Opinion
Civil Action No. 1:18-cv-05774-AT
2021-07-06
UNITED STATES of America, Plaintiff, v. Nancy ZAK, et al., Defendants.
Neeli Ben-David, Office of the United States Attorney, Atlanta, GA, Ann Tillinghast Porter, James Francis Bresnahan, III, Charles P. Hurley, Eric Martin Aberg, Gregory E. Van Hoey, Harris Phillips, Lauren Darwit, Russell J. Edelstein, U.S. Department of Justice, Richard Gerald Rose, Office of the United States Attorney-Tax Division, Washington, DC, Erin R. Hines, for Plaintiff. Robert C. Khayat, Jr., The Khayat Law Firm, Atlanta, GA, Amanda M. Leon, Christopher S. Rizek, Leila D. Carney, Pro Hac Vice, Niles A. Elber, Ross R. Sharkey, Pro Hac Vice, Caplin & Drysdale, Chartered, Washington, DC, for Defendant Claud III Clark. Amee Frodle, Pro Hac Vice, Benjamin John Razi, Marianna F. Jackson, Matthew V. Miller, Nicholas Pastan, Sean Murphy Akins, John Zipp, Pro Hac Vice, Kandyce Lyndsey Korotky, Pro Hac Vice, Julius J. Mitchell, Pro Hac Vice, Covington & Burling, LLP, Washington, DC, Elizabeth L. Clack-Freeman, Thomas T. Tate, Andersen, Tate & Carr, P.C., Duluth, GA, Wesline Nikethana Manuelpillai, Pro Hac Vice, Covington & Burling, New York, NY, for Defendant Ecovest Capital, Inc. Benjamin John Razi, Marianna F. Jackson, Matthew V. Miller, Nicholas Pastan, Sean Murphy Akins, Kandyce Lyndsey Korotky, Pro Hac Vice, Julius J. Mitchell, Pro Hac Vice, Covington & Burling, LLP, Washington, DC, Elizabeth L. Clack-Freeman, Thomas T. Tate, Andersen, Tate & Carr, P.C., Duluth, GA, for Defendants Alan N. Solon, Robert M. McCullough, Ralph R. Teal, Jr.
Neeli Ben-David, Office of the United States Attorney, Atlanta, GA, Ann Tillinghast Porter, James Francis Bresnahan, III, Charles P. Hurley, Eric Martin Aberg, Gregory E. Van Hoey, Harris Phillips, Lauren Darwit, Russell J. Edelstein, U.S. Department of Justice, Richard Gerald Rose, Office of the United States Attorney-Tax Division, Washington, DC, Erin R. Hines, for Plaintiff.
Robert C. Khayat, Jr., The Khayat Law Firm, Atlanta, GA, Amanda M. Leon, Christopher S. Rizek, Leila D. Carney, Pro Hac Vice, Niles A. Elber, Ross R. Sharkey, Pro Hac Vice, Caplin & Drysdale, Chartered, Washington, DC, for Defendant Claud III Clark.
Amee Frodle, Pro Hac Vice, Benjamin John Razi, Marianna F. Jackson, Matthew V. Miller, Nicholas Pastan, Sean Murphy Akins, John Zipp, Pro Hac Vice, Kandyce Lyndsey Korotky, Pro Hac Vice, Julius J. Mitchell, Pro Hac Vice, Covington & Burling, LLP, Washington, DC, Elizabeth L. Clack-Freeman, Thomas T. Tate, Andersen, Tate & Carr, P.C., Duluth, GA, Wesline Nikethana Manuelpillai, Pro Hac Vice, Covington & Burling, New York, NY, for Defendant Ecovest Capital, Inc.
Benjamin John Razi, Marianna F. Jackson, Matthew V. Miller, Nicholas Pastan, Sean Murphy Akins, Kandyce Lyndsey Korotky, Pro Hac Vice, Julius J. Mitchell, Pro Hac Vice, Covington & Burling, LLP, Washington, DC, Elizabeth L. Clack-Freeman, Thomas T. Tate, Andersen, Tate & Carr, P.C., Duluth, GA, for Defendants Alan N. Solon, Robert M. McCullough, Ralph R. Teal, Jr.
