Free Supplemental Brief - District Court of Federal Claims - federal

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No. 06-96C (Judge Wheeler) IN THE UNITED STATES COURT OF FEDERAL CLAIMS DENNIS W. JORDAN Plaintiff, v. THE UNITED STATES, Defendant. PLAINTIFF'S SUPPLEMENTARY BRIEF RESPONDING TO ISSUES PRESENTED BY THE COURT

H. WILLIAM MAHAFFEY Rothgerber Johnson & Lyons LLP Wells Fargo Tower 90 South Cascade Ave. Suite 1100 Colorado Springs, CO 80906 Tel. (719) 386-3000 Fax. (719) 386-3070 [email protected] Attorney for Plaintiff May 1, 2007

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Table of Contents

PLAINTIFF'S SUPPLEMENTARY BRIEF RESPONDING TO ISSUES PRESENTED BY THE COURT ................................................... 1 ISSUES PRESENTED ............................................... 1 ARGUMENT ....................................................... 2 I. IRS GROUP MANAGER DONNA SIEBEL HAS BEEN DELEGATED THE EXPRESS AUTHORITY TO ACCEPT MR. JORDAN'S OFFER IN COMPROMISE, AND TO BIND THE GOVERNMENT THERETO, BECAUSE THE AMOUNT OF THE LIABILITY IS LESS THAN $100,000. .......................... 2 II. IRS OFFER SPECIALIST MARIANNA CALDERA HAS NOT BEEN DELEGATED THE AUTHORITY TO ACCEPT MR. JORDAN'S OFFER IN COMPROMISE, BUT THE GOVERNMENT MAY NEVERTHELESS BE BOUND IF MS. CALDERA PREPARED AND DELIVERED THE COUNTEROFFER AT MS. SIEBEL'S DIRECTION, OR ENTERED AN INTO AN OFFER IN COMPROMISE THAT WAS SUBSEQUENTLY RATIFIED BY MS. SIEBEL. ................................... 3 A. BECAUSE MS. SIEBEL DIRECTED MS. CALDERA TO PREPARE AND DELIVER THE COUNTEROFFER, MS. CALDERA HAD IMPLIED AUTHORITY TO BIND THE GOVERNMENT TO MR. JORDAN'S OFFER AND COMPROMISE. ....................... 4 B. BECAUSE MS. SIEBEL HAD ACTUAL OR CONSTRUCTIVE KNOWLEDGE OF THE COUNTEROFFER PREPARED BY MS. CALDERA, AND ACCEPTED THE BENEFITS OF MR. JORDAN'S PERFORMANCE, MS. SIEBEL RATIFIED THE OFFER IN COMPROMISE, BINDING THE GOVERNMENT THERETO. ...................... 7 III. MR. JORDAN'S PLEADINGS AND SUPPLEMENTAL BRIEF CONTAIN SUFFICIENT EVIDENCE TO SATISFY HIS BURDEN OF PROOF REQUIRED TO ESTABLISH MS. DONNA SIEBEL AND MS. MARIANNA CALDERA POSSESSED THE NECESSARY ACTUAL AUTHORITY TO BIND THE UNITED STATES TO HIS OFFER IN COMPROMISE. ....................... 10 CONCLUSION .................................................... 14

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Table of Authorities Cases Branch Banking & Trust Co. v. U.S., 120 Ct. Cl. 72 (Ct. Cl. 1951) ............................................... 4 Brunner v. U.S., 70 Fed. Cl. 623 (Ct. Cl. 2006) ............. 4, 7 Buesing v. U.S., 42 Fed. Cl. 679 (Ct. Cl. 1999) ........... 10, 11 City of El Centro v. U.S., 922 F.2d 816 (Fed. Cir. 1990) ....... 5 Conti v. U.S., 291 F.3d 1334 (Fed. Cir. 2002) .................. 9 Garza v. U.S., 34 Fed. Cl. 1 (Ct. Cl. 1995) .................... 4 Grass Valley Terrace v. U.S., 69 Fed. Cl. 341 (Ct. Cl. 2005) ... 9 H. Landau & Co. v. U.S., 886 F.2d 322 (Fed. Cir. 1989) ......... 4 Henke v. U.S., 43 Fed. Cl. 15 (Ct. Cl. 1999) ................... 7 Henke v. U.S., 60 F.3d 795 (Fed. Cir. 1995) .................... 9 Holland v. U.S., 59 Fed. Cl. 735 (Ct. Cl. 2004) ............... 10 Janowsky v. U.S., 113 F.3d 888 (Fed. Cir. 1998) ................ 6 Janowsky v. U.S., 23 Ct. Cl. 707 (Ct. Cl. 1991) ................ 6 Miller Elevator Company, Inc. v. U.S., 30 Fed. Cl. 662 (Ct. Cl. 1994) ............................................... 4 New York Mail and Newspaper v. U.S., 139 Ct. Cl. 751 (Ct. Cl. 1957) ............................................... 7 Perri v. U.S., 53 Fed. Cl. 381 (Ct. Cl. 2002) .................. 6 Philadelphia Suburban Corp. v. U.S., 217 Ct. Cl. 705 (Ct. l. 1978) ................................................ 6 Silverman v. U.S., 230 Ct. Cl. 701 (Ct. Cl. 1982) .............. 6 Statutes 26 U.S.C. § 7122(a) ............................................ 2 Other Authorities Delegation Order No. 11 ........................................ 2 Delegation Order No. 5-1 (Rev. 2) .............................. 3 Internal Revenue Manual § 1.2.2.1 (01-01-2006) ................. 2 Treasury Order No. 150-04 ...................................... 2 Treasury Order No. 150-09 ...................................... 2 Treasury Order No. 150-10 ...................................... 2

