Opinion
Civil Action No. 19-cv-00100-RM-KMT
02-12-2020
JANET L. WALCOTT, Plaintiff, v. UNITED STATES OF AMERICA, Defendant.
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Before the court is Defendant's "Motion to Dismiss." (["Motion"], Doc. No. 14.) Plaintiff has responded in opposition to the Motion, and Defendant has replied. (["Response"], Doc. No. 27; ["Reply"], Doc. No. 30.)
STATEMENT OF THE CASE
Plaintiff Janet L. Walcott brings this refund action against the Defendant United States of America, pursuant to 26 U.S.C. § 7422, seeking to recover alleged overpayments of her federal income taxes for the 2005, 2006, and 2007 tax years. (["Complaint"], Doc. No. 1.)
The following facts are taken from the Complaint. On April 19, 2008, Plaintiff filed a tax return with the Internal Revenue Service ["IRS"] for the 2005 tax year. (Id. at 2 ¶ 8.) Three weeks later, on May 12, 2008, the IRS filed a Substitute for a Tax Return, on behalf of Plaintiff, for the 2006 tax year. (Id. at 3 ¶ 17.) Plaintiff then filed a tax return, on November 24, 2008, for the 2007 tax year. (Id. at 4 ¶ 29.) The IRS thereafter commenced an audit of Plaintiffs' 2005-2007 returns and determined that all three returns were deficient. (Id. at 2-4 ¶¶ 8-9, 19-20, 30-31.) On September 6, 2010, the IRS assessed Plaintiff with additional taxes and penalties for the deficiencies, totaling $119,151.55, plus interest in the amount of $15,157.79. (Id. at 2-4 ¶¶ 10, 19, 32.)
Over the next six years, Plaintiff filed numerous amended tax returns and administrative claims for refund pertaining to the 2005-2007 tax years. (Id. at 2-4 ¶¶ 11, 21-23, 33-34.) Plaintiff also "gradually paid the entire balance due." (Id. at 2-4 ¶¶ 12, 24, 35.) The IRS eventually received all amounts owed by Plaintiff with respect to her delinquent 2005, 2006, and 2007 tax liabilities, including penalties and interest. (See id.) On October 7, 2014, the IRS reportedly released its final levy on Plaintiff's property. (Resp. 3.)
In the interim, on June 24, 2014, Plaintiff filed a lawsuit against the United States, pursuant to 26 U.S.C. § 6303, challenging the IRS's previous levy of her Colorado Public Employees' Retirement Association ["PERA"] funds. Complaint at 1, Walcott v. United States ["Walcott I"], No. 14-cv-1758-REB-KMT, 2015 WL 5462147 (D. Colo. Sept. 18, 2015). The Notice of Levy at issue, which was sent to PERA on February 29, 2012, sought to collect on Plaintiff's unpaid income taxes for the 2002-2007 tax years. Id. at 2. In Walcott I, Plaintiff argued, among other things, that the Notice of Levy was "self-voiding ab initio," because the IRS neglected to properly sign the document. Id. at 4. Plaintiff also argued that the IRS failed to provide her with adequate notice of deficiency prior to its collection of her PERA funds. Id. Plaintiff sought declaratory and injunctive relief, as well as a refund of all PERA funds levied by the IRS. Id. at 4-5. The case was ultimately dismissed, on September 18, 2015, for lack of subject matter jurisdiction. Walcott I, 2015 WL 5462147 at *1-2.
Two and a half months later, on December 2, 2015, Plaintiff filed another lawsuit against the United States, once again seeking a refund of the money that the IRS levied from her PERA account, including funds used to satisfy her tax liabilities for the 2005-2007 tax years. Civil Complaint for Injunctive Relief and Refund at 1-3, Walcott v. USA ["Walcott II"], No. 15-cv-02630-MSK-STV, 2018 WL 5982142 (D. Colo. Nov. 13, 2018), aff'd 782 F. App'x 728 (10th Cir. 2019). In Walcott II, Plaintiff asserted three causes of action: (1) a refund of taxes collected by levy, pursuant to 26 U.S.C. § 6213(a), based on the IRS's alleged failure to provide adequate notice of deficiency; (2) damages for unauthorized collection under 26 U.S.C. § 7433; and (3) a return of surplus proceeds, pursuant to 26 U.S.C. § 6342(b). First Amended Complaint for Injunctive Relief, Refund, Return of Surplus Proceeds, and Damages at 1-4, Walcott II, 2018 WL 5982142 (No. 15-cv-02630-MSK-STV), ECF No. 5. Claims 2 and 3 were dismissed, on July 7, 2017, based on Plaintiff's failure to exhaust her administrative remedies. Walcott II, No. 15-cv-02630-MSK-STV, 2017 WL 2901712, at *6-7 (D. Colo. Jul. 7, 2017). Summary judgment was thereafter granted and affirmed by the Tenth Circuit, in favor of the United States, as to Plaintiff's remaining claim for a refund under § 6213. Walcott II, 782 F. App'x 728 at 735.