ORDER
AMY TOTENBERG, UNITED STATES DISTRICT JUDGE This matter is before the Court on the United States’ Motion to Dismiss Defendant Claud Clark, III's Amended Counterclaim. [Doc. 208.] For the following reasons, the Motion is DENIED . [Doc. 208.]
I. Background
On August 24, 2020, this Court entered an Order dismissing Defendant Claud Clark, III's ("Clark") counterclaim. (Order, Doc. 202 (granting Government's Motion to Dismiss, Doc. 161).) In that Order, the Court noted that the areas of law in question – 26 U.S.C. §§ 6103 & 7431 (" Section 6103" and " Section 7431") – were "not particularly oft litigated" and that the case law regarding application of these statutes was thin. In recognition of this scarcity, the Court granted Clark leave "to file an Amended Counterclaim that directly addresses the issues raised by this Order – specifically, how the statements made by the Government disclose Clark's tax return information or his identity and investigation of him personally linked to his tax return – if he so desires." (Order, Doc. 202 at 15.) Clark did so, filing the instant Amended Counterclaim. (Am. Countercl., Doc. 206.) The Government subsequently moved to the dismiss the Amended Counterclaim. (Mot. to Dismiss, Doc. 208.)
II. Standard of Review
"A motion to dismiss a counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(6) is evaluated in the same manner as a motion to dismiss a complaint." Great Am. Assurance Co. v. Sanchuk, LLC , No. 8:10-CV-2568-T-33AEP, 2012 WL 195526, at *2 (M.D. Fla. Jan. 23, 2012). To survive a motion to dismiss under Rule 12(b)(6), "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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). For the purposes of a motion to dismiss, the court must accept all factual allegations in the complaint as true; however, the court is not bound to accept as true a legal conclusion couched as a factual allegation. Twombly , 550 U.S. at 555, 127 S.Ct. 1955. "While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Iqbal , at 679, 129 S.Ct. 1937. Although the plaintiff or counterclaimant is not required to provide "detailed factual allegations" to survive dismissal, "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ; Twombly , 550 U.S. at 555, 570, 127 S.Ct. 1955.
III. Analysis
Section 6103 provides that "[r]eturns and return information shall be confidential ... except as authorized by this title," and that "no officer or employee of the United States, ... shall disclose any return or return information obtained by him in any manner in connection with his service as such an officer or an employee or otherwise or under the provisions of this section." 26 U.S.C. § 6103(a). For purposes of the statute, the term "return" is defined as "any tax or information return, declaration of estimated tax, or claim for refund required by, or provided for or permitted under, the provisions of this title which is filed with the Secretary by, on behalf of, or with respect to any person, and any amendment or supplement thereto, including supporting schedules, attachments, or lists which are supplemental to, or part of, the return so filed." Id. § 6103(b)(1). And "return information" is defined as
[A] taxpayer's identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, whether the taxpayer's return was, is being, or will be examined or subject to other investigation or processing, or any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return or with respect to the determination of the existence, or possible existence, of liability (or the amount thereof) of any person under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense,
Id. § 6103(b)(2)(A). The definition of "return information" is therefore broad, encompassing, inter alia , the taxpayer's identity, or whether the taxpayer's return "was, is being, or will be examined or subject to other investigation or processing." Taylor v. Pekerol , 624 F. App'x 691, 694 (11th Cir. 2015) (quoting 26 U.S.C. § 6103 (b)(2)(A) ); see Comyns v. United States , 155 F. Supp. 2d 1344, 1348–49 (S.D. Fla. 2001), aff'd , 287 F.3d 1034 (11th Cir. 2002) ("[R]evealing the fact that a taxpayer is the subject of a tax investigation constitutes disclosure of ‘return information.’ ") (citing 26 U.S.C. § 6103(b)(2) ).
