Nguyen v. United States of America

Filing 26

ORDER denying 20 Plaintiff's Motion to amend. Signed by Judge John A. Houston on 1/18/2018. (jpp)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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Case No.: 16cv00391 JAH - DHB

DANNY NGUYEN,
Plaintiff,

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v.

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ORDER DENYING PLAINTIFF’S
MOTION TO AMEND [Doc. No. 20]

UNITED STATES OF AMERICA,

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Defendant.

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Pending before the Court is Plaintiff’s motion for leave to file a second amended

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complaint. Defendant opposes the motion. For the reasons discussed below, the Court

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DENIES Plaintiff’s motion for leave to amend.

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BACKGROUND

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Plaintiff originally filed a complaint on February 15, 2016, and filed a First

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Amended Complaint (“FAC”) on July 26, 2016, seeking a refund of a tax return preparer

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penalty erroneously assessed under 26 U.S.C. section 6695(g). Plaintiff alleges the Internal

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Revenue Service (“IRS”) assessed a penalty of $22,000 for 44 returns it contends violated

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the due diligence requirements of section 6695(g). Complaint ¶¶ 11-13. Plaintiff alleges

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he paid $500 for one of the “divisible” penalties. Id. ¶ 22. On August 9, 2016, Defendant

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filed a motion seeking to dismiss the causes of action involving the 43 penalties not paid

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by Plaintiff for lack of subject matter jurisdiction. Finding section 6695(g) penalties fall
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outside the divisible tax exception, and, therefore, full payment must be made to obtain

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refund jurisdiction over the remaining 43 penalties, the Court granted the motion to dismiss

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and directed Plaintiff to identify the individual return that corresponded to the penalty he

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paid.

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After Plaintiff failed to identify the return and took no action on the case for many

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months, the Court issued an order to show cause why the action should not be dismissed

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for his failure to comply with the Court’s order directing him to identify the individual

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return and failure to prosecute the action. In response to the order to show cause, the parties

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filed a joint status report explaining Plaintiff made a $22,933.01 payment to the IRS for

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payment of the 43 penalties on April 25, 2017, and sent a claim for refund on April 26,

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2017. Plaintiff also filed the pending motion for leave to amend. The Court vacated the

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order to show cause and set a briefing schedule and hearing date on Plaintiff’s motion.

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Defendant filed an opposition on November 29, 2017. Plaintiff did not file a reply. Finding

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the matter suitable for disposition without oral argument, the Court vacated the hearing and

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took the motion under submission.

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DISCUSSION
I. Legal Standard

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A party may amend a pleading once as a matter of course within 21 days after serving

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a pleading or 21 days after service of a responsive pleading or motion, and may otherwise

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amend by leave of court. Fed.R.Civ.P. 15(a). Granting leave to amend rests in the sound

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discretion of the trial court. International Association of Machinists & Aerospace Workers

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v. Republic Airlines, 761 F.2d 1386, 1390 (9th Cir. 1985). This discretion must be guided

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by the strong federal policy favoring the disposition of cases on the merits. DCD Programs

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Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987). Because Rule 15(a) favors a liberal

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policy, the nonmoving party bears the burden of demonstrating why leave to amend should

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not be granted. Genetech, Inc. v. Abbott Laboratories, 127 F.R.D. 529 (N.D. Cal. 1989).

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Even though leave to amend is generally granted freely, it is not granted

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automatically. See Zivkovic v. Southern Cal. Edison Co., 302 F.3d 1080, 1087 (9th Cir.
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2002). Four factors are considered when a court determines whether to allow amendment

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of a pleading. These are prejudice to the opposing party, undue delay, bad faith, and

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futility. See DCD Programs, 833 F.2d at 186; see also Foman v. Davis, 371 U.S. 178, 182

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(1962). These factors are not equally weighted; the possibility of delay alone, for instance,

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cannot justify denial of leave to amend. See DCD Programs, 833 F.2d at 186; Morongo

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Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). The single most

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important factor is whether prejudice would result to the nonmovant as a consequence of

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the amendment. William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 668

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F.2d 1014, 1053 (9th Cir. 1981).

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II. Analysis

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Plaintiff seeks to amend his complaint to cure the issue of the Court’s jurisdiction

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over all 44 alleged violations of section 6695(g). Plaintiff maintains he made a payment

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to the IRS, filed a second claim for refund on April 26, 2017, and more than six-months

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have passed with no action by the IRS.

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Defendant argues the motion is futile as it will not provide the Court jurisdiction

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over the remaining 43 penalties in this action. Specifically, Defendant argues Plaintiff is

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required to file an administrative claim and pay the penalty prior to filing suit to confer

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subject matter jurisdiction.

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Generally, subject matter jurisdiction is determined by the facts existing at the time

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the action is commenced. See Keene Corp. v. U.S., 508 U.S. 200, 203 (1993); Morongo

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Band of Mission Indians v. California State Bd. of Equalization, 858 F.2d 1376, 1380-81

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(9th Cir. 1988). Jurisdiction cannot be created by amendment if the facts supporting

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jurisdiction did not exist at the outset. See Morongo Band of Mission Indians, 858 F.2d at

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1381. In Northstar Financial Advisors, Inc. v. Schwab Investments, the Ninth Circuit

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found the rule in Morongo “is more nuanced than the inflexibility suggested by its

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language” and determined it does not extend to supplemental pleadings filed pursuant to

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Rule 15(d) of the Federal Rules of Civil Procedure. 779 F.3d 1036, 1046 (9th Cir. 2015).

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Here, Plaintiff is not seeking to supplement his pleading but amend his pleading

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based upon events occurring after the date of the commencement of this action, namely his

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payment of the penalty and filing of an administrative claim. Actions for the refund of a

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tax requires the payment of the entire tax prior to filing suit. See Flora v. U.S., 362 U.S.

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145, 150-51 (1960). As such, Plaintiff’s attempt to amend to cure the jurisdictional defect

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is futile.

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CONCLUSION AND ORDER

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Based upon the foregoing, IT IS HEREBY ORDERED:

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1.

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Plaintiff’s motion to for leave to file a second amended complaint is
DENIED;

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Plaintiff shall identify the individual return corresponding to the penalty that
he paid prior to commencing this action on or before February 1, 2018.

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Dated: January 18, 2017

HON. JOHN A. HOUSTON
UNITED STATES DISTRICT JUDGE

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