Montgomery v. Internal Revenue Serv., Civil Action No. 17-918 (JEB)

330 F.Supp.3d 161

Thomas MONTGOMERY and Beth Montgomery, Plaintiffs,

v.INTERNAL REVENUE SERVICE, Defendant.

Civil Action No. 17-918 (JEB)

United States District Court, District of Columbia.

Signed September 6, 2018

Nicholas Lawrence Wilkins, Kim Marie Boylan, White & Case LLP, Washington, DC, for Plaintiffs.

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

MEMORANDUM OPINION

JAMES E. BOASBERG, United States District Judge

Over a decade ago, Defendant Internal Revenue Service determined that Plaintiffs Thomas and Beth Montgomery were involved in a multi-billion-dollar tax-shelter scheme. Suspecting that an insider had blown the whistle on their sham partnerships, the couple requested several categories of IRS records under the Freedom of Information Act. After coming up short, Plaintiffs filed this action asserting causes of action under FOIA and the Administrative Procedure Act. In this second round of briefing, each party seeks summary judgment on both counts. Finding merit on each side, the Court will grant in part and deny in part both Motions.

I. Background

Like some FOIA cases, this dispute stretches back much farther than the records requests at issue. The Court detailed the underlying saga between these two parties in a prior Opinion, see Montgomery v. IRS, 292 F.Supp.3d 391, 393-94 (D.D.C. 2018), but provides a brief recap here. In the early aughts, Thomas Montgomery formed several partnerships, from which he and his wife as joint-filer recorded losses on their individual tax returns. A few years later, the IRS became suspicious of these entities because they were reporting tax losses without experiencing any real economic loss. After an investigation, they were eventually deemed shams, meaning that the Montgomerys were retroactively disallowed from taking the losses from the partnerships on their individual returns and owed payments for tax, penalties, and interest. Id. In thirteen separate federal suits in Texas, Plaintiffs and the partnerships petitioned the Government for, respectively, tax refunds and readjustment of partnership income. Before all of these actions could be judicially resolved, the Montgomerys and the IRS entered into a global settlement agreement, promising to "fully and finally resolve all ongoing disputes between [them] related to" the partnerships. Id. at 394 (citation omitted).

Although one might believe that would have ended the matter, Plaintiffs were not yet finished. Having settled the tax issues, they then turned their attention to figuring out how they had crossed the IRS's path to begin with. To that end, they each submitted FOIA requests for twelve types of records. Requests 1 through 5 solicited various IRS forms used in connection with a whistleblower, and 6 through 12 requested lists, documents, or correspondence between the IRS and any third party regarding Plaintiffs' potential tax liability or partnership transactions. See Complaint, ¶ 16. The Service rejoined that it had "found no documents specifically responsive to [the] request[s] in response to the items 6 through 12" and claimed that FOIA Exemption 7(D) "exempts the disclosure of records" sought in items 1 through 5. Id., Exh. E at 3. After Plaintiffs' administrative appeal was denied for the same reasons, id., Exh. H, they filed the instant action on May 16, 2017, seeking relief under FOIA and the APA.

Five months later, the Service moved for summary judgment on procedural grounds. It argued that the global settlement agreement barred further litigation or, alternatively, that the Montgomerys were precluded from bringing their claims based on the resolution of the prior district court cases. The Court rejected both strands of that argument, clearing the way for this merits briefing.

II. Legal Standard

Summary judgment may be granted if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A genuine issue of material fact is one that would change the outcome of the litigation. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ("Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment."). In the event of conflicting evidence on a material issue, the Court is to construe the conflicting evidence in the light most favorable to the non-moving party. See Sample v. Bureau of Prisons, 466 F.3d 1086, 1087 (D.C. Cir. 2006).

FOIA cases typically and appropriately are decided on motions for summary judgment, and the agency bears the ultimate burden of proof. See Defenders of Wildlife v. Border Patrol, 623 F.Supp.2d 83, 87 (D.D.C. 2009) ; Bigwood v. U.S. Agency for Int'l Dev., 484 F.Supp.2d 68, 73 (D.D.C. 2007) ; DOJ v. Tax Analysts, 492 U.S. 136, 142 n.3, 109 S.Ct. 2841, 106 L.Ed.2d 112 (1989). The Court may grant summary judgment based solely on information provided in an agency's affidavits or declarations when they describe "the documents and the justifications for nondisclosure with reasonably specific detail, demonstrate that the information withheld logically falls within the claimed exemption, and are not controverted by either contrary evidence in the record nor by evidence of agency bad faith." Military Audit Project v. Casey, 656 F.2d 724, 738 (D.C. Cir. 1981).

