USA v. Hulick et al

Filing 42

///ORDER granting in part and denying in part 26 government's motion to dismiss. So Ordered by Chief Judge Steven J. McAuliffe. (lag)

UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
United States of America,
Plaintiff
v.

Case No. 08-cv-499-SM
Opinion No. 2011 DNH 105

David M. Hulick and
Caroline P. Hulick,
Defendants/
Counterclaim Plaintiffs
and
State of New Hampshire
Department of Employment Security,
Defendant
O R D E R
In early 2007, the Secretary of the Treasury determined that
Precision Valley Aviation, Inc., and seven related companies had
failed to pay over to the Internal Revenue Service more than
$500,000 in federal income taxes and F.I.C.A. contributions that
had been withheld from employee paychecks in 1994.

As of October

31, 2007, the IRS calculated that, with accrued interest, it was
owed more than $2 million.

It also determinated that, by virtue

of his position at Precision Valley Aviation (and/or one or more
of the related companies), David Hulick was a person responsible
for collecting and paying over to the IRS those taxes and
F.I.C.A. contributions.

Accordingly, the government looked to

him personally for payment of those outstanding obligations, plus
accrued interest.

Approximately eleven years after issuing the assessments
against Hulick, and following nearly two years of periodic
payments from him, as well as at least three failed settlement
efforts, the government brought suit against Hulick (and his
wife) seeking: (a) to reduce to judgment all unpaid tax
liabilities for which Hulick is responsible (known as trust fund
recovery penalties); (b) establish the validity of federal tax
liens levied against all property owned by Hulick; (c) foreclose
the liens upon Hulick’s home in New Boston, New Hampshire (in
which his wife has an interest); and (d) permit a judicial sale
of that property.

Hulick answered the government’s complaint,

denied any remaining liability, and advanced several
counterclaims.

The government now moves to dismiss those counterclaims, on
grounds that none states a viable cause of action and, in any
event, this court lacks subject matter jurisdiction over them.
Hulick objects.

For the reasons discussed below, the

government’s motion is granted in part and denied in part.

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Standard of Review
When ruling on a motion to dismiss under Fed. R. Civ. P.
12(b)(6), the court must “accept as true all well-pleaded facts
set out in the complaint and indulge all reasonable inferences in
favor of the pleader.”
Cir. 2010).

S.E.C. v. Tambone, 597 F.3d 436, 441 (1st

Although the complaint need only set forth “a short

and plain statement of the claim showing that the pleader is
entitled to relief,” Fed. R. Civ. P. 8(a)(2), it must “contain
sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.”

Ashcroft v. Iqbal, __

U.S. __, 129 S. Ct. 1937, 1949 (2009) (citation and internal
punctuation omitted).

In other words, “a [pleader’s] obligation to provide the
‘grounds’ of his ‘entitlement to relief’ requires more than
labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.”
Twombly, 550 U.S. 544, 555 (2007).

Bell Atl. Corp. v.

Instead, the facts alleged in

the complaint (or counterclaim) must, if credited as true, be
sufficient to “nudge[] [pleader’s] claims across the line from
conceivable to plausible.”

Id. at 570.

If, however, the

“factual allegations in the complaint are too meager, vague, or
conclusory to remove the possibility of relief from the realm of

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mere conjecture, the complaint is open to dismissal.”

Tambone,

597 F.3d at 442.

Background
According to his amended answer and counterclaims, Hulick
began working for Precision Valley Aviation, Inc., in 1990, as
its Vice President and Chief Financial Officer.

Precision

struggled financially and on several occasions it failed to make
timely payroll tax payments to the IRS on behalf of its employees
(and, apparently, the employees of its related entities).
Typically, however, the company was eventually able to pay the
amounts owed, as well as any penalties and/or fines that had been
assessed.

But, in 1994, it went out of business before it

brought its obligations to the IRS current.

Although Hulick says

he did not actively participate in decisions to withhold tax
payments due the IRS, he was aware of the company’s practice of
doing so and “ensured that the owners were at all times aware of
the amount and nature of the non-payment of taxes.”

Amended

Answer and Counterclaims (document no. 33) at para. 28.
Eventually, because of Hulick’s position in the company, the IRS
deemed him a “responsible person” and assessed him for the unpaid
payroll taxes.

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On February 3, 1997, the IRS made the first assessment
against Mr. Hulick, for tax period ended June 30, 1994.

And, six

weeks later, on March 17, 1997, it made the second assessment
against Hulick, for tax period ended on Sept. 30, 1994.

Each was

subject to a collection limitations period of ten years, the last
day of which is known as the “Collection Statute Expiration Date”
or “CSED.”

