498 F.2d 395 (4th Cir. 1974), 73-2185, Lewis v. Sandler

Docket Nº:73-2185.
Citation:498 F.2d 395
Party Name:Michael Earl LEWIS, Appellee, v. A. W. SANDLER, Revenue Officer, and the United States of America, Appellants.
Case Date:June 06, 1974
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

Page 395

498 F.2d 395 (4th Cir. 1974)

Michael Earl LEWIS, Appellee,

v.

A. W. SANDLER, Revenue Officer, and the United States of America, Appellants.

No. 73-2185.

United States Court of Appeals, Fourth Circuit.

June 6, 1974

Argued Feb. 5, 1974.

Page 396

Gary R. Allen, Atty., Tax Div., U.S. Dept. of Justice (Scott P. Crampton, Asst. Atty. Gen., and Meyer Rothwacks and Leonard J. Henzke, Jr., Attys., Tax Div.; Keith S. Snyder, U.S. Atty., W.D.N.C., and David B. Sentelle, Asst. U.S. Atty., on brief), for appellants.

George S. Daly, Jr., Charlotte, N.C., on brief, for appellee.

Before BRYAN, Senior Circuit Judge, and BUTZNER and WIDENER, Circuit judges.

Page 397

BUTZNER, Circuit Judge:

This is an interlocutory appeal from a district court order denying the defendants' motion to dismiss for lack of jurisdiction. Michael Earl Lewis, purporting also to represent a class, seeks relief from jeopardy assessments and income tax levies imposed on alleged dealers in illicit drugs. We conclude that this action is barred by the anti-injunction provision in the Internal Revenue Code, the tax exception to the Declaratory Judgment Act, and failure to file an administrative claim for refund. Therefore, we vacate the order and remand the case with directions that it be dismissed.

There is little dispute about the salient facts. In September 1971, Charlotte police arrested Lewis and charged him with an offense involving the possession and sale of marijuana. At the time of his arrest, the police seized from his custody two pounds of marijuana and a sum of cash alleged by Lewis to be in excess of $600, but reported by the police to be in the amount of $467.00. In June 1972, a state judge dismissed the criminal charges against Lewis and ordered the police to return the $467 which they had been holding.

Instead of returning the money, a police officer notified an agent of the United States Internal Revenue Service that Lewis had been substantially involved in the illegal sale of narcotics for a number of months and that the police had arrested him and seized $467. Acting on this information, the Service terminated Lewis' tax year effective June 14, 1972, computed his taxable income from the sale of drugs from January 1 through June 14, 1972 to be $57,535.24, and assessed a tax of $27,261.85. The Service then levied on the $467 held by the Charlotte police. 1

Lewis brought this class action on behalf of himself and all other similarly situated persons whose property had been seized by the Charlotte police department and subsequently distrained by the Service. His complaint asserted jurisdiction under 28 U.S.C. § 1343(3), 42 U.S.C. § 1983, and 'federal common law.' It alleged that the city and state officials conspired to unconstitutionally deprive him and the class he represents of their property without due process of law. Lewis sought a return of all funds that had been seized, a declaration that such seizures are unconstitutional, and an injunction against similar conduct in the future.

Soon after Lewis filed his action, the Service unconditionally returned the $467 and abated the jeopardy assessment. It explained the abatement by admitting that the tax was mistakenly assessed for 1972, the year it received the information, while it should have been based on the sales Lewis was alleged to have made before his arrest in September 1971.

I

Mootness

At the threshold, we are confronted with the government's claim that the case is now moot since Lewis' money has been returned to him and the assessment has been abated. However, this contention fails to account for the other members of the class Lewis purports to represent, and, as this circuit has held previously, actions on behalf of a class may survive even though the claims of individual named plaintiffs do not. Brown v. Gaston County Dyeing Machine Co., 457 F.2d 1377, 1380 (4th Cir. 1972) ;

Page 398

cf. Indiana Employment Division v. Burney, 409 U.S. 540, 93 S.Ct. 883, 35 L.Ed.2d 62 (1973). Moreover, it appears to be a current policy of the Service to make jeopardy assessments and levies against the assets of suspected drug dealers. This raises a not unreasonable expectation that such practices will be repeated, and the government could continue to avoid review simply by abatement of the assessment. The controversy, therefore, is not moot. United States v. W. T. Grant Co., 345 U.S. 629, 632, 73 S.Ct. 894, 97 L.Ed. 1303 (1953); Southern Pacific Terminal Co. v. I.C.C., 219 U.S. 498, 515, 31 S.Ct. 279, 55 L.Ed. 310 (1911).

II

Injunction and Declaratory Judgment

Lewis' principal claim is for injunctive and declaratory relief that will restrain future jeopardy assessments and levies in similar cases. The government asserts that Lewis' claim is barred by the Anti-Injunction Act 2 and the tax exception to the Declaratory Judgment Act. 3 Lewis, on the other hand, says these statutes are inapplicable because, in his view, the city and federal officials were not truly engaged in assessing and collecting a tax. He charges that although neither he nor members of the class have been proved guilty of crime, the state and federal officers conspired to deprive them of due process of law by arbitrarily escheating their property. Citing government press releases that warn narcotics dealers of rigorous enforcement of tax laws, Lewis claims that the government's purpose is the suppression of narcotics traffic by unconstitutional means and not the collection of revenue.

Charges that the Service should be enjoined from proceeding against taxpayers because it is motivated by purposes other than the collection of revenue have been explicitly rejected by the Supreme Court. In Bailey v. George, 259 U.S. 16 (1922), the Court ruled that a complaint challenging the constitutionality of a tax designed to eliminate child labor failed to state a case for restraining the assessment and collection of the impost. The Court held that the Anti-Injunction Act was applicable, notwithstanding that on the same day it ruled in a refund suit that the tax was unconstitutional. Bailey v. Drexel Furniture Co., 259 U.S. 20, 42 S.Ct. 449, 66 L.Ed. 817 (1922). Recently, in an opinion that was not available to the district court, the Supreme Court held that the Anti-Injunction Act prohibited a preenforcement injunction to restrain the...

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