Harper v. Rettig

Decision Date23 March 2021
Docket NumberCivil No. 20-cv-771-JD
Citation2021 DNH 056
PartiesJames Harper v. Charles P. Rettig, in his official capacity as Commissioner of the Internal Revenue Service, et al.
CourtU.S. District Court — District of New Hampshire
ORDER

James Harper brought this civil rights suit against Commissioner Charles Rettig, the IRS, and various unknown officers of the IRS (John Does 1 through 10) (collectively, "the government"). Harper alleges that the government violated the Fourth Amendment, Fifth Amendment, and 26 U.S.C. § 7609(f) by obtaining records of his financial transactions from third parties. The government moves to dismiss (doc. no. 12) Harper's suit for lack of jurisdiction under Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6). Harper objects.

Standard of Review

When resolving a challenge to the court's subject-matter jurisdiction under Rule 12(b)(1) or determining whether a claim upon which relief can be granted has been stated under Rule 12(b)(6), the court construes the allegations in the complaint liberally, treats all well-pleaded facts as true, and resolves inferences in the plaintiff's favor. Jalbert v. U.S. Securities & Exchange Comm'n, 945 F.3d 587, 590-91 (1st Cir. 2019); Hamann v. Carpenter, 937 F.3d 86, 88 (1st Cir. 2019). The court, however, disregards conclusory allegations that simply parrot the applicable legal standard. Manning v. Boston Med. Ctr. Corp., 725 F.3d 34, 43 (1st Cir. 2013).

When addressing subject-matter jurisdiction, in addition to the complaint, the court may consider other evidence submitted by the parties without objection. Hajdusek v. United States, 895 F.3d 146, 148 (1st Cir. 2018). The plaintiff, as the party invoking federal jurisdiction, bears the burden of showing that subject matter jurisdiction exists when challenged. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992).

Background

In 2013, Harper opened an account with "Coinbase," an entity that "facilitates transactions in virtual currencies such as bitcoin." Doc. 3 ¶ 18. Coinbase provided terms of agreement alongside its account, stating, in relevant part, that "Coinbase takes reasonable precautions, as described herein, to protectyour personal information from loss, misuse, unauthorized access, disclosure, alteration, and destruction." Id. ¶ 25.

In 2013 and 2014, Harper deposited bitcoin into his Coinbase account. Harper primarily received the bitcoin as income from consulting work. Harper alleges that he declared the transactions on his 2013 and 2014 tax returns and states that he declared all "appropriate income from bitcoin payments," including capital gains tax. Id. ¶¶ 30-33. Harper states that he also paid "appropriate capital gains on any bitcoin income for tax years 2015 and 2016." Id. ¶ 37. In 2015, Harper liquidated his holdings in the Coinbase account and by 2016 Harper no longer held any bitcoin in the Coinbase account. Harper also held bitcoin in accounts with "Abra" and "Uphold". Harper and his wife liquidated those accounts from 2016 through the date of the Amended Complaint (August 2020).

In 2016, the IRS sought to enforce an ex parte third-party "John Doe" administrative summons under 26 U.S.C. §§ 7602,17609(f),2 and 7609(h)(2) against Coinbase in the Northern District of California. Coinbase opposed enforcement of the summons. Ultimately, the court ordered Coinbase to comply with a narrowed version of the summons. United States v. Coinbase, Inc., 2017 WL 5890052, at *1 (N.D. Cal. Nov. 28, 2017) (finding that the narrowed IRS summons "serves the IRS's legitimatepurpose of investigating Coinbase account holders who may not have paid federal taxes on their virtual currency profits").

In 2019, the IRS sent Harper a letter entitled "Reporting Virtual Currency Transactions." Doc. 3 ¶ 67; see also doc. 3-6 at 1. As relevant, the IRS's letter told Harper the following:

We have information that you have or had one or more accounts containing virtual currency but may not have properly reported your transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies.

Doc. 3 ¶ 68; see also doc. 3-6 at 1. The IRS stated that if Harper had failed to properly report his "virtual currency transactions" then he "may be subject to future civil and criminal enforcement activity." Doc. 3 ¶ 69; see also doc. 3-6 at 1. Additionally, upon Harper's "information and belief," John Does 1 through 10 "issued an informal demand" to Abra and Coinbase for Harper's financial records. Harper believes that Abra or Coinbase complied with that demand.

