Cambridge v. U.S.

Decision Date05 March 2009
Docket NumberNo. 2007-5133.,2007-5133.
Citation558 F.3d 1331
PartiesDiahann D. CAMBRIDGE, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
CourtU.S. Court of Appeals — Federal Circuit

Diahann D. Cambridge, of Flossmoor, IL, pro se.

Laurie Snyder, Attorney, Tax Division, United States Department of Justice, of Washington, DC, for defendant-appellee. With her on the brief were Richard T. Morrison, Acting Assistant Attorney General, and Kenneth L. Greene, Attorney.

Before NEWMAN, SCHALL, and LINN, Circuit Judges.

SCHALL, Circuit Judge.

Diahann D. Cambridge filed suit in the United States Court of Federal Claims seeking to recover from the government an amount she alleged was owed to her as a reward because she had acted as an informant by providing information to the Internal Revenue Service ("IRS") concerning violations of the tax laws by a named individual. Ms. Cambridge now appeals the final decision of the Court of Federal Claims granting the government's motion to dismiss her complaint pursuant to Rule 12(b)(6) of the Rules of the Court of Federal Claims ("RCFC") for failure to state a claim upon which relief could be granted. Cambridge v. United States, No. 07-142T, 2007 WL 1888888 (Fed.Cl. May 29, 2007). We affirm.

BACKGROUND
I.

Pursuant to 26 U.S.C § 7623 (2006), the Secretary of the Treasury, "under regulations prescribed by the Secretary, is authorized to pay such sums as he deems necessary for . . . detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws." The implementing regulation states that a "district or service center director may approve a reward, in a suitable amount, for information that leads to the detection of underpayments of tax" and that "[t]he amount of a reward will represent what the district or service center director deems to be adequate compensation in the particular case." 26 C.F.R. § 301.7623-1(a), (c) (2008). We have stated that "[t]hese authorities give the IRS broad discretion to decide whether to make an award or how much to grant." Merrick v. United States, 846 F.2d 725, 726 (Fed.Cir.1988). We also have stated that the statute and its implementing regulation "alone do not contractually bind the government." Krug v. United States, 168 F.3d 1307, 1308 (Fed.Cir.1999). As we pointed out in Merrick, "[t]he United States cannot be contractually bound merely by invoking the cited statute and regulation." 846 F.2d at 726. Rather, "[a]n enforceable contract will arise under these authorities only after the informant and the government negotiate and fix a specific amount as the reward." Id.

II.

In her complaint, Ms. Cambridge alleged that in September of 1989, she divulged information to the IRS that eventually led to the detection of a tax violation committed by her former husband, Mr. David E. Pierce, in his capacity as the owner of Harold's Chicken Shacks. Compl. ¶¶ 2-4; Form 211 Application for Reward for Original Information (attached to complaint). In January of 1991, Ms. Cambridge, under the name Diana D. Pierce, filed a Form 211 with the IRS, seeking a reward in return for furnishing this information. Form 211 Application for Reward for Original Information (attached to complaint). The IRS allowed Ms. Cambridge's claim for a reward, paying her the sum of $1,131 in February of 1997, and the sum of $3,429 in February of 1998. With each of these payments, the IRS informed Ms. Cambridge of "a possibility" that she might receive an additional reward. Letter from Lawrence T. West of the IRS to Diahann D. Cambridge; Letter from Nancy B. Jones of the IRS to Diahann D. Cambridge (attached to complaint). In January of 2007, however, the IRS notified Ms. Cambridge that, after careful review, her claim for reward had been finalized, and as a result, she would not receive any further payments. Letter from IRS to Diahann D. Cambridge, January 8, 2007 (attached to complaint). In response to this notice, Ms. Cambridge filed a complaint in March of 2007 in the Court of Federal Claims, seeking payment of the "balance due" on her claim for reward. Although she did not specify the exact amount sought, she did enclose a copy of IRS Publication 733, which describes the calculation of the amount and payment of rewards for information provided by individuals to the IRS.1

In its Rule 12(b)(6) motion, the government argued that, under the statutory and regulatory authority afforded the IRS, any determination of the amount and payment of a reward to Ms. Cambridge was entirely discretionary and unrestricted by the formulas set forth in IRS Publication 733. Consequently, the government maintained Ms. Cambridge had no enforceable statutory or regulatory right to recover a reward. The government acknowledged that an enforceable contract may arise where the informant and the IRS have affirmatively negotiated and fixed the specific amount of a reward. However, pointing out that Ms. Cambridge had not alleged that the IRS had agreed to pay her an amount calculated under IRS Publication 733, or any other specific amount, in excess of those distributions she had received, the government argued that she had failed to state a claim to a reward in excess of the total amount she had already been paid.

