Cohen v. United States (In re Long-Distance Tel. Serv. Fed. Excise Tax Refund Litig.)

• Decision Date: 29 October 2012
• Docket Number: Nos. 07–mc–0014 (RCL), 07–cv–0051 (RCL), 07–cv–0050 (RCL), 06–cv–0483 (RCL).,MDL No. 1798.,s. 07–mc–0014 (RCL), 07–cv–0051 (RCL), 07–cv–0050 (RCL), 06–cv–0483 (RCL).
• Citation: 901 F.Supp.2d 1
• Parties: In re LONG–DISTANCE TELEPHONE SERVICE FEDERAL EXCISE TAX REFUND LITIGATION. This Document Relates to Cohen v. United States, Gurrola v. United States, Sloan v. United States.
• Court: U.S. District Court — District of Columbia

901 F.Supp.2d 1

In re LONG–DISTANCE TELEPHONE SERVICE FEDERAL EXCISE TAX REFUND LITIGATION. This Document Relates to Cohen v. United States, Gurrola v. United States, Sloan v. United States.

Nos. 07–mc–0014 (RCL), 07–cv–0051 (RCL), 07–cv–0050 (RCL), 06–cv–0483 (RCL).

MDL No. 1798.

United States District Court, District of Columbia.

Oct. 29, 2012.

Mark D. Griffin, Griffin Law Firm, Orange, OH, Sidney A. Backstrom, Richard F. Scruggs, Scruggs Law Firm, PA, Oxford, MS, Robert G. Smith, Lewis Brisbois Bisgaard & Smith LLP, San Diego, CA, William H. Anderson, Robert J. Cynkar, Charles J. LaDuca, Jonathan Watson Cuneo, Cuneo Gilbert & LaDuca, LLP, Washington, DC, Nicholas E. Chimicles, Benjamin F. Johns, Chimicles & Tikellis, LLP, Haverford, PA, Christopher Weld, Jr., Todd & Weld, LLP, Boston, MA, Kevin T. Peters, Tony & Weld, Boston, MA, Steven N. Berk, Berk Law LLC, Washington, DC, Michael A. Bowen, Foley & Lardner LLP, Milwaukee, WI, for Plaintiff.

Joseph E. Hunsader, Geoffrey John Klimas, Brian H. Corcoran, Christopher James Williamson, U.S. Department of Justice Washington, DC, Daniel P. Collins, Burton A. Gross, Munger, Tolles & Olson LLP, San Francisco, CA, Michael K. Kellogg, Sean A. Lev, Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC, Washington, DC, for Plaintiff.

Patrick S. Wolleson, Breithaupt, Dunn, DuBos, Shafto & Wolleson, LLC, Monroe, LA, Washington, DC, Sandra Sepulveda, Alejandro N. Mayorkas, O'Melveny & Myers LLP, Los Angeles, CA, Rebecca Min, Susan L. Saltzstein Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, Michael B. Carlinsky, Quinn Emanuel Urquhart & Sullivan LLP, Los Angeles, CA, John W. Rogers, Thompson Coburn LLP, St. Louis, MO, for Defendant.

MEMORANDUM OPINION

ROYCE C. LAMBERTH, Chief Judge.

I. INTRODUCTION

Pending before this Court is plaintiffs' Motion to Enter Judgment and for an Interim Award of Attorneys' Fees and Litigation Expenses [83]. This Court will GRANT plaintiffs' motion for final judgment in part and DENY the motion in part. The Court will enter final judgment in favor of the Sloan plaintiffs on their procedural APA claim and for the government with respect to all other claims. The Court will enter final judgment in favor of the government on all claims raised by the Cohen and the Gurrola plaintiffs. The Court will DENY plaintiffs' motion for an interim award of attorneys' fees.

II. BACKGROUND

For decades, the IRS collected an excise tax on long-distance calls based on the distance and duration of calls. See Cohen v. United States, 650 F.3d 717, 719–20 (D.C.Cir.2011) (en banc). The service providers collected the tax and paid it over to the IRS. Id. However, as technology changed, service providers no longer calculated the distance of the call in their billing and the IRS began to base the tax solely on duration. Id. at 720. Multiple plaintiffs brought cases challenging this new method, seeking refunds and injunctive relief. Even after the IRS lost on this issue in the Eleventh Circuit, see Am. Bankers Ins. Grp. v. United States, 408 F.3d 1328 (11th Cir.2005), the Service continued to defend the tax in court and directed phone service providers to continue collecting it—even within the Eleventh Circuit's jurisdiction. Cohen, 650 F.3d at 720 (citing IRS Notice 2005–79). Only after four other circuits held that the tax was illegal, see Reese Bros., Inc. v. United States, 447 F.3d 229, 234 (3d Cir.2006); Fortis, Inc. v. United States, 447 F.3d 190, 190 (2d Cir.2006); Nat'l R.R. Passenger Corp. v. United States, 431 F.3d 374, 379 (D.C.Cir.2005); OfficeMax, Inc. v. United States, 428 F.3d 583, 600 (6th Cir.2005), did the IRS finally change its position. See Cohen, 650 F.3d at 720.

In May 2006, without notice or opportunity for public comment, the IRS issued Notice 2006–50. This Notice discontinued the collection of the tax and provided a limited procedure that allowed some taxpayers to obtain a refund for taxes that had been illegally collected. See Cohen, 650 F.3d at 720. More litigation ensued challenging the lawfulness and adequacy of this refund process. Id. at 720–21.

Three cases are involved in the present dispute.

