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Duggan v. United States

United States District Court, E.D. Washington

March 22, 2017

PHILIP A. DUGGAN, Plaintiff,


          SALVADOR MENDOZA, JR., United States District Judge

         Before the Court, without oral argument, is Defendant United States of America's Suggestion of Lack of Subject Matter Jurisdiction with Respect to Counts 1 and 2 of the Complaint. ECF No. 43. Through this motion, the United States seeks dismissal of counts one and two of the complaint because it asserts the Court does not have subject-matter jurisdiction to hear these claims. Plaintiff Duggan opposes the motion arguing that subject-matter jurisdiction exists. ECF No. 44. Having reviewed the pleadings and the file in this matter, the Court is fully informed and grants the motion.

         I. Background

         Plaintiff Duggan alleges that, pursuant to 26 U.S.C. §6702, the Internal Revenue Service (IRS) incorrectly assessed and imposed penalties against him for filing frivolous tax submissions. ECF No. 1 at 3. He filed suit asking “for reallocation and then, if applicable, refund of taxes taken through levy and erroneously applied to defective, improperly or otherwise unjustly assessed penalties.” ECF No. 1 at 1. Duggan's complaint lists thirteen separate counts identifying payments he made toward penalties he asserts were incorrectly assessed and imposed against him. Id. at 18-35. Following a previous motion to dismiss filed by the United States, ECF No. 6, the Court dismissed counts eight through thirteen because the Court lacked subject-matter jurisdiction over those claims. ECF No. 22. Counts one through seven remain. ECF No. 1 at 18-26.

         The present motion only challenges the Court's subject-matter jurisdiction over counts one and two. ECF No. 43 at 1-2, 8 n. 3. Counts one and two concern penalties Duggan paid in 2012 through levies on his monthly retirement distribution for tax years 1998 and 1999, respectively. ECF No. 1 at 1-2.

         II. Legal Standard

         A. Federal courts must ensure they possess subject-matter jurisdiction.

         “If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action.” Fed.R.Civ.P. 12(h)(3). A party asserting this defense can do so by filing a motion under Federal Rule of Civil Procedure 12(b)(1). However, a motion made pursuant to Rule 12(b) “must be made before pleading if a responsive pleading is allowed.” Courts are split regarding the proper vehicle for challenging a court's subject-matter jurisdiction after a responsive pleading is filed. Weirich v. Bd. of Governors of the Fed. Reserve Sys., No. CV-10-5031, 2010 WL 4641959, at *3 (E.D. Wash. Nov. 2, 2010) (identifying a split in authority as to whether a motion filed pursuant to Rule 12(b)(1) after an answer has been filed is the appropriate way to challenge a court's subject-matter jurisdiction).

         Nevertheless, courts must consider challenges to their subject-matter jurisdiction at any time and dismiss matters not properly before them. Arbaugh v. Y&H Corp., 546 U.S. 500, 500 (2006) (“The objection that a federal court lacks subject-matter jurisdiction . . . may be raised at any stage in the litigation, even after trial and the entry of judgment, Rule 12(h)(3).”) (emphasis added); Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir. 1983) (“The defense of lack of subject matter jurisdiction cannot be waived, and the court is under a continuing duty to dismiss an action whenever it appears that the court lacks jurisdiction.”). Accordingly, a motion challenging a court's subject-matter jurisdiction pursuant to Rule 12(h)(3) is proper. Weirich, 2010 WL 4641959 at *3 (concluding that a motion under Rule 12(h)(3) is proper); Elvig v. Calvin Presbyterian Church, 375 F.3d 951, 955 n. 2 (9th Cir. 2004) (citing Augustine, 704 F.2d at 1075 n. 3) (“The matter of subject matter jurisdiction . . . may be raised by the parties at any time.”); Berkshire Fashions, Inc. v. M.V. Hakusan II, 954 F.2d 874, 879 n. 3 (3d Cir. 1992) (“The distinction between a Rule 12(h)(3) motion and a Rule 12(b)(1) motion is simply that the former may be asserted at any time and need not be responsive to any pleading of the other party.”); Cruz v. AAA Carting and Rubbish Removal, Inc., 116 F.Supp.3d 232, 239 (S.D.N.Y. July 16, 2015) (“[T]he difference between a motion made under Rule 12(b)(1) and one made under Rule 12(h)(3) is largely academic, and the same standards are applicable to both types of motions.”) (citation and quotation marks omitted).

         Consequently, the present motion is properly before the Court under Rule 12(h)(3).

         B. Establishing subject-matter jurisdiction in tax refund suits.

         District courts can assert subject-matter jurisdiction in an action against the United States when sovereign immunity has been waived and a statute has vested them with such jurisdiction. Alvarado v. Table Mountain Rancheria, 509 F.3d 1008 (9th Cir. 2007) (citing Arford v. United States, 934 F.2d 229, 231 (9th Cir. 1991).

         As to tax refund suits in particular, “a taxpayer must pay the entire tax or penalty it seeks to recover from the IRS in order for the district court to have jurisdiction.” Flora v. United States, 362 U.S. 145 (1960). “Ordinarily, there is no jurisdiction in the district courts over suits for the refund of penalty amounts paid until the taxpayer has paid the full amount of the contested penalty assessment . . . and has filed a claim for refund which the IRS has either rejected or not acted upon in six months.” Thomas v. United States, 755 F.2d 728 (9th Cir. 1985) (citations omitted). Moreover, no lawsuit or proceeding can continue for the “recovery of any . . . penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been” filed with the Secretary of the Treasury or his delegate. 26 U.S.C. §§7422(a) and 7701. A claim for refund must be filed “within 3 years from the time of the return was filed or 2 years from the time the tax was paid, ” whichever is later. 26 U.S.C. §6511(a).

         III. ...

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