Fry v. Melaragno

Decision Date29 July 1991
Docket NumberNo. 90-15665,90-15665
Citation939 F.2d 832
Parties-5591, 91-2 USTC P 50,527 Phillip FRY, Susan Fry, Plaintiffs-Appellees, v. Olin MELARAGNO, David W. Otto, Mark Barnes, Mark Pendery, Defendants-Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

Joan I. Oppenheimer, Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendants-appellants.

Larrie A. Carmichael, Hurricane, Utah, for plaintiffs-appellees.

Phillip Fry and Susan Fry, pro se.

Appeal from the United States District Court for the District of Arizona.

Before ALARCON and RYMER, Circuit Judges, and McDONALD, District Judge. *

RYMER, Circuit Judge:

Phillip and Susan Fry brought this action against various officials of the Internal Revenue Service (IRS), a Special Assistant United States Attorney and other persons who were not federal officials, alleging violations of constitutional rights. Three IRS attorneys and one IRS revenue agent now appeal from the district court's denial of their claim of qualified immunity. We reverse and remand with instructions to dismiss the complaint against these defendants insofar as it seeks to impose damage liability.

I

Phillip Fry is a tax accountant and an author. He has written several publications discussing methods of minimizing one's tax liabilities, 1 has appeared on television and radio programs, has testified against the current gift and estate tax structure in congressional hearings and has marketed a variety of tax shelters. In 1986, Fry was charged in a seventeen-count indictment with conspiracy to defraud the government and other tax-related offenses based on selling illegal tax shelters. Fry pled guilty to one count of conspiracy and received a five-year sentence, which the Sixth Circuit affirmed. See United States v. Fry, 831 F.2d 664 (6th Cir.1987).

While Fry was in jail, the IRS audited his and his wife Susan's income tax returns for the years 1977 to 1980. The IRS determined that the Frys owed a substantial amount of taxes and sent them notices of tax deficiencies. The Frys challenged these deficiencies in Tax Court. The Tax Court litigation was resolved adversely to Fry during the pendency of this appeal. See Fry v. Commissioner, 61 T.C.M. (CCH) 1812 (1991).

In 1989, the Frys, proceeding pro se, brought this Bivens 2 action for damages, declaratory and injunctive relief against thirteen federal defendants and two non-federal defendants claiming violations of their first, fourth and fifth amendment rights. The 74-page complaint charges that various IRS employees, revenue agents and attorneys had acted against them in retaliation for the Frys' extensive exercise of first amendment rights. 3 The federal defendants moved to dismiss the action on the grounds of improper service of process, lack of personal jurisdiction, insufficient pleading specificity, failure to state a claim and qualified immunity. The district court granted the motion in part, dismissing the action, without prejudice, as to nine of the federal defendants on grounds of improper service. 4 The court also dismissed the fifth amendment due process claims on the grounds that a Bivens action is not available when Congress has provided a comprehensive remedial scheme. With regard to the federal defendants' claim of immunity from suit, the district court held that it was "too early to resolve this issue" and that the "complaint details the manner which various defendants violated Fry's clearly established First Amendment rights and defendants obviously have not come forward with controverting evidence."

Defendants Otto, Barnes and Pendery, the IRS attorneys who represented the Commissioner of Internal Revenue in the Frys' Tax Court case, and Melaragno, an IRS revenue agent who participated in the audit and investigation of the Frys and also testified at the Tax Court trial, remained in the case. These four defendants now appeal the district court's holding that they do not enjoy immunity from suit.

II

Although an order denying a motion to dismiss is not a "final decision" as that term is ordinarily used in 28 U.S.C. Sec. 1291, the denial of a claim to qualified immunity is appealable under the collateral order doctrine recognized in Cohen v. Beneficial Industrial Loan Corporation, 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), notwithstanding the absence of a final judgment. Mitchell v. Forsyth, 472 U.S. 511, 530, 105 S.Ct. 2806, 86 L.Ed.2d 411 (1985); Todd v. United States, 849 F.2d 365, 368 (9th Cir.1988). Whether these defendants are entitled to either absolute or qualified immunity presents a legal question which we examine de novo. Todd, 849 F.2d at 368; White by White v. Pierce County, 797 F.2d 812, 814 (9th Cir.1986).

III

The government contends that the action against the four remaining defendants must be dismissed on grounds of absolute immunity. The government acknowledges that it did not make this argument in the district court, but urges us to consider the issue on appeal. As a general rule, we will not consider an issue raised for the first time on appeal, although we have the power and discretion to do so. Bolker v. Commissioner, 760 F.2d 1039, 1042 (9th Cir.1985); In re Wind Power Systems, Inc., 841 F.2d 288, 290 n. 1 (9th Cir.1988). We will exercise this discretion when the "issue presented is purely one of law and either does not depend on the factual record developed [in the district court], or the pertinent record has been fully developed." Bolker, 760 F.2d at 1042. Because the issue of whether these defendants enjoy absolute immunity is a purely legal question, which may be dispositive of some of the claims, we are satisfied that it would be appropriate to consider the issue in this case. 5

A

When considering claims of governmental immunity, "[t]he presumption is that qualified rather than absolute immunity is sufficient to protect government officials in the exercise of their duties." Burns v. Reed, --- U.S. ----, ----, 111 S.Ct. 1934, 1939, 114 L.Ed.2d 547 (1991); see also Harlow v. Fitzgerald, 457 U.S. 800, 807, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982) ("For executive officials in general ... our cases make plain that qualified immunity represents the norm"). In some instances, however, the Supreme Court has determined that certain government officials require absolute immunity from liability in order to enable them to function independently and effectively, without fear of intimidation or harassment. 6 Accordingly the Court has granted absolute immunity to "the President, judges, prosecutors, witnesses, and officials performing 'quasi-judicial' functions, and legislators." Mitchell, 472 U.S. at 520, 105 S.Ct. at 2812 (citations omitted).

The Frys' allegations against the IRS attorneys are based solely upon the attorneys' official conduct representing the government in the litigation in the Tax Court of Fry v. Commissioner. It is therefore the government's position that these attorneys fall within the class of government officials whose connection with the judicial process entitles them to absolute immunity. We agree.

We addressed the immunity of government attorneys involved in civil tax litigation in Flood v. Harrington, 532 F.2d 1248 (9th Cir.1976), a case with facts strikingly similar to those here. In that case, Dr. Flood brought suit against four federal government attorneys, one agent of the IRS and one private attorney for alleged violations of his constitutional rights. Flood had tried repeatedly to frustrate the IRS's efforts to collect his income taxes and he filed suit after the IRS sought to collect tax deficiencies assessed against him. Id. at 1249-50. The district court dismissed his action with prejudice. Id. at 1250.

On appeal, we noted that "[f]rom the pleadings it is clear that [Flood's] allegations against [the] defendants ... were based entirely upon their official conduct as attorneys for the government." Id. We then considered Imbler v. Pachtman, 424 U.S. 409, 96 S.Ct. 984, 47 L.Ed.2d 128 (1976), in which the Court held that "in initiating a prosecution and in presenting the State's case," the state prosecuting attorney is absolutely immune from a civil suit for damages under 42 U.S.C. Sec. 1983. Imbler, 424 U.S. at 430-31, 96 S.Ct. at 994-95. After concluding that the differences between a state criminal prosecution and federal civil tax litigation did not undermine the reasons justifying the application of absolute immunity, we held that "the doctrine of absolute immunity protects the defendant attorneys in this case if their allegedly improper conduct was 'intimately associated with the judicial phases' of Flood's tax litigation." Flood, 532 F.2d at 1251 (quoting Imbler, 424 U.S. at 430, 96 S.Ct. at 994). Finding this to be the case "without question," we affirmed the district court's dismissal of Flood's action. Id.

Subsequent decisions confirm the continuing vitality of Flood. Of particular significance is Butz v. Economou, 438 U.S. 478, 516-17, 98 S.Ct. 2894, 2915-16, 57 L.Ed.2d 895 (1978), in which the Supreme Court extended absolute immunity to agency officials performing adjudicatory and prosecutorial functions. In Butz, a commodities merchant sued the Secretary of Agriculture and several other officials for issuing a complaint against him without following proper procedures and causing injury to his business and reputation. Id. at 481-83, 98 S.Ct. at 2897-98. The Court analogized administrative proceedings to criminal prosecutions, reasoning that an "adjudication within a federal administrative agency shares enough of the characteristics of the judicial process that those who participate in such adjudication should also be immune from suits for damages." Id. at 512-13, 98 S.Ct. at 2914. The Court therefore held that agency officials such as an administrative law judge or federal hearing officer, officials who are responsible for the decision to initiate or continue a proceeding subject to...

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