintiffs seek because it would restrain federal tax collection, and that

Plaintiffs’ demand for statutory damages would have the “same disruptive

effect” as a declaration of liability. See Fredrickson v. Starbucks Corp., 840

F3d 1119, 1124 (9th Cir 2016) (“Fredrickson II”). In addition, Oregon courts

recognize that the Supremacy Clause, US Constitution, Article VI, clause 2,

imposes an even broader prohibition on state court remedies that “interfere with

the performance of a duty imposed by federal law, such as the withholding of

federal income taxes.” Fernleaf v. Publishers Paper Co., 61 Or App 439, 441,

657 P2d 723, 724 (1983).

Nevertheless, the trial court explicitly rejected the Ninth Circuit’s

interpretations of federal law as non-preclusive (and unpersuasive) “dicta,” and

determined that the Oregon Court of Appeals’ Fernleaf decision “decided

nothing” of relevance to this case. That was error. The trial court was bound

4

by the Ninth Circuit’s jurisdictional determination, which the parties agree is at

a minimum “law of the case” in that regard. Even if that were not true, the trial

court erred in reaching a contrary conclusion by relying on an inapposite and

narrow exception to the Anti-Injunction Act that Plaintiffs never even invoked.

And because both sides agree that Plaintiffs’ five claims cannot be separated

into federal-tax and state-tax components, the trial court should have dismissed

all five claims in their entirety for lack of jurisdiction.

Beyond that jurisdictional error, federal and state law grant immunity to

private tax collection agents, like Starbucks and other employers, who withhold

taxes on behalf of the federal and state governments. At an earlier stage of this

case, the U.S. District Court for the District of Oregon held Starbucks immune

from Plaintiffs’ claims under both federal and Oregon law. See Fredrickson v.

Starbucks Corp., 980 F Supp 2d 1227 (D Or 2013) (“Fredrickson I”). Once

again, however, the trial court rejected the federal court’s interpretation of

federal law as “simply mistaken.” That too was error. Both the federal and

Oregon governments immunize employers, as private tax-collection agents,

from lawsuits like these. The Internal Revenue Code’s “exclusive” remedial

scheme, rather than private-party litigation, is the proper mechanism for

adjudicating the lawfulness of Starbucks tax-withholding policy.

In sum, because Oregon courts lack jurisdiction over Plaintiffs’ claims,

and because Starbucks is immune from Plaintiffs’ suit under federal and state

5

law in any event, this Court should issue a peremptory writ that requires prompt

dismissal of claims that both Congress and the Oregon legislature have walled

off from private litigation.

G. Summary of Facts

1. In 2012, three former Starbucks employees, on behalf of a putative

class of over 6,000 baristas, brought five state-law claims seeking both

equitable relief as well as statutory damages and penalties for alleged wrongful

deductions, minimum wage violations, and unpaid overtime, regular wages, and

final wages on termination. Plaintiffs’ theory is that Starbucks “wrongfully

deducted” federal and state taxes from Plaintiffs’ wages in violation of the

Internal Revenue Code and Oregon law based on its practice of estimating that

employees make at least $.50 per hour in tips.

Although the merits of Starbucks tax-withholding practices are beyond

the scope of this appeal, Starbucks in fact fully complies with federal and

Oregon law. The IRS requires employees to report their tip income to their

employers, and also requires employers to collect income tax and FICA tax on

their employees’ tip income, including “on an estimated basis.” Contrary to

Plaintiffs’ allegations, Starbucks specifically instructs its employees to report

all tip amounts received beyond the $.50 estimate, and withholds taxes only on

the resulting amount. (Plaintiffs admit that they “never reported” any tips to

Starbucks. OER-4 ¶ 7.) Oregon law also treats tips as “wages,” and generally

6

provides that Oregon withholding law is meant to be read in harmony with

federal law.

2. In early 2013, Starbucks removed the case to the U.S. District Court

for the District of Oregon. Starbucks then moved to dismiss the Complaint,

while Plaintiffs moved to remand the case to state court, arguing that the federal

court lacked jurisdiction. Plaintiffs did not seek to amend their Complaint,

either before or after Starbucks filed its motion to dismiss.

After full briefing and oral argument, the magistrate judge’s issuance of

proposed findings of fact and recommendations, and the parties’ filing of timely

objections and responses, the U.S. District Court denied the motion to remand

and granted the motion to dismiss. See Fredrickson I, 980 F Supp 2d at 1245.

The district court adopted in full the magistrate judge’s findings and

recommendation that “the plaintiffs’ claims are precluded by both federal and

state law.” Id. at 1250; see id. at 1233. By “attempting to hold Starbucks liable

under state law for ‘wrongfully’ collecting taxes on imputed tips,” Plaintiffs

were actually pursuing “a claim that falls squarely within the definition of a ‘tax

refund suit’” preempted by 26 USC § 7422(a). Id. at 1243; see id. at 1241-43.

With regard to whether Starbucks was immune, the fact that Plaintiffs brought

these tax-withholding claims against a private employer rather than the federal

government made this “exactly the type of suit that is barred by 26 USC

§ 3403.” Id. at 1241; see id. at 1240-41. And the Oregon immunity statute

7

similarly precluded Plaintiffs’ claims to the extent they allege “that Starbucks

wrongfully withheld Oregon income taxes on tip income.” Id. at 1245 & n4

(citing ORS 316.197(2)).

On the merits, the district court noted that Plaintiffs were attempting to

“challeng[e] Starbucks’s actions in withholding taxes from their wages in a

manner specifically authorized by federal regulations.” Id. at 1240. Citing

Oregon authority, the court also rejected Plaintiffs’ argument that their “state tip

income does not constitute ‘wages’ under Oregon law.” Id. at 1245 n4.

3. Plaintiffs appealed. The Ninth Circuit, addressing only the

jurisdictional question presented by the motion to remand, held that the federal

court lacked jurisdiction under two federal statutes: (1) the Tax Injunction Act,

28 USC § 1341, which provides that federal courts “shall not enjoin, suspend or

restrain the assessment, levy or collection of any tax under State law”; and (2)

the Anti-Injunction Act, “the counterpart to the Tax Injunction Act applicable to

federal taxes” that prohibits either federal or state courts from “restraining the

assessment or collection of any [federal] tax.” Fredrickson II, 840 F3d at 1124

(citation and internal quotation marks omitted).

As relevant here, the Ninth Circuit held, with regard to declaratory and

injunctive relief, that “the Supreme Court has squarely held that the Anti-

Injunction Act bars actions against an employer’s withholding of federal taxes

from wages,” including for the equitable relief Plaintiffs sought. Fredrickson

8

II, 840 F3d at 1124. Turning to plaintiffs’ damages claims, the Ninth Circuit

held that the district court lacked jurisdiction under principles of federal-state

comity, as “[a]ny award of statutory damages here would have the same

disruptive effect as entry of a declaratory judgment or issuance of an

injunction.” Fredrickson II, 840 F.3d at 1124. That is because “[t]he

impermissible end result” of awarding such relief would also be “to stop the

flow of tax revenue into Oregon’s coffers.” Id. And because the parties agreed

that “plaintiffs’ claims for damages cannot be severed into separate state-tax

and federal-tax components,” the Ninth Circuit had no reason to decide

“whether the jurisdictional bar imposed by the Anti-Injunction Act extends to

the plaintiffs’ requested damages relief.” Id. at 1125. Instead, in light of those

jurisdictional impediments, the Ninth Circuit simply remanded all five non-

severable claims in their entirety to the district court with instructions to remand

to Multnomah County Circuit Court. See id. at 1126.

Given the Ninth Circuit’s jurisdictional resolution, it never addressed the

federal district court’s holdings that plaintiffs’ claims are preempted and

precluded by state and federal tax law, or that Starbucks withholding policies

comply with state and federal tax law.

