Linchpins Liberty v. United States

• Citation: 71 F.Supp.3d 236
• Decision Date: 23 October 2014
• Docket Number: Civil Action No. 13–777 RBW
• Parties: Linchpins of Liberty, et al., Plaintiffs, v. United States, et al., Defendants.
• Court: U.S. District Court — District of Columbia

71 F.Supp.3d 236

Linchpins of Liberty, et al., Plaintiffs

v.United States, et al., Defendants.

Civil Action No. 13–777 RBW

United States District Court, District of Columbia.

Signed October 23, 2014

Julian A. Fortuna, Taylor, English, Duma, LLP, Atlanta, GA, Robert W. Ash, Virginia Beach, VA, Jay Alan Sekulow, Washington, DC, for Plaintiffs.

Grover Hartt, III, U.S. Department of Justice, Dallas, TX, Joseph A. Sergi, Laura Cindy Beckerman, U.S. Department of

Justice, Brigida Benitez, Erica Lynne Gerson, Steptoe & Johnson, LLP, Jeffrey A. Lamken, Justin V. Shur, Mololamken, LLP, Sara E. Kropf, Law Offices of Sara Kropf PLLC, Washington, DC, for Defendants.

MEMORANDUM OPINION

REGGIE B. WALTON, United States District Judge

The plaintiffs, forty-one organizations that sought or are still seeking tax-exempt status from the Internal Revenue Service (“IRS”), filed this civil action against the United States of America, the IRS, and several known and unknown IRS officials in both their official and individual capacities,¹ alleging violations of the First Amendment, the Fifth Amendment, the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 702, 706 (2012), the Internal Revenue Code, 26 U.S.C. § 6103 (2012), as well as seeking declaratory and injunctive relief, and monetary damages. See Second Amended Complaint (“Am.Compl.”) ¶¶ 13, 139–424, A–J (prayer for relief). Currently pending before the Court are the defendants' Motion to Dismiss Counts IV, V, VI, VII, IX, and Part of VIII [of the Complaint] and Supporting Statement of Points and Authorities (“Defs.' Mot.”); Defendant Carter Hull's Motion to Dismiss (“Hull Mot.”); and the Individual Management Defendants' Motion to Dismiss (“Mgmt.Mot.”).² The Court concludes for the following reasons that it must grant all of the defendants' motions to dismiss.³

I. BACKGROUND

The plaintiffs assert that they “are all organizations that applied for [26 U.S.C. § 501(c)(3) or 26 U.S.C. § 501(c)(4) ] tax-exempt status with the IRS between 2009 and 2012.” Am. Compl. ¶ 73. Altogether there are forty-one such organizations. Id. ¶¶ 15–55. At the time the plaintiffs filed their complaint, there were four categories of plaintiffs: (1) four plaintiffs that were awaiting an IRS determination of their Section 501(c)(3) tax-exempt status; (2) ten plaintiffs that were awaiting an IRS determination of their Section 501(c)(4) tax-exempt status; (3) twenty-two plaintiffs that had already received tax-exempt status;⁴ and (4) five plaintiffs that chose to forego pursuit of tax-exempt status in light of the allegations below. Id.

The plaintiffs allege that “[a]s early as February 2010, the IRS began identifying [tax-exempt] applications for additional scrutiny,” which “includ [ed] the issuance of letter requests for additional information” from organizations with “conservative-sounding names.” Id. ¶ 92 (citing Am. Compl., Exhibit (“Ex.”) 1 (May 14, 2013 Report from the Treasury Inspector General for Tax Administration (“the Report”)) at 5–6, 30); see also id. ¶¶ 94–95, 280. The plaintiffs further allege that in August 2010, IRS employees distributed a list entitled “Be On The Lookout”—otherwise known as the “BOLO” list. Id. ¶ 124. The BOLO list allegedly contained terms that would identify “organizations with conservative[-]sounding names that had applied for tax-exempt status under [Sections] 501(c)(3) or 501(c)(4),” but “no terms that would identify progressive or liberal groups.” Id. The plaintiffs assert that as of July 2011, the BOLO list “continued to focus on organizations associated with ... conservative philosophies.” Id. ¶ 170. The BOLO list “remained in place for another eighteen (18) months.”⁵ Id. ; see also id. ¶¶ 276– 77.

In support of their allegations, the plaintiffs note that on May 10, 2013, one of the named individual defendants “apologized in a speech before the American Bar Association for a pattern of misconduct whereby the IRS intentionally and systematically targeted for additional and unconstitutional scrutiny [,] conservative organizations applying for tax-exemption.”⁶ Id. ¶ 1; see also id. ¶¶ 309–10. The plaintiffs also cite the May 14, 2013 Report released by the Treasury Inspector General for Tax Administration, which stated, among other things, that the IRS had engaged in the following, “both before and during the 2012 election cycle”:

(a) targeting of tax-exempt applications for additional scrutiny and inquiry based on “inappropriate criteria”—including organizational names and policy positions;

(b) significantly delaying the processing of these applications, keeping them open over twice the length of time typically required to process tax-exempt applications; and

(c) requesting additional information from these applicants that was entirely unnecessary and irrelevant to the IRS's determination regarding the organizations' respective tax-exempt statuses.

