Lunnon v. United States, Civ. No. 16-1152 MV/JFR

CourtUnited States District Courts. 10th Circuit. District of New Mexico
Writing for the CourtJOHN F. ROBBENHAAR United States Magistrate Judge
PartiesMICHAEL LUNNON, Plaintiff, v. UNITED STATES OF AMERICA, et al., Defendants.
Decision Date23 June 2021
Docket NumberCiv. No. 16-1152 MV/JFR

MICHAEL LUNNON, Plaintiff,
v.
UNITED STATES OF AMERICA, et al., Defendants.

Civ. No. 16-1152 MV/JFR

UNITED STATES DISTRIC COURT FOR THE DISTRICT OF NEW MEXICO

June 23, 2021


MAGISTRATE JUDGE'S PROPOSED FINDINGS AND RECOMMENDED DISPOSITION1

THIS MATTER is before the Court on Plaintiff's Motion to Dismiss United States' Counterclaims, or Alternatively for Judgment on the Pleadings ("Motion to Dismiss"), filed January 15, 2021. Doc. 246. The United States filed its Opposition to Plaintiff's Motion to Dismiss on January 29, 2021. Doc. 254. Plaintiff filed a Reply on February 12, 2021. Doc. 261. This matter is also before the Court on the United States' Motion for Summary Judgment on Counterclaims ("Motion for Summary Judgment"), filed January 20, 2021. Doc. 249. Plaintiff filed a Response on February 3, 2021. Doc. 256. The United States filed a Reply on February 12, 2021. Doc. 259. Having reviewed the parties' submissions and the relevant law, and for the reasons set forth herein, the Court finds that (1) Plaintiff's Motion to Dismiss is not well taken and recommends that it be DENIED; (2) Plaintiff's alternative Motion for Judgment on the Pleadings is not well taken and recommends that it be DENIED; (3) the United States' Motion for Summary Judgment is well taken and recommends that it be GRANTED.

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I. Relevant Procedural Background

This action began on October 19, 2016, when Plaintiffs Michael Lunnon and LG Kendrick, LLC, filed a Complaint for Administrative Review, Injunctive Relief and Refund, Quiet Title, and Damages against the United States of America. Doc. 1. Plaintiffs' claims arose from a March 10, 2011, Notice of Levy on Wages, Salary, and Other Income, and a March 15, 2011, Notice of Federal Tax Lien issued by the Internal Revenue Service indicating that Plaintiff Michael Lunnon owed unpaid taxes for years 1998, 1999 and 2005. Id. On September 18, 2018, Plaintiff Michael Lunnon filed an Amended Complaint, in which he removed LG Kendrick, LLC, as a Plaintiff and added T. W. Lyons2 and The UPS Store3 as Defendants. Doc. 104. The Amended Complaint also removed a cause of action for quiet title, and added two causes of action, i.e., Count IV against Defendant Lyons and TUPSS for RICO Violations, and Count VI against TUPSS for Bad Faith Breach of Contract.4 Id. On February 20, 2020, the United States filed an Amended Answer in which it alleged Counterclaims against Plaintiff seeking to reduce to judgment (1) unpaid federal tax liabilities assessed for the tax years 2006 through 2018 and (2) assessed trust fund recovery penalties with respect to unpaid employment taxes of LG Kendrick, LLC, for the tax year 2010.5 Doc. 148 at 9.

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The United States' Counterclaims are now before this Court.

II. Subject Matter Jurisdiction

In his Motion to Dismiss, Plaintiff argues that the United States' Counterclaims should be dismissed pursuant to Fed. R. Civ. P. 12(h) because the Court lacks subject-matter jurisdiction.6 Doc. 246 at 3-4. In support, Plaintiff relies primarily on U.S. v. Twenty-Two Firearms, 463 F. Supp. 730 (D. Colo. Jan. 15, 1979)7 and U.S. v. One 1972 Cadillac, Coupe Deville, 2-Door Hardtop, ID. No. 6D47R2Q238129, 355 F. Supp. 513 (D. Ky. March 21, 1973),8 to argue that

§7401 prohibits civil actions without authorization from the "Secretary" and Attorney General. Although the United States alleged such action was so

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authorized, Lunnon's Answer denied the allegation. No presumption can be made regarding authorization for this type of action when such allegations are denied. Instead, the issues are put to proof.

Id. at 3. Plaintiff asserts that because he denied in his Answer to the United States' Counterclaims that the United States has the authority to proceed against him, the United States must specifically demonstrate its authorization for its civil tax enforcement action. Id.

In its Response, the United States contends that because Plaintiff provides no extraneous evidence of the United States' alleged noncompliance with Section 7401, Plaintiff's attack is "facial" and that the United States' allegations in its counterclaims must be presumed true. Doc. 254 at 2 (citing Holt v. United States, 46 F.3d 1000, 1002-03 (10th Cir. 1995)). The United States further contends that the case law Plaintiff cited is distinguishable because the attacks at issue were factual. Id. at 3.

