Free Supplemental Brief - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

No. 06-96C (Judge Wheeler)

DENNIS W. JORDAN, Plaintiff, v. THE UNITED STATES, Defendant.

DEFENDANT'S SUPPLEMENTAL BRIEF IN SUPPORT OF OUR MOTION TO DISMISS

PETER D. KEISLER Assistant Attorney General JEANNE E. DAVIDSON Director STEVEN J. GILLINGHAM Assistant Director OF COUNSEL: RANDALL PREHEIM Internal Revenue Service Office of Chief Counsel 1244 Speer Boulevard, Suite 500 Denver, Colorado 80204 KENT G. HUNTINGTON Trial Attorney Commercial Litigation Branch Civil Division U.S. Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tel: (202) 353-7961 Fax: (202) 353-7988 Attorneys for Defendant, The United States

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TABLE OF CONTENTS PAGE(S) ARGUMENT ...................................................... 2 I. The Applicable Standards For Our Motion To Dismiss .. 2 A. B. II. The Standard For An RCFC 12(b)(1) Motion ....... 2 Standard For An RCFC 12(b)(6) Motion ........... 3

The Court Lacks Subject Matter Jurisdiction To Hear Plaintiff's Claim ........................... 3

III. The Government Cannot Be A Proponent Of An Offer In Compromise Pursuant To 26 U.S.C. § 7122 And The IRS Properly Rejected Mr. Jordan's Offer ........ 6 IV. The IRS's Representative, Ms. Caldera, Did Not Possess Authority To Bind The United States In A Contract And Therefore No Contract Was Formed .... 11

CONCLUSION ................................................... 14

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TABLE OF AUTHORITIES CASES PAGE(S) Alder Terrace, Inc. v. United States, 161 F.3d 1372 (Fed. Cir. 1998) .......................... Beachboard v. United States, 727 F.2d 1092 (Fed. Cir. 1984) .......................... Botany Worsted Mills v. United States, 278 U.S. 282 (1929) ..................................... Boyle v. United States, 200 F.3d 1369 (Fed. Cir. 2000) .......................... Buesing v. United States, 47 Fed. Cl. 621 (2000) ............................. Bunce v. United States, 28 Fed. Cl. 500 (1993) ...........................

2

5

8

3

11, 12

8, 9, 10

City of Cincinnati v. United States, 153 F.3d 1375 (Fed. Cir. 1998) .....................

11, 12

Figueroa v. United States, 57 Fed. Cl. 488 (Fed. Cl. 2003) ......................... Harbert/Lummus Agrifuels Projects v. United States, 142 F.3d 1429 (Fed. Cir. 1998) ......................... Holley v. United States, 124 F.3d 1462 (Fed. Cir. 1997) .......................... Humphrey v. United States, 52 Fed. Cl. 593 (2002), aff'd 60 Fed. Appx. 292 (Fed. Cir. 2003) ........................................ McNutt v. General Motors Acceptance Corp. of Indiana, 298 U.S. 178 (1936) ..................................

3

11

2

2

2, 3

Minehan v. United States, 75 Fed. Cl. 249 (2007) .................................. -ii-

2

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Scheuer, 416 U.S. at 236-37 (1974) ............................... Total Med. Management, Inc. v. United States, 104 F.3d 1314 (Fed.Cir.1997) ........................... Trauma Servs. Group v. United States, 104 F.3d 1321 (Fed.Cir.1997) .......................

2

11

11, 13

Ultra-Precision Mfg., Ltd. v. Ford, 338 F.3d 1353 (Fed. Cir. 2003) .......................... United States v. King, 395 U.S. 1 (1968) ....................................... STATUTES 26 U.S.C. § 7122 .....................................

2

5

6, 12, 13 5

28 U.S.C. § 1491 ............................................. 28 U.S.C. § 1491(a)(1) ....................................

