Aloe Vera of America, Inc. v. U.S.
| Decision Date | 30 July 2009 |
| Docket Number | No. 07-15579.,No. 07-15577.,07-15577.,07-15579. |
| Citation | 580 F.3d 867 |
| Parties | ALOE VERA OF AMERICA, INC., a Texas corporation; Rex G. Maughan, husband; Ruth G. Maughan, wife; Maughan Holdings Inc., an Arizona corporation, Plaintiffs-Appellants, and Gene Yamagata; Yamagata Holdings, Inc., Plaintiffs, Bureau of National Affairs, Inc., Intervenor, v. UNITED STATES of America, Defendant-Appellee, v. Kiichiro Harano, Junichi Hayakawa; Yoshinori Horikawa; The Yomiuri Shimbun; Hitoshi Uchiyama; Tsueneo Watanabe; Toyohiko Yamanouchi (Non-party Witness), Movant. Aloe Aloe Vera of America, Inc., a Texas corporation; Rex G. Maughan, husband; Ruth G. Maughan, wife; Maughan Holdings Inc., an Arizona corporation, Plaintiffs, Bureau of National Affairs, Inc., Intervenor, and Gene Yamagata; Yamagata Holdings, Inc., Plaintiffs-Appellants, v. United States of America, Defendant-Appellee, v. Kiichiro Harano, Junichi Hayakawa; Yoshinori Horikawa; The Yomiuri Shimbun; Hitoshi Uchiyama; Tsueneo Watanabe; Toyohiko Yamanouchi (Non-party Witness), Movant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Terrence D. Woolston and Tim A. Tarter, Woolston & Tarter, P.C., Phoenix, AZ, and Edwin B. Wainscott and James A. Ryan, Quarles & Brady, L.L.P., Phoenix, AZ, for plaintiffs-appellants Aloe Vera of America, Inc., Rex G. Maughan, Ruth G. Maughan and Maughan Holdings, Inc.
Merwin D. Grant and Kenneth B. Vaughn, Grant & Vaughn, P.C., Phoenix, AZ, for plaintiffs-appellants Gene Yamagata and Yamagata Holdings, Inc.
Richard T. Morrison, Acting Assistant Attorney General, Jonathan S. Cohen and Karen G. Gregory, Tax Division, Department of Justice, Washington, D.C., for the defendant-appellee.
Appeals from the United States District Court for the District of Arizona, James A. Teilborg, District Judge, Presiding. D.C. No. CV-99-01794-JAT.
Before J. CLIFFORD WALLACE, SIDNEY R. THOMAS and SUSAN P. GRABER, Circuit Judges.
Aloe Vera of America, Inc., Rex Maughan, Ruth Maughan, Maughan Holdings, Inc., Gene Yamagata, and Yamagata Holdings, Inc. (collectively, Aloe Vera), appeal from the district court's summary judgment against them on their claims under 26 U.S.C. § 7431(a)(1). We must determine whether the statute of limitations in 26 U.S.C. § 7431(d) is jurisdictional. We vacate and remand.
Rex Maughan (Maughan) is the owner of Aloe Vera of America, Inc. (AVA), a United States corporation that processes and sells aloe vera products in the United States, Japan, and other countries. Maughan and Yamagata, indirectly through their respective holding companies, are coowners of Forever Living Products Japan, Inc. (FLPJ), a Japanese corporation that purchases products from AVA.
In 1991 and 1992, AVA paid commissions and royalty-based income received from FLPJ to Maughan and Yamagata. The Internal Revenue Service (IRS) was concerned about whether this income was properly reported in the United States. Consequently, on April 26, 1996, the IRS sent a letter to the Japanese National Taxing Authority (NTA), proposing that the authorities simultaneously examine the tax reports of AVA, Maughan, Yamagata, and FLPJ. The letter estimated that for tax years 1991 and 1992, Maughan and Yamagata failed to report commission and royalty income from AVA product sales to FLPJ, totaling more than $32 million. In August 1996, the IRS and NTA held a meeting to discuss the examination. During this time, Aloe Vera apparently did not know about the examination and did not know that the NTA and IRS were disclosing information to each other.
On August 15, 1996, the IRS notified Maughan and AVA of the simultaneous examination. This appears to be the first notification that Maughan and AVA had of the investigation. At the end of 1996, the NTA made an audit proposal to FLPJ, which FLPJ rejected, and in early 1997, the NTA sent correction notices to FLPJ regarding its tax liabilities. In February 1997, the IRS sent letters to Maughan and AVA to propose tax adjustments. Shortly thereafter, on March 4, 1997, Maughan and AVA took the offensive and filed requests pursuant to the Freedom of Information Act for copies of documents exchanged by the NTA and the IRS during the simultaneous examination.
