Steffen v. United States

• Decision Date: 03 May 2021
• Docket Number: 2020-1562
• Citation: 995 F.3d 1377
• Parties: Terri L. STEFFEN, Paul A. Bilzerian, Plaintiffs-Appellants v. UNITED STATES, Defendant-Appellee
• Court: U.S. Court of Appeals — Federal Circuit

995 F.3d 1377

Terri L. STEFFEN, Paul A. Bilzerian, Plaintiffs-Appellants

v.UNITED STATES, Defendant-Appellee

2020-1562

United States Court of Appeals, Federal Circuit.

Decided: May 3, 2021

Terri L. Steffen, Paul Bilzerian, Basseterre, Saint Kitts and Nevis, pro se.

Janet A. Bradley, Tax Division, United States Department of Justice, Washington, DC, for defendant-appellee. Also represented by Joan I. Oppenheimer, Richard E. Zuckerman.

Before Newman, Dyk, and Reyna, Circuit Judges.

Dissenting opinion filed by Circuit Judge Newman.

Reyna, Circuit Judge.

This appeal is the latest in a protracted litigation spanning more than three decades in the federal courts. Pro se appellants Terri L. Steffen and Paul A. Bilzerian are a married couple seeking an $8.2 million tax refund pursuant to 26 U.S.C. § 1341. The money in dispute stems from transactions that Mr. Bilzerian made in 1985 and 1986 related to the purchase and sale of certain common stocks, for which he was convicted of securities fraud. Because the appellants’ complaint does not entitle them to the legal remedy they seek, we affirm the decision of the United States Court of Federal Claims granting the government's motion to dismiss and denying leave to amend the complaint.

BACKGROUND

On September 29, 1989, Mr. Bilzerian was convicted on nine counts of securities fraud, making false statements to the Securities and Exchange Commission (SEC), and conspiracy to commit certain offenses and defraud the SEC and the Internal Revenue Service (IRS). United States v. Bilzerian , 926 F.2d 1285, 1289 (2d Cir. 1991). The United States District Court for the Southern District of New York entered a judgment of conviction, sentenced Mr. Bilzerian to four years in prison, and imposed a $1.5 million fine. Id. The court further ordered Mr. Bilzerian to disgorge $62,337,599.53. Sec. & Exch. Comm'n v. Bilzerian , 112 F. Supp. 2d 12, 14 (D.D.C. 2000), aff'd , 75 F. App'x 3 (D.C. Cir. 2003).

On January 31, 2012, Mrs. Steffen filed a pro se complaint in the Court of Federal Claims seeking an $8,243,145 tax refund pursuant to 26 U.S.C. § 1341.¹ S.A. 1. She amended the complaint on April 23, 2012. See S.A. 5. On August 7, 2017, Mrs. Steffen and Mr. Bilzerian filed a second amended complaint as joined parties. S.A. 46.

On September 19, 2018, the government filed a motion to dismiss with prejudice the appellants’ second amended complaint for failure to state a claim upon which relief can be granted. S.A. 65. The Court of Federal Claims granted the motion on July 24, 2019, issued its order pursuant to Rule 12(b)(6) of the Rules of the Court of Federal Claims (RCFC), and sua sponte denied permission to file any further amendments to the complaint. J.A. 2, 8. On August 20, 2019, the appellants filed a motion for reconsideration pursuant to RCFC 59(a)(1) and sought leave to file a third amended complaint. J.A. 10–11. The court denied the motion for reconsideration and request to amend on January 6, 2020. Id. This appeal followed. We have jurisdiction under 28 U.S.C. § 1295(a)(3).

DISCUSSION

We review de novo a dismissal for failure to state a claim upon which relief can be granted by the Court of Federal Claims. Welty v. United States , 926 F.3d 1319, 1323 (Fed. Cir. 2019) (citing Boyle v. United States , 200 F.3d 1369, 1372 (Fed. Cir. 2000) ). In a denial of a motion to amend a complaint, we review the findings of the Court of Federal Claims for an abuse of discretion. Intrepid v. Pollock , 907 F.2d 1125, 1129 (Fed. Cir. 1990).

The Court of Federal Claims may properly grant a motion to dismiss under RCFC 12(b)(6) when a complaint does not allege facts that show the plaintiff is entitled to the legal remedy sought. Lindsay v. United States , 295 F.3d 1252, 1257 (Fed. Cir. 2002). The appellants’ second amended complaint sought a tax refund pursuant to § 1341. To establish entitlement to a tax refund under the statute, a taxpayer must satisfy two elements. First, the taxpayer must show a reasonable belief that she had an unrestricted right to the disputed funds when she first reported them as income. See 26 U.S.C. § 1341(a)(1) ; Nacchio v. United States , 824 F.3d 1370, 1374 (Fed. Cir. 2016) (citation omitted). Second, the taxpayer is required to tether a claim for a tax deduction in excess of $3,000 to another section of the Internal Revenue Code (IRC).² See 26 U.S.C. § 1341(a)(2)–(3) ; Culley v. United States , 222 F.3d 1331, 1335 (Fed. Cir. 2000) (citations omitted). A plaintiff cannot prevail under § 1341 unless both requirements are met.

