GBX Associates LLC v. United States of AmericaGBX Associates LLC v. United States of America
Currently pending are the cross Motions for Summary Judgment filed by Plaintiff GBX Associates, LLC and Defendants United States of America, the United States Department of the Treasury, and the Internal Revenue Service. (Doc. Nos. 17, 18.) Plaintiff GBX Associates, LLC filed a combined Response in Opposition to Defendants’ Motion for Summary Judgment and Reply in support of its own Motion for Summary Judgment on July 1, 2022. (Doc. No. 19.) Defendants filed a Reply in Support of their Motion for Summary Judgment on July 8, 2022. (Doc. No. 20.)
For the following reasons, Plaintiff‘s Motion for Summary Judgment (Doc. No. 17) is DENIED and Defendants’ Motion for Summary Judgment (Doc. No. 18) is GRANTED, as set forth herein.
I. Background
A. Facts
The material facts are not in dispute.1 Plaintiff GBX Associates, LLC (“Plaintiff” or “GBX“) is a real estate investment and development firm that focuses on the acquisition, preservation, and
On December 23, 2016, the United States Department of the Treasury and the Internal Revenue Service (“IRS“) released Notice 2017-10, entitled “Listing Notice- Syndicated Conservation Easement Transactions.” See Doc. No. 1-1. This Notice provides, in part, as follows:
The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) are aware that some promoters are syndicating conservation easement transactions that purport to give investors the opportunity to obtain charitable contribution deductions in amounts that significantly exceed the amount invested. This notice alerts taxpayers and their representatives that the transaction described in section 2 of this notice is a tax avoidance transaction and identifies this transaction, and substantially similar transactions, as listed transactions for purposes of
§ 1.6011-4(b)(2) of the Income Tax Regulations (Regulations) and§§ 6111 and6112 of the Internal Revenue Code (Code). This notice also alerts persons involved with these transactions that certain responsibilities may arise from their involvement.
(Doc. No. 1-1 at p. 1.) The designation of the transactions covered by the Notice as “listed transactions” imposes certain reporting and recordkeeping requirements on taxpayers who
GBX is a material advisor with respect to Historic Preservation Easement transactions that the IRS allegedly considers substantially similar to the listed transactions described in Notice 2017-10. (Doc. No. 1 at ¶ 39.) Although it believes that the investment funds it forms and manages are distinguishable from the listed transaction described in Notice 2017-10, GBX works to comply on a protective basis with the reporting and list maintenance requirements arising from the Notice. (Id. at ¶ 40.) Specifically, GBX asserts (and Defendants do not dispute for purposes of the instant Motions) that GBX spends “significant time and money” complying with the record-keeping and reporting requirements that Notice 2017-10 imposes on GBX as a material advisor and on the funds and project
B. Procedural History
On March 11, 2022, GBX filed a Verified Complaint for Injunctive and Declaratory Relief in this Court against Defendants United States of America, the United States Department of the Treasury, and the Internal Revenue Service. (Doc. No. 1.) In its sole claim, GBX asserts that Defendants violated the Administrative Procedure Act (“APA“) when the IRS issued Notice 2017-10 without first providing notice and an opportunity for public comment. (Id. at ¶¶ 47-64.) GBX alleges that Notice 2017-10 constitutes a “substantive” or “legislative-type” rule that is subject to the APA‘s notice and comment procedures as a matter of law. (Id. at ¶ 57) (citing
GBX alleges that it is likely to succeed in challenging the lawfulness of Notice 2017-10 under the APA in light of the Sixth Circuit‘s recent decision in Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. March 3, 2022), which upheld an APA challenge to a similar IRS listing notice.4 (Id. at ¶ 6.) GBX further alleges that compliance with the Notice “has and will continue to
Shortly after filing its Verified Complaint, on March 21, 2022, GBX filed a Motion for Speedy Hearing and Expedited Declaratory Judgment, in which it asked the Court to “enter a scheduling order that allows the court to decide this case and grant the relief requested in Plaintiff‘s Verified Complaint by June 15, 2022.” (Doc. No. 7 at p. 6.) Defendants opposed the Motion. (Doc. No. 8.) On April 5, 2022, the Court issued a Memorandum Opinion & Order denying the Motion. (Doc. No. 12.)
