United States of America v. Bates et al

Filing 54

ORDER denying 29 Defendants' Motion to Dismiss, construed as a Motion for Summary Judgment; denying 30 Plaintiff's Motion for Summary Judgment. Signed by Judge Charlene Edwards Honeywell on 7/17/2015. (BGS)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
USA,
Plaintiff,
v.

Case No: 8:12-cv-833-T-36TBM

WALTER A. BATES and SANDRA J.
BATES,
Defendants.
___________________________________/
ORDER
This matter comes before the Court upon the Defendants’ Motion to Dismiss (Doc. 29),
Plaintiff’s Response to Defendants’ Motion to Dismiss (Doc. 31), Plaintiff's Motion for Summary
Judgment (Doc. 30), the parties’ Stipulated Facts (Doc. 38), Defendants’ Response to Plaintiff’s
Motion for Summary Judgment (Doc. 39), and Plaintiff’s Reply to Defendants’ Response to
Plaintiff’s Motion for Summary Judgment (Doc. 40). The Court, having considered the motions
and being fully advised in the premises, will deny both the Defendants’ Motion to Dismiss and the
Plaintiff's Motion for Summary Judgment.
Defendants’ Motion to Dismiss
The Complaint in this action, filed in April of 2012, alleges that Defendants were
erroneously refunded over $17,000 by the Internal Revenue Service (“IRS”) and have refused to
return these funds. Defendants’ motion to dismiss is based solely on their disagreement with the
facts presented in the Complaint.
When ruling on a motion to dismiss the Court must accept as true the factual allegations in
the complaint. Linder v. Portocarrero, 963 F.2d 332, 334 (11th Cir. 1992); Quality Foods de
Centro Am., S.A. v. Latin Am. Agribusiness Dev. Corp. S.A., 711 F. 2d 989, 994 (11th Cir. 1983).

In addition, all reasonable inferences should be drawn in favor of the plaintiff. See Omar ex. rel.
Cannon v. Lindsey, 334 F.3d 1246, 1247 (11th Cir. 2003) (per curiam). Thus, a motion to dismiss
cannot be granted on the basis of a factual dispute by the Defendants. Furthermore, Defendants’
motion to dismiss is procedurally improper because it was filed two years after Defendants’ answer
to the complaint was filed. See Doc. 16. Motions to dismiss under Rule 12 must be filed before an
answer is filed. See Fed. R. Civ. P. 12(b); Leonard v. Enter. Rent a Car, 279 F.3d 967, 971 n.6
(11th Cir. 2002) (“by filing an answer, the defendants had eschewed the option of asserting by
motion that the complaint failed to state a claim for relief.”).
However, Plaintiff suggests that rather than denying the motion outright, this Court should
treat the motion to dismiss as a motion for summary judgment. See Doc. 31 at p. 4. “If, on a motion
under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by
the court, the motion must be treated as one for summary judgment under Rule 56.” Fed. R. Civ.
P. 12(d). For purposes of responding to the converted summary judgment motion, the United States
has incorporated by reference its own summary judgment motion (Doc. 30). See Doc. 31 at n.1.
Accordingly, the Court will treat Defendants’ Motion to Dismiss as a motion for summary
judgment and consider the merits of said motion along with Plaintiff’s Motion for Summary
Judgment.
The Motions for Summary Judgment
I.

Factual Background
Based on the record before this Court, the following facts are undisputed.
Defendant Walter A. Bates (“Mr. Bates”) retired as a pilot from United Airlines, Inc.

(“United”) on December 1, 2003. Doc. 38 ¶ 1. After retiring from United, Mr. Bates began
receiving payments from the United’s Pilots’ Fixed Benefit Retirement Income Plan (“The

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Qualified Plan”) and the United Airlines, Inc. Pilots’ Supplemental Plan, a non-qualified defined
benefit pension plan sometimes identified by the number 1051 UU3 (“The Plan”). Id. ¶¶ 2-3. On
January 26, 2004, United sent a letter to Mr. Bates stating that it had paid, on his behalf, $14,838.91
in FICA taxes based on the present value of The Plan. Doc. 30-3 at p. 11. The letter explained that
United planned to recuperate these pre-paid taxes from Mr. Bates by withholding from his
supplemental pension payments in March, April and May of 2004. Doc. 30-3 at p. 11.
Mr. Bates and his wife Sandra J. Bates (“Mrs. Bates”) filed joint federal income tax returns
for 2003 and 2004. Doc. 38 ¶¶ 6-7. At the time of Mr. Bates’ retirement, United had been
reorganizing under Chapter 11 of the Bankruptcy Code, since filing a petition in the United States
Bankruptcy Court for the Northern District of Illinois on December 9, 2002. Id. ¶ 8. At the time of
Mr. Bates’ retirement, United reported to the IRS that its calculation of the present value of Mr.
Bates’ benefit from The Plan was $1,023,373.03. Id. ¶ 9. United determined the FICA tax due on
the present value of Mr. Bates’ benefit from The Plan to be $14,838.91. Id. ¶ 10. During 2004 and
2005, The Plan paid Mr. Bates a total of $131,217.02 before all payments under The Plan were
ceased in accordance with rulings made in United’s bankruptcy. United’s obligation to pay Mr.
Bates the deferred payments under The Plan was discharged in United’s bankruptcy, and Bates
will receive no further payments from The Plan.
The Bates’ claim for refund was received by the IRS on January 28, 2008. On May 9, 2008,
the IRS denied the Bates’ claim for refund. This denial was appealed to the Office of Appeals, an
independent organization within the IRS whose mission is to help taxpayers and the Government
resolve tax disagreements. Internal Revenue Service Appeals, http://www.irs.gov/Individuals/
Appeals...-Resolving-Tax-Disputes (last visited January 28, 2015). The Office of Appeals is an
alternative to litigation and its mission is to reach a settlement between the parties. See id.

