Free Motion to Dismiss - District Court of California - California

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KAREN P. HEWITT United States Attorney TOM STAHL, California State Bar No. 78291 Assistant United States Attorney Chief, Civil Division LAUREN M. CASTALDI Trial Attorney, Tax Division U.S. Department of Justice P.O. Box 683, Ben Franklin Station Washington, D.C. 20044-0683 Telephone: (202) 514-9668 Facsimile: (202) 307-0054 E-mail: [email protected] Attorneys for the United States of America IN THE UNITED STATES DISTRICT COURT

11 FOR THE SOUTHERN DISTRICT OF CALIFORNIA 12 13 14 15 16 17 BETSY MCINTYRE, an individual; 18 19 20 21 Defendants. 22 23 24 Please take notice that the named Defendant, Betsy McIntyre, by counsel undersigned, will bring 25 the above-captioned motion on for hearing before the Honorable United States District Court Judge 26 Barry T. Moskowitz in Courtroom 15 of the United States Courthouse at 940 Front Street, San Diego, 27 28 -1QUICKSILVER, INC., a Delaware Corporation; and DOES 1-50, inclusive, v. Plaintiff, CLAYTON BLEHM, dba FDC INVESTMENTS, INC. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. 08-CV-1358-BTM-NLS DEFENDANT BETSY MCINTYRE'S NOTICE OF MOTION AND MOTION TO DISMISS

Removed from San Diego County, California Superior Court
Case No. 37-2008-00084761-CU-FR-CTL Date: October 17, 2008 Time: 11:00 a.m. Place: Courtroom 15 Per Chambers, No Oral Argument Unless Requested by the Court

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California on October 17, 2008, at 11:00 a.m. or as soon thereafter as counsel may be heard. Although stated as an action for damages against an Internal Revenue Service ("IRS") employee purportedly acting outside of the scope of her official duties, the action is actually against the United States and purports to challenge an IRS tax determination. Plaintiff's claims should be dismissed pursuant to Fed. R. Civ. P. 12(b)(5) because the Plaintiff has failed to serve a summons and complaint upon Ms. McIntyre (the named defendant) and the United States (the proper party defendant). Plaintiff's claims should also be dismissed for lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1) as Plaintiff alleges no applicable waiver of sovereign immunity. Finally, Plaintiff's claims should be dismissed pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief may be granted as Plaintiff has no valid claim for damages in tort or arising under the Constitution. A Memorandum of Points and Authorities in Support of the Defendant's Motion to Dismiss is submitted herewith. Wherefore, the United States respectfully requests that the Court dismiss the complaint without leave to amend.

DATED this 28th day of August, 2008.

KAREN P. HEWITT United States Attorney TOM STAHL Assistant United States Attorney Chief, Civil Division /s/ Lauren Castaldi LAUREN M. CASTALDI Trial Attorneys, Tax Division U.S. Department of Justice Attorneys for the United States of America

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -3/s/ Lauren M. Castaldi LAUREN M. CASTALDI Trial Attorney, Tax Division U.S. Department of Justice Molly J. Magnuson O'Melveny & Myers LLP 610 Newport Center Dr, 17th Floor Newport Beach, California 92660 CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this 28th day of August, 2008, I mailed by U.S. Postal Service the foregoing to the following: Roy Withers Law Offices of Roy R. Withers 2802 Juan Street, Suite 12 San Diego, California 92110

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KAREN P. HEWITT United States Attorney TOM STAHL, California State Bar No. 78291 Assistant United States Attorney Chief, Civil Division LAUREN M. CASTALDI Trial Attorney, Tax Division U.S. Department of Justice P.O. Box 683, Ben Franklin Station Washington, D.C. 20044-0683 Telephone: (202) 514-9668 Facsimile: (202) 307-0054 E-mail: [email protected] Attorneys for the United States of America IN THE UNITED STATES DISTRICT COURT

