15 Corporations, Inc. et al v. Colorado Department of Revenue et al
Filing
39
ORDER The Denver Defendants Motion to Dismiss ECF No. 12 is GRANTED in so far as it seeks dismissal of all claims, but denied to the extent it seeks dismissal with prejudice; The State Defendants Motion to Dismiss ECF No. 21 is GRANTED; All claims in Plaintiffs Amended Complaint are DISMISSED WITHOUT PREJUDICE. The Clerk shall close the case, by Judge William J. Martinez on 10/25/2013.(ervsl, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 13-cv-0251-WJM-MJW
15 CORPORATIONS, INC., and
ALAN DEATLEY, and individual,
Plaintiffs,
v.
DENVER PROSECUTOR’S OFFICE,
CITY OF DENVER, COUNTY OF DENVER,
KANDACE C. GERDES, an individual,
JOSEPH MORALES, an individual,
WILLIAM M. RITTER, an individual,
ROBERT L. MCGAHEY, JR., an individual,
JOHN W. MADDEN, IV, an individual, and
DOES 1-100
Defendants.
ORDER GRANTING MOTIONS TO DISMISS
Plaintiffs 15 Corporations, Inc. and Alan Deatley (“Plaintiffs”) bring this action
against Defendants Denver Prosecutor’s Office, City and County of Denver, Kandace
C. Gerdes, Joseph Morales (collectively “Denver Defendants”), as well as William
Ritter, Robert McGahey, and John Madden (collectively “State Defendants”). Plaintiffs
allege that the Denver and State Defendants violated their Fifth and Fourteenth
Amendment rights, as well as 26 U.S.C. § 6103 and Colo. Rev. Stat. § 39-21-113.
(Am. Compl. (ECF No. 7) pp. 11-17.)
Before the Court are the following motions: (1) Denver Defendants’ Motion to
Dismiss (ECF No. 12); and (2) State Defendants’ Motion to Dismiss (ECF No. 21). For
the reasons set forth below, the Motions are granted.
I. LEGAL STANDARD
Defendants move to dismiss Plaintiffs’ claims for both lack of jurisdiction
pursuant to Fed. Rule Civ. P. 12(b)(1) and for failure to state a claim pursuant to Rule
12(b)(6). The legal standard governing each aspect of the Motions is set forth below.
Rule 12(b)(1) empowers a court to dismiss a complaint for “lack of jurisdiction
over the subject matter.” Fed. R. Civ. P. 12(b)(1). Dismissal under Rule 12(b)(1) is not
a judgment on the merits of a plaintiff’s case. Rather, it calls for a determination that
the court lacks authority to adjudicate the matter, attacking the existence of jurisdiction
rather than the allegations of the complaint. See Castaneda v. INS, 23 F.3d 1576,
1580 (10th Cir. 1994) (recognizing federal courts are courts of limited jurisdiction and
may only exercise jurisdiction when specifically authorized to do so). The burden of
establishing subject matter jurisdiction is on the party asserting jurisdiction. Basso v.
Utah Power & Light Co., 495 F.2d 906, 909 (10th Cir. 1974). A court lacking jurisdiction
“must dismiss the cause at any stage of the proceeding in which it becomes apparent
that jurisdiction is lacking.” See id.
A Rule 12(b)(1) motion to dismiss “must be determined from the allegations of
fact in the complaint, without regard to mere conclusory allegations of jurisdiction.”
Groundhog v. Keeler, 442 F.2d 674, 677 (10th Cir. 1971). When considering a Rule
12(b)(1) motion, however, the court may consider matters outside the pleadings without
transforming the motion into one for summary judgment. Holt v. United States, 46 F.3d
1000, 1003 (10th Cir. 1995). Where a party challenges the facts upon which subject
2
matter jurisdiction depends, a district court may not presume the truthfulness of the
complaint’s “factual allegations . . . [and] has wide discretion to allow affidavits, other
documents, and [may even hold] a limited evidentiary hearing to resolve
disputed jurisdictional facts under Rule 12(b)(1).” Id.
Under Federal Rule of Civil Procedure 12(b)(6), a defendant may move to
dismiss a claim in a complaint for “failure to state a claim upon which relief can be
granted.” In evaluating such a motion, a court must “assume the truth of the plaintiff’s
well-pleaded factual allegations and view them in the light most favorable to the
plaintiff.” Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir.
