Kenner et al v. Kelly et al
Filing
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ORDER granting 73 Defendant's Motion to Dismiss. Defendant's motion to dismiss is granted with prejudice. Signed by Judge Dana M. Sabraw on 7/2/2018. (jdt)
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UNITED STATES DISTRICT COURT
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SOUTHERN DISTRICT OF CALIFORNIA
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Case No. 11-cv-1538 DMS (WVG)
BRIAN KENNER and KATHLEEN
KENNER,
Plaintiffs,
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ORDER GRANTING
DEFENDANT’S MOTION TO
DISMISS
v.
ERIN KELLY et al.,
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Defendants.
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Pending before the Court is Defendant United States of America’s motion to
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dismiss Plaintiffs Brian and Kathleen Kenner’s Second Amended Complaint
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(“SAC”) pursuant to Federal Rule of Civil Procedure 12(b)(1) & (6). Plaintiffs filed
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an opposition, and Defendant filed a reply. For the following reasons, the Court
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grants Defendant’s motion to dismiss.
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I.
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BACKGROUND
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A.
Procedural History
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On October 8, 2010, Plaintiffs filed their first lawsuit against individual
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Internal Revenue Service employees (“IRS Defendants”), as well as Barbara Dunn
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and Lacey, Dunn & Do (“Dunn Defendants”). (See Kenner v. Kelly, 10-cv-2105
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AJB (WVG).) Barbara Dunn is an attorney who formerly represented several
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defendants in another prior lawsuit where Plaintiffs sued their tax professionals, and
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Lacey, Dunn & Do is the law firm where Dunn is employed. The underlying facts
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of that case arose out of collection activities undertaken by the IRS to satisfy unpaid
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federal taxes. The Complaint alleged Defendants engaged in four distinct “criminal
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episodes” encompassing six different predicate acts under the Racketeer Influenced
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and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq. Specifically,
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Plaintiffs alleged the IRS Defendants engaged in unauthorized collection actions,
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and the Dunn Defendants conspired with the IRS Defendants, in violation of RICO.
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On May 27, 2011, Judge Anthony J. Battaglia granted Defendants’ motions to
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dismiss with prejudice. On June 21, 2011, Plaintiffs filed a notice of appeal,
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challenging the order granting the motions to dismiss.
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On July 12, 2011, Plaintiffs filed the present action against the same IRS
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Defendants and the Dunn Defendants, alleging essentially identical claims for
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relief.1 The underlying facts of this case arose from the same events as the first
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action. The Complaint alleged Defendants engaged in four distinct “criminal
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episodes” encompassing 59 different predicate acts under RICO. Because the claims
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in this action were nearly identical to those in the first action, Judge Battaglia stayed
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the case pending resolution of appeal in the first action.2
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On October 14, 2011, while the appeal was pending in the first action,
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Plaintiffs filed a third action in the San Diego County Superior Court against the
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same IRS Defendants, Capital One, and Judge Battaglia and Judge Barry Ted
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Moskowitz (“judicial Defendants”). (See Kenner v. Kelly, 11-cv-2520 BEN (BGS).)
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In the Complaint, Plaintiffs alleged the judicial Defendants “acted with [other]
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The Complaint also alleged a conspiracy to commit RICO claim against Fireman’s
Fund Insurance Company.
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On October 11, 2012, Judge Battaglia recused from this case, which was then
transferred to this Court.
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defendant parties as conspirators to defeat the RICO lawsuits. [They] have used
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threats, intimidation, and coercion to force [Plaintiffs] to abandon their rights.” (Id.,
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ECF. No. 1.) The United States and the IRS Defendants removed the action on
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October 31, 2011. On January 13, 2012, Judge Roger T. Benitez granted the United
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States’ motion to substitute party, dismissing the IRS Defendants and substituting
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the United States as a proper party defendant. Subsequently, Judge Benitez granted
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the United States’ motion to dismiss for lack of subject matter jurisdiction and failure
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to state a claim. Plaintiff filed a notice of appeal on July 20, 2012.
