Annotations- Notice of Sale or Seizure Page4

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[Code Secs. 7432 and 7433 ]

Liens and levies: Real property: Seizure, sale to third party: Notice requirements: Actual notice: Reckless conduct: Economic damages: Notice of sale of property.--The government's motion for summary judgment was granted with respect to a couple's claim for money damages for the seizure and sale of their real property. Because the couple received actual notice of the lien and sale, they failed to prove that notice by certified mail prejudiced them in any way or caused them to sustain any actual, direct or economic damages. They also failed to prove that the conduct of the IRS agents in failing to comply with the notice requirement was reckless.

Edward Kabakjian, Nancy Kabakjian, 1730 Fels Rd., Pennsburg, Pa. 18073, pro se. Paula M. Junghans, Acting Assistant Attorney General, David English Carmack, Annette M. Wietecha, Sara Ann Ketchum, Department of Justice, Washington, D.C. 20530, Michael R. Stiles, United States Attorney, Philadelphia, Pa. 19106, for appellants.

Before: NYGAARD, WEIS and REAVLEY, ^* Circuit Judges.

OPINION OF THE COURT

REAVLEY, Circuit Judge:

Edward and Nancy Kabakjian appeal a take-nothing judgment in their suit against the federal government and relating to the seizure and sale of their real property. We affirm.

BACKGROUND

The Kabakjians sued the government after property they owned was seized and sold at an auction to recoup unpaid income taxes. The Kabakjians do not dispute the underlying tax obligation. Their complaint alleged that the government failed to comply with 26 U.S.C. §6335, which governs the seizure of property to cover unpaid taxes.

Count 1 of the complaint sought to quiet title to the property. Counts 2 and 3 sought money damages for the wrongful seizure of the property and for failing to release liens on the property. The Kabakjians moved for partial summary judgment, arguing that the notices they received under §6335 were defective because they were delivered by certified mail rather than by personal delivery. The government moved to dismiss count 1 for lack of subject matter jurisdiction. The district court agreed with the government and dismissed count 1, holding that the government was immune from suit on this count. The district court discussed the "substantial compliance" provision found at 26 U.S.C. §6339(b)(2), which we discuss below, but as we read the district court's ruling it ultimately held, as to count 1, that it lacked subject matter jurisdiction.

The court later granted a summary judgment on the remaining federal claims for damages, and dismissed the pendent state law claims. The Kabakjians do not argue on appeal that the district court erred in dismissing the state law claims and in dismissing count 3, which alleged money damages caused by the government's failure to release its liens on the property. We therefore consider whether the district court correctly ruled against appellants on the claims they asserted in counts 1 and 2.

The record discloses that on December 11, 1995 , the government sent to the Kabakjians, at their personal residence, a notice of seizure of the property in issue. This notice was sent by certified mail. The Kabakjians received this notice. On December 17, 1995 , the IRS seized the property. On January 24, 1996 , the government sent the Kabakjians a notice of a sealed bid sale of the property, stating that the sale would take place February 23, 1996 . Again, there is no dispute that the Kabakjians received this notice, which was again sent by certified mail. On February 23 the sale took place. On September 18, 1996 , after the expiration of a statutory 180-day redemption period, see 26 U.S.C. §6337(b)(1), the government conveyed the Kabakjian title to the third parties by written deed. On September 19, 1997 , this suit was filed.

The Kabakjians claim that the notices were defective because they were sent by certified mail and the relevant statute requires personal delivery. Under 26 U.S.C. §6335(a) a notice of seizure

in writing shall be given by the Secretary to the owner of the property . . . or shall be left at his usual place of abode or business if he has such within the internal revenue district where the seizure is made. If the owner cannot be readily located, or has no dwelling or place of business within such district, the notice may be mailed to his last know address.

Section 6335(b) requires a notice of sale, to be given in the same manner as the notice of seizure specified in §6335(a). In the pending case a notice of seizure under §6335(a) and a notice of sale under §6335(b) were sent to the home of the Kabakjians, but the notices were sent by certified mail rather than hand delivery.

The statute does not explicitly require hand delivery of the notices, but since it requires notice "to the owner" or notice at the residence or business, and alternatively allows for notice by mail only if the owner cannot be located or he lacks a home or business in the district, courts have interpreted the statute to require notice by hand delivery, and to allow for notice by mail only if the attempt at hand delivery fails. See Goodwin v. United States [91-2 USTC ¶50,323], 935 F.2d 1061, 1064 (9th Cir. 1991) ("The government concedes that under a literal reading of §6335, service by certified mail, as received by Goodwin, is defective."). The government concedes that delivery of the notices by certified mail violates the statute.

A. Quiet Title Claim

1. Jurisdiction

Absent an explicit waiver of sovereign immunity, the federal government cannot be sued and the district court lacks jurisdiction to hear a claim against the government. United States v. Dalm [90-1 USTC ¶50,154; 90-1 USTC ¶60,012], 494 U.S. 596, 608 (1990); Clinton County Comm'rs v. EPA, 116 F.3d 1018, 1021 (3d Cir. 1997). Regarding the quiet title claim asserted in count 1, we conclude that the government was not immune from suit.

Under 28 U.S.C. §2410(a), "the United States may be named a party in any civil action or suit in any district court . . . to quiet title to . . . real or personal property on which the United States has or claims a mortgage or other lien." In the pending case, the government had seized and sold the property before the suit was filed. Other courts have held that the federal district courts lack jurisdiction to hear a quiet title action against the government if the government has sold the subject property to a third party prior to the time plaintiff files suit. See Koehler v. United States [98-2 USTC ¶50,881], 153 F.3d 263, 267 (5th Cir. 1998), and cases cited therein.

However, the record in the pending case indicates that the government filed federal tax liens on all of appellants' property, and did not release these liens until it prepared a "Certificate of Release of Federal Tax Lien" on November 2, 1998 , after the Kabakjians filed suit. See 26 U.S.C. §6321 (providing for tax lien on all property of taxpayer after demand and refusal to pay tax); 26 U.S.C. §6325 (providing for issuance of certificate of release of lien). The seizure of the property and sale to third parties, which took place before this suit was filed, did not purport to release the then-existing tax liens. The deed from the government to the third parties only purported to convey the interest of the Kabakjians in the property. It did not purport to convey the government's interest or release the federal tax liens on the property. The county real property records did not indicate that the lien on the property had been released until, after this suit was filed, the government prepared and filed its certificate of release of lien.

The existence of the federal tax liens, in our view, vested the district court with jurisdiction to hear the quiet title claim. This result is consistent with our decision in Aqua Bar & Lounge, Inc. v. United States [76-2 USTC ¶9554], 539 F.2d 935 (3d Cir. 1976). There we held that the district court had jurisdiction to hear a quiet title case where the plaintiff claimed that the government had failed to comply with §6335 procedural requirements when it seized and sold his personal property. Id. at 936, 939-40. The property in question was a liquor license. Id. at 936. We held that the suit was properly treated "as an action to quiet title to property on which the United States has a lien," and noted the existence of the tax lien at the time of the proceedings below. Id. at 937.

A related, thornier question is whether the district court retained jurisdiction after the government issued the certificate of release of tax lien on November 2, 1998 . This release was issued after suit was filed but before the district court ruled on the government's motion to dismiss count 1 and motion for summary judgment and entered a final judgment. We hold that the district court retained jurisdiction even after the government released the federal tax lien.

We have recognized as a general principle that jurisdiction is determined at the time the suit is filed. New Rock Asset Partners, L.P. v. Preferred Entity Advancements, Inc., 101 F.3d 1492, 1503 (3d Cir. 1996). However, we noted in New Rock that this principle is most often recognized in diversity cases and "has been applied only rarely to federal question cases." Id. Even in diversity cases the rule admits to at least one exception, as 28 U.S.C. §1447(e) provides that "[i]f after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court." Hence, a district court can sometimes, after suit is filed, permit the destruction of subject matter jurisdiction.

There is also a provision of the Quiet Title Act, 28 U.S.C. §2409a, which gives us pause. This Act provides that "[t]he United States may be named as a party defendant in a civil action under this section to adjudicate a disputed title to real property in which the United States claims an interest." Id. §2409a(a). The federal district courts have exclusive jurisdiction over actions brought under §2409a. 28 U.S.C. §1346(f). However, the Quiet Title Act goes on to provide:

If the United States disclaims all interest in the real property or interest therein adverse to the plaintiff at any time prior to the actual commencement of the trial, which disclaimer is confirmed by order of the court, the jurisdiction of the district court shall cease unless it has jurisdiction of the civil action or suit on ground other than and independent of the authority conferred by section 1346(f) of this title.

28 U.S.C. §2409a(e) (emphasis added).

Subsection (e) of the Quiet Title Act can be read to provide that the government can, after suit is filed, sell the property in issue and thereby divest the district court of jurisdiction. Some courts have suggested otherwise, although they discuss the Quiet Title Act generally without focusing on subsection (e). See Delta Sav. & Loan Ass'n v. IRS [88-2 USTC ¶9398], 847 F.2d 248, 249 n.1 (5th Cir. 1998); Bank Hemet v. United States [81-1 USTC ¶9379], 643 F.2d 661, 664-65 (99th Cir. 1981).

Regardless, the Quiet Title Act is not applicable to the pending suit, since it expressly, provides that it does not apply to "actions which may be or could have been brought under sections . . . 2410 of this title. . . ." 28 U.S.C. §2409a(a). Both sides agree that §2410 is applicable to the pending suit, as it applies to actions "to quiet title to . . . real or personal property on which the United States has or claims a mortgage or other lien." In this case, the government seized and sold the property in issue pursuant to a tax lien. Moreover, Congress chose, for whatever reason, to include subsection (e) in the Quiet Title Act and failed to include an analogous provision in §2410, the more narrowly drawn statute. This is,, we think, a case where "a precisely drawn, detailed statute pre-empts more general remedies." Brown v. General Servs. Admin., 425 U.S. 820, 834 (1976). We therefore follow the general rule for determining jurisdiction, and conclude that jurisdiction under §2410 is determined by looking to the facts existing at the time the suit was filed. The government cannot thereafter divest the court of jurisdiction by selling the property in issue or releasing its lien on the property. See Kulawy v. United States [90-2 USTC ¶50,565], 917 F.2d 729, 733-34 (2d Cir. 1990) (holding that government cannot "oust the court of jurisdiction validly invoked" under §2410 by selling the property on which it had a lien at the time suit was commenced).

2. Merits of Quiet Title Claim

Although we conclude that the district court had jurisdiction to hear the quiet title claim, we nevertheless hold that the claim was properly dismissed. We may affirm a judgment on any ground apparent from the record, even if the district court did not reach it. See Resolution Trust Corp. v. Fidelity and Deposit Co. of Maryland , 205 F.3d 615, 635 (3d Cir. 2000). Although there was a failure to comply with the notice requirements of 26 U.S.C. §6335 because the Kabakjians received the required notices by certified mail rather than personal delivery, the record shows that the Kabakjians received actual notice of the seizure and notice of the planned sale of the property. We hold that the notices were not so defective as to void the seizure of the property and its transfer to a third parties. Under 26 U.S.C. §6339(b)(2), where a deed to real property conveys property seized under §6335, such a deed operates as a conveyance of all the delinquent taxpayer's right, title and interest in the property so long as the proceedings "have been substantially in accordance with the provisions of law." The Kabakjians rely on Kulawy v. United States [90-2 USTC ¶50,565], 917 F.2d 729 (2d Cir. 1990) but that case involved the sale of personal property not covered by this substantial compliance provision.

Section 6339(b)(2) therefore provides that title transfers if there has been substantial compliance with the notice and other procedures set out in §6335. The Kabakjians received actual notice under §6335, and although the issue was joined below they failed to show that they were meaningfully prejudiced by receipt of the §6335 notices by certified mail instead of personal delivery. For example, when Mr. Kabakjian was asked in his deposition how he was prejudiced by receipt of the notice of sale by mail rather than personal delivery, he answered that "[a]ny time a citizen's rights are denied they are being prejudiced." Mrs. Kabakjian testified that she agreed with the statement that she had "no independent information or claim for damages other than what your husband has told you." We hold that there was substantial compliance with §6335, and that under 6339(b)(2), all title to the property once vested in the Kabakjians therefore transferred. Their quiet title claim therefore fails on the merits.

B. Claims for Damages

The Kabakjians sought money damages for the allegedly defective seizure and sale of their property. Again, they do not deny that they owed back taxes.

Under 26 U.S.C. §7433(a), a cause of action lies where an IRS employee recklessly or intentionally disregards any provision of the Internal Revenue Code. Under §7433(b), the taxpayer can recover his "actual, direct economic damages sustained" as a "proximate result" of an IRS employee's improper actions under §7433(a).

The count 2 claim for damages is based on the alleged violations of §6335. As discussed above, on December 11, 1995 , the government sent by certified mail to the Kabakjians a notice of seizure of the property. On December 17, the IRS seized the property. On January 24, 1996 , the government sent the Kabakjians by certified mail a notice of a sealed bid sale of the property, stating that the sale would take place February 23, 1996 . There is no dispute that the Kabakjians received the notices. On February 23 the sale took place.

In this case no attempt at hand delivery of the notices was made, as required by §6335. However, the purpose of the notice requirements was met, since the Kabakjians received actual notice. They did not show "actual, direct economic damages sustained" as a "proximate result" of the technical noncompliance with the statutory notice requirements. Accordingly summary judgment was properly granted on the money damages claim.

The judgment of the district court will be AFFIRMED.

^* Honorable Thomas M. Reavley, United States Circuit Judge for the Fifth Circuit, sitting by designation.

 

 

 

 

[99-2 USTC ¶50,841] John S. Williamson and Nancy Williamson, Plaintiffs v. United States of America , Defendant

U.S. District Court, Dist. N.M., CIV. 96-1082-M, 8/19/99, 84 FSupp 2 d 1217

[Code Secs. 6303 , 6321 , 6331 and 6335 ]

Assessment and collection: Notice of deficiency: Notice of levy: Notice of tax lien: Validity of: Evidence.--Married taxpayers' contention in a quiet title action that the IRS's notices of deficiency, assessment, lien and levy were invalid because they never received them was rejected in light of evidence showing that, on numerous occasions, they had refused and returned IRS mail. The taxpayers' allegation that the IRS failed to comply with statutory and regulatory notice procedures was not supported by the record. The determination that the government fully complied with the prerequisites for collecting delinquent taxes extended to tax years in which no deficiency notices were issued because the taxpayers either filed a frivolous return or the deficiency was attributable to a mathematical error. Such circumstances obviate the need for such a notice.

[Code Secs. 6212 and 6213 ]

Assessment and collection: Notice of deficiency: Notice of levy: Notice of tax lien: Validity of: Evidence.--Married taxpayers' contention in a quiet title action that the IRS's notices of deficiency, assessment, lien and levy were invalid because they never received them was rejected. The taxpayers offered no proof to contradict the government's evidence that tax liens were properly perfected against the wife's assets and against the couple's real property and that notices of levy sent to them were returned unopened. Moreover, a notice of seizure was posted on the property's fence post and an auction notice was published in the local newspaper, as required by the applicable regulations.

[Code Secs. 6103 and 7431 ]

Assessment and collection: Disclosures: Return information: Propriety of.--Married taxpayers' contention in a quiet title action that they were entitled to damages for the disclosure of return information was rejected. The taxpayers were not entitled to recover damages for the IRS's purportedly unauthorized disclosures of return information in conjunction with its levy on the wife's payroll and its seizure and attempted sale of the realty. The IRS disclosures were limited to information necessary to effect its lawful liens, levies, and seizures. Thus, the disclosures were authorized under Code Sec. 6103(k)(6) .

MEMORANDUM OPINION AND ORDER

MECHEM, Senior District Judge:

This case came on for non-jury trial, and Plaintiffs appeared pro se on claims against the Internal Revenue Service (IRS). Plaintiffs challenge, first, the procedural accuracy of IRS tax assessments, liens and levies, and secondly, the lawfulness of IRS's use of Plaintiffs' confidential information. I find and conclude in favor of Defendant on all issues and enter the following as findings of fact and conclusions of law.

I.

