Freedom From Religion Foundation, Inc. v. Shulman, Douglas
Filing
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DECISION AND ORDER denying 12 Motion to Dismiss for Lack of Jurisdiction Signed by District Judge Lynn Adelman on 8/19/13. (cc: all counsel)(dmm)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WISCONSIN
FREEDOM FROM RELIGION FOUNDATION, INC.,
Plaintiff,
v.
Case No. 12-C-0818
DOUGLAS SHULMAN, Commissioner of the
Internal Revenue Service,
Defendant.
DECISION AND ORDER
Section 501(c)(3) of the Internal Revenue Code exempts entities that are organized
and operated exclusively for religious, charitable, scientific, or other specified purposes
from having to pay federal income taxes. A condition of this exemption is that the entity
not participate in or intervene in any political campaign on behalf of, or in opposition to, any
candidate for public office. 26 U.S.C. § 501(c)(3). The plaintiff in this case, the Freedom
from Religion Foundation (the “Foundation”), alleges that the Internal Revenue Service has
a policy of not enforcing this condition to tax-exempt status against churches and religious
organizations. At the same time, the Foundation alleges, the IRS fully enforces the
condition against other tax-exempt organizations. The Foundation, which is itself a
§ 501(c)(3) organization, contends that the IRS’s policy of disparate treatment violates its
rights under both the Establishment Clause and the equal-protection component of the
Fifth Amendment. It seeks declaratory and injunctive relief. The IRS has moved to
dismiss the complaint for two reasons: (1) the Foundation lacks standing to sue, and (2)
the suit, which is really a suit against the United States, is barred by sovereign immunity.
I consider these arguments below.
I. STANDING
To prove that he has standing to seek injunctive relief, a plaintiff must show that he
is under threat of suffering “injury in fact” that is concrete and particularized; the threat
must be actual and imminent, not conjectural or hypothetical; it must be fairly traceable to
the challenged action of the defendant; and it must be likely that a favorable judicial
decision will prevent or redress the injury. See, e.g., Summers v. Earth Island Institute,
555 U.S. 488, 493 (2009). The Foundation has shown all of these things. If it is true that
the IRS has a policy of not enforcing the prohibition on campaigning against religious
organizations, then the IRS is conferring a benefit on religious organizations (the ability to
participate in political campaigns) that it denies to all other § 501(c)(3) organizations,
including the Foundation. As a victim of the IRS’s alleged discrimination, the Foundation
has suffered an injury in fact. See Heckler v. Mathews, 465 U.S. 728, 738–40 (1984)
(victim of unequal treatment has standing to seek equal treatment); see also Iowa-Des
Moines Nat’l Bank v. Bennett, 284 U.S. 239, 247 (1931) (cause of action for equal
protection accrues as soon as the plaintiff is deprived of equal treatment). Moreover,
because the Foundation alleges that the IRS’s policy is ongoing, the injury is more than
actual and imminent—the Foundation is being deprived of equal treatment right now. This
injury is fairly traceable to the actions of the IRS, since it is the IRS’s own policy that is
causing the alleged unequal treatment. Finally, an injunction prohibiting the IRS from
continuing this policy of unequal treatment will prevent any further injury. Accordingly, the
Foundation has standing to sue.
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The IRS makes a number of arguments against the Foundation’s having standing,
none of which has merit. First, the IRS argues that the Foundation is not personally
affected by the challenged policy and is instead seeking to vindicate a generalized interest
in making sure that the government is administered in accordance with the Constitution.
See, e.g., Freedom from Religion Foundation v. Obama, 641 F.3d 803, 807–08 (7th Cir.
2011). However, as explained, the Foundation is itself a § 501(c)(3) organization and is
suing to vindicate its own right to equal treatment. Thus, the Foundation is not asserting
as its injury in fact the “‘abstract injury in nonobservance of the Constitution asserted by
. . . citizens’ in general.” Id. at 808 (quoting Schlesinger v. Reservists Committee to Stop
the War, 418 U.S. 208, 223 n.13 (1974)).
Second, the IRS argues that the Foundation does not want to participate in political
campaigns and therefore has no interest that is implicated by the IRS’s policy of not
enforcing the prohibition on political campaigning against religious organizations. However,
the Foundation never states that it does not want to participate in political campaigns.