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On May 26, 2009 another retired United pilot named William Koopmann filed a lawsuit in
the Federal Claims Court against the United States seeking, inter alia, a refund of the FICA taxes
paid by United relating to his retirement. See Doc. 29-3; Doc. 30-1 ¶4; Doc. 30-7 at p. 2. Koopmann
purported to represent over 160 other retired United pilots, including Mr. Bates.1 See Doc. 29-3;
Doc. 30-1 ¶4; Doc. 30-7 at p. 2. On November 18, 2009, the Federal Claims Court granted the
Government’s motion to strike all plaintiffs except Koopmann from that suit, noting that
Koopmann, the only person to sign the complaint, could not represent these other individuals
because he was not an attorney. Id. at p. 2.
On April 16, 2010, the Office of Appeals (“OA”) sent a letter to Mr. & Mrs. Bates
indicating that it was “allowing the full amount of [their] claim.” Doc. 43-1 at p. 2. On May 17,
2010, the United States Treasury issued Mr. & Mrs. Bates a refund of $17,742.33. On May 26,
2010 the Federal Claims Court’s Order striking the names of all plaintiffs except Koopmann from
Koopmann v. U.S. was vacated. See Doc. 29-4 at p. 6. The Court also stayed all claims in
Koopmann to give the plaintiffs an opportunity to obtain counsel. Id. Accordingly, as of May 26,
2010 Mr. Bates was listed as a pro se party in the Koopmann case.
By letter dated January 27, 2011, the IRS requested that Mr. & Mrs. Bates return the
$17,742.33 refund no later than February 4, 2011. Doc. 30-11 at pp. 2-3. In this letter the IRS
alleged that the refund was erroneous because the claim for refund was untimely and because Mr.
& Mrs. Bates were plaintiffs in the Koopmann case and, therefore, the IRS did not have authority
to grant the refund. Id. at p. 2. On February 14, 2011, Mr. Bates sent a short letter to the IRS
stating:

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Mr. Bates did not sign the Koopmann complaint. At some point, Mr. & Mrs. Bates filled out a “Plaintiff Information”
sheet that displayed the Koopmann case style and number at the top. Doc. 30-3 at p. 54. There is no evidence of when
this document was completed or for what purpose. This document was filed in the Koopmann case on May 26, 2010.
See Doc. 30-8 at p. 2.

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I have received your letter dated Jan 27, 2011. As you noted, I am a
plaintiff in an ongoing lawsuit in the Court of Federal Claims against
the IRS, for refund of these excess FICA taxes. Therefore, I intend
to wait for the conclusion of that litigation before taking further
action. If you should win I will return the refunded amount and
interest, as the Court orders.
Doc. 30-12 at p. 2.
On June 29, 2012 the United States filed a motion in the Koopmann case seeking dismissal
of Mr. & Mrs. Bates from that lawsuit because they had already received a refund. Even though
Mrs. Bates was never a party to the Koopmann case, both Mr. & Mrs. Bates signed and filed a
response to the motion to dismiss on July 19, 2012. This motion to dismiss is still pending in the
Koopmann matter.
Mr. & Mrs. Bates have not yet returned the $17,742.33 refunded to them by the United
States Treasury on May 17, 2010.
II.

Standard of Review
Summary judgment is appropriate when the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, show there is no genuine issue
as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.
R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the
initial burden of stating the basis for its motion and identifying those portions of the record
demonstrating the absence of genuine issues of material fact. Celotex, 477 U.S. at 323; Hickson
Corp. v. N. Crossarm Co., Inc., 357 F.3d 1256, 1260 (11th Cir. 2004). That burden can be
discharged if the moving party can show the court that there is “an absence of evidence to support
the nonmoving party’s case.” Celotex, 477 U.S. at 325.
When the moving party has discharged its burden, the nonmoving party must then
designate specific facts showing that there is a genuine issue of material fact. Id. at 324. Issues
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of fact are genuine only if a reasonable jury, considering the evidence present, could find for the
nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The existence of
some factual disputes between the litigants will not defeat an otherwise properly supported
summary judgment motion; “the requirement is that there be no genuine issue of material fact.”
Id. at 247–48. A fact is “material” if it may affect the outcome of the suit under governing law.
Id. at 248. In determining whether a genuine issue of material fact exists, the court must consider
all the evidence in the light most favorable to the nonmoving party. Id. at 255.
III.