11 FOR THE SOUTHERN DISTRICT OF CALIFORNIA 12 13 14 15 16 17 BETSY MCINTYRE, an individual; 18 19 20 21 Defendants. 22 23 Named Defendant Betsy McIntyre submits this brief in support of her motion to dismiss the 24 Complaint For Damages Fraud and Conspiracy" ("complaint") filed by Plaintiff Clayton Blehm dba FDC 25 Investments, Inc. ("Plaintiff"). 26 27 28 -1QUICKSILVER, INC., a Delaware Corporation; and DOES1-50, inclusive, v. Plaintiff, CLAYTON BLEHM, dba FDC INVESTMENTS, INC. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. 08-CV-1358-BTM-NLS MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT BETSY MCINTYRE'S MOTION TO DISMISS

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INTRODUCTION Plaintiff filed the complaint in Superior Court of the State of California for the County of San Diego, case no. 37-2008-00084761, against former Internal Revenue Service employee, Revenue Agent Elizabeth "Betsy" McIntyre, in an apparent attempt to challenge a federal tax determination. Plaintiff alleges that Betsy McIntyre, conspired with defendant Quicksilver, Inc. to somehow "shift" employment tax liabilities from DC Shoes, Inc. to the plaintiff personally. See Complaint at 6. Plaintiff also alleges that defendants McIntyre and Quicksilver, Inc. fraudulently failed to disclose an alleged settlement between the Internal Revenue Service and Quicksilver, Inc. regarding certain employment tax liabilities. See id. at 6. Additionally, Plaintiff alleges that defendants McIntyre and Quicksilver, Inc. defrauded Plaintiff of his share of the corporation, DC Shoes, Inc. because Plaintiff sold his stock without knowing there were employment tax liabilities assessed against him. See id. at 8. The complaint seeks monetary and punitive damages. See id. at 14. Plaintiff has identified himself as Clayton Blehm dba FDC Investments, Inc. The United States notes that this designation is confusing as it is unclear whether Plaintiff raises causes of action belonging to FDC Investments, Inc. as a corporation, or to Clayton Blehm as an individual, or both. For instance, as noted above, Plaintiff alleges that there was a conspiracy to make him personally liable for employment taxes of DC Shoes, Inc. See id. at 6. On July 28, 2008, the United States on behalf of McIntyre filed a Notice of Removal, effecting the removal of the action from the Superior Court of the State of California for the County of San Diego to the federal District Court for the Southern District of California. The United States has filed with this motion a Certification of Scope of Employment for Revenue Agent Elizabeth McIntyre, in which a duly authorized delegate of the United States Attorney for the Southern District of California has certified that McIntyre was acting within the scope of her employment in performing the acts that are the subject of this suit. McIntyre was not served with a summons and complaint in this matter.

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QUESTIONS PRESENTED 1. Whether the Court lacks personal jurisdiction due to Plaintiff's failure to properly serve Defendant McIntyre or the United States. 2. Whether the United States and not Defendant McIntyre is the proper party defendant. 3. Whether the Court lacks subject matter jurisdiction because the United States has not waived its sovereign immunity. 4. Whether the Plaintiff fails to state a claim for damages in tort. 5. Whether the Plaintiff fails to state a claim for damages under Bivens.1 ARGUMENT 1. The Court Lacks Personal Jurisdiction Due to Plaintiff's Failure to Properly Serve Defendant McIntyre and the United States. As a preliminary matter, Rule 4(i) of the Federal Rules of Civil Procedure requires that service on

12 an officer or agency of the United States be effected by the delivering a copy of the summons and 13 complaint to the United States attorney for the district in which the action is brought, sending a copy of 14 the summons and complaint to the United States Attorney General, and serving a copy on the federal 15 employee. As a matter of record, the plaintiff has not served Defendant McIntyre and has failed to serve 16 a copy of the summons and complaint on the Attorney General. Lack of service is a reason to dismiss 17 this action. Fed. R. Civ. P. 12(b)(5). 18 2. The United States Is the Proper Party Defendant in This Action. 19 A suit against an IRS employee acting in his or her official capacity is a suit against the 20 government. Gilbert v. DaGrossa, 756 F.2d 1455, 1458 (9th Cir.1985) (citing United States v. Shaw, 309 21 U.S. 495, 500-01 (1940)); accord Atkinson v. O'Neill, 867 F.2d 589, 590 (10th Cir. 1989) ("When an 22 action is one against named individual defendants, but the acts complained of consist of actions taken by 23 defendants in their official capacity as agents of the United States, the action is in fact one against the 24 United States."). 25 In Malone v. Bowdoin, 369 U.S. 643, 647 (1962), the Supreme Court recognized two exceptions 26 27 28 (1971). -31

