Opinion
Civil Action No. 02-968 Section "N" (1)
September 13, 2002
ORDER AND REASONS
Before the Court is the Government's Motion to Dismiss Counts II through VII of plaintiff's complaint for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), and for failure to state a claim pursuant to Rule 12(b)(6). Via complaint filed April 1, 2002, plaintiff seeks relief in the form of a tax fund for the year 1999 (Count I), rewards for reporting tax fraud (Counts II and III) and a writ of mandamus against the Internal Revenue Service (Counts IV through VII), requiring that the government agency (1) produce affirmative proof that it prosecuted allegations of tax fraud against various individuals and entities, (2) remove various employees from auditing positions in the agency, and (3) institute various procedures to monitor and track citizens' fraud reports, inter alia. Defendants contend that as a matter of law (1) plaintiff's claims for reward under Counts II and III should be dismissed for lack of subject matter jurisdiction and/or failure to state a claim and (2) Counts IV through VII seeking mandamus must be dismissed on account of both failure to state a claim and lack of mandamus jurisdiction. The plaintiff Michael Henry ("Henry") filed a formal opposition memorandum, arguing that the Government has fundamentally misrepresented his claims in Counts II and III. Henry does not dispute authorities cited by the Government for the propositions that (1) a contract with the IRS is a necessary prerequisite for reward claim, and (2) such claims for amount greater than $10,000 need be filed in the Court of Claims. Henry simply denies that the citations of authority have any bearing on his brand of claims for reward. Without even attempting to address the serious jurisdictional issues raised by the Government, plaintiff submits that this Court has an obligation to review the entire IRS reward program to see if it complies with the Constitutional requirements of due process, and then assuming it finds such Constitutional requirements met, the Court should proceed to determine the course of action based upon the IRS' failure to follow its existing procedures ( i.e., issue writ of mandamus to the IRS or grant him relief in the form of a reward despite the fact that he has no contract with the Government and notwithstanding his lack of standing and absence of subject matter jurisdiction). The Government's motion to dismiss is deemed submitted for determination without oral argument. For the following reasons, the motion is GRANTED.
I. Background
The following facts are undisputed: On March 9, 2001, plaintiff filed an amended federal income tax return for the 1999 tax year ( i.e., a Form 1040X), seeking a deduction in the full amount of $2,000,000 pursuant to § 165(g) of the Internal Revenue Code (hereinafter "the Code"). Plaintiff related the alleged $2,000,000 loss to worthless American MetroComm Corporation ("AMC") securities. The plaintiff had many conversations with various employees regarding his request for a tax refund and provided the IRS with voluminous documents relating to the insolvency of AMC. Additionally, it is undisputed that the plaintiff provided the IRS with information regarding the alleged tax fraud by other taxpayers. Nevertheless, the plaintiff never requested a reward for information provided to the IRS.
The IRS denied plaintiff's requests for the refund. Plaintiff then filed the captioned lawsuit seeking a refund, a reward and issuance of a writ of mandamus addressed to the IRS commanding that they initiate an investigation with respect to the information provided by him, inter alia.
II. Standards of Review
A motion to dismiss filed under Rule 12(b)(1) of the Federal Rules of Civil Procedure challenges the subject matter jurisdiction of the federal district court. See Fed.R.Civ.P. 12(b)(1). A claim is properly dismissed for lack of subject matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the claim. It is well-settled that federal courts are courts of limited jurisdiction, and absent jurisdiction conferred by statute, they lack the power to adjudicate claims. The Fifth Circuit has observed that the court must always be mindful of "the first principle of federal jurisdiction which requires a federal court to dismiss an action whenever it appears that subject matter jurisdiction is lacking." Indeed, "there is a presumption against subject matter jurisdiction that must be rebutted by the party bringing an action to federal court." As the party asserting federal jurisdiction, Henry bears the burden of demonstrating that jurisdiction is proper.In the determination of a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, a court may evaluate (1) the complaint alone, (2) the complaint supplemented by undisputed facts evidenced in the record, or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts. Thus, when examining a motion to dismiss for lack of subject matter jurisdiction, unlike a Rule 12(b)(6) motion to dismiss for failure to state a claim, the district court is entitled to consider disputed facts as well as undisputed facts in the record. Nevertheless, all uncontroverted allegations of the complaint must be accepted as true.