3, 5 5

28 U.S.C. § 7421 ............................................. 26 C.F.R. § 301-7122-1 ............................

8, 9, 10, 14 8 8

26 C.F.R. § 301-7122-1(e)(1) ................................. 26 C.F.R. § 301-7122-1(f)(1) .................................

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS DENNIS W. JORDAN, Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 06-96C (Judge Wheeler)

DEFENDANT'S SUPPLEMENTAL BRIEF IN SUPPORT OF OUR MOTION TO DISMISS Pursuant to the Court's order, defendant, the United States, respectfully submits this supplemental brief in support of our motion to dismiss. for three reasons. Dismissal is appropriate, at minimum,

First, the Court does not posses subject

matter jurisdiction over this matter because Mr. Jordan inappropriately seeks a declaratory judgment as opposed to monetary damages. Second, dismissal is also appropriate because,

as a matter of law, the Internal Revenue Service ("IRS") did not make an offer to Mr. Jordan that he could accept. Rather, Mr.

Jordan was the proponent of an offer in compromise, which the IRS eventually rejected. Third, and finally, Ms. Caldera, an Offer

Specialist for the IRS, could not have made an offer to Mr. Jordan upon behalf of the Government because she lacked the actual authority to do so by law. For these reasons we

respectfully request that the Court dismiss plaintiff's complaint pursuant to Rule 12(b)(1) and Rule 12(b)(6) of the Rules of the United States Court of Federal Claims ("RCFC").

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ARGUMENT I. The Applicable Standards For Our Motion To Dismiss A. The Standard For An RCFC 12(b)(1) Motion

"The United States Court of Federal Claims is a court of limited jurisdiction." Humphrey v. United States, 52 Fed. Cl.

593, 595 (2002), aff'd 60 Fed. Appx. 292 (Fed. Cir. 2003) (table). "[J]urisdiction is a threshold issue and a court must satisfy itself that it has jurisdiction to hear and decide a case before proceeding to the merits." Ultra-Precision Mfg., Ltd. v.

Ford, 338 F.3d 1353, 1356 (Fed. Cir. 2003) The complaint "must be well-pleaded in that it must state the necessary elements of the plaintiff's claim, independent of any defense that may be interposed." 124 F.3d 1462, 1465 (Fed.Cir.1997). Holley v. United States, The Court "must presume all

undisputed factual allegations to be true, and construe all reasonable inferences in favor of the plaintiff," when deciding on a motion to dismiss for lack of subject matter jurisdiction. Minehan v. United States, 75 Fed. Cl. 249, 253 (2007) (citing Scheuer, 416 U.S. at 236-37 (1974)). However, it is the

plaintiff who bears the burden of establishing subject matter jurisdiction. McNutt v. General Motors Acceptance Corp. of

Indiana, 298 U.S. 178, 189 (1936); Alder Terrace, Inc. v. United States, 161 F.3d 1372, 1377 (Fed. Cir. 1998). Should a plaintiff

fail to make the necessary allegations, he has no standing and -2-

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the case must be dismissed. B.

McNutt, 298 U.S. at 189.

Standard For A RCFC 12(b)(6) Motion

"A motion to dismiss . . . for failure to state a claim upon which relief can be granted is appropriate when the facts asserted by the plaintiff do not entitle him to a legal remedy." Boyle v. United States, 200 F.3d 1369, 1372 (Fed. Cir. 2000) (citation omitted). "In ruling on a RCFC 12(b)(6) motion to

dismiss, the court must accept as true the complaint's undisputed factual allegations and should construe them in a light most favorable to plaintiff. . . . Nevertheless, `conclusory

allegations unsupported by any factual assertions will not withstand a motion to dismiss.'" Figueroa v. United States, 57

Fed. Cl. 488, 497 (Fed. Cl. 2003) (citation omitted). II. The Court Lacks Subject Matter Jurisdiction To Hear Plaintiff's Claim Mr. Jordan has premised this action, for subject matter jurisdiction purposes, upon 28 U.S.C. § 1491(a)(1). However, he

has failed to claim any monetary damages as a result of the alleged breach of contract. Instead, Mr. Jordan claims

