BERZON, Circuit Judge:
Like many state, local, and territorial jurisdictions, Guam has struggled for years with chronic budget deficits. Guam settled on a unique solution to its financial problems: It refused to refund over-withheld income taxes, using the money to fund government spending. Confronted with meritorious and uncontested claims for tax refunds, Guam did not issue the refunds, often for several years at a time.
Apparently recognizing that some Guam taxpayers desperately needed their excess tax payments — to which the Guam government has no legal claim — Guam established an "expedited refund" process. Purportedly, taxpayers facing, for example, medical or funeral expenses, would move to the front of the line and be granted refunds without waiting for Guam to make good on the huge backlog of claims. In practice, the expedited refund process was effectively standardless, and it devolved into arbitrariness and favoritism.
A group of Guam taxpayers brought this class-action suit against Guam and several of its officers in their official capacities. The taxpayers alleged that Guam violated the tax provisions of the Organic Act of Guam, 48 U.S.C. § 1421i, by failing timely to refund overpayments, and, via a claim brought under 42 U.S.C. § 1983, the taxpayers also challenged the arbitrary expedited refund program as a violation of equal protection.
The district court granted summary judgment to the taxpayers on both claims, entered a permanent injunction both ending the expedited refund program and requiring Guam to pay approved refunds in a timely manner, and awarded substantial attorney's fees and costs. Guam challenges the district court's orders on a number of grounds. We affirm.
Taxpayers Rea Mializa Paeste, Jeffrey Paeste, Sharon Zapanta, and Glenn Zapanta, on behalf of a class of Guam taxpayers (collectively, "the Taxpayers"), brought this suit against Guam, along with the Governor, the Director of the Department of Revenue and Taxation, and the Director of the Department of Administration of Guam in their official capacities (collectively, "Guam"), challenging systematic delay and unfairness in Guam's handling of income tax refunds. The Taxpayers asserted one claim, against all the defendants, under the Organic Act of Guam, 48 U.S.C. § 1421i;
The district court's findings of fact, which Guam does not challenge on appeal, paint a troubling picture of Guam's taxrefund practices. Guam has, "[s]ince the early 1990s, ... financed chronic budget deficits by regularly delaying the payment of [Guam income tax] refunds to its taxpayers" such that "many ... refunds [were] not paid in a timely manner" and "during [some] periods, no refunds were paid to any one." Guam failed timely to pay refunds even after Guam's Legislature enacted two separate statutes requiring that money be set aside for that purpose.
"Traditionally, the Government of Guam has paid [income tax] refunds in a first-in, first-out order, the same way the Internal Revenue Service ordinarily pays federal income tax refunds."
The director of the Department of Revenue and Taxation ("DRT") testified, for example, that the reasons taxpayers offered for requesting expediting returns were ranked, from medical needs as the most serious to financial hardship as the least. In reality, however, "[w]hile taxpayers experiencing medical emergencies [were] often unable to obtain expedited refunds, other taxpayers with less urgent [financial] needs receive[d] their refunds on an expedited basis." Indeed, "the greatest number of refunds [was] paid to DRT's `catch-all' category of `financial' hardship" despite it purportedly being "the lowest priority."
The process was also opaque and tedious. Guam did not "formally approve or reject requests for expedited refunds," so some taxpayers stood in line at DRT's offices day after day to check on the status
Based on these facts, the district court concluded that the Taxpayers were entitled to summary judgment on both claims. It also entered a permanent injunction prohibiting Guam from operating its expedited refund program. The injunction further provided that, as to any refund claim that contained no material errors and was not subject to an audit or other investigation, "the Government of Guam shall pay the corresponding refund no later than six months after the filing of the claim for refund or six months from the due date for filing the claim for refund, whichever is later...."
These consolidated appeals followed.
Guam challenges the Taxpayers' equal protection claim as not cognizable under § 1983, which provides:
42 U.S.C. § 1983 (emphases added). Guam contends that no defendant is a "person" within the meaning of § 1983, and that the challenged actions were not taken "under color of" territorial law. Guam is wrong.
The Taxpayers contend that both of Guam's arguments regarding § 1983 are waived, as they were not raised before the district court until long after judgment was entered on the merits.
Three circuits have held that "whether [a party] is a `person' under § 1983 is not a jurisdictional question" but rather "a statutory one." Settles v. U.S. Parole Comm'n, 429 F.3d 1098, 1105 (D.C.Cir. 2005); accord Barker v. Goodrich, 649 F.3d 428, 433 n. 1 (6th Cir.2011); Bolden v. Se. Pa. Transp. Auth., 953 F.2d 807, 821 (3d Cir.1991) (en banc). We agree and so hold.
