Opinion
No. 99-S-1840
April 10, 2000
RECOMMENDATION ON UNITED STATES' MOTION TO DISMISS
This case is before this court pursuant to a Supplemental Order of Reference issued by District Judge Daniel B. Sparr on February 22, 2000, in which the undersigned was designated to "[c]onduct hearings, including evidentiary hearings, as . . . deem[ed] appropriate and submit proposed findings of fact and recommendations for filings on dispositive motions, specifically Defendant United States' Motion to Dismiss (filed November 22, 1999) . . . ." (Docket No. 26).
Plaintiff brought an action in the District Court for the City and County of Denver under the Americans With Disabilities Act ("ADA"), 42 U.S.C. § 12101-12117, et seq., alleging discrimination by his former employer, the Colorado Division of Youth Services, for failing to make a workplace accommodation on account of on-the-job personal physical injuries he previously suffered. (Compl. ¶ 9(b)). Following a jury verdict on June 23, 1997, a Judgment Order was entered for plaintiff in the amount of $421,831.24, which consisted of the following: (1) $103,300.00 for back pay; (2) $190,100.00 for front pay; (3) $50,000.00 for emotional distress, pain, suffering, and mental anguish; (4) $8,304.00 for prejudgment interest; and (5) $70,127.24 for attorney's fees and costs. (Compl. Ex. A). That judgment was affirmed on July 8, 1999, by the Colorado Court of Appeals. (Compl. Ex. C).
In 1999 the State of Colorado withheld federal income taxes from the back pay and front pay portions of this award, and the defendants refused to honor the W-4 form plaintiff submitted in which he declared 107 withholding exemptions, thereby allegedly denying plaintiff substantive due process of law, denying him his right to the earnings on the funds he would otherwise retain now, taking an action which is in the nature of a termination assessment against him, without opportunity for administrative and judicial hearings, and forcing him into a post-payment litigation forum, thereby causing him irreparable injury for which there purportedly is no adequate remedy at law. (Compl. ¶¶ 24-26). Plaintiff seeks injunctive relief to recover the amount of this withholding from the United States, as well as all administrative and litigation costs. (Compl. at 19 ¶¶ 37-43).
Before the court is defendant United States' motion to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(1) on the grounds that plaintiff has failed to establish an affirmative waiver of sovereign immunity and the action is barred by the Anti-Injunction Act. Plaintiff, through counsel, filed a response to the motion. The court now being fully informed makes the following findings, conclusions, and recommendation.
"On a motion to dismiss a complaint under Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction, the court must accept the factual allegations regarding jurisdiction as true." Banks v. Rubin, 72 F. Supp.2d 1198, 1200 (D. Colo. 1999). Plaintiff, however, has the burden of showing that the defendant is not immune from suit, Neiberger v. Hawkins, 70 F. Supp.2d 1177, 1181 (D. Colo. 1999), and that this court has subject matter jurisdiction. Cabeza De Vaca Land Cattle Co. v. Babbitt, 58 F. Supp.2d 1226, 1229 (D. Colo. 1999). "In response to a Rule 12(b)(1) motion, the district court has wide discretion to consider affidavits, documents, and even hold a limited evidentiary hearing." Id. at 1229. For the following reasons, it is recommended that the defendant's motion to dismiss be granted.
Defendant correctly states in its motion that as a sovereign, the United States may be sued only where it has expressly consented to suit. See Lehman v. Nakshian, 453 U.S. 156, 160 (1981). In the instant case, plaintiff asserts in his Complaint "[t]hat personal and subject matter jurisdiction is conferred upon this Court pursuant to the provisions of 28 U.S.C. § 1331 and 1346(a)(1), IRC §§ 7402 and 7430, and that exercise of its discretion under equitable principles is conferred upon this Court under Rule 65 of the Federal Rules of Civil Procedure." (Compl. ¶ 4). As correctly asserted by defendant, however, general jurisdictional grants, such as 28 U.S.C. § 1331 and 1346(a), do not waive sovereign immunity. Lonsdale v. United States, 919 F.2d 1440, 1444 (10th Cir. 1990). Rather, plaintiff must find an explicit waiver of sovereign immunity. Id. Furthermore, plaintiff's reliance on two Internal Revenue Code sections, 26 U.S.C. § 7402 and 7430, is also misplaced. The first section grants jurisdiction in actions brought by the United States to enforce the internal revenue laws. The second section permits an award of attorney's fees against the United States under certain circumstances but does not operate as an independent waiver of sovereign immunity.
