Lunnon et al v. United States of America
Filing
143
ORDER by District Judge Martha Vazquez ADOPTING 139 REPORT AND RECOMMENDATIONS; GRANTING IN PART AND DENYING IN PART 105 Motion to Dismiss for Lack of Jurisdiction; and DENYING 109 Motion to Strike. See Order for Specifics. (gr)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
MICHAEL LUNNON,
Plaintiff,
vs.
Civ. No. 16-1152 MV/JFR
UNITED STATES OF AMERICA, et al.,
Defendants.
ORDER OVERRULING PLAINTIFF’S OBJECTIONS
AND ADOPTING MAGISTRATE JUDGE’S
PROPOSED FINDINGS AND RECOMMENDED DISPOSITION
THIS MATTER is before the Court on United States’ Rule (12)(b)(1) Motion to
Dismiss Counts I-III of Plaintiff’s Amended Complaint, filed October 2, 2018. Doc. 105. This
matter is also before the Court on Plaintiff’s Motion to Strike Exhibits from United States’ Reply
Brief, or Alternatively to Allow a Response by Plaintiff, filed October 25, 2018. Doc. 109. In
his Proposed Findings and Recommended Disposition (“PFRD”), filed November 19, 2019,
United States Magistrate Judge John F. Robbenhaar recommended that the Court grant in part
and deny in part the United States’ Motion to Dismiss Counts I-III of Plaintiff’s Amended
Complaint. Doc. 139. Judge Robbenhaar also recommended that the Court deny as moot
Plaintiff’s Motion to Strike. On November 26, 2019, the United States filed a notice of no
objections. Doc. 140. On December 3, 2019, Plaintiff timely filed Objections to Magistrate
Findings & Recommendation (Doc. 142) (“Objections”).1
1
The United States did not file a response to Plaintiff’s Objections.
1
District courts may refer dispositive motions to a magistrate judge for a recommended
disposition pursuant to 28 U.S.C. § 636 and Federal Rule of Civil Procedure 72. 28 U.S.C. §
636(b)(1)(B); Fed. R. Civ. P. 72(b)(1). “Within 14 days after being served with a copy of the
[magistrate judge’s] recommended disposition, a party may serve and file specific written
objections to the proposed findings and recommendations.” Fed. R. Civ. P. 72(b)(2); 28 U.S.C.
§ 636(b)(1). When resolving objections to a magistrate judge’s proposal, “[t]he district judge
must determine de novo any part of the magistrate judge’s disposition that has been properly
objected to. The district judge may accept, reject, or modify the recommended disposition;
receive further evidence; or return the matter to the magistrate judge with instructions.” Fed. R.
Civ. P. 72(b)(3); 28 U.S.C. § 636(b)(1).
“[A] party’s objections to the magistrate judge’s report and recommendation must be
both timely and specific to preserve an issue for de novo review by the district court or for
appellate review.” United States v. One Parcel of Real Prop., 73 F.3d 1057, 1060 (10th Cir.
1996). Further, “[i]ssues raised for the first time in objections to the magistrate judge’s
recommendation are deemed waived.” Marshall v. Chater, 75 F.3d 1421, 1426 (10th Cir. 1996);
see also United States v. Garfinkle, 261 F.3d 1030, 1031 (10th Cir. 2001) (“In this circuit,
theories raised for the first time in objections to the magistrate judge’s report are deemed
waived.”).
The Court has considered the United States’ Motion to Dismiss, Plaintiff’s Response, the
Magistrate Judge’s PFRD, and Plaintiff’s Objections in light of the foregoing standards, and has
conducted a de novo review. Based on this review, the Court finds that Plaintiff’s Objections to
the Magistrate Judge’s PFRD are unfounded.
2
A.
Count I – Plaintiff’s Claim for Administrative Review/Declaratory
Judgment of the Alter Ego Determination
In Count I of his Amended Complaint, Plaintiff seeks judicial review of the IRS’s
administrative determination identifying Kendrick LLC as his alter ego, and requests a ruling to
“set aside the agency[ʼs] ‘alter ego’ decision as arbitrary and capricious under [5 U.S.C.] § 706.”
