McMillan v. US

• Decision Date: 17 May 1995
• Docket Number: No. 1:90-CV-798.,1:90-CV-798.
• Citation: 891 F. Supp. 408
• Parties: Donald A. McMILLAN, Sr., Plaintiff, v. UNITED STATES of America, Defendant and Counterclaim Plaintiff, v. Donald A. McMILLAN, Jr., and Joseph W. Kolbe, Counterclaim Defendants.
• Court: U.S. District Court — Western District of Michigan

891 F. Supp. 408

Donald A. McMILLAN, Sr., Plaintiff, v. UNITED STATES of America, Defendant and Counterclaim Plaintiff, v. Donald A. McMILLAN, Jr., and Joseph W. Kolbe, Counterclaim Defendants.

No. 1:90-CV-798.

United States District Court, W.D. Michigan. Southern Division.

March 8, 1995.

Opinion Denying Reconsideration May 17, 1995.

David A. Ward, Ward & Metti, PC, Chicago, IL, for plaintiff.

Agnes M. Kemper-Cloyd, Asst. U.S. Atty., Grand Rapids, MI, Mark D. Lansing, U.S. Dept. of Justice, Washington, DC, for defendant U.S.

Martha B. Goodloe, Bodman, Longley & Dahling, Troy, MI, for defendant Kolbe.

MEMORANDUM OPINION

McKEAGUE, District Judge.

Now before the Court are the Reports and Recommendations filed by United States Magistrate Judge Joseph G. Scoville on July 26 and 27, 1994 (docket nos. 162 and 163), in regard to counterclaim defendant Joseph W. Kolbe's motion for costs and attorney's fees. The magistrate judge recommended granting Kolbe's motion for costs and denying his motion for attorney's fees. The Court has received objections from the government and Kolbe. Therefore, in accordance with 28 U.S.C. § 636(b)(1), the Court has undertaken a de novo review of those portions of the Reports and Recommendations to which objections have been made and, for the following reasons, finds the objections to be without merit.

In response to the magistrate judge's recommendation that Kolbe be awarded costs, the government simply "disagrees with the Report's conclusion that the legal and factual issues in this case were not close and difficult." The Court, however, considers the magistrate judge's analysis of this issue accurate and well-reasoned, and expressly adopts it as the holding of the Court.

The government acknowledges that this Court has entered a final judgment as to counterclaim defendant Kolbe. Notwithstanding this fact, however, the government argues that "as a practical matter, any award of costs at this time is premature" because this "judgment is currently on appeal to the Sixth Circuit." No authority is cited in support of this argument and the Court is not aware of any such authority.

Accordingly, the Court expressly adopts the Report and Recommendation of the magistrate judge (docket no. 162) in regard to Kolbe's motion for costs. Judgment will be entered on behalf of Kolbe and against the government in the amount of $3,431.63 in taxable costs plus statutory interest from the date of judgment.

The Court now turns to Kolbe's objections to the magistrate judge's recommendation that the motion for attorney's fees be denied. This recommendation is based solely on Kolbe's failure to exhaust his administrative remedies as required by 26 U.S.C. § 7430(b)(1). In response, Kolbe argues that he was not required to exhaust his administrative remedies for two reasons.

First, relying on Rutledge v. United States, 92-2 U.S.T.C. ¶ 50,406, 1992 WL 402075 (1992), Kolbe argues that because the regulation addressing the exhaustion requirement¹ had expired and not been renewed at the time the government filed its counterclaim against him, he was not required to exhaust his administrative remedies. However, the instant case is easily distinguishable from the Rutledge case.

In Rutledge, the substantive source of the administrative remedy at issue was the relevant Treasury Regulation. Therefore, because a relevant regulation was not in effect, the party in Rutledge had no administrative remedy available to him. In the instant case, however, the substantive source of the exhaustion requirement is the statute itself, 26 U.S.C. § 7430(b)(1), not the regulation. "Treasury Regulation § 301.7430 does not create the requirement for administrative exhaustion, nor does it provide the mechanism for administrative review." Kenlin Industries, Inc. v. United States, 927 F.2d 782, 788 (4th Cir.1991). Kolbe's argument on this basis is unavailing.

Kolbe next argues that he was not required to exhaust his administrative remedies because the government brought the claim against him. As a matter of statutory interpretation, this argument is frivolous. As the magistrate judge correctly noted, § 7430 expressly applies to proceedings brought "by or against the United States." 26 U.S.C. § 7430(a) (emphasis added). And furthermore, the caselaw relied on by Kolbe for this argument is again easily distinguishable from the instant case.