4. On remand to Multnomah County Circuit Court, Plaintiffs again did

not amend their Complaint. Instead, before Starbucks answered, Plaintiffs

moved for summary judgment. Starbucks countered by moving to dismiss and

9

cross-moving for summary judgment. On July 7, 2017, the trial court largely

denied Starbucks motion to dismiss and granted Plaintiffs’ motion for partial

summary judgment as to Starbucks “liability” under Oregon’s wrongful

deduction statute. The trial court’s accompanying 44-page letter opinion

explicitly rejected the argument—earlier accepted by the Ninth Circuit—that

the Anti-Injunction Act removed jurisdiction over Plaintiffs’ claims for

equitable relief challenging Starbucks tax withholding. OER-61-104. The trial

court found the Ninth Circuit’s interpretation of federal law to be “dicta at

most,” not preclusive, and not persuasive in any event. OER-69. Recognizing

that Plaintiffs are former Starbucks employees, the trial court dismissed their

request for a “forward looking injunction” for lack of standing, but still granted

them leave to amend to add current employees. OER-70. The trial court then

held that Plaintiffs qualify for both equitable relief and statutory damages,

notwithstanding the Anti-Injunction Act. Id.; see OER-74 (“Plaintiffs qualify

for equitable relief, including declaratory relief.”).

The trial court further held that Starbucks did not fall within the terms of

statutory provisions affording employers immunity for collecting taxes on

behalf of the federal and Oregon governments, on the ground that the federal

district court’s interpretations of those provisions (unaddressed by the Ninth

Circuit on appeal) were “erroneous” and “simply mistaken.” OER-88 n25,

OER-89. Although the trial court acknowledged that Starbucks was immune to

10

the extent the suit sought a “refund” of any amounts “wrongfully” withheld, the

trial court permitted Plaintiffs to voluntarily dismiss their requests for refunds

of those specific amounts, yet continue to seek “collateral sanctions,” i.e.,

statutory penalties and equitable relief arising from the allegedly unlawful

withholding. OER-84. And because the trial court ultimately held that

Starbucks tax-withholding actions were not “required * * * by law” within the

meaning of the Internal Revenue Code or Oregon’s wage deduction statute,

ORS 652.610, it therefore granted partial summary judgment to Plaintiffs on the

issue of “liability.” OER-104.3

Starbucks requested that the trial court certify the issues presented in this

proceeding—including the Court’s many explicit disagreements with the

federal courts “on matters of substantive and procedural federal law,” OER-

88—for discretionary interlocutory review under ORS 19.225. See OER-107

(July 7, 2017 Order). The Court declined to certify any of its legal rulings.

3 In total, the trial court noted its explicit disagreement with the federal courts more than a dozen times on a variety of issues. See, e.g., OER-66 (explaining “why it disagrees with or does not follow the decisions in Fredrickson I and Fredrickson II”); OER-68 (characterizing “anything said by the Ninth Circuit about the” Anti-Injunction Act as “dicta”); OER-69 (“This court is not inclined to defer to the reasoning of the Ninth Circuit, which, in dicta at most, discussed the [Anti-Injunction Act] as jurisdictional.”); OER-88(acknowledging that the court “reaches different conclusions on the motion to dismiss than those in Fredrickson I and II”); OER-88 (acknowledging “differences with Fredrickson II” and “discuss[ing] why this court does not find [Fredrickson I] persuasive on matters of substantive and procedural federal law”); OER-88 (pointing to federal court’s “error”); OER-89 (“[T]he court in Fredrickson I was simply mistaken[.]”); see also OER-88-94 (walking through various disagreements with Fredrickson I).

11

5. In light of the non-discretionary jurisdictional and immunity grounds

for threshold dismissal of Plaintiffs’ suit, Starbucks filed a petition for a

peremptory or alternative writ of mandamus in this Court. Following briefing,

this Court allowed the petition and issued an alternative writ of mandamus to

the trial court, stating:

Wherefore, in the name of the State of Oregon, you are commanded to vacate the July 7, 2017, order in this matter and to enter an order dismissing the case with prejudice on jurisdictional and immunity grounds, or in the alternative to show cause for not doing so within 14 days from the date of this order.

Order Allowing Petition for Alternative Writ of Mandamus at 1 (Oct. 5, 2017)

(“Mandamus Order”). The trial court neither vacated its order and dismissed

the suit, nor made any showing of cause. Accordingly, Starbucks submits this

opening brief in accordance with the Court’s instructions.4

ASSIGNMENT OF ERROR

The trial court erred in refusing to dismiss Plaintiffs’ suit against

Starbucks on jurisdictional and immunity grounds.

A. Preservation of Error

Starbucks presented the issues on review to the trial court in a timely

filed motion to dismiss Plaintiffs’ Complaint under ORCP 21 A, which sought

dismissal on both jurisdictional and immunity grounds: “Starbucks moves to

4 While the mandamus petition was pending before this Court, Plaintiffs moved to certify a class action and Starbucks moved to compel certain discovery. Upon the issuance of the alternative writ of mandamus, the trial court granted Starbucks motion to stay the trial court proceedings.

12

dismiss plaintiffs’ complaint for lack of jurisdiction over the subject matter

* * * . [P]laintiffs’ claims are [also] barred by both federal and state law, which

immunize employers for withholding in compliance or intended compliance

with law.” OER-53. The trial court rejected these arguments, see, e.g., OER-

66-82, 84-92, denied the motion to dismiss in large part, and granted plaintiffs’

motion for summary judgment on liability. OER-104. Starbucks timely filed

its petition for a writ of mandamus with this Court.

B. Standard of Review

Whether a court has subject matter jurisdiction over a claim, or a

defendant is immune from suit, are questions of law reviewed for legal error.

See, e.g., Merten v. Portland Gen. Elec. Co., 234 Or App 407, 413, 228 P3d

623, 627, rev. den., 348 Or 669, 237 P3d 824 (2010) (jurisdiction); Brewer v.

Dep’t of Fish & Wildlife, 167 Or App 173, 181, 2 P3d 418, 423 (2000)

(immunity). A peremptory writ of mandamus is proper “when the trial court’s

decision amounts to fundamental legal error or is outside the permissible range

of discretionary choices available.” Longo v. Premo, 355 Or 525, 531, 326 P3d

1152, 1156 (2014) (internal quotation marks omitted).

ARGUMENT

I. THE TRIAL COURT LACKED JURISDICTION OVER PLAINTIFFS’ CLAIMS UNDER THE ANTI-INJUNCTION ACT AND STATE LAW.

At an earlier stage of this case, the Ninth Circuit recognized that the Anti-

Injunction Act “bars actions against an employer’s withholding of federal taxes

13

from wages,” and dismissed Plaintiffs’ five claims for lack of jurisdiction.

Fredrickson II, 840 F3d at 1123-24. The trial court should have done the same.

First, both sides agree that the Ninth Circuit’s “jurisdictional” holdings are “law

of the case,” which should have precluded relitigation of those holdings in the

trial court. Second, those jurisdictional holdings were plainly correct: The

Anti-Injunction Act withdraws jurisdiction over Plaintiffs’ claims, which are

designed to “restrain” Starbucks collection of federal taxes. Third, Oregon law

provides an independent basis for dismissing on jurisdictional grounds given

the important federal-state comity and supremacy principles at stake. Finally,

because there is no dispute that (as the Ninth Circuit also held) Plaintiffs’

claims cannot be severed into federal-tax and state-tax components, this Court

lacks jurisdiction over all five of Plaintiffs’ claims in their entirety.

A. The Ninth Circuit’s Jurisdictional Holding Precluded Relitigation Of The Anti-Injunction Act’s Applicability.

1. Applying U.S. Supreme Court precedent, the Ninth Circuit held that

the Anti-Injunction Act withdraws jurisdiction “to issue declaratory and

injunctive relief with respect to Starbucks’ withholding of * * * federal taxes,”

and added that “[a]ny award of statutory damages here would have the same

disruptive effect as entry of a declaratory judgment or issuance of an

injunction.” Fredrickson II, 840 F3d at 1124-1125. For the reasons set forth in

the following sections, see infra, sections I.B-D, those holdings are

unquestionably correct. As a threshold matter, however, the trial court erred in

14

relitigating, rather than following, the Ninth Circuit’s judgment as to

jurisdiction.

“It is a general principle of law and one well recognized in this state that

when a ruling or decision has been once made in a particular case by an

appellate court, * * * it is binding and conclusive * * * upon the inferior court

in any further steps or proceedings in the same litigation[.]” Kennedy v.

