Mann Constr. v. United States
Docket Number | 1:20-cv-11307 |
Decision Date | 01 May 2023 |
Parties | MANN CONSTRUCTION, INC., et al., Plaintiffs, v. UNITED STATES OF AMERICA, Defendant. |
Court | United States District Courts. 6th Circuit. United States District Court (Eastern District of Michigan) |
In 2019, the Internal Revenue Service penalized Plaintiffs for violating IRS Notice 2007-83 by failing to disclose their participation in an employee-benefit trust. Plaintiffs sued the United States Government to recover the penalties they paid, alleging IRS Notice 2007-83 did not comply with the required notice-and-comment procedures of the Administrative Procedure Act (APA).
On appeal, the Sixth Circuit held that Congress did not exempt the IRS from the APA's notice-and-comment procedures for promulgating legislative rules. Accordingly, the Sixth Circuit concluded that IRS Notice 2007-83 must be “set aside.”
On remand, IRS Notice 2007-83 was “set aside” under 5 U.S.C. § 706(2)(D)-as the Sixth Circuit directed. Twenty-seven days later, the Government filed a motion to stay the effect of the set-aside order. The question presented is whether such a stay is warranted.
The Sixth Circuit Court of Appeals aptly summarized the facts of this case as follows:
\Mann Constr. v. United States, 27 F.4th 1138, 1141-42 (6th Cir. 2022).
In May 2021, this Court granted the Government's motion for summary judgment, holding that Congress authorized the IRS to promulgate the regulation without notice and comment. ECF No. 45. This Court determined that “the text, structure, and history of § 6707A and related Treasury regulations express[ed Congress's] clear intent that the APA notice and comment procedures need not be followed,” Mann Constr. v. United States, 539 F.Supp.3d 745, 760 (E.D. Mich. 2021) ( ).
Plaintiffs appealed, and the Sixth Circuit reversed this Court's Order. Mann Constr., 27 F.4th at 1144-48 ( ). The Sixth Circuit reasoned that, because § 6707A “addresses a ‘which transactions' question, not a ‘what process' question,” Congress did not expressly exclude IRS Notice 2007-83 from the APA's notice-and-comment requirements. Id. at 1146-47.
Three months later, Plaintiffs filed a motion to enforce the Sixth Circuit's mandate, seeking an order that vacated and sets aside IRS Notice 2007-83. ECF No. 53 at PageID.757-58. On January 18, 2023, this Court set aside IRS Notice 2007-83. Mann Constr. v. United States, No. 1:20-CV-11307, 2023 WL 248814, at *4 (E.D. Mich. Jan. 18, 2023). The Government appealed and filed a motion to stay the set-aside order pending appeal. ECF No. 77.
In considering a motion for a stay pending appeal under Federal Rule of Civil Procedure Rule 62, courts must balance four factors:
Mich. Coal. of Radioactive Material Users, Inc. v. Griepentrog, 945 F.2d 150, 153 (6th Cir. 1991). “These factors are not prerequisites that must be met, but are interrelated considerations that must be balanced together.” Id. “[A] stay is not a matter of right, but is rather an exercise of judicial discretion.” Ohio State Conf. of NAACP v. Husted, 769 F.3d 385, 387 (6th Cir. 2014) (citing Nken v. Holder, 556 U.S. 418, 433 (2009)).
The Government seeks an order staying the effect of the Order that set aside IRS Notice 2007-83. ECF No. 77 at PageID.1093. Plaintiffs, on the other hand, contend that the Government “cannot satisfy” any of the four factors to warrant a stay. ECF No. 79 at PageID.1099.
The first factor is the Government's likelihood of success on appeal. Griepentrog, 945 F.2d at 153 ( ).
The Government asserts the first factor favors a stay because the meaning of “set aside” is “an unsettled legal issue,” ECF No. 77 at PageID.1093, but it does not discuss the likelihood of success on appeal, ECF No. 80 at PageID.1143 ( ). Moreover, the Sixth Circuit held that IRS Notice 2007-83 must be set aside and remanded the case for this Court to do so. See Mann Constr. v. United States, 27 F.4th 1138, 1148 (6th Cir. 2022).
Why would the Sixth Circuit reverse the order of a district court that did exactly what the Sixth Circuit directed it to do? Although the Government's argument on appeal is not entirely clear, it can be interpreted in two ways. First, the Government could argue this Court exceeded its authority by vacating IRS Notice 2007-83. See ECF No. 77 at PageID.1094. But that argument is meritless because Congress requires district courts to set aside unlawful agency action. 5 U.S.C. § 706(2) (). The second possible interpretation of the Government's argument on appeal is that the effect of this Court's order does not bind other circuits. ECF No. 77 at PageID.1094. A thoughtless glance might favor that view, but a steady eye sees that this argument is not one to be made to the Sixth Circuit, as it is not for one circuit court to decide the controlling effect of a court order in any other circuit. This is the argument the Government may make in every other circuit where it hopes to enforce the Notice. But making that argument to the Sixth Circuit...
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