Mallas v. Kolak
| Citation | 721 F. Supp. 748 |
| Decision Date | 13 September 1989 |
| Docket Number | No. C-88-1045-G.,C-88-1045-G. |
| Court | U.S. District Court — Middle District of North Carolina |
| Parties | James G. MALLAS, John William Flint, Robert V. Jones, Jr., Perry Brunk, Peoples Supply Company, Inc., Omega Energy, Inc., Revel, Inc., Trinity Properties, Inc., Genesis Leases, Inc., and Star Cross Properties, Inc., Plaintiffs, v. Alvin H. KOLAK, individually and in his official capacity as District Director, U.S. Internal Revenue Service, Joanne D. Miller, individually and in her official capacity as Greensboro District Tax Shelter Coordinator, U.S. Internal Revenue Service, William H. Ball, individually and in his official capacity as Chief, Examination Division, Greensboro, N.C. District Office, U.S. Internal Revenue Service Paul G. Topolka, individually and in his official capacity as Senior Attorney, Internal Revenue Service Regional Office, Greensboro, N.C., Jack D. Yarbrough, individually and in his official capacity as Regional Counsel, Internal Revenue Service, Fred T. Goldberg, individually and in his official capacity as Chief Counsel, Greensboro, N.C. District Office of the Internal Revenue Service, Alan I. Weinberg, individually and in his official capacity as District Counsel, Internal Revenue Service, Greensboro, N.C. Office, Larry L. Davis, individually and in his official capacity as Chief, Appeals Office, Southeast Region, Internal Revenue Service, Greensboro, N.C., Robert S. Forrest, individually and in his official capacity as an Appeals Officer, Internal Revenue Service, Greensboro, N.C., Internal Revenue Service, and United States of America, Defendants. |
G. Nicholas Herman, Roger D. Bernholz, Terry G. Harn, and Steven A. Bernholz, Chapel Hill, N.C., for plaintiffs.
Edward J. Snyder, Michael J. Kearns, Gerard J. Mene, and J. Stephen Carlton, Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendants.
This matter is before the court upon the Government's motion to dismiss the complaint for lack of jurisdiction and failure to state a claim upon which relief can be granted, Fed.R.Civ.P. 12(b). Oral argument was heard by the court on May 25, 1989.
Plaintiffs concede that: (1) individual defendants are not defendants under the alleged Privacy Act violations, 5 U.S.C.A. § 552a (West 1977); (2) the doctrine of respondent superior cannot be applied against certain individual defendants; (3) service of process has not been served on defendant Jack D. Yarbrough; (4) plaintiffs are not entitled to punitive damages under the Privacy Act; and (5) corporations cannot sue for violations of the Privacy Act. These claims are dismissed with prejudice. For reasons stated hereinafter, the remaining claims are denied in part and granted in part.
Plaintiffs filed this action against the Internal Revenue Service and the United States of America on October 28, 1988 alleging Privacy Act violations under 5 U.S. C.A. § 552a (West 1977) and wrongful disclosure of tax return laws under 26 U.S. C.A. § 7431 (West Supp.1989). Plaintiffs also named employees of the Internal Revenue Service as defendants and contend that these individuals violated the Privacy Act, 5 U.S.C.A. § 552a. Further, plaintiffs allege that these defendants violated constitutional guarantees protected by the Fifth Amendment of the United States Constitution.
Plaintiffs James G. Mallas and Robert V. Jones, investment counselors in Charlotte, North Carolina, organized, promoted, and sold a tax shelter program based on deductions allowed to participants in coal mining enterprises. The Internal Revenue Service questioned the validity of these deductions. In 1980, its Criminal Investigation Division conducted an investigation of Mallas and Jones and the tax shelter program. On May 23, 1983, Mallas and Jones were indicted by a Grand Jury in the Western District of North Carolina on thirty-five counts of violations relating to alleged fraud and tax evasion in connection with the program. After a jury trial in the United States District Court for the Western District of North Carolina on January 27, 1984, Mallas and Jones were acquitted on nineteen counts and convicted on sixteen counts.
Upon appeal by Mallas and Jones, the United States Court of Appeals for the Fourth Circuit reversed the convictions in an opinion decided May 20, 1985. 762 F.2d 361. After the reversal of the convictions on March 28, 1986, defendants sent a Pro Forma RAR1 form to Tom E. Coplin and Bonnie J. Coplin who were participants in the program. The Pro Forma RAR (1) recites that Jones and Mallas organized, promoted, and sold a coal mining promotion through Trinity Properties, Inc.; (2) states that on January 30, 1984, in federal district court in Charlotte, North Carolina, Jones and Mallas were convicted of operating a fraudulent coal mining tax shelter of Trinity Properties, Inc. and Omega Energy, Inc.; (3) states that Jones and Mallas were convicted on fourteen (sic) counts each, including conspiracy, income tax fraud, and interstate transportation i.e., causing a person to travel in interstate in furtherance of a scheme to defraud; and (4) states that it was determined that Jones and Mallas used a financing scheme involving a check swap designed to give the appearance that each investor borrowed the necessary funds to claim advance minimum royalty deductions.
The Pro Forma RAR also informs the investors that their loss or losses claimed in connection with the program would be disallowed because "it has not been established that the losses were incurred in a trade or business or with respect to property held for the production of income." The Pro Forma RAR goes on to state alternative reasons for disallowing the claimed deductions. Identical copies of the Pro Forma RAR were sent to other participants in the program, including plaintiffs Perry Brunk and Peoples Supply Company, Inc.
Defendants contend that the two-year statute of limitations has expired under appropriate North Carolina law, and thus any Bivens action under Bivens v. Six Unknown Named Agents of the Federal Bureau of Narcotics, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971), against the individual defendants is time-barred. Plaintiffs, on the other hand, argue that the complaint against the individual defendants was filed within the appropriate statute of limitations. Plaintiffs aver that the Bivens action should be governed by the three year North Carolina statute of limitations period for personal injury claims.
Because Congress has not designated a federal statute of limitations for Bivens actions, the court must look to North Carolina's statutes of limitation. See Wilson v. Garcia, 471 U.S. 261, 266-67, 105 S.Ct. 1938, 1941-42, 85 L.Ed.2d 254 (1985); Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 462, 95 S.Ct. 1716, 1721, 44 L.Ed.2d 295 (1975). In borrowing state statutes of limitations for federal claims, a federal court must choose the state statute of limitations of the most analogous state claim provided "that the borrowed period of limitations does not discriminate against the federal claim." Chin v. Bowen, 833 F.2d 21, 23 (2d Cir.1987); Hobson v. Wilson, 737 F.2d 1, 32 (D.D.C.1984).
Generally, courts have held that Bivens actions are not significantly dissimilar to claims brought under Title 42 U.S.C.A. §§ 1981 and 1983 (West 1983) in terms of interests being protected, the relief which may be granted, and the defenses which may be asserted, Owen v. Okure, ___ U.S. ___, 109 S.Ct. 573, 102 L.Ed.2d 594 (1989); Chin v. Bowen, 833 F.2d at 23 (quoting McSurely v. Hutchison, 823 F.2d 1002, 1005 (6th Cir.1987)), and therefore that the statute of limitations for personal injury is the applicable statute of limitations. Although Section 1983 actions are not precisely parallel, there is a general trend in the appellate courts to incorporate § 1983 law into Bivens suits. Chin v. Bowen, 833 F.2d at 24 (quoting Ellis v. Blum, 643 F.2d 68, 84 (2d Cir.1981)).
The statute of limitations in North Carolina for personal injury is three years. N.C.Gen.Stat. § 1-52(5); Sheppard v. Barrus Construction Co., 11 N.C.App. 358, 181 S.E.2d 130 (1971). Because of the noted similarity between Bivens and Section 1983 actions, this court holds that appropriate limitations period is North Carolina's three-year personal injury statute of limitations. Furthermore, since the policies underlying Bivens actions are essentially the same as those underlying Section 1983 actions and the two share the same practicalities of litigation, the court does not find the defendants' argument that the North Carolina personal injury statute of limitation period frustrates federal policy persuasive. See Chin v. Bowen, 833 F.2d at 24 (quoting Burnett v. Grattan, 468 U.S. 42, 50, 104 S.Ct. 2924, 2929, 82 L.Ed.2d 36 (1984)).
Plaintiffs contend that in spite of the reversal of the convictions by the United States Court of Appeals for the Fourth Circuit, the defendants advised business associates of Mallas and Jones that the two had been involved in criminal activity and were convicted of crimes. Plaintiffs allege that disclosures of all the Pro Forma RARs violated their right to procedural due process, substantive due process, and deprived them of liberty and property interests protected by the Fifth Amendment. Plaintiffs argue that this is an actionable constitutional tort under Bivens.
In defense, defendants contend that the individually named federal employees are entitled to absolute immunity from damages arising out of alleged constitutional torts for wrongful disclosure of return information. In the alternative, defendants assert that the individually named federal employees are entitled to qualified immunity from damages for their alleged commission of constitutional torts or statutory violations.2
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