2007). In ruling on such a motion, the dispositive inquiry is “whether the complaint
contains ‘enough facts to state a claim to relief that is plausible on its face.’” Id.
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Granting a motion to
dismiss “is a harsh remedy which must be cautiously studied, not only to effectuate the
spirit of the liberal rules of pleading but also to protect the interests of justice.” Dias v.
City & Cnty. of Denver, 567 F.3d 1169, 1178 (10th Cir. 2009) (quotation marks omitted).
“Thus, ‘a well-pleaded complaint may proceed even if it strikes a savvy judge that actual
proof of those facts is improbable, and that a recovery is very remote and unlikely.’” Id.
(quoting Twombly, 550 U.S. at 556).
II. FACTUAL BACKGROUND
The following facts come from Plaintiffs’ Amended Complaint and are accepted
as true for purposes of the instant Motions.
Plaintiff Alan Deatly is an individual who has an ownership interest in Plaintiff 15
3
Corporations, Inc. (Am. Compl. ¶¶ 1-2.) Defendants Kandace Gerdes and Joseph
Morales are prosecutors with the Office of the Denver Prosecuting Attorney, which is a
political subdivision of the City and County of Denver. (Id. ¶¶ 4-9.) Defendant Steven
Bratten is an investigator employed by the Colorado Department of Revenue. (Id. ¶
17.) Defendants Robert McGahey and John Madden are Colorado state court judges.1
(Id. ¶¶ 31 & 52.)
At some unknown time and by some “unknown means”, Bratten obtained
approximately 296 state and federal income tax returns from Plaintiffs, their business
entities, their family members, and their purchasers. (Id. ¶¶ 17-22.) Bratten distributed
this tax information to Gerdes and Morales, as well as other employees of the Office of
the Denver Prosecuting Attorney. (Id. ¶ 23.) This tax information was used to “link
parties together and to develop their presentation and theories for presentation to the
grand jury.” (Id. ¶ 25.)
In 2009 or 2010, the Office of the Denver Prosecuting Attorney empaneled a
grand jury to investigate allegations that Plaintiffs and other entities were misusing
Colorado’s conservation easement tax credits. (Am. Compl. ¶ 16.) Bratten testified
before the grand jury. (Id. ¶ 24.) In support of the state’s case, Bratten disclosed the
tax information to the grand jury. (Id. ¶ 20.) After the grand jury returned an indictment
1
The Amended Complaint also names Former Governor Bill Ritter as a Defendant.
(Am. Compl. ¶ 10.) However, Governor Ritter has never made an appearance in this case, and
Plaintiffs have neither shown that they have served Governor Ritter nor moved for default
against him. Accordingly, the Court presumes that it does not have jurisdiction over Governor
Ritter and will dismiss the claim against him without prejudice. See Okla. Radio Assocs. v.
F.D.I.C., 969 F.2d 940, 943 (10th Cir. 1992) (court lacks personal jurisdiction over a party
where there is no indication that the party has been served with process).
4
against Plaintiffs, the tax information was disclosed to Plaintiffs’ defense counsel during
the discovery process. (Id. ¶ 28.)
Upon learning of this alleged misuse of their tax information, Plaintiffs alerted the
judicial officers presiding over the criminal action, Judges Madden and McGahey. (Id. ¶
29.) After they were alerted to the issue, neither judge made any attempt to stop the
use of Plaintiffs’ tax information. (Id. ¶ 30.) At some point, Judge Madden ordered the
prosecution team to disclose tax information, without considering the privacy limitations
outlined in Colo. Rev. Stat. § 39-21-113 or 26 U.S.C. § 6103. (Id. ¶ 31.)
Based on these facts, Plaintiffs bring the following claims: Count I — violation of
26 U.S.C. § 6103; Counts II & III — violation of Due Process of Law under the Fifth and
Fourteenth Amendments pursuant to 42 U.S.C. § 1983; Count IV — violation of the
Fifth Amendment’s Takings Clause pursuant to 42 U.S.C. § 1983; and Count V —
violation of Colo. Rev. Stat. § 39-21-113. (Am. Compl. pp. 11-17.) Plaintiffs seek
prospective injunctive relief, damages for the constitutional violations, and reasonable
attorneys’ fees and costs. (Id. at 18.) In lieu of an answer, Defendants filed the instant
Motions to Dismiss. (ECF Nos. 12 & 21.) The case has been stayed since the filing of
the Motions; no scheduling order has entered and no discovery has been exchanged.
