Adam STEELE, et al., Plaintiffs, v. UNITED STATES of America, Defendant.
Civil Case No. 14-1523 (RCL)
United States District Court, District of Columbia.
Signed February 9, 2016
200 F. Supp. 3d 73
Royce C. Lamberth, United States District Judge
ommendation. The written objections must specifically identify the portion of the report and/or recommendation to which objection is made, and the basis for such objections. The parties are further advised that failure to file timely objections to the findings and recommendations set forth in this report may waive their right of appeal from an order of the District Court that adopts such findings and recommendation. See Thomas v. Arn, 474 U.S. 140, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985).
Date: November 30, 2015
/s/
ALAN KAY
UNITED STATES MAGISTRATE JUDGE
Christopher James Williamson, Vassiliki Eliza Economides, U.S. Department of Justice, Washington, DC, for Defendant.
MEMORANDUM OPINION
Royce C. Lamberth, United States District Judge
Currently before the Court is the plaintiffs’ Motion for Class Certification [46]. Upon consideration of the motion, plaintiffs’ opposition, defendant‘s reply, the entire record herein, and the applicable law, the Court finds that plaintiffs have satisfied the requirements of Federal Rule of Civil Procedure (FRCP) 23 as it relates to plaintiffs’ request for declaratory relief. The Court will certify the proposed class under
However, plaintiffs have not yet demonstrated that the Court has subject matter jurisdiction over plaintiffs’ request for restitution. The Court will therefore deny plaintiffs’ motion for certification as it relates to that aspect of plaintiffs’ claims. This ruling is subject to reconsideration, if needed, after the parties more fully brief issues relating to jurisdiction, with specific attention paid to the doctrine of sovereign immunity. The Court will therefore GRANT IN PART and DENY IN PART plaintiffs’ Motion to for Class Certification.
I. BACKGROUND
This lawsuit arises out of the Department of the Treasury and Internal Revenue Service‘s (IRS‘s) requirement that compensated tax return preparers both obtain and pay for a preparer tax identification number (PTIN). The regulation became effective on September 30, 2010 and specifically requires that “all tax return
Importantly, the IRS coupled its recent requirement for a PTIN with attempts to more comprehensively regulate tax return preparers. Although many of these broader regulations were recently invalidated in Loving v. IRS, 742 F.3d 1013 (D.C.Cir. 2014), the IRS continues to require tax return preparers to obtain and pay for a PTIN. As described in more detail below, the IRS points to different statutory authority, independent from the statute at issue in Loving, to justify the imposition of a PTIN fee. Specifically, the government relies on
In the current lawsuit, plaintiffs challenge the IRS‘s PTIN fee, arguing first that because the PTIN does not represent or confer a “service or thing of value,” the IRS is not permitted to impose any fee at all for the identifying number. Am. Compl. ¶¶ 39-45. In the alternative, plaintiffs argue that even if the IRS is authorized to impose a fee for a PTIN, the amount the IRS charges is excessive and therefore impermissible at its current level. Id. at ¶¶ 46-50. In terms of relief, plaintiffs seek a judgment declaring either that the IRS lacks the authority to charge a fee for a PTIN or that the fee it charges is excessive. Id. at 15. Additionally, plaintiffs seek restitution or return of the PTIN fees collected by the IRS, or alternatively, simply those fees collected that exceed the amount authorized by law. Id.