"respondent [IRS] has breached the express contract by attempting to collect Petitioner's [Mr. Jordan's] tax liabilities for tax years 1999 and 2000 which were discharged subject to the acceptance of the Offer in Compromise." Compl. ¶ 23. Mr. Jordan

uses the language "attempted to collect" because Mr. Jordan never actually paid the IRS his tax liabilities for the tax years of -3-

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1999 and 2000.

Therefore, he has suffered no damages.

Mr.

Jordan claims his "damages are equal to the excess of his total Tax Liability over the amount accepted by the [G]overnment." Opp'n at 7. Pl.

This would be the difference between his total tax

liability for 1999 and 2000 and the compromise amount in the alleged contract of $12,721. Mr. Jordan did send the IRS a check

for $12,721, which accompanied his May 30, 2003 Offer in Compromise. Compl. ¶ 11. The IRS, however, returned this amount Compl. ¶ 18. Mr.

to Mr. Jordan after rejecting his offer. Jordan failed to accept the check.

Compl. ¶ 20.

The only

monetary damage Mr. Jordan could have suffered would be the retention of any money Mr. Jordan sent to the IRS. The IRS

attempted to return amounts paid by Mr. Jordan when they rejected his offer, and the $12,721 is not the subject of Mr. Jordan's claim. Mr. Jordan, instead, wants "all remaining rights under the contract, and specifically, damages in an amount necessary to place Mr. Jordan in as good a position as he would have otherwise been had the government fully performed." Pl. Opp'n at 13. He

requests a declaratory judgment of a valid contract from this Court, not damages. There is no dollar amount that would place

Mr. Jordan in as a good a position as he would have otherwise been had the Government fully performed because Mr. Jordan never paid the IRS any money above the amount in the alleged contract.

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Mr. Jordan only wants the benefits of an alleged contract. However, no matter how he labels the relief he seeks, Mr. Jordan is simply seeking a declaratory judgment of the validity of the alleged contract and not money damages. Under 28 U.S.C. § 1491, this Court has, in general, no jurisdiction to order a declaratory judgment. Beachboard v.

United States, 727 F.2d 1092, 1094 (Fed.Cir. 1984) (citing United States v. King, 395 U.S. 1 (1968)). "Exceptions to that general

rule require a statute specifically waiving sovereign immunity and authorizing declaratory judgments." present in this case. Id. No such statute is

Moreover, section 7421 of the Internal

Revenue Code specifically provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed." 7421. 28 U.S.C. §

The precise issue Mr. Jordan attempts to litigate is the

restraint of the IRS's ability to collect a tax. Because Mr. Jordan seeks a declaratory judgment rather than a monetary judgment, this Court lacks subject matter jurisdiction under 28 U.S.C. §1491(a)(1). When subject matter jurisdiction is

absent, as it is in this case, the Court should dismiss the plaintiff's complaint pursuant to RCFC Rule 12(b)(1).

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II.

The Government Cannot Be A Proponent Of An Offer In Compromise Pursuant To 26 U.S.C. § 7122 And The IRS Properly Rejected Mr. Jordan's Offer Mr. Jordan submitted an Offer in Compromise to the IRS to

settle his tax liabilities on March 27, 2002 (the "initial offer"). Compl. ¶ 5; Pl. Opp'n at 2. Mr. Jordan alleges that,

"under directions of an Internal Revenue Service Officer with proper, delegated authority, the IRS responded with a counteroffer according to its terms, which he [Mr. Jordan] promptly accepted, forming an express contract." Pl. Opp'n at 2.

The "counteroffer" Mr. Jordan references is merely a letter (the "invitation letter") from Ms. Caldera inviting another offer in compromise. Def. App. at 5.

