Opinion
No. CV-N-97-0256-DWH(RAM)
July 9, 2002
ORDER
Before the court is defendant United States of America's motion to dismiss (#61). Plaintiff opposed (#64) and defendant replied (#66).
I. Background
Plaintiff filed this action on April 24, 1997, alleging a violation of 26 U.S.C. § 7433. (#1.) By order entered September 14, 1998 (#26), the court granted defendant's motion for summary judgment, treating it as a motion to dismiss for failure to state a claim. See also Rep. Rec., #23. The court dismissed plaintiff's complaint without prejudice and granted plaintiff thirty days to file an amended complaint. Plaintiff failed to file a complaint within thirty days and the action was dismissed by order entered October 29, 1998. (#27)
On November 10, 1998, plaintiff filed a Motion for Relief from Order and to Re-Open Case File pursuant to Rule 60(b). (#28.) Plaintiff then filed a notice of appeal on December 2, 1998. (#31.) The court denied plaintiff's motion by order entered December 11, 1998. (#32.) On December 16, 1998, plaintiff filed a Motion to Reconsider regarding the court's denial of the Rule 60(b) motion. (#35.) The court denied the motion on January 8, 1999. (#38.)
On October 11, 2000, the Ninth Circuit vacated the court's December 11, 1998 and January 8, 1999 orders and remanded the matter with instructions to consider the Rule 60(b) motion in light of Kevin Mirch's affidavit. (#52.) On July 23, 2001, the court granted plaintiffs Rule 60(b) motion and gave plaintiff thirty days leave to amend his complaint. (#55.) Plaintiff file an Amended Complaint (#56) on August 19, 2001. The issue before the court is whether plaintiffs amended complaint must be dismissed for either lack of subject matter jurisdiction or failure to state a claim.
II. Analysis
A. Standard on Motion to Dismiss for Lack of Subject Matter Jurisdiction
Dismissal is appropriate when the district court lacks subject matter jurisdiction over the claim. See Fed.R.Civ.P. 12(b)(1). Federal subject matter jurisdiction must exist at the time the action is commenced. See Morongo Band of Mission Indians v. California State Bd. of Equalization, 858 F.2d 1376, 1380 (9th Cir. 1988), cert. denied, 488 U.S. 1006 (1989). A Rule 12(b)(1) motion may either attack the sufficiency of the pleadings to establish federal jurisdiction, or allege an actual lack of jurisdiction which exists despite the formal sufficiency of the complaint. See Thornhill Publ'g Co., Inc. v. General Tel. Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979); Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cit. 1987). In reviewing a motion to dismiss based on lack of subject matter jurisdiction, the court may consider affidavits or any other evidence properly before the court. Sommatino v. U.S., 255 F.3d 704, 710 (9th Cir. 2001).
Subject matter jurisdiction is a threshold issue which goes to the power of the court to hear the case. Therefore, a Rule 12(b)(1) challenge should be decided before other grounds for dismissal, because they will become moot if dismissal is granted. See Alvares v. Erickson, 514 F.2d 156, 160 (9th Cir. 1975), cert. denied, 423 U.S. 874 (1975); see also 5A CHARLES ALAN WRIGHT ARTHUR R. MILLER, FEDERAL PRACTICE PROCEDURE § 1350, 209-10 (2d ed. 1990).
A federal court is presumed to lack subject matter jurisdiction until the contrary affirmatively appears. Stock West, Inc. v. Confederated Tribes, 873 F.2d 1221, 1225 (9th Cir. 1989). An action should not be dismissed for lack of subject matter jurisdiction without giving the plaintiff an opportunity to amend unless it is clear that the jurisdictional deficiency cannot be cured by amendment. May Dept. Store v. Graphic Process Co., 637 F.2d 1211, 1216 (9th Cir. 1980).
