Mion et al v. United States of America et al

MOTION to Dismiss for Lack of Jurisdiction

D. Ariz.May 12, 2017

1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 DAVID A. HUBBERT Acting Assistant Attorney General CHRISTIAN MEJIA (NJ SBN 129362015) Trial Attorney, Tax Division U.S. Department of Justice P.O. Box 683, Ben Franklin Station Washington, D.C. 20044-0683 Telephone: (202) 305-7548 Facsimile: (202) 307-0054 E-Mail: Christian.Mejia@usdoj.gov Western.TaxCivil@usdoj.gov ELIZABETH A. STRANGE District of Arizona Acting United States Attorney Attorneys for the United States of America IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Louis C. Mion and Luiggi Mion Family Trust, Plaintiffs, v. United States of America; Department of Treasury; and Internal Revenue Service Defendants. Case No. 2:17-CV-00431-DJH UNITED STATES OF AMERICA’S MOTION TO DISMISS PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 12(b)(1) AND MEMORANDUM OF POINTS AND AUTHORITIES The United States of America, through undersigned counsel, hereby moves the Court for an order dismissing the above-captioned action. This action should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction. Case 2:17-cv-00431-DJH Document 7 Filed 05/12/17 Page 1 of 10 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 This Motion to Dismiss is supported by a Memorandum of Points and Authorities. Dated: May 12, 2017. DAVID A. HUBBERT Acting Assistant Attorney General /s Christian Mejia CHRISTIAN MEJIA Trial Attorney, Tax Division U.S. Department of Justice ELIZABETH A. STRANGE District of Arizona Acting United States Attorney Attorneys for the United States of America MEET AND CONFER CERTIFICATION Pursuant to the Court’s Order dated February 10, 2017, counsel for the United States spoke with counsel for Plaintiffs, Louis C. Mion and Luiggi Mion Family Trust, about this motion on May 10, 2017, to determine if the motion can be avoided. The parties were unable to resolve this issue. Case 2:17-cv-00431-DJH Document 7 Filed 05/12/17 Page 2 of 10 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF THE UNITED STATES’ MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISIDCTION On February 10, 2017, Plaintiffs, Louis C. Mion and Luiggi Mion Family Trust, commenced this action. In their complaint, Plaintiffs allege that the IRS wrongfully levied sale proceeds from a sale of real property located at 1014 E. Brentrup Drive, Tempe, Arizona 85283(the “Subject Property”). Plaintiffs seek damages for the alleged wrongful levy pursuant to 26 U.S.C. § 7426, pre-judgment interest pursuant to 26 U.S.C. § 7426(g), and attorneys’ fees and costs pursuant to 26 U.S.C. § 7430. The United States, through undersigned counsel, hereby moves to dismiss this action pursuant to Federal Rule of Civil Procedure 12(b)(1). As set forth in detail below, the Court should grant this Motion to Dismiss and enter an order dismissing this action. Plaintiffs rely on 26 U.S.C. § 7426 as the applicable waiver of sovereign immunity for their wrongful levy claim. However, Plaintiffs fail to meet a prerequisite for establishing this waiver (namely, the existence of a levy). Therefore, this action should be dismissed. FACTUAL BACKGROUND On or around September 5, 1995, Plaintiff Louis C. Mion and Shirley N. Mion acquired title to the Subject Property as “Joint Tenants with Right of Survivorship.” See Compl., ¶¶ 6-7. On January 30, 2007, Plaintiff Louis Mion conveyed his interest in the Subject Property to Plaintiff Luigi Mion Family Trust. Comp., ¶ 10. On September 4, 2012, the IRS recorded in the Maricopa County Recorder’s Office a Notice of Federal Tax Lien with respect to Shirley N. Mion’s unpaid federal income tax liabilities. Comp., ¶ 12. On or around November 10, 2015, the Subject Property was sold for approximately $260,000. Compl., Exhibit 5. Case 2:17-cv-00431-DJH Document 7 Filed 05/12/17 Page 3 