See 26 U.S.C. § 6502(a).

But, that ten-year

limitations period is tolled while any offer-in-compromise is
pending, plus 30 days after IRS rejects that offer.

See 26

U.S.C. § 6331(k)(1) (when offer in compromise is pending, and for
30 days after any rejection, IRS may not levy against those
unpaid taxes); 26 U.S.C. § 6503(a)(1) (the CSED is tolled during
any period during which the IRS may not levy).

In an effort to satisfy his obligations to the IRS, Hulick
made three separate offers-in-compromise: (1) the first was made
on February 4, 1998, and rejected on February 22, 2001; (2) the
second was made on March 4, 2002, and rejected on July 27, 2002;
and (3) the last was made on October 4, 2002, and rejected on
November 17, 2003.

Each tolled the applicable limitations period

for at least a portion of the time during which it was pending the precise (and fairly complex) calculation is set forth in the
government’s reply memorandum and involves the interplay of three

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federal statutes.

See Government’s reply (document no. 35) at 4-

8.

In December of 2006, Hulick met with representatives of the
IRS, who acknowledged that the IRS claims against him had been
pending for many years and stated their commitment to resolving
them.

By letter dated December 19, 2006, an IRS employee gave

Hulick a written calculation of the Collection Statute Expiration
Date for each of the assessments for which he was liable.
According to that letter, “[t]he earliest collection statute will
expire August 8, 2008 and the last statute will expire October 1,
2008.”

Exhibit A, Amended Answer (document no. 33-1) (emphasis

supplied).

The author went on to state that, based upon

financial information Hulick had recently provided to the IRS,
“he could afford to pay $3,147.00 per month toward his tax
obligation,” and “if he takes no action to resolve the account,
[the IRS] will take action to collect the balance due.”

Id.

Shortly after receiving that letter, and pursuant to the
IRS’s request, Hulick began making monthly payments of
approximately $4,000.1

He continued making those payments until

1

Hulick administratively appealed the finding that he
could afford to pay approximately $3,200 per month. He lost that
appeal when the IRS concluded that he could actually afford to
pay $4,058 per month.
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September 1, 2008, by which time he had paid a little more than
$72,000 to the IRS.

At that point, he says he believed his

obligations to the IRS had been satisfied and all relevant
collection statutes had expired.

Perhaps not surprisingly (given

the existence of this litigation), the IRS took a different view.

By letter dated November 5, 2008, the IRS notified Hulick
that, according to its calculations, he still owed more than $2
million.

Additionally, the IRS informed Hulick that the

Collection Statute Expiration Dates it had previously provided to
him were inaccurate and, after reviewing the file and recalculating the relevant tolling periods, it concluded that they
ran until at least July of 2009.

Hulick does not take issue with

the government’s revised calculation of the CSEDs.

He does,

however, assert that the government should be bound by its
earlier representation that the relevant limitations periods all
expired on or before October 1, 2008.

In December of 2008, the

government filed this action.

Discussion
In his amended answer and counterclaim, Hulick advances five
counterclaims against the government:
Count 1:

Declaratory judgment that the government’s claims
against him are time-barred;

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Count 2:

Unauthorized Collection Action (26 U.S.C. §§
6304(a) and 7433);

Count 3:

Harassment and Oppression (26 U.S.C. §§ 6304 and
7433);

Count 4:

Unreasonable Rejection of a Settlement Offer; and

Count 5:

Breach of Contract, based upon the December 19,
2006 letter.

He also advances a claim (labeled “Count 6”) in which he asserts
that he is entitled to recover his attorney’s fees, pursuant to
26 U.S.C. § 7430.

I.

Declaratory Judgment and Attorney’s Fees.
Hulick’s efforts to obtain a declaratory judgment that the

government’s action against him is timed-barred is somewhat
misplaced.

It is more appropriately viewed as an affirmative

defense to the government’s claims, which will be resolved in due
course, upon a more fully developed record.

Moreover, the

Declaratory Judgment Act specifically excludes from its scope
claims “with respect to Federal taxes.”

28 U.S.C. § 2201(a).

Count one of Hulick’s counterclaims is, therefore, dismissed.

Count six of Hulick’s counterclaims, in which he seeks an
award of attorney’s fees, is not properly viewed as a freestanding “claim,” “counter-claim,” or “cause of action.”

It is,

instead, an element of relief to which Hulick may be entitled,

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should he prevail in this litigation.
dismissed, without prejudice.

Consequently, it is

If, at the conclusion of this

litigation, Hulick may properly be viewed as a prevailing party
and otherwise meets the requirements set forth in 26 U.S.C. §
7430, he will obviously be free to petition the court - at that
time - for an award of fees.