Den Norske Stats Oljeselskap As v. HeereMac Vof, 241 F.3d 420, 424 (5th Cir.), cert. denied, 122 S.Ct. 1059, 151 L.Ed.2d 967 (2002); accord Barrera-Montenegro v. United States, 74 F.3d 657, 659 (5th Cir. 1996).
See Clark v. Tarrant County, 798 F.2d 736, 741 (5th Cir. 1986); Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir.), cert. denied, 454 U.S. 897, 102 S.Ct. 396, 70 L.Ed.2d 212 (1981).
Den Norske Stats Oljeselskap As, 241 F.3d at 424; Cloud v. United States, 126 F. Supp.2d 1012, 1017 (S.D. Tex. 2000), affirmed, 281 F.3d 158 (5th Cir. 2001).
A motion to dismiss under Rule 12(b)(6), while "viewed with disfavor and rarely granted," is nevertheless the proper vehicle to eliminate one or more claims when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." In ruling on a 12(b)(6) motion, (1) the court cannot look beyond the pleadings, (2) the complaint must be liberally construed in a light most favorable to the plaintiff, and (3) all well-pleaded facts must be accepted as true. The ultimate question in a Rule 12(b)(6) motion is whether the complaint states a valid cause of action when it is viewed in a light most favorable to the plaintiff, and with every doubt resolved in favor of the plaintiff.
See Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir. 2000); Lowrey v. Texas A M University System, 117 F.3d 242, 247 (5th Cir. 1997) ( citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957)).
Lowrey, 117 F.3d at 247.
Id.; Shipp v. McMahon, 234 F.3d 907, 911 (5th Cir. 2000), cert. denied, 532 U.S. 1052, 121 S.Ct. 2193, 149 L.Ed.2d 1024 (2001); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996).
Lowrey, 117 F.3d at 247; see also Lewis v. Fresne, 252 F.3d 352, 357 (5th Cir. 2001) ("All questions of fact and any ambiguities in the current controlling substantive law must be resolved in the plaintiff's favor."); Indest v. Freeman Decorating, Inc., 164 F.3d 258, 261 (5th Cir. 1999).
III. Discussion 1. Sovereign Immunity
It is elementary and a well-established principle of law that the United States may not be sued without its consent. The doctrine of sovereign immunity operates to preclude lawsuits against the United States and its agencies absent a waiver that immunity. When the United States consents to be sued, the terms of the waiver of sovereign immunity define the contours of the court's jurisdiction to entertain such a suit. A waiver of sovereign immunity must be unequivocally expressed in statutory text and will not be implied from a statute's legislative history. A waiver of sovereign immunity must be strictly construed and not enlarged beyond that which the statute requires, and thus any ambiguities must be resolved in favor of immunity. Thus, a court may not exercise subject matter jurisdiction over a claim against the federal government except as Congress allows, congressional consent being a prerequisite of federal jurisdiction.2. § 7623 Reward
The jurisdictional predicates for plaintiff's claims for reward in the amounts of $150,000 and $600,000 (Counts II and III) are apparently 28 U.S.C. § 1331 1346. Section 1331's broad provision of federal question jurisdiction, however, does not constitute a waiver of sovereign immunity. Section 1346 equally is of no avail to the plaintiff. That section provides in pertinent part that:
(a) That district courts shall have jurisdiction, concurrent with the United States Court of Federal Claims, of:
(1) Any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claims to have been collected without authority or any sum alleged to have been excessive or in any matter wrongfully collected under the internal-revenue laws.