of 10 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The IRS received sale proceeds in the amount of $57,819.20 (the “Sale Proceeds”) from Stewart Title & Trust of Phoenix, Inc. (the “Escrow Company”) with respect to the sale of the Subject Property on or around November 17, 2015. Declaration Sandra Davaz, ¶ 5c). Upon receipt of the Sale Proceeds, the IRS applied the Sale Proceeds as a payment towards Shirley Mion’s unpaid income tax liabilities. Id. The IRS did not issue a Notice of Levy to the Escrow Company with respect to the Sale Proceeds, nor did the IRS seize funds from the Escrow Company and issue a Notice of Seizure with respect to the Sale Proceeds. Decl. Davaz, ¶ 5d. DISCUSSION I. Subject Matter Jurisdiction and Sovereign Immunity It is well established that the party seeking to invoke the jurisdiction of the federal court has the burden of establishing that jurisdiction exists. KVOS, Inc. v. Associated Press, 299 U.S. 269, 278 (1936); Scott v. Breeland, 792 F.2d 925, 927 (9th Cir. 1986). In evaluating a motion under Fed. R. Civ. P. 12(b)(1), the Court will generally accept as true the factual allegations of the plaintiff’s complaint and ask whether the allegations state a claim that would be sufficient to survive a motion to dismiss. Young v. United States, 769 F.3d 1047, 1052 (9th Cir. 2014) (citations omitted). “Allegations of jurisdictional facts, however, are not afforded presumptive truthfulness; on a motion to dismiss for lack of subject matter jurisdiction, the court may hear evidence of those facts and resolv[e] factual disputes where necessary.” Id. (quoting Robinson v. United States, 586 F.3d 683, 685 (9th Cir. 2009) (internal quotation marks omitted) (alteration in original)). In assessing the validity of a factual attack, the Court is not required to presume the truth of the plaintiff’s factual allegations, and may review evidence beyond the complaint without Case 2:17-cv-00431-DJH Document 7 Filed 05/12/17 Page 4 of 10 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 converting the motion to dismiss into a motion for summary judgment. Safe Air for Everyone, 373 F.3d 1035, 1039 (9th Cir. 2004). With respect to the United States, it is well settled that the United States, as sovereign, may not be sued without its consent, and that the terms of its consent define the court’s jurisdiction. See United States v. Dalm, 494 U.S. 596, 608 (1990); United States v. Mitchell, 445 U.S. 535, 538 (1980); United States v. Testan, 424 U.S. 392, 399 (1976). Waivers of sovereign immunity must be unequivocally expressed and are “strictly construed” in favor of the government. See United States v. Idaho, 508 U.S. 1, 6-7 (1993); United States v. Nordic Village, Inc., 503 U.S. 30, 34 (1992); United States v. Mitchell, 445 U.S. 535, 538 (1980). Consequently, no suit may be maintained against the United States unless the suit is brought in exact compliance with the terms of a statute under which the United States has consented to be sued. United States v. Sherwood, 312 U.S. 584, 590 (1941). Where the United States has not consented to suit and there is no waiver of sovereign immunity, the court lacks jurisdiction over the subject matter of the action and dismissal is required. Gilbert v. DaGrossa, 756 F.2d 1455, 1458 (9th Cir. 1985); Hutchinson v. United States, 677 F.2d 1322, 1327 (9th Cir. 1982); see Nordic Village, Inc., 503 U.S. at 34. Plaintiffs bear the burden of asserting that sovereign immunity has been waived by the United States. See Holloman v. Watt, 708 F.2d 1399, 1401 (9th Cir. 1983), cert. denied, 446 U.S. 958 (1984). II. The United States Is The Only Proper Defendant In This Action Plaintiffs have named the United States of America, the Department of Treasury, and the Internal Revenue Service as Defendants in this action. However, the IRS and the Department of Treasury are not proper defendants. “It is well