CHALFIN et al v. ST. JOSEPH'S HEALTHCARE SYSTEM

Filing 18

OPINION. Signed by Judge William J. Martini on 10/31/14. (gh, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

Civ.No. 2:14-1883 (WJM)

MATTHEW CHALFIN, ET AL.,
Plaintiff,

OPINION
v.
ST. JOSEPH’S HEALTHCARE SYSTEM,
Defendant.

WILLIAM J. MARTINI, U.S.D.J.:
This putative class action comes before the Court on Plaintiffs’ motion for remand
pursuant to 28 U.S.C. § 1447(c) and Defendant’s motion to dismiss pursuant to Federal
Rules of Civil Procedure 12(b)(1) and 12(b)(6). Magistrate Judge Mark Falk entered a
Report and Recommendation on October 10, 2014 (“the R&R”) in favor of denying
Plaintiffs’ motion for remand. After conducting a de novo review of the R&R, the R&R is
adopted as the opinion of this Court and Plaintiffs’ motion for remand is DENIED.
Moreover, for the reasons set forth in this opinion, Defendant’s motion to dismiss is
GRANTED.
I.

BACKGROUND

Plaintiffs originally filed this action in the New Jersey Superior Court, Essex
County. They seek to represent a class of individuals who performed their medical
residencies “in or around” the years 2003 to 2006 at various New Jersey hospitals owned
and operated by Defendant. (Complaint at ¶¶ 1,3,4-6) Plaintiffs assert that their status as
medical residents entitled them to a FICA tax refund during the years of their residency
because Defendant withheld an excessive amount of tax from their paychecks. (Id. at ¶ 5)
They specifically allege that Defendant acted negligently when it failed to submit the
requisite paperwork with the Internal Revenue Service (“IRS”) to redeem Plaintiffs’
refund. (Id. at ¶ 6) Plaintiffs claim that their damages would be the sum total of what each

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individual resident would have recouped from the IRS had Defendant submitted the
required paperwork. (Id. at ¶ 27).
On March 25, 2014, Defendant removed the action to federal court pursuant to 28
U.S.C. § 1441. ECF No. 1. On April 24, 2014, Plaintiffs moved to remand the case back
to state court. ECF No. 8. On October 10, 2014, U.S. Magistrate Judge Mark Falk issued
the R&R, which recommended that the Court deny Plaintiff’s motion for remand. ECF
No. 17. In rejecting Plaintiffs’ arguments for remand, the R&R first noted that while
Plaintiffs purport to bring a negligence action, in reality this is a tax refund suit. (R&R at
4) Resting on the doctrine of complete preemption, the R&R concluded that because 26
U.S.C. § 7422 and its related provisions have been found to exclusively govern tax refund
actions, Plaintiffs’ claim arises under an Act of Congress and is thus removable under 28
U.S.C. § 1441.
Defendant has also filed a motion to dismiss that is largely premised on the same
theory that supports its argument for removal, namely that Plaintiffs’ claim is governed by
26 U.S.C. § 7422. ECF No. 6. Defendant contends that the Complaint must be dismissed
because under § 7422, any party who wishes to bring a tax refund suit in court must first
exhaust certain administrative remedies, which Plaintiffs have failed to do. (MTD at 8)
Defendant further argues that § 7422 suits can only be maintained against the United States
and even if that were not the case, Plaintiffs’ claim would be time-barred. (MTD at 10,
14). In response, Plaintiffs contend that they do not accuse the United States of engaging
in any wrongdoing and therefore the requirements of § 7422 do not apply. ECF No. 8,
Opp. at 4.
II.

PLAINTIFFS’ MOTION TO REMAND

As discussed in the foregoing section, Judge Falk concluded that Plaintiffs’ claim
was exclusively governed by 26 U.S.C. § 7422 and therefore removable. ECF No. 17.
Accordingly, the R&R recommended that this Court deny Plaintiffs’ motion for remand.
Id. The parties were notified that they had fourteen days to submit objections and responses
to the R&R pursuant to Local Civil Rule 72.1(c)(2), but they declined to avail themselves
of that opportunity. Id. The Court has reviewed the R&R de novo and finds that the R&R
correctly concluded that Plaintiffs’ action was removable. Therefore, the R&R is adopted
as the opinion of this Court and Plaintiffs’ motion to remand is DENIED.
III.