(2) Any other civil action against the United States not exceeding $10,000 in amount, founded either upon the Constitution, or any Act of Congress, or any regulation of the executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort, . . . .
* * *
(e) The district courts shall have original jurisdiction of any civil action against the United States provided in section 6226, 6228(a), 7426, or 7428 (in the case of the United States district court for the District of Columbia) or section 7429 of the Internal Revenue Code of 1986).28 U.S.C. § 1346 (a)(1)-(2) and (e).
Jurisdiction to handle actions to recover "any sum alleged to have been excessive or in any manner wrongfully collected under the internal revenue laws," including interest, is conferred by 28 U.S.C. § 1346. At the outset the Court notes that the plaintiff has acknowledged that "there is no contract" with the Government in this case for reward and "does not disagree with the rulings cited by the IRS." Plaintiff further does not dispute "the discretionary nature of the reward contained in the Treasury Regulations," but rather contends that they stand in violation of the congressional purposes behind the adoption of Section 7623 and contra due process, because the IRS has failed to establish guidelines as to how and when they will pay a "reward" when provided for by contract. Plaintiff all but admits that he lacks both standing to bring a claim for reward and that this Court lacks subject matter jurisdiction to hear and decide his claims pertaining to a reward.
See Plaintiff's Memorandum in Opposition, at pp. 2-3.
Plaintiff's claim for a reward is apparently based upon § 7623 of the IRS Code, which authorizes the Secretary to pay such sums as he deems necessary for (1) detecting underpayments of tax, and (2) detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at same. The IRS has broad discretion to decide whether to make an award and/or the amount of that award. See Stack v. United States, 25 Ct.Cl. 634, 637 (1992), affirmed, 983 F.2d 1088 (Fed. Cir. 1992); Saracena v. United States, 508 F.2d 1333, 1336 (1975). Neither 26 U.S.C. § 7623 nor 26 C.F.R. § 301.7623-1, standing alone, obligates the IRS to pay a reward to a tax informant.
In Merrick v. United States, No. 654-86 T (Cl.Ct. July 20, 1987), reversed and remanded, 846 F.2d 725 (Fed. Cir. 1988), a tax informant (Merrick) provided the IRS with information regarding a tax shelter. The IRS informed Merrick that it recovered over $10 million in unpaid taxes from 1,585 shelter investors. Merrick filed a claim for reward with the IRS. Later, the acting district director orally informed Merrick that he would receive a reward and that the award would be calculated under paragraph 1 of IRS Publication No. 733 (July 1980). Merrick, 846 F.2d at 725. The publication provided that such tax informants would be paid a specific percentage of the monies recovered. After the IRS paid Merrick a total of $31,000.00 for his information, he filed suit in the Claims Court. The Federal Circuit held that Merrick alleged facts sufficient to state a contract claim against the United States in contract. Id. at 726. The complaint alleged that the Acting District Director fixed the amount of the reward in February 1984 by establishing how the IRS would calculate it. Id. The Federal Circuit explained:
[O]ur precedents establish that the subject statute and regulation amount to an indefinite reward offer that an informant may respond to by his conduct. See Lagermeier v. United States, 214 Ct.Cl. 758, 760, 566 F.2d 1188 ( quoting Gordon v. United States, 36 F. Supp. 639, 640 (1941)). Because, however, the obstacle of indefiniteness may be removed by the subsequent conduct of the parties, an enforceable contract arises when the parties fix the reward amount . . . They have done so here . . . .Merrick, 846 F.2d at 726. Essentially, the IRS negotiated a specific reward amount when it stated that Revenue Publication No. 733, which mandated non-discretionary percentages in calculating rewards, would govern the reward.
Merrick knew the total sum recovered from the tax shelter investors. Consequently, when the acting district director referenced Publication No. 733 as the basis for Merrick's reward, he could precisely calculate the amount due him.
