Matrix Development Corp. v. US

• Decision Date: 03 February 1993
• Docket Number: No. 92-C-0083.,92-C-0083.
• Parties: MATRIX DEVELOPMENT CORP. and Jim L. Mews and Mary Jo Mews, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

815 F. Supp. 297

MATRIX DEVELOPMENT CORP. and Jim L. Mews and Mary Jo Mews, Plaintiffs, v. UNITED STATES of America, Defendant.

No. 92-C-0083.

United States District Court, E.D. Wisconsin.

February 3, 1993.

Debra A. Slater, Weiss, Berzowski, Brady & Donahue, Milwaukee, WI, for plaintiffs.

Jeffrey D. Snow, U.S. Dept. of Justice, Washington, DC, for defendant.

DECISION AND ORDER

WARREN, Senior District Judge.

The plaintiffs in the above-captioned matter, Jim L. Mews and Mary Jo Mews ("Mews") and Matrix Development Corporation ("Matrix"), have asserted claims against the United States under 28 U.S.C. § 1346(a)(1) and 26 U.S.C. § 7433, to recover the damages they allegedly sustained when officers of the Internal Revenue Service ("IRS") filed $884,922 tax liens against their properties in an effort to collect the delinquent tax liens owed by Levi R. Mews, Jim Mews' father. Before this Court is the United States' motions for dismissal, or in the alternative, for summary judgment.

I. BACKGROUND

This proceeding stems from Levi R. Mews' conviction for filing false tax returns for the years 1982-1988.¹ The unpaid balance on those assessments was $884,922. The named plaintiffs in this action are Jim and Mary Jo Mews, the son and daughter-in-law of Levi Mews, and the Matrix Development Corporation, a corporation owned by Jim Mews.

On January 30, 1990, in an effort to satisfy Levi's tax liability, the IRS placed a "nominee" lien against the Mews' new house. The IRS believed that Levi had contributed assets to the construction of the Mews' new home.

On April 16, 1990, the Mews brought an action in state court to quiet title and to remove the lien. The United States then removed the action to this Court. In its answer and counterclaim, the United States asserted that the Mews had received two transfers from the delinquent taxpayer, Levi, which were used for the construction of the Mews' new house. The United States, in its counterclaim for summary judgment, sought to recover monies allegedly fraudulently conveyed from Levi to the Mews and to Matrix Development Corporation. However, on May 1, 1990, Levi was able to pay the IRS an amount which satisfied the assessments for the years 1982, 1983 and 1987. At that point, the IRS concluded that the lien against the Mews' house was no longer necessary and removed it on October 12, 1990.

Nevertheless, the Mews filed an amended complaint on June 13, 1991 in which they dropped their quiet title action and instead sought damages pursuant to 26 U.S.C. § 7433 arising from the liens on their home. However, the United States' amended complaint had contained a counterclaim against the Mews which remained unresolved. The counterclaim joined Jay Mews as an additional counterclaim defendant and alleged that Levi Mews had laundered money and property subject to forfeiture by investing in the Mews new house. It cited specifically to the two $10,000 checks given to the Mews, and the backhoe, which was estimated to be worth between $3,000 and $4,000. In addition, the United States mentioned that Levi had given other sums or items to the Mews, or Jay Mews.

On October 21, 1991, this Court, sua sponte, dismissed the Mews' damage claim without ruling on the United States' motion for summary judgment on the alleged fraudulent conveyances. This Court concluded that it lacked subject matter jurisdiction due to the plaintiffs' failure to exhaust their administrative remedies under 26 U.S.C. § 7433.

On December 9, 1991, in light of this Court's dismissal of the Mews' damage claim, the Mews and Matrix filed an administrative claim for damages with the Department of the Treasury. However, the Department of the Treasury denied the Mews' and Matrix's claim. Having exhausted their administrative remedies, on January 27, 1992, the Mews and Matrix filed this present action under 28 U.S.C. § 1346(a)(1) and 26 U.S.C. § 7433 seeking to recover the damages they sustained when the IRS filed the "nominee" tax lien against their home. The Mews and Matrix contend that the United States, in filing the liens, acted recklessly and with intentional disregard of Title 26 and its internal regulations. The United States has filed a motion to dismiss, or alternatively, for summary judgment, asserting that this Court lacks subject matter jurisdiction. The United States claims that the remedies provided by 28 U.S.C. § 1346(a)(1) and 26 U.S.C. § 7433 are not available to the Mews and Matrix.

