Summary
The Seventh Circuit affirmed the district court's remand to state court under the comity abstention doctrine from *Levin v. Commerce Energy, Inc.*, holding that franchise fees under the Indiana Video Service Franchises Act are akin to taxes for comity purposes. The court found that the *Levin* factors—state regulatory latitude over utility and revenue matters, the streaming platforms' attempt to improve their competitive position, and state courts' superior familiarity with state law—all supported abstention. The court also rejected the argument that the Class Action Fairness Act eliminated comity abstention, but noted the streaming platforms waived that argument by failing to raise it below. Key topics: comity abstention, state tax/fee collection, franchise fees, removal, CAFA, waiver.
Topics
Practice areas
Questions Presented
- Whether the district court properly abstained from exercising federal jurisdiction under the comity abstention doctrine articulated in Levin v. Commerce Energy, Inc., 560 U.S. 413 (2010).
Holdings
- The district court did not abuse its discretion in remanding the case to state court on comity abstention grounds. The comity doctrine applies to this dispute because the franchise fees at issue are akin to taxes, and the factors identified in Levin support abstention: (1) Indiana and its municipalities enjoy wide regulatory latitude over utility regulation and state revenue; (2) the streaming platforms seek federal aid to improve their competitive position; and (3) Indiana state courts are better positioned to interpret the state statute and resolve any federal defenses.
Key quotations
“Federal courts have a 'virtually unflagging obligation' to exercise the jurisdiction given them.” (at 4)
“Because a decision to abstain pushes against this obligation, '[a]bstention from the exercise of federal jurisdiction is the exception, not the rule.'” (at 5)
“The comity doctrine, the Court emphasized, reflects 'a proper respect for state functions, a recognition of the fact that the entire country is made up of a Union of separate state governments, and a continuance of the belief that the National Government will fare best if the States and their institutions are left free to perform their separate functions in separate ways.'” (at 8)
“The district court considered these factors with care, reasoning that: [First] the streaming companies 'seek federal-court intervention over matters over which the State of Indiana and its municipalities have traditionally enjoyed wide regulatory latitude—specifically, utility regulation and state revenue.' [Second] the streaming companies 'invoke the Court’s jurisdiction to improve their competitive position, namely over traditional cable television and landline telephone providers that pay franchise fees under the VSF Act.' [Third] 'this matter involves interpretation of Indiana state law—specifically, certain provisions of the VSF Act—for which this Court could identify no precedent from any Indiana court.'” (at 11)
Factual background
The Indiana Video Service Franchises Act of 2006 requires video service providers to enter into franchise agreements with the Indiana Utility Regulatory Commission and pay quarterly franchise fees to local government units. Traditional cable companies like Comcast and AT&T have complied, but streaming platforms like Netflix, Hulu, Disney, DIRECTV, and DISH Network have not. In August 2020, four Indiana cities filed a class action in state court seeking a declaration that the streaming platforms provide video service under the Act and must pay past and future franchise fees. The streaming platforms removed the case to federal court.
Procedural history
The cities of Fishers, Indianapolis, Evansville, and Valparaiso filed a putative class action in Marion Superior Court against Netflix, Disney, Hulu, DIRECTV, and DISH Network, seeking a declaration that the streaming platforms provide video service under the Indiana Video Service Franchises Act and must pay franchise fees. The defendants removed to federal court under 28 U.S.C. §§ 1441 and 1453, invoking diversity jurisdiction and the Class Action Fairness Act. The cities moved to remand on abstention grounds, invoking the comity abstention doctrine under Levin v. Commerce Energy, Inc. The district court granted the motion and remanded. The defendants appealed.