2004 WL 2376609 (S.D.Fla.)

For opinion see 95 A.F.T.R.2d 2005-1749, 289 F.Supp.2d 1361

Motions, Pleadings and Filings

United States District Court, S.D. Florida.

Raymond GRANT and Arline Grant, Plaintiffs,

v.

UNITED STATES OF AMERICA, Defendant.

No. 02-61668-Civ-Jordan.

January 23, 2004.

Reply Brief in Support of Motion for Summary Judgment

The United States of America, by undersigned counsel, hereby enters its reply brief in support of its Motion for Summary Judgment. The plaintiffs have failed to establish any basis for recovery under 26 U.S.C. § 7433. Their response demonstrates that they cannot establish any of the elements required by § 7433, including damages. Regardless of their unfounded factual allegations and erroneous legal theories, plaintiffs have not suffered any compensable damages. For this reason alone, judgment should entered in favor of the United States.

I. The plaintiffs have failed to meet their burden in response to the Motion

for Summary Judgment.

The plaintiffs bear the burden of proof in this case. They must prove that some provision of the Internal Revenue Code ("IRC") or its regulations has been disregarded. They must prove that an officer or employee of the Internal Revenue Service disregarded that provision. They must prove that any disregard was done negligently, recklessly, or intentionally. They must prove that they suffered direct, economic damages. They must prove that these damages were a proximate result of the actions of the IRS. They must prove that they attempted to mitigate any such damages.

In response to a motion for summary judgment, the plaintiffs were required to make a sufficient showing to establish the existence of each of these elements. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Rule 56 requires that plaintiffs "set forth specific facts showing that there is a genuine issue for trial." Fed. R.Civ.P. 56(c). The mere existence of a scintilla of evidence is not sufficient. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Plaintiffs have failed to making any sufficient showing, and, in some instances, produced absolutely no evidence.

II. The Court lacks jurisdiction over plaintiffs' claim that their installment

agreement was improperly terminated.

Section 7433 is a waiver of sovereign immunity, and its provisions must be strictly construed in favor of the sovereign. Department of the Army v. Blue Fox, Inc., 525 U.S. 255, 261 (1999); United States v. Nordic Village, 503 U.S. 30, 33-34 (1992). Where a suit falls outside the scope of a waiver of sovereign immunity, the court lacks jurisdiction to decide the case. United States v. Mitchell, 463 U.S. 206, 212 (1983). A plaintiff seeking to sue the United States pursuant to a waiver of sovereign immunity must comply with all conditions in that waiver, including any statute of limitations. Failure to bring a suit within the limitations period deprives the court of subject matter jurisdiction. United States v. Mottaz, 476 U.S. 834, 841 (1986); Compagnoni v. United States, 173 F.3d 1369, 1370 n.3 (11th Cir. 1999); Nesovic v. United States, 71 F.3d 776, 777-78 (9th Cir. 1995). The plaintiffs bear the burden of establishing that the court has jurisdiction. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994).

The plaintiffs have failed to make a sufficient showing that their claims for improper termination of an installment agreement are timely. Section 7433 requires that actions be brought within two years after the date the right of action accrues. A right of action accrues when the taxpayer has had a reasonable opportunity to discover all essential elements of a possible cause of action. Treas. Reg. § 301.7433-1(g)(2); Dziura v. United States, 168 F.3d 581 (1st Cir. 1999).

The plaintiffs admit that they knew by December of 1999 that the installment agreement had been terminated. Complaint at ¶ 19; Motion for Summary Judgment Govt. Ex. 4. They did not file the complaint in this case until November of 2002, well beyond the two year statute of limitations. Plaintiffs allege that they learned of the unauthorized collection actions on January 2, 2001 when the IRS levied upon their Social Security benefits. Even if they learned about a particular levy on that date, that knowledge has no relevance to when they learned about the termination of the installment agreement. Plaintiffs' attempt to lump all collection action ever taken by the IRS into a single activity is nothing more than an attempt to circumvent the statute of limitations and expand a waiver of sovereign immunity.