Cohen v. United States, 05–cv–1237 (E.D.Wis.2005) was filed in 2005 as a putative class action, seeking refunds, an injunction against the collection of further taxes, and other relief. After the IRS issued Notice 2006–50, Mr. Cohen amended his class action complaint by adding a challenge to the notice as an “arbitrary and unreasonable administrative action” under the Administrative Procedure Act (APA). See Second Amended Complaint [75] at 8, Cohen, 05–cv–1237. Mr. Cohen's amended Complaint alleges that the “restitution procedure adopted by the government arbitrarily, unreasonably, and unlawfully limits restitution of the funds unlawfully exacted from phone-users” in several enumerated respects. The Complaint does not refer to the absence of notice and comment, or otherwise to the procedures used in issuing the Notice. See id.

Sloan v. United States, 06–cv–483 (D.D.C.2006) was filed in March 2006 as a putative class action seeking refunds, an injunction against the collection of further taxes, and other relief. After the IRS adopted Notice 2006–50, the Sloan plaintiffs amended their Complaint, adding substantive and procedural APA challenges to the notice. Second Amended Complaint at 18–20, Sloan v. United States, 06–cv–483 (D.D.C.2006). The Complaint's sixth Cause of Action alleges that the IRS failed to comply with the APA's notice and comment requirements. See id. at 19.

Gurrola v. United States, 06–cv–3425 (C.D.Cal.2006) was filed in June 2006, after Notice 2006–50 had already been issued. The Complaint does not include any claims for relief based on the APA, but the plaintiffs' response to the governments' motion to dismiss their claim did allege that Notice 2006–50 had been promulgated “without any public notice, public comment or evidence.” Plaintiffs' Response in Opposition to Motion of Defendant United States' To Dismiss Plaintiffs' Complaint at 3, Gurrola v. United States, 06–cv–3425 (C.D.Cal.2006).

In late 2006, the Multidistrict Litigation (“MDL”) Panel transferred Cohen and Gurrola to this Court where they were consolidated with Sloan “for pretrial proceedings.” In re Long–Distance Tel. Serv. Fed. Excise Tax Refund Litig., 469 F.Supp.2d 1348, 1350 (J.P.M.L.2006) (Transfer Order); accord Practice and Procedure Order Establishing the Governing Practice and Procedure Upon Transfer Pursuant to 28 U.S.C. § 1407(a) at 1, In re Long–Distance Tel. Serv. Fed. Excise Tax Refund Litig., 07–mc–14, Docket No. 8 (Jan. 29, 2007) (noting that these actions are “consolidated for pretrial purposes”); see also Cohen, 650 F.3d at 721. Plaintiffs declined to file a consolidated amended complaint “[i]n light of the extensive prior briefing in all the actions, and in light of the fact that such briefing is complete.” See Joint Status Report, In re Long–Distance Tel. Serv. Fed. Excise Tax Refund Litig., 07–mc–14, Docket No. 20 (D.D.C. Mar. 30, 2007).

Judge Urbina dismissed the consolidated cases. In re Long–Distance Tel. Serv. Fed. Excise Tax Refund Litig., 539 F.Supp.2d 281, 287 (D.D.C.2008). He concluded that plaintiffs failed to exhaust their administrative remedies, to state valid claims under federal law, and that Notice 2006–50 constituted unreviewable agency action. Id.

The D.C. Circuit reversed. Cohen v. United States, 578 F.3d 1, 4–14 (D.C.Cir.2009). Judge Rogers Brown, joined by Judge Garland, concluded that Notice 2006–50 constituted final agency action reviewable under the APA, and rejected the government's jurisdictional challenges. Id. Judge Kavanaugh dissented, arguing that plaintiffs' claims were barred by the Anti–Injunction Act and the ripeness doctrine. Id. at 16–21 (Kavanaugh, J., dissenting).

The D.C. Circuit granted the government's petition for rehearing en banc. Cohen v. United States, 599 F.3d 652 (D.C.Cir.2010). The en banc court affirmed the decision of the panel, and remanded to this Court to consider the merits of plaintiffs' APA claims. Cohen, 650 F.3d 717. Judge Kavanaugh reiterated his objections to reaching the merits of these claims, and was joined in dissent by Chief Judge Sentelle and Judge Henderson. See id. at 736–745 (Kavanaugh, J., dissenting).

On remand, Judge Urbina found that the D.C. Circuit's en banc opinion had concluded that the IRS violated the APA's procedural notice-and-comment requirements by issuing Notice 2006–50. He prospectively vacated the Notice, and remanded to the IRS for further action. In re Long–Distance Tel. Serv. Fed. Excise Tax Refund Litig., 853 F.Supp.2d 138 (D.D.C.2012).

In May 2012, plaintiffs filed a motion seeking entry of judgment in favor of all plaintiffs and an interim award of attorneys' fees of more than $6.5 million in fees and expenses, and seeking the court's permission to allow them to file an additional motion for attorneys' fees when the IRS takes further actions. Pl. Br. at 10.¹

The case was reassigned to the undersigned Judge upon Judge Urbina's retirement from the bench.

III. ANALYSISA. Final Judgment

Plaintiffs move for an entry of final judgment in favor of the Cohen, Gurrola and Sloan plaintiffs on their procedural APA claim. This Court will enter final judgment only in favor of the Sloan plaintiffs, and only on this single claim. It will enter judgment in favor of the government on all other claims and with respect to the other two cases.

“Every judgment and amended judgment must be set out in a separate document....” Fed.R.Civ.P. 58(a). A party may move for final judgment. Fed.R.Civ.P. 58(a). A court must “promptly approve the form of judgment” to be entered by the clerk. Fed.R.Civ.P. 58(b)(2)(B).

Plaintiffs initially sought an entry of judgment “in favor of Plaintiffs and against the United States with respect to Plaintiffs' claims for a procedural violation of the Administrative Procedure Act.” See Plaintiffs' [Proposed] Order [83–1]. While some...