USCA1 Opinion
United States Court of Appeals
United States Court of Appeals
For the First Circuit
For the First Circuit
____________________
No. 94-1070
JOHN F. MURPHY,
Plaintiff, Appellant,
v.
UNITED STATES OF AMERICA,
Defendant, Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Edward F. Harrington, U.S. District Judge]
___________________
____________________
Before
Cyr, Circuit Judge,
_____________
Bownes, Senior Circuit Judge,
____________________
and Stahl, Circuit Judge.
_____________
____________________
Stephen J. Lyons with whom Klieman, Lyons, Schindler, Gross &
__________________ ____________________________________
Pabian was on brief for appellant.
______
Kenneth W. Rosenberg, Attorney, Tax Division, with whom Loretta
_____________________ _______
C. Argrett, Assistant Attorney General, Gary R. Allen and Kenneth L.
__________ _____________ __________
Greene, Attorneys, Tax Division, Department of Justice and Donald K.
______ _________
Stern, United States Attorney, were on brief for appellee.
_____
____________________
January 25, 1995
____________________
STAHL, Circuit Judge. This appeal arises from the
STAHL, Circuit Judge.
_____________
dismissal of a suit brought by plaintiff-appellant John
Murphy for a tax refund and damages stemming from an alleged
illegal or erroneous tax collection. Because we agree with
the district court that Murphy has failed to establish a
waiver of sovereign immunity, we affirm.
I.
I.
__
Background
Background
__________
Prior to 1972, Murphy formed Capeway Construction
Company ("Capeway") as a partnership with Edward Laffey. In
1972, Capeway failed to submit payroll taxes to the federal
government for the quarters ending on June 30 and September
30 of that year. At the end of 1972, Capeway terminated its
business, leaving an outstanding payroll tax liability of
$9,442.13. Capeway's sole remaining asset at that time was a
parcel of real estate located in Easton, Massachusetts, which
Capeway had acquired in 1971 for approximately $5,000 ("the
Property"). The Capeway Property was subject to a first
mortgage in favor of Wingate and Louise Chadbourne.
In January 1974, the Internal Revenue Service
("IRS") assessed Capeway $13,994.09 for the unpaid payroll
tax liability. Because Capeway failed to satisfy the
obligation, the IRS looked to Murphy and Laffey who, as
partners, were individually liable for the tax liability.
See 26 U.S.C. 6671(b).
___
-2-
2
In April 1974, the IRS served the partners with a
notice of seizure of the Property. Prior to service of the
notice, two IRS officers had advised Murphy that the agency
intended to sell the Property and apply the proceeds to the
outstanding tax liability. In August 1974, the IRS filed an
action against Murphy and Laffey in federal district court
seeking judgment in the amount of the payroll tax liability.
On July 25, 1977, the district court entered judgment against
Murphy and Laffey in the amount of $19,711.221 and ordered
the foreclosure and sale of the Property at public auction by
the U.S. Marshal. The order specified that a minimum bid of
$4,000 would be required at the auction. The order further
stated that, after paying the costs of the sale, the proceeds
were to be applied first to satisfy the outstanding mortgage
on the Property, then to cover the costs of the United States
in the action, and finally to the outstanding judgment.2
In 1977, the U.S. Marshal's office made two
unsuccessful attempts to sell the Property. No further
effort to sell the Property was ever undertaken.3 Over the
____________________
1. This amount purported to account for $13,994.09 in
outstanding taxes, penalties, and interest; $6,020.53 in
statutory additions; and $335.24 for the costs of the action.
2. The order, which Murphy attached to the complaint, also
stated that, if any surplus remained, it should be
distributed "pursuant to a further Order of the Court."
3. Subsequently, Edward Laffey was released from liability
due to his inability to pay.
-3-
3
course of the next eight years, the IRS never notified Murphy
that the Property had not been sold, and Murphy does not
allege that he ever inquired as to the disposition of the
Property. The record does not disclose what happened to the
local tax bills on the property during the intervening years.