DEFENDANT’S MOTION TO DISMISS

Pursuant to Federal Rule of Civil Procedure 12(b)(1), Defendant moves to dismiss
Plaintiffs’ complaint on the ground that Plaintiffs have failed to exhaust the administrative

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remedies laid out in 26 U.S.C. § 7422. The Court agrees with Defendant’s position and
will grant its motion to dismiss. 1
A. Legal Standard for Motion to Dismiss
Federal Rule of Civil Procedure 12(b)(1) provides for the dismissal of a complaint
for lack of subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1). There are two types of
challenges to subject-matter jurisdiction: (1) facial attacks, which challenge the allegations
of the complaint on their face; and (2) factual attacks, which challenge the existence of
subject-matter jurisdiction, quite apart from any pleadings. Mortensen v. First Fed. Sav.
& Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977). In reviewing a factual attack, like the
one in this case, the court may consider evidence outside the pleadings, and no presumptive
truthfulness attaches to the plaintiff’s allegations. Gould Electronics Inc. v. United States,
220 F.3d 169, 176 (3d Cir. 2000); Gotha v. United States, 115 F.3d 176, 178-79 (3d Cir.
1997). The plaintiff bears the burden of proving that jurisdiction exists. Gould Electronics,
Inc. v. United States, 220 F.3d 169, 178 (3rd Cir. 2000).
B. Failure to Exhaust Administrative Remedies
28 U.S.C. § 7422 provides the exclusive cause of action for the recovery of any
internal revenue tax “alleged to have been erroneously or illegally assessed or collected.”
26 U.S.C. § 7422; Umland v. PLANCO Financial, 542 F.3d 59, 68-69 (3d Cir. 2008). §
7422(a) provides that a party may not bring suit for a tax refund “until a claim for refund
or credit has been duly filed” with the IRS. 26 U.S.C. § 7422(a). The claim must be made
no later than “3 years from the time the return was filed or 2 years from the time the tax
was paid, whichever of such periods expires the later.” § 6511(a). Moreover, “[n]o credit
or refund shall be allowed or made” if a claim is not filed within the time limits set forth in
§ 6511(a). § 6511(b). Compliance with § 7422(a) is a jurisdictional prerequisite to
bringing suit and cannot be waived. See C.I.R. v. Lundy, 516 U.S. 235, 240 (1996).

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It may seem contradictory to first hold that a case is removable because it arises under
federal law and then grant a motion to dismiss for lack of subject-matter jurisdiction;
however the two actions are reconcilable. Plaintiffs have brought a tax refund action,
which exclusively arises under federal law and is therefore removable under 28 U.S.C. §
1331. While Plaintiffs have asserted a federal claim subject to removal, they have failed
to meet other jurisdictional prerequisites for proceeding with their claim in federal court.
Cf. Huberty v. U.S. Ambassador to Costa Rica, 316 Fed.Appx. 120, 121 (3d Cir. 2008)
(affirming post-removal 12(b)(1) dismissal for failure to meet FTCA notice
requirements); Brennan v. Southwest Airlines Co., 134 F.3d 1405, 1412 (9th Cir. 1998)
(affirming post-removal dismissal of action for failure to meet exhaustion requirements
of 26 U.S.C. § 7422(a))
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Here Plaintiffs do not contend that they have filed a timely refund claim pursuant to
§ 7422(a). Instead, they assert that the requirements of § 7422(a) are inapplicable to this
case because the party accused of wrongdoing is St. Joseph’s Healthcare System, not the
IRS or the United States. (Opp. at 5) The Court disagrees. First, § 7422(a) has an
expansive reach; it states that “no suit shall be maintained…for the recovery of any internal
revenue tax alleged to have been erroneously or illegally assessed or collected” until a
notice of claim is filed. § 7422(a) (emphasis added). Therefore, § 7422(a) applies to any
suit seeking taxes that were erroneously collected, regardless of who is responsible for the
erroneous collection. For example, courts have applied § 7422 to cases in which private
airline companies erroneously charged a 10% “excise tax” to airline ticket sales and
directed those monies to the IRS. See e.g., Brennan v. Southwest Airlines Co., 134 F.3d
1405 (9th Cir. 1998); Sigmon v. Southwest Airlines Co., 110 F.3d 1200 (5th Cir. 1998);
Kaucky v. Southwest Airlines Co., 109 F.3d 349 (7th Cir. 1997); Eisenman v. Continental
Airlines, Inc., 974 F.Supp. 425 (D.N.J. 1997). In those cases, it was the fault of the airlines
– not the United States or IRS – that formed the basis of the plaintiffs’ tax refund claims.
Nonetheless, § 7422 still applied. The same is true here. Plaintiffs assert that because taxes
were erroneously collected from them, they are entitled to a refund. While Defendant may
have put them in their alleged predicament by failing to file certain paperwork with the
IRS, this is still a tax refund case subject to § 7422(a). Because Plaintiffs do not even refute
that they did not file a notice of refund pursuant to § 7422(a), 2 their Complaint is
DISMISSED WITH PREJUDICE.
IV.

CONCLUSION

For the foregoing reasons, Plaintiffs motion to remand is DENIED and Defendant’s
motion to dismiss is GRANTED. An appropriate Order accompanies this decision.

/s/ William J. Martini
WILLIAM J. MARTINI, U.S.D.J.
Date: October 31, 2014

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Even if Plaintiffs did file a claim for refund , their claim must be dismissed because
only the United States can be named as a Defendant in an action under § 7422. See 26
U.S.C. § 7422(f)(1).
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