Defendants filed their Answer on May 20, 2022. (Doc. No. 15.) Notably, therein, Defendants admit that ”Mann Construction is now controlling law within the Sixth Circuit and ... the analysis in that decision ... appears to apply with equal force to IRS Notice 2017-10.” (Id. at p. 3.) Defendants “request that the Court enter a final judgment that IRS Notice 2017-10 is declared unlawful as to plaintiff GBX only and setting IRS Notice 2017-10 aside as to plaintiff GBX only, with the understandings that (1) this relief does not apply to any parties not presently before the Court, and (2) the United States retains the right to argue that this is not the correct result in cases outside the Sixth Circuit.” (Id. at p. 16.) Defendants further state that “[b]efore the Court enters a judgment providing for any relief that exceeds, in nature or in scope, the relief that is described in the preceding sentence,
The Court conducted a telephonic status conference with counsel on May 23, 2022, during which counsel for GBX indicated that GBX did not agree to the limited scope of relief proposed by Defendants in their Answer. See Minute Order dated May 23, 2022. The Court ordered the parties to meet and confer to determine whether they could reach agreement regarding the scope of relief in a proposed final judgment and order of dismissal. (Id.)
On May 27, 2022, the parties advised the Court that they were unable to reach agreement regarding the scope of relief in a proposed final judgment and order of dismissal. See Minute Order dated May 31, 2022. The parties agreed that discovery was not necessary and requested that the Court allow the parties to file briefs regarding the nature and scope of the relief available under the APA. Id. The Court set a briefing schedule. Id.
GBX thereafter filed a Motion for Summary Judgment on June 10, 2022. (Doc. No. 17.) Defendants filed a combined Cross Motion for Summary Judgment and Response in Opposition to GBX‘s Motion for Summary Judgment on June 24, 2022. (Doc. No. 18.) GBX filed a combined Brief in Opposition to Defendants’ Motion for Summary Judgment and Reply in support of its own Motion on July 1, 2022. (Doc. No. 19.) Defendants filed a Reply in support of their Motion for Summary Judgment on July 8, 2022. (Doc. No. 20.)
II. Legal Standard
“The APA establishes the procedures federal administrative agencies use for ‘rule making,’ defined as the process of ‘formulating, amending, or repealing a rule.‘” Perez v. Mortg. Bankers Ass‘n, 575 U.S. 92, 95 (2015) (citing
To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall—
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(2) hold unlawful and set aside agency action, findings, and conclusions found to be—
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;
(B) contrary to constitutional right, power, privilege or immunity;
(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;
(D) without observance of procedure required by law;
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III. Analysis
As noted above, Defendants acknowledge both that Mann Construction, supra is controlling law within the Sixth Circuit and that the analysis in that case applies to Notice 2017-10. The parties, therefore, agree that, under Mann Construction, this Court should “hold unlawful and set aside” Notice 2017-10 pursuant to
GBX asserts that Notice 2017-10 should be vacated in whole, i.e., set aside as to everyone and not as to GBX only. (Doc. No. 17.) In support of this argument, GBX cites authority for the proposition that, when a federal court determines that agency action is unlawful, “the ordinary result is that the [agency action is] vacated—not that [its] application to the individual petitioners is proscribed.” (Doc. No. 17-1 at pp. 1, 4) (quoting Nat‘l Min. Ass‘n v. U.S. Army Corps of Eng‘rs, 145 F.3d 1399, 1409 (D.C. Cir. 1998)). GBX argues that this is because the “set aside” remedy of vacatur set forth in
Defendants disagree “emphatically” with extending relief beyond GBX and “invalidat[ing] the Notice beyond the Sixth Circuit.” (Doc. No. 18-1 at p. 1.) Defendants assert that the law regarding the scope of the “set aside” remedy in
As it implicates this Court‘s subject matter jurisdiction, the Court will begin by addressing Defendants’ argument that GBX lacks standing to pursue its proposed remedy of universal vacatur. See Kanuszewski v. Michigan Dep‘t of Health and Human Services, 927 F.3d 396, 405 (6th Cir. 2019) (“Because standing doctrine comes from Article III‘s case-or-controversy requirement, it is jurisdictional and must be addressed as a threshold matter.“) (citing Nikolao v. Lyon, 875 F.3d 310, 315 (6th Cir. 2017)).
