Free Motion to Dismiss - Rule 12(b)(1) - 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. ____________________________________________________________ DEFENDANT'S MOTION TO DISMISS AND APPENDIX (PAGES 1-28) ___________________________________________________________ PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director STEVEN J. GILLINGHAM Assistant Director KENT G. HUNTINGTON Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit, 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 August 4, 2006 Attorneys For Defendant

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TABLE OF CONTENTS PAGE(S) DEFENDANT'S MOTION TO DISMISS ................................. 1 DEFENDANTS'S BRIEF ............................................ 2 ISSUES PRESENTED .............................................. 2 STATEMENT OF THE CASE ......................................... 3 1. 2. Nature of the Case .............................. 3 Statement of Facts .............................. 3

ARGUMENT ...................................................... 5 I. The Court Does Not Possess Jurisdiction To Rule Upon Mr. Jordan's Claim Because He Has Not Paid Taxes Assessed ..................................... 5 The Tucker Act Does Not Provide This Court Authority To Issue The Declaratory Relief That Mr. Jordan Seeks .................................. 8 There Was Never A Valid Contract Between Mr. Jordan And The United States Government ................... 9 A. By Its Terms, Ms. Caldera's Letter To Mr. Jordon Was Not An Offer, and His Response Was Not An Acceptance ............ 10 Ms. Caldera Did Not Have The Authority To Enter Into A Binding Contract With The Plaintiff ................................. 12

II.

III.

B.

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

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TABLE OF AUTHORITIES CASES PAGE(S)

Bob Jones Univ. v. Simon, 416 U.S. 725 (1974) ...................................... 7 Brown v. United States, 35 Fed. Cl. 258 (1996), aff'd, 105 F.3d 621 (Fed. Cir. 1997) ......................................... 7 City of El Centro v. United States, 922 F.2d 816 (Fed. Cir. 1990) ........................... 11 Civic Plaza Nat. Bank v. First Nat. Bank, 401 F.2d 193 (8th Cir. 1968) ............................ 12 Enochs v. Williams Packing & Navigation Co., 370 U.S. 1 (1962) ........................................ 7 Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380 (1947) ..................................... 12 Fisher v. United States, 69 Fed. Cl. 193 (Fed. Cl. 2006) .......................... 5 Flora v. United States, 362 U.S. 145 (1960) ...................................... 5 Girling Health Systems, Inc. v. United States, 949 F.2d 1145 (Fed. Cir. 1991) .......................... 10 Harbert/Lummus Agrifels Projects v. United States, 142 F.3d 1429 ....................................... 11, 13 Hunsaker v. United States, 66 Fed. Cl. 129 (2005) ................................... 5 Layshenko v. United States, 41 Fed. Cl. 626 (1998) ............................. 7, 8, 9 Logan Canyon Cattle Ass'n v. United States, 34 Fed. Cl. 165 (1995) ................................... 7

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McNutt v. General Motors Acceptance Corp., 298 U.S. 178 (1936) ...................................... 5 New York Life Ins. Co. v. United States, 118 F.3d 1553 (Fed. Cir. 1997) ........................... 5 Rig Masters, Inc. v. United States, 42 Fed. Cl. 369 (1998) ................................... 8 Thermalon Indus., Ltd. V. United States, 34 Fed. Cl. 411 (1995) .................................. 13 Total Med. Management, Inc. V. United States, 104 F.3d 1314 (Fed. Cir. 1997) .......................... 13 Trauma Servs. Group v. United States, 104 F.3d 1321 (Fed. Cir. 1997) .......................... 13 United States v. King, 395 U.S. 1 (1969) ..................................... 8, 9 United States v. Williams, 514 U.S. 527 (1995) ...................................... 6 STATUTES I.R.C. § 7422(a) .............................................. 7 26 U.S.C. § 6532(a)(1) ........................................ 5 26 U.S.C. § 7421 ........................................ 6, 7, 9 26 U.S.C. § 7422 ........................................... 6, 7

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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)