Wheeler, 356 Or 518, 524, 341 P3d 728, 732 (2014) (en banc) (citation and

quotation marks omitted). The rule that arises from that general principle is

known as the “law of the case” doctrine. “Briefly stated, the doctrine of the law

of the case precludes relitigation or reconsideration of a point of [l]aw decided

at an earlier stage of the [s]ame case.” Koch v. S. Pac. Transp. Co., 274 Or 499,

512, 547 P2d 589, 597 (1976) (emphasis added). That is true, moreover,

whether the previous ruling was “rightly or wrongly decided.” Id. The

commonsense reasons for avoiding relitigation “essentially parallel those served

by the doctrines of stare decisis and res judicata * * * , i.e., consistency of

judicial decision, putting an end to litigation of matters once determined, and

preserving the court’s prestige.” 274 Or at 511-512, 547 P2d at 597 (citation

omitted).

Plaintiffs and Starbucks agree that the “law of the case” doctrine applies

to the Ninth Circuit’s jurisdictional rulings. Plaintiffs expressly conceded the

point both before the trial court and before this Court, accepting that “[t]he

15

Ninth Circuit’s opinion is the law of the case on jurisdictional issues.” OER-

57; see Pls’ Opp’n to Mandamus Pet 3 (stating “that the Ninth Circuit’s opinion

is the law of the case * * * insofar as it addresses federal jurisdiction”). The

parties’ agreement that prior jurisdictional rulings become “law of the case”

accords with longstanding principles of Oregon law. See, e.g., In re Norman’s

Estate, 161 Or 450, 474, 88 P2d 977, 987 (1939) (because party’s argument that

“the probate court did not have jurisdiction to hear and determine the matters

sought to be presented by the claimant” was already rejected in earlier appeal,

“[t]he decision of this court on that appeal is the law of this case”).

As the parties’ agreement indicates, it makes no difference that the initial

jurisdictional ruling was issued by the Ninth Circuit instead of an Oregon

appellate court. “[L]aw of the case is a concept that may arise in a number of

different contexts in which a ruling or decision has been made in a case and the

same legal problem arises a second time in the same case.” Kennedy, 356 Or at

525, 341 P3d at 732 (citation and internal quotation marks omitted). The

leading treatise on such matters explains that, notwithstanding other

circumstances in which a federal court’s pre-remand decision might be

questioned by a state court, “[i]t is accepted that a final federal-court

determination on subject-matter jurisdiction precludes relitigation of the

jurisdiction issue [in state court], whether the determination accepts or rejects

jurisdiction.” CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL

16

PRACTICE & PROCEDURE JURISDICTION § 4478.4 (2d ed 2017) (“FEDERAL

PRACTICE & PROCEDURE”); cf. Sullivan v. Saenger, 152 Or App 46, 52-53 & n5,

952 P2d 95, 98 (1998) (noting that “it has previously been adjudicated [by the

Ninth Circuit] that the notice requirement were satisfied” in that case, and that

Ninth Circuit Rule 36-3 specifically contemplates that its unpublished opinion

“may be cited when relevant ‘under the doctrine[] of law of the case’”).

Here, Plaintiffs originally filed their Complaint in the trial court;

Starbucks removed the case to federal court; and the Ninth Circuit remanded on

the ground that the Anti-Injunction Act withdrew jurisdiction over Plaintiffs’

claims to the extent that they would “restrain[] the assessment or collection of

any [federal] tax.” 26 USC § 7421(a). After Plaintiffs declined to amend their

Complaint, Starbucks moved to dismiss on the same jurisdictional basis that the

Ninth Circuit earlier accepted. Under this Court’s precedent, “the doctrine of

the law of the case [should have] preclude[d] relitigation or reconsideration of a

point of [l]aw decided at an earlier stage of the [s]ame case.” Koch, 274 Or at

512, 547 P2d at 597. Given that Plaintiffs do not even dispute that “[t]he Ninth

Circuit’s opinion is the law of the case on jurisdictional issues,” OER-57, this

Court can thus resolve this case at the outset by holding that the Ninth Circuit’s

ruling dismissing all five claims for lack of jurisdiction should have been

adopted by the trial court.

17

That result finds further support in the law of issue preclusion. Under

established U.S. Supreme Court precedent, “[i]f a federal court dismisses a

removed case for want of personal jurisdiction, that determination may preclude

the parties from relitigating the very same personal jurisdiction issue in state

court.” Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 585, 119 S Ct 1563,

1571, 143 LEd2d 760 (1999) (citing Baldwin v. Iowa State Traveling Men’s

Ass’n, 283 US 522, 524-527, 51 S Ct 517, 75 LEd 1244 (1931)). Under that

reasoning, “[i]ssue preclusion in subsequent state-court litigation * * * may also

attend a federal court’s subject-matter [jurisdiction] determination,” such that

“the federal court’s conclusion will travel back with the case” and “bind the

parties in state court.” Id. at 585-586. Oregon has adopted the same preclusion

rule by statute: “The effect of a judgment, decree or final order in an action,

suit or proceeding before a court or judge of this state or of the United States,

having jurisdiction is[,] * * * in respect to the matter directly determined,

conclusive between the parties.” ORS 43.130(2) (emphasis added); see, e.g.,

Durham v. City of Portland, 181 Or App 409, 424-426, 45 P3d 998, 1007-1008

(2002) (holding “that the federal district court’s resolution of plaintiff’s Title

VII sex discrimination and retaliation claims precludes her from relitigating

those issues in state court”). Thus, the trial court was doubly bound—by both

the law of the case and issue preclusion doctrines—to follow the Ninth Circuit’s

ruling.

18

2. The trial court—without addressing Plaintiffs’ concession regarding

“law of the case” or citing ORS 43.130(2)—rejected application of the

“doctrines of law of the case, issue preclusion[,] and claim preclusion.” OER-

67. It gave three principal reasons for doing so: (1) that the Ninth Circuit did

not issue a “judgment,” OER-69; (2) that “anything said by the Ninth Circuit

about the [Anti-Injunction Act]” is “dicta” if it was not first addressed by the

federal district court, OER-68; and (3) that it was free to disregard the Ninth

Circuit’s application of the Anti-Injunction Act in any event, OER-69. All are

plainly incorrect.

First, the Ninth Circuit did issue a final judgment. The Ninth Circuit’s

mandate, which effected the remand to the trial court, is explicit on that front:

“The judgment of this Court, entered November 03, 2016, takes effect this

date.” Mandate, Fredrickson II, 840 F3d 1119 (No. 13-36067) (emphasis

added). In laying out its view that “[n]o judgment has issued,” the trial court

tellingly added the caveat: “except perhaps the appellate judgment requiring

remand.” OER-69. No justification was offered for depriving that judgment of

preclusive effect, with good reason: The Ninth Circuit indisputably had

jurisdiction under 28 U.S.C. § 1291 to determine whether Plaintiffs’ action

could proceed in view of the Anti-Injunction Act. See Steel Co. v. Citizens for

a Better Env’t, 523 US 83, 118, 118 S Ct 1003, 1024, 140 LEd2d 210 (1998)

(“[A] court always has jurisdiction to determine its own jurisdiction.”). And

19

under that judgment—or at the very least, that “decree or final order,” ORS

43.130(2)—the Anti-Injunction Act bars these claims.

Second, the Ninth Circuit’s ruling was not “dicta” simply because the

federal district court had not independently analyzed the Anti-Injunction Act

first. As this Court has explained, “[i]n judicial opinions, [dictum] commonly

refers to a statement that is not necessary to the court’s decision.” Engweiler v.

Persson, 354 Or 549, 558, 316 P3d 264, 270 (2013) (en banc). That cannot be

the case here because the Ninth Circuit based its holding that the district court

lacked jurisdiction on the Anti-Injunction Act. See Fredrickson II, 840 F3d at

1126 (“Under the Tax Injunction Act and the Anti-Injunction Act, the district

court lacks subject matter jurisdiction over the plaintiffs’ claims for declaratory

and injunctive relief.”). Whether the federal district court first addressed the

issue is irrelevant to whether the Ninth Circuit’s opinion is preclusive.

Third, the trial court maintained that it was “not inclined to defer to the

reasoning of the Ninth Circuit” because it believed the Ninth Circuit’s

conclusion was “not supported in the case law.” OER-69. But as explained

above (see pp. 13-14), the essence of the law of the case doctrine is that “a court

should adhere to a previous ruling on an identical matter, whether rightly or

wrongly decided.” Koch, 274 Or at 512, 547 P2d at 597 (emphasis added). To

hold (as the trial court did) that mere disagreement with an earlier ruling in the

same case is enough to overcome the policies animating the doctrine would

20

eviscerate it. That is especially true here because the “prudential” nature of the

law-of-the-case doctrine the trial court deemed significant, OER-69 (citing,

inter alia, FEDERAL PRACTICE & PROCEDURE § 4478.4), has no force when it

comes to jurisdictional rulings, see FEDERAL PRACTICE & PROCEDURE § 4478.4

(“It is accepted that a final federal-court determination on subject-matter

jurisdiction precludes relitigation of the jurisdiction issue [in state court],

whether the determination accepts or rejects jurisdiction.”) (emphasis added).