For reasons to be discussed, plaintiffs argue that the two, alternative grounds they use to challenge the fees make this case “ideally suited for class treatment.” Pls.’ Mot. for Class Certification 1, ECF No. 46. The three named plaintiffs, Adam Steele, Brittany Montrois, and Joseph Henchman, have asked the court to certify under FRCP 23 the following class: “All individuals and entities who have paid an initial and/or renewal fee for a PTIN, ex-cluding
1. Statutory Framework
The IRS argues that two sets of statutory provisions work in combination to permit the agency to issue regulations requiring compensated tax return preparers to obtain and pay for a PTIN. First,
2. History of the PTIN and Other Recent Efforts to Regulate Tax Return Preparers
Although the IRS has used SSNs to track tax return preparers for decades, in 2010 and 2011 the agency issued a series of regulations designed to more broadly and comprehensively regulate the tax return preparation industry. Regulation of the industry began in the late 1970s when Congress enacted legislation to authorize the Treasury to require tax return preparers to provide their SSN on each return they prepared. Am. Compl. ¶ 9 (citing
After this period of relative regulatory stability, in 2010 the IRS issued new regulations concerning tax return preparation and specifically the role of PTINs. First, the agency began to require that tax return preparers use PTINs; providing one‘s SSN as an alternative was no longer an option. Second, and importantly, the IRS began to charge a fee for the PTINs’ issuance, $64.25 for the initial registration fee and $63 for each renewal. Id. at 1; see
In addition, as the IRS began to mandate the use of and payment for PTINs, the agency also issued separate regulations targeted at “non-credentialed tax return preparers (i.e., preparers other than attorneys, CPAs, and [other certified tax specialists]).” Id. at ¶ 18. Breaking with its previous policies, the IRS required non-credentialed tax return preparers to pass a competency examination, pay an annual fee, and take fifteen hours of continuing education courses each year. See Loving v. IRS, 917 F.Supp.2d 67, 69 (D.D.C.2013). In doing so, the IRS relied on a different statute,
Responding to a legal challenge brought by non-credentialed tax return preparers, the D.C. Circuit invalidated these regulations in 2014 in Loving v. IRS, 742 F.3d 1013 (D.C.Cir.2014). The Circuit found that
Although the D.C. Circuit invalidated the IRS‘s more wide-ranging attempts to regulate non-credentialed tax return preparers, the regulations requiring that all compensated tax return preparers—credentialed and non-credentialed alike—obtain and pay for a PTIN are still in effect. As stated, these regulations, which form the basis of the present lawsuit, are promulgated under
II. LEGAL ANALYSIS
Finding that plaintiffs have satisfied the requirements of FRCP 23, the Court will grant plaintiffs’ motion as it relates to declaratory relief and certify the proposed class under
A. Standard for Class Certification
As the party moving for class certification, plaintiffs bear the burden of establishing that the requirements set forth in FRCP 23 have been satisfied. See, e.g., Amchem Prods. Inc. v. Windsor, 521 U.S. 591, 614, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997); Disability Rights Council of Greater Wash. v. Wash. Metro. Area Transit. Auth., 239 F.R.D. 9, 24 (D.D.C.2006) (citing Amchem Prods. to declare plaintiffs bear the burden of establishing FRCP 23‘s requirements have been satisfied). First, plaintiffs must show that they satisfy all four prerequisites of
In addition to the requirements of
In evaluating FRCP 23‘s procedural standard, “it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question.” In re Rail Freight Fuel Surcharge Antitrust Litig., 725 F.3d 244, 249 (D.C.Cir.2013) (citing Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982)). At the same time, however, “the Supreme Court has
B. Issues Currently in Dispute
The Court finds and defendant specifically and expressly does not dispute that plaintiffs have established that FRCP 23(a)‘s requirements for numerosity, commonality, typicality, and adequacy are satisfied. See United States’ Opp‘n to Pls.’ Mot. for Class Certification 11. With respect to numerosity, the plaintiffs estimate that the class contains between 700,000 and 1.2 million members, Am. Compl. ¶ 32, an amount which clearly makes “joinder of all members ... impracticable.”
Although the parties agree that FRCP 23(a)‘s requirements are met, the government argues that the requirements of FRCP 23(b) remain unsatisfied, for subsections 23(b)(1), (2), and (3). The Court will now address and reject these arguments. Because the Court is unconvinced it has subject matter jurisdiction over the restitution portion of this matter, see section II.B.2, it will discuss plaintiffs’ request for declaratory relief separately from their request for restitution.
