Hohman al v. Eadie et al

Filing 45

OPINION and ORDER Granting Defendant's 32 Second MOTION to Dismiss for Lack of Subject-Matter Jurisdiction. Signed by District Judge Matthew F. Leitman. (HMon)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
JODI C. HOHMAN et al.,
Plaintiffs,

Case No. 16-cv-11429
Hon. Matthew F. Leitman

v.
UNITED STATES OF AMERICA,
Defendant.
___________________________________/
OPINION AND ORDER GRANTING DEFENDANT’S SECOND
MOTION TO DISMISS FOR LACK OF SUBJECT-MATTER
JURISDICTION (ECF #32)
In September 2015, the Internal Revenue Service served two so-called “John
Doe” summonses on JP Morgan Chase Bank. The Internal Revenue Code requires
the IRS to obtain federal court approval before serving such summonses, but the IRS
did not do so here. The summonses directed Chase Bank to deliver to the IRS
records related to three accounts, which were identified only by account number.
The three accounts belonged to Plaintiffs Jodi C. Hohman, JHohman LLC, and You
Got Busted By Me LLC (“Busted LLC”). In this action, these three Plaintiffs and
Plaintiff Terry Miller (the sole member and owner of Busted LLC) allege that the
IRS’s efforts to obtain their financial records through the use of the John Doe
summonses violated the federal Right to Financial Privacy Act, 12 U.S.C. § 3401 et
seq. (the “RFPA” or “Act”). Plaintiffs seek damages from the United States under

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that Act. The United States contends that its sovereign immunity bars Plaintiffs’
RFPA claims. For the reasons stated below, the Court agrees, and it therefore
DISMISSES Plaintiffs’ claims.
I
A
The Internal Revenue Code authorizes the IRS to serve administrative
summonses that compel third parties to produce documents related to taxpayers who
are under investigation. See 26 U.S.C. § 7603. The Code generally requires that
these summonses identify the person whose records are sought. See 26 U.S.C. §
7609. But one provision of the Code, 26 U.S.C. § 7609(f) (“Section 7609(f)”),
allows the IRS to serve summonses that do not identify the person whose records are
sought.

Summonses issued under Section 7609(f) are known as John Doe

summonses.
Section 7609(f) requires the IRS to obtain approval from a federal district
court before serving a John Doe summons. See id. A federal court may approve such
a summons only if it finds that:
(1) the [John Doe] summons relates to the investigation of
a particular person or ascertainable group or class of
persons;
(2) there is a reasonable basis for believing that such
person or group or class of persons may fail or may
have failed to comply with any provision of any
internal revenue law; and
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(3) the information sought to be obtained [by the John Doe
summons] is not readily available from other sources.
Id.
B
This case is about two John Doe summonses that the IRS served in September
2015. First, on September 25, 2015, the IRS served on Chase Bank a John Doe
summons that sought financial records for two separate accounts (the “First John
Doe Summons”). (See Am. Compl. at ¶¶ 34, 37, ECF #36 at Pg. ID 500-01.) The
accounts were identified only by account number. (See id.) Second, on September
30, 2015, the IRS served on Chase Bank a second John Doe summons that sought
financial records for a single account (the “Second John Doe Summons”). (See id.
at ¶¶ 53, 56, ECF #36 at Pg. ID 507-08.) Again, the account was identified only by
account number. (See id.)
The IRS did not seek or obtain approval from a federal district court to issue
either of the John Doe summonses. (See id. at ¶¶ 40, 78, ECF #36 at Pg. ID 502,
515.)
C
In October 2015, Chase Bank notified Hohman and her company JHohman
LLC1 that it (Chase Bank) had received the First John Doe Summons from the IRS

