Dagostine v. Pendleton

• Decision Date: 15 November 2022
• Docket Number: Civil Action 2:22-cv-00220
• Parties: TIMOTHY DAGOSTINE, et al., Plaintiffs, v. MARK PENDLETON, et al., Defendants.
• Court: U.S. District Court — Southern District of West Virginia

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TIMOTHY DAGOSTINE, et al., Plaintiffs, v. MARK PENDLETON, et al., Defendants.

Civil Action No. 2:22-cv-00220

United States District Court, S.D. West Virginia, Charleston Division

November 15, 2022

MEMORANDUM OPINION AND ORDER

THOMAS E. JOHNSTON, CHIEF JUDGE

Pending before the Court are Defendants Steven Robey and Mark Pendleton's Motion to Dismiss Plaintiffs' Amended Complaint (ECF No. 19), and Defendant Baker Tilly US LLP's Motion to Dismiss Plaintiff's Amended Complaint (ECF No. 21). Also pending is Plaintiffs' Motion for Leave to File Second Amended Complaint (ECF No. 25). This Court is unable to rule on the respective motions, however because it lacks subject-matter jurisdiction to hear the case. For the reasons more fully explained below, this case is DISMISSED.

I. BACKGROUND

This matter arises out of Timothy and Ramona Dagostine's (collectively “Plaintiffs”) failure to pay their taxes. In November, 2015, the Plaintiffs and Internal Revenue Service (“IRS”) entered into a taxpayer repayment agreement (“the Agreement”) to repay back taxes. (ECF No. 6 at 1-2, ¶ 2.) The Agreement required the Plaintiffs to, among other things, provide the IRS with updated financial information upon request. (Id. at 7-8, ¶ 20.) The IRS reserved the right to cancel the Agreement if it determined the Plaintiffs' ability to pay was in jeopardy. (ECF No. 20 at 1.)

Plaintiffs hired Defendant Arnett Carbis Toothman, LLP (“ACT”), a certified public accountant (“CPA”) firm, to help them maintain the Agreement. (ECF No. 6 at 7, ¶ 18.) Plaintiffs allege they “contract[ed], in exchange for a fee,” with Defendant ACT, and two CPAs, Defendant Mark Pendleton and his supervisor, Defendant Steven Robey, provided the needed services. (Id. at 7, ¶¶ 18-19.) Specifically, Plaintiffs allege these Defendants contractually agreed to “timely provide[] . . . the IRS” with updated financial information when the IRS so requested. (Id. at 7-8, ¶ 20.)

In November, 2017, the IRS requested updated financial information from the Plaintiffs. (Id. at 8, ¶ 23.) For one reason or another, the IRS never received the requested information. Plaintiffs allege they supplied the information to Defendant Pendleton, who then assured them he submitted it to the IRS. (Id. at 8, ¶ 23.) But, in April, 2018, the IRS notified the Plaintiffs that the IRS never received their updated financial information (Id. at 9, ¶ 26.) The IRS then terminated the Agreement. (Id.)

On May 9, 2022, Plaintiffs filed suit in this Court against Defendants Pendleton and Baker Tilley US, LLP, who they claim is a successor in interest to Defendant ACT. (ECF No. 1.) Plaintiffs' sole theory of liability is breach of contract. (Id.) Then, on June 28, 2022, Plaintiffs amended their complaint to include Defendants ACT and Robey. (ECF No. 6). The Amended Complaint is therefore the operative pleading.^[1] Plaintiffs allege this Court has jurisdiction pursuant to 28 U.S.C. § 1331 because their statelaw claim for breach of contract presents “significant federal issues” that “predominate[] over state law.” (ECF No. 6 at 1-2, ¶ 2.) For the reasons explained below, this is incorrect. The Plaintiffs have failed to prove this Court has subject-matter jurisdiction, and the case must be dismissed.

II. DISCUSSION

A. Applicable Law

Federal courts-including this Court-are courts of limited jurisdiction. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). That is, “[t]hey possess only that power authorized by Constitution and statute.” Id. Federal courts therefore presume “that a case lies outside its limited jurisdiction unless and until jurisdiction has been shown to be proper.” United States v. Poole, 531 F.3d 263, 274 (4th Cir. 2008) (emphasis in original); see also Turner v. Bank of N. Am., 4 U.S. (4 Dall.) 8, 10 (1799). Jurisdiction is vested in the courts by Congress, Kontrick v. Ryan, 540 U.S. 443, 452 (2004), and it cannot “be expanded by judicial decree.” Kokkonen, 511 U.S. at 377 (citing Am. Fire & Cas. Co. v. Finn, 341 U.S. 6 (1951)).

