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Abbott v. Snow

United States District Court, S.D. Texas, Houston Division
Aug 16, 2005
Civil No. H-04-4485 (S.D. Tex. Aug. 16, 2005)

Opinion

Civil No. H-04-4485.

August 16, 2005


MEMORANDUM AND RECOMMENDATION


Pending before the court are: 1) Motion to Dismiss Certain Plaintiffs without Prejudice (Docket Entry No. 12) filed by some of the plaintiffs; and 2) Motion to Dismiss (Docket Entry No. 6) filed by Defendant United States. The court has considered the motions, all relevant filings, and the applicable law. For the reasons set forth below, the court RECOMMENDS that both motions be granted.

This case was referred to the undersigned magistrate judge pursuant to 28 U.S.C. § 636(b)(1)(A) and (B), the Cost and Delay Reduction Plan under the Civil Justice Reform Act, and Federal Rule of Civil Procedure 72. Docket Entry No. 10.

I. Case Background

Plaintiffs filed this case "to enforce the ruling of the Fifth Circuit Court of Appeals in [Weiner v. United States, 389 F.3d 152 (5th Cir. 2004), cert. denied, ___ U.S. ___, 125 S. Ct. 2312 (2005)] as to investors in various partnerships organized by [American Agri-Corp ("AMCOR")] which resulted in tax write-offs for the years 1984, 1985[,] and 1986 which were reversed in 2002, resulting in exorbitant interest charges attributable to long delays in assessing taxpayer liability." In substance, Plaintiffs are seeking "extinguishment" of the 26 U.S.C. § 6621(c) ("Section 6621(c)") enhanced interest that was charged to them.

Complaint, Docket Entry No. 1, ¶ 3.

The provision, which was repealed in 1989, imposed an increased interest rate on substantial underpayments attributable to tax motivated transactions.

Plaintiffs' tax woes evolved from limited partnership interests they purchased in various agricultural partnerships marketed by AMCOR during the early 1980s. By the late 1980s, the Internal Revenue Service ("IRS") had begun to investigate these partnerships to determine whether they were instruments for tax fraud. As a result of the partnership investigations and associated civil litigation before the Tax Court, which was resolved in favor of the IRS, the IRS assessed Plaintiffs additional tax and penalty interest. Plaintiffs received the notices of their tax and interest liability in the summer of 2002.

See Complaint, Docket Entry No. 1, ¶¶ 479-90.

See id. at ¶ 482.

See id. at ¶ 487-90.

Id. at ¶ 490.

A few months later, many of the taxpayers joined together in filing a suit against the United States in an attempt to obtain relief from the interest charges. The court dismissed the suit based primarily on sovereign immunity and failure to exhaust administrative remedies. While that case was pending before the Fifth Circuit, Plaintiffs initiated this action. As its first appearance in the case, Defendant United States moved for dismissal. Shortly thereafter, the district court's decision in the original case was affirmed by the Fifth Circuit on the sole basis of sovereign immunity.

Id. at ¶ 491; see also Brooks v. Snow, 313 F. Supp.2d 654 (S.D. Tex. 2004), aff'd sub nom. Brooks v. Dam, 126 Fed. Appx. 173 (5th Cir. 2005).

See Brooks v. Snow, 313 F. Supp.2d at 660, 661.

See Motion to Dismiss, Docket Entry No. 6.

See Brooks v. Dam, 126 Fed. Appx. at 173. To the extent Plaintiffs in this case are the same individuals who participated in the Brooks case, they would not be entitled to a second chance at the issues resolved by Brooks. Because the court recommends dismissal based on sovereign immunity, the court does not explore alternative bars to suit.

II. Motion to Dismiss Certain Plaintiffs Without Prejudice

Plaintiffs Burkeholder, Caballero, Ludwig, Martin, McDaniel, Meares, Schuler, and Stein seek dismissal of their claims without prejudice. These plaintiffs represent to the court that they previously retained counsel who has been actively pursuing their claims in other fora. They are concerned that the court's decision with regard to Defendant United States' motion to dismiss could adversely affect their separate actions. No party has opposed the motion.

Although it is unclear how these plaintiffs became parties to this suit while pursuing their claims through other avenues, the court is not inclined to force them to remain in this suit simply because it lacks an answer to that question. As their dismissal without prejudice is not opposed and appears to be with good cause, it should be allowed.