Whether the defendant is a "person" within the meaning of the statute is "a necessary inquiry for the purposes of establishing the essential elements of [a] § 1983 claim." Pistor v. Garcia, 791 F.3d 1104, 1114 (9th Cir.2015). But, as a general matter, "the absence of a valid (as opposed to arguable) cause of action does not implicate subject-matter jurisdiction." Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 89, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998); see also Verizon Md., Inc. v. Pub. Serv. Comm'n of Md., 535 U.S. 635, 642-43, 122 S.Ct. 1753, 152 L.Ed.2d 871 (2002) (same). Here, the Taxpayers' § 1983 claim, including their contention that the defendants are "persons" within the meaning of the statute, was not "made solely for the purpose of obtaining jurisdiction or ... wholly insubstantial and frivolous." Steel Co., 523 U.S. at 89, 118 S.Ct. 1003 (internal quotation marks omitted). Indeed, that claim was not only arguable but, as the district court held, actually meritorious. Thus, Guam's statutory argument does not implicate subject matter jurisdiction. "Recharacterizing an issue of statutory interpretation as `jurisdictional' is mere wordplay." Settles, 429 F.3d at 1105.
Nor, as Guam contends, is there a circuit split on this question. Both Seventh Circuit cases on which Guam relies as holding to the contrary grounded their jurisdictional holdings on Eleventh Amendment sovereign immunity. See Sherman v. Cmty. Consol. Sch. Dist. 21, 980 F.2d 437, 441 (7th Cir.1992) (concluding that a suit against a state official was "an effort to obtain a judgment binding the State of Illinois as an entity" and therefore barred by the Eleventh Amendment); Toledo, Peoria & W.R. Co. v. State of Ill., Dep't of Transp., 744 F.2d 1296, 1298-99 (7th Cir.1984) (relying on state sovereign immunity in concluding that "[t]his section 1983 action against ... a state agency[] fails for lack of federal court jurisdiction"). While the statutory definition of "person" is "[s]imilar to and often conflated with Eleventh Amendment immunity," the concepts are distinct. Barker, 649 F.3d at 433 n. 1. There is no circuit split as to the non-jurisdictional nature of the statutory question "when stripped of its Eleventh Amendment component." Bolden, 953 F.2d at 821.
Guam does not contend that it is entitled to Eleventh Amendment immunity, but does assert federal sovereign immunity, arguing that it is entitled to immunity to the same extent accorded the federal government. This argument is also unavailing.
Even if Guam enjoys sovereign immunity, of whatever sort, from the Taxpayers' § 1983 claim, that claim was not brought against Guam itself, but only against its officers in their official capacities, and only for declaratory and injunctive relief.
In sum, Guam's § 1983 arguments do not implicate subject-matter jurisdiction. Thus, our ordinary practice applies, under which we typically "decline to consider arguments raised for the first time on appeal." Dream Palace, 384 F.3d at 1005. "We have, however, laid out several narrow exceptions to the rule — among them, the case in which the issue is purely one of law, does not affect or rely upon the factual record developed by the parties, and will not prejudice the party against whom it is raised." Id. (internal quotation marks omitted). Under this exception, we exercise our discretion to consider Guam's § 1983 arguments.
Guam Society of Obstetricians & Gynecologists v. Ada held that a Guam officer sued in his official capacity is a "person" within the meaning of § 1983. 962 F.2d at 1370-71. Guam's arguments to the contrary are meritless.
Two years before we decided Ada, Ngiraingas II held that "neither the Territory of Guam nor its officers acting in their official capacities are `persons' under § 1983." 495 U.S. at 192, 110 S.Ct. 1737. Nearly all of the Supreme Court's analysis addressed whether Guam itself was a "person," concluding, based principally on § 1983 legislative history, that it was not. See id. at 187-92, 110 S.Ct. 1737. But the plaintiffs in that case had also sued several Guam officials in their official capacities for damages. Id. at 184, 110 S.Ct. 1737. The Supreme Court noted the conclusions of the district court and this court that "because a judgment against those defendants in their official capacities would affect the public treasury, the real party in interest was the Government of Guam." Id. at 184-85, 110 S.Ct. 1737. The Court's own analysis as to the officials was limited to the following: "Petitioners concede, and we agree, that if Guam is not a person, neither are its officers acting in their official capacity." Id. at 192, 110 S.Ct. 1737 (citation omitted).
