U.S. v. Philadelphia Marine Trade

• Decision Date: 11 January 2007
• Docket Number: Civil Action No. 06-1071.
• Citation: 471 F.Supp.2d 518
• Parties: UNITED STATES of America, Plaintiff, v. PHILADELPHIA MARINE TRADE ASSOCIATION/INTERNATIONAL LONGSHOREMEN'S ASSOCIATION VACATION FUND, Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

471 F.Supp.2d 518

UNITED STATES of America, Plaintiff, v. PHILADELPHIA MARINE TRADE ASSOCIATION/INTERNATIONAL LONGSHOREMEN'S ASSOCIATION VACATION FUND, Defendant.

Civil Action No. 06-1071.

United States District Court, E.D. Pennsylvania.

January 11, 2007.

Joshua David Smeltzer, U.S. Department of Justice, Washington, DC, for Plaintiff.

Jessamyne M. Simon, Joseph P. Sirbak, II, Klett, Rooney, Lieber & Schorling, Philadelphia, PA, Nicholas R. Apruzzi, Klett, Rooney, Lieber & Schorling, Newark, NJ, for Defendant.

Memorandum and Order

GENE E.K. PRATTER, Disrict Judge.

Philadelphia Marine Trade Association/ International Longshoremen's Association Vacation Fund (the "Fund") has filed a Motion to Dismiss the United States of America's Complaint pursuant to Federal Rules of. Civil Procedure 12(b)(6) and 13(a) in this tax refund case brought pursuant to Section 7405 of the Internal Revenue Code (the "Code"), 26 U.S.C. § 7405. For the reasons discussed below, the Motion will be denied.

FACTUAL AND PROCEDURAL BACKGROUND

The United States originally filed this action in the District of New Jersey (the "New Jersey. Action"). The parties consented to transfer venue to this Court because the New Jersey Action was related to an action, Philadelphia Marine Trade Association/International Longshoremen's Fund v. United States, No. 04-4857, 2006 WL 1997465 (2006) (the "Pennsylvania Action"), pending before this Court and involving the same parties.¹ The parties did not move to consolidate the two actions. The facts involved in both actions are identical, although the circumstances behind the reasons each party brought suit are different.

Both cases involve tax penalties paid by the Fund to the Internal Revenue Service ("IRS"). The IRS assessed these penalties due to the Fund's failure to file its tax returns electronically through the Electronic Fund Transfer System. The IRS levied the Fund's bank account for penalties due for the fourth quarter of 1999 and for the second and fourth quarters of 2000. The Fund sought refunds of those penalties and, eventually, the IRS refunded the penalties assessed with respect to the second and fourth quarters of 2000. The Fund brought the Pennsylvania Action to seek repayment of the penalties for the fourth quarter of 1999.² The United States brought the New Jersey Action to seek to recover the refunds paid to the Fund for the second and fourth quarters of 2000.

The Fund brought the Pennsylvania Action on October 15, 2004 and the "Commissioner of Internal Revenue," whom the Fund had named incorrectly as the sole defendant, filed an answer, without asserting any crossclaims, on December 17, 2004. The Court held an initial pretrial conference on February 2, 2005. The Court then issued a Scheduling Order that set forth a bifurcated discovery schedule, allowing the parties limited discovery on the issue of the timeliness and validity of the Fund's refund claims and, following the disposition of any motions for summary judgment on those issues, additional discovery on the merits of the Fund's refund claims.

The parties, conducted discovery on the timeliness of the Fund's refund claims, and on July 14, 2005, the United States moved for summary judgment, arguing that the Fund's refund claims for penalties assessed for the fourth quarter of 1999 were time barred because the Fund submitted its claims to the IRS after the statute of limitations had run. On July 15, 2004, the Fund moved for summary judgment, arguing that its refund claims, although "informal" in that they were not submitted initially on the proper IRS forms, nevertheless were timely and valid. The Court heard oral argument on the parties' cross motions for summary judgment on September 27, 2005.