established that federal Case 2:17-cv-00431-DJH Document 7 Filed 05/12/17 Page 5 of 10 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 agencies are not subject to suits Eo nomine unless so authorized by Congress in explicit language.” City of Whittier v. United States Dep’t of Justice, 598 F.2d 561, 562 (9th Cir. 1979) (internal quotation and citation omitted). See also Castleberry v. Alcohol, Tobacco & Firearms Div. of Treasury Dep’t, 530 F.2d 672, 673 n. 3 (5th Cir. 1976) (explaining that Congress has not authorized suits against the Department of the Treasury or any of its division or branches). Therefore, the United States is the only proper party in this action and the Department of Treasury and the IRS should be dismissed as parties to this action. III. The Court Lacks Subject Matter Jurisdiction Over Plaintiffs’ Stated Wrongful Levy Claim Because The IRS Did Not Levy Upon The Sales Proceeds Plaintiffs rely on 26 U.S.C. § 7426(a) as the waiver of sovereign immunity for their alleged wrongful levy claim. However, as set forth in detail below, Plaintiffs’ alleged wrongful levy claim should be dismissed for lack of subject matter jurisdiction because Plaintiffs fail to meet a prerequisite for establishing a § 26 U.S.C. § 7426 waiver, namely – the existence of a levy. 26 U.S.C. § 7426(a)(1), the “wrongful levy” provision, is a waiver of sovereign immunity, providing: If a levy has been made on property or property has been sold pursuant to a levy, any person (other than the person against whom is assessed the tax out of which such levy arose) 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. Such action may be brought without regard to whether such property has been surrendered to or sold by the Secretary. 26 U.S.C. § 7426(a)(1). Three prerequisites condition the Government’s waiver of its sovereign immunity under 26 U.S.C. § 7426(a)(1). Arford v. United States, 934 F.2d 229, 232 (9th Cir. 1991). Case 2:17-cv-00431-DJH Document 7 Filed 05/12/17 Page 6 of 10 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 One requirement is that such a suit can be brought only by a person other than the one whose tax liability gave rise to the disputed tax levy, another is that the person bringing a wrongful levy suit must claim a legally cognizable property interest, and the third is that there must have been a wrongful levy. Id. With respect to the third prerequisite, a necessary requisite for a wrongful levy is the existence of a levy. Therefore, to bring a wrongful levy suit against the United States, there must first be a levy. Denham v. United States, 811 F.Supp. 497, 500 (C.D.Cal.1992); Candor v. United States, 1 F. Supp. 3d 1076, 1078 (S.D. Cal. 2014); see also Wagner v. United States, 545 F.3d 298, 301–02 (5th Cir.2008). “If the Government has not levied on property ... the owner cannot challenge such a levy under 26 U.S.C. § 7426.” United States v. Williams, 514 U.S. 527, 536, 115 S.Ct. 1611, 131 L.Ed.2d 608 (1995); Crytser v. United States, 274 F. App’x 555, 557 (9th Cir. 2008)(affirming dismissal of wrongful levy action under § 7426 when complaint alleged IRS lien, but not levy, on residence) (citing Arford v. United States, 934 F.2d 229, 231 (9th Cir. 1991)); see Wagner v. United States, 545 F.3d 298, 302 (5th Cir. 2008) (“[N]othing short of an actual levy is enough to satisfy § 7426(a)(1)”); Interfirst Bank Dallas, N.A. v. United States, 769 F.2d 299, 304 (5th Cir. 1985)(“In order for Section 7426 to apply, the IRS must have made an actual ‘levy’ upon the property in question; a threatened levy is insufficient.”). Here, Plaintiffs seem to allege that the IRS levied Sale Proceeds from the Escrow Company when the Escrow Company distributed the Sale Proceeds to the IRS and applied them towards Shirley N. Mion’s unpaid income tax liabilities. However, the IRS did not issue a Notice of Levy to the Escrow Company with