Instead, the Foundation describes the ability to participate in political campaigns as a “very
significant benefit” and states that it refrains from participating in such campaigns because
it does not want to risk its tax-exempt status. See Br. in Opp. at 13, ECF No. 14. It is
evident from this statement that the Foundation would prefer to both participate in political
campaigns and keep its tax-exempt status. Thus, it is not the case that the IRS is
extending a benefit to religious organizations that the Foundation is uninterested in
obtaining for itself. Of course, because § 501(c)(3) prohibits all tax-exempt organizations
from participating in political campaigns, the Foundation will not in this suit be able to
obtain an order allowing it to both participate in such campaigns and retain its tax-exempt
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status. However, this does not affect the Foundation’s standing to seek an order requiring
the IRS to withdraw any benefit that it is currently and unlawfully extending only to religious
groups. As the Supreme Court has recognized, when the injury is unequal treatment, “the
appropriate remedy is a mandate of equal treatment, a result that can be accomplished by
withdrawal of benefits from the favored class as well as by extension of benefits to the
excluded class.” Heckler, 465 U.S. at 740; accord Iowa-Des Moines Nat’l Bank, 284 U.S.
at 247. Thus, the Foundation has standing to seek an order requiring the IRS to treat
religious organizations no more favorably than it treats the Foundation.
Third, the IRS argues that the Foundation’s alleged injury is not “particularized”
because, if the Foundation’s allegations are true, then all § 501(c)(3) organizations that are
not also religious organizations will have suffered the same injury. See Br. in Supp. at 12,
ECF No. 13. Although it is true that if the Foundation’s allegations are true then all nonreligious § 501(c)(3) organizations will have suffered the same injury, this does not deprive
the Foundation of standing. As both the Supreme Court and the Seventh Circuit have
held, an injury does not fail to be concrete and particularized simply because many other
persons have suffered the same injury. See United States v. Students Challenging
Regulatory Agency Procedures, 412 U.S. 669, 687–88 (1973); Lac du Flambeau Band of
Lake Superior Chippewa Indians v. Norton, 422 F.3d 490, 496–97 (7th Cir. 2005).
Fourth, the IRS argues that the Foundation lacks standing because (1) it “has done
nothing to test” whether the IRS is conferring benefits on religious organizations that it does
not confer on other § 501(c)(3) organizations, and (2) it has failed to point to any “concrete
statement” of any IRS policy of favoring religious organizations. See Br. in Supp. at 14,
ECF No. 13. What the IRS seems to be saying is that because the Foundation has not
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already proved that the IRS has a policy of favoring religious organizations, it lacks
standing to attempt to prove that such a policy exists. But of course this is wrong. If the
Foundation is unable to prove that the IRS has a policy of favoring religious organizations,
then its claim will fail on the merits, not for lack of standing. At the present stage of the
case, the pleading stage, the Foundation need only allege that the IRS has such a policy,
see, e.g., Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992), which it has done, see
Compl. ¶¶ 21–31.
Fifth, the IRS contends that “discrimination itself” is not a cognizable injury in fact.
See Reply Br. at 6–9. However, in making this argument, the IRS does not attempt to
distinguish Heckler or Iowa-Des Moines National Bank, the two cases that I and the
Foundation have cited in support of the proposition that a member of a disfavored class
has standing to challenge a discriminatory policy or practice. Nor has the IRS cited a case
in which a court found that a member of a disfavored class lacked standing to challenge
the discriminatory policy or practice. Accordingly, the IRS gives me no reason to think that
discrimination itself is not a cognizable injury in fact.
Sixth, the IRS argues that the Foundation cannot satisfy the redressability
requirement because it would be inappropriate for a court to issue an injunction that results
in judicial supervision of the IRS’s enforcement of the tax code. See Reply Br. at 10.