Two months after the dismissal of Walcott II, on January 10, 2019, Plaintiff filed this, her third, lawsuit against the United States. In her Complaint, Plaintiff now alleges that she is entitled to a refund under § 7422 for the payments that she previously made to the IRS to settle her federal income tax deficiencies for the years 2005-2007, because the IRS incorrectly adjusted her taxes. (Compl. 2-4 ¶¶ 14-15, 26-27, 37-38.) Plaintiff further alleges that she has met the jurisdictional requirements to bring a § 7422 refund claim, because prior to filing this lawsuit, she fully paid all amounts owed to the IRS for those tax periods and filed "various refund claims." (Id. at 2-4 ¶¶ 12-13, 24-25, 35-36.)
The United States now moves to dismiss the Complaint, in its entirety, pursuant to Federal Rule of Civil Procedure 12(b)(6). (Mot. 1.) Defendant argues, specifically, that Plaintiff's claims are barred by the doctrines of claim preclusion and claim splitting, because the claims at issue here are "part of the same transaction fully litigated" by the parties previously in Walcott II. (Id. at 2.)
STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(6) provides that a defendant may move to dismiss a claim for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). "The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted." Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (quotation marks omitted).
"A court reviewing the sufficiency of a complaint presumes all of plaintiff's factual allegations are true and construes them in the light most favorable to the plaintiff." Hall v. Bellmon, 935 F.2d 1106, 1109 (10th Cir. 1991). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility, in the context of a motion to dismiss, means that the plaintiff pleaded facts which allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The Iqbal evaluation requires two prongs of analysis. First, the court identifies "the allegations in the complaint that are not entitled to the assumption of truth," that is, those allegations which are legal conclusion, bare assertions, or merely conclusory. Id. at 679-81. Second, the Court considers the factual allegations "to determine if they plausibly suggest an entitlement to relief." Id. at 681. If the allegations state a plausible claim for relief, such claim survives the motion to dismiss. Id. at 679.
Notwithstanding, the court need not accept conclusory allegations without supporting factual averments. S. Disposal, Inc., v. Texas Waste, 161 F.3d 1259, 1262 (10th Cir. 1998). "[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S at 678. Moreover, "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.' Nor does the complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. (citation omitted). "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of 'entitlement to relief.'" Id. (citation omitted).
In evaluating a Rule 12(b)(6) motion to dismiss, the court typically may not look beyond the pleadings. Casanova v. Ulibarri, 595 F.3d 1120, 1125 (10th Cir. 2010). "Pleadings," for purposes of a Rule 12(b)(6) motion, however, include attachments to the complaint, documents incorporated into the complaint by reference, and information subject to judicial notice. Tellabs, Inc, 551 U.S. at 322; Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010); Tal v. Hogan, 453 F.3d 1244, 1264 n.24 (10th Cir. 2006). Documents attached to a motion to dismiss are considered part of the pleadings, if they are referred to in the complaint, and are central to the plaintiff's claims. GFF Corp. v. Assoc. Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir. 1997).
ANALYSIS
The United States argues that the doctrine of claim preclusion bars Plaintiff from litigating her present claims in federal court. (Mot. 2.) Defendant argues, specifically, that because the district court in Walcott II entered a final decision on the merits regarding Plaintiff's entitlement to a refund under § 6213(a) for the same tax periods at issue here, her claims for a refund under § 7422 are precluded. (Id. at 4, 6.)
"The doctrine of res judicata, or claim preclusion, will prevent a party from litigating a legal claim that was or could have been the subject of a previously issued final judgment." Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 847 F.3d 1221, 1239 (10th Cir. 2017) (brackets and internal quotation marks omitted). Claim preclusion has three elements: "(1) a final judgment on the merits in an earlier action; (2) identity of parties or privies in the two suits; and (3) identity of the cause of action in both suits." Id. If all three elements are met, claim preclusion is appropriate, "unless the party seeking to avoid preclusion did not have a 'full and fair opportunity' to litigate the claim in a prior suit." MACTEC, Inc. v. Gorelick, 427 F.3d 821, 831 (10th Cir. 2005) (quoting Yapp v. Excel Corp., 186 F.3d 1222, 1226 n.4 (10th Cir. 1999)).
