Opinion
Civil No. EP-03-CA-363(KC)
April 23, 2004
ORDER
Defendant moves to dismiss, or in the alternative for summary judgment on, the present claims as barred by res judicata. For the reasons set forth herein, the motions to dismiss or in the alternative for summary judgment are denied. Plaintiff is further ordered to show cause not later than May 14, 2004 why the present complaint should not be dismissed for lack of subject matter jurisdiction.
I. BACKGROUND
On September 7, 2000, plaintiff, one of several trusts created by Elmer Cullers, Jr. and Dorothy Cullers, filed a complaint alleging wrongful levy pursuant to 26 U.S.C. § 7426, for a tax lien filed in 1999 as an effort to collect a tax deficiency assessed against the Cullers for tax years 1981 through 1984. The Internal Revenue Service contended that the trusts were established by the Cullers for purposes of avoiding payment of federal income taxes and that the trusts were in fact the Cullers's alter egos. On October 5, 1999, plaintiff paid the Cullers's deficiency under protest and then sought to recoup amounts paid. In December 1999 and January 2000, plaintiff was notified that it still owed interest and penalties on the deficiency. On January 3, 2000, plaintiff demanded return of the deficiency taken under levy. BSC Term of Years Trust v. United States, 2000 WL 33155870, No. EP-00-CA-270-H, at *1 (W.D. Tex. Dec. 28, 2000).
Defendant moved to dismiss the complaint, arguing that a courtesy copy of the January 3, 2000 was incorrectly addressed and therefore plaintiffs did not notify defendant within the statute of limitations for a wrongful levy claim set forth in 26 U.S.C. § 6532(c). Id. at *2. By order dated December 28, 2000, the Court noted that plaintiffs claim was brought under § 7426, id., and 28 U.S.C. § 1346(a)(1), id. at *2 n. 1. The Court stated that "§ 7426 `affords the exclusive remedy for an innocent third party whose property is confiscated by the IRS to satisfy another person's tax liability,'" id. (quoting Tex. Commerce Bank of Fort Worth, N.A. v. United States, 896 F.2d 152, 156 (5th Cir. 1990)), and as such plaintiff "may not pursue a remedy under § 1346." Id. The Court concluded that plaintiff filed their suit almost one year after the date of the levy, id. at *2, and the claim was therefore barred by § 6532(c)(1), id. at *3, and the Court was therefore without subject matter jurisdiction to resolve plaintiffs claim, id. at *1.
The present action involves a claim for refund brought pursuant to 26 U.S.C. § 6511 and alleges jurisdiction premised on 28 U.S.C. § 1346(a). Complaint ¶¶ 3, 4. On September 6, 2001, plaintiff filed a claim for refund of the deficiency, which claim was denied. Id. ¶ 12. The claim undisputedly involves the same funds taken through the 1999 levy addressed in the prior action, id. ¶ 6.
II. ANALYSIS
Defendant moves to dismiss, or in he alternative for summary judgment on, the present claims claiming a prior order dismissing a wrongful levy claim is res judicata as to the present claim.
A. Standard
Defendant does not specify a specific basis for its motion to dismiss, thus this Court will specify the specific standard applicable to motions to dismiss for lack of subject matter jurisdiction and for failure to state a claim as well as for a motion for summary judgment.
A case may be dismissed for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) when a court lacks the statutory or constitutional power to adjudicate. Home Builders Assoc' of Miss., Inc., v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998). In resolving such a motion, a court may refer to evidence outside the pleadings. Espinoza v. Mo. Pacific R. Co., 754 F.2d 1247, 1248 n. 1 (5th Cir. 1985). When the jurisdictional issue is of a factual nature rather than facial, plaintiff must establish subject matter jurisdiction by a preponderance of the evidence. Irwin v. Veterans Admin., 874 F.2d 1092, 1096 (5th Cir. 1989).
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) is properly granted "only if it appears that no relief could be granted under any set of facts that could be proven consistent with the allegations." Rosborough v. Mgmt. Training Corp., 350 F.3d 459, 460 (5th Cir. 2003) (internal quotation marks omitted). The truth of material facts alleged in the complaint is assumed, Davis Next Friend LaShonda D. v. Monroe County Bd. of Educ., 526 U.S. 629, 633 (1999), and all allegations are viewed in a light most favorable to the plaintiff. Mowbray v. Cameron County, Tex., 274 F.3d 269, 276 (5th Cir. 2001).
A party moving for summary judgment must establish that there are no genuine issues of material fact in dispute and that it is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In determining whether a genuine issue has been raised, all ambiguities are resolved and all reasonable inferences are drawn against the moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962); S W Enters., LLC v. Southtrust Bank, 315 F.3d 533, 537 (5th Cir. 2003). Summary judgment is proper when reasonable minds could not differ as to the import of evidence. Anderson, 477 U.S. at 251. The weight of evidence and the credibility of witnesses are not proper considerations in deciding a motion for summary judgment as such concerns are exclusively for the jury. Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998).