DEFENDANT'S MOTION TO DISMISS Pursuant to Rules 12(b)(1) and 12(b)(6) of the Rules of the United States Court of Federal Claims ("RCFC"), defendant, the United States, respectfully requests that the Court dismiss the complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief may be granted. To the extent

that the complaint constitutes a claim for an income tax refund for Mr. Jordan's 1999 and 2000 tax years, or a claim to otherwise restrain the Internal Revenue Service ("IRS") from collecting assessed taxes, this Court does not possess subject matter jurisdiction because Mr. Jordan failed to make full payment of the income tax assessments for the years at issue and he failed to file to file an administrative claim for refund with the IRS. Additionally, to the extent that the complaint requests specific performance, a declaratory judgment, or injunctive relief with respect to the parties' alleged contract, this Court similarly does not possess jurisdiction over the claim.

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Alternatively, the Court should dismiss the complaint pursuant to RCFC 12(b)(6) because the facts alleged in the complaint, and more specifically its attachments, make clear that no valid contract was ever formed between Mr. Jordan and the Government. See Compl. Ex. B. Additionally, even assuming for

the sake of argument that the IRS offer specialist's letter to Mr. Jordan could be construed as making a viable counter-offer to Mr. Jordan, the IRS offer specialist did not have authority to enter into a binding Government contract with Mr. Jordan. In

support of our motion, we rely upon the complaint, the following brief, and the appendix attached to this brief. DEFENDANT'S BRIEF ISSUES PRESENTED (1) Whether the Court possesses jurisdiction to entertain

this tax dispute in which the plaintiff has failed to fully pay the outstanding tax liability that he owes the Government before proceeding with his claim in this Court and where he has failed to invoke a substantive right enforceable against the United States for money damages. (2) Whether Mr. Jordan has failed to state a claim that he

and the United States entered into a binding contract when no valid offer was proffered by the United States, and the purported

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agent of the United States who communicated with Mr. Jordan had no authority to make such an offer. STATEMENT OF THE CASE 1. Nature of the Case Mr. Jordan seeks review of the IRS's refusal of his "Offer in Compromise" to satisfy his tax debts for the years 1999 and 2000. Because Mr. Jordan has not yet paid his tax debt, and

because he is not seeking monetary damages, this Court does not possess jurisdiction to review the complaint. Furthermore, Mr.

Jordan's complaint fails to state a claim upon which this Court may grant relief, because the facts alleged make clear that the Government issued him no "offer" to accept. 2. Statement of Facts Mr. Jordan incurred outstanding tax liabilities in both 1999 and 2000. In 1999, his liability was $20,946.04, plus penalty In 2000, it was $17,254.83, plus penalty and As of August 15, 2003, his total tax App. 11-12.1

and interest. interest.

Compl. ¶¶ 2-3.

liability stood at $51,282.

On March 12, 2002, the IRS received an "Offer in Compromise" from Mr. Jordan to settle his outstanding debts for $10,000. App. 1-4.
1

After reviewing the available information regarding

AApp. __@ refers to the appendix, which is attached to this brief. -3-

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Mr. Jordan's financial condition, an IRS Offer Specialist, Ms. Marianna Caldera, responded to Mr. Jordan's proposed offer in compromise. She responded that the IRS could not accept an offer App. 5-6. Ms. Caldera's letter stated

of less than $12,721.

that, if Mr. Jordan agreed with her analysis, he should submit a new "Offer in Compromise" on an amended Form 656 within 14 days of the letter's date, i.e., by June 2, 2003. App. 5-6.

In a letter dated May 30, 2003, Mr. Jordan stated that he would offer to pay $12,721 to settle his debts. App. 7-10.

Thereafter, following a simple review of Mr. Jordan's court records, Ms. Caldera became aware that Mr. Jordan's financial condition was not as dire as it had believed, because, after September 2003, Mr. Jordan's obligation to pay his ex-wife $3,000 per month would expire. App. 24-27. Taking into account those

additional funds, the IRS determined that Mr. Jordan would be able to pay his total tax liability. App. 14-17. Thus, in a

letter dated August 15, 2003, Ms. Caldera notified Mr. Jordan that the IRS believed he had the ability to pay his full tax debt. App. 14-15. Mr. Jordan nevertheless tendered a check to the IRS in the amount of $12,721, on May 30, 2003. App. 18-20. On March 2,

2004, an IRS Group Manager, Ms. Donna Seibel, officially rejected Mr. Jordan's offer of $12,721, for being less than his -4-

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"reasonable collection potential."