Two years later, Ada held that a Guam official "is a `person' when sued in his official capacity for prospective relief." 962 F.2d at 1370. Ada binds us, and Ngiraingas II, an earlier-decided Supreme Court decision, offers no basis for us, as a three-judge panel, to reconsider Ada. See Miller v. Gammie, 335 F.3d 889, 900 (9th Cir.2003) (en banc).
Even if we could revisit Ada, we would decide the issue in accord with that case. Ada acknowledged the general statement as to Guam officers in Ngiraingas II, but pointed out the established
There is, indeed, no reason why these established principles, applicable to states, should not apply to territories as well. Accord McCauley v. Univ. of Virgin Islands, 618 F.3d 232, 240-41 (3d Cir.2010) (citing Will, 491 U.S. at 71 n. 10, 109 S.Ct. 2304; Brow v. Farrelly, 994 F.2d 1027, 1037 n. 12 (3d Cir.1993), as amended (May 26, 1993)); see also Playboy Enter., Inc. v. Pub. Serv. Comm'n of Puerto Rico, 906 F.2d 25, 31 n. 8 (1st Cir.1990) (concluding that Ngiraingas II did not foreclose § 1983 liability, in part because the plaintiffs sought only injunctive relief); cf. Pistor, 791 F.3d at 1112 (noting that Graham's "same principles fully apply" in the context of Indian tribes). Ngiraingas II did not, it is true, expressly state that the prospective-relief exception applies to official-capacity suits against territorial officers. But that silence indicates little; the Court did not address prospective relief at all, because the plaintiffs sought none. See 495 U.S. at 184, 110 S.Ct. 1737. Particularly given the cursory treatment of the official-capacity defendants in that case, and the plaintiffs' concession there that the same rule would apply to both Guam and the official-capacity defendants, we do not read Ngiraingas II to establish markedly different treatment of official-capacity suits as between states and territories.
Guam puts forward another theory as to why Ada is not binding — that it is inconsistent with Ngiraingas v. Sanchez, 858 F.2d 1368 (9th Cir.1988) ("Ngiraingas I"), the case reviewed by the Supreme Court in Ngiraingas II. Ngiraingas I concluded that Guam "`is in essence an instrumentality of the federal government,' much like a federal department or administrative agency," and so "Guam, like the federal government, should not be held liable on the same terms as other entities." Id. at 1370-71 (citation omitted) (quoting Sakamoto v. Duty Free Shoppers, Ltd., 764 F.2d 1285, 1286 (9th Cir.1985)).
First, if there really were an irreconcilable conflict in our caselaw, "we could not simply pick one [case] to follow — we would be required to call this case en banc." United States v. Torre-Jimenez, 771 F.3d 1163, 1167 (9th Cir.2014) (citing Atonio v. Wards Cove Packing Co., 810 F.2d 1477, 1478-79 (9th Cir.1987) (en banc)); see also United States v. Washington, 593 F.3d 790, 798 n. 9 (9th Cir.2010) (en banc).
Second, the portion of Ngiraingas I on which Guam relies is almost surely no longer binding precedent. Although Ngiraingas II affirmed Ngiraingas I's holding that Guam is not a "person" under § 1983, it did so on an entirely different rationale. See Ngiraingas II, 495 U.S. at 185, 187-92, 110 S.Ct. 1737. The dissent in Ngiraingas II understood the majority opinion in Ngiraingas II as rejecting our "conclusion that Guam is outside the coverage of § 1983 because it is an instrumentality of the Federal Government," observing that our interpretation was "flatly inconsistent" with the statute's manifest intent that at least natural persons could be held liable for acts under color of territorial law. 495 U.S. at 204 n. 10, 110 S.Ct. 1737 (Brennan, J., dissenting); see also Ada, 962 F.2d at 1371.
Finally, there is a third reason that the argument based on Ngiraingas I does not avail Guam. Ngiraingas I's analysis of official-capacity suits is not inconsistent with Ada. The portion of Ngiraingas I on which Guam relies is its analysis as to whether Guam was a "person," not as to whether its officials were. As to the officials sued in that case, we relied, as the Supreme Court noted, Ngiraingas II, 495 U.S. at 185, 110 S.Ct. 1737, on the established doctrine that "a suit where the relief sought would affect the public treasury and public administration[] is deemed to be a suit against the government itself" in holding that "the individual defendants acting in their official capacities [were] not amenable to suit under section 1983," Ngiraingas I, 858 F.2d at 1372. In other words, Ngiraingas I's holding as to the official-capacity defendants was explicitly predicated on the fact that the suit was one seeking damages. Ada recognized the rule precluding suits for damages against officials in their official capacities, but also recognized the established, contrary principle applicable to suits seeking prospective relief. 962 F.2d at 1371.