1. The Portion of This Matter Relating to Declaratory Relief
The Court finds that plaintiffs have fulfilled the requirements of
As discussed,
In this case, plaintiffs have satisfied both elements with respect to their request for declaratory relief. Although the United States argues that the first element7 of
But these arguments misunderstand the ways in which the Supreme Court and D.C. Circuit have interpreted
In conducting this analysis, the Court has determined classwide resolution is appropriate for the declaratory relief plaintiffs seek because “the measure of fees [imposed under
In further elaborating on this cost-centered standard, the D.C. Circuit has expressly ruled that the fee base cannot “go so far as to include values created by licensees out of their grants.” Nat‘l Ass‘n of Broadcasters v. FCC, 554 F.2d 1118, 1129 n. 28 (D.C.Cir.1976). Very clearly, “when the costs of the benefit conferred is exceeded by any material amount, one immediately gets into the taxing area and the result is [an impermissible] revenue and not a fee.” Id. Importantly, the Circuit “recognize[s] the extent to which [its] opinion[s narrowly] interpret ‘value to the recipient’ ... but consider[s] that this strictly followed the two controlling decisions of the Supreme Court.” Id. (referring to National Cable Television Ass‘n v. United States, 415 U.S. 352, 94 S.Ct. 1155, 39 L.Ed.2d 370 (1974) and Federal Power Commission v. New England Power Co., 415 U.S. 345, 94 S.Ct. 1151, 39 L.Ed.2d 383 (1974)).
A set of Supreme Court and D.C. Circuit cases relating to the Federal Communications Commission‘s requirement that cable providers pay licensing fees helps to illustrate this standard. Essentially, under the terms of
[T]he [FCC has] no authority to charge for general activities which independently benefit the public at large, but allows “only specific charges for specific services to specific individuals or companies.” Thus, the FCC is required to show the particular costs which they are assessing against the recipients [of cable licenses] so as to assure them they are paying only for the specific expenses which are incurred in connection with the service of granting them their operating authority.
Nat‘l Cable Television Ass‘n v. FCC, 554 F.2d 1094, 1104-05 (D.C.Cir.1976) (quoting National Cable Television Ass‘n v. United States, 415 U.S. 352, 94 S.Ct. 1155, 39 L.Ed.2d 370 (1974)); see also id. at 1104 (“[T]he agency must be more explicit in stating the cost basis for its individual fees. In order for a reviewing court to determine that a fee has indeed been measured by the ‘value to the recipient,’ the [federal agency] must make a public statement of the specific expenses which are included in the cost basis for that fee.“).
The same is true in the present matter as it relates to the IRS and its PTIN fee. According to
Contrary to its previous emphasis on costs, however, the government now argues that certification is inappropriate because the ability to prepare tax returns for compensation provides a different, more substantial benefit to uncertified tax return preparers than it does to lawyers, CPAs, and other certified tax professionals. See United States’ Opp‘n to Pls.’ Mot. for Class Certification 17-21. This argument however misconstrues the prevailing (and binding) interpretation of
Because the IRS imposes the same fee for each PTIN application and the IRS has stated the cost of processing PTIN applications does not vary, it is clear that the IRS has “acted on grounds that apply generally to the class.”