However, the IRS does not dispute that this court has the raw power to issue an injunction
preventing the IRS from continuing to follow a policy of favoritism toward religious
organizations. To be sure, there are reasons why the court might not want to issue such
an injunction. For example, it may be difficult to determine whether the IRS’s failure to
investigate a religious organization’s potential violation of § 501(c)(3)’s prohibition on
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campaigning was based on a policy of favoring religious organizations or was a legitimate
exercise of the IRS’s “prosecutorial discretion.” But whether an injunction is an appropriate
remedy is a question that goes to the merits of the case rather than to standing. For
standing purposes, all that matters is that the court has the raw power to grant relief that
would redress the plaintiff’s injury. See In re UNR Indus., Inc., 20 F.3d 766, 768–69 (7th
Cir. 1994) (for purposes of mootness, which is an aspect of standing, the court’s raw ability
to grant meaningful relief is what matters; whether the court should grant such relief is a
question for the merits). Accordingly, the Foundation has standing to seek such relief.
Finally, the IRS argues that the doctrine of “prudential standing” bars this suit.
Prudential standing encompasses the general prohibition on a litigant's raising another
person's legal rights, the rule barring adjudication of generalized grievances more
appropriately addressed to the representative branches of government, and the
requirement that a plaintiff's complaint fall within the zone of interests protected by the law
invoked. See, e.g., Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 12 (2004). The
IRS contends that the Foundation is attempting to assert the rights of third parties rather
than its own right. Again, however, this is wrong. The Foundation is asserting its own right
to equal treatment. The IRS also argues that the Foundation is not within the “zone of
interests” of § 501(c)(3). Whether or not that is true, however, the Foundation surely is in
the zone of interests of the Fifth Amendment and the Establishment Clause, which are the
provisions of law on which the Foundation’s claims are based. Finally, the IRS argues that
the Foundation’s grievance is a generalized one that is more appropriately addressed to
the representative branches of government. However, as discussed, the Foundation is not
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asserting a generalized grievance but rather its own, particularized interest in receiving
equal treatment. Accordingly, none of the prudential limits on standing applies in this case.
II. SOVEREIGN IMMUNITY
The IRS next contends that because this suit is against the United States, the
Foundation must point to a waiver of sovereign immunity. The Foundation points to the
second sentence of 5 U.S.C. § 702, which is part of the Administrative Procedure Act
(“APA”). It states:
An action in a court of the United States seeking relief other than money
damages and stating a claim that an agency or an officer or employee
thereof acted or failed to act in an official capacity or under color of legal
authority shall not be dismissed nor relief therein be denied on the ground
that it is against the United States or that the United States is an
indispensable party.
The IRS does not dispute that the Foundation’s suit meets all the requirements specified
in the above sentence. However, it contends that the suit does not fall within § 702's
waiver of sovereign immunity for three reasons: (1) the Foundation does not have standing
to sue; (2) the Foundation has identified no “final agency action” that could be reviewed
under the APA; and (3) the challenged agency action, to the extent it is final, is not
reviewable under the APA because it is committed to agency discretion by law.
The IRS’s first argument is no different from its argument that the Foundation lacks
standing to sue, which I have already rejected. Therefore, I will not discuss the first
argument further.
The IRS’s second and third arguments fail because they depend on the false
premise that the Foundation is challenging the IRS’s policy pursuant to the APA. In fact,
the Foundation is challenging that policy pursuant to the Fifth Amendment’s equal7
protection component and the Establishment Clause. Thus, the limitations on claims
brought pursuant to the APA—including the requirement that the claim involve a final
agency action, see 5 U.S.C. § 704, and the requirement that the claim not involve a matter
committed to agency discretion by law, 5 U.S.C. § 701(a)(2)—do not apply. However, the
second sentence of § 702 still waives the United States’s sovereign immunity in this case
because that sentence is not limited to claims brought under the APA itself but is generally
applicable to any action for prospective relief, including an action involving a constitutional
challenge. See Michigan v. United States Army Corp of Engineers, 667 F.3d 765, 774–75
(7th Cir. 2011); Blagojevich v. Gates, 519 F.3d 370, 371–72 (7th Cir. 2008). The IRS
seems to concede this point in its reply brief, where it abandons its second and third
sovereign-immunity arguments and rests entirely on its argument that the Foundation lacks
standing to sue. See Reply Br. at 11–12 & n.3. Accordingly, this action is not barred by
sovereign immunity.
III. CONCLUSION
For the reasons stated, IT IS ORDERED that the IRS’s motion to dismiss is
DENIED.
Dated at Milwaukee, Wisconsin this 19th day of August, 2013.
s/ Lynn Adelman
______________________________
LYNN ADELMAN
District Judge
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