App. 21-23.

On May 6, 2004,

the IRS forwarded the plaintiff a check for $12,721 that was drawn upon the United States Treasury. Compl. ¶ 18. Through

counsel, Mr. Jordan appealed the IRS's rejection of his offer on May 24, 2004. Although the IRS Office of Appeals sustained the

rejection of Mr. Jordan's offer on February 23, 2005, app. 28, Mr. Jordan still has not paid his full outstanding tax liability. ARGUMENT I. The Court Does Not Possess Jurisdiction To Rule Upon Mr. Jordan's Claim Because He Has Not Paid The Taxes Assessed It is well-established that the plaintiff bears the burden of establishing subject matter jurisdiction. See McNutt v. Here,

General Motors Acceptance Corp., 298 U.S. 178, 182 (1936). Mr. Jordan has not satisfied his burden. In general, the Court does possess jurisdiction to adjudicate Federal tax refund suits.

See New York Life Ins. Co.

v. United States, 118 F.3d 1553, 1558 (Fed. Cir. 1997); Fisher v. United States, 69 Fed. Cl. 193, 196 (Fed. Cl. 2006); Hunsaker v. United States, 66 Fed. Cl. 129 (2005). However, a jurisdictional

prerequisite for adjudicating a tax refund suit is that the taxpayer make full payment of the tax liability, penalties, and interest. Flora v. United States, 362 U.S. 145, 163 (1960); Moreover, pursuant to 26 U.S.C. §

Hunsaker, 66 Fed. Cl. at 131.

7422, the taxpayer must have "duly filed" a claim with the IRS -5-

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for a refund of tax for the tax year in controversy.

26 U.S.C. §

7422(a) (no tax suit or proceeding shall be maintained until a claim for refund or credit has been duly filed with the Secretary of the Treasury); 26 U.S.C. § 6532(a)(1) (tax suit or proceeding may not be commenced until six months from the date of filing the required claim). Here, to the extent the complaint could be construed as a suit for a tax refund, it should be dismissed for lack of jurisdiction. As Mr. Jordan readily acknowledges in his

complaint, he has neither paid the tax liability that was assessed to him by the IRS, nor filed a claim for a refund with the IRS. Compl. ¶¶ 3-5.

Moreover, to the extent that the complaint can be construed as an effort to enjoin the IRS from collecting assessed taxes, the complaint should also be dismissed. Specifically, the Anti-

Injunction Act, 26 U.S.C. § 7421, precludes this Court from exercising jurisdiction with respect to Mr. Jordan's apparent effort to enjoin the IRS from collecting taxes. states, in relevant part, that: [N]o 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. 26 U.S.C. § 7421(a). -6Section 7421

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The Supreme Court has held that "the manifest purpose of § 7421(a) is to permit the United States to assess and collect taxes alleged to be due without judicial intervention, and to require that the legal right to the disputed sums be determined in a suit for refund." Enochs v. Williams Packing & Navigation Accordingly, it has been held that

Co., 370 U.S. 1, 7 (1962).

this Court does not possess jurisdiction over any matters set forth in an IRS Notice of Deficiency, unless the taxpayer involved has first timely filed a claim for refund with the IRS concerning those matters. United States v. Williams, 514 U.S.

527, 533 (1995); Brown v. United States, 35 Fed. Cl. 258, 266 (1996), aff'd, 105 F.3d 621 (Fed. Cir. 1997). This Court has explained that "in order to bring suit in this Court, the plaintiff must pay the taxes assessed, file a claim for refund with the IRS in accordance with I.R.C. § 7422(a), and then wait six months." 41 Fed. Cl. 626, 630 (1998). Layshenko v. United States,

The Supreme Court has upheld this

practice, stating that it offers a plaintiff a "full, albeit delayed, opportunity to litigate." U.S. 725, 746 (1974). Bob Jones Univ. v. Simon, 416

While, according to the Supreme Court,

this system may not be "the best that can be devised," id. at 747, the "powerful governmental interests in protecting the administration of the tax system from premature judicial -7-

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interference" make any resulting delay for potential plaintiffs palatable, if not necessary. Id.