Kolbe cites In re Brickell Investment Corp., 922 F.2d 696 (11th Cir.1991). In that case, the Eleventh Circuit excused the failure to exhaust because "there were no administrative remedies available to the debtors." Id. at 704. The obvious difference, however, is that in Brickell the parties had filed a bankruptcy petition before the IRS filed its proofs of claim. Therefore, "the debtors' only remedy was the remedy they pursued, which was to object to the proofs of claim under the Bankruptcy Code Rules. It was this action in which the debtors prevailed ... and which was the basis for the attorney's fee award." Id. In the instant case, it is the Internal Revenue Code (IRC) that controls and the IRC requires exhaustion of administrative remedies. 26 U.S.C. § 7430(b)(1).

The Court, therefore, also adopts the Report and Recommendation in regard to attorney's fees (docket no. 163) as the opinion of the Court.

OPINION AND ORDER DENYING MOTION FOR RECONSIDERATION AND APPLICATION FOR APPELLATE FEES AND COSTS

Now before the Court is counterclaim defendant Joseph W. Kolbe's motion for reconsideration (docket no. 174) of the Court's March 8, 1995 opinion and order which, in relevant part, denied Kolbe attorney's fees for failure to exhaust his administrative remedies as required by 26 U.S.C. § 7430(b)(1). Also before the Court is Kolbe's application for appellate fees and costs (docket no. 168) "incurred by him in connection with his defense of the government's appeal and his response to the government's continued opposition to his fee requests."

In its March 8, 1995 opinion in this case, the Court noted that Kolbe adduced two bases for his argument that he was not required to exhaust his administrative remedies. The Court stated his first basis as follows:

First, relying on Rutledge v. United States, 92-2 U.S.T.C. ¶ 50,406, 1992 WL 402075 (1992), Kolbe argues that because the regulation addressing the exhaustion requirement1 had expired and not been renewed at the time the government filed its counterclaim against him, he was not required to exhaust his administrative remedies.

1 26 C.F.R. § 301.7430-1.

March 8, 1995 Opinion, p. 410. In his motion for reconsideration, Kolbe asserts he did not make this argument. In response, the Court simply notes the following excerpt from Kolbe's relevant pleading:

Mr. Kolbe was not required to make a written request for an appeals conference within 30 days after receiving his assessment notice because, after January 1, 1986, there were no regulations in place under § 7430 imposing such a requirement. The Tax Court has recognized that a taxpayer need not pursue administrative remedies where the regulations do not apply to the time period in which the suit was filed. Rutledge v. United States, 92-2 U.S.T.C. ¶ 50,406, 1992 WL 402075 (1992). In our case, the regulations relied upon by the IRS applied only to civil proceedings filed between February 28, 1983 and January 1, 1986. 26 C.F.R. 301.7430-1(h). The IRS itself admits that these regulations were not binding on Mr. Kolbe because they had expired.

Counterclaim defendant Joseph Kolbe's Objections to Report and Recommendation Regarding Application for Fees and Expenses, p. 4. The Court reaffirms its previous characterization of Kolbe's argument and also reaffirms its conclusion that "the instant case is easily distinguishable from the Rutledge case." March 8, 1995 Opinion, p. 410. This argument is still unavailing.

Next, relying on Christensen v. United States, 815 F.Supp. 786 (D.Del.1993), Kolbe argues that the regulations which were in effect at the relevant time required only an oral request for an appeals conference and correctly notes it is undisputed that he made such a request. Therefore, he concludes, "whether his written protest was timely filed was simply immaterial." Brief in support of motion for reconsideration, p. 5. In reaching this conclusion, Kolbe relies on his assertion that the Internal Revenue Service ("IRS") conducted an "office examination" of Kolbe rather than a "field examination." It is undisputed that an oral request is sufficient to assert the taxpayer's right to appeal an office examination, and it is equally undisputed that appeals of field examinations require a written request. Kolbe argues that "the government makes no claim that this was anything other than an `office interview and correspondence case' and concedes that Mr. Kolbe made the required oral protest on a timely basis." Brief in support, p. 4. In fact, it was never clear from the record what type of examination was actually conducted in this case. However, the Court is now in receipt of the declaration¹ of Kurt Hein, the IRS Revenue Officer who conducted the investigation in the instant case. Officer Hein states that a field investigation was conducted in this case. Therefore, a timely written request was required. Because the record does not show that Kolbe complied with this requirement, the Court reaffirms its previous denial of Kolbe's motion for attorney's fees.

Finally, relying on Pomeroy v. United States, 87-1 U.S.T.C. ¶ 9329, 1987 WL 15466 (S.D.W.Va.1987), Kolbe argues that the government waived the exhaustion requirement in this case by impleading him in a pending suit. After review of the case cited by Kolbe, the Court concludes it is readily distinguishable.

In Pomeroy, the district court excused the exhaustion requirement as to one of the parties because her "opportunity to exhaust her remedies was foreshortened by her being thrust involuntarily into pending litigation, and further, the agency...