In sum, the official-capacity defendants in this case are "persons" within the meaning of § 1983 for purposes of prospective relief.
Guam next argues that none of the conduct at issue in this case was undertaken
At the outset, we note some confusion regarding the extent to which the Taxpayers rely on § 1983. In its briefing, Guam asserted that both the claims in this case were brought under § 1983; the oral argument suggested confusion on this score. The complaint is quite clear, however, that only the equal protection claim is asserted under § 1983, and the district court was even clearer: "Plaintiffs' first cause of action... is for violation of the Organic Act of Guam, 48 U.S.C. § 1421i," while "Plaintiffs' second cause of action ... is under 42 U.S.C. § 1983 for violation of the Equal Protection Clause." The district court was right — only the equal protection claim was asserted under § 1983.
This clarification goes a long way towards answering Guam's argument. The equal protection claim brought under § 1983 is that Guam officials established an expedited refund process that was so standardless and arbitrary that it violated principles of equal protection. That process was not established by Congress and signed by the President; it is not mentioned in the Organic Act or the Internal Revenue Code. It was created and administered entirely by Guam officials. Those officials used the power vested in them by virtue of their position as territorial officers to authorize or refuse refunds of tax overpayments collected by Guam, held by Guam, and obliged to be refunded by Guam. No officer or agency of the federal government was involved at any point.
Moreover, even if implementation of a federal law (other than the Constitution) did in some sense underlay the § 1983 claim, that circumstance would not alter our conclusion that the defendants acted under color of territorial law. "The traditional definition of acting under color of state law requires that the defendant in a § 1983 action have exercised power `possessed by virtue of state law and made possible only because the wrongdoer is clothed with the authority of state law.'" West v. Atkins, 487 U.S. 42, 49, 108 S.Ct. 2250, 101 L.Ed.2d 40 (1988) (quoting United States v. Classic, 313 U.S. 299, 326, 61 S.Ct. 1031, 85 L.Ed. 1368 (1941)). "Thus, generally, a public employee acts under color of state law while acting in his official capacity or while exercising his responsibilities pursuant to state law." Id. at 50, 108 S.Ct. 2250; see also Naffe v. Frey, 789 F.3d 1030, 1036 (9th Cir.2015).
We recognize that suits against territorial officers are importantly different from those against state officers. Because territories are organized under federal law, see U.S. Const. art. IV, § 3, cl. 2, the actions of territorial officers are always, in some sense, under color of federal law. But that cannot be, and is not, the sense in which that term is used in § 1983. Section 1983 does not generally authorize challenges to actions taken under color of federal law, but it does, expressly, contemplate suits for violations of federal rights under color of territorial law. See District of Columbia v. Carter, 409 U.S. 418, 424-25,
All of the § 1983 defendants in this case were territorial officers, accused of administering the expedited refund program while acting in their official capacities, or, in other words, using "power possessed by virtue of [territorial] law and made possible only because [they were] clothed with the authority of [territorial] law." West, 487 U.S. at 49, 108 S.Ct. 2250 (internal quotation marks omitted).
Guam argues otherwise, maintaining that the particular contours of Congress's delegation to Guam officials of authority to administer Guam's income tax, see Chaco, 539 F.2d at 1227, indicates that the defendants were in reality acting under color of federal law. We see no basis for establishing a special carve-out limited to the relationship between Congress and Guam officials established by the tax provisions at issue here. Our caselaw indicates that these defendants would be properly sued under § 1983 even if the actions they took as territorial officers were required by federal law.
In Tongol v. Usery, 601 F.2d 1091 (9th Cir.1979), a class of plaintiffs sued the federal Secretary of Labor and three California state defendants, seeking to invalidate a regulation promulgated by the Secretary that required state officials to recover overpayments of unemployment benefits despite state laws permitting waiver of such recoupment. Id. at 1094. The district court invalidated the regulation, and we affirmed. Id. at 1095-96. The district court held, however, that attorney's fees were not available under 42 U.S.C. § 1988 for the plaintiffs' claim under § 1983, because the suit attacked a federal regulation, and the state, through the official-capacity defendants, was "simply implementing the federal regulations as it was obliged to do." Id. at 1096-97 (internal quotation marks omitted). We disagreed.