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On April 25, 2012, Plaintiffs filed a fourth lawsuit against the United States,
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Eric Holder, and Tim Geithner. (See Kenner v. Holder, 12-cv-1011 MMA (WVG).)
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The underlying facts of that case also arose from the same events as the other
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lawsuits. The Complaint alleged “Defendants’ agents engaged in a ‘pattern of
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racketeering’ (RICO) to confiscate our property during an ‘offer in compromise’
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negotiation with the IRS.” (Id., ECF No. 1.) On December 19, 2012, Judge Michael
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M. Anello granted Defendants’ motion to dismiss for lack of subject matter
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jurisdiction. Plaintiffs subsequently filed a notice of appeal on December 28, 2012.
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On October 17, 2013, the Ninth Circuit affirmed the dismissal of the first
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action. This Court then issued an order further staying this action pending appeal in
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the third and fourth actions. The Ninth Circuit subsequently affirmed the dismissals
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on June 16, 2017 and June 16, 2015, respectively. Because the appeal proceedings
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that gave rise to the stay of the instant action have concluded, the Court vacated the
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stay. On February 14, 2018, Plaintiffs filed a FAC substituting the United States as
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a defendant in lieu of the IRS Defendants and removing Fireman’s Fund Insurance
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Company as a defendant. The United States and Dunn Defendants both filed
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motions to dismiss the FAC. On April 10, 2018, the Court granted the Dunn
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Defendants’ motion to dismiss with prejudice and the United States’ motion to
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dismiss without prejudice. Thereafter, Plaintiffs filed a SAC against the United
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States (hereafter “Defendant”), arguing they are entitled to damages under § 7433
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because Defendant violated the following statutes and/or regulations: (1) 26 U.S.C.
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§ 6331(k)(1), (2) 26 U.S.C. § 7214(a), (3) 26 U.S.C. § 301.7122(b)(3), and (4) 26
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U.S.C. § 7435. Defendant filed the present motion to dismiss the SAC for lack of
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subject matter jurisdiction and failure to state a claim.
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B.
Factual Background
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On July 7, 2009, the IRS filed a Notice of Tax Lien against Plaintiffs. (SAC
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¶ 11.) The allegations in the SAC arise from the IRS’s collection efforts regarding
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Plaintiffs’ federal tax liabilities. In July 2009, Plaintiffs settled a lawsuit with their
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prior tax professionals and expected to receive settlement funds of approximately
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$250,000. (SAC ¶ 9.) Rick Edson represented them in this prior lawsuit. (Id. ¶ 30.)
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Plaintiffs allege Defendant unlawfully obtained a portion of the settlement funds in
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the amount of $137,069.98 while an Offer in Compromise (“OIC”) was pending.
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(Id. ¶¶ 21, 59c.) Specifically, Plaintiffs claim Defendant influenced Mr. Edson and
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opposing counsel in the prior lawsuit to disburse the settlement check to Defendant
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when it should have been delivered to them. (Id. ¶¶ 22, 30, 34, 41, 59a & b.)
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II.
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LEGAL STANDARD
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Pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, a party may
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move to dismiss based on the court’s lack of subject matter jurisdiction. See Fed. R.
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Civ. P. 12(b)(1).
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jurisdiction is proper. Kokkonen v. Guardian Life Ins., Co., 511 U.S. 375, 377
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(1994). Under Rule 12(b)(1), a jurisdictional attack may either be “facial” or
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“factual.” White v. Lee, 227 F.3d 1213, 1242 (9th Cir. 2000). When a defendant
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challenges jurisdiction “facially,” as they do here, all material allegations in the
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complaint are assumed to be true, and the question for the court is whether the lack
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of federal jurisdiction appears from the face of the pleading itself. Thornhill Publ’g
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Co. v. Gen. Tel. Elec., 594 F.2d 730, 733 (9th Cir. 1979); Mortensen v. First Fed.
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Sav. & Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977). In a factual attack, the
A plaintiff has the burden to establish that subject matter
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“defendant disputes the truth of the allegations that, by themselves, would otherwise
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invoke federal jurisdiction.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039
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(9th Cir. 2004). A challenge for lack of subject matter jurisdiction may be raised at
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any time by either party or sua sponte by the court. Fleming v. Gordon & Wong Law
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Group, P.C., 723 F. Supp. 2d 1219, 1222 (N.D. Cal. 2010) (citing Olson Farms, Inc.