B. The Anti-Injunction Act Prevents Plaintiffs From Maintaining Claims Challenging Federal Tax Collection In Any Court.

The Ninth Circuit’s holding is not only law of the case, but also correct.

The Anti-Injunction Act, which is part of a comprehensive federal remedial

scheme designed to protect federal tax collection, withdraws jurisdiction over

plaintiffs’ claims challenging the withholding of federal income and FICA

taxes.

1. Federal Tax Withholding Is Exclusively Regulated By A Specialized Federal Remedial Scheme.

An integral component of the federal tax collection scheme is Congress’s

mandate that “an employer * * * [is] required to withhold federal income taxes

and to collect Federal Insurance Contributions Act (FICA) taxes from its

employees’ wages.” Begier v. I.R.S., 496 US 53, 55, 110 S Ct 2258, 2261, 110

LEd2d 46 (1990); see 26 USC §§ 3102(a), 3402(a). The IRS specifically

requires all employees to report their tips received to their employer on a

21

monthly basis, 26 USC § 6053(a), and requires employers like Starbucks to

“collect income tax, employee social security tax, and employee Medicare tax

on the[ir] employee[s’] tips.” Employer’s Tax Guide, IRS Publ 15 at 17 (2016);

see 26 USC §§ 3401(f), 3402(a) (income taxes); id. §§ 3102(a), 3121(q) (FICA

taxes). Moreover, an employer may, “at his discretion,” “withhold * * * in

respect of tips reported by an employee to the employer on an estimated basis.”

26 CFR § 31.3402(h)(1)-1(b) (emphasis added). Failure to withhold the

required taxes on wages, including tips, subjects employers to audits,

assessments, interest, and civil penalties. 26 USC §§ 3102(f), 3402(d), 6205;

26 CFR § 31.6205-1 (2009); Rev Rul 86-10, 1986-1 CB 358 (1986).

“‘[I]n order to protect its private [collection] agents from being

whipsawed’” between the demands of the Internal Revenue Code and the

objections of employees, Congress adopted an “exclusive” tax-refund scheme.

Brennan v. Sw. Airlines, Co., 134 F3d 1405, 1411 (9th Cir 1998) (second

alteration in original) (quoting Kaucky v. Sw. Airlines Co., 109 F3d 349, 353

(7th Cir 1997)). As most relevant here, that scheme incorporates three parts:

(a) the Anti-Injunction Act, 26 USC § 7421(a), which withdraws jurisdiction from state and federal courts over any suit that has the purpose of “restraining the assessment or collection of any tax”;

(b) the federal tax refund statute, 26 USC § 7422, which prohibits any “suit or proceeding” from being maintained “in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected,” other

22

than an administrative refund claim and potential suit against the United States government; and

(c) federal immunity provisions, which provide that employers are liable to the federal government alone—and not any other person—for such tax withholding. See 26 USC § 3403 (income tax); id. § 3102(b) (FICA); see also Part II.A, infra (discussing immunity provisions in greater detail).5

Taken together, the import of these sections is “clear.” United States v.

Dalm, 494 US 596, 602, 110 S Ct 1361, 1365, 108 LEd2d 548 (1990). First, if

an employee believes that her employer withheld too much from her paycheck,

her recourse is not to sue her employer—who enjoys immunity from such

claims, see 26 USC §§ 3403, 3102(b)—but rather to file an administrative claim

with the IRS, see id. §§ 6511, 6402 (government required to “refund” “any

overpayment”); 26 CFR § 301.6402-1 (same). Unless a timely claim is filed

with the IRS, “a suit for refund, regardless of whether the tax is alleged to have

been ‘erroneously,’ ‘illegally,’ or ‘wrongfully collected,’ [26 USC]

§§ 1346(a)(1), 7422(a), may not be maintained in any court.” Dalm, 494 U.S.

at 602. Second, if the employee remains dissatisfied, she may file a lawsuit in

federal court, but “only against the United States.” 26 USC § 7422(f)(1).6

5 As explained in Part II.B, infra, Oregon law likewise immunizes employers who act as private tax collection agents. See ORS 316.197(2); see also ORS 316.032(2) (“Insofar as is practicable in the administration of this chapter, the department shall apply and follow the administrative and judicial interpretations of the federal income tax law.”).

6 Short of litigation, employees have several other tools at their disposal to correct any withholding that they believe to be inaccurate. For example, an employee may ask her employer to reissue a corrected W-2 reflecting what they

23

Other than such a federal-court suit against the government, however,

federal law prevents any suit in any court that seeks to restrain federal tax

collection, 26 USC § 7421(a), or to collect “any sum” “erroneously or illegally”

withheld as a tax, id. § 7422(a); see United States v. Clintwood Elkhorn Mining

Co., 553 US 1, 7, 128 S Ct 1511, 1516, 170 LEd2d 392 (2008) (emphasizing

Section 7422’s “expansive reach”).7

believe to be the accurate amount of tip income, or simply report that amount directly to the federal government (on IRS Forms 1040 and 4137). In addition, the IRS maintains a “Taxpayer Advocate” program with broad powers to resolve problems and refund taxes where a taxpayer is suffering significant hardship. See 26 USC § 7811(a).

7 Section 7422, which preempts state-law claims challenging federal tax withholding, falls outside the scope of this mandamus proceeding, which is focused on “jurisdictional and immunity grounds” for dismissal. Mandamus Order at 1. Nevertheless, as the federal district court recognized, Section 7422 poses yet another threshold barrier to Plaintiffs’ suit. See Fredrickson I, 980 F Supp 2d at 1243 (Plaintiffs are pursuing “a claim that falls squarely within the definition of a ‘tax refund suit’” preempted by 26 USC § 7422(a)). Section 7422(a)’s “bright line test” preempts “any suit” in any court “for any sum wrongfully collected in any manner.” Brennan, 134 F3d at 1410 n7. Every U.S. Circuit Court of Appeals to have considered the issue has held that this statute provides the “exclusive” method for litigating federal tax liability and broadly preempts state-law claims challenging federal tax withholding. See, e.g., id. at 1409 (“It is well established that the IRC provides the exclusive remedy in tax refund suits and thus preempts state-law claims that seek tax refunds.”); Berera v. Mesa Med. Grp., 779 F3d 352, 359 (6th Cir 2015) (“The exhaustion-of-remedies requirement in § 7422(a) is mandatory.”); Umland v. PLANCO Fin. Servs., Inc., 542 F3d 59, 68 (3d Cir 2008) (“[Section] 7422 requires taxpayers to file claims with the IRS for tax refunds.”); Kaucky, 109 F.3d at 353 (exclusive remedy); Sigmon v. Sw. Airlines Co., 110 F3d 1200, 1204 (5th Cir 1997) (same).

24

2. The Anti-Injunction Act Withdraws Jurisdiction Over Plaintiffs’ Claims To Restrain Collection Of Federal Taxes.

As noted, the Anti-Injunction Act is a core part of the federal remedial

scheme governing tax collection. It expansively provides that “no suit for the

purpose of restraining the assessment or collection of any tax shall be

maintained in any court by any person.” 26 USC § 7421(a). “The object of

§ 7421(a) is to withdraw jurisdiction from the state and federal courts to

entertain suits seeking injunctions prohibiting the collection of federal taxes.”

Enochs v. Williams Packing & Navigation Co., 370 US 1, 5, 82 S Ct 1125,

1128, 8 LEd2d 292 (1962); see, e.g., Malan v. Dalmer, 722 NE2d 1274, 1276

(Ind Ct App 2000) (Anti-Injunction Act removes jurisdiction from state courts

over claims seeking tax withholdings). Section 7421(a) is designed to protect

the federal “Government’s need to assess and collect taxes as expeditiously as

possible with a minimum of preenforcement judicial interference, and to require

that the legal right to the disputed sums be determined in a suit for refund.”