Bivens v. Six Unknown Named Agents for the Federal Bureau of Investigation, 403 U.S. 388

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to the general rule that suits against federal employees for actions taken in their official capacities are essentially suits against the United States: (1) the action by the officers is beyond their statutory powers, and (2) even though the action is within the scope of authority, the powers, themselves, or the manner in which they are exercised are constitutionally void. Plaintiff fails to meet either of the two exceptions to the general rule of Malone v. Bowdoin. First, while Plaintiff alleges that Defendant McIntyre acted outside of her official capacities as an IRS agent, none of the activities described are beyond McIntyre's official duties. Plaintiff alleges that McIntyre incorrectly determined his tax liabilities and corresponding civil penalties. However, these actions are within a Revenue Agent's official capacity. Stankevitz v. Internal Revenue Service, 640 F.2d 205, 206 (9th Cir. 1981) ("[Revenue Agents] were `responsible for the decision to initiate or continue a proceeding subject to agency adjudication'. . ."). Thus, while the complaint purports to sue Revenue Agent Elizabeth McIntyre as an individual rather than as a federal employee, it alleges nothing to establish that she acted outside the scope of her employment. The second exception discussed in Malone v. Bowdoin, whether the manner in which Defendant McIntyre exercised her authority was constitutionally void, is not present either. In his complaint, Plaintiff does not allege any constitutional violations by McIntyre. As there are no exceptions that apply in this case, the Court is respectfully requested to determine that this suit in its entirety is actually against the United States and not the individual defendant. Gilbert, 756 F.2d at 1458. Further, even if this action is initially construed as an action against Ms. McIntyre in her individual capacity, the United States should be substituted as the sole defendant for the former Revenue Agent with respect to the claims asserted in the complaint (fraud and conspiracy) because at all times Defendant McIntyre was acting within the scope of her employment. See Stankevitz, 640 F.2d at 206. Pursuant to the Westfall Act, 28 U.S.C. 2679(d)(1), "[u]pon certification by the Attorney General that the defendant employee was acting within the scope of his office or employment at the time of the incident out of which the claim arose, any civil action or proceeding commenced upon such claim [for negligent or wrongful conduct] in a United States district court shall be deemed an action against the United States under the provisions of this title and all references thereto, and the United States shall be substituted as the party defendant." A certification by a delegate of the Attorney General made pursuant to 28 U.S.C. -4-

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2679(d)(1) is prima facie evidence that the Government employees named in the plaintiff's suit acted within the scope of their employment and that the United States is to be substituted as the party defendant. Billings v. United States, 57 F.3d 797, 800 (9th Cir. 1995); accord Gutierrez de Martinez v. Lamagno, 515 U.S. 417 (1995). The United States has filed with this motion a Certification of Scope of Employment for Revenue Agent Elizabeth McIntyre, in which a duly authorized delegate of the United States Attorney2 certifies that McIntyre was acting within the scope of her employment in investigating Plaintiff's tax liabilities and therefore, the United States should be substituted as the party defendant. 2. The United States Has Not Waived its Sovereign Immunity and Therefore Plaintiff's Claims Should Be Dismissed for Lack of Subject Matter Jurisdiction Pursuant to Fed. R. Civ. P. 12(b)(1). When a defendant challenges the veracity of the jurisdictional facts underlying a plaintiff's complaint, "[n]o presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims." Thornhill Pub. v. General Tel. & Elec. Corp., 594 F.2d 730, 733-35 (9th Cir. 1979). The Court does not necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations in the plaintiff's complaint. See Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994). Moreover, the plaintiff bears the burden of establishing subject matter jurisdiction. Tosco Corp. v. Communities for a Better Env't, 236 F.3d 495, 499 (9th Cir. 2001). If a plaintiff cannot establish federal jurisdiction, then the court must dismiss the action. Id. It is well settled that the United States, as sovereign, may not be sued without its consent, and that the terms of its consent define the court's jurisdiction. United States v. Dalm, 494 U.S. 596, 608 (1990); United States v. Sherwood, 312 U.S. 584 (1941). Consequently, no suit may be maintained against the sovereign unless the suit is brought in exact compliance with the terms of the statute under which the sovereign has consented to be sued. Sherwood, 312 U.S. at 590; Soriano v. United States, 352 U.S. 270, 276 (1957); Gilbert, 756 F.2d at 1458. "The appropriate Federal agency shall submit a report to the United States Attorney for the district embracing the place where the civil action or proceeding is brought fully addressing whether the person was acting as a covered person at the time of the incident out of which the suit arose . . ." See 28 C.F.R. § 15.3. -52

