In re Long-Distance Tele. Serv. Fed. Excise Tax

539 F.Supp.2d 281

In re LONG-DISTANCE TELEPHONE SERVICE FEDERAL EXCISE TAX REFUND LITIGATION.

This Document Relates To

Cohen v. United States

Gurrola v. United States

Sloan v. United States.

MDL Docket No. 1798.

Master File No. 07-mc-0014 (RMU).

No. 07-cv-0051 (RMU).

No. 07-cv-0050 (RMU).

No. 06-cv-0483 (RMU).

United States District Court, District of Columbia.

March 25, 2008.

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Michael D. Leffel, Foley & Lardner, LLP, Madison, WI, for Cohen.

Gregory E. Van Hoey, Joseph E. Hunsader, U.S. Department of Justice, Washington, DC, for United States.

Richard F. Scruggs, Scruggs Law Firm, PA, Oxford, MS, for Gurrola.

Gregory E. Van Hoey, Joseph E. Hunsader, U.S. Department of Justice, Washington, DC, for United States.

Jonathan Watson Cuneo, Charles J. Laduca, William H. Anderson, Robert J. Cynkar, Cuneo Gilbert & Laduca, LLP, Steven N. Berk, Chavez & Gertler, LLP, Washington, DC, Benjamin F. Johns, Nicholas E. Chimicles, Chimicles & Tikellis, LLP, Haverford, PA, Christopher Weld, Jr., Kevin T. Peters, Tony & Weld, Boston, MA, Mark D. Griffin, Griffin Law Firm, Orange, OH, for Sloan.

Joseph E. Hunsader, U.S. Department of Justice, Washington, DC, for United States.

MEMORANDUM OPINION

GRANTING THE DEFENDANT'S MOTIONS TO DISMISS

RICARDO M. URBINA, District Judge.

I. INTRODUCTION

Transferred to this district and coordinated for pretrial purposes, these cases collectively challenge the Internal Revenue Service's ("IRS") procedure for issuing refunds of a defunct long-distance telephone excise tax. The plaintiffs, 14 individuals and 2 companies, allege that the IRS illegally collected federal taxes from them in connection with their purchase of long-distance telephone services. They seek recovery of sums paid, as well as certain injunctive and declaratory relief. The sole defendant, the United States, submits that the court lacks subject-matter jurisdiction over any of the plaintiffs' claims, contending that they failed to comply with the terms of waiver of sovereign immunity; that injunctive and declaratory relief is barred by the Anti-Injunction Act, 26 U.S.C. § 7421(a), the Declaratory Judgment Act, 28 U.S.C. § 2201, and is moot following the IRS's decision to cease collecting the tax; and that the complaints fail to state claims for relief under either the U.S. Constitution or any federal statute, including the Administrative Procedure Act, 5 U.S.C. § 702. Because the court Agrees that the plaintiffs failed to exhaust their administrative remedies before filing suit, it dismisses their refund claims. Likewise, as intervening events have mooted the plaintiffs' claims for injunctive and declaratory relief, the court dismisses those. And, finally, because the plaintiffs' remaining causes of action under federal law fail to state a claim, they too fail.

II. BACKGROUND

A. Factual History

The facts are free of conflict. For nearly forty years, § 4251 of the Internal Revenue Code empowered the IRS to collect a three-percent excise tax on long-distance telephone calls. Nat'l R.R. Passenger Corp. v. United States, 431 F.3d 374, 374-75 (D.C.Cir.2005). Two years ago, in a span of decisions separated by not more than twelve months, five federal appeals courts unanimously declared the IRS's reliance on § 4251 to be unlawful. Reese Bros., Inc. v. United States, 447 F.3d 229, 234 (3d Cir.2006); Fortis, Inc. v. United States, 447 F.3d 190, 190 (2d Cir.2006); Nat'l R.R. Passenger Corp., 431 F.3d at 379; OfficeMax, Inc. v. United States, 428 F.3d 583, 600 (6th Cir.2005); Am. Bankers Ins. Group, Inc. v. United States, 408 F.3d 1328, 1338 (11th Cir.2005).

The IRS heeded this juridical clarion and, on May 25, 2006, announced that it was discontinuing collection of the tax effective July 31, 2006. IRS Not. 2006-50, 2006 WL 1452787, 2006-25 I.R.B. 1141 § 4(c) (May 26, 2006) ("Notice 2006-50"). Notice 2006-50 also announced the implementation of a refund procedure for taxes paid between February 28, 2003 and August 1, 2006, by which taxpayers could file claims on their federal income tax returns, requesting either a full refund (provided they retained substantiating records) or a "safe harbor" amount (ranging between thirty and sixty dollars). Id.

