TERRI L. STEFFEN, PAUL A. BILZERIAN, Plaintiffs-Appellants v. UNITED STATES, Defendant-Appellee
2020-1562
United States Court of Appeals for the Federal Circuit
May 3, 2021
Appeal from the United States Court of Federal Claims in No. 1:12-cv-00063-PEC, Judge Patricia E. Campbell-Smith.
TERRI L. STEFFEN, PAUL BILZERIAN, Basseterre, Saint Kitts and Nevis, pro se.
JANET A. BRADLEY, Tax Division, United States Department of Justice, Washington, DC, for defendant-appellee. Also represented by JOAN I. OPPENHEIMER, RICHARD E. ZUCKERMAN.
Before NEWMAN, DYK, and REYNA, Circuit Judges.
Opinion for the court filed by Circuit Judge REYNA.
Dissenting opinion filed by Circuit Judge NEWMAN.
This appeal is the latest in a protracted litigation spanning more than three decades in the federal courts. Pro se appellants Terri L. Steffen and Paul A. Bilzerian are a married couple seeking an $8.2 million tax refund pursuant to
BACKGROUND
On September 29, 1989, Mr. Bilzerian was convicted on nine counts of securities fraud, making false statements to the Securities and Exchange Commission (SEC), and conspiracy to commit certain offenses and defraud the SEC and the Internal Revenue Service (IRS). United States v. Bilzerian, 926 F.2d 1285, 1289 (2d Cir. 1991). The United States District Court for the Southern District of New York entered a judgment of conviction, sentenced Mr. Bilzerian to four years in prison, and imposed a $1.5 million fine. Id. The court further ordered Mr. Bilzerian to disgorge $62,337,599.53. Sec. & Exch. Comm’n v. Bilzerian, 112 F. Supp. 2d 12, 14 (D.D.C. 2000), aff’d, 75 F. App’x 3 (D.C. Cir. 2003).
On January 31, 2012, Mrs. Steffen filed a pro se complaint in the Court of Federal Claims seeking an $8,243,145 tax refund pursuant to
On September 19, 2018, the government filed a motion to dismiss with prejudice the appellants’ second amended complaint for failure to state a claim upon which relief can be granted. S.A. 65. The Court of Federal Claims granted the motion on July 24, 2019, issued its order pursuant to
DISCUSSION
We review de novo a dismissal for failure to state a claim upon which relief can be granted by the Court of Federal Claims. Welty v. United States, 926 F.3d 1319, 1323 (Fed. Cir. 2019) (citing Boyle v. United States, 200 F.3d 1369, 1372 (Fed. Cir. 2000)). In a denial of a motion to amend a complaint, we review the findings of the Court of Federal Claims for an abuse of discretion. Intrepid v. Pollock, 907 F.2d 1125, 1129 (Fed. Cir. 1990).
The Court of Federal Claims may properly grant a motion to dismiss under
The appellants’ complaint fails to establish a reasonable belief of having an unrestricted right to the disputed funds when the money was first reported as income. The funds in dispute originated from Mr. Bilzerian’s securities fraud, for which he was convicted in a court of law. This court has held that a reasonable, unrestricted-right belief cannot exist where a taxpayer knowingly acquires the disputed funds via fraud. Culley, 222 F.3d at 1335 (citation omitted). The “taxpayer’s illicit hope that his intentional wrongdoing will go undetected cannot create the appearance of an unrestricted right.” Id. at 1336. This principle applies with equal force here and forecloses the appellants’ unrestricted-right claim to recover the funds as a matter of law.
Because the appellants cannot, as a matter of law, have a reasonable, unrestricted-right belief, they cannot plead a claim under
amend their complaint would be futile. See Kemin Foods, L.C. v. Pigmentos Vegetales del Centro S.A. de C.V., 464 F.3d 1339, 1353 (Fed. Cir. 2006) (noting that leave to amend may be denied when “the amendment would be futile”).
The second
The appellants argue that their failure to state a claim under
Based on the foregoing, we hold that the Court of Federal Claims properly dismissed the case because the appellants (1) did not have an unrestricted right to funds acquired by fraud as a matter of law, foreclosing their ability to plead a claim under
The dissent claims that the Court of Federal Claims dismissed the suit for failure to “cite” applicable tax-code sections. Dissent Op. at 2. This is not accurate. The Court of Federal Claims explained that the appellants were aware of the
The dissent also contends that the Court of Federal Claims dismissed the action “without notice and without opportunity to amend the complaint.” Dissent Op. at 1–2, 3. This is also incorrect. The government undisputably moved to dismiss on the ground that the appellants cannot establish a reasonable belief of an unrestricted right to the funds. S.A. 82–91. We also note that the
The extensive litigation history of this case reveals a clear pattern: The appellants have, for decades, litigated to no avail the same tax-refund claims. The appellants’ involvement in other cases demonstrates they were aware of the
to the facts above, the appellants
We have considered the appellants’ remaining arguments and find them unavailing. We discern no basis to conclude that, under the facts of this case, the Court of Federal Claims abused its discretion in dismissing the appellants’ complaint.
