Birdman v. Office of the Governor
| Decision Date | 12 April 2012 |
| Docket Number | 11–1462.,Nos. 10–4189,s. 10–4189 |
| Citation | 677 F.3d 167,109 A.F.T.R.2d 2012,2012 USTC P 50302 |
| Parties | Harvey BIRDMAN; Diane Birdman; Herbert Hirsch; Bonita Hirsch; Barclay Associates, Inc.; Kingsbridge Associates, Inc., Appellants v. OFFICE OF THE GOVERNOR; Bureau of Internal Revenue; United States of AmericaIn re Harvey Birdman; Diane Birdman; Herbert Hirsch; Bonita Hirsch, Petitioners. |
| Court | U.S. Court of Appeals — Third Circuit |
OPINION TEXT STARTS HERE
Joseph A. DiRuzzo, III, Esquire (Argued), Mitchell S. Fuerst, Esquire, Fuerst Ittleman, PL, Miami, FL, for Appellants/Petitioners.
Vincent F. Frazer, Attorney General, Bernard Van Sluytman, Solicitor General, Pamela R. Tepper (Argued), Assistant Attorney General, Tamika M. Archer, Esquire, Office of Attorney General of Virgin Islands, Department of Justice, Joycelyn Hewlett, Esquire, Office of United States Attorney, Charlotte Amalie, St. Thomas, VI, Kenneth L. Greene, Esquire, Jennifer M. Rubin, Esquire (Argued), United States Department of Justice, Tax Division, Washington, DC, Dashiell C. Shapiro, Esquire, United States Department of Justice, Tax Division, Washington, DE, for Appellees/Respondents.
Before: AMBRO, CHAGARES and HARDIMAN, Circuit Judges.
These consolidated cases stem from a single lawsuit by two married couples and their affiliated entities. They sued the Virgin Islands and its tax agency seeking a determination of the source of certain income and the United States seeking tax refunds. The United States District Court of the Virgin Islands (the “V. I. District Court” or simply the “District Court”) dismissed their claim against the Virgin Islands and transferred their claims against the United States to the United States District Court for the Southern District of Florida. The plaintiffs have directly appealed the District Court's dismissal of their claim against the Virgin Islands, and they have filed a petition for a writ of mandamus concerning their claims against the United States.1 For the reasons that follow, we affirm the holding of the District Court and deny the mandamus petition.
Harvey and Diane Birdman formed a Virgin Islands corporation, Barclay Associates, Inc. (“Barclay”). Herbert and Bonita Hirsch also formed a Virgin Islands corporation, Kingsbridge Associates, Inc. (“Kingsbridge”). During the relevant time period, tax year 2006, Barclay and Kingsbridge were among the limited partners in a Virgin Islands limited liability limited partnership, Four Points Management LLLP (“Four Points”). Barclay and Kingsbridge derived all of their income from their stakes in Four Points.
The Birdmans and the Hirsches assert that they were not “bona fide residents” of the Virgin Islands in 2006. See I.R.C. § 937(a). However, they claim that a portion of their income was “derived from sources within the Virgin Islands.” See id. § 932(a)(1)(A)(ii). Specifically, Harvey Birdman's 2006 tax return indicates that 85.7% of his income was derived from the Virgin Islands; for Herbert Hirsch, it was 81.47%. The men, who filed jointly with their wives, claimed that all of their Virgin Islands income came from Barclay and Kingsbridge, respectively.
Taxpayers situated like the Birdmans and the Hirsches—that is, taxpayers who are not “bona fide residents” but claim to have derived some income from the Virgin Islands—must file two tax returns. Id. § 932(a)(2). Their Virgin Islands tax return should include taxes payable on all income “derived from sources within the Virgin Islands.” Id. § 932(b)(1), (b)(2)(B). Their United States tax return should include taxes payable on the remaining income. Id. § 932(a)(3), (b)(3).
Both couples in our case filed the proper 2006 tax returns, one with the United States and one with the Virgin Islands. But they each made only one payment. Rather than paying the Virgin Islands its share, as § 932 requires, both couples paid both their United States taxes and their Virgin Islands taxes to the United States. The taxpayers allege that they did so “with the good faith belief that the [United States] IRS would pay the amount[s] due to the [Virgin Islands] to the [Virgin Islands Bureau of Internal Revenue (“VIBIR”) ], or, alternatively, that the VIBIR would obtain the amounts from the IRS.” Compl. ¶¶ 49, 52. The United States, though, has neither paid those sums to the Virgin Islands nor refunded them to the taxpayers. Nor has the Virgin Islands sought to claim those sums from the United States. Caught between Scylla and Charybdis, the Birdmans and the Hirsches complain that they owe debts to the Virgin Islands that equal their overpayments to the United States.