Claim preclusion applies to suits involving federal income taxation. See Comm'r of Internal Revenue v. Sunnen, 333 U.S. 591, 598 (1948). Each year's tax liability constitutes a separate cause of action. Id. Therefore, "if a claim of liability or non-liability relating to a particular tax year is litigated, a judgment on the merits is res judicata as to any subsequent proceeding involving the same claim and the same tax year." Id.; see Finley v. United States, 612 F.2d 166, 170 (5th Cir. 1980) ("In federal tax litigation one's total income tax liability for each taxable year constitutes a single, unified cause of action, regardless of the variety of contested issues and points that may bear on the final computation.")
Here, given Walcott II, there is no question that claim preclusion bars Plaintiff from bringing her present refund claims for the 2005-2007 tax years. First, in Walcott II, the district court's summary judgment ruling regarding Plaintiff's claim for a refund under § 6213, which was later affirmed by the Tenth Circuit, was a final judgment on the merits. See Dowd v. Soc'y of St. Columbans, 861 F.2d 761, 764 (1st Cir. 1988) ("Summary judgment constitutes a final judgment on the merits for purposes of applying res judicata."); see also Fed. R. Civ. P. 41(b) (stating that a dismissal "operates as an adjudication on the merits," unless it is a dismissal for "lack of jurisdiction, improper venue, or failure to join a party under Rule 19"). Therefore, the first element of claim preclusion is met.
As to the second element, claim preclusion "is applicable only to parties to the first suit or their privies." Satasky v. Paramount Commc'ns, Inc., 7 F.3d 1464, 1468 (10th Cir. 1993). Here, Plaintiff and Defendant were the opposing parties in Walcott II. Thus, the second element is also satisfied.
As to the third element, the Tenth Circuit uses a "transactional approach" to determine whether there is "identity of the cause of action in both suits." City of Eudora, Kan. V. Rural Water Dist. No. 4, Douglas Cty., Kan.,875 F.3d 1030, 1035 (10th Cir. 2017); Nwosun v. Gen. Mills Rests., Inc., 124 F.3d 1255, 1257 (10th Cir. 1997). "Under this approach, a cause of action includes all claims or legal theories of recovery that arise from the same transaction, event, or occurrence. All claims arising out of the transaction must therefore be presented in one suit or be barred from subsequent litigation." Lenox v. MacLaren Surgical Corp. v. Medtronic, Inc., 847 F.3d 1221, 1240 (10th Cir. 2017) (quoting Nwosun, 124 F.3d at 1257). What constitutes "the same transaction" must be "determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage." Hatch v. Boulder Town Council, 471 F.3d 1142, 1149 (10th Cir. 2006) (quoting Restatement (Second) of Judgments § 24).
Plaintiff argues that the present lawsuit does not involve the same "identity of the cause of action," because in Walcott II, she was "seeking a refund of money," whereas here, she is making a "Claim for Refund under § 7422." (Resp. 1-2.) This is a distinction without a difference. In Walcott II, Plaintiff sought a refund of funds alleged to have been improperly levied by the IRS to settle her 2005-2007 tax deficiencies; here, Plaintiff seeks a refund of a portion of her alleged overpayments to the IRS to settle those same tax deficiencies. In both lawsuits, therefore, Plaintiff has sought to recover money paid to the IRS with respect to tax years 2005-2007. See Southard v. United States, 462 F. Supp. 483, 485 (W.D. Okla. 1978) (finding plaintiffs' §7422 claims to be barred by the doctrine of res judicata, because the plaintiffs' previous federal lawsuit had also sought a refund for the same tax periods). The fact that Plaintiff has asserted different legal theories in each case is irrelevant to the claim preclusion inquiry. See Nwosun, 124 F.3d at 1257 ("It is immaterial that the legal basis for the relief sought in the two complaints is different; it is the occurrence from which the claims arose that is central to the 'cause of action' analysis."); In re Teltronics Servs., Inc., 762 F.2d 185, 193 (2d Cir. 1985) ("New legal theories do not amount to a new cause of action so as to defeat the application of the principle of res judicata."); Roach v. Teamsters Local Union No. 688, 595 F.2d 446, 448 (8th Cir. 1979) ("It is well established that res judicata prevents a litigant from getting yet another day in court after the first lawsuit is concluded by giving a different reason than he gave in the first for recovery of damages for the same invasion of his rights.") (alterations, citation, and quotations omitted).
Plaintiff also argues that she could not have raised her present refund claims in Walcott II, because the jurisdictional prerequisites for bringing an action under §7422—the full payment of tax liability, and the timely filing of an administrative refund claim with the IRS—were "not fully met" until "well after the Walcott II filing date." (Resp. 3.) Plaintiff contends, specifically, that her "earliest" administrative refund claim was not filed until September 6, 2016, which was ten months after she commenced her lawsuit in Walcott II. (Id.) However, as Defendant points out, it is undisputed that Plaintiff's taxes were fully paid, as of October 7, 2014, which was one year before she filed Walcott II. (Reply 4; see Resp. 3.) Plaintiff, therefore, could have filed her administrative refund claim as early as October 2014; it is immaterial that she instead chose to wait two years to do so.
