Opinion
Civil No. 04-6203-AA.
February 7, 2005
Karin J. Immergut, United States Attorney, Portland, Oregon.
Jeremy N. Hendon, Tax Division, United States Dept. of Justice, Washington, D.C., Attorneys for Plaintiff.
Joseph Wetzel, Wetzel DeFrang Sandor, Portland, OR, Attorney for Defendants.
OPINION AND ORDER
Plaintiff United States of America (the government) brings this action against defendants Brent and Lori Lanz (the Lanzes), for recovery of an erroneous federal income tax refund. Defendants move for summary judgment against plaintiff. The motion is denied.
BACKGROUND
On October 15, 1999, the Lanzes filed their federal income tax return for the year ending December 31, 1998. The return reflected a tax liability in the amount of $1,708,558, which the Lanzes had paid through tax withholdings during the year. On February 14, 2002, the Lanzes filed an amended federal income tax return for the year 1998. In this amended return, the Lanzes calculated a refund in the amount of $929,018, plus interest. The Internal Revenue Service (IRS) issued a refund check to the Lanzes for $929,018 plus $264,853.70 interest, for a total of $1,193,871.70. The IRS later determined the refund check had been erroneously issued, partly because the Lanzes claimed losses on their amended return that should not have been allowed.
On June 25, 2004, the government brought suit against the Lanzes in this court to recover the refund issued, plus interest. The complaint states that suit was filed at the direction of the United States Attorney General and at the request and with the authorization of the Chief Counsel of the IRS, a delegate of the Secretary of the Treasury, pursuant to § 7401 of the Internal Revenue Code. See Complaint, ¶ 2.
In their answer to the government's complaint, the Lanzes deny that the suit is properly authorized. The Lanzes claim, as an affirmative defense, that the government is required to substantiate that the lawsuit was filed at the direction of the United States Attorney General and with authorization of the United States Secretary of the Treasury.
During discovery, a dispute arose between the parties. In their first request for production of documents, the Lanzes asked for written substantiation that the suit was properly authorized under § 7401. The government responded with copies of two redacted letters: a letter from the IRS, Office of Division Counsel, signed by Associate Area Counsel Thomas J. Travers and a letter from the Tax Division, Department of Justice, signed by Chief of Civil Trial Section Robert S. Watkins. In the first letter, the IRS authorizes and requests the Assistant Attorney General to take legal action against the Lanzes for the recovery of the erroneous refund. In the second letter, the U.S. Department of Justice authorizes and requests the U.S. Attorney for the District of Oregon to take legal action against the Lanzes for the recovery of the erroneous refund.
In their second request for production, the Lanzes asked for "every delegation order, starting with the cabinet officer himself and going down the line with written delegation links to the government employee actually signing the authorization letters submitted." See Defendant's Concise Statement of Material Facts, p. 3; Affidavit of Joseph Wetzel, Ex. B. The government objected to the request on three bases: (1) the request was unduly burdensome; (2) the items requested could be obtained by the Lanzes if they conducted their own legal research; and (3) the documents were not reasonably calculated to lead to the discovery of admissible evidence. In response, the Lanzes filed the instant motion for summary judgment.
STANDARDS
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The materiality of a fact is determined by the substantive law on the issue. T.W. Electrical Service, Inc. v. Pacific Electrical Contractors Assoc., 809 F.2d 626, 630 (9th Cir. 1987). The authenticity of a dispute is determined by whether the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts which show a genuine issue for trial. Id. at 324.
Special rules of construction apply to evaluating summary judgment motions: (1) all reasonable doubts as to the existence of genuine issues of material fact should be resolved against the moving party; and (2) all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the nonmoving party. T.W. Electrical, 809 F.2d at 630.
DISCUSSION
The Lanzes move for summary judgment on grounds that the government's failure to respond to their discovery request for authorization amounts to an admission that the government is not authorized to bring this suit as required by 26 U.S.C. § 7401. The government responds that the Lanzes' motion for summary judgment is not proper, because the Lanzes have not sought compliance with discovery requests through a motion to compel. The government further responds that it has provided sufficient evidence of its authority to pursue a cause of action against the Lanzes.
I, too, question the appropriateness of a motion for summary judgment in response to the government's alleged discovery failures and apparently without consultation under Local Rule 7.1. Regardless, I find that the Lanzes' argument fails on the merits.
Section 7401 of Title 26 of the United States Code states: "No civil action for the collection or the recovery of taxes . . . shall be commenced unless the Secretary authorizes or sanctions the proceedings and the Attorney General or his delegate directs that the action be commenced." 26 U.S.C. § 7401.
The Lanzes claim that without every delegation order, beginning with the Secretary of the Treasury personally, and ending with the persons who actually signed the letters submitted, "the government is refusing to demonstrate its authority" to demand return of the erroneous refund. See Memorandum In Support Of Defendants' Motion For Summary Judgment, p. 2. The Lanzes' argument does not persuade.
It has long been recognized by the United States Supreme Court that "[a] presumption of regularity supports the official acts of public officers, and in absence of clear evidence to the contrary, courts presume that they have properly discharged their official duties." United States v. Chemical Foundation, 272 U.S. 1, 14-15, (1926). Furthermore, the Ninth Circuit recognizes this presumption as it applies specifically to § 7401. See Palmer v. U.S. Internal Revenue Serv., 116 F.3d 1309, 1311 (9th Cir. 1997).
In Palmer, the government produced redacted copies of two letters to satisfy the identical authorization requirements under 26 U.S.C. §§ 7401 and 7403. Id. The taxpayers argued that the letters failed to establish compliance, but they did not come forward with any evidence to counter this presumption. Id. The Ninth Circuit held that two letters, taken together, were sufficient to demonstrate compliance with the statutory requirement absent evidence to the contrary. Id.
The facts before the court mirror the facts considered by the Ninth Circuit. As in Palmer, the government here has submitted two redacted letters, showing the delegation of authority and a request for legal action from both the IRS and the United States Assistant Attorney General. Thus, these government authorities have produced evidence in response to the Lanzes challenge of its authority to support the presumption that they have discharged their duties and properly authorized this action. In response, the Lanzes offer no evidence to counter that of the government, and I presume that both Thomas J. Travers and Robert S. Watkins acted properly in discharging their respective public duties. Therefore, I find that the United States Attorney for the District of Oregon is authorized to bring this suit pursuant to 26 U.S.C. § 7401.
CONCLUSION
For the foregoing reasons, defendants' Motion for Summary Judgment (doc. 10) is DENIED.
IT IS SO ORDERED.