Annotations- Notice of Sale or
[Code Secs. 7432 and
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.
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.
NYGAARD, WEIS and REAVLEY, * Circuit
OF THE COURT
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.
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.
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
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.
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
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.
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
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
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.
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.
Quiet Title Claim
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.
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.
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.
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
at 936, 939-40. The property in question was a liquor license.
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
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.
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."
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
is also a provision of the Quiet Title Act, 28 U.S.C. §2409a, which
gives us pause. This Act provides that "[t]he
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
claims an interest."
§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:
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
U.S.C. §2409a(e) (emphasis added).
(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.
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
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).
Merits of Quiet Title Claim
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
, 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.
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.
Claims for Damages
Kabakjians sought money damages for the allegedly defective seizure and
sale of their property. Again, they do not deny that they owed back
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
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.
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.
judgment of the district court will be AFFIRMED.
Honorable Thomas M. Reavley, United States Circuit Judge for the Fifth
Circuit, sitting by designation.
USTC ¶50,841] John S. Williamson and Nancy Williamson, Plaintiffs v.
United States of America
District Court, Dist. N.M., CIV. 96-1082-M, 8/19/99, 84 FSupp 2 d 1217
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.
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
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
Senior District Judge:
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
and venue are proper. Plaintiffs are husband and wife taxpayers who live
. 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.
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.
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
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.
has waived sovereign immunity and the court properly exercises
; 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."
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.
Issues Resolved Prior to Trial
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.
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.
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
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
. 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.
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.
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.
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.
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.
Plaintiffs' Theory of the Case
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.
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
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.
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.
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.
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.
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.
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.
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.
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).
there is no request for abatement, then, no notice of deficiency is sent
at any point.
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
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.
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.
Liens, Levies, Seizure and
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.
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).
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).
order for Defendant to collect tax due by a levy of the taxpayer's
property, IRS must provide a notice of levy.
; James v.
, 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).
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.
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.
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.
challenge, first, levy of Plaintiff Nancy Williamson's payroll from the
. 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
, 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
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
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
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.
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.
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
, 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
, who testified that he is the custodian of the Plaintiffs' tax records,
and as included in Plaintiffs' admissions. See: Plaintiffs' Trial
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.
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.
These records were admitted as trial exhibits and not challenged or
refuted by Plaintiffs.
Disclosure of Tax Return Information
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).
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
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).
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.
at 104-105; Wilkerson v.
, supra at 117. In any event, I find the liens, levies and seizures
lawful. Plaintiffs third claim, therefore, also fails.
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.
THEREFORE, IT IS ORDERED that judgment enter against the Plaintiffs on
all causes of action and Plaintiffs claims be dismissed with prejudice.
concluded trial in this matter and entered a Memorandum Opinion and
Order contemporaneous with this judgment,
IS HEREBY ORDERED, ADJUDGED AND DECREED that
judgment enter in favor of Defendant on all of Plaintiffs' claims, which
are hereby dismissed with prejudice.
USTC ¶50,504] John S. Williamson and Nancy L. Williamson,
United States of America
Court of Appeals, 10th Circuit, 99-2294,
App. LEXIS 11653. Affirming a District Court decision, 99-2
USTC ¶50,841 , 84 FSupp2d 1217
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.
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.
KELLY, MCKAY and HENRY, Circuit Judges.
Caution: This court has designated this opinion as NOT FOR
PUBLICATION. Consult the Rules of the Court before citing this case.ç
AND JUDGMENT *
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
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
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.
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
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.
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).
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
, 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
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.
USTC ¶50,579] Towner Leeper and La Fonne Leeper, Plaintiffs v.
United States of America
District Court, West. Dist., Tex., EP-98-CA-229-H, 7/19/2001
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
) 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
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
MEMORANDUM OPINION AND ORDER
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.
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
. In 1960, he entered private practice in
, 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
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
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.
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
El Paso County
. 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
, 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.
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".
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.
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
, 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.
November 14, 1996
, the Plaintiffs submitted an administrative claim for damages to the
District Director of Internal Revenue in
. 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.
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
Court finds as a fact that Plaintiff Towner Leeper did receive actual
notice of the proposed auction sale. That notice was received by Mr.
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.
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.
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.
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.
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
is therefore ORDERED that judgment be, and it is hereby, ENTERED in
favor of the Defendant, and that the Plaintiffs take nothing by their
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.