Defendant also correctly maintains that the relief plaintiff seeks is barred by the Anti-Injunction Act which provides in pertinent part that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person . . . ." 26 U.S.C. § 7421 (a). "The purpose of the Anti-Injunction Act is to allow the government to conduct its business expeditiously in the assessment and collection of taxes without judicial intervention and to require that a taxpayer challenging the assessment and collection of taxes against him must first file a claim for a refund with the IRS. . . . If the taxpayer does not prevail in the administrative proceeding, he may then file a suit for a refund in federal district court." Banks v. Rubin, 72 F. Supp.2d at 1200.
This prohibition on the injunction of a tax can be avoided only if two conditions are met, namely, "where (1) it is clear that under no circumstances could the government ultimately prevail, and (2), equity jurisdiction would otherwise exist" because of the existence of irreparable harm for which there is no legal remedy. Wyoming Trucking Assoc., Inc. v. Bentsen, 82 F.3d 930, 933 (10th Cir. 1996) (citing Enochs v. Williams Packing Navigation, 370 U.S. 1 (1961)). If both conditions are not present, plaintiff's claim for relief must be dismissed.
Plaintiff claims he meets both conditions. First, he contends that the United States cannot ultimately prevail in its assertion that his awards of front and back pay are taxable. In this regard, plaintiff notes that IRC § 104(a)(2) states, in pertinent part, that "Gross income does not include the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness." (emphasis added). Plaintiff further notes that Treas. Reg. § 1.104-1 states, in pertinent part, that
Section 104(a)(2) excludes from gross income the amount of any damages received (whether by suit or agreement) on account of personal injuries or sickness. The term "damages received (whether by suit or agreement)" means an amount received . . . through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered in lieu of such prosecution.
(Pl.'s Resp. at 10-11). Furthermore, plaintiff also notes that for purposes of federal income tax withholding, IRC § 3401(a) defines "wages" as "all remuneration . . . for services performed by an employee for his employer. . . ." 26 U.S.C. § 3401 (a), and that section 3402(a) requires that "every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary." 26 U.S.C. § 3402 (a). With respect to FICA (Federal Insurance Contribution Act), plaintiff notes that section 3121(a) defines "wages" as "all remuneration for employment. . . ." 26 U.S.C. § 3121 (a).
Based upon the above statutory language, plaintiff asserts that his award of back and front pay are excludable from gross income and "wages." Plaintiff contends, inter alia, that for all periods for which either back or front pay proceeds were computed and awarded, he had already separated from service from his former employer and could not then have been receiving remuneration for employment. In addition, he asserts that it is undisputed that he suffered physical injuries while in the employ of the State of Colorado when he was required to restrain a youth at a state facility. Plaintiff claims he received the award of back and front pay for two reasons: first, to compensate him for the apparent act of discrimination for which the state was held liable under the ADA, and second,
on account of the personal physical injuries earlier suffered by him, since absent the personal physical injuries no temporary light duty assignment would have been made by Plaintiff's employer and, by extension, no demand for a return to regular duty would have been made, Plaintiff would not have been rendered unable to fulfill that demand, his discharge therefore would not have taken place, and the act of discrimination by the State likely would not have resulted. In short, absent the personal physical injuries suffered by Plaintiff in the course of his employment, the act of discrimination complained of would not have taken place.
(Pl.'s Resp. at 15-16). Plaintiff thus contends that "the entire award is excludable under IRC § 104(a)(2) as being received `on account of' personal physical injuries earlier suffered by Plaintiff because it was the incident which caused those injuries which set in motion everything else which occurred subsequently between Plaintiff and his employer, and which finally resulted [in] the receipt by Plaintiff of back-pay [sic] and frontpay [sic]." (Pl.'s Res. at 17).
