Tonn v. US
| Decision Date | 30 November 1993 |
| Docket Number | Civ. No. 3-93-385. |
| Citation | 847 F. Supp. 711 |
| Parties | Martin H. TONN, Plaintiff, v. UNITED STATES of America, Jack Forsberg, Donald G. Russell, Judith Screaton, and Joseph D. Wyssmann, Defendants. |
| Court | U.S. District Court — District of Minnesota |
Martin H. Tonn, pro se.
Tamera Fine-Trail, U.S. Dept. of Justice, for defendants.
Plaintiff Martin H. Tonn commenced this action against the individual defendants Jack Forsberg, Donald G. Russell, Judith Screaton, and Joseph D. Wyssmann; Tonn alleges that the defendants, all of whom are or were employees of the Internal Revenue Service ("IRS"), committed various common law torts and violated his right to due process under the Fifth Amendment to the United States Constitution in connection with a tax dispute. Before the Court is Defendants' Motion to Dismiss under Fed.R.Civ.P. 12(b)(1) and (6).
The following "facts" are assumed to be true for the purposes of the instant motion.
Tonn is an individual who resides in the State of Minnesota.
The individual defendants were, at all times relevant to this action, employees of the IRS. Defendant Jack Forsberg was District Counsel for the IRS; defendant Donald G. Russell was an IRS Appraiser; defendant Judith Screaton was an IRS Appeals Officer; and defendant Donald G. Russell was an IRS Revenue Agent.
During the 1970's and early 1980's, Tonn and other individuals designed, developed, and manufactured prototype alternative energy equipment ("Equipment") designed to act as an alternative energy source to fossil fuels. Between 1981 and 1983, Tonn sold all of his interests in the Equipment to the Laurington Corporation ("Laurington"), of which he was the sole owner.
During 1981, 1982, and 1983, certain pieces of the Equipment were sold to three limited partnerships Tonn created (the "Partnerships");1 the Partnerships were formed to demonstrate, market, and operate the Equipment, as well as manufacture similar alternative energy devices. Tonn also organized Independent Energy Systems, Inc. ("IES") to serve as the general partner of the Partnerships.2 In 1983, Tonn, through Interstate Energy Enterprises, Inc. ("IEEI") leased, and eventually purchased, a manufacturing facility in Wisconsin for purposes of manufacturing the Equipment for sale and lease.
In early 1985 the IRS began an audit of the Partnerships and the limited partners. When the audit was commenced, the limited partners' payments to the Partnerships were halted until the IRS investigation could be resolved. Due to the Partnerships' inability to collect funds from the partners, IEEI was forced to file for Chapter 11 bankruptcy protection in March of 1986. In March of 1987, IEEI's bankruptcy petition was dismissed on motion by the IRS for unpaid withholding taxes. After the dismissal of the bankruptcy petition, the IRS levied against and seized IEEI's assets and records; eventually, IEEI shut down.
At the end of its audit and investigation, the IRS determined that the value of the Partnerships' depreciable property had been overstated. The IRS also disallowed certain tax credits taken by the Partnerships and the partners.
The Partnerships appealed the findings of the IRS audit to the regional IRS Appeals office.3 During a July 20, 1989 Appeals Conference between representatives of the Partnerships and Screaton, Screaton raised a new issue: the "not for profit intent" of the Partnerships. At a November 15, 1989 Appeals Conference, the Partnerships were prepared to defend the "not for profit intent" character of the enterprise; however, Screaton stated that she would not change her mind about that issue. The Partnership did not have an opportunity to present or discuss their position in detail.
On December 20, 1988 Henry A. Wall and Lavina Wall (the "Walls"), limited partners in one of the Partnerships, petitioned the United States Tax Court for a redetermination of the IRS's calculation of the permissible deductions.4 On February 28, 1990 Forsberg informed the Walls that their case was scheduled for the April 30, 1990 docket. On March 15, 1990 Henry Wall informed Tonn5 that the University of Minnesota Law School Clinic had reconsidered its earlier decision to assist the Walls in their Tax Court case; Wall stated that Forsberg allegedly had told the Clinic supervisor that the case was too complicated for students.
On March 23, and 28, 1990, Tonn, Wall and other persons met with Forsberg to inquire about the positions the IRS intended to take before the Tax Court in Wall. Although they requested that Forsberg state the reasons in writing, Forsberg did not comply with that request until April 6, 1990. Then during an April 9, 1990 meeting between Forsberg, Tonn, and certain investors, Forsberg told the investors that "Tonn was no better as a tax advisor than he was a securities advisor."
