Great Lakes Dredge & Dock Co. v. Huffman

Background

A group of employers who operate dredges, pile drivers, quarter boats, tugs, launches, barges, and other vessels used to improve channels in Louisiana challenged the state’s unemployment compensation law. They asked a federal court for a declaratory judgment that the state’s requirement that employers pay contributions to the state unemployment fund was unconstitutional. The district court held the law applied to them and was valid, and the Court of Appeals affirmed on grounds the law was a valid state tax, did not conflict with maritime law, and was not preempted by the federal Social Security Act.

Reasoning

The central question was whether a federal court should use the declaratory judgment procedure to stop enforcement of a state tax when the state has provided a statutory remedy. Louisiana’s constitution and a state statute forbid restraining tax collection and require taxpayers who contest a tax to pay it and then sue for a refund, with the collected sums held pending suit. The Court explained that federal courts, exercising traditional equitable discretion and in light of Congress’s rule limiting injunctions against state tax collection, should ordinarily withhold declaratory relief where the state provides an adequate pay-and-sue remedy. The Court therefore affirmed dismissal solely because the district court should have denied declaratory relief in its discretion, without deciding the constitutional merits.

Real world impact

Employers and other taxpayers in Louisiana who dispute a state tax must generally pay the tax and use the state refund procedure rather than obtain pre-enforcement federal declarations. The decision leaves state tax collection intact during litigation and preserves the taxpayer’s ability to raise federal claims later in a refund suit. The ruling is procedural and does not decide whether the tax is constitutional on the merits.