(ECF No. 24.)
III. ANALYSIS
Defendants move to dismiss all of Plaintiffs’ claims on a variety of grounds, each
of which will be discussed in turn below.
5
A.
Request for Prospective Injunctive Relief
Defendants move to dismiss Plaintiffs’ claims for prospective injunctive relief
under the doctrine of Younger abstention. (ECF No. 12 at 8-9.) In Younger v. Harris,
401 U.S. 37 (1971), the Supreme Court ruled that a district court’s injunction of a
pending state court criminal prosecution violated “the national policy forbidding federal
courts to stay or enjoin pending state court proceedings except under special
circumstances.” 401 U.S. at 41. The Supreme Court has established a threefold
analysis for questions of abstention under Younger. A federal district court must
abstain if (1) there is an ongoing state judicial proceeding (2) which implicates important
state interests and (3) in which there is an adequate opportunity to raise constitutional
challenges. See Middlesex Cnty. Ethics Comm. v. Garden State Bar Ass’n, 457 U.S.
423, 431-32 (1982).
Applying the Younger test to this case, it is clear that the Court must dismiss the
claims for injunctive relief. It is undisputed that Plaintiffs are defendants in an active
state court criminal prosecution. In fact, the injunctive relief that Plaintiffs seek is to
enjoin use of evidence against them in those proceedings. (Am. Compl. p. 18.) The
subject matter of that state court action is Plaintiffs’ use of conservation easement
credits, a process that was created by the Colorado state legislature. Therefore, the
ongoing criminal action undisputedly involves important state interests. See Kingston v.
Utah Cnty., 161 F.3d 17 (10th Cir. 1998) (“There can be no question that enforcement
of a state [criminal] statute is an important state interest for Younger doctrine
purposes.”).
6
The only prong of the Younger test which Plaintiffs appear to dispute is whether
they have an adequate opportunity to raise in the state court case the claims at issue
here. Plaintiffs point out that most of their causes of action in this case involve
violations of federal statutes and the United States Constitution. (ECF No. 20 at 7.)
Plaintiffs argue that Younger applies only when a party raises a state court claim in
federal court, and that it does not apply to a situation, like this case, in which a plaintiff
seeks to vindicate federally-created rights. (Id.)
Notably, Plaintiffs cite no authority supporting their contention that Younger does
not apply when federal causes of action are raised. In fact, “[o]ne of the fundamental
policies underlying the Younger doctrine is the recognition that state courts are fully
competent to decide federal constitutional questions.” Trans Shuttle, Inc. v. Pub. Utils.
Comm’n, 24 F. App’x 856, 859 (10th Cir. 2001) (citing Middlesex Cnty., 457 U.S. at
431). In many cases, the Tenth Circuit states that the third prong of the Younger test is
that there be “an adequate opportunity to raise federal claims in the state proceedings.”
See, e.g., Seneca-Cayuga Tribe of Okla. v. State of Okla., 874 F.2d 709, 711 (10th Cir.
1989). Therefore, it is quite clear that Younger applies where the three prongs of the
test are satisfied, regardless of whether the claims brought in the federal court case
arise under state or federal law.
Plaintiffs make no attempt to show how the claims raised here—even those
brought under federal law—cannot be addressed by the Colorado state courts in the
ongoing criminal action. As such, the Court finds that all three prongs of the test for
Younger abstention have been satisfied, and that the Court must dismiss Plaintiffs’
7
claims seeking prospective injunctive relief. See Colorado River Water Conservation
Dist. v. United States, 424 U.S. 800, 817 n.22 (1976) (if three prongs of Younger are
met, district court has “no discretion to grant injunctive relief.”).
B.
Monetary Relief
Plaintiffs seek monetary damages for “violating Plaintiffs’ rights under federal
statute”. (Am. Compl. p. 18.) Defendants move to dismiss Plaintiffs’ claims for
monetary relief and argue that the state agencies are immune under the Eleventh
Amendment and that the individuals have absolute prosecutorial or judicial immunity.
(ECF No. 12 at 4-5; ECF No. 21 at 5-7.)
1.
Eleventh Amendment Immunity
The Eleventh Amendment bars a suit for damages in federal court against a
state, its agencies, and its officers acting in their official capacities. See U.S. Const.
amend. XI (“The Judicial power of the United States shall not be construed to extend to
any suit in law or equity, commenced or prosecuted against one of the United States by
Citizens of another State, or by Citizens or Subjects of any Foreign State.”).