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v. Barbosa, 134 F.3d 933, 937 (9th Cir. 1998)).
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A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil
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Procedure tests the legal sufficiency of the claims asserted in the complaint. See
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Fed. R. Civ. P. 12(b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). In
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deciding a motion to dismiss, all material factual allegations of the complaint are
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accepted as true, as well as all reasonable inferences to be drawn from them. Cahill
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v. Liberty Mut. Ins. Co., 80 F.3d 336, 338 (9th Cir. 1996). A court, however, need
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not accept all conclusory allegations as true. Rather, it must “examine whether
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conclusory allegations follow from the description of facts as alleged by the
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plaintiff.” Holden v. Hagopian, 978 F.2d 1115, 1121 (9th Cir. 1992) (citation
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omitted); see Benson v. Ariz. State Bd. of Dental Exam’rs, 673 F.2d 272, 275–76
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(9th Cir. 1982) (court need not accept conclusory legal assertions). A motion to
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dismiss should be granted if a plaintiff’s complaint fails to contain “enough facts to
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state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550
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U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads
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factual content that allows the court to draw the reasonable inference that the
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defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
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(2009) (citing Twombly, 550 U.S. at 556).
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III.
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DISCUSSION
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Defendant moves to dismiss Plaintiff’s § 7433 claim for failure to state a claim
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pursuant to Rule 12(b)(6) and for lack of subject matter jurisdiction pursuant to Rule
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12(b)(1). A taxpayer may bring suit against the United States for civil damages in
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relation to collection efforts of federal tax liabilities. 26 U.S.C. § 7433(a). “Section
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7433 creates a private right of action only for tax collection activity that violates
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some provision of the Revenue Code or the regulations promulgated thereunder.”
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Shwarz v. United States, 234 F.3d 428, 433–34 (9th Cir. 2000) (citing 26 U.S.C. §
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7433(a)). Accordingly, to state a claim under § 7433, “a plaintiff must allege that
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the IRS violated an Internal Revenue Code provision or a Treasury Regulations.”
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Scharringhausen v. United States, 686 F. Supp. 2d 1069, 1073 (S.D. Cal. 2009)
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(citing Shwarz, 234 F.3d at 433–34). Here, Plaintiffs seek damages under § 7433,
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arguing Defendant violated § 6331(k)(1), § 7214(a), § 301.7122(b)(3), and § 7435.
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A.
§ 6331(k)(1)
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Plaintiffs allege Defendant violated § 6331(k)(1) when it “unlawfully
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obtained settlement funds in the amount of $137,069.98, …, while a proper
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KENNER/IRS Offer In Compromise was pending[.]” (SAC ¶ 59c.)
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6331(k)(1) provides “No levy may be made under subsection (a) on the property or
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rights to property of any person with respect to any unpaid tax—(A) during the
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period that an offer-in-compromise by such person under section 7122 of such
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unpaid tax is pending with the Secretary; and (B) if such offer is rejected by the
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Secretary, during the 30 days thereafter (and, if an appeal of such rejection is filed
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within such 30 days, during the period that such appeal is pending).” 26 U.S.C. §
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6331(k)(1). Defendant argues the SAC does not allege “the existence of a levy. Nor
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do they allege that a Notice of Levy was ever issued by the IRS to their tax
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professionals.” (Mem. of P. & A. in Opp’n to Mot. at 6–7.) Indeed, the SAC
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expressly states, “The USA, by and through its Employees, received the Kenner-
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Shaff settlement funds without issuing a levy, and while an OIC was pending.”
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(SAC ¶ 59d.) Because the SAC fails to allege Defendant made a levy on his
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settlement check while the OIC was pending, Defendant’s motion to dismiss
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Plaintiff’s § 7433 claim premised on a violation of § 6331(k)(1) is granted.
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///
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B.