The "under color" requirement of § 1983, we held in Tongol, was satisfied even though the regulation implemented was federal. "[T]he relevant inquiry focuses
Similarly here, even if the territorial officials had been obliged by federal law to institute the arbitrary expedited refund process — which they most certainly were not — they were empowered to act only in their capacities as territorial officers. Thus, they were acting under territorial law within the meaning of § 1983.
We arrive, finally, at Guam's only challenge to the district court's merits decisions.
The district court stated in its conclusions of law that "the provisions of the Internal Revenue Code applicable on Guam generally require Defendants to pay refunds to taxpayers no later than six months after the filing date of the corresponding claims for refund," a legal conclusion Guam contends is wrong. In support of the six-month deadline in the injunction, the district court provided the following analysis: "Under the Internal Revenue Code, a taxpayer can sue to recover his or her refund six months after its filing date, 26 U.S.C. § 6532(a)(1), signifying that a taxpayer's right to a refund vests at that time, unless there is an offset, audit, or some other administrative reason that justifies continued withholding of the payment."
Section 6532(a)(1) provides, in relevant part:
26 U.S.C. § 6532(a)(1). As Guam points out, § 6532(a)(1) is, on its face, a limitation, prohibiting suits until six months have elapsed; it does not state directly when the IRS must provide refunds within that period. The district court recognized as much. Guam challenges the six-month
We need not decide whether the district court's statements, if so understood, would constitute legal error. Our question here is solely whether the district court's inclusion in the injunction of a six-month deadline for paying refunds was an abuse of its discretion. To decide that question, we consider that provision in the context of the totality of the district court's articulated concerns, as expressed during the summary judgment hearing.
In discussing the Organic Act claim at the hearing, the Taxpayers suggested that an injunction should require Guam to pay refunds "in a timely manner" and "in an ordinary course." The court expressed concern that an injunction including a vague limitation "to the effect [of] `a reasonable time period' or `in due course,'" would "just bring another lawsuit because there's no guidance being given as to a time frame for" disbursing refunds. The Taxpayers agreed that was a "fair point" and suggested that "it's fairly evident from the Internal Revenue Code[,] which allows a taxpayer to file a lawsuit to [sic] their refund after six months, that the corollary to that is that once six months has passed, they have a right to their refunds" and "[s]o if the Court is interested in setting a time period, that would certainly be one which makes sense to us."
This colloquy indicates that the district court included the six-month pendency period of § 6532(a)(1) only as a benchmark for a reasonable time limitation, and included that time period in the injunction to give sufficient specificity for enforcement purposes. Understood in this light, the six-month provision of the district court's injunction was well-supported. Section 6532(a)(1) is certainly indicative of Congress's expectation that six months is a sufficient period for administrative processing of a valid claim for a tax refund. And a reasonable time limitation was amply justified by Guam's chronic failure to pay refunds, sometimes for years, and the court's concern that an indefinite injunction would only spark new litigation. Such a limitation was well within the court's broad discretion in fashioning relief. See State of Cal. Dep't of Soc. Servs. v. Thompson, 321 F.3d 835, 857 (9th Cir.2003).
Guam contends that, even apart from the purported legal error, the six-month period was simply too short, and unjustifiably tied Guam's hands in administering its budget. More broadly, Guam suggests that, under the Internal Revenue Code and the Organic Act, it has the power to defer refund payments for its own budgetary purposes for as long as it pleases, so long as it eventually pays the overpayment back with interest. See 26 U.S.C. § 6611.
We thoroughly disagree. These tax overpayments were never Guam's to begin with, and it has no legal claim to them. See Weber v. C.I.R., 138 T.C. 348, 356, 2012 WL 1585702 (2012) ("[T]he IRS `shall' refund any overpayment not otherwise credited....") (quoting 26 U.S.C. § 6402(a)); Estate of Michael ex rel. Michael v. Lullo, 173 F.3d 503, 509 (4th Cir.1999) ("If a tax payment is an `overpayment,' the IRS must refund it.") (quoting 26 U.S.C. § 6402(a)).
We acknowledge that many governments struggle to balance their budgets, particularly in times of economic uncertainty and increasing fiscal demands. But, as the district court correctly concluded, Guam's solution — refusing to pay concededly valid requests for income tax refunds for years on end — was illegal. Guam's policy also fell most heavily on taxpayers of limited means, while expedited refunds were available to those with personal or political connections. As the district court held and its injunction assures, Guam must find another way to deal with its fiscal difficulties.