Gardner et al v. United States Internal Revenue, et al.,

Filing 10

ORDER granting 7 the United States' Motion to Dismiss. The clerk shall enter final judgment. Signed by Judge Frederick J Martone on 10/5/12.(TLJ)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Plaintiffs,
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vs.
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United States Internal Revenue Service, et)
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al.,
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Defendants.
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Elizabeth Ann Gardner, et al.,

No. CV-12-8051-PCT-FJM
ORDER

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Before the court is defendants’ motion to dismiss (doc. 7), plaintiffs’ response (doc.
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8), and defendants’ reply (doc. 9).
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The subject matter of this action–the Gardners’ failure to pay taxes for the tax periods
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ending September 30, 1992 and December 31, 1993–has had a tortured and protracted
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history. The tax liabilities arise from trust fund recovery penalties assessed under 26 U.S.C.
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§ 6672. The IRS filed Notices of Federal Tax Liens in connection with these tax liabilities
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against Bethel Aram Ministries, as the nominee of the Gardners. Following the filing of the
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Notices, the IRS issued a Notice of Levy with respect to property owned by the Gardners
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located at 33500 Black Canyon Road, in Black Canyon City, Arizona (“Black Canyon
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Property”). On September 15, 2005, the Gardners filed an action in this court alleging
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wrongful levy of the Black Canyon Property pursuant to 26 U.S.C. § 7426 and sought a
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determination that seizure of the property was illegal. See Gardner v. IRS Revenue Agent,

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CV-05-2852-PCT-NVW. Judge Wake held that the United States’ interest in the Black

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Canyon Property was senior to that of Bethel Aram Ministries, Bethel Aram could not state

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a claim for wrongful levy, and the United States had not waived its sovereign immunity.

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Judge Wake dismissed the wrongful levy action on the merits and final judgment was entered

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in favor of the IRS. The Ninth Circuit affirmed the decision. Id. doc. 38-2 at 2.

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In 2008, Bethel Aram Ministries filed an action in state court, again asserting a

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wrongful levy claim and seeking to quiet title on the Black Canyon Property. That case was

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removed to this court on April 16, 2008. Bethel Aram Ministries v. IRS, CV-08-8043-PCT-

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DGC. Judge Campbell held that because plaintiff’s wrongful levy claim was the same claim

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asserted in Judge Wake’s case, the action was barred on res judicata grounds. Id. doc. 20 at

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2.

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The Gardners filed a third action in 2010, seeking to quash an IRS administrative

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summons issued to Wells Fargo Bank in connection with the mortgage on the Black Canyon

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Property.

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challenged the propriety of the underlying tax assessments. The petition to quash was

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dismissed with prejudice. Id. doc. 12.

Gardner v. United States, MC-10-8000-PCT-GMS.

The Gardners again

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Despite the notice of levy, the IRS did not take possession of the Black Canyon

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Property. Instead, the Gardners sold the property in 2010, and the sale proceeds were turned

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over to the IRS by the escrow administrator in payment of the IRS Notice of Federal Tax

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Lien against the property.

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The Gardners then filed this action on March 21, 2012, against the United States, the

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IRS, 14 IRS employees, and First American Title Company, challenging the collection of the

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Black Canyon Property sale proceeds, and asserting five claims for relief: (1) unauthorized

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collection under 26 U.S.C. § 7433, (2) RICO violations, (3) cloud on title, (4) fraud, and (5)

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extortion. Defendants argue among other things that this action is barred by res judicata.

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The “preclusive effect of a judgment is defined by claim preclusion and issue

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preclusion, which are collectively referred to as ‘res judicata.’” Taylor v. Sturgell, 553 U.S.
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880, 892, 128 S. Ct. 2161, 2171 (2008). Res judicata prohibits lawsuits an “any claims that

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were raised or could have been raised” in a prior action. Stewart v. U.S. Bancorp, 297 F.3d

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953, 954 (9th Cir. 2002). A “right, question or fact distinctly put in issue and directly

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determined by a court of competent jurisdiction . . . cannot be disputed in a subsequent suit

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between the same parties or their privies.” Montana v. United States, 440 U.S. 147, 153-54,

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99 S. Ct. 970, 973 (1979), (quoting Southern Pac. R. Co. v. United States, 168 U.S. 1, 48-49,

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18 S. Ct. 18, 27 (1897)).

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The gravamen of plaintiffs’ complaint is that no taxes were due, therefore the liens

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were invalid, and the collection of the sale proceeds is unlawful. The propriety of the 1992

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and 1993 tax assessments was the underlying issue in the original wrongful levy claim, the

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quiet title action, the motion to quash the IRS summons, and is now the basis for this

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wrongful collection action. The legitimacy of the United States’ interest in the Black Canyon

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Property was conclusively established in the 2005 litigation where Judge Wake held that the

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United States’ interest in the Black Canyon Property was valid. Accordingly, this action

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challenging the collection of the sale proceeds is barred by res judicata.

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IT IS ORDERED GRANTING the United States’ motion to dismiss (doc. 7). The
clerk shall enter final judgment.
DATED this 5th day of October, 2012.

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