Johnny McCool Logging Company, Inc. et al v. United States of America

Filing 15

ORDER granting 9 Motion to Dismiss. Signed by District Judge Carlton W. Reeves on 12/28/2012. (AC)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
JACKSON DIVISION
JOHNNY MCCOOL LOGGING
COMPANY, INC., an Administratively
Dissolved Mississippi Corporation, by its
Shareholder, Johnny McCool;
JOHNNY MCCOOL TRUCKING
COMPANY, INC., an Administratively
Dissolved Mississippi Corporation, by its
Shareholder, Johnny McCool;
JOHNNY MCCOOL, Individually;
JUDY MCCOOL, Individually

PLAINTIFFS

v.

CAUSE NO. 3:12-CV-107-CWR-FKB

UNITED STATES OF AMERICA

DEFENDANT
ORDER

Before the Court is the defendant’s motion to dismiss. Docket No. 9. The plaintiffs have
responded, Docket No. 10, the defendant has replied, Docket No. 11, and the matter is ready for
review. The motion will be granted.
I.

Factual and Procedural History
In February 2012, plaintiffs Johnny McCool Logging Company, Johnny McCool Trucking

Company, Johnny McCool, and Judy McCool brought this suit against the United States.1 Docket
No. 1. They claimed that the Internal Revenue Service (IRS) incorrectly levied their bank account,
pursuant to a Notice of Levy issued November 3, 2010, to cover tax shortfalls from tax years 2004,
2005, and 2006.2 Id. at 1-3.
More specifically, the complaint alleged that the IRS improperly let the plaintiffs’ accounting
firm advocate for the plaintiffs before the IRS, which exceeded the scope of the firm’s authority. Id.
at 4-5. As a result, the plaintiffs were not informed of their legal rights and were exposed to

1

The Logging and Trucking Companies have been administratively dissolved by the State of Mississippi.
Docket No. 1, at 3. Their interests are represented in this action through their owners, Johnny and Judy McCool. Id.
2

The plaintiffs did not specify which entity or person was alleged to be behind on their taxes. The
government’s motion claims that this suit involves the employment taxes of Johnny McCool Logging Company.
Docket Nos. 9, at 1; 11, at 1. Employment taxes include income and social security taxes withheld from each
employee’s wages, as well as the employer’s social security and unemployment insurance contributions. Id. at 2 n.1.

substantial levies. Id. at 5-6. The levies left the plaintiffs unable to meet their ongoing payroll tax
obligations, among other difficulties. Id. at 8.
The plaintiffs further claimed that the IRS improperly retained certain original bank records,
erroneously calculated tax obligations, arbitrarily shortened deadlines, and failed to release the
levies upon the plaintiffs’ showing of hardship. Id. at 8-13, 21-22. They sought declaratory,
monetary, and injunctive relief. Id. at 24-26; see also Docket Nos. 4-7.
On March 9, 2012, the Court held a hearing on the plaintiffs’ motions for temporary
restraining order and preliminary injunction. The motions were denied from the bench. This motion
to dismiss followed shortly thereafter.
On October 11, 2012, in its first Order on the government’s motion to dismiss, the Court
gave the plaintiffs an opportunity to cure their inadequate service of the United States. Docket No.
12. The plaintiffs subsequently remedied the defect by serving the IRS in accordance with the
Court’s Order and the Rules of Civil Procedure. Docket No. 14. The rest of the motion to dismiss
is now ripe for review.
II.

Present Arguments
The government has two remaining arguments in support of dismissal. The first is a Rule

12(b)(1) motion to dismiss for lack of subject matter jurisdiction. The government contends that this
suit is barred by the Anti-Injunction Act (AIA) and does not fall into any exception to the AIA,
since, among other reasons, the plaintiffs have not filed an administrative claim for a refund and the
non-taxpayer plaintiffs lack a sufficient property interest to maintain a wrongful levy suit.3 Docket
No. 9, at 3-8. Similarly, the government argues that there is no jurisdiction over the plaintiffs’
request for a declaratory judgment under the Declaratory Judgment Act. Id. at 8-9. It also maintains
that the non-taxpayer plaintiffs lack standing to sue for damages because the United States has not
waived sovereign immunity as to those persons or entities. Id. at 9-10.
The second argument is a Rule 12(b)(6) motion to dismiss for failure to state a claim. The
government contends that McCool Logging’s wrongful collection theory fails because it never
exhausted administrative remedies with the IRS and because the notice of levy was properly issued

3

It is not clear whether the Notice of Levy at issue has been satisfied and a refund may be sought, or
instead whether the IRS continues to seek funds pursuant to this Notice of Levy.