We assume that the taxes were not paid, for in 1985, after
the IRS released its federal tax lien, the Town of Easton
foreclosed on the Property pursuant to a final decree
obtained in Massachusetts state court against Murphy and
Laffey for their failure to pay the local real estate taxes.
The IRS did not notify Murphy that it had released its
federal tax lien.
In December 1989, the IRS resumed its efforts to
collect the unpaid payroll taxes by issuing a final notice of
tax due to Murphy for the sum of $43,468.98. On July 16,
1990, Murphy received a second final notice, which stated
that the sum due was $19,311.97. On August 20, 1990, Murphy
made a payment to the IRS in the amount of $19,351.74, which
purported to satisfy in full his obligation as responsible
party for Capeway's outstanding payroll tax liability.4
On September 5, 1990, Murphy filed a refund
application with the IRS, claiming that the seizure of the
____________________
4. Though it is not entirely clear from the record, Murphy's
counsel at oral argument stated that both parties agreed that
this payment did in fact fully satisfy Murphy's obligation
for the 1972 payroll taxes. Government's counsel did not
dispute this statement.
-4-
4
Property and its ordered sale should have rendered proceeds
adequate to satisfy his tax liability. On March 5, 1992, the
IRS disallowed his application. On July 1, 1992, Murphy
filed a second application for refund on which the IRS took
no action. On March 9, 1993, Murphy filed this suit against
the United States seeking a refund and other relief pursuant
to 28 U.S.C. 1346(a)(1) and 26 U.S.C. 7430 and 7433. In
his Complaint, Murphy alleged that the government had
exercised "dominion and control" over the Property and had
"breached its obligation to liquidate and/or dispose of the
property in a reasonable manner." The district court
dismissed the suit on motion of the United States for lack of
subject matter jurisdiction. This appeal followed.
II.
II.
___
Discussion
Discussion
__________
Murphy contends that the district court erred in
dismissing his suit for lack of subject matter jurisdiction.
He claims that jurisdiction obtained under 28 U.S.C.
1346(a)(1) for a refund of erroneously collected taxes and
under 26 U.S.C. 7433 for damages. We first outline the
doctrine of sovereign immunity and the requisite standard of
review, and then proceed to discuss each argument in turn.
It is well settled that the United States, as
sovereign, may not be sued without its consent. E.g., United
____ ______
States v. Dalm, 494 U.S. 596, 608 (1990). Jurisdiction must
______ ____
-5-
5
be found in an express Congressional waiver of immunity or
consent to be sued. See, e.g., United States v. Mottaz, 476
___ ____ _____________ ______
U.S. 834, 841 (1986); Sibley v. Ball, 924 F.2d 25, 28 (1st
______ ____
Cir. 1991). In general, statutes waiving sovereign immunity
should be strictly construed in favor of the United States.
See United States v. Michel, 282 U.S. 656, 659-60 (1931);
___ ______________ ______
Gonsalves v. IRS, 975 F.2d 13, 15 (1st Cir. 1992) (per
_________ ___
curiam); Schon v. United States, 759 F.2d 614, 617 (7th Cir.
_____ _____________
1985). See also Charles A. Wright et al. 14 Federal Practice
___ ____ ________________
and Procedure 3654 at 194-95 (2d ed. 1985). "Courts may
_____________
not `enlarge . . . beyond what the language [of the statute
creating the waiver] requires.'" Gonsalves, 975 F.2d at 16
_________
(alterations in original) (quoting Eastern Transp. Co. v.
_____________________
United States, 272 U.S. 675, 686 (1927)).
_____________
We review de novo a district court's dismissal for
__ ____
lack of subject matter jurisdiction under Fed R. Civ. P.
12(b)(1). Negron-Gaztambide v. Hernandez-Torres, 35 F.3d 25,
_________________ ________________
27 (1st Cir. 1994), petition for cert. filed, 63 U.S.L.W.