B. Standard on Motion to Dismiss for Failure to State a Claim
In considering a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6), the court must accept as true all material allegations in the complaint as well as all reasonable inferences which may be drawn from such allegations. Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998). The allegations of the complaint must also be construed in the light most favorable to the nonmoving party. Id. The purpose of a motion to dismiss under Rule 12(b)(6) is to test the legal sufficiency of the complaint. North Star Int'l v. Arizona Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). "A complaint should not be dismissed unless a plaintiff could prove no set of facts in support of his claim that would entitle him to relief." Parks School of Business, Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). A court may consider exhibits attached to a complaint without converting the motion to dismiss into one for summary judgment. See id. A complaint may be dismissed as a matter of law for either (1) lack of a cognizable legal theory, or (2) insufficient facts under a cognizable legal claim. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984).
C. Application of the Standards
By his complaint, plaintiff alleges a violation of 26 U.S.C. § 7433, which authorizes suits for damages against the United States "[i]f, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any provision of this title, or any regulation promulgated under this title." 26 U.S.C. § 7433(a). According to § 7433, a finding of liability entitles a plaintiff to the lesser of $1,000,000 or the "actual, direct economic damages sustained by the plaintiff as a proximate result of the reckless or intentional or negligent actions of the officer or employee." 26 U.S.C. § 7433(b)(1). Section 7433 also requires that the administrative remedies available within the Internal Revenue Service be exhausted before a plaintiff is awarded damages under subsection (b). 26 U.S.C. § 7433(d)(1).
The court notes that plaintiff has not alleged in his complaint that be exhausted his administrative remedies as required by § 7433(d)(1) and 26 C.F.R. § 301.7433-1. At most, plaintiff alleges that he requested an explanatory letter from the IRS to cure the situation with his employer. (#56, ¶ 10.) Because the court dismisses the complaint on other grounds, the court declines to address this issue.
Defendant argues that plaintiffs complaint should be dismissed for three reasons. First, defendant argues that the United States' sovereign immunity is not waived because plaintiff's allegations concern unauthorized tax determination actions rather than unauthorized tax collection actions. It was on this ground that the court previously dismissed plaintiffs complaint. Plaintiffs original complaint contained no allegations concerning collection activities of the IRS agents. However, plaintiff has amended the complaint to include the following allegations which might be construed as concerning collection activities:
7. Under Section 7433 the Internal Revenue Service has intentionally refused to follow its own rules and regulations including but not limited to . . . attempting to collect taxes that were not due (through threats and coercion).
8. Agents Ruiz and Salmonson threatened Mr. O'Brien that if he did not "come clean" and pay his taxes immediately, that they would criminally prosecute him. Mr. O'Brien believed from the conversation that he was required to immediately confess and pay over taxes to agents Ruiz and Salmonson or be prosecuted.
11. Agents Ruiz and Salmonson were agents, officers and/or employees of the Internal Revenue Service when they made the threats, attempted to collect taxes not due . . .
12. Agents Ruiz and Salmonson acted recklessly, intentionally, and/or by reason of negligence in improperly attempting to collect taxes without authority that were not due; threatening Plaintiff with criminal prosecution if he did not confess to laundering drug monies and pay over to them taxes due on the same.
Defendant refers to the court's September 14, 1998 order and argues that the credibility of these allegations is at issue because of the circumstances under which the allegations came about and because the IRS agents' affidavits contradict plaintiffs allegations. Because the court concludes that plaintiffs amended complaint fails to state a claim on other grounds discussed below, the court does not reach the issue of credibility here.
Second, defendant argues that plaintiff fails to state a claim because he has not alleged any actual, economic damages as a proximate result of the IRS agents' actions. Under § 7433(a) and (b), a plaintiff may bring an action for "actual, direct economic damages sustained by plaintiff as a proximate result of the reckless or intentional or negligent actions of the officer or employee." 26 U.S.C. § 7433(b)(1). As alleged by plaintiff, he sustained damages insofar as he lost promotions within Dean Witter. However, as the Magistrate Judge recognized in the July 27, 1998 Report and Recommendation, the court understands these allegations to mean that plaintiffs damages resulted from the IRS agents' disclosing plaintiffs alleged illegal conduct to Dean Witter, not from the IRS agents' alleged demand for taxes, accusations of illegal conduct, and threats of criminal prosecution made to plaintiff. Plaintiff has not alleged that these actions proximately damaged him in any other way. Therefore, plaintiff has not adequately stated a claim for damages as a proximate result of the IRS agents' alleged demands, accusations, and threats to plaintiff.
