Wright v. Linebarger Googan Blair & Sampson, LLP, No. 02-30589, 2011 WL 1100462 (W.D. Tenn. March 22, 2011).

The plaintiff filed suit against the defendant, a law firm hired to collect delinquent property taxes owed to Memphis, Tennessee. The plaintiff alleged that the amount that he had to pay to the City in delinquent taxes included an unreasonable attorney’s fee of twenty percent. (Editors’ Note:  Whoa! 20% is too much? What planet are you from? Next time pay your taxes. Remember there is a difference between tax avoidance and tax evasion.) The plaintiff claimed that the defendant injured thousands of other taxpayers and, therefore, CAFA should apply to give the federal court jurisdiction over this case.

However, the defendant claimed that the plaintiffs would not meet the requirement that the overall amount in controversy be at least $5,000,000, with one plaintiff having a claim of at least $75,000. The court held that, in terms of CAFA, a single plaintiff need not have a claim of $75,000 as long as the entire class would meet the $5,000,000 requirement. Since the defendant could not prove that the plaintiff asserted the class would meet the $5,000,000 requirement in bad faith, the defendant’s argument failed.

Next, the defendant tried to have the federal court proceeding stayed until a companion state court proceeding was resolved. In order to determine whether a stay would be proper, it must be determined whether the two court proceedings are “substantially similar” so that they can be considered parallel. 

The court found that the City was the only defendant in the state court action, while Linebarger was the only defendant in the federal court action. Since these two sets of defendants differed and each court would be deciding different issues, these cases were not considered parallel and, therefore, the federal court proceeding was not stayed pending the outcome of the state court proceeding.

The defendant next claimed that the Tax Injunction Act (“TIA”) prevents the federal court from enjoining the collection of a tax under state law when the state court has an efficient remedy. However, the court held that the defendant failed to point to any cases saying that TIA prevents a private person from being sued in federal court. Therefore, this argument also failed.

Finally, the court shot down the defendant’s arguments of joinder, failure to state a claim of unjust enrichment, and conversion. The court granted the defendant’s motion to dismiss for failure to state a claim under the Tennessee Consumer Protection Act and for failure to state a claim of negligence. However, to the defendant’s dismay, the court ultimately held that both the state and federal court proceedings could continue.

Stay tuned to see whether twenty percent is an unreasonable attorney’s fee for the collection of delinquent taxes!

By: Hillary Barnett