Id. ¶ 275 (citing Ex. 1 (The Report) at 5–20).

Under this alleged “IRS scheme,” IRS officials across the country purportedly “pulled applications from conservative organizations, delayed processing those applications for sometimes well over a year, [and] then made harassing, probing, and unconstitutional requests for additional information.” Id. ¶ 2; see also id. ¶¶ 288–92. According to the plaintiffs, “[t]he IRS scheme had a dramatic impact on targeted groups, causing many to curtail lawful activities, expend considerable unnecessary funds, lose donor support, and devote countless hours of time to responding to onerous and targeted IRS information requests that were outside the scope of legitimate inquiry.” Id. ¶ 3. As a result of the aforementioned allegations, the plaintiffs “seek [ ] damages” for the implementation of the alleged IRS scheme, as well as “declaratory[ ] and injunctive relief” to “halt IRS targeting” and “strike down all unconstitutional rules, regulations, practices, and procedures that empowered the IRS's unlawful acts.” Id. ¶ 5; see also id. ¶¶ 3 11–16.

The plaintiffs filed suit on May 29, 2013, ECF No. 1, and have since amended their complaint twice, once on June 25, 2013, ECF No. 27, and again on October 18, 2013, Am. Compl. at 81. Counts one through three seek monetary damages against certain defendants in their individual capacities for carrying out the alleged IRS scheme in violation of the First and Fifth Amendments. See Am. Compl. at 61–65. Counts four through seven generally accuse the defendants of violating the APA and seek declaratory and injunctive relief. See id. at 66–75. Count eight seeks declaratory relief under 26 U.S.C. § 7428 for those plaintiffs that are awaiting determination of their Section 501(c)(3) tax-exempt status. See id. at 75–76. And through count nine, the plaintiffs seek monetary damages for violations of 26 U.S.C. § 6103, because the defendants allegedly “obtained, inspected, handled, and disclosed” the plaintiffs' tax return information “illegally.” Id. ¶ 419; see also id. at 76–78.

After the plaintiffs instituted this action, the IRS publicly released a memorandum on its website stating that the challenged IRS scheme had been suspended as of June 20, 2013. Daniel Werfel, Charting a Path Forward at the IRS: Initial Assessment and Plan of Action, at 7 (June 24, 2013), www.irs.gov/PUP/newsroom/Initial% 20Assessment% 20and% 20Plan% 20of% 20Action.pdf) (“IRS Action Plan”) (“We have suspended the use of ‘be-on-the-lookout,’ or BOLO, lists in the application process for tax exempt status.”); id. at 14 (“Specifically, the IRS has[ ] suspended the use of BOLO lists in the application process for tax[-]exempt status ....”); id. at Appendix (“App.”) C (“Memo Suspending [U]se of BOLO Lists (June 20, 2013)”); id. (“Effective immediately, the use of watch lists to identify cases or issues requiring heightened awareness is suspended until further notice ....”), and that remedial steps had been taken to address the scheme, IRS Charts a Path Forward [W]ith Immediate Actions, http://www.irs.gov/uac/Newsroom/IRS–Charts–a–Path–Forward–with–Immediate–Actions (last visited Oct. 23, 2014) (“IRS Path Forward”) (listing the completion of “recommended actions from the Treasury Inspector General for Tax Administration's ... report on IRS's tax-exempt area”).⁷ The defendants have filed several motions to dismiss, all of which are opposed by the plaintiffs.

II. STANDARDS OF REVIEW

A. Rule 12(b)(1) Motion to Dismiss

Rule 12(b)(1) allows a party to move to dismiss for “lack of subject-matter jurisdiction.” Fed.R.Civ.P. 12(b)(1). When a defendant moves to dismiss under Rule 12(b)(1), “the plaintiff [ ] bear[s] the burden of proving by a preponderance of the evidence that the Court has subject[-]matter jurisdiction.” Biton v. Palestinian Interim Self–Gov't Auth., 310 F.Supp.2d 172, 176 (D.D.C.2004) ; see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). A court considering a Rule 12(b)(1) motion must “assume the truth of all material factual allegations in the complaint and ‘construe the complaint liberally, granting [a] plaintiff the benefit of all inferences that can be derived from the facts alleged.’ ” Am. Nat'l Ins. Co. v. FDIC, 642 F.3d 1137, 1139 (D.C.Cir.2011) (quoting Thomas v. Principi, 394 F.3d 970, 972 (D.C.Cir.2005) ). But a “court must give [a] plaintiff's factual allegations closer scrutiny when resolving a Rule 12(b)(1) motion than would be required for a Rule 12(b)(6) motion for failure to state a claim.” Byrum v. Winter, 783 F.Supp.2d 117, 122 (D.D.C.2011) (citing Macharia v. United States, 334 F.3d 61, 64, 69 (D.C.Cir.2003) ). And “[a]lthough ‘the District Court may in appropriate cases dispose of a motion to dismiss for lack of subject[-]matter jurisdiction under Fed.R.Civ.P. 12(b)(1) on the complaint standing alone,’ ‘where necessary, the court may consider the complaint supplemented by undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.’ ” Coal. for Underground...