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Hohman is the sole member and owner of JHohman LLC. (See Am. Compl. at ¶2,
ECF #36 at Pg. ID 488.)
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and that the summons sought records for accounts “relating” to them. (Id. at ¶34,
ECF #36 at Pg. ID 500.) On November 25, 2015, Hohman and JHohman LLC filed
a petition in this Court to quash the First John Doe Summons. (See id. at ¶50, ECF
#36 at Pg. ID 506.) In their petition to quash, Hohman and JHohman LLC argued
that the First John Doe Summons did not meet the requirements listed in Section
7609(f). See Petition to Quash, Jodi C. Hohman et al. v. United States of America et
al., 15-mc-51669, Docket #1 (E.D. Mich. Nov. 25, 2015).
During the proceedings on the petition to quash, the IRS produced sworn
declarations from the IRS agents who had issued the First John Doe Summons (the
“Declarations”). (See Am. Compl. at ¶51, ECF #36 at Pg. ID 506.) The IRS attached
a copy of the First John Doe Summons to the Declarations. The copy was partially
redacted. (See id. at ¶55, ECF #36 at Pg. ID 507.) It revealed the first account
number listed on the summons but masked the second account number. (See id.)
Hohman and JHohman LLC reviewed the partially redacted First John Doe
Summons and determined that the first account number on that summons belonged
to JHohman LLC. (See id.) However, because the second account number remained
redacted, Hohman and JHohman LLC were unable to determine who owned that
account. (See id.) Their subsequent investigation led them to believe that the second
account belonged either to Miller, individually, or his company, Busted LLC. (See
id. at ¶59, ECF #36 at Pg. ID 508.)

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The Declarations also revealed for the first time that the IRS had served the
Second John Doe Summons on Chase Bank. (See id. at ¶53, ECF #36 at Pg. ID 507.)
The IRS attached an unredacted copy of the Second John Doe Summons to the
Declarations. (See id. at ¶54, ECF #36 at Pg. ID 507.) Hohman and JHohman LLC
reviewed that summons and determined that it sought records relating to an account
belonging to Hohman, individually. (See id. at ¶56, ECF #36 at Pg. ID 508.)
D
On April 20, 2016, Plaintiffs filed this civil action. Plaintiffs’ only remaining
claims are against the United States under the RFPA.2 (See Am. Compl. at ¶75, ECF
#36 at Pg. ID 514.) The RFPA “accords customers of banks and similar financial
institutions certain rights to be notified of and to challenge in court administrative
subpoenas of financial records in the possession of banks.” SEC v. Jerry T. O’Brien,
Inc., 467 U.S. 735, 745 (1984).

2

Earlier in this action, Plaintiffs brought claims against the United States and two
IRS employees for violations of the RFPA, the Privacy Act (5 U.S.C. § 552a), the
Fourth and Fifth Amendments to the United States Constitution, and the Internal
Revenue Code’s prohibition of the unauthorized disclosure of tax return information.
(See Am. Compl. at ¶66 n.2, ECF #36 at Pg. ID 511, noting Plaintiffs’ prior claims.)
In a written order dated November 7, 2016, this Court dismissed all of Plaintiffs’
claims other than their claims against the United States under the RFPA. (See ECF
#27.) In the November 7, 2016 Order, the Court rejected the IRS’s contention that
Plaintiffs’ RFPA allegations failed to state a claim on which relief could be granted.
(See id. at Pg. ID 308-313.) The Court did not address questions of sovereign
immunity. (See id.) The IRS raised the sovereign immunity defense in its second
motion to dismiss (see ECF #32), and the Court addresses that defense in this
Opinion and Order.
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Plaintiffs bring their RFPA claims under Section 3417 of the Act. That section
creates a private cause of action for violations of the RFPA and waives the United
States’ sovereign immunity for certain claims by a “customer.” It reads in relevant
part:
(a) Liability of Agencies or Departments of United States or
Financial Institutions Any agency or department of the
United States . . . obtaining or disclosing financial records or
information contained therein in violation of [the RFPA] is
liable to the customer to whom such records relate in an
amount equal to the sum of—
(1) $100 without regard to the volume of records
involved;
(2) any actual damages sustained by the customer as
a result of the disclosure;
(3) such punitive damages as the court may allow,
where the violation is found to have been willful
or intentional; and
(4) in the case of any successful action to enforce
liability under this section, the costs of the action
together with reasonable attorney’s fees as
determined by the court.
12 U.S.C. § 3417 (emphasis added).
In Plaintiffs’ claims under Section 3417, they allege that the IRS violated a
separate provision of the RFPA, Section 3405, when it served the John Doe
Summonses. (See Am. Compl. at ¶¶ 67-78, ECF #36 at Pg. ID 511-15.) Section
3405 establishes conditions that a government authority must satisfy before serving
an administrative summons seeking financial records:

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A Government authority may obtain financial records . . .
pursuant to an administrative subpoena or summons otherwise
authorized by law only if –
(1) there is reason to believe that the records sought
are relevant to a legitimate law enforcement
inquiry;
(2) a copy of the subpoena or summons has been
served on the customer . . . together with [a]
notice which shall state with reasonable
specificity the nature of the law enforcement
inquiry [and shall inform the customer of his/her
right to file a motion to quash the summons in a
United States District Court]; and
(3) ten days have expired from the date of service of
the notice or fourteen days have expired from the
date of mailing the notice to the customer and
within such time period the customer has not
filed a . . . motion to quash in an appropriate
court . . ..
12 U.S.C. § 3405.
The first claim under Section 3417 is on behalf of Plaintiff JHohman LLC and
the “Miller Plaintiffs” (a term from the Amended Complaint that appears to include
both Busted LLC and Terry Miller, individually). These Plaintiffs allege that the
IRS served the First John Doe Summons – and, through that summons, obtained
documents related to their accounts – without satisfying any of the conditions listed
in Section 3405.3 (See Am. Compl. at ¶¶ 50, 55, 77 ECF #36 at Pg. ID 506-07, 513.)

3

The RFPA includes an exception for the “disclosure of financial records in
accordance with procedures authorized by the [Internal Revenue Code].” 12 U.S.C.
§3413. For the reasons explained in the Court’s November 7, 2016 Order, this
7

The second claim under Section 3417 is brought by Plaintiff Jodi Hohman,
individually. She alleges that the IRS served the Second John Doe Summons –
which sought documents from an account in her name – without satisfying any of
the conditions required under Section 3405. (See id. at ¶ 71, ECF #36 at 513.)
Hohman does not allege that that the IRS actually obtained any documents
concerning her account through the service of the Second John Doe Summons.
E
On January 17, 2017, the United States moved, under Rule 12(b)(1) of the
Federal Rules of Civil Procedure, to dismiss the RFPA claims for lack of subjectmatter jurisdiction (the “Motion”). (See ECF #32.) The United States asserted,
among other things, that it has sovereign immunity from Plaintiffs’ claims and that
this immunity deprives the Court of subject-matter jurisdiction.
The United States offered its sovereign-immunity arguments on a Plaintiffby-Plaintiff basis. It separately explained why each of Plaintiffs could not pursue an
RFPA claim. The United States’ argument with respect to each Plaintiff was as
follows:
1. JHohman LLC: The United States is immune from the RFPA
claim by JHohman LLC because the immunity waiver in Section
3417 extends only to claims by “customers,” as that term is defined

exception does not apply here because Plaintiffs allege that the IRS served the First
and Second John Doe Summonses in a manner that was not authorized by the Code.
(See ECF #27 at Pg. ID 307-12.)
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by the RFPA, and a limited liability company is not a “customer”
under that definition. (See id. at Pg. ID 350-56.)
2. The “Miller Plaintiffs”: The claim by the “Miller Plaintiffs” does
not fall within Section 3417’s sovereign immunity waiver because
the term “Miller Plaintiffs” is too indefinite. More specifically, that
term does not distinguish between Miller (an individual) and Busted
LLC (a limited liability company). If the claim is brought on behalf
of Busted LLC, it falls outside of the Section 3417 sovereign
immunity waiver because (for the reasons set forth immediately
above) that waiver does not apply to limited liability companies.
The claim should be dismissed unless Plaintiffs confirm that it is
brought on behalf of Miller, individually, and not on behalf of
Busted LLC. (See id. at Pg. ID 356-61.)
3. Hohman Individually: The United States is immune from the claim
by Hohman individually because the waiver of sovereign immunity
in Section 3417 applies to claims that a government authority
“disclosed” or “obtained” financial records in violation of the
RFPA, and Hohman does not allege that the IRS actually obtained
or disclosed any records related to her account. (See ECF #32 at Pg.
ID 30-31.)
Plaintiffs responded to the Motion in two ways. First, Plaintiffs argued that
the waiver of sovereign immunity in Section 3417 does extend to limited liability
companies such as Hohman LLC and Busted LLC.
Second, Plaintiffs requested that the Court grant them jurisdictional discovery
before ruling on the Motion. Specifically, Plaintiffs asked to conduct discovery that
would allow them to determine who – Miller, individually, or Busted LLC – owned
the account that was identified in the Amended Complaint as belonging to the
“Miller Plaintiffs.” Plaintiffs said that they could not make that determination