II. LEGAL FRAMEWORK

In evaluating a Rule 12(b)(6) motion to dismiss, the Court must confine itself to the facts presented in the briefs, pleadings, and memoranda. United States General, Inc. v. Schroeder, 400 F.Supp. 713, 715 (E.D.Wis. 1975); see also Fed.R.Civ.P. 12(b). The Court will not dismiss the complaint unless it is clear that no set of facts which the plaintiff could prove consistent with the pleadings would entitle him to relief. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984); Murphy v. Lane, 833 F.2d 106, 107 (7th Cir.1987). The Court accepts all well-pleaded factual allegations in the complaint as true. Doe v. St. Joseph's Hospital of Fort Wayne, 788 F.2d 411, 414 (7th Cir.1986). Also, the Court views the allegations in the complaint in a light most favorable to the non-moving party. Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1104 (7th Cir.1984); Wolfolk v. Rivera, 729 F.2d 1114, 1116 (7th Cir.1984).

III. DISCUSSION

The Court must now determine whether it has subject matter jurisdiction under either 28 U.S.C. § 1346(a)(1) or 26 U.S.C. § 7433 to hear the plaintiffs' damages claim. Because this Court will limit its inquiry to the pleadings, the United States' motion will be treated as a motion to dismiss.

In an action where the United States is named as a defendant, a court will have no subject matter jurisdiction unless a specific statute can be relied upon which waives the Government's sovereign immunity. United States v. Alabama, 313 U.S. 274, 61 S.Ct. 1011, 85 L.Ed. 1327 (1941); Soriano v. United States, 352 U.S. 270, 77 S.Ct. 269, 1 L.Ed.2d 306 (1957). "Limitations and conditions upon which the government consents to be sued must be strictly observed and exceptions are not to be implied." Soriano, 352 U.S. at 276, 77 S.Ct. at 273. See also United States v. King, 395 U.S. 1, 4, 89 S.Ct. 1501, 1502, 23 L.Ed.2d 52 (1969).

Here, the plaintiffs have cited two statutes, 28 U.S.C. § 1346(a)(1) and 26 U.S.C. § 7433, which they allege confer such jurisdiction on this Court. However, the plaintiffs' reliance upon § 1346(a)(1) is misplaced. Even when, for purposes of this motion to dismiss, the plaintiffs' allegations of IRS misconduct are assumed to be true, this Court does not have subject matter jurisdiction, because the plaintiffs have failed to meet the § 1346 jurisdictional prerequisite.

Section 1346(a)(1) provides in relevant part: "The district court shall have original jurisdiction, concurrent with the United States Claims Court, of any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected." This is commonly known as the "tax refund statute," and only applies to a taxpayer or one standing directly in his stead to contest the validity of the assessed taxes against that person. Here, the plaintiffs neither stand "in the shoes" of Levi R. Mews nor have had assessments made against them which may be challenged under § 1346(a)(1). See Phillips v. United States, 346 F.2d 999 (2d Cir.1965); First National Bank of Emlenton Pa. v. United States, 265 F.2d 297 (3d Cir.1959). In fact, the plaintiffs are innocent third parties. Progressive Bank and Trust Co. v. Moore, 91-1 USTC ¶ 50,192 (E.D.La.1991). As a result, the plaintiffs have failed to meet the § 1346 jurisdictional prerequisite.² Accordingly, the United States' motion to dismiss is granted.

With respect to the § 7433 claim, the plaintiffs argue that they constitute "taxpayers" for purposes of the statute and therefore are entitled money damages. They have cited to legislative history and 26 U.S.C. § 7701(a)(14) indicating that for the proposition that a taxpayer is "any person subject to any internal revenue tax."³ Finally, the plaintiffs assert that following the Progressive Bank decision would lead to an absurd result whereby "innocent" parties would have more limited remedies for correcting the wrong than delinquent taxpayers wronged by those same IRS activities.

The United States argues that the plaintiffs' action should be dismissed because reference to a "taxpayer" in § 7433 is limited to the offending or delinquent taxpayer and not to innocent third parties, such as the Mews and Matrix. As a result, the Government argues that sovereign immunity has not been waived for damage actions against the IRS by innocent third parties.

This Court is not persuaded by the plaintiffs' arguments that they are entitled to money damages pursuant to § 7433. In light of the strict standard under Soriano for waiver of sovereign immunity, this Court declines to accept the plaintiffs' invitation to expand the situations in which the United States can be sued. The Mews and Matrix are innocent third parties, neither of whom is Levi R. Mews, the assessed taxpayer. As a result, the plaintiffs are not entitled to relief under § 7433. This Court's position is clearly supported by the unambiguous language of §§ 7426 and 7433 and the case law interpreting the two sections.

This is a case of statutory construction. "Where ... resolution of a question of federal law turns on a statute and the intention of Congress, we look first to the statutory language and then to the legislative history if the statutory language is unclear." Blum v. Stenson, 465 U.S. 886, 896, 104 S.Ct. 1541, 1548, 79 L.Ed.2d 891 (1984). If the statutory language is clear, it is unnecessary to look beyond the language of §§ 7426 and 7433 for purposes of...