On October 9, 1997, Japanese news sources reported that Aloe Vera had failed to report income of 7.7 billion yen (at the time, approximately $60 million) to tax authorities. The Japanese reporters attributed this information to unidentified "tax sources" and the IRS. After the news of the simultaneous examination leaked, Aloe Vera lodged a complaint with the United States Competent Authority, accusing the NTA of intentionally disclosing tax information to the public. Income tax treaties generally permit taxpayers to request assistance from a designated "competent authority" if they believe that any party to the treaty has taken action that has resulted or will result in taxation that is contrary to the provisions of the treaty. Rev. Proc.2006-54, 2006-2 C.B. 1035. After an investigation, the Competent Authority found no proof that the NTA had leaked the information.
On October 6, 1999, Aloe Vera filed a complaint against the United States government in the district court under 26 U.S.C. § 7431(a), containing two counts. In Count I, Aloe Vera alleged that the IRS had disclosed false information to the NTA in violation of 26 U.S.C. § 6103(a). In Count II, Aloe Vera alleged that the IRS had further violated section 6103 by disclosing certain tax information to the NTA even though the IRS knew or should have known that the NTA would leak the information.
The government moved to dismiss the complaint on several grounds, including that the complaint was barred on jurisdictional grounds by the two-year statute of limitations contained in section 7431(d). The district court held that the statute of limitations in that section was not jurisdictional, but nevertheless dismissed the complaint (with leave to amend) because Aloe Vera had failed to plead a date of discovery of the allegedly unauthorized disclosures within the two-year limitations period. After Aloe Vera filed an amended complaint, the court refused to dismiss the action as untimely because the amended complaint included an allegation that Aloe Vera did not discover the nature of the IRS disclosures to the NTA until August 1998, when Aloe Vera received disclosures under the Freedom of Information Act pursuant to a court order.
Subsequently, the government moved for summary judgment on both counts, and Aloe Vera moved for summary judgment on Count I. The district court granted the government's motion on both counts. As to Count I, the district court held that the government's disclosure of allegedly false information to the NTA did not violate section 6103(a). As to Count II, the district court held that Aloe Vera had not raised a genuine issue of material fact as to whether the IRS knew or should have known, prior to October 1997, that the NTA routinely leaked information received under the treaty. Aloe Vera timely appealed, challenging the district court's summary judgment on both counts.
We review de novo both the district court's summary judgment and its interpretation of the Internal Revenue Code. Siddiqui v. United States, 359 F.3d 1200, 1202 n. 2 (9th Cir.2004). We review de novo the district court's denial of a motion to dismiss. Silvers v. Sony Pictures Entm't, Inc., 402 F.3d 881, 883 (9th Cir. 2005) (en banc).
Aloe Vera sued the government under 26 U.S.C. § 7431(a)(1), which allows a taxpayer to bring a civil action for damages against the government when an officer or employee of the government "knowingly, or by reason of negligence, inspects or discloses any return or return information with respect to a taxpayer" in violation of section 6103. Section 7431(d) provides that any claim for wrongful disclosure of tax return information "may be brought ... at any time within 2 years after the date of discovery by the plaintiff of the unauthorized inspection or disclosure."
The Supreme Court recently explained that when the United States is named as a defendant in an action, a statute of limitations, such as the one in section 7431(d), falls into one of two categories. See John R. Sand & Gravel Co. v. United States, 552 U.S. 130, 128 S.Ct. 750, 753, 169 L.Ed.2d 591 (2008). The first category includes those statutes of limitations that "seek primarily to protect defendants against stale or unduly delayed claims." Id. These statutes of limitations are subject to forfeiture and waiver, and the statutes may be equitably tolled. Id.
The second category includes those statutes of limitations that "seek not so much to protect a defendant's cases-specific interest in timeliness as to achieve a broader system-related goal, such as ... limiting the scope of a governmental waiver of sovereign immunity." Id. (citations and internal quotation marks omitted). These latter statutes of limitations are "more absolute" and are not subject to waiver or equitable tolling, and the time limits imposed are considered jurisdictional. Id.; see also United States v. Dalm, 494 U.S. 596, 608, 110 S.Ct. 1361, 108 L.Ed.2d 548 (1990) ().
Because jurisdictional questions must be decided prior to reaching the merits of a case, we must first determine whether the limitations period provided in section 7431(d) falls into this latter category of jurisdictional statutes of limitations. Sinochem Int'l Co. v. Malaysia Int'l Shipping Corp., 549 U.S. 422, 430-31, 127 S.Ct. 1184, 167 L.Ed.2d 15 (2007); see also Hansen v. Dep't of Treasury, 528 F.3d 597, 600 (9th Cir.2007) (...
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