Plaintiffs’ Amended Complaint alleges that the Office of the Denver Prosecuting
Attorney is a “political subdivision of the Office of the City Attorney for the City of
Denver.” (Am. Compl. ¶ 4.) It also alleges that the City of Denver and Denver County
are “political subdivision[s] of the state of Colorado”. (Id. ¶¶ 5-6.) Therefore, it appears
undisputed that these Defendants are subdivisions of the state.2 As such, any claim
2
To the extent these entities are not subdivisions of the State of Colorado, Plaintiffs
have failed to state a claim against either the City or County of Denver under any of their
theories. The Amended Complaint lacks any details as to how any City or County policy or
procedure violated Plaintiffs’ constitutional rights. The Amended Complaint also fails to allege
8
against these entities for monetary damages is barred by the Eleventh Amendment.
See also Rozek v. Topolnicki, 865 F.2d 1154, 1158 (10th Cir. 1989) (holding that a
Colorado district attorney’s office is immune under the Eleventh Amendment).
Accordingly, Defendants’ Motions to Dismiss are granted to the extent Plaintiffs
seek monetary damages from the Office of the Denver Prosecuting Attorney or the City
and County of Denver.
2.
Judicial Immunity
Defendants Madden and McGahey are two of the judicial officers that have
presided over portions of the ongoing state court criminal action brought against
Plaintiffs. (Am. Compl. p. 4.) These Defendants move to dismiss all claims against
them under the doctrine of judicial immunity. (ECF No. 21 at 6-7.)
It is well-established that where a judicial officer is named as a defendant in an
action under 42 U.S.C. § 1983, he or she is immune from civil liability even when the
challenged actions are committed maliciously or in excess of their jurisdiction. Stump v.
Sparkman, 435 U.S. 349, 356 (1978). A judicial officer is only liable when he or she
acts in the “clear absence of all jurisdiction.” Id. The Supreme Court has recognized
that “[f]ew doctrines were more solidly established at common law than the immunity of
judges from liability for damages for acts committed within their judicial jurisdiction.”
Pierson v. Ray, 386 U.S. 547, 554 (1967), overruled in part on other grounds by Harlow
v. Fitzgerald, 457 U.S. 800 (1082).
any facts showing that the City and County were involved in any other violation of state or
federal law.
9
This immunity applies even when the judge is accused of
acting maliciously and corruptly, and it “is not for the
protection or benefit of a malicious or corrupt judge, but for
the benefit of the public, whose interest it is that the judges
should be at liberty to exercise their functions with
independence and without fear of consequences.” It is a
judge’s duty to decide all cases within his jurisdiction that are
brought before him, including controversial cases that
arouse the most intense feelings in the litigants. His errors
may be corrected on appeal, but he should not have to fear
that unsatisfied litigants may hound him with litigation
charging malice or correction. . . . We do not believe that
this settled principle of law was abolished by § 1983, which
make liable “every person” who under color of law deprives
another person of his civil rights.
Id. (internal citations omitted).
Plaintiffs argue that, despite this well-settled law, Defendants Madden and
McGahey are not entitled to judicial immunity because neither 26 U.S.C. § 6103 nor §
7431 specifically excludes judges from its reach. (ECF No. 30 at 4.) This argument is
preposterous on its face. No federal statute needs to specifically exclude judges in
order for a judge to be entitled to judicial immunity. Plaintiffs make no argument that
Defendants Madden and McGahey acted outside of their authority or went beyond their
jurisdiction. As such, Defendants Madden and McGahey are entitled to judicial
immunity from Plaintiffs’ claims against them.
3.
Prosecutorial Immunity
Defendants Gerdes and Morales are the prosecutors on the state court case.
(Id.) These Defendants move to dismiss the claims brought against them under the
doctrine of prosecutorial immunity. (ECF No. 12 at 5-6.)
State prosecutors are entitled to absolute immunity against suit for activities
“intimately associated with the judicial process.” Imbler v. Pachtman, 424 U.S. 409,
10
430-31 (1976). Such activities include “initiating and pursuing criminal prosecutions.”
