Glauber Valve Co., Inc. v. United States

• Decision Date: 07 January 1982
• Docket Number: No. J-C-81-26.,J-C-81-26.
• Citation: 536 F. Supp. 68
• Parties: GLAUBER VALVE COMPANY, INC., Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Arkansas

536 F. Supp. 68

GLAUBER VALVE COMPANY, INC., Plaintiff, v. UNITED STATES of America, Defendant.

No. J-C-81-26.

United States District Court, E. D. Arkansas, Jonesboro Division.

January 7, 1982.

C. W. Knauts, Piggott, Ark., for plaintiff.

Lawrence Sherlock, Tax Div., Dept. of Justice, Washington, D. C., for defendant.

MEMORANDUM AND ORDER

EISELE, Chief Judge.

Pending before the Court is the motion of the defendant, United States of America, to dismiss. Plaintiff, a Nebraska corporation with its principal place of business in Piggott, Arkansas, filed this lawsuit on March 3, 1981, asking the Court to grant a preliminary injunction and to declare that the defendant had accepted its "offer of compromise" for unpaid taxes. Plaintiff has failed to pay its 1979 F.I.C.A. and F.U.T.A. taxes for which it was liable as an employer.

On December 17, 1980, the plaintiff sent to the Commissioner of Internal Revenue a proposed compromise to settle its $114,931.86 tax liability. The terms of that offer provided that $14,931.86 was to be paid immediately to cover the plaintiff's liability for the period ending December 31, 1979. $10,000.00 was to be paid as a down payment on the remainder of the tax period, with the balance to be paid by 60 monthly payments of $1,500.00. Submitted along with the offer were checks for $14,931.86 and $10,000.00. The checks were submitted by Commercial Technology, Inc. of Dallas, Texas, on the plaintiff's behalf. A letter from Mort Zimmerman, chairman of the board and president of Commercial Technology, accompanied the offer and detailed its provisions.

The two checks were endorsed and deposited by the defendant. On the back of the $14,931.86 check was printed: "Endorsement of this check indicates acceptance of offer and compromise by and between Glauber Valve Co. and the Internal Revenue Service." On the back of the $10,000.00 check was printed: "Endorsement of this check by Internal Revenue Service is pursuant to letter dated December 17, 1980 from Commercial Technology, Inc."

On December 22, 1980, Mr. Joe Woolsley, a revenue officer for the I.R.S., acknowledged receipt of the $14,931.86 check by a letter to Mr. Zimmerman. He stated that the money would be applied to the period ending December 31, 1979, and that "the federal tax lien will be released after 60 days or you may submit a copy of the cancelled check and we will release the lien immediately."

On February 18, 1981, the I.R.S. notified Commercial Technology by letter that the offer in compromise could not be accepted. On February 19, 1981, the I.R.S. served a levy on Prier Brass Company, Inc., to collect whatever money it might owe to the plaintiff. Prior to this time the plaintiff had transferred its equipment to Comtec Glauber Management Company, Inc., in satisfaction of certain debts. They in turn had transferred the equipment previously owned by the plaintiff to Prier Brass Company, Inc. According to the plaintiff's response to the motion to dismiss, the I.R.S. also served notices of levy on Comtec and Commercial Technology on March 17, 1981.

On March 9, 1981, Commercial Technology forwarded a check for $1,500.00 to the I.R.S. On the back of the check was typed: "Endorsement hereof by I.R.S. is in accordance with agreement of offer in compromise by and between Glauber Valve Co. Inc. and Internal Revenue Service originally accepted by I.R.S. on January 6, 1981¹ and constitutes 1st of 60 payments to be made." The check was endorsed and deposited. According to its response to the motion to dismiss, the plaintiff has continued to make the monthly payments of $1,500.00.

For two independent reasons, the United States' motion to dismiss is granted. First, there is no basis for subject matter jurisdiction. It is fundamental that the United States is immune from suit unless it specifically waives that immunity. Affiliated Ute Citizens of Utah, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972). Hence, before the merits of the claim can be considered, there must be statutory authority establishing that the sovereign has consented to be sued and conferring subject matter jurisdiction on the district court. United States v. Shaw, 309 U.S. 495, 60 S.Ct. 659, 84 L.Ed. 888 (1940).

The plaintiff's complaint advances three jurisdictional grounds. Initially, it is asserted that this case is one arising under the laws of the United States pursuant to the jurisdictional grant of 28 U.S.C. § 1331. As pointed out by the defendant, that statute is only a general grant of jurisdiction and does not purport to authorize suit against the United States without a specific waiver of its sovereign immunity.