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

DENNIS W. JORDAN, Plaintiff, v. THE UNITED STATES, Defendant. No. 06-96 (Judge Wheeler)

PLAINTIFF'S SUPPLEMENTARY BRIEF RESPONDING TO ISSUES PRESENTED BY THE COURT The following issues were presented by the Court for supplemental briefing: 1. Whether IRS Group Manager Donna Siebel has the

authority to make or accept on behalf of the United States an offer in Compromise? 2. Whether IRS Offer Specialist Marianna Caldera has the

authority to make or accept on behalf of the United States an offer in compromise? 3. Whether Mr. Jordan's pleadings and supplemental brief

contain evidence sufficient to satisfy his burden to establish the necessary actual authority to bind the United States to the purported settlement agreement?

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ARGUMENT I. IRS Group Manager Donna Siebel has been delegated the express authority to accept Mr. Jordan's offer in compromise, and to bind the government thereto, because the amount of the liability is less than $100,000.

The authority to compromise civil cases under the internal revenue laws is vested by statute in the Secretary of the Treasury. 26 U.S.C. § 7122(a). Pursuant to Treasury Order Nos.

150-04, 150-09 and most recently 150-10 (April 22, 1982), the Secretary of the Treasury has delegated the authority to compromise civil cases to the Commissioner of the Internal Revenue Service (the "Commissioner"). Prior to January 1, 2004,

the Commissioner had further delegated the authority to compromise civil cases to Chiefs in districts, and Chiefs, Collection Division, pursuant to Delegation Order No. 11 (Rev. 24), 1994-2 C.B., 550, para 3. Furthermore, Delegation Order

No. 11 authorized Chiefs to redelegate to Group Managers the authority to accept an offer in compromise and bind the government thereto, when the amount of the liability was less than $100,000.00. Id. Around January 2004, the Internal Revenue

Service renumbered Delegation Order No. 11 as Delegation Order No. 5-1. IRM § 1.2.2.1 (01-01-2006), Exhibit 1.2.2-1 (01-012006). In this case, Ms. Donna Siebel is a group manager, and, pursuant to Delegation Order No. 11 (subsequently renumbered as -2{A0087806 / 3}

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5-1) has been delegated the authority to accept offers in compromise when the amount of the liability is less than $100,000. The Defendant has in fact confirmed Ms. Siebel's In its Brief in Support of its

authority to accept such offers.

Motion to Dismiss, Defendant says, "That authority [to enter into a Government contract with Mr. Jordan] was possessed by the IRS Group Manager, Ms. Seibel,...." (see, Defendant's Brief in Support of its Motion to Dismiss, Page 13). Mr. Jordan's tax liability was $20,946.04 for the 1999 tax year and $17,254.83 for the 2000 tax year, plus penalties and interest. This is well below the $100,000 threshold, as

indicated by Defendant, on Ms. Siebel's authority to accept an offer in compromise. As such, it is clear that Ms. Siebel has

been properly delegated sufficient authority, as a Group Manager, to accept Mr. Jordan's offer in compromise and bind the Government thereto, without seeking the consent or approval of any other person.

II. IRS Offer Specialist Marianna Caldera has not been delegated the authority to accept Mr. Jordan's offer in compromise, but the government may nevertheless be bound if Ms. Caldera prepared and delivered the counteroffer at Ms. Siebel's direction, or entered into an offer in compromise that was subsequently ratified by Ms. Siebel.

