SCHARRINGHAUSEN v. US

• Decision Date: 29 September 2009
• Docket Number: Case No. 06cv2167.
• Citation: 686 F. Supp.2d 1069
• Parties: Robert M. SCHARRINGHAUSEN, Plaintiff, v. UNITED STATES of America and The Internal Revenue Service, Defendant.
• Court: U.S. District Court — Southern District of California

686 F.Supp.2d 1069

Robert M. SCHARRINGHAUSEN, Plaintiff, v. UNITED STATES of America and The Internal Revenue Service, Defendant.

Case No. 06cv2167.

United States District Court, S.D. California.

September 29, 2009.

Richard Leo Fahey, Lieb and Lieb, Ezekiel E. Cortez, Law Office of Ezekiel E. Cortez, San Diego, CA, for Plaintiff.

Jeremy N. Hendon, Lauren M. Castaldi, United States Department of Justice, Washington, DC, for Defendant.

ORDER GRANTING IN PART AND DENYING IN PART DEFEDANT'S MOTION TO DISMISS FIRST CAUSE OF ACTION OF PLAINTIFF'S SECOND AMENED COMPLAINT

JANIS L. SAMMARTINO, District Judge.

Presently before the Court is the United States of America's ("defendant") Motion to Dismiss Robert M. Scharringhausen's ("plaintiff") First Cause of Action of the Second Amended Complaint ("SAC"). Defendant argues that plaintiffs first cause of action must be dismissed for lack of subject matter jurisdiction or, in the alternative, for failure to state a claim upon which relief may be granted. Plaintiffs first cause of action seeks damages under Internal Revenue Code § 7433, claiming violations of 26 U.S.C. § 7602(c)(2), 26 U.S.C § 7122, 26 C.F.R. § 301.7602-1(c)(3)(iii) and 26 U.S.C. § 7491(a). For the reasons stated below, the Court grants in part and denies in part defendant's motion to dismiss the first cause of action of the second amended complaint for lack of subject matter jurisdiction pursuant to FRCP 12(b)(1) and denies defendant's motion to dismiss the first cause of action of the second amended complaint for failure to state a claim pursuant to FRCP 12(b)(6).

BACKGROUND

On March 20, 2003, the United States filed a complaint in this United States District Court against plaintiff (case no. 03cv551) to reduce outstanding federal tax assessments to judgment, including plaintiffs personal income tax liabilities for 1991-92 and trust fund recovery penalties for periods ending December 31, 1990 and September 30, 1991. (SAC ¶ 1.) The Internal Revenue Service ("IRS") authorized the Department of Justice ("DOJ") to commence the March 20, 2003 action. (SAC ¶ 3 1; see 03cv551.) Prior to the filing of the complaint, Revenue Agent Phan began a civil audit of plaintiff for the 1999-2001 tax years. (SAC ¶ 4-5.) Pursuant to this audit, Phan issued various administrative summonses to third parties. (Id.)

On or about November 6, 2003, default judgment was entered against plaintiff. (SAC ¶ 15.) Subsequently, the United States prevailed on its motion to compel post-judgment discovery, and plaintiff was ordered to pay fees and costs that the United States reasonably incurred in bringing its discovery motion. (SAC ¶ 17.) Plaintiffs motion to set aside the default judgment was ultimately denied. (See 03cv551.)

On March 17, 2006, plaintiff filed a written administrative claim with the IRS. (SAC ¶ 26 & Ex. B.) The administrative claim alleged that the IRS violated Internal Revenue Code § 7433 and illegally authorized the DOJ to bring the March 20, 2003 action, when the IRS knew there was no evidentiary support for the case. (SAC, Ex. B.) The claim also stated that plaintiff had suffered damages of at least $318,956.79 as a result of the IRS's illegal authorization. (Id.)

On September 29, 2006, plaintiff filed his complaint. (Doc. No. 1.) The first cause of action sought civil damages for an unlawful collection action. (Id. at 4.) The second cause of action requested production of withheld records pursuant to the Freedom of Information Act. (Id. at 5.)

Defendant filed a motion to dismiss the first cause of action under FRCP 12(b)(6) on June 26, 2007. (Doc. No. 19.) Because it was filed after defendants answered, the motion was construed as a motion for judgment on the pleadings pursuant to FRCP 12(c). (Doc. No. 23.) This Court granted the defendant's motion for judgment on the pleadings because plaintiff failed to cite any Internal Revenue Code provision or Treasury regulation that Defendant disregarded in violation of § 7433. (Doc. No. 38.)

On April 2, 2008, plaintiff filed his first amended complaint ("FAC"). (Doc. No. 41.) Defendant filed a motion to dismiss the first cause of action pursuant to FRCP 12(b)(1) and (6) on April 16, 2008. (Doc. No. 43.) Plaintiff filed his opposition to the motion on June 6, 2008. (Doc. No. 45.) Defendant replied on June 13, 2008. (Doc. No. 47.)