Third, defendant argues that plaintiff has not alleged the violation of a specific provision of the Internal Revenue Code. Defendant argues that other courts have recognized this as a ground to dismiss for failure to state a claim under § 7433. See Ludtke v. United States, 84 F. Supp. 294, 302 (D. Conn. 1999) (citations omitted) (recognizing that several courts have granted a motion to dismiss where plaintiff failed to allege how the IRS recklessly or intentionally disregarded the Internal Revenue Code by referring to a specific statute or regulation). Plaintiff argues that this issue was resolved in the July 27, 1998 Report and Recommendation which was adopted by the court, except as provided in the court's September 14, 1998 order.
In the Report and Recommendation, Magistrate Judge Atkins recognized defendant's argument that plaintiff failed to allege a reckless or intentional disregard of the tax code or its provisions. (#23 at 16.) Magistrate Judge Atkins reasoned that plaintiff sufficiently alleged the "reckless or intentional" disregard of the tax code where plaintiff alleged that the IRS "intentionally refused to follow its own rules and regulations including but not limited to falsely accusing the Plaintiff of laundering drug monies . . [and] disclos[ing] the same information to Plaintiffs employer, Dean Witter." (#23 at 16.) However, this reasoning is set forth in the portion of the Report and Recommendation finding subject matter jurisdiction over plaintiffs claims and denying defendant's motion for summary judgment. The court's September 14 order, on the other hand, found that subject matter jurisdiction was lacking (albeit on other grounds) and granted defendant's motion as if it were one under Rule 12(b)(6). Therefore, the court does not agree that it is bound to the Magistrate Judge's finding that plaintiffs allegations in this regard are sufficient.
In his complaint, plaintiff alleges that jurisdiction is conferred by "Sections 7422(a), 7433, 7422, 5432(a), 28 U.S.C.A. 1341, 1346, 7426(a), and 7426(b)(1) of Title 26, United States Code as amended." (¶ 3.) The court reads this as referring to §§ 7422, 7422(a), 7433, 5432(a), 7426(a), and 7426(b)(1) of Title 26, and §§ 1341 and 1346 of Title 28. The Title 28 sections are irrelevant to this argument because § 7433 permits suit for IRS violation of the Internal Revenue Code, found at Title 26. Considering plaintiffs allegations in connection with the Title 26 provisions, it is clear that plaintiff has failed to state a claim under § 7433. As defendant notes, § 7422 is entitled "Civil actions for refund" and deals with lawsuits regarding refund claims. Plaintiff has alleged nothing with regard to a claim for refund. Further, plaintiff has not alleged that any assessments or collections actually resulted from the meeting with the IRS agents. Also, § 7426 permits civil actions for wrongful levies. Plaintiff has alleged nothing with regard to wrongful levies. Therefore, because plaintiff has failed to refer to a specific tax statute or regulation, or to allege facts in support of the statutes he has cited, plaintiff has failed to state a claim under § 7433. For the foregoing reasons, the complaint on its face fails to state a claim under the subject matter jurisdiction it invokes and therefore, it must be dismissed.
The court cannot find a § 5432 in either Title 26 or Title 28.
§ 7422(a) provides in part "No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary."
§ 7426(a) provides in part: "If a levy has been made on property or property has been sold pursuant to a levy, any person . . . who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States."
III. Conclusion
Accordingly, IT IS ORDERED that defendant's motion (#61.) is GRANTED. IT IS FURTHER ORDERED that plaintiff's complaint is dismissed.