Doc. 104 at 3-4. Plaintiff argued that the IRS “made some sort of administrative adjudication or
agency decision that the ‘alter ego’ circumstance existed,” but that he was never notified of the
proposed agency action to pursue Kendrick LLC as an alter ego. Id. at 3. Plaintiff further
argued that the IRS’s designation of an alter ego was without statutory authority and violated his
right to due process. Id., Doc. 106 at 2.
1.
Anti-Injunction Act
In the PFRD, the magistrate judge found that because the Declaratory Judgment Act, 28
U.S.C. § 2201 (“DJA”), expressly prohibits declaratory judgments with respect to Federal taxes,
Plaintiff’s request for a review of the IRS’s “alter ego” determination and a ruling that the
determination was arbitrary and capricious and denied him due process fell within the DJA’s
prohibitions. Doc. 139 at 9-14. As such, the magistrate judge found that Plaintiff had failed to
demonstrate the existence of a waiver of sovereign immunity under the Administrative
Procedures Act and that the Court, therefore, lacked subject matter jurisdiction.2 Id. In making
this finding, the magistrate judge inserted a footnote stating that the Anti-Injunction Act, 26
U.S.C. § 7421 (“AIA”), “also bars suits in federal district court for the purposes of restraining the
assessment or collection of any tax.” Id. 13, fn. 11.
In his analysis, the magistrate judge explained that the APA’s sovereign immunity waiver for
suits seeking nonmonetary relief did not apply to Plaintiff’s Count I because the DJA expressly
prohibits declaratory judgments “with respect to Federal taxes.” Doc. 139 at 12-13.
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Citing Green Solution Retail, Inc. v. United States, 855 F.3d 1111, 1115 (10th Cir. 2017),
Plaintiff objects to the PFRD recommending dismissal of Count I by arguing that because the
AIA, referred to in the footnote, does not apply to his case, and because the AIA and the DJA,
pursuant to Green, are “coterminous,” that the DJA cannot apply to his case either. Doc. 142 at
1-2. In other words, Plaintiff asserts that the only way the DJA can apply to his claim is if the
AIA also applies because the two acts “cover the same circumstances.” Id. Plaintiff contends
that the AIA does not apply to his case because at the time he filed his Complaint, the funds at
issue were already collected; i.e, he was not seeking to enjoin the IRS from any collection action
because the collection had already occurred. Id. In sum, Plaintiff contends that because the AIA
could not possibly have any application in this case, pursuant to Green, the DJA does not apply
either. Id. Plaintiff asks the Court to reject the PFRD with respect to Count I. Id.
Plaintiff’s argument is misplaced. In Green, the plaintiff sought to enjoin the IRS from
investigating whether it trafficked in a controlled substance in violation of federal law, and
sought a declaratory judgment that the IRS was acting outside its statutory authority when it
made findings that a taxpayer had trafficked in a controlled substance. 855 F.3d at 1113. The
IRS moved to dismiss for lack of subject matter jurisdiction, arguing that the AIA barred suit
“for the purpose of restraining the assessment or collection of any tax,” and that the DJA
prohibited declaratory judgments “with respect to Federal taxes.” Id. The Tenth Circuit
affirmed the district court’s decision that the IRS’s investigation was an “activity leading up to”
an assessment and that plaintiff’s lawsuit was filed for the purpose of restraining any such
assessment. Id. at 1121. As such, plaintiff’s lawsuit was barred by the AIA and the DJA. Id.
The Tenth Circuit explained, after discussing the jurisdictional nature of the AIA, that the
plaintiff could not “make an end-run around the AIA through its request for declaratory relief”
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because the DJA’s tax exception is “coterminous” with the AIA’s prohibiting the collection of
federal taxes. Id. at 1115. To explain its meaning, the Court stated that the words “with respect
to Federal Taxes” contained in the DJA means “restraining the assessment or collection of any
tax” as found in the AIA. Id. In other words, the DJA also bars lawsuits that attempt to restrain
the assessment or collection of any tax by seeking a declaratory judgment, making the AIA and
DJA the same only in that respect. The Tenth Circuit did not, as Plaintiff argues, state that
“coterminous” meant that the AIA and DJA “cover the same circumstances,” and if both
provisions do not apply to the facts of a case, neither provision applies.