Second, the plaintiff relies on 28 U.S.C. § 1346(a)(1) which provides in relevant part:

The district courts shall have original jurisdiction ... of: any civil action against the United States for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal revenue laws.

The defendant argues that the complaint asks for injunctive and declaratory relief and does not seek the "recovery" of an illegally assessed or collected tax — the jurisdictional basis for § 1346(a)(1). The plaintiff, without citing any authority, responds that the levies against the three corporations constitute illegal assessments. In addition, the plaintiff asserts that it is, in effect, seeking a refund by asking for a preliminary injunction which would allow time to file a claim for credit.

The Court is convinced that the plaintiff's complaint cannot reasonably be characterized as a suit for a refund. There is no contention that the tax has in fact been paid, much less that a claim for a refund has been filed with the I.R.S. In its complaint the plaintiff asks the Court for an injunction. As a jurisdictional matter, this Court cannot look beyond the pleadings to construe the plaintiff's complaint as eventually seeking a refund.

Regardless of how plaintiff's complaint is construed, the jurisdictional requirements of § 1346(a)(1) have not been met. It is fundamental that where the United States has waived its immunity, such as in § 1346(a)(1), no suit can be maintained without exact compliance with the terms of the statute. Childers v. United States, 442 F.2d 1299 (5th Cir. 1971); Bruno v. United States, 547 F.2d 71 (8th Cir. 1976) (no action could be maintained under § 1346(a)(1) without payment of the tax). The Supreme Court has held that the district courts do not have jurisdiction of an action by a taxpayer under this section, unless and until he has paid the full amount of the tax assessment. Flora v. United States, 357 U.S. 63, 78 S.Ct. 1079, 2 L.Ed.2d 1165 (1958), aff'd on rehearing, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960). Thus, even assuming that the plaintiff is seeking a refund, his failure to pay the full amount of the deficiency would preclude this suit. See also, Boynton v. United States, 566 F.2d 50 (9th Cir. 1977). As to the levies on the three corporations, the Court doubts whether the plaintiff can assert the rights of third parties in a suit to enjoin the United States from collecting a tax. In any event, the plaintiff has failed to establish that it has paid the balance of the deficiency remaining after the alleged wrongful levies. This again precludes jurisdiction. See Church of Scientology of Colorado v. United States, 499 F.Supp. 1085 (D.Col.1980) (a § 1346 suit could not be maintained under a theory of a wrongful levy on the taxpayer's own bank account, where the taxpayer had not paid the balance of the tax due).

As a third ground the plaintiff asserts the inherent equity jurisdiction of this Court. While this Court has broad equitable powers, it cannot create jurisdiction in a suit against the United States where no statutory basis exists.

A second independent basis for granting the government's motion to dismiss is found in 26 U.S.C. § 7421, the "Anti-Injunction Act." That statute provides in pertinent part that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed." In Enochs v. Williams Packing Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962), the Supreme Court held that § 7421 barred a suit by an employer who sought to enjoin the collection of F.I.C.A. and F.U.T.A. taxes which it alleged it did not owe. To escape the bar of § 7421(a), the Court ruled that the plaintiff had to establish: (1) an independent basis for equity jurisdiction, i.e., irreparable harm and the absence of an adequate remedy at law; and (2) that under "no circumstances could the government ultimately prevail." 370 U.S. at 7, 82 S.Ct. at 1129.

The plaintiff has not established the absence of an adequate remedy at law, and thus there is no independent basis for equitable jurisdiction. Plaintiff's position is that it does not owe the full amount of the tax because the government has accepted its offer of compromise. Rather than seek injunctive relief, the plaintiff could pay the deficiency and seek a refund through 28 U.S.C. § 1346(a)(1).² The Supreme Court has held that the refund procedure provides an adequate remedy at law, thus invoking the jurisdictional bar of § 7421(a). Bob Jones University v. Simon, 416 U.S. 725, 94 S.Ct. 2038, 40 L.Ed.2d 496 (1974). This is consistent with the "manifest purpose of § 7421(a) which is to permit the United States to assess and collect taxes alleged to be due without judicial intervention, and to require that the legal right to the disputed sums be determined in a suit for refund." Enochs, supra, 370 U.S. at 7, 82 S.Ct. at 1129. See also, Thrower v. Miller, 440 F.2d 1186, 1187 (9th Cir. 1971); Bauer v. Foley, 404 F.2d 1215, 1220-1 (2d Cir. 1968).

The plaintiff...