Sands v. Weingrad

• Decision Date: 03 April 1979
• Citation: 416 N.Y.S.2d 969,99 Misc.2d 598
• Parties: , 79-1 USTC P 9321 Ira Jay SANDS, Plaintiff, v. Samuel WEINGRAD and Stephen Weingrad, etc., Defendants.
• Court: New York Supreme Court

Page 969

416 N.Y.S.2d 969

99 Misc.2d 598, 79-1 USTC P 9321

Ira Jay SANDS, Plaintiff, v. Samuel WEINGRAD and Stephen Weingrad, etc., Defendants.

Supreme Court, Special Term, New York County, Part I.

April 3, 1979.

Ira Jay Sands, New York City, for plaintiff.

Weingrad & Weingrad, P. C., New York City, for defendants; Stephen A. Weingrad, New York City, of counsel.

MEMORANDUM DECISION

BENTLEY KASSAL, Justice:

ISSUE

Before this motion to dismiss on the basis of Statute of Limitations may be considered, a threshold issue is raised as to whether this Court has jurisdiction to entertain a complaint for civil damages under Section 7217 of the Internal Revenue Code ("IRC") for unauthorized disclosure of tax returns. This is an issue of first impression for this Court and apparently has not previously been resolved by any other State or Federal court.

FACTS

All of the parties to this action are attorneys. In December, 1976 and January, 1977, defendants appeared as counsel to an accounting firm in an action brought against the plaintiff, Sands, for work, labor and services in preparation of Sands' tax returns. Sands alleges that, during the course of that litigation, defendants made an unlawful publication of his personal income tax returns. Sands instituted the In the instant motion, in addition, the defendants have moved to dismiss the complaint as barred by the Statute of Limitations, specifically, CPLR 215, which provides a one year Statute of Limitations for actions to recover damages for " . . . libel, slander, false words causing special damages or a violation of the right of privacy under section fifty-one of the civil rights law".

present action in September, 1978, broadly claiming, Inter alia, an invasion of his constitutional right to privacy and a violation of the prohibition against such disclosure under the IRC.

Although the complaint is stated in broad conclusory terms, Sands has narrowed its thrust considerably by his statement in opposition to the motion, as follows:

"2. The Complaint is based upon the misuse by defendant of confidential Federal tax information in violation of the Federal statute as well as the tort by which defendants with malice and evil intent having been expressed by them in documents have publicized confidential information regarding plaintiff." Plaintiff's Opposing Affirmation on Summary Judgment, p. 1.

Thus, the complaint must be examined to determine whether it states any cause of action not barred by the Statute of Limitations.

DECISION

1. Violation of Internal Revenue Code (IRC § 7217)

a. Jurisdiction

This cause of action is based upon a recent amendment to the IRC, which creates a statutory civil cause of action for actual and punitive damages for improper disclosure of tax returns or information furnished to prepare such returns. IRC § 7217 (added Pub.L. 94-455, Title XII § 1202(e)(1), October 4, 1976, 90 Stat. 1687). Before a decision is made on whether such action was timely commenced, the Court must determine whether jurisdiction to entertain such cause of action exists in the state courts.

The statutory provision for such action is:

"Sec. 7217 (1954 Code). (a) General Rule Whenever any person knowingly, or by reason of negligence, discloses a return or return information (as defined in section 6103(b)) with respect to a taxpayer in violation of the provisions of section 6103, such taxpayer may bring a civil action for damages against such person, and the district courts of the United States shall have jurisdiction of any action commenced under the provisions of this section."

Thus, while the statute expressly grants jurisdiction to the Federal District Courts, the issue remains as to whether such jurisdiction is exclusive.

Federal jurisdiction is not exclusive merely because the controversy litigated arises under a law of the United States. Concurrent jurisdiction has been a common phenomenon in our judicial history and exclusive Federal court jurisdiction over cases involving Federal law has been the exception rather than the rule. Charles Dowd Box Co. v. Courtney, 368 U.S. 502, 82 S.Ct. 519, 7 L.Ed.2d 483. Unless Congress expressly declares Federal court jurisdiction to be exclusive, the Federal and State courts are presumed to have concurrent jurisdiction to try Federal claims. Brody v. Leamy, 90 Misc.2d 1, 393 N.Y.S.2d 243; Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction § 3527. This presumption is not rebutted here neither the plain meaning of the statute nor the legislative history of the act raise the slightest implication that exclusive jurisdiction was intended.

Section 7217 provides that, "the district courts of the United States shall have jurisdiction of any action commenced under the provisions of this section," and this language should be construed in its ordinary sense. Because the Federal District Courts are courts of limited jurisdiction, in the sense that they are without jurisdiction except as conferred by the Constitution and laws of the United States, a Congressional statement is necessary to grant them jurisdiction over any newly created cause of action. Moreover, a separate jurisdictional statement was necessary for this provision since ambiguity would otherwise exist as to whether an action under Section 7217 could be brought in the District Courts under 28 U.S.C. § 1340 which provides that, "The district courts shall have original jurisdiction of any civil action arising under any Act of Congress Providing for internal revenue . . . " (emphasis supplied); 28 U.S.C. § 1340, see, e. g. Aqua Bar & Lounge v. U.S. Dept. of Treasury, 3 Cir., 539 F.2d 935.

The legislative history of the enactment does not suggest that Congress intended exclusive Federal jurisdiction. One of the primary purposes of the Tax Reform Act of 1976 was to strengthen the rights of taxpayers. Although prior law described income tax returns as public records, Congress determined that returns and return information should be treated as confidential and generally not subject to disclosure. General Explanation of the Tax Reform Act of 1976 (H.R. 10612, 94th Congress, Public Law 94-455) Joint Committee on Taxation. In order to redress any injuries sustained and to aid in the enforcement of the confidentiality rules, increased criminal penalties and a new civil action for damages were added to protect taxpayers injured by a knowing or negligent disclosure.

A realistic appraisal of the legislation indicates that the primary potential defendants involved in civil actions for unlawful disclosure would be personnel working for the Internal Revenue Service, with the United States serving as the real party in interest. ¹

Since the Federal government has waived its sovereign immunity from suit only in the District Courts or the Court of Claims, the State would lack jurisdiction to consider these claims. Econ, Inc. v. Ill. Bell Tel. Co., D.C., 351 F.Supp. 1087. However, the likelihood that many defendants would be amenable to suit only in the Federal courts does not require a conclusion that such jurisdiction is exclusive. It is obvious, the instant case being one example, that non-governmental defendants may also be involved and there is no suggestion in legislative history that Congress intended to deny a party the right to seek redress for such disclosures in an appropriate state tribunal.

Clearly some matters pertaining to the enforcement of the IRC are most appropriately resolved in the Federal courts. However, this statutory cause of action does not involve the interpretation...