Long-Distance Tel. Serv. Fed. Excise Tax Refund Litigation-Mdl 1798 v. United States

• Decision Date: 02 July 2014
• Docket Number: Nos. MDL 1798,12–5380.,s. MDL 1798
• Citation: 751 F.3d 629
• Parties: In re LONG–DISTANCE TELEPHONE SERVICE FEDERAL EXCISE TAX REFUND LITIGATION–MDL 1798, Oscar Gurrola, et al., Appellants Anthony Belloni, Appellee Rosalva Gurrola and Bernadette Carol Duffy, Appellants v. United States of America, Acting by and Through the Internal Revenue Service, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

751 F.3d 629

In re LONG–DISTANCE TELEPHONE SERVICE FEDERAL EXCISE TAX REFUND LITIGATION–MDL 1798,Oscar Gurrola, et al., AppellantsAnthony Belloni, AppelleeRosalva Gurrola and Bernadette Carol Duffy, Appellants

v.United States of America, Acting by and Through the Internal Revenue Service, et al., Appellees.

Nos. MDL 1798, 12–5380.

United States Court of Appeals, District of Columbia Circuit.

Argued Feb. 21, 2014.

Decided May 9, 2014.

Rehearing En Banc Denied July 2, 2014.

Appeal from the United States District Court for the District of Columbia (No. 1:07–mc–00014).

Michael A. Bowen argued the cause for appellants Neiland Cohen, et al. Benjamin F. Johns argued the cause for appellants Oscar Gurrola, et al. With them on the briefs were Jonathan W. Cuneo, Robert J. Cynkar, William H. Anderson, Nicholas E. Chimicles, Marc B. Dorfman, Mark C. Rifkin, Henry D. Levine, Charles Tiefer, and Randy J. Hart.

Ellen P. DelSole, Attorney, U.S. Department of Justice, argued the cause for appellee United States of America. With her on the brief were Tamara W. Ashford, Principal Deputy Assistant Attorney General, Ronald C. Machen Jr., U.S. Attorney, and Gilbert S. Rothenberg and Teresa E. McLaughlin, Attorneys.

Before: TATEL and BROWN, Circuit Judges, and RANDOLPH, Senior Circuit Judge.

Opinion for the court filed by Senior Circuit Judge RANDOLPH.

Opinion concurring in part and dissenting in part filed by Circuit Judge BROWN.

RANDOLPH, Senior Circuit Judge:

I.

This appeal has its genesis in 26 U.S.C. § 4251, which imposes an excise tax “on amounts paid for ... toll telephone service.” Telephone service is taxed only if its price “varies in amount with the distance and elapsed transmission time of each individual communication.” Id. § 4252(b). Technological advances of the last few decades changed cost structures and, as a result, telephone companies began charging only by elapsed transmission time. The Internal Revenue Service, however, continued to collect the tax.

Beginning in 2005, the Service lost a series of cases challenging the tax. Five courts of appeals, including this court, held that § 4251 did not permit the Service to tax telephone service with distance-invariant pricing. ¹ Around that time, the three plaintiffs in this consolidated appeal (Cohen, Sloan, and Gurrola) filed separate putative class-action suits challenging the tax. Initially, plaintiffs raised a variety of constitutional and statutory claims, seeking refunds and other relief. In re Long–Distance Tel. Serv. Fed. Excise Tax Refund Litig. (Long Distance Tel. I), 539 F.Supp.2d 281, 288–89 (D.D.C.2008). The Judicial Panel on Multidistrict Litigation consolidated the suits in the District Court for the District of Columbia. In re Long–Distance Tel. Serv. Fed. Excise Tax Refund Litig., 469 F.Supp.2d 1348 (J.P.M.L.2006).

After two of the three plaintiffs—Cohen and Sloan—filed their complaints, the Service issued without notice and comment Notice 2006–50, 2006–1 C.B. 1141 (May 26, 2006). Citing the losses in the courts of appeals, the Notice declared that the Service would no longer tax telephone service priced without regard to distance, id. §§ 1(a), 4(c), and established a procedure to refund illegally collected excise taxes, id. § 5. Taxpayers could “request a credit or refund ... on their 2006 Federal income tax returns.” Id. § 5(a)(2). The Notice allowed taxpayers to claim as a refund either the amount of taxes actually overpaid or a safe harbor amount for which no documentation was required. Id. § 5(c).

Cohen and Sloan amended their complaints to add claims relating to Notice 2006–50 under the Administrative Procedure Act (APA), 5 U.S.C. §§ 701 et seq.See Long Distance Tel. I, 539 F.Supp.2d at 288–89. Sloan squarely raised both substantive and procedural challenges, while Cohen made only a substantive APA argument. Id. The district court dismissed all three complaints. Id. at 287. Regarding the APA claims, the district court held that Notice 2006–50 was not judicially reviewable because it was “a statement of internal IRS policy without the force and effect of law.” Id. at 307;see id. at 306–11.