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A plaintiff bears the burden of establishing both jurisdiction and a waiver of sovereign immunity. See McNutt v. General Motors Accept. Corp., 298 U.S. 178, 188 (1936); Ohio National Life Ins. Co. v. United States, 922 F.2d 320 (6th Cir. 1990). Plaintiff has failed to allege an applicable waiver of sovereign immunity and as such the Court should dismiss his claims for lack of subject matter jurisdiction. The fact that Plaintiff alleges that he is bringing suit against Ms. McIntyre individually, does not preclude the application of the doctrine of sovereign immunity. So long as any judgment would operate against a defendant in his official capacity, the suit is considered to be one against the United States. E.g., Land v. Dollar, 330 U.S. 731, 738 (1947); Gilbert, 756 F.2d at 1458. All of the activities Plaintiff describes in his complaint are recognized activities of an Internal Revenue Service revenue agent. One court succinctly explains, "[i]t is the function of the revenue agents to make a complete audit and to gather the necessary information to enable them and their superiors to determine whether or not the return is correct and whether or not a tax is owed by the taxpayer." Riley v. McGarry, 248 F.Supp 545, 550 (D.C. Mass. 1966). Federal tax determinations are authorized by federal law. 26 U.S.C. §6201. Furthermore, assessment of a civil fraud penalty is permitted pursuant to 26 U.S.C. §6663. This activity is within the scope of IRS activity. Plaintiff apparently disagrees with the determinations and conclusions purportedly reached by a revenue agent employed by the Internal Revenue Service. A finding by this Court that the tax assessments are invalid or improper is a finding against the United States. Plaintiff's suit is properly addressed as one against the United States. The Plaintiff fails to meet his burden to show that sovereign immunity has been waived, thereby defeating jurisdiction. Any consideration of other potential jurisdictional grounds also shows that each is inapplicable.3 28 U.S.C. § 1346(a)(1) provides a district court with jurisdiction over civil actions against the United To the extent that Plaintiff is alleging damages related to the collection of his tax liabilities, his sole form of relief is a claim brought pursuant to 26 U.S.C. § 7433. However, in order to proceed under § 7433, Plaintiff first would have needed to exhaust his administrative remedies as required by 26 U.S.C. § 7433(d). Plaintiff has made no allegation that he has exhausted his administrative remedies and therefore the Court lacks subject matter jurisdiction to hear the taxpayer's claims related to improper tax collection. See Conforte v. United States, 979 F.2d 1375, 1377 (9th Cir. 1992). Furthermore, he would need to state which specific sections of the Internal Revenue Code were violated in the collection of tax liabilities. Plaintiff has alleged no specific violations of the Internal Revenue Code. -63

