Munaco v. U.S.

• Decision Date: 15 April 2008
• Docket Number: No. 07-1836.,07-1836.
• Citation: 522 F.3d 651
• Parties: Salvatore MUNACO, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

522 F.3d 651

Salvatore MUNACO, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 07-1836.

United States Court of Appeals, Sixth Circuit.

Argued: March 17, 2008.

Decided and Filed: April 15, 2008.

ARGUED:

Kenneth J. Wrobel, Jr., Kenneth J. Wrobel, Jr., P.C., Birmingham, Michigan, for Appellant. John A. Nolet, United States Department of Justice, Washington, D.C., for Appellee.

ON BRIEF:

Kenneth J. Wrobel, Jr., Kenneth J. Wrobel, Jr., P.C., Birmingham, Michigan, for Appellant. John A. Nolet, Bruce R. Ellisen, United States Department of Justice, Washington, D.C., for Appellee.

Before: BOGGS, Chief Judge; ROGERS, Circuit Judge; and SHADUR, District Judge.^*

OPINION

BOGGS, Chief Judge.

Plaintiff Salvatore Munaco paid the federal government $326,061.34 to satisfy a federal tax lien placed on real property he owned in Florida. Believing that the lien was invalid, Munaco sued for a refund in federal district court. Unfortunately for Munaco, the district court ruled correctly that it lacked jurisdiction because the United States is immune from suit. Even more unfortunately, Munaco's failure to pursue the prescribed statutory remedies available to a person in his position means that he has no further remedy available to him. We affirm the district court's dismissal of Munaco's claim for lack of subject-matter jurisdiction.

I

On January 7, 2005, Salvatore Munaco acquired title to real property in Palm Beach County, Florida, from Stephen and Dana Roncelli. The same day, he recorded a quitclaim deed with the Palm Beach County Register of Deeds.¹ The Roncellis owed tax liabilities to the United States. On March 17, 2005, the IRS issued a Notice of Federal Tax Lien in the amount of $286,814.24 against the Roncellis. On April 26, the government recorded with the Palm Beach County Register of Deeds a Notice of Federal Tax Lien against the real property that Munaco had purchased in January.

On July 16, 2005, Munaco entered into an agreement to sell the property to a buyer named Copple and was scheduled to transfer title in September 2005. In the course of searching title for the property, Munaco discovered the tax lien. He contacted the IRS and objected to the lien. Munaco says that the IRS informed him that if he conditioned or qualified the lien payment in any way, his title would not be clear and marketable. In order to close his sale, on September 19, 2005, Munaco directed the title company to pay $326,061.34 from the sale proceeds to the United States to discharge the tax lien.²

On September 12, 2006, Munaco filed suit in federal court in the Eastern District of Michigan. He alleged that the federal tax lien was not valid because the Roncellis did not own the property at the time that the lien was recorded; therefore, the lien was invalid under 26 U.S.C. § 6323. Accordingly, Munaco sought damages of $326,061.34 (the amount he paid to satisfy the lien) plus interest. He also sued for slander of title and conversion, seeking additional unspecified damages for those claims, plus attorney fees.

On June 1, 2007, the district court granted the government's motion to dismiss on the ground that it lacked subject-matter jurisdiction over the case because the government had not waived sovereign immunity. Munaco appealed. Our review is de novo. Wagenknecht v. United States, 509 F.3d 729, 731 (6th Cir.2007).

II

"It is axiomatic that the United States may not be sued without its consent and that the existence of consent is a prerequisite for jurisdiction." United States v. Mitchell, 463 U.S. 206, 212, 103 S.Ct. 2961, 77 L.Ed.2d 580 (1983); see also Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 411-12, 5 L.Ed. 257 (1821) ("The universally received opinion is, that no suit can be commenced or prosecuted against the United States."); THE FEDERALIST NO. 81, at 487-88 (Alexander Hamilton) (Clinton Rossiter ed., 1961) ("It is inherent in the nature of sovereignty not to be amenable to the suit of an individual without its consent."). When the federal government has waived its immunity and consented to suit, we strictly construe any waiver, and the putative plaintiff must abide the terms of the consent. See Young v. United States, 332 F.3d 893, 895 (6th Cir.2003). As Justice Holmes remarked: "Men must turn square corners when they deal with the Government. If it attaches even purely formal conditions to its consent to be sued those conditions must be complied with." Rock Island, A. & L.R. Co. v. United States, 254 U.S. 141, 142, 41 S.Ct. 55, 65 L.Ed. 188 (1920). This is true even when the square corners constitute a "one-way street" in the government's favor. See Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 387-88, 68 S.Ct. 1, 92 L.Ed. 10 (1947) (Jackson, J., dissenting) ("It is very well to say that those who deal with the Government should turn square corners. But there is no reason why the square corners should constitute a one-way street").