Like their first claim, the plaintiffs’ alternative claim, that the fee is excessive and thus impermissible at its current level, also applies generally to all class members. The only way it could not is if the IRS staggered its fees or if the cost of issuing PTINs varied. Under either scenario, it would be possible that the IRS has overcharged some though not all PTIN recipi-
ents,
In sum, defendant‘s primary argument against certification under 23(b)(2) is that “plaintiffs’ claims impermissibly compromise the rights of absent [certified tax specialists], CPAs, and attorneys, because those class members are limited to challenges only available to unlicensed return preparers.” United States’ Opp‘n to Pls.’ Mot for Class Certification 17. This concern, however, is illusory in light of
Although the Court today will certify plaintiffs’ proposed class, certifications are “inherently tentative” and may be modified “in light of subsequent developments in the case.” Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982); see also Lightfoot v. District of Columbia, 273 F.R.D. 314, 322 (D.D.C.2011) (citing this language in Falcon). If the government were to later offer evidence that costs do in fact vary across the class (or present other legal authority or evidence important in the analysis), it may be appropriate to revisit the issue of certification. For now, however, the Court is satisfied the plaintiffs have met the requirements of
2. The Portion of This Matter Relating to Plaintiffs’ Request for Restitution
The Court will deny plaintiffs’ motion to certify the proposed class as to their request for restitution because plaintiffs have not yet demonstrated that the Court holds subject matter jurisdiction over that aspect of the case. In its answer, the United States has raised sovereign immunity as an affirmative defense to plaintiffs’ claim for restitution—a defense that, if successful, would bear jurisdictional significance. As of now, plaintiffs have made no showing that the Court has jurisdiction over plaintiffs’ request for restitution, and because subject matter jurisdiction is a prerequisite for class certification, the Court is presently unable to consider class certification for that portion of the case. This ruling is subject to reconsideration, if needed, after the parties more fully brief the issue of subject matter jurisdiction in their dispositive motions, responses, and replies.
A court may not certify a class action where it lacks jurisdiction over the claims of putative class members. See, e.g., Steel Co. v. Citizens for a Better Env‘t, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (“Without jurisdiction the court cannot proceed at all in any case.“) (quoting Ex parte McCardle, 7 Wall. 506, 514, 74 U.S. 506, 19 L.Ed. 264 (1868)); Amchem Prods. Inc. v. Windsor, 521 U.S. 591, 613, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997)
Further, just as subject matter jurisdiction is a prerequisite for class certification, the government‘s waiver of sovereign immunity is a necessary condition for jurisdiction when suit is brought against the United States. Indeed, “[i]t is axiomatic that the United States may not be sued without its consent and that the existence of consent is a prerequisite for jurisdiction.” Webman v. Fed. Bureau of Prisons, 441 F.3d 1022, 1025 (D.C.Cir.2006) (quoting United States v. Mitchell, 463 U.S. 206, 212, 103 S.Ct. 2961, 77 L.Ed.2d 580 (1983)); see also United States v. Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 63 L.Ed.2d 607 (1980) (“It is elementary that ‘[t]he United States, as sovereign, is immune from suit save as it consents to be sued ... and the terms of its consent to be sued in any court define that court‘s jurisdiction to entertain the suit.‘“) (quoting United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 85 L.Ed. 1058 (1941)). Additionally, waiver must be explicit, as courts are directed to “strictly construe[ ] any waiver of sovereign immunity, ‘in terms of its scope, in favor of the sovereign.‘” Webman, 441 F.3d at 1025 (quoting Lane v. Pena, 518 U.S. 187, 192, 116 S.Ct. 2092, 135 L.Ed.2d 486 (1996)); see also Lane, 518 U.S. at 192, 116 S.Ct. 2092 (“To sustain a claim that the Government is liable for awards of monetary damages, the waiver of sovereign immunity must extend unambiguously to such monetary claims.“).
In this case, plaintiffs have yet to meet their burden of establishing that the Court has subject matter jurisdiction over the restitution portion of this case. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994) (“[T]he burden of establishing [jurisdiction in federal court] rests upon the party asserting jurisdiction.“); see also Acosta-Ramirez v. Banco Popular de Puerto Rico, 712 F.3d 14, 20 (1st Cir.2013) (“The parties asserting jurisdiction, here the plaintiffs, have the burden of demonstrating the existence of federal jurisdiction.“); Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001) (“[T]he plaintiff constantly bears the burden of proof that jurisdiction does in fact exist.“); Russell J. Davis et al., 8 Cyclopedia of Federal Procedure § 26:332, Subject Matter Jurisdiction (3d ed. Nov. 2015) (“The party asserting a federal court‘s jurisdiction bears the burden of proving that such jurisdiction exists.“). Although defendant did not raise the sovereign immunity argument in its opposition to plaintiffs’ motion to certify
The first and primary statute that plaintiffs specifically invoke in their complaint is the Administrative Procedure Act (APA), which does not constitute a waiver of sovereign immunity for money damages and therefore fails to independently establish jurisdiction over the restitution piece of plaintiffs’ claims. Plaintiffs proffer that “[c]harging a fee for the issuance or renewal of a PTIN constitutes unlawful agency action under the Administrative Procedure Act.” Am. Compl. ¶ 42. The APA, however, contains only a “limited waiver of sovereign immunity.” Geronimo v. Obama, 725 F.Supp.2d 182, 186 (D.D.C.2010) (quoting Teton Historic Aviation Found. v. U.S. Dep‘t of Def., 686 F.Supp.2d 75, 78 (D.D.C.2010)). Indeed, the waiver of sovereign immunity applies only to “action[s] seeking relief other than money damages.”