III. Defendant United States' Motion to Dismiss

Defendant United States claims to be the only real party in interest in this suit and seeks dismissal of the entire lawsuit because the court lacks subject matter jurisdiction.

A. Dismissal Standard

Pursuant to the federal rules, dismissal of an action is appropriate when the court lacks jurisdiction. Fed.R.Civ.P. 12(b)(1); 12(h)(3). In determining jurisdiction, the court may base its decision on the complaint alone, the complaint supplemented by undisputed facts, or the complaint supplemented by undisputed facts plus the court's resolution of disputed facts. Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001). The burden of proof is on the party asserting jurisdiction. Id. B. Analysis

In its motion to dismiss, Defendant United States argues that the court lacks subject matter jurisdiction because Plaintiffs' claims are barred by sovereign immunity and the Anti-Injunction Act. Plaintiffs contend that, in two recent cases, the Fifth Circuit "implicitly [held] that district courts have jurisdiction to determine that [Section] 6621(c) enhanced interest was improperly charged to those [AMCOR] taxpayers, as a matter of law" and "ruled that district courts have jurisdiction to resolve AMCOR taxpayers' deficiency interest abatement requests pursuant to [26 U.S.C.] § 6404(e)." Because the court finds that Plaintiffs misunderstand the effect of the recent Fifth Circuit decisions on subject matter jurisdiction, the court agrees with the United States on the issue of sovereign immunity. As sovereign immunity requires the full dismissal of the case, the court need not reach Defendant United States' Anti-Injunction Act argument or Plaintiffs' argument that they did not need to exhaust administrative remedies.

The Anti-Injunction Act can be found at 26 U.S.C. § 7421.

Complaint, Docket Entry No. 1, ¶¶ 1, 2 (citing Weiner, 389 F.3d at 152, and Beall v. United States, 336 F.3d 419 (5th Cir. 2003)).

The United States is entitled to sovereign immunity in all cases, unless it has unequivocally expressed its consent to be sued. Bank One, Tex., N.A. v. Taylor, 970 F.2d 16, 33 (5th Cir. 1992). The proscription against suits extends to cases in which the United States is not a named party "if the judgment sought would expend itself upon the public treasury or domain, or interfere with public administration, or if the effect of the judgment would be to restrain the Government from acting, or to compel it to act." Id. (quoting Dugan v. Rank, 372 U.S. 609, 620 (1963) (internal quotation marks and notations of alterations omitted); see also Ala. Rural Fire Ins. Co. v. Naylor, 530 F.2d 1221, 1225 (5th Cir. 1976).

Sovereign immunity is a jurisdictional prerequisite that may be raised at any time by any party or the court sua sponte. See Beall, 336 F.3d at 421; Bank One, Tex., N.A., 970 F.2d at 33, 34. The party suing the United States bears the burden of identifying a waiver of sovereign immunity applicable to the suit at hand. Cf. Beall, 336 F.3d at 421 (stating that the terms of the waiver define the extent of the court's jurisdiction);Ramming, 281 F.3d at 161 (holding that the burden of proving subject matter jurisdiction is on the party asserting it);Brooks, 313 F. Supp.2d at 659 (placing the burden on the plaintiffs to identify a waiver of sovereign immunity that would allow their suit). No such waiver can be implied. Bank One, Tex., N.A., 970 F.2d at 33.

Here, the relief sought by Plaintiffs would restrain Defendant United States from acting and would affect the public treasury. Were the requested relief granted, the individual defendants would be required to act only in their official capacities as agents of the United States. Accordingly, the court construes this lawsuit as solely against the United States. See id.

In order to maintain their lawsuit against the United States, Plaintiffs must point to some applicable waiver of sovereign immunity. Plaintiffs rely entirely on the Fifth Circuit's opinions in Weiner and Beall, contending that those two opinions implicitly authorize the court to adjudicate their claims. Plaintiffs' argument fails for two reasons. First, the United States cannot consent to suit via implication. See Bank One, Tex., N.A., 970 F.2d at 33. More importantly, Weiner and Beall do not stand for the proposition that sovereign immunity can be waived under the circumstances alleged in this case.

