Scheafnocker v. Comm'r of Internal Revenue Serv..

• Citation: 642 F.3d 428
• Decision Date: 19 April 2011
• Docket Number: No. 08–2655.,08–2655.
• Parties: Joanne R. SCHEAFNOCKER, Appellantv.COMMISSIONER OF INTERNAL REVENUE SERVICE.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

642 F.3d 428

107 A.F.T.R.2d 2011-1823

2011-1 USTC P 50,344

Joanne R. SCHEAFNOCKER, Appellant

v.COMMISSIONER OF INTERNAL REVENUE SERVICE.

No. 08–2655.

United States Court of Appeals, Third Circuit.

Argued May 19, 2010.Filed April 19, 2011.

William C. Kaczynski, Esq. (Argued), Pittsburgh, PA, for Appellant.Kathleen E. Lyon, Esq. (Argued), Teresa E. McLaughlin, Esq., United States Department of Justice Tax Division, Henry C. Darmstadter, Esq., Yonatan Gelblum, Esq., United States Department of Justice, Tax Division, Civil Trial Section, Washington, DC, for Appellee.BEFORE: FUENTES, HARDIMAN, and NYGAARD, Circuit Judges.

OPINION OF THE COURT

PER CURIAM.

Joanne Scheafnocker appeals the District Court's order dismissing her complaint, on a finding that her wrongful levy claim is time-barred. She raises procedural due process issues because she did not receive any notice that the IRS had levied funds she held jointly with her ex-husband. We conclude that Scheafnocker has sufficiently pleaded a constitutional claim with a distinct basis for jurisdiction. Therefore, we will vacate the District Court's order, and remand the cause for it to consider the merits of her due process claim.

I.

The merits of Scheafnocker's wrongful levy claim are undeveloped because the time-bar issue has been the focus of review in every instance. Therefore, we briefly recite background information provided in the complaint, along with the procedural history of the case.¹

Appellant Joanne Scheafnocker and her ex-husband Fred Scheafnocker divorced in 1983. Joanne Scheafnocker filed a child support case in Texas state court, where Fred Scheafnocker lives. In 1988, Joanne placed a jointly issued check, the proceeds from the sale of their marital home, in a certificate of deposit from Equibank in North Huntingdon, Pennsylvania. The certificate of deposit, issued in her name and that of her ex-husband, was to be left untouched pending settlement of the child support case.² From the record, it is apparent that she later moved to California.

The record also states that on October 7, 2002, the Internal Revenue Service assessed trust fund recovery penalties against Fred Scheafnocker and sent him a Notice to Levy for his failure to turn over taxes that he withheld from employees of his business in Texas. The government levied the funds jointly held by Fred and Joanne Scheafnocker in the North Huntingdon bank on May 30, 2003. Approximately fourteen months later, in July 2004, Joanne Scheafnocker attempted to make a deposit into the account to “keep the account active,” discovering then that the funds were gone and that the account was closed. She learned of the levy at this time.³ The government admits that it never sent Joanne Scheafnocker any notice of the levy.

Joanne Scheafnocker filed pro se an IRS Form 911 for taxpayer assistance in August 2004. The Taxpayer Advocate denied the claim as time-barred on January 3, 2005. On or about March 29, 2005, Scheafnocker filed pro se a “Petition for Lien or Levy Action” with the Tax Court, which dismissed her claim on May 31, 2005 for lack of jurisdiction. In that petition, she stated that the government failed to provide her with any notice of the levy. Scheafnocker then filed pro se, on October 4, 2005, a complaint in the District Court for the Eastern District of California, where she resides. In the pro se civil cover sheet, she describes her claim as a “violation of due process rights under Fifth and Fourteenth Amendment [sic].” She alleges “[p]laintiff, as co-owner, was never notified either by IRS or bank, denying any opportunity to make timely objection.” In her prayer for relief, she states the following.

1. That this Court provide opportunity for Plaintiff to show all evidence and proof; 2. That judgment be entered in favor of Plaintiff and against Defendant; 3. That entire amount of CD at time of seizure, plus bank interest from that day to the present, be returned to Plaintiff; 4. That additional interest accrue for non-payment over 30 days from judgment; 5. That Plaintiff be awarded reimbursement for all related legal costs such as filing, and other further relief as this jury and court deem just and proper.

Complaint 3, ECF No. 1.