II.

Claims of Unauthorized Collections.
In counts two, three, and four of his counterclaims, Hulick

advances various theories as to why the IRS collection efforts
against him are unlawful and why he is entitled to an award of
damages.

But, as the government points out, Hulick did not

properly exhaust available administrative remedies - a prerequisite to pursuing counterclaims of that sort.

Section 7433(a) of Title 26 of the United States Code
provides that:
If, 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, 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. § 7433(a) (emphasis supplied).

Here, Hulick claims

that agents of the IRS negligently, recklessly, or intentionally
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improperly calculated the applicable CSED’s.

But, the statutes

upon which Hulick relies merely provide the means by which one
can, if he or she desires, calculate the CSED.

They do not

appear to obligate the IRS to provide taxpayers with a properlycalculated CSED.

It is, then, difficult to see how an IRS agent

can be deemed to have “disregard[ed] a provision” of the tax code
by voluntarily providing the taxpayer with a statement (albeit an
erroneous statement) of the relevant CSED’s.

See generally

Gonsalves v. I.R.S., 975 F.2d 13, 15-16 (1st Cir. 1992).

And,

Hulick has pointed to no precedent, whether binding or merely
persuasive, that supports his view that such an error is
actionable under section 7433.

But, even if the IRS’s failure to properly calculate the
CSED’s (and its filing of suit after those erroneously calculated
dates) could be actionable under section 7433, Hulick’s claims
suffer from a dispositive defect: a taxpayer cannot pursue any
claim for damages against the United States under section 7433
unless he or she has first “exhausted the administrative remedies
available to such plaintiff with the Internal Revenue Service.”
26 U.S.C. § 7433(d)(1).

And, as the court of appeals has noted,

“Section 7433’s waiver of sovereign immunity, like any other,
must be strictly observed and construed in favor of the
sovereign.”

Gonsalves, 975 F.2d at 15 (citations and internal

10

punctuation omitted).

Consequently, prior to filing this suit,

Hulick must have strictly complied with Section 7433(d)(1)’s
administrative exhaustion requirement.

Federal regulations specify the means and procedures by
which a taxpayer may pursue an administrative claim against the
IRS.

See Treas. Reg. § 310.7433-1(e), 26 C.F.R. § 301.7433-1(e).

Among other things, those regulations provide that any
administrative claim filed with the IRS must include: the name,
address, and contact information of the taxpayer; the grounds for
the claim; a description of the injuries incurred; and the dollar
amount of the claim.

Those regulations go on to provide that a

taxpayer cannot maintain an action for damages in excess of the
amount specified in the administrative claim, unless the
increased amount is based upon newly discovered evidence.

26

C.F.R. § 301.7433-1(f).

Hulick did not strictly comply, nor does he claim to have
strictly complied, with those regulations.

Instead, he says his

various administrative appeals to the IRS put the IRS on notice
of his claims and should be adequate to constitute compliance
with the administrative exhaustion requirement.

As noted above,

however, that is not enough; a taxpayer must fully and strictly
comply with those administrative regulations before filing suit

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in federal court.

Partial compliance, or the argument that the

IRS had notice of a taxpayer’s claims, is not sufficient.
Though [plaintiff] alleges in his papers that he has
pursued every administrative remedy available to him,
it is clear to the Court that he has not complied with
the specific administrative procedures set forth under
the regulations in order to preserve a claim for
damages. While he did take a number of steps seeking
primarily to stop the levy, his failure to follow the
specific procedures for pursuing a damage claim
deprives this Court of jurisdiction to hear it.
Bullard v. United States, 486 F. Supp. 2d 512, 518 (D. Md. 2007).
See also Rae v. United States, 530 F. Supp. 2d 127, 130 (D.D.C.
2008); Hallinan v. United States, 498 F. Supp. 2d 315, 317-18
(D.D.C. 2007); Bennett v. United States, 361 F. Supp. 2d 510,
514-15 (W.D. Va. 2005).

Finally, Hulick is incorrect in asserting that the Federal
Tort Claims Act, 28 U.S.C. § 2674 et seq., excuses him from
administratively exhausting his claims.

The court of appeals for

this circuit has specifically addressed, and rejected, that
claim:
We start with the basic proposition that sovereign
immunity bars lawsuits against the United States unless
the United States has waived that immunity. This axiom
forecloses reliance on . . . the jurisdictional
statute[] that the [plaintiffs] cite as bases for their
claim for damages against the United States. The
Federal Tort Claims Act, 28 U.S.C. § 2674 et seq.,
waives sovereign immunity in many circumstances for
tort claims, but specifically excepts from its coverage
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“[a]ny claim arising in respect of the assessment or
collection of any tax . . ..” 28 U.S.C. § 2680(c).
McMillen v. U.S. Dep’t of Treasury, 960 F.2d 187, 188 (1st Cir.
1991) (citation omitted).