A. Standing
“Article III of the Constitution limits the judicial power of the United States to the resolution of ‘Cases’ and ‘Controversies.‘” Hein v. Freedom From Religion Found., Inc., 551 U.S. 587, 597–98 (2007) (alteration in original) (quoting DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342 (2006)).
“[T]he irreducible constitutional minimum of standing contains three elements.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992). “First, the plaintiff must have suffered an ‘injury in fact‘—an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical.” Id. (internal quotation marks and citations omitted). “Second, there must be a causal connection between the injury and the conduct complained of—the injury has to be ‘fairly ... trace[able] to the challenged action of the defendant, and not ... th[e] result [of] the independent action of some third party not before the court.‘” Id. at 560–61 (quoting Simon v. Eastern Ky. Welfare Rights Org., 426 U.S. 26, 41–42 (1976)). “Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.” Id. at 561 (internal quotation marks and citation omitted). “Foremost among these requirements is injury in fact—a plaintiff‘s pleading and proof that he has suffered the ‘invasion of a legally protected interest’ that is ‘concrete and particularized,’ i.e., which ‘affect[s] the plaintiff in a personal and individual way.‘” Gill v. Whitford, 138 S.Ct. 1916, 1929 (2018) (quoting Lujan, 504 U.S. at 560, and n. 1).
As the party invoking federal jurisdiction, the plaintiff bears the burden of establishing standing. Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016). Notably, a plaintiff must demonstrate standing separately “for each claim he seeks to press,” DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352 (2006), and “for each form of relief sought.” Id. (quoting Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 185 (2000)). See Summers v. Earth Island Institute, 555 U.S. 488, 493 (2009) (explaining that a plaintiff must demonstrate standing “for each type of relief sought.“); See also Kanuszewski, 927 F.3d at 406; Waskul v. Washtenaw County Community Mental Health, 900 F.3d 250, 255 (6th Cir. 2018).
Applying these principles to the instant case, Defendants argue that “the proper remedy is to set aside the Notice as to GBX, thus redressing GBX‘s own asserted injury based on its listed transaction obligations, but not as to any non-parties.” (Doc. No. 18-1 at p. 8.) Defendants assert that standing to pursue universal vacatur is not demonstrated by virtue of the fact that GBX has agreed to prepare tax forms for other, non-party taxpayers that participate in GBX-promoted listed transactions. (Id. at p. 9.) Nor, Defendants argue, is standing conferred based on GBX‘s assertion that it is required by law to obtain and provide a reportable transaction number to all non-party taxpayers and material advisors involved in its transactions.5 (Id. at p. 10-11.) Finally, Defendants maintain that, even if the Court were to accept that non-party participants in GBX-promoted transactions may suffer harm as a result of Notice 2017-10, this is nonetheless insufficient to demonstrate standing for GBX‘s proposed remedy of universal vacatur. (Id.) Defendants emphasize that, even in the APA context, GBX‘s remedy “must be tailored to redress the plaintiff‘s particular injury.” (Id. at p. 11.) Because GBX‘s injury is “based on its own obligations, and that injury is fully remedied by a judgment setting the Notice aside as to GBX only,” Defendants assert that GBX lacks standing to pursue any relief as to non-parties. (Id. at p. 12).