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
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.
Court of Appeals, 6th Circuit; 01-2224, 59 FedAppx 116,
February 21, 2003
Unpublished opinion affirming DC Mich., 2001-2
Secs. 6331 and 7433]
Unauthorized collection actions: Civil actions: Damages: Exclusive
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.
Secs. 6333 and 6335]
Summonses: Seizure: Notice requirements. --
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.
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.®
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
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
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.
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
, 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."
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
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.
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
The Ninth Circuit has ruled similarly. In Shwarz v. United States
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. [
USTC ¶50,474], 975 F.2d 13, 16 (1st Cir. 1992) (holding that
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.
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
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
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
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
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").
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
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
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.
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)
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
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.
foregoing reasons, we AFFIRM the judgment of the district court.
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
Court of Appeals, 10th Circuit, 01-1069,
, 29 Fed. Appx. 556, 2002
App. LEXIS 1438. Affirming an unreported District Court decision
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.
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.
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
, Robert L. Baker, Arthur P. Yoon, Christopher H. LaRosa, Department of
KELLY, BALDOCK and LUCERO, Circuit Judges.
Caution: This court has designated this opinion as NOT FOR
PUBLICATION. Consult the Rules of the Court before citing this case.ç
AND JUDGMENT *
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.
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
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)
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
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
see also §6335(b); 26 C.F.R. §301.6335-1(a)-(b).
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).
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,
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.
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."
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.
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
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.
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).
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.
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.
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.
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.
Court of Appeals, 6th Circuit; 02-1678,
July 27, 2004
Affirming a DC Mich. decision, 2002-1
of seized property: Notice of sale or seizure: Substantial compliance.
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.
of seized property: Notice of sale or seizure: Substantial compliance.
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.
E. McFarland, for plaintiff-appellant. Michael C. Walton, Rhoades,
McKee, Boer, Goodrich & Titta, for defendant-appellee.
Boggs, Chief Circuit Judge, and Daughtrey, Circuit Judge, and Aldrich, * District
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
The facts in this case are not disputed. In 1994, the IRS seized
601-701 W. Plains Road
, in Eaton Rapids,
, 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
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.
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
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
a party to this action. 1
Federal courts also have original jurisdiction over claims "arising
under the Constitution, laws, or treaties of the
." 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.
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:
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
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
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
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.
v. Kimbell Foods, 440
715, 734 (1979) (citing McCulloch v. Maryland, 17
(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
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.
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.
at 529. See
Newspaper Guild Local 1 v. Plain Dealer Pub.
, 839 F.2d 1147, 1155 (6th Cir. 1988).
The Internal Revenue Code states that:
Deed of real property. --In
the case of the sale of real property pursuant to section
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
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.
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
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
(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.
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
USTC ¶9176], 538 F.Supp. at 508 (applying
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.
v. Grable, 618 N.W.2d 23 (
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."
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.
reasons set out above, we AFFIRM the decision of the district
court to deny Grable summary judgment and to award judgment to Darue.
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
must have an interest in the property, which it no longer has in this
case. 28 U.S.C. §2410(a).
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
Supreme Court of the
June 13, 2005
On Writ of Certiorari to the
Court of Appeals for the Sixth Circuit.
Affirming CA-6, 2004-2
[28 USC 1331 and Code
Secs. 6335, 6339
Federal-question jurisdiction: Actions arising under Constitution,
laws, or treaties of the
: State quiet title action: Interpretation of federal levy statute. --
district court properly removed jurisdiction over a quiet title action
arising under state (
) 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
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
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
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.
(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.
486, 490-491. Pp. 6-7.
(c) Merrell Dow Pharmaceuticals Inc. v. Thompson, 478
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.
, 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.
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
In 1994, the Internal Revenue Service seized
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
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.
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
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.
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
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
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]."
, 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
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
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
156, 164 (1997); Merrell Dow, supra, at 814, and n. 12; Franchise
Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern
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
, 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
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.
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
, 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."
, 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."
, 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
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
, 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."
, 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
, 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
, 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
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
, 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.
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."
, 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
, 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
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
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
, 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.
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.
, 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.
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
804, 807-808 (1986). I assume for present purposes that this distinction
is proper --that is, that the language of 28
C. §1331, "[t]he district courts shall have original jurisdiction
of all civil actions arising under the Constitution, laws, or treaties
" (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).