On June 20, 2011, the U.S. Court of Appeals for the Fourth Circuit ruled that the federal district court had jurisdiction to adjudicate a case involving the constitutionality and validity of a levy imposed on a single entity. GenOn Mid-Atlantic, LLC v. Montgomery Cty., No. 10-1882 (4th Cir. June 20, 2011). In response to the Fourth Circuit’s decision, Montgomery County enacted legislation repealing the levy and providing a full refund—with interest—to the fee payer.
The GenOn case involved legislation that Montgomery County enacted in 2010, which imposed a $5 per ton levy on “major emitters” of carbon dioxide emissions. Montgomery County set the emissions threshold for a “major emitter” to include only those entities emitting more than one million tons of carbon dioxide during the year. The County also structured the levy such that once major emitters exceeded one million tons of carbon dioxide emissions, they were required to pay the levy retroactively on each ton of emissions, going back to the first ton emitted. As a result, GenOn was the only entity subject to the levy and was subject to the levy on every ton of carbon dioxide emitted.
GenOn filed a complaint in the U.S. District Court for the District of Maryland alleging that the levy violated both the Maryland and U.S. Constitutions. Montgomery County attempted to dismiss the case on jurisdictional grounds, arguing that the Tax Injunction Act (“TIA”) deprives federal courts of jurisdiction over actions to restrain the assessment, levy, or collection of any tax if a plain, speedy, and efficient remedy exists at state law. The Fourth Circuit held that the levy was not subject to the TIA because it was a punitive fee rather than a tax. In support of this finding, the court noted that the levy was targeted toward and imposed upon a single entity; GenOn could not pass the cost of the levy onto its customers; and the levy was regulatory in nature because it was part of the County’s broader environmental goal to reduce carbon dioxide emissions. The Fourth Circuit held that: “The implications of allowing localities to impose financial extractions exclusively upon single entities of national reach with no accountability in federal court are profound, and we decline to foreclose these federal claims with a jurisdictional bar.”
In response to the Fourth Circuit’s decision, Montgomery County immediately introduced legislation to repeal the levy and issued to GenOn a full refund of amounts paid. The Sutherland SALT team represented GenOn in this matter.