The Birdmans, the Hirsches, Barclay, and Kingsbridge (collectively, the “Appellants”) brought this suit in 2009 in the District Court. They named both the Virgin Islands (including its agency, the VIBIR) and the United States as defendants but sought different relief from each. Against the Virgin Islands, they requested a “negative injunction” that would compel the VIBIR to declare whether the income in question was “derived from sources within the Virgin Islands.” 2 (They claim that the income was so derived, but the United States IRS has challenged that claim in other proceedings.) Against the United States, they requested refunds of the amounts they contend they initially should have paid to the Virgin Islands.
The Virgin Islands moved to dismiss Appellants' claim against it pursuant to Rules 12(b)(1) () and 12(b)(6) () of the Federal Rules of Civil Procedure. The District Court granted its motion to dismiss, holding that Appellants had failed to state a claim against the Virgin Islands. In the alternative, the Court held that Appellants' claim against the Virgin Islands was not ripe for decision. This dismissal is before us on direct appeal as case 10–4189.
The United States moved to dismiss Appellants' claims against it pursuant to Rule 12(b)(3), asserting that venue was improper. In the alternative, it moved to sever those claims and transfer them to the District Court for the Southern District of Florida, where the Birdmans and the Hirsches live. The V.I. District Court granted the United States' alternative motion, transferring this part of the case to the Florida venue pursuant to 28 U.S.C. § 1406(a). Before the Court entered its transfer order, Appellants moved it to certify an interlocutory appeal of that order to our Court under 28 U.S.C. § 1292(b). 3 They maintained that, under 48 U.S.C. § 1612(a), jurisdiction (and thus venue) is proper only in the V.I. District Court. The District Court for the Southern District of Florida stayed the case but re-transferred it to the V.I. District Court for the limited purpose of ruling on Appellants' motion to certify an interlocutory appeal. The V.I. District Court then denied that motion. Appellants, however, petitioned us for a writ of mandamus to compel the V.I. District Court to accept jurisdiction and venue. That petition is before us as case 11–1462.
We have consolidated case 10–4189 with case 11–1462, so all counts of Appellants' complaint are involved in this case. But the issues are distinct. We must decide, first, whether Appellants have stated a claim against the Virgin Islands, and second, what the proper venue is for Appellants' claims against the United States. The latter question requires that we determine which courts have jurisdiction over Virgin Islands tax matters under 48 U.S.C. § 1612(a).
The V.I. District Court had jurisdiction over Appellants' claim against the Virgin Islands under 48 U.S.C. § 1612(a). We have jurisdiction under 28 U.S.C. §§ 1291 and 1294(3). Our review of the District Court's order granting the Virgin Islands' motion to dismiss is plenary. McGovern v. City of Phila., 554 F.3d 114, 115 (3d Cir.2009). “We accept all well-pleaded allegations in the complaint as true and draw all reasonable inferences in [Appellants'] favor.” Id. (citation omitted). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)); see also Fed.R.Civ.P. 8(a)(2) ().
We have jurisdiction over Appellants' mandamus petition under the All Writs Act, 28 U.S.C. § 1651. That Act “gives appellate courts the power to issue a writ of mandamus ‘in exceptional cases where the traditional bases for jurisdiction do not apply.’ ” United States v. Higdon, 638 F.3d 233, 245 (3d Cir.2011) (quoting In re Pasquariello, 16 F.3d 525, 528 (3d Cir.1994)).
III. DiscussionA. Claim Against the Virgin Islands
Appellants have asked the District Court to “compel the [Virgin Islands] and the VIBIR to issue a determination of the source of income for tax year 2006 as to Barclay and Kingsbridge.” Compl. ¶ 61. In support of this request, they cite delays by the United States IRS in its challenge to their source of income for 2006 and other tax years. Id.
The Virgin Islands moved the District Court to dismiss this count of the complaint for failure to state a claim. In response to its motion, Appellants stated that they “relie[d] upon [that] Court's equitable powers to issue a negative injunction against the VIBIR for a determination of source of income pursuant to 26 U.S.C. §§ 861–865.” Chief Judge Gomez of the District Court at oral argument attempted to clarify Appellants' position. He asked Appellants' counsel four times to state their cause of action. J.A. at 303–05. Each time, counsel responded that it was a ...
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