A "disclosure" for purposes of Section 6103 is "the making known to any person in any manner whatever a return or return information." 26 U.S.C. § 6103(b)(8). However, Section 6103 includes a number of express exceptions to the general rule against disclosure. For example, IRS officers are permitted to disclose return information for investigative purposes "to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available, with respect to the correct determination of tax, liability for tax, or the amount to be collected or with respect to the enforcement of any other provision of [Title 26]." Id. § 6103(k)(6). Additionally, "[a] return or return information may be disclosed in a Federal or State judicial or administrative proceeding pertaining to tax administration, ... if the taxpayer is a party to the proceeding." Id. § 6103(h)(4)(A).
If an officer or employee of the United States knowingly or negligently discloses a taxpayer's return information in violation of Section 6103, under Section 7431, the taxpayer may bring a civil action for damages in federal district court. 26 U.S.C. § 7431(a)(1). However, "[n]o liability shall arise under this section with respect to any inspection or disclosure" that "results from a good faith, but erroneous, interpretation of section 6103" or "is requested by the taxpayer." Id. § 7431(b).
In his Amended Counterclaim, Clark cites eleven statements that he believes improperly disclose his return information in violation of Section 6103. For instance, Clark points to a press release issued on December 19, 2018 in which employees of the DOJ Office of Public Affairs described the instant litigation, including by naming the individual defendants mentioned in the original complaint. (Doc. 206 at 20.) The press release also stated that the Government's complaint was seeking to stop those defendants "from organizing, promoting, or selling an allegedly abusive conservation easement syndication tax scheme," described the alleged tax scheme as "rely[ing] on grossly overvalued appraisals," and accused the defendants of making or furnishing "gross valuation overstatements about the valuation of conservation easements and the corresponding tax deductions[.]" (Id. )
Upon review of the docket, the Court notes that the Complaint initiating this action was filed the day before, on December 18, 2018. (See Compl., Doc. 1.)
Clark alleges that the DOJ Press Release "was based on or derived from information specifically regarding Mr. Clark that was received by, recorded by, prepared by, furnished to, or collected by the IRS (e.g. , during the audits and investigations that allegedly form the basis for This Litigation)." (Id. at 22.) He alleges that this statement violates Section 6103 because it directly discloses his identity as a person "potentially subject to internal revenue taxes or other liabilities under the [Tax] Code[.]"(Id. at 21.) And he further alleges that this statement indirectly discloses "[his] profession as an appraiser, the nature and source of his income from his appraisal business, his potential liabilities under the Code for his appraisal work, and that he was, is being, or will be under IRS investigation" because it discloses "information relating to the IRS's investigation of [him], allegations against [him] in This Litigation, and allegations regarding [his] appraisals." (Id. ).
In response, the Government argues that the DOJ Press Release is exempt from Section 6103 ’s confidentiality requirement because it "publicizes only the allegations of the publicly-filed, file-stamped complaint that was attached to and referenced in the Press Release." (Mot. to Dismiss, Doc. 208-1 at 9 (emphasis in original).) The Government principally relies on the Ninth Circuit's decision in Lampert v. United States , 854 F.2d 335 (9th Cir. 1988), where that court rejected a similar Section 6103 claim when, like in this case, the Government had issued a press release publicizing its filing of a lawsuit against a group of taxpayers. See (Doc. 208-1 at 10–13). Because the Government heavily relies on the Ninth Circuit's decision in Lampert as the basis for dismissing Clark's claim regarding the DOJ Press Release, the Court begins its analysis with Lampert .
In Lampert , taxpayers challenged the IRS and U.S. Attorney's Office's issuance of press releases publicizing lawsuits the Government had filed against them seeking to enjoin them from promoting and selling abusive tax shelters. 854 F.2d at 336. As it was in this case, the filing of the lawsuit itself was authorized by Section 6103(h)(4)(A) because it was a "disclosure of return information in judicial proceedings involving a taxpayer's civil or criminal tax liability." Lampert , 854 F.2d at 337. However, again, just like in this case, the disclosure the taxpayers challenged was not the disclosure that occurred in the judicial proceeding through the filing of the lawsuit, but the disclosure "to the press through the issuance of press releases." Id.