Bob Jones Univ. v. Simon, 416 US 725, 736, 94 S Ct 2038, 2046, 40 LEd2d 496

(1974) (citation and internal quotation marks omitted).

Both forms of relief the trial court permitted Plaintiffs to seek—

“declaratory relief and an award of statutory damages,” OER-88—run afoul of

the Anti-Injunction Act because they would indisputably “restrain[]” federal tax

collection. With regard to equitable relief, the Ninth Circuit correctly held that,

under the Act, no court has “jurisdiction to issue declaratory and injunctive

25

relief with respect to Starbucks’ withholding of * * * federal taxes.”

Fredrickson II, 840 F3d at 1123-1124. Plaintiffs’ five claims are explicitly

“base[d]” on the allegedly “wrongful deduction[s]” of “federal income taxes or

federal FICA taxes” from employee wages, OER-3, 28—a form of federal tax

“collection” within the meaning of the Anti-Injunction Act. See Int’l Lotto

Fund v. Va. State Lottery, 20 F3d 589, 591 (4th Cir 1994) (“The Supreme Court

has squarely held that the definition of ‘collection of tax’ under § 7421(a)

includes withholding.”) (citing United States v. Am. Friends Serv. Comm., 419

US 7, 10, 95 S Ct 13, 14, 42 LEd2d 7 (1974) (per curiam)). Plaintiffs’ action is

thus exactly the type of challenge “against an employer’s withholding of federal

taxes from wages” that “the Anti-Injunction Act bars[.]” Fredrickson II, 840

F3d at 1124 (internal citation omitted).

With regard to statutory damages and penalties, that relief, if granted,

would also undoubtedly “restrain” federal tax collection within the meaning of

the Anti-Injunction Act. See Bright v. Bechtel Petroleum, Inc., 780 F2d 766,

770 (9th Cir 1986) (lawsuit against employer seeking damages “can be viewed

as one to restrain collection (through withholding) of federal income tax”). The

Ninth Circuit observed in Fredrickson II that the statutory damages sought here

“would have the same disruptive effect as entry of a declaratory judgment or

issuance of an injunction” on tax collection, because

[t]o award statutory damages, the district court would first have to declare that Oregon law prohibits Starbucks’ practice of

26

withholding state taxes on the basis of imputed tip income, and Starbucks would of course cease doing so in order to avoid future liability. The impermissible end result, as with declaratory or injunctive relief, would be to stop the flow of tax revenue into Oregon’s coffers.

840 F3d at 1124 (emphasis added) (citation omitted); see also Fair Assessment

in Real Estate Ass’n, Inc. v. McNary, 454 US 100, 105, 102 S Ct 177, 180, 70

LEd2d 271 (1981) (noting that successful Section 1983 damages challenge to

tax law has similar effect on state revenue as injunction).8

Indeed, Plaintiffs have admitted throughout this litigation that their

requested forms of relief—including “statutory penalt[ies]”—were designed to

bring Starbucks withholding practices to a grinding halt. See Pls’ Reply Br at

20, Fredrickson II, 840 F3d 1119 (No. 13-36067) (“Pls CA Reply Br”)

(Plaintiffs “are seeking statutory penalty damages, the purpose of which is to

punish rather than compensate”) (emphasis added). Specifically, in discussing

the effect these same five claims would have on state tax collection, Plaintiffs

8 Although the Ninth Circuit made those specific statements with regard to the effect of the Tax Injunction Act—the “counterpart” to the Anti-Injunction Act that applies to federal suits seeking to “enjoin, suspend or restrain” statetaxes, 28 USC § 1341—the court of appeals elsewhere recognized that its “analysis of the bar imposed by the Tax Injunction Act with respect to the state-tax component of the plaintiffs’ claims applies equally under the Anti-Injunction Act to the federal-tax component of their claims.” Fredrickson II, 840 F3d at 1124; see id. at 1122 (adding that “the Court construes the two Acts in tandem”); see also Direct Mktg. Ass’n v. Brohl, 135 S Ct 1124, 1129, 191 LEd2d 97 (2015) (“Although the TIA does not concern federal taxes, it was modeled on the Anti–Injunction Act (AIA), which does,” and therefore courts should “assume that words used in both Acts are generally used in the same way[.]”).

27

concede that all the relief they seek—including their damages claims—“would

indisputably ‘restrain’ the ‘collection’ of state taxes.” Pls’ CA Reply Br at 4

(emphasis added); see, e.g., Pls’ Br at 13-14, Fredrickson II, 840 F3d 1119 (No.

13-36067) (“Pls CA Br”) (Plaintiffs “have alleged claims for damages and

declaratory and injunctive relief that would both directly and indirectly hinder

the collection of Oregon state income taxes”); id. at 10 (“Baristas are claiming

damages and declaratory and injunctive relief that would both directly and

indirectly interfere with the collection of state income tax revenue”); id. at 9,

14-15 (similar).

Met with these arguments, the Ninth Circuit agreed with Plaintiffs that

their “requested relief would do just that”—i.e., “stop” Starbucks method of tax

collection. Fredrickson II, 840 F3d at 1122. And given that Plaintiffs were

successful in persuading the Ninth Circuit to overturn a district court judgment

and dismiss a case for lack of jurisdiction on this ground, they should not be

heard to argue the opposite in this Court. See Mid–Valley Res., Inc. v. Foxglove

Props., LLP, 280 Or App 784, 790, 381 P3d 910, 915 (2016) (“Judicial estoppel

is a common law equitable principle by which a party may be barred from

taking a position in one judicial proceeding that is inconsistent with a position

the same party successfully asserted in a different judicial proceeding.”)

(citation omitted).

28

Even setting aside whether Plaintiffs are barred from taking a contrary

position in this Court, ample authority shows that where (as here) a statutory

damages and penalties award would have “the same disruptive effect as entry of

a declaratory judgment or issuance of an injunction,” Fredrickson II, 840 F3d at

1124, the Anti-Injunction Act bars such relief. See, e.g., Bright, 780 F2d at 770

(holding action seeking both damages and other relief “barred by the Anti-

Injunction Act, 26 U.S.C. § 7421(a), which prohibits suits ‘for the purpose of

restraining the assessment or collection of any tax’”) (citation omitted); Crim v.

Tad Tech. Servs. Corp., 978 F2d 1267 n3 (10th Cir 1992) (unpublished) (“Even

if Crim’s prayer is viewed as seeking damages, then § 7421(a) would prevent

our exercising jurisdiction. Courts have ruled that § 7421(a) bars not only

actions specifically for injunctive relief, but also actions by employees against

employers” seeking damages) (citing cases); Prof’l Eng’rs, Inc. v. United

States, 527 F2d 597, 600 (4th Cir 1975) (holding that, despite “claim for

damages in this case,” because the action did not fall within an exception to the

Anti-Injunction Act, “the statutory provisions for summary collection

procedures foreclose such a claim”).

Were it otherwise, plaintiffs seeking to restrain tax collection could

always seek damages or penalties designed to “punish” employers in lieu of

equitable relief, thereby evading the strictures of the Anti-Injunction Act in

every case. The trial court therefore had a duty to dismiss Plaintiffs’ claims not

29

only with respect to the requested declaratory relief, but the requested damages

and penalties as well.

3. The Trial Court Erred In Asserting Jurisdiction In Spite Of The Anti-Injunction Act.

Notwithstanding the Anti-Injunction Act, the trial court determined it had

jurisdiction to award “equitable relief, including declaratory relief,” as well as

statutory damages and penalties. OER-74. All three reasons it gave are

erroneous.

First, the trial court erred in “conclud[ing] that the [Anti-Injunction Act]

is not jurisdictional” and therefore did not affect its power to award Plaintiffs

relief. OER-68. That holding directly conflicts with not only Fredrickson II,

but with “every [federal] circuit to examine this question” of federal law.

Green Sol. Retail, Inc. v. United States, 855 F3d 1111, 1114 n2 (10th Cir 2017);

see, e.g., In re J.J. Re-Bar Corp., 644 F3d 952, 955 (9th Cir 2011) (“[I]t is our

general rule that the Anti-Injunction Act ‘precludes federal jurisdiction’ over

actions seeking to enjoin the IRS’s tax collection efforts.”) (citation omitted).

The lone authority the trial court relied on—a law review article—likewise

confirms that “the federal courts are unanimous in their conclusion that the

[Anti-Injunction Act] is jurisdictional.” Erin Morrow Hawley, The Equitable

Anti-Injunction Act, 90 NOTRE DAME L REV 81, 85 (2014) (emphasis added).