Consequently, counts two, three, and four of Hulick’s
counterclaims must be dismissed.

III. Breach of Contract.
Charitably construed, count 5 of Hulick’s counterclaims
asserts that the IRS breached what was, in essence, a settlement
agreement.

The terms of that agreement are said to be found in

the letter dated December 19, 2006, from I.R.S. Revenue Officer
Mary Beyers.

In that letter, Beyers: (a) informed Hulick

(erroneously, it would seem) that the last CSED expired on
October 1, 2008; (b) concluded that Hulick could pay at least
$3,100 per month toward his tax obligation (subsequently
increased to roughly $4,000 per month); (c) asked that he begin
making “voluntary payments toward the tax obligation”; and (d)
stated that if he “takes no action to resolve the account, I will
take action to collect the balance due.”

Exhibit A, Amended

Complaint and Counterclaims (document no. 33-1).

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Again, liberally construing Hulick’s pleadings, it is at
least colorable that Beyers’ letter represents an offer, on
behalf of the IRS, to forego any litigation and/or levies aimed
at collecting the debt, provided Hulick begins (and continues)
making the specified “voluntary” payments through the CSED.
Under that scenario, Hulick accepted the offer by dutifully
making those monthly payments throughout the period specified in
Beyers’ letter.

When, at the end of that term, the IRS filed

this suit, Hulick had obvious reason to think that the IRS had
gone back on its commitment, and at least a plausible claim that
the government breached its settlement agreement.

And, viewed in

the light most favorable to Hulick, his breach of contract
counter-claim arguably seeks to hold the government to its end of
the bargain.

That is, he is seeking specific performance of that

settlement agreement (or perhaps raises issues of estoppel),
rather than damages as a consequence of its breach.

Perhaps because Hulick’s counterclaim is less than a model
of clarity (and because the construction given above is, as
noted, a charitable one), the government simply addresses it as a
claim for damages.

And, as such, the government points out that

because Hulick would likely be seeking more than $10,000 in
damages (if that is, indeed, the remedy he seeks), this court
lacks subject matter jurisdiction.

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See 28 U.S.C. §

1346(a)(2)(a).

The government has not, however, asserted that

Hulick cannot bring an action to specifically enforce the
(alleged) settlement agreement with the IRS nor has it briefed
that issue.

Consequently, the court concludes that dismissal (or

transfer to the Court of Claims) of Hulick’s breach of contract
claim is, at least at this juncture, premature.2

Conclusion
For the foregoing reasons, the government’s motion to
dismiss (document no. 26) is granted in part, and denied in part.
Counts one, two, three, and four of Hulick’s counter-claims are

2

In the end, regardless of how the claim advanced in
count five is construed, it might well be that it must be filed
in (or transferred to) the Court of Claims. See, e.g., Suburban
Mortg. Assocs. v. U.S. Dep’t of Housing & Urban Develop’t, 480
F.3d 1116, 1118 (Fed. Cir. 2007) (“despite [plaintiff’s] valiant
effort to frame the suit as one for declaratory or injunctive
relief, this kind of litigation should be understood for what it
is. At bottom it is a suit for money for which the Court of
Federal Claims can provide an adequate remedy, and it therefore
belongs in that court.”). Additionally, to the extent that
Hulick’s contract claim can plausibly be read to seek specific
performance, rather than monetary damages, the government may
assert that it is immune from such claims. See generally Richard
Seamon, Separation of Powers and the Separate Treatment of
Contract Claims against the Federal Government for Specific
Performance, 43 Vill. L. Rev. 155 (1998) (“[T]he government’s
liability for contract damages is well-settled. In contrast, the
government has always been immune from awards of specific
performance in contract actions, on the theory that this type of
relief would unduly interfere with government operations.”). See
also Up State Fed. Credit Union v. Walker, 198 F.3d 372 (2d Cir.
1999); Megapulse, Inc. v. Lewis, 672 F.2d 959 (D.C. Cir. 1982).
But, the parties should have the opportunity to engage on those
specific issues and brief their respective positions.
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dismissed.

Count six (attorney’s fees) is dismissed, without

prejudice.

Accordingly, the sole remaining counterclaim is count

five (breach of contract).
SO ORDERED.
____________________________
Steven J. McAuliffe
Chief Judge
June 30, 2011
cc:

Andrea A. Kafka, Esq.
Richard J. Lavers, Jr., Esq.
Daniel E. Will, Esq.
Joshua M. Wyatt, Esq.

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