Jurisdiction

Jurisdiction and venue are proper. Plaintiffs are husband and wife taxpayers who live in Bernalillo County , New Mexico . Together, Plaintiffs have been entangled with the Internal Revenue Service for approximately two decades. They bring the present case as a quiet title action pursuant to Title 28 U.S.C. sec. 2410, and seek to invalidate tax liens and levies made against them, to enjoin future IRS collection efforts, and to collect money damages for unlawful disclosure of confidential tax return information.

Plaintiffs state three causes of action in their Complaint. First, Plaintiffs contend that for the years 1980, 1983-1987, 1989, 1991-1993, the IRS failed to make and notice tax assessments according to the specific procedural demands of the Internal Revenue Code and IRS regulations and that improperly processed assessments, liens and levies should be declared illegal. Plaintiffs assert that the failure to follow its own procedures regarding notice of a tax deficiency, notice of an assessment, notice of lien, and notice of levy invalidate all of IRS's rights to collect unpaid taxes from Plaintiffs for the years at issue.

By a second cause of action, Plaintiffs request withdrawal of all lien claims against them and an injunction against future collection actions by IRS. In a third cause of action pursuant to 26 U.S.C. sec.7431, Plaintiffs allege that when IRS filed lien notices with the Bernalillo County Recorder and afterward published a notice in a local newspaper offering Plaintiffs' real property for sale, IRS wrongfully disclosed Plaintiffs' identity and confidential tax return information. In this third cause of action, Plaintiffs request one thousand dollars for every time the advertisement of the sale included their names and other confidential information and one thousand dollars for every time an inquiry concerning the sale resulted in a communication about the Plaintiffs.

Plaintiffs do not argue that the taxes in question are not owed. Rather, Plaintiffs pursue claims of procedural irregularities in the establishment of liens and levies. Because Plaintiffs do not contest the underlying validity of the IRS assessments (an action barred by 26 U.S.C. sec. 7421), original subject matter jurisdiction exists in the district court. James v. United States [92-2 USTC ¶50,389], 970 F.2d 750, 753 (10th Cir. 1992). The United States has waived sovereign immunity and the court properly exercises jurisdiction. Id. ; Guthrie v. Sawyer [92-2 USTC ¶50,391], 970 F.2d 733, 735 (10th Cir. 1992). Allegations that the IRS has failed "to assess properly or to send valid notices of assessment and demands for payment are procedural defects cognizable in a quiet title action;" Id. at 755; and an "assertion that the required notice of intent to levy under sec. 6331(d) was not sent . . . is a claim within the grant of jurisdiction under sec.2410." Id. In addition, while a quiet title action does not permit return of monies already collected by IRS, 26 U.S.C. sec. 2410, it allows some forms of injunctive relief not prohibited by the Anti-Injunction Act. 26 U.S.C. sec. 7421. Therefore, all of Plaintiffs' present claims and prayers for relief are within the power of the court.

II.

Issues Resolved Prior to Trial

Some issues were resolved before trial. In response to cross motions for summary judgment, a Memorandum Opinion filed October 22, 1997 , determined that on June 7, 1990 , IRS sent notices of deficiency to Plaintiff Nancy Williamson for taxes due in 1983 through 1987, and that in June 1994, it sent notices of deficiency to Nancy Williamson for 1991 and 1992. All of these were returned to IRS unopened. Finding irregularities on their face, the Memorandum Opinion found Defendant's notices to Plaintiff Nancy Williamson insufficient to prove the notice required by Title 26 U.S.C. sec. 6303(a), notice and demand within sixty days of an assessment, but sufficient to establish the notice required pursuant to section 6213, notice precipitating a levy. The Memorandum Opinion, citing Gille v. United States [94-2 USTC ¶50,428], 33 F.3d 46 (10th Cir. 1994), aff'd 514 U.S. 1063 (1995), also held that receipt of the notice is not necessary, and despite Plaintiffs' refusal to accept the notices, the notices sent and returned as "undeliverable" were valid.

By the same Memorandum Opinion and Order, Defendant was ordered, pursuant to Title 26 U.S.C. sec.6335(e)(1)(D), to release the levy on Plaintiffs' real property which was advertised for sale at public auction, but was not sold. Defendant failed to comply with this Order in a timely manner, but release of the levy was eventually completed in April, 1998. Because Plaintiffs refused their IRS mail, they were not aware of this release until immediately prior to trial. Even had they received the notice of release at an earlier time, Plaintiffs contest Defendant's late compliance and argue adamantly that the levy was not released until long after it should have been. Yet, Plaintiffs fail to establish any harm or prejudice from the delay. Neither do Plaintiffs refer to a right violated or a remedy provided. Since the property is now released and not subject to levy, and since no sale (either by Plaintiffs or by Defendant) was attempted or consummated during the period the property should have been released from levy, I see no way to correct or remedy Defendant's error and no measure by which to compensate Plaintiffs for Defendant's untimely action. Therefore, I deem compliance with the 1997 Order complete, the Plaintiffs ultimately unharmed by Defendant's failure to comply in a timely manner, and I consider the issue moot.

Also prior to trial, Defendant adjusted the amounts it claimed due from Plaintiffs in past taxes. IRS originally claimed taxes due from Plaintiff John Williamson for 1980, but in documents filed in this case on February 19, 1999 , IRS stated it no longer claimed a liability for 1980, because these taxes are beyond the statute of limitations and uncollectible. Defendant thus claims taxes due from Plaintiff John Williamson for the years 1983 through 1987, and for 1993. IRS originally claimed taxes due from Plaintiff Nancy Williamson for the years 1983-1987, 1989, and 1991-1993, but immediately prior to and during the course of trial, IRS stated that taxes due from Nancy Williamson had been paid. These taxes were collected in full by levies upon Plaintiff's payroll at the University of New Mexico . While Plaintiffs cannot by this action seek return of the funds now in IRS hands, Huff v. United States [93-2 USTC ¶50,633], 10 F.3d 1440 (9th Cir. 1993), the issue is not moot because Plaintiffs contest the validity of the UNM levy and the procedures preceding it.

Thus, what remains at issue after the matters disposed of pretrial are (1) whether in its collection efforts IRS sent Plaintiffs all required notices pursuant to Title 26 U.S.C. sec. 6303(a), (2) whether IRS complied with all other administrative procedures mandated by the Internal Revenue Code and IRS regulations, (3) in the event IRS failed to comply with its own procedures, whether the injunction Plaintiffs request to halt IRS collection efforts in the future violates the Anti-Injunction Act; and (4) whether Plaintiffs are entitled to damages because Defendant wrongfully released tax return information.

III.

Notice Requirements

The initial sections of the Internal Revenue Code, beginning at Title 26 U.S.C. sec. 6012, prescribe who must file an income tax return and how various kinds of income are to be reported. At 26 U.S.C. sec. 6151, the Code requires that tax returns be filed and taxes paid "without assessment or notice and demand from the Secretary [of the Treasury]. . . ." In the event a taxpayer fails to comply and report or pay taxes or a taxpayer's return is incorrect or otherwise incomplete or improper, the Secretary is authorized and required "to make the inquiries, determination, and assessments" of taxes due. 26 U.S.C. sec. 6201.

When it becomes necessary for the Secretary to make inquiries, as directed by the tax code, or determine and assess taxes, either initially or in addition to what a taxpayer has reported due, IRS regulations, at 26 C.F.R. sec. 301.6201-1(a), delegate the Secretary's responsibility for supplementing and correcting tax returns to IRS district directors and regional service center directors, who appoint "assessment officers" to adjust tax liabilities not reported or reported erroneously. 26 C.F.R. sec. 301.6203-1; 26 U.S.C. sec. 6212, 6213. Assessment officers make adjustments and corrections to a return by entering a formal assessment of liability and signing a "summary record of assessment" (Form 23C Assessment Certificate). 26 C.F.R. sec. 6203-1. A taxpayer is made aware of these changes to his or her tax return and informed of additional tax, when due (except in the case of mathematical and clerical errors), by a "notice of deficiency" which is sent by certified or registered mail to the taxpayer. 26 U.S.C. sec. 6212(a). A deficiency is specifically defined as an amount of tax owed which exceeds the amount already assessed or paid. 26 U.S.C. sec. 6211(a). The Secretary of the Treasury, through IRS, is empowered and required to collect all taxes and deficiencies imposed by the Internal Revenue Code. 26 U.S.C. sec. 6301. The Code and IRS regulations define how these collections are to occur.

The notice of deficiency is critical. The Internal Revenue Code specifically provides that "no assessment of a deficiency . . . and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer. . . ." 26 U.S.C. sec. 6212(a), 6213(a). Except for additional tax due because of a mathematical or clerical errors, the IRS cannot act on a deficiency for 90 days from the date the notice is sent, in order to allow the taxpayer an opportunity to contest the determination of a deficiency in the United States Tax Court. 26 U.S.C. sec. 6213(a). If no petition in Tax Court is filed within the 90-day period, the deficiency is assessed and owing. The Secretary then sends another notice to the taxpayer which includes a demand for payment. 26 U.S.C. sec. 6213(c). With some exceptions, both the first notice of a claimed deficiency and the second notice with demand for payment are statutory prerequisites to any action to collect the taxes due. Meridian Wood Products Co., Inc. v. United States [84-1 USTC ¶9222], 725 F.2d 1183, 1186 (9th Cir. 1984). An exception to this procedure is a penalty assessment for the filing of a frivolous return. 26 U.S.C. sec. 6702, 6703.

IV.

Plaintiffs' Theory of the Case

Plaintiffs maintain the position that since they did not receive the required notices, IRS must have failed to send them, and therefore, IRS failed to comply with mandatory procedures and cannot collect on any asserted deficiencies. Other than their own testimony, however, Plaintiffs offer nothing to support their claims. At the same time, Defendant's exhibits include not only the notices at issue or evidence of an exception to notice requirements, but also numerous instances of returned and refused mail addressed to Plaintiffs. The latter totally undermines Plaintiffs' case which rests completely on the negative, that notices were not sent because notices were not received. It appears Plaintiffs depended entirely on their hope or their expectation that Defendant could not prove compliance with the Internal Revenue Code and IRS regulations. Because Defendant establishes compliance and Plaintiffs do not bring Defendant's evidence into question or counter it with any objective evidence of their own, Plaintiffs' case fails.

Plaintiffs do not dispute they refused and returned IRS mail. Plaintiff John Williamson admitted on cross-examination that he had refused mail from IRS and had marked it for return without opening it and without knowing its contents. Plaintiffs nevertheless dispute the sufficiency of IRS mailings, largely because the IRS mail was sent, at times, to two different addresses, and not consistently to "the last known address." Defendant's evidence, however, includes several instances of mail marked "refused," "returned," and "undeliverable," and from this it appears both forms of address reached Plaintiffs' home. Even though IRS regulations refer to "last known address," the evidence indicates actual receipt at the proper location regardless of what was listed on the envelope; and it is the actual receipt at Plaintiffs' residence and not the form used that is relevant and conclusive. Noting that some of Plaintiffs' tax liability, such as for a frivolous return and a mathematical error, results in exceptions to the notice of deficiency requirement, Defendant's evidence is sufficient to establish that notices were sent as required.

The burden of proof, of course, that Defendant failed to comply with the Internal Revenue Code rests with Plaintiffs. G.M.Leasing Corp. v. United States [75-1 USTC ¶9435], 514 P[F].2d 935 (10th Cir. 1975), rev'd on other grounds [77-1 USTC ¶9140], 429 U.S. 338 (1977). In the Memorandum Opinion filed October 22, 1997 , I stated that "defendant has the initial burden of production and persuasion;" and at trial, Defendant by its exhibits and two witness employed by IRS who are familiar with IRS procedures, record-keeping and Plaintiffs' files, presented documentation which met this demand. Plaintiffs did not counter.

Plaintiffs insist that Defendant's trial exhibits should not have been accepted because Defendant failed to comply with Rule 26 and other discovery deadlines. Defendant was admonished at the time of trial for this untimely compliance. Both sides agreed, however, that the documents Defendant produced as trial exhibits had been provided to Plaintiffs in advance of trial, and Plaintiffs cannot claim surprise or lack of opportunity to respond. Plaintiffs' point is simply that the exhibits were not provided when they should have been. In fact, some of Plaintiff's discovery and some of Defendant's trial exhibits reached Plaintiffs much later than what should have occurred by dictate of the Federal Rules of Procedure. Still, I see no need for total exclusion of Defendant's exhibits. Under the circumstances, I believe exclusion is not justified and too harsh a solution. Even though Defendant has not complied with several discovery deadlines, Defendants in every instance eventually submitted to Plaintiffs everything requested and everything to be used by Defendant at trial. Plaintiffs were not deprived of a fair trial and, in all likelihood, not prejudiced at all by Defendant's late responses. Plaintiffs were aware at the time of trial of Defendant's case, what was available for Plaintiffs use at trial, and what at trial would require Plaintiffs' response.

What the parties have filed post trial in response to my inquiry regarding Exhibits 113, 114, 115 and 116 supports the conclusion that Defendant's exhibits are properly and justly admitted. I am satisfied with Defendant's response to my post trial order and will impose no sanctions. My concern remains that this case could have been completed at an earlier point in the proceedings had counsel for the Department of Justice followed the Federal Rules of Civil Procedure, complied fully with the orders of the Magistrate Judge, and organized and presented his documents for the Court and for the Plaintiffs in a more timely, concise and understandable fashion. His neglect has caused considerable delay and confusion. There is absolutely no reason for re-numbering exhibits already admitted as if they were new materials, and without doubt it is poor practice for counsel not to make clear what materials are being presented to a witness and for what purpose, but Defendant's response after trial has clarified the confusion. Counsel's pretrial and trial practices may be untimely, cumbersome and confusing, but they do not rise to sanctionable conduct.

In any event, the obligation to prove the case as stated in the Complaint is the Plaintiffs' and in documents filed with the Court and admitted at trial, rather than support their own position, Plaintiffs concede much of the Defendant's case. In the end, Plaintiffs provided nothing but their own insistence that Defendant has not complied with statutory and regulatory requirements. These arguments alone are not enough. Id. It seems to me exceedingly difficult for the Plaintiffs to maintain as the theory of their case that they have not received IRS notices, when they have openly and continuously refused all or nearly all IRS mail directed to them. Regardless, once Defendant presented its documentation, Plaintiffs did nothing to counter what Defendant presented or otherwise to substantiate their claims. Plaintiffs presented simply their own conclusions and their insistent arguments that Defendant failed to meet its obligations. The evidence, on the other hand, supports the Defendant's compliance.

V.

Defendant's Evidence

In the 1997 Memorandum Opinion, I expressed reluctance to accept Defendant's proffered exhibits as proof of compliance with mandatory notice procedures because of questionable entries in the IRS records, such as notice dates occurring on a weekend or a national holiday. At trial, Defendant explained IRS procedures, computers that run 24 hours every day, and other irregularities in Defendant's documents which were noted in the Memorandum Opinion. Plaintiffs did not dispute any of these explanations. With prior inconsistencies and apparent errors in IRS records satisfactorily addressed, then, I find Defendant's documents a reasonable, credible and reliable record. By reason of this record, I believe Plaintiffs have not established their case that notices were not sent as required, and to the contrary, I find Defendant's exhibits sufficient to establish that in assessing and collecting tax from Plaintiffs, Defendant acted wholly in accord with statutory and regulatory requirements. Having accepted Defendant's exhibits and explanations, I find both notices of deficiency and notices of assessment for the years at issue were either not required by clear statutory exception or were properly sent to both Plaintiffs. I also find that Defendant provides evidence to establish proper notices of liens, levies, and seizure of Plaintiffs' real property. I therefore conclude that Defendant has complied with its statutory and regulatory obligations and collection of taxes due from Plaintiffs is proper.