Legal scholars are in accord. See id. at 84 (acknowledging that “[t]he

overwhelming academic consensus is that the [Anti-Injunction Act] is a

30

jurisdictional statute”). The trial court’s conclusion that the jurisdictional

nature of the Anti-Injunction Act “is not supported in the case law” is thus

completely backwards. OER-69.

Second, the trial court erred in finding that Plaintiffs’ claims fell within a

judicially created exception to the Anti-Injunction Act derived from South

Carolina v. Regan, 465 US 367, 381, 104 S Ct 1107, 1115, 79 LEd2d 372

(1984). See OER-71. Plaintiffs never even cited this so called “Regan

exception” in their motion-to-dismiss briefing—nor, for that matter, in opposing

the mandamus petition in this Court—for good reason. The “very narrow”

Regan exception, RYO Mach., LLC v. U.S. Dep’t of Treasury, 696 F3d 467, 472

(6th Cir 2012), applies only if “the plaintiff has [no] access at all to judicial

review.” Judicial Watch, Inc. v. Rossotti, 317 F3d 401, 408 (4th Cir 2003); see

Confederated Tribes & Bands of Yakama Indian Nation v. Alcohol & Tobacco

Tax & Trade Bureau, 843 F3d 810, 815 (9th Cir 2016) (“The Regan exception,

however, is a narrow one.”); see also FEDERAL PRACTICE & PROCEDURE § 3580

(the “quite narrow” Regan exception “applies only when the plaintiff truly has

no access to judicial review”).

Here, Regan simply does not apply because Plaintiffs do have access to

judicial review. As already noted, they can challenge any allegedly wrongful

deduction of federal taxes through the federal government’s “exclusive” tax

refund scheme—which permits “an action against the United States”—rather

31

than in a private lawsuit against their employer. Burda v. M. Ecker Co., 2 F3d

769, 778 (7th Cir 1993) (referring to “undisputable statutory authority and case

law establishing that the exclusive remedy for wrongful withholding of taxes

was an action against the United States”); see Karas v. Katten Muchin

Rosenman LLP, No. 07-1545-CV, 2009 WL 38898, at *1 (2d Cir Jan 8, 2009)

(rejecting Regan defense in similar suit seeking equitable relief regarding

employer’s tax-withholding because refund remedy available to employee).

That is true even if the specific remedy that a plaintiff seeks—here, statutory

damages—is unavailable in the refund action. See Am. Friends Serv. Comm.,

419 US at 11 (Anti-Injunction Act applicable despite plaintiffs’ contention that

a refund action was “an inadequate remedy,” because plaintiffs still have a

“‘full opportunity to litigate’ their tax liability in a refund suit”) (citation

omitted).

For example, Plaintiffs plainly could have—and should have—sought

recovery of any allegedly overwithheld FICA taxes through the IRS’s exclusive

administrative refund process. See, e.g., Berera v. Mesa Med. Grp., 779 F3d

352, 359, 360 (6th Cir 2015) (dismissing wage claim seeking statutory penalties

alleging that employer “wrongfully collected its FICA tax from her” because

employee “fail[ed] to first file a refund claim with the IRS”). Under those

procedures, after Plaintiffs exhaust their administrative remedies, they could

challenge the allegedly “wrongful withholding” by bringing a suit against the

32

United States alone in federal district court, which would then determine (after

considering the federal government’s position) whether Plaintiffs were entitled

to relief. See 26 USC § 7422(a). But what Plaintiffs clearly cannot do is

challenge the legality of Starbucks withholding through private-party wage

litigation, with the federal government completely on the sidelines. See Sigmon

v. Sw. Airlines Co., 110 F3d 1200, 1204 (5th Cir 1997) (“Although the

collection may ultimately have been erroneous, the Internal Revenue Code

provides the exclusive remedy for the erroneous or illegal collection of taxes”

by employers.).

Third, the trial court erred again in suggesting that Plaintiffs’ claims

“perhaps” fall within a separate Anti-Injunction Act exception, known as the

Enochs exception. OER-74; see OER-71 (exception “might” apply). That

exception permits prospective relief when “(1) it is clear the Government will

not ultimately prevail; and (2) equity jurisdiction otherwise exists.” RYO

Mach., 696 F.3d at 473. But the Enochs exception is inapplicable by its terms:

it only applies to claims seeking prospective relief against “the government,”

and “has never been applied to allow a taxpayer to sue a private tax collector

for the refund of erroneously collected taxes.” Brennan, 134 F3d at 1413

(quotations omitted) (emphasis added).

Moreover, the Enochs exception is reserved for “the most extreme

circumstances, i.e., where the government has no basis whatsoever to collect the

33

tax.” Brennan, 134 F3d at 1413 n9; see also Enochs, 370 US at 7-8 (“To

require more than good faith on the part of the Government would unduly

interfere with a collateral objective of the Act—protection of the collector from

litigation pending a suit for refund.”). Plaintiffs cannot meet that requirement:

not only have they never alleged bad faith, they cannot show that there is “no

basis whatsoever” for the challenged withholding practice given that a federal

court has already held that Starbucks tax-withholding procedures are legal. See

Fredrickson I, 980 F Supp 2d at 1250; see also Clintwood, 553 US at 5, 13-15

(rejecting application of Enochs exception to excuse use of exclusive refund

procedures even after “the IRS acquiesced in the District Court’s holding” that

tax was unconstitutional). In any event, the fact that Plaintiffs are seeking

damages and penalties belies any notion that they could meet the necessary

“irreparable harm” showing. RYO Mach., 696 F.3d at 473.

C. State Law Comity And Federal Supremacy Principles Bar Claims That Would Restrain Federal Tax Collection.

State law provides an independent basis for dismissing Plaintiffs’

requested relief on jurisdictional grounds. Although this Court has never had

occasion to consider the scope of the Anti-Injunction Act, the Oregon Court of

Appeals held, in another case challenging employer withholding, that it “need

not * * * decide[]” whether that Act removed jurisdiction over Plaintiffs’ tax-

withholding claims against their employer, as federal comity and supremacy

34

principles reach even further than that Act. Fernleaf, 61 Or App at 441, 657

P2d at 724.

In Fernleaf, a group of employees obtained a peremptory writ of

mandamus from the trial court directing their employer “to stop withholding

federal income taxes from [employees’] paychecks pursuant to 26 U.S.C.

§ 3402.” 61 Or App at 441, 657 P2d at 723. The employer appealed, arguing

that “plaintiffs’ objective of restraining the withholding of federal taxes would

require the court to violate the so-called Anti-Injunction Act, 26 U.S.C.

§ 7421(a).” Id. The Oregon Court of Appeals reversed and ordered the

peremptory writ vacated. It held that, regardless of the Anti-Injunction Act’s

reach, “it is clear beyond doubt that no state court has the power to interfere

with the performance of a duty imposed by federal law, such as the withholding

of federal income taxes.” Id. (emphasis added). Although the Fernleaf court

chose to look to fundamental comity and supremacy principles rather than to

the Anti-Injunction Act directly, the result was the same: Oregon courts lack

power to grant relief that would effectively restrain the assessment or collection

of federal taxes.

Despite its obligation to follow Oregon Court of Appeals precedent, the

trial court dispensed with Fernleaf as having “decided nothing” of relevance to

this case—ostensibly because Fernleaf was “premised on the assumed existence

of a duty to withhold established by federal law.” OER-67. But the trial court

35

failed to explain why, in light of Fernleaf, it should reinterpret the Internal

Revenue Code rather than assume the existence of that same federal

withholding duty—particularly after a federal court had already determined that

the challenged withholding practice was in accord with federal law. See

Fredrickson I, 980 F Supp 2d at 1240-41. Just as comity principles and the Tax

Injunction Act prevent federal courts from interfering with state tax collection,

see Fredrickson II, 840 F3d at 1126, Fernleaf demonstrates that comity and

federal supremacy principles prevent state courts from interfering with federal

tax collection, as well.

D. Because Plaintiffs’ Five Claims Are Not Severable Into Federal-Tax And State-Tax Components, The Trial Court Lacked Power To Adjudicate Them Entirely.