For the following reasons, the Court finds that GBX has standing to pursue the relief it seeks under
The parties’ dispute centers around the nature and breadth of the relief to which GBX is entitled under § 706(2). This is an important legal issue, but the Court is not persuaded that it is a standing issue. See, e.g., Salazar v. Buono, 559 U.S. 700, 713 (2010) (plurality opinion) (stating that an argument about the scope of an injunction “is not an argument about standing but about the
Indeed, several district courts have expressly rejected the argument that a plaintiff lacks standing to seek a remedy under
The cases cited by Defendants do not persuade the Court otherwise. Notably, the majority of the standing cases relied upon by the Defendants do not involve requests for vacatur of unlawful agency action under
Citing Summers v. Earth Island Institute, 555 U.S. 488 (2009), however, Defendants assert that the standing principles espoused in the above cases “remain relevant in the APA context.” (Doc. No. 18-1 at pp. 11-12.) In Summers, the United States Forest Service (“USFS“) promulgated certain regulations under the Forest Service Decisionmaking and Appeals Reform Act (“Appeals Reform Act“) that exempted small fire-rehabilitation and timber sales projects from the notice, comment, and appeal process required under the Appeal Reform Act for larger projects. Id. at 490. Pursuant to these “exemption” regulations, the USFS issued a decision memo approving a salvage timber sale in the Sequoia National Forest (“the Burnt Ridge Project“) without providing notice, a period of public
The district court granted a preliminary injunction against the Burnt Ridge salvage timber sale. Id. Soon thereafter, the parties settled their dispute over the Burnt Ridge Project and the district court concluded that “the Burnt Ridge timber sale is not at issue in this case.” Id. The government argued that, with the Burnt Ridge dispute settled, and with no other project before the court in which plaintiffs were threatened with injury, plaintiffs lacked standing to challenge the regulations. Id. at 491-492. The district court disagreed and reached the merits of plaintiffs’ challenges. Id. The district court proceeded to invalidate five of the challenged regulations as contrary to the language and purpose of the Appeals Reform Act and entered a nationwide injunction against their application. Id. at 492. On appeal, the Ninth Circuit found that plaintiffs’ challenges to regulations not at issue in the Burnt Ridge Project were not ripe for adjudication, but otherwise affirmed the district court‘s findings as to the regulations that had been applicable to the Burnt Ridge Project and upheld the nationwide injunction against their application. Id.
The Supreme Court reversed, finding that plaintiffs lacked organizational standing. The Court first noted that “[t]he regulations under challenge here neither require nor forbid any action on the part of respondents,” making standing “substantially more difficult to establish.” Id. at 493. After explaining that, under certain circumstances, the plaintiffs could assert the standing of their members, the Court examined the evidence submitted by plaintiffs and found it lacking:
Affidavits submitted to the District Court alleged that organization member Ara Marderosian had repeatedly visited the Burnt Ridge site, that he had imminent plans to do so again, and that his interests in viewing the flora and fauna of the area would be harmed if the Burnt Ridge Project went forward without incorporation of the ideas he would have suggested if the Forest Service had provided him an opportunity to comment. The Government concedes this was sufficient to establish Article III standing with respect to Burnt Ridge. *** Marderosian‘s threatened injury with regard to that project was originally one of the bases for the present suit. After the District Court had issued a preliminary injunction, however, the parties settled their differences on that score. Marderosian‘s injury in fact with regard to that project has been remedied, and it is, as the District Court pronounced, “not at issue in this case.” 376 F.Supp.2d, at 999. We know of no precedent for the proposition that when a plaintiff has sued to challenge the lawfulness of certain action or threatened action but has settled that suit, he retains standing to challenge the basis for that action (here, the regulation in the abstract), apart from any concrete application that threatens imminent harm to his interests. Such a holding would fly in the face of Article III‘s injury-in-fact requirement. See Lyons, supra, at 111, 103 S.Ct. 1660.
Id. at 493-494 (emphasis added).
