Norcal Tea Party Patriots v. Internal Revenue Serv.

NorCal Tea Party Patriots, et al., Plaintiffs, v. Internal Revenue Service, et al, Defendants.

Case No. 1:13-cv-341

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO WESTERN DIVISION

January 19, 2016

Judge Susan J. Dlott

REDACTED

Order Granting Plaintiffs' Motion for Class Certification

This matter is before the Court on Plaintiffs' Motion for Class Certification (Docs. 193/194).¹ For the reasons that follow, the Court will GRANT Plaintiffs' Motion and certify both a Principal Class and an Unnecessary Requests Subclass as set forth below.

I. BACKGROUND

A. Factual Background

This lawsuit has been filed by Plaintiffs NorCal Tea Party Patriots ("NorCal"), South Dakota Citizens for Liberty, Inc. ("SD Citizens"), Texas Patriots Tea Party ("Texas Patriots TP"), Americans against Oppressive Laws, Inc. ("AAOL"), San Angelo Tea Party ("San Angelo TP"), and the Texas Public Policy Foundation ("TPPF").² Plaintiffs are organizations "comprised of individual citizens who have joined together to exercise their rights to freedom of speech and expression" and who share a philosophy of "dissent from the policies or ideology of the Executive Branch of the United States Government under its current Administration." (Doc.71 at PageID 981.) Plaintiffs refer to themselves, and the members of the class which they seek to represent, as "dissenting groups."

Beginning in 2010, Plaintiffs applied to the IRS for exemption from federal taxation pursuant to the Internal Revenue Code, 26 U.S.C. §§ 501(c)(3) and/or 501(c)(4). Plaintiffs allege that the IRS targeted them and other dissenting groups by segregating their tax-exemption applications because their names included terms such as "Tea Party," "Patriots," or "9/12 Project" or because their focus included issues such as government spending. Plaintiffs allege that the IRS subjected the applications from these dissenting groups to delays and increased scrutiny. They further allege, with respect to a certain subset of dissenting groups, that the IRS requested and then inspected information not relevant to the tax-exemption application process.

The allegations that underlie this federal case also were the subject of investigations by the Treasury Inspector General for Tax Administration ("TIGTA"), the Senate Finance Committee, and the Senate Permanent Subcommittee on Investigations for the Committee on Homeland Security and Governmental Affairs ("Senate PSI"). TIGTA issued its initial report on May 14, 2013 and a supplemental report on March 27, 2015. (Docs. 71-1, 197-6.) The Senate Finance Committee issued its report on August 5, 2015. (Doc. 197-5.) The Senate PSI issued its report on September 5, 2014. (Doc. 197-3.)

B. Procedural Posture

Plaintiffs initiated this suit on May 20, 2013 and filed their Second Amended Class Action Complaint on January 23, 2014. (Docs. 1, 71.) Plaintiffs sued four sets of defendants: the Government, consisting of the United States of America, the Internal Revenue Service ("IRS"), and IRS employees sued in their official capacities; Management Defendants of the IRS sued in their individual capacity; Line-Level Employees of the IRS sued in their individualcapacities; and Carter Hull, an IRS attorney sued in his individual capacity. The Management Defendants, the Line-Level Employee Defendants, and Hull are collectively referred to as the Individual Defendants. Plaintiffs asserted three causes of action in the Second Amended Complaint:

(Count 1) Violation of the Privacy Act, 5 U.S.C. § 552;

(Count 2) Violations of the First and Fifth Amendments to the United States Constitution; and

(Count 3) Violation of 26 U.S.C. § 6103, a statute which protects the confidentiality of tax return information.

(Doc. 71 at PageID 1032-46.)

Defendants moved to dismiss all three claims. (Docs. 73, 77, 78, and 79.) In its July 17, 2014 Order, the Court dismissed all claims against the Individual Defendants and dismissed Count 1 against the Government. (Doc. 102 at PageID 1678.) Counts 2 and 3 against the Government remain.

The parties then proceeded with discovery on class certification, which was bifurcated from merits discovery. Background facts and evidence developed during the course of discovery are discussed in the Analysis section below where relevant.

Plaintiffs NorCal, SD Citizens, AAOL, Texas Patriots TP, and San Angelo TP now seek to certify a Principal Class and an Unnecessary Requests Subclass as defined below as to Count 3 only. (Doc. 193-1 at PageID 4681.) Plaintiff TPPF will not be a class representative or a member of a class if class certification is granted. (Id.; Doc. 198 at PageID 7457.) The parties have briefed this matter and it is ripe for adjudication, but some discovery possibly relevant to class certification is outstanding.³ The Court has given the parties leave to file supplementalbriefs, if warranted, after obtaining the discovery and will reconsider its class certification decision if necessary.