Although Plaintiffs contend that Starbucks violated both federal and state

tax laws, they agree that their claims are not severable into federal-tax and

state-tax components. Accordingly, because this Court lacks jurisdiction to

adjudicate the federal-tax components of each of the five non-severable claims,

all five should be dismissed in their entirety.

Earlier in this case, the Ninth Circuit (after noting the parties’ agreement)

held that “plaintiffs’ claims for damages cannot be severed into separate state-

tax and federal-tax components,” and thus that Plaintiffs have no separate

claims based on violations of Oregon income tax law. Fredrickson II, 840 F3d

at 1125 (each claim merely advances two “theories of liability for the same

36

relief to cure the same wrong”); see also Fredrickson I, 980 F Supp 2d at 1250

(district court declined to analyze each “claim” separately in terms of federal-

and state-tax theories, but instead concluded that “all of the plaintiffs’ claims

are preempted by federal law”). As Plaintiffs have repeatedly argued, for each

of their five claims, “the state and federal violations are part of the same unitary

‘claim.’” Pls’ CA Br 19; see id. 17-20 (arguing that theories underlying each

“unitary” claim will rise and fall together because “Starbucks’s state-tax-based

violations are * * * not severable from its federal-tax-based violations”).

Because both sides agree that Plaintiffs’ claims “cannot be severed” into

federal-tax and state-tax components, they must rise and fall together. It

follows that because the trial court lacked jurisdiction under the Anti-Injunction

Act (and related supremacy and comity principles) to award damages or

declaratory relief regarding the federal-tax component of Plaintiffs’ claims, this

Court should order dismissal of each of Plaintiffs’ five claims in its entirety.

II. STARBUCKS IS STATUTORILY IMMUNE FROM PLAINTIFFS’ CLAIMS

Jurisdiction aside, the trial court was required to dismiss for a separate

and independent reason: Starbucks is statutorily immune from suit for

withholding taxes on behalf of the federal and Oregon governments. And

because Plaintiffs’ claims are non-severable (see supra, pp. 35-36), they must

be dismissed if Starbucks enjoys immunity under federal or state law.

37

A. Federal Law Immunizes Starbucks From Plaintiffs’ Tax-Withholding Claims.

Reinforcing the prohibition on private litigation over federal tax

withholding, the Internal Revenue Code immunizes employers from liability “to

any person for the amount of any * * * payment” “deducted and withheld” as

federal income or FICA taxes. 26 USC § 3403; see also id. § 3102(b)

(“indemnif[ying]” employers “against the claims and demands of any person

for the amount of any such [FICA] payment made by such employer”). Instead,

an “employer shall be liable” to the IRS alone “for the payment of the tax

required to be deducted and withheld under this chapter.” 26 USC § 3403.

These immunity provisions, like the Anti-Injunction Act, apply in both state and

federal courts. E.g., Malan, 722 NE2d at 1276 (Indiana case finding “[c]laims

by employees against employers to recover federal or state withholding are

statutorily barred” by Section 3403 and state law).

Prior to remand, the U.S. District Court for the District of Oregon held

that Starbucks was immune from suit under Section 3403 because Plaintiffs’

challenge to “Starbucks’s actions in withholding tax from their wages based on

estimated tips * * * is exactly the type of suit that is barred by 26 USC § 3403.”

Fredrickson I, 980 F Supp 2d at 1241. That holding was correct: An employer

is “not liable to an employee for complying with its legal duty to withhold tax.”

Bright, 780 F2d at 770 (citation omitted).

38

In Bright, 780 F2d 768, the plaintiff (like Plaintiffs here) brought state-

law claims alleging that his employer had “illegal[ly]” deducted both federal

and state taxes from his wages. Id. at 769. The Ninth Circuit held that because

the plaintiff was challenging his employer’s decision to “comply[] with the IRS

directive to withhold income tax from his wages,” his suit was “statutorily

barred.” Id. at 769-770 (citation omitted). The federal courts are in accord.

See, e.g., Edgar v. Inland Steel Co., 744 F2d 1276, 1278 (7th Cir 1984)

(“Employees have no cause of action against employers to recover wages

withheld and paid over to the government in satisfaction of federal income tax

liability.”); N.Y. & Presbyterian Hosp. v. United States, 128 Fed Cl 363, 370

(2016) (FICA immunity provision is “consistent with Congress’ desire to

preclude employees from suing their employer in connection with the

employer’s withholding of FICA taxes”); see also Giles v. Volvo Trucks N. Am.,

551 F Supp 2d 359, 363 (MD Pa 2008) (“Courts have repeatedly relied upon

this language to hold that an employee may not bring a claim against his

employer for withholding taxes from the employee’s pay.”) (citing cases).

The trial court nevertheless held that Starbucks enjoys no immunity

because, in its view, Starbucks had misapplied certain Internal Revenue Code

provisions related to withholding—i.e., the merits question in this case. OER-

89. Needless to say, that results-oriented approach, which begins with the

ultimate question of liability, fatally undermines the goal of an immunity statute,

39

which is designed to protect the government’s tax collection agents from the

burdens of suit altogether. See Burda, 2 F3d at 775 (Congress intended that one

“acting as a private tax collector pursuant to federal tax laws” should be

“immune from suit,” even if withholding allegedly wrongful) (emphasis added).

If employers enjoy immunity for their tax-collection practices only after a court

determines that those practices are fully lawful, then statutory “immunity”

affords hardly any protection at all.

The trial court also erred in interpreting Section 3403 to immunize

Starbucks only from damages measured by the actual amounts of the refunds

themselves. That is, after permitting Plaintiffs to voluntarily dismiss the

portions of their Complaint “request[ing] a refund or return of [the actual]

amounts withheld,” OER-104, the trial court proceeded to allow Plaintiffs to

seek various “collateral sanctions,” i.e., associated statutory damages, penalties,

and equitable relief stemming from the same allegedly unlawful withholding.

OER-84 (“[T]he immunity provided by § 3403 only extends to ‘the amount of

any such payment.’ The immunity does not, by its terms, extend to collateral

sanctions to which an employer may be exposed.”).

That makes no sense. Plaintiffs do not dispute that Starbucks would be

immune from claims seeking a refund of the tax amounts that Starbucks

allegedly collected “wrongfully.” See Pls’ Opp’n to Mandamus Pet at 11-12

(arguing that Section 3403 is inapplicable only because “Plaintiffs seek only

40

statutory penalties provided by Oregon wage-and-hour law,” rather than tax

refunds). That result should not change simply because plaintiffs seek

additional relief beyond the refunds themselves. Yet under the “collateral

sanction” rule adopted by the trial court, a plaintiff could evade employer

immunity in every case simply by disclaiming a refund in favor of (typically

much larger) statutory penalties, attorneys’ fees, punitive damages, and the like.

That completely undermines the point of affording immunity in the first place.

Not surprisingly, Plaintiffs do not cite a single case holding that an

employee is free to bring a suit challenging an employer’s withholding of

federal taxes, so long as she has first agreed to forgo recovering the actual

amount withheld in favor of a statutory penalty or other relief. Rather, as

already noted the federal courts have “uniformly held that Section 3403

precludes employer liability for withholding taxes from an employee’s

paycheck.” Magee v. Boeing-Irving Co., No. CIV.A. 3:03-CV- 1265, 2004 WL

1515820, at *2 (ND Tex July 2, 2004) (emphasis added) (citing cases);

Schagunn v. Gilland, No. 3:13-CV-00359-HZ, 2013 WL 1914399, at *3 (D Or

May 7, 2013), aff’d, 617 F App’x 814 (9th Cir 2015) (holding that, under

§ 3403, an “employer is immune from liability to the employee for the

withholding”) (citation and internal quotation marks omitted); N.Y. &

Presbyterian Hosp., 128 Fed Cl at 370 (similar result under FICA). In other

words, employees simply “have no cause of action against employers to recover

41

wages withheld,” Edgar, 744 F2d at 1277 (emphasis added), regardless of

whether Plaintiffs are seeking only the specific amounts withheld or additional

penalties besides. See, e.g., id. (employer immune from claims seeking, among

other things, “double wages, compensatory and punitive damages, and costs and

legal fees”); Bright, 780 F2d at 772 n8 (breach of contract suit challenging tax

withholding statutorily barred despite request for damages); Lonsdale v.

Smelser, 553 F Supp 259, 260 (ND Tex 1982) (finding “request for monetary

damages” “barred by 26 U.S.C. § 3403”).

