Kenner v. Kelly
| Decision Date | 02 July 2018 |
| Docket Number | Case No. 11-cv-1538 DMS (WVG) |
| Court | U.S. District Court — Southern District of California |
| Parties | BRIAN KENNER and KATHLEEN KENNER, Plaintiffs, v. ERIN KELLY et al., Defendants. |
Pending before the Court is Defendant United States of America's motion to dismiss Plaintiffs Brian and Kathleen Kenner's Second Amended Complaint ("SAC") pursuant to Federal Rule of Civil Procedure 12(b)(1) & (6). Plaintiffs filed an opposition, and Defendant filed a reply. For the following reasons, the Court grants Defendant's motion to dismiss.
On October 8, 2010, Plaintiffs filed their first lawsuit against individual Internal Revenue Service employees ("IRS Defendants"), as well as Barbara Dunn and Lacey, Dunn & Do ("Dunn Defendants"). (See Kenner v. Kelly, 10-cv-2105 AJB (WVG).) Barbara Dunn is an attorney who formerly represented several defendants in another prior lawsuit where Plaintiffs sued their tax professionals, and Lacey, Dunn & Do is the law firm where Dunn is employed. The underlying facts of that case arose out of collection activities undertaken by the IRS to satisfy unpaid federal taxes. The Complaint alleged Defendants engaged in four distinct "criminal episodes" encompassing six different predicate acts under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. Specifically, Plaintiffs alleged the IRS Defendants engaged in unauthorized collection actions, and the Dunn Defendants conspired with the IRS Defendants, in violation of RICO. On May 27, 2011, Judge Anthony J. Battaglia granted Defendants' motions to dismiss with prejudice. On June 21, 2011, Plaintiffs filed a notice of appeal, challenging the order granting the motions to dismiss.
On July 12, 2011, Plaintiffs filed the present action against the same IRS Defendants and the Dunn Defendants, alleging essentially identical claims for relief.1 The underlying facts of this case arose from the same events as the first action. The Complaint alleged Defendants engaged in four distinct "criminal episodes" encompassing 59 different predicate acts under RICO. Because the claims in this action were nearly identical to those in the first action, Judge Battaglia stayed the case pending resolution of appeal in the first action.2
On October 14, 2011, while the appeal was pending in the first action, Plaintiffs filed a third action in the San Diego County Superior Court against the same IRS Defendants, Capital One, and Judge Battaglia and Judge Barry Ted Moskowitz ("judicial Defendants"). (See Kenner v. Kelly, 11-cv-2520 BEN (BGS).) In the Complaint, Plaintiffs alleged the judicial Defendants .) The United States and the IRS Defendants removed the action on October 31, 2011. On January 13, 2012, Judge Roger T. Benitez granted the United States' motion to substitute party, dismissing the IRS Defendants and substituting the United States as a proper party defendant. Subsequently, Judge Benitez granted the United States' motion to dismiss for lack of subject matter jurisdiction and failure to state a claim. Plaintiff filed a notice of appeal on July 20, 2012.
On April 25, 2012, Plaintiffs filed a fourth lawsuit against the United States, Eric Holder, and Tim Geithner. (See Kenner v. Holder, 12-cv-1011 MMA (WVG).) The underlying facts of that case also arose from the same events as the other lawsuits. The Complaint alleged "Defendants' agents engaged in a 'pattern of racketeering' (RICO) to confiscate our property during an 'offer in compromise' negotiation with the IRS." (Id., ECF No. 1.) On December 19, 2012, Judge Michael M. Anello granted Defendants' motion to dismiss for lack of subject matter jurisdiction. Plaintiffs subsequently filed a notice of appeal on December 28, 2012.
On October 17, 2013, the Ninth Circuit affirmed the dismissal of the first action. This Court then issued an order further staying this action pending appeal in the third and fourth actions. The Ninth Circuit subsequently affirmed the dismissals on June 16, 2017 and June 16, 2015, respectively. Because the appeal proceedings that gave rise to the stay of the instant action have concluded, the Court vacated the stay. On February 14, 2018, Plaintiffs filed a FAC substituting the United States as a defendant in lieu of the IRS Defendants and removing Fireman's Fund Insurance Company as a defendant. The United States and Dunn Defendants both filed motions to dismiss the FAC. On April 10, 2018, the Court granted the Dunn Defendants' motion to dismiss with prejudice and the United States' motion to dismiss without prejudice. Thereafter, Plaintiffs filed a SAC against the United States (hereafter "Defendant"), arguing they are entitled to damages under § 7433because Defendant violated the following statutes and/or regulations: (1) 26 U.S.C. § 6331(k)(1), (2) 26 U.S.C. § 7214(a), (3) 26 U.S.C. § 301.7122(b)(3), and (4) 26 U.S.C. § 7435. Defendant filed the present motion to dismiss the SAC for lack of subject matter jurisdiction and failure to state a claim.