II. PROPOSED CLASSES DEFINED

A. Principal Class

Plaintiffs define the proposed Principal Class as follows:

All entities that, at any time from February 1, 2010 to June 30, 2013, filed an Application for Recognition of Tax Exemption with the IRS under 26 U.S.C. §§ 501(c)(3) or 501(c)(4) and had their application flagged by the IRS as an "Advocacy" case using the criteria:

(a) A reference in the case file to "Tea Party," "Patriots," or "9/12 Project";

(b) A reference in the case file to government spending, government debt, or taxes;

(c) A reference in the case file to education of the public by advocacy or lobbying to "make America a better place to live"; or

(d) A statement in the case file criticizing how the country is being run.

Excluded from the Principal Class are any entities that properly execute and file a request for exclusion from the Principal Class.

(Doc. 193 at PageID 4668-69; Doc. 200 at PageID 7668 n.7.) The four criteria used to define the Principal Class will be referred to in this Order as the "Targeting Criteria."

B. Unnecessary Requests Subclass⁴

Plaintiffs define the proposed Unnecessary Requests Subclass as follows:

All entities included in the Principal Class that, at any time from January 1, 2010 to June 31, 2013, provided information in response to one or more of the following requests for information by the IRS:

(a) The names of any donors;

(b) A list of all issues that are important to the entity and an indication of its position regarding such issues;(c) Information about the roles of non-member participants in activities by the entity and the types of conversations and discussions had by members and participants during the activity;

(d) Whether any officer, director, or member of the entity has run or will run for public office;

(e) The political affiliation of any officer, director, member, speaker, or candidates supported or other questions regarding any relationship with identified political parties;

(f) Information regarding the employment of any officer, director, or members other than by the entity, including but not limited to the number of hours worked; or

(g) Information regarding the activities of other entities beyond solely the relationship between the applicant and such other entities.

Excluded from the Unnecessary Requests Subclass are any entities that properly execute and file a request for exclusion from the Unnecessary Requests Subclass.

(Doc. 193 at PageID 4669.) Plaintiff NorCal is the only named class representative for the proposed Unnecessary Requests Subclass. The so-called "Unnecessary Requests" listed above were identified by the IRS as having been unnecessary for a determination of the applicants' tax exemption status. (Doc. 71-1 at PageID 1080; Doc. 193-51 at PageID 5347-48; Doc. 193-4 at PageID 4859.)

III. CAUSE OF ACTION EXPLAINED

Plaintiffs seek to certify a class and subclass for the claim asserting a violation of 26 U.S.C. § 6103. Section 6013 requires that tax "returns and return information shall be confidential." 26 U.S.C. § 6103(a). Taxpayers can assert a private cause of action against the Government for violations of § 6103 pursuant to 26 U.S.C. § 7431. "If any officer or employee of the United States knowingly, or by reason of negligence, inspects or discloses any return or return information with respect to a taxpayer in violation of any provision of section 6103, such taxpayer may bring a civil action for damages against the United States." 26 U.S.C. § 7431(a)(1). The documents the IRS "receives or creates during the initial investigation of anorganization seeking tax-exempt status constitute[s] 'return information' within the meaning of § 6103." Lehrfeld v. Richardson, 132 F.3d 1463, 1467 (D.C. Cir. 1998). To prevail on a § 7431 claim, a plaintiff must prove that "(1) the disclosure [or inspection] was unauthorized, (2) the disclosure [or inspection] was made 'knowingly or by reason of negligence', and (3) the disclosure [or inspection] was a violation of section 6103." Mcintosh v. U.S., 82 Am. Fed. Tax Report 2d 98-6501, 1998 WL 762344 (S.D. Ohio Aug. 17, 1998).

Sections 6103 and 7431 contain statutory exceptions. Relevant to this case, § 6103 permits "inspection by or disclosure to officers and employees of the Department of the Treasury whose official duties require such inspection or disclosure for tax administration purposes." 26 U.S.C. § 6103(h)(1). Tax administration is broadly defined to mean "the administration, management, conduct, direction, and supervision of the execution and application of the internal revenue laws or related statutes (or equivalent laws and statutes of a State) and tax conventions to which the United States is a party" and includes "assessment, collection, enforcement, litigation, publication, and statistical gathering functions under such laws, statutes, or conventions." 26 U.C.S. § 6103(b)(4). Additionally, no liability for a violation of § 6103 arises under § 7431 for any inspection or disclosure which results from "a good faith, but erroneous, interpretation of ...