Montgomery v. Internal Revenue Serv.

40 F.4th 702

Thomas A. MONTGOMERY and Beth W. Montgomery, Appellants

v.INTERNAL REVENUE SERVICE, Appellee

No. 21-5168

United States Court of Appeals, District of Columbia Circuit.

Argued March 22, 2022

Decided July 19, 2022

Kim Marie Boylan argued the cause for appellants. With her on the briefs were Nicholas L. Wilkins and Christina M. Culver.

Norah E. Bringer, Attorney, U.S. Department of Justice, argued the cause for appellee. With her on the brief was Michael J. Haungs, Attorney.

Before: Henderson and Walker, Circuit Judges, and Sentelle, Senior Circuit Judge.

Sentelle, Senior Circuit Judge:

In the district court, Appellants Thomas and Beth Montgomery brought suit against the Internal Revenue Service for its responses to the Montgomerys’ twelve Freedom of Information Act ("FOIA") requests. The district court ultimately granted summary judgment to the IRS on all issues. The Montgomerys now appeal the district court's May 19, 2021, order awarding summary judgment to the IRS, as well as seven opinions and orders supporting the May 19 order. These include Montgomery v. Internal Revenue Serv. , 330 F. Supp. 3d 161 (D.D.C. 2018) ; 356 F. Supp. 3d 74 (D.D.C. 2019) ; No. CV 17-918, 2019 WL 2930038 (D.D.C. July 8, 2019) ; No. CV 17-918, 2020 WL 1451597 (D.D.C. Mar. 25, 2020) ; No. CV 17-918, 2020 WL 2994334 (D.D.C. June 4, 2020) ; 514 F. Supp. 3d 125 (D.D.C. 2021) ; and No. CV 17-918, ECF No. 116 (D.D.C. May 12, 2021). For the reasons explained below, we affirm the district court.

I. Background

This lawsuit represents the most recent episode in an ongoing legal struggle between the Montgomerys and the IRS in a series of suits dating back over a decade.

a. The Underlying Tax Suits

In the early 2000s, husband and wife Appellants Thomas and Beth Montgomery, both accountants, undertook a tax scheme to artificially inflate business losses on their individual tax returns. To this end, Thomas Montgomery participated in establishing sham partnerships he then used as tax shelters to report losses of over $1 billion. The IRS subsequently uncovered the scheme and retroactively disallowed the losses on the Montgomerys’ individual tax returns in a series of adjustments.

In protest, the Montgomerys and associated partnerships brought two suits in federal court seeking readjustment of the IRS's adjustments, Southgate Master Fund, L.L.C. ex rel. Montgomery Cap. Advisors, LLC v. United States , 659 F.3d 466 (5th Cir. 2011) (" Southgate ") and Bemont Invs., L.L.C. ex rel. Tax Matters Partner v. United States , 679 F.3d 339 (5th Cir. 2012), abrogated on other grounds by United States v. Woods , 571 U.S. 31, 134 S.Ct. 557, 187 L.Ed.2d 472 (2013) (" Bemont "). The Montgomerys ultimately emerged from these cases with a partial victory. Though holding most of the Montgomerys’ partnership transactions were shams, the Fifth Circuit held that one of the transactions had a legitimate business purpose. Southgate , 659 F.3d at 481. In light of this, the Montgomerys and their partnerships then pursued thirteen separate lawsuits in the federal courts for various tax refunds associated with the readjustments assessed them. Before this litigation finalized, however, the Montgomerys and the IRS entered a global settlement agreement to resolve all outstanding differences in 2014.

b. FOIA Requests

With the underlying tax matters resolved, the Montgomerys brought suit to discover how their tax schemes came to the attention of the IRS. To this end, in May 2016 they submitted twelve records requests to the IRS under the Freedom of Information Act, 5 U.S.C. § 552. The IRS subsequently grouped the Montgomerys’ FOIA requests into two categories: (1) the first five requests regarding certain whistleblower forms, including award applications ("Requests 1–5"); and (2) the second seven requests involving the IRS's communications with any third parties about the Montgomerys’ taxes ("Requests 6–12").

The IRS first responded to both groups of records requests by providing no responsive documents. For Requests 1–5, the IRS cited FOIA Exemption 7(D) "exempt[ing] the disclosure of records or information compiled for law enforcement purposes to the extent that their release could disclose the identity of a confidential source." JA51 (citing 5 U.S.C. § 552(b)(7)(D) ). For Requests 6–12, the IRS searched its files and first found no responsive records. The Montgomerys filed an administrative appeal with the IRS, which it subsequently denied via a Final Appeal Response Letter dated September 23, 2016.

c. District Court

The Montgomerys then brought suit in the United States District Court for the District of Columbia alleging (1) the IRS wrongfully withheld documents pertaining to Requests 1–5; (2) the IRS wrongfully withheld documents pertaining to Requests 6–12; and (3) the IRS violated the Administrative Procedure Act in doing so.