On July 7, 2009, the IRS filed a Notice of Tax Lien against Plaintiffs. (SAC ¶ 11.) The allegations in the SAC arise from the IRS's collection efforts regarding Plaintiffs' federal tax liabilities. In July 2009, Plaintiffs settled a lawsuit with their prior tax professionals and expected to receive settlement funds of approximately $250,000. (SAC ¶ 9.) Rick Edson represented them in this prior lawsuit. (Id. ¶ 30.) Plaintiffs allege Defendant unlawfully obtained a portion of the settlement funds in the amount of $137,069.98 while an Offer in Compromise ("OIC") was pending. (Id. ¶¶ 21, 59c.) Specifically, Plaintiffs claim Defendant influenced Mr. Edson and opposing counsel in the prior lawsuit to disburse the settlement check to Defendant when it should have been delivered to them. (Id. ¶¶ 22, 30, 34, 41, 59a & b.)
Pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, a party may move to dismiss based on the court's lack of subject matter jurisdiction. See Fed. R. Civ. P. 12(b)(1). A plaintiff has the burden to establish that subject matter jurisdiction is proper. Kokkonen v. Guardian Life Ins., Co., 511 U.S. 375, 377 (1994). Under Rule 12(b)(1), a jurisdictional attack may either be "facial" or "factual." White v. Lee, 227 F.3d 1213, 1242 (9th Cir. 2000). When a defendant challenges jurisdiction "facially," as they do here, all material allegations in the complaint are assumed to be true, and the question for the court is whether the lack of federal jurisdiction appears from the face of the pleading itself. Thornhill Publ'g Co. v. Gen. Tel. Elec., 594 F.2d 730, 733 (9th Cir. 1979); Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977). In a factual attack, the"defendant disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction." Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). A challenge for lack of subject matter jurisdiction may be raised at any time by either party or sua sponte by the court. Fleming v. Gordon & Wong Law Group, P.C., 723 F. Supp. 2d 1219, 1222 (N.D. Cal. 2010) (citing Olson Farms, Inc. v. Barbosa, 134 F.3d 933, 937 (9th Cir. 1998)).
A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims asserted in the complaint. See Fed. R. Civ. P. 12(b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). In deciding a motion to dismiss, all material factual allegations of the complaint are accepted as true, as well as all reasonable inferences to be drawn from them. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 338 (9th Cir. 1996). A court, however, need not accept all conclusory allegations as true. Rather, it must "examine whether conclusory allegations follow from the description of facts as alleged by the plaintiff." Holden v. Hagopian, 978 F.2d 1115, 1121 (9th Cir. 1992) (citation omitted); see Benson v. Ariz. State Bd. of Dental Exam'rs, 673 F.2d 272, 275-76 (9th Cir. 1982) (). A motion to dismiss should be granted if a plaintiff's complaint fails to contain "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).
Defendant moves to dismiss Plaintiff's § 7433 claim for failure to state a claim pursuant to Rule 12(b)(6) and for lack of subject matter jurisdiction pursuant to Rule 12(b)(1). A taxpayer may bring suit against the United States for civil damages inrelation to collection efforts of federal tax liabilities. 26 U.S.C. § 7433(a). "Section 7433 creates a private right of action only for tax collection activity that violates some provision of the Revenue Code or the regulations promulgated thereunder." Shwarz v. United States, 234 F.3d 428, 433-34 (9th Cir. 2000) (citing 26 U.S.C. § 7433(a)). Accordingly, to state a claim under § 7433, "a plaintiff must allege that the IRS violated an Internal Revenue Code provision or a Treasury Regulations." Scharringhausen v. United States, 686 F. Supp. 2d 1069, 1073 (S.D. Cal. 2009) (citing Shwarz, 234 F.3d at 433-34). Here, Plaintiffs seek damages under § 7433, arguing Defendant violated § 6331(k)(1), § 7214(a), § 301.7122(b)(3), and § 7435.
Plaintiffs allege Defendant violated § 6331(k)(1) when it "unlawfully obtained settlement funds in the amount of...
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