Here, the magistrate judge correctly found that the DJA expressly prohibits declaratory
judgments “with respect to Federal taxes,” and that Plaintiff’s claim in Count I of his Amended
Complaint fell within the prohibitions of the DJA because the IRS’s determination to levy the
funds of Plaintiff’s “alter ego” was part of its tax assessment and collection efforts against
Plaintiff. Doc. 139 at 13. Further, the magistrate judge did not in any way explicitly or
implicitly suggest that the AIA was applicable to the facts of this case. Instead, in explaining
that the DJA expressly prohibits declaratory judgments “with respect to Federal taxes,” the
magistrate judge merely dropped a footnote to state that another statute, the AIA, “also bars suits
in federal district court for the purposes of restraining the assessment or collection of any tax.”
Doc. 139 at 13, fn. 11. Plaintiff’s argument, therefore, necessarily fails.
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2.
Due Process Violation
Next, citing Scheafnocker v. Comm’r of Internal Revenue, 642 F.3d 428, 436 (3rd Cir.
2011),3 Plaintiff also objects to the PFRD recommending dismissal of Count I arguing, without
more, that he raised a due process violation and that the Court has jurisdiction to consider that
claim. Doc. 142 at 3. In his Amended Complaint, Plaintiff titled Count I as a “Judicial Review
of Administrative Decision.” Doc. 104 at 2. After alleging certain facts to support his claim for
review, including, inter alia, that he did not receive notice of or get to participate in whatever
process the agency engaged in to arrive at its decision to identify and proceed with collecting
taxes from Plaintiff’s alter ego, Plaintiff concluded and explicitly stated he was seeking “review
of the agency record and decision pursuant to 5 U.S.C. § 702, and a ruling that sets aside the
agency ‘alter ego’ decision as arbitrary and capricious under § 706.” Id. at 4 (emphasis added).
Plaintiff, therefore, argued the Court had jurisdiction to review the agency decision pursuant to 5
U.S.C. §§ 702-706 of the Administrative Procedures Act.4 Id.
Plaintiff did not characterize or present his claim in Count I as a constitutional violation.
To the extent that Plaintiff is attempting to do so now, the Court finds his argument unavailing.
“Issues raised for the first time in objections to the magistrate judge’s recommendation are
deemed waived.” Hinzo v. N.M. Dep’t of Corr., No. Civ. 10-506 JB/CG, 2013 U.S. Dist. LEXIS
55104, at *2-4 (D.N.M. Mar. 29, 2013) (citing Marshall v. Chater, 75 F.3d 1421, 1426 (10th Cir.
1996); United States v. Garfinkle, 261 F.3d 1030, 1030-31 (10th Cir. 2001) (“In this circuit,
The opinion in Scheafnocker was vacated on April 24, 2012. Scheafnocker v. Comm’r of
Internal Revenue, 2012 WL 1854183, (3rd Cir. Apr. 24, 2012).
3
In his Response, Plaintiff asserted that the Court also had jurisdiction pursuant to 28 U.S.C.
§ 1331(a). Doc. 106 at 7.
4
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theories raised for the first time in objections to the magistrate judge’s report are deemed
waived.”)). That said, even if the Court were to construe Plaintiff’s mere use of the words “due
process” as alleging a constitutional violation, Plaintiff’s claim, without more, is conclusory. See
Brown v. Zavaras, 63 F.3d 967, 972 (10th Cir. 1995) (holding that even pro se litigants must do
more than advance conclusory allegations regarding constitutional claims); see also Tietjen v.
Colvin, 527 F. App’x 705, 709 (10th Cir. 2013) (finding that arguments raised in a perfunctory
manner are waived) (citing United States v. Hardman, 297 F.3d 1116, 1131 (10th Cir. 2002)).
An alleged violation of the procedural due process required by the Due Process Clause5
prompts a two-step inquiry: (1) whether the plaintiff has shown the deprivation of an interest in
“life, liberty, or property” and (2) whether the procedures followed by the government in
depriving the plaintiff of that interest comported with “due process of law.” Elliott v. Martinez,
675 F.3d 1241, 1244 (10th Cir. 2012) (citing Ingraham v. Wright, 430 U.S. 651, 673 (1977)). As
to the first step, Plaintiff has failed to identify how the IRS’s internal process for identifying
Plaintiff’s alter ego for the purpose of satisfying Plaintiff’s taxpayer obligations deprived
Plaintiff of a protectible property interest.6 “[T]o prevail on either a procedural or substantive
due process claim, a plaintiff must first establish that a defendant's actions deprived plaintiff of a
protectible property interest.” Hyde Park Co. v. Santa Fe City Council, 226 F.3d 1207, 1210
(10th Cir. 2000); see also Steffey v. Orman, 461 F.3d 1218, 1221 (10th Cir.2006) (“A due
The Due Process Clause states, “No State shall . . . deprive any person of life, liberty, or
property, without due process of law.” U.S. Const. amend, XIV, § 1.
