                                                                              FILED
                            NOT FOR PUBLICATION
                                                                              JUL 19 2018
                    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
                                                                           U.S. COURT OF APPEALS


                            FOR THE NINTH CIRCUIT


KATHY ARMSTRONG, individual; et al.,             No.    16-35422

              Plaintiffs-Appellants,             D.C. No. 6:15-cv-00114-SEH

 v.
                                                 MEMORANDUM*
GENE WALBORN, in his official
capacity as Director of the Montana
Department of Revenue,

              Defendant-Appellee.


                    Appeal from the United States District Court
                            for the District of Montana
                     Sam E. Haddon, District Judge, Presiding

                       Argued and Submitted March 6, 2018
                               Seattle, Washington

Before: RAWLINSON and CHRISTEN, Circuit Judges, and BENCIVENGO,**
District Judge.

      Plaintiffs appeal the district court’s dismissal of their challenge to a Montana

regulation that denies a tax credit for donations applied towards religious

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The Honorable Cathy Ann Bencivengo, United States District Judge
for the Southern District of California, sitting by designation.
education.1 We have jurisdiction under 28 U.S.C. § 1291. We conclude that the

Tax Injunction Act (TIA) deprives the federal courts of subject matter jurisdiction

over the Armstrongs’ claims and affirm the district court’s dismissal of their

action.

      The TIA prohibits federal courts from “enjoin[ing], suspend[ing] or

restrain[ing] the assessment, levy or collection of any tax under State law where a

plain, speedy and efficient remedy may be had in the courts of such State.” 28

U.S.C § 1341. The statute “serves ‘state-revenue-protective objectives’ and

accordingly applies only if the requested relief would ‘reduce the flow of state tax

revenue.’” Fredrickson v. Starbucks Corp., 840 F.3d 1119, 1123 (9th Cir. 2016)

(quoting Hibbs v. Winn, 542 U.S. 88, 104, 106 (2004)); see May Trucking Co. v.

Or. Dep’t of Transp., 388 F.3d 1261, 1267 (9th Cir. 2004).

      The Armstrongs’ complaint alleged that they are taxpayers who intend to

donate to Student Scholarship Organizations under the Montana Scholarship Tax




      1
          As the parties are familiar with the facts, we do not recount them here.
                                             2
Credit Program were their suit to be successful.2 “To determine whether this

litigation falls within the TIA’s prohibition, it is appropriate, first, to identify the

relief sought.” Hibbs, 542 U.S. at 99. We then “appl[y] a searching analysis of the

effect of federal litigation on the state’s ability to collect revenues . . . .” Winn v.

Killian, 307 F.3d 1011, 1017 (9th Cir. 2002) (emphasis in original). Unlike the

plaintiffs in Winn, the Armstrongs are challenging the denial and not “the granting

of a state tax credit.” Id.; see Griffin v. Cnty. Sch. Bd. of Prince Edward Cnty., 377

U.S. 218 (1964). This distinction is crucial. We observed in Winn that if plaintiffs

there had prevailed, the state’s revenue stood to be increased—because its tax

collections stood to be increased—by the elimination of the offending tax credits.

The Armstrongs seek the opposite outcome. Their complaint demands that the

state recognize tax credits for donations supporting religiously-affiliated

educational institutions. As such, Montana will be required to extend additional

tax credits, resulting in the “deplet[ion] [of] state coffers” if the Armstrongs

prevail. Levin v. Commerce Energy, Inc., 560 U.S. 413, 425 (2010). “[B]ecause a



       2
         In a 28(j) letter filed after oral argument was heard in this case, the
Armstrongs suggest, for the first time, that they are “only challeng[ing] the
restriction on money already donated for use at solely secularly schools.” Rule
28(j), however, is not a proper device for amending pleadings or raising new issues
and we do not sanction its use here. Brady v. Gebbie, 859 F.2d 1543, 1557 n.13
(9th Cir. 1988).
                                             3
federal court order requiring a state to grant a tax refund is functionally equivalent

to an order preventing the collection of taxes,” it is subject to the TIA. Winn, 307

F.3d at 1017 (citing Dillon v. State of Mont., 634 F.2d 463 (9th Cir.1980)).

      The TIA only bars federal courts from considering this type of challenge if a

plain, speedy and efficient remedy may be had in state court. Because a case

raising the same issues as those presented by the Armstrongs has succeeded on the

merits in state district court and is currently on appeal to the Montana Supreme

Court, we are persuaded that Montana’s state courts provide plaintiffs “a plain,

speedy and efficient remedy.” 28 U.S.C § 1341. The district court therefore

lacked subject matter jurisdiction over the Armstrongs’ claims.3

      AFFIRMED in part; decision RESERVED in part.