This conclusion that Defendant has fully complied includes 1993, because Plaintiff Nancy Williamson's assessment in that year involved a frivolous return and a notice of deficiency was not required. 26 U.S.C. sec. 6702, 6703. This conclusion also includes 1992, even though IRS admits it sent no notice of deficiency to Plaintiff John Williamson in that year. In 1992, Plaintiff's deficiency in the tax reported due was the result of a mathematical error; and in the event of a mathematical or clerical error, no notice of deficiency is required. 26 U.S.C. sec. 6213(b). A mathematical or clerical error is defined as "an error in addition, subtraction, multiplication, or division shown on any return," "an incorrect use of any table provided by the Internal Revenue Service . . . if such incorrect use is apparent from the existence of other information on the return," "an entry on a return of an item which is inconsistent with another entry," "an omission of information which is required," and "an entry on a return of a deduction or credit in an amount which exceeds a statutory limited." 26 U.S.C. sec. 6213(g)(2). When amounts in excess of what is listed on a tax return result from the taxpayer's mathematical or clerical error, the deficiency is set out for taxpayers by a notice or form which explains the error made. This is sufficient under the statute. Id. Within 60 days, a taxpayer may request abatement of additional tax attributed to mathematical or clerical error, but no petition in Tax Court is allowed, and thus, there is no need for a notice of deficiency. Id; 26 U.S.C. sec. 6213(b)(1), 6213(b)(2).

Where there is no request for abatement, then, no notice of deficiency is sent at any point. Id. If a taxpayer charged with additional tax because of a mathematical error requests an abatement, and IRS denies the request, IRS must afterward comply with the requirements of sec. 6213(a) and send the taxpayer a notice of deficiency. In this circumstance the notice of a deficiency is a necessary step before collection of additional tax could occur. 26 U.S.C. sec. 6213. That is not what happened in the present case. Plaintiff John Williamson did not request an abatement; and because there was no request for abatement, no notice of deficiency was necessary. Id. An explanation from IRS suffices to give notice where a mathematical error occurs, and after the explanatory notice, collection of the additional tax may begin. Id. Because the evidence fully supports a sequence of events in this case which obviates the need for a notice of deficiency, Defendant has met all statutory and regulatory obligations prerequisite to collecting taxes claimed for all years at issue.

VI.

Liens, Levies, Seizure and Sale

Once requisites of notice and demand have been met, and the tax due is not paid, a lien arises against the property of the taxpayer. 26 U.S.C. sec. 6321. In general, this lien is valid until all tax liabilities have been satisfied or become unenforceable through the lapse of time, 26 U.S.C. sec. 6322; and in order to perfect the lien against creditors of the taxpayer, IRS may file notice of a federal tax lien with a county recorder's office. 26 U.S.C. sec. 6321 and sec. 6323. Levies to enforce a lien and collect the tax due may be undertaken anytime within ten years of the initial assessment. 26 C.F.R. sec. 301.6502-1(a). Release of the lien need not occur until the entire tax liability shown on the notice of lien has been paid. 26 U.S.C. sec. 6325; 26 C.F.R. sec. 401.6325(b).

If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property . . . belonging to such persons or on which there is a lien provided in this chapter for the payment of such tax. 26 U.S.C. sec. 6331(a).

Levy may be made under subsection (a) upon the salary or wages or other property of any person with respect to any unpaid tax only after the Secretary has notified such person in writing of his intention to make such levy. 26 U.S.C. sec. 6331(d)(1).

In order for Defendant to collect tax due by a levy of the taxpayer's property, IRS must provide a notice of levy. Id. ; James v. United States , supra, at 756. "The notice required . . . shall be (A) given in person, (B) left at the dwelling or usual place of business of such person, or (C) sent by certified or registered mail to such person's last known address, no less than 10 days before the day of the levy. 26 U.S.C. sec. 6331(d)(2); 26 C.F.R. sec. 301.6331-1(a).

Levy may be made upon the salary, wages, or other property of a taxpayer for any unpaid tax no less than 30 days after the district director, the service center director, or the compliance center director has notified the taxpayer in writing of the intent to levy. The notice must be given in person, left at the dwellling or usual place of business of the taxpayer, or be sent by registered or certified mail to the taxpayer's last known address. The notice of intent to levy is separate from, but may be given at the same time as, the notice and demand described in sec. 301.6331-1. 26 C.F.R. sec. 301.6331-2.

Defendant may seize a taxpayer's property or rights in property and place the seized property for sale to satisfy an assessment; and this process is similarly controlled by notice and time constrictions. An intention to levy must be noticed 10 days prior to any action taken. 26 C.F.R. sec. 301.6331(a) and sec. 301.6335-1(a)(3). In general, a notice of seizure follows the notice of intent to levy. After seizure, a sale must take place not less than 10 days nor more than 40 days from the date of public notice, and the place of the sale must be within the county in which the property is seized. 26 C.F.R. sec. 301.6335-1(c)(1). The property may be sold at public auction with open, competitive bids or at a public sale with sealed bids, and bids are to be solicited through a public notice of sale. 26 C.F.R. sec. 301.6335-1(c)(6). A minimum price must be set prior to sale, which may be announced either before the sale begins or after the receipt of the highest bid. 26 C.F.R. sec. 301.6335-1(c)(3)(i).

As soon as practicable after seizure of property, the internal revenue officer seizing the property shall give notice in writing to the owner of the property . . . The written notice shall be delivered to the owner . . . or left at his usual place of abode or business. . . . If the owner cannot be readily located, . . . the notice may be mailed to his last known address. Such notice shall specify the sum demanded and shall contain, in the case of personal property, a list sufficient to identify the property seized and, in the case of real property, a description with reasonable certainty of the property seized." 26 C.F.R. sec. 301.6335-1(a).

Plaintiffs challenge, first, levy of Plaintiff Nancy Williamson's payroll from the University of New Mexico . I find no procedural irregularities in this levy. Defendant had a valid lien at the time on all of Plaintiff Nancy Williamson's property and rights to property. IRS perfected the lien and affirms filing two lien notices in Bernalillo County , New Mexico , in June, 1995, naming Plaintiff Nancy Williamson. Notice of Intent to Levy was sent to Plaintiff on May 2, 1996 , by certified mail which was later returned to IRS unopened. Jacqueline Sena, a local IRS revenue officer who worked on the Plaintiffs' cases, testified at trial that IRS also served a Notice of Levy on July 16, 1996 . Ms. Sena stated that no notice of seizure was sent before levying on University of New Mexico wages because in the case of a levy "on bank accounts and wages," none is required. See: 26 C.F.R. sec. 404.6334(d)-1; 26 C.F.R. sec. 403.25. Plaintiff provided nothing to counter this evidence. Further, Ms. Sena's testimony supported Defendant's and not Plaintiffs' position with regard to the use of two addresses. Clearly, IRS had duplicate addresses for Plaintiffs and IRS apparently, and inexplicably, used both addresses intermittently. The street address was used at least in 1991 and in 1998; the Star Route was used in 1996 and at other times. The evidence supports delivery of the IRS mail to Plaintiffs, regardless of whether the mail was addressed to a Star Route or a street address, and specifically supports delivery of the Notice of Intent to Levy. This mail was returned with the designation "unclaimed," a designation which leaves only one reasonable inference, that the mail was delivered and deliverable to Plaintiff, and Plaintiff refused to accept it or to pick it up at the Post Office when noticed of its existence.

Plaintiffs' challenge to the levy therefore fails. The notices sent meet Defendant's statutory obligations, even though Plaintiff refused to accept it. Gille v. United States, supra. Thus, I conclude that Defendant fully complied with both the Internal Revenue Code and IRS regulations, has created legal and effective liens, and was properly positioned to execute levy upon Plaintiff Nancy Williamson's payroll.

Plaintiffs also contest Defendant's levy upon their real property. Again, Defendant held a proper and perfected lien. In June, 1995, in addition to the lien which named Plaintiff Nancy Williamson, IRS filed a tax lien notice in Bernalillo County , New Mexico , reflecting consolidated claims for 1983-87, 1985-87, and 1993 taxes against Plaintiff John Williamson. Again, Defendant's evidence demonstrates that subsequent to these filings, IRS sent proper notices of levy and seizure. These notices include one posted on Plaintiff's fencepost, as stated in testimony of Defendant's witness, Bob Dean, from the IRS Austin Service Center , who testified that he is the custodian of the Plaintiffs' tax records, and as included in Plaintiffs' admissions. See: Plaintiffs' Trial Memorandum filed January 29, 1999 . In Plaintiffs' words: "On June 21, 1996 , the IRS left a 'Notice of Seizure' taped to the gate of a piece of real property which is in escrow on a real estate contract of which plaintiffs are the purchasing party." Posting of the notice is clearly permitted by IRS regulations. Id.

The record clearly indicates, as well, the setting of a minimum price. Time constraints are also met. In the same Trial Memorandum Plaintiffs state: "The IRS then published a 'Public Auction Sale' notice in the Albuquerque Journal newspaper . . . advertising the property for auction on August 7, 1996 . This is precisely what the regulations require. Id. These records were admitted as trial exhibits and not challenged or refuted by Plaintiffs.

VII.

Disclosure of Tax Return Information

The tax deficiencies, assessments, liens and levies having been properly noticed, Plaintiffs' claims of unauthorized disclosure must also fail. "If a notice of lien has been filed . . ., the amount of the outstanding obligation secured by the lien is authorized to be disclosed as a matter of public record." 26 C.F.R. sec. 301-6323(i)-1(c). "A claim of wrongful disclosure under sec. 7431 requires (1) that the IRS disclosed confidential tax return information either knowingly or negligently, and (2) that this disclosure was not authorized by sec. 6103 of the Internal Revenue Code. 26 U.S.C. sec. 6103(a), 7431(a)(1)." Wilkerson v. United States [95-2 USTC ¶50,569], 67 F.3d 112, 115 (5th Cir. 1995).

Disclosures in the present case are not disputed. I find, however, that all of these disclosures are authorized by the Internal Revenue Code and that Defendant did nothing unlawful. "Although the Tax Code generally prohibits the disclosure of tax return information, it authorizes disclosure when the tax return information relates to collection activities, including a levy on assets to satisfy an outstanding tax liability." Venen v. United States [94-2 USTC ¶50,536], 38 F.3d 100 (3rd Cir. 1994). Where the release of return information results from IRS collection activities, disclosures are not wrongful, and use of the information in connection with a levy operates to justify the release independently of whether or not the levy was wrongful or the levy procedures were defective. 26 U.S.C. sec. 6103(k)(6); Wilkerson v. United States , supra.

Plaintiffs complain of tax return information released in conjunction with a levy on Plaintiff Nancy Williamson's payroll and a seizure and attempted sale of real property. Both the Tax Code at sec. 6103(k)(6) and regulations promulgated under this provision permit disclosure when it is related to establishing liens and levies or effecting a seizure or sale of taxpayer property. 26 C.F.R. sec. 301.6103(k)(6)-1(b)(6). Where "any person liable to pay any tax neglects or refuses to pay the same after demand," all property and rights to property become immediately subject to a lien "in favor of the United States upon all property, whether real or personal, tangible or intangible, belonging to such person." 26 C.F.R. sec.301.6321-1. A valid lien is effective not only as to all property of the taxpayer at the time the lien arises, but also as to any property or rights to property acquired by the taxpayer after the lien has entered. Notice of a lien, in order for a lien to be enforceable against certain creditors, must be filed publicly in a State or county office, according to the law of the State and county in which the property is located. 26 C.F.R. sec. 301-6323(f)-1(a).

Without stating the proposition directly, Plaintiffs seem to contend, as did the plaintiffs in Venen v. United States, supra, that because the IRS levies in this case were unlawful, the wrongful levies make the release of information relating to these activities equally unlawful, irrespective of the releases permitted by sec. 6103(k)(6). The question, however, in seeking damages for release of confidential information in the collection setting, is whether the lawfulness of the levy is relevant. The weight of authority concludes that it is not. Id. at 104-105; Wilkerson v. United States , supra at 117. In any event, I find the liens, levies and seizures lawful. Plaintiffs third claim, therefore, also fails.

For all of the above reasons, I find and conclude that as to each of their claims, Plaintiffs have failed to present convincing evidence in support of the claim or to carry their burden of proof in this suit. I also find and conclude that the evidence presented by Defendant establishes IRS compliance with all notice and procedural requisites for the assessment and collection of additional tax due from both Plaintiffs for the years at issue. The Defendant's actions having been authorized by the Internal Revenue Code and IRS regulations, I therefore enter a separate judgment against the Plaintiff and for the Defendant.

NOW, THEREFORE, IT IS ORDERED that judgment enter against the Plaintiffs on all causes of action and Plaintiffs claims be dismissed with prejudice.

JUDGMENT

Having concluded trial in this matter and entered a Memorandum Opinion and Order contemporaneous with this judgment,

IT IS HEREBY ORDERED, ADJUDGED AND DECREED that judgment enter in favor of Defendant on all of Plaintiffs' claims, which are hereby dismissed with prejudice.

 

 

[2000-1 USTC ¶50,504] John S. Williamson and Nancy L. Williamson, Plaintiffs-Appellants v. United States of America , Defendant-Appellee

(CA-10), U.S. Court of Appeals, 10th Circuit, 99-2294, 5/24/2000 , 2000 U.S. App. LEXIS 11653. Affirming a District Court decision, 99-2 USTC ¶50,841 , 84 FSupp2d 1217

[Code Secs. 6103 , 6213 , 6303 , 6331 , 6335 , 7431 , Fed. Rule App. P. 38 ]

Frivolous appeal: Tax-protest arguments: Sanctions: Assessment and collection: Notice of deficiency: Notice of levy: Notice of tax lien: Validity of: Evidence: Disclosures: Return information: Propriety of.--Taxpayers were assessed sanctions for a frivolous appeal of the trial court's dismissal of their action seeking to quiet title to property, to invalidate tax liens and levies made against them, to enjoin future collection efforts by the IRS, and to collect money damages for unlawful disclosure of their confidential tax return information. They failed to demonstrate any error and raised arguments that the court had repeatedly rejected as frivolous.

John S. Williamson, Nancy L. Williamson, Tijeras, N.M., pro se. John J. Kelly, United States Attorney, Albuquerque, N.M., Gilbert S. Rothenberg, Alice L. Ronk, Department of Justice, Washington, D.C. 20530, Mary C. Vance, Joseph A. Pitzinger III, Department of Justice, Dallas, Tex., for defendant.

Before: KELLY, MCKAY and HENRY, Circuit Judges.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

ORDER AND JUDGMENT ^*

MCKAY, Circuit Judge:

After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed.R.App.P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument.

Plaintiffs John S. Williamson and Nancy L. Williamson, representing themselves, appeal from an order of the district court that dismissed their action brought against the government under 28 U.S.C. §2410 seeking to quiet title to property, to invalidate tax liens and levies made against them, to enjoin future collection efforts by the Internal Revenue Service (IRS), and to collect money damages for unlawful disclosure of their confidential tax return information. We have jurisdiction under 28 U.S.C. §1291.

Plaintiffs argue on appeal that: (1) the district court ignored irregularities in the procedures used by the IRS, including lack of proper notice of assessment and demand for payment; (2) the IRS filed "dummy" 1040 forms for them and then illegally seized $45,397.96 from Mrs. Williamson based on these "dummy" forms; (3) the IRS made assessments of $0.00 and, thus, there is no tax deficiency to be paid; (4) Title 26 United States Code is a private law that does not apply to plaintiffs; (5) New Mexico is not a state as defined in Title 26 and the IRS therefore has no jurisdiction in New Mexico; (6) there is no contract requiring plaintiffs to comply with Title 26; (7) the IRS has no legal authority; (8) there is no such thing as a type of tax 1040; (9) the district court demonstrated bias against plaintiffs by calling them taxpayers and tax protesters; (10) the district court said it would fine the government for improper conduct but did not do so; and (11) the district court admitted inadmissible documentary evidence and perjurious expert testimony. The government argues in opposition that the district court did not clearly err by finding that the IRS complied with procedural prerequisites to assessing and collecting plaintiffs' tax liabilities or by dismissing their claims, and asks this court to impose sanctions of $4,000 against plaintiffs for filing a frivolous tax appeal. Plaintiffs have responded to the motion for sanctions.