5
Plaintiff does not argue that the taxes collected were not owed or that LG Kendrick LLC was
not his alter ego. Instead, Plaintiff argued in his Amended Complaint that he should have been
notified of and allowed to participate in the IRS’s decision-making process that identified his
alter ego, LG Kendrick, LLC, before the decision became final and before the agency proceeded
with issuing the Notice of Federal Tax Lien and Notice of Levy against LG Kendrick, LLC.
Doc. 104 at 3.
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process claim under the Fourteenth Amendment can only be maintained where there exists a
constitutionally cognizable liberty or property interest with which the state has interfered.”). In
the context of a procedural due process claim, it is only after a plaintiff first demonstrates the
existence and deprivation of a protected property interest that the plaintiff is constitutionally
entitled to an appropriate level of process. See Hennigh v. City of Shawnee, 155 F.3d 1249, 1253
(10th Cir. 1998). As to the second step, Plaintiff has not identified any statute or regulation that
placed substantive limitations on the IRS’s official discretion by establishing substantive
predicates to govern its official decision-making and by mandating the outcome to be reached
upon a finding that the relevant criteria have been met. Elliott, 675 F.3d at 1243. In other words,
Plaintiff has not identified any mandated procedures that the IRS was required, but failed, to
follow in identifying a taxpayer’s alter ego for purposes of tax collection in violation of
Plaintiff’s due process rights.7
In sum, the constitutional purpose of due process is to protect a substantive interest to
which an individual has a legitimate claim of entitlement. Id. at 1245 (citing Olim v.
Wakinekona, 461 U.S. 238, 250 (1983)). Here, Plaintiff has failed to demonstrate a legitimate
claim of entitlement for which due process was withheld. Further, Plaintiff’s mere use of the
Instead Plaintiff argues, without more, that the IRS had no statutory authority for making the
decision to identify and pursue his alter ego for the purpose of tax collection. Doc. 104 at 3. See
26 U.S.C. § 6331(a) (authorizing Treasury Secretary to collect taxes “by levy upon all property
and rights to property” belonging to such person or on which there is a lien provided . . . for the
payment of such tax”); see also Mama’s Enters., LLC v. United States, 883 F. Supp. 2d 1128,
1133 (N.D. Ala. 2012) (“The IRS may levy the funds of a taxpayer’s ‘alter ego’ because the
property owned by a delinquent taxpayer includes property owned by a third party that is an
alter-ego of the taxpayer.”) (citing G.M. Leasing Corp. v. United States, 429 U.S. 338, 350-51,
(1977)); Shades Ridge Holding Co., Inc. v. United States, 888 F.2d 725, 728 (11th Cir. 1989)
(“Property of the nominee or alter ego of a taxpayer is subject to the collection of the taxpayer’s
tax liability.”)).
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words “due process” does not satisfy his burden for alleging a constitutional violation and does
not suffice to recharacterize the nature of his claim as alleged in his Amended Complaint.
The Court, therefore, following its de novo review, finds that the magistrate judge
properly construed Plaintiff’s notice allegations within the context of Plaintiff’s request for a
review of the IRS’s determination and a ruling that the IRS’s determination was arbitrary and
capricious and denied him due process pursuant to 5 U.S.C. §§ 702-706. The Court further finds
that the magistrate judge correctly found that the IRS’s determination regarding Plaintiff’s alter
ego was made as part of its tax assessment and collection efforts against Plaintiff and therefore
falls within the prohibition of the DJA.
For the foregoing reasons, the Court hereby OVERRULES Plaintiff’s Objections as to
Count I and ADOPTS the Magistrate Judge’s PFRD.
B.