The court finds, however, that plaintiff has not established that it is clear that under no circumstances could the government ultimately prevail. For example, plaintiff's argument in which he attempts to turn what was clearly just an ADA action into, at least in part, a personal physical injury claim is a bit of a stretch, to say the least. Defendant correctly asserts in its motion that the Complaint fails to contain allegations, which if proven, would show that plaintiff's ADA award was received on account of personal physical injury or physical sickness.
In addition, defendant correctly notes that the Tenth Circuit recently agreed with the Wyoming District Court in an unpublished decision that the "plaintiff's settlement pursuant to his ADEA claim was not excludable from gross income under § 104(a)(2). Plaintiff's ADEA award was not based upon tort or tort-type rights, and neither was the award received on account of personal injuries or sickness." Dewey v. United States, 1999 WL 156393, *1 (10th Cir. Mar. 23, 1999). The same could be said of this plaintiff's ADA claim.
While acknowledging that it is not aware of any cases directly on point with respect to the issue of whether federal income taxes should be withheld from an award of back pay and front pay made pursuant to an action brought under the ADA, defendant notes a decision of the Sixth Circuit concerning an ERISA settlement award. Gerbec v. United States, 164 F.3d 1015 (6th Cir. 1999). In that case, the Sixth Circuit found that the portion of the award for back and front pay constituted wages which are subject to withholding for the purpose of paying FICA taxes and may be subject to federal income taxation. Id. at 1026-27. The court held "that the phrase `remuneration for employment' includes certain compensation in the employer-employee relationship for which no actual services were performed." Id. The court further noted that the Supreme Court's holding in Social Sec. Bd. v. Nierotko, 327 U.S. 358 (1946), "clearly supports the conclusion that awards representing a loss in wages, both back wages and future wages, that otherwise would have been paid, reflect compensation paid to the employee because of the employer-employee relationship, regardless of whether the employee actually worked during the time period in question." Id. The court thus concluded that "any damages attributable to wages they would have received had they not been wrongly terminated should also be subject to the FICA taxes they would have paid on those wages had they not been wrongly terminated. Any other result would run contrary to the purpose of the FICA system." Id. at 1026-27.
Plaintiff counters that the Public Employees Retirement Association of Colorado (PERA), which allegedly functions in a capacity analogous to the FICA system, declined to classify plaintiff's receipt of back and front pay as subject to retirement contribution by plaintiff. The court notes, however, that the letter plaintiff received from PERA states that "[d]amages are specifically mentioned as not being salary for PERA purposes in Section 24-51-101 (42), Colorado Revised Statutes." (Pl.'s Ex. 2). The FICA statute does not similarly expressly exclude "damages" from its definition of wages. Furthermore, 26 U.S.C. § 104 (a) does not exclude from "gross income" all damages received, but as noted above, limits the exclusion to damages received "on account of personal physical injuries or physical sickness," which are not at issue here. Therefore, the PERA provision relied upon by plaintiff is not analogous to the IRS statutes.
As noted above, a separate portion of the judgment awarded to plaintiff was for "emotional distress, pain, suffering, and mental anguish."
In sum, the court finds no merit to plaintiff's arguments and concludes that plaintiff has not met the first condition necessary to avoid the jurisdictional restrictions of the Anti-Injunction Act. It is, therefore, unnecessary to address the second condition, although the court notes that the defendant has made a convincing argument that plaintiff has also failed to meet that condition as well.
WHEREFORE, for the foregoing reasons, it is hereby
RECOMMENDED that the United States' Motion to Dismiss (Docket No. 11) be granted, and the Complaint be dismissed. NOTICE: Pursuant to 28 U.S.C. § 636 (b)(1)(C) and Fed.R.Civ.P. 72(b), the parties have ten (10) days after service to serve and file written, specific objections to the above recommendation with the District Judge assigned to the case. The District Judge need not consider frivolous, conclusive, or general objections. A party's failure to file and serve such written specific objections WILL PRECLUDE the party from a de novo determination by the District Judge, United States v. Raddatz, 447 U.S. 667, 676-83 (1980), and also WILL PRECLUDE appellate review of both factual and legal questions, Talley v. Hesse, 91 F.3d 1411, 1412-13 (10th Cir. 1996).
By Order dated February 22, 2000, Judge Sparr granted plaintiffs motion to voluntarily dismiss the action as against the State of Colorado. Consequently, the United States is the only defendant remaining.