The district court found that, for every year plaintiffs challenged, the IRS's uncontroverted evidence showed that notices related to its collection efforts either were not required or were sent, and that plaintiffs' practice of refusing and returning mail from the IRS showed that notices actually reached them. See Williamson v. United States [99-2 USTC ¶50,841], 84 F.Supp.2d 1217, 1221-22 (D. N.M. 1999). The court concluded that plaintiffs' case amounted to "nothing but their own insistence that [the IRS] has not complied with statutory and regulatory requirements." Id. at 1222. The court further concluded that the levies against Mrs. Williamson's salary and the Williamsons' real property were valid. See id. at 1224-25. Finally, the court held that disclosure of plaintiffs' tax information was in connection with these valid levies and was therefore authorized by 26 U.S.C. §6103(k)(6). See Williamson [99-2 USTC ¶50,841], 84 F.Supp.2d at 1225-26.

This court reviews the district court's factual findings for clear error and its legal conclusions de novo. See Anderson v. Commissioner [95-2 USTC ¶50,463], 62 F.3d 1266, 1270 (10th Cir. 1995). We have reviewed the district court's decision in light of the parties' materials, and find no error. Indeed, this court has repeatedly rejected most of plaintiffs' arguments as frivolous. See Lonsdale v. United States [90-2 USTC ¶50,581], 919 F.2d 1440, 1447-48 (10th Cir. 1990).

In any event, plaintiffs have made no reasoned attempt to demonstrate that the district court erred, and their appeal is frivolous. Their response to the motion for sanctions consists of more frivolous arguments: they are citizens of the sovereign state of New Mexico , they are not taxpayers, the Tax Court is a kangaroo court, etc. This court has previously adopted a flat rate sanction of $1,500 for a frivolous tax appeal. Cf. Casper v. Commissioner [86-2 USTC ¶9818], 805 F.2d 902, 906 (10th Cir. 1986) ("We now choose to adopt a rule awarding a flat fee of $1,500 as a sanction for a frivolous appeal from a Tax Court decision."). Accordingly, we impose sanctions of $1,500 against plaintiffs.

The judgment of the United States District Court for the District of New Mexico is AFFIRMED, the government's motion for sanctions is granted in the amount of $1,500, and the mandate shall issue forthwith.

^* This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. The court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

 

 

 

[2001-2 USTC ¶50,579] Towner Leeper and La Fonne Leeper, Plaintiffs v. United States of America , Defendant

U.S. District Court, West. Dist., Tex., EP-98-CA-229-H, 7/19/2001

[Code Secs. 6335 and 7433 ]

Damages: Collection activities: Auction sale of judgment lien: IRS agents: Actual notice of sale: Proof.--An attorney/CPA was denied an award of damages under Code Sec. 7433 in connection with the IRS's judicial sale, at auction, of his rights to a judgment lien against a former client. His contention that he never received notice of the proposed auction sale was meritless; he received actual notice of the sale when IRS agents served him at his office with Form 2434 (Notice of Public Auction Sale ) and a minimum bid worksheet, as well as copies of the levy and notice of seizure. The fact that the taxpayer had filed an appeal from the proposed enforcement action established that he was aware of the IRS's collection activities. Absent proof that he lacked actual notice of the proposed sale, and in light of the fact that he did not attempt to postpone, cancel, or void the sale, he was not entitled to an award of damages.
[Code Secs. 6335 and 7433 ]

Damages: Auction sale of judgment lien: Intentional or reckless acts: IRS agents: Actual damages: Proof.--Although an attorney's wife lacked actual knowledge or notice of the IRS's proposed auction sale of his judgment lien against a former client because no papers were served on or mailed to her, she failed to prove by a preponderance of the evidence that she had sustained direct economic damages as a proximate result of the IRS agent's reckless disregard of her right to notice. Thus she was not entitled to an award of damages under Code Sec. 7433 . The wife always deferred to her husband regarding their income tax obligations, and the record indicated that even if she had been notified of the proposed auction, she would not have acted differently.

MEMORANDUM OPINION AND ORDER

HUDSPETH, District Judge:

This is a civil action for damages under 26 U.S.C. §7433. In their complaint, the Plaintiffs allege that an officer of the Internal Revenue Service recklessly and intentionally disregarded provisions of the statutes and regulations in connection with an attempt to collect past due federal income taxes. The case was tried to the Court without a jury. The Court's findings of fact and conclusions of law are incorporated in this opinion.

This case is unusual if nothing else. One of the Plaintiff taxpayers (Towner Leeper) is both an attorney and a Certified Public Accountant. Furthermore, his entire professional career, which had spanned some forty years at the time of the incident in question in this case, had been devoted to the specialty of tax law. In fact, his first job out of law school was in the office of district counsel of the Internal Revenue Service in St. Louis , Missouri , and New Orleans , Louisiana . In 1960, he entered private practice in El Paso , Texas , a practice which he testified was devoted exclusively to tax law. Ironically, in the early 1990s, at a time when many attorneys are preparing for retirement, Mr. Leeper began to encounter his own personal income tax problems. He fell behind in the payment of income taxes due and owing by himself and his spouse ¹ and the Internal Revenue Service began to assess tax deficiencies. In March, 1994, the Leeper account was assigned to a Revenue Officer for collection. The Revenue Officer first assigned to the case on March 4, 1994 , was James Haynes of the El Paso , Texas office of the Internal Revenue Service. On November 7, 1994 , the case was reassigned to Revenue Officer Kelly Heick of the same office. Ms. Heick then proceeded with attempts to collect past due income taxes.

We now fast forward to the year 1996, in which the events crucial to this case occurred. In mid-1996, the past due income tax obligation of the Plaintiffs was approximately $39,000.00. In May, 1996, Ms. Heick learned that the Plaintiffs had sold their personal residence and realized gross proceeds of approximately $114,000.00. For some unknown reason, however, the Government's federal tax lien was not located by the title company, so the Plaintiffs' tax bill was not paid off (Defendant's Exhibit 6). Ms. Heick then demanded that the Plaintiff pay the past due income taxes in full, or she would proceed with some form of enforcement action. When full payment was not received, Ms. Heick focused her attention on one particular item of property possessed by the Plaintiffs, to-wit: a judgment against Bruce Brown and in favor of Plaintiff Towner Leeper. It is Revenue Officer Heick's actions with respect to this judgment that give rise to this lawsuit.

At some time in the past, Towner Leeper had represented Bruce Brown in connection with a dispute with the Internal Revenue Service over Brown's tax liability. Later, Mr. Leeper sued Mr. Brown to collect his attorney's fees. On September 12, 1994 , Mr. Leeper obtained a judgment against Mr. Brown in the amount of $248,229.50 (Plaintiff's Exhibit 1). The very first time that Ms. Heick contacted Mr. Leeper about payment of his back taxes on November 7, 1994 , she was told that he was trying to collect on the judgment, and that he intended to pay his back taxes with these funds (Defendant's Exhibit 6). According to Mr. Leeper, the judgment had been recorded as a second lien on a piece of unimproved real estate owned by the judgment debtor, Bruce Brown, near the intersection of North Loop Road and Zaragosa Road in El Paso County , Texas . Mr. Leeper was hoping that the land would be sold, and that the proceeds of the sale would be sufficient to pay his judgment in whole or in part. However, the land was not sold, and no funds were received by the Plaintiffs in satisfaction of the Bruce Brown judgment. Finally, in July, 1996, almost twenty months later, Ms. Heick decided to proceed with enforcement action with respect to the Bruce Brown judgment with the intention of applying the proceeds of its sale, if any, to the Plaintiffs' tax liability. Accordingly, on July 16, 1996 , Ms. Heick proceeded to seize the judgment by filing a levy (IRS Form 668B) and a Notice of Seizure (IRS Form 2433) (Plaintiffs' Exhibits 15 and 13). On July 17, 1996 , Ms. Heick proceeded to the office of Towner Leeper at 661 South Mesa Hills, El Paso , Texas , to serve copies of the forms 2433 and 668B on the taxpayer. Towner Leeper was not present in his office, so Ms. Heick left copies of the two forms with his son, John Leeper, also a practicing attorney.

It obvious that the documents left with John Leeper by Revenue Officer Heick reached Towner Leeper, because on July 19, 1996 , Towner Leeper filed an appeal from the proposed enforcement action (Plaintiffs' Exhibit 9). Ms. Heick was informed of the appeal by her group manager on July 23, 1996 . Accordingly, her collection efforts were put on hold. For whatever reason, however, Towner Leeper did not follow up aggressively on his collection appeal. He did not return telephone calls from the group manager attempting to set up a conference regarding the appeal, or he returned the calls after hours and left messages on an answering machine. Frustrated, the group manager advised Ms. Heick on or about July 30, 1996 , that the appeal was "closed".

On August 7, 1996 , Ms. Heick and another Revenue Officer, Grace Torres, returned to the office of Towner Leeper. She took with her additional copies of the levy and Notice of Seizure which she had left in the Leeper law office the month before. She also brought with her two more documents, to-wit: a Notice of Public Auction Sale (IRS Form 2434) (Plaintiffs' Exhibit 20) and a minimum bid worksheet (IRS Form 4585) (Plaintiffs' Exhibit 7). This time, Ms. Heick met personally with the taxpayer, Towner Leeper, and served him with these four documents. The Notice of Public Auction Sale informed him that all of his right, title, and interest in and to the Bruce Brown judgment would be sold at public auction on August 22, 1996 , at 10:00 a.m. Mr. Leeper inquired as to the status of his appeal, and Ms. Heick informed him that the appeal had been closed. According to Ms. Heick, she specifically called Mr. Leeper's attention to the date of the proposed public auction sale.

Prior to August 22, 1996 , notices of the proposed auction sale were published in the El Paso Times, a daily newspaper of general circulation in El Paso County , Texas , and posted on the Internal Revenue Service bulletin board. When August 22 arrived the sale was held and the judgment was purchased by Cash Investments, Inc. for $40,022.00. This sum was equal to the exact amount of the tax lien plus costs of sale. Apparently Towner Leeper was not represented at the auction sale.

On November 14, 1996 , the Plaintiffs submitted an administrative claim for damages to the District Director of Internal Revenue in Austin , Texas . In this written claim, Towner Leeper denied that he had received advance notice of the proposed auction sale on August 22, 1996 . Although he acknowledged having received the Notice of Seizure (Form 2433) and the minimum bid worksheet (Form 4585), he alleged that Ms. Heick had advised him that the sale date was "tentatively set some time in September" (Plaintiffs' Exhibit 8). La Fonne Leeper also contended that she had received no advance notice of the auction sale (Plaintiffs' Exhibit 8). The Plaintiffs contended that the price paid for the Brown judgment at the auction sale was inadequate, resulting in economic damage to them. Towner Leeper also claimed that he sustained a heart attack in October, 1996, and that the attack was proximately caused by the improper collection activities of the Defendant's agents. Finally, the Plaintiffs alleged that the collection activities of Revenue Officer Kelly Heick were reckless and intentional. When their administrative claim met with no success, the Plaintiffs filed their complaint in the instant case.

Under 26 U.S.C. §7433, a taxpayer has the right to bring a civil action for damages against the United States if an officer or employee of the Internal Revenue Service in the process of collecting a tax recklessly or intentionally disregards any provision of the Internal Revenue Code or any regulation promulgated under the Code. Damages are limited, however, to actual, direct economic damages sustained by the plaintiff as a proximate result of the officer's reckless or intentional act. 26 U.S.C. §7433(b)(1). In the instant case, the Plaintiffs contend that the intentional or reckless act of Revenue Officer Heick was the willful failure to give them notice of the date and time of the proposed auction sale of the Bruce Brown judgment. ²

The Court finds as a fact that Plaintiff Towner Leeper did receive actual notice of the proposed auction sale. That notice was received by Mr. Leeper on August 7, 1996 , when Revenue Officers Heick and Torres personally served him with a copy of the Form 2434, Notice of Public Auction Sale (Plaintiff's Exhibit 20) along with other relevant documents. For whatever reason, between August 7 and August 22, Mr. Leeper made no attempt to postpone or cancel the proposed auction sale, nor did he file an action after August 22 seeking to void the sale of the judgment. ³ According to the testimony of Towner Leeper, he learned of the auction sale in September, 1996. If that were true, he had plenty of time to file an action to void the auction sale before the judgment was resold to a third party. The fact that he took no such action is further evidence that he knew of the August 22 auction sale in advance.

Although a determination with regard to motive is certainly not essential to reaching a decision in this case, the following scenario might explain what happened here. On August 7, 1996 , Towner Leeper was informed that the Bruce Brown judgment would be sold at auction on August 22. At that time, he did not possess sufficient funds to satisfy his income tax liability of almost $40,000.00. By the same token, he did not have the funds necessary to go to the auction and bid on the judgment himself, nor the ability to get some one else to attend the auction and offer a higher bid for the judgment. Furthermore, the Bruce Brown judgment probably had no value except to the extent that it operated as a second lien against a piece of real estate. Although the judgment had been obtained almost two years before, efforts to sell the land and satisfy the judgment, in whole or in part, had been unsuccessful. Since the judgment was but a second lien on unimproved real estate, it had no present cash or loan value. Mr. Leeper may have made a conscious decision to do nothing but wait and see if any bidder actually met the IRS minimum bid price at the auction sale. If the judgment were sold at the auction, his experience and detailed knowledge of the Internal Revenue Code undoubtedly made him aware of the possibility of a suit for damages under Section 7433.

The Court previously found in connection with the motion for summary judgment, and finds again after hearing the evidence at trial, that Plaintiff La Fonne Leeper did not receive notice of the auction sale by means of personal service, certified mail, or otherwise. The Internal Revenue Service was clearly required by statute (26 U.S.C. §6335(b)) to give her such notice. The Court further found, and finds again after trial, that IRS personnel recklessly or intentionally failed to comply with section 6335(b). The only remaining issue with respect to the claim of La Fonne Leeper under section 7433 is whether she is entitled to damages, and, if so, in what amount.

La Fonne Leeper testified in the trial of this case. Her testimony was that she received no advance notice of the proposed sale of the Bruce Brown judgment at public auction. She learned that the judgment had been sold "a day or two" after the sale. As of August 22, 1996 , she admitted that she did not have sufficient funds available to satisfy her income tax liability for the year 1994. Significantly, she admitted that she left all decisions relating to their joint income tax liability and the methods of satisfying same to her husband, Towner Leeper. Upon learning of the sale of the judgment at public auction, she took no steps to set aside the judgment. Once again, she deferred to her husband, Towner Leeper. There is no evidence tending to show that La Fonne Leeper or Towner Leeper would have taken any different action had La Fonne received prior, independent notice of the proposed sale of the judgment at public auction.

This brings us to the question of whether La Fonne Leeper is entitled to recover damages. Section 7433 limits a plaintiff's recovery to the actual, direct economic damages sustained by the plaintiff as a proximate result of the IRS employee's reckless or intentional act or omission. 26 U.S.C. §7433(b)(1). For the reasons just stated, Plaintiff La Fonne Leeper is unable to prove by a preponderance of the evidence that Revenue Officer Heick's reckless disregard of her right to notice was a proximate cause of any damages. Come rain or come shine, La Fonne Leeper was going to leave all decisions and all action regarding their joint income tax liability to her husband, Towner Leeper. Giving her actual notice of the proposed auction sale in advance would not have changed anything.

It is therefore ORDERED that judgment be, and it is hereby, ENTERED in favor of the Defendant, and that the Plaintiffs take nothing by their suit.

¹ Towner Leeper was married to La Fonne Leeper, and they filed joint income tax returns. La Fonne Leeper is also a Plaintiff in this case.

² In their pleadings, the Plaintiffs also contended that IRS employees violated statutes and/or regulations in (a) failing to give them notice of the minimum bid price; (b) selling the judgment to Cash Investments, Inc. for "grossly inadequate consideration"; and (c) selling the judgment while an appeal of the enforcement action was pending. Plaintiff La Fonne Leeper also contended that the IRS failed to inform her of the Notice of Seizure. The Court previously disposed of these contentions in the context of summary judgment. See: Order Regarding Plaintiff La Fonne Leeper's Motion for Partial Summary Judgment and Defendant's Motion for Summary Judgment, entered June 8, 1999 .

³ As an attorney specializing in tax law, he was aware that a sale conducted without the required notice was void. Reece v. Scoggins [75-1 USTC ¶9202], 506 F.2d 967 (5th Cir. 1975).