The Court finds that Summers is distinguishable from the instant case. As an initial matter, Summers involved the issue of organizational (or “associational“) standing, i.e., the standing of an organization to sue over injuries allegedly sustained by its members rather than by the organization itself. Here, by contrast, GBX sues on its own behalf, i.e., for injuries that it allegedly has sustained (or will sustain) as a result of Notice 2017-10. Moreover, unlike the regulations at issue in Summers which “neither require[d] or for[bade] any action on the part of” the plaintiffs, it is undisputed that Notice 2017-10 imposes significant record keeping and reporting requirements on GBX and carries with it the potential for penalties for non-compliance with those requirements. Thus, Summers did not expressly consider the issue of whether and to what extent, under the set aside provision in
The Court further finds that Summers is distinguishable on its facts. Unlike the parties in Summers, GBX and Defendants have not “settled their dispute.” To the contrary, GBX‘s APA claim relating to Notice 2017-10 is still “an issue in the case” because the proper remedy accorded by § 706(2) to GBX for the IRS’ unlawful agency action in promulgating that Notice has not yet been decided. Thus, GBX is not raising an “abstract challenge” to Notice 2017-10 – it is asserting arguments regarding the nature of the relief Congress intended to afford under § 706(2) for the concrete harm suffered by GBX as a result of IRS‘s unlawful promulgation of that Notice. GBX‘s standing to challenge both the lawfulness of the Notice and the proper scope of relief accorded by § 706(2) for the IRS’ failure to follow APA‘s notice and comment requirements relating to that Notice, then, is fundamentally different from plaintiffs’ standing to challenge the regulations at issue in Summers.7
B. Scope of Relief Authorized by APA § 706(2)
As noted above, GBX asserts that the Notice 2017-10 should be in vacated in whole (and not just as to GBX itself) because, by its very nature, the “set aside” remedy of vacatur set forth in
The Court begins, as it must, with the language of the statute itself. Section 706(2) of the APA provides, in relevant part, that “[t]o the extent necessary to decision and when presented, the reviewing court shall . . . hold unlawful and set aside agency action” where, as here, that action exceeds the agency‘s statutory authority. On its face, the statute does not explicitly state as to whom a federal court should set aside unlawful agency action under this provision. Indeed, as another district court in this Circuit recently observed, “[w]ithout more, the statutory text directing a reviewing court to ‘hold unlawful and set aside agency action’ does not directly resolve the parties’ disagreement over the scope of the remedy.” Skyworks, Ltd., 542 F.Supp.3d at 729. See also Arizona v. Biden, 31 F.4th 469, 484 (6th Cir. 2022) (Sutton, C.J., concurring opinion) (with regard to the issue of universal relief, noting that the “set aside” provision in
The Supreme Court has not yet directly answered the question of whether universal vacatur is authorized under § 706(2). Several Circuit Courts of Appeal, however, have considered this very question and found that it does. The most often cited case for this proposition is National Mining Association v. U.S. Army Corps of Engineers, 145 F.3d 1399 (D.C. Cir. 1998). In that case, the plaintiffs challenged a regulation providing that incidental fallback accompanying dredging operations is subject to the Clean Water Act‘s permitting provision for “discharge” of dredge or fill
We have made clear that “[w]hen a reviewing court determines that agency regulations are unlawful, the ordinary result is that the rules are vacated—not that their application to the individual petitioners is proscribed.” Harmon v. Thornburgh, 878 F.2d 484, 495 n. 21 (D.C.Cir.1989). Justice Blackmun made a similar observation in Lujan v. National Wildlife Federation, 497 U.S. 871, 913 (1990), writing in dissent but apparently expressing the view of all nine Justices on this question:
The Administrative Procedure Act permits suit to be brought by any person “adversely affected or aggrieved by agency action.” In some cases the “agency action” will consist of a rule of broad applicability; and if the plaintiff prevails, the result is that the rule is invalidated, not simply that the court forbids its application to a particular individual. Under these circumstances a single plaintiff, so long as he is injured by the rule, may obtain “programmatic” relief that affects the rights of parties not before the court. On the other hand, if a generally lawful policy is applied in an illegal manner on a particular occasion, one who is injured is not thereby entitled to challenge other applications of the rule.
Id. at 913, 110 S.Ct. 3177 (Blackmun, J., dissenting) (citation omitted). See also id. at 890 n. 2, 110 S.Ct. 3177 (majority opinion) (noting that under APA, successful challenge by aggrieved individual can affect entire agency program).
Id. (emphasis added). See also United Steel v. Mine Safety & Health Admin., 925 F.3d 1279, 1287 (D.C. Cir. 2019) (noting that “the ordinary practice is to vacate unlawful agency action“).9
In the wake of these decisions, numerous district courts have vacated unlawful action under
The Sixth Circuit, however, has not yet explicitly decided whether a district court has the authority under
District courts in this Circuit are divided. In Skyworks, for example, another judge in this District recently declined a plaintiff‘s request for universal relief under
(Doc. No. 59 at p. 10-11.) As of the date of this Opinion, the district court has not yet ruled on Mann Construction‘s motion.