On December 1, 2005, while the parties' cross motions for summary judgment were pending in the Pennsylvania Action, the United States brought a separate action — the current New Jersey Action — against the Fund in the District of New Jersey. In the New Jersey Action, the United States claimed that the refunds to the Fund for penalties relating to the second and fourth quarters of 2000 were erroneous. Specifically, the United States alleges that on or about December 15, 2003 the IRS erroneously refunded to Fund the sum of $89,501.09 for the penalties associated with the second quarter of 2000 and $3,864.52 for the penalties associated with the fourth quarter of 2000, for a total of $93,365.61. Compl. ¶¶ 8-9. The relevant statute of limitations permits a taxpayer to submit a claim for a refund within 3 years from the time the return was filed or 2 years from the time the tax was paid. 26 U.S.C. § 6511(a).³ The United States alleges that the statute of limitations for the Fund to seek a refund had run, which would bar the Fund from seeking such refund. Therefore, the United States alleges, the IRS's refund was erroneous.⁴

After the United States filed the New Jersey Action, counsel for the Fund sent a letter to the Court to bring the existence of the New Jersey Action to the Court's attention. Counsel noted that when the United States filed the New Jersey Action it failed to list that action as "related" to the pending Pennsylvania Action and failed to inform counsel for the Fund that the United States intended to file a separate action. The United States responded by filing a Status Report with the Court, in which the United States claimed that the running of the statute of limitations to file its erroneous refund claim was imminent and that issues of jurisdiction and Venue prevented the United States from filing its claims either as crossclaims in the Pennsylvania Action or as a related case in the Eastern District of Pennsylvania. Specifically, the United States noted that under 26 U.S.C. § 7405(b), an erroneous refund "may be recovered by civil action brought in the name of the United States." 26 U.S.C. § 7405(b). The United States argued that because the Fund erroneously had, named the "Commissioner of Internal Revenue" instead of the "United States" as a defendant in the Pennsylvania Action, the United States could not assert a valid crossclaim in the name of the "Commissioner." Next, the United States argued" that pursuant to 28 U.S.C. § 1396, a tax claim must be brought where the tax liability accrues, the taxpayer resides or where the tax return is filed. 28 U.S.C. § 1396. The United States claims that because none of these requirements would have been satisfied if the United States had filed suit in the Eastern District of Pennsylvania, it filed instead in the District of New Jersey, where the Fund maintains its principal offices.

The Court held a status conference with the parties on February 7, 2006. The next day the Court issued an order substituting the "United States" as a defendant in lieu of the "Commissioner." On March 24, 2006, the New Jersey Action was transferred to this Court as related to the Pennsylvania Action.

Neither party moved to consolidate the two actions. Instead, on May 17, 2006, the Fund filed a Motion to Dismiss the United States' Complaint (Docket No. 3) in the (formerly) New Jersey Action pursuant to Federal Rules of Civil Procedure 12(b)(6) and 13(a) for failure to state a claim upon which relief could be granted and for failure of the United States to bring its claims as compulsory counterclaims in the (original) Pennsylvania Action. The. United States filed a brief in Opposition to the Fund's Motion to Dismiss (Docket No. 4), and the Fund submitted a Reply brief (Docket No. 5).

On July 17, 2006, the Court issued a Memorandum and Order granting the United States' motion for summary judgment in the Pennsylvania Action. Phila. Marine Trade Ass'n, 2006 U.S. Dist. LEIS 48263 at *30-31. The Court held that the Fund's informal requests for a refund of tax penalties for the fourth quarter of 1999 were untimely. Id. Therefore, the Fund was not entitled to proceed to argue the second of the bifurcated issues, namely, the merits of its refund action, and the Pennsylvania Action was thereby closed.⁵

In the New Jersey Action, the Court held oral arguments on the Fund's Motion to Dismiss on October 5, 2006. During oral argument, the Court extended permission to the parties to submit supplemental briefs on the pending motion. The Fund elected to submit a Supplemental Memorandum in Support of its Motion to Dismiss (Docket No. 8).

DISCUSSION

I. Jurisdiction

Jurisdiction is proper pursuant to 28 U.S.C. § 1340, which provides that a district court shall have original jurisdiction of any civil action arising under an Act of Congress providing for internal revenue. Pursuant to 26 U.S.C. § 7402(a), a district court has jurisdiction to issue in a civil action orders "as may be necessary and appropriate for the enforcement of the internal revenue laws." 26 U.S.C. § 7402(a).

II. Standards of Review

A. Motion to Dismiss Pursuant to Rule 12(b)(6)

When deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court may look only to the facts alleged in the complaint and its attachments. Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994). The Court must accept as true all well-pleaded allegations in the complaint and view them in the light most favorable to the non-moving plaintiff. Angelastro v. Prudential-Bache Sec., Inc., 764 F.2d 939, 944 (3d Cir.1985). A Rule 12(b)(6) motion will be granted only when it is certain that no relief could be granted under any set of facts that could be proved by the plaintiff. Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir.1988).

B. Motion to Dismiss Pursuant to Rule 13(a)

Rule 13(a) requires that "[a] pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom ...