Kenner et al v. Kelly et al

Filing 64

ORDER denying 25 Motion for Sanctions; granting 59 Motion to Dismiss for Lack of Jurisdiction; granting 17 Motion to Dismiss First Amended Complaint. Signed by Judge Anthony J. Battaglia on 05/27/11. (All non-registered users served via U.S. Mail Service)(cge)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

SOUTHERN DISTRICT OF CALIFORNIA

10
11

Brian Kennar, an individual, and Kathleen
Kenner, an individual,
Plaintiff,

12
v.

13
14
15

Civil No.

E. Kelly et al.,
Defendant.

16

10cv2105-AJB(WVG)

ORDER GRANTING IRS
DEFENDANTS’ MOTION TO DISMISS;
GRANTING DUNN DEFENDANTS’
MOTION TO DISMISS; DENYING
DUNN DEFENDANTS’ MOTION FOR
SANCTIONS
[Dkt. Nos. 17, 25, 59.]

17

On December 8, 2010, Plaintiffs Brian Kennar and Kathleen Kennar, proceeding pro se filed

18

a First Amended Complaint against ten individual IRS employees (“IRS Defendants”); and Barbara

19

Dunn, an attorney for a defendant in another prior lawsuit, and her firm, Lacey, Dunn and Do

20

(“Dunn Defendants”) for violations of the Racketeer Influenced and Corrupt Organizations Act

21

(“RICO”). On December 13, 2010, the Dunn Defendants filed a motion to dismiss. (Dkt. No. 17.)

22

On January 7, 2011, the Dunn Defendants also filed a motion for sanctions. (Dkt. No. 25.) On

23

February 15, 2011, the remaining ten IRS Defendants filed a motion to dismiss. (Dkt. No. 59.) The

24

motion is submitted on the papers without oral argument, pursuant to Local Rule 7.1(d)(1). After a

25

thorough review of the motions and supporting documentation, the Court GRANTS IRS

26

Defendants’ motion to dismiss for lack of subject matter jurisdiction and failure to state a claim;

27

GRANTS Dunn Defendants’ motion to dismiss for failure to state a claim and DENIES Dunn

28

Defendants’ motion for sanction pursuant to Federal Rule of Civil Procedure 11.

-1-

[10cv2105-AJB(WVG)]

1

Procedural Background

2

On October 8, 2010, Plaintiffs filed a Complaint alleging RICO claims against individual

3

IRS employees, Barbara Dunn and Lacy, Dunn & Do. (Dkt. No. 1.) On November 18, 2010, in

4

response to Plaintiffs’ ex parte motion, District Judge Moskowitz issued an Order Denying

5

Application for an Order Requiring the District Attorney to Serve IRS Parties and Dismissing the

6

Complaint for Failure to State a Claim. (Dkt. No. 10.) On December 8, 2010, a First Amended

7

Complaint was filed. (Dkt. 14.) On December 9, 2010, Defendants Barbara Dunn and LD&D

8

(“Dunn Defendants”) filed a motion to dismiss the First Amended Complaint. (Dkt. No. 17.) On

9

January 7, 2011, Defendants Dunn and LD&D filed a motion for sanctions. (Dkt. No. 25.) On

10

January 20, 2011, Plaintiffs filed an opposition to the motion to dismiss and motion for sanctions.

11

(Dkt. Nos. 30-31.) Dunn Defendants filed a reply to both motions on January 28, 2011. (Dkt. Nos.

12

50-51.)

13

On February 15, 2011, IRS Defendants filed a motion to dismiss for lack of jurisdiction,

14

insufficient service of process and failure to state a claim upon which relief may be granted. (Dkt.

15

No. 59.) On March 24, 2011, Plaintiffs filed an opposition1, and on April 8, 2011, IRS Defendants

16

filed a reply. (Dkt. Nos. 62 & 63.) On March 14, 2011, the case was transferred to the undersigned

17

judge. (Dkt. No. 61.)

18

Factual Background

19

According to the First Amended Complaint, E. Kelly is an IRS Revenue Officer; C. Rose is

20

an IRS Offer in Compromise Specialist; Pittner and Blizzard are IRS General Managers; Alito is an

21

IRS Director; Crawford is an IRS Area Director; Becerra, is an Assistant General Manager; Plasky

22

is an IRS Process Examiner; and Meigs and Shaughnessy are IRS Attorneys. (FAC at 2.)

23

Defendant Barbara Dunn is an attorney that represented a defendant in another prior lawsuit where

24

Plaintiffs were suing their tax professionals; and Lacey, Dunn & Do is the law firm where Dunn is

25
1

26
27
28

In their reply, IRS Defendants argue that the Court should strike Plaintiffs’ opposition as
untimely based on Local Rule 56.1(d). However, there is no local rule 56.1(d) in the United States
District Court for the Southern District of California. Local Civ. R. 7.1(e)(2) provides that an opposition
be filed no later than 14 calendar days prior to the noticed hearing. Local Civ. R. 7.1(e)(2). The hearing
date was set for April 8, 2011. Pursuant to the local rule, Plaintiffs’ opposition was due on March 25,
2011. Plaintiffs filed their opposition a day earlier on March 24, 2011. Accordingly, the Court DENIES
IRS Defendants’ request to strike Plaintiff’s opposition as untimely.
-2-

[10cv2105-AJB(WVG)]

1

employed. (Id. at 3.)

2

Plaintiffs present four distinct “criminal episodes” that encompass six different predicate acts

3

under RICO. The predicate acts alleged are extortion, mail fraud, wire fraud, bank fraud,

4

racketeering and witness tampering. In the first episode, Plaintiffs claim that Defendants Kelly,

5

Plasky, Pittner, Alito, Crawford, Dunn and LD&D unlawfully obtained settlement funds from

6

another prior lawsuit against their tax professionals while an Offer in Compromise was pending.

7

(FAC ¶ 12.) In the second episode, Plaintiffs assert that Defendants Rose, Kelly, Pittner, Alito,

8

Crawford, Blizzard, Becerra, Shaughnessy and Meigs fraudulently returned the Offer in

9

Compromise in order to gain access to the settlement funds. (Id. ¶ 30.) Third, Plaintiffs contend

10

that Defendants Rose, Kelly, Plasky, Pittner, Alito, Crawford, Blizzard, Becerra, Shaughnessy, and

11

Meigs made a second attempt to fraudulently return Plaintiffs’ Offer in Compromise in order to gain

12

access to the lawsuit settlement funds. (Id. ¶ 44.) Lastly, Plaintiffs complain they filed two

13

Freedom of Information Act requests in December 2009 and the summer of 2010. (Id. ¶ 55.) Prior

14

to receiving a response to their second request, Plaintiffs filed an administrative complaint against

15

the IRS. (Id.) Defendants Kelly, Plasky, Pittner, Alito, Crawford, Becerra, Shaughnessy and Meigs

16

used the content of the administrative complaint and altered the computer program, ICS-HISTORY,

17

to conceal their dishonest activities. (Id.)

18

In the first cause of action, Plaintiffs present a RICO claim against Defendants Plasky, Kelly,

19

Pittner, Alito, and Crawford. The second cause of action alleges a RICO cause of action against

20

Defendants Rose, Kelly, Pittner, Alito, Crawford, Blizzard, Becerra, Shaughnessy, and Meigs. On

21

the third cause of action, Plaintiffs allege a RICO action against Defendants Kelly, Plasky, Pittner,

22

Alito, Crawford, Rose, Blizzard, Becerra, Shaughnessy and Meigs. The fourth cause of action

23

presents a claim of conspiracy to commit RICO against Defendants Dunn, and LD&D. Lastly,

24

Plaintiffs allege that Kelly, Plasky and Rose conspired with the remaining IRS Defendants to

25

commit RICO on the third cause of action.
Discussion

26
27
28

I.

Legal Standard pursuant to Federal Rule of Civil Procedure 12(b)(1)
Federal Rule of Civil Procedure 12(b)(1) allows a dismissal for “lack of subject matter
-3-

[10cv2105-AJB(WVG)]

1

jurisdiction.” Fed. R. Civ. P. 12(b)(1). A plaintiff has the burden to establish that subject matter

2

jurisdiction is proper. Kokkonen v. Guardian Life Ins., Co., 511 U.S. 375, 377 (1994).

3

Under Rule 12(b)(1), a jurisdictional attack may either be “facial” or “factual.” White v.

4

Lee, 227 F.3d 1213, 1242 (9th Cir. 2000). When a defendant challenges jurisdiction “facially,” all

5

material allegations in the complaint are assumed true, and the question for the court is whether the

6

lack of federal jurisdiction appears from the face of the pleading itself. Thornhill Publishing Co. v.

7

Gen. Tel. Elec., 594 F.2d 730, 733 (9th Cir. 1979); Mortensen v. First Fed. Sav. & Loan Ass’n, 549

8

F.2d 884, 891 (3d Cir. 1977). In a factual attack, the “defendant disputes the truth of the allegations

9

that, by themselves, would otherwise invoke federal jurisdiction.” Safe Air for Everyone v. Meyer,

10

373 F.3d 1035, 1039 (9th Cir. 2004). A challenge for lack of subject matter jurisdiction may be

11

raised at any time by either party or sua sponte by the court. Fleming v. Gordon & Wong Law

12

Group, P.C., 723 F. Supp. 2d 1219, 1222 (N.D. Cal. 2010) (citing Olson Farms, Inc. v. Barbosa, 134

13

F.3d 933, 937 (9th Cir. 1998)). It appears that IRS Defendants are challenging jurisdiction,

14

“facially.”

15

A.

16

Sovereign immunity shields the federal government and its agencies from suit unless it has

RICO Claims Against IRS Government Employees

17

expressly waived such immunity. United States v. Shaw, 309 U.S. 495, 500-01 (1940); see also

18

F.D.I.C. v. Meyer, 510 U.S. 471, 475 (1993). “A court lacks subject matter jurisdiction over a claim

19

against the United States if it has not consented to be sued on that claim.” Balser v. DOJ, Office of

20

U.S. Trustee, 327 F.3d 903, 907 (9th Cir. 2003). Therefore, an action against employees of the

21

federal government sued in their official capacities are immune from suit. Atkinson v. O’Neill, 867

22

F.2d 589, 590 (9th Cir. 1989) (citation omitted); Gilbert v. DaGrossa, 756 F.2d 1455, 1458 (9th Cir.

23

1985) (suit against IRS employees in their official capacities is a suit against the United States).

24

“Where an action is one against named individual defendants, but the acts complained of consist of

25

actions taken by defendants in their official capacity as agents of the United States, the action is in

26

fact one against the United States.” Id. Furthermore, there can also be no RICO claim against the

27

federal government. Lancaster Comm. Hosp. v. Antelope Valley Hosp., 940 F.2d 397, 404 (9th Cir.

28

1991) (“government entities are incapable of forming a malicious intent.”) cert denied. 502 U.S.

-4-

[10cv2105-AJB(WVG)]

1

1094 (1992).
In the original complaint filed on October 8, 2010, Plaintiffs sued the IRS Defendants in their

2
3

official capacities as employees of the IRS. (Dkt. No. 1.) On November 18, 2010, District Judge

4

Moskowitz dismissed the complaint for failure to state a claim based on sovereign immunity. (Dkt.

5

No. 10.) The Court also determined that the complaint “clearly pertains to allegedly improper

6

actions taken by the IRS defendnats in the collection of Federal tax.” (Id.) Therefore, the Court

7

concluded that 26 U.S.C. § 7433(a) is the exclusive remedy for Plaintiffs to recover damages from

8

the IRS resulting from employees’ reckless, intentional or negligence acts. (Id.) The Court stated

9

that a taxpayer may not circumvent the comprehensive statutory scheme established by section

10

7433(a) by asserting RICO claims against the IRS or its employees. (Id.)
In response to the Court’s dismissal order, on December 9, 2010, Plaintiffs filed a First

11
12

Amended Complaint. The First Amended Complaint was amended to state that Plaintiffs are not

13

suing the IRS, The Department of the Treasury or the United States but they are suing the individual

14

IRS Defendants in their individual capacities. (Dkt. No. 14 ¶¶ 1, 7, 8.) An examination of the First

15

Amended Complaint reveals that the only significant change from the original complaint is stating

16

that Plaintiffs are suing the individual IRS Defendants in their individual capacities. The remaining

17

RICO allegations and supporting facts are an exact duplicate of the original complaint. Plaintiffs are

18

attempting to circumvent the sovereign bar by asserting RICO claims against the individual IRS

19

agents in their individual capacities. The allegations presented show that Plaintiffs are not suing

20

Defendants in their individual capacities but in their official capacities as IRS employees,

21

responsible for collecting federal taxes. Accordingly, the Court GRANTS IRS Defendants’ motion

22

to dismiss for lack of subject matter jurisdiction based on sovereign immunity. Alternatively, if the

23

Court has subject matter jurisdiction, the Court looks at whether Plaintiffs have stated a RICO claim

24

pursuant to Federal Rule of Civil Procedure 12(b)(6) and 9(b).

25

II.

26

Legal Standard pursuant to Federal Rule of Civil Procedure 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) permits dismissal for “failure to state a claim

27

upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). Dismissal under Rule 12(b)(6)

28

is appropriate where the complaint lacks a cognizable legal theory or sufficient facts to support

-5-

[10cv2105-AJB(WVG)]

1

a cognizable legal theory. See Balistreri v. Pacifica Police Dep’t., 901 F.2d 696, 699 (9th Cir.

2

1990). A complaint may survive a motion to dismiss only if, taking all well-pleaded factual

3

allegations as true, it contains enough facts to “state a claim to relief that is plausible on its face.”

4

Ashcroft v. Iqbal, --- U.S. ----, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly,

5

550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content

6

that allows the court to draw the reasonable inference that the defendant is liable for the misconduct

7

alleged.” Id. “Threadbare recitals of the elements of a cause of action, supported by mere

8

conclusory statements, do not suffice.” Id. “In sum, for a complaint to survive a motion to dismiss,

9

the non-conclusory factual content, and reasonable inferences from that content, must be plausibly

10

suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969

11

(9th Cir. 2009) (quotations omitted). In reviewing a Rule 12(b)(6) motion, the Court accepts as true

12

all facts alleged in the complaint, and draws all reasonable inferences in favor of the plaintiff. al-

13

Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009).

14

However, because Plaintiffs are proceeding pro se, their complaint “must be held to less

15

stringent standards than formal pleadings drafted by lawyers” and must be “liberally construed.”

16

Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per curiam) (reaffirming standard reviewing pro se

17

complaints post-Twombly). The Ninth Circuit has concluded that the court’s treatment of pro se

18

filings after Twombly and Iqbal remained the same and pro se pleadings must continue to be

19

liberally construed. Hebbe v. Pliler, 627 F.3d 338, 342 (9th Cir. 2010); see also McGowan v.

20

Hulick, 612 F.3d 636, 640-42 (7th Cir. 2010); Bustos v. Martini Club Inc., 599 F.3d 458, 461-62

21

(5th Cir. 2010); Harris v. Mills, 572 F.3d 66, 71-72 (2d Cir. 2009) (noting that even following

22

Twombly and Iqbal, “we remain obligated to construe a pro se complaint liberally”).

23
24

A.

RICO Action May Not be Maintained Against Federal Government Employees
on behalf of the United States

25

IRS Defendants argue that a RICO action cannot be maintained against Federal Government

26

employees where the United States government is the beneficiary of the action. Plaintiffs disagree.

27
28

The United States Supreme Court held that alleged violations of the federal extortion statute,
also known as the Hobbs Act, 18 U.S.C. § 1951, by employees of a government agency in their

-6-

[10cv2105-AJB(WVG)]

1

efforts to obtain an easement over landowner’s property for the exclusive benefit of the federal

2

government did not qualify as a predicate offense for a RICO action. Wilkie v. Robbins, 551 U.S.

3

537, 563–567 (2007). The Court held that the “Hobbs Act does not apply when the National

4

Government is the intended beneficiary of the allegedly extortionate acts.” Id. at 563. The Court

5

drew a line between private and public beneficiaries which “prevents suits (not just recoveries)

6

against public officers whose jobs are to obtain property owed to the Government.” Id. at 566. “It is

7

not reasonable to assume that the Hobbs Act (let alone RICO) was intended to expose all federal

8

employees, whether in the Bureau of Land Management, the Internal Revenue Service, the Office of

9

the Comptroller of the Currency (OCC), or any other agency, to extortion charges whenever they

10

stretch in trying to enforce Government property claims.” Id. at 566.

11

Here, the First Amended Complaint alleges predicate acts of RICO under the Hobbs Act, 18

12

U.S.C. § 1951; mail fraud, 18 U.S.C. § 1341; wire fraud, 18 U.S.C. § 1343; bank fraud, 18 U.S.C. §

13

1344; racketeering, 18 U.S.C. § 1952; and witness tampering, 18 U.S.C. § 1512. These acts were

14

allegedly violated while the IRS Defendants were acting as employees of the IRS and attempting to

15

obtain tax revenues owed to the federal government.

16

Therefore, pursuant to the ruling in Wilkie, the Court concludes that Plaintiffs may not allege

17

a predicate act of extortion against individual Defendants under RICO. See Wilkie, 551 U.S. at 563-

18

566. The Court GRANTS IRS Defendants’ motion to dismiss the RICO claim as it relates to the

19

predicate act of extortion under the Hobbs Act, 19 U.S.C. § 1951.

20

IRS Defendants also ask the Court to expand the holding in Wilkie and conclude that a RICO

21

suit does not lie against the IRS Defendants under any “predicate acts” alleged by Plaintiffs.

22

However, Defendants have not presented any legal authority for the Court to make such a holding.

23

Wilkie concerned solely the predicate act under the Hobbs Act for a RICO claim. Accordingly, the

24

Court declines to expand the holding of Wilkie.

25

B.

RICO Claims as to IRS Defendants

26

Plaintiffs allege a RICO claim against IRS Defendant under 28 U.S.C. § 1962(c) and

27

conspiracy to commit RICO under § 1962(d). The Court first looks to whether there is a valid RICO

28

claim pursuant to 18 U.S.C. § 1962(c) before addressing whether there is a conspiracy to commit

-7-

[10cv2105-AJB(WVG)]

1

RICO under 18 U.S.C. § 1962(d). See Odom v. Microsoft Corp., 486 F.3d 541, 547 (9th Cir. 2007).

2

18 U.S.C. § 1962(c) provides that “[i]t shall be unlawful for any person employed by or

3

associated with any enterprise engaged in, or the activities of which affect, interstate or foreign

4

commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs

5

through a pattern of racketeering activity or collection of unlawful debt.” 18 U.S.C. § 1962(c). A

6

prima facie case for RICO under § 1962(c) requires “(1) conduct (2) of an enterprise (3) through a

7

pattern (4) of racketeering activity.” Sedima, S.P. R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985).

8

A plaintiff must also show harm of a specific business or property interest by the racketeering

9

conduct. Id.; Diaz v. Gates, 420 F.3d 897, 900 (9th Cir. 2005).

10

“Racketeering activity” is any act indictable under the several provisions of Title 18 of the

11

United States Code, including the predicate acts alleged by Plaintiffs in this case: mail fraud (18

12

U.S.C. § 1341), wire fraud (18 U.S.C. § 1343)2, bank fraud (18 U.S.C. § 1344), federal extortion (18

13

U.S.C. § 1951), witness tampering (18 U.S.C. § 1952) and federal racketeering (18 U.S.C. § 1952).

14

See 18 U.S.C. § 1961(1).

15

C.

Allegations of Fraud Pursuant to Federal Rule of Civil Procedure 9(b)

16

For mail and wire fraud, a plaintiff must allege (1) formation of a scheme to defraud, (2) use

17

of the United States mail or wire in furtherance of the scheme to defraud, and (3) specific intent to

18

deceive or defraud. Schreiber Distrib. Co. v Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1399-

19

1400 (9th Cir. 1986). For predicate acts involving fraud, a plaintiff must plead the facts with the

20

particularity required by Federal Rule of Civil Procedure 9(b). Edwards v. Marin Park. Inc., 356

21

F.3d 1058, 1065-66 (9th Cir. 2004). Federal Rule of Civil Procedure 9(b) requires that “a party must

22

state with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). Rule 9(b) applies

23

to civil RICO claims. Edwards, 356 F.3d at 1065-66. “Allegations of mail fraud under section

24

1962(a)-1962(c) ‘must identify the time, place, and manner of each fraud plus the role of each

25

defendant in each scheme.’” Schreiber Distrib. Co., 806 F.2d at 1401 (quoting Lewis v. Sporck, 612

26

F. Supp. 1316, 1325 (N.D. Cal. 1985)).

27
2

28

In construing the complaint in light most favorable to Plaintiffs, it appears that Plaintiffs are
alleging mail and wire fraud as the predicate acts as he uses the words “mail” and “wire” in the First
Amended Complaint.
-8-

[10cv2105-AJB(WVG)]

1

While Plaintiffs reference specific dates and certain letters concerning the fraud allegations,

2

Plaintiffs lump the IRS Defendants Kelly, Plasky, Pittner, Alito, and Crawford together and do not

3

provide the role of each defendant in each scheme. See Screibner Distrib. Co., 806 F.2d at 1401.

4

For example, Plaintiffs state that these IRS Defendants either “directly or indirectly took part in the

5

conduct of the IRS . . .” but provides no specific facts as to each IRS Defendants’ involvement in the

6

conduct. Plaintiffs also has not presented any facts as to the place of each fraud. Accordingly, the

7

Court DISMISSES the RICO claims based on the predicate acts of mail, wire and bank fraud for

8

failure to comply with Federal Rules of Civil Procedure 9(b).

9
10

D.

Pattern of Racketeering

A “pattern of racketeering” requires “at least two acts of racketeering activity, one of which

11

occurred after the effective date of this chapter and the last of which occurred within ten years . . .

12

after the commission of a prior act of racketeering activity.” 18 U.S.C. § 1961(5). The United

13

States Supreme Court in H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239 (1989), defined

14

the term “pattern” as “showing of a relationship between the predicates” and of “the threat of

15

continuing activity.” 492 U.S. 229, 239 (1989) (citing to Legislative History, S. Rep. No. 91-617 at

16

158 (1969)). “It is this factor of continuity plus relationship which combines to produce a pattern.”

17

Id. (citation omitted). As to continuity, a plaintiff . . . must prove continuity of racketeering

18

activity, or its threat.” Id. at 241. Continuity applies to “a closed period of repeated conduct or to

19

past conduct that by its nature projects into the future with a threat of repetition.” Id. at 241. A

20

plaintiff may show continuity over a closed period by “proving a series of related predicates

21

extending over a substantial period of time. Predicate acts extending over a few weeks or months

22

and threatening no future criminal conduct do not satisfy this requirement.” Id. at 242.

23

IRS Defendants argue that Plaintiffs have failed to plead “through a pattern” element of

24

RICO because the alleged predicate acts do not form a pattern as the period in which the alleged acts

25

occurred has closed and there is no threat of continuing activity. The alleged predicate acts occurred

26

over a period of a year from July 2009 to August 2010. (FAC ¶¶ 16(c), 60.) Defendants argue that

27

there is no threat of continuing activity because Plaintiffs’ remaining federal tax liability has been

28

determined to be uncollectible. (IRS Defendants’ Opp. at 15.) In opposition, Plaintiffs argue they

-9-

[10cv2105-AJB(WVG)]

1

have properly alleged a pattern of racketeering through facts that establish that the IRS Defendants

2

engaged in four separate criminal episodes seeking three separate lawsuit settlements. Plaintiffs

3

argue that once they have assets again, the IRS will be pursuing its illegal acts.

4

The Court concludes that Plaintiffs have not alleged a pattern of racketeering activity.

5

According to the First Amended Complaint, the alleged RICO acts occurred for a period of one year

6

and Plaintiffs have not alleged that there is a threat of continuing, future criminal conduct.

7

Accordingly, the Court concludes that Plaintiffs have failed to properly allege a “pattern of

8

racketeering.” Accordingly, the Court GRANTS IRS Defendants’ motion to dismiss for failure to

9

state a RICO claim under 28 U.S.C. § 1962(c).

10

In addition, Plaintiffs’ RICO conspiracy claim against the IRS Defendants relies on the

11

underlying RICO claim. See Odom, 486 F.3d at 547 (survival of claim under § 1962(c) (RICO

12

claim) will ensure the survival of claim under 1962(d) (RICO conspiracy claim)); Howard v. Am.

13

Online Inc., 208 F.3d 741, 751 (9th Cir. 2000) (“Plaintiffs cannot claim that a conspiracy to violate

14

RICO existed if they do not adequately plead a substantive violation of RICO). Since the Court has

15

dismissed the RICO claim for failure to state a claim, the Court also GRANTS IRS Defendants’

16

motion to dismiss for failure to state a claim as to the conspiracy to commit RICO under 28 U.S.C. §

17

1962(d).

18

E.

Exclusive Remedy for Damages under 26 U.S.C. § 7433(a).

19

Defendants argue that Plaintiffs have failed to state a claim because 26 U.S.C. § 7433

20

provides the exclusive remedy for Plaintiffs’ allegations of IRS Defendants’ fraudulent attempt to

21

collect federal taxes. Plaintiffs argue that section 7433 only applies to violations of Title 26, the

22

Internal Revenue Code, and since he has alleged RICO claims, they fall outside of 26 U.S.C. § 7433.

23

(Pls’ Opp. at 9.)

24

Under 26 U.S.C. § 7433(a), “in connection with any collection of Federal tax with respect to

25

a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by

26

reason of negligence disregards any provision of this title or any regulation promulgated under this

27

title, such taxpayer may bring a civil action for damages against the United States . . . .” 26 U.S.C. §

28

7433(a). This provision “shall be the exclusive remedy for recovering damages resulting from such

- 10 -

[10cv2105-AJB(WVG)]

1

actions.” Id. In order to make out a claim under section 7433(a), a claimant must demonstrate that

2

an employee of the IRS violated a specific section of the Internal Revenue Code or Treasury

3

Regulations in collecting taxes from the claimant. See id.; see also Miller v. United States, 66 F.3d

4

220, 222 (9th Cir. 1995). Plaintiffs must also exhaust all administrative remedies before filing in

5

district court. 26 U.S.C. § 7433(d)(1).

6

The claims in the First Amended Complaint concern allegedly fraudulent actions taken by

7

IRS Defendants in the collection of federal taxes. Specifically, they allege that IRS Defendants

8

fraudulently obtained settlement funds from a prior lawsuit pending an Offer in Compromise. Even

9

though Plaintiffs claim they are not making allegations for violation of Title 26, in their opposition,

10

they contend that they are entitled to the settlement funds under Title 26. In addition, Plaintiffs cite

11

to numerous violations of the Internal Revenue Code committed by IRS Defendants regarding the

12

Offer in Compromise. (Pls’ Opp. at 12.)

13

In addition, in an order filed on November 18, 2010 , the Court noted that 26 U.S.C. §

14

7433(a) provides the exclusive remedy for recovering damages by a taxpayer against an officer or

15

employee of the Internal Revenue Service for recklessly, intentionally or negligently disregarding

16

any provision or regulation. (Dkt. No. 10.) The Court stated that Plaintiffs may not circumvent this

17

statutory scheme by asserting RICO claims against the IRS or its employees. (Id.)

18

Plaintiffs’ allegations fall within 26 U.S.C. § 7433. Plaintiffs contend that IRS Defendants

19

unlawfully obtained settlement funds from another prior lawsuit against their tax professionals while

20

an Offer in Compromise was pending. (FAC ¶ 12.) They also allege that certain IRS Defendants

21

fraudulently returned the Offer in Compromise in order to gain access to the settlement funds. (Id. ¶

22

30.) Plaintiffs contend that IRS Defendants made a second attempt to fraudulently return Plaintiffs’

23

Offer in Compromise in order to gain access to lawsuit settlement funds. (Id. ¶ 44.) Lastly,

24

Plaintiffs complain that in response to Freedom of Information Act requests in December 2009 and

25

summer of 2010, certain IRS Defendants altered the administrative complaint Plaintiffs filed against

26

the IRS by using ICS-HISTORY to conceal their dishonest activities regarding receipt of the OIC

27

from Plaintiffs. (Id. ¶¶ 55-58.) These are allegations against employees of the IRS for their

28

allegedly fraudulent role in collecting federal taxes from Plaintiffs.

- 11 -

[10cv2105-AJB(WVG)]

1

The Court concludes that 26 U.S.C. § 7433 is Plaintiffs’ exclusive remedy. See Mayben v.

2

Barqnes, 290 F. Supp. 2d 1169 (E.D. Cal. 2003) (holding that 26 U.S.C. § 7433(a) is the exclusive

3

remedy for the improper collection of taxes and precludes Plaintiff from bringing a Bivens action).

4

Accordingly, the Court GRANTS IRS Defendants’ motion to dismiss for failure to state a claim

5

based on 26 U.S.C. § 7433(a).

6

Because the Court GRANTS IRS Defendants’ motion to dismiss the First Amended

7

Complaint for lack of subject matter jurisdiction and for failure to state a claim, the Court need not

8

address whether IRS Defendants are entitled to qualified immunity or whether the Court lacks

9

personal jurisdiction over Defendants Alito and Plasky and whether Plaintiffs failed to properly

10

serve Defendants Meigs, Crawford, Alito and Plasky.

11

F.

Conspiracy to Commit RICO as to Defendants Dunn and LD&D

12

Defendants Dunn and LD&D move to dismiss the First Amended Complaint pursuant to

13

Federal Rule of Civil Procedure 12(b)(6) and 9(b). The First Amended Complaint alleges one claim

14

of conspiracy to commit RICO3 against Dunn and LD&D. (FAC at 37.) In their opposition,

15

Plaintiffs state that their only claim against the Dunn Defendants is conspiracy to commit RICO.

16

Plaintiffs’ RICO conspiracy claim relies on the underlying RICO claim. Since the Court has

17

determined that Plaintiffs have failed to allege a RICO cause of action, the RICO conspiracy claim

18

necessarily fails. See Odom v. Microsoft Corp., 486 F.3d 541, 547 (9th Cir. 2007) (survival of claim

19

under § 1962(c) (RICO claim) will ensure the survival of claim under 1962(d) (RICO conspiracy

20

claim)); Howard v. Am. Online Inc., 208 F.3d 741, 751 (9th Cir. 2000) (“Plaintiffs cannot claim that

21

a conspiracy to violate RICO existed if they do not adequately plead a substantive violation of

22

RICO”). Accordingly, the Court GRANTS Dunn Defendants’ motion to dismiss the complaint for

23

failure to state a claim as to the RICO conspiracy claim.

24

The Court also notes that the order dismissing the original complaint filed on November 18,

25

2010 dismissed the complaint as to the Dunn Defendants because “Plaintiffs have not alleged facts

26

establishing a plausible RICO claim against them.” (Dkt. No. 10.) The First Amended Complaint

27
28

3

Section 1962(d) of RICO provides that “[i]t shall be unlawful for any person to conspire to
violate any of the provisions of subsection (a), (b), or (c) of this section.” 18 U.S.C. § 1962(d).
- 12 -

[10cv2105-AJB(WVG)]

1

presents the same allegations against the Dunn Defendants as the original complaint. For that

2

reason, the Court also GRANTS Dunn Defendants’ motion to dismiss the First Amended

3

Complaint.4

4

III.

5

Dunn Defendants’ Motion for Sanctions
Dunn Defendants have filed a motion for sanctions pursuant to Federal Rule of Civil

6

Procedure 11. Plaintiffs oppose arguing their claims are not frivolous and they have presented a

7

facially plausible claim.

8
9

Rule 11 states, in pertinent part, that when an attorney or an unrepresented party presents a
signed paper to a court, that person is certifying that to the best of his or her “knowledge

10

information, and belief, formed after an inquiry reasonable under the circumstances. . . (2) the

11

claims, defenses, and other legal contentions therein are warranted by existing law; [and] (3) the

12

allegations and other factual contentions have evidentiary support or, if specifically so identified, are

13

likely to have evidentiary support after a reasonable opportunity for further investigation or

14

discovery . . . .” Fed. R. Civ. P. 11(b).

15

The Ninth Circuit has provided a standard to determine the kind of conduct or neglect that

16

may trigger sanctions under Rule 11. Zaldivar v. City of Los Angeles, 780 F.2d 823, 831 (9th

17

Cir.1986), abrogated on other grounds by, Cooter & Gell v. Hartmarx, Corp., 496 U.S. 384 (1990).

18

Rule 11 requires the imposition of sanctions where an attorney or unrepresented party has signed

19

pleadings that are frivolous or without merit or has filed a pleading for an improper purpose. Id. at

20

830-32. Rule 11 is governed by an objective standard of reasonableness. Id. at 830. “Our cases

21

have established that sanctions [under Rule 11] must be imposed on the signer of a paper if either a)

22

the paper is filed for an improper purpose, or b) the paper is ‘frivolous.’” Townsend v. Holman

23

Consulting Corp., 929 F.2d 1358, 1362 (9th Cir. 1990) (en banc).

24

Rule 11 sanctions must be assessed if the papers filed with the court is “frivolous, legally

25

unreasonable, or without factual foundation, even though the paper was not filed in subjective bad

26

faith.” Zaldivar, 780 F.2d at 831. The second factor of “improper purpose” requires a determination

27
28

4

Since the Court has granted the Dunn Defendants’ motion to dismiss, the Court need not address
whether the Noerr-Pennington doctrine applies to this case.
- 13 -

[10cv2105-AJB(WVG)]

1

whether the pleading was filed to “harass or to cause unnecessary delay or needless increase in the

2

cost of litigation.” Id.
Pro se litigants, like represented parties and attorneys are subject to Rule 11 sanctions. Fed.

3
4

R. Civ. P. 11(b). Bus. Guides, Inc. v. Chromatic Commc’ns Enters., Inc., 892 F.2d 802, 811 (9th

5

Cir. 1989). However, the Court must take into account a plaintiff's pro se status when determining

6

whether to impose sanctions because what is objectively reasonable for a pro se litigant and for an

7

attorney may not be the same. Warren v. Guelker, 29 F.3d 1386, 1390 (9th Cir. 1994). A court can

8

consider Plaintiff’s ability to pay monetary sanctions as one factor in assessing sanctions. Id. at

9

1390. A court’s “discretion acknowledges that (1) what is objectively reasonable for a pro se

10

litigant and for an attorney may not be the same, and (2) the pro se status of a violator may be

11

relevant to the court’s discretionary choice of the appropriate sanction in a given case.” Bus.

12

Guides, Inc., 892 F.2d at 811.

13

A pro se plaintiff may be sanctioned if he or she successively “seeks to press a wholly

14

frivolous claim.” Ricketts v. Midwest Nat.’l Bank, 874 F.2d 1177, 1182 n. 4 (7th Cir. 1989) (citing

15

Fed. R. Civ. P. 11 advisory committee note (1983 amendments)); see also GC & KB Investments,

16

Inc. v. Wilson, 2001 WL 34125618 (C.D. Cal. 2001).
Here, Plaintiffs’ original complaint was dismissed as to the Dunn Defendants by Judge

17
18

Moskowitz for failing to “allege facts establishing a plausible RICO claim against them.” (Dkt. No.

19

10.) The First Amended Complaint mirrors the original complaint as to the Dunn Defendants.

20

Despite the Court’s order, no changes were made to add facts or allegations of RICO against Dunn

21

Defendants. Plaintiffs continue to assert that their claim is not frivolous, and is otherwise in good

22

faith.

23

Although the allegations in Plaintiffs’ First Amended Complaint are ultimately unavailing,

24

the Court does not believe they are sufficiently frivolous to warrant Rule 11 sanctions. In addition,

25

Plaintiffs have only amended the complaint one time and one revision is not considered to be a

26

successive filing of a frivolous claim. See Ricketts, 874 F.2d at 1182 n. 4. The Court excercises its

27

discretion to not award sanctions. Accordingly, the Court DENIES Dunn Defendants’ motion for

28

sanctions.

- 14 -

[10cv2105-AJB(WVG)]

1

////

2

IV.

Dunn Defendants’ Request for Judicial Notice
Dunn Defendants filed a request for judicial notice in support of their motion to dismiss and

3
4

their motion for sanctions. Since the Court did not reference any of the documents in the request for

5

judicial notice, the Court DENIES Defendants’ request for judicial notice in support of their motion

6

to dismiss and in support of their motion for sanctions.

7

V.

8
9

Leave to Amend
Before dismissing a pro se complaint, a district court must provide the litigant notice “of the

deficiencies in his complaint in order to ensure that the litigant uses the opportunity to amend

10

effectively.” Ferdik v. Bonzelet, 963 F.2d 1258, 1261 (9th Cir. 1992). However, a district court

11

may dismiss a complaint without leave to amend if it is absolutely clear that amendment would be

12

futile. Nunes v. Ashcroft, 375 F.3d 805, 808 (9th Cir. 2004); Mayben, 290 F. Supp. 2d at 1174

13

(dismissing Bivens complaint against IRS employee for the improper collection of taxes with

14

prejudice because no amendment to the complaint could cure the defects in the complaint).

15

Here, Plaintiffs’ original complaint was dismissed for failure to state a claim against IRS

16

Defendants based on sovereign immunity and against the Dunn Defendants for failure to state a

17

claim. The Court provided reasons to support its dismissal. Plaintiffs disregarded the ruling of the

18

Court and filed a First Amended Complaint alleging the same facts and causes of action as the

19

original complaint with the exception that Plaintiffs allege they are now suing the IRS Defendants in

20

their individual capacities. The underlying facts alleging RICO against the IRS Defendants as

21

employees of the federal government are barred under the doctrine of sovereign immunity. As such,

22

the conspiracy claims against the Dunn Defendants also fail. No set of facts can cure the complaint

23

to avoid dismissal. The Court concludes that any amendment to the First Amended Complaint

24

would be futile.5 Accordingly, the Court DISMISSES the First Amended Complaint with prejudice.

25
5

26
27
28

In their opposition to Dunn Defendants’ motion to dismiss and to IRS Defendants’ motion to
dismiss, Plaintiffs attach a two separate “proposed” Second Amended Complaints. Each of the Second
Amended Complaints are different from each other. It appears Plaintiffs have attempted to amend their
First Amended Complaint based on IRS and Dunn Defendants’ arguments in their motions to dismiss.
Plaintiffs have not requested leave to file a second amended complaint and the Court did not review the
Second Amended Complaints in deciding the pending motions before the Court. However, the Court
reviewed the “proposed” Second Amended Complaints to confirm that any leave to file an amended
- 15 -

[10cv2105-AJB(WVG)]

Conclusion

1
2

Based on the above reasoning, the Court:

3

1)

and for failure to state a claim with prejudice. (Dkt. No. 59.)

4
5

2)

8

GRANTS Dunn Defendants’ motion to dismiss for failure to state a claim with
prejudice. (Dkt. No. 17.)

6
7

GRANTS IRS Defendants’ motion to dismiss for lack of subject matter jurisdiction

3)

DENIES Dunn Defendants’ motion for sanctions. (Dkt. No. 25.)

IT IS SO ORDERED.

9
10

DATED: May 27, 2011

11
12

Hon. Anthony J. Battaglia
U.S. District Judge

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

complaint would be futile. The Second Amended Complaints present additional facts to support their
claims but the four “criminal episodes” and causes of action are the same. Although one of the Second
Amended Complaints add Fireman’s Fund Insurance Company as a defendant, the allegations are based
on the IRS Defendants’ fraudulent attempt to satisfy a federal tax lien by confiscating settlement funds
from a prior lawsuit outside the OIC process. These claims have been dismissed as discussed above.
Therefore, any leave to file a second amended complaint would be futile.
- 16 -

[10cv2105-AJB(WVG)]