Even though Section 6103(h)(4)(A) ’s exception for disclosures in judicial proceedings did not cover this subsequent disclosure to the press — and the statute does not otherwise include an express exception for such disclosures — the court nevertheless concluded that the disclosure was lawful. The court's rationale was that once tax information is lawfully disclosed in a judicial proceeding under Section 6103(h)(4) ’s exception, "the information is no longer confidential and may be disclosed again without regard to section 6103" because it has been "made a part of the public domain." Id. at 337–38. In such circumstances, the court concluded, "the taxpayer may no longer claim a right of privacy in that information." Id. at 338.
The Ninth Circuit subsequently reaffirmed this decision in William E. Schrambling Accountancy Corp. v. United States , 937 F.2d 1485 (9th Cir. 1991), albeit in a different context. There, taxpayers challenged the disclosure of return information that had been previously disclosed in notices of federal tax liens that were recorded in the County Recorder's office. Id. at 1488. The court found that Section 6103 ’s confidentiality requirement did not apply in this situation either because "the purpose of recording the lien, unlike including the information in court documents, is to place the public on notice of the lien," and "[r]ecording the information in the County Recorder's office thus exposes the information to as much, if not greater, publicity than publication in a judicial proceeding." Id. at 1489.
As the Government points out, (Mot. To Dismiss, Doc. 208-1 at 11), the Sixth Circuit reached the same conclusion in Rowley v. United States , 76 F.3d 796 (6th Cir. 1996), where the court held that "once a taxpayer's return information becomes part of the public domain through the filing and recording of a judicial lien, it loses its confidentiality and is not protected by Section 6103" if that information is disclosed by the IRS. Id. at 801. But in Rowley the Sixth Circuit merely stated that the Ninth Circuit's approach was "the most persuasive in light of the circumstances of this case. " 76 F.3d at 801 (emphasis added). And the Sixth Circuit's holding appears to be limited to the context of disclosures of tax return information once that information has been made public "through the filing and recording of a judicial lien." Accordingly, this Court does not read Rowley as standing for the broad proposition that all documents that have been made public by any means whatsoever are automatically exempt from Section 6103 ’s confidentiality requirement.
The Government also refers to a decision from Third Circuit as supporting of their position, (Mot. to Dismiss, Doc. 208-1 at 11), but the decision the Government references, Barnes v. United States , 17 F.3d 1428 (3d Cir. 1994), is an unpublished table decision that appears to have no precedential value.
More importantly, the Eleventh Circuit has never recognized the blanket public records exception endorsed by the Ninth Circuit, and several other Circuits have expressly refused to do so. For example, in Johnson v. Sawyer , 120 F.3d 1307 (5th Cir. 1997), the Fifth Circuit held that the IRS's issuance of press releases publicizing the plaintiff's conviction for income tax evasion violated Section 6103 even though the conviction was technically public. Like in this case, the Government argued in Johnson that "once tax return information is lawfully disclosed in such proceedings, it loses its confidentiality, rendering § 6103 ’s prohibition moot." Id. at 1317. But the court declined to hold that all documents that have been made public were automatically exempt from Section 6103 ’s confidentiality requirement, as the Government had suggested. Instead, the court held that even if the prior disclosure of return information in a judicial proceeding was permissible under the express exception in Section 6103(h)(4)(A) — thereby making that information public — subsequent disclosure of that same information was still prohibited. See id. at 1323.
In fact, the Ninth Circuit acknowledged in Lampert that several other courts had reached a contrary conclusion, and it appeared to concede that its own interpretation was not consistent with "a strict, technical reading of the statute." 854 F.2d at 337–38.
In so holding, the court emphasized that, despite Section 6013's "elaborate structure," it "contains no express exceptions permitting disclosure of tax return information that has arguably lost its confidentiality because it has been made available to the public via disclosure in open court." Id. at 1319. And as the court recognized, other Circuits had previously refused to endorse a blanket public records exception absent express statutory authorization from Congress. For instance, in Rodgers v. Hyatt , 697 F.2d 899 (10th Cir. 1983), the Tenth Circuit held that even though an IRS agent had previously "lawfully disclosed [tax return] information in testimony in open court" under the Section 6103(h)(4)(A) exception, the subsequent disclosure of that same information was still unlawful because it "was not governed by any of § 6103 ’s exceptions." Johnson , 120 F.3d at 1318 (citing Rodgers , 697 F.2d at 904–06 ); see Rodgers , 697 F.2d at 906 ("The fact that Mr. Hyatt had given prior ‘in court’ testimony relative to the alleged ‘rumors and allegations’ which likely removed them from their otherwise ‘confidential’ cloak, did not justify Hyatt's violation of the requirement that he, as an officer of the United States, is prohibited from disclosing ‘return information’ absent express statutory authorization."). Similarly, in Mallas v. United States , 993 F.2d 1111 (4th Cir. 1993), the Fourth Circuit refused to recognize an exception to Section 6103 for disclosures that repeated information "otherwise available to the public" when those disclosures "still fell within [the] broad definition" of disclosures under Section 6103. Id. at 1121. Although the Government argued in Mallas that the Ninth Circuit's approach in Lampert struck a better balance between taxpayers’ privacy rights and the government's interest in disclosure, the Fourth Circuit held that "[i]t is for Congress ... not this court, to ‘strike a balance’ between these interests." Id. ; accord Johnson , 120 F.3d at 1318.
The court's holding in Johnson was also premised on the notion that "the fact that an event is not wholly ‘private’ does not mean that an individual has no interest in limiting disclosure or dissemination of the information." Id. at 1323 (quoting U.S. Dep't of Justice v. Reporters Comm. for Freedom of the Press. , 489 U.S. 749, 770, 109 S.Ct. 1468, 103 L.Ed.2d 774 (1989) ) (cleaned up). Consistent with that premise, the court concluded that " § 6103 ’s protection does not disappear simply because tax return information has been disclosed in the public record and has therefore arguably lost its confidentiality"; rather, "[i]n enacting § 6103 as a prophylactic ban, Congress was determining that a taxpayer has a statutorily created "privacy" interest in all his tax return information, despite the fact that some of it is not entirely ‘secret’." Id. (emphasis in original). In the Fifth Circuit's view, liability under Section 6103 should therefore be based on "the source of the information claimed to be wrongfully disclosed" instead of "its public or non-confidential status. " Id.
This "immediate source" test was also endorsed by the Seventh Circuit in Thomas v. United States , 890 F.2d 18 (7th Cir. 1989). In Thomas , a taxpayer challenged the IRS's issuance of a press release that was published verbatim in the taxpayer's home newspaper after he had lost an appeal in the U.S. Tax Court. Id. at 19. The press releasee included information about the taxpayer's identity, his tax liability, and the penalties that had been assessed against him, but "all the information in the release and in the article was drawn from the Tax Court's opinion." Id. at 19–20. The court did not address whether the Tax Court's issuance of the opinion – which itself was a lawful disclosure in a judicial proceeding under Section 6301(h)(4) – necessarily "removed the protective cloak of confidentiality" such that the IRS could then "go back to [the taxpayer's] file, pull out the return, and publicize so much of the information found there as had been disclosed in the opinion"; however, the court did conclude that the IRS could disclose "the opinion itself." Id. at 20–21. Significantly, unlike the present case, Thomas was not a case in which the IRS "having lawfully disclosed return information in one public place, wishes to disclose it in another and more public place"; it was one in which the IRS simply "wishe[d] to trumpet its victory to [the taxpayer's] neighbors." Id. at 21.
By comparison, the press release at issue in Johnson was prepared based on information provided to an IRS public affairs officer by an investigating special agent — not from the court order itself. Johnson , 120 F.3d at 1311–12.
The Court finds the approach taken by the Fourth, Fifth, Seventh, and Tenth Circuits to be persuasive in the absence of any instructive authority from the Eleventh Circuit. And at least on the present record, the Court doubts that Section 6103 ’s confidentiality requirement includes an implicit exception for all tax return information that has become a matter of public record like the exception recognized by the Ninth Circuit in Lampert .
In its Reply, the Government argues that without a blanket public records exception "all return information [would be] forever protected under § 6103, even if that information lawfully entered the public domain through a judicial proceeding," and that this "would prohibit the Government from issuing press releases in any tax cases." (Reply, Doc. 222 at 7.) Not so. In reality, the Government can still issue press releases in tax cases and avoid liability under Section 6103 absent a blanket public records exception, just as it did in Thomas . In situations like in Thomas , where the Government's press release merely parroted a court order, the press release does not run afoul of Section 6103. To give another example, in Rice v. United States , 166 F.3d 1088 (10th Cir. 1999), the Tenth Circuit denied a taxpayer's Section 6103 claim when the IRS issued press releases publicizing the taxpayer's conviction and "all the information contained in the press releases came from public documents and proceedings," id. at 1090, including the trial and sentencing. Unlike the Complaint filed by the Government here, a live trial is not a self-serving document prepared solely by one of the Parties — it is a "public event," id. at 1092, that is overseen by a judge. The Government's argument that it can never lawfully issue a press release in a tax case unless the Court recognizes a blanket public records exception is simply meritless.
Alternatively, the Government argues that even under the narrower immediate source test, Section 6103 still should not apply to the press release because the immediate source of the return information contained therein was the publicly filed Complaint and not Clark's tax returns. (Mot. to Dismiss, Doc. 208-1 at 14). But a press release parroting a publicly filed complaint is distinguishable from a press release parroting a court order like the one referenced in the press release in Thomas . Indeed, the circumstances here are more akin to a situation in which the IRS "having lawfully disclosed return information in one public place, wishes to disclose it in another and more public place" than one in which the IRS was simply looking to "trumpet its victory." Thomas , 890 F.2d at 21. As of the time of the disclosure, the IRS had not secured a "victory" through a court order.
What is more, Section 6103 ’s prohibition on disclosure of tax return information did not apply to the IRS's press release in Thomas because the court order referenced in the press release was a public document that was "lawfully prepared by an agency that is separate from the [IRS] and has lawful access to the tax returns." Id. (emphasis added). Unlike an order prepared by a court, a complaint that was prepared by the lawyers representing the IRS is not a public document that was prepared by an agency that is separate from the IRS. Hence, it is doubtful that the rule from Thomas permitting "the publicizing of a judicial opinion," id. , would similarly apply to the IRS publicizing a Complaint that was prepared by its own lawyers.
As such, Clark has adequately alleged that at least one of the statements identified in his Amended Counterclaim improperly disclosed his tax return information, in violation of Section 6103. The Court need not address at this stage whether each and every identified statement in the Amended Counterclaim does violate the statute – that is a question better answered upon a full evidentiary record. It suffices for now to say that Clark has adequately pleaded that the Government did at some point improperly disclose his return information in violation of Section 6103. For the reasons set forth above, the Court DENIES the United States’ Motion to Dismiss Defendant Claud Clark, III's Amended Counterclaim. [Doc. 208.] That said, the Court recognizes that developments in the factual record in this case may fortify or undermine Clark's claims – and similarly that other legal developments may impact this picture.
IV. Conclusion
For the reasons stated above, the United States’ Motion to Dismiss Defendant Claud Clark, III's Amended Counterclaim [Doc. 208] is DENIED.
IT IS SO ORDERED this 6th day of July, 2021.