Harper's Amended Complaint contains three counts: (I) violation of the Fourth Amendment; (II) violation of the Fifth Amendment; and (III) declaratory judgment/violation of 26 U.S.C. § 7609(f). As relief for the alleged violations of law stated in Counts I and II, Harper requests money damages from the defendants, as well as injunctive and declaratory relief. Specifically, Harper requests an order declaring § 7602, etseq., unconstitutional as applied to him under the Fourth and Fifth Amendments, requiring the IRS to expunge Harper's financial records, and prohibiting the IRS and John Does 1 through 10 from seizing financial records from "virtual currency exchanges" under § 7602, et seq., in the future.

In Count III, Harper requests a declaratory judgment that the IRS is violating § 7609(f) and, like Counts I and II, requiring the IRS to expunge his financial records and prohibiting the IRS and John Does 1 through 10 from seizing similar financial records through § 7609(f) in the future. Commissioner Rettig is sued in his official capacity, while John Does 1 through 10 are sued in their personal capacities.

Discussion

The government moves to dismiss Harper's suit for lack of jurisdiction and for failure to state a claim upon which relief can be granted. Harper objects to dismissal. The government filed a reply.

A. Jurisdiction (Sovereign Immunity)

The government argues that, while Harper's suit is nominally against Commissioner Rettig and unidentified "John Doe" IRS officers, the suit is, in function, a suit against theUnited States, so that the United States's sovereign immunity bars the suit. Harper does not contest that his claims against the IRS and Commissioner Rettig are functionally against the United States, but he argues that the Administrative Procedure Act ("APA") waives sovereign immunity to the extent he requests declaratory or injunctive relief. Harper also suggests that Bivens v. Six Unknown Named Agents of the Federal Bureau of Narcotics, 403 U.S. 388 (1971), provides an exception to the United States's sovereign immunity for claims for money damages. In its reply, the government argues that the APA does not waive the United States's sovereign immunity because, 1) another statute - the Anti-Injunction Act, 26 U.S.C. § 7421 - precludes judicial review; 2) the APA does not waive sovereign immunity if another statute that grants consent to suit expressly or implicitly forbids the relief sought; and 3) the agency action complained of by Harper has another adequate court remedy.

"It is elementary that the United States, as sovereign, is immune from suit save as it consents to be sued, and the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit." United States v. Mitchell, 445 U.S. 535, 538 (1980) (alterations and quotation marks omitted). The burden is on Harper to establish that a waiver ofsovereign immunity is applicable here. In re Rivera Torres, 432 F.3d 20, 23 (1st Cir. 2005).

1. Counts I and II (Relief in Form of Money Damages)

In Counts I and II, in part, Harper appears to request money damages from the IRS and Commissioner Rettig, who was sued only in his official capacity. Contrary to Harper's apparent contention in his objection to the motion to dismiss, Bivens does not provide an exception to sovereign immunity for suits against the United States or official-capacity defendants for money damages. Tapia-Tapia v. Potter, 322 F.3d 742, 746 (1st Cir. 2003) ("[T]he government's sovereign immunity does not vanish simply because government officials may be personally liable for unconstitutional acts."). Harper asserts no other basis for his argument that the United States has waived its sovereign immunity for his claims for money damages brought against the IRS or Commissioner Rettig. Therefore, Counts I and II are dismissed to the extent Harper seeks money damages from the IRS or Commissioner Rettig. See id.

2. Count I, II, and III (Relief in Form of Injunctions & Declaratory Judgments)

Harper also requests that the court declare § 7602, et seq., unconstitutional as applied to him and order CommissionerRettig, the IRS, and John Does 1 through 10 to expunge any financial records they obtained about Harper's cryptocurrency transactions via § 7602, et seq., and enjoin John Does 1 through 10 from violating the Fourth Amendment, Fifth Amendment, and § 7609(f) in the future. In its motion to dismiss, the government contends that these requests for relief are barred by the United States's sovereign immunity and the Anti-Injunction Act. Harper objects, arguing that the APA waives the United States's sovereign immunity and that the Anti-Injunction Act does not prohibit the injunctive and declaratory relief he seeks in this case.

"The APA generally waives the Federal Government's immunity from a suit 'seeking relief other than money damages and stating a claim that an agency or an officer or employee thereof acted or failed to act in an official capacity or under color of legal authority.'" Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians v. Patchak, 567 U.S. 209, 215 (2012) (quoting 5 U.S.C. § 702). That waiver, however, contains two exceptions: (1) if another limitation on judicial review requires the court to deny relief; or (2) "if any other statute that grants consent to suit...

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