On March 6, 2009, this Court granted defendant's motion to dismiss with leave to amend. Specifically, this Court granted defendant's motion to dismiss for lack of subject matter jurisdiction as it related to 26 U.S.C. §§ 7602(c)(2) and 7122 and 26 C.F.R. § 301.7602-1(c)(3)(ii) because plaintiff failed to exhaust his administrative remedies prior to bringing suit in district court. The Court further granted defendant's motion to dismiss for failure to state a claim as related to 26 U.S.C. § 7491.

As a result of the Court's March 6, 2009 Order, plaintiff filed a second administrative claim with the IRS on March 19, 2006. He subsequently filed a second amended complaint ("SAC") on April 2, 2009. (Doc. No. 51). Defendant filed the present motion to dismiss on April 13, 2009. (Doc. No. 53.) Plaintiff filed his opposition to the motion on June 25, 2009. (Doc. No. 56.) Defendant filed a reply to the opposition on July 1, 2009. (Doc. No. 57.) The motion was originally set for hearing on July 9, 2009, but was subsequently vacated by this Court and the matter was taken under submission without oral argument pursuant to Civil Local Rule 7.1(d)(1).

MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION

A. Legal Standard

A party may move to dismiss the complaint for lack of subject matter jurisdiction, and the Court must dismiss the action when "the court determines at any time that it lacks subject matter jurisdiction." Fed.R.Civ.P. 12(b)(1), (h)(3). The plaintiff bears the burden of establishing jurisdiction. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994); In re Dynamic Random Access Memory (DRAM) Antitrust Litig., 546 F.3d 981, 984 (9th Cir.2008). The Court must first determine whether it has jurisdiction, and must not reach the merits where jurisdiction is lacking. Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 90 L.Ed. 939 (1946); Orff v. United States, 358 F.3d 1137, 1149 (9th Cir.2004).

Rule 12(b)(1) motions may challenge jurisdiction facially or factually. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir.2004); White v. Lee, 227 F.3d 1214, 1242 (9th Cir.2000). In the factual challenge, the defendant disputes the substance of the jurisdictional allegations based on facts outside the pleadings. Safe Air, 373 F.3d at 1039; White, 227 F.3d at 1242. To adjudicate the factual challenge, the Court may review evidence beyond the complaint without converting the Rule 12(b)(1) motion into one for summary judgment. Savage v. Glendale Union High Sch., Dist. No. 205, Maricopa County, 343 F.3d 1036, 1039 n. 2 (9th Cir.2003); David v. Giurbino, 488 F.Supp.2d 1048, 1054 (S.D.Cal.2007). Once the moving party makes a factual challenge by bringing evidence before the Court, the opposing party must furnish its own affidavits or other evidence to establish subject matter jurisdiction. Safe Air, 373 F.3d at 1039; Savage, 343 F.3d at 1039 n. 2. Without assuming the truth of the complaint's factual allegations, the Court nonetheless resolves factual disputes in favor of the non-moving party. Dreier v. United States, 106 F.3d 844, 847 (9th Cir.1996); Farrah v. Monterey Transfer & Storage, Inc., 555 F.Supp.2d 1066, 1067-68 (N.D.Cal.2008).

In the facial challenge, the defendant asserts the insufficiency of the complaint's allegations to invoke federal jurisdiction as a matter of law. Whisnant v. United States, 400 F.3d 1177, 1179 (9th Cir.2005); Cross v. Pac. Coast Plaza Invs., L.P., 2007 WL 951772, at *1 (S.D.Cal. Mar. 6, 2007). To adjudicate the facial challenge, the Court assumes the truth of the allegations in the complaint and draws all reasonable inferences in favor of the plaintiff. Whisnant, 400 F.3d at 1177; Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir.2004).

B. Discussion

Plaintiffs first cause of action in his SAC asserts that he is entitled to damages pursuant to 26 U.S.C. § 7433, which reads in relevant part:

If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States.

To state a claim under § 7433, a plaintiff must allege that the IRS violated an Internal Revenue Code provision or a Treasury Regulations. Shwarz v. United States, 234 F.3d 428, 433-34 (9th Cir.2000). Plaintiff asserts four alleged violations of the IRC or Treasury Regulations as a basis for civil damages. Three of these violations have previously been dismissed by this Court for lack of subject matter jurisdiction: 26 U.S.C § 7602(c)(2), 26 U.S.C. § 7122, and 26 C.F.R. § 301.7602-1(c)(3)(iii). (Doc. No. 48.)

Specifically, in its March 9, 2009 Order, in reviewing plaintiffs first amended complaint, this Court found that plaintiff did not exhaust his administrative remedies as to these three violations. Until plaintiff did so, the Court did not have jurisdiction over these alleged violations. (Doc. No. 48, at 3-4) (citing Conforte v. United States, 979 F.2d 1375, 1377 (9th Cir.1992).) Accordingly, the Court dismissed the first cause of action as it related to these statutes for lack of subject matter jurisdiction. Defendant now argues that the Court must again dismiss the first cause of action as it relates to these violations. The Court disagrees.

As a threshold matter, the Court finds defendant's argument that this Court previously dismissed these allegations with prejudice in...