 

 

 

 

[2003-1 USTC ¶50,277.]Ralph G. Sachs, Plaintiff-Appellant v. United States of America, acting through the Internal Revenue Service, Defendant-Appellee.

U.S. Court of Appeals, 6th Circuit; 01-2224, 59 FedAppx 116, February 21, 2003 .

Unpublished opinion affirming DC Mich., 2001-2 USTC ¶50,640.

[ Code Secs. 6331 and 7433]

Unauthorized collection actions: Civil actions: Damages: Exclusive remedy.

An individual's complaint was properly dismissed because an alleged IRS violation of the Internal Revenue Manual and a revenue ruling could not support a claim under Code Sec. 7433, as that provision authorizes damages only in cases where Title 26 or any corresponding sections of the regulations have been violated. Alleged Fourth Amendment violations similarly fell outside the scope of Code Sec. 7433. Furthermore, because Code Sec. 7433 is the exclusive remedy for recovering damages against IRS agents for violation of constitutional rights, a Bivens action could not be maintained.

[ Code Secs. 6333 and 6335]

Summonses: Seizure: Notice requirements. --

A summons issued to a brokerage firm that held securities for an individual was proper, even though it did not provide ten-day notice and was not sent by certified mail. The summons was issued for the purpose of collection or seizure pursuant to Code Sec. 6333; therefore, the certified mailing and notice requirements of Code Sec. 7602 did not apply. Furthermore, the IRS was only required to provide a notice of seizure to the brokerage firm, and not to the individual himself.

[ Code Sec. 6502]

Sale of seized property: Notice of sale or seizure. --

An IRS levy on an individual's assets was not barred due to the expiration of the limitations period. The IRS brought suit against the taxpayer prior to the expiration date of the collection statute, whereupon the period of collectibility was extended, and the time period did not lapse until the tax was satisfied.

Before: Daughtrey and Cole, Circuit Judges, and Sargus, District Judge.

¬ Caution: The court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.®

OPINION

COLE, JR., Circuit Judge: Plaintiff-Appellant Ralph G. Sachs appeals the dismissal of his claim against Defendant-Appellee United States of America, acting through the Internal Revenue Service ("IRS"), for unauthorized collection actions in violation of 26 U.S.C. §7433. Quick and Reilly, Inc. ("Q&R") was also named as a defendant in the original complaint; however, Sachs does not appeal the dismissal of his complaint against Q&R. Pursuant to Federal Rule of Civil Procedure 12(b)(6), the district court dismissed Sachs's complaint for failure to state a claim upon which relief could be granted. For the reasons that follow, we AFFIRM the judgment of the district court.

I. BACKGROUND

Sachs owed the IRS back taxes for the years 1978 and 1979. The Collection Statute Expiration Date ("CSED"), until which the IRS could collect the underlying tax liability in this matter, was July 4, 1999 .

On June 1, 1999 , the IRS mailed a Notice of Levy to Q&R, the brokerage firm which held Sachs's investment securities. Q&R received the notice on June 11, 1999 , and had twenty-one days from the date of receipt to forward the requested funds to the IRS. During this three-week period. Sachs informed Q&R that he believed IRS internal rulings prohibited Q&R from liquidating his securities and forwarding the funds to the IRS. In response, Revenue Officer Jennifer Zogut faxed a summons to Edwin Mendez, Q&R's Assistant Director of Compliance, requesting information regarding the negotiable instruments Q&R held for Sachs, and requesting a response by the next afternoon.

On or about July 1, 1999 , Q&R informed Sachs that it was going to respond to the Notice of Levy by liquidating certain securities which he owned and forwarding the corresponding monies to the IRS. On July 1, 1999 , the IRS initiated court proceedings to have the tax liability reduced to a judgment.

On or about July 13, 1999 , a check in the amount of $251,511.09, in full satisfaction of the levy, was obtained by the IRS from Sachs's account with the local Q&R office. On September 23, 1999 , Sachs filed a Form 843, Claim for Refund, which was denied by the IRS. By filing this claim, Sachs effectively exhausted his administrative remedies, thereby providing the district court with jurisdiction over the present suit.

II. ANALYSIS

This Court reviews de novo a district court's grant of a motion to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Downie v. City of Middleburg Heights , 301 F.3d 688, 693 (6th Cir. 2002). In reviewing a Rule 12(b)(6) motion, this Court treats all well-pleaded allegations in the complaint as true, and the Court affirms the dismissal only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of the claims that would entitle him or her to relief." Id.

A. Absence of Physical Seizure

26 U.S.C. §7433(a) provides for the recovery of damages resulting from unauthorized collection activities when "any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence disregards any provision of this title, or any regulation promulgated under this title." Section 6331(a) of the Internal Revenue Code ("the Code") states that when any person is liable to pay any tax and neglects or refuses to pay that tax, it shall be lawful for the United States to collect that tax "by levy upon all property and rights to property ... belonging to such a person or on which there is a lien provided in this chapter for the payment of such tax." 26 U.S.C. §6331(a). The Code also notes that "[t]he term `levy' as used in this title includes the power of distraint and seizure by any means." 26 U.S.C. §6331(b).

Sachs contends that the IRS was required to physically seize the securities, rather than "seizing" their monetary value by check after their liquidation. In failing to physically seize the securities, Sachs argues that the IRS violated §6331 of the Code, thereby entitling Sachs to damages under §7433.

Section 7433 of the Code authorizes damages for the intentional, reckless, or negligent disregard of a "provision of this title, or any regulation promulgated under this title." 26 U.S.C. §7433(a). A successful claim under §7433 can only occur, therefore, when Title 26, or a regulation promulgated thereunder, is violated. Here, the alleged violation is a violation of the Internal Revenue Manual and a Revenue Ruling. These are not violations of Title 26, nor are they violations of any corresponding sections of the Code of Federal Regulations. As such, Sachs's claim falls outside the scope of §7433's protection.

The Ninth Circuit has ruled similarly. In Shwarz v. United States [ 2001-1 USTC ¶50,111], 234 F.3d 428 (9th Cir. 2000), the court ruled that "because the [IRS] manual and the [IRS National Policy Statement] are not code provisions or regulations, violations of the manual and the NPS cannot support a claim under §7433." Id. at 434; see also Gonsalves v. Internal Revenue Serv. [ 92-2 USTC ¶50,474], 975 F.2d 13, 16 (1st Cir. 1992) (holding that §7433 does not support a claim for a "right" that is created by internal IRS policy); cf. Schweiker v. Hansen, 450 U.S. 785, 789 (1981) ( per curiam) (holding that an agency policy manual "is not a regulation," "has no legal force," and "does not bind" the agency).

Because the alleged violation pertains to an internal IRS policy, rather than a portion of the Code or corresponding regulations, §7433 cannot support a claim by Sachs based on the failure of the IRS to physically seize the actual securities.

B. Illegal Seizure in Violation of the Fourth Amendment

Sachs argues that by forcing Q&R to liquidate the securities, the IRS "constructively seized" the assets, and that by constructively forcing this liquidation to obtain a check rather than the instruments themselves, the United States violated the Fourth Amendment. Sachs contends that this position is supported under any one of three alternative theories: (1) a §7433 theory: (2) a G.M. Leasing theory; and (3) a Bivens theory.

1. Section 7433 Theory

The Fourth Amendment is not a provision of Title 26, nor is it a regulation promulgated thereunder. See 26 U.S.C. §7433(a). Thus, by the plain language of the statute alleged Fourth Amendment violations fall outside its scope.

2. G.M. Leasing Theory

Sachs argues that the IRS was required to obtain a writ of entry in order to physically seize his securities. The Supreme Court has held that a warrantless entry by IRS agents into a corporation's private offices violated the Fourth Amendment because a search of private property without proper consent is unreasonable unless it has been authorized by a valid search warrant. G.M. Leasing Corp. v. United States [ 77-1 USTC ¶9140], 429 U.S. 338, 352-53 (1977).

In this case, the IRS agents never entered any private property of Sachs. Sachs nevertheless argues that because the securities were seized on behalf of the government and subsequently liquidated on the government's behalf, this "constructive seizure" was substituted for the required physical seizure, and therefore gives rise to a Fourth Amendment claim.

G.M. Leasing does not support the extrapolation suggested by Sachs. In this context, the "constructive seizure" that Sachs contends occurred is not the legal equivalent of an actual, physical seizure because G.M. Leasing recognizes a Fourth Amendment violation based on the privacy concerns that accompany a physical intrusion. The G.M. Leasing Court stated that, while §6331 of the Code is "silent on the subject of intrusions into privacy," it is also an "authorization for all forms of seizure." Id. at 358 (emphasis added). While the IRS does need a warrant to enter private premises in order to seize a delinquent taxpayer's property, the IRS does not need judicial authorization to simply seize property where it does not intrude upon privacy rights. See id. at 358: see also Maraziti v. First Interstate Bank of Cal. [ 92-1 USTC ¶50,206], 953 F.2d 520, 524 (9th Cir. 1992) (stating that "when the government seizes property to collect delinquent taxes, there is no violation of the Fourth Amendment if the seizure is not an invasion of the taxpayer's personal effects or premises"). The G.M. Leasing Court did not find a Fourth Amendment violation in the seizure of automobiles which "took place on public streets, parking lots, or other open places and did not involve any invasion of privacy." [ 77-1 USTC ¶9140], 429 U.S. at 351.

Because the IRS did not invade Sachs's privacy rights, G.M. Leasing does not support a finding in the present case that there was a Fourth Amendment violation.



3. Bivens Theory

Lastly, Sachs argues that he is able to state a claim for a Fourth Amendment violation under Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388 (1971). In Bivens, the Court held that damages may be obtained for injuries resulting from a violation of the Fourth Amendment by federal officials. Id. at 395-96.

This argument is unavailing because this Court has held that a Bivens claim seeking monetary damages cannot be brought for actions arising out of the collection of taxes. See Fishburn v. Brown [ 97-2 USTC ¶50,742], 125 F.3d 979, 982-83 (6th Cir. 1997); accord Downie, 301 F.3d at 695 (citing Fishburn for the proposition that a taxpayer cannot bring a Bivens action against IRS agents for Fourth Amendment violations).

Sachs contends that Fishburn should not be read as a blanket prohibition against claims for monetary damages for actions out of the collection of taxes. Rather. he asserts that Fishburn only precludes Bivens actions that should have been part of a §7433 claim. There is no basis for such a reading of Fishburn.

This Court has previously stated explicitly and unequivocally that taxpayers cannot "bring a Bivens action against IRS agents for violations of [their] Fourth Amendment rights." Downie. 301 F.3d at 695. Section 7433 provides that it shall be the "exclusive remedy for recovering damages from such actions." 26 U.S.C. §7433(a). "Although the damages provision does not mention constitutional violations, [this Court] noted that `[t]hese carefully crafted legislative remedies confirm that, in the politically sensitive realm of taxation, Congress's refusal to permit unrestricted damages actions by taxpayers has not been inadvertent." Downie, 301 F.3d at 695 (quoting Fishburn [ 97-2 USTC ¶50,742], 125 F.3d at 983).

Thus, because Bivens actions are not available to taxpayers claiming violations of the Fourth Amendment, Sachs's Bivens theory is not a valid claim for which relief may be granted.

Because none of the theories provided by Sachs is legally viable, the district court's dismissal of his Fourth Amendment claim under 12(b)(6) was proper.

C. Remaining Issues

In addition, we are not persuaded by any of the other arguments asserted by Sachs on this appeal. First, Sachs argues that he possesses an actionable claim under 26 U.S.C. §7433(a) because the IRS did not possess a valid federal tax lien. However, the IRS did possess a valid lien, statutorily imposed pursuant to 26 U.S.C. §6321. Moreover, a valid federal lien is not required for the IRS to levy property under 26 U.S.C. §6331.

Sachs also contends that the IRS issued an improper summons because the summons was not sent by certified mail, and the summons did not provide ten-day notice. This argument is unavailing because these requirements apply to summonses issued for the purpose of ascertaining the correctness of a return, making a return, or determining a tax liability pursuant to 26 U.S.C. §7602. The summons in question here, however, was issued for the purpose of collection or seizure pursuant to 26 U.S.C. §6333, and the certified mailing and notice requirements therefore do not apply.

Next, Sachs asserts that the IRS failed to adequately notify Sachs of the seizure. Pursuant to 26 U.S.C. §6335, the IRS was only required to provide a notice of seizure to Q&R, and it properly did so.

Lastly, Sachs argues that the levy on the assets held by Q&R was improper because the statute of limitations had expired. The period during which a tax may be collected is extended if a court proceeding is filed, and the time period shall not lapse until the liability for the tax is satisfied. See 26 U.S.C. §6502(a). Because the IRS brought suit against Sachs prior to the expiration date of the collection statute, the deadline was extended.

III. CONCLUSION

For the foregoing reasons, we AFFIRM the judgment of the district court.

 

 

 

[2002-1 USTC ¶50,217] In re Allan R. Crump and Shirley A. Crump, Debtors. Allan R. Crump, Plaintiff-Appellant, and Shirley A. Crump, Plaintiff v. United States of America, Michael Pippin, Judy Pippin, Defendants-Appellees, and Sally J. Zeman, Chapter 13 Trustee, Defendant

(CA-10), U.S. Court of Appeals, 10th Circuit, 01-1069, 1/30/2002 , 29 Fed. Appx. 556, 2002 U.S. App. LEXIS 1438. Affirming an unreported District Court decision

[Code Sec. 6335 ]

Collection: Sale of seized property: Due process: Notice: Place of sale.--A federal bankruptcy court properly quieted title to real property in two individuals after that property was seized by the IRS and sold to pay a debtor's outstanding tax debts. The government met the statutory notice requirements for a sale and seizure of the property and properly published notice of the sale in local newspapers. Moreover, his contention that his due process rights were violated by posting the notices to his door, rather than serving him personally has been expressly rejected by the U.S. Supreme Court.

[Code Sec. 6335 ]

Collection: Sale of seized property: Due process: Notice: Place of sale.--A federal bankruptcy court properly quieted title to real property in two individuals after that property was seized by the IRS and sold to pay a debtor's outstanding tax debts. The IRS issued a "special order" to conduct the sale outside the county where the property was seized, as required by Code Sec. 6335 . The authority to change the sale venue was delegated to the group manager, who authorized the sale in another county by signing Form 2434. In addition the district director's determination that the residence would receive higher bids for the debtor's interest if the auction was held in a different county was sufficient to comply with the statute.

Allan R. Crump, Thornton, Colo., Shirley A. Crump, Denver, Colo. pro se., John F. Reha, Arckey & Reha, Littletown, Colo., for Michael Pippin, Judy Pippin. William G. Pharo, Jr., Assistant United States Attorney, Denver , Colo. , Robert L. Baker, Arthur P. Yoon, Christopher H. LaRosa, Department of Justice, Washington , D.C. 20530 .

Before: KELLY, BALDOCK and LUCERO, Circuit Judges.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

ORDER AND JUDGMENT ^*

LUCERO, Circuit Judge:

Appellant Allan R. Crump, proceeding pro se, appeals the district court's order affirming the bankruptcy court's order quieting title in real property. The property in question was Crump's residence, which the Internal Revenue Service ("IRS") seized to pay his tax debt. At the IRS auction of Crump's residence, appellees Michael Pippin and Judy Pippin ("Pippins") were the successful bidders. Crump filed for bankruptcy on the eve of the auction, so the underlying quiet title action was filed as an adversary proceeding in the bankruptcy court. Following the bankruptcy court's entry of a summary judgment that quieted the title in the Pippins, Crump appealed to the district court. We review the district court's order affirming the bankruptcy court's entry of summary judgment and affirm.

On appeal, Crump asserts that the sale of his residence was void because the IRS failed to adhere strictly to the procedures dictated by statute. He claims (1) service of the notices of seizure and sale did not comport with due process because the notices were merely taped to the door of his residence, (2) the public notice of the sale was not published in an appropriate publication, (3) the IRS improperly changed the venue of the auction to a county other than the county in which the property was located, and (4) the auction was conducted by an unauthorized private party.

"In reviewing the district court's decision affirming the bankruptcy court's determination, this court will apply the same standards of review employed by the district court. We, therefore, review de novo the bankruptcy court's decision granting appellees summary judgment." Woodcock v. Chem. Bank (In re Woodcock), 144 F.3d 1340, 1342 (10th Cir. 1998) (citations omitted).