Ms. Caldera's invitation letter, including Form 656 ­ which was mailed to Mr. Jordan on May 19, 2003 ­ contained no counteroffer and cannot be construed that way. Instead, Ms.

Caldera invited Mr. Jordan to submit a new Offer in Compromise to the IRS for its review. Ms. Caldera enclosed a Form 656 for Mr. In her

Jordan to sign if he was willing to make a higher offer.

invitation letter, Ms. Caldera made the following statements: If the payment terms of your amended offer exceed ninety days, a notice of Federal Tax Lien will be filed. . . . You may also provide any other information you believe we should consider in making a final determination as to whether to accept your offer. . . . Also if your offer is accepted, your compliance -6-

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will be monitored for 5 years. . . . In that time, if you do not comply with all filing and paying requirements . . . your offer will be defaulted. . . . If you do not respond within 14 days of the date of this letter, your offer cannot be recommended for acceptance and a Federal Tax Lien will be filed. When your offer is rejected you will receive information regarding how to appeal the rejection decision to the IRS Office of Appeals. These statements, even when taken in the light most favorable to the plaintiff, can only be construed as an invitation to submit the enclosed Form 656 for review by the IRS. Further, the Form 656, Offer in Compromise, expressly states in Item 8 that "By submitting this offer, I/we understand and agree to the following conditions:" (c) (l) (m) If the IRS rejects or returns the offer or I/we withdraw the offer, . . . Once the IRS accepts the offer in writing, I/we have no right to contest, in court or otherwise, the amount of the tax liability. The offer is pending starting with the date an authorized IRS official signs this form. The offer remains pending until an authorized IRS official accepts, rejects, returns or acknowledges withdrawal of the offer in writing. Mr. Jordan believes that, through his submission

Def. App. at 2.

of this Form 656 Offer in Compromise on May 30, 2003 (the "second offer"), he accepted an offer by the IRS. The Form 656 section

(m), however, expressly states that this is an offer by the taxpayer and it is subject to acceptance or rejection, in writing -7-

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by the IRS.

A simple, plain reading of Form 656 yields a result

contrary to Mr. Jordan's argument. Following receipt of Mr. Jordan's second offer, the IRS determined Mr. Jordan had the ability to pay his tax liabilities for tax years 1999 and 2000 in full. Compl. ¶ 15. On December

8, 2003, the IRS mailed Mr. Jordan a rejection of his second offer (the "rejection letter"). Compl. ¶ 16. The IRS rejection

was proper and allowable according to the express terms of Form 656. Furthermore, "the IRS is not bound by any agreement which does not comply exactly with compromise procedures provided by statute and regulation." Bunce v. United States, 28 Fed. Cl.

500, 504 (1993) (citing Botany Worsted Mills v. United States, 278 U.S. 282, 288-289 (1929)). The regulations promulgated under

the statute granting compromise authority to the IRS set the exact procedures for submission, acceptance and rejection of an offer in compromise. See 26 C.F.R. § 301.7122-1.

The taxpayer is the party that submits an offer using the Form 656 and the IRS is the party that, by law, makes a determination upon receipt. Government regulation. Acceptance is defined in by

"An offer to compromise has not been

accepted until the IRS issues a written notification of acceptance to the taxpayer or the taxpayer's representative." C.F.R. § 301.7122-1(e)(1). Rejection is also defined in the 26

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regulation: "An offer to compromise has not been rejected until the IRS issues a written notice to the taxpayer or his representative, advising of the rejection, the reason(s) for rejection, and the right to an appeal." 1(f)(1). 26 C.F.R. § 301.7122-

Here, Mr. Jordan does not dispute that the IRS never

notified him, in writing, of their acceptance of his Offer in Compromise. his offer. Rather, pursuant to law, the IRS decided to reject The IRS then proceeded to send Mr. Jordan the August

15, 2003 letter (the "reasoning letter"), which described the Government's thinking that Mr. Jordan should full-pay his taxes. On December 8, 2003, after receiving no response, the IRS sent Mr. Jordan a rejection letter, which responded to his second offer. Def. App. at 14.