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States for the recovery of internal revenue taxes erroneously or illegally assessed or collected. Plaintiff appears to allege in his complaint that McIntyre's basis for assessing the taxes and penalties against him were improper. See Complaint at 4. Nevertheless, as a prerequisite to jurisdiction under section 1346(a)(1), the taxpayer must (1) make full payment of taxes assessed, (2) claim a refund, and (3) if the claim is denied, file a tax suit pursuant to 26 U.S.C. § 6532(a)(1). See United States v. Dalm, 494 U.S. 596, 600-02 (1990). Plaintiff has not alleged that he has complied with administrative requirements necessary to maintain a suit in district court. Without first filing an administrative claim and paying his tax liabilities, a district court lacks jurisdiction to hear the taxpayer's claims. See Conforte v. United States, 979 F.2d 1375, 1377 (9th Cir. 1992).4 3. Plaintiff's Claims Should Be Dismissed Pursuant to Fed. R. Civ. P. 12(b)(6) for Failure to State a Claim upon Which Relief May Be Granted as Plaintiff Has No Claim for Damages in Tort. In addition, Plaintiff's claims should be dismissed for a failure to state a claim upon which relief may be granted. In evaluating a motion to dismiss made pursuant to Fed. R. Civ. P. 12(b)(6), the Court must accept all material allegations in the complaint as true and construe them in the light most favorable to the plaintiff. Barron v. Reich, 13 F.3d 1370, 1374 (9th Cir. 1994); Klarfield v. United States, 944 F.2d 583, 585 (9th Cir. 1991), reh'g en banc denied, 962 F.2d 866 (9th Cir. 1992). Only if the plaintiff "can prove no set of facts in support of his claim which would entitle him to relief" is dismissal under Fed. R. Civ. P. 12(b)(6) proper. Id. (quoting Gibson v. United States, 781 F.2d 1334, 1337 (9th Cir. 1986), cert. denied, 479 U.S. 1054 (1987)). Except in very limited instances, neither the United States nor the federal officers are subject to suit on torts occurring during tax determination or collection. With respect to tort claims against employees acting on behalf of the United States, the Federal Tort Claims Act, 28 U.S.C. §§ 2671 et seq. (the "FTCA") is "the exclusive remedy for the [tort] claimant, thus precluding any other action or civil Although not necessary to a resolution of the government's motion, Plaintiff has consented to the assessment and collection of taxes against him for tax years 1998, 1999, and 2000. (See Declaration of Lauren Castaldi, Exhibit A attached thereto). With respect to the fraud penalties assessed against him, Plaintiff filed a petition in the United States Tax Court to dispute those penalties, but then agreed to the penalties by way of a stipulated decision, which was entered by the United States Tax Court in April 2007. (See Declaration of Lauren Castaldi, Exhibit B attached thereto). -74

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suit against the Federal employee or his estate based upon the same conduct." H.R. Rep. No. 100700, 100th Cong., 2d Sess. 2 (1988); 28 U.S.C. §2679(b)(1). However, Plaintiff cannot sue the government or its employees under the FTCA with respect to a tax determination. 28 U.S.C. § 2680(c) provides that the waiver of sovereign immunity in the FTCA does not extend to any "claim arising in respect of the assessment or collection of any tax..." This language is broad enough to encompass any activities of an IRS officer even remotely related to his or her official duties. Morris v. United States, 521 F.2d 872, 874 (9th Cir. 1975); Hutchinson v. United States, 677 F.2d 1322, 1327 (9th Cir. 1982); Soghomonian v. United States, 82 F.Supp.2d 1134, 1143 (E.D. Cal.1999). It is beyond question that investigating and assessing an individual's tax liabilities constitute a tax determination. Even if this were not the case, to be allowed under the FTCA, the complaint must allege the filing of an administrative claim for damages, which is a prerequisite to any waiver of sovereign immunity under 28 U.S.C. § 2675(a). Mark Crisp Neil v. United States, 508 U.S. 106 (1993); Dunn & Black, P.S. v. United States, 492 F.3d 1084, 1088-89 (9th Cir. 2007 ). Plaintiff has made no allegation that he has pursued any administrative remedies, and therefore his complaint fails to allege a waiver of sovereign immunity. Without this waiver, the United States cannot be sued under the FTCA for allegedly negligent or wrongful activities of a Revenue Agent engaged in a tax determination. The complaint fails to state a claim with respect to the FTCA, which is the exclusive remedy with respect to the alleged tortious actions of the United States and its employees. 4. Plaintiff's Claims Should Be Dismissed Pursuant to Fed. R. Civ. P. 12(b)(6) for Failure to State a Claim upon Which Relief May Be Granted as Plaintiff Has No Claim for Damages under Bivens. To the extent that Plaintiff's complaint can be construed to allege constitutional violation, it fails to allege a viable claim under Bivens v. Six Unknown Named Agents for the Federal Bureau of Investigation, 403 U.S. 388 (1971). Plaintiff does not allege the violation of any constitutional right, which precludes his ability to bring suit against a federal official as an individual. See Ting v. United States, 927 F.2d 1504, 1513 (9th Cir. 1991). Moreover, Bivens relief is not available for alleged constitutional violations by IRS officials involved in the process of assessing or collection taxes. See Adams v. Johnson, 355 F.3d 1179, 1186 (9th Cir. 2004). -8-