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without discovery because the account number for that account was redacted on the
only copy of the First John Doe Summons in Plaintiffs’ possession.
The Court authorized the requested discovery, but ordered that the responses
to the discovery be returned to the Court (rather than to the parties) for
confidentiality reasons. (See April 19, 2017, Order, ECF #39.) The discovery is now
complete. The Court has reviewed the responses to Plaintiffs’ discovery and has
determined that Busted LLC – not Miller, individually – owned the second account
listed on the First John Doe Summons.4 Thus, the claim brought by the “Miller
Plaintiffs” may be brought, if at all, only by Busted, LLC.5
At the hearing on the Motion, Plaintiffs also requested discovery to determine
whether the IRS obtained any documents in response to the Second John Doe
Summons – the summons that sought documents related to an account owned by
Hohman, individually.

Specifically, Plaintiffs sought permission to serve a

4

The discovery process authorized by the Court worked as follows. First, on April
20, 2017, the Government filed a sealed, unredacted copy of the First John Doe
Summons with the Court. (See ECF #40.) Second, on May 1, 2017, Plaintiffs filed
a sealed list of account numbers for all of the accounts at Chase Bank held in their
names. (See ECF #41.) Third, the Court compared the second account number listed
on the First John Doe Summons to Plaintiffs’ list and determined that the account
number belonged to Busted LLC. (See Unredacted John Doe Summonses, ECF #40;
List of Accounts, ECF #41.)
5

Because discovery has confirmed that the IRS obtained documents from an account
belonging to Busted LLC, not to Miller individually, Plaintiffs could not allege in
good faith that the IRS obtained documents from Miller’s account.
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subpoena on Chase Bank for all of the documents (if any) that Chase Bank provided
to the IRS in response to the Second John Doe Summons. Plaintiffs argued that
Chase Bank’s response to the subpoena would reveal whether Chase Bank had, in
fact, produced documents related to any account(s) owned by Hohman individually.
The Court granted that request but instructed that Chase Bank return all responsive
documents directly to the Court for confidentiality reasons. (See April 19, 2017
Order, ECF #39.) The Court has reviewed Chase Bank’s production and determined
that Chase Bank did not send the IRS documents relating to Hohman in response to
the Second John Doe Summons.6
II
With the Motion now fully briefed and argued and with discovery now
complete, the Court is faced with the following issues for decision:
1. Does the waiver of sovereign immunity in Section 3417 extend to claims
by limited liability companies such that JHohman LLC and Busted LLC
may bring their RFPA claims against the United States?
2. Does the RFPA claim by Jodi Hohman, individually, fall within the waiver
of sovereign immunity in Section 3417 even though the United States did
not obtain any financial records relating to an account owned by Hohman?
The Court separately analyzes those issues below.

6

Chase Bank’s production to the Court did contain documents relating to Hohman
LLC and Busted LLC, but did not contain any documents relating to Hohman
individually.
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III
A
Subject-matter jurisdiction “refers to a tribunal’s power to hear a case.” Pac.
R. Co. v. Bhd. of Locomotive Engineers & Trainmen Gen. Comm. Of Adjustment,
Cent. Region, 558 U.S. 67, 81 (2009). Thus, issues of subject-matter jurisdiction
“can never be forfeited or waived,” and a party may challenge subject-matter
jurisdiction at any time. Id. Where, as here, a defendant argues that allegations in a
complaint are insufficient to create subject-matter jurisdiction, the Court must
“take[] the allegations in the complaint as true” and dismiss the complaint if it does
not set forth an adequate basis for jurisdiction. Wayside Church v. Van Buren
County, 847 F.3d 812, 816-17 (6th Cir. 2017) (quoting Gentek Bldg. Prods., Inc. v.
Sherwin-Williams Co., 491 F.3d 320, 330 (6th Cir. 2007)).
B
“Absent a waiver, sovereign immunity shields the Federal Government and
its agencies from suit. Sovereign immunity is jurisdictional in nature. Indeed, the
terms of the United States’ consent to be sued in any court define that court’s
jurisdiction to entertain the suit.” FDIC v. Meyer, 510 U.S. 471, 475 (1994) (internal
citations and quotation marks omitted). “Jurisdiction over any suit against the
Government requires a clear statement from the United States waiving sovereign
immunity, together with a claim falling within the terms of the waiver. The terms