Gagan v. Norton, 35 F.3d 1473, 1475 (10th Cir. 1994). All of Plaintiffs’ allegations
against Gerdes and Morales involve actions taken in furtherance of the ongoing state
court criminal prosecution. These actions include presenting tax return information to
the grand jury, sharing that information with other prosecutors, and sharing that
information with Plaintiffs’ defense counsel in the criminal action. (Am. Compl. ¶¶ 2429.)
Plaintiffs argue that Gerdes and Morales are not entitled to immunity because
their actions violated federal laws. (ECF No. 20 at 4-5.) Plaintiffs contend “[a]bsolute
immunity means immunity for those actions that are not in conflict with federal or state
statutes or judicially recognized exceptions to such immunity.” (Id. at 5.) However, this
shows a fundamental misunderstanding of the concept of prosecutorial immunity. In
Imbler v. Pachtman, 424 U.S. 409 (1976), the Supreme Court considered the public
policy implications of absolute prosecutorial immunity and recognized that such
immunity “leave[s] the genuinely wronged defendant without civil redress against a
prosecutor whose malicious or dishonest action deprives him of liberty.” Id. at 427.
Despite this, the Supreme Court held that “the alternative of qualifying a prosecutor’s
immunity would disserve the greater public interest.” Id. The Supreme Court
concluded that prosecutors are absolutely immune from suits brought under § 1983 for
activities that are an integral part of the judicial process. Id. at 430. Because Plaintiffs’
claims against Gerdes and Morales involve only actions taken as part of the judicial
process, these Defendants are immune from suit.
11
4.
Investigatory and Testimonial Immunity
Defendant Steve Bratten is an investigator for the Colorado Department of
Revenue and is the individual who acquired and reviewed Plaintiffs’ income tax
statements in conjunction with the ongoing state court criminal prosecution. (Am.
Compl. pp. 3-4.) Bratten also testified before the grand jury that returned the indictment
that initiated those proceedings. (Id. at 4.)
Trial witnesses in criminal proceedings are entitled to absolute immunity from
subsequent civil liability for their trial testimony. Briscoe v. LaHue, 460 U.S. 325, 34546 (1983). This immunity extends to proceedings before the grand jury. See Anthony
v. Baker, 955 F.2d 1395, 1400 (10th Cir. 1992) (holding that grand jury proceeding is
integral to judicial phase of criminal process and therefore witnesses are entitled to
absolute immunity); see also Grant v. Hollenbach, 870 F.2d 1135, 1139 (6th Cir. 1989)
(holding that grand jury witnesses are absolutely immune from civil liability for their
grand jury testimony); Kincaid v. Eberle, 712 F.2d 1023, 1024 (7th Cir. 1983) (stating
that argument for absolute immunity is stronger in grand jury setting than in trial setting
because false testimony before grand jury is less harmful than false testimony at trial).
Thus, Bratten is entitled to immunity against any claims related to his testimony before
the grand jury.
With regard to Bratten’s investigation and acquisition of Plaintiffs’ tax information,
Defendants move to dismiss Plaintiffs’ claims based on investigatory immunity. (ECF
No. 21 at 6-7.) However, the cases cited in support of this contention involve testimony,
and not investigation. The Court has been unable to locate any support for the
12
contention that an agent investigating a potential crime is entitled to absolute immunity
for the actions taken in conjunction with that investigation. As the party claiming
immunity, Bratten bears the burden of establishing that he is entitled to the same. See
Burns v. Reed, 500 U.S. 478, 486 (1991). The Court finds that Bratten has failed to
meet his burden of showing that he is entitled to immunity for his investigatory
functions.
C.
Failure to State a Claim
Given all of the above, the only claims remaining are Plaintiffs’ claims against
Bratten related to his investigation, including the acquisition of Plaintiffs’ tax information.
These claims are brought pursuant to 26 U.S.C. § 6103 and 42 U.S.C. § 1983. (Am.
Compl. pp. 11-12.) Bratten has moved to dismiss these claims for failure to state a
claim upon which relief could be granted. (ECF No. 21 at 8.)
1.
26 U.S.C. § 6103
Plaintiffs claim that Bratten illegally received, used, disclosed, and transferred
their confidential taxpayer information in violation of 26 U.S.C. § 6103. Section 6103
“lays down a general rule that ‘returns’ and ‘return information’ as defined therein shall
be confidential.” Church of Scientology of Cali. v. Internal Revenue Serv., 484 U.S. 9,
10 (1987). Section 6103 sets forth a general rule subject to numerous exceptions:
(a) General Rule.—Returns and return information shall be
confidential, and except as authorized by this title—
(1) no officer or employee of the United States,
******
shall disclose any return or return information
obtained by him in any manner in connection with his service
13
as such an officer or an employee or otherwise or under the
provisions of this section. For purposes of this subsection,
the term “officer or employee” includes a former officer or
employee.