CONCLUSION
For the reasons set forth in this opinion, we affirm the decision of the Court of Federal Claims granting the government’s motion to dismiss and denying leave to amend the complaint.
AFFIRMED
COSTS
Costs for the appellee.
TERRI L. STEFFEN, PAUL A. BILZERIAN, Plaintiffs-Appellants v. UNITED STATES, Defendant-Appellee
2020-1562
United States Court of Appeals for the Federal Circuit
NEWMAN, Circuit Judge, dissenting.
The Court of Federal Claims dismissed this tax refund appeal on the pleadings and with prejudice, on the ground of absence of jurisdiction or failure to state a claim.1 The dismissal was without prior notice to the plaintiffs of any defect in their complaint, and without opportunity to cure
the defect, which was the omission from the complaint of the numbers of the applicable sections of the Tax Code.
In its dismissal, the Court of Federal Claims did not discuss the merits of this tax refund claim; this appeal to the Federal Circuit is solely on the question of the dismissal with prejudice, without notice and without opportunity to amend the complaint. Thus in their briefs neither the appellant nor the government discussed the merits of the tax refund claim.
Nonetheless, my colleagues now decide the tax refund claim, and on this basis they rule that the Court of Federal Claims was correct in dismissing the complaint for lack of jurisdiction. My colleagues ignore that the facts are not presented and the law is not argued. There has been no decision by the Court of Federal Claims. Thus the courts deny these taxpayers their right to judicial review of the IRS decision; on a ground so shaky that the government never raised it in the Court of Federal Claims, although the government filed three motions to dismiss. This is not full and fair judicial process.
The only question before us is the dismissal with prejudice because the complaint did not cite the sections of the Tax Code, and refusal of the proffered amended complaint. The government does not now support the reasoning of the Court of Federal Claims, and devotes most of its
The panel majority decides the tax refund claim without briefing, without a record, without argument, without trial and without decision. These plaintiffs are thus evicted from the protection of the laws, for their claim has never had judicial review. As Justice John Marshall observed:
The very essence of civil liberty certainly consists in the right of every individual to claim the protection of the laws, whenever he receives an injury. One of the first duties of government is to afford that protection.
Marbury v. Madison, 5 U.S. 137, 163 (1803). The principle of protection by judicial review is the foundation of a nation ruled by law. Chambers v. Balt. & Ohio R.R. Co., 207 U.S. 142, 148 (1907) (“The right to sue and defend in the courts” is “[i]n an organized society . . . the right conservative of all other rights, and lies at the foundation of orderly government.” This right “is one of the highest and most essential privileges of citizenship”).
These plaintiffs are now deprived of this constitutional right, without notice and without sound reason. I respectfully dissent.
A
The Court of Federal Claims, after seven years of litigation activity on this case, preceded by a decade of litigation in IRS tribunals, dismissed the complaint with prejudice and without notice, stating that: “Absent an allegation of the source of the deduction plaintiffs seek, the court cannot provide a legal remedy. As such, the court must dismiss the complaint for failure to state a claim upon which relief can be granted.” Dismissal Order at 5. The court refused to permit amendment of the complaint, although the IRS record is replete with citations to the applicable Tax Code provisions.
Plaintiffs state, without contradiction, that this asserted flaw was mentioned for the first time in the issued Dismissal Order. The plaintiffs filed a request for reconsideration accompanied by a request to file an amended complaint, and were denied.
The Court of Federal Claims not only departed from the rules governing the content of a complaint, but also departed from routine procedures for amendment of a flawed complaint. Precedent is uniformly against denial of remedial amendment; indeed, when “it appears plainly from [the] record that jurisdiction exists, it best serves the interest of justice to grant the motion for leave to amend without requiring a perfunctory remand for that purpose.” Carlton v. Baww, Inc., 751 F.2d 781, 789 (5th Cir. 1985).
B
The Court of Federal Claims did not review the merits of the tax refund claim, but simply dismissed the complaint for “fail[ure] to meet . . . the pleading standards,” Recon. Dec. at 146. My colleagues now state that “the appellants [] did not have an unrestricted right to funds acquired by fraud,” Maj. Op. at 7. However, the Court of Federal Claims’ dismissal was based solely on the “threshold issue” of the plaintiffs’ failure to identify the applicable sections of the Tax Code. Dismissal Order at 4.