Although the APA specifically does not waive sovereign immunity for money damages, it is important to note “[t]he fact that a judicial remedy may require one party to pay money to another is not a sufficient reason to characterize the relief as ‘money damages.‘” Bowen v. Massachusetts, 487 U.S. 879, 893-94, 108 S.Ct. 2722, 101 L.Ed.2d 749 (1988). The Supreme Court has elaborated on the “money damages” exception to the APA‘s waiver of sovereign immunity:
Our cases have long recognized the distinction between an action at law for damages—which are intended to provide a victim with monetary compensation for an injury to his person, property, or reputation—and an equitable action for specific relief—which may include an order providing for the reinstatement of an employee with backpay, or for “the recovery of specific property or monies, ejectment from land, or injunction either directing or restraining the defendant officer‘s actions.”
Id. at 893, 108 S.Ct. 2722 (quoting Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 688, 69 S.Ct. 1457, 93 L.Ed. 1628 (1949) (emphasis in original).
In this case, plaintiffs seek “restitution or return of all PTIN fees collected by Treasury or the IRS.” Am. Compl. 15.
In light of this authority, it appears that the Court may not have jurisdiction over the restitution piece of plaintiffs’ case. In any event, plaintiffs have so far offered no arguments or authority to satisfy their burden of establishing that the Court does in fact have the proper jurisdiction. The Court will therefore deny the portion of plaintiffs’ motion to certify a class as it concerns restitution; however, this ruling is subject to reconsideration. According to the scheduling order proposed by the parties on December 16, 2015 and entered by the Court on December 21, 2015, dispositive motions are due within 30 days of this date. Upon receipt of the briefs, if needed, the Court will reevaluate this jurisdictional issue. If the Court were to then make a finding that it does in fact have jurisdiction over the restitution aspect of plaintiffs’ claim, plaintiffs’ motion for class certification would once again become ripe and the Court would determine if class certification under FRCP 23 is appropriate for the restitution that plaintiffs seek.
To summarize, subject matter jurisdiction is a prerequisite for class certification. Additionally, waiver of sovereign immunity is a prerequisite for jurisdiction where, as here, the United States is the defendant. Because there has not been a showing that the United States has consented to the restitution portion of this lawsuit, as things presently stand, there cannot be a finding the Court has jurisdiction over that aspect of the plaintiffs’ claims. As such, plaintiffs’ motion for class certification as it concerns restitution is denied, subject to reconsideration, if necessary, after the parties more fully brief the issue of the court‘s jurisdiction.
III. CONCLUSION
Upon consideration of the motion, plaintiffs’ opposition, defendant‘s reply, the entire record herein, and the applicable law, the Court will GRANT IN PART and DENY IN PART plaintiffs’ Motion [46] to for Class Certification. The Court finds that plaintiffs have satisfied the requirement of FRCP 23 as it relates to plaintiffs’ request for declaratory relief and will certify the proposed class under
Additionally, the Court will deny plaintiffs’ motion for certification as it relates to
A separate order consistent with this Opinion shall issue on this date.
Royce C. Lamberth
United States District Judge