Discussion
The United States has brought this action under 26 U.S.C. § 7405 to recover the money

refunded to Mr. & Mrs. Bates.
To prevail in an action brought under § 7405(b), the Government
must prove that: (1) a refund of a sum certain was made to a
taxpayer; (2) the tax refund was erroneously issued; and (3) the
lawsuit to recover the erroneously issued taxes was timely filed. See
26 U.S.C. § 7405(b). Recovery of erroneous refunds under § 7405
is only allowed if the suit is brought within two years of the issuance
of the refund, but the suit may be brought at any time within five
years of the issuance of the refund "if it appears that any part of the
refund was induced by fraud or misrepresentation of a material fact."
26 U.S.C. § 6532(b). "Statutes of limitations sought to be applied to
bar rights of the Government, must receive a strict construction in
favor of the Government." Badaracco v. C.I.R., 464 U.S. 386, 391,
104 S.Ct. 756, 761, 78 L.Ed.2d 549 (1984).
United States v. Brokemond, 304 Fed. Appx. 765, 766 (11th Cir. 2008). Here, the parties do not
dispute that the refund was issued on May 17, 2010 and this lawsuit was filed on April 17, 2012.
Accordingly, the suit was timely filed. The parties have also stipulated that a refund of a sum
certain was made to Mr. & Mrs. Bates. Thus, the question before this Court is whether the tax
refund was erroneously issued. Genuine issues of material fact exist as to this question.
Plaintiff argues that the refund was erroneous because (1) Defendants’ 2008 refund claim
was untimely; and (2) the IRS lacked authority to issue the refund because Walter Bates was a
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plaintiff in a case that had been referred to the Department of Justice (DOJ) at the time. Defendants
argue that the claim was not untimely, that they were not plaintiffs in any lawsuit when the refund
was issued, and that the Government does not have the authority to recover a refund issued by the
OA.
Very little information has been presented by the parties regarding the proceedings that
transpired before the OA. Following an Order entered by this Court, the Government filed a copy
of the letter from the OA to Mr. & Mrs. Bates informing them that the OA is “allowing the full
amount of [their] claim.” Doc. 43-1 at p. 2. However, the record still does not contain an
explanation of the decision by the OA and the Court is not aware of whether the payment from the
U.S. Treasury was part of a settlement or the result of a factual and legal determination by an
Appeals Officer.
In Defendants’ responses to the Government’s Interrogatories, they cite language from the
IRS policy manual which indicates, in relevant part, that
A case closed by Appeals on the basis of concessions made by both
Appeals and the taxpayer will not be reopened by actions initiated
by the Service unless the disposition involved fraud, malfeasance,
concealment or misrepresentation of material fact, an important
mistake in mathematical calculation, or discovery that a return
contains unreported income, unadjusted deductions, credits, gains,
losses, etc. resulting from the taxpayer's participation in a listed
transaction, and then only with the approval of the Appeals Director
of Field Operations or Appeals Director of Technical Services.
....
A case closed by Appeals on a basis not involving concessions made
by both Appeals and the taxpayer will not be reopened by action
initiated by the Service unless the prior disposition involved fraud,
malfeasance, concealment or misrepresentation of material fact, an
important mistake in mathematical calculation, or such other
circumstances that indicates that failure to take such action would
be a serious administrative omission, and then only with the
approval of the Appeals Director of Field Operations or Appeals
Director of Technical Services. The discovery that a return contains
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unreported income, unadjusted deductions, credits, gains, losses,
etc. resulting from the taxpayer's participation in a listed transaction
will constitute a serious administrative omission warranting
reopening.
I.R.M. 1.2.17.1.3 (01-05-2007) Policy Statement 8-3 (Formerly P-8-50). These same provisions
can be found in 26 C.F.R. § 601.106(f)(9)(vii)(h). The Bates have also cited a section of the Manual
that addresses how the IRS may voice disagreements with OA determinations. See I.R.M. 8.6.4.1.9
(12-17-2013).
The Government does not specifically address these provisions and, without any record of
the proceedings before the OA, the Court cannot determine whether these policies apply and, if
so, whether they were followed. Thus, it is unclear whether this Court even has authority to grant
the relief requested. See, e.g., Johnson v. United States, 54 Fed. Cl. 187, 192 (Fed. Cl. 2002)
(“Pursuant to 26 C.F.R. § 601.106(a)(1)(ii), the Internal Revenues Service's Appeals Division has
the final and exclusive jurisdiction to bind the government to its decision, and both the chief and
associate chief have the authority to approve final settlements.”). Because genuine issues of
material fact exist, the Court cannot grant summary judgment, as a matter of law, to either party
on this record. Accordingly, it is hereby
ORDERED AND ADJUDGED that:
1.

Defendants’ Motion to Dismiss, construed as a Motion for Summary Judgment

(Doc. 29) is DENIED; and
2.

Plaintiff's Motion for Summary Judgment (Doc. 30) is DENIED.

DONE AND ORDERED in Tampa, Florida on July 17, 2015.

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Copies to:
Counsel of Record and Unrepresented Parties, if any

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