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of consent to be sued may not be inferred, but must be unequivocally expressed.”
U.S. v. White Mountain Apache Tribe, 537 U.S. 465, 472 (2003) (internal citations
and quotation marks omitted). “Moreover, a waiver of the Government’s sovereign
immunity will be strictly construed, in terms of its scope, in favor of the sovereign.”
Lane v. Pena, 518 U.S. 187, 192 (1996).
For the reasons stated below, the Court concludes that it does not have subjectmatter jurisdiction over Plaintiffs’ RFPA claims because the claims do not fall within
a waiver of the United States’ sovereign immunity.
IV
The question before the Court is whether Plaintiffs’ RFPA claims fall within
the waiver of sovereign immunity in Section 3417. They do not.
A
The claims by JHohman LLC and Busted LLC do not fall within Section
3417’s waiver of sovereign immunity because (1) as noted above, the waiver covers
only claims by a “customer,” as defined under the RFPA, and (2) limited liability
companies, like JHohman LLC and Busted LLC, are not “customers.”
The RFPA defines the term “customer” as “any person or authorized
representative of that person who utilized or is utilizing any service of a financial
institution, or for whom a financial institution is acting or has acted as a fiduciary,
in relation to an account maintained in the person’s name.” 12 U.S.C. § 3401(5).

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And the RFPA defines “person” as “an individual or a partnership of five or fewer
individuals.” 12 U.S.C. § 3401(4).
A limited liability company is neither an individual nor a partnership of fewer
than five individuals. Thus, a limited liability company is not a “person” under the
RFPA, and because such a company is not a “person,” it cannot be a “customer.”
Since Section 3417’s waiver of sovereign immunity extends only to claims by a
“customer,” the United States is immune from RFPA claims by limited liability
companies like Plaintiffs JHohman LLC and Busted LLC. See Exchange Point LLC
v. SEC, 100 F. Supp. 2d 172, 176 (S.D.N.Y. 1999) (holding that a limited liability
company could not sue under Section 3417 because it was not a “customer”); Flatt
v. U.S. SEC., 2010 WL 1524328, at *3 (S.D. Fla. Apr. 14, 2010) (same).
Plaintiffs resist this conclusion on two grounds. First, they argue that the
Court should treat a limited liability company as a “customer” because, in many
significant respects, such a company closely resembles a limited partnership that
does qualify as a “customer.” (See Pl.’s Resp. Br., ECF #35 at Pg. ID 451-52.)
Plaintiffs contend, in essence, that there is no principled basis for treating a limited
partnership, but not a limited liability company, as a “customer.” (See id.) Plaintiffs
add that limited liability companies did not widely exist when Congress enacted the
RFPA in 1978, and Plaintiffs insist that if Congress had been aware of such

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companies at that time, it would have included them in the RFPA’s definition of
“person” (and thereby made them “customers”). (See id.)
The problem for Plaintiffs is that the plain language of the RFPA does not
state that a limited liability company is either a “person” or a “customer.” Nor is
there any ambiguity in the RFPA definitions of these two terms. The Court is simply
not at liberty to expand the RFPA’s unambiguous definitions of “person” and
“customer” beyond their plain terms. See Dodd v. U.S., 545 U.S. 353, 359 (2005)
(“[Courts] are not free to rewrite a statute that Congress has enacted. ‘When the
statute’s language is plain, the sole function of the courts . . . is to enforce it according
to its terms.’” (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, N.
A., 530 U.S. 1, 6 (2000)). Nor may this Court assume that Congress would have
included limited liability companies within the RFPA’s definitions of “person” and
“customer” if it had been aware of limited liability companies at the time it enacted
the RFPA. Indeed, “it is never [the Court’s] job to rewrite a constitutionally valid
statutory text under the banner of speculation about what Congress might have done
had it faced a question that . . . it never faced.” Henson v. Santander Consumer USA
Inc., 137 S. Ct. 1718, 1725 (2017).
This strictly textual approach is especially warranted here because the Court
is interpreting a waiver of sovereign immunity. The United States Supreme Court
has “said on many occasions that a waiver of sovereign immunity must be