Because Mr. Jordan has neither paid the taxes that were assessed to him, nor filed a claim for a refund with the IRS, his apparent effort to enjoin the IRS from collecting properlyassessed taxes should be rejected. Because Mr. Jordan has not

established that his claim is within the jurisdiction of this Court, the complaint should be dismissed. II. The Tucker Act Does Not Provide This Court Authority To Issue The Declaratory Relief That Mr. Jordan Seeks A review of the complaint makes clear that Mr. Jordan is simply seeking a declaratory judgment that he has a contract with the IRS. Compl. ¶¶ 21-23. Indeed, his prayer for relief does

not seek monetary compensation; it merely seeks a declaratory judgment in Mr. Jordan's favor that a valid contract was entered into by the parties. Compl. ¶¶ 5, 21-13. The Court of Federal The Supreme

Claims, however, is a court of limited jurisdiction. Court has made clear that "absent an express grant of

jurisdiction from Congress, we decline to assume that the Court of Claims has been given the authority to issue declaratory judgments." United States v. King, 395 U.S. 1, 5 (1969); see

also Layshenko, 41 Fed. Cl. at 630 (explaining that the Court is generally proscribed from issuing declaratory judgments); Rig Masters, Inc. v. United States, 42 Fed. Cl. 369, 373 (1998) -8-

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(citing King, 395 U.S. at 3-4, for proposition that the Court does not possess jurisdiction over claims for specific performance); Logan Canyon Cattle Ass'n v. United States, 34 Fed. Cl. 165, 168 & n.4 (1995). Here, the equitable relief that Mr. Jordan seeks, in the form of either an injunction, declaratory judgment or specific performance, runs contrary to the express intent of Congress. Specifically, the Anti-Injunction Act, 26 U.S.C. § 7421, precludes this Court from granting Mr. Jordan injunctive relief. Section 7421(a) 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." also Layshenko, 41 Fed. Cl. at 630. 26 U.S.C. § 7421(a); see

Quite clearly, the Court

does not generally possess jurisdiction to issue declaratory judgments and Mr. Jordan has failed to otherwise explain why equitable relief might be available to him. Accordingly, Mr.

Jordan's request for declaratory relief should be denied and the complaint should be dismissed for a lack of jurisdiction. III. There Was Never A Valid Contract Between Mr. Jordan And The United States Government Mr. Jordan argues that the United States breached a contract arising from his offer in compromise of $12,721. Compl. ¶ 23. App. 7-10;

Mr. Jordan's argument is clearly erroneous under

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relevant precedent, and the traditional principles of contract law. A. By Its Terms, Ms. Caldera's Letter To Mr. Jordan Was Not an Offer, And His Response Was Not An Acceptance

This Court possesses jurisdiction over "any claim against the United States founded . . . upon any express or implied in Girling Health Systems,

fact contract with the United States."

Inc. v. United States, 949 F.2d 1145, 1146 (Fed. Cir. 1991). Here, the complaint does not allege facts that would establish the existence of either an express contract or a contract that would be implied in fact. A review of the relevant correspondence that Mr. Jordan has attached to his complaint reveals that the IRS never issued an offer to Mr. Jordan, so no contract could have been formed. Compl. Ex. B. See

Although Mr. Jordan refers to Ms. Caldera's letter

of May 19, 2003 as a "counteroffer," compl. ¶ 9, response as an "acceptance," compl. ¶ 10, the exchange between the two parties clearly demonstrates otherwise. 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 will be monitored for 5 years. . . . In that time, if you do -10In her letter, Ms. Caldera makes

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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 . . . . [If] your offer is rejected you will receive information regarding how to appeal . . . . Compl. Ex. B; App. 5-6 (emphasis added). Quite clearly, Ms.