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compromise and bind the government thereto. held by Ms. Siebel, her Group Manager.

That authority is

However, the government

may nevertheless be bound by an offer in compromise entered into by Ms. Caldera if Ms. Siebel directed Ms. Caldera to enter into the offer in compromise, or if the offer in compromise was subsequently ratified by Ms. Siebel.

A. Because Ms. Siebel directed Ms. Caldera to prepare and deliver the counteroffer, Ms. Caldera had implied authority to bind the government to Mr. Jordan's offer and compromise.

Although "actual authority" is necessary to bind the government, it does not need to be "express authority." Brunner v. U.S., 70 Fed. Cl. 623, 640 (Ct. Cl. 2006). Implied authority

is sufficient to bind the government. Id.; Branch Banking & Trust Co. v. U.S., 120 Ct. Cl. 72, 87 (Ct. Cl. 1951), cert. denied, 342 U.S. 893 (1951); Garza v. U.S., 34 Fed. Cl. 1, 20 (Ct. Cl. 1995); H Landau & Co. v. U.S., 886 F.2d 322, 324 (Fed. Cir. 1989). The U.S. Court of Federal Claims recently wrote,

"The existence of implied authority to contract on behalf of the government has long been established, dating back to some of the earliest published decisions of our predecessors." Brunner v. U.S., 70 Fed. Cl. at 640. Implied authority is different from apparent authority, which does not bind the government. Miller Elevator Company, -4{A0087806 / 3}

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Inc. v. U.S., 30 Fed. Cl. 662, 693 (Ct. Cl. 1994).

Implied

authority operates to bind the government when a government representative without actual authority exercises an integral part of their assigned duties. Id., citing, H. Landau & Co. v. U.S., 886 F.2d 322, 324 (Fed. Cir. 1989). "Before any implied

authority can exist, however, some express authority must first exist upon which the implied authority can be based." Garza v. U.S., 34 Fed. Cl. 1, 20 (Ct. Cl. 1995), citing, City of El Centro v. U.S., 922 F.2d 816 (Fed. Cir. 1990). In this case, Ms. Siebel had express, actual authority to enter into an offer in compromise for Mr. Jordan's outstanding tax liabilities. It is from Ms. Siebel's express, actual In

authority that Ms. Caldera's implied authority is derived. preparing and delivering to Mr. Jordan the revised offer in

compromise, Ms. Caldera was acting under the direction of Ms. Siebel, and was therefore fulfilling an integral part of the duties assigned to her. As such, while Ms. Caldera has not been

delegated the authority necessary to accept an offer in compromise, she did in fact have the implied authority to enter into a binding offer in compromise with Mr. Jordan. Through his discussions with Ms. Caldera, Mr. Jordan believed and understood that Ms. Caldera was discussing his offer in compromise with Ms. Siebel. Upon reviewing the offer

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Ms. Siebel determined that the amount of the offer needed to be increased. Ms. Siebel directed Ms. Caldera to prepare a revised

offer in compromise, increasing the amount of the offer, and to deliver the same to Mr. Jordan for execution. Ms. Caldera acted

on Ms. Siebel's direction, and in doing so, Ms. Caldera communicated to Mr. Jordan that Ms. Siebel was counteroffering for the higher amount. As with any employee, an integral part of Ms. Caldera's duties is to perform the tasks assigned to her by her Group Manager, Ms. Siebel. Therefore, by directing Ms. Caldera to

prepare and deliver the counteroffer, Ms. Siebel was cloaking Ms. Caldera's actions with the implied authority to bind the government to the revised offer in compromise. Because Ms. Caldera communicated to Mr. Jordan that she was directed by Ms. Siebel to prepare and deliver the revised offer in compromise, Ms. Caldera had the actual, implied authority to bind the government to the counteroffer. As such, regardless of

whether Ms. Caldera was expressly delegated the authority to accept Mr. Jordan's offer in compromise, because Ms. Siebel directed Ms. Caldera to prepare and deliver the revised offer in compromise, Ms. Caldera had the implied authority to enter into an offer in compromise with Mr. Jordan, and the government is bound thereto.

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B. Because Ms. Siebel had actual or constructive knowledge of the counteroffer prepared by Ms. Caldera, and accepted the benefits of Mr. Jordan's performance, Ms. Siebel ratified the offer in compromise, binding the government thereto.