Courts must have two separate and distinct kinds of jurisdiction in each case. Lightfoot v. Cendant Mortg. Corp., 580 U.S. 82, 95 (2017). The first, personal jurisdiction, limits the courts' power over the parties. See Ford Motor Co. v. Mont. Eighth Jud. Dist. Ct., 141 S.Ct. 1017 (2021). The second, subject-matter jurisdiction, “defines . . . court[s'] authority to hear a given type of case.” United States v. Morton, 467 U.S. 822, 828 (1984). Put differently, subject matter jurisdiction is “a restriction on federal power,” Constantine v. Rectors & Visitors of George Mason Univ., 411 F.3d 474, 480 (4th Cir. 2005), that “serve[s] institutional interests” Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583 (1999), by limiting the types of cases federal courts may hear. Importantly, the party asserting jurisdiction carries “[t]he burden of proving subject matter jurisdiction.” Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). If the proponent of jurisdiction fails to carry their burden, causing a want of subject-matter jurisdiction, the case must be dismissed. Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006).

Because subject matter jurisdiction is a “bedrock” requirement, Marathon Oil Co., 526 U.S. at 583, of this Court's “power to hear . . . case[s],” Arbaugh, 546 U.S. at 514, it has several unique characteristics. First, it is not waivable. United States v. Cotton, 535 U.S. 625, 630 (2002). Second, “objection that a federal court lacks subject-matter jurisdiction . . . may be raised . . . at any stage in the litigation.” Arbaugh, 546 U.S. at 506 (internal citations omitted). Third, courts must raise the jurisdictional issue sua sponte because they “have an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party.” Id. at 514; see also Marathon Oil Co., 526 U.S. at 583 (“[S]ubject-matter delineations must be policed by the courts on their own initiative even at the highest level.”).

Plaintiffs seeking access to the federal courts have two ways of proving subject-matter jurisdiction. The first is through diversity jurisdiction. See 28 U.S.C. § 1332. Diversity jurisdiction exists when: (1) the case is “between . . . citizens of different States” and (2) the amount “in controversy exceeds the sum or value of $75,000, exclusive of interest and costs.” § 1332(a). Importantly, § 1332's residency requirement demands complete diversity of the parties, meaning “each defendant is a citizen of a different State from each plaintiff.” Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365 (1978) (emphasis in original). Otherwise, there is no diversity jurisdiction. See id.

The second means of accessing federal courts is through federal question jurisdiction. See 28 U.S.C. § 1331. Federal question jurisdiction confers subject-matter jurisdiction on courts when any claim “aris[es] under the Constitution, laws, or treaties of the United States.” Id. There are two ways a case may “aris[e] under” federal law. W.Va. State Univ. Bd. Of Governors v. Dow Chem. Co., 23 F.4th 288, 307 (4th Cir. 2022). Typically, this is done by asserting a federal cause of action. Id. (citing Am. Wells Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260 (1916) (“A suit arises under the law that creates the cause of action.”)). Alternatively, litigants may, in a “special and small category” of cases, Empire Healthchoice Assurance, Inc., v. McVeigh, 547 U.S. 677, 699 (2006), trigger federal question jurisdiction by showing that their state-law claim “necessarily depends on resolution of a substantial questions of federal law.” Mayor & City Council of Balt. v. BP P.L.C., 31 F.4th 178, 208 (4th Cir. 2022) (quoting Burrell v. Bayer Corp., 918 F.3d 372, 380 (4th Cir. 2019)).

This latter category of arising-under cases, known as the “substantial federal question” doctrine, Old Dominion Elec. Coop. v. PJM Interconnection, LLC, 24 F.4th 271, 280 (4th Cir. 2022), has at times been called an “unruly doctrine” because it “outlin[es] the contours” of federal question jurisdiction.^[2]Gunn v. Minton, 568 U.S. 251, 258 (2013); see also Textile Workers Union of Am. v. Lincoln Mills of Ala., 353 U.S. 448, 470 (1957) (Frankfurter, J., dissenting)) (referring to the substantial federal question doctrine as a “litigation provoking problem”). Fortunately, the Supreme Court has shed light on the matter, better illuminating § 1331's boundaries, by “establish[ing] a four-prong test for determining the existence of federal-question jurisdiction.” BP P.L.C., 31 F.4th at 209 (citing Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 314 (2005)). Litigants wishing to invoke federal question jurisdiction for their state-law claims must show that “a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.” Gunn, 568 U.S. at 258. Federal question jurisdiction exists “only if a case meets all four requirements.” Pressl v. Appalachian Power Co., 842 F.3d 299, 303 (4th Cir. 2016) (citing Gunn, 568 U.S. at 258).

B. Analysis

With these principles in mind, the Court now looks to whether the Plaintiffs have established this Court's subject-matter jurisdiction. Plaintiffs allege this Court has federal question jurisdiction under § 1331 because their “state law claims implicate significant federal issues in that [their] state law claims turn on substantial questions of federal law.”^[3](ECF No. 6 at 1-2, ¶ 2.) Plaintiffs then cite numerus provisions of federal tax law and regulations,^[4] claiming their state law claims “turn on the application and interpretation” of these federal laws “that must be resolved...