Caldera was advising Mr. Jordan that the IRS would consider another, new offer in compromise from Mr. Jordan and was not issuing a counteroffer, as he now argues in his complaint. Indeed, the form that Mr. Jordan sent back to Ms. Caldera, Form 656, is entitled "Offer in Compromise." App. 7. Given the

content of Ms. Caldera's letter, and Mr. Jordan's response to it, any attempt to construct the exchange as a valid offer and acceptance under traditional contract law should be rejected by the Court. A review of the parties' correspondence reveals that

no express contract can be construed between Mr. Jordan and the Government. Here, any alleged contract between the parties would have to be implied in fact. However, in order to find that an implied in

fact contract with the United States exists, the Court must find: "(1) mutuality of intent; (2) consideration; and (3) lack of ambiguity in offer and acceptance." City of El Centro v. United Traditional contract

States, 922 F.2d 816, 820 (Fed. Cir. 1990).

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unequivocal, positive and unambiguous . . .

A reply to an offer

that fails to comply with these requirements is a rejection." Civic Plaza Nat. Bank v. First Nat. Bank, 401 F.2d 193, 198 (8th Cir. 1968) (citing 1 Williston §§ 72-73; Restatement, Contracts § 58 (1932)). Here, there was no offer issued by the IRS, and

there was certainly no unequivocal, positive and unambiguous acceptance of one. Indeed, there is nothing in the complaint to

indicate an intent upon the part of the IRS to enter into a contract with the plaintiff. The IRS Notice letter fails to

provide any definite terms or conditions of an alleged contract. App. 5-6. B. Accordingly, the complaint should be dismissed. Ms. Caldera Did Not Have the Authority To Enter Into A Binding Contract With The Plaintiff

In the complaint, Mr. Jordan has failed to allege any facts that the relevant IRS offer specialist, Ms. Caldera, possessed the required authority to enter into a Government contract with him. See Compl. ¶ 8. It is well-established that the Government

is not bound by the acts of its agents beyond the scope of their actual authority. 380, 384 (1947). Federal Crop Ins. Corp. v. Merrill, 332 U.S. The Court of Appeals for the Federal Circuit

has clearly affirmed this principle, making clear that if the United States is a party to a purported contract, the Government representative whose conduct is relied upon must have actual authority to bind the Government in contract. -12Harbert/Lummus

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Agrifels Projects v. United States, 142 F.3d 1429, 1432. (Fed. Cir. 1998); Total Med. Management, Inc. V. United States, 104 F.3d 1314, 1319 (Fed. Cir. 1997); City of El Centro, 922 F.2d at 820 (Fed. Cir. 1990). This Court also has recognized that a

valid contract requires that "the [G]overnment representative who entered or ratified the agreement ha[ve] authority to bind the United States in contract." Thermalon Indus., Ltd. V. United

States, 34 Fed. Cl. 411, 414 (1995). Here, as previously explained by the IRS to Mr. Jordan, Ms. Caldera did not have the authority to enter into a Government contract with Mr. Jordan. App. 28. That authority was possessed

by the IRS Group Manager, Ms. Seibel, whose only correspondence with Mr. Jordan was a letter dated March 2, 2004, which officially rejected Mr. Jordan's offer to resolve his outstanding tax liability. As a party attempting to enter into a contract

with the Government, it was Mr. Jordan's duty to accurately ascertain the authority of the agents purporting to act for the Government. Trauma Servs. Group v. United States, 104 F.3d 1321, Here, no person with the authority to

1325 (Fed. Cir. 1997).

bind the United States to a contract ever dealt with Mr. Jordan and, therefore, the parties never entered into a contract. Accordingly, Mr. Jordan's complaint must be dismissed.

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CONCLUSION For the foregoing reasons, we respectfully request that the Court dismiss the complaint. Respectfully submitted, PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director

s/ Steven J. Gillingham STEVEN J. GILLINGHAM Assistant Director

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) 305-7561 Fax: (202) 353-7988 August 4, 2006 Attorneys for Defendant

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CERTIFICATE OF FILING I hereby certify that on August 4, 2006, a copy of the foregoing "DEFENDANT'S MOTION TO DISMISS AND APPENDIX" 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