In Lagermeier v. United States, 214 Ct.Cl. 758, 760, 566 F.2d 1188 (1977), the plaintiff had no knowledge of what the IRS recovered in actuality, and sought to have the court measure the adequacy of his reward by determining what the IRS should have recovered. Id. The Lagermeier court explained:
This is far too speculative and would involve the court in an unwarranted examination of the propriety of IRS investigations. Had the IRS actually recovered, from information furnished by the plaintiff, the $3 million which the plaintiff says it might have collected, this could be a very different case in view of a reward of only $200. But there is no such allegation in the petition, and no reason to think that such is the case. . . . It is therefore ordered and concluded that defendant's motion to dismiss is granted and the petition is dismissed.Id.
In Krug v. United States, 168 F.3d 1307, 1309 (Fed. Cir. 1999), the Federal Circuit held that § 7623 and implementing legislation still does no more than described by Merrick, supra, to wit: "it floats an indefinite reward offer that an informant may respond to by conduct, but a binding contract does not arise until the Government brings the offer to ground by a specific award." Id. Citing the Administrative Procedures Act (APA), 5 U.S.C. § 701 (a)(2) (1994), excluding the judicial review where "agency action is committed to agency discretion by law," and questioning the authority of even the Court of Federal Claims to review an agency's denial of a discretionary award, the Federal Circuit concluded that the review constituted at most harmless error because the lower court upheld the agency's decision. Krug, 168 F.3d at 1310.
In Doe v. United States, 100 F.3d 1576 (Fed. Cir. 1996), the Federal Circuit discussed the court's jurisdiction under another reward statute, 19 U.S.C. § 1619. In that case, the Federal Circuit held that the statute, which sets out in detail the type of activities for which a person may receive an award of a minimum amount, required "the payment of some award to claimants who have met the statutory conditions of recovery," and that the Secretary of the Treasury's discretion was limited to determining the amount of the reward. Id. at 1581-82. Unlike § 1619, § 7623 provides only that the "Secretary . . . is authorized to pay such sums . . . as he may deem necessary. . . ." 26 U.S.C. § 7623. Treasury officials have "complete discretion in the first instance to determine whether an award should be made" pursuant to § 7623. Saracena, 508 F.2d at 1336. Even assuming arguendo that the plaintiff stated a valid claim for reward, this Court is without subject matter jurisdiction of his claims for rewards far exceeding the amount $10,000.00. See 28 U.S.C. § 1346 (a)(2). Time and again, the Supreme Court has denounced the kind of "hypothetical" jurisdiction that the plaintiff urges. Such "hypothetical" jurisdiction begets nothing more than a "hypothetical" judgment and an advisory opinion, both of which have been disapproved.
See e.g., Steel Company v. Citizens for a Better Environment, 523 U.S. 83, 118 S.Ct. 1003, 1016 (1998) (instructing that statutory and especially constitutional elements of jurisdiction ( i.e., standing to sue — part of justiciability) are essential ingredients of separation and equilibrium of powers and that for a court to pronounce upon the meaning or constitutionality of a federal law, when it has no jurisdiction to do so, is by very definition for a court to act ultra vires).
Based upon the express language of the Code and the foregoing authorities, it is clear that (1) this Court is without subject matter jurisdiction; and (2) in the alternative, the plaintiff has failed to state claim for reward in the case at bar and cannot now do so. Plaintiff admits that there is no contract for a reward with the IRS, so there is no possibility of stating a claim under a breach of contract theory, express or otherwise. Suffice it to say, plaintiff has not and cannot allege that the IRS promised, in negotiations or otherwise, to pay any sum certain.
Absent factual allegations that raise substantial doubts as to the integrity of the IRS procedure, plaintiff has no claim for abuse of discretion because the IRS is not obligated to pay a reward even to eligible applicants. Doe v. United States, 38 Ct.Cl 377, 378 (1997). The mere fact that the IRS may have provided no reward does not, by itself, demonstrate an abuse of discretion. Id. at 378, 379.