On the one hand, reading [APA § 706(2)] as extending a remedy to all persons, even those who are not parties, where, as here, an agency exceeds congressional authorization offers an elegantly simple solution to a thorny problem. If an agency exceeds it authority, its action is unlawful regardless of which parties are formally before the court. Indeed, the CDC‘s action applies nationwide, as does Section 361 of the Public Health Service Act. As one district court noted: “the Court cannot, in an intellectually honest manner, limit vacatur of the rules to the state of New Mexico. The Court does not know how a court vacates a rule only as to one state, one district, or one party.” New Mexico Health Connections v. United States Dep‘t of Health & Hum. Servs., 340 F. Supp. 3d 1112, 1183 (D.N.M. 2018). If an order of this type does not merit nationwide vacatur, it is difficult to conceive of one that does.
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On the other hand, the lack of a firm foundation for nationwide vacatur in the language, structure, and history of the Administrative Procedure Act is striking. Some textual clues suggest that judicial review of agency action is more circumscribed, consistent with the aim of leaving the agency as the central actor when crafting administrative policy. See, e.g.,
5 U.S.C. §§ 551(11) &702 . Such a reading leaves the agency at the center of policymaking, consistent with fundamental principles of administrative law. Further, the principle of standing at the heart of Article III and its discussion in Lujan, among other cases, serves as a reminder that the judicial power remains fundamentally limited, with few, circumscribed exceptions, to cases and controversies between particular litigants. In this way, Article III promotes the separation of powers by limiting the exercise of the judicial power so that the federal courts do not become a super-legislature (or, in this case, a super-agency). Further, the recent increase in the use of nationwide or universal remedies suggests a break from historical practices and understandings about the proper role of the judiciary. In an understandable sense, the increasingly expansive actions agencies themselves undertake prompt such judicial remedies in response. But two constitutional wrongs do not make a right.
Id. at 735. Ultimately, the court was unpersuaded that
Based on the lack of clear answer in the language, structure, and history of the Administrative Procedure Act and the absence of clear precedent, the Court is not prepared to extend the remedy as far as Plaintiffs request. They may well be correct that the Act and Article III permit or even require such a result. If so, reaching that
conclusion will require greater analysis of the judicial power under Article III, which the parties have not fully developed. That task also more properly falls to the Sixth Circuit or the Supreme Court. See 28 U.S.C. § 2112(a)(3) (creating a procedure to consolidate multiple petitions for review in appellate courts, suggesting a broader remedial scope for circuits and implying a more limited role for district courts). And given the state of the law, one can only hope that Congress and the Supreme Court will provide some much-needed clarity and guidance.
Conversely, the district court in CIC Services, LLC v. IRS, ---- F.Supp.3d ----, 2022 WL 985619 (E.D. Tenn. March 21, 2022) granted plaintiff‘s request to vacate an IRS Notice “in its entirety” under
CIC then requested that the district court (among other things) (1) enter a judgment declaring the Notice unlawful and setting it aside; and (2) enjoin all agencies from enforcing the Notice. Id. at *7. The IRS argued that the court need not set aside the Notice and, instead, should remand the rule to the IRS and leave in place the rule pending promulgation of a new or amended rule. Id. Alternatively, the IRS argued that the court should limit vacatur of the Notice to CIC and should not grant any of CIC‘s requested injunctive relief. Id.
Again, the district court agreed with CIC, finding that the Notice must be set aside in its entirety. The district court explained as follows:
The text of the APA provides that the reviewing court “shall ... hold unlawful and set aside agency action, findings, and conclusions found to be ... arbitrary, capricious,
and abuse of discretion, or otherwise not in accordance with law” or “without observance of procedure required by law.” 5 U.S.C. § 706(2)(A) ,(D) (emphasis added). Consistent with the text of the APA, in Mann Construction, the Sixth Circuit expressly stated that, “[b]ecause the IRS‘s process for issuing Notice 2007-83 did not satisfy the notice-and-comment procedures for promulgating legislative rules under the APA, we must set it aside.” 27 F.4th at 1143 (emphasis added). The United States Court of Appeals for the District of Columbia, however, has held that “[a]n inadequately supported rule, however, need not necessarily be vacated,” and “the decision to vacate depends on the seriousness of the order‘s deficiencies ... and the disruptive consequences of an interim change that may itself be changed.” Allied-Signal, Inc. v. U.S. Nuclear Regul. Comm‘n., 988 F.2d 146, 150 (D.C. Cir. 1993).In this case, vacating the Notice in its entirety is appropriate. The IRS did not comply with notice-and-comment procedures, and it acted arbitrarily and capriciously. While it may be able to rectify these deficiencies if it pursues promulgating a new rule, nothing about its actions supports leaving the Notice in place while it takes the actions necessary to comply with the APA or vacating the Notice as to CIC only, especially given the Sixth Circuit‘s prior observations that the IRS “does not have a great history of complying with APA procedures,” CIC Servs., LLC v. I.R.S., 925 F.3d 247, 258 (6th Cir. 2019), and that it does not follow the basic rules of administrative law, CIC Servs., LLC v. I.R.S, 936 F.3d 501, 507 (6th Cir. 2019).