Plaintiffs appealed the dismissal of their APA claims, and a panel of this court reversed,² concluding that Notice 2006–50 “operates as a substantive rule that binds the IRS, excise tax collectors, and taxpayers.” Cohen v. United States (Cohen I), 578 F.3d 1, 6 (D.C.Cir.2009). The court also rejected the Service's arguments that the Declaratory Judgment Act, 28 U.S.C. § 2201, and the Tax Anti–Injunction Act, 26 U.S.C. § 7421, deprived it of jurisdiction. 578 F.3d at 12–14. Judge Kavanaugh dissented from the panel opinion. He argued that plaintiffs' APA claims were barred by the Declaratory Judgment Act, which prohibits suits seeking declaratory relief “with respect to Federal taxes.” See id. at 17–20.

The full court granted the Service's petition for rehearing en banc to consider whether the Tax Anti–Injunction Act or the Declaratory Judgment Act barred the court from hearing plaintiffs' suits. Cohen v. United States, 599 F.3d 652 (D.C.Cir.2010)(en banc) (per curiam). The court determined that plaintiffs' APA claims could proceed. Cohen v. United States (Cohen II), 650 F.3d 717, 736 (D.C.Cir.2011). Adopting much of the Cohen I panel's reasoning, the en banc majority ordered “the district court [to] consider the merits of [plaintiffs'] APA claim on remand.” Id. Judge Kavanaugh, joined by Chief Judge Sentelle and Judge Henderson, dissented, arguing that an APA suit was unavailable because tax refund suits afforded plaintiffs an adequate legal remedy. Id. at 738–42.

On remand, the district court held that Notice 2006–50 was promulgated without notice and comment in violation of the APA. In re Long–Distance Tel. Serv. Fed. Excise Tax Refund Litig. (Long Distance Tel. II), 853 F.Supp.2d 138, 142–43 (D.D.C.2012). Having found a violation of the APA, the district court prospectively vacated the Notice and remanded to the Service. Id. at 146. The court declined to set a timetable for any further action by the Service because no “law unequivocally requires such action.” Id.

Plaintiffs then moved for entry of final judgment and an interim award of attorney's fees under the Equal Access to Justice Act, 28 U.S.C. § 2412(b) & (d). The district court entered final judgment in favor of plaintiff Sloan only on her procedural APA claim. It entered judgment in favor of the government against both Cohen, who raised only substantive APA challenges that the court did not need to address, and Gurrola, who failed to raise any APA arguments. In re Long–Distance Tel. Serv. Fed. Excise Tax Refund Litig. (Long Distance Tel. III), 901 F.Supp.2d 1, 5–7 (D.D.C.2012). The district court denied plaintiffs' motion for attorney'sfees. It first found that plaintiffs could not recover fees under a “common benefit” theory because the litigation's costs could not be shifted to its large, difficult-to-ascertain class of beneficiaries with any exactitude. Id. at 8–10. The court rejected plaintiffs' alternative argument for fees under 28 U.S.C. § 2412(d) because it found the government's position was “substantially justified.” Id. at 11–12. Plaintiffs have appealed from the court's refusal to direct the Service on remand to issue a refund rule and from its denial of their interim request for fees.

II.

The government argues that we have no jurisdiction to hear plaintiffs' appeal because district court orders remanding to agencies are not final appealable decisions. See28 U.S.C. § 1291; Sierra Club v. USDA, 716 F.3d 653, 656–57 (D.C.Cir.2013).³ Typically, that is true. A remand order usually allows the agency to correct mistakes in earlier proceedings. Delaying review prevents duplicative appeals from both a district court's remand order and an agency's later action. See In re St. Charles Pres. Investors, Ltd., 916 F.2d 727, 729 (D.C.Cir.1990) (per curiam).

But the rule is not absolute. The government may appeal these sorts of remand orders because, unlike most private parties, the government may wind up with “no opportunity to appeal” later, after it has conducted proceedings in compliance with the remand order. Occidental Petroleum Corp. v. SEC, 873 F.2d 325, 330 (D.C.Cir.1989); see Sierra Club, 716 F.3d at 657. Plaintiffs here face a similar predicament. The Service has not taken any reviewable action in the two years since the district court's remand order. Indeed the Service has no reason to act. The three-year statute of limitations for filing refund claims, 26 U.S.C. § 6511(a), has likely expired for most potential claimants and there is no need to streamline the refund process for hundreds of millions of taxpayers as there was when Notice 2006–50 issued eight years ago. We find it particularly important that at oral argument government counsel conceded that the Service is “not planning” to engage in future rulemaking on the subject. Oral Arg. Tr. at 23:16. In these unusual circumstances, treating the district court's remand order as unappealable would “effectively preclude [ ]” plaintiffs from ever challenging the district court's decisions. Sierra Club, 716 F.3d at 658;see Ringsby Truck Lines, Inc. v. United States, 490 F.2d 620 (10th Cir.1974).

We may, in any case, bypass complex questions dealing with appellate jurisdiction when addressing the merits would not require us to “reach[ ] a question of law that otherwise would have gone unaddressed.” See Sherrod v. Breitbart, 720 F.3d 932, 936–37 (D.C.Cir.2013) (quoting Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 98, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1988)). The law governing plaintiffs' challenges is well-established and renders the merits “plainly insubstantial.” Id. (quoting Norton v. Mathews, 427 U.S. 524, 530, 96 S.Ct. 2771, 49 L.Ed.2d 672 (1976)). In such a case we may proceed to decide the merits.

The Supreme Court has endorsed this “practical” approach to finality, particularly in the “twilight zone” where “it is...