True the Vote, Inc. v. Internal Revenue Serv.

• Decision Date: 23 October 2014
• Docket Number: Civil Action No. 13–734 RBW
• Parties: True the Vote, Inc., Plaintiff, v. Internal Revenue Service, et al., Defendants.
• Court: U.S. District Court — District of Columbia

71 F.Supp.3d 219

True the Vote, Inc., Plaintiff

v.Internal Revenue Service, et al., Defendants.

Civil Action No. 13–734 RBW

United States District Court, District of Columbia.

Signed October 23, 2014

Cleta Deatherage Mitchell, Michael J. Lockerby, Foley & Lardner, Washington, DC, John C. Eastman, Orange, CA, Kaylan L. Phillips, Noel H. Johnson, Zachary S. Kester, Actright Legal Foundation, Plainfield, IN, Mathew D. Gutierrez, William E. Davis, Foley & Lardner LLP, Miami, FL, for Plaintiff.

Grover Hartt, III, Christopher Randy Egan, U.S. Department of Justice, Dallas, TX, Joseph A. Sergi, Christopher David Belen, U.S. Department of Justice, Brigida Benitez, Erica Lynne Gerson, Steptoe & Johnson, LLP, Jeffrey A. Lamken, Justin V. Shur, Mololamken, LLP, Washington, DC, for Defendants.

MEMORANDUM OPINION

REGGIE B. WALTON, United States District Judge

The plaintiff, True the Vote, Inc., filed this civil action against the Internal Revenue Service (“IRS”), the United States of America, and several IRS officials in both their official and individual capacities,¹ alleging violations of the First Amendment, the Internal Revenue Code, 26 U.S.C. § 6103 (2012), the Administrative Procedure Act, 5 U.S.C. § 706 (2012), and seeking declaratory and injunctive relief, as well as monetary damages. See First Amended Complaint (“Am. Compl.”) ¶¶ 13, 139–214. Currently before the Court are the Defendants' Motion to Dismiss Counts I, II, IV[,] and V (“Defs.' Mot.”) of the Complaint; the Individual Management Defendants' Motion to Dismiss [Count III of the Complaint] (“Mgmt. Mot.”); the Motion to Dismiss [Count III of the Complaint] of Cincinnati Defendants Susan Maloney, Ronald Bell, Janine L. Estes, and Faye Ng (“Cincinnati Mot.”); and the Plaintiff's Motion to Stay Agency Action (“Pl.'s Mot.”).² For the following reasons, the Court concludes that it must grant all of the defendants' motions to dismiss and deny the plaintiff's motion to stay agency action.³

I. BACKGROUND

The plaintiff asserts that it “is a not-for-profit Texas corporation organized and operated exclusively or primarily for a charitable purpose.” Am. Compl. ¶ 2. On July 15, 2010, the plaintiff filed an application with the Internal Revenue Service (“IRS”) for tax-exempt status pursuant to the Internal Revenue Code, 26 U.S.C. §§ 501(c)(3), 509(a)(1), 170(b)(1)(a)(vi). Id. ¶¶ 3–4; see also id. ¶ 53. After “receiv[ing] no further contact from the IRS [d]efendants during [the] calendar year 2010,” id. ¶ 54, the plaintiff asked Texas Senator John Cornyn to “inquire[ ] of the IRS as to the status of [the plaintiff]'s application for tax-exempt status,” id. ¶ 55. On February 5, 2011, the plaintiff received a “letter sent from the Cincinnati, Ohio IRS office” requesting “additional information from [the plaintiff] to complete the IRS' [s] consideration of [the plaintiff]'s [a]pplication.” Id. ¶ 56.

On March 7 and March 8, 2011, that information was “furnished to the IRS.” Id. ¶ 57. Then, on October 12, 2011, the plaintiff “contacted the IRS” to follow up on its application for tax-exempt status. Id. ¶ 60. The plaintiff was allegedly told that “the Washington, [DC] office had assumed primary approval responsibility” for the plaintiff's application. Id. ¶ 60. On November 8, 2011, the plaintiff “submitted to the IRS additional information” about itself, as well as “legal precedent ... that provided the IRS [d]efendants the legal basis” for approving the plaintiff's application. Id. ¶ 61.

The following year, on February 8, 2012, the plaintiff received another letter “from the Cincinnati, Ohio IRS office” stating that “the IRS needed even more information” from the plaintiff to complete its consideration of the plaintiff's tax-exempt application. Id. ¶ 63. That additional information was provided to the IRS on March 20, 2012. Id. ¶ 64. After providing that information, the plaintiff received a third letter on October 9, 2012, from “the Cincinnati, Ohio IRS office,” “request[ing] still more information.” Id. ¶ 66. The plaintiff complied with that information request on November 30, 2012.Id. ¶ 67.

