GBX Assocs. v. United States

GBX Associates, LLC, Plaintiff, v. United States of America, et al., Defendants

No. 1:22cv401

United States District Court, N.D. Ohio

April 5, 2022

MEMORANDUM OPINION & ORDER

PAMELA A. BARKER, U.S. DISTRICT JUDGE.

Currently pending is Plaintiff GBX Associates, LLC's Motion for Speedy Hearing and Expedited Declaratory Judgment. (Doc. No 7.) Defendants United States of America, the United States Department of the Treasury, and the Internal Revenue Service filed a Brief in Opposition on March 22, 2022, to which Plaintiff responded on March 24, 2022. (Doc. Nos. 8, 10.) For the following reasons, Plaintiff's Motion is DENIED.

I. Background

On March 11, 2022, Plaintiff GBX Associates, LLC (hereinafter “Plaintiff” or “GBX”) filed a Verified Complaint for Injunctive and Declaratory Relief in this Court against Defendants United States of America, the United States Department of the Treasury, and the Internal Revenue Service (hereinafter referred to collectively as Defendants or “the United States”.) (Doc. No. 1.) Therein, GBX alleges the following.

GBX is a real estate investment and development firm that focuses on the acquisition, preservation, and rehabilitation of historic buildings in urban centers. (Id. at ¶ 13.) GBX uses a variety of federal, state, and local tax incentives including Historic Preservation Easements. (Id. at ¶¶ 14, 15.) GBX alleges that a Historic Preservation Easement is a “qualified real property interest” pursuant to 26 U.S.C. § 170(h). (Id. at ¶ 17.) According to the Complaint, “the Internal Revenue Code allows a deduction for a qualified conservation contribution, which is a contribution of a qualified real property interest to a qualified organization exclusively for conservation purposes.” (Id. at ¶ 18.) To utilize this incentive to generate the capital necessary to acquire, preserve, and rehabilitate historic buildings, GBX establishes funds through which investors invest in real estate projects and receive, as part of their return on investment, allocations of deductions. (Id. at ¶ 19.)

On December 23, 2016, the United States Department of the Treasury and the Internal Revenue Service (“IRS”) released Notice 2017-10, entitled “Listing Notice- Syndicated Conservation Easement Transactions.” (Id. at ¶ 20.) See also Doc. No. 1-1. This Notice provides, in part, as follows:

The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) are aware that some promoters are syndicating conservation easement transactions that purport to give investors the opportunity to obtain charitable contribution deductions in amounts that significantly exceed the amount invested. This notice alerts taxpayers and their representatives that the transaction described in section 2 of this notice is a tax avoidance transaction and identifies this transaction, and substantially similar transactions, as listed transactions for purposes of § 1.6011-4(b)(2) of the Income Tax Regulations (Regulations) and §§ 6111 and 6112 of the Internal Revenue Code (Code). This notice also alerts persons involved with these transactions that certain responsibilities may arise from their involvement.

(Doc. No. 1-1 at p. 1.) The designation of the transactions covered by the Notice as “listed transactions” imposes certain reporting and recordkeeping requirements on taxpayers who “participate”^[1] in those transactions as well as on “material advisors.” (Doc. No. 1 at ¶ 22.) GBX alleges that the respective reporting requirements imposed by the Notice on “participants” and “material advisors” are significant and that compliance with the same is burdensome.^[2] (Id. at ¶¶ 24-34, 41-42.) GBX further alleges that the potential penalties for failure to comply with these reporting requirements are “extreme.”^[3] (Id. at ¶¶ 26, 27, 36, 37.) GBX claims that the United States issued Notice 2017-10 without first providing any notice to the public or soliciting comments. (Id. at ¶ 20.)

GBX is a material advisor with respect to Historic Preservation Easement transactions that the IRS allegedly considers substantially similar to the listed transactions described in Notice 2017-10. (Id. at ¶ 39.) GBX alleges that, “[w]hile [it] believes that the investment funds it forms and manages are distinguishable from the listed transaction described in [the Notice] and are not tax avoidance transactions, the penalties for non-compliance with Notice 2017-10 are so extreme that GBX works diligently to comply on a protective basis with all of the reporting and list maintenance requirements arising from the Notice.” (Id. at ¶ 40.)

GBX asserts that it spends “significant time and money complying with the onerous requirements [that] Notice 2017-10 imposes on GBX as material advisor and on the funds and project partnerships it manages.” (Id. at ¶ 41.) GBX also spends significant time and money providing information regarding the reporting and list maintenance requirements to other material advisors, the investors who participate in the funds, and tax professionals who work with those material advisors and investors. (Id. at ¶ 42.) Specifically, GBX estimates that its employees spend 150 to 200 hours each year on compliance with Notice 2017-10. (Id. at ¶ 43.) GBX also states that it pays outside advisors for guidance on compliance with the Notice and review of the Forms 8886 and 8918 that must be filed with the IRS. (Id. at ¶ 44.)