In Wall, Forsberg submitted a Respondents Brief in Answer. In that Brief, Forsberg (1) incorrectly relied on inapposite precedent, (2) based his arguments on the improper sections of the Internal Revenue Code, and (3) misquoted and took out of context certain court opinions. Forsberg also argued, for the first time, that certain deductions and allowances should not be available for the year 1982 because the Equipment was not "placed in service" during the taxable year.
On December 10, 1991 the Tax Court6 ruled in favor of the IRS on the availability of tax credits for the year 1982, concluding that the equipment had not been placed "in service" in 1982. On February 25, 1992 the Walls filed a Motion for Reconsideration; on June 8, 1992 the Tax Court issued a Supplementary Memorandum Opinion7 reaffirming its determination regarding the 1982 taxable year. However, the Tax Court now concluded that the Equipment was not "in service" in 1982 because a trade or business did not exist during the taxable year — a new and different rationale raised sua sponte by the Tax Court. Wall filed a Motion for Reconsideration of the Supplementary Memorandum and Opinion on July 10, 1992; on December 13, 1992, Tonn learned that the Tax Court had denied the Motion on July 14, 1992. Because the appeal period had closed by December of 1992, the Walls could not appeal the Tax Court's decision. Thereafter, the Partnerships settled the dispute on the terms proposed by the IRS.
During the investigation, certain penalties were assessed against Tonn, pursuant to 26 U.S.C. § 6703, for promoting an "abusive tax shelter" and submitting overvalued gross valuation statements. Tonn's claim for an adjustment to those penalties was disallowed on April 30, 1990. At the end of 1992, Tonn filed an action with the United States Court of Claims regarding those penalties. On the United States' Motion to dismiss the appeal on the ground that the Court of Claims lacked jurisdiction, Tonn's action was dismissed for want of jurisdiction.
Thereafter, Tonn asked United States Senator Paul Wellstone (MN) to review certain allegedly conflicting IRS documents. Following an inquiry by Senator Wellstone's office, the IRS reconsidered its position and met with Tonn on December 3, 1992 to discuss the penalties. On March 29, 1993 the IRS informed Tonn that it was abating all section 6703 penalties against him for taxable years 1982 and 1983.
Tonn filed this action on June 14, 1993. The Complaint alleges four causes of action: Count I — Fraud;8 Count II — Misrepresentation of Fact;9 Count III — Defamation;10 and Count IV — Deprivation of Fifth Amendment Constitutional Rights of Due Process.11 On September 20, 1993, defendant United States of America filed a Motion, pursuant to 28 U.S.C. §§ 2679(b) and (d)(1), for an order substituting it as the party defendant to Counts I, II, and III.12 Although Tonn opposed that Motion, the court13 ordered the United States substituted as the defendant to Counts I-III;14 however, the court held that the individual defendants would remain in the action as defendants to Tonn's due process claim in Count IV. This Motion followed.15
As discussed above, Counts I, II, and III of the Complaint allege common law tort claims; however, in his responsive memorandum, (see Mem. Opp'n Mot. to Dismiss, at 1-2), and at the hearing on the instant motion, Tonn contended that his Complaint asserts only a due process claim. Thus, it is not clear whether Tonn has alleged four separate causes of action, or only one (in which case the claims in Counts I through III merely support his due process claim in Count IV).
Assuming that Tonn has alleged independent causes of action for fraud, misrepresentation, and defamation, those claims are not within this Court's subject matter jurisdiction. As noted above, Tonn's claims against the United States, although originally brought against individual employees of the IRS, are, as a result of the order of substitution,16 now deemed to have arisen under the FTCA. As such, Tonn's claims are subject to all of the limitations provided in the FTCA. See 28 U.S.C. § 2679(d)(4). One of those limitations requires that a plaintiff exhaust his administrative remedies by first presenting his claim17 to the appropriate federal agency.18 28 U.S.C. § 2675(a). This presentment requirement is jurisdictional; it must be satisfied before this Court may exercise its jurisdiction over the claim. Bellecourt v. United States, 994 F.2d 427, 430 (8th Cir.1993) (citing Melo v. United States, 505 F.2d 1026, 1028-29 (8th Cir.1974)).
A review of the record in this case demonstrates that Tonn has failed to satisfy the FTCA's administrative claim requirement. There is no indication that Tonn has submitted a satisfactory claim to the IRS or any other agency in connection with the tort claims alleged in Counts I through III. Accordingly, if Counts I-III allege separate claims, this Court...
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