Based on its correspondence with the IRS, the plaintiff alleges that due to its “mission of promoting election integrity and its perceived association with ‘Tea Party’ organizations, the IRS [d]efendants systematically targeted [the plaintiff's] application for unwarranted delay and heightened review and scrutiny,” thereby subjecting the plaintiff “to numerous unnecessary, burdensome, and unlawful requests for information about its operations, activities, leadership, volunteers, associations, and affiliations.” Id. ¶ 5. As support for its position, the plaintiff cites a May 10, 2013 “meeting of the Exempt Organizations Committee of the Tax Section of the American Bar Association,” where one of the individual defendants “admitted ... that the IRS had selected applications for tax-exempt status for further review and scrutiny ‘simply because the applications' ‘used names like Tea Party ...’ ” Id. ¶ 77 (citing reference). During that meeting, the plaintiff contends that the IRS admitted it “sent some letters out that were far too broad, asking questions of these organizations that were[ not] really necessary....” Id. ¶ 78 (internal quotations and citations omitted). As further support of the plaintiff's allegation concerning the IRS's selective targeting, the plaintiff cites “a report entitled ‘Inappropriate Criteria Were Used to Identify Tax–Exempt Applications for Review’ (the ‘[Report]’)” that was issued “[o]n or around May 14, 2013,” by “the Treasury Inspector General for Tax Administration.”

Id. ¶ 80. The plaintiff summarizes the Treasury Inspector General for Tax Administration's conclusion as follows:

The IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention. Ineffective management: 1) allowed inappropriate criteria to be developed and stay in place for more than [eighteen] months, 2) resulted in substantial delays in processing certain applications, and 3) allowed unnecessary information requests to be issued.

Id. ¶ 81 (quoting the Report); see generally id. ¶¶ 82–118 (describing certain IRS actions).

Thus, according to the plaintiff, the IRS defendants engaged in an “unlawful scheme” whereby the plaintiff was “forced to repeatedly furnish the IRS with information, materials, and documents that were not necessary to determine whether [the plaintiff] was entitled to tax-exempt status.” Id. ¶ 6. The plaintiff alleges that the “IRS [d]efendants knowingly developed, implemented, and applied the IRS [t]argeting [s]cheme in violation of the United States Constitution, the Internal Revenue Code governing tax-exempt organizations, procedures historically followed by the IRS, and Treasury Regulations.” Id. ¶ 124; see also id. ¶ 135. In the eyes of the plaintiff, the “mistreatment and mishandling of [the plaintiff]'s application for tax-exempt status and the refusal of the IRS [d]efendants to issue a determination letter recognizing [the plaintiff]'s tax-exempt status ... has caused the organization substantial damages and financial hardship,” id. ¶ 134, and “has substantially and materially interfered with its ability to engage in free speech, free association, and activities in furtherance of its charitable purpose,” id. ¶ 137.

The plaintiff filed this action on May 21, 2013, ECF No. 1, and amended its complaint on July 22, 2013, Am. Compl. at 48. Count one seeks declaratory relief that the plaintiff is entitled to enjoy tax-exempt status as a charitable organization described in 26 U.S.C. § 501(c)(3) (2012). See Am. Compl. ¶¶ 140–41. Count two also seeks a declaratory judgment that the “IRS [t]argeting [s]cheme” violated the plaintiff's First Amendment rights, and injunctive relief to prevent additional violations. See id. ¶¶ 150–52, 158. Count three seeks monetary damages against certain defendants in their individual capacities for their alleged participation in the “IRS [t]argeting [s]cheme.” See id. ¶¶ 164–65. Count four claims violations of 26 U.S.C. § 6103, which relates to unauthorized disclosures and inspections of any tax return or tax return information. See id. And count five asserts violations of the Administrative Procedure Act for the alleged “IRS [t]argeting [s]cheme.” Id. ¶¶ 189–206.

After the plaintiff instituted this action, “an internal IRS memorandum released by the IRS” found that “applications for tax-exempt status continued to be subjected to the ... IRS [t]argeting [s]cheme until June 20, 2013, when it was allegedly suspended.” Id. ¶ 136 (citing Daniel Werfel, Charting a Path Forward at the IRS: Initial Assessment and Plan of Action, Appendix (“App.”) C (June 24, 2013), www.irs.gov/PUP/newsroom/Initial% 20Assessment% 20and% 20Plan% 20of% 20Action.pdf (“IRS Action Plan”)). Since the defendants filed their pending motions to dismiss, the IRS has “grant[ed] the [p]laintiff's application for tax-exempt status ... and was in the process of issuing a favorable determination letter.”⁴ Defs.' Supplement at 1. The plaintiff opposes all pending motions to dismiss.

II. STANDARDS OF REVIEW

A. Rule 12(b)(1) Motion to Dismiss

Rule 12(b)(1) allows a party to move to dismiss “for lack of subject-matter jurisdiction.” Fed.R.Civ.P. 12(b)(1). When a defendant moves to dismiss under Rule 12(b)(1), “the plaintiff[ ] bear[s] the burden of proving by a preponderance of the evidence that the Court has subject[-]matter jurisdiction.” Biton v. Palestinian Interim Self–Gov't Auth., 310 F.Supp.2d 172, 176 (D.D.C.2004) ; see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). A court considering a Rule 12(b)(1) motion must “assume the truth of all material factual allegations in the complaint and ‘construe the complaint liberally, granting [a] plaintiff the benefit of all inferences that...