In his Reply, Plaintiff argues that the portion of his Motion to Dismiss concerning the lack of authorization for suit under 26 U.S.C. § 7401 is "plainly a factual attack" and that to construe it as merely facial is "simply hogwash." Doc. 261 at 1. Plaintiff further argues that the United States' failure to present any evidence demonstrating its authorization for its civil tax enforcement action warrants dismissal of its Counterclaims.9 Id. at 2-3.

Plaintiff reasserts his subject-matter jurisdiction argument in his Response to the United States' Motion for Summary Judgment. Doc. 256 at 1-2.

The Court finds it has subject-matter jurisdiction over the United States' Counterclaims. Although not addressed by the parties, the Court finds, as an initial matter, that the United States' Counterclaims are permissive, as opposed to compulsory, because they relate to unpaid taxes for

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tax years different from those that form the basis of Plaintiff's Amended Complaint. As such, the United States' Counterclaims must be supported by independent jurisdiction.10

Section 7401 states that

[n]o civil action for the collection or recovery of taxes, or of any fine, penalty, or forfeiture, shall be commenced unless the Secretary authorizes or sanctions the proceedings and the Attorney General or his delegate directs that the action be commenced.

26 U.S.C. § 7401. The United States' Counterclaims begin with the following language:

Plaintiff, United States of America, pursuant to 26 U.S.C., Sections 7401 and 7403, at the direction of the Attorney General of the United States, or his delegate, and at the request of the Secretary of the Treasury, or his delegate, files these counterclaims against plaintiff Michael Lunnon [to] reduce to judgment unpaid federal tax liabilities.

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Doc. 148 at 6, ¶ 53.

To begin, the cases Plaintiff cites in support of his Motion to Dismiss are distinguishable. For example, the claimant in United States v. Twenty-Two Firearms presented a factual attack on the United States' complaint, i.e., whether the United States had established probable cause for instituting a forfeiture action. 463 F. Supp. at 731. Here, Plaintiff's attack on Defendant United States' authorization is facial.11 And in United States v. One 1972 Cadillac, Coupe Deville, 2-Door Hardtop, ID. No. 6D47R2Q238129, the court determined that in the face of a challenge to the United States' purported authorization in an underlying forfeiture proceeding, the court had proceeded with hearings and made rulings, which had to be nullified, because the United States had offered no proof of compliance with 26 U.S.C. § 7401. Here, there have been no hearings or rulings in the face of Plaintiff's challenge to the United States' authorization. See U.S. v. Tillinghast, 55 F.2d 279, 282-83 (D.R.I. Jan. 20, 1932), aff'd, 69 F.2d 718 (1st Cir. 1934) (finding that the authorization for a suit to collect taxes need not precede the filing of the suit, which may be ratified thereafter so long as the approval precedes the hearing in court on the defendant's challenge to the authorization). Moreover, as discussed below, the United States has offered proof of its compliance with Section 7401 rendering Plaintiff's argument moot.

The case law aside, because Plaintiff's subject-matter jurisdiction argument presents a facial attack, the Court accepts the allegations of the United States' Counterclaims as true. See Holt, 46 F.3d at 1002-1003 (explaining that in reviewing a Rule 12(b)(1) facial attack on the complaint's allegations as to subject-matter jurisdiction, a district court must accept the

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allegations in the complaint as true.) As such, the United States has properly pled that it has met the requirements of 26 U.S.C. § 7401. See United States v. Pfannenstiel, 93 A.F.T.R.2d 2004-965, at *1 (D.N.M. Feb. 15, 2001). Additionally, the United States attached to its Motion for Summary Judgment two Declarations affirming the proper authorization and commencement of this civil tax enforcement action thereby offering proof of its compliance with Section 7401. Docs. 259-1, 259-2. Section 7401 provides that a suit is properly authorized if the Secretary of the Treasury sanctions the proceedings and the Attorney General or his delegate directs that the action be commenced. The term "delegate" means any officer, employee or agency of the Treasury Department duly authorized by the Secretary of the Treasury directly or indirectly by one or more redelegations of authority to perform the function mentioned. 26 U.S.C. § 7701(a)(12)(A). Accordingly, the Declaration of Senior Counsel (Doc. 259-1) from the legal office of an agency of the Department of Treasury affirming that the Chief Counsel of the Internal Revenue Service authorized the U.S. Department of Justice, Tax Division, to file the Counterclaims pursued in this lawsuit before they were filed is sufficient to establish the first requirement of Section 7401. Pfannenstiel, 93 A.F.T.R.2d 2004-965, at *1 (citing United States v. Walters, 638 F.2d 847, 850 (6th Cir. 1981)). Further, the Declaration of filing counsel from the Department of Justice, Tax Division (Doc. 259-2), that a delegate of the Attorney General directed the filing of the Counterclaims before they were filed satisfies the second requirement of 26 U.S.C. § 7401. Id.

For the foregoing reasons, the Court finds that the United States has properly pled that it has met the requirements of 26 U.S.C. § 7401 for commencing this civil tax enforcement action, which includes the authorization from the Secretary to proceed and the direction of the Attorney General to...

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