Ninth Circuit affirms injunction ordering Guam to pay tax refunds

Paeste v. Gov’t of Guam, Nos. 13-15389, 13-17515, 14-16247 (9th Cir. Aug. 26, 2015).

A Spanish cannon in Umatac, Guam (credit: drufisher / flickr)

A Spanish cannon in Umatac, Guam (credit: drufisher / flickr)

Guam financed chronic budget deficits by regularly delaying its payment of tax refunds. It did institute a system of “expedited refunds,” which it would pay more quickly than other refunds, but the process of applying for an expedited refund, and the reasons that Guam would grant an expedited refund, were opaque and inconsistent. While taxpayers with medical emergencies often couldn’t get expedited refunds, other taxpayers with less urgent needs successfully applied for expedited refunds. The expedited-refund system was also corrupt: employees of the Guam Department of Revenue and Taxation successfully expedited their own refunds, and those of family and friends, without ever filling out the application. 

Several Guam taxpayers brought a class action, asserting that Guam’s inconsistent tax-refund system violated the Equal Protection Clause, and that Guam’s delayed refunds violated the Organic Act of Guam. The district court granted the taxpayers summary judgment and entered a permanent injunction requiring Guam to pay valid refunds within six months of a refund claim. 

Guam now appeals. It argues that § 1983 doesn’t authorize the taxpayers’ equal-protection claim. Guam officials, it maintains, aren’t “persons” within the meaning of § 1983, and anyway these officials didn’t act under color of territorial law. The Ninth Circuit has little trouble rejecting these arguments. Guam also challenges the district court’s order requiring it to pay valid refunds within six months, arguing that the Internal Revenue Codemuch of which applies to Guamdoesn’t require the payment of refunds within six months. The Ninth Circuit holds that even if the IRC doesn’t include that requirement, the six-month requirement still wasn’t an abuse of the district court’s broad discretion to fashion equitable relief. The injunction is affirmed in full.

An interesting issue lurks in the background of this case. Over a century ago, the Insular Cases held that full constitutional rights don’t automatically extend to the territories acquired in the Spanish-American War. Nevertheless, Congress, by statute, has extended the Equal Protection Clause to Guamanians. That statute makes it unnecessary for the Ninth Circuit to decide whether the Equal Protection Clause would extend to Guam on its own. In a footnote, though, the court notes that the Insular Cases have “been the subject of extensive judicial, academic, and popular criticism”—and it eclectically cites both Judge Juan R. Torruella and John Oliver.