Reuss v. Orlando Health, Inc.

• Decision Date: 21 October 2015
• Docket Number: Case No: 6:15–cv–805–Orl–28GJK
• Citation: 140 F.Supp.3d 1299
• Parties: Bryan Reuss, Plaintiff, v. Orlando Health, Inc., Defendant.
• Court: U.S. District Court — Middle District of Florida

140 F.Supp.3d 1299

Bryan Reuss, Plaintiff,

v.Orlando Health, Inc., Defendant.

Case No: 6:15–cv–805–Orl–28GJK

United States District Court, M.D. Florida, Orlando Division.

Signed October 21, 2015

Jordan Matthew Lewis, Kelley Uustal, PLC, Ft. Lauderdale, FL, Thomas Scott Tufts, Tufts Law Firm, PLLC, Maitland, FL, for Plaintiff.

Chad K. Alvaro, W. Scott Gabrielson, Mateer & Harbert, PA, Orlando, FL, for Defendant.

ORDER

JOHN ANTOON II

, United States District Judge

In this putative class action, Dr. Bryan Reuss alleges in a single-count complaint (Doc. 1) that his employer, Orlando Health, Inc. ("the Hospital"), breached a fiduciary duty by failing to either file a FICA tax refund claim on behalf of him and others or advise them of their opportunity to seek a FICA tax refund. In response to the Complaint, the Hospital filed a motion to dismiss (Doc. 9), contending: (i) the Hospital did not have a fiduciary relationship with Dr. Reuss, (ii) Dr. Reuss's claims are barred by Florida's statute of limitations, and (iii) Dr. Reuss's claim is actually a tax refund suit and is therefore preempted by 26 U.S.C. § 7422

. The Hospital's motion has merit and must be granted.

I. Background

This case requires some understanding of the Federal Insurance Contributions Act ("FICA"). The Eleventh Circuit has explained:

FICA establishes a tax that is assessed by the federal government based on wages paid to workers, and the money collected from the FICA tax is used to fund the Social Security Trust Fund. Under a traditional employer-employee relationship, an employer withholds from the employee's paycheck a percentage of the employee's wages based on the applicable FICA wage rate. The money withheld from the employee's paycheck is then paid to the government, making it, in essence, a tax paid by the employee. At the same time, the employer itself pays a FICA "excise tax" that is equal in amount to the percentage wage rate paid by the employee. In a traditional employer-employee relationship, therefore, the employee pays half of the total FICA tax owed and the employer pays the other half.

McDonald v. S. Farm Bureau Life Ins. Co., 291 F.3d 718, 721 (11th Cir.2002)

. Dr. Reuss is currently employed by the Hospital as a surgeon, but during the time period relevant to this suit—July 1, 2000 to June 30, 2005—he worked for the Hospital as a medical resident. (Compl. at 1). During his residency, the Hospital withheld FICA taxes from Dr. Reuss's wages and, in accordance with the requirements of IRS regulations, submitted those taxes, along with the Hospital's own contributions, to the IRS. (Id. at 2–3).

Dr. Reuss's former status as a "medical resident" is important because the IRS excepts certain relationships, including students working for schools, from the definition of "employment" and therefore from the obligation to pay FICA taxes. United States v. Mount Sinai Med. Ctr. of Fla., Inc., 486 F.3d 1248, 1250 (11th Cir.2007)

. The "student exception" "provides that ‘the term "employment" ... shall not include ... service[s] performed in the employ of ... a school, college, or university ... if such service is performed by a student who is enrolled and regularly attending classes at such school, college, or university[.]’ " Id. (alterations in original) (quoting 26 U.S.C. § 3121(b)(10) ).

"Historically, the [IRS] interpreted the [s]tudent [exception] to exclude medical residents and fellows [from the exception's coverage]." Childers v. N.Y. & Presbyterian Hosp., 36 F.Supp.3d 292, 299 (S.D.N.Y.2014)

. "Therefore, the IRS required all hospitals to withhold FICA taxes from the paychecks of their residents and fellows." Id. Additionally, a corresponding student exception existed in the Social Security Act, and the Social Security Administration ("SSA") consistently held that medical residents were not "students" under that exception. See Minnesota v. Apfel, 151 F.3d 742, 747–48 (8th Cir.1998). But, in 1998, that traditional interpretation was called into question when the Eighth Circuit held that the "SSA could not categorically exclude residents from student status." Mayo Found. for Med. Educ. & Research v. United States , 562 U.S. 44, 49, 131 S.Ct. 704, 178 L.Ed.2d 588 (2011) (discussing Apfel ); see Apfel, 151 F.3d at 747–48. After Apfel, some hospitals filed FICA tax refund claims with the IRS on the grounds that medical residents qualified as students. Ma y o Found., 562 U.S. at 49, 131 S.Ct. 704.