________ ___ _____ _____
3477 (December 8, 1994) (No. 94-1019). Our review is similar
to that accorded a dismissal for failure to state a claim
pursuant to Fed. R. Civ. P. 12(b)(6). See Scheuer v. Rhodes,
___ _______ ______
416 U.S. 232, 236 (1974); Negron-Gaztambide, 35 F.3d at 27.
_________________
In reviewing the dismissal, we construe the Complaint
liberally and treat all well-pleaded facts as true, according
the plaintiff the benefit of all reasonable inferences. See,
___
-6-
6
e.g., K.W. Thompson Tool Co. v. United States, 836 F.2d 721,
____ ______________________ _____________
726 (1st Cir. 1988). A plaintiff, however, may not rest
merely on "unsupported conclusions or interpretations of
law." Washington Legal Found. v. Massachusetts Bar Found.,
________________________ _________________________
993 F.2d 962, 971 (1st Cir. 1993). "[S]ubjective
characterizations or conclusory descriptions of a general
scenario which could be dominated by unpleaded facts" will
_____
not defeat a motion to dismiss. Coyne v. City of Somerville,
_____ __________________
972 F.2d 440, 444 (1st Cir. 1992) (internal quotations
omitted). Finally, we conduct our review "mindful that the
party invoking the jurisdiction of a federal court carries
the burden of proving its existence." Taber Partners, I v.
__________________
Merit Builders, Inc., 987 F.2d 57, 60 (1st Cir.), cert.
_____________________ _____
denied, 114 S. Ct. 82 (1993).
______
A. The 28 U.S.C. 1346(a)(1) Claim.
_____________________________________
Murphy first contends that the district court erred
because jurisdiction lies under 28 U.S.C. 1346(a)(1), which
waives sovereign immunity for tax-refund suits.5 Murphy
____________________
5. 28 U.S.C. 1346 provides in relevant part:
(a) The district courts shall have
original jurisdiction, concurrent with
the United States Court of Federal
Claims, of:
(1) Any civil action against the
United States for the recovery of any
internal-revenue tax alleged to have been
erroneously or illegally assessed or
collected, or any penalty claimed to have
been collected without authority or any
-7-
7
does not dispute his obligation for the outstanding payroll
taxes or the amount of that obligation. Neither does Murphy
contend that the government obtained anything of value as a
result of its dealings with the Property. Essentially, he
argues that, by virtue of the notice of seizure, the ensuing
court order of foreclosure and the failure of the IRS to keep
Murphy informed, the IRS took effective ownership of the
Property without according him proper credit for its value.
In other words, the actions of the government amounted to a
de facto (and erroneous) collection of the Property entitling
Murphy to a refund. We disagree.
Assuming arguendo that, under certain
________
circumstances, the conduct of the IRS with respect to a
seizure of property could constitute a de facto collection of
owed taxes, Murphy does not allege facts sufficient to
support such a claim. First of all, Murphy's Complaint
asserts only that the IRS issued a notice of seizure,
subsequently obtained an order of foreclosure from the
district court, and failed to keep Murphy informed. The
Supreme Court, however, has held that the IRS's seizure of
property does not effect a transfer of ownership. United
______
States v. Whiting Pools, Inc., 462 U.S. 198, 209-11 (1983)
______ ___________________
(bankruptcy action). "Ownership of the [seized] property is
____________________
sum alleged to have been excessive or in
any manner wrongfully collected under the
internal-revenue laws.
-8-
8
transferred only when the property is sold to a bona fide
purchaser at a tax sale." Id. at 211. Therefore, prior to a
___
successful auction, the ownership of the Property remained
with Capeway.
Moreover, Murphy's assertion that the IRS failed to
notify him that the auctions were unsuccessful can give him
no comfort. The district court's order directing the U.S.
Marshal's office to sell the Property explicitly stated that
a minimum bid of $4,000 was required. This clearly put
Murphy on notice of the possibility that the ordered auction
might not be successful.
Finally, though Murphy's Complaint states that the
IRS exercised "dominion and control" over the Property
subsequent to the two unsuccessful auction attempts, it
alleges no facts in support of the conclusory statement.