Id. at *7 (emphasis in original) (footnotes omitted).
It is not clear to this Court whether the Sixth Circuit would agree with the Third, Ninth, and D.C. Circuits that universal vacatur is authorized under
Vacatur is an equitable remedy and the decision whether to grant vacatur is entrusted to the district court‘s discretion. See Black Warrior Riverkeeper, Inc. v. U.S. Army Corps of Eng‘rs, 781 F.3d 1271, 1290 (11th Cir. 2015) (finding that “[u]ndeniably, vacatur is ‘equitable relief‘” and “[t]he decision whether to vacate agency action falls within our broad equitable discretion“). Further, “the federal courts possess broad discretion to fashion an equitable remedy.” Id. at 1290. See also East Bay Sanctuary Covenant v. Biden, 993 F.3d 640, 680 (9th Cir. 2021) (noting that district courts have “considerable discretion” in crafting suitable equitable relief.); Kiakombua, 498 F.Supp.3d at 50 (“It is blackletter law that vacatur is a form of equitable relief that the Court may award, withhold, and craft to fit the circumstances of the case before it.“) (quoting Sierra Forest Legacy v. Sherman, 951 F. Supp. 2d 1100, 1106 (E.D. Cal. 2013)). A court‘s equitable discretion is necessarily limited by what a court “deem[s] necessary and appropriate” in a particular case. Ackerman Bros v. U.S. Department of Agriculture, 2021 WL 6133910 at * 3 (E.D. Mich. Dec. 29, 2021) (quoting Carter-Jones Lumber Co. v. Dixie Distrib. Co., 166 F.3d 840, 846 (6th Cir. 1999)).
Thus, while the Court agrees with the parties that Notice 2017-10 is unlawful under Mann Construction, supra and should be “set aside” under
County, Illinois decision is not binding on this Court. Moreover, the Court does not agree that the language of § 706(2) mandates that unlawful agency action be set aside in whole. As discussed above, § 706(2) does not explicitly state as to whom a federal court should set aside unlawful agency action; rather the statute is silent as to this crucial question. Moreover, even the D.C. Circuit (upon whose decisions GBX heavily relies) has recognized that unlawful agency action “need not necessarily be vacated” under § 706(2). Allied Signal, Inc. v. NRC, 988 F.2d 146, 150 (D.C. Cir. 1993). See also Humane Society of the United States v. Zinke, 865 F.3d 585, 614 (D.C. Cir. 2017).