It is also clear that the government may ratify an unauthorized or otherwise voidable contract. Janowsky v. U.S., 113 F.3d 888, 892 (Fed. Cir. 1998); Perri v. U.S., 53 Fed. Cl. 381, 401 (Ct. Cl. 2002). The U.S. Court of Federal Claims has

said, "... that even if a government official lacks actual authority to bind the United States by his promise, knowing acceptance of benefits by those empowered to bind the government can result in ratification of the unauthorized official's promise." Janowsky v. U.S., 23 Ct. Cl. 707, 715 n.10 (Ct. Cl. 1991), citing, Silverman v. U.S., 230 Ct. Cl. 701 (1982); Philadelphia Suburban Corp. v. U.S., 217 Ct. Cl. 705 (Ct. Cl. 1978); New York Mail and Newspaper v. U.S., 139 Ct. Cl. 751 (Ct. Cl. 1957), cert. denied, 355 U.S. 904 (1957); see also, Henke v. U.S., 43 Fed. Cl. 15 (Ct. Cl. 1999). Once an

unauthorized contract is ratified, the government is bound thereto. Silverman, 230 Ct. Cl. 701 at 710. The two elements of ratification are well established through case law. First, a person with authority to bind the

government must have either actual or constructive knowledge of the otherwise unauthorized agreement, and must simply acquiesce,

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confirm, or adopt the agreement. Brunner v. U.S., 70 Fed. Cl. 623, 646 (Ct. Cl. 2006), Henke v. U.S., 43 Fed. Cl. 15, 26-27 (Ct. Cl. 1999). It is important to note, the person with

authority does not need to do anything specific to ratify the agreement; the first element can be satisfied if the person with authority simply knew of the other party's expectations under the agreement and permitted him to perform. Id., at 27. the government must receive some benefit flowing from the agreement. Brunner v U.S., 70 Fed. Cl. at 80; Janowsky v. U.S., 23 Cl. Ct. at 715; Silverman v. U.S., 230 Ct. Cl. 701, 710 (Ct. Cl. 1982). In this case, it is clear that Ms. Siebel had the authority to enter into, and therefore ratify, an offer in compromise with Mr. Jordan. To the best of Mr. Jordan's knowledge and belief, Second,

Ms. Caldera discussed Mr. Jordan's original offer in compromise with Ms. Siebel while it was being evaluated. Ms. Caldera

prepared the counteroffer at Ms. Siebel's direction and with her knowledge. As such, Ms. Siebel, a person with authority to

accept or ratify an offer in compromise, had actual, or at least constructive, knowledge of the counteroffer delivered to Mr. Jordan by Ms. Caldera. This satisfies the first element for

establishing the government ratified Ms. Caldera's and Ms. Siebel's agreement with Mr. Jordan. Second, Mr. Jordan executed the counteroffer and delivered -8{A0087806 / 3}

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it to Ms. Caldera's and Ms. Siebel's office with full payment of the offer amount. By tendering full payment, Mr. Jordan's offer Mr. Jordan

in compromise was no longer executory on his part. had fully performed under the agreement.

Not only did the

government receive "some benefit flowing from the agreement," it received the full benefit it was entitled to. could ask for no more. The government's benefit from Mr. Jordan's performance was substantial. The government retained Mr. Jordan's payment for The government

approximately nine (9) months before it decided to send Mr. Jordan a new check drawn on the United State's Treasury. Throughout that time the government had full use of Mr. Jordan's payment. The original check delivered to Mr. Jordan has never Mr. Jordan could not As such, the

been negotiated, and is now stale.

negotiate the Treasury Check if he wanted to.

government continues, to this day, to enjoy the full benefit of Mr. Jordan's performance under the offer in compromise. clearly satisfies the second element of ratification. Because Ms. Siebel possessed the requisite authority to approve or ratify the offer in compromise, had actual or constructive knowledge of the offer in compromise prepared by Ms. Caldera, and because the government received, and continues to enjoy, the full benefit of Mr. Jordan's full performance under the offer in compromise, the government has ratified the -9{A0087806 / 3}

This

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offer.

As such, regardless of whether Ms. Caldera possessed

sufficient authority to bind the government on her own, the government is nevertheless bound by Mr. Jordan's offer in compromise because Ms. Siebel ratified Ms. Caldera's actions.

III. Mr. Jordan's pleadings and supplemental brief contain sufficient evidence to satisfy his burden of proof required to establish Ms. Donna Siebel and Ms. Marianna Caldera possessed the necessary actual authority to bind the United States to his offer in compromise.