I

Appellant claims that service of the notices of seizure and sale did not comply with 26 U.S.C. §6335(a)-(b) and violated his due process rights. The statute states the notices

shall be given by the Secretary [of the Treasury] to the owner of the property . . . or shall be left at his usual place of abode or business if he has such within the internal revenue district where the seizure is made. If the owner cannot be readily located, or has no dwelling or place of business within such district, the notice may be mailed to his last known address.

§6335(a); see also §6335(b); 26 C.F.R. §301.6335-1(a)-(b).

Crump represents that he was neither served the notices personally, nor were they left with any person of competent age and discretion. The IRS counters that IRS Revenue Officer Sharon Quinn delivered the notices to the Crump residence by placing them in an envelope and taping the envelope to the front door of the residence on November 3, 1993 . In response, Crump denies receiving the notices and argues that the posting of the notices on the door of the property does not satisfy the service requirements of 26 U.S.C. §6335(a)-(b). He maintains that this statute should be interpreted to require that the documents be left with a person of competent age and discretion who resides at the abode. The statute, however, does not require this, it only requires that the noticed "be left at [the] usual place of abode . . . where the seizure is made." 26 U.S.C. §6335(a).

To the extent Crump claims posting of notice can never comport with due process requirements, the Supreme Court has rejected this position. As noted in Greene v. Lindsey,

short of providing personal service, then, posting notice on the door of a person's home would, in many or perhaps most instances, constitute not only a constitutionally acceptable means of service, but indeed a singularly appropriate and effective way of ensuring that a person who cannot conveniently be served personally is actually apprised of proceedings against him.

456 U.S. 444, 452-53, 72 L.Ed.2d 249, 102 S.Ct. 1874 (1982). Crump does not allege that the posting of the notices on the door of his residence was not a "reliable means of acquainting interested parties of the fact that their rights are before the courts." Id. at 454. (internal quotations omitted). Absent such a showing, Crump has not demonstrated that minimum standards of due process have been denied. Because the IRS served the notices of seizure and sale as required by §6335(a)-(b) and Crump has not demonstrated a due process violation, summary judgment was appropriate on this ground.

II

The Secretary is required to "cause a notification [of the sale] to be published in some newspaper published or generally circulated within the county wherein such seizure is made." 26 U.S.C. §6335(b). We are urged to conclude that the auction sale was void because one public notice of the sale was not published in a publication of general interest and the other was not published by the Secretary of the Treasury. Notices were published in two newspapers, The Daily Journal and The Denver Post. Contending that The Daily Journal is aimed at the construction trade, appellant complains that placing notice of the sale in this publication did not comport with the statute because it is not a publication of general interest. The notice published in The Denver Post was inadequate, according to Crump, because it was placed by the private firm that conducted the auction rather than the Secretary. There is no dispute that The Denver Post is a newspaper of general interest and circulation.

The statute requires the Secretary to "cause a notification to be published," it does not require that the Secretary actually place every notice. Accordingly, publication in The Denver Post was sufficient. Furthermore, the bankruptcy court took judicial notice that The Daily Journal is published and generally circulated in the county where the real property was seized. Therefore, publication in The Daily Journal also satisfied the statutory requirements of 26 U.S.C. §6335(b). We conclude that the notification of the sale was properly published.

III

Statutory requirements necessitate that "the place of sale shall be within the county in which the property is seized, except by special order of the Secretary." 26 U.S.C. §6335(d). Regulations allow the relevant district director to order the sale outside of the county where the property is located if it appears that substantially higher bids could be obtained outside of the county. 26 C.F.R. §301.6335-1(c)(1).

The record refutes Crump's claim that the IRS did not issue a "special order" or determine that substantially higher bids could be obtained in a different county. The authority to change the sale venue was properly delegated to the group manager. By signing the notice of public auction sale, Form 2434, the group manager authorized the sale of the Crump residence to take place in a different county. (R. Vol. I, Doc. 24; id., Vol. II, Doc. 45, at 111.) The delegation order provides that signing a Form 2434 approves a sale outside the county in which the property was seized. Accordingly, the Form 2434, together with the delegation order, qualifies as the "special order" required by the statute.

Additionally, the IRS determined that the Crump residence would be "more likely to receive higher bids and more money for the taxpayer's interest" if it were put in an upcoming auction in a different county. (R. Vol. I, Doc. 19, Ex. F.) This statement satisfies the requirement that the district director conclude that substantially higher bids may be obtained if the sale is held outside of the county of seizure. No particular procedure or documentation is required. Therefore, the sale in a county other than the county of seizure was authorized.

IV

Appellant contends that the seizure and sale of his property was void because the auction was conducted by a private party, rather that the Secretary or a delegate. The law does not require that the auction be conducted by the Secretary or a delegate. Pertinent statutory provisions require only that the Secretary "prescribe the manner and other conditions of the sale of property seized by levy." 26 U.S.C. §6335(e)(2). The regulations prescribing the manner and conditions of the sale do not prohibit the Secretary from using the services of a private auctioneer. See 26 C.F.R. §301.6335-1(c). Accordingly, summary judgment was appropriate on this ground.

The judgment is AFFIRMED. The mandate shall issue forthwith.

^* The case is unanimously ordered submitted without oral argument pursuant to Fed.R.App.P. 34(a)(2) and 10th Cir. R. 34.1(G). This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. The court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

 

 

[2004-2 USTC ¶50,311]Grable & Sons Metal Products, Inc., Plaintiff-Appellant v. Darue Engineering & Manufacturing, Defendant-Appellee.

U.S. Court of Appeals, 6th Circuit; 02-1678, July 27, 2004 .

Affirming a DC Mich. decision, 2002-1 USTC ¶50,384.

[ Code Sec. 6335]

Tax sale: Sale of seized property: Notice of sale or seizure: Substantial compliance. --

Service by the government of notices of levy and auction by certified mail on a delinquent taxpayer rather than by personal service did not comply with the requirement that notice must be given or left with the taxpayer. However, substantial compliance with the notice requirements was sufficient where the delinquent taxpayer received actual notice, could point to no injury suffered as a result of the defective service, and waited six years to bring an action to quiet title.

[ Code Sec. 6339]

Tax sale: Sale of seized property: Notice of sale or seizure: Substantial compliance. --

Substantial compliance by the IRS with tax sale notice requirements was sufficient to pass title to the buyer of real property previously owned by a delinquent corporate taxpayer. Although the IRS served the notices of levy and auction by certified mail on the delinquent taxpayer rather than by personal service, substantial compliance was sufficient since the delinquent taxpayer did receive actual notice, could point to no injury suffered as a result of the defective service, and waited six years to bring an action to quiet title.

Charles E. McFarland, for plaintiff-appellant. Michael C. Walton, Rhoades, McKee, Boer, Goodrich & Titta, for defendant-appellee.

Before: Boggs, Chief Circuit Judge, and Daughtrey, Circuit Judge, and Aldrich, ^* District Judge.

OPINION

BOGGS, Chief Circuit Judge: Grable & Sons Metal Products Inc., ("Grable") argues that the district court committed two errors in granting judgment to Darue Engineering & Manufacturing ("Darue") in Grable's action to quiet title against Darue. First, Grable argues that its claim, although based on federal tax law, does not present a federal question, and, therefore, that the district court did not have subject matter jurisdiction to adjudicate the case after Darue removed it from Michigan state court. Secondly, Grable appeals the district court's judgment denying its quiet-title claim in property Darue had purchased at a tax sale after the IRS seized it from Grable in 1994.

Grable's quiet-title action is based on provisions of the Internal Revenue Code concerning proper procedures for notifying delinquent taxpayers that their property has been seized. Its claim implicates a substantial federal interest, thereby presenting a federal question. Furthermore, the district court correctly denied Grable's action because the Internal Revenue Code allows for substantial, rather than literal, compliance with regulations regarding tax-seizure notification. Neither federal law nor principles of equity supports Grable's claim, asserted six years after the sale of its property, that notice by certified mail, rather than in person, rendered the IRS sale to Darue invalid. Accordingly, we affirm the judgment of the district court in its entirety.

I

The facts in this case are not disputed. In 1994, the IRS seized property at 601-701 W. Plains Road , in Eaton Rapids, Michigan , to satisfy Grable's tax debt resulting from not paying its corporate income taxes for six years. The IRS served notice of the seizure by certified mail, although 26 U.S.C. §6335(a), the relevant statute, provides that notice must be "given" personally to the owner of the property. The parties agree that the IRS failed to adhere to the exact provisions of the statute but that Grable nevertheless received actual notice of the seizure. The IRS sold the property to Darue on December 13, 1994 , for $44,500. The record before us contains no clear evidence that Grable challenged the sale at the time or attempted to redeem the property at issue in this case. Following its standard procedure, the IRS executed a quitclaim deed to Darue on November 13, 1995 .

On December 14, 2000 , about six years after Darue bought the property, Grable challenged the sale in Eaton County Circuit Court by filing a quiet-title action. Darue removed the case to the United States Court for the Western District of Michigan under 28 U.S.C. §1441(b). Grable filed a motion to remand based on lack of subject matter jurisdiction. 28 U.S.C. §1447(c). The district court held that it had jurisdiction to hear the case because the application of §6335(a) implicates a substantial federal interest, meaning that Grable's claim was based on a federal question. On March 29, 2002 , the district court denied Grable's motion to quiet title and awarded judgment to Darue. Grable appealed to this court in a timely manner.

II

Federal Question Jurisdiction

A defendant may remove to federal district court "any civil action brought in a state court of which the district courts of the United States have original jurisdiction." 28 U.S.C. §1441(a). District courts have original jurisdiction over any civil action "arising under any Act of Congress providing for internal revenue ...." 28 U.S.C. §1340. This court reviews district court decisions regarding subject matter jurisdiction de novo. Caudill v. N. Am. Media Corp., 200 F.3d 914, 916 (6th Cir. 2000). Because we may not rule on the merits of a case over which a district court did not have subject matter jurisdiction, we must decide that issue first. See Thomas v. United States [ 99-1 USTC ¶50,222], 166 F.3d 825, 828 (6th Cir. 1999). The parties do not have diversity of citizenship, 28 U.S.C. §1332(a), nor is the United States a party to this action. ¹

Federal courts also have original jurisdiction over claims "arising under the Constitution, laws, or treaties of the United States ." 28 U.S.C. §1331. Whether a claim presents a federal question "must be determined from what necessarily appears in the plaintiff's statement of his own claim." Taylor v. Anderson , 234 U.S. 74, 75-76 (1914). In its original complaint to quiet title, Grable alleged that Darue's quitclaim deed was invalid because it "was given with improper notice pursuant to 26 U.S.C. §6331 et seq. ... [and] since the tax deed was given pursuant to improper notice as required by 26 U.S.C. §6335(a), said transfer and claim through the tax deed is null and void and void ab initio." The key question is whether Grable's quiet-title action, based as it is on the faulty process in a tax seizure, "arises under" federal law and thus invokes federal court jurisdiction. We hold that it does.

The statute upon which Grable bases his complaint reads:

As soon as practicable after seizure of property, notice in writing shall be given by the Secretary to the owner of the property ... or shall be left at his usual place of abode or business if he has such within the internal revenue district where the seizure is made. If the owner cannot be readily located, or has no dwelling or place of business within such district, the notice may be mailed to his last known address.

26 U.S.C. §6335(a) (emphasis added). The parties agree that the IRS failed to "give" or "leave" notification and that therefore the service of notice did not comply with the statute. See Goodwin v. United States [ 91-2 USTC ¶50,323], 935 F.2d 1061, 1064 (1991) (noting government concession that the literal meaning of the statute requires personal service); Howard v. Adle [ 82-1 USTC ¶9176], 538 F.Supp. 504, 507 (E.D. Mich. 1982) (demonstrating that certified mailing is insufficient for compliance with the statute by quoting 26 C.F.R. §301.6335-1(b)(1) (1981) and IRS Manual §5356.1(2) (1980); the latter specifies that the "original notice of sale will be delivered to the taxpayer personally"). Although Grable's complaint hinges on a violation of the Internal Revenue Code, Grable insists that its cause of action does not arise under federal law.

The long history of Supreme Court guidance concerning the meaning of "arising under" the laws of the United States has been synthesized into a three-part test. Although formulations differ slightly among the circuits, a federal question may arise out of a state law case or controversy if the plaintiff asserts a federal right that 1) involves a substantial question of federal law; 2) is framed in terms of state law; and 3) requires interpretation of federal law to resolve the case. Long v. Bando Mfg. of America, 201 F.3d 754, 759 (6th Cir. 2000); see e.g., Howery v. Allstate Insurance Co., 243 F.3d 912, 918 (5th Cir.), cert. denied, 534 U.S. 993 (2001); Seinfeld v. Austen, 39 F.3d 761, 763 (7th Cir. 1994), cert. denied sub nom. Abbott Labs v. Seinfeld, 514 U.S. 1126 (1995). The asserted federal right in this case, personal notification of seizure of property as provided by IRS regulations, fulfills these three requirements.



Substantial Federal Interest

To identify a federal question, we must make "a pragmatic assessment of the nature of the federal interest at stake," Howery, 243 F.3d at 917 (citing commentators), a simple task in this context. The federal government cannot function without effective tax collection. See United States v. Kimbell Foods, 440 U.S. 715, 734 (1979) (citing McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 425, 428, 431 (1819)). Society has a strong interest in clear rules for handling delinquent taxpayers. The IRS must have transparent procedures for seizing and selling property so that people will be willing to purchase property at tax sales, allowing the IRS to provide a predictable stream of tax revenue. Determining the scope of the IRS's authority to seize property to satisfy a tax debt undoubtably [ sic] implicates a substantial federal interest.

Presentation as a state law claim

Grable sued to quiet title, which is generally a state law cause of action. However, the scope of a taxpayer's right to due process in the form of notice of the tax seizure and sale is the essential element of this claim. Grable would not have any cause of action, and Darue would have undisputed title to the property, were it not for the technical notice requirements of §6335(a). Therefore the Internal Revenue Code, not state property law, lies at the center of this dispute. The state and federal claims are sufficiently entwined to allow us to find that Grable has presented a federal question.

Interpretation of the federal law required

Disposition of all the aspects of this case, including those related to the traditional state law property issues, turn on construction of federal tax law. Both parties agree that the only way to resolve the underlying controversy is to evaluate whether §6335(a), which mandates notice for IRS seizure of property for non-payment of taxes in person, requires strict, or merely substantial, compliance with its provisions to allow the IRS deed to convey title. If strict compliance is necessary, then Grable is entitled to get his property back because the IRS did not comply with the letter of the statute. If substantial compliance is sufficient, then further analysis and weighing of the equities of the situation is required. Therefore the final requirement is met: interpretation of the federal tax code is necessary to resolve the state law issue.

In sum, Grable's quiet title action presents a federal question because it is rooted in the Internal Revenue Code, the correct interpretation of which represents a substantial federal interest.

III

Action to Quiet Title

The district court also correctly granted summary judgment to the appellee, Darue. At issue is whether serving notice through a certified letter, which Grable in fact received, constitutes sufficient compliance with the statute to make the resulting quitclaim deed valid. Evaluating whether substantial compliance is applicable is a question of law that is reviewed de novo. In re Eagle-Picher Indus., Inc. 285 F.3d 522, 527 (6th Cir. 2002) (applying substantial compliance analysis to notice requirements in a bankruptcy case). However, the rule itself is an equitable doctrine, so that a district court's decision to apply it is reviewed for abuse of discretion. Id. at 529. See Cleveland Newspaper Guild Local 1 v. Plain Dealer Pub. Co. , 839 F.2d 1147, 1155 (6th Cir. 1988).

The Internal Revenue Code states that:

b) Deed of real property. --In the case of the sale of real property pursuant to section 6335 --

 

...

 

(2) Deed as conveyance of title. --If the proceedings of the Secretary as set forth have been substantially in accordance with the provisions of law, such deed shall be considered and operate as a conveyance of all the right, title, and interest the party delinquent had in and to the real property thus sold at the time the lien of the United States attached thereto.