Count II - Tax Refund Pursuant to 26 U.S.C. § 6213(a)
The parties raised no objections to the Magistrate Judge’s PFRD as to the United States’
Motion to Dismiss Count II. The failure to make timely objections to the Magistrate Judge’s
Proposed Findings and Recommended Disposition waives appellate review of both factual and
legal questions. U.S. v. One Parcel of Real Property, 73 F.3d 1057, 1059 (10th Cir. 1996).
For this reason, the Court hereby ADOPTS the Magistrate Judge’s PFRD as to Count II.
C.
Count III - Damages for Unauthorized Taxes Under 26 U.S.C. § 7433
Count III of Plaintiff’s Amended Complaint seeks damages under § 7433 based on
allegations that the United States negligently and recklessly disregarded certain provisions of
the Internal Revenue Code and engaged in the unauthorized collection of taxes. Doc. 104 at 56. In particular, Plaintiff argued that the United States violated § 6213(a) (the IRS collected
funds absent a deficiency notice); § 6303 (the IRS collected funds without providing a notice
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and demand for tax); § 6330 (the IRS collected funds without a notice of right to a collection
due process hearing); § 6334(a)(9) and (d) (the IRS failed to make certain exemptions from the
levy and exceeded the amount it should have collected); § 6343 (the IRS failed to issue a levy
notice release once the levy was satisfied); and § 6342(b) (the IRS failed to return surplus
proceeds to the person or persons legally entitled thereto). Id.
Plaintiff objects to the Magistrate Judge’s PFRD recommending dismissal Count III
pursuant to § 7433 as to Plaintiff’s alleged violations of 26 U.S.C. §§ 6213(a), 6303, 6330 and
6334(a)(9) and (d). Doc. 142 at 3-4. In so doing, Plaintiff essentially reasserts the same
argument that he presented in his Amended Complaint and in his response in opposition to the
United States’ Motion to Dismiss; i.e., that his cause of action for damages pursuant to 26 U.S.C.
§ 7433 accrued only after the IRS actually collected funds, and that his damages continued to
accrue month to month as each collection occurred. Doc. 142 at 3-4. The Court is not
persuaded, and, following its de novo review, finds no fault with the PFRD as to this issue and
discerns nothing might usefully be added to it. As such, rather than repeat what the magistrate
judge has already written, the Court hereby OVERRULES Plaintiff’s Objections as to Count III
and ADOPTS the Magistrate Judge’s PFRD.
D.
Conclusion
IT IS THEREFORE ORDERED that the Court OVERRULES Plaintiff’s Objections
and ADOPTS the Magistrate Judge’s Proposed Findings and Recommended Disposition (Doc.
139).
IT IS FURTHER ORDERED that the United States’ Motion to Dismiss Counts I-III of
Plaintiff’s Amended Complaint (Doc. 105) is GRANTED in part and DENIED in part as
follows:
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1.
Count I of Plaintiff’s Amended Complaint failed to demonstrate the existence of
a waiver of sovereign immunity under 5 U.S.C. §§ 702-706 of the Administrative Procedures
Act. Accordingly, the United States’ Motion to Dismiss Count I is GRANTED for lack of
subject matter jurisdiction and Count I is DISMISSED.
2.
Count II of Plaintiff’s Amended Complaint has alleged sufficient facts on which
a recognized legal claim could be made. Accordingly, the United States’ Motion to Dismiss
Count II is DENIED.
3.
Count III of Plaintiff’s Amended Complaint as alleged under 26 U.S.C. § 7433
regarding violations of 26 U.S.C. §§ 6213(a), 6303, 6330 and 6334(a)(9) and (d) is time-barred.
Accordingly, the United States’ Motion to Dismiss Count III is GRANTED for lack of subject
matter jurisdiction as to alleged violations of 26 U.S.C. §§ 6213(a), 6303, 6330 and 6334(a)(9)
and (d) and these alleged violations are DISMISSED.
4.
Count III of Plaintiff’s Amended Complaint as alleged under 26 U.S.C. § 7433
regarding violations of 26 U.S.C. §§ 6343 and 6342(b) is not time-barred. Accordingly, the
United States’ Motion to Dismiss Count III as to these alleged violations is DENIED.
IT IS FURTHER ORDERED that Plaintiff’s Motion to Strike (Doc. 109) is DENIED
AS MOOT.
_________________________________________
MARTHA VÁZQUEZ
United States District Judge
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