494 F.Supp.3d 661
N.D. Cal.2020Background:
- Plaintiffs are incarcerated or formerly incarcerated people who did not receive CARES Act economic impact payments (EIPs); they sued the Treasury, IRS, and officials under the APA and related statutes as a class.
- The CARES Act (26 U.S.C. § 6428) created a refundable tax credit and an explicit “advance refund” mechanism treating eligible individuals as having made a payment against 2019 taxes, and directed the Secretary to refund or credit any overpayment “as rapidly as possible.”
- The IRS initially disbursed millions of EIPs in April 2020, then published a May 2020 FAQ and updated internal guidance excluding incarcerated individuals and directed recoupment efforts for certain earlier payments.
- Plaintiffs obtained a preliminary injunction (ordering reconsideration of denials based solely on incarceration) and provisional class certification; defendants appealed and sought a stay pending appeal and opposed summary judgment.
- The district court denied the stay, held that plaintiffs have Article III standing and that the IRS’s exclusion of incarcerated individuals is final agency action subject to APA review, granted summary judgment on the APA § 706(2) claims (arbitrary, capricious, and contrary to law), vacated the IRS policy, converted the injunction to permanent relief, and certified the class for all purposes.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing & ripeness | Plaintiffs say they suffered concrete economic injury because IRS denied EIPs and thus have imminent injury and ripe claims | Defendants say if §6428 does not create an advance refund right, there is no present injury and claims are unripe | Court: Plaintiffs have Article III standing and claims are ripe; merits need not be resolved to find standing |
| Sovereign immunity / APA reviewability | Plaintiffs: APA §702 waives immunity because IRS policy is final agency action and no adequate alternative remedy exists | Defendants: No final agency action; plaintiffs have alternative remedy under tax-refund statute (26 U.S.C. §7422) | Court: IRS action is final; §7422 is not an adequate alternative; APA waiver applies |
| Motion for stay (irreparable harm & likelihood of success) | Plaintiffs: injunction stops unlawful practice; gov’t administrative costs and recovery concerns speculative | Defendants: irreparable harm from disbursing funds that may be unrecoverable; likelihood of success on merits | Court: Defendants failed to show probable irreparable harm or likelihood of success; stay denied |
| APA §706(1) — unlawfully withheld or unreasonably delayed | Plaintiffs: IRS failed to perform discrete nondiscretionary duty to disburse advance refunds to eligible individuals | Defendants: IRS has discretion and acted by issuing many payments and altering practice | Court: §706(1) relief denied — IRS acted (not a failure to act); plaintiffs’ claim better framed under §706(2) |
| APA §706(2) — contrary to law (statutory interpretation) | Plaintiffs: §6428 requires mandatory advance refunds to eligible individuals (including incarcerated persons) and “shall refund or credit” is mandatory | Defendants: §6428 creates a tax credit and does not require advance refunds to every eligible person before tax filing; timing/structure limit scope | Court: The Act mandates advance refunds to eligible individuals; IRS exclusion of incarcerated people is contrary to law; summary judgment for plaintiffs on this issue |
| APA §706(2) — arbitrary and capricious | Plaintiffs: IRS provided no adequate contemporaneous rationale; post-hoc fraud justification is insufficient | Defendants: Exclusion motivated by anti-fraud concerns and statutory reading | Court: Policy was arbitrary and capricious; agency failed to provide adequate reasons (post-hoc rationalizations rejected) |
Key Cases Cited
- Nken v. Holder, 556 U.S. 418 (U.S. 2009) (stay pending appeal factors and burden on movant)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (U.S. 1992) (constitutional standing requirements)
- Bennett v. Spear, 520 U.S. 154 (U.S. 1997) (final agency action test under the APA)
- Norton v. Southern Utah Wilderness Alliance, 542 U.S. 55 (U.S. 2004) (limits on §706(1) for compelling agency action)
- Motor Vehicle Manufacturers Ass'n v. State Farm, 463 U.S. 29 (U.S. 1983) (arbitrary and capricious standard)
- Bowen v. Massachusetts, 487 U.S. 879 (U.S. 1988) (distinguishing equitable APA relief from tax refund suits)
- Hawkes Co. v. U.S. Army Corps of Engineers, 136 S. Ct. 1807 (U.S. 2016) (APA reviewability and final agency action discussion)
- Sarmiento v. United States, 678 F.3d 147 (2d Cir. 2012) (interpreting analogous advance-refund language and timing)
- East Bay Sanctuary Covenant v. Trump, 950 F.3d 1242 (9th Cir. 2020) (standing need not resolve merits)
- Hells Canyon Preservation Council v. U.S. Forest Service, 593 F.3d 923 (9th Cir. 2010) (distinguishing agency action from plaintiffs’ preferred policy)