In its sole claim in the Verified Complaint, GBX asserts that Defendants violated the Administrative Procedure Act (“APA”) when the IRS issued Notice 2017-10 without first providing notice and an opportunity for public comment. (Id. at ¶¶ 47-64.) GBX alleges that Notice 2017-10 constitutes a “substantive” or “legislative-type” rule that is subject to the APA's notice and comment procedures as a matter of law. (Id. at ¶ 57) (citing 5 U.S.C. § 553). GBX alleges that “Notice 2017-10 is unlawful because the IRS and Treasury failed to comply with the notice-and-comment procedures and there is no applicable exception to those requirements.” (Id. at ¶ 63.) GBX further alleges that compliance with the Notice “has and will continue to injure Plaintiff, subjecting it to onerous reporting and recordkeeping requirements as well as reputational harm.” (Id. at ¶ 64.)

GBX seeks an Order (1) declaring that Notice 2017-10 is unlawful and setting it aside; (2) permanently enjoining enforcement of Notice 2017-10; and (3) awarding attorney's fees and costs. (Doc. No. 1 at p. 10.)

Shortly after filing its Verified Complaint, on March 21, 2022, GBX filed a Motion for Speedy Hearing and Expedited Declaratory Judgment, in which it asks the Court to “enter a scheduling order that allows the court to decide this case and grant the relief requested in Plaintiff's Verified Complaint by June 15, 2022.” (Doc. No. 7 at p. 6.) In particular, GBX asks the Court to set expedited deadlines for the filing of an Answer, dispositive motions, and “any hearing the court deems necessary.” (Id.) The docket reflects that service was returned executed on the United States Attorney's Office on March 21, 2022, and on the United States Attorney General on March 23, 2022. (Doc. No. 9.) Defendants filed a Brief in Opposition on March 22, 2022, to which GBX replied on March 24, 2022. (Doc. Nos. 8, 10.)

II. Legal Standard

Federal Rule of Civil Procedure 57 grants district courts the authority to “order a speedy hearing of a declaratory-judgment action.” Fed.R.Civ.P. 57. Beyond this general statement authorizing district courts to permit a speedy hearing, Rule 57 does not provide specific guidance as to the circumstances in which an expedited proceeding will be appropriate. See County of Butler v. Wolf, 2020 WL 2769105 at * 2 (W.D. Pa. May 28, 2020). District courts interpreting this Rule have held that a speedy hearing is appropriate when it will “terminate the controversy or at least substantially narrow the issues.” Allergan, Inc. v. Valeant Pharmaceuticals Intern., Inc., 2014 WL 4181457 at * 3 (C.D. Cal. Aug. 21, 2014). See also GEC U.S. 1 LLC v. Frontier Renewables, LLC, 2016 WL 3345456 at * 6 (N.D. Cal. June 6, 2016) (same); County of Butler, 2020 WL 2769105 at * 2 (noting that courts have considered whether expediting determination of the requested declaratory judgment “will streamline and narrow issues for discovery and trial, even if it will not entirely resolve the controversy”); Walsh/Granite JV v. HDR Engineering, Inc., 2018 WL 10228381 at * 1 (W.D. Pa. Jan. 3, 2018) (same).

Expedited proceedings have also been found to be appropriate “where the determination is largely one of law, and factual issues (while expedited discovery is permitted and frequently granted) are not predominant.” County of Butler, 2020 WL 2769105 at * 2. See also Hubay v. Mendez, 500 F.Supp.3d 438, 443 (W.D. Pa. 2020) (same); GEC U.S. 1 LLC, 2016 WL 3345456 at * 6 (in evaluating motion for speedy hearing under Rule 57, evaluating “whether the facts are relatively undisputed”); Allergan, Inc., 2014 WL 4181457 at * 3 (same). Finally, courts have found that “expedited proceedings are especially warranted where there are imminent or ongoing violations of important rights” or the plaintiff otherwise shows “the need for urgency.” See County of Butler, 2020 WL 2769105 at * 2; GEC U.S. 1 LLC, 2016 WL 3345456 at * 6; Allergan, Inc., 2014 WL 4181457 at * 3. “[D]istrict courts have universally held that they have broad discretion in deciding whether expedited proceedings are warranted.” County of Butler, 2020 WL 2769105 at * 2. See also Bright Rock Energy, LLC v. CNOOC Energy USA, LLC, 2021 WL 2176476 at * 1 (D. Wyo. Apr. 16, 2021); Walsh/Granite JV, 2018 WL 10228381 at * 1; GEC U.S. 1 LLC, 2016 WL 3345456 at * 6; Allergan, Inc., 2014 WL 4181457 at * 3 (C.D. Cal. Aug. 21,...