The appellants’ complaint fails to establish a reasonable belief of having an unrestricted right to the disputed funds when the money was first reported as income. The funds in dispute originated from Mr. Bilzerian's securities fraud, for which he was convicted in a court of law. This court has held that a reasonable, unrestricted-right belief cannot exist where a taxpayer knowingly acquires the disputed funds via fraud. Culley , 222 F.3d at 1335 (Fed. Cir. 2000) (citation omitted). The "taxpayer's illicit hope that his intentional wrongdoing will go undetected cannot create the appearance of an unrestricted right." Id. at 1336. This principle applies with equal force here and forecloses the appellants’ unrestricted-right claim to recover the funds as a matter of law.

Because the appellants cannot, as a matter of law, have a reasonable, unrestricted-right belief, they cannot plead a claim under § 1341. As a result, further opportunity to amend their complaint would be futile. See Kemin Foods, L.C. v. Pigmentos Vegetales del Centro S.A. de C.V. , 464 F.3d 1339, 1353 (Fed. Cir. 2006) (noting that leave to amend may be denied when "the amendment would be futile").

The second § 1341 requirement proves equally unavailing for the appellants. The Court of Federal Claims noted that, despite "hav[ing] had multiple opportunities to revise their complaint," the appellants failed to tether their tax-refund claim to another section of the Tax Code as required by statute. Steffen v. United States , 145 Fed. Cl. 1, 5 (2019), reconsideration denied , 147 Fed. Cl. 142 (2020). The "fail[ure] to address th[is] deficiency in response to the [government]’s motion to dismiss" for ten months in three subsequent briefs is fatal to their claim. Steffen , 145 Fed. Cl. at 5. The court therefore properly dismissed the complaint.

The appellants argue that their failure to state a claim under § 1341 should be excused because they are entitled to pro se deference. See Appellants’ Br. 12. But the Court of Federal Claims found that argument unpersuasive in view of the appellants’ litigation history. See Steffen , 145 Fed. Cl. at 5. We acknowledge the long-held principle that pleadings drafted by pro se litigants are generally held to "less stringent standards" than pleadings filed by trained attorneys. Haines v. Kerner , 404 U.S. 519, 520–21, 92 S.Ct. 594, 30 L.Ed.2d 652 (1972). But procedural leniency toward a specific class of litigants does not translate to unfettered deference and dereliction of judicial review. Courts may scour pro se pleadings in search for a legal argument, but they cannot excuse a litigant's failure to bring a claim entitled to legal remedy. See Henke v. United States , 60 F.3d 795, 799 (Fed. Cir. 1995) ("The fact that [a party] acted pro se in the drafting of his complaint may explain its ambiguities, but it does not excuse its failures."). As is evident from their extensive litigation history in the federal courts, the appellants are anything but inexperienced pro se litigants.

To the contrary, the appellants have demonstrated an ability to draft a variety of legal documents, and they wield a legal acumen uncommon among pro se litigants. The appellants’ complaint had already undergone three iterations before the Court of Federal Claims denied permission to file any further amendments. Under these circumstances, we conclude that the Court of Federal Claims did not abuse its discretion in denying the appellants special deference.

Based on the foregoing, we hold that the Court of Federal Claims properly dismissed the case because the appellants (1) did not have an unrestricted right to funds acquired by fraud as a matter of law, foreclosing their ability to plead a claim under § 1341 ; (2) failed to tether the § 1341 deduction claim to another section of the IRC; and (3) were not entitled to pro se deference under the facts presented. Because leave to amend would have been futile, the Court of Federal Claims properly exercised its discretion to deny leave to amend the complaint.

The dissent claims that the Court of Federal Claims dismissed the suit for failure to "cite" applicable tax-code sections. Dissent Op. at 1382–83. This is not accurate. The Court of Federal Claims explained that the appellants were aware of the § 1341 requirements and had multiple opportunities to cure the defects in their complaint. Steffen , 145 Fed. Cl. at 5. Based on those facts, the court determined that "[a]bsent an allegation of the source of the deduction plaintiffs seek, the court cannot provide a legal remedy." Id. We agree.

The dissent also contends that the Court of Federal Claims dismissed the action "without notice and without opportunity to amend the complaint." Dissent Op. at 1382–83, 1383. This is also incorrect. The government undisputably moved to dismiss on the ground that the appellants cannot establish a reasonable belief of an unrestricted right to the funds. S.A. 82–91. We also note that the § 1341 requirement to tether a tax deduction to another section of the Tax Code was properly raised in the government's brief in support of its motion to dismiss the appellants’ second amended complaint with prejudice. See S.A. 81 (noting that a taxpayer must show "entitle[ment] to a deduction under the [IRC] ..., [which] must be ‘allowable’ under a provision of the [Tax] Code other than § 1341.") (citations omitted). The appellants therefore had clear notice of this ground and could...