Confusion as to the status of medical residents resulting from Apfel

was cleared up in 2004 when the Treasury Department issued a new regulation, Treas. Reg. § 31.3121(b)(10)–2(d)(3)(i), providing that an employee who performs services of a "full-time employee"—that is, who is normally scheduled 40 or more hours per week—is not a "student" exempt from FICA taxation. Mayo Found., 562 U.S. at 50, 131 S.Ct. 704 (citing 69 Fed.Reg. 8605 (2004) and Treas. Reg. § 31.3121(b)(10)–2(d)(3)(i) ). Because a medical resident's normal work schedule calls for the resident to work more than 40 hours per week, the new rule effectively ended the student exception's applicability to medical residents for services performed after April 1, 2005. See Treas. Reg. § 31.3121(b)(10)–2 (2004).

Despite the 2004 regulation, in 2010, the IRS decided that it would honor claims for FICA tax refunds filed before April 1, 2005 on behalf of medical residents under the student exception. IRS to Honor Medical Resident FICA Refund Claims. I.R.S. News Release, IR–2010–25, 2010 WL 703144, at *1 (Mar. 2, 2010)

. Because there is a three-year statute of limitation for FICA tax refunds, all claims filed after the 2010 decision were time-barred. Only pending claims that had been timely filed qualified—so-called "protective FICA tax refund claims."

Many hospitals—including the Hospital here—had filed such protective FICA tax refund claims in case the IRS decided to change its policy and classify medical residents as students. The Hospital filed a protective FICA tax refund claim in 2004 on behalf of itself and its medical residents for FICA taxes paid in the year 2000, but it did not file protective claims for itself or its residents for the years 2001–2005. (Compl. at 4).

IRS Form 941–C requires that employers seeking a FICA tax refund on behalf of employees certify that either its affected employees gave their written consent for the employer to file the tax refund claim or that an unsuccessful attempt was made to locate the employee. (Id. at 5). Instead of obtaining consent from its employees, when the Hospital filed its protective claims in 2004 it included a note with the Form 941–C stating that the Hospital was "in the process of obtaining the written consent ... from each individual to obtain the refund of the employee share of overpaid FICA taxes on their behalf." (Id. ). The Hospital did not seek such consent from Dr. Reuss. (Id. ). In 2012, the IRS disbursed to the Hospital the FICA tax refund for the year 2000. (Id. ). At that time, the Hospital distributed the employee portion of the refund to the eligible medical residents. (Id. ). Dr. Reuss asserts that his receipt of the refund was when he first learned that a FICA tax refund opportunity existed for the years 2000–2005. (Id. ).

In 2013, Dr. Reuss sued the United States seeking a refund of the FICA tax that was withheld for the years 2001–2005. (Case No. 6:13–cv–01510–ACC–GJK; see also Notice of Pendency of Other Actions, Doc. 10). The parties settled that case and it was dismissed with prejudice. (Docs. 33 & 34 in Case No. 6:13–cv–01510–ACC–GJK). Nonetheless, in May 2015, Dr. Reuss commenced this action claiming that the Hospital "breached [its] fiduciary obligation by failing to disclose or otherwise act on the existence of the 2001–[2005] ‘refund opportunity.’ " (Compl. at 9). Dr. Reuss claims that he had "no way of discovering [his] FICA overpayment unless [the Hospital] properly complie[d] with the IRS-required time limits on the filing of protective claims" or obtained the proper consent from its employees regarding the 2000 FICA tax refund claim. (Id. at 8). He alleges that the Hospital's acts prevented him from learning that refund opportunities existed for the years 2001–2005 and that by the time he found out about the refund opportunity, the FICA tax refund statute of limitations period had elapsed. (Id. at 9). By this suit, Dr. Reuss seeks to recover from the Hospital an amount equivalent to that contributed on his behalf by the Hospital for FICA taxes for the years 2001–2005. (Id. )

II. Legal Standard¹

"A pleading that states a claim for relief must contain ... a short and plain statement of the claim showing that the pleader is entitled to relief...." Fed. R. Civ. P. 8(a)(2)

. "To survive a motion to dismiss [under

Federal Rule of Civil Procedure 12(b)(6)

], a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). In ruling on a 12(b)(6) motion to dismiss for failure to state a claim, a court must view the complaint in the light most favorable to the plaintiff, Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974), and must limit its consideration to the pleadings and any exhibits attached thereto, Fed. R. Civ. P. 10(c). See also GSW, Inc. v. Long Cty., Ga., 999 F.2d 1508, 1510 (11th Cir.1993). "Dismissal is warranted under 12(b)(6) if, assuming the truth of the factual allegations of the plaintiff's complaint, there remains a dispositive legal issue which precludes relief." Schneider v. Parker, No. 6:09–cv–1089–ORL–35, 2011 WL 722759, at *2 (M.D.Fla. Feb. 23, 2011).

"Whether a fiduciary duty exists is necessarily fact-specific to the particular case," and "[t]herefore a claim alleging the existence of a fiduciary duty usually is not subject to dismissal under Rule 12(b)(6)

"...