B. Procedural History

This MDL combines three lawsuits. Plaintiffs Oscar Gurrola and Rosalva Gurrola filed a complaint against the defendant on June 5, 2006. Gurrola Compl. They filed their first amended complaint on June 22, 2006. It adds Bernadette Carol Duffy as a plaintiff, alleges that the collection of the excise tax violates the Fifth Amendment's Takings Clause and the Uniformity Clause of Art. I, § 8 of the U.S. Constitution, portrays the collection of the tax as an illegal exaction, claims unjust enrichment and violations of 47 U.S.C. § 201(b) and Truth-In-Billing regulation 47 C.F.R. 64.2401(b), and seeks restitution, a refund of sums paid, and injunctive relief. Gurrola First Am. Compl. ¶¶ 90, 95, 99, 103, 109, 114, 117, 133.

Plaintiffs Virginia Sloan, Gary Sable, Robert McGranahan, Shari Perlowitz, Catering by Design, Inc., Joan Denenberg, Carolyn Hrusovsky, Reginald Krasney, Stacy Markowitz, Marion Sachuk, James Gillins and NCS Companies, Inc. filed a complaint against the defendant on March 15, 2006, which contained claims for violations of the Fifth Amendment's Due Process and Takings Clauses, unjust enrichment, injunctive and declaratory relief enjoining the IRS from continuing collection of the excise tax, and APA claims alleging that collection of the tax exceeds IRS authority and that the IRS has unreasonably refused to promulgate regulations to enable taxpayers to seek refunds of the excise tax. Sloan Compl. ¶¶ 43, 39, 52, 56, 64, 70. They filed an amended complaint on May 3, 2006, which added a claim of illegal exaction, a claim for a tax refund and a claim for a writ of mandamus. Sloan First Am. Compl. ¶¶ 94, 118, 123. They filed a second amended complaint on July 6, 2006, which alleged new due process violations, infringements on substantive due process rights, and new APA claims that Notice 2006-50 exceeds the IRS's authority and was improperly promulgated without rulemaking, and sought declaratory and injunctive relief against implementation of Notice 2006-50. Sloan Second Am. Compl. ¶¶ 67, 76, 82, 89, 112, 118.

Plaintiff Neiland Cohen submitted an administrative refund claim to the IRS on November 18, 2005, then filed suit on his own behalf and that of similarly situated taxpayers on November 29, 2005 for an injunction against enforcement of the excise tax. Cohen Compl. ¶¶ 5, 24. Cohen filed an amended complaint on February 6, 2006 to add a tax-refund count to his suit, alleging exhaustion of administrative remedies in that the U.S. "has formally rejected [the plaintiffs] refund request." Cohen Am. Compl. ¶¶ 16-19. On July 24, 2006, the defendant filed a request for dismissal of the refund claim for lack of subject-matter jurisdiction. On July 26, 2006, the court, in recognition of the IRS's decision to stop collection of the excise tax, granted the plaintiffs motion to deny as moot the defendant's motion to dismiss the plaintiffs injunction claim. Order (July 26, 2006). On November 27, 2006, Cohen filed a second amended complaint, adding an APA claim for judicial review of the IRS's new refund mechanism. Cohen Second Am. Compl. ¶¶ 26-29; 5 U.S.C. § 702. At this time, Cohen also updated his refund request to include the period from July 1, 2002 through July 31, 2006 (the last day the tax was collected), reflecting a total refund claim of $54.84. Cohen Second Am. Compl. ¶¶ 22-25. On August 10, 2007, the court issued an order and opinion sustaining Cohen's APA claim against a motion to dismiss filed by the defendant. Mem. Op. (Aug. 10, 2007), 501 F.Supp.2d 34.

The proceeding analysis addresses and resolves all outstanding dispositive motions, to wit: (1) the defendant's motion to dismiss Gurrolas' first amended complaint for lack of subject-matter jurisdiction, lack of personal jurisdiction, insufficiency of service of process¹, and failure to state a claim; (2) the defendant's motion to dismiss Sloan's second amended complaint for lack of subject-matter jurisdiction and failure to state a claim; and (3) the defendant's motion to dismiss the tax refund claim raised in Cohen's second amended complaint for lack of subject-matter jurisdiction.

III. ANALYSIS

A. Legal Standard for a Motion to Dismiss Pursuant to Rule 12(b)(1)²

Federal courts are courts of limited jurisdiction and the law presumes that "a cause lies outside this limited jurisdiction." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994); St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 82 L.Ed. 845 (1938); see also Gen. Motors Corp. v. Envtl. Prot. Agency, 363 F.3d 442, 448 (D.C.Cir.2004) (noting that [a]s a court of limited jurisdiction, we begin, and end, with an examination of our jurisdiction").

Because "subject-matter jurisdiction is an `Art. III as well as a statutory requirement[,] no action of the parties can confer subject-matter jurisdiction upon a federal court.'" Akinseye v. District of Columbia, 339 F.3d 970, 971 (D.C.Cir.2003) (quoting Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982)). On a motion to dismiss for lack of subject-matter jurisdiction pursuant to Rule 12(b)(1), the plaintiff bears the burden of establishing by a preponderance of the evidence that the court has subject-matter jurisdiction. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). The court may dismiss a complaint for lack of subject-matter jurisdiction only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Empagran S.A. v F....