26 U.S.C. §6339(b)(2) (emphasis added). Therefore, if the IRS substantially complied with the provisions of §6335(a), then the tax sale is valid.

Grable counsels against reading the substantial compliance provision of §6339(b)(2) as applying to §6335(a) seizures, in spite of the statutory language to the contrary, since doing so would render the notice provisions "totally ineffective." Appellant Br. at 31. This argument is not persuasive. Grable is correct that a basic rule of statutory construction mandates that a court should read statutes as a whole and not interpret one provision in a way that would render another meaningless or superfluous. Beck v. Prupis, 529 U.S. 494, 506 (2000) (calling the rule a "longstanding canon of statutory construction"); Lake Cumberland Trust v. EPA, 954 F.2d 1218, 1222 (6th Cir. 1992).

Allowing substantial compliance does not undermine the purpose of §6335(a), nor make its provisions superfluous. Should the IRS fail to adhere to the strict statutory notice provisions, it then has the burden of showing it substantially complied with them. Proving that a recalcitrant taxpayer actually received notice of a seizure or sale could be quite difficult. No court would uphold a seizure without notice. Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 313 (1950) (stating that "there can be no doubt that at a minimum [the due process clause] require[s] that deprivation of life, liberty or property by adjudication be preceded by notice and opportunity for hearing appropriate to the nature of the case").

Ignoring the provisions of §6335(a) puts the IRS at risk that a court will find its alternative notification procedures inadequate and invalidate the tax sale. Gauging how much variation will be tolerated puts the IRS in very uncertain territory. For instance, a simple public announcement of a tax sale, as provided for in 26 U.S.C. §6335(b), is "constitutionally inadequate." Verba v. Ohio Cas. Ins. Co. [ 88-2 USTC ¶9425], 851 F.2d 811, 816 (6th Cir. 1988). Attempting twice to notify the taxpayer in person of the public sale of his property, and then sending a certified letter, which was returned, and a regular letter, which was not, is insufficient notice to validate the tax sale. Reece v. Scroggins [ 75-1 USTC ¶9202], 506 F.2d 967, 969 (5th Cir. 1975). Nor will a court be swayed by the facts that taxpayer received proper notice of the initial property seizure and found out about the auction before the bidding began. Ibid. Adjudication of substantial compliance cases is very fact-specific, and the outcome is uncertain for the litigants. We do not believe that the latitude allowed by §6339(b)(2) undermines the strong motivation for the IRS to follow the letter of §6335(a). Only by doing so can it ensure the validity of its tax sales, effectively collect back taxes, and avoid litigation.

The Third Circuit approved the application of the substantial compliance doctrine to §6335(a) in Kabakjian v. United States [ 2001-2 USTC ¶50,684], 267 F.3d 208, 213 (2001), a case that is directly on point, and upon which the district court relied. Like Grable, Kabakjian owed the IRS taxes, and his property was seized and sold at auction. He sued the government, claiming that the notices he received pursuant to §6335(a) were defective because he received them by certified mail, rather than personal delivery. The Third Circuit held that the notices "were not so defective as to void the seizure of property and its transfer to third parties" because §6339(b)(2) allowed for substantial compliance. Ibid. Because Kabakjian could not demonstrate any prejudice beyond a theoretical deprivation of his right to notice, the court ruled that all his property rights had transferred to a third party, and his claim failed on the merits. Ibid.

Protecting the interests of bona fide purchasers is an important aspect of quiet title analysis. In the one opportunity the Sixth Circuit has had to address the question of substantial compliance in the context of a tax seizure and sale, we too held that procedural irregularities could not void a tax sale. PM Group Inv. Corp. v. PYK Enter. [ 98-2 USTC ¶50,529], No. 97-1335, 1998 WL 242337, at **3 (6th Cir. May 8, 1998) (unpublished opinion) (holding that issuance of a certificate of sale was conclusive evidence of the regularity of the sale). We noted that §6339(b)(2) was enacted to protect bona fide purchasers, such as Darue in this case. Ibid. (citing United States v. Whiting Pools [ 83-1 USTC ¶9394], 462 U.S. 198, 211 (1983)).

Grable argues that "provisions of law" in §6339(b)(2) means provisions of state law, citing Fuentes v. United States [ 88-1 USTC ¶9204], 14 Cl.Ct. 157, 167 (1987), and, therefore, that strict adherence to the statute is required. Fuentes dealt with a homeowner's suit against the IRS for delivering a quitclaim deed that was invalid under Puerto Rican law. The Court of Claims noted "that a sharp focus must be placed on the distinction between the law applicable to the efficacy of a tax sale and the law applicable to the execution of a deed stemming therefrom. As to the former, we find that federal law is applicable; and as to the latter, local law governs." Id. at 166. This case deals with the efficacy of the tax sale, rather than the validity of the deed, ² and is thus a question of federal law. See also Reece [ 75-1 USTC ¶9202], 506 F.2d at 970 (holding that faulty notice provisions made the sale voidable ab initio) (emphasis added). We also adopt the district court's analysis rejecting Grable's reading of Fuentes. The district court correctly pointed out that the substantial compliance language of §6339(b)(2) does not refer to the execution of the deed, but rather to the proceedings by which the Secretary sells real property pursuant to §6335, and therefore the statute directly contradicts Grable's theory that the substantial compliance provisions only apply to state law. Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg. [ 2002-1 USTC ¶50,384], 207 F.Supp.2d 694, 697 (W.D. Mich. 2002) (emphasis in the original).

Some courts have determined that substantial compliance is not acceptable in the context of a tax seizure. This view follows that of Chief Justice Marshall that "the person invested with such a power [to convey land] must pursue with precision the course prescribed by the law, or his act is invalid ...." Thatcher v. Powell, 19 U.S. (6 Wheat.) 119, 125 (1821). In Reece v. Scroggins, the leading case advocating strict construction, the court voided a tax sale because the IRS "handled this sale of land in a somewhat casual fashion," including failure to comply with notice requirements and irregularities in the subsequent public auction. Reece [ 75-1 USTC ¶9202], 506 F.2d at 970. The main rationale behind the court's holding was a recognition of the "Damoclean nature" of the IRS's ability to seize property to satisfy legitimate tax deficiencies and of the importance of strict adherence to the statute to protect the taxpayer. Id. at 971; Aqua Bar & Lounge, Inc. v. United States Dept. of Treasury [ 76-2 USTC ¶9554], 539 F.2d 935, 939 (2d Cir. 1976) (same).

In this case, however, Grable was amply protected. It received actual notice of the tax sale, which was one of several resulting from a six-year hiatus from paying taxes. It has not alleged any actual prejudice as a result of receiving notice through certified mail, nor did it take any action against Darue for six years. The protections in the statute are designed to prevent the government from seizing property without warning. The district court did not err in refusing to extend these protections to a delinquent taxpayer who knew that its property was being seized but waited years to assert its rights.

Although the statute allows for substantial compliance, the district court also analyzed the case under equitable principles, coming to the same favorable conclusion for Darue. Because we may affirm the district court on any ground supported by the record, we do not have to review the district court's application of equity, Shaw v. Deaconess Hosp., 355 F.3d 496, 498 (6th Cir. 2004), but we make two short points. In a case with similar defects in notice, the United States District Court for the Eastern District of Michigan applied equity in holding that substantial compliance was sufficient to validate the sale. Howard [ 82-1 USTC ¶9176], 538 F.Supp. at 508 (applying Michigan law to resolve the quiet title action). Secondly, the district court's decision to apply equity to dismiss Grable's quiet title motion does not contradict an earlier Michigan Court of Appeals quiet-title action that was decided in Grable's favor. Village of Dimondale v. Grable, 618 N.W.2d 23 ( Mich. App. 2000). In defending an action to quiet title to another piece of property that Mr. Grable owned personally, he argued that the tax sale was not valid because of defective IRS notice. The state appeals court held that, as a defendant, he did not have to worry about sleeping on his rights but was entitled to assert any valid defense. Dimondale, 618 N.W.2d at 31-32. The court also noted that "equity is a shield, not a sword." Id. at 32. The district court properly relied on that maxim when it held that a delay of approximately six years in pressing a claim provided sufficient basis in equity to deny Grable relief.

IV

For the reasons set out above, we AFFIRM the decision of the district court to deny Grable summary judgment and to award judgment to Darue.

^* The Honorable Ann Aldrich, United States District Judge for the Northern District of Ohio, sitting by designation.

¹ In order to be a party to a quiet title action, the United States must have an interest in the property, which it no longer has in this case. 28 U.S.C. §2410(a).

² See Robert Kratovil, Real Estate Law 49 (6th ed. 1974) (explaining that a "quitclaim deed purports to convey only the grantor's present interest in the land, if any, rather than the land itself .... If he has no interest, none will be conveyed.") (Emphasis in original.)

 

 

 

[2005-1 USTC ¶50,405]Grable & Sons Metal Products, Inc., Petitioner v. Darue Engineering & Manufacturing.

Supreme Court of the United States ; 04-603, June 13, 2005 .

On Writ of Certiorari to the United States Court of Appeals for the Sixth Circuit.

Affirming CA-6, 2004-2 USTC ¶50,311.

[28 USC 1331 and Code Secs. 6335, 6339 and 7402]

Federal-question jurisdiction: Actions arising under Constitution, laws, or treaties of the United States : State quiet title action: Interpretation of federal levy statute. --

A federal district court properly removed jurisdiction over a quiet title action arising under state ( Michigan ) law from the state court. Resolution of the case depended primarily upon the proper interpretation of federal income tax statutes involving the requirement that written notice be given to a delinquent taxpayer before the seizure and sale of property. The national interest in providing a federal forum for the proper interpretation of federal tax law was sufficiently substantial to support the exercise of federal jurisdiction even though the cause of action did not arise under federal law. An earlier decision ( Merrell Dow Pharmaceuticals Inc., v. Thompson, 478 U.S. 804 (1986)) in which the Court denied federal jurisdiction over a state tort claim that alleged negligence based on a drug company's violation of a federal misbranding statute should not be interpreted as always requiring a federal cause of action to support federal jurisdiction.

Syllabus

The Internal Revenue Service seized real property owned by petitioner (hereinafter Grable) to satisfy a federal tax delinquency, and gave Grable notice by certified mail before selling the property to respondent (hereinafter Darue). Grable subsequently brought a quiet title action in state court, claiming that Darue's title was invalid because 26 U. S. C. §6335 required the IRS to give Grable notice of the sale by personal service, not certified mail. Darue removed the case to Federal District Court as presenting a federal question because the title claim depended on an interpretation of federal tax law. The District Court declined to remand the case, finding that it posed a significant federal-law question, and it granted Darue summary judgment on the merits. The Sixth Circuit affirmed, and this Court granted certiorari on the jurisdictional question.

Held: The national interest in providing a federal forum for federal tax litigation is sufficiently substantial to support the exercise of federal-question jurisdiction over the disputed issue on removal. Pp. 3-11.

(a) Darue was entitled to remove the quiet title action if Grable could have brought it in federal court originally, as a civil action "arising under the...laws...of the United States," 28 U. S. C. §1331. Federal-question jurisdiction is usually invoked by plaintiffs pleading a cause of action created by federal law, but this Court has also long recognized that such jurisdiction will lie over some state-law claims that implicate significant federal issues, see, e.g., Smith v. Kansas City Title & Trust Co., 255 U.S. 180. Such federal jurisdiction demands not only a contested federal issue, but a substantial one. And the jurisdiction must be consistent with congressional judgment about the sound division of labor between state and federal courts governing §1331's application. These considerations have kept the Court from adopting a single test for jurisdiction over federal issues embedded in state-law claims between nondiverse parties. Instead, the question is whether the state-law claim necessarily stated a federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing a congressionally approved balance of federal and state judicial responsibilities. Pp. 3-6.

(b) This case warrants federal jurisdiction. Grable premised its superior title claim on the IRS's failure to give adequate notice, as defined by federal law. Whether Grable received notice is an essential element of its quiet title claim, and the federal statute's meaning is actually disputed. The meaning of a federal tax provision is an important federal-law issue that belongs in federal court. The Government has a strong interest in promptly collecting delinquent taxes, and the IRS's ability to satisfy its claims from delinquents' property requires clear terms of notice to assure buyers like Darue that the IRS has good title. Finally, because it will be the rare state title case that raises a federal-law issue, federal jurisdiction to resolve genuine disagreement over federal tax title provisions will portend only a microscopic effect on the federal-state division of labor. This conclusion puts the Court in venerable company, quiet title actions having been the subject of some of the earliest exercises of federal-question jurisdiction over state-law claims. E.g., Hopkins v. Walker , 244 U.S. 486, 490-491. Pp. 6-7.

(c) Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, is not to the contrary. There, in finding federal jurisdiction unavailable for a state tort claim resting in part on an allegation that the defendant drug company had violated a federal branding law, the Court noted that Congress had not provided a private federal cause of action for such violations. Merrell Dow cannot be read to make a federal cause of action a necessary condition for federal-question jurisdiction. It disclaimed the adoption of any bright-line rule and expressly approved the exercise of jurisdiction in Smith, where there was no federal cause of action. Accordingly, Merrell Dow should be read in its entirety as treating the absence of such cause as evidence relevant to, but not dispositive of, the "sensitive judgments about congressional intent," required by §1331. Id. , at 810. In Merrell Dow, the principal significance of this absence was its bearing on the consequences to the federal system. If the federal labeling standard without a cause of action could get a state claim into federal court, so could any other federal standards without causes of action. And that would mean an enormous number of cases. A comparable analysis yields a different jurisdictional conclusion here, because state quiet title actions rarely involve contested federal-law issues. Pp. 7-11.

[ 2004-2 USTC ¶50,311], 377 F.3d 592, affirmed.

SOUTER, J., delivered the opinion for a unanimous Court. THOMAS, J., filed a concurring opinion.

JUSTICE SOUTER delivered the opinion of the Court: The question is whether want of a federal cause of action to try claims of title to land obtained at a federal tax sale precludes removal to federal court of a state action with non-diverse parties raising a disputed issue of federal title law. We answer no, and hold that the national interest in providing a federal forum for federal tax litigation is sufficiently substantial to support the exercise of federal question jurisdiction over the disputed issue on removal, which would not distort any division of labor betweenthe state and federal courts, provided or assumed by Congress.

I

In 1994, the Internal Revenue Service seized Michigan real property belonging to petitioner Grable & Sons Metal Products, Inc., to satisfy Grable's federal tax delinquency. Title 26 U. S. C. §6335 required the IRS to give notice of the seizure, and there is no dispute that Grable received actual notice by certified mail before the IRS sold the property to respondent Darue Engineering & Manufacturing. Although Grable also received notice of the sale itself, it did not exercise its statutory right to redeem the property within 180 days of the sale, §6337(b)(1), and after that period had passed, the Government gave Darue a quitclaim deed. §6339.

Five years later, Grable brought a quiet title action in state court, claiming that Darue's record title was invalid because the IRS had failed to notify Grable of its seizure of the property in the exact manner required by §6335(a), which provides that written notice must be "given by the Secretary to the owner of the property [or] left at his usual place of abode or business." Grable said that the statute required personal service, not service by certified mail.

Darue removed the case to Federal District Court as presenting a federal question, because the claim of title depended on the interpretation of the notice statute in the federal tax law. The District Court declined to remand the case at Grable's behest after finding that the "claim does pose a significant question of federal law," Tr. 17 (Apr. 2, 2001), and ruling that Grable's lack of a federal right of action to enforce its claim against Darue did not bar the exercise of federal jurisdiction. On the merits, the court granted summary judgment to Darue, holding that although §6335 by its terms required personal service, substantial compliance with the statute was enough. [ 2002-1 USTC ¶50,384], 207 F.Supp.2d 694 (WD Mich. 2002).

The Court of Appeals for the Sixth Circuit affirmed. [ 2004-2 USTC ¶50,311], 377 F.3d 592 (2004). On the jurisdictional question, the panel thought it sufficed that the title claim raised an issue of federal law that had to be resolved, and implicated a substantial federal interest (in construing federal tax law). The court went on to affirm the District Court's judgment on the merits. We granted certiorari on the jurisdictional question alone, 543 U. S. ___ (2005) to resolve a split within the Courts of Appeals on whether Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986), always requires a federal cause of action as a condition for exercising federal-question jurisdiction. We now affirm.

