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Tax Law

The Comity Club: Federal Judge Remands Indiana Franchise Fee Case Back to State Court

Citing to principles of comity, a federal district court remanded back to state court a class action suit brought by Indiana municipalities seeking franchise fees from various streaming video companies.

The Indiana municipalities filed a class action lawsuit against the streaming video companies in state court, asserting that the companies were obligated to pay franchise fees under Indiana’s Video Service Franchise Act (“VSF Act”).  The video streaming companies removed the action to federal court, but the municipalities then moved the federal court to remand the action back to state court, arguing that the matter was more appropriate for Indiana courts under the doctrine of comity.

Agreeing with the municipalities, the court applied the “confluence of factors” adopted by the U.S. Supreme Court in Levin v. Commerce Energy, Inc., 560 U.S. 413 (2010) in reaching its decision that comity warranted abstention.  Applying the factors identified in Levin, the court determined that:

  • the lawsuit involves commercial regulation (“matters over which the State of Indiana and its municipalities have traditionally enjoy[ed] wide regulatory latitude”) and does not implicate any fundamental right or suspect classification requiring heightened judicial scrutiny;
  • the streaming video companies invoked federal court jurisdiction “to improve their competitive position” when compared to other companies that are required to pay franchise fees under the VSF Act; and
  • the matter involves interpretation of Indiana state law—specifically, provisions of the VSF Act—for which Indiana state courts are better positioned than federal courts to correct any potential constitutional or other violations.

As such, the court concluded that these considerations, “in combination,” warranted remand to state court in “deference to the state adjudicative process.”

Order, City of Fishers v. Netflix, Inc., No. 1:20-cv-02351-JMS-MPB (S.D. Ind. Nov. 18, 2020)