III. Analysis

In considering the competing Motions, the Court first evaluates Plaintiffs' FOIA claims before turning to their APA count.

A. FOIA

The Montgomerys' first count is based on their requests for twelve types of records, which can be divided into two groups: agency forms related to a confidential informant (requests 1 through 5) and documents and correspondence between a third party and the Service about the Plaintiffs or their partnerships (requests 6 through 12). Although it did not plainly do so in the administrative proceedings, the IRS has now asserted a so-called Glomar response, in which it refuses to confirm or deny whether the first collection of records exists. It also contends that it conducted an adequate search for the second group. The Court takes each in turn.

1. Glomar Response

Congress enacted FOIA "to pierce the veil of administrative secrecy and to open agency action to the light of public scrutiny."

Dep't of Air Force v. Rose, 425 U.S. 352, 361, 96 S.Ct. 1592, 48 L.Ed.2d 11 (1976) (citation omitted). "The basic purpose of FOIA is to ensure an informed citizenry, vital to the functioning of a democratic society, needed to check against corruption and to hold the governors accountable to the governed." John Doe Agency v. John Doe Corp., 493 U.S. 146, 152, 110 S.Ct. 471, 107 L.Ed.2d 462 (1989) (citation omitted). The statute provides that "each agency, upon any request for records which (i) reasonably describes such records and (ii) is made in accordance with published rules ... shall make the records promptly available to any person." 5 U.S.C. § 552(a)(3)(A). Consistent with this statutory mandate, federal courts have jurisdiction to order the production of records that an agency improperly withholds. Id. § 552(a)(4)(B) ; DOJ v. Reporters Comm. for Freedom of the Press, 489 U.S. 749, 755, 109 S.Ct. 1468, 103 L.Ed.2d 774 (1989).

In certain circumstances, however, an agency may refuse to confirm or deny that it has relevant records. This "Glomar response" derives from a ship, the Hughes Glomar Explorer , about which the CIA refused to confirm or deny the existence of records. See Phillippi v. CIA, 546 F.2d 1009, 1011 (D.C. Cir. 1976). Such responses are appropriate only when " ‘confirming or denying the existence of records would’ itself reveal protected information." Bartko v. DOJ, 62 F.Supp.3d 134, 141 (D.D.C. 2014) (quoting Nation Magazine v. U.S. Customs Serv., 71 F.3d 885, 893 (D.C. Cir. 1995) ). Although a judicial, not statutory, creation, the agency must nonetheless "tether its refusal to respond ... to one of the nine FOIA exemptions." Wilner v. NSA, 592 F.3d 60, 68 (2d Cir. 2009) (internal quotation marks and citation omitted). When evaluating the Government's proffered justification, the focus is not on "the actual content of the documents but on whether the potential harm created by revealing the existence of the documents is protected by [the] FOIA exemption." Parker v. DOJ Exec. Off. for U.S. Attys., 852 F.Supp.2d 1, 10 (D.D.C. 2012). In conducting their review, "courts apply the general exemption review standards established in non-Glomar cases," Leopold v. DOJ, 301 F.Supp.3d 13, 28 (D.D.C. 2018) (quoting Wolf v. CIA, 473 F.3d 370, 374 (D.C. Cir. 2007) ), and the agency may support its position through reasonably detailed affidavits that are "not controverted by either contrary evidence in the record or bad faith." Wolf, 473 F.3d at 374 (citation omitted). So long as the agency's justifications appear "logical or plausible," id. at 375, courts should accord them "substantial weight." Gardels v. CIA, 689 F.2d 1100, 1104 (D.C. Cir. 1982).

Plaintiffs lob two threshold arguments against the Service's Glomar response. First, they contend that it is estopped from relying on the doctrine because a prior court held that there was no informant. See Pl. Reply at 6. In addition, they posit that because the Government previously admitted the contrary during the administrative process, it has waived any reliance on Glomar. The Court looks at both issues and then moves to the merits.

a. Estoppel

The Montgomerys first argue that the IRS is estopped from invoking Glomar for their requests regarding a confidential informant because in prior litigation the Service asserted — and a court found — that there was no informant. See Pl. Opp. at 14-15. Yet, as even the Montgomerys admit, the existence of records and the existence of an informant are not the same thing. See Pl. Reply at 7 ("[I]t is entirely possible that responsive records exist and yet there was no confidential source...