II

Darue was entitled to remove the quiet title action if Grable could have brought it in federal district court originally, 28 U. S. C. §1441(a), as a civil action "arising under the Constitution, laws, or treaties of the United States," §1331. This provision for federal-question jurisdiction is invoked by and large by plaintiffs pleading a cause of action created by federal law ( e.g., claims under 42 U. S. C. §1983). There is, however, another longstanding, if less frequently encountered, variety of federal "arising under" jurisdiction, this Court having recognized for nearly 100 years that in certain cases federal question jurisdiction will lie over state-law claims that implicate significant federal issues. E.g., Hopkins v. Walker , 244 U.S. 486, 490-491 (1917). The doctrine captures the commonsense notion that a federal court ought to be able to hear claims recognized under state law that nonetheless turn on substantial questions of federal law, and thus justify resort to the experience, solicitude, and hope of uniformity that a federal forum offers on federal issues, see ALI, Study of the Division of Jurisdiction Between State and Federal Courts 164-166 (1968).

The classic example is Smith v. Kansas City Title & Trust Co., 255 U.S. 180 (1921), a suit by a shareholder claiming that the defendant corporation could not lawfully buy certain bonds of the National Government because their issuance was unconstitutional. Although Missouri law provided the cause of action, the Court recognized federal-question jurisdiction because the principal issue in the case was the federal constitutionality of the bond issue. Smith thus held, in a somewhat generous statement of the scope of the doctrine, that a state-law claim could give rise to federal-question jurisdiction so long as it "appears from the [complaint] that the right to relief depends upon the construction or application of [federal law]." Id. , at 199.

The Smith statement has been subject to some trimming to fit earlier and later cases recognizing the vitality of the basic doctrine, but shying away from the expansive view that mere need to apply federal law in a state-law claim will suffice to open the "arising under" door. As early as 1912, this Court had confined federal-question jurisdiction over state-law claims to those that "really and substantially involv[e] a dispute or controversy respecting the validity, construction or effect of [federal] law." Shulthis v. McDougal, 225 U.S. 561, 569 (1912). This limitation was the ancestor of Justice Cardozo's later explanation that a request to exercise federal-question jurisdiction over a state action calls for a "common-sense accommodation of judgment to [the] kaleidoscopic situations" that present a federal issue, in "a selective process which picks the substantial causes out of the web and lays the other ones aside." Gully v. First Nat. Bank in Meridian , 299 U.S. 109, 117-118 (1936). It has in fact become a constant refrain in such cases that federal jurisdiction demands not only a contested federal issue, but a substantial one, indicating a serious federal interest in claiming the advantages thought to be inherent in a federal forum. E.g., Chicago v. International College of Surgeons, 522 U.S. 156, 164 (1997); Merrell Dow, supra, at 814, and n. 12; Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 28 (1983).

But even when the state action discloses a contested and substantial federal question, the exercise of federal jurisdiction is subject to a possible veto. For the federal issue will ultimately qualify for a federal forum only if federal jurisdiction is consistent with congressional judgment about the sound division of labor between state and federal courts governing the application of §1331. Thus, Franchise Tax Bd. explained that the appropriateness of a federal forum to hear an embedded issue could be evaluated only after considering the "welter of issues regarding the interrelation of federal and state authority and the proper management of the federal judicial system." Id. , at 8. Because arising-under jurisdiction to hear a state-law claim always raises the possibility of upsetting the state-federal line drawn (or at least assumed) by Congress, the presence of a disputed federal issue and the ostensible importance of a federal forum are never necessarily dispositive; there must always be an assessment of any disruptive portent in exercising federal jurisdiction. See also Merrell Dow, supra, at 810.

These considerations have kept us from stating a "single, precise, all-embracing" test for jurisdiction over federal issues embedded in state-law claims between nondiverse parties. Christianson v. Colt Industries Operating Corp., 486 U.S. 800, 821 (1988) (Stevens, J., concurring). We have not kept them out simply because they appeared in state raiment, as Justice Holmes would have done, see Smith, supra, at 214 (dissenting opinion), but neither have we treated "federal issue" as a password opening federal courts to any state action embracing a point of federal law. Instead, the question is, does a state-law claim necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.

III

A

This case warrants federal jurisdiction. Grable's state complaint must specify "the facts establishing the superiority of [its] claim," Mich. Ct. Rule 3.411(B)(2)(c) (West 2005), and Grable has premised its superior title claim on a failure by the IRS to give it adequate notice, as defined by federal law. Whether Grable was given notice within the meaning of the federal statute is thus an essential element of its quiet title claim, and the meaning of the federal statute is actually in dispute; it appears to be the only legal or factual issue contested in the case. The meaning of the federal tax provision is an important issue of federal law that sensibly belongs in a federal court. The Government has a strong interest in the "prompt and certain collection of delinquent taxes," United States v. Rodgers [ 83-1 USTC ¶9374], 461 U.S. 677, 709 (1983), and the ability of the IRS to satisfy its claims from the property of delinquents requires clear terms of notice to allow buyers like Darue to satisfy themselves that the Service has touched the bases necessary for good title. The Government thus has a direct interest in the availability of a federal forum to vindicate its own administrative action, and buyers (as well as tax delinquents) may find it valuable to come before judges used to federal tax matters. Finally, because it will be the rare state title case that raises a contested matter of federal law, federal jurisdiction to resolve genuine disagreement over federal tax title provisions will portend only a microscopic effect on the federal-state division of labor. See n. 3, infra.

This conclusion puts us in venerable company, quiet title actions having been the subject of some of the earliest exercises of federal-question jurisdiction over state-law claims. In Hopkins, 244 U.S. , 490-491, the question was federal jurisdiction over a quiet title action based on the plaintiffs' allegation that federal mining law gave them the superior claim. Just as in this case, "the facts showing the plaintiffs' title and the existence and invalidity of the instrument or record sought to be eliminated as a cloud upon the title are essential parts of the plaintiffs' cause of action." Id. , at 490. As in this case again, "it is plain that a controversy respecting the construction and effect of the [federal] laws is involved and is sufficiently real and substantial." Id. , at 489. This Court therefore upheld federal jurisdiction in Hopkins, as well as in the similar quiet title matters of Northern Pacific R. Co. v. Soderberg, 188 U.S. 526, 528 (1903), and Wilson Cypress Co. v. Del Pozo y Marcos, 236 U.S. 635, 643-644 (1915). Consistent with those cases, the recognition of federal jurisdiction is in order here.

B

Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986), on which Grable rests its position, is not to the contrary. Merrell Dow considered a state tort claim resting in part on the allegation that the defendant drug company had violated a federal misbranding prohibition, and was thus presumptively negligent under Ohio law. Id. , at 806. The Court assumed that federal law would have to be applied to resolve the claim, but after closely examining the strength of the federal interest at stake and the implications of opening the federal forum, held federal jurisdiction unavailable. Congress had not provided a private federal cause of action for violation of the federal branding requirement, and the Court found "it would...flout, or at least undermine, congressional intent to conclude that federal courts might nevertheless exercise federal-question jurisdiction and provide remedies for violations of that federal statute solely because the violation...is said to be a...`proximate cause' under state law." Id. , at 812.

Because federal law provides for no quiet title action that could be brought against Darue, Grable argues that there can be no federal jurisdiction here, stressing some broad language in Merrell Dow (including the passage just quoted) that on its face supports Grable's position, see Note, Mr. Smith Goes to Federal Court: Federal Question Jurisdiction over State Law Claims Post-Merrell Dow, 115 Harv. L. Rev. 2272, 2280-2282 (2002) (discussing split in Circuit Courts over private right of action requirement after Merrell Dow). But an opinion is to be read as a whole, and Merrell Dow cannot be read whole as overturning decades of precedent, as it would have done by effectively adopting the Holmes dissent in Smith, see supra, at 5, and converting a federal cause of action from a sufficient condition for federal-question jurisdiction into a necessary one.

In the first place, Merrell Dow disclaimed the adoption of any bright-line rule, as when the Court reiterated that "in exploring the outer reaches of §1331, determinations about federal jurisdiction require sensitive judgments about congressional intent, judicial power, and the federal system." 478 U.S. , at 810. The opinion included a lengthy footnote explaining that questions of jurisdiction over state-law claims require "careful judgments," id., at 814, about the "nature of the federal interest at stake," id., at 814, n. 12 (emphasis deleted). And as a final indication that it did not mean to make a federal right of action mandatory, it expressly approved the exercise of jurisdiction sustained in Smith, despite the want of any federal cause of action available to Smith's shareholder plaintiff. 478 U.S. , at 814, n. 12. Merrell Dow then, did not toss out, but specifically retained the contextual enquiry that had been Smith's hallmark for over 60 years. At the end of Merrell Dow, Justice Holmes was still dissenting.

Accordingly, Merrell Dow should be read in its entirety as treating the absence of a federal private right of action as evidence relevant to, but not dispositive of, the "sensitive judgments about congressional intent" that §1331 requires. The absence of any federal cause of action affected Merrell Dow's result two ways. The Court saw the fact as worth some consideration in the assessment of substantiality. But its primary importance emerged when the Court treated the combination of no federal cause of action and no preemption of state remedies for misbranding as an important clue to Congress's conception of the scope of jurisdiction to be exercised under §1331. The Court saw the missing cause of action not as a missing federal door key, always required, but as a missing welcome mat, required in the circumstances, when exercising federal jurisdiction over a state misbranding action would have attracted a horde of original filings and removal cases raising other state claims with embedded federal issues. For if the federal labeling standard without a federal cause of action could get a state claim into federal court, so could any other federal standard without a federal cause of action. And that would have meant a tremendous number of cases.

One only needed to consider the treatment of federal violations generally in garden variety state tort law. "The violation of federal statutes and regulations is commonly given negligence per se effect in state tort proceedings." Restatement (Third) of Torts (proposed final draft) §14, Comment a. See also W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Torts, §36, p. 221, n. 9 (5th ed. 1984) ("[T]he breach of a federal statute may support a negligence per se claim as a matter of state law" (collecting authority)). A general rule of exercising federal jurisdiction over state claims resting on federal mislabeling and other statutory violations would thus have heralded a potentially enormous shift of traditionally state cases into federal courts. Expressing concern over the "increased volume of federal litigation," and noting the importance of adhering to "legislative intent," Merrell Dow thought it improbable that the Congress, having made no provision for a federal cause of action, would have meant to welcome any state-law tort case implicating federal law "solely because the violation of the federal statute is said to [create] a rebuttable presumption [of negligence]...under state law." 478 U.S. , at 811-812 (internal quotation marks omitted). In this situation, no welcome mat meant keep out. Merrell Dow's analysis thus fits within the framework of examining the importance of having a federal forum for the issue, and the consistency of such a forum with Congress's intended division of labor between state and federal courts.

As already indicated, however, a comparable analysis yields a different jurisdictional conclusion in this case. Although Congress also indicated ambivalence in this case by providing no private right of action to Grable, it is the rare state quiet title action that involves contested issues of federal law, see n. 3, supra. Consequently, jurisdiction over actions like Grable's would not materially affect, or threaten to affect, the normal currents of litigation. Given the absence of threatening structural consequences and the clear interest the Government, its buyers, and its delinquents have in the availability of a federal forum, there is no good reason to shirk from federal jurisdiction over the dispositive and contested federal issue at the heart of the state-law title claim.

IV

The judgment of the Court of Appeals, upholding federal jurisdiction over Grable's quiet title action, is affirmed.

It is so ordered.

Accordingly, we have no occasion to pass upon the proper interpretation of the federal tax provision at issue here.

Compare Seinfeld v. Austen, 39 F.3d 761, 764 (CA7 1994) (finding that federal-question jurisdiction over a state-law claim requires a parallel federal private right of action), with Ormet Corp. v. Ohio Power Co., 98 F.3d 799, 806 (CA-4 1996) (finding that a federal private action is not required).

The quiet title cases also show the limiting effect of the requirement that the federal issue in a state-law claim must actually be in dispute to justify federal-question jurisdiction. In Shulthis v. McDougal, 225 U.S. 561 (1912), this Court found that there was no federal question jurisdiction to hear a plaintiff's quiet title claim in part because the federal statutes on which title depended were not subject to "any controversy respecting their validity, construction, or effect." Id. , at 570. As the Court put it, the requirement of an actual dispute about federal law was "especially" important in "suit[s] involving rights to land acquired under a law of the United States," because otherwise "every suit to establish title to land in the central and western states would so arise [under federal law], as all titles in those States are traceable back to those laws." Id. , at 569-570.

Federal law does provide a quiet title cause of action against the Federal Government. 28 U. S. C. §2410. That right of action is not relevant here, however, because the federal government no longer has any interest in the property, having transferred its interest to Darue through the quitclaim deed.

For an extremely rare exception to the sufficiency of a federal right of action, see Shoshone Mining Co. v. Rutter, 177 U.S. 505, 507 (1900).

Other jurisdictions treat a violation of a federal statute as evidence of negligence or, like Ohio itself in Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986), as creating a rebuttable presumption of negligence. Restatement (Third) of Torts (proposed final draft) §14, Comment c. Either approach could still implicate issues of federal law.

At oral argument Grable's counsel espoused the position that after Merrell Dow, federal-question jurisdiction over state-law claims absent a federal right of action, could be recognized only where a constitutional issue was at stake. There is, however, no reason in text or otherwise to draw such a rough line. As Merrell Dow itself suggested, constitutional questions may be the more likely ones to reach the level of substantiality that can justify federal jurisdiction. 478 U. S. , at 814, n. 12. But a flat ban on statutory questions would mechanically exclude significant questions of federal law like the one this case presents.

[Concurring Opinion]

JUSTICE THOMAS, concurring: The Court faithfully applies our precedents interpreting 28 U. S. C. §1331 to authorize federal-court jurisdiction over some cases in which state law creates the cause of action but requires determination of an issue of federal law, e.g., Smith v. Kansas City Title & Trust Co., 255 U.S. 180 (1921); Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986). In this case, no one has asked us to overrule those precedents and adopt the rule Justice Holmes set forth in American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257 (1916), limiting §1331 jurisdiction to cases in which federal law creates the cause of action pleaded on the face of the plaintiff's complaint. Id. , at 260. In an appropriate case, and perhaps with the benefit of better evidence as to the original meaning of §1331's text, I would be willing to consider that course. ^*

Jurisdictional rules should be clear. Whatever the virtues of the Smith standard, it is anything but clear. Ante, at 4 (the standard "calls for a `common-sense accommodation of judgment to [the] kaleidoscopic situations' that present a federal issue, in `a selective process which picks the substantial causes out of the web and lays the other ones aside' " (quoting Gully v. First Nat. Bank in Meridian, 299 U.S. 109, 117-118 (1936))); ante, at 5 ("[T]he question is, does a state-law claim necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities"); ante, at 9 ("`[D]eterminations about federal jurisdiction require sensitive judgments about congressional intent, judicial power, and the federal system' "; "the absence of a federal private right of action [is] evidence relevant to, but not dispositive of, the `sensitive judgments about congressional intent' that §1331 requires" (quoting Merrell Dow, supra, at 810)).

Whatever the vices of the American Well Works rule, it is clear. Moreover, it accounts for the "`vast majority' " of cases that come within §1331 under our current case law, Merrell Dow, supra, at 808 (quoting Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 9 (1983)) --further indication that trying to sort out which cases fall within the smaller Smith category may not be worth the effort it entails. See R. Fallon, D. Meltzer, & D. Shapiro, Hart and Wechsler's The Federal Courts and the Federal System 885-886 (5th ed. 2003). Accordingly, I would be willing in appropriate circumstances to reconsider our interpretation of §1331.

^* This Court has long construed the scope of the statutory grant of federal-question jurisdiction more narrowly than the scope of the constitutional grant of such jurisdiction. See Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, 807-808 (1986). I assume for present purposes that this distinction is proper --that is, that the language of 28 U. S. C. §1331, "[t]he district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States " (emphasis added), is narrower than the language of Art. III, §2, cl. 1, of the Constitution, "[t]he judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority..." (emphases added).