In its Answer, the IRS asserted a Glomar Response for Requests 1–5. Named after a ship in a long-ago CIA secrets case, a Glomar Response refers to an agency's refusal to either confirm or deny the existence of the records requested. See Phillippi v. C.I.A. , 546 F.2d 1009, 1010 (D.C. Cir. 1976). The IRS averred that answering the Montgomerys’ requests "could violate protections from disclosure under the exemptions contained in [the Freedom of Information Act]." JA68. Agencies are permitted to use a Glomar Response when an acknowledgement—or not—of certain records would reveal the very information the agency seeks to protect. Bartko v. United States Dep't of Just. , 62 F. Supp. 3d 134, 141 (D.D.C. 2014). When using it to answer a FOIA request, an agency must tether its Glomar Response to at least one of the statutory FOIA exemptions. See id. (quoting Wolf v. CIA , 473 F.3d 370, 374 (D.C. Cir. 2007) ).

i. Requests 1–5

The district court first considered and rejected the Montgomerys’ procedural arguments that estoppel and the official acknowledgment doctrine precluded the IRS from asserting its Glomar Response. Montgomery , 330 F. Supp. 3d at 168–70. It then granted the IRS summary judgment on the issue. Id. at 173 ; see also Montgomery , 356 F. Supp. 3d at 78 (denying reconsideration of the issue). The district court relied on Exemption 7(D) in granting the IRS summary judgment. Montgomery , 330 F. Supp. 3d at 170. This exemption exempts from FOIA disclosure

records or information compiled for law enforcement purposes, but only to the extent that the production of such law enforcement records or information ... (D) could reasonably be expected to disclose the identity of a confidential source, including a State, local, or foreign agency or authority or any private institution which furnished information on a confidential basis, and, in the case of a record or information compiled by criminal law enforcement authority in the course of a criminal investigation or by an agency conducting a lawful national security intelligence investigation, information furnished by a confidential source ....

5 U.S.C. § 552(b)(7)(D). The district court was persuaded by the IRS's explanation that it asserted a Glomar Response for all documents regarding its whistleblower program because a confirmation of the existence or absence of whistleblower documents in a particular case may lead a savvy requester to the very whistleblower himself. Montgomery , 330 F. Supp. 3d at 170–71.

ii. Requests 6–12

The matter of Requests 6–12 was not resolved so quickly. The district court first ruled that the IRS's search for records responsive to Requests 6–12 was inadequate. See Montgomery , 330 F. Supp. 3d at 172 (denying summary judgment to IRS on adequacy of search with instructions to renew search); Montgomery , 2020 WL 1451597, at *5 (same); Montgomery , 514 F. Supp. 3d 125, 136 (D.D.C. 2021) (holding most of the IRS's search adequate with one exception and giving instructions to renew search resolving exception). After the district court required it to renew its search several times, the IRS eventually uncovered over 1,000 pages of documents responsive to Requests 6–12. Montgomery , 2020 WL 1451597, at *5. The district court then ultimately held the IRS had finally searched in all of the appropriate places, and its failure to locate certain documents the Montgomerys expected to find did not make the search inadequate. Montgomery , ECF No. 116, at *1.

iii. APA Review

Finally, the Montgomerys argued that the IRS's policy to assert a Glomar Response for requests seeking whistleblower documents violated the Administrative Procedure Act because it constituted a rule without the APA requirements of notice and comment. The district court held that APA review remained unavailable to the Montgomerys because they could receive adequate relief under FOIA; namely, the release of certain withheld documents. Montgomery , 330 F. Supp. 3d at 173.

The Montgomerys now appeal to this Court.

II. Analysis

a. Standard of Review

"We review de novo a district court's grant of summary judgment in favor of an agency which claims to have complied with FOIA." Nation Magazine v. U.S. Customs Serv. , 71 F.3d 885, 889 (D.C. Cir. 1995). We also review the district court's collateral estoppel and official acknowledgement determinations de novo. Hall v. Clinton , 285 F.3d 74, 80 (D.C. Cir. 2002) (collateral estoppel); Protect Democracy Project, Inc. v. Nat'l Sec. Agency , 10 F.4th 879, 884 (D.C. Cir. 2021) (official acknowledgement). However, the district court's decision regarding judicial estoppel requires abuse of discretion review. Marshall v. Honeywell Tech. Sys. Inc. , 828 F.3d 923, 928 (D.C. Cir. 2016).

b. Procedural Arguments

The Montgomerys set forth three procedural arguments averring that the IRS is barred from asserting a Glomar Response to Requests 1–5: (1) collateral estoppel; (2) judicial estoppel; and (3) the official acknowledgment doctrine. The district court considered and rejected these arguments. Montgomery , 330 F. Supp. 3d at 168–70 (estoppel and official acknowledgment doctrine). We agree with the...