15

unequivocally expressed in the statutory text,” F.A.A. v. Cooper, 566 U.S. 284, 290
(2012) (collecting cases), and must “be strictly construed, in terms of its scope, in
favor of the sovereign.” Lane, 518 U.S. at 192. Simply put, the Court cannot rewrite
the Section 3417 waiver of sovereign immunity to add claims by entities that
Congress omitted. Plaintiffs must convince Congress, not the Court, to extend the
Section 3417 waiver of sovereign immunity to limited liability companies.7
Second, JHohman LLC and Busted LLC argue that the Court should treat
them as “individuals” (and, thus, as “persons” and “customers”) under the RFPA
because the IRS, itself, treats single-member limited liability companies as
individuals for income tax purposes. (See Pl.’s Resp. Br., ECF #35 at Pg. ID 453454.) They argue that “the Government’s contradictory position of treating [singlemember] LLCs as [individuals] for federal tax [] purposes, but as ‘corporations’ for
purposes of RFPA protection, provides a mechanism for the Government to do an
end run around the RFPA.” (Id.at Pg. ID 454.) But the IRS’s treatment of singlemember limited liability companies for tax purposes does not give the Court license
to alter the plain language of the RFPA to add limited liability companies to the
definition of “person” or “customer.” See Dodd, 545 U.S. at 359.

7

Congress has amended the definitions section of the RFPA five times without
adding limited liability companies to the definition of “customer” or “person.” See
Pub. L. No. 101-73, §§ 744(b) and 941 (1989); Pub. L. No. 101-647, § 2596(c)
(1990); Pub. L. No. 106-102, § 727(b)(1) (1999); Pub. L. No. 108-177, § 734(b)
(2003); Pub L. No. 111-203, §1099(1) (2010).
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In summary, a limited liability company is not a “customer” under the RFPA,
and thus the RFPA claims by JHohmann LLC and Busted LLC do not fall within
Section 3417’s wavier of sovereign immunity. The Court therefore lacks subjectmatter jurisdiction over those claims.
B
The RFPA claim by Hohman likewise does not fall within Section 3417’s
waiver of sovereign immunity. As described above, that waiver covers claims
alleging that an agency or department of the United States “obtain[ed] or disclos[ed]
. . . financial records or information” that relate to the “customer.” 12 U.S.C. § 3417
(emphasis added). Hohman does not allege that the IRS actually obtained or
disclosed any financial records or information from her account as a result of its
issuance of the Second John Doe Summons. (See Am. Compl., ECF #36.)
Moreover, given that Chase Bank did not produce any documents relating to
Hohman in response to the Second John Doe Summons, she could not have alleged
in good faith that the IRS obtained or disclosed any financial records related to that
summons. Therefore, Hohman’s claim does not fall within Section 3417’s wavier
of sovereign immunity. Because the United States has not waived its sovereign
immunity for this claim, the Court lacks subject-matter jurisdiction.

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V
For the reasons stated above, Plaintiffs’ claims under the RFPA – the only
remaining claims in this case – are dismissed for lack of subject-matter jurisdiction.
Accordingly, the Motion (ECF #32) is GRANTED.
IT IS SO ORDERED.
s/Matthew F. Leitman
MATTHEW F. LEITMAN
UNITED STATES DISTRICT JUDGE
Dated: July 11, 2017

I hereby certify that a copy of the foregoing document was served upon the
parties and/or counsel of record on July 11, 2017, by electronic means and/or
ordinary mail.
s/Holly A. Monda
Case Manager
[phone]

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