The government filed a motion to dismiss asserting inter alia that the District Court lacked jurisdiction because the suit (interpreted as a wrongful levy claim brought under 26 U.S.C. § 7426) was time-barred, and because the government had sovereign immunity from her claims. Upon the recommendation of the Magistrate Judge, the District Court ruled that Scheafnocker's wrongful levy claim could be regarded as a tax refund claim and, as such, deemed timely filed.⁴ The District Court then ordered the government to file an answer to Scheafnocker's suit. However, shortly after the government filed an answer, the Supreme Court held in an unrelated case that wrongful levy claims cannot be construed as refund claims. See EC Term of Years Trust v. United States, 550 U.S. 429, 127 S.Ct. 1763, 167 L.Ed.2d 729 (2007). As a result, the District Court vacated its order.

The government then filed a motion for judgment on the pleadings, reiterating its general jurisdictional arguments and asserting that the Eastern District of California was not the proper venue for this suit. On February 4, 2008, the Magistrate Judge issued findings and a recommendation to deny the motion on the basis that, under precedent from the Court of Appeals for the Ninth Circuit, wrongful levy claims are subject to equitable tolling. See Supermail Cargo, Inc. v. United States, 68 F.3d 1204, 1206–1207 (9th Cir.1995). However, on February 19, 2008, the Magistrate Judge vacated this order stating the following.

[T]he court stands by its findings in the February 4, 2008, findings and recommendations, but vacates them insofar as they recommend further adjudication on its merits. The merits of this action shall be adjudicated in the appropriate district court pursuant to 28 U.S.C. § 1402(c). This action is transferred to the United States District Court for the Western District of Pennsylvania.

Order 5, ECF No. 52.⁵

Upon transfer of the case to the District Court for the Western District of Pennsylvania, the government filed a motion to dismiss for lack of jurisdiction, arguing that the claim was time-barred. The District Court granted the government's motion, ruling that equitable tolling of a wrongful levy claim is not permitted. See Becton Dickinson and Co. v. Wolckenhauer, 215 F.3d 340 (3d Cir.2000).

II.

Scheafnocker does not challenge our opinion in Becton, which prohibits equitable tolling of wrongful levy claims brought under section 7426. See id. Instead, based upon the law of the case doctrine, she argues that the District Court erred by failing to apply Supermail, which permits equitable tolling. Scheafnocker also raises a due process claim arising from a lack of notice. The law of the case argument is unavailing, but we do find that Scheafnocker has sufficiently pleaded a due process claim for which the District Court has jurisdiction.

A.

“The ‘law of the case ... doctrine posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.’ ” Feesers, Inc. v. Michael Foods, Inc., 591 F.3d 191, 207 (3d Cir.2010) (quoting Arizona v. California, 460 U.S. 605, 618, 103 S.Ct. 1382, 75 L.Ed.2d 318 (1983)). We have a long history of adherence to the law of the case doctrine as a means of promoting not only finality, consistency and judicial economy, but also comity with other courts. See, e.g., Gulf Research & Development Co. v. Leahy, 193 F.2d 302, 304 (3d Cir.1951). The Supreme Court has also directed that although “[a] court has the power to revisit prior decisions of its own or of a coordinate court in any circumstance ... as a rule courts should be loathe to do so in the absence of extraordinary circumstances such as where the initial decision was ‘clearly erroneous and would work a manifest injustice.’ ” Christianson v. Colt Industries Operating Corp., 486 U.S. 800, 817, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988) (quoting Arizona v. California, 460 U.S. at 618 n. 8, 103 S.Ct. 1382).

When a magistrate judge has been directed by a district court to conduct hearings and issue a report and recommendation, such findings do not carry the force of law until accepted by the district court. Continental Cas. Co. v. Dominick D'Andrea, Inc., 150 F.3d 245, 250 (3d Cir.1998). Here, the Magistrate Judge issued the findings and recommendation on February 4, 2004. Fifteen days later, before the District Court ruled on it, the Magistrate Judge vacated the findings and recommendation and transferred the case.⁶ This makes it clear to us that there is nothing to which the District Court for the Western District of Pennsylvania owed any deference. The Magistrate Judge's order does contain some confusing language, to wit: “the court stands by its findings in the February 4, 2008, findings and recommendations.” Order 5, ECF No. 52. These words, however, do not transform the Magistrate Judge's unreviewed and ultimately vacated recommendation into the law of the case.⁷ Accordingly, with respect to Scheafnocker's wrongful levy claims, we find no error in the District Court's reliance upon Becton rather than Supermail on the issue of whether equitable tolling is available in wrongful levy claims brought under section 7426.⁸

B.

Scheafnocker's pro se complaint, however, also articulates a procedural due process claim that is distinct from her wrongful levy claim. It is axiomatic that an “ ‘elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’ ” Nu–Look Design, Inc. v. C.I.R., 356 F.3d 290, 295 (3d Cir.2004) (...