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finding that the branch office test was an appropriate test for determining whether a summoned party was found within the district, because it required a physical presence within the district and was consistent with "the limited case law which requires something more than a Due Process analysis of minimum contacts"
Summary of this case from Pilchesky v. U.S.Opinion
Civil No. 01-1410-HA
March 21, 2002.
OPINION AND ORDER
The petitioner seeks to quash, pursuant to 26 U.S.C. § 7609(b)(2), eight summonses issued for records kept by "third-party recordkeepers." The respondents (IRS) have moved to dismiss the petition. The IRS argues that the court lacks jurisdiction over the four summonses issued to The Vanguard Group, Inc., Trust Company of America, American Century Services Corporation, and Janus. The IRS also contends that the petitioner has failed to state a claim with respect to the remaining four summonses issued to State Farm Insurance Companies, Fidelity Investments, Homestreet, Inc., and Washington Mutual Bank. The petitioner argues that the court has jurisdiction to rule on all eight summonses, and that none of the eight were properly issued.
DISCUSSION
1. Subject Matter Jurisdiction pursuant to 26 U.S.C. § 7609(h)(1)
"The United States district court for the district within which the person to be summoned resides or is found shall have jurisdiction to hear and determine any proceeding brought under subsection (b)(2), (f), or (g)." 26 U.S.C. § 7609(h)(1). The statute does not define "found."
The parties initially agreed that the proper analysis for subject matter jurisdiction under the statute was whether the court could exercise personal jurisdiction over the third-party recordkeepers if they were parties in the case. The petitioner contends that the court should apply a "minimum contacts" analysis that reaches the limits of Due Process. See International Shoe Co. v. Washington, 326 U.S. 310 (1945); see also United States v. Toyota Motor Corporation, 561 F. Supp. 354 (C.D.Cal. 1983). The IRS does not develop its argument, but simply concludes that the four disputed financial institutions "neither reside in nor are found in the State of Oregon . . . and the Petition with respect to the summonses issued to these entities should be denied for lack of personal jurisdiction." The government relies on Fortney v. United States, 59 F.3d 117 (9th Cir. 1995), which affirmed a Nevada district court ruling that the Southern California Bank in Rowland Heights, California, was not "found" within the District of Nevada.
Although the language of the statute appears to blend concerns of personal jurisdiction and venue, the statute confers subject matter jurisdiction. Fortney v. United States, 59 F.3d 117, 119 (9th Cir. 1995); see also Masat v. United States, 745 F.2d 985 (5th Cir. 1984); Deal v. United States, 759 F.2d 442 (5th Cir. 1985); Dennis v. United States, 660 F. Supp. 870 (C.D.Ill. 1987).
A Findings and Recommendation was recently issued by Magistrate Judge Stewart in a case with facts identical to this case, and which has been referred to this court for final disposition. Judge Stewart found that the court should limit the scope of "found" to include only those recordkeepers which have branch offices in Oregon, or which maintain the subpoenaed records within Oregon.
In Carl D. Oldham v. United States Internal Revenue Service, 01-1225-ST, Carl Oldham, the husband of the petitioner in this case, presented identical issues and arguments as those presented here, and the government responded with the identical conclusion that several of the recordkeepers were not "found" in Oregon.
In Masat v. United States, 745 F.2d 985 (5th Cir. 1984), which is perhaps the most frequently cited case addressing 26 U.S.C. § 7609(h)(1), the Fifth Circuit declined to consider the branch office argument because it was not raised in the district court, but suggested that under some limited circumstances a branch office might support jurisdiction if the requested records or copies of those records were maintained at that branch office. Masat, 745 F.2d at 988.
The "branch office" test is a practical solution to the hybrid jurisdictional question presented, as it maintains a distinction between "reside" and "found," but requires a physical presence within the forum and is therefore consistent the limited case law which requires something more than a Due Process analysis of minimum contacts. For example, the bank in Fortney was conducting some business in Nevada with the petitioner in that case, and likely with other customers who resided or traveled in Nevada. Even United States v. Toyota Motor Corporation, in which the issue was framed in terms of personal jurisdiction and venue, allowed for the possibility that the presence in the forum district of a wholly owned subsidiary would not necessarily confer jurisdiction over the parent corporation when that parent is the third-party recordkeeper.