Plaintiffs further attempt to circumvent the statute of limitations by asserting that a "continuing wrong" doctrine applies, which plaintiffs define as tolling of the statute of limitations if the IRS continues to engage in repeated collection actions. Plaintiffs' definition is simply wrong, and the doctrine has no application in this case. The "continuing wrong" doctrine is derived from tort law and has been defined as "repeated instances or continuing acts of the same nature, as for instance, repeated act of sexual harassment or repeated discriminatory employment practices." Nesovic v. United States, 71 F.3d 776, 778 (9th Cir. 1995).

In Nesovic, the Ninth Circuit rejected a taxpayer's attempt to invoke the continuing wrong doctrine in his quiet title action against the United States. The IRS had made assessments against the taxpayer in 1985 and filed a Notice of Federal Tax Lien in 1988. The taxpayer then brought suit in 1993, alleging that the liens were procedurally void. The Ninth Circuit held that taxpayer's claim accrued in 1985 when the taxes were assessed, and the action was filed beyond the applicable six-year statute of limitations. The court rejected the taxpayer's claim of continuing wrong, stating:

[T]he wrong complained of was a single act, i.e., the assessment, which in turn created the lien and caused the harm. In essence, what [taxpayer] attempts to characterize as a continuing wrong is only "the ill effects from an original violation."

Id. at 777 (internal quotations omitted).

In Dziura v. United States, 168 F.3d 581 (1st Cir. 1999), the First Circuit also rejected a taxpayer's claim of continuing wrong. The IRS had seized a painting owned by the taxpayers. After the painting failed to sell at a first auction, the IRS retained the painting beyond the deadline provided by 26 U.S.C. § 6335 (which was November 23, 1993), and eventually sold the painting at a second auction in May of 1994. The taxpayers brought suit under § 7433 in April of 1996, which was more than two years after the return deadline. The taxpayer argued that the IRS' retention of the painting beyond the deadline was subject to the continuing wrong doctrine because every day that the IRS held the painting constituted a new violation of the statute. The court rejected the taxpayer's argument, holding that the continuing wrong doctrine did not apply. The court explained that the doctrine is "inapposite when an injury is definite, readily discoverable, and accessible in the sense that nothing impedes the injured party from seeking to redress it." Id. at 583. The court held that the limitation period will generally begin to run when "an injured party knows or should know the critical facts related to his claim." Id.

The only case cited by plaintiffs in support of their contention that the continuing wrong doctrine should apply is Gottlieb v. Internal Revenue Service, 2001 WL 127288 (9th Cir. 2001), an unpublished decision from the Ninth Circuit. Nothing in the Gottlieb case supports the application of the continuing wrong doctrine in this case. In Gottlieb, the Ninth Circuit again rejected a taxpayer's attempt to use the continuing wrong doctrine in a § 7433 case. The court's opinion contains no discussion of facts of the case or the continuing wrong doctrine, instead referencing its prior decision in Nesovic. Both the Ninth Circuit and First Circuit have made it clear that the continuing wrong doctrine does not apply where a discrete act simply has ongoing or subsequent consequences. A distinction must be made between a series of acts that create a cause of action only when combined, and a discrete act and its consequences.

That same distinction has also been emphasized by the Supreme Court in the context of employment discrimination. In National R.R. Passenger Corp. v. Morgan, 122 S.Ct. 2061, 2073 (2002), the Court noted the distinction in the employment context between such discrete acts as termination and failure to promote with acts such as hostile work environment, where single acts may not be actionable. The Court held that "discrete discriminatory acts are not actionable if time barred, even when they are related to acts alleged in timely filed charges." Id. at 2072. See also United Airlines, Inc. v. Evans, 431 U.S. 553 (1977).