Section 7431 provides taxpayers with civil remedies for disclosures in violation of
§ 6103:
If any officer or employee of the United States knowingly, or
by reason of negligence, discloses any return or return
information with respect to a taxpayer in violation of any
provision of section 6103, such taxpayer may bring a civil
action for damages against the United States in a district
court of the United States.
26 U.S.C. § 7431.
In order to recover under § 7431 for a violation of § 6103, a taxpayer must show
that: (1) the disclosure was unauthorized; (2) the disclosure was made “knowingly or by
reason of negligence”; and (3) the disclosure violated § 6103. Fostvedt v. United
States, 824 F. Supp. 978, 983 (D. Colo. 1993); Flippo v. United States, 670 F. Supp.
638, 641 (W.D.N.C. 1987). Defendants argue that Plaintiffs’ Amended Complaint fails
to allege sufficient facts to satisfy each of these elements. (ECF No. 12.)
Because the Court finds that Plaintiffs have failed to satisfy the third element, it
will address only this point. Courts have routinely required a party alleging a violation of
§ 6103 to specify what information was revealed, to whom, and under what
circumstances. See, e.g., Fostvedt, 824 F. Supp. at 985 (collecting cases). “[T]o be
‘return information’ any information must first be ‘received by, recorded by, prepared by,
furnished to, or collected by’ the IRS.” Baskin v. United States, 135 F.3d 338, 342 (5th
Cir. 1998) (quoting 26 U.S.C. § 6103(b)(2)). Therefore, “section 6103 requires that the
source of the disclosed information must have been the IRS in order for there to be a
14
violation of the general prohibition against the disclosure of return information.” Id.; see
also Johnson v. Sawyer, 120 F.3d 1307, 1323 (5th Cir. 1997) (a violation of § 6103
depends on the source of the information); Ryan v. United States, 74 F.3d 1161, 1163
(11th Cir. 1996) (“Section 6103 of Title 26 protects only information filed with and
disclosed by the IRS, not all information relating to any tax matter.”); Stokwitz v. United
States, 931 F.2d 893, 896 (9th Cir. 1987) (holding that Section 6103 “is concerned
solely with the flow of tax data to, from, or through the IRS.”).
In this case, Plaintiffs’ Amended Complaint fails to allege any facts related to the
source of the confidential tax information. In fact, the Amended Complaint states only
that Bratten “in his individual capacity, acquired approximately 296 tax returns” through
“unknown means”. (Am. Compl. ¶ 17.) Because Plaintiffs have failed to allege that the
tax information acquired and distributed by Bratten came from the IRS, they have failed
to state a claim for violation of 26 U.S.C. §§ 6103 or 7431.
Additionally, there is an exception to the general rule against disclosure which
permits use of confidential tax information during a judicial or administrative proceeding
if the taxpayer is a party to the proceeding or if the proceeding arose out of the
taxpayer’s civil or criminal tax liability. See 28 U.S.C. § 6103(h)(4)(A). Plaintiffs allege
that Bratten received confidential tax information and then distributed it to the Denver
Office of District Attorney, where it was used “in developing the case against DeAtley.”
(Am. Compl. ¶ 19.) The only persons alleged to have received the confidential tax
information from Bratten are members of the prosecution team, who then presented the
tax information to the grand jury. (Id. ¶¶ 23-26.) Even assuming that Bratten obtained
15
the tax information from the IRS—which is not alleged here—his distribution of such
information to prosecutors and the grand jury during a criminal tax proceeding against
Plaintiffs does not violate § 6103. Accordingly, for this additional reason, Plaintiffs have
failed to state a claim for damages under § 7431.
2.
42 U.S.C. § 1983
Plaintiffs allege that Bratten engaged in an unlawful taking of their property by
improperly gaining access to Plaintiffs’ federal tax returns and using that information in
the ongoing state prosecution, including presentation to the grand jury.3 (Am. Compl.
¶¶ 61-70.)