As a final matter, this case is identical to Bunce and should be resolved in the same manner. The claim in Bunce was

based upon almost identical facts and the Court there held the taxpayer could not prevail as a matter of law. at 505. Bunce, 28 Fed.Cl.

In Bunce, the plaintiff argued that the IRS was the The plaintiff claimed that

proponent of an offer in compromise.

the IRS made an offer to him, formalized by the IRS providing him with a Form 890-AD, the estate tax version of the Form 656. The Form 890-AD had the amount due filled in. Id. Id.

Plaintiff

claimed he accepted the IRS offer by submitting the form to the IRS. Id. The Court disagreed and held to the contrary. The

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Court reasoned that the United States cannot be the proponent of a offer in compromise within the rubric of Federal law. (citing 26 C.F.R. § 301-7122-1). Id.

Pursuant to Federal regulation,

i.e., 26 C.F.R. § 301-7122-1, only a private party can be the proponent of the offer to compromise and the IRS must then decide whether to accept or reject the proponent's offer. Fed.Cl. at 505 n.2. Bunce, 28

The Court ruled that the IRS never accepted

the compromise offer and the IRS was entitled to judgment as a matter of law. Id. at 505. Mr. Jordan, like the plaintiff in

Bunce, argues that the IRS was the proponent of the second offer. He similarly alleges that the invitation letter, accompanied by Form 656 with amounts filled in, constituted a counteroffer. Mr.

Jordan then alleges that this offer was accepted when he returned the signed Offer in Compromise with a check. However, with all

due respect, Mr. Jordan's submission of Form 656, accompanied by a check for $12,721, was his offer to the IRS, and not the other way around. The IRS simply decided to reject Mr. Jordan's offer

in writing in its rejection letter. Following the Court's holding in Bunce, the IRS cannot be the proponent of an offer in compromise. Instead, Mr. Jordan was

the proponent of the Offer in Compromise and the IRS properly followed its procedures in rejecting it. Additionally, the §

express language of Form 656 and Treasury regulation 26.C.F.R. 301-7122-1 support the Court's finding that Mr. Jordan was the

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proponent of the relevant Form 656, Offer in Compromise.

Here,

accepting plaintiff's facts as true, we respectfully request that the Court grant our motion to dismiss pursuant to RCFC 12(b)(6). III. The IRS's Representative, Ms. Caldera, Did Not Possess Authority To Bind The United States In A Contract And Therefore No Contract Was Formed An express contract with the Government requires "mutual intent to contract including offer, acceptance, and consideration; and authority on the part of the Government representative who entered or ratified the agreement to bind the United States in contract." Total Med. Management, Inc. v. United States, 104 F.3d 1314, 1319 (Fed.Cir.1997). "If the United

States is a party, the government representative whose conduct is relied upon must have actual authority to bind the government in contract. Buesing v. United States, 47 Fed. Cl. 621, 630, 631

(2000) (emphasis added) (citing City of Cincinnati v. United States, 153 F.3d 1375, 1377 (Fed.Cir.1998)). "The [G]overnment

. . . is not bound by the acts of its agents beyond the scope of their actual authority." Harbert/Lummus Agrifuels Projects v. "Anyone

United States, 142 F.3d 1429, 1432 (Fed.Cir.1998).

entering into an agreement with the Government takes the risk of accurately ascertaining the authority of the agents who purport to act for the Government, and this risk remains with the contractor even when the Government agents themselves may have been unaware of the limitation on their authority." -11Trauma

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Servs. Group v. United States, 104 F.3d 1321, 1325 (Fed.Cir.1997). Absent an express contract, an implied-in-fact contract might still exist. An implied-in-fact contract requires a