Ms. Cambridge filed a one-page response, in which she referred to two letters she had received from the IRS on July 19, 2005, and June 14, 2006, both informing her that the agency could not divulge personal information about Mr. Pierce's tax account, and that "any remaining award" would not be forthcoming "until everything is completed and all amounts paid" in connection with the investigation, and that until then, there was "no balance owed to you."

Addressing the government's motion, the Court of Federal Claims noted our holding in Merrick that 26 U.S.C. § 7623 and 26 C.F.R. § 301.7623-1 allow recovery on a contract theory only. Cambridge, 2007 WL 1888888, at *2. The court stated: "To qualify . . . the complaint must allege that the parties reached an agreement as to payment of a reward and its specific amount. Plaintiff cannot contractually bind the United States merely by invoking the aforesaid statute and regulations." Id. (citations omitted). Turning to Ms. Cambridge's claim, the court determined that the government became "contractually obligated" when it agreed that Ms. Cambridge was eligible to receive payment in connection with a successful prosecution of tax law violations. Id. Continuing, however, the court stated that "this obligation was limited to the two reward amounts it calculated and about which defendant notified plaintiff." Id. The court noted Ms. Cambridge's argument that the IRS owed her an additional award because it collected several sums from Mr. Pierce based upon the information she provided. It also noted her reliance on the July 19, 2005 and the June 14, 2006 letters from the IRS. The court observed, however, that her arguments notwithstanding, Ms. Cambridge still had not specified "any agreement with the IRS or any balance owed." Id. Because the court found that, as far as her claim for an additional award payment was concerned, Ms. Cambridge had failed to point to an agreement with the IRS, it determined that Ms. Cambridge had failed to state a valid claim for relief. It therefore granted the government's motion to dismiss pursuant to RCFC 12(b)(6).

DISCUSSION
I.

We have jurisdiction over Ms. Cambridge's appeal pursuant to 28 U.S.C § 1295(a)(3). Whether the Court of Federal Claims properly dismissed Ms. Cambridge's complaint for failure to state a claim upon which relief could be granted is an issue of law which we review de novo. Dehne v. United States, 970 F.2d 890, 892 (Fed.Cir.1992).

In ruling on a 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 the plaintiff. Papasan v. Allain, 478 U.S. 265, 283, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986); Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed.Cir.1991). However, a plaintiff must plead factual allegations that support a facially "plausible" claim to relief in order to avoid dismissal for failure to state a claim. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1974, 167 L.Ed.2d 929 (2007).

On appeal, Ms. Cambridge contends that the Court of Federal Claims erred in dismissing her complaint. She argues that she is owed an additional award beyond the payments of $1,131.40 and $3,429.14, which she received. According to Ms. Cambridge, she is entitled to an additional award because the information she provided resulted in the IRS eventually recovering taxes due over and above the taxes upon which the rewards she received were based. Relying upon the formula in IRS Publication 733, Ms. Cambridge contends that she is entitled to an additional award payment in the amount of $6,906.55. The government responds that we should affirm the decision of the Court of Federal Claims. It argues that, insofar as any award beyond what she already has received is concerned, Ms. Cambridge failed in the Court of Federal Claims to point to circumstances giving rise to a contract enforceable against the IRS. See Merrick, 846 F.2d at 726 ("An enforceable contract will arise under [26 U.S.C. § 7623 and 26 C.F.R. § 301.7623-1(a)] only after the informant and the government negotiate and fix a specific amount as the reward.").

II.

We see no error in the decision of the Court of Federal Claims. As discussed, in order to assert a valid claim under 26 U.S.C. § 7623 and 26 C.F.R. § 301.7623-1(a), Ms. Cambridge had to allege facts "plausibly" showing, Twombly, 127 S.Ct. at 1974, that the IRS had "negotiate[d] and fix[ed] a specific amount as the reward." See Merrick, 846 F.2d at 726. In this case, as far as her claim for an additional reward was concerned, Ms. Cambridge plainly failed to allege facts plausibly showing the government had "negotiate[d] and fix[ed] a specific amount as the reward."...

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