Road & Highway Builders, LLC v. United States
102 Fed. Cl. 88
Fed. Cl.2011Background
- IRS released its right to redeem real property in exchange for RHB’s payment of $100,000.
- Notices of federal tax liens were later found to be improperly recorded against Crystal Cascades Civil, affecting validity of the IRS right to redeem.
- RHB seeks return of the $100,000 on theories of lack of consideration and bad faith by the IRS.
- Trial occurred June 7, 2011 to determine whether the IRS acted in bad faith in entering the release.
- Bankruptcy court and Ninth Circuit concluded the IRS liens did not impart constructive notice; this supported RHB’s contentions about lien validity.
- Court concluded plaintiff failed to prove bad faith by clear and convincing evidence; judgment for the IRS.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Subject matter jurisdiction under Tucker Act | RHB alleged contract-based claim invoking Tucker Act. | Action sounds in tort if no contract; lacks jurisdiction. | Jurisdiction exists under contract theory; pleadings suffice to invoke jurisdiction. |
| Presumption of good faith for government officials | IRS should not enjoy presumption unless fraud shown. | IRS entitled to presumption of good faith; overcome only by clear and convincing evidence. | IRS entitled to presumption of good faith; overcome only by clear and convincing evidence. |
| Bad faith proven by clear and convincing evidence | Multiple facts show IRS acted in bad faith in negotiating the release. | No clear and convincing evidence of bad faith. | Plaintiff failed to show bad faith by clear and convincing evidence. |
| Reasonableness of IRS’s belief in redemption | Bankruptcy ruling undermines reasonableness of IRS belief in validity of lien. | Reasonableness judged at time of agreement; supported by authorities; not inherently unreasonable. | IRS had reasonable grounds at the time to believe in redemption; not proven otherwise by clear and convincing evidence. |
| Waters testimony admissibility and impact | Waters’s bankruptcy trial testimony would have shown weaknesses in lien validity. | Waters testimony is admissible for probative value. | Waters’s testimony admitted; does not alter bad faith finding. |
Key Cases Cited
- Total Medical Management, Inc. v. United States, 104 F.3d 1314 (Fed.Cir.1997) (jurisdiction to consider contract claims even when merits uncertain)
- Morris v. United States, 33 Fed.Cl. 733 (1995) (jurisdiction over contract-based challenges to government conduct)
- Nematollahi v. United States, 38 Fed.Cl. 224 (1997) (claims tied to contract and misrepresentation allowed under jurisdiction)
- Hartle v. United States, 18 Cl.Ct. 479 (1989) (misrepresentation claims closely bound to contract and allowed under jurisdiction)
- Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234 (Fed.Cir.2002) (presumption of good faith applies outside fraud contexts)
- Savantage Financial Services, Inc. v. United States, 595 F.3d 1282 (Fed.Cir.2010) (presumption of good faith not overcome easily; pretext use upholds rule)
- Galen Medical Associates, Inc. v. United States, 369 F.3d 1324 (Fed.Cir.2004) (irrefragable proof concept in good faith standard)