B. Analysis
The doctrine of res judicata, read in its broadest sense, includes two distinct preclusion concepts: claim preclusion, also referred to as res judicata, and issue preclusion, or collateral estoppel. United States v. Shanbaum, 10 F.3d 305, 310 (5th Cir. 1994). Four conditions must be established for claim preclusion: (1) the parties in a later action must be identical or in privity with the parties in a prior action, (2) a court of competent jurisdiction must render the judgment in the prior action, (3) the prior action must conclude with a final judgment on the merits and (4) both suits must involve the same claim or cause of action. Id. Once established, claim preclusion prohibits the assertion of "any claim or defense in the later action that was or could have been raised in support of or in opposition to the cause of action asserted in the prior action," or otherwise, "the effect of a judgment extends to the litigation of all issues relevant to the same claim between the same parties, whether or not raised at trial." Id. (internal quotation marks omitted).
The standard identified by defendant is one of claim preclusion rather than issue preclusion. Issue preclusion serves the interests of judicial economy by treating as final and conclusive specific issues of fact or law that were validly and necessarily determined between two parties through prior litigation. Id. at 311.
Plaintiff agrees, as it must, that the above constitutes the appropriate res judicata standard and argues only that the Order dismissing the case on subject matter jurisdiction grounds does not constitute a final judgment on the merits. In so arguing, plaintiff refers to the proposition that "[d]ismissals for want of jurisdiction are not decisions on the merits, while those based on limitations are." Nilsen v. City of Moss Point, 701 F.2d 556, 561 (5th Cir. 1983). While such dismissals are "paradigms of non-merits adjudication," merely classifying an action, regardless of the merits as one on which a court may not speak, a statute of limitations determination "assumes or decides that the court could have spoken but refuses to do so beyond declaring the claim to be stale." Id. at 562. A time bar determination thereby "bars not only the stale claim asserted but any others, though themselves still timely, that are part of the same cause of action." Id.
Plaintiff thus seizes on the Court's characterization of the dismissal as premised on want of subject matter jurisdiction while defendant implicitly characterizes the dismissal as premised on a statute of limitations. While sovereign immunity, as addressed in the prior order, ultimately implicates subject matter jurisdiction to decide claims against the Government, courts have not hesitated to characterize the statute of limitations proscribing waivers of sovereign immunity as such. United States v. Land, 213 F.3d 830, 837 (5th Cir. 2000) (in addressing Tucker Act claim involving landowner and failure to bring action within applicable statute of limitations, "dismissals of . . . claims [on statute of limitations grounds] are . . . res judicata"); Jackson v. Widnall, 99 F.3d 710, 715 n. 8 (5th Cir. 1998) (indicating that dismissal on statute of limitations ground is a judgment on the merits for res judicata purposes).
The waiver of sovereign immunity "A statute of limitations requiring that a suit against the Government be brought within a certain time period is one of those terms. . . . [A]lthough we should not construe such a time-bar provision unduly restrictively, we must be careful not to interpret it in a manner that would `extend the waiver beyond that which Congress intended." United States v. Dalm, 494 U.S. 596, 608 (1990).
While the Court relied on the statute of limitations applicable to § 7426 in dismissing the action, the § 1346(a)(1) was also dismissed under that statute of limitations. The Court relied on Texas Commerce Bank of Fort Worth, N.A., 896 F.2d 152, in concluding that § 7426 afforded a third-party the exclusive remedy for § 1346(a)(1) and thereby merged the two claims into a single § 7426 claim for purposes of dismissal. While the District Court correctly recited the Texas Commerce Bank of Fort Worth, N.A. holding, the absolutism of the proposition set forth in the holding has been diminished to some degree by the Supreme Court decision in United States v. Williams, 514 U.S. 527 (1995). Williams was decided after the Texas Commerce Bank of Fort Worth, N.A. decision but prior to the District Court's decision and addresses the possibility of § 1346(a)(1) claims by third-party plaintiffs outside the § 7426 statute of limitations. At a minimum, it cannot be said that the § 1346(a)(1) claim was decided on statute of limitations grounds as such a conclusion presupposes that § 1346 incorporates the § 7426 statute of limitations. This Court therefore cannot afford that portion of the District Court's order on the § 1346 claim more deference than that given a dismissal on subject matter jurisdiction. As such, the § 1346 claim would not be considered dismissed on the merits for res judicata purposes.
Notwithstanding plaintiff's concession as to the relevant elements for a res judicata determination, this Court would question the fourth element pertaining to the same claim or cause of action involved as well as the third element. "[T]he principal test for comparing causes of action is whether the primary right and duty or wrong are the same in each action." Nilsen, 701 F.2d at 559. "[O]ne who has a choice of more than one remedy for a given wrong . . . may not assert them serially, in successive actions, but must advance all at once on pain of bar." Id. at 560. "[A]ny inquiry as to the application of the doctrine of res judicata must go beyond the procedural vehicle utilized to a pragmatic assessment of whether or not the primary right and duty and delict or wrong are the same in each action." Id. at 561 (internal quotation marks omitted).