3. Mandamus
Jurisdiction over the plaintiff's claims under the federal mandamus statute is absent. See 28 U.S.C. § 1361. Although the Fifth Circuit has held that § 1361 provides a limited waiver of sovereign immunity, that waiver is limited by the function of the mandamus statute. See McClain v. Panama Canal Commission, 834 F.2d 452, 454 (5th Cir. 1987). A federal court exercising mandamus jurisdiction may order a federal agency or actor to perform a mandatory function or ministerial duty imposed by law, but may not dictate the result or alter a substantive decision. See Drake v. Panama Canal Commission, 907 F.2d 532, 534 (5th Cir. 1990). "The legal duty [owed] must be set out in the Constitution or by statute, and its performance must be positively commanded and so plainly prescribed as to be free from doubt." Dunn-McCampbell Royalty Interest, Inc. v. National Park Service, 112 F.3d 1283, 1288 (5th Cir. 1997) ( citing Giddings v. Chandler, 979 F.2d 1104, 1108 (5th Cir. 1992)).
To prevail under a writ of mandamus, a plaintiff must establish three elements, to wit: (1) the plaintiff must have a clear right to the relief; (2) the defendant must have a clear duty to act; and (3) no other adequate relief must be available. See Davis v. Fechtel, 150 F.3d 486, 487 (5th Cir. 1998); United States v. O'Neil, 767 F.2d 1111, 1112 (5th Cir. 1985); McClain, 834 F.2d at 455. Whether to grant mandamus is within the discretion of the district court. United States v. Denson, 603 F.2d 1143, 1146 (5th Cir. 1979). Mandamus, however, is not available to review discretionary acts of agency officials. Green v. Heckler, 742 F.2d 237, 241 (5th Cir. 1984). Moreover, where such relief is available, it is granted only in extraordinary circumstances. See Denson, 603 F.2d at 1146.
In the instant case, Henry has failed to establish the elements necessary to seek mandamus relief. First, as the Government points out, Henry is not entitled as a matter of right to an award. Section 1361 "confers jurisdiction on a district court only when the defendant . . . agency owes a specific duty to the plaintiff." Kirkland Masonry, Inc. v. Commissioner, 614 F.2d 532, 534 (5th Cir. 1980) (emphasis added). Second, the right to prosecute taxpayers for tax fraud is within the exclusive jurisdiction of the Government. Plaintiff has standing only to prosecute his own refund claim, and he fails to cite any authority which affords him the right to orchestrate the prosecution of another taxpayer. Finally, plaintiff has availed himself of the remedy available to him ( i.e., refund pled in Count I of his complaint).
See e.g., In re Marine Shale, 91 F.3d 16, 19 (5th Cir. 1996) (affirming the district judge, denying Marine Shale's petition for writ of mandamus, and agreeing that the court lacked the authority to grant the wholly new species of coercive order sought against the EPA).
The Court's ruling dismissing the plaintiff's claims set forth in Counts II through VII is mindful of the liberal construction requirement and that leave to amend should be freely granted. However, plaintiff has not sought leave to amend. Additionally, it is absolutely clear that the deficiencies of the claims set forth in Counts II through VII ( i.e., lack of subject matter jurisdiction), cannot be cured by amendment.
4. Conclusion
In summary, Counts II and III are subject to dismissal because they are not claims for recovery of internal revenue tax and this Court lacks jurisdiction to hear other claims against the United States seeking damages in excess of $10,000. Alternatively, the plaintiff has failed to state a claim for which relief may be granted. Mandamus jurisdiction is absent, plaintiff having failed to plead the necessary predicates for the imposition of this extraordinary remedy. Accordingly, for all of the above and foregoing reasons,
IT IS ORDERED that the Government's Motion to Dismiss Counts II through VII of the plaintiff's complaint is hereby GRANTED.