respect to the Sale Proceeds, nor did it seize the Sale Proceeds and subsequently issue a Notice of Seizure to the Case 2:17-cv-00431-DJH Document 7 Filed 05/12/17 Page 7 of 10 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Escrow Company. Decl. Davaz., ¶ 5d. The Sale Proceeds were not forcibly paid or taken from the Escrow Company. Consequently, there was no levy of the Sale Proceeds held by the Escrow Company. See Bank of America, N.A. v. U.S. I.R.S., 663 F.Supp.2d 1308, 1314 (M.D.Fla. 2009)(“The receipt of funds, in itself, connotes no compulsion or seizure.”). Furthermore, Plaintiffs have not alleged that a notice of levy was ever served on the Escrow Company. 26 CFR § 301.6331-1 provides that a “Levy may be made by serving a notice of levy on any person in possession of, or obligated with respect to, property or rights to property subject to levy . . .” Id; see also Standard Acceptance Co. v. United States, 342 F.Supp. 45, 47 (D.C.Ill. 1972) (“The government correctly notes that there can be no levy within the meaning of Title 26 until there has been service of a formal notice of levy.”) Id. A “levy is not effective until the owner and/or possessor of the property or rights in property is (are) served with notice of seizure or levy. See 26 U.S.C. §§ 6335(a) & 6502(b).” Wee Luv Childcare, Inc. v. United States, 219 B.R. 607, 614 (W.D.Okla. 1997). Therefore, the distribution of Sale Proceeds to the IRS without the IRS serving a notice of levy or seizure does not result in a levy on property subject to challenge under 26 U.S.C. § 7426(a)(1). Accordingly, because no levy occurred with respect to the Sale Proceeds, Plaintiffs fail to meet the jurisdictional prerequisites for a wrongful levy claim under 26 U.S.C. § 7426(a)(1) and, therefore, this claim should be dismissed for lack of subject matter jurisdiction. Case 2:17-cv-00431-DJH Document 7 Filed 05/12/17 Page 8 of 10 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 IV. Plaintiffs’ Requests For Pre-Judgment Interest Pursuant To 26 U.S.C. § 7426(g) and Attorneys’ Fees and Costs Pursuant to 26 U.S.C. § 7430 Should Be Dismissed Plaintiffs seek pre-judgment interest pursuant to 26 U.S.C. § 7426(g) and attorneys’ fees and costs pursuant to 26 U.S.C. § 7430. 26 U.S.C. § 7426(g) provides for interest on a wrongful levy claim judgment, and 26 U.S.C. § 7430 provides for costs and fees to a prevailing party. Because no party has prevailed in this case with respect to Plaintiffs’ wrongful levy claim, these requests are premature and should be dismissed if the Court dismisses the Plaintiffs’ wrongful levy claim. CONCLUSION For the foregoing reasons, the Court should grant the United States’ Motion to Dismiss Plaintiffs’ action. Dated: May 12, 2017. DAVID A. HUBBERT Acting Assistant Attorney General /s Christian Mejia CHRISTIAN MEJIA Trial Attorney, Tax Division U.S. Department of Justice ELIZABETH A. STRANGE Acting United States Attorney District of Arizona Attorneys for the United States of America Case 2:17-cv-00431-DJH Document 7 Filed 05/12/17 Page 9 of 10 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 CERTIFICATE OF SERVICE IT IS HEREBY CERTIFIED that service of the UNITED STATES OF AMERICA’S MOTION TO DISMISS PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 12(b)(1) AND MEMORANDUM OF POINTS AND AUTHORITIES has been made this 12th day of May, 2017, by depositing a copy thereof in the United States Mail in a postage prepaid envelope addressed to: Nathan E. Carr 4700 S. McClintock, Suite 130 Tempe, AZ 85282 Attorney for Plaintiffs /s Christian Mejia CHRISTIAN MEJIA Trial Attorney, Tax Division U.S. Department of Justice Case 2:17-cv-00431-DJH Document 7 Filed 05/12/17 Page 10 of 10 Case 2:17-cv-00431-DJH Document 7-1 Filed 05/12/17 Page 1 of 3 Case 2:17-cv-00431-DJH Document 7-1 Filed 05/12/17 Page 2 of 3 Case 2:17-cv-00431-DJH Document 7-1 Filed 05/12/17 Page 3 of 3