This court has been able to find no case except Toyota that takes a significantly more expansive view of "found" than is defined in Masat, and no court has exercised jurisdiction over a summons issued to a third-party recordkeeper on any basis other than actual physical presence in the forum district. In Toyota, the presence of the wholly-owned subsidiary was significant because the Senior Director of the parent company (recordkeeper) was also the President of the subsidiary, and was present at the site of the subsidiary. Further, the subsidiary was a marketing conduit solely for the parent company.
The petitioner has the burden of proving jurisdiction, and has offered her personal affidavit and various records obtained through Internet research in order to demonstrate that the four financial companies in question actively solicit and conduct business in Oregon. This court takes judicial notice of the fact that all four recordkeepers maintain interactive Web sites through which any Oregonian can open accounts, access personal accounts, buy and sell securities, communicate with customer service representatives via e-mail, and conduct other regular business.
The cases addressing 26 U.S.C. § 7609 all pre-date the widespread use of the Internet and the access to commerce provided by the world-wide Web. In considering the consequences of Internet commerce with respect to personal jurisdiction, the court in GTE New Media Services, Inc. v. BellSouth Corp, 199 F.3d 1343, 1349 (D.C. Cir. 2000), ruled that general jurisdiction extending to claims unrelated to Web activity cannot be supported by an interactive Web site. Other courts have adopted a "sliding scale" approach that allows jurisdiction in direct proportion to the nature and quality of the commercial activity which the entity conducts over the Internet. Mink v. AAAA Development, 1 LLC, 190 F.3d 333 (5th Cir. 1999); Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414, 419 (9th Cir. 1997). Nonetheless, in the context of 26 U.S.C. § 7609, a Web site must be considered on a par with telephone access initiated by the customer. See generally GTE New Media, 199 F.3d at 1350. Computer access does not satisfy the jurisdictional requirement under 26 U.S.C. § 7609. The petitioner has failed to meet her burden of proof. Even if, in some rare circumstance, Internet commerce could support jurisdiction, the facts of this case would not permit such a finding. The Ninth Circuit has set out a three-part test to determine the appropriateness of exercising specific jurisdiction over a non-resident defendant. Cybersell, 130 F.3d at 416 (quoting Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995)). In this case, the records sought by the IRS were not the result of the recordkeepers' Web commerce in Oregon. Because the plaintiff has presented no evidence that she engaged in Internet commerce with the four recordkeepers, the exercise of jurisdiction based on Web activity would not be reasonable.
2. Motion to Dismiss for Failure to State a Claim
The parties have submitted evidence outside of the pleadings in support of their arguments. Therefore, the IRS' motion to dismiss is converted to a motion for summary judgment pursuant to Fed.R.Civ.P. 12(b) and Fed.R.Civ.P. 56. The petitioner has asked for leave to conduct further discovery. However, she has freely supplemented the record, and no material issues of fact remain. Therefore, further discovery and argument would serve no practical purpose.
The validity of the remaining summonses must be analyzed according to United States v. Powell, 379 U.S. 48, 57-58 (1964). See Fortney v. United States, 59 F.3d 117 (9th Cir. 1995). In Powell, the court determined that to
obtain enforcement of a summons, the IRS must first establish its "good faith" by showing that the summons: (1) is issued for a legitimate purpose; (2) seeks information relevant to that purpose; (3) seeks information that is not already within the IRS' possession; and (4) satisfies all administrative steps required by the United States Code.
Fortney, 59 F.3d at 119.
"The government's burden is a slight one." Id. at 120. "Once a prima facie case is made a `heavy' burden is placed on the taxpayer to show an `abuse of process' or the `lack of institutional good faith.'" Id. (quoting United States v. Dynavac, Inc., 6 F.3d 1407, 1414 (9th Cir. 1993)).
In this case, the government has met its burden. The petitioner's arguments are frivolous and completely without merit. The government clearly has the authority to issue these summonses pursuant to federal statute. Further, the petitioner cannot avoid the consequences of a failure to pay her income taxes by claiming that Oregon is a "Republic," and that she has "never lived in the Federal territory known as, or described as the Internal Revenue District, Western Region."
CONCLUSION
For the reasons stated herein, the Petition (#1) to Quash Third Party Summons is denied. The respondents' motion (#7) to dismiss for lack of subject matter jurisdiction is granted as to the summonses issued to The Vanguard Group, Inc., Trust Company of America, American Century Services Corporation, and Janus. The respondents' motion (#7) to dismiss for failure to state a claim is converted to a motion for summary judgment, and is granted as to the summonses issued to State Farm Insurance Companies, Fidelity Investments, Homestreet, Inc., and Washington Mutual Bank.