Defendant Bratten moves to dismiss Plaintiffs’ takings claim on the basis of
ripeness. (ECF No. 124 at 19-20.) The Supreme Court has held that a claim under the
Takings Clause of the Fifth Amendment is not ripe until two conditions have been
satisfied. First, it is necessary that “the government entity charged with implementing
the [challenged] regulations has reached a final decision regarding the application of
the regulations to the property at issue.” Williamson Cnty. Reg’l Planning Comm’n v.
Hamilton Bank of Johnson City, 473 U.S. 172, 186 (1985). Second, the plaintiff must
3
In Count II of the Amended Complaint, Plaintiffs allege that Bratten violated their Fifth
and Fourteenth Amendment Due Process rights by improperly gaining access to Plaintiffs'
federal tax return information, distributing such information to prosecutors, and then using such
information during his testimony before the grand jury. (Am. Compl. ¶¶ 48-55.) However, in
their Response to the Motions, Plaintiffs state that they are only seeking prospective injunctive
relief on this claim, and are not seeking monetary damages. (ECF No. 20 at 12.) Because the
Court has already held that it cannot exercise jurisdiction over Plaintiffs’ claims for prospective
injunctive relief, it need not address whether Count II states a claim upon which relief could be
granted.
4
Defendant Bratten has incorporated arguments made by the County Defendants as to
whether Plaintiffs have stated a claim for a violation of 42 U.S.C. § 1983. (ECF No. 21 at 5.)
Therefore, the Court will cite to the County Defendants’ Motion in this section of the Order.
16
have sought just compensation through the available state procedures and been denied
relief. Id. at 194-95.
Putting aside the first requirement, Plaintiffs here have utterly failed to address
the second prong. There is no allegation that Plaintiffs have requested compensation
from the government or that such requests have been denied. (Am. Compl. ¶¶ 61-70.)
Instead, Plaintiffs allege that they “should not be expected to wait several years to seek
damages when the action leading to the taking has been completed and there is
absolutely no possibility that the state would offer compensation in the interim.” (ECF
No. 20 at 13.) Plaintiffs appear to be attempting (without any citation to authority or
analysis of the issue) to invoke the futility exception to the exhaustion requirements. In
order to satisfy the futility exception to the exhaustion doctrine, a plaintiff must establish
that “it is certain that [his] claim will be denied on appeal, not merely that [he] doubts
that an appeal will result in a different decision.” Rando v. Standard Ins. Co., 1999 WL
317497, at *4 (10th Cir. May 20, 1999) (quoting Lindemann v. Mobil Oil Corp., 79 F.3d
647, 650 (7th Cir. 1996)). Supposition that a claim for compensation will be denied is
not enough, there must be a “clear and positive showing of futility.” Id.; see also
Getting v. Fortis Benefits Ins. Co., 5 F. App’x 833 (10th Cir. 2001) (conclusory
statement that appeal would have been futile not sufficient to excuse exhaustion of
administrative remedies).
Plaintiffs have failed to make the requisite showing of futility. The Amended
Complaint contains no facts regarding futility and the briefing on the Motions contains
only a conclusory allegation that any claim for compensation would inevitably be
17
denied. This is insufficient to meet Plaintiffs’ burden. See Forteleny v. Liberty Life
Assur. Co. of Boston, 790 F. Supp. 2d 1322, 1358 (W.D. Okla. 2011) (“[P]laintiffs’ bare
allegations of futility are not sufficient to support a conclusion that exhaustion of
administrative remedies is not warranted.”).
The Takings Clause “does not proscribe the taking of property; it proscribes
taking without just compensation.” Williamson, 473 U.S. at 194. As the Tenth Circuit
has held, “[t]here is no violation of the Clause unless compensation is denied.”
Schanzenbach v. Town of LaBarge, 706 F.3d 1277, 1282 (10th Cir. 2013). Because
Plaintiffs have failed to show that they engaged in any attempts to exhaust their takings
clause claim, the Court lacks subject matter jurisdiction and this claim must be
dismissed. See Kelly v. Wilson, 426 F. App’x 1213, 1216 (10th Cir. 2011) (when a
plaintiff fails to exhaust, claim must be dismissed without prejudice).
D.
Colorado State Law Claim
Though the issue has not been raised by any party, the Court has an
independent duty to examine its jurisdiction at every stage of the litigation. CarnegieMellon Univ. v. Cohill, 484 U.S. 343, 350 (1988). This case was brought in this Court
because Counts I-IV5 were causes of action arising under federal law.6 (Am. Compl. p.