      The panel retains jurisdiction over this appeal.




      3
         Application of the TIA to claims asserted by the Association of Christian
Schools International has not been briefed by the parties. They are therefore
ordered to file, within 14 days of the filing date of this memorandum disposition,
simultaneous letter briefs not longer than 15 pages addressing this issue. Contrary
to the dissent’s suggestion, we make no ruling on the Association’s claims.
Instead, by separate order we provide an opportunity for the remaining parties to
brief the applicability of the TIA. When that briefing is received, we will rule on
the remaining issues.
                                           4
                                                                              FILED
Armstrong v. Walborn, Case No. 16-35422                                        JUL 19 2018
Rawlinson, Circuit Judge, dissenting:                                      MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS

      I respectfully dissent from the majority’s conclusion that the Tax Injunction

Act stripped the district court of jurisdiction over this case.

      The majority’s conclusion ignores the explicit holding in Winn v. Killian,

307 F.3d 1011, 1017 (9th Cir. 2002), that the Tax Injunction Act does not apply to

tax credits. (“The invalidation of a tax credit . . . does not adversely affect the

state’s ability to raise revenue”). Our ruling was upheld by the Supreme Court in

Hibbs v. Winn, 542 U.S. 88 (2004). Although not as explicit as our ruling, the

Supreme Court agreed that the Tax Injunction Act applies only to actions seeking

to “restrain the Commissioner from collecting taxes,” not actions seeking

exemptions after the taxes have been collected. Id. at 103.

      The majority seeks to distinguish our holding in Winn by pointing out that

the Armstrongs are challenging the denial of a state tax credit rather than the grant

of a state tax credit. For starters, the record reflects that the Armstrongs have never

been denied a tax credit. Rather, the Armstrongs challenge the manner in which

the donations generating tax credits are distributed. See Complaint ¶ 6 (“Kathy

and Jerry Armstrong are also taxpayers in the State of Montana. They would

donate to Student Scholarship Organizations under the Montana Scholarship Tax



                                            1
Credit Program, if their donations could be used at religious schools. They do not

intend to donate to a Student Scholarship Organization unless their donations could

be used at religious schools.”)

      The fact remains that the Armstrongs are eligible for the tax credit, as is

every other Montana taxpayer. See Mont. Code Ann. § 15-30-3111(1). The

Armstrongs have not been denied a tax credit, are not seeking to avoid a tax

liability and no tax refund request is pending. Because the taxes have already been

collected for donation purposes, the Armstrongs’ requests for declaratory and

injunctive relief can only affect the recipients of the donations, not the amount of

money collected for the public fisc. See Hibbs, 542 U.S. at 103.

      The Armstrongs never challenged the statute establishing the tax credit.

They never sought to enjoin the grant or denial of tax credits to any particular

group or individual. Of their own volition, they opted not to participate in the tax

credit program because they disagree, on religious grounds, with the way the

donations are administered after tax credits are dispersed to the program.1 If the

Armstrongs prevail, the donations may be dispersed more widely, but the outcome

      1
        The 28(j) letter referenced by the majority only memorialized the
Armstrongs’ position taken from the outset, consistent with the structure of the
statute, which comes into play only after taxes have been collected. Interestingly,
not one party to this case agrees with the majority that the Tax Injunction Act bars
this appeal.
                                           2
will not “operate[ ] to reduce the flow of state tax revenue.” May Trucking Co. v.

Oregon Dep’t of Transp., 388 F.3d 1261, 1267 (9th Cir. 2004).

      The majority disposition also disposes of the claims of plaintiff Association

of Christian Schools International (Association). The Association alleged that it is

“a non-profit, non-denominational, religious association providing support services

to nearly 24,000 Christian schools in over 100 countries.” The Association

complains that because it “is a religious organization, none of the schools that it

accredits is eligible to enroll the students who receive scholarships under the

Scholarship Tax Credit Program.” The Association asserts that religious schools

are being “deprive[d] . . . of their constitutionally protected rights to compete on

equal terms with non-religious schools, and will force them to choose between

maintaining their status as a religious school and participating in the Montana

Scholarship Tax Credit Program.” See Complaint, ¶ 7.

      The allegations of the Association are even further removed from the flow of

public funds, and it is difficult to imagine how the Tax Injunction Act bars this

religious discrimination claim.

      I respectfully dissent.




                                           3