Murphy has not alleged conduct analogous to taking title,
insuring and renting the property, see United States v.
___ ______________
Pittman, 449 F.2d 623, 627 (7th Cir. 1971), or negotiating a
_______
payment agreement directly with debtors on account
receivables, see Barlow's, Inc. v. United States, 36 B.R.
___ ______________ ______________
826, 829 (Bankr. E.D. Va.), aff'd, 53 B.R. 986 (E.D. Va.
_____
1984), aff'd, 767 F.2d 1098 (4th Cir. 1985).6 Though
_____
____________________
6. In contrasting Murphy's allegations to the facts of
Pittman and Barlow's, we do not hold that the conduct found
_______ ________
in those cases would necessarily support jurisdiction for a
refund suit under 28 U.S.C. 1346(a)(1). We cite them only
to illustrate the point that Murphy has alleged no facts that
-9-
9
essentially asserting that the conduct of the IRS was
sufficient to cause him to believe that the IRS had taken
effective ownership of the Property, Murphy pleads no facts
to illustrate what that conduct was. Murphy's claim cannot
rest solely on the unsubstantiated conclusion that the IRS
exercised "dominion and control."
Therefore, because Murphy's Complaint cannot be
construed as asserting a claim for erroneous or illegal
collection of taxes (as the IRS did not "collect" the
Property), Murphy's claim cannot be considered a tax refund
suit. Accordingly, no jurisdiction exists under 28 U.S.C.
1346(a)(1). See Cleveland Chair Co. v. United States, 526
___ ___________________ _____________
F.2d 497, 498-99 (6th Cir. 1975) (no jurisdiction in refund
suit where dispute centers on non-action of a federal
official in his capacity as a custodian and not on
overpayment of taxes); Film Truck Serv. v. Nixon, 216 F.
_________________ _____
Supp. 77, 78 (E.D. Mich. 1963) (no jurisdiction in refund
suit where Complaint alleges government failed to dispose of
seized property in most productive way possible).
B. The 26 U.S.C. 7433 Claim.
_______________________________
____________________
support his claim that the IRS exercised "dominion and
control" over the Property. Furthermore, the cases are
distinguishable in that neither arose as a refund suit by a
taxpayer. See Pittman, 449 F.2d at 624 (action to foreclose
___ _______
federal tax liens brought by the United States) and Barlow's,
___ ________
36 B.R. at 826 (motion in bankruptcy action to reduce tax
lien subsequent to the IRS's filing of a proof of claim).
-10-
10
Murphy's claim for relief under 26 U.S.C. 7433 is
equally unavailing.7 Congress enacted 7433 "to give
taxpayers `a specific right to bring an action against the
Government for damages sustained due to unreasonable actions
taken by an IRS employee.'" Gonsalves, 975 F.2d at 15
_________
(quoting H.R. Conf. Rep. No. 1104, 100th Cong., 2d Sess. 228
(1988)). Congress provided, however, that the statute should
apply to actions occurring after the date of enactment, which
was November 10, 1988. Id. at 17-18. Because all of the
___
conduct of which Murphy complains (i.e., seizure and failure
to sell the Property, failure to notify Murphy that the
auctions were unsuccessful, and release of tax lien without
notice to Murphy) occurred well before the date of enactment,
26 U.S.C. 7433 does not provide jurisdiction for Murphy's
claims.
III.
III.
____
____________________
7. 26 U.S.C. 7433 provides in relevant part:
(a) In general - If, in connection
In general
with any collection of Federal Tax with
respect to a taxpayer, any officer or
employee of the Internal Revenue Service
recklessly or intentionally disregards
any provision of this title, or any
regulation promulgated under this title,
such taxpayer may bring a civil action
for damages against the United States in
a district court of the United States.
Except as provided in section 7432, such
civil action shall be the exclusive
remedy for recovering damages resulting
from such actions.
-11-
11
Conclusion
Conclusion
__________
For the foregoing reasons, the district court's
dismissal is affirmed. Costs to appellees.
-12-
12