When the court is asked to decide a motion to dismiss, it is "obligated to assume all factual allegations to be true and to draw all reasonable inferences in plaintiff's favor." Henke v. U.S., 60 F.3d 795, 797 (Fed. Cir. 1995). If the motion is

pursuant to Rule 12(b)(6), the defendant bears the burden of demonstrating that "Plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Grass Valley Terrace v. U.S., 69 Fed. Cl. 341, 345 (Ct. Cl. 2005), citing, Conti v. U.S., 291 F.3d 1334, 1338 (Fed. Cir. 2002). Dismissal is only appropriate when "the facts as alleged in the complaint do not entitle the plaintiff to a legal remedy." Holland v. U.S., 59 Fed. Cl. 735, 738 (Ct. Cl. 2004). In Buesing v. U.S., the U.S. Court of Federal Claims was asked to decide a motion to dismiss under circumstances very similar to the facts of this case. 42 Fed. Cl. 679 (1999). The

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IRS filed a tax lien against a house in which the taxpayer claimed a one-half interest. Id., at 961. The taxpayer wanted

to keep his home, and entered into negotiations with a Revenue Officer to buy-out the federal tax lien. Id. The IRS relied on

comparable sales information provided by the taxpayer in determining the value of the taxpayer's one-half interest. Id. The taxpayer offered to buy-out the tax liens for $30,000, to be paid within 90 days, for a release of the lien. Id. The Revenue

Officer responded by letter agreeing the equity in the taxpayer's home was $30,000, and stating that the tax lien would be discharged upon payment of $30,000 at the conclusion of the taxpayer's Chapter 7 Bankruptcy proceeding. Id. Approximately two weeks later, the taxpayer's divorce was finalized and the court granted the taxpayer an undivided interest in the house. Id. at 683. The taxpayer also received a

offer to purchase the house for $30,000 more than the comparable sales information relied on by the IRS suggested. Id. As soon

as the house was removed from the bankruptcy estate, Plaintiff tendered payment of $30,000 to the IRS. Id. The IRS refused to

accept payment because of the change in circumstances after the IRS had entered into its agreement with the taxpayer. Id. The taxpayer filed suit seeking to enforce its contract with the government. Id. at 684. The government sought to have

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binding agreement and that the Revenue Agent drafting the letters did not possess sufficient authority to bind the government. Id. dismiss. The court denied the government's motion to

In doing so, it said,

"In addition, there appears to be some controversy as to whether Revenue Agent Unger had obtained approval on the proposed settlement from his superior, Mr. Perry. These facts are of material significance to the outcome of this litigation. Therefore, it is prudent for the court to deny the motion to dismiss, pending an appropriate determination of Revenue Agent Unger's authority." Id., at 691 (emphasis added).

In this case, Mr. Jordan entered into a binding agreement with the IRS through his offer, and the counteroffer prepared by Ms. Caldera. The government subsequently sought to avoid the

agreement based on subsequent changes in Mr. Jordan's financial liabilities. As in Buesing, the government is arguing that the

documents do not constitute a valid contract and that Ms. Caldera lacked the authority to bind the government. In his

complaint and subsequent briefs, Mr. Jordan has alleged that Ms. Caldera prepared the offer in compromise under Ms. Siebel's direction, or otherwise obtained approval for the offer in compromise from Ms. Siebel, who, according to Defendant, possessed the necessary authority to accept Mr. Jordan's offer in compromise. The Court must assume this is true when

evaluating the government's motion to dismiss.

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The issue of whether Ms. Caldera obtained Ms. Siebel's approval for the offer in compromise is question of fact of material significance to the outcome of this litigation. Assuming it is true, Mr. Jordan has put forth a set of facts that would entitle him to relief. proof. He has met his burden of

The government bears the real burden of establishing

that the facts alleged in Mr. Jordan's complaint do not entitle him to a legal remedy. The government has not done this. As

such, Mr. Jordan has satisfied his burden of proof, the government has not, and the Court should DENY the government's motion to dismiss.

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CONCLUSION WHEREFORE, Plaintiff respectfully requests the Court to DENY Defendant's Motion to Dismiss, and grant such other relief as the Court deems appropriate. May, 2007. Respectfully submitted, Dated this 1st day of

s/ H. William Mahaffey H. WILLIAM MAHAFFEY Rothgerber Johnson & Lyons LLP Wells Fargo Tower 90 South Cascade Ave. Suite 1100 Colorado Springs, Colorado 80903-1662 Tel. (719) 386-3000 Fax. (719) 386-3070 [email protected]

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STATUTES

26 U.S.C. § 7122 COMPROMISES. (a) AUTHORIZATION. ­ The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.

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