As a component of a waiver of sovereign immunity, the statute of limitations under § 7433 must be strictly construed. Plaintiffs attempt to characterize a discrete event, the termination of an installment agreement, as some long-running scheme in order to avoid the statute of limitations. But by their own admission, plaintiffs knew of the termination no later than December of 1999, almost three years before this suit was filed. Their claims regarding termination of the installment agreement are simply too late.

III. The plaintiffs have failed to making the showing required by § 7433.

In order to prevail under § 7433, the plaintiffs must prove not only that some provision of the IRC or its regulations was disregarded, but that an officer or employee of the Internal Revenue Service negligently, recklessly, or intentionally disregarded such provision. Plaintiffs have established neither, and have not even attempted to establish the latter.

Plaintiffs complain of two actions taken by the Internal Revenue Service, the termination of their installment agreement [FN1] and a levy on their Social Security benefits. No provision of the Internal Revenue Code or its regulations were disregarded by either action.

FN1. Plaintiffs' claims regarding the installment agreement are barred by the statute of limitations, as set forth supra. Even if the statute of limitations did not bar that claim, plaintiffs have failed to establish they are entitled to relief under § 7433.

Section 6159 sets forth the conditions under which an installment agreement may be terminated. Plaintiffs contend that installment agreement was not terminated pursuant to those conditions, but the undisputed evidence establishes that termination was proper under § 6159.

Calvin Byrd, a revenue officer with the Internal Revenue Service, stated in his declaration that the records of the Internal Revenue Service reflect that the IRS' automated collection system sent the plaintiffs a Form CP 522, a request for updated financial records. When no response was received, the installment agreement was terminated for failure to provide a financial condition update in accordance with § 6159(b)(4)(C) and the terms of the installment agreement. Plaintiffs have produced no evidence to dispute these facts. Their only evidence, an affidavit from Raymond Grant [FN2], states that plaintiffs did not recall receiving the form.

FN2. Plaintiffs have submitted an affidavit from Raymond Grant. For the last several months, plaintiffs' counsel have continually represented that Mr. Grant was too ill and too weak to participate in discovery. Given his condition, the competency of his affidavit is questionable.

The IRS' computer database indicates that the Form CP 522 was sent to the plaintiffs. Those computer records are evidence that the form was sent. See Malkin v. United States, 243 F.3d 1120 (2d Cir. 2001)(information contained in IRS database sufficiently reliable to constitute business record). The actions of the Internal Revenue Service have a presumption of regularity, and a taxpayer must come forward with credible evidence to rebut that presumption. See, e.g., United States v. Ahrens, 530 F.2d 781 (8th Cir. 1976); Lee Brick and Tile v. United States, 132 F.R.D. 414 (M.D.N.C. 1990); (Christensen v. United States, 733 F.Supp. 844 (D.N.J. 1990). Plaintiff's affidavit does not rebut the evidence that the Form CP 522 was sent; it simply asserts that plaintiffs did not receive the form. The records of the IRS indicate that a request for updated financial information was sent to plaintiffs, no response was received, and the installment agreement was terminated accordingly.

Plaintiffs have also failed to establish that an employee or officer of the Internal Revenue Service acted negligently, recklessly, or intentionally when such person allegedly disregarded some provision of the Code or its regulations in terminating the installment agreement. The plaintiffs have not even identified which officer or employee of the IRS allegedly engaged in such action. The declaration of Calvin Byrd establishes that the installment agreement was terminated in 1998 while it was being monitored by an automated collection system. [FN3] Calvin Byrd was not even assigned to the case until April of 1999. None of the plaintiffs' pleadings reference any other officer or employee of the Internal Revenue Service, much less establish that such person's actions were a negligent, reckless, or intentional disregard of the Internal Revenue Code or its regulations.

FN3. Plaintiffs have submitted no evidence to dispute that the installment agreement was terminated in 1998. Regardless of their position on the appropriateness of the termination, they have no evidence that the installment agreement was not, in fact, terminated.