Although the Sixth Circuit found in Mann Construction, supra that an analogous IRS Notice is invalid because the IRS failed to satisfy the notice-and-comment procedures under the APA, Defendants strongly contest this ruling and plan to dispute it in other jurisdictions. (Doc. No. 18-1 at pp. 18-19.) Indeed, the United States is currently defending a case in the Northern District of Alabama in which the plaintiff argues that Notice 2017-10 (the very Notice at issue herein) is unlawful based, in part, on Mann Construction. See Green Rock LLC v. IRS, Case No. 2:21cv1320 (N.D. Ala.) (Doc. No. 22). In that case, the United States has filed a dispositive motion, asserting that Mann Construction was wrongly decided and should not be controlling outside the Sixth Circuit. (Id. at Doc. No. 31.) This Court agrees with Defendants that, if this Court were to issue an Order setting aside Notice 2017-10 in whole, such an Order could potentially hamper the ability of other federal courts across the country (including the Northern District of Alabama) to reach these important issues.13
As courts have noted, “there is a value in having legal issues ‘percolate’ in the lower courts.” Gun Owners of America, Inc. v. Garland, 992 F.3d 446, 474 (6th Cir. 2021), vacated on other grounds, 19 F.4th 890 (6th Cir. 2021) (en banc). See also Georgia v. President of the United States, 46 F.4th 1283, 1304 (11th Cir. 2022) (“By design, the federal court system allows courts to reach
Ordering universal relief in the instant action (whether it be “vacatur in whole” or a nationwide injunction)14 would inhibit the ability of other federal courts to address the validity of Notice 2017-10 and, as a result, hamper the development of legal issues relating to that Notice “in different factual contexts and in multiple decisions” by various district courts and circuit courts of appeals. The Court declines to take this path and finds that continued litigation over the lawfulness of the IRS Notice at issue promotes respect for our fellow federal courts and the healthy development of the law. See, e.g., New York v. United States Department of Homeland Security, 969 F.3d 42, 88 (2nd Cir. 2020) (“The issuance of unqualified nationwide injunctions is a less desirable practice
GBX argues, however, that setting aside Notice 2017-10 as to GBX only is “unworkable” because, as a material advisor, GBX is required to file a Form 8918 with the IRS and obtain a reportable transaction number, which GBX is then allegedly required to provide to “all taxpayers and other material advisors” involved in its transactions. (Doc. No. 17-1 at pp. 3, 12.) GBX asserts that, if it is no longer required to request or receive reportable transaction numbers, each of these other participants in GBX transactions would be without the necessary information to comply with Notice 2017-10 and would be subject to civil penalties. (Id.) Thus, “[w]hile an order setting aside Notice 2017-10 as to GBX would technically relieve GBX of its own filing obligation, that technical relief would be meaningless because GBX would still need to comply in order to provide the reportable transaction number to the investors and other advisors.” (Id.)
Defendants assert that GBX‘s argument “is false,” explaining as follows:
To the extent GBX already filed Form 8918 with respect to certain transactions, it has received reportable transaction numbers for those transactions and can provide them to participants and other material advisors (if not done already). Regardless, the requirement for GBX to provide the number arises in
26 C.F.R. § 301.6111-3(d)(2) , which says the IRS will issue to the material advisor a number, and the material advisor must provide the number to all taxpayers and other material advisors for whom the material advisor (here, GBX) acts as a material advisor. However, the IRS will not issue GBX a number if GBX does not file a Form 8918, and there would thus be no reportable transaction number to provide. With respect to participants,§ 1.6011-4(d) states, “[i]f a taxpayer receives one or more reportable transaction numbers for a reportable transaction, the taxpayer must include the reportable transaction number(s) on the Form 8886 (or a successor form).” By its terms, then, the requirement only
(Doc. No. 18-1 at pp. 10-11) (footnote omitted).
Although GBX subsequently filed a Reply Brief, it did not address Defendants’ response on this issue. (Doc. No. 19.) The Court therefore finds that GBX abandoned this argument. Thus, and in the absence of any meaningful response, the Court rejects GBX‘s assertion that vacating Notice 2017-10 as to GBX only is “unworkable” due to the regulatory requirements relating to the provision of reportable transaction numbers.
In sum, GBX has not provided any compelling reason why universal vacatur is necessary to afford it complete relief. While GBX suggested during a status conference with this Court that universal vacatur is necessary because participants in GBX-promoted transactions are located outside the Sixth Circuit (and, thus, not provided a safe harbor by Mann Construction), GBX failed to raise this argument in its summary judgment briefing. Nor has GBX otherwise directed this Court‘s attention to any evidence regarding the identity and/or geographical location of participants in its transactions from which this Court could potentially reach this conclusion. Thus, GBX has failed to show that setting aside Notice 2017-10 in whole (and as to non-parties outside either this District or the Sixth Circuit) is necessary to afford it complete relief or is otherwise appropriate under the circumstances.
IV. Conclusion
For the foregoing reasons, Plaintiff‘s Motion for Summary Judgment (Doc. No. 17) is DENIED. Defendants’ Motion for Summary Judgment (Doc. No. 18) is GRANTED, as set forth herein. The Court declares that Notice 2017-10 is unlawful and hereby sets that Notice aside as to Plaintiff GBX Associates, LLC only.
IT IS SO ORDERED.
Date: November 14, 2022
s/Pamela A. Barker
PAMELA A. BARKER
U. S. DISTRICT JUDGE