"meeting of the minds which can be inferred from parties' conduct showing, in light of the surrounding circumstances, a tacit understanding between them." Buesing, 47 Fed. Cl. at 630 (2000)

(citing City of Cincinnati v. United States, 153 F.3d 1375, 1377 (Fed.Cir.1998)). Like an express contract, an implied-in-fact

contract requires "(1) mutuality of intent to contract; (2) consideration; and, (3) lack of ambiguity in offer and acceptance." Id. "An express offer and acceptance are not

necessary, but the parties' conduct must indicate mutual assent." Id. Additionally, actual authority is still required in an

implied-in-fact contract to bind the government. According to IRS Delegation Order No. SB/SE 145.16, Effective Date: October 1, 2000, Subject: Authority to Accept, Reject or Acknowledge Withdrawals of Offers in Compromise, the authority to accept Offers in Compromise when the liability is less than $100,000 is delegated down to the Group Manager. Compl. ¶ 8; 26 U.S.C. § 7122. See

The liability in the this case is

$20,946.04 for tax year 1999 and $17,254.83 for tax year 2000. Compl. ¶¶ 3, 4. At no time, accepting plaintiff's facts as true, did anyone

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with actual authority enter into a contract with Mr. Jordan. Caldera lacked actual authority to bind the IRS by contract.

Ms.

Specifically, Ms. Caldera is merely an Offer Specialist and she has never been delegated the authority to accept an Offer in Compromise under 26 U.S.C. §7122. Additionally, Mr. Jordan did

not: (1) talk; (2) negotiate; or (3) interact with anyone other than Ms. Caldera. Indeed, Mr. Jordan does not claim to have

spoken with Ms. Caldera's Group Manager, Ms. Seibel, and no such communication occurred. Rather, Mr. Jordan merely argues that it was his "knowledge and belief" Ms. Caldera discussed the Form 656 with her supervisor, Ms. Seibel. Compl. ¶ 8. In fact, Mr. Jordan's

belief here is irrelevant because apparent authority is insufficient to bind the Government to a contract. As we

established above, "anyone entering into an agreement with the Government takes the risk of accurately ascertaining the authority of the agents who purport to act for the Government, and this risk remains with the contractor even when the Government agents themselves may have been unaware of the limitation on their authority." Trauma Servs., 104 F.3d at 1325.

Because all of Mr. Jordan's communications were with Ms. Caldera, someone without actual authority, no Government contract could have been formed.

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Finally, acceptance of a contract would have required a written notification by Ms. Seibel. See 26.C.F.R. § 301-7122-1

(requiring written acceptance by the IRS of any Offer in Compromise). Even if Ms. Seibel would have discussed Mr.

Jordan's situation with Ms. Caldera, Ms. Seibel could not have provided Ms. Caldera with verbal authority to accept Mr. Jordan's written Offer in Compromise. Therefore, based upon the facts

alleged in the complaint, no contract could ever have been formed. CONCLUSION For the foregoing reasons, we respectfully request that the Court dismiss the complaint. Respectfully submitted, PETER D. KEISLER Assistant Attorney General JEANNE E. DAVIDSON Director s/ Steven J. Gillingham STEVEN J. GILLINGHAM Assistant Director RANDALL PREHEIM Internal Revenue Service Office of Chief Counsel 1244 Speer Boulevard, Suite 500 Denver, Colorado 80204 s/ Kent G. Huntington KENT G. HUNTINGTON Trial Attorney Commercial Litigation Branch Civil Division U.S. Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Tel.: (202) 353-7961 Fax: (202) 353-7988 Attorneys for Defendant, The United States

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CERTIFICATE OF FILING I hereby certify that on May 1, 2007, a copy of the foregoing "DEFENDANT'S SUPPLEMENTAL BRIEF IN SUPPORT OF OUR MOTION TO DISMISS" was filed electronically. I understand that notice of this of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system. s/ Kent G. Huntington Kent G. Huntington