In this case, Munaco failed to turn any corners, let alone square ones. Munaco filed suit seeking a refund of the money he paid to clear the tax lien, and he argued that the lien was invalid against him since he had recorded his deed from the Roncellis before the government recorded the tax lien. He alleged that jurisdiction was proper under 28 U.S.C. § 1346(a)(1), which grants district courts jurisdiction over "[a]ny civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected . . . ."³ Relevant to this appeal, the government argued that it had not waived sovereign immunity because Munaco had ignored the administrative remedies available to him under Sections 6325(b)(4) and 7426(a)(4) of Title 26. The district court agreed and held that sovereign immunity barred Munaco's suit because he had not pursued his administrative remedies.

Notably, if this case had arisen some years ago, Munaco would have been successful because of a then-controlling Supreme Court precedent in his favor. The Supreme Court's 1995 decision in United States v. Williams, 514 U.S. 527, 115 S.Ct. 1611, 131 L.Ed.2d 608 (1995), held that federal courts could hear a similarly-situated plaintiff's claim under § 1346's general grant of jurisdiction over tax cases. However, in 1998, Congress responded to Williams and amended the Internal Revenue Code to provide a specific statutory remedy for a person in Munaco's position. The question presented is whether suit under § 1346 is still proper, even though Munaco failed to exhaust the administrative remedies that the 1998 amendments enacted.

In Williams, the Supreme Court held that Williams, who had paid a tax under protest to remove a lien on her property, had standing to bring a refund action under 28 U.S.C. § 1346, even though the tax she paid was assessed against a third party. See 514 U.S. at 529, 115 S.Ct. 1611. The IRS had placed a lien on the assets of Williams's husband, including his joint interest in their house. Williams's husband deeded his interest in the house to her in contemplation of divorce, and the IRS filed its notice of tax lien several weeks later. Williams contracted to sell the house, the IRS provided actual notice of the lien, and the purchaser threatened to sue if the sale were not completed. Williams had sale proceeds disbursed directly to the IRS to satisfy the lien. She then sued for a refund, claiming that she had taken her husband's interest in the house free of the IRS lien. Id. at 529-30, 115 S.Ct. 1611. Like Munaco, Williams invoked § 1346(a)(1). See id. at 530, 115 S.Ct. 1611. The government insisted that Williams lacked standing because § 1346 supported only actions by the assessed taxpayer. The government also argued that an administrative exhaustion requirement applied, see 26 U.S.C. § 7422, and that Williams was not a "taxpayer" within the meaning of the statutes.

The Court held that Williams could sue under § 1346. Williams, 514 U.S. at 529, 115 S.Ct. 1611. In its analysis, the court held that Williams was a "taxpayer" under the statutes because she was subject to the tax, even if she was not the one against whom the tax was assessed. The Court focused heavily on the fact that, if taxpayers in Williams's position could not sue under § 1346, they would be left without a remedy. Id. at 536, 115 S.Ct. 1611. The Court found that the statutory remedies that existed at the time, including actions for wrongful levy and to quiet title, were pre-deprivation remedies and did not provide any realistic alternative to paying the tax. See id. at 536-39, 115 S.Ct. 1611. Williams had paid and needed a post-deprivation remedy, which the Court held that § 1346 supplied. See id. at 537-38, 115 S.Ct. 1611.

All else equal, Williams's holding would clearly authorize Munaco's suit under § 1346. Cf. Beauchamp v. United States, 4 F.Supp.2d 213 (W.D.N.Y.1998) (applying Williams and holding that a plaintiff could sue under § 1346). Unfortunately for Munaco, all else is not equal because Congress amended the Internal Revenue Code in 1998 to provide the specific remedy that the Williams Court had found lacking. In particular, Congress enacted the Internal Revenue Service Restructuring & Reform Act of 1998 (IRRA), Pub.L. No. 105-206, § 3106, 112 Stat. 732, 732-34, to address the problem that the Court faced in Williams. See S.Rep. No. 105-174, at 44-55 (1998). Here then, Congress created the square corners around which plaintiffs in Munaco's position must turn.

The amendments added subsection (b)(4) to 26 U.S.C. § 6325 and subsection (a)(4) to 26 U.S.C. § 7426. Under the new statutory scheme, 26 U.S.C. § 6325(b)(4) requires the IRS to issue a certificate of discharge as a matter of right to third parties under specified circumstances.⁴ Pursuant to 26 U.S.C. § 6325(b)(4)(A), the third party has the right to obtain a certificate of discharge by applying to the Secretary of the Treasury for such a certificate and either depositing cash or...