The plaintiffs in both Weiner and Beall paid their taxes and filed claims for refund with the Secretary of the IRS before they filed their civil actions. See Weiner, 389 F.3d at 153, 154; Beall, 336 F.3d at 421. In such cases, the United States waives sovereign immunity by operation of 28 U.S.C. § 1346 ("Section 1346") and 26 U.S.C. § 7422 ("Section 7422"). See Beall, 336 F.3d at 422, 423; Brooks v. Snow, 313 F. Supp.2d at 660-61. Here, Plaintiffs do not allege that they have paid their taxes or filed claims for refund. Unlike the plaintiffs in Weiner and Beall, Plaintiffs cannot rely on Sections 1346 and 7422 to waive sovereign immunity.

Section 1346 authorizes district courts to hear civil actions brought "against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws." Section 7422 specifically limits civil actions for refund to those cases in which the taxpayer has filed a claim for refund with the Secretary of the IRS. Together, these two provisions waive sovereign immunity for any action in which the complaining taxpayer has paid the taxes and penalties and has sought a refund from the IRS. See Beall, 336 F.3d at 422, 423.

No other aspect of either of those cases supports Plaintiffs' plea of jurisdiction. In Weiner, the Fifth Circuit addressed two issues: 1) whether the district court could exercise jurisdiction over a claim that the Final Partnership Administrative Adjustments statute of limitations prevented certain tax assessments; and 2) whether the assessment of interest under Section 6621(c) was improper as a matter of law. See Weiner 389 F.3d at 155-63. Although the former issue implicated subject matter jurisdiction, it hinged on whether the statute of limitations issue was subject to judicial review, not whether the court possessed the authority to hear the claim. See id. at 154-59. The latter issue also did not involve sovereign immunity and was decided on the merits in favor of the plaintiffs. See id. at 159-63. In Beall, the Fifth Circuit found that claims for refunds of unabated interest are cognizable under Section 7422. Beall, 336 F.3d at 424. Because the plaintiffs in that case paid the taxes owed and filed claims for refund before filing suit, sovereign immunity did not bar the court from hearing the case. See id. at 422, 424-25.

Because this court cannot exercise jurisdiction over Plaintiffs' claims, it does not reach the merits of their Section 6621(c) claims. However, the court notes that the Weiner resolution depended on the contents of settlement agreements entered into between the plaintiffs and the IRS. See id. at 162. The complaint in this case contains no allegation that Plaintiffs entered into similar settlement agreements with the IRS.

Consequently, Plaintiffs cannot rely on Weiner or Beall to provide the necessary waiver of sovereign immunity. Absent waiver, the court lacks the authority to hear this action, and it should be dismissed.

IV. Conclusion

Based on the foregoing, the court RECOMMENDS that the Motion to Dismiss Certain Plaintiffs without Prejudice be GRANTED. Plaintiffs Burkeholder, Caballero, Ludwig, Martin, McDaniel, Meares, Schuler, and Stein should be dismissed without prejudice. Additionally, the court RECOMMENDS that the United States' Motion to Dismiss be GRANTED. The claims of the remaining plaintiffs should be dismissed with prejudice.

The Clerk shall send copies of this Memorandum and Recommendation to the respective parties who have ten days from the receipt thereof to file written objections thereto pursuant to Federal Rule of Civil Procedure 72(b) and General Order 2002-13. Failure to file written objections within the time period mentioned shall bar an aggrieved party from attacking the factual findings and legal conclusions on appeal.

The original of any written objections shall be filed with the United States District Clerk, either electronically or by mail to P.O. Box 61010, Houston, Texas, 77208. Copies of such objections shall be mailed to opposing parties and to the chambers of the undersigned, 515 Rusk, Suite 7019, Houston, Texas 77002.


Summaries of

Abbott v. Snow

United States District Court, S.D. Texas, Houston Division
Aug 16, 2005
Civil No. H-04-4485 (S.D. Tex. Aug. 16, 2005)
Case details for

Abbott v. Snow

Case Details

Full title:LAWRENCE E. ABBOTT and LINDA R. ABBOTT, et al., Plaintiffs, v. JOHN SNOW…

Court:United States District Court, S.D. Texas, Houston Division

Date published: Aug 16, 2005

Citations

Civil No. H-04-4485 (S.D. Tex. Aug. 16, 2005)