2

and the plaintiffs never objected to the notice. Id. at 10-11.
In response to the government’s Rule 12(b)(1) theory, the plaintiffs argue that two AIA
exceptions apply, and jurisdiction is therefore established, because the United States: (1) issued a
second Notice of Levy after this suit was filed4 and (2) has engaged in “abusive” collection
activities. Docket No. 10, at 3-6. They assert that a portion of the applicable legal standard is an
unconstitutional infringement of their due process rights. Id. at 5. Jurisdiction is also proper over the
declaratory judgment request, the plaintiffs contend, because this Court can determine the ownership
of certain corporate assets under Mississippi law without running afoul of any federal tax issues. Id.
at 7-8. With respect to sovereign immunity, they argue that it has been waived. Id. at 10-11.
As for the second theory, Rule 12(b)(6), the plaintiffs maintain that they properly exhausted
all available administrative remedies. Id. at 11-12.
III.

Standards of Review
“Motions filed under Rule 12(b)(1) of the Federal Rules of Civil Procedure allow a party to

challenge the subject matter jurisdiction of the district court to hear a case.” Ramming v. United
States, 281 F.3d 158, 161 (5th Cir. 2001). Such a motion “should be granted only if it appears certain
that the plaintiff cannot prove any set of facts in support of his claim that would entitle plaintiff to
relief.” Id. (citation omitted). The party asserting jurisdiction “constantly bears the burden of proof
that jurisdiction does in fact exist.” Id. (citation omitted).
When considering a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6),
the Court accepts the plaintiff’s factual allegations as true and makes reasonable inferences in the
plaintiff’s favor. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The complaint must contain “more
than an unadorned, the defendant-unlawfully-harmed-me accusation,” but need not have “detailed
factual allegations.” Id. (citation and quotation marks omitted). The plaintiff’s claims must also be
plausible on their face, which means there is “factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citation omitted).
The Court need not accept as true “[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements.” Id. (citation omitted).
4

The second Notice of Levy, issued October 27, 2011, seeks payment for shortfalls in tax years 2007
through 2011. Docket No. 1, at 7. The plaintiffs timely requested a hearing, which to the Court’s knowledge has not
yet been held. Id.

3

IV.

Discussion
A.

Anti-Injunction Act

The AIA provides that “no suit for the purpose of restraining the assessment or collection
of any tax shall be maintained in any court by any person, whether or not such person is the person
against whom such tax was assessed.” 26 U.S.C. § 7421(a). “The principal purpose of the statute is
the protection of the Government’s need to assess and collect taxes as expeditiously as possible with
a minimum of pre-enforcement judicial interference and to require that the legal right to the disputed
sums be determined in a suit for refund.” Smith v. Rich, 667 F.2d 1228, 1230 (5th Cir. 1982)
(quotation marks and citation omitted).
The plaintiffs have attempted to avoid the reach of the AIA by invoking two of its
exceptions. Neither is availing.
The statutory exception contained within 26 U.S.C. § 6331(i) does not apply because this
is not a refund suit. We know that because the taxpayer in question, McCool Logging, has not filed
with the IRS the required administrative claim for a refund. “Under [26 U.S.C.] § 7422(a), before
a taxpayer can bring a refund suit, he or she must first fully pay the assessed tax, file an
administrative claim for refund with the IRS, and wait until either the IRS denies the claim or six
months have expired since filing the administrative claim.” Fletcher v. United States, 452 F. App’x
547, 552 (5th Cir. 2011) (unpublished); see also United States v. Clintwood Elkhorn Min. Co., 553
U.S. 1, 4 (2008) (“a taxpayer must file an administrative claim with the Internal Revenue Service
before filing [a tax refund] suit against the Government.”). Despite McCool Logging’s assertion that
this suit “seek[s] relief equivalent to a refund claim,” it cannot short-circuit the administrative path
set forth by Congress. Docket No. 10, at 3.
Nor is the judicial exception to the AIA a fruitful path to jurisdiction. It is well-established
that an attempted collection of taxes may be enjoined “if it is clear that under no circumstances could
the Government ultimately prevail” and “equity jurisdiction otherwise exists.” Enochs v. Williams
Packing & Nav. Co., 370 U.S. 1, 7 (1962). It is extremely difficult for any plaintiff to meet that
burden. See id.; Smith, 667 F.2d at 1230-31. Our plaintiffs are no different. Evidence and argument
from the hearing on the plaintiffs’ motions for injunctive relief did not indicate that the government
could not possibly prevail. Further, there is no equity jurisdiction because the plaintiffs’ injuries may
be remedied by a money judgment obtained via a refund suit. That is especially true because this suit
4

“seek[s] relief equivalent to a refund claim,” as the plaintiffs write elsewhere. Docket No. 10, at 3.
The plaintiffs’ argument that the Williams Packing test is unconstitutional is foreclosed here, of
course, but has been preserved for appellate review.
B.