The plaintiffs have also failed to establish that any provision of the IRC or its regulations were disregarded when the levy was made on their Social Security benefits. All of plaintiffs' arguments are premised on the assumption that the installment agreement remained in effect at the time of the levy. [FN4] This assumption simply has no basis in fact. The IRS records indicate that the installment agreement was terminated in 1998. Regardless of whether this termination was proper, the installment agreement was actually terminated. Because no installment agreement was in effect, it is clear that the levy was proper.

FN4. As set forth in the motion for summary judgment, even if the installment agreement had remained in effect, plaintiffs have not identified an IRC provision or regulation applicable to their installment agreement that was disregarded in making the levy. That discussion is purely academic because the installment agreement had, in fact, been terminated before the levy was made.

The plaintiffs have also failed to establish that Calvin Byrd negligently, recklessly, or intentionally disregarded some IRC provision or regulation by issuing the levy. To the contrary, Byrd's testimony indicates that he knew the installment agreement had been terminated prior to his assignment to the case. Byrd Depo. at p. 59, ll. 10-15. The record indicates that Byrd acted in accordance with all Code provisions and regulations, and there is certainly no evidence to support plaintiffs' claims regarding Byrd. Even if the agreement had not been terminated, plaintiffs have submitted no evidence that Byrd had any knowledge of an improper termination or any reason why he should not have issued the levy. Instead, plaintiffs have continuously made unfounded allegations against Byrd, despite their lack of any evidence to support those allegations. Byrd was simply doing his job, attempting to collect the plaintiffs' substantial tax liabilities.

IV. The plaintiffs do not have any compensable damages.

In order to recover under § 7433, the plaintiffs must prove that they suffered direct, economic damages that were proximately caused by the actions of the IRS, and that they attempted to mitigate any such damages. In their response to the motion for summary judgment, plaintiffs have come forward with no evidence to support any claims of damages.

Plaintiffs claim four types of damages. First, they claim costs for medical care for Raymond Grant for various medical conditions they contend were caused by the IRS. Plaintiffs have made no attempt to establish that any actions by the IRS were the proximate cause of any of Grant's illnesses. Their completely unsubstantiated allegations have no basis in fact.

Plaintiffs next claim lost wages. Again, they made no attempt to establish that any lost wages were proximately caused by any actions of the IRS. The general proffer that Raymond Grant lost wages falls woefully short of meeting their burden of proof.

Third, plaintiffs claim litigation costs as a form of damages. As explained in the motion for summary judgment, litigation costs, including attorney fees, are not compensable as damages under § 7433. 26 C.F.R. § 301.7433-1(b)(2). Plaintiffs assert that § 7433 provides for the recovery of attorney fees under § 7430, and therefore attorney fees are available as damages. Plaintiffs are simply wrong. Section 7433 does provide that attorney fees may be recovered under § 7430, as in other tax cases, but that does not entitle taxpayers to attorney fees as a form of damages. In order to recover attorney fees under § 7430, one of the requirements is that the taxpayer be a prevailing party. In order to be prevailing party under § 7433, the plaintiffs must first have damages. Plaintiffs cannot create damages by filing a lawsuit and incurring litigation costs. Section 7430 cannot be invoked prior to prevailing on a separate claim for relief. Abel v. United States, 2000 WL 145396 (D. Or. 2000).

Finally, plaintiffs claim damages because their Social Security benefits have been levied upon. This claim is simply ridiculous. Amounts collected from the Social Security levies have been credited to toward the plaintiffs' substantial tax liability. They have not been damaged by being required to make payments toward a debt for which they are legally obligated to pay.

Plaintiffs have not suffered any compensable damages. Summary judgment should be utilized to prevent any further expenditure of time or resources as plaintiffs have made it clear that they have no evidence to back up their claims.

WHEREFORE the United States requests that the Court grants its Motion for Summary Judgment, and enter judgment in favor of the United States.