§ 7214(a)
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Next, Plaintiffs allege Defendant violated § 7214(a), which makes criminal
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certain acts by IRS employees and authorizes a court to render judgment against a
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convicted “employee for the amount of damages sustained in favor of the party
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injured[.]” 26 U.S.C. § 7214(a). As Defendant correctly argues, § 7214(a) is a
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“criminal statute[] that do[es] not provide for a private right of action and thus not
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enforceable through a civil action. Andrews v. Heaton, 483 F.3d 1070, 1076 (10th
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Cir. 2007); see Hanna v. Home Ins. Co., 281 F.2d 298, 303 (5th Cir. 1960) (federal
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criminal statutes do not provide a basis for civil liability). Thus, the Court does not
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have jurisdiction over this claim, and therefore, Defendant’s motion to dismiss
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Plaintiff’s § 7433 claim premised on a violation of § 7214(a) is granted.
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C.
§ 301.7122(b)(3)
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Plaintiffs allege Defendant violated § 301.7122(b)(3) by rejecting their OIC
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after determining “it was submitted only to ‘Hinder and Delay’ the collection of
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taxes,” even though “the OIC was valid and not submitted to ‘Hinder and Delay[.]’”3
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(SAC ¶ 62.) Plaintiffs argue Defendant “intentionally avoided the potentially valid
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OIC in order to collect funds outside of the OIC.” (Mem. of P. & A. in Opp’n to
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Mot. at 7.) The “IRS decisions and actions pertaining to offers in compromise are
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not considered to be collection activity under Section 7433.” Sawyers v. United
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States, No. 3:15-CV-00873-GNS-DW, 2016 WL 7223430, at *2 (W.D. Ky. Dec. 13,
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2016) (citations omitted); see also United States v. Ullman, No. CIV.A. 01-0272,
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2002 WL 987998, at *6 (E.D. Pa. May 8, 2002) (“Compromising tax liabilities is a
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purely discretionary activity and will not give rise to a claim for intentional, reckless
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or negligent violation of the Internal Revenue Code.”) (citation omitted). Therefore,
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Defendant’s motion to dismiss Plaintiff’s § 7433 claim premised on a violation of §
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It is uncertain how these allegations show a violation of § 301.7122(b)(3), which
forth guidelines for evaluating offers to compromise that “[p]romote effective tax
administration.”
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301.7122(b)(3) is granted.
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D.
§ 7435
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Lastly, Plaintiff claims Defendant violated § 7435 by “contact[ing] attorney
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Richard Edson and attorney Barbara Dunn regarding the Kenner-Shaff settlement
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funds.” (SAC ¶ 66.) Section 7435 prohibits the IRS employees from “intentionally
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compromis[ing] the determination or collection of any tax due from an attorney,
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certified public accountant, or enrolled agent representing a taxpayer in exchange
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for information conveyed by the taxpayer to the attorney, certified public accountant,
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or enrolled agent for purposes of obtaining advice concerning the taxpayer’s tax
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liability[.]” 26 U.S.C. § 7435(a).4 The SAC does not contain any allegations that
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Plaintiffs’ attorney had any tax due to the IRS or that IRS compromised the
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determination or collection of that tax. See Ramirez v. United States, No. SACV 14-
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1299-JLS ANX, 2015 WL 3606218, at *5 (C.D. Cal. Mar. 11, 2015).
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Defendant’s motion to dismiss Plaintiff’s § 7433 claim premised on a violation of §
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7435 is granted. Accordingly, the Court declines to address Defendant’s remaining
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arguments.
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III.
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Therefore,
CONCLUSION
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The Court has previously cautioned Plaintiffs that their failure to cure
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pleading deficiencies would result in a dismissal of their claims with prejudice and
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without leave to amend. Plaintiffs have failed to state a claim despite having had
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multiple opportunities in which to do so. Accordingly, Defendant’s motion to
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dismiss is granted with prejudice.
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///
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///
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Plaintiff appears to contend the “tax due” refers to Plaintiffs’ tax liability. The
statute, however, expressly states to “tax due from an attorney, certified public
accountant, or enrolled agent representing a tax payer[.]” 26 U.S.C. § 7435.
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IT IS SO ORDERED.
Dated: July 2, 2018
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