Two considerations cast doubt on whether the two causes of action would be deemed separate causes of action for purposes of res judicata. The Supreme Court in Williams distinguished between pre-deprivation and post-deprivation, with § 1346(a)(1) identified as post-deprivation relief and § 7426(a)(1) identified as affording pre-deprivation relief. Williams, 514 U.S. at 538. A claim for refund would logically be characterized as post-deprivation as one may not seek a refund on that which he or she has not yet paid to the Government. As such, the two procedures could, under the appropriate facts, be considered mutually exclusive, representing separate stages in a procedural continuum. Additionally, as the present action involves a civil action on a claim for refund, a plaintiff may not initiate such an action unless such plaintiff has exhausted administrative remedies in pursuing such refund. Williams, 514 U.S. at 527; 26 U.S.C. § 7422(a). Given the interaction of the nine-month statute of limitations on a wrongful levy claim and the exhaustion requirements in refund claims, it does not necessarily follow that the two claims would be expected to arise contemporaneously. As such, a refund would require the additional fact of exhaustion and would not constitute "the same nucleus of operative facts as the prior complaint." Jackson v. Widnall, 99 F.3d 710, 715 n. 8 (5th Cir. 1998).
The foregoing indicates only that res judicata is not an appropriate vehicle for dismissing the present complaint. The foregoing should not be read as a conclusion that plaintiff's claim is properly before this Court. "Article III generally requires a federal court to satisfy itself of its jurisdiction over the subject matter before it considers the merits of a case." Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583 (1999). Suits against the Government, as involved in the present case, necessarily implicate principles of sovereign immunity. Sovereign immunity is jurisdictional in nature. FDIC v. Meyer, 510 U.S. 471, 475 (1994). "[T]he United States, as sovereign, is immune from suit, save as it consents to be sued . . . and the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit." Dalm, 494 U.S. at 608 (internal quotation marks omitted). Plaintiff must therefore demonstrate to the satisfaction of this Court that the present claim falls within an appropriate waiver of sovereign immunity and thus there is jurisdiction to hear the present claim.
It is without question that Williams adds a degree of complexity to what was originally a single standard applicable to all third-party claims involving levies. At present, this Court is inclined to conclude that the decision of the Tenth Circuit Court of Appeals in Dahn v. United States, 127 F.3d 1249, 1253-54 (10th Cir. 1997), essentially holding that Williams should be limited to the exceptional facts presented therein, is applicable given the earlier precedent of the Fifth Circuit Court of Appeals while the application of Williams by the Ninth Circuit Court of Appeals in WWSM Investors v. United States, 64 F.3d 456 (9th Cir. 1995) (declining to limit Williams to its facts), sweeps too broadly. Dahn adheres to the exclusivity of wrongful levy actions to one in plaintiff's position while WWSM Investors calls such exclusivity further into doubt. The Tenth Circuit declined to extend Williams, noting the peculiar outcome of such an extension where "anyone claiming financial losses tied to the collection of someone else's taxes could arguably be . . . entitled to seek a `refund'-perhaps long after the remedy specifically devised for the situation by Congress had expired." Dahn, 127 F.3d at 1254. This Court would similarly find it surprising that a party could sit on his or her rights, or in fact litigate a matter as a wrongful levy, then return with a subsequent civil action on a claim for a refund.
It is further noteworthy that the Supreme Court in Williams repeatedly refers to the plaintiff's circumstances through phrases like "people in Williams' position without a remedy," "to persons situated as Lori Williams is," "to someone in Williams' position" Williams, 514 U.S. at 536, "Williams and persons similarly situated," id. at 537, "people caught in Williams' bind," id. at 538, and "permit[ting] persons in Williams' position to bring refund suits," id. at 540. The case further involved a lien rather than a levy, id., and as such the two are different devices with different legal effects. United States v. Cache Valley Bank, 866 F.2d 1242, 1244-45 (10th Cir. 1989). In light of the foregoing, this Court would likely conclude that a wrongful levy claim was plaintiff's sole remedy and it may not effectively get a second bite at the apple having missed the applicable statute of limitations on its wrongful levy claim.
It is further noted that amendments to the lien provisions of the Internal Revenue Code in 1998 may address the very factual scenario presented in Williams, thereby potentially further limiting the impact of the case under its own facts. 26 U.S.C. § 6325(b)(4), 7426(a)(4).
Given the foregoing, this Court will not dismiss the present case without first affording plaintiff the opportunity to address the legal concerns raised above. It is therefore
ORDERED that plaintiff shall show cause on or before May 14, 2004 why the present complaint should not be dismissed for lack of subject matter jurisdiction.
A failure of plaintiff to respond by said date shall be construed as a manifestation of consent to such dismissal. Defendant shall have ten days from the filing of such response to file its reply.
III. CONCLUSION
Defendant's motions to dismiss (Doc. No. 7-1) or in the alternative for summary judgment (Doc. No. 7-2) are denied. Plaintiff is ordered to show cause not later than May 14, 2004 why the present action should not be dismissed.
SO ORDERED.