Importantly, even after she met the jurisdictional prerequisites, Plaintiff still had ample opportunity to lodge her § 7422 claim in Walcott II, given that the deadline for the amendment of pleadings was October 20, 2017. See Scheduling Order at 6, Walcott II, No. 15-cv-02630-MSK-STV, 2018 WL 5982142 (D. Colo. Nov. 13, 2018), ECF No. 60. Indeed, as the Tenth Circuit observed on appeal, Plaintiff could have filed a motion to amend, or subsequent to that, a post-judgment motion to reopen the case to allow the district court to consider her proposed amendment. Walcott II, 782 F. App'x 728, 734 (10th Cir. 2019). Instead of choosing either of those options, however, Plaintiff "expressly eschewed proceeding on a claim under § 7422." Id. Plaintiff's failure to raise the § 7422 claims in Walcott II precludes her from raising those claims in this subsequent action. See Wilson v. United States, No. 98-WY-1920-WD, 2000 WL 141268, at *6 (D. Colo. Jan. 4, 2000) (holding plaintiff's § 7422 refund claims to be precluded by the tax court's previous decision regarding the tax years in question, where the plaintiffs "could have raised their refund claims in the Tax Court proceedings, but failed to do so"); Estate of Davenport v. United States, 736 F. Supp. 2d 1087, 1095 (E.D. Mich. 2010) ("Because the Estate could have raised the present claim as an alternative argument in the prior proceeding before the Tax Court, it is precluded from raising it in this subsequent action.").
As a final matter, Plaintiff argues that the claim preclusion doctrine was abrogated by § 7422. (Resp. 3-6.) It is well-settled that legislative intent to abrogate a common law rule must be clear. Absent clear evidence of legislative intent, the common law rule prevails. See Doering ex rel. Barrett v. Copper Mountain, Inc., 259 F.3d 1202, 1212 (10th Cir. 2001) ("Absent clear legislative intent, the common law prevails in any conflict with statutory law."). Here, there is absolutely no evidence that Congress intended to abrogate the claim preclusion doctrine with the § 7422 refund statute. Indeed, Plaintiff provides no support for her assertion, nor has the court found any such support.
Therefore, because this lawsuit and Walcott II concern the same "identity of parties" and "identity of the cause of action," and because Walcott II resulted in a final judgment on the merits, dismissal under the doctrine of claim preclusion is appropriate. As a result, there is no need to address Defendant's other argument for dismissal.
WHEREFORE, for the foregoing reasons, this court respectfully
RECOMMENDS that Defendant's "Motion to Dismiss" (Doc. No. 14) be GRANTED.
ADVISEMENT TO THE PARTIES
Within fourteen days after service of a copy of this Recommendation, any party may serve and file written objections to the magistrate judge's proposed findings of fact, legal conclusions, and recommendations with the Clerk of the United States District Court for the District of Colorado. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b); Griego v. Padilla (In re Griego), 64 F.3d 580, 583 (10th Cir. 1995). A general objection that does not put the district court on notice of the basis for the objection will not preserve the objection for de novo review. "[A] party's objections to the magistrate judge's report and recommendation must be both timely and specific to preserve an issue for de novo review by the district court or for appellate review." United States v. 2121 East 30th Street, 73 F.3d 1057, 1060 (10th Cir. 1996). Failure to make timely objections may bar de novo review by the district judge of the magistrate judge's proposed findings of fact, legal conclusions, and recommendations and will result in a waiver of the right to appeal from a judgment of the district court based on the proposed findings of fact, legal conclusions, and recommendations of the magistrate judge. See Vega v. Suthers, 195 F.3d 573, 579-80 (10th Cir. 1999) (holding that the district court's decision to review magistrate judge's recommendation de novo despite lack of an objection does not preclude application of "firm waiver rule"); Int'l Surplus Lines Ins. Co. v. Wyo. Coal Refining Sys., Inc., 52 F.3d 901, 904 (10th Cir. 1995) (finding that cross-claimant waived right to appeal certain portions of magistrate judge's order by failing to object to those portions); Ayala v. United States, 980 F.2d 1342, 1352 (10th Cir. 1992) (finding that plaintiffs waived their right to appeal the magistrate judge's ruling by failing to file objections). But see, Morales-Fernandez v. INS, 418 F.3d 1116, 1122 (10th Cir. 2005) (holding that firm waiver rule does not apply when the interests of justice require review).
Dated this 12th day of February, 2020.
BY THE COURT:
/s/_________
Kathleen M. Tafoya
United States Magistrate Judge