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CONCLUSION The federal officer Defendant Betsy McIntyre was acting within the scope of her employment and the United States should be substituted as the party-defendant with respect to any claim (fraud and conspiracy) in the complaint. The remaining allegations of the complaint fail to identify an applicable waiver of sovereign immunity, which denies the Court with subject matter jurisdiction to hear Plaintiff's claims. Furthermore, Plaintiff fails to state a claim for which relief may be granted. Finally, McIntyre and the United States have not been properly served. For the foregoing reasons, this Court is requested to enter findings and recommendations to dismiss Plaintiff's complaint with prejudice. DATED this 28th day of August, 2008.

KAREN P. HEWITT United States Attorney TOM STAHL Assistant United States Attorney Chief, Civil Division /s/ Lauren Castaldi LAUREN M. CASTALDI Trial Attorneys, Tax Division U.S. Department of Justice Attorneys for the United States of America

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CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this 28th day of August, 2008, I mailed by U.S. Postal Service the foregoing to the following: Roy Withers, Esq. Law Offices of Roy R. Withers 2802 Juan Street, Suite 12 San Diego, CA 92110 Molly J. Magnuson O'Melveny & Myers LLP 610 Newport Center Dr, 17th Floor Newport Beach, California 92660

/s/ Lauren M. Castaldi LAUREN M. CASTALDI Trial Attorney, Tax Division U.S. Department of Justice

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KAREN P. HEWITT United States Attorney TOM STAHL, California State Bar No. 78291 Assistant United States Attorney Chief, Civil Division LAUREN M. CASTALDI Trial Attorney, Tax Division U.S. Department of Justice P.O. Box 683, Ben Franklin Station Washington, D.C. 20044-0683 Telephone: (202) 514-9668 Facsimile: (202) 307-0054 E-mail: [email protected] Attorneys for the United States of America IN THE UNITED STATES DISTRICT COURT

11 FOR THE SOUTHERN DISTRICT OF CALIFORNIA 12 13 14 15 16 17 BETSY MCINTYRE, an individual; 18 19 20 21 Defendants. 22 23 I, Lauren Castaldi, pursuant to 28 U.S.C. § 1746, hereby declare that: 24 1. I am an attorney with the United States Department of Justice, Tax Division located at 25 Washington, D.C. I have been assigned to the above-captioned matter and am in possession of the 26 Department of Justice files concerning this matter. I have reviewed those files in my possession in 27 28 -1QUICKSILVER, INC., a Delaware Corporation; and DOES 1-50, inclusive, v. Plaintiff, CLAYTON BLEHM, dba FDC INVESTMENTS, INC. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. 08-CV-1358-BTM-NLS

Declaration of Lauren Castaldi

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making the representations below. 2. Attached hereto as Exhibit A are copies of the Forms 870 provided to me by the Internal Revenue Service signed by Plaintiff agreeing to the assessment of deficiencies for the tax years 1998, 1999, and 2000. 3. Attached hereto as Exhibit B is a copy of a Decision of the Tax Court, dated April 24, 2007, in the case of Clayton D. Blehm v. Commissioner of Internal Revenue (Docket no. 4032-06).

Executed this 28th day of August, 2008

/s/ Lauren Castaldi LAUREN M. CASTALDI Trial Attorney, Tax Division U.S. Department of Justice

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