5
The Court notes that there are two Count IVs in the Amended Complaint. For
purposes of clarity, the Court will refer to the second Count IV, which alleges a violation of Colo.
Rev. Stat. § 39-21-113, as Count V or the “State Law” claim.
6
Though it appears that the parties may be diverse, see Am. Compl. ¶¶ 1-13, the
Amended Complaint does not allege that jurisdiction is this Court is based on 28 U.S.C. § 1332.
Additionally, there are no facts regarding the amount in controversy. As such, Plaintiffs have
failed to meet their burden of establishing jurisdiction under 28 U.S.C. § 1332. See Montoya v.
Chao, 296 F.3d 952, 955 (10th Cir. 2002) (party invoking jurisdiction bears burden of proving
that such jurisdiction exists).
18
5.) Because the Court had original jurisdiction over these Counts, it had supplemental
jurisdiction over Count V. See 28 U.S.C. § 1367. The Court has now dismissed Counts
I-IV in their entirety. Plaintiffs’ remaining claim is brought pursuant to Colo. Rev. Stat.
§ 39-21-113, and therefore firmly grounded in state law. A federal court does not have
independent jurisdiction over state law claims unless those state law claims “turn on
substantial questions of federal law.” Grable & Sons Metal Products, Inc. v. Darue, 545
U.S. 308, 312 (2005). As Count V arises out of a state statute, it does not turn on a
substantial question of federal law.
Federal supplemental subject matter jurisdiction over state law claims “is
extended at the discretion of the court and is not a plaintiff’s right.” TV Commc’ns
Network, Inc. v. Turner Network Television, Inc., 964 F.2d 1022, 1028 (10th Cir. 1992)
(citing United Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966)). “[A] federal court
should consider and weigh in each case, and at every stage of the litigation, the values
of judicial economy, convenience, fairness, and comity in order to decide whether to
exercise jurisdiction over a case brought in that court involving pendent state-law
claims.” Carnegie-Mellon Univ., 484 U.S. at 350. In the interest of comity and
federalism, district courts are advised against making “needless decisions of state law.”
TV Commc’ns Network, Inc., 964 F.2d at 1028. If federal claims are dismissed before
trial, leaving only issues of state law, the federal district court should ordinarily decline
to exercise supplemental jurisdiction by dismissing the case without prejudice. Brooks
v. Gaenzle, 614 F.3d 1213, 1229 (10th Cir. 2010) (citing Carnegie-Mellon Univ., 484
U.S. at 350).
19
The instant suit is in the very early stages; no scheduling order has been entered
and discovery has not commenced. (ECF No. 24.) Therefore, issues of judicial
economy and fairness are not implicated here. See Carnegie-Mellon Univ., 484 U.S. at
350. Rather, the issues of comity and federalism are at the forefront, because the
Court would have to apply and interpret a state statute if it continued to exercise
jurisdiction over Plaintiffs’ remaining claim. See McWilliams v. Jefferson Cnty., 463
F.3d 1113, 1117 (10th Cir. 2006). “Notions of comity and federalism demand that a
state court try its own lawsuits, absent compelling reasons to the contrary.” Thatcher
Enters. v. Cache Cnty. Corp., 902 F.2d 1472, 1478 (10th Cir. 1990). Thus, there is no
compelling reason to maintain jurisdiction over this suit.
Given the above, the Court has little difficultly concluding that Count V would be
better addressed in state court. See Gaenzle, 614 F.3d at 1229; TV Commc’ns
Network, Inc., 964 F.2d at 1028; Thatcher Enters., 902 F.2d at 1478. Accordingly, the
Court declines to exercise its supplemental jurisdiction over Count V and will dismiss
that claim without prejudice.
IV. CONCLUSION
For the reasons set forth above, the Court ORDERS as follows:
1.
The Denver Defendants’ Motion to Dismiss (ECF No. 12) is GRANTED in so far
as it seeks dismissal of all claims, but denied to the extent it seeks dismissal with
prejudice;
2.
The State Defendants’ Motion to Dismiss (ECF No. 21) is GRANTED;
20
3.
All claims in Plaintiffs’ Amended Complaint are DISMISSED WITHOUT
PREJUDICE. The Clerk shall close the case.
Dated this 25th day of October, 2013.
BY THE COURT:
William J. Martínez
United States District Judge
21
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