Declaratory Judgment

The plaintiffs’ request for a declaratory judgment is also barred under federal law. It is “well
settled that a declaratory judgment cannot be issued in a tax case.” Horne v. United States, 519 F.2d
51, 52 (5th Cir. 1975) (citations omitted); see 28 U.S.C. § 2201(a) (“In a case of actual controversy
within its jurisdiction, except with respect to Federal taxes other than actions brought under section
7428 of the Internal Revenue Code of 1986, . . . any court of the United States, upon the filing of
an appropriate pleading, may declare the rights and other legal relations of any interested party
seeking such declaration”).
The plaintiffs contend that they seek a declaration of their assets under Mississippi law
without implicating federal tax law, and in support cite a First Circuit decision in a quiet title action.
It is not clear, though, that this Court is the appropriate court to apply Mississippi law to Mississippi
plaintiffs if there is no federal tax issue and the United States is not a defendant. See Volvo Trucks
N. Am., Inc. v. Crescent Ford Truck Sales, Inc., 666 F.3d 932, 938 (5th Cir. 2012) (“In a declaratory
judgment action, the court must determine if there would be grounds for federal jurisdiction over
a hypothetical suit that would have been brought absent the availability of declaratory relief.”).
Further, honoring the plaintiffs’ request risks turning their declaratory action into a “side door”
challenge to the federal tax levies, in contravention of case law. Crenshaw Cnty. Private Sch. Found.
v. Connally, 474 F.2d 1185, 1189 (5th Cir. 1973).
C.

The Damages Claim

What remains is the plaintiffs’ claim under 26 U.S.C. § 7433. That statute provides for
damages “[i]f, in connection with any collection of Federal tax with respect to a taxpayer, any
officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of
negligence, disregards any provision of this title, or any regulation promulgated under this title.” 26
U.S.C. § 7433(a).
The plain language of the statute limits the cause of action to the taxpayer. Id. Accordingly,
the government is correct that McCool Logging is the only plaintiff with standing to bring this
count; the government has not waived sovereign immunity as to the individual McCools and
5

McCool Trucking.
In any event, McCool Logging’s theory of § 7433 liability fails to state a plausible claim for
relief. For one, neither the complaint nor the plaintiffs’ response brief alleges that McCool Logging
has exhausted the administrative prerequisites to filing a damages suit, as required by § 7433(d)(1).
See also 26 C.F.R. § 301.7433-1(e) (describing administrative procedures for taxpayer’s damages
claim). But there is another problem with this theory of relief, which requires additional explanation.
Recall the plaintiffs’ claim that the IRS improperly treated their accounting firm like a law
firm, which left the plaintiffs ignorant of their legal rights and led to their “unknowing forfeiture of
legal rights and defenses to levies.” Docket No. 1, at 6, 13. As a result, the plaintiffs’ funds were
levied. Id. at 20. Even assuming that this cause of action lies against the IRS and not the plaintiffs’
accounting firm, however, the timeline of events as recited in the complaint does not meet the
plausibility standard.
In November 2010, the IRS issued a Notice of Levy regarding tax shortfalls in the 2004,
2005, and 2006 tax years.5 Id. at 3-4. The plaintiffs did not request a hearing within the 30-day
statutory period. Id. at 4. In July 2011, the plaintiffs hired an accounting firm, which started
receiving confidential information from the IRS. Id. In November 2011, the IRS levied the plaintiffs’
bank account pursuant to the November 2010 Notice of Levy. Id. at 7.
Therefore, assuming that the IRS did improperly communicate with the accounting firm, it
is not clear how that would have made a difference to the November 2010 Notice of Levy. The
plaintiffs’ rights to request a hearing and stop that levy from advancing expired months before they
hired the accounting firm. The plaintiffs have simply not adequately alleged how any improper
communication caused the levy of funds at issue.
As a result, the one count that the Court has jurisdiction over will be dismissed for failure
to state a claim.

5

This part of the discussion focuses on the November 2010 Notice of Levy only, because subsequent IRS
Notices appear to await an administrative hearing and therefore are proceeding through the administrative process.

6

V.

Conclusion
The government’s motion to dismiss is granted.
SO ORDERED, this the 28th day of December, 2012.
s/Carlton W. Reeves
UNITED STATES DISTRICT JUDGE

7