B. State Law Immunizes Starbucks From Plaintiffs’ Tax-Withholding Claims.

As under federal law, Starbucks also enjoys immunity from Plaintiffs’

claims under state law. Oregon law requires that, at the same time an employer

remits withheld federal income taxes to the IRS, “the employer shall [also] pay

over to the [Oregon] Department of Revenue * * * the amounts required to be

withheld under” state provisions governing employer income tax withholding.

ORS 316.197(1). Like the federal government, Oregon explicitly immunizes

employers from employee suits for such withholding: “No employee has any

right of action against an employer in respect of any moneys deducted from

wages and paid over in compliance or intended compliance with this section.”

ORS 316.197(2). As that provision makes clear, Oregon immunizes employers

from employee tax-withholding suits even where the withholding is not in

42

compliance with Oregon law, as long as the employer is acting in at least

“intended compliance with this section.” Id. (emphasis added).

Although Oregon case law interpreting ORS 316.197(2) is spare, the use

of the phrase “intended compliance” at a minimum shields Oregon’s tax-

collection agents, like Starbucks and other employers, who act in good faith,

regardless of whether they are in technical compliance with state law and

regulations. Indeed, several courts have interpreted New York’s immunity

statute—which includes the similar phrase “compliance or in intended

compliance,” NY Tax Law § 675—as broadly “immuniz[ing] an employer from

liability to an employee in connection with the withholding of Federal and State

taxes.” Sierra v. United States, No. 97 CIV. 9329 (RWS), 1998 WL 599715, at

*8 (SDNY Sept 10, 1998); see, e.g., Bey v. United Parcel Serv., Inc., No. 11-

CV-2993 (SJF) (ETB), 2012 WL 4328379, at *6 (EDNY Sept 20, 2012)

(same); Davis v. Rosenblatt, 208 AD2d 297, 299 (NY App Div 1995) (same).

That is presumably why Plaintiffs’ counsel recently conceded in the trial court

that “[i]f Starbucks proves that this money deducted from wages was paid over

in intended compliance with this section, then I think that that kills the case.”

Mar. 23, 2017 Hr’g Recording at 10:42 a.m.

Plaintiffs’ Complaint establishes that this suit falls within the terms of

ORS 316.197’s immunity provision. All five claims are explicitly “in respect

of” moneys deducted from wages for taxes: “Plaintiffs base this class action on

43

STARBUCKS’s wrongful deduction of * * * taxes from its employees’ wages.”

OER-3 ¶ 4 (emphases added). Plaintiffs have never “asserted a claim that

Starbucks failed to pay any withheld amounts over to either the IRS or the

Oregon Department of Revenue.” Fredrickson I, 980 F Supp 2d at 1245 n5.

And by repeatedly alleging that Starbucks is withholding various “categories of

taxes from its employees’ wages,” OER-3 ¶ 4 (emphasis added), Plaintiffs make

clear that Starbucks is withholding in at least intended compliance with those

laws requiring tax collection. Indeed, the federal district court earlier held that

ORS 316.197(2) barred Plaintiffs’ claims at the motion to dismiss stage based

on these same allegations and admissions. See Fredrickson I, 980 F Supp 2d at

1245.9

Nevertheless, the trial court again rejected the federal district court’s

analysis. Although the trial court agreed that ORS 316.197(2) is an “immunity”

provision, it determined that it is also an “affirmative defense,” meaning that

Starbucks would be forced to prove its “intended compliance” at trial. OER-87.

That reasoning does not help Plaintiffs because, as noted, the “factual

allegations necessary to establish immunity” appear on the face of Plaintiffs’

pleadings. Schlesinger v. City of Portland, 200 Or App 593, 596 n1, 116 P3d

9 The excerpt from a Starbucks employee manual that is attached to Plaintiffs’ complaint confirms the same thing: Starbucks withholds only for tax purposes, not for some fraudulent purpose. See OER-38 (because “[f]ederal law requires” partners to report tip income, Starbucks “Starbucks estimates that tipped partners receive at least $0.50 per hour in tips and reports this amount to the Internal Revenue Service (IRS) on the partners’ behalf”).

44

239, 241 (2005). But it is incorrect in any event. ORS 316.197 neither uses the

phrase “affirmative defense,” nor requires specific proof of any facts; it is

instead a threshold barrier providing that employees have no “right of action” at

all in this situation. Indeed, accepting the trial court’s conclusion that ORS

316.197 is an “affirmative defense” requiring proof of certain facts at trial

would eviscerate the threshold protection that this immunity statute is meant to

provide. See Mitchell v. Forsyth, 472 US 511, 526, 105 S Ct 2806, 2815, 86

LEd2d 411 (1985) (Entitlement to “an immunity from suit * * * is effectively

lost if a case is erroneously permitted to go to trial”) (emphasis omitted).

The trial court also suggested that while ORS 316.197(2) might provide

employers “limited immunity” from claims seeking the actual “amounts

withheld” (i.e., refunds), it might not provide any immunity from claims

seeking additional collateral sanctions, such as statutory penalties. OER-87.

But the Court offered no authority—never mind a basis in the statute itself—

that would permit language referring to “action[s] * * * in respect of any

moneys deducted from wages” to be so dramatically transformed into “[claims]

* * * [seeking only refunds of] any moneys deducted from wages.” OER-86.

On the contrary, “in respect of” is an “expansive” and “encompassing phrase”

that should be construed here as referring to all claims “arising out of” those

deducted amounts. Kosak v. United States, 465 US 848, 854, 104 S Ct 1519,

1523, 79 LEd2d 860 (1984) (holding that “fairest interpretation of * * * ‘any

45

claim arising in respect of’ the detention of goods means any claim ‘arising out

of’ the detention of goods”). Accordingly, Starbucks is entitled to immunity

from Plaintiffs’ claims under Oregon law as well.

CONCLUSION

For the foregoing reasons, this Court should issue a peremptory writ of

mandamus commanding the Circuit Court of Multnomah County to vacate the

July 7, 2017, order in this matter and to enter an order dismissing the case with

prejudice on jurisdictional and immunity grounds.

46

DATED this 30th day of November, 2017.

DAVIS WRIGHT TREMAINE LLP

By: /s Christopher F. McCracken Christopher F. McCracken, OSB # 894002 chrismccracken@dwt.com 1300 SW Fifth Avenue, Suite 2400 Portland, OR 97201-5610 Telephone: (503) 241-2300 Facsimile: (503) 778-5299

AKIN GUMP STRAUSS HAUER & FELD LLP Daniel L. Nash, admitted pro hac vicednash@akingump.com Pratik A. Shah, admitted pro hac vicepshah@akingump.com James E. Tysse, admitted pro hac vicejtysse@akingump.com 1333 New Hampshire Avenue, N.W. Washington, DC 20036-1564

Gregory W. Knopp, admitted pro hac vicegknopp@akingump.com 1999 Avenue of the Stars Suite 600 Los Angeles, CA 90067-6022

Of Attorneys for Defendant-Relator

47

CERTIFICATE OF COMPLIANCE WITH BRIEF LENGTH AND TYPE SIZE REQUIREMENTS

I certify that: (1) this brief complies with the word-count limitation in

ORAP 5.05; and (2) the word-count of this brief, as described in ORAP

5.05(2)(a), is 11,042. I also certify that the size of the type in this brief is not

smaller than 14 point for both the text of the brief and footnotes.

Dated this 30th day of November, 2017.

DAVIS WRIGHT TREMAINE LLP

By: s/ Christopher F. McCracken Christopher F. McCracken, OSB # 894002 chrismccracken@dwt.com

Of Attorney for Defendant-Relator

48

CERTIFICATE OF FILING AND SERVICE

I certify that on November 30, 2017, I filed STARBUCKS

CORPORATION’S OPENING BRIEF by using the Court’s e-Filing System.

I further certify that on November 30, 2017, I served true copies of

STARBUCKS CORPORATION’S OPENING BRIEF on the following party

by using the Court’s e-filing system:

Jon M. Egan, OSB #002467 Egan Legal Team jegan@eganlegalteam.com 547 Fifth Street Lake Oswego, OR 97034-3009 Telephone: (503) 697-3427

DAVIS WRIGHT TREMAINE LLP

By: s/ Christopher F. McCracken Christopher F. McCracken, OSB # 894002 chrismccracken@dwt.com

Of Attorney for Defendant-Relator