The merits are not presented for our appellate review. There is no exposition and argument of the grounds on which my colleagues purport to rely, and my colleagues’ recitation of facts and theories has no record citations, and no opportunity for response. See Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950) (“An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.”).
Complex issues warrant full briefing and due consideration in the trial court. See Ferreiro v. United States, 350 F.3d 1318, 1327 (Fed. Cir. 2003) (remanding the government’s jurisdictional arguments because “[t]he Court of Federal Claims did not rule on those grounds and we decline to rule on them in the first instance on appeal”); Centrak, Inc. v. Sonitor Techs., Inc., 915 F.3d 1360, 1369 (Fed. Cir. 2019) (declining to consider enablement in the first instance on appeal); Valeant Pharm. N. Am. LLC v. Mylan Pharm. Inc., 978 F.3d 1374, 1384–85 (Fed. Cir. 2020) (remanding to the district court to consider additional
C
The complaint herein was not incurably defective. A complaint must state a plausible claim for relief, but “does not require the plaintiff to set out in detail the facts upon which the claim is based, but enough facts to state a claim to relief that is plausible on its face.” Cary v. United States, 552 F.3d 1373, 1376 (Fed. Cir. 2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
Dismissal of a complaint under
Notice and an opportunity to remedy a defective complaint is the general rule. Perez v. Ortiz, 849 F.2d 793, 797 (2d Cir. 1988) (“[T]he general rule is that a district court has no authority to dismiss a complaint for failure to state a claim upon which relief can be granted without giving the plaintiff an opportunity to be heard.”) (internal quotation marks and citations omitted). In the absence of any reason to deny leave to amend the complaint, “[t]he court should freely give leave when justice so requires.”
If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits. In the absence of any apparent or declared reason . . . the leave sought should, as the rules require, be ‘freely given.’ Of course, the grant or denial of an opportunity to amend is within the discretion of the District Court, but outright refusal to grant the leave without any justifying reason appearing for the denial is not an exercise of discretion; it is merely abuse of that discretion and inconsistent with the spirit of the Federal Rules.
Id. at 182. The Court of Federal Claims departs from its own precedent. See AAA Pharmacy, Inc. v. United States, 108 Fed. Cl. 321, 329 n.9 (2012) (“[I]n general, sua sponte
Despite this solid practice, the Court of Federal Claims and now the Federal Circuit deny these fundamentals of fair process, and my colleagues dispose of the merits without presentation of the merits.
D
The Court of Federal Claims stated that it was not permitting an amended complaint “[b]ecause plaintiffs were aware of the relevant standard, have had multiple opportunities to revise their complaint, and failed to address the deficiency in response to defendant’s motion to dismiss, the court will not permit further amendments in this case.” Dismissal Order at 5; see also Recon. Dec. at 146. However, there was no motion to dismiss on this ground. The plaintiffs had no notice that the court deemed the complaint deficient, and this purported deficiency was never raised by the government. To the contrary: jurisdiction was accepted over seven years of litigation activity after the complaint was filed.
The government on this appeal does not defend the refusal to permit amendment of the complaint. Instead, the government points to the past offenses of the plaintiffs, for which they received civil and criminal penalties. Persons who have committed offenses are not thereby excluded from access to judicial review of other issues. See Bounds v. Smith, 430 U.S. 817, 821 (1977) (“It is now established beyond doubt that prisoners have a constitutional right of access to the courts.”); Lewis v. Casey, 518 U.S. 343, 350 (1996) (“The right that Bounds acknowledged was the (already well-established) right of access to the courts.”).
The right of reasonable access to the courts is “secured by the Constitution and laws of the United States.” Johnson v. Avery, 393 U.S. 483, 498 n.24 (1969) (Douglas, J., concurring). A complaint should be dismissed for failure to state a claim only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations. Anaheim Gardens v. United States, 444 F.3d 1309, 1314–15 (Fed. Cir. 2006) (citing Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)). “The factual allegations must be enough to raise a right to relief above the speculative level.” Cary, 552 F.3d at 1376. This requires “enough facts to state a claim to relief that is plausible on its face.” Id.; Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183, 188 (1984) (a well-pleaded complaint may proceed even if it appears “that a recovery is very remote and unlikely”). The dismissal of the complaint with prejudice and denial of opportunity to amend were a clear abuse of discretion.
These plaintiffs are entitled to review of the merits of their tax refund claim. From my colleagues’ contrary ruling, I respectfully dissent.
Notes
- an item was included in gross income for a prior taxable year (or years) because it appeared that the taxpayer had an unrestricted right to such item;
- a deduction is allowable for the taxable year because it was established after the close of such prior taxable year (or years) that the taxpayer did not have an unrestricted right to such item or to a portion of such item; and
- the amount of such deduction exceeds $3,000.